STATE OF IOWA DEPARTMENT OF COMMERCE BEFORE THE IOWA STATE UTILITIES BOARD
______IN RE: : : APPLICATION OF MIDAMERICAN : DOCKET NO. RPU-2013- ENERGY COMPANY FOR A : DETERMINATION OF : RATEMAKING PRINCIPLES : ______:______
DIRECT TESTIMONY OF O. DALE STEVENS, II
1 Q. Please state your name and business address for the record.
2 A. O. Dale Stevens, II, 4299 Northwest Urbandale Drive, Urbandale, Iowa 50322.
3 Q. By who are you employed and in what position?
4 A. I am employed by MidAmerican Energy Company as Manager, Market
5 Assessment.
6 Q. Please describe your responsibilities as Manager, Market Assessment.
7 A. I am responsible for overseeing the electric market price forecasts, fuel market
8 projections, resource planning and evaluation, electric transmission analyses and
9 environmental modeling.
10 Q. Please describe your education and business experience.
11 A. I graduated from the University of Missouri at Rolla with a Bachelor of Science
12 degree in Electrical Engineering in 1972. Since that time, I have been employed
13 by MidAmerican Energy Company (“MidAmerican” or “Company”), its
14 predecessors, or its affiliates, in a variety of planning and managerial positions. I
15 joined Iowa Power and Light Company, a predecessor of the Company, in 1972
16 as a Scheduler. During my career, I have worked in System Planning (1974- 1 1980), Operational Planning (1980-1986), Rates (1986-1995) and Market
2 Assessment (1995-present). In 1991, I was promoted to manager of the Electric
3 Rate Department for Midwest Power Systems Inc., a predecessor of the Company.
4 In 1995, I assumed the role of manager of Market Assessment for MidAmerican,
5 the position I hold today.
PURPOSE OF TESTIMONY
6 Q. What is the purpose of your prepared direct testimony?
7 A. The purpose of my testimony is to address various aspects of MidAmerican’s
8 application for a determination of ratemaking principles (“Ratemaking Principles
9 Application”) concerning the Company’s proposal to develop up to 1,050 MW of
10 new wind power generation—the Wind VIII Iowa Project (“Wind VIII”). In the
11 course of my testimony, below, I address the topics covered by the following
12 Board “subrules”:
13 ¾ Projected typical annual hours of operation, output and capacity factors for
14 Wind VIII in response to subrule 41.3(1)“c”;
15 ¾ Impact on Electric Supply Reliability in response to subrule 41.3(4);
16 ¾ Impact on Fuel Diversity and Use of Non-traditional Supply Sources, in
17 Iowa, in response to subrule 41.3(4); and
18 ¾ MidAmerican’s consideration of Other Long-Term Supply Options in
19 response to subrule 41.3(6).
20 I will also describe the analysis performed, under my direction, of MidAmerican’s
21 power production costs that MidAmerican witness Mark Yocum uses to conduct
22 his customer impact analysis. (Please note: The above references to “subrules”
23 actually refer to the Iowa Utilities Board’s proposed Chapter 41 rules that the
2 1 Iowa Utilities Board did not adopt, but that remain available for utilities to
2 consider in formulating ratemaking principles filings.)
PROJECTED HOURS OF OPERATION FOR WIND VIII
3 Q. Please describe the projected hours of operation for Wind VIII.
4 A. Exhibit __ (ODS-1), Schedule 1 contains a projection of Wind VIII’s annual
5 hours of operation, energy output and capacity factor, based on a projected 1,050
6 MW of new wind generation. This Schedule is in response to paragraph “c” of
7 the proposed Iowa Utilities Board (“Board”) subrule 41.3(1). The actual hours of
8 operation, output and capacity factor will depend on factors such as the final
9 location of Wind VIII turbines. Based on the above projection, and our
10 experience at MidAmerican’s existing wind power projects, I expect all of the
11 Wind VIII sites will operate over 7,000 hours annually at an expected overall
12 average capacity factor of about 36.0% when fully developed.1
13 Wind-powered generation is largely dependent on the wind as a fuel source,
14 and hence, is not dispatchable in the traditional sense of conventional generation.2
15 (Historically “dispatchable” referred to a utility’s ability to increase or decrease
16 energy production without tripping the unit offline as demand for energy varied.)
17 Therefore, the operating characteristics for each Wind VIII site must be estimated
1 The operation of a wind turbine will vary from one year to another based on the wind resource, scheduled maintenance, forced outages, possible transmission system operating guides and economics. 2 To address concerns with the intermittency of the wind resource, the Midwest Independent Transmission System Operator (“MISO”) developed a Dispatchable Intermittent Resource (“DIR”) methodology that allows intermittent resources such as wind to be managed in a manner that regional system requirements can be optimized. Wind generators are allowed to submit a bid offer stating that the unit(s) would be dispatched economically as the intermittent resource permits. 3 1 from meteorological data applied to the wind turbine power curve,3 and then
2 adjusted for the wind power projected losses.4
3 The process of modeling the above-mentioned projections for Wind VIII
4 differs from similar projections for non-intermittent, dispatchable electric
5 generating units (e.g., coal or gas-fired). While the Midwest Independent
6 Transmission System Operator (“MISO”) allows intermittent resources (e.g.,
7 wind generation) to be economically dispatched, wind generation is dependent on
8 the level of wind resource available above a base threshold, whereas, the operator
9 of traditional generation has control of the full resource. Therefore, the process of
10 modeling wind is based on dispatching an expected wind-based output profile
11 against a price curve with the dispatch prices as the only limitation to operation.
WIND VIII - MEETS CUSTOMER NEEDS
12 Q. Why do you believe construction of Wind VIII is a reasonable step for
13 MidAmerican to undertake?
14 MidAmerican is a state rate-regulated utility with a service obligation to provide
15 for its customers electric needs. That obligation includes prudently planning to
16 provide reasonable and adequate electric service and facilities to its customers, as
17 measured by a variety of customer needs, at just and reasonable rates.
18 MidAmerican engages in a number of prudent measures to ensure that it meets
3 The wind turbine power curve is the relationship of the generator output to the wind speed. This relationship is uniquely defined for each individual type of wind turbine based on its design. 4 Operating characteristics for a wind power project include wake and array losses (i.e., the impact one wind turbine has on another as a result of the direction of the wind and the relative positions of the turbines), icing and blade degradation, electrical losses (collector system, generator step-up transformer and interconnection line), parasitic losses (FAA lighting, project lights, cold weather heaters, etc.), power curve losses, availability (scheduled and forced outages), high speed hysterisis, high speed shutdown, cold weather impacts, control losses, collector substation maintenance, and other events. 4 1 customer needs both in the short and long term. These needs of customers
2 include, without limitation, the following:
3 • Environmental compliance needs: increasing the supply of zero-emissions
4 electricity to meet expected future legislative and regulatory requirements
5 limiting carbon and other emissions;
6 • Customer pricing needs: Providing revenue streams that are likely to
7 offset the costs of generation and/or provide a reasonably priced energy
8 source necessary to displace energy from carbon-based generation
9 resources;
10 • Fuel diversity needs: Reducing customer exposure to volatile cost sources
11 of energy;
12 • Economic development needs: Promoting economic development in
13 Iowa;
14 • Iowa energy policy needs: Supporting Iowa’s role as a renewable energy
15 leader;
16 • Energy needs: increasing the supply of low cost energy; and
17 • Capacity needs: Deferring projected capacity deficits.
18 The proposed Wind VIII project is expected to meet all of these customer needs.
19 Environmental Compliance. Wind VIII offers potential environmental
20 benefits including: 1) supports full compliance with current and projected
21 environmental regulation requirements, 2) mitigates federal regulations that
22 implement greenhouse gasses (“GHG”) permit limits based on post-control
23 installation criteria, 3) assistance with potential regional haze restriction
24 requirements, 4) assistance with potential New Source Performance Standards
5 1 (“NSPS”) limits of 1,000 lbs/MWh for all new coal and natural gas-fueled electric
2 generating plants, and 5) assistance with potential limits on GHG emissions from
3 existing fossil-fueled electric generating plants. Witness Jennifer McIvor will
4 address the environmental benefits more fully in her testimony.
5 Customer Pricing. Wind VIII can be developed at a reasonable cost
6 when compared to other feasible alternative sources of supply. As MidAmerican
7 witness Yocum testifies, MidAmerican projects that it will be able to provide
8 customers with Wind VIII at no net cost.
9 Fuel Diversity. Wind VIII also enhances MidAmerican’s fuel diversity
10 while reducing dependence on fossil fuel resources and fuel transportation. Wind
11 VIII increases MidAmerican’s renewable energy mix in its generation portfolio.
12 Economic Development. In addition, wind generation promotes
13 economic development and provides value to rural areas. Witnesses Dean Crist
14 and Adam Wright will address these benefits further in their testimony.
15 Supports Energy Policy. Moreover, Wind VIII is in line with Iowa’s
16 stated public policy to encourage renewable energy resource development in
17 Iowa, as indicated by MidAmerican witness Dean Crist.
18 The state of Iowa, with 5,137 MW, is currently third behind only Texas
19 (12,212 MW) and California (5,549 MW) in the amount of nameplate wind
20 capacity installed as of the fourth quarter of 2012. However, Iowa is clearly
21 number one in wind generation when it is measured as a portion of the state’s
22 total resource capacity mix. MidAmerican believes that renewable energy from
23 wind generation, to reduce the carbon intensity of its generation resources, is good
24 for both Iowa and the nation.
6 1 MidAmerican is the top rate-regulated utility owner of renewable energy
2 in the nation when measured as a percentage of its generation portfolio. Wind
3 VIII would further increase MidAmerican’s renewable portfolio thereby
4 improving upon MidAmerican’s performance in response to Iowa law
5 encouraging renewable energy development.
