20120203_LGE and KUs Rebuttal Testimony of David Sinclair

8/14/2019 20120203_LGE and KUs Rebuttal Testimony of David Sinclair

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PPL companies

Mr. Jeff DeR ouenExecutive DirectorKentucky Pu blic Service Coininission2 11 Sower B oulevardP. 0 B o x 6 1 5Frankfort, Kentucky 40602February 3, 20 12

FEB 0 3 2 42:PUBLIC SERVICECOMivlISSION

m,:Joint Application of Louisville Gas and Electric Com pany and Kentuc kyUtilities Conzpaiiyf o r a Certijicate of Public Conv enience and Necessityand Site Compatibility Certijicate f o r the Construction of n ConibinedCycle Conibiistiori Turbine at the Cane Run Generating Station nrzd thePiircliase of Existing Siniple Cycle C ombu stion Turbirie Facilities fr o mBluegrass G eneration C ompany LLC in Biickner KentuckyCase No. 2016-00375

Dear Mu. DeRouen:Enclosed please find ail original and ten copies of L,ouisville Gas and ElectricCom panys and Keiituclty Utilities Co inpanys Rebuttal Testimon y of David S.Sinclair in the above-.referenceddocket.Also enclosed are an original and ten copies of a Joint Petition for ConfidentialProtection and for Deviation froin Filing Requirements regarding certaininformation contained in the Reb uttal Testimony of Mr. Sinclair.Should you h ave an y questions coiicerniiig the enclosed, please do not hesitateto contact me.Sincerely,

Rick E. Loveltainp

c: Parties of Record

LG&E and KU Energy LLCState Regulation and Rates220 West Ma in StreetPO Box 32010Louisville, Kentucky 40232www.lge-ku.comRick E. LovekampManager Regulatory AffairsT 502-627-3324F 502-627-3213rickhve kamp @Ige-kuxom
http://www.lge-ku.com/http://www.lge-ku.com/


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PUBLIC SERVICE COMM

n the Matter of:

A CERTIFICATEAND NECESSITY

TURBINE AT THENG STATION AND

FROM BLUEGIRASS GENERATIONCOMPANY, LLC IN BUCKNER, KENTUCKY

REBUTTAL TESTIMONY OFDAVID S. SINCLAIRVICE PRESIDENT, ENERGY MARKETINGNTUCKY UTILITIES COMPANY ANDVILLE GAS AND ELECTRIC COMPANY

Filed: February 3,2 01 2


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VERIFICATIONCOMMONWEAL,TH OF KENTUCKY 1COUNTY OF JEFFERSON )) ss :

The undersigned, David S. Sinelair, being duly sworn, deposes and says he is theVice President, Energy Marketing for Kentucky IJtilities Company and Louisville Gas andElectric Company, arid that he has personal knowledge of the matters set forth in theforegoing testimony, and the answers contained therein are true arid correct to the best of hisinformation, luiowledge and belief.

DAVID S. SINCLAIRSubscribed and sworn to before me, a Notary Public in and before said County and

State, th is d d day of February, 2012.

V(SEAL.) Notary Public


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QA .

Please state you r name, po sition, and business address.My name is David S. Sinclair. I am Vice President, Energy Marketing for L,ouisvilleGas and Electric Company (LG&E) and Kentucky IJtilities Company (KU)(collectively, Com panies) and an employee of LG&E and KIJ Services Company,wliicli provides services to L,G&E atid KU. M y business address is 220 West MainStreet, Louisville, Kentucky 40 202. I submitted D irect Testimony in this proceeding0 1 1 September 15, 20 1 1 , which contained a staternelit of my qualifications,experience, job responsibilities, and previous testiriiony before tlie Commission.Are you sponsoring any exhibits?Yes. I am sponsoring tlie followiiig exhibits:

Q.A.

Rebuttal Exhibit DSS-1Rebuttal Exhibit DSS-2


Rebuttal Exhibit DSS 5Rebuttal Exhibit DSS-6

Rebuttal Exhibit DSS- 7


DSM -EE Energy ReductioiisRevenu e Requiremeiits Summary, Updated Final Phase I1Analysis with Sullivans Hypothetical DSMLong-tern? Expansion PlansRevenu e Requirements Summ ary, Updated Filial Phase I1Analysis, with Sullivans Hypothetical DSM and WindGas Price Forecast ComparisonL,oad and D ispatch Curves for W ind and Cane R un Units4, 5 , and 6

Load and Dispatch Curves for Wind, Cane Run TJnits 4,5 , and 6, and Cane Run Unit 7Histo rical G eneratio n, Brown TJnits 1 & 2Strategist and PROSY M Data Files


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1 Also attached to my testimony are six appendices that contain sources cited in certain23 Q.4 A.56789

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footnotes.What is the purpose of your testimony?Th e purpose of my testimony is to rebut the arguments made by Mr. Sullivan and M r.Chernick on behalf of the Sierra Club and Natural Resources Defense Council(Environriienta1 Intervenors). They recommend that the Commission not approvethe Companies request and suggest hypothetical additional Demand-SideManagement and Energy Efficiency efforts (DSM-EE) (beyond those proposed bythe Companies and approved by this Commission) combined with unspecifiedrenewable purchase power agreements (PPAs) as alternatives to the Companiesproposal in this proceeding to build a natural gas combined cycle combustion turbine(NGCC) at Cane Run (Cane Run IJnit 7) and acquire natural gas simple cyclecombustion turbines from Bluegrass Generation Co mpany, L,LC (Bluegrass CTs) inOldham Cou nty. As confirmed in the Environmental Intervenors responses tointerrogatories from both the Commission Staff and the Companies, theEnvironmental Intervenors acknowledge that energy efficiency alone cannot meetthe Companys claimed capacity shortfall and that the recommendations in theirtestimony are unsupported. Despite this shortcoming, my testimony will show that,even if the Environmental Intervenors unsupported options are considered, the

Companies proposed construction of Cane Run Unit 7 and the acquisition ofBluegrass CTs should be approved as I recommeiided in m y Direct Testimony.

Responses and Objections from Environmental Intervenors to First Inforniation Request of Commission Staff,Response to Question 2(b) (Jan. 23,2012) . 2


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Q. Does the Environmental Intervenors rebuttal testimony show that theCompanies analysis already provided in this proceeding was in any waydeficient?It certainly does not. Rather, the Eiivironinental Iiiterveiiors testimony h as no factual.or analytical support. Instead of a careful analysis, the Environmental Intervenorsprovide mere speculation about what might be achieved by unsubstantiatedhypothetical alternatives to the real opt ion s the Compa nies studied . Wh en asked toprovide specific alternatives or to provide any kind of analysis to support their claims,the Environmental Intervenors admit they have done no aiialysis and assert i t is nottheir job to provide alternatives to the Companies pr o p o ~ a l .~ urthermore, theirclaims of poteritial flaws in the Com panies analysis are unsupported.

As my D irect Testimony and the testimony o f the Companies other witnessesdescribed, determining how to meet customers current and future energy needsrequires examining what is actually available in the marketplace. The Companiesconducted a wide-ranging and thorough Request for Proposals (RFP) process todetermine the real optioris available to meet their customers needs. After can vassingthe marketplace, the Companies analyzed all reasonable and feasible options themarket presented to determine the most cost-effective resource mix an d the timin g ofnew resources to meet projected demand; that mix is what the Companies haveapplied for in this proceeding. It is a concrete proposal to meet customers v ery realneeds made in accordance with well-established Kentucky law regarding publicconvenience and necessity.

n response to the Companies questions, the Enviro nmen tal Interveno rs responded m ultiple times that noanalysis was performed or that requested information has not been developed or is o therwise unavailable.3


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1 Therefore, my testimony below and tlie analyses contained lierein are not an23456789

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acknowledgment tliat the Companies analyses have been in any way inadequate.Rather, they are an application of analytical rigor to tlie Environmental Intervenorsvagu e generalities and unsupported assertions. Doing so demonstrates tliat theirsuggestions and positions lack any merit whatsoever.Section 1 -- Hypothetical DSM-EE Does Not Displace the Need for Cane RunUnit 7 and Bluegrass CTsPlease describe your understanding of Mr. Sullivans hypothetical DSM-EEreductions.Mr. Sullivan asserts that i t should be possible for tlie Com panies to deve lop DSM -EEprograms that will annually incrementally reduce total sales by O .S , 0.75% and1.0% in 2012, 2013 and 2014 through 2017, respective1y.j He then subtracts tlieCompanies existing annual incremental DSM-EE from his hypothetical DSM-EEand converts the cumulative forecasted energy saviiigs to an annual incremental peak

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demand reduction using a 75% load f a ~ t o r . ~ Do any of the Companies current DSM-EE programs achieve savings at a 75%load factor?No, not based on the way Mr. Sullivan described his hypothetical DSM-EE. Thereare very few programs that could achieve a 75% load factor because there are veryfew end use technologies that operate at this high of a load factor. The DSM -EEprograms that could potentially achieve this level of sav ings would likely be targeted

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Direct Testimony of Dylan Sullivan (Sullivan Tes ti~no ny) t Exhibit DES-2 (Dec. 20, 201 1).Mr. Sullivan used the mathematical formula for ca lculating load factor to determine the peak reduc tion of hisi

hypothetical DSM-E E.Note that Mr. Sullivan seems to use a 65% load factor to calculate the values shown on page 3of histcstiniony. . 4


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at industrial processes. The Com panies current DSM -EE portfolio of programs isfocused 011 residential and comniercial customers.Why do the Companies focus only on DSM-EE programs that impact residentialand commercial customers?First, approximately 9 percent of the Companies total sales are to wholesalemunicipal customers in Kentucky and retail customers i n Virginia that are not subjectto Commission regulation and do not participate in the Companies DSM-EEprograms. Second, industrial customers make energy efficiency illvestments 011 theirown to reduce costs and gain a competitive advantage in their respective industries.To date, there has not been enough interest by industrial customers to support costeffective DSM -EE programs. How ever, the energy-efficiency efforts of illdustrialcustomers have been incorporated within the Companies load forecast through bothdirect input from large customers and econom ic modeling of smaller customers.Given that industrial customers have not historically participated in theCompanies DSM-EE programs, is it appropriate for Mr. Sullivan to apply hisRobu st Annual Energy Efficiency Goal to total company sales?No. Th e Companies do not develop specific DSM -EE programs to meet an arbitraryannual sales reduction target. Instead, the Co mpanies design progranis utilizing inputfrom their DSM Advisory Gro up, independent research, and the California StandardsPractice Manual to determine customer interest and cost-effectiveness.Coincidentally, as shown in Rebuttal Exhibit DSS-1 the Companies existing DSM-EE portfolio is projected to reduce incremental aiinual sales to residential andcommercial customers by an average of 1 percent through 2017, consistent with Mr.Sullivans 1 percent target.

