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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

ANSWER TESTIMONY OF CHARLES S. GRIFFEY

ON BEHALF OF

The Coalition of Ratepayers


Colorado PUC E-Filings System

January 10, 2018

PUBLIC VERSION – REDACTED

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

Confidential Testimony: Pages 35, 37


Highly Confidential Testimony: Pages 32, 33, 34, 36, 38, 39
Highly Confidential Attachment: Attachment CSG-6
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

EXECUTIVE SUMMARY TO ANSWER TESTIMONY OF CHARLES S. GRIFFEY

My testimony recommends that the Colorado Energy Plan Portfolio (“CEP Portfolio”)

should not be considered in Phase II of Public Service Company of Colorado’s (“PSCO”)

Electric Resource Plan (“ERP”) because there are significant errors in the assumptions and

evaluation procedure that PSCO has proposed to evaluate the CEP Portfolio relative to the

Baseline Portfolio approved in the Phase I decision. The CEP Portfolio cannot and will not

result in the most cost effective generation resource portfolio for Colorado consumers because

of these errors and the constraints of the utility ownership targets proposed in PSCO’s

stipulation filed on August 29, 2017 (“Stipulation”). As I explain in my testimony, using

PSCO’s “Low Cost Renewables Case” and “High Cost Renewables Case,” the CEP Portfolio

will increase the cost of electricity for PSCO’s Colorado consumers by approximately $250

to $390 million on a net present value of revenue requirement basis (“PVRR”) relative to the

Baseline Portfolio.

Instead of approving the CEP Portfolio for consideration in Phase II of this ERP, I

recommend the Commission instead open a rulemaking so it can carefully craft a rule for

evaluating the costs and benefits of early plant retirements. If the Commission rejects that

recommendation, it is critical that the Commission order PSCO to correct the host of errors
Answer Testimony of Charles S. Griffey Page 2
and unreasonable assumptions in its portfolio comparisons so that they do not bias the result.

In order to properly evaluate the CEP Portfolio relative to the Baseline Portfolio, the

Commission should order PSCO to:

 Include the sunk cost recovery of Comanche Units 1 and 2 (i.e., accelerated
depreciation costs) in the CEP Portfolio cost analysis;

 Treat transmission costs consistently in both portfolios and not burden only the
combined cycle plant in the Baseline Portfolio with transmission costs;

 Assume the combined cycle gas turbine that is proposed in the Baseline Portfolio is
at a brownfield site;

 Not assume free long-term capacity for the CEP Portfolio;

 Make matching assumptions regarding maintenance capital at Comanche Units 1 and


2 in both portfolios; and

 Assume inflation of labor costs at Comanche Units 1 and 2 follow the same inflation
as for other units.

I also recommend that the Commission hold ratepayers harmless from the risks of the

CEP Portfolio by:

 Rejecting the Stipulation’s proposed utility ownership percentages; and

 Adopting cost caps that limit the cost of any new utility-owned resources approved
as a result of the CEP Portfolio to the competitive bid prices.

Answer Testimony of Charles S. Griffey Page 3


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

EXECUTIVE SUMMARY ...............................................................................................2 


I. INTRODUCTION AND SUMMARY..............................................................................7 
A. Witness Qualifications ...........................................................................................7 
B. Summary of Testimony .......................................................................................12 
II. PSCO’S ERRORS AND ASSUMPTIONS UNDERSTATE THE COSTS OF THE
CEP PORTFOLIO ..........................................................................................................17 
A. PSCO Failed To Include The Sunk Costs Of Comanche Units 1 And 2 In The
CEP Portfolio Costs .............................................................................................18 

1. PSCO Omitted The Book Value Of Comanche Units 1 And 2 (i.e.,


“Sunk Costs”) In Its Evaluation Of CEP Portfolio Costs ....................20 

2. PSCO Omitted The Value Of The RESA In Its Evaluation Of CEP


Portfolio Costs ..........................................................................................23 

B. PSCO Omitted Transmission Interconnection Costs In Its Evaluation Of CEP


Portfolio Resources And Inflated Transmission Costs For Its Baseline
Portfolio Resources ..............................................................................................30 
C. PSCO Overstated The Baseline Portfolio’s Combined-Cycle Gas Turbine
Costs ......................................................................................................................37 
D. PSCO Made Inconsistent Assumptions Regarding The Inflation Of Labor
Costs For Comanche Unit 1 And 2 .....................................................................40 
E. PSCO Overstated The Baseline Portfolio Maintenance Capital Costs ...........41 
III. NECESSARY CORRECTIONS TO PSCO’S ERRORS AND INCONSISTENT
ASSUMPTIONS...............................................................................................................43 
IV. THE UTILITY OWNERSHIP TARGETS HARM RATEPAYERS .........................45 
V. HOLD HARMLESS PROVISIONS ..............................................................................48 
VI. CONCLUSION ................................................................................................................49 

Answer Testimony of Charles S. Griffey Page 4


LIST OF ATTACHMENTS

CSG-1 Statement of Qualifications

CSG-2 PSCO Response to CR2(1-36)

CSG-3 PSCO Response to CPUC13-6

CSG-4 PSCO Response to CPUC15-9

CSG-5 PSCO Response to CR4(1-51)

CSG-6 Capacity Type and Amount by Portfolio

CSG-7 PSCO Response to CR2(1-39)

CSG-8 PSCO Response to CR3(1-46)

LIST OF FIGURES

CSG-1 Excerpt From Figure JFH-4 Showing Inclusion of Sunk Costs

CSG-2 Excerpt from Figure JFH-4 Excluding Sunk Costs

CSG-3 Impact of Excluding Comanche Accelerated Depreciation on PVRR of CEP


Portfolio

CSG-4 Conceptual Basis for Evaluating Resources or Portfolios

CSG-5 Capacity Difference Between Baseline Portfolio and CEP Portfolio

CSG-6 Free Capacity Received by CEP Portfolio to Meet Required Capacity

CSG-7 Comparison of Maintenance Capital

CSG-8 Impact of Recommendations on PVRR

Answer Testimony of Charles S. Griffey Page 5


GLOSSARY OF ACRONYMS AND DEFINED TERMS

Acronym/Defined Term Meaning

BAU Business as Usual

CCGT Combined-Cycle Gas Turbine

CEP Portfolio Colorado Energy Plan Portfolio

ELCC Effective Load Carrying Capability

ERP Electric Resource Plan

FERC Federal Energy Regulatory Commission

GRSA General Rate Schedule Adjustment

O&M Operations and Maintenance

PSCO Public Service Company of Colorado

PVRR Present Value of Revenue Requirement

RAP Resource Acquisition Period

RESA Renewable Energy Standard Adjustment

RTO Regional Transmission Organization

SCGT Simple-Cycle Gas Turbine

Stipulation PSCO’s stipulation filed August 29, 2017

Answer Testimony of Charles S. Griffey Page 6


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

1 ANSWER TESTIMONY OF CHARLES S. GRIFFEY

2 I. INTRODUCTION AND SUMMARY

3 A. Witness Qualifications

4 Q. PLEASE STATE YOUR NAME, OCCUPATION, AND BUSINESS ADDRESS.

5 A. My name is Charles S. Griffey, and I am a consultant providing services to the energy

6 sector. My address is 2918 Todville Road, Seabrook, Texas 77586.

7 Q. ON WHOSE BEHALF ARE YOU PROVIDING TESTIMONY?

8 A. I am testifying on behalf of the Coalition of Ratepayers.

9 Q. WHAT IS THE PURPOSE OF YOUR TESTIMONY?

10 A. I am responding to Public Service Company of Colorado’s (“Public Service” or “PSCO”)

11 supplemental testimony and testimony supporting the stipulation among PSCO, the

12 Colorado Public Utilities Commission Staff (“Staff”), and various other parties

13 (collectively, the “Stipulating Parties”) regarding the presentation and evaluation of an

14 alternative resource plan called the “Colorado Energy Plan Portfolio” (“CEP Portfolio”). I

15 testify regarding the question of whether the CEP Portfolio can actually work and save

16 customers money in comparison to the resource portfolio (“Baseline Portfolio”) adopted in


Answer Testimony of Charles S. Griffey Page 7
1 the Phase I Decision of PSCO’s 2016 Electric Resource Plan (“ERP”) (“Phase I

2 Decision”).1

3 Q. PLEASE OUTLINE YOUR FORMAL EDUCATION AND CERTIFICATIONS.

4 A. I have a Master of Business and Public Management from the Jones Graduate School of

5 Business at Rice University and a Bachelor of Science in Chemical Engineering from Rice

6 University. I am a Chartered Financial Analyst and a Professional Engineer registered in

7 the State of Texas.

