20110208Vol XVI pp 2541-2750.pdf

ORIGII\\.BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF PACIFICORP DBA ROCKY MOUNTAIN
POWER FOR APPROVAL OF CHANGES TO
ITS ELECTRIC SERVICE SCHEDULES
HEARING BEFORE
CASE NO.
PAC-E-10-07
TECHNICAL HEARING
(EconomicValuation
of MonsantoInterruptibleProducts)
COMMISSIONER MARSHA H. SMITH (Presiding)
COMMISSIONER MACK A. REDFORD
COMMISSIONER JIM D. KEMPTON.
PLACE:Commission Hearing Room
472 West Washington Street
Boise, Idaho
DATE:February 1, 2011
VOLUME XVI - Pages 2541 - 2750
.,rr ;'0co rni Ç)CX 11'1
,-':: """,::-..o\.
, lt .
I...i §~.HEDRICK
COURT REPORTING
POST OFFICE BOX 578
BOISE, IDAHO 83701
208-336-9208
tel1f tk Ie ~&.t 19
.1 APPEARANCES
2 For the Staff:NEIL PRICE,Esq.
3 Deputy Attorney General
472 West Washington
4 Boise,Idaho 83702
5 For PacifiCorp HICKEY & EVANS,LLP
dba Rocky Mountain Power by PAUL J.HICKEY,Esq.
6 (RMP) :Post Office Box 467
Cheyenne,Wyoming 82003
7 -and-
DANIEL E.SOLANDER,Esq.
8 ROCKY MOUNTAIN POWER
201 South Main Street,Suite 2300
9 Salt Lake City,Utah 84111
10 For Monsanto:RACINE,OLSON,NYE,BUDGE
& BAILEY
11 by RANDALL C.BUDGE,Esq.
Post Office Box 1391
12 Pocatello,Idaho 83204-1391.13 For Idaho Irrigation RACINE,OLSON,NYE,BUDGE
Pumpers Association (IIPA) :& BAILEY
14 by ERIC L.OLSEN,Esq.
(VIA TELEPHONE)Post Office Box 1391
15 Pocatello,Idaho 83204-1391
16
17
18
19
20
21
22
23
24.25
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
APPEARANCES
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20
21
22
23
24.25
1 I N D E X
2
WITNESS EXAMINATION BY PAGE
3
4
Gregory Duvall
(Rocky Mountain Power)
Mr. Hickey (Direct)
Prefiled Rebuttal
Mr. Budge (Cross)
Mr. Hickey (Redirect)
2545
2547
2557
2594
2596
2597
2599
2608
2615
2624
2626
2648
2687
2692
2725
2737
2747
NUMBER PAGE
16
17
For Rocky Mountain Power:
5
6 Steven McDougal
(Rocky Mountain Power)
Sworn
Mr. Hickey (Direct)
Prefiled Rebuttal
Prefiled Sur-surrebuttal
Mr. Budge (Cross)
2555
2556
2707
2709
2574
2700
2564
2587
7
8
9 Paul Clements
(Rocky Mountain Power)
Mr. Hickey (Direct)
Prefiled Rebuttal
Prefiled Supplemental
Mr. Price (Cross)
Mr. Budge (Cross)
Commissioner Kempton
Mr. Hickey (Redirect)
Mr. Budge (Recross)
10
11
12
13
14 EXHIBITS
15
98 Monsanto Data Request 19.2, 4 pgs Marked
Admit18
19
For Monsanto:
258A Monsanto Data Request 17.8, 3 pgs Marked
258B Clements Wyoming PSC Testimony, 3g pgs Marked
259 Proposed Valuation Methodology, 8 pgs Marked
260 Monsanto Contracts, 10 pgs Marked
261 Duvall PAC-E-07-05 Testimony, 20 pgs Marked
262 (Confidential)Marked
HEDRICK COURT REPORTING
P. o. BOX 578, BOISE, ID 83701
INDEX
EXHIBITS
.
.
1 BOISE, IDAHO, TUESDAY, FEBRUARY 1, 2011, 9:30 A.M.
2
3
4 COMMISSIONER SMITH: Good morning, ladies and
5 gentlemen. This is the time and place set for further hearings
6 in Case No. PAC-E-10-07, further identified as in the matter of
7 the Application of Rocky Mountain Power for approval of changes
8 to its electric service schedules and a price increase of
9 27. 7 million, or approximately 13. 7 percent.
10 We'll take the appearances of the parties first,
11 starting with Mr. Hickey.
12 MR. HICKEY: Good morning, Chairman Smith,
13 members of the Commission, and parties. Paul Hickey of Hickey
14 and Evans, representing Rocky Mountain Power.
15 MR. SOLANDER: And Daniel Solander on' behalf of
16 Rocky Mountain Power.
17 COMMISSIONER SMITH: And for Monsanto.
18 MR. BUDGE: Randy Budge, Racine, Olson, Nye,
19 Budge and Bailey, Pocatello, Idaho, on behalf of Intervenor
20 Monsanto Company.
21 COMMISSIONER SMITH: Thank you. And for the
22 Staff.
23 MR. PRICE: Neil Price, deputy attorney general,
24 representing the Commission Staff..25 COMMISSIONER SMITH: All right. We have many
2541
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLOQUY
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22
1 other parties to this case. Are any of them making an
2 appearance here at this hearing today?
3 MR. OLSEN: This is Eric Olsen with the Idaho
4 Irrigation Pumpers Association listening on the phone, but not
5 intending to actively participate.
6 COMMISSIONER SMITH: Thank you, Mr. Olsen.
7 I will leave it to you to alert me if you do wish to ask
8 questions. Otherwise, I will not call on you. Is that going
9 to work for you?
10 MR. OLSEN: That will be just fine, your Honor,
11 Madam Chairman.
12 COMMISSIONER SMITH: All right. Any other
13 parties?
14 Okay. Actually, I was going to do this before we
15 went on the record, so we'll go at ease just for a minute.
16 (Discussion off the record.)
17 COMMISSIONER SMITH: We will go back on the
18 record now.
19 Is there any preliminary matters that need to
20 come before the Commission before we take the testimony of the
21 witnesses? Mr. Hickey.
MR. HICKEY: I would just advise you,
23 Chairman Smith and members of the Commission, that Mr. Budge
24 and I have spoken this morning about the two respective filings.25 that are -- that have been made recently, the Monsanto Motion
2542
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLOQUY
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.
.
1 to File Surrebuttal and the Rocky Mountain Power Response to
2 that. As the Commission is aware, we did not obj ect to the
3 filing of the surrebuttal testimony by Monsanto with the
4 opportunity to present our witnesses as sur-surrebuttal
5 wi tnesses today, two of those being live witnesses Mr. Duvall
6 and Mr. Clements, and Mr. McDougal filed surrebuttal testimony
7 last Friday as he had time to do that. So I can report that
8 Monsanto has no objection to that request, and if that's
9 acceptable to the Commission, I think all of these preliminary
10 issues have been resolved.
11 COMMISSIONER SMITH: That is certainly acceptable
12 to the Commission as a point of procedure.
13 Mr. Budge.
14 MR. BUDGE: The only question I had is I had
15 understood that that applied to the sur-surrebuttal the Company
16 did file Friday, and now I'm hearing that they want to present
17 some additional live sur-surrebuttal.
18 COMMISSIONER SMITH: Yeah, I believe that was
19 their reply.
20 MR. BUDGE: And I assume that would be limited to
21 any issue that the Company contends is new in the Monsanto
22 surrebuttal, not an attempt to rise yet new issues that go back
23 on something else that's already been rebutted.
24 COMMISSIONER SMITH: Well, the rebuttal should be
25 limi ted to the testimony that's being rebutted and nothing
2543
HEDRICK COURT REPORTING
P. o. BOX 578, BOISE, ID 83701
COLLOQUY
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1 else.
2 MR. BUDGE: With that caveat, we're fine with
3 that Stipulation proposed.
4 MR. HICKEY: Having worked with the witnesses the
5 last couple of evenings, I think that they're tight summaries.
6 If there is an issue or two that goes a little bit beyond a
7 line-for-line analysis of the sur-surrebuttal of Monsanto, it's
8 offered in the spirit of trying to focus issues and assist the
9 Commission with what's here. And I know my friend Mr. Budge
10 well enough to know that he's certainly able to ask whatever
11 follow-up questions he feels might be necessary.
12 COMMISSIONER SMITH: I am certain of that also.
13 And I would just restate my position as the Chair
14 that the Applicant always gets the opportunity for the last
15 word in rebuttal, so however they choose to do that. So with
16 that, I would say you can choose to put all of your witnesses'
17 testimony on at once, you can save it for later, but the
18 Applicant will always get to go at the end.
19 MR. HICKEY: Thank you, Madam Chair, and we
20 certainly are reserving the right to call a rebuttal witness if
21 necessary at the conclusion of the hearing.
22 COMMISSIONER SMITH: So, with that, I assume we
23 are going to start with your witnesses, Mr. Hickey.
24 MR. HICKEY: We are ready to call our first
25 wi tness: Gregory Duvall. Mr. Duvall, would you please come
2544
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLOQUY
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.
1 forward?
2
3 GREGORY DUVALL,
4 produced as a witness at the instance of Rocky Mountain Power,
5 being first duly sworn, was examined and testified as follows:
6
7 DIRECT EXAMINATION
8
9 BY MR. HICKEY:
10 Q.Mr. Duvall, for the record, would you please
11 again state your name and spell it?
12 A.My name is Gregory N. Duvall. Last name is
13 D-U-V-A-L-L.
14 Q.And did you have an opportunity to testify in the
15 first phase of this hearing in December, sir?
16 A.Yes, I did.
17 Q.Just quickly, could you state again what your
18 posi tion is with Rocky Mountain Power?
19 A.I'm the director of long-range planning and net
20 power costs.
21 Q.And, Mr. Duvall, did you cause to be filed
22 rebuttal testimony in this docket on the 14th of January,
23 2011?
24.25
A.Yes, I did.
Q.Do you have any additions or corrections to that
2545
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
DUVALL (Di)
RMP
.
.
1 rebuttal testimony?
2 A. Yes, I do, and it's on page 4.The footnote, it
3 should read: Net firm obligation equals obligations minus
4 purchases minus DSM minus interruptible.
5 So, you need to insert "equal obligation" in
6 between "obligation" and the negative sign in front of
7 "purchase. "
8 Q.Okay. Do you want to do that just one more time,
9 a little slower, please?
10 A.Okay. Page 4, footnote three, the formula in
11 that footnote should read: Net firm obligation equals
12 obligation minus purchases minus DSM minus interruptible.
13 Q.Thanks. If I were to ask you the questions set
14 forth in that January 14 rebuttal testimony, would your answers
15 be the same as they're set forth therein with that correction
16 being noted?
17 A.Yes, they would.
18 MR. HICKEY: Madam Chair, I would move that the
19 prefiled rebuttal testimony of Mr. Gregory Duvall be spread
20 upon the record as if it were read.
21 COMMISSIONER SMITH: If there's no obj ection,
22 it's so ordered.
23 (The following prefiled rebuttal testimony
24 of Mr. Duvall is spread upon the record.).25
2546
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
DUVALL (Di)
RMP
.1 Q.Please state your name, business address and present position with Rocky
2 Mountain Power (the Company), a division ofPacifCorp.
3 A.My name is Gregory N. DuvalL. My business address is 825 NE Multnomah,
4 Suite 600, Portand, Oregon, 97232. My present position is Director, Long Range
5 Planning and Net Power Costs.
6 Q.Are you the same Gregory N. Duvall that submitted rebuttal testimony in
7 this proceeding?
8 A.Yes.
10 Q.
11 A..12
13
14
15
16
17
18
19
20
.
9 Sumr ary of Testimony
What is the purpose of your rebuttal testimony?
I wil respond to Mr. Brian C. Collns' testimony that was fied on behalf of
Monsanto. Specifically my testimony wil rebut:
. Mr. Collns' discussion of the method used to value the Idao Irgation Load
Control Program;
. Mr. Collns' comments regarding the treatment of Monsanto's load and
interrptible products in the Company's Integrated Resource Plan ("IRP");
and
. Mr. Collns' claim that the avoided peaker costs should be increased by 12
percent based on his asserton that Monsanto allows the Company to avoid
planning reserves.
2547 ",,,..nil 1";_D",1- _ 1
Rocky Mountan Power
.1 Valua ion of the Idaho Irrigation Load Control Progrm
2 Q.What does Mr. Collns say about the valuation methodology the Company
3 uses to value the ,Idaho irrgation load control program?
4 A.On page 14 of Mr. Collis' direct testimony, he quotes the Company's response
5 to IIPA Data Request 46. In that response, the Company describes the
6 methodology used to value the Idaho Irgation Load Control Program.Most
7 importantly, the response states the following:
8 This methodology captues the capacity deferral benefit of the resource via
9 displacement of simple cycle combustion turbine proxy resources and
10 firm market purchass. (Emphasis added)
11 In addition, the response cites the latest estimated value of $73.09 per kiowatt-
12 year..13 Q.Is Mr. Collns' proposed peaker method consistent with the Company's
14 approach to valuing the Idaho Irrigation Load Control Program?
15 A.No. Mr. Collns relies solely on peaker units, while the Company includes both
16 peakers and market purchases in the evaluation of the Idao Irgation Load
17 Control Program.
18 Q.Does the Company pay irrigators $73.09 per kilowatt-year to be interrupted?
19 A.No. In 2010, the Company paid irgators $30 per kilowatt-year, or about 41
20 percent of the estimated value produced by the IRP model evaluation of the
21 program. Thus, irgators receive a discount and other customers receive a benefit
22 from a "share the savings" arangement. If a simlar "share the savings"
23 arangement were made with Monsanto, Mr. Collins' capacity value would need.24 to be discounted by 59 percent (1- 0.41), which would reduce his proposed $17.6
2548 -.. 1"' n .1. _ "'
Rocky Mountain Power
.
.
.
1
2
3
4
5
6
7
8
9
10 Q.
11 A.
12
13
milion capacity value! by $ 10.4 millon to $7.2 million. As a result of this
adjustment, the total value of $25.6 millon2 would be reduced to 15.2 milion; I
would note that the Company does not endorse Mr. Collns' peaker method;
rather this information is provided to the Commssion to ilustrate how his results
would need to be modified to be consistent with the treatment of the Idaho
Irgation Load Control Program. Furter downward adjustments would need to
be made to the capacity value in order to compensate for the fact that Mr. Collns
limited his analysis to peaker units, while the Idaho Irgation Load Control
Program study used a combination of peaker units and market purchases.
Does the Company plan to add any peaking units as a result of its IRP?
No. The Company's most recent IRP does not include any peakng units because
they are not least cost. This conclusion has been reinforced though the
Company's resource procurement process. In that process, peakng resources are
14 allowed to paricipate in the Company's competitive bidding process, but have not
15 been found to be economic compared to other resource types. Monsanto's
16 assumption that their interrptible product would avoid the addition of a peakng
17 unit has no basis in fact.
18 IRP reatment of Monsanto
19 Q.
20
21 A.
On page 4 of Mr. Collns' testimony, he claims that Monsanto's full load is
not treated as firm load in the Company's IRP. Is he correct?
No. First, Mr. Collns makes up a formula that he claims is in the 2008 IRP but is
! See Mr. Collins' Exhibit No. 254 (BCC-l) page i of i, line 7, column 4.
2 Ibid.
2549 .. 1"; D",h _ ~-,
Rocky Mountain Power
~
.1
2
3
4
5
6
7
8 Q.
9 A.
10
11.12
13
14
15
not. Mr. Collns' formula is shown on page 4, line 12 of his testimony3. Second,
he defines the phrase "net fir obligations" in a way not used by the Company.
This apparently comes about because Mr, Collns mistakenly used the discussion
on page 89 of the 2008 IRP - a discussion that describes how the Company
determnes its planning reserve - to somehow conclude that Monsanto's load is
not treated as fir load in the IRP. The discussion should be ignored by the
Commssion since it is out of context and ilogicaL.
How is Monsanto's load treated in the IRP?
As I stated in my rebuttal testimony in phase 1 of this proceeding, Monsanto's
load is treated as fir load and their interrptible products are treated as fir
resources. If Monsanto's interrptible products were no longer economic, the
Company would find other means to meet its firm load obligations and would
have an obligation,to serve Monsanto's entire load. If Monsanto's load were non-
fir, the Company would be able to interrpt it at any time for any reason with no
limitations, and would only provide power on an as if and when available basis.
16 Plann ng Reserve Margin
17 Q.
18
19 A.
20
21
22
.
What does Mr. Collins assert about the effect of Monsanto's interruptible
load on the Company's planning reserve margin?
On page 10 of Mr. Collns' testimony, he asserts that Monsanto's interrptible
load allows the Company to avoid construction or purchasing a firm resource.
Based on this, he concludes that the planning reserve for these avoided fir
resources would also be avoided.
3 The referenced formula is: Net Fir Obligation - Purchases - DSM - Interrptible.
2550 ~ ...." '" _1_ A.- _ -..a,.... ""
Rocky Mountain Power
.1 Q.How do you respond to his asserton?
2 A.First, Monsanto's interrptible load does not allow the Company to avoid
3 constrction of firm resources. As described in the testimony of Company
4 witness Mr, Paul H. Clements, Monsanto's interrptible product is not
5 comparable to the types of firm resources the Company plans to constrct or
6 acquire, Monsanto's interrptible load does allow the Company to avoid the
7 purchase of fir power and generation at existing facilities which is exactly what
8 is reflected in the Company's valuation studies in this case,
9 With regard to planning reserves, Monsanto's interrptible load does not
10 avoid planning reserves since the avoided purchased power is finn and requires
11 no reserves..12 Q.Does this conclude your rebuttal testimony?
13 A.Yes.
.
2551 -, - 1 _, 1..I-i.,"vu - ..
Rocky Mountan Power
.
.
.
1 (The following proceedings were had in
2 open hearing.)
3 Q.BY MR. HICKEY: Have you had an opportunity to
4 consider the surrebuttal testimony that was filed recently by
5 Monsanto?
6 A.Yes, I have.
7 Q.And do you have a response or a sur-surrebuttal
8 to any of the testimony that was filed in late January by
9 Monsanto?
10 A.Yes, I do.
11 Q.Would you please proceed to give us that
12 testimony?
13 A.Okay. I have rebuttal to Mr. Collins' testimony
14 on three issues. He talks about the irrigation load program
15 analysis, he talks about the combustion turbine is the
16 least-cost resource available to the Company, and he also talks
17 about using the planning reserve margin of 12 percent to gross
18 up the combustion turbine costs, and I rebut those three
19 points.
20 First on the irrigation program, Mr. Collins
21 wants you to believe that what he's doing with his peaker
22 method is pretty much the same as what we did with the
23 irrigation method or with the irrigation load control program,
24 and it's really quite different. With the irrigation load
25 control program, we negotiated a rate with the irrigators. We
2552
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
DUVALL (Di)
RMP
.
.
.
1 didn't run a peaker model and then apply those numbers to give
2 a credit to the irrigators. It was a negotiated rate.
3 When we did the valuation, we looked at a method
4 of deferring peakers but we also looked at a method of
5 deferring purchases -- market purchases and the range of
6 that, if it was market purchases, was about $13 a kilowatt year
7 and a peaker was about $83 a kilowatt year; quite a large
8 range. And at the end of the day, the irrigation methodology
9 weighted the peaker studies twice and the irrigation -- or, the
10 purchase study once to come up with at that time $55, or
11 thereabouts, per kilowatt year.
12 So what I really wanted to make sure was clear is
13 that Mr. Collins continues to try to justify his peaker method
14 to say, well, it's really similar to the irrigation method, and
15 it's not.
16 In terms of what's the least-cost al ternati ve for
17 the Company, this really is kind of the -- I think the crux of
18 the difference between Monsanto and the Company is what is it
19 that you value Monsanto's interruption at. And Monsanto
20 insists that it's the avoidance of a peaker resource.
21 In rebuttal testimony, Mr. Clements talked about
22 an IRP study that we did, which was a system expansion model
23 study, which showed that when we took Monsanto out of the
24 resource mix, it deferred -- it was replaced by energy
25 efficiency and market purchases, it was not replaced by a
2553
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
DUVALL (Di)
RMP
.
.
.
1 peaker. So, the evidence in the record is that the least-cost
2 al ternati ve is not a peaker.
3 And then, finally, on the planning reserves, the
4 gross-up for planning reserves, if you're -- what Mr. Collins
5 says is --
6 MR. BUDGE: Ms. Chairman, excuse me for
7 interrupting the witness
8 COMMISSIONER SMITH: Mr. Budge.
9 MR. BUDGE: -- but the witness filed rebuttal
10 testimony and he simply appears to be reiterating his rebuttal
11 testimony, not providing a summary. And his testimony
12 contained a summary, and I think the Commission and all parties
13 can read his testimony.
14 COMMISSIONER SMITH: I guess it won't hurt that
15 he says it again here if he already said it, so I'm just going
16 to let him continue, Mr. Budge.
17 THE WITNESS: So on the 12 percent planning
18 reserve margin issue, Mr. Collins suggests that it needs --
19 that Monsanto is not subject to the 12 percent reserve margin
20 in the IRP and, therefore, it should be -- there should be a
21 gross-up for that. The other two items that are not subject to
22 the 12 percent planning reserve in the IRP are energy
23 efficiency and market purchases. So if they're being -- if
24 Monsanto's interruption is being replaced by energy efficiency
25 and market purchases, it's just a -- there's no difference in
2554
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
DUVALL (Di)
RMP
.
.
1 terms of planning reserve margin, so there's no adjustment that
2 needs to be maòe.
3 That concludes my sur-surrebuttal.
4 Q.BY MR. HICKEY: Mr. Duvall, I'm going to hand you
5 what I have marked as Rocky Mountain Power Exhibit 98 and ask,
6 first of all, if you can identify this for the record, please.
7 COMMISSIONER SMITH: Mr. Hickey -- oh, this is a
8 new one?
9 MR. HICKEY: Yes.
10 (Rocky Mountain Power Exhibit No. 98 was
11 marked for identification.)
12 Q.BY MR. HICKEY: And the outstanding question is
13 will you please identify the document?
14 A.Yes. This is the Company's Response to Monsanto
15 Data Request 19.2, and this is the IRP study I referred to in
16 my summary. The attachments to this, which are labeled page --
17 so page 1 of three up in the top left-hand corner, it says --
18 it gives the study name and it says "with Monsanto"; and then
19 page 2 of three up in the left-hand corner, it gives the study
20 name and it says "no Monsanto"; and then on page 3 of three is
21 the "with Monsanto less without Monsanto.".
22 So this is the difference between the two
23 studies, and you can see clearly by that the deltas all the
24 deltas in the differences show no change in combustion turbines.25 and all of the changes are in the energy efficiency what's
2555
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
DUVALL (Di)~P
.
.
20
21
,
1 labeled DSM Class II. That's what we call energy efficiency
2 end market purchases or FOTs: Front office transactions.
3 Those are market purchases.
4 Q.So for those of us that don' t live in a daily
5 world of GRID models or front office transactions, can you tell
6 us in layman terms what the significance of the run that's
7 attached to 19.2 is, Mr. Duvall?
8 A.Well, the significance is to point out that when
9 we remove Monsanto from the resource stack, we don't replace it
10 wi th a peaker. We replace it with energy efficiency and market
11 purchases.
12 Q.How does that model result relate to
13 Mr. Collins's premise, if you know?
14 A.Well, Mr. Collins' premise is that the least cost
15 option for the Company is a combustion turbine, and this rebuts
16 that assumption.
17 MR. HICKEY: Madam Chair, I'd move for the
18 admission of Rocky Mountain Power Exhibit 98 into the record.
19 COMMISSIONER SMITH: Is there any objection?
MR. BUDGE: No objection.
COMMISSIONER SMITH: So it is so admitted.
22 (Rocky Mountain Power Exhibit No. 98 was
23 admi tted into evidence.)
24.25
Q.BY MR. HICKEY: Mr. Duvall, any other comment by
way of sur-surrebuttal?
2556
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
DUVALL (Di)
RMP
.
.
1 A.No.
2 MR. HICKEY: Mr. Duvall is available for
3 cross-examination, Madam Chair.
4 COMMISSIONER SMITH: Thank you, Mr. Hickey.
5 Mr. Price, do you have questions?
6 MR. PRICE: No questions.
7 COMMISSIONER SMITH: Mr. Budge.
8 MR. BUDGE: Thank you.
9
10 CROSS-EXAMINATION
11
12 BY MR. BUDGE:
13 Q.Mr. Duvall, if I understand correctly, you didn't
14 file any direct testimony in this matter, only your rebuttal
15 testimony?
16 A.That's correct.
17 Q.Is it true that Mr. Clements did not seek your
18 input before he filed his supplemental testimony in September
19 that provided the first indication that the Company was seeking
20 to change the interruptible credit rate of Monsanto?
21 A.I'm pretty sure I reviewed that testimony before
22 it was filed.
23 Q.That wasn't my question. My question was did he
24 recei ve any input or direction or advice from you prior to the.25 preparation of his testimony?
2557
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
DUVALL (X)
RMP
.
.
1 A. Well, I'm not quite sure what the distinction is.
2 I talked with him before the testimony. We performed -- my
3 group performed the GRID studies that he sponsored in his
4 testimony.
5 Q.So exactly what information did you provide
6 Mr. Clements that became the underlying basis of his testimony
7 on this issue of the credit?
8 A.Well, we supplied the GRID studies.
9 Q.Okay. I had a question concerning your
10 correction to your testimony, if you want to turn to page 4 of
11 your rebuttal testimony?
12 A.I've got it.
13 Q.And the correction you made is because you had
14 misstated the formula that you were referring to in
15 Mr. Collins' testimony?
16 A.That's correct, and I identified that in Response
17 to a Data Request from Monsanto.
18 Q.And that would be your Response to Data Request
19 19.9. You admitted that you had misquoted the formula that was
20 contained in Mr. Collins' testimony. Correct?
21 A.I'LL take your word that that's the right
22 Response.
23 Q.And so the formula as now corrected in your
24 Footnote No. 3 is consistent with Mr. Collins' testimony, and.25 it is also the exact formula taken out of the Company's 2008
2558
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1 IRP. Correct?
2 A. It is correct that it's out of Mr. Collins'
3 testimony, but that formula, at least upon my review, I did not
4 see it in the IRP itself.
5 Q.Okay. So you're saying now that that formula is
6 not out of the 2008 IRP?
7 A.That's what I said in my rebuttal testimony.
8 Q.Is that what you're saying today?
9 A.Yes.
10 Q.Do you have -- I believe we have available
11 Exhibit 248.
12 A.What is Exhibit 248?
13 Q.It's a 2008 integrated resource plan as amended,
14 has the date of May 28, 2009. We have as an exhibit here that
15 document Exhibit 248, and I would refer you to page 89.
16 A.I don't
17 MR. HICKEY: Madam Chair. The witness hasn't,
18 Mr. Budge.
19 Q.BY MR. BUDGE: I'm giving that opportunity. I'm
20 saying refer to page 89. Do you have that?
21
22
23
A.I do not have that.
MR. BUDGE: Off the record.
COMMISSIONER SMITH: We'll be at ease for a few
24 moments..25 (Discussion off the record.)
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1 COMMISSIONER SMITH: All right, we'll go back on
2 the record.
3 Q.BY MR. BUDGE: Handing you Exhibit 248, page 89,
4 you'll note at the top of that page there's a formula. Is that
5 formula not the same as was contained in the testimony of
6 Mr. Collins?
7 A.The formula here is planning reserves equals
8 obligation minus purchase minus DSM minus interruptible times
9 planning reserve margin. The formula in Mr. Collins' testimony
10 is net firm obligations equals obligation minus purchase minus
11 DSM minus interruptible. They are different equations.
12 Q.The formula gives the same results. You add
13 Monsanto firm is in and then it's taken back out as an
14 interruptible?
15 MR. HICKEY: Madam Chair. I s there another
16 question from the document or do you need to stand in front of
17 the witness, Mr. Budge? I like eye contact with him.
18 Q.BY MR. BUDGE: Read the sentence immediately
19 before the formula.
20 A.Says: Planning reserves. This is the total
21 reserve that must be held to provide the planning reserve
22 margin. It is the net firm obligation multiplied by the
23 planning reserve margin as in the following equation.
24.25
Q.Isn't it true that that is exactly consistent
wi th the formula cited in Mr. Collins' testimony you refer
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1 to?
2 A.No, because the formula in the IRP is to
3 calculate the planning reserve margin or the amount of
4 megawatts associated with the planning reserve margin. It's
5 not to calculate a, quote, net firm load, which is the way
6 Mr. Collins had characterized it.
7 Q.It appears that you corrected the formula but you
8 didn't correct your testimony insofar as it relates to
9 Mr. Collins' testimony. If you would turn to page 3 of your
10 testimony, line 21?
11 MR. SOLANDER: Is that his rebuttal or the --
12 MR. BUDGE: Rebuttal. The only testimony he
13 filed was rebuttal, I understood.
14 MR. HICKEY: That's correct.
15 Q.BY MR. BUDGE: And here your answer is: No.
16 Mr. Collins makes up a formula that he claims is in the 2008
17 IRP but is not.
18 And then you go on to say: Mr. Collins' formula
19 is shown on page 4, line 12, of his testimony.
20 And that contains the footnote three that you
21 have corrected today?
22
23
A.That's correct.
Q.Isn't it true that Mr. Collins didn't make up any
24 formula, that he took it out of the 2008 IRP?.25 A.The formula in his testimony is not in the 2008
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1 IRP.We just showed that.
2 Q. Well, immediately above the formula on page 89 of
3 that Exhibit 248, the definition for net firm obligation is the
4 planning reserves
5 It says, quote, it is the net firm obligation
6 mul tiplied by the planning reserve margin as in the following
7 equation.
8 Is that not the exact term that he used, "net
9 firm obligation," and isn't that the exact same formula he used
10 in his testimony?
11 A.Well, the equation was used to determine how many
12 planning reserves -- megawatts of planning reserves we had.
13 He's tried to take that and kind of play a game of semantics
14 with the word "net firm obligation" to try to --
15 Q.Excuse me, Mr. Duvall. I didn't ask you what he
16 did with the formula. My question is did he accurately state
17 the formula, because your testimony asserts that he made up the
18 formula.
19 MR. HICKEY: Madam Chair, he's badgering the
20 witness at this point.
21 COMMISSIONER SMITH: I think this question can be
22 answered "yes" or "no." So, Mr. Budge, do you want to say that
23 one more time?
24 MR. BUDGE: Yes.
25 Q.BY MR. BUDGE: When you made the statement that
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1 he made up his formula --
2 COMMISSIONER SMITH: That wasn't your question.
3 MR. BUDGE: Pardon?
4 COMMISSIONER SMITH: I think you were asking did
5 he accurately represent the formula in the 2008 IRP.
6 Q.BY MR. BUDGE: Can that be answered "yes" or
7 "no"? Did Mr. Collins accurately represent the formula in his
8 testimony?
9 A.No.
10 Q.Do you have an explanation why you chose to
11 misquote the footnote in your testimony? Was that just an
12 oversight on your part?
