20180430Crane Supplemental Rebuttal.pdf

RECEIVED
O 2018 APR 30 AM 9:38
SSION
BEFORE THE IDAHO PUBLlC UTILITIES COMMISSION
IN THE MATTEROF THE APPLICATION )CASE NO.PAC-E-17-07
OF ROCKY MOUNTAINPORTR FOR A )
CERTIFICATEOF PUBLIC )SUPPLEMENTALREBUTTAL
CONVENIENCEAND NECESSITYrWD )TESTIMONYOF CINDY A.CRANE
BINDING RATEMAKINGTREATMENT )
FOR NEW WIND AND TRANSMISSION )
FACILITIES )
O
ROCKY MOUNTAINPOWER
CASE NO.PAC-E-17-07
APRIL 2018
O
1 Q.Are you the same Cindy A.Crane who previously provided testimony in this case
2 on behalf of Rocky Mountain Power ("Company"),a division of PacifiCorp?
3 A.Yes.
4 PURPOSE AND SUMMARY OF SUPPLEMENTAL REBUTTAL TESTIMONY
5 Q.What is the purpose of your supplementalrebuttal testimony in this proceeding?
6 A.I support the Company's application for approval of certificates of public convenience
7 and necessity ("CPCNs")and binding ratemakingtreatment to (T)construct the Aeolus-
8 to-Bridger/Anticlinetransmission line and network upgrades ("Transmission Projects")
9 and (2)construct or acquire the Ekola Flats,TB Flats I and II,Cedar Springs,and Uinta
10 projects,which are the four new wind resources ("Wind Projects")included on the final
11 shortlist of the 2017R Request for Proposals ("RFP"),(collectively,the "Combined
12 Projects").I provide a policy response to the April 11,2018,testimony filed by the
13 parties.
14 Q.Please summarize your testimony.
15 A.The Company's application has been thoroughly reviewed since it was filed in
16 June 2017.The process has included multiplerounds of testimony and analysis.At this
17 juncture,most of the questions and concerns initiallyraised have been addressed-tax
18 reform is behind us,the Company concluded the 2017R RFP and is negotiating
19 contracts with the winning bidders,the Utah and Oregon Independent Evaluators
20 ("IEs")have reported on the fairness of the RFP,and the process to acquire easements
21 and rights-of-way for the Transmission Projects is underway.The benefits of the
22 Combined Projects are now clear,with millions of dollars in benefits to customers,the
O 23 addition of new resources that will enhance the ability of the Company to provide safe
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l and reliable service to Idaho customers with manageable risks.The Combined Projects
2 are in the public interest so the Company requests approval of the application for
3 CPCNs and binding ratemaking treatment.
4 PUBLIC INTEREST
5 Q.Can you provide an overview of how the Company'sCPCN application for the
6 Combined Projects serves the public interest?
7 A.Yes.The Combined Projects are a tremendous opportunityfor Rocky Mountain
8 Power's customers.They support the public interest in three key ways:
9 First,by reducing costs to customers by capturing federal production tax
10 credits ("PTCs")that essentiallypay for critical new transmission
11 infrastructure through the 140-mile,500 kV Aeolus-to-Bridger/Anticline
12 transmission line.
13 Second,by providing new wind facilities,adding enough new wind energy to
14 power over 400,000 average homes.
15 ·Third,by reducing customer risk by securing zero-fuel cost and emission free
16 generation.
17 Q.In supplemental testimony,do any parties support the Company's request for
18 CPCN?
19 A.Yes.The Idaho Public Utilities Commission staff ("Staff")reconunend conditional
20 approval of the CPCN.
21 Q.What are the requirements for approvalof the CPCN in this case,as outlined in
22 your direct testimony?
O 23 A.It is my understanding that the Conunission will issue a CPCN if it is in the public
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1 interest.To determine the public interest,the Commission must determine whether the
2 present or future public convenience and necessity require additional resources and
3 whether the proposal is a reasonable means of meeting this need.In my direct
4 testimony,I explained that the Combined Projects meet this public interest standard,
5 emphasizing the Company's commitment to run a fair and unbiased RFP process and
6 the need for the Combined Projects,as made clear in the Company's long-term
7 transmission plan and the Company's 2017 Integrated Resource Plan ("1RP").
8 Q.Now that the Wind Projects have been selected through the 2017R RFP,do the
9 Combined Projects continue to meet the public interest standard?
10 A.Yes,even more clearly.First,no party has challenged the Company's financial ability
11 to construct or acquire the Cornbined Projects.
12 Second,the 2017R RFP was monitored by two IEs---ene appointed by the
13 Public Utility Commission of Oregon and one retained by the Public Service
14 Cornmission of Utah.The IEs monitored the 2017R RFP to ensure that the RFP was
15 fair,unbiased,and conducted in the public interest.Both of these independentexperts
16 affirmed that the 2017R RFP process and results served the public interest,establishing
17 the Company's good faith.