8 Q. PLEASE STATE YOUR PROFESSIONAL EXPERIENCE.

9 A. I provide consulting services to or on behalf of companies and parties throughout the

10 energy industry, including generators, retail electric providers, customers, and the Staff of

11 the Public Utility Commission of Texas. Prior to becoming a consultant in 2009, I was

12 employed by Reliant Energy, Inc. (“Reliant”) as Senior Vice President of Regulatory

13 Affairs and Market Design. I was responsible for Reliant’s nationwide efforts in the design

14 of competitive markets, regulatory affairs including interface with state commissions and

15 regional transmission organizations (“RTOs”), and government affairs. Reliant owned

16 generation in a number of states and had retail operations in Texas and the Mid-Atlantic

17 region. At Reliant I served on the Strategic Planning Committee, the Retail Leadership

18 Team, and the Wholesale Leadership Team.

1
Decision No. C17-0316.
Answer Testimony of Charles S. Griffey Page 8
1 I began working for Houston Lighting and Power (“HL&P”), an electric utility serving

2 parts of Southeast Texas and the predecessor company to Reliant, in 1989 in Corporate

3 Planning. There my duties involved generation planning and demand-side management,

4 including analysis of power purchases and determination of marginal cost, as well as all

5 resource planning decisions. Beginning in 1995, I was also responsible for the rate

6 department, and I eventually became Vice President of Regulatory Planning, with

7 responsibility for generation planning, financial planning, rates, and rate design and cost

8 allocation. Subsequently, I helped lead the integrated utility’s efforts in restructuring the

9 ERCOT market and transitioning the company for competition, integrating both wholesale

10 and retail market design and operations, restructuring of utility functions and affiliate

11 issues, the corporate separation and spin-off of the unregulated business, and public policy

12 advocacy.

13 Before working for Reliant, I worked for Austin Energy, the Public Utility Commission of

14 Texas, and Bechtel Group, Inc. where I was an engineer on the Coolwater Coal Gasification

15 Project.

16 Q. PLEASE EXPAND ON YOUR RESOURCE PLANNING EXPERIENCE WITH

17 RESPECT TO RESOURCE PLANNING.

18 A. I have performed resource planning at both the Public Utility Commission of Texas and at

19 Houston Lighting & Power Company/Reliant Energy. At HL&P I was directly responsible

20 for all resource planning. I evaluated decisions to retire plants, reactivate plants, and add

21 new power plants, as well as evaluated the economics of power purchases and demand–

Answer Testimony of Charles S. Griffey Page 9


1 side management. I also worked with the Electric Power Research Institute to look at how

2 to use options analysis in the evaluation of the decision to retire a unit,2 as well as general

3 resource planning economic issues. While at Reliant Energy, I also participated in

4 evaluations of power plant construction, mothballing, and retirements.

5 Q. HAVE YOU PREVIOUSLY TESTIFIED BEFORE ANY REGULATORY

6 COMMISSIONS OR COURTS?

7 A. Yes. I have testified before the Federal Energy Regulatory Commission (“FERC”) and the

8 state regulatory commissions of Kansas, Louisiana, Maryland, Mississippi, Pennsylvania,

9 and Texas. I have also testified or provided expert reports to state and federal courts and

10 provided testimony before the Texas Legislature. As a consultant, I have testified on behalf

11 of industrial customers, retail electric providers, generators, and the Staff of the Public

12 Utility Commission of Texas. Attachment CSG-1 lists the testimony I have presented and

13 summarizes my work experience.

14 Q. IS YOUR TESTIMONY BASED ON YOUR PERSONAL KNOWLEDGE AND

15 EXPERIENCE AND THE INFORMATION YOU REVIEWED IN THIS CASE?

16 A. Yes.

2
“Valuing the Option to Abandon,” Thomas W. Parkinson (the NorthBridge Group), Richard Goldberg (Electric
Power Research Institute), and Charles Griffey (HL&P), EPRI’s 1995 National Conference, Atlanta Georgia, October
10, 1995.
Answer Testimony of Charles S. Griffey Page 10
1 Q. DID YOU RELY ON SOURCES OF INFORMATION THAT YOU REGARD AS

2 RELIABLE AND ORDINARILY AND CUSTOMARILY USED AND RELIED ON

3 BY THOSE INVOLVED IN THE ELECTRIC INDUSTRY?

4 A. Yes.

5 Q. WHAT IS THE SCOPE OF YOUR REVIEW OF THE PROPOSED CEP

6 PORTFOLIO?

7 A. I have reviewed the Stipulation, testimony and workpapers supporting the Stipulation,

8 PSCO’s supplemental testimony in this docket, the Commission’s Phase I order, and

9 discovery responses to the Coalition of Ratepayers and the Staff.

10 Q. PLEASE SUMMARIZE THE PROPOSED CEP PORTFOLIO.

11 A. In August 2017, PSCO entered into a stipulation to adopt the proposed CEP Portfolio

12 (“Stipulation”). Under the Stipulation, PSCO proposes to evaluate the CEP Portfolio along

13 with the Baseline Portfolio identified in Phase I of PSCO’s ERP application. The Phase I

14 Order directed PSCO to undertake an all-source bid to serve two cases of identified need:

15 (1) a 0 MW need case and (2) a 450 MW need case (the “Baseline Portfolio”).3 The Phase

16 I Order did not provide for early retirement of any existing PSCO generation units. The

17 proposed CEP Portfolio, in contrast, provides that PSCO would retire two coal-fired units

18 – Comanche Unit 1 and Comanche Unit 2 – on an accelerated basis relative to the Baseline

19 Portfolio, creating an additional need for generation. Comanche Unit 1 is 325 MW and

20 would be retired at the end of 2022, which is within the resource acquisition period

3
Decision No. C17-0316 (Phase I Order”).
Answer Testimony of Charles S. Griffey Page 11
1 (“RAP”) of the Baseline Portfolio. Comanche Unit 2 is 335 MW and would be retired at

2 the end of 2025, which is outside the RAP.

3 PSCO would then evaluate whether the CEP Portfolio, a portfolio containing a set of

4 renewable and gas-fired resources with a prescribed range of utility ownership targets,

5 would provide a net present value savings compared to the Baseline Portfolio over an

6 approximate 36 year period. The Stipulation also provides that PSCO would recover the

7 remaining book value of the retired coal units by diverting money from the Renewable

8 Energy Standard Adjustment (“RESA”) collected from customers to pay itself rather than

9 spending the money for its current use.

10 B. Summary of Testimony

11 Q. PLEASE SUMMARIZE YOUR TESTIMONY AND RECOMMENDATIONS.

12 A. The CEP Portfolio should not be considered because of the errors in the evaluation

13 procedure that PSCO has submitted. Because of these errors and the constraints in the

14 Stipulation, the CEP Portfolio cannot and will not result in the most cost effective

15 generation resource portfolio for Colorado consumers. Based on the “Low Cost

16 Renewables Case” and “High Cost Renewables Case” that PSCO has presented, the CEP

17 Portfolio will increase the cost of electricity for PSCO’s Colorado consumers by

18 approximately $250 to $390 million on a net present value of revenue requirement basis

19 (“PVRR”) relative to the Baseline Portfolio. Instead of approving the CEP Portfolio for

20 consideration in Phase II of this ERP, I recommend the Commission open a rulemaking so

21 it can carefully craft a rule for evaluating the costs and benefits of early plant retirements.

Answer Testimony of Charles S. Griffey Page 12


1 To economically displace Comanche Units 1 and 2, the incremental cost of new resources

2 to replace those units must be lower than the incremental cost of the existing resources.

3 This requirement creates a large hurdle for the new resources because the capital for an

4 existing resource is already sunk and is not an incremental cost, while the capital for a new

5 resource is an incremental cost. It should therefore not be surprising that spending billions

6 of dollars in capital4 to accelerate retirement of 660 MW of low fuel cost generation that is

7 not facing large capital needs is uneconomic. Only through a host of errors and

8 unreasonable assumptions in the calculation of the Baseline Portfolio PVRR relative to the

9 CEP Portfolio PVRR can PSCO make it look like the CEP Portfolio is more cost-effective.

10 If the Commission decides to permit PSCO to consider the CEP Portfolio in Phase II of

11 this ERP, the following items in PSCO’s PVRR calculations of the CEP and Baseline

12 Portfolios should be corrected to ensure that the assumptions used in comparing the

13 portfolios do not bias the result and harm ratepayers.

14 Sunk Costs of Comanche Units 1 and 2

15 First, PSCO has significantly overstated the Baseline Portfolio costs and understated the

16 CEP Portfolio costs by failing to properly account for recovery for the sunk costs of

17 Comanche Units 1 and 2 (i.e., accelerated depreciation) in its PVRR analysis.

4
https://www.greeleytribune.com/news/business/xcel-energy-proposes-55-percent-of-its-electrical-energy-portfolio-
to-come-from-renewables-by-2025/.
https://renewablesnow.com/news/xcel-plans-24-gw-clean-energy-rfp-under-new-plan-for-colorado-581695/.
Answer Testimony of Charles S. Griffey Page 13
1 PSCO inflated the Baseline Portfolio costs by including the recovery of the already-

2 expended installed cost of Comanche Units 1 and 2 in the Baseline Portfolio costs.

