20101222Vol VII Technical Hearing, pp 1290-1511.pdf

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BEFORE THE IDAHO PUBL"rC 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
TECHNICAL HEARING
HEARING BEFORE
i-c:..
c:~':o
1"1'nNN
-0::
N..ui0"
COMMISSIONER MARSHA H. SMITH (Presiding)
COMMISSIONER MACK A. REDFORD
COMMISSIONER JIM D. KEMPTON
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PLACE:Commission Hearing Room
472 West Washington Street
Boise, Idaho
DATE:December 2, 2010
VOLUME VII - Pages 1280 - 1511
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HEDRICK
POST OFFICE BOX 578
BOISE, IDAHO 83701
208-336-9208
COURT REPORTING
s'iI1f tk 4! ßd~ .iíree 19
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1 APPEARANCES
2 For the Staff:
3
4
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6
For PacifiCorp
dba Rocky Mountain Power
(RMP) :
SCOTT WOODBURY, Esq.
and NEIL PRICE, Esq.
Deputy Attorneys General
472 West Washington
Boise, Idaho 83702
HICKEY & EVANS, LLP
by PAUL J. HICKEY, Esq.
Post Office Box 467
Cheyenne, Wyoming 82003
-and-
DANIEL E. SOLANDER, Esq.
ROCKY MOUNTAIN POWER
201 South Main Street, Suite 2300
Salt Lake City, Utah 84111
RACINE, OLSON, NYE, BUDGE
& BAILEY
by RANDALL C. BUDGE, Esq.
Post Office Box 1391
Pocatello, Idaho 83204-1391
RACINE, OLSON, NYE, BUDGE
by ERIC L. OLSEN, Esq.
Post Office Box 1391
Pocatello, Idaho 83204-1391
BENJAMIN J. OTTO, Esq.
IDAHO CONSERVATION LEAGUE
710 North Sixth Street
Boise, Idaho 83702
WILLIAMS BRADBURY, PC
by RONALD L. WILLIAMS, Esq.
1015 West Hays Street
Boise, Idaho 83702
-and-
DAVI SON VAN CLEVE, PC
by MELINDA J. DAVISON, Esq.
333 Southwest Taylor, Suite 400
Portland, Oregon 97204
BRAD M. PURDY, Esq.
Attorney at Law
2019 North Seventeenth Street
Boise, Idaho 83702
7
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For Monsanto:
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14
For Idaho Irrigation
Pumpers Association (IIPA):
15
16 For Idaho Conservation
League (ICL):
17
For PacifiCorp Idaho
Industrial Customers (PIIC):
For Community Action
Partnership Association
of Idaho (CAPAI):
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
APPEARANCES
.1 I N D E X
2
WITNESS EXAMINATION BY PAGE3
C.Craig Paice Mr.Solander (Direct)1280
4 (RMP Prefiled Direct 1283
Prefiled Rebuttal 12915Mr.Williams (Cross)1301
Mr.Purdy (Cross)13076Mr.Otto (Cross)1312
Mr.Budge (Cross)13177Mr.Solander (Redirect)1320
8 William Griffith Mr.Solander (Direct)1321
(RMP)Prefiled Direct 13239Prefiled Rebuttal 1332Commissioner Smith 134310Mr.Otto (Cross)1344
Ms.Davison (Cross)135611Mr.Purdy (Cross)1358
Mr.Price (Cross)137212Mr.Budge (Cross)1378
Commissioner Kempton 1383.13 Commissioner Smith 1384
Mr.Solander (Redirect)138614
James Smith Mr.Budge (Direct)138715(Monsanto)Prefiled Direct 1389
Mr.Woodbury (Cross)141316Mr.Hickey (Cross)1418
Mr.Budge (Redirect)143717
Kevin Lawrence Mr.Budge (Direct)144318(Monsanto)Prefiled Direct 1445
Mr.Woodbury (Cross)145519Mr.Hickey (Cross)1457
20 Dennis Peseau Mr.Budge (Direct)1463(Monsanto)Prefiled Direct 146721Prefiled Rebuttal 1487
Prefiled Surrebuttal 149322Mr.Hickey (Cross)1498
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24.25
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701 INDEX
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1 EXHIBITS
2
NUMBER
For Rocky Mountain Power:
PAGE
3
4
Marked
Marked
Marked
Marked
Marked
Marked
Marked
1357
1420
1507
1317
1425
1440
1303
86 Edison Electric Institute Rankings,
12 pgs5
6 87 Monsanto Data Request 1.24, 2 pgs
7 88 Map, Foundational Project by 2020
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For Monsanto:
9
250 IIPA Data Request 8, 4 pgs
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251 Electric Service Agreement, 45 pgs
11
252 Curtailment Log, 21 pgs
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13 For PacifiCorp Idaho Industrial Customers:
14 623 Stochastic Loss of Load Study, 2 pgs
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16
17
18
19
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
EXHIBITS
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1 BOISE, IDAHO, THURSDAY, DECEMBER 2, 2010, 8:35 A.M.
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4 COMMISSIONER SMITH: All right, we i II go on the
5 record, and I believe that we are ready for the next witness of
6 the Company unless there are preliminary matters to be heard.
7 MR. HICKEY: I don't believe so. Daniel has our
8 next witness. Thank you, Chairman Smith.
9 MR. SOLANDER: Thank you. Rocky Mountain Power
10 calls William Griffith as its next witness.
11 Oh, I'm sorry. Craig Paice would be the next
12 witness.
13 COMMISSIONER REDFORD: Who?
14 MR. SOLANDER: Craig Paice.
15
16 CRAIG PAICE,
17 produced as a witness at the instance of Rocky Mountain Power,
18 being first duly sworn, was examined and testified as follows:
19
20 DIRECT EXAMINATION
21
22 BY MR. SOLANDER:
23 Q.Good morning.
24 A.Good morning.
25 Q.Would you please state your name and spell your
1280
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
PAICE (Di)
RMP
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1 last name for the record?
2 A. Yes. My name is C. Craig Paice.Last name is
3 spelled P-A-I-C-E.
4 And by whom are you employed and in whatQ.
5 capacity?
6 I'm employed by PacifiCorp as a regulatoryA.
7 consul tant.
8 Are you the same Craig Paice that filed directQ.
9 testimony on May 28, 2010, in this proceeding, and prepared
10 Exhibits Nos. 47 through 49?
11 A.Yes.
12 Did you also file rebuttal testimony onQ.
13 November 16, 2010, and prepare Exhibits Nos. 81 through 83?
14 A. Yes.
15 And do you have any corrections or changes toQ.
16 your testimony or exhibits at this time?
17 To my rebuttal testimony, I have two corrections:A.
18 On page 2, line 16, it says: In Case
19 PAC-E-07-05. That should be: 08-07.
20 COMMISSIONER SMITH: Could you do that one more
21 time?
22 THE WITNESS: Page 2, line 16.
23 COMMISSIONER SMITH: Got it.
24 THE WITNESS: And the case number there is
25 should be 08-07.
1281
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
PAICE (Di)
RMP
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1 COMMISSIONER SMITH: Well, mine's on line 18. Am
2 I in the wrong one?
3 MR. LOBB: Rebuttal.
4 THE WITNESS: This is rebuttal.
5 COMMISSIONER SMITH: Okay. That would be my
6 problem. Thank you.
7 BY MR. SOLANDER: Is that the only correctionQ.
8 that you have?
9 No, there i s one other correction: Page 8,A.
10 line 24 and line 25, that should just read "California, Oregon,
11 and Utah"; and "Wyoming" should be stricken.
12 Does that conclude your corrections?Q.
13 Yes, that concludes it.A.
14 Wi th those exceptions, if I were to ask you theQ.
15 questions set forth in your prefiled testimony, would your
16 answers be the same today?
17 A.Yes, they would.
18 I would now move that the prefiled direct andQ.
19 rebuttal testimony of Craig Paice be spread upon the record as
20 if read, and Exhibits 47 through 49, and 81 through 83 be
21 marked for identification.
22 COMMISSIONER SMITH: Without obj ection, it's so
23 ordered.
24 (The following prefiled direct and
25 rebuttal testimony of Mr. Paice is spread upon the record.)
1282
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
PAICE (Di)
RMP
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3 A.
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Please state your name, business address and present position with Rocky
Mountain Power ("Company").
My name is C. Craig Paice. My business addrss is 825 NE Multnoma, Suite
2000, Portand, Oregon 97232, and I âm currently employed as a Regulatory
5 Consultant in the Regulation Deparment.
6 Qualifications
7 Q.
8 A.
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14 Q.
15 A.
Briefly describe your educational and professional background.
I received a Bachelor of Science Degree in Business Management from Brigham
Young University in 1976. I have also attended varous educational, professional
and electrc industr seminars durng my career with the Company. I have been
employed by PacifiCorp since the merger in 1989. Pror to that time, I was
employed by Utah Power & Light Company beginning in 1978 holding varous
positions in the accounting, customer servce, and regulatory areas.
What are your responsibilties?
My prima responsibilties are to prepare, present, and explain the results of the
16 Company's cost of service studies to regulators and interested paries in
17 jursdictions where PacifiCorp provides retail electrc service.
18 Q.
19 A.
Have you appeared as a witness in previous regulatory proceedings?
Yes, I have previously fied testimony. on behalf of the Company in the states of
20 Washington, California, Utah, Oregon, and Wyoming.
21 Purpose of Testimony
22 Q.
23
What is the purpose of your testimony in this proceeding?
A.I wil present Rocky Mountain Power's embedded class cost of service study for
1283 Paice, Di - 1
Rocky Mountai Power
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the state of Idaho based on the twelve month test period ending December 31,
2010.
Cost of Service
Q. Please identify and explain Exhibit No. 47.
A. Exhibit No. 47 provides a summar of the results from the embedded class cost of
service study for Idaho. It is based on the Company's annual results of operations
for the state of Idaho, which are presented in the testimony of Company witness
Mr. Steven R. McDougaL. Page 1 presents the summar of the results at the
Company's rate of return assuming curent rate levels. Page 2 shows the results
using the target rate of retu based on the requested $27.7 milion revenue
increase.
12 Q.Please describe Exhibit No. 48.
13 Exhbit No. 48 is a summ of the cost of service results by rate schedule and byA.
14 function. Page one contains the total cost of service summar by rate schedule
15 and pages two though six contain a summar by rate schedule for each function.
16 Cost of Servce Study Changes
Are there any methodology differences between this cost study and the study
fied with the Idaho Commission in Case No. PAC..E-08-07 (the "2008
general rate case")?
No. On page 5 of Commssion Order No. 30783, the final order from the
Company's 2008 general rate case, the Commssion references the order issued in
Case No. PAC-E-07-05, which states the following regarding cost of service
methodology:
1284
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Rocky Mountain Power
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"The cost of service methodology proposed by the Company in this
proceeding wil remain in effect as the accepted methodology through the
maximum duration of the rate plans for Agrium and Monsanto, which
expire December 31, 2010."
For this reason, no methodology changes have been made to the cost of service
study presented in this case.
Irrigation Load Control Program
8 Q.
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10
11
12 A.
13.14 Q.
15 A.
16
Mr. McDougal explains that the irrgation load control program curtlment
is reflected in the coincident peak loads used in the Jurisdictional Allocation
Model ("JAM"). Is the load control program also recognzed in the customer
class loads employed in the Cost of Service ("COS") study?
Yes. Customer class loads employed in the COS study are calculated using Load
Research sample data and applied to the test period energy.
How are costs associated with the irrigation load control program allocated?
Load control payments are contained in Account 557 and are allocated to
customer classes using factor FI0. This is consistent with previous COS studies.
17 Description of Cost of Service Procedures
18 Q. Please explain how the cost of service study was developed.
19 A. . The COS study utilizes annual results of operations for the state of Idaho
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produced by Mr. McDougaL. The study employs a thee-step process generally
referred to asfunctionalization, classification, and allocation. These thee steps
recognize the way a utilty provides electrcal service and assigns cost
responsibilty to the groups of customers for whom those costs'were incurred.
1285 Paice, Di - 3
Rocky Mountain Power
-1 Q.Please describe functionalization and how it is employed in the cost of service
2 study.
3 A.Functionalization is the process of separating expenses and rate base items
4 according to utilty function. The production function consists of the costs
5 associated with power generation, including coal mining and wholesale sales and
6 purchases. The transmission function includes the costs associated with the high
7 voltage system utilized for the bulk transmission of power from the generation
8 source and interconnected utilties to the load centers. The distrbution function
9 includes the costs associated with all the facilities that are necessar to connect
10 individual customers to the transmission system. This includes distrbution
11 substations, poles and wires, line transformers, service drops, and meters. The.12 retail service function includes the costs of meter reading, biling, collections, and
13 customer service. The miscellaneous function includes costs associated with
14 demand side management, franchise taxes, regulatory expenses, and other
15 miscellaneous expenses.
16 Q.Describe classifcation and explain how the Company uses it in the cost of
17 service study.
18 A.Classification identifies the component of utility service being provided.The
19 Company provides, and customers purchase, service that includes at least thee
20 different components: demand-related, energy-related, and customer-related
21 components. Demand-related costs are incurred by the Company to meet the
22 maximum demand imposed on generating units, transmission lines, and
.23 distribution facilities. Energy-related costs var with the output of a kilowatt-
1286
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Rocky Mountain Power
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hour of electrcity. Customer-related costs are drven by the number of customers
served.
How does the Company determine cost responsibilty between customer
groups?
After the costs have been functionalized and classified, the next step is to allocate
them among the customer classes. This is achieved by the use of allocation
factors that specify each class' shar of a paricular cost drver such as system
peak demand, energy consumed, or number of customers. The appropriate
allocation factor is then applied to the respective cost element to determne each
class' share of cost. A detailed description of the Company's functionalization,
classification and allocation procedures, and the supporting calculations for the
allocation factors are contained in my workpapers, which are attached hereto as
Exhibit No. 49. Also included in the workpapers are the functionalized results of
operations and class cost of service detaiL.
How are generation and trasmission costs apportioned among customer
classes?
Production and transmission plant and non-fuel related expenses are classified as
75 percent demand related and 25 percent energy related. For non-seasonal
resources, the demand-related porton is allocated using the class' 12 monthly
peaks coincident with the Company's system fir peak. Customer class peak
data is derived by extrapolating the load data for each month to the test period
class energy usage. The energy portion is allocated using class MWs adjusted
for losses to generation leveL. For seasonal resources the process is very similar.
1287 Paice, Di - 5
Rocky Mountan Power
-1 The only difference is that prior to summg each class' twelve monthly
2 coincident peaks or monthly energy usage, the monthly values are weighted by
3 the monthly portion of the total annual energy generated or delivered to the
4 Company by the seasonal resource.
5 Q.Are distribution costs determined using the same methodology?
6 A.No. Distrbution costs are classified as either demand related or customer related.
7 In this study only meters and services are considered as customer related with al
8 other costs considered demand related. Distrbution substations and primar lines
9 are allocated using the weighted monthly coincident distribution peaks.
10 Distrbution line transformers and secondary lines are allocated using the
11 weighted non-coincident peak method. Services costs are allocated to secondary.12 voltage delivery customers only. The allocation factor is developed using the
13 installed cost of new services for different types of customers. Meter costs are
14 allocated to all customers. The meter allocation factor is developed using the
15 installed costs of new meterig equipment for different types of customers.
16 ,Q.Pleas explain how customer accounting and customer service expenses are
17 allocated.
18 A.Customer accounting expenses are allocated to classes using weighted customer
19 factors. The weightings reflect the resources required to perform such activities as
20 meter reading, biling, and collections for diferent types of customers. Customer
21 service expenses are allocated on the number of customers in each class.
.
1288 Paice, Di - 6
Rocky Mountain Power
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How are administrative & general expenses, general plant, and intangible
plant allocated by the Company?
Most general plant, intangible plant, and admiistrative and general expenses are
functionalized and allocated to classes based on generation, transmission, and
distribution plant. Costs that have been identified as supporting customer systems
are considered par of the retail services function and have been allocated using
customer factors. Coal mine plant is allocated on the energy factor.
How are costs and revenues assoiated with wholesale contracts and other
electric revenues treated in the cost of service study?
The revenues from wholesale transactions are treated as revenue credits and are
allocated to customer classes using the appropriate allocation factors. Other
electric revenues are also treated as revenue credts. Revenue credits reduce the
revenue requirement that is to be collected from retal customers. The cost of
purchase power contracts are allocated to customer classes using the appropriate
allocation factors increasing the Company's revenue requirment.
16 Work papers
17 Q.
18 A.
19
20
21
22
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Have you included your workpapers?
Yes. My workpapers are included as Exhibit 49. Tab 1 of this exhibit is a
detaled nartive describing the Company's functionalization, classification and
allocation procedures. Tab 2 is the complete functionalized results of operations.
Tab 3 shows the functionalization factors used in this case. Tabs 4 through 5
show the class cost of service detai.
1289 Paice, Di-7
Rocky Mountain Power
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1 Q.
2 A.
Doe this conclude your testimony?
Yes.
1290
Paice, Di - 8
Rocky Mountan Power
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1 Q.Are you the same C. Craig Paice that previously filed direct testimony in thi
2 docket?
3 A. Yes.
4 Purpose and Summary
5 Q.What is the purpose of your rebuttal testimony?
6 A.My rebuttal testimony includes revised exhibits to reflect changes in the Idaho
7 Results of Operations contained in the rebuttal testimony of Company witness Mr.
8 Steven R. McDougaL. Additionally, I respond to the testimony of Idaho Public
9 Utilities Commssion Staff witness Mr. Bryan Lanspery, PacifiCorp Idaho
10 Industral Customers ("PUC") witness Mr. Donald Schoenbeck, and Community
11 Action Parnership Association of Idaho ("CAP AI") witness Ms. Teri Ottens.
12 Updated Exhibits
13 ,Q.Have you prepared any updates to the exhibits filed with your rebuttal
14 testimony?
15 A.Yes. Exhibit No. 81 and Exhibit No. 82 are updates to Exhibit No. 47 and Exhibit
16 No. 48. The revised exhibits reflect changes in the Idaho Results of OperatioIls as
17 presented in Company witness Mr. McDougal's rebuttal testimony.
18 Rebuttal to Direct Testimony of Mr. Bryan Lanspery
19 Cost of Service Support for Residential Customer Increase
20 Q.Why does Mr. Lanspery propose giving residential Schedule 1 and 36
21 customers an equal percentage increase?
22 A.Mr. Lanspery's proposal is based on the belief that the Company's cost of service
23 study does not provide adequate justification for the increase to residential
1291
Paice, Di-Reb - 1
Rocky Mountain Power
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Schedule 36 customers.
Do you agree with his assertion regarding the Company's cost of service
results?
No. I disagree for several reasons. First, Mr. Lanspery's asserton is based on his
review of two data request responses provided by the Company. He does not
provide any detailed analysis to ilustrate why the Company's cost of service
results are inadequate.
Next, he fails to acknowledge that Staff witness Mr. Keith Hessing
supports the Company's cost of service study. Mr. Hessing's reasons for
supporting th cost study are: 1) it employs the same basic methodology used in
the Revised Protocol jursdictional allocation process; and 2) it is the same
methodology accepted by the Commssion in prior general rate case decisions.
Also, Mr. Hessing's cost of service results contained in Staff Exhibit No. 129 are
calculated using the same model and methodology proposed by the Company.
Finally, the Company's cost of service results presented in this case are
consistent with results in the prior general rate case. Incase PAC-E-07-05, cost
of service results showed that Schedule 36 customers needed an increase slightly
more than 1.8 times the increase requied for Schedule 1 customers. Similarly,
cost of service results in this case show Schedule 36 customers needing an
increase of about 1.9 times the increase needed for Schedule 1 customers. This
demonstrates that the Company's cost of service methodology produces a high
level of consistency between cases. For these reasons, I suggest the Commssion
disregard Mr. Lanspery's opinion regarding the Company's cost of service results.
1292 Paice, Di-Reb-2
Rocky Mountain Power
.1 Rebuttal to Direct Testimony of Mr. Donald Schoenbeck
2 Generation and Transmission Cost Allocations
3 Q.Do you agree with Mr. Schoenbeck's proposal to allocate demand-related
4 generation and transmission costs using one winter and one summer monthly
5 system coincident peak (2 CP W/S)?
6 A.No. Mr. Schoenbeck's propose use of a 2 CP method:
7 1)fails to recognize how the Company plans and operates its generation and
8 transmission systems;
9 2)is inconsistent with inter-jurisdictional allocations;
10 3)has the potential to shit customer costs creating rate volatility; and
11 4)violates the principle of gradualism which is generally viewed as an.12 importt consideration in determning class cost causation.
13 In addition, Mr. Schoenbeck provides no significant analysis to support his
14 recommendation.
15 Q.Why does the Company support use of a twelve system coincident peaks (12
16 CP) method for allocating demad-related generation and transmission
17 costs?
18 A.The 12 CP method is preferable for several reasons.First, the Company has
19 historically allocated generation and transmission demand-related costs using the
20 12 CP methodology to reflect the fact that the six-state system is planned and
21 dispatched as an integrated system. This methodology has been used by the
22 Company since the Utah Power - Pacific Power merger in 1989 and continues to.23 be used because it reflects actual integrated system operations. Durng the Multi-
1293
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State Process ("MSP") case PAC-E-02-3 the Company revisited the stress factor
analysis that was employed at the time of the merger to determne if a 12 CP
allocation method is stil the most appropriate method for the Company to use.
The results indicated that all months contrbute to the system peak in some way
and should be included in cost allocation. This allocation issue was raised in the
Company's 2001 case PAC-E-01-16 involving Monsanto's contract rate. Staff
witness Mr. David Schunke endorsed the Company's 12 CP approach stating the
following on page 16 of his diect testimony:
"A 12 CP generation and transmission allocator better
represents the actual system operation. It recognizes
that each of the monthly peaks is of importance."
The 12 CP methodology recognizes that each of the monthly peaks is important
because the Company must plan for and dispatch its resources durng each of the
12 months of the year. Additionally, staff witness Mr. Keith Hessing, stated in his
diect testimony in this case:
"The cost of service methodology presented by the
Company is the same methodology accepted by the
Commssion in recent general rate case decisions."
Second, it is appropriate for allocation methods to be consistent between
inter jursdictional and class costs of service. Again, in Case PAC-E-01-16, staf
witness Mr. Schunke stated the following in his diect testimony on pages 18-19:
"I also believe that the jurisdictional allocation and
the class cost-of-servce allocation should employ
similar methodologies. Costs come to Idaho though
the jurisdictional allocation. It makes sense to be
consistent in the allocation methodology and assign
costs to the customer classes in the same way they are
assigned to the jursdiction."
1294
Paice, Di -Reb - 4
Rocky Mountain Power
.1 The 12 CP methodology is employed in both the class cost of service study and
2 the Jurisdictional Allocation Model ("JAM"), and has been used since its approval
3 in the MSP Case. Finally, Mr. Schoenbeck fails to mention how his
4 recommended methodology would impact customer class revenue requirements.
5 For example, if the Company's cost of service by rate schedule (Exhibit No. 47,
6 Page 2) had been prepared using a 2 CP method instead of the 12 CP method, the
7 residential time-of-day class would need an additional increase of approximately
8 $ 1 millon and the irgation class would need an additional increase of almost $3
9 milion.
10 Distrbution Cost Allocations
11 Q..12
13 A.
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Is Mr. Schoenbeck correct in his understanding of which peak load values
are used to develop distribution cost allocation factors?
No. Mr. Schoenbeck states the following on pages 8 and 9 of his testimony:
"For the generation and transmission demand allocation
factor, it is simply the sum of all twelve monthly coincident
peak values ("12 CP"). For the main distribution demand
alocation factor, the Company stars with the same twelve
monthly coincident class values as used for the generation and
transmission allocation factor." (emphasis added)
While it is tre that the Company uses 12 monthly system coincident peaks to
allocate generation and transmission demand costs, they are not used to allocate
distribution demand-related costs. The Company's cost of service procedures that
accompanied my direct testimony (see Exhibit No. 49, Tab 1, Pages 7-9) clearly
describe the differences between 12 system coincident peaks, 12 distrbution
coincident peaks, and non-coincident peak loads and explains how they are used
to allocate demand related costs in the cost of service study. Specifically, the
1295
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Rocky Mountan Power
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Company develops and employs the following types of peak load values for use
in the cost of service study:
. The 12 system coincident peaks or "12 CP" (each class' contribution to
the 12 monthly peaks coincident with the Company's six-state system
peak) are used to allocate class generation and trnsmission demand costs.
. The 12 distrbution system coincident peaks or "12 DCP" (simultaeous
combined demand of all distribution voltage customers at the hour of the
Idaho distribution system peak weighted by the percent of substations
achieving their annual peak in each month of the year) are used to allocate
substation and prima line costs.
. The maximum non-coincident peaks or "NCP" (maximum monthly class
non-coincident peak) are use to allocate line transformers and secondary
lines.
Mr. Schoenbeck proposes the use of the class single non-coincident pea (1
NCP) method to allocate distribution demand-related costs for substations
and primary poles and conductors. Is thi method appropriate?
No. Mr. Schoenbeck's recommended 1 NCP allocation method is not appropriate
because it ignores the cost causing basis for these facilities, i.e. customers' load
diversity. Load diversity (see cost of service procedures, pages 8-9) recognizes
that individual customer peak demands occur at different times. The Company's
distribution engineers recognize load diversity when they design substations and
primar lines because they size these facilities to meet the simultaeous
distrbution peak load of the connected customers, not the 1 NCP for each
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.1
2
3
4
5 Q.
6
7
8
9 A.
10
11.12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28.29
customer class as Mr. Schoenbeck recommends. As such, the Company's use of a
12 DCP method to allocate substations and primar lines is based on cost
causation because it recognizes the load diversity that customers bring to the
distrbution system.
Do you agree with Mr. Schoenbeck's assertion that the NARUC Electric
Utilty Cost Allocation Manual (NARUC Manual) acknowledges a 1 NCP
method to be "a reasonable - and most often used - alternative" to allocate
substation and primary line costs?
No. On page 97 of the NARUC Manual, the discussion references the selection
of allocators for all demand-related distrbution costs. Specifically, the manual
states:
"Local area loads are the major factors in sizing distrbution
equipment. Consequently, customer-class noncoincident
demands (NCPs) and individual customer maximum
demands are the load characteristics that are normally used
to allocate the demand component of distrbution facilties.
The customer-class load characteristic used to allocate the
demand component of distrbution plant (whether customer
class NCPs or the summation of individual customer maximum
demands) depends on the load diversity that is present at the
equipment to be allocated. The load diversity at distribution
substations and primar feeders is usually high. For this reason,
customer-class peaks are normally used for the allocation of
these facilities." (p. 97)
As previously stated, the Company selected weighted monthly distrbution peaks
for allocating distribution substations and priar lines because load diversity is
recognized when these facilities are designed. In addition, when discussing major
costing methodologies, the NARUC Manual does not imply that a "one-size-fits-
all" approach is indicative of industr practices as evidenced by the following:
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.1 "This maual only discusses the major costing methodologies.
2 It recognizes that no single costing methodology wil be superior
3 to any other, and the choice of methodology wil depend on the
4 unique circumstances of each utilty." (p. 22)
5 Mr. Schoenbeck's reference to the NARUC manual appears to be taen out of
6 context.
7 Q.What are the implications of Mr. Schoenbeck's proposal?
8 A.The test period in this case identifies the sum of the 12 DCP's at input being
9 3,565,097 KW and the sum of the 12 monthly NCP's for all customers at input
10 being 12,547,715 KW. Considering that the sum of non-coincident peaks is more
11 than three and one-half times greater than customer demand at the time of the
12 distrbution system peak, the cost to build substations would be significantly
13 higher if they were designed to serve the undiversified load, or NCPs, of all.14 customers. As explained earlier, substations are built to meet the simultaneous
15 peak load of connected customers. In reference to the Company's methodology,
16 Mr. Schoenbeck asserts on page 14 of his direct testimony that "the distribution
17 demand allocation factor ignores the localized diversity that exists on the
18 Company's distrbution system." In fact, it is Mr. Schoenbeck's proposed 1 NCP
19 methodology that ignores the localized diversity that exists on the Company's
20 distrbution system.
21 Q.Does the Company employ a 12 DCP method to allocate distribution
22 demand-related costs in jurisdictions other than Idaho?
23 A.Yes. This methodology is used by the Company to allocate substations and
24 primar lines in cost of service studies fied in California, Oregon, Utah, and.25 Wyoming.
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.1 Q.
2
3 A.
4
5
6
What are your conclusions regarding Mr. Schoenbeck's allocation
proposals?
I recommend the Commssion reject Mr. Schoenbeck's proposals to 1) allocate
demand related Generation and Transmission costs using 2 CP W/S and 2) to
allocate distrbution substations aIit primar lines using a 1 NCP for reasons cited
above.
7 Irgation Class Loads
8 Q.
9
10 A.
11.12
13
14 Q.
15 A.
16
17
18
19
20
21
.
What does Mr. Schoenbeck propose regarding irrgation class demands used
in the cost of servce study?
Mr. Schoenbeck asserts that irgation class demands used by the Company in the
cost of service study are inappropriate. He proposes using one of two methods to
more appropriately determne the level of curtilment associated with irgation
customers.
Do you agree with Mr. Schoenbeck's proposal?
No. The Company indicated in response to ITPA Data Request 16, provided as
Exhibit No. 83, that the level of curailment for the irgation load control
program was reflected in the historic five year average (2005-2009) actual load
researh sample data for the irgation class. Using either one of Mr.
Schoenbeck's methods to calculate a load adjustment value does not necessarly
provide a more appropriate level of curtailment, his estimation methods are only
different.
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.1 Response to Direct Testimony of Ms. Teri Ottens
2 Customer-Related Costs
3 Q.In her testimony, Ms. Ottens states that she cannot understand how anyone
4 analyzing utilty costs can specify which of those costs are "customer
5 related." Please explain how the Company determines which costs are
6 "customer related" and why they are important.
7 A.The cost of service study procedures fied in my diect testimony, Exhibit No. 83,
8 Tab 1, explains that customer-related costs are diectly related to the number of
9 customers served. These costs include meters, meter reading, meter maintenance,
10 service drops, biling and customer service. Whether a customer tus on their
11 lights or not, the Company must provide customers with access to electricity,.12 accurtely measure electrc consumption, provide a bil, and answer a customer's
13 phone calls. Assigning these costs based upon the number of customers promotes
14 faiess and sends the correct price signaL.
15 Q.Does this conclude your rebuttal testimony?
16 A.Yes, it does.
.
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.
.
.
1 (The following proceedings were had in
2 open hearing.)
3 MR. SOLANDER: Mr. Paice would then be available
4 for examination by the Commission or parties.
5 COMMISSIONER SMITH: Thank you.
6 Mr. Olsen, do you have questions?
7 MR. OLSEN: No questions, Madam Chair.
8 COMMISSIONER SMITH: Mr. Williams or --
9 MR. WILLIAMS: Yes, Madam Chair.
10
11 CROS S - EXAMINAT I ON
12
13 BY MR. WILLIAMS:
14 Q.Mr. Paice, good morning.
15 A.Good morning.
16 Q.In your rebuttal testimony on page 4, line 12,
17 you talk about your 12 coincident peak methodology and you say
18 _ that it recognizes that each month -- month's peak is
19 important, and I want to ask you a couple questions about that
20 statement.
21 Is each month -- is the peak in each month of
22 equal importance or is there a relative order of importance?
23 A.Could you explain what you mean by "relative
24 order of importance"?
25 Q.Well, for instance, is -- do you think a peak
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1 month in either July or January is more important from the
2 resource planning standpoint than a peak that occurs in March
3 or October?
4 A.Well, from the analyses that the Company has done
5 over the years, both following the merger of Utah Power and
6 Pacific Power in 1989 and then in the MSP process, there were
7 stress factor analyses that were prepared by the Company, and
8 those analyses were to determine the importance of the monthly
9 peaks as far as allocation purposes. And it was determined
10 that every month was important because it contributed in some
11 way and was necessary for the Company in the way we plan, we
12 dispatch our system, that we have to meet load in all 12
13 months.
14 Q.But, Mr. Paice, my question wasn i t whether each
15 month was important; it was whether there was a relative order
16 of importance. I agree with you that each month has a peak and
17 each month has to be served, but is one peak more important
18 than another? And the example I gave you was let's just take a
19 summer peak in July. Isn't that when the system peaks?
20 A.Yes, it is.
21 And isn't that more important than a peak inQ.
22 March when loads are relatively flat?
23 That, I suspect, would depend on how you defineA.
24 "important."
25 Well, I'm asking you: Do you think one peak isQ.
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1 more important than the other, or do you think -- is it your
2 posi tion that a peak in March is equally as important as a peak
3 in July?
4 A.Well, I recognize that peaks are different and it
5 would be higher --
6 Q.But, again, my question is do you consider one to
7 be more important than the other?
8 A.No, I don't.
9 Q.You consider a March peak equally important as a
10 winter or summer peak?
11 MR. SOLANDER: Objection, Madam Chair: I believe
12 he's already answered that question.
13 COMMISSIONER SMITH: Sustained.
14 Q.BY MR. WILLIAMS: All right. Do you -- does --
15 are you familiar with your company's loss of load study 2011,
16 and, specifically, 2011 loss of load study that was conducted
17 in conjunction with your integrated resource plan?
18 A.No, I'm not.
19 Q.Okay.
MR. WILLIAMS: Can I hand the witness
21 PacifiCorp' s stochastic loss of load study for the 2007
22 resource plan and have it marked as PacifiCorp Industrial
23 Customer Exhibit 623?
24.25
COMMISSIONER SMITH: Yes, you may.
(PIIC Exhibit No. 623 was marked for
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1 identification. )
2 Q.BY MR. WILLIAMS: Have you ever seen this
3 document?
4 A.No, I have not.
5 Q.Would you turn to -- the second page is page 8 of
6 an II-page document, and this shows -- let's pick the reserve
7 margin of 10 percent. And would you agree that the graph on
8 this page shows that in 2014, the probability of, at a
9 10-percent reserve margin, that the number of hours of load
10 loss would be approximately 12 hours?
11 MR. SOLANDER: Madam Chair, I'm going to object
12 at this point: I don't believe he's laid a foundation that the
13 wi tness has any understanding of this document or is familiar
14 with it.
15 COMMISSIONER SMITH: Mr. Williams.
16 Q.BY MR. WILLIAMS: Well, let's just make an
17 assumption that --
18 COMMISSIONER SMITH: I was asking if you had a
19 response to the obj ection.
MR. WILLIAMS: I'm sorry, Madam Chair. My
21 response is that I believe this witness, if I would explore it
22 a little bit further, has some general information about when
23 the system peaks and when the system would not have sufficient
24 resources to meet in a particular period of time its load
25 obligation. I think that i s what both his direct testimony and
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1 his rebuttal is. So I find it unusual that he has absolutely
2 no knowledge of a loss of load study as part of an integrated
3 resource plan.
