ML112980202
| ML112980202 | |
| Person / Time | |
|---|---|
| Site: | Quad Cities  |
| Issue date: | 10/19/2011 |
| From: | Cindy Montgomery MidAmerican Energy Co |
| To: | Joel Wiebe Plant Licensing Branch III |
| Wiebe, Joel NRR/DORL/LPL3-2, 415-6606 | |
| Shared Package | |
| ML112980183 | List: |
| References | |
| TAC ME5524, TAC ME5525 | |
| Download: ML112980202 (22) | |
Text
MidArnerican Energy MidAmerican 4299 N.W. Urbandale Drive Urbandale, Iowa 50322
".M**flY
~
OBSESSIVELY, RELENTLESSLY AT YOUR~.
515281*2976 Telephone 515242-4398 Fax crmontgomery@rnidamerican.com Charles R. Montgomery Managing Senior Attorney October 19,2011 Joel S. Wiebe, Senior Project Manager Plant Licensing Branch III-2 Division ofOperating Reactor Licensing Office ofNuclear Reactor Regulation U.S. Nuclear Regulatory Commission Washington, D.C. 20555-0001 Re:
Quad Cities Nuclear Power Station, Units 1 and 2 Requests for Additional Information Related to MidAmerican Energy Company's Decommissioning Funding Status Report (TAC Nos. ME5524 and ME5525)
Supplemental Submission
Dear Mr. Wiebe:
Attached please find a hard copy of the pre-filed testimony ofThomas C. Foster submitted in Docket No. RPU-07-2, before the Iowa Utilities Board, with all pages included.
As you noted in your email ofthis date, the copy ofthis document submitted in our October 11, 2011 submission was missing pages. The attached document contains all ofthe pages of that pre-filed testimony. I apologize for the oversight and any inconvenience it caused.
I would note that Tables 1 and 2, on pages 16 and 18, pertaining to economic analyses ofthe wind power project that was the primary focus ofDocket No. RPU-87-2, have lines that were redacted in the public filing with the Iowa Utilities Board. (The unredacted versions ofpages 16 and 18 were filed subject to an application for confidential treatment with that agency.) Since these wind analyses do not pertain to Quad Cities Nuclear Power Station we have provided only the redacted versions ofpages 16 and 18, If you wish to see the unredacted pages please let me know and we can submit the confidential versions of these pages (i.e., that contain the redacted information in Tables 1 and 2).
Again, please let me know ifyou require additional information. My contact information is provided above.
Sincerely, STATE OF IOWA DEPARTMENT OF COMMERCE BEFORE THE IOWA STATE UTILITIES BOARD IN RE:
APPLICATION OF MIDAMERICAN DOCKET NO. RPU-07*
ENERGY COMPANY FOR A DETERMINATION OF RATEMAKING PRINCIPLES DIRECT TESTIMONY OF THOMAS C. FOSTER Q.
Please state your name and business address.
2 A.
My name is Thomas C. Foster. My business address is 666 Grand Avenue.
3 Des Moines, Iowa 50309.
4 Q.
By whom are you employed and in what position?
5 A.
I am employed by MidAmerican Energy Company ("MidAmerican" or 6
"Company"). My title is Director, Investments, Regulatory Finance and Analysis.
7 Q.
Please describe your educational background and business experience.
8 A.
I hold a Bachelor ofBusiness Administration degree with a major in Finance and 9
a Master of Arts degree in Economics, both from the University of Iowa. I have 10 previously been employed by the Iowa Utilities Board ("Board") as a Financial 11 Analyst and later by Iowa Southern Utilities Company ("'Iowa Southern") as a 12 Rate Economist. Through a series oftransactions, Iowa Southern is now part of 13 Alliant Energy Corporation. While employed by the Board and Iowa Southern, I 14 had normal rate administration responsibilities and testified before the Board in a 15 number ofproceedings. Later, I was employed by Iowa Wesleyan College as an
Associate Professor of Business Administration and taught undergraduate courses 2
in both finance and economics. 1 joined Iowa-Illinois Gas & Electric Company, a 3
predecessor to MidAmerican in 1992 and served in its Rate Department 4
conducting electric embedded and marginal class cost of service studies and 5
performing rate design. When MidAmerican was formed in 1995, I joined the 6
Treasury Department where I was responsible for overseeing the investment of 7
the Company's pension, other post-retirement and nuclear decommissioning trust 8
funds. and preparing capital structure and cost ofcapital calculations for various 9
purposes, including regulatory proceedings. In 2000, my functions were moved 10 to the Financial Services Department where, in addition to the previously II mentioned responsibilities, I prepare or review major capital budgeting proposals 12 related to the electric generation business ofthe Company and am responsible for 13 analyzing the creditworthiness of transmission customers taking service under the
)4 Company's open access transmission tariff.
