January 3, 2008 Dr. Burl W. Haar Executive Secretary Minnesota Public Utilities Commission 350 Metro Square Building 121 7 th Place East St. Paul, MN 55101-2147 RE: Otter Tail Power Company Resource Plan Filing Update Docket No. E017/RP-05-968 Dear Dr. Haar: Otter Tail Corporation, dba Otter Tail Power Company, hereby submits via electronic means to the Commission both proprietary and public versions of updated information on Otter Tail’s 2006 – 2020 resource plan filing in the docket noted above. The updated information and analysis is being provided as a result of the change in participation in the proposed Big Stone Unit II project and recent legislative changes in renewable energy and conservation requirements. A copy of the public version has been provided to all other parties on the official service list. Questions can be addressed to me at 218-739-829 or via email at [email protected]. Sincerely, /s/ Bryan D. Morlock Bryan D. Morlock, P.E. Manager, Resource Planning c: Service List Bruce Gerhardson Mark Bring
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RE: Otter Tail Power Company Resource Plan Filing Update
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January 3, 2008 Dr. Burl W. Haar Executive Secretary Minnesota Public Utilities Commission 350 Metro Square Building 121 7th Place East St. Paul, MN 55101-2147 RE: Otter Tail Power Company Resource Plan Filing Update Docket No. E017/RP-05-968 Dear Dr. Haar: Otter Tail Corporation, dba Otter Tail Power Company, hereby submits via electronic means to the Commission both proprietary and public versions of updated information on Otter Tail’s 2006 – 2020 resource plan filing in the docket noted above. The updated information and analysis is being provided as a result of the change in participation in the proposed Big Stone Unit II project and recent legislative changes in renewable energy and conservation requirements. A copy of the public version has been provided to all other parties on the official service list. Questions can be addressed to me at 218-739-829 or via email at [email protected]. Sincerely, /s/ Bryan D. Morlock Bryan D. Morlock, P.E. Manager, Resource Planning c: Service List Bruce Gerhardson Mark Bring
STATE OF MINNESOTA ) )
COUNTY OF OTTER TAIL )
AFFIDAVIT OF SERVICE Re: In the Matter of Otter Tail Power Company’s 2006 – 2020 Resource Plan
MPUC Docket No. E017/RP-05-968
Bryan D. Morlock, being first duly sworn, deposes and says that on the 3rd day of January, 2008, he will serve the attached filing in the above-referenced matter:
X by electronic delivery to the Minnesota Public Utilities Commission and to the Minnesota Department of Commerce
X by depositing in the United States Mail at the City of Fergus Falls, a true
and correct copy thereof, properly enveloped with postage prepaid to all other parties on the distribution list
by personal service
by facsimile transmission followed by first class mail
by Overnight mail (MPUC and DOC)
by delivery service
to all persons at the addresses indicated below or on the attached lists. /s/ Bryan D. Morlock Bryan D. Morlock Subscribed and sworn to before me this 3rd day of January, 2008. /s/ Nancy D. Tollerson Notary Public My Commission Expires January 31, 2010
Dr. Burl W. Haar Executive Secretary MN Public Utilities Commission 121 7th Place East, Suite 350 St. Paul, MN 55101-2147 Sharon Ferguson MN Department of Commerce 85 7th Place East, Suite 500 St. Paul, MN 55101-2198 Julia Anderson MN Office of Attorney General 1400 BRM Tower 445 Minnesota Street St. Paul, MN 55101-2130 Curt Nelson OAG-RUD 900 BRM Tower 445 Minnesota Street St. Paul, MN 55101-2130 Michele Beck Great River Energy 17845 East Highway 10 P.O. Box 800 Elk River, MN 55330-0800 Elizabeth Goodpaster Minnesota Center for Envrionmental Advocacy 26 E. Exchange St., Suite 206 St. Paul, MN 55101 Shalini Gupta Izaak Walton League of American Suite 202 1619 Dayton Avenue St. Paul, MN 55104
