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counsel, and pursuant to Decision No. C17-0823-I, submits the following Statement of Position.
SUMMARY
The Colorado Public Utilities Commission (the "Commission") should deny the Joint
Motion to approve the August 29, 2017 Stipulation (the "Stipulation") because Public Service
Company of Colorado (the "Company") has failed to properly model the cost impacts of the
artificially inflate the purported savings of the Colorado Energy Plan Portfolio ("CEPP") as
Specifically, the Company has failed to account for the cost impacts stemming from its
inability to realize Production Tax Credits for wind generation and the corresponding need to
establish a deferred tax asset. Additionally, the CEPP excludes the sunk costs of retiring
Comanche Units 1 and 2 based on the incorrect assumption that the Company will continue to
collect the maximum 2% Renewable Energy Standard Adjustment ("RESA"). In reality, the
competitive cost of renewables means the Company can meet the Renewable Energy Standard
("RES") by charging less than the 2% RESA cap, and therefore shifting 1% of the RESA to the
General Rate Schedule Adjustment is not "a wash" for customers as the Company contends.
2782525.3
Finally, the Company's modeling suffers from other deficiencies that artificially favor the CEPP,
such as the hardcoding of expensive gas generation replacement resources into the baseline
portfolio, rather than permitting the modeling software to optimize the selection of such
resources.
If these modeling errors are accounted for, the CEPP does not keep customers neutral or
result in savings, and therefore the Stipulation must be rejected. Moreover, the Company was
required to properly account for the modeling costs and assumptions in putting forward the
Stipulation so that the Commission can accurately assess which portfolio to adopt in Phase II.
Having failed to do so, the Company should not be permitted to fix these deficiencies after the
fact when the parties will not have the time or procedural means to vet the necessary corrections.
If the Commission does permit some version of the CEPP to move forward in Phase II,
the Commission should ensure that the Company's modeling deficiencies are remedied and that
the Company puts forward an accurate least-cost portfolio, regardless of Company ownership
requirements, against which to judge the CEPP. Interested parties should have the time and
procedural ability, i.e., written discovery, to assess any new assumptions and models put forward
by the Company.
In short, while IREA generally supports the laudable goal of adding renewable resources
to the Company's generation portfolio, IREA does not support doing so on uneconomic terms
BACKGROUND
IREA is a cooperative electric association that purchases wholesale power from the
Company through a power purchase agreement and delivers such power to IREA's members.1
1
Joint Cooperative Witness T. M. Myers Corrected Answer Testimony ("Myers Answer Testimony") (Ex. 108),
3:19-4:1.
2
IREA serves more than 153,000 member-meters in Adams, Arapahoe, Chaffee, Clear Creek,
Douglas, El Paso, Elbert, Fremont, Jefferson, Park, and Teller Counties.2 Its service base
includes residential, commercial, industrial, and agricultural members in rural and urban
communities.3 IREA also has a joint ownership stake with the Company in the Comanche Unit 3
power generation station in Pueblo, Colorado.4 IREA has a significant interest in the proceeding
because, as testified to by the Company, there are a "host of issues" concerning how IREA will
ARGUMENT
Commission was clear in its expectations of the Company. The Commission stated that, to
after the Phase I Decision", the Company must provide a "full Net Present Value (NPV) analysis
demonstrating how the CEP Portfolio could provide savings compared with a baseline portfolio
as ordered in the Phase I decision, where Comanche 1 and 2 are not retired."6 Further, the
Company was required "to provide calculations using its best estimates of all costs involved so
2
Id. at 5:7-9.
3
Id. at 5:4-5.
4
Id. at 5:1-2. As part of this proceeding, the Company has represented that it will be working closely with IREA
and Holy Cross Rural Electric Association (another stakeholder in Comanche 3) to resolve issues stemming from
costs increases to Comanche 3 due to the proposed early retirements of Comanche Units 1 and 2 and that changes to
cost allocations between the units may be reflected in the 120-day Report. Company Witness S. H. Mills
Supplemental Direct Testimony (Ex. 83), 40:7-12; see also Tr. Vol. V at 217:14-16 (2/7/18) (Company witness
testifying that "we have to work with [IREA and Holy Cross] to see if this plan can be made beneficial and
acceptable"). To date, the cost-shift issues have not been resolved, and therefore IREA reserves the right to address
these issues later in this docket, in the AD/RR Proceeding, or in any other forum, as necessary.
5
Tr. Vol. V at 216:15-217:16 (2/7/18).
