20101101Vol I Oral Argument, October 18, 2010.pdf

L
e BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF PACIFICORP DBA ROCKY MOUNTAIN
POWER FOR APPROVAL OF CHANGES TO
ITS ELECTRIC SERVICE SCHEDULES
CASE NO.
PAC-E-10-07
ORAL ARGUMENT
HEARING BEFORE
COMMISSIONER MARSHA H. SMITH (Presiding)
COMMISSIONER MACK A. REDFORD
COMMISSIONER JIM D. KEMPTON (via telephone)
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PLACE:Commission Hearing Room
472 West Washington Street
Boise, Idaho
DATE:October lS, 2010
VOLUME I - Pages 1 - 62
'-'Is il~~~POST OFFICE BOX 578
BOISE, IDAHO 83701
208-336-9208
e HEDRICK
COURT REPORTING
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1 APPEARANCES
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3 For the Staff:SCOTT WOODBURY, Esq.
Deputy Attorney General
472 West Washington
Boise, Idaho 83702
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For PacifiCorp:HICKEY & EVANS, LLP
by PAUL J. HICKEY, Esq.
Post Office Box 467
Cheyenne, Wyoming 82003
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8 For Monsanto:RACINE, OLSON, NYE, BUDGE
& BAILEY
by RANDALL C. BUDGE, Esq.
Post Office Box 1391
Pocatello, Idaho 83204-1391
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HEDRICK COURT REPORTING
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1 BOISE, IDAHO, MONDAY, OCTOBER 18, 2010, 1:00 P.M.
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4 COMMISSIONER SMITH: Good afternoon, ladies and
5 gentlemen.
6 MR. BUDGE: Good afternoon.
7 COMMISSIONER SMITH: Welcome you to this oral
8 argument before the Idaho Public Utilities Commission, and
9 first I would like to acknowledge that President Kempton is on
10 the line.
11 COMMISSIONER KEMPTON: I am.
12 COMMISSIONER SMITH: Good. So that's the three
13 Commissioners are President Kempton, who is joining us by
14 phone; Commissioner Redford, who sits on my right; and I'm
15 Marsha Smith, and I'm Chair of this case and will be chairing
16 today's oral argument.
17 This is Case No. PAC-E-10-07, further identified
18 as in the matter of the Application of Rocky Mountain Power for
19 approval of changes to its Electric Service Schedules and
20 price -- and a price increase of 27. 7 million, or approximately
21 13.7 percent.
22 We're here today to hear oral argument on a
23 Motion to Dismiss or Strike Testimony that was filed by
24 Intervenors, so I want to start first by finding out who is
e 25 here. And who do we have for PacifiCorp?
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1 MR. HICKEY: Good afternoon, Madam Chairman.
2 Paul Hickey -- and members of the Commission -- Paul Hickey of
3 Hickey and Evans in Cheyenne, Wyoming, representing PacifiCorp,
4 doing business as Rocky Mountain Power. With me at counsel
5 table is Paul Clements, and also with us in the hearing room is
6 Ted Weston.
7 COMMISSIONER SMITH: All right. Next, we have
8 Commission Staff.
9 MR. WOODBURY: Thank you. Madam Chair,
10 Scott Woodbury, Deputy Attorney General, and representing the
11 Commission Staff; and to my left, Randy Lobb, head of the
12 utili ty division.
13 COMMISSIONER SMITH: Thank you, Mr. Woodbury.
14 For Monsanto.
15 MR. BUDGE: Good afternoon. Randy Budge for
16 Monsanto Company. And also with me here in person is Jim Smith
17 from the Soda Springs facility, and I believe we have
18 Gary Kaj ander on line from St. Louis.
19 COMMISSIONER SMITH: And is that correct,
20 Mr. Kajander?
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MR. KAJANDER: Yes, that is.
COMMISSIONER SMITH: Okay. Thank you.
23 Are there anyone here appearing on behalf of the
24 Idaho Irrigation Pumpers Association?
e 25 How about Agrium?
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1 Anyone here for the Idaho Conservation League?
2 MR. OTTO: Commissioner, I'm here, but not
3 appearing.
4 COMMISSIONER SMITH: Would you mind sharing your
5 name?
6 MR. OTTO: Ben Otto. But I'm just observing.
7 COMMISSIONER SMITH: Welcome, Mr. Otto.
8 How about the PacifiCorp Idaho Industrial
9 Customers?
10 Anybody on behalf of the Community Action
11 Partnership Association of Idaho?
12 And I believe those are all the Intervenors in
13 this matter.
14 It was my intention today to begin with you,
15 Mr. Budge, since it's your Motion; then to hear from the
16 Commission Staff; and, finally, to hear a reply from the
17 Company. Is there anything that needs to be brought to our
18 attention before you begin with your argument?
19 MR. BUDGE: No, Madam Chair. The only thing I
20 would mention is I did hand out a few documents that were going
21 to be referenced in my arguments that I left on the Bench for
22 each of the Commissioners, together with Counsel. It's simply
23 a copy of the Tariff Schedule 400, the Commission's Rules 121
24 and 66, also a copy of Rule 408 of the Idaho Rules of Evidence,
25 and a copy of the first four pages of the current Electric
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1 Service Agreement with PacifiCorp and Monsanto. And I brought
2 those there just for convenient reference.
3 COMMISSIONER SMITH: Okay. I would note for
4 President Kempton that the tariff pages are actually an
5 attachment to the Staff comments which were filed, and I don't
6 know if the other documents -- of course, our Rules are our
7 Rules. He probably doesn't have the court Rules, and I don't
8 know if anywhere the Electric Service Agreement is an
9 attachment, so --
10 MR. BUDGE: And if I recall correctly, the Chair
11 normally prefers we sit or stand? It's been long enough, I
12 forgot.
13 COMMISSIONER SMITH: We're pretty informal here,
14 Mr. Budge, so if you're comfortable sitting, we're comfortable
15 listening to you while you sit.
16 MR. BUDGE: Thank you. I didn't want to start
17 off on the wrong foot here.
18 So, Madam Chairman, Commissioners, I'll attempt
19 to be brief here. I think the issues have been briefed and I
20 would like to touch on a few of them.
21 Monsanto, of course, is PacifiCorp' s largest
22 single point customer, and we are about 40 percent -- in that
23 range -- of the load of their Idaho service terri tory. And
24 Monsanto has been continuously a nonfirm customer that receives
25 interruptible power since 1952, some 58 years. And of that
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1 load, we have about 182 megawatts, all of which is nonfirm with
2 the exception of about nine megawatts.
3 Those rates are currently reflected on Tariff
4 Schedule 400. We've been on a tariff schedule since about -- I
5 believe it was the 2006 case, and that simply means from our
6 perspecti ve that that sets forth our rates, of course; and,
7 secondly, that Monsanto's rates would be established at the
8 same time as any other customer in a general rate case.
9 And going back to that, a little bit of history,
10 going back to that 2006 case, this Commission entered an Order;
11 this was December 18 of 2006. Your Order No. 30197 was very
12 clear in recognizing the value of Monsanto's interruptible
13 products and the importance of those in establishing rates, and
14 the Commission said, quote:
15 That these are important considerations in
16 establishing the net rate to Monsanto in the future.
17 Consequently, we expect the parties to address interruptible
18 product valuation in the context of a general rate case when
19 Monsanto's cost of service is determined.
20 That was in 2006.
21 As we move forward, in 2007 was the next rate
22 filing of the Company. That one was resolved by way of a
23 Settlement Stipulation and gave rise to the current contract
24 that's referred to as Monsanto's 2008 contract. It's
25 noteworthy that that contract, that Settlement Stipulation, as
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1 well as the Commission's Approval Order, did not sanction or
2 adopt any specific methodology for determining how Monsanto's
3 nonfirm rates should be priced; and, specifically, consistent
4 wi th the Stipulation itself between these parties, the
5 Commission Order referred to the fact that it was a,
6 quote/unquote, black box settlement with no methodology
7 establishing the value of any curtailment products, instead
8 approving a net rate to Monsanto.
9 So with that backdrop, we have the current
10 Application filed by the Company May 28th. And in that one,
11 the Company in the testimony of witness Griffith at his direct
12 testimony, page 8, basically states the Company was proposing
13 to change rates on a uniform -- with a uniform percentage
14 increase for all billing elements.
15 The Company could have -- but chose not to,
16 apparently -- proposed any change in Monsanto's interruptible
17 hours, which is a total of 1,050 hours, nor did the Company
18 propose to change anything with respect to the curtailment
19 value that had been previously established by Stipulation and
20 the previous Order.
21 So Monsanto went into the case once it was filed
22 and it intervened with the reasonable expectation that the
23 starting point would be the same value of the curtailment
24 products previously agreed to in the 2007 Stipulation and
25 Order. And so when the Company chose not to change that, that
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1 was our expectation and we had every reason to believe that the
2 curtailment value would be that established in the preceding
3 case, which was the 16 point -- $16 million figure that was
4 approved by the parties and it was approved by the Commission
5 in the last case on a black box settlement basis.
6 And there was extensive discovery that had gone
7 on in this case, and that was because not only Monsanto but a
8 lot of other parties are very concerned about the impact of
9 this particular rate case, and this, frankly, is the first case
10 that -- general rate case -- we've had for some time with the
11 Commission involving PacifiCorp. And I think we had upwards of
12 15 different Discovery Requests that were submitted and timely
13 responded to; a lot of wórk had gone into preparing the case.
