020217-c Alice Jackson Direct James Hill Cross

1
1 BEFORE THE PUBLIC UTILITIES COMMISSION
2 STATE OF COLORADO
3 -------------------------------------------------------
4 PROCEEDING NO. 16A-0396E VOLUME 2
5 -------------------------------------------------------
6 IN THE MATTER OF THE APPLICATION OF PUBLIC SERVICE
7 COMPANY OF COLORADO FOR APPROVAL OF ITS 2016 ELECTRIC
8 RESOURCE PLAN.
9 -------------------------------------------------------
10 PURSUANT TO NOTICE to all parties in
11 interest, the above-entitled matter came on for hearing
12 before JEFFREY P. ACKERMANN, FRANCES A. KONCILJA, and
13 WENDY M. MOSER, Commissioners of the Public Utilities
14 Commission, on February 2, 2017; said proceedings
15 having been reported in shorthand by James L. Midyett
16 and Harriet S. Weisenthal, Certified Shorthand
17 Reporters.
18 WHEREUPON, the following proceedings were
19 had:
20
21 APPEARANCES
22 (AS NOTED OF RECORD.)
23
24
25
2
1 INDEX
2 WITNESS PAGE
3 ALICE K. JACKSON 11
Redirect Examination by Mr. Sopkin 11
4 Examination by Commissioner Moser 33
Examination by Commissioner Koncilja 38
5 Examination by Commissioner Koncilja 55
Examination by Chairman Ackermann 67
6 Examination by Commissioner Koncilja 71
Redirect Examination by Mr. Sopkin 74
7 JAMES F. HILL 77
Cross-examination by Mr. Cocian 79
8 Cross-examination by Mr. Calvano 93
Cross-examination by Mr. Detsky 97
9 Cross Examination by Ms. Hickey 150
Cross Examination by Ms. Overturf 166
10 Cross Examination by Mr. Coleman 177
Examination by Ms. McLauthlin 188
11 Examination by Commission Moser 204
Examination by Commissioner Koncilja 213
12 Examination by Chairman Ackermann 217
Redirect Examination by Mr. Larson 242
13 KENT SCHOLL
Direct Examination by Mr. Larson 264
14 Cross Examination by Mr. Nocera 267
15
16
17
18
19
20
21
22
23
24
25
3
1 EXHIBITS
2 NUMBER MARKED ADMITTED
3 Exhibit No. 52 10
Exhibit No. 58 77 135
4 Exhibit No. 59 77
Exhibit No. 60 77
5 Exhibit No. 61 77
6 Exhibit No. 63 77 132
7 Exhibit No. 3 79
Exhibit No. 4 79
8 Exhibit No. 59 135
Exhibit No. 60 135
Exhibit No. 5 265
Exhibit No. 7 265
13
14
15
16
17
18
19
20
21
22
23
24
25
4
1 PROCEEDINGS
2 (Exhibit No. 55 remarked for
3 identification.)
4 CHAIRMAN ACKEMANN: Good morning, ladies
5 and gentlemen.
6 We are back on the record.
7 This is Proceeding 16A-0396E.
8 I think we are starting with Mr. Sopkin.
9 COMMISSIONER KONCILJA: Before we do
10 that, I have a preliminary matter. I know that some of
11 us attended and I'm assuming others watched the public
12 comment hearing yesterday. And I found Leslie
13 Glustrom's exhibits very helpful, which she had labeled
14 PH-1, 2, 3, and 4.
15 And I would like to move that we enter
16 those into the record.
17 CHAIRMAN ACKEMANN: Motion to move those
18 four public hearing items into the record.
19 Seeing no objection, those are moved. We
20 need to then change the markings on those, do we sir?
21 MR. DETSKY: Excuse me, Mr. Chairman --
22 no objection but would it be possible to E-file those
23 or somehow provide them to the parties so we could see
24 what they are?
25 CHAIRMAN ACKEMANN: That would be

5
1 helpful, I guess. Sure. Would you like to know what
2 we're talking about?
3 MR. DETSKY: That would be helpful.
4 COMMISSIONER KONCILJA: You should have
5 stayed here last night.
6 MR. DETSKY: Tell that to my kids.
7 MR. DIXON: Your Honor, if I can --
8 CHAIRMAN ACKEMANN: Slow down a minute.
9 MR. DIXON: Just a clarification -- not a
10 question or challenging -- when we say we're going to
11 bring these into the record, to my way of thinking they
12 are already in the record because they are public
13 exhibits. Are you basically saying you want them
14 included in the record as evidence?
15 COMMISSIONER KONCILJA: Yes.
16 MR. DIXON: That's what I was trying to
17 get at, because our rule says they are not normally
18 evidence. So I want to understand precisely what you
19 are saying. So these exhibits would become evidence in
20 this record?
21 COMMISSIONER KONCILJA: Yes.
22 MR. DIXON: All right, thank you.
23 CHAIRMAN ACKEMANN: Very good. Any other
24 questions on that?
25 MR. SOPKIN: Along those same lines, we

6
1 haven't seen them yet. We would like to take a look at
2 them. If we do want to respond to them, will that
3 opportunity be made available?
4 CHAIRMAN ACKEMANN: Sure. Why don't we
5 slow this down then and make sure we can find the best
6 way to get these -- ideally it would be electronically
7 to the parties so you can see that. And then we can
8 focus on that.
9 COMMISSIONER KONCILJA: Mr. Sopkin,
10 nobody was watching on the webcam or recording the
11 proceedings yesterday?
12 MR. SOPKIN: We did have people here,
13 Your Honor.
14 CHAIRMAN ACKEMANN: Yes. Okay.
15 MR. SOPKIN: I just personally didn't.
16 COMMISSIONER KONCILJA: All right.
17 CHAIRMAN ACKEMANN: Sure. Those are
18 items PH-1, 2, 3, and 4 that Ms. Glustrom brought
19 forward. We'll find a way to move those items in
20 electronically so all the parties can see that. We'll
21 figure that out today and then we'll pick this back up.
22 COMMISSIONER KONCILJA: I also had a
23 question: There was some reference to the Berkeley
24 Wind Study. And I don't know if that's currently in
25 the record. I've actually read that in the past. And

7
1 I'm wondering if someone could tell me if that's in the
2 record already.
3 CHAIRMAN ACKEMANN: That's the Lawrence
4 Berkeley National Labs Study, the 2016 study, yeah. I
5 do in the -- Mr. Dixon?
6 MR. DIXON: One other point, the issue I
7 raised yesterday regarding sPower, you don't have an
8 affidavit, you don't have sworn testimony.
9 Interestingly Ms. Glustrom is here. Would it be worth
10 putting her on the stand for the sole purpose of having
11 her attest to the accuracy of the data she provided and
12 put it under oath because you are making it evidence as
13 opposed to public comments in the public hearing and
14 she's here. That would be a good means to have this
15 information in the record as evidence.
16 COMMISSIONER KONCILJA: I think that's a
17 good suggestion once Mr. Sopkin and his team has had an
18 opportunity to review them and take a position.
19 CHAIRMAN ACKEMANN: Go ahead, Mr. Sopkin.
20 MR. SOPKIN: Your Honor, if we could just
21 think about that. We have a little awkward procedural
22 situation because she was denied intervention so I
23 don't know how that works to put her on the stand.
24 CHAIRMAN ACKEMANN: Exactly. That's what
25 I'm wondering as well. Are we now having somebody sort

8
1 of late-date sponsor her as a witness? Is that what
2 we're trying to do here? So, yeah, we need a little
3 procedural coaching through this see.
4 I'm going to set this one aside for a
5 moment. We're going to figure this one out and we'll
6 keep you in suspense on that until we figure out how
7 exactly we want to proceed on that.
8 At a minimum, we will figure out a way.
9 It is in the record as far as public comment hearing
10 information is in the record. So what stands before us
11 now is how to elevate its status beyond that and then
12 whether or not it needs to be sponsored by somebody and
13 then allow, in effect, even cross-examination or
14 presentation of that.
15 Mr. Putnam?
16 MR. PUTNAM: Mr. Chairman, I have a
17 procedural observation related to this question which I
18 think traditionally under administrative law, you don't
19 have to have sworn and verified statements; you don't
20 have to have live testimony. And as to the extent we
21 may take one comment from public comment and try to
22 elevate it by, you know, providing that level of
23 treatment, it sends a signal that the Commission may
24 not be caring about the other materials that are in
25 there and I do think you both have the power and the
9
1 obligation to think about those comments; but as a
2 procedural matter, is it sounds like it could open the
3 gates to a lot more process without adding a lot more
4 veracity or trustworthiness to the process.
5 CHAIRMAN ACKEMANN: Thank you,
6 Mr. Putnam.
7 Duly noted. As I say, we'll discuss this
8 matter at a recess or sometime later in the day.
9 MR. SOPKIN: We would like to reserve our
10 arguments on this. This is all sort of procedural.
11 CHAIRMAN ACKEMANN: Right. So this is
12 all pending then, so nothing has actually been moved
13 forward; we're just going to revisit this. It's noted
14 as an item and we'll pick it back up.
15 MR. SOPKIN: Thank you.
16 CHAIRMAN ACKEMANN: Before I turn to
17 Mr. Sopkin and the items we were going to pick up in
18 terms of bringing other materials into the record, is
19 there anything else preliminarily we need to deal with
20 out there?
21 Seeing none, Mr. Sopkin.
22 MR. SOPKIN: Your Honor, I wanted to
23 check -- I wasn't going to discuss this with Ms.
24 Jackson -- whether Exhibit 52 had been admitted into
25 the record and that's the annual progress report 2016

10
1 electric resource plan dated October 31, 2016.
2 I believe the Commission asked that it be
3 put into the record, so we do have it marked as Exhibit
4 52 and we would move for its admission.
5 CHAIRMAN ACKEMANN: Thank you. Yes, we
6 have not moved that yet. And that would -- that was
7 the Commissioner question yesterday. So that is
8 Exhibit 52. That's the company's annual update. So
9 it's marked as Exhibit 52. That's the October 31, 2016
10 update if I heard right or thereabouts. Yes.
11 So seeing no objection to that, we're
12 going to move that forward into the record as Exhibit
13 52. Thank you.
14 Onward.
15 MR. SOPKIN: And Public Service recalls
16 Ms. Jackson to the stand.
17 CHAIRMAN ACKEMANN: Thank you.
18 MS. GLUSTROM: Might I ask Mr. Sopkin if
19 he could use the microphone or speak quite loudly;
20 anybody who is trying to listen on line can't hear.
21 MR. SOPKIN: Yes.
23 Mr. Sopkin, were there other items you
24 marked last night you want to bring into the record?
25 MR. SOPKIN: Yes.

11
1 CHAIRMAN ACKEMANN: But they will happen
2 during --
3 MR. SOPKIN: They will happen during the
4 examination.
5 COMMISSIONER KONCILJA: You have our
6 permission to scream -- just don't be sarcastic.
7 ALICE K. JACKSON,
8 having been called as a witness, being previously duly
9 sworn, testified further as follows:
10 REDIRECT EXAMINATION
11 BY MR. SOPKIN:
12 Q Ms. Jackson, I appreciated Mr. Detsky's
13 addition to protocol in these hearings: Are you ready?
14 A Yes.
15 Q Yesterday there was a discussion about a
16 rulemaking that you had with Commissioner Koncilja and
17 issues that need to be addressed in that rulemaking.
18 And I believe you mentioned the timing of Rule 3660(h)
19 applications. Are there other resource acquisition
20 issues relevant to the rulemaking to bring to the
21 Commission's attention?
22 A Yes, of course.
23 So one of the topics we were talking was
24 figuring out how to combine and merge the existing
25 rules in regards to the ERP along with the rules that

12
1 are existing with the RES plan. One of the outstanding
2 concerns that we have because of some of the directives
3 we've received under the three-case settlement is
4 exactly how we merge those two on a going-forward basis
5 particularly around the RES plan.
6 Our understanding -- and it may be faulty
7 at this point in time -- but our understanding is that
8 all of the decisions in regard to the RES plan and ERP
9 incremental acquisitions must be done in this present
10 ERP are through the RAP period which ends May of 2024.
11 We have decisions on the RES for 2017, 2018, and '19.
12 We do not have decisions on '20 through '24. So the
13 question we need some clarification on is how to roll
14 that into this process or whether we should be asking
15 for waivers because we have not provided any of the RES
16 information for 2020 through May of 2024. So that's
17 the only one that might come up in the rulemaking is if
18 that's the place to have that discussion.
19 Q And that implicates such resources as
20 solar gardens, recycled energy, small acquisition,
21 beyond the RES compliance period of 2019 and into the
22 2023 time frame?
23 COMMISSIONER KONCILJA: Mr. Chairman, I'm
24 concerned -- and the two of you were not here -- but I
25 am concerned that this is an attempt to modify the

13
1 decision made yesterday to leave standing the
2 Commission's previous order. And I just think
3 that's -- I'm not the lawyer here, but I just think
4 that's an improper way to do this.
5 We -- Commissioner Moser and I disagreed
6 yesterday so the order stands. And I'm concerned that
7 the lengthy repetition that Ms. Jackson has made is
8 going to attempt to modify that decision. So I think
9 it's a collateral attack.
10 MR. SOPKIN: For the record, Your Honor,
11 we have no intent to do so.
12 BY MR. SOPKIN:
13 Q Let move on to the social cost of carbon.
14 Do you have before you Exhibits 53, 54, and 55?
15 A I do.
16 Q And can you identify what each of those
17 are?
18 A So exhibit number -- that's marked as 53
19 is the 2016 Minnesota statutes in regards to resource
20 planning and renewable energy.
21 Q And --
22 A And --
23 Q I'll stop you there for a second: With
24 regard to 53, are the relevant provisions there
25 concerning carbon costs subdivision 3 of Section

14
1 216-B-2422, which appears on page 2; and also on page
2 3, the provision 216-H.06?
3 A Yes.
4 Q All right.
5 MS. OVERTURF: Excuse me, is counsel
6 planning on distributing copies to the parties?
7 MR. SOPKIN: Excuse me, I thought --
8 CHAIRMAN ACKEMANN: If we could pause for
9 a moment, I would like to see a copy of the documents
10 as well.
11 We'll go off the record for a moment and
12 do a little distribution.
13 (Discussion off the record.)
14 CHAIRMAN ACKEMANN: So we'll go back on
15 the record.
16 And, Mr. Sopkin, if you would point us
17 again where you were going in the Minnesota statute,
18 please.
19 MR. SOPKIN: Sure. The Minnesota
20 statute, turning to the second page, subdivision 3,
21 Environmental Costs; and then on page 3, that entire
22 provision there, 216-H.06.
24 BY MR. SOPKIN:
25 Q And then turning to Exhibit 54, what is

15
1 that?
2 A Exhibit No. 54 is the Colorado Revised
3 Statute Section 40-2-123.
4 Q And is the relevant provision there with
5 regard to carbon costs 40-2-123(1)(b)?
6 A Yes, it is.
7 Q And then can you please describe what is
8 Exhibit 55.
9 A Exhibit No. 55 are the North Dakota
10 statutes particularly 49-06-24 and 49-02-23.
11 Q All right, thank you.
12 MR. SOPKIN: Your Honor, at this time, I
13 would move for the Commission to take administrative
14 notice of these statutes.
15 MS. OVERTURF: And, Your Honor, WRA --
16 excuse me, WRA has one slight clarification and one
17 objection. It is somewhat unusual to ask for
18 administrative notice of Colorado statutes themselves.
19 So while WRA doesn't object to administrative notice of
20 those statutes, but just seeks clarification that all
21 other Colorado law that has not been specifically
22 administratively noticed can still nonetheless be
23 referenced in statements of position and other legal
24 arguments.
25 So, first, I would like to make that

16
1 clarification.
2 MR. SOPKIN: So stipulated.
3 MS. OVERTURF: Okay. And then with
4 regard to Exhibit 55, WRA would object to taking
5 administrative notice of this document in -- because
6 it's beyond the scope of the cross-examination that WRA
7 gave to Ms. Jackson.
8 MR. SOPKIN: Your Honor, I think you
9 heard my objection yesterday: If we're going to get
10 into Minnesota, then other states that are within the
11 Xcel Energy operating company territories becomes
12 relevant. I believe she was advancing the Minnesota
13 social cost of carbon regulatory standards as something
14 to be emulated here, so I think it's fair game to talk
15 about one other state, in this case, North Dakota.
16 CHAIRMAN ACKEMANN: Mr. Sopkin, does the
17 company put forth any witness that can talk about the
18 larger footprint beyond Colorado?
19 MR. SOPKIN: Yes, Ms. Jackson can.
20 CHAIRMAN ACKEMANN: Because it was my
21 understanding yesterday she could not speak to
22 Minnesota or-- or was that just the Minnesota ERP?
23 MR. SOPKIN: I believe that was more
24 specific -- I think that was a specific document --
25 CHAIRMAN ACKEMANN: Okay.

17
1 MR. SOPKIN: -- that had been -- I don't
2 think she doesn't have general knowledge about the ERP;
3 but Ms. Jackson can explain what her knowledge is.
4 CHAIRMAN ACKEMANN: Then would she also
5 be speaking to North Dakota and North Dakota statute
6 and the company's activities in North Dakota?
7 MR. SOPKIN: Yes.
8 MS. OVERTURF: May I respond briefly,
9 Your Honor?
10 CHAIRMAN ACKEMANN: Please.
11 MS. OVERTURF: The scope of WRA's
12 cross-examination of Ms. Jackson was to address the
13 portion of Ms. Jackson's testimony that stated use of
14 the federal social cost of carbon was inappropriate for
15 running sensitivity on those carbon costs. That was
16 the scope of our cross-examination. It was not whether
17 it's necessitated by statute; whether it's required by
18 statute; whether it's required by statute in Colorado
19 or any other state; but whether it was an appropriate
20 use of that calculation in this kind of regulatory
21 setting.
22 So getting into the legal standards --
23 particularly states that were not even addressed in
24 WRA's cross-examination is far beyond the scope; and I
25 think counselor's attempt to define the scope of my

18
1 cross-examination by his own objection is
2 inappropriate.
3 MR. SOPKIN: And Your Honor, if that's
4 her position, North Dakota becomes very relevant
5 because that has to do with that state's position
6 regarding the appropriate use of social cost of carbon
7 externalities.
8 MS. OVERTURF: And again, Your Honor, I
9 think the appropriate consideration here is the
10 company's position rather than the state's position,
11 whichever state that may be.
12 CHAIRMAN ACKEMANN: Okay. Duly noting
13 that and I would also ask, too, Mr. Sopkin, is there a
14 way as we bring this material in, to also bring some
15 context in; for example, North Dakota, how many
16 customers does the company serve in North Dakota? What
17 percentage of the state is that? Similarly for
18 Minnesota? Because I think that will help add that
19 context; because by extension, it leaves us wondering
20 about the three or four other states that you serve as
21 well and then opens up whether we are then entertaining
22 that or sort of how far we're going on this as to what
23 your purpose is for bringing this in.
24 MR. SOPKIN: A couple things: I could
25 certainly ask those questions. I know we could find it

19
1 out very quickly if they are not at Ms. Jackson's
2 finger -- fingertips; but the other thing is there is
3 not going to be much questioning at all on this.
4 CHAIRMAN ACKEMANN: With that noted and
5 with that context of why this is being brought into the
6 record, and noting what Ms. Overturf has referenced in
7 terms of taking that into consideration, as to how we
8 are viewing the reason for this and why it's in the
9 record, then I will allow it into the record.
11 BY MR. SOPKIN:
12 Q Ms. Jackson, looking to, first, Exhibit
13 53, could you describe what the difference is between
14 that subdivision 3 on page 2 and that Section 216-H.06
15 on page 3.
16 A On page 2, the subdivision 3 is the
17 environmental cost; it says: The Commission shall to,
18 the extent practicable, quantify and establish a range
19 of environmental costs associated with each method of
20 electricity generation. The utility shall use the
21 values established by the Commission in conjunction
22 with other external factors including socioeconomic
23 costs when evaluating and selecting resource options in
24 all proceedings before the Commission including
25 resource plan and certificate of need proceedings.

20
1 So this is the directive that the
2 Commission would establish a process and go through and
3 set a cost associated with the environmental attributes
4 and impacts from electric generation, as well as that
5 they would sit and they would establish a value in
6 regards to external factors.
7 In the next referenced section,
8 consideration of resource planning, it follows through
9 and says that those values shall establish an estimate
10 with a likely range of costs of future carbon dioxide
11 regulation on electric generation. So this is the
12 probability of a rule being passed and that those costs
13 would be included and they must be used in all
14 electricity generation resource acquisition planning.
15 So pursuant to statute, the Commission is
16 to address two values --
17 MS. OVERTURF: Your Honor, I would object
18 here because to the extent the statutes are relevant,
19 they speak for themselves and asking Ms. Jackson to
20 provide legal opinions about what those statutes say or
21 do is inappropriate.
22 MR. SOPKIN: I don't think it's a legal
23 opinion. I think it's a common sense reading of what
24 the plain words of the statute and providing context
25 around this document as to why Xcel Energy needs to

21
1 submit these carbon costs in the state of Minnesota.
2 CHAIRMAN ACKEMANN: I suggest that as you
3 proceed then and we proceed in that context that it's
4 how Xcel is interpreting this statute as it's -- in its
5 actions in these states.
6 So start with Minnesota.
7 BY MR. SOPKIN:
8 Q With that guideline, can you continue,
9 Ms. Jackson?
10 A Thank you. That was precisely where I
11 was headed.
12 So in Minnesota, we have proceeded to
13 move through evaluations and discussions with the
14 Commission and establish what those values would be.
15 And then subsequently those values have been utilized
16 in the Electric Resource Plan.
17 So the Minnesota Electric Resource Plan
18 and Northern States Power Minnesota does not just
19 encompass the state of Minnesota. When we do electric
20 resource planning and make that filing in the state of
21 Minnesota, it encompasses the five states that are
22 included in the Minnesota service territory -- I'm
23 sorry, four states that are included in the Minnesota
24 service territory. North and South Dakota being two of
25 those. So North Dakota is one of the states that

22
1 impacts how we file that Electric Resource Plan in
2 Minnesota.
3 CHAIRMAN ACKEMANN: Tell me the four
4 states, North --
5 THE WITNESS: North Dakota, South Dakota,
6 Michigan, and Minnesota.
8 BY MR. SOPKIN:
9 Q Following up on the Chairman's inquiry,
10 do you have those facts at your fingertips or should we
11 ask Mr. Hill to be looking that up right now?
12 A I can give you some general numbers. In
13 the Northern States Power Minnesota company, we serve
14 1.3 million electric customers. As far as the North
15 Dakota jurisdiction, I don't know the precise number of
16 customers there, but I do know that in the North
17 Dakota -- in North Dakota, we are the largest utility
18 serving customers in North Dakota.
19 Q Largest electric utility.
20 A Yes.
21 Q All right. So when NSP submits these
22 carbon cost adders under subdivision 3 in that Section
23 216-H.06, is that really the choice of the company or
24 is that compelled by law?
25 A It is compelled by law, the Minnesota law

23
1 specifically around these values; and then as -- if we
2 look at Exhibit 55, we're compelled by North Dakota law
3 to also include sensitivities that have a different
4 value.
5 And those are very similar to what we are
6 proposing in this proceeding as far as the costs that
7 will be included dollar wise in the sensitivities that
8 we are proposing to look at here.
9 Q Okay. In the Minnesota resource planning
10 proceeding, we had a discussion -- or there was a
11 discussion yesterday about a particular resource
12 planning docket by Xcel Energy; you didn't have
13 specific knowledge as to that document, but do you have
14 general knowledge about the electric resource planning
15 process in Minnesota?
16 A I have general knowledge. I have not
17 reviewed or looked at their specific documents, but I
18 am part of the strategic team that do have discussions
19 in regard to those particular filings.
20 Q Let me ask you if you know this: In the
21 Minnesota resource planning proceeding, does NSP run a
22 sensitivity using zero dollars per tow carbon adder to
23 provide a reference point to measure the impact of the
24 positive carbon cost sensitivities?
25 A Yes, they do. And that is in compliance

24
1 with what North Dakota requires that they do.
2 Q And just to bring it back to Colorado,
3 how does the company model carbon sensitivities in its
4 Phase II analysis; and bringing it back to the
5 compliance cost category versus the externality
6 category?
7 A I think in this conversation Commissioner
8 Koncilja and I were talking a little bit about where
9 the company's proposal is in regards to carbon costs
10 and I would take you to Volume 2 for a very detailed
11 description of what the company has proposed, and
12 specifically page 2-262.
13 We'll all get there.
14 This section of Volume 2, which is in
15 Exhibit 1, is Attachment AKJ-2 to my direct testimony,
16 has a section called Carbon Proxy Pricing in Phase II.
17 And through these pages, you see the company's proposal
18 in regards to how we should be evaluating and looking
19 at various sensitivities as a result of the bids we
20 receive and include those in the portfolios that are
21 presented to the Commission in the 120-day report.
22 What we have recommended here is that the
23 base case should have a zero dollar value; but then you
24 should also be looking at a low case and a high case
25 for carbon pricing.

25
1 On those, you can see exactly what those
2 dollar amounts on page 2-265 in Table 211-4. And those
3 values, by year, are included in here as a
4 recommendation that we would present to the Commission
5 as a sensitivity to the various portfolios that are
6 brought forward in the 120-day report.
7 Q Does the company believe by doing so it
8 is in compliance with Exhibit 54, Section
9 40-2-123(1)(b).
10 A Absolutely. I think what we do by giving
11 this information and providing it for Commission
12 consideration is that they are then able to look to the
13 portfolios that have come forward and, you know, to
14 paraphrase -- to quote the law here, it says: The
15 Commission may give consideration to the likelihood of
16 new environmental regulation and the risk of higher
17 future costs associated with the emission of greenhouse
18 gases.
19 And that's exactly what comes through in
20 the portfolios and these sensitivities is the zero
21 dollar base case, so you would say, okay, in the case
22 that there is no incremental cost to customers above
23 what's incurred through the resources; so in other
24 words, where we have a cap and trade or something along
25 those lines, which was the decision in the 2007 ERP put
26
1 a value. And then now is that appropriate at the zero
2 dollars, so you know what the baseline is and you have
3 higher sensitivities; Well, what if something did come
4 forward and then we can make an educated decision as to
5 what is the best path forward.
6 Q If one wants to assess the potential
7 impact of the carbon adder, would you point that person
8 to Attachment AKJ-11, which is Mr. Hill's testimony
9 from a previous docket?
10 A Yes. That's precisely the information
11 we've discussed before and it is included in my
12 rebuttal.
13 Q Why does the company prefer not to
14 include the social cost of carbon or externalities in
15 the proxy analysis?
16 A As I mentioned yesterday in the
17 discussion that we -- that I had with Ms. Overturf,
18 there are many other factors included in there.
19 There's a broad range of impact. It's a global impact,
20 it's not a Colorado or specific to our customers here.
21 And then I would reiterate what I mentioned yesterday,
22 that the potential to increase costs directly on our
23 customers for a potential outcome that we really don't
24 know at this point in time is something that is, in our
25 opinion, not appropriate.

27
1 Q Do -- does the social cost of carbon
2 include certain costs that may not be incurred by
3 Colorado customers such as sea-level-rise damages?
4 A Yes, sir, it does.
5 MR. SOPKIN: I suppose I don't need to
6 take administrative notice the state being landlocked.
7 CHAIRMAN ACKEMANN: Carry on.
8 BY MR. SOPKIN:
9 Q Can you just finish this off? Can you
10 provide an example of how using the social cost of
11 carbon could harm Colorado customers?
12 A To put a really clear point on it, when
13 we provide the bid curves and the portfolios to the
14 Commission on evaluation, what you may or may not see
15 is when those bids come in, with or without the carbon
16 pricing that with then run through sensitivities, it
17 could change the order of which of those builds is the
18 lowest cost.
19 And by doing that, you may be thereby
20 selecting a higher cost resource and as I mentioned
21 yesterday, monetizing a cost of carbon into the cost of
22 electricity. That is really the risk that you are
23 facing and that could potentially increase the cost to
24 customers through the selection of that resource.
25 CHAIRMAN ACKEMANN: Mr. Sopkin, if any?

28
1 MR. SOPKIN: Yes.
2 CHAIRMAN ACKEMANN: Since we're in the
3 arena here of Colorado and Minnesota ERP cost of
4 carbon, just to put a little more context for my
5 benefit, is this the first year that this Minnesota
6 statute has been in effect using this environmental
7 cost?
8 THE WITNESS: I believe if you look at
9 the statute it will give you the year. Let me
10 double-check.
11 So on the last page it's indicating that
12 the history is 2007.
13 CHAIRMAN ACKEMANN: Thank you. I do see
14 that.
15 So recognizing your limited experience
16 with the Minnesota ERP process --
17 THE WITNESS: Uh-huh.
18 CHAIRMAN ACKEMANN: -- can you say
19 whether or not Minnesota Xcel has gone through at least
20 one round of an ERP using this statute?
21 THE WITNESS: We're completing one right
22 now.
23 CHAIRMAN ACKEMANN: So although this has
24 been as of 2007, this is the first time that it's
25 affecting an ERP in Minnesota?

29
1 THE WITNESS: I know we've included in
2 the cost of carbon in the previous ERP as well. I
3 don't know if it was pursuant to this statute or
4 another sensitivity. That would be something that we
5 would have to check --
6 CHAIRMAN ACKEMANN: Okay.
7 THE WITNESS: -- and bring back.
8 CHAIRMAN ACKEMANN: Okay. What I'm
9 trying to drive for detail into the record is if
10 there's experience in Minnesota, since we kind of
11 brought this statute in and we have at least a
12 reference to an Exhibit 51, the Minnesota ERP, as to --
13 I'm looking for a bit more than an opinion, but an
14 assessment of what the implication has been of that
15 cost has done, whether it's called a social or
16 environmental cost or cost of carbon, what it's
17 implications were for the outcome of the ERP in terms
18 what was purchased versus what would have been
19 purchased with regard to that.
20 THE WITNESS: I can't speak to changes in
21 the resource mixes with or without costs. That would
22 have to be something that would have to be pulled.
23 CHAIRMAN ACKEMANN: If it could, I would
24 appreciate that into the record as well.
25 THE WITNESS: We'll see what we can find.

30
2 MR. SOPKIN: Thank you, Mr. Chairman.
3 BY MR. SOPKIN:
4 Q And, Ms. Jackson, regardless of the
5 amount or use of a carbon adder, is the company making
6 efforts to decrease its carbon emissions in Colorado?
7 A Absolutely. If you look at our
8 trajectory and history of reductions, we have already
9 had significant reductions. And as we've stated in
10 this particular proceeding, we expect the outcome of
11 the portfolios that we present to this Commission and
12 most likely ultimately the decision that we're adding
13 significant increments of renewable energy to our
14 system which would just continue to further decline our
15 carbon dioxide emission profile.
16 As was discussed, I believe with
17 Mr. Calvano, yesterday, the amount that we've included
18 are indicative, dollars -- customers actually see
19 savings for us adding increments of renewables to our
20 system. And throughout my testimony and throughout Mr.
21 Hill's testimony we have shown that the company
22 anticipates adding significantly more renewables as a
23 result of this ERP process.
24 CHAIRMAN ACKEMANN: May I inject?
25 MR. SOPKIN: Of course.

31
2 It's all about courtesy.
3 I'm not sure if this is a question for
4 you or Mr. Hill but I'll pose it now and then either
5 one of you can answer: Based on what the three of us
6 and many of you heard last night from the public
7 comment hearings there was an interesting line of
8 questioning about Xcel moving toward its 30 percent RES
9 compliance in terms of its generation mix. But the
10 question I'm going for here is, going out over the
11 longer term modeling period, out to 2054, whatever the
12 end date is, looking for what is the projected
13 generation mix out there in terms of, does it plateau
14 around 30 percent or more or do we see continued growth
15 of, you know, renewables out to the 50, 60, 80 percent
16 range?
17 THE WITNESS: I think a lot of that goes
18 to what's the price going to be and what our future
19 resource acquisitions are going to look like in the
20 electric resource planning process. We clearly
21 anticipate that we're going to -- well, number one,
22 we've already well surpassed the 30 percent on the
23 Public Service Company of Colorado system. Our
24 decreases in NOx, SOx and CO2 are beyond, as I say in
25 my rebuttal testimony, is even beyond what is projected

32
1 for the clean power plan for the place where we are
2 now, and also for I think the Paris Accord was the
3 other one that we mentioned in comparison.
4 We expect from this ERP to acquire more
5 renewables. We have been very clear about that.
6 However, we also recognize, for reliability purposes,
7 we're going to have to add some combustion turbines.
8 It's that flux reserve study and flux reserve question,
9 making sure you have the resources available to adjust
10 for the variability of the incremental renewables. And
11 we are looking at that and evaluate that in the
12 portfolio here.
13 As we move into the 2019 ERP, I would
14 anticipate we go through the same studies again; and if
15 pricing indicates that we are able to add more
16 renewables to the system, and reliability indicates
17 that we are able to add more renewables to the system,
18 we will continue to do so.
19 Is there a maximum level you get to, if
20 that's your question? We believe there is from the
21 operational characteristics of the system. The
22 question is, what exactly is that level and what other
23 technologies might be developed to enable us to go
24 further.
25 And that's something as we go through

33
1 planning, we will continue to look at. And as you all
2 know, we have the innovative clean technology project
3 we're working on so we can get a better understanding
4 of storage. So that is a technology we can utilize
5 going forward and incorporate into our operations.
7 COMMISSIONER MOSER: May I follow up?
8 MR. SOPKIN: Of course.
9 EXAMINATION
10 BY COMMISSIONER MOSER:
11 Q So following up on that and the plan to
12 continue to add more renewables, the other thing we
13 heard last night is you should to go 100 percent
14 renewables because look at the cost savings that
15 customers see from those renewables. And because of
16 those cost savings associated with renewables, you
17 should allow renewables to compete against your
18 traditional base resources.
19 And this might be a Mr. Hill question or
20 another witness, but talk a little bit about Xcel's
21 approach to those two balancing factors and, you know,
22 are renewables free? Do they generate those cost
23 savings?
24 A So number one, renewables are not free,
25 because as we all know, we have a number of PPAs on our

34
1 system, that a cost associated with each kilowatt hour
2 that is generated. For example, we have wind contracts
3 on our system that we received in the early days of the
4 wind technology development at $59 a megawatt hour.
5 From the ERP we fully expect we're going to get wind
6 contracts that are less than $30 per megawatt hour and
7 possibly less than 25. So you can see there is a
8 significant cost decline that's available.
9 Now, the question remains is, does the
10 PTC, the Production Tax Credit, offset that so much
11 that in, say, 2025 or beyond the PTC, are those
12 resources competitive still with other resources on the
13 system? That's remains to be seen. Costs continue to
14 decline. That will be a decision point in the
15 discussion we have in the 2019 ERP, I expect, once the
16 PTC has gone away.
17 The same question remains for solar and
18 the ITC. Will that have an impact on it long term;
19 what's the rate trajectory for the decrease in the cost
20 of those resources? We will once again have that
21 opportunity to look probably again in 2019.
22 If you are talking about balancing
23 between our existing resources and making a decision
24 between those and potential renewable resource today,
25 you also have to go back to the conversation we were

35
1 having yesterday in regards to, is there a stranded
2 cost associated with retiring those facilities early?
3 Is there a legal taking, which is something that the
4 lawyers are going to have to discuss? How does all of
5 this come together and move forward?
6 So that's something that states will
7 continue to grapple with in the electric resource
8 processes and we'll continue to look at -- not only
9 this time around but into the future as we see
10 technology evolve and trying to satisfy the needs of
11 not only emissions but the consumption that our
12 customers have.
13 Q So just to put this in layman's terms
14 because when we say stranded costs and taking, from a
15 legal perspective, we know what that means. Make sure
16 I'm translating this correctly: Are you saying that
17 because of the regulated structure, the rate-regulated
18 structure of Xcel Energy, that once you build a plant
19 and have it in rate base, customers continue to pay for
20 that until it's fully depreciated, i.e. the company has
21 been repaid for that involvement. And if you retired
22 that early, the company still is entitled to be paid?
23 A That is the portion of the regulatory
24 compact for the operation of a public utility in the
25 state. And whether that retirement gets moved earlier

36
1 or you make some adjustments to it, it's not a matter
2 of the cost of that facility which has provided useful
3 service over the life, it's, you know, just magically
4 gone; there is still a cost because the assumption was
5 the depreciated life would recover the cost of that
6 asset.
7 Q Okay, now, if I take that to just buying
8 a car --
9 A Uh-huh.
10 Q -- because most people buy cars not power
11 plants, they say it's fully depreciated when you drive
12 it off the lot, right? So you paid your $20,000 or
13 $25,000 or more to have your car. The longer you can
14 drive it, the longer you can use, it is a benefit to
15 you as a consumer.
16 A That's correct.
17 Q Is that's a good parallel?
18 A I would say as far as it being fully
19 depreciated when it goes off the lot, I don't think
20 that's necessarily the parallel analogy because when
21 you drive it off the lot, you could still resell that
22 car. I mean, so even if it was in an accident or you
23 decided you wanted to get another car, you could resell
24 it to somebody else and there is some value to somebody
25 else associated with that car.

