PUD 2011.87 Chernick Testimony 11.9.11

8/3/2019 PUD 2011.87 Chernick Testimony 11.9.11

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Electic Sevice in Olahoa )- NY F

PL NK

N LF F

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Resource Insiht Inc

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L F NN

I. Identication and Qualications ...........................................................................

II. Introduction.......................

2III. Imortance of Resource Assessment and Acquisition............. 5

A. General Considerations .................5

B Challenes Facin OG&E Generators ............................................................ 6

. Reional Haze Rule .................................................................................. 7

2. Cross-State Air Pollution Rule .................................................................. 8

3. Hazardous Air Pollutants ........................................................................ 0

4 Coal Combustion Residuals....................................................................

5 Coolin Systems ..................................................................................... 2

IV. Clean Resource Potential ..................................................................................... 3

A. Enery Eciency .......................................................................................... 3

B Wind Generation ........................................................................................... 8

C. Existin Gas Resources ................................................................................. 22

OG&E's Performance in Resource Assessment and Acquisition ........................ 25

A. Enery Eciency .......................................................................................... 26

B Wind Resources ............................................................................................. 27

C. Existin Gas Resources ................................................................................. 30

L F EX

Exhibit PLC- Professional Qualcations of Paul Chernick

Drect Tesmony ofaul Chek Caue No UD ovember age


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. dentication and Quaications

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. henic, ease state ou nae, occuation and business addess.

I am Pal L hernck I am the resdent of Resorce Insght, Inc, 5 Water

Street, Arlngton, Massachsetts

Suaize ou oessiona education and exeience.

I receved an SB degree from the Massachsetts Insttte of Technology n Jne

1974 om the vl Engneerng Deartment, and an SM degree om the Mass

achsetts Insttte of Technology n Febrary 1978 n technology and olcy I

have been elected to membersh n the cvl engneerng honorary socety h

Eslon, and the engneerng honor socety Ta Beta P, and to assocate

membersh n the research honorary socety Sgma X

I was a tlty analyst for the Massachsetts Aoey General for more

than tee years, and was nvolved n nmeros asects of tlty rate desgn,

costng, load forecastng, and the evalaton of ower sly otons Snce

1981 I have been a consltant n tlty reglaton and lannng, rst as a

research assocate at Analyss and Inference, aer 1986 as resdent of PL,

Inc, and n my cent oston at Resorce Insght In these caactes, I have

advsed a varety of clents on tlty matters

My work ha consdered, among other thngs, ntegrated resoce lannng,

the cost-eectveness of rosectve new generaton lants and transmsson

lnes, retrosectve revew of generaton-lannng decsons, ratemakng for

lant nder constrcton, ratemakng for excess and/or neconomcal lant enter

ng servce, conservaton rogram desgn, cost recovery for tlty ecency

rograms, the valaton of envronmental extealtes from energy rodcton

and se, allocaton of costs of serce between rate classes and rsdctons,

Direct Testim fPaul Cheick Cause N P Nvember Page


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desgn of retal and wholesale rates, and erformance-based ratemakng ( PBR)

2 and cost recoery n restrctred gas and electrc ndstres My rofessonal

3 qalcatons are rther smmared n Exhbt PL-

4 Q Have ou testied evious in utiit oceedins?

A: Yes I hae tested oer 250 tmes on tlty sses, before reglators n oer

6 thrty USrsdctons and e anadan ronces My reos testmony s

7 lsted n my resme

8 . ntoduction

9 Q o who ae ou testiin?

0 A Mytestmony s sonsored by the Serra lb

Q What is the uose o ou diect testion?

2 A The Serra lb asked that I reew the adeqacy of resorce lannng and

3 acqston by Oklahoma Gas and Electrc (OG&E or the omany)

4 Q: What secic issues does ou testion addess?

5 A My testmony addresses the followng sses

6 the morance of acte montorng of resorce aalablty and acqston

17 of cost-effecte resorces,

8 the sses confrontng OG&Es lannng,

9 the resorces thatOG&E shold be montorng and/or acqrng n he near

20 term,2 the qalty ofOG&E's resorce montorng and acqston

22 Q Pease suaize ou concusions.

23 A My maorconclsons are as follows:

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Integrated electrc tltes shold always montor the avalablty of re-

2 sorces and assess the economcs of acqrng those resorces nder exst-

3 ng condtons and n resonse to ossble ftre contngences

4 Where resorces are avalable that wold decrease rateayer costs, the

5 tlty shold endeavor to acqre those resorces even f the tltys cr-

6 rently owned and contracted resorces wold rovde adeqate relablty

7 Assessng and acqrng resorces s tclarly mortant for tltes that

8 face the ossblty of maor exendtres to mantan the load-resorce

9 balance

0 The omany faces maor exendtres to kee several of ts generaton

nts on lne over the next several years, de to emergng lmts on ol-

2 ton emssons

3 WhleOG&E acknowledges ts resonsblty to "rovde otons for com-

14 lyng wth state and federal envronmental mandates and "rse otons

5 that meet legal reqrements at the lowest cost ( Langston Drect at 2,

6 2527), t has not taken the actons necessary to meet ths resonsbl

7 Were OG&E to ram an energy-ecency ortfolo comarable to

8 those of ndstry leaders, t cold redce energy reqrements by 3,720

9 GWh and caacty reqrements by abot 900 MW by 2022, at a cost of

20 abot 5kWh Ths efcency ath wold redce energy blls, whether or

2 not any OG&E ower lants are retred or otherwse lmted n the next

22 few years

23 ast wnd otental exsts n Oklahoma and srrondng states The costs

24 ofrecent wnd-ower acqstons sggest that rateayers wold be better

25 owth addtonal wnd ower, regardless of the fate of the exstng fossl

26 lants

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Q

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In the Sothwest Power Pool and other areas close to OG&E, there are

aroxmatelynne merchant gas-red combned-cycle ower lants, total

ng nearly 7000 MW, that may be avalable to the omany as long-term

resorces Many recent sales of gas combned-cycle lants n ths regon

have been for less than $500/kW whch s less than halfOG&Es estmate

of the cost of new gas combned-cycle

The omany has erformed oorly n assessng and lang for acqs

ton of these resorces OG&E has not develoed lans for maxmng

cstomer savngs from energy ecency or dentng and acqrng cost

eectve wnd resorces It has not dented the gas resorces avalable

for rchase or montored the market rce of recent sales of gas combned

cycle lants

What ae ou ecoendations o the oission in this oceedin?

