20171218Crane Rebuttal .pdf

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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )CASE NO.PAC-E-17-07OFROCKYMOUNTAINPOWERFORA)CERTIFICATE OF PUBLIC )REBUTTAL TESTIMONY OFCONVENIENCEANDNECESSITYAND)CINDY A.CRANEBINDINGRATEMAKINGTREATMENT)FOR NEW WIND AND TRANSMISSION )FACILITIES )
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ROCKY MOUNTAIN POWER
CASE NO.PAC-E-17-07
December 2017
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l Q.Are you the same Cindy A.Crane who previously provided direct testimony in
2 this case on behalf of Rocky Mountain Power ("Company"),a division of
3 PacifiCorp?
4 A.Yes.
5 PURPOSE AND SUMMARY OF REBUTTAL TESTIMONY
6 Q.What is the purpose of your rebuttal testimony?
7 A.I provide the Company's overall policy rebuttal to the objections of Monsanto
8 Company ("Monsanto"),PacifiCorp Idaho Industrial Customers ("PIIC"),and the
9 Idaho Irrigation Pumpers Association,Inc.("IIPA")to the Company's request for
10 certificates of public convenience and necessity ("CPCNs")and for binding ratemaking
11 treatment related to the Company's proposal to construct or procure new wind
12 resources ("Wind Projects")and to construct the Aeolus-to-Bridger/Anticline line andO13230kVNetworkUpgrades("Transmission Projects")(collectively,the "Combined
14 Projects").I also respond to the recommended conditions providedby Staffof the Idaho
15 Public Utilities Commission ("Staff").
16 Q.Please summarize your rebuttal testimony.
17 A.The Combined Projects will provide substantial customer benefits over the long-term
18 and represent the least-cost,least-risk strategy for meeting the needs of Idaho
19 customers.In rebuttal to the parties'objections,the Company shows the Combined
20 Projects are necessary to meet an identified resource need and present no more risk
21 than typical utility investments.Therefore,the parties'proposed conditions that shift
22 nearly all risk to the Company are both unprecedented and unwarranted.
23 The Company further demonstrates that it has mitigated many of the risks that
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l could adversely impact the economics of the Combined Projects,and it intends to
2 carefully manage future project risks either through the off-ramps built into the
3 Combined Projects,or by seeking additionaldirection from the Commission before or
4 during project implementation.The Company is on track to file supplemental testimony
5 on January 16,2018,which will update the costs of the Combined Projects,validate
6 their economic benefits,and further demonstrate how the Company has managed and
7 mitigated project risk.
8 PUBLIC INTEREST
9 Q.Do the Combined Projects satisfy the public interest standard required for
10 granting a CPCN?
11 A.Yes.It is my understanding that the public interest standard has two components.First,
12 the Commission must determine whether the present or future public convenience andO13necessityrequireadditionalresources.Second,the Commission must determine
14 whether the Combined Resources are a reasonable means of meeting the identified
15 need.
16 As described in the rebuttal testimony of Mr.Rick T.Link,the Company has
17 both near-and long-term needs for incremental generation resources,as set forth in the
18 Company's 2017 Integrated Resource Plan.Mr.Link also describes the solicitation
19 processes underway to ensure the least-cost,least-risk resources are procured to meet
20 the identified resource need.In his rebuttal testimony,Company witness Mr.Rick A.
21 Vail provides an update on the proposed Transmission Projects and describes how the
22 Company is prudently managing and mitigating development and construction costs
23 and risks.Company witness Mr.Chad A.Teply provides an update on the Combined
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l Projects,including the benchmark Wind Projects,and describes how the Company is
2 prudently managing the costs and risks of project development and implementation.
3 Together,the evidence demonstrates the Combined Projects satisfy the public interest
4 standard.
5 Q.Do the Combined Projects satisfy the standard for binding ratemaking treatment?
6 A.Yes.When reviewing an application for binding ratemaking treatment,I understand the
7 Commission must maintain a "fair,justand reasonable balance of interests between the
8 requesting utility and the utility's ratepayers."As described in the direct testimony of
9 Company witness Mr.Jefferey K.Larsen and the rebuttal testimony of Ms.Joelle R.
10 Steward,the Company's proposed Resource Tracking Mechanism ("RTM")
11 appropriatelymatches the costs and benefits of the Combined Projects so that,before
12 the resources are reflected in base rates,customers receive the benefits from theO13CombinedProjectswhileshareholdersreceiveappropriatecostrecoveryoftheprudent
14 investments.
15 Q.Does Staff agree that the Combined Projects are in the public interest?
16 A.Yes.Staff recommends that the Commission approve the CPCNs,subject to four
17 conditions.First,Staff recommends that the Company continually reassess the project
18 economics due to changing circumstances and establish off-ramps before development
19 occurs.(Lobb Direct,page 5,lines 23-25.)As described in Mr.Link's and Mr.Teply's
20 rebuttal testimony,the Company fully intends to perform the type of assessment Staff
21 recommends.