3 However, it excluded the recovery of the installed cost of Comanche Units 1 and 2 in its

4 calculation of the PVRR of the CEP Portfolio. Coloradans will pay the sunk capital

5 investment in the coal units whether or not the CEP Portfolio or Baseline Portfolio is

6 adopted. Accordingly, book value costs that will not be avoided in either case should either

7 not be included in the portfolio cost comparison in either case, or they should be added to

8 the costs of both portfolios. To include the cost in the Baseline Portfolio but not in the CEP

9 Portfolio biases the PVRR calculation in favor of the CEP portfolio by $173 million.5

10 Similarly, PSCO’s cost comparison ignores the sunk costs of Comanche Unit 1 and 2 by

11 ignoring the RESA funds the utility would use to pay for the accelerated depreciation costs

12 of the units in the CEP Portfolio. PSCO does not intend to forego recovery of accelerated

13 depreciation of Comanche Units 1 and 2, so it is logically inconsistent to omit the value of

14 the RESA funds from the CEP Portfolio revenue requirement analysis.

15 Overall, PSCO failed to account for $173 million in sunk costs for Comanche Units 1 and

16 2 in its PVRR calculation of the CEP Portfolio.

17 Transmission Costs

18 PSCO also made inconsistent and unreasonable assumptions about transmission costs for

19 the portfolios. First, it burdened the Baseline Portfolio with $82 million in net present value

5
The $173 million is on a Net Present Value (“NPV”) basis. On a nominal basis, the error is $211 million.
Answer Testimony of Charles S. Griffey Page 14
1 in transmission interconnection costs for a combined-cycle gas turbine (“CCGT”) plant

2 that would replace Comanche Units 1 and 2 after their planned retirement dates — an

3 amount that is extraordinarily high for interconnecting a CCGT because these units can be

4 sited close to existing transmission infrastructure and in brownfield locations. Curiously,

5 PSCO assumed no transmission interconnection cost on any units replacing Comanche

6 Units 1 and 2 in the CEP Portfolio. These inconsistent assumptions are not reasonable and,

7 not surprisingly, have the effect of tipping the scale in favor of the CEP Portfolio.

8 Capital Cost of Baseline Portfolio CCGT

9 As mentioned above, PSCO’s portfolio comparison added a CCGT in the Baseline

10 Portfolio that does not occur in the CEP Portfolio. It stands to reason that the first CCGT

11 added in the portfolio could be built at a brownfield location, but PSCO assumed higher

12 than brownfield cost for that CCGT. Furthermore, PSCO did not equalize the capacity

13 between the Baseline Portfolio and the CEP Portfolio, and effectively added free capacity

14 to the CEP Portfolio after the RAP Period. The effect of these assumptions is to drive up

15 the capital cost of the Baseline Portfolio relative to the CEP Portfolio by $157 million in

16 net present value.

17 Comanche Maintenance Capital and O&M

18 PSCO made other flawed assumptions that drive its claim that the CEP Portfolio could

19 lower costs to consumers. PSCO makes the assumption that O&M costs at Comanche will

20 escalate through time at a higher rate than O&M costs for all other units and that the need

21 for maintenance capital expenditures will be relatively higher in the status quo case than in
Answer Testimony of Charles S. Griffey Page 15
1 the accelerated depreciation case. The impact of these unreasonable assumptions is

2 approximately $17 million on a PVRR basis.

3 If the Commission corrects for the errors and flawed assumptions in PSCO’s PVRR

4 comparison of the Baseline Portfolio and the CEP Portfolio, the CEP Portfolio will result

5 in a loss of $250 million to $390 million to customers on a net present value revenue

6 requirement basis when examining PSCO’s “Low Cost Renewable Case” and “High Cost

7 Renewable Case,” respectively.

8 Utility Ownership Percentages

9 I also recommend that the Commission reject the utility ownership percentages in the

10 Stipulation. The Stipulation’s ownership targets and staggered retirement dates will harm

11 ratepayers insofar as they tip the scale in favor of a generation solution that is not cost

12 effective. The Stipulation’s agreement to retire Comanche Unit 2 outside the RAP and

13 adopt set-asides for utility ownership essentially means that the most competitive form of

14 gas-fired generation – a modern combined cycle gas turbine of approximately the same

15 capacity as Comanche Units 1 & 2 – will not be eligible to meet the need. Ordinarily, if a

16 utility were retiring nearly 660 MW of high capacity factor generation like the Comanche

17 units, it would make sense to evaluate an equivalent amount of generation which is also

18 capable of economically operating at a high capacity factor. By assuming retirement of

19 one-half of that capacity outside the RAP and constraining the size and ownership of

20 resources that can meet the need, PSCO effectively narrows the choice to smaller resources.

21 This type of gamesmanship is not in the interest of consumers. Allowing the parties to the
Answer Testimony of Charles S. Griffey Page 16
1 Stipulation to limit the evaluated need and drive ownership and resource type constraints

2 may result in those parties dividing the pie among themselves, but it does not result in the

3 most cost effective and reasonable cost of power for consumers.

4 A utility has an obligation to provide power to its customers in the most cost effective

5 manner.6 The parameters embodied in the Stipulation do not take that obligation into

6 account, cannot result in a more cost-effective portfolio, and hamstring the Commission’s

7 economic evaluation of the proposed portfolio in Phase II of the ERP.

8 I recommend that the Commission reject the Stipulation and the CEP Portfolio and consider

9 whether it should open a rulemaking to thoroughly examine the proper valuation for early

10 plant retirements. If the Commission does not outright reject the Stipulation and the CEP

11 Portfolio, I recommend that the Commission hold ratepayers harmless from the CEP

12 Portfolio by:

13  Ordering PSCO to correct the errors and unreasonable assumptions in its PVRR
14 analysis;

15  Rejecting the utility ownership targets; and

16  Adopting cost caps that limit PSCO’s cost recovery for any new resources.

17 II. PSCO’S ERRORS AND ASSUMPTIONS UNDERSTATE THE COSTS OF THE


18 CEP PORTFOLIO

19 Q. DID YOU ANALYZE PSCO’S COST CALCULATIONS REGARDING THE CEP

20 PORTFOLIO?

6
I am not an attorney and I am not making a legal conclusion by using the word “obligation.” Rather, I am making a
policy conclusion based on my experience and knowledge of utility regulation.
Answer Testimony of Charles S. Griffey Page 17
1 A. Yes. I analyzed PSCO’s “simple”7 cost calculations, including Mr. James Hill’s

2 comparison of the annual costs of providing 660 MW of capacity and approximately 4,500

3 GWh of energy to the system each year from (1) Comanche Unit 1 and 2 and (2) a

4 combination of wind, solar, and gas resources as displayed in Figure JFH-4 of Mr. Hill’s

5 testimony.8 I also analyzed the complete analysis summarized by Mr. Hill in Figure JFH-

6 8.

7 Q. DID YOU FIND ANY ERRORS IN MR. HILL’S COST COMPARISONS?

8 A. Yes. I found several errors that have the impact of understating the CEP Portfolio costs and

9 overstating the Baseline Portfolio costs. As I discuss in Section III, once these errors are

10 corrected, I demonstrate that the CEP Portfolio will cost ratepayers approximately $250

11 million in PSCO’s “Low Cost Renewables Case” and $390 million in its “High Cost

12 Renewables Case.”

13 A. PSCO Failed To Include The Sunk Costs Of Comanche Units 1 And 2


14 In The CEP Portfolio Costs

15 Q. WHAT IS THE FIRST ERROR IN PSCO’S ANALYSIS OF THE CEP

16 PORTFOLIO COSTS IN COMPARISON TO THE BASELINE PORTFOLIO

17 COSTS?

18 A. The most significant error in PSCO’s cost analysis is that the utility burdens the Baseline

19 Portfolio with the sunk costs of Comanche Units 1 and 2, but ignores those sunk costs in

20 its calculation of the CEP Portfolio costs. It does this in two ways: (1) by including the

7
Hill Supplemental Direct at 45.
8
Hill Supplemental Direct at 45-46.
Answer Testimony of Charles S. Griffey Page 18
1 sunk cost in the Baseline Portfolio and not in the CEP Portfolio, and (2) by ignoring the

2 value that the RESA payments made in the Baseline Portfolio provide to the system.

3 The easiest way to see this is in Mr. James Hill’s “simple” comparison in Figure JFH-4. In

4 that figure, PSCO compares the annual costs of Comanche Units 1 and 2 (i.e., the Baseline

5 Portfolio case) to a wind/solar/gas case (i.e., a CEP Portfolio case). PSCO falsely inflates

6 the Baseline Portfolio costs by including a $40 million annual book value amount for

7 Comanche Unit 1 and 2 while excluding these book value costs from the wind/solar/gas

8 case.9 This is improper because PSCO intends to recover its sunk capital investment in the

9 plants in either portfolio case and will do so in the CEP Portfolio through creation and

10 recovery of a regulatory asset for the accelerated depreciation. The same flaw occurs in

11 the “complete” Strategist analysis.