6 Energy and Capacity Needs. Again, Wind VIII is projected to have no
7 net cost impact on customers, it meets customer requirements for low cost energy,
8 and it mitigates the risk of fuel price volatility (e.g., natural gas). Wind energy is
9 allocated to retail customers as the lowest cost energy resource and provides
10 capacity value during summer months. Moreover, Wind VIII defers
11 MidAmerican’s projected need for capacity as explained below.
12 Benefits Summary. Since Wind VIII satisfies many of the needs that
13 comprise MidAmerican’s obligation to serve customers with electric energy at
14 just and reasonable rates, and is consistent with Iowa law supporting the
15 development of renewable generation for rate-regulated utilities, Wind VIII is
16 clearly a reasonable step for MidAmerican to take. Wind generation continues to
17 be the most viable renewable option in the upper Midwest including Iowa.
FUTURE CAPACITY REQUIREMENTS
18 Q. Does Wind VIII address MidAmerican’s future capacity requirements?
19 A. MidAmerican’s capacity deficit is currently projected to occur in 2023. However,
20 should either (i) MidAmerican’s transition to the Illinois Power Agency (“IPA”)
21 auction for MidAmerican’s Illinois load addressed below not proceed as planned;
22 or (ii) significant new load be located within MidAmerican’s service territory,
23 MidAmerican could experience capacity deficiencies sooner, possibly as early as
7 1 2015. In either circumstance, Wind VIII contributes toward meeting future
2 capacity needs. Wind VIII is projected to contribute 14.7% of its nameplate
3 capacity toward MidAmerican’s planning reserve margin (i.e., approximately 132
4 MW) assuming that all Wind VIII sites have the Network Resource
5 Interconnection Service (“NRIS”) designation (described in more detail by
6 MidAmerican witness Peter Schuster).5 Wind VIII would address future capacity
7 needs, but like all wind generation it is primarily an energy-related resource,
8 which can offset fossil fuel energy generation, and hence, emissions related to
9 fossil fuels such as carbon, mercury, sulfur oxides, nitrous oxides and other
10 potential emissions.
11 Table 1 contains MidAmerican’s latest load and capability summary,
12 which is also depicted in Graph 1 below. As Table 1 illustrates, MidAmerican
13 anticipates an 11 MW deficiency in 2023 based on 2012 load and capability
14 reporting. MidAmerican’s load and capability summary reflects the retirement of
15 540 MW of coal-fired capacity including the 4 MW Riverside Generation Station
16 unit 3HS (2014), the 134 MW George Neal Energy Center, Unit 1 (2015), the 284
17 MW George Neal Energy Center, Unit 2 (2015), the 37 MW Walter Scott Jr.
18 Energy Center, Unit 1 (2015), and the 81 MW Walter Scott Jr. Energy Center,
19 Unit 2 (2015). It also reflects the expected future role of the Illinois Power
20 Agency for MidAmerican’s Illinois load.
21 Q. Please explain how capacity requirements are addressed for load serving
22 utilities such as MidAmerican.
5 The 14.7% capacity credit for Wind VIII is based on MISO’s 2012 system wide average value reported in the MISO 2012 LOLE Study Report. (“LOLE” refers to Loss of Load Expectation) See also footnote 7, below. The capacity credit is assumed to apply to only 900 MW as a NRIS, while the additional 150 MW is designated as an energy only resource interconnection service and will not currently contribute to the summer peak load obligation. 8 1 A. MISO currently uses a loss of load probability reserve requirement methodology,6
2 which has calculated an 11.32 % planning reserve margin for the period June
3 2012 through May 2013. MISO enforces its reserve requirement through a Cost
4 of New Entry (“CONE”) penalty. The CONE currently in effect is $95,000/MW
5 should a member not maintain the 11.32% “after-the-fact” reserve requirement.7
6 The development of the full 1,050 MW of Wind VIII would contribute
7 about 132 MW to MidAmerican’s generating capacity, assuming a 14.7% average
8 contribution8 toward covering MidAmerican’s peak demand requirement, and that
9 900 MW will have the Network Resource Interconnection Service (“NRIS”)
10 designation and the remainder will be, at least initially, designated as an energy
11 resource only service. As such, the deficiency in 2023 and 2024 would be
12 eliminated and the 246 MW capacity deficiency in 2025 would be reduced to 114
13 MW, assuming no significant increases in customer load.
6 MISO updates the planning reserve margin annually based on a loss of load expectation methodology in which the capacity is adjusted to reflect available capacity at time of peak. The non-coincident installed generating capacity (IGEN) capacity is used for the planning reserve requirement. MISO’s current report is “Planning Year 2012 LOLE [Loss of Load Expectation] Study Report,” dated November 2011 and found at: https://www.midwestiso.org/Library/Repository/Study/LOLE/2012%20LOLE%20Study%20Report.pdf. 7 On September 4, 2012, MISO, in compliance with Section 69A.8 of the MISO Open Access Transmission, Energy and Operating Reserves Markets Tariff, filed a CONE for each Local Resource Zone (‘LRZ”) in the MISO Region. Iowa is in LRZ 3 and has a CONE value of $97,650/MW/year. MISO requested an effective date of December 4, 2013 in its filing. 8 The 14.7% capacity credit for Wind VIII is based on MISO’s 2012 system wide average value reported in the MISO 2012 LOLE Study Report for wind generation. 9 Table 1 MidAmerican Energy Company Load & Capability Summary (All values are in megawatts unless otherwise noted) 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Peak Forecast (Normal Weather) 4,631 4,744 4,816 4,872 4,920 4,977 5,036 5,100 5,158 5,200 5,240 5,287 5,337 Net Load 4,403 4,515 4,587 4,643 4,691 4,748 4,807 4,871 4,929 4,971 5,011 5,058 5,108 Reserve Requirement (%) 11.3% 11.2% 11.1% 11.3% 11.5% 11.7% 11.9% 12.1% 12.3% 12.3% 12.3% 12.3% 12.3% Capacity Obligation 4,898 5,020 5,097 5,166 5,228 5,302 5,377 5,459 5,534 5,581 5,626 5,679 5,735
Generation (MidAmerican Owned Capacity) 5,452 5,453 4,938 4,938 4,938 4,950 4,956 4,975 4,975 4,975 4,975 4,975 4,842 Interruptible - Behind-the-Meter Ge nerators 110 110 110 110 110 110 110 110 110 110 110 110 110 Illinois IPA Capacity Auction Purchases - - 31 98 161 221 291 366 441 488 522 526 530 Purchases 70 70 70 70 70 70 70 58 58 58 58 58 58 (Sales) (67) (67) (52) (50) (50) (50) (50) (50) (50) (50) (50) (50) (50) Net Capability 5,565 5,566 5,097 5,166 5,229 5,302 5,377 5,459 5,534 5,581 5,615 5,619 5,489
Reserve Margin (MW) 1,163 1,051 510 523 537 554 570 588 605 610 604 561 381 Reserve Margin (%) 26.4% 23.3% 11.1% 11.3% 11.5% 11.7% 11.9% 12.1% 12.3% 12.3% 12.1% 11.1% 7.5%
Surplus/(Deficit) based on Obligation 667 546 0 0 0 0 0 0 0 0 (11) (60) (246) Notes: The Load & Capability is based on MidAmerican's demand forecast and committed transactions as of September 2012. Load obligation is defined as the peak demand plus reserve margin per MISO. The Illinois Power Agency (IPA) Capacity Auction Purchases reflects the transition of Illinois load from MidAmerican resources to the IPA for supply.
Graph 1
2 Q. Please explain the criteria MidAmerican uses for capacity planning.
9 A. MidAmerican’s criteria for capacity planning focus on meeting MISO’s reserve
10 requirement, a minimum requirement established to provide reliable power to the
11 Midwest region of the United States, including Iowa, as well as part of Canada.
12 Effective for the period June 1, 2012 through May 31, 2013, MISO requires its
13 members to maintain an 11.32% reserve margin. Beyond May 31, 2013, MISO is
14 predicting an upward trend in its reserve requirements. MidAmerican estimates
15 the coincident Installed Generating Capacity (“IGEN”) (reserve margin) will 10 1 increase to about 12.3% by 2021. This is based on MISO’s non-coincident IGEN
2 in the MISO’s “Planning Year 2012 LOLE [Loss of Load Expectation] Study
3 Report,” dated November 2011.
4 Q. What is MidAmerican’s available generating capacity?
5 A. As of December 31, 2012, MidAmerican owned 5,447 MW of summer-accredited
6 generation capacity.9 Table 2, below, illustrates the composition of the
7 MidAmerican-owned generation capacity. The megawatt values cited in Table 2
8 represent both the generator nameplate capacity and the MISO summer-accredited
9 capacity of the respective generating facility or resource.10 “Accredited capacity”
10 refers to a given plant’s capability to generate energy during the weather
11 conditions expected at system peak times. As previously noted, Wind VIII will
12 have an estimated summer accreditation of about 132 MW.
13 Q. Does MidAmerican currently own or purchase power from renewable
14 generation facilities?
15 A. Yes. MidAmerican currently has 2,284.6 MW of owned wind generation in
16 operation including 175.5 MW at its Intrepid site, 200 MW at its Century site, 99
17 MW at its Victory site, 286.4 MW at its Pomeroy site, 75 MW at its Charles City
18 site, 174.8 MW at its Adair site, 150 MW at its Carroll site, 153 MW at its Walnut
19 site, 443.9 MW at its Rolling Hills site, 119.6 MW at its Laurel site, 200.1 MW at
20 its Eclipse site, 101.2 MW at its Morning Light site, 105.6 MW at its Vienna site
21 and 0.5 MW at the Iowa State Fairgrounds. MidAmerican also purchases another
22 117.6 MW of renewable power including 108.75 MW of wind power; 7.68 MW
23 of methane gas-fired generation from landfill operations; and 0.29 MW of refuse-
9 The generation capacity is stated in terms of available capacity at the time of summer peak. 10 The July accredited capacity values were used as representative summer unit capacity values. 11 1 fired (including wood) generation.11 MidAmerican has 0.26 MW of customer-
2 owned wind generation and 0.60 MW of hydroelectric generation that are net
3 metered renewable purchases. In addition, MidAmerican owns 3.6 MW of run-
4 of-the-river hydroelectric generation in Illinois. MidAmerican has 2,405.8 MW
5 of renewable capacity, of which 2,288.2 MW is owned, in its supply portfolio by
6 the end of 2012, before adding the proposed Wind VIII capacity.