14 And then some four months after the filing and some two weeks
15 before the rebuttal testimony of Staff and all Intervenors is
16 due, the Company filed the testimony of Paul Clements which is
17 in question in this proceeding and is the purpose of our Motion
18 to Strike and Motion to Dismiss.
19 This testimony of Mr. Clements was the very first
20 time in this rate case that there had been any proposed change
21 in the value of the curtailment product. This is also the very
22 first time that the Company submitted two new methodologies to
23 establish what they believe to be the correct value. And so
24 they introduced through this testimony what they describe as
25 the front office model and also what's described as the GRID
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1 model.
2 And significance of this amendment can't be
3 underscored in the sense that they propose to lower this $16
4 million value of the curtailment product to 6.1 million. So
5 that alone results to or amounts to a 62 percent change or a
6 reduction in the curtailment product value, and that equates to
7 a 54 percent increase in the rates to Monsanto. So, where we
8 were back in May 28th when the Application was filed, Monsanto
9 felt they were addressing an increase of $11.7 million to their
10 rates. Based on the supplemental testimony, that number is now
11 $22.7 million. So for all practical purposes, we have a
12 doubling of the rates that resulted.
13 I think what's particularly significant and
14 somewhat, quite frankly, distressing to Monsanto is the fact
15 that we submitted back in June, not long after the case was
16 filed, our initial Discovery Requests, and our Request No.
17 3.41 -- requested the Company's GRID model to evaluate3.4
18 the system value of Monsanto curtailments and spinning
19 reserves. We expected that to be an issue in the case.
20 The Company's Answer filed on July 12, 2010, gave
21 this response, quote: The Company objects to the Request on
22 the basis the Company has not prepared such an analysis.
23 So in June, there was nothing in the original
24 Application in May giving rise to such an analysis. We did a
25 Discovery Request to it, to which the Company said, We've not
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1 done such an analysis. And now by the end of September,
2 Mr. Clements files his testimony and said, Oh, we did do an
3 analysis. So based on the same GRID model that they said did
4 not exist in July, that now becomes the underpinning and basis
5 for their new number to lower by half the value of that
6 curtailment credit.
7 So, I don't know the answer, but the question
8 that's been in my mind and I suppose it's in others is why
9 wasn't this testimony filed up front if that's what the Company
10 sought in this case? It could be due to inadvertence or
11 oversight on the Company's behalf. It could be -- and I'm not
12 going to suggest that -- but it could be that they had hoped to
13 perhaps mislead Monsanto and Staff into believing it's not
14 going to be a problem and then dump it on us two weeks before
15 our response testimony is done, knowing we wouldn't have a
16 reasonable opportunity to conduct Discovery or to respond. Or
17 I suppose it could be the explanation that Mr. Clements gave
18 us, and that is that he was hoping to negotiate a settlement
19 and this was now a backstop. Since we didn't get a settlement
20 negotiated it's a backstop, and, frankly, I guess, more of a
21 back door than I think can be correctly characterized as a
22 backstop because the Company not only had an opportunity to
23 file any change they wanted, but they had an obligation to, we
24 believe, under your Rules.
25 And Rule 121 is pretty clear: When you file a
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1 rate Application that's going to increase or decrease rates t
2 you have an obligation to set forth what those are, and I think
3 your Rules require a redline of the proposed changes. And
4 that's why I brought the Schedule 400 that you can see is not
5 changed from what it was previously and is not changed in the
6 current filing. They did not set forth any change in the
7 numbers there.
8 Secondly, if a rate change is going to be based
9 on computer modeling, they have an absolute obligation under
10 the same Rule, 121.02, to file and provide the model so that
11 it's available to Staff and it's available to others. They
12 neglected to do that.
13 So in sum, I think the basis for the dismissal of
14 the Clements testimony is several:
15 First of all, they didn't comply with the 2006
16 Order 30197 where the Commission gave express direction that
17 you're supposed to address any changes in curtailment value.
18 Two, they didn't set forth this decrease in an
19 Application.
20 Three, they didn't comply with Rule 121. Even if
21 it was an oversight and they wanted to come back and amend the
22 Application, they had every opportunity to, but Rule 66 says if
23 you want to amend your Application, you need to come to the
24 Commission and get leave or permission. They haven't sought
25 that yet.
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1 And, finally, I guess, and most significant from
2 Monsanto's standpoint, is that the untimeliness and the
3 prejudice is pretty obvious when it gets filed four months
4 after the filing and two months before the testimony is due.
5 So that's really the substance of our argument
6 and the reason we filed our Motion to Strike Mr. Clements'
7 testimony. There's some collateral issues that have been
8 raised by way of the Company's Response, and I think I'LL just
9 go ahead and address them here so that Counsel can address it
10 in his response as he sees fit.
11 First of all -- and I think this is a problem
12 that's been resolved -- but when Mr. Clements filed his
13 testimony and it was immediately posted on the Web site, they
14 violated a Confidentiality Agreement that we have. And as this
15 Commission will recall, we've been very, very protective of the
16 net rate to Monsanto, that it doesn't get posted on the
17 Internet where other people can find out about it, and that's
18 been the case for the last two cases because we found out our
19 primary competitor -- the Chinese -- was able to come back and
20 tell us what our net rate was based upon information they could
21 access through this Commission's site. So, we've been very
22 careful in doing that. Mr. Clements' testimony kind of blew
23 that out of the window.
24 And he also referred to the contracts of MagCorp
25 and Nucor. He didn't refer to them specifically, but he
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1 referred to two other large customers and disclosed some
2 information regarding their rates, and I think that the problem
3 was similar to them.
4 But that's been resolved and the Company's
5 counsel, when I brought it to their attention, they immediately
6 got ahold of the Commission. I think it was pulled off the Web
7 site. So, it's a nonissue at this point, and I only emphasize
8 this not to be complaining but to underscore the importance of
9 recognizing that when you sign a Confidentiality Agreement,
10 it's supposed to have purpose and we should pay attention to
11 it.
12 The second thing that does require comment on
13 that really upset some of the Monsanto folks here is the
14 characterization in the briefing of the Company in response
15 here that there had been negotiations ongoing between the
16 parties. There were no negotiations. There were some
17 discussions only. There was an exchange of information. To
18 the best of my knowledge, what I'm informed, there has never
19 been yet a single offer made by the Company, nor a single offer
20 made by Monsanto.
21 And, in fact, I'm also informed ~- I wasn't
22 present -- I'm told that Mr. Clements began each such
23 discussion with the same comment, and his comment was, We have
24 no offer to make to you, number one. And, number two, I have
25 no authority to make an offer.
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1 So it was pretty clear that -- you know, you
2 would expect to have communications between the Utility and
3 their largest customer and those communications go on all the
4 time at different levels, so we had some discussions here; but
5 characterizing ongoing settlement negotiations, that we in fact
6 knew of this modeling and we knew of this number, is not
7 accurate.
8 If, in fact, you want to characterize these as
9 settlement discussions, that's fine, but if they're settlement
10 discussions, then Idaho Rule of Evidence 408 applies that
11 you're not supposed to be disclosing that information, and they
12 use their brief to go in and say we're into these settlement
13 negotiations and we're discussing this model and we're
14 discussing that model and it should be no surprise. That
15 clearly is undermines the very purpose for Idaho Rules of
16 Evidence 408, which is to encourage parties when they are in
17 disagreement or in litigation to freely and openly discuss
18 opportuni ties to settle without fear that those same
19 discussions would, in turn, show up before the decision-making
20 body. Well, the Company has pretty much ignored that in their
21 filing, and neither is this Commission to ignore those
22 references as well.
23 I would like to say that while Monsanto, as a
24 resul t of all those previous discussions, certainly is not
25 surprised that the Company was going to advocate a lower value,
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1 they were absolutely stunned to see that the lower value is now
2 going to be coming in at less than half of the approved
3 curtailment value in the last case and have the effect of
4 doubling the rate increase that was there before.
5 So, the essence of the discussions was PacifiCorp
6 saying, Monsanto, what do you have and what's your belief the
7 value is?
8 And Monsanto's bottom line, if you will, was the
9 current number, the $ 1 6 million number. And we did share
10 information, said we have information regarding what we believe
11 your avoided capacity costs are, the cost of your peaker plant,
12 the approved QF rate in Utah. We have those values and here
13 they are.
14 So we were assuming that the floor is the
15 Application number, the 16.1 million. We were going to come in
16 and suggest a higher value; which, in fact, we've now done in
17 our testimony.
18 And we fully expect PacifiCorp would say,
19 Monsanto, your number is too high. We think it should be
20 lower.
21 And they have every right to do that on their
22 rebuttal testimony and that's appropriate, we do expect it.
23 What we didn't expect them to do was to open the gates and drop
24 the floor out from underneath us two weeks before our testimony
25 is due.
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1 So, I guess it may sound a little bit tit for
2 tat, and whether this was settlement negotiations or not it's
3 really irrelevant and immaterial in the sense that it doesn't
4 matter whether you have settlement negotiations or not, but it
5 certainly is incumbent upon the Company to set forth in its
6 Application what they're going to try to do to your rates. And
7 in all instances there are typically a settlement discussion
8 going on, but it's a pretty feeble excuse to say, Oh, I'm not
9 going to disclose it and I'll dump it on you later if we can't
10 reach a Settlement Agreement. That's kind of a nonsense
11 position.
