20191203Steward Direct.pdf

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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
FOR APPROVAL OF THE 2O2O
PACI FICORP INTER-JURISDICTIONAL
ALLOCATION PROTOCOL
) CASE NO. PAC-E-19-20
)) DIRECT TES'I'IN{ONY OF
) JOtrLLI R. STEWARD
o ROCKY MOUNTAIN POWER
CASE NO. PAC-E-I9.20
o December 2019
O I Introduction
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o Please state your name, business address, and present position with PacifiCorp,
dba Rocky Mountain Power (the "Company").
My name is Joelle R. Steward. My business address is 1407 West North Temple, Salt
Lake City, Utah 84116. My present position is Vice President, Regulation for Rocky
Mountain Power.
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Qualifications
a PIease summarize your education and business experience.
I have a B.A. degree in Political Science from the University of Oregon and an M.A.
in Public Affairs from the Hubert Humphrey Institute of Public Policy at the University
of Minnesota. Between 1999 and March 2007, I was employed as a Regulatory Analyst
with the Washington Utilities and Transportation Commission, I joined the Company
in March 2007 as a Regulatory Manager, responsible for all regulatory filings and
proceedings in Oregon. In February 142012,I assumed responsibilities overseeing cost
of service and pricing for PacifiCorp. In May 201 5, I assumed broader oversight over
Rocky Mountain Power's regulatory affairs in addition to the cost ofservice and pricing
responsibilities, and in 2017I assumed my current role as Vice President, Regulation
for Rocky Mountain Power.
Have you appeared as a witness in previous regulatory proceedings?
Yes. I have testified on various matters in the states of Idaho, Oregon, Utah,
Washington, and Wyoming.
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o I Purpose of Testimony
2 Q. What is the purpose of your testimony?
3 A- My testimony describes and supports the 2020 PacifiCorp Inter-Jurisdictional
4 Allocation Protocol ("2020 Protocot" or "Agreement") agreed to among PacifiCorp
5 and the signatories to the 2020 Protocol (referred to individually as a Party or
6 collectively as the Parties). The 2020 Protocol describes the multi-jurisdictional
7 allocation methodology that will be used through 2023, with certain exceptions ifissues
8 identified in the 2020 Protocol are resolved earlier. My testimony provides an overview
9 ofthe process undertaken that led to this filing ofthe 2020 Protocol, and a description
i0 of the Agreement itself. Specifically, my testimony provides:
I1 . A briefhistory ofthe Multi-State Process ("MSP") leading to the 2020 Protocol,
12 . A summary of the work conducted by the MSP Workgroup, since the 2017
13 Protocol, that has culminated in this filing ofthe 2020 Protocol;
14 . An overview ofthe 2020 Protocol; and,
15 . A discussion of specific issues within the 2020 Protocol.
16 Additionally, Company witnesses Mr. Steven R. McDougal and Mr. Michael
17 G. Wilding provide details related to key elements of the 2020 Protocol. Specifically,
l8 Mr. McDougal provides more details on the allocation factors in the 2020 Protocol, the
19 Resolved Issues, and the Special Contracts as a Framework Issue. Mr. McDougal also
20 addresses the following appendices ofthe 2020 Protocol:
2\ . Appendix A-Defined terms used within the 2020 Protocol;
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o . Appendix B-Tables identifuing the allocation factors to be applied to each
component of PacifiCorp's revenue requirement calculation during and after
the Interim Period;
. Appendix C-The definition and algebraic derivation of each allocation factor,
along with associated Federal Energy Regulatory Commission accounts;
. Appendix E-Commission-approved depreciation lives in effect October l,
2019, and the Company's proposed depreciation lives for coal-fueled resources
in pending depreciation dockets as filed in September 2018; and,
. Appendix G-Treatment ol Special Contracts.
Ir{r. Wilding provides details on changes in the 2020 Protocol that impact net
power costs ('NPC'), including the Nodal Pricing Model C'NPM"), explains the
treatment of qualifying facilities, and supports the Washington Memorandum of
Understanding. Mr. Wilding specifically addresses the following appendices of the
2020 Protocol:
. Appendix D-The Memorandum of Understanding among the Panies
supporting the Company's pursuit of the implementation of a NPM; and
. Appendix F-The Memorandum of Understanding between the Company and
the Washington Parties.
Are you also sponsoring any exhibits to your testimony?
Yes. Exhibit No- I presents lhe 2020 Protocol. Exhibit No. 2 depicts the timeline and
major components ofthe 2020 Protocol.
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o 1 History of the MSP
2 Q. Please provide an overview ofthe Company's operations.
3 A. PacifiCorp provides retail eleclric service to more than 1.9 million customers in the
4 western states of California, Idaho, Oregon, Utah, Washington, and Wyoming.
5 PacifiCorp does business as Pacific Power in Califomia, Oregon, and Washington and
6 as Rocky Mountain Power in Idaho, Utah, and Wyoming. PacifiCorp serves customers
7 with generation, transmission, and distribution facilities located in a ten-state lootprint
8 across the western United States and operates as a single system on an integrated basis
9 to provide low-cost, reliable and affordable service to customers.
10 a. Why is inter-j urisdictional cost allocation necessary for PacifiCorp?