7 Further, other MidAmerican Energy Holdings Company subsidiaries have
8 another 4,274 MW of renewable generation worldwide in the form of geothermal
9 (212 MW), hydroelectric (1,563 MW), wind (2,268 MW), solar (126 MW),
10 biomass (80 MW) and biogas (25 MW) in operation by the end of 2012. In
11 addition, MidAmerican Renewables has another 413 MW of solar that is under
12 development and will be in-service by the end of 2015.
11 The renewable energy capacity includes both accredited and non-accredited resources. A portion (449 MW nameplate) of MidAmerican’s wind generation is energy only or subject to the completion of MISO interconnection studies and the required network transmission upgrades, and therefore, is not currently accredited. The non-accredited capacity of about 1.2 MW is from purchases from small individual wind turbines, small hydroelectric generation and wood-fueled generation. 12 Table 2 MidAmerican Energy Company's Existing Owned Generation Summer 2012 Accredited Rating (1) Summer Total Nameplate Accredited Capacity Capacity Capacity by Type Unit Name Unit Type Fuel Type (MW) (MW) (MW) Peaking Units Anderson Erickson 7118 Fuel Oil #2 2.0 2.0 Coralville (4 Units) Natural Gas 72.0 65.9 Electricfarm #1 Natural Gas/ Fuel Oil #2 71.2 59.2 Electricfarm #2 Natural Gas/ Fuel Oil #2 89.0 66.5 Electricfarm #3 Natural Gas/ Fuel Oil #2 103.9 69.4 Greater Des Moines Natural Gas 576.3 492.6 Knoxville Industrial (8 Units) Internal Combustion Fuel Oil #2 16.0 16.0 Merle Parr (2 Units) Natural Gas 36.0 32.6 Moline (4 Units) Natural Gas 72.0 64.0 Pleasant Hill #1 Natural Gas/ Fuel Oil #2 41.4 38.0 Pleasant Hill #2 Natural Gas/ Fuel Oil #2 41.4 37.8 Pleasant Hill #3 Natural Gas/ Fuel Oil #2 97.1 84.2 River Hills (8 Units) Natural Gas 128.0 116.9 Shenandoah (10 Units) Fuel Oil #2 20.0 20.0 Sycamore (2 Units) Natural Gas/ Fuel Oil #2 157.6 148.5 Waterloo Lundquist (9 Units) Fuel Oil #2 18.0 18.0 Total Peaking 1,331.6 Hydro Moline Hydro (4 Units) Hydro Water 3.6 3.2 Total Hydro 3.2 Coal-fired Units Walter Scott Jr. #1 Coal-fired Coal - Sub-bituminous 49.0 37.4 Walter Scott Jr. #2 Coal-fired Coal - Sub-bituminous 81.6 80.8 Walter Scott Jr. #3 Coal-fired Coal - Sub-bituminous 574.1 556.6 Walter Scott Jr. #4 Coal-fired Coal - Sub-bituminous 550.4 485.4 Louisa Coal-fired Coal - Sub-bituminous 714.5 656.7 Neal #1 Coal-fired Coal - Sub-bituminous 147.0 134.3 Neal #2 Coal-fired Coal - Sub-bituminous 349.2 283.7 Neal #3 Coal-fired Coal - Sub-bituminous 395.9 354.2 Neal #4 Coal-fired Coal - Sub-bituminous 259.6 261.6 Ottumwa Coal-fired Coal - Sub-bituminous 377.5 373.8 Riverside 3HS Coal-fired Coal - Sub-bituminous 5.0 4.1 Riverside 5 Coal-fired Coal - Sub-bituminous 136.0 133.3 Total Coal-fired 3,361.9 Wind Adair Wind Wind 174.8 29.1 Carroll Wind Wind 150.0 30.1 Century Wind Wind 200.0 26.2 Charles City Wind Wind 75.0 11.3 Eclipse Wind Wind 200.1 29.4 Intrepid (Clipper) Wind Wind 175.5 26.7 Laurel (2) Wind Wind 119.6 - Morning Light Wind Wind 101.2 14.9 Pomeroy (Pocahontas) Wind Wind 286.4 46.0 Rolling Hills (3) Wind Wind 443.9 36.7 Victory Wind Wind 99.0 21.9 Vienna Wind Wind 105.6 - Walnut Wind Wind 153.0 26.4 State Fair Wind Wind 0.5 - Total Wind 298.7 Nuclear Quad Cities #1 Nuclear - Boiling Water Uranium 252.3 226.5 Quad Cities #2 Nuclear - Boiling Water Uranium 252.3 225.3 Total Nuclear 451.8 Total Owned Capacity 7,974.5 5,447.2 5,447.2 (1) Based on MISO ICAP ratings for Summer 2012. (2) Laurel and Vienna are energy resource interconnect service only; hence are not available as summer accredited capacity. (3) Rolling Hills is currently output limited as per conditions in the provisional generator interconnetion agreement. 13 FUEL DIVERSITY AND USE OF NON-TRADITIONAL SUPPLY SOURCES
1 Q. Please describe your fuel diversity analysis.
2 A. I have provided the information requested by paragraph “d” of proposed subrule
3 41.3(4) (Fuel Diversity and Use of Nontraditional Supply Sources). This includes
4 an analysis of Wind VIII’s impact on the fuel diversity of MidAmerican’s
5 generation system. It also includes a description of Wind VIII’s impact upon
6 MidAmerican’s use of non-traditional supply resources.
7 Q. How is the fuel diversity of MidAmerican’s generation system impacted by
8 Wind VIII?
9 A. Table 3 illustrates the fuel diversity of MidAmerican’s current generation system
10 before and after construction of the nominal 1,050 MW of Wind VIII. The
11 addition of Wind VIII further diversifies MidAmerican’s portfolio, reducing
12 MidAmerican’s percentage of coal-fired accredited capacity by about 1.3% in
13 2015.
Table 3 MidAmerican Energy Company Fuel Diversity (Based on 2012 Summer Accredited Capacities) 2013 Fuel Diversity 2015 Fuel Diversity Based on Summer Based on Summer Bas ed on Summer Accreditation Accreditation Based on Nameplate Accreditation Pre Wind VIII Post Wind VIII Post VIII (MW) % (MW) % (MW) % (MW) % Nuclear1 457 8.2% 457 9.0% 457 8.7% 505 5.8% Coal 3,362 60.4% 2,714 53.3% 2,714 51.9% 2,872 33.2% Gas 1,276 22.9% 1,409 27.6% 1,409 26.9% 1,622 18.8% Oil 56 1.0% 56 1.1% 56 1.1% 56 0.6% Wind2 311 5.6% 311 6.1% 443 8.5% 3,443 39.8% Hydro 3 0.1% 3 0.1% 3 0.1% 3.60 0.0% Methane 8 0.1% 8 0.2% 8 0.1% 7.70 0.1% 3 Purchase/Sale 93 1.7% 139 2.7% 139 2.7% 139 1.6% 4 Total 5,565 100.0% 5,097 100.0% 5,229 100.0% 8,648 100.0% 1 - Quad Cities Nuclear Station has a 5 MW upgrade in the spring of 2013. 2 - Nameplate capacity for wind generation online as of January 1, 2013 plus the Buena Vista purchase is 2,393.6 MW. Accreditation for in-service wind generation is based on current history. Accreditation for future wind generation is 14.7% of nameplate capacity assuming 900 MW is NRIS qualified capacity while the remaining 150 MW is designated as ERIS only and not eligible for the summer credit. 3 - Purchases with an unknown mix of fuel. 4 - Individual totals may differ due to rounding.
14 1 Q. What impact would Wind VIII have on MidAmerican’s use of non-
2 traditional supply sources?
3 A. Wind VIII’s 1,050 MW would increase MidAmerican’s use of non-traditional
4 capacity sources by 44% above the current 2,405.8 MW of renewable capacity on
5 its system, to 40% of total MidAmerican nameplate generating capability.
MIDAMERICAN’S LONG-TERM SUPPLY OPTIONS
6 Q. Please address MidAmerican’s alternatives to Wind VIII.
7 A. MidAmerican’s alternatives to Wind VIII are limited. Natural gas-fired
8 generation is the only conventional generation that is realistically available to
9 MidAmerican prior to the 2020s at the earliest. New coal-fired generation will
10 only be an option if it can meet the Environmental Protection Agency’s proposed
11 New Source Performance Standards’ carbon emission limit of 1,000
12 pounds/MMBtu. To meet that standard would require some form of carbon
13 capture and sequestration. That technology is in its early stages of development
14 and is not expected to be commercially available until sometime in the next
15 decade. Even then, it remains to be determined if it is economically viable.
16 Similarly, nuclear generation on a modular basis is not currently licensed and may
17 not be an option for a decade.
18 Although some forms of renewable generation are also an alternative to
19 Wind VIII, only biomass and hydroelectric generation are currently available on a
20 similar scale (as wind generation) in the Midwest. However, both biomass and
21 hydroelectric generation struggle with environmental issues. Biomass, unlike
22 other forms of renewables, emits various pollutants, and therefore, will likely
23 need to install costly emission controls to meet environmental standards.
15 1 Hydroelectric generation has also faced a number of environmental challenges.
2 While Iowa has a few good hydroelectric sites, none have been shown to be
3 economically feasible at this time.