William Harrington Excelsior Energy Inc. Suite 305 11100 Wayzata Boulevard Minnetonka, MN 55305 Jeffrey C. Paulsen Jeffrey C. Paulson & Associates, Ltd. Suite 325 7301 Ohms Lane Edina, MN 55439 Robert H. Schulte Schulte Associates LLC 9072 Palmetto Driver Eden Prairie, MN 55347 Matthew J. Schuerger, P.E. Energy Systems Consulting Services, LLC P.O. Box 16129 St. Paul, MN 55116
Service List Docket E017/RP-05-968
BEFORE THE MINNESOTA PUBLIC UTILITIES COMMISSION
LeRoy Koppendrayer Chair David C. Boyd Commissioner Marshall Johnson Commissioner Thomas W. Pugh Commissioner Phyllis A. Reha Commissioner In the Matter of Otter Tail Power DOCKET NO. E-017/RP-05-968 Company’s 2006 – 2020 Resource Plan
OTTER TAIL POWER COMPANY SUPPLEMENTAL INFORMATION AND ANALYSIS RESULTS ON ITS RESOURCE PLAN
PROCEDURAL HISTORY
On June 30, 2005, Otter Tail Corporation, dba Otter Tail Power Company (Otter Tail or the
Company), filed its proposed Resource Plan covering the period 2006 – 2020, pursuant to
Minnesota Statutes §216B.2422 and Minnesota Rule Chapter 7843.
On August 9, 2006, the Commission issued its ORDER DEFERRING CONSIDERATION OF
COMMENT, FINDING GOOD FAITH REO EFFORTS AND DIRECTING NEXT
RESOURCE PLAN FILING. In this Order the Commission deferred consideration of whether to
approve, reject or modify the Company’s proposed Resource Plan. The Commission also
required Otter Tail to submit supplemental information based on modeling re-runs, using updated
cost figures for the Big Stone II project and starting from the modeling adjustments included in
the Company’s May 1, 2006 reply comments. The Commission also indicated that the Company
should file its next resource plan before or simultaneous with the rate case it plans to file in 2007.
On October 26, 2006, the Commission issued its ORDER DENYING RECONSIDERATION, in
response to a petition filed by the Izaak Walton League of American-Midwest Office, Fresh
Energy, the Union of Concerned Scientists, and the Minnesota Center for Environmental
Advocacy (the Joint Intervenors).
Also on October 26, 2006 Otter Tail Power submitted supplemental information, responding to
requirements in the Commission’s August 9, 2006 ORDER.
PUBLIC DOCUMENT – TRADE SECRET DATA HAS BEEN EXCISED
On November 15, 2006, the Department of Commerce (Department) and the Joint Intervenors
each filed supplemental comments in response to the Company’s October 26 filing.
On November 29, 2006, Otter Tail filed reply comments.
The Commission met to consider the matter on January 25, 2007 to consider this matter and on
February 20, 2007 issued its ORDER POSTPONING DECISION ON MERITS, EXTENDING
FILING DATE, AND AMENDING PRIOR ORDER. In this Order the Commission postponed
its final decision until the Commission considers Docket No. E-017 et al./CN-05-619 on its
merits. The Commission also extended the date for the Company to file its next Integrated
Resource Plan to April 1, 2008 and required Otter Tail to file its energy and peak demand forecast
with the Department of Commerce by July 1, 2007. The Commission’s August 9, 2006 ORDER
was amended to approve the wind portion of the Company’s proposed Resource Plan, thereby
allowing the Company’s RFP process for up to 160 MW of wind generation to go forward.
INTRODUCTION
The Minnesota legislature passed two key energy bills during the 2007 session, aimed at
increasing the usage of renewable energy and reducing energy requirements by increasing
conservation efforts.
On September 17, 2007 Big Stone II project officials announced that Great River Energy (GRE)
had chosen to withdraw from the project due to a number of factors unique to GRE, including the
future loss of load and the presence of other resources being developed and/or acquired by GRE.
The announcement also stated that Southern Minnesota Municipal Power Agency (SMMPA)
would not be participating as an equity owner due to ongoing litigation with SMMPA’s largest
member. Absent new participants, the change in project participation would likely result in a
reduced project size and thus experience a likely increase in capital costs on a per kW basis.
