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17A-0797E
ON BEHALF OF
July 9, 2018
NOTICE OF CONFIDENTIALITY:
A PORTION OF THIS DOCUMENT HAS BEEN FILED UNDER SEAL, PURSUANT
TO 4 CCR 723-1101, PROCEDURES RELATING TO CONFIDENTIAL INFORMATION
FILED WITH THE COMMISSION IN A PROCEEDING
Highly Confidential Testimony: Pages 5, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 30, 31, 36
Highly Confidential Attachment: Exhibit CSG SR 2
PROCEEDING NO. 17A-0797E
EXECUTIVE SUMMARY
Cost impacts of the Tax Cut and Jobs Act (TCJA) and the recently dismissed rate
case;
PSCo’s claim that $23.1 million in savings should be added to the Preferred CEP
portfolio compared to the Preferred ERP portfolio;
Changes PSCo made to the resource tail and natural gas prices that create fictional
“savings” for the Preferred CEP portfolio; and
Whether PSCO’s newly proposed Colorado Energy Plan Adjustment (CEPA) rider
is in the public interest.
Mr. Griffey demonstrates that PSCo incorrectly calculated the savings associated with the
TCJA by selectively applying a twenty-one percent (21%) tax rate to the revenue requirement for
requirement for the plant replacing Comanche 1 and 2 in the Preferred ERP portfolio. PSCo’s
claimed $23.1 million of savings are eliminated and there are savings for the Preferred ERP
portfolio when the same tax rate is properly applied to the revenue requirement of all the relevant
resources in the Preferred ERP and CEP portfolios. In addition, Mr. Griffey observes that the
mismatch in the tax rate used for the different resources biases PSCo’s cost calculations in favor
of the CEP.
Mr. Griffey’s discovery on the TCJA impacts also revealed that PSCo changed the resource
tail and natural gas prices in the Preferred CEP portfolio in a manner that unfairly advantages the
CEP portfolio relative to the ERP portfolio by introducing a new, low cost unit type in the CEP
portfolio that has access to lower gas prices. As a result, the savings claimed for the Preferred CEP
do not accurately represent the costs of the CEP to ratepayers. Because of these cost errors, the
transmission issue identified in his Cross-Answer testimony, and the wind degradation issue
identified by Staff in Docket No. 16A-0396E, the early retirement of Comanche 1 and 2 will cost
ratepayers $284 million more on a net present value (NPV) basis than continued operation of
Mr. Griffey also continues to recommend the Commission give little weight to the
economic modeling results after Comanche 1 and 2 have retired because the cost modeling is
essentially a comparison of (1) the assumed combined cycle gas turbine (CCGT) built in 2034 in
the Preferred ERP portfolio to (2) the assumed new resource type and gas prices that PSCo
introduces in the resource tail in the Preferred CEP portfolio. The net present value or revenue
requirements upon the retirement of Comanche 2 in 2036 shows that the Preferred CEP portfolio
costs ratepayers $577 million on a nominal basis and $299 million on a net present value basis.
Surrebuttal Testimony of Charles S. Griffey
Page 2
Any benefits or costs after that time are too speculative to rely upon, and no one is accountable for
their delivery. The relief requested in this application is therefore not in the public interest because
Mr. Griffey also shows the CEPA proposal, in lieu of the prior General Rate Service
Adjustment (GRSA), is not in the public interest for other reasons. The CEPA, like the GRSA,
gives the utility an opportunity to over-earn. Nor PSCo did rebut Mr. Griffey’s earlier critique of
the GRSA (which applies equally to the CEPA) that the utility has not demonstrated that a GRSA
will save ratepayers money relative to simply taking accelerated depreciation. As Mr. Griffey
explains, PSCo’s economic analysis is opaque and does not demonstrate what PSCo purports.
PSCo claims in the 120 Day Report that taking accelerated depreciation as it occurs has a NPV
cost to ratepayers of $110 million on a total company basis. However, in this case, the NPV cost
to retail ratepayers of the CEPA proposal is $121.4 million, and, including wholesale, the NPV
cost is $133 million. Thus, the net impact of the CEPA is to increase costs to ratepayers by $23
million on a NPV basis. The costs of the CEPA are obviously real, but PSCo’s calculation of those
costs remains a moving target. PSCo has not demonstrated that its new CEPA proposal provides
customer savings. PSCo’s proposal is not in the public interest and should be rejected.
Adjustment (RESA) to 2% in 2028, Mr. Griffey reiterates his recommendation that the RESA
that ratepayers should not be charged the full 2% beginning in 2021. The fact that that the RESA
would not be 2% in the business-as-usual case makes it harder for PSCo to justify not counting the
GRSA/CEPA as a cost of the CEP. If, in 2028, there is a need for a 2% RESA, then the