12 In addition, PSCO excluded the value of the RESA funds that would be diverted to pay for

13 the recovery of the accelerated depreciation regulatory asset in the CEP Portfolio. If this

14 is the source of funds to pay for the regulatory asset in the CEP Portfolio, the value of these

15 funds should have been included in PSCO’s calculation of the CEP Portfolio costs. By not

16 including this value, PSCO ignores that the funds would be used in the Baseline Portfolio

17 case to pay for resources that provide value to the system, thus creating a mismatch between

18 the Baseline Portfolio and the CEP Portfolio. To not correct this error would be to simply

9
Figure JFH-4. Note that most of this is the sunk cost of Comanche Units 1 and 2, but a portion is incremental
maintenance capital.
Answer Testimony of Charles S. Griffey Page 19
1 engage in a shell game that ignores the fact that ratepayers will be paying for the sunk costs

2 of Comanche Units 1 and 2 under the CEP Portfolio.

3 1. PSCO Omitted The Book Value Of Comanche Units 1 And 2 (i.e., “Sunk Costs”)
4 In Its Evaluation Of CEP Portfolio Costs

5 Q. PLEASE EXPLAIN WHY IT IS IMPROPER TO INCLUDE BOOK VALUE FOR

6 COMANCHE UNITS 1 AND 2 IN MR. HILL’S ILLUSTRATION OF THE

7 BASELINE PORTFOLIO COSTS AND OMIT THE BOOK VALUE FOR THE CEP

8 PORTFOLIO CASE.

9 A. Mr. Hill’s cost analysis in Figure JFH-4 is fundamentally flawed because he does not

10 perform a comparison of the incremental cost of the CEP Portfolio compared to the

11 incremental cost of the Phase I Baseline Portfolio. Instead, PSCO’s cost analysis for the

12 Phase I Baseline Portfolio includes the sunk costs of Comanche Units 1 and 2, while

13 excluding these same sunk costs in its evaluation of the CEP Portfolio. PSCO does not

14 intend to forego recovery of the book value of the plants, but rather will fund the cost

15 recovery through diverting a portion of the RESA, so it is improper to exclude those costs

16 in its CEP Portfolio cost analysis. This omission is simply a shell game.

17 Q. IS IT ECONOMICALLY CORRECT TO INCLUDE SUNK COSTS IN

18 EVALUATION OF THE BASELINE PORTFOLIO AND TO IGNORE SUNK

19 COSTS IN THE EVALUATION OF THE CEP PORTFOLIO?

20 A. No. Incremental cash flow that will result from each portfolio is what matters for the cost

21 comparison.

Answer Testimony of Charles S. Griffey Page 20


1 Q. HOW DOES PSCO CONSIDER SUNK COSTS IN ITS COMPARISON OF THE

2 BASELINE PORTFOLIO CASE AND THE CEP PORTFOLIO CASE?

3 A. The most straightforward example is shown in Mr. Hill’s Figure JFH-4, a portion of which

4 is shown below:

5 Figure CSG-1
6 Excerpt From Figure JFH-4 Showing Inclusion of Sunk Costs

7 “book” includes sunk cost of


Comanche coal units

9 PSCO claims this table shows “a basic cost comparison of Comanche 1 and Comanche 2

10 operation and estimates of those associated with wind, solar, and gas resources as a starting

11 point. The intent of this comparison is to show some of the basic cost structures that will

12 be involved in the Strategist modeling analysis.”10 As can be seen above, PSCO includes

13 annual book cost of $40 million for the operation of Comanche Units 1 and 2 in the example

14 in Figure JHF-4. The vast majority of these costs are actually recovery of the sunk cost

15 associated with existing investment in the two units. Since PSCO intends to recover those

10
Hill Supplemental Direct at 45.
Answer Testimony of Charles S. Griffey Page 21
1 costs under either portfolio, these sunk costs do not belong in an economic evaluation of

2 whether it is justified to retire Comanche Units 1 and 2 early and replace them with wind,

3 solar, and gas units. It is only their inclusion in the Baseline Portfolio and exclusion in the

4 CEP Portfolio that allows PSCO to show that the operation of the two coal units is less

5 “cost-effective” than the wind/solar/gas alternative.

6 Further, as PSCO has presented it, the simplified comparison inaccurately implies that the

7 undepreciated costs of Comanche Units 1 and 2 will not be recovered from ratepayers in

8 the wind/solar/gas case. In fact, PSCO fully intends on recovering those costs, including a

9 return on those costs.11

10 Q. WHAT HAPPENS TO THE SIMPLIFIED COMPARISON IF THE SUNK COSTS

11 ARE REMOVED FROM THE EVALUATION?

12 A. If the sunk costs are removed, the simplified comparison in Figure JFH-4 will show that it

13 is more cost effective to operate Comanche Units 1 and 2. In Figure CSG-2 below, I have

14 removed the sunk costs and only show the incremental capital expenditures for Comanche

15 1 and 2 that PSCO projects will occur.12

11
PSCO response to CR2(1-36) (Attachment CSG-2).
12
Incremental capital is shown on lines 65-74 of Attachment SHM-1 to Mr. Mays’ Supplemental Direct Testimony.
Answer Testimony of Charles S. Griffey Page 22
1 Figure CSG-2
2 Excerpt from Figure JFH-4 Excluding Sunk Costs
3

Cost of Comanche 1&2 Operation Cost of wind/solar/gas
fuel VOM FOM capex total total  wind solar gas MWh gas MW total total 
($m) ($m) ($m) ($m) ($m) ($/MWh) ($m) ($m) ($m) ($m) ($m) ($/MWh)
2021 $68 $9 $20 $6 $102 $23 $67 $27 $3 $26 $123 $27
2022 $69 $9 $21 $8 $107 $24 $69 $27 $3 $26 $126 $28
2023 $71 $9 $21 $12 $114 $25 $70 $28 $4 $27 $128 $28
2024 $73 $10 $22 $6 $111 $25 $71 $28 $4 $27 $131 $29
2025 $75 $10 $23 $9 $116 $26 $73 $29 $4 $28 $133 $29
2026 $77 $10 $23 $10 $120 $27 $74 $30 $4 $28 $136 $30
2027 $78 $10 $24 $10 $123 $27 $76 $30 $4 $29 $139 $31
2028 $80 $11 $25 $10 $126 $28 $77 $31 $4 $30 $142 $31
2029 $82 $11 $25 $10 $129 $29 $79 $31 $4 $30 $144 $32
4 2030 $84 $11 $26 $10 $132 $29 $80 $32 $4 $31 $147 $33

5 As shown above, exclusion of sunk cost and inclusion of only incremental capital

6 expenditures shows that the cost of continuing operation of Comanche Units 1 and 2 is

7 lower than the cost of the wind/solar/gas alternative in every year. This is an apples-to-

8 apples comparison, unlike that shown in Figure JFH-4 which inconsistently treats the

9 recovery of Comanche sunk costs between the two cases.

10 2. PSCO Omitted The Value Of The RESA In Its Evaluation Of CEP Portfolio Costs

11 Q. WAS THERE ANY OTHER WAY IN WHICH PSCO FAILED TO ACCOUNT FOR

12 THE COMANCHE UNIT 1 AND 2 SUNK COSTS IN ITS PRESENT VALUE

13 REVENUE REQUIREMENT ANALYSIS?

14 A. Yes. In its Strategist analysis (PVRR analysis) PSCO failed to include the value of the

15 RESA funds in its CEP Portfolio costs. Mr. Hill noted that his simplified comparison did

16 not include the costs/savings of accelerated depreciation funds, but he claims that the

17 Strategist analysis incorporates the costs/savings with accelerated depreciation of

Answer Testimony of Charles S. Griffey Page 23


1 Comanche Unit 1 and 2.13 This is not true. The Strategist analysis does not incorporate

2 the cost of the accelerated depreciation in the CEP Portfolio early retirement case, nor the

3 value (savings) of whatever the RESA would be spent on in the Baseline Portfolio. This is

4 another significant error in the valuation of the costs/savings of the CEP Portfolio vis-à-

5 vis the Baseline Portfolio.

6 Q. HOW ARE RESA FUNDS CURRENTLY USED?

7 A. They are used to lower the cost of renewable resources or to help pay for distributed

8 generation.

9 Q. HOW DOES PSCO ACCOUNT FOR THE RESA FUNDS IN ITS CEP

10 PORTFOLIO ANALYSIS?

11 A. It doesn’t account for them at all in its PVRR analysis, and does not intend to do so.14

12 Q. WHAT IS THE IMPACT OF THIS FAILURE?

13 A. This has the effect of obscuring the fact that, in the Baseline Portfolio, there is

14 approximately $200 million15 available to either: (1) return to customers, (2) pay down the

15 cost of the portfolio, or (3) buy additional renewables that will provide additional value to

16 the Baseline Portfolios. By failing to include the value of this approximately $200 million

17 in the Baseline Portfolio, PSCO’s Strategist analysis treats the money as if it provided

18 nothing of value. If PSCO wants to include book value/sunk costs recovery in its

13
Hill Supplemental Direct at 48.
14
PSCO response to CPUC13-6 (Attachment CSG-3).
15
The accelerated depreciation is $211 million on a nominal basis and $173 million on a present value basis.
Answer Testimony of Charles S. Griffey Page 24
1 calculation of the PVRR of the Baseline Portfolio as discussed above, then it needs to

2 reflect the fact that the RESA collected in the Baseline Portfolio case that is in excess of

3 the RESA collected in the CEP Portfolio case should provide value equivalent to the excess

4 that is collected, or it should include the cost in the CEP Portfolio case. Not doing so

5 creates a shell game where approximately $175 million in net present value simply

6 vanishes.