22 Second,Staff recommends that the Commission cap the costs of the
23 Transmission Projects for purposes of cost recovery at the level estimated in this filing.
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1 (Lobb Direct,page 6,lines 15-17.)As described in Mr.Vail's rebuttal testimony,the
2 Company intends to update and confirm its construction cost estimate for the
3 Transmission Projects in the Company's supplemental testimony.As discussed by Ms.
4 Steward,consistent with the binding ratemaking treatment law in Idaho,the Company
5 agreesto a soft cap based on the cost estimate included in the Company's supplemental
6 filing.If the actual costs are greater than the final estimate here,the Company agrees it
7 must demonstrate the prudence of the additional costs in a subsequent ratemaking
8 proceeding.
9 Third,Staff recommends that the Company continue to annually track the
10 revenue requirement for the Combined Projects in the RTM after the first general rate
11 case to reflect a decliningnet rate base.(Lobb Direct,page 9,lines 6-11.)The Company
12 objects to this unprecedented proposal to isolate revenue requirement on specificO13resourcesonanindefinitebasisbecauseitdoesnotreflecttheCompany's on-going
14 cost of serving customers.
15 Fourth,Staff recommends that the Company provide a mechanical availability
16 guarantee of97 percent for the Wind Projects.(Lobb Direct,page 9,lines 21-24.)While
17 the Company does not agree that the Commission should require this condition,as
18 described in Mr.Teply's rebuttal testimony,the Company intends to seek cost-effective
19 availability guarantees for the Wind Projects in any third-party-providedmaintenance,
20 as provided by the competitive market.The Company was successful in negotiating
21 similar availability guarantees for its repowered wind facilities in Wyoming.
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l Q.Monsanto,PIIC,and IIPA argue that the forecasted benefits of the Combined
2 Projects are speculative and,even in the best scenarios,are insufficient in
3 comparison to the overall project costs.Do you agree?
4 A.No.The parties'criticisms are largely premised on their claim that the Combined
5 Projects are discretionary and therefore subject to a higher standard for approval than
6 a project intended to meet customer need.But,as described by Mr.Link,the Combined
7 Projects are not merely an economic opportunity.Instead,the projects are part of the
8 Company's least-cost,least-risk plan for meeting resource needs.The innovation in
9 PacifiCorp's plan is the opportunity to bring near-and long-term benefits-in system
10 reliability and flexibilityas well as financial benefits-to customers by capitalizingon
11 the continued (but short-lived)availability of federal production tax credit ("PTCs")
12 acquire new resources without substantial increases in rates.O 13 Q.Does Staff agree with the Company that the Combined Projects will meet a
14 customer need?
15 A.Yes.Staff acknowledges the Combined Projects will meet a system need in 2028,and
16 Staff does not argue that the Combined Projects require a higher standard for approval.
17 (Keller Direct,page 3,lines 6-7.)
18 Q.The parties argue that there is a significant risk that benefits will not materialize
19 as claimed by the Company,and that the Combined Projects may prove
20 uneconomic in the long run for reasons beyond the Company's control.Do you
21 agree?
22 A.I do not.Mr.Link's sensitivity modeling is designed to capture a wide range of
23 conditions and circumstances that could impact the economics of the Combined
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1 Projects.The Company's economic analysis shows that the Combined Projects deliver
2 substantial benefits under most sensitivities.As set forth in Mr.Link's rebuttal
3 testimony,the Company intends to comprehensively update its economic analysis in
4 its supplemental testimony on January 16,20l8.
5 While all resource decisions inherently include some risk,the Company has
6 demonstrated a high likelihood the Combined Projects will be beneficialto customers.
7 Moreover,the risks associated with the Combined Projects are typical of all utility
8 investments and,as Mr.Link explains in his rebuttal testimony,there are risks
9 associated with forgoingthe time-limited opportunityto secure PTC-eligible resources.
10 Q.Monsanto proposes a series of conditions it recommends the Commission apply if
11 it approves the Combined Projects.(Phillips Direct,page 4,line 6 -28.)Are
12 Monsanto's proposed conditions reasonable?O 13 A.No.As explained in Ms.Steward's and Mr.Teply's rebuttal testimony,there is nothing
14 novel or unique about the Combined Projects that require such unprecedented
15 conditions.Monsanto's proposed conditions would shift virtually all risk to the
16 Company,and act as an automatic disallowance of a significant portion of the
17 investment.This treatment is unwarranted because the Combined Projects do not
18 present risks different than typical utility investments.In fact,just the opposite is true.
19 The Combined Projects provide a unique opportunity to meet customer needs while
20 offsetting a large portion of the projects'revenue requirement with a time-limited
21 availability of PTC.Indeed,the proposed conditions presume that the projects are
22 discretionary investments untethered to a resource need,which,as Mr.Link discusses
23 in his rebuttal testimony,is untrue.
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l Q.If circumstances arise that make the Combined Projects uneconomic,has the
2 Company structured off-ramps to allow it to stop project development,as Staff
3 recommends?