The ommsson shold nd that OG&Es resorce lannng and acqston

has been nadeqate Seccally the ommsson shold reqre the omany

to take the followng stes: Plan for and mlement meanngfl energy-ecency eorts entlythe

omany has no lans ast 202 to ram ecency rograms

Actvely montor the market for wnd energy rchases new wnd-lant

onstrcton and rchases from exstng merchant generaton

Acqre wnd resorces when cost-effectve

22 Q

How shoud the deciencies in OG&E's annin aect the ates aowed in

this oceedin?

24 A: The ommsson shold recogne OG&Es mrdence n resorce lannng

25 and acqston n ts determnaton of the omany's ret on eqty and/or

26 management-comensaton levels If a tlty s not managng ts resorce

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plannng and acqston well, t sold not be eng te ret typcal of well-

2 managed tltes, and ts management sold not be pad as well as ter peers

3 n beer-rn tltes Reglators ave made ts type of adstment to reect

4 smlar decences by oter tltes

5 In ts case, I do not recommend any sc adstment n revene reqre-

6 ments A ste admonton to te ompany may be scent to cange ts

7 beavor, especally f te ommsson warns OG&E tat nancal conse-

8 qences wll follow f te ompany does not mprove ts performance

9 . otance o esouce ssessent and cquisition

0 A. General Considerations

Q Wh should utilities continuall eview the availabilit and costs o

2 esouces?

3 : Two basc consderatons motvate contnal revew of resorce optons Frst,

4 tere are opportntes for acqrng resorces at costs low enog to redce

5 cstomer blls For OG&E, bot energy ecency and wnd energy crrently

6 meet ts standard

7 Second varos events can occr tat wold sgncantly cange a tls

8 proected load-resorce balance at wold reqre rapd acqston of new

9 resorces Tese condtons nclde te annoncements of large new loads,

20 complete falre of a maor generatng nt, and emergence of problems wt

2 exstng resorces reqrng stdown, nt restrcton or expensve nvestments

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B. haenges Facing ompany Generators

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What oeatin issues do OG&Es eneatos ace ove the next ew eas?

All thermal generaton nts face normal oeratng rsks, ncldng falres ofbolers, trbnes and generators sometmes wth catastrohc conseqences be

yond the faled eqment, as when eces of a dsntegratng trbne damage

other arts of the lant These roblems can strke a lant of any age althogh

rsks may ncrease wth age Any tlty, ncldng OG&E may sddenly face a

decson abot whether to nvest n rearng a faled nt ( and makng other

reqred grades) or to retre or mothball the nt and relace t wth other

resorces The better OG&Es nformaton abot the markets and ts resorce

otons the faster and better the resltng decsons abot resondng to eq

ment falre

Has OG&E actoed in such oeatin iss?

Yes Mr Langston ( Drect at 13, 2) tested that nvestments wll be re

qred to rodce "longer oeratonal lves r or exstng generaton facltes

Oddly enogh, the omany states t has no cost-eectveness or costbenet

analyses of those exendtres ( IR Serra 2-26)

8 Q Does OG&E ace an aticula issues with esect to its ossil owelant

9 eet at this tie?

20 A Yes A nmber of envronmental consderatons are convergng that may n-

2 crease the costs of contnng to oerateOG&Es fossl generaton artclarly

22 the coal nts As Mr Langston says ( Drect at 12, ll 2324) "Envronmental

23 olcy and related state and federal mandates reresent crtcal challenges to

24 OG&E's ablty to serve ts cstomers Whle the omanys ablty to serve

25 ts cstomers can hardly be consdered to be at rsk the cost of servng

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cstomers wll vary, deendng on how well OG&E reares for and reacts to

2 develong reqrements

3 Regional Haze Rule

4 Q What OG&E lants ae subject to etot equieents unde the eional

5 Haze ule?

6 TheOklahoma Dearment of Envronmental Qalty ssed a State Imlement-

7 aton Plan nder the Hae Rle on Febrary 2 20 reqrng the followng

8 controls on omany lants9

0

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nstallaton of low-NO bers over-red ar, and e-gas recrclaton

on Semnole Unts , 2 and 3 at a catal cost of $26 mllon;

nstallatonof lowNO bers and over-red ar on Sooner Unts and 2

at a catal cost of $4 mllon;

3 nstallaton of low-NO bers and over-red ar on Mskogee 4 and 5 at

4 a catal cost of $4 mllon

5 These measres were acceted by OG&E n an agreement wth the DEQ n

6 Febrary 200

7 On March 22, 20, the US acceted most of these determnatons

8 bt also roosed to reqre e-gas deslraton ( scrbbers) for Mskogee 4

9 and 5 and Sooner and 2 The estmates that the oveght cost of the scrb-

20 ers n the standard analytcal framework sed n comarng control cost-

2 eectveness between otons to be $299 mllon for Sooner and $307 mllon

22 forMskogee whleOG&E estmates the nomnal costs for comleton n 204

Kordzi J e a! Tehnial Suppor Doumen r he Oklahoma Regional Haze Sae Imple

menaion Plan and Federal Implemenaion Plan Marh , a 4

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or 205 to be $585 million for Sooner and $634 million for Muskogee More

2 than haf the dierence in these estimates is due to the OG&Es inclusion in its

3 estimates of total ratemaking costs factors (escalation and higher

4 contingency), which are excluded om the s standard cost-comparison

5 methodology

6 Q What is the tie ae o deteinin the equieents o the Soone

7 and usoee scubbes, and o OG&E's coliance?