6
Interim Decision No. C17-0796-I, ¶ 41 (emphasis added).
3
[the Commission] can fully understand the drivers and analysis of bids that may result in a
The Commission identified several specific considerations that the Company was to
address in the Stipulation proceedings, including "a thorough discussion and analysis of how
wind and solar tax credits will apply to both IPP bids and utility ownership proposals," and the
costs involved from the "accelerated depreciation of Comanche 1 and 2" as part of the NPV
analysis.8
proceedings and "prior to the Company's filing of the Phase II 120-day report."9 The
Commission was clear on this point "so that parties can investigate and potentially challenge this
information and the Commission can make a determination on these issues" prior to the
Company filing its 120-day report.10 The Company has failed to satisfy these obligations in
I. The Company Has Failed to Model the Cost Impacts of the Deferred Tax Asset
for Unrealized PTCs.
As set forth in the Answer Testimony of Joint Cooperative Witness Terry M. Myers, the
Company's modeling of the CEPP does not account for the costs arising from its inability to
realize Production Tax Credits ("PTCs") for wind generation and from the corresponding need to
establish a deferred tax asset ("DTA") to capture those PTCs. The issue is that the Company is
assuming cost savings from the PTCs when there is no tax liability against which the PTCs can
7
Id. (emphasis added).
8
Id. at ¶¶ 40, 42.
9
Id. at ¶ 39.
10
Id. at ¶ 40.
4
currently be applied.11 In other instances where the Company has been unable to realize PTCs, it
has proposed creating a DTA to capture accruing PTCs that cannot be realized and to collect the
The PTCs that the Company will accrue from the CEPP derive from its 50% ownership
targets for renewables that are built into the Stipulation.13 Understanding the impact of the DTA
is critical because, absent the Company's proposed ownership stake, Independent Power
Producers ("IPPs") could realize PTCs currently, or sooner than the Company, and could pass
along these savings through reduced contract prices.14 Absent its proposed ownership stake, the
Company would also not need to charge customers the carrying costs of the DTA.
The carrying costs of the DTA are amplified here by the significant number of PTCs the
Company will be banking from other renewable projects in which it has an ownership stake, such
as the Rush Creek wind project, and by the reduction in the corporate tax rate that will decrease
the tax liability against which the Company's PTCs can be applied.15 These costs can be
approximated through modeling and are significant. For example, Mr. Myers projected the
cumulative DTA costs of the Company owning 200 MW of wind generation at $110,881,977.16
The failure to account for these costs greatly inflates the projected savings of the CEPP.17
Despite the magnitude of these cost impacts, the Company admits it did not include any
DTA costs in its modeling of the CEPP.18 At the same time, the Company agrees with Mr.
11
Myers Answer Testimony (Ex. 108), 4:17-20.
12
Id. at 7:22-8:8; see also Company witness D. L. Eves Rebuttal Testimony ("Eves Rebuttal") (Ex. 79), 50:10-18.
13
Stipulation at 8 (Ex. 76).
14
Id. at 10:16-11:2.
15
Tr. Vol. VII at 17:1-6 (2/9/18); Myers Answer Testimony (Ex. 108), 11:18-25. In fact, a Company witness
testified that, because of bonus depreciation issues, the Rush Creek PTCs cannot be realized and will be captured in
a deferred tax asset. See Tr. Vol. V at 132:19-25 (2/7/18).
16
Id. at 10:9-13.
17
Tr. Vol. VII at 17:11-20 (2/9/18).
18
Myers Answer Testimony (Ex. 108), 11:3-17.
5
Myers' accounting of the projected cost impacts modeled in his answer testimony.19 This fact
was also reflected in the Company's lack of any cross-examination of Mr. Myers regarding his
findings concerning the magnitude of the DTA costs. Yet, the Company refused to update its
modeling to address the DTA impacts in the Stipulation proceeding, declaring that it did "not see
Instead, the Company is steadfast that the DTA impacts should be modeled and addressed
as part of the Company's 120-day report in this proceeding. In modeling the tax issues in this
manner, the Company believes that it is better to select the preferred portfolios and then assess
the tax impacts on the back end, rather than modeling the tax impacts on the front end to ensure
the Company has selected the proper portfolios in the first place.21 However, backing into these
issues after the Stipulation proceedings are closed directly contradicts the Commission's
requirement that the Company's models, costs, and assumptions be set prior to filing the 120-day
report.22 While the Company contends that it needs bids to determine the actual impact of the
DTA, the Company could have projected potential tax impacts using assumptions just as Mr.
