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HomeMy WebLinkAbout20020905Volume 6, pg 657-693.pdf 1 (The following proceedings were 2 had in open hearing.) 3 (Monsanto Exhibit Nos. 221 through 4 223 and 239 were admitted into evidence.) 5 COMMISSIONER SMITH: Mr. Olsen, do you 6 have questions? 7 MR. OLSEN: No questions, Madam 8 Chairman. 9 COMMISSIONER SMITH: Mr. Woodbury, do 10 you have any questions? 11 MR. WOODBURY: Thank you, Madam 12 Chair. Yes, I do. 13 14 CROSS-EXAMINATION 15 16 BY MR. WOODBURY: 17 Q. Mr. Rosenberg, looking at your 18 direct -- 19 Well, first let me say do you -- you 20 understand the Monsanto's proposal, surrebuttal 21 proposal, in this case to be a replacement proposal 22 or is it an additional proposal for PacifiCorp? 23 A. I think that probably would have been 24 a better question to Mr. Schettler, but my 25 understanding of it is that it is a replacement 657 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 proposal. 2 COMMISSIONER SMITH: Mr. Budge. 3 MR. BUDGE: I think the question as 4 directed to Mr. Schettler and was directed to him 5 indicated that both proposals were being made, and 6 it is Monsanto's intention that the second proposal 7 in the rebuttal testimony be an alternate proposal. 8 COMMISSIONER SMITH: Thank you for 9 that clarification. 10 THE WITNESS: I stand corrected. 11 Q. BY MR. WOODBURY: Looking at your 12 direct testimony on page 41, there's discussion of 13 terms and conditions of the new contract, and I 14 would guess bring you back to Exhibit 210 and you 15 speak of Paragraph 2.3? 16 A. Yes. 17 Q. And you state that this allows for 18 renegotiations in the event of significant changes 19 in either the elemental phosphorus industry or 20 PacifiCorp's cost structure. 21 And can you indicate in the 22 Paragraph 2.3 where PacifiCorp has an option to 23 initiate a change in renegotiation with changes in 24 its cost structure? 25 A. I'm not sure I have Paragraph 2.3 with 658 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 me up on the stand here. 2 Q. Do you have a copy of either 3 Exhibit 210 or 211? 4 A. I've just been handed Exhibit 211. 5 Q. Thank you. And have you had -- have 6 you reviewed Paragraph 2.3 before? 7 A. I am re-reviewing it now. 8 Q. And do you have in mind my question? 9 A. Yes, I do. 10 Q. And could you direct me to that 11 portion of 2.3 which gives PacifiCorp the -- a right 12 to initiate negotiations upon change in its cost 13 structure? 14 A. The parties -- the first -- I was 15 referring to the first sentence when I wrote that 16 statement: 17 The parties recognize that significant 18 changes may occur in the elemental phosphorus 19 industry, as well as in the availability and cost of 20 electric power generation, and wholesale power 21 purchase opportunities in a retail electric service 22 caused by changes in fuel cost, electric power 23 markets, and transmission regulation. 24 Q. And that alone seems to -- would make 25 your statement seemingly true, but if then you read 659 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 the rest of the -- the paragraph, it provides that 2 essentially renegotiation can only be triggered by 3 Monsanto. There are no instances where PacifiCorp 4 can trigger that negotiation. Am I reading that 5 incorrectly? 6 A. I would, as a layman reading a 7 contract, I would have to agree with you, sure. 8 Q. So it's a rather one-sided option to 9 change the contract for any significant change? 10 A. I would have to agree with you, sir. 11 Q. On page 41 of your direct testimony 12 also you state that Monsanto should not be 13 interrupted significantly more than comparable 14 interruption customers on PacifiCorp's system. 15 Does Monsanto believe that there is a 16 comparable interruptible customer to it on 17 PacifiCorp's system? 18 A. Magcorp would be the one that would 19 come to my mind as being closest to Monsanto in that 20 regard, although with Magcorp requires two hours' 21 notification and PacifiCorp (sic) requires shorter 22 notification. 23 Q. Would this be just -- I mean, you 24 wouldn't intend to require this type of treatment by 25 a contract provision? 660 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 A. No, I was not intending this to 2 require this sort of treatment by contract 3 provision. 4 Q. It would simply be an understanding 5 between Monsanto and PacifiCorp? 6 A. It would be an understanding that 7 PacifiCorp would try to share the pain when it comes 8 to interruptions, and it would not unduly 9 discriminate against Monsanto, but of course you 10 have to bear in mind that PacifiCorp is going to run 11 their system in a way that maximizes the benefits of 12 each contract and minimizes its costs. So as a 13 practical matter, it would be very difficult to 14 police that type of policy and it's really just a 15 statement, more of an understanding between the two 16 parties. 