18 Third,the Aeolus-to-Bridger/Anticlineline is a necessary investment for
19 customers.The addition of this transmission line by 2024 is an important part of the
20 Company's long-term transmission plan,and the line is needed to relieve congestion,
21 provide voltage support,improve reliability,and reduce line losses.The robust
22 response to the 2017R RFP,and the interconnection constraints faced by many of the
O 23 bidders,reinforce the importance of adding more transmission capacity in Eastern
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1 Wyoming to harness cost-effective generationresources for customers.
2 In addition,the Wind Projects are needed to provide zero-fuel-cost generation
3 to serve customers,minimizing reliance on front-office transactions and reducing net
4 power costs.The Wind Projects provide significant benefits from currently available
5 PTCs.These benefits allow the Company to construct the Transmission Projects with
6 srnall near-term rate increases and long-term savings.Since the Company's initial filing
7 and the completion of the 2017R RFP,the near-term rate increases have remained
8 modest,while the long-term benefits of the Combined Projects have increased and the
9 risks have decreased.As I explained in my second supplemental direct testimony,the
10 Combined Projects now show benefits of $167 million in the medium case through
1 l 2050,and a range of $357 million to $405 million in the medium case through 2036.
12 In the 18 scenarios studied (nine each for the 2050 and 2036 analyses),16 of 18 cases
13 show net customer benefits.
14 Q.Please summarize the conclusions of the Utah and Oregon IEs regarding the
15 2017R RFP.
16 A.As discussed in greater detail in Mr.Rick T.Link's testimony,both IEs found that the
17 2017R RFP was conducted in a manner that produced the most competitive resource
18 options for customers.The Utah lE specifically concluded that the 2017R RFP was fair,
19 reasonable,and generally in the public interest.(Final Report of Merrimack Energy
20 Group,Inc.to Utah Public Service Commission,PacifiCorp Renewable Request for
21 Proposals at 70 (Feb.2018)(hereinafter "Utah lE Report")).According to the IE,the
22 RFP was designed to lead to the acquisition of wind-generated electricityat the lowest
O 23 reasonable cost.(Utah IE Report at 71).The Company used a "detailed state-of-the-art
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1 portfolio evaluation methodology"demonstratingthat the Combined Projects "should
2 result in significant savings for customers,"particularly in the near-term.(Utah IE
3 Report at 71,83).
4 'The Oregon IE concluded that the Wind Projects were the top viable offers and
5 provide the greatest benefits to ratepayers.(Independent Evaluator's Final Report on
6 PacifiCorp's 2017R Request for Proposals at 2-3 (Feb.16,2018)(hereinafter "Oregon
7 IE Report")).The Oregon lE verified the Company's modeling with its own cost
8 modeling of each bid and confirmed that the 2017R RFP aligned with the 2017 IRP.
9 (Oregon IE Report at 2-3).
10 Q.How did the IEs conclude that the 2017R RFP was unbiased?
11 A.First,both IEs conducted a detailed and independent assessment of the Company's
12 benchmark resources.The Utah IE noted that the Company's benchmark information
13 exceeded industry standards,the costs were reasonable,and that there was no outward
14 perception of bias.(Link Second Supp.,page 28,lines 4-21).The Oregon IE stressed
15 that it took special care to confirm the selection of the benchmark resources,that the
16 benchmark costs were disciplined by third-partybids for the same resources,and that
17 his thorough assessment concluded that the benchmark costs were reasonable.(Oregon
18 IE Report at 2---3,10-11).
19 Second,to confirm that there was no bias,the Oregon IE requested that the
20 Company perform a sensitivity analysis to compare the Company's selected bids to an
21 alternative portfolio of PPAs.Both IEs agreed that the results of this sensitivity showed
22 that there was no bias.
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1 Q.Did the IEs address the modeling and evaluation issues raised by the parties in
2 this case?
3 A.Yes.Nearly every criticism leveled at the Company's solicitation process or modeling
4 in the parties'direct and supplemental testimony was addressed and rejected by the IEs:
5 The IEs confirmed that the Company's refined rnodeling of PTC benefits to
6 match how PTCs flow through rates did not bias the bid selection in favor of
7 utility-ownedresources.
8 The IEs reviewed the Company's solar sensitivity related to the 2017S RFP and
9 neither disputed the Company's conclusion that solar resources do not displace
10 the Wind Projects-rneaningthat wind and solar resources are not an either-or
11 proposition.
12 The IEs confirmed that the Company's determination of project viabilitybased
13 on interconnection queue positions was reasonable.
14 The IEs confirmed the accuracy of the Company's tenninal-value benefits used
15 to evaluate utility-ownedresources,and both IEs further noted that the benefit
16 was modest.
17 Q.Monsanto contends that the power purchase agreements in the solar 2017S RFP
18 represent a superior resource option compared to the Combined Projects (Phillips
19 Supp.Direct,page 28,lines 14.)Does the Companyagree with this contention?
20 A.No.As discussed by Mr.Link,while the base economic analyses of the now-completed
21 2017S RFP show that there are potential customer benefits from solar PPAs,solar
22 resources are an incremental opportunity,not an alternative to the Combined Projects.
