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HomeMy WebLinkAbout20191203Wilding Direct.pdfo BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION IN THI NL{TTER OF THE APPLICATION FOR APPROVAL OF THE 2O2O PACIFICORP INTER-JURISDICTIONAL ALLOCATION PROTOCOL ) cASE NO. PAC-E-19-20 ) ) DIRECT TESTIMONY OF ) MICHAEL G. WILDING o ROCKY MOUNTAIN POWER CASE NO. PAC.E-I9-20 o December 2019 o 1 Introduction 2 Q. Please state your name, business address, and present position with PacifiCorp 3 (the "Company"). 4 A. My name is Michael G. Wilding. My business address is 825 NE Multnomah Street, 5 Suite 2000, Portland, Oregon 97232. My title is Director, Net Power Costs and 6 Regulatory Policy. 7 Qualifications 8 Q. Briefly describe your education and business experience. 9 A. I received a Master of Accounting from Weber State University and a Bachelor of l0 Science degree in accounting from Utah State University. I am a Certified Public 1l Accountant licensed in the state of Utah. During my tenure at the Company, I have 12 worked on various regulatory projects including general rate cases, the multi-state l3 process, and net power cost filings. I have been employed by the Company since 2014. 14 a. Ilave you testified in previous regulatory proceedings? 15 A. Yes. I have provided testimony before the Idaho Public Utilities Commission 16 ("Commission"), the Public Utility Commission of Oregon, the California Public 17 Utilities Commission, thePublic Service Commission of Utah, the Washington Utilities 18 and Transportation Commission, and the Public Sewice Commission of Wyoming. l9 Purpose of Testimony 20 a. What is the purpose of your testimony in this proceeding? 21 A. The purpose of my testimony is to support the Company's application for approval of 22 the 2020 PacifiCorp Inter-Jurisdictional Allocation Protocol ("2020 Protocol" or 23 "Agreement") agreed to among PacifiCorp and the signatories to the 2020 Protocol wilding, Di - 1 Rocky Mountain Power O o o 1 (referred to individually as a Pany or collectively as the Parties), I provide details on changes from the 2017 Protocol to the 2020 Protocol that affect net power costs ('I.iPC") during the Interim Period (defined as January I , 2020 through December 3 I , 2023), as well as describe the need to track NPC differently in the future. r I al so support Appendix F of the 2020 Protocol, the Washington Inter-Jurisdictional Allocation Methodology ("WIJAM") Memorandum of Understanding ("MOU"). Specifically, my testimony provides additional details on. . The change from the 2017 Protocol to the 2020 Protocol as it pertains to the treatment ofqualifying facilities ("QF") purchase power agreements ("PPAs"), especially the treatment olnew QF PPAs entered into after December 31, 2019, and how the situs assignment of costs will be determined during the Interim Period before implementation of the Nodal Pricing Model ("NPM'); . The need to develop the NPM, the description of the NPM, and the MOU among the Parties that supports the Company's investment in the development of the NPM (Appendix D to the 2020 Protocol); and . The development of an agreement between the Company and certain parties representing interests in Washington related to modifications to the West Control Area Inter-Jurisdictional Allocation Methodology ("WCA") and the resulting MOU that is included in the 2020 Protocol as Appendix F. 2 , 4 5 6 7 8 9 l0 1l 12o13 1.4 l5 l6 l'7 18 t9 I See Appendix A of the 2020 Protocol. Post-lntcrinr Pcriod Method means the resolution of the Framerrork Issues combined l'ith the Implementcd Issucs and thc Rcsoh'ed Issues and results in the ne\r allocation methodologx' forPacifiCorp's six statcs allcr thc lnlcrirn Pcriod. Wilding, Di - 2 Rocky Mountain Power o o I Treatment of QFs a A 1la t2 2 Please explain the change in treatment for existing QF PPAs from the 2017 Protocol. The 2020 Protocol distinguishes between existing QF PPAs that are executed by December 31,,2019, or where a legally enforceable obligation exists before that date, and new QF PPAs that are executed after December 31,2019. Existing QF PPAs will continue to be system allocated, similar to the treatment that was applied under the 2017 Protocol.2 As part ofthe Post-Interim Period Method, if resolved and approved, the existing QF PPAs will be situs assigned to the respective states with jurisdictions over the QF PPAs ("State of Origin") after 2029. Why do the existing QF PPAs change from system allocation to situs assignment after 2029? Historically, the Company has procured generation resources to serve the energy and capacity needs of its entire system, and allocated the cost of resources dynamically among states. That