B-4Redacted Direct Testimony and Exhibits of Paul Chernick - on behalf of CA 3/17/2011
3 passages
- 2 Q: Mr. Chernick, please state your name, occupation, and business address. - 3 A: I am Paul L. Chernick. I am the president of Resource Insight, Inc., 5 Water St, - 4 Arlington, Massachusetts. - 5 Q: Summarize your professional educati...
AI summary Paul L. Chernick, president of Resource Insight, Inc., provides his professional background, including education and experience in utility regulation, rate design, load forecasting, and evaluation of power supply options. He has worked as a consultant in utility regulation and planning since 1981.
SUMMARY OF PROFESSIONAL EXPERIENCE 1986– Present President, Resource Insight, Inc. Consults and testifies in utility and insurance economics. Reviews utility supply-planning processes and outcomes: assesses prudence of prior power planning...
AI summary The document summarizes the professional experience of an individual with extensive expertise in utility and insurance economics, including consulting, testifying, and advising on utility regulation, rate design, conservation programs, and power planning. The individual has worked with regulatory commissions and consulted on various aspects of energy and insurance policy.
n MP system; historical, current, and projected. Review of MP planning prudence prior to and during excess; efforts to sell capacity. Cost of excess capacity. Recommendations for ratemaking treatment. 63. Massachusetts Division of Insuranc...
AI summary The text outlines various regulatory proceedings involving insurance rates, power sales contracts, and utility ratemaking treatments. It discusses underwriting profit margins, risk assessments, cost recovery for conservation programs, and the evaluation of power sales agreements. These proceedings involve entities such as the Massachusetts Division of Insurance and MDPU, with a focus on financial and regulatory considerations.
B-11Evidence of Alliance of Nova Scotia Sawmillers 3/22/2011
12 passages
Q. WHAT ARE YOUR FINDINGS AND RECOMMENDATIONS? A. Synapse assumed 60% debt 1 , 9.5% cost of debt 2 , and 13% after-tax cost of equity 3 . In my opinion it is unrealistic to assume such a project will secure 60% of its financing through deb...
AI summary The expert recommends adjusting the capital structure and return on equity assumptions for a biomass CHP project, arguing that 60% debt financing is unrealistic and suggests 100% equity. A 17.5% return on equity is recommended without an effective fuel cost hedge, or 13% with one.
Q. WOULD YOU PLEASE SUMMARIZE YOUR FINDINGS? A. Yes. I disagree with Synapse' assumed 60% debt, 9.5% cost of debt, and 13% after-tax cost of equity. In my opinion, 100% equity is a realistic capital structure for 2.0 MW biomass CHP project...
AI summary The respondent disagrees with Synapse's assumptions about the capital structure and cost of capital for 2.0 MW biomass CHP projects, suggesting 100% equity is more realistic and a 17.5% after-tax average cost of capital is appropriate without an effective fuel cost hedge.
Q. Please summarize your recommendations and conclusions. - A. The following are general statements summarizing the more detailed explanations provided herein and in the attachements. - i. A condensing / extracting turbine model should be...
AI summary The recommendations include using a condensing/extracting turbine model for small steam users, splitting steam generation costs between users, adjusting Synapse's capital and O&M cost estimates, including parasitic load in the model, and correcting boiler efficiency from 80% to 69.9% for accurate fuel cost calculation.
Q. How should capital cost be allocated between the electricity generated and steam used for process heat? - A. We do not agree with the rationale that the base cost of the boiler should be borne solely by the steam host. The evidence pres...
AI summary The response argues against allocating the boiler's base cost solely to the steam host, suggesting instead that both the steam and electrical users should share the capital cost and fuel expenses. The rationale is based on the intent of the COMFIT program to promote renewable energy and the risk of relying on steam sales for revenue.
A. In part. - 1. Significant components of the capital cost estimate for the CHP plant appear to be missing from the Synapse estimate as identified in the ESI Study. - 2. Costs for producing the extraction steam in the Synapse model are fu...
AI summary The document outlines several discrepancies and recommendations regarding the capital cost estimate for a CHP plant. Key issues include missing components in the Synapse estimate, incorrect allocation of steam costs, absence of parasitic power losses, and overestimation of boiler efficiency. ANSS provides alternative figures and recommends adjustments to financing assumptions and equity cost based on expert testimony.
Q. Steam from CHP plants is used for both electricity generation and process heat, how does Synapse deal with the allocation of cost of this shared resource? A. Synapse is proposing to have all of the costs of generating the steam for extr...