11 A. PacifiCorp recovers the costs of providing retail electric service to customers through
12 retail rates established in regulatory proceedings in each state. To ensure states receive
13 the appropriate allocation of costs and benefits lrom PacifiCorp's integrated system,
14 the collaborative MSP has been used to address allocation issues. This collaborative
l5 process has led to the development and adoption ofa series of inter-j urisdictional cost
16 allocation methods over time.
l7 a. How long have multi-state cost allocation agreements been used by the states and
i8 PacifiCorp?
l9 A. Inter-jurisdictional cost allocation methods have been used for over 30 years. They
20 have evolved and been refined over time, with each cost-allocation method allocating
21 to each state a portion of PacifiCorp's total system costs through a combination of both
22 dynamic system factors and state-specific, or situs, factors.
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o What cost-allocation method is currently being used in Idaho?
In November 2015, parties participating in the MSP agreed to an allocation method
known as the 2017 Protocol. The 2017 Protocol was an agreement between PacifiCorp
and certain parties, including regulatory agency staff, consumer advocates and other
stakeholders in Idaho, Oregon, Utah, and Wyoming, and was approved by those
commissions in 2016, The parties to the 2017 Protocol agreed to support commission
adoption and use of the 2017 Protocol in all PacifiCorp rate proceedings filed after
December 31,2016, up to and including December 31, 2018. The 2017 Protocol
provided for a one-year extension through December 31, 2019, which was approved by
the state commissions in 2017, extending the 2017 Protocol through December 31,
2019.I The Company requested approval ofthe 2017 Protocol by the Califomia Public
Utilities Commission in its 2018 California general rate case, a decision in that case is
pending,
What have been the principle challenges to the 2017 Protocol that the MSP has
tried to address through the recent collaborative effort?
For decades, PacifiCoqp has relied on cost allocation methods that dynamically allocate
total system costs to states. As demonstrated by nearly three decades of use, the
fundamental premise of the 2017 Protocol, and earlier cost allocation protocols, was
durability. A bedrock of these cost allocation protocols has been the use of PacifiCorp's
system as a single whole: except for distribution, all states were served from a common
portfolio of assets, including generation assets, which enabled PacifiCorp to cost-
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I 2017 Protocol ertension orders - Oregon, Docket No. UM-1050. Order No. t7-12:t (March 29. 2017)i Idaho.
Docket No. PAC-E-17-01. Order No. 33726. Order (March 8. 2017): Utah, Dockct No. l7-035{6 (March 23.
2017): Wr olltng, Docket No. 20000-510-EA-17, Order No. 146-l.t (Jub' 13. 2Ol7).
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o effectively plan for and operate as an integrated whole, resulting in cost savings for all
customers. However, state policies across PacifiCorp's six-state service territory are
increasingly challenging this bedrock. For example, requirements to remove coal from
rates in certain states will necessarily result in some states being allocated the costs and
benefits of coal-fueled generation while other states are not. Similarly, diverging state
policies related to implementation olthe Public Utilities Regulatory Policy Act of 1978
("PURPA"), retail choice, and private generation increasingly present challenges to
PacifiCorp's long-standing practice ofplanning lor a single, integrated system.
When did these challenges begin to emerge?
As early as 2015, the parties to the MSP were discussing these challenges. In fact, the
2017 Protocol was negotiated as an interim and timelimited cost-allocation protocol,
designed to provide cost allocation stability while allowing time for parties to the MSP
to continue to explore alternative cost-allocation protocols to better align with changing
state policies.
How have the challenges of diverging state policies been addressed in MSP?
Since 2016, PacifiCorp and parties to the MSP have analyzed several cost-allocation
proposals. Through a robust and collaborative process, the 2020 Protocol responds to
diverging state policies through, among other things, a gradual process oftransitioning
California, Oregon, and Washington from allocation of costs and benefits of coal-
fueled generation resources and a process to allow Idaho, Utah, and Wyoming to take
on additional allocation of costs and benefits. This gradual process provides certainry
to states that have policies requiring a transition away lrom coal-fueled generation
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a I without limiting the availabitity ofthose same resources to states that wish to continue
2 receiving costs and benefits from coal-fueled generation.
3 MSP Development of the 2020 Protocol
4 Q. Who has participated in the MSP Workgroup meetings?
5 A. Over the past three years, as many as 3 5 organizations have participated in regular MSP
6 meetings, representing regulatory staff from each state commission in the Company's
7 service territory, consumer advocacy groups, multiple industrial and environmental
8 interest groups, state legislators, a coal supplier, and others. Meetings were held every
9 four to eight weeks since late 201 6. The signatories to the 2020 Protocol can be found
l0 in Section 10 of the 2020 Protocol in Exhibit No. l-
I I a. Did the Company share principles to help guide the reyiew of inter-j urisdictional
12 cost allocation alternatives?
13 A. Yes, PacifiCorp developed a set ofguiding principles to help evaluate development of
14 a transitional approach to cost allocations. The Company's guiding principles
15 established that a new cost-allocation protocol should:
16 . Provide a long-term, durable solution;
17 . Follow cost-causation principles;
l8 . Minimize rate impacts at implementation;
19 . Allow for state autonomy for new resource portfolio selection;
20 . Maintain and optimize system-wide benefits and joint dispatch to the extent
21 possible;
22 . Enable compliance with state policies;
23 . Ensure credit-supportive financial outcome; and,
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a . Provide the company with a reasonable opportuniry to recover its costs.
