20110208Vol XVII pp 2751-2963.pdf

ORIGIN L
.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 MonsantoInterruptible
Products)
.COMMISSIONER MARSHA H. SMITH (Presiding)
COMMISSIONER MACK A. REDFORD
COMMISSIONER JIM D. KEMPTON
i
PLACE:Commission Hearing Room
472 West Washington Street
Boise, Idaho
DATE:February 1, 2011
VOLUME XVII - Pages 2751 - 2963
o\.
.
COURT REPORTING
POST OFFICE BOX 578
BOISE, IDAHO 83701
208-336-9208
cftl1f ti ~ ßQitt .iÍ(~ 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
.1 I N D E X
2
WITNESS EXAMINATION BY PAGE
3
James Smith Mr.Budge (Direct)2751
4 (Monsanto)Prefiled Direct 2756
Prefiled Rebuttal 2767
5 Mr.Hickey (Cross)2771
Mr.Budge (Redirect)2788
6
Brian Collins Mr.Budge (Direct)2791
7 (Monsanto)Prefiled Direct 2795
Prefiled Rebuttal 2818
8 Prefiled Surrebuttal 2823
Mr.Hickey (Cross)2844
9 Mr.Budge (Redirect)2865
10 Kathryn Iverson Mr.Budge ( Direct)2868
(Monsanto)Prefiled Direct 2871
11 Prefiled Rebuttal 2903
Prefiled Surrebuttal 2908
12 Mr.Hickey (Cross)2913.13 Kei th Hessing Mr.Price (Direct)2920
(Staff)Prefiled Direct 2923
14 Mr.Budge (Cross)2937
Mr.Hickey (Cross)2940
15 Commissioner Kempton 2952
Commissioner Smith 2953
16
17
18
19
20
21
22
23
24.25
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
INDEX
.1 EXHIBITS
2
NUMBER PAGE
3
For Rocky Mountain Power:
4
97 Capaci ty Value of Monsanto Nonspinning Premarked
5 Operating Reserves Admit 2956
6
For the Staff:
7
134 (Confidential)Premarked
8 Admit 2956
9 135 (Confidential)Premarked
Admit 2956
10
11 For Monsanto:
12 254 Value of Monsanto Curtailment Based Premarkedon Avoided Peakers Admit 2956.13
255 Value of Monsanto Curtailment Based Premarked
14 on Qualifying Facility Rates in Utah Admit 2956
15 256 Implicit Avoided Capacity Cost of Premarked
Operating Reserves,2 pgs Admit 2956
16
257 Cost of Service by Rate Schedule Premarked
17 Admit 2956
18 258A - 262 Admit 2956
19
20
21
22
23
24.25
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
EXHIBITS
.
.
18
1 BOISE, IDAHO, TUESDAY, FEBRUARY 1, 2011, 3:00 P.M.
2
3
4 COMMISSIONER SMITH: All right, welcome back.
5 Mr. Budge.
6 MR. BUDGE: Thank you.
7
8 JAMES SMITH,
9 produced as a witness at the instance of Monsanto, having been
10 previously duly sworn, was examined and testified as follows:
11
12 DIRECT EXAMINATION
13
14 BY MR. BUDGE:
15 Q.Mr. Smith, did you prefile direct testimony and
16 rebuttal testimony in this proceeding on behalf of Monsanto?
17 A.Yes, I did.
Q.And does your direct testimony -- is it filed
19 under date of December 22, 2010, and consists of pages 1
20 through 11 with an Attachment A adding three additional
21 pages?
22
23
A.Yes, sir, it does.
Q.And does your rebuttal testimony under date of
24 January 14, 2011, consist of pages 1 through 4?.25 A.Yes, it does.
2751
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701 SMITH (Di)
Monsanto
.
.
.
18
1 Q. Do you have any corrections you wish to make to
2 either your direct or rebuttal testimonies?
3 A.Yes, I encountered one change as I reviewed it.
4 On my direct testimony, page 4, line 11, there's
5 a reference to Exhibit 252, and that should be 251.
6 Q.Mr. Smith, as corrected, if I were to ask you the
7 same questions today as contained in your prefiled direct and
8 rebuttal testimony, would your answers be the same?
9 A.Yes, sir, they would.
10 Q.Mr. Smith, just a brief question in response to
11 some of the questions by Commissioner Kempton concerning the
12 buy-through of the economic curtailment products. I believe
13 you were present during those questions and answers?
14 A.Yes, I was.
15 Q.Does Monsanto have the ability to sell any of its
16 interruptible products to any other customer?
17 A.No, sir.
Q.And once Monsanto receives notice of an economic
19 curtailment, is there a period of time within which Monsanto
20 must respond if it chooses to buy through?
21 A.For economic curtailment, the contract sets forth
22 that PacifiCorp will give us two hours' notice and we must
23 respond wi thin an hour to tell them what we will do.
24
25
Q.So can you just describe how this decision-making
process works when Monsanto receives an economic curtailment
2752
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701 SMITH (Di)
Monsanto
.
.
1 notice and you're making this decision wi thin an hour of
2 whether or not to buy through?
3 A.Well, there are numerous issues that we consider
4 when we decide whether or not to buy through or not. To give
5 you an example of a few:
6 How well the furnaces are operating is an issue
7 that we will look at; whether or not there's some needed
8 maintenance or something that needs to happen.
9 We will consider temperatures outside. For
10 instance, this morning it was 25 below zero in Soda Springs, so
11 taking a furnace down could have some impact on the rest of the
12 operation. Those things are considered.
13 Probably one of the biggest is the actual price.
14 While PacifiCorp doesn' t give us -- at the time they curtail
15 us, they don't tell us what that price is. They give us their
16 best estimate. And so we look at the price.
17 There's also an escalator that's put on the price
18 by hour to escalate that price per -- to give us because the
19 index that we use as a market price is reflective of either
20 peak or nonpeak. There's actually an escalator that pops onto
21 that that converts that to an hourly number.
22 So, there's numerous factors that go into that.
23 We try to make it as simple as possible for our operators to
24 make that decision, but even at times it becomes much more.25 complex and they are required to call one of the managers who
2753
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (Di)
Monsanto
.
.
1 knows what customer commitments are, what inventory levels look
2 like, and can factor all of these and make that decision. And
3 so each and every event for us goes through that decision tree.
4 Q.Is a decision to curtail Monsanto exclusively a
5 decision that the Company has the right to make?
6 A.To curtail us, yes. The Company decides when
7 they will curtail us.
8 Q.Monsanto has no say in that decision?
9 A.No, sir.
10 Q.And with respect to the decision to buy through,
11 would it be accurate to say that decision is exclusively
12 Monsanto's?
13 MR. HICKEY: I'll object. These are leading
14 questions and it's beyond any bridge to the examination of
15 other -- of Mr. Clements by President Kempton.
16 COMMISSIONER SMITH: Mr. Budge.
17 MR. HICKEY: Well, I thought this was getting at
18 some of the very questions that were being asked on how the
19 buy-through makes and who makes the decision.
20 COMMISSIONER SMITH: Well, I guess if
21 Commissioner -- President Kempton has further inquiries, maybe
22 he could do that.
23 MR. BUDGE: Okay. We would move that the direct
24 and rebuttal testimony of Mr. Smith be spread upon the record,.25 and tender him for cross-examination.
2754
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (Di)
Monsanto
.
.
.
19
20
21
22
23
24
25
1 COMMISSIONER SMITH: Hearing no obj ection, that
2 testimony will be spread upon the record as if read.
3 (The following prefiled direct and
4 rebuttal testimony of Mr. Smith is spread upon the record.)
5
6
7
8
9
10
11
12
13
14
15
16
17
18
2755
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701 ~
SMITH (Di)
Monsanto
.
.
.
1 Q
2 A
3
4 Q
5
6 A
7
8
9
10 Q
11 A
12
13
14 Q
15 A
16
17
18
19
Please state your name, employer and business address.
My name is James R. Smith. I am employed by Monsanto Company at the Soda
Springs Plant and my business address is P.O. Box 816, Soda Springs, Idaho 83276.
Are you the same James R. Smith who pr~viously fied testimony in this
proceeding?
Yes, I am. On November 1,2010 I provided testimony as to the operation of
Monsanto's Soda Springs Plant, along with information on the curent 2008 Electrc
Service Agreement, loss of market share, and economic and other impacts concerning
the Soda Springs Plant.
What is the purpose of your testimony?
The purose of ths testimony is to present additional facts relevant to the second
phase that wil establish a rate for Monsanto's interrptible power in accordance with
the Commission's Order No. 32098 entered October 22, 2010.
Have Monsanto's rates increased in recent years?
Yes. In 2006 Monsanto's rates increased 16.5% pursuant to Stipulation approved by
the Commission in Order No. 30197, Case No. PAC-E-06-09. Pursuant to Stipulation
approved by the Commission in Order No. 30482, Case No. PAC-E-07-05,
Monsanto's rates increased another 21.5% over three years, consisting of 13.5% in
2008, another 3% in 2009 and another 5% in 2010.
2756 Smith, Di - 1
Monsanto Company
.1 Q
2
3 A
4
5
6
7
8 Q
9
10 A
11.12
13
14
15
16 Q
17 A
18
19
.
Were the Company's valuation methodologies presented in these cases agreed to
by Monsanto or established by the Commission?
No. The valuation methodologies presented by the Company were not agreed to by
Monsanto nor adopted by the Commission in either of these cases. In fact, in Order
No. 30482 the Commission specifically acknowledges on p. 8 that: "the curtailment
valuation for Monsanto is based on a "black box" determination with no party
accepting a specific methodology for setting this valuation.
For how long has Monsanto purchased interruptible power from PacifiCorp and
its predecessors?
Monsanto has been served as an interrptible customer for nearly 60 years from
PacifiCorp and its predecessors. While the terms of the varous contracts providing
interptible power have vared over the years, all have provided the Company the
. right to interpt Monsanto's load. Monsanto's long-term plans are to continue to take
service as an interptible customer for our entire load, except for the 9 MW of firm
power.
Over the last three years have the number of hours of curtailment also increased?
Yes. The hours of economic curailments increased from 800 in 2008 to 830 in 2009,
and to 850 in 2010. When the operating reserves and system integrty hours are added
in, the total interrptible hours for 2010 were 1,050.
2757 Smith, Di - 2
Monsanto Company
.1 Q
2
3 A
4
5
6
7
8
9 Q
10
11.12
13
14
15 A
16
17
18
19
20
21
22.
Does Monsanto propose to change the number of hours or other terms and
conditions regarding Monsanto's load?
No. Monsanto proposes no change to the hours or other curtailment option ters.
Nor has the Company proposed any changes. I am unaware of any problems with the
current operation of the curailment provisions contained in the contract. However,
Monsanto would be wiling to consider any changes that would provide greater
benefits to the Company or reduce Monsanto's rates, provided that Monsanto's curent
production is not diminished.
Mr. Walje's rebuttal testimony on page 12, lies 9-13, states: "If Monsanto was
truly a non-firm customer as they claim and would like you to believe, Rocky
Mountain Power's dispatch office would be callng Monsanto each day to let
them know which hours of that day they could run their furnaces, because we
need the electric capacity for customers who do pay for firm service, which is
obviously not the case." Do you agree with that statement?
Absolutely not. Mr. Walje's testimony displays a total lack of understanding how the
Company actually curtails Monsanto's serce, and it is apparent he has never
examined either the Company's or Monsanto's curtailment logs. In fact, the
Company's dispatch offce calls Monsanto throughout the year stating exactly when,
what type, how large and how long they want to interrpt serice to Monsanto.
Monsanto immediately responds to every request and have at all times fully complied
with the contract terms. Accordingly, the Company does in fact directly control when
Monsanto's furnaces run.
2758 Smith, Di - 3
Monsanto Company
.
.
.
1 Q
2
3 A
4
5 Q
6 A
7
8
9 Q
10 A
11
12
13
14
15 Q
16 A
Are Monsanto's furnaces available to interrupt throughout the entire calendar
year?
Yes, they are. Our records and theirs reflect interrptions in most months of the year
although they are mostly concentrated during the summer peak months.
Do you maintain logs of the curtailment requests received from PacifiCorp?
Yes. Exhibit 252 is a copy of our operators' logs reflecting the curtailments in 2007
though 2010 by type, date, lengt and amount. These logs also reflect that Monsanto
typically curtails in a matter of seconds from when the request is received.
Where are the curtailment options defined and what do they consist of?
Anual curailments for system integrty, for operating reserves and for economic
reasons are set fort in Exhibits A and B to the 2008 Agreement, Exhibit 252. For
operating reseres the Company can curtail 95 MW for 188 hours. For system
integrty the Company can interpt up to 162 MW for 12 hours. For economic
curtailment they can take up to 67 MWH for up to 850 hours.
Does Monsanto have any right to direct the interruptions?
No.
2759 Smith, Di - 4
Monsanto Company
.1 Q
2 A
3
4
5
6
7
8
9
10
11
12.13
14
15 Q
16
17 A
18
19
20
21
22.
Does Monsanto ever curtail all three furnaces at the same time?
Yes, as I explained earlier 162 MW can be taken for system integrty. The most recent
System Integrty event was just this past September 15, 2010 when PacifiCorp
dispatchers requested that all three furnaces be interrpted.
Furerore, economic curtailments and interrptions for operating reserves
can be taken simultaneously resulting in a reduction of 162 MW. For example, on
July 18,2010, fuace #9 (67 MW) was called for economic curailment from 8:30
AM to 11 :30 PM (Mountain Time). At 4:58 PM that same day, PacifiCorp requested
an operating reserve interption which meant that we shut down fuaces #7 and #8
(95 MW). As another example, on July 20, 2010, our furnace #9 was called for
economic curtailment from 9:30 AM to 11 :30 PM, and two different operating reserve
interptions occurred at 5:16 PM and 8:13 PM, again shutting down fuaces #7 and
#8. So even durng an economic curailment, operating reserves have priority and
PacifiCorp can call upon the 95 MW.
Has PacifiCorp ever taken more than they are entitled to under the 2008
Agreement?
Yes. The most recent time was in 2008 when PacifiCorp requested more system
integrty hours to deal with emergency situations and we provided it to them. Soda
Springs Plant operators are told to comply with ever request from PacifiCorp
dispatch personneL. I, along with counterpars from Rocky Mountain Power, review
voice tapes and records to determine if the curtailment followed the 2008 Agreement,
and decide how to categorize the event.
2760 Smith, Di - 5
Monsanto Company
.
1 Q
2
3 A
4
5
6
7
8
9
10 Q.11
12
13 A
14
15
16 Q
17
18
19
20.
Has PacifCorp demonstrated through its own actions the importance of
Monsanto interruptibilty?
Most certainly. PacifiCorp's own Integrated Resource Plans clearly demonstrate they
value and count on Monsanto interrptibility as a resource for planning puroses at
least though 2019. The increase in the total hours of interrption and flexibilty in
recent contracts surely demonstrates importance to the Company. The fact that the
Company actually takes interrptions in most months and uses most ifnot all of the
total available hours of interrptions each year further evidences importance to the
Company.
On page 12, lines 17-18, Mr. Walje states: "The Company has been workig for
over two decades to bring Monsanto to full cost of servce." Do you agree with
this statement?
Absolutely not. It is unmaginable that Mr. Walje could reach ths conclusion and his
testimony indicates that either he has never reviewed or simply chose to ignore the
Company's fiings and the Commission's Orders, at least back to 1990.
Have you reviewed various applications and other papers fied by the Company
with the Commission as well as the various Orders of the Commission dealing
with Monsanto's cost of service from 1990 forward in order to rebut this
allegation by the Company that Monsanto has been under cost-of-service for over
two decades?
2761 Smith, Di - 6
Monsanto Company
.1 A
2 Q
3
4 A
5
6
7
8
9
10
11.12
13
14
15
16
17
18
19 Q
20
.
Yes, I have.
Based on your review of the Company's fiings and the Commission's Orders,
what do you conclude?
Up until recently cost of service studies were not utilized for the purpose of setting
Monsanto's rates. It was recognized by Monsanto and the Company that Monsanto
was sered out of operating reserves with no plants built or needed to meet its
interrptible demand and service. Instead, Monsanto was priced based upon coverng
the varable costs, transmission costs and making a reasonable contrbution to fixed
costs. Only in recent years has cost-of-service methodology been looked to in
establishing Monsanto's rates.
In Docket No. PAC-E-Ol -16, where the Commission entered Final Order No.
29157 dated Januar 27,2003, the Commission set a rate for Monsanto that was
deemed fair, just and reasonable, but did not adopt any specific cost-of-serVce study.
Since that time Monsanto's rates have continued to increase but all of those occured
by reason of settlement stipulations approved by the Commission, and in paricular no
methodology was agreed upon for the valuation of Monsanto's interptibilty. In
approving the varous stipulations in prior year, the Commission found the rates to be
fair, just and reasonable.
Please describe in greater detail the various Company filings and Commission
Orders that you believe support and establish the conclusions you discuss above
2762 Smith, Di - 7
Monsanto Company
.1
2
3 A
4 Q
5
6
7 A
8
9
10
11.12
13
and undermine the credibilty of Mr. Walje's testimony that Monsanto has been
under cost-of-service for more than twenty years.
I discuss each item in chronological order in Attachment A to my testimony.
Mr. Clements' Supplemental Testimony at page 6 seemed to suggest that
Monsanto has had some type of preference for shorter term contracts with
PacifCorp. Is that an accurate characterization?
No. Price certainty and stability has always been highly important to Monsanto
because of the large capital expenditures and long-term planing requirements for
permitting, developing and operating our phosphate ore mines. The Commission has
recognized the importance of price certainty and stabilty to Monsanto in Order No.
30482, stating at page 12:
"Affordable electrcity at a price that is relatively stable and reliable is
important to Monsanto."
14 It is PacifiCorp, not Monsanto, that has sought shorter-term contracts,
15 paricularly in recent years when the contracts have been for thee years or less. Of
16 greatest concern to Monsanto is the fact that since our contracts are now tied to tarff
17 rate changes, PacifiCorp controls when rate changes occur and the associated pricing.
18 Furhermore, the Company's filing in this case suggests a continuing pattern of multi-
19 bilion dollar capital investments over the next several years, indicating the Company
20 wil be making frequent, if not anual, general rate case fiings in order to place these
21 expenditures into rate base and earn a rate of return. Mr. Clements is mistaken in that
22.Monsanto does not desire a longer term agreement with the Company.
2763 Smith, Di - 8
Monsanto Company
.
1 Q
2
3 A
4
5
6
7
8
9
10
11.12
13
14
15
16
17
18
19
20
.
Are you aware of longer term contracts PacifiCorp has entered into with other
interruptible customers?
Yes. In 2006, PacifiCorp signed a seven (7) year agreement with an interrptible
customer lasting until December 31,2013, and in 2009 signed a five (5) year
agreement with another interrptible customer through December 31, 2014. Monsanto
has not had a contract greater than three years since the 1995 contract terminated at the
end of2003.
In addition, these other interptible contracts include provisions for handling
rate changes over the contract term that are not based on contentious cost of serice
issues and suspect valuation methodologies. For example, both the rates and
interptible valuation of the 5-year contract are adjusted each year by the same
percentage change, if any, as Utah rates in general change. This contract also includes
"highest" and "lowest" index adjustments that provide a "ceiling" and "floor" to price
changes. Those types of mechanisms would help Monsanto to have a longer term
contract while keeping their rate impact in line with the overall system increase for
Idaho.
While our rate may change frequently since it is now tied to tarff changes,
there is no reason the other contract terms should not remain in place long-term. This
would dispel any doubt that Monsanto's load wil remain interrptible and used as a
demand side resource to the Company for years to come.
2764 Smith, Di - 9
Monsanto Company
.
.
l.
1 Q
2
3 A
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
Do you find other troubling inconsistencies with Mr. Clements' Supplemental
Testimony?
Yes. On page 4, lines 11 - 15, Mr. Clements suggests that the Company follows a
"customer indifference" approach and seeks to pay industrial customers for
interrptible products the same price the Company would pay to acquire those same
products from other sources, "such as the market or its own resources." This seems to
suggest that the Company would treat the demand side resource such as Monsanto
equally to constructing its own peaker plant or acquiring a new windmil. Despite
paying lip service to this purported "customer indifference" approach, Mr. Clements
seems to ignore what it costs the Company to acquire its own new resources,
advocating on page 19 for a type of energy market price resulting from the Front
Office and GRID models, while discarding the peaker resource approach. It seems
rather obvious that the Company's honest preference is to build and own its own
resources in order to benefit from the opportity to ear a favorably high rate of
retu on common equity.
Mr. Clements has also asserted that absent a Commission decision or
stipulation between the two paries by December 31, 2010, Monsanto will receive a
bil beginning January 1, 2011 at 100% firm rates. The Commission has ruled in its
Order No. 32098 that Monsanto's interrptible credit wil continue at its present level
"until the matter is decided by the Commission" and that "all other serice ters in the
2008 Agreement shall remain unchanged." (p. 5)
2765 Smith, Di - 10
Monsanto Company
.
.
.
1 Q
2
3 A
4
5
6
7
8
9
10
11
12
13
14 Q.
15 A.
Do you have any further comments to make on the Company's valuation of
Monsanto's interruptibilty?
Yes. Monsanto has always been wiling to work with the Company in structuring the
curtailment hours and terms of Monsanto's interrptibility in a maner that maximizes
the benefit to the Company and enhances value to Monsanto. It is very disappointing
and frstrating for Monsanto to lear in this case that PacifiCorp now seeks approval
to de-value Monsanto's interrptibility by over 60%. At the same time the Company
is trngto diminish the value of Monsanto as a demand response resource, it
continues to build new wind generation, gas peaker plants and other resources at
increasingly higher prices and demanding full recovery of both capital and operating
costs. Surely if the Company honestly is "customer indifferent" it should have no
problem valuing Monsanto curtailment the same as its own resources. To do
otherise is simply disingenuous.
Does this conclude your testimony?
Yes.
2766 Smith, Di - 1 1
Monsanto Company
.1 ECONOMIC VALUATION OF MONSANTO PRODUCTS:
2 Q PLEASE STATE YOUR NAME, EMPLOYER AND BUSINESS ADDRESS.
3 A My name is James R. Smith. I am employed by Monsanto Company at the Soda
4 Springs Plant and my business address is P.O. Box 816, Soda Springs, Idaho
5 83276.
6 Q
7
8
9 A.
10 Q
11
12 A
13
14
15 Q
ARE YOU THE SAME JAMES SMITH WHO PREVIOUSLY FILED
DIRECT TESTIMONY ON DECEMBER 22, 2010 ON BEHALF OF
MONSANTO COMPANY?
Yes.
WHAT ISSUE ARE YOU ADDRESSING IN YOUR REBUTTAL
TESTIMONY?
I am rebutting Mr. Keith Hessing's testimony, testifyng on behalf of the Idaho
Public Utilities Commission Staff ("Staff'). I am addressing Mr. Hessing's
testimony concering the value for System Integrty Interrptions.
MR. HESSING ADDRESSES THE VALUE OF THE SYSTEM
16 INTEGRITY INTERRUPTION ON PAGE 3, LINE 12 THROUGH PAGE 4,
17 LINE 12 OF HIS TESTIMONY AND ACCEPTS THE COMPANY'S
18 $100,000 ESTIMATE OF THE VALUE OF THIS PRODUCT BASED ON.19 THE RESULTS OF A FRONT OFFICE MODEL RUN. DO YOU AGREE
2767 Smith, Di-Reb - 1
Monsanto Company
.1
2
3
4 A
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
.
.
.
THAT THE PROPOSED VALUE OF $100,000 PER YEAR is FAIR AND
REASONABLE FOR THE TWELVE HOURS OF SYSTEM INTEGRITY
INTERRUPTION?
No. The 2008 Electric Service Agreement, Exhibit No. 251 in the attached Exhibit
A at paragraph 3 provides:
PacifiCorp may request System Integrty Interptions of up to 162
MW if the system integrty interrption is voltage related and up to
95 MW if the system integrty interrption is caused by a double
contingency event. A double contingency event shall mean the
forced outage of two or more PacifiCorp generating units totaling
500 MW or more of capacity. ... Under emergency conditions,
such interption may occur without advance notice to Monsanto.
Otherise, PacifiCorp shall give Monsanto not less than two hours
notice of the potential for interrption for system integrty
purposes and advance notice when such interrption wil end.
Paragraph 3.1 provides:
System Integrty Interrptions shall be available to PacifiCorp all
hours of every day, and have priority over any other interrption or
curailment option implemented at that time.
While Monsanto has been and wil remain flexible in providing curailment options
to PacifiCorp that provide the greatest benefit to PacifiCorp and the system,
Monsanto is only wiling to do so if it receives fair and reasonable value in return
that adequately compensates Monsanto for the adverse impacts of the interrption
which includes lost production, disruption of production, maintenance and related
activities, which increase operating expenses and poses risk of damage and
increased maintenance expenses for equipment.
The value proposed by Monsanto in the testimony of Mr. Collns provides
fair and reasonable value for Monsanto's curtailment products, but the Company's
proposed value for system integrty interrptions, in paricular, does not. Monsanto
Smith, Di-Reb - 2
Monsanto Company2768
.1 would forego providing any system integrty interptions at the Company's
2 proposed value.
3 Q
4
5
6
7 A
8
9
10.11
12
13 Q
IF MONSANTO NO LONGER PROVIDES SYSTEM INTEGRITY
UNDER A FUTURE AGREEMENT, THEN WOULD MONSANTO
CONTINUE TO "BE CONSIDERED FIRST" FOR INTERRUPTION IN
AN UNPLANNED EVENT?
No. As Mr. Hessing noted in his testimony "any and all customers are subject to
interption to preserve system integrty" (emphasis added). Thus, if Monsanto is
to be treated no differently than other customers, it should no longer "be
considered first." PacifiCorp must look to interpting other customers before
interrpting Monsanto since consistently placing Monsanto at the "front of the
line" would be discriminatory and unfair.
DO YOU HAVE ANY OTHER COMMENT ON THE STAFF'S
14 TESTIMONY REGARING MONSANTO'S INTERRUPTIBLE RATE?
15 A Yes. The increase found in the Commission's recent Interlocutory Order together
16 with Mr. Hessing's valuation of $14.2 milion would result in an increase of $8.6
17 milion or over 20% to Monsanto:
.
Table 1.
Staff's Impact to Monsanto ($ Milions)
Firm Revenues
Interrptible Valuation
Net Revenues
Present
$59.5ïZ
$42.4
Pro osed
$65.2
14.2
$47.3
Increase
$5.7UÆ
$8.6
2769 Smith, Di-Reb - 3
Monsanto Company
.
. 11
.
1
2
3
4
5
6
7
8
9 Q
10 A
The proposed net revenues of $47.3 milion is $36.85 per MWh, an amount which
is higher than PacifiCorp charges either of its other two interptible customers.
For example, as Ms. Iverson explained in her direct testimony, the other two
interrptible customers wil pay rates in 2011 ranging from $32.84 to $33.49 per
MWh. Monsanto offers more value to PacifiCorp than either of those other two
interrptible customers in ters of larger size, more hours, faster response,
unconstrained timing and flexibility, and so should be priced lower not higher
than its other interrptible customers.
DOES THIS CONCLUDE YOUR REBUTTAL TESTIMONY
Yes.
2770 Smith, Di-Reb - 4
Monsanto Company
.
.
1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER SMITH: Mr. Price, do you have
4 questions?
5 MR. PRICE: No questions for this witness.
6 COMMISSIONER SMITH: Mr. Hickey.
7 MR. HICKEY: I do. Thank you, Madam Chairman.
8
9 CROSS-EXAMINATION
10
11 BY MR. HICKEY:
12 Q.Good afternoon, Mr. Smith.
13 A.Good afternoon.
14 Q.Mr. Smith, let me try some questions that I think
15 we're in agreement with. If we're not, I'm sure you'll tell
16 me.
17 Will you agree that the contract provides for --
18 the expired contract with Rocky Mountain Power, the electric
19 service agreement, provided for 850 hours of curtailment for
20 economic reasons?
21 A.I don't want to -- I don't want to put a legal --
22 come to any kind of legal conclusions on whether that expires.
23 I know there are some Orders and stuff that carry that on.
24 If you will break the question into does the.25 current year have 850, the last year did, and that's the way we
2771
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
20
21
1 are operating in the first month.
2 Q.I understand your sensitivity, and note it.
3 A.Okay.
4 Q.But we can agree on the figure. Whether whatever
5 the legal status of the contract is, the figure is 850 hours in
6 the last contract year?
7 A.For economic curtailment, yes, sir.
8 Q.Yes. And I think we can also agree that in the
9 last contract year, the number of hours for interruption for
10 operating reserves was 188 hours. Correct?
11 A.Yes, sir, that's correct.
12 Q.And there were 12 additional hours for system
13 integrity?
14 A.Yes, sir.
lS Q.And so the total that you noted on page 2 at line
16 20 -- actually, line 19 on this copy of your testìmony, was
17 that
18 A.I'm sorry, are you in my direct testimony?
19 Q.It is your direct.
A.Okay, line page 2? I'm sorry.
Q.My copy, it's on line 19 where I'm headed. I
22 somehow think that maybe the filed copy had a different line.
23 But it's a simple mathematical calculation to come to that
24 1,050 hours, isn't it?.25 A.Yes, sir.
2772
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
20
1 Q.Simply add those three figures that we just
2 agreed to?
3 A.Yes, sir.
4 Q.So let's next see if we can agree on putting some
5 perspecti ve on that approximate 1,050 hours. Would you agree
6 with me that 1,050 hours would reflect approximately 12 percent
7 of a year?
8 A.I haven't done the math, but that sounds correct.
9 Q.Well, we could kind of off-the-cuff get ten
10 percent at 876, couldn't we, and then just rounding 12?
11 A.As I said, that sounds correct, yes.
12 Q.And isn't it true, Mr. Smith, that the rights to
13 interrupt under the contract are limited?
14 A.The rights under the contract are limited. There
15 are some limitations to the rights under the contract, yes,
16 sir.
17 Q.They are limited by the hours we just agreed to.
18 Correct?
19 A.Yes, sir.
Q.They are limited to specific numbers of megawatts
21 depending on what the type of product is, and those are both
22 significant limitations on the right to interrupt. Correct?
23
24.25
A.Yes, sir.
Q.For instance, to interrupt for operating
reserves, a reserve event must occur. Isn't that a
2773
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
1 precondi tion to interruption?
2 A.Yes, sir.
3 Q.And if such an event occurs, the interruption is
4 limi ted to 95 megawatts, and further limited to 188 of the
5 8,760 hours in a year. Can we agree to that?
6 A.Sir, not completely. Let me explain why.
7 Generally, an operating reserve would be 95, but
8 there are conditions in which we are required to provide more
9 than that. So, generally, that would be true, but there are
10 specific circumstances where we provide other furnaces and they
11 are much more than that.
12 Q.And -- fair enough, and I certainly note that
13 wi th you as well. But if we focus on the number of hours for
14 an interruption for an operating reserve out of the total hours
15 of a year, for that type of interruption it's about two percent
16 of the year, isn't that true, the relationship of 188 hours to
17 8,760?
18 A.If you compared the hours to the amount of hours
19 in the year, it is approximately two percent. However, I guess
20 there's one major distinction that I would point out here and
21 that is we must be prepared to curtail our operations 100
22 percent of the time. So while the events are limited to those
23 numbers, we at the plant must stand ready to be interrupted.
24.25
Q.And I'm certainly aware of that, Mr. Smith, but
we are in agreement then that the relationship of the hours
2774
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
18
19
1 that can apply to an interruption for operating reserves is
2 approximately two percent of the year?
3 A.Yes. I haven't done the math, but I accept that
4 as correct.
5 Q.Okay. Now, on pages -- on page 4, line 5, of
6 your January 14th testimony -- and feel free to get it in front
7 of you if you want to.
8 A.Yes, sir, let me find that. You said page 4,
9 line
10 Q.Line 5.
11 A.Yes, I have that.
12 Q.You make the statement that Monsanto offers more
13 value to PacifiCorp than either of these other two
14 interruptible customers in terms of larger size, more hours,
15 faster response, unconstrained timing and flexibility, and so
16 should be priced higher not lower than its other interruptible
17 customers?
MR. BUDGE: Excuse me. Lower not higher.
Q.BY MR. HICKEY: Excuse me. Should be priced
20 lower not higher than its other interruptible customers?
21
22
A.Yes, sir, that's what I state.
Q.Okay. Now, first of all, you are aware of the
23 fact that Customer No. 1 who we've referred to over the course
24 of the day gives Rocky Mountain Power the right to interrupt
25 its entire load for any reason, aren't you?
2775
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 A. I have reviewed generally those agreements,
2 Mr. Hickey, but that was several months ago and I don't recall
3 the exact words in each one of them, so -- I'm not an expert on
4 those contracts, so --
5 Q.So sensi ti ve to our confidential issues and not
6 saying the name of this contract, I'm going to show you
7 Customer No.1' s contract and I'm going to direct you to
8 Appendix B -- and that i s page 31, Counsel, of the entire
9 document -- and ask you if you could read the first paragraph,
10 just Paragraph 1, into the record for us.
11 Well, I guess to be fair about it, first of all,
12 have you seen that contract, Mr. Smith?
13 A.Hold on a second.
14 Yes, sir, and I briefly reviewed this contract
15 prior, several months prior.
16 Q.In the context of this case and subj ect to
17 signing a Nondisclosure Agreement?
18 A.Yes, sir. That is correct.
19 Q.Now, with that additional foundation, would you
20 read that short one- or two-sentence paragraph?
21 A.You're asking me -- this is Appendix B,
22 Section 1, that Section 1.
23
24
25
Q.Yes.
A.It says: Curtailment and interruption. At the
sole discretion of the Company, customer shall curtail and
2776
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 interrupt all service to the plant -- dropping their name --
2 arc furnace load and rolling mills estimated to be 85 megawatts
3 upon Company's òirection as follows.
4 And then it has numerous provisions.
5 Q.That's fine for my purposes. And I'm not trying
6 to cut you off, but unless you actually wanted to read
7 something else, you've said everything that I need you to.
8 A.Okay.
9 Q.So that same clause that gives the Company, as
10 you read it, the sole discretion, that's Rocky Mountain Power
11 has the sole discretion to curtail and interrupt the service to
12 this customer. Right?
13 A.Yes, sir.
14 Q.There is no similar clause to that in the
15 electric service agreement between Rocky Mountain Power and
16 Monsanto, is there?
17 A. Well, I would disagree in terms of the economic
18 curtailment. The economic curtailment can be interrupted by
19 PacifiCorp for whatever reason.
20 Q.Okay. Let's--
21 A.There are some specific criteria which PacifiCorp
22 put in regarding the operating reserve and the system
23 emergency.
24
25
Q.And the unfettered or sole discretion of Rocky
Mountain Power to interrupt for those other two products simply
2777
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 doesn't exist anywhere in your contract. Is that correct?
2 A.That is correct. When we put that contract
3 together, we asked them to define those two provisions, and the
4 definitions they provided us went into the finals.
5 Q.And, in fact, under the contract we just looked
6 at with Customer No.1, there is no right for that customer to
7 an economic buy-through, is there?
8 A.You're again asking me that -- on the contract
9 that you just provided me which I reviewed two months ago and
10 reviewed through, I'm not sure I'm an expert.
11 Q.Well, that's fair.
12 A.I'm not trying to be cagey. I'm just not an
13 expert on that contract.
14 Q.Let me rephrase it. As you sit here today and
15 drawing on your recollection, do you have any provision of this
16 contract you could direct me to that you're aware of that would
17 gi ve Customer 1 any right to a buy-through for economic
18 curtailment?
19 A.No, sir, I'm not aware of one.
20 Q.I'm going to hand you what I'll represent to you
21 is a copy of the --
22 A. Yes.
23 Q. -- Monsanto/Rocky Mountain Power electric service
24 agreement. You are familiar with that one, aren't you?
25 A.Yes, to much greater detail.
2778
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
1 Q. And we're looking at Exhibit B to that Agreement
2 that I just handed you?
3 A.Yes, sir.
4 Q.Could you read the first provision of Paragraph 5
5 into the record for us, please?
6 A.This will be Section 5. You're speaking
7 specifically to 5.1?
8 Q.Yes, sir.
9 A.Monsanto shall have the option to buy through
10 economic curtailment by paying PacifiCorp for replacement
11 energy costs at the adjusted price index.
12 Q.So in terms of the contract that you have had
13 with Rocky Mountain Power, by having that opportunity to buy
14 through an economic curtailment, there may never be a
15 curtailment if you purchase power. Correct?
16 A.No, sir. There is a curtailment. There is a
17 curtailment whether I buy through or not, there is a
18 curtailment.
19 Q.There is a pricing decision that you make, isn't
20 there, sir, as to whether or not you're going to buy through?
21 A.We make a decision whether or not to physically
22 turn off our furnaces or to purchase, yes, sir, that is
23 correct.
24.25
Q.All right. And to the extent that you make the
decision to purchase, there has been no load or no resource
2779
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
1 that has been avoided or deferred for Rocky Mountain Power, has
2 there?
3 A.Well, Mr. Hickey, when this was originally put
4 together and this is provisions that have carried through
5 mul tiple contracts the intent for an economic curtailment as
6 it was represented to us was for the most part power would not
7 be available from PacifiCorp, and, in fact, that they would be
8 forced to go out on the outside market and purchase that power,
9 and that's how this all developed.
10 Q.Wi th all due respect, sir, let me -- if I may,
11 Madam Chairman -- try the question again. I think it's
12 susceptible to a "yes" or "no" answer.
13 I asked, Mr. Smith, to the extent that Monsanto
14 exercises that contractual right to buy through the economic
15 curtailment and supplies power, no resource has been avoided or
16 deferred in that instance, has it?
17 A.Whose resource, sir?
18 Q.Resources of Rocky Mountain Power.
19 A.I would have no idea, because the resource could
20 have come from Rocky Mountain Power or it could have been
21 purchased on the market from Idaho Power or any other source.
22 Q.Well if you will agree with me that "contracted
23 for power" can also be a resource besides self-generated
24 electricity and put in the same circle both purchased power and.25 self-generated electricity, wouldn't you agree that there's
2780
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
1 been no avoidance of the resource nor any deferral of the
2 resource?
3 A.For PacifiCorp, I would not agree with that,
4 because for PacifiCorp, they may choose to service it out of
5 their resources, in which you would be correct; or they may
6 choose to buy it from some other entity, which is originally
7 how the concept was developed and they would get it from them,
8 and hence your comment would be incorrect.
9 Q.Well, would you agree with me that the
10 opportuni ty to buy through an economic curtailment is, in fact,
11 a pricing decision on the part of Monsanto?
12 A.I would agree that pricing is a significant
13 component of that decision. It's not the only aspect in which
14 we would make, as I have covered earlier.
15 Q.And I accept your qualification in that regard.
16 But there is an opportunity for the Company to avoid the event
17 of losing power for those hours that an economic curtailment is
18 sent to you by purchasing through. Correct?
19 A. I'm not trying to be cagey, but could you repeat
20 that question? I'm having a hard time following.
21 Q. Isn't it a fact, Mr. Smith, that in calendar
22 years 2007, 2008, 2009, Monsanto exercised its right to buy
23 through an economic curtailment on numerous occasions?
24.25
A.I would agree that in those years we exercised
the right to buy through curtailment when -- when -- when the
2781
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
1 decision tree ìndicated that that was the best thing for us to
2 do.
3 Q.And when that happened, Rocky Mountain Power, in
4 those instances, was able to provide you a resource, provide
5 you power, in order to allow that clause of the contract to
6 have meaning to you. Isn't that true?
7 A.Where the resource came from, I do not know, but
8 PacifiCorp delivered product to us in those cases.
9 Q.And you really didn't care where it came from, so
10 long as it came and came at the price that you were quoted.
11 Right?
12 A.Yes, sir. The location of the resource is not
13 something we spend a lot of time worrying about.
14 Q.And isn't it also true that in each of those
15 years I just identified, 2007, 2008, and 2009, there was no
16 time that you requested the buy-through option that you were
17 told by Rocky Mountain Power, Can't do it, can't find power to
18 supply you?
19 A.There are -- there are occasions, though they are
20 rare, when we will be in an economic interruption and there
21 will be a subsequent interruption, an operating reserve or a
22 system emergency that will pop up. When those occur, then
23 power is not available for us and we honor the interruptions.
24.25
Q.So you're wanting to put that as a footnote on
the observation that for those three calendar years that I've
2782
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 mentioned, you were able to almost without exception obtain
2 power from Rocky Mountain Power when you exercised the
3 buy-through option. Correct?
4 A.i would state that I have not reviewed those so I
5 can answer your question, but I would agree with you, sir, that
6 for the most part, when we choose to buy through economic
7 curtailment, PacifiCorp supplies us under in all of its
8 cases except for when there may have been an operating reserve
9 or system emergency that may have popped up.
10 Q.So would you agree that it's become a common
11 practice over the course of the recent years of this contract
12 for Monsanto to exercise the buy-through option on economic
13 curtailment?
14 A.Recent.
15 I would represent to you, Mr. Hickey, that when
16 the curtailment provisions that had been provided and agreed to
17 between Monsanto and the Company have included economic
18 curtailment throughout all those years, there were times when
19 we have bought through. So, I don't consider that a recent
20 event. It's been rather a traditional practice for us for
21 years whenever power has been available.
22 Q.I'm not sure that that was responsive. Could I
23 ask the court reporter to read the question back, Madam
24 Chairman?
25 COMMISSIONER SMITH: Certainly.
2783
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 (Whereupon, the requested portion of the
2 record was read by the court reporter.)
3 BY MR. HICKEY: Has it become a common practice,Q.
4 Mr. Smith?
5 It is a practice that we have exercised not justA.
6 in recent years but whenever we've had these provisions. When
7 the conditions that we evaluate buying through are met, then we
8 will buy through; and if they don't, then we curtail.
9 Is it an accommodation to Monsanto to be able toQ.
10 have that opportunity to say, We would prefer to pay a market
11 price today to keep our furnaces operating so we can continue
12 to produce product?
13 It is an option that we have that has existed forA.
14 many, many years that is of benefit to Monsanto, yeah, I would
15 agree.
16 You find value in it?Q.
17 Well, there are times when we find value in it,A.
18 and those times that we find value in it, we usually buy
19 through. Those times that we don't find value in it, we don't
20 buy through.
21 Because you have found value in it so many timesQ.
22 in the recent years, wouldn't you agree that economic
23 curtailment is more of a pricing mechanism than it is a
24 physical disruption of the flow of electricity to the Soda
25 Springs plant?
2784
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 A.Economic curtailment is economic curtailment.
2 There is a provision on which we can buy through. When the
3 market conditions are such and other conditions are such, we
4 do. When we don't, when there are not, we don't buy through.
5 The fact that we have bought through a number of
6 hours in the past has really no representation of what we will
7 do in the future. Each individual interruption is evaluated
8 individually and a decision is made.
9 But going back to your testimony that there areQ.
10 1,050 hours of interruption or that 12 percent of the year that
11 can occur , given the opportunity to buy through for economic
12 curtailment, it would be a misrepresentation to leave this
13 Commission with the impression that actual physical disruption
14 of the flow of electricity is occurring 1,050 hours of the
15 year. Isn't that a fact?
16 In fact, sir, that could occur. But if you goA.
17 back and annualize each individual year, each individual year
18 will look differently.
19 Let's talk about another area of your testimony.Q.
20 You state in your January 14th testimony -- and I'm on page 2,
21 lines 29 and 30, if you'd like to stay with me on it.
22 Page 2, line 29 and 30. Yes, sir, I have that.A.
23 You say the value proposed by Monsanto in theQ.
24 testimony of Mr. Collins provides fair and reasonable value for
25 Monsanto's curtailment products.
2785
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
1 Isn't that a portion of the sentence that's found
2 on lines 29 and 30?
3 A.Yes, sir, that is.
4 Q.And do you understand the methodology that
5 Mr. Collins relies upon to offer a view of value to this
6 Commission?
7 A.Yes, generally I do, yes, sir.
8 Well, you're not going to suggest to theQ.
9 Commission, are you, Mr . Smith, that Rocky Mountain Power
10 receives the same products or values from the three
11 interruptible products provided for under the electric service
12 agreement that it does from a combustion turbine?
13 Would you repeat that question? I'm sorry.A.
14 Sure. You won't suggest to this Commission thatQ.
15 the three interruptible products provided for under the
16 electric service agreement provide the same products and the
17 same values that the Company receives under a combustion
18 turbine?
19 I believe, sir, that the products that MonsantoA.
20 provides are best valued based on a turbine.
21 can they be used differentNow, do turbines
22 ways? I don't disagree with Mr. Clements that they can be.
23 Is that the best way to use them? No..
24 Is that the way the Company is using them? I
25 would tend to disagree that that's not exactly how the Company
2786
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
1 is using them.
2 This is a data point. This is, in my view, one
3 of the best data points for the Commission to use to develop a
4 value for interruptibili ty.
5 Q.I gather then, Mr. Smith, that that was a "yes,"
6 that you recognize that a combustion turbine does provide
7 additional value and product that are not embedded or a part of
8 the interruptible products under the ESA. Yes?
9 A.There are -- for instance, there are options
10 under one of those turbines that could be used -- not that they
11 are or not that they would be but that could be used -- that
12 are a little different than -- my product I provide is not
13 exactly a turbine. It's interruptible furnaces. They are
14 slightly different.
15 Q.All right. The interruptibili ty of the three
16 furnaces does not provide base load energy, does it?
17 A.No, sir, it doesn't, and I'd argue it wouldn't be
18 a good idea to use one of those simple cycle to also base --
19 Q.Mr. Smith, again, with all due respect, I think
20 you answered the question. But it doesn't provide -- the
21 interruption of those furnaces doesn't provide load following
22 either, does it?
23 A.I believe it can in a macro sense, yes, because
24 power can be turned off at our facility that will allow them.25 then to be able to use their power for other facilities. So on
2787
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (X)
Monsanto
.
.
.
19
20
21
1 a macro sense, yes. On a micro sense, I would agree that it
2 does not.
3 Q.And you would also agree, wouldn't you, sir, that
4 there's no automatic generation control that's provided through
5 the ability to interrupt under the three products that are a
6 part of the electric service agreement?
7 A.Yes, sir, I would agree to that as well.
8 MR. HICKEY: If I could have just a minute,
9 Madam Chair.
10 Q.BY MR. HICKEY: I have no further questions.
11 Thank you, Mr. Smith.
12 A.Yes, sir.
13 COMMISSIONER SMITH: Are there questions from the
14 Commission?
15 COMMISSIONER REDFORD: No.
16 COMMISSIONER SMITH: Nor I.
17 Do you have redirect, Mr. Budge?
18 MR. BUDGE: Briefly, if I may. Thank you.
REDIRECT EXAMINATION
22 BY MR. BUDGE:
23 Q.Mr. Smith, is Monsanto better off not to be
24 interrupted or to be interrupted?
25 A.Monsanto is not in the business of not making
2788
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (Di)
Monsanto
.
.
.
1 phosphorus. We would prefer not to be interrupted. It costs
2 us to be interrupted.
3 Q.When you have bought through historically, is
4 that always at a price higher than the power you were receiving
5 from the Company under your contract rates?
6 A.Yes, sir. It would make absolutely no sense at
7 all for the Company to interrupt us at a value less than our
8 contract rate.
9 Q.Are there times that you bought through the
10 economic interruption so you can run your 67-megawatt furnace
11 when one or both of the other furnaces have been curtailed
12 either for system integrity or for operating reserves?
13 A.Could you repeat that again? I'm trying to make
14 sure I
15 Q.Yes. Are there times that you made a decision to
16 buy through the economic curtailment notice to keep your
17 67-megawatt furnace running when one or both of the furnaces
18 would already be off due to another curtailment being exercised
19 by the Company, either operating reserves or system
20 integrity?
21 A.No, not in recent years. The curtailment
22 provisions currently say that if I am being interrupted by a
23 system emergency or an operating reserve, then they could not
24 then give me notice to economically. I can be economically
25 interrupted and then have the operating reserve or system
2789
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (Di)
Monsanto
.
.
.
1 emergency come over the top of it, but you can't have an
2 operating reserve or system emergency and then follow up on top
3 of that with an economic. That is not allowed in the
4 contract -- in the current contract.
5 There were times in the prior contracts when that
6 was available, but not the current contract.
7 When Monsanto decides to give notice and do aQ.
8 buy-through, who bears the associated risks?
9 A. Monsanto does.
10 Q. What do those risks consist of?
11 A. Well, obviously, the first one is obviously the
12 economics, but there are other -- other aspects of risk that we
13 bear as well.
14 For instance, temperature in our area can be very
15 cold and so, for instance, I remember an event where we had a
16 system emergency that took place and the whole unit was shut
17 down and it froze up a bunch of lines. The ultimate cost of
18 that was roughly about $350,000 worth of costs that we bore
19 because of the interruption.
20 And so that's just one example of a time when
21 some of these costs, these operating costs and others, are
22 borne by us. We take that risk.
23 Q. And do you take the risk that if you give notice
24 of buy-through that the power may not be available if you were
25 during a period of peak demand?
2790
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
SMITH (Di)
Monsanto
.
.
1 A.Yes, sir, that's our risk as well.
2 Q.And if there were risks concerning the ability to
3 have the transmission available to deliver power to you that
4 may be constrained for some reason, is that a risk you bear as
5 well?
6 A.Yes, sir. And while those things don't happen
7 very often, I guess it should be pointed out that when we are
8 being curtailed, most of the time the system is in -- demand is
9 higher, it's in peak.