12 The only other comment I wanted to address is
13 when does this contract terminate? There's no question the
14 contract terminates the end of this year, but our rates are
15 established by Tariff Schedule 400. And if you look at the
16 contract, Paragraph 2.1 specifically says, quote: After the
17 termination date, PacifiCorp shall continue to provide any
18 electric service to Monsanto as specified in Idaho Electric
19 Service Schedule 400 or its successor then in effect until such
20 time as the Commission establishes or approves other terms and
21 conditions and prices. End quote.
22 So, no one has proposed to change the
23 interruptible hours of 1,050 interruptible hours. Monsanto is
24 still willing to provide that, as our testimony indicates. The
25 Company apparently still desires that and believes it brings
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1 value. This Commission has recognized that it brings value to
2 the system. And so there's no real reason to change that.
3 The Commission simply in this case has got to
4 move forward and determine what is the proper rate for
5 Monsanto's nonfirm power under Schedule 400. We have the nine
6 megawatts of firm that can simply go on the firm schedule -- I
7 think it's Schedule 9 -- and we already have a Tariff
8 Schedule 400 there, and so it's simply incumbent upon this
9 Commission to hear the testimony and evidence and make a
10 decision what's the appropriate nonfirm rate. We've proposed
11 methodologies in our testimony on how to go about it. The
12 Company now has an opportunity to come in and say -- they can
13 rebut it if they feel it's too high. We don't feel they can go
14 and advocate a number lower than the original filing.
15 And I just want to conclude in emphasizing that
16 it's not Monsanto's desire or intent -- I don't think it serves
17 anybody' s purpose, including the Company's -- to delay these
18 proceedings. We have a schedule that is set. We can follow
19 the schedule. The Commission can set Monsanto's nonfirm rate
20 at the same time it establishes everybody else. And we don't
21 see any reason to delay the schedule, amend it, and certainly
22 have no see no interest in bifurcating the proceeding.
23 So, with that, I'll end, and appreciate your
24 patience and stand for any questions.
25 COMMISSIONER SMITH: So I'm trying to figure out
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1 your proposal for us moving forward, which is to hear the
2 testimony that's prefiled and the Company's rebuttal when it's
3 filed, and you believe that that gives us enough information to
4 set Monsanto's nonfirm rate under Schedule 400?
5 MR. BUDGE: Exactly.
6 COMMISSIONER SMITH: But how does that affect the
7 credit you now get for interruptibility?
8 MR. BUDGE: Well, we think that the -- this idea
9 of taking power and allocating costs as if you were a firm
10 customer and then coming back and establishing a credit for the
11 interruptible as if Monsanto were selling back, that first came
12 out in 2003 or 2006. We have never been priced under that
13 methodology. This was a new era that we went into that.
14 As we look at it now, we realize that really is a
15 fiction that does not reflect reality. It is not reality to
16 price Monsanto --
17 COMMISSIONER SMITH: So maybe my question wasn't
18 very clear.
19 MR. BUDGE: Okay.
COMMISSIONER SMITH: So if the Commission looks
21 at your testimony, Staff testimony, Company testimony and
22 rebuttal, and says, okay, nonfirm rate for Monsanto is X, then
23 you pay that?
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MR. BUDGE: Correct.
COMMISSIONER SMITH: And there's no credit for
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1 interruptible?
2 MR. BUDGE: Correct. Just establish a nonfirm
3 rate, and it becomes a new number in Schedule 400. The nine
4 megawatts of firm will be on the firm schedule, and we have a
5 new nonfirm rate under Schedule 400.
6 COMMISSIONER SMITH: And you think there's enough
7 evidence in the record to do that?
8 MR. BUDGE: Absolutely.
9 COMMISSIONER SMITH: Are there any questions from
10 other Commissioners? Commissioner Kempton?
11 COMMISSIONER KEMPTON: I have none.
12 COMMISSIONER SMITH: Commissioner Redford?
13 COMMISSIONER REDFORD: I just have a couple of
14 questions, Mr. Budge, mainly because I just don't know.
15 What is your interpretation of the word
16 "backstop"? I don't quite understand. Is that a term of art
17 or is it it's been used. I just don't know what I'm
18 supposed to get out of it.
19 MR. BUDGE: Well, I don't know if Mr. Clements
20 was a baseball player. I was. And so I always thought the
21 backstop was something that would stop the ball if it went too
22 far.
23 And I think what Mr. Clements was intending to
24 say is, you know, we didn't put in our proposed change to lower
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1 some kind of number before the case goes to hearing; but since
2 we didn't get there, we better put our number in. And so he
3 filed this late testimony in order to say, here's our number.
4 COMMISSIONER REDFORD: Well, you know, I'm kind
5 of my background is in civil litigation mostly. Seems to
6 me would you agree -- that it's kind of like filing an
7 affirmati ve defense two weeks before a trial or raising another
8 issue that hasn't been pled? I'm trying to get
9 MR. BUDGE: I think that's exactly how we would
10 characterize it. It's trying to change the game in the ninth
11 inning.
12 COMMISSIONER REDFORD: Tell me also -- because I
13 don't know again -- what's a "black box settlement"?
14 MR. BUDGE: A "black box" is a term of art that's
15 been used by the Commission and the parties over years where
16 the parties -- the Company may present a particular methodology
17 to establish a rate, and maybe the Intervenors like in this
18 case would establish a different way to establish a rate, and
19 they come to an agreement and compromise, neither accepting the
20 other's methodology, and so the documents state this is a black
21 box settlement in the sense that you know what the final number
22 is -- in this case, you know what Monsanto's net rate is -- but
23 you don't know how the parties got to it.
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So, Monsanto may have had its methodologies. In
this case, it may have been based on a peaker plant or QF rate.
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1 The Company may have had its models that I think basically say
2 price it based on market prices for energy only without any
3 kind of a demand factor in there. So the parties disagree and
4 they are ways apart, and then instead of going to hearing, they
5 agree to a number they can live with which is a bottom line
6 number, and they use that terminology in the document simply to
7 put notice to the Commission and other parties that no specific
8 methodology was agreed to or accepted by either party and it's
9 a black box and all you know is the net number, not how it was
10 arrived at.
11 COMMISSIONER REDFORD: Okay, thank you. I guess
12 I don't have any further questions for you at this time. Thank
13 you.
14 COMMISSIONER SMITH: Thank you, Mr. Budge.
15 Mr. Woodbury.
16 MR. WOODBURY: Thank you, Madam Chair,
17 Commissioner Redford, Commissioner Kempton. This matter is
18 before the Commission to determine how best procedurally to
19 present the issue of the economic valuation of Monsanto's
20 interruptible or curtailment products. In just the exchange
21 between Commissioner Redford and Mr. Budge, Mr. Budge agreed
22 that what has happened here is very similar to introducing a
23 new issue right before the trial, and I think that Staff
24 certainly agrees.
25 Part of my role here today is, as a Staff
20
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1 attorney, to marshal -- and has been through this case -- to
2 marshal the time and effort of the Staff and its witnesses in
3 both presentation of Staff's case for PacifiCorp' s rate case
4 and in cognizance of other demands in time and effort that are
5 also pulling Staff, and we have deferred many investigations
6 and workshops in order to pay attention to the rate case
7 because of its importance.
8 In approving Monsanto's 2007 Service Agreement,
9 the Commission did state: We expect the parties to address
10 interruptible product valuation in the context of a general
11 rate case when Monsanto's cost of service is determined.
12 That was not our recommendation just for the next
13 rate case, but Staff believes it was a requirement for all rate
14 cases, in recognition that we had moved Monsanto from a
15 contract customer to a tariff customer.
16 That opportunity next arose with the Company's
17 2007 rate case filing in June of 2007. Later that month,
18 Monsanto, by letter to PacifiCorp, stated: From a preliminary
19 review, it appears that the Application did not address or
20 attempt to value in any way the Monsanto credit resulting from
21 a number of hours of curtailment options under the special
22 contract. To that extent, the Application appears deficient.
23 On July 3rd, PacifiCorp filed supplemental
24 testimony addressing the valuation of Monsanto's curtailment
25 products. The valuation methodologies presented in that case
21
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1 were front office and GRID.
2 The 2007 case was resolved by way of Stipulation,
3 but as part of that -- the filings, I guess -- it went clear
4 through rebuttal testimony. In the Stipulation Order, the
5 Commission stated: The cost of service methodology proposed by
6 this Company will remain in effect as the accepted methodology
7 through the maximum duration of Monsanto's Service Agreementt
8 which will expire December 31 of 2010.
9 And the Commission made reference to the black
10 box determination that -- acknowledging that no party accepted
11 a specific methodology for setting the curtailment valuation
12 credi t.
13 And those were both Stipulation terms.
14 Staff would argue that in this case, that the
15 PacifiCorp E-10-07, that was the next opportunity to consider
16 both Monsanto's cost of service and the value of its
17 interruptible products. Neither of the parties, Staff
18 believes, really come into this proceeding and into this
19 hearing with clean hands.
20 Staff believes that PacifiCorp notified Monsanto
21 of its intent to terminate the Service Agreement according to
22 contract terms.
23 PacifiCorp, in its May 28th rate case filing, did
24 not address the economic valuation of Monsanto's interruptible
25 products. It's clearly referenced as an adjustment to rates in
22
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1 Tariff 400. This is a repeat of the Company's tactic, I guess,
2 in the prior rate case: Not providing that type of valuation.
3 By way of context, it must be remembered that
4 PacifiCorp argued to move Monsanto from contract to tariff, a
5 proposal that Monsanto resisted for a great many years.
6 PacifiCorp, it seems, now wants to treat Monsanto's
7 interruptible products as a contract purchase. Monsanto
8 insists it's not a contract customer ; it's a tariff customer.