4 A.Yes.As addressed in Mr.Vail's rebuttal testimony,the Company will soon negotiate
5 and finalize most of the construction contracts for the Transmission Projects,which
6 will lock in pricing.The Company will also prudently negotiate precautionary off-
7 ramps in the contracts to allow it to exit the Transmission Projects if they become
8 uneconomic.The timing and terms of the execution of the contracts necessary to
9 procure or construct the Wind Projects will also provide flexibility to allow the
10 Company to reassess project economics,if necessary,before executing the contracts.
11 Q.How will the Company respond if it receives approval of the Combined Projects
12 in this docket and a subsequent event occurs that adversely affects the economicsO13oftheCombinedProjectsduringimplementation?
14 A.If an adverse change of circumstances materially affects the Combined Projects'
15 economics,the Company will seek Commission review of whether to proceed with
l 6 implementation.
17 Q.If significant portions of the Wind Projects do not ultimatelyqualify for PTCs due
18 to delays or because they incur unanticipated cost increases within the Company's
19 control,is the Company prepared to bear those risks?
20 A.Yes.The Company will take every precaution to ensure the Wind Projects meet the
2l requirements and timelines to qualify for full PTC benefits.While we do not believe it
22 is appropriate for the Company to absorb risks beyond its control-such as those
23 associated with the actions of the U.S.Congress-we are prepared to accept risks
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1 associated with our performance.We are confident that we will complete the Combined
2 Projects in advance of the 2020 deadline.
3 Q.Staff identifies several risks it believes are within the Company's control.(Keller
4 Direct,page 19,lines 15-24.)Do you agree with Staff's characterizations?
5 A.Somewhat.I agree that the following are within the Company's control:meeting the
6 five-percent safe-harbor requirement,meeting regulatory requirements,such as
7 permitting,that are required to place the projects in-service,and achieving timely
8 completion of the Combined Projects.Development and construction costs are largely
9 within the Company's control,but there are potentialcircumstances outside our control
10 that could impact these costs,such as a force majeure event.Staff also states that life-
11 cycle performance and availability are within the Company's control through proper
12 operation and maintenance.I agree that prudent operation and maintenance are withinO13theCompany's control,but there are many other factors influencing performance and
14 availability that are not.
15 Q.How will the Company respond if the federal corporate income tax rate is
16 significantlyaltered,impacting the economics of the Combined Projects?
17 A.The Company plans to model actual or potential tax law changes in its supplemental
18 testimony in January 2018 to demonstrate the economic impacts on the Combined
19 Projects.If a tax change occurs after the supplemental filing,the Company will refresh
20 the project economics to inform its decision to proceed or terminate.The Company will
21 either update its pending request,or if the change occurs during the implementation of
22 the Combined Projects,the Company will seek guidance from the Commission.
23 If a tax law change occurs after the Combined Projects are completed,then the
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l change should be addressed like any other factor that occurs after a CPCN is granted
2 by the Commission based on the facts known at the time.There is always a risk that
3 future changes in laws could affect decisions made today,and the Company must
4 operate on the best information available at the time decisions are made.That is why
5 we are before the Commission now-to determine whether the Company has
6 adequately addressed the project risks and whether the Combined Projects are in the
7 public interest given the information currently available.
8 Q.Does this conclude your rebuttal testimony?
9 A.Yes.
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BEFORE THE IDAHO PUBLICUTILITIES COMMISSION
IN THE MATTEROF THE APPLICATION )CASE NO.PAC-E-17-07
OF ROCKYMOUNTAINPOWER FOR A )
CERTIFICATEOF PUBLIC )REBUTTALTESTIMONYOF
CONVENIENCEAND NECESSITYAND )CHAD A.TEPLY
BINDINGRATEMAKINGTREATMENT )REDACTED
FOR NEW WIND AND TRANSMISSION )
FACILITIES )
O ROCKYMOUNTAINPOWER
CASE NO.PAC-E-17-07
December 2017
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1 Q.Are you the same Chad A.Teply who previously provided direct testimony in this
2 case on behalf of Rocky Mountain Power ("Company"),a division of PacifiCorp?
3 A.Yes.
4 PURPOSE AND SUMMARY OF REBUTTAL TESTIMONY
5 Q.What is the purpose of your rebuttal testimony in this proceeding?
6 A.My rebuttal testimony supports the Company's application for certificates of public
7 convenience and necessity ("CPCNs")and binding ratemaking treatment
8 ("Application")for the Company's proposal to construct or procure 860 megawatts
9 ("MW")of new wind resources ("Wind Projects")and construct the Aeolus-to-
10 Bridger/Anticline line and 230 kV Network Upgrades ("Transmission Projects")
11 (collectively,the "Combined Projects").I summarize the current status of the
12 Combined Projects,including the proxy benchmark wind facilities in the Company'sO132017RequestforProposals("2017R RFP"),the results of which will be included in
14 the Company's supplemental testimony on January 16,2018.