AI summary Synapse proposes that the heat user should bear the cost of generating steam for extraction, arguing that the heat user would have otherwise built and maintained a biomass boiler. An opposing viewpoint suggests that the heat user should pay the additional cost of building a biomass CHP plant compared to a biomass plant producing only electricity.
Q. Does ANSS agree with this approach? A. No. Since the purpose of the COMFIT is to procure renewable electricity, the ANSS does not believe that it is justifiable to approach the evaluation from the perspective of a boiler only scenario w...
AI summary ANSS disagrees with Synapse's approach to evaluating the COMFIT project, arguing that it unfairly places the cost of shared steam resources solely on the heat user. ANSS believes both the heat user and electricity rate payer should share the cost, as both benefit from the shared steam resource. Synapse acknowledged that some steam generated in a COMFIT CHP plan benefits electricity users.
Q. How does ANSS propose the cost to produce steam be allocated? A. In our view, the splitting of the cost is the only equitable way to deal with this issue. We would propose that the cost required to generate steam in extraction mode be s...
AI summary ANSS proposes that the cost to produce steam be split evenly between the electric rate payer and the heat user, ensuring both parties benefit equally from Combined Heat and Power (CHP).
Q. What mechanism would the ANSS suggest to deal with the fuel risk? - A. We would suggest two possible solutions to mitigate fuel risk: - 1. A fuel adjustment mechanism whereby the cost of fuel is simply passed through to the electricity...
AI summary The ANSS suggests two mechanisms to mitigate fuel risk: a fuel adjustment mechanism similar to NSPI's approach and a CPI/Diesel index with periodic re-openers to adjust fuel prices. The re-opener would require CHP COMFIT participants to submit fuel cost data and ensure consistency and market incentives for cost efficiency.
t history. We can see this in Figure 1.0 which depicts the lumber market over the past 10 years. Figure 1.0 Western SPF Lumber Price History USD per 1000 board feet If a sawmill is required to use a backpressure turbine and market conditio...
AI summary The document argues that requiring sawmills to use backpressure turbines is financially risky, as shutdowns due to poor lumber market conditions would lead to fixed costs for the power plant that cannot be covered by revenue. This would compound existing losses and make CHP projects unfeasible under current market conditions.
Why a Condensing Turbine with Extraction Makes Sense In order for sawmills to participate and for projects to be able to attract debt the operation of the power plant has to be decoupled from the operation of the sawmill. A condensing turb...
AI summary A condensing turbine with extraction allows sawmills to decouple power plant operations from sawmill activities, providing flexibility during shutdowns or low production periods. This design supports revenue generation during difficult market conditions, reduces financial strain, and enables participation from community organizations with lower heat load demands.
ANSS IR 14. Reference, p.15, and footnote 5 (a) Please provide a copy of the referenced US EPA, Biomass Combined Heat and Power Catalog of Technologies, September 2007 . Answer: We will distribute this with these responses. (b) Why did Syn...
AI summary The document discusses Synapse's use of 2006 EPA data for biomass CHP cost estimates, the escalation to 2009 dollars, and the collection of more current data from Canadian sources. It also addresses the reliance on verbal input from unnamed experts and the inclusion of turbine and installation costs in the equipment and installation estimate.
B-16Opening Statement of Synapse Consulting Team 4/4/2011
3 passages
the steps, to the results ofsimilar ratemaking exercises in other jurisdictions and to other concerns such as interest coverage, using the spreadsheet model and inputs to it discussed in our evidence. Each ofthe three steps introduces subs...
AI summary The text discusses the uncertainties in the ratemaking process for COMFIT programs, emphasizing the need for a review of the COMFIT program due to uncertainty about project types and costs. It outlines the challenges in developing representative COMFIT projects, such as biomass CHP, and the difficulty in defining CHP without clear guidelines.
project costs. This allowed electricity to be generated at times when there was no use for the waste heat, while ensuring that use ofthe waste heat, a hallmark of CHP, was a significant "cost center." To convert investment costs and operat...
AI summary The text discusses the treatment of capital costs in COMFIT projects, emphasizing that capital is treated as a cost comparable to other project costs. It outlines the methodology used to determine capital structures and debt and equity costs, referencing Exhibit C and the influence of risk perception on different types of renewable energy projects.
these considerations into account, we selected factors for wind and the other COMFIT's that we believe convert required revenues to rates in a way that will reasonably facilitate project development. The second issue raised was the treatme...