15 I am a member of the American Economics Association, the Chartered 16 Financial Analyst ("CF A") Institute, and the CFA Society of Iowa. I have 17 previously served as chairman ofthe board ofdirectors of the CFA Society of 18 Iowa and in various executive positions for that group. I also hold the designation 19 ofChartered Financial Analyst.
PURPOSE OF TESTIMONY 20 Q.
Wbat is tbe purpose ofyour prepared direct testimony?
21 A.
The purpose ofmy testimony is to sponsor portions ofSection 2 (Economic 22 Evaluation) ofMidAmerican's Application for a Determination ofRatemaking 2
Principles C'Ratemaking Principles Application") concerning the Wind IV Iowa 2
Projects. I will describe how MidAmerican will determine if a wind project is 3
economic under the methodology outlined in the Wind TV Iowa Stipulation and 4
Agreement ("Wind IV Stipulation") entered into between the Company and the 5
Office ofConsumer Advocate ("OCA"). I will also discuss how MidAmerican 6
proposes to apply portions of the amount currently included in electric rates for 7
the decommissioning ofthe Quad Cities Nuclear Power Station to rate 8
equalization effons between MidAmerican's service territory zones, and perhaps 9
investment in selected power plants. In addition, I wi)) discuss the results ofan 10 economic analysis for the 75 MW expansion to the Pomeroy Project site that is 11 described by MidAmerican witness Tom Budler and is a part of the Wind IV Iowa 12 Projects. I will also discuss the projected results for a 465 MW project (assumed 13 to be a series of projects that, for the purposes of this testimony, are collectively 14 referred to as "Project X") to be constructed in 2008. Finally, I will sponsor two 15 requested ratemaking principles, the principle describing the Economic Test for 16 Qualifying Projects and the Return on Equity principle.
RATEMAKING PRINCIPLES APPLICATION 11 Q.
Wbat information are you sponsoring in Section 2 of tbe Ratemaking 18 Principles Application?
19 A.
Section 2.1 (Present Value Calculations) describes the assumptions employed in 20 the analyses presented in the Ratemaking Principles Application as wen as the 21 economic test that will be used to determine if a proposed project should be 22 included in the Wind IV Iowa Projects. Section 2.2 (Cost of Capital) discusses 3
the rate ofretum that will be incorporated into such analyses, and Section 2.3 2
3 4
5 6
7 8
9 10 II 12 13 14 15 16 17 18 19 20 21 (Cash Flows) outlines the sensitivity anaJysis undertaken with regard to the proposed projects included in the Ratemaking Principles Application. These sections utilize the ratemaking principJes that are offered for the Board's approval in the proposed Wind IV Stipulation in this proceeding. The Wind IV Stipulation is further explained in the testimony ofMidAmerican witnesses Dean Crist.
Q.
Please briefly describe the information you are sponsoring in Section 2.1 of the Ratemaking Principles Application (Present Value Calculations).
A.
As indicated above, this section describes the assumptions employed and the economic test that will be used to determine if a proposed project qualifies to be included in the Wind IV Iowa Project portfolio. Once the Company believes it has reliable projections ofthe construction and transmission interconnection costs.
the economic test will be performed. These projected costs will include securing rights to a building site, transmission facilities and the cost oftowers and turbines.
The Company wilJ also incorporate its best estimate ofreasonable incremental revenue and operating cost (including operation and maintenance expenses, forecasts ofthe value of environmental credits and estimates of system operational benefits) in the application ofthe economic test. Given these inputs, the Company will model the construction and operation ofthe proposed project.
Q.
Please describe the basic calculations the Company will make to employ the economic test that will be applied to a proposed Wind IV Iowa Project.
4
A.
