20180430Teply Supplemental Rebuttal - Redacted.pdf

O RECElVED
2018 APR 30 AM 9:38
BEFORE THE IDAHO PUBUC UTILITIES COMMISSION SlON
IN THE MATTER OF THE APPLICATION )CASE NO.PAC-E-17-07OFROCKYMOUNTAINPOWTRFORA)CERTIFICATEOF PUBLIC )SUPPLEMENTALREBUTTALCONVENIENCErWDNECESSITYimD)TESTIMONYOF CHAD A.TEPLYBINDINGRATEMAKINGTREATMENT)REDACTEDFORNEWWINDANDTRANSMISSION)FACILITIES )
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ROCKY MOUNTAIN POWER
CASE NO.PAC-E-17-07
APRIL 2018
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1 Q.Are you the same Chad A.Teply who previously submitted testimony in this case
2 on behalf of Rocky Mountain Power ("Company"),a division of PacifiCorp?
3 A.Yes.
4 PURPOSE AND SUMMARY OF TESTIMONY
5 Q.What is the purpose of your supplementalrebuttal testimony in this proceeding?
6 A.I support the Company's request for certificates of public convenience and necessity
7 ("CPCNs")and binding ratemaking treatment for new wind resources ("Wind
8 Projects")and the Aeolus-to-Bridger/Anticline line and network upgrades
9 ("Transmission Projects")(collectively,the "Combined Projects"),by responding to
10 the supplemental testimony submitted by Monsanto witness Mr.Nicholas L.Phillips,
11 PaciflCorp idaho Industrial Customers ("PIIC")witness Mr.Bradley G.Mullins,and
12 StatT witnesses Mr.Michael Louis and Mr.Michael Eldred.
13 Q.Please summarize your testimony.
14 A.The conditions proposed by Mr.Phillips,Mr.Mullins,and Mr.Louis are unsupported,
15 and my understanding is that none of them have ever been applied to the Company's
16 past resource acquisitions.Further,these witnesses have not presented any basis to
17 upend the traditional regulatory compact as it pertains to the Combined Projects.
18 The Wind Projects'cost risks that Mr.Eldred identifies are project
19 implementation concerns that are managed and mitigated in the normal course of
20 business during new generation development.The Company has extensive experience
21 addressing and mitigating these risks.
22 Now that the 2017R Request for Proposals has concluded,and as final contract
O 23 negotiations progress,the risks associated with the Combined Projects continue to
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l decrease.The Cornpany is now better positioned to provide customer benefits through
2 the timely development of the Wind Projects.
3 RESPONSE TO PROPOSED CONDITIONS
4 Q.Mr.Phillips continues to recommend that the Commission impose several
5 conditions if the CPCN is approved.(PhillipsSupp.Direct,page 3,line 9 to page
6 4 line 11 and again on page 59,line 15 to page 60,line 11.)Do you have any
7 additional concerns about these proposed conditions?
8 A.Yes.The Company addressed Mr.Phillips'conditions in its rebuttal testimony (see,
9 e.g..Teply Rebuttal,page 11,line 8 to page 18,line 3),and the Company continues to
10 of iect to Mr.Phillips'recommendation for the same reasons already stated-most
i 1 notably because they are unprecedented and depart from Commission practice that is
12 not justified based on the nature of the Combined Projects.To propose a punitive cap
13 on capital costs and overly onerous conditions regarding other project costs and
14 perforrnance criteria,as Mr.Phillips has done,is counterproductive to the ongoing
15 proceedings and discourages innovative resource development in the future.In
16 particular,the $1,781.44million cost cap referenced in Mr.Phillips'testimony does not
17 in any way reflect the reasonable costs to deliver the Combined Projects.
18 Q.Have other parties also proposed cost caps?
19 A.Yes.Both Mr.Mullins (Supp.Direct,page 4,lines 4-21),and Mr.Louis (Supp.Direct,
20 page 14,lines 8-19),have proposed hard caps for the CombinedProjects at the amounts
21 presented in the Company's Supplemental Direct testimony.Similar to Mr.Phillips'
22 proposed hard caps,Mr.Mullins'and Mr.Louis'proposed hard caps are also
O 23 unprecedented,not justified based on the nature of the CombinedProjects,and a depart
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1 from Commission practice.While Mr.Mullinsi and Mr.Louis claim to base their
2 respective hard cap recommendations on the Company's estimated costs for the
3 Combined Projects,a hard cap with no opportunity for recovery of prudentlyincurred
4 costs above the hard cap is not appropriate for major projects at this stage of
5 development and implementation (i.e.pre-approval stage).The Company should have
6 the ability to prudentlymanage unforeseen circumstances to deliver the Combined
7 Projects and present its case,recognizing that the Commission will ultimately
8 determine whether any such actions and costs were prudentlydeployed.The Company
9 has historicallyprudentlymanaged its projects through development,implementation,
10 and operation,and the Commission should have the opportunity to review all costs
11 incurred to implement the Company's resource additions.The Company has never been
12 incentivized to proceed at any cost as Mr.Mullins'and Mr.Louis'conditions would
13 presume,and nothing about the Combined Projects diminishes the Company's
14 incentive to meet its cost estimates.