15 I also respond to the testimony of the Staff of the Idaho Public Utilities
16 Commission ("IPUC),Monsanto Company ("Monsanto"),and the Idaho Irrigation
17 Pumpers Association,Inc.("IIPA").
18 Q.What are the key issues you address in your rebuttal testimony?
19 A.I address the followingkey issues:
20 1.The development of the proxy benchmark Wind Projects is on schedule,so if the
21 projects are selected to the final shortlist in the 2017R RFP,the Company is
22 positioned to timely deliver them and implement risk mitigation measures to
23 address the risks identified in the parties'testimony.These risk mitigation measures
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l advance the public interest in support of the Application.
2 2.The implementation schedules for the Combined Projects continue to provide
3 reasonable timelines to assess project risks,incorporate the assessments into
4 decision-making,and allow for changes in project direction in response to changing
5 circumstances (i.e.,off-ramps).
6 Q.Please summarize your testimony.
7 A.The Company recognizes the unique circumstances presented by the Application,given
8 that final project information and economics for the Combined Projects will not be
9 known until January 2018.This schedule is driven by the time-sensitivity of the
10 resource opportunity.The Company has addressedthese circumstances with a project
11 schedule that permits the Company to comprehensively assess and confirm the
12 economic benefits of the Combined Projects as development progresses,and mitigateO13manyoftherisksinherentinprojectsofthisscope.
14 The Company has extensive experience successfully developing comparable
15 projects,with substantial customer benefits.The Company has every reason to believe
16 the Combined Projects will be similarly beneficial to customers.If changing
17 circumstances adversely impact the economics of the Combined Projects,however,the
18 Company has prudentlyestablished a process that will allow off-ramps.The Company
19 also recognizes the value of stakeholder engagement before committing to major
20 expenditures.The Company will therefore provide updated costs,analysis,and project
21 information in its January 16,2018 supplemental filing,and will continue to identify
22 and mitigate risks in the Combined Projects.
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l COMBINED PROJECTS UPDATE
2 Q.Is the Company still on schedule to supplement its originalApplication in January
3 2018 with a filing incorporatingupdated and detailed economic analysis,updated
4 wind and transmission project information,and discussing the Company's Project
5 implementation plans?
6 A.Yes.The regulatory review process for the Combined Projects is ongoing and the
7 Company is currently finalizing its shortlist for the 2017R RFP,as described in
8 Company witness Mr.Rick T.Link's rebuttal testimony.In addition,the Company
9 continues to refine and update its economic assessments and development of the Wind
10 Projects as required to support the January 2018 supplemental filing and the overall
11 project schedule.The January 20l8 filing will include information pertaining to the
12 final shortlist projects selected through the 2017R RFP,including information relatedO13toprojectconfigurations,project participants,equipment supply,and permitting status.
14 Q.Please provide an updated timeline of key decision-points,regulatoryoutcomes,
15 and project development activities.
16 A.The following timeline provides an overview of the key events that have already
17 occurred,and the anticipated events that will occur as the resource procurement and
18 development efforts continue.
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l Energy Vision 2020 New Wind and Transmission Timeline
Apr,4,2017--PacifiCorp 2017 IntegratedResource Plan ("IRP")filing
Jun.30,2017-Idaho CPCN filing
Jun.30,2017-WyomingCPCN filing
Jun.30,2017-Utah Resource Decision filing
2017 Sept.27,2017-PacifiCorp2017R RFP issued to market
Nov.17,2017-PacifiCorp2017R RFP initial shortlist determination
Nov.22,2017-PacifiCorp 2017R RFP initial shortlist price updates
Dec.11,2017---Oregon Commission action on 2017 IRP action items
Dec.2017-U.S.Tax Code legislation passes (anticipated)
Jan.8,2018-PacifiCorp 2017R RFP final shortlist determination
Jan.16,2018-Idaho CPCN supplemental filing
2018
Jan.16,2018-WyomingCPCN supplemental filing
Jan.16,2018-Utah Resource Decision supplemental filing
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Feb.22-28-Wyoming CPCN public hearing
Mar.6-9,2018-Utah Resource Decision public hearing
Mar.9,2018-Wyominglegislative session ends (budget session)
Mar.12-15,2018-Idaho CPCN public hearing
Apr.6,2018-Idaho CPCN Commission Order
Apr.6,2018-Utah Resource Decision Commission Order
Apr.30,2018-WyomingCPCN Commission Order (conditioned upon
rights-of-way("ROW")acquisition)
May 1,2018-BeginTransmission Projects ROW acquisition
May 31,2018-Wind Projects BOP EPC Contract Limited Notice to
Proceed ("LNTP")(benchmarks)
Jun.30,2018-USFWS Eagle Take Permit first-year data collection
complete
Nov.30,2018-Transmission Projects EPC Contract LNTP (500 kV)
Dec.31,2018-WyomingIndustrial Siting Council permit received,New
Wind (benchmarks)
Dec.31,2018-WyomingIndustrial Siting Council permit received,
Transmission
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Jan.1,2019-CompleteTransmission Projects ROW acquisition
(anticipated completion)
Jan.1,2019-WyomingCPCN issued (transmission ROW acquired)
Jan.1,2019-Wind Projects Development Transfer Agreement closing
(benchmarks)
Mar.15,2019-Wyoming legislative session ends (full session;approximate
date)
2019 Apr.1,2019-Transmission EPC Contract Full Notice to Proceed("FNTP")(500 kV)
Apr.1,2019-Wind Projects BOP EPC Contract FNTP (benchmarks)O Apr.1,2019-Wind Projects Turbine Supply Agreement release
(benchmarks)
Jun.30,2019 -USFWS Eagle Take Permit second-year data collection
complete
Sept.30,2019-Submit voluntaryUSFWS Eagle Take Permit application
2020 Mar.15,2020--Wyominglegislative session ends (budget session;
approximate date)
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Dec.31,2020-Receive voluntary Eagle Take Permit (if issued by USFWS)
Dec.31,2020--New Wind and Transmission Projects in-service.
