20180509Steward Settlement Direct - Redacted.pdf

BEFORE THE IDAHO PUBLICUTILITIES COMMISSION SIONINTHEMATTEROFTHEAPPLICATION)CASE NO.PAC-E-17-07OFROCKYMOUNTAINPOWERFORA)CERTIFICATEOF PUBLIC )SETTLEMENTTESTIMONYOFCONVENIENCEANDNECESSITYAND)JOELLE R.STEWARDBINDINGRATEMAKINGTREATMENT)REDACTEDFORNEWWINDANDTRANSMISSION)FACILITIES
)
ROCKY MOUNTAINPOWER
CASE NO.PAC-E-17-07
MAY 2018
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l Q.Are you the same Joelle R.Steward who previously providedtestimonyin this
2 case on behalf Rocky Mountain Power,a division of PacifiCorp (the
3 "Company")?
4 A.Yes.
5 PURPOSE AND SUMMARY OF SETTLEMENT TESTIMONY
6 Q.What is the purpose of your settlement testimony in this proceeding?
7 A.My testimony presents,explains,and supports the stipulation ("Stipulation")in this
8 proceeding,Case No.PAC-E-17-07,between the Company and the Staff of the Idaho
9 Public Utilities Commission ("Staff'),filed with the Commission on May 8,2018.In
10 addition to my testimony,Company witness Mr.Rick T.Link provides testimony in
11 support of the Stipulation,updating the economic analysis to reflect the removal of the
12 Uinta wind project from the Company's application in this case.
13 The Stipulation proposes a resolution to all but one of the issues in dispute
14 between the Company and Staff,as I will explain beÎow.As described in the Second
15 Supplemental Direct Testimony of Rocky Mountain Power,the Company requests a
16 certificate of public convenience and necessity ("CPCN")and ratemaking treatment for
17 the 140-mile Aeolus-to-Bridger/Anticline 500-kV transmission line,three new
18 Wyoming wind resources,Ekola Flats,TB Flats I and II,and Cedar Springs,totaling
19 1,150 MW ("Wind Projects"),and the related network upgrades (collectively,
20 "Stipulated Projects").The Stipulation provides a framework for the positive resolution
21 of the complex issues presented in this case and is in our customers'best interest.
22 Q.Please provide a short summary of the key terms of the Stipulation.
23 A.The Company and Staff ("Stipulating Parties")have entered into a Stipulation that
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1 includes the followingkey provisions:
2 The Stipulating Parties request that the Commission issue an order granting a
3 CPCN for the proposed Aeolus-to-Bridger/Anticline transmission line,the Wind
4 Projects,and the related network upgrades,with a finding that (1)the Stipulated
5 Projects are prudent and in the public interest,and (2)in accordance with Idaho
6 Code §61-526,the Stipulated Projects are a reasonable way to meet the present
7 or future public convenience and necessity.(Stipulation ¶9).
8 The Stipulating Parties request that the Commission approve the Company's
9 proposed ratemaking treatment for recovery of the new investment,energy
10 production,and production tax credits ("PTC")associated with the Stipulated
11 Projects through the proposed Resource Tracking Mechanism ("RTM"),as a
12 component of the Energy Cost Adjustment Mechanism ("ECAM").The RTM,
13 along with the ECAM,will capture the costs and benefits of the StipulatedProjects
14 until the Company's next general rate case,at which time the Stipulating Parties
15 will re-evaluate the use of the RTM going forward.(Stipulation ¶10).
16 The Company will include the actual costs and benefits it incurs for the Stipulated
17 Projects in the RTM for recovery in the ECAM.Actual ca ital costs included in
18 the RTM,before the next general rate case,cannot exceed ,which
19 are the estimated costs for the Stipulated Projects included in the Second
O 20 Supplemental Direct Testimony of Rocky Mountain Power.Parties will have the
21 opportunity to verify these costs as part of the annual audit of the ECAM deferred
22 balance.(Stipulation ¶13).
23 Costs that arepassed on to custorners through the RTM,before the next general
24 rate case,will be capped at the benefits that will flow through the ECAM.As such,
25 on a combined basis,the ECAM and the RTM will not result in a net cost to
26 customers associated with the Stipulated Projects.Any costs above this cap will
27 be deferred as a regulatory asset for recovery to be set in the next general rate case.