O 23 Sensitivity analyses show valuation risks that are unique to solar resource opportunities
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l and costs are expected to continue to fall.Because the expiration of the investmenttax
2 credit for solar is not imminent,the Company does not need to act now in order to
3 capture these tax savings.PacifiCorp will continue to assess potential economic
4 benefits from solar-resource opportunities in the 2019 Integrated Resource Plan,
5 including a thorough review of valuation risks with full stakeholder engagement,to
6 determine whether a new competitive solicitation process for projects capable of
7 achieving conunercial operation by the end of 2021 will provide customer benefits.
8 Q.Did the IE agree with the Company'sconclusions on the 2017S RFP?
9 A.Yes.London Economics International,LLC,the IE retained for the 2017S RFP,
10 concluded:1)that the process was conducted in accordance with its RFP documents;
11 2)that the process was conducted in a fair and unbiased manner;3)the modeling and
12 analysis for the final short list process was fair and reflected industrybest practices;4)
13 the sensitivity analysis was reasonable;and 5)the decision not to award any solar bids
14 in this RFP was not inconsistent with the process outlined in the RFP.
15 Q.The parties anege that the Combined Projects pose an undue risk to customers.
16 Do you agree?
17 A.No.In the eight-and-a-half months since this case was filed,the risks have decreased.
18 First,the updated economic analysis demonstrates that under the medium natural gas,
19 medium CO2 scenario,customer benefits increased over the life of the Wind Projects.
20 Higher estimated benefits reduce risk by providing an additional cushion to allow for
21 variability in forecasts through2050.
22 Second,the Company's econornic analysis shows that in almost every future
O 23 scenario,customers are better off with the Combined Projects than under the status quo
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1 (whichrequires greater reliance on the market,coupled with future acquisitions of non-
2 PTC-eligible resources).Mr.Phillips incorrectly suggests forgoing the time-limited
3 opportunityhere would be essentially risk-free.The parties have not demonstrated that
4 the status quo is less cost and less risk in the face of current market opportunities.
5 Third,as project implementation has continued,there is now greater certainty
6 related to the costs of the Combined Projects.Development of the Transmission
7 Projects continues on schedule,and the Company is steadily progressing through the
8 process to acquire necessary easements and rights-of-way in parallel with the
9 regulatorv-approval process.The risk of changes in the federal tax code has been
10 resolved.The Company remains confident that the Combined Projects will be in service
11 by 2020,and the Wind Projects will be eligible for 100 percent PTC benefits.
12 Fourth,the selection of primarily self-build or build-transfer agreements
13 ("BTA")bids does not increase the risk profile of the Wind Projects as compared to
14 power purchase agreements ("PPAs").Contrary to Mr.Phillip's claims,the advantages
15 of PPAs,solar or otherwise,is not clear-cut.As Mr.Link explains,PPAs have a different
16 profile of risks and benefits relative to utility-ownedresources,but they are not an
17 inherentlysuperior resource option for customers.The bids received in the 2017R RFP
18 reflected both resource options,and the Company used an unbiased analysis to select
19 the best option for customers.In one case,that was a PPA (one-halfof Cedar Springs),
20 in other cases it was a benchmark resource (TB Flats I and II and Ekola Flats)or a BTA
21 (Uinta and the other half of Cedar Springs).
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1 Q.Does the Company stand by its commitment to assume the risk of non-
2 qualification for PTCs if it is related to the Company's performance?
3 A.Yes.If the Wind Projects are not 100-percent PTC eligible because of sorne occurrence
4 within the Company's control,shareholders will hold customers harmless.
5 Q.Monsanto recommends that the Company hold customers harmless even for
6 events outside its control.(Phillips Supp.Direct,page 3,lines 9-11).Is this a
7 reasonable condition for approvalof a CPCN?
8 A.No.As Ms.Steward,Mr.Teply,and Mr.Link discuss,the parties'proposed conditions
9 are unprecedented and contrary to well-established customer protections provided by
10 the Commission through its traditional ratemaking process.Moreover,the basis for
11 these conditions------that the Combined Projects are discretionary------is unfounded,
12 Notably,Mr.Keller agrees that the Company should protect customers from those risks
13 it can control and mitigate those risks that are beyond its control (Keller Direct,page
14 4,lines 5-15).The Company agrees with Mr.Keller and has implemented measures to
15 mitigate risks within its control and believes that the existing regulatory process,
16 reflected in the Commission's past practice,is sufficient to address risks that are beyond
17 the Company's control.
18 Q.What is your request to the Commission in this case?
19 A.For the future of our customers,I ñrmly believe that the Combined Projects are a
20 prudent and beneficial investment,and their developmentand acquisition is in the
21 public interest.Respectfidly,I ask the Commission to approve the CPCNs and
22 binding ratemaking treatment for the Combined Projects.
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1 Q.Does this conclude your supplementalrebuttal testimony?
2 A.Yes.
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