4 If that's his testimony that he has no knowledge
5 about this information and is not qualified to speak on a loss
6 of resource study, then so be it, I i II move on.
7 MR. SOLANDER: But that wasn't my objection,
8 Madam Chair. My obj ection was -- is that this document, he's
9 not laid a foundation that this witness is familiar with this
10 document or has an expertise regarding the IRP process, which I
11 believe is what he was referring to.
12 COMMISSIONER SMITH: Mr. Williams.
13 MR. WILLIAMS: Well, first of all, this was a
14 document, like many others, that fed into the integrated
15 resource plan.
16 And I'm not asking him integrated resource plan
17 questions. I'm asking him questions that are actually quite
18 apparent from the table on eight of the loss of load study
19 which I think is his area of expertise, and if he doesn't feel
20 comfortable answering questions about this study that has the
21 PacifiCorp name on it, then lIm willing to let those questions
22 go.
23 COMMISSIONER SMITH: I i m going to overrule the
24 objection, and, Mr. Williams, see if you can get the
25 substantive issues.
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1 MR. WILLIAMS: Sure, and that's what I hope to
2 do. I didn't want to have this that discussion.
3 Q.BY MR. WILLIAMS: So my premise from this table
4 on page 8 is that there are 12 hours of 2014 that this study
5 identifies that PacifiCorp would not have resources to study.
6 My question is in those 12 hours occurring in
7 2014, would those be 12 hours spread across 12 months, or is it
8 more likely that those 12 hours would occur in maybe one or two
9 months? Do you have an opinion on that?
10 A.I don't have an opinion. I have never seen this
11 document before.
12 Q.Okay.
13 A.And I haven i t had a chance to review it, so I
14 wouldn i t have an opinion at the present time.
15 Q.So would you agree that once you have resources
16 to serve a peak -- peak month because you -- well, let me back
17 up.
18 Would you agree that it's more likely that your
19 system would peak in a summer or winter system situation, as
20 opposed to a spring or fall situation?
21 A.Yes, I would.
22 Q.Okay. So if you build resources to serve that
peak, wouldn' t it would you agree that then you would also
24 have resources to serve all other months' peaks?
25 A.That would be a reasonable assumption, yes.
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23
1 MR. WILLIAMS: I have no further questions.
2 COMMISSIONER SMITH: Thank you, Mr. Williams.
3 Mr. Purdy.
4 MR. PURDY: Thank you.
5
6 CROSS-EXAMINATION
7
8 BY MR. PURDY:
9 Q.Mr. Paice, is it fair to characterize your role
10 in this rate case as with respect to rate design specifics of a
11 customer charge as being more of the numbers person, whereas
12 Mr. Griffith was more of a policy person?
13 A.No, that wouldn't be the case. Mr. Griffith can
14 speak to rate design. I just provide or prepare the cost of
15 service analysis which he uses to develop the rate design.
16 Q.So who would be the appropriate witness to ask
17 questions of regarding customer charge, what should go into
18 that from a policy standpoint?
19 A.That would be Mr. Griffith.
Q.Sorry?
A.Mr. Griffith.
Q.Mr. Griffith. All right. Thank you for that.
Though you do rebut Ms. Teri Ottens' testimony,
24 do you not? Specifically, I'm referring to page 10 of your.25 rebuttal testimony.
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1 A.On page 10, I did include a question and answer
2 having to do with what constitutes customer-related cost. This
3 information was not meant to be argumentative or critical of
4 Ms. Ottens' position, because what she stated in her testimony
5 was that she could not understand how anyone analyzing utility
6 cost could specify which of those costs were customer related.
7 This was an attempt to be informational in nature, providing a
8 definition of what constitutes customer-related cost, and
9 provided a few examples of what those costs might be. So, here
10 I provided this information in an attempt to augment her
11 understanding of what customer-related costs are, and hopefully
12 to be helpful in improving her understanding of that.
13 Q.Thank you. That's how I viewed your testimony,
14 as not being argumentative, and neither will my cross be. I
15 did want to ask a question though:
16 You make a statement on -- well, your first
17 statement I'm interested in is on -- begins on page 10, line 7,
18 and you explain that the customer-related costs the Company
19 wishes to include in its basic charge are directly related to
20 the number of customers served. Is that right?
21 A.Yes, it is.
22 Q.So, are you saying that -- and then you go on to
23 testify that that includes meters, meter reading, meter
24 maintenance, service drops, and billing and customer service.
25 Correct?
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i A.Correct.
2 Q.And in -- is it your position that that is the
3 totality of costs that should be included in the Company's
4 basic charge?
5 A.No, I'm not. These were specific items mentioned
6 to provide an example of what those costs might be. It wasn't
7 meant to be the total cost that would be considered customer
8 related.
9 Q.And where can we find those total costs that are
10 included in the Company's proposed basic charge?
11 A.In the -- I believe Mr. Griffith would have that
12 information
13 Q.Okay.
14 A.Excuse me.in relation to the customer
15 charge.
16 Q.Thank you. I will ask him.
17 One final question on line 10 of that same page,
18 10. You state, and I'LL quote: Whether a customer turns on
19 their lights or not, the Company must provide customers with
20 access to electricity. End quote.
21 Getting a little theoretical and abstract here,
22 isn't it fair to say that, really, every cost the Company
23 incurs, that statement can be applied to; and that would
24 include, I mean, virtually everything from power plants to
25 transmission lines? Isn't that right?
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1 A.No, I wouldn't agree with that. In the world of
2 cost analysis, generally we're classifying cost as demand,
3 energy, or customer related. And without a long discussion in
4 regard to the definition of those particular costs, what we're
5 attempting to determine here or to define is what are the
6 dri vers of the cost; specifically, customer-related costs have
7 to do with the things that I did list as far as meters, meter
8 reading, et cetera. And we do have the responsibility in
9 providing electrical service to place those particular
10 facili ties and make those facilities available to the customer
11 regardless of whether or not they use electricity. Those
12 facili ties have to be there. So, they aren't considered to be
13 demand or energy related. They would be considered to be
14 customer related because we're not specifically determining the
15 dri ver of those costs to meet demand or energy.
16 Q.And I think you use the words something like "in
17 the world of the cost analysis," or something along those
18 lines. I guess my point is when we do segregate and categorize
19 costs as customer or demand related, that sort of thing, would
20 you agree with me that there is a fair degree of subj ecti vi ty
21 buil t into that whole process?
22 A.Well, there i s no question there's subjectivity
23 used in cost allocation.
24 Q.All right. And in arriving at what would be, if
25 at all, an appropriate monthly basic charge?
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1 A.There may be some subj ecti vi ty there as far as
2 the individual components that are considered in the
3 development of the customer charge.
4 Q.So the point I'm getting at is sort of the old
5 adage of the camel's nose in the tent: If one were to agree
6 that, well, all right, we can sit down and we can say this is
7 demand related, that's energy, that's something else, at the
8 end of the day when you go to turn the lights on as you
9 testified to here, without a power plant in place, those lights
10 don't come on when you hit the switch. Is that correct?
11 A.That's correct.
12 Q.So is there a danger in just -- in snowballing
13 these monthly basic charges, to continually add more and more
14 and more costs under the premise that, well, these are customer
15 driven or customer-related costs? What's the limit there,
16 theoretically?
17 A.I'm not sure I understand the question.
18 Q.Couldn't you literally throw just about every
19 cost the Company incurs in providing service to its customers
20 into a base -- a basic monthly charge?
21 A.No, I don't believe you could do that.
22 Q.All right.
A.Because we're looking at cost causation or what
24 you're causing the system to incur various costs. That's why
25 we classify costs as either demand, customer, or energy
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1 related. Those that are customer related, we could not
2 directly associate those costs with demand or energy on the
3 system.
4 Q.Well, I'll try to do a better job with
5 Mr. Griffith, but thank you for your cooperation.
6 COMMISSIONER SMITH: Mr. Price.
7 MR. PRICE: No questions.
8 COMMISSIONER SMITH: Mr. Otto.
9 MR. OTTO: I do have a couple of questions.
10
11 CROS S - EXAMINAT I ON
12
13 BY MR. OTTO:
14 Q.Good morning, Mr. Paice.
15 A.Good morning.
16 Q.In your -- your direct testimony included
17 Exhibi t 49, which is your cost of service study results.
18 Correct?
19 A. Correct.
20 Q. And your rebuttal testimony didn't alter that
21 exhibit? I'm sorry, let me rephrase that.
22 When you filed your rebuttal testimony, you
23 didn't necessarily update the numbers -- all of the numbers in
24 that cost of service study?.25 A.Well, what we did, we did update that for the
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1 only change there was the results of operations, and we did
2 prepare an updated cost of service study which we made
3 available electronically.
4 Q.Right, that's correct. I guess what I'm getting
5 at is that well, what I really want to ask you about is the
6 coincident system peaks and kind of relative customer class
7 contribution to those peaks, and you didn't -- you basically
8 use the same methodology; you didn't alter your methodology?
9 A.We didn't alter the methodology, nor did we alter
10 the peak load information.
11 Q.Right. Okay. So I want to turn to Exhibit 49,
12 Tab 5, at page 6 of Tab 5.
13 If anybody needs me to repeat those directions,
14 I'm more than happy to.
15 Do you have that page?
16 A.Yeah, I have it.
17 Q.I want to make sure, let everyone catch up here.
18 Okay.
19 So this page shows the monthly coincident peaks
20 and kind of breaks out for each customer class. Is that
21 correct?
22
23
A.Yes.
Q.Okay. And I want to look at -- now, I don't want
24 to -- we're not going to talk about specific numbers. What I
25 want to look at is just some relative numbers.
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1 So on line 32, the bottom of the page, it looks
2 like January would be the wintertime peak month. Is that
3 correct?
4 A.It would be a month.
5 Q.For the --
6 A.It would be a winter month.
7 Q.Right , it's the winter month.
8 And of the winter months, January is the peak of
9 those months. Is that what this exhibit shows?
10 A. It would show that the highest peak would be, for
11 the winter, would be in January.
12 Q.Right. Okay. And then up on line 5, that's the
13 residential total. And is that also true for residential
14 folks, that in the winter, January is their peak month?
15 A.According to this information, yes.
16 Q.Okay. Now, going back down to line 32, the
17 highest number in that line occurs in June. Is that correct?
18 A.Yes.
19 Q.And that -- so that would be the -- it's both the
20 summertime peak and the overall system peak in Idaho. Is that
21 correct? This is what the exhibit shows?
22 A. Well, you have to remember that these peaks are
23 peaks that are coincident to the system peak; they're not peaks
24 coincident to the Idaho peak. In other words, what we're.25 saying is these peak loads are what are realized for these
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1 customers at the time the PacifiCorp system peaks.
2 Sorry. Let me just get some advice from myQ.
3 expert here, make sure I understand that.
4 Right. I understand your answer. Thank you.
5 So, going back up to line 5, what we see is in
6 June, that the month that residential classes -- that's the
7 second lowest number, in June, for the residential class, and I
8 believe May is the lowest number?
9 May would be the lowest. June would not be theA.
10 second lowest. July is lower than June if we're looking at
11 Residential Schedule 1.
12 Oh, I'm sorry, I was referring to the residentialQ.
13 total.
14 Okay. Then, yes, that's true.A.
15 Okay. And I guess I can just shorten this up,Q.
16 maybe we can cut to the chase here, is that what I wanted to
17 say is that -- or ask you -- is that looking -- because, of
18 course, that's how this works.19 (Laughter. )
20 THE WITNESS: That's good to know.
21 BY MR. OTTO: So looking at line 5, what thisQ.
22 generally shows is that the residential class kind of troughs
23 in the summer and peaks in the winter. Is that correct?
24 According to this information.A.
25 Right. And then going down to line 32, what weQ.
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1 see is essentially a peak in the summer that's above the
2 wintertime?
3 A.However, when you say that the residential class
4 troughs in the summer, I think you need to take a look at --
5 compare July to August, for example; and if you're including
6 August in the summertime, then, you know, I don't necessarily
7 equate that to being a trough here because it is a higher peak
8 than what we have in July or what we have in June, for example.
9 Q.Right. I would agree that there is a dual peak
10 profile to the residential load. You agree with that?
11 A.Yes.
12 Q.Correct. And I guess the only point I was trying
13 to make is that the wintertime peak is higher than the
14 summertime peak for the residential class?
15 A.Yes.
16 Q.Okay. Thank you.
17 MR. OTTO: That's all I have. Thank you very
18 much.
19 COMMISSIONER SMITH: Mr. Budge.
MR. BUDGE: Thank you. Briefly.
21 Could Mr. McDougal (sic) be handed Exhibit 249?
22 This was the Company's Response to Monsanto Data Request 10.1.
23 COMMISSIONER SMITH: Would you like the witness
24 to have it instead of Mr. McDougal?
25 MR. BUDGE: Yes.
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1 (Laughter. )
2 MR. BUDGE: Testified to by Mr. McDougal, yes.
3 And then we also are having marked Monsanto
4 Exhibi t 250, which consists of the Company's Responses to
5 IIPA's Data Request No.8, Monsanto Data Request 7.2, 7.3, and
6 10.4.
7 (Monsanto Exhibit No. 250 was marked for
8 identification. )
9
10 CROSS-EXAMINATION
11
12 BY MR. BUDGE:
13 Q. And take just a moment if you would, please,
14 Mr. Paice, and just refresh your memory, because you're shown
15 to be the sponsor and record holder either solely or with
16 another person on all of those Responses in Exhibit 250.
17 A.Okay.
18 Q.And all of these Data Requests that were
19 submitted over a period of time are trying to get at the issue
20 of why different coincident peaks were used by the Company for
21 purposes of the cost of service study, Exhibit 49, that you
22 sponsored, I believe, and also the JAM study that was testified
23 to by Mr. McDougal. Correct?
24
25
A.Correct.
Q.And if I understand these Responses correctly,
1317
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
PAICE (X)
RMP
.
.
.
1 the coincident peaks used in your cost of service study,
2 Exhibi t 49, were completely different than those used by
3 Mr. McDougal in his JAM study?
4 A.Well, what you have to remember or at least take
5 into consideration here is that we're talking about two
6 different types of peaks. We're talking about jurisdictional
7 peaks and we're talking about class peaks.
8 So, the jurisdictional peaks, which are used in
9 the jurisdiction allocation model or the JAM model by
10 Mr. McDougal --
11 (Telephone sounds.)
12 MR. BUDGE: That's not me.
13 (Laughter. )
14 COMMISSIONER SMITH: Will whoever is listening on
15 the telephone please mute your telephone, because we're getting
16 your noise and, frankly, it's not helping. Thank you.
17 MR. BUDGE: Yeah.
18 THE WITNESS: Remembering where I was.
19 Q.BY MR. BUDGE: Mr. Paice, I appreciate your
20 explanation. I think my question was not -- had not yet gone
21 to an explanation yet. I simply asked for an answer. I think
22 you can answer "yes" or "no."
23 Is it true that the coincident peaks used on your
24 cost of service study are completely different than those used
25 in the JAM study?
1318
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
PAICE (X)
RMP
.
.
.
19
1 A.They are different, because the JAM uses
2 jurisdictional loads; cost of service study uses class loads.
3 Q.And if I understand the answer to a number of
4 questions along that line, it is essentially summed up by the
5 Company's Response to Monsanto Data Request 7.3, which is the
6 third page of Exhibit 250 in front of you. And as I read
7 there, it says Mr. McDougal's testimony was based on proj ected
8 monthly system peaks for 2010. Correct?
9 A.Correct.
10 Q.And your -- your testimony for the cost of
11 service study was based upon 2009 load research data?
12 A.It was based on 2009 data, adjusted to the test
13 year energy.
14 Q. And then if we move to Exhibit 249, I think those
15 prior explanations lead some context to the Company's Response
16 10.1 which I discussed with Mr. McDougal yesterday, and that
17 Response explains that Monsanto's contribution to coincident
18 peak is not identifiable?
A.It is not identified in the jurisdictional peaks
20 that were prepared by Mr. Eelkema -- or, Dr. Eelkema.
21
22
23
24
25
Q.Correct.
MR. BUDGE: No further questions.
COMMISSIONER SMITH: Thank you, Mr. Budge.
Do we have questions from the Commission?
COMMISSIONER REDFORD: No.
1319
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
PAICE (X)
RMP
.
.
1 COMMISSIONER KEMPTON: No.
2 COMMISSIONER SMITH: Nor I.
3 Do you have redirect, Mr. Solander?
4 MR. SOLANDER: One moment, please.
5
6 REDIRECT EXAMINATION
7
8 BY MR. SOLANDER:
9 Q.Mr. Paice, just to follow up on the last question
10 from Mr. Budge, Monsanto's load is included in the class cost
11 of service?
12 A.Yes, it is.
13 Q.And it's identifiable in that study?
14 A.Yes, it is.
15 Q.Thank you.
16 MR. SOLANDER: No further questions.
17 COMMISSIONER SMITH: Thank you for your help,
18 Mr. Paice.
19 MR. SOLANDER: We would call Bill -- William
20 Griffith as our next witness, and could Mr. Paice also be
21 excused?
22 COMMISSIONER SMITH: If there's no objection, we
23 will excuse Mr. Paice.
24 (The witness left the stand.)
.' 25
1320
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
PAICE (Di)
RMP
.
.
.
20
21
22
23
24
25
1 WILLIAM GRIFFITH,
2 produced as a witness at the instance of Rocky Mountain Power,
3 being first duly sworn, was examined and testified as follows:
4
5 DIRECT EXAMINATION
6
7 BY MR. SOLANDER:
8 Q.Good morning.
9 A.Good morning.
10 Q.Would you please state your name and spell your
11 last name for the record?
12 A.My name is William R. Griffith. My last name is
13 spelled G-R-I-F-F-I-T-H.
14 Q. Whom are you employed by and in what capacity?
15 A.I'm employed by PacifiCorp. I am director of
16 pricing, cost of service, and regulatory operations.
17 Q.Are you the same William Griffith that filed
18 direct testimony on May 28, 2010, and prepared Exhibits Nos. 50
19 through 55?
A.Yes,I am.
Q.And did you also file --excuse me --rebuttal
testimony on November 16,2010,and prepare Exhibit No.84 ?
A.Yes,I did.
Q.Do you have any corrections or changes to your
testimony or exhibits at this time?
1321
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
GRIFFITH (Di)
RMP
.
.
18
19
20
21
22
23
24
. 25
1 A.No.
2 Q.If I were to ask you the questions set forth in
3 your prefiled testimony, would your answers be the same
4 today?
5 A.Yes, they would.
6 MR. SOLANDER: I would move that the prefiled
7 direct and rebuttal testimony of William Griffith be spread
8 upon the record as if read, and Exhibits 50 through 55 and
9 Exhibi t 84 be marked for identification.
10 COMMISSIONER SMITH: If there's no objection, the
11 prefiled testimony of Mr. Griffith, both direct and rebuttal,
12 will be spread upon the record as if read, and the exhibits are
13 identified.
14 (The following prefiled direct and
15 rebuttal testimony of Mr. Griffith is spread upon the record.)
16
17
1322
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
GRIFFITH (Di)
RMP
-1 Q.Please state your name, business addres and present position with Rocky
2 Mountain Power ("Company").
3 A.My name is Wiliam R. Griffith. My business address is 825 NE Multnomah Street,
4 Suite 2000, Portland, Oregon 97232. My present position is Director, Prcing, Cost of
5 Service & Regulatory Operations in the Regulation Deparent. .
6 Qualifications
7 Q.Briefly describe your educational and professional background.
8 A.I have a B.A. degree with High Honors and distinction in Political Science and
9 Economics from San Diego State University and an M.A. in Political Science from
10 that same institution; I was subsequently employed on the faculty. I attended the
11 University of Oregon and completed all course work towards a Ph.D. in Poliical.12 Science. I joined the Company in the Rates & Regulation Deparent in December
13 1983. In June 1989, I became Manager, Pricing in the Regulation Deparment. In
14 Februar 2001, I was promoted to my curent position.
15 Q.Have you appeared as a witness in previous regulatory proceeings?
16 A.Yes. I have testified for the Company in regulatory proceedings in Idaho, Utah,
17 Oregon, Wyomig, Washington, and California.
18 Q.What are your responsibilties in this proceeding?
19 A.I am responsible for the Company's proposed rate spread and rate design changes in
20 this case.
21 Proposd Rate Spread
22 Q.Please describe Rocky Mountain Power's proposed rate spread in this cae.
.23 A.The proposed rate spread has been guided by the Company's cost of service study
1323
Griffith, Di - 1
Rocky Mountain Power
-1
2
3
4
5
6
7
8
9
10 Q.
11.12 A.
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27.28
filed in this case.
The Company proposes to allocate the price change to customers in line with
the cost of service results. The only exception to this is for rate schedule classes for
which cost of service results suggest the need for price decreases. For those
customers, the Company proposes to make no change to present rate levels. Durng a
time of rising costs, it is more appropriate to maintain price stabilty for these rate
schedules, and to minimize price impacts on other rate schedule classes requirng
price increases. This wil assure that gradual movement toward full cost of service
responsibilty is maintained for all rate schedule classes.
Please describe the Company's proposal for the allocation of the revenue
requirement.
The overall proposed price increase is 13.7 percent. The Company proposes the
following allocation of the base price increase:
Customer Class
Residential - Schedule 1
Residential -, Schedule 36
General Service
Schedule 23/23A
Schedule 6/6A135/35A
Schedule 9
Schedule 19
Irgation
Schedule 10
Special Contracts
Schedule 400
Schedule 401
Public Street Lighting
Schedules 717A, 11, 12
1324
Proposed Prce Change
8.0%
15.6%
10.8%
14.9%
14.6%
12.0%
9.6%
19.6%
15.9%
0%
Griffith, Di - 2
Rocky Mountain Power
-1 Q.Please describe Exhibit No. 50.
2 A.Exhibit No. 50 shows the estimated effect of the proposed price change by rate
3 schedule for the normized test period. The table displays the present schedule
4 number, the average number of customers during the test year, and the megawatt-
5 hours of energy use in Columns (2) though (4). Revenues by taff schedule are
6 divided into two columns - one for present revenues and one for proposed revenues.
7 Column (5) shows annualized revenues under present base rates. Column (6) shows
8 annualized revenues under proposed base rates. Columns (7) and (8) show the dollar
9 and percentage changes in base rates. Column (9) shows present revenues expressed
10 on an overall average cents per kilowatt-hour basis and column (10) shows proposed
11 revenues expressed on an overall average cents per kilowatt-hour basis..12 Q.Please describe Exhibit Nos. 51 and 52.
13 A.Exhibit No. 51 contains the Company's proposed revised tarffs in this case. Exhibit
14 No. 52 contans the revised tarff sheets in legislative format.
15 Q.Including the effects of the Company's proposal, how have the Company's
16 proposed rates in Idaho changed over time?
17 A.Since 1986, the Company's overall Idaho base rates collected from the rate schedule
18 classes (i.e., standad tarff customers excluding special contracts) have increased
19 only four times, and the overall base rates from these rate schedule classes have
20 increased less than four percent. Including the effects of the increase proposed in ths
21 case, overall base rates for the major rate schedule customers in Idaho wil have
22 increased only 18 percent in the last quarer centu. Over that same 25-year period,
.23 the Consumer Prce Index has increased by over 100 percent. If the Company's
1325 Griffith, Di - 3
Rocky Mountan Power
-1 proposed increase in this case is approved as filed, changes to overall base rates wil
2 have declined on a real basis by over41 percent since 1986--base residential rates
3 wil have declined 40 percent; irgation rates, almost 37 percent; general service
4 rates, 55 percent and large general service rates nearly 52 percent. This clearly
5 demonstrates the Company' s pattern of limiting rate increase requests due to rising
6 costs.
7 Residential Rate Design
8 Q.
9 A.
10
11.12
13
14
15
16
17
18
19
20
21
22
.
Please describe the Company's proposed residential rate design changes.
For residential customers, the Company proposes a two-tiered inverted block pricing
structure for energy use and a $12.00 fixed monthly customer service charge.
Currently, residential customers served on Schedule 1 pay a flat, seasonally
differentiated energy charge applied equally to all kWh. In addition, a monthly
minimum charge can apply.
Under the Company's proposed revisions, seasonal rates wil continue to
apply and two energy blocks wil be implemented in the two biling seasons. The
first energy usage block in each season wil apply to usage for the first 800 kWh per
month. All additional kilowatt-hours wil be biled at the higher second tier price.
The Company chose to termnate the first block at 800 kWh in order to reflect current
average usage on Schedule 1 which is curently 839 kWh per month. As discussed in
more detail later in my testimony, this means that the average Idaho residential
customer on Schedule 1 wil see an increase well below the average increase. Larger
users with more discretionar usage wil see substantially larger increases.
1326 Griffith, Di - 4
Rocky Mountain Power
-1 Q.
2
3 A.
4
5
6
7
8
9
10 Q.
11.12 A.
13
14
15
16
17
18
19
20
21
22
.23
Why is the Company proposing an inverted rate for Residential Schedule 1 at
this time?
The proposed inverted rate design for Residential Schedule 1 is submitted consistent
with the terms of the Stipulation approved by the Commssion in Order No. 30783
regarding the Company's 2008 Idaho General Rate Case (PAC-E-08-07). Term of
Stipulation #10 states, "Rocky Mountain Power agrees that it wil include an inverted
tier rate design proposal or option for residential customers in its next fied general
rate case for the Commssion's consideration." The proposed rate design in this
docket is filed consistent with that agreement.
Please explain the Company's proposed Monthly Customer Service Charge for
Residential Schedule 1.
The Company proposes that the current monthly minimum charge be eliminated and
replaced with a proposed fixed Monthly Customer Service Charge of $12.00. A
Customer Service charge that achieves a high level of recovery of the fixed costs of
serving customers wil more appropriately assure that each customer pays its fai
share of costs and wil allow the Company a better opportnity to recover the fixed
costs of serving customers.
The residential Customer Service charge should recover customer-related
costs defined in Mr. C. Craig Paice's cost of service study including Distribution-
Meter, Distrbution-Service, Distrbution-P&C, Distribution-Transformer, and Retail
costs. These costs do not var with customer usage and are appropriately recovered
though the fixed Monthly Customer Service Charge. Ultimately, the Monthy
Customer Service Charge should recover all residential fixed costs. This wil assure
1327
Grifith, Di - 5
Rocky Mountai Power
-1
2
3
4
5
6
7
8
9 Q.
10
11 A..12
13
14
15
16
17
18
19
20
21
22
.
recovery of fixed costs regardless of usage and wil limit subsidies within the
customer class.
Based on the cost of service results, the inclusion of these fixed costs in the
Monthly Customer Service Charge would result in a rate of approximately $29.86 per
month. Exhibit No. 53 contains this calculation. Even though the cost of service
results could justify a higher Monthly Customer Service Charge than proposed in this
case, the Company is asking for less than that, in order to minimize impacts on smal
usage customers.
How does Rocky. Mountain Power's proposed residential Monthly Customer
Service Charge and proposed rate design compare with other Idaho utilties?
The Company conducted a survey of the Customer Charges of Idao electrc utilties
in May, 2010. The results of the ten utilities surveyed indicated that the average
residential Customer Service Charge was $15.76 per month. The highest customer
charges in the surey were Fall River Electric Cooperative ($36.00/month), Northern
Lights ($25.00/month), and Clearater Electrc Cooperative ($18.00/month). If the
Company's proposed $12.00 Customer Service Charge is approved as filed, Rocky
Mountain Power's proposed Schedule 1 Customer Service Charge.would ran the
four lowest out of eleven utilties in the state.
The Company's proposed residential rate design changes are reasonable.
They are cost-based, the Monthly Customer Service Charge is in line with other Idao
utilties, and an inverted energy charge rate design wil send better price signals to
large users on Schedule 1.
1328
Grifith, Di - 6
Rocky Mountain Power
-1 Company's proposed rates are approved as filed, the average rate for a time of use
2 customer wil be 1.35 cents per kWh lower than the average rate for standad
3 residential Schedule 1 customers.
4 General Service & Irrigation Rate Design
5 Q.Please describe the Company's proposed rate design changes for Schedules 6,
6 6A, and 9.
7 A.Based on the class cost of survey results which show that higher increases are needed
8 for demand charges than for energy charges, the Company proposes slightly greater
9 increases to demand rates than to energy rates.
10 Q.Please describe the Company's proposed rate design changes for Schedule 10.
11 A.Similar to the results for Schedules 6, 6A, and 9, the class cost of service results for.12 Schedule 10 show that higher increases are needed for demand charges than for
13 energy charges. Accordingly, the Company proposes slightly greater increases to
14 demand rates than to energy rates for irgation customers.
15 Q.Please describe the Company's proposed rate design changes for Schedules 19,
16 23, 23A, 400 and 401.
17 A.For customers served on these schedules, the Company proposes a uniform
18 percentage increase to all biling elements.
19 Monthly Biling Comparisons
20 Q.
21 A.
22
.23
Please explain Exhibit No. 54.
Exhibit No. 54 details the customer impacts of the Company's proposed pricing
changes. For each rate schedule, it shows the dollar and percentage change in
monthly bils for varous load and usage levels.
1330
Griffith, Di - 8
Rocky Mountain Power
-
.
.
1
2
3 A.
4
5 Q.
6 A.
Biling Determinants
Q. Please explain Exhibit No. 55.
Exhibit No. 55 details the biling determnants used in preparng the pricing proposals
in this case. It shows biling quantities and prices at present rates and proposed rates.
Does this conclude your testimony?
Yes, it does.
1331
Griffith, Di - 9
Rocky Mountain Power
.1 Q.Please state your name.
2 A.My name is Wiliam R. Griffith.
3 Q.Are you the same Wiliam R.Grith who has testifed previously in this
4 case?
5 A.Yes I am.
6 Q.What is the purpos of your rebuttal testimony?
7 A.The purpose of my rebuttal testimony is to:
16 Q.
17 A.
18
19
20
21
22.23
.
8 . Offer updated proposed rate spread and rate design exhibits that reflect
9 adjustments to the cost of service study to which the Company has agreed.
10 . Address the direct testiony of Mr. Bryan Lanspery of the Idao Public
11 Utilties Commssion staf ("Staff'), Dr. Don C. Reading of the Idao
12 Conservation League ("ICL") and Ms. Teri Ottens of the Community Action
13 Parnership Association of Idao ("CAP Al') concerning residential rate
14 design issues.
15 Updated Rate Spread and Rate Design Exhibits
Please explai Exhibit No. 84.
Exhibit No. 84 contains a revised, proposed rate spread, biling determnants, rate
designs, and monthy bilg comparsons. These reflect the revenue requirement
revisions sponsored by Company witness Mr. Steven R. McDougal.
The proposed rate spread is consistent with the Company's proposal in its
diect case where the Company propose to allocate the price change to customers
in line with the cost of service results. The only exception to ths is for rate
schedule classes for which cost of servce results suggest the need for price
1332
Griffith, Di-Reb - 1
Rocky Mounta Power
.1 decreases. For those customers, the Company proposes to make no change to
2 present rate levels.
3 Q.Please describe the Company's proposal for the allocation of the rebuttal
4 revenue requirement.
5 A.The overall proposed price increase is 12.3 percent. The Company proposes the
6 following. allocation of the base price increase:
7 Customer Class Proposed Prce Change
8 Residential - Schedule 1 7.2%
9 Residential - Schedule 36 14.6%
10 General Service
11 Schedule 23/23A 9.7%
12 Schedule 6/6A135135A 13.3%
13 Schedule 9 12.8%
14 Schedule 19 10.8%
15 Irgation
16 Schedule 10 7.6%.17 Special Contracts
18 Schedule 400 18.2%
19 Schedule 401 14.7%
20 Public Street Lighting
21 Schedules 7/7 A, 11, 12 0%
22 Q.Mr. Lanspery for Staff proposes a uniform percentage rate spred for the
23 combined residential class--stadard residential service Schedule 1 and time
24 of use Schedule 36--rather than the sèparte cost-of-servce-based increaes
25 propos by the Company for Schedule 1 and Schedule 36. Doe the
26 Compan agree with Staffs propo?
27 A.No. The cost of service diferences between Schedule 1 and 36 are consistent
28 with the Company's prior Idao cost of servce analyses using dierent test
29 periods. Those persistent differences should be reflected in the rate spread in ths.30 case.
1333
Grith, Di-Reb - 2
Rocky Mounta Power
.1
2
As Mr. C. Craig Paice points out, in the 2008 general rate case the cost of
service results indicated that the cost of service-based increase for Schedule 36
3 was 1.8 times the increase for Schedule 1. In this curent case, the cost of service
4 results indicate that Schedule 36 requires an increase equal to about 1.9 times the
5 increase necessar for Schedule 1. The differences between Schedule 1 and
6 Schedule 36 have been persistent in these cases, and they should be reflected in
7 the prices that customers pay.
8 We see no reason that Schedule 1 customers whose present average rates
9
10
11
~
are approximately 24 percent higher than Schedule 36 rates should contiue to
subsidize Schedule 36. Even with the Company's proposed cost of service-based
change, Schedule 1 customers wil pay average rates 16 percent higher than.12 Schedule 36.
13 Residential Rate Design
14 Q.
15
16 A.
17
18
19
20
21
22.23
Pleae summarie the Company's residential rate design proposal for
Schedule 1.
The Company proposes replacing the curnt monthly mimum bil and seasonal
flat energy charge residential rate design for Schedule 1 with a two-tiered inverted
block seasonal pricing strctue for energy use and a $12.00 fixed monthly
customer service charge. The Company proposes that the second invert tier
apply to al usage in excess of 800 kWh per month. The Company chose to
termnate the first block at 800 kWh in order to reflect curent average usage on
Schedule 1 which is curntly 839 kWh per month. Under the Company's
proposa, the average Idao residential customer on Schedule 1 would se an
1334
Grifith, Di-Reb - 3
Rocky Mountan Power
.1 increase well below the average increase. Lager users with more discretionar
2 usage would see substatially larger increases.
3 Q.Do parties support the Company's proposal?
4 A.Staff, ICL and CAP AI support an inverted energy charge rate design for
5 residential customers, but they propose a number of modifications to the
6 Company's proposaL. Moreover, Staff and ICL believe that a $5.00 customer
7 charge would be appropriate and that, as indicated by Mr. Lanspery, the
8 Company's propose $12.00 monthly basic charge is "too high". CAPAIopposes
9 fixed monthly charges in their entirety.
10 Q.Does the Company agree with Staff's and ICL's proposd $5.00 customer
11 charge?.12 A.No. A $5.00 customer charge would fall far short of recoverig the fixed costs of
13 serving residential customers. As indicated in my direct testimony, the fixed costs
14 of serving residential customers are over $29 per customer per month. A $5.00
15 per month customer charge would require that $24 per month of fixed costs be
16 recovered though volumetrc energy charges rather than though fixed monthly
17 charges. This would send customers improper price signals, result in a high level
18 of intra-class subsidization, and lessen the abilty of the Company to have the
19 opportnity to recover the fixed costs of serving residential customers.