O. Does the 2020 Protocol meet these requirements?
A. Yes, the 2020 Protocol meets the standards articulated in PacifiCorp's guiding
principles.
a. The Company's guiding principles reference maintaining and optimizing system-
wide benefits. What does "benefits" mean in the context of inter-j urisdictional cost
allocation?
A. Benefits can refer to a variety ofconcepts. For generation resources, benefits may refer
to the energy produced, net power costs benefits, capacity benefits, or other operational
benefits the resource brings to the operation of PacifiCoqp's integrated system.
Renewable generation resources may also contribute benefits in the form ofcompliance
with renewable portfolio standards or other reductions in compliance costs associated
with environmental regulations. In the context of transmission or distribution assets,
benefits may refer to access to markets and the ability to transact in the Energy
Imbalance Market, voltage support, or other system or local reliability benefits. These
are simply examples of the types of benefrts that are refered to within the 2O20
Protocol under the general term "benefits"; this list is not exhaustive and is intended
only to illustrate the broad array ofbenefits at issue.
The 2020 Protocol
O. Please describe the 2020 Protocol.
The 2020 Protocol represents a fundamental shift in how the Company proposes to
address inter-jurisdictional cost allocation, with the ultimate goal of moving away from
dynamic allocation factors and a common generation resource portfolio to a cost-
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allocation protocol with fixed allocation factors for generation resources and state-
specific resource portfolios. To achieve this goal, the 2020 Protocol uses a gradual
transition approach that relies on continuation of the 2017 Protocol with minor
modifications that I will discuss in greater detail below-during an interim period.
During this interim period, from January l, 2020, until the earlier of resolution of all
remaining cost-allocation issues or December 3 l, 2023 (the "Interim Period"), the 2020
Protocol establishes: (l) cost allocation procedures that will be implemented during
the Interim Period ("Implemented Issues"); (2) cost allocation procedures that are
agreed to but that will not take effect until after the Interim Period ("Resolved Issues");
and (3) cost allocation procedures that Parties to the 2020 Protocol will continue to
work to resolve during the Interim Period ("Framework Issues"), including the
implementation or resolution of issues surrounding a NPM, resource planning, new
resource assignment, limited realignment, special contracts, post-Interim Period capital
additions on coal plants and other items.
Before the end of the Interim Period, assuming resolution of all Framework
Issues, a new Post-Interim Period Method of cost allocation, incolporating the
Implemented Issues, the Resolved Issues and the final resolution of the Framework
Issues, will be presented to the commissions for approval. This is anticipated to occur
no later than yeat-end 2023 .
Has the Company prepared an exhibit that provides a timeline for the various
components of the 2020 Protocol?
Yes. Exhibit No. 2 is a chart reflecting the various issues covered by the 2020 Protocol
from 2019 to 2030. Exhibit No. 2 is intended to provide a picture olhow the various
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I elements of the 2020 Protocol interact over time, and assuming a resolution of the
Framework Issues, the implementation timeline that would occur for the different
elements.
Does the 2020 Protocol supersede the 2017 Protocol?
Yes. However, the primary elements of the 2017 Protocol are reflected in the 2020
Protocol, but with certain modifications for the current situation.
How does the Company propose to use the 2020 Protocol?
The 2020 Protocol will be used in regulatory filings in all states beginning January 1,
20202, as it provides for the use ofthe modified West Control Area Inter-Jurisdictional
Allocation Methodology (.'WCA") in Washington as well as the modified 2017
Protocol method for California" Idaho, Oregon, Utah, and Wyoming.
Does the use ofthe 2020 Protocol prejudge prudence or abrogate a commission's
responsibility to determine prudence and just and reasonable rates?
No. Section I of the Agreement makes clear that the proposed allocation of a particular
expense or investment to a state under the 2020 Protocol is not intended to and will not
prejudge the prudence ofthose costs or the extent to which any particular cost may be
refl ected i n rates .
Please provide an overview of the other sections ofthe 2020 Protocol.
The rest of my testimony will walk through the key provision of Sections 2 through 9
of the 2020 Protocol Agreement.
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o 2 The 2020 Protocol rvill be used in Washington beginning rvith a general rate case hling in December 2019.
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o I Section 2 - Timeframes and Effective Periods
a What is the effective period of the 2020 Protocol?
As explained above, the 2020 Protocol is designed to be used by PacifiCorp and Parties
for inter-j urisdictional cost allocation in regulatory proceedings or filings in each state
during the Interim Period, beginning January 1,2020.
Why is a four-year Interim Period necessary?
The four-year Interim Period allows time for Parties to continue working towards
resolution of several remaining inter-jurisdictional issues that are identified as
Framework Issues in the Agreement. The Framework Issues will be critical to any Pos!
Interim Period Method.
If all of the Framework Issues are resolved before the end of 2O23, can the new
method be implemented early?
Yes. If all of the Framework Issues are resolved early, PacifiCorp may propose that
each commission approve the Post-lnterim Period Method for use in rate proceedings
either during or after the Interim Period. In the event the Post-Interim Period Method
is approved by December 31, 2022, the Interim Period will end on December 31,2022
and PacifiColp will use the Post-Interim Period Method lor ratemaking purposes
beginning January 1, 2023.
What happens if commissions do not approve a Post-Interim Period Method or if
Parties are unable to reach agreement?
