PROCEEDING NO.

16A-0396E

IN THE MATTER OF THE § BEFORE THE PUBLIC

APPLICATION OF PUBLIC SERVICE §
COMPANY OF § UTILITIES COMMISSION OF THE
COLORADO FOR APPROVAL OF ITS §
2016 ELECTRIC RESOURCE PLAN § STATE OF COLORADO

CROSS-ANSWER TESTIMONY OF CHARLES S. GRIFFEY

ON BEHALF OF

The Coalition of Ratepayers

January 29, 2018

 PROCEEDING NO. 16A-0396E

IN THE MATTER OF THE § BEFORE THE PUBLIC

APPLICATION OF PUBLIC SERVICE §
COMPANY OF § UTILITIES COMMISSION OF THE
COLORADO FOR APPROVAL OF ITS §
2016 ELECTRIC RESOURCE PLAN § STATE OF COLORADO

TABLE OF CONTENTS

I. SUMMARY OF TESTIMONY ........................................................................................3

II. RESPONSE TO SUPPLEMENTAL ANSWER TESTIMONY OF SHARON

PODEIN ON BEHALF OF THE PUC ............................................................................5

III. CONCLUSION ................................................................................................................12

LIST OF ATTACHMENTS

CA-CSG-1 – PUC RESPONSE TO PSCO4-2

Cross Answer Testimony of Charles S. Griffey

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 1

2 CROSS ANSWER TESTIMONY OF CHARLES S. GRIFFEY

3 I. SUMMARY OF TESTIMONY

4 Q. ARE YOU THE SAME CHARLES S. GRIFFEY WHO PREVIOUSLY

5 TESTIFIED IN THIS CASE?

6 A. Yes. I submitted answer testimony on behalf of the Coalition of Ratepayers on January

7 10, 2018.

8 Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY?

9 A. I respond to the testimony of Colorado Public Utilities Commission Staff (“Staff”)

10 witness Sharon Podein regarding Staff’s recommendations regarding Public Service

11 Company of Colorado’s (“PSCO”) modeling methodology for the “Colorado Energy Plan

12 Portfolio” (“CEP Portfolio”).

13 Q. PLEASE SUMMARIZE YOUR TESTIMONY AND RECOMMENDATIONS.

14 A. Staff recommends that the baseline Strategist run used to evaluate bids in Phase II be

15 optimized using gas, wind, and solar resources through the entire planning period and

16 that pricing for generic renewable resources be updated using pricing from the bids

17 received on November 28, 2017.1 Staff states that PSCO’s decision not to let the model

18 select renewable resources in the model planning period after the Resource Acquisition

19 Period (“RAP”) may create a bias in favor of the CEP Portfolio.2 I explain in my Cross

20 Answer testimony that Staff has identified a reasonable concern with PSCO’s model

21 insofar as the model’s exclusion of renewable resources in the post-RAP period of the

1 Supplemental Answer Testimony of Sharon Podein at 4.

2 Id., at 11-12.
Cross Answer Testimony of Charles S. Griffey
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 1 planning period makes the CEP look more cost effective than it is by artificially inflating

2 energy savings associated with the CEP.

3 I also explain that, even if the Commission were to adopt Staff’s recommendation, this

4 would not remedy all of PSCO’s biases in the modeling. Staff’s concern about the bias in

5 the modeling relates to the variable energy savings of the CEP Portfolio. My Answer

6 Testimony also addresses biases in the modeling, but my concerns relate to biases in the

7 fixed costs of the business-as-usual Baseline Portfolio run and the CEP Portfolio run —

8 e.g., PSCO’s decision to, among other problems, (1) ignore recovery of Comanche Units

9 1 and 2 sunk costs in the CEP Portfolio, (2) hard code an expensive combined-cycle gas

10 turbine in the Baseline Portfolio run that is uniquely loaded with $100 million of

11 transmission costs, and (3) allocate a significant amount of zero-cost long-term purchase

12 power capacity to the CEP Portfolio run. I explain that Staff’s recommendation is in

13 addition to the $429 million of modeling errors I identified in my Answer Testimony.

