ORDER NO. 95-1387

ENTERED DEC 28 1995

THIS IS AN ELECTRONIC COPY

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

LC 14

DISPOSITION: PLAN ACKNOWLEDGED WITH MODIFICATIONS

Idaho Power Company (IPC) filed its Resource Management Report and Least-Cost Plan (LCP or plan) on June 5, 1995. The plan was filed as a single document designed to meet the requirements of both the Public Utility Commission of Oregon (OPUC or Commission) Order No. 89-507 and the Idaho Public Utilities Commission (IPUC) Order No. 22299. The company held a series of meetings with a Technical Advisory Panel prior to the filing of the plan. Nearly thirty interest groups participated in the process over the eighteen months that the plan was under development.

On September 7, 1995, the staff of the OPUC (staff) sent out a proposed review schedule for IPC’s LCP. The schedule requested comments on the plan to be returned by October 6th. On November 2nd, staff sent out a copy of its final comments and recommendations and a draft proposed order. Staff distributed a final proposed order on November 2, 1995.

Staff presented its analysis of IPC’s plan to the Commission at its December 19, 1995, public meeting. Staff recommended that the Commission acknowledge the plan, provided that IPC agree to address staff recommendations concerning gas-fired resources, the energy and capacity surplus in Western electricity markets, the Southwest Intertie Project, and Demand-Side Management (DSM) screening and funding in its next LCP. The Commission adopted staff’s recommendations and they are incorporated in this order.

PROVISIONS OF THE PLAN AND PARTY COMMENTS

IPC’s Resource Management Report and Least-Cost Plan

IPC’s filing consists of four volumes: the overall plan, the economic forecast, the load forecast, and a technical appendix.

Methodology

IPC began its resource planning by forecasting future load. Under normal weather conditions, IPC’s customers are expected to consume about 1,769 average megawatts in 1995. By 2014, this load is expected to be about 2,146 average megawatts. The 377 average megawatt increase represents a 1.02% average annual rate of growth. This load forecast was developed using a variety of economic and demographic variables. In the absence of a salmon recovery program which would reduce the company’s hydroelectric output, IPC’s current system would be adequate to meet all capacity requirements until the year 2004 and all energy requirements in the same period except for small deficits in the months of July and August. In 2004, two seasonal power exchanges with Montana Power and Seattle City Light terminate and new capacity resources will be required. If the salmon recovery program assumed by the company is implemented, capacity and energy deficits are projected to begin to occur in winter months only, beginning in December 1995 and January 1996.

IPC continued its LCP analysis by reviewing over 30 possible supply and demand-side resource options which could be used to meet load requirements for the next 20 years. These options were subjected to a screening process to eliminate those that (1) exceeded 60 mills per kWh real levelized cost, and (2) created higher system costs compared to other resources when load and gas prices were assumed to be at their extreme values. Resources that passed this screening process were then included as core resources in six resource strategies the company tested further. The six resource strategies were distinguished from each other by including various combinations of resources that did not pass the screening test mentioned above. These six resource strategies were then tested using various probabilities for each major assumption. The strategy that resulted in the lowest expected value was selected as the recommended resource plan for the next twenty years.

Possible Resources

On the demand side, the company included nine new conservation programs as possible resources to meet future load. Some of these new programs are similar to programs currently offered. Changes were made to reconfigure these programs to provide customers with more service choices and to integrate the company’s experience in successful program implementation. As a result of the screening analysis discussed above, the company selected two new conservation programs to be in all future resource plans: a Residential New Construction Envelope program and a Residential Existing Home Envelope program. With the addition of these two residential programs, the company believes it has a well-balanced DSM portfolio. Together, these two programs are designed to save about 1.2 average megawatts over the program life.

There are six DSM programs currently being offered and two programs currently being planned (aside from the two new programs mentioned above) which will save 18 average megawatts over the program life. These eight programs were already considered to be part of the core resources and were not subjected to the same screening criteria in this current least-cost planning process, as were the nine new programs. The company believes DSM programs should not be started and then abruptly stopped. Consequently, once IPC begins a DSM program, the program is included as an existing resource and not subjected to new LCP screening.