20 Q.CAPAI oppoes fixed monthly charges and indicates that other PacifCorp
21 "sister companies" have residential cutomer charges "substantialy below
22 the $12.00 propose in Idao." Pleae comment..23 A.Whe the Company has customer charges lower than the proposed $12.00
1335
Grifith, Di-Reb - 4
Rocky Mounta Power
.1
2
3
4
5
6
7
8
9
10
11.12
13
14 Q.
15
16 A.
17
18
19
20
21
22.23
customer charge in some jursdictions, it also has higher customer charges in
others. For example, prior to May 2009 in Wyoming, the Company had a
residential customer charge equal to $10.18 per month along with a flat energy
charge. In May 2009, Rocky Mountain Power implemented a two block inverted
rate along with a $20.00 residential monthly customer charge. Customer
acceptance of the new rate design strctue in Wyoming has been positive, and
the Company now has a fai opportnity to recover the fixed costs of serving its
residential customers. We believe that the Company's Idaho proposal is also
moderate and fai. As indicated in my rebuttal Monthy Biling Comparsons
contained in Exhibit No. 84, Rocky Mountan Power's average Idaho Schedule 1
customers using 839 kWh per month wil see alost no change to their monthly
bils, while low usage customers wil pay a faier shar of the fued costs of
serving them.
Please comment on Staffs and ICL's propoed invertd residential rate
designs.
As indicated above, the Company proposed a seasonally differentiated two block
inverted residential energy charge strctue where the firt block would cover
usage from 0-800 kWh and the second block would cover all addtional monthly
usage. Staf supports retainig the curent seasonal differentiation, but it proposes
that different tiered rate block thesholds apply in diferent seasons- the first
block would be comprised of the firt 700 kWh in the summer and the firt 900
kWh in the winter. ICL proposes a thee block inverted residential rate design
and proposes different energy charge blocks in both the summer and winter
1336
Grifith, Di-Reb - 5
Rocky Mountan Power
.1 months.
2 Q.Does the Company support Staffs proposed seasonally dierentiated
3 inverted tiers?
4 A.No. The Company believes that these seasonally differentiated tiers are
5 unnecessar and wil have little meaningful impact on customer usage. In fact,
6 they may increase customer confusion, paricularly durng the transition from the
7 existing flat rate to an inverted rate. As Mr. Laspery indicates, "Rocky
8 Mountain Power customers in Idaho have not faced anything other than seasonal
9 flat rates since the 1970's, at least." The Company believes that the proper way to
10 implement a trnsition to an inverted rate is to implement a single year round tier
11 with seasonally differentiated prices.It is simpler and more easily understood by.12 customers.
13 Q.Please comment on ICL's proposed seasnally dierentiated three tier
14 inverted rate structure for Schedule 1.
15 A.ICL's proposed rate design gretly increases rate complexity and volatity, and
16 the Company does not support it. ICL proposes thee inverted rate tiers for
17 Schedule 1 in the summer and th diferent inverted rate tiers in the winter. In
18 the summer it proposes the followig blocks: 0-700 kWh, 701- 1 800 kWh, and ~
19 1800 kWh. In the winter it proposes the following blocks: 0-1000 kWh, 1001-
20 3000 kWh, and ~ 3000 kWh. It proposes the same rates in each of the the tiers
21 regardless of season. As a result of ICL's proposal, customer usage for the first
22 700 kWh per month, for example, wil no longer be seasonaly dierentiated.
.23 Ths seasonal change in the propose thee rate tiers wi introduce even
1337
Grifith, Di-Reb - 6
Rocky Mountan Power
.1 more rate complexity than does Staf's proposal, and it wil be confsing to
2 customers. It should be rejected by the Commssion. Again, the Company
3 believes that the proper way to implement a transition to an inverted residential
4 rate design is to implement a single year round tier. This was the Company's
5 proposal in Wyoming as discussed above. This supports the principle of
6 gradualism and can be more easily understood by customers.
7 Q.Does the Company believe that ICL's proposal may produce unintended
8 consequences?
9 A.Yes it may. As the Schedule 1 rate design becomes more complex, customers
10 may simply choose to migrate to lower priced tie-of-use Schedule 36, while
11 makng no change to their usage patterns, in order to avoid the higher third tier.12 prices and rate complexity of Schedule 1, parcularly large Schedule 1 users.
13 Q.Please describe ICL's propos revisions to reidential time-of-use Schedule
14 36.
15 A.ICL proposes to "tu back the clock" on TOU Schedule 36. It proposes to lower
16 the customer charge from its curent level and to eliate the curent seasonal
17 diferential. ICL appears to ignore the fact that Idaho TOU customers have paid a
18 higher customer charge than ICL proposes, and they have paid seasonally
19 diferentiated energy charges for more than twenty years.
20 Q.Doe the Company agre with ICL's propos?
21 A.No. The Company believes that durg a tie of rising costs, ICL's proposal to
22 reduce the curent TOU customer charge is unacceptable. It is not cost-based,.23 does not reflect the curnt cost environment, and sends an incorrect price signal
1338 Grifith, Di-Reb - 7
Rocky Mountan Power
.1
2
3
4
5
6
7
8
9
10 Q.
11 A..12
13
14
15
16 Q.
17 A.
18
19
20
21
22.23
to TOU customers. In addition, the elimnation of the seasonal differential for the
TOU rate, while contiuing to retain seasonality in the Schedule 1 rates, sends
confusing and conflcting signals to residential customers. ICL's proposed lower
customer charge and simpler TOU strctue may enhance Schedule 36's appeal to
customers, paricularly large customers, choosing to avoid the higher prices on
Schedule 1. These customers may benefit from ICL's rate design while makng
no changes to their curnt usage patterns. These improper price signals wil
produce unintended consequences if ICL' s proposed rate designs are
implemented. ICL's proposals should be dismissed by the Commssion.
Has the Company performed any studies of residential rate structures?
Yes. The Company conducted telephone interview sureys of 405 randomly
selected Utah residential customers in September 2007 to assess their
understanding of Rocky Mountai Power's Uta residential rates. The
Company's Utah residential rate includes a thee-tier inverted energy charge
strctue for the months of May though September.
What are the major findings of the study?
The major findings of the study are that most residential customers are unaware of
their electrc rates and usage. As report by the surey respondents, 67 percent
do not know how much energy they use each month, 67 percent do not know
when their biling cycle begins and ends, and 86 percent do not know on average
how may kWh they use in a tyical month. Al of this information, plus
knowledge of the rate blocks and the amount of energy consumed durg the
biling cycle at any given point in tie, is required to effectively receive a price
1339
Griffth, Di-Reb - 8
Rocky Mountain Power
.1 signal under an inverted rate design. When asked their preference, a majority of
2 customers, 54 percent, preferrd a flat rate year round.
3 Q.What were the Company's conclusions from these findings?
4 A.The Company concluded that the residential inverted rate strcture was not
5 understood by customers and was not significantly impacting consumption
6 decisions.
7 Q.What lesson can be learned from this study for Idaho residential rate design?
8 A.The main lesson is that the vast majority of customers have little knowledge of
9 their electrc rate strctue. Becal1se of this, rates should be easily understood and
10 strctual changes to rates should be miimized. Staff s and ICL's proposals to
11 change the rate block strctue twice a year, and ICL's additional proposal to.12 implement a third invertd rate tier, would have little impact on actual customer
13 usage while increasing rate complexity and confusion. The Company believes the
14 transition from the curnt flat Schedule 1 energy charge should move toward a
15 simple, year round two-block inverted rate strctue. This wil assure a smooth
16 transition to an inverted rate design and wil assure that rates are easy to
17 understand for our customers.
18 Q.Doe this conclude your rebuttal testiony?
19 A.Yes.
.
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.
.
1 (The following proceedings were had in
2 open hearing.)
3 Q.BY MR. SOLANDER: Mr. Griffith, were you here
4 today when Mr. Walj e testified?
5 A.Yes, I was.
6 Q.And were there any subj ects that Mr. Walj e
7 deferred to you for comments on or responses on?
8 A.There was one topic that was raised concerning
9 relative rankings of average prices of utilities, and I wanted
10 to add some information to that to clarify the record.
11 Based on the most recent Edison Electric
12 Insti tute survey -- it's a survey done nationally of
13 investor-owned utilities -- Rocky Mountain Power's total
14 average retail rate as of June 30, 2010, was ranked the 154th
15 lowest out of a total of 168 utili ties. The average price was
16 6.21 cents per kilowatt hour.
17 There was a question of Idaho Power, and in that
18 survey Idaho Power's overall average rate was ranked slightly
19 higher, at 141st -- 141st lowest in the country at 6.68 cents
20 per kilowatt hour.
21 To give a little context, the average price in
22 the United States in that survey is 9.84 cents per kilowatt
23 hour.
24 However, if you look at residential, the rankings
25 do reverse slightly. Rocky Mountain Power is ranked 127th
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1 lowest out of 171 utili ties responding in that survey ; its
2 average price was 8.39 cents per kilowatt hour. Idaho Power's
3 was slightly lower; they were ranked 137th lowest in the
4 country at 8.20 cents per kilowatt hour. Both of these rates
5 are well below the national residential average, which is
6 11.74 cents per kilowatt hour.
7 Q.Thank you. And, again, was there also a question
8 regarding the curtailment credit identified on Schedule 400
9 that arose during Mr. McDougal's testimony?
10 A.Yes, I recall there was a question on the
11 curtailment credit. I think it was presented to Mr. Duvall.
12 Q.My mistake.
13 A.And the question was concerning the Company's
14 Tariff Schedule 400, and on that tariff schedule, it clearly
l5 indicates and it's provided as Exhibit No. 52, page 26 in my
16 testimony it clearly indicates towards the bottom that an
17 interruptible credit is applied to Monsanto, which is served
18 under Schedule 400.
19 It's towards the bottom of the page in the
20 bottom, right-hand corner, Tariff Sheet 400.1. It's
21 Exhibit 52, page 26 of 31, and it shows that application at the
22 bottom of the tariff schedule.
23 Q.Okay. And I also wanted to briefly address
24 something that arose during Mr. Paice' s testimony a few minutes
25 ago regarding the customer charge. Is it possible to identify
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1 all of the costs that go into each of the three categories
2 using identifiable categories?
3 A.Yes, I think so.
4 MR. SOLANDER: With that, Mr. Griffith is
5 available for examination by the parties or the Commission.
6 COMMISSIONER SMITH: Thank you very much.
7
8 EXAMINATION
9
10 BY COMMISSIONER SMITH:
11 Q.Since I'm the Chair and I think I brought the
12 issue up, I'll just start with a couple of questions about your
13 EEI study information while they're fresh in my mind. Do you
14 know the year of the data that was used to calculate those
15 averages?
16 A.Yes, it's June 2010. It's the 12 months ending
1 7 June 30, 2010.
18 Q.And does the average of retail rate for Rocky
19 Mountain Power include Monsanto?
A.It includes Monsanto at its tariffed rate, but
21 does not include the application of interruptible credits to
22 that rate.
23
24.25
Q.Okay. All right. Thank you.
COMMISSIONER SMITH: Mr. Otto, do you have
questions?
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1 MR. OTTO: I do have a few questions.
2
3 CROS S - EXAMINAT I ON
4
5 BY MR. OTTO:
6 Q.Good morning, Mr. Griffith.
7 A.Good morning.
8 Q.Sorry, I'm just trying to decide. I know the
9 fixed charge is going to be an issue for several people, so why
10 don't we start there.
11 On your on your rebuttal testimony, page 4,
12 lines 10 through 19, you oppose the $5 -- Staff and ICL
13 proposes a $5 fixed charge, and you oppose that because -- and
14 I'm going to quote and you can tell me if you think this is
15 accurate -- that it would send improper price signals, it would
16 leave a high level of intraclass subsidization --
17 Let me make sure I get this right. I'm sorry, I
18 gave you the wrong line numbers.
We're going to look at lines 17 through 19. You
20 say: Improper price signals results in a high level of
21 intraclass subsidi-subsidization and lessens the ability of
22 the Company to have an opportunity to recover fixed costs of
23 serving residential customers.
24 I want to explore these three points real
25 quickly. You sayan improper price signal. Could you explain
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1 that?
2 A.Yes. I provided in my direct testimony an
3 Exhibit 53 which shows the makeup of a residential customer
4 charge if we applied the cost of service results to reflect the
5 full fixed costs that the residential customer places on the
6 system regardless of usage, and it shows that a monthly
7 customer charge, a fixed cost of $29.86 a month is the amount
8 that a -- that an individual customer places on the system
9 regardless of usage, so that a proposed -- the proposed $5
10 customer charge is a far ways away from the $29.86 fixed cost.
11 And so that would mean that small customers are
12 not paying their fair share of the fixed cost of serving
13 customers. We haven't proposed that the full $29 be applied on
14 the bill, so we still reflect some level of subsidization
15 across the residential class, but we believe that $5 is well
16 below a fair amount, particularly given that the current
17 minimum bill in Idaho is $10.18.
18 Q.Thank you. I want to turn on your rebuttal
19 testimony, Exhibit 84, and page 13 of Exhibit 84, and these are
20 monthly billing comparisons for residential service, number
21 one?
22 A.Yes.
23 Q.And this shows the percent change. And what
24 we're seeing is that the lowest users are going to see the
25 biggest increase in price under the Company's proposal. Is
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1 that a correct interpretation of this data, of this page?
2 A.No.
3 Q.And what would be the correct interpretation?
4 A.Well, actually, the largest users will see the
5 largest dollar increase in this rate design, and that's shown
6 under the --
7 The table shows two ways to measure change: One
8 is a dollar change and one is a percentage change. So, it is
9 true that we would see a customer who is using 300 kilowatt
10 hours would see a 23 percent change at $7.65 per month. A
11 large user using 5,000 kilowatt hours would see a $67 change,
12 but that's 12 percent a month. So, in terms of dollar impacts,
13 the large users are seeing the largest increases.
14 Q.Correct. But turning to the percentage and I
15 think that's what most people would focus on -- how much is my
16 individual bill going up? And I think what the percentage
17 shows and you can correct me if my interpretation is
18 wrong but I think what the percentage shows is that for
19 low-income -- excuse me, for low-usage customers, those folks'
20 bills are going to go up more as a change, not in broad dollar
21 numbers but as a change from before?
22 A.And I think that they're seeing a larger
23 percentage change, and I think that reflects -- what we're
24 trying to do here is to try to make a transition from the
25 current rate structure which is a flat energy charge that's
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1 seasonally differentiated in the summer and the winter that has
2 a minimum bill. So there's no customer charge today to a rate
3 structure that is more appropriate for the current cost
4 environment where you have both fixed and variable cost being
5 reflected in the customer's monthly bill, and so there is a
6 transition here for small customers.
7 We made the same type of transition in Wyoming
8 when we implemented a $20 customer charge there along with an
9 inverted rate, and we believe that these two together are the
10 appropriate steps to take going forward for a residential rate
11 design, and it does -- we do reflect that it has a dollar
12 impact. We don't believe that that is that substantial,
13 particularly given that many small users are seasonal homes,
14 vacation homes, and a number of these probably aren't paying
15 their fair share of fixed costs anyway, and so that it's a time
16 to make this move.
17 Q.Thanks. I want to move to the -- I think we have
18 covered the first two reasons and I want to move to the third,
19 which is that the $5 fixed charge will lessen the ability to
20 earn your -- earn your expenses back, I guess is a poor way to
21 summarize. Is that a fair characterization?
22 I guess we could turn to the actual language.
23 A.Yeah. What a $5 customer charge means is that
24 the Company is more dependent on volumetric sales to recover
25 its fixed costs than a $12 customer charge would result in.
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1 That's a fixed amount per month that the Company is able to
2 recover in fixed cost recovery, and with a $5 customer charge,
3 we would be more encouraged to encourage energy sales in order
4 to recover our fixed costs because we're recovering a large
5 portion of the fixed costs through the volumetric energy sales.
6 Q.And this volatility or risk of recovery has been
7 around for, excuse me, several years, as you think that the
8 more fixed charges have been involved in volumetric rates?
9 That's been several years that that's been true. Is that
10 correct?
11 A.Well, it's been true, but it's exacerbated with
12 an inverted rate because the highest charge is in the highest
13 usage block, and so you're encouraged to you need to make
14 more sales in the highest usage block in order to recover more
15 of the fixed cost than you are, for example, with a flat
16 rate.
17 Q.Okay. And I guess the last question on this
18 specific topic is I know you're not the rate of return expert,
19 but is it your understanding that the rate of return and the
20 return on equity captures these kind of risks? I mean, that's
21 the point of having a high or setting the appropriate rate of
22 return: To capture risks of volatility?
23 A. It's to capture some risks, but I've never seen a
24 rate of return modified to reflect changes in rate design.
25 Q.Thank you for that. I'm going to move on to
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1 well, I guess I have one more question about the fixed charge:
2 On page your rebuttal testimony, page 4,
3 lines 23, and on page 5, lines 1 and 2, you state that a $12
4 charge is lower than some states; that PacifiCorp as a
5 six-system -- six-state system serves and is higher than
6 others, and you cite to Wyoming.
7 Are there other states that are higher than $12?
8 A.No.
9 Q.Thank you. And are you familiar with the fixed
10 charge in the other six states?
11 A.Yes, I am. I'm responsible for all six states.
12 Q.All right. And so, for example, what's -- do you
13 know the fixed charge in Washington?
14 A.It's currently $ 6, and the Company proposed to
15 increase it to $ 9.
16 Q.And has that been resolved yet or is that an
17 ongoing case?
18 A.No, we have hearings in January.
19 Q.And I know that you just finished a rate case in
20 Utah. Is that correct?
21
22
23
A.Yes.
Q.In June, I think?
And in that case, you presented basically the
24 same arguments for a higher fixed charge. Is that correct?.25 A.We've presented consistent arguments everywhere.
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1 It's what we feel is the right approach.
2 Q.And what did the Utah result -- what was the
3 resul t of the Utah case?
4 A.The customer charge is $3. 75 a month. The rate
5 design is flat during the winter months, and is an inverted
6 during the five summer months.
7 Q.Okay, thank you for that. Now I want to turn
8 just to a few questions about the inverted, the volumetric
9 section of the rate charge.
10 So on pages of your rebuttal testimony, page 6,
11 lines on 9 through 12, you explain that it's better to have
12 essentially equal blocks with seasonal rates because this is
13 less confusing than Staff or ICL' s proposal to have -- well,
14 let's just go to ICL' s proposal.
15 MR. SOLANDER: I'm going to object to the form of
16 the question: There's no need to reiterate Mr. Griffith's
17 testimony before asking the question.
18 MR. OTTO: Fair enough.
19 COMMISSIONER SMITH: Mr. Otto, thank you.
20 Q.BY MR. OTTO: Rocky Mountain Power, your proposal
21 is to have equal blocks of seasonal rates. ICL' s proposal is
22 to have equal rates with seasonal blocks.
23 Could you articulate why ICL' s is more confusing
24 than Rocky Mountain Power's?
25 A.Well, first, we have fewer blocks.
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1 And maybe one point to make here is that there is
2 no party here that disagrees that we should implement some type
3 of an inverted rate structure; it's really how that rate
4 structure be designed.
5 The current rates in Idaho do have seasonal rates
6 that are different in the summer and the winter, and so we're
7 proposing to keep different rates in the summer and the winter,
8 but to have an inverted rate structure underlying that. So we
9 think in terms of a transition from where we are today, which
10 is an energy charge that's flat in the summer and flat in the
11 winter, that we will overlay on that type of structure an
12 inverted rate.
13 What ICL does is it doesn i t implement seasonal
14 rates anymore, it implements a seasonal structure, so two
15 things have changed: The structure is now inverted and the
16 seasonal rates are now -- are now gone, and, in fact, for under
17 700 kilowatt hours a month, ICL' s proposal has no seasonal
18 differentiation between the summer and winter.
19 So I think it's simpler just to overlay the
20 structure but maintain the seasonal differentiation in rates.
21 We also believe that a two-block rate structure
22 is -- you make any kind of transition from a flat rate that
23 customers have paid for since -- for a long time to an inverted
24 rate, it's best to do these in gradual steps and gradualism is
25 important, and that our approach, we believe, gets the ball
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1 rolling on an inverted rate without creating a lot of customer
2 confusion.
3 Q.Right. So the reason for seasonal rates is to --
4 is cost based. Is that correct?
5 A.Yes, it's cost based, and it's then the way the
6 rates have been designed here in Idaho for years.
7 Q.And what we heard from Mr. Paice and I guess I'd
8 ask you if you would agree with that is that the residential
9 class peaks in the winter and has a smaller -- it does peak in
10 the summer, but it's much smaller than the winter peak. Is
11 that correct?
12 A.That might be true for the residential class, but
13 for Idaho in total and for the Company's system, we peak in the
14 summer, and so -- and as we know here in Idaho, we've had
15 summer rates that have been higher than winter rates for the
16 residential class, and that's to help to manage the summer peak
17 which benefits all customers.
18 Q.I'd agree with that, and I'd say that the -- so I
19 guess I'LL just ask to clarify that the system does peak in the
20 summer, but in general, the residential class troughs in the
21 summer?
22 A.Well, we're looking at one year, one test period,
23 and this was 2009 actual data. I'm not sure that's true every
24 year, but in -- for that one test period, that's what the data
25 that Mr. Paice had showed.
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1 But still I think that each class -- it's
2 important that -- to manage the overall system peak which keeps
3 costs low for all customers, and that -- and that we have had
4 summer rates that are higher than winter rates for residential
5 and makes sense to continue that.
6 Q.Do you think it's important to consider the
7 relati ve contributions of the residential class to each
8 each -- to the peak when you're designing the rate?
9 A.Sure, but I think there are a lot of factors in
10 designing rates, and one of them are the continuity and not --
11 keeping changes gradual and again helping to manage total costs
12 on the system, which again benefits all customers.
13 I wouldn't take one year's result and change the
14 summer/winter differential, for example, given that I think it
15 does provide a number of benefits that we have a higher rate
16 for residential customers in the summer to help manage our
17 system, and also for the electric heat customers in the winter,
18 they have a lower rate as a result as they heat their homes
19 with electricity.
20 Q.So you've mentioned several times that this is
21 one year of data. Is it your position that this is an
22 anomalous year?
23 A.No, I don't believe it's an anomalous year, but I
24 believe that changing a long-standing policy or rate design, we
25 need to be careful and be gradual on how we've done that.
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1 Q.Finally, what are the two largest states that
2 in of the six-state system in terms of number of
3 customers?
4 A.Those are Utah and Oregon.
5 Q.And what is the residential rate design in -- for
6 Schedule 1 or kind of tiered -- tiered customers in those two
7 states?
8 A.Well, in Utah, our largest state, as I've
9 mentioned, we have a flat energy charge in the seven months of
10 winter and we have an inverted rate in the five months of
11 summer. I provided in my rebuttal testimony some information
12 on the customers' response to the inverted rate in Utah, which
13 showed that most customers were not aware of it and did not
14 respond to changes in the rate design.
15 In Oregon, we have an inverted rate which has
16 three blocks and it's a year-round, nonseasonal rate. It's
17 blocked at 500, 1,000 -- 500 and 1,000 kilowatt hours.
18 Q.And how many tiers are in the Utah rate in the
19 summer?
20 A.The Utah summer rate has three tiers: Zero to
21 400, 400 to 600, and -- zero to 400, 400 to 1,000, and over
22 1,000.
23 Q.So to summarize, in your two largest states, the
24 residential class is exposed to a three-tier rate?.25 A.In some months of the year.
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1 Q.In some months of the year. In your opinion, do
2 you think that gives the Company some experience in
3 communicating three tiers to their customers?
4 A.Well, the Company has a lot of experience in
5 communicating two tiers to its customers. That's what we have
6 in California and that's what we have in Washington, so -- and,
7 again, as I indicated, I didn't believe in Utah that the
8 three-block inverted rate was particularly helpful in us being
9 able to manage our system peak, because what we've seen is that
10 customers are not aware of this rate design and do not seem to
11 respond to it.
12 Q.Thank you for that. I have just one -- I want to
13 go back to the fixed charge and just ask you one last question
14 on that, and then I'll be done here.
15 And on page 6 of your rebuttal testimony, lines
16 11 through 18, you compare the $12 proposal to ten Idaho
1 7 utilities.
18 A.I'm sorry, where is that again?
19 Q.I'm sorry, it's page 6 of your rebuttal
20 testimony. It's lines 11 through 18.
21 I'm sorry, of your direct. I apologize for that.
22 Your direct testimony, page 6, lines 11 through 18.
23 A.Yes.
24 Q.Can you explain why the Company chose to compare
25 their fixed charge to the municipals or co-ops and not the
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21
22
23
1 investor-owned utilities in Idaho?
2 A.We compared our customer charge to, as I
3 indicated here, ten utilities, which were both investor-owned
4 utili ties and co-ops. And what this showed is that I just laid
5 out what the highest customer charge amounts were just to give
6 a range of a maximum, but we also compared -- in our
7 comparison, we included Avista and Idaho Power also. I can
8 gi ve you the names of all of the utili ties that are on that
9 comparison if you would like.
10 Q.Well, I don't think that's necessary, but I would
11 ask you -- my count is that there's 11 cooperatives and three
12 utili ties, for a total of 14 utili ties in Idaho. Can you
13 explain why you chose ten?
14 A.We chose those that had customer charges.
15 Q.Fair enough. Thank you very much.
16 COMMISSIONER SMITH: Mr. Olsen.
17 MR. OLSEN: No questions, Madam Chair.
18 COMMISSIONER SMITH: Mr. Williams or
19 Ms. Davison.
MS. DAVISON: Madam Chair, thank you.
CROSS-EXAMINATION
24 BY MS. DAVISON:
25 Q.Mr. Griffith, earlier this morning you were
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21
1 testifying about the EEI survey and you provided some data for
2 the Commission on how Rocky Mountain Power ranks on the EEI
3 survey. Is that a survey that you included as an exhibit to
4 any of your testimony?
5 A.No, I did not.
6 Q.And has that survey been produced in discovery?
7 A.I'm not sure. We've produced it in some states;
8 I don't know if we've produced it in Idaho. I have a copy here
9 and we can provide it if parties would like.
10 Q.Yes, Mr. Griffith, that was the point of my
11 question is that I would like to see that survey. I would say
12 that I haven't seen it produced in this particular proceeding.
13 COMMISSIONER SMITH: So, Mr. Solander, could the
14 Company provide that as an exhibit, please?
15 MR. SOLANDER: We can. Would you like us to
16 introduce it now? We could
17 COMMISSIONER SMITH: Let's give ita number so we
18 don't -- we'll give it a number so we don't lose track of it.
19 I think it would be No. 86.
MR. SOLANDER: That would be my count.
COMMISSIONER SMITH: All right. Thank you.
22 (Rocky Mountain Power Exhibit No. 86 was
23 marked for identification.)
24
25
MS. DAVISON: And, Madam Chair, I don't have any
questions on that, so we don't need to interrupt the hearing
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1 for purposes of producing that. I just wanted to see that, for
2 the record.
3 Q.BY MS. DAVISON: I did have one last question for
4 Mr. Griffith, which is do you know how Rocky Mountain Power
5 ranks if you include investor-owned utilities along with
6 publicly-owned utili ties on the same basis that you testified
7 earlier this morning?
8 A.No, I don't.
9 Q.Thank you.
10 COMMISSIONER SMITH: Mr. Purdy.
11 MR. PURDY: Yes, thank you.
12
13 CROSS-EXAMINATION
14
15 BY MR. PURDY:
16 Q.Mr. Griffith, good morning.
17 A.Good morning.
18 Q.In her testimony, Ms. Ottens expressed some
19 confusion regarding the Company's current monthly minimum
20 charge. Do you recall that testimony?
21 A. Yes, I do.
22 Q. Could you explain what is the Company's current
23 monthly minimum and basic charge if it has one?
24
25
A.Currently, the Company does not have a basic
charge. We have a monthly minimum bill, which means that under
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1 the current rate, you're billed at the cents-per-kilowatt-hour
2 rate. If you do not use enough kilowatt hours per month to
3 equal the monthly minimum of $10.64, you're charged that
4 amount, $10.64. If you use more kilowatt hours than the
5 minimum, you're charged the cents-per-kilowatt-hour rate times
6 the usage you incurred. So there is no fixed monthly charge
7 today.
8 We're proposing a two-part rate where you'd have
9 a customer charge, a fixed component, plus a volumetric energy
10 charge that's inverted.
11 Q.So if your proposal charge were adopted, that
12 monthly minimum would go away?
13 A.Yes.
14 Q.Okay. Thank you for that clarification.
15 In your rebuttal testimony and your direct, you
16 suggested that depending upon what costs are included in a
17 fixed monthly charge, the Company could justify a basic monthly
18 charge for its Idaho jurisdiction approaching $30. Is that a
19 true statement?
20 A.Yes, it's shown in Exhibit 53.
21 Q.Okay. Yesterday, I believe that Mr. McDougal
22 testified to the effect that Rocky Mountain Power is going to
23 be making a regular habit of filing general rate cases. He
24 might have been a little facetious, but I don't think entirely.
25 My question is is it -- if that's, in fact, true
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1 and the Company is going to be coming before this Commission
2 more frequently for general rate cases, is it the Company's
3 plan or hope to really reach that $30 figure in the near
4 future?
5 A.Well, our hope is to have a fixed monthly charge
6 that helps us to recover a larger portion of our fixed costs
7 than we do today.
8 Whenever we design rates we always look at bill
9 impacts on customers, and we believe that's important, not just
10 to flat flatly follow cost of service results, but to
11 recognize that this impacts our customers. So we would look at
12 that in subsequent cases and look at the level of customer
13 charge that we've been authorized by the Commission to charge,
14 and we could be making proposals to change that. It would
15 really depend on where the level is and what the bill impacts
16 would be on customers.
17 Q.All right. In a very summary fashion, could you
18 identify the components that are the cost components that are
19 in the Company's proposed $12 basic charge in this case?
20 A.Well, again, if you looked at Exhibit 53, that
21 shows what we believe the total fixed costs of serving a
22 residential customer are, that they are over $29.86 per month,
23 and we're proposing 12. So it's a proportion of that. We
24 didn't specify any fixed components. We really propose the
25 charge based on that we have a minimum bill today of over
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1 ten -- slightly over $10, and that a $12 fixed charge seemed a
2 reasonable level to manage bill impacts and to recover some
3 proportion of this -- slightly over a third of the total fixed
4 cost -- through the customer charge.
5 Q.So your $12 proposal isn't a function of having
6 taken out certain cost components; it was more a subj ecti ve
7 judgment call kind of thing that fell somewhere short of the
8 $30 that could be justified, in your mind?
9 A.Yes, it was a judgment, because, again, we always
10 look at bill impacts as we design rates.
11 Q.Okay. And you refer to a basic charge in Wyoming
12 for the Company that was approved or went into effect in May of
13 2009 of $20. Is that right?
14 A.Yes.
15 Q.And I think that you testified that customer
16 acceptance of that charge has been positive. Is that true?
17 A.Yes.
18 Q.What do you base that latter statement on? Was
19 there a study done, a survey?
A.That's based on customer responses or complaints.
21 We've had very few that I'm aware of that -- also, we were able
22 to implement a rate design similar to what we've done here in
23 Idaho where when you implement the customer charge increase
24 along with the inverted rate, that the average customer sees
25 almost no bill impact as a result of this general rate case
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1 change. It's a very minimal effect. We were cautious on that
2 and we were -- and, actually, in our following -- in the
3 general rate case following that one, we held the customer
4 charge at the $20 level so we would have a full year's worth of
5 experience with customers, and we have not found that to be an
6 issue with our residential customers.
7 Q.Well, my question though was what do you base
8 that perception on, that would again -- strike that.
9 Are you the person who reviews customer
10 complaints with respect to rate design?
11 A.I'm not the person who reviews them, but I
12 inquired of our customer service group concerning the Wyoming
13 customer charge and was told that customer complaints were very
14 few, and that it appeared customers were accepting the change
15 just fine.
16 Q.Why is the Wisconsin charge so high? Is it
17 higher fixed costs or is there some other reason?
18 A.No, the actual fixed costs are very similar to
19 what we see here in Idaho. It was the transition from a
20 slightly over $10 customer charge to 20. We believe that with
21 a higher customer charge, we really have what's called a fixed
22 variable approach to residential rate design that -- and some
23 might view as kind of a modified decoupling approach where we
24 recover our fixed costs through the fixed charge. And so it
25 was again based on the current customer charge in Wyoming,
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1 along with our ability to design the rates so that the average
2 user was able to see almost no overall bill impact. But the
3 total fixed costs in Wyoming for a residential customer are
4 very similar to Idaho.
5 Q.Well, you've had at least three parties oppose
6 your basic charge proposal in this case. How was that received
7 in the Wyoming case?
8 A.The Wyoming case was a result of a Stipulation.
9 i believe the AARP was involved in that. And all parties
10 agreed to the rate design.
11 Q.All right. And if I understood your testimony
12 earlier in response to a question by Mr. Otto, did you testify
13 that in Utah, the basic charge was recently set at $3.89,
14 something like that?
15 A.It's $3.75.
16 Q.All right. Why is that so low in comparison to
17 Wyoming?
18 A.Utah has had a historic -- there's been a large
19 opposition to fixed charges even though the gas company in
20 Utah -- Questar -- has a higher customer charge than the
21 electric utility. We had a 98 cent customer charge for over
22 ten years and I guess we felt we were making progress at 3. 75,
23 but
24 Q.Do you know what the Company's current customer
charge in the state of Washington is?
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1 A.It's $6.
2 Q.If you would refer to page 9 of your rebuttal
3 testimony, please? Now, you're testifying there to the tiered
4 rate proposal and my question is going to be about basic
5 charge, so I'm not trying to mislead anybody here. But on
6 lines 8 and 9 of page 9, you testify basically that -- I'll
7 quote: The vast maj ori ty of customers have little knowledge of
8 their electric rate structure. End of quote.
9 That was based on a study performed by the
10 Company, was it not?
11 A.Yes, it was a study performed in Utah, and it was
12 filed with the 2007 general rate case.
13 Q.And was a similar study conducted of the
14 Company's Idaho customers?
15 A.No.
16 Q.So is it safe to say that perhaps the Idaho
17 customers are or perhaps have greater knowledge of their
18 electric rate structure than they do in Utah?
19 A.I think it's fair to say that the time of use
20 customers in Idaho probably have a pretty good knowledge of
21 their structure.
22 This was really looked at looking at inverted
23 rates and how customers understood that. For example, under an
24 inverted rate wherever the tier is, if you're going to make a
25 consumption decision, you need to know how far along into the
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1 usage block you are before you would be paying the higher
2 tiered rate; and most customers don't know when their meter is
3 read, they don't know most don't know that they even have a
4 tiered structure. So it really has to do with inverted tiered
5 rates and customers' understanding of those, but I do believe
6 Idaho residential customers who are on the time of use rate who
7 have chosen that rate probably have pretty good knowledge of
8 it.