10 MR. BUDGE: No further questions. Thank you.
11 COMMISSIONER SMITH: Thank you, Mr. Smith.
12 Appreciate your help.
13 (The witness left the stand.)
14 MR. BUDGE: We'd call Brian Collins, please.
15 COMMISSIONER SMITH: I believe Mr. Collins is
16 still under oath.
17
18 BRIAN COLLINS,
19 produced as a witness at the instance of Monsanto, having been
20 previously duly sworn, was examined and testified as follows:
21
22
23
DIRECT EXAMINATION
24 BY MR. BUDGE:.25 Q.Would you state your name and business address
2791
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLINS (Di)
Monsanto
.
.
1 for the record?
2 A.Yes. It's Brian C. Collins. My business address
3 is 16690 Swingley Ridge Road, Chesterfield, Missouri, 63017.
4 Q.Mr. Collins, I believe you filed testimony and
5 also testified in Phase 1 of this case?
6 A.That's correct.
7 Q.And did you file for purposes of this Phase 2
8 direct testimony under date of December 22, 2010; rebuttal
9 testimony under date of January 14, 2011; and surrebuttal
10 testimony under date of January 24, 2011?
11 A.That's correct.
12 Q.And I believe you sponsored to the part of your
13 direct testimony Exhibits 254, 255, and 256?
14 A.That's correct.
15 Q.Do you have any corrections you wish to make to
16 either your testimony or your exhibits?
17 A.No, I do not.
18 If I were to ask you the questions contained inQ.
19 your testimony today, would your answers be the same?
20 A.Yes, they would.
21 I have one preliminary question to ask relativeQ.
22 to Commissioner Kempton's discussion with Mr. Clements about an
23 applied capacity value. Do you recall those questions and
24 answers?.25 A.Yes.
2792
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLINS (Di)
Monsanto
.
.
.
1 Q.And if I heard Mr. Clements' testimony correctly,
2 he stated that there was an implied capacity value in the
3 Company's analysis. Did you hear that testimony?
4 A.Yes, I did.
5 Q.Have you done any analysis on this implied
6 capacity value asserted by the Company?
7 A.Yes, I did, in Exhibit 256 that was attached to
8 my testimony filed back in December. I looked at the implied
9 capacity values based on the Company's valuations that they
10 provided of Monsanto's interruptibili ty based on the GRID and
11 front office model transactions. Based on the fuel costs of
12 both the simple cycle and the combined cycle facility, the
13 Company's GRID and front office valuations for operating
14 reserves resulted in a range of capacity value that included
15 $8.69 per kilowatt year to $27.40 per kilowatt year. The same
16 analysis for the economic curtailment valuation, you know,
17 based on the fuel costs of both the simple cycle and a combined
18 cycle resulted in an implied capacity value in the range of
19 negative $27.16 per kilowatt year to $11.99 per kilowatt year.
20 So a negative value would indicate that the valuation provided
21 by the Company did not recover the fuel costs of a turbine.
22 MR. BUDGE: No further questions. With that, we
23 would ask that Mr. Collins i testimony be spread upon the
24 record, and tender him for cross-examination.
25 COMMISSIONER SMITH: If there's no obj ection, the
2793
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLINS (Di)
Monsanto
.
.
20
21
22
23
24.25
1 prefiled testimony will be spread upon the record as if read.
2 (The following prefiled direct,
3 rebuttal, and surrebuttal testimony of Mr. Collins is spread
4 upon the record.)
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
2794
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLINS (Di)
Monsanto
.
.
.
1 Q
2 A
PACIFICORP dba ROCKY MOUNTAIN POWER
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. PAC-E-10-07
Direct Testimony of Brian C. Collns
PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
3 Chesterfield, MO 63017.
Brian C. Collins. My business address is 16690 Swingley Ridge Road, Suite 140,
4 Q
5 A
ON WHOSE BEHALF ARE YOU APPEARING IN THIS PROCEEDING?
i am appearing on behalf of Monsanto Company ("Monsanto"), a special contract
7
6 customer of Rocky Mountain Power ("RMP" or "Company"). RMP is a division of
PacifiCorp.
8 Q
10 A
9 TESTIMONY IN THIS PROCEEDING?
ARE YOU THE SAME BRIAN C. COLLINS WHO PREVIOUSLY FILED
11 nature of Monsanto's loads, the treatment of Monsanto by RMP in its Integrated
Yes, i am. On November 1, 2010 i provided direct testimony as to the interruptible
12 Resource Plan ("IRP"), and the economic benefis to RMP, its customers and the
13 power system as a whole from a long-term interruptible program such as Monsanto's.
14 Q
15 A
PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND AND EXPERIENCE.
This information was included in my direct testimony filed November 1, 2010.
2795 Collns, Oi - 1
Monsanto Company
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1 Q
2 A
WHAT IS THE SUBJECT OF THIS DIRECT TESTIMONY?
I provide testimony as to an appropriate basis for the economic valuation of
3 Monsanto's interruptible load. This information is used by my colleague, Kathryn
4 Iverson, in her testimony. i will also respond to the testimony of RMP witness Paul
5 Clements with regard to the Company's approach to valuing Monsanto's
6 interruptibilty.
7 Q
8 TESTIMONY?
ARE YOU SPONSORING ANY EXHIBITS IN CONNECTION WITH YOUR
9 A
10
11 Q
12 A
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
Yes. I am sponsoring Exhibit No. 254 (BCC-1) through Exhibit No. 256 (BCC-3).
These exhibits were prepared either by me or under my supervision and direction.
WOULD YOU PLEASE SUMMARIZE YOUR FINDINGS AND CONCLUSIONS?
My findings and conclusions are as follows:
1. Monsanto's interruptible load is a long-term resource that provides capacity value
as well as the opportunity for 1,050 hours per year of interruption.
2. RMP uses Monsanto's interruptible load resource much like it would a
combustion turbine, which is a peak generation resource or "peaker."
3. One reasonable approach to determining the value of Monsanto's interruptibilty
is to base it on the costs RMP would incur to install and operate a combustion
turbine, or peaker.
4. Based on its current provision of operating reserves, economic curtailment and
system integrity to RMP, the avoided peaker cost indicates a value of
$25.5 milion for Monsanto's interruptibilty.
5. Another reasonable approach to determining the value of Monsanto's
interruptible load resource is to base it on the avoided costs that RMP pays
Qualifying Facilties ("QFs").
6. Utilizing the 20-year levelized QF rates results in a value of $25.8 millon for
Monsanto's interruptibilty.
7. The Company has offered its valuation of Monsanto's interruptibilty under two
methods: the Front Office model and the GRID modeL. These models are strictly
2796 Collns, Oi - 2
Monsanto Company
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2
3
4 8.
5
6
7
8
9
10 Q
11
12 A
13
14
15.16
short-term and do not consider the benefis associated with avoiding or deferring
generation. The Front Office model, in particular, focuses exclusively on valuing
Monsanto's reserves on the basis of RMP's least-profitable gas units.
The annual market prices used in the Company's models do not adequately
reflect the avoided capacity costs associated with peaking resources. The
$25.5 millon value determined in Exhibit No. 254 (BCC-1) properly accounts for
the avoided costs, which are long-term. The Company's methods are strictly
short-term and do not properly reflect resource values. For this reason, i
recommend that the Commission give no weight to the Company's valuations.
WHAT AMOUNT OF INTERRUPTIBILITY DOES MONSANTO PROVIDE ROCKY
MOUNTAIN POWER?
The 2008 Electric Service Agreement ("ESA") 1 provides for three types of interruption:
(1) Operating Reserves of at least 95 MW which can be called upon 188 hours per
calendar year; (2) Economic Curtailment of 67 MW available for 850 hours per
calendar year; and (3) System Integrity of 162 MW available 12 hours per calendar
year.
17 RMP's Treatment of Monsanto's Load
18 Q HOW MUCH OF MONSANTO'S LOAD DOES THE COMPANY CLAIM AS FIRM?
19 A
20
21
22
23
24
25
In the response to Monsanto Data Request 16.3 pertaining to the Supplemental
Testimony of Paul Clements, Mr. Clements states the following:
Monsanto's entire load is treated as firm load and their interruptible
products are treated as firm resources. Please see the Rebuttal
Testimony of Gregory N. Duvall in Case No. PAC-E-10-07 for a
detailed explanation of the treatment of Monsanto load in the
integrated resource plan.
.1Monsanto Exhibit No. 251 (ReB-X).
2797 Collns, Oi - 3
Monsanto Company
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1
2
3 A
4
5
6
7
8
9 Q
10 A
11
12
13.14
15
16
17
18
19 Q
Q HOW DOES MR. DUVALL IN HIS REBUTTAL TESTIMONY EXPLAIN THE
TREATMENT OF MONSANTO'S LOAD IN THE IRP?
Mr. Duvall states the following:
Monsanto's load is treated as firm load and their interruptible products
are treated as firm resources. If Monsanto's interruptible products
were no longer economic, the Company would find other means to
meet its firm load obligation and would have an obligation to serve
Monsanto's entire load.
IS 100% OF MONSANTO'S LOAD TREATED AS FIRM IN THE COMPANY'S IRP?
No. The Company's net firm obligation formula is defined in the Company's 2008
IRP at page 89 as the following:
Net Firm Obligation = Obligation - Purchase - DSM -Interruptible
where Obligation equals all load plus firm sales at the time of RMP's system peak.2
Though Monsanto's entire load is included as an obligation, Monsanto's interruptible
load is subtracted from RMP's obligation to arrive at its net firm obligation.
Monsanto's interruptible load is excluded from the Company's net firm
obligation. Firm resources are not acquired by RMP to serve interruptible loads; firm
resources are acquired to serve the net firm obligation.
20 WOULD EVER BECOME FIRM?
IS THERE ANY REASON TO EXPECT MONSANTO'S INTERRUPTIBLE LOAD
21 A
22
23
24
.
No. Monsanto's interruptible load has been interruptible since 1951. As long as
Monsanto is a customer of RMP, it plans to be an interruptible customer. Monsanto's
interruptible load is included as a firm resource (Le., a deduction from its system peak
obligation) by RMP in the IRP planning process through 2019.
2Monsanto Exhibit No. 248 (ReB-X).
2798 Collns, Oi - 4
Monsanto Company
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.
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1 Q WITH RESPECT TO THE IRP, HOW MUCH OF MONSANTO'S LOAD DOES THE
2 COMPANY DEDUCT FROM ITS SYSTEM PEAK OBLIGATION?
3 A In the 2008 IRP, RMP deducted a total of 157 MW (67 MW for economic curtailment
4 arid 90 MW for operating reserves) from its total system peak obligation. However, in
5 a slide presented at an IRP meeting in October 2010, the Company deducted only
6 49 MW of operating reserves from its system peak obligation. This would result in a
7 total deduction of 116 MW of Monsanto load from the Company's system peak
8 obligation. This proposal has not been published in the Company's finallRP report.
9 Q IS IT APPROPRIATE TO DEDUCT ONLY 119 MW OF MONSANTO'S LOAD FROM
10 ITS SYSTEM PEAK OBLIGATION?
11 A No. Based on my review of the current Monsanto contract with regard to furnace
12 operation, it is my understanding that Monsanto could simultaneously provide both
13 95 MW of operating reserves as well as 67 MW of economic curtailment. Since this
14 could happen at the time of RMP's system peak, it is appropriate to deduct
15 Monsanto's entire interruptible load in the amount of 162 MW from the Company's
16 system peak obligation forecasted in its IRP.
17 Q ARE YOU AWARE OF ANY RECENT INSTANCES WHEN MONSANTO WAS
18 PROVIDING SIMULTANEOUS ECONOMIC CURTAILMENT AND OPERATING
19 RESERVE INTERRUPTIONS TO RMP?
20 A Yes, I am aware of at least six recent instances. On August 29,2008, July 18, 2010
21 (twice), July 20,2010 (twice), and August 2,2010, Monsanto was providing RMP with
22 simultaneous economic curtailment and operating reserve interruptions of up to
23 162 MW.
2799 Collns, Oi - 5
Monsanto Company
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6
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8
9
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11
12.
13
14
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17
18
19
20
21
22
23
24
.
Peaker Valuation of Interruptibiltv
Q DOES MONSANTO'S INTERRUPTIBLE LOAD PROVIDE CAPACITY VALUE TO
RMP?
A Yes. Monsanto's load is a flexible, price-responsive load that may be interrupted in
whole or in part during system emergencies, or during periods of high market prices
or stressed regional resources. Monsanto has provided RMP and its predecessors
with an interruptible load resource for over 59 years, and as long as it is a customer
of RMP plans to be interruptible. Because of this long-term commitment, it is
appropriate to base the value of this resource not on some short-term value, but on
the long-run avoided cost of resources with similar attributes. Like Monsanto's
interruptibilty, a combustion turbine is used to meet peak periods of high demand, or
in situations where numerous generator outages result in a scarcity of resources.
Q DOES MONSANTO'S INTERRUPTIBLE LOAD ALLOW RMP TO DELAY OR
AVOID THE CONSTRUCTION OR ACQUISITION OF GENERATING
RESOURCES?
A Yes. Typically, generating capacity is not constructed or acquired to serve
interruptible loads. RMP's predecessor company, Utah Power & Light ("UPL"), was of
the opinion that generating capacity is not built or acquired for interruptible loads. At
page 2 of Order No. 24220 for Case No. UPL-E-92-2, the Commission cites UPL's
Application as stating the following:
According to the Application, demand charges are not assigned to Monsanto's
interruptible service because the Company provides that service to Monsanto
out of its operating reserves (i.e., generation plant is not built to meet an
interruptible demand). (emphasis added)
2800 Collns, Oi - 6
Monsanto Company
.
9
10
11.12
13
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15
16
17
18
19
.
1 Q WHAT ENSURES A SUFFICIENT COMMITMENT IS MADE BY MONSANTO TO
2 ALLOW RMP TO DELAY OR AVOID THE CONSTRUCTION OR ACQUISITION OF
3 NEW GENERATION CAPACITY?
4 A A multi-year contract is suffcient commitment. Monsanto currently has a three-year
5 contract term with RMP. This three-year term requires a significant commitment from
6 Monsanto and is sufficient for RMP to recognize Monsanto's interruptible load in its
7 integrated resource planning. In fact, Monsanto is willng to enter into commitments
8 longer than three years if based upon reasonable contract terms and conditions.
Q DO YOU BELIEVE THAT RMP CURRENTLY USES MONSANTO'S
INTERRUPTIBILITY MUCH LIKE IT WOULD A COMBUSTION TURBINE?
A Yes. Under the current contract, RMP calls upon Monsanto practically every month
of the year to provide either operating reserves or economic curtailment. In times of
emergency, the Company has called on Monsanto to interrupt all three of its
furnaces, or has sought Monsanto's cooperation to keep furnaces from coming
on-line. Monsanto has been highly successful in its interruptible performance and the
Company has even sought additional interruptions at critical times. There are
significant penalties set forth in the 2008 ESA for failure to interrupt, but RMP has
never had to exercise them since Monsanto has complied 100% with all interruption
requests.
20 Q SINCE MONSANTO'S LOAD IS TREATED LIKE A COMBUSTION TURBINE,
SHOULD ITS VALUE OF INTERRUPTIONS BE LIKEWISE DETERMINED ON THE21
22 BASIS OF THE AVOIDED COST OF A COMBUSTION TURBINE?
23 A Yes. A reasonable approach to determining the interruption value is to base it on the
24 costs RMP would incur if it were to build and install a new combustion turbine. A
2801 Collns, Di - 7
Monsanto Company
.
.
.
1 combustion turbine that can provide quick-start capabilty in less than 10 minutes,
2 such as an aero-derivative simple cycle combustion turbine ("Aero SCCT") should be
3 used as the basis for the load which Monsanto can interrupt within 1 0 minutes, in
4 particular the 95 MW of operating reserves. While the 67 MW of economic
5 curtailment can also be interrupted in a matter of seconds for the 12 hours of system
6 integrity, the contract currently requires a two-hour notice for the 850 hours of
7 economic curtailment. Thus, to be conservative i have used the lesser capacity cost
8 of a combustion turbine that does not have quick-start capabilty, e.g., a Frame "F"
9 simple cycle combustion turbine ("Frame CT"), to model the value associated with the
10 67 MW economic curtailment.
I
11 Q WHAT ARE THE COSTS ASSOCIATED WITH THESE TWO TYPES OF
12 TURBINES?
13 A The avoided capital and running costs of these turbines are shown in Exhibit No. 254
14 (BCC-1). The avoided capital costs represent RMP's own estimates of peaking
15 resources in Utah as detailed in the 2010 Update of the 2008 IRP. The running costs
16 are based on the heat rates of these units used in the 2008 IRP and the delivered fuel
17 costs as detailed in RMP's Utah OF filng from June 2010, which is based on RMP's
18 March 2010 price curve.
19 The reallevelized3 cost of an Aero SCCT is $107.814 per kW-year based on
20 construction in Utah at a carrying charge of 9.08% and including fixed operation and
3To determine a levelized cost, the present value of the cost to construct the generating unit is
converted to equal annual costs over its economic life. Real levelized capacity costs used in this
analysis comprise the first year's deferraL. Real levelization (in contrast to a nominal levelization)
assumes that the avoided capital portion would increase each year by the rate of inflation. Asa result,
this methodology can be used to calculate the capacity value regardless of contract length.
"-he $107.81 per kW-year cost is the average of RMP's costs of an Aero SCCT and
Intercooled Aero SCCT.
2802 Collns, Oi - 8
Monsanto Company
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8
9
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11.12
13
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16
17
18
19
20
21
22
23
.
1 maintenance and other costs.5 The avoided energy cost is $79.54 per MWh. The
2 lower capacity cost of the Frame CT is $70.61 per kW-year on a reallevelized basis,
3 with higher energy costs of $96.14 per MWh.
4 Applying these two sets of resource costs to the 95 MW of operating reserves,
5 and the 67 MW of economic curtailment results in a value of roughly $25.5 million:
$14.3 millon attributable to the operating reserve portion6 and $11.2 milion for the6
7 economic curtailment.
Q WHY HAVE YOU BASED YOUR VALUATION ON THE COST OF A NEW
COMBUSTION TURBINE GENERATOR INSTEAD OF THE MARKÈT PRICE FOR
CAPACITY?
A Currently, combustion turbine generation is the lowest cost form of capacity that is
readily available for construction. While the current market price for capacity is lower
than the amortized cost of a new combustion turbine generator, this is only a
temporary situation. Market prices can be volatile and wil need to average to at least
the amortized cost of a new combustion turbine in order for the market to sustain
itself. Finally, long-term participation by Monsanto as an interruptible customer allows
RMP to avoid the construction or acquisition of new generation that it would incur if it
instead had to serve Monsanto's interruptible load as firm load.
The basic concept behind interruptible power is that the utility does not have
to install generation capacity to serve interruptible load because these loads can be
interrupted when capacity is needed to maintain service to firm customers.
Interruptible demand goes beyond just allowing RMP to avoid making short-term
capacity purchases from the market. For all of these reasons, the valuation of
52008 IRP, page 104, and 2008 IRP Update, page 43.
6This also includes the avoided energy cost associated with system integrity.
2803 Collns, Di - 9
Monsanto Company
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1 Monsanto's interruptible load should be based on the cost of new combustion turbine
2 generation.
3 Q WHY DO YOU INCLUDE A 12% RESERVE MARGIN WHEN CALCULATING THE
4 AVOIDED PEAKER COSTS?
5 A Monsanto's interruptible load allows RM P to avoid constructing or purchasing a firm
6 resource. If Monsanto's load were firm, RMP would need to construct or purchase a
7 resource to serve Monsanto's firm load as well as planning reserves needed to serve
8 the load as firm. Thus, RMP avoids the cost of a long-term resource equal to the load
9 plus the planning reserves. Therefore, it is appropriate to include a reserve margin in
10 any avoided capacity cost valuation of Monsanto's interrptibilty.
11 Q CAN YOU PROVIDE AN EXAMPLE TO ILLUSTRATE THE EFFECT OF A
12 RESERVE MARGIN ON THE AMOUNT OF RMP'S AVOIDED CAPACITY
13 RESOURCES?
14 A A utilty must have more than 1 MW of capacity available for every 1 MW of net firm
15 load. A reserve margin provides a cushion against expected load growth, extreme
16 weather conditions and outages of generating equipment. According to the
17 Company's IRP, RMP typically plans for a 12% reserve margin. Stated differently,
18 RMP must install at least 112 MW of generating capacity to reliably serve 100 MW of
19 net firm load. It follows, therefore, that by encouraging customers to opt for
20 interruptible service, RMP would not have to install 112 MW of generating capacity for
21 every 100 MW of interruptible load.
2804 Collns, Oi - 10
Monsanto Company
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4 A
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9
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11 A.12
13
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15
16
17
18
19
20
21
22
23
.
Q IN HIS SUPPLEMENTAL TESTIMONY, DOES MR. CLEMENTS ASSERT THAT A
PEAKER VALUATION IS IMPROPER FOR VALUING MONSANTO'S
INTERRUPTIBILlTY?
Yes. In his supplemental testimony at page 20, Mr. Clements states that a peaker
valuation is not appropriate to value Monsanto's interruptibility. He argues that the
products, terms and conditions offered by Monsanto are not equivalent to the
products, terms and conditions available through ownership or lease of a combustion
turbine. This is based on his claim that a combustion turbine is available 8,410 hours
per year assuming a 96% availabilty factor.
DO YOU AGREE WITH MR. CLEMENTS' POSITION?
No. The fact that a combustion turbine might be available 8,410 hours per year is
irrelevant to the valuation of Monsanto's interruptibilty. Monsanto's interruptible
value depends on the resources it is displacing. YVhat is relevant to Monsanto's
valuation is that when RMP interrupts Monsanto's load, it is at times of peak periods
of high demand or in situations where generator outages result in a scarcity of
resources. At these times, RMP should be operating all of its generating resources,
including peaking resources. The decision by RMP to interrupt Monsanto at these
times should be based on the economic displacement of RMP's highest cost peaking
resources (at times of high demand) or the economic addition to RMP's peaking
resources (at the time of generation resource scarcity). Since Monsanto is displacing
peaking resources or adding to RMP's economic peaking resources, Monsanto's
interruptibilty is treated and operated as a peaking capacity resource and should be
valued as such.
2805 Collns, Di - 11
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1 Q WHAT CHARACTERISTICS SHOULD AN INTERRUPTIBLE LOAD EXHIBIT IN
2 ORDER FOR IT TO BE CREDITED WITH AVOIDING THE COSTS OF A
3 COMBUSTION TURBINE?
4 A An article written by Eric C. Woychik, Vice President of Regulatory Affairs for
5 Comverge, Inc., regarding the benefits of demand response ("DR") resources,
6 including interruptible load, best describes these characteristics:
7 In order for DR to be credited with avoiding supply-side capital cost it
8 must avoid load equally or better than a comparable supply-side
9 resource (proxy) would serve load if the DR weren't available. It10 must respond operationally as quickly as, or quicker than, the
11 supply-side proxy. It also must be equivalent or better in terms of
12 certainty and predictabilty, and must exhibit a ramp-rate that is equal13 or better than the supply-side resource. Finally, it must have
14 comparable or higher short-term reliabilty (in terms of FOR and paR)15 than the supply-side resource.
16
17
18
19
20
DR's value for avoiding supply-side capital costs depends on the
resource it's displacing. A critical distinction in power markets is the
difference between firm power and non-firm power. Firm power is
backed up by operating reserves (spinning reserves and non-spinning
reserves), while non-firm power is not?
21 Q DOES MONSANTO'S INTERRUPTIBILITY MEET THESE CHARACTERISTICS
22 SUCH THAT IT CAN DISPLACE A COMBUSTION TURBINE?
23 A Yes. I provide additional details as to how Monsanto's interruptibility meets these
24 characteristics such that it displaces a combustion turbine, later in this section of my
25 testimony.
26 Q DOES THE COMPANY CONTROL WHEN MONSANTO IS INTERRUPTED?
27 A Yes. The Company controls the interruptions that Monsanto has committed to
28 provide the Company and it is the responsibility of the Company to manage those
7"Optimizing Demand Response," Public Utilties Fortnightly, May 2008, page 54, emphasis
added.
2806 Collns, Oi - 12
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17
18
19
.
1
2
3
4
5
6
20 Q
21
22
23 A
24
interruptions. RMP has historically managed Monsanto's interruptible load such that
interruptions occur in every month of the year. Monsanto must stand ready at all
times to comply with RMP's interruption requests. This is a 24 x 7 x 52 obligation.
Interruptions are not cost free to Monsanto, and being ready to interrupt demand at
anytime is an ongoing process. The abilty to interrupt is of great value, even if the
actual interruption is not triggered.
Q ISN'T A COMBUSTION TURBINE MORE FLEXIBLE AND VERSATILE THAN
MONSANTO'S INTERRUPTIBILlTY?
A No, it is not. Monsanto can interrupt its load within 10 minutes and is available to
RMP 24 hours a day during every month of the year, just like a combustion turbine if
the combustion turbine has a fuel supply, and far superior to a combustion turbine
when it has not been fueled. Monsanto can actually interrupt its load within seconds
for emergency purposes and is willng to do so, which makes Monsanto's operational
response and ramp rate even quicker than a combustion turbine. Response time is
of utmost importance for an electric system, because generation and load must
always be in balance. As more renewable generation, such as wind generation, is
added to the electric grid, Monsanto's provision of operating reserves becomes even
more valuable. Monsanto can provide operating reserves in a matter of a few
minutes.
HOW DOES MONSANTO'S CAPACITY FACTOR FOR ITS INTERRUPTIBLE
LOAD COMPARE TO THE CAPACITY FACTOR OF RMP'S COMBUSTION
TURBINE?
When Monsanto provides 67 MW of economic curtailment at its maximum of
850 hours per year under the current contract, its annual capacity factor is 9.7%.
2807 Collns, Oi -13
Monsanto Company
.
10.11
12
13
14
15
16
17
18
19
20
.
1 This compares favorably to RMP's capacity factor modeled for its Gadsby CT in the
2 test year net power costs.
3 Q DOES INTERRUPTIBLE LOAD PROVIDE ANY OTHER ADVANTAGES RELATIVE
4 TO COMBUSTION TURBINES?
5 A iYes. Monsanto has fully complied with RMP's interruption requests. By contrast,
6 combustion turbines are not guaranteed to start every time their capacity is needed.
7 Since Monsanto has complied 100% with all interruption requests, it has higher
8 reliabilty than a combustion turbine as well as more certainty and predictabilty than a
9 combustion turbine.
Q HAS RMP PREVIOUSLY USED THE COST OF A COMBUSTION TURBINE TO
VALUE INTERRUPTIBLE LOADS?
A Yes. In response to IIPA Data Request 46, RMP states the following:
The Company has estimated the system value of the Idaho Irngation
Load Control Program for cost-effectiveness evaluation using a
methodology first developed in 2007 and reviewed by the IIPA. This
methodology captures the capacity deferral benefit of the resource
via displacement of simple cycle combustion turbine proxy
resources and firm market purchases. The latest estimate, $73.09(8)
kW-year, was prepared in April 2009 and cited in the Company's 2009
dispatchable irrigation program report. (Emphasis added)
8This cost is comparable to the cost for the Frame CT ($70.61 per kW-year) used in the
valuation of Monsanto's economic curtailment shown in Exhibit No. 254 (BCC-1). RMP adjusts the
$73.09 per kW-year value for line losses (10.392%) to arrive at a value of $81.56 per kW-year (see
RMP's 2009 Demand Side Management Annual Report - Idaho, Appendix 1, page 22).
2808 Collns, Di - 14
Monsanto Company
.1 Other Indicators of Capacity Value
2 Q PLEASE DESCRIBE RMP'S RECENT INVESTMENTS IN GENERATION
3 RESOURCES ON ITS SYSTEM.
4 A RMP has included both wind resources and coal unit turbine upgrades in the test year
5 of the instant rate case. For example, the Dunlap 1 wind resource included in the
6 rate case costs $2,353 per kW while the coal unit turbine upgrade costs range from
7 $1,583 per kW to $1,988 per kW. These investments on the RMP system are higher
8 on a per kW basis than the peaker cost of $770 per kW (for economic curtailment)
9 and $1,084 - $1,126 per kW (for operating reserves) upon which i recommend that
10 the Monsanto valuation be determined.
11 Q AS THE COMPANY ADDS INVESTMENTS TO ITS SYSTEM GENERATION, WHAT.12 HAPPENS TO ITS RATES?
13 A Its rates increase.RMP is asking for a 13.7%increase in its overall revenue
14 requirement for the instant rate case.
15 Q AS RMP'S SYSTEM COSTS INCREASE, AND IN TURN, ITS RATES INCREASE,
16 WOULD YOU ALSO EXPECT THE VALUE OF MONSANTO'S INTERRUPTIBILITY
17 TO INCREASE?
18 A Yes. Decreasing the value of Monsanto's interruptibilty, while simultaneously asking
19 for an overall increase of 13.7% as RM P has, is counter-intuitive and at odds with
20 reality.
.
2809 Collns, Oi - 15
Monsanto Company
.1
2
3 A
4
o ARE THERE ANY OTHER POSSIBLE VALUATIONS OF MONSANTO'S
INTERRUPTIBILITY THAT YOU WOULD CONSIDER APPROPRIATE?
Yes. I would also consider RMP's OF rates in Utah (Schedule No. 37) as a
reasonable method to value Monsanto's interruptibilty. Using RMP's 20-year
5 levelized OF rate would result in an annual valuation of $25.8 milion for Monsanto's
6 interruptibility. This calculation is shown in Exhibit No. 255 (BCC-2).
7 0
8 A
9
10
11
12.13
14
15
16
17
18
19
20 0
21
22 A
CAN UTAH'S OF RATES BE USED TO EVALUATE SPECIAL CONTRACTS?
Yes. According to the December 14, 2009 order in Docket No. 09-035-T14, at
page 2, the Public Service Commission of Utah stated that the OF rates can be used
in the evaluation of special contracts:
The rates are based on avoided costs developed from the Company's
Integrated Resource Plan ("IRP"). Avoided costs are costs the
Company would incur to serve its native load but for the generation
provided by the OFs. Schedule No. 37 prices may also be used to
evaluate special contracts, demand side resource programs and form
the basis of credits paid under Electric Service Schedule No. 135, the
Company's Net Metering Service tariff. Specifically in this filng, the
Company updates the rates for known and expected changes to
system costs.
HAS RMP PLACED A VALUE ON MONSANTO'S ABILITY TO PROVIDE SYSTEM
INTEGRITY INTERRUPTIONS?
23 12 hours per year when required to maintain system integrity. RMP has based the
Yes. Monsanto makes 162 MW of capacity available to RMP for a maximum of
24 value of system integrity using an average annual heavy load hour (6x16) market
25 price for energy. RMP's approach results in a system integrity value of only about
26 $100,000. When system integrity is in jeopardy, market prices will likely be much
.28
27 higher than the annual average market price. As a result, RMP's approach to value
system integrity is not appropriate.
2810 Collns, Oi - 16
Monsanto Company
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.
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1 Q WHAT DO YOU RECOMMEND FOR THE VALUE OF SYSTEM INTEGRITY
2 INTERRUPTIBILlTY?
3 A The provision of system integrity interruptions should be valued at not less than $400
4 per MWh. This value reflects the current price cap for power in the Western
5 Electricity Coordinating Council ("WECC"). This is a conservative estimate. The
6 California Independent System Operator's ("CAl SO") energy bid cap is set to increase
7 from $750 per MWh to $1,000 per MWh in April 2011. As a result, on May 20, 2010,
8 the Federal Energy Regulatory Commission ("FERC") in Docket No. El10-56-000
9 instituted an investigation into the WECC price cap since $400 per MWh may no
10 longer be just and reasonable and may need to be increased. The FERC has noted
11 that changes in CAISO affect the entire WECC region and a lower cap in the WECC
12 could result in reduced supply options available to WECC purchasers.
13 At $400 per MWh, Monsanto's system integrity valuation is equal to $806,000
14 and at $1,000 per MWh is equal to $2.0 million.
15 Q IS THIS A CONSERVATIVE VALUATION?
16 A Yes. It assumes that the market purchase alternative actually exists. If it did not (Le.,
17 no one had power to sell at the time), the result could actually be curtailment of firm
18 load. The cost of firm load curtailments to electricity consumers can be quite high
19 and difficult to quantify. However, the value of lost load ("VOLL") has been estimated
20 by the U.S. Department of Energy to have an average value in the range of $2,000 to
$5,000 per MWh.921
9U.S. Department of Energy, "Benefis of Demand Response in Electricity Markets and
Recommendations for Achieving Them," February 2006, page 83.
2811 Collns, Oi - 17
Monsanto Company
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21
22
23
24.
1 YOU MENTIONED EARLIER THAT DEMAND-SIDE RESOURCES CAN OFFERQ
2 POTENTIAL ENVIRONMENTAL BENEFITS. HAVE YOU QUANTIFIED THESE
3 BENEFITS?
4 A No, a quantification of environmental benefits is not available. While interruptible
5 resources promote effcient use of resources in general and have the potential to
6 reduce emissions during peak times, there is currently no valuation of these
7 environmental benefits performed by the Company either in this case or its 2008 IRP.
8 RMP has a goal of protecting and enhancing the environment and the Monsanto
9 interruptible contract is consistent with that goal. Though no quantification of
10 environmental benefits is available for the Monsanto interruptibilty, RMP's recent
11 expenditures on wind turbines, or "green" resources, in excess of $2,300 per kW
12 would suggest that Monsanto's interruptibilty provides even greater value to RMP
13 than i have quantified.
Q WHY HAVE YOU NOT INCLUDED A VALUATION OF MONSANTO'S
INTERRUPTIBILITY BASED ON THE COST OF AVOIDED SHORT-TERM
MARKET PURCHASES?
A The current cost of avoided market purchases reflects a short-term valuation. As
previously stated, Monsanto's interruptibility should be valued on the basis of RMP's
long-term avoided capacity cost. The use of a short-term method to value
Monsanto's interruptibilty is inappropriate since Monsanto's interruptibilty is a
long-term resource and should be valued as such. RMP does not serve its firm loads
entirely with purchases at current market prices. If it did, it would never install any
capacity. For the same reason, Monsanto's interruptibility value should not be
determined based on the avoided cost of purchases at current market prices.
2812 Collns, Di -18
Monsanto Company
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.
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1 Q IS IT IMPORTANT THAT THE VALUATION OF MONSANTO'S INTERRUPTIBILITY
2 BE FAIR AND REASONABLE?
3 A Yes. RMP assumes that Monsanto's interruptible load is a firm resource available
4 over the entire IRP time horizon, which is through the end of 2019. In order to retain
5 interruptible loads in its resource portolio, the Company should encourage this
6 commitment through fair and reasonable valuations.
7 It is important to recognize that industrial end-users are principally attempting
8 to operate their businesses to profiably produce their core products. When energy
9 consumption is interrupted, these end-users can incur significant lost production
10 margins and other costs they would not otherwise incur. It is obviously not desirable
11 to incur these costs, but, if the net reduction in electricity costs adequately exceeds
12 the cost incurred by the customer for interrupting, the customer will generally be
13 willng to interrupt its consumption.
14 Q IS SUCH AN APPROACH CONSISTENT WITH CURRENT FERC POLICY ON
15 DEMAND RESPONSE RESOURCES?
16 A Yes. The encouragement of interruptible loads to participate as demand response
17 resources available to electric utilties is consistent with FERC current policy on
18 demand response. On page 1 of FERC's June 17, 2010 National Action Plan on
19 Demand Response, FERC states the following:
20
21
22
23
24
25
26
27
28
29
30
Demand response is a valuable resource for meeting the nation's
energy needs. By lowering the peak demand for energy, demand
response programs reduce the need to construct new, expensive
generation units. However, according to a Federal Energy Regulatory
Commission (FERC or Commission) staff report - A National
Assessment of Demand Response Potential (National Assessment),
submitted to Congress in June 2009 - current demand response
programs tap less than a quarter of the total market potential for
demand response. FERC staff has worked with stakeholders to
develop this National Action Plan on Demand Response (National
Action Plan), which sets out actions to achieve the demand response
2813 Collns, Oi -19
Monsanto Company
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1
2
3
4
5
6
potential in the United States. Congress required FERC to develop
such a plan in the Energy Independence and Security Act (EISA) of
2007. Because current efforts have missed a significant portion of
the cost effective demand response potential, it is evident that
action needs to be taken to either create new programs or expand
existing ones where cost-effective. (Emphasis added)
7 Response to RMP's Flawed Front Office and GRID Based Valuations
8 Q DID RMP PROVIDE ANY TESTIMONY WITH REGARD TO THE VALUATION OF
9 MONSANTO'S INTERRUPTIBILlTY?
10 A On September 30, 2010, the Company provided the Supplemental Testimony of Paul
11 Clements. Mr. Clements has handled the valuation on a year-to-year basis. He has
12 not attempted to value Monsanto's interruptibilty as a long-term capacity resource.
13 Q WHAT HAS LED YOU TO THIS CONCLUSION?
14 A Mr. Clements has valued Monsanto's interruptibility under two methods: the Front
15 Office model, and RMP's GRID net power costs modeL. The Front Offce model
16 separately values each component of Monsanto's interruptions, but only based upon
17 projected forward price curves and "lost profits." Consequently, the value from the
18 Front Office model is simply the result of short-run projected market prices (and to
19 some degree on the running costs of its own "highest cost" plants).
20 Likewise, the Company has also used the GRID model to value Monsanto's
21 interruptibility based on additional sales in a single year under projected market
22 prices, whether as a result of reduced sales to Monsanto or additional generation
23 from existing resources. The GRID model is incapable of calculating a value for the
24 system integrity component.
25 The only capacity value captured by these two models, consequently, is the
26 extent to which the forward market prices include an implied capacity payment.
2814 Collns, Oi - 20
Monsanto Company
.1
2
3
4
5
6
7 Q
8 A
9
10
11
12.13
14
15
16
17 Q
18
19 A
20
21
22
.
Neither of these methods were approved by the Commission in Case No.
PAC-E-07-05 to value Monsanto's interruptibility. The December 28, 2007 order
(Order No. 30482) in that case stated the following at page 8:
The curtailment valuation for Monsanto is based on a "black box"
determination with no party accepting a specific methodology for
setting this valuation.
WHAT ARE "LOST PROFITS" UNDER THE FRONT OFFICE MODEL?
To value reserves under the Front Office model, RMP determines which of its
generating units has the highest running cost "in the money," that is, where running
costs are less than the market price. This least profitable unit is designated as the
unit being held back for reserves, and thus the Company is losing any profits it could
have made had it not been held back. The opportunity cost, or foregone margin, is
the value the Company ascribes to operating reserves. In the Front Offce model,
"lost profits" from only gas-fired resources are included in the reserve value. Because
the Front Office model uses only gas-fired generation, and it uses only the least
profitable gas units, it sets the absolute minimum value on reserves.
WHAT VALUE DOES MR. CLEMENTS' MODELS PLACE ON MONSANTO'S
INTERRUPTIBILlTY?
For the period 2011 to 2013, Mr. Clements determined the annual value of
Monsanto's operating reserves to be in the range of $2.4 milion to $3.7 milion and
the annual value of Monsanto's economic curtailment to be in the range of
$3.2 milion to $4.3 milion.
2815 Collns, Oi - 21
Monsanto Company
.
.
.
1 Q HAVE YOU QUANTIFIED THE IMPLIED AVOIDED CAPACITY COMPONENT OF
2 THE COMPANY'S VALUES?
3 A Yes. A quantification of the implied avoided capacity component is presented in
4 Exhibit No. 256 (BCC-3) under two scenarios: the incremental generating units are
5 assumed as either peaking resources with an average running cost of $85 per MWh,
6 or the incremental units are assumed as intermediate type resources, such as a
7 combined cycle unit, with running costs of $59 per MWh. These two scenarios
8 present reasonable approximations for analyzing what amount of avoided capacity
9 costs is implied within the Company's projected market prices.
10 For operating reserves (shown on page 1 of Exhibit No. 256 (BCC-3)), the
11 implied avoided capacity costs from the Company's models range from $8.69 per
12 kW-year to a high of $27.40 per kW-year. These low values aptly demonstrate the
13 failure of the Company's models to reasonably reflect the avoided capacity cost of an
14 Aero SCCT which averages $108 per kW-year.
15 For the economic curtailment component (shown on page 2 of Exhibit No. 256
16 (BCC-3)), the implied avoided capacity values range from -$27.16 to $11.99 per
17 kW-year.1o These low values aptly demonstrate the failure of the Company's models
18 to reasonably reflect the avoided capacity cost of a Frame CT which averages
19 $71 per kW-year.
20 Q WHAT DO YOU CONCLUDE FROM YOUR ANALYSIS?
21 A The annual market prices used in the Company's models do not adequately reflect
22 the avoided capacity costs associated with peaking resources. The $25.5 millon
23 value determined in Exhibit No. 254 (BCC-1) properly accounts for the avoided costs,
lOA negative capacity value indicates that the Company's models fail to even capture the
entire avoided energy component of peaking resources.
2816 Collns, Oi - 22
Monsanto Company
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1
2
3
4 Q
5
6 A
which are long-term. The Company's methods are strictly short-term and do not
properly reflect resource values. For this reason, I recommend that the Commission
give no weight to the Company's valuations.
DOES THIS CONCLUDE YOUR DIRECT TESTIMONY REGARDING THE
ECONOMIC VALUATION OF MONSANTO INTERRUPTIBLE PRODUCTS?
Yes, it does.
\\DoclSharesIProlawDocsISDWl921 OIT estimony - BAI\189282doc
2817 Collns, Oi - 23
Monsanto Company
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1 Q
2 A
PACIFICORP dba ROCKY MOUNTAIN POWER
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. PAC-E-10-07
Rebuttal Testimony of Brian C. Collns
PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
3 Chesterfeld, MO 63017.
Brian C. Collns. My business .address is 16690 Swingley Ridge Road, Suite 140,
4 Q
5 A
ON WHOSE BEHALF ARE YOU APPEARING IN THIS PROCEEDING?
7
6 customer of Rocky Mountain Power ("RMP" or "Company"). RMP is a division of
i am appearing on behalf of Monsanto Company ("Monsanto"), a special contract
8 Q
PacifiCorp.
10 A
9 TESTIMONY IN THIS PROCEEDING?
ARE YOU THE SAME BRIAN C. COLLINS WHO PREVIOUSLY FILED
11 nature of Monsanto's loads, the treatment of Monsanto by RMP in its Integrated
Yes, i am. On November 1, 2010 i provided direct testimony as to the interrptible
12 Resource Plan ("IRP"), and the economic benefits to RMP, its customers and the
13 power system as a whole from a long-term interruptible program such as Monsanto's.
14 On December 22,2010 I provided direct testimony regarding the economic valuation
15 of Monsanto interruptible products.
16 Q
17 A
PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND AND EXPERIENCE.
This information was included in my direct testimony filed November 1, 2010.
2818 Collns, Oi-Reb - 1
Monsanto Company
.1 Q
2 A
3
4
WHAT IS THE SUBJECT OF THIS REBUTTAL TESTIMONY?
I am rebutting Mr. Keith Hessing testifying on behalf of the Idaho Public Utilties
Commission Staff ("Staff'). I am addressing the Staffs valuations of Monsanto's
provision of system integrity, economic curtailment, and operating reserves.
5 Response to Staff's Valuation of System Integrity
6 Q
8 A
7 PROVISION OF SYSTEM INTEGRITY INTERRUPTIBILlTY?
DOES MR. HESSING ACCEPT THE VALUE RMP PROPOSES FOR MONSANTO'S
9
10
11.12
13
14
15
16
17
18
19
20
21
22
23
24.
Yes. In Mr. Hessing's supplemental direct testimony he states:
I believe the value for the System Integrity product reasonably reflects
the expected value of the interrupted energy. (page 4)
Q IS HIS ACCEPTANCE OF TliE COMPANY'S PROPOSED VALUATION A
SUITABLE RECOGNITION OF THE VALUE OF MONSANTO'S SYSTEM
INTEGRITY INTERRUPTIBILlTY?
A No. The Company places a value of $100,000 on Monsanto's provision of system
integrity using an average on-peak market price. This is a value of approximately
$50 per MWh. As stated in my direct testimony, when system integrity is in jeopardy,
market prices wil likely be much higher than the annual average market price, if
power is available at all during a system integrity event. As a result, the Company's
approach to value system integrity is not appropriate.
If Monsanto were to receive only $100,000 in return for being the "first one in
the dark," then Monsanto would probably reconsider inclusion of the system integrity
interruptibilty in its next Electric Service Agreement ("ESA"). The Company would
then need to locate another large load which could easily and reliably curtail in
seconds to avoid the possibility of curtailing hundreds - perhaps thousands, if not
2819 Collns, OJ-Reb - 2
Monsanto Company
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.
.
1 tens of thousands - of other customers. This issue is discussed further in the rebuttal
2 testimony of Monsanto witness Mr. James Smith.
3 Response to Staff's Valuation of Economic Curtailment
4 Q DOES MR. HESSING ALSO ACCEPT THE VALUE RMP PROPOSES FOR
5 MONSANTO'S PROVISION OF ECONOMIC CURTAILMENT?
6 A Yes. With respect to the value of economic curtailment, Mr. Hessing states the
7 following:
8 I believe that the value of this product is appropriately established in
9 the expected energy market. (page 5)
10 Q IS HIS ACCEPTANCE OF THE COMPANY'S PROPOSED VALUATION A
11 SUITABLE RECOGNITION OF THE VALUE OF MONSANTO'S PROVISION OF
12 ECONOMIC CURTAILMENT?
13 A No. The Company's valuation of Monsanto's economic curtailment does not attempt
14 to value Monsanto's interruptibilty as a long-term capacity resource and is
15 inappropnate. As a result of his acceptance of the Company's valuation for economic
16 curtailment, Mr. Hessing recognizes no capacity value for Monsanto's economic
17 curtailment.
18 Q IS STAFF'S AND THE COMPANY'S LACK OF RECOGNITION OF CAPACITY
19 VALUE FOR MONSANTO'S ECONOMIC CURTAILMENT CONSISTENT WITH THE
20 COMPANY'S TREATMENT OF INTERRUPTIBLE LOAD IN ITS IRP?
21 A No. Monsanto's interruptibility is recognized as a Class 1 DSM resource with
22 capacity value in the Company's 2008 IRP. At page 82 of the Company's 2008 IRP,
23 the Company states:
2820 Collns, Di-Reb - 3
Monsanto Company
.1
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7
8
9
10
11
12
13
14
15
16
17
Currently there are four Class 1 programs running across PacifiCorp's
six state service area; Utah's "Cool Keeper" residential and small
commercial air conditioner load control program; Idaho's and Utah's
scheduled firm irrigation load management programs; Idaho's and
Utah's dispatchable irrigation load management programs; and
special contract curtailment agreements with large business
customers. In 2008 the programs provided approximately 560
megawatts of Class 1 DSM program resources during the highest
summer peak load hours. (emphasis added)
The Company recognizes Class 1 DSM resources as providing capacity savings. At
page 80 of the Company's 20081RP, the Company states:
Class 1 DSM: Resources from fully dispatchable or scheduled firm
capacity product offerings/programs - Class 1 programs are those
for which capacity savings occur as a result of active Company
control or advanced scheduling. (emphasis added)
As a result, an appropriate value for capacity should be recognized in the Company's
and Staffs valuations.
.18 Q WHAT WOULD HAPPEN IF THE COMPANY NO LONGER TREATED
MONSANTO'S ECONOMIC CURTAILMENT AS A FIRM CAPACITY RESOURCE19
20 IN ITS IRP?
21 A The Company would need to acquire firm capacity resources to replace Monsanto's
22 interruptibilty. This would likely cause the rates of all customers to increase.
23 Therefore, it is important to encourage retention of interruptible loads, including
24 Monsanto, by providing them fair and reasonable values for their interruptibilty.
.
2821 Collns, Oi-Reb - 4
Monsanto Company
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7
8
9
10
11.12
13
14
15
16
17
.
1 . Response to Staff's Valuation of Operating Reserves
2 Q DOES MR. HESSING RECOGNIZE CAPACITY VALUE FOR MONSANTO'S
3 PROVISION OF OPERATING RESERVES?
4 A Yes, he does. I agree conceptually with Mr. Hessing to include a capacity value for
5 Monsanto's operating reserve interruptibility. Recognizin~ an appropriate capacity
6 value for interruptible loads will encourage retention of these loads as firm resources.
Q DO YOU HAVE ANY CONCERNS WITH MR. HESSING'S PROPOSED CAPACITY
VALUE FOR MONSANTO'S PROVISION OF OPERATING RESERVES?
A Yes. At page 11 of his supplemental direct testimony, Mr. Hessing explains that he
used the cost of existing resources as the basis of his proposed capacity value for
Monsanto's operating reserves. i believe it is more appropriate to base the value of
capacity for Monsanto's interruptibilty on the Company's own estimates for new long-
term resources in its IRP as I have done in my direct testimony. If the Company were
no longer able to include Monsanto's interrptibilty as a firm resource, it would have
to acquire firm capacity resources to replace Monsanto's interruptibilty at current
long-term resource prices. By not using the cost of new resources, Mr. Hessing has
understated the capacity value of Monsanto's interruptibility.
18 Q DOES THIS CONCLUDE YOUR REBUTTAL TESTIMONY REGARDING THE
19 ECONOMIC VALUATION OF MONSANTO INTERRUPTIBLE PRODUCTS?
20 A Yes, it does.
\lDoc\ShareslProlawDocsISDW21 OIL estimony - BA~ 1911 04.doc
2822 Collns, Oi-Reb - 5
Monsanto Company
¡.