8 A: The has a deadline of December 3, 20, for nalizing the Oklahoma

9 compliance plan The has proposed that the installation of the scrubber or

conversion to natural gas ( which would reduce sulfur emissions even rther) be

required by December 204, although is considering compliance dates om

2 December203 through December 206 (76 FR 670)

3 CrossState Air-Pollution Rule

14 Q:

What is the ossState iPollution ule?

5 A: The Cross-State Air-Pollution Rule limits various combinations of pollutants in

6 27 states The porion of the rule applicable toOklahoma is a proposed limit on

7 state-wide power-plant NO emissions during the summer ozone season of May

8 to September with ll trading of emissions in 202 and 203, followed by full

19 intrastate trading and limited interstate trading from 20 4 on

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Q Which OG&E units would be aected b the ossState i Pollution

2 ue?

3 A: All of the Companys fossil units other than six small combustion turbines

4 would be affected by the NO limits The 200 emissions and proposed NO

5 allocations of specic OG&E units are summarized in Table

6 Table : OG&E Ozone-Season NOx Allocations (on00 0

Plant and Unit Type Emissions Allocation Change

Horseshoe Lake6 Gas 397 210 -4%Hoeshoe Lake7 300 309 3%Hoesho Lake8 Gas 427 411 -4%Horseshoe Lake9 CT 2 7 24%

Horseshoe Lake10 CT 10 10 -2%McClain 141 153 9%

Muskoge-3 Gas 110Muskoge-3 Coal 2460 1244 -49%Muskogee3 Coal 2429 1292 -4%Muskogee-6 Coal 2509 1'180 -53%

Mustang-1 Gas 49 22 -55%Mustang2 Gas 38 22 -43%Mustang-3 Gas 185 125 -33%Mustang4 Gas 397 279 -30%Mustang-SA CT 4

Mustang5 CT 4Rdbud 103 120 16%

eminole1 Gas 512 497 -3%eminole2 Gas 507 512 1%eminole3 Gas 518 509 -2%

ooner1 Coa 2407 1347 -44%ooner2 Coa 2190 1229 -44%

Total 15583 9596 -38%

7 While some gas steam units have allocations substantially below their past

8 emissions in percentage the vast bulk of the required tonnage reduction is due9 to the six coal units

Mukogee i reired and Muang A and B operae rarel o hee uni had no 201 0

emn

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What eaure ight be necear to bring OG&E generation eet into

coliance with the roState irPollution ule?

It appears thatOG&E will need to undertake some combation of the following

measures:

move up the installation of lowNO bers required under the Regional

Haze rule for Muskogee 4 and 5 and Sooner and 2,

add lowNO buers for Muskogee 6,

purchase allowances,

restrict the operation of the coal plants during the ozone season, such as by

dispatching the combined-cycle units as baseload and cycling the coal

units

Allowances are likely to be expensive Evolution Markets reports that sea

sonal NO allowances are trading for around $2,000ton At that price, meeting

OG&Es allowance shortfall would cost about $6 million annually Starting in

2014, the supply of instate allowances may be inadequate, pushing allowance

prices much higher, if they are available at all While reducing dispatch of coal

units should not aect reliability, it may substantially increase energy costs

18 . Hazardous Air Pollutants

19 Q: What control would be required b the ' ending rule or hazardou

20 air ollutant?

21 A: In March 2011, in response to a 2008 court order, the promulgated rules that

22 would require Maximum Achievable Control Technology to limit emissions of

23 acid gases ( SO, HC, HF), mercury, arsenic, chromium nickel, and other toxics

24 from coal and oilred plants The is obligated to issue nal standards by

25 November 16, 2011

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Q: What OG&E lant are aected b the ' ending rule or hazardou

2 air ollutant?

A All ve coal units at Muskogee and Sooner would be subject to regulation

4 Q: What control ight be required to eet Maxiu chievable ontrol

5 echnologrequireent?

6 A Any coal unit not already scrubbed to comply with the Haze Rule would prob-

7 ably need to add a scrubber to control acid gases ( Muskogee 6 is not subject to

8 the Haze Rule) In addition all six units are likely to need to add sorbent injec-

9 tion to adsorb mercury as well as fabric lters ( also called baghouses) to

10 capture the mercury-sorbent combination and other metal-bearing particles

Q: When would OG&E need to add thee control?

12 A Compliance would be required within seven years by late 208

1 Coal-Combustion Residuals

14 Q:15 A

16 Q:

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What are coal cobution reidual?Coal-combustion residuals comprise coal ash and scrubber waste

What rule ha rooed regarding coalcobution reidual?

In June 200 proposed two alteative rules that would regulate coal

combustion residuals under different parts of the Resource Conservation and

Recovery Act requiring different levels of liners for surface impoundments and

landlls ground-water monitoring and other measures

How uch ight thoe rule cot OG&E coal unit?

The North American Electric Reliability Corporation estimated costs of $30

million per unit to convert ash management om ponds to dry handling systems

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$80 million per unit for waste-water treatment at about half the affected plants

2 plus $5$3750ton for handling of the ash andor scrubber sludge

Cooing Systems

4 Q: What liitation ha the rooed or owerlant cooling te?

A: In April 20 the proposed that plants using once-through cooling systems

be required to limit the number of sh and other organisms trapped against their

intake screens (impingement) by installing improved screens and that large

plants be required to study whether additional controls are required to reduce the number of organisms that are sucked into the cooling system ( entrainment)

0 Q: Which OG&E unit are ubject to additional cot ro the coolingte

rule?

2 A: While Muskogee 4 have closed-cycle cooling systems Sooner and 2

3 currentlyuse once-through cooling and are likely to require upgraded screens to

4 limit sh impingement and may need to study entrainment levels which may

result in a requirement for cooling towers The gas steam units at Horseshoe

Lake and Seminole may also need to upgrade their screens

Q: What i the chedule or nal coolingte rule?

A: Under a 2010 settlement the is required to issue na! rules by July 2012

Q: What ight coliance with the coolingte rule cot?