9 Q.All right. I'm asking you now about a basic
10 charge, and on page 4 of your rebuttal testimony, line 17, in
11 response to Staff and ICL' s proposed customer charge, you state
12 that a lower charge such as $5 will send an improper
13 MR. SOLANDER: Madam Chair, again, I'm going to
14 obj ect to the 30-second intro to each question. Mr. Griffith's
15 testimony speaks for itself.
16 COMMISSIONER SMITH: Mr. Purdy.
17 MR. PURDY: I'm cross-examining on his testimony,
18 and I'm just referring to
19 COMMISSIONER SMITH: I think the obj ection is
20 that you are reading it before instead of just getting to your
21 question.
22 MR. PURDY: Okay. All right. Fine. Sorry.
23 Q.BY MR. PURDY: Mr. Griffith, if you would turn to
24 page 4, line 17?
25 A.I'm there.
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1 Q.Would you read the first full sentence there?
2 A.This would send customers improper price signals,
3 result in a high level of intraclass subsidization, and lessen
4 the ability of the Company to have the opportunity to recover
5 the fixed costs of serving residential customers.
6 Q.And was that in response to Staff and ICL' s
7 proposal regarding the amount of the basic charge?
8 A.Yes.
9 Q.Okay. And so my question was simply how does a
10 lower basic charge than the Company is proposing send an
11 improper price signal?
12 A.It sends an improper price signal in that
13 customers do not pay their fair share of fixed costs and so
14 they're not aware of what their costs are on the system -- the
15 fixed costs they place on the system -- regardless of usage.
16 Q.Well, higher fixed cost, of course, lowers the
17 volumetric cost. True?
18 A.True.
19 Q.So in terms of price signals to the customer and
20 in terms particularly in the context of conservation, a higher
21 volumetric charge is going to send a price signal that they
22 should try to conserve to lower their bill. Right?
23 A.Well, partially right, but we've proposed an
24 inverted rate so that higher usage is charged at a higher rate
25 than is currently the case, so customers are getting the price
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1 signal to conserve through the two-block rate with a higher
2 second tier, and they're getting the proper price signal about
3 fixed costs through a higher customer charge.
4 Q.All right. If you would look at page 5 of your
5 rebuttal, please, line II?
6 A.I see that.
7 Q.And I want to avoid an obj ection here, so I guess
8 I better back up to line 9 and ask you to read the sentence
9 that begins with "as indicated in."
10 MR. SOLANDER: Is that a question? I mean, I
11 would just ask that we skip the preamble and ask Mr. Griffith
12 the question you're trying to get to, rather than reiterate the
13 testimony that's already in the record.
14 MR. PURDY: Can't have it both ways, Madam Chair.
15 I'm trying to get -- I'm trying to be --
16 COMMISSIONER SMITH: I think you can assume that
17 the witness knows his own testimony and just ask the question
18 wi thout asking him to reread his testimony. So let's try it
19 that way.
20 MR. PURDY: All right.
21 Q.BY MR. PURDY: In your testimony, it appears that
22 you state that the 839 -- that the customers -- residential
23 customers using 839 kilowatt hours will see no -- almost no
24 change to monthly bills. Lower customers will pay a fairer
25 share.
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1 My question simply is, "fairer share," does that
2 mean lower use customers are going to pay going to see a
3 relatively higher monthly bill under your proposal?
4 A.No. They won't see a higher monthly bill. The
5 monthly bills will reflect the usage. What they will -- and
6 it's shown in Exhibit 84, page 13, that was referenced earlier.
7 The monthly billing comparisons show the bill impacts. So
8 bills will still vary with usage, and the lowest usage will pay
9 the lowest bill.
10 Q.So the higher you price your fixed charge, the
11 less that's true, isn't it?
12 A.No. Still, the lower usage customers will pay a
13 lower bill. They would see a higher dollar impact on their
14 present bill.
15 Q. Earlier, you testified -- and correct me if I'm
16 wrong during cross-examination what many small users are
17 seasonal or vacation homes.
18 Was that your testimony?
19 A.Yes, that's my testimony, and that's been our
20 experience in many cases.
21 Q.You were referring to residential customers, were
22 you not?
23 A.Yes.
24 Q.Okay. What, again, do you base that on?
25 A.As we've looked at residential usage, we find
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1 that frequently the usage of small customers is for seasonal
2 homes that are partially occupied or vacation homes.
3 California, there was an issue concerning vacation homes and
4 what the customer charge should be, so there was an
5 investigation there and it was found a lot of small usage is
6 seconds homes or vacation homes. So that's a general statement
7 that we've found in our experience.
8 Q.A general statement, all right. And you're
9 applying it, are you not, to any home less than the average
10 usage of 839 kilowatt hours a month?
11 A.No, I would say it's more of the very small
12 users.
13 Q."Very small." That's a new term I haven't heard.
14 A.Zero to 300 maybe, or zero to 200.
15 Q.This is not set forth in the study provided in
16 this case or any type of analysis, is it?
17 A.No, it is not.
18 Q.Okay.
19 A.We've also found that large users tend to be
20 have electric space heat, for example. That's no surprise
21 either.
22 Q.Isn't it also possible though that those users
23 using less than 839 kilowatt hours a month are simply more
24 aware and frugal with their usage?
25 A.Sure.
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1 Q.And they're not necessarily seasonal or vacation
2 customers?
3 A.I'm sure there are customers like that that there
4 are a range of customers in everyone of the usage blocks.
5 Q.Thank you. And you testified that you have never
6 seen a rate of return adjusted to reflect changes in the rate
7 design. Does this mean that the Commission shouldn't take into
8 account in general rate making what reduced risk might result
9 from a higher fixed monthly charge just because you've never
10 seen it before?
11 A.Could you ask that question again, please?
12 Q.If I understood you correctly in response to a
13 question on cross-examination regarding the effect on the
14 Company's risk of allowing a higher fixed monthly charge, you
15 said that you had never seen the Company's authorized rate of
16 return reduced to reflect any type of rate design change.
17 A.Correct, and I've never seen an increase to
18 reflect any type of rate design changes such as we have in Utah
19 which create quite a bit of revenue volatility.
Q.My question was simply isn't that though a factor
21 the Commission should take into consideration in setting
22 rates?
23
24
25
A.No, I don't believe so.
Q.Why not?
A.I think the purpose of rate design is to try to
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1 get rates right and to allocate costs and to have the customers
2 who place costs on the system to pay those costs, and that
3 that's just, fair, and reasonable. And that should be -- not
4 have any impact on the Company's rate of return.
5 Q.Reducing the Company's risk by allowing a higher
6 monthly fixed charge should not have any impact on the
7 Company's authorized rate of return?
8 A.No, I don't believe -- if a $12 customer charge
9 where the total fixed cost of serving costs are $29, I don't
10 believe -- I believe we're making some progress, but I don't
11 believe that would have any effect either. I think it's a step
12 in the right direction.
13 Again, our proposal is to try to do two things:
14 To try to more appropriately reflect costs in fixed and
15 variable usage rates, and also to encourage efficient usage of
16 energy through the two-tiered inverted rate.
17 Q.Mr. Griffith, thank you very much.
18 A.Thank you.
19 COMMISSIONER SMITH: Thank you, Mr. Purdy.
20 Let's take a break until ten minutes after
21 10:00.22 (Recess. )
23 COMMISSIONER SMITH: All right, I think we're
24 ready to start. Do we have everybody we need? We'll go back
25 on the record.
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1 Mr. Price.
2 MR. PRICE: Thank you, Madam Chair.
3
4 CROSS-EXAMINATION
5
6 BY MR. PRICE:
7 Q.All right, Mr. Griffith, good morning.
8 A.Good morning.
9 Q.There's been a lot of talk about fixed charges.
10 I'll try not to beat that dead horse any more than I have to,
11 but let me just ask you the question: It's always going to be
12 in the Company's interest to charge a greater amount for the
13 fixed charge, isn't it?
14 A.Yes, but it's also in the interest to price our
15 product appropriately to reflect costs.
16 Q.But, the Company wants to minimize its risk.
17 Correct?
18 A.We want to minimize revenue volatility and we
19 want to reflect cost.
Q.Okay. But it's -- I guess I look at it more
21 along the lines of, if I can make an analogy here, a baseball
22 team. If they're inviting people to come watch their product,
23 they know they're going to make some money once they go inside
24 the stadium, but they want to minimize that risk a little bit
25 by charging a higher ticket price to minimize the risk that
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1 they're not going to spend on concessions or jerseys or
2 something along those lines.
3 A.I'm not sure I follow that one, but a baseball
4 team doesn't have the obligation to serve, which we do; and
5 customers or fans could just choose to not go to the game if
6 the price got higher.
7 Q.You do have an obligation to serve and you do
8 have an obligation to your shareholders. Correct?
9 A.Yes.
10 Q.Okay, I'll move on from that. You talked about
11 the Utah telephone survey where you selected a couple hundred
12 residents of Utah in order to gauge their understanding of the
13 Company's rate scheme. Correct?
14 A.Yes, it was a survey of 405 randomly-selected
15 customers.
16 Q.Okay. Did you conduct a similar survey in
17 Idaho?
18 A.No, we did not.
19 Q.And did you -- I saw the conclusions, I won't
20 repeat them here, but basically from what I understood, it's
21 customers only understand the bottom line, what do they pay
22 month to month on their bill?
23 A.I think that's true for most customers, that's
24 that they view their rate as their price per month.
25 Q.And did the Company undertake any subsequent
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1 efforts to educate customers as to their bills?
2 A.Yes, we did.
3 Q.What did you do?
4 A.We did some ,outreach through bill inserts and
5 advertising in Utah. Because it's a five-month inverted rate,
6 we advertised that the rate is becoming available in May, it's
7 May through September, so we tried to inform customers of this.
8 We were doing this since the rate was first implemented back
9 in, I believe, 2002. So we have been taking on efforts to
10 communicate with customers.
11 Out of this rate case in 2007, the Commission
12 ordered us to take some addi tional activities, which we
13 undertook.
14 Q.I'm a little confused, because the results of the
15 survey reveal that customers don't read their bill. What gave
16 you confidence that they would read a billing insert?
17 A.I think I'd probably agree with you that most
18 customers don't read those either, but we have kind of limited
19 abili ties to communicate with customers so we took those
20 approaches, both media advertising and newspapers, and they
21 probably don't read those ads either and billing inserts. We
22 have a limited tool kit of what we can do to communicate with
23 customers on this other than sending them the monthly bill.
Q.Okay. You took issue with Staff's approach.
You're worried about transi tioning from a flat rate to a tiered
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1 rate, inverted rate. And you said the Utah survey led you to
2 believe that the rates should be easy to understand.
3 Again, just for purposes of the record, Utah has
4 a three-tiered rate system. Correct?
5 A.Yes, in the summer only. It's flat the other
6 seven months; there are no tiers the other months.
7 Q.And so how is that scheme -- how is that
8 three-tiered scheme simpler than what Idaho Conservation League
9 and Staff have proposed?
10 A.I would not say -- I didn't say it was simpler
11 and I would not agree that it is.
12 Q.Okay. And if Staff's proposal were implemented
13 by the Commission, what sort of impact would that have on a
14 bill; what sort of impact in terms of another line item?
15 A.Well, if either the Staff's or the Company's
16 proposals were implemented, there would be the same number of
17 line items. Staff has proposed two tiers. The difference is
18 Staff proposed to vary the tiers by month, along with varying
19 the rates.
20 Q.So the actual -- I'm sorry.
21 A.So our view was that the variation in the tiers
22 is very small, it i S only 200 kilowatt hours. I believe they
23 proposed zero to 700 one season and zero to 900 in the other.
24 It seems to be just kind of nibbling around the edges, to us.
25 Ours is a flat, simple, one tier year-around, and we didn't
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1 think that kind of fine-tuning really resulted in much benefit
2 and could probably confuse customers. They don't know what
3 tier they i re in in what month.
4 Q.But the actual bill would not be any more
5 complicated if Staff's proposal were implemented versus the
6 Company's?
7 A.I don't believe it would, no.
8 Q.I'm just trying to figure out
9 A.Except during the seasonal transition, because
10 there would be proration that would occur and so usage would be
11 prorated as you go from one tier to the other, plus the rates
12 change. So it would be more complicated in two months of the
13 year when the seasonal transitions would occur.
14 Q.It would be more complicated in theory, but not
15 more complicated in terms of an actual line item on the bill?
16 A.It would be more complicated on the bill because
17 there would be a line item for the summer block and the winter
18 block during that seasonal transition from summer to winter.
19 Q.Okay. And also in your testimony, you make a
20 distinction between Schedules 31 and 36. It's your contention
21 that schedule -- I'm sorry, Schedule 1 and Schedule 36 -- that
22 Schedule 1 has been unfairly subsidizing Schedule 36?
23 A. Schedule 1 has been paying below its cost of
24 service I'm sorry, Schedule 36 has been paying below its
25 cost of service and Schedule 1 has been paying above, and I'm
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1 not sure where the subsidy was flowing and you can argue it was
2 flowing from 36 to 1. But it's been a consistent finding in
3 the last two cost of service studies that Schedule 36 has been
4 underperforming relative to Schedule 1 and should see a larger
5 increase, which is what we propose.
6 Q.Okay. You say that Schedule 1 has overall higher
7 average rates than Schedule 36?
8 A.That's correct.
9 Q.But saying that a schedule has a higher average
10 rate is not the same as saying they have a higher average
11 bill?
12 A.That's correct. Depends on the total usage.
13 Q.Depends on the usage. And in order to illustrate
14 that point, I would point you to your exhibit monthly billing
15 comparison, Exhibit No. 54, page 1. That's in your direct
16 testimony. And then Schedule 36 is on page 2.
17 And if we do a comparison during the winter
18 months under the Company's proposal, if a Schedule 1 customer
19 uses approximately 1,200 kilowatt hours, they pay less than a
20 Schedule 36 customer with the same usage. Correct?
21 A.Yes. But, of course, 36 will vary based on what
22 proportion of the consumption is on peak and off peak. When we
23 made a simplifying assumption here of 44 percent on peak in
24 the -- or, 44 percent on peak in the summer and 41 in the
25 winter, if that varied, there's more volatility on Schedule 36
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1 because of the rate structure.
2 Q.The Schedule 36 customers, they sign up for that
3 schedule for a reason. Correct?
4 A.Yes, they do. I believe so.
5 Q.And you testified earlier they understand what
6 they're signing up for?
7 A.I believe they do: That's why they sign up.
8 Q.Okay. That's all I have.
9 COMMISSIONER SMITH: Mr. Budge.
10 MR. BUDGE: Thank you.
11
12 CROSS-EXAMINATION
13
14 Q.BY MR. BUDGE: Mr. Griffith, I believe you
15 sponsored also Exhibit 55. Do you have that available?
16 A.Yes.
17 Q.And while we're looking at that, could we also
18 locate Exhibit 242 that I'll have one or two concluding
19 questions
A.242?
Q.Could you briefly describe the purpose of
22 Exhibit 55?
23 A.Exhibit 55 is the work paper and that was filed
24 in our direct case. It's really been superceded by our
25 rebuttal exhibit, Exhibit 84.
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1 Q.Eighty-four?
2 A.Right, 84 is our current proposed rate design
3 wi th reflecting the adj ustment to the revenue requirement in
4 the rebuttal rate case, so that contains the usage quanti ties
5 for all the rate schedule classes and shows the present prices
6 and that usage, multiply it times the present rates, and also
7 shows usage by the multiply it by the proposed rates to show
8 the proposed rates that the Company is offering in this case.
9 Q.Okay. So if one were to look at Exhibit 55,
10 page 6 would show the billing determinants for Schedule 400 on
11 the original filing, and that would have been updated by your
12 Exhibit 84, page 12?
13 A.That's correct.
14 Q.Okay. Thank you.
15 You have testimony from Mr. Duvall and I believe
16 other Company witnesses that criticized Monsanto's witness
17 Mrs. Iverson for using the term "nonfirm. ii And I asked
18 Mr. Duvall yesterday -- I think you were present -- whether or
19 not the term "nonfirm" could be used interchangeably with the
20 term "interruptible," to which he said, "No."
21 If I look at your Exhibit 55, page 6, as well as
22 your Exhibit 84, page 12, which reflects Schedule 400, it seems
23 to reflect that Monsanto has two types of billing determinants
24 here: One is for firm and the other is for nonfirm. Is that
25 correct?
1379
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
GRIFFITH (X)
RMP
.
.
.
1 A.That's correct.
2 Q.And so for purposes of your testimony, you use
3 the word "nonfirm" would be the same as Monsanto's charge or
4 rate for interruptible power. Correct?
5 A.Can you say that one more time?
6 Q.Well, I'm just looking at your two exhibits, and
7 it appears that under Schedule 400, the Company bills showing
8 billing determinants and prices for Monsanto's firm load and
9 also for its nonfirm load. Correct?
10 A.It shows I would -- looking on this that this
11 should more appropriately reflect the tariff for the title and
12 it should say "interruptible power" where it says "nonfirm" in
13 the billing determinant.
14 Q.For purposes of your exhibits, you would use the
15 term "nonfirm" would be interchangeable with the word
16 "interruptible"?
17 A.It was used that way here, but this reflects the
18 tariff Schedule 400.
19 Q.And if I understand these exhibits correctly,
20 there's no credit reflected on the bill for Monsanto nonfirm
21 interruptible; there is simply a rate that is charged for the
22 nonfirm power. Correct?
23 A. This exhibit shows the base rates that Monsanto
24 would be charged and does not include the interruptible credit
25 amounts here. It just shows the base levels and doesn't
1380
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
GRIFFITH (X)
RMP
.
.
.
1 reflect the interruptible credit that's applied and indicated
2 in Schedule 400.
3 Q.Well, looking at your Exhibit 55 and your
4 Exhibi t 54, there's no need to have an interruptible credit on
5 the billing determinant because you simply have a rate that you
6 charge for nonfirm power. Correct?
7 A.We have a rate that we charge in base rates for
8 nonfirm power that reflects -- that ignores any effects of an
9 interruptible credit.
10 Q.Now, let's look at Column 3 under the present
11 revenue dollars.
12 A.What exhibit now?
13 Q.Column -- well, let's just start on Exhibit 55,
14 the original filing. If you'll look at the third column, it
15 says: Present revenue dollars.
16 There is a charge for the firm power of 3.2
17 million. Correct?
18 A. Yes.
19 Q. And Monsanto gets billed for the nonfirm power of
20 56.2 million. Correct?
21 A. Yes, that's the base rate.
22 Q. And so if you add the two up, you would get the
23 total amount in present revenue dollars of 59.5 million.
24 Right?
25 A.Correct.
1381
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
GRIFFITH (X)
RMP
.
.
.
1 Q.So there wouldn't be any interruptible credit
2 that would need to be shown to reflect what Monsanto might
3 expect to pay presently. Isn't that true?
4 A.In base rates, this is the amount that is -- that
5 is assumed to be collected from Monsanto based on the test
6 period
7 Q. And then?
8 A. -- excluding the interruptible credit.
9 Q. Where would the -- let's turn to the bill, 242,
10 Exhibit 242. When I look at Exhibit 242, it seems to be
11 consistent with what you're reflecting on Exhibits 55 and
12 Exhibit 84, being Monsanto gets charged a rate for its firm
13 power and it gets charged a rate for its nonfirm power, and
14 when you add them up, you get a total bill at the bottom.
15 Would you agree that the bill seems to be -- Exhibit 242 --
i 6 seems to be exactly consistent in that regard with respect to
17 your Exhibit 55 and your updated Exhibit 84?
18 A.It shows the application of the base rates to
19 Monsanto's usage and doesn't reflect the effects of the
20 interruptible credit.
21 Q.Is not the interruptible credit reflected in the
22 interruptible rate?
23 A.The interruptible credit is not reflected in the
24 interruptible rate on this bill.
25 MR. BUDGE: No further questions.
1382
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
GRIFFITH (X)
RMP
.
.
.
1 COMMISSIONER SMITH:Do we have questions from
the Commissioners?
COMMISSIONER REDFORD:No.
COMMISSIONER KEMPTON:Madam Chairman,I have
COMMISSIONER SMITH:Commissioner Kempton.
2
3
4
5
6
7 EXAMINATION
8
9 BY COMMISSIONER KEMPTON:
10 Q.Mr. Griffith, returning once more to the infamous
11 study on your rebuttal page 8, that was the September 2007
12 study?
13 A.Yes, that's correct.
14 Q.Times were pretty good then. Do you think if you
15 did the similar study now with the economy the way that it is,
16 that there would be more people that would pay attention to
17 their bills?
18 A.I don't know.
19 Q.That's a good answer. I don't either.
20 So in the survey of 405 randomly-selected Utah
21 residential customers, was that done wi thin the Company or was
22 it contracted out?
23 A.It was contracted by Dan Jones and Associates in
24 Sal t Lake City.
25 Q.And they are professionally engaged in surveys?
1383
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
GRIFFITH (Com)
RMP
.
.
.
1 A.Yes, they are. They implemented a sample size of
2 405 randomly-selected customers. There was an error component
3 of plus or minus 4.9 percent.
4 Q.Okay, that's -- that was the information I was
5 looking for is where the -- what the confidence level in this
6 was.
7 COMMISSIONER KEMPTON: So that's all I have,
8 Madam Chairman.
9 COMMISSIONER SMITH: Thank you.
10
11 EXAMINATION
12
13 BY COMMISSIONER SMITH:
14 Q.Mr. Griffith, I'll just indulge myself briefly on
15 a very exciting topic to me, and that is how you look at peak
16 usage, and it's occurred to me a long time there's different
17 ways to look at peak usage. And one way is that every kilowatt
18 hour, every therm, every CCF that's used during the peak hour
19 contributes to the peak; but the other way to look at it is
20 that there is a base level of usage that continues on month to
21 month and then you come to the peak, so it's the additional
22 over the base that's causing the need to plan for and invest to
23 serve this peak usage. Do you see the difference between those
24 two?
25 A.Certainly that's one way to look at it, and
1384
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
GRIFFITH (Com)
RMP
.
.
.
1 California does that with baseline usage. They look at a
2 baseline level and the California tier rates are set for
3 baseline usage, which is designed for sort of essential needs.
4 Q.Exactly.
5 A.And then additional discretionary usage is in the
6 second tier.
7 Q.And that's kind of I think what we've done for a
8 couple of water companies. And so when you were discussing
9 this, you know, it was not -- I thought it intriguing to think
10 of it in terms of your Idaho residential customers who, if
11 their usage is lower in the summer, they're actually helping to
12 shave the peak, as opposed to contributing to it in the usual
13 sense. Do you have thoughts on that?
14 A.Well, I think that's true, and I think an
15 inverted rate would give them some benefit in that they would
16 be avoiding the higher-priced tier.
17 Q.Well, do you think they ought to be given any
18 financial recognition of the fact that they're actually helping
19 in the peak time by reducing their what you call baseline
20 usage?
21 A.Well, I think we our proposal does that to
22 some degree in that while this is a substantial rate increase,
23 the average user, average residential customer, is seeing
24 almost no impact as a result of this rate design, so I think
25 they're seeing some of that advantage there.
1385
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
GRIFFITH (Com)
RMP
.
.
.
20
21
22
23
1 Q.You wouldn't go as far as saying they have a
2 lower rate in the summer than they have in the winter?
3 A.I think that the price signal should be that
4 costs are higher overall in the summer. The Company has a
5 summer peak in Rocky Mountain Power, and that we should
6 encourage customers to use less in the summer.
7 Q.Okay. Thank you.
8 COMMISSIONER SMITH: Any redirect?
9 MR. SOLANDER: Just one question.
10
11 REDIRECT EXAMINATION
12
13 BY MR. SOLANDER:
14 Q.Are low-income customers necessarily lower
15 electricity users?
16 A.No, not at all.
17 MR. SOLANDER: That's all I have.
18 COMMISSIONER SMITH: Thank you for your help,
19 Mr. Griffith.
THE WITNESS: Thank you.
(The witness left the stand.)
COMMISSIONER SMITH: Mr. Hickey.
MR. HICKEY: Chairman Smith and members of the
24 Commission, Rocky Mountain Power would now rest its case in
25 chief. We have now called all of our direct witnesses.
1386
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
GRIFFITH (Di)
RMP
.
.
.
22
1 We would again reserve on the record the right to
2 call any witnesses in rebuttal as we see fit at the conclusion
3 of the Intervenors' cases.
4 COMMISSIONER SMITH: Okay. Thank you,
5 Mr. Hickey.
6 According to my schedule, we would next go to
7 Monsanto. I would ask is there any reason to vary from that by
8 going to Industrial Customers, or do you want to charge ahead
9 on Monsanto? Mr. Budge.
10 MR. BUDGE: We call Mr. James Smith.
11 (Discussion off the record.)
12
13 JAMES SMITH,
14 produced as a witness at the instance of Monsanto, being first
15 duly sworn, was examined and testified as follows:
16
17 DIRECT EXAMINATION
18
19 BY MR. BUDGE:
20 Q.Please state your name and --
21 COMMISSIONER SMITH: We are back on the record.
THE WITNESS: My name is James R. Smith, and I go
23 by "Jim."
24
25
Q .BY MR. BUDGE: Your business address for the
record, please.
1387
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (Di)
Monsanto
.
.
20
1 A.It's PO Box 816, Soda Springs, Idaho.
2 Q.Did you prepare and prefile direct testimony on
3 behalf of Monsanto Company under date of November 1, 2010?
4 A.Yes, I did.
5 Q.And did you also sponsor Monsanto Exhibit 201?
6 A.I did.
7 Q.Do you have any corrections you wish to make to
8 ei ther your testimony or exhibit?
9 A.I have one minor correction that didn't get made
10 on the final. It i S on page 3, line 16. The sentence should
11 say starting at the very end of 15: Approximately 20 megawatts
12 of auxiliary load, of which nine megawatts is firm load.
13 Q.Mr. Smith, if I were to ask you the same
14 questions today as contained in your prefiled testimony, would
15 your answers be the same?
16 A.Yes, they would.
17 MR. BUDGE: Madam Chair, we'd move to have the
18 prefiled testimony and Exhibit 201 of Mr. Smith spread on the
19 record, and tender him for cross-examination.
COMMISSIONER SMITH: Without obj ection, the
21 prefiled testimony will be spread upon the record, and Exhibit
22 201 identified.
23 (The following prefiled direct testimony
24 of Mr. Smith is spread upon the record.)
. 25
1388
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (Di)
Monsanto
.1
2 Q
3 A
I.INTRODUCTION
PLEASE STATE YOUR NAM, EMPLOYER AN BUSINESS ADDRESS.
My name is James R. Smith. I am employed by Monsanto Company at the Soda
4 Springs Plant and my business address is P.O. Box 816, Soda Springs, Idaho
5 83276.
6 Q PLEASE PROVIDE YOUR EDUCATIONAL BACKGROUN, WORK
7 EXPERINCE AN CURNT POSITION AT MONSANTO.
8 A I graduated from Utah State University in 1986 with a B.S. in Accounting. I
9 began working for Monsanto in 1988 as an accountant at the Soda Springs plant
10 and have continued to work for Monsanto to date in various capacities. I am.11 curently the Purchasing Lead for the Soda Springs phosphorus plant and Rock
12 Springs, Wyoming coke plant.
13 Q
14 A
15
16
17
18
19
20.
WHT RESPONSffILITIES DO YOU HAVE FOR PURCHASING?
I have many responsibilities which include all outside purchases at the Soda
Springs and the Rock Springs plants, including electricity. Since 1988 I have
been directly involved in all electricity contract negotiations and all electrical
contracts entered into between Monsanto and PacifiCorp. I have also reviewed
and am familiar with all prior electricity contracts since the Soda Springs Plant
began operating, and with related submissions to the Idaho Public Utilities
Commission and approval Orders.
1389 Smith, DI-O
Monsanto Company
.1 Q
2 A
3
4
5
6
7
8 Q
9 A
10
11
12.13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31.
WHT is THE PUROSE OF YOUR TESTIMONY?
The purpose of my testimony is to (1) provide history and information concerning
the operation of Monsanto's Soda Springs Plant; (2) review the history of the
current 2008 Electric Service Agreement and the impacts of the regulatory
treatment going forward; (3) discuss loss of market share due to competition from
the Chinese; and (4) discuss economic and other impacts of the Monsanto Soda
Springs Plant.
PLEASE SUMZE YOUR TESTIMONY.
(l) Since 1952, Monsanto's Soda Springs facilities have continuously operated to
mine phosphate ore and manufacture phosphorus, used internally to produce
glyphosate, the active ingredient in Roundup(ß herbicide. The glyphosate
business has become extremely competitive with Chinese production undercutting
Monsanto sales and theatening the viability of the Soda Springs plant.
(2) During 2009 the Soda Springs plant was required to idle several fuaces over
a course of several months as a result of lost market share due to competition
from the Chinese in the glyphosate business. In the last twelve months the Soda
Springs Plant has cut 15% of its salaried employees and continues to make
changes and reorganize to reduce the cost of production.
(3) The Soda Springs plant must have affordable electricity at a price that is
relatively stable and certain. While Monsanto's demand on the electrical market
has been unchanged since 1966, we have faced substantial rate increases in recent
years. Monsanto's rates have dramatically and disproportionately increased since
2003 compared to other customers. Monsanto's rates have already increased by
65% since 2003. If PacifiCorp's proposed $22.3 million increase is approved,
then Monsanto's net rates wil have increased an incredible 153% since 2003.
(4) With a load of 182 MW supplied to three furnaces plus auxiliar needs, the
Soda Springs plant is the largest single point customer of PacifiCorp, with an
anual electric bill exceeding $42 milion. Except for 9 MW of firm load,
Monsanto has always been supplied with non-firm power that is subject to
curailment, with the current contract providing 1,050 hours of curtailment per
year of up to 162 MW.
1390 Smith, DI-1
Monsanto Company
.
.
.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18 Q
19
20 A
21
22
23
24 Q
25 A
26
27
28
29
(5) In 2006, for the first time ever, Monsanto's non-firm rate was established as if
Monsanto was a "firm" customer with an "interruptible credit" and placed on a
tariff rate. These new methodologies were agreed to with the expectation
Monsanto would achieve rate stability and certainty which has not happened.
Since Monsanto has always been a non-firm customer subject to curailment and
does not sell any power back, it is a complete "fiction" that simply does not
reflect reality to price Monsanto as a firm customer with an interruptible credit.
For these reasons and because of the benefits provided to the entire system,
Monsanto proposes to amend the jurisdictional cost-of-service studies to better
reflect the non-firm service characteristics.
(6) The Soda Springs plant can stay in business only if it can produce phosphorus
at competitive prices, which requires relatively stable electricity prices.
Monsanto's Soda Springs operations provide tremendous economic benefits to the
region which wil be lost if recent and planed electricity price increases by
PacifiCorp continue.
II.mSTORY AN OPERATIONS OF SODA SPRIGS PLANT
PLEASE PROVIE A BRIEF mSTORY AN OVERVIW OF THE
OPERATION OF MONSANO'S SODA SPRIGS PLANT.
The Soda Springs plant began operations in 1952 and has continuously operated
for nearly 58 years. The plant produces one product, elemental phosphorus
("P4"), an essential building block for many products. Monsanto's primar use is
to produce glyphosate, the active ingredient in Roundup(ß herbicide.
DESCRIBE HOW PHOSPHORUS is MAFACTURD.
Phosphate ore is mined in the mountains east of Soda Springs and transported by
truck to the plant. The phosphate ore is calcined in a kiln and then combined with
coke, much of which is manufactured at our sister plant in Rock Springs,
Wyoming, and with quarzite, which we mine from a quar west of the plant.
The mixture is placed in one of three electric fuaces and energized with
1391 Smith, DI-2
Monsanto Company
.1 electricity, resulting in a chemical reaction liberating the phosphorus as a gas.
2 The phosphorus is filtered, condensed and then shipped to other locations.
3 Exhibit 201 (JRS-l) depicts this capital intensive phosphorus manufacturing
4 process.
5 Q
6 A
7
8
9
10.
11 Q
12
13 A
14
15
16
17
18
19
.
WHRE is THE PHOSPHORUS SHIPED AN HOW is IT USED?
All of the phosphorus is transported from the Soda Springs Plant by railcar to
Monsanto's Louisiana facility or to our Brazil facility by railcar and ocean
freightliner. There, phosphorous is converted into glyphosate, the active
ingredient in Roundup(R herbicide. Small amounts of phosphorus are sold to
other entities for use in a variety of products.
DESCRIE TH ELECTRICAL SERVICES AT THE SODA SPRIGS
PLANT.
At Soda Springs, Monsanto has a total load of approximately 182 MW. This load
consists of 162 MW of non-firm power which is provided to Furace NO.7 (46
MW), Furace NO.8 (49 MW) and Furnace No.9 (67 MW), approximately 20
MW of auxiliary load and 9 MW of firm load. The Soda Springs Plant consumes
approximately 1.35 bilion kWh of energy anually and is PacifiCorp's largest
single point customer. Monsanto's load has been relatively unchanged since
Furace NO.9 came on line in 1966.
1392 Smith, DI-3
Monsanto Company
.
.
.
Q AR THERE OTHER ELECTRIC FURACES USED TO
2 MAFACTUR PHOSPHORUS?
3 A Not in the United States. Monsanto's first six electric furnaces used to
4 manufacture phosphorus were built and operated in Columbia, Tennessee. The
5 Tennessee plant closed in 1986 when its costs were no longer competitive, due
6 primarly to rising electricity prices. At Soda Springs, Monsanto constructed
7 Furnace Nos. 7 and 8 which began operating in 1952, and Furnace NO.9 became
8 operational in 1966, the last and largest electric furnace constructed in North
9 America. At that time there were 31 electric phosphorus fuaces in operation in
10 North America, but now Monsanto's three electric furnaces are the only ones
11 remaining in operation. I have pictures of the FMC fuaces being dismantled in
12 my office to remind me of the importance of remaining competitive. Outside of
13 Nort America there are furnaces operating in the Netherlands, Kazakstan, and
14 in China.
15 il. mSTORY OF MONSANTO ELECTRIC SERVICE CONTRACTS
16 Q PLEASE PROVIDE A BRIEF mSTORY OF THE ELECTRIC SERVICE
17 CONTRACTS SUPPLYIG THE SODA SPRIGS PLANT.
18 A Monsanto has been a special contract customer of PacifiCorp and its predecessor
19 Utah Power & Light Company since 1951. Special contracts were entered into in
20 1951, 1965, 1991, 1995, 2000, 2003, 2007 and 2008. Each contract provided a
21 non-firm load for the furnaces with a small firm load. Each contract contained
22 varing curtailment hours and terms of curtailment. In most of the contracts
1393 Smith, DI-4
Monsanto Company
.
.
.