The company estimates that the ten programs will save 19.2 average megawatts over the program lives. In 1996, the company’s system savings target is 3.7 average megawatts. IPC’s Oregon DSM programs, including a low flow showerhead program, are targeted to save .5 average megawatts in 1996.

On the supply side, the company considered a variety of possible resources to meet future load. These possibilities covered system efficiency efforts, hydro expansion programs, thermal resources fueled by natural gas and coal, and market purchases.

While the company is aware of, and has studied, a variety of renewable resources, these were not included in the portfolio of possible resource choices for reasons of high cost, limited availability, or technological immaturity. IPC is participating in several efforts to gain a better understanding of photovoltaic (PV) and solar thermal technologies. In 1993 the company began collecting solar data from four sites in Idaho. The Bureau of Reclamation also collects wind speed data at these sites. The company also is offering some of its customers in remote locations the opportunity to lease photovoltaic systems. The company is involved in an Environmental Protection Agency and Electric Power Research Institute study to determine the pollution mitigation potential of PV systems. This research includes the mounting and monitoring of an 18 kW PV system on the rooftop of IPC’s corporate headquarters. IPC, together with several other utilities and government agencies, is participating in the Solar Two demonstration project near Barstow, California, that uses solar thermal technology to generate electricity.

After completing its initial screening analysis, IPC concluded that two efficiency programs, including increasing transmission capacity (and reducing line loss) on its Borah to Midpoint transmission segment, and (with PacifiCorp) upgrading Bridger turbines, should be included in all future resource plans as core resources.

In addition to the two demand side and two supply-side core resources mentioned above, IPC concluded that market capacity and energy purchases should be included as core resources if the company’s assumed salmon recovery program is implemented. These resources would be used to meet the possible capacity and energy deficits mentioned above during winter months.

Resource Strategies

After its screening analysis, the company constructed six resource acquisition strategies using the core resources in all strategies and various combinations of other resources that did not pass the initial screening test. These strategies were:

1. Core resources only.

2. Core plus additional conservation. This strategy includes two additional conservation measures: the Residential High Efficiency Appliance and the Industrial Custom Measure programs added in the year 2000.

3. Core plus Shoshone Falls hydroelectric facility expansion. The Shoshone Falls expansion would add an additional 46 MW of capacity and 25 MWa of energy.

4. Core plus additional conservation and Shoshone Falls expansion.

5. Core plus Shoshone Falls expansion with all other future resource needs met with gas-fired generation.

6. Core plus Shoshone Falls expansion with all other future resource needs met with coal-fired generation.

Each of these six strategies was tested using a decision tree analysis that varied two key assumptions: load growth and gas prices. (In the screening process discussed above, the company found that changing these two factors had the most impact upon resource plan costs over the next 20 years. This is consistent with similar analysis done for the 1993 LCP.) Each resource strategy was modeled using the company’s ProScreen linear programming computer model under different load and gas price assumptions.

For its analysis, the company varied annual load growth from .59 percent to 1.83 percent. The expected (or base case) annual load growth of 1.02 percent is less than the 1.4 percent forecast in IPC’s 1993 plan. The various load forecasts were developed using a range of possible economic futures. These economic futures included an examination of a number of factors including personal income, population, number of households, and both agricultural and non-agricultural employment. Gas prices ranged from $1.67/MMBtu to $2.50/MMBtu with $2.09/MMBtu being the expected value. These starting prices were then escalated at various nominal rates (from 3.7% to 6.0%) to provide low, medium, and high gas price forecasts.

Results

Using the analysis described above, the company determined that the core resources plus Shoshone Falls expansion resource strategy was the least cost strategy. When the cost of externalities are considered, the cost of all strategies is much higher, but still the core plus the Shoshone Falls expansion is the least cost strategy over four of the six levels of externality costs. At the middle level and highest level of externality costs, the core/Shoshone Falls plus additional conservation is the lowest cost resource plan.

