20171128Thackston Rebuttal.pdf

REC E IVE D
DAVID J. MEYER
VICE PRESIDENT AND CHIEE COUNSEL FOR
REGULATORY & GOVERNMENTAL AFFAIRS
AVISTA CORPORAT]ON
P.O. BOX 3121
]-41]- EAST MISS]ON AVENUE
SPOKANE, WASHTNGTON 99220-312'7
TELEPHONE: [phone]L6
FACSIMILE: [phone]
DAVT D . MEYERGAVT STACORP . COM
?[i1?{TY 28 AH B:
l:",'1I-ic truBLlC
r.. i i:.1 ; ll:; 30l,il'4lssl
BEEORE THE IDAHO PT'BLIC UTILITIES COMMISSION
IN THE MATTER OE THE APPLICATION
OF AVISTA CORPORAT]ON EOR THE
AUTHORITY TO ]NCREASE ]TS RATES
AND CHARGES EOR ELECTR]C AND
NATURAL GAS SERVICE TO ELECTRIC
AND NATURAL GAS CUSTOMERS ]N THE
STATE OF ]DAHO
CASE NO. AVU-E-17-01
CASE NO. AVU-G-17-01
REBUTTAL TEST]MONY
OE
JASON R. THACKSTON
FOR AVISTA CORPORATION
(ELECTR]C ONLY)
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I. INTRODUCTION
A. Please state your nanne, employer and business
address.
A. My name is Jason R. Thackston. I am employed as the
Senior Vice President of Energy Resources at Avista
Corporation, Iocated at L4lL East Mission Avenue, Spokane,
Washington.
A. Have you fiJ.ed direct testimony in this proceeding?
A. No, I have not fil-ed direct testimony in this
proceeding.
A. Dlould you briefly describe your educational and
professional. background?
A. Yes. I graduated from V0hitworth University in 1992
with a Bachelor of Arts in International Studies and an emphasis
in Business Management and a Master of Business Administration
from Gonzaga University in 2000. I joined the Company in 7996
as a Corporate Treasury Analyst. I have hel-d severa1 different
posj-tions at Avista, including roles in Einance and Accounting,
Internal Audit, Risk Management, Power Supply, and Gas Supply.
I was appointed Vi-ce President of Einance in June 2009 and have
since held the roles of Vice President of Energy Delivery and
Vice President of Customer Solutions before assuming my current
role in January 201,3. The Energy Resources group is primarily
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Avista Corporatj-on
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1 responsible for producing or procuring the electricity and
2 natural gas to serve our customers' needs, including the
3 construction, operation, and maintenance of our generation
4 facilities and the optimization of those electric and natural
5 gas facilities for the benefit of our customers.
6 Q. 9lhat is the scope of your testimony in this
7 proceeding?
B A. My testj-mony answers concerns and recommendations of
9 Sierra Cl-ub witness Dr. Hausman and reiterated by ldaho
10 Conservation League witness Mr. Otto related to the capital
11 expenditures for SmartBurn controls on Units 3 and 4 at
72 Colstrip. I further address Dr. Hausman's concerns about
13 Avista's exercise of its oversight reJ-ating to capital spending
14 at Colstrip, and the Colstrip depreciation schedule.
15 A table of contents for my testimony is as follows:
76 Description Page
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I.
II.
II].
IV.
Introduction
SmartBurn Investments at Colstrip
Management of Colstrip Capital
Colstrip Depreciation Schedule
Are you sponsoring any exhibits?
No.
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Avista Corporation
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II. SMARTBT'RN I}iTVESTIIENTS AT COLSTRIP
A. I{hat is SmartBurn?
A. SmartBurn was originally developed as the part of
Alliant Energy's Combustion fnitiative Program focused on the
reduction of nitrogen oxides ("NOx") by optj-mizing the
combustion process in coal-fired generation p1ants.1 NOx is a
haze-induci-ng pollutant produced during the combustion of coal
that is regulated under the Regional Haze Rul-e. SmartBurn uses
air staging technology to reduce the amount of NOx that is
f ormed by reducing f l-ame temperatures and i-mproving the
efficiency of the combustion of coal. The NOx emissions data
received from Colstrip Units 3 and 4 after SmartBurn was
13 installed wiII be used to determine
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needed to address t.he
the appropriate
next expected
size of the
technology
reduction
below.
