ROCKY MOUNTAIN POWER A DIVISION OF PACIFICORP

Transcription

1 ROCKY MOUNTAIN POWER A DIVISION OF PACIFICORP June 1,0 01 South Main, Suite 00 Salt Lake City, Utah 1 VIA ELECTRONIC FILING AND OVERNIGHT DELIVERY Wyoming Public Service Commission Warren Avenue, Suite 00 Cheyenne, Wyoming 00 Attn: Chris Petrie, Chief Counsel Docket No EA-ll RE: In the Matter of the Application of Rocky Mountain Power to Implement a Permanent Avoided Cost Methodology for Customers that do not Qualify for Tariff Schedule - Avoided Cost Purchases from Qualifying Facilities Dear Mr. Petrie: In accordance with the Rules of Practice & Procedure and General Regulations of the Public Service Commission of Wyoming, Rocky Mountain Power ("Company") hereby submits for electronic filing its rebuttal testimony in the above captioned matter. Three () hard copies will be provided for the docket file. It is respectfully requested that all formal correspondence and Staff requests regarding this matter be addressed to: By (preferred): By regular mail: with copies to: Data Request Response Center PacifiCorp NE Multnomah, Suite 000 Portland, OR David M. Mosier Wyoming Regulatory Affairs Manager Rocky Mountain Power 0 West th Street, Suite 01 Cheyenne, Wyoming ~~~~~~~.~C'~~~ Daniel E. Solander Senior Counsel Rocky Mountain Power 01 South Main Street, Suite 00 Salt Lake City, Utah 1 ~!l~.jic!j:!!!l;!~[fill;~~l!l.&ql[!

2 Wyoming Public Service Commission June 1,0 Page Hickey & Evans, LLP 0 Carey Avenue, Suite 00 P.O. Box Cheyenne, WY Qill.~;YJ!:@!~~Yill:~~ Informal inquiries may be addressed to David Mosier, Wyoming Regulatory Affairs Manager, at (0) -. Very truly yours,.. ~ Cu ef rey K. L sen,-/ / Vice President, Regulation Enclosures cc: Service List

3 CERTIFICATE OF SERVICE I hereby certify that on this 1 th day of June, 0, I caused to be served a true and correct copy the foregoing document via , as follows: Ivan Williams Office of Consumer Advocate Warren Avenue, Suite 0 Cheyenne, WY 00 Robert M. Pomeroy, Jr. Thorvald Nelson Holland & Hart LLP 0 S. Fiddler's Green Circle, Suite 00 Greenwood Village, CO 01 Robyn Kashiwa Holland & Hart LLP Seventeenth Street, Suite 00 Denver, CO 00 Dale W. Cottam, Esq. Whitney M. Agopian, Esq. Hirst Applegate, LLP P.O. Box Cheyenne, WY 00 Cristopher J. Castillo Perry Richards QEP Field Services Company 0 1 th St., Suite 00 Denver, CO 0 Lisa Tormoen Hickey, Esq. Alpern Myers Stuart LLC North Sierra Madre, Suite A Colorado Springs, CO 00 Leah Buchanan Patti Penn Coordinator, Regulatory Operations

4 Docket No EA-l1 Witness: Gregory N. Duvall BEFORE THE WYOMING PUBLIC SERVICE COMMISSION ROCKY MOUNTAIN POWER Rebuttal Testimony of Gregory N. Duvall June 0