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1 Q. Are the Companies DSM-EE programs the only way that customers future23 A.4567 Q*8 A.9

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energy-efficiency activities are captured in the load forecast?No. Besides the previou sly mentioned activities of industrial custom ers, theCompanies use statistically adjusted end-use models froin ITRON to developresidential and small cornniercial use-per-customer foreca sts. These models capturefuture appliance efficiency standards and custoiner appliance replacement trends.Mow do the Comp anies DSM -EE program s compare to benchmarks?The Companies DSM-EE programs were reviewed by ICF Ititei-natioiial (ICF) inpreparation for Case No. 20 1 1-00134 to benchrnark the DSM-EE portfolio againstthose of similarly-size d utilities.6 ICF coiicluded that the Com panies program s meetor exceed best practices for sim ilar programs ac ross tlie utility industry.Despite your reservations about Mr. Sullivans hypothetical DSM-EE, did youevaluate the impact it would have on the Companies need for capacity andenergy?Yes. As I discussed in niy Direct Testimony, the Companies expect to be 877 MWshort of their target reserve margin in 2016.7 This is primarily the result of theretirement by 2016 of Cane R u n Units 4, 5 , and 6, Green River Units 3 and 4 andTyrone Unit 3, which will reduce the Companies generation portfolio by 797 MW.Further, the Cane Run and Green River units have historically generatedapproximately 4 million MWh aiinually, representing about 12 percent of the

Iii the Matter of: Joint Ap plication ofLouisville Gm and Electric Com pany and Keii tucl~iUtilities Cornpaiiyf b r Review, Modification, atid Continuation ofExisting, mid Additioii of New Demand-Side Munageiiieiit aridEnergy I@ ,YeiicyProgi*aiiis,Case No. 20 1 1-00 134, Application V ol. 1, Louisville G as and Electric Com pany /Kentucky Utilities Comp any DSM Program Review Report, (Apr. 14, 201 I ) . The ICF Report is attachedhereto as Appendix A.

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Direct Testimony of David S. Sinclair at 15 (Sept. 15, 201 1).6


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Com panies total gene ration. Tliis loss of steel-in-ground gen erating capacity andenergy compares to Mr. Sullivans hypothetical, non-program-specific forecast ofRobust DSM that will reduce 2016 peak by 125 MW and provide 820 thousandMWh of energy at a 7.5 percent load factor. Sub tracting MI-. Sulliva ns hypotheticalDSM-EE of 125 MW in 2016 from the Companies total capacity need of 877 MWleaves a 752 MW shortfall. Tliis shortfall can only be only partially met by the 495MW Bluegrass CTs, which Mr. Chernick and Mr. Sullivan do not oppose, stillleaving the Companies 257 MW short of their target reserve margin8 However,because the Bluegrass CTs provide only pealcing energy, the Com panies w ould stillface a considerable energy sliortfall. Thus, even if Mr. Sullivans DSM -EE wereachieved, construction of C ane Run IJnit 7 would still be necessary.

Q. Please describe how you analyzed the impact of Mr. Sullivans hypotheticalDSM-EE.

A . Mr. Sullivan indicated that he spread his hypothetical DS M-E E over 75 percent of thehours in the year.9 How ever, Mr. Sullivan admits that he performed no analysis ofthe hourly shape or the revenue requirement impact of his hypothetical DSM-EEplan. To cast Mr. Sullivans hypothetical DSM-EE in the most favorable lightpossible, we spread the forecasted en ergy reductions over the 18 hours that typicallyhave the greatest load (beginning at 6 a.m. and ending at midnight) and held his

hypothetical DS M-EE in 2017 at that level throughout the rem ainder o f the planning

Th e purchase of the Bluegrass CTs was included in the portfolio as recommended by the Com panies andsupported by the Environmental Intervenors. See Direct Testimony of Paul Chernick (Chem ick Te stimony)at 3, lines IS-18 (D ec. 20, 201 1); Responses and Objections from Environmental Intervenors to F irstInformation R equest of Comm ission Staff, Question No. 2(b) (Jan. 23, 2012).Sullivan Testimony at 7 .Responses and Ob,jections from Environmental Intervenors to First Information R equest of L ouisville Gas7

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and Electric Company and Kentucky Utilities Company, Question Nos. 4 and 6 (Jan. 23, 2012).


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period. Next we evaluated the impact of this hypothetical DSM-EE on the revenuerequirements o f three of the IJpdated Final Phase 11 options:

i) SB 2x1 (640) + 3 CTs (Sale 2012)ii) SB 2x1 (605) -t3 CTs (Sale 2012)iii) SB 3x1 (907)

Option (i) was selected for evaluation because i t was the least-cost option identifiedin the 201 1 Resource Assessment ( Resource A ~ ~ e ~ ~ m e n t )nd forms the basis ofmy recommendation that this Comm ission approve the construction of Can e Run IJnit7 and the acquisition of the Bluegrass CTs. l Optioii (ii) was selected for ftirtherevaluation because greater DSM-EE would likely reduce the need for capacity andthus might make a smaller NGCC more economical. Option (iii) was selected forfurther evaluation because, while greater DSM-EE might eliminate the need topurchase the Bluegrass CT s, the Com panies would still be 752 MW short of capacityafter including Mr. Sullivans hypothetical DSM-EE and would, therefore, need alarger NGCC. Note that none of the Bluegrass PPA options were re-evaluatedbecause the Conipanies did not negotiate a PPA and there is no way of laowing ifthat would be a viable option at this point in time. Therefore, the only impact Mr.Sullivans hypothetical DSM -EE can have is on the choice o f real o ptions available tothe Companies.Wh at was the result of your analysis?

IJtilizing the most current data presented in this proceeding, we used the following assumptions: 201 1 WoodMac/PIRA Prices, 20 12 Load Forecast, updated costs for self-build alternatives and transmission facilities, andno economy pu rchases as detailed in the 201 Resozwce Assessment, Sections 6 and 7.The Resource Assessment was Exhibit DSS-1 to my direct testimony, filed on Sept. 15, 201 1.8


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A. To evaluate the impact of including Mr. Sullivans hypothetical DSM-EE plan, weutilized the same process and models employed in the Resource Assessiiient toevaluate tlie RFP responses and self-build options. First, we developed a least-costexpaiisioii plaii and the associated capital revenue requiremetits in Strategist for eachof tlie tliree options.13 Next, using PROSYM, we modeled the production costrevenue requirements for the three portfolios. Total systein reveiiue requirementswere then calculated including fixed O&M , gas transportation costs, and finn electrictraiisinissioii costs. The present valu e reveiiue requirem ent (PV RR ) for each optionis sliowti Rebuttal Exhibit DSS-2, which demonstrates that the Companiesrecorninendatioii to build Cane Run IJnit 7 as a 640 MW unit aid acquire theBluegrass CTs remains the least-cost option even with the iiiclusioii of Mr. Sullivanshypotlietical DSM -EE plan.Did you evaluate the impact of Mr. Sullivans hypothetical DSM-EE on any ofthe wind proposals from the Comp anies Request for Proposals (RFP)?Yes. Mr. Chemiclt objected that tlie Companies evaluated iioiie of the RFP windproposals in the Filial Phase I process so we created an option that replaced CaneRuri Unit 7 with nothing but wind proposals from the RFP. As I previouslydiscussed, the Companies would be 257 MW short in 2016 after Mr. Sullivanshypothetical DSM-EE and purchasing the Bluegrass CTs. Because wind conditionsare usually very poor at the time of summer peak, only 15 percent of the nominalcapacity rating was assumed to be available to meet this 257 MW s l i ~ r t f a l l . ~o

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T he data for the Strategist and PRO SY M m odeling runs conducted at my direction are assembled in RebuttalExhibit DSS-9 hereto.The use of 15 percent of nominal rating at time of peak is actually quite generous because NERCs 201 1Summer Reliability Assessment indicated that ERCOT, MISO, and PJM assumed that wind generators have an9


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meet this sliortfall with wind, the Companies would have had to accept each uniqueproposal (note that some bidders provided inultiple proposals froin the same windproject) offered in the RFP but still would have only acliieved 123 MW of firmsurniner capacity despite purchasing 820 MW of norninal capacity. 5 Even afteraccepting every unique wind proposal from the RFP, the Companies would still be134 MW short of their target reserve margin in 201 6. 6 To meet this remaining needand all future resource needs, we used Strategist to select the least-cost generatingportfolio for the reinaiiiing years under this hypothetical DSM-EE/wind scenario(see Rebuttal Exhibit DSS-3 for a descriptio n of this portfolio). The revenu erequireriieiits of this new wind-based portfolio were then evaluated using the sameprocess described above and used in the Updated Final Phase I1 analysis in tlieResource Assessment.What was the result of this analysis?This analysis showed that, even with the addition of Mr. Sullivans hypotheticalDSM-EE atid purchasing the largest quantity of wind achievable from the RFPoptions, Strategist selected Cane Run Unit 7 in 2016 as a least-cost resource as shownin Rebuttal Exhibit DSS-3. This provides further evidence that constructing Ca neRun Unit 7 is the best solution. Not only was Can e Run Unit 7 selected as a least-cost resource, but the hypothetical wind portfolio had significantly higher PVR R than