37
1 I drive a 2007 TL and I get letters from
2 Acura all the time saying, Hey, we need some used cars
3 and we're willing for pay you $X,000 if you want to
4 come and trade in your car.
5 Q Good point. I'm hoping to drive my car
6 that long.
7 Going back to a power plant --
8 A Uh-huh.
9 Q Does Xcel continue to run their power
10 plants when it hits the end of their useful lives?
11 A It depends. If there is still life left
12 even if the estimate says, you know, 40 years, but say
13 the plant lasts 60 years, we absolutely continue
14 running the plant for 60 years provided it's cost
15 effective for ours customers.
16 Q Is it a fuel issue when you say cost
17 effective since the capital is already fully
18 depreciated?
19 A It's a combination because not only fuel
20 would be incurred, but you would have maintenance
21 ongoing in the facility. So you would compare that
22 maintenance cost and the fuel cost against your
23 alternatives that you otherwise would have.
24 COMMISSIONER MOSER: Okay. All right,
25 thank you.
38
1 COMMISSIONER KONCILJA: I have some
2 questions.
3 EXAMINATION
4 BY COMMISSIONER KONCILJA:
5 Q Am I correct that no place in your
6 material is there any analysis or monetizing of the
7 stranded costs?
8 A What I would say is that the -- our
9 plants are included as a summary, these are the
10 facilities that are available. The depreciation case
11 is the one that shows what the remaining value or the
12 book life of those plants are. But in this case,
13 because the rule states that we're looking at
14 incremental and additional, there's no stranded cost
15 evaluation of the facilities included in this docket.
16 Q And I don't think -- I haven't been in
17 detail through all the tables. I don't think there's
18 any detail in terms of the unamortized costs of these
19 assets, is there?
20 A I don't believe so. I know there's a
21 summary of what the plants are and their capacities,
22 but I'm not sure there's anything about net book value.
23 Q What I heard you say was this interchange
24 and discussion -- which has been very helpful to me
25 this morning, Ms. Jackson -- is that the company has

39
1 what you believe are legitimate reasons for not
2 monetizing the cost of carbon. You don't think that's
3 appropriate in this proceeding; is that a fair summary?
4 A It's not a matter whether we think it's
5 legitimate or not. It's a matter that we think should
6 be seriously evaluated and that's why we presented the
7 opportunity. Zero carbon cost in the base and then low
8 cost and high cost sensitivities, so that the
9 Commission has transparency into what the impacts of
10 those different values are on the order of resources
11 selected as a result of the acquisition.
12 Q Now, we heard last night, however, that
13 you do -- the company does monetize the risk of the
14 increase -- potential increased price of natural gas;
15 is that an accurate statement or that you analyze that
16 financially in any of your projections?
17 A The only thing that I can think of that
18 would go in that direction is the GVPM process we have
19 where we hedge a certain portion of our gas needs. But
20 I don't know how we monetize the future increases of
21 gas because it's just a straight passthrough of that
22 fuel when it's utilized, aside from the GVPM, you know,
23 hedging that goes on.
24 Q And that was referenced last night also
25 and there was concern -- very vocal concern which they

40
1 told us had gone on for ten years that the net present
2 value calculation that the company was doing was based
3 on its weighted average cost of capital; is that true?
4 A That was part of the conversation we had
5 yesterday in regards to what's the appropriate discount
6 rate --
7 Q Yes.
8 A -- to apply to the various values, both
9 from the expenses perspective versus capital
10 perspective versus fuel perspective.
11 One of the important factors is we
12 advocate for using the same value across all of them
13 because we feel that gives us a balanced view of what
14 the impact of all of them can be, particularly because
15 of one reason: The costs associated with the wind
16 resources, which is -- this testimony is also attached
17 to my rebuttal from what Tim Sheesley had testified in
18 the previous resource plan, is that we recover the
19 majority of the costs of the renewables in our system
20 through the ECA. That's our electric energy --
21 Electric Commodity Adjustment. That's where fuel costs
22 go.
23 Q That's my problem. I don't understand
24 why you would be using -- or the company would be using
25 for it's present value calculation the weighted average

41
1 cost of capital on fuel costs.
2 A And it's so that it is consistent across
3 all of them. So if you were to change it, for example,
4 on just the company's fuel costs, you would also need
5 to change that on the renewable side as well even
6 though that's a capital investment on the developer's
7 perspective. From our customers' perspective, they pay
8 it based as an energy rate. So in order to be sure you
9 are doing an apples-to-apples comparison, you really
10 need to use the same discount rate.
11 Q Well, one of the things I'm assuming Mr.
12 Sopkin will deal with is my concern that an apples-to-
13 apples comparison does not protect the customer, it
14 protects the company and this is a passthrough.
15 And let me ask you, how would it affect
16 your modeling then if the Commission would give you a
17 reduced weighted average cost of capital?
18 A Well, I think a great person to ask that
19 question would be Kent Scholl. He is one of the
20 modelers that can give you that perspective, but it
21 does change the net present value benefit calculation.
22 And one of the concerns that needs to be addressed is
23 making sure that we have a balanced approach to
24 determining what that net present value calculation is
25 because that is what we use to determine which

42
1 resources should be selected.
2 We believe the previous Commission's
3 decision -- which is the same position the company is
4 advocating here -- reached that outcome. And Kent
5 would be able to give you a very clear picture of what
6 the impact of changing those would be on the curves.
7 Q Okay.
8 One other thing we heard last night is
9 that while the company is monetizing in its sensitivity
10 studies the risk of the increased price of natural gas,
11 it is not monetizing the supply risk to the coal that
12 you use. Is there any place at all, these tables,
13 where you monetize or calculate the risk of coal
14 production being substantially reduced and not
15 available for your coal facilities?
16 A Well, we don't monetize the risk of the
17 coal not being available because we don't believe that
18 that's a significant risk that faces the company. And
19 that is something that our risk department continually
20 monitors and evaluates; and, in fact, looks at, What's
21 the position of our providers? That's also the reason
22 why we certify a number of different coal types for
23 each of our coal facilities so you are not stuck with
24 one provider, you can change between the various
25 providers. So that isn't a risk that we have seen is

43
1 substantial enough that should be monetized in the
2 evaluation of the resources going forward.
3 COMMISSIONER KONCILJA: Thank you.
4 COMMISSIONER MOSER: If I can ask one
5 more question -- just a reference: When you talk about
6 the present value revenue requirement and that table,
7 just remind me, do we see those same tables based on
8 the carbon costs and where in the sensitivities you can
9 find those present revenue requirement tables?
10 THE WITNESS: So when the portfolios are
11 presented to the Commission, you will get to see the
12 different looks. You have the base case which is
13 determined and then the sensitivities that we were just
14 talking about, two of which are the low carbon and high
15 carbon costs. So those will be clearly identified in
16 the 120-day report as far as, These are the values --
17 or these are the outcomes of applying those approved
18 portfolios -- I'm sorry, or different and approved
19 assumptions in those looks, in those scenarios.
20 COMMISSIONER MOSER: So we don't have
21 that information available as we sit here today.
22 THE WITNESS: We have the base case and
23 the values that would go into that or what we're
24 recommending the only in the base case.
25 COMMISSIONER MOSER: Which is zero.

44
1 THE WITNESS: For the carbon costs.
2 And the table I was referencing on Table
3 2-265 has the values that would be included in the
4 sensitivities for the low carbon and high carbon.
5 COMMISSIONER MOSER: That's what I
6 wanted.
7 THE WITNESS: Yes, ma'am.
8 CHAIRMAN ACKEMANN: Mr. Sopkin?
10 BY MR. SOPKIN:
11 Q Ms. Jackson, with regard to the value of
12 the discount rate, do you have Exhibit 47 before you?
13 A I do.
14 Q And was this admitted yesterday during
15 Mr. Calvano's questioning of you.
16 A It was.
17 Q And as I recall in this case, there was
18 testimony about the weighted average cost of capital,
19 6.78 percent discount rate as applied to the fuel cost
20 gives some sort of unfair advantage to fossil fuel
21 resources versus renewables. Do you recall that
22 testimony in this case?
23 A I do.
24 Q Does the WACC 6.78 discount rate also
25 apply to wind or solar costs?

45
1 A It does. The company's proposal is that
2 same discount rate apply because our customers pay for
3 those resources through mechanisms like I just
4 mentioned of the ECA, the Electric Commodity
5 Adjustment.
6 Q And how is it that wind or solar costs
7 flow through the ECA?
8 A On a dollar per megawatt hour basis.
9 Q All right. And would you say the
10 majority of those costs, in fact, of wind and solar
11 costs flow through the ECA?
12 A I would. We have the RES/No-RES
13 calculation and utilization of the Renewable Energy
14 Standard Adjustment, known as the RESA, which could
15 mitigate some of those costs going through but
16 predominantly we see the majority of the costs coming
17 through the ECA.
18 Q When you were talking about
19 apples-to-apples comparison, is this what you were
20 talking about using the WACC discount rate both for
21 fossil resources and renewable resources?
22 A Yes, sir.
23 Q Just one question regarding coal supply:
24 Do you have Exhibit 42 before you?
25 A Just a moment, please.

46
1 (Pause.)
2 A I have it now.
3 Q My only question to you on this is, if
4 someone wants to understand why the company is not
5 concerned about coal supply, can they read these
6 responses in admitted Exhibit 47?
7 A Yes they can.
8 Q Thank you.
9 All right. I would like to talk to you
10 for a minute, Ms. Jackson, about Mr. Cocian's question
11 of you yesterday regarding the low, medium, and high
12 agreement, also known as the surrebuttal agreement.
13 A Yes, sir.
14 Q And Mr. Cocian asked about the company
15 providing its update and the low, medium, and high
16 filing at some point down the road and whether there
17 would be an opportunity for testimony, discovery and a
18 hearing; do you recall that?
19 A I do.
20 Q And you indicated there would not be that
21 opportunity, is that correct?
22 A We had not contemplated that being
23 included in the process.
24 Q First, let's compare that low, medium,
25 and high agreement with to the traditional ERP process.

47
1 How is the low, medium and high agreement in any way
2 different than the traditional process?
3 A The low, medium, and high include the
4 four sensitivities that we talk about in there and
5 evaluating what those may be and then presenting a
6 broader range of portfolios -- essentially more
7 sensitivities to the Commission in the 120-day report.
8 Q And in the traditional process, is there
9 an update at some point?
10 A Yes, sir.
11 Q And could that update significantly
12 change the resource need?
13 A It could. And that resource -- that
14 update, the need update is traditionally done when --
15 and it utilizes the company's most recent load and
16 resource forecast.
17 Q And even though the resource need could
18 be changed do the Commission's existing rules, call for
19 testimony, discovery and a hearing after the update and
20 the traditional ERP process?
21 A No.
22 Q In any case, is the company planning on
23 providing documentation as part of item update in the
24 low, medium, and high filing?
25 A Yes. So in discussions with parties,

48
1 we've committed to providing a number of things: First
2 off, we would provide what we're calling a time series
3 forecast for each category. What that would mean is
4 for each of the four areas that we've identified that
5 could impact the low, medium, and high capacity value,
6 we'll provide that on an annual basis. So it's not
7 just going to be one number for 2023, it will actually
8 show what we expect that to be throughout the time
9 period.
10 In addition, we would provide an update
11 on the status of the advanced grid proceeding because
12 that impacts the rate design piece so the deployment of
13 the advanced metering as well as the Integrated Volt
14 VAR Optimization.
15 So that update will then inform and help
16 the intervenors understand why we're making the
17 adjustments that we're making.
18 Also, the spring 2017 demand forecast,
19 which is the traditional update that you see in each of
20 the ERPs, would be the underlying component to that.
21 So that's no different than what we would have done in
22 any ERP where we weren't looking at a low, medium, and
23 high.
24 And last but certainly not least, we
25 file -- I believe it's October 31st of each year an

49
1 update or a progress report on our ERP, you know, how
2 we're adhering to the latest decision, what the
3 information is; and so that will also be provided in
4 October as according to the Commission's rule.
5 The last components that we feel and that
6 we've agreed parties would need is the oil and gas
7 forecast. That's another line item in the
8 sensitivities. And so we'll provide information in
9 regards to that. So we're not going to just provide a
10 point number. It's going to be a number but it's also
11 going to have underlying information on why that number
12 is the right number.
13 Q Is the company also willing to entertain
14 discussion among stakeholders if they have questions
15 about the update in the low, medium, and high filing?
16 A If the parties are interested in us
17 hosting, say, a week after we make the filing where
18 they can ask us questions, we are more than happy to do
19 so.
20 Q Thank you.
21 Let's move now to the subject of the CIEA
22 proposal for a hard cost cap on cell phone generation
23 projects. First, can you explain the difference
24 between a point cost and a hard cost cap?
25 A In reviewing, when I was preparing my

50
1 rebuttal, some of the past testimony, I understand why
2 the Commission picked a point cost cap. You can't very
3 well compare a resource that's bid by the company for
4 utility ownership if there's a range associated with
5 it. You need to have a point cost cap. So what is it
6 we're comparing against the other resources?
7 The hard cost cap would be one that you
8 cannot go over this amount. It is a fix fixed dollar
9 amount. It is the maximum you have the opportunity to
10 recover. The point cost says this is our best estimate
11 at this time and barring extraordinary circumstances,
12 this is what you are going to see.
13 Q And when Public Service Company puts in a
14 bid for a project, what does it provide in its point
15 cost, is that capital?
16 A Definitely -- we definitely provide
17 capital. We also have an estimate of our fixed O&M
18 cost.
19 Q Thank you.
20 And my understanding of CIEA's proposal
21 is for a hard cost cap on both capital cost O&M and
22 fixed and variable cost; is that correct?
23 A That's my understanding of their
24 proposal.
25 Q And Mr. Detsky discussed IPPs having to

51
1 stick with PPA revenues per the contract. And you
2 mentioned per unit cost and production but I'm not sure
3 you were able to fully explain that. Please explain
4 how the PPA contracts work regarding revenues received
5 based on production levels?
6 A Of course. So I'll talk about say a wind
7 resource. The PPA is set based upon a dollar per
8 megawatt hour production. The now the PPA bid was
9 presented to us with a number of assumptions. We
10 talked yesterday about some of those assumptions being
11 what would their return on the project be; their O&M
12 costs; their capital costs?
13 There is also another factor included in
14 there which is the capacity factor; so how much do they
15 really believe that resource is going to generate; how
16 many megawatt hours?
17 Now, those variables can change. We
18 talked about that yesterday, too. They can both be
19 positive and they can change negatively. If the
20 production from the facility increases, then they have
21 more revenues and for those incremental megawatt hours,
22 they get more margin.
23 And so that's one of the benefits that
24 comes with that type of resource from the developer's
25 perspective.
52
1 From the company's perspective, when we
2 develop one of those types of resources, as I was
3 talking with Commissioner Moser about, to the extent it
4 extends past the life of the resource or alternatively
5 generates more than was expected, the customers receive
6 that benefit with virtually very low incremental cost.
7 Q If a PPA generation unit reaches the end
8 of the PPA term, does the mean the PPA generation
9 becomes a public asset and keeps generating for the
10 benefit of Public Service Company's customers without a
11 follow on PPA?
12 A No, it does not. We would have to
13 renegotiate a PPA in order to purchase the output from
14 that facility. And we've done that in a number of
15 instances and to my recollection, none of those have
16 been for free.
17 Q Does the company believe that if the
18 Commission were to set a cost cap in this proceeding as
19 requested by CIEA -- CIEA for all utility owned
20 proposals, would that be an asymmetrical burden in the
21 company's estimation?
22 A It would.
23 Q Why?
24 A Under the regulatory compact, the way we
25 establish rates is a cost of service provision. So the

53
1 actual cost to the company, barring any findings that
2 the expenditures were not prudent, the customers pay
3 what exactly it is the company has paid plus a return
4 from the capital perspective.
5 When you look at it from the hard cost
6 cap, if there is a hard cost cap that's one direction
7 only, that's not in the benefit from the shareholders'
8 perspective or necessarily from the customer's
9 perspective because it is going to drive the company to
10 actually participate in the process and put a risk
11 factor around our estimates and potentially increase
12 the cost.
13 The discussion we had in regards to
14 balancing between IPP ownership and company ownership
15 really drives the fact that the Commission, in our
16 opinion, should want the company to put in the most
17 precise cost we think we're going to incur for building
18 an asset. So issuing or making decisions such as a
19 hard cost cap drives us away from being able to do
20 that. And therefore, an alternative resource could be
21 selected which may result in higher costs to customers
22 ultimately.
23 Q You testified that the -- that in the
24 Rush Creek wind facility case, the company agreed to a
25 hard cost cap and received cost savings sharing and

54
1 other provisions as part of that settlement. Just one
2 question: Does the Rush Creek settlement set a
3 precedent?
4 A No, it does not.
5 Q Mr. Detsky discussed the possibility of
6 the company being able to seek cost recovery for cost
7 exceedances. Does the company have a track record of
8 underestimating its capital costs for self-build
9 projects?
10 A No, it does not.
11 Q And why would it be a bad idea for an
12 investor-owned utility to purposely underestimate its
13 point cost and just seek cost recovery later?
14 A We continue to be regulated by this
15 Commission and after the next build we may have, the
16 next resource we put on the system, the next year, we
17 will once again continue to be regulated by this
18 Commission. This Commission gets to determine our
19 return on equity, gets to determine our revenue
20 requirement, gets to determine how much we receive back
21 for the services we are providing.
22 It would not be in our interests to
23 underestimate our costs and then come back and try to
24 receive more in the future date. That would be
25 damaging to our reputation. That would be damaging to

55
1 our ability to successfully operate in the state.
2 We are incentivized to present our costs
3 to this Commission. We are incentivized to provide
4 highly reliable service to our customers and to do the
5 best job of that that we can.
6 COMMISSIONER MOSER: Can I just ask?
7 MR. SOPKIN: Sure.
8 COMMISSIONER MOSER: Are you -- is the
9 same true, do you have an incentive to overstate your
10 costs so that when you come back they appear lower?
11 THE WITNESS: I would argue no, because
12 both sides of the coin apply. If we were to
13 traditionally do that or habitually do that, it would
14 be noticed by the Commission or intervenors and brought
15 to the Commission's attention and it would be a trend
16 that then would bear on the integrity of the utility
17 presenting the information.
18 We are incentivized to present -- or we
19 should be in all things incentivized to present our
20 cost and what that looks like it's going to be.
21 COMMISSIONER KONCILJA: I have a
22 follow-up question.
23 EXAMINATION
25 Q Let's talk about costs. The O&M is

56
1 estimated operation and maintenance. Is that what that
2 O&M stands for?
3 A Yes, ma'am.
4 Q Okay. When you come back to the
5 Commission for your cost of services, your revenue
6 requirement, does the company also include any indirect
7 costs in what it's seeking?
8 A What do you mean by indirect costs?
9 Q Oh, something from a corporate offices,
10 something from another affiliate.
11 A Not to the extent that it's not allowed
12 in the process.
13 Q Well, how -- well, in another case, we
14 have a dispute as to how it's allowed. What I'm trying
15 to figure out is if Black Hills also -- if Public
16 Service, similar to Black Hills, received in its cost
17 of services revenue requirement indirect costs.
18 A So may I give an example and see if we're
19 talking about the same concern?
20 Q Uh-huh.
21 A We have Xcel Energy Services, Inc., which
22 is a service company that provides accounting, provides
23 the billing services to all eight states and various
24 operating companies. Certain costs associated with
25 that, so the accounting services that are provided, the

57
1 IT services that are provided -- those get allocated to
2 the eight states for utilization in the revenue
3 requirement by each of those companies and for the
4 Commission's evaluation. Is that the type of costs you
5 are talking about?
6 Q Yes. And on what basis are those
7 allocated?
8 A It depends on the type of cost. So there
9 is a variety of different allocators. Some of them are
10 based off of total revenue of the operating company;
11 some of them are based off of customer counts; and some
12 of them are based off of, say, for example, if the
13 Minnesota Commission decided they need to implement a
14 certain piece of software; but this Commission said,
15 No, those costs are direct assigned.
16 So there are a variety of ways and we
17 have tables and tables of information that are provided
18 in our revenue requirement to show how those are
19 allocated.
20 Q Are any of the indirect costs based on
21 the undepreciated cost of new generation assets?
22 A I'm not aware of that allocator being one
23 of the ones that we use.
24 Q Does Public Service, to the best of your
25 knowledge, report in its rate requests revenue

58
1 requirements the indirect costs separately from the
2 direct costs?
3 A We provide the costs that are brought in
4 from Xcel Energy Services, yes, and they are clearly
5 identified.
6 COMMISSIONER KONCILJA: Thank you.
8 BY MR. SOPKIN:
9 Q Ms. Jackson, turning to the discussion
10 you had yesterday with Mr. Detsky about the Squirrel
11 Creek facility and you described it as the company was
12 able to turn lemon into lemonade. Can you describe
13 basically how the company was be able to do that?
14 A Sure. From any understanding and review
15 of the Squirrel Creek transaction, the facilities that
16 had been issued a PPA had subsequent increases in costs
17 of acquiring the inventory and materials they needed to
18 build the plant. So they had approached us saying they
19 were no longer going to be able to build the plant
20 under the previous PPA that was established.
21 We entered into negotiations with them to
22 try and figure out how we could cure that particular
23 concern. When it was identified that it wasn't
24 probable that that was going to occur with an outcome
25 that provided the resource we needed before the summer

59
1 of it 2009, we had simultaneously been looking at, What
2 are we going to do? In the event that we can't get
3 Squirrel Creek up and running -- we knew we had a
4 reliability issue; so what were we going to do to solve
5 that problem?
6 And we had identified an opportunity at
7 the Fort St. Vrain location that we could a add some
8 incremental generation to in order to meet the
9 reliability needs of 2009 -- or close to meeting the
10 reliability needs of 2009.
11 What we were able to do, though, is we
12 were able to procure the combustion turbines that had
13 been that had been used for Squirrel Creek because
14 there is a long lead time to getting turbine
15 infrastructure -- particularly in this time frame it
16 was problematic.
17 So when I said turn lemons into lemonade,
18 we were able to take some of the infrastructure that
19 had been acquired by the Squirrel Creek -- or for the
20 Squirrel Creek project, we bought that and we moved it
21 to Fort St. Vrain and were able to construct the
22 combustion turbines there versus the combined cycle
23 that had been proposed for Squirrel Creek.
24 Q Is the company always going to be able to
25 count on the availability of turbines like what

60
1 happened in that situation?
2 MR. DETSKY: Your Honor, I object to that
3 question. That testimony was offered for the purpose
4 of showing that no payments were made from the IPP to
5 PSCo or its customers and this is getting really far
6 afield of that testimony.
7 MR. SOPKIN: Actually let me change the
8 question, Your Honor.
9 CHAIRMAN ACKEMANN: If you would, please.
10 BY MR. SOPKIN:
11 Q Is this an example of risk to customers
12 even before a PPA is entered into?
13 A Yes, it is.
14 Q And what risks were posed?
15 A The risk is the risk of delivery and then
16 the cost of the potential replacement of that resource
17 in the event that it wasn't able to be delivered.
18 Q Let's turn now to the 25 percent at risk
19 coal plant capacity replacement proposal posed by -- or
20 advanced by CIEA. Mr. Detsky discussed the
21 retirement -- referencing Exhibit 38, and if you have
22 it before you that's fine. Mr. Detsky discussed the
23 retirement of Arapahoe 3 and 4 and Cameo 1 and 2 in the
24 2007 ERP or Colorado resource plan case, is that right?
25 MR. DETSKY: Your Honor, I object. The

61
1 witness referred all those questions to Mr. Hill
2 yesterday.
3 CHAIRMAN ACKEMANN: Mr. Sopkin?
4 MR. SOPKIN: I'm thinking for a moment,
5 Your Honor.
6 Exhibit 38 is in the record. And I'm
7 trying to remember if all the questions were in fact
8 referred. I thought there were specific questions
9 about these facilities regarding forced retirement
10 associated with the modeling of these units and I
11 believe Ms. Jackson did answer those questions and I
12 think we could probably find it in the transcript if we
13 need to on our computer.
14 MR. DETSKY: Your Honor, I can report
15 that I was planning to ask those questions to Mr. Hill
16 per Ms. Jackson's request, so I think Mr. Sopkin will
17 have a chance to address this topic later today.
18 CHAIRMAN ACKEMANN: Mr. Sopkin, did you
19 want to proceed?
20 MR. SOPKIN: That's fair enough. Thank
21 you.
22 BY MR. SOPKIN:
23 Q Ms. Jackson, there were some questions
24 the Chairman actually asked you yesterday about the
25 incremental nature of the ERP proceedings as I recall.

62
1 And --
2 MR. SOPKIN: Your Honor, may I approach?
3 CHAIRMAN ACKEMANN: Please.
4 MR. SOPKIN: I'm going to be referring to
5 Exhibit 56 and 57 which are marked and they are being
6 passed out right now.
7 Q First, Ms. Jackson, could you just simply
8 identify what Exhibit 56 and 57 are, as we hand those
9 out.
10 CHAIRMAN ACKEMANN: We'll pause until we
11 get a copy of those up here, please.
13 CHAIRMAN ACKEMANN: Okay, Mr. Sopkin, I
14 think they are just about distributed out.
15 Before you start, it looks like we're
16 going to move into the Commission's rules, bringing
17 parts of the rules into the record; is that what you
18 are asking here?
19 MR. SOPKIN: Yes, simply so that the
20 witness can refer to specific language in the electric
21 resource planning rules.
22 CHAIRMAN ACKEMANN: Not that I want to
23 take away Ms. Overturf's role here -- we can go two
24 directions, we can bring the entire rule in or we can
25 just have the witness reference portions of the rule,

63
1 but I'm just cutting to the chase on that.
2 MR. SOPKIN: I'm happy to ask for
3 administrative notice of the entire set of 3600 set of
4 rules.
5 CHAIRMAN ACKEMANN: Why don't we just do
6 that then.
7 MR. SOPKIN: We'll use these as
8 demonstrative exhibits.
9 CHAIRMAN ACKEMANN: That's fine.
10 BY MR. SOPKIN:
11 Q So referring to Exhibit 56, Ms. Jackson,
12 first, Rule 3601, Overview and Purpose, the first
13 sentence: The purpose of these rules is to establish a
14 process to determine the need for additional electric
15 resources by electric utilities subject to the
16 Commission's jurisdiction and to develop cost-effective
17 resource portfolios to meet such need reliability.
18 Then I will skip to the last sentence of
19 this: It is also the policy of the State of Colorado
20 that the Commission give the fullest possible
21 consideration to the cost-effective implementation of
22 new clean energy and energy efficient technologies; do
23 you see that language?
24 A I do see that language.
25 MR. SOPKIN: Mr. Chairman, I hope you can

64
1 bear with me, I'm just going to go through these real
2 quick with the relevant language.
3 CHAIRMAN ACKEMANN: That's fine. I
4 appreciate that.
5 BY MR. SOPKIN:
6 Q 3602(c), Cost-effective resource planning
7 means a designated combination of new resources that
8 the Commission determines can be acquired at a
9 reasonable cost and rate impact; do you see that?
10 A I do.
11 Q Then turning to Exhibit 57, Rule 3610(a),
12 By comparing the electric energy and demand forecast
13 developed pursuant to Rule 3605 with the existing level
14 of resources developed pursuant to Rule 3607 and
15 planning reserve margins developed pursuant to Rule
16 3609, the utility shall assess the need to acquire
17 additional resources during the resource acquisition
18 period; do you see that?
19 A I do -- aside from the first rule you
20 said 3605 instead of 3606.
21 Q I apologize and thank you.
22 The next page of this document Rule
23 3611(a) the first sentence: Is the Commission's policy
24 that a competitive acquisition process will normally be
25 used to acquire new utility resources.

65
1 Ms. Jackson, what does this language
2 suggest to you specifically with reference to the CIEA
3 25 percent at risk coal proposal?
4 A This language suggests to me that the
5 proposal that was made by CIEA in regards to the
6 25 percent at risk is contrary to the rules of
7 developing the Electric Resource Plan and the intention
8 for the use of the Electric Resource Plan.
9 Q If -- my understanding of the proposal is
10 that these resources should be acquired regardless of
11 whether the plants are actually retired. It's simply
12 to identify them as at risk; is that your understanding
13 of the proposal?
14 A My understanding of the proposal is that
15 the 25 percent threshold which did not have significant
16 proposal for why 25 percent was the appropriate number
17 would then say, Evaluate the scenarios following on
18 later as if 25 percent of the coal resources were not
19 available through the planning horizon.
20 Q And if the company does not agree to
21 retire these plants, what would be the result if the
22 company must still acquire this 25 percent of capacity?
23 A We would be significantly long as a
24 result of the outcome of this resource acquisition.
25 Q Could that harm ratepayers?