13 MR. HICKEY: I'm going to obj ect to the
14 characterization of it. You can ask him without the pejorative
15 suggestions that it was an intentional misstatement. I think
16 the witness has said it was something to correct.
17 COMMISSIONER SMITH: Mr. Budge.
18 MR. BUDGE: I think the question was simply does
19 he have an explanation why he didn't have it reflected
20 accurately. Was ita mistake or not?
21 MR. HICKEY: If that was the question, I wouldn't
22 have objected.
23 COMMISSIONER SMITH: Okay, let's have an answer
24 to that question..25 THE WITNESS: It was a mistake.
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1 MR. BUDGE: We'll have marked and handed to the
2 wi tness Monsanto Exhibit 261, and that is identified as the
3 Gregory N. Duvall rebuttal testimony in Case No. PAC-E-07-05.
4 (Monsanto Exhibit No. 261 was marked for
5 identification. )
6 Q.BY MR. BUDGE: Mr. Duvall, do you recognize
7 Exhibit 261 to be a true and correct copy of the rebuttal
8 testimony you filed in Case No. PAC-E-07-05 dated October
9 2007?
10 A.I don't know quite really how to answer that,
11 because, you know, I presume that's correct, but I don't have
12 any way of checking against our records to make sure that
13 that's truthful; but I i m willing to accept that subj ect to
14 check.
15 Q.Would you turn to page 2, please, and at the
16 bottom of the page, the second bullet up, would you read what
17 you state there in your testimony?
18 A.Line 17?
19 Q.Yes, line 17 through 20.
A.The Idaho irrigation load control program is
21 significantly different than the Monsanto contract in that it
22 does not provide ancillary services, it is not contractually as
23 firm, it is not separately metered, and it's integrated into
24 the local Idaho distribution system..25 Q.And that testimony filed in 2007, would it be
2564
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1 accurate to make the same statement today, that the Idaho
2 irrigation load program is significantly different than the
3 Monsanto contract in those respects that yon describe?
4 A.I think the differences with respect to what I
5 described are the same. I'm not sure I'd use the word
6 "significantly," but the identified differences are still the
7 same.
8 Q.So the word "significant" wouldn't apply today?
9 A.I just -- if I were to answer it today, I
10 wouldn't use the word "significantly." I would just identify
11 the differences and let folks make that judgment for
12 themselves.
13 Q.What has changed from 2007 until now with respect
14 to either the irrigation program or the Monsanto contract that
15 would not make it significant today that was significant back
16 in October of 2007?
17 A.Nothing that I'm aware of.
18 Q.So the only thing different is your
19 characterization of it being significant then but not
20 significant now?
21 A. Yeah, it's just the use of the word
22 "significant. " It means different things to different folks.
23 Q. In other words, the irrigation load program today
24 is exactly the same as it was in 2007. Correct?
25 MR. HICKEY: Object: Asked and answered.
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1 COMMISSIONER SMITH: I think that's a new
2 question, Mr. Hickey.
3 THE WITNESS: I don't recall, because I thought
4 the dispatchable irrigation program was a result of the -- I
5 think it was just a pilot in 2007, but I don't know the details
6 of that. But it was in transition at that point in time.
7 Q.BY MR. BUDGE: Well, let's turn to page 4 of your
8 testimony in that Exhibit 261, and on page -- excuse me, on
9 line 9 and 10, you make the statement the Company expects to
10 continue the scheduled firm product as well as the dispatchable
11 program launched in 2007.
12 So is it true that that year 2000 (sic) would
13 have been the first year of that irrigation load control
14 program?
15 A. Of the dispatchable irrigation load control
16 program. The scheduled firm was one where it was on timers and
17 that was going on prior to that.
18 But if you look at line 23, it says in 2007 the
19 Company launched a pilot program utilizing a new technology to
20 allow the Company to control participating load on a day-ahead
21 basis subj ect to certain constraints.
22 So that's the new dispatchable program that was
23 launched as a pilot program in 2007.
24 Q.Turn to page 10 of your testimony if you would,
25 please.
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1 COMMISSIONER SMITH: You mean the exhibit?
2 Q.BY MR. BUDGE: Yes, excuse me, Exhibit -- we're
3 still on Exhibit 261, on page 10 of that testimony, line 9.
4 And read that full sentence that starts on line 9 through 12
5 where you appear to be discussing some of the differences
6 between Monsanto and the irrigators in your testimony in this
7 case relating to the irrigator rate.
8 A.Otherwise, Monsanto is a high load factor
9 customer taking service at transmission level voltage whose
10 load does not pose significant operational challenges to the
11 Company's distribution system.
12 Q.And would you agree that those are some of the
13 significant differences between the Monsanto interruptions and
14 the irrigation load control program?
15 A.I believe that statement is still correct.
16 Q.Now turn to the top of page 11 of your testimony
17 in Exhibit 261 and read the top sentence there if you would,
18 please.
19 A.Third, irrigation load control, unlike Monsanto,
20 is not separately metered. This makes it difficult to be as
21 precise in valuing the irrigation load control discount as it
22 is for Monsanto.
23 Q.Now I'd like to explore some of the differences
24 between the Monsanto interruption components and those of the.25 irrigators which you describe here in your testimony somewhat.
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.
1 Insofar as the number of hours, is it true that on the
2 irrigation program, the number of hours of interruption
3 available per season are 52 hours as compared to 1,050 for
4 Monsanto?
5 A.Well, it's 52 hours for the entire irrigation
6 load, which as I recall at last count was over 200 megawatts.
7 Monsanto is for 850 hours of 67 megawatts, and then for another
8 188 hours is 95 megawatts, and then for 12 hours is 162
9 megawatts.
10 The 52 hours is the per-customer maximum hours ofQ.
11 limi tation under the irrigation program. Correct?
12 A.That's correct.
13 And the irrigation program is available for fourQ.
14 (sic) months of interruptions, August -- excuse me, June 1
15 through August 31, as compared with 12 months for Monsanto.
16 Correct?
17 A.That's correct.
18 Q.And with Monsanto, you have but one customer.
19 How many sites are there involved in the irrigation load
20 control program in Idaho?
21 A.I don't know the answer to that.
22 Q.Would there be several hundred?
23 A.I don't know the answer, but --
24 Q.Are those pumps in varying locations throughout
the service territory in Eastern Idaho?
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21
1 A.Well, they're in the Eastern Idaho service
2 terri tory. I don't know exactly where they are.
3 Q. They would be scattered throughout; they're not
4 in one location?
5 A.Well, there's several of them that are
6 concentrated on several substations, so they're not all right
7 together but there are some concentrations on some of the
8 substations.
9 Q.And each has a varying pump size. Is that
10 correct?
11 A.I don't know. There are different pump sizes
12 involved.
13 Q.And there are limitations on the number of
14 interruptions per day, correct, and per week under that
15 program?
16 A.I don't recall exactly what the limitations are.
17 I think it's spelled out in the tariff.
18 Q.And would the interruptions be limited to
19 weekdays only and certain hours during those days?
A.I don't know the details of that.
Q.Okay. And customers have the option under the
22 irrigation load control program to opt out up to five times per
23 season, do they not?
24.25
A.I believe that's correct.
Q.And the customers also can opt out on a
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1 year-to-year basis should they desire.Correct?
2 A. That's correct.
3 Q.And is it true that the number of megawatt hours
4 of interruptions that are available to the Company under this
5 program has varied on a year-to-year basis since the program
6 was initiated in 2007?
7 A.I don't have the history of the actual operation
8 of the program.
9 Q.If that were true, would you agree that that
10 provides less certainty to the Company for planning purposes?
11 A.I don't really see a distinction between the
12 certainty of the irrigation program and the certainty of the
13 Monsanto interruptions.
14 Q.And is it true that each pump installation that's
15 invol ved in this particular program must have separate
16 equipment to be able to trigger the interruptions?
17 A.I believe that's correct.
18 Q.And is it true that the -- this particular
19 irrigation program would be more difficult to plan for and more
20 expensi ve to operate for the Company than would the Monsanto
21 interruptions that involve one site and one contact and one
22 certain load amount?
23
24.25
A.I'm not sure I understand the question.
Q.Well, isn' t it true that it is more expensive for
the Company to operate the irrigation load control program than
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1 the Monsanto interruptible contract components?
2 A.Well, the cost of operating the irrigation
3 program is a combination of all the infrastructure required and
4 the payment to the irrigators. The cost of operating Monsanto
5 is the same in terms of any infrastructure that's required and
6 the payment that's made to Monsanto.
7 Q.When you say it's the same, assuming that there
8 are hundreds of irrigation pumps involved in it, isn't it true
9 that each site has a piece of equipment that must be installed
10 and maintained to trigger the interruption?
11 A.Yeah, I believe that's correct.
12 Q.And there's much more infrastructure insofar as
13 lines and poles and the works to provide for and support a
14 program involving hundreds of customers as opposed to one
15 customer?
16 A.I believe that's generally correct. I think the
17 infrastructure costs for the irrigation program were about, as
18 my recollection, is about $4 million, and I don't know what the
19 infrastructure cost is for the Monsanto interruption.
Q.Do you have available, Mr. Duvall, your rebuttal
21 testimony?
22
23
24.25
A.I do.
Q.Would you turn to page 2?
A.Okay.
Q.You make the statement on line 15 through 17 that
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1 Monsanto's assumption that their interruptible product would
2 avoid the addition of a peaking unit has no basis in fact. Do
3 you see that statement?
4 A.No, I'm sorry. Which line?
5 Q.Page 3. Excuse me.
6 A.Page 3?
7 Q.Oh, excuse me. I cited it right. Page 2 -- I
8 apologize lines 15 through 17. You see at the end of
9 line 15 you make the statement the Company includes both
10 peakers and market purchases in the evaluation of the Idaho
11 irrigation load control program.
12 MR. HICKEY: Mr. Budge, I'm not on the same page
13 wi th you here.
14 MR. SOLANDER: Are you referring to the exhibit?
15 MR. BUDGE: Page 2, lines 15 through 17.
16 MR. SOLANDER: Is it of the exhibit?
17 COMMISSIONER SMITH: No, it's the rebuttal
18 testimony.
19 COMMISSIONER REDFORD: It starts out: No.
20 Mr. Collins relies solely on peaker units while the Company
21
22
23
24.25
MR. HICKEY: I think I'm with you.
MR. BUDGE: Page 2, line 15 to 17?
MR. HICKEY: All right, I'm there. Thank you.
Q.BY MR. BUDGE: So you make the statement here,
Mr. Duvall, the Company uses both peakers and market purchases
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1 in coming up with the evaluation of the irrigation program.
2 Correct?
3 A.That's correct.
4 Q.So is it correct that for purposes of evaluating
5 the Idaho irrigation load control program, the Company takes a
6 longer term view of resource deferral potential as opposed to a
7 short-term view?
8 A.For the valuation, that's correct. That was
9 the -- I think that's quoted in Mr. Collins' testimony. But I
10 said earlier that the price that we pay the irrigators was
11 negotiated.
12 Q.So it's appropriate to take a long-term view and
13 use a peaker to evaluate the irrigation control program, if I
14 understand it correctly, but not Monsanto, according to your
15 testimony?
16 I believe you could answer that "yes" or "no"?
17 A.Well, that's what we did.
18 MR. BUDGE: Now I'd like to hand the witness
19 Exhibit 257. This is entitled Monsanto Company's -- wait just
20 a minute. I may have the wrong exhibit here. Is that the
21 right exhibit?
22 May I have just a moment?
23 COMMISSIONER SMITH: We'll be at ease for a
24 moment..25 (Discussion off the record.)
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1 MR. BUDGE: Handing the witness Exhibit No. 259,
2 and I would correct my prior comment on Exhibit 257. Exhibit
3 259 is the Monsanto exhibit that has the caption PacifiCorp
4 Proposed Valuation Methodology for Idaho Irrigation Load
5 Control Program.
6 (Monsanto Exhibit No. 259 was marked for
7 identification. )
8 Q.BY MR. BUDGE: Mr. Duvall, I believe you're the
9 listed record holder for purposes of the Company's Response to
10 Monsanto Request No. 20.1, and also the Idaho Irrigation
11 Pumpers Association Data Request 46, both pertaining to the
12 irrigation load control program. Will you accept that, subject
13 to check?
14 A.I do.
15 Q.And what does that mean when you say you're the
16 record holder for the irrigation load control program? What
17 does that mean when you indicate that on your Data Response?
18 A.Well, this is for the valuation methodology.
19 Q.So does it mean those records are under your
20 control and supervision?
21 A.That's correct. We use the IRP models to come up
22 wi th the valuation methodology.
23 Q.So on page 1 of this Exhibit 259, in the middle
24 part it tal ks about under the topic heading Methodology, it.25 says that the global energy decision's capacity expansion
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1 optimization model called System Optimizer was used for this
2 study.
3 And the next sentence says: This model
4 determines an optimal long-term resource expansion plan based
5 on available generation, market, demand-side management, and
6 transmission expansion options, and so on and so forth.
7 Would this be a document prepared under your
8 direction or supervision
9 A.Yes.
10 Q.or simply one wi thin your --
11 It was? Okay.
12 That first sentence refers to a Footnote No.1,
13 and it says: This model is referred to as the capacity
14 expansion model in PacifiCorp' s 2007 integrated resource plan.
15 A.That's correct.
16 Q.What did this -- how do you use this System
17 Optimi zer model? Was it apparently used in conj unction with
18 your evaluation of the irrigation load control program which
19 seems to be the purpose of the document?
A.Yes, it was. It's typically used in the IRP to
21 basically pick portfolios given a set of input assumptions.
22 It's a capacity expansion model.
23 Q.And on page 1 under the section above Methodology
24 that's entitled Background, the last sentence says: For.25 program years starting 2010, the approved valuation methodology
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1 will be used to establish the credits.
2 So is it my understanding that this particular
3 methodology, this model you call the System Optimizer, is
4 supposed to be used starting in 2010 to establish credits?
5 A.No, that's incorrect. What this is describing is
6 the settlement that we -- or, the negotiated settlement that we
7 came up with the irrigators and other parties in Idaho that had
8 a -- a scaled payment that I believe started in the low 20, 24,
9 something like that, and depending on how much load came on the
10 irrigation schedule -- this is laid out in the schedule itself,
11 and if you get up to 175 megawatts you got to a $28 credit.
12 And then based on this model run, you could go up another $2 or
13 down $2. So it was just for that $2 increment.
14 Q.Excuse me, Mr. Duvall. We're passing in the
15 night. Let me go back to the question I asked you.
16 The last sentence under Background on page 1
17 says: For program years starting in 2010, the approved
18 valuation methodology will be used to establish the credits.
19 Does that not mean what it says, that you're
20 going to use this starting in 2010?
21 MR. HICKEY: Madam Chair, I object on the basis
22 of argumentative. Mr. Duvall was trying to answer that
23 question when he was interrupted by Counsel a moment ago.
24 COMMISSIONER SMITH: So I think it is a little
25 argumentative, Mr. Budge, so see if we can --
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1 Q. BY MR. BUDGE: The question was relatively
2 simple. Doesn't this sentence mean that you're going to use
3 this valuation methodology starting in 2010 to evaluate the
4 irrigation load control program?
5 A.No, it does not.
6 Q.Okay.
7 A.It's only applicable to the $2 plus or minus band
8 in the sentence in front of it.
9 Q.Is it true that you didn't use this valuation
10 methodology at any time to try to establish a valuation for the
11 Monsanto interruptible program?
12 A.No, we did not.
13 Q.If you turn to page 2, the first sentence --
14 COMMISSIONER SMITH: Is this still Exhibit 259?
15 MR. BUDGE: Yes, same Exhibit 259, page 2.
16 Excuse me.
17 COMMISSIONER SMITH: Thanks.
18 Q.BY MR. BUDGE: Would you read the first full
19 sentence of the second paragraph, begins with the word
20 "capital"?
21 A.Capi tal and fixed operating cost savings from
22 deferring a resource is the principal system benefit of the
23 irrigation load control program.
24.25
Q.So when you say capital savings are a benefit, do
you mean that when the irrigation load control program is used,
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1 the Company doesn't have to invest capital on its own resources
2 to meet that portion of the load that can be met by
3 interruption of the irrigators?
4 A.This is describing the studies that we did, and
5 the primary benefit that came out of the model was to capital
6 savings.
7 Q.Now turn to page 3 of that same Exhibit 259. You
8 would note under item three System Benefit Determination at the
9 top of the page -- would you read the footnote, the first line
10 of the footnote that is shown under item three on page 3?
11 It's not a footnote; it's a note.
12 A.Oh, okay.
13 Note: The assumed period over which system
14 benefits are accrued is ten years and, therefore, the
15 methodology and estimated levelized program value is contingent
16 on assured availability of the target program capacity for at
17 least ten years.
18 Q.Could you explain what that means, this
19 assumption that the benefits will accrue over ten years?
20 A.I'm not sure what the question is. I think it's
21 pretty
22 Q.Explain what that note means. It says the
23 assumed period over which system benefits are accrued is ten
24 years. Does that mean you're assuming that the irrigation.25 program will be there ten more years?
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1 A.That's correct in these analyses.
2 Q.So we have an irrigation program that's been in
3 place, the current program, since 2007, and for purposes of
4 valuation the Company is assuming that we will have the program
5 in place ten years?
6 A.That's correct.
7 Q.And the Company chooses to provide a system
8 optimization model that includes a value for long-term
9 resources as well as short-term energy costs?
10 A.Yes. When we began the evaluation of the
11 irrigation program in 2007, we ran the System Optimizer model.
12 It would simply avoid market purchases, and that's -- in the
13 report it showed that that was only a value of about $13 a
14 kilowatt year. And so we looked to see, well, what would the
15 value be if we could avoid capacity, and then we set up the
16 System Optimizer model so that the irrigation load control
17 program could defer capacity resources so we could capture that
18 value. And so we had the range of $13 to $83 that we had to
19 make a decision on in terms of the valuation and then also the
20 payment to the irrigators.
21 On that same page 3 under Item No.5, you discussQ.
22 resource deferral scenarios. So part of the model does a
23 scenario that involves peaking resource deferral. Is that
24 correct?
25 A.That's correct. And as I just said, we had to
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1 set up the model to be able to do that with the 78 megawatt
2 simple cycle.
3 Q.What is the peaking resource deferral that is
4 utilized for purposes of running the model?
5 A.It's the -- at the bottom of the indented
6 paragraph on page 5, it talks about the aero-derivative simple
7 cycle combustion turbine resource at an installed capacity of
8 78 megawatts each.
9 Q.And is that the same resource that Monsanto uses
10 in its proposed valuation through witness Collins, a single
11 cycle combustion turbine?
12 A.He uses two different types of simple cycle
13 combustion turbines, and I don't know if it's an
14 aero-deri vati ve so I don't recall exactly what they are.
15 Q.So the Company believes it's appropriate to use a
16 model that is designed to reflect the deferral of a single
17 cycle combustion turbine for purposes of the irrigation load
18 control program but not for Monsanto. Correct?
19 A.The -- for the valuation. This is not for the
20 payment. And we did not use this model with the simple cycle
21 combustion turbine to determine the payment to the irrigators,
22 and that's what Mr. Collins is doing.
23 Q.Well, you said in your live testimony here that
24 you looked at two different rates, $13 per kilowatt hour and a.25 range up to $83 per kilowatt hour; and then you talked about a
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1 weighted study of some sort, and so you arrived at a number
2 that was used for the valuation of the irrigation program of
3 $55 per kilowatt hour, if I understand your testimony.
4 Correct?
5 A.That's correct --
6 Q.So
7 A.for the valuation method.
8 MR. HICKEY: Please let him answer, Mr. Budge.
9 Had you finished your response, Greg?
10 THE WITNESS: Well, I was just saying he said
11 as reflected in my testimony, and it's as reflected in this
12 valuation methodology. I just want to be clear.
13 Q.BY MR. BUDGE: And so weight was given in this
14 particular study in part to avoided peaker and in part to
15 market costs. Correct?
16 A.It was. This was a discussion with the, you
17 know, the irrigators. When we first ran the studies we got the
18 $13 answer, and at that level, there was really not going to be
19 an irrigation program going forward because they needed a
20 bigger credit than that. So, we looked at ways to find a
21 bigger credit, and so this setting up the model to defer
22 peakers got us up to the $83, and so we ended up having a range
23 to work with that was and landed on the numbers that we landed
24 on..25 Q.So turn if you would on this Exhibit 259, page 7,
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1 and this is under the conclusion. And the last statement, the
2 last sentence you have there, states: Peaking resource
3 deferral value is thus weighted more heavily than firm market
4 purchase deferral value in the weighted average calculation
5 summarized above.
6 Correct?
7 A.That's correct.
8 Q.I don't see anywhere in this exhibitor elsewhere
9 in the Company's testimony where you determine what that
10 weighting is, what percentage is weighted more heavily towards
11 the peaking resource, and what lesser percentage is weighted
12 towards the firm market purchase deferral value.
13 A.I don't see it right offhand here but I thought
14 it was in this report that we averaged two of the peaker
15 results, so two of the 83 type numbers, with one of the market;
16 and I can't point you exactly to that, but I thought it was in
17 the report.
18 Q.You contending it's in your live testimony or in
19 your rebuttal testimony?
20 A.In Exhibit 259.
21 Q.Okay. Would it be possible to make the
22 calculation of that weighting based upon the numbers and tables
23 that are reflected in Exhibit 259?
24 A.Well, I think you could probably come real close.
25 Q.I mean, I'm not asking you to do it. I'm just
2582
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1 saying it is possible to take those numbers and information
2 contained in Exhibit 259 and determine what the weighting is
3 between the peaking resource and the market resource for
4 valuation purposes?
5 A.Yes, I believe that's right.
6 Q.And did you read the testimony -- the surrebuttal
7 testimony of Mr. Collins where he made that calculation based
8 upon this particular exhibit and arrived at a weighting of 67
9 percent towards the peaking resource and 33 percent towards the
10 market purchase resource?
11 A.Yes, I did.
12 Q.And you don't have any reason to question that
13 calculation, do you?
14 A.No, I don't.
15 Q.Okay.
16 MR. BUDGE: Did we ever round up Exhibit 248?
17 THE COURT REPORTER: I don't have any.
18 COMMISSIONER SMITH: For the record, Exhibit 248
19 was part of the December hearing. It was one of the hearing
20 exhibits there, so we have it in our books. So it's an exhibit
21 that's already been admitted.
22 Q.BY MR. BUDGE: I'm handing the witness what's
23 been identified as Monsanto Exhibit 262, PacifiCorp 2010
24 business plan..25 MR. HICKEY: Mr. Budge, yeah, I think isn't this
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1 a confidential exhibit, Mr. Budge?
2 MR. BUDGE: The attachments that are there are
3 marked confidential; however, I note there two -- the same
4 source is the exhibits that were attached to the Company's new
5 Exhibit 98 where they were not marked confidential.
6 MR. HICKEY: The concern with the
7 confidentiali ty, Madam Chair, is that this document does
8 reflect data that's part of the Company's business plan, and
9 because the business plan is just that, an internal document
10 that looks at where the business hopes to be over whatever the
11 horizon of the plan, it's always been considered confidential
12 and proprietary. I don't disagree with the observation of
13 Counsel, but because it's tied to the business plan, there has
14 been an ongoing concern on the Company's part not to make its
15 business plan a public document.
16 COMMISSIONER SMITH: So the pages that are part
17 of what's been marked as Exhibit 262 contain different
18 information than the pages that are in Exhibit 98?
19 MR. BUDGE: Yes.
20 COMMISSIONER SMITH: Okay.
21 MR. BUDGE: We have no obj ection if this wants to
22 be an exhibit under seal and confidential. We respect whatever
23 the Company prefers.
24.25
COMMISSIONER SMITH: So it looks like, to me,
that what has to happen right now is that we need to take a
2584
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24.25
1 break, and Mr. Budge needs to collect these back and we need to
2 get them printed on yellow paper. And anybody who hasn't
3 signed a Proprietary Agreement should not have access. And if
4 you are going to use the exhibit, then the Company wants the
5 room cleared to only include those who have signed the
6 Agreement. We'll need to do that. So we're going to take a
7 break until I hope ten till 11: 00.
8 (Recess.)
9 COMMISSIONER SMITH: All right, we'll go back on
10 the record. And is there anyone still left on the phone?
11 MR. OLSEN: Eric Olsen is still here.
12 COMMISSIONER SMITH: All right, Eric, I think
13 unless Mr. Hickey doesn't obj ect, we'll have to disconnect you.
14 MR. HICKEY: And I certainly don't obj ect to
15 Mr. Olsen, but under the circumstances of no way of knowing how
16 secure the line is, Eric, if you don't mind, I guess there's
17 just a question or two that you'll miss.
18 MR. OLSEN: Sure, not a problem. I will sign off
19 then.
20 COMMISSIONER SMITH: Okay. We'll hang up and
21 then we'll have the line back open hopefully within ten minutes
22 or 15 or -- I'm looking at Mr. Budge to give me a sign.
MR. BUDGE: Do you want to finish with --
COMMISSIONER SMITH: Okay. Try back in like
15.
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1 MR. OLSEN: Okay, I will do.
2 COMMISSIONER SMITH: All right, thank you.
3 (Whereupon, the telephone connection was
4 broken. )
5 COMMISSIONER SMITH: All right, we're back on the
6 record, Mr. Budge.
7 MR. BUDGE: Okay.
8 COMMISSIONER SMITH: Oh. Is there anyone in the
9 room who has not signed a Confidentiality Agreement? If so,
10 they should depart, and I should turn off the office.
11 (The following confidential proceedings
12 were had in closed hearing.)
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18
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1 (The following proceedings were had in
2 open hearing.)
3 (Whereupon, the telephone connection was
4 resumed. )
5 MR. BUDGE: We'd move for the admission of
6 Exhibit 262.
7 A VOICE: Press star pound.
8 COMMISSIONER SMITH: Eric, are you there?
9 So is there someone on the telephone? It said
10 there was one participant.
11 MR. SMITH: We'll send him a text message if that
12 will help.
13 COMMISSIONER SMITH: Okay. Thank you. We
14 appreciate it. And have him text right back if he can't get
15 in. .
16 She was still talking, so maybe I d~d something
17 wrong. Of course, it wasn't a real person, so who knows.
18 Okay, Mr. Budge, we'll go back on the record,
19 hope that the phone works.
Q.BY MR. BUDGE: Mr. Duvall, will you turn to
21 page 3 of your rebuttal testimony?
22
23
A.Okay.
Q.And turn to line 15 if you would, 15 to 17. Do
24 you have that sentence?.25 A.I do.
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1 Q. There you make the statement: Monsanto's
2 assumption that their interruptible product would avoid the
3 addi tion of a peaking unit has no basis in fact.
4 Let me ask you this question: Would procurement
5 of peaking resources, although not included in PacifiCorp' s
6 latest resource plan, remain a viable option in the future?
7 A.They could be.
8 Q.And you still have in front of you Exhibit 259?
9 A.I do.
10 Q.Turn to page 3 if you would, please, and under
11 item five, the indented portion which has the heading Peaking
12 Resource Deferral, go down line 5 and read that sentence that
13 starts with the word "procurement."
14 A.Procurement of peaking resources, although not
15 included in PacifiCorp' s latest resource plan, remains a viable
16 option in the future.
17 Q.Nothing further. Thank you, Mr. Duvall.
18 MR. BUDGE: Excuse me. Let me go back one. Did
19 we end up with the exhibits from the prior hearing or some of
20 those exhibits?
21 COMMISSIONER SMITH: I don't know what you mean
22 by "end up." The Commissioners have them available.
23 MR. BUDGE: One other question. I wanted to go
24 back to the IRP and I'll just provide.25 COMMISSIONER SMITH: Is that Exhibit 248?
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24.25
1 MR. BUDGE: Yes. I'll just provide Mr. Duvall
2 wi th mine, ask one more question line on that formula.
3 Q.BY MR. BUDGE: I'm handing the witness
4 Exhibit 248, and again referring to page 89 and the formula at
5 the top of that page. In the sentence that's immediately above
6 the formula, Mr. Duvall, starts with the word that it's the net
7 firm obligation, is it true that "net firm obligation" means
8 exactly what is in the parentheticals, meaning obligation minus
9 purchase minus DSM minus interruptible?
10 A.That's the way it's used in this section of the
11 IRP, but, again, this section is to deal with planning reserve
12 margins not to try to define whether Monsanto's load is firm or
13 not firm.
14 Q.And the rest of the sentence where it says it's
15 the net firm obligation multiplied by the planning reserve
16 margin as in the following equation, when you use the term
17 "planning reserve margin," is that exactly the same as the last
18 end of the formula where it says "times PRM"?
19 A.Yes, "PRM" stands for "planning reserve margin."
Q.Okay.
MR. BUDGE: That's all I have for this witness.
Thank you, Mr. Duvall.
COMMISSIONER SMITH: Thank you, Mr. Budge.
Mr. Hickey, do you have any redirect?
MR. HICKEY: I do, just very limited. Thank you,
2593
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1 Madam Chair.
2
3 REDIRECT EXAMINATION
4
5 BY MR. HICKEY:
6 Q.Mr. Duvall, directing your attention again to
7 this document 259, the proposed valuation methodology for Idaho
8 irrigation load control program, is it correct that this study
9 was prepared as a result of a settlement in a docket that
10 invol ved the Idaho irrigators?
11 A.Yes, it was.
12 Q.And what was the purpose of this study? Why was
13 it requested and what was the intent of the Company in
14 preparing it?
15 A.Well, the purpose was we were trying to expand
16 the Idaho irrigation program and given the $11 that -- I
17 believe it's $11 per kilowatt year that was in place prior to
18 that time was not enough to make that happen, and so we were
19 looking for ways to look at the value of the irrigation program
20 in different ways. This was a State of Idaho situs program
21 consistent with, you know, policies of encouraging energy
22 efficiency, and we were looking at a range of values that we
23 could use to see if we could move this program forward.
24.25
Q.So does the study try to capture that, a range of
value which would be a tool to eventually enter into
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21
22
1 negotiations with the irrigators?Was that its purpose?
2 A. That's correct.
3 Q.And the implication here from questions posed by
4 Counsel was that a peaker methodology is acceptable to the
5 Company when its purpose is of the irrigation load control
6 program, but yet a peaker method of evaluating interruptible
7 products in the instance of Monsanto is not. Is that a fair
8 conclusion to be made?
9 A.No, it's not. The peaker -- the use of the
10 peaker in the irrigation program was to set a -- basically the
11 highest value we could think of in terms of the range of
12 values. That's not where we landed in terms of what we pay the
13 irrigators under the program.
14 Q.Do you have an idea of what the fraction that you
15 eventually negotiated for the value with the irrigators was of
16 what the peaker methodology output was from the System
17 Optimizer model?
18 A. Yes, and that's contained in my rebuttal
19 testimony. It's 41 percent of the current valuation.
MR. HICKEY: That's all I had, Madam Chair.
COMMISSIONER SMITH: Thank you, Mr. Hickey.
Oh, you know what I forgot? I forgot to ask if
23 Commissioners have questions.
24.25
COMMISSIONER KEMPTON: No.
