20170705Crane Direct.pdf

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )CASE NO.PAC-E-17-06
OF ROCKY MOUNTAIN POWER FOR )BINDING RATEMAKING TREATMENT )DIRECT TESTIMONTOF
FOR WIND REPOWERING )CINDY A.CRANE
ROCKY MOUNTAIN POWER
CASE NO.PAC-E-17-06
June 2017
l Q.Please state your name,business address,and present position.
2 A.My name is Cindy A.Crane.My business address is 1407 West North Temple,Suite
3 310,Salt Lake City,Utah 84116.I am the President and Chief Executive Officer of
4 Rocky Mountain Power ("Company"),a division of PacifiCorp.
5 Q.Briefly describe your professional experience.
6 A.I joined PacifiCorp in 1990.Since then,I have served as Director of Business Systems
7 Integration,Managing Director of Business Planning and Strategic Analysis,Vice
8 President of Strategy and Division Services,and Vice President of Interwest Mining
9 Company and Fuel Resources.My responsibilities in these positions included the
10 management and development of the Company's 10-year business plan,directing
11 operations of the Energy West Mining and Bridger Coal companies,and coal supply
12 acquisition and fuel management for the Company's coal-fired generating plants.In
13 October 2014,I was appointedto my present position as President and Chief Executive
14 Officer of Rocky Mountain Power.
15 Q.Have you testified in previous regulatory proceedings?
16 A.Yes.I have filed testimony in proceedings before public service commissions in all
17 states in which the Company serves customers,including before the Idaho Public
18 Utilities Commission ("Commission").
19 PURPOSE AND SUMMARY OF TESTIMONY
20 Q.What is the purpose of your testimony?
21 A.My testimony explains the significant benefits to customers from repowering the
22 Company's existing wind resources and outlines why wind repowering is a time-
23 limited resource opportunity for customers that is both prudent and in the public
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l interest.I describe the Company's proposal for innovative or non-traditional
2 ratemaking treatment,and request continued cost recovery of equipment replaced by
3 repowering.I also briefly describe the financial ability of the Company to make the
4 wind repowering investment.
5 Q.Please summarize your testimony.
6 A.The Company plans to upgrade or "repower"most of the 999.1 megawatts ("MW")of
7 Company-owned,installed wind capacity (594 MW in Wyoming,304.6 MW in
8 Washington,and 100.5 MW in Oregon)with longer blades and new technology to
9 generate more energy in a wider range of wind conditions.The upgrades are expected
10 to increase output of the wind facilities by 19 percent on average,extend the operating
11 life of the facilities,and allow the facilities to requalify for federal production tax
12 credits ("PTCs")for an additional 10 years.To receive the full PTC benefits for
13 customers,the repowered facilities must be commercially operational by the end of
14 2020.
15 Although wind repowering will cost an estimated $1.13 billion,the benefits
16 generated by the repowering will produce net savings for customers over the life of the
17 repowering facilities.
18 Because of the magnitude of this capital investmentand the overall scope of the
19 project,the Company requests that the Commission find that wind repowering is
20 prudent now,before the Company commits to the costs of major equipment orders and
21 equipment installation contracts.The Company also requests that the Commission
22 approve its proposed binding ratemaking treatment for the repowering investment,in
O 23 accordance with Idaho Code §61-541,and its proposed continued recovery of the
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l equipment replaced at the time of repowering.As described here and in the testimony
2 of the Company's other witnesses,wind repowering provides substantial customer
3 benefits and furthers the public interest.The Company's request for approval at this
4 time gives the Commission a meaningful opportunity to evaluatethe wind repowering
5 project to ensure that the project is reasonable,prudent,and in the public interest.
6 Repowering is a time-limited resource opportunity for customers because of the
7 challenges of meeting the 2020 PTC-qualification deadline.Therefore,the Company
8 requests that the Commission issue its order approving wind repowering by
9 December 29,2017,to provide the Company sufficient time to execute the necessary
10 contracts and complete the undertaking.
11 Q.What other witnesses will be testifying on behalf of the Company?
12 A.The Company's filing is supported by testimony from the followingwitnesses:
13 Mr.Timothy J.Hemstreet,Director of Renewable Energy Development,
14 provides a detailed scope of the Company's wind repowering project,including
15 technical details,qualification for PTC benefits,increased energy production,reduced
16 operational costs,and continued system reliability.Mr.Hemstreet also addresses the
17 status and timing of wind-turbine-generator ("WTG")equipment purchases,
18 construction requirements,anticipated construction timelines,and the disposition of
19 removed equipment.
20 Mr.Rick T.Link,Vice President of Resource and Commercial Strategy,
21 testifies on the economic analysis that supports the prudence of the Company's wind
22 repowering project and quantifies customer benefits resulting from repowering.
