BEFORE THE PUBLIC UTILITY COMMISSION OF OREGON ) ) ) ) ) ) ) ) I. INTRODUCTION

Size: px

Start display at page:

Download "BEFORE THE PUBLIC UTILITY COMMISSION OF OREGON ) ) ) ) ) ) ) ) I. INTRODUCTION"

Marvin Davidson
5 years ago
Views:

1 BEFORE THE PUBLIC UTILITY COMMISSION OF OREGON In the Matter of PACIFICORP dba PACIFIC POWER APPLICATION TO OPEN DOCKET AND APPOINT INDEPENDENT EVALUATOR AND MOTION FOR PROTECTIVE ORDER UM 1540 COMMENTS OF THE NORTHWEST AND INTERMOUNTAIN POWER PRODUCERS COALITION I. INTRODUCTION Pursuant to Administrative Law Judge Michael Grant s procedural order on November 18, 2011, the Northwest and Intermountain Power Producers Coalition ( NIPPC hereby respectfully submits its Comments in the above-captioned matter to the Public Utility Commission of Oregon ( Commission. NIPPC appreciates the opportunity to comment on PacifiCorp s All Source Request for Proposals ( RFP. See PacifiCorp s Draft All Source Request for Proposals ( PacifiCorp s Draft RFP, OPUC Docket No. UM 1540 (Oct. 5, In general, NIPPC supports the evaluation of the Independent Evaluator ( IE, Boston Pacific Company, Inc., and the recommendations of the IE for improvement to PacifiCorp s RFP. See Independent Evaluator s Assessment of PacifiCorp s All Source RFP Design ( IE Assessment, OPUC Docket No. UM 1540 (Nov. 10, As explained below, NIPPC suggests that one additional change be made to the RFP s provisions to provide the opportunity for bidders to operate and sell the output from a plant at PacifiCorp s Currant Creek site under a power purchase or tolling service agreement for up to a 15-year term, prior to PacifiCorp taking over control of the facility. NIPPC also suggests that the Commission require PacifiCorp to remove imputed debt as a factor in evaluation of bids in this RFP.

2 II. COMMENTS 1. NIPPC agrees with the IE that an RFP without a utility benchmark is preferable, but urges the Commission not to overlook that this RFP still provides for utilityownership options that would expose ratepayers to risks associated with cost-ofservice rates for such a project. NIPPC agrees with the IE s assessment that an RFP containing no utility-owned benchmark resource is preferable. A utility benchmark is offered on a cost-plus basis while third party bidders are required to guarantee their price and performance parameters. An independent power producer ( IPP must sign a power purchase agreement ( PPA or tolling service agreement ( TSA holding it to its price and performance parameters, and must provide substantial performance guarantees calculated to compensate the utility and ratepayers in the event of breach of contractual obligations. 1 A utility enters into no such contractual guarantees with the ratepayers, and does not post a bond that will automatically be forfeited as a ratepayer refund if costs of obtaining the electricity and capacity exceed those estimated in the RFP s evaluation process for the utility-owned project. Unless the utility grossly mismanages its utility-owned resource, the Commission is generally required to pass on all cost increases throughout the life of the resource to the ratepayers. Under the mechanisms available with the Commission s current RFP guidelines, it is difficult to compare a utility-owned resource submitted at cost-plus basis to an independently owned project with a fixed price and performance guarantees. 2 1 NIPPC agrees with the IE that this RFP s inclusion of an option to bid for the The TSA attached PacifiCorp s RFP demonstrates this well because it requires the IPP to guarantee it will operate and maintain the facility in a manner that will achieve a guaranteed heat rate, ramp rate, and start up rate, as well achieve a set capacity availability factor. PacifiCorp s RFP at Attachment 5, 16, A utilityowned project contains no such guarantees over the entire term. 2 The Commission is currently engaging in an investigation in Phase 2 of UM 1182 to provide better mechanisms under RFP Guideline 10(d to quantifiably account for the different risk profiles of a utility-ownership option and third-party power purchase or tolling agreement option. However, Phase 2 of UM 1182 will not be complete by the time of analysis of the bids in PacifiCorp s current RFP. Thus, a utility-owned resource presents a problem that is difficult to completely evaluate under current mechanisms. PAGE 2