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1 Q
2 A
PACIFICORP dba ROCKY MOUNTAIN POWER
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. PAC-E-10-07
Surrebuttal Testimony of Brian C. Collns
PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
Brian C. Collns. My business address is 16690 Swingley Ridge Road, Suite 140,
3 Chesterfield, MO 63017.
4 Q
5 A
ON WHOSE BEHALF ARE YOU APPEARING IN THIS PROCEEDING?
i am appearing on behalf of Monsanto Company ("Monsanto"), a special contract
6 customer of Rocky Mountain Power ("RMP" or "Company"). RMP is a division of
7
8 Q
PacifiCorp.
ARE YOU THE SAME BRIAN C. COLLINS WHO PREVIOUSLY FILED
10 A
9 TESTIMONY IN THIS PROCEEDING?
Yes, I am. On November 1, 2010 I provided direct testimony as to the interruptible
11 nature of Monsanto's loads, the treatment of Monsanto by RMP in its Integrated
12 Resource Plan ("IRP"), and the economic benefits to RMP, its customers and the
13 power system as a whole from a long-term interruptible program such as Monsanto's.
14 On December 22,2010 I provided direct testimony regarding the economic valuation
15 of Monsanto interruptible products, and on January 14, 2011 I provided rebuttal
16 testimony on the same issues.
17 Q
18 A
PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND AND EXPERIENCE.
This information was included in my direct testimony filed November 1, 2010.
2823 Collns, Oi-Sur-1
Monsanto Company
,
.1 Q
2 A
3
4 Q
5 A
6
7
8
9
10
11
12
13
14
15.
WHAT IS THE SUBJECT OF THIS SURREBUTTAL TESTIMONY?
I am responding to the January 2011 rebuttal testimonies of Paul H. Clements and
Gregory N. Duvall submitted on behalf of RMP.
WOULD YOU PLEASE SUMMARIZE YOUR FINDINGS AND CONCLUSIONS?
My findings and conclusions are as follows:
1. RMP continues to ignore the capacity resource costs avoided by the
interruptibility of Monsanto's load.
2. RMP's valuation methods incorrectly value Monsanto's interruptibilty on a
short-term basis, ignoring Monsanto's 60-year history as an interruptible load to
RMP and its predecessors, as well as its continued commitment to remain an
interruptible customer as long as it takes power from RMP.
3. Since simple cycle combustion turbine capacity is the lowest cost and most
readily available capacity that could be constructed, the avoided cost of a simple
cycle combustion turbine is appropriate to use in a long-term valuation of
Monsanto's interruptibilty.
16 Response to the Rebuttal Testimony of Paul H. Clements
17 Q WHAT METHOD DOES MR. CLEMENTS ASSERT IS APPROPRIATE FOR
18 DETERMINING A RESOURCE'S VALUE?
19 A
20 determined by evaluating the cost one would incur to replace the resource if it were
At page 3 of his rebuttal testimony, Mr. Clements asserts that resource value is best
21 no longer available for use. He further asserts that the Company's methods calculate
22 the cost the Company would incur to replace the interruptible products provided by
23 Monsanto.
.
2824
Collns, Oi-Sur - 2
Monsanto Company
.
.
1
2
3
4
5
6
7
8
9
10
11
12.13
14
15
16
17
.
Q IS MR. CLEMENTS' APPROACH APPROPRIATE FOR DETERMINING THE
VALUE OF MONSANTO'S INTERRUPTIBILlTY?
A No. The basic premise of Mr. Clements' rebuttal testimony is that short-term
replacement costs are appropriate for determining the value of Monsanto's
interruptibilty. Mr. Clements' premise is incorrect and his valuation methods based
on the GRID and Front Office Models produce flawed results.
The value of Monsanto's interruptibility has nothing to do with short-term
replacement costs. Monsanto has been an interruptible customer since 1951. Since
it has adequate ore to be mined for approximately another 40 years, Monsanto plans
to remain an interruptible customer as long as it is a customer of RMP. Monsanto's
long-term commitment to interrupt has provided long-term value to RMP (and its
predecessors) for approximately 60 years, and wil continue to provide long-term
value to RMP for decades in the form of avoided generating resource costs.
Mr. Clements' valuation methods completely disregard the long-term value of
Monsanto's interruptibilty. As a result, his short-term replacement cost methods
produce results that are radically different from an appropriate long-term valuation of
Monsanto's interruptibilty.
18 Q WHAT EVIDENCE DOES MR. CLEMENTS CLAIM VALIDATES THE COMPANY'S
19 METHODS AND MODELS AS REASONABLE INDICATORS OF VALUE FOR
20 INTERRUPTIBLE PRODUCTS?
21 A Mr. Clements argues that since other industrial customers entered into recent
22 contracts at prices he alleges are supported by the Company's methods and models,
23 the Company's methods and models are reasonable indicators of "value" for
24 interruptible products.
2825 Collns, Di-Sur - 3
Monsanto Company
.1 Q
2 A
DO YOU AGREE WITH MR. CLEMENTS' CLAIM?
No. The specific circumstances under which other industrial customers executed
3 contracts with RMP are unknown, and in any event are irrelevant to a determination
4 of Monsanto's interruptibilty value. In addition, as Monsanto witness Ms. Iverson has
5 testified, Monsanto provides interruptibility that is superior to what is provided by
6 these other customers, and it would be reasonable for Monsanto's net rate paid to
7 RMP to be lower than the rates of other interruptible customers.
8 Q
9 THAT A COMBUSTION TURBINE WOULD NOT BE BUILT IF MONSANTO'S
MR. CLEMENTS ASSERTS ON PAGES 4 AND 5 OF HIS REBUTTAL TESTIMONY
10 INTERRUPTIBLE CONTRACT WERE NOT AVAILABLE. WHAT IS THE BASIS
11 FOR HIS ASSERTION?.12 A
13 operating reserve obligations with existing resources in the test period used in the
Once again, it's a short-term view. He claims that the Company can meet its existing
14 2010 general rate case without Monsanto's interruptible contract. Since he asserts
15 that no new resources would be required to replace Monsanto's interruptible contract
16 in the short-run, he argues the Company's GRID and Front Office Models should be
17 utilized to determine the value of Monsanto's interruptibilty.
18 Q
19 A
20
21
22
23.24
HOW DO YOU RESPOND TO MR. CLEMENTS' ARGUMENTS?
Since Mr. Clements' GRID and Front Offce Model analyses focus solely on the test
year used in the rate case, his analyses reflect only short-term considerations. He
continues to ignore the long-term resource costs that the Company has avoided, and
continues to avoid, due to Monsanto's long-term interruptibility. If Monsanto's load
were not interruptible, RMP would have to acquire long-term resources to serve
Monsanto as a firm load. The specific type of long-term resource RMP would acquire
2826
Collns, Oi-Sur - 4
Monsanto Company
.
.
.
or construct would depend on a resource analysis performed by RMP taking into
2 consideration the resource needs of its entire system. However, since simple cycle
3 combustion turbine capacity is the most readily available and lowest cost capacity
4 available to RMP, the avoided cost of a new simple cycle combustion turbine is
5 appropriate to use in a long-term valuation of Monsanto's interruptibility.
6 Q MR. CLEMENTS CLAIMS AT PAGE 6 OF HIS REBUTTAL TESTIMONY THAT
7 MONSANTO'S INTERRUPTIBLE PRODUCTS DO NOT ALLOW RMP TO AVOID
8 THE CONSTRUCTION OR ACQUISITION OF GENERATING RESOURCES.
9 WHAT IS THE BASIS FOR HIS CLAIM?
10 A Mr. Clements asserts that Monsanto's interruptible products are not equal to the
11 products available to the Company through the construction or acquisition of a
12 generating resource. He argues that generation resources are required to provide
13 these products and for that reason claims that Monsanto's interruptible products do
14 not avoid or defer the acquisition of generating resources.
15 Q DO YOU AGREE WITH MR. CLEMENTS' ASSERTION THAT MONSANTO'S
16 INTERRUPTIBLE PRODUCTS DO NOT AVOID THE CONSTRUCTION OR
17 ACQUISITION OF GENERATING RESOURCES?
18 A No. Mr. Clements is incorrect in asserting that since Monsanto cannot provide all of
19 the products that a generating resource can provide, its interruptible load does not
20 avoid or defer RMP's acquisition of generating resources. He again fails to consider
21 the avoided capacity resource value provided by Monsanto's interruptibilty.
22 Monsanto's inherent interruptibility value results from the capacity resource avoidance
23 it provides to RMP. The fact that Monsanto can provide RMP with operating reserves
2827 Collns, Oi-Sur - 5
Monsanto Company
.
3
4
5
6
7
8
9
10
11.12
13
14
15
16
17
18
19
20
21
22
23.24
1 in addition to capacity avoidance further enhances its long-term resource value to
2 RMP.
Q MR. CLEMENTS CLAIMS AT PAGE 6 OF HIS REBUTTAL TESTIMONY THAT THE
COMPANY HAS PERFORMED AN IRP ANALYSIS TO EVALUATE THE
REMOVAL OF MONSANTO'S INTERRUPTIBLE PRODUCTS. DID HE PRESENT
THIS ANALYSIS OR ITS RESULTS WITH HIS TESTIMONY?
A No. Mr. Clements claims that the Company's analysis demonstrates that the removal
of Monsanto's interruptible products did not create the need for a new resource.
However, Mr. Clements has not identified the analysis to which he is referring, nor
has he described how the analysis was performed, nor has he presented the results
in his rebuttal testimony. Therefore, his claim is completely unsupported, and entitled
to no weight.
Q AT PAGES 7-9 OF HIS REBUTTAL TESTIMONY, MR. CLEMENTS CLAIMS THAT
COMBUSTION TURBINES ARE UTILIZED DIFFERENTLY AND PROVIDE
SIGNIFICANT ADDITIONAL VALUE WHEN COMPARED TO MONSANTO'S
INTERRUPTIBLE PRODUCTS. WHAT IS THE BASIS OF HIS CLAIM?
A Mr. Clements argues that since combustion turbines can provide other ancilary
services besides operating reserves, the full cost of a combustion turbine is not
reasonable and should not be considered when establishing value for Monsanto's
interruptible products. He also argues that the difference between the total annual
operational hours (or utilzation rates) of combustion turbines and the number of
interruption hours provided by Monsanto further supports the Company's position that
the differences between a combustion turbine and Monsanto's interruptible products
are significant.
2828
Collns, Oi-Sur - 6
Monsanto Company
.
.
.
1 Q HAS MR. CLEMENTS QUANTIFIED THE VALUE OF THE OTHER PRODUCTS HE
2 ARGUES ARE PROVIDED BY COMBUSTION TURBINES?
3 A No.
4 Q IN HIS ARGUMENTS, DOES MR. CLEMENTS COMPARE MONSANTO'S
5 INTERRUPTIBLE PRODUCTS TO THE OPERATION OF BOTH SIMPLE CYCLE
6 COMBUSTION TURBINES AND COMBINED CYCLE FACILITIES?
7 A Yes. Mr. Clements does not make a distinction between simple cycle combustion
8 turbines and combined cycle facilties in his arguments. For example, in the table at
9 pages 8 and 9 of his testimony, he includes the annual operational hours or utilzation
10 rates for both combined cycle and simple cycle facilities. The Gadsby 4, 5, and 6
11 units are the only combustion turbines in the table that are operated solely as simple
12 cycle combustion turbines. Mixing combustion turbines in combined cycle facilties
13 with simple cycle combustion turbines for comparison to Monsanto's interruptibilty is
14 incorrect. Monsanto's interruptibilty should be compared to a simple cycle
15 combustion turbine.
16 Q ARE THERE DIFFERENCES IN HOW SIMPLE CYCLE COMBUSTION TURBINES
17 AND COMBUSTION TURBINES IN COMBINED CYCLE FACILITIES OPERATE?
18 A Yes. Simple cycle combustion turbines operated independently and not part of a
19 combined cycle plant are typically peaking resources. Combustion turbines in
20 combined cycle facilties are typically operated as baseload or load-following units.
21 Simple cycle combustion turbines operated as simple cycle units have higher heat
22 rates as compared to combined cycle units, and as a result, have higher variable fuel
23 costs. Simple cycle combustion turbines typically wil operate fewer hours in a year
24 as compared to combined cycle units because of higher variable operating costs.
2829 Collns, Di-Sur - 7
Monsanto Company
.
.
.
1 Q HAVE YOU USED THE COST OF A COMBINED CYCLE FACILITY IN YOUR
2 AVOIDED PEAKER ANALYSIS?
3 A No.
4 Q WHAT WOULD BE THE VALUE OF MONSANTO'S INTERRUPTIBILITY BASED
5 ON A COMBINED CYCLE FACILITY?
6 A Based on cost data for combined cycle facilities in the Company's 2008 IRP,
7 Monsanto's interruptibilty value would be $28.4 millon if the avoided cost of a
8 combined cycle unit was utilzed. This is $2.9 milion more than Monsanto's
9 interruptibilty value of $25.5 milion based on the avoided cost of a simple cycle
10 combustion turbine, as was presented in my direct testimony.
11 Q DO SIMPLE CYCLE COMBUSTION TURBINES OPERATED SOLELY AS SIMPLE
12 CYCLE UNITS TYPICALLY PROVIDE ALL OF THE ANCILLARY SERVICES
13 MR. CLEMENTS CITES ARE PROVIDED BY COMBUSTION TURBINES?
14 A No. Simple cycle combustion turbines typically provide spinning and non-spinning
15 operating reserves. Some of the ancilary services or products he cites require
16 cycling of generating units. Simple cycle combustion turbines are typically not cycled
17 due to their higher variable operating costs. Because of their quick start capabilities,
18 simple cycle combustion turbines typically are turned on and off providing blocks of
19 power while other generating units are cycled.
20 Q HAS MR. CLEMENTS EXPLAINED HOW RMP SPECIFICALLY OPERATES ITS
21 GADSBY SIMPLE CYCLE COMBUSTION TURBINES TO PROVIDE ANCILLARY
22 SERVICES?
23 A No, he has not.
2830 Collns, Di-Sur - 8
Monsanto Company
.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18.19
20
21
22
23
24
25
26
27
28
29
30
31
.
Q WHAT IS YOUR UNDERSTANDING OF HOW THE COMPANY OPERATES ITS
GENERATING UNITS WITH RESPECT TO PROVIDING ANCILLARY SERVICES?
A It is my understanding that the Company does not use its thermal generating
resources, including combustion turbines, primarily for providing ancilary services.
According to its 2009 FERC Form No. 714 filed May 2010, the Company states the
following:
"At PacifiCorp, demand following is NOT primarily penormed by
thermal generating units, therefore a system lambda is not
calculated. PacifiCorp East and West balancing areas are dispatched
in a coordinated manner to achieve overall maximum effciency,
economy, and reliabilty for the company as a whole, while meeting the
performance criteria for each balancing area as established by NERC,
WECC, and the NWPP. In this largely base-load thermal system,
dispatching is penormed to keep the thermal units at a maximum
efficiency by utilzing hydro generation and hydro-based
dispatchable purchases to provide regulating margin and
spinning reserves. The PacifiCorp West balancing area has the bulk
of its regulating margin and reserves in such hydro resources, with
occasional limited participation by selected thermal units in the
PacifiCorp West balancing area. The PacifiCorp East balancing area
primarily utilzes a dynamic schedule to overlay regulating margin
onto available hydro resources in the PacifiCorp West balancing
area, with occasional limited participation by selected thermal
units in the PacifiCorp East balancing area to provide backup
margin and reserves." (Emphasis added)
Since it appears the Company relies primarily on its hydro units to provide
load-following, regulating margin and spinning reserves, Mr. Clements' criticisms of
Monsanto's interruptibilty with respect to ancilary service value are without merit.
Mr. Clements' criticisms of Monsanto just as easily apply to the existing combustion
turbines on RMP's own system. However, these criticisms do not diminish the
resource capacity value of these units.
2831 Collns, Oi-Sur - 9
Monsanto Company
.
.
.
1 Q IS MR. CLEMENTS CORRECT TO RELY ON THE TOTAL ANNUAL
2 OPERATIONAL HOURS OF A SIMPLE CYCLE COMBUSTION TURBINE AS THE
3 BASIS FOR COMPARING MONSANTO'S INTERRUPTIBILITY VALUE TO THAT
4 OF A SIMPLE CYCLE COMBUSTION TURBINE?
5 A No. Mr. Clements does not make a distinction in his table for hours when the units
6 were operated as must-run units because of transmission constraints, when the units
7 were operated for specific ancillary services, or when the units were operated to meet
8 the load demands of the Company's system. To compare the total operational hours
9 of a simple cycle combustion turbine to the number of hours of interruptibility
10 Monsanto provides is misleading and incorrect without explaining the circumstances
11 under which the simple cycle combustion turbine operated.
12 Q MR. CLEMENTS ALLEGES AT PAGE 10 OF HIS REBUTTAL TESTIMONY THAT
13 THE COMPANY HAS COMPLETE CONTROL OVER WHEN TO UTILIZE A
14 COMBUSTION TURBINE. IS THIS ACCURATE?
15 A No. Mr. Clements fails to consider that a combustion turbine does not start 100% of
16 the time when called upon. Since Monsanto has never failed to interrupt when called
17 upon, Monsanto has demonstrated greater reliabilty and dependabilty than a
18 combustion turbine.
19 Q MR. CLEMENTS CLAIMS AT PAGE 11 OF HIS REBUTTAL TESTIMONY THAT
20 THE PRESENCE OF AVAILABILITY GUARANTEES, LIQUIDATED DAMAGES
21 FOR NON-PERFORMANCE, AND OTHER CONTRACT TERMS THAT ARE NOT
22 FOUND IN MONSANTO'S CONTRACT INVALIDATES YOUR QF ANALYSIS. DO
23 YOU AGREE?
24 A No. Monsanto's contract also has penalties for non-performance. Further, Monsanto
2832 Collns, Di-Sur -10
Monsanto Company
.
.
.
1 has also never had an instance where it did not comply with an interruption request
2 from RMP. Mr. Clements' arguments are without merit.
3 Q AT PAGE 12 OF HIS REBUTTAL TESTIMONY, MR. CLEMENTS PROVIDES A
4 CITE TO AN ORDER ISSUED BY THE COMMISSION THAT HE CLAIMS
5 PROVIDES THE COMMISSION'S OPINION ON THE PEAKER METHOD. HOW DO
6 YOU RESPOND?
7 A This citation states that the Commission has not found the avoided peaker resources
8 to be the definitive methodology for valuing the interruptibilty credit.
9 Q DID THE COMMISSION IN THAT SAME ORDER FIND THE COMPANY'S
10 PROPOSED METHOD AND MODEL TO BE THE DEFINITIVE METHOD FOR
11 VALUING MONSANTO'S INTERRUPTIBILlTY?
12 A No.
13 Q WITH RESPECT TO SYSTEM INTEGRITY INTERRUPTIONS, MR. CLEMENTS
14 ASSERTS THAT MONSANTO SHOULD NOT RECEIVE ADDITIONAL
15 COMPENSATION FOR VOLTAGE-RELATED INTERRUPTIONS SINCE ALL
16 IDAHO CUSTOMERS ARE SUBJECT TO OCCASIONAL INTERRUPTION
17 PURSUANT TO ELECTRIC SERVICE REGULATIONS. DO YOU AGREE?
18 A No. If Monsanto were to receive only $100,000 in return for being the "first one in the
19 dark," then Monsanto would probably reconsider inclusion of this product in a future
20 Electric Service Agreement. RMP would then need to locate another large load
21 which could easily and reliably curtail in seconds to avoid the possibility of curtailng
22 hundreds - perhaps tens of thousands - of other customers.
2833
Collns, Oi-Sur - 11
Monsanto Company
One example of this occurred in the winter of 2005. On December 6, 2005,
RMP lost a line which triggered a power outage. The low temperature that day was
9 degrees, and dropped to 19 degrees below zero the next day. A system
emergency event was called upon Monsanto and all three furnaces were shut down.
As RMP crews worked to resolve the problem, the furnaces were brought back on-
line only when the system was stable. The two smaller furnaces were brought back
within four to eight hours of the emergency. However, the largest furnace was kept
off for 42 hours, with Monsanto incurring substantial damages due to icing.
That curtailment for system integrity purposes provided a direct benefit to the
Company's system during this extraordinary event, but it came at substantial cost to
Monsanto. Thus, if RMP hopes to retain this provision in any contract with Monsanto,
it needs to properly value this option.
Q MR. CLEMENTS ALSO ASSERTS SINCE THERE IS AN EQUAL PROBABILITY
THAT A DOUBLE CONTINGENCY EVENT CAN OCCUR THROUGHOUT THE
YEAR THAT IT IS APPROPRIATE TO USE A VALUE EQUAL TO THE AVERAGE
MARKET PRICE. DO YOU AGREE?
A No. During a system integrity event, if power is available at all for purchase from the
market, scarcity of power wil likely result in high market prices as compared to the
average annual market price. For example, when regional resources were stressed
on July 25,2006, RMP was willng to pay Monsanto $300/MWh.
.
2834 Collns, Di-Sur-12
Monsanto Company
.
.
.
1 Response to the Rebuttal Testimony of Gregory N. Duvall
2 Q AT PAGE 2 OF HIS REBUTTAL TESTIMONY, MR. DUVALL STATES THAT "THE
COMPANY INCLUDES BOTH PEAKERS AND MARKET PURCHASES IN THE3
4 EVALUATION OF THE IDAHO IRRIGATION LOAD CONTROL PROGRAM." IS
5 MR. DUVALL CORRECT?
6 A Yes, Mr. Duvall is correct. However, his testimony fails to adequately explain the
7 valuation of the Idaho Irrigation Load Control Program, and how Monsanto's
8 interruptibilty should be valued higher.
9 Q PLEASE EXPLAIN HOW THE COMPANY VALUES THE IDAHO IRRIGATION
10 LOAD CONTROL PROGRAM.
11 A According to RMP's Demand Side Management Annual Report - Idaho, dated
12 March 15, 2010, the Irrigation Load Control Program 2009 value is $73.09 per
13 kW-year at site (Le., before the adjustment for line losses) as determined by the
14 agreed upon Valuation Methodology. This Valuation Methodology was described in
15 PacifiCorp's "Proposed Valuation Methodology for the Idaho Irrigation Load Control
16 Program" ("Valuation Methodology Report") provided in late 2007 as a result of the
17 stipulation in the last General Rate Case (Case No. PAC-E-07-05). The methodology
18 conducted two resource deferral scenarios: (1) a peaking resource deferral, and (2) a
19 firm market purchases deferral, also termed "front office transactions" or FOT. The
20 first scenario was labeled a "Peaking Resource Deferral" and was explained as:
21
22
23
24
25
26
27
28
"Peaking resource deferral- This scenario was designed to enable the
model to defer an intercooled aeroderivative single-cycle combustion
turbine (SCCT) resource. This scenario acknowledges that program
value comes from capacity deferral potential, and that resource
investment plans need to be fluid to account for rapidly changing
regulatory and market conditons. Procurement of peaking resources-
-although not included in PacifiCorp's latest resource plan -remains
a viable option in the future." (page 3)
2835 Collns, Di-Sur-13
Monsanto Company
.
.
.
1
2
3
4 A
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23 Q
24
25 A
26
27
28
29
Q SO THE COMPANY DOES VALUE THE IRRIGATION LOAD CONTROL
PROGRAM ON THE BASIS OF BOTH PEAKER DEFERRAL AS WELL AS
"FRONT OFFICE TRANSACTIONS?"
Yes, however, as the report states, "the value of the irrigation load control program
comes from a longer-term view of resource deferral potential as opposed to
short-term FOT." (page 5). The report concludes by explaining that the Peaking
Resource Deferral should be weighted more heavily:
In summary, this recommendation accommodates the Company's
current resource planning strategy of relying on short-term markets to
help meet peak load obligations as well as its portolio analysis
approach for valuing resource additions. However, it also
acknowledges the longer-term outlook towards demand-side
resources and the national trend in the valuation of load control
programs. This trend leans on the assumption that over time, if the
acquired demand-side resource is reliable and sustainable, peaking
resource deferral likelv exists. (Reliability and sustainabilty are
pivotal components of program performance. Growers need to keep
this in mind as the Company assumes a contractual obligation that, at
a minimum, is 10-years.) Peaking resource deferral value is thus
weighted more heavily than firm market purchase deferral value in the
weighted-average calculations summarized above. (page 7, emphasis
added)
HOW MUCH MORE DID PACIFICORP WEIGHT THE PEAKING DEFERRAL
RESOURCE VALUE THAN THE FRONT OFFICE TRANSACTIONS?
The Valuation Methodology Report recognizes that benefis range from $13 per
kW-yr under the short-term FOT to $83 per kW-yr under the Peaking Resource
DeferraL. As shown in the following table, the Valuation Methodology weighted the
Peaking Resource by 67% and the FOT value by 33%. Thus, the Peaking Resource
is given twice the weight of the FOT firm market purchase:
2836 Collns, Oi-Sur -14
Monsanto Company
.
.
.
TABLE 1
2007 Irrigation Load Control Program Benefit,
Levelized NPV ($ per kW-yr)
Weighted
150 MW 175MW Average Weight Average
Peaking Resource $80.29 $70.70 $75.50 67%$50.33
Firm Market Purchase (1)$12.41 $12.41 33%$4.14
Total Weighted Average $54.47
Rounded $54.50
(1) The variation in values across participation sizes is small for the firm market purchase
deferral scenarios, so the 175-megawatt value is assumed to be reasonable for use in
the weighted-average calculation.
1 The $54.50 per kW-year value shown above has been updated to $73.09 per
2 kW-year in the March 15, 2010 Demand Side Management Annual Report - Idaho.
3 Q HOW MANY HOURS OF INTERRUPTION DOES THE IRRIGATION LOAD
4 CONTROL PROGRAM OFFER?
5 A The Irrigation Load Control Program offers only 52 hours of interruption per irrigation
6 season (June 1 - September 15) according to the Valuation Methodology Report.
7 Monsanto offers 1,050 hours of interruption annually, or more than 20 times the hours
8 of the Irrigation Load Control Program with no seasonal limits on when interruptions
9 can occur. Hence, PacifiCorp primarily values the Irrigation Load Control Program on
10 the basis of peaking resource deferral with only 52 hours of interruption, yet refuses
11 to recognize the peaking resource deferral capability of Monsanto which clearly offers
12 many more hours of interruption and has proven itself to be both a reliable and
2837 Collns, Di-Sur - 15
Monsanto Company
.
.
15
16
17
18
19
20
21
22
23.24
25
1 sustainable resource over the past 60 years. The Company's unreasonably low value
2 for Monsanto should be rejected.
3 Q AT PAGES 2-3 OF HIS REBUTTAL TESTIMONY, MR. DUVALL ARGUES THAT
4 SINCE THE IRRIGATORS ARE PAID ONLY 41% OF THEIR ESTIMATED VALUE
5 OF $73.09 PER KILOWATT-YEAR, THE RESULTS OF MONSANTO'S PEAKER
6 VALUATION METHOD SHOULD BE DISCOUNTED IN A SIMILAR FASHION.
7 WHAT IS THE BASIS FOR HIS ARGUMENT?
8 A His argument is strictly one of consistency. Mr. Duvall argues that the peaker
9 valuation results "would need to be modified to be consistent with the treatment of the
10 Idaho Irrigation Load Control Program."
11 Q DOES MR. DUVALL EXPLAIN WHY MONSANTO'S PEAKER VALUATION
12 RESULTS SHOULD BE DISCOUNTED CONSISTENT WITH THE IRRIGATORS'
13 LOAD CONTROL PROGRAM VALUATION?
14 A No.
Q IS MR. DUVALL'S ARGUMENT FOR CONSISTENT TREATMENT OF BOTH
MONSANTO AND THE IRRIGATORS' INTERRUPTIBILTIES CONSISTENT WITH
PAST TESTIMONY HE HAS PROVIDED TO THE COMMISSION?
A No. In his rebuttal testimony in Case No. PAC-E-07-05, Mr. Duvall discusses how the
Monsanto contract and the Idaho Irrigation Load Control Program differ. At page 2 of
his rebuttal testimony in that case, Mr. Duvall states the following:
"The Idaho irrigation load control program is significantly different
than the Monsanto contract in that it does not provide ancilary
services, it is not contractually as firm, it is not separately metered, and
it is integrated into the local Idaho distribution system." (emphasis
added)
2838 Collns, Oi-Sur - 16
Monsanto Company
.
2
3
4
5
6
7
8
9
10
11.12
13
14
15
.
1 His arguments for discounting Monsanto's peaker valuation results are without merit.
Q AT PAGE 3 OF HIS REBUTTAL TESTIMONY, MR. DUVALL ALLEGES THAT
MONSANTO'S ASSUMPTION THAT ITS INTERRUPTIBLE PRODUCT WOULD
AVOID THE ADDITION OF A PEAKING UNIT HAS NO BASIS IN FACT. DO YOU
AGREE?
A No. As I stated previously in my testimony, if Monsanto were not an interruptible
customer, RMP would have to acquire long-term resources to serve Monsanto's load
on a firm basis. The specific type of long-term resource RMP would acquire or
construct would depend on a resource analysis performed by RMP taking into
consideration the resource needs of its entire system at that time. However, since
simple cycle combustion turbine capacity is the most readily available and lowest cost
capacity available to RMP, the avoided cost of a new simple cycle combustion turbine
is appropriate to use in a long-term valuation of Monsanto's interruptibility. In fact, as
i explained earlier, the avoided cost of a new SCCT is currently used in the valuation
of the Irrigation Load Control Program.
16 Q AT PAGES 3 AND 4 OF HIS REBUTTAL TESTIMONY, MR. DUVALL ARGUES
17 THAT YOU MADE UP A FORMULA THAT YOU CLAIM IS IN THE 2008 IRP. DO
18 YOU AGREE?
19 A No. Mr. Duvall states that the formula found in my testimony is as follows:
20 Net Firm Obligation - Purchases - DSM - Interruptible
21 This formula is not the one found in my testimony nor in the Company's 2008 IRP.
22 Therefore, his arguments are without merit.
2839 Collns, Oi-Sur - 17
Monsanto Company
.1 Q AT PAGE 4 OF HIS REBUTTAL TESTIMONY, MR. DUVALL STATES THAT THE
2 MONSANTO LOAD IS TREATED AS FIRM LOAD IN THE IRP. IS THIS
3 ACCURATE?
4 A No. All of Monsanto's load, both firm and interruptible, is treated as an obligation in
5 the IRP, where obligation is defined as peak load plus firm sales. Then, Monsanto's
6 interruptible load is treated as an existing firm capacity resource in the IRP, thereby
7 offsetting the load.
8 Q HOW DOES THE COMPANY USE ITS CALCULATIONS OF ITS OBLIGATION
9 AND FIRM CAPACITY RESOURCES IN ITS 20081RP?
10 A The Company determines its capacity position using the following formula that
11 includes its calculated obligation and existing firm capacity resource amounts:.12 Capacity Positon = Existing Resources - Obligation - Reserves
13 Q WHY IS THE CAPACITY POSITION IMPORTANT TO THE COMPANY?
14 A The capacity position indicates whether additional resources might be needed on the
15 Company's system.
16 Q WHAT IS THE COMPANY'S CAPACITY POSITION WITH THE MONSANTO
17 INTERRUPTIBLE LOAD TREATED AS A FIRM CAPACITY RESOURCE IN THE
18 IRP?
19 A According to the Company's 2008 IRP Update, the Company's capacity position for
20 the period 2011 -2013 is as follows:
.
2840 Collns, Oi-Sur - 18
Monsanto Company
.
.
.
1
2 Q
TABLE 2
RMP Capacity Position
with Monsanto's Interruptible Load
Recognized as a Resource
Year Capacity Position
2011
2012
2013
7MW
-1,006 MW
-1,276 MW
A negative value indicates that RMP is short firm capacity resources.
3 INTERRUPTIBLE LOAD WERE NOT RECOGNIZED AS A FIRM CAPACITY
WHAT WOULD BE THE COMPANY'S CAPACITY POSITION IF MONSANTO'S
5 A
4 RESOURCE?
If it were not recognized, the Company's capacity position would be as follows for
6 2011-2013:
TABLE 3
RMP Capacity Position
if Monsanto's Interruptible Load
is Not Recognized as a Resource
Year Capacity Position
2011
2012
2013
-169 MW
-1,182MW
-1,452 MW
2841 Collns, Di-Sur -19
Monsanto Company
.
9
10
11.12
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23
.
1 Q IF MONSANTO'S INTERRUPTIBLE LOAD WERE REMOVED AS A FIRM
2 CAPACITY RESOURCE IN THE COMPANY'S IRP, IS IT CORRECT THAT
3 ADDITIONAL FIRM CAPACITY RESOURCES WOULD BE NEEDED?
4 A Yes, an additional 176 MW of firm capacity resources would be needed if Monsanto's
5 interruptible load were not to be recognized as a firm capacity resource. For
6 example, the Company's capacity position in 2011 would be reduced from 7 MW to a
7 negative 169 MW. Monsanto's interruptibility allows the Company to avoid or defer
8 firm capacity resources.
Q AT PAGE 5 OF HIS REBUTTAL TESTIMONY, MR. DUVALL STATES THAT
MONSANTO'S INTERRUPTIBLE LOAD DOES NOT AVOID PLANNING
RESERVES. IS HIS TESTIMONY CONSISTENT WITH THE IRP?
A No. At page 87 of the Company's 2008 IRP, the Company states the following:
"Interruptible resources directly curtail load and thus planning reserves
are not held for them."
Further, at page 89 of the 2008 IRP, the formula for determining planning reserves is
stated as:
Planning Reserves =
(Obligation - Purchase - DSM - Interruptible) x Planning Reserve Margin
According to the above formula, interruptible load, including the interruptible load of
Monsanto, is removed from the Company's peak load obligation when calculating the
level of required planning reserves. As a result, the interruptibility of Monsanto's load
does allow the Company to avoid planning reserves. Mr. Duvalls rebuttal testimony
is inconsistent with the Company's 2008 IRP and his arguments are without merit.
2842 Collns, Oi-Sur - 20
Monsanto Company
.
.
.
1 Q DOES THIS CONCLUDE YOUR SURREBUTTAL TESTIMONY REGARDING THE
2 ECONOMIC VALUATION OF MONSANTO INTERRUPTIBLE PRODUCTS?
3 A Yes, it does.
\\Doc\ShareslProlawDocs\SDWl92101Testimony - BA1\91675.doc
2843 Collns, Oi-Sur - 21
Monsanto Company
.
.
20
21
1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER SMITH: Mr. Price, do you have any
4 questions?
5 MR. PRICE: No questions for this witness.
6 COMMISSIONER SMITH: Mr. Hickey.
7 MR. HICKEY: I do. Thank you, Madam Chairman.
8
9 CROSS-EXAMINATION
10
11 BY MR. HICKEY:
12 Q.Good afternoon, Mr. Collins.
13 A.Good afternoon.
14 Q.In your direct testimony on page 4, line 17, this
15 being the December testimony, you state that, quote, firm
16 resources are not required to serve interruptible load.
17 And my question of you, sir, is this: Would you
18 consider the resources Rocky Mountain Power acquires or builds
19 to be firm resources?
A.Yes.
Q.So, for instance, the recent acquisitions of
22 Currant Creek, Lake Side, Gadsby, Chehalis, those gas plants
23 would be firm resources. Correct?
24.25
A.I would agree, yes.
Q.Would you agree that Monsanto, an interruptible
2844
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLINS (X)
Monsanto
.
.
.
1 customer, is therefore not entitled to the output of these firm
2 resources since they're not acquired for Monsanto?
3 A. I would disagree with that statement.
4 Q. And do you disagree based upon a Response to Data
5 Request 8.3? Is that true, Mr. Collins?
6 A. Could you provide that to me
7 Q. Sure.
8 A. please?
9 Q. In Rocky Mountain Power Data Request 8.3, were
10 you asked regarding Rocky Mountain Power's obligation or,
11 you asked regarding Rocky Mountain Power's obligation to serve
12 Monsanto referenced in Brian Collins' testimony: Please
13 explain why Monsanto is entitled to the output of firm
14 resources if those resources are not acquired to serve
15 interruptible customer loads.
16 And then didn't you respond on behalf of Monsanto
17 as set forth in Paragraph A?
18 Yes, this is how I responded, yes.A.
19 Okay. And could you just read A into the recordQ.
20 for us?
21 Sure: Monsanto and other interruptible customersA.
22 on the RMP system are served by the output of firm resources --
23 firm resources acquired to support firm customers when the firm
24 customers do not require the use of those resources.
25 So that was your position then and I assume it'sQ.
2845
HEDRICK COURT REPORTING
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COLLINS (X)
Monsanto
.
.
.25
1 still your position today. Correct?
2 A.Yes, that's correct.
3 Q.So under what circumstances are the interruptible
4 loads entitled to the output of these firm resources that were
5 not built for them?
6 A.Oh, I believe that Response answers the question.
7 Q.Okay. Well, if firm customers do not need the
8 resource at a particular time and the market price for energy
9 is higher than Monsanto's contract price, would you agree that
10 the firm customers who paid for the resource would be better
11 off selling to the market and not to Monsanto?
12 A.I would disagree with that.
13 Q.Uh-huh. Are the market prices for energy
14 typically higher than Monsanto's contract price?
15 A.Well, I guess it would depend on the period
16 you're referring to.
17 Q.Recent past. Wouldn't that be true, the market
18 would be higher than the price Monsanto pays under its
19 contract?
20 A.I would generally agree with that.
21 Q.So why should Monsanto be entitled to energy from
22 these resources that it claims are not built for its use when
23 the customers who are paying for those resources would be
24 better off selling the output to the market?
A.I believe that the interruptible customers have
2846
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COLLINS (X)
Monsanto
.
.
24.25
1 first rights to that excess capacity before it's sold to the
2 market.
3 Q.Well, you would agree that a customer who
4 utilizes a resource should pay their fair share of the cost of
5 that resource, wouldn't you, Mr. Collins?
6 A.I would agree.
7 Q.Well, let's talk about curtailment for a minute.
8 Would you agree that in 2008, Monsanto was curtailed during the
9 coincident peak in only one of 12 months of that year?
10 A.I would agree, subject to check.
11 Well, isn't there a check that's available inQ.
12 Mr. McDougal's testimony on page 8? Didn't he try to chart
13 this?
14 A.I believe he did.
15 Do you have Mr. McDougal's testimony?Q.
16 A.No, I do not.
17 Q.Would you like me to show you that?
18 A.That would be great.
19 I think the question was in calendar year 2008,Q.
20 what was the incident of coincident peak in the 12when
21 months?
22 Yes, it looks like in his table he had August, IA.
23 believe.
Q.So it was only in one of the 12 months that
Monsanto was curtailed during the coincident peak?
2847
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COLLINS (X)
Monsanto
.
.
20
21
1 A.Right, and it would really be dependent upon the
2 level of the coincident peak.
3 Q.Yeah. So if you look at the balance of
4 Mr. McDougal's chart, could you further agree that in no year
5 for the time period 2005 through 2009 was Monsanto curtailed
6 during the time of coincident peak more than five out of the 12
7 months in the year?
8 A.That's what the table says, yes.
9 Q.And you're not aware of any information that
10 conflicts with Mr. McDougal's findings in this regard, are
11 you?
12 A.I'm not aware of any, no.
13 Q.So you would agree that the majority of time,
14 Monsanto is not curtailed at all during the time of monthly
15 coincident peak. Correct?
16 A.That's what this table says, yes.
17 Q.And would you also agree that the events in the
18 table were economic curtailment events and not operating
19 reserve events?
A.Yes, that's what he testified to at line 13.
Q.Can we agree, Mr. Collins, that the total
22 megawatts that are available for economic curtailment are 67?
23 A.According to the current contract, that's
24 correct, yes..25 Q.And so would you agree that for the majority of
2848
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COLLINS (X)
Monsanto
.
.
.
1 the monthly coincident peaks during 2005 through 2009, Monsanto
2 was either operating at their full load of 162 megawatts, or
3 curtailed by only 67 megawatts and operating at 95 megawatts of
4 load?
5 A.I'm sorry, could you repeat the question? It was
6 a long question. I want to make sure I could follow I want
7 to make sure I follow you and answer correctly.
8 Q.That's very fair. And my question is would you
9 agree that for the majority of the monthly coincident peaks
10 during the period on Mr. McDougal's chart of 2005 to 2009,
11 Monsanto was operating at either the full load of the 162
12 megawatts, or curtailed by only 67 megawatts leaving the
13 addi tional 95 of load operating?
14 A.Well, since Mr. McDougal's table doesn't have
15 operating reserve curtailments in it, I would agree based on
16 that condition.
17 Q.Fair enough. Would you agree that Monsanto was
18 being served by Rocky Mountain Power resources during these
19 times of peak demand on the system when Monsanto was not
20 curtailed?
21 A.There could have been some purchases from
22 resources outside the RMP system at that time that was serving
23 Monsanto.
24 Q.But at the time that those were acquired by Rocky
25 Mountain Power, they are a part of the resources of Rocky
2849
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLINS (X)
Monsanto
.
.
1 Mountain Power. Isn't that true?
2 A.They are part of the resources, yes.
3 Q.So, therefore, it would be reasonable to state
4 that Monsanto was not avoiding any resources during those
5 periods of time. Isn i t that a fact?
6 A.I would agree that they were not avoiding
7 short-term resources.
8 Q.Well, let's talk about the three interruptible
9 products that are part of the electric service agreement. I
10 think this is an area that I hope we can go through relatively
11 quickly, Mr. Collins. I know there probably is agreement in
12 there.
13 Can Rocky Mountain Power call for an economic
14 curtailment interruption for any reason?
15 A.I believe there are some conditions in the
16 existing contract in which they can call a curtailment.
17 Q.But there is a fairly broad contractual right
18 given Rocky Mountain Power under the economic curtailment
19 interruption to call for that category of interruptible
20 product. Can we agree with that?
21 A. I would agree.
22 Q. But we would also agree that the hours are
23 limited to 850 in the last calendar year?
24.25
A.I would agree.
Q.Eight hundred in the years -- some years before
2850
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COLLINS (X)
Monsanto
.
.
20
1 that?
2 A.Yes, that's correct.
3 Q.And the -- can we agree that two hours of notice
4 must be provided prior to those interruptions?
5 A.Yes, we can agree. That's based on my
6 understanding of the latest contract.
7 Q.And we can agree that only 67 megawatts can be
8 interrupted for that type of interruptible product?
9 A.According to the most recent contracts.
10 Q.And then you have been here throughout the day
11 and heard all of the testimony regarding the buy-through
12 option, haven't you, Mr. Collins?
13 A.Yes.
14 Q.Would you agree with the characterization that
15 economic curtailment is effectively a pricing mechanism because
16 it gives Monsanto the option to continue to receive
17 electrici ty?
18 A.I would agree that Monsanto can continue to
19 recei ve electricity by electing the buy-through option, yes.
Q.And that, ultimately, whether they choose to buy
21 through or not becomes a function of all of the factors
22 Mr. Smith identified, including or significantly including the
23 price that they would have to pay. Isn't that true?
24.25
A.I believe that's true.
Q.So to that extent, the economic curtailment is
2851
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLINS (X)
Monsanto
.
.
.
1 really a pricing decision not an actual physical disruption of
2 the flow of electricity to any of the furnaces at the Soda
3 Springs plant. Isn't that true?
4 A. I would agree that under the buy-through, yes,
5 there would not be a physical curtailment of electricity.
6 Q.And in your work on behalf of Monsanto and
7 preparing testimony in this case, you're aware that it's a
8 common practice for Monsanto to exercise that buy-through
9 option, aren't you?
10 A.Yes, based on my understanding of conversations
11 with Monsanto.
12 Q.Let's talk briefly about the operating reserve
13 product. Can Rocky Mountain Power call for an operating
14 reserve interruption for any reason?
15 Again, I believe there are some conditions in theA.
16 current contract that requires the interruption to be called.
17 Q.In general, a reserve event has to occur. Is
18 that correct?
19 A.That's correct.
20 And that if that happens, the limitation of hoursQ.
21 for an operating reserve interruption is 188 hours. Correct?
22 A.That's correct, under the existing contract.
23 And six minutes of notice must be given toQ.
24 Monsanto prior to that type of interruption?
25 I believe that is the notice period in theA.
2852
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Monsanto
.
.
20
1 current contract. I'll agree with that subj ect to check. I
2 don't have the Agreement in front of me.
3 Q.That's fair. And then, finally, I think we can
4 agree that this type of interruption only impacts 95 megawatts
5 of the entire load. Correct?
6 A.Yes, according to the current contract, 95
7 megawatts is impacted, yes.
8 Q.And then, quickly, the final product is called
9 the system integrity interruptible product, isn't it?
10 A.Yes, that's correct.
11 Q.Can Rocky Mountain Power call for a system
12 integri ty interruption for any reason?
13 A.Again, I believe there are conditions in the
14 contract governing the calling of the interruption.
15 Q.And, in fact, those are either a voltage event
16 must occur or a double contingency event as defined in the
17 contract must occur. Isn i t that the fact?
18 A.I believe that is the language that's in the
19 current contract, yes.
Q.And this product only allows for 12 out of the
21 8,760 hours of the year for an interruption to occur. Isn't
22 that a fact?
23
24.25
A.That's correct.
Q.And that is almost statistically small in
relationship to the entire year, isn't it?
2853
HEDRICK COURT REPORTING
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COLLINS (X)
Monsanto
.
.
1 A.I would agree that it's small statistically, but
2 agree that those 12 hours can be very important.
3 Q.Sure. And isn't it true that there is no notice
4 requirement on that type of interruption?
5 A.That's my understanding.
6 Q.And that if this type of interruption does occur,
7 there is 162 megawatts that can be interrupted if the
8 triggering event was voltage. Correct?
9 A.That's my understanding, yes.
10 Q.But only 95 megawatts can be interrupted if the
11 triggering event was this defined double contingency?
12 A.That's what the contract language says, yes.
13 Q.So based on your Agreement and also description
14 of these same rights under the contract that you published on
15 page 3 of your direct testimony, drawing on your description of
16 these contractual rights for each product, would you agree that
17 only 67 megawatts can be interrupted for any reason?
18 A.I believe that's an accurate statement.
19 Q.And so for Rocky Mountain Power to interrupt more
20 than 67 megawatts, specific events must occur as defined in the
21 contract. Correct?
22 A. Correct.
23 Q. What if market prices are very high, regional
24 energy supply is tight, and Rocky Mountain Power's loads are at.25 record highs: Can Rocky Mountain Power interrupt for more than
2854
HEDRICK COURT REPORTING
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COLLINS (X)
Monsanto
.
.
.
1 67 megawatts if those specific events have not occurred?
2 A. They can only interrupt 67 unless there's an
3 operating reserve event or system integrity event.
4 Q.And if 800 or in the last year 850 hours of
5 economic curtailment had already been used, then the Company
6 has no ability to interrupt Monsanto's load in any quantity
7 unless those specific events occur. Isn't that true?
8 A.Under the contract, I believe that's true. I
9 believe there's been some instances when Monsanto has been
10 willing to offer more curtailments if necessary or if they're
11 asked to by the Company.
12 Q.And then finally in this area, Mr. Collins, can
13 we agree that if the interruptible rights in the contract have
14 ei ther been used up completely -- that is, all of those hours
15 in the three products have been consumed or cannot be used
16 because no trigger event ever occurred -- Rocky Mountain Power
17 has no contractual right to interrupt Monsanto, do they?
18 A.Again, I would agree, but Monsanto is willing to
19 offer more interruption if asked to by the Company.
20 Q. I want to move to another area with you,
21 Mr. Collins. It's your peaker valuation methodology and
22 whether or not it's applicable to these circumstances.
23 Mr. Collins, your approach to valuing the
24 interruptible products in the Monsanto contract is to base it
25 on the full cost to build and install a new simple cycle
2855
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLINS (X)
Monsanto
.
.
.
1 combustion turbine. Isn't that correct?
2 A.That's correct.
3 That's how you came to the $25.5 millionQ.
4 valuation of these products. Correct?
5 A.That's correct.
6 You further state that Monsanto's interruptibleQ.
7 load allows Rocky Mountain Power to delay or avoid the
8 construction or acquisition of generation resources. And for
9 your reference, I think you said that at page 6, lines 13
10 through 16. And please check it if there's any doubt about you
11 having said that.
12 Can I get you to repeat the reference again,A.
13 Mr. Hickey?
14 Sure. I'm on page 6 of your testimony atQ.
15 lines 13 through 16.
16 MR. BUDGE: Direct testimony?
17 MR. HICKEY: It is the direct.
18 BY MR. HICKEY: And don't you state: Monsanto'sQ.
19 interruptible loads -- load allows Rocky Mountain Power to
20 delay or avoid the construction or acquisition of generating
21 resources?
22 Yes, that's what I stated.A.
23 Okay. And did you perform any integratedQ.
24 resource plan or IRP study or any other PacifiCorp specific
25 resource study which clearly shows that Monsanto's
2856
HEDRICK COURT REPORTING
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COLLINS (X)
Monsanto
.
.
1 interruptible products avoid a generation resource?
2 A.NO, I did not run any specific IRP analysis.
3 Q.Have you had an opportunity to look at Rocky
4 Mountain Power Exhibit No. 98 which was received this morning,
5 and that was the Company's Response to Monsanto Data Request
6 19.2?