TABLE OF CONTENTS
LIST OF FIGURES
CSG-SR-1 Impact of TCJA, Dismissed Rate Case, and CEPA Start Date Using Correct
Approach
CSG-SR-2 Comparison of “REPL 5 190 MW” Unit in CEP to the CT in the ERP
CSG-SR-4 Comparison of “REPL 5 190 MW” Unit in CEP to the Generic CCGT in ERP
Affidavit
9 A. Yes.
2 A. I address PSCo’s rebuttal testimony on the impacts of the Tax Cut and Jobs Act (TCJA)
3 and recently dismissed rate case on the revenue requirements of continuing to operate
4 Comanche 1 and 2 and early retirement of the units. I address PSCo’s false claim in its
5 rebuttal testimony that the Preferred CEP portfolio is a further $23.1 million more cost-
6 effective because of the effect of these impacts. Discovery on this issue revealed significant
7 problems in PSCo’s economic modeling of the Preferred CEP portfolio, and I update my
8 previous testimony based on that discovery. I also address the problems with PSCo’s newly
9 proposed plan to implement a Colorado Energy Plan Adjustment rider (CEPA) in lieu of
10 its previously proposed General Rate Schedule Adjustment (GRSA) and its continued
11 request to earn a return on the unamortized amount of its proposed regulatory asset for the
12 CEP. I respond to PSCo’s claims on these issues and show that its rebuttal testimony does
13 not change any of the facts nor any of the recommendations I presented in my Answer
16 A. Since the underlying issue for this case is the question of whether early retirement of
18 economic modeling in Section II. In Section III, I address the problems associated with
19 PSCo’s proposed ratemaking treatment of the CEPA and PSCo’s failure to address the
4 IMPACT OF THE TAX CUTS AND JOB ACT ON THE COSTS OF THE CEP.
5 HOW HAS PSCO DEALT WITH THE TCJA IN THE 120 DAY REPORT?
6 A. In the 120 Day Report, PSCo claims that the impacts of the TCJA were included for the
8 While the overall net effect of the TCJA is a decrease to our revenue requirements,
9 the TCJA does increase the revenue requirements of certain individual tax
10 advantaged investments such as wind and solar. The Company therefore
11 developed the final ongoing costs associated with BOT projects in accordance
12 with the new TCJA provisions. Moreover, bidders were afforded the opportunity
13 to revise their pricing to account for TCJA via the bid affirmation and refresh
14 process described in Section 6. To make the Company’s projections of the costs
15 of continued operation and early retirement of Comanche 1 and Comanche 2
16 comparable to the refreshed bids, the Company also adjusted the ongoing revenue
17 requirements for Comanche 1 and Comanche 2 as discussed in Section 5.1
18 and
19 Subsequent to that filing, the Tax Cuts and Jobs Act (“TCJA”) was passed into
20 law, which required the previously provided revenue requirement projections for
21 Comanche 1 and Comanche 2 to be updated in order to reflect the collective
22 impacts of TCJA. These updated revenue requirements have been included in the
23 portfolio modeling for this 120-Day Report.2
24 Thus, in the 120 Day Report results, PSCo included the effect of the TCJA on the bids,
25 build-own-transfer (BOT) projects, and Comanche 1 and 2 in its cost calculations.3 In the
26 120 Day Report, PSCo separately makes an estimate of the impact of the recently dismissed
1
120 Day Report at 54.
2
120 Day Report at 69.
3
PSCo confirmed this in its response to request for information CR2(1-10).
Surrebuttal Testimony of Charles S. Griffey
Page 9
1 rate case on the cost evaluation, and reports a change of $26 million in favor of the
3 Q. WHAT CLAIM DOES PSCO MAKE IN THIS CASE WITH RESPECT TO THE
5 A. PSCo states in this case it updated the revenue requirements of Comanche 1 and 2 (and
6 common costs) for the TCJA, as well as for the impact of the rate case that was recently
7 dismissed and beginning the CEPA in 2021.5 PSCo claims that these impacts would result
8 in an additional $23.1 million savings for the Preferred CEP portfolio relative to the
9 Preferred ERP portfolio because the impacts (including the TCJA) were not included in
10 the modeling for the 120 Day Report for anything but the refreshed bids.6 Ms. Perkett
11 states:
4
120 Day Report at 70.
5
Perkett Rebuttal at 13.
6
Perkett Rebuttal at 13, Trowbridge Rebuttal at 36.
7
Perkett at 22-23.
Surrebuttal Testimony of Charles S. Griffey
Page 10
1 Ms. Perkett is claiming that the $23.1 million in this case, when combined with the changes
3 expense, and RESA collections, leads to the $26 million amount cited in the 120 Day
4 Report. In contrast, the 120 Day Report claims that the impact of the dismissed rate case
5 by itself results in an additional $26 million savings for the Preferred ERP portfolio
8 ACCURATE?
12 A. PSCo’s approach is terribly flawed because it assesses the impacts of the TCJA on only a
13 subset of the units that are included in the modeling of the CEP and the ERP. As PSCo
14 notes, the TCJA will ultimately result in lower revenue requirements.9 When it compared
15 the Preferred CEP portfolio to the Preferred ERP portfolio, PSCo should have taken the
16 impact of the TCJA into account throughout the evaluation period and on all of the units
17 that have an impact on the results. Instead, in both the 120 Day Report and in this case,
18 PSCo takes the impact of the TCJA into account on only the bids and Comanche 1 and 2:
19 While the overall net effect of the TCJA is a decrease to our revenue
20 requirements, the TCJA does increase the revenue requirements of
21 certain individual tax advantaged investments such as wind and
22 solar. The Company therefore developed the final ongoing costs
8
120 Day Report at 70. PSCo response to CR2 (1-10).
9
“The TCJA results in a significant net decrease to our cost of service and annual revenue requirements for both the
Company’s electric and gas departments.” 120 Day Report at 54.