The annual revenue requirements for each proposed project will be calculated 2
over the 20-year life ofthe project. present valued, levelized and converted to a 3
dollars per kWh basis. The annual revenue requirement represents the cost 4
customers would ordinarily be responsible for in electric rates. However, the 5
modeling will a]so calculate the incremental benefits that the proposed project is 6
reasonably expected to produce. These include projected production tax credits 7
("PTCs"), a value of environmental credits that the project may make available 8
over its life, capacity sales that MidAmerican may be able to make and changes in 9
net system costs (higher wholesale margins and lor lower system energy costs) 10 likely to result from the addition ofthe proposed project to the MidAmerican 11 generation portfolio. These project benefits will also be present valued, levelized 12 and converted to a dollar per kWh basis.
13 Q.
Please briefly describe the Company's economic test and how this test 14 pro\\'ides a measure that reflects the impact of a wind project on retail 15 ratepayers.
16 A.
It is a goal ofMidAmerican and. while I am not representing the OCA in this 17 proceeding, I believe the OCA shares this fundamental principle, that existing 18 ratepayers not be adversely affected by an incremental investment in wind 19 capacity over the 20-year depreciable life of the investment. In order to test 20 whether this is true, the incremental benefits of a wind project, converted to a 21 comparable dollar per kWh basis, will be subtracted from the revenue 22 requirement, after it, too. has been converted to a dollar per kWh basis. Ifthe net 23 result is a negative value, that result means that the project benefits wi11 be 5
expected to exceed the project's revenue requirement. If the net result ofthe 2
subtraction exercise is zero, then the project can be expected to recover its 3
revenue requirement. In either ofthese two cases, the economic evaluation would 4
signal that the project shou1d be pursued as part ofthe Wind IV Iowa Project 5
portfolio. On the other hand, ifthe net result ofthe subtraction ofthe project 6
benefits from the project's revenue requirement yields a positive value that means 7
that the project benefits are not expected to cover the project costs and 8
construction of that project might require incrementaL support from retail 9
customers at some future point in time. Section 5.2 ofthe Ratemaking Principles 10 Application contains a discussion ofthe economic test principLe that is being 11 requested.
12 Q.
Are there any other implications to the economic test if the result is a 13 negative value?
14 A.
As mentioned above, ifthe economic test results in a negative value, then the 15 estimated benefits are more than enough to offset the estimated revenue 16 requirement. Under these circumstances, MidAmerican will determine the 17 amount of additional capital expenditure that would result in the economic 18 evaluation yielding a result ofzero. Tbis level of capital expenditure will serve as 19 a "soft spending cap" for the particular project. The Company would make this 20 calculation at the same time that the project economic test calculation is prepared.
21 Q.
How wil1 the ultimate, actual capital expenditures be treated?
22 A.
The Wind IV Stipulation addressed this question in the following manner. (1) In 23 the event that actual capital costs of a Wind IV Iowa Project are lower than the 6
projected capital costs, rate base shall consist of actual costs. (2) In the event that 2
actual capital costs exceed the capital expenditures that would result in an "J
economic evaluation result greater than zero (i.e., the actual capital expenditures 4
exceed the "soft spending cap"), MidAmerican will be required to establish the 5
prudence and reasonableness of such excess before it can be included in rates.
6 These conditions imply that as long as the Company is able to complete a project 7
at or below the "soft spending cap" there would be no subsequent prudence 8
review required for a project meeting these criteria.
9 Q.
How will this process work during the remaining years of the revenue 10 sharing agreement?
II A.
In the situation where a capital expenditure exceeded the "soft spending cap", the 12 increment above the "soft spending cap" will be excluded from rate base unless 13 there is a proceeding where the Company demonstrates the prudence of such 14 expenditure and the Board allows the inclusion ofthe incremental capital 15 expenditure in rate base.
16 Q.
How wi1I MidAmerican inform the Board of the status of Wind IV Iowa 17 Projects as they are completed?
IS A.
The Company proposes to include a report to the Board as a part ofthe current 19 annual revenue sharing filing where any project completed during that year will 20 be compared to its "soft spending cap". Ifthe capital expenditure is less than or 2]
equal to the "soft spending cap", those expenditures will be included in rate base 22 for purposes of the revenue sharing calculation. Any amount that exceeds the 23 "soft spending cap" will be noted and clearly excluded from the rate base 7
calculation utilized for the revenue sharing calculation. Prior to submission to the 2
Board, MidAmerican will review the ';soft spending cap" analysis with the OCA.
3 Q.
Please describe the information contained in Section 2.2 of the Ratemaking 4
Principles Application (Cost of Capital).