9 For Monsanto's part, it's difficult for Staff to
10 believe that Monsanto was unaware that PacifiCorp believed the
11 interruptible credit should be lower, or that -- or express
12 some sort of unfamiliarity with the front office and GRID
13 models that the Company used to calculate that.
14 Staff contends that introducing Clements'
15 testimony and this subj ect at this late date is prej udicial to
16 Staff and to the parties and to this process. Its filing has
17 already diverted the attention of Staff from what would be
18 normal end game in a general rate case: Rebuttal testimony,
19 preparation of cross-examination, and hearing.
20 Staff recommends that this matter be moved to a
21 separate case docket, not subject to the rate case time line.
22 The Commission has the authority under Idaho Code 61-503 on its
23 own Motion to investigate a rate or practice.
24 Should the matter be left in the rate case, Staff
25 recommends -- counter, I guess, to the recommendation of
23
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1 Monsanto -- that all testimony remain as filed. It does not
2 serve the public interest or contribute to a reasoned Decision
3 to restrict testimony on valuation. We should hear arguments
4 for both an increase and a decrease in the credit amount.
5 PacifiCorp' s filing in this case was four months
6 late. Staff's prepared to split the difference and recommend
7 that all scheduling in the rate case be extended 60 days, and
8 that the extended time be charged against the Company for its
9 failure to file a complete case with its Application.
10 COMMISSIONER SMITH: Thank you, Mr. Woodbury.
11 Do any of the Commissioners have questions for
12 Mr. Woodbury?
13 COMMISSIONER REDFORD: No, not from me.
14 COMMISSIONER KEMPTON: I don't have.
15 COMMISSIONER SMITH: Okay, thank you.
16 I don't either at this point, but we always can
17 come back to him later if something occurs to us.
18 We'll go to Mr. Hickey.
19 MR. HICKEY: Thank you, Madam Chairman,
20 Commissioner Redford, Commissioner Kempton. Thank you for this
21 opportunity to present PacifiCorp and Rocky Mountain Power's
22 strong opposition to the Motions that have been brought before
23 you by Monsanto.
24 I want to just take a minute and without unfair
25 or undue repetition get back into some of the background and
24
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1 history that led to the issues that you have in front of you
2 today, and I think it starts with the fact that your Order did
3 come out in the prior case that approved the current contract.
4 We all had some certainty from that Order about how long the
5 contract would continue and what rules would govern that
6 contract. One of those rules was that the contract had an
7 expiration date, and by that contract and the extension of it,
8 the expiration date is this December 31st.
9 What is clear is there was no surprise to
10 Monsanto that that contract was expiring. Mr. Clements, who
11 wanted to be here today because of the fact that he has been
12 personally involved in all of these discussions, and to be here
13 and to be accountable for what is said in this room to you,
14 Mr. Clements gave notice in March of 2010, well before the
15 contract required notice be given, that at the end of this
16 year, the contract would terminate.
17 Following that March 18th notification of trying
18 to engage Monsanto in the process of establishing a new
19 contract, the parties met in May in Salt Lake City. That was
20 the first of five separate meetings. In each succeeding
21 month -- in June, July, August, and September the parties
22 met in St. Louis at the headquarters of Monsanto to again take
23 up the discussion with the full and known intent of ending with
24 a new contract.
e 25 Now, how much posturing went on between the two
25
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1 parties, who knows? I wasn't in those rooms and I know you're
2 not taking evidence today. What I know and what you know and
3 what Mr. Budge knows is that his client and my client are two
4 sophisticated business entities. They know how to take care of
5 themsel ves; they know how to read contracts; they know how to
6 read Orders of Public Service Commissions; and they know how to
7 bargain. They couldn't get to the point of an Agreement.
8 But what also happened in one of the first
9 meetings that Mr. Clements had with Monsanto is he said that
10 prior to the filing of testimony in support of the valuation
11 methodologies for the curtailment product -- products -- Rocky
12 Mountain Power would hope that the parties could get the
13 contract renegotiated. So rather than polarize or unfairly
14 influence the negotiations by filing litigated positions at the
15 time that the general rate case was filed in May, there were
16 discussions with Monsanto prior to that filing that we're not
17 going to file testimony addressing the valuation issue.
18 This was no surprise. This was no oversight.
19 This was done in hindsight, I guess, that no good deed goes
20 unpunished, but with the full intent that let's not influence
21 these attempts to get the contract negotiated by filing
22 li tigated positions on where we would be if we litigate these
23 things. Let's go forward, always knowing there was a tipping
24 point here of how long can we wait until we bring in the
25 supplemental testimony.
26
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1 That's the answer to why wasn't this testimony
2 filed at the time the Application was filed. It was not an
3 intentional oversight. It was done with the hoped-for
4 consequence that it would allow the parties to get around the
5 renegotiated valuation issues. Didn't happen.
6 Mr. Clements then, and the Company through him,
7 filed its supplemental testimony. There were discussions with
8 the Staff of this Commission at the time that filing was made
9 about whether or not a separate docket or supplemental
10 testimony in this docket would be the better approach, and I
11 understand that at the time that conversation occurred, the
12 perceptions of the Staff were that supplemental testimony would
13 be the better route.
14 So, that kind of sets, I think, from the Company
15 perspecti ve a more balanced presentation of what happened and
16 how did we get here. For Monsanto to tell you that they're
17 surprised by any of these issues, if you wanted to discount
18 everything I said -- which I hope you won't: I say it to you
19 as an officer of the Court, as an officer of this agency who
20 holds himself accountable to what I'm representing to you
21 but if you for any reason discounted my comments, look no
22 further than the testimony filed last week by Brian Collins of
23 Brubaker & Associates on behalf of Monsanto. They get into
24 evaluations of the front office model. They get into
25 evaluations of the GRID model, which, as you all know as
27
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1 Commissioners, is nothing new to the GRID model. It's been
2 li tigated and reli tigated in the six states where PacifiCorp
3 operates probably more than anyone individual component of
4 this whole exercise of setting just and reasonable rates. And,
5 there's even alternative valuation methodologies identified
6 wi thin this testimony.
7 So, we know from the published work of Monsanto
8 that they are fully able, as a sophisticated business with, as
9 Mr. Budge points out, some 58, 59 years of experience of living
10 under contractual arrangements and now moving to tariff
11 relationships with this Utility, that among other things
12 establish values for interruptible products. There is no
13 surprise.
14 Is there a need to listen to the Staff and to
15 listen to the other parties who may wish to engage on these
16 issues? Sure, there is. And I think that's to your comment,
17 Commissioner Redford, of in my past, a pretrial conference
18 hearing, somebody coming in, trying to change the issues and
19 the case on me, I would be upset if I was a party prejudiced in
20 that way and I would be upset if I was the presiding agency.
21 But that's not the case here. The case here is an issue that
22 the parties engaged on it; know this thing inside out, upset
23 down; and are well able to take care of themselves on these
24 issues.
e 25 There isn't a sea change in the issues that I
28
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1 think this agency has to deal with, but there is a fair
2 observation that, gosh, we sure would have rather had this in
3 May than having it in September. And to that end, I think
4 additional time is a fair way to counterbalance the prejudice
5 of getting this in September versus having seen it since May,
6 and to that end we've suggested, as you know from our Response,
7 that the extended filing date be the 10th of November.
8 I think that it's clear from the informal
9 discussions we've had with your Staff that Mr. Clements will
10 come here any time, any day, any way that accommodates the
11 Staff.
12 If there's a need of the Staff to go to Portland
13 and visit with the folks that are most familiar in that office
14 wi th the front office modeling or GRID modeling for that
15 matter, those arrangements can be made. I don't know where
16 your travel budget may be by this time of the year. I'm
17 authorized to tell you that the Company has another offer with
18 help with any of the travel arrangements if that need be done.
19 Hopefully, it won't. And I'm glad to see your indications,
20 Madam Chairman, that it doesn't need to be done.
21 COMMISSIONER SMITH: I'm absolutely horrified of
22 the suggestion. I'll just state that whatever the Commission's
23 budget is, it's adequate to cover necessary Staff travel for
24 purposes of conducting case review.
25 MR. HICKEY: Well, I apologize for bringing that
29
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1 uncomfort to the Commission, and simply want to say,
2 Madam Chairman and Commissioners, that the Company will do
3 anything it can to accommodate the time lines that would allow
4 information to freely flow to your Staff about any of these
5 valuation methodologies.
6 I think that's the only real issue that's in
7 front of you. I think there are several red herring issues,
8 there are posturing issues given the contractual relationship
9 that does expire the end of the year, and I want to briefly
10 address those.
11 This is a complete filing. There isn't anything
12 defecti ve about it. We appreciate your Staff's concurrence in
13 that position. There were new rates proposed under Schedule
14 400.
15 The rates that have been proposed as reflected on
16 the attachment to Mr. Griffith's testimony show that for a firm
17 energy charge under the new proposed rate, it would be 28.49
18 mills per kilowatt hour. The current rate that's being
19 increased is at 23.81 mills per kilowatt hour.
20 The customer charge proposed is $1,468 per
21 billing period. The current -- the current rate under
22 Schedule 400 is $1,227 per billing period.
23 Finally, the firm demand charge proposed is
24 $14.68 per kilowatt. The current Schedule 400 rate is $12.27
25 per kilowatt.