model is no longer sustainable going forward with states requiring different generation resources. As a result, a working premise in the Multi-State Process C'MSP") was that states should be responsible for their energy policies and the associated costs, including prices set for QF PPAs. Existing QF PPAs have been relied on in integrated resource plans ("lRP") in the past and have displaced other system resources and, therefore, a transition period was agreed to where these resources would continue as system-allocated resources through 2029, but the eventual situs assignment J 4 5 6 7 8 9 l0 o 14 t5 l6 17 l8 l9 20 2t o r Under the WCA in Washington, all QF PPAS arc treated as situs assigned to the State of Origin. Wilding, Di 3 Rocky Mountain Power 1 to the State olOrigin olthe resources aftet 2029 could be taken into account for each state in future IRPs. IIow will new QF PPAs be treated under the 2020 Protocol? New QF PPAs, defined as those contracts fully erecuted after December 31, 2019, will be situs assigned to the State of Origin, providing a clear demarcation for the treatment ofnew QF PPAs going forward. How will the renewal of existing QF PPAs be treated under the 2020 Protocol? The renewal of an existing QF PPA after December 31, 2019, will result in the QF PPA being treated the same as a new QF PPA and will be subject to situs assignment to the State of Origin. Does the Company have a methodology for situs assigning to the State of Origin the QF PPA costs? Yes. During the Interim Period, the Company will employ a methodology agreed to as part ofthe 2020 Protocol. Any cost ola new QF PPA above a reasonable energy price should be the responsibility ofthe State of Origin. Correspondingly, any incremental benefits above the energy output ola new QF PPA such as renewable energy certificates ("RECs") will be situs assigned and allocated to the State olOrigin. The methodologies in determining avoided costs are different in the states that the Company serves, and it would be difficult, if not impossible, to have common avoided costs to which all new QF PPAs could be compared. As a result, Parties to the 2020 Protocol have agreed to use a generic reasonable energy price to determine whether the prices ofnew QF PPAs are higher than the Company's avoided costs. Situs assignment of new QF PPAs during the Interim Period to the State of Origin will be approximated by comparing the price Wilding, Di - 4 Roc$ Mountain Power o 2 3 4 5 6 ,7 8 9 o A o A t0 lla a t2 t4 15 1.6 t7 18 l9 20 21 13A 22 I 23 I ofa new QF PPA against the corresponding reasonable energy price, and the costs ofa new QF PPA above the reasonable energy price will be situs assigned to the State of Origin. After the Interim Period, the Company anticipates that it will rely on the Nodal Pricing Model (.'NPM") to determine the amount of cost that should be situs assigned to the State of Origin. The new QF PPAs will be treated the same during the two time periods in that those PPAs will be situs assigned to the State of Origin for cost responsibility, REC assignment, resource planning, and new resource assignments. However, the NPM will not be available for ratemaking at the outset of the Interim Period, and it will not be possible to track the costs and benefits of any particular resources without the NPM. How is the reasonable energy price determined? The reasonable energy price is a single blended market price derived from the Company's O{Iicial Forward Price Curve ('OFPC") that was used for setting the QF price for the new QF PPA, scaled for hourly prices. The single blended market price is calculated by applying the appropriate market weighting to the hourly scaled prices from the OFPC for each market hub. The market weighting will be applied by month and by heavy load hours and light load hours. IIow will new QF PPAs during the post-Interim Period be treated? After the Interim Period, the NPM will be implemented for ratemaking purposes and lhe costs and benefits ofthe new QF PPAs will be tracked in the same manner as the costs and benefits of other resources assigned to states. At that time, the need to make adjustments based on a reasonable energy price will no longer be needed. Wilding, Di - 5 Rocky Mountain Power a 2 J 4 5 6 7 8 9 t0 o il t3 A t2a l4 t5 t6 t7 20A t8 tea 2t 22 23a I 1Q. 2 3A 4 5 6 7 8 9 l0 a. 1l 12 A. 13 1.4 15 Nodal 16 a. t7 18 A. l9 20 21 22 23 Are there any other unique issues or considerations that need to be addressed with respect to the 2020 Protocol's treatment of QFs? Yes, the Company has agreed to an annual adjustment for Wyoming, which will be reflected in the base Wyoming Energy Cost Adjustment Mechanism ("ECAM") costs, from January l, 2021 through December 31,2029, and will be trued-up in the ECAM without application of the sharing bands. The value of the annual adjustment will be $5 million throu gh 2O22, and $7. 