14 Further, I point out that the need for a rulemaking to examine how the Commission

15 should examine the costs and benefits of early retirement of generation units is further

16 supported by the revelation that Staff and PSCO are in private negotiations around how

17 best to model the CEP Portfolio. In response to discovery,3 Staff states that it “intends to

18 continue negotiations with [Public Service of Colorado]” regarding “reasonable modeling

19 solutions.”4 Given that the hearing is occurring in less than two weeks, it is unclear how

20 other parties will be able to adequately analyze and vet whatever modeling solutions, if

21 any, Staff and PSCO agree upon. Therefore, before committing ratepayers to pay up to

3 Attachment CA-CSG-1, Staff response to PSCo4-2.

4 Id.
Cross Answer Testimony of Charles S. Griffey
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 1 two billion dollars in additional capital and to reimburse PSCO for the early retirement of

2 660 MW of coal generation, there is a need for a public process to ensure that the solution

3 is transparent, economically robust, and not harmful to ratepayers.

4 Finally, I note that Staff’s testimony does not address or in any way change my

5 recommendations regarding the need to reject the Stipulation’s utility ownership

6 provisions and to include all of the hold harmless provisions in my Supplemental Answer

7 Testimony if the Commission decides to proceed with the evaluation of the CEP

8 Portfolio.

10 II. RESPONSE TO SUPPLEMENTAL ANSWER TESTIMONY OF SHARON

11 PODEIN ON BEHALF OF THE PUC

12 Q. WHAT DOES STAFF RECOMMEND REGARDING PSCO’S MODELING

13 METHODOLOGY FOR THE COLORADO ENERGY PLAN?

14 A. Staff witness Sharon Podein recommends that the Commission adopt an alternative

15 methodology for creating a baseline Strategist modeling run for the CEP.5 Staff objects

16 to PSCO’s approach for modeling resources in the years subsequent to the Resource

17 Acquisition Period (“RAP”) because PSCO hardcoded the model so that it would not

18 select renewable resources to fill capacity need for the years outside the RAP. Staff

19 recommends that the baseline Strategist run that will be used to evaluate bids and create

20 portfolios for Commission consideration be optimized to permit gas, wind, and solar

21 resources for the entire planning period, not just the RAP.6

22 Q. WHAT ARE THE RAP AND PLANNING PERIOD IN THIS PROCEEDING?

5 Supplemental Answer Testimony of Sharon Podein at 4.

6 Id.
Cross Answer Testimony of Charles S. Griffey
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 1 A. PSCO’s application contemplates a RAP extending from May 2016 through May 2024.7

2 The Company has proposed to evaluate bids to the competitive solicitation over a

3 planning period extending from June 1, 2016 through June 1, 2054 (“Planning Period”),

4 so the years outside the RAP are 2025 through 2054.8 This period after the RAP is also

5 referred to as the resource tail or the back-end plan.

6 Q. WHAT IS THE EFFECT OF PSCO’S MODELING DECISION?

7 A. Relative to a portfolio optimized with renewable resources, it can drive up the overall

8 energy costs for the Planning Period and, as a result, artificially inflates the energy cost

9 savings associated with the addition of zero-fuel-cost renewable resources during the

10 RAP. Put another way, it makes it likely the energy cost savings from the CEP look

11 better than they are.