5 Please state your name, business address and position with PacifiCorp dba Rocky Mountain Power (the "Company"). My name is Gregory N. Duvall, my business address is NE Multnomah St., Suite 00, Portland, Oregon, and my present title is Director, Net Power Costs. Have you previously filed testimony in this case? Yes. I filed direct testimony in this case. Summary of Testimony Please summarize your testimony? I will respond to the recommendations of Mr. Kevin C. Higgins on behalf of QEP Field Services Company ("QEP"), and Mr. Roger Swenson on behalf of Interwest 1 Energy Alliance ("Interwest") on the Company's permanent adoption of the Partial Displacement Differential Revenue Requirement ("PDDRR") methodology that was previously adopted by the Commission. My rebuttal testimony is organized into the following categories: 1 - Summary 1 - Contract length 1 - Capacity payment 1 - Production Tax Credits 0 - Reporting 1 In addition to my rebuttal testimony, Mr. Paul H. Clements, Originator/Power Marketer for PacifiCorp Energy, presents rebuttal testimony on behalf of the Company addressing Interwest's proposed Renewable Energy Credit treatment between the Company and Qualifying Facilities ("QFs") seeking power sales contracts. Page 1 - Rebuttal Testimony of Gregory N. Duvall

6 Summary Please summarize the Company's position in the current avoided cost filing. As explained in my opening testimony, the Company's proposal in this Docket is to continue using (with limited changes) the PDDRR methodology that was previously adopted by the Commission and is the basis for existing avoided cost rates. Do parties oppose the continued use of the PDDRR method or the implementation of schedule? No. All parties who filed testimony in this proceeding, Mr. Bryce Freeman on behalf of Wyoming Office of Consumer Advocate ("OCA"), QEP and Interwest, support the permanent adoption of the PDDRR method and proposed Schedule. However, with regard to the continued use of the Company's avoided cost methodology for QFs that do not qualify for Schedule, QEP and Interwest have proposed slight modifications which I will discuss more herein. Does the Company support QEP or Interwest's proposed modifications to its filed avoided cost pricing methodology? No. The modifications proposed by QEP are essentially the same as its proposal in the previous avoided cost proceeding (Docket EA-0) in which all parties, and even the Commission, did not support or adopt its argument. The proposal by Interwest is contrary to the Company's Integrated Resource Plan ("IRP"), and inconsistent with the most recent information on resource timing and cost. The Company believes the proposed modifications by QEP and Interwest are not in the public interest and would result in unreasonable energy costs for Page - Rebuttal Testimony of Gregory N. Duvall

7 1 1 1 Wyoming customers. Please summarize QEP's recommendations in its most recent testimony. Similar to its recommendation in Docket EA-0, QEP recommends that the Commission adopt a PDDRR methodology that changes the calculation of the capacity payments to thermal QFs. In addition, QEP continues to advocate for contract terms of greater than 0 years if the QF can demonstrate that it is using technology with an expected life that is compatible with a longer term. Lastly, QEP recommends that the Company be required to file semiannual "sample calculations" of its PDDRR results. Please summarize Interwest's proposed changes to the calculation of avoided costs for wind proxy plants. Interwest recommends a modification of the modeling of tax credits within the IRP wind proxy plant avoided cost calculations. Essentially, Interwest recommends that the Company should not model tax credits in the periods in which they have not yet been extended, but only for the purpose of QF avoided cost pricing. Interwest suggests that for the limited purpose of avoided cost pricing the tax credits should be removed in the immediate future. 1 Contract Length What is QEP's recommendation on contract length? QEP recommends a contract term for capacity of greater than 0 years if the QF can demonstrate that it is using a technology with an expected life that is compatible with a longer term. In the alternative, if the Commission adopts a contract length of up to 0 years as proposed by the Company, Mr. Higgins Page - Rebuttal Testimony of Gregory N. Duvall

8 recommends an increase to the capacity payment under the PDDRR methodology. Please comment on the wisdom of requiring contracts greater than 0 years. As stated in the previous avoided cost proceeding, the Company strongly recommends against requiring the Company to enter into QF contracts in lengths greater than 0 years. This may result in locking customers into paying for power today at a price that could be significantly higher than market prices after 00 without having any way to mitigate such an outcome. QEP's proposal would require the Commission to lock into prices today for power deliveries through 0. Given the uncertainties facing the electricity industry today, the Company believes this would not be a reasonable policy. Has the Company entered into contracts with QF's that span greater than 0 years? Yes. However, many of these contracts were entered into prior to June 1, 00, and were high priced, in part because they are long-dated contracts. Under the terms of the Revised Protocol these were deemed to be "Existing QF Contracts." The cost of Existing QF Contracts that were above the system average cost were assigned to the state in which the QF is located under the terms of the Revised Protocol. Wyoming customers benefitted from this provision of the Revised Protocol in the past because Wyoming historically has not required long-term QF contracts. 1 Capacity Payment What is QEP's position on capacity payments to QFs? QEP proposes to "front load" the QF capacity payment so that Wyoming QFs get Page - Rebuttal Testimony of Gregory N. Duvall