175 million from January 1,2023 until December 31, 2029. The cost of the adjustment will be borne by the Company, and not allocated to other states. IIow is the Wyoming Embedded Cost Differential f'ECD") treated in the 2020 Protocol? The Wyoming ECD expires December 31, 2020, as a result of the 2020 Protocol Agreement, and corresponds to the start ol the Wyoming QF adjustment explained above. Pricing Model lf states have differing generation portfolios in the future, can the Company continue to rely on its past practice of allocating NPC on a system basis? No. The ability to dynamically allocate NPC in a reasonable manner hinges on a common resource portlolio on which all states share proportionately in the resources. It is likely that after the Interim Period, states will no longer participate in a common resource portfolio. In addition to providing a path for states to have unique resource portfolios, it is important to maintain the benefits of system dispatch and optimization as much as practicable. To fairly and reasonably allocate NPC with unique state Wilding, Di - 6 Rocky Mountain Power I t o 1 2 t0 12 resource portlolios while maintaining the benefits of system dispatch and optimization, the allocation methodology for NPC must be changed. Will a new approach to allocating NPC be developed during the Interim Period? Yes. This is a complex issue, requiring additional time for the Company to develop a new system to track the real-time costs of generation based on each state's allocated share of each resource. The additional time during the Interim Period will also allow for further discussions with the Parties relative to the usage and implementation of a new system for ratemaking purposes in the Post-Interim Period Method. The new system is referred to as the Nodal Pricing Model, or NPM. Will the NPM be used for cost allocations during the Interim Period? No. Per the 2020 Protocol, NPC will continue to be dynamically allocated as they were under the 2017 Protocol, with the exception olthe changes previously discussed related to QF PPAs. The NPM is a Framework Issue, as defined in the 2020 Protocol, and will be subject to further development and refinement during the Interim Period. If the Framework Issues are resolved, the NPM will be part of the Posllnterim Period Method to be filed for consideration and approval by the states, Even though the NPM will not be used for cost allocation purposes during the Interim Period, can it be used for day-ahead setup purposes during that timeframe? Yes, when the NPM is developed and fully operational, the Company anticipates that it will be used at a total Company level for day-ahead schedules and commitment decisions, also referred to as day-ahead setup, and capture any co-optimized system efficiencies that the NPM creates. Wilding, Di - 7 Rocky Mountain Power J 4 5 6 7 8 9 o A 1t l3 14 15 l6 1'/ a t8 t9 2t a A o 20A 22 o _-l o a A How does the Company intend to use the NPM? The use of the NPM to allocate NPC is a Framework Issue in the 2020 Protocol, meaning there are still items to be resolved before the NPM is used to determine NPC by state. Once the Framework Issues are resolved, the NPM will be used for NPC allocations in the Post-Interim Period Method. However, during the Interim Period the Company will make best efforts to implement the NPM by January 2021. Therefore, while the 2020 Protocol is in effect, the Company's day-ahead schedule may be based on the NPM, but NPC will be dynamically allocated for ratemaking purposes. Parties intend for this period to provide an opportunity for time and experience with the NPM before it is used for ratemaking as part ofthe Post-Interim Period Method. What principles did the Company estflblish to evaluate a method for allocating NPC when the states do not share a common resource portfolio? The Company established five guiding principles for evaluating a NPC allocation method, namely that it should: . Suppon individual states' abilities to have a unique resource portfolio mix that does not adversely impact other states; . Assign costs to the state(s) that benefit from and/or drive those costs; . Provide appropriate incentives and transparency ofcost drivers to better inform resource decision making; . Maximize the transparency ofcost allocation and dispatch decisions; and . Reduce reliance on subjective assumptions. Please describe the NPM. The NPM is a tool designed to track NPC by generation resources and by state. The Wilding, Di 8 Rocky