5 A.
This section contains the capital structure and cost of the components ofthe 6
capital structure utiHzed in MidAmerican's analyses described above. The capital 7
structure is assumed to be 50% long-tenn debt and 50% equity. Preferred stock is 8
assumed to be an immaterial portion ofthe Company's capital structure going 9
forward. A 50% long~term debt, 50% equity capital structure is consistent with 10 the financial ratio metrics, pubHshed by Standard & Poor's, necessary to maintain 11 a single~A credit rating. A long-term debt cost of 7% is assumed for modeling 12 purposes. The Company is requesting an 11.7% return on equity as a ratemaking 13 principle in this proceeding.
14 Q.
Is this return on equity consistent with that previously allowed by the Board 15 for wind generation investments?
16 A.
Yes. In Docket No. RPU-03-1, MidAmerican's first wind ratemaking proceeding 17 the average of the most recent 12 months ofA-rated public utility bond yields was 1&
6.11 % and the Board found a return of 12.2% reasonable. In Docket No. RPU 19 04-3, the comparable single A-rated public utility bond yield was 6.19% and the 20 Board again allowed an ROE of 12.2%. In Docket No. RPU-05-4, the 12-month 21 average of single A-rated public utility bond yields was 5.66% and the Board 22 aI]owed an ROE of 11.9%. At the current time the 12-month average of single A 23 rated public utility bond yields is 6.08% - somewhat higher than that observed in 8
the RPU-04-3 proceeding. As a result, the stipulated ROE of 11.7%, slightly 2
below that allowed in RPC-04-3, appears to continue to be within the range of 3
reasonableness of ROEs previously allowed by the Board in wind ratemaking 4
proceedings. Section 5.5 ofthe Ratemaking Principles Application contains a 5
discussion ofthe return on equity principle.
6 Q.
Please describe the information contained in Section 2.3 of the Ratemaking 7
Principles Application (Revenue Requirements).
8 A.
Section 2.3 describes the calculation ofthe annual revenue requirement for the 9
above-described analyses. The revenue requirement will include return, 10 depreciation, taxes and operation and maintenance expenses. This calculation 11 will employ the ratemaking principles requested in the Ratemaking Principles 12 Application.
FUNDING OF THE NUCLEAR DECOMMISSIONING TRUSTS 13 Q.
P1ease address the proposed ratemaking provision being suggested with 14 respect to funding of the Company's nuclear decommissioning trust funds.
15 A.
After concluding a review of the funding status ofthe Quad Cities Nuclear 16 Decommissioning Trusts, and taking into consideration the recent 20-year 17 extension ofthe operating license for the Quad Cities nuclear units (MidAmerican 18 has a 25% ownership share; Exelon Generating Company, LLC, ("Exelon") has 19 the remaining 75% ownership share and also operates the units), MidAmerican is 20 proposing that the amount deposited to the trusts be reduced from approximately 21
$8.3 million per year to approximately $1.6 million per year (The exact amount is 22
$1,595,964). The approximate $6.7 million difference wou1d be used to satisfy 9
the Board's previously required (Docket No. RPU-04-2) efforts at rate 2
equalization, as approved in that docket or as subsequently ordered by the Board.
3 MidAmerican witness Crist wi)] further elaborate on this particular item.
4 If funds remain after the rate equalization funding, the remaining annual 5
amount would be used during the remaining period of revenue sharing to reduce 6
the Wind IV Iowa Projects' investment in rate base (including AFUDC) or the 7
investment in Council Bluffs Energy Center Unit No.4 plant (including AFUDC),
8 whichever has the highest ROE.
9 Q.
Please provide an overview of the process MidAmeriean goes through to 10 determine appropriate decommissioning contribution levels for the nuclear 11 decommissioning trusts.
12 A.
It is a multi-step process. First, Exelon as the operator of the facility retains the 13 services ofan industry-recognized expert to estimate the amount offunds needed 14 to decommission the plant. Second, MidAmerican makes an assessment as to the 15 level ofcontributions the trusts will require to be reasonably assured that adequate 16 funds will be available at the time decommissioning is expected to begin in the 17 year 2032. This assessment is made by a MidAmerican nuclear decommissioning 18 trust committee that considers the potential escalation rates in decommissioning 19 costs, the expected after-tax returns ofthe trusts and the pattern of contributions.