23 Mr.Link also explains the wind repowering planning and analysis included in the
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l Company's 2017 Integrated Resource Plan ("2017 IRP").
2 Mr.Jeffrey K.Larsen,Vice President of Regulation,explains the Company's
3 proposal for the ratemaking treatment of the costs and benefits of the wind repowering
4 project in rates,the accounting treatment of the replaced wind plant equipment,and the
5 inter-jurisdictionalallocation of costs.
6 Q.Is the Company requestingapprovalof the wind repowering projectin any other
7 states?
8 A.Yes.The Company is requesting approval of wind repowering from the Public Service
9 Commission of Utah and the Idaho Public Utilities Commission.In Oregon and
10 Washington,the Company has special rate-recovery mechanisms for investments in
11 renewable resources that provide a path to recovery of the costs and benefits of wind
12 repowering-theRenewable Adjustment Clause in Oregon and a generation deferral
13 mechanism allowed by Washington law.In California,the Company is required to file
14 a general rate case in 2019,which will include the costs and benefits of wind
15 repowering.
16 OVERVIEW OF REPOWERING
17 Q.Please describe the Company's plans to repower its wind facilities.
18 A.Wind repowering takes advantage of technological advancements that allow greater
19 generation from existing wind resources.Wind repowering involves installation of new
20 rotors with longer blades and new nacelles with higher capacity generators.These plant
21 upgrades significantly increase energy output without changing the footprint,towers,
22 foundations and energy collector systems of the wind facilities.Longer blades allow
23 wind turbines to produce more energy over a wider range of wind speeds.The nacelle
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l is the housing that sits atop the tower and contains the gear box,low-and high-speed
2 shafts,generator,controller,and brake.The new nacelles will include sophisticated
3 control systems and more robust components necessary to handle the greater loads that
4 come with longer blades.
5 Together,the new rotors and nacelles are estimated to increase generation from
6 the repowered projects by 11 to 35 percent,resulting in an overall average generation
7 increase of 19 percent (or 21 percent after new interconnection agreements are
8 executed).Mr.Hemstreet's testimony provides greater detail on the technical aspects
9 of the wind repowering project.
10 Q.Which wind resources will be repowered?
11 A.The Company proposes to repower most of its Wyoming wind fleet (Glenrock I,
12 Glenrock III,Rolling Hills,Seven Mile Hill I,Seven Mile Hill II,High Plains,
13 McFadden Ridge,and Dunlap);the Marengo I,Marengo II and Goodnoe Hills facilities
14 in Washington;and the Leaning Juniper facility in Oregon.This represents a total of
15 999.1 MW of installed wind capacity,with 594 MW in Wyoming,304.6 MW in
16 Washington,and 100.5 MW in Oregon.
17 Q.What is the expected cost of wind repowering?
18 A.The Company estimates that wind repowering will cost approximately $1.13 billion.
19 Q.Why are you proposing to repower the Company's wind fleet now?
20 A.On December 18,2015,Congress enacted changes to the federal Internal Revenue
21 Code that extended the full value of the PTC for wind energy facilities that begin
22 construction in 2015 and 2016.The Internal Revenue Service ("IRS")has issued
23 guidance that establishes a "safe harbor"for taxpayers to demonstrate the year a facility
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1 will be deemed to "begin construction,"thereby setting the value of the PTC.
2 Repowering the Company's wind fleet now will allow the resources to requalify
3 for PTCs,which will expire ten years from the original commercial operation date of
4 the resource (expiration dates range from 2016 through 2020).To maximize the PTC
5 benefit,in December 2016,the Company contracted with General Electric,Inc.,and
6 Vestas-American Wind Technology,Inc.,for the purchase of new WTG equipment.
7 These safe-harbor equipment purchases allow the repowered facilities to qualify for
8 100 percent of available PTC benefits if they are commercially operational within four
9 calendar years,or by the end of 2020.The Company's purchases last year were
10 important because wind facilities that begin construction after 2016 and come online
11 after 2020 will receive a 20 percent decrease in the tax benefits that can be passed on
12 to customers each year.Thus,a delay in acquiring the safe-harbor equipment would
13 have made the economics of repowering less attractive and deprived customers of the
14 substantial benefits that can be achieved if repowering is completed by the end of 2020.
15 To meet the 2020 deadline,the Company plans to order the necessary
16 equipment and execute the necessary contracts in early 2018 and complete much of the
17 construction in 2019.The renewal of the PTC has dramatically increased the demand
18 for materials,equipment,and labor for wind facilities.By completing construction in
19 2019,the Company will mitigate the risk of construction delays,or delays associated
20 with the procurement of equipment,and allow sufficient time to meet the 2020
21 deadline.
