HomeMy WebLinkAbout20020904Volume 3, pg 182-212.pdf
1 BOISE, IDAHO, SEPTEMBER 4, 2002, 1:22 P.M.
2
3
4 COMMISSIONER SMITH: All right,
5 assuming that Commissioner Kjellander is wrong and
6 you have not negotiated a settlement over lunch, we
7 will commence hearing with questions of Mr. Budge
8 for Mr. Watters.
9 MR. BUDGE: Thank you.
10
11 STAN K. WATTERS,
12 produced as a rebuttal witness at the instance of
13 PacifiCorp, having been previously duly sworn, was
14 further examined and testified as follows:
15
16 CROSS-EXAMINATION
17
18 BY MR. BUDGE:
19 Q. Mr. Watters, we had some questions of
20 Mr. Griswold this morning about the product the
21 Company typically buys is a 16-hour product on the
22 market.
23 A. Yes, I remember that.
24 Q. And as a result of that, to the extent
25 that's more than is necessary to meet peak, then the
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1 remaining hours either have to be sold off or
2 otherwise utilized in the system. Do you remember
3 that --
4 A. Yes.
5 Q. -- in discussions?
6 Would it be accurate to say that to
7 the extent Monsanto is interrupted, the Company
8 could select a precise number of hours it might need
9 to meet either peak load or a superpeak load, or any
10 fraction of those hours in between that might be
11 less than one or the other of those?
12 A. If I understand your question
13 correctly, Monsanto's ability to interrupt is an
14 economic interruption in the case I believe what
15 you're referring to now, as opposed to the other
16 types of interruptions that we've talked about,
17 because as I understand, Monsanto's operation is
18 very difficult for them to physicially curtail for a
19 stretch of time period.
20 However, on economic interruption,
21 what that does do is it does give us that superpeak
22 product and allows us to pinpoint really the hours
23 that we would interrupt. Again, it's a financial
24 instrument the way I see it unless they do
25 physically interrupt, so it's a buy-through, so it
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1 would still require me to serve that load, but it
2 does mitigate my price risk as though it was a
3 superpeak product.
4 Q. And is there anything in your
5 calculation of the value of the interruptible load
6 that compensates Monsanto for the Company's ability
7 to pinpoint the interruption? In other words, you
8 don't distinguish by hour in determining the value
9 of interruptibility?
10 A. What we do is in the case of my
11 exhibits here is we use the Black-Scholes option
12 model, which is a standard in our industry, and what
13 it does is it says, We don't know yet what hours
14 we'll interrupt because I don't have that type of
15 foresight, so we really have to judge what hours we
16 think we'll take based off of volatility in the
17 marketplace, so what periods of time have the
18 highest volatility; and also, what is the strike
19 price at which I would exercise or think that I
20 would exercise that option.
21 So in the case of my Exhibit four -- I
22 think it was 14 -- on the economic curtailment
23 option, Exhibit 14, for instance, what I looked at
24 there is if I needed to look to the marketplace to
25 get a product like Monsanto, most likely I would
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1 need to go into it would be a product based off of a
2 SoCal gas index for gas, peaking plant of 15,000;
3 because at the time that we were looking at this in
4 the summertime, mainly that's going to be the unit
5 on the increment is a unit that has a 15,000 heat
6 rate, and with a number of hours of interruption.
7 With that, then you compare that to
8 what's the forward price curve for electricity, and
9 you also have volatilities that have been calculated
10 for that period of time that you believe will be
11 representative of that period. So as you can
12 imagine, you have a strike price. It's kind of like
13 a stock option. Stocks bounce up and down. Well,
14 how often is it going to strike above that number.
15 So what I did is I gave them the full
16 value in my calculation of having to buy that
17 product in the marketplace, and that product on
18 economic curtailment of Monsanto looks very close to
19 Monsanto to me in the marketplace.
20 Q. Okay, maybe we're --
21 A. Maybe I didn't answer your question.
22 Q. No, I probably asked a bad question.
23 But as I understand, if you're going to the market,
24 it's more expensive to buy a four-hour product,
25 superpeak product, than, for example, an eight-hour
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1 product would be somewhat less expensive and a
2 16-hour product would be even less expensive?
3 A. On a price-per-megawatt-hour basis,
4 that's true, so it reflected -- I reflected that
5 highest peak price and tied it to the hours of eight
6 hours a day -- I think it's a minimum of four, up to
7 eight hours a day -- and priced that product to them
8 on that basis.