Myers did.23 Making assumptions is an inherent part of the modeling process, and therefore the
Company cannot justify its modeling omission by claiming that actual numbers were
unavailable.
Furthermore, modeling the DTA impact after the parties have had a chance to vet the
modeling and assumptions is inappropriate, particularly given the complexity of this issue. For
example, a Company witness testified that assessing the cost of the DTA will involve modeling
19
Eves Rebuttal (Ex. 79), 50:4-7 (admitting that "Mr. Meyers is right to point out that the DTA could impact the
CEPP"); see also Tr. Vol. V at 135:20-25 (2/7/18) (Company witness testifying that he "agreed with everything" Mr.
Myers said with respect to the accounting of the DTA).
20
Eves Rebuttal (Ex. 79), 49:11-12.
21
Tr. Vol. V at 75:11-24 (2/7/18).
22
Interim Decision No. C17-0796-I, ¶¶ 39-41 (emphasis added).
23
Tr. Vol. VI at 160:22-163:20 (2/8/18).
6
as to when the Company will be out of a net operating loss position such that it can apply
PTCs.24 This issue is complicated by the fact that the parent company, Xcel Energy Services,
Inc. ("Xcel"), files a consolidated return on behalf of its subsidiaries, including the Company.25
Consequently, PTCs can only be applied when Xcel is out of a net operating loss position. At
the Hearing, the Company could not explain how the PTCs will be treated if, for example, Xcel
remains in a net operating loss position while the Company has taxable income against which the
PTCs could otherwise be applied.26 In fact, no Company witness in this Stipulation proceeding
In short, the Commission should reject the stipulation because the Company has failed to
account for a critical cost category in assessing the net present value of the CEPP as required in
Interim Decision No. C17-0796-I. Even if the Company were to accurately model the DTA
costs, it would not be able to justify the ownership targets mandated by the Stipulation because
II. The Company Incorrectly Excludes the Sunk Costs of Early Retirement from Its
CEPP Model.
As set forth in the testimony of Charles S. Griffey, the Company artificially inflates the
cost savings of the CEPP by excluding from the CEPP the accelerated depreciation costs
resulting from early retirement of Comanche Units 1 and 2.28 The Company does not dispute
that it omitted the accelerated depreciation costs from the CEPP model.29 Rather, the Company
contends that the exclusion of this significant cost was proper based on the parameters of the
parties' Stipulation, which requires that the accelerated depreciation be paid for by reducing the
24
Tr. Vol. V at 77:19-78:14 (2/7/18).
25
Myers Answer Testimony (Ex. 108), 5:5-19.
26
Tr. Vol. V at 135:5-21 (2/7/18).
27
Id. at 160:7-161:3.
28
Coalition of Ratepayers witness Charles S. Griffey Answer Testimony ("Griffey Answer Testimony") (Ex. 95E),
18:13-24:6.
29
Eves Rebuttal (Ex. 79), 39:9-11.
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RESA from 2% to 1% and increasing the GRSA by a corresponding 1%.30 The Company
reasons that the collective impact of the accelerated depreciation, the RESA, and the proposed
GRSA are "a wash" for customers and consequently accelerated depreciation does not need to be
This logic rests on the incorrect assumption that the Company will continue to collect the
maximum 2% RESA when the reduction in the cost of renewables means that a 2% charge will
not be necessary to meet the RES. C.R.S. § 40-2-124(1)(c). This point was crystallized by the
Commissioner Moser, a Company witness testified that the Company has currently met the 30%
RES and that the Company will be "over collected" on the RESA around 2022.32 Consequently,
"at one point [the Company] envisioned implementing the RESA reduction sooner" because it
can "reduce the RESA and still fund the programs at an expected level in the renewable energy
plans to be approved in the future."33 When asked whether the Company had given thought to
reducing the RESA to help with customers' bills, the Company's witness answered: "Yes, we
However, to avoid potentially losing a portion of the maximum 2% RESA, the Company
instead proposes to shift that portion of the RESA to pay for the early retirement of two coal-
fired power plants so that the Company can add more renewables in which it will own a
significant stake. The Company is, in essence, asking the Commission to lock in the RESA
maximum regardless of the Company's actual costs needed to meet the RES. While IREA
30
Id. at 35:6-11.
31
Tr. Vol. VI at 64:5-17 (2/8/18).
32
Tr. Vol. V at 201:21-202:6 (2/7/18).
33
Id.
34
Id. at 202:15-20.
