STATE OF ILLINOIS ILLINOIS COMMERCE

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STATE OF ILLINOIS ILLINOIS COMMERCE COMMISSION

Rock Island Clean Line LLC

) ) Petition for an Order granting Rock Island ) Clean Line LLC a Certificate of Public ) Convenience and Necessity Pursuant to Section ) 8-406 of the Public Utilities Act as a ) Transmission Public Utility and to Construct, ) Operate and Maintain an Electric Transmission ) Line and Authorizing and Directing Rock Island ) Clean Line pursuant to Section 8-503 of the ) Public Utilities Act to Construct an Electric ) Transmission Line. )

Docket No. 12-____

DIRECT TESTIMONY OF

DR. DAVID G. LOOMIS

ON BEHALF OF

ROCK ISLAND CLEAN LINE LLC

ROCK ISLAND EXHIBIT 5.0

OCTOBER 10, 2012

TABLE OF CONTENTS I.

WITNESS INTRODUCTION AND PURPOSE OF TESTIMONY

1

II.

SUMMARY OF RESULTS OF STUDY

3

III.

DESCRIPTION OF STUDY METHODOLOGY

6

Rock Island Exhibit 5.0 Page 1 of 10 1

Certain capitalized terms in this testimony have the meaning set forth in the Glossary included as

2

Attachment A to the Direct Testimony of Michael Skelly, Rock Island Exhibit 1.0.

3

I. WITNESS INTRODUCTION AND PURPOSE OF TESTIMONY

4

Q.

Please state your name, present position and business address.

5

A.

My name is David G. Loomis. I am Principal of Loomis Consulting, Professor of

6

Economics at Illinois State University, Director of the Center for Renewable Energy and

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Executive Director of the Institute for Regulatory Policy Studies. My business address is

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1323 Lismore Lane, Normal, Illinois, 61761.

9

Q.

Please describe your education and professional background.

10

A.

I received a Bachelor of Arts degree in Honors Economics and Mathematics and a Doctor

11

of Philosophy degree in Economics from Temple University. I achieved the rank of Full

12

Professor at Illinois State University in 2010. I am a member of the Steering Committee

13

and Chair of the Economic Development Workgroup at the Great Lakes Wind

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Collaborative. I am a Board member of the Illinois State Energy Sector Partnership.

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As part of my duties as Professor of Economics at Illinois State University, I

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teach and oversee the sequence in Electricity, Natural Gas and Telecommunications

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Economics. I have been teaching classes that cover transmission markets, cost allocation

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and pricing for over 15 years, including Economics of Regulation and Antitrust,

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Economics

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Telecommunications Economics. I was part of the team of faculty that created a unique

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undergraduate degree in renewable energy at Illinois State University. I have authored or

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co-authored 25 publications in peer-reviewed publications such as Energy Policy, Energy

23

Economics, Electricity Journal, and Applied Energy. I have also co-authored several

of

Energy,

Industry

Studies

in

Electricity,

Natural

Gas

and

Rock Island Exhibit 5.0 Page 2 of 10 24

reports on the economic impact of wind farms (Economic Impact of Wind Energy

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Development in Illinois 2009, 2010, 2011; Illinois Wind Turbine Supply Chain Report

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2010).

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I have received numerous professional awards including the 2011 Midwestern

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Regional Wind Advocacy Award from the U.S. Department of Energy’s Wind Powering

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America, the 2009 Economics Department Scott M. Elliott Faculty Excellence Award,

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the Illinois State University Million Dollar Club in 2009 (awarded to faculty who

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received over $1 million in grants), and the 2008 Outstanding State Wind Working Group

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Award. My full Curriculum Vita is provided in Rock Island Exhibit 5.1.

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Q.

What is the purpose of your direct testimony?

34

A.