66
1 A I would expect that it would -- it could
2 increase the cost.
3 Q Does the company believe that the
4 Commission can force the company to retire 25 percent
5 of its coal units?
6 A Prior to its expected natural life, no.
7 As we discussed yesterday, that would be what I am
8 advised from my legal advisors, that would be a -- that
9 would constitute a taking.
10 Q Does CIEA's proposal that the company
11 must acquire 25 percent of the capacity of at risk coal
12 units include that Public Service will have the right
13 to own the replacement capacity?
14 A It does not.
15 Q Why is it a concern of the company that
16 it maintain a reasonable share of utility-owned
17 generation?
18 A As we discussed earlier and yesterday,
19 there is a balance that needs to be struck; and
20 following the regulatory compact that the company --
21 the utility be maintained as a healthy entity for the
22 provision of life-essential electricity that our
23 customers receive. In order to have reasonable access
24 to low cost capital, in order to provide this service,
25 you need to be of a certain size; and so we believe

67
1 that there is a very distinct question the Commission
2 has to continually answer to maintain that regulatory
3 compact and what is the appropriate balance?
4 MR. SOPKIN: Your Honor, may I take one
5 moment to consult with counsel?
6 CHAIRMAN ACKEMANN: Sure, and then you
7 come back, I would like to follow up on this topic as
8 well, please.
9 MR. SOPKIN: You can do that now, if you
10 like, please.
11 CHAIRMAN ACKEMANN: Let's do that.
12 EXAMINATION
13 BY CHAIRMAN ACKERMANN:
14 Q Ms. Jackson, since we have the ERP rules
15 in front of us, it's somewhat related to the line of
16 questioning you just had with counsel there, but it
17 also picks up on last night's public hearing commentary
18 which I do appreciate putting that in the front of the
19 hearing.
20 What I'm looking at is -- whether from
21 you or from Mr. Hill -- to understand a little more
22 kind of clearly succinctly the ability to model the
23 issue of how plants can move in and out in terms of
24 their utilization, whether or not we're -- not forcing
25 them into retirement, not having the takings -- but

68
1 modeling from an effective use point of view and what
2 is the ability to do that and if the model can't do
3 that, how can we still get our hands around that larger
4 question?
5 A May I ask a clarifying question?
6 Q Please.
7 A Are you looking for what is the
8 utilization of the facility on a going-forward basis in
9 regards to the potential selection of resources?
10 Q Actually I think I'm going a couple
11 directions. If you bear with me here.
12 A Okay.
13 Q One is to try to understand the immediate
14 CIEA question about retirement of plants before the end
15 of their useful life -- not that I'm looking for a hard
16 number, that's not to the 25 percent or whether that's
17 the valid number, but how to use the models which are
18 such an integral part of this Phase I into Phase II
19 process, to understand that from a financial point of
20 view as to what do we learn from this process to
21 understand how the company can best utilize its
22 existing as well as its new resources -- so that's the
23 first part, then I'll get to the public comment hearing
24 in a minute.
25 A I believe the models are going to show

69
1 what the utilization of the existing facilities are as
2 compared to the ones that come in through the portfolio
3 analyses. That will show you how much of the -- you
4 know, what the capacity factor is for utilization of
5 our coal facilities, of the peaking units; of the wind
6 resources. All of those will be analyzed and looked at
7 as a result, because that is the valuable input into
8 what's the cost to the customer going to ultimately be.
9 So that will be presented in there.
10 It's a theoretical question, can you make
11 the models, say, force an assumption into the models to
12 see what the impact of that would be? Quite frankly,
13 that what are we're doing with the carbon costs, right?
14 We're sitting there and saying, Assume this; so
15 therefore, what's the outcome? So it is capable, it is
16 technically feasible to do that.
17 Q That's feasible. We can pick that up
18 more with Mr. Hill.
19 Then the second part of that, we heard a
20 number of times from the public last night a notion
21 I'll just generally paraphrase as how to let new
22 generation bid against existing generation.
23 A Uh-huh.
24 Q So we're looking for the company's
25 response as a concept -- so we're looking to put more

70
1 substance to that and discuss it further with Mr. Hill.
2 A What I would say is that I didn't listen
3 to that part of the public comments specifically; but
4 if you look at the markets that are available across
5 the country, that's where you see that happening. You
6 also see that happening in the deregulated areas of the
7 country.
8 As far as I'm aware --
9 Q Uh-huh.
10 A -- we are still a fully regulated utility
11 and the closest thing we have to a market at this point
12 in time is the joint dispatch agreement which is more
13 of a utilization of the transmission for low cost
14 generation than it is specifically somebody bidding in.
15 This resource plan is the only other place where we
16 look at what are the additional resources that could
17 come onto the system?
18 But it's not utilized in order to look at
19 replacing or early retirement of the existing
20 facilities.
21 Q I guess a part of what I was hearing is
22 that it's sort of economic dispatch, sort of asking if
23 you brought on a new resource and it was such a low-
24 cost resource that as a result you took your existing
25 assets and used them less, does the model factor it in;
71
1 can it factor it in; should it factor it in?
2 A I think we do that. I think a perfect
3 example was when we came back to the Commission and
4 said the Production Tax Credit has been extended, we
5 need to take into account and we got more wind
6 resources on the system because it provided an energy
7 cost savings for the customers and reduced costs even
8 though it was not a capacity need.
9 So that is something we have done and we
10 continue to do on a daily basis, economic dispatch,
11 constrained by reliability and transmission
12 availability on the system.
13 CHAIRMAN ACKEMANN: That helps.
14 MR. SOPKIN: Ms. Jackson --
15 COMMISSIONER KONCILJA: I have a
16 question.
17 EXAMINATION
19 Q Ms. Jackson, what we heard last night and
20 what we heard in southern Colorado in the Black Hills
21 rate case is a perception from the public that this
22 Public Utilities Commission over the last ten years has
23 not been representing the public and that we've become
24 captive to the utilities. So either we have made
25 this -- the PUC has made substantive mistakes or it's

72
1 not communicated very well the basis for the decisions
2 that's made. And that's something I want to deal with
3 during my tenure on this Commission.
4 So with that introduction, let me follow
5 up on some of the Chairman's questions because I heard
6 you say the magic code word, takings, which means they
7 are going to sue us if we follow the CIEA
8 recommendation on 25 percent of the coal usage. So I
9 heard that. But it would not be a takings in there was
10 another way to pay Public Service for the stranded
11 costs, correct?
12 A You are talking about just compensation.
13 Q Yes, yes. And no place in any of this
14 analysis have I seen -- and there is a huge amount so I
15 could have missed it -- I haven't seen any
16 quantification of what the stranded costs might be if
17 we did what CIEA is recommending.
18 And I think Chairman was asking if there
19 was another way for you to use those assets. So is
20 there any analysis of that or is there a way to get
21 that analysis?
22 A There is not in this docket, particularly
23 because we're following the rules as they stand today.
24 So one of the things I would say,
25 Commissioner Koncilja, in our conversation yesterday,

73
1 you know on aligning the rulemakings; that's something
2 that the rules would change -- have to change in order
3 for the company to be, you know, obligated to present
4 that information. Quite frankly, I'm not sure it's
5 been -- we've never been ordered to do that. I'm not
6 sure we have had a robust discussion around whether or
7 not that should be something we do.
8 At the same time, you know, I do
9 understand that in order to look at some of those
10 different aspects, we may require legislation to go
11 that direction.
12 Q Okay, I understand that threat also.
13 A I'm not saying it as a threat at all.
14 Q We'll sue you or go to the legislature.
15 I got it. I got it.
16 Last night, one of the things we're heard
17 from the very thoughtful presentations -- and I would
18 say that I have been impressed with both the
19 presentations and the public comments in southern
20 Colorado as well as the ones last night. There are
21 some people who have spent an awful lot of time
22 studying these things and haven't felt they had a
23 voice. And I want to make sure I understand what they
24 are asking for to make sure they have a voice.
25 What some of the folks said last night is

74
1 they would like Public Service to consider a thousand,
2 1500 megawatts of wind right now while the Production
3 Tax Credits are in existence. Is that something -- I
4 mean, that's much higher than even the high end of the
5 modeling that Public Service has done; am I correct?
6 A I don't believe it's outside of the high
7 end of the modeling. So after Rush Creek we're coming
8 up on just a little over 3,000 megawatts, the 3
9 gigawatt. The study that we're offering to put forward
10 goes to 4.5 gigawatts.
11 Q Okay, you are correct.
12 A So that's over the thousand megawatts.
13 And that's something that we would look at on our
14 system, balancing reliability, the flexibility reserves
15 that we would have to have and the cost and impact to
16 customers.
17 Q Okay, thank you.
18 REDIRECT EXAMINATION (Continued.)
19 BY MR. SOPKIN:
20 Q Ms. Jackson, is the headroom provided by
21 the 4.5 gigawatt study for additional wind resources
22 above the Rush Creek 1300 megawatts?
23 A It is. The additional point I would like
24 to make is that's just looking at wind. We also think
25 we're going to get bids for solar that could very well
75
1 be economic as opposed to other resources and we would
2 be looking to incorporate not only the incremental wind
3 but also the incremental solar.
4 Q And if you could put in context JFH-4 and
5 the initial high-end scenarios in terms of megawatt
6 capacity need and the fact that wind and solar -- or at
7 least wind does not provide a lot of capacity?
8 A Wind does not provide a lot of capacity.
9 Solar provides more. As you can see from some of our
10 preliminary -- very preliminary analysis we were
11 looking at adding a gigawatt between the two.
12 Q Thank you.
13 And going back to the 25 percent at risk
14 proposal --
15 MR. SOPKIN: I'm almost done,
16 Mr. Chairman.
17 BY MR. SOPKIN:
18 Q If part of the notion behind the
19 25 percent at risk proposal is that certain plants are
20 becoming economic over time because there is lower and
21 lower cost plants being offered now, should only coal
22 plants be looked at?
23 A No. All facilities on the system should
24 be looked at. And that's one of the questions or the
25 comments I was discussing before is, I referenced we

76
1 have been adding renewable resources to our system for
2 quite some time. And previously some of those
3 renewable resources were significantly high in cost and
4 they remain on the system today. The PPAs have not
5 expired.
6 So if we're really evaluating the
7 resources on the cost basis on the system, you should
8 look at all PPA and all resources that are available to
9 customers on the system.
10 Q Does CIEA's proposal include an analysis
11 of exists PPAs as to whether those plants are at risk?
12 A No.
13 MR. SOPKIN: Your Honor, I have no
14 further questions.
15 CHAIRMAN ACKEMANN: Thank you very much.
16 MR. DIXON: Mr. Chairman, I really got
17 lost on what happened with Exhibit 56 and whether there
18 was a 57. I heard we were going to take administrative
19 notice of the 3600 series.
20 CHAIRMAN ACKEMANN: Yes.
21 MR. DIXON: I think the ERP rules and the
22 3619 and there are other things in 3600. So just I
23 want to clarify with Mr. Sopkin and the Commission what
24 was offered, what was admitted, what was taken
25 administrative notice?
77
1 MR. SOPKIN: That's a good question.
2 Thank you for that.
3 I was treating Exhibits 56 and 57 as
4 demonstrative exhibits and not to be entered into the
5 record.
6 CHAIRMAN ACKEMANN: Very good.
7 MR. DIXON: Thank you.
8 CHAIRMAN ACKEMANN: That's my
9 understanding.
10 I think with that, the witness is
11 excused.
12 Let's take a ten-minute break and we will
13 reconvene in ten minutes.
14 (Recess.)
15 (Whereupon, Exhibit Nos. 58 through 64
16 marked for identification.)
17 CHAIRMAN ACKEMANN: We are back on the
18 record.
19 And I'm looking to see -- is it going to
20 be you, Mr. Larson?
21 MR. LARSON: Yes.
22 The company will call James Hill to the
23 stand.
24 JAMES F. HILL,
25 having been called as a witness, being first duly

78
1 sworn, testified as follows:
2 BY MR. LARSON:
3 Q Good morning, Mr. Hill?
4 A Good morning.
5 Q Can you state and spell your name for the
6 record please?
7 A James F. Hill, H-i-l-l.
9 Q What is your title?
10 A Regional vice president rates and
11 regulatory affairs, Xcel Energy Services, Inc.
12 Q And do you have in front of you what's
13 been marked as Hearing Exhibit No. 3 and Hearing
14 Exhibit No. 4; Hearing Exhibit 3 being your direct
15 testimony in this proceeding and Hearing Exhibit 4
16 being your corrected revised rebuttal testimony and
17 attachments?
18 A Three?
19 Q Three and 4, please.
20 A Yes, I have them.
21 Q Were those prepared by you or under your
22 direction?
23 A Yes, they were.
24 MR. LARSON: The company would move the
25 admission of Hearing Exhibit 3 and Hearing Exhibit 4.

79
1 CHAIRMAN ACKEMANN: 3 and 4 may have been
2 moved. That's the direct and corrected revised
3 rebuttal of Mr. Hill. Any objections?
4 (No response.)
5 CHAIRMAN ACKEMANN: Seeing nothing, those
6 are admitted.
7 MR. LARSON: Thank you, Mr. Chairman.
8 The company would tender Mr. Hill for
9 cross-examination.
11 To our schedule so that's you, Mr.
12 Cocian.
13 CROSS-EXAMINATION
14 MR. COCIAN: Good morning, Chair,
15 Commissioners.
16 BY MR. COCIAN:
17 Q Good morning, Mr. Hill.
18 A Good morning.
19 Q My name is a Emanuel Cocian and I
20 represent Colorado Energy Consumers in this proceeding.
21 Could you please turn with me to Hearing
22 Exhibit 3, your direct testimony, to page 13.
23 A Okay.
24 Q And beginning at lines 4, we'll go to the
25 end of that response.

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1 Are you there?
2 A Yes. I hope we don't have the pagination
3 issue we had yesterday.
4 Q I don't believe so. There wasn't any
5 corrected direct that was filed; is that accurate?
6 A I think that's correct.
7 Q So in this -- in the response to this
8 question, you discuss that in the Phase II acquisition
9 process, once it's completed, the Commission decision,
10 if it's issued around May 2018, that would allow 24,
11 36, 48 and 60 months to construct new generation,
12 correct?
13 A Yes, I see that.
14 Q And at the end of that response you
15 describe how this is more than adequate time to develop
16 a variety of generation technologies including
17 gas-fired combustion, turbine or combined cycle
18 facilities, as well as wind and solar PV; is that
19 accurate?
20 A Yes.
21 Q So I want to talk to you just for a
22 minute about that and make sure that I understand what
23 that means. And in doing so, could you turn for me
24 to -- it's Attachment 1 -- it's Hearing Exhibit 1, it's
25 Volume 2 of the Electric Resource Plan. So I believe,

81
1 if I'm not mistaken, that is Hearing Exhibit 1,
2 Attachment AKJ-1, Volume 2, and the technical appendix.
3 A Yes, I see it as AKJ-2.
4 Q Okay.
5 A Volume 2.
6 Q Perfect. And if you turn to page 2-197.
7 A Okay.
8 Q And what we've got on page 2-197 is Table
9 2.7-10, generic dispatchable resource cost and
10 performance; is that correct?
11 A Yes, that's correct.
12 Q At the top of that table, there is a list
13 of dispatchable resources. And I just want to get an
14 understanding and make sure that I understand
15 correctly, is it accurate to say that the company -- if
16 bids are provided as part of Phase II, that the
17 company -- that any one of those resources could be
18 developed in 24 months?
19 A The combined cycles could not be
20 developed in 24 months, but I think the large and the
21 LMS combustion turbines as well as the Arrow
22 derivatives, I think 24 months is a reasonable
23 development time for those.
24 Q How long would you expect would be
25 necessary for the combined cycle?

82
1 A My recollection from dealing with our
2 engineering and construction is that 36 months might be
3 the shortest time period out to perhaps as long as 48.
4 Q Could you please turn with me to your
5 rebuttal testimony, that's Hearing Exhibit No. 4, I
6 believe.
7 A Okay.
8 Q And turning to page 27 --
9 A Okay.
10 Q -- and just to verify that we do have the
11 same page or are looking at the same page, does the top
12 of your page say, What RAP did the Commission approve
13 in the two previous ERPs?
14 A Yes.
15 Q Perfect.
16 So if we go down to line 21, you state
17 there: As discussed on page 129 of attachment AKJ-1,
18 this would allow approximately 31 months to construct
19 new generation facilities which would allow adequate
20 time to develop a variety of technologies and you have
21 there including gas-fired CT or CC facilities.
22 So I just want to make certain that we
23 are on the same page. So for CT, you agreed it's 24
24 months would be sufficient; for a CC generation
25 resources, you are -- you believe that would be closer

83
1 to 36 months or longer than 36 months?
2 A Yes, that's my recollection -- these are
3 not precise. There's a lot of factors that would go
4 into play and into developing these plans. To the
5 extent they were what I'll call brownfield
6 facilities -- what I mean by that, it would be a
7 company-owned facility that we would actually expand
8 and build the facility on that site. That site would
9 already have gas infrastructure, electric
10 infrastructure.
11 If it were a greenfield site, it could
12 take longer or the longer periods because there you may
13 have to actually bring the gas pipelines in, you may
14 have to build some interconnection facilities,
15 electrically. So these are kind of rough ranges, but I
16 think so they are good guideposts for us to discuss
17 this.
18 Q Perfect. And coming back to wind
19 facilities, you would agree that 24 months is a good
20 guidepost for most wind facilities, understanding that
21 there's a number of factors that go into
22 constructing --
23 A Yes, and I base that -- I believe our
24 Rush Creek facility, once that construction commences,
25 I believe it's 17 months when we believe we'll have

84
1 that facility up and operational.
2 Q And for solar, again, whether it's
3 tracking or fixed solar facilities, 24 months is a good
4 guidepost?
5 A I think that's fair.
6 Q Let's talk for a moment about the updated
7 range of resource scenarios and process that staff
8 proposed and the company agreed to. Under the new
9 range of resource scenarios process proposed by staff,
10 an update at that time ranger of resource scenario will
11 be provided by the Commission prior to Phase II,
12 correct?
13 A It will be provided "to" the Commission
14 prior to Phase II.
15 And let me be clear, I'm not entirely
16 clear when Phase II starts and when Phase II ends. I
17 envision Phase II beginning when the RFP is issued.
18 That's how I view the beginning of Phase II. So it is
19 our intent to provide that information prior to the
20 issuance of the competitive solicitation which I view
21 as the beginning of Phase II.
22 Q Perfect.
23 With that filing, the company will not
24 provide a definitive representation of the company's
25 resource need; is that correct?

85
1 A Yes. The filing -- the intent is to
2 recognize the considerable uncertainty we see in this
3 resource plan and identify a range. To the degree that
4 range has been modified slightly because we have had
5 more time now to get information on our demand
6 forecasts, where oil and gas might be, updates to the
7 various proceedings, EGEAS and IBBO, for example, we
8 want to bring that information forward and present the
9 range, again, that we think we should move forward into
10 Phase II with.
11 Q That's what would be provided is the
12 range, is that correct?
13 A Correct.
14 Q Were you present this morning during the
15 redirect of Ms. Jackson?
16 A Yes, but I may not have been listening.
17 Q Okay, fair enough.
18 Now, Ms. Jackson stated this morning that
19 updates will be provided annually. Did you listen to
20 that part of the discussion?
21 A No.
22 Q Okay. In past ERP proceedings, the
23 company has provided annual updates, update progress
24 reports that included updated assessment of need for
25 additional resources; is that correct?

86
1 A That is correct. That's actually part of
2 the Commission rules and we file -- it's called an
3 annual progress report and it's filed to provide the
4 Commission with information as to what is the progress
5 of the prior -- the most recent ERP?
6 Q The company intends to do that in this
7 ERP, correct?
8 A Yes, we would do that. That would be
9 filed in October of 2017.
10 Q You would agree that with every update,
11 the company better ensures that it acquires sufficient
12 amount of generation resources to reliably serve peak
13 demands, correct?
14 A Could you repeat that, please.
15 Q Absolutely. So you would agree that with
16 every update, the company better ensures that it
17 acquires sufficient amount of generation resources to
18 reliably serve peak demands.
19 A Well, I don't think the purpose of the
20 update in this case, which would be filed in October of
21 2017, would alter the previously agreed upon ranges.
22 Q Okay.
23 A So in my view, what this October update
24 will be -- it will basically identify what the ranges
25 were that were presented prior to the beginning of

87
1 Phase II. And then to the extent it's -- we might
2 provide information as to what our current sales
3 forecast looks like and how that might fall between
4 those ranges; but I have no expectation that the annual
5 update filed in October of 2017 -- what will change
6 what we agreed upon earlier as far as the ranger
7 pursued in Phase II.
8 Q Would you agree every time the company
9 updates its resource need, that it ensures that
10 whatever the outcome of Phase II is, that it will have
11 sufficient generation and capacity to reliably provide
12 service?
13 A I'm getting mixed up with how an annual
14 update alters the course of the ERP. I think that's
15 where I'm getting hung up. So to the extent we provide
16 an update which includes our most recent projection of
17 need -- that's what that is.
18 Q Uh-huh.
19 A It's been my experience that that -- and
20 I have been through I think this will be my fourth
21 resource plan, that has never changed our course with
22 regard to acquisition of resources within that -- the
23 current plan for which the update was filed.
24 Q You would agree that the ERP process
25 evaluates and determines the need for additional

88
1 generation resources?
2 A I would agree.
3 Q And as we go through this process, as the
4 numbers are updated, we can better understand what the
5 company's need is, correct?
6 A That's correct. But I do not envision
7 that the annual progress reports alter what the
8 Commission's Phase I Decision was and what the
9 company's direction as a result of that decision is.
10 Q Is there a possibility that after the
11 Phase I Decision is issued, that the company might
12 determine that its need has substantially changed?
13 A That's always a possibility, I think, to
14 the extent we experience unforeseen circumstances. In
15 that case, I think the company would assess whether or
16 not the range that the Commission approved us to move
17 forward in to Phase II with sufficiently addressed
18 whatever those unforeseen circumstances were. But I
19 would say, yes, it's possible.
20 Q And if -- what would the company do if it
21 determines that the outcome of Phase I does not
22 sufficiently address a change in circumstances? I
23 assume -- let's discuss a hypothetical: Assume with me
24 for a moment that the Commission issues a Phase II
25 decision in May, correct?

89
1 A Correct.
2 Q And as new and better forecasts and up
3 dates are developed, change of circumstances occurs, if
4 the company finds that they don't need as much
5 generation or capacity as has been approved, will the
6 company overbuild and acquire the generation and
7 capacity anyway?
8 A So I think your question is, to the
9 extent we've completed the Phase II process, we've
10 evaluated the proposals that were received in response
11 to that process, proposed portfolios, parties have
12 weighed in on those portfolios through their comments,
13 the Commission has reviewed those and made a decision
14 as to which portfolio to move forward with, and then I
15 think the question is, To the extent something has
16 changed, would the company move forward or would we
17 alter course?
18 Q Correct, yeah.
19 A That's difficult for me to sit here and,
20 I guess, think through at this time. It depends on
21 what the situation was; but it's hard for me, right
22 now, to envision what type of circumstance might result
23 in that.
24 Q So how about if the opposite occurred:
25 If the company developed a portfolio and as a result

90
1 something occurred and the portfolio would not result
2 insufficient capacity for the company to continue to
3 reliably operate its system? What would the company
4 do? Would it continue to move forward with the
5 portfolio or come back to the Commission?
6 A We do have a contingency plan that's
7 identified in our ERP and it lays out a variety of
8 actions we would take. Our action would be driven
9 predominantly by what the magnitude of shortfall would
10 be in that situation as well as how far out that
11 shortfall occurs.
12 So if it's a very -- if it's a small
13 shortfall -- I'll use, for example, 50 megawatts,
14 that's something we probably could take care of it
15 through short-term purchases off the system and cover
16 reliability needs of the system. If it's larger than
17 that, that could result in us going back into the
18 solicitation process perhaps and acquiring or examining
19 additional resources that were offered.
20 If it's far enough out in time and we
21 feel that it's not an immediate threat and it's
22 appropriate to address in the next ERP, then that might
23 be our course of action. So it really depends on the
24 magnitude and the timing of when a short or a capacity
25 need might show up.

91
1 Q And so there is a contingency plan in
2 place if the company is short on capacity. And if
3 that -- correct?
4 A Correct.
5 Q And if the contingency plan doesn't
6 satisfy -- if the amount of capacity that the company
7 is short on is not resolved by the contingency plan,
8 the company would then determine whether to come back
9 to the Commission or whether it would just deal with it
10 in a future ERP.
11 A Correct.
12 Q And is there a similar plan in place to
13 deal with the situation if the company is long on
14 capacity?
15 A Projected to be long on capacity, I
16 believe is what you are referring to.
17 Q Correct. Right.
18 A I think that if that circumstance were to
19 occur, and we were through the Phase II process -- if
20 the company believed that it was material linked and it
21 needed to be addressed, I think we would come to the
22 Commission and seek guidance on how to move forward.
23 Q We discussed a minute ago that the ERP
24 process developed plans or portfolios to meet the
25 resource need, correct?

92
1 A Yes, I would say the incremental need of
2 the system.
3 Q Should ratepayers be saddled with the
4 cost of capacity that is not needed to meet the
5 resource need to reliably run the system?
6 A Well, yes, I think that to the degree we
7 do our planning, our forecasts are reviewed, it goes
8 through the Commission -- the process, parties review
9 it; we do our best to acquire what we think is needed
10 to meet the projected needs; all of this has
11 uncertainty to it -- a certain level of uncertainty; so
12 to the extent we think it's a reasonable plan and that
13 it's been moved through the process and it looks like
14 it is going to meet reasonable expectation of needs, to
15 the extent there are unforeseen circumstances, I think
16 that it's reasonable that the company be able to
17 collect its money for providing the cost of service,
18 even if that includes a situation where we ended up
19 being long on capacity, even though we thought we were
20 going to be pretty much right on with the need.
21 MR. COCIAN: Nothing further, thank you.
23 I believe that brings us to
24 Mr. Calvano -- am I pronouncing that correctly?
25 MR. CALVANO: Yes, that's correct.

93
1 CROSS-EXAMINATION
3 A Good morning.
4 Q My name is Vince Calvano and I'm
5 representing CoSEIA. And I have just a few questions
6 now, today.
7 A Okay.
8 Q I would like to bring you back where I
9 took Ms. Jackson yesterday, starting on page 1-49 of
10 Volume 1, Hearing Exhibit 1, Attachment AKJ-1, page
11 1-49.
12 A Okay, I'm there. 1-49?
13 Q Right, in Table 1.5-2 on that page, and
14 that was developed under your supervision; is that
15 correct?
17 Q And for the record, PVRR stands for the
18 present value revenue requirements; is that correct?
19 A Correct.
20 Q Thank you. And several of the tables in
21 this volume, including that table that we're looking
22 at, are also included in your direct testimony, Hearing
23 Exhibit 3, I believe, on page 30, subject to check; is
24 that correct?
25 A Subject to check.
94
1 Q Thank you. And as I discussed previously
2 with Ms. Jackson, the PVRR deltas on page 1-49, there,
3 are calculated using a discount rate that is PSCo's
4 after tax weighted average cost of capital or WACC and
5 that is 6.78 percent; is that correct?
6 A Well, the PVRRs, themselves, are
7 calculated with the after tax WACC. And then the
8 deltas are just deltas.
9 Q Right, right. Thank you.
10 And, Mr. Hill, in different resource
11 plans, is it not true that Public Service Company uses
12 different discount rates depending on what the most
13 current weighted average cost of capital has been
14 determined by the Commission is?
15 MR. LARSON: Your Honor I'm going to
16 object. The discount rate was covered by Ms. Jackson.
17 In Ms. Jackson's we had extensive questioning of Ms.
18 Jackson about the discount rate. And I think these
19 questions have been asked and answered of her.
20 MR. CALVANO: I just have -- I'm not
21 going to go too much further on this. I just have a
22 couple more questions and want to confirm both
23 witnesses have the same understanding.
24 CHAIRMAN ACKEMANN: It is my
25 understanding that this witness does address discount

95
1 rate in his testimony, does he not?
2 MR. LARSON: Ms. Jackson handled it on
3 the rebuttal piece of her testimony.
4 CHAIRMAN ACKEMANN: If we're not going
5 much further, I'm fine with you continuing.
6 MR. CALVANO: Thank you.
7 BY MR. CALVANO:
8 Q And so to follow up, Mr. Hill, given a
9 certain set of cost requirements, changing that
10 discount rate would give a different PVRR and therefore
11 a different delta; is that true?
12 A Well, changing the discount rate that is
13 used to create a present value revenue requirement
14 would certainly change the PVRR for a specific plan.
15 Whether or not that would result in a change in the
16 deltas between plans, I can't say.
17 Q Okay. Thank you.
18 And that formula for determining the
19 discount rate, the revenue requirement in the top --
20 I'm not going to go into too much detail on the
21 formula, I just want to bring out a simple mathematical
22 property; and that is, you know, you are determining
23 the present value revenue requirement, the revenue
24 requirement is on the top and the discount factor would
25 be on the bottom or the denominator; is that correct?

96
1 A I'm trying to think through how we do the
2 arithmetic. It's in Excel spreadsheets and we just use
3 the function. So it's just a standard discounting of
4 what I'll will call a stream of nominal costs. In
5 other words, we have costs for -- cost estimates for
6 the system every year in nominal dollars. And what
7 that means is they include the effects of inflation
8 because our model includes effects of inflation. So we
9 take to the stream of cost and let's just say it's 40
10 individual numbers and discount it back to a single
11 number using the after tax weighted cost of capital.
12 Q Would you agree then that for a given
13 revenue requirement that dividing by a smaller number
14 on the bottom would, you know, give you a larger number
15 as opposed to dividing by a smaller discount would give
16 you -- excuse me, a larger discount number would give
17 you a smaller number?
18 A Yes. If you discount the same stream of
19 numbers at a smaller discount rate, it will give you a
20 lower -- actually, the smaller the discount rate, the
21 larger the number.
22 MR. CALVANO: Thank you. That's all the
23 questions I have.
25 Moving along, I think that brings us to

97
1 Ms. Eckert.
2 MS. ECKERT: I have no questions, thank
3 you.
4 CHAIRMAN ACKEMANN: That would bring us
5 to Mr. Detsky.
6 CROSS-EXAMINATION
8 A Good morning.
9 Q Part of our discussion yesterday is going
10 to involve Hearing Exhibit 37 through 41. These are
11 the previous ERP decisions that we talked about some
12 yesterday.
13 A Would you like me to get those?
14 Q If you could, please.
15 A 37 through?
16 Q 41.
17 Just so you have it ready, the first one
18 I'm going to talk to you about is Exhibit 39, page 59.
19 MR. DETSKY: For the record, my name is
20 Mark Detsky representing the Colorado Independent
21 Energy Association.
22 BY MR. DETSKY:
23 Q Mr. Hill, you and I have talked once or
24 twice before.
25 A Yes, we have.
98
1 Q And you may also recall that yesterday
2 Ms. Jackson tossed a number of questions your way on
3 modeling, so I'm going to start there and then move
4 from to the subjects that I had previously -- had notes
5 for you with.
6 The first thing we're going to talk about
7 is the idea of modeling coal plant retirements. And I
8 think Commissioner Ackermann -- or Chairman Ackermann
9 had a little discussion with Ms. Jackson where she said
10 the Strategis Model is capable -- it's feasible to
11 model the effects of taking coal plants on and off the
12 system in Strategis; is that correct?
13 A Yes. The model has the capability to
14 what I'll call do scenario analyses where we have a
15 representation of our total power supply system; and we
16 could go into that model and modify certain inputs,
17 plant dates, plant retirement dates, and examine
18 impacts of that.
19 Q Okay. And in fact, that's kind of what
20 happened in the 2011 ERP; isn't that correct?
21 A In the 2011 ERP?
22 Q Yes.
23 A I don't believe so. Can you --
24 Q Yeah, let's look at paragraph 167 here on
25 page 59.
99
1 A 167?
2 Q 167.
3 Are you there?
4 A Yes.
5 Q So I'm looking at this second sentence
6 where it said: Public Service will prepare three
7 separate cases, one Arapahoe 4 retired year-end 2013;
8 one Cherokee 4 retired year-end 2017; and then Arapahoe
9 4 and Cherokee 4 required 2013 and 2017 respectively.
10 Do you see that?
11 A Yes, I do.
12 Q And just to finish up that part of the
13 next sentence on that page says: Then the company
14 would develop portfolios to file the resulting capacity
15 shortfall; do you see that?
16 A Yes, I do.
17 Q So that's what we're talking about, is it
18 not, when we say the model can go into scenarios and
19 create scenarios where coal units in this case were
20 retired and forced to retire at a certain date; is that
21 correct?
22 A Yes. This analysis was a follow-on to
23 the Clean Air-Clean Jobs --
24 Q Right.
25 A -- decision --
100
1 Q Right.
2 A -- where the Commission -- we put forth a
3 plan to comply with legislation to reduce NOx by a
4 certain percentage. Part of that plan was to continue
5 operating the Cherokee 4 coal unit, 352-megawatt unit
6 on gas and also to continue operating Arapahoe 4 on
7 gas.
8 So what the Commission wanted us to do
9 was explore whether those previous decisions through
10 Clean Air-Clean Jobs Act still made sense and whether
11 they were economic to do so going forward.
12 Q Okay. Now, in this case, back in 2011,
13 for one of the units, Arapahoe 4, Public Service's
14 position, as we went into the Phase I process, was that
15 this unit, Arapahoe 4, should keep running; do you
16 recall that?
17 A I think our position was back then that
18 given the substantial alterations we were making to the
19 system through the Clean Air-Clean Jobs Act, we were
20 shutting down -- or planning to shut down four units at
21 Cherokee, Cherokee 1, 2, 3, and 4 -- that's
22 772 megawatts, as well as Valmont 5 which is
23 184 megawatts. So we were proposing in essence to do a
24 substantial alteration to those generators which lie
25 right in the middle of our -- the center of our

101
1 transmission grid.
2 Q Yes.
3 A So Arapahoe 4 on gas was something we
4 wanted to at least maintain the ability to operate,
5 just in case we ran into transmission issues that we
6 didn't foresee after we implemented all of the major
7 changes under Clean Air-Clean Jobs.
8 Q But then there was a change. What
9 happened, as I recall, is that the company decided to
10 enter into a PPA with an IPP. And then what the
11 company did was it modeled the PVRR analysis to look
12 at, on one hand, Arapahoe 4 being retired and being
13 replaced by this PPA; and on the other hand, Arapahoe 4
14 continuing. Do you recall that analysis, too?
15 A Yes, but you have to remember that was --
16 what the analysis was running Arapahoe 4, which is a
17 coal boiler on gas versus other alternatives to replace
18 that power.
19 Q Right.
20 A So the Arapahoe 4 decision, the actual
21 decision to retire Arapahoe 4 was part of our '07
22 resource plan; and we were -- we actually proposed in
23 that plan since to the Arapahoe 4 useful life was
24 coming up and it was within the resource acquisition
25 period; in other words, that unit was scheduled to

102
1 retire within the resource acquisition period, we
2 proposed kind of I'll call it a package deal where the
3 company would retire Arapahoe 3, Arapahoe 4, and then
4 Cameo 1 was scheduled to retire I believe one year
5 outside the RAP in that circumstance; and then Cameo
6 two I'll say five users outside the RAP.
7 So it was a bundle of small coal plants,
8 three of which were basically right inside the RAP, so
9 they were creating incremental need; and the company's
10 proposal was to do what I'll call a transformation
11 plan, we would retire those facilities and build a
12 480-megawatt high efficient combined cycle plant, own
13 that that plant sited at the Arapahoe site where we
14 could take advantage of the existing infrastructure for
15 gas and then transmission.
16 So that was the genesis, if you will, of
17 Arapahoe 4. The decision, yes, move forward with
18 retirement; however the Commission does not make the
19 decision as to when that would occur, they left that
20 for a later proceeding.
21 Q And I'm going to move to Cameo in just a
22 second. But the -- first I just want to establish that
23 what Public Service proposed was accelerating the
24 retirement of a coal unit, Arapahoe 4; is that not
25 correct?
103
1 A I would say that is not correct.
2 Arapahoe 4 was slated -- my recollection, its remaining
3 useful life was within the RAP of the 2007 ERP. I want
4 to say around 2013 or 2014 was when that plant was in
5 essence scheduled with to be within its useful life so
6 I would not all call that acceleration of its
7 retirement.
8 Q Can you turn to page 19 of the decision
9 you have in front of you.
10 A Okay.
11 Q Can you please read the first sentence of
12 paragraph 39.
13 A Public Service proposes accelerated
14 retirements of Arapahoe 4 on December 31st, 2013.
15 Q Okay. So I want to also talk about
16 the -- you mentioned the Clean Air-Clean Jobs Act and I
17 want to acknowledge that was part of this decision and
18 in fact I agree with you that was the genesis for that
19 Cherokee -- for Arapahoe 4 was sort of born out of the
20 Clean Air-Clean Jobs and it was a one-off for this 2011
21 ERP.
22 You mentioned Cameo 1, too; so let's go
23 back to two cycles ago, 2007 and there we find a
24 similar situation in that the company modeled
25 accelerated retirement, earlier retirement than

104
1 scheduled for Cameo 1 and 2 and Arapahoe 3 and 4; is
2 that correct?
3 A Yes, I think I just -- I don't want to
4 call Arapahoe 3 and 4 as being early in that
5 evaluation. I think they were evaluated for
6 replacement basically at their end of useful life. I
7 would say Cameo 2, though, it was -- it was considered
8 earlier than its useful life.
9 Q Okay. So can we please turn to the first
10 decision, Exhibit 37. And I'm at page 36 and 37 of
11 that document.
12 A Okay.
13 Q Okay. So -- and I'm going to -- I want
14 to allow that you may want for review this. I've
15 looked at these paragraphs, you may not.
16 A I would appreciate that.
17 Q Yeah. Let me ask you a question and then
18 you can go look at it.
19 So the way I read this decision of what
20 happened in 2007 ERP, is that the company conducted an
21 economic analysis of the PVRR resulting to the company
22 by retiring these four coal units; do you recall that?
23 A I think that's a fair representation.
24 Q Okay. And here we had something a bit
25 different in that the retirement that you did the

105
1 economic analysis on were not -- the Commission's words
2 were here in paragraph 116, page 37 -- and I am one,
3 two, three, four -- five lines down where is it starts:
4 Further that the retirements were nearly
5 cost-effective. In other words the retirements were
6 not cost-effective; is that correct?
7 A That's what -- that's how I would
8 interpret that sentence.
9 Q Okay. But then the Commission looked to
10 what I'll call externalities or extrinsic factors; is
11 that correct?
12 A I would not call the carbon cost of $20 a
13 ton escalating to 2.25 as an externality. Consistent
14 with what Ms. Jackson said, that would be more of a
15 proxy for the cost of compliance or regulation.
16 Q I don't want to quibble with that.
17 But I think what I've established here
18 with you is that the company has over the last two ERPs
19 consistently modeled in its ERP possible coal plant
20 retirements and then that modeling has led to actually
21 retirement decisions. But there is a difference -- and
22 you have mentioned that -- in these -- in the 2007, it
23 was the company's proposal to retire these units, if
24 I'm not mistaken; is that correct?
25 A It was the company's proposal to begin

106
1 looking at the replacement of capacity for Arapahoe 3
2 and 4 because they were retiring within the RAP. And
3 then we brought Cameo 1 and 2 in as well.
4 Q Right. And those were outside of the
5 resource acquisition period.
6 A Yes, I think Cameo was one year out,
7 Cameo 1, excuse me. And I believe Cameo 2 was probably
8 five years outside the RAP.
9 Q But under the circumstances, the company
10 thought it was prudent to look at retiring those
11 resources during the RAP.
12 A Yes, with regard to Cameo 1, I think it
13 made sense if we were going to address Cameo 1 we
14 should address Cameo 2, as well. They are both pretty
15 small -- they were both very small coal plants and not
16 very efficient.
17 Q So just to put a point here on the
18 modeling, basically in order to do this, what you do is
19 you have to have one scenario essentially where it's on
20 an one scenario where it's off. And you select those
21 resources that -- and manually -- I'm not saying -- I'm
22 imagining a big dial and screen and you are turning
23 dials but it's probably not that dramatic.
24 A I wish it was but it's pretty boring
25 actually.
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1 Q But essentially, am I right, that's
2 what's going on?
3 A Could you rephrase the question?
4 Q You are forcing a unit on or forcing it
5 off of this model.
6 A Yes, what I would call scenario analysis,
7 we can build a scenario with a certain treatment of
8 those generators within the fleet and then you can
9 build another scenario with a different treatment of
10 those facilities within the fleet.
11 Q Is that the only way it can be done or
12 can it be done through just seeing whether the model
13 says retire it?
14 A I have not run the model for years. But
15 I do recall that there's a capability within the
16 Strategis software algorithms that it can examine those
17 types of issues. We've never used it. And I think the
18 reason we haven't used it is it is fairly crude is my
19 recollection.
20 Q Okay. So in this case, there was some
21 discussion this morning already, but Mr. Monsen, one of
22 his recommendations is to optimize is the word he uses
23 whether it's cost-effective to accelerate some
24 retirement dates for certain coal units that are
25 approaching the ends of their book lives; do you recall

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1 that?
2 A Yes, I recall his general description but
3 I'm having trouble with what coal plants we would have
4 that are approaching the end of their useful lives in
5 this RAP.
6 Q That's okay, because I'm not going to ask
7 you about that. But essentially what the company is
8 doing when they are doing this Phase II modeling is
9 creating these hypothetical scenarios; is that correct?
10 A We're building scenarios -- I'll call it
11 combinations. We use the word portfolios but it's
12 different combinations of power supply proposals we've
13 received through the process to meet the RAP need.
14 Q And one thing you have done in previous
15 scenario building exercises is force certain coal units
16 off line and then modeled how that capacity might be
17 replaced, correct?
18 A I think that would in '07 when we looked
19 at Arapahoe 3, 4, Cameo 1 and 2, I think your
20 description would be accurate.
21 Q Thank you. That concludes my cross of
22 Ms. Jackson.
23 Now I'm going to go into three subjects
24 with you, which are the annuity tail that we've gone
25 back and forth on; the resource acquisition period,

109
1 which I have less questions because Mr. Cocian
2 addressed that somewhat; and then the surplus capacity
3 credit.
4 A Okay.
5 Q Are you ready -- sorry, a new thing now.
6 The annuity tail, I would like to try to
7 start this discussion with a high level so we can some
8 get some context over what it is we're talking about.
9 I think we've established that the company relies
10 heavily on Strategis Model for the analysis in ERP and
11 that includes this scenario modeling we just went over;
12 is that correct?
13 A That's a part of it but there's also
14 evaluations of proposals for feasibility and what we
15 call levelized energy cost screening to determine which
16 once move into the model; so it's not just modeling.
17 There is a quite bit of additional work in evaluating
18 proposals besides the modeling.
19 Q Okay. And when we talk about the
20 planning period, the 39 years in this case, the
21 Strategis model is a production cost model that runs
22 through every hour of every year for 39 years; is that
23 correct?
24 A It is a production cost model that
25 actually uses a typical week load duration curve to

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1 represent how the hours move through time; but in
2 essence it does both dispatch of the system through the
3 planning period as well as what's called capacity
4 expansion. So it's not just a it dispatch model, it's
5 a capacity expansion model.
6 Q Okay. And this capacity expansion tool,
7 that's what we're talking about when we talk about the
8 Phase II potential new addition?
9 A Yes. The portfolio analyses happen
10 within the Strategis model.
11 Q Okay. So can we start from the premise
12 that a model such as the Strategis model is only as
13 good as the assumptions that are put into it?
14 A Yes, I think you need to recognize that
15 when you are trying to represent a power supply system
16 and evaluate proposals for over 34 years, there's quite
17 a few assumptions that need to go into that model; and
18 I think to the degree they are reasonable and founded
19 on engineering design principles, accounting
20 principles, good utility practice principles, that if
21 we feel comfortable we've got reasonable assumptions,
22 we can also feel comfortable we can get reasonable
23 results.
24 Q Okay. So one issue, one area of
25 assumptions that I want to discuss with you is this

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1 issue that during the 39 years that the model is doing
2 its weekly analysis, as you describe it, some
3 generating units on the system will either retire or go
4 off contract in the case of a PPA; is that correct?
5 A That's correct.
6 Q And this could happen outside of the
7 resource acquisition period entered; is that correct?
8 A Yes.
9 Q So you have testified that for the
10 company, for various reasons, power purchase agreements
11 are limited to 25 years they will enter; is that
12 correct?
13 A Yes, that's correct.
14 Q At -- at the outside.
15 So the longest period that a PPA could be
16 modeled in the Strategis model is 25 out of the 39
17 years. But let me correct that. So it starts in year
18 2016, your planning period. So reasonably speaking,
19 you are going to enter into a PPA if one were to be
20 awarded in this ERP Phase II that the contract may be
21 executed somewhere around Q-3, Q-4, 2018; is that
22 reasonable?
23 A The contract could be executed then but
24 the facility may not actually begin operation until
25 later in the RAP.