20 A: The screens required to meet the impingement requirements might cost $7$ 0

2 million per unit while cooling towers if those are required to reduce entrain-

Special Reliabiliy Scenario Aemen Reource Adequacy Impac of Poenial US

nvironmenal Regulaion Ocober

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ment might cost about $60 million per unit, as well as imposing additional

2 operating costs and reducing power plant output and eciency

3 V. lean eource Potential

4 A. Energy Efciency

5 Q Howuch energ and caacit could OG&E ave through an aggreive

6 energecienc rogra?

7 A: As discussed in detail in the testimony of Sierra Club Witness John Plunkett,

8 were OG&E to ramp up its eciency program to the savings achieved by the

9 leading utilities, it could save about 3700 GWh annually For comparison the

0 OG&E coal units each generate about 3000 GWh annually, and the Seminole

gas units each generate about 000 GWh annually

2 These savings would reduce peak demand by nearly 800 MW Included

3 avoided reserves, the efciency programs would reduce the need for capacity by

4 about 900 MW For comparison, OG&E units at the coal plants and at Seminole

5 are about 500 MW each while the capacities of the other gasred plants range

6 from 380 MW for Horseshoe Lake 8 down to 50 MW for Mustang I and 2

7 Q: What would thoe aving cot?

8 A: As documented by Mr Plunkett savings at the level of leading states would cost

9 about 5kWh

20 Q What would thoe aving cot?

2 A: As explained by Mr Plunket the savings would cost about $55MWh

22 Q What would be the benet o enhanced energeicienc eort?

23 A: Energy efciency avoids at least the following three types of costs:

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production costs, consisting of el, variable O&M and economy whole

sale energy transactions,

generation capacity costs

transmission-and-distribution investments

In addition reduced loads may allowOG&E to avoid environmental invest

ments by reducing usage of fossil units ( which ease compliance with the Cross

State Air Pollution Rule) or retiring some units ( avoiding all retrots, as well as

maintenance)

According to OG&E, Cost effective energy eciency programs reduce

customers load requirements which will reduce the amount of supply side

additions necessary to meet customer load and reserve requirements ( IR Siea

233)

What ight be the value o thee three avoidedcot coonent?

I estimated avoided production costs from IR Sierra 25 Attachment 5 which

presents ( among other things) OG&Es forecast of the annual production cost

savings om the Crossroads wind farm as estimated by OG&E in 200 Reallevelized over 5 years starting with 203 the estimated Crossroads avoided

cost was about $64W

Avoided production costs from eciency would be greater than those of

Crossroads for two reasons First the load shape for retail use and of average

energy-efciency savings, is more heavily weighted to the high-price hours in

the summer on-peak period while the output of a wind farm is typically higher

Reducin G& enery ue would in viou hour allow G& o avoid economy pur

chae and in oher hour increae o-yem ale Similarly reduced uae would allow G&

o purchae fewer emiion allowance or ell more allowance dependin on i iuaion each

year

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in the o-peak and in the non-summer months Energy costs are about 40%

2 higher in the on-peak than in the o-peak hours and about 70% higher in the

3 summer on-peak when loads are eatest than in the spring o-peak when wind

4 generation is at its peak Accounting r the dierences in the time pattes I

5 estimate that the average production costs avoided by enduse energy eciency

6 would be at least 0% greater than the costs avoided by a wind plant

7 Second Crossroads would deliver energy to the transmission system in

8 weste Oklahoma and must be transmitted across the state transformed in

multiple steps and distributed to customers By conrast energy eciency re-

duces requirements at the end use avoiding losses on the transmission system

11 substations distribution lines and line transformers The Companys average

2 losses are 7% or 8%; since line losses increase with the square of load the

13 marginal losses must be greater probably around 2%

14 The Crossroads avoided production costs with these two adjustments are

15 shown in Table 2, both in nominal dollars and deated to 202 dollars using the

16 25% ination rate assumed in IR Sierra 2-5 Attachment 5

5Charle River Aociae 2 WT Wind Inegraion Sudy inal Repor CR Projec

No 22 Boon Charle River Aociae igure 2

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Table 2 Avoided Production Costs Dolla pe M)Avoided Cost

Nominal 2012$ $55 $55

$63 $62 $71 $68

$80 $74 $87 $79 $94 $83

8 $106 $91 $104 $87 $115 $95

$113 $91 $102 $79 $89 $68

$97 $72 $111 $80 $118 $84

$128 $888 $128 $86 $148 $97

$155 $100 $157 $98 $186 $113

$180 $107 $211 $123

$198 $112 $196 $108

2 For measures installed in late 202 with savings starting in 203 using the

8% discount rate used in IR Sierra 2-5 Attachment 5 the evelizd avoided

4 costs would be as shown in Table 3

5 Table 3 Levelized Avoided Production Costs (Dolla pe M\)Years Nominal

$8974 $7947 $9332 $7908 $10049 $8201

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Q re there actor that would increae toda' etiate o avoided roduc

2 tion cot coared to OG&E etiate or roroad?

3 A Yes I n ddition to the likelihood tht the djustments I mde bove were con-

4 servtive the costs of runing vrious environmentl controls nd llownces

5 required by the regultions discussed in Section IIB would increse vrible

6 O&M

7 Q Would energ ecienc avoid cot other than the roduction cot

8 odeled in the roroad anali?

9 A: Yes While the Crossrods nlysis excludes ny cpcity-relted benets

1 energy-eciency progrms reduce pek lods, reducing genertion cpcity

11 requirements Lower lods would llowOG&E to sell peking cpcity to other

12 utilities, retire or mothbll existing units nd defer new cpcity, which the

13 20 (t 42) projects will be needed in 2022 Assuming short-term cpci

14 vlue of $5kW-yer in 20 l 3 dollrs nd voidnce of conventionl peking

15 cpcity in 2022 t the $974kW cpitl cost in the (t 42) I 0% crrying

16 cost including O&M 5% voided pek losses 36% required reserves nd 17 54% lod fctor the evelized voided cost of genertion would be s shown in

18 Tble 4

19 Te4 nn C Dollar per MWh)Years Nominal 0$ $695 $589 $1336 $1132 $1643 $1392

20 This estimte of voided cpcity costs is considerbly ess thn OG&Es21 estimte of $88kW-yer ( or bout $9MWh) in 202 rising to $7-kW-yer

22 ( $36MWh) in 2020 ( IR 4-9)

23 n ddition the pek lod reductions om energy-efciency progrms

24 reduce the need for investments in trnsmission nd distribution cpcity

Direc Tesimony Pau hernick ause No PUD Noember Page


20/77

Auming a mode $50kW-year avoided T&D co lower mo eimae

2 I ave een) e avoided T&D co would be abou $14MW in nominally-

3 levelized erm or $12MWh in real-levelized erm

4 Mr Plunke ue ee eimae of avoided co in i analyi

5 B. nd Generation

6 Q: How uch wind generation can be develoed in lahoa and adjacent

7 area?