30
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ARGUMENT
-1 So that brings to the question what happens then
2 at the 31st of December, and is there some reasonable
3 interpretation of the contract as Counsel for Monsanto would
4 lead you to believe that would say what happens is you keep the
5 valuations of the interruptible products in play. Those
6 valuations continue and you can't change anything until an
7 Order of this Commission is later entered. That's not the fair
8 and reasonable interpretation of the contract.
9 The contract clearly provides it terminates on
10 the 31st of December of this year. These rates are subject to
11 your review, and what you later determine in the rate case in
12 December and your Order that follows that case will establish
e 13 what the rates for services provided as retail services to
14 Monsanto should be. When the interruptible products contract
15 expires on the 31st of December, the valuation of those
16 products will go to zero, and Monsanto has known that; and
17 rather than accept that, Monsanto wants to say to you, Well,
18 just extend the contract. Give us some way to let Monsanto
19 have an advantage of a continued contract that was never
20 intended to continue.
21 And they have known it wasn't going to continue
22 when they were notified on March 18th of this year, well in
23 advance of the time line required under the Agreement itself,
24 that PacifiCorp was giving notice that the contract was to
e 25 terminate and would terminate absent a renegotiated Agreement.
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ARGUMENT
~1 That's where the parties are at this point. The
2 Application is complete. The case should go forward. There is
3 no prej udice to Monsanto, who can fully engage this Commission
4 on both the models that PacifiCorp has employed in valuing
5 interruptible products, as well as its apparent al ternati ve
6 valuation methodology. Additional time will address any
7 concerns -- which I would say and agree are fair concerns of
8 how the other parties to the case that have not been engaged on
9 these particular valuation issues, additional time will give
10 those parties access to necessary information and the Company
11 will work cooperatively to those ends.
12 Lastly, just a couple of points if I might, Madam
e 13 Chairman and Commissioners, about a couple of other comments
14 that were made suggesting that PacifiCorp had violated the
15 terms of the Confidentiality Agreement and that now that had
16 been righted. That certainly is true, and I appreciate
17 Mr. Budge sharing with you that the Company voluntarily did
18 file redacted supplemental testimony of Mr. Clements.
19 I think it needs to also be said that the
20 Pleading that brought this Motion to you had the same
21 valuations in it, and it's my understanding that redacted
22 Motions were filed by Monsanto to address the same concern that
23 they raised after the filing of the supplemental testimony.
24 And, lastly, we would ask that the Commission go
e 25 forward with the current schedule. The parties are ready to
32
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1 present this case to you the last day of November and
2 continuing into those first days in December. We believe that
3 it's in the public interest of the Commission and to the
4 ratepayers and certainly to the Company to keep this time line
5 in play. And we're prepared to work with the parties to
6 address any discovery issues that they may have regarding the
7 valuation of the interruptible products.
8 Happy to address any questions that any of the
9 Commissioners may have.
10 COMMISSIONER SMITH: Thank you, Mr. Hickey. I do
11 have one:
12 Looking at Electric Service Schedule No. 400, I
13 would like you to clarify then. You listed the current and
14 proposed rates that appear in that tariff, and the tariff has
15 an interruptible demand charge that says it's the firm demand
16 charge minus the interruptible credit.
17 MR. HICKEY: Yes.
18 COMMISSIONER SMITH: So is it your position then
19 that the value of any interruptible credit came from the
20 contract, and that without the contract that number is zero?
21 MR. HICKEY: That is correct, that as of the end
22 of the year when the contract expires, the value of the
23 interruptible credit would be zero.
24 COMMISSIONER SMITH: Okay. So the rates would
25 just be what the rates were proposed or whatever the Commission
33
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1 approves for those rates.
2 MR. HICKEY: That's correct, Madam Chairman.
3 There would be no offset because of the interruptible product.
4 COMMISSIONER SMITH: Are there questions from
5 President Kempton or Commissioner Redford?
6 COMMISSIONER KEMPTON: I have one, Commissioner
7 Smith.
8 COMMISSIONER SMITH: Okay, President Kempton.
9 COMMISSIONER KEMPTON: Mr. Hickey, on the
10 Schedule No. 400, there's a term -- actually, there's several
11 terms, several references that are in under the term section of
12 Schedule 400. So if you will look at the term conditions under
13 that special contract on page 1, one of the things it says, the
14 first thing it points out, is the initial terms through
15 December 31, 2009, and this is obviously on-board with the rate
16 case that followed after this first one in 2006.
17 Then it says Then subj ect to end renewal.
18 Okay, after that, it says Any electric service
19 PacifiCorp provides to the customer after the termination
20 date--
21 And I'm going to stop right there before I go on
22 wi th the shallow part of it.
23 What's your perception of any kind of electricity
24 service that PacifiCorp would provide to the customer after the
25 termination date?
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1 MR. HICKEY: My answer, President Kempton, would
2 be that the services that the Company would provide would be
3 retail tariff services pursuant to Schedule 400.
4 COMMISSIONER KEMPTON: And then going on, it says
5 Those services shall be on terms and conditions that are priced
6 in accordance with the Electric Service Schedule No. 400 or its
7 successor then in effect until such time that the Commission
8 establishes or approves other terms, conditions, and prices.
9 Correct?
10 MR. HICKEY: Yes, that's what it says.
11 COMMISSIONER KEMPTON: Okay. If this had gone
12 ahead under normal negotiations and, in fact, there had been
13 agreement reached, what would have been the function of the
14 Commission in that instance?
15 MR. HICKEY: Would have been to approve the
16 contract as you have historically done and most recently did in
17 2006.
18 COMMISSIONER KEMPTON: And yet the Commission did
19 not directly approve the special contract -- and maybe they
20 did. Let's ask the question.
21 Did we specifically approve in the language of
22 the Order of the Special Contract No. 400 as it was generated
23 out of the black box agreement on the
24 MR. HICKEY: President Kempton, pursuant to the
25 2006 Order that I'm glad to reference it into the record if
35
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1 there is a purpose to it, but it was Order No. 30197, this
2 Commission did specifically act upon and accept the Electric
3 Service Agreement dated November 5, 2007, between Rocky
4 Mountain Power and PacifiCorp and Monsanto.
5 COMMISSIONER KEMPTON: And Monsanto has made the
6 point that this language is more than just taken in terms of
7 how you have addressed it, saying, in fact, as I understand it
8 and believe, this language indicates that the Schedule No. 400
9 would go forward until such time that the Commission
10 establishes or approves other terms and conditions and prices,
11 assuming that the negotiation did, in fact, go forward.
12 MR. HICKEY: I think that's accurate. I think
13 what you've heard, President Kempton, is that there is a
14 fundamental disagreement in the interpretation of the contract
15 between Monsanto and PacifiCorp, and I'm glad to address that,
16 sir, if that's at the heart of your question.
17 COMMISSIONER KEMPTON: That's as close as you can
18 come to it.
19 MR. HICKEY: Sure. Well, I think the fundamental
20 disagreement is the Company believes that you have to read the
21 entire contract, and to put the term Clause 2.1 in the context
22 of the entire Agreement as well as Schedule 400. And when you
23 read the entire Agreement, we believe -- quite strongly, in
24 fact -- that the fundamental intent of the parties was that
25 when the contract ended, the contract would end, and the
36
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1 overall ini tiati ve to move towards a cost-of-service-based rate
2 schedule, the Company acknowledged that it would continue to
3 provide the electric services that it does provide under
4 Schedule 400.
5 And then you look at Schedule 400 and read that
6 language, President Kempton, that makes reference under the
7 interruptible power and energy section of the monthly charge
8 that as it relates to the firm demand charge is going to be
9 offset by the interruptible credit, that that interruptible
10 credit is valued at zero after the end of the year when the
11 contract is expired.
12 So, giving full meaning to the language of the
13 tariff that's referenced wi thin 2.1 and giving full meaning to
14 the entire language in the Agreement, it is our position that
15 at the time the contract expires, the credit will expire as
16 well, and Schedule 400 intended that result.
17 COMMISSIONER KEMPTON: Okay. And Staff has the
18 position that the interruptible credit is not defined in the
19 tariff. Do you agree with that?
20 COMMISSIONER SMITH: His question was Staff seems
21 to have the opinion that the term "interruptible credit" is not
22 defined in the tariff, and do you agree with that?
23 MR. HICKEY: I believe the question posed, if
24 I -- and thank you, Madam Chairman, for rephrasing it, because
25 whether or not the termI was getting some client input here
37
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1 "interruptible credit" is defined in the tariff, and I would
2 agree with that observation of Staff and President Kempton:
3 It's not. But it is very much a defined term wi thin the
4 language of the contract, and I can make reference to that if
5 there's any value to the Commission of having a reference for
6 where it's defined in the contract.
7 COMMISSIONER KEMPTON: That being the case then,
8 when you met with Monsanto on these various dates to discuss
9 what would happen as of the 31st of December, 2010, what kind
10 of discussion could go on if you didn't, in fact, have tangible
11 data that you could discuss?
12 In other words, if you don't have the
13 interruptible credit, it's not defined in part of the tariff,
14 if it's something that was not there during the time that you
15 were having a meeting with Monsanto, how could you reasonably
16 discuss the position of concern to Monsanto during these early
17 meetings that you talked about when you said Monsanto was
18 certainly aware of your intended thought?