I am testifying in support of the request of Rock Island Clean Line LLC (“Rock Island”)

35

to be issued a Certificate of Public Convenience and Necessity pursuant to Section 8-406

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of the Illinois Public Utilities Act (“PUA”) to construct, operate and maintain the Rock

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Island Clean Line transmission project (“Rock Island Project” or “Project”) and to

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operate as a public utility in Illinois, and authorizing and directing Rock Island, pursuant

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to Section 8-503 of the PUA, to construct the Rock Island Project. Specifically, I will

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address the economic impact of the proposed Rock Island Project on the Illinois

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economy. Two colleagues, Dr. J. Lon Carlson and Dr. John Solow, and I performed a

42

study to estimate the economic impact of the project. The full report of the study that we

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performed is provided in Rock Island Exhibit 5.2.

Rock Island Exhibit 5.0 Page 3 of 10 44 45

II. SUMMARY OF RESULTS OF STUDY Q.

46 47

What are the economic impacts of the Rock Island Project that your study estimated?

A.

The study estimated the economic impacts of the transmission line in two parts: first, the

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economic impact of the transmission line itself; second, the economic impact of the wind

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farms that this transmission line will enable to be built. For both the transmission line

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and the new wind generation facilities, the study measured the economic impact of the

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construction itself as well as the economic impact of the ongoing operations and

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maintenance (“O&M”).

53

Q.

54 55

What does the study estimate will be the economic impact of the construction of the Rock Island Project?

A.

The study estimates that the construction of the Rock Island Project itself will—when

56

considering the production of inputs to the line such as towers, wire, and real estate

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services—create a demand for approximately 1,450 construction jobs per year for three

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years in Illinois. Labor income will increase by $86.8 million per year in Illinois for

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three years. Overall output will increase by $256.3 million per year in Illinois for three

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years.

61

Q.

62 63

What does the study estimate will be the economic impact of the ongoing operations and maintenance of the Rock Island Project?

A.

The study estimates that the economic impact of the annual O&M costs of the

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transmission line, which will be incurred when the line is placed into service and

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operating, will be 80 jobs and $4.6 million of labor income in Illinois annually. Overall

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output will increase by $11.3 million annually in Illinois.

Rock Island Exhibit 5.0 Page 4 of 10 67

Q.

68 69

What does the study estimate will be the economic impact of the construction of the wind farms that the Rock Island Project will enable to be built?

A.

Rock Island projects that construction of the Rock Island Project is expected to stimulate

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the development of approximately 4,000 MW of wind farms in northwestern Iowa and

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the surrounding region. In our study, the larger components of a wind turbine—the

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nacelle, tower, blades, and transportation—were examined in detail. Using information

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from the American Wind Energy Association’s (“AWEA”) Wind Power Outlook 2010,

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we estimated that 35 % of the nacelles, 75 % of the blades, and 75 % of the towers used

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to construct wind farms are made in the United States. The National Renewable Energy

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Laboratory’s (“NREL”) Jobs and Economic Development (“JEDI”) model, which was

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used to estimate the economic impacts of the wind farms, contains default values for how

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construction and O&M costs are allocated to the component parts of a wind generation

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facility.

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components and for O&M costs.

The default values in the JEDI model were used for the balance of plant

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As a result of the increase in development of wind generating facilities that will

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be stimulated and enabled by the Rock Island Project, there will be economic benefits,

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including both direct expenditures to build wind farms and supply chain impacts due to

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increased demand.

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generation facilities, it was necessary to estimate the percentage of the wind turbine

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components that would be produced in each state. We constructed three different

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scenarios in which Iowa and Illinois each account for 15%, 30%, or 45% of the total

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domestic content of the wind generation facilities.

To estimate the state-level economic impacts of the new wind

Rock Island Exhibit 5.0 Page 5 of 10 89

Q.

What does the study estimate will be the economic impact in Illinois of the

90

construction of the wind farms that the Rock Island Project will enable to be built

91

under the three scenarios?

92

A.

While no wind farms are assumed to be built in Illinois as a direct result of the Rock

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Island Project, the state will experience supply chain impacts attributable to the

94

construction of wind farms in Iowa and other states due to the Rock Island Project. The

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employment impacts in Illinois during the construction phase are estimated to range from

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approximately 2,800 to 8,400 jobs, while earnings are estimated to amount to $190

97

million to $570 million under the 15% and 45% scenarios.