7 A.Could you please provide me a copy?
8 Q.Sure.
9 A.Thank you.
10 Q.The outstanding question is, first of all, have
11 you seen that Response before?
12 A.Yes, I have seen this Response.
13 Q.And, in fact, didn't you generate the Data
14 Request?
15 A.That's correct.
16 Q.So this was of significant interest to you to get
17 this Response?
18 A.Yes. Mr. Clements had referred to this analysis
19 in his testimony and he did not provide any details or any
20 description of the methodology used, so this is why I asked
21 that Request.
22 Q.Yeah. But just to kind of set this up a little
23 bit, Mr. Collins, you didn't perform any kind of study like
24 Rocky Mountain Power did reflected in the attachments to 19.2..25 Didn't we agree on that a moment ago?
2857
HEDRICK COURT REPORTING
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COLLINS (X)
Monsanto
.
.
.
1 A.Yes, we agreed on that, yes.
2 Q.And isn't it also a fact that the results of the
3 study reflected in 19.2 or Exhibit 98, those results show that
4 the removal of Monsanto's interruptible contract did not result
5 in the need for a new combustion turbine?
6 A.That's what the results show, but I have not
7 looked at the assumptions behind the model or, you know, how
8 the model was actually used to result to these values. I
9 believe the Response says that the model itself is proprietary
10 and was not provided in Response to the Data Request.
11 Q.But the output of the model was, and Mr. Duvall
12 was here for everyone to question him or visit with him about
13 the results of that analysis. Isn't that true?
14 A.That's true, the results are what they say on
15 this table.
16 Q.Let's talk about the differences between the
17 Monsanto interruptible products and the combustion turbine. On
18 page 7 of your direct testimony -- and I'm going to lines 9
19 through 19, Mr. Collins -- you state: Rocky Mountain Power
20 currently uses Monsanto's interruptibility much like a
21 combustion turbine.
22 And you go on, but isn't that what you are
23 addressing in that area of your direct testimony on page 7?
24 Yes, and I would like to clarify that the intentA.
25 was a simple cycle combustion turbine.
2858
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COLLINS (X)
Monsanto
.
.
.
1 Q.Okay. Have you ever worked in the area of
2 generation dispatch or in a capacity that required you to
3 physically operate a combustion turbine?
4 A.Well, I've worked for City Water Light and Power,
5 which is the municipal utility in Springfield, Illinois, and,
6 no, I did not dispatch a turbine. You need NERC certification
7 to be a system dispatcher. But I was involved in the planning
8 department and we worked closely with the operation department
9 there, and we actually had conversations with the dispatchers
10 as to how to dispatch our combustion turbine.
11 Q.You would agree that both Mr. Duvall and
12 Mr. Clements have intimate knowledge of how Rocky Mountain
13 Power and PacifiCorp dispatch their generation resources,
14 wouldn't you?
15 MR. BUDGE: Excuse me. Are you asking this
16 witness about what knowledge some of your witnesses have?
17 COMMISSIONER SMITH: Yeah.
18 MR. HICKEY: I can rephrase it if there's some
19 concern about it.
20 Q.BY MR. HICKEY: Mr. Collins, isn't it true that
21 you have no information that would suggest Mr. Duvall or
22 Mr. Clements have anything but substantial experience in
23 working with the deployment of PacifiCorp and Rocky Mountain
24 Power's generation resources?
25 MR. BUDGE: I would obj ect: That's beyond the
2859
HEDRICK COURT REPORTING
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COLLINS (X)
Monsanto
.
.
1 scope of this witness's testimony, and he certainly has no
2 knowledge concerning the Company's witnesses and their
3 experience.
4 MR. HICKEY: He can certainly answer if he has
5 any reason to not believe that they're knowledgeable in the
6 business of their company.
7 COMMISSIONER SMITH: That's a pretty tortured
8 question, Mr. Hickey.
9 MR. HICKEY: Okay.
10 COMMISSIONER SMITH: Do you want to --
11 MR. HICKEY: Try it another way?
12 COMMISSIONER SMITH: I really don't know if you
13 ought to ask this witness to opine on what he considers the
14 qualifications of your witnesses to be.
15 BY MR. HICKEY: Well, let's ask this: You'veQ.
16 never been to the trading floor of PacifiCorp, have you,
17 Mr. Collins?
18 A.Not that I can remember, no.
19 Q.And you haven't been there when the decisions are
20 made on a real-time basis of what balancing activity has to
21 occur either in the west operating area or in the east
22 operating area of PacifiCorp, have you?
23 A.Could you repeat that question again? It was
24 kind of a long question..25 Q.The question was you have never been on the
2860
HEDRICK COURT REPORTING
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COLLINS (X)
Monsanto
.
.
22
1 trading floor to see the activity that occurs on a real-time
2 basis in balancing load in both the east operating area and the
3 west operating area. Isn't that true?
4 A.That's true.
5 Q.You have general observations about how these
6 things occur -- is that fair -- at PacifiCorp?
7 At PacifiCorp, yes, based on my understanding of,A.
8 for example, the 714 filing that the Company files and, you
9 know, based on the testimony provided on the record.
10 Q.It's all indirect knowledge. Isn't that a
11 fact?
12 A.Yes, that's correct.
13 And would you agree that combustion turbines canQ.
14 be used to provide multiple energy products needed by a
15 utility?
16 Could you define "multiple energy products"?A.
17 Sure. Isn' t it a fact that combustion turbinesQ.
18 can provide base load energy?
19 It could be, but I don't know why you would wantA.
20 to do that.
21 And it can provide load following, can't it?Q.
A.If it is equipped with AGC.
23 Q.And it can provide automatic generation
24 control?.25 A.Again, if it's equipped with AGC.
2861
HEDRICK COURT REPORTING
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COLLINS (X)
Monsanto
.
.
.
1 And it can provide both spinning and nonspinningQ.
2 reserves. Isn't that a fact?
3 A. That's a fact.
4 Q. Would it surprise you to know that PacifiCorp
5 frequently uses its gas turbines to provide the products that
6 you just acknowledged?
7 It would not for spinning or nonspinning reserve.A.
8 It would surprise me if they were actually using a simple cycle
9 combustion turbine for load following on units that don't have
10 AGC, but typically simple cycle combustion turbines are not
11 cycled. They're -- because of their quick-start response, they
12 usually provide blocks of power to the system, and that's
13 exactly how we operated our combustion turbine for City Water
14 Light and Power.
15 We can agree though that Monsanto can't provideQ.
16 all of those products we just identified and discussed: Base
17 load energy, load following, automatic generation control, and
18 spinning reserves?
19 I believe we can agree. I think I answered inA.
20 the Data Request that nonspinning reserve was the only one in
21 that list that you just recited.
22 But yet your analysis and proposed value assumesQ.
23 Monsanto's interruptible product value is equal to 100 percent
24 of the cost of a combustion turbine. Correct?
25 A.That's correct.
2862
HEDRICK COURT REPORTING
P~ O. BOX 578, BOISE, ID 83701
COLLINS (X)
Monsanto
.
.
.
1 Have you made any adj ustment in your analysis andQ.
2 proposed value to account for the fact that the combustion
3 turbine can provide all of the valuable products we've been
4 discussing but yet Monsanto only provides the nonspinning
5 reserves?
6 I did not quantify the value of those otherA.
7 products, but I don't believe Mr. Clements did as well.
8 We can agree, can't we, Mr. Collins, that theQ.
9 total number of curtailment hours that Monsanto provides and
10 that Mr. Smith and I talked about very early on in his
11 examination is 1,000 to 1,050, depending on what contract year
12 we look at under the ESA?
13 A.That's correct.
14 If Rocky Mountain Power owns a combustionQ.
15 turbine, is it reasonable to assume that the combustion turbine
16 will be available for a 90-plus percent time or hours in each
17 year?
18 A. I believe it's reasonable to assume that it would
19 be available. I don't think they would actually run a simple
20 cycle combustion turbine 90 percent of the year.
21 But it certainly is not uncommon in the electricQ.
22 power industry for a combustion turbine to run in the area of
23 8,000 hours a year, is it, Mr. Collins, if you know?
24 Based on my knowledge, I don't know too manyA.
25 companies that run a simple cycle combustion turbine at that
2863
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLINS (X)
Monsanto
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1 level.
2 Q.Well, whether we can agree on 8,000 or whether
3 you want to back me down to 7,000, we can sure agree that
4 ei ther 7- or 8,000 hours is significantly greater than a
5 thousand hours. Isn't that true?
6 A.Yes, that's true. I believe my understanding
7 based on what Mr. Clements provided in his testimony, that the
8 Gadsby simple cycle combustion turbines, which are the only
9 combustion turbines operated solely as simple cycle turbines,
10 provide much less than 7,000 hours of operation.
11 Q.Have you made any adj ustment in your analysis in
12 your proposed value to account for the fact that a combustion
13 turbine is available for significantly more hours whether we
14 settle in on 8-, 7,500, or 7,000 each year than Monsanto
15 provides with its interruptible products?
16 A.I would agree.
17 Q.Wouldn't it be reasonable to assume that
18 Monsanto's interruptible product value should be lower than the
19 full cost of a combustion turbine because the combustion
20 turbine is available for that significantly longer period of a
21 year?
22 A.I wouldn't agree with you there.
23 Q.Doesn't a new combustion turbine provide a
24 broader set of capabilities and more value than Monsanto's
25 interruptible product?
2864
HEDRICK COURT REPORTING
P. o. BOX 578, BOISE, ID 83701
COLLINS (X)
Monsanto
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.
1 A.I believe I answered one of your earlier
2 questions that the combustion turbine does provide other
3 products that Monsanto does not provide.
4 Q.So I think we can agree, can't we, Mr. Collins,
5 that Monsanto's interruptible products are not equivalent to a
6 combustion turbine?
7 A.I don't know if I would agree with you on that.
8 MR.HICKEY:I have nothing further.
COMMISSIONER SMITH:Do we have questions from
the Commission?
COMMISSIONER REDFORD:No.
COMMISSIONER KEMPTON:No.
COMMISSIONER SMITH:Any redirect,Mr.Budge?
MR.BUDGE:Briefly.
9
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16 REDIRECT EXAMINATION
17
18 BY MR. BUDGE:
19 Q.Mr. Collins, Counsel for the Company infers that
20 perhaps Monsanto is at fault for not taking interruptions
21 during the time of the coincident peak. Who makes that
22 decision as to when the interruption occurs?
23 It's the Company that makes the decision.A.
24 And does Monsanto have any ability to determineQ.
25 when the peak occurs?
2865
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLINS (Di)
Monsanto
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.
1 A.No.
2 Q.Counsel also infers that perhaps Monsanto
3 interruptions are of less value because they don't always occur
4 at the time of the peak, and I think you've addressed that
5 somewhat in page 13 of your direct testimony, lines 4 through
6 6, if you could turn there. And do you have that testimony?
7 A.Yes. This was my December testimony.
8 Q.And you make the statement there on line 4 that
9 interruptions are not cost free to Monsanto, and being ready to
10 interrupt demand at any time is an ongoing process. The
11 ability to interrupt is of great value even if the actual
12 interruption is not triggered.
13 Can you explain what you mean by that?
14 A.Sure. Monsanto must stand by ready to interrupt
15 24 hours a day, seven days a week, 52 weeks out of the year.
16 There's costs involved in doing so. They have to develop
17 protocols, put systems in place, and be able to respond to the
18 interruption. That ability to interrupt 24 hours a day, seven
19 days a week, 52 hours -- 52 weeks out of the year provides
20 value to the Company.
21 Q.Counsel also seemed to infer that maybe you
22 should have run a model around the Company's IRP program.
23 Is it possible for you to do a study based upon
24 the Company's proprietary software that they utilize for the.25 IRP?
2866
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLINS (Di)
Monsanto
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1 A.No.
Q.SO was it necessary for you to ask the Company to
make the runs that you relied upon in your testimony?
A.Yes,that's correct.
Q.Mr.Duvall specifically stated that they had to
2
3
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6 set up the System Optimizer model in order to defer peaking
7 resources when they ran their peaking valuation study for the
8 irrigators. Do you recall him making that testimony?
9 A. I do recall that from this morning, yes.
10 Q. Did Mr. Duvall specifically state he used those
11 same assumptions when he provided the analysis in the Company's
12 Exhibit 98?
13 A.No, he did not.
14 Q.So you don't know if Exhibit 98 was set up to
15 even allow the deferral of aCT?
16 A.I do not know that.
17 MR. BUDGE: No further questions.
18 COMMISSIONER SMITH: Thank you, Mr. Collins, for
19 your help.
THE WITNESS: Thank you.
(The witness left the stand.)
MR. BUDGE: Monsanto would call its last witness:
23 Katie Iverson.
24
. 25
2867
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLINS (Di)
Monsanto
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.
1 KATHRYN IVERSON,
2 produced as a witness at the instance of Monsanto, having been
3 previously duly sworn, was examined and testified as follows:
4
5 DIRECT EXAMINATION
6
7 BY MR. BUDGE:
8 Q.Would you state your, please, your complete name
9 and business address for the record?
10 A.Yes. My name is Kathryn E. Iverson. That's
11 I-V-E-R-S-O-N. And my business address is 17244 West Cordova
12 Court, Surprise, Arizona, 85387.
13 Mrs. Iverson, did you prefile direct testimony onQ.
14 behalf of Monsanto Company under date of December 22nd?
15 A.Yes.
16 Q.And did that consist of both a highly
17 confidential version as well as a public version?
18 A.Yes.
19 Q.Did you also file surrebuttal testimony under
20 date of January 24, 2011?
21
22
23
A.Did you say, "rebuttal"?
Q.Surrebuttal.
A.I filed rebuttal testimony on January 14th. I
24 filed surrebuttal on January 24th..25 COMMISSIONER SMITH: Fifth.
2868
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
IVERSON (Di )
Monsanto
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1 THE WITNESS: 25th. Thank you.
2 COMMISSIONER SMITH: These hard questions -- the
3 hardest questions -- are from your own lawyer.
4 BY MR. BUDGE: Do you have any corrections youQ.
5 wish to make to any of your testimony?
6 I just want to note that in looking at the pagesA.
7 this morning, there are two pages that are confidential. The
8 page that actually contains the confidential information is
9 page 24. I just wanted to make sure that that was what the
10 Commissioners were also looking at.
11 COMMISSIONER SMITH: Well, let's go at ease for a
12 moment.
13 (Discussion off the record.)
14 COMMISSIONER SMITH: We'll go back on the record.
15 BY MR. BUDGE: Mrs. Iverson, do you have anyQ.
16 other corrections to any of your testimony?
17 A.No, I do not.
18 And if I were to ask you the same questions thatQ.
19 are contained in this testimony as we've identified today,
20 would your answers be the same?
21 A.Yes.
22 MR. BUDGE: Being no objection, we'd move to have
23 Ms. Iverson's testimony spread upon the record, and tender her
24 for cross-examination.
25 COMMISSIONER SMITH: The prefiled testimony of
2869
HEDRICK COURT REPORTING
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IVERSON (Di)
Monsanto
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1 Ms. Iverson will be spread upon the record as if read, and the
2 public transcript will not include the confidential
3 information. Hearing no objection, that is so ordered.
4 (The following prefiled direct, rebuttal,
5 and surrebuttal testimony of Ms. Iverson is spread upon the
6 record.)
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2870
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
IVERSON ( Di)
Monsanto
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2 Q
3 A
4 Q
5 A
6
PACIFICORP dba ROCKY MOUNTAIN POWER
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. PAC-E.10-07
Direct Testimony of Kathryn E. Iverson
"Economic Valuation of Monsanto Interruptible Products"
I. INTRODUCTION
PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
My name is Kathryn E. Iverson; 17244 W. Cordova Court, Surprise, Arizona 85387.
ON WHOSE BEHALF ARE YOU APPEARING IN THIS PROCEEDING?
I am appearing on behalf of Monsanto Company ("Monsanto"), a special contract
7 PacifiCorp.
customer of Rocky Mountain Power ("RMP" or "Company"). RMP is a division of
8 Q
10 A
9 TESTIMONY IN THIS PROCEEDING?
ARE YOU THE SAME KATHRYN IVERSON WHO PREVIOUSLY FILED
11 allocation of jurisdictional costs, the impacts from adjustments made by other
Yes, I am. On November 1, 2010 I provided testimony on Monsanto's rates, the
12 Monsanto witnesses as to revenue requirement, and rate design.
13 Q
14 A
PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND AND EXPERIENCE.
This information was included in my direct testimony filed November 1, 2010.
2871
Iverson, Di - 1
Monsanto Company
.j
.1 Q
2 A
WHAT ISSUE ARE YOU ADDRESSING IN THIS TESTIMONY?
I am addressing the "economic valuation of Monsanto's interruptible products" as
3 requested by the Commission in Order No. 32098. The suspension of the current
4 rate case has been tolled for 61 days so the Commission can decide the valuation of
5 interruptible products and establish the interruptible rate to be charged by RMP.
6
7 Q
8 A
9
10
11.12
13
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15 Q
II. PURPOSE OF TESTIMONY AND SUMMARY OF CONCLUSIONS
WHAT IS THE PURPOSE OF YOUR TESTIMONY?
The purpose of my testimony is to: (1) discuss the fundamental nature of interruptible
service and why the Company's "customer indifference" approach is not a suitable
basis for valuing interruptible products; (2) review Monsanto's firm and interruptible
demand rates including the Company's proposal; (3) provide an analysis of the costs
allocated to Monsanto under RMP's premise that Monsanto is served entirely as a
firm customer; and (4) present Monsanto's recommended overall rate for interruptible
service.
17 A
16 TESTIMONY?
ARE YOU SPONSORING ANY EXHIBITS IN CONNECTION WITH YOUR
18 Q
Yes. i am sponsoring Exhibit 257 (KEI-4).
19 MONSANTO'S RATES?
WHAT AMOUNT OF INCREASE IS THE COMPANY SEEKING IN THIS CASE TO
20 A
21 based on Supplemental Testimony filed September 30, 2010 and Rebuttal Testimony
The Company proposes to increase rates to Monsanto by $21.8 milion. or 51.4%.
22 filed on November 16, 2010:.
2872
Iverson, Di - 2
Monsanto Company
.
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TABLE 1
Results of RMP Revenue Increase
and Reduction of Interruptible Credit
Present RMP Proposed
Revenues Request Chanqe
Revenues as "All Firm"$59,524,497 $70,346,599 $10,822,102
Less: Credit for Interruptibilty (17,086,629)(6,092,112)($10,994,518)
Net Revenues $42,437,868 $64,254,487 $21,816,620
1 Q PLEASE EXPLAIN THE COMPANY'S PROPOSED $21.8 MILLION INCREASE.
2 A The $10.8 millon increase to firm rates was presented by the Company in its Rebuttl
3 Testimony of Mr. Willam Griffth, Exhibit No. 84, page 1. The $11.0 millon change in
4 the interruptible credit is the result of the Company's proposal to decrease the current
5 interruptible demand credit from $8.33 per kW-month down to $2.97 per kW-month.1
.
6 The overall increase to Monsanto from the Company's proposal is thus $21.8 milion,
7 or over 51 %.
8 Q HAS THE COMPANY EVER ACKNOWLEDGED THAT ITS REQUESTS IN THIS
9 CASE, IF GRANTED BY THE COMMISSION, WOULD INCREASE MONSANTO'S
10 RATE BY OVER 50%
11 A Apparently not. Despite the 1,975 pages of testimony and exhibits filed by RMP in
12 this case thus far, the Company has never once come out with a straight-forward rate
13 impact to Monsanto. Whether intentional or not, the Company's filng is grossly
14 inadequate in providing the rate impact to Monsanto.
1 Response to Monsanto Data Request 18.1.
2873
Iverson, Di - 3
Monsanto Company
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1 WOULD YOU PLEASE SUMMARIZE YOUR FINDINGS AND CONCLUSIONS?Q
2 A My findings and conclusions are as follows:
3 1. Interruptible customers impose less costs on the utilty than do firm customers.
4 The Company's premise that requires interruptible customers to first buy
5 everything at firm rates, and then "sell" a product to RMP fundamentally ignores
6 this fundamental regulatory cost causation principle.
7 2. The Company's valuation method fails to recognize the planning and operational8 benefis of interruptible service.
9 3. The "customer indifference" approach of RMP is not suitable for valuing
10 Monsanto's interruptibilty, and can lead to volatie swings in Monsanto's11 interruptible rates.
12 4. i recommend the Commission reject RMP's proposal to convert Monsanto's
13 interruptible load to firm service, and that the Commission establish a lower rate
14 for interruptible service because interruptible loads impose a lower coston the15 utilty than firm loads.
16 5. i recommend the Commission reject RMP's proposal to raise Monsanto's
17 interruptible demand charge by 192%, and instead establish rates that reflect the
18 valuation proposed by Mr. Collins. This would result in an overall net increase to
19 Monsanto of $2.4 millon based on the Company's most recent revenue request.
20 II. FUNDAMENTAL PRINCIPLES OF INTERRUPTIBLE SERVICE
21 Q WHAT TYPE OF ELECTRICAL SERVICE DOES MONSANTO TAKE FROM
22 ROCKY MOUNTAIN POWER?
23 A Monsanto has a total load of approximately 182 MW served at transmission voltage
24 level and under charges set forth in Schedule 400. Of this amount, 9 MW (just 5%) is
25 served at firm energy and demand rates. The remaining 95% of Monsanto's load is
26 interruptible and biled under interruptible demand charges.
27 Q WHY DO YOU MAINTAIN THAT 95% OF MONSANTO'S LOAD IS
28 INTERRUPTIBLE?
29 A The Electric Service Agreement between PacifiCorp and Monsanto dated
30 November 5, 2007 ("2008 Agreement") provides that PacifiCorp is the exclusive
2874
Iverson, Di - 4
Monsanto Company
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.
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1 provider of all electric power and energy to Monsanto's Soda Springs Plant. The
2 2008 Agreement sets forth the definition of "firm" and "interruptible" power and energy
3 in Sections 1.5 and 1.6. Specifically, it states that the first 9 megawatts are served at
4 firm demand charges, and the remaining measured demand is served at the
5 interruptible demand charge. Based on the 2010 forecasted loads used in this
6 proceeding, Monsanto's firm demand is 108,000 kW-months and the non-firm
7 demand is 2,051,216 kW-months.2 Thus, even the Company's own exhibits are
8 unequivocal that 95% of Monsanto's demand is not firm.
9 Q ARE YOU USING THE TERMS "NON-FIRM" AND "INTERRUPTIBLE"
1 0 INTERCHANGEABLY?
11 A Yes. Mr. Griffth's exhibits clearly describe the majority of Monsanto's biling units as
12 "non-firm." In order to minimize controversy, however, I wil use the term
13 "interruptible" in describing Monsanto's service.
14 Q THE COMPANY HAS TESTIFIED REPEATEDLY THAT MONSANTO IS
15 RECEIVING THE EXACT SAME SERVICE AS EVERYONE IN ITS SERVICE
16 TERRITORY, AND THAT THEY HAVE NO OBLIGATION TO PROVIDE NON-FIRM
17 OR INTERRUPTIBLE SERVICE. DO YOU AGREE WITH THEIR ASSESSMENT?
18 A No. If nothing else, this case has certainly revealed the Company's true intent for
19 serving Monsanto, a long-standing interruptible customer. Rather than recognize the
20 unique interruptible nature of Monsanto's load, the Company is determined to convert
21 Monsanto to a 100% firm customer. Consequently, RMP and Monsanto have a
22 fundamental difference of opinion on the provision of interruptible service that is truly
23 at the heart of determining the economic valuation of Monsanto's interruptibilty.
2Exhibit No. 84, page 12 of 21.
2875
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Monsanto Company
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HOW SO?
It is now obvious that RMP no longer desires to supply Monsanto interruptible power
and energy. It wants to sell only firm power to Monsanto as Mr. Walje claims it has
no obligation to provide interruptible service
Rocky Mountain Power has the obligation to provide electric service.
There is no obligation to provide non-firm or interruptible service -- that
type of service is arranged through a separate agreement between the
Company and Monsanto or other businesses that are willng to allow
the Company to interrupt their service and receive just financial
consideration for that interruption. (Walje Rebuttal, page 11 -12,
emphasis added.)
The Company's premise that requires interruptible customers to "sell" a
product to RMP fundamentally ignores the very real notion of regulatory
cost-causation. A lower rate for interrptible service is not due to the customer
"sellng" a product back to the utilty. A lower rate for interruptible service reflects the
lower costs incurred by the utilty to provide the interruptible service. It is a lesser
quality of service, with corresponding lower costs than firm service for the utilty to
provide and corresponding lower rates than firm service:
In contrast, interruptible power may be curtailed or interrupted if
conditions arise that are burdensome to the supplier. In short, the
interruptible customer is buying a lower quality service that a cost
incurrence philosophy would deem appropriate for a lower rate.
Interruptible and curtailable rates are particularly beneficial when they
involve relatively large loads. Under interrptible rates, a utilty turns
off service for specified periods of time during system peak, while stil
providing the customer with a satisfactory level of service. Interruptible
customers are charged lower rates since they do not have any
demand or capacity costs. (Principles of Public Utiity Rates, by James
C. Bonbright, Albert L. Danielsen and David R. Kamerschen, 1988,
p. 403, emphasis added.)
2876
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Monsanto Company
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1 Q HAS PACIFICORP PREVIOUSLY RECOGNIZED THAT INTERRUPTIBLE LOADS
2 ARE LESS COSTLY TO SERVE?
3 A Yes. As noted in a 2002 Utah order, all parties - including PacifiCorp - agreed with
4 this cost incurrence philosophy:
5 All parties agree that large customers who are willng to receive
6 interruptible service under certain conditions impose less costs on the
7 utilty than do firm customers, and therefore warrant special pricing
8 consideration. (Order of Public Service Commission of Utah, Docket
9 No. 01-035-38, issued May 24, 2002, page 3, emphasis added)
10 Q HOW DO INTERRUPTIBLE LOADS IMPOSE LOWER COSTS ON THE SYSTEM?
11 A Interruptible power offers several benefits to the utilty from both a planning and
12 operational perspective. Reduced capacity costs are usually associated with
13 planning benefits, and reduced energy and maintenance costs are associated with
14 operating benefis, although there is some overlap.
Q WHAT ARE THE PLANNING BENEFITS ASSOCIATED WITH INTERRUPTIBLE
SERVICE?
A From a planning perspective, load supplied on an interruptible basis does not require
the installation of generating capacity since it is provided from capacity available on
the system after the utilty has served the needs of its firm customers. By contrast, to
provide firm service, the utilty must install enough generating capacity to meet the
maximum firm demands of its customers, regardless of when they occur. Unlike a
restaurant, a utilty cannot tell a firm customer that he or she wil have to wait for
service. When a customer flips a switch, they expect instantaneous results.
Therefore, the utilty must always have sufficient capacity and reserves to meet all
demands from its firm customers.
2877
Iverson, Di - 7
Monsanto Company
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1 Like most service providers, RMP has seasonal peak loads -- times of the
2 year when load is higher than average -- and valley periods, when the load is lower.
3 During these valley periods, there is capacity that is able to serve load, but it is
4 unused because customers do not desire service at such times. Interruptible load,
5 thus, helps the utilty avoid installing excess capacity by smoothing out the peaks and
6 valleys of the firm demand that must be served. The utilty does not have to install
7 capacity to serve the interruptible load; nor does it have to install a reserve margin
8 that is necessary to assure continuous, on-demand service characterized as "firm."
9 Q DOES RMP RECOGNIZE THE PLANNING BENEFITS OF INTERRUPTIBLE
10 SERVICE?
11 A Yes, apparently they do, but this recognition does not translate whatsoever into Mr.
12 Clements' valuation. As explained by Mr. Collins, RMP includes Monsanto's
13 interruptibilty as a resource in the 2008 IRP Update in PacifiCorp's assessment of
need.3 Furthermore, interruptible resources are excluded from the Company's14
15 obligations for purposes of determining its planning reserves. The presence of
16 interruptible load thus enables PacifiCorp to avoid future resource additions.. ,-
17 Q WHAT ARE SOME OF THE OPERATIONAL BENEFITS OF INTERRUPTIBLE
18 SERVICE?
19 A Interruptible load can provide greater operating flexibilty. For example, large base
20 load generating units are often constrained in their abilty to follow loads (that is, to
21 respond quickly to changes in load). System demand can increase very quickly or
22 capacity can be lost instantaneously if the utilty loses a large generating unit. A large
23 block of interruptible load gives the utility the means to meet such load increases on
3See Monsanto Exhibit 248.
2878
Iverson, Di - 8
Monsanto Company
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1 short notice by diverting service from interruptible customers to firm customers. If the
2 utility is unsure about hourly variations in load, it may decide that a particular type of
3 unit is uneconomical because it is not flexible enough. On the other hand, if some
4 load can be interrupted to offset large increases in firm load, overall system load
5 changes can be moderated and the utilty can have flexibilty to pick the economical
6 generation alternative.
7 From an operating perspective, savings can also be achieved when
8 interruptible service provides an opportunity for the utilty to make more effcient use
9 of its existing generating capacity. Additional energy can be sold to interruptible
10 customers during light load periods without incurring the obligation to serve those
11 customers during heavy load periods.
12 Potential fuel cost savings associated with "noticed" interruptible load are also
13 possible. For example, some units may be run at reduced levels, below their most
14 effcient loading. If these units are used to carry interruptible load, instead of simply
15 idling, they can be loaded to a more efficient level, thereby reducing the amount of
16 fuel required to produce energy. Less cycling of base load and intermediate capacity
17 can also result in lower maintenancet;osts. This is because cycling causes greater
18 thermal stress on the boiler and related equipment.
19 And finally, no-notice interruptible load can protect system integrity during
20 sudden frequency decays (Le., voltage) caused by significant generation and/or
21 transmission outages.
22 Q HAS RMP RECOGNIZED ANY OF THESE BENEFITS IN ITS VALUATION OF
23 INTERRUPTIBLE PRODUCTS?
24 A No. According to Mr. Clements, the Company follows a "customer indifference"
25 approach that pays interruptible customers "the same price the Company would
Iverson, Di - 9
Monsanto Company2879
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1 otherwise pay if it were to acquire those same products from other sources, such as
2 the market or its own resources.,,4
Q DO YOU BELIEVE THE COMPANY'S UNDERLYING PRINCIPLE OF "CUSTOMER
INDIFFERENCE" MAKES SENSE IN VALUING MONSANTO?
A No, I do not. In the first place, the entire "indifference" approach requires the initial
assumption that the product being priced (that is, Monsanto's interruptibilty) can
actually be acquired from other sources. They cannot. We are not talking about a
structured marketplace where PacifiCorp is deciding to buy widgets from either
Supplier A or Supplier B. Monsanto's own unique interruptibilty is just that -
Monsanto's own. It is not a "product" one could find in the marketplace, as the
Commission noted in Order No. 29157: "the economic curtailment option offered by
Monsanto is not available in the market and ... there are no counter parties willing to
sell this product.,5 Consequently, the entire "indifference" approach is based upon a
faulty starting position.
Second, if the product cannot be found in the marketplace, then Mr. Clements'
approach claims the price paid would-be what the Company would pay to acquire
those same products from "its own resources." However, Mr. Clements does not
price out this acquisition based upon the full cost of the Company's resources. He
conveniently ignores all capital-related costs in his pricing. This is because the
Company doesn't "pay" anything for the use of its existing resources -- rather, it is all
of PacifiCorp's customers that must pay those capital costs through firm rates. For
example, Mr. Clements values Monsanto's operating reserves using only short-term
4Supplemental Testimony of Paul Clements, page 4.
5Final Order No. 29157, Case No. PAC-E-01-16, page 12. Furthermore, Mr. Clements himself
states that "Each curtailment product terms and conditions is unique to that particular contract."
Response to Monsanto Data Request 17.11.
2880
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Monsanto Company
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market prices and "lost profits" from the least profitable unit. His notion that this is
somehow fair to all customers is misplaced.
WHY DO YOU SAY HIS APPROACH IS UNFAIR?
This approach is unfair as it could lead to all other customers actually paying more in
the long-run. If the Company has its way and succeeds in converting Monsanto to
100% firm, and then succeeds in driving the economic valuation down to
unacceptable levels, then Monsanto's interruptible resource would in effect be wiped
from PacifiCorp's resource portolio and the Company would need to plan to replace
this lost resource. Its planning reserves would also increase. The costs of adding
more resources to make up for this lost resource would put additional upward
pressure on already increasing rates.6
Furthermore, the Company's short-term valuation is unfair in that it places
undue volatilty on Monsanto's interruptible rate. As aptly described in Mr. Clements'
testimony at page 6, his contracting approach of using market values can lead to
volatile swings in values that would translate into unnecessary volatilty in Monsanto's
interruptible rate:-
This contracting approach results in the value of the interruptible
products being driven largely by both the current market value of those
products and the Company's requirement for the interruptible products
at a given time in which the value is determined. The market value of
the interruptible products can be volatile as the energy markets go
through cycles of over and under capacity utilzation. In addition, the
Company's requirements for the interruptible products offered by
Monsanto are constantly changing as load forecasts change and the
Company acquires new resources to meet its obligation to serve.
(Clements Supplemental, page 6, emphasis added.)
To exacerbate the situation, the Company's approach results not only in
volatie swings in price paid to Monsanto for its interruptibilty, but even to quantiy the
61n addition, the power prices charged to Monsanto under this scheme could also lead to a
loss of jobs and a consequent adverse impact to the service territory.
2881
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Monsanto Company
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1 Company would be willing to procure as Mr. Clements alludes to above. This is
2 further compounded by the perverse incentive that PacifiCorp makes no return on
3 "buying" a product from an interruptible customer, but makes a return on supply-side
4 resources it puts into service. Consequently, under the Company's approach
5 Monsanto as a "seller" would be faced with a volatile clearing price, a single "buyer"
6 with little or no motivation to procure the product, and a "constantly changing" need
7 for its product based on data known only to the sole "buyer." It's difficult to see how
8 Mr. Clements could possibly characterize this as a "fair" approach.
Q HOW DO YOU RECOMMEND THE COMMISSION VALUE MONSANTO'S
INTERRUPTIBILlTY?
A First, I recommend the Commission reject the Company's proposal to convert
Monsanto to 100% firm service. The Company should continue to provide Monsanto
with a single contract that provides for the provision of interruptible power and energy.
Second, i recommend the Commission establish a lower rate for interruptible
service because interruptible loads impose a lower cost on the utilty than firm loads.
This lower rate should not hinge on a short-term, separate arrangement Rather, this
lower cost should reflect exclusion of fixed costs since interruptible load helps the
utilty avoid installng excess capacity. The reason for excluding fixed plant costs is
that the utilty may interrupt service at any time when capacity is needed to meet the
requirements of firm customers. In other words, interruptible customers do not cause
the utilty to install capacity, and therefore, those related plant costs should not be
allocable to interruptible customers.
i wil address the overall rate proposal for Monsanto in section Vi of my
testimony.
2882
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1 iv. INTERRUPTIBLE DEMAND CHARGES
2 Q YOUR TABLE 1 SHOWS A "CREDIT FOR INTERRUPTIBILlTY." DOES
3 MONSANTO SELL BACK POWER TO RMP AT THAT PRICE?
4 A No, they do not. The "Interruptible Credit" is a reduction to the firm rate to reflect the
5 fact that Monsanto takes a lower quality of service. It is not a payment but a
6 component of the rate used to develop the interruptible demand charge. The concept
7 of a "credit" was first introduced in Case No. PAC-E-01-16, where the Commission
8 established a "discounted demand charge of $4.09/kW-month" for interruptible
9 power.7
10 Q HOW HAS THE INTERRUPTIBLE DEMAND CHARGE CHANGED SINCE IT WAS
11 FIRST ESTABLISHED IN CASE NO. PAC.E.01.16?
12 A Table 2 below shows the history of both firm and interruptible demand charges paid
13 by Monsanto since rates were established in Case No. PAC-E-01-16:
7Case No. PAC-E-01-16, Final Order No. 29157, p. 13.
2883
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Monsanto Company
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1.2
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12
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17.
TABLE 2
History of Schedule 400 Firm and Interruptible
Demand Charges ($ per kW-month)
Firm Interruptible
2004 - 2006 $8.81 $4.09
2007 $10.00 $3.64
2008 $11.35 $3.65
2009 $11.69 $3.76
2010 $12.27 $3.94
2011 - RMP Proposal $14.50 $11.53*
Firm demand rates increased by 13.5% in 2007 and then by another 13.5% in
2008. The interruptible demand charge during this time actually decreased, however,
primarily as a result of Monsanto agreeing to raise the hours of interruption from
800 hours to 1,000 hours, an increase of 25%. As detailed in the Order approving the
2007 rates:
After PacifiCorp's cost of service studies indicated a substantial
increase in firm rates, Monsanto states it felt compelled to increase the
interruption hours to increase the interruptible credit in an amount
sufcient to establish a lower net rate in an effort to keep production
costs at a competitive leveL. Both parties, it states, continue to place
considerable value on Monsanto's interruptibilty as to its quantity,
timing and dependabilty. (Case No. PAC-E-06-09, Order No. 30197,
p.3)
HOW MUCH DOES RMP PROPOSE TO INCREASE THE INTERRUPTIBLE
DEMAND CHARGE IN THIS PROCEEDING?
RMP proposes to increase the Schedule 400 interruptible demand charge by a
staggering 192% - or close to tripling the rate. To put this in context, the proposed
2884
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Monsanto Company
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1 interruptible demand charge of $11.53 is nearly what Monsanto paid for firm service
2 just two years ago in 2009.
3 Looked at another way, the proposed power charges in the Schedule 9 High
4 Voltage General Service Tariff in Idaho average $8.28 per kW-month for firm service.8
5 A Schedule 9 customer with an 85% load factor would pay 49 mils/kWh for firm
6 service.9 Under the Company's proposed interruptible demand charge, Monsanto
7 would pay 46.72 mils/kWh for interruptible service.10 The reduction in rates,
8 therefore, is a mere 2.29 mils/kWh for taking interruptible service. The Commission
9 found a credit value of 7.48 mills/kWh for Monsanto in Case No. PAC-E-01-16.11
10 Consequently, RMP is seeking approval for an interruptible credit that is less than a
11 third of what is was back in 2002 despite the significant increases made to firm rates
12 since that time, as well as the additional hours of curtailment Monsanto provides
13 since then. The Commission should find RMP's proposed interruptible demand
14 charge is neither fair nor reasonable, and it should be rejected.
15 V. ANALYSIS OF MONSANTO'S COST TO SERVE BY COMPONENT
16 Q HAS THE COMPANY ALLOCATED COSTS TO THE STATE OF IDAHO AS
17 THOUGH MONSANTO WERE A FIRM CUSTOMER?
18 A Yes, it has. The Company has treated Monsanto's load within its Jurisdictional
19 Allocation Model ("JAM") study as though it were served 100% firm. System-wide
20 resource costs are allocated to Idaho, and then ultimately allocated to Monsanto as
21 "Contract 1" in the Idaho cost of service ("COS") study. According to RMP's latest
8 Exhibit No. 84, page 7.
9 ($8.28 + (730 x 85%)) + 0.035667 = $0.04901 per kWh, or 49 mills/kWh.
10 ($11.53 + (730 x 85%)) + 0.02814 = $0.04672 per kWh, or 46.72 mils/kWh.
11 Order No. 29157, page 12.
Iverson, Di - 15
Monsanto Company2885
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1
2
3 Q
Idaho COS study, the total cost to serve Monsanto as an "all firm" customer is
$70.4 million.12
DO YOU AGREE THAT THE ACTUAL COST TO SERVE MONSANTO IS
4 $70.4 MILLION?
5 A No, i do not. The Commission Staff, as well as Monsanto and the PacifiCorp Idaho
6 Industrial Customers, have proposed several revenue adjustments that lower the
7 overall requested increase to the state of Idaho. More importantly, the $70.4 millon
8 is overstated as it fails to reflect whatsoever Monsanto's interruptibilty.
9 Q
10
11 A
12
DID YOU PREVIOUSLY PROVIDE A JAM STUDY THAT BETTER REFLECTED
MONSANTO'S INTERRUPTIBILITY?
Yes. In my November 1,2010 Direct Testimony, I provided a JAM study where the
coincident peaks for Idaho were reduced by Monsanto's interruptible load.13 The
13 Company took issue with this study criticizing: (1) the size of the peak reduction
14 (162 MW); (2) the number of months the reduction was made (12 months); and
15 (3) the adjustment to the revenues.
16 Q
17 A
18
19
20
DO YOU BELIEVE THE COMPANY'S CRITICISMS HAVE MERIT?
No. To prove they are without merit, I am providing an Idaho class COS study that
separates out Monsanto's "Contract 1" line into four distinct components. This refined
model shows how much costs have been allocated to Monsanto's interruptible load
because of the Company's characterization that Monsanto is 100% firm.
12Exhibit No. 81, page 2 of 2, line 10, column F, "Total Cost of Service"
13Direct Testimony of Kathryn Iverson, page 9 for a description of this revised JAM study.
Iverson, Di - 16
288 6 Monsanto Company
11 Q.12 A
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1 Q UPON WHAT BASIS DID YOU SEPARATE OUT THESE FOUR COMPONENTS?
2 A The components are based on Monsanto's loads and interruptibilty provisions.
3 Q PLEASE EXPLAIN.
4 A Monsanto is unique in that it has three furnaces and so is able to offer various levels
5 of capacity reduction: 46 MW for furnace #7,49 MW for furnace #8 and 67 MW for
6 furnace #9 for a total of 162 MW. The 2008 Agreement defines the terms and
7 conditions associated with three different curtailment purposes: (1) Operating
8 Reserves of 95 MW which can be called upon 188 hours per calendar year;
9 (2) Economic Curtailment of 67 MW available for 850 hours per calendar year; and
10 (3) System Integrity of 162 MW available 12 hours per calendar year.
PLEASE DESCRIBE OPERATING RESERVE INTERRUPTIONS.
The 2008 Agreement allows PacifiCorp to interrupt Monsanto for the purpose of
operating reserves in any month, and on any day. Operating reserve interruptions
have pnority over economic curtailment and typically provide at least 95 MW of
curtailment (furnaces #7 and #8). For the 47 months during the period January 2006
through November 2010, the Company called upon Monsanto for operating reserves
in every single month except one.14 In fact, the Company often times receives more
than 95 MW of operating reserves during a called interruption. This is because
Monsanto must curtail a minimum of 95 MW if two furnaces are operating and the
third is unavailable due to maintenance or overhaul.15
14 There was no interruption called for operating reserves in February 2010.
15For example, usually Furnaces #7 (46 MW) and #8 (49 MW) are curtailed for a total of
95 MW. However, if Furnace #7 is down, then Furnaces #8 and #9 (67 MW) are curtailed for a total of
116 MW. If Furnace #8 is down, then a total of 113 MW is curtailed.
2887
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Monsanto Company
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1 As explained in Mr. Collins' testimony, RMP currently includes 90 MW of
2 Monsanto operating reserve as an interruptible resource, rather than the 95 MW
3 found in the 2008 Agreement. This difference is the result of the Company de-rating
4 the 95 MW downward to 90 MW because of economic curtailment hours. However,
5 this de-rating is completely unwarranted. Operating reserve interruptions have
6 priority over economic curtailment. Furthermore, as a result of the Agreement's
7 provision to curtail a minimum of 95 MW if a furnace is down for maintenance or
8 overhaul, interruptions greater than 95 MW happen more times than interruptions less
9 than 95 MW.
10 Q PLEASE EXPLAIN THE RESULTS OF THE IDAHO CLASS COS STUDY WITH
11 MONSANTO'S LOAD SEPARATED OUT INTO FOUR COMPONENTS.
12 A Exhibit 257 (KEI-4) provides the summary page of the Idaho class COS study with
13 the "Contract 1" line separated out into four distinct components. This class COS
14 study makes no change whatsoever to the allocations or cost results found in the
15 Company's class COS filed in its November 16, 2010 rebuttal testimony. However, it
16 separates the Monsanto load into four distinct components:
2888
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Monsanto Company
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TABLE 3
Separating Monsanto's Load Into Four Components
Component Component Component Component
1 2 3 4 Total
95 MWof 67 MWof InterruptibleDescription9 MWofFirm Operating Economic Total
Reserves Curtailment Load
Hours of load 8,760 188 850
Energy (MWH)78,840 17,860 56,950 1,231,523 1,385,173
Annual CP (kW)108,000 1,004,370 708,345 21,913 1,842,628
$3.3 $9.9 $8.1 $38.3 $5~.5
$4.3 $15.1 $12.1 $38.9 $70.4
1 The totals shown above (energy, coincident peak, revenues, and cost of service) all
2 match those found in Exhibit 81. The coincident peaks have been broken down so.3 that the firm component has 9 MW each month, and Companents 2 and 3 are at most
95 and 67 MW each month.164
5 Q PLEASE EXPLAIN THE FIRST COMPONENT LABELED AS "FIRM."
6 A The first component is the 9 MWfirm load at '1 00% load factor. It includes the
7 allocation of customer-related expenses, as well as the transmission costs that are
8 directly assigned to Monsanto in the cost study. The results of the cost study indicate
9 an increase of just over $1 millon as shown on Exhibit 257 (KEI-4). Thus, of the
10 $10.8 million increase proposed by the Company for firm rates, only around 10% of
11 this increase can be directly attributable to Monsanto's actual firm service.
.161n ten of the months, Monsanto's coincident peak was less than 171 MW (9 + 95 + 67 MW).
In those instances, the monthly coincident peak (less the 9 MW) was spli between Components 2 and
3 proportionally (95/162 to Component 2 and 67/162 to Component 3).
2889
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Monsanto Company
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1 Q PLEASE EXPLAIN THE SECOND AND THIRD COMPONENTS LABELED AS
2 OPERATING RESERVES AND ECONOMIC CURTAILMENT.
3 A The second component separates out the costs allocated to Monsanto for the 95 MW
4 of operating reserves. Because the Company has characterized Monsanto as "firm"
5 in its JAM and COS studies, Monsanto is allocated $15.1 millon of costs for this
6 component of its load. Thus, the Company is requesting that Monsanto first pay over
7 $15 millon in firm rates for these 95 MW, and then the Company proposes to credit
8 Monsanto a mere $2.4 milion for operating reserves, or less than 16% of what the
9 Company is charging Monsanto.17
10 Likewise, the third component separates out the costs allocated to Monsanto
11 for the 67 MW of economic curtailment. The cost study reveals that $12.1 milion is
12 allocated to Monsanto for the 67 MW. The Company effectively charges Monsanto
13 $12.1 milion for this component, and then proposes to credit them only $3.6 milion.
14 Q DOES IT SEEM FAIR AND REASONABLE FOR THE COMPANY TO CHARGE
15 MONSANTO ROUGHLY $27 MILLION FOR FIRM SERVICE RELATED TO THESE
16 "PRODUCTS" AND THEN CREDIT IT BACK ONLY $6 MILLION?
17 A No. Other customers would receive a benefit at Monsanto's expense, since the
18 Company is in effect using an interruptible resource to offset its firm obligations, yet
19 only crediting Monsanto for a small fraction of the value it brings to the system.
20 Q PLEASE EXPLAIN THE FOURTH COMPONENT LABELED AS INTERRUPTIBLE
21 LOAD.
22 A This component includes the bulk of Monsanto's energy loads since it excludes the
23 firm energy of the first component, and the curtailed energy of the second and third
17Clements, Supplemental Testimony, page 25.
2890
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Monsanto Company
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components. It also includes the coincident peaks not accounted for in the first three
components. The results of separating out this final component reveal a total cost to
serve of $38.9 million.
The cost to serve both the first and fourth components total $42.3 millon, or
an increase $0.8 milion above present revenues. The resulting increase of
$0.8 millon is very similar to the amount I previously found ($0.9 millon) when i
revised the JAM study to better reflect Monsanto's interruptibilty. Thus, this analysis
shows that by including interruptible demand in their allocation studies, the Company
has allocated over $27 milion to Monsanto because tJie load is characterized as
"firm," yet only supports a credit of $6 milion.
THE COMPANY CLAIMS THAT CURTAILMENTS MUST ACTUALLY OCCUR
DURING THE SYSTEM COINCIDENT PEAK IN ORDER FOR THEIR REMOVAL
FROM MONSANTO'S ALLOCATION. DO YOU AGREE?
No. First of all, assuming interruptible customers must actually be off the system
peak for allocation purposes places all risk on the interruptible customer when, in fact,
it is the utilty that controls the.timing of interruptions. Whether or not an interruptible
customer is actually curtailed during the system peak in no way negates the benefits
of interruptible load. It is the abilty to be interrupted during peak times that underlies
its value, not necessarily if the customer is actually called. If there is adequate
capacity to serve the load at time of peak, it would be poor management to waste an
interruption that might be needed at a later time.
Interruptions can occur at any time throughout the year with as little as six
minutes notice. Thus, Monsanto must establish the necessary protocols and make
the necessary investments in order to comply with all requested curtailments or pay a
substantial penalty for non-compliance.
2891
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Monsanto Company
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13.
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Furthermore, unlike interruptible contracts RMP has with other customers,
Monsanto's agreement is not limited to curtailments only in certain months. This
should be an added value when comparing Monsanto against other customers as i
will explain in more detail later. As Company witness Craig Paice testified in his
rebuttal, "The 12 CP methodology recognizes that each of the monthly peaks is
important because the Company must plan for and dispatch its resources during each
of the 12 months of the year."18 Thus, the value of being available 12 months of the
year should be reflected in Monsanto's lower interruptible rate.