Mountain Power o 0 A 2 3 4 5 6 7 8 9 l0 11 t2 l3 14 t5 16 l7 l8 19 20 21 22 23 0 A o 1 Post-Interim Period Method will no longer dynamically allocate costs among states based on their respective loads. Instead, generation-related costs will lollow the assignment olthose resources. To develop such a method, PacifiCorp is working with the Califomia Independent System Operator ("CAISO") who, acting as a third-party vendor, w-ill produce optimal unit commitment and hourly energy schedules fbr supply resources in the PacifiCorp balancing authority areas using its day-ahead market model. PacifiCorp will use the NPM to track costs and benefits associated with the diflerent resource portfblios used to serve PacifiCorp's load in each state for ratemaking purposes. Did the Company research alternatives to the NPM? Yes. The Company evaluated altemative methodologies that attempted to fairly allocate NPC amongst states with unique resource portflolios. Howevel none of these methods were consistent with the guiding principles outlined above. Why did the Company decide to pursue the NPM as opposed to the other options? The NPM was the only identified method consistent with the guiding principles. Additionally, the NPM builds on the Company's experience gained through its participation in the Energy Imbalance Market ("EIM"). The EIM dispatches the Company's system on an intra-hour basis using locational marginal prices ("LMP"), and the NPM will extend a similar concept to the day-ahead setup of the system. PacifiCorp will settle the NPM at the state level compared to the balancing area authority in the EIM. Please describe conceptually how the NPM will work. The NPC associated with each generating resource will be assigned to the states based Wilding, Di - 9 Rocky Mountain Power o 2 3 4 5 6 7 8 9 a A l0 12 lt l3 144 o l5A l6 t7 t8 19 20 2t 22 o 23Ao on each generating resource's assignment. For example, ifa state is assigned 25 percent of a natural gas plant, then it is also assigned 25 percent of the fuel costs associated with that resource, regardless ofload. Each resource also receives a credit based on the LMP lor its generation, which is also assigned to each state per its assignment of each generating resource. The assigned NPC, less the credit received, will be the states' total NPC, Please explain the credit received by each generating resource in more detail. Each generating resource will receive a credit for the energy it generates or the reserves it provides, and each state's load will be charged a load aggregated point (.'LAP") price.r The total credits the generating resources receive will equal the dollar amount that each state's load is charged. This facilitates a transfer of energy between states at a fair price based on the LMP and preserves the benefits of a system dispatch and optimization. What is the primary benefit associated with the NPM? NPM provides a method to allocate and track actual NPC even as states move to unique generation portfolios. The NPM is intended to and is being developed to help preserve the benefit ofoperating as a single system while providing states the flexibility to have unique resource portfolios that align with a state's energy policy and interests. Are there any secondary benefits rssociated with the NPM? Yes. In addition to providing a method to allocate NPC among unique resource portfolios, the NPM potentially provides more granular day-ahead setup information resulting in potential operational cost savings. The potential operational cost savings Wilding, Di l0 Rocky Mountain Power a o r The LAP price is the rveighted aYerage LMP at each load point or node $'ithi[ the LAPo 1 2 3 4 5 6 7Q. 8A. 9 10 ll t2 t3 14 a. 15 A. 16 t7 l8 le a. 20 A. 21 22 a I will be the result of a more efficient day-ahead setup and the cost savings will be embedded in the actual NPC. These potential cost saving will be impossible to accurately and precisely track as the calculation of such savings would rely on a counterfactual setup of the system without the NPM. What are the benefits of partnering with CAISO for the development of the NPM? As the Company implements a NPC allocation methodology based on the NPM solution, partnering with CAISO's existing technology platform reduces both schedule and budget risk. Since the day-ahead market in the CAISO is based on the day-ahead LMPs at the nodal level, the Company will be able to leverage CAISO's existing day- ahead market model and experience in developing and implementing the NPM. Additionally, partnering with CAISO ensures consistency between the NPM and the EIM dispatch since both will be based on the same underlying full-network model. Even though transfers