9 Q. So you're saying that there is a price
10 break on the calculation for Monsanto on a per-hour
11 basis of the hours that you may select? In other
12 words, you're giving Monsanto a credit or value for
13 the fact that some of their hours may precisely hit
14 peak and others may hit superpeak and some may be in
15 between?
16 A. I'm giving them the full value of what
17 peak power would cost, the maximum value for that
18 eight-hour period. That's what I'm giving them, and
19 that is reflective of me going out to the market
20 instead of buying 16 hour of power. The peak power,
21 the peak period, I'm giving them a high value for
22 that. So I'm being consistent with the curtailment
23 that they have offered in my valuation.
24 Q. In your testimony on page 2, lines 11
25 to 12, when you're discussing economic curtailment,
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1 you make this statement, that because of the
2 customer held option for buy-through, we cannot plan
3 for that customer's load being gone.
4 A. That we continue to plan.
5 Q. I thought it said you cannot plan for
6 the customer's load being gone?
7 A. What line are you on?
8 Q. Page 2, line 11 and 12.
9 A. Right. And then it goes on: This
10 requires the Company to continue to plan to meet the
11 load requirements of the customer.
12 Q. So are you saying that it's more
13 valuable to the Company if there is not a
14 buy-through?
15 A. If they -- yes, that's true, because I
16 no longer have to plan to meet their load and I can
17 physically interrupt them.
18 And, again, what the economic
19 curtailment does is it is a financial instrument,
20 that's how I view it, because on the buy-through,
21 they have a right to buy through at an agreed-to
22 market price, whatever gets agreed to. That hedges
23 out my price exposure. So even though -- and I want
24 to be clear about this. If that's the product we
25 get from Monsanto, I may have a very healthy system
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1 that day. I may have 100 extra megawatts over the
2 peak maybe that whole eight hours. But if the
3 market price that day I believe is going to be high,
4 I'm going to exercise that option, even though I
5 don't have to buy the power.
6 Q. Are you able to quantify for me what
7 the difference is in value to the Company in being
8 able to have a buy-through and not have a
9 buy-through? Have you done any studies?
10 A. I have not done any studies.
11 Q. So from our perspective in trying to
12 decide should we offer up a buy-through or take the
13 buy-through away, we don't have any way to put a
14 value on that to you?
15 A. I do not have anything right today. I
16 could only talk about it in terms of maybe
17 mitigation of future capital costs. If I could
18 physically interrupt Monsanto up to 1,000 hours a
19 year, it may stop me from doing certain projects.
20 But I don't have any quantitative information to
21 answer that question today.
22 Q. Okay. So when you say it's more
23 valuable not to have a buy-through, does that relate
24 to your statement because we then don't have to plan
25 for a buy-through?
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1 A. Well, I may not -- yeah, we have to
2 plan for a buy-through. We have to plan because
3 it's Monsanto's option by the way the buy-through
4 works. They get to elect whether they take power or
5 not.
6 Q. Well, when you plan for a buy-through,
7 what is there to plan? Don't you just simply go to
8 the market and pick up the phone and make the call
9 and buy through? You make those kind of purchases
10 day in and day out, hour in, hour out, I suppose?
11 A. What happens if there is no power in
12 the marketplace?
13 Q. Well, you have an obligation to serve
14 load.
15 A. I have an obligation to serve load.
16 Q. So if Monsanto is on --
17 A. So I have an obligation to serve
18 Monsanto.
19 Q. And you are serving them?
20 A. So I would need to make sure well in
21 advance that I plan to meet that load, because I
22 have that obligation to serve. I can't wait until
23 the hour. If there's no power there, I'm in
24 violation of contract.
25 Q. Well, but your buy-through says we're
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1 going to simply go and buy through to the market
2 based on Palo Verde index and we're going to supply
3 you.
4 A. That's exactly right, and how I plan
5 to meet their load is up to me. Again, it's a
6 financial instrument.
7 Q. But as far as advance planning, if
8 Monsanto buys through, you simply buy from whatever
9 source is available, don't you?
10 A. I would make sure that I met my
11 obligation to serve Monsanto. If I wait every hour
12 and for some reason I can't buy in the market
13 because there's scarcity, I become in violation of
14 my firm contract to supply them if they don't buy
15 through -- I mean, if they buy through.
16 Q. But isn't your -- isn't the right of
17 Monsanto to buy through subject to the power being
18 available to the Company to allow them to buy
19 through that's tied to some market?