Finally, the Idaho class COS, which separates out Monsanto load into the
components, clearly identifies the costs being allocated to Monsanto as a result of the
Company's insistence it be served at firm rates. In truth, I have not "removed" those
coincident peaks from Idaho's class cost of service, but merely exposed them and
their associated cost implications.
Vi. RECOMMENDED INTERRUPTIBLE RATE
Q DO YOU HAVE A RECOMMENDED OVERALL RATE FOR MONSANTO'S
INTERRUPTIBLE LOAD?
A Yes. However, before I provide this rate, it would be helpful to first examine the rates
paid by RMP's other two interruptible customers in order to put our recommended
rate in context.
20 Q MR. CLEMENTS REFERENCES TWO OTHER RMP CUSTOMERS WITH
21 INTERRUPTIBLE LOADS IN HIS TESTIMONY. DOES HIS ANALYSIS PROVIDE A
22 FULL AND MEANINGFUL COMPARISON?
23 A No, it does not. Mr. Clements' evaluation does not tell the whole story..18Paice Rebuttal, page 4.
2892
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Monsanto Company
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1 Q LOOKING FIRST AT CUSTOMER #1 IDENTIFIED BY MR. CLEMENTS AT PAGE
2 18 OF HIS TESTIMONY, HAVE YOU REVIEWED THEIR CONTRACT?
3 A Yes. This contract includes a fairly typical industrial rate structure with customer and
4 facilties charges, and seasonal power and energy charges for heavy and light load
5 hours. The rate is applicable to a contract demand of 100 MW. A separate
6 curtailment credit is applicable to the first 85 MW of load. The rate is subject to an
7 index that reflects changes in RMP's Utah jurisdictional rates in the previous year;
8 e.g., the 2011 rates reflect changes made to Utah rates during 2010.
9 If Monsanto's loads were priced out under Customer #1 's rates in effect
10 January 1, 2011 without the interruptible credit (Le., 100% firm), Monsanto's total firm
11 cost would be $56.4 millon, or $40.75 per MWH. Consequently, even before
12 consideration of any discount for interruptibilty, Customer #1's firm rates in 2011 are
13 substantially lower than the Company's proposal in this case and even lower than
14 what Monsanto currently pays:
TABLE 4
Cost to Monsanto at 100% Firm
Firm Cost
Before Credit Firm Cost
($ milions)$ perMWH
Present Schedule 400 $59.5 $42.95
Company Proposal $70.6 $51.00
Staff Proposal $67.2 $48.54
Customer #1 in 2011 *$56.4 $40.75
* Application of Customer #1 rates in 2011 to Monsanto billing
determinants
2893
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Monsanto Company
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1 Q DOES THE CONTRACT FOR CUSTOMER #1 ALSO INCLUDE A "CURTAILMENT
2 CREDIT?"
3 A Yes. The curtailment credit for Customer #1 effective January 1, 2011 wil be
$4.90 per kW-month.194
Q MR. CLEMENTS .SHOWS A CREDIT OF $4.25 ON HIS PAGE 18 TABLE FOR
CUSTOMER #1. WHAT EXPLAINS THIS DIFFERENCE?
A Two things account for this difference. First of all, Mr. Clements is using only a
portion of Customer #1's credit, as his workpapers indicate, he bases his table figures
on 92% of the total credit.20 This explains why we were not able to reconcile his table
figures to the credit shown in the contract. Second, Mr. Clements is using the
average monetary amounts for 2007 through 2010. The credit, however, is adjusted
annually at the same percentage rate as all other rate components. This is clearly
spelled out in the contract, which means that as the firm charges go up, the credit
does likewise:
***
*** (Response to Monsanto Data Request
1.27, Confidential Attachment Monsanto 1.27, emphasis added)
By using an average of past partial credits, Mr. Clements is not being entirely truthful
about the full credit level for 2011.
19Response to Monsanto Data Request 18.4, Attachment 18.4a.
2oAccording to the Company, "the interruptible product terms and conditions included in the
customer's contract are such that the Company can call for an interruption with a seven minute notice
for any reason. Therefore this interruptible product can be used for non-spinning operating reserves,
economic curtailment, or for any other purpose desired by the Company within the contract terms and
conditions." See Response to Monsanto Data Request No. 18.4 a.
2894
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Monsanto Company
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9
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33.
1
2
3 A
4
5
6
7
Q WHAT IS THE COST TO MONSANTO USING CUSTOMER #1'S 2011 RATES
INCLUDING THE CREDIT OF $4.90 PER KW.MONTH?
Based on Monsanto's billng determinants of this case, their overall cost would be
$46.4 milion, or $33.49 per MWH. In summary, based on Customer #1's firm rates
and curtailment credit in place for 2011, Monsanto would require an increase less
than $4 milion above its present rate. This is in stark contrast to the Company's
request for an increase of $21.8 millon.
Q HOW DOES THE "CURTAILMENT PRODUCT" OF CUSTOMER #1 COMPARE TO
MONSANTO?
A The following comparison shows that Monsanto's terms and conditions offer more
value to the Company due to hours, notice time, length of curtailment, interruptions
per day and size of load:
.Number of Hours of Curtailment: Customer #1 offers only 130 hours total
for the entire year, with Mr. Clements claiming that 70 hours are set aside for
operating reserves. Monsanto offers a total of 1,050 hours total for the entire
year. Of that amount, operating reserves account for 188 hours, or more than
2"Y times that of Customer #1.
.Notice Time Required Prior to Curtailment: Customer #1 must interrupt
within no greater than seven minutes. Monsanto must interrupt within six
minutes for operating reserve interruptions. Consequently, Monsanto offers
more hours (188 hours versus 70) and faster response (6 minutes versus 7).
.Lenqth of curtailment: For Customer #1, the maximum duration of any
single interruption is 60 minutes. Interruptions to Monsanto related to
operating reserves shall not exceed 120 minutes, and those related to
economic curtailment are not limited to length. Again, Monsanto's terms offer
more value with a longer curtailment opportunity.
.Interruptions per day: For Customer #1, the Company is allowed unlimited
interruptions each day so long as the customer has not been interrupted more
than 6 times in a single day 3 times in a calendar year. Once Customer #1
has been interrupted more than 6 times in a single day 3 times during the
calendar year, future interruptions for that calendar year are limited to five
interruptions per day. Monsanto has no such limitation, again making it the
more flexible, and thus valuable resource.
2895
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Monsanto Company
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15
· Size of the load that can be curtailed: The estimated load for interruption
for Customer #1 is 85 MW. Due to Monsanto's three furnace configuration,
Monsanto can interrupt 1, 2 or all 3 furnaces. As explained earlier, Monsanto
typically provides 95 MW for operating reserves, but this amount can be
higher at 113MW or 116 MW depending on the furnaces taken down at the
time of the operator's calL. Monsanto can also curtail another 67 MW, making
a total load available of 162 MW.
TURNING NOW TO CUSTOMER #2, HAVE YOU REVIEWED THEIR CONTRACT?
Yes. We received a copy of their agreement on August 19, 2010.21 Unlike Customer
#1, however, there was no curtailment credit in the agreement we received.
Q DOES THIS MEAN CUSTOMER #2 DOES NOT RECEIVE A CURTAILMENT
CREDIT?
No, it does not. It means that RMP failed to provide us in August with both contracts
for Customer #2. A separate agreement for operating reserves was provided by.RMP
16 we knew of its existence.22
four months after we received the first contract, and only once we made RMP aware
17 Q
18
19 A
20
21
22
23
HOW DOES THE RATE STRUCTURE FOR CUSTOMER #2 COMPARE TO
CUSTOMER #1?
While Customer #1 has a single agreement with PacifiCorp and a single credit,
Customer #2 has two agreements: (1) an Electric Service Agreement ("ESAtl) that
provides the rate to be paid by Customer #2, and (2) an "Operating Reserve
Interruption Agreement," which provides the mechanism by which Customer
#2 receives compensation related to its interruptions for operating reserves.
21 Confidential Attachment Monsanto 1-30.
22Confidential Attachment Monsanto 17.1b 1st Supplemental, provided December 17, 2010.
Iverson, Di - 26
2896 Monsanto Company
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1 The ESA is a simple flat year-round energy-only rate for delivered power. It is
2 adjusted annually based on average percentage changes as ordered by the Utah
3 Commission for a specific industrial rate schedule. The rate is also adjusted annually
4 by a series of $/MWH rate adjustments in order to bring Customer #2 to cost of
5 service.
6 If Monsanto's loads were priced out under Customer #2's rates in effect
7 January 1, 2011, Monsanto's cost would be $43.4 milion, or ****** per MWH.23
8 Q DOES THE ****** PER MWH COST INCLUDE THE CREDIT ASSOCIATED
9 WITH INTERRUPTIONS FOR OPERATING RESERVES?
10 A No, it does not. Interruptions for operating reserves are handled separately through a
11 curtailment credit of $4.01 per kW-month.
12 Q WHAT WOULD MONSANTO PAY IF IT WERE SERVED AT THE RATES
13 PACIFICORP CHARGES CUSTOMER #2 IN 2011?
14 A The curtailment credit for operating reserves would be applied to 95 MW each month,
15 for a total credit of $4.6 milion. This would reduce the cost down to $38.8 millon, or
16 $29.06 per MWH.
17 Q ISN'T THAT LESS THAN WHAT MONSANTO CURRENTLY PAYS?
18 A Yes, it is. However, as I mentioned earlier, Customer #2 is facing a series of fixed
19 $/MWH adders over the next four years in order to target their cost of service as
20 projected by RMP in their last general rate case proceeding. The first of those adders
21 has already been included in the 2011 rate. Another ****** per MWH is set to
22 be phased in over 2012-2014. If this ****** per MWH adder is added to the
23See Confidential Attachment Monsanto Rebuttal 2.1.
2897
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Monsanto Company
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1 $29.06 above, the total cost would be $32.84 per MWH. In summary, based on
2 Customer #2's firm rates and curtailment credit in place for 2011, plus the additional
3 cost of service based increase, Monsanto would require an increase of only
4 $1.4 millon above its present rate. Again, this is in stark contrast to the Company's
5 request for an increase of $21.8 milion.
6 Q HOW DO THE "CURTAILMENT PRODUCTS" OF CUSTOMER #2 COMPARE TO
7 MONSANTO?
8 A The following comparison shows that Monsanto's terms and conditions again offer
9 more value to the Company:
10
11
12
13
14
15
16
· Number of Hours of Curtailment: Customer #2 offers up to 480 hours of
curtailment, and 100 hours of interruptions for operating reserves during each
calendar year. The hours for curtailment are limited to certain months, certain
days, and certain times of the day as described below. In contrast, Monsanto
provides 850 hours for economic curtailment, 188 hours for operating
reserves, along with another 12 hours for system integrity with no such
limitation as to months, days or time of day.
17
18
19
20
21
22
23
· Notice Time Required Prior to Curtailment: Customer #2 must interrupt
within 10 minutes for operating reserves. Monsanto must interrupt within six
minutes for operating reserve interruptions. For curtailments, Customer #2 is
provided notice by noon the day before a curtailment is scheduled. In
contrast, Monsanto receives only a two-hour notice for economic curtailment.
Consequently, Monsanto again offers superior response time (6 minutes
versus 10, and 2 hours versus day before).
24
25
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27
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29
30
31
32
33
34
· Lenqth of curtailment: For Customer #2, curtailments are limited to the
months of June through September (summer) and December and January
(winter), and are limited to Monday through Friday. Curtailments may not
occur on NERC holidays. Summer curtailments are limited to 4 consecutive
hours Monday through Friday during the period of 12:00 PM to 8:00 PM.
Winter curtailments are limited to two blocks of 2 hours each Monday through
Friday during the period of 6:00 AM to 11 :00 AM and 4:00 PM to 8:00 PM. In
contrast, Monsanto economic curtailments are not limited to length and can be
taken any day, any month, and any hour.
For operating reserves, both Customer #2 and Monsanto are limited to
120 minutes per interruption.
35
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37
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2898
.1
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36.
may occur any number of times per day. For Customer #2, operating
reserves are limited to 3 hours of interruption during anyone four hour period
in anyone day, while Monsanto may be interrupted 4 hours in any four hour
period, again making Monsanto the more flexible resource. Monsanto,
however, is limited to 25 interruptions for operating reserves per month.
· Size of the load that can be curtailed: The load for interruption for
Customer #2 is 100 MW. Due to Monsanto's three furnace configuration,
Monsanto can interrupt 1, 2 or all 3 furnaces. As explained earlier, Monsanto
typically provides 95 MW for operating reserves, but this amount can be
higher at 113 or 116 MW depending on the furnaces taken down at the time of
the operator's call. Monsanto can also curtail another 67 MW, making a total
load available of 162 MW.
· Particular event required for curtailment: The rights for the Company to
curtail Customer #2 in the summer are primarily triggered by forecasted
maximum temperatures. Monsanto has no such trigger mechanism, thereby
making it more flexible and less restrictive.
Q CAN YOU SUMMARIZE YOUR REVIEW OF THE PRODUCTS OFFERED BY
CUSTOMER #1 AND CUSTOMER #2 AGAINST MONSANTO, ALONG WITH A
PRICE COMPARISON?
A Monsanto's larger size, more hours, faster response times, unconstrained timing and
flexibilty provide ample evidence that it should be priced commensurate, if not lower,
than other RMP interruptible customers:
· Larger Size: Monsanto offers up to 162 MW of interruptible load, in contrast
to 85 MW or 100 MW of the other customers.
· More Hours: Monsanto offers 920 more hours than Customer #1 and 470
more hours than Customer #2.
· Faster Response: Monsanto responds in six minutes for operating reserves,
compared to seven or ten for the other customers. For curtailments,
Monsanto responds with only a two hour notice, compared to the day-ahead
notice provision for Customer #2.
· Unconstrained Timing: Monsanto is available every month, every day,
every hour. Unlike Customer #2 that limits curtailments to only non-holiday
weekdays in six months, and only during certain times of the day, Monsanto is
available for curtailment 24/7.
· Flexibilty: Curtailments at the Soda Springs facilty are not premised on
temperature triggers.
2899
Iverson, Di - 29
Monsanto Company
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.
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1
2
3
4
5
6
7
8 Q
9 A
10 Q
11 A
· Pricing: With fewer hours, smaller loads, longer response time, and more
constraints as to months, days, and times, the other interruptible customers
have rates for 2011 that range from $32.84 per MWH to $33.50 per MWH.
Given Monsanto's unique characteristics as a long-standing interruptible
customer, it would not be unreasonable to see an overall price to Monsanto
coming from this case that is actually less than the rates paid by Customer #1
and Customer #2.
WHAT IS THE CURRENT "INTERRUPTIBLE CREDIT" TO MONSANTO?
The credit is $8.33 per kW-month, or roughly $17.1 millon.
SHOULD THE CREDIT REMAIN AT ITS CURRENT LEVEL?
12 higher than it is currently. Furthermore, if the credit remained at today's level,
No. As discussed in the testimony of Mr. Collns, the valuation (credit) should be
14
13 Monsanto's rate would be substantially higher than either Customer #1 or Customer
#2 as shown in the following table:
TABLE 5
Comparison of Monsanto's Overall Rate
Based On Company and Staff Revenues
While Maintaining the Current Credit
($ Millons)
RMP Staff
Present Revenue $42.4 $42.4
Increase $10.8 $7.7
Proposed Revenue $53.2 $50.1
$ perMWH $38.45 $36.20
Percentage Change 25.5%18.2%
2900
Iverson, Oi - 30
Monsanto Company
.
.
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1 Q WHAT IS THE OVERALL IMPACT TO MONSANTO WITH THE VALUATION
2 UPDATED TO $25.5 MILLION AS RECOMMENDED IN MR. COLLINS'
3 TESTIMONY?
4 A Table 6 shows the results of using an updated valuation of $25.5 millon:
TABLE 6
Comparison of Monsanto's Overall Rate
Based On Company and Staff Revenues
and Updating the Credit to $25.5 Million
($ Millons)
Present Revenue
Increase
Proposed Revenue
$ perMWH
Percentage Change
RMP
, $42.4
$2.4
$44.8
$32.38
5.7%
Staff
$42.4æi
$41.7
$30.13
-1.7%
5 Q ARE THE RESULTS SHOWN IN YOUR TABLE 61N LINE WITH 2011 RATES FOR
6 CUSTOMER #1 AND CUSTOMER #2?
7 A Yes, however, the overall rate for Monsanto is somewhat lower. Since Monsanto's
8 terms and conditions provide more value to the Company, it would not be
9 unreasonable for Monsanto's rate to be lower than other interruptible customers. In
10 fact, the rate of $32.38 per MWH shown in Table 6 is quite in line with the $32.84 per
11 MWH based on rates paid by Customer #2.
12 Furthermore, the results of the Idaho class COS with Monsanto's loads
13 separated out reveals an increase of $0.8 millon for an overall cost of $31.19 per
14 MWH. This further points to a reasonable rate level that is within the range of using
15 either the Company's or the Stafls revenue requirement together with Monsanto's
16 valuation.
2901
Iverson, Di - 31
Monsanto Company
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1 Q
2 A Yes.
DOES THIS CONCLUDE YOUR TESTIMONY IN THIS CASE?
2902
Iverson, Di - 32
Monsanto Company
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.
.
PACIFICORP dba ROCKY MOUNTAIN POWER
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. PAC-E-10-07
Rebuttal Testimony of Kathryn E. Iverson
"Economic Valuation of Monsanto Interruptible Products"
1 Q PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
2 A My name is Kathryn E. Iverson; 17244 W. Cordova Court, Surprise, Arizona 85387.
3 Q ARE YOU THE SAME KATHRYN IVERSON WHO PREVIOUSLY FILED DIRECT
4 TESTIMONY ON DECEMBER 22, 2010 ON BEHALF OF MONSANTO COMPANY?
5 A Yes.
6 Q WHAT ISSUE ARE YOU ADDRESSING IN YOUR REBUTTAL TESTIMONY?
7 A I am rebutting Mr. Keith Hessing testifying on behalf of the Idaho Public Utilties
8 Commission Staff ("Staff) i am addressing the following issues: (1) the use of the
9 interruptible credit in Monsanto's current Electric Service Agreement ("2008
10 Agreement", or "ESA"), and (2) the Staffs value of the 850 hours of economic
11 curtailment.
12 Q MR. HESSING STATES THAT HIS UNDERSTANDING IS "THE ESA REQUIRES
13 THAT MONSANTO'S REVENUE REQUIREMENT BE ESTABLISHED AS IF IT
14 WERE A TOTALLY FIRM CUSTOMER AND THEN BE REDUCED BY THE VALUE
15 OF THREE INTERRUPTIBLE PRODUCTS THAT MONSANTO SELLS BACK TO
2903 Iverson, Di-Reb - 1
Monsanto Company
.1
2
3 A
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19
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21
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24
25.26
27
PACIFICORP." DO YOU AGREE WITH HIS CHARACTERIZATION OF THE 2008
AGREEMENT?
No, I do not. There is nothing in the ESA which requires that a totally firm revenue
requirement first be established, or that Monsanto "sell back" a product to PacifiCorp.
As i explained in my direct testimony, only 9 MW of Monsanto's load is served at Firm
Demand Charges. The remaining load is served under Interruptible Demand
Charges, which, for confidential reasons, are not specified in the public version of
Schedule 400. The ESA identified the amount of the "Interruptible Credits" for 2008,
2009 and 2010 such that the Interruptible Demand Charge could be determined. The
current treatment by PacifiCorp in the invoices it sends to Monsanto each month
clearly show that Monsanto's interruptible loads are charged the Interruptible Demand
Charge; in other words, Monsanto is not first charged a firm demand charge and then
credited back for a "product it sells back to PacifiCorp."
Furthermore, even if Mr. Hessing's characterizations were accepted for the
current ESA, Monsanto's agreement for service in 2011 and beyond can just as easily
incorporate stand-alone interruptible rates without the need for "Interruptible Credits".
In fact, as I pointed out in my November 1, 2010 direct testimony, this type of
interruptible rate was developed for the latest interruptible contract signed by the
PacifiCorp on August 17, 2009.
Q DOES MR. HESSING ACCEPT THE VALUE PACIFICORP PROPOSES FOR THE
850 HOURS OF ECONOMIC CURTAILMENT?
A Yes. In Mr. Hessing's testimony he states:
The GRID model is a production costing model and the Front Offce
model uses energy price forecasts to estimate costs. Both models
estimate energy costs using energy price forecasts. I believe that the
value of this product is appropriately established in the expected
energy market. (page 5, emphasis added)
2904 Iverson, Di-Reb - 2
Monsanto Company
.1 Q IS HIS ACCEPTANCE OF THE COMPANY'S PROPOSED VALUATION A
2 SUITABLE RECOGNITION OF MONSANTO'S INTERRUPTIBLE RESOURCE?
3 A No. As emphasized in the citation above, both models employed by the Company
4 focus on a strictly energy-related value. Mr. Hessing appears to believe the "energy
5 market" appropriately establishes the value of Monsanto's resource. The "energy
6 market", however, does not fully recognize the avoidance of capacity which
7 Monsanto's interruptibility provides, and which PacifiCorp itself acknowledges in its
8 Integrated Resource Plan ("IRP").
9 Q
10 A
11.12
13
14
15
16
.
17 Q
PLEASE EXPLAIN.
The firm capacity of Monsanto's 67 MW of economic curtailment is included as an
existing resource in the current IRp1, and Monsanto provides load interruption
capability of 67 MW at time of system peak. Neither the GRID model nor the Front
Offce model provide a proper reflection of the avoided capacity inherent in the
existing 67 MW resource. As i explained in my December 22 direct testimony, the
avoidance of 67 MW of capacity to Idaho, and in particular to Monsanto, reduces the
cost to serve Monsanto by $12.1 million.2
HAS ROCKY MOUNTAIN POWER PREVIOUSLY REFLECTED LOWER SYSTEM
18 PEAKS WHEN DEVELOPING THE COST TO SERVE INTERRUPTIBLE LOAD?
19 A
20
Yes. In Utah, expected reductions in Magcorp's interruptible load for economic
curtailment were made to the peaks in that jurisdiction.3 In other words, Utah's
1 See PacifiCorp "2008 Integrated Resource Plan Volume 1", pages 74 and 82.
2 See December 22, 2010 Direct Testimony of Kathryn Iverson, page 20.
3 RMP Response to Monsanto Data Request 1.31.
2905 Iverson, Di-Reb - 3
Monsanto Company
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21
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1 jurisdictionally allocated costs are lower because Magcorp's economic curtailments
2 are reflected in six months of coincident peaks: January, June through September,
3 and December. Thus, fewer resource costs are allocated to Utah and consequently
4 to Magcorp, as a direct result of their economic curtailment contractual provisions.
Q HOW DOES THIS DIFFER WITH THE TREATMENT AFFORDED TO MONSANTO
BYRMP?
A RMP treats the Idaho jurisdiction as though no economic curtailment is made to
Monsanto and thus, Monsanto's rates reflect no avoidance of capacity. The
economic valuation accepted by the Staff averages $3.9 milion for the three-year
period 2011-2013. This valuation is considerably understated when viewed in the
context of how Magcorp's economic curtailment is valued.
For example, Monsanto's load can be economically curtailed in any month.
Reducing Monsanto's coincident peaks by 67 MW in twelve months results in a value
of $12.1 millon associated with economic curtailment.4 This is $8.2 millon higher
than the StaWs recommended valuation. And even if Monsanto's economic
curtailment valuation is limited to only six months of the year similar to Magcorp's
treatment, the valuation would stil be $6.7 milion, which is $2.8 millon higher than
the Staffs recommended valuation.5
The Staffs proposal to value Monsanto at $14.2 million for the 2011 - 2014
timeframe understates the economic curtailment portion by $8.2 millon. Recognizing
that Monsanto is available for economic curtailment in all twelve months raises the
4 See December 22, 2010 Direct Testimony of Kathryn Iverson, page 20 and Exhibit 257
(KEI-4). An average monthly coincident peak of 59 MW is reflected in Component 3 (Economic
Curtailment).
5 Based on Exhibit 257 (KEI-4) adjusted such that Component 3's coincident peaks are
included only in January, June through September, and December.
2906 Iverson, Di-Reb - 4
Monsanto Company
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1 Staffs value from $14.2 millon to $22.4 million. In the alternative, if the Staffs
2 valuation is increased by only $2.8 millon to reflect curtailments only in six months,
3 the value would be raised from $14.2 million to $17 milion. However, if this lower
4 value is used, then the ESA must be revised to reflect that economic curtailments can
5 only occur in those six months.
6 Q DOES THIS CONCLUDE YOUR REBUn AL TESTIMONY?
7 A Yes.
2907 Iverson, OJ-Reb - 5
Monsanto Company
.
.
.
1 Q
2 A
3 Q
4 A
PACIFICORP dba ROCKY MOUNTAIN POWER
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. PAC-E-10-07
Surrebuttal Testimony of Kathryn E. Iverson
"Economic Valuation of Monsanto Interruptible Products"
PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
My name is Kathryn E. Iverson; 17244 W. Cordova Court, Surprise, Arizona 85387.
ON WHOSE BEHALF ARE YOU APPEARING IN THIS PROCEEDING?
I am appearing on behalf of Monsanto Company ("Monsanto"), a special contract
5 customer of Rocky Mountain Power ("RMP" or "Company"). RMP is a division of
6
7 Q
PacifiCorp.
ARE YOU THE SAME KATHRYN IVERSON WHO PREVIOUSLY FILED
8 TESTIMONY IN THIS PROCEEDING?
9 A Yes. I provided direct testimony on November 1, 2010, as well as subsequent direct
10 testimony on December 22, 2010 with respect to the economic valuation of Monsanto
11 interruptible products. On January 14, 2011 i provided rebuttal testimony on this
12 same issue.
13
14 Q
15 A
PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND AND EXPERIENCE.
This information was included in my direct testimony filed November 1, 2010.
2908
Iverson, OJ-Sur - 1
Monsanto Company
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5
6
7
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9
10
11.12
13
14
15
16
17
18
19
20
.
1 Q
2 A
WHAT IS THE SUBJECT OF THIS SURREBUTTAL TESTIMONY?
I am responding to the January 2011 rebuttal testimonies of Paul H. Clements and
3 Steven R. McDougal submitted on behalf of RMP.
Response to the Rebuttal Testimony of Paul H. Clements
Q AT PAGE 14 OF HIS REBUTTAL TESTIMONY, MR. CLEMENTS CLAIMS YOUR
COMPARISON TO THE OTHER TWO ROCKY MOUNTAIN POWER INDUSTRIAL
CUSTOMER TAKING INTERRUPTIBLE SERVICE IS ONLY RELEVANT TO A
COMPARISON OF THE OPERATING RESERVE PRODUCT VALUATION. IS HE
CORRECT?
A No. The evidence that the Company now serves other industrial customers taking
interruptible service at much lower rates than proposed by the Company for service to
Monsanto is entirely relevant in the Commission's determination of what constitutes a
fair, just and reasonable rate for service to Monsanto. Mr. Clements did not dispute
my detailed list of how Monsanto terms and conditions actually offer more value to
the Company due to hours, notice time, length of curtailment, interruptions per day
and size of load. All those factors point to a rate that is at least no greater than the
rates offered the other two industrial customers. In fact, based on Monsanto's unique
characteristics, there is reason for its rate to be the lowest of the three interruptible
customers. Mr. Clements' piecemeal comparison purposefully conceals the rates
paid by other industrial customers and should be rejected.
21 Response to the Rebuttal Testimony of Steven R. McDougal
22 Q AT PAGE 1 OF HIS REBUTTAL TESTIMONY, MR. MCDOUGAL STATES THAT
23 HIS PURPOSE IN FILING REBUTTAL IS TO DISCUSS HOW YOUR TESTIMONY
2909 Iverson, Oi-Sur - 2
Monsanto Company
.1 "INAPPROPRIATELY VALUES MONSANTO'S CURTAILMENT BY ALTERING
2 JURISDICTIONAL ALLOCATION TO REFLECT AN INAPPROPRIATE LEVEL OF
3 MONSANTO DEMAND IN THE MONTHLY COINCIDENT PEAKS." DID YOU
4 ALTER THE JURISDICTIONAL ALLOCATION IN YOUR DECEMBER 22 DIRECT
5 TESTIMONY?
6 A No, I did not. My testimony instead examined the Idaho class cost of service study,
7 and provided a breakdown of firm costs as allocated to Monsanto.
8 Q STARTING AT PAGE 4 LINE 23,MR. MCDOUGAL STATES THAT YOU
9 INCORRECTLY CHANGED IDAHO JURISDICTIONAL LOADS. IS HE CORRECT?
10 A No.My testimony did not provide any jurisdictional study, and therefore could not
11 have changed any jurisdictional loads..12 Q STARTING AT PAGE 5 LINE 7, MR. MCDOUGAL DISCUSSES HIS CRITICISM OF
13 YOUR TABLE 3 AND POINTS OUT WHAT HE BELIEVES ARE FLAWS.DO YOU
14 AGREE WITH HIS CRITIQUE?
15 A No.Mr. McDougal criticisms clearly indicate he has not even reviewed the Idaho
16 class cost of service study used in preparing Table 3 found on page 19 of my direct
17 testimony. His criticisms are simply a repeat of his November 2010 rebuttal, and offer
18 no rebuttal to my December 22, 2010 direct testimony.
19 Q IS YOUR TABLE 3 FOUND ON PAGE 19 OF YOUR DIRECT TESTIMONY BASED
20 ON CHANGES TO A JURISDICTIONAL STUDY?
21 A No. Table 3 is based on the Company's own class cost of service study. The only.22 change is that the "Contract 1" line has been separated into four distinct components.
2910
Iverson, Di-Sur- 3
Monsanto Company
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1 Q WHAT ARE MR. MCDOUGAL'S CRITICISMS AND HOW DO YOU RESPOND TO
2 THEM?
3 A First, he claims that I assigned "no capacity value" to Component 2 (95 MW of
4 operating reserve) and Component 3 (67 MW of economic curtailment). His
5 statement is false. Component 2 includes an average 12 CP of 83,697 kW, and
6 Component 3 includes an average 12 CP of 59,029 kW.
7 Second, he claims that I "have removed the demand from all 12 monthly
8 coincident peaks used to determine Idaho's contribution to the system peak." This is
9 false. I have not performed any jurisdictional allocation study, or removed any loads
1 0 of Idaho's contribution to the system peak.
11 Third, Mr. McDougal claims that I have included "only 9 MW of Monsanto
12 demand in the Idaho jurisdictional coincident peak every month." Again, his
13 statement is false. All of Monsanto's coincident peaks are presented in Table 3.
14 Fourth, he criticizes Table 3 as somehow "avoiding demand charges for every
15 month of the year." Again, i cannot see where Mr. McDougal finds this in my direct
16 testimony and Table 3 has nothing to do with avoiding demand charges.
17 Fifth, Mr. McDougal claims that pursuant to Monsanto's contract, the
18 maximum actual curtailment is 116 MW. This is incorrect. Mr. McDougal ignores the
19 fact that Monsanto's three furnaces can be interrupted for system integrity, as well as
20 provide simultaneous economic curtailment and operating reserve interruptions as
21 explained by Mr. Collins in his December 22, 2010 direct testimony.
22 Sixth, he claims that i have "removed 170.1 MW from each of the monthly
23 jurisdictional peaks." Again, his testimony is without basis. No coincident peaks were
24 removed from the class cost of service study used in my Table 3. Mr. McDougal even
25 goes on to state at line 20 on page 7 that "it would be entirely inappropriate to reduce
2911
Iverson, Oi-Sur - 4
Monsanto Company
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1 Monsanto load below zero in a given month." My analysis for Table 3 never reduced
Monsanto load below zero, and his implication that I have is totally unfounded.2
3 Q AT PAGE 7 LINE 22 MR. MCDOUGAL ALSO CLAIMS "ANOTHER MAJOR FLAW"
4 IN YOUR ANALYSIS BECAUSE YOU REDUCED IDAHO'S RETAIL REVENUES
5 BY A NET AMOUNT, RATHER THAN A GROSS DEMAND REVENUE. HOW DO
YOU RESPOND?6
7 A Again it is clear that Mr. McDougal has not read my testimony. I have not removed
8 any revenues whatsoever in my analysis used in Table 3.1
9 Q DOES THIS CONCLUDE YOUR SURREBUTTAL TESTIMONY?
10 A Yes.
1 It appears that Mr. McDougal is attempting to re-rebut my earlier testimony of November 1,
2010, but he is stil misinformed of the revenue adjustment made in that prior analysis and I would be
remiss in not pointing out his inaccurate portrayal of my analysis. At page 8 of his January 14 rebuttal,
Mr. McDougal claims that I reduced the Idaho retail revenues by a net amount (firm rate minus the
interruptible credit). He is mistaken. As explained in Monsanto's Response to RMP Data Request
3.1 J I reduced the revenue by the interruptible credit. This correctly removed the amount of firm
revenues imputed to Monsanto for jurisdictional allocation purposes.
2912
Iverson, Oi-Sur - 5
Monsanto Company
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i (The following proceedings were had in
2 open hear ing . )
3 COMMISSIONER SMITH: Mr. Price, do you have
4 questions for Ms. Iverson?
5 MR. PRICE: No questions.
6 COMMISSIONER SMITH: Mr. Hickey.
7 MR. HICKEY: I do. Thank you, Madam Chairman.
8
9 CROSS-EXAMINATION
10
11 BY MR. HICKEY:
12 Q.Good afternoon, Ms. Iverson.
13 A.Good afternoon.
14 One of the areas that you've addressed in bothQ.
15 your rebuttal testimony and your surrebuttal testimony relates
16 to the allocation of the Monsanto load either jurisdictionally
17 or through cost of service study. Correct?
18 A.Correct.
19 And you acknowledge, don't you, Ms. Iverson, thatQ.
20 Monsanto is treated as the jurisdiction -- in the
21 jurisdictional allocations as a firm customer?
22 That's what the Company has done in this case,A.
23 yes.
24 And it's not just the Company. Isn't it part ofQ.
25 the protocol itself?
2913
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
IVERSON (X)
Monsanto
.
.
.
1 A.The revised protocol does have an appendix that
2 discusses the treatment of special contracts, and there are two
3 different methodologies that can be used for special contract
4 customers.
5 Q.And without burdening the record with another
6 exhibit, can we agree that the Appendix D to that revised
7 protocol has been a part of a prior docket of this Commission,
8 PAC-E-, as in "every", 02-3?
9 A.Yes, I believe that was when that came into
10 existence, yes.
11 Q.Okay, and special contracts under that Appendix D
12 to the revised protocol are identified as special contracts
13 with ancillary service contract attributes. Correct?
14 A.There's two: There's one with and one without.
15 Q.And what would the Monsanto one be under the
16 revised protocol?
17 A.Well, the way the Company has been handling it
18 has been, quote, with a special ancillary contract. But as
19 Monsanto has numerous on times stated, we have one contract,
20 and we buy interruptible service from the Company. We don't
21 buy firm -- we don't buy firm service and then sell something
22 back to the Company. We buy interruptible service. So I
23 believe that there is some potential differences that could
24 or, a difference of agreement, difference of perspective of
25 what should be used with or without special ancillary contract.
2914
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
IVERSON (X)
Monsanto
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.
.
1 Q.In any event, we can agree that you and
2 Mr. McDougal have different opinions on what the application
3 and significance of Appendix D to the revised protocol is in
4 the context of the Monsanto contract. Correct?
5 A.Correct.
6 Okay. And it's your position, isn't it,Q.
7 Ms. Iverson, that Rocky Mountain Power has planned for or
8 acquired resources for nine megawatts of electricity to the
9 Soda Springs facility?
10 A.My testimony states that nine megawatts are
11 served under firm demand charges.
12 So you think that out of the entire load of 162Q.
13 megawatts, only nine of it is firm?
14 Yes, because according to the contract, nineA.
15 megawatts are served under firm demand charges, and the rest of
16 the capacity is priced at interruptible demand charge.
17 And can we also agree that you and Mr. Duvall,Q.
18 who is the director of the integrated resource plan for
19 PacifiCorp and Rocky Mountain Power, disagree regarding those
20 facts?
21 I would suggest that you would specifically sayA.
22 what we disagree on.
23 Well, how much of a load does the Rocky MountainQ.
24 Power integrated resource plan plan for for Monsanto?
25 According to Mr. Duvall and explained inA.
2915
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
IVERSON (X)
Monsanto
.
.
.
1 Mr. Collins's testimony, the IRP does include the obligation of
2 Monsanto's load in the IRP, but then it removes -- it accounts
3 for 162 megawatts of an interruptible resource. So on a net
4 basis, yes, Monsanto's load is included as an obligation and
5 then it's also included as an interruptible resource.
6 And my understanding from Mr. Duvall is that the
7 reason why he put Monsanto in as an obligation was because he
8 removed it as a resource. And if he didn't put it in as an
9 obligation and he removed it as a resource, that would be
10 double counting, so he had to put it in as an obligation in
11 order to take it out as a resource.
12 But there are real-world significances toQ.
13 Monsanto about whether or not more than nine megawatts of power
14 is consistently and readily available for its needs at the
15 Soda Springs facility. Isn't that true?
16 A.There are real-world consequences, yes.
17 Q.So we can agree on that?
18 A.Yes.
19 And if all Rocky Mountain Power did was say we'reQ.
20 going to hold over here and plan for over here nine megawatts
21 of firm load because that's all they need, they're just firm
22 for nine, your client would be severely disappointed with the
23 deli verabili ty of what its operating needs for power are.
24 Isn't that true?
25 No, because the Company at the same time it holdsA.
2916
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
IVERSON (X)
Monsanto
.
.
.
1 nine megawatt -- it holds the entire obligation of Monsanto's
2 load, but at the same time the Company also holds 162 megawatts
3 of an interruptible resource. So I'm having a problem here
4 slicing these into two separate divisions because the Company
5 plans for its net firm obligation.
6 But this is really about more than semantics ofQ.
7 what side of a ledger we call resources and what side of the
8 ledger we call interruptible products. From the perspective of
9 Monsanto, isn't this about seeing that they can get the amount
10 of electricity they need for that load on a consistent basis at
11 the best price they can negotiate for?
12 Well, we're not in negotiations right now, we'reA.
13 before the Commission in a contested rate case. And Monsanto,
14 yes, is concerned about having a long-term stable, not
15 volatile, source of electricity, and the only place they can
16 find that is from the -- their utility.
17 And without going through each of the individualQ.
18 products as other witnesses have already testified before you,
19 Ms. Iverson, isn't it true that there isn't 162 hours of -- or,
20 162 megawatts of interruption available on a significant
21 portion of the year?
22 Well, the 162 megawatts do -- are a factor of theA.
23 95 megawatts of operating reserves and the 67 megawatts of
24 economic curtailment, so they're split separately.
25 Okay. Well, let's just see if we can get to thisQ.
2917
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
IVERSON (X)
Monsanto
.
.
.
1 point. You were here when both Mr. Smith and Mr. Collins
2 testified this afternoon, weren't you?
3 A.Yes.
4 Q.In the area of their description of the
5 interruptible products and the limitations that apply upon
6 those products, you take no issue with their testimony, do
7 you?
8 A.No.
9 Q.Okay. So whether it's an interjurisdictional
10 allocation or whether it's a cost of study analysis, you are
11 talking about putting the responsibility for the Monsanto load
12 somewhere other than on Monsanto. Isn't that true?
13 It's to reflect the fact that the Company has notA.
14 planned for nor built those resources to serve an interruptible
15 load, and so it makes better sense not to include those loads
16 in the cost of service study.
17 But it may not make better sense to the otherQ.
18 customers of Rocky Mountain Power to have the burden of the
19 Monsanto load placed on their shoulders. Wouldn't you agree?
20 Well, the other customers are getting the benefitA.
21 of the fact that Monsanto is bringing a very valuable resource
22 to the portfolio of the Company, so I think the customers are
23 getting a benefit because that resource is available from
24 Monsanto.
25 They're getting that resource with all of theQ.
2918
HEDRICK COURT REPORTING
P.O. BOX 578, BOISE, ID 83701
IVERSON (X)
Monsanto
.
.
20
1 limitations and the conditions that exist upon it. Isn't that
2 a fact?
3 A.Those limitations were contractually arranged
4 between the Company and Monsanto.
5 Q.So that was a "yes"?
6 A.Yes.
7 MR. HICKEY: If I could have just a minute, I
8 think I'm through.
9 Q.BY MR. HICKEY: I have no further questions.
10 Thank you, Ms. Iverson.
11 COMMISSIONER SMITH: Are there questions from the
12 Commissioners?
13 COMMISSIONER REDFORD: No.
14 COMMISSIONER KEMPTON: No.
15 COMMISSIONER SMITH: Mr. Budge, any redirect?
16 MR. BUDGE: No questions.
17 COMMISSIONER SMITH: Thank you, Ms. Iverson.
18 (The witness left the stand.)
19 COMMISSIONER SMITH: Mr. Price.
MR. PRICE: Staff would call its only witness:
21 Mr. Keith Hessing.
22
23
24.25
COMMISSIONER SMITH: Did you already do this?
MR. HESSING: Yes.
2919
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
IVERSON (X)
Monsanto
.
.
20
1 KEITH HESSING,
2 produced as a witness at the instance of Staff, having been
3 previously duly sworn, was examined and testified as follows:
4
5 DIRECT EXAMINATION
6
7 BY MR. PRICE:
8 Q.Can you please state your name and please spell
9 your last for the record?
10 A.My name's Keith Hessing. Last name is spelled
11 H-E-S-S-I-N-G.
12 Q.And by whom and in what capacity are you
13 employed?
14 A.I'm employed by the Idaho Public Utilities
15 Commission Staff as a Staff engineer.
16 Q.And did you have occasion to prepare written
17 direct testimony in this case consisting of Exhibits No. 134
18 and 135 and a total of 13 pages of testimony?
19 A.Yes.
Q.And was that prepared and filed on December 22nd
21 of 2010?
22
23
A.Yes.
Q.Do you have any additions or corrections to that
24 testimony?.25 A.I have one correction, on page 2. There's an
2920
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
HESSING (Di)Staff
.
.
.
1 answer on line 12 and I would like to add I guess a sentence
2 before the sentences -- sentences that are there. And that
3 sentence would read beginning after the answer, the "A": The
4 ESA provides for three interruptible products that Monsanto
5 sells to PacifiCorp.
6 And then there's a change in the wording of the
7 sentence that would follow that that is the sentence that's
8 already there. Are we ready for that other change?
9 Q. Yeah, what is that change?
10 A. The word or the initials "ESA" should be removed,
11 and in its place it should say "revised protocol allocation
12 methodology. "
13 COMMISSIONER SMITH: Mr. Hessing, would you
14 please state the testimony as you would like it to appear so
15 that we are sure we got it correctly?
16 THE WITNESS: Okay, the answer beginning on
17 line 12 is:
18 The ESA provides for three interruptible products
19 that Monsanto sells to PacifiCorp. The revised protocol
20 allocation methodology requires that Monsanto's revenue
21 requirement be established as if it were a totally firm
22 customer and then be reduced by the value of the three
23 interruptible products that Monsanto sells back to PacifiCorp.
24 Q.BY MR. PRICE: Do you have any other additions or
25 corrections?
2921
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
HESSING (Di)Staff
.
.
20
21
22
23
24
. 25
1 A.I do not.
2 Q.Okay. And if I were to ask you those same
3 questions that are set forth in your testimony today, would
4 your responses and your answers be the same?
5 A.Yes, they would.
6 MR. PRICE: I would move that Mr. Hessing's
7 direct testimony filed on December 22nd, including Exhibits 134
8 and 135, be spread upon the record as if read.
9 COMMISSIONER SMITH: All right. Hearing no
10 obj ection, it is so ordered. I would note that the exhibits
11 are confidential. Is that correct?
12 MR. PRICE: Yes.
13 COMMISSIONER SMITH: Okay.
14 (The following prefiled direct testimony
15 of Mr. Hessing is spread upon the record.)
16
17
18
19
2922
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
HESSING (Di)Staff
.
.
.
10
11
1 Q.Please state your name and business address for
2 the record.
3 A.My name is Keith D. Hessing and my business
4 address is 472 W. Washington Street, Boise, Idaho.
5 Q.By whom are you employed and in what capacity?
I am employed by the Idaho Public Utili ties6A.
7 Commission as a Public Utilities Engineer.
8 Q.Are you the same Keith Hessing that previously
9 submi t ted direct testimony in this proceeding?
A.Yes, I am.
Q.What is the purpose of your supplemental direct
13
12 testimony?
14
15
A.My testimony addresses the valuation of
Monsanto' s interruptil?~lity as those service arrangements
are described in Monsanto'S current Electric Service
16 Agreement (ESA) with Pac~flCorp. Monsanto is a Special
17 Contract customer of pacifiCorp receiving electric service
18 pursuant to Tariff Schedule 400 and a Special Contract
19 between the Parties dated November 5, 2007 (Case No. PAC-E-
20 07-05, Order No. 30482).
21
22
Q.Please summarize your testimony.
A.The ESA descrlbes three interruptible products. ,-.-:-.
24
23 provided to PacifiCorp by Monsanto. These products are
25
System integrity interruptibility, Economic Curtailment
interruptibility and Non-Spinning Reserve interruptibi1ity.
'.i 1_.
2923CAE NO. PAC-E-10-0712/22/10 HESSING, K (Di.) 1
STAFF
.
.
.
1 I accept PacifiCorp's valuation of the System Integrity and
2 Economic Curtailment products. I use pacifiCorp's
3 valuation of the Non-Spinning Operating Reserve product and
4 add a value for capacity. I propose a value for all three
5 products of per year for a one year contract,
6 per year for a two year contract and il
7 .. per year for a three year contract.
8 Q.What is your understanding of the structure of
9 the current ESA between Monsanto and PacifiCorp as it
10 relates to the value of interruptibility and the rates
11 Monsanto pays?
12 A.The ESA requires that Monsanto's revenue
13 requirement be established as if it were a totally firm
14 customer and then. be r~du~~d by the value of three
15 interruptible products that. Monsanto sells back to
16 PacifiCorp.
17 Q.Has Monsanto's firm service revenue requirement
18 been established in tpis case?
19 A.Not at the time of this filing. However, it is
20 my understanding that it; will be established before the end
,.
21 of 2010, while this portion of the case is on-going .
22 Q.According to the ESA what are the three
23 interruptibi1ity products that Monsanto supplies to
24 PacifiCorp?
25 A.The three pro?ucts currently provided in the ESA
2924
CASE NO. PAC-E-10-0712/22/10 HESSING, K (Di.) 2
STAFF
.
.
.
1 are; 1) Non-Spinning Operating Reserves (188 hours),
2 2) Economic Curtailment (850 hours) and 3) System Integrity
3 interruptions (12 hours). Although the current ESA expires
4 December 31, 2010, MonsÇinto has expressed a continued
"r., .
5 willingness to provide this same level of interruption to
6 PacifiCorp beyond 2010. (Transcript P. 15)
7 Q.Has PacifiCorp proposed values for Monsanto's
8 three interruptible products in this case?
9 A.Yes it has. PacifiCorp witness Paul Clements
10 presents those in his testimony.
11 SYSTEM INTEGRITY
12 Q.Please summarize the product and the value
13 proposed by PacifiCorp fo~ System Integrity Interruptions.
14 A.PacifiCorpprOposes a value of _ per year
15 based on the results of a Front Office model run. Front
16 Office model results are based on forecasted energy prices
17 and described in more.detail in PacifiCorp's testimony.
.18 System Integrity Interruptions are available for up to 12
19 hours per calendar year. The interruptions can be up to
20 162 MW for a "voltage event" and up to 95 MW for a "double
21 contingency" event. PacitiCorp is not required to provide
22 notice prior to these emergency interruptions. During
23 these types of events load is shed to stabilize the system.
24 These types of interruptions are relatively rare.
25 Q.Do you acce~t the Company's estimate of the value
CASE NO. PAC-E-10-0712/22/10
.2925
HESSING, K (Di.) 3
STAFF
.
.
.
1 of this product?
2 A.Yes. Any and' aii customers are subj ect to
3 interruption to preserve system integrity i that is, to keep
4 all or part of PacifiCorp's system from going down in an
5 unplanned event. In my view the acceptance of this payment
6 is recognition by PacifiCorp and acknowledgement by
7 Monsanto that its load will always be considered first for
8 this type of interruption. No other customer receives
9 payment for system integrity interruptions even though all
10 other customers can be affected. I believe the value for
11 the System Integrity product reasonably reflects the
12 expected value of the interrupted energy.
13 ECONOMIC CURTAILMT
14 Q.Please summarlz~ the product and the value
15 PacifiCorp proposes for the Economic Curtailment provisions
16 of thaESA.
17 A.The Economic Curtailment provisions of the ESA
18 allow PacifiCorp to iqterrupt 67. MW of Monsanto load for up
19 to 850 hours per calend~r year on two hours notice. The
20 ESA contains provisions that allow Monsanto to buy through
21 these interruptions at market rates if it desires. During
22 high priced hours PacifiCorp often exercises this
23 interruption.
24 PacifiCorp proposes that this product be valued
25 based on the average of Ffont Office and GRID model runs
2926
CASE NO. PAC-E-10-07
12/22/10 HESSING, K (Di.) 4
STAFF
.
.
.
1 for the year 2011. This average is Both
2 Front Office and Grid use forecasted energy prices that
3 drive the valuation results.
4 Q.Do you accept the value proposed by PacifiCorp
5 for this product?
6 A.Yes. The two models used to establish the ..
7 .. value of this proGuct were run with and without
i.'