COMMISSIONER REDFORD: No.
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1 COMMISSIONER SMITH: Oh, thank you.
2 Mr. Duvall, we thank you for your help.
3 THE WITNESS: You're welcome.
4 (The witness left the stand.)
5 MR. HICKEY: Madam Chair, I promised to report
6 back to you after the morning break on whether or not the two
7 pages of Ms. Iverson's testimony, pages 25 and 27, need to
8 remain confidential. They do for this significant reason:
9 Those pages address the other two interruptible contracts, and
10 to lift them from confidentiality would effectively share
11 information that's part of those interruptible customers'
12 unique business relationships with the Company.
13 COMMISSIONER SMITH: Thank you for checking. We
14 will preserve their confidentiality.
15 And I think we're ready for your next witness.
16 MR. HICKEY: And our next witness is Mr. Steven
17 McDougal.
18 Steve, would you please take the witness stand?
19
20 STEVEN McDOUGAL,
21 produced as a witness at the instance of Rocky Mountain Power,
22 being first duly sworn, was examined and testified as follows:
23
24.25
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19
1 DIRECT EXAMINATION
2
3 BY MR. HICKEY:
4 Q.Would you please state and spell your name for
5 the record, Mr. McDougal?
6 A.Yes. My name is Steven R. McDougal. The last
7 name is spelled M-C capital D-O-U-G-A-L.
8 Q.And you also had an opportunity to appear before
9 this Commission in the Phase 1 hearings in December of 2010.
10 Is that correct?
11 A.That is correct.
12 Q.Could you tell us again what your position is
13 wi th Rocky Mountain Power, sir?
14 A.Yes. I am director of revenue requirements.
15 Q.And did you cause to be filed rebuttal testimony
16 on January 14th of this year and sur-surrebuttal to be filed
17 this past Friday, January 28th?
A.Yes, I did.
Q.Do you have any additions or corrections to your
20 testimony, or any exhibits?
21
22
A.No, I do not.
Q.If I were to ask you the questions that are set
23 out in your prefiled rebuttal testimony of the 14th of January
24 and sur-surrebuttal testimony of the 28th of January, would.25 your answers be the same or as set forth in those documents?
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1 A.Yes, they would.
2 MR. HICKEY: Madam Chair, I'd move for the
3 admission of the prefiled rebuttal and sur-surrebuttal
4 testimony of Mr. McDougal, and ask that it be spread upon the
5 record as if read.
6 COMMISSIONER SMITH: If there's no obj ection, it
7 is so ordered.
8 (The following prefiled rebuttal and
9 sur-surrebuttal testimony of Mr. McDougal is spread upon the
10 record.)
11
12
13
14
15
16
17
18
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.1 Q.Please state your name and business address.
My name is Steven R. McDougal and my business address is 201 South Main,2 A.
3 Suite 2300, Salt Lake City, Utah, 84111.
4 Q.Are you the same Steven R. McDougal who submitted pre-filed direct and
5 rebuttal testimony in this proceeding?
6 A.Yes.
7 PurP( se and Summary of Testimony
8 Q.
9 A.
10
11.12
13 Q.
14 A.
15
16
17
18
19 Q.
20 A.
21
22
.23
What is the purpose of your rebuttal testimony in this proceeding?
The purpose of my testimony is to discuss how Ms. Kathn E. Iverson's
testimony inappropriately values Monsanto's curailment by altering jursdictional
allocation to reflect an inappropriate level of Monsanto demand in the monthly
coincident peaks.
Did Ms. Iverson raise some of these same issues previously in this cae?
Yes. Some of the same arguments regarding treating Monsanto as "non-fi"
were introduced previously in this rate case proceeding. However, they have been
re-introduced into the economic valuation of Monsanto interrptible products
phase of this case by Ms. Iverson. Therefore, the Company believes it is
important to again point out the flaws in her arguments.
Please summarize your testimony.
Monsanto is treated in jursdictional allocations as a firm customer, consistent
with the treatment in prior cases in Idaho and in all other PacifiCorp states. Ths
method is consistent with the curently approved Revised Protocol allocation
method. Ms. Iverson, however, is proposing to change the allocation of Monsanto
2599 lIÆ/"T)niin"l T),_"Rp'h _ 1..
Rocky Mountai Power
.1 to a method inconsistent with the Idaho Commssion approved method.
2 Mons ~nto Special Contract Allocation
3 Q.Do you agree with Ms. Iverson's assertion that jurisdictional allocations
4 should reflect only 9 MW of Monsanto's firm demand for puroses of
5 allocating costs?
6 A.No. Ms. Iverson bases her argument on the claim that the Company has not
7 planned for, or acquired resources, on the basis of Monsanto's interrptible
8 products. Company witness Mr. Gregory N, Duvall provides testimony
9 demonstrating that Monsanto's claim is incorrect and that the Company does, in
10 fact, plan for Monsanto's entie load and is required to provide service to
11 Monsanto for the vast majority of the time. The current contract with Monsanto.12 limits the number of hours in a year the Company can interrpt service to
13 Monsanto and has specific constraints regarding the amount of load that can be
14 curtailed at a given time. In order for Ms. Iverson's assertion to be tre the
15 Company would need the abilty to curail service to Monsanto at any time with
16 no limitation over the course of a year.This type of unlimited curailment of
17 Monsanto has never existed.
18 Q.Is the allocation of costs and benefits related to special contracts with
19 industrial customers a significant issue addressed in the Revised Protocol?
20 A.Yes. The issue of allocating costs and benefits related to special contracts is an
21 important issue addressed by the Revised Protocolallocation agreement.
22 PacifiCorp's comments supporting the Stipulation state:
.23 "the Revised Protocol, if ratified by all of PacifiCorp' s state
24 commssions, wil establish uniform policies in respect to a number
2600 .. ~.1 n,_kl..'h _ ')
Rocky Mountain Power
.1
2
3
4
5
6
7 Q.
8
9 A.
10
11
12
13.14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
.
of critical issues. These include. . .how the costs and benefits of
special contrcts with industrial customers wil be allocated among
states."i
In addition, the joint motion for approval of the settlement signed by PacifiCorp
and the Idao Commssion on Februar 28, 2005 in Order No. 29708 identifies
that the Revised Protocol addresses the allocation of special contracts.
Please provide the language from the Revised Protocol that specifically deas
with the treatment of Monsanto's special contract.
Appendix D of the Revised Protocol describes the treatment of special contracts,
including those with ancilar service contract attributes such as the Company's
contract with Monsanto. Specifically, the Revised Protocol states:
"For allocation purposes Special Contracts with Ancilar Service
Contract attrbutes are viewed as two transactions. PacifiCorp sells
the customer electrcity at the retail service rate and then buys the
electrcity back during the interrption period at the Ancilar
Service Contract rate. Loads of Special Contract customers wil be
included in all Load-Based Dynamc Allocation Factors. When
interrptions of a Special Contract customer's service occur, the
host jursdiction's Load-Based Dynamic Allocation Factors and
the retail service revenue are calculated as though the interrption
did not occur. Revenues received from Special Contract customer,
before any, discounts for Customer Ancilar Service attrbutes of
the Special Contract, wil be assigned to the State where the
Special Contract customer is located. Discounts from tarff prices
provided for in Special Contracts that recognize the Customer
Ancilar Service Contract attrbutes of the Contract, and payments
to retail customers for Customer Ancilar Services wil be
allocated among States on the same basis as System Resources."
! Page 4, PacifiCorp Comments in Support of Joint Motion for Acceptance of Settlement, Case No. PAC-E-
02-3.
2601 " ~ 1 1": D.1. 'J'- , ~
Rocky Mountain Power
.
.
.
1 Q.
2
3
4 A.
5
6
7
8
9
10
11 Q.
12
13
14 A.
15
16
17
18
19
20 Q.
21
22
23 A.
Have you treated the Company's agreement with Monsanto as a special
contract with ancilary service contract attributes, as described in Appendix
D of the Revised Protocol?
Yes. The Revised Protocol language clearly describes that the service to
customers similar to Monsanto should be viewed "as two transactions". The first
is for firm service. Monsanto's load is included in the load-base dynamc
allocation factors, and the retail revenue is calculated as if there is no interrption
and is diect assigned to Idaho. The second transaction identified above is for the
ancilar services and is allocated among all states on the same basis as other
system resources.
Do you agree with Mr. Paul H. Clements that the Company needs to follow a
"customer indifference" approach in valuing Monsanto interruptible
products.
Yes. As described above, the transaction for ancilar services is allocated among
all states on the same basis as other resources. Because of this, it is important that
the cost allocated to other states is consistent with the savings they receive from
the contracts. If the Company were to pay Monsanto more than the same price
the Company would otherwise pay to acquire those same products from other
sources it would har other Idao customers along with customers in other states.
Has Ms. Iverson addressed any reason why Monsanto's allocation should
deviate from prior rate cases and from the Revised Protocol allocation
method?
No. Ms. Iverson continues to value Monsanto by incorrectly changing Idaho
2602 - - -. 1"~ D ~i A-~'
Rocky Mountain Power
jursdictional loads, which is contrar to Revised Protocol and prior cases. In
doing so, Ms. Iverson does not address why this deparre from Revised Protocol
is appropriate.
Have you reviewed Ms. Iverson's calculation of the impact on revenue
requirement in this ca using her suggested 'non-firm' allocation approach?
Yes.
Do you agree with her calculations in Table 3 of her testimony?
No. Ms. Iverson's calculation continues to have the same flaws pointed out in my
rebuttal testimony in Phase I of this proceeding. She incorrectly assumes in her
table 3 that the Company does not plan for her Components 2 and 3, and therefore
assigns no capacity value to them. As pointed out in the testimony of Mr. Duval,
this is a flawed assumption. Because she claims the Company does not plan for
Monsanto's non-fir load, Ms. Iverson has removed the demand from all 12
monthly coincident peaks used to determne Idaho's contrbution to the system
peak. In other words, Ms. Iverson proposes to include only 9 MW of Monsanto
demand in the Idaho jurisdctional coincident peak every month. As described in
my earlier testimony, if Monsanto's load were to be excluded from the Idaho
jursdictional peak for a study of this natue, it should only be excluded from a
limited number of months, realistically representing the impact of the curtailment
on PacifiCorp's operations. Ms. Iverson's representation of Monsanto
curailment by removing all but 9 MW from the Idao jurisdictional peak every
month and avoiding demand charges for every month of the year is inappropriate.
2603 .. , r.: n ..L t:
'" , ~~ ~,~~
Rocky Mountain Power
.1 Q.Has the Idao Commission previously ruled on the appropriateness of
2 Monsanto paying a demand charge?
3 A.Yes. In Order No. 29157 the Commssion states "the contract for Monsanto
4 should specify separate rate components for firm service and for the
5 interrptibilty discount. The fixed cost of service to Monsanto should not be
6 bured in an energy only rate, payable only if energy is used and possibly not
7 recovered in full, but should be captued in a fixed customer charge and demad
8 charge. Recovering fixed charges in this manner is consistent with rates
9 formulaed for other customer classes and recognizes the fact that PacifiCorp
10 continues to incur and is required to be ready to serve even when Monsanto is
11 idle.,,2 (Emphasis added).12 This statement demonstrates two importnt facts that the Idaho
13 Commission has previously ruled on but Ms, Iverson is refusing to recognize.
14 First; an energy only rate as she proposes is not appropriate for of rate design, and
15 second; PacifiCorp continues to incur charges and has to be ready at all time to
16 serve Monsanto. This statement dispels Ms. Iverson and Mr. Brian C. Collns
17 argument that because Monsanto offers an interrptible product the Company
18 does not have to plan for or build facilties to serve Monsanto.
19 Q.Why is it not realistic to remove 170.1 MW from each of the monthly
20 jurisdictional peaks?
21 A.According to the term of the Company's contract with Monsanto for 2010,
22 economic curailment of 67 MW is available for 850 hours and operating reserves.23 curtailment of 95 MW is available for 188 hours. After accounting for line losses
2Fina Order No. 29157 Januar 27, 2003, Cas No. PAC-E-Ol-16 page 4.
2604 - - -. 1": D..i. t:
Rocky Mountain Power
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21
22 Q..23 A.
the total curailment is 170.1 MW, However, removing all 170.1 MW from each
month's coincident peaks is inappropriate for three reasons:
. Only 1,038 total hours are available for some type of curilment, less than
12 percent of the hours in the year. For the remaining hours durng which
Monsanto load is not curailed the Company must stand ready to provide
electrc service to Monsanto.
. Pusuant to the contract, the Company can never actually curail al 170.1
MW at one time. Curtlment for operating reserves is assigned to two
smaller furnaces, with total load of 95 MW, and economic curailment is
assigned to one larger fuace with a load of 67 MW, I f one of the
furnaces is already not operating either for maintenance or overhaul, the
Company can curtail both remaining furnaces, but the total curtailment
would be less than the 170,1 MW. If one of the furnaces is aleady not
operating for economic curailment, the Company can only curail one
additional fuace. This means the maximum actual curtailment is 116
MW out of the 170.1 proposed by Ms. Iverson.
. As shown on Tab 5 - Page 6 of Exhibit 49 sponsored by Company witness
Mr, C, Craig Paice, for eight out of twelve months durng the test period
total Monsanto load at the coincident peak is actually less than 170.1 MW.
It would be entirely inappropriate to reduce Monsanto load below zero in a
given month.
Is there another major flaw in Ms. Iverson's analysis?
Yes, When Ms, Iverson performed her allocation analysis she only reduced
2605 , -1 T"~ D ..1. '7
Rocky Mountain Power
.1
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3
4
5
6
7 Q.
8 A.
9
10
11.12
13
14
.
Idaho's retail revenues for demand related costs by the net amount, (firm rate
minus the interrptible credit). As noted earlier in my testimony Revised Protocol
requires that the gross amount of revenues is assigned to the state with the
interrptible credit treated as a system net power cost. Therefore Ms. Iverson's
analysis overstated the value of the allocation changes by $8.1 millon as a result
of only removing the net demand revenues not the gross demand revenues,
Have you reviewed the impact of Monsanto curtailment on the system peak?
Yes. I reviewed the Company's annual results of operations reports since 20053
to reveal the number of times in a year Monsanto load was actually curailed at
the time of the system peak. The table below shows that from April 2004 through
December 2009 Monsanto curtailment events occured at the time of the monthly
system peak at most five times during a given year.
Curtailment Events at Hour of Monthly System Peak
FY2005 FY206 CY2006 CY2007 CY200S CY2009
Januar
Febrar
March
Aprl
May
June x x
July x x x
August x x x x
September x x
October x
November x x x x
December x x x
Count 3 3 5 5 1 2
All of the events in the table above are the result of economic curailment;
no operating reserve events occurred at the time of the system peak. Based on
3 The PUC approved the Revised Protocol Stipulation on Februar 28,2005.
2606 " .., ... n.1. 0"" ,
Rocky Mountain Power
.
.
.
1
2
3 Q.
4 A.
these historical records and the other reasons I have discussed in my testimony it
is improper to remove Monsanto from all system peaks.
Does this conclude your rebutta testimony?
Yes.
2607 - . - 1 -n~ n _1. 0-0' ,
Rocky Mountai Power
.1 Q.
2 A.
3
4 Q.
5
6 A.
7
Please state your name and business address.
My name is Steven R. McDougal and my business address is 201 South Main,
Suite 2300, Salt Lake City, Utah, 841 i i.
Are you the same Steven R. McDougal who previously filed testimony in this
proceeding?
Yes, I submitted pre-filed direct testimony in May 2010, rebuttal testimony in
November 2010, and rebuttal testimony on the economic valuation of Monsanto
8 interrptible products on Januar 14,2011.
9 Purpose and Summary of Testimony
10 Q.
11
12 A..13
14 Q.
15 A.
16
17
18
19
20
21
22
23.
What is the purpose of your Monsanto sur-surrebuttal testimony in this
proceeding?
The purose of my testimony is to discuss Ms. Kathrn E. Iverson's surebuttl
testimony on the economic valuation of Monsanto interrptible products.
What is your response to Ms. Iverson's rebuttal and surrebuttal testimony?
Ms. Iverson is continuing to do the same analysis and has not corrected any of her
fudamental flaws. In response to the Company's criticisms of her JAM study,
she states "To prove they are without merit, I am providing an Idaho class COS
study that separate out Monsanto's "Contract 1" line into four distinct
components.") She then continues to do an identical study based on the incorrect
assumption that Monsanto should only be allocated firm demand of9MW. The
only difference between the two is whether the capacity associated with the
operating reserves and economic curailment are removed through jurisdictional
allocations, or through a cost of service calculation, She then states "The
! Ive son direct, December 22, 2010, page 16, lines 16- i 8
2608 McDougal, Di-Reb - 2
Rocky Mountain Power
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10 Q.
11 A.
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21
22
.
resulting increase of $0.8 milion is very similar to the amount I previously found
($0,9 milion) when I revised the JAM study to better reflect Monsanto's
interrptibilty,,,2 Ms. Iverson tries to make a conclusion that since two studies,
both of which erroneously assume Monsanto should only be allocated 9MW of
demand, come out with similar results that the results are validated. Although the
models are consistent in their application of allocation methòdology and produce
similar results, it does not validate results because the underlying assumption that
Monsanto should only be allocated 9MW of demand related expenses is not
correct.
Why do you emphasize jurisdictional allocations in your rebuttal testimony?
As pointed out earlier, Ms. Iverson states that the purose of her COS study was
to prove that the Company's criticisms of her JAM study was without merit. In
doing this, Ms. Iverson has done two studies, both with the same flaws. By
pointing out the flaws in the jurisdictional allocation approach, I am also pointing
out the flaws in her COS approach. Apparently, the purpose of the COS approach
was to see if Ms. Iverson could use the same erroneous assumptions in two
models and produce the same result.
Ms. Iverson is continually referring to jurisdictional allocations. She
discusses jurisdictional allocations at length in her November 1,2010, testimony,
and states in her December testimony that she is performing a COS study to tr ,
and validate her original premise. Ms. Iverson also discusses jurisdictional
allocations in her January 14, 201 i, rebuttal testimony. Despite all of these
.21ve son direct, December 22,2010, page 21, lines 5-7
2609 McDougal, Di-Reb - 3
Rocky Mountain Power
.1 references, she states on surebuttl that this is not about jurisdictional allocations,
2 since she is now using the COS model to do the same study.
3 Q.What did Ms. Iverson state was the purpose of her two studies?
4 ' A.In her November 1,2010, testimony Ms, Iverson states one of the puroses of her
5 testimony is to "discuss the proper allocation of a non-firm customer such as
6 Monsanto in the allocation of jurisdictional loads,,,3 In her testimony fied
7 December 22, 2010, she rephrased this to "provide an analysis of the costs
8 allocated to Monsanto under RMP's premise that Monsanto is served entirely as a
9 firm customer.,,4 Both of the studies make the same incorrect assumption that
10 Monsanto should only be allocated 9MW of demand related expenses.
11 The same flaws that existed in Ms, Iverson's original testimony continue
12 iIl her testimony of December 22, only disguised in a different cloak to tr and.13 hide the similarities, Unfortnately, since both studies used the same faulty
14 assumptions, the results of both studies were also in error. In this surebuttal
15 testimony I wil try to clarify the issues, and describe why they are the same in
16 both the jurisdictional and COS studies.
17 Q.Please describe the similarities in Ms. Iverson's November 1, 2010, and
18 December 22, 2010, studies.
19 A.In both studies, Ms. Iverson's underlying premise is that Monsanto is responsible
20 for only 9 MW of firm capacity, and all other capacity charges should be
21 allocated to other customers. As discussed in the testimony of Mr. Duvall, this is
22 inappropriate because the Company plans to serve the Monsanto load. In
.3lve son direct, November 1, 2010, page 2, lines 9-10
4lve son direct, December 22,2010, page 2, lines 11-12
2610 McDougal, Di-Reb - 4
KOCky Mountain power
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.
.
.
1
2
.3
4
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7
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9
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11
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13
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15
16
addition, as clearly stated in her table 3, the operating reserves are only available
for 188 hours per year, or approximately 2% of the hours. However, she is
assigning the full peak capacity associated with this 95MW of capacity to these
188 hours in each of the twelve months. This incorrectly assumes that these 16
hours per month wil occur at the time ofPacifiCorp's monthly system peak.
In her original testimony Ms. Iverson reduced the allocation of cost to
Monsanto by altering inter-jurisdictional allocations. As described in my earlier
testimony, this is against the approved allocation method and is inappropriate. In
her December 22,2010, testimony, instead of allocating the load to other states,
Ms, Iverson is trying to use a more circuitous route to get the same result. She is
incorrectly breaking down Monsanto's load into four components, and assigning
virtually all of the capacity to Components two and three. She then claims that
customers in other states should pay for components two and three, though an
overpriced power supply contract, leaving Monsanto only responsible for 9MW
of capacity costs on the system. Below is a char showing how this is done.
.~ ~~~'" -c: ..'" ~- QJ'" -0,5; E
.~ ~
Ol~
Allocated to Idaho,
then Monsanto
Allocated to Other States usi ng
Jurisdicational Allocations
A A
Firm Load
(9MW)
Operating
Reserves
Economic
Curtailment
yy
Allocated to Monsanto
in COS study
Allocated to Components 2 & 3 in COS Study. Paid for by
Other States through Net Power Cost Contract
2611 McDou al Di-Reb - 5
Rocky Mountain Power
I ;,
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2
3
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5
6
7
8
9
10
11 Q.
12 A.
13
14
15
16
17
18
19
20 Q.
21
.
.
As shown in the above char, under both approaches Ms. Iverson is
allocating the costs of Monsanto's operating reserves and the economic
curailment to other customers. The only difference is whether it is done through
inter-jurisdictional allocations, where the costs are pushed to other jurisdictions,
or through the COS study and the amount Monsanto is paid for curailment
products. The problem with both approaches is that she continues to incorrectly
allocate all of the capacity associated with the furnaces to the operating reserves
and economic curailment, even though they are for a minimal par of the year.
She does this because of her arguent that Monsanto somehow receives a 'lower
quality of service'.
What is your response to Ms. Iverson's other criticisms?
With the understanding above about what Ms. Iverson is tring to accomplish, it
is easy to see why each of her points is invalid. She is assigning capacity costs to
the operating reserves and economic curailment (although as noted above it was
done incorrectly), but she is maintaining that these costs should be borne by other
customers, with none of the capacity cost assigned to Monsanto. She maintains
that the complete capacity cost of these contracts should be refuded to Monsanto
through a credit, and included in net power costs at this lofty leveL. These costs
would then be allocated to all states using an SO allocation factor.
Do you have any specific comments on Ms. Iverson's cost of service approach
valuation?
2612 McDougal, Di-Reb - 6
Rocky Mountain Power
, ,
.1 A.
2
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16
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19
20
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23
.
.
Ms. Iverson has suggested removing almost 95 percent of Monsanto's
contribution to system peak using either jurisdictional allocation or a class cost of
service study. I disagree with her study for three reasons:
First, I don't believe this reduction in Monsanto's share of capacity costs
is an even exchange for the option to interrpt a portion of their load less than 10
percent of the hours in a year and another portion of their load for about two
percent of the hours in the year. PacifiCorp's generation fleet consists of a variety
of resources, including coal fired resources, hydro resources, combined cycle gas
plants, and wind resources. The combination of these plants must be available 24
hours a day, seven days a week, 365 days a year to serve our customers needs,
including Monsanto. Monsanto proposes to remove its share of these costs for all
but 9MW of firm capacity because a portion of their load can be interrpted a
fraction of the hours each year.
Second, Ms, Iverson removes 100 percent of the entire load Monsanto
identifies as non-firm (all but 9 MW), However, Monsanto's contract only allows
the interrption of their entire "non-firm" load under very limited circumstances,
They propose to allow one furnace (67 MW) to be curtailed for economic reasons
for less than 10 percent of the hours of the year. In addition two funaces (95
MW) can be interrpted for operating reserves for only two percent of the hours
of the year, but only one of these fuaces can be interrpted for reserves
concurently with the economic curailment. This means that at most 1 16 MW of
Monsanto's load can be curiled for two percent of the hours of the year, That
hardly justifies removing, Monsanto's entire furnace load from either Idaho's
2613 McDougal, Di-Reb -7
Kocky Mountain .tower
I jursdictional allocation or Monsanto's class cost of service allocation of capacity.2 related costs.
3 Third, Monsanto's load adjustment also reduces its allocation of
4 transmission costs. Historically, while interrptible customers have reduced the
5 Company's generation capacity requirements, the Company has always planed
6 to have adequate transmission capClcity to deliver their energy requirements. If
7 any load adjustment is made you should apply that load adjustment to generation
8 costs only, leaving the allocation of transmission costs unchanged.
9 Q.Is your conclusion about Ms. Iverson's study stil the same?
10 A.Yes. As described above, Ms Iverson is performing the same analysis as her
11 original testimony, with the same erroneous assumptions. However, she is trying
12 to modify her study and dress it up differently in hopes that she can convince.13 people that it is a different analysis and should be used to support the Monsanto
14 valuation, However, she has not corrected any of the flaws in her original
15 proposal. Ms. Iverson continues to assume Monsanto receives a lower quality'of
16 service and is not responsible for any capacity associated with the operation of
17 their fuaces,
18 Q.Does this conclude your rebuttal testimony?
19 A.Yes.
.
2614 McDougal, Di-Reb - 8
KOCKY . ruvvçi
.
.
1 (The following proceedings were had in
2 open hearing.)
3 Q.BY MR. HICKEY: Okay, have you had an opportunity
4 to prepare any kind of introductory comments?
5 MR. HICKEY: I guess we haven't as to him. We've
6 already prefiled.
7 THE WITNESS: That is correct.
8 MR. HICKEY: So at this point, Madam Chair,
9 Mr. McDougal is available for examination.
10 COMMISSIONER SMITH: Thank you, Mr. Hickey.
11 Mr. Price.
12 MR. PRICE : Staff has no questions for this
13 witness.
14 COMMISSIONER SMITH: Mr. Budge.
15 MR. BUDGE: Thank you.
16
17 CROSS-EXAMINATION
18
19 BY MR. BUDGE:
20 Q.Mr. McDougal, does (Customer No.2) have
21 constraints on how much it can be curtailed under its economic
22 curtailment provisions?
23
24.25
A.Yes, they do.
Q.And is (Customer No.2' s) curtailment limited to
four months in the summer and two months in the winter?
2615
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
McDOUGAL (X)
RMP
.
.
1 A. I do not know that. You would have to ask
2 Mr. Clements: He is familiar with those other contracts.
3 MR. HICKEY: Just so we're all on the same page,
4 I think we've tried to call one of these accounts "Customer No.
5 1" and the other "Customer No.2" up to this point in the
6 record, and just to be consistent, do we know -- this would be
7 Customer 2.
8 MR. BUDGE: So do we want to stipulate that
9 Customer 2 is (Customer No.2) and I'll ask all questions about
10 Customer 2?
11 MR. HICKEY: Yes.
12 MR. BUDGE: This was information that we got in
13 Response to Data Requests that were not marked confidential.
14 COMMISSIONER SMITH: Well, Mr. Budge, if you
15 don't mind, I think it's probably best to try and control the
16 information that regards large industrial customers in other
17 states the best we can. So maybe we'll just go back and call
18 these "Customer No.2."
19 Q.BY MR. BUDGE: So for purposes of Customer No.2,
20 is my understanding correct that its curtailments are limited
21 to four summer months and two winter months?
22 A.I am really not completely familiar with the
23 contract. You'd really have to ask Mr. Clements: He
24 negotiates those. I have read them, but I cannot remember all.25 the details.
2616
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
McDOUGAL (X)
RMP
.
.
1 Q. Do you have any knowledge concerning the economic
2 curtailment provisions of Contract No.2?
3 A.Again, I have read them, but I do not remember
4 all the details.
5 Q. Should those questions be directed to
6 Mr. Clements? Would he have knowledge?
7 A. Yes, he would.
8 Q. Would you agree that for Contract No.2, its
9 coincident peaks are reduced in the jurisdictional and class
10 cost of service studies using six months?
11 A.In the allocation models, yes, they are.
12 Q.And that's something that you would know about
13 firsthand?
14 A.Yes, it would be.
15 Q.So how did you arrive at the six months used?
16 A.What we did is in reading the allocation
17 methodology, the revised protocol, they have Appendix D.
18 Appendix D refers to the different types of contracts.
19 Customer No. 2 refers -- you know, applies to the special
20 contracts without ancillary services, and under revised
21 protocol, it mentions that we will reduce their peak for those
22 months in which they are off at the time of coincident peak.
23 Q.I think my question was earlier I asked you if
24 they could only be interrupted in six months, and you said you.25 didn't know, and then you did say that you reduced their
2617
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
McDOUGAL (X)
RMP
.
.
20
21
1 coincident peaks in six months. So my question was simply how
2 did you arrive at the six months to reduce the coincident peaks
3 in?
4 A.It is looking at the contract and looking at
5 those specific provisions.
6 Now, what I do not know is whether there is any
7 other months in which there is other types of curtailment.
8 Q.Are you aware under Contract No. 2 that their
9 economic curtailments in those six months are limited to
10 480 hours per year?
11 A.Subj ect to check, I would accept that.
12 Q.Would you also accept subj ect to check the
13 Contract No. 2 has limitations with respect to the times of the
14 day that they can be interrupted in those six months?
15 A.In my reading of all the contracts, I do remember
16 that all people have some kind of restrictions.
17 Q.Would you also, subj ect to check, that under
18 Contract No.2, they are limited to certain days of the week
19 that they can be curtailed by the Company?
A.Subj ect to check, yes.
Q.Would you turn to your testimony on page 5,
22 lines 14 through 19, and you'll see there beginning on line 17,
23 you make the statement: If Monsanto's load were to be excluded
24 from the Idaho jurisdictional peak or a study of this nature,.25 it should be excluded from the limited number of months?
2618
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
McDOUGAL (X)
RMP
.
.
20
1 A.Yes.
2 Q.Would you agree that if that were the case, that
3 Monsanto perhaps should only be restricted -- could only be
4 subj ect to interruption in a limited number of months as
5 well?
6 A.Well, there has to be a correlation, and if you
7 look at the full methodology and allocations, we have to look
8 at when are they going to hit the system peak and whether that
9 is likely to happen. So you have to look at a variety of
10 contract terms.
11 Q.Maybe you didn't understand my question. If I
12 understand it, for purposes of your study for Contract No.1,
13 they -- their peak is reduced in each of the six months that
14 they're subj ect to interruption. Correct?
15 A.And I'LL refer back to my earlier answer. Yes,
16 they are --
17 Q.I think that was a "yes" or "no" question.
18 MR. HICKEY: The witness is trying to answer.
19 May he please, Madam Chair?
THE WITNESS: They are, because they are
21 interrupted at the time of system peak for that month.
22 Q.BY MR. BUDGE: But they are not their peak is
23 not reduced in anything other than the months in which they can
24 be interrupted. Correct?.25 A.Correct.
2619
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
McDOUGAL (X)~P
.
.
20
21
22
1 Q. But even though Monsanto is interrupted all 12
2 months of the year, you don't feel it's appropriate to reduce
3 their peak by their interruptions?