9 the equivalent of rate base treatment of Company-owned resources. To the best of my knowledge, none of PacifiCorp's jurisdictions have ever adopted such an extreme and risky front loading approach. Did the Commission recognize the inherent difference in operation and risks of the generation resource associated with an energy utility company versus a QF? Yes. In its Order in Docket EA-0, the Commission made the following statement with regard to the different characteristics between an electric utility and a QF: "The Commission finds these two types of companies and their associated risks are distinguishable. While Questar's witness Mr. Higgins provided the Commission with interesting food for thought on this issue, there is not a precise parity between a QF and an energy utility company (or between the operation of QF- and utility company-owned generation resources) which might convince the Commission both companies should get paid precisely the same thing that the Company would recognize in its revenue requirement. This is not an appropriate measure of the avoided cost." 0 1 Did QEP address operational or risk differences of a QF in its testimony? No. QEP simply states that a thermal QF, which can "demonstrate its wherewithal to be equally as reliable as the utility facility should not be penalized by being paid a discounted value for its capacity."] Does QEP define how a thermal QF would demonstrate its "wherewithal to be equally as reliable as a utility?" No. Nor is the Company aware of any type of "demonstration" that would show I See QEP direct testimony, Page 1, Lines 1-0. Page - Rebuttal Testimony of Gregory N. Duvall

10 that a QF would operate as reliably as a utility resource over a 0-year period. How are the operational characteristics of a QF different than that of a utility owned resource? As noted by the Commission in its Order in Docket EA-0, the operation of a utility owned resource provides significant benefit to its customers that a QF does not. A utility resource provides load following service, reserves, and is under the Company's complete dispatch control. What this means, is that the Company is able to fully dispatch its own generation resource (up, down, off or on) due to economics (e.g. at night or for extended periods of time when energy is not needed or when lower cost energy is available), for operational reasons and/or to maintain system integrity limits. In its statement of purpose, QEP claims that its recommendation is to provide sufficient flexibility to the thermal QF and allow for Commission review and approval of QF capacity payment streams that differ from the current methodology. Do you believe that proposed Schedule allows this type of flexibility and the opportunity for Commission review? Yes. Mr. Freeman states in his direct testimony that the OCA does not provide any prescribed recommendations on QEP's issues, due to the fact that he believes that there are opportunities for the Commission to address such issues, should they arise, without addressing them within the confines of Schedule. OCA goes on to state beginning on page, line, that "[t]here are at least two ways, outside of Schedule process, for the Commission to ensure that contracts are negotiated in good faith and that they are fair to both the Company and its Page - Rebuttal Testimony of Gregory N. Duvall

11 1 customers and to the QF." Are there other concerns the Company has with QEP's proposal to front load the capacity payments? Yes. Customers will pay more than avoided costs under QEP's proposal over the life of the QF project with front loading combined with a or 0-year contract. Under the Company's proposal the payments are virtually the same for a QF that signs a 0 year contract as compared to one that renews its contract periodically (for example every years). In essence, if a QF is able to renew its contract at to 0 year intervals, the outcome would be virtually the same as a 0 year contract using the reallevelized pricing proposed by the Company. Given this, there is no reason for the Commission to front-load the QF contract capacity prices. On the contrary as shown in the table below, if a QF were given front loaded payments on consecutive IS-year contracts, the QF would be paid well in excess of avoided cost over a 0-year term, because every years they could elect to receive more front-loaded payments. Page - Rebuttal Testimony of Gregory N. Duvall