The Two-Year Action Plan

From the results of its analysis, the company proposes a two-year action plan that consists of the following specific items:

1. Purchase capacity and energy from the power market in December and January each year as needed until expiration of seasonal exchange contracts.

2. Implement conservation programs and system efficiency improvements of the core resource plan.

3. Complete the relicensing of the Upper Salmon, Lower Salmon, and Bliss hydroelectric projects and pursue relicensing of the Shoshone Falls hydroelectric project with an option to expand the generating capacity of the project.

4. Continue current participation in solar and windpower development activities (i.e., measurement of wind and solar potential in the Northwest).

5. Expand or modify integrated resource planning methods to reflect the impacts of customer choice, open access, and competitive power markets in the electric utility industry.

Comments of the Parties

Commission Staff

The Commission staff recommended the acknowledgment of the plan, with the following recommendations:

1. IPC should expand and refine its analysis and discussion of gas- fired resources and gas prices (commodity and transportation costs) in the company’s next LCP.

2. IPC has included an action plan item to expand its analysis of customer choice, open access, and competitive power markets. This action item should also include analysis of the relationship between market prices, the availability of energy and capacity, and the Western System Coordinating Council (WSCC) regional generation surplus. The analysis should assess the costs and risks of acquiring new resources or relying upon the marketplace to supply the company’s resource needs.

3. In its next LCP, IPC should expand its discussion of the cost- effectiveness of the Southwest Intertie Project (SWIP). In addition, the company should provide regular updates to the Commission and its staff concerning the status of the SWIP.

4. The company should investigate new ways of funding DSM and should continue to assess new ways of delivering conservation programs to customers who desire greater choices and services.

5. In the next planning cycle, the company should run all DSM programs through its least-cost planning screening model. This analysis would assist in understanding whether the expansion of existing programs would be more or less cost-effective than adding new programs to the resource mix.

By letter dated November 30, 1995, IPC agreed to these recommendations. The letter is attached as Appendix A.

Public Comment

No written comments were received from the public.

OPINION

Jurisdiction

IPC is a public utility in Oregon, as defined by ORS 757.005, which provides electric service to or for the public.

On April 20, 1989, pursuant to its authority under ORS 756.515, the Commission issued Order No. 89-507 in Docket UM 180 adopting least-cost planning for all energy utilities in Oregon.

Requirements for Least-Cost Planning Under Order No. 89-507

Order No. 89-507 establishes procedural and substantive requirements for least-cost planning and provides for the Commission’s acknowledgment of plans that meet the requirements of the order.

Procedural Requirements. At a minimum, the least-cost planning process must involve the Commission and public prior to making resource decisions rather than after the fact. See Order No. 89-507 at 3.

The Commission and public sector involvement was accomplished through the company’s interaction with its Technical Advisory Panel (TAP). The TAP consisted of over twenty organizations and agencies, including consumer groups, environmental organizations, business and governmental planning bodies, and regulatory agencies. The TAP met five times with company management planners during the preparation and review of the resource plan. IPC also invited comment on a draft plan before it finalized its LCP, and the public had several opportunities to comment on the LCP during the Commission’s review.

Substantive Requirements. The substantive requirements were set forth in Order No. 89-507 as follows:

1. All resources must be evaluated on a consistent and comparable basis.

2. Uncertainty must be considered.

3. The primary goal must be least cost to the utility and its ratepayers consistent with the long-run public interest.

4. The plan must be consistent with the energy policy of the state of Oregon as expressed in ORS 469.010.

Evaluating Resources on a Consistent and Comparable Basis. IPC considered supply-side and demand-side resources on a reasonably comparable and consistent basis. The same costing and selection criteria were employed for both supply-side and demand-side resources in determining resource priorities.

