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