4 Photovoltaic solar (“PV”) has made strides as a viable renewable resource
5 as costs have decreased. While it is best suited for regions such as the
6 southwestern U.S., some Midwest and Eastern states have included a solar
7 requirement in their renewable portfolio standards. MidAmerican has agreed to
8 build a 60 kW PV solar unit at the Iowa State Fairgrounds. While small, this unit
9 will provide valuable data on the viability of solar power in Iowa. Currently, solar
10 is not a viable alternative to wind generation for MidAmerican.
11 Q. You previously mentioned that MidAmerican is expecting the Illinois Power
12 Agency to supply the needs of the Company’s Illinois customers. Please
13 explain.
14 A. MidAmerican currently envisions transitioning service of its Illinois load from its
15 existing generating assets to the IPA commencing in 2015 thus freeing existing
16 capacity for its Iowa and South Dakota customers. Assuming that Iowa continues
17 with relatively low load growth, the IPA option would postpone the need for
18 additional capacity until 2023. However, with MidAmerican’s low electric rates,
19 our service territory is becoming a desirable location for large, high load factor
20 customers. Thus, there is a real possibility that the need for additional capacity
21 could materialize much sooner than 2023.
22 Q. What criteria have you used to analyze whether Wind VIII is reasonable?
23 A. I am using the same criteria MidAmerican used with respect to Wind VII, the
24 1,000.3 MW wind generation addition the IUB approved in 2009 as a reasonable
16 1 alternative for MidAmerican. The only difference now is that I have added a
2 criterion to evaluate the less quantifiable aspects of the various fuels, their long-
3 term supply (availability and access) and price stability. I would note that the
4 Board has previously determined both cost and not-cost factors may be
5 considered in making a determination of what is a reasonable generation resource
6 addition when comparing alternative sources of generation.
7 The nine criteria MidAmerican has identified to evaluate the attractiveness
8 of different generation resources are: (1) cost robustness, (2) reasonable cost, (3)
9 system reliability, (4) environmental reasonableness, (5) flexibility/optionality, (6)
10 diversity, (7) economic development, (8) geo-political uncertainty and (9)
11 resource availability/stability.
12 Although cost is considered to some degree, I have applied the nine
13 criteria to conduct a largely qualitative analysis of Wind VIII when compared to
14 the various resource options available to MidAmerican. This analysis is a
15 reflection of the fact that the state of Iowa recognizes that generation resource
16 planning must be based on more than just cost-based, least cost analyses, as the
17 Board has recognized in its prior ratemaking principles decisions, including the
18 Wind VII ratemaking principles Final Decision and Order issued on
19 December 14, 2009.
20 Q. Please summarize the results of the analytical process.
21 A. The analytical process that I have used for Wind VIII is the same process used in
22 MidAmerican’s Wind VII ratemaking principles filing and approved in the
23 Board’s Final Decision and Order issued on December 14, 2009. I have,
24 however, added a ninth criterion: resource availability/stability.
17 1 The nine-factor qualitative analysis demonstrates that wind generation is a
2 very reasonable resource to meet MidAmerican’s and its customers’ needs, based
3 largely on wind generation’s favorable performance on the following criteria:
4 reasonable cost, environmental reasonableness, economic development, geo-
5 political uncertainty, diversity and resource availability/stability. Furthermore,
6 wind generation is a local renewable resource that is relatively mature,
7 economically viable, and in sufficient supply to make a meaningful contribution
8 to MidAmerican’s, its customers’ and the state’s requirements.
NINE-FACTOR REASONABLENESS ANALYSIS
9 Q. Please provide background on the methodology used for your qualitative
10 analysis of the alternatives.
11 A. In general for a utility, the various power production technologies complement
12 one another to deliver electricity economically and reliably within a diverse
13 resource portfolio while complying with environmental requirements and
14 minimizing future risks. Therefore, any comparison of a power production
15 technology with an alternative must be done in context of the Company’s existing
16 assets and the broader resource market.
17 Electric power technologies have been traditionally classified into three
18 general functional categories: baseload, intermediate and peaking operation.
19 While some types of generation can fall into more than one category depending
20 on capability to fuel switch or operate at different levels of output, other resources
21 do not neatly fit into any of the traditional functional areas; therefore, two new
22 functional categories, intermittent operation and storage, have been included.
23 Power production whose output is fully dependent upon an uncontrollable
18 1 resource such as wind or solar is characterized as “intermittent.” Pumped hydro,
2 compressed air, and batteries are examples of “storage” (they are not resources
3 per se) facilities or devices that store energy produced by other power production
4 technologies typically during low cost periods and then release their energy
5 during higher cost periods.
6 Q. How do you compare the resource alternatives?
7 A. I compared the various power production technologies using the above-mentioned
8 nine reasonableness criteria. Mr. Wright’s testimony establishes the
9 reasonableness of the cost caps MidAmerican proposes for Wind VIII. Mr.
10 Yocum demonstrates that the 1,050 MW of Wind VIII capacity can be added at a
11 reasonable cost (projections show that it will be at no net cost to customers) due
12 to the various revenue streams (e.g., production tax credit revenues, renewable
13 energy credit revenues, etc.) generated by the wind generation. These revenue
14 streams and their treatment for the benefit of customers are addressed by Mr.
15 Yocum in his testimony. Finally, I would add that wind generation performs
16 favorably with more traditional forms of generation (largely coal, oil and gas fired
17 generation) when evaluated in terms of future variability in fuel costs and more
18 stringent carbon policies.
COMPARING WIND GENERATION TO OTHER OPTIONS USING THE NINE
REASONABLENESS CRITERIA COST
19 Q. How has MidAmerican analyzed the cost of wind generation and other
20 generation options?
21 A. The costs for Wind VIII are addressed by: (1) the reasonableness of the cost caps
22 proposed for Wind VIII as supported by the testimony of Mr. Wright, and (2) the
19 1 economic analysis addressed in the testimony of Mr. Yocum. Messrs. Wright and
2 Yocum have demonstrated that Wind VIII can be added to MidAmerican’s
3 generation portfolio at a reasonable cost and with long-term benefits for
4 customers.
COST ROBUSTNESS
5 Q. Please compare wind and the other technologies using the cost robustness
6 criterion.
7 A. The same general cost robustness considerations applicable in prior wind
8 ratemaking principles proceedings continue to remain applicable. The cost
9 robustness criterion for Wind VIII focuses on gas price volatility and carbon.
10 Fossil-fueled plants emit carbon, so policies (which are expected to continue) that
11 address carbon emissions improve the economics for low or no carbon generation
12 relative to fossil-fueled generation. Natural gas has experienced volatile pricing
13 over the past half century. While gas prices remain relatively low at present, the
14 potential for increased gas prices is greater than exists for decreased natural gas
15 prices. I would note that just over the last 12 months the price of gas has
16 increased by 132% from a low of $1.82/MMBtu on April 20, 2012 to
17 $4.23/MMBtu on April 15, 2013.12 This type of price volatility has occurred
18 multiple times in the past. Of course, higher natural gas prices favor the
19 economics of generation using competing fuels.
20 Another factor is that other technologies cannot be obtained and placed in
21 service during this limited window of opportunity. In summary, wind generation
22 performs favorably when compared to more traditional forms of generation
12 Source: Energy Information Administration’s database of Henry Hub Gulf Coast Natural Gas Spot Prices, release date 4/17/2013. 20 1 (largely coal, oil and gas fired generation) when evaluated in terms of future
2 variability in fuel costs and environmental policies that impact fuel costs.
ENVIRONMENTAL REASONABLENESS
3 Q. Please compare wind and the other technologies using the environmental
4 reasonableness criterion.
5 A. The same general environmental considerations applicable in prior wind
6 ratemaking principles proceedings continue to remain applicable. The means used
7 to evaluate the environmental criterion is to gauge each technology’s impacts to
8 air and water, and each technology’s byproducts. Coal-fired units receive the
9 lowest ranking even assuming use of BACT (best available control technology).
10 Even if carbon capture and sequestration technology is added to the equation, coal
11 still ranks lower than other technologies on the environmental criterion. Mining
12 operations, byproduct disposal and other pollutant emissions (i.e., sulfur dioxide,
13 nitrous oxides and mercury) limit coal-fired technologies with respect to the
14 environmental criterion. Gas-fired generation receives a mid-range ranking,
15 especially for combined-cycle operation due to both carbon and nitrous oxides
16 emissions. Gas-fired peaking generation fares a little better since it typically
17 experiences limited operation.
18 Nuclear generation benefits from the fact that it does not directly emit any
19 carbon, sulfur, nitrous oxide or mercury emissions. Renewable generation ranks
20 high as would be expected, with wind and landfill gas receiving the top ranking.
21 Wind power has limited environmental impact mostly due to the impact of site
22 preparation and the manufacturing of equipment. Landfill gas does release some
23 emissions (e.g., carbon and nitrous oxides), but it also addresses a more
21 1 significant problem associated with landfills—i.e., the release of methane gas into
2 the atmosphere. Solar is an emission-free resource that depending on location has
3 become more economic and is gaining widespread acceptance, but it may have
4 local environmental issues to contend with. Finally, biomass is considered a non-
5 carbon producing resource since it utilizes resources that consume carbon dioxide,
6 thus neutralizing its release during combustion; however, it does release other
7 pollutants that have caused concern.13
SYSTEM RELIABILITY
8 Q. Please address the system reliability criterion.
9 A. The same general system reliability considerations applicable in prior wind
10 ratemaking principles proceedings continue to remain applicable. System
11 reliability addresses transmission-related reliability, capacity reserve-related
12 reliability and operational reliability. System reliability is dependent on the
13 location of the proposed facility, the type of facility and its operating
14 characteristics. An ongoing balance between system load and capacity must be
15 maintained. The difference between the system load and capacity is the area
16 control error. The variability of wind requires other generation to adjust so that
17 the area control error is maintained within acceptable bounds.14 Another facet of
18 reliability addresses local area issues such as voltage support or transmission
19 system improvements. The means of comparing generation technologies for
20 system reliability centers on issues dealing with system integrity like the
21 following:
13 Biomass is encountering some opposition as a renewable resource in states like Massachusetts. 14 MISO allows wind to be designated as a dispatchable intermittent resource based on economics. 22 1 1. Availability at the time of system peak loads;
2 2. Availability for spinning and supplemental operating reserve;
3 3. Regulation (i.e., the ability of generation to follow changes in system
4 requirements);
5 4. Response to transmission loading relief calls within 30 minutes -- the
6 ability of each resource technology to respond within the 30 minutes;
7 5. Local area support (voltage support) -- the reactive capability of a unit
8 (i.e., a generation technology’s ability to produce or consume reactive
9 demand);
10 6. Black start capability15;
11 7. Transmission system improvements (development or upgrade of
12 transmission and/or reduction of impact on, or elimination of, a flowgate);
13 and
14 8. Power quality -- Unit actively supports power quality.