4 A.Again, I'll go back to the revised protocol as
5 approved by this Commission and other Commissions that states
6 that there are two different types of special contracts: Those
7 with and without ancillary service attributes. And under that
8 Agreement, (Customer No.2) is -- excuse me, Customer No.2 is
9 treated one way and Monsanto is treated the other.
10 Q.Would you agree that a similar analysis that you
11 did for Contract No. 2 could be used on Monsanto; that is,
12 reducing their 67 megawatts of economic curtailment in their
13 coincident peaks for just those six months?
14 A.If the contract were restructured in a similar
15 manner where those interruptions were occurring at the time of
16 system peak and if the contract were reconfigured such that it
17 met that definition under allocations, yes.
18 Q.If you turn to the top of page 47 of your direct
19 rebuttal testimony , it was filed in the PAC-E-10-07 case.
COMMISSIONER SMITH: Is this an exhibit?
MR. BUDGE: That was the November 2010 testimony.
MR. HICKEY: Steve, do you happen to have that
23 with you?
24.25
THE WITNESS: I do have a copy of those pages.
Q.BY MR. BUDGE: That's your November 10th
2620
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
McDOUGAL (X)
RMP
.
.
18
19
1 testimony?
2 A.Yes.
3 Q.The top of page 47, that is the analysis that you
4 did. Correct?
5 A.Yes, it is, but could you give me just a minute
6 to reread these to get familiar with it? I unfortunately have
7 not completely reread all that testimony.
8 Okay.
9 Q.And then if you would look at your testimony on
10 line 1 and 2 of that page 47, you appear to be describing your
11 analysis, and you say: Under the nonfirm allocation scenario,
12 Monsanto's allocated cost of service is $7. 7 million less than
13 under the Company's rebuttal results.
14 A.That is correct.
15 Q.So you're showing a reduction to Monsanto's cost
16 of service of $7. 7 million under that scenario as described in
17 your rebuttal on page 47?
A.That is correct.
Q.Are you familiar with how much Mr. Clements
20 proposed in his value for this 67 megawatts of economic
21 curtailment for Monsanto?
22 A.I would have to go back and check his testimony.
23 I don't remember the exact.
24.25
Q.Would you accept, subj ect to check, that it's
less than half of the $7.7 million that you arrive at here?
2621
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
McDOUGAL (X)
RMP
.
.
24.25
1 A.Subject to check.
2 Q.In fact, his front office and GRID model comes up
3 with about $3.6 million. Would you accept that, subject to
4 check?
5 A.Subj ect to check, that sounds about right.
6 Q.And I believe that's reflected -- if you need to
7 check -- in Mr. Clements' supplemental, page 21, line 10.
8 A.Okay.
9 Q.Would you agree that according to your proper
10 allocation method then, that the economic curtailment portion
11 could be $7. 7 million for Monsanto if based on the same method
12 as used for purposes of contract Customer No.2?
13 A.Well, I disagree with your use of the word
14 "proper allocation." The way we are allocating is the proper
15 allocation method for the Monsanto contract.
16 If the contract per some of your earlier
17 questions were restructured such that it was at the time of
18 system peak and it was for those number of months and it met
19 the definition of revised protocol, then I would agree that,
20 yes, that would be the value.
21 Q.So, currently, Monsanto's interruptions are not
22 limi ted to six months; they can be used anytime in the 12
23 months within the contract terms?
A.That is correct.
Q.And would you agree then if the value is based on
2622
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
McDOUGAL (X)
RMP
.
.
1 a realistic impact on PacifiCorp' s operation as you say, then
2 Monsanto's electric service agreement should be revised to
3 limit those curtailments to only six months?
4 A.I don't completely follow that question in that
5 there's different ways to value it. Six months is an option,
6 nine months is an option, 12 months is an option. It all
7 depends on how it fits in with the definition and within the
8 application of the allocation methodology.
9 Q.Did Mr. Clements ask you to provide any valuation
10 of Monsanto's economic curtailment on the basis of the reduced
11 peak method that you have done for purposes of Contract No.2?
12 A.He has seen my testimony, but, no, he has not
13 asked me to do any specific studies.
14 MR. BUDGE: No further questions.
15 COMMISSIONER SMITH: Do any of the Commissioners
16 have questions?
17 COMMISSIONER KEMPTON: No.
18 COMMISSIONER REDFORD: No, none.
19 COMMISSIONER SMITH: Mr. Hickey, do you have any
20 redirect?
21 MR. HICKEY: I do not. Thank you though,
22 Madam Chair.
23 COMMISSIONER SMITH: Thank you for your help,
24 Mr. McDougal..25 THE WITNESS: Thank you.
2623
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
McDOUGAL (X)
RMP
.
.
1 (The witness left the stand.)
2 MR. HICKEY: Rocky Mountain Power would call its
3 third and final witness at this phase of the hearing, and
4 that's Mr. Paul Clements, Madam Chair.
5
6 PAUL CLEMENTS,
7 produced as a witness at the instance of Rocky Mountain Power,
8 being first duly sworn, was examined and testified as follows:
9
10 DIRECT EXAINATION
11
12 BY MR. HICKEY:
13 Q.Good morning, Mr. Clements. For the record,
14 could you please state and spell your name?
15 A.Yes. My name is Paul H. Clements. Last name is
16 spelled C-L-E-M-E-N-T-S.
17 Q.And am I correct that you did not appear in the
18 first phase of this case but your testimony is directed at the
19 purpose of this hearing, the economic valuation of the
20 interruptible products previously provided by Monsanto?
21
22
A.That is correct.
Q.Did you cause to be filed rebuttal testimony on
23 January 14 of this year?
24.25
A.Yes, I did.
Q.And do you have any additions or corrections to
2624
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, 1D 83701
CLEMENTS (Di)
RMP
.
.
1 that testimony, Mr. Clements?
2 A. I do not.
3 Q.If I were to ask you all of the questions set
4 forth in your prefiled testimony of January 14, would your
5 answers be the same as are published therein?
6 A.Yes, they would.
7 Q.And did you also cause to be filed testimony last
8 October called supplemental testimony in this docket?
9 A.Yes, I did.
10 Q.Are there any additions or corrections to that
11 supplemental testimony that was filed in October?
12 A.No, there are not.
13 Q.If I were to ask you all of the questions set
14 forth in that October filed testimony, would your answers be
15 the same as are set forth therein?
16 A.Yes.
17 (The following prefiled rebuttal and
18 supplemental testimony of Mr. Clements is spread upon the
19 record. )
20
21
22
23
24.25
2625
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
CLEMENTS (Di)
RMP
.1 Q.Please state your name, business addres and present position with Rocky
2 Mountain Power (the Company), a division of PacifCorp.
3 A.My name is Paul H. Clements. My business address is 201 S. Main, Suite 2300,
4 Salt Lake City, Utah 84111. My present position is OriginatorlPower Marketer
5 for PacifiCoip Energy. PacifiCoip Energy and Rocky Mountain Power are
6 divisions of PacifiCoip (the Company),
7 Q.Are you the same Paul H. Clements who previously filed testimony in this
8 proceeding?
9 A.Yes. On September 30,2010 I fied diect testimony in which I provided a
10 recommendation and analysis regarding the economic valuation of the
11 interrptible products offered by Monsanto to the Company to establish the.12 contract rates for Monsanto staring Januar 1,2011.
13 Pupi se and Summary of Testimony
14 Q.What is the purpose of your testimony?
15 A.The purose of my testimony is to provide responses to the diect testiony of
16 Monsanto witnesses Mr. Brian C. Collns and Ms. Kathrn E. Iverson and the
17 diect testimony of 'staff witness Mr. Keith D. Hessing as it relates to the
18 determation of an appropriate valuation of Monsanto's interrptible products.I
19 wil respond to Mr. Collns' critique of the Company's proposal and wil provide
20 evidence demonstrating that Monsanto's peaker method is not appropriate for use
21 in determning the value of Monsanto's interrptible products. I wil provide
22 comments on Ms. Iverson's comparson of Monsanto to two other industrial.23 customers and an explanation of why her comparson is incorrect. I wil also
2626 ~1 1"; O",h 1
Rocky Mountain Power
.1
2
3
4 Q.
5 A.
6
7
8
9
10
11.12
13
14
15
16
17
18
19
20
21
22.
provide comments on Mr. Hessing's valuation method and wil suggest cert
reasonable and needed modifications to the method that must be implemented
should the Commssion elect to adopt it.
Please summarize your rebutta tetimony
My testimony addresses the following points:
. The Company's proposed values for Monsanto's interrptible products are
just and reasonable and should be adopted to set the interrptible product
values in.Monsanto's contract.
. The Company's proposal best represents the cost the Company wil incur
if it were to replace the Monsanto interrptible products with other
resources.
. Monsanto's peaker method overvalues Monsanto's interrptible products
and is not appropriate for use since it does not accurately take into account
the vast differences between the products a combustion turbine provides
and the products Monsanto offers, nor does it consider the Company's
resource needs.
. If the Commssion elects to assign incremental capacity value to
Monsanto's non-spinning operating reserve product1as proposed by Staff,
certain adjustments are required in order for the proposal to be reasonable.
. The Company recommends two modifications to staff s method should the
Commssion chose to adopt it: 1) an adjustment to incorporate the cost of
other units besides Curnt Creek and 2) an adjustment to account for the
!11o ighout my testimony I may refer to non-spinning operating reserves as simply "operating reserves".
2627 £"1. n.~ n..1. _'"
Rocky Mountain Power
.1
2
3 Q.
4
5 A.
6
7
8
9
10
11.12
13
14
15
16 Q.
17
18 A.
fact that combustion tubines provide other valuable products besides non-
spinning operating reserves.
Could you please provide your summary of the parties' positions regarding
valuation of Monsanto's interrptible products?
Yes. The primar difference between the paries' positions is the applicabilty of
capacity value to the products that Monsanto provides. The Company's proposal
assigns capacity value based on the implied capacity value reflected in the market
prices for electricity for the term of the contract offered by Monsanto.
Monsanto's proposal assigns capacity value based on the full all-in cost of a new
simple cycle combustion turbine. Staff's proposal accepts the Company's
proposal for economic curailment, system integrity and operating reserves but
takes an additional step of assigning incremental capacity value for the operating
reserves product based on the full cost in rates of the Company's existing Curant
Creek combined cycle gas unit.
ComIl~ents on Mr. Collin' Statements on the Company's Proposal
Mr. Collns asserts that the Company's methods are strictly short-term and
do not properly reflect resource values. Do you agree with this asertion?
No. A resource value is best determned by evaluating the cost one would incur
19 to replace the resource if it were no longer available for use. The Company's
20 method calculates the cost the Company would incur to replace the interrptible
21 products provided by Monsanto.
.
2628 _.... n .,_ 'J
Rocky Mountain Power
.1 Q.What evidence do you have supporting your position that the Company's
2 models accurately reflect the value of the resource or product Monsnto
3 provides?
4 A.As explained in my direct testimony, the Company has recently executed similar
5 contracts for interrptible products with other industral customers. These
6 customers offer products that are very similar to those offered by Monsanto.
7 Also, similar to Monsanto's contract, these customers receive fir service from
8 the Company but have specific terms and conditions in their contracts under
9 which service can be interrpted. The prices reflected in the contracts of these
10 ,industrial customers were supportd by using the results of the same methods and
11 models the Company is proposing to use to determe the value for the Monsanto.12 interrptible products. These industrial customers were wiling to enter into
13 contracts at the prices supported by the Company's models and methods. I
14 believe this validates the Company's methods and models as reasonable indicators
15 of value for interrptible products since a definition of "value" is the price at
16 which two paries are willng to enter into an agreement.
17 Q.Mr. Collns assert that Monsanto's interruptible products displace a
18 combustion turbine2. Do you agree that a combustion turbine would be built
19 if Monsanto's interruptible contract were not available?
20 A.No. In fact, for the test period used in the 2010 general rate case, the Company
21 would only need to replace approximately 37 percent of the operating reserve
22 product that Monsanto provides. Furhermore, the Company is curently able to.23 replace that 37 percent by cost effectively utilzing existing resources. Monsanto
2 Mr. ( ollns Direct Testimony, page 12, lines 21-25.
2629 r"1 1"~ O~h A
Rocky Mountain Power
.1
2
3
4
5
6
7
8
9 Q.
10 A.
11.12
13
14
15
16
17
18
.
provides 770,880 megawatt hours of operating reserves each year3. The
Company performed an analysis to determe the system impact if the Monsanto
operating reserves contract were not available. This was done by comparng the
base case GRID run with the Monsanto contract available to a second GRID run
with the Monsanto contract removed. The results of the second GRID run show
that only 282,127 megawatt hours of operating reserves, or 37 percent of the total
amount that Monsanto provides, are replaced when Monsanto's contract is
removed.
What do you conclude from the results of this GRID analysis?
The GRID analysis demonstrates thee key factors for the test period analyzed; 1)
the Company is able to meet its operating reserves obligation with existing
resources if the Monsanto contract is not available, 2) not all of Monsanto's
operating reserves product wil need to be replaced if the contract is not avaiable,
and 3) since no new resources are required to replace Monsanto's contract the
Company's GRID and Front Office models should be utilzed to determne the
value of the interrptible product since those models accurately reflect the cost to
the Company of replacing Monsanto's interrptible product with available
existing resources.
3 The GRID run assumes an average of 88 megawatts of reseres are available 8,760 hour each year.2630 _.r.~ n .1_ i:
Rocky Mountan Power
,.1 Comii ents on Mr. Collns' Peaker Valuation of Interruptibilty
2 Q.Do Monsanto's interruptible products allow RMP to avoid the construction
3 or acquisition of generating resources4?
4 A.No. Monsanto's interrptible products are not equal to the products available to
5 the Company though constrction or acquisition of a generating resource.A
6 generating resource can provide many needed and valuable products that
7 Monsanto does not have the capabilty to provide. Generation resources are stil
8 required to provide those products, and therefore Monsanto does not avoid or
9 defer their acquisition.
10 Q.Has the Company performed an Integrate Resource Plan (IRP) analysis to
11 determine if Monsanto avoids the acquisition of a generating resource?.12 A.Yes. The Company performed an IRP analysis to evaluate if the removal of the
13 Monsanto interrptible products as a resource created a need for a new resource.
14 Q.What were the results of the IRP study?
15 A.Removal of the Monsanto interrptible product as a fir resource in the IR did
16 not create the need for a new resource.
17 Q.What conclusion do you draw from those results?
18 A.Monsanto's interrptible product does not avoid the acquisition by the Company
19 of generation resources.
.4 CoU~s Direct Testimony, page 6, lines 13-16.
2631 _. T'~ D _1. t:
Rocky Mountain Power
.1 Q.Mr. Collns further asserts that RMP currntly uses Monsanto's
2 interruptible products much like it would a combustion turbine. Is he
3 correct in this assertion?
4 A.No. A combustion turbine provides many additional products and benefits that
5 Monsanto does not provide. Therefore, combustion tubines are utilzed
6 differently and provide significant additional value when compared to Monsanto's
7 interrptible products.
8 Q.Could you please summarize the differences between the products provided
9 by a combustion turbine and the products provided by Monsanto?
10 A.Yes. I have prepared the table below to summarze some of the differences.The
11 table includes a list of some energy products, a brief definition of each product,.12 and whether or not a combustion tubine and Monsanto can provide the specified
13 product. I have listed the products in the order in which I believe is reflective of
14 their relative operational value to the Company in regards to responding to
15 deviations in the' system load and resource balance, with the most responsive
16 product listed first and the least responsive product listed last.
Pro(J ~ct Definition Combustion Monsanto
Turbine Provides?
Provides?
Reac ive Supply Generation that is under the control of
and ~oltage the control area operator that is YES NOContoloperated to produce (or absorb) reactive
power.
Regi lation and Generation that provides for the
Freq ency continuous balancing of resources to
Resp pnse maintain frequency at 60 Hz.YES NO
Generation that follows moment-by-
moment changes in load..
2632 _.~. .. ,"'
,.~~~,
Rocky Mountain Power
.Eneq y Imbalance Generation that is used to react to
(Loa(Following)diferences between the scheduled and YES NO
the actual loads within a single hour.
Oper ting Generation that is use to serve load
Rese ve-imediately in the event of a system YES NOSpining Reserve contingency.
Ope~rig Generation or non generation sources
Rese ve -that are used to serve load in the event
Non )pinning of a system contingency that are not YES YES
Rese ve available immediately but within a short
period of tie.
1
2
3
4.5
6
7
8
9
10 Q.
11
12 A.
13
.
The table shows that a combustion tubine provides many products that
are needed and utilzed by the Company on a daily basis that cannot be provided
by Monsanto and are much morèvaluable than what Monsanto provides. Of the
products listed, Monsanto is only capable of providing non-spinning operating
reserves while a combustion tubine is able to provide all of these products that
allow the Company to respond to changes in the load and resource balance,
Therefore, comparng Monsanto to the full cost of a combustion tubine is not
reasonable and should not be considered when establishing value for Monsanto's
interrptible products.
Are combustion turbines operated with more frequency than the amount of
interruptible products Monsnto provides?
Yes. The table below shows the actual operational hour for some of the
Company's combustion turbines for the period 2007 through 20095.
Combustion
Year Turbine
2007 Curant Creek #1
2007 Currant Creek #2
Operational
Hours
8,058
7,897
5 See 'ompany response to Monsanto Data Request 16.11.
2633 1"1,1": O",h Q
Rocky Mountain Power
.
.
.
2007 Gadsby #4
2007 Gadsby #5
2007 Gadsby #6
2007 Lake Side #1
2007 Lake Side #2
2007 Little Mountain
2008 Chehalis #1
2008 Chehalis #2
2008 Currant Creek #1
2008 Currant Creek #2
2008 Gadsby #4
2008 Gadsby #5
2008 Gadsby #6
2008 Lake Side #1
2008 Lake Side #2
2008 Little Mountain
2009 Chehalis #1
2009 Chehalis #2
2009 Currant Creek #1
2009 Curant Creek #2
2009 Gadsby #4
2009 Gadsby #5
2009 Gadsby #6
2009 Lake Side #1
2009 Lake Side #2
2009 Little Mountain
Average
1
4,995
4,869
4,805
2,451
2,476
8,302
1,924
1,503
7,081
6,786
3,949
3,894
3,823
6,509
6,449
8,040
4,083
4,060
6,789
6,698
5,265
5,539
5,668
5,399
5,203
7,976
5,375
The average amount of time these tubines were operated on an annual
2 basis over a three year time period was 5,375 hours. Monsanto offers a total of
3 1,000 hours6 of interrptible products on an annual basis. On average, the
4 combustion turbines were operating and providing value to the Company five
5 times more often than Monsanto's interrptible products would allow. This
6 difference in utilzation rates furer supports the Company's position that the
6 Assu nes 188 hours of operating reserves, 800 hours of economic curtailment, and 12 hours of system
integn y. Note that Monsanto has ben willing to offer up to 850 hours of economic curtaient in the
eXIstin contrct.
2634 .., ..' .., r../
Rocky Mountain Power
.1
2
3 Q.
4
5 A.
6
7
8
9
10
11 Q..12
13 A.
14
15
16
17
18
19
20
21
.
differences between a combustion tubine and Monsanto's interrptible products
are significant.
Does the Company have complete control over when the 1,000 hours of
Monsanto interruptible products are used?7
No. The Company only has complete control over the timng of economic
curlment interrptions. The Company does not have complete control over the
timing of operating reserve interrptions and system integrity interrptions since
those interrptions require a specifc event to occur prior to interrption being
allowed. If the specific event does not occur, the Company cannot interrpt
Monsanto's load,
Why is this significant in comparison to the Company's abilty to control a
combustion turbine?
The Company has complete control over when to utilze a combustion tubine;
Under the Monsanto contract, for a certain percentage of the interrptible hours
Monsanto provides, the Company cannot interrpt Monsanto unless a specific
event occurs. In fact,' the maximum amount of megawatts the Company can
interrpt without a specific event occurng is 67 megawatts. This is significant in
that the Company may require additional resources at times but would be unable
to call upon portions of the Monsanto contract unless a specific event was to
occur. The Company's use of a combustion tubine is not limited by these event
trggers.
7 Mr. "'ollns Direct Testimony, page 12 line 26 thugh page 13 line 6.
2635 f"l T'~ n_l. 1 (),
Rocky Mountain Power
.1 Q.
2
3
4
5 A.
6
7
8
9
10
11 Q..12
13
14 A.
15
16
17
18
19
20
21
22.23
Mr. Collns also performs an analysis using the Company's QF rates in Uta
to establish the value of Monsanto's interruptible products.8 Is this analysis
appropriate for use in determining the value of Monsanto's interrptible
products?
No. The QF rates used by Mr. Collns are based on the full cost of a combustion
turbine. Therefore, the QF rate analysis he performed is very similar to his peaker
analysis and should be rejected for the same reasons set forth in my testimony
regarding his peaker valuation method. Furtermore, QF contracts typically have
availabilty guarantees, liquidated damages for non-performnce, and other
contract terms that are not found in Monsanto's contract.
What conclusion have you drawn after reviewing Mr. Collns' proposed
peaker valuation of interruptibilty and his proposed value of $25.5 milion
for Monsanto's interruptible products?
Mr. Collns' proposed peaker valuation of interrptibility is not a reasonable
method to use to calculate the value of the Monsanto interrptible products. Mr.
Collns' method assigns much more value to Monsanto's interrptible products
than the Company's customers receive in benefits though utilzation of the
products. A combustion tubine provides more valuable products, is operated
with more frequency, and provides greater operational control to the Company
than Monsanto's interrptible products, These differences are significant enough
that a comparson to the full cost of a combustion turbine is inaccurate and should
not be considered by the Commssion when determning the value of Monsanto's
interrptible products.
8 Mr. ( ollns Direct Testimony, page 16, lines 1-19.
2636 ., ..' .., 1
, .Ln-.L","U - .L.L
Rocky Mountain Power
.
.
1 Q.
2
3 A.
Has the Commission previously provided an opinon on the use of the peaker
method to set Monsanto's contract value?
Yes. In Final Order No. 29157 issued January 27, 2003, the Commssion stated
4 the following:
5 "Therefore, we cannot find the avoided peaker resource to be the
6 definitive methodology for valuing the interrptibilty credit.,,9
7 Com) Ilents on Mr. Collins' System Integrity Valuation
Could you please summarize how Mr. Collns has valued the system integrity
product?
Mr. Collns proposes the system integrity product be valued at $400 per megawatt
hour, which equates to $806,000. He bases his approach on the premise that a
system integrity interrption wil always occur at a time when market prices are at
the Western Electric Coordinating Council ("WECC") price cap of $400 per
megawatt hour.
Is this approach reasonable to value Monsanto's system integrity product?
No. Mr. Collns' proposal assigns more value to the system integrity product than
the benefit the Company receives in utilizing the product. The Company can call
for a system integrity interrption under two scenaros:
1. A voltage related event.
2. A double contingency event, defined as the forced outage of two or
more PacifiCorp generating units totaling 500 MW or more of
capacity.
9 Pina Order No. 29157, page 12.
2637 '-1 ..~ n_1. 1",
Rocky Mountain Power
.1
2
3
4
5
6
7
8
9
10
11.12
13
14
15
16
17
18
19
.
Idaho Electrc Service Regulation NO.4 sets fort rules regarding the supply and
use of the Company's electrc service. Section 3 allows the Company to interrpt
load for safety and reliabilty puroses as neededlO. Therefore, Monsanto should
not receive additional compensation for voltage related interrptions since all
Idaho customers are subject to occasional interrption pursuant to Electrc Service
Regulation NO.4.
For double contingency related interrptions, the Company's proposal is
more representative of the value this product provides in that it more accurately
reflects the costs the Company would incur if Monsanto's system integrity
product was not available, The Company values the interrptible system integrity
hours using a price that is based on the average annual heavy load hour (6xI6)
market price for energy. This method is reflective of the fact that the probabilty
of a double contingency event is constat throughout the year. When a double
contingency event occurs, the Company is able to avoid market purchases. Since
the probabilty of a double contingency event is constant thoughout the year, the
appropriate price to use to value the product is the average price for the year. It is
highly unlikely that all 12 hours of system integrity interrption wil occur during
hours in which the WECC price cap of $400 is setting the maket price.
Therefore, Monsanto's system integrity valuation should not be considered.
10 Ele trc Serice Regulation NO.4 State of Idaho, Orginal Sheet Nos. 4R.2 and 4R.3.2638 _.1"; O",h 1-:
Rocky Mountain Power
.1 Comii ents on Ms. Iverson's Comparison to Two Other RMP Customers
2 Q.Ms. Iverson attempts to compare the contract rates for two other RMP
3 industrial customers to Monsanto's proposed contract ratell. Is such a
4 comparison relevant to the determination of Monsanto's interrptible
5 products value?
6 A.If performed correctly, such a comparson is relevant.Ms, Iverson's comparson
7 is not performed correctly in that it includes a comparison of base retail rates and
8 does not always compare like products. Ms. Iverson does not attempt to perform
9 a comparison of the easily identifiable operating reserve product, which is the
10 only product that is similar enough between the three contracts (Monsanto and the
11 two other RMP customers) to warant a comparson..12 Q.Has the Company prepared a comparison of the operating reserve contract
13 values for these three RMP customers?
14 A.Yes. In my direct testimony pages 16 though 19, I provide a detaled comparison
15 of the values included in two recent operating reserve contracts with other RMP
16 industral customers to the Company's proposed value for operating reserves in
17 the Monsanto contract. All three customers provide a non-spinning operating
18 reserves product as defined by WECC, Therefore, a comparson of this product
19 between these three customers is appropriate.
20 Q.What did your analysis show?
21 A.My analysis showed that the two recent operating reserves contracts support the
22 Company's proposed operating reserve value for a new Monsanto contract..11 Ms. Iverson Direct Testimony, pages 22-32.
2639 ,.'"... n.1. 1 A, ~~ 4~~~ 4
Rocky Mountain Power
.1 Comi ents on Staff Witness Keith Hessing's Proposed Interruptible Products Value
2 Q.Pleas summarize Mr. Hessing's proposed method for determining the
3 interrptible products value for Monsanto's contract.
4 A.Mr. Hessing accepts the Company's proposed value for the system integrity and
5 economic curtaient products. Mr. Hessing accepts the Company's proposed
6 value for the operating reserves product as estimated energy value but believes
7 there is an additional capacity component that must be added.12 In summar, Mr.
8 Hessing agrees with the Company's proposal but believes an incremental value
9 should be added to the operating reserve product to account for capacity value.
10 Q.Doe the Company agree that an incremental value needs to be added to its
11 proposed operating reserve value to account for capacity value?.12 A.No. The Company believes that its proposal aleady accurately reflects any
13 implied capacity value for the distinct time period considered in its proposal
14 (2011 -2013) since the Company utilized recent market price curves for fir
15 energy products for this time period and because the Monsanto interrptible
16 products do not avoid a resource acquisition in this time period, as explained
17 earlier in my rebuttal testimony.
18 Q.Please provide a brief summary of how Mr. Hessing determines the
19 incremental capacity value.
20 A.Mr. Hessing stars by describing a preferred method in which an analysis is
21 performed to allocate capacity costs to non-spinning operating reserves based on
22 the percent of time each resource holds these reserves with and without the.12 Mr Hessing Direct Testimony, page 6, lines 3-9.
2640 rii r.~ n_1. 1 ~
Rocky Mountain Power
.1
2
3
4
5
6
7
8
9
10 Q.
11.12
13 A.
14
15
16
17
18 Q.
19 A.
20
21
22.23
Monsanto operating reserves contract13. This method would determne the
implied operating reserve portion of the capita costs of the actual units that hold
reserves if Monsanto's contract was not available. Mr. Hessing acknowledges
that this method might produce the most accurate results, but the amounts of data
and calculations are admnistratively impracticaL.
In place of this detailed method, Mr. Hessing proposes a surogate
methodology in which he uses the full plant in service cost of the Currant Creek
unit from PacifiCorp's FERC Form 1 as the proxy capacity value for the
operating reserve product.
Is there a scenario in which Mr. Hessing's proposed method would have
merit in determining a contract value for Monsanto's operating reserves
product?
Yes. If the Commssion were to determe that it is reasonable to assign some
incremental capacity value above what is already included in the forward market
prices to Monsanto's operating reserves.product, a method similar to Mr.
Hessing's proposal, in which he utilizes the capacity costs of existing resoures,
may have merit if certain reasonable adjustments are made.
Why must certain adjustments be made to Mr. Hessing's method?
As I noted earlier in my testimony a combined cycle resource such as Curant
Creek provides much greater value than the non-spinning operatig reserves
product provided by Monsanto. Mr. Hessing's method must be adjusted to more
accurately reflect the actual cost to the Company of providig a non-spinning
operating reserves product. The following two adjustments must be made:
13 Mr Hessing Direct Testimony, page 8
line 22 though page 9 line 13.
2641 ..,1": O~h 1 k
Rocky Mountain Power
.1
2
3
4
5
6 Q.
7
8 A.
9
10
11.12
13
14
15
16
17 Q.
18
19
20 A.
21
22.23
1. Mr. Hessing's method must be modified to utilize the capacity costs of
multiple resources that are used by the Company to provide non-spinning
operating reserves instead of using the single Currant Creek resource costs.
2. Mr. Hessing's method must be modified to account for the fact that the
resources provide other products besides non-spinnig operating reserves.
Please explain why Mr. Hessing's method must be modified to utilze the cost
of other resources besides Currant Creek.
Mr. Hessing's preferred method, which he deemed too admnistratively
f
impractical, would have taken into account the weighted average cost of all the
resources utilized by the Company to meet its non-spinnig operating reserves
obligation. While the Company agrees such calculations may be impractical if
performed on a frequent basis, Mr. Hessing's proposal to utilze only the capacity
costs of the combined cycle gas plant Currnt Creek oversimplifies the analysis
since other types of resources besides Curant Creek provide non-spinning
operating reserves. The Company suggests modifying Mr. Hessing's analysis to
include the capacity costs of other resources besides Curant Creek.
Please explain why Mr. Hessing's method must also be modified to account
for the fact that the units provide other products besides non-spinning
operating reserves.
As explained in detail earlier in my testimony, generating resources provide many
products in addition to non-spinning operating reserves. Each product provided
by a combustion tubine has a value (cost), and the sum of the individual product
values (costs) should equal 100 percent of the cost of the resource. Therefore, to
2642 ,.,... n _, 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.
assign 100 percent of the capacity cost of a resource to a single product, such as
non-spinning operating reserves, when the resource is used for multiple products
is not accurate. That would imply that the other products provided by that
resource, such as base load energy, load following, regulation control, and
spinning reserves, have zero capacity value (cost). Such an approach overvalues
non-spinning operating reserves and undervalues the other products provided by
the resource. The Company suggests modiying Mr. Hessing's analysis to
account for the fact that resources provide other products in addition to non-
spinning operating reserves.
Please explain the Company's proposal for adjusting Mr. Hessing's method
for valuing the non-spinning operating reserves product.