17 Q. Okay. What came to mind when I read 18 that was testimony of Monsanto elsewhere talking 19 about interruptibility and apparently a commitment 20 of PacifiCorp to not, when the contracts changed or 21 when there was a merger, not to interrupt them more 22 frequently than in the past, and it seems that with 23 a schedule that was presented Monsanto was 24 indicating that this promise was not -- was not 25 lived up to. And so I'm wondering whether you're 661 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 talking about a similar type of commitment there and 2 how you were going to go about handling that. 3 A. I think it would be very difficult to 4 monitor that. As I said, I would expect PacifiCorp 5 to administer the contract so as to maximize the 6 benefits of the Monsanto interruptibility and to 7 minimize their costs. Also, the fact that you're 8 allowing for economic interruptions really would 9 allow technically Monsanto to be interrupted if 10 PacifiCorp could make a sale, an advantageous sale. 11 Q. There's a table that you have on 12 page 34 of your direct testimony, summary of 13 interruptible rate benchmarks, and how does that -- 14 does that table change at all with the Company's new 15 proposal? 16 A. Yes. I would say that the -- the 17 resource savings line would be updated with 18 Exhibit 239. 19 Q. 239? 20 A. Yes. 21 Q. Okay. And that would be the only 22 change? 23 A. That's the only change that I -- would 24 occur to me as I sit here, yes. 25 Q. Page 8 of your direct testimony, 662 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 you're answering a question that you pose why can't 2 Monsanto be served on simply a standard rate, and 3 you wind up concluding Monsanto has always been 4 served under a special contract rate as their 5 reason, and that's not -- 6 Is it your position that the 7 historical practice of contracting between the 8 parties should be somehow cast in stone and can 9 never change? 10 A. I'm not saying that things can never 11 change. I am just -- on a personal level, I don't 12 believe in casting things in stone. I believe 13 that's too inflexible a position. But certainly 14 historical precedents are just that: They are 15 precedents and they do deserve to be given weight. 16 And, furthermore, that was not the 17 only reason that I propose that Monsanto be served 18 on a contract rate. The other reason was the unique 19 size and service characteristics of the Monsanto 20 load. So it's an element of looking at history as 21 well as common sense. 22 Q. On page 13, you speak of the differing 23 treatment. You state that differing treatment by 24 different regulatory bodies is a risk of doing 25 business in different jurisdictions, and then you 663 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 make reference to the merger commitments of the 2 Company and state that it should not be able to 3 shift those risks either onto Monsanto or to other 4 customers. 5 Aren't you taking a rather hard-line 6 approach in that position with respect to changes in 7 the industry and whether or not PacifiCorp would be 8 able to come back and ask for some relief? And I 9 say that in light of the changes that we do see 10 occurring, those matters that are under discussion 11 in the multistate process with respect to valuation 12 of interruptibility, the situs/system treatment, and 13 how those changes will, in fact, perhaps change the 14 Company's cost structure; and also the WEEC (sic) 15 changes in reserve criteria. Aren't those all good 16 factors to come in and revisit, I guess, the 17 Company's situation? 18 A. Let me answer your question. That was 19 a pretty long question. I'll try to give a shorter 20 answer. 21 First of all, as I said, there is 22 always regulatory risk in operating in a different 23 jurisdiction. A few years ago I was involved in a 24 DelMarVa case. DelMarVa was I think since acquired 25 by another company. But DelMarVa, as the name 664 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 implied, operated in Delaware, in Maryland, in 2 Virginia, and they also had a FERC jurisdiction. 3 And each jurisdiction when it did the jurisdictional 4 study used a slightly different cost-of-service 5 allocation, different method; and as a result, some 6 things got double-counted, some things fell through 7 the cracks. But that was part of the burdens that 8 one took when you operate in several jurisdictions, 9 just as there are advantages to operating in several 10 jurisdictions. 11 The second thing is that I don't 12 believe this is too harsh of a statement because I 13 think regulators have to look at a plethora of 14 things, they have to look at the whole picture, and 15 in general as long as they're treated fairly and 16 justly as a whole, okay, then I think it's okay to 17 have certain risks still be incumbent on the 18 Utility. 19 And, finally, to answer your question, 20 I was here yesterday during the -- your 21 cross-examination I believe of Mr. Taylor when 22 Mr. Taylor said that they were just trying to 23 mitigate that risk, they still took that 24 responsibility on themselves, so I don't believe I'm 25 being any harsher on PacifiCorp than Mr. Taylor is 665 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 on himself. 