3 engineering, procurement and construction ( EPC contract at PacifiCorp s Currant Creek site provides for a more competitive RFP than past RFPs with a preselected EPC for the utility benchmark. IE Assessment at p. 2. However, this incremental improvement should not be mistaken for the reduction to ratepayer risk that could be realized with a reduction in utility ownership of its generation resources. PacifiCorp s proposal to allow for bidding on the EPC contract at the utility site in the RFP calls for PacifiCorp to own and operate the plant after the winning EPC bidder assists PacifiCorp with commissioning and start up testing. See PacifiCorp s Draft RFP at pp & Attachment 17 at p Ratepayers should obtain better construction cost guarantees from a competitive EPC solicitation, but the owner s costs to PacifiCorp not covered by the EPC contract will be passed onto ratepayers at PacifiCorp s cost. See PacifiCorp s Draft RFP at Attachments 7, 8. There will be no performance guarantee against equipment failures after expiration of warranties, and no insulation against any future environmental regulations, for example. In light of the different risk profiles, the IE summarized the situation well: To be clear, the new structure does not completely mitigate the problems caused by Benchmark offers. As noted above, the owner s costs of the Currant Creek project are not fixed and will need to be added to any EPC bids to create a full and complete price for the new supply at Currant Creek. IE Assessment at p. 7. The IE believes that the risk can be mitigated somewhat by transparency of those owner cost estimates, which will be locked down prior to bid receipt. Id. But the IE recommends as a further precaution, that the Company be held to their cost projections in a future ratemaking proceeding should the project be selected. Id. NIPPC agrees that holding the utility to its cost projections would be one mechanism to level the playing field in the RFP. However, the Commission has recently determined that it will not impose such market- PAGE 3

4 based rates on utilities, or otherwise cap the utility s cost recovery at the level of its cost estimates in an RFP. See In re Investigation into Regulatory Policies Affecting Resource Development, OPUC Docket No. UM 1066, Order No (2011; see also In re Portland General Electric Company, OPUC Docket No. LC 33, Order No (2004 (granting Portland General Electric Company s request to include its Port Westward plant in rates at actual costs, not at the cost estimates it had bid into its RFP. Simply put, PacifiCorp will not necessarily be held to its RFP cost estimates if it owns the generating plant at Currant Creek. NIPPC urges the Commission and the IE to recognize that utility-ownership risk exists in this RFP despite the seeming lack of a utility benchmark. 2. NIPPC suggests that the Commission mitigate ratepayer risk by allowing bids to operate a project at PacifiCorp s Currant Creek site under a power purchase or tolling service agreement for up to 15 years before transfer of control to PacifiCorp. The RFP should allow for a more competitive use of the Company s Currant Creek site. That site has obvious advantages and has been prepped implicitly or explicitly with funding from ratepayers. 3 As currently configured, there is no option for a bidder to assume and be rewarded for more project risk at the Currant Creek site than that allowed in an EPC contract. The RFP does not allow for a PPA or TSA at the Currant Creek site. See PacifiCorp s Draft RFP at p. 15 (requiring that a PPA or TSA bid be located on (a a Bidder-supplied site, or (b from the Bidder s electrical system. The perception under this arrangement will be that the utility 3 For example, the costs and timing of necessary upgrades to PacifiCorp s transmission system appear to be more manageable at the Currant Creek site than at any other of PacifiCorp s preferred points of delivery. See PacifiCorp s Draft RFP at Attachment 20. The RFP states those upgrades can be complete in 2013, and the indicative costs are from $9 million to $732 million less than the other points of delivery analyzed in the Company s East Control Area. Id. at Section 2. It should also be noted that the RFP s indicative cost estimates to integrate at the Currant Creek site appear to not include the expensive Mona to Oquirrh upgrade already under construction and necessary for use of the Currant Creek site. Id.; see also Slide 12 at TransWorkshopDraft_ pdf. PAGE 4

5 intends to select the winning EPC bid at Currant Creek as the winning RFP bid regardless of how competitive the other bids for PPAs or TSA may be elsewhere. This will discourage competition, and not provide ratepayers with the benefits of a fully competitive solicitation. NIPPC suggests that the RFP should allow for bidders to propose to not only construct and commission the Currant Creek project, but also to operate the plant for a period of up to 15 years under a PPA or TSA. Far more IPPs will be interested in operating a plant under a power purchase or tolling service agreement than the number of construction companies that would bid for an EPC contract. Opening up the Company s site for a more competitive solicitation will provide ratepayers with the benefits of a far more robust solicitation on a site the utility has already prepped. Allowing for IPPs to bid to operate the plant will also provide a check against the Company s ownership costs projected in its evaluation of the EPC option at Currant Creek. A 15-year agreement can mitigate concerns the utility might have with a longer-term use of its site, while providing IPPs more incentive to participate and providing ratepayers with benefits of a more robust solicitation. 3. The Commission should require PacifiCorp to remove debt imputation as a factor in PacifiCorp s RFP. PacifiCorp s RFP states the utility may consider imputed debt as a factor in final resource evaluation. The RFP provides: [A]fter completing the Final Shortlist and before the final resource selections are submitted for approval by the Utah Commission or acknowledgement by the Oregon Commission, the Company may take into consideration, in seeking approval, cost recovery or acknowledgement with respect to selected resources, any projected costs of direct or inferred debt. The Company will bear the burden to demonstrate to the satisfaction of its regulators the validity, magnitude and impacts of any such projected costs. At the request of the Utah or Oregon Commission, PacifiCorp will be required to obtain a written advisory opinion from a rating agency to substantiate the utility s analysis and final decision regarding direct or inferred debt. PAGE 5