15 Q.How is the Companymitigatingthe cost and performancerisks that form the basis
16 of Mr.Phillips'proposed conditions?
17 A.The Company relies extensively on the contract negotiation process to mitigate many
18 of the risks discussed by Mr.Phillips.For example,the Company is currently
19 negotiating the engineering,procurement,and construction contracts for the
20 benchmark Wind Projects and negotiating the build-transfer agreements ("BTA")for
21 the BTA Wind Projects.These contracts will have robust risk-mitigation provisions,
O 3 However,the 51,370,237,000 for the Wind Projects included in Mr.Mullins's testimony is not the cost
included in the Company's second supplemental filing.The amount included in the Company's filing is
$1,455,495,230 for :he Wind Projects.
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REDACTED
1 including fixed construction costs,terns and conditions to guarantee on-time delivery
2 of the resources,counterparty representation and warranties,and commercially
3 available indemnities and securities.The Company is currentlyengaged with each of
4 the Wind Project developers,and with the shortlisted benchmark construction
5 contractors and wind turbine generator suppliers,to finalize definitive agreements in
6 parallel with the ongoing regulatory reviews of the Combined Projects.
7 The Company is also continuing with its detailed due diligence and support of
8 each of the Wind Projects as their individual project development activities continue
9 with state and local permitting activities,public outreach,engagement of state and
10 federal wildlife agencies,as well as landowners,leaseholders,and affected mineral
11 rights holders,where applicable.
12 Q.Can the Company also use contracting to mitigate the risk of greater-than-
13 expected operationalexpenses and reduced equipmentavailabilitythrough the life
14 of the Wind Projects?
15 A.Yes.The Company has previously described its intent to negotiate third-party
16 maintenance contracts for the Wind Projects that will address operations and
17 maintenance cost and run-rate capital expenditure risks for the Wind Projects.The
18 Company will also negotiateavailabilityguarantees for the Wind Projects in any third-
19 party-provided maintenance agreements,as provided by the competitive market.In the
20 Company's ongoing wind repowering project negotiations,the Company secured
21 performance guarantees established at a production rate of lill
22 lilillillillillilli,lt is reasonable
O 23 to expect that similar guarantees can be negotiated for the Wind Projects.While the
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1 Company cannot guarantee ñiture outcomes,development of the Wind Projects will
2 include these important risk-mitigation measures,similar to those that have been
3 included to support past investments.
4 Q.Mr.Phillipsrecommends capping the Company's net fixed system costs to those
5 levels assumed in the Company's economic analyses for the life of the Wind
6 Projects.(Phillips Corrected Supp.Response,page 3,lines 21-23,and page 59,
7 lines 26-28.)Is this condition reasonable?
8 A.No.Mr.Phillips'proposal to cap recovery of net fixed system costs ignores the reality
9 that the Company's generation resources and net system fixed costs will continue to
10 evolve around the Combined Projects over their life as economic development
11 opportunities,individual project developments,energy industry regulations and
12 policies evolve.
13 Requiring the Company to guarantee these future outcomes is another example
14 of Mr.Phillips proposing an unprecedented and unsupported condition that goes well
15 beyond the existing regulatory compact.
16 Q.Mr.Phillipscontinues to recommend that the Company include in base rates and
17 net power costs the full PTC benefits and energy benefits based on the assumed
18 net capacity factors included in the Company'sfiling.(PhillipsSupp.Direct,page
19 4,lines 1-5.)Do you agree?
20 A.No.I explained in rebuttal testimony why the imputation of the estimated capacity
21 factor is unreasonable (see Teply Rebuttal Testimony,page 14,line 1 through page 18,
22 line 3.)The Company has used the best information currentlyavailable to estimate the
O 23 production of the new Wind Projects.Actual production is an example of an item
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1 beyond the Company's control,as discussed by Mr.Keller in his direct testimony.
2 Mr.K.eller noted that the Company's assumptions "were within a reasonable range"
3 and that "risks and uncertainties can be categorized into one of two groups:those the
4 company can control and those it cannot."(KellerDirect,page 3,lines 10-13,and page
5 4,lines 5-7).