Uncertainty. The problem facing all planners is the uncertainty of the future environment in which the plan is expected to operate. In this LCP as in its 1993 LCP, IPC used a decision tree method of analysis whereby probabilities were given discrete values for load growth and gas price escalation. The limitation of this analysis is that the results for any branch of the decision tree were derived with perfect knowledge about future load growth and gas prices. In other words, an optimal resource selection made in the year 2000 using this method would be done knowing what the load and gas prices were going to be in the year 2010. Clearly, no planner has this kind of foresight. Staff recommended in its comments on the 1993 LCP that IPC should continue to examine other methods to assess uncertainty. IPC used the same method in this plan as it did in 1993. Staff continues to have the same concern about this method of analysis, but concedes that the possible risks from choosing the wrong future resource are mitigated because IPC will require few resource additions over the next 20 years.

Least-Cost Planning Goals. The goal of utility planning is to assure an adequate and reliable supply of energy at the least cost to the utility and its customers consistent with the long-run public interest. This goal has been met by the company through its examination of a wide spectrum of both demand-side and supply-side resources, initial screening process, and finally, the analysis of the robustness of the planned resource additions using a range of possible futures.

Consistency with the state energy policy. Oregon’s energy policy is defined in ORS 469.010. That policy, as it relates to least-cost planning, is to encourage efficient use of energy and to promote energy conservation, sustainable energy resources, and cost-effective energy resources. IPC’s resource plan calls for introducing two additional DSM programs, increasing the efficiency of the Bridger generating plant through turbine upgrades, and increasing capacity and reducing line losses on a vital transmission link. In addition, the company anticipates using market purchases from existing WSCC resources to meet any immediate capacity or energy deficit. Finally, the Shoshone Falls expansion project would replace two of the company’s oldest and smallest units with a single, more efficient, larger unit. IPC’s plan clearly places a strong emphasis on increasing the efficiencies of its own existing resources, and complies with Oregon’s energy policy.

Commission Findings

Staff proposes to modify IPC’s filed plan by adding five action items addressing gas-fired resources, western electricity markets, the Southwest Intertie Project and DSM screening and funding. We understand that IPC concurs with the staff’s proposals. We agree that the five action items should be added to the plan.

EFFECT OF THE PLAN ON FUTURE RATE-MAKING ACTIONS

Order No. 89-507 sets forth the Commission’s role in reviewing and acknowledging a utility’s least-cost plan, as follows:

The establishment of least-cost planning in Oregon is not intended to alter the basic roles of the Commission and the utility in the regulatory process. The Commission does not intend to usurp the role of utility decision- maker. Utility management will retain full responsibility for making decisions and for accepting the consequences of the decisions. Thus, the utilities will retain their autonomy while having the benefit of the information and opinion contributed by the public and the Commission.

 

Plans submitted by utilities will be reviewed by the Commission for adherence to the principles enunciated in this order and any supplemental orders. If further work on a plan is needed, the Commission will return it to the utility with comments. This process should eventually lead to acknowledgment of the plan.

 

Acknowledgment of a plan means only that the plan seems reasonable to the Commission at the time the acknowledgment is given. As is noted elsewhere in this order, favorable rate-making treatment is not guaranteed by acknowledgment of a plan. Order No. 89-507 at 6 and 11.

 

This order does not constitute a determination on the rate-making treatment of any resource acquisitions or other expenditures undertaken pursuant to IPC’s 1995 Least-Cost Plan. As a legal matter, the Commission must reserve judgment on all rate-making issues. Notwithstanding these legal requirements, we consider the least-cost planning process to complement the rate-making process. In rate-making proceedings in which the reasonableness of resource acquisitions is considered, the Commission will give considerable weight to utility actions which are consistent with acknowledged least-cost plans. Utilities will also be expected to explain actions they take which may be inconsistent with Commission-acknowledged plans.

Conclusion. IPC’s Least-Cost Plan is acknowledged with the recommendations adopted in this order. The plan meets both the procedural and substantive requirements of Order No. 89-507. Achievement of the objectives in the company’s 1995-1997 Action Plan and the Commission recommendations will contribute meaningfully toward the development of future integrated least-cost planning efforts and acquisition of least-cost resources.

ORDER

IT IS ORDERED that the 1995 Least-Cost Plan filed by Idaho Power Company on June 5, 1995, as modified herein, is acknowledged in accordance with the terms of this order and Order No. 89-507.

Made, entered, and effective_________________________.