20171214Post-Hearing Brief.pdf

Avista Corp.
1411 EastMission P.O. Box 3727
Spokane. Washington 99220-0500
Telephone [phone]
Toll Free 800-727-9170
RECE IVED
201? 0tC lh [t{ 9: I 7
AW-rtsrt
Corp.
il;ii;i-; PUBLiC
yrA ELECTRoNTc & ovuRNrelir iiaif ch{tu{lssl0N
December 13,2017
Commission Secretary
Idaho Public Utilities Commission
472 W. Washington Street
Boise, ID 83702
Re Tariff I.P.U.C. No. 28 (Electric) and Tariff I.P.U.C. No. 27 (Natural Gas)
Docket Nos. AVU-E-I7-01 and AVU-G-I7-01
Enclosed for filing with the Commission in the above-referenced docket are the original
and nine copies of the Post-Hearing Brief of Avista.
Sincerely,
David J. Meyer
Vice President, Chief Counsel for Regulatory
& Governmental Affairs
Enclosures
c: Service List
Please direct any questions related to the transmittal of this filing to Liz Andrews at 509-
495-860r.
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DAVID J. MEYER
VICE PRESIDENT AND CHIEF COUNSEL FOR
REGULATORY AND GOVERNMENTAL AFFAIRS
AVISTA CORPORATION
1411 E. MISSION AVENUE
P. O.BOX3727
SPOKANE, WASHINGTON 99220
PHONE: (s09) 495-4316
FAX: (s09) 495-8851
IN THE MATTER OF THE APPLICATION OF
AVISTA CORPORATION DBA AVISTA
UTILITIES FOR AUTHORITY TO INCREASE
ITS RATES AND CHARGES FOR ELECTRIC
AND NATURAL GAS SERVICE IN IDAHO
RECE IVED
20llDEC lb lil 9: t7
in,r1,;,i. piJBLlc
l.r"i I l-l "I i. :i COl,,if,l ISSION
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NOS. AVU-E-I7-01
AVU-G-17-01
POST-HEARING BRIEF OF
AVISTA CORPORATION
I. INTRODUCTION
Hearings were conducted on December 8, 2017, in connection with the approval of a
Settlement Stipulation filed on October 20, 2017. Company witness Ms. Andrews sponsored
Exhibit No. 17, which is a copy of the Stipulation and Settlement ("settlement Stipulation") in this
case. The Settlement Stipulation was entered into by and among Avista, the Staff of the Idaho
Public Utilities Commission ("Staff), Clearwater Paper Corporation ("Clearwater"), Idaho Forest
Group, LLC ("Idaho Forest"), and the Commurity Action Partnership Association of Idaho
("CAPAI"). The Idaho Conservation League ("ICL") and the Sierra Club did not join in the
Settlement Stipulation, taking issue not with the Settlement, per se, nor with the revenue
requirement set forth in the Settlement, but with the Company's investment in SmartBurn
technology at Colstrip. SmartBurn uses air staging technology to reduce the amount of NOx that
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is formed by reducing flame temperatures and improving the efficiency of the combustion of coal.
The NOx emissions data received from Colstrip Units 3 and 4 after SmartBurn was installed will
be used to determine the appropriate size of the technology needed to address the next expected
step in NOx reduction - Selective Catalytic Reduction (SCR).l In support of the Settlement, Ms.
Andrews and Mr. Ehrbar filed testimony for Avista, Mr. Lobb filed testimony on behalf of Staff,
and Ms. Zamora filed testimony on behalf of CAPAI. Dr. Hausman and Mr. Otto filed testimony
related to Colstrip on behalf of the Sierra Club and ICL, respectively. Finally, Mr. Thackston and
Ms. Andrews filed rebuttal testimony related to the testimony of Sierra Club and ICL.
II. THE ISSUES THAT REMAIN
As discussed below, the Company's investment in SmartBurn technology is questioned by
the Sierra Club and the Idaho Conservation League in this case. The total cost to Avista, based on
its 15% ownership share, for the 2016 and 2017 SmartBurn projects at Colstrip, is approximately
$1,994,000 and $1,047,000 respectively. Idaho's share, therefore, for the 2016 and2017 capital
projects, is approximately $685,000 and $359,000, respectively, for a total of $1,044,000.2 The
annual revenue requirement already included in customers' rates (approved in Case No. AVU-E-
16-03 and effective January 1,2017), relatedto the June 2016 completed SmartBurnproject at
Colstrip Unit 4, is approximately $74,000. The incremental revenue requirement amount included
t SCR is a post-combustion control technology based on the chemical reduction of NOx into molecular nitrogen (N2)
and water vapor (H2O).