Selective Catalytic Reduction, which
step in NOx
is described
A. What is Selective Catalytic Reduction?
A. Selective Catalytic Reduction (*SCR") is a post-
combustion control technology based on the chemical reductj-on
of NOx into molecular nitrogen (Nz) and water vapor (HzO). SCR
typically combines a catalyst with ammonia injection to
increase the NOx removal efficiency. The size, scope and amount
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Avista Corporation
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t http : / /www.smartburn. com/background.php
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of ammonia used by the SCR is directly rel-ated to the amount of
NOx created during the earlier combustion process. Less NOx
produced during the combustion phase results in the need for a
smaller, and less costly SCR, and less chemicals to operate it.
A. Can you provide a schematic showing where SmartBurn
and SCR would be located in the coal combustion process?
A. Yes. fllustration No. 1 is a schematic showing where
SCR (ftem No. 1) would be located in the combustion stream, as
opposed to the SmartBurn Technol-ogy which is deployed earfier
in the boiler (Item No. 7).2 This schematic, however, differs
somewhat from the current configuration at Colstrip, which does
not have SCR (Item No. 7) or an electrostatic precipitator (Item
No. 4), but it serves to il-Iustrate the point.
2 https : / /www. tilemachinery. com/production-technology/coal-fired-power-p1ant-
s cr se I e ct ive -catalyt ic- reduct ion-honeycomb-denitri fi cat ion- cata 1ys t /
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Avista Corporation
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1 Boiler2 Theraml exchanger3 Air4 electrostatic precipitators SO2 Scrubber6 Heater7 SCR reactora Catalyst
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s Atomizer
t o Amm onia/mixer
1 1 Ammonia storage tank
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The SmartBurn technology is applied to the boiler (#1 in
above ill-ustration) in order to improve combustion, while the
SCR (#"1 in above ill-ustration) is employed at the end of the
combustion process to remove additj-onal NOx emiss j-ons.
A. How might SmartBurn irryact the later addition of SCR?
A. SmartBurn is not a replacement for SCR, but as
described above, it prevents some of the NOx from even being
produced. The combination of SmartBurn, and assocj-ated
measured data, results in the need for a smaller and Iess
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Avista Corporation
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f].lustration 1: Plant Schaqatic
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expensive SCR to Iimit the amount of NOx produced and to ensure
compliance with the Regional Haze Rule. A smaller SCR requires
l-ess chemicals to operater so a smalfer amount of injected
ammonia is needed, resulting in lower future operating costs.
The SmartBurn technology saves future capital
expenditures, reduces future O&M expenditures, and provides an
ear.l-ier environmental benef it by reducing the production of
NOx. Using the SmartBurn technology before the j-nstallation of
SCR is analogous to makj-ng a home as energy efficient as
possible before adding solar panels, thereby reducing the
overal-l- size of the solar array and lowering subsequent cost.
The energy efficiency investments do not eliminate the need for
the energy produced by solar panels, but it reduces that need
74 and results in a small-er number of panels needed
Put differently,
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to be
energypurchased, install-ed
efficiency should not
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and maintained.
meet 100 percent
Is there a
ignored altogether simply
of needs.
specific date when NOx reduction
requirements will be made for Units 3 and 4 requiring
instaL].ation of SCR?
A. There is not a specific date requiring SCR on Colstrip
Units 3 and 4 at this time because of the nature of the
regulatory program governing NOx emissions. The Regi-onaI Haze
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Avista Corporation
be because it
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1 Program is a somewhat uni-que regulatory approach in comparison
2 t-o the typical environmental regulation where the emission
3 l-imitations and timelines are established at issuance.
4 Regional Haze sets a goal of zero in 2064 and uses a "gli-de
5 path" and reasonabl-e progress goals to define the compliance
6 trajectory. The program uncertainty created by changing
7 administrations and policy disputes concerning Eederal
B oversight with State implementation, and various litigation
9 decisions results in anything but a clear roadmap. However,
10 there are expectations about the timing of SCR requirements on
11 Units 3 and 4 that are discussed later in my testimony.
72 A. Do you agree with the assertions of The Sierra C1r:b's
13 witness Dr. Hausman regarding the installation of SmartBurn on
74 Colstrip Units 3 and 4?
15 A. No. Dr. Hausman argues3 that the capital expenditures
!6 for installing SmartBurn controls to reduce nitrogen oxides
L1 ("NOx") on Colstrip Units 3 and 4 were "wasteful" and
18 "imprudertL".4 He argues that this capital was not spent for
t9 reliability or economic purposes.