15 Peaking generation, especially turbines that can start in less than 10
16 minutes, enhances system reliability for several of the criteria listed above
17 including: spinning and supplemental operating reserves, regulation, quick start
18 capability for supplemental reserves, black start capability, local area protection
19 (i.e., to maintain local system voltages within acceptable limits) and power
20 quality. Baseload units such as nuclear and coal-fired generation also provide
21 support for system reliability through the significant addition of outlet
22 transmission (i.e., transmission required to deliver power from the plant to load
15 Black start capability is the ability of a generator to start without support from the transmission system, which is not energized due to a system-wide power failure (blackout). 23 1 centers), which further enhances the transmission grid. While coal-fired
2 generation typically can follow load changes, nuclear units typically do not.
3 Renewable generation tends to rely more on other generation for system
4 operation functions (e.g., following the wind variability). In fact, wind and solar
5 add to the need for regulation and can limit the availability of other generation
6 during low load periods. Wind generation is least likely to be available during
7 system peak conditions due to less wind resource during that period. Landfill gas
8 is typically connected to the distribution system, and therefore, cannot provide
9 regional transmission support.
ECONOMIC DEVELOPMENT
10 Q. Provide an overview of the economic development benefits for each
11 technology.
12 A. The same general economic development considerations applicable in prior wind
13 ratemaking principles proceedings continue to remain applicable. The economic
14 development benefits criterion is a measure of the value afforded to the local area
15 and the state of having a particular type of resource. The criteria used to measure
16 economic development benefits include construction work force, ongoing
17 operations and maintenance staff, creation of manufacturing facilities in the state,
18 property tax revenues and royalties or other benefits to parties within the state.
19 Large plant installations such as nuclear, coal-fired units and combined-
20 cycle plants require a large number of skilled workers to construct the plants.
21 Smaller plants require fewer individuals, and thus, provide less benefit to the local
22 economy during construction. While construction lasts only for a few months to a
23 few years, plant operations are ongoing throughout the plant’s life. Large
24 1 facilities such as the nuclear and coal-fired plants require substantial staffing.
2 Other plants like combustion turbines may not require any onsite staff. Wind
3 farms typically require some ongoing staff to address the maintenance issues
4 associated with the numerous turbines in a wind farm.
5 The potential for other related economic development is greater for some
6 generation resources such as wind, which have in the past resulted in several
7 wind-related businesses locating in Iowa (e.g., turbine, tower and blade
8 manufacturers that, according to the American Wind Energy Association
9 (“AWEA”), supported over 3,200 jobs and yielded investment at major
10 manufacturing facilities of some $300 million). On the other hand, small
11 generating plants such as those for landfill gas provide limited opportunity for
12 economic development.
13 All generating facilities if developed will provide some contribution to
14 property tax revenues with baseload plants typically providing the most benefit,
15 especially with Iowa’s property tax formula that is based on a plant’s output.
16 Royalties (e.g., rent) provide another form of indirect benefit to local economies,
17 and of course, direct benefit to the recipient (e.g., landowners where the
18 generation resource is located). Currently, wind is the primary resource that
19 provides this benefit (i.e., payments for easements on the land where wind
20 turbines are situated). Most other plants are located on utility-owned property,
21 whereas wind is typically located on leased farm land. Solar may also someday
22 provide a similar benefit in this respect.
25 GEO-POLITICAL UNCERTAINTY
1 Q. Please address the political uncertainty criterion.
2 A. The same geo-political uncertainty considerations applicable in prior wind
3 ratemaking principles proceedings continue to remain applicable. Geo-political
4 uncertainty includes exposure to global markets and their associated volatility,
5 geo-political instability (including terrorism), regulatory and legislative
6 uncertainty and local public reaction to a particular type of development.
7 Exposure to global markets can occur on at least three levels: (1) the cost of raw
8 materials used in the manufacture of a technology may be subject to world
9 demand, and hence price instability, (2) components of a facility could be
10 manufactured in a foreign country and the exchange rate with the U.S. dollar
11 could impact prices, and (3) fuel prices for natural gas, oil and coal could be
12 driven by events in other parts of the world. Plants manufactured in the U.S. that
13 consume fuels with little or no link to foreign markets are ranked highest. Wind
14 is among those plants with limited exposure to foreign events. Natural gas-fired
15 plants have more exposure to world markets as the demand for gas, foreign and
16 domestic, increases.
17 Geo-political uncertainty includes the potential for terrorists to disrupt the
18 supply of certain fuels or to target certain plants. Plants that depend on fuels
19 available in North America, such as coal, uranium, hydro, biomass, wind and
20 solar, are less subject to curtailment of fuel supplies due to such events in foreign
21 countries. Therefore, plants using these resources would have a higher ranking.
22 Another factor is the likelihood that a plant will become a target for a terrorist
23 attack. Smaller, distributed generation-type plants, such as wind and combustion
26 1 turbine peaking units, are less likely to be targets than larger plants that would
2 have a greater impact and have a higher public profile.
3 As illustrated by MidAmerican witness, Jennifer McIvor, there are
4 substantial indications of continued regulatory, and possibly legislative, tightening
5 of controls on emissions from certain sources of electric generation. For these
6 reasons, regulatory and legislative uncertainty plays a major role in plant
7 selection. Uncertainty, such as that surrounding carbon legislation, and more
8 recently, that around the regulations for interstate transport of emissions (i.e., the
9 Environmental Protection Agency (“EPA”) promulgated the Clean Air Interstate
10 Rule (“CAIR”) in March 2005; in July 2008, the D.C. Circuit vacated CAIR, but
11 in December 2008, the D.C. Circuit remanded CAIR without vacating the rule; in
12 July 2011, EPA issued the Cross-State Air Pollution Rule (“CSAPR”) to be fully
13 implemented in 2014 as the replacement to CAIR; in December 2011, the D.C.
14 Circuit issued a stay on CSAPR, and ultimately vacated the rule in August 2012).
15 These developments send signals to the industry to beware of certain
16 technologies, or to delay implementation of certain actions possibly resulting in
17 more risks for development and potentially higher costs for companies and their
18 customers. Technologies for which this applies would receive low rankings in
19 this metric.
20 Local public acceptance of a technology is also critical to its development.
21 Local opposition can delay plant development and result in cost overruns. Plants
22 that tend to have the least amount of opposition would be more highly ranked.
23 Wind generation ranks among the top of the technologies with respect to
24 geo-political uncertainty with no dependence on foreign fuels, a limited target for
27 1 terrorism (as opposed to a large base-load facility), minimal environmental
2 exposure and in general a positive acceptance by the general public.
FLEXIBILITY/OPTIONALITY
3 Q. Please address how flexibility/optionality influences plant selection.
4 A. The same flexibility/optionality considerations applicable in prior wind
5 ratemaking principles proceedings continue to remain applicable.
6 Flexibility/optionality addresses the ability of a particular technology to respond
7 to changing conditions. The criteria for comparing flexibility/optionality focus on
8 items such as fuel switching (e.g., coal to gas, coal to biomass, etc.), conversion to
9 other technologies (e.g., conversion of a coal plant to a combined-cycle plant,
10 addition of a steam generator and associated heat recovery system to simple-cycle
11 combustion turbines, conversion of a combined-cycle facility to an integrated gas
12 combined cycle, etc.), utilization of a wind site to add peaking units to better
13 utilize transmission line capability, or the ability to decommission a plant at a
14 reasonable cost.
15 Gas-fired plants tend to have the greatest flexibility/optionality in that they
16 can be operated on multiple fuels, converted to other technologies or even
17 relocated. Plants dependent on a single fuel have limited flexibility/optionality
18 and are assigned the lowest ranking. While wind generation has little
19 flexibility/optionality since its source of power is only wind and the turbines
20 cannot be used for other purposes or easily moved, a wind site can be coupled
21 with another generation resource, such as a simple-cycle combustion turbine or a
22 combined-cycle combustion turbine to better utilize transmission.
28 DIVERSITY
1 Q. Please address the diversity criterion.
2 A. The same diversity considerations applicable in prior wind ratemaking principles
3 proceedings continue to remain applicable. Diversity of generation resources is a
4 key element in reducing risk and increasing reliability, and for purposes of this
5 analysis has the following aspects: fuel type, type of technology and operational
6 mode (baseload, intermediate, peaking, intermittent and storage). While this
7 criterion overlaps a bit with several other criteria, it has independent importance
8 due to its broader scope. Relying too much on any given fuel or technology can
9 greatly impact a region if that technology encounters difficulties such as nuclear
10 did in the 1970’s. Thus, there is a need for diversity that goes beyond fuel
11 diversity. The diversity criterion applies to both MidAmerican and the
12 surrounding region. MidAmerican’s diversity addressed above demonstrates that
13 additional wind diversifies the Company’s portfolio by further reducing
14 dependence on coal-fired generation. Table 4 summarizes the diversity of
15 generation in Iowa and the surrounding states and in the U.S. portion of the
16 Eastern Interconnect.
29 Table 4 Regional Generation Capacity (Nameplate Diversity by Fuel Type) Iowa and Surrounding States U.S. Eastern Interconnect Primary Fuel Capacity (MW) Fuel Mix (% ) Capacity (MW) Fuel Mix (% ) Coal 60,303 40.7% 277,691 33.7% Petroleum Coke 117 0.1% 1,695 0.2% Gas 41,185 27.8% 330,985 40.2% Oil 5,977 4.0% 35,921 4.4% Uranium 19,660 13.3% 93,904 11.4% Other 157 0.1% 4,284 0.5% Other Renewable 801 0.5% 4,350 0.5% Solar 35 0.0% 1,098 0.1% Water 4,570 3.1% 43,516 5.3% Wind 15,480 10.4% 30,114 3.7% Grand Total 148,284 100.0% 823,558 100.0% Source: Ventyx's Velocity Suite - April 2013
1 Fossil fuels comprise nearly 73% of the generation in Iowa and the
2 surrounding states16, and over 78% in the U.S. portion of the Eastern Interconnect.