20 Finally, ifnecessary. Mid American will seek the required rulings from the Board 21 and the Internal Revenue Service ("IRS"). The IRS approval is required in order 22 to make tax deductible contributions to the tax qualified trust funds and the IRS 10
relies on state public utility commission decisions in approving the schedules of 2
such contributions to these trusts.
3 Q.
What was the basis for the cost estimate del'eloped for decommissioning the 4
Quad Cities Station Nuclear Plant (UStation~')?
5 A.
TLG Services, Inc. performed a site~specific study ("Study") of the Station in 6
2006, and the results of the Study are the basis for the total decommissioning 7
estimate. TLO Services. Inc. is an industry leader in nuclear power plant 8
decontamination and decommissioning planning and cost estimating. The Study 9
shows that for Unit I, MidAmerican's 25% share ofthe decommissioning cost. in 10 2006 dollars, is $164.806 mimon, and for Unit 11, MidAmerican's 25% share of the decommissioning cost, in 2006 dollars, is $166.805 million. These estimates 12 assume the DECON method ofdecommissioning. which is consistent with both 13 MidAmerican and Exelon's previous assumptions regarding the decommissioning 14 method to be employed at this facility. The DECON method is a process where 15 the equipment and structures of the facility that are radioactive are removed or 16 decontaminated to a level that pennits the property to be released for unrestricted 17 use shortly after cessation ofoperations. The decommissioning costs for the two 18 units are very close but not identical due to design differences between the two 19 reactors and the sequencing ofthe decommissioning work.
20 Q.
Please describe the actions of the MidAmerican nuclear decommissioning 21 trust committee that led to the reduction in contributions to approximately 22 51.6 million annually.
11
A.
The MidAmerican nuclear decommissioning trust committee received input from 2
NISA Investment Advisors, L.L.C. C'NISA"), a firm that has been managing 3
nuclear decommissioning trust assets since its inception in 1994. NISA is one of 4
the largest NDT investment managers in the United States and offers portfolio 5
management services, liability analysis reviews, and performance calculations.
6 NISA assisted in the evaluation ofreasonabJe returns for funds invested in the 7
trusts and the allocation of funds to various investment classes. In January 2007 8
the MidAmerican nuclear decommissioning committee met and discussed the 9
input received from NISA. The committee focused on a long-run, after-tax return 10 assumption consistent with the trusts' actual historical experience. The 11 comminee also reviewed a methodology sponsored by the Nuclear Regulatory 12 Commission in order to estimate the escalation rate ofdecommissioning costs.
13 This led to a determination that a contribution level of approximately $1.6 million 14 annually would be likely to fulfill the decommissioning obligation. The 15 MidAmerican nuclear decommissioning trust committee will meet in the future 16 following any updates in the Study, significant changes in market conditions or 17 any other factors that require the reassessment ofthe adequacy of the contribution 18 levels to the trusts.
19 The proposed contribution level not only appears to give reasonable 20 assurance that the trusts will be able to meet their decommissioning liability, but 21 allows for the rate equalization efforts mentioned previously and for the possible 22 reduction in rate base to minimize long-run rate fluctuations.
12
Q.
What is meant by the term "tax qualification" as it relates to nuclear 2
decommissioning?
3 A.
A "tax-qualified" nuclear decommissioning trust fund is a fund that meets certain 4
criteria as defined in Section 468A of the Internal Revenue Code ("Section 5
468A"). Tax-qualified nuclear decommissioning trust funds are afforded 6
favorable tax treatment as compared to non-qualified funds. There are two main 7
tax advantages provided by a tax-qualified fund. The first is that deposits made 8
into the trust fund can be treated as current-year tax deductions. The second is 9
that earnings on the investments in the tax qualified trust fund are taxed at an to applicable federal tax rate of 20% as compared to a 35% federal tax rate on 11 earnings in a non-qualified trust fund.
12 Q.
Did the Energy Policy Act of 2005 include any modifications to the special 13 rules for nuclear decommissioning and Section 468A?
14 A.
Yes. The Energy Policy Act of2005 inc1uded a number of modifications to the 15 speda1 rules for nuc1ear decommissioning. Among the modifications were 16 amendments to Section 468A which governs the tax qualification ofnuclear 17 decommissioning trust funds. These amendments are effective for taxable years 18 beginning after December 31, 2005.