will not be allowed between the CAISO and PacifiCorp in the NPM, the day-ahead dispatch for both systems will be based on the same model run and could potentially result in a more efiicient day-ahead setup that takes into consideration a more accurate power flow solution. Lastly, if the CAISO offers a day-ahead market to extemal entities for optional participation, the NPM solution development would allow PacifiCorp to seamlessly participate in the CAISO day-ahead market, if and when PacifiCorp decides to participate in that market. Is development of the NPM with CAISO as the third-party vendor equivalent to PacifiCorp joining CAISO in any way? No. As the third-party vendoq CAISO will provide optimized advisory day-ahead 2 J 4 5 6 1 8 9 a A l0 11 t2oll l4 l5 16 t7 l8 l9 20 210 22 23AI Wilding, Di - l1 Rocky Mountain Power o Wilding, Di - 12 Rocky Mountain Power 2 4 5 6 7 8 9 a l0 o ilQ t2A l3 t,l l5 t7 l6 t8 l9 O schedules and commitment information only. PacifiCorp will not relinquish control of its transmission assets to CAISO or otherwise be considered as havingjoined CAISO as the result ol engaging CAISO as the third-party vendor for I{PM development. What are the costs associated with the NPM? CAISO will charge PacifiCorp a grid management charge or service fee that is estimated to be between $8 and $10 million annually once the NPM is operational beginning in January 2021. Additionally, there will be some initial capital cost and ongoing operations and maintenance expense, such as upgrades for PacifiCorp information technolory hardware and software for both regulatory and accounting purposes. Will the NPM provide both actual and forecast NPC results? No. The NPM will provide a way to assign costs by state on an actual basis. For lorecast NPC used in various ratemaking processes, the Company will use best efforts to implement a model that can forecast NPC based on the NPM concept, and is currently working with Energy Exemplar to develop the modeling setups and test run a model known as the Aurora Model- During the Interim Period the Aurora Model may be used by the Company for forecast analysis of NPC. After the lnterim Period, the Company intends to propose the use of the Aurora Model for NPC lorecasts in applicable ratemaking proceedings. The Company has various NPC mechanisms in the strtes, which compare actual NPC against a base NPC set by previous filings and/or refresh the base NPC. Please describe how the Company will transition from the 2017 Protocol to the 2020 Protocol and the Post-Interim Method with the implementation of NPM. For those NPC filings, the 2020 Protocol contemplates using 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. Section 3.2.1 of the 2020 Protocol includes a table that summarizes the transition period between the 2017 Protocol and the 2020 Protocol for NPC filings, If a Post-Interim Period Method agreement is reached between the Parties, a similar table will be developed to summarize the transition period for NPC filings from the 2020 Protocol to the subsequent agreement. You have discussed NPC as a general term, please describe the components of NPC that will either be dynamically allocated during the Interim Period, or assigned through the NPM under a Post-Interim Period Method. NPC are the variable costs incured by the Company to produce energy less the revenues from wholesale sales. Specifically, NPC includes the amounts booked to the following FERC accounts: Account 447 - Sales for resale Account 501 - Fuel, steam generation; excluding fuel handling, sta(-up fuel (gas and diesel fuel, residual disposal) Account 503 - Steam from other sources Account 547 - Fuel, other generation wilding, Di - 13 Rocky Mountain Power o o o lQ. 2 J 4 5A, 6 7 8 9 t0 l1 t2 13 0. 14 l5 16 A. t7 l8 l9 20 21 22 23 o I ) 3 4 5 Nodal 6Q. 7 8A. 9 l0 l1 l2 13 14 t5 16 t7 l8 t9 20 21 22 Account 555 - Purchased power, excluding the Bonneville Power Administration residential exchange credit pass-through il applicable Account 565 - Transmission olelectricity by others Pricing Model Memorandum of Understanding Please describe the NPM MOU executed by the Parties and provided as Appendix D to the 2020 Protocol. The NPM MOU sets out the Company's proposal for a third-party day-ahead dispatch model to determine the schedules for each of its generation resources to serve state loads on a least-cost basis, while tracking costs and benefits associated with the different resource portfolios used to serve PacifiCorp's load in each state. The MOU lists the CAISO as the third party that will develop the tool, the scope of work, and costs of the work identified by the CAISO, as well as CAISO's estimated costs and benefits