2 Q. Finally, looking at your rebuttal 3 testimony on page 2, you talk about Mr. Schunke's -- 4 you say that he seems to accept uncritically 5 Mr. Taylor's derivation of the cost of service. 6 Were you familiar with Staff's 7 analysis regarding the test year in this case? 8 A. Am I familiar with Staff's analysis of 9 the 1999 year? 10 Q. Yeah, the test year. 11 A. No, I confess that I am not familiar 12 with Staff's analysis of the 1999 year. 13 Q. Thank you. 14 MR. WOODBURY: Madam Chair, no further 15 questions. 16 COMMISSIONER SMITH: Thank you, 17 Mr. Woodbury. 18 How much do you have, Mr. Fell? 19 MR. FELL: How much? 20 COMMISSIONER SMITH: Maybe I should 21 just -- 22 MR. FELL: What's your target time? 23 COMMISSIONER SMITH: Why don't we just 24 take a ten-minute break. 25 MR. FELL: That would be good. 666 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 (Recess.) 2 COMMISSIONER SMITH: All right, we'll 3 be back on the record. Mr. Fell. 4 MR. FELL: Thank you. 5 6 CROSS-EXAMINATION 7 8 BY MR. FELL: 9 Q. Dr. Rosenberg, good afternoon. 10 A. Good afternoon, Mr. Fell. In your -- 11 I'll be focusing on your rebuttal testimony. 12 A. Okay. 13 Q. In your rebuttal testimony at page 12, 14 lines 11 and 12, you say that short-term or spot 15 purchases are generally a replacement for energy but 16 not for capacity. 17 What do you mean by "short term" or 18 "spot purchases"? What time period are you 19 referring to? 20 A. Well, a spot purchase I would consider 21 one that is a day or a week. Short term is usually 22 a year or less. 23 Q. The interruptibility contract we're 24 talking about here you wouldn't consider to be a 25 short-term resource then in that context? 667 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 A. I'd call it -- I would characterize it 2 more as a intermediate term resource. 3 Q. So then you're not suggesting that 4 this -- I think I understand what you're saying. 5 On the other hand, isn't it true that 6 short-term purchases can be used to meet a shortage 7 of capacity at particular times of the year? 8 A. I would agree with you. As a matter 9 of fact, I recall reading in the justification -- 10 the Company's justification -- for Gadsby peakers 11 that they had been using short-term purchases and 12 that one of the problems was that they had to buy 13 them in 16-hour strips and they couldn't use all of 14 it, and therefore, that added about 15 to $20 to the 15 cost -- 15 to $20 per megawatt hour to the cost of 16 the resource, and that's one of the reasons that 17 they wanted to build a peaker. 18 Q. Now, I'd like to turn to your 19 Exhibit 239, please. Is it fair to say that the 20 objective of Exhibit 239 is to compare the value of 21 a single-cycle combustion turbine to the value of 22 the economic interruptibility that we're talking 23 about here? 24 A. I think that's a fair 25 characterization, yes. 668 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 Q. I'd like to go through some of your 2 line items and make sure that I understand what you 3 mean. Line No. 5, adjusted for reserve margin of 4 ten percent, what is that? What are you doing in 5 that line? 6 A. I am taking the capacity that is 7 saved, kW saved, and adjusting it by multiplying it 8 by 110 percent, the reason being that the Company I 9 notice from RAMPP-6 likes to keep at least a 10 ten-percent reserve margin and, therefore, when it 11 can't avoid a one megawatt of load -- in other 12 words, if one megawatt of load goes from firm to 13 interruptible because of the reserve margin 14 requirement -- it would actually avoid 1.1 megawatts 15 of capacity. 16 Q. And to follow up on that, what if 17 there were a buy-through option that the customer 18 had on that interruptibility so the product was more 19 of a financial interruptibility, at that point the 20 delivery of energy is still being made. Do you 21 think that the Company saves the reserve margin on 22 that? 23 A. That's an excellent question. As a 24 matter of fact, I think from -- Mr. Watters posed 25 that question when he was on the stand yesterday, 669 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 and that prompted me to look at RAMPP-6. And in 2 RAMPP-6, the interruptible load even if there's a 3 buy-through is treated as it nets out as a purchase 4 and a capacity -- a purchase and a sale, 5 simultaneous purchase/sale, and therefore, it does 6 not trigger a need for an additional reserve 7 margin. So the way it's treated in RAMPP-6, it 8 appears to me that this would still be a valid 9 adjustment even with a buy-through. 10 Q. I think I'll come back to that. 11 Moving down on the other lines, you've got total 12 variable cost of $22.52, and what does that 13 represent? 14 A. That represents the fuel cost and 15 variable O&M that was derived from RAMPP-6. 