19 Q.
What were the requirements for tax qualification under Section 468A prior 20 to the changes resulting from the Energy Policy Act or2005?
21 A.
In order to ensure the continued tax qualification ofthe trust~ any change in the 22 funding levels had to be filed with and approved by the IRS. The IRS required a 23 statement from an order ofthe state commission (a) approving the schedule of 13
decommissioning cost accruals; (b) finding that the decommissioning cost 2
accruals were included in cost of service and were included in rates for 3
ratemaking purposes; and (c) finding that the earnings rate assumed for the trust 4
takes into consideration the tax rate change and the removal of the investment 5
restrictions resulting from the Energy Policy Act of 1992.
6 Q.
How have tbe requirements for tax qualification cbanged as a result of tbe 7
cbanges to Section 468A?
8 A.
There is no longer a cost of service requirement for tax-qualified funds.
9 Previously, deposits into a tax-qualified fund were limited by the amount included 10 in cost of service for ratemaking purposes so long as that amount did not provide 11 greater than level funding (i.e.* not front-loaded). Regarding the allowed level of 12 funding into a tax-qualified fund, the revised Section 468A only states that "the 13 amount which a taxpayer may put into the fund for any taxable year shall not 14 exceed the ruling amount applicable to such taxable year."
15 Q.
Wbat was tbe rationale for tbe elimination of tbe cost of service 16 requirement?
17 A.
The cost of service requirement was primarily eliminated to allow nuclear owners 18 in states that now have deregulated generation to maintain the tax-qualified status 19 of their trust funds in the absence of cost ofservice-based regulation.
20 Q.
How will the IRS determine the allowable level of fuuding to a tax-qualified 21 fund if it no longer has a state commission-ordered cost of sen'ice amount for 22 decommissioning funding upon which to rely?
14
A.
Because the elimination of the cost of service requirement has only recent]y 2
become effective it is not yet evident how the IRS will rule when it does not have 3
a state commission-ordered funding amount.
4 Q.
Given the elimination of the cost of service requirement for the tax 5
qualification of the fund, what language,,,ould you request that the Board 6
put in its order regarding the amount of decommissioning funding in cost of 7
service for ratemaking purposes?
8 A.
MidArnerican respectfully requests that the Board use the same type of language 9
in the order approving the decommissioning funding level that was required prior 10 to the changes to Section 468A. Because of the uncertainty at this time regarding 11 potential IRS treatment, use of the prior Section 468A language provides the 12 greatest assurance of continued tax-qualified decommissioning funding.
13 MidAmerican respectfully requests that the Board provide an order that states the 14 following:
15 MidAmerican's annual Iowa jurisdictional decommissioning costs 16 included in the cost-of-service shall be $1,595,964 divided equally 17 between the two units commencing on January 1,2007.
18 19 Q.
Please explain how the above-mentioned $6.7 million difference will be used 20 to reduce investment in rate base, if any of that amount remains after rate 21 equalization etTorts.
22 A.
I have included a presentation that illustrates how reductions in rate base and the 23 amortization of a regulatory liability over the life of the proposed project would 24 be accomplished on confidential Tables 2.1-2(a) through 2.1-2(c) ofthe 25 Ratemaking Principles Application. It is MidAmerican' s belief that this 15
procedure meets the requirements ofthe Wind IV Stipulation and is consistent 2
with past ratemaking practices of the Board.
ECONOMIC ANALYSIS FOR THE PROPOSED PROJECTS 3
Q.
Please describe the results of the Company's analysis of its proposed 75 MW 4
project as a part of the Wind IV Iowa Projects.
5 A.
At this point, MidAmerican has only identified one site for the Wind IV Iowa 6
Projects. This is the 75 MW expansion of the Pomeroy site where 123 MWare 7
already being constructed in 2007. As is shown in confidential Table I below, the 8
test results for this project are negative indicating that, under the assumptions of 9
this analysis, retail customers should not need to provide incremental support to 10 make this project feasible.
CONFIDENTIAL TABLE 1 MldAmerlcan Energy Company Wind IV Iowa Projects 75 MW Pomeroy Expansion Revenue Requirements \\1 electronically. All figures are in $/kWh.
Line 1 represents the levelized revenue requirement for the project.
Line 2 represents the levelized revenue requiremenlless the Production Tax Credit ("PTC").
Line 3 represents the levelized revenue requirement for the project less the PTC and the CO2 Credit.