Surrebuttal Testimony of Charles S. Griffey
Page 11
1 associated with BOT projects in accordance with the new TCJA
2 provisions. Moreover, bidders were afforded the opportunity to
3 revise their pricing to account for TCJA via the bid affirmation and
4 refresh process described in Section 6. To make the Company’s
5 projections of the costs of continued operation and early retirement
6 of Comanche 1 and Comanche 2 comparable to the refreshed bids,
7 the Company also adjusted the ongoing revenue requirements for
8 Comanche 1 and Comanche 2 as discussed in Section 5.10
9 However, PSCo’s approach does not make the projections of cost in the Preferred ERP
10 portfolio “comparable to the refreshed bids.” For example, the revenue requirements of the
11 combined cycle gas turbine (CCGT) that replaces Comanche 1 and 2 in the Preferred ERP
12 portfolio, upon which the portfolio comparison is based beginning in the year 2034, is not
13 reduced for the impacts of the TCJA. Instead the CCGT unit is modeled as if the old 35%
14 federal tax rate was in effect. That means, beginning in 2034, the Preferred ERP Portfolio
15 is burdened with a 35% tax rate while the resources in the Preferred CEP portfolio get the
16 benefit of the 21% tax rate enacted in the TCJA. This is yet another reason why the
17 Preferred CEP portfolio only begins showing consistent benefit after the CCGT is
19 testimony in Docket No. 16A-0396E, and later in this testimony). I address the impact of
21 Q. PUTTING ASIDE FOR NOW THE HIGH LEVEL FLAW, IS PSCO’S $23.1
24 CORRECTLY?
10
Id.
Surrebuttal Testimony of Charles S. Griffey
Page 12
1 A. No. One problem is that PSCo arrived at the impact only by comparing its new early
3 This is the wrong benchmark. If you want to understand the impact of the TCJA on the
4 cost benefits of early retirement, you have to measure the TCJA impacts on both the early
5 retirement scenario and the business-as-usual (BAU) scenario. PSCo only made the
7 Finally, there are mechanical errors in PSCo’s calculation. The claimed $23.1 million net
8 present value impact is not presented on the same basis as in the 120 Day Report. The 120
9 Day Report presents NPV for a base year of 2016.12 In Revised MAM-1 the NPV of the
10 new revenue requirement is based on the year 2021, and it is compared to a NPV of the old
11 early retirement revenue requirement that has a base year of 2022. PSCO takes the
12 difference between these two NPVs with different base years and gets $23.1 million, which
13 is a number with no economic meaning given the different base years. PSCo then compares
14 that $23.1 million figure to the amounts in the 120 Day Report, which is based on 2016 for
15 NPV calculations. To do a correct comparison, the base year should be 2016 across the
16 board. Using a 2016 base year, the impact of the TCJA, the dismissed rate case, and the
17 start of the CEPA in 2021 on the revenue requirement of retiring Comanche 1 and 2 early
19 Q. WHAT IS THE IMPACT OF THE TCJA AND DISMISSED RATE CASE IF PSCO
11
See Revised Attachment MAM-1 at tab “RR Comparison”, columns F and G.
12
120 Day Report at 13, 67, Appendix B.
Surrebuttal Testimony of Charles S. Griffey
Page 13
1 A. If you properly do an apples-to-apples comparison, the impacts of these changes would
2 show a benefit to the Preferred ERP portfolio compared to the Preferred CEP portfolio.
4 FIGURE CSG-SR-1
5 Impact of TCJA, Dismissed Rate Case, and CEPA Start Date Using Correct Approach13
6 $Millions
13
Data taken from the “RR Comparison” tab from each of Revised Attachment MAM-1 and the original Attachment
MAM-1.
Surrebuttal Testimony of Charles S. Griffey
Page 14
1 Using the correct baseline, the 2016 NPV of the impact of the TCJA is a $13.7 million
2 reduction in the early retirement scenario and a $18.4 million reduction in the BAU
3 scenario. The net change is $4.6 million in favor of the BAU (Preferred ERP) case, not an
4 additional savings $23.1 million savings for the Preferred CEP portfolio as PSCO claims.14
9 COMPARISON.
10 A. The purported $26 million in additional savings claimed in the 120 Day Report is also done
11 incorrectly, although for different reasons. Unlike in the AD/RR case, PSCo does correctly
12 compare the change in the early retirement cases to the change in the BAU cases for the
13 impact of the dismissed rate case; the problem is that PSCo incorrectly calculates the
14 changes.
15 Please refer to Exhibit CSG-SR-1. The $26 million NPV is driven by a relative increase
16 in the revenue requirement for Comanche 3 in the ERP compared to the CEP of $4.2
17 million, while the remainder, $21.6 million, is due to changes in the revenue requirement
18 of Comanche 1 and 2. PSCo’s main error is in failing to ensure that it fully depreciated
19 Comanche 1 and 2 in the CEP 2019 rate case scenario. Looking at the ERP base case and
20 2019 rate case scenarios, one can see that the nominal amount of depreciation is the same
21 over the period—$462 million—and the increase in the NPV of revenue requirements for
22 Comanche 1 and 2 is only $1.7 million. But in the CEP comparison, the NPV of the revenue
14
If the data were available to make the calculation from 2018-2022, the advantage for the BAU would increase.
Surrebuttal Testimony of Charles S. Griffey
Page 15
1 requirement for Comanche 1 and 2 drops by nearly $20 million. This is because PSCo
2 does not fully depreciate Comanche 1 and 2 in the CEP 2019 rate case scenario. In the
3 CEP base case the nominal depreciation is $164.7 million, but in the 2019 rate case it falls
4 to $150.1 million. In other words, $14.6 million of depreciation vanished and is never
5 recovered (the recovery of the regulatory asset via the rider did not change between the
6 two cases), and the return on and taxes associated with that depreciation vanish as well.