6 Q.Mr.Phillipsalso claims there is a risk that avian impacts may cause excessive
7 curtailment of the Wind Projects.(PhillipsSupp.Direct,page 56,lines 4-9).Has
8 Mr.Phillipssubstantiated this concern?
9 A.No.Mr.Phillips speculates that avian issues "could"require curtailment at any of the
10 Wind Projects and follows with the general association that curtailment "could"then
11 cause the output and relatedPTCs to be lower than assumed in the Company's analysis.
12 The Company has significant experience operating its Wyoming wind resources
13 to protect threatened and endangered avian species,and has active curtailment
14 programs at two existing wind plants.To meet its obligations,the three-year average
15 megawatt hours of wind generationcurtailment has been approximately 0.4 percent and
16 1.1 percent of total megawatt-hours produced at the two facilities where avian
17 curtailment occurs.Recognizing the variable nature of the wind resource,and that
18 curtailment protocols have been allowed by the agencies havingjurisdictionto balance
19 protection of wildlife with optimizing use of these renewable resources,the Company
20 does not consider curtailment protocols to be a risk driver that would justify rejection
21 of the Wind Projects or warrant specific CPCN conditions.In addition,the Company's
22 avoidance,minimization,and mitigation actions anticipated for future projects are
O 23 expected to reduce or eliminate the potential usage of informed curtailment.Those
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1effortsincluderaptornestbuffers,habitatsetbacks,andmicro-sitingofwindturbines
2basedonknownwildlifeusagepatterns.AswiththeCompany'sobjectionto
3guaranteedcapacityfactors,anyannualfluctuationsinenergyproductiondueto
4curtailmentprotocolsarewellwithintheintendedapplicationoftheexistingenergy
5costadjustmentmechanism.
RESPONSETOOTHERRISKS
7Q.Mr.EldredidentifiestestimonysubmittedintheWyomingCPCNproceedingby
8Anadarkoregardingsplit-estatelandownerconcerns.Heraisesaconcernthatthe
9issuesraisedbyAnadarkoareasignificantfuturecostriskfortheWindProjects.
10(EldredSupp.Direct,page16,lines2-18.)HastheCompanytakenstepsto
11addressAnadarko'sconcernsandmitigatefuturecostriskfortheWindProjects?
12A.Yes.TheCompanyandAnadarkoreachedanagreementonapathforwardtomitigate
13theirconcernsonsplit-estates,whichresultedinAnadarkowithdrawingfromthe
14Wyomingproceeding.TheCompanyintendstoimplementsimilarmeasureswithother
15concernedsplit-estatelandownerstofacilitatecost-effectivedevelopmentand
16implementationoftheWindProjects.ResolutionofAnadarko'sconcernshasnot
17materiallyimpactedanyoftheeconomicanalysissupportingtheCombinedProjects.
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1 Q.Mr.Eldred also identifies testimony submitted by Anadarko in Wyoming
2 regarding potential schedule risks associated with a need for a supplemental
3 federal Environmental lmpact Study ("EIS")for the Wind Projects due to their
4 parallel track implementationplans with the Transmission Projects.(Eldred
5 Supp.Direct,page 18,line 13 to page 19,line 7.)Has the Company addressed this
6 assertion and any associated schedule risk?
7 A.Yes.The Final Gateway West ETS and Record of Decision presented a full National
8 Environmental Policy Act ("NEPA")analysis of each transmission line segment
9 addressing interrelated segments of the same action,dependent actions,reasonably
10 foreseeable future actions,and a cumulative analysis of all actions.The Final EIS
11 addresses the transmission line segmeñts as having independent utility,i.e.,as being
12 usable regardless of additional transmission segments or generation improvements in
13 the project area are constructed.
14 The Wind Projects as "renewable generation"were considered in the Final EIS
15 analysis as part of potential projects contained in PacifiCorp's large generator
16 interconnection queue,and the Wind Projects do not require NEPA analysis as they are
17 fully contained on state and private land.Thus,the Wind Projects are not "connected
18 actions"that require the Company to file a supplemental El S.Each of the Wind Projects
19 have their own permitting requirements that will be completed by the respective project
20 developers.
21 Q.Has the Bureau of Land Management ("BLM")confirmed the Company's
22 position that no supplementto the EIS is necessary?
23 A.Yes,in a March 27,2018 letter to the Lincoln County Commission,the Wyoming State
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1 BLM Director agreed that no supplemental EIS is required.A copy of the BLM letter
2 is provided as Exhibit No.66.
.3 CONCLUSION AND RECOMMENDATION
4 Q.What do you conclude in your supplementalrebuttal testimony?
5 A.The conditions proposed by Mr.Mullins,Mr.Phillips,and Mr.Louis are unsupported,
ó and my understanding is that none of them have been applied to the Company's past
7 resource acquisitions.Further,the parties have presented no basis to upend the
8 traditional regulatory compact as it pertains to the Combined Projects.
9 Q.Does this conclude your supplementalrebuttal testimony?
10 A.Yes.
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