19 MR. HICKEY: Well, President Kempton, I think I'd
20 approach your question from this perspective: That being
21 sensi ti ve to the confidential treatment of what the actual
22 valuation of the interruptible products are, I won't say those
23 into the record but I know the three Commissioners, you all
24 have access to those values. And at the time these meetings
25 occurred both in Salt Lake and then the four subsequent
38
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ARGUMENT
e 1 meetings in St. Louis, Monsanto and PacifiCorp certainly knew
2 what the current valuation of the three separate interruptible
3 products was. They came with their differing perspectives of
4 whether that value should go up or down, and obviously Monsanto
5 wanted the value of the interruptible products to go up and
6 PacifiCorp was of the view that because of declining values of
7 energy, that the value of those products had gone down.
8 But beyond that answer you would get to, I think,
9 a fact-finding issue, and Mr. Clements could give you detailed
10 facts of what was discussed and I imagine the gentleman from
11 Monsanto on the phone as well, but I would leave my answer
12 there for you. That's the extent of my knowledge, President
e 13 Kempton.
14 COMMISSIONER KEMPTON: All right, then one last
15 question in conj unction with that, and that is that wouldn't
16 you -- wouldn't you believe that the same issues that are
17 played in the discussions in those early meetings are part and
18 parcel of the same reasons that there couldn't be and was not
19 agreement between Monsanto and Rocky Mountain on the previous
20 rate cases that were resolved without a Commission Decision on
21 it?
22 MR. HICKEY: I'm not sure I have the full focus
23 of your question, but I would say Rocky Mountain Power and
24 PacifiCorp always comes to these interruptible products
e 25 discussions against the backdrop of needing to be indifferent
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1 as to where the resource or the product actually comes from.
2 Whether or not the Company goes to the market to buy additional
3 operating reserve or whether it obtains that same value or
4 resource from an industrial customer such as Monsanto, its
5 ul timate goal is to see that customers are not harmed, because
6 the consequence in setting that power cost if an interruptible
7 product were valued too highly would be to unfairly, in an
8 incremental way, increase the net power cost.
9 COMMISSIONER KEMPTON: And I think your answer is
10 a good answer. You were not a part of any of those
11 negotiations, I don't believe. Isn't that correct?
12 MR. HICKEY: That is true.
13 COMMISSIONER KEMPTON: And so the supposition
14 that I levied there is not something that you can answer
15 directly from your own experience, but nevertheless, having
16 seen how the black box became such an integral part in those
17 last rate cases of 2006, it was clearly a case that no one
18 could agree on the foundations by which those results should
19 come about. It was just simply let's throw this on the table;
20 if we can agree with it, we'll go ahead and get the rate case
21 out on the road.
22 MR. HICKEY: I think that's a fair observation,
23 President Kempton.
24 I would just, from our perspective on behalf of
25 PacifiCorp and Rocky Mountain Power, might add on besides
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1 agreeing with you, sir, would be that I do think that the
2 Brubaker & Associates testimony of Brian Collins does fully
3 document how well understood these issues are by Monsanto.
4 COMMISSIONER KEMPTON: Madam Chairman, I have no
5 further questions.
6 COMMISSIONER SMITH: Commissioner Redford.
7 COMMISSIONER REDFORD: I have no further
8 questions.
9 COMMISSIONER SMITH: I just had one follow-up:
10 After the parties failed to agree on the
11 methodology but were successful in agreeing on a number, that
12 was submitted to the Commission for approval and the Commission
13 did approve the contract and the rate that had been agreed on.
14 Is that correct?
15 MR. HICKEY: It is correct, Madam Chair.
16 COMMISSIONER SMITH: All right.
17 Mr. Budge.
18 Do you need a break, Wendy?
19 COMMISSIONER REDFORD: Can I have a break for
20 just a moment?
21 COMMISSIONER SMITH: We've had a request for a
22 break. Let's break for about seven minutes. We'll come back
23 at 2: 15.
e 25
24 (Recess. )
COMMISSIONER SMITH: All right, I think we're
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e 1 ready.
2 MR. HICKEY: Chair, the break gave me a chance to
3 get better educated by my client in response to President
4 Kempton's question, and in fairness to Mr. Budge, I thought
5 with your indulgence if I may, rather than have him hear this
6 at the end.
7 COMMISSIONER SMITH: Mr. Hickey, my whole goal is
8 to have a good record, so if something needs to be clarified,
9 let's go.
10 MR. HICKEY: President Kempton, this little break
11 gave me a chance to visit with clients that I think really does
12 have gi ve me a chance to give you a more direct answer to
e 13 this interruptible credit language on Schedule 400, and the
14 backdrop of your question, again, as I would set the table, was
15 is the interruptible credit defined in the tariff. And I'm
16 still in agreement with you and your representation of Staff's
17 posi tion that it isn't defined in the credit, but to our
18 response that it is defined in the contract, if you look at
19 page 9 of the contract, it sets the value of the interruptible
20 credit by a specific amount per kilowatt of interruptible power
21 for the years 2007, -8, -9, and -10. And now that we are at
22 the point of the contract expiring and at the point of the end
23 of 2010, there is no value under the contract for interruptible
24 power and the credit associated with it after the year 2010,
e 25 which is why, in our view of reading Schedule 400 and the
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1 contract together, the value of the interruptible credit
2 becomes zero and the retail service rate provided for Monsanto
3 in Schedule 400 would then continue to apply but with no
4 offset.
5 COMMISSIONER KEMPTON: Okay. Madam Chairman, may
6 I respond?
7 COMMISSIONER SMITH: Certainly, President
8 Kempton.
9 COMMISSIONER KEMPTON: So, Mr. Hickey, I, first
10 of all, thank you for the clarification on that: It was a good
11 one.
12 I think what I'm driving at at that point was
13 during the time that there was an indication from Rocky
14 Mountain that 2010 -- the end of 2010 -- would be it and time
15 is getting short and these are implications for reverbalizing
16 for what you had proposed, and that you had meetings with
17 Monsanto but they weren't responsive to those meetings in terms
18 of going ahead with the contract negotiations or the
19 negotiations concerning the contract that would come into play
20 after December 31st of 2010 -- in other words, January 1st,
21 2011 -- so my question is how can they really respond to the
22 question--
23 You indicate that Rocky Mountain Power has been
24 advising them. And if, in fact, along with that you're not
25 giving them some of the information from the technical models
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ARGUMENT
e 1 that you're using that define how you're lowering the
2 interruptibili ty credit part and parcel because of market value
3 on line that you can purchase from and from the decreasing
4 value of the credits that they had in the past, how could
5 anybody move forward in a progressive manner if you don't have
6 that data up front to work with? I mean, now they've got it or
7 they are getting it, and the time limit is so short that it
8 becomes very difficult, I think, personally.
9 MR. HICKEY: I think it's a great question,
10 President Kempton, and I think that for several reasons:
11 If you and I virtually put ourselves at this
12 bargaining table with my client, Mr. Clements, and Mr. Budge's
e 13 client, I'm told one of the first comments that were made at
14 these negotiations were Monsanto is fundamentally changing the
15 nature of its business, fundamentally changing the nature of
16 its business and how it generates phosphorus-based products
17 through these furnace applications in Caribou County. And at
18 the time that they're making that representation, the first
19 thing that needs to be known is how many hours of an
20 interruptible product are going to be available in each of the
21 categories of economic curtailment or of the other under
22 Schedule A, the operating reserves. And until those parameters
23 are set of, here's what we'll offer you, you really don't have
24 anything to value.
e 25 And so the challenges, we call them, you know,
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1 the sage grouse dances that we're going around on each side of
2 the table, were who was going to make the first move here? Was
3 Monsanto going to actually put in play the components of what
4 the products would reflect so that then Rocky Mountain Power
5 could run the models and produce a statement of value
6 associated with that product? And, unfortunately for everybody
7 in the room and everybody on the call, they just never got
8 beyond the sage grouse dance on either side of the table.
9 Now, maybe those of you who were there are
10 bothered by my characterizations of what, from the great
11 distance that I have, I think went on. But that's the problem
12 President Kempton: My client didn't know what it was valuing
13 because it was never told what the components of the product
14 would be, including the hours of interruptibili ty.
15 COMMISSIONER KEMPTON: Okay. Thank you very
16 much.
17 COMMISSIONER SMITH: Anything else?
18 COMMISSIONER REDFORD: No.
19 COMMISSIONER SMITH: Okay. Mr. Budge.
20 MR. BUDGE: Thank you.
21 We wouldn't be here if the Company would have met
22 its obligation under Rule 21 and simply filed for whatever rate
23 change they wanted. It's pretty much a specious argument to
24 say, I'm excused from meeting the Rule because I was hoping
25 there would be some negotiations that might arise to an
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1 Agreement.
2 The fact of the matter is, as far as I know, this
3 is a matter of first impression, that the Company had made a
4 filing without attempting to set forth in detail exactly what
5 they wanted to have with respect to Monsanto's rates and all
6 others; and it's a pretty bad precedent to say that anytime you
7 can go into negotiations, don't bother to reflect the rate
8 increase in the Application. That's the purpose of the Rules.
9 That's the purpose of the Application. There certainly isn't
10 any reason why you can't set forth what they thought Monsanto's
11 credit ought to be, and then we can still go ahead and
12 negotiate as we litigate. That happens every single case, all
13 parties in recent years. An Application gets filed and we
14 enter into some negotiations; most we settle and some we
15 haven't. And so there isn't anything unusual except this time
16 when the Company chose not to say what the rate change is
17 supposed to be.
18 Now, I fully agree with a couple statements that
19 Counsel, Mr. Hickey, made. He said we should go forward with
20 the schedule. Monsanto agrees.