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1 Q Okay. So let's say 2020 as a
2 hypothetical for this discussion for the project going
3 on line. So that is 25 years ahead from 2020, so 2045.
4 So that's as far as a PPA could really get in the
5 model; is that correct?
6 A Yeah, I think that's fair.
7 Q Okay. And so in that situation we have a
8 delta from 2045 to 2055 when the model -- when the
9 planning period is over.
10 A It ends in 2054, so we have nine years
11 beyond that PPA termination.
12 Q Okay. Now there are also PPAs in effect
13 now that carry into this planning period that are under
14 25-year terms and those fall somewhere less than that.
15 A Yes. There's -- we actually have PPAs
16 for his different terms, not just 25. We have PPAs for
17 shorter terms than 25.
18 Q Correct.
19 So the model has to be told what to
20 assume after these resources go off contract in the
21 case of a PPA; is that correct?
22 A Yeah, the model will have alternatives
23 available to it to fill -- we use the term backfill
24 resources that cease operation within the planning
25 period, be they PPAs or company-owned resources.

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1 Q Okay. And so this backfill that we're
2 talking about, this is getting towards -- one of the
3 options for this backfill is this so-called annuity
4 method; is that correct?
5 A Yes, but you have to be very careful here
6 about how we speak about this annuity method and how
7 it's applied, because I think that's -- a lack of
8 discussion about this is why we're having this
9 discussion today.
10 Q And we're going to get there.
11 But let's -- I'm trying to set up the
12 foundation for my line of questioning and for the
13 Commissioners' benefits.
14 A So could you repeat the question, please.
15 Q So the annuity method is one way that
16 this backfilling can occur in the model.
17 A The annuity method or it's the equivalent
18 annual cost method -- CIEA has used the annuity method
19 as kind of a shorter representation of that method --
20 is a method that CIEA witness Mr. Monsen proposed to
21 address the unequal life issue that could occur between
22 company owned assets and short-term term PPAs. So in
23 that regard, yes, we proposed you could use the annuity
24 method to extend the life of a shorter term PPA so they
25 would be equal with a company-owned asset for the same

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1 technology.
2 Q And that -- there are other methods
3 including the ones the company as proposed in prior
4 ERPs.
5 A Yes, there are other methods.
6 Q And when you do these backfilling
7 methods, those -- each of those methods has an
8 associated cost of -- to them; is that not correct?
9 A Yes.
10 Q Okay. And those costs then in turn feed
11 into the overall PVRR of whatever -- of the portfolio
12 that they are represented in; is that correct?
14 Q Okay. So I think you have testified this
15 is your fourth ERP proceeding; is that correct?
16 A Yes.
17 Q So you are familiar, we've talked --
18 before you, you have some of the decisions from 2007
19 and 2011. The annuity method that you referenced from
20 Mr. Monson, this is in his attachment WAM-7, which is
21 the Boston Pacific white paper; is that correct?
22 A That is -- yes, I think that's a paper
23 that Mr. Monson presents as an example of the concept.
24 Q Okay. And subject to check, will you
25 agree with me that paper was published in 2004?

115
2 Q So I want to take just a little bit of
3 time to set the context for what happened in previous
4 ERPs. First, can you please turn -- I think you have
5 Exhibit 37 open. Can you please turn to page 88.
6 A Okay.
7 Q Okay. I'm looking at paragraph 288. And
8 there it defines the annuity method from the
9 Commission's perspective as -- I'm going to read the
10 second sentence: Under this method, the modeler uses
11 the equivalent annual cost from a bid proposal to
12 represent power costs for years past the termination of
13 the contract in order to compare the bid to a resource
14 with a longer life in the model; do you see that?
15 A Yes.
16 Q Okay. So in the 2007, my reading of the
17 decisions -- and we can go to the paragraphs if you
18 need to refresh your recollection -- is that what
19 happened was the annuity method was directed to be
20 represented in a sensitivity run in the Phase II
21 process; is that correct?
22 A My recollection is that's correct.
23 Q So I want to let you speak for a minute.
24 I want to make the record clear, can you describe for
25 me the difference between a model run, if you will, an

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1 optimization, versus a sensitivity run?
2 A So I would describe the two as an
3 optimization run is a run where the model is allowed
4 the choice between resource alternatives that can meet
5 the identified RAP need; so the model makes an economic
6 choice as to which combinations to include and examine.
7 And then in a sensitivity run, we would not allow the
8 model that flexibility but rather we would -- I'll use
9 the term lock in all of the resources that were
10 selected in a particular portfolio.
11 And then if we want to test how that
12 portfolio cost might change, we'll change different
13 assumptions, for example, gas prices and whatnot. And
14 I'll use the term reprice that portfolio, but we don't
15 re-optimize the portfolio.
16 Q And repricing, the bottom line number can
17 change but not now how the model does its thing in
18 terms of selecting resources, I should say.
19 A The resources are locked in, in essence,
20 both the existing fleet and then whatever was in that
21 portfolio. So the model does not have the discretion
22 to move the in-service dates of the resources or to
23 switch them out with different resources. And it's a
24 very useful approach to see how a particular
25 portfolio's cost, as well as portfolios -- different

117
1 portfolios, how their costs might change depending upon
2 how different assumptions -- different assumptions that
3 are major drivers and costs, such as gas prices.
4 Q Okay. So now I want to jump on ahead to
5 the 2011 Resource Plan and the result of the
6 Commission's decision in that case was that there was
7 to be two optimizations, if you will: One optimization
8 run, full model run, was to use the company's preferred
9 approach for this backfill; and the second optimization
10 run was to use the annuity method; is that correct?
11 A I think there was some confusion around
12 that. And I can't recall when that decision came out.
13 Was that a decision prior to Phase II or was that a
14 post Phase II, 2011 phase II decision.
15 Q Subject to check I'll represent to you it
16 was part of the Phase I.
17 A Okay.
18 Q Okay.
19 Can you please turn to Exhibit 41 -- I'm
20 sorry, 40 -- nope, 39, sorry. 39, page 68.
21 A Okay.
22 Q And here at paragraph 197, at the
23 first -- the last sentence at the bottom is where you
24 can see the Commission made this decision as to -- for
25 the boundaries as they called it.

118
1 I want to look up to the first sentence
2 of paragraph 197. Can you please read that into the
3 record.
4 A The first sentence of 197?
5 Q Correct.
6 A We agree with staff and CCT that the
7 company's proposal to use utility self-build estimates
8 could result in IPP project's costs being unfairly
9 inflated in comparison to utility proposals under
10 certain circumstances.
11 Q Okay. And can you turn back one page,
12 page 67, paragraph 196; and I am at the line where it
13 says -- three lines down -- to represent the lower cost
14 boundary; do you see that?
15 A I do.
16 Q So just going down one line after that --
17 after the comma, the Commission here described the
18 method as the continuation of the actual bid price to
19 backfill the remaining years of IPP bids; do you see
20 that?
21 A Yes.
22 Q So this decision was entered, we went --
23 we moved on to Phase II. And I think you covered this
24 a little bit in your rebuttal testimony, so we can go
25 there if you need to; but I want to represent that what

119
1 you said is that CIEA and staff objected to the way the
2 company used the -- or implemented the annuity method;
3 is that correct?
4 A That's my recollection, yes.
5 Q Okay. And then if we can please turn now
6 to Exhibit 41, and here I'm at page 14.
7 A You will have to hold on. I don't know
8 if I have --
9 Q We can also go to your rebuttal if that's
10 easier for you because you quote this in your rebuttal.
11 A Okay, we'll go to my rebuttal.
12 Q Okay. So it's at page 36 of your
13 rebuttal.
14 A Okay.
15 Q Okay. So you quote this at line 10, page
16 36, can you please read lines 10 through 12.
17 A With respect to the annuity tails, we
18 direct Public Service to present in its next ERP, at a
19 minimum, the more traditional annuity method as
20 discussed by CIEA on how this approach should be
21 implemented in modeling.
22 Q Okay. And you recognize this was in the
23 2011 ERP, correct?
24 A Yes.
25 Q Okay. Now we're here at this case, and

120
1 in your direct -- PSCo's direct case, am I correct that
2 you did not apply the annuity tail method as discussed
3 by CIEA in your base case modeling in this case?
4 A There was nothing to apply it to in the
5 base case modeling. The generic resources aren't
6 representative of either necessarily owned or PPAs;
7 they are intended to meet the Commission rules that
8 require we provide alternative plans that examine the
9 costs and benefits of increasing levels of renewables.
10 So I don't think that the annuity method applied to the
11 alternative plan analysis. That is in, my mind,
12 limited to Phase II evaluation of Phase II power supply
13 proposals.
14 Q You are right. And my fault, I misspoke.
15 What I meant to say is in Phase II in this case, you
16 did not propose to use the annuity method as discussed
17 by CIEA in the 2011 ERP.
18 A In this case, in Volume 2, we -- we were
19 looking backward. Our discussion in Volume 2 with
20 regard to the annuity tail, I think we missed the mark.
21 That discussion looks back on the prior issue of
22 inflation which was a big issue for us. I think we
23 missed the opportunity to look forward and provide a
24 framework for how we would actually apply this, a
25 framework that I think has been missing.

121
1 So in Volume 2, we presented the way CIEA
2 represents it and proposes it and we presented our
3 counter argument as to why we thought that was
4 incorrect; but I would say we did present the method
5 that CIEA advocates for as to how it would be applied.
6 Q Okay. And we're going to return to that,
7 because in your rebuttal you are doing something a
8 little bit more nuanced. You are saying, We agree to
9 use the annuity tail as proposed by -- as discussed by
10 CIEA in 2007.
11 A Yes. And that reference is that we
12 agreed -- or I agreed in this resource plan Phase II to
13 not adjust the annuity tail cost to account for the
14 effects of inflation; but that's all that really --
15 that particular citation refers to.
16 We have to think through exactly what --
17 what was presented because there has been a lot of
18 confusion as to exactly what is the annuity method and
19 how is it applied in a Phase II bid evaluation. And
20 that's what I tried to do in my rebuttal is lay that
21 structure and framework so we don't have a dispute in
22 Phase II of this case.
23 Q Okay. So that's what I hope to get to
24 here in this Phase I.
25 Okay, could you please turn to page 2 of

122
1 your rebuttal.
2 A Page 15.
3 Q So I'm looking at the fourth bullet point
4 down. And here you are saying: The company will apply
5 the annuity method in this ERP as ordered by the
6 Commission; but here you state: In a manner that
7 aligns with that originally offered by CIEA witness Mr.
8 Monson in the 2007 ERP; do you see that?
9 A Yes.
10 Q And then you describe that method as
11 comparing utility owned resources to shorter term PPAs
12 of the same generation technology by extending the life
13 of the shorter term PPA so that it equals the life of
14 the utility resource but PSCo will not extend the life
15 of a PPA generation technology for which are there is
16 not a company ownership proposal for that same
17 technology; do you see that?
18 A Yes.
19 Q Okay. So I want to try to just make this
20 clear as to what your proposal is and I want to just
21 look at Table JFH-7.
22 A What testimony?
23 Q This is your same rebuttal testimony.
24 And I'm turning to that page right now to give you a
25 cite for that.

123
1 A Would that be figure JFH-7.
2 Q It very well could be.
3 Q Figure, yes. That is on page 43.
4 A So I'm looking at this figure JFH-7.
5 Q Are you there?
6 A Yes.
7 Q So here you have the -- I have a black
8 and white copy so I don't know -- and I know you are
9 colorblind, we've gone through this before.
10 A So I can't use that defense?
11 Q I'm not going to ask you about color.
12 Ah-ha.
13 So the first block -- group of four
14 blocks in referencing a wind proposal, the next four
15 solar, and the bottom four gas CT; is that correct?
16 A Correct.
17 Q Now in each of these groups of four
18 blocks, you have a company-owned resource and then you
19 show how the annuity tail gets modeled to take this out
20 to various times in the planning period; is that
21 correct?
22 A Yes.
23 Q Okay. So am I correct -- is the most
24 simple way for the Commission to understand there, if I
25 remove the company-owned block from any of these

124
1 sets -- in other words, if I take the -- the company
2 does not do a wind proposal, then so too do the annuity
3 tails disappear from these blocks -- these groups.
4 A That's my proposal, yes.
5 Q So the company could do -- the company is
6 free to choose whatever it wants as far as making a bid
7 in Phase II; is that correct?
8 A Yes.
9 Q So the company could choose we're going
10 to submit a gas CT proposal and we're going to submit a
11 wind proposal but not a solar; is that correct?
12 A Remember, in this RFP or this Phase II
13 process, there are two forms in which a company
14 proposal could come forward. I'll use the term a
15 company self-build where we would manage the project.
16 The company would actually propose to engineer, procure
17 and construct the process -- I'm sorry, the project,
18 I'll call that self-build.
19 We also have asked for build-own
20 transfers from entities. So there's two vehicles that
21 could come in. We don't necessarily have control over
22 what build-own transfers might be offered to it but we
23 would have control over what self-builds we put
24 forward.
25 CHAIRMAN ACKEMANN: Mr. Detsky, if we

125
1 could find a good place to break here in the next
2 minute or two, we will break for lunch.
3 MR. DETSKY: Let me see if I could find a
4 good place to break. I'll go five minutes and break
5 wherever I am.
6 BY MR. DETSKY:
7 Q You anticipated my next question. So
8 this does not represent here -- I don't see a build
9 transfer represented here in this figure JFH-7.
10 A Well, the new -- the company owned wind
11 solar or gas could be build-own transfers or
12 self-build.
13 Q So what you are saying is that in the
14 event the company has a proposal for ownership,
15 regardless of whether it is self-build or a
16 build-transfer, then the company will follow this
17 method.
18 A Yes. One important note: This method
19 resides in the computer modeling portion of the Phase
20 II analysis. So we receive the proposals; we screen
21 them by technologies; so we will line up the levelized
22 energy cost of wind, solar. We'll look at the same
23 thing for gas. And we'll rank them and we'll decide
24 which resources we move forward into the modeling. So
25 what we're talking about here with JFH-7 is how the

126
1 computer portfolios are built within the Strategis
2 model. I just want to make sure we're clear on that.
3 MR. DETSKY: Mr. Chairman, I think this
4 is a pretty good time for me to break right here.
5 CHAIRMAN ACKEMANN: That's great.
6 Okay, let's recess for lunch. We will
7 get back at 1:00.
8 (Recess.)
9 CHAIRMAN ACKERMANN: We will back on the
10 record now. Couple of quick preliminary matters before
11 we get back up to Mr. Detsky and Mr. Hill.
12 First, regarding Commissioner Koncilja's
13 question this morning to take, I think it was four of
14 the public hearing exhibits, and that conversation
15 about how to move them and where to move them. And I
16 appreciate everyone's input, especially the sage advice
17 of Mr. Putnam. Thank you, sir.
18 I think, at this point, since I do not
19 want to kind of veer back through earlier conversations
20 that this previous Commission dealt with, as to who's a
21 party and who is not, so, I am not inclined to have
22 someone, such as Ms. Glustrom support or sponsor those
23 exhibits. I think they stand as is. They are already
24 in the record. I would agree to them being in the
25 record.
127
1 I think the important takeaway, for
2 everyone, if you haven't picked it up this morning, the
3 Commission took great interest in the public hearing
4 time last night, and the exhibits and amount of rigor,
5 diligence, passion, interest that the public is taking
6 in this proceeding. And it gave us some good grist.
7 So, I think that's sufficient for you to
8 understand that, although it is public hearing
9 exhibits, and a different calibre then other exhibits,
10 you have an understanding of how we're viewing those.
11 So, that's how we'll proceed with that.
12 One other quick item. I have a residual
13 note to myself that -- so, Ms. Overturf, did you have a
14 witness that can only be available on Tuesday, or your
15 preference is Tuesday? I am still trying to figure
16 that out.
17 MS. OVERTURF: Your Honor, the preference
18 was Tuesday. I think, however, I think we'll be able
19 to rearrange his travel, so he will be able to be
20 available on Monday, if that's acceptable.
21 CHAIRMAN ACKERMANN: I think we're still
22 marching along, thinking that end of business Monday is
23 the target. That would be great to presume. That is
24 excellent.
25 So, with that, not seeing anything else

128
1 preliminarily, sir, what do you have?
2 MR. DETSKY: Mr. Chairman, the CIEA
3 witness is also coming in Tuesday.
4 CHAIRMAN ACKERMANN: Oh. Thank you.
5 MR. DETSKY: And have spoken with him,
6 and we think that the afternoon, especially the second
7 part of the afternoon Monday, might be workable.
8 CHAIRMAN ACKERMANN: Great.
9 MR. DETSKY: So, I can advise him of
10 that, when he should be here, if that's where we're
11 headed.
12 CHAIRMAN ACKERMANN: That's still the
13 path. As you know, folks, better than I, you aim for a
14 schedule you hope to adhere to. We'll plan to be done
15 on Monday, but, who knows, unforeseen things will come
16 up, when we have to hold and reserve some time on
17 Tuesday. But, at this point, if we can aim everyone
18 for Monday, we're doing well. That's the plan.
19 Anything else preliminarily? If not, we
20 still have Mr. Hill under oath, and we have cross
21 examination from Mr. Detsky. Please proceed.
22 BY MR. DETSKY:
23 Q Thank you. Welcome back, Mr. Hill.
24 Can you please turn to page 36 of your
25 Rebuttal Testimony, Hearing Exhibit No. 4.

129
1 A Okay.
2 Q So, before lunch we were having a
3 conversation about your Figures JFH-4, and trying to
4 get a handle on your proposal and rebuttal for the
5 annuity method. And on these two pages, 36 and 37, of
6 your rebuttal, I want to explore with you, for a
7 moment, what it you're saying here, regarding the
8 company's understanding of the method that Mr. Monsen
9 proposed, both in this docket and in the 2007 docket.
10 So, starting at the top of page 36, this
11 is where you say, on line 3, the company applied what
12 it believed to be the appropriate application of the
13 annuity method; however, CIEA and staff filed comments
14 arguing the company did not so apply. Do you see that?
15 A Yes, I do.
16 Q Okay. And, then, what you go on to say,
17 is that, with regard to this ongoing dispute, that
18 there is a lack of clarity, on the company's part, as
19 to how the annuity method, as proposed by CIEA would be
20 applied. Am I understanding that correctly?
21 A Yes. I think my testimony is not only, I
22 think, a lack of clarity on the company's part, but I
23 believe there was a lack of clarity amongst the parties
24 as well as to exactly how this method is to be applied
25 in the evaluation of bids in Phase 2.

130
1 Q Okay. So, then, you go on to say that
2 there had not been a detailed decision or description
3 of how the annuity method actually would be applied; is
4 that correct?
5 A Can you point me to that?
6 Q I am on -- at lines 19 and 20 of that
7 same page.
8 A Yes.
9 Q Okay. So, then, the company's testimony
10 is that it has -- there's a lack of clarity among --
11 from the company's perspective and the parties, as to
12 how it would be applied. And as we sit here today,
13 there's never been a detailed discussion, such as the
14 company understands how it would actually be applied.
15 Am I correct?
16 A Yes.
17 Q And, further, you go onto state, at the
18 top of the next page, that the independent evaluator
19 that was employed by the company, for the last ERP,
20 also feels that way. And they felt -- on line 2 --
21 that it was not entirely straightforward. Do you see
22 that?
23 A Yes.
24 Q Okay. So, we have this lack of clarity.
25 And do you recall that, in discovery, one of the

131
1 questions that CIEA asked you was, why did you not
2 reach out to CIEA during the Phase 2 process to go over
3 the annuity method and how it would be applied. Do you
4 recall that question?
5 A Vaguely.
6 MR. DETSKY: Okay. I have got a copy. I
7 can approach, Your Honor?
8 CHAIRMAN ACKERMANN: Yes, please.
9 MR. DETSKY: These would have been
10 premarked as Exhibits 61 and 62. You should have 61
11 and 62 right there.
12 BY MR. DETSKY:
13 Q Mr. Hill, do you recognize these two
14 discovery responses?
15 A Yes.
16 Q Are you the sponsor of these responses?
17 A Yes.
18 MR. DETSKY: Your Honor, I would like to
19 move for admission of 61 and 62.
20 CHAIRMAN ACKERMANN: 61 and 62 are moved,
21 both of the discovery requests from CIEA.
22 MR. DIXON: Excuse me. Which is which?
23 CHAIRMAN ACKERMANN: If we can clarify
24 which is which, in terms of the 8-24 versus 8-23.
25 MR. DETSKY: I believe that 23 is 61 and

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1 24 is 62.
2 MR. DIXON: Thank you.
3 MR. DETSKY: Thank you for that
4 clarification. But, Mr. Hill has the attached copies,
5 okay.
6 THE WITNESS: That's correct.
7 CHAIRMAN ACKERMANN: Thank you both. So,
8 61 and 62 are moved with that clarification. Seeing no
9 objections, they are admitted.
10 MR. DETSKY: Okay.
11 (Whereupon Exhibit Nos. 62 and 63 were
12 admitted.)
13 BY MR. DETSKY:
14 Q Okay. 61 and 62 are very similar,
15 Mr. Hill. 61, do you see where you are asked whether
16 PSCo discussed its approach for implementing the
17 annuity method with CIEA before it finalized the
18 120-day report in the 2011 ERP?
19 A I see that.
20 Q Okay. And 62 asks the same question with
21 respect to staff of the Commission?
22 A Yes.
23 Q Okay. And your answer to both of them
24 was that it would be the -- the company believes it
25 would be inappropriate to confer with CIEA or to confer

133
1 with staff as to the evaluation of bids; is that
2 correct?
3 A Yes. After the Phase 1 decision has been
4 issued, and we enter what I would call, "Phase 2," that
5 it is the company's position that we have had our
6 direction from Phase 1, and we, in essence, go into
7 lockdown to protect the integrity of the bid process.
8 And we don't have really any kind of contact with
9 outside parties, other than the IE, when we perform
10 that process.
11 Q Okay. And that's your position, is, that
12 that's the way it should be, even if the company has a
13 question on something like the lack of clarity on the
14 annuity tail?
15 A Yes. I think that would hold for -- it
16 could hold for a variety of issues, and there -- we
17 generally get direction from the Commission as to what
18 they would like to see with regard to Phase 2. It's
19 not always clear, and they leave it up to the
20 discretion of the company to try to examine how to
21 bring forth information that would enlighten that
22 particular issue, but we don't come back for additional
23 guidance, once we enter Phase 2.
24 Q Okay. Did the company reach out to Mr.
25 Monsen in the three years between the last Phase 2 and

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1 this Phase 1 to discuss the annuity method?
2 A No.
3 Q Okay. But here, in rebuttal, in this
4 case, as we read before earlier, what you have proposed
5 is to model the annuity tail method as to what you
6 refer to as, "Mr. Monsen's original concept in 2007";
7 isn't that correct?
8 A That's correct.
9 MR. DETSKY: I have another series to
10 pass out, and these are 58, 59 and 60.
11 These have already been marked.
12 Apologize for that delay.
13 BY MR. DETSKY:
14 Q Mr. Hill, do you have 58, 59 and 60 in
15 front of you?
16 A Yes.
17 Q Okay. And these are discovery requests
18 CIEA 8-1, 8-2 and 8-10; is that correct?
19 A Correct.
20 Q And you are the sponsor of these
21 responses?
22 A Correct.
23 MR. DETSKY: Your Honor, I would like to
24 move for admission of Exhibits 58, 59 and 60.
25 CHAIRMAN ACKERMANN: Exhibits 58, 59 and

135
1 60 are moved, CIEA discovery requests 8- 1, 8-2 and
2 8-10. Seeing no objections --
3 MS. McLAUTHLIN: Chair, for the record,
4 can we have a clarification on which is which?
5 MR. DETSKY: Sorry 58 is 8-1, 59 is 8-2,
6 and 60 is 8-10.
8 CHAIRMAN ACKERMANN: Okay. With all of
9 that, they are admitted, if I haven't already said so.
10 (Whereupon Exhibit Nos. 58, 59 and 60
11 were admitted.)
12 MR. DETSKY: Thank you.
13 BY MR. DETSKY:
14 Q If you could turn to page 31 of your
15 Rebuttal Testimony, please. At lines 16 to 18, you're
16 referring to the annuity method, and you say, "The
17 issue was first raised in the 2007 ERP proceeding by
18 CIEA and was represented as a method to ensure a fair
19 comparison between a utility-owned resource to a
20 shorter term PPA of the same generation technology."
21 Do you see that?
22 A Yes.
23 Q Okay. So, turning to Exhibit 58, Part A
24 of that discovery request, CIEA asked you to provide
25 the exact quotation from Mr. Monsen's testimony that

136
1 you cite here for the assertion that the annuity method
2 is to be used to compare records of the same generation
3 technology. Do you see that?
4 A Yes.
5 Q Okay. And, if you turn to your answer,
6 which starts on the first page, and goes over to the
7 second page -- I am at the bottom, underneath the Table
8 1 there, and you stated, "While Mr. Monsen does not
9 explicitly state in his testimony this aspect of how
10 the method is to be applied, it is not, nevertheless a,
11 key principle underlying the application of the
12 method." Do you see that?
13 A Yes.
14 Q Okay. So, your testimony is that
15 Mr. Monsen did not actually state that; is that
16 correct?
17 A Yes; that is correct.
18 Q Okay. Now, I want to look at Exhibit 59,
19 please, and if you could turn to page 32 of your
20 Rebuttal Testimony.
21 A Okay.
22 Q Okay. Down there, you have a Footnote 4
23 that refers to CIEA Attachment WAM-7. And in
24 discovery, we have asked you about that footnote. And
25 CIEA asked you to provide the exact quotations -- "To

137
1 provide the exact quotation from CIEA Attachment WAM-7
2 upon which you relied to support your assertion that
3 the annuity method is to be used to compare resources
4 of the same generation technology." Do you see that?
5 A Yes.
6 Q Okay. And your answer was the same; is
7 that not correct?
8 A Yes.
9 Q And, then, looking at Exhibit 60, and,
10 then, if you could please turn to page 37 of your
11 Rebuttal.
12 A Okay.
13 Q And in Exhibit 60, we asked you to
14 provide the exact quotations from Mr. Monsen's
15 testimony that you relied upon to support the assertion
16 here at page 37, lines 7 through 9, that, ". . .the
17 Company should not have simply extended all PPAs to the
18 end of the planning period, as this is not consistent
19 with the annuity method first proposed by CIEA in the
20 2007 ERP." Do you see that?
21 A Yes.
22 Q And your answer was the same; is that
23 correct?
24 A Yes.
25 Q We discussed earlier that this WAM-7,

138
1 this Boston Pacific Paper that sets forth the
2 application of the annuity method, that was published
3 in 2004, do you recall that testimony earlier?
4 A Subject to check, yes.
5 Q Subject to check. I would like to turn
6 your attention back to Exhibit 58, please. In this
7 discovery response, you cite Footnote 1, I think that's
8 it, looks like a textbook, Principles of Corporate
9 Finance; is that correct?
10 A Yes.
11 Q Okay. And, then, Footnote 2, you cite
12 that same textbook, correct?
13 A I believe it's a different edition, but,
14 yes, it's the same textbook.
15 Q Okay. And that textbook -- and, then,
16 there's another edition that you cite at Footnote 3,
17 correct?
18 A Yes.
19 Q Okay. And all of those textbooks that
20 you cite were published before 2004; isn't that
21 correct?
22 A Yes.
23 MR. DETSKY: Okay. I am going to refer
24 the Commission's attention, and your attention,
25 Mr. Hill, to the ERP Exhibit A -- A-Volume 2, pages 254

139
1 to 260. And if, Your Honor, if I may approach, I have
2 printed out those pages to reduce flipping.
3 This is not a marked exhibit. This is
4 just for your convenience.
5 BY MR. DETSKY:
6 Q Now, this section of your testimony is --
7 sorry -- of the ERP, was this prepared by you or under
8 your supervision?
9 A It was not prepared by my, but I was
10 overseeing the preparation of the ERP, so, yes.
11 Q Okay. And this section is entitled,
12 "Annuity Tails"; is that correct?
14 Q So, in this section, you are going
15 through the annuity tail, and in the third full
16 paragraph on the page, it states, "Consistent with the
17 Commission Decision C13-0094, the Company implemented
18 the use of the annuity tail to backfill utility
19 self-build proposals." Do you see that?
20 A No, I don't. The first paragraph did you
21 say?
22 Q Yes.
23 A Yes, I see it.
24 Q Okay. So, in this section, you are
25 discussing the company's implementation of the annuity

140
1 tail in the prior ERP; is that correct?
2 A Yes.
3 Q Okay. And if you go over to page 256 --
4 A Okay.
5 Q There's discussion there on the annuity
6 method as advocated by CIEA. Do you see that?
7 A Can you point me to a paragraph, please?
8 Q It's got an underline. It's a section
9 header.
10 A I have it, yes.
11 Q Okay. And here you state -- and I am
12 looking at -- underneath the block, quote, that, "The
13 Company has concerns with the CIEA methodology. . ." Do
14 you see that section?
15 A Yes.
16 Q And I want to draw your attention -- I
17 don't want to go through -- step through this whole
18 thing with you, but I want to draw your attention to
19 page 2-258.
20 A Okay.
21 Q So, here you have a Figure 2.11-1 that is
22 called the "Incorrect Annuity Method." Do you see
23 that?
24 A Yes.
25 Q And this is what you refer to, in the

141
1 sentence below, as a chart or graph that effectuates
2 CIEA's method for implementing an annuity tail. Do you
3 see that?
4 A Yes. This is a very simple example of
5 just the issue of inflation. It is by no means
6 representative of what all is entailed in applying the
7 annuity tail in a Phase 2 bid evaluation.
8 Q Okay. But this information is the
9 information that Mr. Monsen responded to in his Answer
10 Testimony. Do you agree?
11 A Yes. Mr. Monsen responded to
12 particularly the issue of whether or not inflation
13 should be included in the calculation of the price
14 stream for an annuity tail.
15 Q Okay. Now, a few minutes ago, we went
16 through your testimony and you testified that PSCo has
17 a lack of clarity and a lack of understanding as to the
18 application of the annuity method as described by CIEA.
19 Do you remember that?
20 A Yes. We have never had a clear
21 understanding of the framework, and the circumstances,
22 as to how you actually apply it in a Phase 2 bid
23 evaluation. The calculation itself is pretty
24 straightforward with regard to whether or not you
25 include the effects of inflation, but the application

142
1 in a Phase 2 bid evaluation is a completely different
2 story.
3 Q Okay. But you acknowledge that there is
4 some room, some divergence between what Mr. Monsen has
5 proposed in this proceeding regarding the annuity tail
6 methodology, and what the company has proposed in its
7 Rebuttal Testimony. Do you agree?
8 A No, I do not.
9 Q It's the same thing?
10 A My Rebuttal Testimony goes back and
11 basically reconstructs the framework and the principles
12 upon which Mr. Monsen first proposed this methodology,
13 and to the specific problem he was applying it to. And
14 I would -- my Rebuttal Testimony is an attempt to stay
15 within those confines, and figure out a framework for
16 how we can move forward on this, and apply it in a
17 consistent manner with what he's proposed and not have
18 continued disputes on it.
19 Q But, in making this proposal, we
20 discussed earlier how what you have done is said, let's
21 go back to 2007, correct?
22 A Correct.
23 Q Okay. And that's different from what
24 Mr. Monsen has said in this proceeding; isn't that
25 correct?
143
1 A I don't know. I don't believe
2 Mr. Monsen's testimony in this proceeding altered his
3 original proposal in '07.
4 Q So, why didn't you say, I recommend what
5 Mr. Monsen proposed in here?
6 A I think it's all of the same.
7 Q You think it's all of the same. So,
8 would you agree with me that the best source for what
9 Mr. Monsen proposed in this proceeding would be
10 Mr. Monsen?
11 A I think Mr. Monsen's testimony, in the
12 '07 resource plan, which was the genesis of this issue,
13 lays the framework for the particular problem he wanted
14 to solve. The problem he wanted to solve is very clear
15 in his testimony in '07. It's the comparison between
16 company ownership and shorter term PPAs. And he wants
17 to equalize the lives. So, that's the issue that he
18 framed up.
19 He chose, as a tool, to address that
20 issue, this equivalent annual cost method. Once he
21 made that selection, he also agreed that it would be
22 applied to the same technology.
23 So, in '07, when he laid this framework
24 out, now that I have gone back and looked at it and
25 given it more thought, that the owned versus purchased,

144
1 it's equalized and it's the same technology, that's the
2 framework within which he proposed it in '07.
3 Q But I want to stop you right there.
4 A That's the framework within his current
5 testimony. It's just a continuation of that.
6 Q Because, a few minutes ago we went
7 through the discovery, you admitted that you could not
8 find those quotations in Mr. Monsen's testimony, or in
9 the exhibit upon which Mr. Monsen relied. So, I guess
10 all I would like to leave this on is just that we --
11 there seems to be a difference of opinion as to what
12 Mr. Monsen actually said. Mr. Monsen is a witness in
13 this proceeding; isn't that correct?
14 A Yes, he was.
15 Q Okay. So, I have two -- I want to leave
16 that section behind for now, and I want to go into two
17 smaller sections, to finish off my cross. Next, I just
18 want to talk about the resource acquisition period,
19 briefly, because you covered it a bit with Mr. Cocian.
20 If you could turn to page 27 of your rebuttal.
21 A 27?
22 Q 27. Yes.
23 A Okay.
24 Q Okay. And in this question, the question
25 you were asked is, "Did the use of an 8-year and 7-year
145
1 RAP in the 2007 and 2011 ERP put the Commission in
2 limbo as suggested by Mr. Monsen?" And your answer is,
3 "No." Do you see that?
4 A Yes.
5 Q The 2007 ERP was filed in 2007, correct?
6 A That is correct.
7 Q And same thing for 2011? It was filed in
8 2011, correct?
9 A Correct.
10 Q But, here would you agree with me we're
11 approximately one year off schedule?
12 A No. I would not agree with that. We
13 would file, typically, in late October -- actually,
14 November 1st of '16. Here we're having hearings in
15 early '17. I don't think we're -- I don't think we're
16 off by a year. I would say maybe five, six months.
17 Q Fair enough. So, Mr. Cocian and you
18 discussed this 31-month time table that you envisioned.
19 And we discussed earlier that you're -- that under the
20 time table you have laid out, you're expecting that
21 agreements would be signed if there are PPAs awarded Q3
22 or Q4, 2018. Do you recall that?
23 A Is that in my testimony somewhere?
24 Q No. It was in our discussion earlier.
25 A PPAs signed in Q3, Q4 of '18?