20 SmartBurn does not otherwise improve rel-iability or extend
27 the life of the p1ant, so it has no bearing on the useful life
3 Direct Testimony of Ezra D. Hausman, pp. 6-35.a Id. p. 5.
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Avista Corporation
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of the plant or the CoJ-strip owner's decision to operate the
plant. What it does do is provide immediate environmental
benefits through NOx reduction now (as discussed later in my
testimony) and helps mitigate the cost of Iater SCR additions.
A. Please describe Avista's capital spending and revenue
requirements for the SmartBurn investment?
A. Avista's total share of SmartBurn capital spending on
Units 3 and 4 was $3,040,933. The Idaho share of this capi-ta]
spending is $1,044,727. This includes $685,171 (revenue
requirement of $73,635) that was previously incl-uded in Case
No. AVA-E-16-03, and $358,950 (revenue requirement of $38,582)
in this case. Company witness Ms. Andrews provides additional
details about the SmartBurn capital costs and the associated
revenue requirements.
A. Could you please provide additional background about
when and why SmartBurn technology was installed on Colstrip
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L1 Units 3 and 4?
18 A. Yes. In the 2072 decj-sj-on timeframe, SCRs were being
19 ordered in many surrounding states and the Sierra Club was al-so
20 in litigation against Colstrip to require SCR for alJ-eged "New
2l Source Review" violations.s The owners, therefore, proactively
s State of Montana Regional Haze Progress Report, August 20L'7, Montana
Department of Environmental Quality, page 2-B to 2-10.
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Avista Corporation
1 decided to install SmartBurn in an effort to manage a future
2 regulatory obli-gation, doing so in a strategic and cost-
3 effective manner. Eurthermore, SmartBurn was the last
4 avail-able, J-ow cost, NOx pollution prevention emission control
5 prior to the expected installation of a very expensive emission
6 controf (e.9., SCR).
'7 9. Wtrat was known .l.out NOx emissions requirements for
8 Colstrip Units 3 and 4 when the decision to instalJ. SmartBurn
9 was raade Ln 2OL2?
10 A. There was a continuing expectation that future
11 additional NOx reductions would be required for Colstrip Unj-ts
72 3 and 4. Avista's 2013 El-ectric IRP estimated SCR insta]lation
13 on Colstrip Units 3 and 4 could be required in 202'7, and the
14 Company ran scenarios to understand the j-mplications of the SCR
15 investment at that time. This was based on the Eederal
75 Implementation PIan for the State of Montana, finalized on
11 September 18, 2012, and the expectation of a Reasonable Progress
18 Report in September 2071.
19 A. Since 2OL2, what additional requirements associated
20 with NOx emissions reductions for Colstrip Units 3 and 4 have
27 the Coryany eval.uated?
22 Significant amounts of covered emissions in the attainment
23 area that incfudes Colstrip have also been changing. For
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Avista Corporation
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exampl-e, the attainment area for Colstrip was j-mpacted by the
closure of the J.E. Corette Coal Plant in 20L5 and will- be
further impacted by the closure of Colstrip Unj-ts 1 and 2 by
July 2022.
As stated j-n the Company's 2015 Electric IRP "... modeling
assumes that a default control system of a sel-ective catalytic
reduction (SCR) will be required by the end of 2026, but the
specific target date or control type is unknown at this time."6
Avj-sta's 2017 El-ectric IRP also plans for SCR on Col-strip Units
10 3 and 4 in 2028.
11 A. Did the owners of Colstrip er<pect SmartBurn to
72 satisfy all future NOx emission reductions on Colstrip Units 3
13 and 4?
