20180411Louis Supplemental Direct - Redacted.pdf

BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION SSION
IN THE MATTER OF THE APPLICATION )
OF ROCKY MOUNTAIN POWER FOR A )CASE NO.PAC-E-17-07
CERTIFICATE OF PUBLIC )
coNVENIENCE AND NECESSITY AND )
BINDING RATEMAKING TREATMENT )
FOR NEW WIND AND TRANSMISSION )
FACILITIES )
NON-CONFIDENTIAL SUPPLEMENTAL TESTIMONY OF MICHAEL LOUIS
IDAHO PUBLIC UTILITIES COMMISSION
APRIL 11,2018
i Q.Please state your name and business address for
2 the record.
3 A.My name is Michael Louis.My business address is
4 472 West Washington Street,Boise,Idaho.
5 Q·By whom are you employed and in what capacity?
6 A.I am employed by the Idaho Public Utilities
7 Commission as the Engineering Section Program Manager.
8 Q.What is your educational and professional
9 background?
10 A.I received my Bachelor and Master of Science
11 degrees in Industrial Engineering with concentrations in
12 manufacturing systems and engineering economics from Purdue
13 University in 1985 and 1992,respectively.I also received
14 my Masters in Public Policy and Administration at Boise
15 State University in 2005.In addition to my formal
16 education,I have attended Michigan State University
17 Institute of Public Utilities Annual Regulatory Studies
18 Program,NARUC Utility Rate School,Electricity Grid
19 School,and Advanced Regulatory Studies Program as well as
20 CAISO Market and Transaction training.
21 My work experience includes 18 years of
22 industrial/commercial practice developing and managing
23 manufacturing systems and operations,planning processes,
24 and supply chains for General Motors,Hewlett-Packard,
25 Jabil Circuit,and Albertsons Companies.I also have spent
CASE NO.PAC-E-17-07 LOUIS,M.(Supp)104/11/18 STAFF
1 six years administrating and conducting energy policy
2 research with the Energy Policy Institute at Boise State
3 University.
4 I began working for the Idaho Public Utilities
5 Commission in July 2011 where I am currently supervising
6 the Staff Engineering Section.I have conducted analysis
7 on a wide variety of electricity,natural gas,and water
8 utility cases dealing with integrated resource plans,
9 purchased gas and power cost adjustments,prudence reviews
10 of power plant and other facility infrastructure
11 investments,facility decommissioning,line extensions,and
12 general rate cases.
13 Q.What is the purpose of your testimony in this
14 case?
15 A.The purpose of my testimony is to provide
16 additional detail and refinement of Staff's position on the
17 Company's request for a certificate of Public Convenience
18 and Necessity (CPCN)and Binding Ratemaking Treatment to
19 construct new wind generation and transmission
20 infrastructure.I am modifying Staff's position that was
21 presented in Randy Lobb's direct testimony as a result of
22 new information obtained from the Company's supplemental
23 Request for Proposal (RFP)filings and discovery requests.
24 I also provide additional detail clarifying the rationale
25 and basis for Staff's position.
CASE NO.PAC-E-17-07 LOUIS,M.(Supp)204/11/18 STAFF
1 Q.How is your testimony organized?
2 A.My testimony is organized into the following
3 sections:
4 I·Summary of Testimony
5 II.Clarification of Staff's position
6 III.Mitigation of Project Cost Risk
7 IV.Mitigation of Production Tax Credit (PTC)
8 benefit risk
9 I.Summary of Testimony
10 Q·Please summarize your testimony in this case.
11 A.Staff continues to recommend that the Commission
12 conditionally approve a CPCN to construct the combined new
13 transmission and wind project.However,as a result of
14 Staff's analysis of the Company's RFP supplemental
15 testimony submitted on January 17,2018,Staff identified
16 additional risks and concerns.Accordingly,Staff proposes
17 modifications of the conditions contained in Staff witness
18 Randy Lobb's testimony to limit exposure to risk that the
19 project will not provide net benefits to ratepayers.
20 The project is being constructed well in advance
21 of need.As such,the Company's justification rests on a
22 projected cost reduction to customers and the
23 reasonableness of cost and benefit assumptions used in its
24 Present Value Revenue Requirement difference (PVRR(d))
25 economic analysis submitted in the Company's RFP
CASE NO.PAC-E-17-07 LOUIS,M.(Supp)304/11/18 STAFF
1 Supplemental and Second Supplemental filing.
2 The Company's supplemental filings were submitted
3 primarily to provide analysis results with updated
4 assumptions including specific wind projects selected as a
5 result of the RFP process.The Company conducted that
6 analysis and modified assumptions related to tax treatment,
7 generation performance,construction status,and other
8 factors.