1 Q.Is the Company currently on track to meet this development schedule and
2 complete the Combined Projects by the end of 2020?
3 A.Yes.
4 Q.Does the timeline above provide off-ramps to allow the Company to revise,or
5 potentially terminate,development efforts in response to changes in federal
6 income tax policy,project permitting,or other risks associated with the Combined
7 Projects?
8 A.Yes.In particular,the Company anticipates that changesto the federal corporate income
9 tax code that are being fmalized by the U.S.Congress will be reasonably clear by year-
10 end 2017,and will be incorporated into the January 2018 supplemental filing.If tax
11 reform is delayed such that it cannot be accounted for in the supplemental testimony,it
12 is still likely that the outcome of tax reform will be known before the Company
13 commits to the Combined Projects by a full notice to proceed to major contracts.Thus,
14 the risk associated with changes in federal tax rates should be resolved before the
15 Company moves forward with the Combined Projects.
16 To provide that risk mitigation,the timeline for development and
17 implementation of the Combined Projects contemplates offering limited notices to
18 proceed ("LNTP")to key engineering,procurement,and construction ("EPC")
19 contractors associated with the projects only after receipt of the CPCNs.The LNTP
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l will facilitate EPC contractor support of the Wyoming Industrial Siting Council permit
2 review and hearing process,as well as initiation of certain engineering and pre-
3 procurement activities.The LNTP concept incorporated into these key contracts will
4 limit cost commitments while allowing critical parallel path project development
5 activities and approvals to progress.
6 The project timeline also incorporates off-ramps to ensure that the transmission
7 rights-of-way ("ROW")acquisition effort is complete and the final CPCNs are obtained
8 before release of full notice to proceed ("FNTP")to EPC contractors for the Combined
9 Projects.Under the terms of the major EPC contracts for the Combined Projects that
10 will be awarded by the Company,FNTP allows the EPC contractors to proceed with
11 their major equipment purchases,site mobilization,and subcontract awards that also
12 entail the associated cost commitments for those activities.Recognizing that aO13successfulandtimelyROWacquisitionprocessisfundamentaltotheoverallsuccess
14 of the project,negotiation of the FNTP terms described above with major EPC
15 contractors provides another layer of risk mitigation that the Company has incorporated
16 into its planning.
17 RISK OF COMBINED PROJECTS
18 Q.IPUC witness Mr.Richard Keller notes that the Wind Projects must be
19 operational by the end of 2020 to receive full PTC benefits.(Keller Direct,page 9,
20 lines 19-23.)How does the Company plan to ensure successful and on-schedule
21 delivery of the Combined Projects?
22 A.The Company relies on several strategies to ensure successful mitigation of the types
23 of project implementation risks that could delay the Combined Projects beyond 2020.
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l The Company has used these same strategies in the recent past to successfully deliver
2 very similar wind and transmission projects as those under review in this docket.
3 Perhaps most importantly,the Company has built its regulatory procedural
4 schedules and project implementation timeline to allow sufÏicient time to acquire the
5 ROW necessary for the Aeolus-to-Bridger/Anticline transmission line.The ability to
6 acquire necessary ROW will be known before release of the FNTP to major EPC
7 contractors for the Combined Projects.Moreover,if there is a delay in acquiring the
8 necessaryROW for the Transmission Projects,the Company will reassess how to adjust
9 the projects'remaining critical path schedules to successfully deliver customers the
10 benefits of the Combined Projects.
11 Q.Has the Company already begun negotiating the EPC contracts for the Combined
12 Projects?O 13 A.Yes.The Company has solicited competitive market proposals and is actively
14 negotiating EPC contract terms,conditions,and pricing for the Wind Projects,and is
15 engaged in similar efforts for the Aeolus-to-Bridger/Anticline transmission line,as
16 more fully described in the rebuttal testimony of Company witness Mr.Rick A.Vail.