8 Economic Curtailment. The difference in the model runs
9 estimated the value of the product and the two values were
10 averaged. The GRID model is a production costing model and
11 the Front Office model uses energy price forecasts to
12 estimate costs. Both models estimate energy costs using
13 energy price forecasts. ¡ I. believe that the value of this
14 product is appropriately established in the expected energy
15 market.
16 NON-SPINNING OPERATING RESERVES
17 Q.Please summa~ize the product and the value
18 pacifiCorp proposes for ~op-Spinning Operating Reserves as
19 provided for in the ESA. ¡
20 A.In the ESA, Monsanto agrees to provide Non-
21 Spinning Operating Reserves of 95 MWthat can be used for
22 188 hours in a calendar year on 10 minutes notice. Again,
23 pacifiCorp uses Front Office and GRID model runs with and
24 without the Monsanto Non-Spinning Operating Reserve
25 provisions to estimate the value. Using either model, the
2927
CASE NO. PAC-E-10-07
12/22/10 HESSING i K (Di.) 5
STAFF
.
.
.
1 values for 2011 are therefore, the average is
2
3 Q.Do you agree that pacifiCorp's proposal correctly
4 estimates the value of the Non-Spinning Operating Reserve
5 product provided by Monsanto?
6 A.I believe that pacifiCorp has reasonably
7 estimated the energy'value of providing the reserves.
8 However, I believe there.is an additional capacity
9 component that must be added to properly value the product.
10 Q.Please provide a brief discussion of Operating
11 Reserves.
12 A.The North American Electric Reliability
,.,1
13 Corporation (NERC). and the Western Electricity Coordinating
14 Council (WECC) require electric utilities to hold operating
15 reserves. They require reserve amounts of 5% of each
16 utility's hydro generation and 7% of each utility's thermal
17 generation. One-half. of each of these amounts is required
18 to be spinning reserves and the other half can be non-
19 spinning reserves, which are also called ready reserves.
20 Spinning reserve requirements are met by resources that can
21 be applied to load immediately and that can ramp to the
22 required amount within 10 minutes. Non-spinning reserve
23 resources must begin to be applied to load within 10
24 minutes and provide the. tul1 requirement some time later.
There are other reserve requirements that do not directly25
CASE NO. PAC-E-10-u7
12/22/10
2928 ,
HESSING, K (Di.) 6
STAFF
.
.
.
1 pertain to this issue that I will not discuss here.
2 Q.Why does this specific Monsanto interruptibility
3 product only qualify as non-spinning reserves?
4 A.By WECC definition interruptible loads can only
5 be used to satisfy non-spinning reserve requirements.
6 Q.How does PaciflCorp hold required spinning and
7 non-spinning reserves?
8 A.Reserve requirements are held in a least cost
9 way. In its simplest form, reserve requirements are held
10 by resources with the lowest variable operating costs that
11 remain after the Company has dispatched its resources to
12 meet load, make opportunlty sales and meet other firm
13 obligations. The resources held to meet reserves must also
14 meet the start-up and/or ramping requirements previously
15 discussed.
16 The marginal resource serving load in
17 PacifiCorp's resource ,stack varies dramatically over the
18 course of a year. It is affected by high loads, low loads,
19 water conditions, electric market prices, maintenance
20 schedules, fuel costs for natural gas and coal and wind
21 generation. Therefore, at various times of the year,
22 reserves are held by combinations of hydro units, coal
23 units, combined cycle and simple cycle gas fired units and
24 contracts such as Monsanto's.
25 Q.How are fixed capacity costs taken into
2929
CASE NO. PAC-E-10-07
12/22/10 HESSING, K(Di.) 7
STAFF
.1 consideration when resources to be held in reserve are
2 selected?
3 A.They are not, Capital costs and fixed contract
4 costs are considered sunk costs. They do not vary with
5 resource selection. Normally capital costs have all been
6 approved for recovery from customers through established
7 rates. This is not to say that capital costs and other
8 fixed costs were never considered. They were considered at
9 an earlier time when they were approved for recovery from
10 customers.
11 Q.How does this r~late to the capacity value of
12 Non-Spinning Operating Reserves supplied by Monsanto to.13 PacifiCorp?
14 A.Reserves must be held in all hours of the year.
15 Reserves are held by setting aside resource capacity. This
16 capacity cannot be used for any other competing purpose
17 during the set aside period. Variable costs are incurred
18 when the resource is heated ~p and standing-by and when
19 reserves are called upon to meet energy requirements. All
20 operating reserves are capacity held in reserve.
21 Therefore, all have a capacity cost component.
22 Q.How would you d~t~rmine the value of the capacity
23 required to provide Non-Spinning Operating Reserves?
24 A.The value could be established by allocating
25 capacity costs to Non-Spi~ning Operating Reserves based on.
2930
CASE NO. PAC-E-10-0712/22/10 HESSING, K (Di.) 8
STAFF
.1 the percent of time each resource holds these reserves with
2 and without the Monsanto operating reserve contract. This
3 would require two GRID model runs and an hourly analysis of
4 the percent of time each resource holds reserves. This
5 would have to be done for every hour of the two runs or
6 17,520 hours (2 x 8,760) ~ It would also require a capacity
7 cost for each resource. The difference in the capacity
8 costs allocated to Non-Spinning Reserves from the two
9 calculations would be the annual value of the Monsanto Non-
10 Spinning Operating Reserve product. While this type of
11 methodology might produce the most accurate results, the
12 sheer amounts of data and calculations are administratively.13 impractical.
14 In the alternative, I propose the use of a
15 surrogate methodology to determine a capacity value for
16 Monsanto Non-Spinning Operating Reserves. I applied the
17 methodology to two of PacifiCorp's existing resources. The
18 first resQurce was Gadsby (Units 4, 5 and 6). Gadsby units
19 4, 5 and 6 are three simple cycle aeroderivative units that
20 can provide Non-Spinning Operating Reserves even when cold.
21 They are also the type of unit~ that would likely be
22 constructed if non-spinning reserves were all that was
23 needed. The capacity costs of the units are among the
24 lowest of those currently owned by PacifiCorp.
25 I calculated the replacement value of the.
2931
CASE NO. PAC-E-10-07.12/22/10 HESSING, K (Di.) 9
STAFF
.1 Monsanto Non-Spinning Reserve product using the 2009 plant
2 in service for Gadsby gas fired units from PacifiCorp's
3 FERC Form 1, which I conyerted to a 1eve1ized cost by
4 applying a levelized carrying charge rate. The levelizing
5 assumptions were based on the Staf~ filing in this case.
6 To that value I added assumed annual fixed Operation and
7 Maintenance costs for new aeroderi vati ve units taken from
8 PacifiCorp's 2008 Integrated Resource Plan. This
9 methodology estimates a capacity value for the Monsanto
10 Non-Spinning Operating Reserve product of
11 Staff's Confidential Exhibit No. 134 shows these
12 calculations..13 The other Pac~fiCorp resource that I selected is1".. ,I, .
14 Currant Creek. Currant, ,Çreek is a combined cycle
15 combustion turbine with a higher capacity cost. A study
16 performed by PacifiCorp shows that in the absence of the
17 Monsanto reserve product, Currant Creek picks up a larger
18 share of the displaced ,reserve requirement than the Gadsby
19 units. I applied the same methodology that I applied to
20 the Gadsby units to the Currant Creek unit. I calculated a
21 Monsanto Non-Spinning Operating Reserve capacity value of
22 This calculation is also shown on Staff's
23 Confidential Exhibit No. 134.
24 Q.Which capacity value do you propose the
25 Commission use?.
2932
CASE NO. PAC-E-10-07
12/22/10 HESSING, K (Di.) 10
STAFF
.
.
..
1 A.I propose that the Commission use the calculated
2 capacity costs associated with Currant Creek because
3 Currant Creek picks up more of the required reserves when
4 the Monsanto reserve product is removed. The results of
5 Company GRID runs showed this to be the case.
6 Q.Why did you select existing units to represent
7 the capacity costs of holding reserves instead of a new
8 unit?
9 A.The GRID model. results that I reviewed indicate
10 that PacifiCorp is entirely capable of holding required
11 non-spinning operating reserves with existing resources if
12 the reserves provided by Monsanto were lost. If the non-
13 spinning operating reserves provided by Monsanto under
14 contract were lost, I do, not believe that they would be
15 replaced with a new generating unit. This does not mean or
16 imply that Monsanto's reserves do not have value. I
17 believe that I have captured reasonable values in my
18 proposal using existing PacifiCorp resources as a
19 surroga te .
20 Q.What is the impact on t~e value of Monsanto's
21 Non-Spinning Operating Reserve product when PacifiCorp adds
22 new resources?
23 A.If the newresou~ce holds Non-Spinning Operating
24 Reserves and is constructed at a higher capital cost
25 ($/kW), the capacity value of the Monsanto Non-Spinning
2933
CASE NO. PAC-E-10-0712/22/10 HESSING, K(Di.) 11
STAFF
.
.
.
1 Operating reserve product should increase.
2
,;,;,
Q.Have you prepared an exhibit that shows the value
3 you recommend for all three interruptible products provided
4 by Monsanto?
5 A.Yes. Staff's Confidential Exhibit No. 135 shows
6 those results. I propose that the combined 2011 value of
7 Monsanto's three interruptible products be established at
8 per year and that this value be passed to
9 Monsanto as an annual credit. Confidential Exhibit No. 135
10 also shows the values for 2012 and 2013 that PacifiCorp
11 proposes if a multi-year agreement is reached. I have
12 added the capacity value. of the Non-Spinning Operating
13 Reserve product to each of the three totals. It is my
14 proposal that the Non-Spinning Operating Reserve capacity
15 value not change during this three year period. For a two
16 year contract (2011 and 2012) I propose a credit of ..
17 .. and for a three year contract I propose a credit of
18 These values are the two year average and
19 three year average of the credit values. As previously
20 discussed these estimates all use Currant Creek as a
,21 surrogate to estimate the capacity value of Monsanto's Non-
22 Spinning Operating Reserve pro~uct.
23 Q.Do you be1iev~ tnat the .methodology you propose
24 that establishes the values of Monsanto's interruptible
25 products can be applied in the future?
2934
CASE NO. PAC-E-10-0712/22/10 HESSING, K (Di.) 12
STAFF
.
.
.
1 A.Yes I do. The energy values established by Front
2 Office and GRID will change based on forecasted energy
3 price inputs and other variables. Also, the capacity value
4 of Non.Spinning Operating Reserves based on a surrogate
5 resource should be reviewed and updated from time to time.
6 Q.How do you propose the credi t be provided to
8
7 Monsanto?
A.I propose that~;the credit by applied to reduce
9 Monsanto's Firm Demand Charge, which is the same way the
11
10 Schedule. 400 credit is currently applied.
Q.Does this conclude your supplemental direct
13
12 testimony in this proceeding?
14
15
16
17
18
19
20
21
22
23
24
25
A.Yes, it does.
2935CASE NO. PAC-E-I0-0712/22/10 HESSING, K (Di. )13
STAFF
.
~
1 (The following proceedings were had in
2 open hear ing . )
3 MR. PRICE: And I would make Mr. Hessing
4 available for cross-examination.
5 COMMISSIONER SMITH: Mr. Budge, do you have any
6 questions?
7 MR. BUDGE: Madam Chairman, I realize it's late
8 in the day, but I wonder if we might take a five-minute break.
9 I think I could use that valuably to shorten considerably what
10 I had for Mr. Hessing. I wasn't expecting we would get this
11 far today.
12 COMMISSIONER SMITH: Absolutely. In fact, we'll
13 just take till 4: 45.
14 (Recess. )
15 COMMISSIONER SMITH: We're ready to go back on
16 the record.17 Mr. Price.
18 MR. PRICE: We would make Mr. Hessing available
19 for cross-examination.
20 COMMISSIONER SMITH: Oh, that's right, that's
21 where we were going to. Mr. Budge.
22 MR. BUDGE: Thank you. I'll assure you the
23 recess will be more than made up on shortened cross.
24
. 25
2936
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
HESSING (Di)Staff
.
.
.
1 CROSS-EXAMINATION
2
3 BY MR. BUDGE:
4 Q.Just a few questions if I may, Mr. Hessing.
5 Do you agree it's important for the Commission to
6 establish rates and policies that encourage the retention of
7 interruptible loads?
8 A.Well, I agree that interruptible loads that are
9 cost effective are of benefit to all customers.
10 Q.This is somewhat of a rhetorical question, but do
11 you see how it can be a problem for a customer like Monsanto
12 that's supplied interruptions for 60 years or almost 60 years
13 and be in a position as we are here to see that the Company
14 continues to build new wind and peakers and other resources
15 which are paid for by customers in rates and then have the
16 Company, in essence, come in in a proceeding like this and say,
17 We no longer need you because we have ample resources of our
18 own?
19 A.You know, I can see I guess in my mind the value
20 of interrupt -- of the interruptible resource to increase. But
21 if the Company builds so many resources that it doesn't need
22 the interruptible resource, then I can see how that's a concern
23 to the customer who has traditionally supplied that and wants
24 to continue to supply it. It should have, I guess on the
25 surface, more value as long as the Company needs it; and
2937
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
HESSING (X)Staff
.
.
.
1 they're in control of whether they need it or not.
2 Q.And they're also in control of what they pay
3 for -- well, let me strike that. Let me ask this question:
4 Would you agree that the Company has an incentive
5 to build and own their own resources as opposed to utilizing
6 demand reduction resources from customers?
7 A.Well, they have the incentive that they earn a
8 return on the resources that they build.
9 Q.And by that answer, I assume you mean the Company
10 has the incentive because they can get a return on their own
11 resources but they don't get one on demand reduction
12 resources?
13 Yeah, on demand reduction resources, I think theA.
14 costs are just passed through.
15 And so back to that first question I asked you,Q.
16 so would it be true that each time that the Company constructs
17 a new peaker plant, if you will, they can turn around and
18 argue, We can provide our own reserves, we don't need yours?
19 MR. HICKEY: Obj ect: Assumes facts not in
20 evidence.
21 COMMISSIONER SMITH: Mr. Budge.
22 MR. BUDGE: Well, I think I'm just asking this
23 wi tness if that isn't his opinion. I know the Company disputes
24 that they are building it for operating reserves, but
25 Mr. Clements testified how they use all of their plants and all
2938
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
HESSING (X)Staff
.
.
1 of their machines for operating reserves, so it seems to be a
2 fair question.
3 MR. PRICE: I would chime in here, Madam Chair.
4 COMMISSIONER SMITH: Mr. Price.
5 MR. PRICE: This is for cross-examination of
6 Mr. Hessing and his testimony, not Mr. Clements's.
7 MR. HICKEY: Join.
8 Q.BY MR. BUDGE: If, in fact, we assume the Company
9 were to build more resources to replace a demand reduction
10 resource like Monsanto or like the irrigators or Contract 1 and
11 2, would that, in fact, create upward pressure on rates?
12 MR. HICKEY: Obj ect: Assumes facts not in
13 evidence, and beyond the scope of the direct examination of
14 this witness.
15 COMMISSIONER SMITH: Mr. Budge.
16 MR. BUDGE: Well, I think the witness has
17 testified that he felt that there would be some incentive for
18 the Company to build their own resources as opposed to
19 interruptible resources, so the next question would be what
20 would be the result of them choosing to build more of their own
21 resources and reducing demand reduction resources. I think the
22 question -- the second question follows the first, and that's
23 really my last question if the Commission Chair would give me
24 that indulgence..25 COMMISSIONER SMITH: Okay. We'll overrule the
2939
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20
1 objection.
2 Mr. Hessing, if you have an opinion, you can give
3 it.
4 THE WITNESS: Whether it creates upward pressure
5 on rates or not depends on what you're paying for the new
6 resource that would replace the interruptible resource versus
7 what the interruptible resource cost. New resources are
8 generally quite expensive.
9 MR. BUDGE: That's all I have. No further
10 questions. Thank you.
11 COMMISSIONER SMITH: Mr. Hickey, do you have
12 questions?
13 MR. HICKEY: I do. Thank you, Madam Chairman.
14
15 CROSS-EXAMINATION
16
17 BY MR. HICKEY:
18 Q.Good afternoon, Mr. Hessing.
19 A.Good afternoon.
Q.Mr. Hessing, I have a couple of introductory
21 questions to just underscore into the record areas of agreement
22 that I believe Staff, through your testimony, and Rocky
23 Mountain Power are in in this case. And in that regard, isn't
24 it true that you accept Rocky Mountain Power's valuation of.25 both the system integrity and the economic curtailment products
2940
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HESSING (X)Staff
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i previously provided Monsanto under the electric service
2 agreement?
3 Yes, it's true that I've accepted the Company'sA.
4 valuation of those two products in this case.
5 And in the same vein, you have agreed with RockyQ.
6 Mountain Power's estimate energy value of providing the
7 nonspinning operating reserves. Isn't that correct?
8 Yes, I've considered the Company's valuation ofA.
9 the nonspinning operating reserves to be largely energy related
10 cost.
11 And that point was made on page 6, lines 6, 7,Q.
12 and 8 of your testimony. Isn't that a fact?
13 A.Yes.
14 So the only difference or exception that you takeQ.
15 wi th Rocky Mountain Power's valuation of operating reserves is
16 that you believe an incremental capacity value should be added
17 to the Company's proposed value. Correct?
18 A.That's correct.
19 And the incremental capacity value should beQ.
20 based on the actual cost of an existing resource. Is that your
21 position?
22 A.That's my position.
23 Okay. Is the Company's method based uponQ.
24 avoiding market purchases?
25 Could you expand on that question a little bit?A.
2941
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1 I'm not sure.
2 Q.Sure. In the context of establishing value for
3 the capacity component, is the Company's valuation method based
4 on avoiding market purchases?
5 A.Yes, I believe that the Company looked at model
6 runs with and without market purchases to establish the energy
7 value.
8 Q.And is it fair to say that based on your
9 testimony on page 6 at this section of lines 6 through 9 or so,
10 that you're inferring that market -- or, you're inferring that
11 firm market purchases only provide an energy value?
12 A.I think that firm market purchases largely
13 provide an energy value, and a capacity value, if there is one
14 there, is difficult to establish.
15 Q.But there is a capacity value there. Can't we
16 agree on that point, Mr. Hessing?
17 A.You know, market purchases are firm purchases to
18 the Company, but whether or not the price reflects very much,
19 if any, of the capacity value depends on the resource and the
20 timing and lots of other things, so I'm not sure that you can
21 always say in every situation that there's a capacity value
22 there. And if you do believe that, it's difficult to determine
23 what that capacity value is.
24.25
Q.I understand your answer, but I would ask you if
you're aware that the Company has included firm market
2942
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1 purchases in its capacity load and resource balance in the
2 integrated resource plan. Were you aware of that?
3 A.I believe the Company has.
4 Q.And doesn't your proposal add capacity value of
5 Currant Creek to the capacity value already included in the
6 market purchases?
7 A.It adds capacity value to whatever, if any,
8 capacity value is already included in the current market -- or,
9 Currant Creek purchases, so the current market price purchases.
10 Q.And to that extent, would there be a double
11 counting then?
12 A.I don't think you can show or demonstrate that
13 there is a significant double counting, and the valuation of it
14 would be more difficult yet.
15 Q.So might be some, but hard to quantify. Would
16 that be a fair summary of where you are on that point?
17 A.There might be a little bit of capacity value in
18 those 188 hours. I think that the capacity requirements, the
19 nonspinning operating reserve, is there for a lot more hours in
20 the year.
21 Q.I'd like to move to another area with you
22 briefly, Mr. Hessing, and it's regarding your testimony
23 addressing Mr. Collins's valuation methodology. Isn't it true
24 that you disagree with Mr. Collins' valuation of the.25 interruptible products previous or offered by Monsanto?
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1 A.Would you repeat that?
2 Q.Sure. There was one too many words that jumped
3 into that.
4 Isn't it true, Mr. Hessing, that you disagree
5 with Mr. Collins's valuation of the interruptible products
6 offered by Monsanto?
7 A.I guess only for the nonspinning operating
8 reserve.
9 Q.Could you just in your words tell us what your
10 areas of disagreement with Mr. Collins's proposed peaker, CT,
11 and avoided cost valuation methodologies are?
12 A.I'm sorry, I was -- I misunderstood the last
13 question. I was thinking of Mr. Clements.
14 Let me rethink this here for a second. Yes, I
15 didn't agree with Mr. Collins that there was a capacity value
16 that should be included for the economic operating reserves.
17 Q.Okay. And I'm trying to get us focused now on
18 Mr. Collins and Mr. Collins's peaker methodologies.
19 A.Yeah, it was my opinion.
20 He proposed a new peaker and I believed after
21 looking at the results of some of the studies that the Company
22 did that operating reserves could be met with existing
23 resources but still had a capacity value associated with those
24 resources, and so I chose an existing resource as a surrogate
25 for all resources that would meet the capacity requirements for
2944
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1 nonspinning operating reserve.
2 Q. Sure. And the consequence of that use of
3 existing resources as opposed to building the new combustion
4 turbine is a lower value for the interruptible products.
5 Correct?
6 A.Yes.
7 Q.And why is that: The embedded costs are less
8 than new construction?
9 A.Largely.
10 Q.Is it also true, Mr. Hessing, that you have found
11 some areas of disagreement with Ms. Iverson's approach in her
12 use of the Company's interj urisdictional allocation or cost of
13 service studies to derive a value for Monsanto's interruptible
14 products?
15 A.I believe that that type of an approach can be a
16 valid approach. I believe that if you use that kind of
17 approach, that it needs to be applied jurisdictionally as well
18 as on a cost of service basis so that all of the customers, not
19 just the Idaho customers, experience the benefits, I guess, of
20 that reduction. So, I think that's part of the -- part of what
21 has to be done in order to have a successful, appropriate
22 methodology that's based on cost of service and jurisdictional
23 allocation.
24
25
Q.Okay. I'd like to just end with a couple of
questions for you regarding Mr. Clements' two proposed
2945
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20
1 modifications to your methodology which he addresses in his
2 rebuttal testimony. You're familiar with those, I know.
3 A.I am.
4 Q.Can yo~ explain at a high level what his two
5 proposed modifications are?
6 A.Instead of using Currant Creek as the surrogate
7 for the capacity costs of the nonspinning operating reserve, he
8 proposes using the average of Currant Creek and the Gadsby
9 units 4, 5, and 6. That would be the first one.
10 The second one, he proposes that a percentage be
11 used to reduce those capital costs because I believe that the
12 uni t or units aren't used entirely for the purpose of providing
13 nonspinning operating reserve.
14 Q.In fact, he proposed using 46.2 percent of the
15 cost instead of 100 percent of the costs that you've suggested
16 be used. Correct?
17 A.He did propose that. I believe that nonspinning
18 operating reserves are required all the time, regardless of
19 what resource they're from.
Q.Am I correct, Mr. Hessing, that your analysis
21 included a calculation for both the Gadsby 4 through 6 units
22 and the Currant Creek unit?
23 A.Yes, my exhibit showed an analysis for both of
24 those units, and I've just proposed using the Currant Creek.25 unit.
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1 Q.And what's the primary difference between those
2 two units?
3 A.The Gadsby units are aero-deri vati ve simple cycle
4 uni ts and the Currant Creek unit is a combined cycle unit.
5 Q.So the one is a simple cycle and the other is
6 combined cycle?
7 A.That's correct.
8 Q.When you mentioned that the Gadsby unit most
9 represents the type of unit that would be constructed
10 You do mention that, that the Gadsby unit is the
11 most representative of the type of unit that would be
12 constructed if nonspinning reserves were all that was needed.
13 Isn't that true?
14 A.I did say that.
15 Q.And yet you choose to use only the value derived
16 from your Currant Creek analysis?
17 A.That's correct. And the reason would be because
18 the Company doesn't only need nonspinning operating reserve,
19 and the Currant Creek unit was used more in the Company's runs
20 and analysis that I saw for providing nonspinning operating
21 reserve than the Gadsby simple cycle units.
22 Q.Sure. Would you agree that it would be
23 reasonable though to somehow incorporate the Gadsby unit cost
24 in your analysis instead of just relying on Currant Creek.25 costs?
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1 A. There's been some discussion about what's
2 administrati vely difficult to do here as far as identifying all
3 of the components of all of the resources that the Company uses
4 in carrying nonspinning operating reserves, so I picked a
5 surrogate being Currant Creek and Mr. Clements picked a
6 surrogate that was an average of Currant Creek and Gadsby.
7 So I think the question is we're using a
8 surrogate to approximate the cost of all of those units. I
9 don't know that it's necessarily more appropriate to use a
10 combination of those two than it is to use just one of the
11 units.
12 Q.Wi th that said, you wouldn't find it unreasonable
13 to suggest that both Gadsby and Currant Creek units be used?
14 A.I could suggest that many more other units be
15 used too, so it's a matter of what you believe the appropriate
16 surrogate is.
17 Q.Okay. What's the dollar difference in your
18 resul ts if you use the Gadsby unit cost instead of the Currant
19 Creek unit cost to determine your proposed incremental capacity
20 value?
21 A.I'm looking that up here. And I guess it depends
22 on what years you're talking about and that kind of thing, but
23 I guess for a three-year average, the difference is 12.7
24 million for a Gadsby surrogate versus 14.2 million for a
25 Currant Creek surrogate.
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1 Q. And if there is an advantage or a reasonableness
2 to using the average value of the two units, it's just because
3 of that, that it brings things closer to an average between
4 combined cycle unit and single cycle unit. Isn't that true?
5 A.It does bring it to an average, but I don't know
6 that that necessarily says that that's the better surrogate.
7 Q.Are there times when a combustion turbine is
8 being used for purposes other than nonspinning operating
9 reserves?
10 A.Certainly.
11 Q.Would it be reasonable to say that these other
12 products have value?
13 A.The other products have value, and I believe that
14 that value if you just look at one unit and not look at it
15 as a surrogate for all the units that are holding nonspinning
16 operating reserve, then you can get a fraction, some portion of
17 that unit, that's there to hold nonspinning operating reserve.
18 That isn't the end of the process. You've got to do that with
19 all of the units and you have to add them all up to get the
20 value. And instead of doing that, we're discussing what we
21 should use for a surrogate.
22 Q.But, likewise, you would have to add up all of
23 the additional products that the combustion turbine can
24 generate: The load following, the automatic generation.25 control, and the base load energy values?
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1 A.If you were looking at the total cost of the
2 units, you would have to do that. If you do it on a dollar per
3 megawatt or dollar per kilowatt, you can then address that
4 amount to just the nonspinning operating reserve portion of the
5 interruptibili ty contract.
6 Q.Well, recognizing the existence and inherent
7 value in those other products that a combustion turbine offers,
8 wouldn't it be reasonable to allocate less than the 100 percent
9 of the total cost of a resource to just the nonspinning
10 operating reserves product since the resource is used for other
11 products as well?
12 A.Of a single resource, not looked at as a
13 surrogate for all other resources that are providing
14 nonspinning operating reserve, you could allocate cost to all
15 of the other things that that resource gets used for, but you
16 can't do that without also looking at the other resources and
17 taking the component that is nonspinning operating reserve.
18 Q.Now, going back to the adj ustments that
19 Mr. Clements made, didn't he try to make an adjustment to
20 account for these issues in his proposed modifications to your
21 methodology of establishing value?
22 A.You mean the 46.2 percent?
23 Q.Yes.
24 A.He did try to make an adjustment for that, but
25 I'm not -- I don't believe that it captured the benefits and
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21
1 values of many other units that are held in reserve for
2 nonspinning operating reserves.
3 Q.Finally, Mr. Hessing, given the fact that the
4 resource provides many valuable products in addition to
5 nonspinning operating reserves, could you agree with
6 Mr. Clements' proposed adj ustment in that it provides a
7 reasonable approximation of a portion of the total cost of the
8 resource that is associated with only the nonspinning operating
9 reserve product?
10 A.It provides an approximation of a portion, but I
11 don't believe that it provides for all of the costs that are
12 associated with nonspinning operating reserves.
13 Q.Okay.
14 A.I believe you need 100 percent of all of the
15 resources or a surrogate for all of the resources.
16 Q.Thank you.
17 MR. HICKEY: If I could have just a minute.
18 Q.BY MR. HICKEY: I have nothing further,
19 Mr. Hessing. Thank you, sir.
A.Thank you.
COMMISSIONER SMITH: Are there questions from the
22 Commissioners?
23
24.25
COMMISSIONER REDFORD: No.
COMMISSIONER KEMPTON: I have a couple.
COMMISSIONER SMITH: Commissioner Kempton.
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1 EXAMINATION
2
3 BY COMMISSIONER KEMPTON:
4 Q.Mr. Hessing, on page 10 of your direct testimony,
5 you mention the fact in your direct testimony on page 10 that
6 the study performed by PacifiCorp shows that in the absence of
7 the Monsanto reserve product, Currant Creek picks up a large
8 share of the displaced reserve requirement than the Gadsby
9 uni t. Would you expand on that? It may be in the percentages
10 we i ve already heard, but I'm not sure.
11 A.I didn't bring those numbers with me, but the
12 Company did a study that we obtained with a Data Request, and
13 without having the percentages, basically what I took from that
14 was -- is that Currant Creek provided more of the nonspinning
15 operating reserve requirement more often than Gadsby, and that
16 was part of a justification that I used for picking Currant
17 Creek as the surrogate.
18 Q.Just in the realm of large relative values, was
19 it in the 75 -- roughly the 75 percentile? The 60 percentile?
20 Which side of 50 percent are we on, and was it a very big range
21 if you remember without the specific?
22 A.My recollection is, without remembering the
23 numbers, is there are a lot of resources that hold nonspinning
24 operating reserve throughout a year on the Company's system,
25 and all of the numbers were well below 50 percent individually.
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18
1 Q.Including Currant Creek?
2 A.Yes.
3 COMMISSIONER KEMPTON: I have no further
4 questions.
5 COMMISSIONER SMITH: Thank you.
6
7 EXAMINATION
8
9 BY COMMISSIONER SMITH:
10 Q.So, Mr. Hessing, you've been at the Commission
11 quite a while.
A.Okay.
Q.Do you
A.1983.
Q.Okay.
want to share with us when you came?
12
13
14
16 cases and looked at a lot of different kinds of ways to set
17 rates and look at rates?
A.Yes, a large part of my responsibility has been
19 rate design.
20 Q.And would you agree that you shouldn't leave your
21 position until I've left mine?
22
23
24
25
A.When are you leaving?
Q.Well, we just don't know, do we?
A.I guess we don't.
(Laughter. )
2953
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1 Q.Okay, you don't have to answer that, but I was
2 trying to pin you down.
3 So when we -- when the Public Utili ties
4 Commission thinks about making rates, it's more than a
5 mathematical calculation of taking numbers from a model or
6 algebra or -- we have to also consider the public interest. Is
7 that correct?
8 A.Certainly, the public interest is a big part of
9 it.
10 Q.So this is more of an art than a science?
11 A.There's a lot of art, and it's probably at least
12 as much art as science.
13 Q. And so when you think about what we sometimes
14 call rate shock, do you think it's appropriate for the
15 Commission to make some public interest factors be part of that
16 Decision, as opposed to people i s mathematical calculations
17 based on whatever costs are out there?
18 A.Certainly that's been part of some of the
19 Commission Decisions of the past, and I believe that it's
20 appropriate under the right circumstances.
21 Q.Okay. So dare I ask if this is one of those
22 circumstances, or do you just want to plead the Fifth?
23 A.I think that's more appropriately decided by the
24 Commissioners.
25.Q.Okay. That's why he's been here so long.
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1 Finally, there was one point in cross-examination
2 when Mr. Hickey I think was cross-examining Mr. Collins and he
3 was talking about a single cycle combustion turbine running 7-
4 or 8,000 hours a year. Is that even reasonable to expect?
5 A.Probably not, and certainly not for PacifiCorp
6 wi th the range of resources and loads that it has.
7 The information provided in the testimony and
8 I'm trying -- or, Mr. Clements' testimony I think was that
9 those units were running 4,000 hours a year or something like
10 that, and I was frankly surprised that they were running that
11 much.
12 Q.That would also shock me. So, anyway, appreciate
13 your help.
14 COMMISSIONER SMITH: Mr. Price.
15 MR. PRICE: Couldn't possibly follow that up, so
16 I have no redirect.
17 COMMISSIONER SMITH: Good choice. All right, I
18 think that brings us to the --
19 You're excused, Mr. Hessing. Thanks for your
20 help.
21
22
23
THE WITNESS: Thank you.
(The witness left the stand.)
COMMISSIONER SMITH: I think we're at the end,
24 unless Mr. Hickey has something further..25 MR. HICKEY: We may well, just not -- if I can
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1 have just a minute and a standing break, we'll report back to
2 you very shortly.
3 COMMISSIONER SMITH: You may. We'll take a break
4 for about five minutes or however long you need.
5 MR. HICKEY: Oh, five's plenty. Thank you.
6 (Recess. )
7 COMMISSIONER SMITH: All right, we will go back
8 on the record.
9 Mr. Hickey.
10 MR. HICKEY: Madam Chairman, members of the
11 Commission, Rocky Mountain Power has no rebuttal witnesses to
12 call and we rest our case; and again thank the Commission, its
13 Staff, and the parties for the opportunity to participate here
14 in both phases of this hearing.
15 COMMISSIONER SMITH: This is the point at which I
16 remember to say that all exhibits previously identified are
17 hereby admitted into the record if they have not already been
18 admi tted.
19 (All exhibits marked for identification
20 were admitted into evidence.)
21 COMMISSIONER SMITH: I have one question for the
22 parties which occurred to me as we were sitting here today.
23 The Commission is going to decide on a value that is a monetary
24 number, but there is a whole bunch of provisions in this.25 contract between the two parties. So I guess just out of
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1 curiosity, are there any of the other provisions the parties
2 have or will renegotiate, or what do you see after we callout
3 this monetary value?
4 COMMISSIONER REDFORD: Motion to Reconsider.
5 COMMISSIONER SMITH: After that.
6 MR. BUDGE: Well, I think we're not aware of any
7 changes, Monsanto's not asked for any, and our testimony as you
8 noted, we suggested that we would be receptive to any change if
9 the Company wanted to make some. We've not received any from
10 the Company. So our I guess short answer is there aren't any
11 discussions on that issue and we assume that there is no desire
12 on behalf of the Company to change any of those terms, and
13 that's where we are. We've not asked that any of them be
14 changed.
15 COMMISSIONER REDFORD: I have one question: Are
16 there any meaningful negotiations going on at this late date
17 before we make our Decisions?
18 MR. BUDGE: No, there have not been any.
19 COMMISSIONER SMITH: Mr. Hickey.
20 MR. HICKEY: I fully understand the importance
21 and the significance of the question. Rocky Mountain Power
22 considers this a commercial Agreement. We are happy to set a
23 convenient time to meet with Mr. Budge and/or his clients and
24 talk about the terms of the commercial Agreement..25 But I think the purpose of this hearing is just
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1 as you identified it: To set the value of the curtailment
2 products or credits, however you choose to phrase that in your
3 Order. But the terms of the Agreement I think remain something
4 that the parties have to get back to the table to agree upon.
5 COMMISSIONER REDFORD: Would you suggest that
6 that be before or after we make our Decision?
7 MR. HICKEY: Well, we would be glad to meet
8 whenever Monsanto wants to, Commissioner Redford.
9 COMMISSIONER REDFORD:Well, it seems, to me,
10 that there are lots of things that we've talked about over
11 today and before, that there are some issues that possibly you
12 might not want the Commission to rule on; that is, on some of
13 the commercial terms and so on and so forth. And we can give
14 you the values. Where you put them and how they are
15 implemented into a tariff certainly should have some
16 collaboration on. Maybe it's better to do that after you get
17 the numbers.
18 MR. HICKEY: I'm in that somewhat uncomfortable
19 position that lawyers that all of us have at one point been of
20 talking without client authority, and wanting to be responsive
21 and cooperative to an agency that I appreciate the chance to
22 appear in front of.
23 I think you would be within your authority to ask
24 the parties to meet and to ask the parties to report to you
25 what the outcome of those meetings are, but short of that, I
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1 don't know what more the Commission could do at this point to
2 get the two parties to the commercial transaction to identify
3 and agree to its terms.
4 COMMISSIONER REDFORD: Well, for my part, I would
5 just like to make sure that maybe not as to the dollar amounts
6 but as to the implementation terms, that you might want to
7 discuss how you're going to put them into a tariff. And I just
8 don i t want anything left unresolved and have a situation later
9 on coming back and saying, Well, we really didn't think of this
10 and it doesn't fit here, it doesn't fit there.
11 So I'm not going to as k the Chairman or you to do
12 so; I'm just encouraging you to not make one last effort but to
13 try to identify and clear up some points that might not appear
14 in the Order.
15 MR. HICKEY: I appreciate your comments very
16 much.
17 COMMISSIONER SMITH: It's not my intent to
18 suggest that the parties need to meet or change anything. It
19 was just an inquiry as to whether there were other terms. So,
20 thankful for the discussion.
21 Also, grateful to all of you for your courteous
22 and expeditious participation today in the case that got us
23 done in one day when we were scheduled for two.
24 So if there's nothing more to come before the
25 Commission, I'm assuming no
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1 Mr. Budge.
2 MR. BUDGE: One minor thing: I'm not one to like
3 to file briefs, I don't think there are any legal issues, but I
4 would like to provide a short statement of what our position is
5 on a few of these key issues to the Commission just because we
6 have a lot that's come into the record and I thought to sum it
7 up and clarify it would be of some help.
8 COMMISSIONER SMITH: Certainly I would look at
9 that as something in lieu of a closing statement, which
10 might -- would be appropriate if the parties wish to do so.
11 Do you have any timeline in mind? The Commission
12 is on a tight time schedule. We only have till the end of this
13 month to decide this, and we would like to get it done before
14 then in case we lose one of our Commissioners.
15 MR. BUDGE: I would think a couple weeks would be
16 fine.
17 COMMISSIONER SMITH: I think a couple weeks is
18 too much.
19 COMMISSIONER REDFORD: So do I.
20 MR. HICKEY: I would agree.
21 COMMISSIONER SMITH: Mr. Budge, could you have it
22 done in nine days?
23 MR. BUDGE: That would be fine.
24 COMMISSIONER SMITH: Next Thursday, maybe?
25 COMMISSIONER REDFORD: I think nine days might be
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19
20
21
1 a little too long when you've got the rest of this week and
2 part of next week.
3 MR. HICKEY: Could I ask of the Commission is
4 there a desire on your part to have written closing statements?
5 There isn It.
6 COMMISSIONER SMITH: In my view, it's probably
7 not necessary, but if the parties wish to I wouldn't foreclose
8 it in lieu of, like I said, a closing statement. I don't think
9 it's necessary.
10 MR. HICKEY: Well, with that further direction,
11 we don i t see a need for one, but if they file one, obviously we
12 feel a need to stay competi ti ve with that filing.'Tis the
13 nature of the process.
14 COMMISSIONER SMITH: I understand.
15 MR. HICKEY: Do you still want one?
16 MR. BUDGE: Well, we'll give it some thought, but
17 our intention at this time would be we would file a closing
18 statement in ten days or on the tenth day, 10th of February.
COMMISSIONER REDFORD:Short statement.
MR. BUDGE: Very short.
COMMISSIONER SMITH: All right. Then, there is
22 the opportunity if you desire it to file a brief closing
23 statement or summaries on or before February 10th, and at that
24 time the record will be considered closed, the Commission will
25 deliberate as quickly as it can, and issue an Order hopefully
2961
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLOQUY
.
.
.
20
21
22
23
24
25
1 before the end of the month.
2 MR. HICKEY: Madam Chairman, sensitive to the
3 brief page limit being another burden on the Commission as well
4 as the parties, I think it would help all of us if you just
5 said what your expectation is or the Commission's expectation
6 so we file within those page numbers.
7 COMMISSIONER SMITH: I wouldn't know, Mr. Hickey.
8 When I give information to people at the Legislature it's one
9 page, so maybe kind of like that. Certainly anything the
10 Supreme Court would accept would be too long for me. Does that
11 give you some incite?
12 MR. HICKEY: Well, I just wanted to give you an
13 opportuni ty to participate.
14 COMMISSIONER SMITH: I guess I'm not going to
15 accept that opportunity.
16 Anything else to come before the Commission?
17 No.
18 Thank you all. Have a good evening.
19 (The hearing concluded at 5: 32 p. m. )
2962
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLOQUY
.
.
20
21
22
23
24
. 25
1 AUTHENTICATION
2
3
4 This is to certify that the foregoing
5 Volumes XVI and XVII are true and correct transcripts to the
6 best of my ability of the proceedings held in the matter of the
7 Application of PacifiCorp dba Rocky Mountain Power for approval
8 of changes to its electric service schedules, Case No.
9 PAC-E-10-07, commencing on Tuesday, February 1, 2011, at the
10 Commission Hearing Room, 472 West Washington, Boise, Idaho, and
11 the originals thereof for the file of the Commission.
12 Accuracy of all prefiled testimony as
13 originally submitted to this Reporter and incorporated herein
14 at the direction of the Commission is the sole responsibility
15 of the submitting parties.
16
17
18
19
2963
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
AUTHENTICATION
.
.
.
.
.
.
CAPACITY VALUE OF MONSANTO'S
NON-SPINNING OPERATING RESERVES
Description Units Gadsby 4, 5 & 6
Capital Cost1
Installed Capacity1
Unit Cost
Levelized Carrying Charge Rate
Annual Revenue Requirement
Annual Fixed 0 & M Costs2
Annual Revenue Requirement
($)
(kW)
($/kW)
($/kW)
($/kW)
($/kW)
77,063,978
181,100
426
0.1112
47.3
10.45
57.8
Monsanto Non-Spinning Operating Reserves
Contract Capacity
Capacity Losses3
Contract Capacity at Generation
(kW)
(%)
(kW)
($)
95,000
4.98
99,731
Capacity Value 5,760,111
Staff's Proposed Capacity Value
Rocky Mountain Power
Exhibit No. 97 Page 1 of 1
Case No. PAC-E-10-07
Witness: Paul H. Clements
Currant Creek
352,856,465
566,900
622
0.1043
64.9
8.27
73.2
95,000
4.98
99,731
7,301,756
7,301,7561
($)6,530,934PacifiCorp Adjustment #1
Averaging of Gadsby and Currant Creek Values
PacifiCorp Adjustment #2
Applying 46.2% Multiplier to Account for Other Products
PacifiCorp Adjusted Capacity Value
(%)
($)3,017,291
1 2009 FERC Form 1 - Page 402.4
2 PacifiCorp 2008 IRP - Table 6.4
3 Case No. PAC-E-10-Q7, COS "Input" sheet
46.2
.
.
.
,.
PAC-E-IO-07/Rocky Mountain Power
January 24, 20 i i
Monsanto Data Request 19.2
Rocky Mountain Power
Exhibit No. 98
Case No. PAC-E-I0-07
Witness: Gregory N. Duvall
Monsanto Data Request 19.2
With respect to Mr. Clements' January 20 I I rebuttal testimony at page 6, lines
10-19, please provide the following information:
a. The lRP analysis performed by the Company, including all workpapers and
models in electronic format with all formulas intact.
b. A description of the methodology used by the Company in performing the
analysis.
c. The results of the lRP analysis in electronic forniat with all fonnulas intact.
Response to Monsanto Data Request 19.2
a. Please refer to Attachment Monsanto 19.2 for the results of the analysis.
There are no workpapers other than the modeling results themselves. The
model used for the analysis, System Optimizer, is proprietary software
licensed to the Company by Ventyx Energy, LLC, and is not available to
distribute to third parties.
b. PacifiCorp ran its System Optimizer capacity expansion model with and
without the Monsanto contract included. The model set-up is the same one
being used to develop resource portfolios for its 2011 IRP. The analysis is
simply to compare the model's expansion plans with and without the
Monsanto resource included, and determine what resources were deferred or
eliminated from the portfolio. The full complement of resource types-gas
plants, renewables, demand-side management products, and market
purchases-was made available to the model consistent with Company IRP
practice and state IRP guidelines. For this study, PacifíCorp found that
removal of the Monsanto contract resulted primarily in additional reliance on
finn market purchases (front ol1ce transactions) and demand-side
management products.
c. Please refer to Attachment Monsanto 19.2 for the results of the analysis. The
System Optimizer's capacity expansion plans are shown along with a resource
capacity difference table showing what resources were deferred or eliminated
as a result of excluding the Monsanto contract from the resource portfolio.
Recordholder:
Sponsor:
Gregory N. Duvall
Gregory N. Duvall
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CASE NO. PAC-E-IO-07
EXHIBIT NO. 134 PREPARED AND SPONSORED
BY KEITH HESSING
IS
CONFIDENTIAL AND ONLY A V AILABLE TO THOSE
PERSONS WHO HAVE SIGNED PROTECTIVE AGREEMENTS
,
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1 ,.
Confidential Exhibit No. 134
Case No. PAC-E-1O-7
K. Hessing, Staff
12/22/10
.
.
.
CASE N.O. PAC-E-10-07
EXHIBIT NO. 135 PREPARED AND SPONSORED
BY KEITH HESSING
IS
CONFIDENTIAL AND ONLY AVAILABLE TO THOSE
PERSONS WHO HAVE SIGNED PROTECTIVE AGREEMENTS
i.': ¿ i
~' I;
Confidential Exhibit No. 135
Case No. PAC-E-1O-7
K. Hessing, Staff
12/22/10
.
.
.
.Monsanto Company
Exhibit No. 254 (BCC-1)
Page 1 of 1
Case No. PAC-E-10-07
Witness: Brian C. Collins
Rocky Mountain Power
Value of Monsanto Curtailment Based on Avoided Peakers
Economic
Operating Reserves Curtailment
Intercooled SCCT Frame
Line Description AeroSCCT or AeroSCCT (2 Frame "F")Total
(1)(2)(3)(4)
Avoided Capital:
1 Avoided Capacity Cost ($/kW-year) (1)$102.97 $112.69 $70.61
2 Capacity (kW)95,000 95,000 67,000
3 Adjustment for Reserve Margin 12%12%12%
4 Capacity Adjusted for Reserves (kW)106,400 106,400 75,040
5 Adjustment for Losses 4.98%4.98%4.98%
6 Capacity Adjusted for Losses (kW)111,699 111,699 78,777
7 Capacity Value $11,501,304 $12,587,418 $5,562,759 $17,607,120
Avoided Energy:.8 Hours Curtiled 188 188 850
9 MWh Curtailed 17,860 17,860 56,950
10 Adjustment for Losses 3.61%3.61%3.61%
11 MWh Curtailed 18,505 18,505 59,006
12 Avoided Energy Cost ($/MWh) (1)$76.62 $82.47 $96.14
13 Energy Value - Curtailment $1,417,889 $1,526,018 $5,672,543
14 Avoided Energy Cost - System Integrity (2)$805.671 $805.671
15 Energy Value $2,223,560 $2,331,690 $5,672,543 $7,950,168
16 Total Value (3)$14,321,986 $11,235,301 $25,557,287
(1) PacifiCorp 20081RP, page 104; PacifCorp 2008 IRP Update (March 2010), page 43.
(2) Includes the 12 hours of system integrity (162 MW) at $400 per MWh.
(3) Total Value = Capacity Value + Energy Value-Curtailment + Avoided Energy Cost-System Integrit
Total Value includes the average of the Operating Reserves value based on /he cost of an Intercooled Aero SCCT
and the cost of an Aero SCCT.
.
.Monsanto Company
Exhibit No. 255 (BCC-2)
Page 1 of 1
Case No. PAC-E-10-07
Witness: Brian C. Collins
Rocky Mountain Power
Value of Monsanto Curtailment Based on Qualifying Facility Rates in Utah
Operating Economic
Line Description Reserves Curtailment Total
(1)(2)(3)
Avoided Capital:
1 Avoided Capacity Cost ($/kW-year) (1)$115.80 $115.80
2 Capacity (kW)95,000 67,000
3 Adjustment for Reserve Margin 12%12%
4 Capacity Adjusted for Reserves (kW)106,400 75,040
5 Capacity Value $12,321,120 $8,689,632 $21,010,752
Avoided Energy:
6 Hours Curtailed 188 850
7 MWh Curtailed 17,860 56,950.8 Avoided Energy Cost ($/MWh) (1)$53.40 $53.40
9 Energy Value - Curtailment $953,724 $3,041,130
10 Avoided Energy Cost - System Integrity (2)$805,671
11 Energy Value $1,759,395 $3,041,130 $4,800,525
12 Total Value (3)$14,080,515 $11,730,762 $25,811,271
(1) Rocky Mountain Power, Utah Electric Service Schedule No. 37, 20- Year Levelized.
(2) Includes the 12 hours of system integrity (162 MW) at $400 per MWh.
(3) Total Value = Capacity Value + Energy Value-Curtailment + Avoided Energy Cost-System Integrity.
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§
PAC-E-IO-07/Rocky Mountain Power
December 14. 2010
. Monsanto Data Request 17.8
Monsanto Data Request 17.8
Pleae provide all testimony fied by Mr. Clements in all junsdictions on behaf of
PacifiCorp.
Response to Monsanto Data Request 17.8
Please refer to Attchment Monsanto 7.8.
Recordholder: N/ A
Sponsor: N/ A
.
.
.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MA TIER OF THE )
APPLICATION OF ROCKY ) CASE NO. PAC-E-07-05
MOUNTAIN POWER FOR APPROVAL )
OF CHAGES TO ITS ELECTRIC ) Rebuttal Testimony
SERVICE SCHEDULES ) of Paul H. Clements
.
ROCKY MOUNTAIN POWER
CASE NO. PAC-E-07-05
October 2007
.