12 Q. PLEASE EXPLAIN.

13 A. If the Strategist model chooses only thermal resources to fill PSCO’s resource needs in

14 the resource tail period (i.e., 2025 – 2054), the avoided energy cost on the system will

15 likely be higher relative to a model that allows renewable resources in the resource tail

16 period. This is because thermal resources have energy costs and renewable resources do

17 not have any fuel costs. Thus, by artificially driving up energy costs for the resource tail,

18 PSCO drives up the overall avoided energy cost for the entire Planning Period. As a

19 result, the CEP will look like it saves more in energy costs than is reasonable considering

20 that, in reality, renewable power can be considered for future resource needs after the

21 RAP.

7 Decision No. C17-0316 at ¶ 9.

8 Id.
Cross Answer Testimony of Charles S. Griffey
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 1
2 Q. STAFF SAYS THAT PSCO’S MODELING METHODOLOGY FOR PHASE II “IS

3 UNREASONABLE AND HAS THE POTENTIAL TO DISTORT THE

4 RESULTS.”9 DO YOU AGREE?

5 A. Generally, yes, but for more reasons than stated by Staff. Staff states that it is important

6 that “the analysis of any cost savings associated with the CEP is conducted in a rational,

7 transparent, and unbiased manner.”10 I agree with Staff’s sentiment. PSCO should not

8 be allowed to analyze the costs and benefits of the CEP using a model that biases the

9 results of the Strategist optimization runs in favor of the CEP. However, Staff did not

10 identify all of the biases built into PSCO’s model.

11 Q. PLEASE EXPLAIN HOW STAFF’S RECOMMENDATION CORRESPONDS TO

12 THE RECOMMENDATIONS MADE IN YOUR ANSWER TESTIMONY.

13 A. Staff notes that PSCO only built the “fixed tail of generic resources”11 with generic

14 thermal resources, rather than optimizing the generation outside the RAP using thermal

15 and renewable resources. Staff notes that a “consistent resource tail ensures that different

16 competitive bids will be evaluated on a level playing field with similar assumptions

17 regarding the future resource mix on the Public Service System.”12 Staff’s concerns go to

18 the energy savings that would accrue to resources added in the RAP.

19 I share Staff’s concern about biases introduced into the modeling and the need for the

20 Commission to use consistent resource tails in the models to avoid these biases. It is

21 important, however, for the Commission to understand that modeling biases can impact

9 Supplemental Answer Testimony of Sharon Podein at 6.

10 Id., at 5.
11 Id., at 7.
12 Id.

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 1 both variable energy costs and fixed costs. The issues that I raise in my Answer

2 Testimony relate to biases in the fixed costs used by PSCO, not energy costs. The

3 modeling errors and biases I discuss in my Answer Testimony are therefore incremental

4 to the issue raised by Staff.

5 As I stated in my testimony, PSCO biases the fixed costs comparison of the cases by

6 failing to account for the recovery of the sunk cost of Comanche Units 1 and 2 in the CEP

7 Portfolio. PSCO also biases the costs of the business-as-usual case (called the Baseline

8 Portfolio in my testimony) by hardcoding the Baseline Portfolio model to include an

9 unreasonably expensive combined-cycle gas turbine (“CCGT”) in the resource tail. The

10 CEP model run, on the other hand, did not include the CCGT and instead filled the CEP’s

11 resource tail with a significant amount of zero-cost long-term power purchases and higher

12 energy cost combustion turbines. PSCO further biases the costs of the Baseline Portfolio

13 run by adding $100 million of transmission cost to the CCGT unit, whereas no other

14 resource type in the modeling runs gets assigned transmission costs. Since the CCGT

15 does not exist in the CEP modeling run, this fixed cost bias in favor of the CEP Portfolio

16 and against the Baseline Portfolio is blatant.

17 Q. DOES PSCO’S DECISION TO ALLOCATE EXCESSIVE FIXED COSTS TO

18 THE CCGT ALSO RELATE TO STAFF’S CONCERN REGARDING INFLATED

19 ENERGY SAVINGS?

20 A. Yes. Because of its relatively low heat rate and variable operations and maintenance

21 expense, a CCGT is the only other potentially competitive resource that can lead to lower

22 energy costs in the resource tail period. If PSCO hardcodes the model so that the generic

Cross Answer Testimony of Charles S. Griffey

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 1 CCGT is more expensive through inclusion of high transmission costs, that means higher

2 heat rate combustion turbines are more likely to be selected in the optimization for the

3 resource tail. This leads to higher energy costs in the Baseline Portfolio, and therefore

4 inflated fuel savings in the CEP Portfolio.