The Company's recommends two modifications be made to staf s proposed
method. The Company has 'prepared recommended values using a modied staff
method for a contract of up to three years in length for the term 2011 through
2013. The primar deficiencies of Mr. Hessing's method are he uses only one
resource type (Currant Creek) as a cost basis and he assigns 100% of that
resource's capacity cost to just the non-spinning operating reserves product.
My first proposed adjustment would be to use the average of the capacity
cost of multiple units instead of just the single capacity cost of Currant Creek. I
propose to use the average capacity costs of the combined cycle Currant Creek
unit and the simple cycle Gadsby units. Ideally, this calculation would be a
weighted average cost based on each PacifiCorp resource that is used to meet the
2643 ..,1"~ o",i. 1 0,
Rocky Mountain Power
.
.
.
1 total operating reserves requirement. However, for puroses of this evaluation, a
2 simple average of these two types of gas units provides a reasonable result.
3 My second adjustment would be to allocate the appropriate percentage of
4 the total capacity cost to the non-spinning operating reserve product by tang into
5 account the amount of time the resource is used to provide other products, Mr.
6 Hessing allocates 100 percent of the total cost of the resource to just the non-
7 spinning operating reserves product. I propose to alocate 46.2 percent of the tota
8 cost instead of 100 percent, since, on average, 46.2 percent of the time the
9 resource is being used to provide a non-spinning operating reserves product and
10 53.8 percent of the time the resource is being used to provide products other than
11 a non-spinning operating reserves product.
12 Using data taken from the same GRID study referenced in Mr. Hessing's
13 testimony14, the Company calculated the amount of the time the Gadsby and
14 Curant Creek resources were used for operating reserves as a percentage of the
15 total amount of time they were in operation. This average, based on the GRID
16 study referenced by Mr. Hessing, is 46.2 percent. This means these resources, on
17 average, were used for other purposes besides operating reserves 53.8 percent of
18 the time they were in operation. Again, a weighted average calculation based on
19 each PacifiCorp resource that is used to meetthe total reserve requirement would
20 be ideal. However, for purposes of ths evaluation, a simple average of these two
21 gas units provides a reasonable result.
14 Mr. ~essing Direct Testimony, page 11, lines 4-5.
2644 ~...' .. _1_ 1 n, .Ln-
Rocky Mountain Power
.1 Q.What adjustment results from applying these two modifcations to Mr.
2 Hessing's proposed method?
3 A.These two modifcations adjust Mr. Hessing's proposed incremental operating
4 reserves capacity value from $7.3 millon to $3.0 millon.The details of this
5 calculation are provided in RMP Exhibit No. 97.
6 Q.Can you provide evidence that supports the use of Gadsby and Currant
7 Creek values as proposed by the Company instead of just the Currant Creek
8 value proposed by Mr. Hessing?
9 A.Yes. Mr. Hessing's method uses the Company's Front Ofice and GRID model
10 results as the basis for what he considers to be the energy value of the non-
11 spinning operating reserves product. The results of the Front Office model show.12 that both combined cycle resources and simple cycle resources are used.
13 Therefore, since both resource types are used in the model that determnes the
14 staff's proposed energy value, both resource types should be used in the model
15 that determnes staff s proposed incremental capacity value.
16 Q.Please summarize the Company's recommendation for contract values for
17 the Monsanto interruptible products for years 2011 through 2013.
18 A.The Company recommends the Commssion adopt the Company's proposed
19 values as described in my diect testimony. The Company recommends a total
20 credit to Monsanto of $6.1 millon in 2011. If the term of the Monsanto contract
21 covers 2012 or 2013, then the Company recommends values of $7.1 millon and
22 $7.6 millon for 2012 and 2013, respectively, as shown in the table below:.
2645 _. 1":_D~'\ _ ")(\
Rocky Mountain Power
.Prduct 2011 2012 2013
Operatig Reserves $2.4 $3,0 $3.3
Econollc Curihent $3.6 $4.0 $4.2
System Integry $0.1 $0.1 $0.1
Tota $6.1 $7.1 $7.6
1
2
3
4
5
6
7
8.9
10
11
12
13
14 Q.
15
. 16 A.
The Company does not agree with Monsanto's peaker method and has
provided evidence demonstrating how the value produced by that method greatly
exceeds the benefit the Company receives from the Monsanto interrptible
products.
If the Commssion determes incremental capacity value should be added
to the operating reserves product, the Company recognizes that staff s proposal
has merit. However, the Company recommends the Commssion adopt the
modifications to Mr. Hessing's method as described in my rebuttal testimony.
These modifications are necessar to more accurately reflect the actual value of
the operating reserves product to the Company.
If the Commssion determnes incremental capacity value should be added
to the operating reserves product as proposed by staff, the Company's
recommended values using a modified staf method are as follows:
Prduct 2011 2012 2013
Operating Reserves $5.4 $6,0 $6.3
Economi Curaihent $3.6 $4.0 $4.2
System Integry $0.1 $0.1 $0.1
Tota $9.1 $10.1 $10.6
What conditions does the Company note in conjunction with its proposed
contract values?
The proposed contract values assume Monsanto wil enter into a contract with
2646
Rocky Mountain Power
.
.
.
1
2
3 Q.
4 A.
terms and conditions equal to those found in the existing agreement and that
Monsanto's load characteristics remain similar to historical patterns.
Does this conclude your rebuttl testimony?
Yes.
2647 ..,.., n ,.'- ,.,.~~
Rocky Mountain Power
.
1
2
3
4
S
6
7
8
9
10 A
11
12.13
14
is
16
17
18
19
20
21
22
23
.
Pl.... yo.. .. ac ad prt poa wl the
Compay (.. re to . Ro Mo.. Power).
My na is Pa H. Clemen My bu ad is 201 S. Ma Sute 2300,
Sat La City, Uta 841 i 1. My pr poon is OrrlPowe Ma,
fo PaCoip En.Pa En an Ro Mo Power ar
divioo ofPaifip (th Coy).
How 10~i have yo be iD yo pret poa?
I have be in my prt poti si Deba 20.
Plea de yo edaeaa ad 1M*.. apce
I have a B.S. in Bu Maem fr Bri You Unierty. I hae
be emloyed with PaifCoip si 200 as an origitopowe ma
rensible fo neti inblè re spia contrts ne
qu failty cont an mag wholese or ma-b en aD
caity co wi oth utities an powe maet. I wa th Comp
retae who neti tl'200 an th 2007 th 2010 electrc
se ag with Mon. I have mied al Mons co-
relate is si la 200. I al woded in th meha en ser for
apxily 12 ye in prci an st, oritin. an tr roles
for Du En aD Dlva
Wh is th pu ofyov teay?
Th pur of my teny is to prvi a remmeat an anis
re the ecnOc vaua of th interruptible pr otf by
Clem Sup - 1
Roky Mo Power
2648
.
Moas to th Co to esli th contrt rate for Moto st
Jan I, 201 I. My te wi ad th followig ar:
. prvide an exlaon as to why th Compy is fi suleml
teny on Mo's ecmi evn an th Coy'sreon;
. prvide an overew of th key drve to co in val inle
prts;
. ide th ke fato th in th va of the vaou intemiptible
prts Mon prvide
. prvide a1 overew of th meloes an th ecno mols th
Comp ut for eah inble pr in ord to il th
valtb Coy is reen to prvide Mous whch is
cons with th co of ob the sa inle prts fr
oth soui an
. su th rets of th oc mols an prvi a
remmatn on th ecmi vae cons with th inle
prts be off by Mon st on Jan 1,2011.
WIy is Ree Moua Power fi sappta tey on th vae of
inleptbl pro.. offer by Mollto at ti ti?
Th Compy ba be in neDS with Mon on th ecno
evuaon an the vaue orth intClruptible pr sin Ma of th ye.
Whe th Compy an MoJLto (" Pa") baebe ne in go
fàth to re agt on th melo an th ecc evuan to be
Clemen Su - 2
Roky Mo Power
2649
.
us st Janua I, lOll, th Paes have no be able to Rah ag
on th melo or th va. In Ca No. PAC-E-0 Or No. 30197
("t Oi, th Commiss re Mon's fu ra be su to
ta adusen af Jan 1, 20, to fata fu ra ad~ an
be algn Mons's ra with th co of see. Th Ol al,
regn th th th interruptibl pr un th cu cO
te Deem 31, 2010 (" Coti prvi op bets to
th Compy. Th Cosson re th th va of th interniptibl
prts prvi by Mon as well as Mon's co of se wo be
imrt considoo in es th ne ra to Mon in an fu
contt. Tht is why th Co or "we ex th pa toad
inteble prt vaua in th cot of a gen rate ça wh
Monto's co of sece is de " (Or at p. 9). Th Comp is fi
its remmon as a baks 'in th even th a seem'is no re
with Moto an th Co is re to ev th ev an
as a val to th inble pr fr Mo in or to de
a ne ra for Mon sta Jan I, 2011. Th Comp's
remmtion wi alw Mons, Comm St or ot pa to
rend to th Comp's inor in tldiree te an to hae th
is ad as pa of th ca as it pr
How ar M....to'. Îltept..cl tr ia ti C..y's
apptiB?
Th Co ha inlu Mo's inb1e crt at th cu 2010
Clem Su - 3Roky Mo Powe
2650
.
contrt amunt ba on the Or as a ne power cost exp. The Comp
se two optons to imlement its retion; eith th exp coul be
upte ba on the Commsson's deton of th intemiptible vae in th
cut prg or, sine th ne vaue woul not be effve unti Jan i,
2011, the 2010 va could be left as pre in th Compy's fi an th
differe woud th be captu in the en co adtm mecha.
en Co..ts OD Valn oflDteptle Prct
WIat is the uDdg pricip bed tbe Compuy's approac to the
eeilmi evadoD of iDterrpt proet tht ar offer by iDst
custmer?
The Compy follows a "cusmer in" aph wh va
inteble prts offer by intr cutome. In oth word th
Compy seks to pay in custome wh ca off inble prts
th sa prce th Comany would oth pay if it wer to ac th sa
prts fr ot souæ su as th maet or its own rees.
WIy is it impot to price iDterpt pret th iDdus custmen
pnmde eo.siRt wih the price tie Compay would pay to se.ire the
sae prct rrm otr sour?
Al cume ar al th prrtonate sh of pntly incu cots
by th Com. Th prce pad to in cume for inble pr
is inlu in net power costs whch ar alocte on a syst bais to al
cume. 'Ifore if the Compy pays in cusmer more for th
inteble prts th it would otb in ac thse sa pr
Clemen Sup - 4
Rocky Mouta Power
2651
ftm anth so. al cume wo not be payi th lea co for en
an wou be suizing th in cume who prvi th prts. 'If
ths wer to ocur with Mo. oth cu in Ida as well as cume
in other st wo be al high co th if th eoy wer to
acui th sa inle pr frm th lowes co re avle.
Thfo in ord to maint fi to al cume th pnce pa to
in cume. an in th ca to Mons, for intele prts
shuld be no gr th th amt the Compy woul in if it wer to
acui th sae pr fi th next lowes co avale re. Th
Compy us th ii prple in its aph to vaue inböle
prots prvide by in cuer.
Ar ii euaen fa eompete for ti. pret aDder tJ
approac?
Yes. In cume ar fay cote for provi th pr
an oth cume ar ii as to whe th pr ar prvide by the
inl cume or frm other re. If th cr pa to th in
cume is beow th co of obt tb pr elshe, oth cu
reve th beefit at th in cusme's ex. If th crt pa to th
in cu is abve co of ob th pr el oth
cusme ar prvi a su to th in cu.
.'Cl Sup - S
R. Moun Powe
2652
.
1
2
3
4
5
6
7
8
9
10
11
12.13
14
15
16
17
18
19
20
21
22
.
Plea deabe Mollto'. hiri appro to eontret for its
interptible Prouet and the asted impUeatins for the valation of
thes proet
Mons ba always exec shrt te agrts with PacifiCorp,
histeay five yea or les, for its intetile pro. Th coti
aph rets in th vaue of the inptble prots be dnven laely by
both th cut mat va of th prts an th Compy's reen
for th intetible prots at a given point in tie in which the vaue is
de The ma va of th intetible prts ca be volae as th
en maets go thug cyles of over an un caity utlizatin. In
adtion, the Compy's rets fur th inteptible prts offer by
Mons ar constay cha as loa foreas chae an th Compy
acui new rew:es to mee its oblitin to see. Mons's sh te
contg apach lea to vailty in Monsto's inteble prt
va, with th vaue someties be high th th long te cost of si
pruc an someti lower th th lon te vaue of si prts
eniew of the Inteptl"ble Prct Prvi by Monsato
Plea IIma tie ÌDtemptle pro provi by Monsato in
Monsato's eut eontr
Th curt Monsto cotrt provi th prts:
1. Non-spinning Opg Reerv. Monsto prvide 95 mewatt
of no-spin ope rees avale for 188 hou pe caenda ye. Th
Clements Sup - 6
Roky Mou Power
2653
.
Compy hold ope rees to, rend to UDt ou an main
rety.
2. EC0 Curlm. Mons prvi 67 megwa of ec
cu avale for 850 ho pe caen yea for 2010. In prous ye
Mo ba ty alwed fo arun 80 ho of ecJ1 culmt.
TI pr alows th Co to cu Mo's lo on a twhour no
fo an re
3. System Intety. Mon ca prvi up to 162 mewa of
sy inty in du a volta even an is avale 12 ho pe
caen ye. Th prt al alows th Co to cu Monto,\l to
9S mewa follwi a dole co even wb is defi as two or
mo over fo out ofJa Com geti as with 48
ho.
ey Fae Th Impa ti Vale of M..to's Iatept Prct
Wht ar tI major fan ti ii ti vae of ti ti pr
ofer by Moto?
Eah of the th pr offer by Moto ba a UDqu se of fars tht
esli th vaue of prvi tht pr to th Co. I wi ad eah
pr inviduy:
Noi-8ng Opng Reer
Non-sp op rees ar de as re di'ca be
brt onl to see lo with 10 mi In adti to genat
re tht ca me ths re by pr mo en wh ca
Cl Sup - 7
Ro Moun Power
2654
upn with 10 miut non-sp ope ree reuients can also be
met by us cusmer loa th ca be cued with 10 mite. Thfore,
the vaue of an opeti ree meawa is eq to th va tht could be
reive for th sae megwa if it wer not se as for opti rees an
inte sold to the maet Op rees ar tyicay held on the
Comp's ex reur whih could inlud ga unts hy unts or co
unts Ga unts ar tyicay the pri provide of ope rees fo th
Comp, alon with exist cont betwee the Compy an la
intr cume.
Th cot or va of ope rees is bet deribe as an oprtty
cost or "what if,proposition. Sin th mewa is us for ope rees
inte of the ener be 'sold th pri drver of vaue is th lost
oppty cost of using tht megtt for opeti rees. Th ke fars
tht imt tht opprtty co for ga hyd an coal pla ar: i) th vae at
which th megwatt could have be sold to ma; an 2) th co inur to
gete th mewatt Th dift is th prfit or ma on th gen
Rluie. For a ga pla th ma or prfit is pry de on two
thgs: the price of natu ga an the prce of ener in th maket al knwn
as th spa sp les vale opti cost. Thfore, sice th vaue of
opeti rees held on gas plats is dep on th'spar sp of the ga
pla th vae of opeti re is corrla not only to the ma prices
for en bu al to maet pres for na ga. The followi cha
.Clets Sup - 8
Roky MOunta Pow~
2655
.
1 ilustrs how th vaue of opeti rees is tied to th sp sp on a ga
2 plat.
Impact of Spark Spead on Operati Resrve Valu
r- Maet pr Is $5/Mh L
Usi th unbop reinea of seat mar -co-$151
.. Run th un anse at m. prcr$151 in vato th cu
Th to co toru th unisS4Wh
Th va opco ofth tI is $4
ll Bat Ra Ga PI
Sin the ma of a ga plat is dede on bo ga an en
Th unit co$4 in
ga at an 8,00 bt he ra
an S5.OOMbga pr
price it is qute possble to hae a sceno in which the prce of en in
an th prce of ga inre by th sa amoun reti in the ma or
profit on the ga plat to stay the sae. If ths is th ca th value of opeti
rees will stay th sae be ev thugh power price wen up, th cost to
proe th ener (the ga cot) went up 88 well
Anther sco inlud a sitution wh th maet prce for ener
in but the m.et prce for ga in by a laer peen. Ths is
knOwn;88 a nawi of the sp sp If the spa sp naws the
ma on th ga pla actuy de even thug power co ar
increin, an the vale of ope rees al de. Th followi
Clem Sup - 9
Roky Mounta Power
2656
,.
.2
3
4
S
6
7
8
9
10
ii
12
13
.
1 cha ilus su a sc. .
Im.. R.. Vlhl CM in 8_ S..
1S701 I
a.- Hea RMGM..t ..1I..GM..
Anther fitor tht imts the va of ope rees is th adtin
of ne generti reui. If ne genti re ar aded an th
generti reun can ca op rees more ecnoca tb.th
gen re tht caed opti re pror to th adtióB of th
new gen reure, op rees va may go down rees of any
chage in ener price.
Sin 2002, th Comp ad the S4 meawatt (apxite) Cu
Crek unt an the S60 megawatt (apxi) Laesde unt. Th combi
cycle plats along with the 3S5 mewa (apxi) Ga cobu
tu an st boiler unts provie 1,455 megwa of ga fi caty.
De on ga pr th unts ar oft the mot ecnoc ge
rees on which to hold opeti rees.
Clem Sup - 10
Roky MoUn Power'
2657
..
1 Ecomic Curtlmnt
2 Th ecnomi culm pr off by Monsto alws th ,
3 Compy to cu Mons on a 2-ho noti for any re Th vaue of th
4 ecmi cu pro is ditly rela to mat pr fo en si
S cur Mons alws th coy to avid ma purha. Ba on th
6 nube of hour of cur Mon prvide th Comp is able to avoid
7 maet puha du ti of pe us in muti mont th th
8 ye. Th va of th ec cu pr Mons prvide is eq
9 to th maet vaue of en du th hour in whh th Coy
10 anip cubnt of Mon's loa Th th va of th ecmi
,
11 cu pr is mo hevi in by th un ma pre for
12 en..13 System Integrty
14 Und th te in th cu co th COmp may cu,9S
is mewat of Mo lo if th Co siultay in th fo
16 oue of SO meawat of gen de a "double conten even, or
17 162 mewa of lo for a volt re ev Th pr is knwn as th
18 sy inty prt Th prty ofa dole coen even
19 oc is eq fo al ho of th ye. However, th Coy value th
20 . sy inty pr us th avge onpe pr fo th ca ye.
21 Th aph asgn more va th wou be asign us an avere pr
22 for al hour of th ye, bu th va be re th prtMoa is
23 prvi to cume be th Co woul mo likly uti th
.Cl Sup- 11Ro ~ Powe
2658
1 pr on pe ho Th si to th ec cut pi
2 th un maet pr for en is th mo influentil fa in th va of
3 th syte in pr
4 Over oftle Mod Use by ti Compoy to Vale Moaato's 1Ipt
5 Prct
6 Q.
7
8 A.
9
10
11
12
13
14
15
16
17
18 Q.
19
20 A.
21
22
23
Bow ,di tle COI""y ap tle val.ad. of ti iD pruct .
MoDs prvi as it re to . De eotr fo MoIl?
The Coy be by ev whh moels woul yid a re th is
consen with th in priple out eaer in my teny in
which th inteble pr prvi by Mo equa th cost th
Compy wou oth oc if si prts wer to be ob ftm
ot soures. Th Compy ut two mo to ca th cost of
obta fr oth so th sa intile prts th Mo
otTer Thes two mols ar th followi: 1) th Frot Ofce mol an 2) Th
Geon an Reon Intive Deison (GRI) mol Th ecnomic
an permed by thes tw mols pr a ret tht en th
Co is iner
Wly di the Co.paY ut more ti ODe mod to se th va iD of
re OD tle re of. si 1I?
Th ar may diem fa an in th influen th fo va of
intele prts. Eah pacul mo ut by th Coy ca a
rele majorty of thes fars an in in its an an even ifus
alne. eah modl coul be coid a fa as of value for th pr it is
Clem Sup - 12
Roky Moun Powe
2659
1
2
3
4
S
6
7
8
9
10
11
12
13
14 Q.
is
16
17 A.
18
19
20 Q.
21
22 A.
prci However, eah mol ba ce fators an in th it me an
an with so level of pr an oth fa an in th ar no
me as wel as th ar in th oth mo. For exle, on mol us to
vaue op rees may do a thro job of anyz th cot of hold
rees on th Coy's ex re poli, bu th sa mo may
not inra th Compy's over ne fur op re in any gien
. ho in its anys A se mol may thghy inrate th Co's
ne in any given 1i bu may not mea th value or cost with as mu
prision as th fi mol Th~ the Coy believes a more ba
aph is to ut both mols in Ol to ma su an fa an in ar
apprly coid wh de th value of ea intible
pr Th Compy th ca de a prpo vaue for eah
inteble pr af ev th rets of th vaus mols.
Have oy of th mo.ud metlo .se by tie Coiny ia it rect
an be use to dfle ti vae il pre Mollto coutr
and ia eoDtr witl oter iaust camen?
Yes. Th Compy us th sa mees it us in its re an to
esli va in preus Mo contts an in co with oth
in cume wh off si prts to th offer by Monsto.
Wh was ti da of the pri eoe .se by tie COIpay ia it Frt
Of od GR II aa1
Th Coy us th Jun 30, 2010, offci furw prce cue.
Clem Sup - 13
,Ro Mola Power
2660
.Clem Sup. 14
Roky Mo Power
2661 .
.
Mod ($ .UU)au iw ¡w
Front Ofce $2.4 $3.2 $3.7
GRI $2.4 $2.7 $2.8
Aver.$1.4 $3.0 W
I
2
3
4
5
6
7
8.9
10
11
12
13
14
is
16
17
18
19
20 '
.
Please provide a deed exlaOD of tie modl metloes for eah
mo us to vaue tie opetli ree pro1let
Front O.ce Model
Th Compy's Front Ofce mol detees th ma or
inreenta cost of providi opti rees frm the Compy's exti
generti reur portolio. Th mol detees on an houry ba th
most economic or lea cost me by which the Compy ca prvie ope
rees. From a custoer's petive. th meth det the relacent
cost or opprtty cost of the opetig ree megawa prvided by Monsto.
Th sp beee th maet pre for en an the hies cost in-th
money ree frm the ree stak detes th opprtty cost ofhold
opti rees. Th rere what th Compy would be wi to pay on
bef of cutome for the next mewatt of opti rees if it need to
ac adtiona ope rees.
GRID Model
The GRI model provide a sys-wide view of both the ne for
opetig re an th sy inta beefit of prvidi thse
opeti rees on an hour-by-hour bais. Th GRI modl inlud the
exiti ge portoli of Coy reur whih inludes Coy
own physica aset power puiba agts an contr for intetible
Clem. Sup - 15
Rocky Mounta Power
2662
.
prts (suh as op rees) with ot in cu OR
do th am of 0pe rees th sy reui an th
alocte reur to me th re GRI al op re
on th pla th ar hi co to lowes co be it is le oxve to
ca rees on high cot re.
To de th value of MoDSto.s ope ree pr a ba
ca GRI ro with Mon.s re is peormed Tl Moas's
op ree contrt is ad at "z cost an the mol is re Th
die be th two stues is th vaue of th 0pe re co
Th va re th vaue of th hi co or mo expe, opti
rees th wou no lon be re ifMo.s ope ree pr
is availeiD Th Co us th GRI mol to de ne
power cots in th ra ca inlu th co of th Compy's op
rees. Sin Mo's intemiptible crt is inlud as a compen of ne
power co, it is loca to us th sa mol to de th vaue of th '
intible prts prvide by Mons.
DI the Compyeeosr an adaa mo or meod for us il
deg . vae fo tie opg ree pruct?
Yes. Th Comp co th us of a comple saes mol in which
contrt'pr fr reeny exec co with oth la cume wh
offer non-sp op rees un te and cotins si to thse
in th Mon cotrt ar us to se th va of the Moto opeti
ree prt. Th Compy de th it wa mo ap to us
, Clei Sup - 16
Ro Mou Power
2663
..
1
2
3
4
5
6
7
8
9
10
11 Q.
12
13
14 A.
15
16
17
18
19
20
21
22
23
tb mol as a vercation of relenes of th Front Ofce an GRI
mol rets as opse to a moel tht is us to se th vaue. Th is du to
th fat di th comple contrts wer execut at ti in wJh th ma~
prce an Compy syste geerti reures wer dier th wha th
ar toy. Th Comp al coide usin a pe re to va th
inle prts be prvide by Monsto but de th apli
ola peer reure in val opti rees was not appr du to th
di in th pr te an cotions di Mons is cale of
prvig the Compy as comp to th pr te an condon th a
peer reur is able to prvide the Compy.
Pl provi an over of ti eolDJNbl sa mo naho and
re and why they am be ase as a rereee pot DI ev the FrBt
Ofee and GR mod re
Sin 200, th Compy ha en into two contts with la in
cume for non-spii opeti rees. Th fit cont was exec in
late 200 an ba a te of seen (7) ye st in 2007. The se cot
wa exec in la 200 an ha a contt te of fie (5) yea In both
contts, th intr cume off a non-spin opeti ree pr
tht is si to th offer by Monsto. The price in th co co be
us as a reer point for prcing Monsto's non-sii ope ree
pro be th ret the prce at which in custo si to
Mons ar wi to ente into op ree agren fo th 2011
thugh 20 13 tie pe However, th contr wer execte at ti wh
Clen Sup - 17Roky Mou Po
2664
1 th maet cues th sp sp an th Comp's sy ge
2 reW' wer not the sa as th ar to. Th de of th compble
3 saes ao ar as follows:
Co.tr Ter 01..#1 Cus..#1
Cot Sign lat 200 .la 200
Cotrt Ter 20-2013 2010-2014
Megtt Avale 85MW l00MWfor CulmtHour of Cut 70 ho pe yea of 100 ho pe ye ofeu (cot culm
al 130 hour bu
on 70 ho ar seas for rees)Noti of a cuen 7 mi noti 10 mi nofòr an opeti reein .on
Qued as a non-Yes Yesspin operee
Val of Opg Intiy se at $4.01IkW mont
Rese Crt $4.161W moth
Crt for 207-2010
ba avered $4.25IkW
moth
Is crt fied or Cre ad over th Crt is fi for th .varle te eah yea by th en 5 yea tesa pee
cbae as Uta gen ..rate in th prus
yea
MouutoVah 1Ig Pr Ec8I to tla COIra
Op ReseCret ($IW mo)$4.25 $4.01MonsMW
95.00 95.00
TotaS .,. 0,.._$41.-
Avena A.
Clem Sup - 18
Ro Mo Power'
2665
.
1 Q How do the re of ti copa saes model eompa to th rets of
2 tie Frnt Of an GRI models?
3 A Th tale below comp th rets of th Front Ofce~ GRI au cole
4 saes mols:
S
6
7
8
9.10
ii
, 12
13
14
LS
16
17
18
19
.
Mod ($ mll'ogi)
Front Ofe
GRI
Comple Saes
im
$2.4
$2.4
$4.7
im
$3.2
$2.7
$4.7
Zl
$3.7
$2.8
$4.7
The comple saes mol re ar clo to an su th Fro Of an
GRI mol rets bu ar high pry due to th fa th ma prce
wer hi an sp sp whe wi at the ti th co wer
exec Sin the en maet sp sp an sys ge ree
condtions have chage the rets of th comple saes mo aph ar
be us as a refee poin to chek th more uptote Front Offce an
GRI mols.
Plea provi an overew of ti peei reurc evaln me
an why it is DOt approprite to us in cl tie vae of opetig
rees
It is not apro to comp th Mons curen cotrt to a
combon tuin peer be th prts te an condtions th
Mons offer ar may dier tì the prts te ao condti
avle thugh owi or lea of a combuon tuin. Th tale below
prvide a sile con.
CI Sup - 19
Roky Mounta Power
2666
MolltoIDtept Combst.Co.tr TarbeOp ree anua availi 2.1%96.0%
Op ree an avale ho 188 8,410
Ecnomic disptch an availty 9.1%96.0%
Ecnomi ditch an availe ho 80 8,410
Load followi rees an avaty O.()Jó 96.()Jó
Lo followi am avale hour 0 8,410
Spin rees an availty O.()Jó 96.()Jó
Spin rees an avalae ho 0 8,410
i The peer re melog uti th caita an en co of a ne
2 combtion tuin (a simle cycle ga tuine pe pla) as a ba for
3 dete th value of th nospin op re pr Th moel
4 is not apropat to us to va th non-sin ope rees pruc
5 offer by Mon beus th pr, te an cotion Monsto offer
6 ar no eqvalen to th prots te an condns avale thug
7 ownp or lea of a coon tu. A combn tue prvide
8 maly differt prts th ar more vale to cusme th the
9 Mons intible prts be a cobuson tuin is avale to
10 custome for th bet 8,410 hour pe yea, as a 96 pet
II avaiilty fato, whie Mon onl offer 188 ho of inteon un th
12 opeti rees contt an'800 hour of inn un th'ecmic
13 cut cont FurreMons is uoble to prvi loa followi
14 se spin rees an oth prts tht a combtion tuin
Clem Sup - 20
Roky Mo Powe
2667
1 prvide. Th di beee th prÐL te an cotins Monsto
2 offei an th prÐL te an coti avaie to the Coy tb
3 own or lea of a comb tu ar to si in sttu an in
4 vae to wat a con for us in det vaue fo th Mons
5 intetible prts
6 Economi CUJeDt Pr V..
7 Q. Ple siim ti .. of ti ID use to vahe ti eenomi8 eurt pr
9 A. Th tale below sum th rets of th invi mols an inlu th
10 averge value of al th moel rets
Mol'..)mi 1m im
Front Ofce $3.9 $4.2 14.3
GRI S3~2 S3.8 S4.l
Aver 536 54.0 So
11 Q. Pl provi a de es of tle II me fo eah
12 II Us to vae ti ec-. aueat pruct
13 A. Front Ofce Modl
14 In th Front Ofe moL, th ecmic cut pr is prced off
15 of th maet vaue of en over th ho in whih cut is anip
16 Cuent is ex to oc in th highes pred ho whh is de
17 by th cut forw pre cwe an th Compy's cu ho sc
18 Monsto is comp with 100 pet of th maet val of th en
19 du th hour in which culmet is anpaed to OC\U. Th mol as
Clen Sup- 21
Rocky Mou Powe
2668
.
1
2
3
4
5
6
7
8
9
10
11
12.13
14
15
16 Q.
17
18 A.
19
20
21
22
23
.
,
the Compy wi be able to opti th cut hour an always cu
du th hi prce hour
GRJDMod/
The GRI modl prvide a sysem-wide vtew of th befit of providi
th ecnomic cuent prt on an hour-by-ho bais Th GRI mol
in1ues the exsti portolio of Compy reures which inlud Copay
own phys as power puha ag an contrts. To dete
th value of Monsto's ecnomic cuent pruct, a ba ca GRI ro
without Mo's re is permed Th Moll's ecnomic
curent contrt is aded at "zer co an th moel is re. The
diff betwee the tw stes is th va of th ecnomic curent
contrct. The Compy us the GRI moel to dete net power cost in
th ra ca. Sin Mooto's interruptible cret is inlud as a compnet of
ne power cost, it is logica to us th sae moel to dee the value of the
inteòle prts prvide by Mons.