16 Q. Would it be fair to say that that's 17 the value that a company might look to in deciding 18 whether to -- well, to decide whether the output of 19 that particular plant can be used to meet market 20 sales, whether the output can be sold into the 21 market? For example, if the market price were $24, 22 the variable price here of $22 would make it worth 23 producing electricity from that plant? 24 A. If they had a choice. Of course, you 25 have to adjust for losses, but yes. 670 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 Q. And then on line 11, that's your 2 adjustment for losses? 3 A. That's correct. 4 Q. And that's transmission losses? 5 A. That is correct. 6 Q. Are there transmission losses if 7 there's a buy-through and electricity is actually 8 delivered? 9 A. If there's a buy-through, the -- 10 Monsanto would pay for, you know, whatever was 11 agreed to is the cost of the buy-through, some index 12 or whatever was agreed to, they would pay that plus 13 they would pay for transmission as well. 14 Q. So if we use the Palo Verde index the 15 way we're talking about here, you would actually add 16 to that the transmission costs and losses? 17 A. That's how I would envision it, yes. 18 Q. Now then, this -- on line 11, there's 19 the number 17,665,661. 20 A. Approximately. 21 Q. What does that number represent in 22 your table here? 23 A. That would represent the credit to the 24 firm cost of service for the interruptibility. 25 Q. So that's the price that PacifiCorp 671 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 would be asked to pay for the interruptibility on an 2 annual basis? 3 A. You could view it that way. 4 Q. Uh-huh. 5 A. You could view it that way, which is 6 the way I think the Company prefers to view it. 7 Q. Do you know approximately what the 8 annual revenues are from the Monsanto contract 9 currently under the expiring price? 10 A. Approximately, $2,100,000. 11 Q. Annual? Annual? 12 A. No, monthly. 13 Q. No, but go ahead and multiply it by 14 12. 15 A. Well, the load is 13 -- I have their 16 load at 1,354,000 megawatt hours, and -- 17 Q. Times $18.5 per -- 18 A. Times $18.5 per megawatt hour is 19 25,049,000. 20 Q. Okay. So for 1,000 hours of 21 interruptibility, you're proposing that the Company 22 pay them over $17,000,000 for that interruptibility? 23 A. That's correct. 24 Q. Okay. Going back up to the total 25 fixed cost, this $73.48, that represents, as I 672 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 understand it, the cost of this RAMPP-6 peaking 2 resource? 3 A. That is correct. 4 Q. You say peaking, but it's a 5 single-cycle combustion turbine. Correct? 6 A. It's a single-cycle combustion 7 turbine, correct. 8 Q. And it is generally available 9 year-round, isn't it? 10 A. Not necessarily. If you look at the 11 Company's, again, their justification for the Gadsby 12 units, I believe they said that in Utah 13 environmental reasons only allowed them to run some 14 peakers for six months out of the year. So there 15 could be reasons why you cannot run these things 16 year-around. 17 Q. Yes, but they are available 18 year-around? 19 A. Not if the environmental office says 20 you can't run them. 21 Q. Well, if you use your six months up in 22 the first six months of the year, you're in that 23 situation; but managed correctly, you have them 24 available for 12 months out of the year. You can 25 use what the environmental limits allow, but six 673 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 months is allowed. Isn't that right? 2 A. Six months is allowed. 3 There's never -- there's -- as I say, 4 when you compare interruptibility as a resource 5 versus a peaker, simple-cycle peaker as a resource, 6 it's never an apples to apples comparison. There is 7 always pluses and minuses to each one, advantages 8 and disadvantages. So maybe it's a Jonathan apple 9 to McIntosh apple comparison, but yes, I am using, 10 just as Mr. Schunke did, I am using this resource as 11 a -- as a proxy for the interruptible purchases. 12 Are there differences? Certainly 13 there are differences. As I say, there are 14 advantages and disadvantages to each one and that's 15 why a utility likes to have a multiple of resources 16 in its portfolio, because there are advantages and 17 disadvantages to each one. 18 Q. You have a statement in your rebuttal 19 testimony that was interesting to me on page 18, 20 lines 6 through 9. 21 A. Glad to see it was more of interest to 22 you than Mr. Budge. 23 Q. You say again with respect to 24 determining the avoided capacity cost it makes no 25 difference the number of hours Monsanto is 674 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 interruptible. It is the size of the interruption 2 in capacity that is multiplied by the avoided 3 capacity cost of the single-cycle combustion 4 turbine? 5 A. Within limits. 6 Q. I'd like to talk about some of the 7 limits. I'm following up with that. 8 A. Certainly. 9 Q. If you have a single-cycle combustion 10 turbine and we'll use the capacity we have here, 11 162.5 megawatts, and that operates 30 percent of the 12 hours of the year, now as I calculate it, that's 13 8,760 times 30 percent, which is 2,628 hours that 14 you get out of that machine? 