7 Thus, the “savings” calculated from the delay in the rate case is driven by PSCO failing to
10 With respect to the Comanche 3 revenue requirement, it is inexplicable why changing the
11 timing of recovery of sunk costs for Comanche 3 (whose sunk cost recovery is unaffected
12 by early retirement of Comanche 1 and 2) would see such relative changes between the
13 cases. The delay in the change in depreciation rate for Comanche 3 by 18 months should
14 not have affected the relative size of the revenue requirements of Comanche 3 in the ERP
16 Q. BASED ON YOUR ANALYSIS OF THE $23.1 MILLION IN THIS CASE AND THE
17 $26 MILLION SAVINGS CLAIMS IN THE 120 DAY REPORT, IS THERE ANY
15
PSCo notes in this AD/RR case that the regulatory asset increased by $11.7 million as a result of the dismissed rate
case. Perkett Rebuttal at 14. While the numbers do not match, at least PSCo attempted to reflect that impact in its
calculations in this case, while it failed to include the need for greater CEPA recovery in the 120 Day Report
calculation.
16
In the base assumptions the NPV of the revenue requirement of Comanche 3 was $861.1 in the ERP case and $863.9
in the CEP case, i.e., as would be expected the revenue requirement is higher in the CEP case due to the stand-alone
operation of Comanche 3. But in the 2019 rate case alternative, the ERP case NPV revenue requirement goes to $869
million while the CEP case NPV revenue requirement only goes to $867.6 million, i.e. stand-alone operation is now
less costly.
Surrebuttal Testimony of Charles S. Griffey
Page 16
1 REQUIREMENTS USED IN THE 120 DAY REPORT PORTFOLIO
2 COMPARISONS?
3 A. Not for the factors claimed by PSCO. However, there are adjustments that do need to be
4 made, beginning with inclusion of the impact of the TCJA on the CCGT installed in 2034
5 in the ERP cases and continuing with addressing other changes to the resource tail and
9 PORTFOLIO?
10 A. Yes, it has a net present value impact of $37 million.17 In other words, the revenue
11 requirement of the Preferred ERP portfolio should be reduced by $37 million to reflect the
12 impact of the TCJA on the CCGT that replaces Comanche 1 and 2 in the ERP Portfolio.
13 Only by including the impact of the TCJA on the year 2034 CCGT can the economics of
19 A. Yes. PSCo introduced a new unit type of combustion turbine it labels “REPL 5 190 MW”
20 in its cost calculations in the Strategist Output files reflecting the Preferred ERP and
21 Preferred CEP portfolios provided in discovery in this proceeding. Presumably, this new
17
Calculated as a 9% reduction in the revenue requirements associated with recovery of capital costs. To get the NPV
of capital costs, one must first subtract fixed operations and maintenance expense from the annual fixed charges shown
in the spreadsheet entitled “SO_-Pref_ERP, multiply by 9% for the TCJA impact, and take the NPV.
Surrebuttal Testimony of Charles S. Griffey
Page 17
1 generic unit is to represent the application of the “replacement” method to the expiring
2 contracts and resources in the portfolios being evaluated. Recall that the Commission
8 Thus, one would expect the replacement unit to be the cost of new construction for the
9 technology—in this case a combustion turbine. Yet the “REPL 5 190 MW” units replace
10 certain of the generic CTs in the resource tail as early as 2026, and only cost 60% of the
11 cost of generic CTs. The new “REPL 5 190 MW” units also have a lower heat rate and
12 lower emissions rates than the generic CTs they replace. Finally, PSCo assumes that the
13 new “REPL 5 190 MW” units will have lower natural gas costs than the 2034 CCGT in the
14 Preferred ERP by $0.60 - $0.80/MMBtu. PSCo puts six of these “REPL 5 190 MW” units
15 into the Preferred CEP portfolio at various times,19 and it only puts three in the Preferred
16 ERP Portfolio.20
20 A. Please see the figure below for a comparison between the “REPL 5 190 MW” unit put into
21 the Preferred CEP portfolio and the generic CT used in the Preferred ERP Portfolio to meet
18
Decision No. C17-0316 in Docket No. 16A-0396E at paragraph 120.
19
One in 2026, two in 2041, one in 2043, and two in 2048.
20
One in 2041, one in 2046, and one in 2048.
Surrebuttal Testimony of Charles S. Griffey
Page 18
1 the same need. Both units were placed in service for a partial year in 2026, and the
3 FIGURE CSG-SR-2
4 COMPARISON OF REPL 5 UNIT IN CEP TO CT IN ERP
5 YEAR 2027
Attribute REPL 5 190 MW Generic 192 MW CT Ratio
Unit
Fixed Cost ($/kw- 4.47 7.4321 1.66
mo)
Heat Rate 10.18 10.26 1.01
(MMBtu/MWh)
CO2 Emissions 0.58 0.65 1.12
(tons/MWh)
NOx Emissions 0.00016 0.00019 1.19
(tons/MWh)
6
7 PSCo assumes that the “REPL 5 190 MW” unit in the CEP portfolio will cost 40% less
8 than the generic CT that is put in the same year in the ERP portfolio. It further assumes
9 the CEP portfolio unit will have a better heat rate, and miraculously, will emit relatively
13 A. Please see Figure CSG-SR-3 below for the capacity difference between the portfolios by
14 year:
21
This is public information and can be found at Page 2-198 of Volume 2 of PSCo’s 2016 Electric Resource Plan.
22
The tons/MwH emissions rates are constant through time and do not vary with start-up fuel consumption. Thus,
they should be proportional to the heat rates. Since they are not, it is only an assumption with no basis that leads to
the difference. This is a good encapsulation of PSCo’s approach to demonstrating the cost-effectiveness of the CEP
Portfolio – simply assume it.