20 A. As far as I understand what's been
21 proposed here, I have not seen that as a term.
22 Q. Well, let's assume that were the case.
23 A. That if I can't find the power --
24 Q. I think the contract is replete with
25 language that says if the power is not available,
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1 you don't have to supply it.
2 A. For eight hours a day?
3 Q. Well, for whatever the buy-through is.
4 I mean, if we tie a buy-through to an index and
5 Monsanto says, "Buy us the power on the index," and
6 if there's some reason it's not physically
7 available, then I think the Company would be --
8 A. My obligation would be over.
9 Q. Would be gone.
10 A. Okay. Then at that point, I would
11 probably from a risk standpoint, I would cover that
12 requirement closer to the time of delivery so that
13 my risk is covered exactly with the market risk of
14 that index.
15 Q. Which means there's really no advanced
16 planning that has to be done.
17 A. At that point, if that was part of it,
18 the only advance planning that I would probably do
19 is to make sure that I try and not put myself in a
20 position where I am physically interrupting Monsanto
21 if they want to buy through. What I mean by that is
22 I may not wait each hour. I may think I'm going to
23 interrupt the day ahead and I may buy it the day
24 ahead to make sure that I don't interrupt them. But
25 I don't think I'll go hour to hour on it.
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1 Q. But if there's really no obligation to
2 plan forward, then really there's no risk or
3 difference to the Company whether there is a
4 buy-through or not. In other words, if Monsanto
5 says, "Buy through," you simply go to the market and
6 buy, and there's no planning to do it. If you're
7 not able to buy through due to some physical
8 constraint, then you simply don't allow a
9 buy-through?
10 A. Yeah, the only planning there is that
11 I have 1,000 hours. And I really don't have 1,000
12 hours, in my mind, of physical interruption because
13 I don't think we'd ever get there. So I really have
14 to plan at least as a minimum to have infrastructure
15 in place to meet the buy-through obligation.
16 Q. You recall the questions I posed to
17 Mr. Griswold earlier and he acknowledged that there
18 was never a time that PacifiCorp sought to curtail
19 Monsanto that it was not available and available in
20 a matter of seconds. Do you recall that question
21 and answer?
22 A. Yeah, I believe you showed some
23 exhibits about when we did call Monsanto, that in
24 their records they responded within seconds.
25 Q. And I'd asked him a question about
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1 there may be times that the peaker plant may not be
2 available due to mechanical problems, and I think he
3 indicated that was correct.
4 And he deferred to you, if I recall
5 correctly, the question about the fact that there
6 could be times that your gas supply might be
7 interrupted?
8 A. Right.
9 Q. And you couldn't run your peaker
10 plant. Is that a possibility?
11 A. That might be one of the issues. I
12 remember that discussion you had with him, yes.
13 Q. So is that a possibility? I think he
14 deferred that question to you.
15 A. Okay, first of all, on our gas for our
16 peakers, we hold firm transportation for a portion
17 on Questar pipeline, and we hold firm transportation
18 on the LDC. We do not have firm transportation for
19 the full amount of the capacity of the peakers;
20 however, we have a firm good amount of it. But the
21 reason we don't hold the firm capacity is we
22 wanted -- we're mainly using those in the summertime
23 when there is a ample pipeline space available, so
24 to us the risk of being interrupted on the pipe does
25 not warrant paying firm transportation, except up to
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1 a level of which we would carry reserves on those
2 units. I'm not just referring to the peakers
3 either, because we do have the Gadsby steamers that
4 run on gas. So that's how those requirements are
5 met.
6 Q. You expressed some concern in your
7 testimony about the WECC may be considering changes
8 in some of their operating criteria in the future.
9 Would it be accurate to say that those are simply
10 proposals at this point in time and that nothing has
11 been decided?
12 A. I would say -- how would I
13 characterize it? They are proposals that have been
14 put on the table, and there's been several comment
15 periods on that and several meetings that have been
16 held. Again, I do not attend those meetings, so I
17 can't recall how many. I would not say it's in an
18 advanced stage, but I also wouldn't put it back at
19 the low end of that either.
20 Q. Under the proposal that Monsanto has
21 made in their rebuttal of offering economic
22 curtailment entirely as opposed to operating
23 reserves, those WECC standards and constraints would
24 not have application. Correct?
25 A. Yeah, that was only in reference to
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1 the operating reserves.