Did ti CompaY conser oy actiDalmod or metodlo fo ase iD
determilU a vae for tbe ecnomi eurteat product?
Yes. Sim to th ope ree prt considtin, the Compy
code usin the value frm a peer reur compson but agai
dete th aplicaon in esli vaue for ecnomic cut wa not
appropr du to the diff in the prts te an condtions tht
Mons is cale of prvidi an the prts te an condtions th a
peer reure is cale of prvid, as desbe eaer in my tetiony.
Clem Sup - 22
Rocky ~ounta Power
2669
.
1 m Iate Prct Valuatin
2 Plea SDII tie rets of th mo use to value tie syem inte
3 proct
4 Th tale below su th rets oftb Fro Of mol for sys inty.
.
Mod ($ grlliol)
Front Offce
28 io 28
SO.1 SO.1 SO. 1
Pl provie a de exn of tie mo met use to vaue
tbe sy iDte prct
Frot Ofe Modl
Th sy inegty pr gives PaifCorp the righ to cu
Mons wh a double conten or volta event oc Th double
conteny even is defied as two or more forc outes tota SO
mewa or more of caity with 48 hour of ea oth an mus over for
at leat aD hou. As with th ecnomic cu prt, the custoer beefit
when PaifCorp avoids maet puha to me Monsto's lo dur a
syst intety event The pr is pr usin an avei an hevy load
ho (6xl6) maet prce for en, with the ason tht the prbailty of a
syste intety even is constat th th yea. Th annual avere
maet prce is aplied to ca availe for the pr an for th fu lit
ofho for whih th pr is avale. Th GRI moel is not cale of
prcin th prt
Clemen Sup - 23
Roky Mota Power
2670
.
.
9
10
11
12
13
14
15
16
17
.
1
2 Pl Slar the re of th Compuy's ual of the vaue of
3 Mo..to's iDteptble prouct
4 Th Compy emloyed two mols in ord to ev the pnce at whh
5 cusin ar iner as to wh th inteble prt is prvi by
6 Mons or prvide trm anth so. The mols prpey acun for th
7 pr fato th inu, th val of th varous intible pr. The
8 model rets ar sued in th followi tale:
Su..ry of Aver Mo Res
Pret iu BU iw
Optig Reses $2.4 $3.0 $3.3,Ecmic Cuent $3.6 $4.0 $4.2
Syste Integrty SO. 1 SO. 1 SO.1
Tota $61 $7.1 57.6
PI'su the CoBly's remmeaa for the ùitepte
cred to be iade ia the Moll eoat for sece eommeai
Jaauar 1,201 t.
Th cOmpy remm ta th averge rets of the Frot Ofce an
GRI modls tht wer us to pnce th ope rees an ecc
cuen pro as th ba for a crt fo th two prts. Th
Compy reomm usin th re of th Frot Ofce mo as a bais for
the crt for th syte intety prot The' Compy remm a tota
crt to Monsto for th th prts of $6. 1 mion in 201 1. If th te of
Clemen Su - 24
Roky MouiPower
2671
.
1 th ag cover 2012 or 2013, th th Coy reen va of
2 57.1 min an 57.6 mi revely as shwn in th tale belów:
..ct D1 mi ¡w
Opti Rees 52.4 53.0 53.3Ecmic Cu 53.6 $4.0 $4.2
Sys In1ety $0.1 $0.1 $0.1
Tot $61 $7.1 57.6
How lO shld tie pr fO ar reeadig be in et?
Abst an agt beee th Coy an Mons on a cotrt len
th Coission OIer prin sh be in efec un ra cha in th
conte of th ne ge ra ca or ot apiate doke pry beor
th Coion.
Sho1l ot ter of th eotr da... at tJ tie?
No. Theva reen by th Coy aply ony if Mon prvi
th sa intible pr un th sa te an condti as thse
foun in th Contr with th ason of 80 ho of ecnomi cu
C.. you provide aDY adti... eYce to su tJ val?
inCa No. PAC-E-07-OS, Co Stapr a vatime for
Monsto's intertible pr in which th va or crt inlud in th
exiti contr is us as a st poin an th an adjus is ma to'tb
value to act for chaes in th maet cues th have oc si the '
ti th th va in th ex cot wa esbl Sta remm
th aph be aplied to al th prts: ecnoc cu opeti
rees an sy inte. Th Co do not believe th me
acly val th inteòle pr si ot fato be maet
Clem Sup - 2S
. Roky Mowta Power
2672
.
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
.
price inuene the value of the intible prts. However, ths apprh
remmended by Commion Sta ca be used as a poin of refer in
evaluatig th dition tht inteptible prct val ba moved si the last
contrt wa execute Therfore, the COmpY peorm an anyss usin th
aproh suggste by the Commsion Sta In June 2007 when the cut
tbyea Monsto contrt wa negtited the aver prce of on-pe ener
at Palo Vere for 2008 thugh 2010 (the te of the neotite contrt) was
$73.08 pe megawatt hour. In Jue 2010, the avere prce of on-pe ener at
Palo Ver for the th yeate 201 i thugh 2013 is $50.27 pe megawatt
hour. Ths is a declie of 3 i peen In oth word th value of a tbyea
stp of ener ba dec by 31 pet sine the lat Monsto contrt was
negotited' Th refer point surt the fat th intemitile prouct vaue
ha dec since the lat Monsto contrt was execte
If the Collon do DOt Ise a rug on the vaue of Monsato's
curtent product by January t, 2011, what should happn?
The Contrt betw th Compy an Mons en Debe 31, 2010.
Abst a Commssion decision or stiulaton beee th tw paes relvig
the matt, ther wil be no contrt in pla gover curent or obliga
the paes to any contr te Therfore the Compay would have no ngt to
cuil Monsto and Monsto woud have no cla to value or competion
for intetible pr it curtly prvides th Comp. Be Jan
1, 2011, Monsto will reeive a bil at th Commion detecost of
sece rate for their ener use with no off for th inteble prts
Clemen Sup - 26
Roky Mounta Power
2673
.
.
.
i an th im to power cots wou be wed up th th en cost
2 adjust mecham actu exp in 201 I.
.3 C. Do ti eo... your teay?
4 j Yes.
2674
Clem Sup - 27
Roky Mounta Power
,
.
.
.
1 (The following proceedings were had in
2 open hear ing . )
3 Q.Have you had an opportunity to prepare a summary
4 of your testimony?
5 A.I have.
6 Q.Let me ask you, could you provide an overview of
7 the differences between the Company's and Monsanto's view or
8 approaches to evaluating these interruptible products?
9 A.Certainly. I think it's important to start out
10 where -- to discuss one area in which the Company agrees with
11 Monsanto, and that is Monsanto and the Company both agree that
12 the Monsanto interruptible products defer resources of some
13 type. The primary area of disagreements is exactly which
14 resource is avoided or deferred by Monsanto's interruptible
15 products, and that is a key difference, because the value of
16 the resource is what will establish the contract value. The
17 issue is really quite simple, even though there's been much
18 testimony and discussion filed in this particular docket:
19 Monsanto thinks that they avoid a combustion turbine, a simple
20 cycle combustion turbine. This is simply incorrect. They do
21 not.
22 The Company has shown through its integrated
23 resource plan studies, through its GRID analysis, through a
24 review of how it operates its system, that Monsanto does not
25 avoid or defer a simple cycle combustion turbine. The
2675
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
CLEMENTS (Di)
RMP
.
.
20
1 differences between a simple cycle combustion turbine and the
2 products offered by Monsanto are significant and must be
3 considered.
4 Q.Let's go directly to the testimony that was filed
5 as surrebuttal testimony by Mr. Collins, and in that, he takes
6 the position that the methods that the Company has used with
7 GRID and front office models to evaluate Monsanto's
8 interruptible products produce flawed results. Do you agree
9 with Mr. Collins?
10 A.No, not at all. As I've discussed, the key
11 difference is Monsanto believes they avoid a simple cycle
12 combustion turbine. They do not. Therefore, the Company
13 determined which resources Monsanto actually defers or avoids,
14 and the Company's GRID and front office models are able to
15 calculate what those resources are and what the replacement
16 costs of those resources are. Therefore, the Company's
17 analysis correctly calculates the avoided or replacement costs
18 of Monsanto's interruptible products.
19 Q.Mr. Collins also asserts that the Company failed
to avoid failed to consider, excuse me, the avoided capacity
21 resource value of Monsanto's interruptible products. Do you
22 agree with that assertion of Mr. Collins?
23 A.No, I disagree with that. The Company's models
24 include capacity value. They include the capacity value that's.25 reflected in the current market conditions, and this is an
2676
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
CLEMENTS (Di)
RMP
.
.
.
1 important distinction. Since no combustion turbine is avoided,
2 it's inappropriate to use capacity costs or value of a
3 combustion turbine to value Monsanto's interruptible products.
4 Furthermore, the Company -- in my rebuttal
5 testimony I set forth a second method or proposal from the
6 Còmpany in which I set forth the scenario in which if the
7 Commission determines that capacity value from a specific
8 resource should be applied to the Monsanto nonspinning
9 operating reserves product, that Staff witness Hessing's method
10 as he has proposed has merit provided that two significant and
11 important adjustments are made to that method. In both of
12 these proposals made by the Company, capacity value is
13 considered and included.
14 Q.Another point that Mr. Collins makes in his
15 surrebuttal testimony is an assertion that the Company utilizes
16 the Monsanto interruptible products in the same manner that the
17 Company utilizes the combustion turbine. Do you agree with
18 that position of Mr. Collins?
19 A.No, I do not, and this is really the key argument
20 in this entire case in my opinion. They are not equal. A
21 combustion turbine is more valuable than the Monsanto
22 interruptible products, and I'll provide a couple examples of
23 why this is the case. A combustion turbine provides many more
24 products than Monsanto interruptible products, and I'll give a
25 brief overview of some of those products today.
2677
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
CLEMENTS (Di)
RMP
.
.
.
1 One of those products is a product called
2 automatic generation control, and this is a product that the
3 Company uses to respond to instantaneous changes in load and
4 resources. The easiest way to think of this is when someone
5 turns on a light bulb, we need to react somehow. And automatic
6 generation control reacts immediately. Combustion turbines can
7 provide this product.
8 A second product is a load following product.
9 This is also known as reg up or reg down, and this is a product
10 that responds to changes in load and resource balance within
11 the hour. A good example of this would be if it's an extremely
12 hot day in the summertime and we have a storm cloud go over a
13 maj or city, air conditioner load will drop for a period of ten
14 to 15 minutes while our homes are shady. During that time
15 period, we need to back down some resources to respond to that.
16 That's a load following product, and combustion turbines can
17 provide that product.
18 Another product is a spinning reserves product.
19 This is a product that comes into play when one of our units
20 trips off-line unexpectedly. So if we're operating during the
21 day and we lose a unit due to equipment malfunction or for some
22 other reason, we need to replace the output of that unit fairly
23 quickly. A spinning reserve product starts to replace the
24 output of that proj ect or that unit that tripped off-line
25 immediately and begins to move immediately to replace that. A
2678
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
CLEMENTS (Di)
RMP
.
.
.
1 spinning reserve product can be provided by a combustion
2 turbine, it cannot be provided by Monsanto.
3 These products that I have described are all
4 needed and required by the Utility to maintain safe, reliable
5 service. A combustion turbine can provide all of these
6 products. Monsanto cannot provide these products either
7 because they do not qualify under the WECC -- the Western
8 Electrici ty Coordinating Council -- definition of the product,
9 or they don't have the physical capability to provide those
10 products based on how their furnaces work.
11 Q.Are there other significant differences between
12 Monsanto's interruptible products and how the Company would
13 operate a combustion turbine?
14 A. Yes. The other significant difference is the
15 amount of time that the product is available to the Company. A
16 combustion turbine is available for the Company's use in excess
17 of 8,000 hours per year. A good example or analogy I like to
18 use is if you own a home, the home is available for your use
19 year-round. If you have a time-share where you're only
20 available to use that property for two weeks out of the year,
21 you're limited to that two weeks. That analogy applies here
22 and when looking at the difference between Monsanto and a
23 combustion turbine. We're limited to a thousand hours or
24 roughly a thousand hours of curtailment or interruption with
25 the Monsanto interruptible products. With a combustion
2679
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
CLEMENTS (Di)
RMP
.
.
20
1 turbine, we can use that turbine year-round in excess of 8,000
2 hours if needed. And that's a significant difference that must
3 be considered when assessing value.
4 Q.So to just catch up with you, if I take 365 days
5 in a year times 24 hours, that's going to get me to 8, 760
6 hours?
7 A.That is correct.
8 MR. BUDGE: Excuse me for interrupting. I think
9 we've gone way beyond a brief capsule summary into a
10 rei teration of the testimony Mr. Clements has filed that we all
11 have available and have read.
12 MR. HICKEY: We're about finished, Madam.
13 COMMISSIONER SMITH: Thank you, Mr. Budge. I
14 think I'm going to allow him to finish.
15 MR. HICKEY: Thank you.
16 Q.BY MR. HICKEY: I'd like to focus on the thousand
17 hours that you mention that Monsanto interruptible products are
18 limited to, approximately a thousand hours per year. Is
19 Monsanto physically interrupted a thousand hours per year?
A.No. This is a key point to consider. The
21 contract allows us to interrupt Monsanto approximately a
22 thousand hours per year, and just to clarify there's been time
23 periods where that amount has been as high as 1,050 hours per
24 year but I will speak to approximately a thousand hours per.25 year.
2680
HEDRICK COURT REPORTING
P.O. BOX 578, BOISE, ID 83701
CLEMENTS (Di)~P
.
.
.
1 A good portion of that interruption is based on
2 the economic curtailment product. Typically, that's around 800
3 hours per year out of a thousand. Monsanto has the ability to
4 buy through and quite often does buy through and continue to
5 recei ve service with the economic curtailment product.
6 Turning to the operating reserves product, that
7 is available for typically 188 hours per year. That's what's
8 in the existing contract. The Company typically experiences
9 between 60 and 70 operating reserve events each year, and so we
10 rarely use all 188 hours of the economic -- or, the system --
11 excuse me, the operating reserve interruption portion of the
12 contract.
13 To confirm this statement, I went and reviewed
14 the outages for years 2007 through 2009 and --
15 Q.Let's just take a minute to get the exhibit
16 handy. This was previously admitted in the first phase of the
17 hearing at the request of Monsanto as Exhibit 252. Is that
18 correct, Mr. Clements?
19 A.That is correct.
20 Q.And what did you understand they represented this
21 to be?
22 A.My understanding is they represented that to be a
23 log of the actual interruptions that occurred at the Monsanto
24 facility between the years 2007 and I believe it was through
25 September 2010.
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1 Q. And then did you review this to see how many of
2 those so-called economic curtailments resulted in not a
3 physical curtailment but yet a buy-through where the furnaces
4 continued to operate?
5 A.Yes, I did.
6 Q.Is that a contractual right under the Monsanto
7 Agreement that expired?
8 A.Yes, that is a right. In the contract, Monsanto
9 has the option of the right to buy through at market prices for
10 the economic curtailment product, and if they elect to do so,
11 the Company continues to provide energy or service to Monsanto.
12 The only difference is that their price changes from the
13 contract price to a market-based price.
14 Q. So tell us what your analysis showed.What did
15 you learn from reviewing Exhibit 252, Mr. Clements?
16 A.Well, what I learned was on average for the years
17 2007 through 2009, Monsanto was only physically interrupted 335
18 hours per year, on average. This reflects the fact that
19 oftentimes out of those 800 hours of economic curtailment they
20 elected to buy through and continue to receive service, albeit
21 at market-based prices.
22 To put it in perspective, the 335 hours equates
23 to approximately four percent of the total hours in each year.
24 For the other 96 percent of the hours on average again for this
25 time period, Monsanto received firm service from the Company.
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1 Q. Mr. Collins claims that your comparison to both
2 combined cycle and simple cycle combustion turbines is
3 incorrect. What do you say in response to his surrebuttal
4 testimony in that regard?
5 A.Well, I think Mr. Collins mischaracterizes how
6 these units actually operate. He tries to make some sort of
7 great distinction between a simple cycle machine and a combined
8 cycle machine.
9 And just to clarify that point, a simple cycle
10 machine is a combustion turbine only: You burn gas through a
11 turbine, exhaust goes out the back end. A combined cycle
12 machine is a combustion turbine on the front end, you take the
13 exhaust off the back and turn it into steam and run it through
14 a steam turbine. And so a simple cycle and a combined cycle
15 are actually not that different other than the steam turbine is
16 included on a combined cycle.
17 The main point of clarification is both of these
18 resource types, so a simple cycle and a combined cycle, can be
19 used to provide the products load following, automatic
20 generation control, spinning reserves that I discussed earlier
21 today.
22 Q.There's another position that Mr. Collins has
23 taken in this sur-surrebuttal testimony of his in that he
24 states that the Company doesn't use its thermal-generating
25 resources including combustion turbines for providing ancillary
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1 services. Do you agree with that observation of Mr. Collins?
2 A. Mr. Clements. Mr. Collins' observation, but I
3 think you were addressing me, so
4 Q.If I misspoke, I'm sorry.
5 A.No problem.
6 Q.I'm asking whether or not you agreed with
7 Mr. Collins's observation.
8 A.No, I do not. He's not accurate in how we use
9 our combined cycles and our simple cycles. The Company uses
10 our combined cycles and our simple cycles to provide all of the
11 products I referenced earlier often on a daily basis. If you
12 look at the GRID analysis that was performed for this case, the
13 GRID results show that we use our combined cycles and simple
14 cycles to provide these products. If you were to have a
15 discussion with our generation dispatch desk, they would also
16 confirm that on a daily basis they use combined cycles and
17 simple cycles to provide these products. That's why it's
18 imperative that you account for the differences between these
19 combustion turbines and the Monsanto interruptible products
20 when considering value.
21 Q.Okay. I'd like to move to the second purpose of
22 your sur-surrebuttal testimony, and that's to address some of
23 the surrebuttal testimony of Ms. Iverson. Ms. Iverson doesn't
24 agree with your comparison of the price the Company pays those
25 two other interruptible customers, Customers 1 and 2 as we've
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1 called them in the record, for their nonspinning operating
2 reserves. Do you agree with her position?
3 A.No. I believe my comparison has relevance, and
4 as we started to touch on a bit today with Mr. McDougal and I'm
5 sure we're going to discuss in detail some more, Customer No. 1
6 and Customer No. 2 have contract terms that are different than
7 those found in Monsanto's contract. Both of those customers
8 offer one product that is identical in definition as defined by
9 WECC the Western Electricity Coordinating Council -- and
10 that is a nonspinning operating reserves product. Customer No.
11 1 provides that product, Customer 2 provides that product.
12 Monsanto provides that product. Therefore, we can do an apples
13 to apples comparison of that product. That's a very simple
14 analysis to do and that is the analysis which I performed.
15 I said what price did the Company negotiate with
16 Customer No. 1 and Customer No. 2 for their nonspinning
17 operating reserves product. I compared that to the value that
18 the Company is proposing for Monsanto's nonspinning operating
19 reserve product. The result that I found from my analysis was
20 that the prices paid to Customer No. 1 and Customer No. 2
21 support or in other words are close to the price that the
22 Company is proposing to pay Monsanto for that identical
23 product. That's why my analysis has relevance.
24 Q.Just one final question, Mr. Clements: Are there
25 any other reasons that you think this Commission would be
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1 setting good regulatory policy and a just result in this case
2 to rej ect the peaker methodology suggested by Monsanto and its
3 expert witnesses?
4 A.Certainly, and this is an important point and one
5 that I don't take lightly. Accepting Mr. Collins' proposal
6 would be unfair to our other customers. The Company has
7 provided evidence that Monsanto's products can be replaced at
8 the values proposed by the Company. If the Company -- the
9 Company's objective in this proceeding was to establish a value
10 that was fair to both Monsanto and to our other customers. If
11 Mr. Collins' method is adopted and his proposed value is
12 adopted, we would be overpaying Monsanto -- in other words, we
13 would be paying more for the product than the value it provides
14 to our customers -- and the concern is that Mr. Collins'
15 proposed value would create a subsidy; in other words, our
16 other customers would be subsidizing Monsanto.
17 Q.Do you have any other comments you want to make,
18 Mr. Clements?
19 A.I do not.
20 MR. HICKEY: Madam Chairman, Mr. Clements is
21 available for cross-examination.
22 COMMISSIONER SMITH: Thank you, Mr. Hickey.
23 Mr. Price, do you have questions?
24 MR. PRICE: I do. Thank you, Madam Chair.
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1 CROSS-EXAMINATION
2
3 BY MR. PRICE:
4 Q.Okay. So, Mr. Clements, I'm going to focus on
5 the operating reserve product that Monsanto provides, since
6 that's really the only difference between Mr. Hessing's
7 testimony and your testimony.
8 Would you agree I think you've already covered
9 this ground, but would you agree that the Company labors under
10 these operating reserve requirements from NERC every hour of
11 every day, all year round?
12 A.I believe you used the term "labor," and just to
13 expand on that a little bit, I would agree that we have an
14 operating reserve requirement that we need to meet each hour of
15 the year and that is a WECC requirement. We need to have a
16 certain percentage of our thermal resources and a certain
17 percentage of our hydro resources set aside for operating
18 reserves, yes.
19 Q.Okay. And so you use all of your resources to
20 meet those nonspinning reserve requirements?
21 A.We do not use all of our resources. We have
22 many, many resources, and in any given hour we mayor may not
23 be using each one to meet our nonspinning operating reserve
24 requirement.
25 Q.But at different times during the year, you use
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1 different resources. Correct? You use hydro at one time, a
2 simple cycle at another time, a combined cycle at another time,
3 and coal at another time. Would that be
4 A.Yeah, that is correct. I think the best way to
5 respond to that question would be typically we use hydro
6 resources to the extent they're available to meet our operating
7 reserve requirements since they're the lowest-cost resource to
8 use for that purpose. We also use our industrial customers
9 that we have under contract to meet our nonspinning operating
10 reserve requirement. And then next we typically go to our gas
11 units, which would be our combined cycles and our simple
12 cycles. And there are times when we need to use the coal units
13 as well, although that's pretty infrequent.
14 Q.So I think you just agreed with me that at
15 different times during the year you use all of your different
16 resources, but maybe not at the same time?
17 A.That's correct. I didn't mean to be
18 argumentati ve there.
19 Q.That i S all right. Let me direct you to your
20 direct rebuttal testimony, page 19. I believe starting on
21 line 7 can you read lines 7 through 11?
22 A. Beginning with "I propose"?
23 Q. Correct.
24 A. I propose to allocate 46.2 percent of the total
25 cost instead of 100 percent, since, on average, 46.2 percent of
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1 the time the resource is being used to provide a nonspinning
2 operating reserves product and 53.8 percent of the time the
3 resource is being used to provide products other than a
4 nonspinning operating reserves product.
5 Q.Okay. So given your previous acknowledgement
6 that the Company utilizes not just a simple cycle combustion
7 turbine and a combined cycle combustion turbine but all types
8 of different resources at different times, at different days of
9 the year to meet their operating reserve requirement, wouldn't
10 it make sense then to take a portion of the cost for each of
11 these resources in providing the reserve requirement?
12 If you're going to use a surrogate -- let me get
13 at ita different way. If you i re going to use a surrogate
14 for instance, Currant Creek or Gadsby -- but you have
15 previously acknowledged that you also use coal and hydro at
16 different times of the year, wouldn't it make sense to use all
17 of those resources when you're trying to come up with a
18 capaci ty cost for that reserve requirement?
19 A.That would be the preferred method. And
20 referring to Mr. Hessing's testimony, he I believe he
21 mentions that the preferred method would be to look at a year
22 to determine which units held nonspinning reserves throughout
23 that year, to look at if I'm mischaracterizing his testimony
24 I apologize, but this is my understanding of it.
25 The preferred method would be to look at the
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1 year, see which units held nonspinning reserves, see how long
2 they held nonspinning reserves, and come up with a weighted
3 average number based on all the units that held reserves and
4 how long they held reserves for the year. I believe
5 Mr. Hessing referred to that approach as administratively
6 impractical, and I believe in my rebuttal testimony I agreed
7 that that would be somewhat impractical or at least difficult
8 to do on a regular basis.
9 Therefore, if you note in my rebuttal testimony,
10 Mr. Hessing elects to refer simply to the all-in cost of the
11 Currant Creek unit which is a combined cycle unit, and in one
12 of my adjustments to Mr. Hessing's method I say we should use a
13 combination or an average of the Gadsby units which are simple
14 cycle units and the Currant Creek unit which is a combined
15 cycle unit, and that adj ustment is intended to reflect what
16 you're referring to that we hold reserves on multiple unit
17 types.
18 Q.Okay. Well, if you're using a simple cycle
19 combustion turbine to meet a operating reserve requirement, it
20 can also be used for other purposes during that hour.
21 Correct?
22 A.The megawatts that are set aside for reserves
23 have to be set aside for reserves. Now, there are times where
24 our machines -- our combustion turbines, our simple cycle --
25 our simple cycle or combined cycle combustion turbines may be
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1 set at different levels. So if you have a 500 megawatt power
2 plant, you may have 300 megawatts that's base loaded, 100
3 megawatts used for spinning reserves, 50 megawatts used for
4 nonspinning reserves, 50 megawatts used for automatic
5 generation control. The power plant may be being used for
6 different products all at the same time, sometimes
7 coincidentally. But if you have this 20 megawatts set aside
8 for reserves, it needs to be set aside for reserves and nothing
9 else.
10 Q.Okay, so it's taken out of the mix if it's used
11 for that reserve to meet that reserve requirement, then it
12 can't be used for anything else?
13 A.That i S correct, yes.
14 MR. PRICE: Can I have just a minute?
15 COMMISSIONER SMITH: Certainly.
16 Q.BY MR. PRICE: Just one last question. This is
17 regarding the Customer 1 and Customer 2.
18 A.Yes.
19 Q.If they're selling their -- do they have an
20 opportunity to sell their interruptible products to any other
21 utilities?
22 A.No, they do not. The products they provide could
23 not be sold because, in essence, they're selling the product
24 back to the Company, so, no..25 Q.Okay.
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1 MR. PRICE: That's all I have.
2 COMMISSIONER SMITH: Thank you, Mr. Price.
3 Unless Mr. Budge and Mr. Hickey tell me they will
4 be done in the next 45 minutes, I suggest we go to lunch.
5 MR. BUDGE: I can't tell you that.
6 COMMISSIONER SMITH: Seeing no obj ection, let's
7 go to lunch and come back at 1: 15.
8 (Noon recess.)
9 COMMISSIONER SMITH: Good afternoon. We're ready
10 to resume our hearing.
11 Are there any persons on the phone who have not
12 previously registered their participation?
13 Wi th that, I think we are ready for Mr. Budge's
14 cross-examination of Mr. Clements.
15 MR. BUDGE: Thank you.
16
17 CROSS-EXAMINATION
18
19 BY MR. BUDGE:
Q.Mr. Clements, is my understanding correct that
21 the current interruptible rate that gives rise to the credit
22 amount for Monsanto was the result of a stipulation that was
23 entered into between the Company in the last two cases that
24 preceded this one?.25 A.I believe that is correct, yes.
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1 Q. And is it also true that if one were to take your
2 testimony proposed in this case but would reduce the
3 interruptible rate and the resulting credit, the amount of
4 Monsanto's interruptible credit would go down from about
5 17.1 million where it is currently to about $ 6.1 million, or a
6 reduction of around 11 million?
7 A.If you're referring to my proposed amount for
8 2011, yes, that's correct.
9 Q.So if we looked at the combined effect of the
10 Company's proposed reduction in the credit and the Company's
11 proposed rate increase for Monsanto, it would amount to a total
12 increase of about $21.8 million or 51.4 percent. Would you
13 accept that subject to check?
14 A.I have not performed that calculation, but I
15 would accept that, subject to check.
16 Q.And so if we move forward from what the Company
17 had proposed and we work into the equation now the Commission's
18 Interlocutory Order that was entered in this case December
19 27th, we have an increase in that Order to Monsanto's firm rate
20 of about 9.6 percent, or $5. 725 million. Correct? And if we
21 were to add in that your current proposed reduction in the
22 interruptible rate to Monsanto, we would have a resulting
23 increase of about 39.4 percent to Monsanto, their net rate.
24 Would you accept that, subj ect to check?
25 A.Again, I have not performed that calculation, but
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1 subj ect to check, I would accept your math, yes.
2 Q. And so if we looked at the rate increase to
3 Monsanto, if we took the Company's interruptible credit and
4 compared Monsanto's increase of about 39.4 percent with the
5 overall increase to other customers of 6. 78 percent shown in
6 the Interlocutory Order , it would look like Monsanto's rates
7 were going up by a multiple of about six from what the average
8 rate would be to other customers?
9 A.That's an incorrect comparison.
10 Q.Okay. We just explored with you that the overall
11 increase to other customers was 6.78 percent. Correct?
12 A.Yes. You're attempting to compare rates that are
13 not equal though. Overall customers incurred a 6. 78 percent
14 increase and Monsanto incurred a 9.6 percent increase in that
15 particular proceeding. The valuation of the interruptible
16 product is a separate analysis that's being taken in this
17 Phase 2 and the other customers don't have an interruptible
18 portion of their rate, and so to compare those customers to
19 Monsanto's net rate is not an appropriate comparison.
20 Q.That isn't what I was talking about. You
21 apparently misunderstood. I was simply comparing the resulting
22 net increase to Monsanto as compared to the bottom line net
23 increase to all other customers on average.
24 In other words, Monsanto doesn't necessarily care
25 so much about what their firm rate is and what their
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1 interruptible rate is. What is important to them is the bottom
2 line rate they pay for electricity. Would you agree?
3 A.I don't intend to know what Monsanto's concern or
4 what is of importance to Monsanto, no.
5 Q.Wouldn't you expect --
6 You've been the Company's liaison with Monsanto
7 for how many years?
8 A.Six years now.
9 Q.And haven't you heard Monsanto repeatedly
10 indicated that what's important to them is the bottom line net
11 cost to them of electricity?
12 A.Yes, they have said that.
13 Q.And that's what results to whatever millions of
14 dollars is they pay to your Company for electricity. That's
15 what's really important to their business plan, is it not?
16 A.Yes, that would be their bottom line number,
17 yes.
18 Q.Okay, so back to where we were. If the net
19 increase to Monsanto is about almost 40 percent based on what
20 your recommended credit reduction would be and the overall rate
21 increase to other customers is 6.78 percent, that would
22 indicate that the Company's current recommendation is that
23 Monsanto's net rate would be about eight times -- or, excuse
24 me, about six times greater than the overall increase to other
customers. Correct?
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1 A. The math works for that analysis. I think it's
2 incorrect to characterize it as the Company's recommendation is
3 that Monsanto's increase is six times that of other customers.