74 A. No. The SmartBurn technology reduced the first
increment of NOx in the most cost-effective wdy, based on a
revj-ew of the technol-ogy and the rel-atively Iow capital cost to
instal-I. A1so, the use of SmartBurn technology was determined
to be an integral part of any projected future control
technology for Colstrip Units 3 and 4. SmartBurn reduces a
significant amount of the target NOx reduction for a
significantly lower cost than a ful1 control modification
approach. The early installation of SmartBurn also provides
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Avista Corporation
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6 Kinney Exhlblt No. 4, p- 72-4-
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several years of operational- boiler data that al-lows for the
design and eventual installation of the appropriately sized SCR
or other control technology. SmartBurn also provides an
additional- tool to maintain NOx emissi-ons within the current
operating requirements, ds the plant ramps more frequently to
of vari-abIe generation j-n thesupport
region.
a.
an increasi-ng amount
Were there other benefits for the timing of
instaJ.ling SmartBurn?
A. Yes. The SmartBurn technology was installed on Units
3 and 4 during prevj-ousIy schedul-ed outages thereby reducing
implementation costs. If the SmartBurn needed to be added at
a l-ater date for more near-term compliance needs, a separate
outage might be required in consecutive years - the first outage
to instal-l- the SmartBurn technology, and a second outage to
install additional plant control-s. Depending on market
conditions at the time of the outage, the additional cost of an
extra week long outage coul-d be approximately one half the cost
of installing SmartBurn itself. EinaIIy, the operational
effectiveness of SmartBurn may aflow for a different and more
cost-effective technology to be installed in place of SCR,
because a lower amount of NOx is being produced by the plant.
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Avista Corporation
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A. Did the Colstrip owners' installation of SmartBurn
result in verifiable NOx reductions?
A. Yes. The installation of SmartBurn has met the
guaranteed emission rate reduction specified j-n the contract
for this capital investment. The addition of SmartBurn on Units
3 and 4 improved NOx removal from 80 percent to approximately
86 percent, or a 6 percent improvement.
A. Has the Sierra Club taken issue with the instalJ.ation
of SmartBurn on Units 3 and 4 in other regrulatory venues?
A. No. The Sierra Club i-ntervened in the most recent
general rate case for Puget Sound Energy (PSE) before the
Washington Utilities and Transportation Commj-ssion ("WUTC") in
Docket No. UE-170033. Dr. Hausman al-so provi-ded testi-mony in
that case and does not take issue with the installation of
SmartBurn on Colstrip Units 3 and 4 in hj-s 41 pages of testimony
in that case, even though PSE has a larger ownership share at
25 percent of both unj-ts and a larger associated cost for
SmartBurn on those units. He admits in his testimony in that
selectj-ve catalytic reduction
on Units 3 and 4 in the mid-
Sierra Cl-ub in that same case,
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19 case (Docket No. UE-170033) that
20 or SCR will probably be required
for the27 2020s.1 Another wi-tness
22 Mr. Douglas Howefl, also faifs to make any mentj-on of SmartBurn
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Avj-sta Corporation
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or subsequent compl-aints about its application to Units 3 and
is no mention in the Sierra Club'sThere4 of Colstrip.
testimony in this
acceptable to
Unj-ts 3 and 4,
these costs.
Avi-sta proceeding explaining why it was
them for PSE to spend capital on SmartBurn for
but why they now take issue with Avi-sta including
A. Do you have any other comrrents concerning the Sierra
Club' s characterization of Sua,rtBurn on Units 3 and 4?
A. Yes. It is ironic that the Sierra Clubr dS an
10 environmental steward, takes issue with an investment in
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SmartBurn technology that has actually improved NOx emissions.
Dr. Hausman's testimony in this case characterizes SmartBurn
spending as "wasteful" (Page 5) and "discretionary" (Page 12)
even though it reduces pollutants at Colstrip. This is ironic,
given that the Sierra CIub has argued with the Environmental
Protecti-on Agency that it had not gone far enough in its Eederal
ImpJ-ementation Plan for the Regional Haze Program in the State
of Montana and has been arguing for earlier dates for the
requirement of SCR on Units 3 and 4 in modeling for Avista's
El-ectric IRP. But now they argue against lower emissions.
A. Can you please sr:marize your testimony concerning'
the SmartBurn investrnent in Units 3 and 4?
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Avista Corporation
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A. Yes. Avista agreed to invest in SmartBurn technology
on Col-strip Units 3 and 4 for the following reasons:
1. The decision to instal-I SmartBurn was made in 2072 for
installation in 2016 and 201,1. At the time the decision
to install was made, it was believed by the Company,
and even by the Sierra C1ub, that SCR would be required
on Units 3 and 4 in the 2020s.