28 (Stipulation ¶14).
29 In recognition of receiving timely recovery of its investment through the ECAM
30 and RTM,the Company will annually provide $300,000,which will be deferred
31 as a regulatory liability,beginning in the month the first facility's costs are
32 included in the RTM,with the ratemaking treatment to be set in the next general
33 rate case.If the RTM deferral period is a partial year,the annual $300,000 will be
34 pro-rated for the deferral period.(Stipulation ¶15).
35 The Stipulating Parties reserve all rights to argue in this case for or against an
36 overall capital cost cap for the construction of the Stipulated Projects.The
37 Stipulating Parties agree that such a cap,if any,would be applied at the time of
38 the Company's next general rate case,or when the Stipulated Projects are placed
O 39 into base rates.(Stipulation ¶16).
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O 1 The Company agrees to bear the risks of construction cost overruns associated
2 with the Stipulated Projects and has the burden of proofregarding the recovery of
3 any of the costs associated with the StipulatedProjects.However,Staff agrees not
4 to challengethe Company's prudence relatedto the decision to build the Stipulated
5 Projects or recovery of the actual capital costs associated with the Stipulated
6 Pro°ects exce t to the extent (1)the actual costs exceed the estimated costs of
7 ,or (2)there is evidence of mismanagement.(Stipulation ¶17).
8 The Company agrees to accept the risk that any portion of the wind projects will
9 not qualify for PTCs,unless the failure is due to a change in the law or a Force
10 Majeure event.In the event of either a change in law or Force Majeure event,the
11 Company will promptlyfile a notice with the Commission describing the change,
12 its impact,and the Company's assessment of the ability to complete the Stipulated
13 Projects in whole or in part.(Stipulation ¶18).
14 The Company will negotiate availability guarantees for the new wind projects in
15 any third-partyprovided maintenance,as provided by the competitive market,
16 which is currently97 percent.All liquidated damages received by the Company
17 will be passed onto customers through the ECAM.(Stipulation ¶19).
18 The provisions and agreements in the Stipulation were negotiated in good faith,and
19 advance the public interest.The Stipulating Parties urge the Commission to approve
20 the Stipulation on this basis.
21 Q.PÏease summarize why the Company supports the Stîpulation.
22 A.The Company requested a CPCN for the Stipulated Projects because the projects are
23 the least-cost,least-risk resources available to serve customers.The StipulatedProjects
24 are a reasonable way to meet the resources required by the present or future public
25 convenience and necessity.Indeed,the Company's economic analysis demonstrates
26 that the Stipulated Projects are an unprecedented and time-sensitive opportunity to
27 acquire much-needed transmission resources and zero-fuel cost wind resources while
28 delivering all-in customer savings.The Stipulation allows the Company to achieve
29 substantial customer savings through the construction of the Aeolus-to-
O 30 Bridger/Anticlinetransmission line and the acquisition of the Wind Projects.Although
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1 the Uinta project is no longer included,the StipulatedProjects continue to demonstrate
2 substantial economic benefits,and it is in the public interest to issue the CPCN agreed
3 to under the Stipulation.
4 Q.Why do you believe the Stipulationis in the public interest?
5 A.The Stipulation resolves all but one of the issues presented between the Company and
6 the Staff in a way that preserves the significant customer benefits of the Stipulated
7 Projects,while addressing Staff's concerns over the project risks with customer
8 protections.As described in Mr.Link's testimony in support of the Stipulation,the
9 economic analysis of the revised Stipulated Projects (removing Uinta)demonstrates
10 that they are highly likely to provide substantial customer benefits both in the near-and
ll long-term.
12 The Stipulation also provides greater certainty going forward,and therefore
13 mitigates customer risk,by clarifying the scope of the PTC risk that the Company will
14 assume.
15 The Stipulation resolves the ratemaking treatment of the costs and benefits of
16 the Combined Projects by recommendingthat the Commission approve the Company's
17 proposed ratemaking treatment for recovery of the new investment,energy production,
18 and PTCs associated with the Stipulated Projects,with certain modifications agreed to
19 by the Stipulating Parties.