2 Q. If I could refer you -- you may still
3 have it open -- your Exhibit 14, and I believe
4 several of them there when you made your
5 calculations of economic curtailment, those were the
6 number crunching that you did to come up with a
7 value of Monsanto curtailment?
8 A. Right.
9 Q. And you include a number in each of
10 those exhibits where you made the calculation of
11 $722,200 that you call a lost retail revenue?
12 A. Correct.
13 Q. Is that, in fact, a reduction in the
14 credit to Monsanto which would account for what you
15 believe is lost revenue on sales to Monsanto if it
16 were interrupted?
17 A. Yes.
18 Q. Okay. When you made the calculation
19 of $722,200, did you make that based upon the full
20 firm price to Monsanto of 31.40?
21 A. Yes.
22 Q. And isn't it a fact, Mr. Watters, that
23 the variable energy proportion of that price is
24 $16.31?
25 A. Yes, and let me tell you what we're
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1 doing about that.
2 Because we did see the rebuttal
3 testimony that arrived yesterday, as part of our
4 evaluation of the new proposal somewhat put out by
5 Monsanto we were redoing the calculation at 16.31,
6 and the 31.40 was a -- oh, I don't know -- a
7 faux pas that occurred between the analyst that was
8 doing the work and Mr. Griswold's testimony, and so
9 that is being revised to 16.31.
10 Q. And your revision will reflect that
11 only the variable energy portion should be included
12 in that calculation, I assume?
13 A. The variable energy portion?
14 Q. Yeah, the $16.31.
15 A. Oh, yes. Yes, it would be. Instead
16 of the 31.40, it would be the 16.31.
17 Q. Okay. And that's a correction that
18 we'll see in your revised documents that you're
19 working on?
20 A. That would be a correction that we'll
21 address when we --
22 Q. Because the balance of that price
23 would be the demand portion that you're going to
24 recover from Monsanto anyway?
25 A. Yeah. I think we need to be clear on
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1 it because there's a lot of moving parts here.
2 I believe in Ms. Iverson's testimony
3 if Monsanto, who, as I understand it, wants just an
4 energy rate, then we would need to revise it to
5 reflect if that is what Monsanto ended up with as
6 opposed to a demand in energy rate, then we would
7 revise it to reflect that method. But anything
8 that's arrived at here, we would need to reflect
9 those changes to be fair to each party.
10 Q. Are you aware of the similar question
11 that's been posed of this Commission regarding the
12 recovery of lost revenues pertaining to PacifiCorp's
13 irrigation curtailment proposal and also the
14 Idaho Power curtailment proposal where this
15 Commission made some decision regarding whether or
16 not it was appropriate for the Utility to recover
17 lost revenues pertaining to sales when they elected
18 interruptions? Are you familiar with that?
19 A. No, I'm not, at all.
20 Q. Okay. I believe there was one other
21 area that Mr. Watters deferred to you if I can
22 locate it here. Oh, yes, it had to do with the
23 Palo Verde index being proposed by the Company for
24 the buy-throughs, and Mr. Griswold deferred those to
25 you.
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1 A. Uh-huh.
2 Q. Would you agree that the Palo Verde is
3 traditionally the more expensive index in the
4 Western grid?
5 A. Traditionally, yes, but it's been all
6 over the map.
7 Q. And is my understanding correct that
8 the Company is not willing to offer to Monsanto
9 Mid-C or COB or whatever the lowest price might be
10 in the system?
11 A. That's correct, because basically in
12 our Eastern control area, we -- the market we would
13 reach to to meet these obligations, whether it be
14 500 hours or 1,000 hours, will be to the Desert
15 Southwest. That's what I've priced this off of and
16 I've given them the value based off of that market.
17 If they want a buy-through based on Mid-Columbia,
18 then I would need to revise my whole evaluation and
19 I would use the Mid-C market prices to judge that,
20 which would definitely lower the amount of credit
21 that Monsanto is looking for.
22 It also doesn't match well with the
23 exposure the Company takes that we're trying to
24 measure here. I matched the market to what will hit
25 the Company. And so I've read the testimony of the
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1 various parties, and if we move to a Northwest
2 market, it changes my whole evaluation, and it
3 wouldn't be right because it wouldn't match to what
4 my costs are.
5 Q. Well, in the real world of what
6 happens, if Monsanto chooses to buy through,
7 wouldn't the Company have the option to go to any
8 market available, to use its own resources, or to
9 look to another utility to provide that buy-through
10 energy?
