PacifiCorp 2007 Integrated Resource Plan (May 30, 2007)

PacifiCorp – 2007 IRPChapter 7 – Modeling andThe Role of Front Office Transactions and Market Availability ConsiderationsIn parallel with the decision on an appropriate planning reserve margin level, the degree to whichPacifiCorp relies on firm market transactions is a decision that requires balancing portfolio costand risk. As demonstrated by comparing risk analysis portfolios with differing front office transactionassumptions, less reliance on front office transactions tends to reduce market price riskexposure, but can increase or decrease mean stochastic cost depending on the make-up of theportfolio. As mentioned earlier in this chapter, PacifiCorp believes that a limited amount of frontoffice transactions benefit the preferred portfolio by increasing planning flexibility and resourcediversity. Nevertheless, the company is concerned about long-term reliance on the market andexposure to market price risk, and therefore seeks to reduce that reliance as part of its overallresource management strategy. This concern stems from two sources of market price risk anduncertainty. The first source is the shifting resource mix outlook in the Western Interconnection,driven principally by new or expected state regulatory requirements. Specific trends include extensiveexpansion of renewable and gas-fired capacity and a counterpart reduction in coal capacitydevelopment. The second source of risk and uncertainty is the potential tightening of the regionalcapacity balance in the next decade due to planned resources not being built as more utilitiesrely on the market to meet their future needs. This is the time frame when a significantamount of base load capacity is needed by PacifiCorp and other utilities.The preferred portfolio is consistent with this strategic view on market reliance. The system-widefront office transaction amount in the preferred portfolio peaks at 660 megawatts in 2013, representingjust over 55 percent of the transactions amount included as a planned resource in Pacifi-Corp’s 2004 IRP (1,200 megawatts). Additionally, the company no longer plans for a fixed annualtarget amount of new firm market purchases in the load and resource balance as was donefor the previous IRP; rather, front office transactions are evaluated on a comparable basis withother resources and are subject to the company’s stochastic risk analysis. Finally, the reliance onfront office transactions drops off significantly after 2013, declining over one-third by 2016.Regarding market availability to support the level of front office transactions in the preferredportfolio, PacifiCorp points to purchase offer activity in response to recent periodic requests forproposals issued by the company’s commercial and trading department. Requests in 2007 forthird-quarter products for 2007-2012 delivery yielded over 5,000 megawatts in offers.FUEL DIVERSITY PLANNINGPursuant to the Utah Public Service Commission’s order on the PURPA Fuel Source Standard(Docket no. 06-999-03, issued on March 13, 2007), this section describes how fuel source diversityis addressed in the 2007 Integrated Resource Plan. 63The IRP standards and guidelines require PacifiCorp to evaluate all resource options on a consistentand comparable basis, which explicitly implies consideration of coal, natural gas, demandsidemanagement, and renewable resources (See Appendix I). In addition, the new Oregon Public63 As directed by the Utah Commission and agreed to by PacifiCorp, all future IRPs will include a section on fuelsource diversity to comply with the new fuel source standard under Title 1 Subtitle B of PURPA. See Chapter 3 formore details.205