98

Q.

99 100

What does the study estimate will be the fiscal impacts of the construction of the wind farms that the Rock Island Project will enable to be built?

A.

The study estimated certain tax-related impacts of the projected increases in final demand

101

in Iowa and Illinois. The tax impacts considered here include individual income tax and

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corporate income tax receipts in Iowa and Illinois. The study estimated that in Illinois,

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revenues from income taxes paid by individuals and by corporations would average $1.25

104

million per year and $480 thousand per year, respectively, over the three-year

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construction period.

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As was previously noted, once the transmission line is built and is in operation,

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O&M costs will contribute additional spending to the Iowa and Illinois economies each

108

year. In Illinois, individual income tax and corporate income tax receipts resulting from

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O&M expenditures are predicted to yield approximately $90 thousand per year in State

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income tax receipts.

Rock Island Exhibit 5.0 Page 6 of 10 111

The tax-related impacts assume the Illinois tax income tax structure in place on

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December 31, 2010.

On January 1, 2011, the State of Illinois placed into effect

113

temporary corporate and personal income tax rate increases, but these increases were not

114

reflected in the fiscal impact results stated above. If it were assumed that the temporary

115

income rate increases remained in effect, the estimated fiscal impacts for the State of

116

Illinois would be higher than projected by the study.

117

Q.

In what year’s dollars are the economic impacts calculated in the study stated?

118

A.

All of the economic impact dollar values are stated in terms of 2010 dollars.

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III. DESCRIPTION OF STUDY METHODOLOGY

120

Q.

Please describe how the economic impact study was conducted.

121

A.

The impacts of construction and operation of the transmission line were estimated using

122

the IMPLAN model. The specific impacts that were analyzed include direct, indirect,

123

and induced effects on employment, labor income, and output, as well as fiscal impacts—

124

personal and corporate tax revenues—for both Iowa and Illinois. In addition, as stated

125

previously, the construction of the proposed transmission line is also expected to

126

stimulate the construction of additional wind farms in northwestern Iowa and the

127

surrounding region. The impacts of construction and operation of these new wind farms

128

were estimated using the JEDI model and include direct, indirect, and induced effects for

129

both Iowa and Illinois.

130

Q.

What is the IMPLAN model and how does it work?

131

A.

IMPLAN is a micro-computer-based program that allows construction of regional input-

132

output models for areas ranging in size from a single zip code region to the entire United

133

States. The model allows aggregation of individual regional, e.g., county, databases for

134

multi-region analysis. Stated briefly, the model is used to estimate the total impacts of an

Rock Island Exhibit 5.0 Page 7 of 10 135

increase in spending in a particular industry. The economic impacts of the manufacturing

136

of the required components, construction of the line, and operation and maintenance

137

expenses were estimated using the IMPLAN model and 2009 data for Iowa and Illinois.

138

Total impacts are calculated as the sum of direct, indirect, and induced effects.

139

Direct effects are production changes associated with the immediate effects of final

140

demand changes, such as an increase in spending for the production of new structures

141

that will be used to support a new transmission line. Indirect effects are production

142

changes in backward-linked industries caused by the changing input needs of the directly

143

affected industry, e.g., additional purchases to produce additional output such as the steel

144

used in the construction of the new transmission structures. Induced effects are the

145

changes in regional household spending patterns caused by changes in household income

146

generated from the direct and indirect effects. An example of the induced effects is the

147

increased spending of the incomes earned by newly hired steel workers.

148

The analysis summarized here focuses on the impacts of increased production of

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the different components of the transmission line, as well as construction of the line, on

150

employment, employee compensation, and total expenditures (output).

151

includes total wage and salary employees as well as self-employed jobs in the region of

152

interest.

153

Employee compensation represents income, including benefits, paid to workers by

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employers, as well as income earned by sole proprietors. Total output represents sales

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(including additions to inventory), i.e., it is a measure of the value of output produced.