17 These efforts are underway not only to ensure the ability to execute agreements in a
18 timely and efficient manner following project regulatory approvals and receipt of
19 critical permits,but also to review each potential EPC contractor's ability to secure and
20 deliver labor and materials throughout their proposed construction schedules.This
21 review considers the number and scope of concurrent projects that potential EPC
22 contractors have demonstrated an ability to deliver historically,and their approach to
23 booking future projects and managing that business growth in times of significant
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l market opportunity.Because the Company has engaged its EPC contractors early,
2 timely selection of EPC contractors and timely approval of a CPCN for the projects
3 will allow labor and materials from the selected EPC contractors to be committed and
4 secured to the Company's projects before other market participants that engage in such
5 discussions later in 2018 and 2019.
6 Q.Has the Company taken a similar approach to engage the majorwind turbine
7 supplier market?
8 A.Yes.The Company has also solicited competitive market proposals and is actively
9 negotiating wind turbine supply contract terms,conditions,and pricing for the Wind
10 Projects.These efforts are underway not only to ensure the ability to execute
11 agreements in a timely and efficient manner followingproject regulatoryapprovals and
12 receipt of critical permits,but also to secure manufacturing and delivery queue
O 13 positions and schedules in support of the Wind Projects.
14 Q.How will the Company manage weather-related construction delay risk?
15 A.The Company is actively negotiatingproject schedules and commercial terms with its
16 shortlisted EPC contractors to address the potential for wind days,extreme weather,
17 wildlife winter range seasonal construction restrictions,and other potential weather-
18 related risks.For example,the Company has shifted construction activities such as
19 installation of turbine foundations and collector systems from 2020 to 2019 in the
20 proposed construction schedules to mitigate weather related construction risk in 2020.
21 The Company's economic analysis supporting the Combined Projects incorporates
22 these EPC contract provisions.
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1 Q.Are customers bearing all of the risks associated with the Combined Projects?
2 A.No.Until the Commission reviews a resource acquisition for prudence,the Company
3 bears all acquisition risks.The Company anticipates that the prudence of its
4 implementation of the Combined Projects will undergo rigorous review in Idaho,and
5 in all the other states where the Company provides retail service.In addition,as
6 described by Mr.Link,the risks associated with the Combined Projects are no different
7 than those associated with any other utility resource acquisition.
8 PROPOSED CONDITIONS FOR APPROVAL
9 Q.Does the Company accept any of the conditions that Monsanto Witness Mr.
10 Nicholas L.Phillips recommends to address the risks he associates with the
11 Combined Projects?(Phillips Direct,page 4,lines 12 to page 5,line 2.)
12 A.No.Mr.Phillips recommends that the Commission impose several conditions relatedO13totheCombinedProjects'cost and performance that he argues increase the likelihood
14 of customer benefits.Mr.Phillips'proposed conditions are completely unprecedented,
15 and none of them have ever been applied to the Company's past resource acquisitions.
16 Mr.Phillips has presented no basis to upend the traditional regulatorycompact.
17 Q.What is the basis for Mr.Phillips'proposed conditions?
18 A.Fundamentally,Mr.Phillips'conditions presume the traditional regulatory compact
19 does not apply to the Combined Projects because of a perceived lack of resource need
20 and his assessment of key risks.(Phillips Direct,page 2,lines 4-5.)Contrary to Mr.
21 Phillips'claims,however,the Combined Projects meet both near-term and long-term
22 resource needs and the risks presented by the Combined Projects do not differ from
23 other utility investments.The fact the Company is taking advantage of a time-limited
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1 opportunity presented by the expiring PTCs does not mean the Combined Projects exist
2 outside of the traditional regulatory framework for review and approval of CPCNs.
3 Mr.Link and Ms.Steward address the concepts of resource need and the
4 traditional regulatory compact as it applies to Mr.Phillips'arguments.My testimony
5 focuses on Mr.Phillips'assessment of key risks related to project costs,performance,
6 and schedule delays.
7 Q.Do you have any general comments on Mr.Phillips'conditions?
8 A.Yes.It is important to note that Mr.Phillips recommends the Commission impose
9 specifically quantified conditions around Wind Project cost and performance
10 assumptions that the Company will update in its January 2018 supplemental filing
11 based on the results of the 2017R RFP.The outcome of the Company's 2017R RFP is
12 likely to change the cost and performance information,and potentially even theO13underlyingcommercialstructuresfortheWindProjects(e.g.,benchmark EPC,market
14 build transfer,or market power purchase).Thus,even if it were reasonable to impose
15 conditions similar to Mr.Phillips'proposal,no basis exists to impose the specific cost
16 and performance metrics included in his testimony.
17 Q.Mr.Phillips proposes a cap on the capital costs of the Combined Projects.(Phillips
18 Direct,page 4,lines 18-21.)Does the Company appreciate the importance of the
19 capital costs of the Combined Projects to the overall benefit delivered to
20 customers?