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availability of 8.7%%, 12.9 %, and 13%) espectively. Availab le at.httl?. i~~wn. . i ic ic .coinit i lcs/20 ~ 6 2 0 S u i i i i i i c r ~ ~ 7 0 1 ~ c l i a b 1 1 1 t ~ ~ ~ ~ 2 0 A s s c ~ s i i i c 1 i t~ 1 ~ l N A L ~ . ~ ~ ~ ~ ,ages 36, 5 1, and130.This analysis included Response Nos. 6C, 6F, 7D, 8C, 10, 11, and 14 as shown in the 201 1 Resozirce5Assessment, 11.1 Appendix A - Phase I Screening Results, p. 37.To maintain consistency with prcviously filed testimony, figures for reserve margin shortfalls in 20 16 arebased o n the 201 1 Load Foreca st. The 2012 Load Forecast was used for the rebuttal analysis. The differencebetween these forecasts in 20 16 is relatively m inor as shown in Table 2 3 of the 2011Resozirce Assessnient,page29. .16

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tlie other three alternatives that included Mr. Sullivans hypothetical DSM-EE asshown i n Rebuttal Exhibit DSS-4. This demon strates conclusively that tlie specificwind options that were proposed i n tlie Companies RFP are iiot part of the least-costportfolio and refutes Mr. Chemiclcs claim that wind energy is a competitivealternative at this time in Kentuclcy. 7So what do you conclude from th e var ious analyses you per formed us ing M r .Sullivans hypothetical DSM-EE: and Mr . Chernicks sugges tion that renewablegeneration, particular ly wind, shou ld replace the need for C an e Run lJnit 7?I conclude that even if Mr. Sullivans hypothetical DSM-EE were to be achieved, itwould iiot displace the need for Cane Run Unit 7 and that it would iiot rnalte Mr.Clieniicks proposed wind portfolio the least-cost alternative to replace retiringgenerating units and meet customers fuhire en ergy needs.Section 2 -Analysis of Renewable Responses to the Companies R FP

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Q. W ha t ar e Mr . Chernicks concerns with how renewable generat ion wasevaluated in the Reso urce Assessment?Mr. Cherniclt seems to be primarily concerned with how the Resource Assessmentdealt with tlie follow ing areas:

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i) fuel price volatility,ii) emission allowance prices for sulfur dioxide (SOz) and nitrogen

oxides (NOx),andfiihire carbon dioxide (COz) regulations and prices.ii)

Chernick Testimony at 14, lines 7-8. 11


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Furthemore, he states that he did not find any explicit treatment of risk in theResource Assessment.Is it true that there is no explicit treatment of risk in the ResourceAssessment?No . Th e Com panies evaluated uncertaiiity associated with natiiral gas prices, coalprices, electricity prices, and load. The Companies recommendation to build CaneRun Unit 7 and purchase the Bluegrass CTs is robust under all of these possiblefutures.W hat are Mr. C hernicks concerns regarding fuel price volatility?Mr. Cliernick cites historical volatility in Northern Appalachian coal costs asevidence fuel price volatility creates financial and economic stress of (sic) electricityconsumers and therefore that renewable generation such as wind should bepreferred. There are numerou s problems with M r. Chernicks statement. First, theCom panies have historically purchased very little Northern Appalachian coal becausethey are much closer to the coal fields of Kentucky and the Illinois Basin. Second,the Companies do not currently have any long-tern1 Northern Appalachian coalcontrac ts. Third, No rthern Appalachian coal prices tend to be more volatile becauseit is a close substitute for metallurgical coal. Fourth, the Re sou rce Assessmen tfocused on evaluating responses to the Companies RFP for capacity (of which onlyone proposal had coal price risk) and self-build options (which were all natural gas-fired) so the impact of coal price volatility on the existing generating fleet is not

Chernick Testimony at 10, line 11I8 12


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going to be a material driver o f revenue requirement differences between the variousRFP and self-build options.

Q What about uncertainty associated with futu re natural gas prices?A . Tlie Companies evaluated tlie IJpdated Final Phase I options under two different

long-tei-m natural gas price forecasts: a higher one prepared by PIRA and a lower oneprepared by CERA.9 Tlie graph in Rebuttal Exhibit DSS-5 shows these twoforecasts as well as one prepared by Synapse (co-authored by Mr. Chernick), ac o ~ ~ s u l t i n girm that has testified for Mr. Cheniicks clients (tlie Sierra Club andNatural Resource Defense Couiicil) in a recent case in front of this Asone can see, the long-term Synapse price forecast falls in between tlie forecasts usedby the Com panies. Beca use Mr. Chernick has not produced a forecast of futurenatural gas prices for this proceeding, the Compahies cannot quantify the specificimpact of Mr. Chernicks general assertions regarding natural gas prices. AlthoughMr. Chernick may claim that the Companies did not evaluate various options underhigh or low natural gas price cases, this graph clearly sliows that the PIRA and CERAforecasts the Companies used provide a broad range o f possible future prices and areabove and below a forecast that both Mr. Chernick and his clients have recentlyendorsed.

Q What is the impact of natural gas prices on the economics of renewablegeneration such as wind?

j See 2011 Resoicrce Assessment, Table 2 1 , page 27. Synapses AESC 201 1 gas price forecast was published in the Avoided Eiiergy Supply Costs in New England:2011Xej?ort,Synapse Energy E conomic, Inc., July 2 1,2 01 1, Amended August 11, 201 1 , Exhibit D-9,Appendix D, p. D-10. Available at: h t t ~ ~ : i ~ ~ ~ w ~ ~ . s v n a ~ ~ s c - u i i c ~ r r ~ ~ . o o m / D o w n l ~ ~ ~ ~ ~ i s ~ S ~ ~ n a p s ~ -~~ . A E SC: . A I : . . SC -S~L I~ \ ~ . -~~1 I 1-0 14.pdf.Responses and Ob,jections from Environmental Intervenors to First Information Request of L,ouisville Gas13and Electric Company and Kentuclcy Utilities Comp any, Question No. 11 (Jan. 23, 2012).


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1 A . Wind generation is typically more expensive than NGCC technology, especially2 when accounting for the costs associated with winds intermittent generating3 characteristics arid low availab ility at times of peak load . Still, highe r natural gas4 prices would teiid to ecoiiomically benefit wind generation. That is why it is5 important to note that while Mr. Cheriiick complains that none of the w i d options6 were evaluated under a different gas price forecast, they were, in fact, evaluated7 under a gas price forecast that is higher than the one put forward by Synapse as8 showii in Rebuttal Exhibit DSS-5 aiid yet were still not least-cost. Furthe rmore, as9 shale gas contiiiues to develop and put downward pressure on natural gas prices, this

10 will inalte it inore difficult to develop wind and other renewable resources.23 As MIT11 researchers noted, [Clheaper gas serves to reduce the rate of market penetration of12 renewable gei~ eratio n.~~513 Q. What are Mr. Chernicks concerns regarding emission allowance prices for SO214 and NO,?15 A. Mr. Cheniick seeins to believe that future SO2 and NO, allowaiice prices create a16 significant risk for the selection of Cane Run Unit 7 and Bluegrass as least-cost

2617 resources.18 Q. What is the impact of price of SO2 and NO, allowance prices on the dispatch cost19 of Cane Run Unit 7?

-- Chernick Testimony at 12, lines 1-4.Finlay, J., Consultant: W ithout subs idies, renewables will get priced ou t by natural gas, SNL FinancialOctober 1 1 , 201 1. A copy is attached hereto as Appendix B.I4 Jacoby, H., OSullivan, F, and Paltsev, S., The Influence of Shale Gas on 1J.S. Energy and EnvironmentalPolicy, Ecoiiornics qjEi?er*gyand Ei?vironii?erital olicv, Vol. 1, No. 1, Janu ary 2012 , p. 49. Available at: The Future of Natural Gas: An Interdisciplinary MIT Study, MIT Energy Initiative, 201 I . Available at:l i t t ~ ~ : i / ~ ~ C l ~ . i i i i t . C d l i j n i i t ~ i / r c s ~ ~ i ~ ~ l i / s t L i ~ l i ~ s / d o ~ u i i i ~ n t s ~ i i ~ ~ t ~ i r N a l - ~ a s - l ? O/NNaturalGas., Rcpoit .pdt26 Chernick Testimony at 1 1, lines 1 1 14.

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Although CSAPR has been stayed by a federal court, prior to the stay, the EPA wasforecasting that SO2 prices would be $1,100 per ton and annual and seasonal NO,prices would be $600 per toil and $1,500 per ton, re~pectively.~ ecause a NGCCsuch as Cane Run Unit 7 emits virtually no SOz, the price of an allowance wouldhave an iiisigriificant im pact on its dispatch cost. Cane Run Unit 7 will emit a smallamount of NOx, so the price of allowances at EPAs forecasted level would add about0.33 per MWh to its dispatch cost, an inimaterial amount cornpared to its total

dispatch cost of around $35 per MWh (assum ing $5 per mmBtu gas).What are Mr. Chernicks concerns regarding future COz regulations andprices?Mr. Clieriiick believes that it is certainly possible that the costs (for COz emissions)will be positive, and they may be very large, although he fails to specify whatpossible means, the timing of such regulations, and what positive means.28Furthermore, Mr. Chernick admits that he has not developed an actual probabilityweighted average of potential fiihire CO2 emissions costs and h as not evaluated thelevel of CO2 costs needed to refute the Companies recommendation in thisp r o c e e d i i ~ g . ~ ~owever, because of his belief, Mr. Cheiiiick feels that the Companiesshould have included an uiduiown and unknowable fiiture CO2 cost in its evaluationof the RFP responses and its self-build options.