1
2
3
4
5
6
7
8
9
10
11
12
Monsanto had the option of buying through curailments at replacement energy
costs.
The rates and terms of all special contracts were arrived at by agreement
negotiated between the paries and approved by the Commission, with the
exception of2003. After PacifiCorp was acquired by Scottish Power in 1999, the
parties were unable to arrive in agreement by negotiations as in the past. As a
result, the rates and terms of the 2003 Contract were established by the
Commission in Order Nos. 28918, 29157 and 29206 as a result of contested
proceedings in Case No. PAC-E-01-16. The 2003 Contract contained unique
features which included 800 hours of curailments for operating reserves, system
integrity interrptions and economic puroses.
After Mid-American Energy Corporation's acquisition of PacifiCorp from
13 Scottish Power in March of 2006, the paries entered into the 2007 Agreement
14 approved by Commission Order No. 30199 entered December 18, 2006, in Case
15 No. PAC-E-06-09, again based on a stipulation.
16 Q
17 A
18
19
20
21
22
PLEASE SUMZE THE CURNT 2008 CONTRACT.
On June 8, 2007, Rocky Mountain Power fied an Application with the
Commission (Case No. PAC-E-07-05) for authority to increase the Company's
revenues from electric service by $18.5 milion annually, or 10.3%. The
Company's proposed significant and disproportionate increase to Monsanto of
24.1 % would have resulted in a net increase of 32.9% as contrasted with a 10.3%
price increase for Idaho as a whole. This case was settled by way of a stipulation
1394 Smith, DI-5
Monsanto Company
.1
2
3
4
5
6
7
8
9
10
11
12
13.14
15
16
17
18
19
20
21
22
23
24
25 Q
26
27 A
28
29.30
between the parties and approved by Commission Order No. 30482 entered
December 28, 2007. The increase was spread 13.50% to Monsanto, 6.25% to
Agrium, and 4.89% to residential and irrigation customers. Order, p. 5.
Additionally, Monsanto's rates increased 3% effective Januar 1, 2009, and 5%
effective Januar 1,2010. The number of curailment hours increased from 1,000
in 2008, to 1,030 for 2009, and to 1,050 for 2010. Order, p. 8. In approving the
submitted 2008 Agreement Governing Electric Service to Monsanto for the period
Januar 1,2008 though December 31, 2010, the Commission stated:
"Affordable electricity at a price that is relatively stable and
reliable is important to Monsanto. The Commission finds
that the interruptible products offered by Monsanto
provides a means of controllng its net energy price."
"Monsanto operates its electric fuaces seven days a week,
24 hours a day, 365 days a year, excepting maintenance and
repair. Monsanto is an interrptible customer that can
provide PacifiCorp with up to 162 MW of curilments. Its
three furnaces can be interrpted. separately as well as
collectively in any combination. Interrptions can occur
within seconds to meet system emergencies and provide
operating reserves. Two hours' notice is required to
interrpt for economic reasons. The interrptible products,
we find, provide operational benefits to PacifiCorp. We
find the products to be priced at a level commensurate with
the value they represent today." Order, p. 12.
PLEASE EXPLAI WH MONSANO'S LOAD CURTAILMENT
HOUR AR UNQUE?
Monsanto is unlike any other non-firm customer on the PacifiCorp system
because of the magnitude of the curtailment, the hours provided and the short
response time. Monsanto provides 1,050 hours and up to 162 MW of curailment
which can be taken in a matter of seconds, quicker than any of PacifiCorp's
1395 Smith, DI-6
Monsanto Company
.
'.
.
1
2
3
4
5
6
7
8
9
10
11
12
peaker resources, the Irrigators, Nucor and U.S. Magnesium. Monsanto's three
furnaces can be curtailed separately as well as collectively in combination. The
benefit of curtailments to the PacifiCorp system is undisputed, even though the
value has been, and continues to be, a matter of substantial disagreement.
These curtailments are taken every month of the year, although most are
taken in the summer and winter peak months. While the types and amounts of
curtailments have varied over the years based on the different contracts and
PacifiCorp's needs, all of our special contracts since 1952 have contained
provisions allowing PacifiCorp (and its predecessor Utah Power) to curtail
Monsanto's load.
It is also noteworthy that Monsanto operates its fuaces seven days a week,
24 hours a day, 365 days a year, except for periods of maintenance and repair. This
13 high load factor provides significant advantage to the utility during their off-peak
14 hours, providing a base load to service with its coal generation assets. Monsanto
15 takes service at transmission levels avoiding the usual distrbution and customer
16 service costs.
17 Q
18
19
20 A
21
HAS MONSANTO AN PACIFICORP EVER AGREED UPON AN
SINGLE METHOD TO ESTABLISH TH VALUE OF TH
INERRUPTIBILE SERVICE?
No. In fact, the curtailment value for the current contract is much higher than
originally proposed by the Company, based on its internal models. This clearly
1396 Smith, DI-7
Monsanto Company
.1
2
3 Q
4
5 A
6
7
8
9
10.11
12
13
14 Q
15
16
17 A
18
19
20.21
demonstrates that the Company's models do not reflect a realistic value for the
curailment.
HOW WAS A SATISFACTORY CONTRACT REACHED IN PRIOR
YEARS?
In recent cases PacifiCorp presented various cost-of-service studies and other
methodologies, but none were agreed to or accepted. In many prior cases
Monsanto simply negotiated a net price for electricity which both paries
concured was fair, just, and reasonable under the circumstances. At the time of
the 2008 Contract, Monsanto (and we thought PacifiCorp) believed that the
anual rate increases coupled with the additional hours of interrptions,
effectively brought Monsanto to a rate that was fair,just, and reasonable, at or
near cost of service and fairly valued Monsanto's non-firm service based on the
curailment features.
WH DID MONSANO AGREE TO CHAGE TO TARF BASED
RATES IN 2006 AFTER SOME FIFTY PLUS YEAR AS A SPECIA
CONTRACT CUSTOMER?
Subjecting Monsanto, in 2006, to tariff rate adjustments for the first time (P AC- E-
06-09, Order No. 30197), after more than fifty years as a special contract
customer, represented a substantial deparure from all past contracts, and a change
to which Monsanto resisted. The change to tariff based rates was a considerable
concession made by Monsanto, mindful of the desires of the Commission Staff
1397 Smith, DI-8
Monsanto Company
.
2
3
4 Q
5
6 A
7
8
9
10.11
12
13
14
15
16 Q
17
18
19 A
20.21
and PacifiCorp to better align the timing of the Monsanto rate changes with that
of other customers, and to overcome perceived problems with cost of service
studies and the allocation of costs and revenues on an inter.;jurisdictional basis.
WHT DID MONSANTO GIV UP BY MOVIG TO TARFF BASED
RATES?
By moving to tariff based rates, Monsanto has given up control over the
frequency and amount of pricing changes and the stability associated with
contract pricing. PacifiCorp now solely controls when rate changes are fied and
the Commission now ultimately controls the amount of price changes. Each time
a new rate adjustment case is filed, Monsanto must now fully participate at
considerable time and expense to assess, evaluate and try to protect electricity
price changes. At the time, Monsanto was led to believe it was not giving up
much in the way of price stability. Unfortunately, increases since 2006, and
expectations of the Company's frequent rate cases through the end of the decade,
prove this belief to be wrong.
SHOULD MONSANO'S PREVIOUS AGREEMENT TO MOVE TO
TARFF PRICING BE VIEWED AS A LESSENIG OF TH
IMORTANCE OF PRICE STABILITY?
No. Price certainty and stability remain very important to Monsanto's business
which is very capital intensive and competitive. In recent years Monsanto has
spent, and is committed to spend, milions of dollars on necessary capital projects
1398 Smith, Di-9
Monsanto Company
.
2
3
4
5
6
7 Q
8
9 A
10.11
12
13
14
15
16 Q
17
18 A
19
20.21
at the Soda Springs mine and plant. We are working on permitting a new mine
and developing the infrastructure needed to safely operate it. Without some
stability in knowing what the cost of production wil be, or if the operation wil be
profitable, it makes committing new capital dollars to the Soda Springs plant very
difficult. Mr. Lawrence, one of Monsanto's senior level managers, addresses this
problem in his testimony.
WH DID MONSANO RASE THE HOUR OF INERRUPTION
FROM 800 TO 1,050 HOUR?
In the 2008 Contract Monsanto reluctantly agreed to raise the hours of
interrption from 800 to 1,050 hours, a 31 percent increase from the previous
2003 Contract as a compromise to keep prices within a reasonable range and
achieve the agreement both paries sought. The value achieved through this
compromise was a "black-box" settlement not based upon any methodology.
Both paries then placed considerable value on the size, timing and dependability
of Monsanto interrptions.
DOES MONSANTO PLAN TO CONTIN TO TAK NON-FIR
POWER?
Yes. Monsanto has always taken non-firm power and been subject to curailment.
We plan to continue to take non-firm power and provide up to 1,050 hours of
curtailment, but we canot go beyond that to remain competitive and would prefer
to provide less hours due to the very thin margins in our glyphosate business
1399 Smith, DI-I0
Monsanto Company
.1 operations as discussed by Mr. Lawrence. However, we are willing to be flexible
2 in how curtailment hours are provided. The Commission has recognized that
3 Monsanto's curailment produces system benefits in approving the current
4 agreement in Order No. 30197 in Case No. PAC-E-06-09. The order stated at
5 page 9:
6 "The Commission also recognizes that the value of interrptible
7 products furnished by Monsanto as well as Monsanto's cost of
8 service wil be important considerations in establishing the net rate
9 to Monsanto in the future. Consequently, we expect the paries to
10 address interrptible product valuation in the context of a general
1 1 rate case when Monsanto's cost of service is determined."
12 PacifiCorp did not propose any change in the valuation of Monsanto curtailment in
13 their May 28, 2010 Application and initial fiing in this case. On September 30,
14.15
2010, the Company fied supplemental testimony with the Commission regarding
the economic valuation of Monsanto's curailment. In consideration of Order No.
16 32098 in this proceeding, the issue regarding quantification ofthis valuation wil be
17 addressed in direct testimony to be fied by Monsanto December 22,2010.
18 Q
19
20
21 A
22
23
24.25
WHT WAS THE EXPECTATION OF MONSANTO WIN MONSANTO
WAS PRICED AS A FIRM CUSTOMER WITH AN INTERRUPTmLE
CREDIT FOR CURTAIMENT HOUR?
When the new concept of pricing Monsanto as a firm customer with an
interrptible credit began, it was intended to provide Monsanto with a natural
hedge which, if appropriately priced, should provide a level of price stability and
reasonable net power costs. Simply put, as the cost of electricity goes up, so
should the value of the credit derived from curtailment of Monsanto's load.
1400 Smith, DI -11
Monsanto Company
.1
2
3
4 Q
5
6
7 A
8
9
10.11
12
13
14
15 Q
16
17 A
18
19
20.21
Unfortunatly, that expectation has not been met, and Monsanto's rates have risen
substantially, at a much greater rate of increase than other customers, as described
in the testimony of Ms. Iverson.
DOES MONSANTO BELIEVE IT is PROPER TO PRICE MONSANTO'S
NON-FI LOAD AS IF IT WERE A FIRM CUSTOMER WITH A
CURTAIMENT CREDIT?
No. To price Monsanto as a firm customer is a complete fiction that does not
reflect reality. Monsanto has always received non-firm power and been subject to
curailment, excepting for the small 9 MW of firm service. The so-called
"interrptible credit" is also a fiction since it in effect presumes that PacifiCorp is
buying back from Monsanto power that was never received in the first place. For
these reasons and because of the benefits provided to the entire system, Monsanto
proposes to amend the jurisdictional cost-of-service studies to better reflect the
non-firm service characteristics.
PLEASE COMMNT ON THE RATE INCREASE PROPOSED FOR
MONSANO IN TIDS CASE.
As can be seen from Exhibit 229 (KEl-l), Monsanto's rates have dramatically and
disproportionately increased since 2003 compared to other customers.
Monsanto's rates have already increased by 65% since 2003. If PacifiCorp's
proposed $22.3 millon increase is approved, then Monsanto's net rates wil have
increased an incredible 153% since 2003.
1401 Smith, Dl -12
Monsanto Company
.
2
3
4
5
6
7
8 Q
9
10.11 A
12
13
14
15
16
17
18
19
20 Q.21
Quite franly, I canot understand or accept how PacifiCorp can now
justify disproportionately increasing Monsanto's firm rates an additional 19.7%
and non-firm rates an additional 55% on the back of the recent increases. This
certainly constitutes rate shock and does not meet the test of fair, just and
reasonable rates under these circumstances. The Soda Springs plant canot
remain competitive with increases of this magnitude.
IV. REMAG COMPETITIV
BESIDES CARFULY MAAGING ITS ENERGY USE, WHT. OTHER
TIlGS IS THE PLAN DOING TO REDUCE ITS COST AN REMA
COMPETITIV.
The Soda Springs Plant is challenging every aspect of our business to find ways to
reduce its costs. This includes eliminating roles and processes that no longer
bring value or that are no longer critical to the business. Every expenditure is
being challenged. We have enabled every employee to share ideas and
suggestions for cost reduction. We have challenged vendors and contractors to
help us find ways to reduce our cost of producing phosphorus. All of Monsanto's
key vendors have been challenged to come up with ways to reduce total costs.
Most of these are responding to the challenge, they understand that they and
Monsanto must be financially viable to enjoy a long term business relationship.
HAS MONSANO RECENTLY BEEN REQUIRED TO REDUCE
PRODUCTION AT THE SODA SPRIGS PLANT?
1402 Smith, Dl-13
Monsanto Company
.1 A
2
3
4 Q
5 A
6
7
8 Q
9.10 A
11
12
13
14
15
16
17
18
19
20.
Yes. During 2009 the Soda Springs plant was required to idle several furnaces
over a course of several months as a result of lost market share due to competition
from the Chinese in the glyphosate business.
HAS MONSANTO REDUCED JOBS AT THE SODA SPRIGS PLANT?
Yes, in the last twelve months the Soda Springs Plant has cut 15% of its salaried
employees and continues to make changes and reorganize to reduce the cost of
production. Such adjustments are necessary to remain competitive.
IS IT INVITABLE THT THE SODA SPRIGS PLANT WILL ALSO
BECOME NON-COMPETITIV AN BE SHUT DOWN?
No, but it is a real possibility. However, I believe that the Soda Springs plant can
stay in business if we can produce phosphorus at competitive prices which
requires that we control electricity and other costs. Soda Springs has 40 plus years
of phosphate ore reserves that can be feasibly mined. We have a highly educated
and trained work force, committed to the successful long-term operation of the
plant. We have practices and experience which enable us to produce P4 in the
safest and most environmentally responsible manner in the world. Monsanto has
the ability to continue to make the necessary capital expenditures to continue
operations at Soda Springs but only provided we can produce phosphorus
competitive in the global market. This challenge is further discussed in the
testimony of Kevin P. Lawrence.
1403 Smith, Dl -14
Monsanto Company
.
.
.
1 Q
2
3
4 A
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20 Q
21
HOW WILL THE SODA SPRIG PLANT OFFSET THE COSTS
ASSOCIATED WITH TH RATES ROCKY MOUNTAI POWER is
PROPOSING.
It canot. Electricity represents approximately 20-30% of our cost of production.
Monsanto canot survive double digit increases as proposed in case filing in
2003,2007,2008 and now again in 2010. All of the Soda Springs Plants efforts
to control its cost wil be insignificant and not come close to offsetting the
increased costs for its electricity. In my opinion, Monsanto Management wil have
little choice but to replace Soda Springs with purchases from China if electrical
costs continue to increase at the magnitude Rocky Mountain Power is proposing.
The latest methodology for allocating costs and the practice of pricing Monsanto
as if it were firm and then giving them a credit for curailment, is harful to Idaho
and Monsanto, and if continued may well result in the closure of Monsanto's
Soda Spring Plant. Pricing Monsanto as a firm customer for its non-firm service
wil put Monsanto in a death spiraL. I am confident however that when the
Commission reviews this impact, and other more appropriate methodologies for
allocating costs and pricing Monsanto as presented by Ms. Iverson, it wil
address these gross inequities and bring back a more fair, just and reasonable
approach.
WITH RISING ELECTRICITY COSTS, WHT is NEEDED FOR THE
MONSANO SODA SPRIGS PLAN TO REMA COMPETITIV?
1404 Smith, DI -15
Monsanto Company
.A
2
3
4
5
6
7
8
9
10
11.12
13
14
15
16 Q
17
18
19 A
20
21
22.23
In my opinion the plant must have affordable electricity at a price that is relatively
stable and certain. While Monsanto's demand on the electrical market has been
unchanged since 1966, we have faced substantial rate increases in recent years.
Looking beyond the present case we are highly concerned about regular and
substantial PacifiCorp general rate increase cases anticipated in future years. This
is being driven by huge capital expenditures planned over the next decade to pay
for new transmission, wind and other resources to meet projected load growth and
demands for "green" power in other states. I know that Monsanto canot afford
to pay for the needs of other states, and I seriously doubt other Idaho customers
could bear such costs. Therefore, I urge the Commission to undertake a
significant review of the revised allocation methodology in the recently filed Case
No. PAC-E-lO-09 to make sure Idaho customers do not pay for costs that are not
driven by Idaho policies or load growth.
v. ECONOMIC IMPACTS OF MONSANO'S
SODA SPRIGS PLANT
DO YOU BELIEVE TH COMMSSION SHOULD GIV
CONSIDERATION TO OTHER FACTORS IN ADDITION TO COST OF
SERVICE STUDIES?
Yes. Cost of service studies are certainly important to be considered in setting
rates. However, it is well recognized that cost of service studies are based upon
complex models and assumptions which give rise to results which may not be
precise, certain or entirely reliable. For that reason it is my understanding that
this Commission, prior Commissions and even the Idaho Supreme Court have
1405 Smith, DI -16
Monsanto Company
.recognized that cost of service studies are but one of many factors that the
2 Commission may consider in setting rates. For that' reason, i believe it is
3 appropriate to discuss and make a record of other factors which i believe are
4 important to consider.
5 Q
6
7 A
8
9
10.11
12
13 Q
PLEASE DESCRIE SOME OF THE OTHER FACTORS THAT SHOULD
BE CONSIDERED IN SETTING MONSANTO'S RATES.
i believe it is important to consider changes in Monsanto's rates in recent years as
compared with other customers. i also believe it is very important to fully
consider and fairly value the long-term past and future benefits Monsanto
provides to the PacifiCorp system as an interrptible customer. i fuher believe it
is important to consider the economic benefits Monsanto provides to the region
and the importance of maintaining a solid and consistent base of high-paying jobs.
HOW MA EMPLOYEES AR EMPLOYED BY MONSANO
14 RELATING TO THE OPERATION OF THE SODA SPRIGS PLANT.
15 A On average, 685 fulltime employees are employed in the operation of the Soda
16 Springs plant. Of these, an average of 370 are direct full-time employees of
17 Monsanto. The remaining are full-time employees of our mining subcontractor
1 8 and other subcontractors.
.
1406 Smith, Di - 17
Monsanto Company
.1 Q
2 A
3
4 Q
5 A
6
7
8
9
10.
11 Q
12
13 A
14
15
16
17
18
.
WHRE DO THE FUL-TIME EMPLOYEES RESIDE?
The breakdown by county is as follows: Caribou - 385, Banock - 119, Bear
Lake ~ 89, Franklin - 18, and other - 74.
WHT WAS MONSANO'S TOTAL PAYROLL FOR YEAR 2009?
The payroll and benefits for all Monsanto full-time, part-time and seasonal
employees in 2009 was $29 milion dollars. This does not include payroll
overhead or amounts paid to employees of subcontractors. The average wage rate
for our employees is $26.46 per hour and our average salar $80,000 per year.
This is significantly higher than the average of non-industrial wages paid locally
and in the region.
WH DO THESE JOBS PAY MORE THA THE AVERAGE JOB IN THE
REGION?
Monsanto jobs require a high level of training and/or education and experience.
Our employees consist of highly-skiled and trained technicians, joureymen and
professionals. Monsanto's salary jobs are made up of engineers, geologists,
safety specialists, accountants and other professionals. Simply put, Monsanto
pays market wages in order to attract the type and quality of workers needed to
successfully operate the Soda Springs facility.
1407 Smith, Di -18
Monsanto Company
.
.
.
1 Q
2
3 A
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
DOES MONSANTO MA OTHER FINANCIA CONTRIBUTIONS TO
BENEFIT THE LOCAL ECONOMY?
Yes. In 2009 Monsanto paid over $98 million to approximately 300 Idaho
vendors who provide material and services to Monsanto. Economists typically
use a multiplier to indicate the indirect economic effects of a business. These
indirect effects arise because payments made to the company's workers and
vendors increase the community's overall income. For example, when workers
receive their wages they use this income to buy goods or services from other
businesses in the local and regional economy. This income is used to pay
employees and purchase goods and services from other businesses, and in turn
they spend this money on goods and services, and the moneys ripple through the
economy. 1 have seen estimates that this may occur from 3 to 6 times before the
moneys flow out of the local economy. Using these multipliers, the impact to the
local Idaho economy from Monsanto wages, salaries, and payments to vendors,
which totals approximately $127 milion per year, would produce a range of
Idaho economic impact of somewhere between $ 381 milion and $762 millon
anually. The Idaho Deparment of Labor recently estimated, as par of their
official comments on Monsanto's proposed Blackfoot Bridge Mine, that loss of
the Monsanto operations in southeast Idaho would cost the region an additional
1,478 jobs beyond those directly employed by Monsanto. This includes 193 retail
sector jobs, 51 finance and insurance jobs, 158 health care jobs, and 174
governent sector jobs, including school teachers.
1408 Smith, DI -19
Monsanto Company
.Q
2
3 A
4
5
6
7
8
9
10 Q.11
12 A
13
14
15
16
17
18
.
WHT OTHER WAYS DOES MONSANTO'S SODA SPRIGS
OPERATIONS IMPACT THE LOCAL ECONOMY?
Monsanto pays local property taxes, state mine license taxes, and federal mineral
royalties, in addition to other state and local taxes, fees and licenses, all of which
contribute to running and maintaining local, state and federal governents and
programs benefiting all citizens. In addition, Monsanto actively encourages its
employees to be civically and politically active in the community. You wil find
Monsanto employees actively involved in local and state governent, and in
almost all philanthropic activities in the region.
DOES CONTRIUTE THESE LOCALMONSANOTO
PHIANOPIC EFFORTS?
Monsanto's Soda Springs plant made donations to local civic organizations
totaling $534,400 in 2009. These included scholarships for FF A Chapters
throughout southeast Idaho, sponsorship of community athletic teams and
leagues, underwting Idaho Public Television, the donation of laptop computers
and the construction of greenhouses at local high schools. Monsanto's employee
matching program matches, dollar for dollar, employee donations to non-profit
philanthropic organizations, up to $5,000 per year per employee.
1409 Smith, DI -20
Monsanto Company
.
2
3 A
4
5
6
7
8
9
10
.11 Q
12 A
13
14
15
16
17
18
19
20
21.
Q AR MONSANTO'S IMPACTS OF PARTICULAR IMPORTANCE TO
THE LOCAL ECONOMY?
Monsanto's and Agrium's phosphate operations are the two largest contributors to
the local economy. The last census established that 70% of the non-far wages
in the area were paid to 30% of the local work force working in phosphate mining
and manufacturing jobs. According to the Idaho Department of Labor's recent
analysis, Monsanto directly employs 13% of workers in Caribou County and 8%
of workers in Bear Lake County. The high wage rate turns this employment into
20% of the eared income in Caribou County and 22% of the eared income in
Bear Lake County.
IS THE LOCAL ECONOMY SUFFERIG?
Yes. For the past several years Caribou and Bear Lake Counties have lost jobs.
School student enrollments have significantly declined. This is largely
attributable to the loss of industrial jobs in the area. Plant closures in recent years
include Kerr-McGee, Chemical Lime, and Astaris. All of FMC's plant mining
jobs were lost when their operations closed in 2001. Several businesses have had
work force reductions, including J.R. Simplot, Union Pacific, Heritage Safe, DRS,
and the local school districts. When you factor on top of this the national
recession the local economy is suffering significantly. Clearly Monsanto's and
Agrium's continued presence becomes critically important to the region and
Idaho.
1410 Smith, DI -21
Monsanto Company
.
.
.
1 Q
2 A
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17 Q
18
19 A
20
21
22
HOW DOES THE COMMTY FEEL ABOUT MONSANO?
A study by Greg Smith and Associates in 2008 concluded that Monsanto's Soda
Springs plant had the highest level of respect and trust from the residents of local
cities and counties of any business in any other location, and in fact had received
the highest support that the pollng firm had ever encountered for an industry.
The survey demonstrated that, of those familiar with Monsanto's operations, 90%
had a "favorable" view of the company's operations in southeast Idaho.
Monsanto is also an OSHA STAR facility, the highest award OSHA provides for
safety. In addition Monsanto has been awarded numerous awards for its mining
and reclamation efforts. These awards show Monsanto's commitment to ear the
right to operate each and everyday, by being a safe place to work, and a
responsible citizen and neighbor. This was ilustrated by the response to the draft
Environmental Impact Study on Monsanto's proposed new mine. In the public
comment process on that mine over 4,500 responses came from Idaho and 98% of
those were favorable. Such responses are only achievable when the public sees
your commitment being honored every day.
DOES MONSANTO'S SODA SPRIGS PLANT PROVIDE BENEFIT
OUTSIDE OF IDAHO
Yes, there are two obvious benefits. First, Monsanto's non-firm load provides a
total of 1050 hours of curtailment for operating reserves, system integrity that
benefits to the entire PacifiCorp system through the avoidance ofthe need to build
new plants. It is worth noting in these days of preference for renewable resources
1411 Smith, DI -22
Monsanto Company
.
.
.
2
3
4
5 Q
6 A
that the curailments are environmentally friendly because they do not result in the
consumption of thermal fueL. Second, the Soda Springs plant and mining
operations provide significant regional and national benefits due to the size of
Monsanto's economic footprint.
DOES TIDS CONCLUDE YOUR TESTIMONY?
Yes.
1412 Smith, Di ~23
Monsanto Company
.
.
.
1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER SMITH: Mr. Woodbury, do you have
4 any questions?
5 MR. WOODBURY: I do.
6
7 CROSS-EXAMINATION
8
9 BY MR. WOODBURY:
10 Q.Good morning, Mr. Smith.
11 A.Good morning.
12 Q.The revised protocol followed in Idaho, Monsanto
13 participated in all the workshop discussions which resulted in
14 that protocol, didn't it?
15 A.Early on. I don't know if we were in all of
16 them, but we tried to make as many as we could.
17 Q.And looking at -- you're familiar with all of the
18 testimony of Monsanto's other witnesses. Have you read it?
19 A.Yes, I have read it, yes. I'm not an expert on
20 all those categories, but I have read it, yes.
21 Q.Ms. Iverson states that, certainly, in the
22 Stipulation that was approved by the Commission and PacifiCorp
23 in the 02-3 case, all parties and I think it's reflected in
24 the Stipulation itself that all parties recognize that
25 circumstances might change going forward, and which would be an
1413
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.25
1 occasion for Commissions to back away from that Agreement?
2 A.Yes, sir, and that was an important clause when
3 Monsanto signed onto that.
4 Q.But she states also that it was Monsanto's
5 understanding that the Company would continue its pattern of
6 limi ting rate increases due to rising costs. And I don't
7 reflect that that was a I don't understand that that was a
8 term of the Stipulation or even the Commission's Order.
9 A.In regards to going to protocol?
10 Q.Yes. I mean, did the Company have a sidebar
11 conversation? Did Monsanto have a sidebar conversation with
12 the Company or was there something reflected in writing too
13 that that would be your understanding?
14 A.In regards to the allocation case, I don't
15 know -- I know there was some discussions, but I don't recall
16 that. I do recall that being more a factor when we were I
17 guess suggested to more closely match the timing of our
18 contracts with rate cases and, in fact, was the motivation
19 behind us moving to and agreeing to be I guess what you would
20 consider a tariff customer.
21 Q.And you state in your testimony -- direct
22 testimony, page 2 do you have that?
23 You're speaking of Monsanto's service from
24 PacifiCorp, and you state that you've always been a nonfirm
customer subject to curtailment, and you do not sell any power
1414
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 back and it's a complete fiction, you know, that the protocol
2 is set up in the way that it does with respect to
3 jurisdictional allocation.
4 But, I mean, it's modeled that way as, if I
5 remember the discussions, as sort of a work-around, and the
6 company was participating in those discussions and understood
7 what was happening -- Monsanto being "the company."
8 A.Monsanto has always been a nonfirm customer up to
9 the nine megawatts of firm.
10 Q.Sure.
11 A.So let me make sure that's correct.
12 Q.But you understood how the jurisdictional
13 allocation worked with respect to Monsanto. You understood
14 that at the time?
15 A.We had an expectation of how it would work. It
16 has not proven to work out exactly the way it's not
17 generating the results that we were expecting to happen.
18 Q.On page 17, you start -- you talk about other
19 factors that the Commission can consider?
20 A.Yes, sir.
21 well, I think those are otherQ.Is it your
22 factors that you would like the Commission to consider, but
23 would you accept that the Commission's -- the factors that the
24 Commission can consider are perhaps limited by statutory
25 authority?
1415
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 A.I understand there's some statutory authority,
2 but I do also understand that the Commission's responsibility
3 is to set fair, just, and reasonable rates, and I believe some
4 of these other factors play into that.
5 Q.And on page 8 of your testimony, you talk about
6 the change to tariff-based rates and that you say that there
7 was a considerable concession made by Monsanto. Well, the two
8 items you suggest or indicate as to the reason for Company and
9 Staff's desire to better align the timing of Monsanto rate
10 changes ahead of other customers and to overcome perceived
11 problems with cost of service studies, those were very real
12 problems that were perceived, weren't they?
13 A.I don't disagree that those parties believed that
14 those were very real. I was trying to point out that in moving
15 to those, we lost control about when contracts would end and
16 when price increases would change. That was totally given up
17 and is in the hands of the power Company.
18 Q.Page 15 of your testimony, you state that --
19 you're describing the company and you state that the Soda
20 Springs plant, 20 to 30 percent of your cost of production is
21 electrici ty; and that the company Monsanto -- cannot survive
22 a double-digit increase, and that it shouldn't receive one. Is
23 this your -- you state it's your opinion the company would have
24 little choice but to replace Soda Springs with purchases from
25 China?
1416
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 A.Monsanto has gone through a series of
2 double-digit increases. We are facing a 55-percent increase in
3 this case. Company witnesses have suggested that they will be
4 in year after year. Electricity is our largest cost component,
5 and if we -- and we are doing everything we can to date to
6 barely stay competitive with phosphorus. So if this magnitude
7 of increase occurs this year and then we face them every year
8 here going forward, it is my opinion that the Soda Springs
9 plant will enter the death spiral and will make an exit.
10
15
Q.
A.
Q.
A.
Q.
what?
A.
Q.
A.
And Monsanto's recommendation in this case is
Okay. And -- okay. You say 55 percent being
11 That's the total net.
12 Yes.
13 Yes, sir.
14
19 up every proposed adj ustment.
20 And, second of all, I don't know, maybe you can
21 advise me: I don't know how far I can talk about what
22 interruptible credits we might think are appropriate.
23 Q.Not very far.
24 You would accept that you're the -- are you the
25 policy witness for Monsanto in this case or is Ms. Iverson?
1417
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
20
21
1 A.I think we're a little different than the power
2 Company. I have operational knowledge of the Soda Springs
3 plant. Mr. Lawrence -- Kevin Lawrence is vice president of
4 procurement and is here to represent Monsanto Corporation.
5 Q.Okay.
6 MR. WOODBURY: Madam Chair, Staff would have no
7 further questions.
8 COMMISSIONER SMITH: Mr. Purdy, do you have
9 questions?
10 MR. PURDY: I do not.
11 COMMISSIONER SMITH: Ms. Davison.
12 MS. DAVISON: No.
13 COMMISSIONER SMITH: Mr. Olsen.
14 MR. OLSEN: No, Madam Chair.
15 COMMISSIONER SMITH: Mr. Otto.
16 MR. OTTO: I have no questions, Madam Chair.
17 COMMISSIONER SMITH: Thank you. Mr. Hickey.
18 MR. HICKEY: I do. Thank you, Madam Chairman.
19
CROSS-EXAMINATION
22 BY MR. HICKEY:
23
24
25
Q.Good morning, Mr. Smith.
A.Good morning.
Q.I'd like to talk to you a little bit -- and
1418
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
23
1 briefly -- about the history of the contract. It's a fact,
2 isn't it, that there have been successful negotiations over the
3 several decades of the relationship of Monsanto and Rocky
4 Mountain Power and the predecessor owners of these assets in
5 Idaho that have resulted in successful negotiations to
6 establish the contracted services for electricity to the
7 Soda Springs plant? Isn't that true?
8 A.In the history of our operation, there have been
9 successful negotiations, yes, sir.
10 Q.And no one on either side of this business
11 relationship was forced into those contracts. Isn't that
12 true?
13 A.I would agree that through successful
14 negotiations, parties agree and -- to a solution, yes.
15 I'm sure you'd agree with me that Monsanto is aQ.
16 sophisticated business with very qualified, competent people to
17 undertake the management of its assets and responsibilities?
18 I will take that as a compliment, sir.A.
19 And you state in your direct testimony thatQ.
20 Monsanto provides 1,050 hours and up to 162 megawatts of
21 curtailment, and I'll -- can 162 megawatts be curtailed for
22 1,050 hours of each year?
A.No, sir, it cannot, and I think it's explained in
24 my testimony what can be taken.
25 Q.And, in fact, only once since 2001 have 162
1419
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 megawatts been interrupted under system integrity options of
2 the curtailment products, isn't it?
3 A.No, sir, that's in error.
4 Q.Well, let me hand you what I've marked as
5 Exhibi t 87, and I'LL represent as I pass it out that it's a
6 Response to a Data Request.
7 (Rocky Mountain Power Exhibit No. 87 was
8 marked for identification.)
9 Q.BY MR. HICKEY: So to be specific here, we're
10 looking at Monsanto Data Request 1.24, aren't we?
11 A.This is 1.24, yes, it is.
12 Q.And the question that was asked was: Please
13 provide a history of all curtailment interruptions made to
14 Monsanto for the years 2001 through 2009, inclusive.
15 Is that the gist of the question?
16 A.That appears to be the gist, yes.
17 Q.And attached to Exhibit 87 is an entry indicating
18 that for system integrity, there was one interruption on the
19 14th of February of 2008 that lasted 1.95 hours and interrupted
20 116 megawatts, not the full 162 megawatts. Isn't that true?
21 A.That's -- well, first of all, the record
22 indicates, which I don't dispute on that date, that there was
23 an interruption. Each interruption of an hour counts as an
24 interruption. So if the duration of this was 1.95 hours, that
25 would actual count as two according to the contract.