3 On the other hand, renewable generation, including hydroelectric, comprises
4 about 14% in Iowa and the surrounding states and 9.6% in the Eastern
5 Interconnect. Wind is 10.4% and 3.7%, respectively. Additional wind would
6 decrease the carbon footprint in the region, just as it increases the diversity in
7 MidAmerican’s generation capability.
8 Q. Describe the regional generation market in terms of fuel considerations.
9 A. The prices for natural gas, oil and coal increased dramatically in 2008 before the
10 economic crisis. The prices of these fuels then declined significantly before a
11 recent recovery (e.g., in July 2008 Henry Hub natural gas spot prices exceeded
12 $13/MMBtu before dropping to under $2/MMBtu in April 2012 and recovering to
13 over $4/MMBtu in April 2013). This price volatility and uncertainty as to future
14 price levels increases the attractiveness of a generation resource that is not fuel-
15 price dependent. Coal fuels about 45% of the generating nameplate capacity in
16 The surrounding states include Illinois, Kansas (due to proximity), Minnesota, Missouri, Nebraska, South Dakota and Wisconsin. 30 1 the upper Midwest.17 Natural gas-fired generation comprises another 29%. Non-
2 hydro renewable generation (nameplate) and hydroelectric generation (nameplate)
3 comprise 8.7% and 2.8%, respectively, of the total capacity within the upper
4 Midwest (2.5% and 10.3%, respectively, in MISO).
5 According to the American Wind Energy Association, 13,124 MW of
6 additional wind power was developed in 2012 in the United States bringing the
7 total wind development to over 60,000 MW. The state of Iowa with 5,137 MW is
8 currently third behind only Texas (12,212 MW) and California (5,549 MW) in the
9 amount of nameplate wind capacity installed as of the fourth quarter of 2012.
RESOURCE AVAILABILITY/STABILITY
10 Q. Please address the resource availability/stability criterion.
11 A. The resource availability/stability criterion was added to evaluate the less
12 quantifiable aspects of the various fuels, their long-term supply (availability and
13 access) and price stability. Other criteria touch on resource availability and
14 stability, however, this criterion addresses both local and global access to a
15 particular resource and its price stability over time. North America is no longer
16 “resource independent” from other global influences. Activities around the globe
17 can and do impact the prices of resources in North America. Some fuels (e.g., oil)
18 are impacted to a greater degree than others, but during the 20-year planning
19 period and the subsequent life of the selected resource additions, it is likely that
20 other fuels could be impacted to greater or lesser degrees.
21 Natural gas is currently abundant both within the U.S. and abroad;
22 however, its price has demonstrated significant volatility historically. Coal is also
17 The upper Midwest includes Illinois, Indiana, Iowa, Michigan, Minnesota, Montana, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin. 31 1 abundant in North America, but is currently hampered by emissions. Wind is also
2 abundant in the U.S., especially the Midwest, and it is available at no cost;
3 however, wind is intermittent. Overall wind has an edge on both coal and natural
4 gas.
SUMMARY OF NINE-FACTOR ANALYSIS
5 Q. Please summarize how wind compares to the other technologies.
6 A. As was true in prior wind ratemaking principle proceedings, Wind VIII can be
7 added to MidAmerican’s generation portfolio at a reasonable price and it
8 enhances environmental compliance, is projected to result in no net cost to
9 customers, promotes economic development, supports Iowa’s energy policy,
10 improves fuel diversity and contributes toward energy and capacity needs. Wind
11 VIII clearly addresses multiple customer needs. Thus, as MidAmerican witness
12 Yocum testifies, MidAmerican projects that it will be able to provide customers
13 with Wind VIII at no net cost. Furthermore, wind ranks among the top generation
14 technologies for five other criteria: cost robustness, environmental
15 reasonableness, economic development, political uncertainty, and diversity.
16 With respect to resource availability/stability, wind is not subject to price
17 volatilities like natural gas. Wind is abundant in Iowa, the seventh windiest state
18 in the nation. However, the intermittency of the wind along with its impact on
19 nodal prices due to congestion keeps it from a top ranking in resource
20 availability/stability. As for flexibility, wind generation is limited to operating
21 only when sufficient wind is present. Wind turbines are not adaptable to other
22 fuels or conversion to other technologies. Wind also rates less well with regards
23 to system reliability when compared to the other technologies.
32 WIND VS. CONVENTIONAL GENERATION’S OPERATING CHARACTERISTICS
1 Q. Please discuss the operating characteristics of wind generation and
2 conventional generation.
3 A. As was true in prior wind ratemaking principle proceedings, wind generation is
4 more energy-focused with a limited contribution to meeting system peak capacity
5 requirements. Wind generation in the Midwest is expected to have capacity
6 factors in the 30 to 45% range. While wind generation’s upfront capital costs lie
7 between those of intermediate generation, such as combined-cycle combustion
8 turbines, and baseload generation, such as coal, wind’s operating costs are
9 minimal. On the other end of the spectrum, conventional gas-fired combustion
10 turbines address peak period requirements, but experience minimal operation
11 during other periods of the year. Gas-fired facilities generally are characterized
12 by lower upfront capital costs compared to other forms of generation, but gas-
13 fired facilities have significantly higher operating costs. Typical capacity factors
14 for peaking units in the Midwest are less than 5%.
15 Combined-cycle (gas-fired) plants typically operate at an intermediate
16 level due to their low heat rate. Current operating levels vary widely across the
17 U.S., from less than a 10% capacity factor to above 60%. Midwest units are
18 typically in the 10% to 30% range. The upfront capital costs are higher than a
19 simple-cycle combustion turbine, yet lower than conventional coal-fired
20 generation. The combined-cycle units also have a heat rate advantage over both
21 the simple-cycle units and coal-fired units. The relative price of natural gas to coal
33 1 has recently resulted in efficient gas-fired combined-cycle combustion turbines
2 being competitive with lower efficiency coal-fired units.18
3 Coal-fired units have a higher initial capital cost than most other
4 conventional units with the exception of nuclear plants. Therefore, to be
5 economical these units must operate at a relatively higher capacity factor,
6 typically greater than 60%. Carbon legislation could add an additional capital
7 cost and operating cost burden to coal-fired plants either through a carbon pricing
8 mechanism or carbon capture and sequestration equipment. Such equipment may
9 not be widely available prior to 2025.
10 Wind generation operates quite differently from conventional generation
11 in that wind is intermittent. Wind generation is only available when sufficient
12 wind is present—i.e., from approximately nine miles per hour to 50 miles per
13 hour. On the other hand, conventional generation is dispatched as needed. A
14 second difference is that wind generation is primarily an energy resource and does
15 not contribute significantly to capacity supply during peak conditions, hence,
16 wind generation is not meant to be an alternative to peaking generation. Even
17 gas-fired combined-cycle generation that operates as an intermediate load plant is
18 not comparable to wind since its primary period of operation is currently during
19 the summer. Peaking and gas-fired intermediate generation complement, but do
20 not normally compete with wind generation. Wind generation produces a
21 significant amount of low cost, emission-free energy, and hence, offsets reliance
22 on baseload generation, in particular coal-fired generation, thus reducing the rate
18 The dispatch cost advantage of coal-fired generation over that of gas-fired combined-cycle plants could be eroded by high carbon costs. Depending on the magnitude of carbon costs, efficient combined-cycle units might have a lower dispatch cost than moderately efficient coal-fired plants. 34 1 of emissions. The reduction in emissions is not limited to just MidAmerican’s
2 fossil units, but has a broader societal impact reducing the more costly poorer
3 efficiency units in the region first.
4 Q. How have you addressed the costs associated with wind integration?
5 A. MidAmerican has addressed the costs associated with wind integration by
6 recognizing a differential in locational marginal prices across its service area due
7 to the further addition of wind resources. In previous wind ratemaking cases,
8 MidAmerican was a standalone utility responsible for balancing its generation and
9 load, and hence, more exposed to costs associated with wind volatility. In
10 September 2009, MidAmerican joined MISO and became part of a large
11 balancing area reducing the impacts of wind volatility in part due to wind
12 diversity across the region and in part due to the larger number of resources
13 available for balancing the load.
14 To address the intermittency of the wind resource, and hence integration
15 costs, the MISO developed a Dispatchable Intermittent Resource (“DIR”)
16 methodology that allows intermittent resources such as wind to be managed so
17 that regional system requirements can be optimized (i.e., wind generation can
18 respond to price signals, and as appropriate, reduce output or shut down). A bid
19 offer is submitted to MISO so that the unit(s) may be dispatched economically as
20 the intermittent resource permits.
COMPARING FEASIBLE RENEWABLE GENERATION OPTIONS
21 Q. What constitutes renewable generation?
22 A. As was true in prior wind ratemaking principle proceedings, renewable generation
23 utilizes natural resources that replenish over time, and therefore have long-term
35 1 sustainability. Iowa law defines renewable generation, or an “alternate energy
2 production facility,” as follows: (a) a solar, wind turbine, waste management,
3 resource recovery, refuse-derived fuel, agricultural crops or residues, or wood
4 burning facility; (b) land, systems, buildings, or improvements that are located at
5 the project site and are necessary or convenient to the construction, completion, or
6 operation of the facility; and (c) transmission or distribution facilities necessary to
7 conduct the energy produced by the facility to users located at or near the project
8 site. A facility which is a qualifying facility under 18 C.F.R. part 292, subpart B
9 is not precluded from being an alternate energy production facility under Iowa
10 law.