15 A. Correct. 16 Q. This interruptibility contract 17 produces 1,000 hours of interruptibility? 18 A. That's correct. 19 Q. Are you saying that those things have 20 comparable value? 21 A. As far as capacity is concerned, yes. 22 As long as 1,000 hours is enough to avoid -- let's 23 take a figure, 162 megawatts. As long as that 1,000 24 hours is used -- that 1,000 hours is long enough to 25 lop off or shave 162 megawatts, yes, that is 675 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 correct. 2 Q. But it's really megawatt hours we're 3 dealing with? 4 A. No, I disagree, sir. 5 Q. You disagree with that? 6 A. There's two aspects. There are two 7 aspects to a resource. One is to provide 8 capacity -- that, is to provide electricity when you 9 need it, because electricity normally cannot be 10 stored -- and the other is to provide energy. And 11 that is the reason that when a utility just wants 12 capacity, it will put in a single-cycle combustion 13 turbine because it's the cheapest -- its capital 14 costs are low. So it only expects to run it a few 15 hours, just enough to meet those -- those few peaks 16 and shave those peaks. Matter of fact, the term 17 "peak shaving" is a term that's often used. 18 But it's not put in for energy, 19 because normally it has very high running costs. 20 When you want energy and you expect to get a lot of 21 energy, you will put in a base load unit. As a 22 matter of fact, utilities will normally determine a 23 break-even point between a peaking unit and a base 24 load unit, and they'll say, Well, we need this to 25 run -- let's say the break-even point depending on 676 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 the capital costs and the running costs is 1,000 2 hours. If we expect the unit to run less than 1,000 3 hours, the least-cost resource is a peaking unit. 4 If we expect to run more than 1,000 hours, we'll put 5 in the base load unit. 6 And that's another reason why base 7 load units should not be allocated on energy in a 8 cost-of-service study, because it's only the usage 9 up to the break-even point that determines whether 10 I'll put in the base load unit or the peaking unit, 11 and once it runs past that break-even point, all 12 that additional energy is irrelevant to the choice 13 of unit chosen. 14 Q. Let me get back to where I was going. 15 A. Certainly. 16 Q. It is, by the way, energy that runs 17 motors, isn't it? It's the electricity that runs 18 the motors? 19 A. That's correct. 20 Q. It's not capacity. Capacity is 21 sitting idle; it does not run a motor? 22 A. If you don't have the capacity, you 23 can't run the motor when you turn the switch on. 24 Q. I understand that. 25 A. You want to run the motor but -- 677 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 people want to run the motor, but they want to run 2 the motor when they want to run it. 3 Q. Correct, but they need electricity. 4 So, to calculate the amount of electricity, if you 5 take the 2,628 hours and multiply that by the 162.5 6 megawatts, if you like to follow me on your 7 calculator I'll take my time, but that's 427,050 8 megawatt hours. On the other hand, if you have only 9 1,000 hours, then of course you get 162,500 megawatt 10 hours? 11 A. Correct. 12 Q. So if, in fact, you're trying to match 13 things up, isn't it true that you would have to have 14 approximately 1.6 more interruptible contracts like 15 this to have the same amount of energy to resell in 16 the market or to sell? 17 A. I think you're totally missing the 18 point, Mr. Fell. You want two things out of your 19 portfolio. You have to be able to deliver a certain 20 amount of energy because it's energy that does work, 21 but you also have to have capacity, and whether you 22 want energy or capacity depends upon what resource 23 you want and what it costs and how you intend to use 24 it. So, you -- so I disagree with that statement, 25 and I'm telling you why I disagree with it. 678 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 I disagree with it because there are 2 two products that you get from a generating unit. 3 You get capacity and you get energy, and you have to 4 look at each one separately. 5 Q. Well in this case, if PacifiCorp has a 6 right to interrupt the Monsanto load for economic 7 reasons, it is interrupting the load to sell the 8 energy to somebody else. Isn't that correct? 9 A. Not necessarily. It could be 10 interrupting the load because -- to avoid purchase. 11 Q. Well, ultimately, they're purchasing 12 electricity in order to sell it to retail customers 13 or other wholesale purchasers? 14 A. That's correct. 15 Q. So do you agree then that when you 16 convert these contracts, either the single-cycle 17 combustion turbine or the interruptible contract to 18 an energy basis, that there is a significant 19 difference between these two characteristics; that 20 size does matter, it is not just -- the number of 21 hours matters. 