21 He said the Application is complete. We fully
22 agree. The Application is complete, and that's to what we
23 responded and that's what we should go forward on, not a
24 subsequent late-filed amendment without this Commission's
25 approval.
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1 The issue of when the contract terminates from
2 our perspective is a nonissue. I think that we need not be
3 concerned with it for the simple reason that we have a
4 proceeding before us, the schedule has been set, an adequate
5 record has been established, and the Commission simply needs to
6 establish the new nonfirm rate under Schedule 400 before the
7 end of the year like they do with all other rates, and we have
8 no problem.
9 I thought it was of interest on the backdrop of
10 argument that the Applications precede the counsel's discussion
11 of the changes made to Tariff 400. He referenced changes to
12 the firm rate energy charge and demand charge but made no
13 comment regarding the interruptible energy charge, and the
14 reason is -- is that is the heart of the problem. They didn't
15 propose any change in any of the testimony or any of the
16 exhibi ts until Mr. Clements' testimony came along. Had they
17 wanted to do that, they could.
18 The reason the interruptible credit is not set
19 forth -- and Chairman Smith will well remember -- is simply for
20 confidentiality reasons. And in the Commission's filing under
21 seal is the contract with all numbers set forth, and my
22 recollection is that I if my file copy is correct there
23 also should be in that confidential filing this exact Schedule
24 400 that has the numbers in it. And so the Company could have
25 filed and should have filed that with whatever change. I mean,
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1 any change wouldn't be a confidential number; the change would
2 be the new number they propose.
3 I would certainly agree Monsanto was not
4 surprised because of these discussions that the Company was not
5 going to agree with the higher value that Monsanto had proposed
6 for its interruptions. They've asked us, How do you value it?
7 And we provided information concerning what the peaker costs
8 are. They're building new peaker plants, they're building
9 wind, and we provided that information. They have a new QF
10 rate in Utah. I think we provided that information, and that's
11 how we think it should be valued. So we were starting from the
12 existing credit, providing our information why it should be
13 higher. They didn't agree to that. I don't think there was
14 ever even a number exchanged by either party, but that's
15 somewhat immaterial.
16 What the amended testimony does is suddenly drops
17 the floor out from underneath us in the sense that we thought,
18 at most, we were looking at a rate increase of 12.7 and now it
19 turns out to be -- 11. 7 million and now it turns out to be $22
20 million. That's a pretty significant show stopper to show up
21 so late in the game.
22 So -- and, you know, when it comes down to this
23 model, models involve some level of scrutiny by the experts to
24 understand them. The GRID model may not be new, but the front
25 office one is. And when we made a Discovery Request in June,
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1 Have you run the model -- the GRID model or front office
2 model -- to evaluate Monsanto, their answer was an obj ection:
3 We have not done that analysis.
4 So would we not be reasoned in our belief when
5 the May 28th Application said We're not going to change the
6 last credit value approved by the Commission of the black box
7 settlement? We've asked in Discovery Requests Have you run the
8 model to see whether the number would be different? And they
9 said We've not run the model. Then, yes, when Mr. Clements
10 comes along and says Well, I now have run it, and that becomes
11 the basis of my number which drops the credit value from
12 sixteen million six -- fairly dramatic -- that really almost
13 looks, to us, that it's somewhat of a retaliatory type filing
14 that Since you didn't agree to some number, we're going to dump
15 a real load in there, the Commission will show you. But that
16 wouldn't be accurate because there really were no negotiations
17 in the sense of any offers being exchanged between the parties.
18 It was really discussions and the discussions that you would
19 expect customers to have.
20 So the comment regarding the testimony that
21 Monsanto filed, we did file testimony and the thrust of our
22 testimony is to provide information and data to value
23 Monsanto's rates as a nonfirm customer, and the record is
24 sufficient for that. But we recognize that the Commission
25 might choose not to go along with that methodology and they may
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1 choose to say, No, in the last case when we moved you to a
2 tariff customer, we were going to price Monsanto as if it were
3 a firm customer and then we're going to provide a credit as if
4 you were selling back interruptibility.
5 Now, that's a fiction in the sense that we can't
6 sell back power that we've never gotten, but if the Company
7 or, excuse me, if the Commission said, Monsanto, we don't
8 accept going back to establishing a nonfirm rate for the
9 purpose of Schedule 400, we want to utilize the same methods we
10 did in the past -- which Chairman Smith will remember was
11 essentially a disagreement in the sense that the Company said
12 we only want to look at market values and in that case it was
13 the Black --
14 MR. HICKEY: Scholes.
15 MR. BUDGE: -- Black Scholes model -- I kept
16 wanting to say "Black Hole model," but the Black Scholes model
1 7 was a market pricing model versus Monsanto was saying, There
18 should be some capacity value in there, we think it ought to be
19 peaker value; if the Company goes back to that, we provided
20 that in our testimony which was the testimony of Mr. Collins as
21 a backstop, if you will, so if the Commission chooses not to
22 accept our proposal, there is a thorough and adequate record
23 that you could then come up with the value based upon these
24 same methodology principles before.
25 And so Mr. Collins provided testimony that
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1 basically said Here's what PacifiCorp values their -- here's
2 what they build new peaker plants for. Here's what they have
3 agreed to as a QF rate in Utah. If you want to use that same
4 old methodology, you can look at those peaker values and QF
5 values to establish interruptible credit rate. So, that was
6 really the purpose of the Collins testimony.
7 COMMISSIONER SMITH: So, Mr. Budge, I need help.
8 I understand what Mr. Hickey is saying. He said, We proposed a
9 change to these rates in the tariff, the interruptible credit
10 goes to zero because the contract expires, and we gave
11 appropriate notice per the terms of the contract.
12 So I'm trying to figure out where you are, and it
13 seems to me where you are is that the tariff has the rates,
14 including this interruptible credit, in a redacted confidential
15 tariff; and the Company's filing said We want to increase all
16 rates by X.
17 MR. BUDGE: Uh-huh.
18 COMMISSIONER SMITH: So you think X applies to
19 all the rates in 400, including the interruptible credit,
20 because that was on file with the Commission in the
21 confidential tariff. That's your position?
22 MR. BUDGE: Correct.
23 COMMISSIONER SMITH: Okay. And so in your view,
24 the contract expiration has no effect on your rates?
25 MR. BUDGE: Well, I think that the Commission has
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1 to establish this rate by year end
2 COMMISSIONER SMITH: That wasn i t my question.
3 MR. BUDGE: -- under Schedule 400.
4 COMMISSIONER SMITH: My question is, to you, what
5 effect does the expiration of the contract have, the
6 termination of the contract?
7 MR. BUDGE: Well, we think it has no effect
8 because--
9 COMMISSIONER SMITH: That was my question.
10 MR. BUDGE: Okay, and I misunderstood.
11 COMMISSIONER SMITH: Because you think all the
12 rates are in the tariff.
13 MR. BUDGE: Correct.
14 COMMISSIONER SMITH: Did that seem --
15 MR. BUDGE: And the contract itself refers to the
16 tariff. It basically says After the termination
17 COMMISSIONER SMITH: You i re right.
18 MR. BUDGE: -- it will be on Schedule 400, until
19 such time as the Commission establishes or approves other
20 terms, conditions, or prices.
21 So I think the Commission we would expect to look
22 at the Company's filings, look at the Intervenor filings
23 COMMISSIONER SMITH: Okay. And we will.
24 MR. BUDGE: -- and at the end of the day
25 establish what is that new nonfirm rate.
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e 1 COMMISSIONER SMITH: So, given the meetings that
2 you had wherever they were held, do you think your
3 interpretation of what the Company filed is reasonable? I
4 mean, if you're going to meetings where they're saying, We
5 think it's a lot lower, and yet you're thinking they applied
6 this increased percentage to all these tariff provisions
7 including the interruptible credit, to me, I would call that
8 cogni ti ve dissidence.
9 MR. BUDGE: Well, I think, exactly, that's the
10 very purpose of the filing is to say Where is the starting
11 point? And the filing was no change to the credit, which was
12 $16 million.
e 13 And Monsanto when they have these meetings,
14 they're saying -- well, PacifiCorp is saying, Mr. Clements is
15 saying, as I understand it, I'm not here to negotiate, I don't
16 have any authority, but tell us what you think the value would
17 be so we get information.
18 And we're saying, We don't think the value should
19 be $16 million, we think it should be $25 million.
20 And that's the discussion.
21 So, when we were moving forward, we're thinking
22 the area of disagreement is between what -- should the number
23 be higher or not.
24 COMMISSIONER SMITH: But if we don't have the
e 25 contract, we don't even know what product is being soldt do we?
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e 1 We don't know if it's nonspinning reserves or something else,
2 do we? If the contract is gone, then I don't know that this
3 says anything about the number of hours the Company gets to
4 interrupt you and the limitations that the Company expects
5 respecting its necessary ability to conduct business with
6 electrici ty. So, I guess I'm just at a loss as to how you
7 could think that this was the total Agreement without the
8 contract.
9 MR. BUDGE: No, I don't think. I think you have
10 to have both, and the contract is there through year end.
11 And I fully agree that this Commission has to set
12 the contract rate by year end. That's why I disagree with the
e 13 Staff's proposal we have a bifurcated proceeding, because I
14 don't think we can do a bifurcated proceeding and establish a
15 contract rate by December 31st.
16 COMMISSIONER SMITH: But I'm not just worried
17 about the rate. I'm worried about all those other conditions,
18 as I recall, where even more controversial than the number of
19 the rate was how many hours and how many days and all those
20 provisions which are so critical to your client.