Line 4 represents the levelized revenue requirement for the project less the PTC, CO2 Credit and Capacity Sales.
Line 5 represents the levelized revenue requirement for the project less the PTC, CO2 Credi~ Capacity Sales and net system benefits.
come from that has been 16
Q.
Can you identify the factors in your analysis that are responsible for your net 2
negative dollar per kWh result?
3 A.
The addition of the 75 MW Pomeroy expansion to the MidAmerican portfolio of 4
generation resources will facilitate additional wholesale capacity and energy sales 5
as well as production tax credits and benefits from the sale of C02 credits that are 6
expected to more than offset the levelized revenue requirement of the project.
7 Accordingly, MidAmerican's Iowa electric customers are anticipated to receive 8
net benefits because total project revenues will exceed total project costs.
9 Q.
Please describe the analysis included in the Ratemaking Principles 10 Application for the 465 MW Project X.
I [
A.
As MidAmerican witness Budler testifies, at this time MidAmerican does not 12 have sites or transmission rights for the remaining 465 MWs for which 13 ratemaking principles are being requested in this proceeding. However, I have
]4 included an analysis for these additional megawatts using costs assumptions 15 provided by Mr. Budler that suggest that, ifMr. Budier's cost assumptions can be 16 met, the additiona1465 MWs would meet the economic test. These illustrative 17 results are shown in confidential Table 2.
17
CONFIDENTIAL TABLE 2 MidAmerican Energy Company illustrative 465 MW Wind Farm Revenue Requirements \\1 These figures come from Confidential Tables 2.1-3(0), 2.1-4(c}, 2.1-5(c) and 2.1 that has been filed electronically. All figures are in $/kWh.
Line 1 represents the levebzed revenue requirement for the project.
Line 2 represents the levelized revenue requirement less the Production Tax Credit ("PTC").
Une 3 represents the levelized revenue requirement for the project less the PTC and the CO2 Credit.
Une 4 represents the levelized revenue requirement for the project less the PTC, CO2 Credit and Capacity Sales.
Line 5 represents the levelized revenue requirement for the project less the PTC, CO Credit, Ca acit Sales and net s stem benefits.
- 1 Q.
Does the result of your analysis suggest that proceeding with the Wind IV 3
Iowa Projects should lead to lower retail electric rates than would be the case 4
in the absence oflhe Wind IV Iowa Projects?
5 A.
Yes. While this conclusion is based upon projections, I believe it is entirely 6
consistent with the intent ofIowa's ratemaking principles law.
7 Q.
Please explain.
8 A.
Iowa's ratemaking principJes Jaw avoids after-the-fact second guessing as to what 9
constitutes prudent generation investment. The fonnat agreed upon by the DCA 10 and MidAmerican is designed to protect customer interests consistent with 18
providing MidAmerican a reasonable opportunity to recoup the costs of sizable 2
capital expenditures for new generation.
3 Q.
Does this conclude your direct testimony?
4 A.
Yes, it does.
19
STATE OF IOWA
)
) ss:
COUNTY OF POLK
)
I, Thomas C. Foster, being first duly sworn, depose and state that the statements contained in the foregoing prepared direct testimony are true and correct to the best of my knowledge, information and belief. and that such prepared direct testimony constitutes my sworn statement in this proceeding.