2. Avista's share of the capital costs for ldaho was
$1,044,721; not the $3,040,933 represented by the Sierra
CIub which included Avista's combined Idaho and
Washington SmartBurn capital costs. Of the $1,044,121,
j-n capital- costs, $ 685 , 1-11 of SmartBurn capital
investments are already refl-ected in rates previously
approved,' only $358, 950 of remaining investment is at
issue in this case ( i . e. , a $38, 682 revenue
requirement).
3. SmartBurn wil-I not extend the useful life, or even the
reliabi-I j-ty of Units 3 and 4, contrary to the Sierra
Club's concerns.
4. SmartBurn, in fact, has produced positive environmental
resufts, lowering NOx emissj-ons and providing data
useful for designing and selecting the SCR for the next
step in NOx reductions expected tn 2028.
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Avista Corporati-on
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III. MAIIAGEITIENT OE COLSTRIP CAPITAI
A. Do you agree with the Sierra Club's8 assertion that
the Cornpany is not actively exercising its ownership interests
concerning capital. spending at Colstrip?
A. No. Vflhile it is true that the ownership structure
and operating agreement for Colstrip do not provide a line item
veto of individual capital projects, and Avista has a small
enough ownership interest preventing it from stopping capital
proj ects,
ownership
the Company
rights while
nevertheless actively exercises its
10 proj ects are being discussed. Each year
projects for Units 3 and 4, as
These projects are reviewed by
11 Tafen proposes a set of capital
1,2 well as f or the plant in common.
13 one or more Avista representatives on an individuaf basis and
t4 also as an ownership group. Additionally, Avista and other
15 Company representatives meet with Talen at least every other
16 month to review plant operations including capital projects.
11 Prolects may be added or subtracted throughout the year as
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19 It should al-so be remembered that the compensation
20 structure for the plant operator is cost based and does not
21, inc1ude a rate of return based on the capital- spending at the
22 plant and there is no incentive to spend fooli-sh1y. fn fact,
Thackston, Di 15Avista Corporation
B Direct Testimony of Ezra D. Hausman, p-34.
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quite the opposite is true. The plant operator is an independent
power producer that relies on low plant costs to ensure the
plant is competitive in the market so there is no financial
incentive for them to spend needl-ess capital. The plant
operator's financial interests to keep costs as low as possible
whil-e meet j-ng al-I regulations are the same as all of the
Colstrip owners and their customers.
A. How do the owners of Colstrip address regrrlatory
and environrmental coryIiancGr obligations?
A. The owner's group does not approach its regulatory
and environmental- compliance obligations through the narrow
perspective described by the Sierra Club and Idaho Conservation
League in their testimony. The owners group, and specifically
Avista, must always strategically manage the risk to both our
customers and sharehol-ders for the known and possible
regulatory obligations at both the federal- and state leve1s,
while managing reliability and cost of all of our generating
resources. The owners do not take this responsibility }iqhtly
and exercise careful diligence in gathering information at the
point in time when strategic decisions must be made.
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IV. COI.STRIP DEPRECIATION SCHEDULE
A. Does the Company agree with the assertion that the
depreciation schedule for Colstrip Units 3 and 4 needs to be
shortened to 2O27?e
A. No, the Company's current depreciation study for
Colstrip goes out to 2034-2036. Ms. Andrews, in her rebuttal
testimony, discusses the new study, expected to be compJ-eted in
the fj-rst quarter of 2078, and the results are not expected to
change this date based on preJ-iminary discussions with the
based on a negotiated settlement with Puget Sound Energy (VIUTC
Docket No. UE-170033) regarding the depreciation period for
that company's 25 percent ownership interest in Colstrip Units
3 and 4. That settlement has not been approved by the WUTC yet
and the date is otherwise not supported by a depreciation study.
The depreciation schedule for Avista is not otherwise an issue
in this case. The appropriate place to raise those concerns
about accel-erating the depreciation schedule for Colstrip
should occur in the regulatory filing for the updated Colstrip
27 depreciation schedule.
e Direct Testimony of Ezra D. Hausman, p. 42.
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10 consul-tant performing the study. The shortened period
11 discussed by Dr. Hausman of the Sierra Club1o appears to be
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A. Does this conclude your rebuttal testimony?
A. Yes, it does.
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Avista Corporation