8
generally agrees with the Company acquiring more renewables, the Company should do so based
The Company's sole basis for excluding accelerated depreciation in the CEPP modeling
is that the Stipulation calls for it. However, as Mr. Griffey testified, stipulating not to consider
the accelerated depreciation as a cost of a plan to retire generation resources early is like
stipulating that "two plus two is three."35 When pushed by Commissioner Koncijla as to why the
failure to account for accelerated depreciation provides a "truer picture of the power plant
economics" of early retirement, the Company's power plant economist, Jon T. Landrum, could
not provide an explanation based on economics.36 Rather, his only explanation was: "because
the stipulation that we have proposed with the joint parties has this structure."37 When further
pushed by Commissioner Koncijla, Mr. Landrum conceded that there could be different ways of
looking at the economics but that "[t]hose are not what the Company is proposing."38 This
circular reasoning cannot serve as the basis for retiring 660 MW of generation several years
ahead of schedule.
As set forth in the modeling in Mr. Griffey's answer testimony, once the cost of
accelerated depreciation of early retirement is accounted for, the net present value analysis
swings significantly towards the baseline portfolio.39 The Company does not dispute Mr.
Griffey's calculations but only his decision to account for accelerated depreciation.40 Because
Mr. Griffey is correct to account for accelerated depreciation, the Commission should reject the
Stipulation.
35
Tr. Vol. VI at 125:7-18 (2/8/18).
36
Tr. Vol. VII at 52:5-9 (2/9/18).
37
Id. at 52:10-12.
38
Id. at 52:20-53:17.
39
Griffey Answer Testimony (Ex. 95E), 27:4-16.
40
Company witness J.T. Landrum Rebuttal Testimony (Ex. 82), 13:6-15:13 (arguing merely that the Stipulation
justifies the treatment of accelerated depreciation).
9
III. The Company's Modeling Suffers from Other Deficiencies That Inflate the Cost
of the Baseline Portfolio.
The Company cannot dispute that, even with its modeling errors discussed above, the
CEPP does not project cumulative savings against the baseline portfolio until 2038, after both
Comanche Units 1 and 2 have been retired.41 In fact, when Comanche Unit 2 is retired in 2035,
the cumulative savings of the CEPP versus the baseline portfolio is negative $56 million.42
IREA agrees with Staff witnesses and Mr. Griffey that these distant savings projections are a
result of the different post-retirement modeling assumptions the Company built into the CEPP
The primary example of this is the Company's decision to hardcode a combined cycle gas
generation for Comanche Units 1 and 2 only in the baseline portfolio.43 Table CSG-1 in Mr.
Griffey's surrebuttal testimony concisely demonstrates how the Company's disparate assumptions
regarding replacement generation create the projected back-loaded savings of the CEPP.44
The Company should not be permitted to justify the early retirement of two generation
resources that are admittedly more economical during their scheduled lives based on an apples-
in order to accurately compare the two portfolios, the Company's modeling must permit
optimization of replacement resources in the baseline portfolio.45 Ms. Podein clearly articulated
why the hardcoding of the CCGT, a significant capital cost, biases the CEPP over the baseline
41
Tr. Vol. VI at 113:2-114:14 (2/8/18).
42
Id. at 114:6-8.
43
See Griffey Surrebuttal Testimony (Ex. 97), 6:19-23, 8:3-13.
44
Id. at 11.
45
Tr. Vol. VII at 161:11-162:3 (2/9/18).
10
portfolio.46 In her opinion, if the Company allowed the model to optimize replacement
resources, the model would not select a CCGT, thereby eliminating significant costs the
Company tags on the baseline portfolio, including $100 million in transmission costs.47
In short, because the Company's assumptions and modeling artificially inflate the costs of
the baseline portfolio, the Commission should reject the Stipulation as not in the best interests of
ratepayers.
IV. If the Company Is Permitted to Move Forward with the CEPP, Adequate
Protections Should Be Put in Place.
Between the significant cost categories omitted from the CEPP and artificially added to
the baseline portfolio, there is no way the Company can demonstrate that the CEPP "will keep
conditionally move forward with the CEPP, the Commission should order the Company to take
measures necessary to accurately assess the CEPP. These measures should include, at a
minimum:
Requiring the Company to sufficiently revise its model to account for the cost impacts of
Requiring the Company to put forward a least cost portfolio, regardless of Company
Requiring the Company to include the cost of accelerated depreciation from early
46
Id. at 164:7-16, 166:21-167:12.