Thomas C. Foster Subscribed and sworn to before me this I~y of April 2001
Exhibit _(TeF.1)
MldAmerican Energy Company Contribution. to Quad Cities StatIon Nuclear Decommiuioning TruallS IRR:
527%
Beginning Balance Uabilities Ending
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FLOWS fQr IRR 0 2006 246,998,000 (247,795.982) 1 2001 246,998,000 797,982 247,795,982 13,564.182 261,380,164 (1,595.964) 2 200e 261,360,164 1,595,964 282,956,128 14,394.038 217.350,165 (1,595.964) 3 2009 277,350,165 1,595,964 278.946.129 15.269.319 294.215,449 (1,595.964) 4 2010 294.215,449 1,595,964 295.811.413 16.192,513 312.003.926 (1,595.964) 5 2011 312,003,926 1,595,964 313.599,890 17,168,242 330,786.132 (1,595.964) 6 2012 330,786,132 1,595,964 332,362.096 18,193,273 350,555,369 (1,595,964) 7 2013 350,555,369 1,595,964 352.151.333 19.276.522 371.427,864 (1,595.964) 8 2014 371,427,854 1,595,964 373,023,818 20,419.087 393.442.888 (1,595.964) 9 2015 393.442,886 1.595,964 395.038.850 21,824.155 416,663.005 (1.595,964) 10 2018 416.663,005 1.595.964 418.258.969 22.895.208 441.154,177 (1.595,984) 11 2017 441,154,177 1.595,964 442.750,141 24,235.838 466,985,979 (1,595,964) 12 2018 4&5,985,979 1,595,964 468,581.943 25,649,853 494,231.796 (1,595,984) 13 2019 494,231,796 1,595,964 495,827.780 27,141.271 522,989.031 (1,595,984) 14 2020 522,969.031 1,595,964 524,564,995 28,714.327 553,279.322 (1.595,964) 15 2021 553,279.322 1.595,964 554.875.285 30,373.492 585,248.778 (1.595,984) 18 2022 585,248,779 1,595,964 589.844.742 32,123,478 618.968.219 (1.595,984) 17 2023 618.968,219 1,595,964 620.584.183 33,969.257 654,533.440 (1.595.964) 18 2024 654,533,440 1.595,964 555,129.404 35,916.072 692,045.475 (1.595.984) 19 2025 592.045476 1,595,964 693,841,440 37,969,455 731,610,896 (1.595.964) 202026 731.610,896 1.595,964 733.206,860 40,135.239 773.342,099 (1,595,984) 21 2027 773,342.099 1,595,964 774.938,083 42,419,577 817,357,540 (1.595,964) 22 2028 817.357.840 1.595.984 818,953,504 43,837,529 882.791,132 (1.595,964) 23 2029 862.791132 1,595,964 884,387,0116 45,223,095 909,610,191 (1.595,964) 24 2030 909.510,191 1.595.964 911.206,155 45,589,470 957.775,625 (1,595,984) 25 2031 957.775"l25 1.595.964 959,371.589 47,869,666 1.007.241,255 (1,595,964) 26 2032 1.007.241.255 1.595,964 1,008,837,219 49,116,545 2,465.890 1.056,488,075 1.567,710 27 2033 1,055.489.075 797,980 1,056,286.055 48,869,186 56.209.543 1.046,946.678 56.209,543 28 2034 1.048.945.578 1,045,9<15,878 48.529,583 136.210.862 961,254,379 136.210,882 29 2035 961.264.379 961.264,379 44,472,980 191.883.780 614.073,579 191.653,780 30 2036 814.073.579 814,073,579 37,863,185 208.959.767 842,776,997 208.959.167 31 2031 542.775997 642,776.&97 29.738.134 195.440,370 477,074,760 195.440.370 32 2038 417.074.780 477.074,760 22,071,905 179.804.651 319.342,015 179,804.651 33 2039 319.342,015 319.342.015 14.774.388 116.720.064 217.396.347 116.720.054 34 2040 217.396347 217,396,347 10,057.861 81,051,537 186.402.671 81,051,537 35 2041 165.402,671 156.402,871 7.698,834 39,179.703 134.921,602 39,179.703 36 2042 134,921,602 134.921,602 8.242.160 18,158,613 123.005.149 18,158,613 37 2043 123.005.149 123.005.149 5.690.844 14.209.175 114.486.619 14.209,175 38 2044 114,486.819 114.466,819 5,296,743 14,871,705 104,911.855 14.871,708 39 2045 104,911.856 104.911,858 4,853.756 15,545,798 94.219,813 15,645,798 40 2!M8 94.219.813 94.219.813 4.359,088 16.230.229 62.348.673 16,230,229 41 2047 82,346,673 82,348.873 3.609,8&8 41,231,178 44.927,363 41.231,178 42 2048 44.927,383 44,927.363 2,078.568 40.658.305 6,347.627 40,658.305 43 2049 8.347,627 1i.347.1i27 293.673 6.641.300 0
6,641,300 1,355,252,259 Notas 1 The rata of rmurn to net the trust assell to zero at the and of decommissioning represents a return aller-taxes. i,westmenl management 'MS. truslee fees and trading commiasionl, It represenll a full liquidation rate of retum.
2 Annual earnings of the trust reflect the aIIocaUon of investmel1l1 among equiUes and fixed income securities. As decommissioning spproadles the asset slloc:ation beromes more heftily weighted tD fixed Income aecurilies.