The decision was made to update the resource plan analysis to determine if the Big Stone II
project is still an economic resource within the context of the resource plan. The majority of this
filing is a report on the updated analysis and the results, as well as providing information on the
incorporation and impacts of the legislative changes.
Updated Planning Process
Otter Tail used the same planning process and planning software, IRP-Manager, which was used
for the original resource plan development and updated capacity expansion analysis, most
recently submitted in October 2006. The database from the previously updated plan served as the
starting point. Where new data was available, Otter Tail incorporated the information into the
analysis. The goal or objective of the planning model is to reduce total revenue requirements.
The following topics identify data changes that were made in the model.
Load Forecast
Otter Tail submitted a new load forecast to the Department of Commerce (Department) by July 1,
2007 as required by the Commission’s February 20, 2007 ORDER in this docket. Following the
reporting of the new load forecast, Otter Tail was informed that it would be serving a new North
Dakota based ethanol plant with an estimated peak demand of 14.5 MW1. This new load was
added to the load forecast, and incorporated into the model.
Manitoba Hydro Long-Term Proposal
Otter Tail had previously received a long-term 20-year capacity and energy proposal from
Manitoba Hydro in August 2006. Manitoba Hydro was contacted and verbally verified that the
100 MW was still available. The original proposal was included in the analysis, although the
pricing was no longer valid. In this updated analysis, Otter Tail did include consideration of
some of the contingency provisions of the proposal, which had previously not been included. The
Manitoba Hydro proposal was not selected in the capacity expansion modeling. Subsequent to
the completion of the analysis, a letter was received from Manitoba Hydro stating that the 100
MW contained in the proposal was no longer available.
Fuel Prices
Otter Tail updated two fuel forecasts within the model. For natural gas prices Otter Tail used the
2007 Annual Energy Outlook forecast developed by the Energy Information Administration
1 Since the completion of the analysis, Otter Tail has been informed that the peak demand is likely to be closer to 22 MW. The updated analysis does not consider the additional increased load.
(EIA) and released in February 2007. The EIA forecasts have been historically low. A number
of studies over time have documented the tendency of the EIA forecasts to understate natural gas
prices. One of the most recent was a study by the Ernest Orlando Lawrence Berkeley National
Laboratory (LBNL) which compared the forecast to the NYMEX futures prices. The latest study
results2 from LBNL indicated that the EIA Annual Energy Outlook 2007 was understating the
price of natural gas by an average of $0.73/MBTU over the 72-month NYMEX strip. The EIA
forecast was adjusted by this amount, and also for basis differential between the Henry Hub
location of the EIA forecast and a Minnesota natural gas delivery location. Otter Tail
benchmarked the resultant adjusted forecast against the Fall 2007 Gas Reference Case forecast
developed by Global Energy Decisions with reasonable results.
The coal price forecast for the proposed Big Stone II project was updated using information from
a recent Hills & Associates Powder River Basin study. The forecast includes a delivered freight
forecast, fuel surcharges, railcar lease, railcar maintenance, and sales tax.
Demand-side Alternatives
In all previous analysis in this docket the IRP-Manager model has been allowed to evaluate and
select the demand-side alternatives. The 2007 Legislature passed the Next Generation Act of
2007. With the passage of this Act, MN Statute §216B.241 Subd 1c was modified to require each
individual utility to have an annual energy savings goal equivalent to 1.5% of gross annual retail
energy sales to retail customers in the utility’s Minnesota service territory by 2010. The savings
goal is to be calculated based on the most recent three-year weather normalized average sales
data. Based on the prior analysis it was clear that the IRP-Manager model would not select
enough demand-side alternatives to comply with the goal. Otter Tail has been involved in
discussions with the Department on the implementation of this goal and the possible means and
methods for compliance. That process is still ongoing.
In lieu of modeling demand-side alternatives for this updated analysis, the demand-side savings
goal was assumed to be met, and the required energy savings were treated as a model input. The
demand-side savings curves from a prior CIP filing were scaled upward so that the required
2 Memo from Mark Bolinger and Ryan Wiser, Lawrence Berkeley National Laboratory, dated December 6, 2006.
demand-side savings goal was achieved. Since the compliance costs have not yet been
determined, costs to attain these savings were not included in the model.