.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE )
APPLICATION OF ROCKY )MOUNTMNPO~RFOR )
APPROVAL OF CHANGES TO ITS )
ELECTRIC SERVICE SCHEDULES )
AND A PRICE INCREASE OF $27.7 )
MILLION, OR APPROXIMATELY )13.7 PERCENT )
CASE NO. PAC-E-10-07
Supplemental Testimony of
Paul H. Clements
.
ROCKY MOUNTAI PO~R
CASE NO. PAC-E-10-07
October 2010
.
.
.-
.
"l
Docket No. 20000-_-EA-l 1
Witness: Paul H. Clements
. BEFORE THE WYOMIG PUBLIC SERVICE"
. COMMSSION
ROCKY MOUNTAIN POWER
Direct Testimony of Paul H. Clements
Januar 2011
Please state your name, business address and present position with Rocky
Mountain Power Company ( "Company"), a division of PacifiCorp.
. l-Y name is Paul H. Clements. My business addrss is 201 S. Main, Suite 2300,
Salt Lake City, Uta 84111. My present position is OrginatorlPower Marketer for
PacifiCorp Energy. PacifCorp Energy and Rocky Mountain Power are divisions
ofPacifiCorp (the Company).
How long have you been in your present position?
I have been in my present position since December 2004. .
Please describe your education and business experience.
I have a B.S. in Business Management from Brigham Young University. I have
been employed with PacifiCorp since 2004 as an originator/power mar:keter
responsible for negotiating qualifng facilty contracts, negotiating interrptible
retail special contracts, and managig wholesale or market-based energy and
capacity contracts with other utiities and power marketers. I also' worked in the
merchant energy sector' for approximately six years in pricing and strctug,
origination, and trading roles for Duke Energy and Ilinova.
17 Purpose and Summary of Testimony
What. is the purpose of your testimony?
I present the Company's experience under the curent avoided cost methodology
for Qualifying Facilty (QF) customers that do not qualify for tariffS~hedule 37-
Avoided Cost Purchases From Qualifying Facilties. I wil herein refer to these
types of QF customers as Non-Standard QFs. In addition, I propose a new taiff
Schedule 38 to govern the Non-Standard QF contracting procedures in Wyoming
.1 Q.
2
3 A.
4
5
6
7 Q.
8 A.
9 Q.
10 A.
11
12
13
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Page 1- Direct Testiony of Paul H. Clements
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going forward and I wil explain the provisions of this new tariff.
Please summarize your testimony?
As a result of the Stipulation and Settlement Agreement (the "Stipulation") dated
February 3, 20091, the Company's curent avoided cost methodology has been
successfuly applied to W~ornng projects for' several years. The Company
proposes. to make permanent the curent methodology with a few minor
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modifications as explained by Mr. Gregory N. Duvall, and do so though the
implementation of the proposed tarff Schedule 38 - Avoided' Cost Purchases
from non-Standard QualifYing Facilties. The new methodology along with the
contracting procedures contained in the proposed tarff Schedule 38 will provide
fair pricing and contracting processes for Non-Stadard QFs in Wyomig and wil
render existing retail customers indifferent as to whether' energy is purchased
from QFs or supplied by the Company from other sources in the futue.
Wyoming QF Experience Under Current Avoided Cost Methodology
Q.Please provide an overvew of the Wyoming QF pricing requests fulflled by
16 the Company under the current avoided cost methodology.
17 A.'The Company responded to nine requests for pricing from potential wid QFs
18 between December 2009 and March 2010. The QF.s ranged in size from 48.3 MW
19 to 80 MW. With the exception of one reqest for a five year ter, all. of the
20 requests desired a 20 year term. The Company also received One pricing request
21 for a waste heat recovery project that qualified for pricing under Schedule 37 and
22 was directed to Schedule 37.
.IThe Stipulation was accepted by the Commission in its order dated November 30, 2009, in
Docket No. 20000-342-EA-09. The Stipulation is sponsored by Mr. Duvall as RM Exhibit_(GND-l)
Page 2 ~ Direct Testimony of Paul H. Clements
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The Company responded to all requests with the timeline set forth in the
Stipulation. Following delivery of the indicative pricing, the Company received
four requests for a draft Power Purchase Agreement ("PP A"). The Company
responded to all requests for a draft PP A within the timeline set fort in the
Stipulation and Settlement Agreement. Following delivery of the draft PP A, thee
QFs requested the Company provide securty calculations in order to proceed with
negotiation of a PP A. The Company provided the security calculations in
response to the requests. Of the three QFs who requested security calculations,
only two engaged in negotiations to finalize the PPA terms and conditions. The
third QF notified the Company that it did not desire to proceed with negotiation of
aPPA.
Did any of the pricing requests described above result in executed PP As?
Yes. Two PPAs were executed on June 17,2010, and filed with the Commssion
in September 2010, These contrcts are curently pendig consideration by the
Commission in Dockets 20000-379-EK-1O and 20000-380-EK-1O.
Please provide an overvew of the two executed.PPAs.
On June 17, 2010; the Company entered into two QF PPAs. The first was for a
49.5 MW wind project with a December 31, 2011, onlie date. The second was
for a 49.5 MW wind project with a December 31, 2012, online date. Both PPAs
have 20 year tenus. Since the projects did not exceed the 50 MW cap in 2011 or
the 50 MW cap in 2012, the pricing was based on the Partial Displacement
Differential Revenue Requiement ("PDDRR") methodology using an Integrated
Resource Plan ("IR") wind proxy as the IR resource that was being deferred.
Page 3 ~ Diect Testimony of Paul H. Clements
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The'term and conditions of the PP As are confdential, and are similar to those
terms and 'conditions obtained from recent simlarly-sized QFs and third par
PP As in Wyoming. Both PP As contain levelized pricing, so levelized security
requirement are included in the PPAs.
Are the two executed PPAs fair for the QF developers a':d fair for existing
customers who pay for the energy?
Yes, the avoidèd cost prices which result from the application of this
methodology are fair for QF developers and they maintain rate neutrality and cost
indifference for the customers who ultirately pay for the power. .
10 ' Proposed Tariff Schedule 38
Please explain why the Company is proposing tariff Schedule 38.
Tariff Schedule 38 is a new taff for Non-Standard QF projects that wil provide
the steps and schedule that both the Company and a proposed no~-standad QF
work though to detennine indicative' or estiated avoided cost prices for a
proposed QF project. The tarff wil. facilitate communication between the
Company and potential QFs as they work through the negotiation process. The
tarff clearly identifes the inormation required from the QF and the timeline in
which the QF wil receive indicative pricing. The tarff codifies the process that
was put in .place in the Stipulation. Through experience in implementing the
Stipulation process and though extensive experience with a similar process in
other states, the Company believes the formal process proposed in Schedule 38
and as followed as par of the Stipulation is an effcient and productive process for
both the Company and potential QFs.
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Page 4 ~ Direct Testimony of Paul H. Clements
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Does the Company have a formal non-standard QF negotiation procedure in. . .
other jurisdictions?
Yes. The Company's curent Schedule 38 non-standard QF contrct negotiation
proces is in place in both Utah2 and Oregon.
Please explain the proposed tariff Schedule 38.
Schedule 38 - Avoided Cost Purchases from Non-Standard Qualifing Facilties,
is based on the output of a work-group. that was established in 2002 in Uta
Docket 02-035- TIl addressing. issues simlar to those being addressed in tlis
Docket in Wyoming. The work group included many paries with similar interests
to those in ths Docket, who parcipated in the development and negotiation of
the procedures in this tarff. The general purose of Schedule 38 is to provide the
. . steps and schedule tht both the Company and a proposed QF work through to
determe indicative avoided cost pricing for a proposed .QF project. The tariff
very clearly lays out the information required by' the Company to prepare
indicative prices for a proposed QF project.
Even a developer of a QF project in the conceptul stage should have most
of the information collected and available to provide to the Company because it is
necessary for the design, development, finncing, and constrction of the QF
project. As outlined by the procedure, QF projects that provide the required
details regarding their projects upfront have a much lower probabilty of
experiencing a delay in the development of indicative prices. The Company works
2 As an example the Utah tariff can be found at the following internet addess: .
http://ww.rockymountaiiipower.netlcontentldam/rocky _mountain .Jower/docl AbouL UslRtes ..and.ßegu
lationlta Approved _ TariffslRate _ Schedulesl A voided_ Cost_Purchases jrom _ Quali:ingJacUities. pdf
Page 5 - Direct Testimony of Paul H. Clements
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very closely with the QF in this intial step by completig due dilgence and
feedback on the information. Once the information is agreed to by both partes,
t~e Company completes its pricing step. As outlined by the tariff the paries then
follow the timelines and process for completing negotiation of a PP A, The
timeline for the various steps in the process is as follows:
1. Indicative pricing is provided within 30 days followig receipt of all
required inormation.
2. A dràft PPA is provided withiI 45 days following. receipt of all
required additional information after indicative pricing has been
provided.
3. A final PP A is provided withn 45 days of agreement by both paries
on all material term in the )?P A,d .
4. Counterparties must wait 60 days after one par gives notice that the
paries are unable to reach agreement on a fial PPA before filing a
complaint with the Commssion on any specific contract terms not
agreed upon. .
Please briefly provide an' overview of the çontract terms and conditions that
wil be included by the Company in a PPA that is provided as part of the
Schedule 38 process.
Siniilar to what was set fort in the terms of the Stipulation, the terms and
conditions of the QF PP A shall be similar to those terms and conditions obtained
from recent similarly-sized QFs and third par PP As in Wyomig.
Page' 6 ~ Direct Testimony of Paul H. Clements
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Bow does the proposed Wyoming Schedule 38 differ from the current Utah
Schedule 38?
The proposed Wyomig Schedule 38 provides 45 days for delivery of the draft
PPA, the Utah Schedule 38 provides 30 days. The proposed Wyoming Schedule
38 also establishes a 45 day tieline for delivery of a final PPA, the Utah
Schedule 38 .does not provide a timeline for delivery of a fial PP A. Finally, the
Wyomig Schedule 38 establishes a 60 day waiting period before a complaint
with the Commission on contract term can be fued, the Utah Schedule 38 does
not address Comiission complaint fiings. These differences were included ip the
Stipulation and the Company believes they should continue as par of Schedule
38.
Has Schedule 38 worked as it was intended in the other states where it has
been implemented?
Yes. Schedule 38 has provided a framework under which the QF developer mows
what is required in order to obtain indicative pricing. Even in other states where
there is no formal Schedule 38, the Company uses this schedule as a general road
map with the developer who is proposing a non-standad QF.lt provides the QF
developer a clear understanding on what is needed to secure indicative prices
from the Company. If they wish to proceed with the project or renew their
contract, the tarff establishes a procedure that both parties follow thoughout the
contract negotiations. To work effectively, Schedule 38 requires specifc and
detailed information from the QF regarding their proposed project. A QF
developer tht comes to the Company with vague requests or insufficient details
Page 7 ~ Diect Testimony of Paul H. Clements
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will go though a series of due dilgence meetigs until all data is agreed to by
both parties, as the Company is not in a position to provide indicative pricing
without suffcient and clear project details. Once the prices are prepared and
accepted by the QF, there is a set timefre for the Company to provide an initial
draft PP A for contract negotiation.s. The QF knows and understands the steps and
tiieframe to complete a power purchase agreemen.t.
Have you provided as an exhibit a proposed Schedule 38 for Wyoming?
Yes. Exhbit RM_cPHC-l) is the Company's proposed' Schedule 38 for
Wyoming which comport with. the agreed upon items from the Stiptùation.
Does ths conclude your direct testimony?
Yes;
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Page 8 - Direct Testiony of Paul H. Clements
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Rocky Mountain Power
Exhibit RM ~(PCH-l)
Docket No. 20000- _-EA-l1
Witness: Paul H. Clements
BEFORE THE WYOMING PUBLIC SERVICE
COMMSSION
ROCKY MOUNTAIN POWER
Exhibit Accompanyig Direct Testimony of Paul H. Clements
Januar 2011
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ROCKY MOUNTAIN POWER
Original Sheet No. 38-1
P.S.C. Wyoming No. 12
Avoided Cost Purëhases from
Non-Standard Qualifying Facilties
Schedule 38
Available
To owners of Qualifying Facilties in all territory served by the Company in the State of
Wyoming.
Applicable
To owners of existing or proposed QFs who desire to make sales to the Company
and who.1)' have a design capacity greater than 1,000 kW and a historic or projected
annual capacity factor of seventy percent or below or 2) have an average monthly
. capacity and associated energy of greater than 10,000 kW and a historic or
projected annual capacity factor of greater than seventy percent. Such owners wil
be required to enter into written power purchase and interconnection agreements
with the Company pursuant to the procedùres set forth below. Additional or different
requirements may 'apply to Wyoming QFs seeking to make sales to third..parties, or
out-of-system QFs seeking to wheel. power to Wyoming for sale to the Company.
i.Process For Negotiating Power Purchase Agreements
A. Communications
Unless otherwise directed by the Company, all communications to the
Company regarding QF power purchase agreements should be
directed in writing as follows:
Rocky Mountain Power
Manager - QF Contracts
825 NE Multnomah St, Suite 600
Portland, Oregon 97232
The Company will respond to all such communications in a timely
manner. If the Company is unable to respond on the basis of
incomplete or missing information . from the QF owner, the Company
shall indicate what additional information is required. Thereafter, the
Company will respond in a timely manner following reæipt of all
required information.
(continued)
Issued by
Jeffrey K. Larsen, Vice President, Regulation
Issued: January 10, 2011
WY ~ 38-1.NEW
Effective: With service rendered
on and after
Dkt. No. 20000-_-ER-11
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ROCKY MOUNTAIN POWER
Original Sheet No. 38-2
P.S.C. Wyoming No. 12
Avoided Cost Purchases from
Non-8tandard Qualifying Facilties
Schedule 38
i.B.Procedures
1.The Company's proposed generic power purchase agreement may be
obtained from the Company's website at ww.pacificorp.com. or if the
owner is unable to obtain it from the website, the Company will send a
copy within seven days of a written request."
2.To obtain an indicative pricing proposal with respect to a proposed
project, the owner must provide in writing to the Company, general
project information reasonably required for the development of
indicative pricing, including, but not limited to: .
a) generation technology and other related technology applicable to
the site;
b) design capacity (MW), station service requirements, and net
amount of power to be delivered to the Company's electric system;
c) quantity and tirning of monthly power deliveries (ìncludlng project
ability to respond to dispatch orders from the Company);
d) proposed site location and electrical interconnection point;
e) proposed on-line date and outstanding permitting requirements;
f) demonstration of abilty to obtain OF status;
g) fuel type(s) and source(s); .
h) plans for fuel and transportation agreements;
i) proposed contract term and pricing provisions (Le., fixed,
escalating; indexed); and,
j) status of interconnection arrangements.
3.The Company shall not be obligated to provide an indicative pricing
proposal until all information described in Paragraph 2 has' been
received in writing from the OF owner.
(continued)
Issued by
Jeffey K. Larsen, Vice President, Regulation
Issued: January 10,.2011 Effective: With service rendered
on and after
WY :. 38-2.REV Dkt. No. 20000- _-ER-11
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ROCKY MOUNTAIN POWER
Original Sheet No. 38-3
P.S.C. Wyoming No.1~
Avoided Cost Purchases from
Non-5tandard Qualifying Facilties
Schedule 38
I. .B.Procedures (continued)
Within 30 days following receipt of all information required in
Paragraph 2, the Compåny. wil provide the owner with an indicative
pricing proposal, which may include other indicative terms and
conditions, tailored to the individual characteri~ticsof the proposed
project. Such' proposal may be used by the owner to make
determinations regarding project planning, financing and feasibilty.
However, such prices are merely indicative and are not final and
binding. Prices and other terms and conditions are only final and
binding to the extent contained. in a power purchase agreement
executed by both partes and approved by the Commission. . The
Company wil provide with the indicative prices a description of -the
methodology used to develop the prices.
4.If the owner desires to proceed forward with the project after. revieWing
the Company's indicative proposal, it may request in writing that'the
Company prepare a draft power purchase agreement to serve as the
basis for negotiations between the parties. In Gonnection with such
request, the owner must provide the Company with any additional
project information that the Company reasonably determines to .be .
necessary for the preparation of a draft power purchase. agreement,
which may include, but shall not be limited to:
a) updated information of the categories described in Paragraph 8.2;
b) evidence of adequate control of proposed site;
c) identification of, and timelines for obtaining any necessary
governmental permits, approvals or authorizations;
d) assurance of fuel supply or motive force;
(continued)
. Issued by
Jeffrey K. Larsen, Vice President, Regulation
Issued: January 10, 2011 Effective: With service rendered
on and after
WY :- 38-3. REV Dkt. No. 20000-_-ER-11
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ROCKY MOUNTAIN .POWER
Original Sheet No. 3800
P.S.C. Wyoming No. 12
Avoided Cost Purchases from
Non-8tandard Qualifying Facilties
Schedule 38
I. 'B.' Procedures (continued)
e) anticipated timelines for completion of key project
milestones; and,
f) evidence that any necessary interconnection studies have
been completed and assurance that the necessary
interconnection arrangements are being made in accordancewith Part II. .
The company shall not be obligated to provide the owner with a
draft power purchase agreement until all information required
pursuant to Paragraph 4 has been received by. the Company in
writing. . Within 45 days following receipt of all information
required pursuant to paragraph 4, the Company shell provide
the oWher with a draft power purchase agreement containing a
comprehensive set of proposed terms and conditions, including
a specific pricing proposal for purchases from the project. Such
draft. shall serve as the basis for SUbsequent negotiations
between. the parties and, unless clearly indicated, shall not be
construed as a binding proposal by the Company
6. After reviewing the draft power purchase agreement, the owner
may prepare an initial set of written comments and proposals
regarding the draft power purchase agreement and forward
such comments and proposals to the Company. The Company
shall not be obligated to commence negotiations with a QF
owner until The Company has received an initial set of written
coments and proposals from the QF owner. Following the
Company's receipt of such comments and proposals, the owner
may contact the Company to schedule contract negotiations at
such times and places as are mutually agreeable to the parties.
In connection with such negotiations, the Company:
5.
(continued)
Issued by.
Jeffey K. Larsen, Vice President, Regulation
Issued: January 10, 2011
WY :- 38-4. REV
Effective: With service rendered
on and after
Dkt. No. 20000-_-ER-11
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. ROCKY MOUNTAIN POWER
Original Sheet 'No. 38..5
P.S.C. Wyoming No. 12
Avoided Cost Purchases from
Non-Standard Qualifying Facilties
Schedule 38
i.B.Procedures (continued)
a) wil not unreasonably delay negotiations and wil respond in
good faith to any additions, deletions or modifications to the
draft power purchase agreement that are proposed by the
owner;
b) may request to visit the site of the proposed project if such a
visit has not previously occurred;
c) wil update its pricing proposals .at appropriate intervals to
accommodate any changes to the Company's avoided-cost
calculations, the proposed project or proposed terms of the
draft power purchase agreement; and,
d) may request any" additional information from the owner
necessary to finalize the terms of the power . purchase
agreemënt and s;3tisfy the Company's due diligence with
respect to the Project.
7. When both parties are in full agreement as to all terms and
conditions of the draft power purchase agreement, the
Company wil prepare and forward to the owner within 45 days a
final, executable version of the agreement. The Company
reserves the right to condition execution of the power purchase
agreement upon simultaneous execution of an interconnection
agreement between the owner and the Company's power
delivery funCtion, as discussed in Part II. Prices and other terms
and conditions in the power purchase agreement will not be final
and binding unti the power purchase agreement has been
executed by both .parties and approved by the Commission.
(continued)
Issued by
Jeffey K. Larsen, Vice President, Regulation.
Issued: January 10,2011 Effective: With service rendered
on and after
WY~ 38-5.REV Dkt. No. 20000-_-ER-11
~.';.
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ROCKY. MOUNTAIN POWER
Original Sheet No. 38-6
P.S.C. Wyoming No. 12
Avoided Cost Purchases from
Non-5tandard Qualifying Facilties
Schedule 38
II. Process for Negotiating Interconnection Agreements
In addition to negotiating a power purchase agreement, QFs intending to
'make sales to the Company are also required to enter into an interconnection
agreement that governs the physical interconnection cif the project to the
Company's transmission or distribution system. The Company's obligation to
make purchases from a QF is conditioned upon all necessary interconnection .'
arrangements being consummated.
It is recommended that the owner initate its .request for interconnection as
early in the planning process as possible, to ensure that necessary
interconnection arrangements proceed in a timely manner on a parallel track
with negotiation of the power purchase agreement.
Because of functional separation requirements mandated by the Federal
Energy Regulatory Commission, interconnection and power purchase
agreements are handled by different functions within the Company.
Interconnection agreements (both transmission and
distribution level voltages) are handled by the Company's power delivery
function.
A. Communications
Initial communications regarding interconnection agreements should
be directèd to the Company in writing as follows:
Rocky Mountain Power
Manager-QF Contracts
825 NE Multnomah St, Suite 600
Portland, Oregon 97232
(continued)
Issued by
Jeffrey K. Larsen, Vice President, Regulation
Issued: January 10, 2011 Effective: With service rendered
on and after
WY.. 38-6.REV Dkt. No. 20000-_-ER-11
.
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ROCKY MOUNTAIN POWER
Original Sheet No. 38.7
P.S.C: Wyoming No. 12
Avoided Cost Purchases from
Non-Standard Qualifying .Facilties
Schedule 38
II.A.
. .
C.ommunicatlons (continued)'
Based on the project size and other characteristics, the Company wil
direct the ÇlF owner to the appropriate individual within the Company's
power. delivery function that will be responsible for negotiating the
interconnection agreement with the OF owner. Thereafter,. the QF
owner should direct all communications regarding interconnection
agreements to the designåted individual, with å copy of any written
communications to the address set forth above.
B.Procedures
Generally, the interconnection process involves (1) initiating a request
. for interconnection, (2) completion of studies to determine the system
impacts associated with the interconnectión and the design, cost, and
schedules for constructing any necessary interconnection facilties, (3)
execution of an Interconnection Facilties Agreement to address facilty
construction, testing and acceptance and (4) execution of an
Interconnection. Operation and Maintenance Agreement to address
ownership and operation and maintenance issues.
For interconnections impacting the Company's Transmission System,
the Company wil process the interconnection application through
PaCifiCorp Transmission Services following the procedures . for
studying the generation interconnection described in the Company's
Open Access Transmission Tariff, PacifiCorp FERC Electric Tariff,
Fifth Revised Volume No. 11 Pro Forma Open Access Transmission
Tariff (OATT) on file with the Federal Regulatory Commission. A copy
of the DATT is available on-line at http/lw.oasis.pacificorp.com.
For interconnections impacting the Company's Distribution System
only, the Company wil process the interconnectiòh application through
the Manager of OF Contracts at the address shown in Section II.A.
(continued)
. Issued by
Jeffrey K. Larsen, Vice President, Regulation
Issued: January 10, 2011 Effective: With service rendered
on and after
WY.: 38-7.REV Dkt. No. 20000-_-ER-11
.
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ROCKY MOUNTAIN POWER
Originål Sheet No. 38-8
P.S.C. Wyoming No. 12
Avoided Cost Purchases from
Non-8tandard Qualifying Facilties
. Schedule 38
II. Process for Filng a Complaint with the Commission on Contract Terms
Counterpartles must wait.. 60 days before filng a complaint with the
Commission on any specific power purchase agreement terms not agreed
upon betweeri the counterparty and the Company.
Issued by .
Jeffrey K. Larsen, Vice President, Regulation
Issued: January 10, 2011 Effective: With service rendered
on and after
WY ~ 38-8.REV Dkt. No. 20000-_-ER-11
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BEFORE THE PUBLIC SERVICE COMMISSION OF UTAH
In the Matter of the Application of US
Magnesium LLC for Determination of
Rates and Conditions for Interruptible
Service From and QF Sales To Rocky
Mountain Power
DOCKET NO. 09-035-20
PRE FILED DIRECT TESTIMONY OF PAUL H. CLEMENTS
August 20, 2009
1
Please state your name, business address and position with PacifiCorp dba
Rocky Mountain Power (the Company).
My name is Paul H. Clements. My business address is 201 S. Main, Suite 2300,
Salt Lake City, Utah 84111. My present position is Originator/Power Marketer
for PacifiCorp Energy. PacifiCorp Energy and Rocky Mountain Power are
divisions ofPacifiCorp (the Company).
QUALIFICA lIONS
.1 Q.
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Q. Please briefly describe your education and business experience.
A. I have a B.S. in Business Management from Brigham Young University. I have
been employed with PacifiCorp for five years as an originator/power marketer
responsible for negotiating qualifyng facilty contracts, negotiating interrptible
retail special contracts, negotiating renewable energy contracts, and managing
wholesale energy and capacity contracts with other utilties and power marketers.
I also worked in the merchant energy sector for 10 years in pricing and
structung, origination, and trading roles for Duke Energy and Ilinova.
16 PURPOSEOFTESTIMONY
17 Q.
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On whose behalf are you testifying in this proceeding?
I am testifying on behalf ofPacifiCorp, dba Rocky Mountain Power.
What is the purpose of your testimony?
I wil be presenting information in support of the five year electric service
agreement ("ESA") between Rocky Mountain Power and US Magnesium LLC
("US Mag") dated August 17, 2009. I will also present information in support of
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24
the one year qualifying facility power purchase agreement ("QF PPA") executed
by the paries on August 19,2009.
25 TESTIMONY OVERVIEW
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34.-35
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37
Please provide a brief overview of the items you wil address in your
testimony.
The focus of my testimony will be in two areas: 1) issues related to the ESA and
2) issues related to the QF PPA. Regarding the ESA, I will first provide a brief
overview of how past agreements between the paries have been structured. I will
then provide a sumar of the structure and the material terms and conditions of
the proposed new ESA. I will then provide more specific details regarding certain
key components of the new ESA, including the initial energy rates, the
mechanism to be used to adjust the rates throughout the term, and the interruptible
terms and conditions included in the ESA. Regarding the QF PP A, I wil first
provide a sumar of the terms and conditions of the QF PPA. I will then
provide some comments on the line loss adjustment included in the QF PP A.
38 TESTIMONY RELATED TO THE ESA
39 Q.
40
41 A.
42
43
44
45.
Please provide a brief overview of past electric service agreements between
the parties.
It is my understanding that Mr. Roger Swenson intends to provide an overview of
the past agreements between the paries and the unique history and operating
characteristics of US Mag as par of his direct testimony filed on behalf of US
Mag. I will also provide a brief overview, focusing mostly on the curent
agreement which will expire at the end of2009, in order to provide additional
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68.
context for how the paries arved at the proposed new ESA. US Mag has been
an interrptible customer of the Company since the late 1960s. The specific
structure and terms of the electrc service agreements between the paries have
varied somewhat over the years, but the interrptible natue of the contract has
been constant. In late 2004, the Commission approved the existing agreement
between the paries, which is set to expire on December 31,2009, in Docket No.
03-035-19. That agreement contained to following material terms and
conditions:
1. US Mag's initial rates were set based on the cost of service study. The
cost of service study accounted for interrptible rights granted to the
Company by US Mag for the purose of reducing peak demand.
2. US Mag's rates adjusted durng the term of the contract based on
changes to Utah Schedule NO.9.
3. The agreement included interrptible rights that allowed the Company
to interrpt US Mag's load during periods of peak demand. The
Company hadthe right to curtail US Mag's load for up to four hours
per day during the sumer months of June through September when
the day-ahead temperatue forecast reached a certain leveL. The
Company could curail US Mag's load an additional two hours per day
in the event the temperatue forecast was above 99 degrees Fahrenheit.
The Company also had the right to curtail US Mag's load durng the
months of December and Januar for up to four hours per day
regardless of temperature.
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4. The agreement included additional interrptible rights that allowed the
Company to interrpt US Mag's load at any time in the event of a
system emergency.
Please provide an overview of the structure and the material terms of the
new ESA.
The structure and the terms of the new ESA are similar to those found in the
existing agreement which was approved by the Commission in Docket No. 03-
035-19 and described earlier in my testimony. The initial rates in the new ESA
are based on the cost of service study resulting from the Company's most recently
decided general rate case, Docket No. 08-035-38. The cost of servce study
accounts for the interrptible rights set forth in the agreement for the purose of
reducing peak demand. The agreement includes automatic step increases that
result in US Mag arving at the targeted cost of service study rate within four
years. The step increases are front end loaded, which results in US Mag closing
the gap between the curent and the targeted rate in a more accelerated maner.
In addition to the automatic step increases, the agreement includes a rate
adjustment provision that provides for additional rate increases over the term of
the agreement based on changes to the Utah Schedule NO.9 rates. The agreement
also includes interrptible provisions similar to the existing agreement, in which
the Company is allowed to interrpt US Mag's load in the sumer months based
on the day-ahead temperatue forecast and in the winter months regardless of
temperatue. As a modification from past agreements, the Company wil now be
allowed to ban curailment hours durng times when interrption is allowed by
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the agreement but not needed by the Company and then use those baned hours
durng times when interrption is not otherwse allowed by the agreement but the
Company deems interrption is needed for operational flexibilty.
How were the initial rates in the ESA determined?
The initial rates were set based on the cost of service study resulting from the
Company's most recently decided general rate case, Docket No. 08-035-38. The
cost of service study showed a required increase of 31.26%, or $7.2 milion, for
US Mag. Given the magnitude of the required increase, the paries agreed to a
concept of gradualism in the implementation of the increase, with the conditions
that a schedule be set forth that resulted in the implementation of the full increase
in a reasonable time perìod and that a mechansm be put in place to prevent such
large deviances from the cost of service study in the futue. The new ESA
accomplishes both of these objectives. The new ESA includes automatic step
increases that result in US Mag arving at full rates based on the cost of service
study within four years. The step increases are front end loaded, with 30% of the
required increase occurng effective Januar 1, 2010, 25% of the required
increase occurng effective Januar 1, 2011, 20% of the required increase
occuring effective January 1, 2012, 15% of the required increase occurng
effective Januar 1, 2013, and 10% of the required increase occurng effective
Januar 1, 2014. Ths results in automatic increases of 9.4% in 2010, 7.1% in
2011, 5.3% in 2012, 3.8% in 2013 and 2.4% in 2014. With these automatic step
increases, US Mag will close the curent 31.26% gap between its 2009 contract
rates and the rates required by the cost of service study in the most recently
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decided general rate case within four years. US Mag will be subject to
incremental rate changes during this term as well, which I will describe next in
my testimony.
In addition to the automatic step increases, how else wil US Mag's rate
adjust over the term of the new ESA?
Similar to the existing ESA, the new ESA contains a rate adjustment mechansm
that calls for US Mag's rates to adjust anually based on changes that occured in
the prior year to the Utah Schedule NO.9 rates. In the existing agreement, the
adjustment was based on 50% of the change to the Utah Schedule NO.9 rates. In
the new ESA, the adjustment is based on 100% of the change to the Utah
Schedule No.9 rates. This means US Mag's rates will adjust anually by the
same percentage change that other large industrial customers receive who take
service under Utah Schedule NO.9. This adjustment meèhanism will result in US
Mag's rates being more closely aligned with the cost of service study rates
throughout the term of the agreement.
Are there other provisions in the agreement which may lead to additional
changes to US Mag's rate over the term of the agreement?
Yes. Similar to what has been done with other recent retail special contracts in
Utah, the paries agreed to add language to the agreement to address how contract
rates may be affected by the following items: a potential energy cost adjustment
mechanism ("ECAM"), applicable demand side management costs, and potential
futue greenhouse gas related costs.
Please describe the new contract language addressing an ECAM.
Q.
Q.
A.
Q.
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In response to the recent Company filing regarding an ECAM, the parties agreed
to include language in the new ESA that addresses how a potential ECAM will
apply to US Mag. The language states, in sumar, that in the event the
Commission adopts an ECAM for the Company in Utah and applies the ECAM to
US Mag, the agreement will be amended as necessar, as determined by the
Commission in the ECAM proceeding.
Please describe the new contract language addressing demand side
management costs.
The paries agreed to include in the ESA language that states, in sumar, that
US Mag will be subject to demand side management surcharges if so ordered by
the Commission.
Please describe the new contract language addressing potential future
greenhouse gas related costs.
In response to potential futue greenhouse gas related legislation or costs, the
paries agreed to include language that states, in sumar, that if any greenhouse
gas costs are imposed on the Company or on US Mag, the agreement will be
amended as necessary, as determined by the Commission in an appropriate
proceeding.
Please provide a summary of the interruptible terms and conditions in the
new ESA.
The new ESA contains interrptible terms and conditions that are similar in
structure to those found in the existing agreement. For the winter months of
December and Januar, the Company has the right to curail US Mag for two
A.
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blocks of two hours each for a total of four hours each weekday. For the sumer
months of June through September, the Company has the right to curl US Mag
for up to four consecutive hours each weekday if the day-ahead forecasted
temperatue at the Salt Lake City International Airport exceeds certin triggers.
The table below shows the temperatie triggers, in degrees Fahenheit, for each
month:
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Month Temperatue Trigger
June 87°F
July 93°p
August 91° F
September 83°F
The temperature triggers in the new ESA were developed using historical data for
the 20 year time period 1988 through 2007. The trigger for June reflects the
average historical data for the last 15 days of June in each year, and the trgger for
September reflects the average historical data for the first 15 days of September in
each year. The triggers for July and August reflect the average historical data for
the entire month. The triggers were structured in this maner to better coincide
with the Company's peak demand periods in these months. When provided with
a notice to curail, US Mag may elect to either physically curtail or to buy through
at market prices, if energy is available.
The new ESA also includes new provisions that allow the Company to
ban curailment hours for use at a later date instead of using the hours on the date
allowed by the agreement under the terms described above. On days in which
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curailment is normally allowed under the terms described above, the Company,
at its sole option, can provide notice to US Mag that it desires to ban the allowed
curailment hours. US Mag is then not required to interrpt on that date but
instead wil be required to interrpt on a later date when provided notice by the
Company. Then, on a later date when ordinar curtailment under the terms
described above is not available but the Company is in need of curailment for
operational flexibility, the Company may elect to use the baned hours and can
provide notice to US Mag that it must interrpt. This additional flexibility in the
use of interrptible rights provides the Company with even greater ability to
respond to periods of high demand.
TESTIMONY RELATED TO THE QF PPA
Q. Please provide a brief overvew of the terms and conditions of the QF PPA.
A. The paries executed a one year QF PPA for calendar year 2010. Under the
agreement, the Company pays US Mag prices which were calculated using the
methodology approved by the Commission in a Report and Order in Docket No.
03-035-14. US Mag will be paid, on average, a price of $39.93 per megawatt
hour. The pricing in the agreement is strctured as on peak and off peak prices
for each month. The contract includes an avoided line loss adjustment of 4.36%
applicable to all deliveries.
How was the avoided line loss adjustment determined?
The avoided line loss adjustment was determined using a methodology that is
similar to what has been used in recent years for other short term QF contracts.
10
.202 Q.Why is the Company required to address avoided line losses for the US Mag
203 QFPPA?
204 A.In its clarfication order dated May 26, 2006 in Docket No. 03-035-14, the
205 Commission set forth on page one the procedure through which avoided line
206 losses for qualifying facilties (QFs) should be considered:
207 "First, we clarify the April Order did not preclude consideration of
208 payments for avoided transmission losses to QFs. The April Order did not
209 approve a generic method for calculating losses. The Commission rejected
210 the two proposed methods due to insuffcient evidence upon which to
211 conclude that either method was generally reasonable and met the
212 ratepayer indifference standard. The Commission will consider the
213 reasonableness of payments to QFs for avoided transmission losses on a
214 case-by-case basis when QF contracts including such payments are
215 presented for our approval."
216 In consideration of the Commission's order to determine line losses on a case by
217 case basis, the Company evaluated the circumstances unque to the proposed one.'218 year US Mag QF PPA and made the determination that an adjustment to the price
219 to account for avoided line losses was reasonable and necessar.
220 The Company acknowledges that the methodology and analysis used to
221 determine the recommended avoided line loss adjustment for this paricular
222 contract does not set precedence for futue QF contracts and does not restrict
223 either the Company or any other interested pary from recommending a different
224 methodology or position in futue proceedings.
225 Q.What are the general steps the Company proposes be used to determine if an
226 avoided line loss adjustment is necessary for the US Mag QF PPA?
227 A.The methodology used to determine the avoided line loss adjustment for the US
228 Mag QF PP A is sumarzed in the following general steps:.
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1. Determine if the QF is located in the Wasatch Front load center,
as defined by the combination of the "Utah Nort" and the "Utah
South" transmission nodes/bubbles in the GRID topology.
2. If the QF is located in the Wasatch Front load center, an
adjustment for avoided line losses may be justified. If the QF is
not located in the Wasatch Front load center, no adjustment for
avoided line losses will be made, uness unique circumstances
justify an adjustment (see step 4.)
3. If the QF satisfies the location condition in step 2, proceed with
the "QF Avoided Line Loss Calculation" explained in more
detail below.
4. Review any unique circumstances applicable only to that
particular QF that may impact line losses. For example, is the
QF at the end of a long isolated radial line or does the QF utilize
any project-specific transmission lines that may impact line
losses?
Why is a line loss adjustment analysis necessary?
Line losses are a physical reality that occurs when electrcity flows from the
generator source to. the load sync. The avoided cost priciple provides for the
payment to a QF to equal the value or benefit that the QF brigs to the system
such that the ratepayer is indifferent as to whether the energy comes from the QF
or from another source. Therefore, if the QF contract provides a line loss savings
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(or, conversely, additional cost) when compared to the avoided resource, an
adjustment to the price is justified.
Are line losses calculated in the GRID model run that is used to calculate the
avoided costs?
No. The GRID pricing model used to determine the avoided costs, or price, for
QF contracts determines the avoided cost of generation only. Whle the GRI
model does take into account transmission constraints when determining which
resource is avoided, the model does not calculate or address any potential benefit
or detriment attributable to line losses when the QF is added to the resource
portfolio. Therefore, any adjustment for avoided line losses must be done outside
of the GRID modeL.
Is there a definitive method that can be used to precisely measure the impact
a QF has on line losses on the PacifiCorp system?
The Company evaluated several methods to measure the impact a QF has on
avoided line losses. The only way to precisely measure line losses is to put one
meter at the source point and another meter at the sync point and calculate the
losses on that isolated path. This is not feasible or possible on an integrated
system with multiple sources and syncs. Nor is it cost effective or practical for
the issue at hand. All other approaches are subject to the impact of assumptions
and inputs which can greatly infuence the results. Therefore, the Company set
fort to establish a methodology that utilzes reasonable and applicable
assumptions and inputs to reasonably estimate the impact a QF has on line losses.
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Is there a means by which the impact a QF contract has on line losses can be
reasonably estimated?
Yes. The Company has developed a methodology that it recommends be used to
determine the avoided line loss adjustments to be included in the US Mag QF
PP A. The Company has defined this method as the "QF Avoided Line Loss
Calculation." The Company acknowledges that ths method contains concepts
that are a result of prior collaborative discussions between interested paries in
other QF dockets, and, as such, no pary is bound by this method, either in par or
in whole, in futue QF proceedings.
What are the detailed steps included in the QF Avoided Line Loss
Methodology?
The QF avoided line loss methodology utilizes, as a staring point, output from
the GRID model ru that was used to calculate the avoided costs for the specific
QF contract. PacifiCorp's FERC OATT rate for line losses is also used in the
calculation.
The GRID model includes several transmission nodes or bubbles that
represent major locations ofload and/or resources. These locations are often
connected by high voltage transmission paths, which are also modeled in GRID
consistent with their rated capacities and other constraints. When calculating the
avoided cost, GRID determines which resource is backed down or avoided when
the QF is added as a resource. The avoided resource mayor may not be in the
same transmission bubble as the QF resource, as GRID will optimize the available
transmission between all bubbles and dispatch the system economically. The
A.
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GRID output file contains a sumar of the number of megawatt hours that were
avoided in each transmission bubble as a result of the addition of the QF. The
sum of the avoided megawatt hours in all the bubbles equals the total amount of
megawatt hours provided by the QF. Therefore, it is possible to determine the
percentage of the total megawatt hours that the avoided resource was a resource
outside the transmission bubble where the QF is located.
The US Mag QF is located in the Utah North transmission bubble, which,
along with the Utah South transmission bubble, defines the Wasatch Front load
center. The Utah North transmission bubble consists primarly ofthe northern
Salt Lake valley and pars of southeast Idaho and southwest Wyoming, and the
Utah South transmission bubble consists of the area from approximately Mona to
the south half of the Salt Lake valley. After reviewing the GRID output, it was
determned that there are no curent transmission constraints between the Utah
North transmission bubble and the Utah South transmission bubble, so these two
bubbles were considered to be a single bubble representing the Wasatch Front
load center in this analysis. Ths paricular area contains a significant sized load
but is primarily a large importer of energy from the other bubbles. Therefore, it is
reasonable to assume that locating a resource inside this Wasatch Front load
center (the Utah North and Utah South bubbles) will reduce the need to import
energy from outside ths area, thus decreasing the amount of physical losses that
will occur as power does not have to travel as far to serve the load in this area.
To calculate a reasonable estimation of the amount of avoided line losses
attributable to the US Mag QF PPA, the Company calculated the percentage of
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341.
the total megawatt hours that the US Mag PP A avoided that were outside the Uta
Nort and Utah South transmission bubbles (the Wasatch Front load center) and
multiplied it by the PacifiCorp FERC OATT transmission level line loss rate of
4.48%. The Company incurs the "cost" of line losses at the tarff rates contained
in PacifiCorp's FERC OATT. The tarff does not differentiate line loss rates
based on any factor other than delivery voltage. Therefore, the tariff rate is an
appropriate reflection of the financial avoided cost of line losses and is used in
these calculations.
The US Mag QF PP A avoided resources which were outside the Utah
North and Utah South bubbles 79.46% of the time. Therefore, the staring point
for the US Mag QF PPA contract line loss adjustment should be an increase to the
contract price of3.56% (4.48% x 79.46%.)
Once this staring point has been determined, the Company evaluated
whether a fuer adjustment is required to account for any project specific
characteristics that impact line losses. In the case of the US Mag QF PPA, such a
characteristic exists. The US Mag QF is located at the end of a radial line that
initiates at the Terminal substation and terminates at the US Mag facility. The
load at the US Mag facility is greater than the output of the US Mag QF.
Therefore, when the US Mag QF is operating and the US Mag facility is drawing
its tyical load, energy that would normally be transmitted across ths radial line
from the Terminal substation to the US Mag facility to serve load is being avoided
by the energy that is produced by the US Mag QF, which is adjacent to the US
Mag facility. Therefore, the operation of the US Mag QF results in the avoidance
16
.342 of energy being transmitted from the Termnal substation to the US Mag facility,
343 which results in a line loss savings across that paricular radial line.The paries
344 agreed the line losses associated with that line equate to .8%.Therefore, .8%
345 should be added to the staring point adjustment of 3.56%, resulting in a total
346 proposed avoided line loss adjustment of 4.36% for the US Mag QF PPA.
347 Q.Does a further adjustment need to be made to reflect the fact that the US
348 Mag QF PPA is a non firm PPA, meaning there are no minimum delivery
349 obligations?
350 A.No. The Company does not believe that the level of "firmess" of a contract has
351 any impact on the physical reality of line losses. Line losses occur when physical
352 power actually flows. The actual flow of power is not affected by the firmness of
353 a resource, so line losses are not impacted by whether a resource is firm or non.'354 firm. Therefore, no fuher adjustment is required.
355 Q.Does this conclude your testimony?
356 A.Yes.
.
17
,
.
.
.
~ PACIFICORP
Proposed Valuation Methodology for the
Idaho Irrigation Load Control Program
This study presents a proposed methodology and associated valuation results for the Idaho
dispatchable irrigation load control program, based on the use ofPacifiCorp's capacity
expansion optimization modeL.
Rocky Mountain Power (RMP) and the Idaho Irrigation Pumpers Association (IIP A) agreed to
settlement terms on November 4,2007 for the determination of the load control credit for thedispatchable irrigation load control program. These settlement terms stem from the Idaho general
rate case. As part of the settlement, RMP committed to provide the IIP A a report that details the
proposed valuation methodology by December 7,2007. For the 2008 and 2009 program years,
agreed-upon valuation results are to be used to adjust the $/kW-year paricipation credit for a
paricipation level of 175 megawatts or greater (subject to a plus/minus band of$2/kW-year).
For program years staring in 2010, the approved valuation methodology will be used to establish
the credits.
ModeUs) Used
Global Energy Decision's capacity expansion optimization model, called System Optimizer!,
was used for this study. This model determines an optimal long-term resource expansion plan
based on available generation, market, demand-side management, and transmission expansion
options, the capital costs of new resources, and optimal system dispatch for each year based on
load balance and reliability constraints. This model was used because it can captue the capacity
deferral benefits of a resource with respect to the next best alternatives, as well as the changes in
the value of energy shifted from on-peak to off-peak load periods.
Study Approach
The study approach is to capture the levelized net present value (NPV) of resource deferral
system benefits of the dispatchable irrgation program on a portfolio evaluation basis. This is
accomplished by running the System Optimizer with a base case resource portfolio that excludes
the irrgation load control program, and then comparing the total portfolio cost against the cost of
the same portfolio that includes the program at zero cost. The difference in portfolio cost
represents the system benefit of the program.
i This model is referred to as the Capacity Expansion Module in PacifiCorp's 2007 Integrated Resource Plan.
1
.From a modeling perspective, the responses to the addition of the irrigation load control program
potentially include the following: (1) displacement of new resource capacity previously selected
by the model for the base case portfolio, (2) re-dispatch of existing resources, and (3) changes in
the amount of system balancing (spot market) energy sold and purchased at markets defined for
the modeL.
Capital and fixed operating cost savings from deferring a resource is the principle system benefit
of the irigation load control program. Parially offsetting this benefit are the opportty costs of
deferrng a generation resource, which amount to forgone sales revenue and increased reliance
on spot market purchases. The System Optimizer captures these cost dynamcs.
Since the irrgation program system value is highly dependent on the portfolio resource mix, and
most importantly, the relative economics, timing, and capacity sizes of resources that serve as
next best alternatives, two resource scenaros were developed to help bound the valuation
estimates: (1) firm market purchase deferral and (2) peakng resource deferraL. Additionally,
since the paricipation level of the program is variable, portfolio scenarios that assume varous
megawatt paricipation levels were evaluated as welL. These scenarios are described in the study
approach outlined below.
The study approach consists of the following steps:.1. Base Case Portfolio Development
A base case portfolio and associated anual portfolio cost stream is determined by
ruing the System Optimizer with specified resources and expected values for other
model inputs. For this analysis, PacifiCorp's most recent planing information was used,
which include (1) updates to planed resources, (2) resource costs, (3) load forecasts, and
(4) electricity / gas price forecasts. To capture expected future regulatory costs associated
with carbon dioxide (COl) emissions control, the model emulates a 'cap-and-trade'
regulatory scheme. This scheme includes a COl cost of$8.62/tonl staing in 2012 that
escalates with infation, and a COl compliance cap that declines to the Company's 2007
COl emissions level by 2025.
2. Program Addition Portfolio Development
The irrgation load control program is added to the base case portfolio, and the System
Optimizer is ru to re-optimize the portfolio according to constraints specified for the
resource deferral scenarios. Program modeling assumptions include the following:
. All irrgation load control program megawatts are added to the base case portfolio in
2008. No program ramp-up is assumed, which is a reasonable simplifying assumption
given that significant capacity deferral is not realized until 2012 and beyond. This
assumption is based on the Company's resource need forecast.
. The location designation for modeling purposes is southeast Idaho.
. Program characteristics modeled include the following:
- Seasonable program availability is June 1 through September 15 (inclusive).2 Tons of CO2 are calculated based on stadard heat rates (kWh output per Btu input) for a standard SCCT unit.
2
.The program has 52 hours per irrgation season, which are aligned with the top
peak load hours
- Dispatch availability is Monday through Friday (inclusive), except for the July 4
and July 24 holidays3
Hourly program availabilty is from 2 PM to 8 PM Mountain Daylight Savings
time
Energy is returned during the hours that the program is not dispatched4
3. System Benefit Determnation
Anual system benefits are obtained by calculating the differences in anual costs
(milions of2006 dollars) between the base case portfolio and the program addition
portfolio. The stream of anual benefits is then converted into a net present value (NPV)
using the capital recovery factor applied for PacifiCorp's 2007 IRP.
Note: The assumed period over which system benefits are accrued is 10 years, and
therefore the methodology and estimated levelized program value is contingent on
assured availabilty of the target program capacity for at least 10 years.
4. Levelized Value Calculation
The system benefit value obtained from step 3 is divided by the program size in kilowatt-
hours (also converted to a NPV) to yield a value in dollars per kilowatt-year ($/kW-yr)..5. Resource Deferral Scenarios
Initially PacifiCorp conducted multiple resource optimization studies to obtain a range of
levelized program values based on the type of resource that can be deferred. Two
resource deferral scenaros were developed for this purose.
Peaking resource deferral - This scenaro was designed to enable the model to
defer an intercooled aero derivative single-cycle combustion turbine (SCCT)
resource.5 This scenario acknowledges that program value comes from capacity
deferral potential, and that resource investment plans need to be fluid to account
for rapidly changing regulatory and market conditions. Procurement of peaking
resources-although not included in PacifiCorp's latest resource plan-remains a
viable option in the futue. To develop the base case portfolio for this scenario,
System Optimizer was restrcted to select only one CCCT in 2012, and allowed to
make up the capacity shortfall with multiple aeroderivative SCCT resources at an
installed capacity of78 megawatts each. To determine the program's capacity
.