1420
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 Second of all, sir, this is not a complete set of
2 information. There were additional system integrity
3 interruptions and, in fact, the year that you're speaking of,
4 PacifiCorp exceeded its 12 allotted and, in fact, allotted
5 interrupted us more than that. Monsanto agreed to those
6 interruptions and later was traded some additional hours in
7 later years as a result of them going down.
8 Q.Well, let's get back to the initial question if
9 we could, Mr. Smith.
10 It's a fact that 162 megawatts cannot be
11 interrupted for a total of 1,050 hours each year. Isn't that
12 true?
13 A.Yes, sir, that is true.
14 Q.And, in fact, the first category -- or, let me
15 just call it one category of interruptible product of 67
16 megawatts that's the largest number of hours of interruption,
17 850, provides your Company a buy-through option, doesn't it?
18 A.PacifiCorp can interrupt us for economic reasons
19 for 850 hours this year, that up to 67 megawatts; and at
20 Monsanto's discretion, PacifiCorp will acquire that power from
21 the marketplace for us at a price plus an escalator.
22 Q.So can we agree that you have a buy-through
23 option then on that 67 megawatts of interruption?
24 A.Yes, sir, the economic curtailment has a
25 buy-through option.
1421
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 Q.And that's, in fact, found in Paragraph 5 of the
2 attachment to the contract, isn't that?
3 A.Sir, I don't have that in front of me, but I'll
4 take that subj ect to check.
5 Q.Okay, subj ect to check, and I have the contract
6 if at any time you want to look at it.
7 Now, when we talk about the system integrity
8 interruptions that we were visiting about a moment ago that
9 have the larger number of megawatts associated with them, would
10 you agree with me, Mr. Smith, that it's a pretty rare event to
11 ever trigger system integrity?
12 A.The power Company has 12 -- has the opportunity
13 to interrupt us 12 times, each time lasting an hour.
14 Q.I'm sorry, Mr. Smith
15 A.I'm trying to finish your question, sir, if
16 you'd
17 Q.Well, I think you're trying to rephrase my
18 question.
19 COMMISSIONER SMITH: Let's let the witness see if
20 he can get to your answer, Mr. Hickey.
21 THE WITNESS: Mr. Hickey, the system integrity
22 option that the power Company has is for 12 hours at 162
23 megawatts, and it can use those whenever it has need. Over the
24 years, it has used them sometimes rarely; and in 2008, as I
25 recall, they used -- in fact, exceeded the 12. It really
1422
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 depends on what's happening in their system.
2 Q.BY MR. HICKEY: Okay. I don't think that was
3 responsive to the question.
4 My question, sir, was this: Isn' t it true that
5 under the contract, there is a defined circumstance that
6 triggers the system integrity interruption and it doesn't occur
7 very often?
8 A. In a year -- one of the years, I recall it didn't
9 happen at all. In other years, like I mentioned, Mr. Hickey,
10 they have exceeded the 12. But there are only 12, and I can
11 agree with you that 12 is not a lot in comparison to 1,050.
12 Q.Can you agree with me to this extent, Mr. Smith,
13 that a double contingency event means that there's been a
14 forced outage of two or more PacifiCorp generating units
15 totaling 500 megawatts or more of capacity; and that to qualify
16 as a double contingency event, two or more forced outages
17 totaling 500 megawatts or more of capacity must occur within
18 48 hours of each other and must overlap for at least one hour?
19 Isn't that the threshold that must occur before the system
20 integri ty interruption is triggered, Mr. Smith?
21 A.I believe you've read --
22 MR. BUDGE: Excuse me. Excuse me for
23 interrupting. Counsel, I think you're going ahead and asking
24 lots of questions about a contract that speaks for itself, and
25 could we simply go ahead and make an exhibit out of the
1423
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 contract? I have copies. I'd be happy to mark it as Monsanto
2 Exhibit 250 (sic). Then you can refer him to the paragraphs
3 you want to read from specifically.
4 MR. HICKEY: I have another copy and would be
5 happy to just mark it as PacifiCorp Exhibit 88.
6 COMMISSIONER SMITH: Do you care the exhibit
7 number, Mr. Budge?
8 MR. BUDGE: The exhibit number I have would be
9 251.
10 COMMISSIONER SMITH: He would like it to be
11 Exhibit No. 88. Does that matter to you?
12 MR. BUDGE: No.
13 COMMISSIONER SMITH: All right, let's get the
14 contract marked and distributed.
15 MR. HICKEY: Sure. I have it as 88, and I'll be
16 glad to give it to the witness. I can give copies to parties.
17 I do need to note, as Mr. Budge is fully aware, there are
18 portions of this that are confidential.
19 MR. BUDGE: And those have been redacted from the
20 copy you have?
21 MR. HICKEY: Not from this copy.
22 MR. BUDGE: Then I would prefer to use our copy
23 of the exhibit that is redacted, and probably be just as clean
24 to have it as a Monsanto exhibit since it would be a Monsanto
25 document.
1424
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
20
22
1 COMMISSIONER SMITH: Okay.
2 MR. HICKEY: It's a shared document, but I think
3 it's -- I'm certainly indifferent as to whose number is on it;
4 and if it's already redacted, that's fine.
5 Q.BY MR. HICKEY: So in any event, we're in
6 agreement that --
7 COMMISSIONER SMITH: Let's be at ease for a few
8 moments while we get the exhibits passed out so that everybody
9 can follow.
10 (Discussion off the record.)
11 (Monsanto Exhibit No. 251 was marked for
12 identification. )
13 COMMISSIONER SMITH: Thank you, Mr. Budge.
14 Q.BY MR. HICKEY: Mr. Smith, are you ready to
15 continue?
16 A.Yes, sir.
17 For your benefit, I'm on page 2 of the attachmentQ.
18 as Paragraph 3, dealing with system integrity interruptions.
19 A.I'm sorry, could you give me a second?
Q.Sure.
21 Which -- your page 3 of exhibit which?A.
Q.It's actually page 2 of Exhibit A, so you're
23 quite a ways into the entire document. I'll say about 60
24 percent into it is where Exhibit A that says Operating Reserve
25 System Integrity Options.
1425
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
19
20
1 A.Yes, sir, I have that.
2 Q.And I'm on page 2 of that, and we have been
3 visi ting about Paragraph 3, the events that trigger system
4 integri ty interruptions.
5 A.Yes, sir.
6 Q.And can you agree with me that one of those
7 events is what I just read, the double contingency event of the
8 two 500-megawatt capacity plants going out within 48 hours of
9 each other with overlap outages for at least one hour?
10 A.Yes, sir, that's what it appears to say.
11 Q.And to be complete, there is another
12 vol tage-related system integrity interruption that's provided
13 for in that same paragraph. Isn't that true? And to help
14 direct you to it
15 A.Yes, could you direct me, please?
16 Q.The first sentence.
17 A.First sentence on page 3?
18 Q.Actually, it's still page 2 at Section 3.
A.Section 3.
Q.PacifiCorp may request system integrity
21 interruptions of up to the 162 megawatts.
22 COMMISSIONER SMITH: So that number is redacted
23 in my copy. Is that one of the secret numbers.
24
25
MR. BUDGE: We're okay.
COMMISSIONER SMITH: We're okay with that.
1426
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.25
1 THE WITNESS: Yes, sir , it does reference
2 voltage.
3 Q.BY MR. HICKEY: Okay. So just to move on with
4 this, it would -- in order to understand the interruptible
5 options and how often that occurs and how many megawatts of
6 interruption actually happen to the plant, you would have to
7 unpack your testimony and explore what you really meant when
8 you said Monsanto provides 1,050 hours and up to 162 megawatts
9 of curtailment to see what kind of operational issues
10 transpired at the plant. Isn't that true?
11 A.My statement is true. It's a summary of what's
12 provided. It would require you to have a detailed
13 understanding of how this worked to read all of the pages
14 enclosed in the contract on how these -- how the various
15 curtailments take place.
16 Q.Sure. But to be fair about it, you would quickly
17 say to anyone you were explaining a curtailment to that there
18 are different products with different hours and different
19 circumstances associated. to it. You would tell them that,
20 wouldn't you?
21 A.Certainly, if someone asked. I don't believe my
22 summary is inaccurate.
23 Q.I'm not arguing with that, sir.
24 A.Okay.
Q.And to be fair, when you would explain this to
1427
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 someone, you would also tell them that under certain
2 circumstances, you have the opportunity to buy through the
3 curtailment at a market price?
4 A.For the economic curtailment, yes, sir.
5 Q.Yes. Okay. Now, you state in your testimony
6 that Monsanto's load can be taken quicker than any of the
7 PacifiCorp peaker resources, and then you identify the
8 irrigators, Nucor, and Magnesium. And that is pages 6 and 7 if
9 you would like to reference to where you said that.
10 A.Yes, please, give me just a second.
11 Yes, sir.
12 Q.Okay. Now, could you summarize the response
13 times of these other customers compared to Monsanto's response
14 time, if you know?
15 A.Can I summarize their response time?
16 Yeah. Do you know -- well, just so we don't missQ.
17 each other with words here, do you know the response time for
18 these other peaker resources that you identified in your
19 testimony?
20 A. I do not have any documents that define their
21 response time. My reference here is based on some experience
22 in conversations I've had with various folks, and reference --
23 those would include Company as well as individuals from Nucor
25
24 and -- Nucor and the irrigators. So that's my general
experience.
1428
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 This was an issue that was hotly contested in
2 2003, and so I followed with interest this issue to make sure
3 that our response time was very quick.
4 Q.Well, "very quick." What do you mean by "very
5 quick"?
6 A.Matter of seconds, sir.
7 Q.Well, isn't it true that for economic
8 curtailment, you, in fact, have a two-hour window under the
9 contract we were just looking at, now Monsanto Exhibit 252
10 (sic)?
11 A.Yes, sir.
12 Q.251.
13 A.Economic curtailment gives me two hours to react
14 and i t gives me a specific time in which to react.
15 Q.So that isn't a matter of seconds?
16 A.Sir, when that time occurs, I interrupt promptly
17 at that time.
18 Q.Now, I want to talk to you a little bit and
19 hopefully briefly, Mr. Smith, about some of the areas that
20 Mr. Woodbury was visiting with you about. I understand from
21 your testimony and as summarized again in the exchange you had
22 wi th Mr. Woodbury that you have -- my words, not yours -- a
23 disappointment that there is now a tariff and that you migrated
24 from a special contract for your electrical service to becoming
25 a tariffed customer of PacifiCorp.
1429
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 Did I get that right?
2 I have been disappointed with the results ofA.
3 moving us that direction.
4 All right. Well, that one sounded like we gotQ.
5 something we could agree on.
6 A.I would hope so.
7 Q.Fair enough?
8 But when you were a contract customer, that's not
9 to say this Commission had no role over the approval of that
10 contract. Isn't that true?
11 A. This Commission has regulated our Utility for
12 years, and it's my understanding has to approve any contract.
13 Sure. So it wasn't a complete what I'll call aQ.
14 cliff effect of you jumping off a cliff and saying, We're now
15 in the world of a regulated customer. You were, in fact,
16 regulated through the process of having a special contract
17 reviewed by this Commission and having it exercise independent
18 judgment as to whether or not the public service -- excuse me,
19 the public interest would be well served by the approval of
20 that contract. Isn't that true?
21 A. Sir, the change that I was disappointed in was
22 that we lost the control over when contracts would terminate
23 and, in fact, now we're subject to the whims of the Utility as
24 to when they will file and request rate increases.
25 Okay. But the contract's always had a term,Q.
1430
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 right; and at the conclusion of that term, as we all know very
2 well comes about here in another 29 days or so of this month,
3 the contracts do end at the defined term of the contract.
4 Correct?
5 A. Contracts end at the defined term of the
6 contract. However, the contracts we were entering into were
7 typically a multiyear, many of theme five-year deals, and in
8 many cases we even replaced the contract prior to the
9 expiration of the contract we were currently in.
10 Q.Fair enough. If I were to want to visit with the
11 Monsanto witness who was the most informed about the total
12 economic circumstances that have impacted the ability of
13 Monsanto to produce Roundup and peak in international markets,
14 would that be you or Mr. Lawrence?
15 A.Mr. Lawrence would be the person that you should
16 direct the questions regarding the glyphosate and Roundup
17 operation.
18 But you would agree that the cost of electricityQ.
19 is but one factor that is part of a larger circumstance and set
20 of facts that are impacting the economic viability of
21 Monsanto's Soda Springs facility and its ability to
22 competi ti vely produce product that eventually is part of the
23 Roundup marketed herbicide?
24 A.I would agree that there are multiple aspects,
25 but I would also agree that electricity is the largest single
1431
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 cost component of that operation.
2 Q.And you've put it at a range somewhere of 20 to
3 30 percent of the total cost of your production out of Soda
4 Springs?
5 A.Yes, the operating costs at Soda Springs, yes,
6 sir.
7 Q.Okay. Let's move next to your testimony about
8 rate increase. You've talked about a rate increase of $22.3
9 million. Correct?
10 A.That's my understanding, yes, sir.
11 Q.And you've represented in your direct that that
12 would be a gi ve me the figure if you can -- 55 percent
13 increase?
14 A.Fifty-fi ve percent increase is my understanding,
15 sir.
16 Q.That's not what the Company filed though, is
17 it?
18 A.Yes, it is, sir.
19 Q.Well, let me show you what I'll represent to you
20 and for the benefit of your counsel is an exhibit that was part
21 of the attachment to Mr. Bill Griffith's testimony, the last
22 witness we had on the stand, the rate spread witness.
23
24
25
A.Yes, sir.
Q.And I'm going to be looking at Exhibit 84, page 1
of 21.
1432
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 A.I don't have that before me.
2 Q.I know. I wanted to bring it up to you if I
3 could.
4 A.Yes, sir.
5 MR. HICKEY: Madam Chair, may I approach the
6 witness?
7 COMMISSIONER SMITH: Yes, you may.
8 Q.BY MR. HICKEY: And since it's already in the
9 record, that's why I was reading the page. And if I can,
10 Mr. Smith, I'll represent to you that I understand Monsanto
11 appears under Line Item 16 as Special Contract No.1.
12 A.Okay.
13 Q.And moving across to the change in rates, the
14 figure is 10,822,000, not 55- -- excuse me, not the higher
15 figure that you have in your testimony?
16 A.I did not prepare that document. If you take the
17 filing as proposed and the additional testimony of
18 Mr. Clements, it represents a 55 percent number.
19 Q.Okay. And I appreciate you bringing the
20 subsequent testimony in, because as the case was filed, it was
21 actually at this 18.2 percent increase. Correct? This is
22 before the Clements testimony?
23 A.I have seen PacifiCorp documents that document
24 that at 19.6, 19.7, and now you've shown me one at 18 point
25 something.
1433
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 Q.All right. We'll, I'll represent to you from the
2 rate spread perspective of the witness who supported that piece
3 of testimony, it's 18.2 percent; but that's substantially less
4 than the 55 percent that you and other Monsanto witnesses have
5 been talking about. Isn't that true?
6 A.Because it does not include other aspects, yes,
7 sir.
8 Q.Well, to be fair here to hope to be -- the 55
9 percent increase assumes that there is no contract and there is
10 no replacement of any interruption under whatever name that
11 occurs, whether it's nonfirm service or whether it's called an
12 interruptible credit. Isn't that a fact?
13 A.Sir, you are going to need to repeat that one
14 more time. Let me see if I can follow your logic.
15 Q.Sure. I'LL try to make ita shorter question.
16 Isn't it true that for you to say to this
17 Commission the increase in your rates is 55 percent, you're
18 assuming that there is going to be no success in ever
19 establishing an interruptible product or another class of
20 service under the tariffs for your plant in Soda Springs?
21 MR. BUDGE: Chairman, I'm going to object to this
22 line of testimony. He's assuming some facts that are not in
23 evidence based on any testimony of this witness.
24 And, furthermore, I refer back to the testimony
25 from Company witness Mr. Walj e --
1434
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
20
1 MR. HICKEY: Could we have the obj ection, Madam
2 Chairman?
3 MR. BUDGE: I'm trying to do that.
4 COMMISSIONER SMITH: Yes.
5 MR. HICKEY: It sounds like a speaking objection
6 to me.
7 MR. BUDGE: Obj ection: Assumes facts not in
8 evidence through this witness's testimony, number one.
9 The second question is you're misstating the
10 record of the Company's filing according to Mr. Walj e' s
11 testimony. He said Monsanto's rates in this case would
12 increase 52.64 percent. And I asked him specifically, current
13 Monsanto rate was $30.64 per megawatt. The proposed increase
14 by the Company now --
15 MR. HICKEY: This really is beyond an
16 objection.
17 MR. BUDGE: May I finish, please, Counsel?
18 COMMISSIONER SMITH: Let him finish, Mr. Hickey.
19 We'll sort this out.
MR. BUDGE: And he said they were proposing to
21 raise it to 46.77 percent, and so I asked him to do the math,
22 which he did, and that was a 52.64 percent increase.
23 COMMISSIONER SMITH: Okay. Now it's Mr. Hickey's
24 turn.
25 MR. HICKEY: Sure. I mean, this is a speaking
1435
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 objection.
2 Mr. Smith has testified to 55 percent. I'm
3 simply establishing in the record that that is based upon the
4 assumptions of the contract expiring and no successful future
5 discussion and resolution of an interruptible product or a
6 nonfirm tariffed service.
7 COMMISSIONER SMITH: Okay, Mr. Smith, do you know
8 if your percentage is based on this assumption?
9 THE WITNESS: My percentage is based on a
10 worst-case scenario that I've calculated -- that we've
11 calculated from what the Commission's asked for and the loss of
12 interruptibili ty credit.
13 COMMISSIONER SMITH: You mean what the Company
14 has asked for?
15 THE WITNESS: What the Company has asked for.
16 COMMISSIONER SMITH: So your worst-case scenario
17 is that there is no interruptible or nonfirm rate available to
18 you?
19 THE WITNESS: No. I had help putting that number
20 together.
21
22
COMMISSIONER SMITH: That's what help is for.
THE WITNESS: And so before I say something in
23 error, could I just have a couple minutes to make sure or
24 would that be possible?
25 MR. HICKEY: Madam Chair, I can move this along.
1436
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
20
21
1 I'm happy to accept what Mr. Smith just said, that the
2 worst-case scenario is the 55 percent; and if there's a need
3 for redirect, obviously, you and Mr. Budge can see that that
4 occurs.
5 COMMISSIONER SMITH: Is that acceptable to you,
6 Mr. Budge?
7 MR. BUDGE: Yes.
8 COMMISSIONER SMITH: All right. Let's move on.
9 MR. HICKEY: That's all the examination I have.
10 Thank you.
11 COMMISSIONER SMITH: Okay. Do we have questions
12 from the Commissioners?
13 COMMISSIONER KEMPTON: No.
14 COMMISSIONER REDFORD: No.
15 COMMISSIONER SMITH: So now we're ready for
16 redirect.
17 MR. BUDGE: Thank you. Just a few questions, if
18 I may.
19
REDIRECT EXAMINATION
22 BY MR. BUDGE:
23 Q.Mr. Woodbury and also Mr. Hickey asked you
24 questions regarding what expectation Monsanto had when they
25 agreed to go to tariff rates that you now feel have not been
1437
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (Di)
Monsanto
.
.
.
1 realized. Can you explain what those are, what was the
2 expectation going into a tariffed rate contract, and what's the
3 disappointment arise out of?
4 A.It was pointed out to Monsanto that there had
5 been very few rate cases in the past at the particular time we
6 entered that Agreement, and that, in fact, the suggestion was
7 made that we would not lose the extra ability, that that would
8 continue. Additionally , it was our expectation that the cost
9 increases would be minimal, and so that was an expectation that
10 we had going forward.
11 Q.So you were looking at some price certainty and
12 some price stability?
13 A.The same principles that had been important to us
14 in the past were hoped that they would be continued under that,
15 the new treatment of Monsanto.
16 Q.Mr. Hickey asked you some questions about the
17 terms of Exhibit A, the operating reserves Paragraph 5, and
18 these double contingency events. Were those definitions that
19 were requested and provided by the Company as a part of what
20 they wanted in the contract?
21 A.Yes, sir. We were willing to provide the hours
22 of system emergency. What we asked the Company to do was
23 define what a system emergency was, and the language that you
24 find in the contract is the Company's definition of what a
25 system emergency would be. We accepted that.
1438
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (Di)
Monsanto
.
.
.
1 Q.Do you recall some questions by Mr. Hickey that
2 suggested your testimony that Monsanto would go down in a
3 matter of seconds when an interruption call came?
4 A.Yes, sir.
5 Q.And he was referring to some of the contract
6 provisions that allowed a greater time?
7 A.Yes, he asked me a question only about the
8 economic.
9 Q.And although the contract may allow a greater
10 time for various types of interruption, can you explain from an
11 operational standpoint, which I believe is your role in the
12 business, how do these interruptions actually occur?
13 A.Well, obviously, there are three types of
14 interruptions that we encounter:
15 The economic curtailment, PacifiCorp will fax us
16 a document that will tell us which hours during the day they
17 intend to interrupt us for economic reasons. That document
18 comes in with two hours' notice. Monsanto, prior to the
19 one-hour point, must decide whether or not it will buy through
20 or not. We return that fax with confirming phone calls to make
21 sure that they have received it. And then at the appointed
22 hour, if we do not buy through, then we come down immediately.
23 In terms of operating reserves and system
24 integri ty, a phone call is made. A direct line is established
25 between our control room and their dispatch. A phone call is
1439
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (Di)
Monsanto
.
.
.
1 made to our control operator, and immediately upon receiving
2 that phone call, we do as they instruct, whether that's all
3 three furnaces or two furnaces or in some cases they ask only
4 for one furnace. And that response is immediately. My
5 operators are instructed to follow their directions precisely.
6 Q.And does Monsanto maintain a log in its normal
7 course of business which reflects when these curtailment calls
8 or faxes come in, identifies the time they come in and when you
9 respond and curtail the furnace, which furnace is curtailed,
10 that type of information?
11 A.We retain the faxed copies that are exchanged.
12 We also maintain a log of each of those events in our computer
13 systems.
14 MR. BUDGE: May I approach?
15 COMMISSIONER SMITH: Okay.
16 (Monsanto Exhibit No. 252 was marked for
17 identification. )
18 Q.BY MR. BUDGE: Handing you what's been marked as
19 Monsanto Exhibit 252. Could you identify what that exhibit
20 consists of?
21 A.Yes, sir. These are the logs that we maintain
22 internally of the interruptions. The first few pages are 2007,
23 and then it goes through, I believe, till -- till, well, I
24 think two days before the case. We prepared this two or three
25 days before we came to Boise.
1440
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (Di)
Monsanto
.
.
.
1 MR. HICKEY: Madam Chair, I'd like to lodge an
2 objection at this point. If this was something that Monsanto
3 desired to make a part of the case, it should have been
4 attached as an exhibit at the time the testimony was filed.
5 And it seems like it's awfully late to be presenting an exhibit
6 like this at the time of the redirect of a witness, and would
7 obj ect on the basis of it's not a timely produced exhibit.
8 COMMISSIONER SMITH: Mr. Budge.
9 MR. BUDGE: Well, this wasn't something we
10 intended to make an issue out of until Counsel chose to bring
11 up and cross-examine Mr. Smith and contend that because the
12 contract provides long interruptions, that we don't, in fact,
13 interrupt in seconds as he said in his testimony. And this
14 document is simply into the door that was opened by Mr. Hickey
15 to substantiate for the Commission that Mr. Smith's testimony
16 was accurate, that they do interrupt.
17 MR. HICKEY: Madam Chair, if this wasn't intended
18 all along to be part of the redirect, it's hard to believe that
19 it's so well organized with the staples and the number of
20 copies that needed to be passed out.
21 COMMISSIONER SMITH: We could only credit
22 Mr. Budge's long experience and able abilities as an attorney.
23 I'm going to allow the exhibit in. You know, it
24 is what it is: It's a business record they maintain that
25 reflects their interruptions.
1441
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (Di)
Monsanto
.
.
.
1 So i wouldn't dwell on it, Mr. Budge. I don't
2 think it's a point that is going to determine the course of the
3 outcome of this case.
4 Q.BY MR. BUDGE: Just for the record, what years
5 are reflected in Exhibit 252?
6 A.2007 through present.
7 Q.And does it accurately reflect the economic
8 operating reserve and system integrity interruptions taken in
9 that period based upon the records of Monsanto?
10 A.Yes.
11 MR. BUDGE: No further questions.
12 COMMISSIONER SMITH: Thank you. Thank you for
13 your help, Mr. Smith.
14 THE WITNESS: Thank you.
15 COMMISSIONER SMITH: We need to take a brief,
16 in-place recess.17 (Recess. )
18 COMMISSIONER SMITH: We're ready to go back on
19 the record, and I think we're ready for your next witness,
20 Mr. Budge.
21 Do you want to excuse Mr. Smith?
22 MR. BUDGE: Does the Commission have any
23 questions for Mr. Smith?
24
25
COMMISSIONER SMITH: You know, I think I asked
them that before you did your redirect.
1442
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (Di)
Monsanto
.
.
.
1 MR. BUDGE: No further questions. Could he be
2 excused, and we'll call our next witness?
3 COMMISSIONER SMITH: I thought we already did
4 that, yes.
5 (The witness left the stand.)
6 MR. BUDGE: We call Mr. Lawrence, please.
7
8 KEVIN LAWRENCE,
9 produced as a witness at the instance of Monsanto, being first
10 duly sworn, was examined and testified as follows:
11
12 DIRECT EXAMINATION
13
14 BY MR. BUDGE:
15 Q.Would you state your full name and business
16 address, please?
17 A.It's Kevin Lawrence, 800 North Lindbergh
18 Boulevard, in St. Louis, Missouri.
19 Q.Mr. Lawrence, did you prefile direct testimony on
20 behalf of Monsanto Company under date of October 14, 2010?
21
22
23
24
25
A.Yes, I did.
Q.Did you have any exhibits that you sponsored?
A.No.
Q.Do you have any corrections you wish to make to
your prefiled testimony?
1443
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LAWRENCE (Di)
Monsanto
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20
21
22
23
24
. 25
1 A.No, I don't.
2 Q.If I were to ask you the same questions today as
3 are contained in your prefiled testimony, would your answers be
4 the same?
5 A.Yes.
6 MR. BUDGE: Madam Chair, we'd ask that the
7 testimony of Mr. Lawrence be spread on the record, and tender
8 him for cross-examination.
9 COMMISSIONER SMITH: If there's no objection, his
10 prefiled testimony will be spread upon the record as if read.
11 (The following prefiled direct testimony
12 of Mr. Lawrence is spread upon the record.)
13
14
15
16
17
18
19
1444
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LAWRENCE ( Di)
Monsanto
.1
2
3
4 Q
I.INTRODUCTION
PLEASE STATE YOUR NAM, BUSINSS ADDRESS AN
5 EMPLOYMNT.
6 A Kevin P. Lawrence, Monsanto Company, 800 N. Lindbergh Boulevard, St. Louis,
7 Missouri 63167.
8 Q WHT IS YOUR CURNT POSITION WITH MONSANTO COMPAN
9 AN WHT DO YOUR RESPONSffILITS INCLUDE?
lOA Vice President, Procurement, Engineering and Supply Chain. In addition to other
1 1 duties, I have overall responsibilities for the purchase of raw materials, energy and.12 goods and services required for the manufacture of Monsanto products at its
13 production locations which includes the Soda Springs Plant.
14 Q
15
16 A
17
18
19
20
21
22.
PLEASE BRIFLY DESCRIE YOUR EDUCATIONAL BACKGROUN
AN BUSINSS EXPERINCE.
I have a degree in Chemical Engineering from The University of Tennessee and
an MBA from Washington University in St Louis. I have been employed by
Monsanto for 30 years and I have worked in virtually every business sector in the
company. I have been responsible for the procurement of Monsanto raw
materials and energy since June 2008.
1445
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2 Q
3 A
4
5
6
7
8
9
10
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12 Q
13
14 A
15
16
17
18
19
20
21
22
23
ll. PUROSE OF TESTIMONY
WHT is TH PUROSE OF YOUR TESTIONY?
The purpose of my testimony is to: (l) describe the worldwide phosphorus
market; (2) discuss market changes and competitiveness resulting from changes in
technology and foreign supplies; (3) describe how phosphorus from the Soda
Springs plant is used and marketed; (4) describe why the Soda Springs plant must
remain competitive and viable; (5) provide a Monsanto perspective on the
glyphosate business; and; (6) provide the perspective of management in allocating
capitaL.
il. PHOSPHORUS MAT AND COMPETITIVNESS
PLEASE DESCRIE THE PHOSPHORUS MAT IN TH U.S. AN
WORLDWIE.
The global phosphorus market has experienced significant change in the last 20
years. What began as an industry concentrated in the United States and Europe
for most of the 20th century has been transformed rapidly into one dominated by
the Chinese. In 1990 the global elemental phosphorus market was 3.5 billon
pounds, 85% of which was produced in Europe and North America. By 2001 the
market had shrunk to 1.6 bilion pounds, 75% produced in China. Global demand
is stil fallng and the Chinese have shut down many small phosphorus furnaces
driven by lack of efficiency and inherent environmental concerns. However, this
older capacity has been replaced with new, larger and more effcient furnaces
boosting China's capacity to over 2.0 bilion pounds today operating at about 45%
1446
Lawrence, DI - Page 2
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2
3
4
5
6
7
8
9
10
11.12
13
14
15
16
17 Q
18
19 A
20
21
.
of capacity. Outside of China, there are only three significant phosphorus plants,
one in the Netherlands, one in Kazakhstan and Monsanto's plant in Soda Springs,
Idaho. In 2002, Monsanto's plant was the largest in the world. There wasn't a
Chinese producer with even 25% of our capacity. Today, there are stil about 80
plants in production and several Chinese plants are larger than our Soda Springs
plant, with the largest facility possessing capacity one and one half times the size
of Soda Springs
There are two primary reasons for this change - technology and the price
of electricity.
(1) Alternate technology, referred to as the wet acid process, has provided
industry with the phosphorus molecule at a significantly lower cost than
the cost of elemental phosphorus. This has led to the dramatic drop in
global demand for elemental phosphorus.
High priced electricity led to the demise of most U.S. and European elemental
phosphorus plants. The new plants in China have low costs and many even
generate their own power in hydro electric plants.
WHT PART OF THE COSTS OF PRODUCING ELEMENTAL
PHOSPHORUS DOES ELECTRICITY REPRESENT?
Electricity represents approximately 20-30% ofthe cost of producing elemental
phosphorus. For Monsanto, electricity is the largest single cost factor, and the
only significant cost outside of our control.
1447
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.
1 Q
2
3
4 A
5
6
7
8
9
10
11
12 Q
13
14 A
15
16
17
18
19
20
21
22
PLEASE DESCRIE HOW FOREIGN SUPPLIERS HAVE AN AR
EXPECTED TO IMPACT THE ELEMENTAL PHOSPHORUS MAT
IN TH FUUR.
Historically, U.S. demand for elemental phosphorus was supplied by U.S. sources
with some imports from Europe. Today, U.S. demand is primarily met either by
Monsanto or by the Chinese. Because of their cost position, the Chinese sell
elemental phosphorus delivered to the U.S. at very competitive prices. With their
current electricity, labor and environmental cost advantages coupled with excess
capacity, the Chinese will likely continue to gain market share at the expense of
Monsanto. Additionally, due to the available excess capacity, pricing of elemental
phosphorus is not expected to increase significantly in the foreseeable future.
DOES PHOSPHORUS PRODUCED AT THE SODA SPRIGS PLAN
OFFR ADVANTAGES?
No, elemental phosphorus is generally viewed as a commodity product by our
customers. The Soda Springs plant offers certain advantages to Monsanto
because it is the most technically advanced, safest and most environmentally
responsible plant in the world. It is the only elemental phosphorus plant which
meets the highest standards of OSHA VPP STAR, Bureau of Land Management,
and iSO 9002. It is a well maintained and highly invested facility providing the
customer advantage of being a very reliable source. It has a highly motivated and
competent work force. Soda Springs operates efficiently and has higher safety
and environmental standards than any phosphorus plant in the world. Monsanto
1448
Lawrence, DI - Page 4
.1
2
3
4
5
has its own mine leases which provide phosphate ore. These leases are managed
and the mines are operated under the most stringent environmental and safety
requirements. All of this comes at higher operating costs than our Chinese
competition.
6 Q WHT ACTION HAS MONSANTO TAKN TO REMA COST
7
8 COMPETITIV?
9
10 A To be successful in the future, Monsanto wil operate the Soda Springs plant to
11 achieve the lowest possible cost. To manage input costs, Monsanto has contracted
12 with many different sources for our coal and coke requirements, which were
13 competitively bid to maintain the lowest possible cost. We have globally sourced.14 raw materials to reduce cost. Weare consistently working to improve our
15 processes and reduce waste. At Soda Springs we are analyzing every element of
16 cost to effect reductions while stil maintaining the highest standards of
17 manufacturing operations. Electricity is the only input over which we have no
18 control. Unfortunately, it is our largest single cost factor.
19
20 Q
21
22 A
23
24.
IV. SODA SPRIGS PHOSPHORUS PRODUCTION AND USE
HOW IS PHOSPHORUS FROM THE SODA SPRIGS PLANT USED BY
MONSANTO?
The Soda Springs plant ships phosphorus to Monsanto plants in Luling, Louisiana
and Camacari, BraziL. There we convert the phosphorus to phosphorus trichloride,
a raw material required to produce glyphosate. The resulting glyphosate
1449
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2
3 Q
4
5
6 A
7
8
9
10.11
12
13
14 Q
15
16 A.
17
18
19
20
21.
intermediate is then shipped from each of these locations to plants around the world
where the final products are formulated for the local agricultural markets.
DOES THE ENTRACE OF CHISE PRODUCERS INTO THE
GLYPHOSATE MAT IMACT TH LONG-TERM VIILITY OF
THE SODA SPRIGS PLANT?
As with elemental phosphorus, the Chinese are sellng glyphosate into the world
market at low prices. Their quality is satisfactory and functionally equivalent to
Monsanto's glyphosate. Monsanto's glyphosate production advantage is years of
operating experience, cutting edge technology and scale. Our production capabilty
allows Monsanto to enjoy a competitive glyphosate cost position relative to
Chinese producers. But, if Monsanto's competitive glyphosate cost position is lost,
sourcing from China could occur, negatively impacting the operations of the Soda
Springs plant.
WHT RECENT ACTION BY THE CHISE AFCTED THE
GL YPHOSATE MAT?