146
1 Q Yes.
3 Q Okay. So, though, the time line that you
4 have laid out here, though, regardless of initial
5 timing, you're looking at PPAs towards the end of 2018,
6 and then the testimony is the company will then
7 immediately turn around with an October 31, 2019 ERP
8 filing?
9 A Currently the schedule would be that we
10 would file in October of '19.
11 Q Okay. And, then, your testimony is that
12 here, on lines 18 -- 17 and 18 of this page, you say,
13 "If that 2019 ERP proceeds along a schedule similar to
14 the 2011, then the Phase 2 acquisition process should
15 be completed and a decision rendered a little less than
16 two years from then." Do you see that?
17 A Yes.
18 Q So, then, you're jumping back. You are
19 saying, if they go back on the schedule that we had
20 back in 2011, in 2019, that should work out; is that
21 correct?
22 A Yes.
23 Q One final section of cross. It is going
24 to require my passing out my final two attachments, and
25 which have been marked 63 and 64.

147
1 (Pause.)
2 THE WITNESS: 63 and 64?
3 MR. DETSKY: Correct.
4 THE WITNESS: I don't think I have those.
5 CHAIRMAN ACKERMANN: Go off the record
6 for a minute and, then, we'll start up.
7 (Off the record.)
8 CHAIRMAN ACKERMANN: We can go back on.
9 BY MR. DETSKY:
10 Q Mr. Hill, am I correct that you are the
11 company witness sponsoring testimony regarding the
12 surplus capacity credit?
14 Q Okay. And these questions, CIEA 5-1 and
15 5-2, are discussing and asking questions about the
16 surplus capacity credit; is that correct?
17 A Give me a moment, please.
18 (Whereupon the Witness read the
19 document.)
20 THE WITNESS: Yes.
21 BY MR. DETSKY:
22 Q And these responses were sponsored by
23 John Welch and John Landrum. These people are not on
24 PSCo's witness list. Are you familiar enough with the
25 answers -- are you familiar with these questions and

148
1 responses?
2 A Let's see where it takes us. I think I
3 can probably navigate through this.
4 MR. DETSKY: Okay. I will see if that's
5 enough to get this exhibit admitted, so we can talk
6 about it.
7 I will move for admission of -- what
8 number am I on?
9 CHAIRMAN ACKERMANN: 63 and 64.
10 MR. DETSKY: 63 and 64.
11 CHAIRMAN ACKERMANN: I am working with 63
12 being CIEA 5-1.
13 MR. DETSKY: Yes.
14 CHAIRMAN ACKERMANN: And 64 being CIEA
15 5-2, for the record, has been moved. Seeing no
16 objections, they are admitted.
17 (Whereupon Exhibit Nos. 63 and 64 were
18 admitted.)
19 MR. DETSKY: Okay.
20 BY MR. DETSKY:
21 Q I am going to take 64 up first. So,
22 these responses, I want to note, the response date is
23 December 9th, 2016. I would represent to you,
24 Mr. Hill, that that was the date that Answer Testimony
25 was due in this case. Would you agree on that?

149
1 A Subject to check, yes.
2 Q Okay. So, I want to discuss a couple of
3 points with you on these only. The attachment to the
4 second page of Exhibit 64 is a work paper. And this
5 work paper, if I understand it correctly, also shows a
6 capacity weighted average of bids from the Southwestern
7 Public Service RFP for summer seasonal capacity. Do I
8 understand that correctly?
9 A I believe that's correct, and I think it
10 was for the summer of 2011.
11 Q Okay. So, my question for you on this
12 is, I do not see that these prices, this 2.79, has been
13 adjusted for inflation. Am I correct?
14 A Well, the calculations themselves were
15 all in a single year dollars.
16 Q Yeah. And that was 2011 dollars; is that
17 correct?
18 A Yes. Those would have been prices
19 provided in '11.
20 Q Okay. Turning, now, to Exhibit 63. Here
21 I am seeing a price per megawatt, paid in 2011, of
22 $2.89 per kilowatt-month; is that correct.
23 A That's what it states, yes.
24 Q Okay. And that's about 10 cents higher
25 than the value used in PSCo's testimony; is that

150
1 correct?
2 A When you say, "in PSCo's testimony,"
3 could you explain what you mean by that?
4 Q That's the value that PSCo's proposed to
5 represent surplus capacity credit?
6 A I believe that's the value we have
7 proposed to use to represent the credit -- surplus
8 capacity credit within the RAP, but beyond the RAP,
9 it's a different value.
10 Q Okay. And just turning over that page,
11 on the backside of Exhibit 63, and the price per
12 megawatt paid in 2012, $3.23 per kilowatt-month. Do
13 you see that?
14 A I see that, yes.
15 Q So, by our calculation, that is about 16%
16 greater than the values used in your testimony; is that
17 correct?
18 A I would say, subject to check, yes.
19 Q Okay.
20 MR. DETSKY: Thank you. I have no
21 further questions.
22 CHAIRMAN ACKERMANN: Thank you,
23 Mr. Detsky. I think that leads us to Ms. Hickey.
24 CROSS EXAMINATION
25 BY MS. HICKEY:
151
1 Q Good afternoon, Mr. Hill. Lisa Hickey
2 representing the Interwest Energy Alliance.
3 A Good afternoon.
4 Q I want to draw your attention to your
5 Rebuttal Testimony, page 49 -- I show it as 49.
6 A You will have to excuse me. I am getting
7 quite a pile of papers up here.
8 Q I see that.
9 A Page 49. I am there.
10 Q Thank you. There you talk about your
11 response to a recommendation from the Interwest Energy
12 Alliance and WRA related to evaluation of the
13 portfolios.
14 Under that second question on that page,
15 you indicated that, "Interwest Witness, Dr. Hunt,
16 recommends the Commission require Public Service to
17 model several portfolios that include substantial
18 amounts of new grid-scale solar and wind energy," and
19 you point out that the WRA witness recommends the
20 Commission require analysis of portfolios that maximize
21 renewable resources. The key words there,
22 "substantial" and, "maximize."
23 On the next page, at the top, you
24 indicate that you agree, "The level of renewable
25 resources contained in any particular portfolio is

152
1 dependent on a number of factors, including but not
2 limited to the quantity and quality of the renewable
3 bids received, the location of those bids relative to
4 one another, availability of transmission and level of
5 resource need."
6 Do you see where you testified there?
7 A Yes.
8 Q So, I want to talk about what the
9 "maximum amount" -- "substantial amounts at maximum
10 levels of renewables "would look like.
11 Will you place any caps on those
12 renewables in your model when you optimize under each
13 scenario?
14 A Well, first of all, like I said, we --
15 the pool of bids informs what's available.
16 Q Certainly.
17 A For us to examine. We also have
18 Mr. Bartlett discussing the level of flex reserves we
19 have on the system to accommodate an additional -- I
20 believe that would be the wind resources. Whether or
21 not we're even capable of putting a cap in the model as
22 to how many renewables it would collect, I don't
23 recall. I'm not sure we have that capability.
24 So, sitting here today, I can't answer
25 whether or not we would cap it or not. But what our

153
1 intention is to evaluate and present a wide range of
2 renewable additions. I think they would be consistent
3 with, I hope, the descriptors that you had, substantial
4 or significant. We can only present portfolios that
5 have what I'll call "feasible proposals," that would be
6 proposals that we believe can meet the in-service dates
7 that they proposed, and they can actually develop the
8 project they proposed.
9 We also have issues with regard to
10 transmission. So, within those bounds, as well as our
11 ability to have a flex reserve, my intention is that we
12 would include portfolios that maximize the level of
13 renewables that could be supported within those bounds.
14 Q And will you describe in detail, when you
15 refer to limits, for any of those reasons you just
16 discussed?
17 A Sorry. Could you repeat that?
18 Q Will you describe in detail -- referring
19 to your 120-day report -- when you reach those limits
20 that you just discussed?
21 A Yes, I think we can point out, in the
22 120-day report, to the extent there were limitations to
23 how high we went with the portfolios and renewables, I
24 think that's something we can provide.
25 Q Great. Thank you. With some hope that

154
1 you'll receive some bids for storage, and there is some
2 discussion of storage, and how y'all modeled that,
3 giving some credit to the benefits of ancillary
4 services, do you -- how will you model storage?
5 A I believe that was addressed by
6 Mr. Scholl, so, I will recommend that you direct these
7 questions to him. He'll be much better able to give
8 you a good answer.
9 Q He'll be able to answer questions, for
10 example, is it modeled as generation?
11 A Yes. I believe he should be able to
12 answer that.
13 Q Okay. One benefit you pointed out, of
14 renewable energy, is that it can defer some capital
15 investments in fossil fuel-based resources. For
16 example, in Volume 1, page 161, you point out that one
17 of your alternatives plans, Alternatives Plan 4, with
18 an additional amount of utility-scale solar, defers one
19 gas-fired combustion turbine, correct?
20 A Yes. The addition of utility-scale
21 solar, since solar does bring with it a fairly
22 substantial capacity credit, I'll call it, it does have
23 the ability to defer or avoid, in our modeling,
24 capacity that would be brought forward from, say,
25 combustion turbines.
155
1 Q Will those deferments also be discussed
2 in your 120-day report?
3 A Well, the deferments will actually be
4 captured by the surplus capacity credit. So, the
5 surplus capacity credit is basically a surrogate for
6 crediting a portfolio with a deferral of CT capacity.
7 So, the PVRRs for particular plans should have that
8 value embedded within them.
9 So I'm not sure what else we do
10 provide -- we could provide, with regard to discussion
11 of that, other than what we have provided so far with
12 regard to how surplus capacity credit works.
13 Q Would larger amounts of the renewables,
14 combined with storage, help to defer capital
15 investments in fossils fuel-based plants?
16 A Well, I'm not sure if the combination
17 would be much different than the individual
18 contribution. And what I mean by that, I think
19 storage -- and let's just assume battery storage, for
20 purposes of this discussion. What drives the capacity
21 value that a battery might provide to our system is
22 obviously a function of the kilowatt rating of the
23 battery, but also the duration of the battery. So a
24 longer duration battery will have more capacity credit
25 to our system.
156
1 So, I'm not sure if combining the two
2 would give up a larger capacity credit than what the
3 two would provide separate.
4 Q Part of what I am looking for is some
5 clarity on how the 120-day report will reveal the
6 benefits and costs of storage, because we haven't had
7 significant levels of storage, by any means, in
8 previous ERPs. Do you see -- we're not -- we have no
9 idea what the costs of storage will be that results
10 from actual bids.
11 So I am wondering if there is any benefit
12 in, and transparency from the sensitivity that would
13 include higher amounts of storage, even if they don't,
14 at first glance, seem to be able to be optimized in
15 your series of portfolios?
16 A I think there's two pieces of information
17 that would be useful in understanding the
18 cost-effectiveness of storage and the 120-day report.
19 What we can we do with the -- what we can do in this
20 next report is we can provide a layout of the bids
21 themselves that were proposed, and information with
22 regard to how -- the cost-effectiveness of those bids,
23 relative to one another.
24 Now, you have to be careful when you
25 start looking at the levelized costs for different

157
1 technologies. But you can still get some general case.
2 So, that's one piece of information that would allow us
3 to gain insight to the cost-effectiveness of storage
4 that's offered in.
5 The second piece, I think, that would be
6 informative is we would provide portfolios that have --
7 the main difference between the portfolios, in the
8 120-day report, might be the storage. So, it's the
9 incremental resource that might be added to a
10 portfolio. Let's just say A might have wind and solar
11 and a CT, then we do an expansion of that portfolio to
12 provide the storage into that, so you have an
13 incremental change to that portfolio. You can see the
14 impacts of that.
15 So, I think that also would be something
16 that would be informative as to the value of storage
17 base.
18 Q Thank you. At a very high level, your
19 flex reserve study talks about what is needed to cover
20 within -- to cover renewables -- to accommodate the
21 natural variation of renewables, for example, when wind
22 ramps occur. Would higher level of storage perhaps
23 replace some of the need for flex reserves or
24 constitute flex reserves?
25 A I would suggest you might direct that

158
1 question to Mr. Bartlett, because he actually operates
2 the system, and is involved with that day-to-day. So,
3 he might be able to provide a better answer.
4 Q Thank you. You indicate, on page 50 of
5 your Rebuttal Testimony, that you would want to open a
6 Phase 2 competitive solicitation, even if the resource
7 need is small, at least to meet your reserve margin. I
8 show that at lines 14 and 19 of my copy. Do you recall
9 that?
10 A Yes.
11 Q Obviously, as we have said, the actual
12 costs of portfolios will depend on the actual bids you
13 get, right?
14 A Correct.
15 Q Isn't that competitive bidding process
16 cause -- well, in the last ERP, you got a robust
17 response, dozens of responses; isn't that correct?
18 A Yes. We have actually had very robust
19 responses to all of our RFPs over the last several
20 resource plans.
21 Q Do you find that competitive bids are
22 more successful, well, a higher number of responses --
23 in anticipation of a higher number of responses causes
24 bidders to sharpen their pencils and reduce their
25 prices?
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1 A Could you repeat that, please?
2 Q Does anticipation of a robust number of
3 responses, lots of bidders, cause bidders to reduce
4 their prices?
5 A That would be speculation, but I think
6 that stands to reason; that to the extent there have
7 been robust, or there's an expectation that we would
8 have robust response to our solicitation process, that,
9 to me, means we will have competition, and we will have
10 many choices from that to analyze and select the
11 portfolio we move forward with.
12 So, yes, I think more responses bring
13 with it additional competition, and I would hope that
14 would be lower prices as well.
15 Q There's been quite a bit of discussion
16 today, for example, from Mark Detsky's discussion about
17 what would result in a, what we would call a, "level
18 playing field"; isn't that right?
19 A Yes. I think Mr. Detsky's discussion
20 with me, regarding annuity tails, that was first
21 brought up to address concerns about level playing
22 field.
23 Q Were you here yesterday when Ms. Jackson
24 discussed the benefit of consistency in reviewing IPP
25 bids and company bids?

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1 A I was, but, again, I may not have been
2 listening as closely as I should have.
3 Q I would refer your attention to Volume 2,
4 page 2-221.
5 A Okay.
6 Q At that page, if I can find it at the
7 very bottom, you say, "all -- in the volume you say,
8 "All bids from existing thermal generation resources
9 currently under contract with the company and all
10 company proposals will be passed through screening to
11 portfolio development."
12 A Yes.
13 Q And what do you mean by, "all company
14 proposals"?
15 A What this means is, if you recall, we
16 talked about two flavors, if you will, of company
17 ownership proposals. One would be, I would describe it
18 as a self-build, and the other one would be a build and
19 transfer. This is referring to a self-build, where the
20 company actually proposes it into the solicitation
21 process, as opposed to a BOT, which is -- another
22 entity bids it in.
23 Q So, would this include company affiliate
24 bids?
25 A I'm trying to think of what company

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1 affiliate would bid into this resource plan. I can't
2 think of any. So, no, by this statement of the,
3 "company proposals," I think we envision these would be
4 proposals made by Xcel Energy, developed within our
5 engineering and construction department, much like our
6 recent Rush Creek facility. So, those would be the
7 proposals that I would envision we would move forward.
8 And what this is intended to indicate is
9 that we only move forward proposals that we deemed to
10 be feasible. In other words, they are viable enough
11 that we believe that, through our due diligence
12 process, what has been proposed, is likely, in fact, to
13 be built.
14 Existing gas-fired generators, they
15 already exist and they have an interconnection, so it's
16 very reasonable to move them forward. And, then, our
17 self-build company proposals, we have great confidence
18 in our ability to deliver on what's proposed. So, we
19 move those forward too, because we deem both of those
20 categories to be very viable.
21 Q There is a limited number of bids -- room
22 for bids available in this portfolio, correct?
23 A The number of bids that would be or could
24 be included in a portfolio is a function of whether
25 we're meeting the low, medium or high need. So, yeah,

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1 there is a limitation as to how many proposals that
2 would be constructed that might be considered to be
3 cost-effective.
4 Q So, by definition, you're advancing a
5 company-owned bid over an independent power producer
6 bid, are you not?
7 A No. I don't think that's correct. I
8 think we will strive to have a good representation of
9 IPP PPAs for what we'll call it, "new construction."
10 All of the IPP contracts or PPAs, with existing -- they
11 would move through.
12 So, I think we will strive to have a good
13 representation, and we'll lay all of this out in the
14 120-day report, as to how we decided what bids to move
15 forward into the computer modeling stage.
16 Q What would you define as a good
17 representation? Some balance? Some number? A
18 percentage?
19 A That's a good question. I think, for
20 example, under a low scenario, we have a capacity need,
21 let's say it ends up 100 megawatts by 2023. What we've
22 done in the past, we might move forward 500 megawatts
23 of combustion turbine bids. We might move forward,
24 certainly, 100 megawatts of solar bids.
25 So, we move forward many more megawatts

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1 than what is needed to meet the need. And the way we
2 determine where we make those cut lines is through what
3 I'll call levelized -- kind of levelized cost of energy
4 screening for renewables, and, then, we do a levelized
5 capacity cost for gas-fired resources.
6 Q But, by definition here, again, we're
7 moving forward based on ownership rather than price;
8 isn't that true?
9 A No. We're moving forward based on,
10 basically, on the cut line. With regard to new
11 construction, for IPPs, we're moving forward from a
12 viability perspective, existing IPPs bid for existing
13 facilities, and company ownership. So, I think that's
14 all consistent.
15 Q Taking into account who owns rather than
16 price?
17 A Well, we -- we need to have the
18 sufficient representation of ownership in our model for
19 us to effectuate the company's proposed backfill
20 methodology. So that's one consideration.
21 If you recall, there's two views of how
22 you backfill proposals when their term is up, this
23 annuity method that was discussed with Mr. Detsky, and
24 then the company's preferred method of self-build
25 resources. So, that's part of our consideration as to

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1 what's to move forward.
2 Q Turning very briefly to the coal unit
3 modeling issue, you had discussed, with Mr. Detsky,
4 optimization and picking dates to close as alternative
5 ways to model retirement of coal plants. Certainly one
6 way to insert an assumption which would give more
7 transparency to cost-effectiveness of coal plants, and
8 relative to that replacement power, would be to insert
9 a very high carbon cost, correct?
10 A Well, the carbon cost might impact the
11 dispatch of a coal plant, but I don't think that the
12 carbon cost we're envisioning is going to make a
13 decision as to continued operation of coal plants or
14 continued operation of that capacity on the system.
15 Q One way to inject an assumption, though,
16 that might refine the analysis for retirement would be
17 to insert a hard cap on carbon. Wouldn't that be true,
18 rather than to stick a temporary date down? Do you
19 know what I mean by, "hard cap on carbon"?
20 A Could you please explain.
21 Q Total limit on the amount of carbon
22 emissions to be produced within certain years, or by a
23 certain year, say 2025?
24 A I'm not sure if that's an ability in the
25 model, but, again, I don't think we envision an

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1 analysis where the model makes a decision as to whether
2 or not to early retire some of our coal plants. We
3 haven't identified that in our RAP. It's not anything
4 the company has proposed to meet incremental needs of
5 the system.
6 Q If the Commission decided it was good
7 policy to weigh the relative benefits of continuing to
8 operate those coal plants, one way to do it, in a
9 fairly neutral across the board meeting between and
10 among coal plants, would be to insert a hard cap on
11 carbon, though, wouldn't it?
12 A That analysis is probably much more
13 complex than what we are envisioning in the ERP. So, I
14 don't know that you can just put in a hard cap of
15 carbon, and expect the model to make decisions. In
16 fact, I am pretty sure it will not make decisions as to
17 whether to continue to keep coal plants on the system.
18 What it will do is it will alter dispatch the whole
19 fleet in order to try to meet that carbon hard cap, is
20 what my expectation would be.
21 Q So, what that would do is minimize,
22 potentially, the run-time of the coal units, and
23 potentially maximize our resources without emissions;
24 is that right?
25 A Yes. I would expect that the dispatch or

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1 the capacity factors of coal would be reduced under a
2 higher carbon, and that the dispatch of gas might
3 increase. Now, the renewables generate at whatever
4 they generate at. They are nondispatchable. So, you
5 aren't going to see the renewables moving around as a
6 function of carbon prices. They are what they are.
7 Q But, in the portfolio, they would
8 potentially increase the amount of the renewables to be
9 acquired; is that right?
10 A Yes. I think that portfolios with, when
11 a carbon proxy cost is applied, you would -- the
12 portfolios that have higher levels of renewables will
13 show a lower PVRR than if that carbon proxy was not
14 applied.
15 MS. HICKEY: Thank you, Mr. Hill. Thank
16 you, Mr. Chairman, Commissioners.
17 CHAIRMAN ACKERMANN: Thank you.
18 Ms. Overturf.
20 BY MS. OVERTURF:
21 Q Good afternoon, Mr. Hill.
22 A Good afternoon.
23 Q We have met before, but, for the record
24 my name is Erin Overturf, and I represent Western
25 Resource Advocates.
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1 I have some pretty basic questions for
2 you. So, just to start off, how long is the planning
3 period that we're looking at in this proceeding?
4 A We have proposed a planning period from
5 2016 to 2054. I believe that's 39 years.
6 Q Okay. That's really a long time. Can
7 you describe the difference for me between what we
8 refer to as the, "basecase," and the sensitivity
9 analysis or analyses? How do those two things differ
10 and how do they interact?
11 A With regard to a particular variable?
12 Q Well, so, when we do this modeling, or,
13 rather, when you do your modeling, and you've got all
14 your levers and pulleys that Mr. Detsky described, you
15 set a baseline kind of set of assumptions, and then you
16 use those assumptions to run what Mr. Detsky referred
17 to as the optimization run, correct?
18 A Yes.
19 Q So, those are basecase assumptions. And,
20 then, you take the portfolios that come out of that
21 optimization run, and, then, you look at how would each
22 of those portfolios perform if we made different
23 assumptions, right?
24 A Yes. I refer to that as repricing them
25 under different futures.

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1 Q Okay. That's a much easier way to say
2 it. So, the company's assumption, in its basecase, is
3 a zero dollar cost per ton of carbon, correct?
4 A Yes. That's what we have proposed.
5 Q Okay. And that essentially means that
6 the company's baseline assumption is that it will incur
7 no costs to comply with carbon regulations over the
8 next 39 years; is that right?
9 (Off the record.)
10 THE WITNESS: Could you please repeat
11 that, please?
12 BY MS. OVERTURF:
13 Q I could. So, by having a zero dollar
14 cost per ton of carbon in the basecase, the company is
15 essentially assuming that it will incur no costs to
16 comply with carbon regulation over the next 39 years,
17 correct?
18 A I think I would rephrase that to be that
19 we don't think that a compliance requirement would come
20 through a dollar per ton kind of a pricing or
21 limitation. That doesn't mean that there could be
22 actions taken too, that would require us to comply in
23 different ways besides a dollar per ton type of metric.
24 I would consider that to be like a cap-and-trade type
25 of --
169
1 Q But you did run some sensitivity -- well
2 you didn't run them yet, but you have proposed to run
3 some sensitivity analyses with different carbon prices,
4 correct?
5 A Yes.
6 Q And those carbon prices are mostly
7 associated with complying with the clean power plan,
8 correct?
9 A I think one of those, the low, was tied
10 to estimates of what an analogous carbon proxy would
11 be, and the other one was higher than that.
12 Q Okay. So neither of those, if we take
13 the clean power plan is kind of what the company had in
14 mind, when it came up with those sensitivity values,
15 the clean power plan is not a cost per ton of carbon,
16 correct?
17 A I don't know that we know how the clean
18 power plan will shake out, but I think the initial plan
19 provided targets of reductions, and then it left it up
20 to the states as to how they would want to implement a
21 plan to comply with those requirements.
22 Q Okay. Would you agree with me, simply,
23 that there may be costs to comply with regulation of
24 carbon that don't necessarily come at a cost per ton or
25 cap-and-trade type of vehicle do you agree?

170
1 A I think that's possible.
2 Q Okay. Thank you. And as you stated
3 before, there's both a high and a low carbon cost
4 sensitivity that the company has proposed, correct?
5 A Yes.
6 Q And just to be clear, again, those
7 values, in both the high and the low carbon proxy price
8 sensitivities, are meant to represent the possible
9 compliance costs that the company and its customers
10 would incur to come into compliance with environmental
11 regulations?
13 Q And the value of presenting this
14 information in the sensitivity analysis, really, is
15 that it gives the Commission more information so that
16 they can look at how these various portfolios would
17 perform under a variety of different possible futures?
18 Would you agree with that?
19 A Yes.
20 Q Okay. And you could, technically and
21 theoretically, do it the other way around, right, where
22 you would have a carbon price included in the basecase,
23 and, then, you would run a sensitivity where you had no
24 cost of carbon; is that correct?
25 A You could do it that way.

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1 Q And, in fact, the company did it that way
2 in the future 2007 ERP, as Mr. Detsky would say?
4 Q Okay. Now earlier today, Ms. Jackson
5 stated that running a sensitivity analysis with the
6 social cost of carbon, so, the costs associated with
7 the externalities of carbon rather than the compliance
8 costs, that that would increase costs for customers by
9 changing the optimization of resources and could
10 therefore result in a higher cost portfolio. Do you
11 recall that?
12 A Generally, yes.
13 Q Okay. But earlier, in our conversation,
14 and I believe in your conversation with Mr. Detsky, you
15 stated that optimization runs are different than
16 sensitivity runs, correct?
17 A Yes. The optimization runs build the
18 portfolios, and, then, the sensitivities reprice them.
19 Q Right. So, you're kind of looking at,
20 after the optimization run, you get 10 different
21 portfolios that are all optimal, in their own different
22 way. And, then, you're repricing them to see how
23 customers would fare in a variety of possible futures?
24 A Yes.
25 Q All right. So, the sensitivity

172
1 analysis -- including the social cost of carbon as a
2 sensitivity analysis would not change the optimization
3 of the bids in that initial optimization run, correct?
4 A Well, we need to understand that the
5 model will put together all feasible combinations of
6 alternatives to meet the needs. So, I believe you
7 would get the same stack of what I'll call, "feasible
8 combination," or "portfolio," whether you optimize with
9 carbon or without.
10 And what we do is we go through, and
11 after those runs, and we select, for Commission
12 consideration, a suite of portfolios that have
13 increasing levels of renewables. And I think that,
14 basically, that stack would be the same that we would
15 select from, whether we had carbon in it -- in the
16 optimization or not.
17 Q Okay. So, I think what I am hearing you
18 say is that, even if carbon were included -- the cost
19 of carbon were included in the basecase, you don't
20 anticipate that it would actually change the set of
21 portfolios that came out of the optimization run?
22 A I think that the overall set, which is
23 2,500, is what the model can store, might be the same,
24 because, I think what Ms. Jackson was getting to is the
25 selection -- what you select with regard to a portfolio

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1 to pursue, to the extent it has a PVRR that includes
2 the social cost of carbon, that selection can have the
3 effect of monetizing those added costs to customers.
4 Q Can I just clarify here, when you talk
5 about the selection, you're talking about the
6 selection, by both the company and the Commission,
7 rather than by the optimization model?
8 A Yes. I am talking about the selection of
9 portfolios to move forward with.
10 Q So, it sounds like what I am hearing you
11 say, that the company is reluctant to run a sensitivity
12 with the social cost of carbon, because you're afraid
13 the Commission might choose that -- an option that
14 fares well under a social cost of carbon, and you fear
15 that that may be possibly more costly?
16 A Well, I think there -- well, I think
17 Ms. Jackson summarized the company's position with
18 that; and that I don't know that I have any more to add
19 on that issue than what she discussed.
20 Q Okay. Would you agree with me that
21 running that sensitivity analysis does not require or
22 somehow obligate the Commission to choose any
23 particular portfolio?
24 A Yes. I think any of the sensitivities
25 don't require or obligate anything, but I think we need

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1 to be mindful of the level of work that's being asked
2 of the company to perform, within 120 days. We are
3 already going to be doing analyses of three different
4 levels of the need. We also will be doing
5 optimizations of three different levels of -- with two
6 different fillers if you will, backfills.
7 This is an enormous undertaking. We
8 basically turned this ERP, with those three levels,
9 into almost like doing three times the work within 120
10 days.
11 So, I'm reluctant, and I want to just
12 inform the Commission, that what we're proposing here
13 is going to be an enormous amount of work to get it
14 done within the time frame.
15 Q Well, I certainty don't intend to make
16 your life any more difficult than necessary. WRA
17 didn't suggest the three-tiered analyses and WRA did
18 not suggest, I don't think, the different annuity tail
19 methodology, correct?
20 A I don't know that WRA suggested the
21 different levels, but WRA definitely did suggest that
22 the need -- they proposed and advocated to do level of
23 need, and adjustments to that need in their Answer
24 Testimony, which led to our coming up with the solution
25 to address the variability with a range.