3 While the program presumes day-ahead dispatch notification, this attibute and any associated program valuation
impact is not captured in the modeL. Similarly, valuation impacts associated with growers opting-out of Dispatch
Events is not captued. (For such opt-out events, growers pay the market price for non-performance-commonly
referred to as 'liquidated damages' .)4 The expected period of return energy to model is lOAM to 2 PM based on irrigation program experience.
However, PacifiCorp's capacity expansion optimization model retus energy according to when it is most.
economic to do so; the user canot define a time block for retu.
S The intercooled aeroderivative SCCT is a General Electric Power Systems product (the LMS 1 00 TM), and has the
highest effciency among the simple-cycle gas turbines evaluated for resource plaIing. A two-turbine configuration
was assumed, at an installed capacity of 78 megawatts.
3
.deferral value, the model is set to allow portfolio re-optimization through resource
deferral or removal only (no new resources can be added).
Firm market purchases deferral - This scenario allows the irrigation load control
program to displace firm market purchases (3rd quarer Heavy Load Hour
products; also termed "front offce transactions" or FOT) in the 2007 IRP. Firm
market purchases are assumed to be acquired on an annual forward basis and can
thus var from year to year. The model is allowed to defer the two 2012
combined-cycle combustion turbine (CCCT) units included in the base case
portfolio. However, due to the small size of the irrigation program relative to the
modeled CCCTs, the System Optimizer only chose to defer market purchases for
this scenaro. The System Optimizer was also allowed to re-optimize the portfolio
using all resource options available to it. 6
6. Program Paricipation Level Scenarios
The other main variable investigated in the analysis is the program participation leveL.
Program value for the peaking resource deferral scenarios is highly dependent on the
paricipation level, since a greater amount of installed program capacity translates into
potential deferral of larger amounts of alternative resources. Participation levels for the
peaking resource deferral scenario studies included 100 megawatt, 150 megawatts, 175
megawatts, and 200 megawatts. For the firm market purchase deferral ~cenario studies,
paricipation levels evaluated include 100 megawatts and 175 megawatts..
Aggregate Results
Table 1 summarize the levelized NPV benefits for the two capacity deferral scenarios at varous
program participation sizes with an assumed benefit accrual period of 10 years (2008 - 2017).
Appendix A provides the levelized NPV values with annual detail for each of the program
studies.
Table 1 - Program Value Comparisons by Capacity Deferral Scenario, Program
Partici ation Level, and Benefit Accrual Period
Peakng Resource Deferral
Peaking Resource Deferral
Peaking Resource Deferral
Peakng Resource Deferral
100
150
175
200
67.49
80.29
70.70
82.94
.6 Resource options include General Electric Power System's F and G class 2xl CCCTs, supercritical pulverized
coal, integrated gasification combined-cycle, frame SCCTs, IC aero SCCTs, internal combustion engines, combined
heat and power (CHP) plants, microturbines, and fuel cells.
4
.
Firm Market Purchases
Firm Market Purchases
. The benefit range varies from about $ 13/kW-yrto $83/kW-yr depending on the type of
capacity resource deferred and the program paricipation size. This wide range indicates that
results are sensitive to study assumptions.
. The timing of when deferrable resources are added to the portfolio drives the program
benefits on a year-to-year basis. Benefits accrued prior to 2012-which is the earliest date
that a generating resource can be deferred or replaced for the purose of this analysis-are
smal17. Consequently, the value of the irrgation load control program comes from a longer-
term view of resource deferral potential as opposed to short-term FOT.
Peaking Resource Deferral Scenaro Results
. At a program paricipation level of 100 megawatts, two SCCTs are deferred, while at a level
of 150 megawatts, three are deferred.
. At a program paricipation level of 175 megawatts, there are no additional SCèT deferrals;
the declining levelized benefit value from 150 to 175 megawatts is due to the per-kilowatt
levelization with a nearly constant anual benefit stream..
. At a program paricipation level of 200 megawatts, thee SCCTs are deferred from 2012; one
is deferred for a longer period oftime than under the 175 megawatt paricipation level case.
. For each program participation level, the change in portfolio cost by cost component is
shown in Table 2. These costs changes are relative to the base case portfolio.
Existing Station Fuel Costs
Existin Station Varable O&M Costs
Existin Station Emission Costs
Pro osed Station Fuel Costs
Proposed Station Variable O&M Costs
Pro osed Station Emission Costs
Proposed Station Fixed Costs
4.10
0.25
(1.60)
(25.07)
(26.97)
(0.06)
(20.31)
5.65
0.34
(3.16)
(47.13)
(28.16)
(0.11)
(37.91).7 Reference Appendix A
6.27
0.38
(3.09
(46.86)
(43.45)
(0.11)
(37.91)
6.22
0.42
(4.58)
(66.16)
(33.73)
(0.15)
(52.79)
5
.
18.67 28.52 33.71 39.46
2.42 3.59 4.28 4.97
(24.67)(39.73)(44.27)(54.03)
(6.94)(10.88 (12.44)(14.94)
52.70 82.71 94.70 113.39
Total Cost Change (47.1 9)(84.19)(86.50)(115.96)
Average Annual Cost Change 3.93)(7.02)(7.21)(9.66)
Firm Market Purchase Scenario Results
. For the two Firm Market Purchase Deferral scenarios, the value averages about $13/kW-yr... At a paricipation level of 100 megawatts, the program displaces 100 megawatts on a
relatively constant anual basis from 2008 through 2017.
. At a paricipation level of 175 megawatts, the program displaces 200 megawatts on an
average anual basis from 2008 through 2018, peaking at 247 megawatts from 2012 though
2015 and averaging about 160 megawatts for the remaining years.
The Company believes the best approach for developing a single valuation estimate is a weighted
average of the values for paricipation levels from 150 megawatts to 200 megawatts, and
specified for ranges of actual paricipation levels. This approach results in a value for the Idaho
irrigation program that covers different resource planing assumptions, most notably two
distinctly different futures regarding the appropriate resource type to consider as the next best
alternative to the irrigation load control program. One futue assumes the Company would
acquire gas-fired peakng resources to help meet future capacity requirements while the second
relies on firm market purchases in lieu of gas-fired peaking resources.
.
Table 3 shows the total program values for two participation level ranges: 150-175 megawatts
and 175-200 megawatts. The value selected would depend on which range the actual contractual
paricipation level falls into. As the program's total costs (delivery and incentives) approach this
total value, the Company becomes more indifferent to either supply- or demand-side options in
operating the program or pursuing other resource alternatives.
6
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.
.
For the 150-175 megawatt range, the value was derived by calculating the average of the results
for the 150 and 175-megawatt peakng resource deferral scenario and the 175-megawatt firm
market purchase deferral scenario. (The variation in values across paricipation sizes is small for
the firm market purchase deferral scenaros, so the 175-megawatt value is assumed to be
reasonable for use in the two weighted..average calculations.) For the 175-200 megawatt range,
the value was derived by calculating the average of the results for the 175 and 200-megawatt
peaking resource deferral scenario and the 175-megawatt firm market purchase deferral scenario.
These values do not include benefits from any transmission and distribution investment deferral,
avoided line losses, or any risk mitigation benefits. While these benefits may exist, they are
difficult to quantify and are site-specific. The methodology may be refined in the future to
include these benefits if the Company is able to develop reasonable estimates based on available
information.
In sumar, this recommendation accommodates the Company's curent resource planing
strategy of relying on short-term markets to help meet peak load obligations as well as its
portfolio analysis approach for valuing resource additions. However, it also acknowledges the
longer-term outlook towards demand-side resources and the national trend in the valuation of
load control programs. This trend leans on the assumption that over time, if the acquired
demand-side resource is reliable and sustainable, peaking resource deferral likely exists.
(Reliability and sustanability are pivotal components of program performance. Growers need to
keep this in mind as the Company assumes a contractual obligation that, at a minimum, is 10-
years.) Peakng resource deferral value is thus weighted more heavily than firm market purchase
deferral value in the weighted-average calculations sumarized above.
7
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Base Case
PVRR
(Milion $)
NPV2008 8,308
2008 703
2009 789
2010 971
2011 1,050
2012 1,262
2013 1,317
2014 1,461
2015 1,536
2016 1,673
2017 1,814
Base Case
PVRR
(Millon $)
NPV2008 8,308
2008 703
2009 789
2010 971
2011 1,050
2012 1,262
2013 1,317
2014 1,461
2015 1,536
2016 1,673
2017 1,814
Base Case
PVRR
(Millon $)
NPV2008 8,159
2008 703
2009 789
2010 971
2011 1,050
2012 1,239
2013 1,278
2014 1,419
2015 1,492
2016 1,620
2017 1,761
Peaking Resource Deferral Scenario Studies
100 MW Participation Level
PVRR Benefit Program Value,
(Milion $)(Milion $)siz, kW $/kW-yr
8,261 (47.19)699,123 67.49
703 (0.28)100,000 2.83
788 (0.28)100,000 2.78
970 (1.4)100,000 13.44
1,049 (1.4)100,000 13.39
1,250 (12.02)100,000 120.15
1,307 (10.44)100,000 104.41
1,451 (10.37)100,000 103.68
1,526 00.8)100,000 104.82
1,653 (20.47)100,000 204.67
1,803 (I i. 5)100,000 111.48
175 MW Participation Level
Levelized
PVRR Benefit Progr Value
(Milion $)(Millon $)size, kW $/kW-yr
8,222 (86.50)1,223,465 70.70
703 (0.49)175,000 2.79
788 (0.49)175,000 2.78
969 (2.35)175,000 13.43
1,048 (2.34)175,000 13.38
1,239 (23.14 175,000 132.22
1,297 (20.27 175,000 115.82
1,441 (20.26 175,000 1l5.77
1,516 (20.52)175,000 117.27
1,642 (30.98)175,000 17704
1,792 (21.80)175,000 124.54
150 MW Participation Level
Levelized
PVRR Benefit Program Value
(Milion $)(Milion $)size, kW $/kW-yr
8,224 (84.19)1,048,684 80.29
703 (0.42)150,000 2.79
788 (0.42)150,000 2;78
969 (2.01)150,000 13.43
1,048 (2.01)150,000 13.39
1,240 (22.32)150,000 148.82
1,297 (19.98)150,000 133.21
1,441 (19.88)150,000 132.52
1,516 (20.12)150,000 134.16
1,643 (30.58 150,000 203.87
1,793 (21.39)150,000 142.61
200 MW Participation Level
Levelizd
PVRR Benefit Progra Value
(Milion $)(Milion $)size, kW $/kW-yr
8,192 (115.96)1,398,246 82.94
702 (0.55)200,000 2.77
788 (0.56)200,000 2.78
968 (2.69)200,000 13.43
1,047 (2.68)200,000 13.38
1,230 (32.60)200,000 162.98
1,288 (29.45)200,000 147.24
1,432 (29.33)200,000 146.66
1,506 (29.69)200,000 148.47
1,642 (31.8)200,000 156.89
1,782 (31.2\200,000 157.59
Firm Market Purchase Deferral Scenario Studies
100 MW Participation Level
PVRR Benefit Program Value,
(Milion $)(Milion $)size, kW $/kW-yr
8,149 (9.58)699,123 13.71
703 (0.28)100,000 2.83
788 (0.28)100,000 2.78
970 (1.4)100,000 13.44
1,049 (1.4)100,000 13.39
1,235 (3.62)100,000 36.18
1,277 (1.3)100,000 13.32
1,417 (1.48)100,000 14.84
1,491 (1.60\100,000 15.99
1,619 (1.8)100,000 15.82
1,759 (1.63)100,000 16.28
175 MW Participation Level
Levelized
PVRR Benefit Program Value
(Milion $)I (Milion $)size,kW $/kW-yr
8,144 (15.19)1,223,465 12.41
703 (0.49)175,000 2.79
788 (0.49)175,000 2.78
969 (2.35)175,000 13.43
1,048 (2.34)175,000 13.38
1,234 (4.94)175,000 28.25
1,276 (1.71)175,000 9.79
1,416 (2.55)175,000 14.57
1,490 (2.55)175,000 14.58
1,617 (2.77)175,000 15.81
1,758 (2.83)175,000 16.18
8
.
AGREEMENT FOR SUPPLY OF POWER
MONSANTO CH.il\:l1CAL COMPANY
UTAH i:OWER 8i LJ.CHi: COMFANY
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April 30, 1951.
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t'.
AGREEMENT FOR SUPPLY OF POlffR
MONSANTO CHEI-1IC AL Cor:¡PANY
UTAH POWER & LIGHT COMPANY
Preamble
I Term of agreement
II Purchase and sale of power
III Facili ties to be provided
iv Amounts of power.. 'v Conditions of power delivery and use
VI Service charges to be paid by Buyer
VIi Availabili ty of service
VIII Power from Palisades or othergovernment sources
iX Metering
X Settlements
Xi Liabili ty
XII Assignments
XIII Representatives and notices
XIV Jurisdiction of regulatory authorities
..
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AGREEMENT FOR SUPPLY OF POWER
MONSANTO CHEMICAL COMPANY
UTAH POWER & LIGHT COMPANY
0.1 THIS AGREEMENT, made this 30th day of April,
1951, by the MONSANTO CHEMICAL COMPANY, a Delaware
corporation with its principal office in St. Louis,
Missouri, hereinafter sometimes referred to as lIBuyer J "
and UTAH POWER & LIGHT COMPANY, a Maine corporation
wi th its principal office in Sal t Lake City, Utah,
hereinafter sometimes referred to as "Seller;" ,
VlITNESSETH:
0.2 WHEREAS, Buyer requires a supply of electric.power for the production of elemental phosphorus in an
elec tric furnace, hereinafter sometimes referred to as
II firs t furnace, II at its plant to be located approximately
eight miles from Seller i s Soda generating plant in Caribou
County, Idaho J and Buyer desires Seller to furnish and is
willing to accept a power supply J a consiàerable portion
of which will be subject to interruption at request of
Seller during certain' periods and under certain
condi tions; and
0.3 WHEREAS, Buyer may install a second furnace,
hereinafter sometimes referred to as II second furnace, li
.of similar capacity and desires an option to purchase
electric power on a similar interruptible basis for such
-1-
.second furnace, and if such second furnace be installed,
Buyer desires that Seller furnish such electric power
requirements; and
0.4 WHEREAS, Seller owns and operates an electric
power system in southeastern Idaho and north~central
Utah, which sys tern is connected to Seller is hydroelec tric
and steam-electric ge~erating plants and a transmission
line can be extended from Seller i s substation at its
Soda generating plant to provide 30,000 kw for the
operation of Buyer i s first furnace and auxiliary plant
facilities and an additional 30,000 kw for the operation
of Buyer i s second furnace and auxiliary plant facili ties;
and
0.5 WHEREAS, Seller is able and willing to supply
the electric power requirements of Buyer i s first and
second furnaces on an interrupti hIe basis;
0.6 NOW, THEREFORE, in consideration of the premises
and of the mutual beneri ts from the covenants hereinafter
set forth, the parties hereto do hereby agree as follows:
'.
..'
..
ARTICLE I - TERM OF AGREEMENT
I. 1 The term of this agreement shall begin on the
date, not earlier than October 1, 1952, on which
Buyer advises its first furnace is ready for operation,
but in any event not later than December l, 1952, and
shall continue for ten years thereafter. Upon written
-2-
.... _....,,; ~ ,.
.
.'
.
0.1 THIS AGREEMENT) made this 22nd day of January, 1965)
by and between MONSANTO COMPANY) a Delaware corporation with
its General Offices at St. Louis) Missouri, hereinafter referred
to as IlBuyer", and UTAH POWER & LIGHT COMPANY, a Maine corporation
wi th its principal office in Salt Lake Gi ty, Utah, hereinafter
referred to as "Sellerll;
WITNESSETH:
0.2 WHEREAS, Buyer has constructed and is operating an
electric furnace plant with certain auxiliary equipment) for
the production of elemental phosphorus at a site approximately
7 miles from Seller's Soda generating plant in Caribou County,
Idaho; and
0.3 WHEREAS, Seller and Buyer have entered into an agreement
dated April 30) 1951, which agreement is hereinafter called
the "1951 Contract ", whereby Seller agreed to supply Buyer's
requirements of firm power and power which is subject to interruption
at Sel.ler's request during certain periods and under certain
condi tions; and
o .4 WHEREAS, Buyer proposes to ins tall and operate at
its plant near Soda Springs, Idaho, additional electric furnace
,~
.
.-
.
-2-
capaci ty, ~~d desires to purchase approximately 70,000 kw of
addi tional power; and
0.5 WHEREAS, Seller in cooperation with Idaho Power Company,
hereinafter referred to as "Idaho Company", is able and willing'
to supply 70,000 kw of increased electric power requirements
of Buyer on an interruptible basis under the conditions hereinafter
set forth in paragraphs 5.3 and 5.4 hereof; and
o .6 NOW, THEREFORE" in consideration of the mutual and.
dependent stipulations and covenants herein contained, it is
agreed by and between the' parties hereto as follows:
ARTICLE I
TERM OF AGREEMENT
1.1 This Agreement shall become effective on the date
of execution and shall continue for an initial term of ten years,
which term shall begin on the date that power hereunder is required
as specified by Buyer, but not earlier than January 1, 1966"
nor later than January 1" 1967. Upon written notice from Buyer
to Seller, to be given not later than two' years before expiration
of the initial term, this Agreement may be extended for a succeeding
term of ten years ~
1.2 Nothing contained in this Agreement shall be construed
as modifying the terms and conditions of the 1951 Contract"
as presently modified including the modification in the letter
Agreement dated November 6, 1964, except (a) that paragraph
4.2 of this Agreement provides that one demand meter shall be
used to measure the Actual, Demand for billing under this Agreement
..
"',
Approved per Corrssion
Order No. 20605
4/8/86
.&~b""POwi SEVICE AGJUTMy a J. - alters BETWENCommission Secretary UTAH POWER . LIGHT COMPANY
AN
MONSANTO COMPANY
0.1 THIS AGRENT, made this 9 fh day of April, 1986, by and
between MONSANTO COMPANY, . a Delaware corporation with its General
Office at St. Louis County, Missouri, hereinafter referred to as "Buyer,"
and UTAH POWER . LIGHT COMPANY, a Utah corporation with its
principal office in Salt Lake City, Utah, hereinafter referred to as "Sell-
er" ;
.'
WITNESSETH:
0.2 WHERES, Buyer has constructed and is operating an electric
furnace plant with certain auxliary equipment, for the production of
elemental phosphorus at a site near Soda Springs City in Caribou County,
Idaho; and
0.3 WHERES, Seller and Buyer have entered into an Agreement
dated April 30, 1951, which was modified by Amendatory Agreement dated
November 1, 1982, and which has been extended by Amendatory Agreement
dated March 27, 1984, untn& 31, 1989and is hereinafter caled the'
"1951 Contract" whereby Seller agreed to supply Buyer's requirements of
9,000 kW of firm power and 84,000 kW of power which is subject to
interruption at SeUer's request during certain periods and under certai
conditions which load is hereinafter caled the "First Furnace Block" and
the "Second Furnace Block; and
0.4 WHEREAS, Seller and Buyer have entered into an Agreement
dated January 22, 1965, which agreement is hereinafter called the "1965
Contract, II whereby Seller agreed to supply Buyer's requirements of
70,000 kW of power which is subje~t to interruption at Seller's request
during certain periods and under certain conditions which load is hereinaf-
ter caled the "1965 Blockll; and
o .5 WHEREAS, the 1965 Contract has expired but has been extended
pursuant to the conditions of the Letter Agreements dated March 17, 1986,
March 26, 1986 and April 3 through April 16, 1986; and.
4/8/86
.0.6 WHEREAS, Buyer and Seller desire to extend the supply of
Interruptible Power and Energy as provided in the 1965 Contr'act; and
o .7 WHERES, Buyer represents that, due to current market condi-
tions, it cannot continue its level of operation at the 1965 Contract rates,
o .8 NOW. THEREFORE, in consideration of the mutual and dependent
stipulations and covenants herein contained, it is agreed by and between
the parties hereto as follows:
ARTICLE I
DEFINITIONS
1.1 Capitalized terms as used in this Power Supply Agreement shal
have the meanings set forth in Appendix "A" hereto.
.'
ARTICLE ß
TERM OF AGREMENT
2.1 This Agreement shall become effective upon execution by both
parties hereto, subject to approval of the Idaho Public Utilties Commis-
sion, and shall continue until either party, by written notice to the other
signifies its desire to cancel and terminate this Agreement. Such written
notice shall be given no earlier than April L. 1989, and shall be at least
two (2) years in advance of the date said termination is to be effective.
2.2 Nothing contained in this Agreement shall be construed as modi-
fying the terms and conditions of the 1951 Contract, as presently modified
(including the Letter Agreement dated November 6, 1964, the Amendatory
Agreement dated November 1, 1982, and the Letter Agreement dated
March 27, 1984) except (a) that Paragraph 10.2 of this Agreement provides
that one demand meter shall be used to determine the Measured Demand for
billig under this Agreement and the 1951 Contract, (b) that Paragraph
10.2 of this Agreement provides the method of allocating Measured Demand
and total energy between the 1951 Contract and this Agreement, and (c)
that Appendix fiB" to this Agreement provides for payment of charges for
all Average Kilovars, as defined in Appendix "A" of this Agreement, taken
under the 1951 Contract and this Agreement..
-2-
.
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'1'3/20/87
POWER SERVICE AGREEMET
BETWEEN
UTAH POWER I; LIGHT COMPANY
AND
MONSANTO COMPANY
0.1 THIS AGREEMENT, effective April 1, 1987, by and between
MONSANTO COMPANY, a Delaware corporation with its General Office at
St. Louis County, Missouri, hereinafter referred to as "Buyer," and UTAH
POWER I; LIGHT COMPANY, a Utah corporation with its principal office in
Salt Lake City, Utah, hereinafter referred to as "Seller";
WITNESSETH:
o .2 WimREAS, Buyer has constructed and is operating an electric
furnace plant with certain auxiliary equipment, for the production of
elemental phosphorus at a site near Soda Springs City in Caribou County,
Idaho; and
0.3 WHEREAS, Seller and Buyer have entered into an Agreement
dated April 9, 1986, which Agreement is hereinafter caled the "1986
Contract," whereby Seller agreed to supply Buyer's requirements of
70,000 kW of power which is subject to interruption at Seller's request
. during certain periods and under certain conditions which load is hereinaf-
ter called the "1965 Block"; and
0.4 WHEREAS, Seller and Buyer have entered into an Agreement
dated April 30, 1951, hereinafter called the "1951 Contract," which was
modified by Amendatory Agreements dated January 22, 1965; January 22,
1973; and November 1, 1982; whereby Seller agreed to supply Buyer's
requirements of 9,000 kW of firm power and 84,000 kW of power which was
subject to interruption at Seller's request during certain periods and
under certain conditions; and
0.5 WHEREAS, the 1951 Contract has been extended by Letter
Agreement dated March 27, 1984, until May 31, 1989, and Buyer and Seller
desire to enter into a new agreement prior to expiration of the Letter
Agreement to replace the 1951 Contract and extend the supply of 9,000 kW
of firm .power and 84,000 kW of power which is subject to interruption at
Serler's request during certain periods and under certain conditions for
3/20/87..,.
.the loads associated with the "First Furnace Block" and the "Second Fur-
nace Block" as hereinafter described in Paragraph 10.2; and
0.6 WHEREAS, Buyer represents that it is not commercially feasible
to continue its level of operation long-term at the 1951 Contract rates
under current market conditions; and
0.7 WHEREAS, Seller and Buyer represent that entering into this
Agreement, prior to expiration of the 1951 Contract as modified and
extended, is mutually beneficial to both parties as it will mitigate the
annual revenue impact associated with the amended expiration of the 1951
Contract;
0.8 NOW. THEREFORE, in consideration of the mutual and dependent
stipulations and covenants herein contained, it is agreed by and between
the parties hereto as follows:
.-
ARTICLE I
DEFINITIONS
1.1 Capitalized terms as used in this Power Supply Agreement shall
have the meanings set forth in Appendix "A" hereto.
.
ARTICLE II
TERM OF AGREEMENT
2.1 This Agreement shall become effective April 1, 1987, upon
execution by both parties hereto, subject to approval of the Idaho Public
Utilities Commission, and shall continue through June 30, 1993. This
Agreement may be extended by Seller to Buyer for additional two-year
increments at Seller's sole option and written notification of such
acceptance by Seller, upon Buyer's written request for each increment two
years in advance of the date said termination is effective.
2.2 Nothing contained in this Agreement shal be construed as modi-
fying the terms and conditions of the 1986 Contract, except (a) that the
contract terms contained in Paragraph 2. i shall be amended to read, "The
1986 Contract shall continue through June 30, 1992. The 1986 Contract
may be extended by Seller to Buyer for additional two year increments at
Seller's sole option and written notification of such acceptance by Seller,
upon Buyer's written request for each increment two years in advance of
the date said termination is effective.", (b) that Paragraph 10.2 of this
-2-
, f
. .~
..RECEIVED
zuni OCT 26 AM 10= 52
IDAHOPUBUC
UnUTIES COMMISSION
BEFORE THE IDAHO PUBLIC UTILITIES COMMSSION
IN THE MATTER OF THE )
APPLICATION OF ROCKY )
MOUNTAI POWER FOR APPROVAL' )'
OF CHANGES TO"ITS ELECTRIC )SERVICE SCHEDULES )
CASE NO. PAC-E-07-05 '
Rebuttal Testimony
of Gregory N. Duvall
.
ROCKY MOUNTAIN POWER
CASE NO. PAC-E-07-05
October 2007
.
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i Q.
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Please state your name, business address and present position with the
Company (also referred to as Rocky Mountain Power).
My nae is Gregory N. DuvalL. My business address is 825 NE Multnomah, Suite
. 600, Portland, Oregon, 97232. My present position is Director, Integrated
Resoure Planng and Regulatory Strategy.
How long have you been in your present position?
I have been in my present position since December 2005.
Please describe your education and business experience.
I received a degree in Mathematics from the University of Washington in 1976
and a Masers of Business Admnistrtion from the University of Portland in
1979. I was first employed by Pacific Power in 1976 and have held varous
positions in resoure and transmission plang, regulation, resource acquisitions
and trading. From 1997 though 2000 I lived in Australia where I maned the
Energy Trading Departent for Powercor, a PacifCorp subsidiar at that time.
15 . Afer retug to Portland, I wa involved in diect access issues in Oregon, was
16 responsible for directing the analytca effort for the Multi-State Process ("MSP"),
17 and curently diect the work of the integrted resource plang group, the load
18 forecasting group, and the market assessment group in PacifiCorp Energy. Both
19 Rocky Mounta Power and PacifiCorp Energy are divisions ofPacifiCorp (the
20 "Company").
21 Purose and Summary of-Testimony
22 Q.
23 A.
What is the purpose of your testimony?
The purose of my testimony is to respond to issues raised in the pre-fied direct
Duvall, Di-Reb - 1 .
Rocky Mounta Power
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testiony of the Commission Sta and the Idao Irgaton' Pupers Association
("IIPA") regarding the Compay's irrgation load control progr in Idao.
Specifically, I will address the proper inter-jursdctional allocation treatment of
program costs and the appropnate value of incentives paid to irrgation cusomers
in exchage for parcipation in ths progr. I am adoptig the Supplementa
Testiony of Company Witness Mr. Mark T. Widmer on issues relating to the
irgation load control program.
Please summarie your testimony.
. My testimony establishes the followig:
Inter-jurisdictional Cost Alocation
. Situ assignment of the irgation load control progra credit is required
under the Revised Protocol.
. Situ assignent provides over $1 milion in reduced revenue requirement to
Idaho.
. . Stafs claim tht the Revised Protocol did not address Class 1 DSM load
control based on "loosely defied" language is incorrect and has no basis.
. The Idaho irgation load control progr is signficatly different th the
Monsanto contract in tht it does not provide ancilar servces, it is not
contractuly as fi, it is not separtely metered and it is integrated into the
loca Idaho distribution system.
. The proposal of Mr. Bryan Lanpe and Mr. Anthony Yanel to alocate the
Idao irrgation crt syste-wide double counts the benefits of the
interrptions and is inconsistent with the treatment of
Monsto in that it does
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1 not adjust loads as if the curlment ha not taen place. In addition, it is
2 ínconsistent as it does not propose the same trtment for Class 1 DSM
3 program ín other sttes.
4 Product Valuation
5 . The curnt value asribed to the scheduled firm irigation load contrl
6 program is $27 per kiowatt-yea which is ínclusive of a customer incentive of
7 $11.19 per kilowatt-year.
8 . The recently completed potential study conducted by Quantec identified
9 demand-side resource availabilty, tye, location and cost The report did not
10 determine avoided cost as alleged by Mr. YaneL.
11 . Mr. Yanel's contention that the Quantec study identified $98 per kilowatt-
12 yea as the avoided cost for the Idao irrigation load control program is a
13 gross misrepresentation of the report.
14 . The $98 per kilowatt-year value was used by Quatec as a screenig
15 mechansm to determe demad-side resource availabilty, tye, location, and
16 cost, and was never íntended to represent an avoided cost for Idaho irrgation
17 load control.
18 Recommendations
19 Q.What is the Company's recommendation regarding the inter-jurisdictional
20 allocation of the irrigation load control progrm credit?
21 A.The Company recommends that the Commssion continue situ assignment of the
22 irrgation load control program credit as dictated by the Revised Protocol. To
23 respond to the change in alocation approaches suggested by Sta and lIP A, the
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I 1 Company recommends that the Commssion order the pares to tae ths issue to
2 the Multi-State Process Stading Commttee. A more thorough description and
3 the rationae for my recommendations ar provided below.
4 Q.What is the Company's recommendation regarding the level of the irrigation
5 load control program credit?
6 A.The Company recommends that the Commssion not adjust the credit at $11.19
7 per kilowatt-year for the scheduled :f product (Schedule 72) in this rate case.
8 Moreover, any change made to the price would need to be reflected in the
9 Company's revenue requirment in ths case. The Company expects to continue
10 the scheduled firm product as well as the dispatchable program launched in 2007.
11 The Company will make a separte fiing with the Commission before the end of
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2007 to determine the load control incentive credit level and operatig critena for
both products in the 2008 season. A more thorough description and the rationale
14 for my recommendations are provided below.
15 Inter-Jurisdictional Cost Alocation
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23.
Please describe the irrgation load control demand side management
program offered by the Company in Idaho.
Since 2003 the Company ha offered an optiona irrigation load control program,
Schedule 72, which allows customers to agee to restrct, though the use of
tiers, the use of electrcity during peak hour in exchange for a dollar credit on
their bil. Under ths program load contrl is scheduled in advance for the enti
irgation season and executed automaticaly according to the prescribed schedule.
In 2007, the Company launched a pilot program utlizig new technology that
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alows the Company to control parcipatig load on a day-ahead basis, subject to
cert constrnts. The pilot progr was for the 2007 irrgaton seasn, and the
results of its operation are curently being analyz. A reort of the pilot
progra's outcome and plan regarding the program's expected operation in 2008
will be provided to the Commission later ths year.
Do you agree with the proposal advocated by Staff
witness Mr. Lanspery and
I1PA witness Mr. Yankel that the incentive credits paid to irrigation
customers who partcipate in the load control demand side management
program should be system allocated?
No. Their proposals violate the Revised protocol and double count the benefits of
the load control incentive credit. Both witnesses claim that the payments made to
Idaho irrgation customers as an incentive to paricipate in the load control
demand side management program should be allocated system wide and paid for
by customers in all of the Company's jursdictions. Yet neither witness adds the
irrgation loads back into the inter-jursdictional allocation factors, thereby
enjoying the benefit of a lower allocation of system costs, and only paying a
fraction of the incentive credit. Situ treatment of the load control incentive credit
is requied under the Revised Protocol allocation methodology approved and
implemented by ths Commission, and provides a reasonable matching of
the cost
and benefits. related to load management with a parcular state. In~eed, Mr.
Yanel acknowledges at pages 6 and 7 of his testimony tht his proposal reuires
the Commssion to "ignore" the Revised Protocol:
"I recommend tht for puroses of this case that this porton of the
Revised Protocol be ignore and a more appropriate "system" treatment of
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these cost be utilized. Over the long-term, ths defect in the Revised
Protocol should be corrcted, such tht it reflects the treatment of
the
benefit of the Irrgation Load Culment program in a maer similar to
the treatment of the benefit of the Monsto interrptible program."
On Page 7 of his testimony, Mr. Vankel states that the Revised Protocol has
never been used to establish rates in Idaho. Is this true?
No. The Company has now fied thee rate adjustments since the Commission
approved the Revised Protocol. Case No. PAC-E-05-01, a general rate case filed
by the Company in Janua 2005, .was settled by way of a stipulation approved by
the Commission in Order No. 29833. All pares signig the settlement
agreement, including the Commssion Sta and LIP A, stipulated that the Revised
Protocol was then implemented for settg rates in Idao. In each of
these cases,
the Company's filing allocated the irgation load control program on a situs
basis-without objection from any par.
What faciltated the introduction of Idaho's current irrigation load
management program?
Two factors led to the development of the Company's program: opportity and a
Company commitment implemented though a Commssion order. The
opportty is created 'by Idaho having the greatest irgation energy requirements
of any of the six state terrtories served by PacifiCorp, which is approximately 18
percent of all the energy consumed in Idao. The vas majonty of the energy
consumed by irgators occurs withn a six month penod each year with the
greatest system impacts occuring in July and August. The tiing and magntude
of the irrgation loads present the opportty for acquisition of a demand-side
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mangement ofIdah irgation loads though working with irrgators to reduce
their contrbution to system and local peak load, shig a porton of their
demand to non-pea hours. As a result, costs are reduce reflectig more
effcient use of resources and potential reduction in distrbution investment
Mr. Lanspery states that Idaho's irrgation load management program does
not fall into the definition of Demand Side Management in the Revised
Protocol. Do you agree?
No. As one of the Company's lead parcipants in the Multi-State Process (the
"MSP") and the Revised Protocolt I strongly disagee with Mr. Lanspery's
conclusion. In the context of the MSP discussions and the Revised Protocol
document, all classes ofDSM were considered to be State Resources. One only
needs to look at the Company's integrated resource plans or the Quantec potential
study to understd what is consider to be DSM by the Company and its
staeholders. Class 1 DSM is fuly dispatchable or scheduled firm load control
programs, Class 2 is non-dispatchable, firm energy effciency progrs, Class 3 is
pnce responsive program, and Class 4 is customer education progras. They all
fall under the category of Demad-Side Management Programs in the Revised
ProtocOl and are therefore considered State Resources and their costs are assigned
situs.
The sole basis of Mr. Lapery's claim that load control programt
referred to as Class 1 DSMt are not DSM under the Revised protocol is that DSM
program are "loosely defined" in the Revised Protocol. The exact wording
contained in Appendix A of the Revised Protocol is:
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"Demand-Side Management Programs" meas programs intended to
improve the effciency of electrcity use by PacifiCorp's retal customers.
Without any bass, Mr. Lanspery suggest that some programs like "See ya later
refrgerator" fit ths defiition, while others, such as the Idaho load control
program, do not. He gives no explantion for his clai, other than "loosely
defined" language. Rather th calling it "loose" lange, I would chaacterize
it as a defition tht is broad enough to captue all four classes of DSM. For
example, load control improves the effciency of electrcity used by PacifiCorp's
retal customers at a system leveL. The most ineffcient resources ru at times of
highest load. By shing load away from peak times, effciency is improved.
Is there additional support for situs allocation of the irrigation load control
program under the Revised Protocol?
Yes. First, the understading of what constitutes DSM under the Revised
Protocol is evidenced by the treatment of Class 1 DSM under the Revised
Protocol by other states: al assign it situ. Additionally, the MSP studies
reflected situs treatment of Class i DSM progr costs. Lastly, MSP legislative
history indicates a clear policy decision to maita situs assignent of
the costs
of all DSM progras on the basis tht ''te benefits from these programs, in the
form of reduce consumption, (would be) reflected though time in each State's
Load-Basd Dynamc Allocation Factors."
Is thi irrigation program fundamentally the same as the Company's
agreement to purchase ancilary services from Monsanto?
No. Unlike the Monsanto contract, the irrgation load control program falls
outside of the definition of "Speial Contrct with Ancilar Services," described
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in Appendices A and D of the Revised Protocl, for severa reasons. First unike
Monsato, the irrgation program does not provide the Company
with any
ancilar servces and is not available thughout the entie yea. As descrbed in
deta by Company witness Mr. Paul H. Clements,
the Company purhases thee
tyes of products from Monsato: economic curlment, operating reserves, and
system integrty. All are provided to the Company puruant to the tenn of a
negotiated contract over a specified number of years and provide .the Company
the option of curtilng Monsanto load for economic or operational reasons
thoughout the year, not just durng the irgation season. Otherwse, Monsanto is
a high load factor customer tang service at transmission level voltage whose
load does not pose signcat operationa chaenges to the Company's
distrbution system.
Second, irrigation load control, unike Monsanto, is not a contractuly
finn resource that can be counted on for multiple years or even one irrgation
season. The purose of the irgation load control program is to manage a
significat sumer peak load by shifting usage away from on-peak periods.
Parcipation in the program is determned not by a negotiated contract, but by
each iiidividual customer electig to pacipate at the beginnng of each irrgation
season under a taiffed offer with no commtment for pacipating in any
subsequent irrgation season. Furennore, if any customer elects to remove
themselves from parcipation during the irrgation season, 'they may do so with
no other penalty other than reimbursing the Company for costs associated with
parcipaton in the progra, not including replacement power.
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Thd, irgation load control, unike Monsanto, is not separtely metered.
Ths makes it diffcult to be as precise in valuig the irgation load control
discount as it is for Monsanto.
Finally, irrgation load control, unike Monsanto, has the potential to avoid
local distrbution cost tht are assigned directy to the state ofIdao. This
provides one example of a basis to situs assign the costs of the program which is
not the cae for Monsanto.
When the Commission initially approved the irgation load control
progra, it expressly recogni that it was a DSM program, not a purchase
contract. See Commission Order No. 29034 (Te Company's irgation load
control program "is essentially a tie-of-use proposal and not a curent or
buy-out proposal.")
Is it true that the cost of the progrm outweighs any benefits received in
Idaho based on reduced load as purported by Mr. Yankel on pages 6 and 7 of
his testimony?
No. If all impacts of ths program are removed from ths case, the Idaho revenue
requirement would increase over $1 milion. To properly remove the program
from ths case, the cost for incentives must be removed and the peak demand used
for jursdictional allocation must be adjusted (increased) to remove the effects of
shifted load, increasing the total embedded costs alocated to Idaho.
The same load adjustment is requied if the Idaho irrgation load control
program is to be treated similar to the negotiated contract between the Compay
and Monsanto, Le. systm allocated. System alocation of the Idao irgation
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load control program would also increase Idaho revenue requiement over $1
milion.
If the Commission concludes the incentie costs should be system allocated,
does the Company agree with the adjustments proposed by Mr. Lanspery
and Mr. Yankel?
No. Their arguents indicate tht system treatment would be mented because the
product is similar to Monsanto's curlment, and that it should be similarly
system allocated. However; while Mr. Yanel admits the cost of servce loads
. should be increased to reflect the irigators as having been served as full
requirements customers, both he and Mr. Lanspery neglect to increase the peak
load used for inter-jursdictiona cost allocation puroses. Coiisistent with the
Revised Protocol allocation methodology, because the Company's purchae of
Monsanto curilment is system-alocated, Monsanto's load is adjusted for both
jursdictional and class cost allocation as if
the curlment had not taen place.
With the adjustment to allocation factors as described above, would the
Company agree to the adjustments proposed by Mr. Lanspery and Mr.
Yankel?
No. Ifload control programs (DSM Class 1) are deemed to be system resources,
then all sttes' programs should be treated consistntly and be system allocated.
Neither Mr. Lanpery nor Mr. Yanel made ths adjustient. Cuently the
Company offers both a Cool Keeper ai conditioning load control program and
irgation load contrl program in Uta. The Utah Commssion interprets DSM
Class 1 load control progr as State Resources under the Revised Protocol and
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.1 assigns all costs and incentives of the Uta Cool Keeer and irgation load
2 control progrs situs to the state of Uta. In addition, the cost of any futue
3 programs implemented in other states would necessarly be systm allocated and
4 paraly charged to Idaho ratepayers.
5 Q.
6 A.
Are there other possible consequences if these costs are system-allocated?
Yes. The Company believes these proposals are a deviation from the Revised
7 Protocol and believes other states would agree with the Company. This would
8 likely raise questions about the allocation of all DSM, since arguably if Class 1
9 DSM is allocated as a system resource, then argubly all DSM should likewise be
10 allocated as a system resource. If deviation from the approved methodology is
11 needed, the issue is appropnately addressed in commttes estblished for just ths.12 purose. Ms. Carlock mentions that other issues afecting sttes and cost
13 allocation are curently under consideration at the MSP Standig Commttee and
14 workgroup. To respond to the allocation issues raised by Staf and the LIP A, the
15 Company recommends that the Commssion order the paries to tae ths issue to
16 the Multi-State Process Stading Committee.
17 Product Valuation
18 Q.
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What is the cost of the Idaho irrigation load control program?
The tota cost of providing the irrgation load control program varies year to yea
depending on parcipation, dispatch option selected, field and equipment costs.
The average tota cost for the 2006 scheduled fi progra wa approxitely
$27 per kilowatt-year, including al operational and adminstrative costs and an
$ 1 1.19 per kilowatt-year credt to pacipating customers. Becuse ths genera
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rate case is based on a historica test year, the credt to be recvered in rates is
bas on the scheduled finn program costs from calendar year 2006 and is set at
$11.19 per kilowatt-year.
What's the value of the program to PacifiCorp?
The value that can best be ascribed to the scheduled firm program basd on
curent modeling available is $27 per kilowatt-year. The historical program cost
of $27 per kilowatt-year (incentive and delivery costs inclusive) was modeled
within the 2007 IRP agaist supply-side alternatives and was selected at this cost
. as a least cost alternative within the IRP base case economics.
Is there a difference in value to the Company between the traditional
scheduled firm produçt and the new dispatchable product?
It is possible tht there is; however, the Company has not yet finalize its analysis
tht provides a value estimate for the pilot dispatchable program. As I wil
describe later in my testionYt generic DSM programs with varing
characterstics and cost strctues have been analyzed using the Company's IRP
models. A fuly dispatchable sumer product that had costs higher th those of
the Company's curent scheduled firm program was accepted by the Company's
IR models.
UnfortatelYt none of the modeled generic programs had the same
chaacteristics and constraits as the Company's new dispatchable program and
as a result, the values derived from the studies canot be directly ascribed to the
Company's program. In addition, the dispatchable program has higher intial
operationa and admistrve costs th the scheduled fi program due mainly
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1 to the change over of required equipment. The Company is commtted to faily
2 valuing ths progra and is working to incorporate the results of the 2007 pilot
3 progra into a study that will allow the Compay, lI A, and ths Commssion to
4 anyze the value of th program and set a price for the 2008 irrigation season.
5 Q.Is Mr. Yankel correct that the recently released DSM potential assessment,
6 developed by Quantec, indicates that capacity-focused programs on the east
7 side ofPacifiCorp's system would be cost effective ifthey cost less thaD $98
8 per kilowatt-year?
9 A.No. Mr. Yane 1 misrepresents the numbers from the Qutec potential
10 assessment study in his testiony. The Quatec study did not determine an
11 avoided cost for DSM progrs. The $98 per kilowatt-year value referenced in.12 the study was a gross estimate for the purose of an initial screen for Class 1
13 DSM programs, such that progrs that exceeded that amount would not be
14 considered any fuer. It ha no implication as to the value of the Idaho
15 irrgation load control program. The analysis was designed to have vially no
16 chance of constraig what might be còst-effective in the study's results ahead of
17 the modeling of the products in PacifCorp's next integrated resource plan update
18 or planng process. Furer evidence of this fàct is that the $98 per kilowatt-year
19 value was used to screen all Class 1 DSM programs, regardless of their hours of
20 availabilty, firmess, dispatch characteristics, size, and contrctu fiess.
21 Q.How was the $98 per kiowatt-year value derived?
22 A.Durg the 2007 integrated resour planing process, PacifiCorp had limited
23 information on demand-side manement resource potentials and cost from.Duvall, Di-Reb - 15
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which to derve comprehensive supply cures for demand-side resources. To
address ths inormation gap while the demand-side potential assessment wa
being completed, PacifiCorp commssioned Quantec to develop a generc sample
set of capacity progr potentials and their cost for the purose of modeling
them in a comparble maner to supply-side resources. The modeling of
these
generc sample resources and the results were the basis for arving at the $98 per
kilowatt-yea screeni values.
What generic sample capàcity resource programs were modeled in the 2007
. plan?
Five Class 1 generic sample load management products were modeled with the
2007 integrated resource plan. The generic sample products had varing dispatch
characteristics, hour of availabilty, assued costs, and they vared in size. The
intent was to create specific supply cure data for each generic sample product
between control areas (eas or west) and under different economic assumptions
regarding electrcity prices. The five generic sample products modeled in the east
were:
. A fuly dispatchable witer product that could be dispatched with 10
minutes. or less and was available up to 87 hours aiualy. Progr
costs ranged from $57-$83 per kilowatt-year.
. A fuly dispatchable suier product dispatchable withn 10 miutes
or less and available up to 87 hours each seaon. Program costs
ranged from $52-$71 per kilowatt-yea.
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. A fuy dispatchable large commercial and indusial customer sumer
product dispatchable with 10 minutes or less and avaiable up to 87
hours each season. Program costs raged from $82-$159 pe kilowatt-
year.
. A scheduled firm irrgation product (no dispatch capabilties) available
336 hours each season. Progr cost ranged from $27 to $36 per
kilowatt-year.
. A scheduled firm product (no dispatch capabilties) avaiable 1,437
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hour each season. Program costs ranged from $115 to $1 i 8 per
kilowatt-year (thermal energy storage).
For modeling puroses, each of these generic sample products were assumed to
be available on a fi basis over the entie plang horizon.
What generic sample resources were selected under the base case within the
2007 integrated resource plan modeling?
In the east under the base ca assumptions the model acepted the fuly
dispatchable sumer product at an assumed cost of $71 per kiowatt-yea, the
fuly dispatchable commercial and industral product at an assumed cost of $82
per kilowatt-year, and the scheduled fi irgation product at an assumed cost of
$27 per kilowatt-year.
Does the dispatchable irgation program provide the same value to the
Company as the dispatchable air conditioning program selected in the IR?
No. It has less value to the Company since it offers fewer hours of interrption
and requies a full days notice rather than the 10 miute notice requir under the
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ai conditioning progr and therefore ca not be used to provide non-spinng
reserves.
You said that scheduled fim irrgation programs with costs ranging from
$27 to $36 per kiowatt-year were made available to the model, but only the
$27 per kilowatt-year programs were selected?
That is correct. The higher cost scheduled fi irrgation programs were not
selected in the high demand-side potential scenaro under which it wa modeled;
however, the $36 per kilowatt-year cost was't modeled with the base case set
. of assumptions which were used in the development of
the preferred portfolio.
How were these results used to arre at the $98 per kilowatt value?
The Company factored in the results of the modelig selections to arve at the
proxy value of $98 per kiowatt-year as the preliminar economic screen withn
the study. The eas side load magement resources with cert dispatch
charcteristics and hours òf availabilty were. accepted by the model in the base
case at a price of $82 per kilowatt-yea (sumer focused commercial and
industral dispatehable product) but the next highest price product (sumer
focused thermal energy storage) was rejected at a price of$117 per kiowatt-year.
Ignoring the differences in dispatch characteristics and hours of availabilty, and
not having specific values for the products identified in the potential study, the
Company averaed the $82 and $1 i 7 to come up with the $98 per kilowatt-year. .
Based on the understading of how the $98 per kilowatt-year was derived and
what it was intended to be usd for, it should be clear that Mr. Yanel's
chacterzation of the $98 per kilowatt-year as the Company's avoided cost for
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.1 Idaho irgation load control, or any other resource, is simply incorrct.
2 Q.Are any of the values 'cited in the Quantec potential study applicable for
3 . purposes of determining the amount of credit that should be provided to
4 customers under the Idaho irrigation load control progrm?
.-5 A.No. As mentioned above, the values determined by using the integrted resource
6 planing models were based on generic sample resources, and were intended for
7 use in screenig and planin.. Even if one were to assume that the resource
8 acquired under the Idaho irrgation load control were finn over the entire 20-year
9 planing horizon, the highest value that could be ascribed to the program is $27
10 per kilowatt-year based on tle IRP studies. None of the other costs cited in the
11 Quatec study or in the Company's IR are applicable to the Idaho irgation load
12 control program..13 Q.Was the purpose of the Quantec potential study to determine the avoided
14 cost of DSM programs?
15 A.No. Mr. Yanel has quoted the primar goal of the Quatec stuy on page 21 of
16 his testimony. The goal of the study was to provide data to the Company on the
17 magnitude, tig and cost of DSM resources, inclusive of Class 1, Class 2, Class
18 3 and Class 4. Nowhere does Quimte stte that one of
their goals is to determine
19 the avoided cost of DSM programs, nor were they asked to do so.
20 Q.Mr. Yankel bases much of his analysis on the comparison of the level of
21 program incenties and the size of the DP A credit passed on to the
22 Company's irrigation customers. Is this comparion approprite?
23 A..
No. The outcome of the BPA credt issue is uncertn. As desribed by Company.Duvall, Di-Reb - 19
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