20 Taken together,the provisions of the Stipulation produce a sound and balanced
21 resolution of complex issues,and facilitate a favorableresult for the Stipulating Parties,
22 in furtherance of the public interest.
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l STIPULATION PROVISIONS
2 Q.Please describe how the Stipulationresolves the Company's request for a CPCN
3 for the Stipulated Projects.
4 A.The Stipulating Parties agree that the Company should be granted a CPCN for the
5 Aeolus-to-Bridger/Anticline 500-kV transmission line,the Wind Projects,and
6 associated network upgrades,as described in the Company's Second Supplemental
7 Direct Testimony filed February 16,2018.Stipulation ¶9.Mr.Link's settlement
8 testimony describes how the removal of the request for a CPCN for the Uinta project
9 affects the Company's estimated net customer benefits resulting from the Stipulated
10 Projects.Mr.Link demonstrates that customers will still receive substantial savings as
11 a result of the Stipulated Projects.
12 Q.Did any party specifically challenge the inclusion of the Uinta project in the
13 Company's application?
14 A No However,-the Company agreed to remove the Uinta project from this case
15 consistent with its agreement in the recent Wyoming case for approval of CPCNs for
16 the StipulatedProjects (Docket No.20000-520-EA-17).For settlement in the Wyoming
17 proceeding,the Company agreed to remove the Uinta project from its CPCN request
18 to address parties'concerns that the customer benefits may not materialize if future
19 natural gas prices are low and there is no regulation of carbon dioxide emissions.While
20 this was not an issue raised by Staff,removing Uinta makes the CPCN request
21 consistent and responds to concerns raised by other parties in this proceeding.The
22 removal of the Uinta project here also simplifies the Company's request in this docket.
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l Q.Does the Stipulationhave any terms that mitigate customer risk associated with
2 the Stipulated Projects?
3 A.Yes.In response to concerns raised in this case,the Company has agreed to several
4 conditions designed to reduce customer risk and provide greater certainty that the
5 expected benefits will be realized.
6 Q.Please describe the agreement related to approval of the CPCN and for
7 ratemakingtreatment for the Stipulated Projects.
8 A.First,the Stipulating Parties agree that the Company will bear the risks related to any
9 portion of the Wind Projects that do not qualify for PTCs.Stipulation ¶18.To the
10 extent that the Wind Projects fail to qualify for PTCs,in whole or in part,PTCs will be
ll imputed to each such project based on that project's actual wind output for equipment
12 placed in service and included in rate base at full revenue value (i.e.,including full
13 gross up for federal and other applicable taxes).
14 The Stipulating Parties agree,howder,that thè Compañÿ will not beat thè PTC
15 qualificationrisk if the failure to qualify for PTCs is a result of either:(1)a change in
16 law;or (2)a Force Majeure event.Stipulation ¶18.
17 Q.Does the Stipulationprovide any guidance regarding how the Company is to
18 proceed if a change in law occurs?
19 A.Yes.If a change in law occurs,the Company will make all commercially reasonable
20 efforts to mitigate the loss of value to customers including,but not limited to,cancelling
21 the acquisition or construction of facilities to the extent practical and cost effective
22 from the customers'perspective.
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l Q.What happens if there is a change in law or a Force Majeureevent?
2 A.In the event of a change in law or a Force Majeure event,the Company will promptly
3 file a notice with the Commission describing the change or event,the impact,and the
4 Company's assessment of its ability to complete the Stipulated Projects,in whole or in
5 part,and other relevant information regarding the change or event and any possible
6 remediation.Stipulation ¶18.If there is any dispute regarding the applicability of this
7 provision or the extent of its applicability to a particular facility,or any dispute about
8 the Company's actions in the face of a change of law or Force Majeure event,such
9 dispute will be resolved by the Commission in the first general rate proceeding where
10 the Company seeks to include the capital costs of the facility in rates.
11 Q.How does the Company's assumption of PTC risk address concerns raised in this
12 case?
13 A.The substantial customer benefits of the Stipulated Projects result directly from the
14 ability 'of the Wind Projects to qualifyfor PTCs,which offset the cost of the Stipulated
15 Projects and provide overall customer savings.To qualify for PTCs,the Stipulated
16 Projects must reach commercial operation by the end of 2020.The Stipulation reaffirms
17 the Company's commitment to accept the PTC risk within its control,and provides
18 greater details regarding the scope and extent of that assumption of risk.