9 Staff witness Rick Keller's direct testimony
10 outlined several risks the project proposal contained in
11 the Company's initial Application and testimony.After
12 analyzing the Company's RFP supplemental filings and
13 discovery requests,Staff identified several additional
14 concerns that are detailed in Staff witness Michael
15 Eldred's supplemental testimony.
16 Staff still believes that the proposed project
17 will likely provide positive net benefits,but only if the
18 Company can achieve or exceed the benefits and costs
19 included in its PVRR(d)analysis.
20 After analyzing new information,in addition to
21 the conditions outlined in Randy Lobb's testimony,Staff
22 recommends modifying the hard cap on transmission capital
23 cost such that the Company be subject to a hard cap on all
24 capital project costs.This is due to additional risks
25 identified with the wind projects.Thus,Staff recommends
CASE NO.PAC-E-17-07 LOUIS,M.(Supp)404/11/18 STAFF
1 including capital cost for both the wind and transmission
2 projects.
3 II.Clarification of basis for Staff's Position
4 Q.Is there anything that you would like to clarify
5 regarding the basis for Staff's position?
6 A.Yes.In Staff witness Randy Lobb's direct
7 testimony,he states that,"[g]iven that the proposed
8 generation and transmission project will be constructed
9 well in advance of need,project justification depends upon
10 the reasonableness of assumptions used in the Present Value
11 Revenue Requirement analysis and the Company's ability to
12 acquire all available Production Tax Credits."(Lobb,DI,
13 pg.2)I would like to expand on why this is important,
14 especially regarding the project being constructed well in
15 advance of need.
16 Generally,most CPCNs submitted for new
17 generation projects or transmission are justified based on
18 a need to maintain sufficient capacity to meet load.In
19 such cases,Staff believes that the proper analysis is to
20 compare a sufficient number of different types of viable
21 load serving alternatives against each other so that a
22 least cost/least risk alternative can be authorized.
23 For example,in Idaho Power's Langley Gulch CPCN
24 case,the Company performed a head-to-head Net Present
25 Value (NPV)comparison analysis of 13 different
CASE NO.PAC-E-17-07 LOUIS,M.(Supp)504/11/18 STAFF
1 dispatchable resource alternatives consisting of both
2 Combined Cycle Combustion Turbine (CCCT)and Simple Cycle
3 Turbine (SCT)generation projects,all with similar amounts
4 of capacity contribution.(IPC-E-09-03).Another example
5 is the Jim Bridger Selective Catalytic Reduction (SCR)case
6 (IPC-E-13-16).There,the Company performed a head-to-head
7 NPV comparison analysis between the proposed installation
8 of SCR environmental controls to two comparable
9 alternatives:a natural gas conversion,and a CCCT
10 replacement option.In both examples,the Company needed
11 dispatchable and/or baseload resources to maintain system
12 reliability.Within that scope,the Company identified a
13 sufficient set of viable generation types and alternatives
14 for comparison so that a least cost/least risk resource
15 could be selected.
16 This case is based on a different justification.
17 Here,the justification for the Combined Projects is based
18 on whether or not the Company's proposal provides a cost
19 savings to customers as compared to the Company's base
20 case:a resource portfolio that does not include the
21 Combined Projects.The conclusion of having no generation
22 or transmission need rests on two sets of evidence.
23 1.The Company has estimated that capacity to
24 meet load is not needed until the summer of
25 2028.
CASE NO.PAC-E-17-07 LOUIS,M.(Supp)604/11/18 STAFF
1 2.There is considerable uncertainty that the
2 Combined Projects are least cost/least risk
3 for a capacity deficit that doesn't occur for
4 more than ten years.
5 These issues are discussed further in my
6 testimony and in Staff witness Michael Eldred's testimony.
7 Q.Is the Company making a case that there is a
8 resource need prior to 2028?
9 A.Yes.In Company witness Rick Link's rebuttal
10 testimony (page 9,lines 13-16)he states that there is a
11 resource need prior to that time frame.Specifically,Mr.
12 Link states that "the 2017 IRP shows a near-term resource
13 need of 527 MW in 2017 rising to 1023 MW in 2021,the first
14 full year the Combined Projects will be placed into
15 service."