Over the past two years. the Chinese flooded the market with very low priced
generic glyphosate. Many of our farm customers purchased the lower priced
Chinese product and Monsanto's sales rapidly declined. In addition, our RoundupQY
herbicide gross profit, which had peaked in 2008, declined by seven percent in
2009 and an additional 92% in 2010. The changes that occurred in the global
glyphosate market, including oversupply from Chinese producers, have created a
1450
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2
3
4
5
6
7 Q
8
9
10 A.11
12
13
14
15
16 Q
17
18
19 A
significant compression in the manufacturer's margin. We believe that the market
changes are permanent and wil therefore have a long term impact on the level of
cost absorption and profits that can be generated by this business. Since electricity
is the only significant input that we are forced to buy from a monopoly supplier, it
is the largest threat to our cost position and a key threat to the viabilty of the Soda
Springs plant.
FROM MAAGEMENT'S PERSPECTIV, WHY MUST PHOSPHORUS
PRODUCED AT THE SODA SPRIGS PLANT REMA COMPETITIV
WITH OTHR SOURCES.
Today, Monsanto can buy near equivalent quality phosphorus from China at
competitive prices that can be used for our glyphosate production. If Soda Springs
cannot remain competitive, Monsanto management wil have no alternative but to
purchase phosphorus from least cost sources to remain competitive and to
successfully serve our farm customers.
V. CAPITAL COMMTTMNTS
EXPLAI SOME OF THE RECENT AND FUTUR MAJOR CAPITAL
COSTS NECESSARY TO OPERATE THE SODA SPRIGS PLANT AN
MINIG OPERATIONS.
Since 2005 Monsanto has invested over $70 milion in capital projects at Soda
20 Springs for exploration and new mine development, heavy equipment, furnace.21 upgrades, process improvement, environmental compliance and cost improvement
1451
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2
3
4
5 Q
6
7 A
8
9
10.11
12
13
14
15
16
17
18
19
20
21.
projects. Our capital plan for 2011 through 2015 requests corporate funding of an
additional $75 milion for the Soda Springs plant. In large part, these expenditures
are driven by strict environmental regulations. Our Chinese competition isn't
exposed to these same pressures.
is PRICE CERTAITY AND STABILITY IMPORTANT TO
MONSANTO'S DECISION-MAKIG PROCESS.
Price certainty and stability are very important to Monsanto. Monsanto is not a
monopoly nor does it have the opportunity to earn a guaranteed rate of return on
its investments. The Soda Springs plant is a capital-intensive facility.
Phosphorus production requires long-term planning and milions of dollars of
capital investment. Also, because most of our work force needs to be highly
skiled, it takes years of training and development to maximize the value of our
people.
New investments are needed to develop ore deposits for the future and
install the next generation of environmental equipment to ensure compliance with
ever more stringent environmental regulations, a cost our Chinese competitors do
not have. To justify these investments, Monsanto must be able to have reasonable
assurance that Soda Springs can remain in a competitive cost position.
Unfortunately, price certainty and stability has not existed in recent years as
a result of regular and substantial rate increases from PacifiCorp, as described in
the testimony of Kathryn E. Iverson.
1452
Lawrence, DI - Page 8
.
.
.
2
3
4 A
5
6
7
8
9
10
11
12
13
14
15
16
17
18 Q
19
20 A
21
22
Q is MONSANO CONCERND ABOUT PACIFICORP'S PLANS TO
MA MASSIV MUTI-BILLION DOLLAR INVSTMENTS IN
RENEWABLE RESOURCES AN TRSMISSION?
Most certainly. We are not convinced that these investments wil deliver any value
to the people of the State of Idaho nor do we believe that they are needed. We fully
support the rate making principle of cost causation. Those who cause a particular
cost to be incurred should be the ones that pay for it. However, the current revised
protocol allocation methodology continues to allocate costs to Idaho that were not
caused by Idaho customers. We suggest that the Commission take special
consideration prior to approving any piece of a multi-bilion investment which has
a 40-50 year lifespan, and undertake a significant review of revised protocol in the
upcoming case to make sure Idaho customers are not paying for cost increases
driven by policies and growth in other jurisdictions. In recently filed allocation
case, PAC-E-IO-09, we urge the Commission to scrutinize which states are driving
the need for the Energy Gateway transmission project and new resource
investments, carefully evaluate the resulting rate impacts for Idaho consumers now
and into the future and determine if Idaho should pay for these costs.
CAN MONSANTO PASS ON SIGNIFICANT INCREASED COSTS AS
PROPOSED IN TmS CASE?
No, we can't. The Chinese competition is setting the global price of glyphosate and
we do not expect the price to increase for the foreseeable future. In addition,
herbicide customers have made it abundantly clear that they wil purchase the least
1453
Lawrence, DI - Page 9
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2
3 Q
4
5
6 A
7
8
9
10
11
12
13
14
15
16 Q
17 A
18
cost product available in the marketplace. We can't pass on any new costs that
aren't also a burden for our competition.
is MONSANTO CONSIDERIG SHUTTING DOWN THE SODA
SPRIGS PLAN AS A RESULT OF THE PRICE INCREASES
PROPOSED BY ROCKY MOUNTAI POWER IN THIS CASE?
No, we aren't at the current time. We are fully committed to meeting the needs of
our customers. We also currently believe that the Soda Springs plant is a key link
in our supply chain. However, this fiing (and the additional filings expected over
the next few years) seriously threaten our ability to meet our customers' needs
and maintain the long-term viability of the Soda Springs plant. We are dedicated
to continue to work with the utility and the Idaho Commission to develop a long-
term solution which wil allow us to successfully compete in our marketplace over
the long term. We believe the proposal that Ms. Iverson is recommending in her
testimony wil help accomplish this objective.
DOES TilS CONCLUDE YOUR TESTIMONY?
Yes.
1454
Lawrence, DI - Page 10
.
.
1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER SMITH: Mr. Woodbury, do you have
4 questions?
5 MR. WOODBURY: Thank you, Madam Chair. Just a
6 few.
7
8 CROSS-EXAMINATION
9
10 BY MR. WOODBURY:
11 Q.Good morning, Mr. Lawrence.
12 A.Good morning.
13 Q.You are the policy witness --
14 A.I guess I am, yes.
15 Q.-- for Monsanto?
16 All right. I'm on a short leash though, so I
17 can't ask you a lot of questions.
18 You state on page 5 of your testimony that
19 electricity is the only input over which the company has
20 Monsanto has no control. And it seemed, to me, alleging that
21 you have no control certainly is not reflective of your history
22 wi th your electric provider, and that the interruptible
23 curtailment products provide you with some element of control
24 as far as the ultimate price had been, you know, assuming you.25 guys can ever reach another Agreement. Is that correct?
1455
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LAWRENCE (X)
Monsanto
.
.
.
1 A.Yes, I think it would be. I think I was speaking
2 here in terms of the close relationship that we tend to have
3 wi th many of our suppliers in terms of how we manage contracts.
4 Q.Okay. And on page 10
5 Well, you speak of on page 3, i guess, your
6 competition with the elemental phosphorus market in China, and
7 electrici ty, labor, and environment cost advantages that they
8 have?
9 A.Uh-huh.
10 Q.Then on page 10, you state: We can't pass on any
11 new costs that aren't also a burden for our competition.
12 Are we speaking of the same type of costs?
13 A.Here we're talking about and specifically on
14 page 10, we're talking about for our glyphosate. In the
15 glyphosate business, the Roundup business, it's difficult right
16 now with the way the competitive marketplace exists today to
17 really pass on any additional price increases in that
18 marketplace.
19 Q.Price increases that may be the result of
20 regulatory requirements?
21 A.Yes, anything that has to do with driving our
22 costs.
23 Q.And regulatory requirements is also another
24 example of things that you have no control over, to the extent
25 that you comply with them?
1456
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LAWRENCE (X)
Monsanto
.
.
.
18
1 A.Yes. We're certainly involved in pot processes,
2 permi tting processes, that sort of thing.
3 Q.Thank you, Mr. Lawrence.
4 MR. WOODBURY: Madam Chair, no further questìons.
5 COMMISSIONER SMITH: Mr. Purdy.
6 MR. PURDY: I have none.
7 COMMISSIONER SMITH: Ms. Davison.
8 MS. DAVISON: No, Madam Chair.
9 COMMISSIONER SMITH: Mr. Olsen.
10 MR. OLSEN: No questions, Madam Chairman.
11 COMMISSIONER SMITH: Mr. Otto.
12 MR. OTTO: No, no questions.
13 COMMISSIONER SMITH: That's the right answer.
14 Mr. Hickey.
15 MR. HICKEY: Madam Chair.
16
17 CROSS-EXAMINATION
19 BY MR. HICKEY:
20
21
22
Q.Good morning, Mr. Lawrence.
A.Mr. Hickey.
Q.I haven't had a chance to meet you, but I look
23 forward to, with your Counsel, visiting with you over the
24 course of the hearing if you're still around.
25 I'd like to talk to you about the changes in the
1457
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LAWRENCE (X)
Monsanto
.
.
.
1 market that your Soda Springs plant has witnessed in recent
2 days and recent years. Is it a fair observation to say that
3 there have been fundamental changes in the global phosphorus
4 business during the past 10 to 20 years?
5 A.Yes.
6 Q.And there is a shrinking of the market from
7 approximately 3.5 billion pounds in 1990 to 1.6 billion pounds
8 in 2001, according to your direct testimony. Isn't that
9 true?
10 A.Yes.
11 Q.And there is also a new process that has become a
12 part of this industry called the wet acid process?
13 A.Purified wet acid process, yes.
14 Q.Have there been fundamental changes made by
15 Monsanto at its business to react to this changing market?
16 A.The -- maybe just a clarification: The purified
17 wet acid process is a way to deliver phosphoric acid for
18 fertilizer use primarily. Elemental phosphorus, which we
19 produce at Soda Springs, is used more in the deri vati ves market
20 for specialty products. So that conversion of much of the
21 market that was once elemental phosphorus to this purified wet
22 acid process really is helping to satisfy the demands on the
23 fertilizer side of the demand side of the market.
24
25
Q.But in any event, Soda Springs has not converted
to a wet acid process?
1458
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LAWRENCE (X)
Monsanto
.
.
.25
1 A.No. In our glyphosate production, our Roundup
2 process, we need elemental phosphorus production. Purified wet
3 acid process would not work for us.
4 Q.Fair enough. There's been some conversation
5 about -- earlier in the hearing; I'm sure you're aware of it
6 about whether or not the Soda Springs facility had undertaken
7 any self-generation of its energy needs, and I understand that
8 answer to be, no, that there is no self-generated energy or
9 electrici ty at the Soda Springs plant. Is that true?
10 A.That's correct. We looked at -- we did some very
11 cursory evaluations. It was not found to be practical.
12 Q.Sure. You're aware of others in the industry or
13 others in the industrial process industry -- if you'll let me
14 put a very large umbrella over "industrial processes" -- that
15 do find efficiency in having self-generation resources
16 on-site?
17 A.I'm aware of that. I'm aware of cogen processes.
18 I'm aware of, you know, plants that have usages for steam that
19 might be created from that. There's usually -- there's usually
20 factors involved that make that type of approach attractive.
21 Q.Okay. And for whatever reasons, it hasn't been
22 found to be feasible or attractive yet at Soda Springs?
23 A.That's correct.
24 Q.Okay. Let's talk about some of the other
testimony that you have where you identify electricity, as did
1459
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LAWRENCE (X)
Monsanto
.
.
.
1 Mr. Smith, to be approximately 20 to 30 percent of the cost of
2 producing phosphorus. Do we have that accurately stated into
3 the record?
4 A.Yes.
5 Q.What's the other 70 to 80 percent?
6 A.Well, there i s a number of cost components. We
7 mine ore, so there's a cost of the ore that's needed. We use
8 coal, quartzite. And there's the costs associated with our
9 labor, our overhead costs. Those would be the maj or components
10 that would make up the remaining 70 percent.
11 Q.Some of that 70 percent would be environmental
12 issues, labor issues, safety-related issues at the plant?
13 A.Yes. We have a -- we have a fairly significant
14 environmental burden in cost.
15 Q.Sure. And many of those drivers of cost don't
16 exist in the Chinese markets that you're aware of and that you
17 compete against. Isn't that true?
18 A.One of the reasons that we believe and we've
19 found that the Chinese can produce phosphorus at a lower cost
20 than Monsanto is because of some of these -- some of the
21 environmental restrictions that they don't have that we do.
22 Q.Sure. And to maybe put Roundup and the herbicide
23 product into the global economy and global marketplace, just as
24 manufacturers of all kinds of American goods are finding strong
25 competition from Chinese markets, your Roundup product is
1460
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LAWRENCE (X)
Monsanto
.
.
.
1 finding that same kind of competition, isn' t it?
2 A.That's true. I would suggest that the
3 environmental load that's carried by our operations,
4 particularly our phosphorus operations, are significant.
5 Q.And there's another issue that has been
6 identified, I believe, by you and/or Mr. Smith, and that's the
7 product Roundup lost a patent -- I shouldn't say "lost," but
8 the patent expired a few years ago, didn't it?
9 A.It actually expired at the beginning of 2000 --
10 1999/2000 period, so it's been about ten years.
11 Q.So when that happened, though, there was a new
12 group of competitors who could come in with similar products to
13 Roundup. Isn't that a fact?
14 A.That's the way it works, right.
15 Q.And the market share that Monsanto had enj oyed
16 while the patent was in place has eroded substantially with the
17 introduction of new competitors. Fair observation?
18 A.It's eroded. We've worked hard to retain our
19 market share by being competitive in the marketplace in terms
20 of our product offerings and the cost of that product.
21 Q.I think everyone understands the desire of a
22 company to cost-effectively manage its business, and as all of
23 us that have ever run or been a part of a business, the desire
24 to keep friends and colleagues employed. Is it a fair
25 statement that that's your perspective on keeping the Soda
1461
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LAWRENCE (X)
Monsanto
.
.
.
20
21
1 Springs plant operational?
2 A. Soda Springs is important, important to Monsanto.
3 It's not only while it's a consideration, it's not only a
4 consideration of the employment of the people, but phosphorous
5 is a very important part of our glyphosate process.
6 Q.And is ita fair thing to say that as a
7 publicly-traded company, you have not made any filings with the
8 SEC up to this point to advise shareholders of a intent to
9 close the Soda Springs plant?
10 A.That's correct.
11 Q.I have nothing further. Thank you, Mr. Lawrence.
12 A.Thank you.
13 COMMISSIONER SMITH: Are there questions from the
14 Commissioners?
15 COMMISSIONER REDFORD: No.
16 COMMISSIONER KEMPTON: None.
17 COMMISSIONER SMITH: Nor I.
18 Redirect, Mr. Budge?
19 MR. BUDGE: No questions.
COMMISSIONER SMITH: All right.
Thank you for your help, Mr. Lawrence. We
22 appreciate your attendance.
23 (The witness left the stand.)
24
25
COMMISSIONER SMITH: So let's be at ease for a
minute.
1462
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LAWRENCE (X)
Monsanto
.
.
.
20
21
1 (Discussion off the record.)
2 (Noon recess.)
3 COMMISSIONER SMITH: Good afternoon, ladies and
4 gentlemen.
5 MR. HICKEY: Good afternoon.
6 COMMISSIONER SMITH: Mr. Budge, I think when we
7 broke for lunch, we were ready for one of your witnesses.
8 MR. BUDGE: That's correct. Thank you. We call
9 Dennis Peseau.
10
11 DENNIS PESEAU,
12 produced as a witness at the instance of Monsanto, being first
13 duly sworn, was examined and testified as follows:
14
15 DIRECT EXAMINATION
16
17 BY MR. BUDGE:
18 Q.Would you state your name and address for the
19 record, please?
A.Yes. Name is Dennis E. Peseau: P-E-S-E-A-U.
My address is 1500 Liberty Street Southeast,
22 Suite 250, and that's in Salem, Oregon, 97302.
23 Q.Dr. Peseau, did you prefile on behalf of Monsanto
24 direct testimony, rebuttal testimony, as well as surrebuttal
25 testimony?
1463
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
PESEAU (Di)
Monsanto
.
.
.
20
21
1 A.I did.
2 Q.And did you also sponsor exhibits numbered 221
3 through 227, and also 234?
4 A.Yes, I did.
5 Q.Mr. Peseau, do you have any corrections to make
6 to any of your testimony or exhibits?
7 A.I have two on my direct:
8 The first one is on page 4, line 10. I'd like to
9 substitute the word "network," remove that, and insert the word
10 "retail."
11 The next correction is page 12, line 8. That
12 line would read better with a comma after "Segment B," and the
13 word "and"A-N-D -- after "Gateway South."
14 That completes my correction.
15 Q.Dr. Peseau, as I look at your rebuttal testimony
16 under date of November 15th, it was filed as confidential, and
17 I believe that was based upon some information referred in that
18 testimony that has been identified by the Company as
19 confidential?
A.Correct.
Q.Were you able to identify specifically where that
22 is in the testimony?
23 A.You know, in writing it and rereading it, I jump
24 back and forth in order to maintain some flow to
25 nonconfidential and confidential, and so I just opted to
1464
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
PESEAU (Di)
Monsanto
.
.
.
1 suggest that we mark it all as confidential.
2 MR. BUDGE: Ms. Chairman, I defer to Counsel for
3 the Company on how they prefer to handle that rebuttal
4 testimony. And I apologi ze, we didn't take it up during the
5 break: We just didn't get time to do that.
6 COMMISSIONER SMITH: Mr. Hickey.
7 MR. HICKEY: I am a firm believer that this is a
8 public process and as much of this as can be made public should
9 be. And I think that the better approach is the approach taken
10 under your Rule, Madam Chair, and members of the Commission, to
11 limi t the confidential filing to the particular information
12 that is proprietary or confidential.
13 COMMISSIONER SMITH: So are these numbers that
14 we can look at on certain lines and kind of box them, knowing
15 that like on previous testimony it was kind of blocked out, or
16 is it more extensive than that?
17 THE WITNESS: Well, it may be more extensive,
18 Commissioner. I can point to some numbers and hopefully not
19 blurt them out.
20 COMMISSIONER SMITH: What I want to do is take a
21 brief recess, let Mr. Hickey and Mr. Budge and you go through
22 your testimony -- it's pretty brief -- and then come back and
23 tell us where we should box the information as confidential.
24 So, we'll be off the record.
25 (Discussion off the record.)
1465
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
PESEAU (Di)
Monsanto
.
.
. 25
1 COMMISSIONER SMITH: We'll go back on the record,
2 and by agreement of the parties, what is to be inserted in the
3 public portion of the transcript will be agreed upon and the
4 court reporter will be informed as to that, and the remainder
5 of the entire testimony will be confidential until that's
6 concl uded.
7 Anything else, Mr. Budge?
8 MR. BUDGE: No, Madam Chairman. With that, we'd
9 move to spread the prefiled testimony and exhibits of
10 Dr. Widmer (sic) with that understanding on the confidential
11 and
12 COMMISSIONER SMITH: Stick with one witness at a
13 time and do Dr. Peseau right now, not Widmer.
14 So with the instructions previously given with
15 regard to the rebuttal, the prefiled testimony of Dr. Peseau
16 will be spread upon the record as if read, and the exhibits
17 identified.
18 (The following prefiled direct, rebuttal,
19 and surrebuttal testimony of Dr. Peseau is spread upon the
20 record. )
21
22
23
24
1466
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
PESEAU (Di)
Monsanto
.
.
.
Q. PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
2 A. My name is Dennis E. Peseau. My business address is Suite 250, 1500
3 Liberty Street, S.E., Salem, Oregon 97302.
4 Q. BY WHOM AND IN WHAT CAPACITY ARE YOU EMPLOYED?
5 A. , am President of Utilty Resources, Inc. The firm has consulted on a number
6 of economic, financial and engineering matters for various private and public
7 entities since 1985.
8 Q. ON WHOSE BEHALF ARE YOU TESTIFYING IN THESE PROCEEDINGS?
9 A. I am testifying on behalf of Monsanto Company.
10 Q. DOES ATTACHMENT DEP.A ACCURATELY DESCRIBE YOUR
11 BACKGROUND AND EXPERIENCE?
12 A. Yes.
13 Q. WHAT IS THE PURPOSE OF YOUR DIRECT TESTIMONY?
14 A. The purpose of my testimony is to recommend that the Commission defer its
15 decision on PacifiCorp's requested rate base addition of $801.5 milion for
16 the Segment B portion of the Gateway Central, approximately $45 million of
17 which is allocated to Idaho, until PacifiCorp's next general rate case. As I
PESEAU 01 - Page 1
1467
.
1 explain below, this Gateway Central transmission project is but an initial leg
2 of a very speculative and massive undertaking, Energy Gateway that mayor
3 may not be built by the end of the next decade. As a result of the over sizing
4 to accommodate a planned larger "Gateway South" 500 kV line, that may be
5 completed in 2020, the requested rate base of Segment B from Populus
6 (near Downey, 10) to Terminal (NW Utah) is far greater than that necessary
7 to upgrade this path on a stand-alone basis.
8 Q.
9 A.
10.11
12
13
14
15
16
17
18
19
20
.
WHAT IS THE GENERAL BASIS FOR YOUR RECOMMENDATIONS?
As explained very clearly by PacifiCorp in its direct testimony and exhibits,
and also its 2008 IRP and in multiple company documents, Gateway Central
is but a 135 mile line that is the initial segment of perhaps the most ambitious
and expensive planned transmission network expansion ever attempted in
the United States. PacifiCorp estimates that the entire 2,000 mile network, if
completed as Energy Gateway, will have project costs exceeding $6 billon.
Most of the actual legal, environmental, permitting, rights of way, etc. has
only just begun on the remaining 1,865 miles of proposed facilities.
For perspective, if the entire $6 billon Energy Gateway project is ever
completed, Idaho's allocation would be approximately 6%, or $360 million of
rate base addition. The Energy Gateway transmission project alone will have
increased the total Idaho rate base (generation, transmission and distribution
PESEAU 01 - Page 2
1468
.plant) by over 60% compared with the year end 2009 rate base. The
2 magnitude of this project's impact on Idaho customers' rates warrants careful
3 and cautious scrutiny by this Commission. My proposal to defer the
4 proposed rate base treatment of Gateway Central is the best means to
5 protect both customers and shareholders of PacifiCorp. As I argue below,
6 most of the Gateway Central rate base wil not be used and useful at the
7 outset due to its over sizing. I believe that shareholders as well as
8 customers would be best served by holding open the issue of rate base
9 treatment of Gateway Central until the larger issues of the entire Energy
10 Gateway project are better known.
.11 Q.
12
13
14
15 A.
16
17
18
19
20
21
22
.
WHAT ARE YOUR SPECIFIC RECOMMENDATIONS IN THIS CASE WITH
RESPECT TO THE COMMISSION'S TREATMENT OF THE REQUESTED
APPROXIMATE $45 MilliON GATEWAY CENTRAL RATE BASE
ADDITION?
I recommend that the Commission:
1. Not make a determination regarding the degree of "used and
usefulness," if any, of the proposed Gateway Central project in
this case even if it does come online December 31, 2010.
2. Defer the consideration of Gateway Central as an Idaho rate
base component until the next general rate case.
3. Remove $5.9 millon (reduced by power cost offset) from
PacifiCorp's requested rate increase.
PESEAU 01 - Page 3
1469
.i 4.Order PacifiCorp to place all Gateway Central plant into Plant
2 Held for Future Use, with no carrying charge until such time as
3 the degree of used and usefulness can be determined.
4 5.Require PacifiCorp to submit a specific progress report on the
5 status of the proposed Gateway South project as the proposed
6 Gateway Central project makes sense only when Gateway South
7 is completed.
8 6.Require PacifiCorp to hold an open season or nomination
9 process for capacity on Gateway Central as a means to gauge
10 the degree of excess rate base that Idaho's network customers
11 will be required to pay for until OATT customers develop.
12 7.Require PacifiCorp to revisit its 2008 IRP justification of system
13 load forecast and the proposed Energy Gateway project in light
14 of the prolonged recession and economic uncertainty.
15.
16 Q.
17 A.
18
19
20
21
22
23
24
.
OVERVIEW OF GATEWAY CENTRAL AND ENERGY GATEWAY
PLEASE DESCRIBE THE PROPOSED GATEWAY CENTRAL PROJECT.
PacifiCorp's filing in this case, particularly the testimonies of Messrs.
Gerrard, Cupparo and McDougal, provides detailed descriptions of the
proposed Gateway Central, or "Populus to Terminal" transmission line. i
summarize those aspects of the proposed line that bear on the
recommendation i make in this case. As a considerable portion of Gateway
Central's description has been labeled "CONFIDENTIAL," I will only generally
summarize these elements in relation to the much larger plan to construct
Energy Gateway.
PESEAU 01 - Page 4
1470
.
Q. WHAT IS ENERGY GATEWAY?
2 A. Energy Gateway is PacifiCorp's program to invest over $6 billion for
3
4
5
6
7
8
9
10.11
12
13
14
15
16
17
18
19
.
approximately 2,000 miles of high voltage transmission lines, primarily 500
kV, throughout the western United States. If completed as planned, the
project would have a total capacity of 6,000 MW with the intention of
transmitting electricity generated primarily from wind energy planned in
Wyoming and elsewhere, to markets in California, southern Nevada and to a
lesser extent Utah and the Pacific Northwest. My Exhibit 221 (OEP-1), taken
from PacifiCorp's website on Energy Gateway Transmission Project's
"Frequently Asked Questions," Page 5, provides a schematic of the proposed
project.
The proposed "Gateway West" segment of Energy Gateway, with an
estimated in-service date in the 2014-2018 timeframe,1 would connect areas
of Wyoming that have potential for wind-generated power, to the Captain
Jack substation near Malin, Oregon. My Exhibit 222 (OEP-2) is a copy of
PacifiCorp's website description of Gateway West, with key milestones. The
Captain Jack substation is the hub or connection between the California-
Oregon transmission intertie and provides access to several 500 kV lines
running south throughout California.
1 Recent deferral of draft EIS may push timeframe back. See Bureau of Land Management
announcement at http://ww.blm.gov/wy/sUen/info/news_room/2010/july/22gatewaywest.htm I
PESEAU 01 - Page 5
1471
.The proposed "Gateway South" segment of Energy Gateway, with an
2 in-service date in the 2017 -2019 timeframe,2 would connect potential
3 Wyoming wind generators to the Crystal substation in Nevada Power's
4 service territory. My Exhibit 223(OEP-3) is a copy of PacifiCorp's website
5 description of Gateway South, with key milestones. The Crystal substation
6 connects a number of transmission lines and provides access to several 500
7 kV, 345 kV, and 230 kV lines running through Las Vegas Valley and west
8 into California.
9 Q.
10.11
12 A.
13
14
15
16
17
18
19
20
21
22
.
HOW DOES PACIFICORP DESCRIBE PLANNING ASPECTS OF THE
PROPOSED ENERGY GATEWAY AND GATEWAY CENTRAL
PROJECTS?
PacifiCorp differentiates this over $6 billon project from more conventional
resource planning approaches. The Company states:
Unlike the conventional "generation before transmission"
approach, this transmission project (Energy Gateway) is a
relatively new approach, constructing transmission ahead of
specific generation resources. With increasing development of
location - constrained renewable resources, one project often
can no longer form an anchor for transmission.
(Page 1, "Frequently Asked Questions")
Elsewhere, PacifiCorp characterizes the Energy Gateway project as more of
an overall strategy rather than one single transmission project. PacifCorp is
2According to the Company's response to Monsanto Data Request 4.4, Energy Gateway is now
anticipated to be completed in the 2018-2020 time frame.
PESEAU 01 - Page 6
1472
.proposing to construct Energy Gateway in anticipation of future development
2 of generation resources, and future markets for such resources.
3 Q. WHAT IS THE COMPANY'S OVERALL STRATEGY WITH THE
4 PROPOSED ENERGY GATEWAY?
If PacifiCorp succeeds in completing the entire Energy Gateway project by
2020, the Company will dominate transmission services throughout the
western U.S. This circumstance would place shareholders in the enviable
position of earning a return on over $6 billon in new rate base, as well as
providing the "highway" to California and southern Nevada for sales of
PacifiCorp's existing and developing wind projects. The reason I say
"enviable" is because, unlike unregulated third party developers of new
transmission facilities, PacifiCorp is attempting to earn on Energy Gateway
immediately by placing the large, initially over-built segments into rate base
as each is completed. . Private third party developers are not, of course,able
to earn on the excess investment prior to the facilities reaching full capacity
and coming on line, when they then can charge GATT wheeling tariff rates.
5 A.
6
7
8
9
10.11
12
13
14
15
16
17 Q. PLEASE EXPLAIN.
18 A. The proposed Gateway Central project for which PacifiCorp is requesting
19 rate base treatment in these proceedings is a good example of this enviable
.PESEAU DI - Page 7
1473
.
1 position. The overwhelming amount of this $801.5 milion investment is for
2 interconnection with planned future Energy Gateway segments. Thus, in this
3 docket, Idaho customers, by virtue of PacifiCorp's request to place the Idaho
4 allocation of the entire $801.5 million into rate base, are being asked to fund
5 the carrying costs of this initially over built segment B until this path wil
6 become functional with later segments, particularly Gateway South.
7 Q.
8 A.
9
10.11
12
13
14
15
16
WHEN IS GATEWAY SOUTH PREDICTED TO BE COMPLETED?
Gateway South is in the early planning, siting and permitting stages. Rights
of way and EIS are not expected to be completed until 2015. The Company
projects an in-service date in the 2017-2020 timeframe. As this particular
segment of Energy Gateway is the principal driver for the over-building of
Gateway Central, this late date and early stage of development causes major
concern for the equity and reasonableness to Idaho customers funding and
carrying the over built Gateway Central for so many years. Most of this
Gateway Central will not be "used and useful" unless and until Gateway
South is energized.
17 Q. WHAT IS THE BASIS FOR YOUR CONCLUSION THAT THE INITIAL LEG
18 OF ENERGY GATEWAY, WHICH IS GATEWAY CENTRAL, IS OVER
19 BUILT?
.PESEAU DI - Page 8
1474
.A.1
2
3
4
5
6
7
8
9
10 Q..11
12
13 A.
14
15
16
17
18
.
I base my conclusion on a number of factors. First, as a part of the approval
of MEHC's acquisition of PacifiCorp in 2005, both Companies agreed to
upgrade this same Path C by the 300 MW required to enhance reliability,
facilitate the receipt of renewable resources and to enable further
optimization on this segment of Path C. The Path C upgrade was an
important commitment to get from MEHC/PacifiCorp because this segment
had been previously identified as a potential congested transmission path.
Prior to the conception of Energy Gateway, the 300 MW Path C upgrade
committed to by MEHC/PacifiCorp was seen as sufficient for this path.
WHAT WAS PACIFICORP'S ESTIMATE OF THE COSTS OF THE
REQUIRED UPGRADE TO THE PATH C SEGMENT BETWEEN
SOUTHWEST IDAHO AND NORTHERN UTAH?
The Company indicated that this upgrade would cost approximately $78
milion, or less than 1/10 of the $801.5 millon requested in these
proceedings for the Path C upgrade. Clearly this ambitious request is for the
benefi of interconnecting to the planned Gateway South. This is explained
on Page 6 of Order No. 29973 approving the acquisition, attached as my
Exhibit 224 (DEP-4).
PESEAU DI - Page 9
1475
.
.
.
Q. IS THE ANTICIPATED CAPACITY RATING FOR THE POPULUS TO
2 TERMINAL SEGMENT B OF PATH C DIFFERENT BEFORE AND AFTER
3 THE PLANNED GATEWAY SOUTH?
4 A. Yes. PacifiCorp's response to Monsanto Data Request 4.4 indicates:
5 Monsanto Data Request 4.4
6 Reference Testimony of Mr. John Cupparo. What is the expected
7 megawatt line rating or capacity of the 345 kV Populus to Terminal
8 facility before and after completion of the Gateway West and Gateway
9 South segments?
10 Response to Monsanto Data Request 4.4
11 The incremental capacity is expected to be 700 MW in the southbound
12 direction and 350 MW in the northbound direction prior to completion of
13 Gateway South in 2018-2020. Once Gateway South is completed the
14 capacity in both directions is expected to increase to 1400 MW.
15 Q. DOES THE FACT THAT THIS SEGMENT WILL HAVE ITS CAPACITY
16 INCREASED BY 1,050 MW (1400-350) WITHOUT MATERIAL
17 ADDITIONAL INVESTMENT DEMONSTRATE THAT IT IS OVER-BUILT
18 TODAY IN ANTICIPATION OF THE 2018-2020 PLANNED GATEWAY
19 SOUTH?
20 A. Yes. Let me state that my characterization of Segment B as "over-built" here
21 is not to suggest that this line may not someday become fully used and
22 usefuL. It is not unusual for a utility to "over-build" facilities at the outset in
23 order to accommodate a near-term expansion of other facilities. What is
24 unusual with PacifiCorp's request is to include a rate base addition, and
PESEAU 01- Page 10
1476
.
1 charge Idaho ratepayers initially, at a level that is approximately ten times its
2 previously approved commit level ($79 milion compared to $801.5 millon)
3 ten years in advance of the transmission line being fully used and usefuL.
4 And, if the planned Gateway South segment faces the hurdles typical of
5 siting and constructing 500 kV transmission lines in the western U.S., there is
6. a real possibilty that Gateway South may be delayed or disapproved by
7 virtue of other competing high voltage transmission line servicing similar
8 markets.
9 Q.
10.11 A.
12
13
14
15
16
17
ARE YOU SUGGESTING THAT THE $801.5 MilliON INVESTMENT IN
SEGMENT B IS IMPRUDENT?
No. I cannot conclude on the prudence or not of the level of investment
absent a more thorough understanding of the segment in relation to the
uncertainty and risk associated with Gateway South. My recommendation to
defer any rate base treatment of the. $801.5 millon investment is to better
understand these issues, and avoid any decision at present as to how much
of the $801.5 milion investment is "used and useful" in the traditional
regulatory sense.
18 Q. IS YOUR RECOMMENDATION FAIR AND EQUITABLE TO IDAHO
19 CUSTOMERS AND PACIFICORP SHAREHOLDERS?
.PESEAU DI - Page 11
1477
.A.
2
3
4
5
6
7
8
9
10 Q..11
12
13 A.
14
15
16
17
Yes, I believe it is the most equitable position to take in these proceedings.
Ratepayers are being requested to carry a huge investment made for a
future planned project that would ordinarily be borne by shareholders. And,
in my opinion, shareholders are better served by having the Commission
defer full approval rather than force it to determine what degree 'of present
"used and usefulness" Segment B serves in 2011. The latter decision could
be viewed negatively by financial markets and should be avoided! in favor of
a more comprehensive, integrative review of the Segment B Gat~ay South
Gateway West projects.
DID YOU CONDUCT ADDITIONAL ANALYSES TO DETERMINE
WHETHER THE POPULUS TO TERMINAL SEGMENT B IS BEING OVER
BUILT?
Yes. There are a number of other high voltage transmission projects in the
western U.S... in both the planning and construction phase. Asimple
comparison of the investment per transmission mile serves as a rough check
of the investment per mile of Segment B if completed as a stand-alone
project.