2 Andrews Reb., pp. 6:24-7:8. (References in this Brief are to the prefiled testimony which inadvertently was not
incorporated into the ffanscript as ordered; accordingly, there are no specific page references to the transcript
concerning such prefi led testimony).
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POST-HEARING BRIEF OF AVISTA CORPORATION - 3
in this case for Colstrip Unit 3, and included in the Settlement Stipulation, is approximately
$39,000.3
What parts of the Settlement Stipulation are contested?:
l) Not the Revenue Requirement - Dr. Hausman, representing the Siena Club, does not
recorlmend a change to the proposed revenue requirement or rates in this proceeding,
stating "The majority of issues included in the Settlement Agreement have nothing to
do with Colstrip, and therefore I hesitate to disturb a revenue requirement agreement
that reflects a balance among the interests of a diverse group of stakeholders."4 For his
part, Mr. Otto on behalf of the Idaho Conservation League, also supports the overall
revenue requirement.s
2) Not the revenue requirement associated with the investment in SmartBurn in Units 3 &
4 at Colstrip - Only future rate base recovery. (see discussion below)
3) Not the depreciation rates for Colstrip - No studies are before the Commission.
4) What remains is only the suggestion that future capital investment in SmartBurn should
be disallowed. Dr. Hausman does propose that the Commission oorequire Avista to
remove the outstanding cost of SmartBurn at both Colstrip units from rate base for
purposes of all future proceedings."6 Likewise, Mr. Otto, on behalf of ICL,
recommends that the Commission "order the Company to remove the [SmartBurn] cost
from Avista's rate base going forward."T That poses troubling questions, as discussed
below.
3 Andrews Reb., p. 7, ll. l1-18.
a Hausman Di., p. 5, ll. 17-20.
5 otto Di., p.2,1.15.
6 Hausman, Di, p. 6, ll.2-3.
7 otto Di., p. 11, ll. 18-20.
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What relief. then. are Sierra Club and ICL requestins in this docket?
They have already conceded that they are not seeking to disturb the revenue requirement
in this case, that includes all of the Colstrip Unit 3 SmartBurn capital investment, or otherwise
upset the revenue requirement established in the prior 2016 case that already captures the Colstrip
Unit 4 capital investment. As testified to by Ms. Andrews, the project completed in 2016 is already
built into rates as used and useful plant in the prior rate case (Case No. AVU-E-16-03). Indeed,
no party objected to this plant item in the prior case, after reviewing discovery responses related
to Colstrip. (Tr.p. 40, ll. 5-10, p. 5l,l.12 -p.52,1. l0). Essentially, the Sierra Club is seeking to
revisit a prior Commission determination approving rates as just and reasonable, as to the
SmartBurn installed on Unit 4. (See Order No. 33682 at Case No. AVU-E-16-03.) The SmartBurn
technology was installed on one unit (Unit 4) in20l6; the same rationale supported the installation
on the other (Unit 3) in20l7. As noted, this Commission previously included in rates the capital
expenditures on SmartBurn for Unit 4 in Case No. AVU-E-16-03, with no party taking issue with
this investment.s Nor was this issue overlooked in either case; in both the 2016 case and in this
case, specific information related to SmartBurn was provided through discovery to all parties.
If Dr. Hausman or Mr. Otto are suggesting the existing rate base already embedded (or to
be embedded) in rates be subsequently removed, that would effectively cause Avista to 'owrite off'
these two SmartBurn projects at this time.e It also amounts to an attack on a prior Commission
Order, with reference to Colstrip Unit 4 (Order No. 33682), and a direct attack on the Settlement
and the revenue requirement here at issue - something the Sierra Club and ICL said thsv did no!
want to disturb. It challenges the very revenue requirement in this case that has embedded in it,
8 Andrews, Reb., p. 5, ll. l0-16.
e Andrews Reb., p. 4,11.ll-14.
