20210527Eller Direct-Redacted.pdf

BEF'ORE TIIE IDAHO PUBLIC UTILITIES COMIIISSION
IN TI{F MATTER OF TIIE )
APPLTCATTON OF ROCKY )
MOUNTATN POWER FOR )
AUTHORTTY TO TNCREASE rrs )
RATES AND CHARGES IN IDAHO )
AND APPROVAL OF PROPOSED )
ELECTRIC SERYICE SCHEDT'LES )
AND REGULATTONS )
ROCKY MOI'NTAIN POWER
CASE NO. PAC.E.2I-07
Direct Testimony of Craig M. Eller
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CASE NO. PAC.E.2I47
tr'I.ay 2O2l
IABLE OT CONTENTS
L INTRODUCTIONAI.TD QUALrFrCAf,rONS............... .......... l
tr. PIJRPOSE OF TESTIMONY......I
III. CI'RRENT STAruS AI{D BACKGROI.JND OF CONTRACT NEGOTIAilONS... 2
ry. RECOMMENDAflON ............... 16
ATTACITND EXHIBITS
Exhibit No. 36-Intemrptible Product Value Update
Eller, Di- r
RockyMountain Power
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I. INTRODUCTION AND QUALTNCATIONS
Please state your name, business address, and present position with PacifiCorp
d/b/a Rocky Mountain Power (the "Company").
My name is Craig M. Eller. My business address is 1407 West North Temple Street,
Suite 3 I 0, Salt Lake City, Utah 841 I 6. My present position is Vice President, Business
Policy and Development for Rocky Mountain Power.
Please describe your education and business experience.
I have a B.S. in Mechanical Engineering from the University of Nebraska. I have been
employed with PacifiCorp since July 2020 as the Vice President of Business Policy and
Development responsible for strategic planning, stakeholder engagement, regulatory
support, and development and execution of major transmission projects. Prior to my
current role, I worked at Northern Natural Gas Company, an affrliate of the Company,
from 2007 through 2020 in various business development, commercial and engineering
roles.
II. PT]RPOSE OF TESTIMONY
What is the purpose of your testimony?
The purpose of my testimony is to describe the current status of the confract
negotiations between Rocky Mountain Power and its largest special contract customer
in Idaho, P4 Production (formerly Monsanto) ("P4"). I provide a recornmendation and
analysis regarding the economic valuation of the intemrptible products offered by P4
to the Company to establish the intemrptible credit amount for inclusion in P4's electric
service agreement. My testimony will address the following areas:
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Rocky Mountain Power
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. provide a summary of the current status of the contract negotiations between
Rocky Mountain Power and P4;
o provide a summary of how the Company updated the valuation of the P4
intemrptible products consistent with the methodology set out in Commission
Order No. 32196;
o provide other relevant information
Why is the Company making a recommendation on P4's contract in conjunction
with the general rate case?
In compliance with Commission Order Nos. 30197 and32l96, the Company is making
a recommendation regarding P4's contract and curtailment credit.l
UI. CURRENT STATUS AND BACKGROTIND OF CONTRACT
NEGOTIATIONS
What is the status of the contract negotiations between Rocky Mountain Power and
P4?
Rocky Mountain Power and P4 have been engaged in contract negotiations since August
of 2019. Both companies are fully engaged in seeking an agreement and have been
meeting weekly to further discussions. While an agreement has not yet been reached,
negotiations have been moving in a positive direction and both companies hope to have
an agreement to bring to the Commission prior to the end of this proceeding.
I In the Matter of the Application of PacifiCorp dba Rocky Mountain Powerfor Apprcval of an Electric Service
Agreement with Monsanto Company, Case No. PAC-E-06-09, Order No. 30197 @ec. 18, 2006).
In the Matler of PacifiCorp dba Roclcy Mountain Powerfor Apprcval of Changes to lts Electric Service
Schedules, Case No. PAC-E-|0-07, Order No. 32196 (Feb. 28,2011), at pp. 48-57.
Eller, Di - 2
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What changes in circumstances are being considered in the contract negotiations?
P4's parent company, Bayer AG ("Bayer") has recently announced a goal to be carbon-
neutral at its owned facilities, such as P4's facility in Soda Springs, Idaho, by the year
2030.2 As part of Bayer's carbon-neutral goal, it intends to be served by 100 percent
renewable energy. Bayer has indicated that it would like to make incremental steps
toward fulfilling its goal prior to 2030.
Has the Company been working with Bayer to facilitate its carbon-neutral goals?
Yes. The two companies recently filed an agreement under which the Company agreed
to retire, rather than sell, P4's allocated share of RECs generated from system resources
("REC Retirement Agreement"). 3 Subject to Commission approval, the Agreement will
be effective starting calendar year 2021.
Does the REC Retirement Agreement significantly advance achievement of P4's
carbon-neutral goals?
Yes. A large portion of P4's renewable energy goal can be achieved from the Company's
own fleet. Based on the 2020 Fuel Mix report, when hydro production is included over
22 percent of the energy from the Company's fleet is generated by renewable resources.