A Oklahoma d oer par of e Souwe Power Pool ave enormou poenial

forwind-farm developmen A of May 2011 in addiion o over 4000 MW of

0 wind in ervice e Pool ad approved Generaion Inerconnecion Agreemen

11 wi wind projec oalng 12122 MW Tee comprie e following

2 Fory-four acive agreemen oaling 8442 MW

3 Sixeen agreemen wi deadline upended by e developer oaling

4 3180 MW;

15

Six operaing projec wi 500 MW of addiional approved capaciy6 Anoer 77 wind projec oaling 13517 MW were in e Pool inercon-

17 necion queue6

1 By Sepember 2011 4 wind projec were on line in e Souwe Power

9 Pool wi a oal of 4485 MW

20 A udy for e Pool found "ere are no ignican ecnical barrier o

2 inegraing wind generaion o a 20% peneraion level ino e yem

6Second Sau Repor of Souhwe Power Pool Inc. In Repone o Order on Inerconnecion

Queue Reform FRC Docke No. R2 ugu 2 a. 2

Monhly Sae of he Marke Repor for Sepember 2 Marke Monioring Uni Ocober

2 a 2

Drec Tesmony of Pau heck ause No PD Noember Page


21/77

2

3

4

5

6

7

9

10

1

12

13

14

15

1617

1

19

20

21

QA:

provided ha ucien ranmiion i buil a 15)8 Tha peneraion level i

dened a 20% of oal energy requiremen, or 4,700 GWh from 1374 MW

of wind farm a 310 311) The ame udy reviewed he eec of increaing

wind generaion o 40% of he Pool energy requiremen abou 25000 MW of

wind capaciy, producing 8000 GWh) and idenied no pecic problem,

alhough he analyi wa more limied ha for he 20% cae

Of hi remendou poenial, OG&E own 449 MW of wind 120MW

Cenennial and 1 01MW OU Spiri in ervice wih 198MW Croroad ched

uled for compleion in 2012) and ha anoher 332 MW under conrac 50MW

FPL Sooner and 152MW Keenan in ervice and 130MW Taloga compleed in

2011) Wind upplied only abou 3% ofOG&E energy abou 940 GWh) in

2010 Wih he addiion of 328 MW of Croroad and Taloga and a ll year'

operaion of Keenan which enered ervice in 2010), auming a 40% capaciy

facor,OG&E wind oupu would rie o abou 2700 GWh, or nearly 9% of

energy requiremen

an ou etiate wind energ cot?Ye In 2007 hrough 2010 OG&E paid abou $25/MWh for energy om he

FPL Sooner projec in 2010, OG&E paid abou $47Wh for Keenan

Similarly low co for wind projec have been repored in oher par of

he Grea Plain Minneoa Power ha recenly eimaed ha i lae wind

projec, Bion 3, will co $28/MWh, or $47MWh before he federal producion

8Charles River Associaes. 2 " WTF Wind negraion Sudy Final Repor CR Proec

No D22. Boson: Charles River Associaes.

90G&E 2 Inegraed Resource Plan pp 2Appendix D a

Keenan is one of he mos expensive regional wind plans in recen years a abou

2,W

Direc Tesimony ofPau heick ause No PD Noember Page


22/77

tax cedit Kana City Powe & Light ha contacted with Duke fo $38Wh

2 fom the Cimaon II wind fam

3 The elatively low ot of ecent poject i lagely atibuted to "a dop in

4 the pice of tubine Megawatt Daily op cit) Indeed tubine pice ae

epoted to have declined by $500$1000kW compaed to the pat few yea

6 Powe Finance & Rik op cit)

7 Mot of the wind fam in the Geat Plain fo which I have found public

cot data cot le than Cooad a follow 1

9 Speaville Kan) $21 million fo 1485 MW o $1759k

10 Cental Plain Kan) $181 million fo 99 MW o $1830kW

ll Flat Ridge 1 Kan) $191 million fo 100 MW o $1905kW

12 Flat Ridge 2 Kan) $800 million fo 419 MW o $1905kW

13 CaneyRive Kan) $350 million fo 200 MW o $1750k

14 Ainwoth Neb) $813 million fo 50 MW o $12kW

1 Bion 13 ND) $492 million fo 28 MW o $1721kW

16

Rocky Ridge Okla) $250 million fo 150 MW o $17kW17 A lage amount of additional wind capacity i likely to be available at

1 imilaly attactive cot epecially a tubine technology impove and

19 poduction capacity inceae

1 1Wind proec o Cu Overall Coss in Minnesoa Megawa Daily Ocober 2 2 a

1Wind Turbine Glu Greaer Eciency Drive Down Prices Power Finance & Ris2 a .

1The rs hree proecs coss are om he owners FRC Forms ; he remainder are from web

repors

1The more recenly ordered phases 2 and have repored coss of W which is

W less han phase consisen wih he downward rend in urbine price

Direc Testimony ofPu Chernick Cuse No PD Noember Pge


23/77

Q re wind addition coteective or OG&E?