11 A. No, they could not look to any market,
12 because I couldn't get it from any market.
13 Q. So you're saying the only place
14 Monsanto could be supplied on a buy-through would be
15 Palo Verde?
16 A. What I have pretty much during the
17 summertime during what we've priced out here, the
18 500 hours and as we move to the 1,000 hours, okay,
19 during that time period, I have typically already
20 loaded all of my transmission west to east, which
21 means there's no other available space on Path C;
22 and because I'm not planning to meet Monsanto's load
23 as we just discussed, I have to go buy it.
24 So where am I going to go buy it? I'm
25 going to buy it down in the desert, because that's
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1 the last place I have on my system to bring it in,
2 and/or Southern California. So I'm going to be
3 bringing it in from that area.
4 And is that 100 percent of the time?
5 I hate to say anything is 100 percent of the time,
6 but I'm pretty confident it's close to.
7 Q. Well, let's take the hypothetical.
8 Assume it was a situation that Monsanto was tied to
9 Palo Verde and you interrupted Monsanto at that
10 price and there was a resource available to the
11 Company at a lower price. Would that not leave the
12 Company in the position that it could profit on that
13 sale to Monsanto; in other words, create an
14 arbitrage situation to the benefit of the Company?
15 A. Again, as I've done my evaluation,
16 I've given them the full benefit of that market.
17 So, yes, can I benefit from selling, yes, but I
18 might be selling at mid-Columbia because I can't
19 move my mid-Columbia. I could be selling at a lot
20 of different places.
21 And it's like I said: To me, this is
22 a financial instrument that I have priced. It has
23 nothing to do with the physical system of PacifiCorp
24 except to the extent that I've tied it to the market
25 and given Monsanto the largest value I could for
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1 pricing of this option, because that's what I avoid,
2 and it's a financial instrument tied to a market
3 index. That's what I valued it on. Now, if that's
4 not the case, then we've got to go and revalue the
5 whole thing again.
6 Q. Well, if you looked in the 1992 and
7 prior contracts of Monsanto, they contain some
8 paragraphs that essentially said that Monsanto can
9 buy through at whatever the lowest cost available is
10 to the Company, and that could be Palo Verde, it
11 could be some other source, and that was a price
12 that Monsanto was required to pay. Would you not
13 agree that under that type of language, the Company
14 is essentially held harmless?
15 A. Not true.
16 Q. Well if --
17 A. Because if it's the lowest price and
18 I'm buying power, I think this is what got into some
19 of the disputes that we've had in the past on the
20 second curtailment options. I may buy power
21 Mid-Columbia to serve something entirely different
22 than Monsanto's load and I also may be buying power
23 in the desert at the exact same time, and Monsanto
24 wants the lower of whatever market and I don't think
25 that's applicable. But on top of it, if that's
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1 where we end up, that they get the lowest of low,
2 I've got to reprice everything because I've given
3 them the Southern California market in what I avoid
4 in the evaluation, so, you know --
5 Q. The old contract said the lowest price
6 available to serve Monsanto. So if there was some
7 constraint that precluded you from bringing it in
8 from the Northwest, whatever source was available,
9 lowest to the Company, does that not provide
10 indemnity or protection to the Company and at the
11 same time protect Monsanto from the possibility of
12 arbitrage so we have a level playing field?
13 A. I think we have a very level playing
14 field, because what I've done is I've looked at an
15 independent source, not controlled by PacifiCorp,
16 not controlled by Monsanto. I put it at a market
17 index, and I think that's fair to both parties.
18 What happened before is that people
19 would come in and audit our books and say, Why
20 didn't you give me the Mid-Columbia price?
21 And we said, Well, we couldn't move it
22 to you.
23 Prove it to me. Do this, do that.
24 Pretty soon we'd get in a big fight.
25 So we have been moving all of our
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1 arrangements away from that type of mechanism into
2 an independent source that we can get away from any
3 of that type of activity.
4 Q. Isn't the fact, Mr. Watters, that
5 there was never any fight that you referred to of
6 that nature between Monsanto and PacifiCorp on any
7 prior?
8 A. I believe that is the case. I was not
9 saying it was Monsanto; I did not say that.
10 MR. BUDGE: Nothing further. Thank
11 you very much.