Otter Tail has been involved in ongoing discussions with South Dakota Public Utilities
Commission staff on conservation efforts in that jurisdiction and has filed a conservation plan to
be implemented there. The Company is also anticipating resuming direct consideration programs
in its North Dakota service territory as well. To account for these estimated savings, the demand-
side savings curves were also escalated to include savings of approximately 0.5% of annual retail
sales in those jurisdictions.
Tables I and II below show the estimated demand-side savings impacts to retail sales for the
Minnesota and non-Minnesota jurisdictions.
Table I Estimated Minnesota Savings Due to Conservation
3 Nameplate rating. Expected accreditation level for peak months is 20% winter and 15% summer. 4 The spot market capacity was only available in 2011, and only covered a two-year period, through 2012.
The cost and pertinent operating parameters of the supply-side options are shown in Table IV.
The shaded cells indicate the proprietary data contained in the table and omitted from the public
version.
*** START PROPRIETARY DATA ***
Table IV Cost of Supply-side Alternatives (2006$ except as noted)
Alternative Capital
Cost ($/kW)5
Fixed O&M Cost
($/kW-year)5
Variable O&M Cost ($/MWh)
Trans-mission Cost
($/kW)
Full Load Heat Rate (Btu/kWh)
GE LM6000PC CT GE Frame 7EA CT
GE Frame 7EA Based Combined Cycle
GE MS 6001FA Based Combined Cycle Hitachi H2025 Based
7 The DSM/Conservation numbers include the impact on reserves. Otter Tail becomes summer peaking in the 2012/2013 time period, so the reserve impact switches from winter to summer season. 8 The wind numbers represent estimated MAPP URGE ratings during the peak season month, estimated at 15% of nameplate rating in summer season and 20% of nameplate rating in winter season.
The updated resource plan has some significant changes from the previous resource plan. The 50
MW Manitoba Hydro purchase was replaced by an additional 50 MW of the Big Stone II
proposal. Incorporating the Manitoba Hydro proposal contingencies made the proposal more
expensive than additional Big Stone II capacity. Since the updated analysis was completed,
Manitoba Hydro has notified Otter Tail that the capacity and energy in the proposal is no longer
available.
The increased conservation had a significant impact later in the planning period. In total, the
resource plan now has 81 MW less baseload resources. Whereas the previous plan included 81
MW of IGCC in 2018 when the Hoot Lake coal-fired units are retired in the plan, the updated
resource plan does not include the IGCC option. Instead, all new capacity selected by the model
at that point is natural gas-fired peaking.
The analysis also selected an additional 100 MW of wind generation for reserve requirements in
2013, after it had selected the Big Stone II proposal. This 100 MW is clearly dependent upon the
availability of the federal PTC, as the model did not select any additional wind without the PTC
being available.
Graph I shows the breakdown of new resources, excluding short-term capacity purchases.
Graph I2007 - 2020 Resource Plan Additions
Nameplate Ratings
Coal 170 MW 23%
DSM 100.7 MW 14%
Natural Gas 174 MW 24%
Wind 280 MW 39%
Graph II shows the net change to the resource mix by 2020 with the resource plan, including the retirement of the Hoot Lake #2 and #3 units.
Graph II2007 - 2020 Net Resource Mix Changes
Includes RetirementsNameplate Ratings
Coal 25 MW 4%
DSM 100.7 MW 17%
Natural Gas 174 MW 30%
Wind 280 MW 49%
Sensitivity Analysis
Two additional sensitivity scenarios were completed after the initial analysis. The first sensitivity
scenario included a capital price sensitivity relative to the Big Stone Unit II proposal. The capital
cost was increased by 10% above the current estimate. The resource plan did not change. The
second sensitivity scenario was to combine the high environmental externality values with the
$9/ton CO2 tax value. The CO2 tax value was used in place of the CO2 externality value and
applied to all fossil-fueled resources without regard for location. Again, the resource plan as
identified by the model did not change.
