ORDER NO: 96-159

ENTERED JUN 18 1996

THIS IS AN ELECTRONIC COPY

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

LC 16

DISPOSITION: LEAST-COST PLAN ACKNOWLEDGED

On November 22, 1995, PacifiCorp, dba Pacific Power & Light Company (Pacific or the company) filed its fourth least-cost plan entitled Resource and Market Planning Program (RAMPP-4). This filing is made pursuant to the Commission’s directive in Order No. 89-507 that all energy utilities prepare least-cost plans every two years. Pacific held a number of public advisory group meetings to help formulate its program. Participants suggested a three-year action plan to provide an overlap with the next RAMPP report, which the company will file in late 1997.

The company briefed the Commission on its plan at a public meeting on January 23, 1996. The Commission acknowledged the plan at its May 14, 1996, public meeting.

PROVISIONS OF THE PLAN AND PARTY COMMENTS

Pacific’s Least-Cost Plan

RAMPP-4 describes the assumptions, strategies and principles that Pacific evaluated in determining its most prudent course of action to provide electrical energy to the public over the next 20 years. While the RAMPP-4 analysis uses a 20-year planning horizon with an additional 30 years to account for end effects, the focus is on the next ten years. The plan analyzed 39 different scenarios.

The base case assumptions include annual load growth of 2.07 percent and a real gas price increase of 2.11 percent per year. These rates are below those used in RAMPP-3 (2.13 percent for load and 3.78 percent for gas prices).

The company tested demand side management (DSM) options of (a) no DSM, (b) both 15 and 20 percent reductions in DSM costs, and (c) a 15 percent increase in DSM costs. The company also examined six scenarios with changes in assumptions, such as not performing turbine upgrades or excluding the Hermiston generation facility.

With respect to load forecasts, the company tested a medium-low load forecast of 1.06 percent growth per year in winter MW for 20 years, and a medium high forecast of 2.93 percent. Four gas price variations were tested that range between no escalation in real prices and a 3.78 percent annual rate of real increase.

Pacific analyzed three wholesale market variations. One forced the model to add new resources in realistic large size lumps to meet reserve margin requirements. The second option lowered non-firm market prices by 25 percent, while the final variation raised non-firm market prices by 25 percent.

The company also reviewed six scenarios of overbuilding and evaluated each at different levels of non-firm prices. The company assumed overbuilding by either 250 MW or 500 MW with non-firm prices varying between 25 percent below and 25 percent above the base case assumption. Similarly, Pacific analyzed underbuilding with base case, lower and higher non-firm prices.

Pacific reviewed three transmission variations. One case simulated moving an existing plant from one region to another, thereby freeing up transmission capacity. The second case increased the transmission path from Bridger to the Oregon/Washington/ California (OWC) region by 300 MW over the base case. The final option added 300 MW of transmission capacity from Utah to OWC.

In one scenario, the company assumed an artificially lower cost for renewables. This option assumed capital costs that were 35 percent of actual costs.

The plan reviewed three input options that assumed (a) extension of all existing wholesale contracts throughout the planning period, (b) extension of load growth and DSM assumptions through the year 2045 rather than stopping at 2015 and (c) extension of all inputs including load growth, DSM, gas prices and firm contracts through 2045.

Finally, in RAMPP-4, Pacific assumed three different scenarios with environmental adders: low medium and high. The level depends on the externality costs associated with emissions on NOx, TSP and CO₂.

The most important conclusion in the RAMPP-4 report is that Pacific does not need to make any resource decisions for 3 years. Power costs are declining and it is therefore most prudent for the company to take advantage of this trend by meeting future load requirements through purchase of power. Future resource actions are confined to DSM. This strategy changes, however, if any of the following occur:

Load growth for 1995 is below 1.5 percent or above 2.5 percent.

 

Gas prices in real terms do not rise at all or rise by 4 percent or more.

 

Non-firm market prices rise or fall by 25 percent or more from 1995 levels.

 

The federal government imposes a tax on CO₂ emissions.

 

One of the renewable technologies achieves costs within 10 percent of gas-fired resources.

 

Over the next 10 years, the model selected DSM, summer peak purchases, and gas-fired resources. The company, however, broadened its action plan to include activities in six other areas. These include existing system improvements, renewables, clean coal, competitiveness, acquisition opportunities, and the integrated resource planning process in RAMPP-5. The specifics of the RAMPP-4 Action Plan for the next three years are outlined below:

DSM--Achieve 23 MWa of installed cost-effective savings in 1996, 25 MWa in 1997 and 28 MWa in 1998.

(a) Target DSM areas that allow Pacific to reduce transmission and distribution costs.