AI summary The document discusses the treatment of year-to-year changes in COMFIT rates, particularly for CHP, and the rationale behind setting fuel payments based on inflation and diesel costs. It also mentions stakeholder input and confidence in the proposed rates.
06873Final Submission - ANSS 4/29/2011
3 passages
osts of a stand-alone CHP Project, would you agree it's important to include all the project costs, including equipment, system, services and labour? Mr. Keith: Of a stand-alone CHP Project, yes. Ms. Rubin: And the omission of any of those...
AI summary The discussion focuses on the importance of accurately estimating all costs associated with a stand-alone CHP project, including equipment, systems, and labor. It highlights discrepancies between cost estimates provided by Synapse and Mr. Hayes, with the latter pointing out omissions in Synapse's estimate.
Net of Steam-Only Scenario - 47. The ANSS submits that the approach taken by Synapse to allocate all of the costs of generating the steam for extraction to the heat user is inequitable and unwarranted. As was evident during questioning, th...
AI summary The ANSS argues that Synapse's allocation of steam generation costs solely to the heat user is inequitable and not supported by evidence from other jurisdictions. Mr. Hayes suggests that the capital cost difference between a power-only plant and a CHP plant should determine the steam cost allocation, ensuring fairness in the program's intent to promote renewable energy.
CONCLUSION - 100. The reality is the government has made a policy decision to encourage small renewable generation. Electricity ratepayers will be paying for those costs. Other jurisdictions have offered tax breaks, grants, or incentives b...
AI summary The conclusion highlights the government's policy decision to support small renewable generation, with ratepayers covering associated costs. Tax incentives are unavailable in Nova Scotia, and the Board must follow existing regulations. Mr. Hayes asserts the accuracy of provided costs and recommends adopting the rate and fuel cost reset mechanism from Undertaking U-10 and U-11.
07337Board Decision
7 passages
5.3 Typical costs for most likely developments [42] In its Closing Submission, the Consumer Advocate characterized the task before the Board in this hearing: The Board has been given a difficult and challenging assignment. It has been inst...
AI summary The Consumer Advocate highlights the challenge of setting fair tariffs for diverse renewable energy sources. Synapse emphasizes balancing cost-based COMFIT rates with the need to encourage project development. Assumptions about typical projects are necessary but involve significant uncertainties.
5.4 Whether all potential projects should be economically feasible [57] The Board refers again to the general approach adopted by Synapse in developing COMFIT tariffs for the respective classes of electricity generation facilities. Synapse...
AI summary The Board adopts Synapse's approach to setting COMFIT tariffs, balancing cost-based rates with fostering project development. It acknowledges that not all projects will be economically feasible under the proposed tariffs, as setting rates high enough to ensure feasibility would lead to higher rates for ratepayers, conflicting with legislative goals.
9.2 Cost Allocation [153] In preparing the tariff for Biomass CHP, Synapse had to allocate the capital and operating costs between the steam host and electricity generation. They did so as follows: ... So we decided to ensure that biomass...
AI summary In allocating costs for Biomass CHP under the COMFIT, Synapse assigned a large portion of boiler costs to the steam host to ensure that electricity generated is truly combined heat and power. This approach encourages steam hosts needing consistent steam to support these facilities.
[155] As stated by Mr. Travis: ...our primary business is to produce forest products, so without question when our drying kilns need heat, that's our first and primary goal. You know, we're going to steam is the absolute number one getting...
AI summary Mr. Travis emphasizes the importance of providing steam to drying kilns for producing forest products. ANSS disagrees with Synapse's allocation and proposes a 50/50 cost division for shared steam resources used in combined heat and power plants.
9.3.1 Findings on Capital Costs [170] The opinion of Mr. Hayes, together with the analysis of costs per MW to construct a full CHP, is indicative that the capital costs for equipment and installation used by Synapse might be too low. Synap...
AI summary The Board found that Synapse's capital cost estimates for a biomass CHP project may be too low, but accepted Synapse's base cost for setting a COMFIT tariff. The Board emphasized the need for more detailed cost comparisons and opted for a conservative approach to avoid burdening ratepayers.
[212] ANSS, in its reply submission stated: 30. Likewise, the risk of undue costs being borne by ratepayers is tempered by the reality that only a limited number of CHP Facilities will be likely to participate due to inherent limitations i...
AI summary ANSS argues that the risk of ratepayers bearing undue costs is limited due to the expected low participation of CHP facilities, constrained by system limitations and a biomass cap in the Act and Regulations.
11.2 Findings [250] Other than comments from the Consumer Advocate there was very little comment in the hearing on run-of-the-river hydroelectricity. [251] The Board also understands that there may be significant other challenges in securi...