12 COMMISSIONER SMITH: Do we have
13 questions from the Commission? Commissioner
14 Kjellander.
15
16 EXAMINATION
17
18 BY COMMISSIONER KJELLANDER:
19 Q. If you could look again at page 7,
20 lines 10 through 16, in your answer to why the
21 Utility isn't interested in the long-term operating
22 reserve agreements, at the bottom of that, beginning
23 I believe at line 16, you talk about an option to
24 convert the operating reserve agreement to another
25 interruptible product of equivalent value to both
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1 parties. That option, is it a hypothetical option
2 or was that an option that you might be able to
3 identify and then negotiate those terms in advance
4 and include in a -- in a contract for
5 interruptibility?
6 A. I think we could probably do it in
7 advance. I need to give a little think about the
8 risk elements of it, but I could envision looking at
9 that if we did come up with a structure that was
10 partial operating reserve, partial economic
11 curtailment, that depending on where those values
12 are and how close they would be to each other, maybe
13 that would be one option that could be the remedy
14 would flip the whole thing to economic curtailment,
15 for instance, that wouldn't maybe change the value
16 too much for the other party.
17 Q. Okay. Thank you.
18 A. Uh-huh.
19 COMMISSIONER KJELLANDER: That's it.
20
21 EXAMINATION
22
23 BY COMMISSIONER SMITH:
24 Q. Mr. Watters, my questions are just
25 tangentially related here, but I assume that you've
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HEDRICK COURT REPORTING WATTERS (Com-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 heard that the Federal Energy Regulatory Commission
2 has issued its standard market design rule making?
3 A. Yes.
4 Q. Is any of that going to impact here?
5 It seems to me they touch on the issue of reserve
6 margins because they want to ensure that there's
7 adequate generation, and they also touch on
8 demand-side measures that they feel are necessary to
9 mitigate market power and have the wholesale market
10 that's functional.
11 And so do you see any of that
12 impacting this case and what this Commission might
13 decide, or how PacifiCorp might be able to value or
14 price interruptibility?
15 A. Yeah, good question. A couple -- a
16 couple things there:
17 The standard market design or RTOS,
18 for that matter, were things that changed the
19 operations in our area, are a concern moving forward
20 as we're entering into fixed price contracts,
21 there's no doubt about that. We don't know what the
22 terms of those operations are going to be and it
23 could impact the economic value of these contracts,
24 not only these contracts but other contracts that
25 PacifiCorp has, and that is a concern of ours.
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HEDRICK COURT REPORTING WATTERS (Com-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 At the same time, more specific to the
2 standard market design and what's not clear to me
3 yet is if we have the requirement of the 12 percent
4 minimum reserve margin and the Idaho Commission
5 agrees with that -- because I think you have a right
6 to make it higher than that if you want but no lower
7 is what I read, but let's assume for the sake of
8 this discussion that it's 12 percent -- how would
9 Monsanto be treated on an economic buy-through?
10 Would that be considered firm? If it's firm, then I
11 need to carry 12 percent reserve margin on top of
12 that. And I don't have the definitions for that
13 quite yet, so it could impact directly this case --
14 not this case, but down the road it could impact
15 the -- our arrangement.
16 Q. Thank you.
17 COMMISSIONER SMITH: Is there
18 redirect, Mr. Fell?
19 MR. FELL: Yes. Thank you.
20
21 REDIRECT EXAMINATION
22
23 BY MR. FELL:
24 Q. Mr. Watters, would you turn to your
25 exhibit -- we'll just pick one -- Exhibit 14? I
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HEDRICK COURT REPORTING WATTERS (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 have Exhibits 13, 14, and 15 in mind, but we'll look
2 at Exhibit 14. The bottom line shows a net benefit
3 of zero. Would you please explain what that means?
4 A. What that means is based on the value
5 that Monsanto provided with what they offered in
6 economic curtailment, not what they offered
7 yesterday in their rebuttal but the original I think
8 Exhibit A or Appendix A as people have been
9 referring to, that we have provided -- we have done
10 an evaluation based off of the product that we would
11 avoid in the market based on this economic
12 curtailment. The zero benefit means that in this
13 case we would have a cost, a capacity charge of
14 $3.08 to purchase this option, and then we -- if we
15 did take this option at 59.25 a megawatt hour for
16 all the energy, adding those two things together
17 gives a total value that we would end up paying for
18 this. And what we've done is provide that back to
19 Monsanto, less our lost revenues because we're not
20 sure if they will buy through or not -- that is
21 their option -- and that those two numbers equate
22 and there's a net benefit of zero, in other words,
23 passing all value on to Monsanto associated with
24 that.