That percentage will continue to increase and is expected to approach 50 percent by
2030.
2
^See Our Targets to Be Met by 2030, available at https://www.baver.corn/er/sustainabilitv/tareets (last accessed
May 24,2021).
3 In the Matter of the Joint Application between Roclcy Mountain Power and P4 Pruduclion, L.L.C. Requesting
Apprcval of an Agreement to Retire RECS, Case No. PAC-E-21-08 (March 29,2021).
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Does the REC RetirementAgreement impact P4's rates?
Yes. To retire system RECs, the Company will discontinue sale of Idaho-allocated
system RECs associated with P4's load. The REC revenue that P4 would otherwise have
been allocated from the sale of system RECs generated after 2020 will be discontinued.
P4 will continue to receive REC revenue from the sale of any RECs generated prior to
2021. As part of this rate case, the Company will remove P4's allocation of REC
revenues from the results of operation. This will establish zero REC revenues as P4's
base in rates and for the energy cost adjustment mechanism ("ECAM").
Does the REC Retirement Agreement impact other customer's rates?
No. Treatrnent of Idaho's remaining share of RECs will be unchanged. The Company
will continue best efforts to monetize the RECs and pass any REC revenue on to
customers. This Agreement will not impact other customers because revenue from the
sale of P4's share of system RECs was previously passed back to P4 and not to other
customers.
Are the Company and P4 working together in any other ways to facilitate its
carbon-neutral goals?
Yes. The two companies are in continuing discussions to find additional contract
structure changes that will enable P4 to reach its 100 percent renewable energy goals
while allowing the Company to continue providing low-cost rates and avoiding impact
on other customer rates.
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Rocky Mountain Power
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Have the companies also been negotiating the structure and economic value of P4's
reserve products?
Yes. Over the same period, the companies have also been negotiating new terms for the
reserve products P4 is offering.
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Rocky Mountain Power
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a. Have circumstances changed regarding the value of the P4 reserves products?
A. Yes. Since the Commission last set the economic value of P4's reserve products in
Order No. 32196, the forward energy market prices have decreased significantly.
Forward market prices at Mid-Columbia and Palo Verde for calendar year 2022 are
down from an average of $9I/IvIWh in June 2010 to an average of $42llvlWh in
March 2021.
a. Has the Commission issued findings in the past about the value of P4's
interruptible products?
A. Yes. InAttachment C of Order No. 32196 in Case No. PAC-E-10-07, the Commission
established the value for each of the intemrptible products provided by P4. In its
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detailed findings in that Order, the Commission provided an explanation of how the
values were derived. In most instances, the Commission's values were established
using selected results from the various models and methodologies proposed by the
different parties in the proceeding.
Please summarize the components in the Commission-ordered value for P4's
Operating Reserve product.
In Order No. 32196, the Commission found that the value of intemrptibility "must
consist of forecasted energy prices and, where appropriate, the capital cost of
capacity.'a The Commission established an energy value using the average ofthe GRID
and Front Office Model results proposed by the Company. The Commission established
a capacity value based on an average of the capacity costs of Currant Creek using data
from FERC Form l, as proposed by Staff, and an Aero-Derivative simple cycle
combustion turbine ("SCCT") using the Company's 2008 Integrated Resource Plan
("IRP"; data, as proposed by P4 (formerly Monsanto).
Has Rocky Mountain Power prepared an updated energy value for the Operating
Reserve product based on current values for the inputs established by the
Commission in Order No.32196?
Yes. The Company estimated the energy value of the Operating Reserve product in
calendar year 2022 using its current long-term GRID model, which incorporates
planning assumptions and modeling techniques developed in the Company's 2019 IRP.
Two changes in circumstances have led the Company to cease using its Front Office
Model for valuing reserves since the prior proceeding.
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Rocky Mountain Power
a Order No. 32196, p. 56.
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First, falling market prices have led to significantly more periods when market
prices are below the incremental cost of the Company's coal and gas resources. When
this occurs, those resources can provide operating reserves at no cost. These periods of
low market prices are driven in part by significant increases in wind and solar
generation both in the Company's portfolio and across the west. As a result, the
Company's resource position changes dramatically across the day with solar output and
from day to day with wind output. The GRID model evaluates every hour in the year
such that it can account for these variations, whereas the Front Office Model did not
capture these variations.
Second, the rise in wind and solar resources in the Company's portfolio has
increased the need for flexible resources that can adjust their output to compensate for
changes in load or variable resources such as wind and solar. In the past, an "integration
cost" was added to the cost of wind resources to capture these requirements. [n the
current GRID model, an hourly operating reserve requirement that represents the
uncertainty in load, wind, and solar is included as part of system dispatch. When the
GRID model sets aside otherwise economic generating resources to meet the operating
reserve requirement, it results in more expensive resources being deployed and/or
foregone wholesale sales revenues, which increases net power costs. The increase in
operating reserve requirements associated with what were formerly referred to as
integration costs increases the value of P4's Operating Reserve product, as both reflect
demand for flexible capacity.