If any commission does not approve the Post-Interim Period Method, PacifiCorp will
file an altemative proposed allocation method to take effect upon the conclusion ofthe
Interim Period for consideration by the commission in that j urisdiction. Parties will be
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o free to take any position on the Company's proposal or to propose an altemative
method. Second, if the Company determines that an agreement cannot be reached by
Parties on the Framework Issues or the Post-Interim Period approach, then, the
Company will similarly file an alternative proposed allocation method for
consideration by the Commission and Parties will be free to take any position on the
Company's proposal or to propose an alternative method.
lf either the Post-Interim Period Method is denied or delayed or if no agreement
can be reached on the Framework Issues, when will the 2020 Protocol terminate?
The 2020 Protocol will terminate no later than December 3 1, 2023.
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l0 Section 3 - Interim Period Allocation Method
ila How will costs be allocated during the Interim Period?
The Parties have agreed that the states should continue to use the inter-j urisdictional
allocation methodologies, subj ect to certain exceptions, currently being used in 2019.
For California, Idaho, Oregon, Utah, and Wyoming this means that the 2017 Protocol
will be extended through the lnterim Period, subject to certain exceptions, Section 3.1
of the Agreement includes the specific terms of the 2017 Protocol that will be used
under the 2020 Protocol. For Washington, the WCA will continue during the Interim
Period, subject to the terms olAppendix F,
ls there explicit consideration for the treatment of NPC balancing accounts or
other cost recovery mechanisms?
Yes. It is important that the allocation method used for the deferral of costs is
consistently applied for the collection of the costs from customers. This is key for
historical balancing account mechanisms for NPC. Section 3.2.1 of the 2020 Protocol
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I addresses this issue and provides that for NPC filings, PacifiCorp will use the allocation
methodology in place when the NPC were or will be incurred, to align the timing of
the actual costs incurred with the applicable allocation method for cost recovery for
that period. The table in Section 3.2.1 summarizes the transition period between the
2017 Protocol and the 2020 Protocol for NPC filings.
What modifications to the 2017 Protocol are proposed in the 2020 Protocol?
PacifiCorp proposes four modifications to the 2017 Protocol: elimination of the
Equalization Adjustment; changes to the Embedded Cost Differential adjustments;
changes to treatment of QFs; and changes to the general governance sections of the
2017 Protocol. Changes to the general govemance sections are discussed later in my
testimony regarding Section 8.
Please explain the changes to the Equalization Adjustment.
The Equalization Adjustment addressed in Section XIV of the 2017 Protocol will
terminate on December 31, 2019, and no additional Equalization Adjustment amounts
will be defened after that date. Collection of deferred Equalization Adjustment
balances and any related carrying charges, has been or will be addressed in appropriate
state regulatory proceedings.
Whflt are the changes to the Embedded Cost Differential adjustment?
The 2020 Protocol provides for continuation of a fixed Embedded Cost Differential for
Idaho and a capped dynamic Embedded Cost Differential in Oregon through the end of
the Interim Period. No Embedded Cost Differential adjustment exists for Utah or
Califomia and the Embedded Cost Differential adjustment will terminate in Wyoming
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o December 31,2020. Mr. McDougal's testimony provides additional details related to
the Embedded Cost Differential adjustments.
What are the changes to the cost-allocation of QF power purchase agreements?
In the 2017 Protocol, QF costs were system allocated, but the allocations were subj ect
to challenge il a state rejected a portion of the costs that exceeded what PacifiCorp
would have otherwise incurred acquiring comparable resources. The 2020 Protocol
modifies the treatment ol QFs and provides lor a transition in which current QF
contracts are system allocated, but future QF contracts are the responsibility ofthe state
approving them. Mr. Wilding's testimony provides a detailed description of the
treatment of QF contracts.
How are new resources treated during the Interim Period?
New resources with a commercial operation date before January 1, 2024 will continue
to be treated as system resources, and assigned and allocated based on the System
Generation factor. New resources, including new resources contemplated in the action
plans of the 2019, 2021 or 2023 inlegrated resource plans with commercial operation
dates after December 3 l, 2023, will be assigned and allocated through the new resource
planning and new resource assignment processes determined through resolution ofthe
Framework Issues workgroup during the lnterim Period. The Framework Issues
workgroup is made up ofthe signatories to the 2020 Protocol and will work to resolve
the Framework Issues and cooperate in crafting and filing the Post-Interim Period
Method.
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o 1 Section 4 - Implemented Issues
2 Q. Will certain aspects of the 2020 Protocol be implemented during the Interim
3 Period?
4 A. Yes, certain changes described more fully below are necessary to implement during the
5 lnterim Period. These Implemented Issues are:
6 . States' decisions to exit coal-fueled existing resources;
7 . Reassignment ofcoal-fueled existing resources;
8 . Decommissioning costs; and,
9 . Treatment of QFs.
l0 a. Why is it necessary to implement these flspects of the 2020 Protocol during the
ll lnterim Period?