4 That's an inappropriate way to characterize our position.
5 Q.Let me just frame my question from the standpoint
6 of the percent increase that you agreed to earlier. If the
7 percent increase in Monsanto's net rate is 39.4 percent, do you
8 think it would be appropriate for the Company to give
9 consideration to the principle of gradualism or rate shock in
10 setting rates?
11 MR. HICKEY: Madam Chair, I'm going to object to
12 the question on the basis that it's irrelevant to this phase of
13 the case. This line of examination was explored in some detail
14 in Phase 1 with Mr. Walj e among others, and for purposes of
15 this proceeding, the valuation of the interruptible product is
16 what we understood we were coming to try, not issues that were
17 litigated in Phase 1.
18 COMMISSIONER SMITH: Mr. Budge.
19 MR. BUDGE: Well, I think it's relevant and I'll
20 point that out by additional cross later, because this witness
21 filed testimony in Utah pertaining to the approval of Customer
22 No.1' s rate, and I think the rate increase there was about
23 30 or 31 percent. And this witness testified before the Utah
24 Commission that in that circumstance, the principle of
25 gradualism was appropriate to apply to Customer No.1. And so
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1 I think given the fact that he's chose to make an issue out of
2 the rates paid to Customer No. 1 and Customer No.2, it would
3 seem appropriate if the concept of gradualism applies to
4 Customer 1, that we should have a discussion of whether he
5 thinks it's appropriate to apply here.
6 MR. HICKEY: Madam Chair, we asked some discovery
7 in this phase of the case and it was discovery directed towards
8 Monsanto and some of the economic consequences of electricity
9 to their cost of producing elemental phosphorus, and we were
10 told they were all irrelevant. And we were told in that same
11 Pleading by Monsanto where they objected that they objected on
12 the basis that we were seeking information irrelevant to any
13 issues pending in the case.
14 These Requests were propounded well after the
15 technical hearings in Boise. All issues presented in those
16 hearings related to the Company's proposed increase in
17 electrical rates were decided by the Commission's Interlocutory
18 Order entered December 27th. The only issue remaining to be
19 decided is the economic valuation of Monsanto's interruptible
20 products scheduled for technical hearings February 1, 2,
21 pursuant to your other Order.
22 COMMISSIONER SMITH: Well, Mr. Hickey, that's
23 interesting, and I'm assuming that if you had had a problem
24 wi th the Response you got in discovery, you would have filed a
25 Motion to Compel with the Commission and we would have heard
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1 that in that context.
2 I think it's appropriate for Mr. Budge to inquire
3 along this line if this witness has any philosophy of
4 ratemaking. Maybe he does, maybe he doesn't, but I think
5 Mr. Budge is free to ask that.
6 MR. HICKEY: If I could have a continuing
7 obj ection. We just see this as patently unfair that they can
8 deny discoverable materials and then in the same case later say
9 that they want to explore the issues that they themselves said
10 were irrelevant. That was the basis of the obj ection.
11 COMMISSIONER SMITH: I understand that, and
12 I will note for the record you have a continuing obj ection.
13 Q.BY MR. BUDGE: Do you recall the question?
14 Should I repeat it for you?
15 A. I think you asked me if I believe in the concept
16 of gradualism. If you'd like to repeat it, you're welcome
17 to.
18 I'm actually glad I have the opportunity to
19 answer this question after all of that. I think we need to
20 separate this concept of gradualism between the retail rate or
21 the cost for firm service -- and that's your comparison in
22 Phase 1 of the docket where other customers received
23 approximately 6.8 percent, I believe, and Monsanto received
24 9.6, in that area -- and the concept of gradualism as it
25 applies to the interruptible credit amount.
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1 If you look back at the interruptible credit
2 amount in 2007 versus where it is in 2010, it increased 31
3 percent over that three-year period. Monsanto did not seem to
4 take issue with that. If you take the credit amount in the
5 2010 contract and compare it to what they're proposing in this
6 particular docket, it increases another 49 percent, which would
7 resul t in a compounded increase of approximately 95 percent
8 from 2007 to what they're proposing today. So by Monsanto's
9 own proposal, their interruptible credit could increase 95
10 percent.
11 I don't see their concern about gradualism in
12 terms of the credit amount, and I echo that position that the
13 credi t amount should not have any gradualism applied to it. It
14 is reflected. Market conditions change over time and these
15 products are clearly available to the Company on the market and
16 therefore should reflect current conditions, and so, therefore,
17 I don't think gradualism should apply to the interruptible
18 credit amount, no.
19 Q.Would you turn to your testimony -- your
20 supplemental testimony, page 6? Do you have that available?
21 A.Yes, I do. My rebuttal testimony or
22 supplemental?
23 Q.Supplemental testimony, page 6. On line 4 you
24 make the statement: Monsanto has always executed shorter-term
25 Agreements with PacifiCorp, historically five years or less,
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23
1 for its interruptible product.
2 I'm handing you what's been marked as Monsanto
3 Exhibi t 260, and I'll represent to you that that consists of
4 the first pages of Monsanto's contracts beginning with its
5 first contract in 1951, the second one in 1965, then one in
6 1986, and then one in 1987.
7 (Monsanto Exhibit No. 260 was marked for
8 identification. )
9 Q.BY MR. BUDGE: Now, if you would turn to the
10 first Agreement that's dated 1951, page 2 at the bottom under
11 Section 1.1, do you have that available?
12 A.I do, yes.
13 Q.And if you look at the last -- the first line of
14 1.1 says the contract begins in 1952. Correct?
15 A.That's correct.
16 Q.And then the last sentence said: This will
17 continue for ten years thereafter?
18 A.Yes.
19 Q.So would you agree with me then that the 1951
20 contract is not one of those that is always less than five
21 years that you're referring to in your testimony?
A.That is correct, yes.
Q.And would you turn to the next contract in that
24 same Exhibit 260, which is a contract dated January of 1965,.25 and turn to the second page under Article 1, Term of the
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1 Agreement, under 1.1?
2 A. Yes.
3 Q.And you'll see that it states that it continues
4 in effect for an initial term of ten years. Correct?
5 A.That's correct.
6 Q.So, apparently, that contract also doesn't fall
7 wi thin one of those contracts that you said is always less than
8 five years?
9 A.That's correct.
10 Q.Would you agree?
11 A.I was referring to recent history.
12 Q.Well, I don't see that in your testimony,
13 anything about recent testimony (sic). You state: Monsanto
14 has always executed shorter term Agreements.
15 MR. HICKEY: Object: Asked and answered.
16 COMMISSIONER SMITH: Oh, I'll overrule the
17 obj ection.
18 Q.BY MR. BUDGE: So in your testimony, even though
19 you said Monsanto has always executed shorter Agreements, do
20 you want to make a correction of that testimony? You only
21 looked at some period less than always?
22
23
A.Yes, I did look at a period less than always.
Q.And what period did you examine from the period
24 1951 to date that Monsanto has been a contract customer?.25 A.I looked at the most recent history, which
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1 probably started in 1990 through 2000 when I've been
2 negotiating the contracts for the Company.
3 Q.Okay. So you looked at the last seven years and
4 essentially ignored the first 53?
5 MR. HICKEY: Object: That's not what the witness
6 testified to.
7 COMMISSIONER SMITH: Sustained.
8 MR. BUDGE: I'LL rephrase it.
9 Q.BY MR. BUDGE: Did you testify you started
10 looking at 2003?
11 A.I can't give a specific date which I looked.
12 Primarily, I'm most familiar with the three or four most recent
13 contracts that were executed, and I felt they had the most
14 relevance to this discussion.
15 Q.So what was your reason that you said "always"
16 then instead of clarifying you only looked at recent testimony?
17 MR. HICKEY: Object: Asked and answered,
18 argumentati ve.
20 obj ection.
COMMISSIONER SMITH: I'm going to overrule the
21 THE WITNESS: No particular reason that I said
22 "always." I should have phrased that differently.
23 Q.BY MR. BUDGE: And on the same page down at
24 line 13, you make the statement: Monsanto's shorter-term.25 contracting approach.
2702
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
CLEMENTS (X)
RMP
.
.
.
1 A.I'm sorry, which page are you on?
2 Q.Same page 6 of your supplemental testimony that
3 you have in front of you.
4 Isn't it true that Monsanto has never once
5 insisted on a short-term contract during the period of time
6 that you've been involved on behalf of the Company? In other
7 words, shouldn't that properly be characterized that it's the
8 Company's shorter-term contracting approach rather than
9 Monsanto's?
10 A.The most correct characterization there would
11 probably be to say "the parties' short-term contracting
12 approach. " Since I've been involved in negotiations, there's
13 been times when we've discussed longer-term contracts.
14 Typically, the barrier to our execution of longer-term
15 contracts has been the parties have been unable to reach
16 agreement either on the retail rates or the interruptible
17 credi t for longer terms than what we've signed in recent years.
18 Q.Is it true, Mr. Clements, that you could not
19 point to a single draft contract, a single letter, a single
20 e-mail, or a single study submitted to you or the Company by
21 Monsanto that ever suggested that they wanted a short-term
22 contract approach?
23 A.What was the list of items again?
24 Q.Well, can you identify any written document at
25 all that you've ever received from Monsanto during the time
2703
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
CLEMENT S (X)
RMP
.
.
.
1 you've been involved that suggested that we only want to be
2 a -- have a short-term contract approach, as you state here?
3 A.No, we typically haven't negotiated through the
4 wri tten documents. It's usually just been discussions.
5 Q.Pardon?
6 A.It's typically our negotiations have typically
7 taken place through discussions instead of exchange of written
8 documents, so, no, I don't have any document that points to
9 that.
10 Q.But you still contend that it's -- now it's not
11 Monsanto's shorter-term approach, that it should be the
12 parties' shorter-term contracting approach?
13 A.The reality is the parties have entered into
14 shorter-term contracts. I don't know if it's been the
15 Company's approach or Monsanto's approach. The reality is
16 we've been unable to reach agreement on longer-term contracts
17 and the Company has been willing to enter into longer-term
18 contracts at appropriate terms and conditions.
19 Q.Well, in that same sentence on page 6 of your
20 supplemental testimony, you go on to say that I guess now would
21 be the Company or the parties' shorter-term contract approach
22 leads to variability in Monsanto's interruptible product value
23 with the value sometimes being higher than the long-term cost
24 of similar products and sometimes lower than the long-term
25 value of similar products.
2704
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
CLEMENTS (X)
RMP
.
.
1 So is this variability that you're talking about
2 a product of your proposed pricing of Monsanto curtailment
3 functions based on the GRID model and the front office model?
4 A.Are you asking is the variability a function of
5 that?
6 Q.Yes.
7 A.No, the variability is a function of changes in
8 market conditions over time where at times these products have
9 higher values than at other times.
10 Q.That's exactly my point. So you admit that
11 pricing based on short-term market prices as the Company
12 proposes will result in volatile price swings for Monsanto?
13 A.Yes, and we have witnessed that. As I mention,
14 the curtailment credit increase of 31 percent between 2007 and
15 2010, and that was the result of some of this volatility.
16 Q.And so as the Company's liaison for Monsanto,
17 hasn't Monsanto made it pretty clear to you on a continuous
18 basis during the period that you've been involved in these
19 contract discussions that price certainty and stability is a
20 most important factor to the Company?
21
22
A.Yes, they have.
Q.And you're aware from this Commission's Order
23 that has recognized that price certainty and stability is
24 important to Monsanto?.25 A.I'm not sure to which Order you're referring, but
2705
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
CLEMENTS (X)~P
.
.
1 I would agree to that if it saves time.
2 Q. Accept it subj ect to check?
3 MR. HICKEY: I think he said, yes, that he
4 would.
5 THE WITNESS: Yeah, I'll agree to that.
6 Q.BY MR. BUDGE: And just for purposes of your
7 checking, I'm referring to Monsanto Exhibit 246, which is this
8 Commission's Order 30482 entered December 28, 2007. And the
9 Commission states on page 12, quote --
10 MR. HICKEY: I'm going to object, Madam Chairman:
11 This is cumulative. The witness has made a statement into the
12 record that he agrees with this. Counsel is obviously just
13 wanting to testify now and read the same comment that is
14 already established in the record by virtue of the witness's
15 direct answer.
16 COMMISSIONER SMITH: Mr. Budge.
17 MR. BUDGE: Well, the witness didn't know for
18 sure and he said subj ect to check he'd accept it, and I thought
19 if he's going to check, it would be appropriate for me to give
20 him the precise reference so he could check readily.
21 COMMISSIONER SMITH: Okay, which is Order No.
22 30482, page 12.
23
24.25
MR. BUDGE: Page 12.
COMMISSIONER SMITH: Got it.
THE WITNESS: Thank you.
2706
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
CLEMENT S (X)
RMP
.
.
1 Madam Chair, may I add something to my previous
2 response, please? If not --
3 COMMISSIONER SMITH: Let's just wait and see if
4 your counsel figures it out and asks you something on redirect.
5 THE WITNESS: Sure.
6 MR. HICKEY: Fair enough. Thank you, Madam
7 Chairman.
8 COMMISSIONER SMITH: Lawyers don't like it when
9 the witnesses are just out there.
10 (Whereupon, an exhibit was handed out.)
11 COMMISSIONER SMITH: Okay, Mr. Budge, I already
12 have a 257 with Ms. Iverson's testimony.
13 MR. BUDGE: 257 is a new well, then we better
14 make that one -- maybe we can renumber that 258A, and I do have
15 a 258 that I'll call 258B to mark with this witness if we
16 could. So for purposes of the record, we will --
17 COMMISSIONER SMITH: This will be 258A.
18 MR. BUDGE: -- mark an exhibit Monsanto Exhibit
19 258A, and it should be entitled Monsanto Data Request 17.8 with
20 the Company's Response.
21 (Monsanto Exhibit No. 258A was marked for
22 identification. )
23 Q.BY MR. BUDGE: Mr. Clements, looking at Exhibit
24 258A, you'll note it contains Monsanto's Data Request 17.8.25 which asks for all testimony that you filed in all
2707
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
CLEMENT S (X)
RMP
.
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1 jurisdictions on behalf of PacifiCorp.Correct?
2 A. That's correct.
3 Q.And I believe you provided the Response to that.
4 A.I did not.
5 Q.And I've included first two pages
6 A.Excuse me. I did not provide the Response to
7 that Request.
8 Q.And who did?
9 A.It would have been our data response team.
10 Q.Did you not review the Response that pertained to
11 testimony that you'd filed elsewhere?
12 A.No, I did not.
13 Q.And if you look at the attachments to
14 Exhibit 258A, it shows that you filed testimony in October of
15 2007 before this Commission in Case PAC-E-07-05. Would that be
16 correct?
17 A.I believe that's correct, yes.
18 Q.And then you also filed your supplemental
19 testimony in this case under date of October 10, 2010.
20 Correct?
21
22
23
A.That's correct, yes.
Q.And is that a complete or an incomplete answer?
A.I filed more testimony than what was provided in
24 Response to this answer..25 Q.Okay. What other testimony have you filed?
2708
HEDRICK COURT REPORTING
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CLEMENTS (X)
RMP
.
.
1 A. Would you like me to provide a comprehensive list
2 off the top of my mind? I may be missing some: I've worked
3 for the Company for six years and I've filed testimony in
4 mul tiple occasions.
5 Q.Well, let's look at Exhibit 258A which we'll have
6 258 -- or, excuse me, 258B, and we'll have that -- that's
7 identified as Paul H. Clements Testimony in Utah and Wyoming.
8 MR. HICKEY: So, I'm not sure there was a
9 response, Counsel. The witness offered to give his best
10 recollection of other testimonies he's filed in his six years.
11 Did you not want him to do that?
12 MR. BUDGE: I'm going to ask this line of
13 questions first and then I may, depending on his answer, go
14 into other questions if I may.
15 COMMISSIONER SMITH: So this is 258B.
16 MR. BUDGE: Yes.
17 (Monsanto Exhibit No. 258B was marked for
18 identification. )
19 Q.BY MR. BUDGE: So 258B that you have in front of
20 you, do you recognize that as containing some recent testimony
21 you filed in Wyoming in Case 20000-EA-11?
22
23
A.Yes.
Q.And following that, do you recognize testimony
24 under date of August 20, 2009, which you filed in Utah Docket.25 9-035-20?
2709
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
CLEMENTS (X)
RMP
.
.
1 A.That i S correct.
2 Q.And is there additional testimony that you filed
3 in other jurisdictions besides what's been produced?
4 A.Yes.
5 Q.And what would that consist of, how many other
6 testimonies that you're aware of?
7 A.Typically, it would probably be easier to explain
8 the situations or types of situations in which I've filed
9 testimony.
10 Q.I don't think that's necessary, just
11 approximately how many other times have you testified as a
12 witness?
13 A.Oh, probably I'd put the number between 20 and
14 30.
15 Q.And do you have an explanation why, of the 20 or
16 30 times you've testified, only two of your testimonies were
17 produced by the data response center?
18 A.As I said previously, I did not prepare this
19 Response, and so I can't opine on why the Response included the
20 testimony that it did and that it did not.
21 I can speculate, if you so choose, to say that
22 perhaps the person who provided the Response assumed that you
23 meant please provide all testimony filed in conjunction with
24 Monsanto-related items, and that's why they provided the two.25 which they did.
2710
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
CLEMENTS (X)
RMP
.
.
18
19
1 Q. So would today be the first time you were aware
2 that the Data Response was incomplete?
3 A.Yes.
4 Q.Okay. Now, the second portion of the testimony
5 in this Exhibit 258 pertains to your testimony filed in Utah I
6 think pertaining to the approval of a contract with what we've
7 referred to as Customer No. 1 or special contract number -- is
8 this No.2?
9 A.This would be No.2.
10 Q.No.2. Now, turn to page 6 of that testimony, if
11 you would, on line 99
12 A.I don't have a line 99 on page 2.
13 COMMISSIONER SMITH: Six.
14 THE WITNESS: Six? Sorry.
15 Q.BY MR. BUDGE: And the line before appears to be
16 talking about an increase in the rates of this Customer No. 2
17 of 31.26 percent. Correct?
A.That's correct, yes.
Q.And then beginning on line 99, you indicate
20 that -- as follows: Given the magnitude of the required
21 increase, the parties agreed to a concept of gradualism in the
22 implementation of the increase.
23 Is Customer No. 2 also an interruptible customer
24 like Monsanto?.25 A.Customer No.2' s contract contains interruptible
2711
HEDRICK COURT REPORTING
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CLEMENT S (X)
RMP
.
.
.
1 provisions, yes.
2 Q. So for purposes of this Customer No.2, the
3 concept of gradualism was something the Company was willing to
4 agree to?
5 A.This particular section of testimony to which
6 you're referencing addresses the retail rate portion of
7 Customer No.2' s contract.
8 Q.So given your prior testimony that you don't
9 think gradualism is appropriate for Monsanto but it is
10 appropriate for Customer No. 2 --
11 A.I believe my prior testimony was I don't believe
12 the concept of gradualism is applicable to the interruptible
13 product value.
14 In this particular case, the concept of
15 gradualism was applied to this customer, Customer NO.2' s
16 retail rate. Customer No. 2 had a long-term contract that had
17 a fixed rate for a certain number of years. At the conclusion
18 of that contract, they were far behind their cost of service.
19 There was a fairly large gap between what their contract rate
20 was and what the Company's determined cost of service for that
21 customer was. It was negotiated with Customer No.2 that we
22 would take that gap and we would fill it over a certain number
23 of years to allow some gradualism in the time in which they
24 caught up to their current cost of service. In exchange for
25 that gradualism, Customer No. 2 was willing to accept all
2712
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
CLEMENTS (X)
RMP
.
.
.
1 future increases so they wouldn't fall behind again on their
2 cost of service. And so this was a very limited application of
3 the concept of gradualism strictly to the retail rate component
4 of this customer.
5 Q.Wi th respect to this Customer 2, you go on
6 beginning on page 8 of this testimony in Utah we've been
7 discussing, part of Exhibit 258B, and you describe that
8 contract. I wanted to ask you about some of the terms that
9 were deferred to you by witness McDougal this morning.
10 Is my understanding correct that this Contract
11 No. 2 can only be interrupted in four of the summer months and
12 two of the winter months?
13 A.They have two different provisions in their
14 contract: An operating reserve provision and then another
15 economic curtailment provision. And their economic curtailment
16 provision, which is temperature driven, can only be interrupted
17 in six months out of the year, yes, that's correct.
18 Q.So there's a restriction for the economic
19 curtailment portion based on certain months of the year?
20 A.That's correct.
21 Q.And the restriction also that's temperature
22 based?
23 A. Yeah, it could be called a restriction or
24 provision. Their interruption is keyed off temperature
25 triggers.
2713
HEDRICK COURT REPORTING
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CLEMENTS (X)
RMP
.
.
20
1 Q.And is there also restrictions on how many times
2 per day and per week that Customer No. 2 can be interrupted?
3 A.Yes, that's correct.
4 Q.Okay. And what's the magnitude of the
5 interruption for Customer No.2? How many megawatt hours of
6 interruption do they provide -- economic interruption?
7 A.Well, it varies based on what the temperatures
8 are throughout the year. Their contract is structured such
9 that the hotter the temperatures, the more they curtail, with
10 the thought that the hotter the temperatures, the higher our
11 loads are, the more we need curtailment. And so their
12 curtailment or interruption is tied to temperature, and so you
13 can i t say it's a fixed amount each year.
14 Q.Let's go back to the question. What's the
15 maximum in megawatts?
16 A.The maximum would be four hours a day, Monday
17 through Friday, each day, for six months out of the year. That
18 would be the maximum.
19 Q.And what's the maximum annually?
A.I haven i t performed that math, but if I had a
21 calculator or had a few minutes to do some long hand, I could
22 probably calculate that.
23
24.25
Q.Would you accept 480 hours, subject to check?
A.That seems appropriate, quick math in my head,
yes, subj ect to check.
2714
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
CLEMENTS (X)
RMP
.
.
1 Q. And as far as Customer No.1, what are the total
2 number going back to Customer No.1, what's the maximum
3 number of hours of interruption you have under your Customer
4 NO.1?
5 A.Customer No. 1 -- and I assume you mean Customer
6 No. 1 even though we've been talking about Customer No.2?
7 Q.Correct.
8 A.Okay, Customer No. 1 has 130 hours maximum per
9 year.
10 Q.And are there restrictions to when those
11 interruptions can be taken for Customer No.1?
12 A.There are no restrictions, no, in terms of when
13 they can be taken.
14 Q.Would you agree that it's important for this
15 Commission to establish rates and policies that encourage the
16 retention of interruptible loads?
17 A.To the extent that they're cost effective
18 contracts, yes.
19 Q.Is it true, Mr. Clements, that Monsanto has been
20 a nonfirm or interruptible customer, if you will, of Rocky
21 Mountain Power and its predecessors and interests continuously
22 since 1951?
23 A.It appears that Monsanto has been a customer
24 since 1951, yes..25 Q.And is it true that the Company's integrated
2715
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
CLEMENT S (X)
RMP
.
.
.
1 resource plan indicates they plan to have Monsanto as an
2 interruptible customer through 2028?
3 A.I'm not the expert witness on the integrated
4 resource plan, but I would say it's a fair assumption to state
5 that we assume Monsanto will continue to be a customer, yes.
6 Q.Would those two factors, that Monsanto's been an
7 interruptible contract for 60 years plus shown on the Company's
8 IRP through 2028 as an interruptible customer, indicate to you
9 that Monsanto has an interruptible resource that the Company
10 might be appropriately viewed as a long-term resource rather
11 than a short-term resource?
12 A.It comes back to contract term. We only -- we
13 view Monsanto's interruptible product based on the contract
14 terms that we are allowed. If the Company does not have a
15 contract in place with Monsanto, the Company has no right to
16 call upon Monsanto to interrupt, and that's a very critical
17 fact. If we have a three-year contract, Monsanto has no
18 obligation to the Company beyond three years.
19 Q.Maybe you didn't let me ask you the question
20 again and maybe you can try to be as responsive. I think my
21 question was simply this:
22 The fact that Monsanto has been an interruptible
23 customer continuously for 60 years, coupled with the fact that
24 the Company reflects them as a resource -- their interruptible
25 load -- in its IRP through 2028, would that not suggest to you
2716
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
CLEMENT S (X)
RMP
.
.
1 that Monsanto is a long-term resource?
2 MR. HICKEY: Object: Asked and answered. The
3 wi tness was very direct.
4 COMMISSIONER SMITH: I don't agree, Mr. Hickey.
5 I think I'm still waiting to hear the answer to that.
6 MR. BUDGE: As was I.
7 Q.BY MR. BUDGE: I think you could answer that
8 "yes" or "no."
9 A.I'll answer that as "yes."
10 Q.Is it true, Mr. Clements, that there's never been
11 a single time, to your knowledge, when the Company called upon
12 Monsanto to interrupt that that request was not always
13 honored?
14 A.No, Monsanto is very responsive when we call upon
15 them to interrupt.
16 Q.And is it true that under the terms of the
17 Monsanto contract as it now exists, that there are no
18 limitations as to times of day, no limitations with respect to
19 how many times a week they can be interrupted, or how many
20 times per month they can be interrupted, other than the
21 contract total hours?
22 A.No, the only limitations are the annual number of
23 hours and the limitations on how the operating reserve and the
24 economic curtailment products playoff one another. If a.25 furnace is down for economic curtailment, we can't call upon as
2717
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
CLEMENT S (X)
RMP
.
.
23
24.25
1 many operating reserves. But other than that, there are no
2 daily limitations or weekly limitations.
3 Q.Isn't it true that the Company uses up all or
4 nearly all the hours of economic curtailment available each
5 year?
6 A.Yes, we do.
7 Q.And so your testimony earlier live that suggested
8 that less hours were there based on your review of the
9 curtailment log -- excuse me, based on the review of Monsanto's
10 curtailment log was factoring in those times that Monsanto
11 actually bought through an interruption after it was taken by
12 the Company?
13 A.Yes, that was my point exactly, was that there's
14 a difference between a financial interruption in which Monsanto
15 continues to buy through at market prices and a physical
16 interruption when they are physically off the system, not
17 taking power from the Company. That was the point of my
18 sur-surrebuttal.
19 Q.And with respect to the Company's right to
20 interrupt Monsanto for system integrity purposes, isn't it true
21 that those interruptions can be taken without giving any notice
22 to Monsanto?
A.That is correct, yes.
Q.Is it a fact, Mr. Clements, that the Company does
not have any other customers that offer the number of hours or
2718
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
CLEMENTS (X)
RMP
.
.
20
21
1 the size of the interruptions that Monsanto offers?
2 A.We do have a customer that has a larger load.
3 Customer No. 2 does have a larger load, so we do -- we have the
4 abili ty to interrupt them in a larger amount than we do
5 Monsanto. They're 100 megawatts versus 95 or 67, except for
6 the system integrity product. But in terms of number of hours,
7 no, Monsanto has the most number of hours of interruption.
8 Q.And there's no other customer that you have the
9 right to interrupt that those interruptions are available
10 24/7/365 as is the case with Monsanto?
11 A.That is incorrect.
12 Q.Would you agree that Monsanto's interruptibility
13 is larger in size, offers more hours, and has a faster response
14 time and unconstrained timing that's greater than any other
15 customer, including Customers No. 1 and No. 2 in Utah?
16 A.Let's work through those. Can I work through
17 those one at a time?There were quite a few.
Q.Yes.Let's start with size.
A.Okay.
Q.None have a greater size?
A.If you're referring to the 162 megawatts of
18
19
22 system integrity, that is correct, none have a greater size
23 than the 162.
24.25
Q.And none have more hours than the 1,050 that
Monsanto offers in total?
2719
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
CLEMENTS (X)
RMP
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.
20
1 A. If you're taking a look at just the number of
2 hours, yes, that's correct.
3 Q.And the response times of Monsanto for each of
4 its three interruption components is faster than any other
5 customer?
6 A.No, that is not correct.
7 Q.Would you explain which customer offers a faster
8 response time?
9 A.Certainly. Customer No.1, their contract allows
10 us to curtail their entire load for any reason within I believe
11 it's a seven-minute notice. It doesn't need to be just an
12 operating reserve event. We can curtail them with seven-minute
13 notice for any reason.
14 Q. Monsanto witness Iverson prepared a comparison of
15 the three contacts -- Monsanto with Customer No. 1 and Customer
16 No. 2 -- in her testimony, and I didn't see that you or any
17 other witness rebutted that in any of your rebuttal testimony.
18 Is that correct?
19 A.In great detail, no, I did not rebut that.
Q.Is it true that all Company resources, whether we
21 talk about wind or gas or coal, include capital costs that
22 customers pay through rates?
23
24.25
A.No, that is not true.
Q.Is it true that the Company has a strong -- well,
let me rephrase that.
2720
HEDRICK COURT REPORTING
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CLEMENTS (X)
RMP
.
.
.
1 Would the Company build any new resources today
2 if it were only going to be paid based upon the front office or
3 GRID models as you propose for Monsanto?
4 A.The decision on whether the Company builds or
5 does not build a resource is not based on whether it will
6 recover a certain amount or not.
7 Q.So would the Company build a resource today or
8 not if it were priced as you propose a price for Monsanto based
9 only on the front office model and the GRID model?
10 A.Well, the Company does not use economic signals
11 to determine whether it builds or does not build a resource.
12 Typically, the Company acquires -- and I assume you're talking
13 about resources that have capital that's recovered through
14 rates, so you're talking about power plants that the Company
15 goes and acquires or builds and then builds into rate base.
16 Those resource decisions are typically made as the result of a
17 request for proposal. So we look at the integrated resource
18 plan, we determine when there is a resource need, we send out a
19 request for proposal to fill that need. Oftentimes, the
20 Company submits a benchmark as part of that request for
21 proposal, and if the benchmark resource is selected, then the
22 benchmark resource is built to meet that resource need.
23 Q.So what I'm hearing you saying, the Company has a
24 preference to build and own its own resources over the
25 acquisi tion of demand-side resources?
2721
HEDRICK COURT REPORTING
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CLEMENT S (X)
RMP
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1 A.No, that's not what I'm saying.
2 Q.And if the Company were to build its own resource
3 as opposed to utilizing a demand-side resource, is it true the
4 Company would get a rate of return on its own resources that it
5 does not on a demand-side resource?
6 MR. HICKEY: I'll object, Madam Chair, to
7 relevancy. These were issues explored during the first phase
8 of the hearing with Mr. Walj e, and it's beyond the scope of
9 what was noticed in this proceeding, the economic valuation of
10 the curtailment product.
11 COMMISSIONER SMITH: Mr. Budge.
12 MR. BUDGE: I'll go on to another area.
13 Q.BY MR. BUDGE: Staff asked you a question
14 concerning operating reserves I wanted to follow up on. Is it
15 my understanding that every day of the year, the Company has
16 one or more of its machines that are dedicated to operating
1 7 reserves?
18 A.It's incorrect to say that that machine is
19 dedicated to operating reserves. That's not how I would phrase
20 it.
21 Q.At a particular time that operating reserves is
22 required?
23 A.I would state that to say that in any given hour,
24 the Company utilizes multiple resources, or machines if you
25 want to say it, to meet its operating reserve requirement.