In light of changes in market prices and operating reserve demand, the
Company's Front Office Model no longer provides an adequate granularity to
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reasonably assess the value of the P4 Operating Reserve product. Therefore, the
Company only forecasted Operating Reserve product values using the GRID model.
Does Rocky Mountain Power propose modifications to the Commission's
previously established Operating Reserve product valuation?
Yes. First the Company's 2019 IRP preferred portfolio includes a SCCT at Naughton
in2026. As evidenced by its selection in the IRP preferred portfolio, this resource is
cost-effective and thus best represents the Company's current cost of meeting is
capacity needs. Second, capacity costs and energy costs are inter-related. If the
Company were to acquire a SCCT, the energy benefiS associated with that plant would
flow to customers in the form of a reduced revenue requirement, reflecting the value of
the operating reserves it can provide and the margin between its operating cost and that
of the higher-priced alternatives the Company would otherwise rely upon. Thus, it is
appropriate to net the expected energy benefits of the SCCT resource from the energy
value of P4's operating reserve product.
Can you provide a summary of the Operating Reserve product values you have
discussed?
Yes. Table I contains a summary of the components of the Operating Reserve product
valuation. For comparison, the table includes three values. Column "a" represents the
value determined in Order No. 32196. Column "b" represents updates to the value of
the operating reserves only and retains the capacity value from Order No. 32196.
Finally, Column "c" represents the Company's proposed valuation which updates the
operating reserves and capacity value.
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Please summarize the components in the Commission-ordered value for P4's
Economic Curtailment product.
In Order No. 32196, the Commission found that the Company's proposed valuation of
the Economic Curtailment product based on GRID and its Front Office Model was
reasonable.
Has Roclry Mountain Power prepared an updated energy value for the Economic
Curtailment product based on current values for the inputs established by the
Commission in Order No.32196?
Yes. Because the GRID model does not have intra-hour dispatch, historical EIM
operations provide the best insight into the value of P4's Economic Curtailment
product. Therefore, the Company prepared a valuation of the proposed dispatch of P4's
Economic Curtailment product relative to actual EIM prices from 2017-2020.
Does the Company propose additional changes to the valuation methodology for
the Economic Curtailment product?
Yes. Proposed changes to the Economic Curtailment product allow the Company to
utilize the product as a resource in the EIM. As part of EIM participation, utilities must
make available flexible resources to ensure that the EIM as a whole has adequate
flexibility to balance the system. While the Company has always held "regulation
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reserves" to meet these requirements, use of P4's Economic Curtailment product can
assist in providing cost-effective sources of supply.
First, in light of these changes, the Company proposes recognizing additional
operating reserve value in the valuation of the Economic Curtailment product. This
additional value is calculated as detailed for the Operating Reserve product above.
Second, because the Economic Curtailment product can be recognized as a resource it
may be appropriate to include additional capacity credits for the product; however, any
recognition of capacity value should similarly recognize the net benefits of the proxy
unit as an offset to the capacity credit. To do this, the Company recommends a capacity
credit based upon a SCCT unit as described above less anticipated operating reserve
and economic dispatch benefits from the SCCT unit.
Can you provide a summary of the Economic Curtailment product values you
have discussed?
Yes. Table 2 contains a summary of the components of the Economic Curtailment
product valuation. For comparison, the table includes three values. Column "a"
represents the value determined in Order No. 32196. Column "b" represents updates to
the value of the economic curtailment value based on historic EIM data. Finally,
Column o'c" represents the Company's proposed valuation which includes the
additional reserve and capacity values net of SCCT benefits as described above.
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Can you provide a summary of the Company's proposed total value?
Yes. Table 3 contains a srmrmary of the components of the total product valuation.
Column "a" represents the value determined in Order No. 32196. Column "b"
represents updates to the value of the products using the methodology from the prior
order. Finally, Column "c" represents the Company's proposed valuation.
IV. RECOMMENDATION
Please summarize the Company's recommendation for the value of P4's
interruptible credit in this proceeding.
The Company is continuing to meet and negotiate with P4 with the intent of reaching
an agreement that both parties can bring to the Commission for approval. However, if
Rocky Mountain Power and P4 are unable to reach an agreement on economic value,
the Company has updated the intemrptible credit consistent with Commission Order
No. 32196 and recommends the Commission approve the intem.rptible credits proposed
by the Company, as outlined above.
How should the credit value be reflected?
The intemrptible credit value should be reflected as a line-item credit ofl
per month on P4's bill, subject to the terms and conditions of the agreement.
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Does the Company's recommended value impactthe Company's general rate case
filing?
Yes. P4's intemrptible credit value for the test period has been included in the net power
costs described by Mr. Michael G. Wilding.
Please summarize your recommendation to the Commission.
I recommend that absent an agreement between the Company and P4 the Commission
approve the intemrptible credit value described in my testimony.
Does this conclude your direct testimony?
Yes.
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