That is certainly OG&Es position In Chart 2 of his direct testimony, OG&E

3 Witness Jesse Langston lists the net benets ofOG&Es three wind farms and

4 its two wind-energy purchase agreements (s) These benets are listed in

5 Table 5 The net present values in Table 5 are from Langston's Chart 2, while the

6 Centennial and Spirit capital costs are om OG&E's Form l at 337 the

7 Crossroads costs are om press reports

8 Tae5 Summary of OG&E Wind Project Benefits

In-Sevice Net Pesent Value

Wind Poject Date MW Milins $/kW

entennial 2007 120 $147.3 $1,228OU pirit 2009 101 $1605 $1589WEPAs 2010 278 $3082 $1 '109ssroads 2011 228 $453.1 $1,992

otal 727 $10691 $1,472

Capital Cost$/kW

$1,578$2,488

$1982

9 The net benets begin quite soon "Beginning in 20 l 3 or 2014, the lower

! cost energy produced by Crossroads is expected to result in a net decrease in

average monthly residential electric bills and to reduce customer bills each year

the wind farm is in operation

3 In its 20 l l Integrated Resource Plan, OG&E estimates that the energy-cost

4 savings from 250 MW of generic wind additions displacing its current marginal

5 energy suppliesa mix of coal and gaswould have a present value of about

16 $650 million, or $2,600/kW (OG&E , May 2011, at 32) Production tax

credits, if extended, would provide benets of another $840/kW, for a total of

8 about $3,440/k In the costbenet analysis for Crossroads,OG&E estimated

15E.g "OGE Completes Crossroads Wind Farm Developmen Purchase Reuers, 8/92010.

160GE's Crossroads Wind Farm Gains Regulaory Approval; Low cos energy ll reduce

cusomer bills, OGE press release, July 29,2010

Direct Tesimony of Paul Cheick Caue No PUD November Page


24/77

the presentvalue benets at $2,900/kW in production costs and $1,100/kW in

production tax credits, a total of $4,000/W(IR Sierra 25 Attachment 5

3 These estimates of benets include only productioncost savins Those

4 productioncos benets would be reater if the capacity of fossil eneration is

limited temporarily by emission limits, if emission credits are expensive, or if

6 environmental controls reduce the net capacity or availability of some fossil

7 units, especially the base load coal units Any capacity value attributed to wind

8 eneration, and any contribution to avoidin the environmental compliance

9 costs of OG&Es fossil plants, would rther increase the benets

1 Existing Gas esources

Q What ecient gas resources are available in the Southwest Power Pool and

12 surrounding areas?

13 A: I have identied approximately 6,900 MW of combinedcycle capacity owned

14 by merchant enerators in the ool and wellinterconnected neihborin Entery

15

Arkansas territory See Table 6 below This capacity is enerally not commit16 ted to servin load, and is sold in the spot market or under shortterm contracts

7In is response o IR Sierra 2- OG&E does no provide he same level of deail for is

presen-vale esimaes for is oher ind farms.

8The rs for plans Onea Dogood Easman, and Green Conr (along ih he Harrison

plan ha as sold o Texas oops in Deember 2 ) are lised as being available o mee genera

ion shorfalls in he modeling sed o develop he Sohes Poer Pools 2 Transmission

Expansion Plan The hree Arkansas plans are in he Energ onrol area, geographiall and

eleriall adjaen o he Pool

Drect Tesimony of Paul heck aue No PD Noember Pae


25/77

1 Tb 6 Mht Cmbd-Cy Cpty SPP d t' k2 Tty

009Summr Capaciy

aOw Sa N MW Facor

Oneta Energy CenteCalpine Central LP Okla 886 32%

Dogwood Energy FaciityDogwood Energy LLC Mo 614 16%

Eastman Cogeneration FaciityEastman Cogeneration LP Tex 402 57%

Green Count Energy LLC (b)Green Country Op ServicesLLC Ola 263 55%

Evangeline Power StationCleco Evangeline LLC La 732 32%

Kiamichi Energy Faciity

Kiowa Power Partners LLC Okla 1178 51%Pine Bluf Energy Center

Pine Bluf Energy LLC Ark 192 80%

Union Power Patners LPUnion Power Partners LP Ark 2020 24%

Hot Spring Power PjectHot Spring Power Co LLC Ark 642 49%

TOTAL 6929 37%The 886 MW at Oneta Energy Center is net of the new seven-year 200

MW PPA with Xcel Energy's Southwestern Public Service Company,reported in Calpines 2010 Annual Report.

The 263 MW at Green Country Energy is net of the 520 MW PPA withPublic Service Company of Oklahoma which will be in effect from June2012 through February 2022. (Exelon 10K at 295)

3 In addition to the combined-cycle capacity merchant generators also own

4 some 826 MW of mode combustion turbine capacity in Louisiana and Mis-

5 souri that may be aailable to proide OG&E with peaking energy and resere

6 capacity, with eciency on a par with gas steam plants

7 Q: Wht ght those esouces cost, ee OG& to cque the?

8 number of merchant combinedcycle gas plants hae sold in recent years, as

9 shown below in Table 7 These earlier sales proide some indication of the

!0 market alue of combined cycle plants

Die Tesiony of Paul Ceick Cause PUD Noeber Page


26/77

Table 7: Sales of CombinedCycle Plants In and Around the Southwest Power Pool

PurchaseClosing Pt Capacity Price

Seller Plant Name State Date Sold (MW) Acquirer $M $/kW

N McCain Oka 7/9/04 77%377

OkaomaG&E $160 $425

Lo Peyie a 6/30/05 100% 831 Entegy L $170 $205

Attaa Miss 3/31/06 100% 500 Entegy MS $88 $176

Aies/Dogwood Mo 2707 100% 677 KesonEnegy $234 $345

o Ouacita a 5/4/07 100% 904 Entegy AR $198 $219

Acadia Enegy a 8/17/07 50% 1,376 Cajun GasEnegy $189 $137

Powe USA Geen County Oka 10/2/07 100% 904 Geneation $240 $265

o Soutaen

Powe Miss 5/9/08 100% 904 TA $461 $510o Redbud Oka 9/30/08 100% 1338 Okaoma

Gas & Eectic $852 $637

e V Soutaen Seen Stateso Powe Miss 10/6/08 70% 633 Powe $345 $545

o Acadia 1 a Feb 10 100% 580 CECo $304 $524

o Cottonwood Texas Aug 10 100% 1279 RG Enegy $525 $410

Haison Texas Dec 10 61% 550 East ando TexasCoops $219 $654

Odessa Texas 1/13/11 100% 1,000 Hig PainsDiesified

Enegy $335 $335 Gaudeupe Texas 1/13/11 100% 1000 Wayzata

Inestment $351 $351

o Acadia 2 a 4/29/11 100% 580 Entegy A $300 $517

q Wof Hoow Texas 5/13/11 100% 720 Exeon $305 $424

o Magnoia Miss Aug 11 100% 863 TennesseeaeyAutoity $436 $505

Hinds Miss 2012 100% 520 Entegy AR $206 $396

Hot Sping Ak 2012 100% 630 Entegy MS $253 $408

umme capaciy eped by wne EIA.