014 prices in 200 7 dollars. SOz price is for Group 1 states. Regulatory Impact A nalys is for the finalTransport Rule Docket ID No. EPA-HQ-OAR-2009-0491, 1J.S. EPA, June 201 1, Table 7-12, p. 260.Available at: h t t ~ ~ : / / w w w . c p a . r r o \ i a i r t l n n s i ~ ( ~ i ~ ~ p ~ ~ s ~ f : ~ i i i ~ ~ l l ~ l A . r ~ d f . Chernick Testimony at 8 lines 18-19.9 Responses and Objections from Environmental Intervenors to First Information Request of Louisville G asand Electric Company and Kentucky IJtilities Company, Question No. 10 (Jan. 23, 2012).15


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Q. Why didnt the Companies evaluate the risk of future CO2 prices in theResource Assessment?It is not prudent to pay a premium today to address unknown and unlcnowable futuregreenhouse gas regula tions. If COz regulatioiis of the type coiiteniplated by Mr.Chernick occur at some fbture date, then the Companies can evaluate the least-costoptions (including renewables) at that time based on the state of technology at thattime (which renewable advocates claim will only get better and cheaper).Furtlierniore, many analysts feel that NGCC teclinology will at a minimum be a

In that case, building Cane Run lJnitridge to a lower carbon generation future.7 to replace retiring coal generation can be seen as a first step in moving theCompanies generating fleet to one with a lower carbon inten sity. Finally, there issom e evidence that todays wind technology is not a least-cost means to comp ly withCOz emission reduction targets. A report by Civitas concludes that when all of thecosts associated with wind are included, there is no economic case for windgeneration as a means to reduce C O ~missions.j2Are there any risks or uncertainties associated with wind generation that werenot mentioned by Mr. Chernick but that should be considered when evaluatingthem to meet customer needs?Yes. It is important to remember that the retirement of 797 M W of capacity thathistorically liave generated 4 million MWh a year of energy (approximately 12

A .

30, 31

Q.

A .

Scott, M., Shale Reserves: Gas Seen as Bridge between Old and New Forms of Power, Finaiicial Times,November 25, 201 1 . Available at: htt~~:ilwww.ft.coinicms;s/Oi2c79 7 5 ~ -42f-1 1c l -b07b-00 144feabdcO.htiiiI.3 The Future of Natural Gas at 2. See n.25.32 Lea, R., Electricity Costs: The folly of wind power, C ivitas, January 2012, p.19. This study looks at thecost of various technologies to meet the United K ingdom s C 0 2 eduction targets. Available at:l i t t ~ ~ : i / ~ ~ ~ w ~ ~ ~ . c i v i t a s . o l . e . u l i l e c o n o m y i c s t s ~ O?.p,df.16


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Cane R U I ~nit 7 and purchase the Bluegrass CTs. Furthei-more, Can e Run IJnits 4, 5 ,and 6 and Green River Units 3 & 4 provide a significant aniount of en ergy to meet theon-peak (the time of day when the deinaiid is greatest) needs of our customers.Rebuttal Exhibit DSS-6 compares a typical daily dispatch curve of Can e Ruii Units 4,5 , and 6 for January and July and that of a typical wind generation curve to a typicalload curve.33 AS sliown, wind does not supply energy w lien our cu stomers typicallyneed it the most. As I previously mentioned, wind generation simply does not havehigh availability during system peaks or througliout the month as can be seen i nRebuttal Exhibit D SS-6 by its low ratio of average hourly energy to noiiiinal capacity.As a result, wind ene rgy is often just displacing lower cost coal generation in off-peakhours and non-peak months and causing more expensive gas-based peakinggeneration to run in the on-peak hours.

Q. So are Cane Run Unit 7 and the Bluegrass CTs going to directly replace all ofthe energy that is currently being supplied by the coal stations that will beretired?

A . No. Can e Run IJnit 7 has the ability to cycle daily, whereas this is not practical forthe coal plants that are being retired. As a result, virtually all of the o ff-peak energythat is currently co ming from Cane Run Unit 4, 5 , and 6 and Green River IJnits 3 and

4 will largely be supplied by the Companies remaining coal units nmning at greatercapacity factors. IJsing the IJpdated Final Pha se I1 Base Case Prices, we expect Cane

-____Tho gcneration indices for wind were calculated by dividing the expected hourly wind generation curve (from3Response #10 to the Com panies RFP) by the nominal capacity. Thc indices for Cane Run Units 4, 5 , and Gwere derived by dividing the actual 20 10-201 1 average hourly generation by the units correspo nding seasonalcapacity ratings. Th e load indices were derived by averag ing the 201 0-20 1 1 indices, which werc calculated bydividing the actual 2010-201 1 hourly loads by the corrcsponding monthly peak d cinand s for each year.17


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R U I ~Jnit 7 to produce about 2 million MWh in 2016. Rebuttal Exhibit DSS-7 showsthe typical daily generation profile for Cane Run Unit 7 in January and July.34 Asyou can see, it better matches the load needs and the lost energy from the retiringplants than doe s the wind profile. Filially, the Bluegra ss CTs are peaking units, and,like all peaking units, they will provide limited amounts of energy--but at times ofextrem e load conditions when the system is most stressed and energy is needed m ost.Ar e the re any potential costs associated with win d t h at were not ref lected in th eResource Assessment but that would have been required to be evaluated morecareful ly had a wind of fer been pr iced such th at i t m ade i t to the Final Ph ase I1analysis?Yes. It is becom ing better understood in the industry that intei-mittent nature of windrequires an increase in the amount of dispatchable generating capacity that must beavailable to quickly respond to w inds fluctuating ou tput.35 6 The cost to our systemof providiiig this increase in dispatchable generation would need to be evaluated.Section 3 - Asset Ownershig P er Se Does Not Increase Co st Risk to Cu stom ersRelative to a Purchase Power AgreementDo you agree with Mr . C hernick tha t the Reso urce Assessment did not ta ke intoaccoun t the different r isks of asset own ership an d PPA s?No. As someone who has, over the last 15 years, personally negotiated numerousPPAs (as both a buyer and seller) involving tho usands of megawatts, 1 can assure theCommission that the risks inherent in asset ownership and a PPA were appropriately

Q.

A .

Q.

A .

The indices for Cane Run IJnit 7 were derived by dividing the forec asted 201 6 averagc hourly generation byJthe units corresponding seasonal capacity rating.35 Makovich, L, Littlehalc, P., Recalibrating Pow er Supply Cost A ssessments, IHS CERA, December 14,201 1, at 1. A c opy is attached hereto as Appendix C.36 The Future of Natural Gas at 10. See n.25. 18


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captured i n tlie Resource Assessment. Mr. Cliernick seems to have a view that PPAsellers willingly t a l e 11 such risks as development, permitting, plant operations,O&M costs, capital costs, and plant availability at no cost to the buyer. This situationdoes not exist in the nmk etplace. A PPA is not a fi-ee luiicl3 when i t comes to risk.The price that a seller is willing to offer reflects tlie risk that the seller is taking.There is no basis to believe that tlie respondents to the Companies RFP did not fiillyprice the risk that they were unde rtaking . Siniilarly, tlie Com panie s self-build optioncaptures tlie cost of taking on similar risks in the cost of debt and equity.What about Mr. Chernicks claim that under a PPA, If the plant does notwork, the Companies and their customers do not pay, whereas if theCompanies own a plant the customers pay the full cost if the plant operates or

Again, this is simply not true. If a seller fails to deliver energy under a PPA,replacement power must be foun d. Either the Com pany will have to run higher costgeneration or purcliase energy from an other party. Tlie question tlien becomes, w hopays for this replacement energy? IJnfortunately, i t is almost always the buyer in oneway or another, either in the price o f the power under the PPA or at the time it buysreplacement energy. If the PPA has a liquidated damage (L,D) provision, then theseller will reimburse the buyer for some amount of replacement power cost. Myexperience in asset-based transactions is that sellers never take unlimited L,D risk, sobuyers usually have some replacement ene rgy exposure. How ever, the risk of payingLDs is built into the price the seller charges, so the buyer, in effect, is just prepaying

37 Chernick Testimony at 12, lines 11-1 3 and lines 17-19.19


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for a certain amoun t of replacement power cost through the PPA price. This is what Imean when I say that the buyer almost always pays the cost of replacement powerwhen a seller fails to perform.Is it true that the Companies can just pass on the costs of power plants whetherthey operate or not as suggested by Mr. Chernick?No. Regulated utilities like LG&E and K U are allowed to collect only prudentlyincurred costs from our customers. This is a strong incentive for the Companies to

Q.

A .

properly manage the risks associated with building and operating Cane Run Unit 7and i t caused the Companies to perform tlie appropriate due diligence on thecondition of the Bluegrass CTs before they agreed to purchase them. Furthermore, allof the Companies costs are subject to review b y the Cornmission as part of the FuelAdjustment Clause, the Eiivironinental Cost Recovery Mechanism, and base ratecases. These proceedings help ensure that tlie Companies properly maintain andoperate their facilities.Mr. Chernick states that the Companies would save the fixed capital and.operating costs of power that is not delivered under an energy-only pricedPPA.38 Would the Companies be at risk of overpayment for these same cos& ifpower were over-delivered in a fixed-price PPA, particularly in a non-dispatchable wind contract?Yes. It is highly likely that a seller would attempt to set its fixed price assum ing as.low a capacity factor as possible to assure that its fixed costs were collected and thatit had upside sho uld the plant perform better. The refore, any sales in excess of this

38 Responses and Objections from Environmental Intervenors to First Information Re quest of Comm issionStaff, Response to Question 7(b) (Jan. 23,201 2). 20


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miniriiuni amount wo uld result in the buyer paying more than tlie actual fixed costs oftlie facility. Mr. Chem ick s e e m to consider only the costs associated with tlie risk ofunderperfoi-niance by tlie seller, when, in fact, there are also costs to tlie buyerassociated with the risk o f over-perfonnance.