22 A. The numbers of hours matters in terms 23 of the energy. The number of hours does not matter 24 in terms of capacity. And if you even look at 25 Mr. Watters' Exhibit No. 14, he calculates an 679 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 avoided capacity cost. He also calculates an 2 avoided energy cost. He calculates each of those 3 separately. 4 Q. Now, I've given you an example of a 5 30-percent combined-cycle combustion turbine and the 6 amount of energy that can produce. You mentioned 7 under RAMPP-6 that that particular I guess it was 8 rather Gadsby could -- had environmental permits 9 allowing it to operate six months? 10 A. Correct. 11 Q. Which of course would be 12 approximately -- it would be approximately 13 50 percent? 14 A. But you don't expect to run it 15 50 percent. If you expect it to run 50 percent, you 16 probably would not have put in a peaker. You would 17 have put in a base load unit with higher capital 18 cost. You have to look at each one -- you have to 19 look at each product separately, Mr. Fell. 20 Q. Isn't it true though -- well, I may be 21 asking more than you know. Are you aware of how 22 much Gadsby is expected to operate? 23 A. I believe it's 30 percent. 24 Q. All right. Which is substantially 25 more than the 1,000 hours in this case? 680 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 A. That's correct. And if it ran 2 30 hours you'd have more energy from it, also at a 3 higher price too, I might add. 4 Q. Let's talk about some of the other 5 characteristics of a combustion turbine versus 6 economic curtailment. 7 Does economic curtailment provide 8 operating reserves? 9 A. Economic curtailment, if you're 10 actually curtailing, could not provide operating 11 reserves because you wouldn't have anything to turn 12 off. 13 Q. If you -- with a buy-through provision 14 with the right of the customer to buy through, can 15 it provide operating reserves? 16 A. Well, let me say two things: 17 First of all, I think you have to look 18 at the buy-through as a separate issue, just as the 19 Company states we have a firm service that we're 20 selling to Monsanto, then we're buying back 21 interruptibility. Okay, that's two separate -- two 22 separate transactions. 23 Then you have to look at the 24 buy-through as a third transaction. So we provided 25 Monsanto firm service. We bought back some of the 681 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 electricity with a curtailment. Now, we have a 2 question, does Monsanto want to buy through, and 3 that's a separate transaction. And if they do buy 4 through, they will only buy through if the power is 5 available and if they agree to meet the price of the 6 buy-through, in which case, the Company is held 7 harmless. 8 Q. If Monsanto has a right to buy 9 through, then doesn't PacifiCorp have a duty to hold 10 reserves for that right? 11 A. No. 12 Q. You say "no"? 13 A. And let me finish my answer to the 14 question. 15 I prefer instead of looking at is 16 PacifiCorp buying with the interruption of -- 17 Monsanto's interruption, is PacifiCorp buying 18 operating reserves or are they buying economic 19 curtailment, or are they buying system integrity? 20 You can look at each of those separately, which is 21 how Mr. Watters looks at it. I prefer to look at it 22 as they're buying a resource just as you build when 23 you build a combustion turbine. You can use that 24 combustion turbine to avoid market purchases; you 25 can use that combustion turbine to provide operating 682 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 reserves; you can use that combustion turbine to 2 provide voltage control; you can use that combustion 3 turbine to provide peak shaving. 4 What we're trying to offer the Company 5 is an interruptibility, okay, which is not the same, 6 admittedly not the same as a combustion turbine, but 7 it is a resource that has advantages compared to a 8 combustion turbine, that has disadvantages, and then 9 the Company -- PacifiCorp -- can use that resource 10 in the best way that it sees fit. 11 Q. Dr. Rosenberg, are you familiar with 12 the WECC criteria for operating reserves? 13 A. I believe so. 14 Q. Is it your contention that a contract, 15 an economic interruptibility with the customer's 16 right to buy back through so the Utility has to be 17 prepared to meet that buy-through, that that 18 qualifies as an -- for operating reserves under 19 those criteria? 20 A. It would qualify for operating 21 reserves because the buy-through is a separate 22 issue. It would -- if it buys through, then it is 23 acquiring another resource. If it's acquiring 24 another resource, then that resource can be used for 25 the reserve. 683 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 Q. Can you tell me what the standard is 2 for operating reserves under the WECC criteria? 3 A. If it's nonspinning, it has to be 4 responsive within ten minutes is my understanding. 