AI summary The Board found limited discussion on run-of-the-river hydroelectricity during the hearing. It acknowledges challenges in securing approvals for such projects and accepts Synapse's cost determinations as reasonable. The Board will approve the tariff as submitted, with a review in three years and potentially as part of the Province's 2012 regulatory review.
20110404-1Hearing Transcript — 4/4/2011 (Synapse)
8 passages
- THE CHAIR : Thank you. Page 6 NSUARB-BRD-E-R.10 3 account. 4 We note that at several places in the 5 Renewable Electricity Plan, government states that they 6 will review, and if appropriate, adjust the COMFIT program 7 in 2012. We belie...
AI summary The text discusses the need to review and potentially adjust the COMFIT program in 2012 due to uncertainty around the types and costs of projects that may apply. It also outlines the process of selecting representative plants for each COMFIT to develop rates reflecting basic cost recovery as outlined in the Renewable Electricity Plan.
- generation. Unfortunately, none of the materials we - reviewed provided a definition of CHP. We addressed this - issue by assigning capital and operating costs so that the - steam host was responsible for a substantial portion of - the t...
AI summary The text discusses the treatment of combined heat and power (CHP) projects, including the allocation of capital and operating costs, the use of capital structures and financing costs, and references to the Renewable Electricity Plan and COMFIT rates for cost recovery.
- DICTUM DIGITAL INC. CERTIFIED COURT REPORTERS the quantities of each type of resource and multiplying 1 and adding it up. 2 MR. KEITH: Can I make a clarification 3 there? 4 MR. MERRICK: Sure. 5 MR. KEITH: You may be misreading that 6 sen...
AI summary The discussion centers on the COMFIT program and how its cost is balanced against the cost of electricity, with clarification that the approach focuses on achieving a reasonable level of development activity within each resource class rather than comparing against a specific measure of electricity cost.
- all you can think of? Page 64 NSUARB-BRD-E-R.10 15 would be a very low appetite for COMFIT projects by 16 municipalities in the province because of the budgetary 17 constraints on municipalities and they urged us not to 18 rely heavily o...
AI summary The text discusses concerns about the low appetite for COMFIT projects among municipalities due to budgetary constraints. It also references challenges in implementing projects, such as delays in getting cities interested in initiatives like a wind project in Boston.
- DICTUM DIGITAL INC. CERTIFIED COURT REPORTERS annual report. I looked at the latest version. I thought 1 NSUARB-BRD-E-R.10 Page 111 I had the title of the report here, but I don't. 10 them standardized metrics. What I had largely was 11...
AI summary The discussion revolves around the use of comparators for biomass plant operations, the sourcing of equipment cost estimates, and the reliance on internal research for capital cost assumptions in the COMFIT CHP rate. The panel did not bring independent expertise to the capital cost assumptions.
- DICTUM DIGITAL INC. CERTIFIED COURT REPORTERS MS. RUBIN: So your cost per megawatt 1 NSUARB-BRD-E-R.10 Page 137 is lower than plants of the scale 10 times to 20 times 2 greater than what's being developed proposed to be 3 developed here....
AI summary The discussion centers on the cost per megawatt of a project, with Synapse's analysis based on total project costs rather than just equipment and installation costs. The figures provided are around 5,300 per kilowatt, and the discussion includes questions about the benchmarks used to assess the reasonableness of these costs.
- DICTUM DIGITAL INC. CERTIFIED COURT REPORTERS MS. SHAW: No, I think I'm saying NSUARB-BRD-E-R.10 Page 155 12 allocating using their boiler cost allocation 13 methodology. 14 Let me pull up the sensitivities we 15 did look at. So we took...
AI summary The discussion involves analyzing the allocation of boiler costs using a recommended methodology by ANSS and evaluating the COMFIT rate under different assumptions. The analysis includes sensitivity testing and determining the resulting rate of $219 per megawatt.
probably produce projects, or we could bump the rates up 1 NSUARB-BRD-E-R.10 Page 239 much higher in an effort to be certain that we produce a 2 robust activity in the first year or two of the program. 3 You know, if we took the former 4 a...
AI summary The discussion revolves around the risk of setting rates too low or too high for a program, with the concern that low rates may not produce projects, while high rates could lock in overpayments for 20 years. The speaker suggests that the proposed rates are reasonable and have a good chance of producing projects, though not guaranteed.