5 Q. CAN YOU PROVIDE AN ESTIMATE OF THE LEVEL OF INFLATED ENERGY

6 SAVINGS IF THE HIGHER FIXED COST OF THE CCGT RESULTED IN

7 MORE COMBUSTION TURBINES IN THE RESOURCE TAIL?

8 A. Yes. The heat rate of a combustion turbine is approximately 10 MMBtu/MWh while the

9 heat rate of a new CCGT is approximately 6.8 MMBtu/MWh, so the heat rate differential

10 is 3.2 MMBtu/MWh.13 Thus, during any period that the CCGT could have displaced the

11 combustion turbine, the avoided energy cost is inflated by 47%.14 Put another way, at

12 $4/MMBtu gas, if the combustion turbine were the unit setting the avoided energy cost

13 instead of the CCGT, the avoided energy cost would be inflated from $27.2/MWh to

14 $40/MWh.15

15 Q. SHOULD THE COMMISSION BE AWARE OF OTHER POTENTIAL ISSUES

16 WITH INFLATED ENERGY SAVINGS?

17 A. Yes. As I noted in my Answer Testimony, PSCO split the retirement of Comanche Units

18 1 and 2 across the RAP and introduced utility ownership requirements on gas-fired

19 resources, thereby making it difficult for a modern CCGT to economically bid (e.g., the

13 This estimate is based on my knowledge of the industry and EIA estimates:

https://www.eia.gov/analysis/studies/powerplants/capitalcost/pdf/capcost_assumption.pdf.
14 3.2 MMBtu/MWh divided by 6.8 MMBtu/MWh. This calculation ignores the difference in variable O&M costs,

which has a small impact compared to the heat rate differential.

15 See Attachment JFH-2 to Mr. Hill’s Supplemental Testimony at 4. The $4/MMBtu price is representative of the

first years after the RAP period for the base gas price forecast.
Cross Answer Testimony of Charles S. Griffey
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 1 need that a third-party CCGT can fill is considerably lower than the size of a new, low

2 heat rate CCGT). This means that renewable resources are the only low cost resources

3 that can capture the potentially inflated energy savings that Staff highlighted.

4 Q. DO YOU AGREE WITH STAFF’S RECOMMENDATIONS REGARDING

5 INCLUDING RENEWABLES IN THE RESOURCE TAIL PERIOD?

6 A. While I have no theoretical issue with optimizing the tail end resources by including

7 renewable resources as suggested by Staff, I think there are realistic limitations that

8 deserve a fuller airing than can be provided in the short-time available in this case. For

9 instance, Staff does not suggest how to address the issue of how much thermal generation

10 needs to be on the system in the resource tail period after the RAP to ensure reliability,

11 how much quick-start generation needs to be available in a high renewable generation

12 case, how to uniformly include transmission interconnection costs among thermal and

13 renewable generation, and how to force the model to ensure such constraints are met.

14 The point of having a long-term resource tail end is to allow the energy savings of

15 resources in the RAP to be reasonably estimated on a level playing field. The long-term

16 resource tail should not allow the utility to control the outcome of the analysis by

17 inserting different fixed costs in the various portfolios, nor by inflating energy cost

18 savings. If the issues raised above (and the ones raised in my Answer Testimony) are not

19 appropriately resolved, then the Commission should have no confidence in the cost

20 analyses being performed as part of the CEP proposal. That is why the Commission

21 should open a rulemaking on these issues before it commits Colorado ratepayers to

22 paying billions of dollars in capital, purchased power expenses, and accelerated

Cross Answer Testimony of Charles S. Griffey

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 1 depreciation costs associated with the early retirement of 660 MW of coal-fired

2 generation.