Det Tetmony of Paul Chenk aue No PUD7 Noembe I Page4


27/77

In contrast, OG&E estimates that a new gasred combined-cyce pant

2 woud cost $1,003W in 2010 doars, pus nancing costs (OG&E 2011 Inte-

3 grated Resource Pan, Tabe 49

4

5

6

7

8

9

10

12

13

14

15

v

Q

A

he oas Perforace i esource ssesset ad cquisitio

How has OG&E erored iu ters o resource assesset?

The Companys performance has been disappointing Athough the 2011 Inte

grated Resource Pan says that the Company wi "continue to expore demand

side opportunities [d] monitor renewabe resource markets (2011 at ES2)OG&E has been passie in its approach to resource assessment

The Company has not monitored and assessed the opportunities for expand

ing its energyeciency programs, acquiring additiona wind energy, or purchas

ing merchant resources, as I describe beow The Company has certainy not

moed forward to increase either energy-eciency or wind resources, athough

both appear to be highy costeectie under current circumstances and een

more so as part ofa east-cost enironmenta-compiance pan

16 Q s the rocess suciet to deterie whether OG&E is iiizig

17 costs or its custoers?

18 A: No The is a potentiay usefu too for focusing OG&Es attention on the

19 major panning issues it faces at any gien time, to communicate OG&Es

20 understanding of the panning enronment to other parties, and to aow other

9While some of he sales in Table are of plans somewha remoe om Oklahoma (geograph

ically anor elecrically) heir coss are indicaie of he marke alue of his echnology in he

midsouh region If yhing prices for power and power plans would end o be lower in he

Souhwes ower ool and he inerconneced areas (as in Table ) han in areas such a ERCOT

Louisiana and Mississippi

Drect Tetmon oPaul Chernck Caue No PUD7 Noember Page5


28/77

partis to rspond to OG&E's prspctiv Unortunaty as impmntd y

2 OG&E, th procss dos not aow or a dp or dtaid xchang o

3 inormation and anayss

4 Th containd ony a imitd nrgycincy pan without any

5 commitmnt to a ongtrm program and unraistic stimats o windpant

6 costs Th was d in May ut no haring has yt n schdud As I

7 discuss ow som o th assrtions in th rgarding OG&Es

8 continuing panning procss appar to ovrstat th Companys orts to

minimiz customr costs

Th Company stats that it has "not gun th procss o dvoping its

nxt intgratd rsourc pan and has not considrd how it wi considr

2 nrgycincy panning (IR Sirra-3) Th comption dat oth has

3 n pushd ack rom Jun toOctor y which timOG&E may hav

4 n ord to mak important dcisions on nvironmnta compianc

5 Aowing th schdu to imitOG&Es considration o rsourc options

6 may rsut in suoptima dcisions and incras costs or oth continuing7 oprations and nvironmnta compianc

8 A. Ener Efciency

Q Hows OG&E incorort nrg cinc into its r sourc lns, in

20 trms ominimizing customr bills n minimizing t cost o rsoning

2 tonvironmntl mnts?

22 A: Th Company has don itt i anything aong ths ins OG&E has not

23 projctd th cts o any nrgycincy programs yond "th pan

24 to invst during th yars , , and " ( at ) i

25 "OG&E pans to a nw comprhnsiv 3yar Dmand Program oring

26 during Jun (iid) it has no pans yond (IR Sirra -),

Drec Tesmony ofPaul Cernck Cause No PUD 7 November Page 6


29/77

and ha not even begn the proce of developing it next integrated reoce

2 plan that will be complete October 1 2012 IR Sierra 2-35)

3 The Company ha le ignicant cot-eective energy aving ntapped

4 a relt of it limited program deign and planning cope and done almot

5 nothing to bild OGE capability to redce ctomer bill

6 B. Wind esources

7 Q How has OG&E resondd to the oerwhelmingl ositie eonomis o its

8 ast wind rojets as ou disuss aboe in Setion B?

9 A: Althogh the Company ha made ome ignicant commitment to adding wind

capacity in it ytem in recent year, the company in it mot recent eem

to have arbitrarily limited it exploitation of thi reorce and ha not aggre-

2 ively pred acqiition of economic wind generation Strangely given the

tellar reltOGE report in M. Langton Chart 2OGE doe not appear

4 to be doing anything to rther increae the contribtion of wind generation to

5 redcing it cot

6 Q: Wh is OG& not roeeding to maximize the benets o wind energ or

7 its ustomers?