19 Q.Please generallydescribe the ratemaking treatment agreed to in the Stipulation.
20 A.The ECAM,in conjunctionwith the new RTM,will be used to track the costs and
21 benefits of the Stipulated Projects until the Company's next general rate case.At that
22 time,the Stipulating Parties will re-evaluate the future use of the RTM.The existing
23 sharing band in the ECAM operates so that 90 percent of the net power cost benefits
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O l related to the energy production from each of the wind facilities in the Stipulated
2 Projects will be credited to customers and 10 percent will be assigned to the Company.
3 Under the Stipulation,the Company will pass its 10 percent share of the benefits to
4 customers in the RTM so that customers will receive 100 percent of the benefits of the
5 energy produced by the Wind Projects.
6 Q.How will the costs and benefits of the Stipulated Projects be treated in the RTM
7 and the ECAM?
8 A.The costs and benefits of the Stipulated Projects will be included in the RTM for
9 recovery in the ECAM until the Company's next general rate case.The actual capital
10 costs included in the RTM,before the next general rate case,cannot exceed
ll ,the estimated costs for the Stipulated Projects included in the Second
12 Supplemental Direct Testimony of the Company.Confidential Table 1 shows the
13 calculation and source for the basis of the estimated capital costs without the Uinta
14 project.
15 Confidential Table 1 -Calculation of CapitalCosts
In-Service
Capital
($million)Source
Wind Resource Capital Costs $1,455 ConfidentialExhibit No.54
Interconnection Network
Upgrades $111 Confidential Exhibit No.54
Aeolus-to-Bridger/Anticline
Transmission Line $679 ConfidentialExhibit No.54
Sub-Total Capital Costs as
Filed $2,245
|Remove Uinta Capital Costs ConfidentialExhibit No.54
Remove Uinta Interconnection
Network Upgrades ConfidentialExhibit No.49
TOTAL Capital Costs
Without Uinta
16 Parties will have the opportunityto verify actual costs as part of the annual audit of the
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l ECAM and RTM deferred balance.The Company will also include the costs and
2 benefits that are tracked in the RTM in its quarterly ECAM filing updates beginning
3 after the in-service date of the first facility placed in-service.
4 Q.Will the ratemaking treatment you describe above result in an increase in
5 customer rates before the next general rate case related to the StipulatedProjects?
6 A.No.The Company will maintain a cap in the RTM on the annual total costs of the
7 Stipulated Projects not to exceed the annual project benefits.Costs that are passed onto
8 customers through the RTM before the next general rate case will be capped at the
9 benefits that flow through the ECAM.As such,the combined impact of the Stipulated
10 Projects in the ECAM and the RTM will not result in a net cost to customers.Costs
11 above this cap will be deferred as a regulatory asset for recovery to be set in the next
12 general rate case.O 13 Q.Are there other additional benefits for customers in consideration of the
14 Company's timèlyrecovery'of its investment through the ECAM and RTM?
15 A.Yes.In light of receiving timelyrecovery of its costs,the Company has agreed to defer
16 $300,000 annuallyas a regulatory liability,beginning in the month the first wind
17 facility's costs are included in the RTM,with the ratemaking treatment to be set in the
18 next general rate case.If the RTM deferral period is a partial year,the annual
19 $300,000 will be pro-rated for the deferral period.
20 Q.How will the gross-up pre-tax values of the PTCs generated by each of the wind
21 facilities within the Stipulated Projects be credited to customers?
22 A.They will be credited through the ECAM,consistent with the current treatment of
23 PTCs.
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l Q.What if the Companyis unable to contemporaneouslymonetize PTCs to their full
2 value?
3 A.There will be no return on any deferred tax assets that may be created as a result.
4 Q.What is the timing of the deferral of the costs and benefits of the Stipulated
5 Projects?
6 A.The Company will begin deferring the costs and benefits of the Stipulated Projects in
7 the first month of the actual in-service dates,until those costs and benefits are included
8 in base rates through a general rate case.
