BEFORE THE PUBLIC UTILITIES COMMISSION OF COLORADO

PROCEEDING NO. 16A-0117E

______________________________________________________________________________
IN THE MATTER OF THE APPLICATION OF PUBLIC SERVICE COMPANY OF
COLORADO FOR APPROVAL OF THE 600 MW RUSH CREEK WIND PROJECT
PURSUANT TO RULE 3660(H), A CERTIFICATE OF PUBLIC CONVENIENCE AND
NECESSITY FOR THE RUSH CREEK WIND FARM, AND A CERTIFICATE OF
PUBLIC CONVENIENCE AND NECESSITY FOR THE 345 KV RUSH CREEK TO
MISSILE SITE GENERATION TIE TRANSMISSION LINE AND ASSOCIATED
FINDINGS OF NOISE AND MAGNETIC FIELD REASONABLENESS
______________________________________________________________________________
PROCEEDING NO. 16V-0314E
______________________________________________________________________________
IN THE MATTER OF THE PETITION OF PUBLIC SERVICE COMPANY OF
COLORADO FOR A VARIANCE OF THE CONSTRUCTION SCHEDULE FOR THE
PAWNEE TO DANIELS PARK 345 KV TRANSMISSION PROJECT
______________________________________________________________________________

ANSWER TESTIMONY OF
TIMOTHY CONSIDINE ON BEHALF OF
RATEPAYERS COALITION

July 27, 2016

Answer Testimony of Timothy Considine for Ratepayers Coalition

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Q.

Please state your name and business address.

A.

My name is Timothy Considine. My business address is 2833 Dover Drive, Laramie,

WY 82072.

Q.

By whom are you employed and in what position?

A.

I have been a Professor of Energy Economics in the Department of Economics and Finance and
the School of Energy Resources at the University of Wyoming since 2008. Prior to 2008, I was a
Professor of Natural Resource Economics at the Pennsylvania State University from 1986 to
2008, an Economist in the Economics and Policy Research Department at Bank of America in
San Francisco, California from 1983 to 1986 forecasting oil and natural gas prices, and an
Associate Analyst at the U.S. Congressional Budget Office (CBO) in Washington DC where I
wrote two CBO reports on the costs and benefits of decontrolling natural gas markets. I have
authored 31 peer reviewed journal publications, 12 other peer reviewed publications, and 19 other
studies for a total of 62 publications. I have completed several reports on the economics of shale
gas development that were supported by the American Petroleum Institute, Marcellus Shale
Coalition, Range Resources Appalachia, LLC, and the Manhattan Institute. I teach courses in
energy economics and the economic history of the oil industry. I am currently conducting
research on the economics of shale gas and tight oil production and the costs and benefits of
renewable energy portfolio standards. My qualifications are listed in Attachment TJC-1.

Q.

On whose behalf are you testifying in this proceeding?

A.

I am testifying on behalf of Ratepayers Coalition.

Q.

What is the purpose of your testimony in this matter?

A.

I was retained by Ratepayers to review the application of Public Service Company of

Colorado (the Company) to the Colorado Public Utilities Commission (Commission)

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for authorization to develop, own and operate as utility rate-based property a new 600
megawatt nameplate capacity wind facility located in eastern Colorado, which is
comprised of the Rush Creek I and Rush Creek II sites. In addition, the Company
requested two Certificates of Public Convenience and Necessity (CPCN): (1) a CPCN
to construct and operate the Rush Creek I and II wind generation facilities, and (2) a
CPCN to construct and operate a 345 kV generation intertie. The Company's application
and CPCN requests are collectively referred to as the Project.
The purpose of my testimony in this matter is to present my findings, conclusions and
recommendations regarding the Project.
Q.

Please describe the information you reviewed.

A.

I reviewed the Companys application for the Project filed with the Commission on May
13, 2016, as amended. I also reviewed the testimony and exhibits filed by the Companys
witnesses, including the Independent Evaluators Report prepared by Leidos Engineering,
LLC (the Independent Evaluators Report), and the Leeds School of Business at the
University of Colorado study (the Leeds study) regarding the economic impact of the
Project.

Q.

Please summarize your testimony.

A.

There are a number of issues related to the findings by the Company. First, the capacity
utilization rate used to estimate the levelized cost of energy is substantially above average
observed rates. If average observed capacity utilization rates are used, the levelized cost
of energy from the project increases significantly.

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Second, the levelized cost of energy can be deceiving for energy sources such as wind
because the value of intermittent energy depends not just on how much the project
provides but when that power is available. To estimate the true value of wind energy, the
value of wind energy output should be estimated for peak and off-peak periods.
Third, the natural gas prices used in the analysis conducted by the Company are
substantially higher than those projected by the U.S. Energy Information Administration
under their high shale energy resource scenario. Lower natural gas prices reduce the
benefit of the project in terms of avoided energy costs. Hence, the estimate benefit of the
project may be over-estimated.
Fourth, once the benefits of the federal production tax credit are exhausted, annual
revenue requirements for the project increase almost 10-fold between 2027 and 2029. The
Commission should be aware of this increase for planning purposes.
Finally, the economic impacts study conducted by The University of Colorado for the
Company did not consider the impact of lower outlays for coal and natural gas on the
Colorado mining sector, the impacts of higher electricity rates after 2029, and the impacts
associated with investments in new natural gas capacity that would be avoided by the
project.
Q.