Q. Are there any hard-to-quantify advantages to plant ownership that Mr.Chernick may have overlooked?

A. Yes. One key advantage to own ership is operational control and respoiisibility. Asan owner, one can better control how a plant is maintained and can do things thatiniglit increase its performatice mid lower its costs over time - actions that wouldbenefit our customers. Unde r a fixed-price PPA of tlie type favored by Mr. Ch emic k,any beliefits from improve d perfonrialice or cost managem ent flow to the seller, wh omost likely priced tlie energy assuming costs would likely go up and performancewould likely deteriorate. In other words, the seller tries to structure a PPA so that itgets all of the upside an d little of the downside. Furthemiore, should a significantproblem occur with a plant under a PPA , the buyers only recourse is what it was ableto negotiate in the PPA, w hich, in my experience, is likely to give it little control ov erfixing a problem with a generating asset. If a significant problem does arise under aPPA, there is a material likelihood that sign ificant litigation will follow, adding stillmo re cost to a PPA.

Section 4 - Pending EPA Regulations Do Not Materiallv Impact the RFPEvaluationMr. Chernick expresses concerns that the Resource Assessment does notprovide a clear summary of the effects of the Companies plans for

Q.

21


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environmental compliance on dispatch of its existing system .... 739explain how the Resource Assessment captu res environm ental com pliance costs.The irnpacts of tlie Companies plans for environniental co inpliance on the dispatchof its existing system are fully reflected in the analyses supporting the ResourceAssessme nt. These effects include the variable operating costs of new enviroiinieiitalequipment, as well as the associated im pacts 011 unit capacities and e missions.How do these environmental compliance cos ts impact the evaluat ion of the R F Presponses and C ane Run Uni t 7?Not much. It is important to renieniber that the Resource Assessment was primarilyfocused on identifying the least-cost options for meeting future load after all of tlieexisting generation fleet liad either complied w ith new eiiviroiirnental regulations orbeen retired. All eiivironmental compliance costs were captured for each of the RFPresponses and the various Cane Run Unit 7 self-build options. Therefore, it is theunique cost of each RFP proposal and self-build option that drives the differencesamong tlie various alternatives described in the Resource Assessment.

Please

A.

Q.

A.

Q. Mr. Ch ernic k expresses concerns about var ious pending o r proposedenvironmental regula t ions such as CSAPR, MACT (now cal led MATS) ,cooling wa ter regula t ion, and coal combust ion residuals (CCR). How a rethese regulations relevant to the Companies analys is of the RFP?The various regulations cited by Mr. Clieriiick are rnosfly targeted at coal units andtherefore largely irrelevant to the analysis of the RFP responses and the self-buildoptions. As a gas-fired plant Can e Run Unit 7 does not have CC R, thus the CCR rule

A.

3) Chernick Testimony at 6, lines 16-18 22


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will not affect it. Concerning water-related regulations, i t will have a cooling towerand be in compliance with all regulations. All of these costs were reflected in theResource Assessment analysis. As stated above, the Resource Assessment was notfocused on environmental compliance options for the existing fleet. That wasaddressed in analysis supporting the just completed ECR cases.40 The ResourceAssessment was focused on evaluating tlie options to meet the Companies futurecapacity and energy needs that arose primarily as tlie result of capacity being retireddue to pending EPA regulations.Will Cane Run Unit 7 comply with existing EPA g reenhouse gas regulations?Yes. Cane Run Unit 7 will be permitted under tlie Title V permit process and, basedon tlie emissions envelope of the unit, the site will net out of the Prevention ofSignificant Deterioration (PSD) permit process. Th e Greenhou se Gas (GHG)Tailoring Rule requires PSD permitting if a facility increases its GHG ernissions (COzequivalent) by m ore tlian 75,000 tons annually. GHG emissions from tlie Cane Runsite will be significantly reduced with the installation of lJnit 7 and tlie retirement ofIJnits 4, 5 , and 6. The EPA has postponed the release of draft GHG standards for newand existing units.

Q.A.

Q. How would future greenhouse gas regulations beyond those currentlycontemplated by EPA impact the decision to build Ca ne Run Unit 7?As I previously mentioned, a new NGCC such as Cane Run Unit 7 is liiglily likely to

Therefore, even ife part of a least-cost portfolio in a world with COz pricing.A.

41,42,43

Case Nos. 201 1-00161 and 201 1-00162.041 Lea at 19. See n.32.41 EPA Analysis of the American Clean Energy and Security Act of2009, June 2009, p. 26. Available athttp://www.epa.gov/climatechangc/economics/pdfs/HR24S4~Analysis.pdf.23


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1234 Q.567 A.89

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a form of CO? pricing emerges in the future as postulated by Mr. Clieiiiick, NGCCssuch as Cane Run IJnit 7 will likely be an important asset in a least-cost generatingportfolio.Mr. Chernick focuses on pending regulations that could impact the cost of fossilgeneration. Are there any discussions regarding regula tions tha t could impactthe cost of renewab le generation such as wind?Yes. Last Decem ber, the American Bird Coiiservancy (ABC) petitioned theInterior Departments Fish and Wildlife Service to create a niaiidatory permittingsystem for wind projects because they pose a serious threat to various species ofbirds.44, 45 For example, a proposed 100 MW wind project in California wasabandoned last Decemb er because of potential impact on birds. L,ast No vem ber, fourWashington public utility districts cancelled a proposed coastal wind farm for the

ABC seeks binding regulations to protect birds and bats.48 It isame reason.not surprising that such issues are being investigated and are becoming moreiniportarit as the wind industry increases in scale.

46. 47

43 Revis, J., Creating a L,ow-Carbon Future, EPIU, July 2010. Available at:-_ift,v,:://irwUoc.s.>Iiri.o r i 1 / c /o ~ . ~ / C o i ~ ~ i ~ ~ 1 ~ ~ i t ~ L ~ o ~ ~ i ~ t ~ 1 i ~ t i t ~ s / ~ ~ ~ ~ ~ 1 ~ , s 1 ~ ~ o i i i i C : I ^ c ~ ~ r i i i 1 , ~ ,-Crrsbo 7%2OFir iiz El3R1%27s%.?02 009% 20f~isni M E RGE%2 OS idv.p~oJ44 Bird Conservationists Seek FW S Wind Perm itting R ules, Clean Et7ergy Report, December 4, 201 1. A copyis attached hereto as Appendix D.45 Massive Bird Kill at West Virginia Wind Farm Highlights National Issues, Am erican B ird Conservancy,October 28, 201 1 Available at: l i t t ~ ~ : / i ~ ~ ~ ~ ~ ~ w . a b c l ~ i r d s . ~ ~ ~ ~ ~ i i c ~ ~ s a n ~ r c ~ ~ o 1 ~ s / ~ c l c ~ i s ~1028.htnil.Mulkern, A., Company Cancels California Project O ver Bird Concerns, eenewxr~et ecember 1,2011 Acopy is attached hereto as Appendix E. Wash. Utilities Ax Proposed Turbine Project on Key Nesting Habitat, eeizews.net, Novembe r 18, 201 1 Acopy is attached hereto as Appendix F.48 Bats and Birds Face Serious Thre ats from Gr owth of Wind Energy, New Yoik Tinzes, August 8, 20 1 1.Available at: Iitt~~: iwwi\~.n\~timcs.corn/cwirc/201 Osi08i01;cliinatc~\~il~-~~its-and-bir~s-t~c~-s~~i~Lis-~hIf r o m - ~ r o -OS I 1 ht i i i l?~~n~ewantcd=a l l .

46

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http://eeizews.net/http://eeizews.net/


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Section 5 - Cane Run Unit 7 and Uncertainty Regardinp the Future of BrownUnits 1 and 2Mr. Chernick expresses his concern that the Resource Assessment does notappear to account for the possibility that Brown Units 1 and 2 might be retiredin th e f ut ur e d u e t o E P A r e g ~ l a t i o n s . ~ ~o you have this sam e concern?No. The Resource Assessment was prepared after the Companies submitted theirproposed environmeiital compliance plan to this Co ~n mi ssio n n Case Nos. 201 1-00161 a i d 201 1-00162 but before the Conim ission issued its order in those cases onDecember 15, 201 I . In their proposed environmental compliance plan, theCompanies denionstrated that it was least-cost to illstall baghouses on Brown IJnits 1and 2. Desp ite this show ing, the Cornpallies agreed to defer the decision oneiivironmerital compliance for these units until July 201 3. If the Companiesultimately dec ide to retire these units, their capa city sho rtfall in 20 16 will increase by272 MW (the combined summer net rating of Brown U nits 1 and 2) and result in theloss of 1,200 GWh of annual energy based on historical operation^.^

Q.

A.

Rebuttal Exhibit DSS-3 shows the long-term expansion plan from the FinalPhase I1 analysis associated with the Companies recommend ation to build C ane RunIJnit 7 and purchase the Bluegrass CTs. It shows that the next unit to be added is a3x1 NGCC in 2020 even with Brown Units 1 and 2 still part of the fleet as assumed inthe Resource Assessment. Therefore, the retirement of Brown Units 1 and 2 wouldmost likely accelerate the need for the next NG CC and would m ost certainly increasethe value of Can e Run IJnit 7.