12 Annual Revenue Requirement Including O&M Adder 0 Years in Service Does the use of a reallevelized payment result in the collection of the nominal revenue requirement? Yes. All assumptions being equal, a QF that contracts multiple times with a total of 0 years will receive payments with a net present value equal to the net present value of the original full nominal revenue requirement. Production Tax Credits Please discuss how the Company models Production Tax Credits ("PTe") in its IRP and the subsequent impact on the amount and timing of renewable resources. The Company produces an IRP that is developed with participation from numerous public stakeholders, including regulatory staff, advocacy groups, and 1 other interested parties. Within that process, stakeholders have recommended that the Company develop portfolios and prepare for, among other things, Page - Rebuttal Testimony of Gregory N. Duvall

13 extension/expiration of the PTCs, the advent of federal renewable portfolio standards, or enforcement of higher air quality standards by the U.S. Environmental Protection Agency. It is within this context that the Company determines the amount and timing of renewable resources; subject to rate and capital spending stability, the timing risks associated with uncertain greenhouse gas costs and the possibility of the extension/expiration ofptc's. Please describe Interwest's position with regard to the modeling of PTCs. Interwest has recommended that the Company's avoided cost modeling should exclude the extension of PTCs until the credits have been extended into the periods in which the wind proxy is available. Is Interwest's proposal consistent with the decision making process associated with the selection of the wind proxy in the acknowledged IRP? No. The timing and amount of renewable resources in the IRP takes into consideration whether or not the PTC is extended into specific time periods. In the recently filed 0 IRP, the Company assumed that the PTC would be extended until 00. To remove the PTC from the wind proxy plant does not reflect the avoided cost of the resource as it is reflected in the IRP. Interwest's proposal results in a higher avoided cost price for the wind proxy plant and larger payments to the QF resource. Has Interwest provided any specific knowledge of or information that would lead the Commission or the Company to believe that the PTC will expire in the periods in which it recommends they not be reflected? No. Interwest has provided no justification for why the Company should make the Page - Rebuttal Testimony of Gregory N. Duvall

14 1 l assumption that PTCs will expire in the immediate future and should not be reflected in the avoided cost payment. Please describe Interwest's recommendation to distinguish between the PTC and the Investment Tax Credit ("ITC"). Interwest suggests that the Company should distinguish between the PTC and ITC. The PTC is a credit based on electrical production and is earned over a year period. The ITC is a tax credit that is realized upfront based upon the qualifying installed cost of the investment and is not contingent upon the volume of power that is produced from the facility. A wind developer can choose to take advantage of PTCs or ITCs depending on a determination of which one provides the greatest benefit. Does the Company utilize ITCs, or expect to utilize them in the future for its wind facilities located in Wyoming? No. The capacity factors and installed capital costs for wind facilities in Wyoming are such that the Company has concluded that the PTCs provide a lower revenue requirement than the ITC on a discounted cash flow basis as PTCs lower revenue requirement as generated over the year period. For regulated utilities, the ITC is required to be normalized, meaning it must be passed through to the customer ratably over the expected year book life of the wind facility. Regulated utilities cannot pass through the full benefit of the ITC in the year generated. The Company has not claimed the ITC on any of its wind facilities. Page - Rebuttal Testimony of Gregory N. Duvall

15 Since the Company does not model or expect to use ITCs, is it reasonable to distinguish them as proposed by Mr. Swenson? No. Reporting Do you have any final comments with regard to the recommendations of Interwest and QEP? Yes. QEP has recommended that the Commission require the Company to file semi-annual "sample calculations" of its PDDRR results, assuming the addition of a 0 MW QF. The Company believes that this reporting requirement is unnecessary and provides little useful information. Does the Company provide pricing to the QF upon request? Yes. Within the timeframe of the pilot program the Company has responded to nine pricing requests from interested parties. These pricing requests were provided within a short time-frame and provided the QF with the most up to date information in order for the developer to make an informed decision. If the Commission were to adopt semi-annual reporting of a sample PDDRR calculation would this negate the need for the Company to respond to individual pricing requests? No. The sample calculation would not provide information specific to an individual project and the QF would not depend on these filings to make any type of investment decision or move forward with financing. Does this conclude your direct testimony? Yes. Page - Rebuttal Testimony of Gregory N. Duvall