175
1 Q So, while you think that running this
2 sensitivity analysis might be additional work, and that
3 creates something the Commission needs to take into
4 account, it does provide the value of giving the
5 Commission information it would not otherwise have
6 about the societal and environmental, impacts of the
7 different portfolios. Would you agree with me?
8 MR. LARSON: Objection. Ms. Jackson
9 already talked about social cost of carbon and use of
10 sensitivity, and these questions have been asked and
11 answered.
12 MS. OVERTURF: Respectfully, Your Honor,
13 I disagree. This is a specific question of how the
14 modeling works, and the value of providing a
15 sensitivity analysis to the Commission to review. It's
16 about the model and the sensitivity analysis, not the
17 policy benefits of using the social cost of carbon.
18 CHAIRMAN ACKERMANN: So, if you want to
19 just reframe that, relevant to Mr. Hill's testimony,
20 that would be fine.
21 MS. OVERTURF: Okay.
22 BY MS. OVERTURF:
23 Q Early in our conversation, Mr. Hill, we
24 talked about how running sensitivity analyses have the
25 benefit of providing the Commission with additional

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1 information, correct?
2 A Yes. Sensitivities provide additional
3 information.
4 Q And that is as true of a sensitivity
5 containing the social cost of carbon as it is for any
6 other type of sensitivity that the Commission -- excuse
7 me -- that the company may run?
8 A I think where I am struggling is that
9 Ms. Jackson addressed what the value of that
10 information would be. The information, we can
11 seriously put the numbers out there, but I think they
12 establish the company's position as to just what value
13 that might provide, as far as the selection of the
14 portfolio and whether it would be informative or not.
15 Q And is the company regularly in the
16 business of determining what is and what is not of
17 value to the Commission when making these types of
18 decisions?
19 A We certainly have our interest to provide
20 the information that we think is required of the
21 resource planning rules, to provide a plan and
22 different alternatives that meet the identified need in
23 a cost-effective manner. So, that's what our objective
24 will be in the 120-day report.
25 Q Okay.
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1 MS. OVERTURF: Thank you very much,
2 Mr. Hill.
4 Ms. Overturf. That brings us to Mr. Coleman.
5 MR. COLEMAN: Yes.
6 CHAIRMAN ACKERMANN: Proceed.
7 (Off the record.)
8 MR. COLEMAN: I suspect a break is coming
9 imminently.
11 BY MR. COLEMAN:
12 Q Good afternoon, Mr. Hill.
14 Q My name is Brent Coleman. I represent
15 the Office of Consumer Counsel. I'm not sure that we
16 have met before, and if we have, I apologize that I
17 I've forgotten.
18 Just to take a particular discussion or
19 point that you just had with Ms. Overturf, it was your
20 representation that your goal in the Phase 2 process --
21 and correct me if I am incorrect -- to analyze the
22 three levels of need is part of the process that you go
23 through in preparation for the Phase 2?
24 A Yes.
25 Q And the overall purpose of this Phase 1

178
1 process is to discuss the method that you will use in
2 that analyses?
3 A Correct.
4 Q Yes?
5 A Correct. A big part of this Phase 1 is
6 to discuss and debate and have the Commission provide
7 us guidance on the various assumptions that they want
8 us to use in developing portfolios that meet the need.
9 Q Okay. With that in mind, if I could
10 direct your attention to Table JFH-4, which is on page
11 24 of your Rebuttal Testimony, the infamous popular
12 table.
13 A Okay.
14 Q And I appreciate Ms. Jackson's discussion
15 of this table that was provided yesterday, but I have a
16 specific question about, can you provide, with
17 specificity, what method will be used to calculate the
18 effects to the rate design change row? Can you provide
19 the methods behind the update process that are
20 anticipated when the numbers are updated in the 120-day
21 report?
22 A I don't anticipate that there would be a
23 change. I think what we -- what we said was we would
24 take into account where the advanced grid file was at
25 the time, to determine whether or not we felt there was

179
1 a justification to perhaps move these ranges.
2 And I think, per the agreement amongst
3 the parties, to the degree there was some movement in
4 these changes, that we would provide that justification
5 when we filed our proposed low, medium and high, before
6 Phase 2, and, then, parties would comment on that.
7 Q So, you don't have a method or formula in
8 mind that would allow that row to be modified, based
9 upon updates in developments and other cases or other
10 updates in assumptions?
11 I am just trying to -- as you discussed,
12 we're here to kind of set the methods, and, then, at
13 the 120-day report, have a review of what -- whether or
14 not the company's update complied with those methods.
15 But I need to have a better understanding of the method
16 that you're asking for approval of for that particular
17 rule?
18 A I don't think we're asking for a method,
19 in this Phase 1, to determine how we would present
20 prior to Phase 2. Now this is not any -- this
21 information will be presented, the low, medium and
22 high, prior to the beginning of Phase 2. I believe
23 that's what the proposal is. So, it's not at the
24 120-day report. That's kind of at the end.
25 Q All right.
180
1 A So, right now, I can't foresee or tell
2 you what circumstances might cause us to suggest that
3 the levels listed in JFH-4 be modified, but the process
4 that the parties are moving forward with is that, to
5 the extent there was a modification, we would lay out,
6 in that filing, prior to Phase 2, our logic for it, and
7 any work papers that support it.
8 Parties would have two weeks to comment
9 on that. The company would then have time to comment
10 on it, and the Commission would make the ultimate
11 decision as to how they want us to proceed and what
12 levels they want us to fill in Phase 2.
13 So, I still think this is part of the
14 Phase 1 process, to provide guidance for the Phase 2
15 process.
16 Q Is there a method behind those values?
17 Is there a formula?
18 A Well, the range -- I believe Ms. Jackson
19 addressed this. In the advanced grid filing, there's
20 estimates of what the demand response would be as a
21 result of change in the residential and small
22 commercial class. Given we have now parties' positions
23 with regard to our advanced grid filing, from those
24 positions we represented these levels.
25 And, then, it's, basically, as you can

181
1 see the arithmetic there, we double it, for a maximum
2 of the 300, to low need, we have a 150 and a 50.
3 There's really no calculation or formula for doing
4 that. That's just our best estimate of how this
5 particular lever might inform a low, medium or high
6 need. I don't think we have anything more than that to
7 provide at this point.
8 Q Is there a potential, for the medium need
9 of the residential and commercial rate design change,
10 potential to use 50% of the projected demand reduction
11 that could come from the AIM portion of the AGIS
12 docket?
13 A No. I think that value that's proposed
14 right now is the 150 megawatts. To the extent there's
15 something that causes us to move off of that, we would
16 provide that when we provided our final recommendation.
17 This is not 100%, I think, of the values that were
18 provided in the initial advanced metering docket.
19 Q Is 150-megawatts the anticipated benefit
20 of peak-demand reduction from the AIM portion of the
21 AGIS docket?
22 A No. I think it's intended to, again,
23 with regard to all of these, we're trying to show a
24 range. So I think, what was filed in AMI was an
25 expectation that, if our filing went on the schedule

182
1 that it was proposed, and that the rates were applied
2 as proposed, we would hit, I think, 280 or so megawatts
3 by 2023.
4 There has been information now put into
5 that docket. There's pressure to move the rollout
6 timing out. And I think it's been noted in the -- what
7 the rates might be. So in response to that, we still
8 have something that's reflective of full achievement.
9 We have put forth 300 -- is it larger than 300 -- that
10 was provided in the AGIS docket. I think we still have
11 a range from 50 all of the way up to the maximum
12 represented in Table JFH-4.
13 Q So, would you agree with me that that 280
14 that you just referenced, to put a finer point on it,
15 is 284 megawatts?
16 A I think that's correct.
17 Q Okay. So, is it your intension, then, to
18 use half of that -- I am presuming that the 284 is
19 rounded up to 300 in there. And, then, half of that is
20 represented as the medium need. So, is it your
21 intention to use half of that 284, or half of whatever
22 comes out of the AMI portion of the AGIS docket as the
23 medium need for that row?
24 A As it stands now, that's our proposal, is
25 to use 150 for representing the medium need, but,

183
1 again, we have got the full amount covered with the low
2 need. But actually we have more than the full amount
3 covered.
4 So, I guess I'm not sure of the
5 significance of whether it's in the medium or the low
6 or high. What's important is, I think, that we cover a
7 reasonable range of potential outcomes in Phase 2 and
8 provide that information for the consideration of the
9 Commission.
10 Q I think the basis of my question is, if
11 you look at the IVVO row, you have 100% of the
12 estimated demand reduction effects, pursuant to this --
13 full success of the IVVO project, as presented in the
14 AGIS docket, is represented as the medium need.
15 And, so, my question is, moving up one
16 row, to the medium need for the AMI, are you going to
17 use 50% of the potential AMI success as the medium need
18 or something else? Because we have established that,
19 if AMI is approved, as you have proposed, you said it
20 was 284-megawatt peak reduction. So, 150 is not 284.
21 It's closer to half of 284.
22 So, I'm trying to understand the
23 relationship between those -- the particular cells in
24 this chart.
25 A Yeah. I think I explained it; that the

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1 284 in 2023, it's my understanding that was our
2 original propose. The parties have come back now, and
3 we have information that now suggests that
4 implementation will be pushed out -- and some of our
5 proposed rate impacts might be different than what we
6 envisioned, to account for that, and to update that.
7 We chose to include 150 in the medium and
8 300 in the low need. I'm not sure if the arithmetic
9 precision of 150 is half of 284 or not is important. I
10 think what we're trying to do is give a best estimate
11 of where we think a range of outcome for that
12 particular proceeding might go, and put it into this
13 table, as one of the levers that informs the range of
14 need we might see.
15 Q Okay. Thank you. I will concede to you
16 that 150 is not half of 284.
17 Can I direct your attention to Volume 2
18 of the plan. So, Hearing Exhibit 1, and I will ask to
19 you turn to page 2-167.
20 A Okay.
21 Q And that should be Table 2.5-3,
22 "Potential Injection Capabilities"; is that correct?
23 A Yes.
24 Q Is it the company's intention to update
25 this, the assumptions in this chart, prior to the Phase

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1 2 -- prior to the 120-day report?
2 A Those were two questions. Phase 2 and
3 the 120-day report.
4 Q To be honest, I am a little confused
5 about the relationship between the 120-day report and
6 the beginning of that seven-week process that has been
7 discussed. So, whenever the assumptions are updated,
8 that would allow that -- that would initiate that
9 seven-week review process that has been discussed,
10 whatever that initiating filing document is, will these
11 injection -- potential injection capabilities be
12 updated?
13 A We had envisioned that this would be part
14 of the supporting documentation that would be filed
15 with the updated need. So, no, we hadn't envisioned
16 that.
17 Q So, the updated need is also known as the
18 120-day report, or is that the October 31 annual
19 update?
20 A I'm sorry. The updated need is the
21 estimate of what we think we're going to pursue with
22 regard to low, medium and high needs that we'll move
23 into Phase 2 with.
24 Q So the initiation of that seven-week
25 process?
186
1 A Yes. The initiation of the seven-week
2 process.
3 Q These numbers will be -- updated numbers
4 will be provided at that time?
5 A No. We hadn't envisioned -- this is not
6 part of the determination of the high, medium or low
7 need.
8 Q Are these numbers ever going to be
9 updated in this Phase 2 process?
10 A I believe that, prior to issuance of the
11 RFP, which is when Phase 2 starts, in my mind.
12 Q After the seven-week process?
13 A Correct.
14 Q Okay.
15 A These will be updated.
16 MR. COLEMAN: Thank you. And I just have
17 one exhibit.
18 (Whereupon Exhibit No. 65 was marked for
19 identification.)
20 BY MR. COLEMAN:
21 Q Mr. Hill, you have in front of you what's
22 been marked for purposes of identification as Hearing
23 Exhibit No. 65.
24 A Yes.
25 Q And do you see that that's the company's

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1 response to OCC 10-11?
2 A Yes.
3 Q And you were one of the sponsors of this
4 company response?
5 A I see that now.
6 Q Do you have any reason to believe the
7 answers need to be updated or modified?
8 A No. I think I was the sponsor of G and
9 Mr. Hancock took everything A through F.
10 MR. COLEMAN: I would move for admission
11 of Hearing Exhibit 65, Mr. Chairman.
12 CHAIRMAN ACKERMANN: 65, which is OCC's
13 Discovery Request 10-11 is moved. Seeing no
14 objections, it was admitted.
15 (Whereupon Exhibit No. 65 was admitted.)
16 MR. COLEMAN: I have no further
17 questions, Your Honor.
19 Mr. Coleman.
20 We'll break until 10 of 3.
21 (Recess.)
22 CHAIRMAN ACKERMANN: Okay. We're back on
23 the record. Mr. Hill is still on the stand and it's
24 Ms. McLauthlin.
25 MS. McLAUTHLIN: Thank you, Chair.

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1 EXAMINATION
2 BY MS. McLAUTHLIN:
3 Q Mr. Hill, for the record, I am Erin
4 McLauthlin. I do not represent a party in this
5 proceeding, or any of the parties before you. I
6 represent the Commission and advisers. To that end, I
7 do have some clarifying questions, and I apologize, my
8 first line of questioning is a bit tedious regarding a
9 study on input updates which Mr. Coleman had started
10 asking some questions about.
11 I am going to start first with what you
12 have in your rebuttal, on page 20. It's on line 12
13 through 14. You state the company will update its load
14 and resource table prior to the receipt of bids. Do
15 you know when this update will happen?
16 A Could you point me to the page again?
17 Q I'm sorry. It's on page 20 and we may
18 have a pagination problem.
19 A Okay. Can you give me the question,
20 please.
21 Q It says, "Prior to receipt of bids in the
22 2016 ERP Phase 2 competitive solicitation process, the
23 company will update the L&R for purposes of determining
24 resource needs." And the question is, do you know when
25 that update will occur?

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1 A Well, this is the same discussion that we
2 have had with regard to the range of needs in Table
3 JFH-4, so the proposal is that, prior to issuance of
4 the Phase 2 process, or the RFP, which, in my mind,
5 initiates the Phase 2 process, the company will provide
6 the updates, its most recent view of the range of
7 needs, in JFH-4, and we provide the work papers to
8 parties as to the basis for any updates to that range
9 of needs that we propose.
10 Q And will this be the only update to the
11 L&R table prior to bid solicitation?
12 A It is my expectation that whatever comes
13 out of that process, and whatever the Commission
14 decides with regard to the range of needs, to be
15 filled, from JFH-4, that's what we would use in the
16 Phase 2 bid evaluation.
17 Q All right. So that will be filed within
18 this proceeding, that update?
19 A I'm not sure what update -- do you mean
20 the JFH-4?
21 Q Yes.
22 A That's my expectation, that it's filed in
23 this proceeding. I'm sorry.
24 Q And the company also proposes to update
25 certain studies, and Ms. Jackson had referred me to you

190
1 regarding the flex reserve studies, which you update to
2 a 4.5 gigawatt?
3 A I believe that's correct. I think
4 Mr. Scholl might address that in his testimony.
5 Q So, you don't know when that study will
6 be updated?
7 A I think you should ask him.
8 Q And, as far as the, again Ms. Jackson had
9 referred, on the reserve margin study, that you would
10 know when that would be updated, not in this ERP, but
11 possibly prior to the 2019 ERP?
12 A Yes. I think the company can commit to
13 update the reserve margins study for the PSCo system
14 prior to the 2019 ERP.
15 Q Okay. Thank you. And in the company's
16 past two ERP proceedings, the company has proposed
17 updates to various inputs on the Strategist, and had
18 used that in a matrix. One was -- is not in the record
19 here.
20 So, I would turn you to what is in
21 actually Volume 2 of the ERP. It's in Hearing Exhibit
22 No. 1. And just, again, for reference, it starts on
23 page 2-181.
24 A Okay.
25 Q And there are listings throughout those

191
1 pages, and ending on 2-196.
2 I am going to ask you a series of
3 questions about specific inputs, and whether they would
4 be updated. If you can answer them here, on the stand,
5 today, that would be helpful. But I understand, if you
6 don't know, I would have a follow-up request for a
7 filing within this proceeding.
8 A Okay.
9 Q So, starting with whether the company
10 will update the capital structure and discount rate.
11 Do you know if the company will update that?
12 A My expectation is we would not. We would
13 hold that for the Phase 2 evaluation.
14 Q Okay. And will the company update the
15 gas price forecasts?
16 A Yes. Gas price forecasts updated for the
17 most recent projections.
18 Q Do you know when that update will occur?
19 A I am thinking back to when we have done
20 that in the past. And it's been typically before
21 receipt of bids. So, we want the freshest gas price
22 tier in the model.
23 So, I would say, prior to the receipt of
24 bids, but that doesn't necessarily mean it's filed
25 within this docket. It would be presented in the

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1 120-day report for what that update was.
2 Q Okay. Thank you. And that's the type of
3 clarification that's very helpful. So, moving to gas
4 transportation costs.
5 A It's my expectation that that will not
6 change.
7 Q Okay. And firm fuel charges?
8 A Same.
9 Q Market prices?
10 A I think market prices are updated,
11 because gas prices drive market prices. So, my
12 expectation is that market prices would be refreshed,
13 and we would report that in the 120-day report.
14 Q Okay. Thank you. Gas price volatility
15 mitigation adder?
16 A I don't believe we intend to update that.
17 I think we would propose to use the 61 cents per MMBTU.
18 Q The coal price forecast?
19 A Those would be updated and reported in
20 the 120-day report.
21 Q The surplus capacity credit?
22 A Well, the values of -- that we list here
23 are different than what we now propose. But the -- no,
24 I don't think there would be any changes to the 2.79 a
25 kW month for the RAP period, and then the generic CT

193
1 costs, which are in Volume 2 for post-RAP.
2 Q Okay. Thank you. The general inflation
3 rate, which is No. 12, I believe, on the --
4 A That will not happen.
5 Q The DSM forecast number, 13, I believe.
6 A I pause because I am wondering if our
7 recent DSM plan is different than what we currently
8 have in the forecast. So, to the extent there is a
9 change in our DSM forecast, it's used in the 120-day
10 report valuation, we can present that.
11 Q Thank you. The transmission
12 interconnection costs applied to bids?
13 A That would be provided in the 120-day
14 report.
15 Q Okay. Thank you. Will the company
16 update the spinning reserve requirement?
17 A I don't believe so. I think those are
18 set by the Rocky Mountain Reserves Group, so we model
19 whatever the group requires. And I don't anticipate
20 there would be a change in the group's spinning reserve
21 requirement between now and the 120-day report.
22 Q Okay. Thank you. The emergency energy
23 costs?
24 A You've lost me. Where are we?
25 Q It's on No. 24 on the list.

194
1 A Okay.
2 Q And I can --
3 A No. I don't anticipate that that would
4 change.
5 Q No. 25 in the list, the dump energy or
6 wind curtailment costs?
7 A Well, the dump cost is a cost that's
8 included in the model. But the wind curtailment costs
9 are a function of how much wind is curtailed in a
10 particular portfolio times those dump costs. So, I
11 think the dump cost -- dump cost of energy will be
12 affected, but the wind curtailments is actually a
13 function of what the portfolio is.
14 Q Okay. So in the 120-day report, and No.
15 29, which is the owned units model operating
16 characteristics and costs, or, I'm sorry. Is that 29?
17 It's a few pages down.
18 A I do not anticipate that we would change
19 those inputs from what was used to do the alternative
20 plan model.
21 Q Are there other updates to Strategist
22 input that the company intends to make prior to bid
23 solicitations?
24 A The sales forecast will be updated, as we
25 have discussed. That will be part of the JFH-4 low,

195
1 medium and high. There's an awful lot of inputs into
2 that model, so it's hard for me to get my head around
3 all of them, but I think the ones we have listed here
4 are the main ones that drive the analysis. So, I think
5 we've covered it.
6 Q Okay. Thank you very much. I appreciate
7 it. That's, I think, the tedious portion, and onto
8 another.
9 I would like to discuss your three-need
10 source. And, so, sort of what would be the
11 expectations you discussed with Ms. Overturf, that this
12 is sort of the three times the work. We would like to
13 know if it's three times the presentation as well.
14 So, starting with that, your testimony
15 today was that the range update would be prior to this
16 Phase 2, correct?
17 A Correct.
18 Q And that, then, there would be the
19 comment period?
20 A Yes.
21 Q Possibly the proposed comment period?
22 A Yes, I believe, it would be that we
23 proposed two weeks.
24 Q And then two weeks for response?
25 A For company response, yes.

196
1 Q And that there is a proposal for a
2 Commission decision?
3 A Yes.
4 Q And that Mr. Coleman asked some
5 questions, which raised a question in my mind. For
6 that decision, does the company or staff anticipate
7 that the Commission would be clarifying what would be
8 in the 120-day report for resource need?
9 A I think the Commission would be giving
10 guidance on what -- whether they want us to modify the
11 needs that we present, the updated needs in Table
12 JFH-4. We will present those for multiple years.
13 JFH-4 is just one year.
14 So, what we envision would be is we would
15 give a low, medium and high forecast of need for
16 probably multiple years, let's just say dates all of
17 the way through 2023. And, then, we would anticipate
18 the Commission would say, yes, use those ranges in
19 Phase 2 bid evaluation, or to the extent that they want
20 them modified, they would give us that direction, and,
21 then, we would use those numbers in the Phase 2
22 process.
23 Q Okay. And as provided, do you have --
24 fast-forwarding to the 120-day report -- the three
25 buckets of the resource needs that you will propose in

197
1 that report.
2 A Yes. We will provide a suite of
3 portfolios that meet those three different levels of
4 need, with a variety of different mechanics of
5 technologies. So, I would envision we might provide,
6 as we did in the last ERP, maybe gas-only type of
7 portfolios, and, then, increasing levels of the
8 wind/solar, and then mixtures of those, and show how
9 all of those portfolios rank with regard to present
10 value revenue requirements and then how those ranges
11 change as a function of sensitivity, high gas, low gas,
12 CO2, things of that nature.
13 Q I am glad you are comparing it to the
14 last ERP, because am I correct that, in a typical ERP,
15 there are hundreds of these portfolios?
16 A There's hundreds of portfolios generated,
17 but our job is to select portfolios with significant
18 differences in the resources for consideration of the
19 Commission. So, even though there are hundreds, we
20 only present -- I think we presented 25 or so for
21 consideration.
22 Q Okay.
23 A So, now that we have three levels of
24 need, that could be close to 75 or so, we will do our
25 best to better present the information in as digestible

198
1 a format and presentation as possible.
2 Q Thank you. Where I was going with this,
3 what -- where is the increase here? And I correct that
4 there will be only one basecase in the 120-day report?
5 A When you use the term, "basecase," I
6 think I will interpret that to mean basecase
7 assumptions for those various inputs that we just went
8 through, but there will be, let's call it portfolios
9 built -- multiple portfolios built and prepared for the
10 low, medium and high, under basecase assumptions.
11 Q Yes.
12 A Yes.
13 Q Okay. Thank you. And there will be -- I
14 think that we're on the same page with what -- the
15 basecase. I also want to clarify that you will have
16 only one preferred portfolio in the 120-day report?
17 A It's difficult for me to sit here and
18 anticipate what we might offer up to the Commission for
19 our recommendation. Typically, we have had a single
20 preferred portfolio. It's my expectation that we would
21 try to do that as well here.
22 The reason I hesitate, that we might
23 say -- I could envision we might say, well, we're okay
24 with any one of these three, because they might be so
25 close, and provide a justification for why we believe

199
1 the three are, in essence, tie, in our view, and then
2 present that information to the Commission for
3 consideration.
4 Q And as you sit here today, you expect
5 that the portfolios that would be preferred would be
6 around a similar resource need?
7 A Yes. I would imagine we will pick one of
8 the levels.
9 Q Right.
10 A Yes.
11 Q Exactly. That's very helpful.
12 So, I would like to discuss the specific
13 resources that we might expect within the low, medium
14 and high need, starting with the low portfolio, with
15 the zero resource need.
16 Am I correct that a zero-need scenario
17 could still include wind bids?
18 A Yes.
19 Q And this could take advantage of the PTC?
20 A Yes.
21 Q But am I correct that a zero need would
22 preclude gas-fired resources?
23 A I don't know that it would preclude it,
24 but, it depends on how low of a cost that we get for
25 gas-fired resources. I think we could still see this

200
1 value in very low-cost gas bids, that we want to
2 consider or at least present. But my general
3 expectation would be a zero capacity need portfolio
4 would most likely be comprised of renewables, wind and
5 perhaps solar.
6 Q Okay. That's where I was going next.
7 Would you expect utility-scale solar resources?
8 A Yes.
9 Q And also small-scale solar?
10 A Yes.
11 Q And, then, regarding the medium scenario,
12 which is the approximate 275 right now, this will
13 include, of course, consideration of wind bids?
14 A Yes.
15 Q And it would have significant -- or
16 sufficient need for Strategist to select gas-fired
17 resources as well?
18 A Yes. I could envision being able to
19 construct portfolios that meet the majority of that
20 capacity need with gas as well as perhaps solar.
21 Q And that's both utility-scale and small
22 solar?
23 A Yes.
24 Q And you will provide renewable-only
25 modeling portfolios at each need level?

201
1 A It's hard for me to say, because I don't
2 know what the bids -- whether the bids would provide
3 that. There is two things. I don't know what the
4 range of capacity needs would be. I don't know what
5 the bid crew would allow us to provide a renewable-only
6 portfolio that didn't violate our ability to reliably
7 integrate that level of renewables.
8 So, it's -- I think it's difficult for me
9 to forecast whether or not we can give, for example, a
10 renewable-only portfolio that might provide 500
11 megawatts of capacity, for example.
12 Q So, what you are saying is that it
13 depends on the bids?
14 A It depends on the bids.
15 Q Okay. Thank you. And in the last ERP,
16 there were restrictions on what the parties could
17 request from modeling runs and in Strategist. Under
18 this proposal, will the company request restriction on
19 the requested Strategist modeling runs?
20 A Could you please refresh my memory? I
21 don't remember the parties requesting Strategist
22 modeling runs.
23 Q I don't believe that they had requested
24 it, but I think it was by the nature of the -- that the
25 company had a lot of runs to do anyway, and so there

202
1 were some limitations on how many runs could actually
2 be done in a practical scenario.
3 And the question is simply whether or not
4 you'll be requesting, in this proceeding, for
5 restriction on the -- restriction on models from other
6 parties?
7 A I guess I envisioned we would be
8 soliciting input for model runs from other parties.
9 Q Okay. So I will take that as no, as we
10 sit here?
11 A Okay. Yes.
12 Q Okay. Thank you. And then I just
13 have -- many of my storage questions were asked by Ms.
14 Hickey, but, if I could, I would like to ask, are you
15 aware of the specific need for storage in this resource
16 acquisition period?
17 A A specific need?
18 Q Correct.
19 A I'm not sure what that means. A specific
20 need for storage. I believe the parties have
21 represented storage provides value for, perhaps,
22 integrating higher levels of renewables.
23 Q Correct. So, I am talking, not as much,
24 as far as value, because I'm sure that it could be
25 within a mix, but as far as the company itself actually

203
1 has a interest in, and is looking for storage bids.
2 You are aware of need from the company's perspective?
3 A I wouldn't call it, "a need," but we
4 certainly have an interest in soliciting and receiving
5 storage bids, and examining them as part of the
6 portfolio analysis.
7 Q In the future ERP solicitations, and in
8 the way I am describing needs, do you see the company
9 having a need for storage at a future point?
10 A I think that could be driven by a lot of
11 variables, one of which is how many renewables we take
12 in this ERP. At some point, I think, to the extent we
13 start to stress, if you will, our ability to reliably
14 integrate those renewable, as we start seeing
15 substantial curtailments of renewable energy, then I
16 think that might constitute a need for storage.
17 But we always need to evaluate whether or
18 not it's -- what the most cost-effective approach is.
19 It may be more cost-effective to take on the
20 renewables, and then curtail them, curtail some of the
21 output, as opposed to take them on and try to store all
22 of the output and not curtail it. That's an analysis
23 that I think needs to be done and understood before we
24 just default to saying that storage is an answer to
25 higher levels of renewables, because I'm not sure that

204
1 it is.
2 Q Do you think this could be possibly
3 something in a rulemaking, future rulemaking, as a
4 discussion point?
5 A I'm not sure what we're talking about
6 now. The inclusion of storage in resource plans?
7 Q Yes. How to have the inclusion of
8 storage be valued within a resource plan, for a
9 rulemaking?
10 A I am having difficulty seeing how it
11 would be in a rulemaking, but I don't disagree that
12 that could be a topic that's addressed in a rulemaking.
13 Q Okay.
14 MS. McLAUTHLIN: All right. Thank you
15 very much. Those are my clarifying questions.
17 Commission Moser.
18 EXAMINATION
19 BY COMMISSIONER MOSER:
20 Q I want to follow-up on some of the
21 questions that were raised by Commission counsel, as
22 well as WRA. And, so, with respect to the baseline
23 case, and the alternatives, when I asked Ms. Jackson
24 about it, she referenced me to the annual carbon proxy
25 price table, which, I believe, is the wrong one. I

205
1 believe Figure 1.52, which is in Volume 1 of the ERP,
2 page 49 of that, I think is the analysis of the present
3 value revenue requirement for each of those plans, as
4 represented in the deltas; is that correct?
5 A Yes. That's the values in red, the 440,
6 the 590 and the 570. Those are present value revenue
7 requirement deltas from Plan 1, I believe.
8 Q Okay. And, then, in the notes, it
9 references 1 through 5. And I don't know how I get to
10 5. So --
11 A I'm sorry. Note 5 you mean?
12 Q Yeah. Do you know, in the note section,
13 I presumed that 1, 2, 3 and 4 refer to the alternative
14 plans, but maybe not. And there is no Column 5.
15 So, what I just need from you is an
16 explanation of how the notes tie to the alternative
17 plans.
18 A Um, I'm a little confused which note in
19 particular are you looking at? I'm sorry.
20 Q So, if I said, look at Note 1, it says,
21 in Figure 1.52, "Note 1 includes 450-megawatts of wind
22 and 170 megawatts of solar selected in the 2011 ERP,
23 2017 plan additions and 50-megawatt Solar*Connect
24 2018."
25 A Yes.
206
1 Q So, I presume that that's Alternative
2 Plan No. 1?
3 A They all include that; 1, 2, 3 and 4 all
4 have that amount in them.
5 Q Okay. And, then, as you go through --
6 down through it, where am I looking at, for Note 2,
7 what was added in 2019?
8 A In 2019, in Alternative Plan 2, we
9 started with the Alternative Plan 1 and added 600
10 megawatts of wind in 2019.
11 Q Okay. And, then, I presume that's the
12 same for Note 3 and Note 4?
13 A Correct.
14 Q And, then, I have Note 5.
15 A And Note 5 is just telling you that the
16 present value of revenue requirements, the deltas that
17 are provided there, deltas between PVRRs are calculated
18 over the 2016 to 2054 time period.
19 Q Okay. That's what I needed to know for
20 that.
21 And, then, that comes to the baseline
22 case represented in this figure, is basically Line 1 of
23 Figure 1.52. That's what people have been referring to
24 as the basecase?
25 A Yes. The baseline case would basically

207
1 have filled the RAP needs with a -- two combustion
2 turbines and a combined cycle plant.
3 Q Okay.
4 A And, then, the way -- Alternative Plan 2,
5 the column to the right, would have started at least
6 with the same base system, but it would have added the
7 600 megawatts and CTs, four CTs.
8 Q Okay.
9 A Then Alternative Plan 3 has now 600 wind,
10 400 solar, and did also add four CTs.
11 Q Okay. Have you, when you are doing this
12 table, then, it doesn't -- none of these cases include
13 any of the different types of carbon assumptions that
14 has been discussed, the social cost of carbon, a carbon
15 tax, carbon cost, this is all without any carbon proxy
16 prices, right?
17 A Correct.
18 Q Has the company calculated the present
19 value revenue requirements using your own proposed
20 carbon prices in your sensitivities, not in your
21 basecase, but in your sensitivities? Has the company
22 calculated those proposed carbon prices for each of
23 these alternatives in this figure?
24 A Not in this figure, and I don't believe
25 we calculated and presented those in Volume 1 or 2. I

208
1 think what we presented were the cost and benefits of
2 increasing levels of renewables, under baseline
3 assumptions, which include no proxy cost for carbon.
4 Q Okay. And I didn't find it anywhere, so
5 that's why I was asking if those were done for the
6 carbon sensitivities. And is it possible that you
7 could provide that, along with the change in the
8 deltas, for your recommended sensitivity related to
9 carbon proxy prices?
10 A When would you -- when were you
11 envisioning we would provide that?
12 Q Well, that's a good question. Is it
13 something that we can put into this case, so we can
14 have it before you go into the bid process, and before
15 we issue our decision, because it's my understanding
16 once we issue our decision, then you're --
17 A We're off and running.
18 Q You're off and running, yes.
19 And I don't think -- it would be nice to
20 be able to see that sensitivity result as we deliberate
21 and talk about the issues.
22 A I think we could. I'll leave it to our
23 attorneys to figure out how that might be presented,
24 but, I think we can provide sensitivities for the
25 values that are listed under Table 152 and other tables
209
1 in Volume 1, and show how those might change when the
2 carbon proxy is included.
3 Q Okay. And just to make sure we're clear
4 on the carbon proxy, at no time are we referencing the
5 social cost of carbon; that's not how the company
6 defines the carbon proxy, as I understand it?
7 A That's correct. We had two levels but
8 neither one of them represents the social cost of
9 carbon, which was discussed.
10 Q Okay. And, then, we also heard the
11 reference to a carbon tax. And I know, as I understood
12 what Ms. Jackson was talking about, a carbon tax,
13 several years ago, was actually being contemplated as
14 an actual tax that utilities would be assessed, to the
15 extent they had so many units of carbon being produced,
16 and that tax would be considered a cost of doing
17 business, that, in fact, would be passed on to
18 ratepayers, i.e, show up on the bill, and that that
19 dollar amount is something that, at one point in time,
20 was a very real possibility.
21 And the way I understand the company's
22 testimony, now, is it doesn't seem to be something that
23 is part of a rule, a statute, a requirement, and it's
24 not something that you foresee.
25 A I think that was -- I think that's

210
1 generally what Ms. Jackson testified to, yes.
2 Q Okay. So, when you talked about your
3 sensitivity, that carbon cost in your sensitivity run,
4 does that refer to -- because we did a carbon tax
5 analysis in the last ERP. You are doing the exact same
6 sensitivity in this one, even though it's not in your
7 baseline case?
8 A I think what you're asking, is a carbon
9 tax analogous or similar to the cost of regulation that
10 we have with our two cases that -- the proxy, is that
11 what you are asking? Is that somewhat analogous to a
12 carbon tax?
13 Q Yes. I just want to know what, when you
14 are -- the zero cost of carbon, and your $20 cost of
15 carbon, what is that? Is that a tax that you are
16 considering would be passed onto customers, and, thus,
17 would impact their bill, or is it something else, in
18 your mind, when you're doing this model?
19 A I am trying to recall what Ms. Jackson --
20 how she addressed this. I can't answer that. I can't
21 answer.
22 Q Uh-hum.
23 A How they envisioned the $20 a ton, for
24 example, rolling through to customer bills. My
25 recollection is, though, if we call it a, "cost of

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1 regulation," then I will expect that it could roll
2 through in some form or fashion, the cost of providing
3 service. So, I'm --
4 Q Okay. And let me follow-up on that. So,
5 when you were being asked questions by Ms. Overturf,
6 and she was talking about assuming a carbon price in
7 the basecase, in your mind, how are you interpreting
8 that carbon price in the basecase?
9 A Well, again, I think, if we used our
10 proposed levels, which is, my understanding, somewhat
11 reflective of the cost of regulation, then, I believe,
12 Ms. Jackson -- this would be subject to check of the
13 record -- but I think that those would be -- it's a
14 cost to comply with regulation, those could show up in
15 customer bills.
16 Q Okay. So, given that, are you
17 anticipating that if you roll the cost of carbon into
18 the basecase, do you think that might result in a
19 change to the bids you might receive in Phase 2, if you
20 had actually a carbon proxy price above the zero?
21 A I don't think it would influence the bids
22 we receive in the Phase 2, which, I think, is what you
23 asked. I don't think that our use of a carbon proxy,
24 as a sensitivity or as a base assumption, is going to
25 influence what we receive with regard to power supply

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1 proposals in Phase 2.
2 Q Okay. So, not a base assumption but in
3 your basecase, if you include in your self-build
4 generation, that you will have a carbon cost, does that
5 change how bidders come into Phase 2, based on what
6 your current present value for your baseline case is
7 going to be, because it will be higher than you're
8 baseline case if you -- it won't be zero anymore, if
9 you put a carbon price in your baseline case, or your
10 basecase?
11 A I think that how --
12 Q It is not an issue?
13 A How we evaluate proposals, it's been my
14 experience that that doesn't necessarily influence the
15 proposals we receive. Developers have been working on
16 projects developing wind and solar projects.
17 It's my expectation that we will receive
18 very robust response for renewables, and, perhaps,
19 nonrenewable resources, in this solicitation,
20 regardless of whether -- how we include carbon in the
21 analysis. I don't see that as a driver with regard to
22 what the market response is to our RFP, if I'm
23 answering your question.
24 Q You are.
25 A Okay.
213
1 Q That's helpful. Thank you.
2 COMMISSIONER MOSER: And that's all I
3 have.
5 Commissioner Koncilja.
6 EXAMINATION
8 Q Mr. Hill, I understand that you are the
9 Strategist guru and know pretty much everything about
10 it?
11 A Now that you put it that way. . .
12 Q You have to say, yes, right?
13 A Yes.
14 Q And I understand you're probably trying
15 to distance yourself from what Ms. Jackson did
16 yesterday?
17 A Yes, ma'am.
18 Q I am also guessing that you would prefer
19 we were back, as the long time sheets of accounting
20 work papers, where nobody made many changes, because
21 you had to go and erase and re-add them?
22 A I do recall some of that.
23 Q Yes. Well, we're in a brave new world,
24 where you keep getting to run different sets of
25 numbers.
214
1 I have a few basic questions, so that I
2 understand the modeling we're going to get when this is
3 all over and done with. And, as I understand it, at
4 least staff, through its testimony, surrebuttal of
5 Ms. O'Neill, has agreed with the company that you're
6 going to develop three distinct load scenarios, and
7 sort of the way you are going to do it.
8 But when I go back and look at Volume 2,
9 of the application, and it's that section that Ms.
10 McLauthlin had you go through, Section 2.7, that lists
11 about 32 different variables, are those variables part
12 of what you discussed with Ms. Overturf as being the
13 optimization runs, or are they part of the sensitivity
14 repricing? Help me understand what's going to be the
15 base run or optimization run, and, then, the
16 sensitivity with pricing, what else goes into it?
17 A Okay. I would do my best here. So,
18 those assumptions that we walked through -- I think
19 there were 32 of them -- those are some of the
20 assumptions that must be made in order to represent the
21 variables, or are part of the electric supply system,
22 power supply system. We will populate the model, which
23 represents the composition of the Public Service
24 existing power supply system, that includes purchase
25 power and owned.