7 Q. HOW MUCH SUNK COST DOES PSCO PROPOSE TO RECOVER THROUGH

8 CREATION OF A REGULATORY ASSET AND DIVERSION OF THE RESA

9 AMOUNTS?

10 A. PSCO proposes to defer $211 million of Comanche 1 and 2 and Comanche common cost

11 and recover the resulting regulatory asset through its diversion of the RESA into a General

12 Rate Schedule Adjustment (“GRSA”).16 Again, these amounts are not included in the

13 comparison between the Baseline Portfolio and the CEP Portfolio.

14 Q. HOW DOES THE STRATEGIST ANALYSIS INCORPORATE SUNK COSTS?

15 A. As previously discussed, the Baseline Portfolio scenarios (Portfolios 1, 2, and 4), the sunk

16 cost of Comanche 1 and 2 (both return of and on capital) is included in the present value

17 of revenue requirements (“PVRR”).17 However, the CEP Portfolio cases (Portfolios 3 and

18 5) do not include the recovery of existing (sunk) capital for Comanche 1 and 2 in the

19 calculation of the PVRR of those two portfolios. Instead, in the CEP Portfolio cases, PSCO

16
Attachment JFH-3, which is the testimony of Ms. Perkett in the separate proceeding wherein PSCO is seeking to
create a regulatory asset lower the RESA and create a corresponding General Rate Schedule Adjustment.
17
Table JFH-10 of Hill Supplemental Direct.
Answer Testimony of Charles S. Griffey Page 25
1 proposes to recover the sunk cost of Comanche 1 and 2 by diverting approximately ½ of

2 the money collected through the RESA for a period of time to pay PSCO for that sunk cost.

3 The PVRR calculation for the CEP Portfolio does not include this amount.

4 Q. WHAT IS THE IMPACT TO THE PVRR CALCULATION OF THE

5 ACCELERATED DEPRECIATION THAT IS BEING DEFERRED AND

6 RECOVERED THROUGH DIVERSION OF THE RESA?

7 A. The impact is shown in Figure CSG-3 below:

8 Figure CSG-3
9 Impact of Excluding Comanche Accelerated Depreciation on PVRR of CEP Portfolio
10 ($ Millions)18

Accelerated 
Depreciation 
Excluded 
from PVRR
2018 15.5
2019 36.1
2020 36.6
2021 37.0
2022 38.7
2023 15.2
2024 15.6
2025 16.3

Total 211.0
11 NPV 173.2

18
Incremental accelerated depreciation taken from Attachment JFH-3(p.29). Amounts are discounted at PSCO’s
WACC of 6.78%, consistent with PSCO’s analysis.
Answer Testimony of Charles S. Griffey Page 26
1 The amount of accelerated depreciation deferred each year and then excluded from the

2 PVRR calculation sums to $211 million on a nominal basis and $173 million on a net

3 present value basis.

4 Q. IN THE LOW CEP PORTFOLIO COST PORTFOLIO (PORTFOLIO 3 IN MR.

5 HILL’S TESTIMONY), PSCO PURPORTS TO SHOW THAT THE CEP

6 PORTFOLIO IS $176 MILLION LESS EXPENSIVE THAN THE BASELINE

7 PORTFOLIO, WHILE IN THE HIGH COST CEP PORTFOLIO EXAMPLE

8 PORTFOLIO (PORTFOLIO 5), PSCO PURPORTS TO SHOW THAT THE CEP

9 PORTFOLIO IS $39 MILLION LESS EXPENSIVE THAN THE BASELINE

10 PORTFOLIO. HOW WOULD THESE NUMBERS BE IMPACTED IF THE

11 RECOVERY OF THE INCREMENTAL ACCELERATED DEPRECIATION

12 WERE INCLUDED IN THE CEP PORTFOLIO PVRR AMOUNTS?

13 A. The PVRR of the CEP Portfolio would go up by $173 million, and would be over $134

14 million more costly in the higher cost example, and approximately a wash in the lower cost

15 example.19 These amounts do not account for other errors in the calculation and are solely

16 due to the exclusion of the accelerated depreciation from the PVRR calculation.

19
In response to CPUC15-3, PSCO calculates the PVRR of the amortization of the regulatory asset as $127 million.
My calculation is based on both the wholesale and retail amount of the regulatory asset, while PSCO’s calculation
appears to be based on only the retail amount. Further, my calculation is based on the accelerated depreciation
excluded from the PVRR calculation, while PSCO’s is based on the diverted RESA payments, which occur later. This
time mismatch creates the opportunity for errors to arise in the calculation of the return on the unamortized balance
of the regulatory asset. PSCO claims that the return on the unamortized balance is included in the PVRR calculation,
but I cannot find any evidence that it is included.
Answer Testimony of Charles S. Griffey Page 27
1 Q. ARE THERE OTHER ISSUES ASSOCIATED WITH THE SIMPLIFIED VIEW

2 PRESENTED IN FIGURE JFH-4 AND THE STRATEGIST ANALYSIS?

3 A. Yes. Mr. Hill’s analysis fails to account for the differences in value provided by the

4 generation resources in the Baseline Portfolio and the CEP Portfolio. Minimization of cost

5 can only be a basis for a decision when the value provided by the two alternatives in the

6 same. To show why this is so, please refer to Figure CSG-4.

7 Figure CSG-4
8 Conceptual Basis for Evaluating Resources or Portfolios
Capacity
Value
9
Energy
Energy Fixed
10 Value Cost
Value
Fixed
Variable
11 Cost

12 Other Other Net


Value Cost Benefit

13 A generating or demand-side resource provides value by providing capacity value to avoid

14 the cost of outages, energy value based on avoiding energy production by higher priced

15 resources, and other value such as responsive reserves and other ancillary services. The

16 resource’s cost can be broken into fixed costs such as capital and fixed O&M, variable cost

17 such as fuel and variable O&M, and other costs. The difference between the two is the net

18 benefit customers receive from the resource or portfolio addition. What can be seen is that

19 unless two alternative resources or portfolios provide the same value, simply comparing

20 the cost between the two alternatives tells nothing about which is the most beneficial, i.e.,

21 cost-effective.

Answer Testimony of Charles S. Griffey Page 28


1 Q. HOW DOES THIS CONCEPT RELATE TO THE SIMPLIFIED EXAMPLE

2 SHOWN IN FIGURE JFH-4?

3 A. The value provided by the operation of Comanche 1 and 2 is different than the value

4 provided by the wind/solar/gas case. While PSCO equalized the capacity value of the two

5 cases, the issue in the example is that the hours when Comanche 1 and 2 operate are going

6 to be more valuable (i.e., have a higher avoided cost) than the hours when the

7 wind/solar/gas case operate. For instance, the example has Comanche 1 and 2 operating at

8 a 78% capacity factor, which means that it is nearly always operating when it is available.

9 However, in the wind/solar/gas case nearly 75% of the generation is from wind. The low

10 Effective Load Carrying Capability (“ELCC”) of wind means that it operates more in off-

11 peak hours, which are less valuable from an avoided energy cost perspective. Thus, the

12 energy savings from operating Comanche 1 and 2 is likely to be higher than the energy

13 savings from the wind/solar/gas portfolio. Figure JFH-4 does not take that into account,

14 which biases the result in favor of the wind/solar/gas portfolio. Comparisons based on cost

15 alone should always be rejected unless one can be assured that the value provided by each

16 alternative is the same.

17 Q. DOES STRATEGIST ACCOUNT FOR THE DIFFERENCE IN VALUE

18 BETWEEN THE PORTFOLIOS?

19 A. It can if the portfolios are constructed appropriately. However, as I demonstrate below,

20 PSCO creates differences in the amount of capacity in the generation system between the

21 Baseline Portfolio and the CEP Portfolio in the years outside the RAP that result in different

22 amounts of value between the two portfolios. It then papers over those differences by
Answer Testimony of Charles S. Griffey Page 29
1 providing free capacity to the CEP Portfolio. These differences bias the Strategist results

2 in favor of the CEP Portfolio.

3 B. PSCO Omitted Transmission Interconnection Costs In Its Evaluation


4 Of CEP Portfolio Resources And Inflated Transmission Costs For Its
5 Baseline Portfolio Resources

6 Q. PSCO’S COMPARISON OF THE COSTS OF THE BASELINE PORTFOLIO AND

7 THE CEP PORTFOLIO UTILIZES A 37-YEAR NET PRESENT VALUE (2018-

8 2054) REVENUE REQUIREMENT THAT MAKES DIFFERENT ASSUMPTIONS

9 ABOUT RESOURCE REPLACEMENT FOR COMANCHE UNITS 1 AND 2.

10 WHAT DOES PSCO ASSUME REGARDING THE REPLACEMENT RESOURCE

11 FOR THE COAL UNITS UNDER THE BASELINE PORTFOLIO?

12 A. In the Baseline Portfolio, PSCO assumes that a combined-cycle gas turbine (“CCGT”) is

13 added in the year 2034. This unit does not exist in the CEP Portfolio.20 Rather, the CEP

14 Portfolio has relatively more simple-cycle gas turbine (“SCGT”) capacity, renewable

15 capacity, and zero cost filler capacity.21 PSCO claims that the only difference between

16 the Baseline and CEP Portfolios arises when this CCGT is “unlocked” and Strategist can

17 then fill the need from the retirements of Comanche Units 1 and 2.22 The implication is

18 that the units in the portfolios should deliver equal capacity and that the CEP Portfolio is

19 effectively being compared to a CCGT after the retirements of Comanche Units 1 and 2.

