PUBLIC OFFICE OF CONSUMER ADVOCATE DIRECT WORKPAPER OF DR. XIAOCHUAN (LARRY) SHI IN RE: MIDAMERICAN ENERGY COMPANY DOCKET NO. ARC-2015-0156 January 29, 2016 OCA Shi Workpaper Page 2 of 173 ARC-2015-0156 OFFICE OF CONSUMER ADVOCATE DATA REQUEST DATE : November 11, 2015 DOCKET NO. : ARC-2015-0156 COMPANY : MidAmerican Energy Company SUBJECT : 199 IAC 20.13(1)“j” REFERENCE : Additional Information ordered by the Board Generation which may need to be added to address projected capacity shortfall Responder Name: Neil Hammer Phone: 515-252-6407 Job Title: Director, Market Assessment 3. MidAmerican plans to purchase Zonal Resource Credits (“paper” capacity) to meet its short-term resource adequacy needs for Iowa and South Dakota through the five-year period ending with the 2020-2021 Planning Year. Please provide the following information as regards to MidAmerican’s long-term resource adequacy plans beyond the 2020-2021 Planning Year. A. The latest copy of MidAmerican’s long-term Integrated Resource Plan (IRP); B. Explain the major assumptions used to develop the plan, including but not limited to, demand (MW) forecasting, energy assumption (GWh) forecasting, fuel costs, fixed and variable O&M costs, environmental costs, and costs for constructing new units; C. Describe the software MidAmerican used to develop its long-term generation expansion IRP; and D. Provide a copy of the software package referenced in response to C above and the database used to generate the IRP plan referenced in A above. Response: A. “Integrated Resource Plan” is a term not used in Chapter 476 of the Iowa Code. However, Iowa Code § 476.53 does provide that in order to receive advance ratemaking principles for qualified new generation, a utility must have a Board-approved energy efficiency plan in place and demonstrate that the proposed new generating facility is reasonable when compared to other feasible alternatives. MidAmerican addresses these requirements in its wind ratemaking principles filings, most recently the Wind X case. The recent issuance of the 1 OCA Shi Workpaper Page 3 of 173 ARC-2015-0156 Environmental Protection Agency’s Clean Power Plan (CPP) requires re-evaluation of resource plans, and those evaluations have not yet been completed. Despite this, MidAmerican understands the Office of Consumer Advocate is interested in MidAmerican’s processes for determining the need for, and timing of, additional generation for capacity purposes. MidAmerican does employ a process using several different pieces of software (detailed more below) to make these determinations. In terms of the current status of MidAmerican’s generation capacity needs, the most complete answer can be found in MidAmerican’s answer to question J4, “Generation which may need to be added to address projected capacity shortfall” in the initial filing in this docket (attached to this response). In terms of an overall capacity picture, Table 3 in that answer has been updated, below, to depict the most current status of MidAmerican’s need for, and timing of, additional capacity resources. The updates are due to changes in the load forecast, generator capacity credits, and MISO auction parameters such as the Planning Reserve Margin changing from 7.13% to 7.6%. Table 3 From Question J4 in the Initial Filing Planning Year 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 Expected Planning Reserve Margin Requirement (UCAP MW) 4,854 5,009 5,152 5,205 5,275 5,331 5,382 5,433 5,483 5,532 Expected Zonal Resource Credits (UCAP MW) Existing Resources 5,075 5,051 5,051 5,065 5,232 5,232 5,232 5,232 5,232 5,232 Purchases (UCAP MW) 50 Total 5,075 5,101 5,051 5,065 5,232 5,232 5,232 5,232 5,232 5,232 Surplus (UCAP MW) Iowa/South Dakota 302 175 (16) (52) 49 (4) (52) (99) (146) (192) Illinois (81) (82) (85) (88) (92) (95) (98) (101) (105) (108) Total 221 92 (101) (140) (43) (98) (150) (200) (250) (299) Table 3 Updated for Current Forecast Planning Year 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25 Expected Planning Reserve Margin Requirement (UCAP MW) - 5,101 5,244 5,296 5,365 5,420 5,470 5,520 5,570 5,619 Expected Zonal Resource Credits (UCAP MW) Existing Resources - 5,052 5,066 5,066 5,219 5,219 5,219 5,219 5,219 5,219 Purchases (UCAP MW) 50 Total - 5,102 5,066 5,066 5,219 5,219 5,219 5,219 5,219 5,219 Surplus (UCAP MW) Iowa/South Dakota - 77 (101) (150) (62) (113) (161) (207) (254) (299) Illinois - (76) (77) (80) (84) (87) (90) (93) (97) (100) Total - 1 (178) (231) (146) (200) (251) (301) (351) (399) Zonal Resource Credits are expected to be procured in the near term. MidAmerican will continue to further review capacity options which include purchasing Zonal Resource Credits, and potentially acquiring/building renewable resources such as wind and solar technologies, capacity resources and consideration of storage technologies. The CPP, issued subsequent to the May 2015 filing in this docket, will be an additional consideration in these resource evaluations. 