21 A.Absolutely.The Company is keenly focused on delivering risk-adjusted,least-cost
22 outcomes when securing competitive market EPC costs,terms,and conditions for the
23 Combined Projects.In fact,the Company's negotiated contracts are intended to
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l mitigate risks related to cost,schedule,labor,and contractor performance.The
2 Company recognizes that the parties participating in this docket are also keenly focused
3 on those important risk-mitigation efforts;however,it is premature to attempt to
4 identify or dispute specific capital cost overrun assessments or caps.While the
5 million value referenced in Mr.Phillips'testimony reflects the proxy value
6 incorporated into the Company's Application to represent the 860 MW of new Wind
7 Projects,that estimate was further refined for final submission in the 2017R RFP.The
8 Company's January 2018 supplemental filing will reflect updated cost estimates for the
9 Wind Projects,if they are selected for the final shortlist.
10 Q.Does the level of risk or uncertaintyof the capital cost estimates for the Combined
11 Projects differ from the risks and uncertainty inherent in all resource
12 acquisitions?O 13 A.No.The approach taken by the Company to estimate costs and then engage the
14 competitive market during the Combined Projects'development schedules,as
15 described in my testimony above,demonstrates a reasonable and prudent approach to
16 provide additionalcertainty and mitigate capital cost risk.
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l Q.Mr.Phillips recommends the imputation of an estimated capacity factor for the
2 life of the Wind Projects.(Phillips Direct,page 4,lines 25-28.)IPA witness Mr.
3 Anthony J.Yankel also argues that a relativelysmall decrease in the forecasted
4 generation from the Wind Projects will largely eliminate the customer benefits.
5 (YankelDirect page 20,lines 3-12.)Does the Company appreciate the importance
6 of project capacity factors when assessing project life-cycle cost of energy and
7 benefit projections for customers?
8 A.Absolutely.But it is unreasonable and unprecedented to impute an assumed capacity
9 factor for the life of these inherently variable resources.The Commission has never
10 imposed such a condition on any of the Company's previous wind projects.Notably,
1 l Mr.Keller agrees that the Company's forecasted generation is reasonable.(Keller
12 Direct,page 10,lines 8-12.)O 13 Moreover,as described above,it is premature at this point to identify or dispute
14 any project-specific capacity factor assessments.The outcome of the Company's
15 2017R RFP is likely to change the capacity factor information associated with final
16 shortlisted wind projects.The percent value referenced in Mr.Phillips'testimony
17 reflects the proxy value incorporated in the Company's Application to represent the
18 Wind Projects at the time of the filing.However,wind projects are ultimately judged
19 by their levelized cost of energy ("LCOE"),and capacity factor is only one component
20 of the LCOE.Installation and operation costs of wind turbines available in the
21 competitive market also contribute to the LCOE.As a result of competitive bidding,
22 wind turbines with significantly lower capital costs,as well as lower projected capacity
23 factors,can be found to offer a lower LCOE assessment than higher cost wind turbines
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l with higher capacity factors.Creating a capacity factor threshold in isolation can lead
2 to the unintended outcome of eliminating projects with lower LCOE assessment and
3 negatively impacting our customers.The Company's proxy capacity factor value,and
4 the Wind Projects costs,were updated for final submission in the 2017R RFP.The
5 January 2018 supplemental filing will provide updated capacity factor estimates and
6 project costs for the Wind Projects,if they are selected for the final shortlist.
7 Q.Is there anything about the Wind Projects that makes the estimated capacity
8 factor more uncertain than for other wind facilities the Company has developed?
9 A.No.The Company's methodology for estimating the capacity factors for the Wind
10 Projects is the same as the methodology previously relied on by the Commission.In
11 this respect,the Wind Projects are no riskier than any of the previous wind projects the
12 Company has successfully developed for customers.O 13 Q.What efforts has the Company taken to validate the capacity factors developed
14 for the Wind Projects?
15 A.The Company engaged an independent third-party wind-resource data technical analyst
16 to review and determine the appropriate capacity factor estimates to incorporate into
17 its Wind Project analyses and 2017R RFP submissions.The third-party technical
18 assessments are based on an annual 50-percent probability ("P50")approach and
19 provide estimated wind production over several years to account for normal and
20 expected annual variations.By the very nature of a P50 estimate,actual wind project
21 production is expected to be below the P50 estimate half of the years and above the
22 P50 estimate the other half of the years.Requiring the Company to provide the full
23 PTC and energy benefits at the higher of the P50 capacity factor or actual production
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1 is asymmetrical and unreasonable.
2 Q.Has the Company taken additional efforts to validate the capacity factors assumed
3 in the bids to be included in the 2017R RFP?
4 A.As Mr.Link testifies,the Company engaged another independent third-party wind-
5 resource data technical analysts to review and determine the appropriate capacity factor
6 estimates to incorporate into any final shortlist analyses.The third-party experts based
7 their assessments on a P50 approach.The Company intends to include this independent
8 study in its supplemental filing.
9 Q.How have the Company's Wyoming wind resources performed from 2010 through
10 2016,as compared to the annual capacity factors estimated for the individual
l 1 projects at the time of acquisition decision-making?