20
PSCO response to CPUC15-9 (Attachment CSG-4).
21
PSCO response to CR4(1-51) (Attachment CSG-5).
22
PSCO response to CPUC15-9 (Attachment CSG-4).
Answer Testimony of Charles S. Griffey Page 30
1 Q. WHY IS THIS SIGNIFICANT?

2 A. PSCO’s decision to utilize the CCGT option in the Baseline Portfolio allows it to make

3 certain assumptions about the fixed costs of a CCGT relative to the fixed costs of SCGTs

4 and purchases in the CEP Portfolio. These assumptions have an oversized effect on the

5 PVRR differences between the portfolios.

6 Q. PLEASE SHOW THE DIFFERENCE IN THE AMOUNT AND TYPE OF

7 CAPACITY ASSUMED IN EACH OF THE BASELINE PORTFOLIO AND CEP

8 PORTFOLIO.

9 A. Attachment CSG-6 (Highly Confidential) shows the total amount of the relevant capacity

10 types for both the Baseline and CEP Portfolios, as well as the differences between the

11 capacity types and amounts in each portfolio. I have summarized this data in Figure CSG-

12 5 below.

Answer Testimony of Charles S. Griffey Page 31


HIGHLY CONFIDENTIAL INFORMATION REDACTED

1 Figure CSG-5

2 Capacity Difference Between Baseline Portfolio and CEP Portfolio

4 This figure compares what is in Portfolio 2 (the Baseline Portfolio) and Portfolio 3 (the

5 CEP Portfolio). In the year 2035, for instance, Portfolio 2 has 335 MW of Comanche Unit

6 2 and a . Portfolio 3, relative to Portfolio 2, has

7 more of combustion turbines, MW more of zero cost long-

Answer Testimony of Charles S. Griffey Page 32


HIGHLY CONFIDENTIAL INFORMATION REDACTED

1 term purchases,23 MW of wind and solar, and MW of

2 short-term purchases. In the year 2036, Portfolio 2 (relative to Portfolio 3) has

3 MW more of CCGT. This lasts through the end of the evaluation period. Near

4 the end of the evaluation period, the CEP Portfolio has

6 Q. WHAT IS THE SIGNIFICANCE OF PSCO’S ASSUMPTION THAT LONG-TERM

7 PURCHASES HAVE ZERO COST?

8 A. The CEP Portfolio relies heavily on long-term purchases relative to the Baseline Portfolio.

9 This means that the Baseline Portfolio is burdened with

10 of cost each year for the CCGT, while the CEP Portfolio gets that capacity for free.

11 Q. WHAT IS THE IMPORTANCE OF THIS TO THE QUANTIFICATION OF THE

12 PVRR OF THE BASELINE AND CEP PORTFOLIOS?

13 A. In comparing the Baseline Portfolio to the CEP Portfolio, the difference in PVRR is

14 measuring the cost associated with having a CCGT in the Baseline Portfolio to SCGTs and

15 free purchases in the out years in the CEP Portfolio. This has nothing to do with what the

16 CEP Portfolio is actually supposed to be measuring, but the impact will show up in the

17 PVRR difference between the Baseline and CEP Portfolios. In other words, some of the

18 PVRR difference is simply an artifact of the assumptions PSCO made in the back-

23
In 2035, Portfolio 3 actually has a

Answer Testimony of Charles S. Griffey Page 33


HIGHLY CONFIDENTIAL INFORMATION REDACTED

1 end plan (i.e., the period after the RAP). Further, PSCO could have easily chosen to replace

2 some of the free long-term purchases in the CEP Portfolio with a CCGT or a purchase

3 based on the cost of a CCGT or SCGT. This would have largely eliminated the differences

4 in the back-end plan and allowed the economic comparison to be made correctly, rather

5 than being based on assumptions on differences in the power system decades from now.

6 Q. CAN YOU IDENTIFY THE BIASES THAT ARE INTRODUCED BY PSCO’S

7 ASSUMPTIONS ON CAPACITY AFTER THE RETIREMENT OF COMANCHE

8 UNITS 1 AND 2?

9 A. Yes, by using the generic CCGT the way it has, PSCO inflates the cost of the Baseline

10 Portfolio relative to the CEP Portfolio by (1) assuming very high transmission

11 interconnection cost for the CCGT, (2) assuming higher fixed cost for the CCGT than

12 would occur at a brownfield site, and (3) assuming that the full cost of the CCGT’s capacity

13 is incurred in the Baseline Portfolio while the CEP Portfolio gets

14 of MW of free capacity.

15 Q. DID PSCO MAKE ASSUMPTIONS ABOUT THE FIXED COST OF THE CCGT

16 RELATIVE TO THE SCGT OR ANY OTHER RESOURCE THAT ARE

17 UNUSUAL?

18 A. Yes. Alone among any resources, PSCO assumed that the generic CCGT would incur

19 transmission interconnection costs. No other resource is assumed to incur these costs.

Answer Testimony of Charles S. Griffey Page 34


CONFIDENTIAL INFORMATION REDACTED

1 Q. WHAT IS THE SIZE OF THE TRANSMISSION INTERCONNECTION COST

2 FOR THE CCGT ASSUMED BY PSCO?

3 A. It is /kw-year on a levelized nominal basis. This is approximately

4 of capital, which is an extremely large amount for a generation resource that

5 can be located almost anywhere. Most CCGT development occurs close to transmission

6 lines and gas infrastructure, and there is simply no justification for assuming this large of

7 an interconnection cost. Further, the CCGT in question could presumably be sited at a

8 brownfield location, which would mean very little transmission interconnection cost would

9 be necessary.

10 Q. HOW DOES PSCO HANDLE INTERCONNECTION COSTS FOR NEW

11 RESOURCES IN ITS EVALUATION?

12 A. As I previously stated, it does not include any interconnection costs for any new resources

13 except for the generic CCGT.

14 Q. WHAT IS PSCO’S EXPLANATION FOR THIS DISCREPANCY?

15 A. PSCO claims that it will include estimates of transmission interconnection costs for

16 resources that bid in its real Phase II evaluation. With respect to the generic CCGT

17 compared to other generic units, PSCO claims that, since the generic CCGT is bigger, it is

18 reasonable to add transmission interconnection costs for a CCGT and omit them for other

19 resources.24

24
PSCO response to CR2 (1-39) (Attachment CSG-7).
Answer Testimony of Charles S. Griffey Page 35
HIGHLY CONFIDENTIAL INFORMATION REDACTED

1 Q. DOES THIS EXPLANATION MAKE SENSE TO YOU?

2 A. No. PSCO was supposed to have provided information to demonstrate that the CEP

3 Portfolio could be less costly than the Baseline Portfolio. That should entail comparing all

4 of the likely costs to one another. Instead, PSCO put in place assumptions that burden the

5 Baseline Portfolio with transmission costs that PSCO ignores when it comes to the CEP

6 Portfolio.

7 Q. IS THERE ANY REASONABLE RATIONALE FOR PSCO’S HIGH

8 TRANSMISSION COSTS FOR A CCGT?

9 A. No. It only appears to drive up the costs of the Baseline Portfolio. This is apparent by the

10 fact that, in the CEP Portfolio, over MW of SCGTs are added by the

11 year 2034 (i.e., the year the CCGT is added in the baseline case).25 PSCO assigns no

12 interconnection cost to the SCGTs and over $100 million in interconnection cost to the

13 MW CCGT in the Baseline Portfolio. This is an unreasonable assumption

14 that appears results-oriented. Transmission systems are designed based on power flows,

15 not on whether power is generated by direct combustion or by direct combustion plus the

16 capture of otherwise wasted heat to produce steam and power a steam turbine. It makes no

17 difference on transmission capacity whether the capacity at a site is produced by a CCGT

18 or multiple SCGTs. PSCO’s assumption has no reasonable basis.

19 Q. WHAT IS THE IMPACT OF PSCO’S ASSUMPTION ON CCGT

20 INTERCONNECTION COST?

25
This amount can be seen in Attachment CSG-6 under the CEP Portfolio heading.
Answer Testimony of Charles S. Griffey Page 36
CONFIDENTIAL INFORMATION REDACTED

1 A. It is quite large. PSCO assumed a transmission interconnection cost of approximately

2 /kw-year for a generic CCGT. PSCO then escalates that amount with inflation,

3 such that in 2034 the transmission interconnection cost for the CCGT is almost

4 /kw-year.26 The net present value of that cash flow beginning in 2034 through

5 the end of the analysis period is $82 million.