8 A The Company ha not explained it failre to pre thi reorce beyond the

9 acqiition ofCroroad The bet hint toOGE catio approach maylie

20 in the Company' 20 I I Integrated Reorce lan

2 The relie on generic etimate of the cot of new wind plant from an

22 October 20 I 0 report by R Beck for the Energy Information Adminitration

an V l O II I Tsk Subsk Rviw of Powr Pln Cos nd Prformnc

Assumpions tor NEMS Tcnology Docnion Rpor, R W Bck nd Scinc Applicions

Inionl Corporion Ocobr 2

Drc Tstmony ofPaul Chrnck Caus No PUD Novmbr Pag


30/77

(OG&E Ma at 4 That rport which cits no actual plant

2 costs stimats that a I farm ofMWturbins would cost $43

3 in I oight costs plus an unspcid amount ofAFUDC. This pric which

4 is % highr than th Es stimat for th I Annual Enrg Outlook

5 appars to b orstatd gin impromnts in tchnolog incrasd turbin

6 production and rducd global dmand for turbins Bck's stimat is also

7 much gratrthan th $$,/ rang of th xisting wind farms and

8 thos undr construction that discuss in Sction VB

9 Th rthr stimats that th of th capital and oprating costs of

10 gnric nw wind would b $3 ( at 3 % mor than th

$4 that OG&E stimatd for Crossroads ( R Sirra Attachmnt )

12 Th stimat of th prsnt-alu cost of th gnric wind farm is gratr

13 than th stimatd production-cost bnts in ithr th (at 3 or th

14 Crossroads analsis ( R Sirra at Attachmnt Howr th prsnt-alu

15 costs for Crossroads ar lowr than th production-cost bnts in ithr

16 analsis

17 Th Compan in its rthr assums that th production tax crdit will

18 not b xtndd Combind with high stimatd costs and low forcast produc-

19 tion-cost bnts th omission of th tax crdit lads to th statmnt in th

20 Action lan that OG&E has mad no dcision whthr to issu a to

2 1 additional wind rsourcs but will continu to monitor th markt for rnwabl

22 projcts that bnt customrs whil contributing to th Stats rnwabl

23 nrg goal ( at 4

For example Beck assumes -MW unis These would be a he small end of he range for

recen and planned wind farms which oen use 2MW or even -MW urbines

The producion ax credi has been exended four imes since i was rs enaced in 2

over he 2 years from 2 o 22 he credi has been in place for all bu years

Det Tetony ofPaul Chenk aue No PUD7 Noebe Pae


31/77

Q: Haeou seeu an exlanation ro OG&E o wh it used the W Bec

2 wind-ar costs, rather than its own exerience or current oers?

3 A No

4

5

6

7

8

9

10

1 1

12

13

14

15

16

17

18

19

20

2 1

22

Q:

A:

Q:

A

How has OG&E "onitored the aret or renewable rojects?

Th Company dos not appar to b monitoring th mart at all It has no

documnts rlatd to "currnt and plannd fforts to trac th projctd and

actual costs of nw wind capacity inOlahoma and adjacnt stats ( IR Sirra

2-6a) Similarly OG&E assrs that it dos not possss any information on

actual construction costs of nw wind capacity ( IR Sirra 2-6a) Whn asd to

"list and dscrib all long-trm powr-purchas agrmnts ntrd into sinc

2000 for output from wind plants anywhr in SPP," which is on mart I would

xpct OG&E to monitor th Company rplid that it only has nowldg of

its long trm wind powr purchas agrmnts ( IR Sirra 2-7)

According to th Company it has rcivd offrs to sll powr from wind

projcts and ownrship in xisting wind plants ( IR Sirra 2-8 2-9) Thos ors

ar condntial and OG&E had not providd th documnts as of Novmbr4

so I hav not bn abl to rviw thm At this point OG&E has mad no ral

showing that it is monitoring th wind mart

What should OG&E be doing with resect to acquiring wind ower?

Th Company should b continually monitoring mart and collcting infor

mation about capital costs for wind farms proposd undr construction and in

srvic as wll as prics for purchasd powr conacts om wind plants In

Th rspons o I Sirra 2- suggss ha h mos rn ors for h sal of uni nrgy

and apaiy ar hos in rspons o h Companys 2 Wind RF Givn h lvl of inrs in

wind dvlopmn in h Souhws Powr Pool I would b surprisd if no dvlopr had

approahd OG&E sin is 2 Wind RF

Diret Testimony ofaul Cheick Caue No UD7 November age


32/77

addition OG&E should be soliiting oers om developers andassumng that

2 the pries are attrativeperiodially issuing s or wind projets or

3 otherise seleting projets to aquire

4 Existing Gas esources

5 Q Has the oan been tracing existing erchant gas generation that

6 ight be available or urchase or long-ter contract?

7 A: No The Company has negleted to ollow the market or existing gas genera-

8 tion Aording to the Company "OG&E is not aware o the urrent available

9 apaity or energy rom merhant ombined yle generation resoures ( IR

0 Sierra 2-13) Nor ould OG&E identi non-utility ombustion turbines that

might have apaity available or purhase ( IR Sierra 2-17) The Company

2 ould not even doument any ers it has made to identiy existing merhant

3 ombined-yle generation resoures that might be available or aquisition or

4 long-term power purhase ( IR Sierra 2-1)

5 Some related inormation may be available in the ondential response to6 IR Sierra 2-18 whih may have inormation on the sales pries or merhant

7 generation existing generation available or aquisition or or longterm on-

8 trat (see IR Sierra 2-20), and the pries opower purhases ( see I R Sierra220)

9 It is not lear why all suh prie data would be ondential, sine pries are

20 oen reported in press releases, nanial repors and lings

2 Q What should OG&E do with resect to existing erchant generation?

22 A The Company should maintain a lst o merhant generation that ould provide

23 energy andor apaity toOG&E along with at least rough estimates o osts o

24 delivering the power to its servie territory The Company should also period-

Drect Testmony of Paul Check Cause No PUD ll Noember Page


33/77

ically inquire as to the owners' interest in plant sales or long-term contracts and

2 evaluate the net benets of acquiring various resources

3 Acquiring merchant resources may or may not be cost-effective as addi-

4 tions to OG&Es existing resource mix depending on the prices requested by

5 the current owners The attractiveness of acquiring merchant resources would be

6 greatly enhanced however were those resources part of a compliance plan that

7 avoid maor environmental retrots and allowance purchases at existing steam

8 plants If OG&E does not have the necessary data it will not be able to move

9 expeditiously to implement a least-cost environmental compliance plan expos-

1 ing its cstomers to excess costs

1 1 Q: Does this onlude our testion?

1 2 A Yes

Diec Tesimony ofPl Cheick Cse PUD !7 Noveme Pge


34/77


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Documents

PUD 2011.87 Chernick Testimony 11.9.11