Surrebuttal Testimony of Charles S. Griffey
Page 19
1 FIGURE CSG-SR-3
2 CAPACITY DIFFERENCE BETWEEN PREFERRED ERP AND CEP PORTFOLIOS
3 (MW)
5 A. The figure highlights two important new points for the Commission to consider. First, in
6 the Preferred CEP portfolio PSCo replaces a generic CT with a new “REPL 5 190 MW”
7 unit in 2026. There are no expiring contracts from the solicitation in 2026. This
2 of any reason that the CEP portfolio should get a cheaper unit substituted for a generic CT
3 while the ERP portfolio is denied that substitution. This is simply PSCo putting a thumb
4 on the scale.
5 Second, after the retirement of Comanche 1 and 2, the economic difference between
6 the Preferred ERP and Preferred CEP portfolios is driven largely by a comparison of the
7 generic CCGT in the preferred ERP portfolio to the new “REPL 5 190 MW” units and
8 hybrid solar/battery capacity. Since the new “REPL 5 190 MW” units are assumed to have
9 very low capital cost and are assumed to have advantaged natural gas prices, the economics
11 Further, PSCO replaces all of the solicitation resources in the portfolios with the
12 new lower cost unit type when those resource’s contracts expire, regardless of technology
13 type. This results in a bias in favor of any portfolio with more resources taken in the
14 solicitation, such as the Preferred CEP portfolio.23 There is not even a remnant of the
15 current solicitation left in the comparison of the Preferred ERP and Preferred CEP after
16 2047. Instead, the economics after 2047 are solely a comparison of the assumed high cost
17 CCGT to the assumed low cost “REPL 5 190 MW” units. Finally, the economics are also
18 driven by assumptions that the batteries will perform precisely as modeled and will not
19 degrade. Given the lack of experience with battery installations in the United States,24
23
This flaw is very similar to the flaw in the “Annuity Method” I described in my Surrebuttal Testimony in Docket
No. 16A-0396E; the Commission has already determined that the results of the “Annuity Method” should be given
very little weight.
24
The United States has only approximately 700 MW of installed battery capacity, most built in the last three years.
PSCo is proposing to commit ratepayers to 275 MW of battery capacity through the CEP.
https://www.eia.gov/todayinenergy/detail.php?id=34432.
Surrebuttal Testimony of Charles S. Griffey
Page 21
1 Q. WHAT IS THE NET PRESENT VALUE IMPACT OF PSCO SUBSTITUTING A
3 A. The substitution of the “REPL 5 190 MW” unit for the generic CT in 2026 lowers the
4 revenue requirements of the Preferred CEP portfolio by $55 million based on comparing
5 the fixed costs only. Since the “REPL 5 190 MW” unit has a slightly lower heat rate than
6 the generic CT there would also be an impact on fuel costs, but I do not have the capability
9 5 190 MW” UNITS THAT ARE PUT INTO THE PREFERRED CEP BEGINNING
10 IN 2041?
11 A. The incremental “REPL 5 190 MW” units shown in Figure CSG-SR-3 lower the revenue
12 requirements of the Preferred CEP Portfolio by an additional $37 million relative to if the
15 BETWEEN THE GENERIC CCGT IN THE PREFERRED ERP AND THE “REPL
25
As for the 2026 unit, this is only calculated for the fixed costs.
Surrebuttal Testimony of Charles S. Griffey
Page 22
1 FIGURE CSG-SR-4
2 Comparison of “REPL 5 190 MW” Unit in CEP to the Generic CCGT In ERP
3 YEAR 204926
Attribute “REPL 5 190” MW Generic CCGT
Unit
Fixed Cost ($/kw-mo) 6.91 18.09
Heat Rate 10.02 6.93
(MMBtu/MWh)
Gas Price ($/MMBtu) 7.00 7.58
Variable O&M 1.35 6.18
($/MWh)
Variable Cost 71.5 58.7
($/MWh)
Capacity Factor 69% 77%
Total Cost ($/MWh) 85.2 90.9
4
5 By assuming a low fixed cost and gas price relative to the CCGT and by not adjusting the
6 variable O&M of the “REPL 5 190 MW unit” to reflect the higher than expected capacity
7 factor, PSCo enables the “REPL 5 190 MW” combustion turbine to actually have a lower
8 total cost per MWh than the generic CCGT in 2049. If gas turbines are actually as
9 inexpensive as PSCo assumes for the “REPL 5 190 MW” units beginning in 2026, i.e.,
10 40% lower than the generic CT cost assumed in Phase 1, then the generic CCGT in 2034
11 would also have a lower price, as it is simply a configuration of two gas turbines and one
12 steam turbine. PSCo games the system by assuming cheap generic gas turbine availability
13 in the Preferred CEP Portfolio, but not in the Preferred ERP Portfolio for the replacement
14 to Comanche 1 and 2.
15 Q. CAN YOU THINK OF ANY REASON THAT THE NEW UNIT TYPE SHOULD
17 CCGT?
26
Data from “Unit Details” tab in each of CR1-04.A1_SO-_Pref ERP and CR1-04.A2_SO-_Pref CEPP spreadsheets
provided in response to RFI CR1-04. REPL unit is for the unit put in service in 2048.
Surrebuttal Testimony of Charles S. Griffey
Page 23
1 A. No. The natural gas price PSCo used for the year 2034 CCGT in the Preferred ERP
2 Portfolio is unchanged from the natural gas price it used in Docket No. 16A-0396E. But
3 the natural gas price PSCo uses for the “REPL 5 190 MW” unit type and the generic CTs
4 did change between Docket No. 16A-0396E and the runs made for the 120 Day Report.