20110405-1Hearing Transcript — 4/5/2011 (Synapse Panel, ANSS Panel)
4 passages
which is not quite the way you did it. 1 Page 464 NSUARB-BRD-E-R.10 well as a separate calculation 18 that we're now setting that could be around for 20 years 19 or whatever the number is, they're based on capital costs 20 that would be pr...
AI summary The discussion revolves around the long-term capital cost considerations for energy projects, the need for adjustments in rate calculations to account for changing market conditions, and the uncertainty surrounding future cost reductions for emerging technologies like tidal energy.
Page 534 NSUARB-BRD-E-R.10 1 project financing assumptions. 6 in capital cost and financing, there were a number of 7 other variables that had a significant influence on the 8 COMFIT rate difference. 9 We believe that Synapse has 10 undere...
AI summary The text discusses concerns regarding the underestimation of labor costs due to Nova Scotia's regulatory requirements for boiler engineer staffing, and the omission of parasitic load in the Synapse model, which could affect the COMFIT rate and cost allocation for biomass CHP plants.
- years or four years to 1996. - Effectively, the price has escalated - incredibly over that period of time and it is unlikely - that a CPID escalator would have covered that risk off in - that period of time and you'd be sustaining severe...
AI summary The text discusses concerns about price escalation over time and the need for adjustment mechanisms to manage financial risks and profitability in projects, particularly in the context of setting tariff rates and managing market fluctuations.
- percent. 1 Page 570 NSUARB-BRD-E-R.10 If you'd set it back in January of 2 1990 and this thing had escalated every year for 17 years, 3 the ratepayer would have overpaid by tens of millions of 4 dollars for this electricity because the p...
AI summary The discussion revolves around the variability of fuel costs and the inadequacy of a fuel adjustment mechanism in covering risk. The speaker argues that a fixed percentage (77%) does not account for changes over time, such as the price of pulp wood chips, and that a mechanism indexed to inflation would be more effective.
20110406-1Hearing Transcript — 4/6/2011 (ANSS Panel, St. Francis Xavier Univ, Consumer Adv. Panel)
5 passages
- DICTUM DIGITAL INC. CERTIFIED COURT REPORTERS the wood fibre. NewPage, as an example, is going to 1 NSUARB-BRD-E-R.10 Page 735 construct a 60-megawatt power plant, and they're going to 2 it's not right to dump it all on the electricity r...
AI summary The discussion revolves around the allocation of costs for a 60-megawatt power plant, with a focus on splitting boiler costs between the electricity ratepayer and heat users. The conversation also touches on the use of different pressure systems (15 psi vs. 100 psi) in sawmills and their impact on cost calculations.
- MR. TRAVIS : I tried very hard to find - I tried to do that. I called suppliers and I tried - because I wanted to present something that was better. - But at the end of the day, I couldn't find anything that - was sufficient to be able t...
AI summary The speaker discusses the challenges of finding adequate data to cover risk in biomass cost reporting, emphasizing the need for a formula to adjust rates based on market costs and the potential value of establishing a biomass index for future reference.
- DICTUM DIGITAL INC. CERTIFIED COURT REPORTERS pressure and steam loads and those kind of things. If the 1 NSUARB-BRD-E-R.10 Page 759 Board would like, we have someone in the room who can 18 if it requires a 13 percent or 15 percent or do...
AI summary The testimony discusses the calculation of a required tariff level to achieve a 13% rate of return on investment, based on assumptions provided by Synapse and an analysis from CBCL. The discussion includes the capital costs and the necessary rate per kilowatt hour.
- DICTUM DIGITAL INC. CERTIFIED COURT REPORTERS energy problems, which most of them had. And St. F.X. has 1 Page 798 NSUARB-BRD-E-R.10 we've looked at that. We are going to move the plant out 19 MS. RUBIN: What I'm looking at is 20 Year 20...
AI summary This text from a regulatory proceeding discusses the allocation of costs and revenue streams related to electrical and thermal energy production. It references a model used for cost allocation and a Synapse model, with a question raised about whether the same figures can be run through the Synapse model using an Excel spreadsheet.
- DICTUM DIGITAL INC. CERTIFIED COURT REPORTERS that has no other capital reserves, and it might end up 1 getting used in the cost that I'm assuming might be 2 between what you're saying and what I'm saying? 3 MR. CHERNICK: Well, the numbe...
AI summary The discussion revolves around the calculation of a reserve fund and its assumed return, with one party suggesting that the reserve fund may be used up and another indicating that the numbers may be too high. The conversation also references CEDIFs and a potential four percent return over 20 years.