6 Q. HOW DOES THAT COMPARE TO THE DIFFERENCE IN PVRR THAT PSCO

7 CALCULATES BETWEEN THE BASELINE PORTFOLIO AND THE CEP

8 PORTFOLIO.

9 A. It is larger than the difference between the two portfolios in the higher renewables cost

10 case. In the lower renewable cost case, it is represents 47% of the PVRR difference. Thus,

11 this single assumption has a material impact on the calculation.

12 C. PSCO Overstated The Baseline Portfolio’s Combined-Cycle Gas


13 Turbine Costs

14 Q. ARE THERE OTHER ASSUMPTIONS MADE BY PSCO IN THE BASELINE

15 PORTFOLIO THAT DRIVE THE COST OF THE CCGT HIGHER?

16 Yes. First, PSCO estimated the capital and operations and maintenance (“O&M”) costs

17 for the CCGT based on a blend of brownfield site and greenfield site. Yet the CCGT in

18 2034 in the Baseline Portfolio case is the first CCGT added. If a brownfield site is available,

19 then the brownfield cost should be used. Second, PSCO allows the CEP Portfolio to have

26
Cell W2 in tab 2X1 CC (transmission and gas interconnection cost) minus cell W2 in tab CT (gas interconnection
cost) in workpaper spreadsheet entitled “CONFIDENTIAL_16A-0396E_0022-0042_Fixed Costs of Thermal
Generics.”
Answer Testimony of Charles S. Griffey Page 37
HIGHLY CONFIDENTIAL INFORMATION REDACTED

1 of megawatts of free capacity,27 while the Baseline Portfolio is

2 burdened with 100% of the CCGT cost.

3 Q. WHAT IS THE COST IMPACT IF A BROWNFIELD SITE WERE USED?

4 A. According to PSCO, the capital cost would come down by another and the

5 fixed O&M would decline by another .28 The impact on the PVRR of the

6 Baseline Portfolio would be a decrease of $42 million, which is in addition to the $82

7 million impact of the transmission interconnection assumption.

8 Q. WHAT IS THE COST IMPACT IF THE BASELINE PORTFOLIO WERE

9 ALLOWED THE SAME AMOUNT OF FREE CAPACITY AS THE CEP

10 PORTFOLIO?

11 A. The PVRR of the Baseline Portfolio would decrease by a further $115 million.

12 Q. HOW DID YOU CALCULATE THAT AMOUNT?

13 A. From Figure CSG-5 I calculated the amount of free capacity that PSCO allocated to the

14 CEP Portfolio to equalize the capacity between the two portfolios. For example, in the

15 year 2036, the Baseline Portfolio has MW of CCGT, while the CEP

16 Portfolio has

17 . Thus, the CEP Portfolio has

18 that it is actually paying for (i.e., the SCGT capacity plus the renewables capacity,

27
PSCO response to CR4(1-51) (Attachment CSG-5).
28
Tab “2X1 CC” in workpaper spreadsheet entitled “CONFIDENTIAL_16A-0396E_0006-0021_ERP Thermal
Generics.”
Answer Testimony of Charles S. Griffey Page 38
HIGHLY CONFIDENTIAL INFORMATION REDACTED

1 less the short term purchases). Thus, while the CEP Portfolio has MW

2 of free capacity, it only needed MW of capacity to equal the CCGT

3 capacity of MW. Making this calculation every year shows how much

4 capacity the CEP Portfolio receives for free that is required to equalize the capacity

5 between portfolios, and this is shown in the figure below:

6 Figure CSG-6
7 Free Capacity Received by CEP Portfolio to Meet Required

CEP
Portfolio
Necessary
Free
Capacity
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
2051

8 I then reduced the amount of the CCGT in the Baseline Portfolio by the same amount of

9 free capacity that PSCO allowed the CEP Portfolio to receive. The result is an additional

Answer Testimony of Charles S. Griffey Page 39


1 $115 million in PVRR incremental to the transmission interconnection cost andbrownfield

2 cost described above.

3 D. PSCO Made Inconsistent Assumptions Regarding The Inflation Of


4 Labor Costs For Comanche Unit 1 And 2

5 Q. WHAT ASSUMPTION DOES PSCO MAKE FOR FIXED O&M EXPENSE FOR

6 COMANCHE UNITS 1 AND 2 IN THE BASELINE PORTFOLIO CASE?

7 A. PSCO assumes that Comanche operations labor cost escalates at 3.24% annually.29

8 Q. WHAT ESCALATION DOES PSCO USE FOR O&M FOR GENERIC

9 RESOURCES AND FOR ESCALATING CAPITAL COST?

10 A. It uses 2% annually.30

11 Q. DOES PSCO PROVIDE ANY EXPLANATION WHY IT ASSUMES COMANCHE

12 O&M WILL ESCALATE AT A RATE THAT IS 62% HIGHER THAN GENERIC

13 RESOURCES?

14 A. It simply says that it uses escalation “per the Corporate Assumptions memorandum.”31

15 This is simply restating the assumptions, not providing an explanation.

29
Workpaper entitled “11.28.17 Attachment SMH-1_Final” at labeled row 3.
30
Figure JFH-4 in Hill Supplemental Direct, and PSCO RFP at Appendix B:
https://www.xcelenergy.com/staticfiles/xe-
responsive/Company/Rates%20&%20Regulations/Resource%20Plans/CO-All-Source-PII-Company-
Ownership.pdf.
31
PSCO response to CR3(1-46) (Attachment CSG-8).
Answer Testimony of Charles S. Griffey Page 40
1 Q. WHAT IS THE IMPACT OF ASSUMING THIS ESCALATION RATE?

2 A. It advantages the CEP Portfolio by approximately $5 million relative to the Baseline

3 Portfolio.

4 E. PSCO Overstated The Baseline Portfolio Maintenance Capital Costs

5 Q. HAS PSCO LOWERED CAPITAL EXPENDITURES IN THE ACCELERATED

6 DEPRECIATION CASE?

7 A. Yes. Attachment SHM-1 to Mr. Mill’s testimony shows the assumptions for ongoing

8 capital expenditures in the Baseline Portfolio business as usual case and the CEP Portfolio

9 accelerated retirement case.

10 Q. WHAT IS PSCO’S EXPLANATION FOR THE LOWERING OF ONGOING

11 CAPITAL EXPENDITURES IN THE ACCELERATED RETIREMENT CASE?

12 A. PSCO states “the Company expects to reduce its overall budget for capital maintenance for

13 Comanche 1 and Comanche 2 by $113 million in the Accelerated Retirement case. The

14 reduction in capital maintenance stems primarily from the reduction in the expected

15 number of overhauls and a reduced opportunity for components to fail due to the shortened

16 life of the plant. In our Business As Usual case, we make similar reductions in the capital

17 maintenance budget as the plants begin to approach their original retirement dates of 2033

18 and 2035, adjusted for inflation.”32

32
Mills Supplemental Direct at 29.
Answer Testimony of Charles S. Griffey Page 41
1 Q. DO YOU AGREE THAT PSCO MADE SIMILAR REDUCTIONS TO

2 MAINTENANCE CAPITAL IN THE BUSINESS AS USUAL CASE?

3 A. No. The figure below shows the maintenance capital budgets over the same time period

4 prior to retirement for both Comanche Unit 1 and Unit 2 and adjusted for inflation in the

5 Business as Usual (“BAU”) and Accelerated Retirement cases.

6 Figure CSG-7
7 Comparison of Maintenance Capital
Unit 1 BAU Unit 1 Accelerated Retirement escalated

 $6,000

 $5,000

 $4,000

$000  $3,000

 $2,000

 $1,000

 $‐
4 3 2 1
Years to retirement
8
9
Unit 2 BAU Unit 2 Accelerated Retirement Escalated

 $10,000
 $9,000
 $8,000
 $7,000
 $6,000
$000  $5,000
 $4,000
 $3,000
 $2,000
 $1,000
 $‐
7 6 5 4 3 2 1
Years to Retirement
10
11 The graphs show that PSCO is spending considerably more on maintenance capital in the

12 last years on each Comanche unit in the Baseline Portfolio business as usual case compared

13 to the comparable last years of the CEP Portfolio accelerated retirement case.

Answer Testimony of Charles S. Griffey Page 42


1 Q. IS IT REASONABLE TO ASSUME DIFFERENT SPENDING PROFILES IN THE

2 LAST YEARS OF THE UNITS’ LIVES?

3 A. For planning purposes, I do not believe it is reasonable. If faced with a known retirement

4 the same number of years in the future, it is not clear why a utility would have such different

5 spending profiles.