6 FIGURE CSG-SR-5
8
9 The natural gas price forecast dropped from Docket No. 16A-0396E to the 120 Day Report
10 for CTs and the new unit type used in the Preferred CEP portfolio, but it was unchanged
11 for the 2034 CCGT used in the Preferred ERP portfolio. I cannot imagine a reasonable
4 Q. CAN YOU QUANTIFY THE IMPACT IF THE SAME NATURAL GAS PRICE
5 WERE USED FOR THE GENERIC CCGT AS FOR THE “REPL 5 190 MW”
6 UNITS?
7 A. I can make an order of magnitude estimate based on not changing dispatch. Because the
8 CCGT operates at a relatively high capacity factor throughout, lower gas prices should
9 have less impact on dispatch as the unit can only improve its dispatch so much. If the same
10 gas price was used for the CCGT as for the “REPL 5 190 MW” units, the economics of the
13 OPERATION.
14 A. The Preferred CEP portfolio essentially replaces one of the Comanche units largely with
15 batteries. There is very little operating history for utility-scale batteries in the United
16 States; indeed, the amount of capacity from batteries PSCo proposes to buy is nearly 40%
17 of all the battery capacity installed in the United States through 2017.27 PSCo appears to
18 recognize the limited experience with batteries. For instance, it recommends including 50
19 MW of batteries in the Preferred ERP so that it can gain experience with the technology,
20 and it notes that deferring 125 MW of batteries in the “Alternate CEPP” “would provide
21 greater economic benefits and allow a staged introduction of new battery storage
27
275 MW CEP batteries compared to 700 MW of battery capacity installed per EIA.
Surrebuttal Testimony of Charles S. Griffey
Page 25
1 technology.”28 With respect to the Preferred ERP Portfolio, PSCo states that it will include
2 “50 MW of battery storage technology, which will enable the Company to advance
4 If PSCo does not have adequate understanding of battery technology, one questions why it
5 recommends committing ratepayers to buying so much of the resource now. The results
6 from Strategist rely upon very explicit modeling as to how the batteries will operate, yet
7 PSCo never addresses whether the costs included in the bids will allow battery operation
8 (both physical and financial through dispatch decisions) not to degrade relative to the
12 A. Staff recognizes that the actual performance of wind resources does not necessarily
13 comport with the design assumptions. The sensitivity that PSCo performed for wind
14 degradation showed a $39 million reduction in savings of the Preferred CEP relative to the
15 Preferred ERP portfolio. Battery degradation relative to planning assumptions has two
18 history in the United States for utility operation, so it is premature to speculate on physical
19 degradation, how it matches current warranties, or how the battery will perform after the
20 warranty period. The injection/withdrawal decision process in reality is also very complex
28
120 Day Report at 12.
29
The fixed costs for the hybrid solar/battery accepted bids actually decrease on a nominal basis throughout the
modeled life. See “System Cost” tab at lines 1005-1006.
Surrebuttal Testimony of Charles S. Griffey
Page 26
1 and will very likely be suboptimal relative to a deterministic modeling approach.30 While
2 I do not believe it is reasonable to estimate the size of that given the time constraints and
3 resources available to me in this case, I can say that to rely so heavily on the modeled
4 economics of batteries twenty years from now is very speculative and not reasonable.
5 Q. CAN YOU SUMMARIZE THE ISSUES YOU HAVE FOUND WITH THE PSCO’S
7 EARLY?
8 A. Yes. Please refer to the figure below for a summary on a net present value basis:
9 FIGURE CSG-SR-6
10 Summary of Economics of Early Retirement of Comanche 1 and 2
11 NPV 2016 $ Millions
12
Item
1. PSCo Claimed CEP 213
Portfolio Savings31
2. Failure to Include (171)
Accelerated Depreciation
and RESA Impacts32
3. TCJA Impacts in ERP33 (37)
4. “REPL 5 190 MW” 2026 (55)
unit capital cost34
5. “REPL 5 190 MW” (37)
2041+ units capital cost35
6. Equalize “REPL 5 190 (68)
MW” and CCGT gas price36
30
PSCo provides a six page discussion on how they model storage in Appendix K to the 120 Day Report.
31
Comparison of the NPV revenue requirements of the Preferred CEP Portfolio to the Preferred ERP Portfolio
presented by PSCO in the 120 Day Report.
32
This amount includes counting accelerated depreciation and the additional RESA impacts described previously in
my Cross-Answer testimony in Figure CSG-CA-2).
33
This is the NPV of applying the TCJA to the CCGT that is assumed to replace Comanche 1 & 2 in 2034 in the
Preferred ERP portfolio.
34
This is the impact of removing the 40% discount to fixed cost that PSCo gives the CT that is placed in service in
2026.
35
This is the NPV of removing the 40% discount that PSCo gives to 5 particular CTs beginning in 2041 in the CEP
portfolios compared to 3 CTs in the ERP portfolios.
36
This is the NPV if the 2034 CCGT in the ERP portfolio was allowed access to the same price of natural gas as was
given to the “REPL 5 190 MW” CTs in the CEP portfolio.
Surrebuttal Testimony of Charles S. Griffey
Page 27
7. Excess transmission cost (90)
in ERP37
8. Wind Degradation38 (39)
Subtotal Deducts (497)
Actual savings of CEP with (284)
Comanche 1 and 2 early
retirement compared to
ERP through 2054
1
2 As the chart demonstrates, PSCo’s claimed savings for the CEP are based on ignoring
3 various costs in a biased manner, and simply assuming different fixed costs and natural gas
4 costs for resource tail units in the CEP portfolio that do not occur in the ERP portfolio. If
5 one simply includes the revenue requirement reduction of the TCJA on the 2034 CCGT in
6 the Preferred ERP portfolio (line 3) the NPV difference is approximately zero. Taking
7 away the unfair fixed cost advantage (lines 4 and 5) PSCo arbitrarily placed into the
8 Preferred CEP portfolio with the “REPL 5 190 MW” units makes the Preferred ERP
9 portfolio cheaper than the Preferred CEP portfolio by NPV $87 million. Using the same
10 gas price for the CCGT as for the “REPL 5 190 MW” units makes the Preferred ERP $155
11 million cheaper on a cumulative basis. In short, PSCo made $160 million in changes
12 associated with the new unit type that bias the result in favor of the Preferred CEP portfolio.