11 The Energy Information Administration (“EIA”) defines renewable energy
12 resources as “Energy resources that are naturally replenishing but flow-limited.
13 They are virtually inexhaustible in duration but limited in the amount of energy
14 that is available per unit of time. Renewable energy resources include: biomass,
15 hydro, geothermal, solar, wind, ocean thermal, wave action, and tidal action.”
16 Q. Describe each major type of renewable energy.
17 A. Renewable energy is generally categorized into five main classes: biomass,
18 hydroelectric generation, wind, solar and geothermal. EIA further includes ocean
19 thermal, wave action and tidal action, all of which are impractical for Iowa and
20 will not be addressed.
21 1 - Biomass: Biomass represents an entire category of energy sources that use
22 organic material of recent biological origin, including crops, wood, animal by-
36 1 products, residues and wastes.19 Biomass can be classified as cellulosic
2 biomass (wood residues, forest materials), abandoned cropland (switchgrass,
3 poplar and willow), anaerobic digestion (wastewater treatment, animal waste
4 and animal bi-products) and landfill gas.
5 2 - Hydroelectric generation: Hydroelectric generation is the capture of energy
6 from moving water. Hydroelectric generation takes the form of pondage, run-
7 of-river or pumped hydro.
8 3 - Wind: Wind energy is captured through the use of wind turbines of various
9 sizes and designs, and then is converted to electricity.
10 4 - Solar: Solar represents the capture of the sun’s energy by photovoltaic
11 systems, central station solar-thermal applications (solar parabolic trough,
12 solar power tower and solar-dish engine), or direct solar gain to produce
13 electricity or generate heat.
14 5 - Geothermal: Geothermal energy is energy extracted from the earth. Ground
15 source heat pumps that use the earth’s more constant temperature near the
16 surface for heating and cooling in buildings is the only practical geothermal
17 application in Iowa. While a region in eastern Iowa has been identified as a
18 potential geothermal resource for generation, development of that resource is
19 not currently considered practical.
SELECTION OF WIND GENERATION
20 Q. Please explain MidAmerican’s decision to develop additional wind-based
21 generation rather than build another form of renewable generation.
19 The biomass definition is from the Iowa Department of Natural Resources’ “2002 Renewable Energy Resource Guide.” 37 1 A. Wind generation continues to be the most reasonable renewable resource
2 available in sufficient quantity to provide a large contribution toward increasing
3 renewable generation capacity in Iowa and to offset a portion of MidAmerican’s
4 carbon emissions. While biomass is plentiful (corn stover and switchgrass) in
5 Iowa, there are several issues that need further vetting before relying on biomass
6 as a major fuel source for renewable generation in Iowa. Issues with biomass
7 include plant modifications for co-firing, operational issues associated with co-
8 firing, storage, the amount of biomass that can be removed from the land without
9 leading to erosion, reduction in soil nutrients and soil hydration, cost of the
10 delivered fuel and competing uses such as ethanol production. While
11 MidAmerican will continue to monitor the development of biomass, further
12 research is required to better understand the longer-term economics and risks
13 associated with biomass. Other forms of renewable energy currently are simply
14 impractical (geothermal), are available in too small quantities (landfill gas,
15 anaerobic digestion) or are potentially too expensive in the Midwest (solar) at the
16 present time.
17 Q. What criteria did you use to compare the renewable resource options?
18 A. As has been the case in prior wind ratemaking principles proceedings,
19 MidAmerican’s focus on wind-powered generation as the most viable option for
20 increasing its renewable generation portfolio is supported by consideration of the
21 following criteria.
Availability
22 While Iowa has a number of renewable alternatives, few of those alternatives can
23 be developed to a degree that will make a material contribution toward
38 1 MidAmerican’s energy and capacity needs, or a large contribution toward
2 increasing renewable generation capacity in Iowa.
Economics
3 While the costs of renewable resources have been generally declining, other
4 options currently remain too expensive to be practical as a large-scale supply
5 resource to be included in a utility’s resource mix.
Maturity
6 A technology achieves maturity as its development moves from the research
7 phase to a wider acceptance, and a competitive industry develops for supply of the
8 equipment related to that technology. Wind power has overcome many of its
9 early technological obstacles and is now widely accepted. The cost of developing
10 wind power projects is now competitive with other sources of energy when
11 adequate PTCs, and other revenue streams, are considered.
12 Q. Please discuss the availability of the renewable resources in Iowa.
13 A. Since renewable resource generation availability is tied to factors such as solar
14 intensity, geothermal characteristics, agriculture production, and waterfall
15 characteristics, the availability of renewable generation alternatives has not
16 changed in any significant way in recent years. Table 5 summarizes the potential
17 and feasible renewable resource capabilities available for development in Iowa.
18 Competing uses for resources like biomass can significantly impact the
19 availability of that resource for generation. This is especially true for cellulosic
20 biomass where the current focus has turned to ethanol production, hence, limiting
21 generation development from those materials in Iowa.
39 Table 5
Potential for Renewable Capacity Development
Capacity (MW) Technology/Resource Potential Feasible Comments
Potential based on wind resources within 10 miles of transmission; feasible asssumes 20 percent availability Wind (Based on Class 4 and 5 wind resources) 154,969 5,459 on transmission lines. Biomass Landfills 15 15 Based on 11 identified landfills
Includes total reported number of beef, swine, poultry Farm-Based Methane 94 n/a and turkeys in Iowa. Biomass Residues
Includes wood chips, pallets, tree trimmings and other Urban Wood Residues 71 n/a waste wood products. Mill Residues 29 n/a Cellulosic ethanol could compete for these resources. Forest Residues 79 n/a Cellulosic ethanol could compete for these resources. Crop Residues 1,526 n/a Cellulosic ethanol could compete for these resources. Dedicated Energy Crops Switchgrass 275 n/a Cellulosic ethanol could compete for these resources. Poplar 1,323 n/a Cellulosic ethanol could compete for these resources. Solar Assumes 22 % residential and 65 % commercial rooftop Photovoltaic 6,114 8 availability; feasible assumes $3.00-$3.76/peak watt. Parabolic Trough n/a n/a Power Tower n/a n/a Dish Engine (Stirling) n/a n/a Hydro - Feasible Projects (average MW) 1,076 329 Geothermal n/a n/a Sources: Wind, biomass and solar: "Iowa Renewable Resource Assessment," dated September 2005 by the Iowa Department of Natural Resources; Hydro: "Feasibility Assessment of the Water Energy Resources of the United States for New Low Power and Small Hydro Classes of Hydroelectric Plants," dated January 2006 by U.S. Department of Energy.
1 The greatest potential for development of renewable resources in Iowa lies
2 with wind, especially in the north and western areas of the state. Iowa is the
3 seventh windiest state in the nation based on wind energy potential according to
4 the National Energy Renewable Laboratory,20 and Iowa is currently a leader in
5 wind development with the third most wind generation in operation of any state in
6 the nation.
7 While over 3,000 MW of biomass potential have been identified, only a
8 small portion will likely be available for generation. MidAmerican currently has
9 7.7 MW of biogas generation (mostly landfill and sanitation) and 0.3 MW of
20 Source: National Energy Renewable Laboratory’s “Estimates of Windy Land Area and Wind Energy Potential by State for Areas >= 30% Capacity Factor at 80 Meters,” dated February 4, 2010 and updated April 13, 2011 to add Alaska and Hawaii. 40 1 biomass generation in its portfolio. With presently available feedstocks, biomass
2 generation will compete against other uses of biomass, especially ethanol
3 production. At this time, landfills and farm-based methane present the most likely
4 sources for biomass generation. Only 11 landfills with a capacity development
5 potential of about 15 MW have been identified in Iowa.21 Farm-based methane
6 largely relies on anaerobic digestion as a source of generating methane gas for
7 microturbine generators or small internal combustion engines (approximately 0.1
8 MW – 1.0 MW). A herd of 500 cattle is required to produce about 65 kW of
9 electricity, so only larger farming operations are feasible sources of this type of
10 generating capacity.
11 Iowa currently has 134 MW of hydroelectric, of which 125 MW is located
12 at the lock and dam at Keokuk. The U.S. Department of Energy has identified
13 another 1,076 MW of potential hydroelectric generation in Iowa that is available
14 for development, but only 329 MW is deemed to be feasible. Of those 329 MW
15 of feasible hydroelectric power projects, 176 MW are categorized as small power
16 (greater than 1 MW and less than 30 MW) and 153 MW as low power (less than 1
17 MW). Potential sites are distributed across Iowa. Environmental hurdles and
18 high costs associated with hydroelectric development will likely continue to limit
19 development.
20 Photovoltaic generation is the most likely solar technology to develop in
21 Iowa. Other technologies such as the parabolic trough, power tower and solar
22 dish engine have substantial land requirements. These technologies are better
23 suited for lands elsewhere in the U.S. that are not as valuable for crop production.
21 Black and Veatch estimated that only 6 of the landfill operations could be developed for electric generation with only 12 MW of potential, in the Renewable Energy Cost Effective Potential Study. 41 1 Other regions such as the Southwest have a key advantage: better solar
2 insolation.22 Iowa’s solar insolation is only about 70% of that in California.
3 Over 8,600 MW of photovoltaic rooftop generation technical potential is
4 estimated in Iowa.23 However, the current cost of photovoltaic generation limits
5 its development. Photovoltaic generation on customers’ rooftops is unlikely to be
6 widely developed by electric utilities in Iowa due to the small capacity size of
7 each installation, economics and liability. The southwestern portion of Iowa has
8 been identified as a location for utility scale photovoltaic generation. A more
9 likely scenario in Iowa is that this distributed resource will be a behind-the-meter
10 customer-scale resource.