16 Docket No EA- Witness: Paul H. Clements BEFORE THE WYOMING PUBLIC SERVICE COMMISSION ROCKY MOUNTAIN POWER Rebuttal Testimony of Paul H. Clements June 0

17 Please state your name, business address and present position with the Company (also referred to as Rocky Mountain Power). My name is Paul H. alements. My business address is 01 S. Main, Suite 00, Salt Lake City, Utah 1. My present position is Originator/Power Marketer for PacifiCorp Energy. PacifiCorp Energy and Rocky Mountain Power are divisions ofpacificorp (the Company). How long have you been in your present position? I have been in my present position since December 00. Please describe your education and business experience. I have a B.S. in Business Management from Brigham Young University. I have been employed with PacifiCorp since 00 as an originator/power marketer responsible for negotiating qualifying facility contracts, negotiating interruptible retail special contracts, and managing wholesale or market-based energy and capacity contracts with other utilities and power marketers. I also worked in the merchant energy sector for approximately six years in pricing and structuring, origination, and trading roles for Duke Energy and Illinova. Have you previously filed testimony in this proceeding? Yes. I filed direct testimony in which I presented the Company's experience under the current avoided cost methodology for Qualifying Facility (QF) customers that do not qualify for Tariff Schedule - Avoided Cost Purchases From Qualifying Facilities and I proposed a new tariff Schedule to govern the Non-Standard QF contracting procedures in Wyoming going forward. Page 1 - Rebuttal Testimony of Paul H. Clements

18 What is the purpose of your testimony? I will provide the Company's response to the testimony of Mr. Roger Swenson regarding the issue of Renewable Energy Credit (REC) ownership as it relates to QF wind projects. What is your understanding of Mr. Swenson's position regarding REC ownership? Mr. Swenson suggests that the RECs from a QF wind project should go to the utility only during times in which the capital cost of the wind resource is included in the unlevelized avoided cost rate. 1 Do you agree with Mr. Swenson's suggestion? No. The Company recommends that the RECs from a QF wind project go to the utility during all time periods in which that QF sells to the utility and receives compensation at approved avoided cost rates. Have you found the current methodology, in which the utility retains ownership of the REC, to be an impediment to the development of renewable QF's within the state of Wyoming? No. The last five Wyoming wind QF contracts executed by the Company have included contract provisions in which the RECs have gone to the Company. Do you believe the Company's recommendation is supported by the intent of PURPA? Yes. Section of PURP A requires utilities to buy power from generation fueled by specific resources (biomass, solar, wind, waste, geothermal) or in specific configurations (e.g., cogeneration). Renewable attributes, represented by 1 Direct Testimony of Roger Swenson dated May, 0, page, lines -. Page - Rebuttal Testimony of Paul H. Clements

19 1 RECs, are the reason that the Company is mandated to purchase power from that facility. If the Company does not get the QF RECs, it separates the very characteristic that enabled the facility to achieve its QF status. Does the Company believe it is in the best interest of customers to retain the REC's? Yes. Wyoming customers should not have to pay something extra for- or be deprived of the right to truthfully claim- something that is actually taking place, which is PacifiCorp's purchase of energy from a particular QF. What conclusion can you draw from your analysis of the intent of PURP A and how it applies to the issue of REC ownership in wind QF contracts? In terms of PURP A, any power purchase agreement securing power from an eligible renewable energy resource should therefore credit the associated RECs to the purchasing utility. Does this conclude your direct testimony? Yes. Page - Rebuttal Testimony of Paul H. Clements