21 MR. BUDGE: Well, I think that's clearly before
22 you in the record. The Company's filing made absolutely no
23 change to anything. They did not suggest you change the terms
24 or the hours or anything. They didn't suggest you change the
e 25 rates. So that becomes the basis of their filing to which
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1 Monsanto responds and when we responded and said No, we agree
2 to the same hours, we agree to the same terms, we disagree as
3 to what the rate should be.
4 So there is no disagreement between the parties
5 as to what the nonfirm rate should be based on. It should be
6 based upon the 1,050 hours of curtailment, the same as it
7 exists in the existing contract. And all this Commission needs
8 to do is say, Here is the new rate for the nonfirm power that
9 Monsanto takes. And we provided methodologies in our testimony
10 to enable you to make that decision.
11 And I fully expect the Company to come back and
12 say, Monsanto's rate should be different; here's what we think
13 it should be. And that's fine. That's how the record gets
14 established, as long as they are wi thin the parameters of the
15 original Application.
16 COMMISSIONER SMITH: So if the Commission had a
17 different view of that, I guess I would be interested in your
18 suggestion of how we go forward on the 1st of the year and
19 establish some rate that's probably maybe going to be subject
20 to refund while we sort all this out; because, you know, the
21 Company -- the Utility, if it doesn't charge enough, it can't
22 go back and get more out of you because of the Rule against
23 retroactive ratemaking. So do you have any suggestions with
24 regard to that?
25 MR. BUDGE: Well, if the proceeding was
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1 bifurcated that would be probably the only choice, subject to
2 refund and then go ahead and establish it.
3 The reason that's troubling for us, quite
4 frankly, and Staff's argument that we have a bifurcated
5 proceeding is troubling is for this reason: From 1951 up until
6 the 2003 case, our rates were always established by special
7 contract, never in conjunction with a general rate case, and we
8 liked it that way and we wanted it that way. We got forced in,
9 if you will, unwillingly but we ultimately agreed to it, to go
10 ahead, we'll have our rates put on a tariff and they will be
11 decided the same time as anybody else. So now that we're
12 finally here, it seems real difficult that somebody is saying,
13 Oh, it doesn't work well, we're going to establish your rates
14 in a separate proceeding.
15 And that's difficult to do because you can't
16 unlink the net rate to Monsanto if you separate out the credit.
17 If you take a new approach and say, Monsanto has an inferior
18 product here, we don't receive the same quality of service as
19 anyone else by reason of the interruptibility -- and that's
20 essentially what the Company does with MagCorp -- then we need,
21 as a Commission, to establish a nonfirm rate for Monsanto and
22 forget about this idea of trying to say let's assume that
23 you're a firm customer when you're really not and then let's
24 come up with a credit back for the sales which we really don't
25 do. That was simply a methodology that got employed which we
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1 think today is a fiction and hasn't worked out the way we want.
2 But I think the bottom line is -- is you just
3 need to establish anew, nonfirm rate as the Company has with
4 MagCorp in Utah based on what is the products that are offered.
5 They have never suggested changing the products, we're not
6 suggesting a change in the products, so we just don't see a
7 problem. It doesn't make a lot of sense now that you finally
8 got us to a tariff rate in a general rate case that we don't
9 simply have our rates decided here.
10 COMMISSIONER SMITH: So was your expectation that
11 all the terms that are now in the contract would migrate to a
12 tariff?
13 MR. BUDGE: Correct.
14 COMMISSIONER SMITH: And did the Company propose
15 that tariff when it filed?
16 MR. BUDGE: If they wanted to change --
17 COMMISSIONER SMITH: No, no, Mr. Budge, did the
18 Company file a proposed tariff with its filing that would do
19 what you just said you expect, which is to migrate all the
20 terms of the contract into the tariff?
21 MR. BUDGE: Well, if you look at Tariff
22 Schedule 400
23 COMMISSIONER SMITH: I have, and I don't see the
24 contract terms there.
25 says -- it generally describes theMR. BUDGE:
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1 terms and conditions provided under the contract. So I think
2 that's the opening sentence. I think this tariff was
3 incorporating by reference the contract terms, and if the
4 Company wanted to change those terms, meaning the hours and the
5 type of interruptibili ty, they should have done that in the
6 original filing to which we could have responded.
7 Now, that did happen in the 2003 case. It was
8 contested. The Company was trying to get more hours of
9 interruptibility than Monsanto was willing to provide, so when
10 we saw they wanted more hours, we said, No, we can't go with
11 that many. And so they put on their case with more hours and
12 values and we put on our case with less hours and values, and
13 the Commission decided it. You decided the hours and you
14 decided the value, and I think we're in the same place today.
15 COMMISSIONER SMITH: Commissioner Redford.
16 COMMISSIONER REDFORD: But you are saying you're
17 in the same place today absent the testimony of Mr. Clements?
18 MR. BUDGE: Correct.
19 COMMISSIONER REDFORD: Thank you.
20 COMMISSIONER SMITH: Yes, Mr. Hickey.
21 MR. HICKEY: If I could just take two seconds --
22 COMMISSIONER SMITH: Certainly.
23 MR. HICKEY: -- to respond to the questions that
24 came from the Bench in the last 20 minutes? I think your
25 questions of Mr. Budge really center the case, and I think the
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e 1 case, in essence, is they want to continue a contract that
2 clearly expires.
3 It is clear if you look at this contract that
4 nothing was changed in the filing that was made. There is not
5 a credible argument that the Company was giving notice of any
6 changes in this Agreement. There was no interruptible credit
7 beyond the end of this current calendar year. And because
8 there is no credit in this contract for interruptible products
9 beyond this current calendar year, there is a zero value to
10 that credit at the end of the year and the rates will be those
11 that the Company proposed and that you, as the Commission, may
12 subsequently determine are just and reasonable.
e 13 COMMISSIONER SMITH: Okay. And if I go and look
14 at the Company's filing -- and I think one of our requirements
15 is you provide us with a marked-up tariff -- if I go look at
16 Schedule 400, the marked-up tariff that came with the Company's
17 filing, will there be a zero where it says Minus interruptible
18 credit?
19 MR. HICKEY: No, because the tariff and the
20 contract have to be read together.
21 COMMISSIONER SMITH: Okay. So it's your view
22 that you agree with Mr. Budge that the reference and the
23 purpose incorporates the contract into the tariff, but that
24 upon the expiration of the contract, then that automatically
e 25 makes it zero where it says Interruptible credit.
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1 MR. HICKEY: It's always been our position, Madam
2 Chairman, that the electric service being provided as a retail
3 customer to Monsanto is set forth in the tariff itself, and
4 that the commercial relationship that is also a part of our
5 relationship with Monsanto is to purchase from them the three
6 interruptible products which are defined by contract.
7 COMMISSIONER SMITH: And which you are
8 terminating by your notice given in March?
9 MR. HICKEY: In March, on March 18th, absolutely
10 correct.
11 So we would ask that both the Motion to Dismiss
12 and the Motion to Strike be denied, and that the case go
13 forward under the current schedule with those adjustments that
14 you feel necessary and that the Company is certainly amenable
15 to to accommodate other parties' need of responding to
16 Mr. Clements' testimony.
17 COMMISSIONER SMITH: Any final words, Mr. Budge?
18 MR. BUDGE: No, the only comment I have is if you
19 don't establish a rate under Schedule 400, there is no other
20 rate where Monsanto fits. You do not have an industrial tariff
21 for 182 megawatts. So, I don't think it's so easy to say,
22 Let's have a separate proceeding, we'll put you somewhere;
23 because we'll have to be put somewhere pending the other
24 proceeding.
25 COMMISSIONER SMITH: Anything from any of the
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e 1 other Commissioners? President Kempton?
2 COMMISSIONER KEMPTON: I have nothing.
3 COMMISSIONER SMITH: Mr. Woodbury.
4 MR. WOODBURY: Thank you, Madam Chair. Just to
5 summarize Staff's position, what we're looking for in this
6 process is the ability to participate and provide a value. We
7 believe adequate time is needed. Despite the representations
8 of Monsanto and PacifiCorp, we believe three weeks is
9 insufficient to perform discovery and prepare testimony. We
10 stand by our recommendations regarding the procedure.
11 COMMISSIONER SMITH: Thank you.
12 Do you have anything else?
e 13 COMMISSIONER REDFORD: No, I have nothing
14 further.
15 COMMISSIONER SMITH: Okay. Well, I appreciate
16 the attendance of all the parties today and participation on
17 such short notice. I think that having you here in person and
18 able to answer our questions was beneficial to the Commission.
19 We will get on this and determine the appropriate disposition
20 of the Motions and the appropriate schedule for the
21 continuation of the case as quickly as humanly possible for us.
22 With that, we thank the parties, and we're
23 adj ourned.
24 (The hearing adjourned at 2: 44 p.m.)
e 25
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AUTHENTICATION
4 This is to certify that the foregoing is a
5 true and correct transcript to the best of my ability of the
6 proceedings held in the matter of the Application of PacifiCorp
7 dba Rocky Mountain Power for approval of changes to its
8 Electric Service Schedules, Case No. PAC-E-10-07, commencing on
9 Monday, October 18, 2010, at the Commission Hearing Room, 472
10 West Washington, Boise, Idaho, and the original thereof for the
11 file of the Commission.
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WENDY N tary Public
in and for the t e of Idaho,
residing at Meridian, Idaho.
My Commission expires 2-8-2014.
Idaho CSR No. 475
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AUTHENTICATION