16 Q.Is a resource need the same as a need for
17 capacity to meet load in this case?
18 A.Absolutely not.The first capacity deficiency
19 date,when new capacity is needed to meet load
20 requirements,is determined by analyzing the Company's Load
21 and Resource Balance in the Company's Integrated Resource
22 Plan (IRP).
23 The Company's 2017 IRP (PAC-E-17-03)and the
24 Company's subsequent filing for a PURPA first capacity
25 deficiency date (PAC-E-17-09,Commission Order No.33917)
CASE NO.PAC-E-17-07 LOUIS,M.(Supp)704/11/18 STAFF
\
1 both reflect a first capacity deficiency date for the
2 summer of 2028.
3 If a Company proposes new resources in its IRP
4 far in advance of the first capacity deficiency date,it is
5 likely for reasons other than to meet a capacity
6 deficiency,such as economics,as is the case with the
7 Combined Projects.
8 According to Rick Link's own rebuttal testimony,
9 when answering the question how the resource need in 2021
10 would be met without the Combined Projects,he states,
11 "Resource portfolios that do not include the Combined
12 Projects include more uncommitted Front Office Transactions
13 (FOTs)."(Page 10,lines 4-7).That does not mean that
14 there is a need for additional new capacity to meet load
15 requirements.The only capacity requirement for FOTs is
16 that there is sufficient transmission capacity.
17 Q.Is there sufficient existing transmission
18 capacity to meet load using FOTs?
19 A.Yes.The Company clearly states that "[t]he 2017
20 IRP shows that the Company first becomes capacity deficient
21 in 2028,"as stated in the Company's Application for
22 determining the PURPA first capacity deficiency date (PAC-
23 E-17-09,page 3).To determine the deficiency date,the
24 Company determines "firm resource capacity available at the
25 annual system peak load hour,including the Company's firm
CASE NO.PAC-E-17-07 LOUIS,M.(Supp)804/11/18 STAFF
1 access to imports from the wholesale market (or 'Front
2 Office Transactions')..."(See PAC-E-17-09 Application,
3 pg.3)In order to have "firm access to imports",the
4 Company has to ensure it has sufficient transmission
5 capacity,the Company confirms this access by establishing
6 a 2028 capacity deficiency date.
7 Q.Is there additional evidence that the Company is
8 basing its justification on a cost savings to customers and
9 not on need for new capacity?
10 A.Yes.In Company witness Link's rebuttal
11 testimony,he states that "resource portfolios with more
12 uncommitted FOTs are higher cost than resource portfolios
13 that include the Combined Projects under a wide range of
14 price-policy scenarios."(Link,Rebuttal,p 10,
15 lines 7-9).The resource portfolios that he mentions
16 includes the resource "base case"portfolio that would have
17 been the Company's preferred portfolio in the IRP had the
18 opportunity to earn PTC's for wind projects not
19 materialized late in the IRP process.Furthermore,the
20 Company's overall analysis approach was based on showing
21 there would be a cost-savings to customers as compared to
22 the base case.
23 This implies that at least until 2028,the
24 justification is based purely on economics and not a need
25 for new capacity to meet load.
CASE NO.PAC-E-17-07 LOUIS,M.(Supp)904/11/18 STAFF
1 Q.How certain is the need for capacity in 2028?
2 A.Not very certain.The ability of a Company to
3 accurately determine a capacity deficiency date ten years
4 into the future is limited,and the need to be accurate
5 that far into the future for resource planning purposes is
6 rarely required.
7 For most resource decisions,the amount of lead
8 time needed to make a decision to add capacity is based on
9 the longest lead time item of a resource's construction
10 plan.It is usually advantageous to wait as long as
11 reasonably possible to make a resource investment decision
12 because the information is usually more accurate closer to
13 the time it is needed.This prevents incurring investment
14 costs before a resource is actually needed.This is also
15 one reason IRPs are required every two years so that the
16 latest information can be used to determine when a new
17 resource is needed closer to when a decision has to be
18 made.
19 For example,the table below illustrates how much
20 capacity deficiency dates can change between IRP's for all
21 three Idaho electric utilities.Further,because of the
22 conservative nature of long-term resource planning,there
23 is a tendency for additional capacity needs to push out
24 with each new planning cycle.
25
CASE NO.PAC-E-17-07 LOUIS,M.(Supp)1004/11/18 STAFF
1
2 First capacity Deficit Dates 2013 IRP 2015 IRP 2017 IRP
3 Avista 2015 2021 2026
4 Idaho Power 2016 2025 2026
5 Pacificorp 20131 2020 2028
6
7 Q.What kind of factors could change the type of
8 resource needed to fill a capacity requirement that far
9 into the future?
10 A.Some of the factors include changes in a
11 utility's loads and load characteristics,gas prices,
12 electricity prices,environmental regulations,and advances
13 in technology,just to name a few.And because of a
14 rapidly changing energy landscape,it is very difficult to
15 speculate which resource alternatives for meeting capacity
16 requirements will be the most economical that far into the
17 future.For example,the cost of gas over the past 10
18 years has dramatically changed the types of resources that
19 are most economical to meet load requirements.In June of
20 2008,Henry Hub gas spot prices peaked at close to $13 per
21 MMBtu but have since then reduced by 77%,and now hovers
22 between $2 and $3 per MMBTU (EIA,Henry Hub Natural Gas
23 Spot Prices).Because of the changes in economics of
24 natural gas-fired generation,there has been a dramatic
25
1 This deficit does not reflect full import capability,only firm purchases.
CASE NO.PAC-E-17-07 LOUIS,M.(Supp)1104/11/18 STAFF
1 displacement of coal generation over the past ten years
2 that was not foreseen at the time that gas prices were $13
3 per MMBTU.
4 Q.Are there any changing factors and resource types
5 that could make the Combined Projects less economical than
6 another type of load serving alternative by the time that
7 the Company experiences a capacity deficit?
8 A.Yes,there are many scenarios that could change
9 the calculus.A good example is the cost of solar
10 generation.The cost of PV solar has changed dramatically
11 in the past eight years with reductions of 60%to 80%
12 according to a recent National Renewable Energy Laboratory
13 study (See:U.S Solar Photovoltaic System Cost Benchmark:
14 Q1 2017).
15 Additionally,as illustrated in Staff witness
16 Michael Eldred's testimony,there is evidence that the
17 solar projects included in a separate RFP may be lower cost
18 overall than the Combined Projects.If current solar costs
19 continue their downward trend,these projects or ones that
20 are similar may be a better option than the Combined
21 Projects within that ten-year time span.
22 Q.Based on Staff's basis for its position,what
23 does Staff believe is critical?
24 A.Staff believes that a disposition of need for the
25 project which is based on reducing cost to customers when
CASE NO.PAC-E-17-07 LOUIS,M.(Supp)1204/11/18 STAFF
1 compared to the base case,needs to have reasonable
2 certainty that the benefits and the costs that form the
3 foundation of the Company's PVRR(d)analysis are actually
4 realized.
5 Staff concedes that natural gas prices and CO2
6 prices are beyond the Company's ability to control once the
7 project is implemented.The Company provided a reasonable
8 risk analysis using 9 different price-policy scenarios
9 taking these factors into account.But even with this
10 analysis,after making corrections for methods that Mr.
11 Eldred believes biased the study,two of the nine price-
12 policy scenarios show negative net benefits posing a risk
13 to customers.
14 In addition,Michael Eldred's testimony
15 illustrates how thin the amount of net benefits are,
16 relative to the overall project cost:an capital cost
17 overrun could eliminate any net customer benefits in the
18 medium gas/medium CO2 case.
19 Given that customers are still subject to risks,
20 such as natural gas price and CO2 regulations after the
21 project is implemented,Staff believes it is important that
22 if approval for a CPCN is granted,there needs to be
23 sufficient conditions in place that ensure the Company can
24 implement the project within budget and on-time to ensure
25 realization of PTC benefits.With Staff's proposed
CASE NO.PAC-E-17-07 LOUIS,M.(Supp)1304/11/18 STAFF
1 conditions,there is a reasonable chance at the outset of
2 project implementation that customers will realize some or
3 all of the benefits predicted by the Company,regardless of
4 the Company's project implementation performance.Without
5 these conditions,Staff believes it is less risky to forego
6 the project entirely and move forward with the Company's
7 base case.This forms the basis of Staff's position.
8 III.Conditions Mitigating Project Cost Risk to Ratepayers
9 Q.As a result of Staff's review of the Company's
10 RFP supplemental filings,are there any conditions that
11 Staff proposes to change or modify that were originally
12 proposed in Staff witness Randy Lobb's direct testimony?