(b) Increase participant contribution to DSM costs and develop alternative funding sources.

Peaking Resources--Pursue cost-effective opportunities to meet peaking needs.

(a) Continue to evaluate ways to meet peaking needs and pursue cost-effective opportunities.

(b) Use the market to purchase cost-effective power to meet summer peaking requirements.

(c) Evaluate summer peaking resources such as pumped storage, single-cycle combustion turbines, purchased power and existing peaking resources.

Baseload Resources--Purchase of baseload resources in the next 3 years is unlikely.

(a) Identify environmentally responsible solutions to meet customer needs.

This could mean cogeneration.

 

(b) Continue purchase of power when cost-effective.

 

(c) Continue to evaluate cogeneration and combined-cycle combustion turbine

options with independent developers.

 

Existing System--Continue cost-effective improvements to the existing system.

 

(a) Enhance generation efficiency of the existing system when cost-effective.

(b) Continue with cost-effective turbine upgrades.

(c) Continue the process to bring the Hermiston plant on-line by 1997.

(d) Continue evaluation of converting the Gadsby plant to a combined-cycle unit.

(e) Continue to implement cost-effective transmission and distribution system efficiencies.

Renewables--Pursue low-cost activities that increase Pacific’s knowledge of renewable resources.

(a) Continue with plans to bring the Foote Creek, Wyoming, and Columbia Hills, Washington, wind projects on-line in 1996.

(b) Pursue development of other wind projects if cost-effective.

(c) Pursue agreements to bring 25-50 MW of geothermal resources on line if cost-effective.

(d) Pursue cost-effective solution to transmission and distribution constraints through the use of distributed generation technologies.

(e) Continue to monitor global climate science.

(f) Continue evaluation of small-scale carbon offset projects.

(g) Continue participation in Solar II.

(h) Continue to monitor performance of solar PV projects.

(i) Continue participation in the Northwest Regional Solar Radiation Data Monitoring project.

(j) Continue to support OSU Wind Research Cooperative.

Clean Coal Technologies--Continue to evaluate clean coal technologies, including integrated gasification combined-cycle and fluidized bed.

Other Opportunities--Seek and pursue cost-effective resource acquisition opportunities.

Competitive Market--Continue to be a low-cost provider and successful competitor in the market place.

Integrated Resource Plan (IRP)--Continue to improve RAMPP process.

(a) Implement feasible improvements to process identified in RAMPP-4 review.

(b) Evaluate other IRP models.

(c) Evaluate implication of the Federal Energy Regulatory Commission Notice of Proposed Rulemaking (FERC NOPR) for resource planning.

(d) Work with regulatory agencies and other parties to make IRP process more valuable to utilities and customers.

Comments on the Plan

Commission

At the January 23, 1996, public meeting, the Commission raised questions about the Hermiston facility. Hermiston is scheduled to come on-line in mid-1996. Under the terms of the contract with the developer, Pacific will purchase one-half of the plant once it is operational, and then buy the output of the other half retained by the developer. The Commission asked whether the facility was needed in the future or, in the alternative, whether the company should delay bringing it on-line. The Commission also asked whether sales from this facility will benefit retail customers.

On February 1, 1996, Staff asked Pacific to provide further comments on the Hermiston facility. The company responded on February 15, 1996, noting that the decision to build Hermiston was made with the best information available at the time, and that the Commission acknowledged the need for a Hermiston-type facility during the RAMPP-3 process. When the decision was made to build Hermiston, the company projected over 700 MW of retail growth by 1996. Firm power purchases were projected to decline over 200 MW, while wholesale firm power sales were projected to decrease by 300 MW. In 1993, a gas turbine facility like Hermiston was considered the best and least-cost option to meet this shortfall. Based on the analysis performed in RAMPP-4, Pacific added, operation of the Hermiston facility results in long-term benefits to Pacific’s customers.

Staff/ODOE

On January 31, 1996, Staff and the Oregon Department of Energy (collectively referred to as Staff) filed joint comments regarding Pacific’s least-cost plan. Among other things, Staff recommended that Pacific be required to seek Commission acknowledgment if DSM targets are adjusted for reasons independent of economic growth. Staff also stated a belief that Pacific is required to seek Commission acknowledgment before making long-term resource commitments not identified in the least-cost plan.

On March 5, 1996, Pacific filed a response to Staff’s comments. It opposed Staff’s recommendation requiring automatic approval of certain DSM adjustments. Rather, Pacific proposed that it work with Staff regarding any such changes in the targets. After those discussions, a decision could be made as to whether Commission acknowledgment of the new targets was required.