2722
HEDRICK COURT REPORTING
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CLEMENT S (X)
RMP
.
.
1 That resource may be used for other things at the same time.
2 That's probably a better way to state that.
3 Q.Is it true if one of those machines is being used
4 to provide operating reserves, that it cannot be utilized for
5 any other purpose at that time?
6 A.No, that's not true. It depends on how much of
7 that machine is being used for operating reserves. If the
8 entire machine is being used, then, yes, it cannot be used for
9 anything else. If only a portion of the machine is being used,
10 then the other portion can be used for something else.
11 Q.And is it true that the Company has invested
12 capi tal in every machine that it uses to provide operating
13 reserves at some time, whether it be in full or in part?
14 A.There are some instances where the Company may
15 have a tolling agreement on a combustion turbine and so we've
16 entered into an Agreement with a third-party owner of a
17 machine, so to speak, and we don't include as capital, to my
18 knowledge, on the short-term lease as it's more of an expense.
19 And so, essentially, we lease the combustion turbine and at
20 times we have had those arrangements, and we sometimes use
21 those leased combustion turbines to provide operating reserves.
22 Q.And how many simple cycle combustion turbines
23 does the Company have?
24.25
A.To my recollection, we have the Gadsby units 4
through 6.
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1 Q.And that would be Gadsby 4, 5, and 6?
2 A.That's correct, yes.
3 Q.And are those the only simple cycle combustion
4 turbines?
5 A.To my recollection, yes.
6 Q.Just the three?
7 A.Yes.
8 Q.Is it true that none of those three simple cycle
9 combustion turbines provide any what you call automatic
10 generation control?
11 A.We have elected to not use those machines for
12 automatic generation control, although they do have the
13 capabili ty to provide that product. We've found it's more cost
14 effecti ve to use other machines to provide that product for us.
15 Q.None of those three simple cycle machines provide
16 that automatic generation control?
17 A.Typically, they have not. They do have the
18 abili ty to do so though.
19 Q.No further questions. Thank you, Mr. Clements.
COMMISSIONER SMITH: Do we have questions from
21 the Commissioners?
22
23
24.25
COMMISSIONER REDFORD: No.
COMMISSIONER SMITH: Commissioner Kempton.
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1 EXAMINATION
2
3 BY COMMISSIONER KEMPTON:
4 Q. Just a couple -- just a couple of questions,
5 Mr. Clements. In a general way, what concern is it to Rocky
6 Mountain Power that Monsanto would provide interruptible
7 reserves, you know, through the contracts and then buy back to
8 continued plant operations?
9 A.I'm sorry, could you repeat the question?
10 Q.I'LL rephrase the question, Mr. Clements.
11 A.Thank you.
12 Q.Some of the discussion here today has been about
13 the fact that the interruptible product of Monsanto, if
14 interrupted by Rocky Mountain Power, is to the benefit of the
15 Company, but it's apparently of less benefit to the Company if
16 the Company then goes and exercises the buy-back. I assume
17 that's through the Company.
18 So, rather than having you ask that question and
19 given the statement that I just made, then is that buy-back a
20 firm option of the Company? Is it a firm power purchase
21 option?
A.According to the Monsanto contract, they have the
23 contractual right to buy through, and how we manage that from a
24 position standpoint when we're planning on whether that's a.25 firm obligation or a nonfirm obligation, we look at what
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1 they've historically done which is buy through. And when we're
2 out setting up our position for the day and for the month and
3 for the year, we make some assumptions that they are largely
4 going to buy through, and we assume that's a firm obligation on
5 our part to provide energy when they buy through.
6 Q.Okay. And that arrangement has been of
7 sufficient interest to Rocky Mountain Power and predecessors of
8 Rocky Mountain Power to continue that kind of contract?
9 A.Yes. We see the economic curtailment product as
10 more of a financial or contractual way for Monsanto to get some
11 exposure to market prices. We really see it as a buy-through
12 mechanism where when they're curtailed, they can look at the
13 market prices and then they can therefore determine whether
14 market prices dictate that they continue to operate and buy
15 through, or whether they're better off shutting down
16 physically. And so we see the economic curtailment product
17 and I believe Staff agrees with us -- that it's more of a
18 contractual or financial buy-through as opposed to a
19 curtailment or capacity product.
20 Q.Okay. And in one of the exhibits that we looked
21 at -- and I don't know that you saw it or not. It was Exhibit
22 262 and it had to do with Rocky Mountain Power's business plan.
23 And without addressing specific numbers especially since it's
24 confidential, there are net negative numbers out, you know,
25 2011, 2012, depending on -- well, let's say 2012 forward even
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1 wi th Monsanto interruptibili ty reserves being available.
2 In those cases, here you have everything I assume
3 on-line except maybe the 12 percent reserve. Is that true? Or
4 do you have the 12 percent reserve on at the same time that
5 you're talking about those negative numbers?
6 A.I'm not an expert on that particular analysis. I
7 believe Company witness Duvall would be a better expert to
8 respond to that. But from my understanding is those negative
9 numbers would include the planning reserve margin.
10 Okay. The 12 percent planning reserve margin isQ.
11 what I'm talking about.
12 A.Yes.
13 Q.The operation?
14 A.Yes.
15 Q.And so in a case like that, Monsanto would not be
16 able to buy back, given the fact that you would interrupt their
17 power. Correct?
18 They would still have the contractual ability toA.
19 buy back if they chose to do so.
20 Q.Where would they buy?
21 A.The particular report you are referring to is
22 more of a capacity position report and so it looks at our
23 capacity position under certain peak hours under certain
24 scenarios, so it's looking at a snapshot in time for a
25 particular hour, and I believe sometimes they stress that to
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1 say this is going to be the most expensive or highest load over
2 a certain time period. So it's kind of a stress test analysis
3 reflecti ve of a single snapshot in time.
4 What we have found, that typically when Monsanto
5 requests to buy through, we have adequate energy supply to
6 provide that buy-through capability to them. And to my
7 knowledge, we've never not allowed them to buy through because
8 we had inadequate supply.
9 Q.But that, nevertheless, is a risk factor that
10 Monsanto accepts in negotiating the contracts. Is that not
11 correct?
12 A.That is correct, yes. There may be times where
13 there is insufficient capacity or energy for them to buy
14 through. That has never been the case, however.
15 Q. And so I have a couple questions that have to do
16 with capacity and I'll refer to your direct rebuttal.
17 A.Sure.
18 Q.On page 6 of the direct rebuttal, there's a
19 question that has to do with has the Company performed an
20 integrated resource plan analysis to determine if Monsanto
21 avoids the acquisition of a generating resource, and you made
22 clear that the generating resources have more components to it
23 other than capacity.
24 On line 14, there was an additional question:
25 Where were the results -- what were the results of the IRP
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1 study?
2 And your response to that was: Removal of the
3 Monsanto interruptible product as a firm resource in the IRP
4 did not create the need for a new resource.
5 And, yet, when we look at the capacity points in
6 time planning document in the Company's business plan, you see
7 the negative values that are out there, and so wouldn't a
8 circumstance where you had a negative value when your operating
9 reserve is on-line constitute the need for a new resource?
10 A.Yes. Let me clarify that statement. I think
11 that would be helpful.
12 What I was referring to when I refer to a new
13 resource was a new combustion turbine resource, and I apologize
14 if that was not made clear.
15 Q.Makes a big difference?
16 A.Absolutely, yes. And so the IRP study results
17 show that we do not have a need for a new combustion turbine
18 resource, and instead the IRP results showed that we're able to
19 backfill or replace Monsanto's interruptible products with
20 other types of resources such as Class II DSM or market
21 purchases.
22 Q.Thank you. That brings me to my next question.
23 So on page 16, is there a scenario -- this is on line 10, and
24 the question is: Is there a scenario in which Mr. Hessing's
25 proposed method would have merit in determining a contract
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1 value for Monsanto's operating reserves product?
2 Would you read your response, please, on line 13?
3 A.Certainly. It says: Yes. If the Commission
4 were to determine that it is reasonable to assign some
5 incremental capacity value above what is already included in
6 the forward market prices to Monsanto's operating reserves
7 product, a method similar to Mr. Hessing's proposal in which he
8 utilizes the capacity costs of existing resources may have
9 meri t if certain reasonable adj ustments are made.
10 Q.Thank you. And in relation to the statement
11 concerning capacity value associated with forward market
12 prices, would you explain how capacity value is derived from a
13 forward market pricing estimate?
14 A.Certainly. Forward market price is a number;
15 let's assume it's $60 per megawatt hour. It may cost $40 per
16 megawatt hour to generate that megawatt hour of electricity
17 using a combustion turbine. So, in essence, there's $20 per
18 megawatt hour of margin or profit for the owner of a combustion
19 turbine.
20 It could be assumed and if you look at a
21 long-term view in supply and demand that at some point that
22 profi t margin on that gas unit needs to reach a point to where
23 a new unit will be built, and that is what is termed to be
24 implied capacity in the market. It's the profit margin on a
25 gas unit or whatever unit it may be that would therefore be
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1 used by the owner of that unit to apply against its capital
2 costs and construction of that unit.
3 Okay. So it has nothing to do with using theQ.
4 actual market prices that exist on margin in the commercial
5 world; in other words, going out on market and purchasing
6 power? The capacity that you're talking about is not
7 associated with the availability of that market power. Is that
8 correct? You're talking about essentially a surrogate where
9 you're making the estimate of what the market price would be
10 given the surrogate that you're using, or maybe the composite
11 of all of your products, however you want to address it.
12 Well, we typically use the Company's officialA.
13 forward price curve, which is a reflection of the prices at
14 which energy is trading, and we have a pretty good
15 indication -- there's a pretty liquid market for energy out
16 about five years. So we can go out in a five-year time period
17 and know with relative certainty what the price of energy is
18 over the course of that five years, and we can go out to a
19 counterparty and transact with that counterparty and we can buy
20 firm energy which is backed by operating reserves at that
21 particular market price. And at times, that market price is
22 higher than the cost that that seller would incur to generate
23 the electricity; sometimes it dips below that.
24 And what we see in the merchant generator world,
25 and I think this is back -- companies like Duke Energy, Mirant,
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1 some of these companies that go and build merchant combustion
2 turbines and merchant combines cycle plants, if the prices they
3 can get from selling the output of that plant are high enough
4 that they can cover their operating costs and cover their debt
5 or equity to build that plant, they're going to go build a
6 plant. And so that's what I mean by implied market capacity
7 value.
8 And there are times when market prices are so
9 high that you'll see a lot of merchant generators say, I'm
10 going to go build power plant because I can sell the output at
11 these really high market prices, cover the cost of gas to make
12 that energy, pay down my debt, and still have plenty of margin
13 left over for my shareholders. And that's what I mean by
14 market implied capacity value.
15 And can you determine that to a sufficientQ.
16 accuracy that you can actually define a confidence level with
17 it?
18 I apologize. What do you mean by "confidenceA.
19 level"? That we can know what the amount is?
20 Q. A statistical confidence level that goes with the
21 analysis on your forecast.
22 Well, I'm confident that the market prices thatA.
23 we used are reflective of the current market prices, yes, I'm
24 confident of that. And I apologize if I didn't understand the
25 question. I'd be happy to
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1 Q.That's fine. That's absolutely fine.
2 A.If you'd like me to elaborate a little bit on the
3 point you made regarding the Company's proposal with
4 Mr. Hessing's method --
5 Q.Well, Mr. Clements, that's where I'm going now.
6 A.Oh, I apologize. Go ahead.
7 Q.So moving to Mr. Hessing's method, you suggest
8 that you could accept it but there need to be a couple of
9 changes made, and on the first of those, on page 17 -- and
10 instead of me reading them, I probably should have you. Would
11 you mind reading the first sentence starting on NO.1?
12 A.Be happy to:
13 Mr. Hessing's method must be modified to utilize
14 the capacity costs of multiple resources that are used by the
15 Company to provide nonspinning operating reserves instead of
16 using the single Currant Creek resource cost.
17 Q.Okay. And then would you read that's your
18 suggestion. And then starting with line 11, would you read
19 your comment there down to the end of 16, so 11 to 16?
20 A.Certainly: While the Company agrees such
21 calculations may be impractical if performed on a frequent
22 basis, Mr. Hessing's proposal to utilize only the capacity
23 costs of the combined cycle gas plant Currant Creek
24 oversimplifies the analysis since other types of resources.25 besides Currant Creek provide nonspinning operating reserves.
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1 The Company suggests modifying Mr. Hessing's analysis to
2 include the capacity costs of other resources besides Currant
3 Creek.
4 Q.My first question is isn't the last sentence a
5 circular sentence that takes us right back to Mr. Hessing's
6 method to start with where he already said that that was
7 administratively difficult, I think it was? Haven't you just
8 suggested that he do what he suggested in fact?
9 A.I think what I am suggesting is a middle ground
10 between what Mr. Hessing deemed to be administratively
11 impractical, which was take every resource that's used by the
12 Company to serve nonspinning operating reserves -- which is
13 going to be multiple hydro units, multiple gas units, simple
14 cycle and combined cycle and potentially some coal units -- and
15 instead of using just Currant Creek, which is what Mr. Hessing
16 has suggested, I'm saying let's compromise and meet somewhere
17 closer to the middle and instead of using just a combined cycle
18 unit, let's use a combined cycle and a simple cycle gas unit.
19 So that's where I'm meeting him in the middle from what is
20 administratively impractical and using just a single resource.
21 Q.My only comment there is you're not clear on that
22 point, because you're actually recommending a single resource.
23 Now, let's go down and, say, use Gadsby at the
24 bottom and Currant Creek at the top. Because when you say
25 capacity costs of other resources, "others" can include the
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1 entire litany that you went through or that Mr. Hessing went
2 through in defining why you can't make that analysis.
3 So my only thought there is and the question I
4 had is just how many other resources are we going to look at
5 besides Currant Creek, and you're telling me what?
6 A.I'm telling you that we are going -- the
7 Company's recommendation and if I would modify that sentence to
8 more clearly answer your question, I would say the Company
9 suggests modifying Mr. Hessing's analysis to include the
10 capaci ty costs of Currant Creek and Gadsby, so a combined cycle
11 gas unit and a simple cycle gas unit. I apologize if that was
12 not clear.
13 Q.Mr. Clements, I would only suggest that maybe
14 that would come out -- you know, that may be pertinent to other
15 discussions that come out in further testimony.
16 A.Okay.
17 Q.I don't know that; it's just a possibility.
18 On line 11, you say: While the Company agrees
19 such calculations may be impractical if performed on a frequent
20 basis, Mr. Hessing's proposal to utilize only the capacity
21 costs of the combined cycle gas plant at Currant Creek
22 oversimplifies the analysis since other types of resources
23 besides Currant Creek provide nonspinning operating reserve.
24 So, my question is how does a frequent basis
25 complicate the problem more than the single one that we're
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21
22
23
24.25
1 looking at right now?
2 A. Well, to determine the weighted average cost of
3 the particular units that are providing a nonspinning operating
4 reserves product on a frequent basis would be administratively
5 difficul t. We would have to select a certain time period with
6 certain assumptions for load, certain assumptions for resource
7 availability, and we would have to determine hour by hour which
8 resources are providing nonspinning operating reserves, then
9 apply a capacity cost or a capacity value to each one of those
10 resources for each hour and then come up with the weighted
11 average for the entire year.
12 Q.And that's your point where you would agree with
13 Mr. Hessing that it would be administratively difficult --
14 A.Yes.
15 Q.-- to compute?
16 A.Yes, I agree with that.
17 COMMISSIONER KEMPTON: I have no further
18 questions.
19 COMMISSIONER SMITH: Thank you.
Mr. Hickey, do you have any redirect?
MR. HICKEY: I do. Thank you, Madam Chairman.
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i REDIRECT EXAMINATION
2
3 BY MR. HICKEY:
4 Q.Just to pose a couple of points here around the
5 Monsanto contract, are you familiar with Attachment B to that
6 contract that specifically addresses the economic curtailment
7 option that's been provided historically to Monsanto?
8 A.Yes, I am.
9 Q.And is that where the buy-through replacement
10 energy contractual obligation is found?
11 A.Yes.
12 Q.And what does it say, if you recall?
13 A.It says that Monsanto has the option to buy
14 through at market prices in the event of an economic
15 curtailment event.
16 Q.And is it your testimony that they have shown a
17 propensi ty to do that?
18 A.Yes, they typically do buy through.
19 Q.And even though there is risk, as President
20 Kempton's examination identified, that at some point maybe the
21 market doesn't have resources to replace, how many times can
22 you quantify for us they have asked to buy through and how many
23 times if you have an approximation was the Company able to meet
24 that request?.25 MR. BUDGE: I'd obj ect until some foundation is
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1 laid regarding an analysis by this witness or some basis for
2 his comment.
3 MR. HICKEY: I can certainly lay some more
4 foundation.
5 COMMISSIONER SMITH: Okay, Mr. Hickey.
6 Q.BY MR. HICKEY: Have you had an opportunity to
7 review the outage log that was offered as an exhibit at Phase 1
8 of this case, Exhibit 252?
9 A.Yes, I have.
10 Q.Are you aware of the fact that within that
11 exhibit there is a column that indicates whether or not a
12 buy-through option under this Exhibit B contractual right
13 actually occurred?
14 Maybe that was a long question. Are you aware of
15 whether or not the form, the log maintained by Monsanto,
16 indicates whether or not the buy-through option was
17 exercised?
18 A.Yes, the log does include a column that states
19 whether the buy-through option was exercised or not exercised.
Q.And are you aware of whether or not that log
21 contained records from calendar years 2007, 2008, and 2009?
22
23
A.Yes, it did.
Q.And do you have an approximation against that
24 study of that exhibit of approximately how many times, if you.25 know, buy-through was exercised, and was there ever a time that
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1 there wasn't market response and power available in the market
2 to replace -- to satisfy the request for a buy-through?
3 MR. BUDGE: I'm going to object to the question
4 as being compound and somewhat unintelligible.
5 COMMISSIONER SMITH: It was kind of lengthy,
6 Mr. Hickey.
7 BY MR. HICKEY: Well, I would be glad to break it
8 down.
9 COMMISSIONER SMITH: Can you break it up for us?
10 Thank you.
11 MR. HICKEY: Fair objection, and happy to make it
12 more understandable. Thanks for pointing that out, Mr. Budge.
13 Q.BY MR. HICKEY: First question: Do you have a
14 figure in mind of how many times the opportunity to exercise
15 buy-through occurred by Monsanto over those three calendar
16 years?
17 MR. BUDGE: I'm going to object, and can I
18 inquire in aid of further objection?
COMMISSIONER SMITH: Certainly, if your mic' s
20 on.
21 MR. BUDGE: Mr. Clements -- thank you -- I think
22 Counsel is referring you to Exhibit 252. Is that correct?
23
24.25
THE WITNESS: Yes.
MR. BUDGE: Is it accurate to say that you've
never gone through and done any study or analysis to determine
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1 the exact number of interruptions taken on a year-by-year basis
2 based on Exhibit 252 or any other document?
3 THE WITNESS: An analysis was performed at my
4 direction, and I have reviewed the results of that analysis.
5 MR. BUDGE: And do you have that available?
6 THE WITNESS: I do have that available, yes.
7 MR. BUDGE: And you made an analysis of exactly
8 how many times of the interruptions shown on Exhibit 242 (sic)
9 that was a buy-through?
10 COMMISSIONER SMITH: 252.
11 MR. BUDGE: Or, 252. Excuse me.
12 MR. HICKEY: Madam Chair, this has gone beyond
13 any legitimate right to voir dire. I'm in redirect of this
14 witness.
15 MR. BUDGE: Counsel is asking for an
16 approximation and the witness is saying he did an exact study,
17 so I'm just trying to find out.
18 MR. HICKEY: Well, I would guess he would
19 withdraw his objection at this point. He's laid more than
20 adequate foundation.
21
22
COMMISSIONER SMITH: Mr. Budge.
MR. BUDGE: Well, I think that this study was
23 made under his direction, and my question is does he have that
24 study with him or analysis..25 COMMISSIONER SMITH: I think he answered, "Yes."
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1 So can Mr. Hickey continue?
2 MR. BUDGE: So is your testimony based upon this
3 actual analysis, or is it being based upon an approximation?
4 MR. HICKEY: Well, we'll get into that, Madam
5 Chair, if I have the chance to get back to where I think we
6 are, which is redirect.
7 COMMISSIONER SMITH: Okay, Mr. Hickey.
8 Q.BY MR. HICKEY: Okay. Share with us what your
9 analysis -- what the analysis that you're aware of disclosed
10 regarding, first of all, the number of times that the
11 buy-through option was exercised by Monsanto when an economic
12 curtailment was requested.
13 A.Certainly. The results of the analysis showed
14 that, on average, for the years 2007 through 2009, there
15 were 793 economic curtailment requests made, on average, which
16 is reasonable given that the contract had between 800 and 850
17 hours available -- or, 830 hours available over this time
18 period. Of those 793 hours, on average, Monsanto elected to
19 physically curtail 256 of the hours, and that's an average over
20 the three-year time period. The difference between 793 and the
21 256 hours that they elected to physically curtail would be
22 hours in which they elected to continue to operate and buy
23 through at market prices.
24 Q.So was there ever a time that Rocky Mountain
25 Power was not able to act on the buy-through and allow Monsanto
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22
1 to continue to receive power even though the economic
2 curtailment had been initially requested?
3 A.No, to my knowledge, each time that they have
4 requested to be able to continue to operate and buy through,
5 we've been able to honor that request and continue to serve
6 them.
7 Q.So based on your experiences, how would you
8 evaluate the risk that we've acknowledged is certainly
9 identifiable?
10 A.I would say that risk is very small.
11 Q.Now, there's been talk about two other contracts
12 that Monsanto has brought into the discussion through the
13 testimony of their witnesses and that Mr. Budge examined you
14 on, Customers No. 1 and Customer No.2. Do either of those
15 interruptible customers have the opportunity to buy through a
16 so-called economic curtailment?
17 A.Customer No. 1 does not have the ability to buy
18 through at market prices. Under certain conditions, Customer
19 No. 2 can buy through at market prices; they typically do not.
Q.So Customer No. 1 can't even make the request?
A.No.
Q.How do you compare the contractual rights that
23 Monsanto holds to the other customer who has some limited
24 opportunity to buy through? Who has a more robust opportunity.25 to buy through a requested economic curtailment?
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1 A. Well, that's at the very heart of why I did not
2 rebut line by line Ms. Iverson's testimony comparing the
3 contracts. The differences between the contracts are
4 significant enough where they don't warrant an apples-to-apples
5 comparison for valuation purposes outside of the nonspinning
6 operating reserve product, and I've already discussed why that
7 was appropriate.
8 Customer No. 1 will curtail with a seven-minute
9 notice physically curtail -- with no option to buy through
10 for no reason at all. That's significantly different than
11 what's included in the Monsanto contract.
12 Q.So even though economic curtailment is called an
13 economic curtailment, is there an actual disruption of the flow
14 of electricity if Monsanto says, acting under Exhibit B,
15 Paragraph 5.1, I want to buy through? Is there a physical
16 disruption of the flow of electricity if they exercise that
17 right?
18 A.No, there's not.
19 Q.So what is there? What, in your estimation, is
20 economic curtailment? Is it physical curtailment or is it a
21 pricing mechanism?
22 A.I believe the economic curtailment product is an
23 ability for Monsanto to have access to market prices and they
24 can take advantage of periods of low market prices if they
25 elect to buy through. I really see it as more of a financial
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1 or economic package as opposed to a capacity product.
2 Q. Let me talk to you a minute about Counsel's
3 effort to chase you a bit with what testimony the Company had
4 identified in Response to a Data Request. First of all, is
5 every piece of your testimony in whatever operating state it
6 was filed a public document?
7 A.Should be, yes.
8 Q.And are most of those or some of those
9 testimonies available by going to Public Service Commission Web
10 sites and doing a search for Paul Clements, if you know?
11 A.Yes, they should be.
12 Q.Was there ever any intent to not let Mr. Budge or
13 his client know how many other states you had filed testimony
14 in?
15 A.No.
16 Q.Do you know whether or not it's a common
17 practice, if not a requirement, that if there's a discovery
18 dispute, that Counsel notify the other side responding and say,
19 I'm not sure I got everything, could you check this for me?
20 And do you know whether or not that occurred in this
21 instance?
22 A.I don't believe that occurred, and I would assume
23 that would be standard practice.
24.25
Q.Had anybody ever brought to your attention this
request before Counsel did this afternoon, what would you have
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1 done, Mr. Clements?
2 A. I would have made my best effort to provide
3 whatever testimony we had available or I would have directed
4 Monsanto to use the public means available to obtain that
5 testimony.
6 Q.And just as a final area, Mr. Budge had several
7 questions for you that addressed in general the notion that
8 because there was a contract in 1951 and because the
9 Soda Springs facility has been there for some 60 years now,
10 don't you currently consider this to be a long-term resource.
11 Do you remember that line of questioning?
12 A.Yes, I do.
13 Q.What legal right does Rocky Mountain Power have
14 to rely upon that Monsanto will operate the Silver -- or, the
15 Soda Springs plant in June of 2011?
16 MR. BUDGE: I'd obj ect to the competency of this
17 witness to testify about what legal rights may exist.
18 COMMISSIONER SMITH: Sustained.
19 Q.BY MR. HICKEY: In the context of the IRP that
20 Mr. Budge was examining you regarding, is there any assurance
21 for anyone -- either Monsanto, this Commission, or Rocky
22 Mountain Power -- that the plant will be operational under any
23 horizon identified within that IRP?
24.25
A.No, there's no guarantee that any customer will
continue to operate into the future. In fact, I would say that
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1 there's greater risk on Monsanto based on testimony that they
2 provided in Phase 1 of this proceeding.
3 Q.Okay. That's all I have.
4 COMMISSIONER SMITH: But you're certainly not
5 implying that doing an integrated resource plan is not a useful
6 effort?
7 THE WITNESS: No, not at all.
8 COMMISSIONER SMITH: Thanks. Thanks for your
9 help.
10 MR. HICKEY: Madam Chairman, at this point Rocky
11 Mountain Power would rest its case in chief in this phase of
12 the hearing and as Mr. Clements is our last witness for the
13 case in chief.
14 COMMISSIONER SMITH: Mr. Budge.
15 MR. BUDGE: I have some redirect based upon the
16 questions of Commissioner Kempton and Counsel.
17 MR. HICKEY: It wouldn't be redirect: This
18 witness was my witness or the Company's witness. And I don't
19 know that this has been something we ever did in Phase 1,
20 Madam Chair; don't see any need for it here.
21 COMMISSIONER SMITH: Well, the Chair being the
22 gracious and fair person that she is, I usually do allow this,
23 although it would have been more appropriate to question on
24 Commissioner Kempton's questions before Mr. Hickey did his.25 redirect. So, Mr. Budge, if you just have a few, I'll allow
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1 it; and if Mr. Hickey has further redirect, he can then go into
2 it.
3
4 RECROSS-EXAMINATION
5
6 BY MR. BUDGE:
7 Q.Mr. Clements, Commissioner Kempton asked you some
8 questions about Monsanto's buy-through, and would the
9 buy-through be allowed only to the extent there is power
10 available on the market?
11 A.Yes, that is what has been discussed between the
12 parties, yes.
13 Q.And if there were transmission constraints that
14 did not allow even available power to be utilized, would that
15 also be a risk that Monsanto would bear?
16 A.Yes, if there's transmission constraints, that
17 would be the case, yes.
18 Q.And would there ever be a time that the
19 buy-through on the market would be at a price less than what
20 the Company is providing power to Monsanto for?
21
22
A.That is possible, yes.
Q.So as far as the actual buy-throughs that you
23 analyzed, is it true that they were always at a higher price
24 than what was being provided under the contract?.25 A.I did not study that particular aspect, but I
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19
1 would represent that most of the time Monsanto buys through the
2 price is higher than the contract price for energy, yes.
3 Q.And do most of those buy-throughs occur during
4 peak times?
5 A.Yes, typically we optimize the economic
6 curtailment product and call for interruptions during peak
7 times, yes.
8 Q.And so during those peak times, the buy-through
9 would usually be at higher peak prices?
10 A.Yes.
11 Q.Okay. You made a comment that seemed to suggest
12 that Monsanto was using this as a means of accessing the open
13 market. You're not suggesting that Monsanto has any right to
14 be served by any supplier other than the Company, are you?
15 A.No, not at all.
,
16 Q.And is it true that Monsanto has no right to sell
17 its curtailment products to anyone other than the Company?
18 A.I would --
MR. HICKEY: Madam Chair, this is well beyond
20 anything President Kempton examined the witness on and I think
21 it's well beyond a couple of short questions, and would just
22 ask for direction of where we are at this point.
23 COMMISSIONER SMITH: Seems to call for a legal
24 conclusion, Mr. Budge..25 MR. BUDGE: I'd agree with that.
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1 i did have one request that I would ask that the
2 Company, since the witness seemed to suggest that we cannot
3 accept an answer that the Company provides as being complete
4 and accurate in Discovery Responses, he seemed to suggest that
5 we're supposed to ask the Company if this is a complete
6 Response. I would ask the Company to agree to provide the
7 complete Response and provide all of the 20 to 30 testimonies
8 that Mr. Clements contends that he did file. Would the Company
9 agree to that?
10 MR. HICKEY: Well, Madam Chairman, discovery has
11 ended in the case. This is highly unusual to have the kind of
12 discovery conference that we're all aware of in the middle of
13 a hearing and in the middle of this recross opportunity. And
14 if the Chairman wants those produced they certainly can be, but
15 discovery is over. It seems like a meaningless exercise and
16 that's a call that should have been made probably three months
17 ago.
18 COMMISSIONER SMITH: Mr. Budge.
19 MR. BUDGE: Well, that's precisely my point. How
20 do we make the call if we don't know it's there? They filed
21 the discovery Response. We asked for all his testimony. They
22 provided two testimonies.
23 COMMISSIONER SMITH: In my experience, all
24 discovery usually has boilerplate language that subjects the
25 provider to a continuing duty to supplement its answer when it
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1 realizes it's not complete, and I would assume that would apply
2 to the Company in this case. And while the time for discovery
3 may be passed, I think you do still have a continuing
4 obligation to supplement your answer when you have discovered
5 it's incomplete.
6 MR. HICKEY: Certainly can provide those.
7 COMMISSIONER SMITH: Thank you.
8 MR. HICKEY: And as I believe the Commission
9 knows, would have had that request been made.
10 MR. BUDGE: I have nothing further.
11 COMMISSIONER SMITH: Mr. Hickey, do you have any
12 more redirect?
13 MR. HICKEY: That didn't trigger any need of any
14 redirect, thank you.
15 COMMISSIONER SMITH: Thank you for your help.
16 MR. HICKEY: And we would again rest.
17 (The witness left the stand.)
18 COMMISSIONER SMITH: So I think we should take a
19 break until three o'clock, and then start then with Mr. Budge's
20 witnesses.
21 MR. HICKEY: And I understand your first witness
22 is Mr. Smith.
23
24.25
MR. BUDGE: Yes.
COMMISSIONER SMITH: Okay, we're at recess.
(Recess. )
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