18 Q. PLEASE EXPLAIN.
.PESEAU DI- Page 12
1478
.
A.
2
3
4
5
6
7
8
9
10
11.12
A simple and straightforward manner in which the Segment B .investment
costs can be benchmarked is to compare its investment per mile with the
remainder of the Energy Gateway planned projects. This is a conservative,
but not completely comparable basis for comparison because the 135 mile
Segment B line is 345 kV, while the majority of the remaining 1,865 miles of
the planned Energy Gateway project is the higher voltage, higher cost 500
kV transmission line. As such, the comparison is conservative.
My Exhibit 225 (DEP-5) shows the simple calculations comparing the
investment costs of Segment B with the remainder of Energy Gateway. The
assumptions shown include the total investment in the planned Energy
Gateway of (over) $6 bilion for the 2,000 mile project. The 13.5 segment
from Populus to Terminal is $801.5 million.
13 Q. WHAT ARE THE RELATIVE INVESTMENT COSTS PER MILE OF THE
14 GATEWAY CENTRAL PROJECT COMPARED WITH THE REMAINING
15 SEGMENTS OF ENERGY GATEWAY?
16 A. As shown on my exhibit, the requested investment for Gateway Central is
17 $5.94 millon per mile. The remaining Energy Gateway project is estimated
18 to be $2.79 milion per mile. The fact that the proposed Gateway Central
19 project investment is well more than twice as expensive as the remaining,
.PESEAU 01 - Page 13
1479
.
1 higher voltage Energy Gateway transmission system is a further indication
2 that Gateway Central is being over-built to accommodate Gateway South.
3 If Gateway South was a certain project that was expected to come on-
4 line at a time similar to the expected December 2010 on-line date of Gateway
5 Central and there was true demand for that amount of transmission, this
6 investment mismatch would not be a problem. However, this is not the case.
7 Gateway South wil not even be permitted in the near future and will not be
8 energized before 2020, if indeed it is constructed at alL.
9 Q.
10.11
12 A.
13
14
15
16
17
18
19
20
.
HAVE YOU PARTICIPATED RECENTLY IN THE SITING AND APPROVAL
OF OTHER SIMILAR AND COMPETITIVE HIGH VOLTAGE
TRANSMISSION PROJECTS IN THE U.S.?
Yes. I have for many years participated in some of the financial planning for
the Southwest Intertie Project, or "SWIP" as it has been called. This project,
originally proposed by Idaho Power Company, has been planned in various
stages since as early as 1992. Today, SWIP is a similar and competing
project with Gateway South and is owned jointly by NV Energy and Great
Basin Transmission, LLC. The project originates at Midpoint, Idaho and
terminates initially in Nevada Power's territory, similar to Gateway South
plans. The SWIP project is being constructed in two phases, the first being
called "ON Line" and will originate in Sierra Pacific Power's service territory in
PESEAU DI- Page 14
1480
.
2
3
4 Q.
5
6 A.
7
8
9
10.11
eastern Nevada (Robinson Summit substation) and run south for 235 miles
to major markets in the southern Nevada and California markets. ON Line is
a 500 kV transmission line approved and under construction.
WHAT ARE THE INVESTMENT COSTS FOR ON LINE THAT HAVE BEEN
APPROVED BY THE PUBLIC UTILITIES COMMISSION OF NEVADA?
$509.6 million. The investment cost per mile for this 500 kV, 235 mile line is:
$509.6/235 = $2.17 milion/mile
The ON Line 500 kV line is below, but in line with $2.79 millon/mile
investment in the remaining Energy Gateway project, but vastly below the
$5.94 millon/mile investment cost estimate for the proposed Gateway
Central segment.
12 Q. IS THE.ON LINE TRANSMISSION PROJECT IN COMPETITION WITH THE
13 PROPOSED GATEWAY SOUTH PROJECT?
14 A. Yes. The ON Line project is being built to serve renewable energy projects in
15 northern Nevada, Idaho and Wyoming. The 2000 MW project is well ahead
16 of and in direct competition with Gateway South.
17 Q. DOES THE ON LINE PROJECT PRECLUDE GATEWAY SOUTH FROM
18 EVER BEING BUILT ECONOMICALLY?
.PESEAU DI - Page 15
1481
.A. No. But clearly the current clamor for renewable resources in southern
2 Nevada and in California is moderating and would have to grow significantly
3 in order to accommodate and justify a second major 500 kV project such as
4 Gateway South.
5 Q. BESIDES ON LINE, WHICH IS APPROVED AND UNDER
6 CONSTRUCTION, ARE THERE OTHER PLANNED HIGH VOLTAGE
7 TRANSMISSION PROJECTS DESIGNED TO SIMILARLY CONNECT AND
8 DELIVER POTENTIAL WIND GENERATION IN WYOMING TO THE
9 DESERT SOUTHWEST?
10 A. Yes, there are severaL. While i make no attempt here to rank the
. 11 probabilities of each being completed in relation to the proposed Gateway
12 South project, the mere existence of several proposed competing
13 transmission projects demonstrates the inherent uncertainty attached to any
14 single projectssuccess.
.
15 Q. WHAT OTHER COMPETING PROJECTS ARE UNDER DEVELOPMENT?
16 A. My Exhibit 226 (OEP-6) provides a map of a number of competing 500kV
17 and above projects currently being proposed and developed. I have not
18 studied the progress of each, but have generally been aware of their
19 intentions in industry press. Most of these projects have been proposed prior
PESEAU 01 - Page 16
1482
.
1 to Gateway South and as such are competitors to it. If one or more of these
2 competitor projects advances prior to Gateway South, there is a distinct
3 possibility that Gateway Central would become a largely stranded
4 investment. My testimony anticipates this, and requests that the Commission
5 guard today against the potential for Gateway Central to be carried by
6 ratepayers in the event that Gateway South never develops. This complex
7 issue is best considered in future proceedings where the risks and rewards of
8 this investment can be analyzed.
9 Q. ARE YOU CHAllENGING PACIFICORP'S PROPOSED RATE BASE
TREATMENT OF IDAHO'S SHARE OF THE $801.5 MilLION GATEWAY
CENTRAL INVESTMENT BECAUSE YOU BELIEVE THAT THIS
SEGMENT Will SERVE NO PURPOSE FOR THE FORESEEABLE
FUTURE?
No, I am not. Even if Gateway South is never completed, the Populus to
Terminal segment will relieve congestion on this transmission path. In
response to Monsanto Data Request 4.5, PacifiCorp listed a number of
potential benefits that would derive from an upgrade to this path. I attach the
one page response as my Exhibit 227 (DEP-7). i do not challenge this
response. I do challenge the proposed decade long inclusion of the $801.5
milion investment in rate base, and its associated large increase in revenue
10.11
12
13
14 A.
15
16
17
18
19
20
.PESEAU DI - Page 17
1483
.
1 requirements, so long in advance of it being used and useful for Gateway
2 South.
3 Q. DO YOU RECOMMEND THAT A SMALL PORTION OF THE PROPOSED
4 $801.5 MILLION BE PLACED IN IDAHO'S RATE BASE IN THIS CASE?
5 A. No. Again this issue is complex and needs a more thorough review. And,
6 from PacifiCorp's viewpoint, the Company may well wish to postpone
7 consideration until the entire investment could logically be determined to be
8 used and usefuL.
9 Q..10
11
12
13 A.
14
15
HAS THIS COMMISSION SPECIFICALLY CONSIDERED PACIFICORP
RATE BASE ADDITIONS PREVIOUSLY THAT WERE REQUESTED
EITHER OUT -OF-PERIOD OR MUCH LONGER THAN CURRENTLY
NECESSARY?
I do not believe so. It is my understanding. that the Commission has not
issued an order pertaining to PacifiCorp in a fully contested rate case since
sometime in the 1980s.
SUMMARIZE CONCLUSIONS AND16 Q. PLEASE YOUR
17 RECOMMENDATIONS.
.PESEAU 01 - Page 18
1484
.A. I conclude that the Commission should defer consideration of Pacificorp's
2 proposed Gateway Central rate base addition to the next general rate case,
3 for the reasons developed in my testimony.
4 Q.
5
6
7 A.
8
9
10.11
12
13
14
15
16
17
18
19
20
.
DO YOU HAVE CONCLUDING REMARKS REGARDING THE COURSE
OF IDAHO WITH REGARD TO MUL TI-STATE ALLOCATORS FOR THIS
COMMISSION?
Yes i do. I have participated in numerous studies and proceedings in Idaho
since the early 1980s. My preparation for the testimony i sponsor here has
raised major concerns in regard to my assessment of how the new era of
renewable resource development and major speculative transmission
investments in the western United States wil affect this state, and especially
the Idaho service territory served by PacifiCorp. We all know that Idaho is
less than 6% of PacifiCorp's total customer base. We further know that
certain of PacifiCorp's larger state jurisdictions are "driving" the sUf§efor
more expensive and potentially excess resources through ambitious
resource portolio standards ("RPS"). The fact that PacifiCorp is driven to
serve these requirements, and potentially to profit greatly from them, will not
in my opinion, bode well for the State of Idaho. I say this because of the
multi-state protocols and resulting costly allocations that are headed Idaho's
way as a result these multi-billion dollar investments that would likely not
PESEAU 01 - Page 19
1485
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5
6
7
8
9
10
11.12
arise in the absence of such requirements. The largest drivers of the need
for these investments are those large states that either are not rich in
generation resources, or simply wil not allow such development in their own
back yard. Idaho, on the other hand, can independently pursue its rich
renewable and other generation resource potential largely without the aid of
the massive type projects such as Energy Gateway and wind generation.
Idaho ratepayers I fear may be in for indefinite rate increases that could be
avoided if the state would opt out of the multi-state policies. These rate
increases are certainly disastrous not only for Monsanto, but for the general
livelihood of eastern Idaho. i urge the Commission to consider whether it
wishes to adopt a more parochial view of the western U.S. energy future and
focus on what is best for Idaho.
13 Q. WOULDN'T IDAHO'S OPTING OUT OF MANY OF PACIFICORP'S
14 EXPANSION PROGRAMS HURT THE COMPANY?
15 A. No, not at alL. Idaho is such a small percentage of PacifiCorp that neither the
16 Company nor other states would necessarily be affected.
17 Q. DOES THIS CONCLUDE YOUR DIRECT TESTIMONY?
18 A. Yes.
.PESEAU DI - Page 20
1486
.1 (This page,consisting of prefiled
2 rebuttal testimony Dennis isof Dr.Peseau,CON FI DENT IAL and
3 under separate cover at the Commission.)
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1487
HEDRICK COURT REPORTING PESEAU (Reb)P.O.BOX 578,BOISE,ID 83701 Monsanto
.1 (This page,consisting of prefiled
2 rebuttal testimony of Dr.Dennis is CONFIDENTIAL andPeseau,
3 under separate cover at the Commission.)
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1488
HEDRICK COURT REPORTING PESEAU (Reb)P.O.BOX 578,BOISE,ID 83701 Monsanto
.1 (This page,consisting of prefiled
2 rebuttal testimony of Dr.Dennis Peseau,is CONFIDENTIAL and
3 under separate cover at the Commission.)
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1489
HEDRICK COURT REPORTING PESEAU (Reb)P.O.BOX 578,BOISE,ID 83701 Monsanto
.1 (This page,consisting of prefiled
2 rebuttal testimony of Dr.Dennis is CONFIDENTIAL andPeseau,
3 under separate cover at the Commission.)
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HEDRICK COURT REPORTING PESEAU (Reb)P.O.BOX 578,BOISE,ID 83701 Monsanto
.1 (This page,consisting of prefiled
2 rebuttal testimony of Dr.Dennis is andPeseau,CONFIDENTIAL
3 under separate cover at the Commission.)
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1491
HEDRICK COURT REPORTING PESEAU (Reb)P.O.BOX 578,BOISE,ID 83701 Monsanto
.1 (This page,consisting of prefiled
2 rebuttal testimony of Dr.Dennis Peseau,is CONFIDENTIAL and
3 under separate cover at the Commission.)
4
5
6
7
8
9
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1492
HEDRICK COURT REPORTING PESEAU (Reb)P.O.BOX 578,BOISE,ID 83701 Monsanto
..
.
.
.
1 PESEAU SURRBUTTAL
2
3 Q. PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
4 A. My name is Dennis E. Peseau. My business address is Suite 250, 1500
5 Liberty Street, S.E., Salem, Oregon 97302.
6
7 Q. BY WHOM AND IN WHAT CAPACITY ARE YOU EMPLOYED?
8 A. i am President of Utility Resources, Inc. Since 1985 the firm has consulted
9 on a number of economic, financial and engineering matters for various
10 private and public entities.
11
12 Q. ARE YOU THE SAME DENNIS E. PESEAU WHO FILED DIRECT AND
13 REBUTTAL TESTIMONY IN THIS CASE?
14 A. Yes.
15
16 Q. WHAT IS THE PURPOSE OF YOUR SURREBUTTAL TESTIMONY?
17 A. PacifiCorp witness Mr. Gerrard attempts to rebut my and
18 Staff witness Mr. Lobb's testimony on deferring and limiting the rate base
19 treatment of the Populus to Terminal with essentially 5 points. My surrebuttal
20 makes clear that 2 of the 5 points are not issues at all, and that his remaining
21 3 points are not correct.
22
23 Q. PLEASE LIST MR. GERRARD'S 5 REBUTTAL POINTS.
24 a. As summarized on pages 1-3 of his rebuttal, Mr. Gerrard discusses that:
25 1. He disagrees that Gateway Central (or Populus to Terminal)
26 transmission line is oversized at the outset of its initial
27 energizing. (page 1, line 13-page 2 lines 1-2.)
28
29 2. He disagrees that the completed 8 segments making up the
30 overall proposed Energy Gateway project would provide a major and
SUR-REBUTTAL/PEASEAU - Page 2
1493
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dominant transmission highway to western states and regions outside
its retail service territory. (pg. 2, I 3-8).
3. He explains that the proposed Energy Gateway project is
the only proposed transmission project in the region that will connect
the Company's load centers to the Company's existing and future
resources. (page 2, i. 9-16).
4. He argues that cost comparisons made by Mr. Lobb and me
are overly simplified. (pg. 2, i. 20-22).
5. He argues that the Populus to Terminal project will improve
system reliabilty and reduce Path C constraints. (pg. 3, i. 1-8).
Populus to Terminal is Oversized at the Outset
Q. WHt T iS THIS REBUTTAL ISSUE THAT IS RAISED BY MR. GERRARD?
A. Mr. Lobb and i explain in direct testimony that, unless and until the proposed
Gateway South and Gateway West segments of Energy Gateway are
completed, the capacity of Populus to Terminal would be severely limited as
compared with ultimate capacity. According to PacifiCorp's response to
Monsanto Data Request 4.4, Idaho would receive only 350 MW of
incremental capacity of the 1400 MW of "when-completed" capacity on
Energy Gateway, projected for 2019-2020. Capacity southbound to Utah is
planned to be 700 MW initially. From this circumstance, as well as the
project's costs being more than 10 times Company commitment costs made
in 2006, i conclude that, for ratemaking and timing purposes, Populus to
Terminal is vastly overbuilt at a price tag of $801.5 milion.
1494
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. 16
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.
Q. HOW DOES MR. GERRARD RESPOND?
A. On pages 3-7 of his rebuttal testimony, Mr. Gerrard explains that Populus to
Terminal was sized according to the present and expected future needs, and
to overall regional WECC direction.
Q. IN YOUR OPINION IS THIS REALLY THE ISSUE?
a. No, Mr. Gerrard misses the point. The issue is not whether, if completed in
2019-2020, Energy Gateway would be a cost effective and useful system for
the western U.S. The issue i raise and i believe Mr. Lobb does as well, is
whether the retail customers of Idaho should today be required to carry the
costs of this over $6 billon investment for shareholders and potential OA TT
transmission customers until 2019-2020. The issue here is not an issue of a
well-planned transmission project as portrayed by Mr. Gerrard, but one of
appropriate and reasonable ratemaking for Idaho retail customers.
Energy Gateway as a Transmission Highway
Q. ON PAGE 7, LINES 4-14, MR. GERRARD TAKES EXCEPTION TO YOUR
REFERENCE TO THE PROPOSED ENERGY GATEWAY PROJECT AS A
POTENTIAL "HIGHWAY" TO CALIFORNIA AND SOUTHERN NEVADA.
PLEASE RESPOND.
A. First, my description in this regard is not to be taken as a criticism. As an
economist I applaud the entrepreneurial spirit of MidAmerican and
PacifiCorp. A careful reading of my direct testimony on this issue, page 7,
lines 5-16, reveals that I am not criticizing the Company's undertaking this
vast project, but rather objecting to its attempt to immediately place this large
$801.5 milion project into the rate base of Idaho retail customers. Again, this
issue is a matter of the timing of investment recovery.
SUR-REBUTTAL/PEASEAU - Page 4
1495
.1
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17.18
19
20
21
22
23
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25
26
27
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29
30
31.
Q. ARE YOU THE FIRST PARTY TO RECOGNIZE THE PROPOSED
ENERGY GATEWAY PROJECT AS A HIGHWAY FROM WYOMING WIND
GENERATION TO LOAD CENTERS IN WESTERN STATES?
A. No. The Federal Energy Regulatory Commission (the "FERC"), as quoted in
Mr. Cupparo's Exhibit No. 36, page 15 of 29, says of Energy Gateway
Project:
42. The Project is an enormous undertaking by PacifiCorp to
construct approximately 2000 miles of new EHV transmission lines
throughout six states (including 230 kV, 345 kV and 500 kV
transmission lines). The Project wil provide the first backbone 500 kV
"superhighway" in this part of the Western Interconnection and may
facilitate the addition of future 500 kV transmission lines in the area.
Elsewhere in this exhibit (e.g. page 2 of 29) the FERC concludes that the
Project wil connect areas of strong potential for generation resource
development". . . for delivery to customers throughout the western
United States."
Are the Monsanto and Staff Cost Comparision Overly Simplified?
Q. ON PAGE 2, LINES 17-22 OF MR. GERRARD'S REBUTTAL TESTIMONY,
HE STATES THAT HE DISAGREES WITH YOUR TRANSMISSION COST
COMPARISIONS AND "...As explained below, such comparisons are
overly simplified and do not take into account the specific cost
characteristics and requirements of the project." (I. 20-22). DOES MR.
GERRARD IN FACT ADDRESS YOUR COST COMPARISONS AT ALL?
A. No. The section of my direct testimony that addresses the cost comparisons
of the per-mile Populus to Terminal costs ($5.94 milion/mile) with the rest of
the seven segments making up Energy Gateway ($2.79 milion/mile) and the
SWIP "ON Line" project in Nevada ($2.17 milion/mile) is found on pages 13-
15, and my Exhibit No. 225.
1496
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2
3
4
5
6 Q.
7 A.
8
9
10
.
.
Mr. Gerrard's discussion of "Project Cost" is found on his rebuttal
testimony page 9, line 4 through page 11, line 6. Not a single aspect of my
cost analyses and comparisons are addressed at alL. Instead he refers to an
example of a "Camp Williams" transmission line to which i do not refer.
DOES THIS CONCLUDE YOUR SURREBUTTAL TESTIMONY?
Yes, it does.
SUR-REBUTTAL/PEASEAU - Page 6
1497
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22
23
1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER SMITH: Is he ready for cross-exam?
4 MR. BUDGE: Yes.
5 COMMISSIONER SMITH: Mr. Woodbury.
6 MR. WOODBURY: No questions.
7 COMMISSIONER SMITH: Mr. Purdy.
8 MR. PURDY: No questions.
9 COMMISSIONER SMITH: Ms. Davison.
10 MS. DAVISON: No questions.
11 COMMISSIONER SMITH: Mr. Olsen.
12 MR. OLSEN: No questions, thank you.
13 COMMISSIONER SMITH: How about --
14 MR. OTTO: No questions.
15 COMMISSIONER SMITH: Mr. Hickey.
16 MR. HICKEY: Thank you, Madam Chair.
17
18 CROSS-EXAMINATION
19
20 BY MR. HICKEY:
21 Q.Good afternoon, Mr. Peseau.
A.Good afternoon.
Q.Mr. Peseau, am I correct that your background is
24 as an economist?
25 A.That's correct.
1498
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
PESEAU (X)
Monsanto
.
.
.
1 Q.You're not licensed as an engineer, are you,
2 sir?
3 A.I am not.
4 Q.You don't hold yourself out as an expert in the
5 technical aspects of transmission systems, engineering, or
6 design, or operation and construction of transmission proj ects,
7 do you?
8 A.Well, our firm, under my direction and with my
9 participation over the years, have developed system planning
10 models, capacity expansion models, and production costing
11 models, which, of course, include as resources the availability
12 and dispatchabili ty of transmission services, but I have never
13 designed a transmission system and could not design a
14 transmission system.
15 Q.Sure. Fair enough. You state in your testimony
16 from that experience as an economist that if Gateway -- Energy
17 Gateway is constructed as planned, the Company will, quote, and
18 this is a direct quote: Dominate transmission services
19 throughout the Western United States.
20 And I believe you find that at page 7, line 6, of
21 your direct testimony.
22 Could you tell us how you reached that
23 conclusion? Do you have detailed studies that were presented
24 to PacifiCorp or Rocky Mountain Power to support that
25 statement?
1499
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
PESEAU (X)
Monsanto
.
.
.
1 Well, the studies that I've done consisted ofA.
2 reviewing available public information; and I think we went
3 over some quotes from the FERC Order on Order No. 679
4 yesterday, but certainly a number of paragraphs there indicate
5 and I'll quote just one: According to PacifiCorp, the project
6 is one of the most ambitious electric infrastructure proj ects
7 planned in the Western United States in the past two decades.
8 And I would suggest it's been a lot longer than
9 that.
10 Now, the addition of Gateway -- Energy Gateway as
11 proposed, at least as proposed prior to the live rebuttal
12 yesterday, would allow PacifiCorp -- and I have no problems
13 wi th that -- running one of the most powerful transmission
14 systems from resource constraint systems to broad markets
15 throughout its service terri tory in West Coast states.
16 Okay. Well, I appreciate getting a little moreQ.
17 background of what your perspectives are, but the question that
18 I was focused on is really driven by your choice of the word
19 "dominate. " Dominate the transmission services throughout the
20 US.
21 You don't have, in the context of market power
22 domination, any suggestion that PacifiCorp would be in a
23 posi tion of holding unreasonable market power because of Energy
24 Gateway, do you?
25 No, I'm sure FERC and various antitrust bodiesA.
1500
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
PESEAU (X)
Monsanto
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.
.
1 would take exception to that, and I did not mean that at all.
2 Q.Okay. So I think we're in agreement there, and I
3 appreciate again you mentioning the F-E-R-C. In fact, isn't it
4 Report 715 that is filed with the F-E-R-C that requires
5 PacifiCorp to demonstrate on an annual basis that it does not
6 have market power?
7 Our firm did a market power study for PacifiCorpA.
8 many, many years ago and we haven't since, and I don't know
9 whether that's No. 715 or some other. I'm just not an expert
10 in that.
11 But your search of public records didn't findQ.
12 anything to suggest that PacifiCorp had held market power due
13 to the size or the reach of this transmission system as
14 proposed?
15 A.Not at all.
16 Okay. I want to talk to you about another areaQ.
17 of your testimony where you on page 8 talk about the fact that
18 you conclude that the Populus to Terminal proj ect is overbuilt.
19 Are you familiar with that testimony?
20 On line 5 of page 8, I use the term "initiallyA.
21 overbuil t Segment B." That's maybe what you're referring to.
22 Yes. And then looking to the top of page 9 ofQ.
23 the copy I have of your testimony, you say you base that
24 conclusion on a number of factors. Do you see that?
25 A.I do.
1501
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
PESEAU (X)
Monsanto
.
.
.
1 Q.And I've reviewed that, and it seems, to me, that
2 there is a factor that you reviewed, and it was the merger
3 commitment at the time of MidAerica Energy Holdings'
4 acquisition of PacifiCorp and the commitment to address the
5 congestion on Path C, but I don't see anything besides that
6 issue addressed in that answer.
7 A.Well, I think I go on the remainder of the
8 testimony and compare the costs that would be incurred by
9 PacifiCorp to build the system as with the capacity that it's
10 going to have initially with other projects, and, indeed, with
11 the rest of the entire Gateway system.
12 Q.Well, fair enough. I'm not trying to suggest any
13 limitations in the balance of your testimony. But at least in
14 the answer you gave to the question that said what is the basis
15 for your conclusion that the initial leg of Energy Gateway,
16 which is Gateway Central, is overbuilt, you said it's based on
17 a number of factors, but you only address the one wi thin that
18 answer. Correct?
19 A. I only list that one, but I do go on and continue
20 thereafter with the remainder of my factors.
21 Q.Okay. You're aware that the Company has
22 identified several reasons that this Central section Populus to
23 Terminal was built, aren't you?
24 A.I'm not sure what you're referring to. They
25 certainly discuss the fact that it's a key segment of the
1502
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
PESEAU (X)
Monsanto
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.
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1 Energy Gateway, and necessary for alleviation of capacity
2 congestion and to serve Salt Lake City.
3 Q. You're aware of the fact that since 19- -- or,
4 excuse me, since 2005, several significant operational
5 disturbances occurred which further demonstrated the need for
6 Path C?
7 A. Well, I don't think it demonstrated the need for
8 Path C. It demonstrated the need to relieve congestion on
9 Path C.
10 Well, and you're aware that the size of Path CQ.
11 that was discussed at the time of the merger or the size of
12 resources to address the Path C constraints that was identified
13 at the time of the merger commitments is a different size of
14 that proj ect than was ultimately developed, aren't you?
15 A.Well, certainly in 2007 when Energy Gateway was
16 conceived, the very size and scope of that project would, in my
17 opinion, naturally leave the initial commitment in the Order as
18 probably being underdone.
19 Q.Okay. And beyond underdone, the costs that were
20 estimated at the time of the merger transaction in 2006 would
21 have been, by necessity, understated because of the passage of
22 time since that commitment was made until the project was
23 actually undertaken. Isn't that also true?
24 A.Well, that would be true in the context of
25 Gateway, but I think my testimony and I think that of Mr. Lobb
1503
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
PESEAU (X)
Monsanto
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1 indicates that the initial capacity required by either the
2 merger acquisition commitment or, in fact, the needs of Idaho
3 and Utah would dictate something smaller. There would be no
4 need to build something that would double and by a factor of
5 fi ve in some cases increase the capacity just by being hooked
6 up to segment -- excuse me, Gateway South if and when it's
7 built.
8 Q.Wi th your involvement wi thin the consulting
9 industry of public utili ties, you are aware of both the WECC
10 and NERC organizations, aren't you?
11 A.Yes.
12 Q.And you're aware of the fact that the Energy
13 Gateway system has been designed and supports capacity ratings
14 endorsed by both of those agencies?
15 Sure. With organizations like that, andA.
16 rightfully so, the more reliable, the better; and, in fact,
17 wi th the trend towards transmission, the bigger, the better.
18 Well, I hope you were here yesterday and had aQ.
19 chance to hear Mr. Gerrard's testimony. Did you?
20 A.I did.
21 Q.And you heard Mr. Gerrard testify that the
22 current needs of that Populus to Terminal segment are in excess
23 of 70 percent of the capacity. Did you hear him testify to
24 that?
25 Yes. And on review of that last night, I thinkA.
1504
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
PESEAU (X)
Monsanto
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1 that was not a fair representation.
2 Q.Okay. Well, that's from your perspective as an
3 economist that didn't design or isn't the architect of the
4 system. Isn't that a fair observation?
5 A. Well, that's certainly partially true, but I see
6 no increases in load forecast or requirements that go into
7 Northern Utah that would dictate more than the initial
8 incremental capacities that are allowed if, indeed, Populus to
9 Terminal is completed.
10 Q.Understood that you're not going to readily
11 accept the testimony of Mr. Gerrard. Let me just ask you this:
12 For purposes of my follow-up question, assume
13 that Mr. Gerrard, as the architect of the system, knew what he
14 was talking about. Just assume that for me. Wouldn't you
15 agree that any transmission resource that's being built should
16 have some level of excess capacity in it if it's prudently
17 planned for?
18 A.In principle, I agree with that. But the
19 testimony of Mr. Gerrard was new as of yesterday and it
20 conflicts with some of the Data Responses that the Company has
21 made as to the capacities -- the incremental capacities of
22 Populus to Terminal.
23 Q.Sure. But wouldn't you expect, Mr. Peseau, that
24 what the capacity usage of the transmission resource is is a
25 dynamic circumstance and is inevitably going to change from any
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1 gi ven moment in time depending on what the measurement interval
2 is?
3 A.Well, I doubt, sir, that that's really happened
4 since May when the Company has filed.
5 But to answer your question directly, the
6 dynamics of the situation with the recession and loads that
7 have happened since 2008, say, would call for a scaling back,
8 certainly not an increase, in the capacities needed.
9 Fair to say that's another point that you andQ.
10 Mr. Gerrard have some disagreement on?
11 That we are in a recession or that loads areA.
12 decreasing?
13 Or as to the capacity that is currently used ofQ.
14 excuse me, of the Populus to Terminal segment?the energy
15 The question is do we disagree? Yes.A.
16 Okay. Now, you offer as one of your otherQ.
17 observations that you think there are competing proposals that
18 cause you to question the need of Energy Gateway in total. Do
19 you recall making representations in that regard?
20 A.Yes.
21 I'm going to hand you what will be marked asQ.
22 Exhibit 88.
23 COMMISSIONER SMITH: Eighty-nine.
MR. HICKEY: Eighty-nine.
25 COMMISSIONER SMITH: Sorry, 88.
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1 (Rocky Mountain Power Exhibit No. 88 was
2 marked for identification.)
3 BY MR. HICKEY: So I've just handed you,Q.
4 Mr. Peseau, what is an exhibit to Mr. Gerrard's testimony, and
5 it's a part of -- previously identified in this record as
6 Exhibi t 67.
7 A.This is Exhibit 67?
8 Q.It is.
9 A.Thank you.
10 And to draw attention for it, make it easy toQ.
11 talk about in this exchange, we're calling it Exhibit 89 or,
12 excuse me, 88.
13 Is this -- I'm sorry, I'm confused now. 67 andA.
14 88 are really identical?
15 Q.Yes.
16 A.Okay, thank you.
17 You're going to call it 88 if you would, please.Q.
18 Now, first of all, I assume with your role in
19 this case, you had a chance to look at this map.
20 A.Yes.
21 This isn't the first time you've seen it?Q.
22 No. In fact, I saw the original document fromA.
23 which this map is taken.
24 And who do you understand prepared this map?Q.
25 If it's of assistance to move us along, if I
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1 represent to you that WECC -- W-E-C-C -- prepared this map, do
2 you have any reason to disagree with that?
3 A.No, I don't.
4 Q.Okay. So--
5 COMMISSIONER SMITH: The Chairman does. I think
6 this was prepared by the subregional planning groups that are
7 assisting WECC in the ten-year transmission plan. So, this was
8 a product that was delivered to a committee of WECC called
9 TEPPC, but it was prepared by the subregional planning.
10 MR. HICKEY: I see Mr. Gerrard in complete
11 agreement with you on that, Madam Chair. Thank you for the
12 further--
13 COMMISSIONER SMITH: It's just a myth, but for
14 the sake of accuracy.
15 MR. HICKEY: Well, an important one, and we thank
16 you for that into the record.
17 Q.BY MR. HICKEY: The purpose that I had to draw
18 your attention to this map as further identified by Chairman
19 Smith through the subcommittee that presented this to WECC is
20 that there isn't a competing proj ect on here as you would want
21 to lead folks to believe, is there, Mr. Peseau?
22 A.The answer is "yes" to that, but this map does
23 not represent the planned -- all the planned proj ects that are
24 on the books and being considered by this group. In fact, this
25 is page 3 of the August 11, 2010, foundational transmission
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1 list that the Commissioner referred to. Page 6 gives the
2 potential proj ects which do include a number -- not all -- of
3 the potential competing proj ects. The reason they are not
4 listed as foundational is because there are either three or
5 four -- I don't recall or have in front of me right now --
6 milestones which WECC requires in order to be considered
7 foundational
8 Q.Sure.
9 including funding, and we heard yesterday fromA.
10 Mr. Gerrard that those are issues that are still under
11 negotiation.
12 So you would agree with the observation thatQ.
13 those additional projects as of that moment in time were more
14 speculative. Isn't that true? They didn't meet the WECC
15 standard of being considered a foundational proj ect?
16 I wouldn't call it "speculative"; and some of theA.
17 segments of Energy Gateway are also omitted from this and I
18 don't consider them all speculative. If the Company
19 proceeds -- and I frankly hope they do eventually become
20 successful -- in building this thing, but I'm just saying right
21 now it's competition and it would be -- maybe it is
22 speculative, I don't know. I would just say there's
23 competition right now for lines from resources to market
24 centers.
25 Okay. Well let's use an analogy in hopes thatQ.
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1 maybe it helps these last few exchanges, Doctor -- or,
2 Mr. Peseau. In the world of oil and gas reserves, there is a
3 lot of different terminology that's used to establish what a
4 natural gas resource might be, isn't there?
5 A.Producing, prospective.
6 Q.Sure. We know if there's production, it's pretty
7 easy. We're going to have an ability to say how much that well
8 is producing. Correct?
9 A. Usually, yes.
10 Q. That's the most definite of the progressions of
11 how much gas might be in any given area of the country. But if
12 we get beyond areas that geologists have actually studied and
13 we have geologists extrapolate that maybe the formation has gas
14 beyond into these other regions, that would be considered
15 beyond a known reserve, wouldn't it, because there's no geology
16 to support that?
17 And there's several intermediaries such asA.
18 in-fill drilling and so forth that give probable reserves.
19 Q.Sure.
A.Yes.
Q.But in
was doing by trying
to say what's real,
20
24 likely, what's maybe a hope, and what's down here in the
25 category of possible or pipe dreams?
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1 A.You might characterize it that way. They are
2 certainly considering what have been financed that have reached
3 the four milestones to proceed and plan with and come up with
4 reliabili ty standards for that. And the secondary is certainly
5 less certain than a foundation, because at least one or more of
6 the three or four conditions have not yet been met, so they are
7 certainly not as likely at this time.
8 Q.Fair enough. But at the end of the day, the only
9 proj ect that met this foundational designation was the Energy
10 Gateway project reflected on Exhibit 88. Correct?
11 A.Correct.
12 MR. HICKEY: That's all I have, Madam Chair.
13 COMMISSIONER SMITH: Thank you.
14 Do we have questions from the Commissioners?
15 COMMISSIONER KEMPTON: No.
16 COMMISSIONER REDFORD: No.
17 COMMISSIONER SMITH: Nor I.
18 Do you have redirect, Mr. Budge?
19 MR. BUDGE: No redirect.
COMMISSIONER SMITH: Thank you, Dr. Peseau.
(The witness left the stand.)
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