3 Q. DOES STAFF HAVE ANSWERS AS TO HOW TO ADDRESS THESE ISSUES?

4 A. Apparently not yet. For instance, PSCo 4-2 asks Staff how it proposes the Company

5 impose flex resource limits or similar reliability metrics in the creation of the “baseline”

6 run as to the post-RAP. In response, Staff states:

7 Staff has been actively working with the Company towards

8 reasonable modeling solutions. Due to time constraints on all
9 parties in this proceeding, these discussions are not complete.
10 Staff intends to continue these negotiations with the Company
11 including the appropriate treatment of flex reserves.16

12 Q. SHOULD THE FACT THAT REASONABLE MODELING SOLUTIONS HAVE

13 NOT YET BEEN IDENTIFIED CONCERN THE COMMISSION?

14 A. Yes. That response was filed January 23, 2018, or only two weeks before the hearing in

15 this case. That does not leave time for there to be a transparent and full discussion of

16 whatever modeling solution that Staff and PSCO negotiate, if any, and it certainly leaves

17 no time for third party analysis of any modeling solution. The CEP Portfolio, if

18 approved, will commit ratepayers to paying billions of dollars. The decision will not be

19 sound if it is based on modeling that is cobbled together between two parties as the clock

20 runs down.

21 Q. IS THERE ANYTHING IN THE STAFF TESTIMONY THAT IMPACTS YOUR

22 RECOMMENDATIONS IN YOUR ANSWER TESTIMONY?

23 A. No. Staff does not address utility ownership percentages, the need to hold PSCO to its

24 self-build bids, or the errors and biased assumptions I described in my Answer

16 See Attachment CA-CSG-1.

Cross Answer Testimony of Charles S. Griffey
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 1 Testimony. In addition, the median bid prices cited in Staff’s testimony are reasonably

2 close to those used by PSCO in its Low Cost Renewables case, and do not change my

3 findings that the correction of the biases in PSCO’s analysis shows that adoption of the

4 CEP Portfolio would cost ratepayers hundreds of millions of dollars.

5 III. CONCLUSION

6 Q. DO YOU HAVE ANY CONCLUDING REMARKS?

7 A. The CEP Portfolio as it has been presented by PSCO is harmful to the ratepayers of

8 Colorado. The proposed early retirement of Comanche Units 1 and 2 allows the utility to

9 make numerous assumptions that dramatically bias the evaluation of potential resources

10 in favor of the CEP Portfolio. These biases I address in my Answer Testimony concern

11 inflated fixed costs that favor the CEP Portfolio. Staff’s concern is that a lack of

12 renewable resources after the RAP will inflate the energy savings associated with

13 renewable resources added during the RAP, thereby inflating the purported energy

14 savings of the CEP Portfolio. Similarly, the inflated cost of the generic CCGT results in

15 more combustion turbines in the resource tail, which also inflates the purported energy

16 savings of the CEP Portfolio. Any inflated energy savings are in addition to the $429

17 million in fixed costs errors I demonstrated in my Answer Testimony.

18 Combined with the utility ownership targets, it appears that the CEP Portfolio is simply a

19 way for the stipulating parties to advantage themselves at the expense of customers. In

20 order to mitigate the potential harm to ratepayers, I recommend the Commission not

21 consider the CEP Portfolio or any proposal like the CEP Portfolio until after it conducts a

22 rulemaking on how to properly evaluate the costs and benefits of early retirement of

23 generation plants. If the Commission approves consideration of the CEP Portfolio in

Cross Answer Testimony of Charles S. Griffey
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1 Phase II, I recommend that the Commission adopt the hold harmless provisions identified

2 in my Answer Testimony.

3 Q. DOES THAT CONCLUDE YOUR TESTIMONY?

4 A. Yes.

Cross Answer Testimony of Charles S. Griffey

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