11 Eastern Iowa has a limited potential for geothermal generation, but the
12 resource is lower temperature than in the regions where geothermal has been
13 developed. Development of geothermal generation in Iowa is not currently
14 practical. Far superior geothermal resources located in the Western U.S. are only
15 marginally economic to develop. Iowa has a much poorer resource (between 150
16 degrees and 200 degrees Centigrade) at a greater depth (about 6 kilometer or
17 about 3.7 miles) that would be costly to access, even if it was technologically
18 possible today.
19 Q. Provide a comparison of the cost of each of the renewable technologies.
20 A. The cost comparison (Table 6) for developing renewable technologies is based on
21 estimates developed by Black and Veatch for the “Renewable Energy Cost
22 Solar insolation is the amount of solar energy received on a given area over time typically measured in kilowatt- hours per square meter. 23 Source: National Renewable Energy Laboratory’s “U.S. Renewable Energy Technical Potentials: A GIS-Based Analysis”, July 2012, Table 4 – Total Estimated Technical Potential for Rooftop Photovoltaics by State. 42 1 Effective Potential Study” prepared for the Iowa Utilities Association.24
2 However, hydroelectric was not included in the analysis, so the cost of this
3 technology was estimated from an alternative source. The U.S. Department of the
4 Interior, Bureau of Reclamation conducted a hydropower resource assessment
5 wherein cost of installed hydroelectric generation was estimated at an average of
6 about $4,000/kW for units in the Great Plains Region.25
Table 6
Source: “Renewable Energy Cost Effective Potential Study” developed for the Iowa Utilities Association, dated December 1, 2008
7 Q. Please summarize the renewable generation options using the three criteria
8 stated previously in your testimony.
9 A. My summary of the renewable alternatives for Iowa in terms of the three criteria
10 (availability, economics and maturity) is shown in Table 7. The rating is from
11 one (lowest or least desirable) to three (highest or most desirable) stars.
24 The requirements for “Renewable Energy Cost Effective Potential Study” were contained in legislation (SF 2386) approved by the 2008 Iowa Legislature and signed into law by Governor Chet Culver on May 6, 2008. 25 Source: The U.S. Department of the Interior, Bureau of Reclamation’s report, “Hydropower Resource Assessment at Existing Reclamation Facilities,” March 2011. 43 Table 7 Summary of Renewable Generation Selection Availability Economics Maturity Overall Wind Biomass – Cellulosic Biomass – Landfill Biomass – Anaerobic Digestion Hydro – Conventional Hydro – Unconventional Solar – Photovoltaic Solar - Central Station Geothermal Not Practical in Iowa
1 While little solar power exists in Iowa currently, a number of states in the
2 Midwest and east have solar requirements and solar is emerging from the early
3 development stages as a source for generating electricity. However, in addition to
4 its high cost, solar is not as well-suited to Iowa as it is to other regions with higher
5 solar intensity and less cloud cover. The photovoltaic technology (a two star
6 overall rating) is likely to see some small, limited, site or customer-specific
7 applications in Iowa (e.g., at the Iowa State Fairgrounds), but it is not considered
8 capable of making a material contribution to Iowa’s energy needs in the near
9 term. Central station solar (parabolic trough, solar power tower, and solar-dish
10 engine) will need to develop in regions with superior solar conditions first, and
11 thus it is not expected in Iowa for the foreseeable future. The single star overall
12 rating for central station solar reflects the current developmental potential of this
13 renewable resource in Iowa.
14 Biomass is available in many forms some of which are well developed
15 (e.g., landfill gas). However, landfill gas is available at a limited number of sites,
16 and other forms of biomass are still in the early stages of development (e.g.,
44 1 anaerobic digestion), and are small and more costly. Use of generation resources
2 such as landfill gas, sewage treatment gas or anaerobic digestion provides both
3 electric generation and greenhouse gas destruction benefits.26 These
4 environmental benefits coupled with the electrical production may provide cost-
5 effective generation resources on a limited scale. The double star overall rating
6 for landfill and cellulosic biomass represents the potential for some limited forms
7 of biomass to be researched and developed in Iowa, but not on the level or at a
8 cost MidAmerican finds currently desirable. The single star for anaerobic
9 digestion biomass generation reflects the limited experience in this biomass
10 technology.
11 Hydroelectric, the most mature of any renewable generation, is perhaps
12 the closest viable alternative to wind in that a number of potential sites along
13 rivers and lakes exist, but its costs, environmental and political issues have
14 deterred its recent development potential. The double star overall rating for
15 conventional hydropower reflects the potential for development while recognizing
16 the obstacles that new hydroelectric generation developments face.
17 Unconventional hydropower development was awarded a single star due to its
18 more limited availability, newer technology and cost.
19 No geothermal sites are considered practical in Iowa for the generation of
20 electricity; thus, no ranking is possible. Even development of geothermal power
21 in the Western U.S., where far superior (closer to the surface and higher
22 temperature) geothermal resources exist, has been limited due to cost. Accessing
26 The methane global warming potential is 23 times greater than that for carbon dioxide based on the International Panel on Climate Change (“IPCC”) Third Assessment Report. The greenhouse gas destruction benefits relate to the burning of methane, which releases carbon dioxide, yet reduces the global warming impact by a factor of 22. 45 1 Iowa’s lower temperature resource at a much greater depth (6 kilometers)
2 provides both technological and economic challenges that are difficult to quantify
3 with the little information that is currently available.
4 Wind power, the most abundant renewable resource in Iowa, is a cost-
5 competitive source of energy (when the PTC, and other revenue streams, are
6 included) that has achieved a reasonable level of technological maturity. Thus,
7 wind power receives the highest relative rating of the renewable resources
8 reviewed.
9 Q. Please summarize the selection of wind as the preferred renewable
10 generation option.
11 A. While MidAmerican supports research into new renewable technologies (e.g., PV
12 solar at the Iowa State Fair), the Company believes its large generation additions
13 should be based on functioning technologies that are relatively mature. Wind-
14 based generation is the only renewable resource in Iowa that is relatively mature,
15 economically viable, and in sufficient supply to satisfy MidAmerican’s needs.
16 Improvements to the technology over the past two decades have made it one of
17 the leading renewable resources currently under development in North America
18 and throughout the world.
ANALYSIS IN SUPPORT OF MR. YOCUM’S FINANCIAL ANALYSIS
19 Q. What analysis has MidAmerican performed with respect to the impact of
20 Wind VIII on MidAmerican’s customers?
21 A. MidAmerican evaluated the 1,050 MW Wind VIII project to determine its cost
22 impact on customers. This evaluation is explained in the testimony of
46 1 MidAmerican witness Mark Yocum who conducted an economic analysis of
2 Wind VIII.
3 In support of the above-mentioned economic analysis by Mr. Yocum,
4 MidAmerican’s generation system was modeled on a long-term basis, both with
5 and without Wind VIII’s 1,050 MW using a production cost model.27 The
6 production cost model results that I am supporting were provided to Mr. Yocum
7 for use in his economic analysis. The production cost model dispatches
8 MidAmerican’s generation against an electric price forecast for MidAmerican.
9 This model provides the level of operation, cost of fuel and other costs of
10 operation, along with the total net system operating cost (i.e., fuel cost plus non-
11 fuel variable costs plus wholesale purchases less wholesale sales). The projected
12 output for the 1,050 MW of additional wind capacity is in the Ratemaking
13 Principals Application, Section 2, Confidential Table 2.1-3. The tables have been
14 electronically provided.
15 Q. The economic analysis completed by Mr. Yocum in support of the 1,050-MW
16 Wind VIII project includes a revenue stream for renewable energy credits.
17 Is it reasonable to assume that MidAmerican could receive such revenues for
18 the Wind VIII sites?
19 A. Yes. MidAmerican has sold and would anticipate continuing to sell renewable
20 energy credits under the current business conditions, both economic and
21 government policy. New, or changes to, state renewable portfolio standards,
22 national energy policy, environmental policies and assumptions, or renewable
27 MidAmerican uses Ventyx’s PROMOD® program, a chronological dispatch model that simulates the operation of each plant based on detailed plant data, fuel and other operating cost data and market prices. 47 1 energy credit market requirements are all examples of conditions that could alter
2 the decision to sell renewable energy credits.
3 Q. At what price are renewable energy credits trading?
4 A. Currently, the national voluntary renewable energy credit market has bids to buy
5 and offers to sell such credits, for spot market 2013, of $0.75/MWh and
6 $0.875/MWh, respectively. State level renewable portfolio standards have also
7 created a compliance renewable energy credit market. Sales of these compliance
8 renewable energy credits can exceed by several-fold the price of voluntary
9 renewable energy credits if the source, type, vintage and delivery location meets
10 the specific state renewable portfolio standard requirements.
11 Q. Are the renewable energy credit prices used in the financial model
12 reasonable?
13 A. Yes. Based on the market information that I have observed, the renewable energy
14 credit market is currently supportive of a $.80 per MWh price in 2013. The 2014
15 and 2015 renewable energy credit prices were assumed to be $0.80per MWh and
16 $0.85per MWh, respectively. MidAmerican expects to stop selling renewable
17 energy credits by at least 2017 in order to claim the environmental benefits on
18 behalf of MidAmerican’s customers.
19 Q. Does this conclude your testimony?
20 A. Yes.
48 STATE OF IOWA ) ) ss: COUNTY OF POLK )
I, O. Dale Stevens, II being first duly sworn, depose and state that the statements contained in the foregoing prepared direct testimony are true and correct to the best of my knowledge, information and belief, and that such prepared direct testimony constitutes my sworn statement in this proceeding.
/s/ O. Dale Stevens II______O. Dale Stevens II
Subscribed and sworn to before me this 8th day of May 2013.
/s/ Sherri R. Long______Notary Public – Iowa
49