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the recovery of the remaining SmartBurn investment in Colstrip Unit 3 - even though both ICL
and the Sierra Club profess not to want to disturb that revenue requirement.
If what they mean to suggest is that they want the Commission to order a "write-off'of the
existing investment of approximately $685,000 (Idaho share) of SmartBurn capital investment that
is already in rates (Colstrip Unit 4 in 2016), or soon to become so as a part of the revenue
requirement in this case (capital of $359,000 for Colstrip Unit 3 in20l7), then this becomes quite
a different case. Avista clearly would not have joined in this Settlement Agreement here at issue
if it had to expense an approximate $l million write-off related to the SmartBurn investment. That
most certainly would re-open discussions around revenue requirement in the Stipulation; the
revenue requirement settlement would, in fact, be "disturbed."
III. REVIEW OF THE EVIDENTIARY RECORD CONCERNING SMARTBURN
The owners of Colstrip installed SmartBum technology in2016 for Unit 4, and2017 for
Unit 3. SmartBurn reduces a significant amount of the target NOx reduction for a significantly
lower cost than a full control modification approach. The early installation of SmartBurn also
provides several years of operational boiler data that allows for the design and eventual installation
of the appropriately sized SCR or other control technology.lo There were other benefits for the
timing of installing SmartBum as well. The SmartBurn technology was installed on Units 3 and 4
during previously scheduled outages, thereby reducing implementation costs. If the SmartBurn
needed to be added at a later date for more near-term compliance needs, a separate outage might
ro Thackston, Reb., pp. l0:19-11:3
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be required in consecutive years - the first outage to install the SmartBurn technology, and a
second outage to install additional plant controls.ll
SmartBurn technology uses air staging technology to reduce the amount of NOx that is
formed by reducing flame temperatures and improving the efficiency of the combustion of coal.
The NOx emissions data received from Colstrip Units 3 and 4 after SmartBurn was installed will
be used to determine the appropriate size of the technology needed to address the next expected
step in NOx reduction - SCR. The size, scope and amount of ammonia used by the SCR is directly
related 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.r2 Mr. Thackston testifies that a smaller SCR requires less chemicals to
operate, so a smaller amount of injected ammonia is needed, resulting in lower future operating
costs. SmartBurn technology saves future capital expenditures, reduces future O&M expenditures,
and provides an earlier environmental benefit by reducing the production of NOx.13 As discussed
by Mr. Thackston, these projects were done in an effort to proactively install SmartBurn as the last
available, low cost, NOx pollution prevention emission control prior to the expected installation
of a very expensive emission post-combustion control technology called Selective Catalytic
Reduction (SCR) in future years.
The prudency of decisions to invest in plant are reviewed based on what was known at the
time the discussion was made. In the 2012 decision timeframe, when the determination was made
to install SmartBurn, SCRs were being ordered in many surrounding states, and the Sierra Club
rr Thackston, Reb., p. I l, ll. 8-16.
12 Thackston, Reb., pp. 3:18-4:4.
13 Thackston, Reb., p. 6,11.2-8
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was, itself, litigating against Colstrip to require SCR for alleged "New Source Review" violations.
The Colstrip owners, therefore, chose to install SmartBum in an effort to manage a future
regulatory obligation in a "strategic and cost-effective manner."l4 Mr. Thackston explained what
was known at the time in 2012:
In the 2012 decision timeframe, SCRs were being ordered in many surrounding states and
the Sierra Club was also in litigation against Colstrip to require SCR for alleged "New
Source Review" violations. The owners, therefore, proactively decided to install
SmartBurn in an effort to manage a future regulatory obligation, doing so in a strategic and
cost-effective manner. Furthermore, SmartBurn was the last available, low cost, NOx
pollution prevention emission control prior to the expected installation of a very expensive
emission control (e.g., SCR). (emphasis in original)r5
There was a continuing expectation that future additional NOx reductions would be
required for Colstrip Units 3 and 4. Avista's 2013 Electric IRP estimated SCR installation on
Colstrip Units 3 and 4 could be required in 2027, and the Company ran scenarios to understand
the implications of the SCR investment at that time.l6 Again, as stated in the Company's 2015
Electric IRP, "... modeling assumes that a default control system of a selective catalytic reduction
(SCR) will be required by the end of 2026, but the specific target date or control type is unknown
at this time." Avista's 2017 Electric IRP also plans for SCR on Colstrip Units 3 and 4 in2028.17
In the final analysis, SmartBurn technology was installed in the ordinary course of managing costs
and planning for the future, taking into account reasonable expectations surrounding possible SCR
implementation and the need to develop a cost-mitigation strategy - all the while immediately
realizing a substantial reduction in NOx emissions. It was prudent based on what was known at
the time - including the spectre of possible SCR investment in the future.