ofthe work. The MOU also provided an explanation ofthe anticipated benefits, including cost-savings and compliance with state policy directives impacting resource portfolio decisions. Based on the information provided by the Company, Parties agree that the Company's decision to invest capital lunds and pay ongoing grid management charges to develop and implement an NPM is reasonable and prudent. The MOU was signed by l7 parties, including the Company, regulatory agencies, consumer advocates, and other interested parties from Idaho, Oregon, Utah, Washington, and Wyoming. No party to date has indicated their objection to the Company's investment to develop the NPM. Wilding, Di - 14 Rockry Mountain Power o o 1 a. Does the NPM MOU address the training for Parties? A. Yes. The Company will use its best efforts to provide adequate training and documentation regarding the NPM such that Parties may understand, review, and audit NPM-derived NPC. The Company will also provide training and facilitate access to the Company's forecasting model for any appropriate party for regulatory purposes. a. Are the Parties to the 2020 Protocol asking the Commission to approve the use of the NPM at this time? A. No. As indicated previously, the NPM is a Framework Issue as defined in the 2020 Protocol, and the process and timeframe for developing NPM is what is before the Commission for consideration, not the method itself. Once the NPM is fully developed and agreed to by Parties, a subsequent filing will be made for approval ofthe end result of the Framework Issue process and the implementation of a Post-lnterim Period Method. Washington Inter-Jurisdictional Allocation lVlethodology lVlemorandum of Understanding O. Please describe Appendix F to the 2020 Protocol. A. Appendix F is a MOU between the Company, the Washington Utilities and Transportation Staff, Washington Public Counsel, and the Packaging Corporation of America and represents an agreement on modifications to the WCA. The new Washington allocation method, as outlined in Appendix F, is referred to WUAM. a. Please explain the purpose of the WIJAM MOU. A. The purpose of the MSP process was to find an approach to inter-jurisdictional cost allocations that would result in a long-term methodology that meets the needs ofall ol the states that PacifiCorp serves. Currently, Washington uses the WCA method while Wilding, Di l5 Rocky Mountain Power o 2 J 4 5 6 7 8 9 l0 o 11 t2 r3 1.1 t5 o 16 t7 18 19 20 2t 22 23 24 I other states rely on the 2017 Protocol. The 2020 Protocol establishes the umbrella approach under which Washington continues to use the WCA as adjusted by the WIJAM. Similarly, other states continue to use the 2017 Protocol as amended by the 2020 Protocol, while working on resolving the Framework Issues in the agreement to deliver the same solutions for all states that allow for a permanent, durable long-term solution to inter-jurisdictional cost allocations. The WIJAM addresses issues that would move certain allocations from a divisional treatment to a system treatment if certain conditions are met, and creates a path forward for compliance with Washington Senate Bill 5l 16, the Clean Energy Transformation Act, Does the WIJAM MOU apply to Washington only? Yes. Does the WIJAM MOU impact other states during the Interim Period or shift costs to other states? No. When allocating costs lor the other five states using the 2020 Protocol, the Company allocates all of the costs across all six states. To the extent that a difference exists between Washington's share under that approach and the WIJAM, that is a risk for the Company, not other states. The Company's long-term objective is to be able to serve the states with least-cost, risk-adjusted resource portlolios that meet their needs and comply with state energy policies, w-hile minimizing or eliminating cost recovery shortfalls due to allocations. Will Washington parties be participating in the Framework Issues discussions established under the 2020 Protocol? Yes. Washinglon parties that are signatories to the 2020 Protocol will participate in the o o Wilding, Di - l6 Rocky Mountain Power I 3 4 5 6 7 8 9 l0 0. 11 A. t2 a. 13 14 A. l5 l6 17 18 19 20 21 a. 22 23 A. o l Framework Issues Workgroup. 2 J 4 5 6 7 8 9 Conclusion 0 What action do you recommend the Commission take with respect to the Agreement? The Company recommends that the Commission find that the 2020 Protocol is in the public interest and requests that the Commission approve this Application including all the terms and conditions ofthe 2020 Protocol in its order in this proceeding. Does this conclude your direct testimony? Yes. A, o. A- o o Wilding, Di - 17 Rocky Mountain Power