13 When added to their failure to account for the impact of the TCJA on the CCGT in the
14 Preferred ERP portfolio and the need to appropriately account for CEPA and RESA
15 impacts, the continued operation of Comanche 1 and 2 actually saves ratepayers by NPV
37
As discussed in my Cross-Answer testimony in this docket, PSCo assumed nearly $100 million in transmission
interconnection cost for the CCGT in the ERP portfolio, and this cost was not incurred at all for any gas units in the
CEP portfolio. Nor is the cost at all comparable to the low interconnection cost assumed for any of the evaluated bids.
The amount also includes the excess transmission delivery costs assigned to the ERP portfolio I discussed in my Cross-
Answer testimony. Finally, I have subtracted the impact of the TCJA on the original $100 million estimate of excess
transmission cost.
38
This is the amount PSCo calculates from the sensitivity it ran for wind degradation in the 120 Day Report.
Surrebuttal Testimony of Charles S. Griffey
Page 28
1 $155 million. I believe that the Commission should also take the excess transmission that
2 PSCo places on the ERP portfolio and wind degradation into account.
3 There are a number of uncertainties that are not quantified, as I have discussed in
4 my various testimonies in this case. While the chart above shows costs through 2054,
5 consistent with PSCo’s presentation, the portfolio comparison after the retirement of
6 Comanche 1 and 2 is generally driven by comparing cost assumptions about generic units
7 that are unlikely to ever be built. With respect to comparing the Preferred ERP and
8 Preferred CEP portfolios, I recommend concentrating on the costs comparison through the
9 currently planned retirement dates of Comanche 1 and 2 and putting very little weight on
6 Column (2) is the annual difference I showed in Figure CSG-CA-2 in my Cross Answer
7 testimony, and it includes the impact of the accelerated depreciation recovery and
8 differential impacts on RESA provided by PSCo in the 120 Day Report. Columns (3)
9 through (8) are the annual impacts of the items I have discussed in my testimony. Column
10 (9) is the summation of columns (2) through (8) and is the annual revenue requirement
11 difference between the Preferred ERP portfolio and the Preferred CEP portfolio when
Surrebuttal Testimony of Charles S. Griffey
Page 30
1 properly accounting for all impacts. Column (10) is the running total of the annual impacts,
2 and Column (12) shows the cumulative NPV of the impacts. The figure shows that
3 ratepayers are better off on a nominal basis by $577 million in 2036 if Comanche 1
4 and 2 are not retired. On a NPV basis, ratepayers are better off by $299 million in
5 2036 if Comanche 1 and 2 are not retired. There is no breakeven on a nominal or NPV
6 basis. Qualitative factors, such as the CEP portfolio’s heavy reliance on batteries, also
10 A. PSCo’s methodology for evaluating the economics of early retirement is fatally flawed. It
11 ignores the ratepayer cost of recovering the accelerated depreciation of Comanche 1 and 2.
12 It ignores the differential impact on the RESA balance between the CEP and ERP
13 portfolios. It only gives the full benefit of the TCJA reduction in revenue requirements to
14 the Preferred CEP portfolio. Finally, PSCo preferentially introduced new low cost
15 Combustion Turbine (CTs) into the CEP portfolio in lieu of the previously approved
16 resource tail units. This is not just putting a thumb on the scale, it amounts to sitting on
17 the scale to ensure that PSCo can purport to show that the CEP is cost effective. PSCo
18 makes further assumption about gas prices available to the new CT units compared to the
19 CCGT in the ERP portfolio, transmission needs, and the lack of degradation in renewables
20 or batteries that further biases the evaluation in favor of the Preferred CEP portfolio.
21 PSCo noted in Phase 1 of Proceeding No. 16A-0396E that Strategist was not well suited
22 for evaluating early retirement decisions.39 PSCo has proved that point with the way it has
39
“Public Service also argues that the extent of Strategists’ capabilities to conduct the analyses proposed by CIEA is
Surrebuttal Testimony of Charles S. Griffey
Page 31
1 used Strategist in this process. It attempts to focus only on NPV, which allows it to
2 manufacture present value benefit by comparing the ERP portfolio based on a high cost
3 generic CCGT in 2034 to its new low cost replacement units in the Preferred CEP portfolio.
4 None of these units are likely to ever be built, and the Commission should give little to no
5 weight to the purported benefits that accrue after Comanche 1 and 2 are retired. It should
6 instead focus on whether the incremental resources PSCo proposes to buy in the CEP are
10 A. In lieu of its previous GRSA approach, PSCo now proposes to: (1) accelerate the
12 asset, but not put the regulatory asset in rate base nor amortize it until each unit is retired;
13 (3) earn a return at its weighted average cost (WACC) of capital on the regulatory asset
14 after it is placed in rate base and on the BAU level of plant in service prior to each unit
15 retirement;40 (4) lower the RESA by 1% and collect a CEPA instead of a GRSA for that
16 amount until the regulatory asset is completely amortized; and (5) revert the RESA to 2%
19 A. I showed that PSCo’s original proposal was not in the public interest for numerous reasons.
20 First, it is uneconomic to retire Comanche 1 and 2 early. Second, PSCo’s proposed method
unknown and potentially ‘fairly crude.’” Commission Decision No. C17-0316 in Docket No. 16A-0396E at paragraph
52.