Chernick Testimony at 7, lines 9 -12.See Rebuttal Exhibit DSS-8 for historical energy generated from B rown Units 1 and 2.49

2 s


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1 Section 6 - Conclusion2 Q.3456

Mr. Chernick recommends that the Commiss ion defer any approval of theCane Run combined-cycle plant because i t does not cur rent ly have enoughinformation to determine whether construct ion of the new Cane Run plant isbeneficial ..., and Mr . Sul l ivan recommends t h at more DSM-EE could offse tthe need for Cane Ru n Unit 7 and the Bluegrass C TS . ~Do you a gree with the ir

7 recommendat ions?8 A.9

No. For the reasons I have just discussed, even assum ing that the hypothetical DSM -EE forecasted by Mr. Sullivan could be cost-effectively achieved, it does not change

101112131415 Q. W ha t is your r ecommenda t ion to the Commiss ion?16 A.17

the least-cost options for meeting fiiture customer needs driven primarily by theretirement of Cane Run lJnits 4, 5 , and 6, Green R iver IJnits 3 and 4, aiid Tyron e Unit3. Furthennore, the issues that Mr. Cheniick and Mr. Sullivan raise are eitlierirrelevant or not based on a ny an alysis of the data contained in the RFP or self-buildoptio ns that were used by the Com panies to prepare the Resource Assessm ent.

Rased oii my previously filed Direct Testimony in this proceeding, the analysesperformed under my direction and contained in the 201 1 Resource Assessment, as

1819

well as this rebuttal testimony, it is my recom mend ation that the Cornmission shouldapprove the Cane Run Unit 7 construction project and the Bluegrass CT acquisition

20 as least-cost resources for ensuring adequate geiierating capacity and energy while2122

complying with current and proposed environmental laws.

Chernick Testimony at 3, lines 18-25,1 ullivan Testimony at 3 and 9. 26


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" 1 Q. Does this conclude your testimony?2 A . Yes i t does.

27


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Rebuttal Testimony E xhibit DSS-1Page 1of 1SinclairSM-EE Energy R eductions

2012 2013 2014 2015 2016 2017Energy Efficiency ReductionsAnnual Energy (GWh) 197 205 253 198 198 198Load Forecast (CWh)' CU Residential 6,467 6,540 6,602 6,729 6,860 6,961' KU Coininercial 4,725 4,820 4,889 4,993 5,085 5,155L,G&E Residential 4,352 4,386 4,441 4,505 4,577 4,636LG&E Coininercial 3,981 4,062 4,130 4,216 4,298 4,369Total 19,526 19,807 20,062 20,443 20,820 21,122

AverageEE Energy Reductions 1.0 1.0 1.3% 1.0% 0.9% 0.9 1.0

' 201 1 IRP, Volume I, Section 8,Table 8.(3)(e)(3), page 8-74;Includes energy froiii the 'Smart Energy Profile' prograin which does not accuiiiulate.201 I IRP, Volume I, Section 7.(4)(a),page 7-8.201 1 IRP, Volume I , Section 7.(4 )(a),page 7-37.


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Rebuttal Testimony Exhibit DSS-2Page 1 of 1Sinclair

P V R R ( $ M )Production Gas Fixed Capacity Elec GrandCo sts CaDital Trans. 0 6 i M Charm Trans. Total

CONFIDENTIAL INFORMATION REDACTED

Differencek o m B e s tODtion

Revenue Requirements Summary, Updated Final Phase I1 Analysis, with Sullivan'sHypothetical DSM

PVRR in 201 1 dollars calculated tlirough 2040


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Rebuttal Testimony E xhibit DSS-3Page 1of 1Sinclair

20122013

Long-term Expansion Plans

Bluegrass CTs Bluegrass CT sWind (480 MW)

Analysis -Recommended withHypothetical

2020202120223x1 NGCC

Wind (340 MW)201s(640 MW ) (640 MW )

202s2026

20182019

3x1 NGCC3x1 NGCC

20322033

- 0232024

3x1 NGC C 3x1 NGCC

2038_ 0392040

20272028

Simple Cycle CTSimple Cycle CT

20292030

2034203520362037


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Revenua: Requirem ents Summ ary, 1Jpdated Final PhaseHypothetical DSM and Wind alysis, with Sullivan's

No Ecortomy PurchasesSf3 2x1 (6.40)+ i C ' I S ( S d e - 2012)SI3 3x1 605) 1 3 C 1 s (Sale - 7012)SI3 3x1 (907)3 c' Is (Sale - 2012+ -__-1-

PVRR ($91) D f f e rericeCosts Cspitd ......Pro duc i o 11

. . 1

* PVlZR u i 201 1 dollars calculated through 2040* * Cane Run I l n i t 7 was chosen bjf Strategist in 2016


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Rebuttal Testim ony Exhibit DSS-5Page 2 of 3Sinclair

20115 2011$ 20115Svnapse2016201720182019202020212022202320242025

AESC 2011 Ba


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Rebuttal Testimony Exhibit DSS-5Page 3o f3Sinclair

GDPDeflator09'=1 oo

2009 1O(l02011 1 0 2 42012 10492013 I 82014 1 102015 1 1.3

2010 I ooc3

20162017201820 19202020212022202320242025

'I '161 181.211.241.2631. 29'1.321 .3 4.I .371.39

GDPDeflator10'=1.00

1ooo1.0151.0401.0661.0931.1201.1461.1711.1981.2251.2521.2791.3091.3281.3581.383

GDP 2011$ 2011$11'=1.00 20'1 PrRA [REDAC'TEDJ Z B l l PFRA [REDACTED] IEDBCTED) ?EGA@-rED)Deflator Nomina I Real iVtarrrinai Real

~ ...............................,...,. . I -

I 0001.0251.0511.0771.1041.1291.1541.180I2071.2341.2601.2891.3091.3381.362

I:\Case No 2011\Case No. 2011-00375 - CCN Cane Run & Bluegrass\RebuttalTestimony\FINAL\Rebuttal Exhibit 055-5 REDACTED-FuelPricesComparison x l s xTAB: Source Data 2/2/2012


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Rebuttal Testimony Exhibit DSS-6Page 1 of 1SinclairCONFIDENTIAL ~ N ~ ~ R M A T ~ ~ NELoad and Dispatch Curves -Wind and Ca ne Run Units 4, S, and 6

January Weekd ay Px 1 I x _100%

80%1 60%

40%820%

xY-

* * i ,,

Hour Ending- *Cane Run Units 4-6 Wind - REDACTED Load% of Max for Load i s the Monthly Peak% of Max fo r Cane Run Units s the Seasonal Maximum Capacity of the Units% of Max for Wind i s the Nameplate Capacity

July Weekd ay Prof i le

Hour Ending- *Cane Run Units 4-6 Wind - REDACTED Load% of Max for Load i s the Monthly Peak% of Max for Cane Run Units i s the Seasanal Maximum Capacity of the Units% of Max far W ind i s the Nameplate Capacity

Please see folder titled Exhibit DSS - 6,7 on enclosed CD for workpapers


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Gerierntiorz (G Wh) 2006 2007 2008 2009 2010 2011Brown Units 1and 2 1,437 1,507 1,589 764 1,175 934

Historical Genera tion, Brow n Units 1and 2

Average1,234


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These data files are being provide pursuant toa Petition for Confidential Protection.


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Rebuttal Testimon y Appendix ASinclairPage 1 o f 7 6

DSM Program ReviewMarch 18 , 2011

091 10


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Rebuttal Testimony Appendix ASinclaiPage 2o f 7 6


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Rebuttal Testimony Appendix ASincIaPage 3 of 76

ICFDSM Program Review

March 18 ,2011

repared for:Louisville Gas and Electric Company /Kentucky Utilities Company220 West Main StreetLouisville, KY 40202repared by:ICF International620 Folsom Street, Suite 200San F rancisco, CA 94107(415) 677-7100


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Rebuttal Testimo ny Appendix ASinclaiPage 4of 76


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Rebuttal Testimony Appendix ASinclaiPage 5 of 76

Executive Summary ........................................................................................ . ......... ....... ......I1. Introduction ....................................................................................................................... 5

1 I . Scope of ICF's Review ............................................ ......................................... ......... 51.2. ICF's Approach .......................................................................................................... 51.3. Report Overview ........................................................................................................ 62. Regulatory and Policy Environment................................................... .... .............. ..........72.1. Federal ...................................................................................................................... 72.2. State .......................................................................................................................... 82.3. How Is LG&E / KU R esponding to S tate and Federal Policy Shifts? .......................... 92.3 .1. E nergy Eff7cienc.y is a Priority for the C omp anies' Uppe r Mana2.3.2. LG&E / KO's Portfolio Is Growing and Diversifying .l.l~l_.._..l....l_lll l.3. Best Practices .......................................................................................... . ....................... 14

" " " I4. 1.1. Defining Best Practice . l l. l I ^4. Portfol io Review ................................................................................................................. 164.1. Benchmarking Costs and Savings ........................................................................... 1 7 4.2. Program Spending, by Sector .................................................................................. 18 4.3. Regulatory Treatmen t of Program Costs .................................................................. 1 9 4.4. Ratepayer Impact .................................................................................................... 1 9 5. Program Reviews ................................................................................................................5.1. Expanded Programs ................................................................................................ 2 3

_ .."..."""."""~".."..........~"

5. I . I . Residential Load Manage ment ....."",".5.1.2. Commercial Load Management ......" . l l . l I . . . l ... . ... .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5. I.3 Comm ercial Conservation / Comm5. 1 #. Residential C onservation / Home Energy Performance l . . . . . . . l . l . l l . l5.1.5. Residential Low Income Weatherization (W eca re) ..... l._ l.... l. ..,. .~~~~. .~~." . . . . . ' " " "~. . . . . . . " " " " " .~~'

5.2. New Programs ......................................................................................................... 525.2.1 Smart Energy Profile . . . . . . l. l l . l . . . . . . . . l l l l l l5.2.2. Residential Incentives ... ._.... ......_5.2.3. Residential Refrigerator Removal ....""^"""". . . . . . . """..... .. 1. ._ ..,...... ...,. .""...""."""...".........................................