12 A.Overall,the Company's existing wind projects in the Medicine Bow,Wyoming areaO13neartheproposedlocationoftheAeolussubstationhaveout-performed the pre-
14 construction estimates,as set forth in the followingtable:
15 WYOMING WIND CAPACITY FACTOR SUMMARY
Capacity Factor MW Pre-Construction
Summary Nameplate COD PSO Average Actual Difference
(non-leap years)2010 -2016
SEVEN MILE HILL I 99 12/31/2008 41.3 percent 39.2 percent -5.0 percent
SEVEN MILE HILL II 19.5 12/31/2008 39.3 percent 42.5 percent 8.1 percent
HIGH PLAINS 99 9/13/2009 35.7 percent 35.2 percent -1.3 percent
MCFADDEN RIDGE I 28.5 9/29/2009 34.5 percent 37.2 percent 7.9 percent
DUNLAP I lll 10/1/2010 36.4 percent 40.2 percent 10.4 percent
Total 357
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l Q.Do the results to date indicate fatal flaws or undue risk in the third-partyP50
2 analysis the Company relies on to assess project economics and customer benefits
3 before acquisition of new wind projects?
4 A.No.If anything,the data presented above indicates the Company's approach to P50
5 capacity factor assessment for its Wyoming projects has provided a conservative
6 representation of results on an average basis through seven years of project operation.
7 Q.Is there a mechanism in place to appropriatelycapture the variabilityin resource
8 benefits inherent with new wind projects?
9 A.Yes.As utilized with previously implemented wind projects,the Energy Cost
10 Adjustment Mechanism captures the variability in resource benefits inherent with wind
ll projects,in conjunction with other system energy costs and PTCs,and distributes those
12 benefits to customers.
13 Q.Does your summary above provide different results than the data provided in Mr.
14 Phillips'testimony about the Company's track record in estimating wind project
15 capacity factors?(See Phillips Direct,page 30,Table NLP-5.)
16 A.Yes.I've limited my wind project capacity factor data set to those projects the Company
17 developed in the Medicine Bow area of Wyoming and placed in service between 2007
18 and 2010.The Company's results with the relatively recent Wyoming wind projects
19 that were developed near Medicine Bow,Wyoming,are better correlated and more
20 representative of the results the Company would expect with the Wind Projects,
21 particularly considering that each of the four Wind Projects incorporated into the
22 Application are located adjacent to the Company's existing operating sites included in
23 the chart above.Mr.Phillips'reliance on capacity factor data including projects
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1 developed in the earliest years of the wind industry,and those developed outside of the
2 Medicine Bow area of Wyoming in those early years,skews the data set and presents
3 an inapt comparison.
4 Q.Mr.Keller testifies the Company should bear the risks associated with the
5 performance and availabilityof the Wind Projects throughproper operations and
6 maintenance because these are within the Company's control (Keller Direct,page
7 19,lines 23-24).Does the Company accept this condition as a fair risk-allocation
8 approach?
9 A.No.While the Company is engaged in negotiations for contractual performance
10 guarantees with third-party maintenance providers for the Wind Projects,imputing an
11 incremental regulatorymechanism pertaining to availability risk for the life of the new
12 Wind Projects is unreasonable and unprecedented.The Commission has never imposedO13suchaconditiononanyoftheCompany's previous wind projects.
14 Q.Mr.Lobb recommends a condition requiring the Company to provide a
15 mechanical availabilityguarantee ("MAG")based on the industry average of 97
16 percent for the Wind Projects.(Lobb Direct,page 9,lines 21-24.)Is this a
17 reasonable condition?
18 A.The Company will negotiate availability guaranteesfor the Wind Projects in any third-
19 party-providedmaintenance,as provided by the competitive market.In the Company's
20 wind repowering project,the Company was able to negotiate guarantee for repowered
21 projects'performance such that the projects will
22 .It is reasonable to expect
23 that similar guaranteescan be negotiated for the Wind Projects.However,higher wind
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l availability guarantees often require a cost premium in operations and maintenance
2 contracts,and there are cases where lower availability guaranties could lead to lower
3 LCOE for customers.Mandating an availability guarantee threshold could be
4 detrimental in some cases.
5 CONCLUSION AND RECOMMENDATION
6 Q.What is your conclusion of your rebuttal testimony?
7 A.The Combined Projects remain well positioned to provide customer benefits and are
8 being effectively developed in parallel to ongoing regulatory proceedings,including
9 the 2017R RFP,procurement activities,and upcoming permitting,to mitigate project
10 risks and deliver desired outcomes.Project development activities continue to be
11 managed within a reasonable timeline to assess project risks,incorporate those
12 assessments into decision-making,and allow for changes in project direction (i.e.,off-O 13 ramps),if necessary.The Company appreciates the engagement of the parties and
14 believes the Combined Projects will benefit from this rigorous stakeholder review
15 before the Company makes major commitments to the projects.The Company looks
16 forward to the opportunity to file its supplemental testimony in January 2018,with the
17 results of the 2017R RFP and more detailed cost and production information about the
18 Combined Projects.
19 Q.Does this conclude your rebuttal testimony?
20 A.Yes.
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