CO2 Emissions
The resource plan impacts result in a reduction in CO2 emissions for serving retail load. The CO2
reductions, both in total annual emissions and in CO2 emissions/kWh result from the significant
increase in wind generation, improvements in the efficiency of existing generation, and the
efficiency improvement. Additionally, the total annual CO2 emissions are being reduced by the
increase in conservation. Graph III shows the annual CO2 emissions associated with the energy
to serve total Company retail load.
Graph III2007 - 2020 Annual Tons of CO2 for Retail Load
1 Biomass is ND eligible only. 2 OTP-owned hydro is MN eligible only. 3 MN REO is 1% through 2009. MN RES is 7% in 2010, 12% in 2012, 17% in 2016, 20% in 2020 and 25% in 2025. 4 ND REO is 10% in 2015.
Process Going Forward
Otter Tail originally filed its request for resource plan approval on June 30, 2005. Since that
initial filing, this is the third resource plan update the Company has filed. The updates have been
filed for a variety of reasons, including (1) to address modeling concerns by the Department, (2)
to address cost revisions of the Big Stone Unit II estimate, and now (3) to address new legislation
regarding renewable resources and conservation, and a possible change in the Big Stone Unit II
project size and participants.
Some of the parties to this docket have expressed concern that if the Commission should approve
the Company’s resource plan in the instant docket, somehow the Commission will have set
precedence or prejudged the Big Stone Unit II project transmission Certificate of Need docket
(E017 et al/CN-05-619). Accordingly, the Commission made a previous determination that the
Otter Tail resource plan decision would be rendered the same day as the decision in the
Certificate of Need docket. The Certificate of Need docket is now expected to be decided in
April 2008. Otter Tail recommends the Commission continue with its previous decision to decide
on the Otter Tail resource plan at the same hearing.
There is a timing conflict, as the Company’s next resource plan filing is expected to be filed April
1, 2008 in accordance with the Commission’s ORDER dated February 20, 2007. It would be
illogical and a waste of valuable resources of all parties involved having two Otter Tail resource
planning dockets open simultaneously. Further, Otter Tail cannot begin analysis on the next
resource plan filing until the Commission has rendered a decision in the current docket. Otter
Tail therefore requests the Commission to extend the date of the Company’s next resource plan
filing to September 2, 2008. Over the course of the past year, including this updated filing, the
Company has provided updated load forecast information, REO/RES compliance status and
plans, incorporated the new conservation requirements in Minnesota and conservation plans in
North Dakota and South Dakota, and incorporated a $9/ton CO2 tax in its latest analysis. Even
though the current docket has been open for 2 ½ years, the updated information has kept current
with the new legislative requirements for renewable energy and conservation. The Commission
can comfortably render a decision in the current docket because of the updated information.
Finally, Otter Tail is in the process of migrating to new Strategist long-term planning software.
The latest software version will allow the modeling of Otter Tail as two separate jurisdictions, a
Minnesota jurisdiction and a non-Minnesota jurisdiction. Each jurisdiction will be able to have
its own renewable energy requirements, consideration of environmental externalities, potential
future carbon taxes, and other issues. Currently Otter Tail is in the situation of having Minnesota
and North Dakota laws that are in direct conflict with each other. The new Strategist model will
allow the Company to simultaneously develop resource plans that comply with the requirements
of both areas without violating the laws of any state. A September 2, 2008 filing date will
provide the time necessary to develop and benchmark the new database and ensure the
development of robust plans.
Summary
Otter Tail has conducted updated analysis due to the recent changes in Big Stone Unit II proposal
sizing and ownership, updated cost and load forecast information, and new legislative
requirements in Minnesota. The Company’s resource plan has been modified accordingly,
reflecting an increase in the amount of renewable energy and conservation, and a reduction in the
amount of baseload generation.
Otter Tail respectfully requests the Commission:
• Approve the Company’s updated resource plan filing at the same time a decision is
rendered in the Big Stone Unit II proposal transmission Certificate of Need, Docket No.
E017 et al/CN-05-619; and
• Extend the filing date of the Company’s next resource plan filing to September 2, 2008.
Any questions regarding this submittal can be directed to me by telephone at 218-739-8269 or via