2014 Natural Gas Integrated Resource Plan
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2014 Natural Gas Integrated Resource Plan August 31, 2014 Safe Harbor Statement This document contains forward-looking statements. Such statements are subject to a variety of risks, uncertainties and other factors, most of which are beyond the Company’s control, and many of which could have a significant impact on the Company’s operations, results of operations and financial condition, and could cause actual results to differ materially from those anticipated. For a further discussion of these factors and other important factors, please refer to the Company’s reports filed with the Securities and Exchange Commission. The forward- looking statements contained in this document speak only as of the date hereof. The Company undertakes no obligation to update any forward-looking statement or statements to reflect events or circumstances that occur after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the Company’s business or the extent to which any such factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. TABLE OF CONTENTS 0 Executive Summary ................................................................................ Page 1 1 Introduction ........................................................................................... Page 15 2 Demand Forecasts ................................................................................ Page 25 3 Demand Side Resources ...................................................................... Page 43 4 Supply Side Resources ......................................................................... Page 61 5 Integrated Resource Portfolio................................................................ Page 81 6 Alternate Scenarios, Portfolios, and Stochastic Analysis .................... Page 111 7 Distribution Planning ........................................................................... Page 125 8 Action Plan .......................................................................................... Page 133 9 Glossary of Terms and Acronyms ....................................................... Page 137 Executive Summary Executive Summary Avista Corporation’s 2014 Natural Gas Integrated Resource Plan (IRP) identifies a strategic natural gas resource portfolio to meet customer demand requirements over the next 20 years. While the primary focus of the IRP is meeting customers’ needs under peak weather conditions, this process also provides a methodology for evaluating customer needs under normal or average conditions. The formal exercise of bringing together customer demand forecasts with comprehensive analyses of resource options, including supply-side resources and demand-side measures, is valuable to Avista, its customers, regulatory agencies, and other stakeholders for long-range planning. IRP Process and Stakeholder Involvement The IRP is a coordinated effort by several Avista departments along with input from our Technical Advisory Committee (TAC), which includes Commission Staff, peer utilities, customers, and other stakeholders. This group is a vital component of our Avista’s collaborative IRP process, as it provides a forum for the exchange of planning process results in a resource ideas from multiple perspectives, identifies issues and portfolio that meets risks, and improves analytical methods. Topics customers’ long-term discussed with the TAC include natural gas demand needs considering cost forecasts, demand-side management (DSM), supply- and risk. side resources, modeling tools, and distribution planning. The process results in a resource portfolio designed to serve our customers’ natural gas needs while balancing cost and risk. Planning Environment A long- term resource plan must address the uncertainties inherent in any planning exercise. Compared to prior planning cycles, there is more certainty about the availability of natural gas and that much of it can be extracted at favorable prices for consumers. However, some of the uses of this plentiful and economic energy resource are unknown. There are questions concerning an industrial renaissance, the amount of liquefied natural gas (LNG) exports, the market for natural gas vehicles, and power generation. We continue to challenge key assumptions by evaluating multiple scenarios over a range of possible outcomes to address the uncertainties. Demand Forecasts Avista defines eight distinct demand areas in this IRP structured around the pipeline transportation and storage resources that serve them. Demand areas include four large Avista service territories (Washington/Idaho; Medford/Roseburg, Oregon; Klamath Falls, Avista Utilities 2014 Natural Gas IRP 1 Executive Summary Oregon and La Grande, Oregon) and then disaggregated by the pipelines that serve them. The Washington/Idaho service territory includes areas served only by Northwest Pipeline (NWP), only by Gas Transmission Northwest (GTN), and by both pipelines. The Medford service territory includes an area served by NWP and GTN. Avista’s approach to demand forecasting focuses on customer growth and use-per- customer as the base components of demand. Avista recognizes and accounts for weather as the most significant direct demand-influencing factor. Other demand influencing factors studied include population, employment trends, age and income demographics, construction trends, conservation technology, new uses (e.g. natural gas vehicles), and use-per-customer trends. Recognizing that customers may adjust consumption in response to price, Avista analyzed factors that could influence natural gas prices and demand through price elasticity. These included: Supply Trends: shale gas, Canadian supply availability, and export LNG. Infrastructure Trends: regional pipeline projects, national pipeline projects, and storage. Regulatory Trends: subsidies, market transparency/speculation, and carbon legislation. Other Trends: thermal generation and energy correlations (i.e. oil/gas, coal/gas, liquids/gas). Avista developed a historical-based reference case and conducted sensitivity analysis on key demand drivers by varying assumptions to understand how demand changes. Using this information and incorporating input from the TAC, Avista created several alternate demand scenarios for detailed analysis. Table 1 summarizes these scenarios, which represent a range of potential outcomes. The Average Case represents Avista’s demand forecast for normal planning purposes. The Expected Case is the most likely scenario for peak day planning purposes. Table 1: Demand Scenarios 2014 IRP Demand Scenarios Average Case Expected Case High Growth, Low Price Low Growth, High Price Alternate Weather Standard Avista Utilities 2014 Natural Gas IRP 2 Executive Summary The IRP process defines the methodology for the development of two primary types of demand forecasts – annual average daily and peak day. The annual average daily demand forecast is useful for preparing revenue budgets, developing natural gas procurement plans, and preparing purchased gas adjustment filings. Forecasts of peak day demand are critical for determining the adequacy of existing resources or the timing for new resource acquisitions to meet our customers’ natural gas needs in extreme weather conditions. The demand forecasts from the Average and Expected Cases revealed the following as shown in Table 2: Annual Average Daily Demand – Expected average day, system-wide core demand increases from an average of 91,352 dekatherms per day (Dth/day) in 2014 to 102,937 Dth/day in 2033. This is an annual average growth rate of 0.7 percent and is net of projected conservation savings from DSM programs. Appendix 3.9 shows gross demand, DSM savings and net demand. Peak Day Demand – Expected coincidental peak day, system-wide core demand increases from a peak of 358,736 Dth/day in 2014 to 404,122 Dth/day in 2033. Forecasted non-coincidental peak day demand peaks at 333,129 Dth/day in 2014 and increases to 375,747 Dth/day in 2033 a 0.6 percent compounded growth rate in peak day requirements. This is also net of projected conservation savings from DSM programs. Table 2: Annual Average and Peak Day Demand Cases (Dth/day) Annual Average Daily Peak Day Demand Non-coincidental Year Demand Peak Day Demand 2014 91,352 358,736 333,129 2033 102,937 404,122 375,747 Figure 1 shows forecasted average daily demand for the five main demand scenarios modeled over the IRP planning horizon. Avista Utilities 2014 Natural Gas IRP 3 Executive Summary Figure 1: Average Daily Demand Figure 2 shows forecasted system-wide peak day demand for the five main demand scenarios modeled over the IRP planning horizon. Figure 2: Peak Day Demand Scenarios (Net of DSM Savings) Avista Utilities 2014 Natural Gas IRP 4 Executive Summary Natural Gas Price Forecasts Natural gas prices are a fundamental component of integrated resource planning because the commodity price is a significant component of the total cost of a resource option. This affects the avoided cost threshold for determining cost-effectiveness of conservation measures. The price of natural gas also influences the consumption of natural gas by customers. A price elasticity adjustment to use per customer reflects customer response to changing natural gas prices. With more information known about the costs and volumes produced