HomeMy WebLinkAbout20020905Volume 7, pg 818-856.pdf
1 (The following proceedings were
2 had in open hearing.)
3 MR. FELL: Mr. Klein is available for
4 cross-examination.
5 COMMISSIONER SMITH: Thank you.
6 Mr. Olsen, do you have questions?
7 MR. OLSEN: No, Madam Chairman.
8 COMMISSIONER SMITH: Mr. Woodbury, do
9 you have questions?
10 MR. WOODBURY: No.
11 COMMISSIONER SMITH: Mr. Budge, do you
12 have questions?
13 MR. BUDGE: Just a couple brief ones,
14 and then I think in lieu of cross-examining him on
15 the exhibits we'll just put Mrs. Iverson on very
16 briefly. Just one area.
17
18 CROSS-EXAMINATION
19
20 BY MR. BUDGE:
21 Q. Mr. Klein, would you accept, and
22 subject to check if necessary because I realize you
23 were not here during all the proceeding, but would
24 you accept that Mr. Griswold's proposed rate design
25 for Monsanto was intended to produce a rate of
818
HEDRICK COURT REPORTING KLEIN (X-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 $31.40 per megawatt hour, which was based upon
2 Monsanto's historic load characteristics?
3 A. I would say that is true.
4 Q. Okay. Then would you also accept,
5 subject to check, that Monsanto's assumed monthly
6 load factor is in the neighborhood of 85 to
7 90 percent?
8 A. I think when actually I looked at it,
9 it was like 83, 84 percent.
10 Q. Okay. Would you agree that if
11 Monsanto were interrupted let's say 100 hours in the
12 same month but its peak monthly demand stayed the
13 same, would its load factor not decrease?
14 A. Load factor should decrease, you are
15 correct, yep.
16 Q. So would the end result be that
17 Monsanto would end up paying more than $31.40 for
18 power in that particular month?
19 A. That is correct.
20 Q. Okay.
21 MR. BUDGE: No further questions.
22 COMMISSIONER SMITH: Are there
23 questions from the Commission?
24 Okay. Thank you.
25 Is there redirect?
819
HEDRICK COURT REPORTING KLEIN (X-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 MR. FELL: No redirect.
2 Thank you, Mr. Klein.
3 THE WITNESS: Okay. Thank you.
4 (The witness left the stand.)
5 MR. FELL: Next, we would re-call
6 Mr. Bruce Griswold.
7 COMMISSIONER SMITH: All right. And I
8 would say to Mr. Olsen and Mr. Woodbury if you also
9 feel the need to, in lieu of cross, bring back a
10 witness, that option is available.
11 You're still under oath, Mr. Griswold.
12 MR. GRISWOLD: I understand.
13
14 BRUCE W. GRISWOLD,
15 produced as a rebuttal witness at the instance of
16 PacifiCorp, having been previously duly sworn, was
17 examined and testified as follows:
18
19 DIRECT EXAMINATION
20
21 BY MR. FELL:
22 Q. Mr. Griswold, I need a minute here, so
23 just be patient and I'll find the exhibit.
24 Mr. Griswold, before we move on to
25 your questions -- to your questions regarding some
820
HEDRICK COURT REPORTING GRISWOLD (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 of the contract terms, Mr. Klein just talked about
2 the pricing of the interruptibility option. If it
3 turns out that a furnace is taken out of service for
4 some reason for any extended period of time, do you
5 have a contractual term you believe is needed to
6 reflect that?
7 A. Yes, I do.
8 Q. And what would that be?
9 A. We would look to prorate the payment
10 based on the total hours of availability of the
11 furnace or total days of the month, some duration of
12 the month that the furnace is available.
13 Q. Now then, we talked before about
14 reopeners in your other testimony and it's been
15 discussed in the cross-examination. Could you
16 please turn to your Exhibit No. 10, page 5 of 5.
17 Exhibit No. 10 lists the Monsanto draft terms, and
18 page 5 discusses agreement reopeners. I'm going to
19 ask you -- I'm going to go through the list of items
20 you have under agreement reopeners and other
21 provisions and ask you whether you've reconsidered
22 your position on these -- on these various issues.
23 You have an item, the first item is
24 direct access, and there's a condition there that
25 you would like regarding direct access. Do you
821
HEDRICK COURT REPORTING GRISWOLD (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 still request that condition?
2 A. Yes, I do.
3 Q. On cost of service, you had an
4 adjustment there for cost of service. Are you
5 prepared to change the cost of service adjustment or
6 reopener provision that you're considering here?
7 A. Yes, we are. We'd proposed to make it
8 subject to tariff standards, or if there's a general
9 rate case the Commission has the authority to change
10 the terms and conditions of the agreement.
11 Q. So that instead of having automatic
12 adjustments, it would just be part of the rate case
13 and Monsanto could oppose any adjustments and the
14 Commission would decide. Is that that concept?
15 A. That's correct.
16 Q. Under interruptibility, are you
17 proposing to continue that provision?
18 A. No, we're proposing to delete that
19 completely and lock in the monthly payments.
20 Q. Very good. And then other provisions
21 on the annual price adjustment, are you proposing to
22 continue the annual price adjustment?
23 A. No.
24 Q. We would delete that?
25 A. Correct.
822
HEDRICK COURT REPORTING GRISWOLD (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 Q. And on the agreement language, are you
2 still proposing to remove the most-favored-nation
3 clause?
4 A. Yes, we are.
5 Q. And propose to remove the clause
6 allowing Monsanto to make -- propose changes in the
7 contract based upon significant changes in the
8 industry?
9 A. Yes, we were.
10 Q. And the termination clause you're
11 still proposing to correct so there's no ambiguity
12 about termination?
13 A. That's correct.
14 Q. The next one, the power quality
15 standards, you intend to keep that provision?
16 A. Yes, we do.
17 Q. And the update to address cooperation
18 in operation?
19 A. Yes.
20 Q. And are you willing to have the -- to
21 have all of this incorporated in one document, one
22 agreement?
23 A. Yes, we are, subject to certain
24 conditions.
25 Q. And what are those conditions?
823
HEDRICK COURT REPORTING GRISWOLD (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 A. For the delivered power or the
2 electric service side of the agreement, the clause
3 is to continue to have the price components, demand
4 and energy components, the 951 per kW month, and the
5 16.31 for all energy.
6 Q. And you would also want the
7 interruptible provision separately priced and
8 expressed, I assume?
9 A. Oh, yeah, let me address the
10 interruptible. And we would continue to keep the
11 interruptible, the three products that Mr. Klein has
12 provided in his testimony, and he's described what
13 the monthly payments would and what the amounts and
14 the hours would be. We would keep those in there as
15 separate clauses with specific terms and conditions
16 for those individual products and a monthly credit
17 for those products.
18 The payments for system integrity,
19 there's no proration. That's a $40,500 a month,
20 as -- as it states in here.
21 The other two for operating reserve,
22 we currently have in the operating reserve agreement
23 the ability to prorate payments. We would continue
24 to use that type of proration on operating reserves.
25 In the economic curtailment, as stated
824
HEDRICK COURT REPORTING GRISWOLD (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 earlier, we would prorate it based on availability
2 of the 67-megawatt furnace being operational at the
3 time.
4 Q. And, Mr. Griswold, let's see. Do you
5 have any objection inasmuch as all the terms would
6 be in one contract? I assume that it's acceptable
7 to you that these terms be subject to this
8 Commission's approval?
9 A. Yes. There is one other addition.
10 We've got in the original on page 2 of the
11 Exhibit 210 that Monsanto must take a minimum
12 monthly quantity. We'll remove that.
13 Q. Now then, the next subject, moving on
14 to a different subject -- trying to locate the
15 exhibit number for the Geneva contract.
16 A. Twenty-three.
17 Q. Twenty-three is it? Would you please
18 identify what is Exhibit 23, the Geneva contract?
19 A. Geneva -- the Exhibit 23 is the
20 electric -- proposed electric service agreement
21 between PacifiCorp and Geneva Steel. It was an
22 agreement that has been signed by both parties on
23 August 27 of 2002, and is being proposed for
24 submittal to the Utah Commission for approval,
25 scheduled for a hearing on September 13th of this
825
HEDRICK COURT REPORTING GRISWOLD (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 year.
2 Q. Can you briefly summarize the terms of
3 the Geneva contract?
4 A. Sure. The -- first let me give you a
5 little bit of background on Geneva so you
6 understand, for those of you not familiar with
7 Geneva.
8 Geneva Steel is a steel plant in
9 Southern Utah. It's currently in bankruptcy. It's
10 currently shut down or running at a very minimal
11 load of about eight megawatts, and it's currently
12 being provided service on a -- a standard
13 Schedule Nine rate, Schedule Nine being Utah's
14 large-industrial, high-voltage rate. Their plan is
15 to restart the existing plant in 2003 and then add a
16 new arc furnace beginning January -- approximately,
17 January 2004. When they bring their full load up,
18 they will become the single largest customer on
19 Utah -- or, on PacifiCorp's system.
20 This agreement as if you go and read
21 through it -- I'll just bring you to kind of the key
22 points of it -- it's a -- the term of the agreement
23 is five years, effective January 1, 2003. There are
24 two -- two loads to consider here.
25 There's the existing plant load which
826
HEDRICK COURT REPORTING GRISWOLD (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 has a defined cost of service much as Monsanto does,
2 and so the cost components that were used to develop
3 Monsanto's prices -- or, excuse me, Geneva Steel's
4 prices was based on their cost of service for the
5 existing load.
6 The new load which will come on in
7 January of 2004, since we don't have any history,
8 what we have is just proposed operating
9 characteristics, is they were priced using the price
10 components from the Utah Schedule Nine
11 large-industrial tariff.
12 If you take those price components,
13 which is to take the demand in energy components and
14 apply it to their load similar to how we've done
15 with Monsanto, the existing load has a cost of
16 service of approximately $29.30. If you take the
17 new load as proposed, it has a cost of service or a
18 tariff -- actually a tariff price -- of around
19 $31.20, roughly. When you combine those, when the
20 plants get up and running together, you'll have a
21 kind of a net cost of around $30 total per megawatt
22 hour for the plant.
23 In order to accommodate Geneva's
24 interest in trying to be operated and have some
25 incentives to lower their cost, we worked with them
827
HEDRICK COURT REPORTING GRISWOLD (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 to take the cost of service components and structure
2 it so that they had an on-peak -- and I should
3 clarify that it's a super on-peak -- energy price,
4 and all other hours we defined as off-peak price.
5 So if you go to -- if you go to
6 actually I believe it's page 17 of Exhibit 23,
7 Appendix A, you will see prices during the peak
8 hours of one to nine p.m. on the existing load of
9 $55 per megawatt hour and all other hours at 21.28.
10 On the new load when it comes on, the price it will
11 be, $61.70 during the eight-hour period and $21.28
12 per megawatt hour for all other hours.
13 The other component of this is it has
14 an interruptible provision in it, and the
15 interruptible provision is simply one for system
16 integrity. And the way that was calculated and
17 developed was very similar to how Monsanto's was
18 done and looks at paying them a monthly credit for
19 the existing load and a monthly credit for the new
20 load. The total monthly credit when both operations
21 are up will be 29,000 a month. If you apply that to
22 their usage, it's around 28 cents per megawatt hour
23 of credit that they would get for that.
24 If you look at -- there are a series
25 of reopeners. They are basically the same reopeners
828
HEDRICK COURT REPORTING GRISWOLD (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 that have been included and proposed with Monsanto.
2 Geneva has chosen to keep those reopeners because
3 they feel that as the new furnace comes up and
4 running, they want to make sure that the cost of
5 service for them is the most appropriate for that
6 furnace.
7 If you look through there, there's a
8 whole section on power quality, and that was done to
9 address -- to make sure from a furnace perspective
10 it was meeting all of the triple E standards that
11 are now being introduced into the electric industry.
12 So I believe that summarizes the
13 contract. As I said, it's proposed to go before the
14 Utah Commission next Friday, September the 13th, for
15 review and approval.
16 Q. Could you tell us what the status is
17 of the Monsan- -- or, the Magcorp contract?
18 A. Yes. It was -- it was interesting to
19 hear the various witnesses discuss the Magcorp
20 agreement and why what was happening with it, since
21 I was and still am in the middle of trying to get
22 the contract finished.
23 First, I want to clarify a couple
24 things: Magcorp still is in bankruptcy. They have
25 been purchased by a new -- a new owner called
829
HEDRICK COURT REPORTING GRISWOLD (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 U.S. Magnesium. That purchase was completed -- the
2 Order approving the new contract was late May, and
3 the sale of Magcorp was in the middle of June.
4 So -- so as far as the contract goes,
5 the commercial terms for delivery of power and
6 interruptibility and notification and buy-through
7 were all agreed very early in June because of the
8 start date for the interruptibility was July. The
9 difficulty was -- is that we were faced with an
10 agreement that we had to change a lot of the credit
11 for all of those provisions with two companies
12 because this thing transferred in the middle of --
13 right after the Order. So the difficulty in getting
14 a contract finished for approval hasn't been because
15 of the commercial terms around the interruptibility;
16 it's simply been because of deposit, prepayment, and
17 credit issues.
18 And by the way, we did start
19 interrupting them the first of July, interrupted
20 them every available day through August, which was
21 what was allowed.
22 Q. Now then, there's one last item that
23 came up during Dr. Rosenberg's cross-examination
24 that relates to your Exhibit 10, page 4. Comments
25 were made about the higher than 100 percent values
830
HEDRICK COURT REPORTING GRISWOLD (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 in the shaping of the Palo Verde price. Would you
2 explain why those percentages exceed 100 percent?
3 A. Sure. If you look at the kind of the
4 structure that's proposed for interrupting Monsanto
5 and allowing a buy-through, first if you look at the
6 Palo Verde market, it's a 16-hour -- the price that
7 you're -- that's published on there is the
8 Palo Verde firm on-peak price, which is for a
9 16-hour period. If you recognize that we're only
10 allowed to interrupt Monsanto for eight hours, we
11 will look to interrupt them during the eight most
12 expensive hours, which is typically what they call
13 the superpeak period.
14 So what we've done is develop shaping
15 factors, and Mr. Klein was probably the better
16 witness to ask because he's the one that's developed
17 those, but those shaping factors basically take the
18 16-hour product or price that is published and it
19 looks at those shaped eight-hour period during the
20 day and that's why it's a higher multiplier. It's a
21 multiplier effect to address the fact that they're
22 buying through at the highest hours.
23 Q. Thank you.
24 MR. FELL: If there are more questions
25 about those percentages then we would recall
831
HEDRICK COURT REPORTING GRISWOLD (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 Mr. Klein, but with that, I have no further
2 questions of Mr. Griswold.
3 COMMISSIONER SMITH: Questions for
4 Mr. Griswold, Mr. Olsen?
5 MR. OLSEN: No, Madam Chairman.
6 COMMISSIONER SMITH: How about
7 Mr. Woodbury?
8 MR. WOODBURY: No questions.
9 COMMISSIONER SMITH: Mr. Budge.
10 MR. BUDGE: Sorry, I'm always the bad
11 guy. Just a few brief questions.
12
13 CROSS-EXAMINATION
14
15 BY MR. BUDGE:
16 Q. On the Magcorp report that you
17 provided, I maybe didn't fully understand. Do you
18 have a signed contract with them now?
19 A. No, we do not.
20 Q. So it hasn't been approved by the
21 Commission either?
22 A. No. It's anticipated to be submitted
23 within the next ten days.
24 Q. And you made a comment that you were
25 having some problems with various terms because of
832
HEDRICK COURT REPORTING GRISWOLD (X-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 the transition to the new owner, but the basic
2 commercial terms hadn't changed?
3 A. The terms for interruptibility and
4 price of power that they pay and the notification
5 and replacement power that they buy through at have
6 not changed, no.
7 Q. So it's the same as --
8 A. Same as directed by the Order, yes,
9 that's correct.
10 Q. Couple of questions on the Geneva
11 contract:
12 Did I understand you to say that the
13 pricing structure in that contract results in a
14 price of about $29 for the existing load?
15 A. That's correct.
16 Q. Okay. And as I look to that
17 Exhibit 23, is page 17, the Appendix A, that's the
18 pricing for the existing load and the new load?
19 A. That is correct. The $29 and then the
20 31.20 I believe I said for the new load represents
21 if you take those prices and you apply it to their
22 existing usage pattern and load shape.
23 Q. So looking at the second column, it
24 says Commodity charge, existing metering points.
25 That's the numbers that apply to the existing load?
833
HEDRICK COURT REPORTING GRISWOLD (X-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 A. That's correct.
2 Q. And so you have the price of $55.17
3 per megawatt hour during the one p.m. to nine p.m.
4 --
5 A. That is correct.
6 Q. -- usage?
7 And then the other price of $21.28
8 applies to all other hours?
9 A. That is correct.
10 Q. Have you made any attempt to apply
11 that pricing factor to the Monsanto load to see what
12 price would result to Monsanto?
13 A. These -- excuse me. These specific
14 numbers?
15 Q. Yes. If you took the Monsanto load
16 and applied this particular pricing that you have
17 for Geneva between your peak hours and your off-peak
18 hours and applied that to the Monsanto load, did you
19 come up with a calculation as to what the net price
20 per megawatt hour would be to Monsanto?
21 A. No, I had not, because these are
22 specifically developed for -- based on Geneva's cost
23 of service, which is different than Monsanto's cost
24 of service.
25 Q. Would you accept, subject to check,
834
HEDRICK COURT REPORTING GRISWOLD (X-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 that that calculation would be $29.12 per megawatt
2 hour if Monsanto's load were priced out at those
3 prices for high hours and low hours?
4 A. Subject to check, yes.
5 Q. Okay.
6 MR. BUDGE: No further questions.
7 COMMISSIONER SMITH: Are there
8 questions from the Commission?
9 Seeing none, is there redirect,
10 Mr. Fell?
11 MR. FELL: No redirect.
12 We move for admission of Exhibit 23.
13 COMMISSIONER SMITH: Without
14 objection, it's so ordered.
15 (PacifiCorp Exhibit No. 23 was
16 admitted into evidence.)
17 MR. FELL: We have nothing further to
18 present.
19 COMMISSIONER SMITH: Okay. Mr. Budge.
20 MR. BUDGE: Thank you. We would
21 re-call Mrs. Iverson just very briefly.
22 (Monsanto Exhibit No. 244 was
23 marked for identification.)
24
25
835
HEDRICK COURT REPORTING GRISWOLD (X-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 KATHRYN E. IVERSON,
2 produced as a rebuttal witness at the instance of
3 Monsanto, having been previously duly sworn, was
4 examined and testified as follows:
5
6 DIRECT EXAMINATION
7
8 BY MR. BUDGE:
9 Q. Mrs. Iverson, did you have an
10 opportunity to study the Company's Exhibits 13, 14,
11 and 15 that were presented by Mr. Watters in his
12 testimony previously?
13 A. Yes, I did.
14 Q. And I believe you were here yesterday
15 when there was discussion during cross-examination
16 of various changes that the Company agreed were
17 appropriate to those calculations?
18 A. That's correct.
19 Q. And have you had an opportunity to
20 analyze the changes made by the Company as proposed
21 in their Exhibits 27, -8, and 29?
22 A. Yes.
23 Q. And have you also prepared an exhibit
24 which purports or attempts to utilize the Company's
25 numbers to reflect the difference in value between
836
HEDRICK COURT REPORTING IVERSON (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 the 1,000 hours offered by Monsanto for economic
2 curtailment and the 500 hours offered by Monsanto?
3 A. Yes, I have.
4 Q. And then did you prepare that exhibit
5 incorporating the same numbers reflected by the
6 Company in their Exhibits 27 and 29 with the
7 revisions as described in 28?
8 A. Yes. I had to think about that for a
9 little bit.
10 Q. And based upon that, did you prepare
11 an exhibit in order to illustrate the difference on
12 how the Company values the 500 hours of
13 interruptions for Monsanto for economic curtailment
14 purposes as originally presented in Mr. Schettler's
15 direct testimony, and to contrast that with how the
16 Company values the additional -- the total of 1,000
17 hours of economic curtailment as proposed in
18 Mr. Schettler's rebuttal testimony?
19 A. That's right. I guess I prefer to say
20 it's Mr. Watters' rebuttal testimony where he put
21 out the 500-hour calculation of the valuation, so --
22 Q. And the Exhibit 244 is the exhibit you
23 prepared to make this curtailment?
24 A. Yes.
25 Q. Or, make this comparison, excuse me.
837
HEDRICK COURT REPORTING IVERSON (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 A. Yes. Yes.
2 Q. Would you please start with page 1 of
3 that exhibit and just go ahead and walk us through
4 it and explain what you used to prepare the document
5 and what it is?
6 A. Sure. Page 1 of Exhibit 244 is simply
7 my way of showing what the calculation was by
8 Mr. Watters and now accepted by Mr. Klein of their
9 Exhibit 27 for the economic curtailment option for
10 1,000 hours, and what I'm doing here is I'm coming
11 up with if you look at Exhibit 27 in the second box
12 there that's economic curtailment option, if you
13 look at the third line of that where it says
14 $2,927,230, that's what Mr. Klein is stating is the
15 payment to Monsanto for the right to interrupt
16 67 megawatts for 1,000 hours. So I just want to
17 quickly walk you through that calculation so
18 everyone understands where we're starting from.
19 And what I'm doing is coming up with a
20 total 2.9 million that's shown on line 18, and
21 that's based on three components or pieces to come
22 up with the 2.9 million. The first is an avoided
23 reservation fee and that's shown in lines 3
24 through 6, and Mr. Klein has now provided a price of
25 $1 per kW per month times the 67,000 kW, and then
838
HEDRICK COURT REPORTING IVERSON (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 that's multiplied times twelve months to come up
2 with an $804,000 payment for the avoided
3 reservation.
4 The second component of that
5 2.9 million is what's called the avoided energy
6 cost, and there Mr. Klein has a market price of $48,
7 which he then multiplies times the megawatt hours
8 curtailed which is shown there as 67,000 megawatt
9 hours to come up with 3.2 million on line 12.
10 Lines 6 and line 12 are then added
11 together to get what I like to call just the total
12 avoided cost portion.
13 Then lines 14 through 17 are the
14 areas, the third piece of the equation, where the
15 lost retail revenue is deducted from the total
16 avoided costs, and as we heard from Mr. Watters
17 yesterday, they had 31.40 in there originally, but
18 Mr. Watters recognized that that was a faux pas and
19 that should be 16.31. So that results in a lost
20 revenue of just over a million dollars, so that's
21 deducted from line 13, so we come up with line 18
22 which is the 2.9 million which Mr. Klein has
23 proposed this afternoon as the value for
24 interrupting 1,000 hours, 67 megawatts.
25 Now we can turn to the second page of
839
HEDRICK COURT REPORTING IVERSON (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 the exhibit, and what we're doing is kind of looking
2 behind the scenes a little bit to see what's made up
3 in that 1,000 hours, because we originally had a
4 proposal from Mr. Watters in his Exhibit 14 for what
5 the price would be if Monsanto offered 500 hours.
6 And Column 3 on that second page is the exact same
7 column as what I had on the first page: It's the
8 total 1,000 hours. Column 1 is representing what
9 the price would be for the first 500 hours, and
10 Column 2 then falls out as what is the value of
11 adding another 500 hours to Monsanto's proposal.
12 Column 1 goes through and has the 67 megawatts of
13 capacity, and I corrected the retail cost, of
14 course, to the 16.31 as Mr. Watters has
15 acknowledged. The avoided reservation fee in
16 Exhibit 14 was $3.08 per kW, per month. So the
17 avoided reservation fee was around $2.5 million.
18 The avoided energy cost in Exhibit 14
19 was $59.25 for 500 hours. We recognize that that
20 was the superpeak time and that would be the avoided
21 energy for avoided cost of 4.4 million, and then we
22 deduct from that the lost retail revenue and we come
23 up with -- I guess this is the -- if you want to
24 jump to the chase here, you come up with line 18
25 that shows for 67 megawatts interrupted, 500 hours,
840
HEDRICK COURT REPORTING IVERSON (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 PacifiCorp's Exhibit No. 14 offered a price
2 $3.9 million. Contrast that now with Column No. 3
3 where we've gone to 1,000 hours, but the price has
4 gone down to 2.9 million. So, by the fact that
5 Monsanto has offered another 500 hours, they're
6 getting paid less.
7 Now, I said earlier this afternoon
8 that we would expect that the next 500, Column 2,
9 would be a lower number than what we calculated in
10 Column 1, but we certainly didn't expect Column 2 to
11 be negative. But that's the result of the proposal
12 we have been given by Mr. Klein this afternoon when
13 we compare that with the Exhibit No. 14 simply
14 updated to the 67-megawatt capacity and corrected,
15 of course, for the retail cost of $16.31 per
16 megawatt hour.
17 And just quickly I'll say I put
18 together this analysis yesterday when I saw what
19 their proposal was going to be for the 1,000 hours
20 at 67 megawatts. Today we received Exhibit No. 29
21 that shows that the economic curtailment option for
22 162 megawatts, Mr. Klein was proposing to pay
23 Monsanto $7,077,780. Well, that Exhibit 29 suffers
24 from the same faults, as I would say, as the
25 67-megawatt analysis, but it even is exacerbated
841
HEDRICK COURT REPORTING IVERSON (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 more.
2 With 67 megawatts you can see on
3 line 18 that the value of the 500 additional hours
4 was a negative $986,546. That's in Column 2,
5 line 18.
6 If I did this same analysis based on
7 162 megawatts, Column 2 would be negative
8 $2.4 million. In other words, the number in
9 Column 3 would be Mr. Klein's 7,077,780 that he has
10 presented on Exhibit 29, but if I looked at the
11 first 500 hours based on the prices provided in the
12 Exhibit No. 14, that value is actually 9.5 million.
13 So the difference adding another 500 hours has
14 decreased the payment to Monsanto by $2.4 million.
15 So it's just outstanding -- it's
16 astounding that we would offer more hours for
17 interruption and the value or the payment would go
18 down. Simply doesn't make any sense.
19 Q. Do you have any comment on
20 PacifiCorp's Exhibit 27? Do you have that
21 available?
22 A. Yes.
23 Q. If you look in the third box towards
24 the bottom, it reflects the FERC cap of $250 a
25 megawatt hour. Do you have any comment on that?
842
HEDRICK COURT REPORTING IVERSON (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 A. Right. The system integrity benefit
2 charge is calculated as the 162 megawatts times
3 12 hours, times the FERC cap of $250 per megawatt
4 hour. And we heard this afternoon from
5 Madam Chairwoman Smith that that FERC cap would be
6 going up to 1,000 on October 1st, so that would go
7 up by a factor of four, the system integrity
8 benefit.
9 MR. BUDGE: No further questions.
10 COMMISSIONER SMITH: Mr. Olsen, do you
11 have any questions?
12 MR. OLSEN: No, Madam Chair.
13 COMMISSIONER SMITH: Mr. Woodbury?
14 MR. WOODBURY: No questions.
15 COMMISSIONER SMITH: Mr. Fell?
16 MR. FELL: I don't think there are
17 any. I don't think there are any questions that
18 would be useful, but I would like to put Mr. Klein
19 on just for the purpose of explaining that capacity
20 charge change. Then we can kind of narrow it down
21 as to why it occurred, but we don't question these
22 calculations.
23 COMMISSIONER SMITH: Are there any
24 questions from the Commission? Commissioner
25 Kjellander.
843
HEDRICK COURT REPORTING IVERSON (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 COMMISSIONER KJELLANDER: No.
2 COMMISSIONER HANSEN: I'd like to, but
3 I'll pass. No, I don't.
4 COMMISSIONER SMITH: This is one of
5 the problems of staying late: People are full of
6 questions they don't want to take the time for.
7 Thank you.
8 (The witness left the stand.)
9 COMMISSIONER SMITH: All right,
10 Mr. Fell --
11 I assume you have no redirect since
12 there were no questions.
13 MR. BUDGE: No. Wouldn't dare.
14 COMMISSIONER SMITH: That's right.
15 (Discussion off the record.)
16 COMMISSIONER SMITH: We'll be back on
17 the record, Mr. Fell.
18
19
20
21
22
23
24
25
844
HEDRICK COURT REPORTING IVERSON (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 MARK KLEIN,
2 recalled as a rebuttal witness at the instance of
3 PacifiCorp, having been previously duly sworn, was
4 further examined and testified as follows:
5
6 DIRECT EXAMINATION
7
8 BY MR. FELL:
9 Q. Mr. Klein, you've heard the
10 explanation of the change in the avoided reservation
11 fee, particularly the line entitled Capacity
12 Charge. Would you please explain that change?
13 A. Sure. It's late in the afternoon.
14 Does anybody really want to get into Black-Scholes?
15 I won't do that today.
16 Okay, a couple different things:
17 Originally when we evaluated the
18 economic curtailment option, I believe I used curves
19 on August 22nd, and the way we evaluated -- what I
20 was trying to do was replicate a resource that would
21 look like this. The only area currently that we
22 could replicate this resource would be SP-15. So
23 the capacity value represents -- it's a spread
24 option between SP-15 prices and SoCal Border gas
25 prices.
845
HEDRICK COURT REPORTING KLEIN (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 COMMISSIONER SMITH: Could you please
2 identify for the transcript what SP-15 is?
3 THE WITNESS: Yes. That is a market
4 hub in Southern California, stands for South Path
5 15.
6 COMMISSIONER SMITH: And then do the
7 other one too.
8 THE WITNESS: You want to do NP-15?
9 COMMISSIONER SMITH: No, the one --
10 THE WITNESS: Oh, SoCal. SoCal Border
11 is there are several pipelines -- gas pipelines --
12 that bring natural gas into Southern California, and
13 the market price or the hub identifying that is
14 something called the SoCal Border gas price.
15 On 8/22 when we evaluated this spread
16 option, there was lots of intrinsic value. In other
17 words, SP-15 prices were way up here, and gas prices
18 relatively were I don't want to say low because the
19 problem is we were evaluating it just -- on just a
20 July/August piece only. That's when we figured 500
21 hours is when we would exercise this option. So
22 there was more intrinsic value on that date.
23 Last night when I ran the spread
24 option, I had to make an assumption that now we're
25 going to take 1,000 hours and start to spread it
846
HEDRICK COURT REPORTING KLEIN (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 over more months, and that essentially starts to
2 look like April through October. And now what
3 happens, there is, on an overall basis, there is
4 less intrinsic value, all right, on the shoulder
5 months because now, all of a sudden, this is -- I
6 was using a peaker with a 15,000 heat rate in April,
7 May, October. It's not in the money. Okay?
8 So I don't disagree with the way this
9 calculation is represented. What we are -- what
10 we're seeing is the effect of extrinsic value, which
11 is why we're getting kind of these negative numbers.
12 Q. When you say "not in the money" in the
13 shoulder months, you're saying essentially that what
14 you would be buying during those months you could
15 not recover in sales?
16 A. Well, I mean, what we're -- what we're
17 saying is that while they're offering us more
18 interruption, economically we can go to the market
19 and get just about the same thing in the shoulder
20 months.
21 Q. Are you -- would it be just as
22 acceptable to you to use the 500 hour column?
23 A. Absolutely, yeah. You know, we would
24 be very -- let me put it this way: We could accept
25 67 megawatts, 500 hours, and pay Monsanto $3.9
847
HEDRICK COURT REPORTING KLEIN (Di-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 million. What that represents, all right, is
2 capacity: 67 megawatts, $16.31 strike. If I do the
3 math I think it ends up being like $4.80 of kW
4 money. It's pretty tough to replicate that option.
5 That has value.
6 Q. Thank you, Mr. Klein.
7 MR. FELL: I have no further
8 questions.
9 COMMISSIONER SMITH: Mr. Olsen, any
10 questions?
11 MR. OLSEN: No questions.
12 COMMISSIONER SMITH: Mr. Woodbury?
13 MR. WOODBURY: No questions, thank
14 you.
15 COMMISSIONER SMITH: Mr. Budge.
16 MR. BUDGE: Just two.
17
18 CROSS-EXAMINATION
19
20 BY MR. BUDGE:
21 Q. Did I understand your testimony
22 correct that you don't disagree with the
23 calculations depicted by Mrs. Iverson on 244?
24 A. I don't disagree with the way she
25 broke it down. I was a little worried actually that
848
HEDRICK COURT REPORTING KLEIN (X-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 someone would do this.
2 Q. Would you refer to the line 18 on
3 page 2 of Exhibit 244 --
4 A. Yes, sir.
5 Q. -- which is her bottom-line
6 calculations?
7 A. Yes.
8 Q. Would you expect Monsanto would want
9 to pay the Company about a million dollars to be
10 interrupted an additional 500 hours?
11 A. No, absolutely not. That's why I just
12 said that if we got 500 hours, 67 megawatts, pay
13 them $3.9 million, we would be very happy with that.
14 MR. BUDGE: No further questions.
15 COMMISSIONER SMITH: Okay. Are there
16 questions from the Commission? Commissioner Hansen.
17
18 EXAMINATION
19
20 BY COMMISSIONER HANSEN:
21 Q. I guess just to follow up: So really
22 when you made your presentation earlier, you were
23 aware of this by saying that you were worried some
24 months would pull up, so you really knew this?
25 A. Well, what I knew in the shoulder
849
HEDRICK COURT REPORTING KLEIN (Com-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 months, I mean, what you're talking, you know, would
2 I still want that option? Absolutely. If someone
3 will give me that option, I'm in the business of
4 trying to bring value back to PacifiCorp. If
5 someone is willing to give -- basically give that
6 option away, then, you know, we'd certainly look at
7 it. But it's difficult to justify paying for that
8 option just on the intrinsic value in the shoulder
9 months.
10 COMMISSIONER KJELLANDER: Just one.
11 COMMISSIONER SMITH: Commissioner
12 Kjellander.
13
14 EXAMINATION
15
16 BY COMMISSIONER KJELLANDER:
17 Q. Just based on the 500 hours
18 calculation we have, the monthly amount, dollar per
19 kilowatt, the annual payment to Monsanto, what's the
20 bottom line on that based on what the megawatt hour
21 rate would be?
22 A. Oh, well, we propose we were at 7.3
23 before. Right? Add another million dollars, you're
24 at 8.3 million. 1.35 divided -- $6.14 a megawatt
25 hour.
850
HEDRICK COURT REPORTING KLEIN (Com-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 Q. Okay. So what's that come down to on
2 a rate?
3 What are you using as your starting
4 point again? It's late in the day. Was it 31?
5 A. 31.40.
6 Q. Okay.
7 A. 25.25, all-end.
8 Q. Thanks. That's at 500?
9 A. Correct.
10 Q. Thank you.
11
12 EXAMINATION
13
14 BY COMMISSIONER SMITH:
15 Q. So, okay, so I guess my -- I guess my
16 comment would be that what this tells me is that to
17 the Company, there's kind of a point of diminishing
18 returns for hours of interruption, and you can't
19 just continue to add hours of interruption and
20 expect the value to increase?
21 A. That is correct.
22 Q. Thank you.
23 COMMISSIONER SMITH: Any redirect,
24 Mr. Fell?
25 MR. FELL: No, no redirect.
851
HEDRICK COURT REPORTING KLEIN (Com-Reb)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp
1 COMMISSIONER SMITH: Okay. Thank you
2 very much.
3 (The witness left the stand.)
4 COMMISSIONER SMITH: I believe that's
5 brought us to the end of people wanting to put
6 people back on to clarify this or that. So where
7 are we? Are we finished? Can we close the record?
8 MR. FELL: Yes, we --
9 COMMISSIONER SMITH: You guys are
10 going to brief us to death?
11 MR. FELL: I believe we have a few
12 exhibits that might need to be admitted, but other
13 than that --
14 COMMISSIONER SMITH: By operation of
15 Commission Rule, any exhibits not previously
16 admitted will now be admitted.
17 MR. FELL: Thank you.
18 (PacifiCorp Exhibit Nos. 24, 26,
19 and 30-37, Staff Nos. 101 and 102, and Monsanto
20 Exhibit No. 244 were admitted into evidence.)
21 COMMISSIONER SMITH: I just have one
22 thing I'd like to say, and that the parties are
23 still free, although we've had the hearing and the
24 record is now closed, you are still free to seize
25 the reigns of your own destiny out of the grips of
852
HEDRICK COURT REPORTING COLLOQUY
P.O. BOX 578, BOISE, ID 83701
1 this Commission, and if you propose a settlement
2 anytime before the Commission issues its final
3 Order, we'll be happy to consider that.
4 And with that, I believe we are
5 adjourned.
6 MR. FELL: Madam Chair, is there a
7 briefing schedule?
8 COMMISSIONER SMITH: I asked you. No
9 one said, "yes." I asked about it.
10 MR. FELL: I'm sorry, did you ask
11 about briefs?
12 COMMISSIONER SMITH: I did. I said,
13 Are you going to brief us to death? No one
14 responded.
15 MR. FELL: Well, "yes" is the answer.
16 COMMISSIONER SMITH: Mr. Fell, I take
17 it you want to file a brief.
18 MR. FELL: Yes, we do.
19 COMMISSIONER SMITH: How much time do
20 you need?
21 MR. FELL: Three weeks.
22 COMMISSIONER SMITH: Three weeks from
23 today is September 26th.
24 And what would be the purpose of the
25 brief, Mr. Fell? Are there legal issues that need
853
HEDRICK COURT REPORTING COLLOQUY
P.O. BOX 578, BOISE, ID 83701
1 to be addressed?
2 MR. FELL: No, it would be mostly to
3 summarize the arguments on some of these points.
4 There are no -- no legal issues in the sense of the
5 legality of one thing or another.
6 COMMISSIONER SMITH: So I'm assuming
7 that since Mr. Fell wishes to file a brief, all
8 others might wish to file a brief, and these briefs
9 will be filed simultaneously on September 26th.
10 MR. FELL: May I ask when the
11 transcript might be done?
12 COMMISSIONER SMITH: The transcripts
13 are usually ready two weeks after the hearing.
14 MR. FELL: That's what I was
15 expecting. That's okay?
16 COMMISSIONER SMITH: That's fine with
17 me.
18 MR. FELL: I was asking the court
19 reporter.
20 COMMISSIONER SMITH: I think that's
21 our standard and that's what they expect, so --
22 MR. FELL: Very good.
23 One round, simultaneous.
24 COMMISSIONER SMITH: Yes. There will
25 not be reply briefs to the briefs or replies to the
854
HEDRICK COURT REPORTING COLLOQUY
P.O. BOX 578, BOISE, ID 83701
1 reply briefs.
2 MR. BUDGE: Thank you.
3 MR. FELL: Very good. We appreciate
4 that too.
5 COMMISSIONER SMITH: Okay. With that,
6 the Commission still strongly urges the parties to
7 seize control of their own destiny. Barring that,
8 we will await the briefs and issue a Decision as
9 quickly as possible.
10 Thank you all for your courtesy and
11 your patience and your being expeditious, and we're
12 adjourned.
13 (The hearing concluded at
14 5:30 p.m.)
15
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855
HEDRICK COURT REPORTING COLLOQUY
P.O. BOX 578, BOISE, ID 83701
1 AUTHENTICATION
2
3
4 This is to certify that the foregoing
5 Volumes I through VII are true and correct
6 transcripts to the best of my ability of the
7 proceedings held in the matter of the Application of
8 PacifiCorp dba Utah Power & Light Company for
9 approval interim provisions for the supply of
10 electric service to Monsanto Company, Case No.
11 PAC-E-01-16, commencing on Wednesday, September 4,
12 2002, and Thursday, September 5, 2002, at the
13 Commission Hearing Room, 472 West Washington, Boise,
14 Idaho, and the originals thereof for the file of the
15 Commission.
16 Accuracy of all prefiled testimony as
17 originally submitted to this Reporter and
18 incorporated herein at the direction of the
19 Commission is the sole responsibility of the
20 submitting parties.
21
22
23 __________________________________
WENDY J. MURRAY, Notary Public
24 in and for the State of Idaho,
residing at Meridian, Idaho.
25 My Commission expires 2-5-2008.
Idaho CSR No. 475
856
HEDRICK COURT REPORTING AUTHENTICATION
P.O. BOX 578, BOISE, ID 83701