215
1 We then will -- the model will be
2 provided with a multitude of alternatives, from the
3 Phase 2 process bids, if you will. We will run that
4 model, and it will build what is called, "feasible
5 state." It will do a combination of different bids,
6 and will build literally thousands plus of these
7 combinations that meet the reserve margin requirement,
8 and any other constraints in the model.
9 For example, someone may say, I will
10 build this plant in 2022 or 2023. The model will not
11 build the plant twice. So, we will build portfolios in
12 the model, under what we've been talking about is,
13 "basecase assumptions," that meet three levels of need.
14 So, let's just talk about low need. So
15 there will be several ways to meet the low resource
16 need from the pool of bids that are received. We will
17 then take those portfolios -- let's just say there is
18 20 of them that we want to present and move forward.
19 And they say this 20 will consist of different
20 renewables and different mixes of resources.
21 Then, you basically take the model and
22 you, what I would refer to as you, "lock those
23 resources in." So, for each one, first let's just take
24 Portfolio No. 1, has wind and some solar. We would
25 lock those -- we will lock those additions into the

216
1 model. So, they weren't moved.
2 Then we would reprice what that portfolio
3 might look like from the present value of revenue
4 requirement. We'll see how present value of revenue
5 requirements changes when we put in, for example,
6 carbon, or if we put in, for example, different gas
7 prices and things of that nature.
8 Q Okay. And is that what you call the,
9 "sensitivity repricing"?
10 A Yes.
11 Q And when you say present value, are you
12 consistently using that weighted average cost of
13 capital that was one of the criteria that we went
14 through earlier?
15 A Yes. The model itself uses the discount
16 rate, which is the weighted average cost of capital,
17 and in many of these calculations, to determine the
18 cost-effectiveness of portfolios, as it moves through
19 time. So, what the model is doing is building a
20 feasible combination from the bids, and, then storing
21 them, and, then, it moves through time and will
22 continue to build onto a particular portfolio through
23 time.
24 And it's calculating the present value of
25 those various portfolios to determine which ones are

217
1 not cost-effective, because the model has a limited
2 amount of storage. So, the discount rate is part of
3 that calculation, as to what is a cost-effective
4 portfolio, that it continues to build-out, over time,
5 and which ones it sets aside.
6 Q Okay. But you -- this model assumption
7 that the discount rate is going to be the weighted
8 average cost of capital of 6.78% that the Commission
9 ordered in some previous decision, that's locked in.
10 There is no alternatives discount rates based on a
11 different after-tax weighted average cost of capital?
12 A Yes. We're proposing to use that 6.78 as
13 the single input into the model for discount rate in
14 this proceeding. That's what we proposed.
16 COMMISSIONER KONCILJA: I have no further
17 questions.
19 EXAMINATION
21 Q And I, Mr. Hill, I do appreciate having
22 you here to use, as with Ms. Jackson, for some broad
23 and kind of helping me and us get a better
24 understanding of the process overall before we get to
25 the rest of your witnesses.

218
1 So, just a few preliminary kind of
2 fundamental things. Go to Volume 2 of, it's page 23
3 over there, 2-23, and, then, bottom of that page, if
4 you would.
5 (Off the record.)
6 CHAIRMAN ACKERMANN: We're back.
8 Q Yes. Mr. Hill, on 2-23, that last period
9 and planning period. Do you see where I am at there?
10 A Yes, sir.
11 Q What I am interested in is, when I read
12 that last sentence, that the Strategist model will be
13 used -- it says, ". . .supply proposals is dimensioned
14 for the years 2016 to 2054. Public Service proposes a
15 30-year planning period."
16 What I read into that -- and I want you
17 to help me see if I am understanding this correctly --
18 is that the model that's telling how many years you
19 should plan for, 39 years, is that decision the
20 company's decision? Is that a Strategist made --
21 A Well, the model that we used in the
22 alternative plan analyses that we presented in Phase 1
23 here --
24 Q Uh-hum.
25 A That was a model that was dimensioned

219
1 from 2016 to 2054. In other words, these models take
2 quite a bit of effort to build out, and they have
3 limited storage capability.
4 So, what we do is we'll actually -- the
5 term is, "dimension the model," for a certain time
6 period, and that was the time period of the model we
7 used to start this process. So, we -- that doesn't
8 mean that we wouldn't have picked something shorter.
9 We could have elected to use a, say, use a 30-day
10 planning period, but we elected to use the maximum
11 planning period that was dimensioned in the model we
12 plan to use, to give as far as a look out as we could.
13 Q So, if I am understanding right, the
14 dimension being a verb, it's sort of a, in my mind,
15 dealing with this sort of dimension -- the 39 is the
16 maximum number of years the Strategist can go down; is
17 that correct?
18 A I believe you could dimension for more
19 years, but it's -- when you dimension it for more
20 years, then you have to take storage capabilities
21 somewhere else. So, in other words --
22 Q Oh.
23 A If you make it longer, then it might not
24 be able to consider the breadth of the portfolios for
25 consideration. So it's the kind of trade-off.

220
1 Q The capacity of the --
2 A Correct.
3 Q The capacity of the software plus
4 computerization?
5 A Yes, sir.
6 Q That helps, because it sounds by -- the
7 decision was deferred to the model to test, so that
8 helps me understands the limits, but that's not a big
9 deal.
10 I am going to take you to the next page,
11 if I could, so I'm on 2-24. In the second paragraph
12 there, on 2-24, I am in your introduction, and what
13 intrigues me, the sentence that starts, "The loss of
14 wholesale customers, high levels of DSM and increase of
15 on-site solar during the historic period explains the
16 lackluster growth during the last five years."
17 Do you see where I am at there?
18 A Yes, sir.
19 Q I am curious about -- this, in effect,
20 would be a period of time covered by the last ERP,
21 correct?
22 A Yes. I believe that's correct. This
23 would be probably 2010 to 2015, perhaps, is what I
24 would interpret that sentence to refer to.
25 Q So, what I am looking for is just, again,

221
1 to understand this process as we delve into it, for the
2 first time, sitting in this chair, is, for example,
3 take the loss of the wholesale customers. That was
4 unexpected relative to when you were in the 2011 ERP?
5 A This is the forecast section, which
6 Jannell Marks is the expert on. So, she could give you
7 much better answers that I can give you with regard to
8 these drivers.
9 Q That's very good. We'll leave each of
10 those, and we'll task Ms. Marks for remembering I will
11 be interested in that question, and I would task myself
12 with that as well. Thanks. Helpful.
13 I am going to go now, to Table JFH-4,
14 because everyone is going to Table JFH-4, so I don't
15 want to be left out.
16 And what I am trying to understand,
17 again, this is somewhat fundamental -- and I presume
18 you have the table available to you or I'll give you a
19 moment.
20 A Okay. I am there.
21 Q Thank you. So, I am trying to
22 understand, as I look at a table like this -- so, for
23 example, across demand forecast, where it says --
24 across the row, "Most recent at the time." So, that
25 makes sense, at the top of each column. We will start

222
1 with some -- same value is where we start this.
2 Let me rephrase. Each of those columns,
3 low, medium and high, represent a calculation
4 happening, correct?
5 A That is correct.
6 Q And in the demand forecast row, each of
7 those calculations start with the same value?
8 A That's is correct. May I --
9 Q Please?
10 A Jump ahead.
11 Q Okay.
12 A What was envisioned here is that the
13 need, the need -- let's just use the 389 megawatts of
14 need in 2023, which was the need from our annual
15 progress report, L&R. So, and, in hindsight, I could
16 have perhaps made this more clear, but, basically it's
17 how does the demand forecast affect that starting
18 resource need, and, then, we would make adjustments to
19 that need. Let's use 389 megawatts, for example, which
20 I think was the starting value that drove the zero, the
21 275 and the 530.
22 So, every one of those, you are correct,
23 would be a 389 megawatt 2023 need in this table. And
24 then, what you do, basically, is you can sum up the
25 megawatts of adjustments below, for example, the

223
1 medium, we have a summation of the 150 megawatts of
2 peak reduction, so, lower load, and, then, we would
3 have 4 megawatts of peak reduction.
4 So, now we're at 194. We would have 180
5 megawatts is already baked into the 389, so we don't
6 have to do anything with it. And, then, 10 megawatts
7 of load growth, let's just say 2 for purposes of
8 discussion, we have changes of around 200 megawatts of
9 load. We would multiply that times the reserve
10 margins, which would be 1.163. We would come up with
11 an adjustment value to change the 389 to arrive at the
12 275.
13 Q Thank you for jumping ahead. I think I
14 followed most of that. And I also realize the correct
15 version, it's zero, it's not 35. That's -- I'm using
16 an old version in front of me, so it's zero, about 275
17 and 530?
18 A Correct.
19 Q Okay. Thank you. And if I heard you
20 right, you are saying that on the row, oil and gas,
21 that has the 90-megawatts, 108 and 270, you were saying
22 those are already baked into the demand forecast?
23 A The 180, for purposes of this table, was
24 already baked into the demand forecast. And, then, we
25 did -- we went ahead and reduced it by, let me see, so,

224
1 low need would be reduced it by 90-megawatts, 50%.
2 And, then, for high need, we increased it by 90
3 megawatts.
4 So we move, in this example, 90 megawatts
5 around the base expectation for oil and gas load that
6 was in the 2023 forecast.
7 Q Thank you. That's helpful. And this
8 next question may actually be for one of your successor
9 colleagues, witnesses, other than you, but four items
10 here, highlighted four rows, you have what is the rate
11 design or AGIS, IVVO, oil and gas and electric
12 vehicles. What would have been the fifth row, if there
13 was a fifth row?
14 A There is one more in here, and that is
15 the -- what we've listed, the four would be load
16 drivers, but we have also agreed that the 101 megawatt
17 exchange, which is a supply-side resource, will be
18 involved in this calculation as well.
19 What I mean by that is typically, when
20 you calculate a resource need, what we have done, in
21 the past, we have included that 101 as a supply-side
22 resource. We're proposing to pull it out, as a
23 supply-side resource, and calculate the need without
24 that 101, and, then, let that 101 be considered as an
25 alternative to fill part of that need.

225
1 Q Thank you. That helps on that. Okay.
2 New topic for you.
3 Going back to line 2, again, or I can
4 just paraphrase what I am getting at here. And it's
5 just to make sure that we're all working on the same
6 basis, because I'm trying to understand variables and
7 sensitivities. And, I think that in, well, I guess
8 let's go to Volume 2, page 228. It will make more
9 sense if I can go there. Yeah. At the very top of
10 2-228.
11 A Yes.
12 Q And input assumptions, sensitivities.
13 So, I see three bullets here, high and low gas is gas
14 sensitivity, the CO2 proxy price, and, then, annuity
15 backfills versus company. So, when we talk about three
16 -- those are the company's three proposed
17 sensitivities, do I understand? Am I paraphrasing that
18 correctly?
19 A No. That's correct. Those are three
20 values that we -- actually, there's four, because there
21 is more than that. Because there is a high and a low
22 gas, and, then, there's a high and a low CO2, but those
23 are the input variables that we propose be altered in
24 order to examine how the present value of revenue
25 requirements of the various portfolios might move as a

226
1 result of changed assumptions.
2 Q Okay. That's helpful. Because I
3 think -- and I should have asked Ms. Jackson about
4 this. She was referencing four -- I thought she
5 mentioned four sensitivities on this. So, I think, to
6 make sure I was understanding that -- I may not have
7 heard that correctly.
8 So, if you're not clear what that might
9 refer to, I am fine to move on without that.
10 A I am not clear where the four might have
11 come from.
12 Q Yeah. That's fine. And while we're
13 talking sensitivities, just to be clear, based on all
14 of the conversations we have had, yesterday and today,
15 from a feasibility point of view, regarding Strategist,
16 so, it's feasible to have discount rate based
17 sensitivity, correct?
18 A I don't know. And why I say that is, I'm
19 not sure what it would take to go reprice all of the
20 portfolio costs at a different discount rate. I think
21 it could be a sensitivity, but I'm a little reluctant
22 to commit our modeling manager to something that he may
23 have to do that I am not sure how -- what it will take
24 to do that.
25 Q Okay. I'll take that as a conditional

227
1 yes. Similarly, coal pricing. Can that be a
2 sensitivity?
3 A Yes. We can reprice with coal. I think
4 that's -- if we reprice with gas, we can reprice with
5 coal. The reason I hesitated on discount rate, I don't
6 know if you can change that variable in the model, and,
7 then, rerun it. I don't know how that would work.
8 We can take a portfolio, reprice the gas,
9 and then run it. I don't know if it's as simple as
10 changing a discount rate and running it. I just don't
11 know that.
12 Q Okay. Thank you. That's helpful. And,
13 then, it's more in my mind convoluted. I just refer to
14 sort of the asset reutilization; that is there a way to
15 make that a sensitivity in the system, in terms of for
16 your existing portfolio of assets, or is that already
17 been built in?
18 A Could you explain what you mean by,
19 "asset reutilization"?
20 Q Particularly, I think an aspect of
21 looking at your coal-based assets, and how they
22 currently are used, and, then, looking at, from an
23 economic impact perspective, how to use them less, as
24 you bring in new portfolios, versus just presume they
25 are running as they currently run?

228
1 A I think it's important to realize that
2 what's going on in the modeling is the coal plants are
3 dispatchable. So, they can be operated up to their
4 full amount, or down to what we call their, "minimum."
5 So, when we add renewables into the
6 model, that's additional energy that will push the coal
7 plant generation down, and will displace coal-fired
8 generation, or energy generated from coal as well as
9 gas. And, then, there's a valuation -- there's a value
10 to that, because you pay, for example, the wind costs
11 might be $25, but if you avoid $35 on average coal and
12 gas, it's like $10 credit that will show. So, that
13 naturally occurs in the model anyways. The more --
14 Q Okay.
15 A The more renewables we put into the
16 model, the more it will displace -- I'll use the term,
17 "displace energy generated by gas and the coal fleet.
18 So, you will see that effect.
19 Q Okay. That's helpful. Thank you.
20 In your Direct Testimony -- I'm just
21 paraphrasing -- there's a conversation about putting
22 forth a portfolio of gas-fired generation and renewable
23 energy, the need for gas generation to match to
24 renewable energy as renewables come on. Am I
25 paraphrasing that general premise?

229
1 A We want to make sure that the portfolios
2 we present for consideration are portfolios we think we
3 can reliably integrate to the system. So with some --
4 by that, I think we will want to make sure we have,
5 let's say we put forward a portfolio that includes
6 significant levels of wind. We might bring an
7 additional, I'll call it a, "added gas unit," to help
8 with that integration of that wind, to make sure that
9 what we're presenting to you is feasible and won't
10 jeopardize the reliability of the system.
11 Q Very good. That's helpful. From that
12 perspective, is there a working ratio -- and I will
13 separate from wind and solar -- that as, per each
14 megawatt of wind that's brought on, that there is an
15 amount of gas that needs to be brought? Is there a
16 kind of symbiotic relationship between wind and gas and
17 solar and gas and is there a relationship that's in
18 place today?
19 A I believe that's the actually the subject
20 of the flex reserve study that Mr. Bartlett --
21 Q Uh-hum.
22 A -- presents, and, I think he actually has
23 curves that show the relationship of additional levels
24 of wind and what additional demand on flexibility
25 requirements that would bring.

230
1 So, I think there is a relationship
2 there. He might be better suited to give you
3 information as to what that relationship is.
4 Q Very good. Ads I can save that for then.
5 You were at the public comment hearing
6 last night?
7 A Yes, sir.
8 Q Were you paying attention?
9 A Yes, sir.
10 Q I know, because in an earlier question
11 you let us know how much you were paying attention to
12 your own colleagues. So, regarding that, there was a
13 comment that continued to come up -- there were several
14 comments, and there were themes that came up, but one
15 of them, in particular, that intrigued me was this
16 notion that, I think, a pushback against our ERP
17 process a little bit. And these folks are savvy enough
18 to bring us extracts out of things that you have filed
19 and, say, how can we adjust this process so that bids
20 coming in bid against existing resources? Did you hear
21 that comment come in last night?
22 A I had heard that theme, yes.
23 Q Uh-hum. What's your understanding of
24 what that means, and the follow on to that, what's the
25 feasibility of incorporating some aspects of that into

231
1 what we're doing here?
2 A To tell you the truth, I wasn't 100% sure
3 what was being referred to there, because I remember
4 hearing those comments and saying, well, that does
5 happen. In other words, renewables, renewables there
6 is only so much energy on the system that needs to be
7 served. So, to the extent you add more and more
8 renewables, they compete to serve that energy with the
9 fossil-fired resources.
10 So, as we just discussed earlier, you
11 displace that generation from the fossil and, to me,
12 that was what I thought I was hearing, and, I think we
13 will incorporate that and capture that in our
14 evaluation and our present value reporting.
15 Q Okay. That's helpful. Appreciate that.
16 Then, as we talked earlier, about models,
17 and that the model out to 2054, the 39 years, correct,
18 that's your total modeling period, correct?
19 A That's our proposed planning period, yes.
20 Q Just so I understand clearly, as well.
21 So far you have done some level of base models out to
22 2054?
23 A Yes. Every one of the alternative plans
24 that we presented take the existing, I'll call it,
25 "existing power supply fleet," that includes power

232
1 purchase agreements, and at the end of their term, and,
2 then, scheduled useful life end of coal plants, and
3 then it builds, using the generic resources, it builds
4 upon that fleet to meet the long-term demand forecasted
5 and the reserve margins. There is some graphs in here
6 that we could walk through, if it would be helpful.
7 So, every one of the alternative plans
8 will be presented basically as a PSCo system build-out,
9 all of the way to 2054.
10 Q And, in those plans, thus far, because
11 obviously we don't have bids yet, you're just
12 projecting for what is possible right now. That's
13 where you get Alternatives 2, 3 and 4?
14 A Yes. We're focusing on, with the
15 Alternative 2, 3 and 4, what's before us in this
16 resource acquisition period that might be used to meet
17 the needs. So, that's kind of what alternative plans
18 2, 3 and 4 were presented to enlighten.
19 Q What I am looking for, it's a question I
20 talked with Ms. Jackson about this morning, I think,
21 actually, so I don't mean to kind of retread over an
22 area that's already covered. I just want to make sure
23 I am clear on this.
24 I think she mentioned that, standing here
25 today, Public Service Company of Colorado has a

233
1 generation portfolio profile where, well, what percent
2 today would you say is renewables?
3 A Oh, I think we're probably, percentage of
4 the sales that are renewables, I want to say -- I think
5 it's in a volume somewhere, but, I think it's in excess
6 of 30%.
7 Q Okay. I recall her saying something
8 similar to that as well. What I am looking for, this
9 is admittedly early modeling right now, but in this
10 model, which it's 2, 3 or 4, as you go out towards --
11 or to 2054, boiling it down, what's the projected
12 percent of renewables on the system, then?
13 A That we have included in some of our
14 modeling?
15 Q Correct.
16 A I don't think we have calculated the
17 percentage, but there are some -- there is some
18 information that we could talk about right now in here,
19 that showed the megawatt levels.
20 Q Right. That's what I am trying to
21 understand, is, are we -- are we forecasting -- "we"
22 being you, in that sentence -- forecasting a continued
23 growth percent of renewables on Xcel Colorado's system
24 from now out, or does it sort of plateau at some period
25 of time, given gas prices or variables or

234
1 uncertainties?
2 I'm trying to get a sense of what you
3 project right now, in this Phase 1 period, as the
4 change of that mix for the company.
5 A Actually, I think it might be helpful to
6 turn to Volume 1. It would be easier to look at this
7 table than it would be for me to describe it.
8 Q Thank you. And it's clear I haven't seen
9 every detail of the volume. So, if you can just point
10 it to me, I would have to delve into it.
11 A Let's go to page 1-63 of Volume 1.
12 Q I am there.
13 A And we have -- we took Plan 4, from the
14 alternative plans analyses, which, if you will,
15 included 600 megawatts of wind, and I believe 400
16 megawatts of utility-scale solar in the RAP.
17 Q Okay.
18 A And, then, we have various levels of
19 renewables beyond the RAP. So, you can see we have a
20 box there that says, "RAP," and it only includes '17
21 through '23. And then we have from '24 all of the way
22 to 2040 in this table. We show the level of renewables
23 that are modified -- in the runs that I'll call 2, 4 A,
24 B, C and D.
25 So you can see that we call the left box

235
1 there, "Minimum Renewable Energy Standard Compliance."
2 So, this would be a view, if one were to take and
3 approach it, says we're going to just do minimum
4 compliance with the renewable energy standard. So we
5 would, basically, you would see -- we peak out at about
6 2900 megawatt of wind, and, then, I would start to
7 taper down to 1400 megawatts by 2040. And, then, you
8 could get up to close to 700 megawatts of solar, and
9 that would remain relatively flat. And that type of a
10 future would be what basically complies with the RES
11 through the time period shown here.
12 Then we have increasing levels of
13 renewables, and, on the far right, we have a high
14 renewables case. We call it, "4D." And you can see
15 that we continue to add wind to the system. We have --
16 get up to 4200 megs by 2040, and our solar goes to
17 2500. So, there's also information, if you would like
18 to, I can point you to, that shows you the carbon
19 estimates for those plans.
20 Q This is fine. This answers that
21 question. I think I'm close to done, I think.
22 I think one other area of questioning for
23 you. This is more of just a procedural question. I
24 don't want to go through -- you spent a fair amount of
25 time on annuity tails and three different ERPs about

236
1 that. What I wanted to pick up was just two quick
2 points there, I think.
3 One, I think you mentioned that, in your
4 oral testimony -- this is about the lack of clarity.
5 You were talking about building on the 2011 ERP and how
6 to use annuity tails now coming into 2015.
7 A Yes, sir.
8 Q And you said -- you were speaking to the
9 parties, that apparently you talked about -- you had
10 some conversation with the parties. Which parties were
11 you referring to, then?
12 A I was referring to staff, I think. When
13 I read staff, in particular Ms. Podein's testimony, I
14 think she had a view of the annuity tail approach,
15 which methodology -- which would simply extend all PPAs
16 to the end of planning period. We had that view too.
17 I don't want -- I'm not casting any
18 dispersion, and pointing fingers at anybody. I don't
19 think we gave that subject as much as time as we should
20 have. And that's what I am trying to do here, is, I
21 was trying to sit back and say, look, we need more
22 guidance and ground rules as to how to apply this in
23 the actual modeling of Phase 2. And it just hasn't
24 been presented yet. So, I was primarily referring to
25 the staff and the company when I made that -- mentioned

237
1 parties.
2 Q And that's in -- during this proceeding,
3 in engaging staff, or are you talking about during the
4 2011 proceeding?
5 A I think it's probably been prevalent in
6 the '07 and the '11, and perhaps now. I just don't
7 believe that with -- I don't have clarity on the
8 details, or I've never seen clarity on the details of
9 how it's supposed to be applied. So I went back and
10 started from ground zero, if you will, went through
11 principles, got financial textbooks out, and tried to
12 construct how this would be applied, consistent with
13 the detailed framework that I included in my rebuttal,
14 so we don't spend our time arguing over this anymore.
15 Q I appreciate that. What I am having
16 trouble reconciling in my mind is I hear you saying you
17 engaged -- you spoke to staff. You engaged staff, but
18 you also said -- or you testified it was inappropriate
19 to confer with the staff.
20 So, I guess what you're saying is that
21 during that period of Phase 2, you go dark?
22 A Yes.
23 Q But at other times --
24 A Yes, sir.
25 Q Are there any things, during Phase 2,

238
1 that are appropriate to discuss with other parties, or
2 do you go totally silent during that period?
3 A We pretty much go silent. We do reach
4 out to bidders to make sure we understand what it is
5 they are proposing. So, there is contact, but it's
6 strictly, what is it you propose, so we understand
7 their proposals. But we do not have outside contact
8 with the parties in the docket.
9 Now, the independent evaluator, they can
10 have that contact. So, I think to the degree they have
11 questions about something that was decided in Phase 1,
12 but perhaps they want to ensure that we're implementing
13 it correctly, they do reach out to parties. I don't
14 know what they talk about when they reach out to them.
15 We're not party to that, but --
16 Q What I am interested in is,
17 going-forward, when there are other situations where
18 the company has a lack of clarity about something, and
19 in this case it's seemed like a lack of clarity of
20 something the Commission had directed, or at least
21 thought had been directed. Looking for a better
22 process going forward, should that be through the
23 independent evaluator? Should we revisit how to make
24 that happen? I'm trying to avoid that happening again.
25 A Right. Well, I think the concept is that

239
1 Phase 1 should be where we discuss all of this.
2 Q Uh-hum.
3 A There so much information presented and
4 you can see now, this is very complicated. So,
5 sometimes when parties are discussing or debating a
6 particular issue, we may know what we're talking about
7 at a high level, but, then, when it comes to the
8 Commission decision, we never really know what -- we
9 don't know what we don't know. Sometimes, when you get
10 into the bid evaluation you run into issues and
11 circumstances that weren't necessarily foreseen.
12 So, my view is that the Phase 1 process
13 is intended to try to flesh out as much of this as we
14 can. It's inevitable that we might miss some things.
15 I don't know what type of feedback loop there might be,
16 because one thing that, I think, is valuable with this
17 Commission resource planning rules, is that there is
18 clear distinction between Phase 1, and, then, Phase 2,
19 and we move through this process fairly quickly.
20 Q Oh, yes, yes, you do. I guess what I am
21 concerned about is presumably that same level of
22 engagement and discourse that happened in Phase 1, in
23 2011, yet there was still lack of clarity, and after
24 this process happened, and an order resulted.
25 I am looking for, what do we do

240
1 differently, at this time. So, I can leave that as
2 rhetorical for right now. I am just saying, I am not
3 excited to think that we're just continuing to say,
4 darn it. It doesn't work, and maybe next time. . .
5 A I understand.
6 Q I think, lastly, I want to pick up on the
7 conversation you were having with, I think it was with
8 Ms. Overturf, around -- having to do so with the 120
9 days, and now the, from high, medium low proposals.
10 And what I am paraphrasing, admittedly, I just heard
11 from you, heavy work load.
12 And what I am concerned about, and the
13 reason I raise that concern, is that, admittedly, I
14 appreciate what you and the staff are doing. I don't
15 want that to be a wall we have already hit now to say,
16 okay, if what you said, if we go down this path of tell
17 us high, medium and low, and 120 days, anything else
18 that -- any other conversation sort of falls off the
19 table, because we keep coming back to the heavy
20 workload.
21 What I am asking you right now, tell us
22 what we could remove from the work load? Maybe it
23 should be high, low and not medium. Maybe we should
24 just run quickly to one scenario. I don't want to
25 prematurely push other things off the table because of

241
1 the workload.
2 A That's difficult to say. I think it all
3 provides insight. That would be one approach. You
4 could kick out a medium case, I think, and be informed
5 as to high and low. It's just that I am concerned that
6 the spread between the two might be so large that we
7 might be saying, what about the middle, because
8 generally I think we tend to navigate towards the
9 expected value, and if the medium case actually
10 represents expected value, we might have avoided
11 information there.
12 I can't give you examples right now of
13 where we might be able to pare down the process. We
14 don't have that many sensitivities right now that we
15 have been asked to run, or at least that we're
16 proposing to run. Sensitivities typically aren't that
17 difficult to run. They can be run fairly fast. It's
18 the construction of the portfolios which takes more
19 time.
20 So, I don't know if that's helpful.
21 Q I think it's helpful. Just so we're
22 aware, going in, that, for all of us, I don't want to
23 prematurely preclude, because that's what Phase 1, in
24 my mind, is all about, is what else to add in there.
25 We will just be looking for adding, and then we're

242
1 trying to do too much, and we'll be looking for you and
2 the company to give us expert advice back of what
3 should we do less of, or do differently, while still
4 staying on our schedule. That's what I am looking for
5 in that case.
6 CHAIRMAN ACKERMANN: With that,
7 Mr. Larson, redirect?
8 MR. LARSON: Can I confer with my
9 co-counsel for a moment?
10 CHAIRMAN ACKERMANN: I'm sure we can go
11 of the record.
12 MR. LARSON: Sorry. I am gathering my
13 belongings here.
14 CHAIRMAN ACKERMANN: Go back on the
15 record.
16 REDIRECT EXAMINATION
17 BY MR. LARSON:
18 Q All right, Mr. Hill. Are you ready?
19 A Yes, yes.
20 Q So, there was some discussion just now
21 with the chairman about where the information in the
22 filing regarding the carbon emissions estimates, over
23 the long term were, and maybe just for clarity of the
24 record, we should point out where that is, so that
25 folks want to go find it.

243
1 So, I direct you to Volume 2, page 2-208,
2 and that is Table 2.7-21.
3 A 2.7-21?
4 Q 2.7-21, I believe.
5 A There's actually two tables: 2.7-21 is
6 the projected emissions from existing resources, and,
7 then, 2.7-22 is the projected CO2 emissions from
8 generic resources. So, you add the two together to get
9 a total estimate of carbon emissions as a function of
10 the alternative plans, and, then, moving through years.
11 Q Perfect. Thank you. And, then, if you
12 could move to page 2-262. Let me know when you get
13 there.
14 A Okay.
15 Q And in that section, we describe the
16 basis for the low and high carbon proxy prices that the
17 company developed, and what the inputs to those
18 respective forecasts are.
19 A Yes.
20 Q Thank you. All right. Thank you. And,
21 then, there was also a discussion, with the Chairman,
22 just now, about modeling, and the impact of pushing
23 down the usage of coal units, right?
24 A Yes.
25 Q As additional renewables come on-line.