Pacific also objected to Staff’s belief that it seek Commission acknowledgment prior to making other long-term resource commitments. Pacific contended that this type of process is tantamount to requiring Commission preapproval before resources can be acquired. Pacific argued that this type of requirement is not practical in the fast-paced business world.

On March 29, 1996, Staff filed revised comments and agreed with Pacific’s proposal regarding the process to amend DSM targets. It also clarified that it does not propose that the Commission require preapproval of resource acquisitions not specifically identified in the plan. However, if Pacific wants acknowledgment of other acquisitions prior to presentation of its next least-cost plan (RAMPP-5), the company should formally request that action from the Commission.

Staff supports Pacific’s RAMPP-4 report and Action Plan and recommends Commission acknowledgment with the suggestions, conditions and clarifications described below:

Future of Least-Cost Planning--Staff agreed that least-cost planning is relevant only for the noncompetitive segment of Pacific’s business. However, since it is not possible at this time to determine when or how competition will be introduced, the Commission should continue the current least-cost planning process. The process should evolve as competition is introduced.

 

Future Resource Commitments--As a result of language in the action plan to the effect that Pacific will make future resource commitments that it believes to be cost-effective, Staff clarified that its recommendation to the Commission to acknowledge Pacific’s plan included only the action plan resource acquisitions of DSM for 1996 and 1997, turbine upgrades, the Hermiston generating plant and the Washington and Wyoming wind projects. Staff recommended that if Pacific intends to make any other long-term resource commitments before it files its next least-cost plan, and if it wants the Commission to acknowledge those commitments, it should request acknowledgment instead of simply discussing them with the public advisory group.

 

DSM--Staff clarified that it interpreted Pacific’s statement that it will adjust DSM targets during the action plan period to mean that the company will target a level of penetration in each market segment so that the MWa target will increase or decrease based solely on the amount of economic growth. If Pacific changes targets for another reason, the company is expected to discuss the revised targets with Staff. If the company and Staff cannot agree on the new targets, Pacific should request formal Commission acknowledgment of the changes.

 

Renewables--Staff supports Pacific’s commitments to proceed with the Columbia Hills and Foote Creek wind projects. For RAMPP-5, Staff requests Pacific discuss the status of its hydro relicensing efforts with FERC. The discussion should include environmental and operational uncertainties as they relate to the North Umpqua and other Pacific hydro facilities (e.g., Klamath projects).

 

Underbuilding--Three of the underbuilding scenarios attempted to measure the impact of deliberately delaying the addition of resources in the years 2003 and 2004 and meeting energy needs through market purchases in those years. Staff is concerned with assumptions that replacement power for underbuilding would be purchased at various prices above the fully embedded costs of a combined-cycle combustion turbine. Staff believes these assumptions are correct only if there is no surplus power available to be purchased. (Currently there is a substantial surplus of power in the West.) Staff recommends that in RAMPP-5 Pacific more completely analyze the future power market and the resulting implication regarding acquisition of supply-side resources.

 

 

Solar

The Solar Energy Association of Oregon (Solar) also filed comments regarding Pacific’s least cost-plan. Solar endorsed Pacific’s support of renewable resources and commended the company for its conservation efforts. It recommended that Pacific in the future provide detailed technical information for DSM that facilitates comparisons with similar work performed by the Northwest Power Planning Council. Solar recommended that Pacific’s plan be approved.

OPINION

Jurisdiction

Pursuant to ORS 756.515, the Commission has directed all energy utilities in Oregon to engage in least-cost planning. See Order No. 89-507. Pacific is a public utility in Oregon, as defined by ORS 757.005, that provides electric service to the public.

Requirements for Least-Cost Planning

Order No. 89-507 establishes both 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

The least-cost planning process requires involvement of the Commission and the public prior to making resource decisions, rather than involving them after the fact. See Order No. 89-507 at 3. In this case, Pacific held 13 all-day meetings with its technical advisory group consisting of representatives from public agencies and private groups. Technical subgroups held five additional meetings to discuss DSM input assumptions and modeling. These meetings provided opportunities for parties to furnish input, raise issues and review the company’s progress. Throughout the process, Pacific provided written responses to parties who raised issues. Pacific also distributed a draft of its report for comment before submitting its final plan to the Commission. These activities are summarized in Appendix A.

Substantive Requirements

The least-cost planning process also requires that:

All resources be evaluated on a consistent and comparable basis.

Uncertainty be considered.

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

The plan be consistent with the energy policy of the state of Oregon as expressed in ORS 469.010. See Order No. 89-507 at 7.