6 Q. IF PSCO WERE TO TRULY MAKE SIMILAR SPENDING REDUCTIONS FOR

7 UNITS 1 AND 2, WHAT WOULD BE THE IMPACT TO THE PVRR?

8 A. PSCO’s assumptions for maintenance capital for Units 1 and 2 raises the PVRR of the

9 Baseline Portfolio by $12 million compared to the CEP Portfolio.

10 III. NECESSARY CORRECTIONS TO PSCO’S ERRORS AND INCONSISTENT


11 ASSUMPTIONS

12 Q. WHAT CHANGES DO YOU RECOMMEND THAT THE COMMISSION MAKE

13 TO CORRECT THE ERRORS AND INCONSISTENT ASSUMPTIONS THAT

14 YOU HAVE IDENTIFIED?

15 A. In order to properly evaluate the costs of the CEP Portfolio relative to the Baseline

16 Portfolio, PSCO should:

17 1. Properly account for the sunk cost recovery of Comanche Units 1 and 2 in the CEP
18 Portfolio;

19 2. Treat transmission costs consistently and not burden the generic CCGT in the Baseline
20 Portfolio with transmission interconnection costs, alone among any unit in the
21 evaluation;

22 3. Assume the CCGT in the Baseline Portfolio is at a brownfield site;

23 4. Do not assume that the CEP Portfolio gets free long-term capacity;

Answer Testimony of Charles S. Griffey Page 43


1 5. Assume the maintenance capital in the Baseline Portfolio business-as-usual case
2 follows the same pattern as CEP Portfolio accelerated depreciation case; and

3 6. Assume that the inflation of labor costs at Comanche Units 1 and 2 follows the same
4 inflation as for other units,

5 Q. WHAT IS THE IMPACT OF THESE PROPOSED CHANGES TO PSCO’S

6 CALCULATIONS?

7 A. As shown below, the CEP Portfolio would not be found to provide savings to consumers:

8 Figure CSG-8
9 Impact of Recommendations on PVRR
10 ($ Millions)
Low Cost High Cost

Renewables Renewables

Case Case

PSCO’s Calculated PVRR Advantage for CEP Portfolio 176 39

Correct treatment of sunk cost of Comanche Units 1 and 2 (173) (173)

Remove CCGT transmission interconnection cost (82) (82)

Brownfield site for CCGT (42) (42)

Equalization of free capacity (115) (115)

Comanche maintenance capital (12) (12)

Comanche labor O&M escalation (5) (5)

Resulting advantage for CEP Portfolio (negative is a (253) (390)

loss)

11
12 Q. BASED ON YOUR EXPERIENCE IN THE INDUSTRY, IS THE RESULT THAT

13 THE CEP PORTFOLIO WOULD NOT PROVIDE ANY SAVINGS TO

14 RATEPAYERS SURPRISING?

Answer Testimony of Charles S. Griffey Page 44


1 A. No. It is not surprising that spending billions of dollars in capital to replace two generation

2 units that are not facing large capital needs and provide relatively low cost fuel is not cost-

3 effective.

4 IV. THE UTILITY OWNERSHIP TARGETS HARM RATEPAYERS

5 Q. DO YOU HAVE ANY OTHER CONCERNS WITH THE STIPULATION?

6 A. The Stipulation’s target utility ownership percentages, coupled with the staggered

7 retirement dates of Comanche Unit 1 and 2, will harm ratepayers because they tip the scale

8 in favor of a generation solution that may not be the most cost effective. The utility

9 ownership targets are not in the interest of consumers because, if the retirement of

10 Comanche Unit 1 and 2’s 660 MW made economic sense, the ownership targets likely

11 prevent the most cost-effective natural gas-fired resource from being considered or selected

12 to replace the 660 MW.

13 Q. WHAT ARE THE STIPULATION’S TERMS REGARDING UTILITY

14 OWNERSHIP PERCENTAGES?

15 A. The Stipulation establishes a target that PSCO own 75% of the total nameplate capacity of

16 dispatchable and semi-dispatchable resources and 50% of the nameplate capacity of all

17 eligible resources.33 As part of the agreement regarding ownership percentage targets,

18 PSCO agrees not to propose any utility self-builds for resources in the ERP other than for

19 gas-fired resources in this ERP.

33
Stipulation at 10.
Answer Testimony of Charles S. Griffey Page 45
HIGHLY CONFIDENTIAL INFORMATION REDACTED

1 Q. IN ITS RFP FOR UTILITY-OWNED GENERATION, WHAT RESOURCE TYPES

2 DID PSCO SPECIFY?

3 A. For gas-fired generation, PSCO only sought simple cycle gas turbines, not combined cycle

4 gas turbines.34

5 Q. HOW DOES THE STIPULATION’S PROPOSED TIMING OF THE COAL PLANT

6 RETIREMENTS AFFECT THE BIDDING EVALUATION?

7 A. Under the Stipulation, Comanche Unit 1 would be retired no later than the end of 2022 and

8 Comanche Unit 2 would be retired no later than the end of 2025. The RAP ends in 2024.

9 PSCO has not committed to filling the additional 335 MW need from Comanche Unit 2

10 under this set of bids. Given the ownership constraints and the fact that PSCO is not

11 seeking to own a CCGT, there is insufficient capacity available in the gas-fired resource

12 allotment for a MW CCGT. The result is that CCGT developers are

13 discouraged from bidding the most cost-effective CCGT technology, and PSCO has

14 specifically chosen NOT to pursue the most cost-effective CCGT technology. By splitting

15 the need across the RAP, PSCO may also be able to prevent consideration of a CCGT in

16 the next resource acquisition period.

17 Q. WHY MIGHT A CCGT BE THE MOST COST-EFFECTIVE NATURAL GAS

18 OPTION?

34
PSCO RFP at 1: https://www.xcelenergy.com/staticfiles/xe-
responsive/Company/Rates%20&%20Regulations/Resource%20Plans/CO-All-Source-PII-Company-
Ownership.pdf.
Answer Testimony of Charles S. Griffey Page 46
1 A. If Comanche Units 1 and 2 are retired, that removes 660 MW of low cost and high capacity

2 factor units from the system. The peak capacity rating of a modern CCGT is close to that

3 amount of capacity. Retirement of Comanche Units 1 and 2 would create the opportunity

4 for the 660 MW to be replaced with another low variable cost dispatchable resource with

5 high availability such as a CCGT. Indeed, in the Baseline Portfolio 2, PSCO contemplates

6 that a CCGT is added in 2034 after Comanche 1 is retired. However, because the

7 Stipulation requires that the retirement of Comanche Unit 2 occur outside the RAP and

8 PSCO did not pursue a CCGT in its ownership RFP, the Stipulating Parties have split the

9 resource need and limited consideration of the larger, more cost-effective CCGT.

10 Q. DO TARGET LEVELS OF UTILITY OWNERSHIP LOWER COSTS FOR

11 CONSUMERS?

12 A. No. At best they can have no impact, while it is more likely such constraints would lead

13 to higher cost.

14 Q. WILL RESTRICTING COMPETITION IN THE DEVELOPMENT OF NEW

15 RENEWABLE RESOURCES LEAD TO LOWER COST FOR CONSUMERS?

16 A. No. There is no reason to think that restricting competition will lead to lower cost.

17 Q. IS THERE ANY REASON FOR THE COMMISSION TO GRANT CONCESSIONS

18 TO PSCO AND APPROVE THE UTILITY OWNERSHIP TARGETS?

19 A. No. PSCO should have the obligation to acquire the lowest reasonable cost resources for

20 its customers. If certain resources are the most cost-effective, then those resources should

21 be chosen regardless of ownership. An agreement otherwise is simply a removal of a


Answer Testimony of Charles S. Griffey Page 47
1 ratepayer protection. Further, if new resources are more cost-effective than existing

2 resources, then the existing resources should be retired. Simply put, a utility should not

3 have to be paid extra to make the right decision for its customers. For this reason, the CEP

4 Portfolio is fundamentally flawed and should be rejected. It creates incremental generation

5 need when it is not cost effective to do so and attempts to solve the need in a way that

6 harms ratepayers.

7 V. HOLD HARMLESS PROVISIONS

8 Q. IF THE COMMISSION APPROVES THE CEP PORTFOLIO, DO YOU HAVE

9 ANY RECOMMENDATION REGARDING HOW THE COMMISSION CAN

10 ENSURE THAT RATEPAYERS ARE HELD HARMLESS FROM THE RISKS OF

11 THE CEP PORTFOLIO?

12 A. Yes. First, the Commission should ensure that the assumptions used in comparing the two

13 portfolios do not bias the result. Specifically, the Commission should order PSCO to make

14 the corrections to its PVRR analysis that I identified above.

15 Second, the Commission should reject the utility ownership percentages in the Stipulation.

16 These concessions to the utility are not necessary, anti-competitive, and are not in the

17 interest of consumers.

18 Third, the Commission should approve cost caps that limit the cost of any new utility-

19 owned resources approved as a result of the CEP Portfolio to the competitive bid price.

Answer Testimony of Charles S. Griffey Page 48


1 VI. CONCLUSION

2 Q. DO YOU HAVE ANY CONCLUDING REMARKS?

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

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

5 make numerous assumptions that dramatically bias the evaluation of potential resources in

6 favor of the CEP Portfolio, but that will actually result in higher costs for ratepayers.

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

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

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

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

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

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

13 II, I recommend that the Commission adopt the hold harmless provisions identified above.

14 Q. DOES THAT CONCLUDE YOUR TESTIMONY?

15 A. Yes.

Answer Testimony of Charles S. Griffey Page 49


Answer Testimony of Charles S. Griffey Page 50