6. Overall Conclus ions .......................................................................................................... 69


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Rebuttal Testimony Appendix ASinclaiPage 6 of 7 6

Figure 1 Distribution of Year 1 Program Spending, by Program Status IIIIII_.~.III.I_.II.... . . . I I . . . . , , l l l . I I . 11. . I 2.. . " .......13Figure 2: Distribution of Y ear 1 Program Spending, by Program Type , I I . I I I_ I__ . I . I I I . I ..Figure 3: Distribution of Year 1 Program Spending, by Riskllnnovation Category lllI .I..... I_ l . I I . l I . I . .

Table 1: Existing, Revised, and New LG&E / KU Programs ("Th e Portfolio") 1 ^ . l l l l l l _ l l . l l l lTable 2: LG&E / KU's Energy Portfolio Perfarmance versus the South, Midwest, and U S. Median ...Table 3: LG&E / KU's D emand Portfolio Performance versus Benchmarking Study l l l l l l l l l l l l l , I I I I I . _ I . . _ I . 18Table 4: Energy Consumption, Program Spending, and P I I_ I . . . . l I I I . 9Table 5: Benefit-Cost Ratios, by Cost-Effectiveness Test.Table 6: Residential Load Management Program Compa .. . . . 1 . 1 1 1 . . . 1 . 1 . . _ l 1 l _ _ l r . . . , . . . . I . I ^ ^ I ^ . I I . . I ^ I . . , I I . . .. 25Table 7: Residential Load Managem ent Program Results Comparison ... _ . .. " " "27I . "30Table 9: Commercial Load Management Program Results Comparison I. I .. I . . . . . .I .I .. . .. , I. 32

Table IO: Commercial Conservation I Commercial Incentives Program ComparisonTable 11 Commercial Conservation I Commercial Incentives Program ResuTable 12: Residential Conservation / Home Energy Performance Program C I'I.I...I .. . . . _ I l - l . l l l l...43Table 14: Residential Low Income Weatherization (WeCare) Program Comparison ... _ _ _ . . I I . I I I I I I . I . . . . . . .46Table 15: Residential Low Income Weatherization (WeCare) Program Results Comparison , . .., I_I I__I . I_I I . . . .Table 16: Smart Energy Profile Program Comparison 1 1 1 1^ . ^ . I I I . I . . . .. . 57Table 18:Residential incentives Program ComparisonTable 19 :Residential Incentives Program Results CompaTable 20: Residential Refrigerator Removal Program CoTable 21 Residential Refrigerator Removal Program Results Comparison .......... .

I _ _. I . .

m Costs, by Sector _ l l . l l I I I . . I I I . l I I . . . . . ._ ""....... ...Table 8: Commercial Load Management Program Comparison . . . .. .. . . " .. . . .

I _ I . ._ . _ . _ _ _Table 13: Residential ConservationlHome Energy Performan ce Program Re

Table 17:Smart E nergy Profile Program ReslJlts Comparison __....


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Rebuttal Testimony Appendix ASinclairPage 7 o f 7 6

Louisville Gas and Electric Company (LG&E ) and Kentucky Utilities Company (KU), and,hereafter referred to as LGRE l KU or the Com panies, engaged ICF to provide a broadreview of their demand side m anagem ent (DSM) plan for 2011 to 2017. This review included adetailed overview of existing programs that the Com panies are enhancing and re-filing, and newprograms. ICF also condu cted a portfolio-level review of the Com panies overall D SMinvestments. Specifically, the Com panies engaged ICF to:I Review the DSM planning materials and process as documented by the Companies.2. Review the individual program designs developed by the Companies.3. Com pare the planning process and individual DSM program designs to known bestpractices and appropriate peer utilities.4. Identify any gaps or sh ortcomings in the process or program designs, including specificrecomm endations regarding a lternative app roaches or designs.5. Participate in program design and planning discussion as may be required by theCompanies.6. Prepare a report summarizing the review and providing a third-party opinion regarding thesufficiency of the process and designs.This report is the culm ination of ICFs work for this project and represents the su mm ary reportdetailed in Task 6 above.

ory aThe market for en ergy efficiency is evolving quickly, and now here in the country is this moreevident than in Kentucky. Since ICF s last review of the Co mpan ies programs in 2007, bothstate and federal policies have shifted strongly in favor of energy efficiency. A t the state level,this was driven by Kentucky Governor Steven Be shear, who has placed ene rgy efficiencysquarely at the top of his Seven Point Energy Strategy. At the federal level, this was d rivenlargely by the passage of 2009 Am erican R einvestment and Recove ry Act (ARR A, or theStimulus packag e). ARRA outlayed m ore than $16 billion nationwide in energy efficiency a ndrelated investments; Kentucky is slated to receive over $150 million during the three-year periodspanning 2009-201 1.Com mensu rate with federal and state policy agendas, the Com panies have ma de energyefficiency a high priority in their corporate strategies. In 2008, the Com panies app ointed a ne wCustom er Energy Efficiency Management team, including a new director and two newdepartment managers. The Com panies also hired four additional program m anagers to m anagenew p rograms, and three new researcherslprogram a nalysts. These h uman resourceinvestments represent a significant comm itment to energy efficiency that will leave theCom panies well-positioned to su ccessfully grow their DSM portfolio in the future.The Com panies are also developing a DS M portfolio that is consistent with many of the specificactions outlined in the G overnors plan. By undertaking this review, the C ompa nies arecomm itted to incorporating best practices into their programs. In addition, with the newprograms, the Com panies are addressing the potential for energy efficiency in both the m assmarket and in targeted end uses.


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Rebuttal Testimony Appendix ASinclairPage 8 of 76

iceEnergy efficiency program best practice is much more a term of art than science; there simply istoo much variability across objectives, regulatory structures, and p rogram types to enablesimple broad conclusions about what is best. Typically, best practice is considered a function ofprogram result, such as whether the program met or exceeded its objectives. An alternativeview of best prac tice focuses on the design and execution of essen tial program elements, suchas m arketing, service de livery, program back office efficiency, etc. F or examp le, though aparticular program might not have delivered pa rticularly strong overall results, certain elemen tsof its structure, such as incentive fulfillment, m ight be considered best-in-class. Alternatively,while difficult, it is not unheard of for a program based on inefficient or flawed processes tonevertheless deliver outstanding results.In general, best practice program s and portfolios seek to achieve each o f the following goals:

Provide program s that a re cost-effective.Provide a portfolio that covers hard-to-reach markets.

61 Provide program budgets that are sufficient to deliver the program s effectively to market.Provide program s that have sufficient budgets for m arketing, training and education (markettransformation activities).

e Provide a portfolio that strikes an appropriate balance of mitigated risk, proven p rogramtypes, and more innovative programs.Provide a portfolio that is flexible enough to adap t to changing market cond itions in a cost-effective manner.

a Provide an evaluation, measuremen t, and verification (EMRV) budget for each p rogram, andplans for p rogram evaluations on a regular basis.

The Com panies programs satisfy each of the best practice criteria listed above. In addition, theCom panies projected program costs and savings compare favorably to the rest of the country.The Com panies overall cost of savings, expressed in dollars per first year kW h, are projected tobe less expensive that the median cost of savings achieved by prog ram administrators in theSouth, the Midwest, and the U.S. as a whole. In addition, the level of sav ings achieved by theCompanies, expressed both as a percentage of annual kW h sales, and annual kW peakdemand, also exceeds that of their peers.Because the programs eas ily pass standard cost-effectiveness tests, and participants gainsignificant benefits from the p rograms, the C ompanies should continue to design and market theprograms broadly, in order to increase participation and m inimize the num ber of non-participants.

vera1I ~Q~ clusionsOur review of the C ompanies programs, and the context in which they were developed, leadsus to the following conclusions:


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Rebuttal Testimony Appendix ASinclaiPage 9 of 76

a The Companies proposed portfolio appropriately addresses evolving federal and statepolicies. In addition, the po rtfolio contains many elements of best practices, including cost-effectiveness, broad targeting, and flexible design.(2, The Companies should commission a potential study or market charac terization study, anaction item the governor has also proposed for the s tate in his energy plan. The study resultscould be used to help plan programs that capture savings where potential is greatest andlo rmost cost-effective.

Based on a m arket characterization study of the comm ercial sector, develop add itionalprograms targeting the comm ercial sector.a The Companies should continue to m arket their successful load control program, and offeradditional demand response options.

With their Res idential Conservation/Home Energy Performance and Low IncomeWeatherization (WeCare) programs, the Companies should continue to leverage federal andstatewide resources, where applicable, in order to m aximize available funding andsiipplem ent ex isting program participation.

* As behavior-based programs gain en try into utility portfolios, the Com panies should developrelationships with program implementers and utility program m anagers in order to learn fromothers experiences, and adjust the de sign and delivery of their own behavior-basedinitiatives, including the Smart Ene rgy Profile program.Coordinate and cross-promote their new residential programs with existing residentialprograms.