 

In this case, Pacific used the same interest rate to discount all resource costs over the entire study horizon to a base year. In this respect, Pacific considered supply-side and demand-side resources on a comparable and consistent basis.

The company’s plan also adequately evaluates the effects of uncertainty by testing 39 possible futures based on varying assumptions. The base case assumed a medium annual load growth rate of 2.07 percent and a medium annual real increase in gas prices of 2.11 percent. Pacific constructed other cases by varying assumptions about DSM cost levels, load growth, gas and wholesale prices, overbuilding and underbuilding by different amounts with different non-firm market prices, transmission capacity, the cost of renewables, extension of assumptions beyond 2015 (i.e., extending wholesale contracts throughout the planning period, extending load growth and DSM inputs through 2045 and extending all inputs including load growth, gas prices, etc. through 2045) and environmental adder costs. Pacific analyzed 39 different scenarios and formulated an action plan representative of the most likely future conditions. The company focused on the first 10 years of the 20-year planning horizon with end effects measured for an additional 30 years.

In addition, the model used by Pacific minimizes the present value of total resource costs. These results are used by the company’s financial model to calculate total resource cost and its average levelized mills/kWh and total utility cost and its average levelized mills/kWh. The model uses a 20-year planning horizon but includes an additional 30 years to recognize the financial benefits of investments made in the last few years of the planning period.

Pacific’s plan is also consistent with Oregon’s overall energy policy stated in ORS 469.010. The policy largely relates to the development of sustainable energy resources. Pacific’s Action Plan continues to bring the wind projects at Foote Creek, Wyoming, and Columbia Hills, Washington, on-line by 1996. The plan includes the company pursuing other wind projects and geothermal resources if cost-effective and continuing its participation in several solar projects. DSM targets for 1996, 1997 and 1998 will result in substantial energy savings. The plan also commits the company to cost-effective improvements in the existing system that will enhance generation efficiency.

Commission Decisions on Parties’ Comments

Pacific and Staff agree that the company’s RAMPP-4 report and Action Plan should be acknowledged consistent with the suggestions, conditions and clarifications contained in Staff’s comments. The Commission wants to make clear, however, it expects Pacific to achieve the DSM targets contained in the Action Plan.

Staff recommends that the Commission acknowledge Pacific’s least-cost plan for only the long-term acquisitions relating to DSM targets, turbine upgrades, the Hermiston generating plant and the Washington and Wyoming wind projects identified in the plan. Staff’s position is reasonable. Staff’s revised comments make clear that it is not recommending the Commission require preapproval of other acquisitions by the company. However, if Pacific wants acknowledgment of other purchases prior to presentation of its next least-cost plan, the company should formally request that action from the Commission. Commission acknowledgment of this least-cost plan does not address other long-term acquisitions.

Pacific does not object to Solar’s request for more detailed information on DSM, nor does it object to Staff’s comments relating to the least-cost planning process, renewables and underbuilding. Pacific should incorporate these suggestions in its RAMPP-5, to be filed in late 1997.

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:

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. See Order 89-507 at 6 and 11.

 

This order does not constitute a determination on the rate-making treatment of any resource acquisition or other expenditures undertaken pursuant to Pacific’s RAMPP-4 report. 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 be expected to explain actions they take which are inconsistent with acknowledged least-cost plans or which the Commission has not acknowledged. Utilities will also be expected to pursue unanticipated least-cost opportunities beneficial to ratepayers which arise after Commission acknowledgment or, alternatively, explain why such opportunities were not pursued.

CONCLUSIONS

Pacific is a public utility subject to the jurisdiction of the Commission.

 

Pacific’s RAMPP-4 report and Action Plan reasonably adhere to the principles of least-cost planning set forth in Order No. 89-507, and should be acknowledged consistent with Staff’s revised comments concerning DSM and future resource commitments.

 

Staff’s suggestions relating to the future of least-cost planning, renewables and underbuilding, and the Solar’s suggestion regarding DSM are reasonable and should be implemented by the company in the RAMPP-5 process.

 

ORDER

IT IS ORDERED that the fourth Resource and Market Planning Program report (RAMPP-4) and accompanying Action Plan filed by Pacific dated November 22, 1995, is acknowledged consistent with the understanding that only the long-term acquisitions of DSM, turbine upgrades, the Hermiston generating plant, and the Washington and Wyoming wind projects are being acknowledged.

Made, entered and effective_______________________.

A party may request rehearing or reconsideration of this order pursuant to ORS 756.561. A request for rehearing or reconsideration must be order to a court pursuant to ORS 756.580. The request must be filed with the Commission within 60 days of the date of service of this order.