6 PacifiCorp s Draft RFP at p. 33; see also id. at p. 53. The Commission s current policy is to not allow utilities to consider imputed debt in an RFP, and is to instead allow such evaluation in an analysis of a utility s overall cost of capital in a general rate case. In re Portland General Electric Request for Capacity Proposals, OPUC Docket No. UM 1535, Order No , p. 7 (Sept. 27, 2011; In re An investigation regarding performance based ratemaking mechanisms to address potential build-vs.-buy bias, OPUC Docket No. UM 1276, Order No , p. 7 (Jan. 3, PacifiCorp should have been well aware of this policy recently reiterated by the Commission prior to the time PacifiCorp released its Draft RFP on October 5, NIPPC suggests that the Commission again reiterate its position, and require PacifiCorp s RFP to state that debt imputation will not be a part of the evaluation at any stage. III. Conclusion With these Comments, NIPPC respectfully requests the Commission to approve PacifiCorp s RFP conditioned upon adoption of the suggested changes contained herein. RESPECTFULLY SUBMITTED this 1 st day of December, RICHARDSON & O LEARY PLLC /s/ Gregory M. Adams Gregory M. Adams (OSB No N. 27 th Street P.O. Box 7218 Boise, Idaho Telephone: ( Fax: ( greg@richardsonandoleary.com PAGE 6 Attorney for Northwest and Intermountain Power Producers Coalition

7 CERTIFICATE OF SERVICE I HEREBY CERTIFY that on the 1 st day of December, 2011, a true and correct copy of the within and foregoing Northwest and Intermountain Power Producers Coalition s Comments was served as shown to: Eric Colville Public Utilities Commission of Oregon PO Box 2148 Salem OR eric.colville@state.or.us Mary Wiencke Pacific Power & Light 825 NE Multnomah St Ste 1800 Portland OR mary.wiencke@pacificorp.com PacifiCorp, dba Pacific Power Oregon Dockets 825 NE Multnomah St Ste 2000 Portland OR oregon.dockets@pacificorp.com Gordon Feighner Robert Jenks G Catriona McCracken Citizens Utility Board of Oregon 610 SW Broadway Ste 400 Portland OR gordon@oregoncub.org bob@oregoncub.org catriona@oregoncub.org Irion A Sanger Davison Van Cleve 333 SW Taylor Ste 400 Portland OR mail@dvclaw.com John W Stephens Esler Stephens & Buckley 888 SW Fifth Ave Ste 700 Portland OR stephens@eslerstephens.com mec@eslerstephens.com PAGE 7

8 Robert D Kahn NW Independent Power Producers 1117 Minor Ave Ste 300 Seattle WA rkahn@nippc.org rkahn@rdkco.com Patrick G Hager 121 SW Salmon St 1WTCO702 Portland OR pge.opuc.filings@pgn.com Darrington Outama Portland General Electric 121 SW Salmon St 3WTCO0306 Portland OR darrington.outama@pgn.com V. Denise Saunders Portland General Electric 121 SW Salmon St 1WTCO1301 Portland OR denise.saunders@pgn.com Jason Jones PUC Staff-Dept of Justice 1162 Court St NE Salem OR jason.w.jones@state.or.us Donald W Schoenbeck Regulatory & Cogeneration Services Inc 900 Washington St Ste 780 Vancouver WA dws@r-c-s-inc.com PAGE 8

9 Megan Walseth Decker Jimmy Lindsay Renewable Northwest Project 421 SW 6 th Ave #1125 Portland OR megan@rnp.org jimmy@rnp.org By: /s/ Gregory M. Adams Gregory M. Adams Attorney for Northwest and Intermountain Power Producers Coalition PAGE 9

~;liam R. Griffith . I.! PACIFIC POWER A DIVISION OF PACIFICORP. November 20, 2012 VIA ELECTRONIC FILING AND OVERNIGHT DELIVERY

~;liam R. Griffith . I.! PACIFIC POWER A DIVISION OF PACIFICORP. November 20, 2012 VIA ELECTRONIC FILING AND OVERNIGHT DELIVERY PACIFIC POWER A DIVISION OF PACIFICORP 5 NE Multnomah, Suite 000 Portland, Oregon 9 November 0, 0 VIA ELECTRONIC FILING AND OVERNIGHT DELIVERY Oregon Public Utility Commission 550 Capitol Street NE, Suite