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Impacts are estimated on a statewide basis for both Iowa and Illinois, as well as for the

157

United States as a whole.

Employment

All of the employment figures reported here are full-time equivalents.

Rock Island Exhibit 5.0 Page 8 of 10 158

Q.

What is the JEDI model and how does it work?

159

A.

The economic analysis of wind power development in the study utilized the JEDI Wind

160

Energy Model (release number W1.08.03a) of the U.S. Department of Energy’s NREL.

161

The JEDI Wind Energy Model is an input-output model that measures the spending

162

patterns and location-specific economic structures that reflect expenditures supporting

163

varying levels of employment, income, and output. For example, JEDI calculates how

164

purchases of materials for construction of new wind generation facilities benefit not only

165

local turbine manufacturers but also the local industries that supply the concrete, rebar,

166

and other materials needed to construct the facilities. The JEDI model uses construction

167

cost data, operating cost data, and data relating to the percentage of goods and services

168

acquired in the state to calculate jobs, earnings, and other economic activities that result

169

from these activities. Economic activities would include contracts and business

170

transactions that result in jobs being created and earnings being earned. The results are

171

broken down into the construction period and the operation period of the wind generation

172

project. Within each period, impacts are further divided into direct, indirect, and induced

173

impacts.

174

Direct impacts during the construction period refer to the changes that occur in

175

the onsite construction industries in which the direct final demand (i.e., spending on

176

construction labor and services) change is made. The initial spending on the construction

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and operation of the wind farm creates a second layer of “indirect” impacts. Indirect

178

impacts during the construction period consist of the changes in inter-industry purchases

179

resulting from the direct final demand changes, and include construction spending on

180

materials and wind farm equipment and other purchases of goods and offsite services.

Rock Island Exhibit 5.0 Page 9 of 10 181

For example, concrete that is used in turbine foundations increases the demand for gravel,

182

sand, and cement. Construction of the wind farm also increases demand for products of

183

the manufacturers of turbine parts and components such as bearing producers, steel

184

producers, and gear producers.

185

Indirect impacts during the operating years refer to the changes in inter-industry

186

purchases resulting from the direct final demand changes. All land lease payments and

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property taxes are included in the operating-years portion of the results because these

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payments do not support the day-to-day O&M of the wind farm but instead are more of a

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latent effect that results from the wind farm being present.

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Induced impacts during construction refer to the changes that occur in household

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spending as household income increases or decreases as a result of the direct and indirect

192

effects of final demand changes. Induced impacts during the operating years of the wind

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generation facilities refer to the changes that occur in household spending as household

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income increases or decreases as a result of the direct and indirect effects from final

195

demand changes.

196

Q.

Where did you obtain your data inputs?

197

A.

The estimates of the construction costs and the O&M costs of the Rock Island Project and

198

the breakdown of those costs by category were supplied by Rock Island. Similarly, the

199

estimates of the number of the wind farms that are projected to be constructed in

200

northwestern Iowa and in nearby regions as a result of the Rock Island Project and the

201

associated numbers of wind turbines and their capacities were supplied by Rock Island.

202

The portions of the component equipment, parts and materials for the transmission line,

203

and the new wind generation facilities that are projected to be manufactured or produced

Rock Island Exhibit 5.0 Page 10 of 10 204

in the United States were based on the JEDI model, industry reports and my knowledge

205

of the wind industry.

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components for the proposed wind farms until they are actually built, we estimated the

207

economic impacts using three different scenarios. Given the overall domestic content

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from the national model, we assume that Iowa and Illinois each obtain 15% (scenario 1),

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30% (scenario 2) or 45% (scenario 3) of the total domestic content. In the case of blades,

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Illinois does not currently have any blade manufacturers, and Iowa has two. Therefore,

211

we shifted the Illinois blade component supply to Iowa.

Because it is difficult to know which companies will build

212

Q.

Does this conclude your prepared direct testimony?

213

A.

Yes, it does.