40
PSCo modifies it original proposal to state that if there is a rate case prior to unit retirement, it will subtract the
accrued credit from the CEPA from the BAU plant in service balance.
Surrebuttal Testimony of Charles S. Griffey
Page 32
1 to account for the diverted RESA funds would give PSCo a windfall because it did not
2 provide ratepayers the time value of money for the collected funds. Third, PSCo did not
3 show that deferring the proposed accelerated depreciation saved money for ratepayers.
4 Fourth, it is premature to determine the rate of return, if any, that should be granted for the
8 A. PSCo claims that it did not mean to enable itself to make a windfall. Mr. Trowbridge
9 states:
19 PSCo did not meaningfully address any of the other points that I made.
23 A. No. As always, the devil is in the details. What PSCo is actually proposing is that, if it
24 comes in for a rate case after it starts collecting the CEPA and before unit retirement, it
25 will include the accumulated CEPA recoveries as a deduct to rate base. This will still allow
41
Rebuttal testimony of Mr. Trowbridge at 58.
Surrebuttal Testimony of Charles S. Griffey
Page 33
1 PSCo to benefit from regulatory lag.42 While PSCo claims this is typical rate regulation, it
2 is atypical for a utility to simply receive an additional $30 million in cash flow each year
3 without incurring any new costs. PSCo will start collecting approximately $30 million in
4 additional revenue from the CEPA for its own account each year beginning in 2021, and
5 this will help keep PSCo from coming in for a rate case. Further, if PPA payments for new
6 capacity flow through the fuel charge, this will also help avoid a rate case. Thus, the
7 likelihood of a windfall from keeping the time value of money for itself is still there. PSCo
8 has to pay customers at its WACC for the RESA each year, and it should not be allowed to
14 DEPRECIATION AS IT OCCURS?
15 A. No. PSCo contends that its calculations address what it believes the Commission
16 requested,43 but PSCo did not make a comparison to answer this simple question.
17 However, one can take a PSCo calculation in the 120 Day Report of the impact of
19 arising from recovering the deferred depreciation through the CEPA. In the 120 Day
20 Report, PSCo calculated the NPV of revenue requirements for recovering the accelerated
21 depreciation as it occurs at $110 million for the total company.44 In this case, the 2016
42
PSCO response to CR1-7.
43
Trowbridge at 56-58.
44
Appendix E to the 120 Day Report.
Surrebuttal Testimony of Charles S. Griffey
Page 34
1 NPV of the CEPA recovery is $121.4 million on a retail basis and $133 million on a total
2 company basis.45
5 A. No, it costs customers NPV $23 million according to PSCo’s own figures. Further,
6 customers are also harmed because the complexity of PSCo’s proposal allows it the
9 TESTIMONY?
10 A. PSCo presented no reason to maintain the RESA at its current 2% level beginning in 2021.
11 If the CEPA is adopted, there is certainly no reason today to commit to returning the RESA
13 agreement between special interests to ensure access to ratepayer funds. If the CEPA is
14 adopted, which I do not recommend, the Commission should let the passage of time inform
16 IV. CONCLUSION
18 A. Early retirement of Comanche 1 and 2 is not economic. These units are the lowest variable
19 cost thermal units in PSCo’s electric system, and PSCo forecasts relatively low amounts
45
2016 NPV calculation of early retirement revenue requirement for of the CEPA from tab “4.1RA Rollforward” of
Revised Attachment MAM-1. Retail amounts are shown in cells J49 through J56. The retail NPV is grossed up for
the 8.64% wholesale jurisdictional amount to get a total company amount.
Surrebuttal Testimony of Charles S. Griffey
Page 35
1 of capital expenditures to keep them operating through their original retirement dates.
2 PSCo contorts itself to purport to show that early retirement is economic by:
5 2. Failing to account for the impacts to the RESA balance of the CEP portfolio;
7 hard-coding an expensive unit in the ERP cases to drive the net present value
8 calculation;
9 4. Failing to properly account for the impacts of the TCJA in the Preferred ERP
10 portfolio;
11 5. Biasing the calculation by assuming low cost gas turbines are available only if
13 6. Using different gas prices between the CCGT and the new CT unit type in the CEP
14 portfolios;
17 When apples-to-apples calculation is made to address these flaws and biases, the early
18 retirement of Comanche Units 1 and 2 will cost ratepayers $577 million on a nominal basis
19 and $299 million on a present value basis through 2036. The NPV through 2054 is a cost
2 modeling assumptions about resources that are unlikely to ever actually be built.
3 Furthermore, if, as PSCo suggests, solar prices are expected to continue to decrease, then
4 there is no reason to make a decision to retire Comanche 1 and 2 at this time. These two
5 units are clearly more economic to operate than the alternatives in the near-term, and the
6 economic decision would be to defer retirement, operate the two units, and wait for solar
7 costs to continue their decline. In such a situation, the RESA could be lowered, thus giving
8 ratepayers a rate decrease. Ratepayers would also get the benefit of the lower costs
9 associated with operating Comanche 1 and 2 and the production tax credit (PTC) benefits
10 and low operating cost associated with the nearly 800 MW (nominal) of new wind in the
11 ERP portfolio. They would not be saddled with the higher reserve margins, certain high
12 capital costs, and uncertain future benefits for which no one is accountable associated with
18 A. No, the Preferred CEP places excessive risk on ratepayers and largely insulates PSCo’s
19 shareholders from risk. PSCo’s CEPA proposal does not change that. Given the real costs
20 to ratepayers and the lack of tangible benefits, it is not in the public interest.
22 A. Yes.
21065163v.1