22 In addition,completing the majority of the construction in 2019 will maximize
23 the value of the existing PTCs,while minimizingthe period between the expiration of
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l the prior PTCs and the eligibilityfor the new PTCs.By achieving commercial operation
2 in 2019 for most of the facilities (Dunlap will be completed in 2020),the Company will
3 also minimize the time during which the wind facilities are ineligible for PTCs.
4 Q.Is the Company requesting continued cost recovery of the equipmentthat will be
5 replaced as part of the wind repowering project?
6 A.Yes.The Company is requesting to continue full cost recovery of plant equipment that
7 is replaced due to the wind repowering project.The existing net plant is currentlyin
8 rates and has been assessed as part of the overall economic evaluation of project
9 benefits to customers.The Company's decision to pursue the wind repowering project
10 is dependent on the Company continuing to recover the investments in these Company-
11 owned wind facilities that are currentlyincluded in customer base rates.
12 Q.Given that wind repowering is a time-limited resource opportunity,what is the
13 Company seeking in this case?
14 A.The Company requests that the Commission issue an order by December 29,2017
15 determining that the wind repowering project is prudent,approving the continued
16 recovery of replaced plant equipment,and approving the Company's proposed binding
17 ratemaking treatment,as authorized by Idaho Code §61-541.This will allow the
18 Company to execute the necessary contracts and procure the equipment required to
19 achieve commercial operation of all repowered units by December 31,2020.
20 CUSTOMER BENEFITS
21 Q.What are the customer benefits resultingfrom wind repowering?
22 A.The customer benefits resulting from wind repowering derive in part from the fact that
O 23 repowering allows the Company's existing wind resources to requalify for federal
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l PTCs-which are then passed through to customers.As noted above,the Company
2 expects repowering to cost approximately $1.13 billion.The customer benefits,
3 however,are expected to exceed that cost--meaning that wind repowering will save
4 customers money.
5 Wind repowering creates these benefits by:
6 Increasing energy production from the wind facilities between 11 to
7 35 percent because of longer blades and higher capacity generators;
8 Reducing ongoing operating costs associated with aging wind turbines;
9 Extending the useful lives of the wind facilities by at least ten years;
10 Reducing customer costs by requalifyingthe wind facilities for PTCs for an
11 additional ten years;and
12 Improvingthe ability of the wind facilities to deliver their cost-effective,
13 renewable energy into the transmission system through enhanced voltage
14 support and power quality.
15 The repowered facilities will deliver cost-effective energy to Idaho customers,
16 while saving customers money over the life of the investment.
17 Q.Did the Company analyze wind repowering in its most recent IRP?
18 A.Yes.The Company's 2017 IRP,which was filed with the Commission April 4,2017,
19 includes wind repowering as an integral component of the preferred portfolio-
20 meaning that it was selected as a least-cost,least-risk resource option.
21 Q.Does the Company's economic analysis demonstrate that the wind repowering
22 projectwill provide net benefits to customers?
23 A.Yes.The Company's economic analysis of the wind repowering project demonstrates
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l that it will provide substantial customer benefits.As described in more detail in
2 Mr.Link's testimony,the Company analyzed nine different scenarios,each with
3 varying natural gas and carbon dioxide ("CO2")price assumptions,and all nine
4 scenarios show customer benefits,ranging from $41 million when assuming low
5 natural gas and zero CO2 prices to $589 million when assuming high natural gas and
6 high CO2 prices.With medium natural gas price and CO2 price assumptions,wind
7 repowering results in customer benefits of $359 million.
8 Q.After the Companyfiled its IRP in April,did Companyrepresentatives meet with
9 Idaho stakeholders to provide an overview of this filing?
10 A.Yes.On May 9,2017,the Company held an informal workshop with Idaho stakeholders
11 to review the details of its wind repowering proposal and discuss the scope and timing
12 of this filing.
13 Q.How does the Company plan to reflect the net benefits of wind repowering in
14 Idaho rates?
15 A.As explained by Company witness Mr.Larsen,the Company proposes to use the
16 existing Energy Cost Adjustment Mechanism ("ECAM")to address the proper
17 ratemaking treatment to match the annual costs and benefits of wind repowering until
18 the incremental costs and benefits are fully reflected in base rates,primarily including
19 incremental capital and operating costs,net power costs savings not already captured
20 in the ECAM,and PTC benefits not already captured in the ECAM.This mechanism
21 will align the costs and benefits so that customers receive the full net benefits from the
22 repowering project while shareholders receive appropriatecost recovery of the prudent
23 investment.The costs and benefits of the repowering project will remain in the ECAM
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l until the full costs and benefits of repowering are reflected in base rates in a general
2 rate case.After inclusion in base rates,the ECAM would continue to track incremental
3 fluctuations in energy production and PTCs.
4 Q.If wind repowering provides such substantial benefits,why is the Company
5 seeking approvalnow?