ra Andrews Reb., p. 5, 11. 3-8
15 Thackston, Reb., pp. 8: l8-19:6
16 Thackston Reb., p. 9, ll. l0-15
r7 Thackston Reb., p. 10, ll. 5-10.
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IV. SMARTBURN HAS PERFORMED AS EXPECTED AND HAS DELIYERED
IMMEDIATE AND CONTINUING ENVIRONMENTAL BENEFITS
AND WAS NOT MEANT TO EXTEND TITE USEFUL LIFE OF PLANT
The installation of SmartBurn has met the guaranteed emission rate reduction specified in
the contract for this capital investment. It has performed as advertised. The addition of SmanBurn
on Units 3 and 4 improved NOx removal from 80 percent to approximately 86 percent, or a 6
percent improvement.ls Mr. Thackston, while testifying, placed this into perspective: that
reduction equates to a reduction of over 3,000 tons of NOx each year - and that is equivalent to
removing 161,000 automobiles from the road each year.le In short, it is performing as anticipated
and delivering a substantial reduction in NOx, with or without later SCR technology, and at a
reasonable price. (Avista's Idaho share for the 2016 and 2017 capital projects is approximately
$1,044,000).
Finally, contrary to the Sierra Club's assertion, it is important to remember that SmartBurn
does not otherwise improve reliability or extend the life of the plant, so it has no bearing on the
useful life of the plant or the Colstrip owner's decision to operate the plant, as argued by the Sierra
Club.20 What it does do is provide immediate environmental benefits through NOx reduction now
and helps mitigate the cost of any later SCR additions.2r The Sierra Club's concems that this
investment will somehow cause the owners to keep the Colstrip plants in operation longer is
entirely misplaced.
18 Thackston Reb., p. 12,ll.3-7.
'' T. p. 79,ll.5-16.
20 Thackston Reb., p. 7:20 -8:2.
2rThackston, Reb., pp. 7:20-8:4
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SIERRA CLUB PARTICIPATED IN PUGET SOUND ENERGY'S CURRENT
RATE CASE BUT DID NOT RAISE THE ISSUE OF SMARTBURN
The Siena Club intervened in the most recent general rate case for Puget Sound Energy
(PSE) before the Washington Utilities and Transportation Commission ("WUTC") in Docket No.
UE-170033. Dr. Hausman also provided testimony in that case and did not take issue with the
installation of SmartBurn on Colstrip Units 3 and 4, in his 41 pages of testimony in that case, even
though PSE has a larger ownership share at 25 percent of both units and a larger associated cost
for SmartBurn on those units.22 This incongruity was not lost on Mr. Thackston, who testified:
There is no mention in the Sierra Club's testimony in this Avista proceeding
explaining why it was acceptable to them for PSE to spend capital on SmartBurn
for Units 3 and 4, but why they now take issue with Avista including these costs.23
This makes the Sierra Club's professed concems over SmartBurn, per se, far less credible.
In this case, neither the Company nor the Sierra Club has presented a depreciation study.
No one has. Due to the length of time to complete a depreciation study, and the fact a utility
typically would not expect its assets to change so significantly to require a depreciation study
sooner, the Company typically completes its depreciation studies approximately every five years.
The timing of the planned depreciation study is consistent with that timeline: utilizing 2016 plarfi
balances, completion of a study in late 2017, with Commission filings and expected changes in
22 Thackston Reb., p. 12, ll. l0- 18. He even admits in his testimony in that case (Docket No. UE- 170033) that selective
catalytic reduction or SCR will probably be required on Units 3 and4 in the mid-2020s.