5 Q. And that means you have to be able to 6 shed that load within ten minutes? 7 A. That's correct. 8 Q. But if there's a buy-through you don't 9 shed the load, do you? 10 A. That's a separate transaction. You 11 have to think of it as a separate transaction. 12 You've interrupted them. Now in a separate 13 transaction, they want to buy through. If you 14 have -- if you can get the resource to buy through, 15 then they buy through and it's a separate 16 transaction. 17 Q. Then it's an additional load? 18 A. It's an additional load. 19 Q. You can't hide from it; you can't 20 escape from it? 21 A. No, I'm not escaping it, and that's 22 why the buy-through provision is meant to keep the 23 Company whole from buying through. 24 Q. I'll move on. The interruptibility 25 agreement -- well, let's get back to what a 684 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 combustion turbine can provide. It can provide 2 voltage support? 3 A. That's correct. 4 Q. Do you agree with that? 5 A. Yes, I do. 6 Q. If it's located convenient to the load 7 that needs service, it can avoid 8 transmission investment. Isn't that correct? 9 A. If it's located convenient to the load 10 that it's serving, yes, which is why an 11 Oregon/Washington peaker may not be the right one to 12 use as the proxy for Monsanto's interruptibility. 13 As a matter of fact, the Gadsby peaker units are 14 quite a bit more expensive than the peaker unit that 15 I've used in Exhibit 239. 16 Q. And you've already admitted it 17 operates more frequently too or is expected to? 18 A. If the Company wants to, yes. 19 The Company is always going to operate 20 its resources to maximize the benefit of the 21 resources. 22 Q. So the rate per megawatt hour will be 23 lower by reason of the greater operation? 24 A. That's true, if you're spreading the 25 fixed costs over greater number of hours, that is 685 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 correct. 2 But I would note that Exhibit 14 of 3 Mr. Watters, if you take the -- if you take 4 Exhibit 14 and you take the megawatts interrupted 5 times the hours of interruption and you divide by 6 the -- you take the credit, the total credit, and 7 you divide by the -- by the megawatt hours 8 interrupted, I came out with $133.14 per megawatt 9 hour, which is higher -- which is higher -- than the 10 per-megawatt hour that I got from Exhibit 239, 11 page 1, which is $108.71 a megawatt hour. 12 Q. I'm not sure how that's responsive, 13 but we'll move on. 14 On line 7 again, you have your total 15 variable costs for operating a combustion turbine? 16 A. That's correct. 17 Q. If the price for power is sufficiently 18 above that to make market sales, would you agree 19 that any revenue that would be generated by this 20 project should be -- should offset these capacity 21 costs? 22 A. Could you repeat that question? 23 Q. Yes. If this were a combustion 24 turbine -- 25 A. Correct. 686 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 Q. -- it would be available to operate 2 beyond the 1,000 hours. Correct? 3 A. That's correct. 4 Q. And if the price for power were higher 5 than the 22.52 you show here, higher than the 6 variable operating costs, it would be economic to 7 make a sale. Correct? 8 A. That's correct. 9 Q. Have you -- do you agree that the 10 avoided cost should get credit for those -- that 11 opportunity to generate additional revenues from 12 other sales? 13 A. I still don't understand what you 14 mean. 15 Q. Combustion turbine can generate sales 16 beyond the 1,000 hours, and those sales will produce 17 revenue? 18 A. But you're only paying Monsanto for 19 the 1,000 hours. If you run a combustion turbine 20 for 2,000 hours, you're going to expend the fuel for 21 2,000 hours, aren't you? 22 Q. No, the -- 23 A. Well, if the combustion turbine runs 24 2,000 hours -- 25 COMMISSIONER SMITH: Mr. Rosenberg, 687 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 would you please allow Mr. Fell to ask his question? 2 THE WITNESS: I'm sorry. 3 Q. BY MR. FELL: My point is that the 4 additional revenues from the excess sales can offset 5 the fixed capital cost of that combustion turbine. 6 Do you agree with that? 7 A. Yes. 8 Q. And the $13 million number in line 6 9 essentially represents the fixed costs of that 10 turbine? 11 A. That is correct. 12 Q. Very good. 13 A. And that would be an advantage that 14 the combustion turbine would have that the 15 interruptibility contract does not have. And I'm 16 not saying that you should use interruptible 17 contracts to the exclusion of all combustion 18 turbines, but likewise, the interruptibility 19 contract has advantages that the combustion turbine 20 doesn't have. 21 Q. Dr. Rosenberg, I am not arguing that 22 the interruptibility contract has no value. We 23 provide value for it in our proposal. 24 A. Correct. 25 Q. Now, let's move to another subject. 688 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 A. Okay. 2 Q. With regard to the price for the 3 buy-through and the interruptibility, if an 4 interruptibility is available for economic reasons, 5 isn't it available for any other more economic 6 transaction on the system? 