12 A. Changing requirements regarding the ratemaking treatment of coal in Oregon and
13 Washington is one driver for the need for a new approach to inter-jurisdictional cost
14 allocation. Even absent state mandates to remove coal from rates, differing views on
15 the longevity of coal-fueled resources has led to divergent depreciable lives for
16 PacifiCorp's coal-fueled generation units across its six states. Some states will reach
17 the end of their depreciable lives for certain coal-fueled generation units within five
18 years of approval of the 2020 Protocol; some coal-fueled generation units, like Jim
l9 Bridger Unit 1, will retire within the Interim Period. In contrast to states with mandates
20 to remove coal-fueled generation from rates, Wyoming has adopted a requirement to
21 seek a buyer for coal-fueled generation in Wyoming once the utility decides to retire
22 the unit.r To accommodate these multiple, and olten contradictory, state policies, a
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o process is necessary in the near-term that allows for some states to orderly exit lrom
coal-fueled generation while simultaneously allowing for other states to continue to
include coal-fueled generation in rates and to consider whether to increase their
allocated share of the costs and benefits of coal-flueled generation. The first three
Implemented lssues listed above outline the process that will be used to allow states to
set a date-certain for ending any cost responsibility lor or receipt ofbenefits lrom coal-
fueled generation units and the process that will be used to allow states to review
whether to take on an additional share of the costs and benefits of coal-fueled
generation. Critical to this process is the establishment ol decommissioning cost
estimates as states that exit coal-fueled generation units before the generating unit is
closed are only responsible for paying estimated decommissioning and remediation
costs. The process for establishing decommissioning cost estimates are described more
fully in the direct testimony of Mr. McDougal.
Similar considerations drive the need to move forward with immediate changes
to the treatment ofcost allocation for QFs: commission-established avoided costs vary
across PacifiCorp's service territory. The 2020 Protocol sets forth a transitional
approach for allocating the costs of QFs to the state where the QFs are approved with
full situs-allocation ofQFs beginning in 2029. During the transitional period, QFs with
executed contracts or legally enforceable obligations as of December 31, 2019 will
continue to be system allocated. The energy output ol QFs with executed contracts or
legally enforceable obligations after December 31, 2019 will be system allocated based
on a reasonable energy price and any costs above the reasonable energy price will be
situs assigned to the state approving the QF contract, The details of this process,
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o including valuation and NPC impacts are addressed in more detail in the direct
testimony of Mr. Wilding.
How does the 2020 Protocol address certain stateso interest in exiting coal-fueled
Interim Period Resources earlier than the Company's currently anticipated
operating lives?
Where possible, the 2020 Protocol seeks to put states on the same path with respect to
operational lives, particularly for those coal-fueled Interim Period Resources that the
Company currently anticipates will close before 2030. To the extent there is a common
closure date, each state that is assigned and allocated a portion ol the coal-flueled
Interim Period Resource at the time of its closure will continue to be allocated its share
of any remaining costs, including actual decommissioning costs. lf a state issues an
order to exit a coal-fueled resource on a date earlier than anticipated operational
closure, the exiting state is responsible for its allocation of the coal-fueled Interim
Period Resource's net plant balance and associated costs as ofthe date ofexit. The state
is also responsible for accruing an allocation of decommissioning costs as described in
Mr. McDougal's testimony. For states where the costs and benefits of coal-flueled
Interim Period Resources must be removed from rates by a date certain, the Company
will propose a ratemaking treatment for all allocated costs such that costs and benefits
remain matched in customer rates.
Does the 2020 Protocol establish closure dates for any Interim Period Resource or
change the Commission's oversight of the Company's decisions relative to the
operating lives of Interim Period Resources?
No. The 2020 Protocol does not mandate the closure ol any resource. It establishes a
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a I process lor states to diverge from the use of common resources over time. The 2020
Protocol identifies dates when certain states expect to no longer participate in a
common resource, which are needed to establish key processes, but it in no way affects
PacifiCorp's responsibility to prudently make decisions about the operation olits assets
and does not limit or otherwise affect commission oversight.
What mechanism does the 2020 Protocol establish for those states choosing to exit
coal-fueled Interim Period Resources before a decision by the Company to close
the resource?
Section 4.1 ofthe 2020 Protocol outlines a process by which state commissions may
issue "Exit Orders"r which provide for specific "Exit Dates"s, after which the state
would no longer receive any benefits or be subject to any new costs related to that
resource. Exit Orders may be established through the approval ofthe 2020 Protocol, in
depreciation dockets, general rate cases, or other appropriate regulatory proceedings.
What actions follow the issuance of an Exit Order for a specific coal-fueled
Interim Period Resource by one or more states?
An Exit Order triggers certain actions identified in the 2020 Protocol, including the
establishment of decommissioning cost obligations for exiting states, a potential
process lor the determination of capital addition responsibility, and a process flor the
consideration of reassignment of the freed up capacity to other states that have not
issued Exit Orders. The 2020 Protocol requests that sufficient time, at least four years,
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{ Exil Order mcans an ordcr entered b1- a state commission approving the discontinuation ofthe use of an
cristing resourcc and c\clusiol of costs and benefits of tlut resource from customer rates b,y tlL11 state on a date
ccrlain. See Appcndix A to the 2020 Protocol for tlrc defined term as used in tlle 2020 Prctocol.
5 Exit Date means thc datc on rvhich PacifiCorp rvill discontrnue the allocation and assignmcnt of costs aud
benehts of a coal-fueled Interim Period Reso[rce to the State issuing the Exit Order.
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is provided from the issuance of an Exit Order to the Exit Date to allow for
reassignment ofthe exiting state's share ofthe coal-fueled Interim Period Resource to
be considered by other states. The Exit Order alone does not provide for reassignment,
or any associated shift in responsibility for future operation and maintenance or capital
costs. Reassignment of costs and benefits must be approved by states without Exit
Orders in order for cost responsibility to shift among states and for benefits of the
resource to accrue to a different state.
What Exit Dates does the 2020 Protocol propose, and for which states?
The 2020 Protocol identifies prospective Exit Dates for Oregon and Washinglon that
allow for compliance with state statutes regarding removal of coal-related costs and
benefits from rates. The 2020 Protocol establishes several different groupings of coal-
lueled Interim Period Resources: the first group of resources for which the Company
assumes common operating lives for all states before 2030 where the states would
continue to share in the cost responsibility; the second group ofresources for which the
proposed Oregon Exit Dates are identified ranging from 2023 to 2027; the third group
of resources for which the proposed Oregon Exit Dates are identified ranging from
2028 to 2029; fourth, the 2020 Protocol addresses the treatment of Exit Orders for
Washington; and finally, it addresses a process to establish a recommendation by the
Company on the operating life for the Hayden units.
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operated by PacifiCorp?
With the exception of Hayden,6 the Company and Oregon Pafties agree to support
certain Exit Dates for coal-fueled Interim Period Resources not operated by PacifiCorp,
and to make best efforts to effectuate Closure. lf Closure ofa coal-fueled Interim Period
Resource not operated by PacifiCorp is not effectuated by the Oregon established Exit
Date, Oregon Parties will have the option to either to take an allocation and assignment
of the costs and benefits of such unit lor one additional year lollowing the specified
Exit Date; or discontinue taking an allocation and assignment ofthe costs and benefits
ofsuch unit as ofthe specified Exit Date. In either case, Oregon will be allocated actual
Decommissioning Costs if Closure of the unit is effectuated within such one-year
period, or lor Cholla Unit 4 by January 1, 2023. If Closure is not within the one-year
period, or January l, 2023 for Cholla Unit 4, an estimate ol decommissioning costs will
need to be established.
Please address the treatment of coal-fueled lnterim Period Resources for
Washington.
Washington's Senate Bill 5116, the Clean Energy Transformation Act ("CETA"),
requires an exit from coal-fueled Interim Period Resources by December 3 1 , 2025. The
Washin5on Utilities and Transportation Commission's approval of the 2020 Protocol
will constitute an Exit Order for Jim Bridger Unit 1 by December 31,2O23, consistent
with the 2019 lntegrated Resource Plan, and for Jim Bridger Units 2 through 4 and
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o 6 Haldcn is a coal-fueled Interim Pcriod Resource that is not operated by Pacificorp. PaciliCorp will nrakc
State-spccific recommendations to Commissions for the teatmcnt of Ha],den Unils I and 2 on orbefore
Februat' l, 2021.
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o Colstrip Unit 4 of no later than December 31,2025, consistent with CETA, absent
common closure dates for all states or realignment through the Framework Issues
process. The Framework Issues process contemplates a potential "Limited
Realignment"T of Interim Period Resources, such that Washington's System
Generation-Fixed (.'SGF") factor allocation of coal-fueled Interim Period Resources
may be exchanged for other Interim Period Resources, including natural gas-fired
Interim Period Resources. Exit Orders will only be required for the coal-fueled Interim
Period Resources recognized by the WCA method as serving Washington customers,
but the Limited Realignment process will address the exchange of all Interim Period
Resources.
How do the coal plant lives reflected in the 2020 Protocol compare to what is
currently approved in each state?
Appendix E provides a table reflecting commission-approved depreciable lives in
effect as of October 1, 2019, and the Company's proposed depreciable lives for coal-
fueled Interim Period Resources in pending depreciation dockets as filed in September
2018. This Appendix is provided for informational purposes for comparison to the lives
reflected in Section 4. I of the 2020 Protocol.
If the Idaho Public Utilities Commission approyes the 2020 Protocol, what does it
mean in relation to the coal plant lives in pending depreciation dockets?
The Company is in discussions with parties in the pending depreciation dockets in each
state to recommend any modifications necessary for depreciable lives, as well as
decommissioning changes, for Commission consideration, In Oregon, the Company
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PacifiCorp states that diffcrcnt from assignmcnl using thc SGF Factor.
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and the Oregon Parties support the coal-fueled Interim Period Resources' lives for
depreciation purposes that are reflected in the 2020 Protocol.
Once a state issues an Exit Order, what does the 2020 Protocol contemplate for
next steps by the Company?
After receipt ofany Exit Order, the Company has the responsibiliry to analyze whether
it is reasonable to continue to operate the affected coal-fueled Interim Period Resource
for customers in one or more of the states without Exit Orders. PacifiCorp will file its
analysis and recommendations in the other states, as outlined in Section 4.2,
Reassignment of Coal-Fueled Interim Period Resources. Based on its analysis,
PacifiCorp may propose reassignment ol a greater share of the coal-fueled Interim
Period Resource to another state or multiple states to match state load and resource
balance, or propose a new Exit Date to the other states.
PIease explain the timeline for Reassignment filings.
For Exit Orders received by December 15, 2020, with an Exit Date on or before
December 31, 202'7 , the Company will aim to provide its analysis and
recommendations by February 1, 2021. For Exit Orders received by December 31,
2023, with an Exit Date lrom January 1,2028 to December 31,2029, the Company
will aim to provide its analysis and recommendations by June 30, 2024. To the extent
possible, the Company will file in all states without Exit Orders at the same time, and
should the Company not expect to meet these filing guidelines, it will provide formal
notice and explanation to the parties to the 2020 Protocol, Should additional Exit
Orders not specifically contemplated in the 2020 Protocol be issued, the Company will
provide such analysis and recommendations to the States without Exit Orders within
1 six months of receiving the Exit Order, Finally, the Company will make a
supplementary filing in each state without Exit Orders within 60 days of the last
commission order. This filing will summarize each Commission order, and recommend
a path forward consistent with all of the orders.
In the event that each state with Exit Orders accepts the Company's
recommendation that they take an additional share ofcapacity from a given coal-
fueled Interim Period Resource, such that the resource's capacity is fully assigned,
what would follow?
The Company's supplementary filing in each state without Exit Orders will
characterize the reassignment ofthe capacity, along with the new Assigned Production
("AP") factor percentages for that resource, as explained in Appendix C, used to
allocate all associated costs and benefits, consistent with the Commission orders.
Should the various Commission orders request more capacity of a given coal-fueled
Interim Period Resource than is available, the supplemental filing will recommend a
pro-rata reassignment consistent with each commission order.
How does the 2020 Protocol address a scenario in which states do not collectively
accept 100 percent of a coal-fueled Interim Period Resource that is recommended
for reassignment?
In that case, the Company's supplemental filing will either make a recommendation on
how to handle the unassigned capacity, or will make a recommendation that state
commissions should issue Exit Orders for the coal-fueled Interim Period Resource.
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o 1 Section 5 - Resolved lssues - Post-lnterim Period Implementation
What issues have been resolved for implementation in the post-Interim Period?
Pending resolution of the Framework Issues and approval of the Post-Interim Period
Method, the lollowing issues are Resolved Issues that will be implemented as part of
the Posrlnterim Period Method: allocation ofgeneration costs and fixed assignment of
new resources; transmission costs; distribution costs; system overhead costs;
administrative and general costs; other allocation issues; demand-side management;
and state-specific initiatives. These issues represent critical components of a durable
cost-allocation protocol and resolution was based generally on continuing the current
cost allocation treatment of these cost components. The direct testimony of
Mr. McDougal addresses each of the Resolved Issues in greater detail.
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What are the Framework Issues identified in the 2020 Protocol thflt need to be
resolved for the Post-Interim Period Method?
The following Framework Issues are identified in the 2020 Protocol lor continued
discussion during the Interim Period:
. Resource planning and new resource assignment-long-term resource planning
on a total system basis while assessing state-specific resource portfolio needs
and the process for assignment of shares of new resources by state.
. NPC and the NPM-treatment of NPC and the transition to the NPM.
. Special contracts-cost allocation treatment for special contracts.
. Limited realignment-potential realignment of a limited portion of existing
coal-fueled generation and a limited number of natural gas units.
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o 1 . Post-lnterim capital additions-a process for determining cost allocation for
2 capital investments made in existing resources where states have different Exit
3 Dates.
4 Q. Why do the Framework Issues require additional time to resolve?
5 A. Most of the Framework Issues represent a significant change to the way the Company
6 historically plans for its system and assigns costs and benefits. Since 2017, Parties have
7 spent significant time discussing issues related to resource planning, new resource
8 assignments, allocation of NPC and the implementation of a NPM. Despite these
9 discussions, the complexity of these issues, combined with the potential impacts on
l0 PacifiCorp's actual operations, require additional time for the Company and the Parties
11 to develop a mutually agreeable proposal, Each ofthe Framework Issues are described
12 in greater detail below.
13 Resource Planning and New Resource Assignment
14 a. How does the 2020 Protocol address resource planning and new resource
15 assignment?
16 A- The 2020 Protocol recognizes the need for a new long-term resource planning process
17 for the post-Interim Period that will need to address how to continue least-cost, least-
18 risk planning for the entirety ofPacifiCorp's integrated system while also identifying
19 individual state load and resource balances and accommodating individual state
20 policies. In addition to a new long-term resource planning process, the post-Interim
2l Period will also require a process for the determination ol states' fixed share of new
22 resource acquisitions. The details ofboth new processes have been discussed at length
23 in MSP meetings over the last two years; however, additional time is necessary to fully
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o I develop robust and durable proposals for processes that are fundamental to
2 PacifiCorp's operations.
3 Net Power Costs and Nodal Pricing Method
4 Q. IIow does the 2020 Protocol address NPC in the post-Interim Period?
5 A. During the post-Interim Period, states will no longer participate in a common resource
6 portfolio and as a result NPC will no longer be dynamically allocated. The NPM, as
7 described in the Memorandum of Understanding signed by Parties in July 2019,
8 attached as Appendix D to the 2020 Protocol, is intended to implement an intra-
9 company nodal pricing regime that allows states to pursue different portfolios, while
l0 maintaining the benefits of system dispatch as much as practicable. This is a complex
1 1 issue and there are still items to be resolved before the NPM can be used for ratemaking,
12 and as such, the NPM is a Framework Issue in the 2020 Protocol. The direct testimony
l3 of Mr. Wilding addresses the NPM in greater detail.
14 Special Contracts
15 O, How does the 2020 Protocol address Special Contracts?
16 A. As discussed more fully in the testimony of Mr. McDougal, the allocation treatment
'11 for Special Contracts does not change from the 2017 Protocol. For the post-Interim
18 Period, the Company has committed in the 2020 Protocol agreement as part of the
19 Framework to continue to work in good faith with the Special Contract customers to
20 develop one or more proposals for consideration by the Parties on the treatment of
2l Special Contracts' loads, costs, and benefits.
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o I Q. Does the 2020 Protocol agreement establish a timeframe to present proposals on
2 the treatment of Special Contracts to the Parties to the Agreement?
3 A. Yes. The Company will make best efforts to present a proposal to Parties by September
4 l, 2021, with the intention of incorporating a resolution into the Post-lnterim Period
5 Method.
6 Limited Realignment
7 Q. Please explain Limited Realignment and how it applies in the Interim and post-
8 Interim Periods?
9 A. Limited Realignment is a reassignment ol resources alnong states at a point in time to
l0 address Washington's recently-enacted CETA, while appropriately valuing the
11 exchange of rate based assets among the states. Washington's CETA requires, among
12 other things, coal-fueled generation to be removed from rates by December 31,2025.
l3 The purpose of Limited Realignment is to address Washington's eight percent shares
14 of coal-fueled resources through trades with other states. CETA also requires all
15 electricity retail sales to be from non-emitting or renewable resources by 2045. A
16 Limited Realignment proposal may address natural gas fired units in addition to coal-
11 fueled generation.
18 a, Does the 2020 Protocol provide a specific Limited Realignment proposal or
19 timeframe for resolution of Limited Realignment?
20 A. No. The details of the Limited Realignment will be discussed amongst the Parties
2l during the Interim Period.
I Based on a total PacifiCorp sl'stem-allocation Yi$r'
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1 Q. Does the 2020 Protocol address post-Interim Period capital additions to coal-
2 frueled resources with Exit Dntes that are different than the depreciation lives in
3 other states?
4 A. Yes, as pan ofthe Framework Issues. The 2020 Protocol includes a straw proposal to
5 address how incremental capital investments would be treated in cost allocations for
6 existing coal-fueled resources. The straw proposal, which Parti es have agreed to
7 evaluate but have not accepted, addresses the allocation of costs based on the timing of
8 incremental capital in relation to a state's Exit Date. The Framework Issues Workgroup
9 will continue to work through the details of this straw proposal during the Interim
10 Period.
I I Section 7 - Gains and Losses
12 a. How does the 2020 Protocol address the allocation ofgains or losses from the sale
13 of assets?
14 A. Section 7 provides that the allocation ofgains or losses lrom the sale of Company-
15 owned assets will be based on the assignment ofthe asset at the time ofthe sale, unless
16 the asset has been under that assignment for less than 12 months prior to the sale, in
17 which case any gains or losses would be allocated based on the prior assignment shares.
18 Section 8 - Governance
19 a. What are the key governance provisions in the 2020 Protocol?
20 A. First, the 2020 Protocol establishes two workgroups: the Framework Issues Workgroup
2l and the MSP Workgroup. The Framework Issues Workgroup is made up of the
22 signatories to the 2020 Protocol and will work to resolve the Framework Issues and
23 cooperate in crafting and filing the Post-lnterim Period Method. The MSP Workgroup
o 1 will be convened as needed by any party to resolve an allocation issue not specifically
2 treated by the Framework Issues Workgroup in its limited scope.
3 Second, under the 2020 Protocol, holding an annual Commissioner Forum is
4 optional and may be convened by the Parties or commissions as deemed necessary.
5 Third, Parties may only propose changes to the 2020 Protocol based on changed
6 circumstances. A Party wishing to propose a change may bring a proposal to the
7 Company, which will be responsible for circulating the proposal among Parties and
8 scheduling meetings as needed to resolve the issue or concern. Additionally, non-party
9 stakeholders may likewise propose changes to or replacement of the 2020 Protocol,
l0 however, such proposals would first require a convening of the MSP Workgroup to
l1 address such concerns.
12 Finally, Section 8.6 provides details regarding the interdependency among
13 Commission approvals, establishing that any approval by a given Commission is
14 contingent upon the 2020 Protocol being approved unaltered by other Commissions.
15 Section 9 - Compliance with Resource Laws
16 a. Please explain Section 9.
17 A. Section 9 simply asserts PacifiCorp's determination that the 2020 Protocol complies
l8 with all relevant state statutes, and should that change, the Company will convene either
19 the Parties or the MSP Workgroup, as appropriate, to address the issue.
20 Recommendation
21 a, Please summrrize the Company's recommendation.
22 A. The Parties to the 2020 Protocol have spent considerable time and effort investigating
23 inter-jurisdictional cost-allocation methodologies and approaches to respond to the
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needs and interests ofthe stakeholders. The 2020 Protocol has been negotiated in good
faith as an integrated, interdependent agreement that balances the interests of the
Parties. Accordingly, PacifiCorp respectfully requests that the Commission approve the
2020 Protocol, as filed. The Company also requests that the Commission establish a
schedule that will allow for a hearing or decision as soon as practicable to enable the
Company and Parties to reflect the 2020 Protocol in ratemaking proceedings in 2020
and continue with discussions on the Framework Issues.
Does this conclude your direct testimony?
Yes.
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