25 Q. Now, if you reflect on what Mr. Budge
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P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 was asking you about the opportunity under economic
2 curtailment in a buy-through to arbitrage and
3 perhaps be able to purchase buy-through power at a
4 price lower than Palo Verde, what was your answer
5 about the frequency of that opportunity?
6 A. My answer was that we're tied directly
7 and matched to the market that I most likely, most
8 of the time, I'm going to have to go to to buy
9 through. So I'm matching market with what I've
10 avoided.
11 Q. And so then I'm just -- I just want to
12 combine the two thoughts. Is it your testimony then
13 that your opportunity to take an advantage and to
14 achieve a financial advantage through the arbitrage
15 is quite limited?
16 A. Limited, yes. Doesn't mean it
17 couldn't happen.
18 Q. And you have not provided any net
19 margin in your analysis for other customers or for
20 PacifiCorp in terms of valuing and pricing which you
21 are paying to Monsanto?
22 A. No, I've not.
23 Q. Thank you.
24 MR. FELL: No further questions.
25 COMMISSIONER SMITH: Thank you.
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HEDRICK COURT REPORTING WATTERS (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 Thank you, Mr. Watters.
2 (The witness left the stand.)
3 MR. FELL: PacifiCorp's next witness
4 is David Taylor.
5
6 DAVID L. TAYLOR,
7 produced as a witness at the instance of PacifiCorp,
8 being first duly sworn, was examined and testified
9 as follows:
10
11 DIRECT EXAMINATION
12
13 BY MR. FELL:
14 Q. Mr. Taylor, would you please state
15 your name and your position with PacifiCorp?
16 A. David L. Taylor. I am the -- a
17 manager in the regulation department with specific
18 responsibilities dealing with cost-of-service
19 issues.
20 Q. Mr. Taylor, are you sponsoring
21 prefiled direct testimony in this case?
22 A. I am.
23 Q. And Exhibit 1 to 3 that accompany that
24 direct testimony?
25 A. That's correct.
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HEDRICK COURT REPORTING TAYLOR (Di)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 Q. And are you also sponsoring rebuttal
2 testimony?
3 A. Yes.
4 Q. And Exhibit 17 through 22 of your
5 rebuttal -- to the rebuttal testimony?
6 A. That's correct.
7 Q. And if you'll turn to your direct
8 testimony, I understand there are two corrections?
9 A. Yes. If you'll turn to page 3 of my
10 direct testimony, line 19, the words "and audited by
11 the Commission Staff" should be struck from that
12 testimony.
13 Q. Would you explain that?
14 A. Yes. When I prepared this testimony,
15 I mistakenly believed that the Idaho Staff had
16 audited the filing that we made in 1999, and it
17 turned out that they had audited the 1998 test
18 period filing.
19 Also, on page 10, beginning with
20 line 7, starting with the words "leaves the return
21 for the state of Idaho unchanged" going on to line
22 8, the word "and," those words should be struck from
23 my direct testimony as well.
24 Q. Would you read that sentence with the
25 wording proposed?
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HEDRICK COURT REPORTING TAYLOR (Di)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 MR. BUDGE: Repeat that last one. I
2 lost the page.
3 THE WITNESS: Okay. It's page 10,
4 starting on line 7, strike the words "leaves the
5 return for the state of Idaho unchanged and." That
6 should be struck.
7 So the sentence reads now as
8 corrected: Pricing the Monsanto contract to produce
9 9.8 percent ROE has no adverse impact on other Idaho
10 customers.
11 Q. BY MR. FELL: And with those changes,
12 Mr. Taylor, if I were to ask you today the questions
13 contained in your direct testimony, would your
14 answers be the same?
15 A. Yes, they would.
16 Q. And if I were to ask you the questions
17 contained in your prefiled rebuttal testimony, would
18 your answers be the same?
19 A. Yes, they would.
20 MR. FELL: We move to spread the
21 direct and rebuttal testimony of Mr. Taylor on the
22 record as if read.
23 COMMISSIONER SMITH: If there's no
24 objection, it is so ordered.
25 (The following prefiled direct and
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HEDRICK COURT REPORTING TAYLOR (Di)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 rebuttal testimony of Mr. Taylor is spread upon the
2 record.)
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HEDRICK COURT REPORTING TAYLOR (Di)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp