HomeMy WebLinkAbout20050623PAC respnse Monsanto req 11-31.pdf825 E. Multnomah
Portland, Oregon 97232
(503) 813-5000
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iJi!Ltllt....; t,. .fT t.. v ...June 22, 2005
Randall C. Budge
Racine, Olson, Nye, Budge & Bailey, Chtd
O. Box 1391; 201 E. Center
Pocatello, ID 83204-1391
Katie Iverson
Brubaker & Associates
17244 W. Cordova Court
Surprise, Arizona 85387
James R, Smith
Monsanto Company
O. Box 816
Soda Springs, Idaho 83276
RE:ID PAC-05-
Monsanto Data Request 11-
Please find enclosed PacifiCorp s Response to Monsanto Data Request Responses to Monsanto
Number (11-31). Provided on the enclosed CD are Attachments Monsanto 23(A-E), and 31 B.
Provided on the enclosed Confidential CD are Attachments Monsanto 29 (A-F), 30 (A-B), and
31 (C-D).
If you have any questions, please call Barry Bell at (801) 220-4985.
Sincerely,
~V~~~ Jp.
Bob Lively, Manager
Regulation
Enclosures
cc:James FelVStoel Rives
Jean Jewell (3 copies)
Service List
CERTIFICATE OF SERVICE
I hereby certify that I caused the foregoing document to be served on the following named
person(s) on the date indicated below by mailing to said person(s) a true copy thereof, contained
in a sealed envelope, addressed to said person(s) at their last known addressees) indicated below.
Patricia Lopas
Regulatory Coordinator
Dated: CD
;;.&j
JEFF LARSON
ACIFICORP
201 S. MAIN STREET. SUITE 2300
SALT LAKE CITY, UT 84140
JAMES M. V AN NOSTRAND
STOEL RIVES LLP
900 SW FIFTH A VE.SUITE 2600
PORTLAND, OR 97204
SCOTT WOODBURY
IDAHO PUBLIC UTILITIES COMMISION
472 W. WASHINGTON
BOISE, ID 83702-5983
KIRA PFISTERER
IDAHO PUBLIC UTILITIES COMMISION
472 W. WASHINGTON
BOISE, ID 83702-5983
RANDALL C. BUDGE
RACINE, OLSON, NYE
BUDGE&BAILEY, CHARTERED
201 E. CENTER
POCA TELLO, ID 83204
JAMES R. SMITH .
MONSANTO COMPANY
HIGHWAY 34 NORTH
SODA SPRINGS ID 83276
ERIC L. OLSEN
RACINE, OLSON, NYE,
BUDGE&BAILEY, CHARTERED
201 E. CENTER
POCA TELLO, ID 83204
ANTHONY Y ANKEL
29814 LAKE ROAD
BAY VILLAGE, OH 44140.
CONLEY E. WARD
GIVENS PURSLEY LLP
601 W. BANNOCK ST.
BOISE, ID 83702
DENNIS E. PESEAU
UTILITY RESOURCES, INC.
1500 LIBERTY ST. SE, SUITE 250
SALEM, OR 97302
R. SCOTT PASLEY
ASSISTANT GENERAL COUNSEL
IR. SIMPLOT COMPANY
999 MAIN ST.
BOISE, ID 83702
DA VID HAWK
DIRECTOR, ENREGY NATURAL RESOURCES
J .R. SIMPLOT COMPANY
999 MAIN ST.
BOISE, ID 83702
TIMOTHY J. SHURTZ
411 S. MAIN
FIRTH, ID 83236
BRADY M. PURDY
A TTORNEY A T LA W
2019 N. 17TH STREET
BOISE, ID 83702
P AC-05-1/PacifiCorp
June 22, 2005
Monsanto Data Request
Monsanto Data Request
Regarding PacifiCorp s Response to IPUC Production Request 55 as to the
current valuation of Monsanto Operating Reserves:
Please explain the overall methodology employed by PacifiCorp to arrive
at its current valuation of Monsanto Operating Reserves.
What is the source of the (i) Mona HLH ("Mona 6x 16") prices and (H)
Mona LLH ("Mona 6x8+ 24") prices? (Hi) How often are these prices
updated and (iv) by whom?
(i) Please explain the calculation for the "Mona MSu - HLH" price, and (ii)
provide an example of the details of the calculation for one of the months
shown (e., January 2007).
What is the discount rate used in the present value calculations?
Provide the equation used for the determination of the discount factors
DF"
).
Response to Monsanto Data Request
a. In deriving the value of reserves for PacifiCorp s eastern control area, the
Company utilizes a methodology which looks at the opportunity cost of
holding its highest cost in-the-money resource offline during heavy load
hours. For the time frame assumed in PacifiCorp s response to IPUC
Production Request 55 , January 2007 through December 2011 , the supply
stack utilized in the analysis included LM 6000 units (Gadsby 4-6/West
Valley), Currant Creek duct firing, Currant Creek CCCT and Cholla 4. As a
result, the analysis starts at the highest cost resource, an LM 6000, calculates
its marginal cost and compares it to the Mona 7x 16 price. If there is an
intrinsic spread, between these two, meaning that the marginal cost is below
the Mona 7x 16 price, then this is the calculated monthly value of a resource
which offers operating reserves Monday-Sunday HE 7-22 PPT. If there is not
an intrinsic spread, the model moves to the next highest cost resource, Currant
Creek duct firing, and repeats the calculation. This calculation is repeated on
a monthly basis to determine the highest cost resource that is in-the-money.
The spread between the highest cost in-the-money resource and the market is
the opportunity cost of holding a resource offline, and thus the value of
operating reserves. F or the Monsanto operating reserves valuation, the
resulting summation of the all of the month's values are present valued, then
put into an annuity payment ($/KW -mo) which when applied to a nominal
MW value every month and present valued results in the exact same present
value as the present value of the monthly values.
P AC-05-1/PacifiCorp
June 22, 2005
Monsanto Data Request
b. (i) & (ii) The Mona 6x16 and 6x8+24 monthly prices are PacifiCorp
forward prices for deliveries to take place at a set time in the future at the
Mona substation. For the first 72 months of the Company s forward curves
(iv) market quotes obtained by Commercial & Trading s traders are utilized
daily to provide the most accurate representation of the liquid period's value.
For months 85 and beyond the Company utilizes a fundamentals curve which
depending on market conditions/fundamentals, (iii) is updated either monthly
or quarterly. Months 73 through 84 utilize a blend of the liquid period and the
first 12 months of the fundamentals period.
c. (i) & (ii) "Mona MSu HLH" price represents the Company s estimate, based
on current 6x 16 and 6x8+ 24 forward curves scalars, of a monthly Mona 7x
product (Monday-Sunday including NERC holidays, HE 7-22 PPT). The
methodology for turning the Company s standard forward price curves (6x16
and 6x8+24) into a non-standard forward price curve, such as a 7x16 or 7x8
can be found in Attachment Monsanto 3.11. Detailed equations regarding the
calculation of any given hour s value can be found in the aforementioned
attachment.
d. The discount factor curve is based on the Company s forward United States
Treasury yield curve.
e. DFt = 1/((1 +R('((m - q)/365.25)))
Where:
DFt is the discount factor that should be used for month t
Rt = Treasury yield for month t
m = 20th day of the month following month t.
q = quote date.
IDAHO
PAC-O5-
GENERAL RATE CASE
ACIFICORP
MONSANTO I)A T A REQUEST
ATTACHMENT MONSANTO
Scalar Methodology
Structuring and Pricing Group
Pacificorp
Abstract
February 2003
This note describes the methodology used by the. Structuring and Pricing Group to
compute the monthly and hourly scalars that are applied to forward power price curves to
produce forward prices for specific days of the week and hours of the day.
Introduction
Market based forward price curves are available for electricity delivered during on-peak (6x16 Monday-
Saturday) and off-peak (everything else) periods. Given these on- and off-peak forward curves, the
Structuring and Pricing Group needs to estimate forward prices for Monday-Friday and Saturday on- and
off-peak delivery and Sunday (off-peak) delivery. This decomposition of two forward price curves into
five forward price curves requires five multiplicative factors, as illustrated in Fig. 1 , where each arrow
represents a multiplicative factor.
off
off
Off
Sat
Sat
off
Sun
Fig. 1
These multiplicative factors will depend on the delivery month and location, and will be called "monthly
scalars . After the five forward curves have been detennined, a set of hourly multiplicative factors, called
hourly scalars , will be applied to the monthly forward curves to produce homly forward price curves.
Finally, small correction factors are applied to ensure that the monthly revenues calculated from the five
decomposed forward price curves sum to the same value as calculated from the two original forward price
curves. The methodology used to compute monthly, hourly, and correction scalars is described in the
following sections.
Monthly Scalars
Monthly scalars have been calculated from historical Dow-Jones day-ahead, on- and off-peak power price
data for the following delivery regions: PV, MIDC, COB, NP15, and SP15. The PV, COB, and MIDC data
start on 1/1/1998, whereas the NP15 and SP15 data start on 6/1/2001. Furthermore, data from the period
during which price caps were in effect (12/1/2000-6/3/2001) has been excluded from the analysis.
The monthly scalar factors are calculated by taking ratios of averaged day-ahead power prices. The on-
peak monthly scalar factors are given by
on .c::::
:;'
an .c::::
:;.
M -F -Sat
on .c::::
:;.
Sat
Sat an .c:::: .
:;.
Sat
Eq. (1)
where .c:::::;. denotes the arithmetic average operator and the subscript denotes the averaging period.
The off-peak monthly scalar factors are given by
off
R' .c::::
:;.
off
..
.c::::
:;.
Sat-Sun
off
off .c::::
:;.
Sat
Sat off
.c(
:;.
Sat-Sun
off
off .c::::
:;.
Sun
S Sun off .c::::
:;.
Sat-Sun
Eq. (2)
where the denominator is the average price over the off-peak period and is given by
NM-NS/JI Nsun
8:LP; +8:LP; 24:LP;
.c::::
off
:;. . =
;=1 ;=1 ;=1
M -F -Sat-Sun 8N M-8N Sat 24NSun
Eq. (3)
In this equation is the number of days of type in the month (holidays are counted as Sundays) and
the factors 8 and 24 are the number of off-peak hours in the day.
Hourly Scalars
Hourly scalars are calculated from historical market clearing price data. Risk Management and Trading
(RMT) data has been used whenever it exists, otherwise, MCP (Market Clearing Price) and PowerDex data
is used. The date is fIrst aggregated according to month and type of day (Monday-Friday, Saturday, or
Sunday). The average hourly price is then calculated for each month and type of day. The hourly scalars
are given by the ratio of the average hourly price to the average hourly price over the appropriate on-peak,
off-peak, or whole day period i. e.,
. --=
Eq. (4)
where P; is the average price for hour i. For Sundays is the average of P; over the 24 hours in the
day, while for Monday-Friday and Saturday, is the average of P; over the 16 on-peak hours if
E (7,22), otherwise, the average is over the 8 off-peak hours. Note that the use of different
denominators for the on- and off-peak periods enhances the off-peak hourly scalars relative to the on-peak
hourly scalars. (Remember that hourly forward prices are obtained by multiplying on-peak scalars with on-
peak forward prices and off-peak scalars with off-peak forward prices.
Hourly scalars have been calculated from historical hourly prices for the PV, MIDC, COB, 4C, NP15, and
SP15 delivery regions. The PV, MIDC, COB, and 4C hourly data start on 4/22/1996, whereas theNP15
and SP15 data start on 5/1/2002. Once again, data from the price cap period (12/l/200-6/3/2001) has been
excluded from the analysis.
To handle the lack of hourly data in the NP15 and SP15 regions, it is suggested that COB and PV hourly
scalars, respectively, be used as proxies for these regions.
Correction Factors
Multiplicative correction factors are necessary to ensure that the decomposed forward prices produce the
same monthly revenues as the original forward prices. These correction factors are very close to 1. In
terms of the original on-peak and off-peak forward prices fan and foff the expected monthly revenue is
l = fon Q(16N M-16NSot foff Q(8N M-sot 24Nsun Eq. (5)
where is the rate at which energy is delivered (in units ofMW) and is the number of days of type
in a month. In tenDS of the five decomposed forward prices, written here is terms of the monthly scalars,
the expected monthly revenue is
fon Q(16S:;-N M-16S;:t sot
+foff Q(8S:f-F N M-8S;~ N Sot 24S;~N Sun
Eq. (6)
To make Rl andR2 equal for all fan and foff it is necessary to introduce two correction factors,
on and off' into Eq. (6):
fon Q(16S:;-N M-16S;:t Sat )C Eq. (7)
+foff Q(8S:1-FN M-8St!t Sat 24S;!Nsun off'
Equating Eqs. (5) and (7), and solving for on and off yields
Sat
on on on
F M-Sat Sat Eq. (8)
C -
Sat +3Nsun
off off off off
F M-Sat Sat Sun Sun
Decomposed Forward Prices
The decomposed forward price for a particular month, day, and hour, is given by the product of the
original forward price, a monthly scalar, an hourly scalar, and a correction factor:
=1: h o m o d m Eq. (9)
Here is the original forward price is the monthly scalar, is the hourly scalar, and C is the
correction factor. The subscripts m, d, hand 0 denote the month, day, hour, andonlotIpeak
respectively.
Summary
This paper has described the methodology used by the Structuring and Pricing Group to calculate the
monthly and hourly scalars that are used to estimate forward price curves for delivery on specific weekdays
at specific hours.
P AC-05-1/PacifiCorp
June 22, 2005
Monsanto Data Request 12
Monsanto Data Request 12
Regarding PacifiCorp s Response to IPUC Production Request 55 as to the
current valuation of Monsanto Operating Reserves:
What is "mgetrate" and how is it used in the current valuation?
Please explain why the reserve value is the difference between the Mona
Msu - HLH price and marginal cost.
Upon what number of hours a year of curtailment is this valuation based?
Please fully explain your answer.
In IPUC Case No. PAC-01-, PacifiCorp adjusted its valuation of
Operating Revenues to account for revenues lost due to curtailment (see
Final Order No. 29157, page 9). Please explain whether PacifiCorp
current valuation likewise has been adjusted to account for revenues lost
due to curtailment, and if so identify the amount of such adjustment and
how this adjustment is performed in Confidential Attachment IPUC 55.
Response to Monsanto Data Request 12
a. "mgetrate" is a function within PacifiCorp s CTIRateServer.xlaVBA based
Excel add-in. This function is used in the response to IPUC Production
Request 55 to apply the scalar methodology, provided in Attachment
Monsanto 3., to the Company s standard forward price curves in order to
obtain the 7x16 prices utilized in the valuation.
b. Reserve value is equal to the difference between the Mona 7x 16 price and the
marginal cost, as this is the opportunity cost of holding a unit offline. Since
there is not a liquid forward market for operating reserves, the opportunity
cost of holding reserves is utilized as a proxy for what the market would bear
for such a product.
c. The operating reserve valuation is based on 12 hours per day being available.
d. The operating reserve evaluation included in IPUC Production Request 55 did
not adjust to account for revenues lost due to curtailment.
P AC-05-1/PacifiCorp
June 22, 2005
Monsanto Data Request
Monsanto Data Request
According to the Response to IPUC Production Request 55, PacifiCorp currently
values Monsanto s Operating Reserves at $1.93 per kW-month for 95 MW,
resulting in an annual value of $2.2 million ($1.93 x 95,000 kW per month x 12
months per year). In September 2002 in IPUC Case No. PAC-01-16,
PacifiCorp claimed that operating reserves for 95 MW and 288 hours
curtailment per year were valued at $4.4 million per year, once the "lost revenue
adjustment proposed by PacifiCorp was eliminated per the Commission s finding.
Please explain all underlying factors and cost considerations as to why
PacifiCorp s current valuation is substantially below the valuation made by the
Company in 2002.
Response to Monsanto Data Request
While there are many factors that have impacted the diminished value associated
with operating reserves to the Company since September 2002, including, but not
limited to, scalars, forward curves and Treasury rates all changing, the main
driver of this decrease is that for the timeframe associated with Response to IPUC
Production Request 55, the Company s supply stack has changed relative to 2002.
As a result of this change in the Company s supply stack, the spread between the
market value of energy and the marginal cost of that energy has decreased. As a
result, the opportunity cost of holding a unit offline for operating reserves has
decreased; hence, the substantial decrease in the value of Monsanto s operating
reserves to the Company.
PAC-05-1/PacifiCorp
June 22, 2005
Monsanto Data Request 14
Monsanto Data Request 14
RegardingPacifiCorp s Response to IPUC Production Request 55 as to the
current valuation of Monsanto Economic Curtailment:
Please explain the overall methodology employed by PacifiCorp to arrive
at its current valuation of Monsanto Economic Curtailment.
Please provide the source of the Retail Rate $/MWH. Is the Retail Rate
also the "strike price" of this valuation?
(i) Please explain the source of "PV 7x 16" and (ii) provide an example of
the details of the calculation for one of the months shown (e., January
2007). (iii) Does this represent a flat rate for 7 days per week, 16 hours
per day? (iv) How often is this updated and (v) by whom?
(i) Please explain the source of "Mona Basis 7x 16" and (ii) provide an
example of the details of the calculation for one of the months shown (e.
January 2007). (iii) How often is this updated and (iv) by whom?
Why did PacifiCorp select the PV 7x16 price plus the Mona Basis, as
adjusted by the Scalar, as the relevant market cost on which to value
Monsanto s economic curtailment? Please fully explain your answer.
Response to Monsanto Data Request 14
a. The methodology employed by PacifiCorp to arrive at the valuation included
in the Response to IPUC Production Request 55 is based on determining the
500 hours with the largest spread between wholesale and retail. The monthly
spread, when applied to the MWhs, is then turned into an annuity value
$3.26/KW-mo, that when applied to the nominal monthly MWsand present
valued equals the present value of the nominal value. The method employed
to derive the value associated with this spread utilizes the Company s forward
price curve, volatilities, scalars, and the industry standard Black-Scholes
option pricing model. While Black-Scholes was utilized in this analysis, it has
virtually zero impact on the value due to the money-ness of this curtailment
product. The term "money-ness" refers to the degree to which an option is in-
the-money.
b. The Retail Rate $/MWH was calculated using the "Unit Cost at Target
Return" section of the Idaho FY04 Cost of Service Study with Monsanto
included that was provided in response to Staff Production Request 35 in the
current GRC. The Retail Rate is the "strike price" of the valuation.
PAC-05-1/PacifiCorp
June 22, 2005
Monsanto Data Request '
c. (i) & (ii) Please refer to the response Monsanto Set 3, DR 11. Both the PV
and Mona 7x16 are prices derived from PacifiCorp s standard 6x16 and
6x8+ 24 forward price curves at their respective Points of Delivery, utilizing
the Company s scalars. For the scalar methodology, please see Attachment
Monsanto 11. For the first 72 months of the Company s forward curves
market quotes (v) obtained by Commercial & Trading s traders are utilized
daily to provide the most accurate representation of the respective liquid
period's value. For months 85 and beyond the Company utilizes a
fundamentals curve which, depending on market conditions/fundamentals, is
updated either monthly or quarterly. Months 73 through 84 utilize a blend of
the liquid period and the first 12 months of the fundamentals period. (iii) "
16" represents Monday-Sunday HE 7-22 PPT (iv) updated by traders.
d. (i) (ii) & (iii) Please see Response to Monsanto Data Request 11. b. (iv)
Updates are done by traders.
e. PacifiCorp chose the Mona 7x 16 price to value this curtailment product with
the view that the energy flowing to Monsanto has a value equal to that at the
Mona substation.
P AC-05-1/PacifiCorp
June 22, 2005
Monsanto Data Request 15
Monsanto Data Request 15
Regarding.PacifiCorp s Response to IPUC Production Request 55 as to the
current valuation of Monsanto Economic Curtailment:
What does "Vols" stand for?
(i) Please explain the meaning of "Super Peak V ols , and (ii) provide an
example of the details of the calculation for one of the months shown (e.
January 2007).
(i) Please explain the meaning of "Scalar (Super peak average)", and (ii)
provide an example of the details of the calculation for one of the months
shown (e., January 2007).
(i) Please explain the meaning of "Intrinsic . Since Intrinsic is based upon
reducing the "Market Cost" by the "Retail Rate , (ii) please confirm or
deny that PacifiCorp is adjusting the economic curtailment valuation to
account for revenues lost due to curtailment.
Please explain "undiscountedoption" as used in determining the "Option
Premium Value $/MWH". If this is a macro, please provide all supporting
formulae in order to understand the steps involved.
Response to Monsanto Data Request
a. "Vols" stands for volatility.
b. "Super Peak Vols" is the implied volatility from an at-the-money daily super
peak call option. The calculation is shown in the formula s associated with
row 15 in the "Curtailment" tab ofPacifiCorp s response to IPUC ProductionRequest 55.
c. (i) & (ii) "Scalar (Super peak average)" is the average of the HE 13-20 M-
Sunday (including NERC holiday) scalars that when multiplied by a 7x16
price, will provide a 7x8 (HE 13-20) price. The methodology and calculations
for a similar product can be found in Attachment Monsanto 11 of Set 3.
d. (i) The "Intrinsic" value of an option is defined as the maximum of zero and
the value it would have if an option were to be exercised immediately. (ii)
Confirm, PacifiCorp is adjusting the economic curtailment valuation to
account for revenues lost due to curtailment. Since Monsanto does not own
the energy to sell back to the Company without paying for it, it is important
that PacifiCorp net out the retail rate when purchasing energy back from
customers. Doing otherwise would be on par with Monsanto selling the
PAC-OS-l/PacifiCorp
June 22, 2005
Monsanto Data Request '
Company energy that Monsanto never owned. Such an action would not be
fair to other PacifiCorp customers, as they would be subsidizing Monsanto
short sell.
e. "undiscounted option" is an Excel add-in which replicates the Black-Scholes
formula. Please see a & b below for the supporting formula.
a. SN(dt
)"'"
.AS-I'(r-r) N(d
. b. where:
d1
1n(j-)+(r-lO.5aZ)(T-t)
u~T
1n(~)+(r-D.Su2)(T-t)
2 -cr,fr
. .
11.
P AC-05-1/PacifiCorp
June 22, 2005
Monsanto Data Request 16
Monsanto Data Request 16
Regarding PacifiCorp s Response to IPUC Production Request 55 as to the
current valuation of Monsanto Economic Curtailment:
What is "QuoteDT" and how is this used in the valuation?
What is "Option Delta" and how is this used in the valuation?
Please explain the impact of the "expir" on the PacifiCorp s current
valuation. For example, if the January 2007 "expir" amount was 0.
rather than 1.769, and all other months were correspondingly lowered as
well, how would this affect the valuation and specifically the "Option
Delta
Response to Monsanto Data Request 16
a. "QuoteDT" is the quote date associated with the Company s forward price
volatility, and DF curves utilized for this analysis, and hence, the valuationdate.
b. "Option Delta" is the ratio of the change in the price of the energy option to
the change in the price of the underlying energy. While the option delta is
calculated in this valuation, it is not used.
c. "expir" is the time (in years) until a given option expires. All else equal, the
more years until an option expires, the greater its value. With regards to
expiry and the option delta, the impact of expiry on delta depends on the
money-ness of an option. The term "money-ness" refers to the degree to
which an option is in-the-money. A change in expiry to a deep-in-the-money
option will have significantly less impact on the option s delta than a deep-
out-of-the-money option s delta.
P AC-O5-1/PacifiCorp
June 22, 2005
Monsanto Data Request 17
Monsanto Data Request 17
According to the Response to IPUC Production Request 55, PacifiCorp currently
values Monsanto s economic curtailment at $3.26 per kW-month for 67 MW,
resulting in an annual value of$2.6 million ($3.26 x 67 000 kW per month x 12
months per year). In September 2002 in IPUC Case No. PAC-Ol-16,
PacifiCorp claimed that economic curtailment for 67 MW and 500 hours
curtailment per year were valued at $4.6 million per year, once the "lost revenue
adjustment proposed by PacifiCorp was eliminated per the Commission s finding.
Please explain all underlying factors and cost considerations as to why
PacifiCorp s current valuation is substantially below the valuation made by the
Company in 2002.
Response to Monsanto Data Request 17
The Company s pricing of economic curtailment and operating reserves in
September 2002 was based on an overall value provided by the two components
as a whole. As a result, the operating reserve credit was lower than PacifiCorp
view of its value, whilethe curtailment was higher than PacifiCorp s view of its
value. The resulting overall net credit to Monsanto by PacifiCorp was priced at-market.
That being the case, economic curtailment's value has not decreased, but rather, it
has increased. The value of operating reserves is what has decreased. While
there are many factors that have impacted the diminished value associated with
operating reserves to the Company since September 2002, including, but not
limited to, scalars, forward curves, and Treasury rates.all changing, the main
driver of this decrease is that for the timeframe associated with Response to IPUC
Production Request 55 , the Company s supply stack has changed relative to 2002.
As a result of this change in the Company s supply stack, the spread between the
market value of energy and the marginal cost of that energy has decreased. As a
result, the opportunity cost of holding a unit offline for operating reserves has
decreased. Hence the substantial decrease in the value of Monsanto s operating
reserves to the Company.
P AC-05-1/PacifiCorp
June 22, 2005
Monsanto Data Request 18
Monsanto Data Request 18
In Final Order 29157, the Commission found "it reasonable to eliminate the "lost
revenue" adjustment proposed by PacifiCorp in its rebuttal." Please explain
whether PacifiCorp continues to adjust its current valuation of Monsanto
ancillary services for "lost revenues , and if so, provide the reasoning for such an
adjustment.
Response to Monsanto Data Request 18
PacifiCorp is adjusting the economic curtailment valuation to account for
revenues lost due to curtailment. Since Monsanto does not own the energy to sell
back to the Company without paying for it, it is important that PacifiCorp net out
the retail rate when purchasing energy back from customers. Doing otherwise
would be tantamount to Monsanto selling the Company energy that Monsanto
never owned. Such an action would not be fair to other PacifiCorp customers, as
they would be subsidizing Monsanto s short sell.
P AC-05-1/PacifiCorp
June 22, 2005
Monsanto Data Request 19
Monsanto Data Request 19
Page 3 of the testimony of Mr. Watters references PacifiCorp s 2003 IRP: Please
identify where Monsanto s contract for ancillary services is located Table C.
2 orC.3 of the 2003 IRP.
Response to Monsanto Data Request 19
Table C., found on page 184 of the 2003 IRP, lists a resource called
Interruptible (P)". This resource is a proxy resource representing the aggregate
capacity of interruptible load contracts included in the Load & Resource Balance
and modeled for the study period. The Monsanto contract is included in the 70
MW s listed for this proxy resource.
P AC-05-1/PacifiCorp
June 22, 2005
Monsanto Data Request 20
Monsanto Data Request 20
Please provide the total variable costs ($), total generation output (MWH) and
unit costs ($ per MWH) associated with purchasing energy from the West Valley
Project for each month in 2003, 2004 and 2005 (to date).
Response to Monsanto Data Request 20
The West Valley project is owned by PPM Energy, a subsidiary ofScottishPower.
PacifiCorp leases and operates the project. The project is recorded as PacifiCorp
generation from a leased facility, rather than purchased energy. The fuel consumed
is the only assumed "variable" cost. The data requested is shown in the table
below, and corresponds with data reported in the FERC Form 1 for 2003 and 2004.
NOTE: Since the West Valley Plant is a leased facility, the lease payments
charged to Operation and Maintenance expense include the equivalent
depreciation on the capital asset owned by PPM as well as their return on
investment. This causes the Unit Cost Per MWH to appear to be significantly
higher than rates shown for other plants. To make equivalent comparisons, these
items would need to be excluded from the West Valley OMAG costs or added to
the costs of other plants, to arrive at comparable rates between plants.
West Valley CY 2003 CY 2004 CY2005
(thru April)
Total Variable Costs
(Fuel Consumed)$19,543 768 $10 916 009 943 472
Total Generation - Net
(MWH)580 823 395 480 78,911
Fuel Consumed per Net
MWH $33.$27.$37.
Unit Cost Per MWH
($/MWH)$67.$75.$123.
P AC-05-1/PacifiCorp
June 22, 2005
Monsanto Data Request 21
Monsanto Data Request 21
With respect to the West Valley Lease, please provide a detailed description of
the lease costs, including purchase and termination options in three- and six-year
windows and the costs associated with purchasing generation.
Response to Monsanto Data Request 21
The West Valley Lease requires PacifiCorp to make quarterly payments of
$749,150 for each of the five units ($14 983 000/year).
In May 2002, PacifiCorp entered into a 15-year operating lease with PPM Energy.
The operating lease terms grant PacifiCorp two independent early termination
options that provide PacifiCorp the right to terminate the lease and, at
PacifiCorp s further option, to purchase the facility for predetermined amounts.
On May 28,2004 PacifiCorp exercised its first option to terminate the West
Valley lease. PacifiCorp subsequently exercised its right to rescind the
termination on September 28, 2004 after determining, through a public request for
proposal process, that the resource could not be replaced on a more economic
basis and without increasing risks to system reliability. PacifiCorp has a second
option to terminate the West Valley lease if written notice is provided to West
Valley on or before December 1 , 2006. If PacifiCorp elects to exercise either
purchase option, the fixed purchase prices are $138 million and $123 million
respectively.
In the event the Company terminates the West Valley Lease without exercising a
purchase option, the Company must pay a Major Maintenance Payment equal to
the sum of: (a) $63.40 per unit fired hour since the last performed hot section
repair or major overhaul, whichever is later, and (b) $25.30 per unit fired hour
since the last performed major overhaul (reflecting General Electric
recommendations for LM-6000 maintenance).
P AC-05-1/PacifiCorp
June 22, 2005
Monsanto Data Request 22
Monsanto Data Request 22
Page 6 of the testimony of Mr. Watters references "the volatility of the power
markets in recent years . Please describe in more specificity this volatility, as
well as PacifiCorp s expectation of volatility over the rest of the decade.
Response to Monsanto Data Request 22
Mr. Watters referenced "the volatility of the power markets in recent years" in a
general sense, meaning that prices have shown a substantial variance. As an
illustration of this volatility, the monthly average of daily prices for heavy load
hour electricity at the Mid-Columbia, since mid-2001 (after the western power
crises had receded), have varied between approximately $10 and $56/MWh with
monthly differences of 20% or more not unusual. PacifiCorp expects the
fundamental supply and demand conditions will continue to determine the
volatility of energy markets and that the volatility of these markets. will continue
unless or until such time as a shift occurs in the fundamentals that determine these
markets for any given time period.
P AC-OS-l/PacifiCorp
June 22, 2005
Monsanto Data Request 23
Monsanto Data Request 23
Please provide the three proposals in response to RFP 2004- X, and any report or
summary generated by Lands Energy Inc. as to the three proposals and the
narrowing to the 150 MW market alternative.
Response to Monsanto Data Request 23
The requested information is provided in Attachments Monsanto 23 A-E on the
enclosed CD.
IDAHO
P A C- O5-
GENERAL RATE CASE
ACIFICORP
MONSANTO DATA REQUEST
ATTACHMENT MONSANTO 23 (A-
ON THE EN CLOSED. CD
P AC-05-1/PacifiCorp
June 22, 2005
Monsanto Data Request 24
Monsanto Data Request 24
Please provide all reports, documents, workpapers or studies prepared by
PacifiCorp, or on its behalf, regarding the Company s decision to rescind the first
termination option of the West Valley Lease.
Response to Monsanto Data Request 24
Highly Confidential Attachments Monsanto 24-1 and 24-2 will be made available
for Monsanto s review at the company s offices, subject to the terms and
conditions of the protective agreement in this proceeding.
IDAHO
PA C- O5-
PACIFICORP
P AC-05-1/PacifiCorp
June 22, 2005
Monsanto Data Request 25
Monsanto Data Request 25
Please provide all supporting workpapers for Exhibit No. 12 in sufficient detail
that all benefits, costs and energy amounts are fully explained and documented.
Response to Monsanto Data Request 25
Please see Attachment Monsanto 25.
IDAHO
PAC-O5-
GENERAL RATE CASE
ACIFICORP
MONSANTO DATA REQUEST
ATTACHMENT MONSANTO
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P AC-OS-l/PacifiCorp
June 22, 2005
Monsanto Data Request 26
Monsanto Data Request 26
Please provide the total variable costs ($), total generation output (MWH)and
unit costs ($ per MWH) associated with producing energy from the Gadsby
Project for each month in 2003,2004 and 2005 (to date).
Response to Monsanto Data Request 26
Fuel consumed is the only assumed "variable" cost. We also assume that the
Gadsby Project" refers only to the Gadsby Peakers (Units 4, 5, 6). The data
requested is shown in the table below, and corresponds with data reported in the
FERC Form 1 for 2003 and 2004.
NOTE: Hedging revenues from PacifiCorp s sale of natural gas for resale are
booked primarily against Gadsby Project fuel cost. Thus, the Fuel Consumed per
Net MWH figures in the table below are lower than those for West Valley.
Gadsby Peakers CY 2003 CY 2004 CY2005
tbruApril)
Total Variable Costs
(Fuel Consumed)$11 979,586 660 791 $869,301
Total Generation -Net
(MWH)385 069 258 948 46,824
Fuel Consumed per Net
MWH $31.11 $10.$18.
Unit Cost Per MWH
($/MWH)$32.14 $14.$27.
PAC-05-1/PacifiCorp
June 22, 2005
Monsanto Data Request 27
Monsanto Data Request 27
Page 11 of the testimony of Mr. Watters states that the Gadsby Project "gas
turbines can provide ancillary services in the form of operating reserves." What
value does PacifiCorp attribute to these operating reserves provided by the
Gadsby Project? Please provide all supporting workpapers, studies and analyses
used in the valuation.
Response to Monsanto Data Request 27
No such calculation has been performed.
P AC-O5-1/PacifiCorp
June 22, 2005
Monsanto Data Request 28
Monsanto Data Request 28
Please provide the projected total variable costs ($), total generation output
(MWH) and unit costs ($ per MWH) associated with producing energy from the
Currant Creek Project for each month in 2005,2006 and 2007.
Response to Monsanto Data Request 28
Fuel consumed is the only assumed "variable" cost. The Currant Creek project is
being constructed in phases, with the first phase (simple cycle) becoming
commercial in May and June 2005 and the combined cycle operation estimated to
become commercial in March 2006. Consequently, the data below represents
estimates based on the portiones) of the project that are commercial during each
fiscal year. $/MWH numbers are based on Variable costs only.