9 Q.Will the Companyearn a rate of return on the net plant balance in the RTM?
10 A.Yes.A 9.2 percent pre-tax rate of return on investment will be used in the RTM
11 calculation,equating to an after-tax return on investment of 6.96 percent.Following
12 the next general rate case,the return on the net plant balance will be consistent with theO13rateofreturnauthorizedbytheCommissioninthatcase.
14 Q.*How does the Stipulationaddress construction costs for the Stipulated Pr'ojects?
15 A.The Stipulating Parties agree that the Company will bear the risks related to
16 construction cost overruns associated with the Stipulated Projects.Stipulation ¶l7.As
17 such,the Company will not be allowed to recover any imprudent costs or costs due to
18 Company mismanagement.Further,the Company has the burden of proof regarding
19 the recovery of any costs associated with the Stipulated Projects.
20 The Stipulating Parties agree,however,not to challenge the Company's
21 prudence related to the decision to build the StipulatedProjects or recovery of the actual
22 capital costs associated the Stipulated Projects except to the extent (1)the actual costs
23 of constructing the Stipulated Projects exceeds the estimate of ,or
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l (2)there is evidence of mismanagement.Stipulation ¶17.If such circumstances ever
2 exist,any challenge to cost recovery will be limited to the prudence of the actual costs
3 in excess of the estimated costs or the impact of the mismanagement.The standard
4 audit function to verify actual costs and to review operational prudence will continue
5 to apply for all costs.
6 Q.Is there an outstandingissue between the Company and Staff regarding
7 construction costs for the StipulatedProjects?
8 A.Yes.The Stipulating Parties have not agreed on whether the Commission should
9 impose an overall cost cap on the construction of the Stipulated Projects.Staff believes
10 that the Commission should impose an overall cost cap,and the Company believes that
11 a cost cap is unprecedented and unnecessary based on the provisions of paragraph 17
12 related to cost overruns.Therefore,the Stipulating Parties reserve their rightto present
13 arguments to the Commission on this issue under paragraph 16 of the Stipulation.
14 Q.Does thŒStipulationprovide customer protections relateddothe availabilityof
15 the Wind Projects?
16 A.Yes.The Company agrees to negotiate an availabilityguarantee for the Wind Projects
17 in any third-partymaintenance agreements.The availability guarantee will be at the
18 level provided by the competitive market,which is currently97 percent.Further,the
19 Stipulating Parties agree that all liquidated damages received by the Company under
20 contractual agreements with vendors will be passed onto customers through the ECAM,
21 including,but not limited to,liquidated damages received due to the equipment not
22 meeting specified availabilityand performance.Stipulation ¶19.
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l Q.Does the Stipulationcontain terms to address what happens if the Companyenters
2 into a settlement in the concurrent Utah case seeking pre-approvalof the
3 Stipulated Projects?
4 A.Yes.The Stipulating Parties agree to reconvene and reconsider and amend the terms
5 and conditions of the Stipulation if the Company executes and obtains approval of a
6 settlement agreement with parties in Utah Docket No.17-035-40 and the settlement
7 agreement includes more favorable terms and conditions for customers.This provision
8 recognizes that differences exist in current regulatory treatment or mechanisms
9 between the states that will impact any settlement structure achieved in other states.
10 Stipulation ¶22.If after reconvening,the overall terms of a settlement agreement
11 reached and approved is more favorable,the Company will file with the Commission
12 to align the overall outcome of this Stipulation with a Utah settlement.
13 GENERAL TERMS AND CONDITIONS
14 Q.Please explain Paragerphs 23 throngh29.
15 A.Paragraphs 23 to 29 of the Stipulation identify the general terms and conditions that the
16 Stipulating Parties have agreed to relative to the Stipulation.These general terms and
17 conditions are consistent with prior settlements entered into by the Stipulating Parties
18 and approved by the Commission.
19 Q.What is your request of this Commission?
20 A.For all of the reasons stated in my testimony and the additional details provided within
21 the Stipulation itself,I urge the Commission to approve this Stipulation because I
22 believe it to be in the public interest.The Stipulation demonstrates that the Stipulated
23 Projects are required for the public convenience and necessity,and supports the
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l requested CPCN and ratemaking treatment.
2 Q.Does this conclude your settlement testimony?
3 A.Yes.
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