6 A.Because of the magnitude of the investment and the scope of the repowering project,
7 the Company wants to provide the Commission and stakeholders an opportunity to
8 review and provide meaningful input into the wind repowering decision before
9 contracts are executed and construction begins.
10 In addition,it is important that parties understand the rate treatment of the
11 project before the Company makes this significant investment to ensure that the costs
12 and benefits will be properly matched and customers and shareholders will be fairly
13 treated.
14 Q.How does the Company intend to finance wind repowering?
15 A.The Company intends to finance the proposed wind repowering through its normal
16 sources of capital,both internal and external,including net cash flow from operating
17 activities,public and private debt offerings,the issuance of commercial paper,the use
18 of unsecured revolving credit facilities,capital contributions,and other sources.
19 Although repowering is a significant investment on the part of the Company,the
20 financial impact will not impair the Company's ability to continue to provide safe and
21 reliable electricityservice at reasonable rates.
O
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l Q.How will approvalof the Company's application support the Company'scurrent
2 credit rating?
3 A.Ratings agencies consider the Company's regulatory treatment when establishing its
4 credit rating,and particularlyfocus on the treatment of capital investments.Supportive
5 treatment through approval of an investment of this magnitude provides assurance to
6 ratings agencies and helps maintain the Company's credit rating.A solid credit rating
7 directly benefits customers by ensuring access to capital markets,reducing immediate
8 and future borrowing costs related to the financing needed to support regulatory
9 operations.Strong ratings will often help the Company avoid costly collateral
10 requirements that are typically imposed on lower-rated companies when securing
11 power in the market.If the Company does not have consistent access to the capital
12 markets at reasonable costs,its debt issuances and the resulting costs of constructing
13 the new facilities become more expensive than they otherwise would be.
14 REQUIREMENTSFOR APPROVAL OF A BINDING RATEMAKING TREATMENT
15 Q.What are the requirementsfor approvalof a binding ratemakingtreatment under
16 Idaho Code §§61-541?
17 A.It is my understandingthat Idaho Code §§61-541 allows a utility proposing to make
18 major additions to an existing facility to request that the Commission determine in
19 advance the ratemaking treatment that will apply to the proposed facility.When
20 reviewing an application for binding ratemaking treatment,I understand that the
21 Commission must maintain a "fair,justand reasonable balance of interests between the
22 requesting utility and the utility's ratepayers"and determine whether:
23 The utility has in effect a Commission-accepted IRP;
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l The services and operations resulting from the facility are in the public interest
2 and will not be detrimental to the provision of adequate and reliable electric
3 service;
4 The public utilityhas demonstrated that it has considered other sources for long-
5 term electric supply or transmission;
6 The addition of the facility is reasonable when compared to energy efficiency,
7 demand-side management and other feasible alternative sources of supply or
8 transmission;and
9 The public utilityparticipates in a regional transmission planning process.
10 Q.Does the Company's request for binding ratemakingtreatment of its repowering
11 investment fairly,justly,and reasonably balance the interests between the
12 Company and its customers?
13 A.Yes.The Company's request also satisfies each of the requirements in Idaho Code
14 §§61-541(4).As described in more detail in Mr.Link's testimony,the Company has a
15 Commission-accepted integrated resource plan and its 2017 IRP is currentlypending.
16 The 2017 IRP demonstrates that wind repowering is the least-cost,least-risk approach
17 when compared to other sources for long-term electric supply,including energy
18 efficiency,demand-side management,and other feasible supply alternatives.
19 In addition,as described above,wind repowering will serve the public interest
20 and provide substantial benefits to Idaho customers.Repowering will save customers
21 money due to the repowered facilities'requalification for federal PTCs,increased
22 efficiency,reduced operating costs,and extended life.
O 23 The Company also participates in regional transmission planning processes.
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l The Company is a member of the Northern Tier Transmission Group ("NTTG"),which
2 is a regional transmission planning group consisting of seven electric utility members
3 and covering a region that includes portions of seven western states.NTTG develops a
4 regional transmission plan that addresses new proposed projects and the reliability of
5 the regional transmission system,as required by the Federal Energy Regulatory
6 Commission's Orders Nos.890 and 1000.
7 CONCLUSION
8 Q.What is your recommendation to the Commission?
9 A.I recommend that by December 29,2017,the Commission issue an order:(1)approving
10 the Company's Application to repower the majority of its wind fleet;(2)finding that
11 repowering is prudent and in the public interest;(3)approving the Company's proposed
12 binding ratemaking treatment with continued recovery of the replaced assets.Approval
13 will provide certainty to the Company and enable it to move forward with confidence
14 as it embarks on a project of this magnitude on behalf of its customers.
15 Q.Does this conclude your direct testimony?
16 A.Yes.
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