2 OCA Shi Workpaper Page 4 of 173 ARC-2015-0156 B. MidAmerican’s recent applications for advance ratemaking principles (e.g., Wind VIII, IX and X) discuss MidAmerican’s key assumptions and considerations, which include the following: • The nine factor reasonableness criteria reflected in MidAmerican’s ratemaking principles filings1 • Fuel costs • Demand and energy forecasts – MidAmerican and Eastern Interconnection • Electric price forecasts • Environmental costs, now including the Clean Power Plan • Generation retirement and new build forecasts – MidAmerican and Eastern Interconnection • New resource build technologies and installation costs • Economic model assumptions – inflation, cost of capital, property taxes These assumptions and considerations are discussed in more detail in the testimony of Neil Hammer (Wind IX and X) and Dale Stevens (Wind VIII). The testimony of these witnesses is attached to this response. C. When considering capacity resources (as opposed to resources that are primarily energy related), MidAmerican performs generation expansion studies with consideration of capacity and energy needs utilizing a variety of software models. These include: 1. A market price model (ABB’s Market Power) that develops hourly electric price forecasts; 2. A nodal market price model (ABB’s PROMOD IV Transmission Analysis Module, or TAM) to determine the price at each generator; 3. A resource expansion optimization model (ABB’s Strategist) that analyzes hundreds of potential expansion alternatives to identify those that are optimal from a purely cost standpoint; 4. An hourly dispatch model (ABB’s PROMOD IV) that is used to simulate the operation of the most promising expansion options in concert with MidAmerican’s existing generation; and 5. An internal economic evaluation model that develops the net present value of the revenue requirements (i.e., rate impact to the customer) for each expansion option. For resource addition studies, MidAmerican’s resource evaluations must still be developed within the context of the broader market. To address the broader market for these studies, two regional planning models are used: the Market Power electric price model and the PROMOD TAM model. These models provide forecasts of electric market prices. 1 The nine factors are cost robustness, reasonable cost, system reliability, environmental reasonableness, flexibility/optionality, diversity, economic development, geo-political uncertainty, and resource availability/price stability. 3 OCA Shi Workpaper Page 5 of 173 ARC-2015-0156 Market Power provides a long-term forecast of spot market electric energy prices for Eastern Interconnect zones including MidAmerican. As a high level model, it is capable of determining resource additions and developing long-term hourly electric energy price forecasts. Information from PROMOD TAM may be used to develop model assumptions for Market Power. The resulting zonal prices are forwarded for input to the resource expansion/optimization models (Strategist and Simtec’s RTSim Optimizer) and the dispatch model (Simtec’s RTSim ). PROMOD TAM is a detailed model that incorporates both generation and transmission such that nodal prices (locational marginal marginal prices – LMP) can be calculated. The resulting LMPs reflect transmission congestion within MidAmerican as well as other regions included in the model footprint. The model performs best for near-term analysis where knowledge of the system configuration including plant locations, the transmission grid and loads is best known. However, the model can provide valuable information on the trend of congestion in the longer-term by modeling key events such as environmental policies, major transmission additions (the MISO multi-valued projects) and commencement of a carbon policy. As such, the model is setup to run for several years across the planning horizon. The information is then used in conjunction with Market Power’s long-term price forecasts to develop market prices. MidAmerican subscribes to an Electric Power Research Institute (EPRI) program that provides new plant installation and operational cost data that is utilized to evaluate the costs and benefits of various generation technologies. ABB’s Strategist program is used to form the basis for further more detailed studies of a smaller set of resource build options. The new generation installation and operational cost data (EPRI), load and capability forecasts, and generator retirement considerations, are included in these studies. Production cost simulations to serve the MidAmerican load (i.e. unit commitment and dispatch which focus on serving the MidAmerican load requirement, rather than unit commitment using market prices for unit commitment decisions) are performed under various scenarios to be tested against high gas prices, low gas prices, and high load growth. Hundreds of combinations for new builds are evaluated and narrowed to a few based upon the determinations in Strategist.