7 A. I would agree. 8 Q. Monsanto's Exhibit 243 which was 9 introduced by Mr. Schettler shows that they're 10 proposing -- that Monsanto is proposing -- a right 11 to buy through at the lowest cost of energy 12 available. 13 If this is an interruptible contract 14 for economic purposes, wouldn't it be the highest 15 price? 16 A. That is an issue that I believe you 17 should have taken up with Mr. Anderson. That was 18 really beyond the scope of my involvement in this 19 particular case. 20 Q. I was speaking from an economics 21 perspective, wouldn't that be the outcome, because 22 you would be able to interrupt for any more -- any 23 other more economic transaction, so this transaction 24 would be last in the stack? 25 A. As I say, I am really not prepared nor 689 HEDRICK COURT REPORTING ROSENBERG (X) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 am I the appropriate witness to address the correct 2 price for an economic buy-through. That was only -- 3 when we undertook this case there were various 4 aspects to the case that were assigned to the 5 various consultants, and Mr. Anderson was the one 6 that dealt with that particular issue and I did not, 7 so I would just defer -- defer answering that 8 question. 9 MR. FELL: No more questions. 10 COMMISSIONER SMITH: Thank you, 11 Mr. Fell. 12 Do we have questions from the 13 Commission? 14 All right. Do you have redirect, 15 Mr. Budge? 16 MR. BUDGE: Just one question, if I 17 could. 18 19 REDIRECT EXAMINATION 20 21 BY MR. BUDGE: 22 Q. Referring to your Exhibit 239, the 23 thrust of some of the inquiries on cross seem to be 24 that the Company would not be made whole in the 25 situation of a buy-through; in other words, some of 690 HEDRICK COURT REPORTING ROSENBERG (Di) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 your calculations include transmission and other 2 numbers that they appear to question. 3 Did you have an opportunity to look at 4 what the buy-through price was to be at Palo Verde? 5 Do you recall that the Company proposes that the 6 buy-through was 130 percent? 7 A. It was shaped. I don't recall the 8 exact figures, but I recall it was the Palo Verde 9 price shaped, and then there were particular numbers 10 to shape it. 11 Q. And to the extent that Monsanto pays 12 more than 100 percent, what is your understanding of 13 that excess that is paid to the Company? What's 14 that to cover? 15 A. Well, if they -- if Monsanto pays more 16 than the actual cost of acquiring the resource plus 17 the transmission to get that resource, then of 18 course that would be extra profit to the Company. 19 Q. So to the extent Monsanto's 20 buy-through price includes premium, so to speak, or 21 more than the cost of the energy, isn't it intended 22 to cover whatever transmission costs the Company may 23 incur relating to that? 24 A. It could. 25 Q. And if you did not take the 691 HEDRICK COURT REPORTING ROSENBERG (Di) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 transmission -- if you also took the transmission 2 cost out of your calculation in Exhibit 239, would 3 the Company not be compensated twice for that 4 transmission? 5 A. Well, as a matter of fact, Mr. Budge, 6 I did not include in my Exhibit 239 any 7 transmission -- avoidance of any transmission 8 costs. 239 simply reflects avoidance of generation 9 costs. 10 To the extent that the Company is able 11 to avoid transmission costs by virtue of 12 interrupting Monsanto, that would be gravy, so to 13 speak, and is not reflected in 239. 239 simply 14 reflects losses. 15 MR. BUDGE: Thank you. No further 16 questions. 17 COMMISSIONER SMITH: Thank you, 18 Dr. Rosenberg. 19 (The witness left the stand.) 20 COMMISSIONER SMITH: Okay, back to 21 you, Mr. Budge. 22 MR. BUDGE: Well, I think that 23 concludes our case, and now we can get to the 24 housekeeping matters I was too anxious to hit 25 before. I think we have two housekeeping matters: 692 HEDRICK COURT REPORTING ROSENBERG (Di) P.O. BOX 578, BOISE, ID 83701 Monsanto 1 One would be the admission of the testimony -- 2 direct testimony of Cornelius Hofman and his 3 sponsored Exhibits 224 through 236, and I would so 4 move for their admission in the record. I believe 5 we can have a stipulation to that. 6 And the only other housekeeping matter 7 if my notes are accurate, I think Monsanto had 8 sponsored Exhibit 240, 241, and 242 that were 9 presented during the course of cross that we did not 10 move for the admission, and as it is the conclusion 11 of our case, we'd move for the admission of those 12 exhibits as well. 13 COMMISSIONER SMITH: Okay. Is there 14 any objection to spreading the prefiled testimony of 15 Mr. Hofman upon the record as if read? Seeing none, 16 it is so ordered. 17 (The following prefiled direct 18 testimony of Mr. Hofman is spread upon the record.) 19 20 21 22 23 24 25 693 HEDRICK COURT REPORTING ROSENBERG (Di) P.O. BOX 578, BOISE, ID 83701 Monsanto