47
Id. at 170:3-19.
48
Stipulation (Ex. 76), at 2.
11
Requiring the Company to permit the modeling software to optimize replacement
Revising the procedural schedule in this proceeding and in the associated AD/RR
Proceeding to allow for sufficient time and procedures, including written discovery, for
While the Company and Stipulating parties may argue that the Stipulation will fall apart
if these safeguards are put in place, that should not deter the Commission because self-interested
CONCLUSION
Electric Association respectfully requests that the Commission deny the motion to approve the
Stipulation; or, in the alternative, if the Commission permits the Company to move forward with
the Stipulation, the Commission should put in place adequate safeguards to ensure an accurate
12
Respectively submitted this 21st day of February, 2018.
13
CERTIFICATE OF SERVICE
I hereby certify that on this 21st day of February, 2018, the foregoing
INTERMOUNTAIN RURAL ELECTRIC ASSOCIATION'S STATEMENT OF
POSITION IN OPPOSITION TO STIPULATION was served on those parties shown on the
Commission's Certificate of Service accompanying such filing as indicated below through the
e-filing system or by other means in accordance with applicable law.
14
Gene Camp gene.camp@state.co.us CPUC
Sharon Podein sharon.podein@state.co.us CPUC
Rebecca Lim rebecca.lim@state.co.us CPUC
Paul Caldara paul.caldara@state.co.us CPUC
Erin O’Neill erin.oneill@state.co.us CPUC
Melvena Rhetta-Fair melvena.rhetta-fair@coag.gov CPUC
Mark Detsky mdetsky@dietzedavis.com Energy Outreach
Colorado
Gabriella Stockmayer gstockmayer@dietzedavis.com Energy Outreach
Colorado
Rebecca Boyle rboyle@dietzedavis.com Energy Outreach
Colorado
Julie Wolfe julie@dietzedavis.com Energy Outreach
Colorado
Jennifer Gremmert jgremmert@energyoutreach.org Energy Outreach
Colorado
Andrew Bennett abennett@energyoutreach.org Energy Outreach
Colorado
Leslie Glustrom lglustrom@gmail.com Pro Se
Randolph W. Starr randy@starrwestbrook.com Holy Cross
Bryan J. Hannegan bhannegan@holycross.com Holy Cross
Diana Golis dgolis@holycross.com Holy Cross
Christopher Hildred childred@holycross.com Holy Cross
Robert O'Neill roneil@mccarter.com Holy Cross
Thomas F. Dixon thomas.dixon@coag.gov OCC
Brent Coleman brent.coleman@coag.gov OCC
Cory Skluzak cory.sckluzak@state.co.us OCC
Cindy Schonhaut cindy.schonhaut@state.co.us OCC
Chris Neil chris.neil@state.co.us OCC
Ingrid Hassell ingrid.hassell@coag.gov OCC
Tim Villarosa tim.villarosa@state.co.us OCC
Chere Mitchell chere.mitchell@state.co.us OCC
Dana Showalter dana.showalter@coag.gov OCC
Hector Arreola hector.arreola@state.co.us OCC
Scott Brockett scott.b.brockett@xcelenergy.com PSCo
15
Christopher Irby christopher.m.irby@xcelenergy.com PSCo
William Dudley bill.dudley@xcelenergy.com PSCo
Sage Tauber sage.tauber@xcelenergy.com PSCo
Matthew S. Larson mlarson@wbklaw.com PSCo
Jack Ihle jihle@xcelenergy.com PSCo
Gregory E. Sopkin gsopkin@wbklaw.com PSCo
Caitlin M. Shields cshields@wbklaw.com PSCo
Schuna Wright schuna.wright@xcelenergy.com PSCo
Shayne Madsen smadsen@colawyer.net Ratepayers
Meredith Kapushion mkapushion@colawyer.net Ratepayers
Meghann Griffiths mgriffiths@jw.com Ratepayers
Travis Ritchie travis.ritchie@sierraclub.org Sierra Club
Michael Hiatt mhiatt@earthjustice.org Vote Solar
Rick Gilliam rick@votesolar.org Vote Solar
Eleanor Greer egreer@earthjustice.org Vote Solar
Erin Overturf erin.overturf@westernresources.org Western Resources
Advocates
Gwen Farnsworth gwen.farnsworth@westernresources.o Western Resources
rg Advocates
Penny Anderson penny.anderson@westernresources.org Western Resources
Advocates
Robert K. Harris rob.harris@westernresources.org Western Resources
Advocates
16