13 A.Yes.Staff is proposing to extend the cost cap
14 for transmission capital cost to include all project
15 capital costs to the Company's projected costs,including
16 both wind and transmission.This would place a "hard"cap
17 on the Company's projected capital costs for the combined
18 projects that forms the basis for the Company's PVRR(d)
19 analysis contained in its second supplemental filing.
20 Q.What has changed that has caused Staff to change
21 its position on the cost cap?
22 A.As outlined in Staff witness Michael Eldred's
23 testimony,Staff has discovered additional risks from
24 testimony included in the Wyoming CPCN case that could
25 increase the cost of the transmission line and of the wind
CASE NO.PAC-E-17-07 LOUIS,M.(Supp)1404/11/18 STAFF
1 portion of the project beyond the cost the Company has
2 included in its economic analysis.Previous Staff
3 testimony and analysis of risk was focused on the Company's
4 benchmark projects which were not the final wind projects
5 that the Company is proposing to implement.The specific
6 wind projects that the Company proposes to implement were
7 only recently determined and included in the Company's
8 supplemental RFP filings.
9 Q.What is the justification for a "hard"cap?
10 A.A "hard"cap puts a ceiling on the amount the
11 Company can recover.As mentioned earlier,the basis for
12 Staff's overall position is that the project is justified
13 on a cost-savings to customers,not a need for capacity to
14 meet load.A hard cap provides a better chance that the
15 project once implemented will ultimately be worthwhile to
16 customers.
17 Per Randy Lobb's testimony,"Staff is concerned
18 that once the Company reaches a point of no return in terms
19 of project investment,transmission costs could escalate in
20 order to finish construction by the PTC deadline."This
21 concern that the rationale for prudence could change in a
22 subsequent proceeding,to minimize losses once most of the
23 investment is made,is extended to the wind facilities now
24 that the specific wind projects are known and additional
25 cost risks to the wind projects have been identified.
CASE NO.PAC-E-17-07 LOUIS,M.(Supp)1504/11/18 STAFF
1 III.PTC Benefit Risk
2 Q.Can you please identify evidence of risk that
3 provides additional justification for mitigating PTC
4 benefit risk?
5 A.Yes.Staff has identified potential delays that
6 were not known at the time of the Company's initial
7 application.In Staff witness Eldred's testimony,he
8 discusses the possibility of delays in environmental
9 permitting establishing the right-of-way for the
10 transmission line and permits for the wind facilities that
11 were discovered in his review of the Wyoming CPCN case.If
12 such delays put the project implementation past the PTC
13 deadline,the amount of PTC benefits could be drastically
14 reduced affecting overall project economics.This makes it
15 imperative that the Company guarantee through conditions in
16 the CPCN that 100%of PTC benefits are credited back to
17 customers regardless of Federal safe harbor eligibility.
18 Q.Does the risk of project delay affect project
19 cost risk providing additional justification for a cost
20 cap?
21 A.Yes.Even though the Commission may authorize a
22 condition guaranteeing full PTC benefits,to finish the
23 project on-time so the Company can qualify for 100%PTC
24 benefits to meet safe harbor requirements,the Company
25 could significantly overspend their capital budget to
CASE NO.PAC-E-17-07 LOUIS,M.(Supp)1604/11/18 STAFF
1 secure right-of-way and to finish construction on time.
2 This provides additional justification for imposing a hard
3 cost cap on the project.
4 Q·Do you have any other modifications or additions
5 to the conditions already proposed in Staff witness Randy
6 Lobb's testimony?
7 A.No.
8 Q.Does this conclude your supplemental testimony in
9 this proceeding?
10 A.Yes,it does.
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CASE NO.PAC-E-17-07 LOUIS,M.(Supp)17
04/11/18 STAFF
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS l lth DAY OF APRIL 2018,
SERVED THE FOREGOING NON-CONFIDENTIAL SUPPLEMENTAL TESTIMONY
OF MICHAEL LOUIS,IN CASE NO.PAC-E-17-07,BY MAILING A COPY
THEREOF,POSTAGE PREPAID,TO THE FOLLOWING:
TED WESTON YVONNE R HOGLE
ROCKY MOUNTAIN POWER ASSISTANT GENERAL COUNSEL
1407 WEST NORTH TEMPLE STE 330 ROCKY MOUNTAIN POWER
SALT LAKE CITY UT 84116 1407 WN TEMPLE STE 320
E-MAIL:[e-mail] SALT LAKE CITY UT 84116
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