244
1 Do coal units have economic minimums?
2 A Yes, they do.
3 Q Can you explain what, "economic minimum,"
4 is?
5 A An economic minimum is how often the
6 plant can be taken down and still, I think, remain
7 stable, from an operating perspective. In other words,
8 a 500-megawatt coal plant might be able to be brought
9 down -- generate 180 megawatts, let's say, that's
10 economic. You start going down below that, and you get
11 into a situation, or you can, where some of the systems
12 become unstable, and you can run the risk of having the
13 unit trip off-line.
14 Q Is there ever an emissions impact
15 associated with taking the units down that low?
16 A The heat rate changes as you move down
17 and push the unit down. So, there would be slightly
18 more emissions, at least with the emissions rate. In
19 other words, pounds of SO2 per megawatt-hour might
20 increase, but the actual emissions, then, typically go
21 down because you're not generating.
22 Q Thank you. So, in effect, I want to move
23 into some of the discussion that you had with
24 Mr. Detsky regarding the history of the 2007 and the
25 2011 ERP, and, specifically, taking first some of the

245
1 company's proposals that you guys discussed in those
2 respective proceedings.
3 So, can you just summarize what the
4 company's proposal with regard to coal plant
5 retirements was in the 2007 proceeding for clarity of
6 the record?
7 A In '07,the company proposed retiring
8 Arapahoe 3, Arapahoe 4, Cameo 1 and Cameo 2. I use the
9 term kind of as a package deal. Two of those units
10 were actually scheduled to go down, in the RAP -- the
11 RAP in that ERP went through 2015. So, the company
12 came forth, offered up the concept of retiring those
13 four units, and then building a new combined cycle
14 plant to basically replace that capacity and energy at
15 the Arapahoe site.
16 Q And all of that was a company proposal,
17 correct, to retire its own units?
18 A Yes. That was a company proposal, and it
19 was to address part of the incremental need that was
20 going to show up in that ERP.
21 Q And what about in the 2011 ERP? You
22 describe the circumstances that were at issue, again,
23 there with the coal plant retirements that were at
24 issue in that proceeding?
25 A Coal plant retirements in that proceeding

246
1 stemmed from primarily the Clean Air-Clean Jobs Act,
2 which, I think, was in 2010. So, in the 2011 ERP, the
3 coal retirements, then, were part of the legislative
4 act, but what the Commission wanted us to examine was
5 there were two coal plants that we proposed continuing
6 to operate on gas, so they would not burn coal anymore,
7 but they would just fire gas in their boilers. That
8 was Cherokee 4 and Arapahoe 4.
9 So the retirements from coal, if you
10 will, were already decided, but they wanted us to
11 explore whether or not it was economic to burn gas in
12 those boilers. So, that's what we were looking at in
13 the '12 ERP with regard to coal retirements.
14 Q So, the retirements have been directed by
15 the legislature, before you came in and started doing
16 the analysis in that proceeding?
17 A Yes.
18 Q The next thing I would like to do is to
19 move to page 2-221, where you had an exchange with
20 Ms. Hickey.
21 A Okay. I am there.
22 Q You are ahead of me. And there's a
23 section there talking about the selection of bids for
24 computer modeling, right?
25 A Yes.
247
1 Q And you and Mrs. Hickey had an exchanges
2 about how bids are advanced into the next level of the
3 modeling process. So, I'm hoping that you could do two
4 things. One is explain what that process looks like,
5 again, and then after that, I have a follow-up question
6 to that.
7 A Okay. Well, it's all explained here in
8 this volume, I believe. But, generally, there's two
9 primary phases, if you will, of the evaluation.
10 There's actually three. There's a feasibility
11 analysis.
12 We will review the bids that come in to
13 determine which are really feasible and which we
14 believe are not. If it passes the feasibility
15 analysis, then we'll do a levelized cost of energy
16 screening analysis, to determine -- we'll compare wind,
17 all of the wind together, all of the solar and the gas.
18 What that is intended to do, to decide how much we
19 should move forward into the computer model.
20 So, we want to make sure we will put
21 forth into computer modeling viable proposals. And we
22 want to put forth a full suite of renewables, PPAs --
23 I'm sorry -- renewable PPAs, gas PPAs, company
24 ownership proposals, to just make sure we have got a
25 full representation, to build portfolios from, to get

248
1 the most cost-effective suite of portfolios for
2 consideration.
3 Q And this is center to the process in
4 terms of moving bids through the modeling process
5 that's been used in past ERPs that the company has
6 conducted?
7 A This is the same process that we have
8 used in '07 and11, for deciding how to advance them
9 through the evaluation process and, then, the I.E.
10 watches all of this and will weigh-in on this in his
11 report on our report.
12 Q And in that section, as you are talking
13 about moving bids through the modeling process, is
14 there any kind of preference, or implicit preference in
15 there for utility-owned generation?
16 A No. There is no preference. The
17 preference that we have is we want to make sure we move
18 projects forward that are -- we really think are
19 viable. Because what we don't want to have happen is
20 move something forward, evaluate it, and it becomes
21 part of a preferred portfolio. And, then, we
22 basically, as we move through time, we get closer and
23 closer to when that capacity needs to hit the system,
24 and, for whatever reason, either it can't be built or
25 it's not something that's feasible anymore, and we'll

249
1 come up short.
2 Q Finally --
3 CHAIRMAN ACKERMANN: Can I ask a
4 clarifying question?
5 MR. LARSON: Yes.
6 CHAIRMAN ACKERMANN: Do you have criteria
7 for viability during that process? What are you
8 looking for?
9 THE WITNESS: It depends on the resource.
10 Existing resources, they are already viable. We move
11 them forward. We have a variety of subject matter
12 expert teams that will look at resources that are being
13 proposed -- new construction, I will call it, they have
14 yet to be built.
15 So, we'll have the siting and land rights
16 team look at the project plan. Do they have a viable
17 plan for permitting this through the various
18 jurisdictions that they would have to permit it. We
19 have our transmission folks look at this and determine
20 whether or not the location that they are proposing to
21 build this facility is feasible, from an injection
22 capability. And if not injection capable, in other
23 words, there's just not enough injection right now,
24 what would it take to build the necessary transmission
25 in-service structure in order to move that power. And,

250
1 then, they would look at the schedule as to the
2 upgrades of the transmission lines, with the commercial
3 operation date, and see if we have got issues there.
4 There's also -- I think there's other due
5 diligence teams -- I can't think of them. I think
6 there's some financial folks to review whether or not
7 the financial wherewithal of the bidding parties -- if
8 we feel comfortable they can actually pull off all of
9 what they are proposing, things of that nature.
10 CHAIRMAN ACKERMANN: Thank you. That's
11 helpful.
12 COMMISSIONER KONCILJA: I have a question
13 based on what you just said.
14 If your company does not own the asset,
15 you don't get a return on equity or return on debt. If
16 you get weighted average cost of capital, there is a
17 financial incentive, as a result of how this Commission
18 compensates a utility, to have an investor -- a
19 utility-owned facility; isn't that true?
20 THE WITNESS: Yes. We do earn on the
21 capital or the rate base that we add to our system.
22 So, that is how the company earns money.
23 COMMISSIONER KONCILJA: And I am not
24 saying that that's bad. It's just a system that this
25 Commission, and other Commissions, have set up, that

251
1 you have to live with, right?
2 THE WITNESS: Yes. But remember, the
3 cost, if you will, or we'll call the, "customer cost,"
4 associated with that earning on rate base, that's all
5 reflected in the present value. So, all of the costs
6 of us to construct, own and operate and get our return
7 on is all included in the price of a company-owned
8 proposal. So, those all should be reflected in the
9 present value of revenue requirement, which is really
10 the metric for what customers pay.
11 BY MR. LARSON:
12 Q So, I would next like to ask you to turn,
13 as many have before me, to Table JFH-4. That's page 24
14 of your Rebuttal.
15 CHAIRMAN ACKERMANN: Again?
16 COMMISSIONER KONCILJA: Again.
17 MR. LARSON: I could not talk about it?
18 THE WITNESS: Can I inject?
19 COMMISSIONER KONCILJA: He is your
20 lawyer. You can't do that.
21 THE WITNESS: I am there.
22 BY MR. LARSON:
23 Q All right. And there's been a lot of
24 discussion, you know, between questions from
25 Commissioners, questions from Commission counsel,

252
1 questions from the parties, about how this process, you
2 know, that we initially put out there, the company
3 initially put out there in '11, and, then, was refined
4 through the staff supplemental or Surrebuttal
5 Testimony, how that process is going to work. And
6 there was a lot of discussion with Mr. Coleman about
7 the R&C rate design change line, right?
8 A Yes.
9 Q So, by the time we get to the 120-day
10 report, is the company going to have more finality
11 around what that line in particular looks like?
12 A Yes. I would imagine, by the time we get
13 to actually filing the 120-day report with the
14 Commission, we would very likely know the outcome of
15 the advanced grid proceeding. So that will help inform
16 what we recommend, as far as a level to pursue, medium,
17 low, high.
18 Q That could affect both the first row and
19 the second row, right, with the IVVO as well?
20 A Yes.
21 Q So, when the company comes forward in the
22 120-day report, the company would be presenting, give
23 or take -- and I understand you hedged on this a little
24 bit earlier -- you would be presenting a preferred need
25 scenario, or the most appropriate need scenario based

253
1 on what you are seeing in the market, right?
2 A Yes. And we would provide our pick, and
3 the basis to the Commission as to why we think this is
4 the appropriate portfolio to pursue.
5 Q So, you would have a preferred need
6 scenario as well as a preferred portfolio brought
7 forward for Commission consideration at that time?
8 A Correct.
9 Q Great. Thank you. So the last thing I
10 would like to move to is annuity tails. So, you had a
11 discussion, I believe it was in response to Commission
12 questions, and an exchange with Mr. Detsky, about some
13 of the textbooks that you studied in thinking about the
14 annuity method and coming up with your Rebuttal
15 Testimony, right?
17 Q So, we have copies -- excerpts of three
18 textbooks related to that. We do not have the entire
19 book copy. But if I may approach, I would like to
20 present them to Mr. Hill.
21 CHAIRMAN ACKERMANN: Please.
22 (Whereupon Exhibit No. 66 was marked for
23 identification.)
24 BY MR. LARSON:
25 Q So, the first excerpt that we have there

254
1 is from the book, "Principles of Finance." That's the
2 1991 version. Are you familiar with that?
3 A Yes.
4 Q And the second version we have there, is
5 the Principles of Corporate Finance book, and that is
6 the -- where is the year on this one? Is this the '96
7 version right here?
8 A Yes. This is the '96.
9 Q And, then, we have a third book that was
10 recovered from the library, which is entitled,
11 Corporate Finance, and that is issued -- it's 1999; is
12 that correct?
13 A I can't find the date on the copyright --
14 yes, I think it's '99 -- yes, copyright '99 appears to
15 be the last -- this edition.
16 MR. LARSON: So, Your Honor, the company
17 would move admission of these three excerpts into the
18 record.
19 MR. DETSKY: Your Honor, I object to the
20 admission of these exhibits.
21 CHAIRMAN ACKERMANN: Please expand on
22 that objection.
23 MR. DETSKY: So, first of all, we have
24 excerpts, and we don't have any foundation as to what
25 these excerpts are, why they are relevant. And even if

255
1 we were to establish the foundation for these excerpts,
2 there is nothing that was in my testimony, or my cross
3 examination of Mr. Hill, that would allow any of these
4 excerpts to come in.
5 The only thing that I discussed with
6 Mr. Hill was that these books were published before the
7 Boston Pacific White Paper, setting forth what the
8 annuity tail method is. So, if he wants to put them in
9 the record to show these indeed were published earlier,
10 or later, I guess, that would be admissible. But
11 certainly there's nothing that I asked Mr. Hill about
12 that would allow this line of questioning on what's
13 inside these textbooks.
14 CHAIRMAN ACKERMANN: Question for
15 Mr. Larson. Are these the same that are referenced in,
16 I believe it's footnote -- is it a discovery response
17 or testimony? Where are these?
18 MR. LARSON: Thank you, Mr. Chair. Two
19 of the three are cited in one of the discovery
20 responses. I do not have the hearing exhibit in front
21 of me, but, yes, two of the three are footnoted.
22 CHAIRMAN ACKERMANN: That's fine. So, by
23 reference, they are, in effect, part of the record
24 already?
25 MR. LARSON: Yes, but, you know, our

256
1 position is they should be added to the record so the
2 Commission has the actual excerpts that were relied
3 upon, just not just the footnote citations.
4 CHAIRMAN ACKERMANN: Then you are asking
5 to bring the entire documents into the record?
6 MR. LARSON: We would only be asking to
7 bring excerpts from the book that relate to it, unless
8 you would like to have the entire document admitted
9 into the record, which we're also happy to do.
10 MR. DETSKY: Mr. Chairman, if I could
11 respond to that too. The footnotes that we went
12 through were -- where these documents were referenced,
13 were responses to a question where we asked Mr. Hill to
14 explain whether any of the quotations he had to support
15 his premise of what Mr. Monsen said were in
16 Mr. Monsen's testimony, and the answer to that question
17 was no.
18 So, instead, we referred to these books
19 that are not in the record, and should probably not
20 even been taken administrative notice of, and he is now
21 going into what those books say, again, which is far
22 afield from the discovery question, far afield from
23 what we talked about.
24 CHAIRMAN ACKERMANN: Mr. Larson, are you
25 presenting Mr. Hill, who is then going to sponsor and

257
1 defend these documents?
2 MR. LARSON: Yes. He would briefly
3 reference, you know, his bases, and we're going to be
4 talking about the principles of annuity method that he
5 relied on. And I think these are part of it.
6 CHAIRMAN ACKERMANN: But are we going to
7 bring in actual -- because I believe we already have
8 the, do we not, the references out of here as to what
9 the relevant portions are in the record already?
10 MR. LARSON: We do.
11 CHAIRMAN ACKERMANN: Then, I would say we
12 just work with what's already in the record and pass on
13 this thing.
14 MR. LARSON: All right. Thank you, Mr.
15 Chairman.
16 BY MR. LARSON:
17 Q So, Mr. Hill, building on your discussion
18 with the Chairman earlier about the long history of the
19 annuity method before this Commission, and you talked
20 about going back and revisiting the application of the
21 annuity method, what are the principles of annuity
22 method to you?
23 A I think I would -- it's not just the
24 annuity method, it's the problem that the annuity
25 method -- the problem or issue that method was proposed

258
1 to address; and that the issue that this method was
2 proposed as a solution to address was an issue where
3 you would compare company-owned assets with shorter
4 life PPAs.
5 And the fact that the annuity method was
6 a tool to use to address that brings along the
7 principle that they need to be the same technology.
8 They need to do the same thing in order for the annuity
9 method to be a plausible approach to inform whether you
10 should choose Option A or Option B. So, that's --
11 there's really three principles. It's ownership versus
12 PPA. It's the equalization of lives, and, then, it's
13 the -- this similar technology.
14 Those are the three principles that were
15 presented when this annuity method made its first
16 entrance in 2007. That's the principles that guide, I
17 think, not only the application but how it's evaluated.
18 Q Thank you. And going back to the initial
19 introduction of the annuity method before this
20 Commission, going all of the way back to 2007, do you
21 believe that the fact that there was only utility-owned
22 generation bids for gas-fired generation through the
23 development, and that may be the way that the annuity
24 method was -- become thought about, as it developed
25 over time?
259
1 MR. DETSKY: Your Honor, I object to this
2 question. This was, again, outside my testimony or my
3 cross examination of Mr. Hill, which went to the facts
4 that Mr. Hill was relying on statements that Mr. Monsen
5 made regarding the annuity method that Mr. Monsen did
6 not, in fact, make, and the company's lack of clarity
7 and understanding of the CIEA method of how to apply
8 the annuity method.
9 So, to go into what the company thought
10 it was doing in 2007 with respect to gas CT units is,
11 again, outside the -- my cross examination and not
12 relevant.
13 CHAIRMAN ACKERMANN: Mr. Larson.
14 MR. LARSON: I would respond. Not only
15 do I believe it's within the scope of his cross
16 examination, because he was going all of the way back
17 to 2007, and Mr. Hill's interpretation of Mr. Monsen's
18 initial introduction of this, I also believe it's
19 relevant to the questions, Mr. Chairman, you were
20 asking in terms of the evolution of the annuity method
21 before this commission.
22 CHAIRMAN ACKERMANN: I would allow it.
23 You may want, if you need to rephrase, just bring your
24 witness back up to speed on what we're talking about to
25 make sure it ties back to what was the heart of the

260
1 cross examination to start with. Go from there.
2 BY MR. LARSON:
3 Q Sure. So going back to 2007, in 2007,
4 Mr. Monsen originally introduced the notion of the
5 equivalent annual cost method, also known as the,
6 "annuity method," before this Commission. Does the
7 fact that there was only utility-owned generation bids
8 for gas-fire resources affect the development, over
9 time, of the annuity method?
10 A I would say, yes, because, again, when we
11 look at the principles, the owned versus PPA, and the
12 equalization of lives, and the same technology, the
13 only other proposals that were in the '07 and I believe
14 the 2011 ERP were gas-fired combustion turbines, and we
15 had some combined cycle lives of those company-owned
16 proposals that were long enough that they stretched
17 over -- all of the way through the end of the planning
18 period. So natural application of annuity method to a
19 gas-fired PPA would take it to the end of the planning
20 period.
21 I think that the rut we got into, it was
22 thinking that that was how it was applied. We have
23 never faced a situation where we had company ownership
24 proposals for wind and solar, for example, that
25 wouldn't go to the end of the planning period.

261
1 Q So, can you go ahead and turn to Figure
2 JFH-7, that you discussed with Mr. Detsky. Let me know
3 when you get there.
4 A I'm there.
5 Q You're consistently faster than me. And
6 we talked about the electricity principles of the
7 annuity method. How are those three principles
8 reflected in Figure JFH-7 that you discussed with
9 Mr. Detsky?
10 A The three principles, again, so we make
11 sure we understand what we're talking about, is the
12 comparison between company ownership projects, with
13 shorter term PPAs of the same technology, and you want
14 to equalize the lives.
15 So, what I presented here is a framework
16 or an example of how that method would be applied for
17 three technologies of resources: Wind, solar, gas, CT
18 and Gas EC. So, we have got equal lives. So that
19 principle is met. We have got company ownership, with
20 PPAs of the same technology, so that's met.
21 So, I think that this, to me represents
22 the appropriate framework as to how we would apply this
23 method between the Phase 2 bid evaluation, and be true
24 to how it was envisioned initially.
25 Q And you also discussed other filler

262
1 approaches with Mr. Detsky, and earlier in his cross
2 examination of you. So, just for purposes of the
3 record, can you explain what the replacement method is?
4 A The replacement method, that's the
5 company's preferred approach. And what that would do,
6 instead of having these annuity tails, what would --
7 there's two components to which combustion turbine
8 would backfill any capacity that results from the
9 termination of the PPA, or end of the term, and then
10 system energy fills any energy needs.
11 So, there's really two components to what
12 we're proposing CT for, capacity system energy, for the
13 backfill. That would happen for every portfolio. It
14 would be the same for company ownership portfolios that
15 didn't go all of the way to the end of the planning
16 period, as well as portfolios containing PPAs.
17 So, in that regard, the back-end is the
18 same for everything, CT, capacity system energy. And
19 in that approach, I see that as the bids speak for
20 themselves, not the tails. We don't have the tails wag
21 the dog. We have the bids, then, speaking for how they
22 impart value in that particular portfolio.
23 Q I have just one additional question that
24 ties back to a discussion we were having, I think a
25 little bit earlier.

263
1 Just to tie back to -- so you have been
2 doing resource planning. This is what, your fourth
3 resource plan? Didn't you have that exchange with, I
4 believe, Mr. Detsky?
5 A Yes.
6 Q And in those resource plans has the
7 approach ever been to build the system from the bottom
8 up?
9 A For the resource plans, the intent of
10 resource plans is to identify what additional resources
11 made sense to add to the existing system, such that
12 they integrate with the existing system and provide a
13 least-cost solution going forward.
14 Q And, additionally, coming back to what we
15 were talking about earlier, with regard to the 2007 and
16 the 2011 ERP, can you explain, from a retirement
17 standpoint, how the situations in those two respective
18 ERPs were different than the 25% at-risk procurement --
19 coal procurement proposal brought forward by
20 Mr. Monsen?
21 A Well, in those -- in the '07/'11, they
22 were coal retirements that were brought forth and
23 provided by the company. Some were driven by
24 legislation. And in this proposal, for the 25%, that's
25 not something the company proposed in this ERP.

264
1 Q Thank you.
2 MR. LARSON: Mr. Chairman, can I confer
3 with my co-counsel real quick to see if there is
4 anything else?
5 CHAIRMAN ACKERMANN: Yes.
7 MR. LARSON: Nothing further.
8 CHAIRMAN ACKERMANN: Very good.
9 Mr. Hill, you are excused.
10 THE WITNESS: Thank you.
11 CHAIRMAN ACKERMANN: Thank you for your
12 service.
13 So, still you, Mr. Larson moving on or is
14 it Mr. Sopkin we're ready for?
15 MR. LARSON: It is me. So the company
16 would call Mr. Scholl to the stand.
18 (Whereupon Kent Scholl was sworn.)
19 CHAIRMAN ACKERMANN: Please be seated.
20 DIRECT EXAMINATION
21 BY MR. LARSON:
22 Q Mr. Scholl, good afternoon.
24 Q Can you state and spell your name for the
25 record, please.
265
1 A My name is Kent Scholl; K-e-n-t,
2 S-c-h-o-l-l.
3 Q What is your title?
4 A I am a Senior Resource Planning Analyst.
5 Q And do you have in front of you the
6 following hearing exhibits that have been marked as
7 Hearing Exhibit No. 6, which is your Supplemental
8 Direct -- I'm sorry -- Hearing Exhibit No. 5, which is
9 your Direct Testimony and Attachments; Hearing Exhibit
10 No. 6, which is your Supplemental Direct Testimony and
11 Attachments; Hearing Exhibit No. 7, which is your
12 second Supplemental Rebuttal Testimony and Attachments;
13 and Hearing Exhibit No. 8, which is your corrected
14 Revised Rebuttal Testimony and Attachments?
15 A I do.
16 Q And were those prepared by you or under
17 your direction?
18 A They were.
19 MR. LARSON: Company would move admission
20 of Exhibit No. 5, 6, 7 and 8.
21 CHAIRMAN ACKERMANN: Exhibits 5 through 8
22 are moved. Seeing no objection, they are admitted.
23 (Whereupon Exhibit Nos. 5 - 8 were
24 admitted.)
25 MR. LARSON: Mr. Chairman, before we

266
1 tender Mr. Scholl for cross examination, there is one
2 slight correction we need to make to Attachment 3.1-1,
3 that came up through a discovery request that was due
4 at the exact same time that corrected documents were
5 due, so it's not reflected.
6 CHAIRMAN ACKERMANN: Okay. Proceed.
7 Walk us through that, please.
8 BY MR. LARSON:
9 Q So, Mr. Scholl, can you turn to Section
10 5.1 of Attachment 3.1-1. It's on page 22, if you put
11 the applicable filters on.
12 THE WITNESS: I am on page 22.
13 (Off the record.)
14 BY MR. LARSON:
15 Q And in Response to WRA 6-06, can you
16 explain the changes that we need to make to the bottom
17 of that page.
18 A Yes. In discovery, WRA 6-6 set, she had
19 asked whether or not the values that we are showing at
20 the very bottom paragraph, on page 22, about whether
21 the values or credits that we would assign for
22 30-minute and 15-minute start capabilities had been
23 inflated, since we used those values in the previous
24 RFP. And we indicated that we would not, but that we
25 could increase the 20 cents per kW-month value to 22

267
1 cents per kW-month, and that would be the change that
2 we would be making here.
3 MR. LARSON: So, we would request that
4 that correction be reflected in the record.
5 CHAIRMAN ACKERMANN: So, that's fine.
6 Let's make that correction. Protocolwise, we're just
7 requesting to note and initial and proceed. That would
8 be fine. Great.
9 MR. LARSON: With that, Mr. Scholl is
10 tendered for cross examination.
12 Mr. Nocera, Santisi, whoever you guys are.
13 MR. NOCERA: I would tell you at the top.
14 CHAIRMAN ACKERMANN: Excuse me. Welcome.
15 MR. NOCERA: Thank you.
17 BY MR. NOCERA:
18 Q Thank you, Mr. Chairman.
19 Good afternoon Mr. Scholl.
21 Q For the record, I am David Nocera and I
22 represent trial staff of the PUC.
23 I don't have too many questions, you'll
24 be glad to know, but first thing I want to ask you
25 about is this annuity tail. I want to follow-up a

268
1 little bit on the annuity tail.
2 And my question is, I think it's pretty
3 clear, but can you confirm that the company's intent
4 would be to optimize portfolios using the company's
5 preferred backfilling approach, and, then, to run
6 sensitivities using the annuity method?
7 A My recollection -- and I'm not sure if
8 it's in testimony -- was that we could examine if the
9 Commission wanted to -- optimization under each of the
10 two different backfilling methodologies.
11 Q So, is that the company's proposal, then,
12 that they would perform optimization runs using both
13 backfill methodologies?
14 A Well, our proposal is to do the
15 optimization with the company-owned tail, if the
16 Commission were to direct us to do. If the Commission
17 were to direct us to do an amortization tail using the
18 annuity tails, we could do that.
19 Q Okay. Do you recall what the Commission
20 directed the company to do in the 2011 ERP?
21 A In the Phase 1 analysis?
22 Q In the Phase 1 order.
23 A Phase 1 decision.
24 Q With respect to annuity tails.
25 A I do not remember exactly what the

269
1 Commission's order was as far as optimization was
2 considered.
3 Q Okay. And that Commission order speaks
4 for itself. We can agree to that, right?
5 A Yes.
6 Q So, given that the order speaks for
7 itself, the fact is that the company, in the 2011 ERP,
8 did not optimize using both tails and they did it as a
9 sensitivities -- the annuity tail was a sensitivity
10 run?
12 Q And, again, that's your proposal here,
13 unless the Commission orders otherwise?
14 A For various reasons, it would be. As
15 prior witnesses have indicated, we provide an extensive
16 amount of information when we do a suite of portfolios.
17 In the last 120-day report, we presented, as Mr. Hill
18 indicated, I think maybe 25 different portfolios.
19 Present value revenue requirements were -- those were
20 those portfolios from the basecase assumption, and,
21 then, various sensitivities. If we're looking at
22 running complete portfolio analysis, we would be giving
23 that information six times over. It's a very lot of
24 information.
25 Q Okay. Moving onto another topic, of your

270
1 Rebuttal Testimony, which is the GPVM adder. I would
2 like to refer you, if I had it -- excuse me one second
3 -- to Hearing Exhibit 8, which is your corrected
4 Revised Rebuttal Testimony and Attachments.
5 A I have that exhibit.
6 Q And in my copy, I am looking at page 37,
7 and a question that is asked is, "What is the GPVM
8 adder?" On my copy it's page 37, line 6.
9 A Mine also.
10 Q Okay. Good. And, then, beginning on
11 line 10, you state, "The GPVM adder is the expected
12 cost of natural gas at the forecasted price. It is
13 calculated as the option premium for the -- at the
14 money call on the natural gas forecast. Is that your
15 testimony?
16 A It is.
17 Q Now, my understanding is that, in the
18 modeling in this proceeding, the company is intending
19 to add the GPVM adder to every MMBTU of gas that is
20 expected to be used in a portfolio, to the extent it's
21 not already contracted for at a fixed price.
23 Q Okay. Now, this is no -- nothing the
24 company has ever done in the past, buy call options to
25 cap all of the gas in a portfolio that spans 39 years,

271
1 is it?
2 A Well, as I say in the first part of this
3 same paragraph, the GPVM adder is a portfolio
4 evaluation methodology. We're not proposing, in the
5 real world, to go out and buy call options on the total
6 amount of gas that the company's expecting to build.
7 So, the GPVM adder is a mechanism that we can use,
8 through the portfolio model, to essentially determine
9 what is the value or what is the incremental cost
10 that -- when we do comparisons between a gas-fired
11 generator and say, a renewable generator, one of the
12 values that we do not capture when we estimate future
13 costs of natural gas, at a fixed point, is the
14 volatility that can occur and will occur around that
15 gas priced forecast.
16 Q Okay. That's very interesting, but let's
17 maybe focus on my question. The question was, this is
18 not something that the company actually is proposing to
19 do? Yes or no?
20 A The company is not proposing to purchase
21 call option on our entire unhedged gas volume.
22 Q And, therefore, it's not a cost that the
23 company is actually going to incur in the future, if it
24 selects a certain portfolio, correct?
25 A I disagree. The cost of future natural

272
1 gas volatility is a cost that our customers will bear.
2 Q I didn't ask you that, sir. I asked if
3 this -- this call option, to have an option for all of
4 the MMBTU of the portfolio, was something that the
5 company is -- an actual cost the company will incur in
6 the future?
7 A The company will not incur the cost of
8 call out option futures on our unhedged volumes of gas.
10 A Through an actual purchase option, no.
11 Q And therefore it's not something that the
12 customers -- that specific cost is not something
13 customers will see on their bills in the future?
14 A GPVM adder is a proxy for the costs that
15 customers will bear if we choose a natural gas
16 generator over a renewable generator.
17 Q They will bear the cost of call options
18 for every MMBTU of the portfolio?
19 A No. The call option is a proxy for the
20 cost that customers will bear.
21 Q Customers are going to see on their bills
22 61 cents per MMBTU, if the Commission chooses the
23 portfolio, and the company implements that strategy,
24 they will see 61 cents per MMBTU on their bills?
25 A No, just as they will not see the costs

273
1 that we use in portfolio evaluations for wind
2 integration costs, solar integration costs. Those are
3 also costs that our customers will bear, depending upon
4 the resources that we select as part of a portfolio.
5 Those costs also don't show up on a customer's bill.
6 Q Okay. So, let's talk a little bit about
7 the calculation of, or the support for the use of 61
8 cents per MMBTU as the GPVM adder.
9 First, let's talk about where that cost
10 came from. That was from the discovery. Is it not
11 true that the company determined that cost by making a
12 phone call, in July of 2015, and asking for a quote for
13 a call option for 10,000 dekatherms volume of gas for a
14 10-year period, based on the NYMEX forecast?
15 A Yes. It was for a single contract, which
16 is 10,000 dekatherms, but, yes, that's correct.
17 Q And you asked for the call option price
18 for the 10-year NYMEX forecast, correct?
20 Q Just to give us some magnitude about
21 this. If a portfolio spans 39 years, a planning period
22 of 39 years, how many of these 10,000 dekatherm
23 tranches would roughly be included in a portfolio of
24 that size?
25 A Again, we are not proposing to go out and

274
1 purchase call options. The call option premium, the 61
2 cents per MMBTU, is a proxy for the cost of the
3 volatility of natural gas above the expected value.
4 Q Okay. So, back to my question. Can you
5 give us an idea of magnitude, how many dekatherms of
6 gas would be in an average portfolio that spanned 39
7 years?
8 A I don't know.
9 Q No idea?
10 A No idea.
11 Q Whether you need 100 of these, 10,000 of
12 these 10,000 dekatherm call options, you can't give us
13 any magnitude?
14 A I do not know what the company's annual
15 gas burn is for electric generation.
16 Q Okay. So, back to how cost was
17 developed. And we have already -- let me ask you this:
18 It's designed to be a proxy for the cost of capping the
19 four-source blend forecast in the model, correct?
20 A If you assume you have purchased a call
21 option for gas, then, yes, a call option gives you the
22 right, but not the obligation to purchase gas in the
23 future at that price. So, it has, as a portfolio of
24 evaluation methodology, it has the impact, then, of
25 when you compare one portfolio that has a gas generator

275
1 with another portfolio that has a renewable generator,
2 when you do the present value of revenue calculations,
3 differences -- the impact is on that difference in gas
4 volume combustion between the two portfolios --
5 MR. NOCERA: Mr. Chairman, may I
6 interrupt? This is not even close to answering what
7 was a very direct and simple question. Can you direct
8 the witness to answer the question, please?
9 CHAIRMAN ACKERMANN: Why don't you
10 restate the question, then we'll give it a run again.
11 BY MR. NOCERA:
12 Q Mr. Scholl, is the GPVM adder designed to
13 be a proxy for the cost of capping the four-source
14 blend forecast used in the Strategist modeling, yes or
15 no?
16 A Yes.
17 Q Okay. But yet the quote you got is
18 related to the cost to cap the NYMEX forecast, correct?
20 Q Okay. Now, as far as documentation, for
21 how the company arrived at 61 cents, the sole
22 documentation that you provided to staff, in discovery,
23 in response to discovery, was a response that says,
24 "The Company has no written communication that
25 documents the June 2015 call option quote that we

276
1 used -- that was used as a proxy for the GPVM adder.
2 That quote was communicated verbally through a
3 telephone conversation with Shell Trading."
4 And beyond that the company provided no
5 documentation, no written correspondence, no -- any
6 other information that would help the Commission
7 evaluate whether 61 cents is a proper proxy, if they
8 chose to use a proxy, correct?
9 A I can say that, yes, we have no written
10 documentation of that phone call.
11 Q And no other analysis or work papers or
12 information that suggests how that number was arrived
13 at, correct?
15 Q Okay. Now, are you asking the Commission
16 in this case, to approve the use of the GPVM adder in
17 the Strategist model?
18 A Yes, we are.
19 Q And are you asking the Commission to
20 approve the use of 61 cents as the value of that GPVM
21 adder?
22 A We could either go forward and do the
23 GPVM with a 61 cents per MMBTU adder, or we could go
24 out there, in advance of bid receipt, and request an
25 updated quote, that is a little closer to where market

277
1 conditions are today.
2 Q Okay. So, then we we'll have, in
3 addition to the problem of no documentation, we'll have
4 no process for any of the parties to actually comment
5 on that, correct?
6 A If we do it after a Phase 1 order, I
7 think, along with that issue, what we could ask the
8 Commission to do is to, you know, agree to a
9 methodology, like we do with many of our other
10 assumptions, and a methodology, with which we could go
11 out and gather a quote, document it this time, and the
12 I.E. would have that quote and documentation in hand at
13 the time we had did the bid solicitation.
14 Q Okay.
15 MR. NOCERA: Thank you, Mr. Chairman.
16 Thank you, Mr. Scholl. That's all the questions I
17 have.
18 CHAIRMAN ACKERMANN: Thank you. With
19 that, we would recess for the evening. We're back here
20 at 9 o'clock tomorrow. Mr. Dixon, you can dress any
21 way you want.
22 (Off the record.)
23 COMMISSIONER KONCILJA: Mr. Chairman, do
24 you want to go over the list of witnesses we think
25 we're going to have tomorrow?

278
2 Commissioner. That would be fine. Let's just make
3 sure we're all on the same page. We're a bit behind
4 where we thought we would be at the end of Thursday.
5 So, our plan to is -- so based on the proposed time
6 requested for cross examination, that we conclude this
7 company's witness and two remaining company witnesses,
8 we should be able to do that, it looks like in the
9 morning tomorrow, which then will bring us into staff
10 witnesses in the afternoon, getting through O'Neill,
11 Podein and Camp, and we may -- I think we should be
12 able to get at least that far. I don't know, Mr. Neil
13 from OCC, if that will be happening tomorrow or Monday.
14 That would be kind of my sense of where we're at right
15 now.
16 So, and then Monday, we do have a late
17 start, 10 o'clock start, but I think we -- still looks
18 like we are on schedule, that we can still conclude
19 this by end of business Monday.
20 COMMISSIONER KONCILJA: I thought we had
21 a couple of witnesses who have to appear on Tuesday or
22 did that change?
23 CHAIRMAN ACKERMANN: We did work that
24 out; that Goggins can come in on Monday and -- there is
25 another one that comes in that -- whose name is

279
1 escaping me.
2 COMMISSIONER KONCILJA: Monsen.
3 CHAIRMAN ACKERMANN: We're still on
4 schedule to conclude by Monday, end of business Monday.
5 Any other matters before we recess for
6 the evening? If not, we'll see you in the morning.
7 Thank you.
8 (Whereupon these proceedings were
9 adjourned at 5:08 p.m. on February 2, 2017.)
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
280
1 CERTIFICATE
2 I, JAMES L. MIDYETT, HARRIET S. WEISENTHAL, Certified
3 and Registered Professional Reporters, in and for the
4 State of Colorado, do hereby certify that we reported
5 the foregoing proceedings in the first instance, and
6 that later the same was reduced to typewritten form
7 under our direct supervision and control; we further
8 certify that the foregoing is a true and complete
9 transcription of our stenographic notes then and there
10 taken.
11 Dated February 3, 2017
12
13 ________________________
14 JAMES L. MIDYETT
15
16
17 ________________________
18 HARRIET S. WEISENTHAL
19 1560 Broadway, Suite 250
20 Denver, Colorado 80202
21 (303)894-2825
22
23
24
25

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1

1 BEFORE THE PUBLIC UTILITIES COMMISSION

4 PROCEEDING NO. 16A-0396E VOLUME 2

6 IN THE MATTER OF THE APPLICATION OF PUBLIC SERVICE

7 COMPANY OF COLORADO FOR APPROVAL OF ITS 2016 ELECTRIC

10 PURSUANT TO NOTICE to all parties in

11 interest, the above-entitled matter came on for hearing

12 before JEFFREY P. ACKERMANN, FRANCES A. KONCILJA, and

13 WENDY M. MOSER, Commissioners of the Public Utilities

14 Commission, on February 2, 2017; said proceedings

15 having been reported in shorthand by James L. Midyett

16 and Harriet S. Weisenthal, Certified Shorthand

18 WHEREUPON, the following proceedings were

22 (AS NOTED OF RECORD.)

2 NUMBER MARKED ADMITTED

2 (Exhibit No. 55 remarked for

4 CHAIRMAN ACKEMANN: Good morning, ladies

6 We are back on the record.

7 This is Proceeding 16A-0396E.

8 I think we are starting with Mr. Sopkin.

9 COMMISSIONER KONCILJA: Before we do

10 that, I have a preliminary matter. I know that some of

11 us attended and I'm assuming others watched the public

12 comment hearing yesterday. And I found Leslie

13 Glustrom's exhibits very helpful, which she had labeled

15 And I would like to move that we enter

16 those into the record.

17 CHAIRMAN ACKEMANN: Motion to move those

18 four public hearing items into the record.

19 Seeing no objection, those are moved. We

20 need to then change the markings on those, do we sir?

21 MR. DETSKY: Excuse me, Mr. Chairman --

22 no objection but would it be possible to E-file those

23 or somehow provide them to the parties so we could see

24 what they are?

25 CHAIRMAN ACKEMANN: That would be

2 we're talking about?

3 MR. DETSKY: That would be helpful.

4 COMMISSIONER KONCILJA: You should have

5 stayed here last night.

6 MR. DETSKY: Tell that to my kids.

7 MR. DIXON: Your Honor, if I can --

8 CHAIRMAN ACKEMANN: Slow down a minute.

9 MR. DIXON: Just a clarification -- not a

10 question or challenging -- when we say we're going to

11 bring these into the record, to my way of thinking they

12 are already in the record because they are public

13 exhibits. Are you basically saying you want them

14 included in the record as evidence?

15 COMMISSIONER KONCILJA: Yes.

16 MR. DIXON: That's what I was trying to

18 evidence. So I want to understand precisely what you

19 are saying. So these exhibits would become evidence in

21 COMMISSIONER KONCILJA: Yes.

22 MR. DIXON: All right, thank you.

23 CHAIRMAN ACKEMANN: Very good. Any other

25 MR. SOPKIN: Along those same lines, we

2 them. If we do want to respond to them, will that

3 opportunity be made available?

4 CHAIRMAN ACKEMANN: Sure. Why don't we

6 way to get these -- ideally it would be electronically

7 to the parties so you can see that. And then we can

9 COMMISSIONER KONCILJA: Mr. Sopkin,

10 nobody was watching on the webcam or recording the