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Rebuttal Testimony Appendix ASinclairPage 10of 76


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Rebuttal Testimony Appendix ASinclairPage 1I of 7

Louisville Gas and Electric Company (LG BE) and Kentucky Utilities Company (KU ), and,hereafter referred to as LG& E / KU or the Com panies, engaged ICF to provide a broadreview of their demand side management (DSM) plan for 201 1 to 2017. This review included adetailed overview of existing programs that the Com panies are enhancing and re-filing, and newprograms. ICF also conducted a portfolio-level review of the Com panies ove rall DSMinvestments. Specifically, the Com panies engaged ICF to:1. Review the DS M planning materials and processes as documented by the Com panies.2. Review the individual program designs developed by the Compan ies.3. Com pare the plann ing processes and individual DSM program designs to known bestpractices and appropriate peer utilities.4. Identify any gaps or shortcomings in the process or program designs, including specificrecomm endations regarding alternative approaches or designs.5. Participate in program design and planning discussion as m ay b e required by theCompanies.6. Prepare a report summ arizing the review and providing a third-party opinion regarding thesufficiency of the process and designs.1.2 . ICFs A p p r o a c hThe review began with a kick-off meeting during which ICF and the Com panies discussed andclarified the objectives of the project. ICF discussed its approach to the review and provided theCom panies with a data request that outlined the materials ICF required to complete the review,including: the Companies draft DSM filing; load forecasts; integrated resource plans (IRPs); DSMprogram m odeling inputs and outputs; and relevant reports produced by the S tate of Kentucky,including Governor Beshears Energy Strategy.Our review consisted of both bottom-up and top-down approaches. From the battom-up, we reviewedeach of the Companies proposed programs against program best practices from around the country.These program-level reviews focused primarily on program delivery (e.g. how programs are marketed,ta whom incentives are paid, etc.), but also examined key program m etrics for reasonableness (e.g.program costs are appropriate for this program given market maturity in Kentucky). The top-downreview included an analysis of portfolio level metrics (e.g. kWh savings as a percentage of sales)against the Companies peers, a gap analysis to identify potential lost sav ings opportunities, and aportfolio best practices analysis to determine whether the C ompanies proposed DSM portfolio:

Is cost-effective;Targets markets an d technologies where the largest potential exists;Targets hard-to-reach markets;Has sufficient marketing and education budgets - ncentives are only one aspect of a program ;Is flexible enough to adapt to changing m arket conditions;Has an app ropriate mix of proven and innova tive programs;


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Rebuttal Testimony Appendix ASinclairPage 12 o f 7 6

e Has an app ropriate mix of energy and demand programs; and,e Has new and mod ified programs that were selected through an appropriate planning process.1 . 3 . R e p o r tThe rem ainder of this report is organized into the following sections: Section 2: Regulatory an dPolicy Environm ent; Section 3: Best Practices; Section 4: Portfolio Review; Section 5:Program R eviews; Section 6: Overall Conclusions.Additional description for each section is provided below.Section 2: Regulatory and Policy Environment explains current federal and state policy withregards to energy efficiency. The current policies help exp lain the context in which this reportwas developed. This section also includes a summ ary of how the Com panies are responding topolicy sh ifts. As these po licies evolve, and espec ially as federal climate change legislationmoves closer toward regulatory certainty, the Com panies will need to keep abreast of thesedevelopm ents, and re-evaluate programs and portfolios to ensure ma teriality, compliance, andeffectiveness.Section 3: Best Practices defines best practice generally as well as how it is used in thisreport. As noted previously, best practice is a subjective label that is context-sensitive. IC Fbelieves that the reviews included in Section 5 should be viewed as a comparative exercise,with cau tion given to differences in the m arket, climate, and adm inistration. For each programreview, several suggestions as to how the Com panies can continue to improve their programsthrough design and delivery adjustments are offered. In addition, suggestions relating toincreased engagem ent with national program sponsors (such as the EP A), statewide agencies,and o ther local stakeholders, where applicable are included .Section 4: Portfolio Review conducts a brief overview of the Com panies complete DSMportfolio, including existing program s that were not subject to a best practice review. Theportfolio is compared to its peers in the South, the Midwest, and the U.S. as a whole. I n contrastwith Section 3, this section contains a more quantitative comparison of portfolio savings andcosts. This section also contains a discussion of regulatory treatmen t of program costs, and theimpact of the portfolio on ratepayers.Section 5: Program Reviews contains the rev iews for enhanced existing and new prog rams.Each review begins by describing the Com panies existing program and proposedenhancements, if applicable. The review then describes a se lection of best practice programs,and compa res the C ompanies programs using a variety of metrics. Finally, the review takesassessm ent of the differences, summarizes IC Fs conclusions, and, if necessary, offerssuggestions as to how to incorporate these in the future.Section 6: Overall Conclusions includes conclusions drawn from the introduction, and recapsthe individual program conclusions and suggestions contained in Section 5.


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Rebuttal Testimony Appendix ASinclairPage 13 of 76

The m arket for ene rgy efficiency is evolving quickly, and now here in the country is this moreevident than in Kentucky. Since ICF s last review of the C ompanies programs in 2007, bothstate and federal policies have shifted strongly in favor of ene rgy efficiency. At the state level,this was driven by Kentucky Governor Steven Beshea r, who has placed energy efficiencysquarely at the top of his Seven Point Energy Strategy. At the federal level, this was drivenlargely by the passage of 2009 American Reinves tment and Recovery Act (AR RA, or theStimulus package). ARR A outlaid about $16.6 billion nationwide in energy efficiency andrelated investments; Kentucky is slated to receive over $150 million during the three-year periodspanning 2009-2011.Below is a discussion of these and other policy shifts in greater detail, the implications for theCom panies programs, and the C ompanies response to this changing po litical environmen t.2 . 1 . F e d e r a lThere were three major developments at the federal level since ICF reviewed the Compan iesportfolio in 2007. Below, are highlights of key F ederal developments that have the potential toimpact the Companies DSM programs.

1. Under ca p-and-trade scenarios in pending legislation, DSM should become more cost-effective for the Companies. However, a specific cap-and-trade scenario is unlikely to beimplemen ted until 201 1, and possibly even later. Possible options include:

2.

a. The American Clean Energy and Security (ACES ) Act (H.R. 2454) was passedby the House of Representatives on June 26, 2009. ACES establishes a cap-and-trade prog ram covering most U.S. greenhouse gas em issions (GH Gs), afederal renewab le electricity and energy efficiency standard (R ES), newefficiency requirem ents, power plant performance standards, and othercomplem entary measures. H owever, the Senate has not considered this bill andis unlikely to do so in the near future.

b. The Senate has two other bills under consideration. The first, the C lean EnergyJobs and Am erican Pow er Act (S. 1733), introduced on September 30 ,200 9,contains most of the same provisions as ACES w ith a few changes and som estrategic omissions. A modified version of this bill, known as the A merican PowerAct, has b een discussed but not formally introduced. The second , Carbon Lim itsand En ergy for Am ericas Renewal (CLEA R) Act (S. 2877), was introduced onDecember 11, 2009. This cap-and-dividend bill would tax carbon emitters anduse the revenues to provide refunds to affected ratepaye rs. The first bill isconsidered m ore feasible, though the actual da te of passage for either b ill isuncertain, and un likely to occur in the near future.c. The EPA is m oving forward with regulation of GH Gs through the Clean Air Act(CAA), primarily through existing permitting rules that apply mostly tomanu facturing facilities but also to som e electricity generators. Future regu latoryaction by the EPA m ay be determined or limited by the C ongress, such aslegislation that would pre-empt the EPA from using the C AA to regulate GHG s.

?he Stimulus package provided un precedented resources for energy efficiency andDSM nationwide. The 2009 ARR A au thorized about $16.6 billion in energy efficiency


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Rebuttal Testimony A ppendix ASinc a rPage 14 of76

f LJnd ng that qualifying public entities-prima ri y states, cities and counties-couldpursue. The primary objectives of this funding are to create jobs, save energy, and buildclean energy (energy efficiency and renewab le energy) infrastructure for the longer term.The Department of Energys (DOE) major allocations to Kentucky (over 2009-201 1)include:

a. $70.9 million in Wea therization Assistance Program (WAP ) funding;b. $52.5 million in State Energy Program (SEP) funding;c. $25.1 million in Energy Efficiency and Conse rvation Block Grants (EECBG ); and,d. $4.1 million in Energy Efficient Appliance Reba te Program funding.

In sum, this is approximately $50 million in average annua l funding for energy efficiencyprograms in Kentucky. In 2008, the total energy efficiency program spending in Ken tuckywas $24 million.3 As com pact fluorescent lamp s (CFLs) becom e the bas eline technology, obtaining cost-effective program savings will be more challenging. Federal lighting standards,including those for many popular lighting products like CFLs, will start to phase-in during2012, which will diminish the impact of todays efficient lighting technologies.

2 . 2 . StateGovernor Beshea r made energy efficiency a top priority within his energy strategy, lntelligenffne rg y Choices for Kentuckys Future. In this docum ent, the governor set forth the followinggoal:

Energy efficiency will offset at least 18 percent of Ken tuckys projected 2025 energydemand.This am ounts to reducing statewide energy consum ption by an average of about 1 percent peryear throug h 2025, an ambitious goal that would place K entucky in the top tier of states in theMidwes t and South in terms of DSM performance.The governors overall plan proposes to enact a renew able and efficiency portfolio standard(REPS) that would be set at 25 percent of the states projected energy use in 2025. In additionto reducing projected emissions in 2025 by 50 percent, the R EPS would also reduce em issionsby 20 percent relative to the 1990 baseline. This aggressive goal surpasses the targets set byCalifornias AB 32 law (2020 emissions equal to 1990), and New Eng lands RegionalGreenhouse Gas Initiative (2018 emissions 10 percent lower than 2009), and com pares to theEuropean U nions Emissions Trading Scheme (2020 emissions 20 percent lower than 1990).

1 The Energy Independence and Security Act of 2007 (the Energy Bill), signed into law by President Bush on December 18,2007, requires all light bulbs use 30 percent less energy than todays incandescent bulbs by 2012 to 2014. The phase-aut willstart with 100-watt bulbs in

20120203_LGE and KUs Rebuttal Testimony of David Sinclair

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