23 Thackston Reb., p. 13,ll.2-6.
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vI. THE FUTURE DEPRECIATION STUDY IS NOT AT ISSUE IN THIS CASE
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rates in each of its jurisdictions in 2018.24 There is no evidentiary basis on which to otherwise act
on the depreciable life of Colstrip Units 3 & 4 in this docket. It can be addressed in a subsequent
filing when evidence is presented.
When the Company files its depreciation study in the first quarter of 2018, the parties will
have the opportunity review the study, and the appropriate accounting of these changes can be
determined by the Commission.2s The Company's current depreciation study for Colstrip assumes
a useful life extending out to 2034-2036. Based on preliminary discussions with the consultant
performing the Company's latest study, these dates will not materially change,26 absent the
Commission ordering a shortened depreciable life for Colstrip. But that is not an issue in this case.
VII. THERE IS NO EVIDENCE OF LACK OF'OVERSIGHT BY AVISTA
CONCERNING THE COLSTRIP INVESTMENT IN SMARTBURN TECHNOLOGY -
ONLY CONJECTURE ON SIERRA CLUB'S PART
As explained by Mr. Thackston, the Company actively exercises its ownership rights while
capital projects are being discussed. Each year Talen, the Project Operator, proposes a set of capital
projects for Units 3 and 4, as well as for the plant in common. These projects are reviewed by one
or more Avista representatives and as part of the Colstrip ownership group. Avista and other
Company representatives meet with Talen at least every other month to review plant operations,
including capital projects. Projects may be added or subtracted throughout the year as
appropriate.zT The oversight is there, and the Sierra Club, while it may now disagree with the
SmartBum decision, can point to no management neglect or lack of oversight.
2a Andrews Reb., p. 8, ll. 9-20
2s Andrews, Reb., pp. 8:23-9:4
26 Andrews Reb., p. 9,11. 14-17
27 Thackston Reb., p. 15, ll. 9-18.
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Finally, it should be remembered that the plant operator (Talen) 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 needless capital. The plant operator's financial interests
also serve as a check to keep costs as low as possible. Their interests are aligned with all of the
Colstrip owners and their customers.28
For the foregoing reasons, Avista respectfully requests that the Commission approve the
Settlement Stipulation in its entirety and reject any suggested disallowances by the Sierra Club
and ICL.
RESPECTFULLY SUBMITTED this l3th day of December,2\l7.
AVISTA CORPORATION
David J.
VP and Chief Counsel for Regulatory and
Governmental Affairs
28 Thackston Reb., p. 16,ll.l-7
POST-HEARING BRIEF OF AVISTA CORPORATION - I I
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that I have this 13th day of December, 2017, served the foregoing
Post-Hearing Brief of Avista in Docket No. AVU-E-17-01 and AVU-G-17-01, upon the
following parties, by mailing a copy thereof, properly addressed with postage prepaid,
to:
Diane Hanian, Secretary
ldaho Public Utilities Commission
Statehouse
Boise, lD 83720-5983
diane. hanian@puc. idaho.gov
Brandon Karpen
Deputy Attorneys General
ldaho Public Utilities Commission
472W . Washington
Boise, lD 83702-0659
brandon. karpen@puc. idaho. qov
Ronald L. Williams
Williams Bradbury, P.C.
802 W. Bannock, Suite 900
Boise, lD 83702
ron@wi lliamsb rad bu ry. com
Larry Crowley
The Energy Strategies lnstitute, lnc.
5549 S. Cliffsedge Ave
Boise, lD 83716
[e-mail]
Dr. Don Reading
6070 Hill Road
Boise, lD 83703
dfeadj n q@ m i n dsp f ing.cqm
Peter J. Richardson
Greg M. Adams
Richardson Adams
515 N.27th Street
Boise, lD 83702
peter@ rich a rd son adams. com
q req@rieharclsonsdams. com
Travis Ritchie
Sierra Club
2101 Webster Street, Suite 1300
Oakland, CS 94612
travis. ritchie@sierraclub. com
Paul Kimball
Sr. Regulatory Analyst
Brad M. Purdy
Attorney at Law
2019 N 17th Street
Boise, lD 83720
[e-mail]
Matthew A. Nykiel
ldaho Conservation League
102 S. Euclid #207
Sandpoint, lD 83864
m nykiel@ ida hoconservation. org