Jun-
Jul-
Aug-
Sep-
Mar-O6
Apr-
May-O6
Jun-
Jul-
Aug-
Sep-
Oct-
Nov-
Dec-
Jan-
Feb-
Mar-
Apr-
May-O7
Jun-
Jul-
Aug-O7
Sep-
Oct-
Nov-
Dec-
Currant Creek
Projected Operations
Fuel Cost
186 376
659 762
838,494
788 356
405 913
332 328
130,717
101 778
10,491 621
10,595 033
780 717
840,476
108 226
581 782
171 010
342 787
605,594
886 068
309 179
954 896
176 956
274 729
849,954
981 627
594 940
915 244
MWH
2,476
628
706
170
961
169 392
164 350
161 593
207 777
206,489
191 489
155 079
194 578
214 606
218 050
186,177
196 670
191 906
157 509
147 082
195 884
195 132
161 309
147 132
169 978
193,665
Variable $/MWH
75.
77.
78.
78.
58.
49.
49.47
50.
50.
51.
51.
50.
51.
53.
55.
55.
53.
46.
46.
47.
46.
47.
48.
47.45
50.
51.
Source: Utah DRR Avoided Cost Study dated 5/24/2005
AC- E-05-/PacifiCorp
June 22, 2005
Monsanto Data Request 29
Monsanto Data Request 29
Please provide all workpapers, analysis and studies supporting the lease payments
for West Valley as described on page 5 of Mr. Watters' testimony.
. Response to Monsanto Data Request 29
To the extent the request asks for all workpapers, analysis, and studies, PacifiCorp
objects on the grounds that the request is overly broad and unduly burdensome.
Without waiving these objections, PacifiCorp states that workpapers, analysis
and studies are provided as Confidential Attachments Monsanto 29A - F on the
enclosed CD. This information is confidential and is provided subject to the
terms and conditions of the protective agreement in this proceeding.
IDAHO.
C- O5-
GENERAL RATE CASE
ACIFICORP
MONSANTO DATA REQUEST
CONFIDENTIAL ATTACHMENT
MONSANTO 29 (A-
CONFIDENTIAL (LEVEL YELLOW)
ON THE ENCLOSED CD
PAC-05-1/PacifiCorp
June 22, 2005
Monsanto Data Request 30
Monsanto Data Request 30
Please provide all workpapers, analysis and studies supporting the cost of the
Gadsby Project as described on page 11 of Mr. Watters' testimony.
Response to Monsanto Data Request 30
To the extent the request asks for all workpapers, analysis, and studies, PacifiCorp
objects on the grounds that this request is overly broad and unduly burdensome.
Without waiving these objections, PacifiCorp states that workpapers, analysis
and studies are provided on the enclosed CD as Confidential Attachments
Monsanto 30 A-B. These documents contain confidential information and are
provided subject to the terms and conditions of the protective agreement in this
proceeding.
IDAHO
PAC-O5-
GENERAL RATE CASE
ACIFICORP
MONSANTO DATA REQUEST
CONFIDENTIAL ATTACHMENT
MONSANTO 30 (A-B)
CONFIDENTIAL (LEVEL YELLOW)
ON THE ENCLOSED CD
PAC-05-1/PacifiCorp
June 22, 2005
Monsanto Data Request 31
Monsanto Data Request 31
Please provide all workpapers, analysis and studies supporting the cost of the
Currant Creek Phase One and Phase Two as described on page 14 of Mr. Watters
testimony.
Response to Monsanto Data Request 31
To the extent the request asks for all workpapers, analysis, and studies, PacifiCorp
objects on the grounds that the request is overly broad and unduly burdensome.
Without waiving these objections, PacifiCorpstates that workpapers, analysis,
and studies are provided on the enclosed CD. Highly Confidential Attachment
Monsanto 31A is made available for review at the Company s offices subject to
the terms and conditions of the protective order in this proceeding. Attachment
Monsanto 31 B is provided as an attachment. Confidential Attachments
Monsanto 31 C and 31 D contain confidential information and are provided
subject to the terms and conditions of the protective agreement in this proceeding.
IDAHO
PAC O5-
GENERAL RATE CASE
ACIFICORP
MONSANTO DAT A REQUEST .
HIGHL Y CONFIDENTIAL ATTACHMENT
MONSANTO 31 A .
' .. "
HIGHL Y CONFIDENTIAL (LEVEL PINK)
IDAHO
A C- O5-
GENERAL RATE CASE
ACIFICORP
MONSANTO DATA REQUEST
ATTACHMENT MONSANTO 31 B
ON THE ENCLOSED CD
IDAHO
C- E-O5-
GENERAL RATE CASE
PACIFICORP
MONSANTO DATA REQUEST
CONFIDENTIAL ATTACHMENT
MONSANTO 31 (C-
CONFIDENTIAL (LEVEL YELLOW)
ON THE ENCLOSED CD