Please summarize your findings, conclusions and recommendations.

A.

Based on my analysis of the Project, I have concluded that the benefits of the project may
be over-estimated. My recommendation is that the Company should conduct a more
thorough sensitivity analysis that would address the five points raised above. In

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particular, the impacts of electricity rates from sharply higher revenue requirements for
the project after the production tax credits are realized should be estimated.
Q.

What is the capacity utilization assumed by the company and how does it compare
with actual observed capacity rates for wind power capacity in Colorado?

A.

The Company assumed at 46 percent capacity utilization rate for the project. The US
Energy Information Administration reports that Colorado electricity producers generated
7,368,614 megawatt hours in 2014 with 2,543.9 megawatts of summer capacity. This
implies an observed capacity utilization rate of 33 percent.

Q.

What is impact on the levelized cost of energy for the project of using the observed
capacity utilization rate of 33 percent?

A.

The impact of using the observed capacity utilization rate is an increase in the levelized
cost of energy from $27.69 per Mwhr to $36.59 per Mwhr, an increase of 32 percent.

Q.

What is time profile of revenue requirements for the project?

A.

Based upon the filings by the Company, the revenue requirements are summarized in the
chart below.

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Revenue Requirements for the Rush Creek Project

120.0
100.0
80.0
60.0
Millions of Dollars
40.0
20.0
0.0

Q.

What the features of the time profile of revenue requirements for the project?

A.

The revenue requirements for the project are $63.7 million in 2019 and steadily decline to
$12.6 million in 2027. The revenue requirements increase to $115.3 million in 2029, a 9fold increase from levels in 2027.

Q.

What are some possible implications of these revenue requirements?

A.

How these revenues are recovered from ratepayers may be an issue that the Commission
should consider. For example, one issue is whether the higher revenue requirements in
the future should be recovered during the early years to smooth the impacts on electricity
rates.

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Q.

What are some possible implications of these revenue requirements?

A.

How these revenues are recovered from ratepayers may be an issue that the Commission
should consider. For example, one issue is whether the higher revenue requirements in
the future should be recovered during the early years to smooth the impacts on electricity
rates.

Q.

What are the impacts of natural gas prices on the estimated benefits of the proposed
project?

A.

Natural gas prices affect the opportunity costs of the proposed project. If the project is
adopted, then the potential benefits would include any cost savings from avoided natural
gas generation. If natural gas prices are high, these potential cost savings would be large.
On the other hand, if natural gas prices are low, the potential benefits may be low or even
disappear.

Q.

What are the natural gas prices assumed by the company and how do they compare
with forecasts made by the US Energy Information Administration?

A.

The Company provides several alternative natural gas price forecasts, high, medium, low,
and a so-called flat forecast, which is lower than the low price forecast out to the year
2040. The flat forecast, however, is higher than the high resource case scenario
developed by the US Energy Information Administration (EIA). This high resource case
scenario assumes continued advanced in the productivity of shale energy production and
discoveries of abundant reserves. This scenario involves continued rapid growth in
natural gas production and falling real prices for natural gas over time. The reference case
scenario by EIA, however, does not assume continued productivity advance and

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therefore, results in higher natural gas prices. These forecasts are summarized in the
following chart.

Comparison of Natural Gas Price Forecasts

8
7
6
5
4
$ / MCF
3
2
1
0

EIA 2016 Reference case

EIA 2016 High oil and gas resource and technology
Company
Company Base Forecast

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Q.

What are the implications of these forecasts for the proposed project?

A.

The natural gas price used by the Company in the base forecast is considerably higher
than the EIA reference case and high resource case scenario. Even the flat forecast by
the Company, which is the lowest among their forecasts, is considerably higher than the
high resource case scenario by EIA. The main implication here is that the estimated
benefits of the project in terms of avoided natural gas costs may be over-stated.

Q.

What are some limitations of using the levelized cost of energy to evaluate this
project?

A.

For intermittent source of electric power production, the levelized cost of energy may be
a misleading indicator because the value of when the power is produced is not estimated.
These limitations are discussed in the study by Joskow, which is attached to this
testimony as Attachment TJC-2.

Q.

What are the implications of the Joskow study for the proposed project?

A.

Joskows analysis suggests that the proposed project should be evaluated on the basis of
the profitability. The economic value of the electricity produced by the project should be
estimated using values for peak and off-peak power. To the extent that the project
produces more off peak than on peak power, the economic benefits of the proposed
project would be diminished.

Q.

What are some limitations of the economic impact analysis of the proposed project?

A.

The first limitation is that the lost economic output from reduced oil and natural gas
purchases are not considered. Secondly, the economic impact study does not consider the

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economic impacts from displaced investments in new natural gas electric generation
capacity. Finally, the time profile of the electric rates that would support the revenue
requirements for the project may not be adequately modeled.