20020718Exhibits 201-208.pdf

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Page
- -
:~ JJames F. Fell
STOEL RIVES
900 SW Fifth Ave., Suite 2300Portland, OR 97204-1268Telephone: [phone]Fax No. : [phone]
- .. ()
r..., ,. -:J j', i L '-.
, . . ,.. ," "
. h
" ,.
Attorneys for PacifiCorp dba Utah
Power & Light Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
In the Matter of the Application
of PacifiCorp, dba Utah Power &
Light Company for Approval of an
Electric Service Contract with
Monsanto Company.
CASE NO. UPL-E-95-
APPLICATION OF PACIFICORP
This Application is filed by PacifiCorp dba Utah
Power & Light Company (Utah Power or the Company) for approval
of a Power Supply Agreement with Monsanto Company (Monsanto)
dated November 1, 1995 (New Agreement) .The New Agreement
replaces a Power Supply Agreement with Monsanto dated July
1991 (Existing Agreement) .
Utah Power is a public utility doing business in the
state of Idaho and subj ect to the jurisdiction of the Idaho
Public Utilities Commission (Commission).
Monsanto is a Delaware corporation qualified to do
business in the state of Idaho.Monsanto operates an elemental
phosphorus plant near the City of Soda Springs in Caribou
County, Idaho.The electric power requirements of the plant
have been supplied by Utah Power since 1952.
1 -APPLICATION OF PACIFICORP PDX3-127247
STOEL RIVES
TTO"'" ,
900 SW FIFTH AVENUE. SUITE 2300 PORTLAND. OREGON 97204.1268
- . '" .-_.
Page
Communications regarding this Application should be
addressed to:
Rodger Weaver
PACIFICORP
825 NE Multnomah, Suite 625Portland, OR 97232Telephone: [phone]Fax: [phone]
James F. Fell
STOEL RIVES
900 SW Fifth Ave., Suite 2300Portland, OR 97204-1268Telephone: [phone]Fax No. : [phone]
Attached to this Application are a copy of the New
Agreement between Monsanto and Utah Power and a Technical
Assessment Package that describes in greater detail the terms
and conditions of the New Agreement, the alternatives available
to Monsanto, and the benefits of the New Agreement to Utah
Power I s other customers.
The Existing Agreement governing electric service to
Monsanto's Soda Springs plant was effective July 1, 1992, and
continues for a five~year period ending June 30, 1997.
provides for 9 megawatts of firm demand, 154 megawatts of
interruptible demand, excess interruptible demand above 163
megawatts, and all associated energy.The Existing Contract
includes four price increases over the five-year term, with one
increase remaining to take effect on July 1, 1996.
Utah Power and Monsanto initiated discussions of a
new power supply agreement in response to recent changes in
2 -APPLICATION OF PACIFICORP PDX3-127247
SrOEL RIVES
ATTORSEYS
900 SW FIFTH AVENUE, SUITE 2300 PORTLAND. OREGON 97204-1268
--...",
electric power markets.Wholesale prices in the western United
States have declined significantly due to excess supplies and
increasing competition.At the same time, the interruptible
power rates under Monsanto I s Existing Agreement with Utah Power
have increased 21 percent since 1991 and are scheduled to
increase another 4 percent on July 1, 1996.
Utah Power has determined that Monsanto has viable
alternatives to continuing its current level of electricity
purchases.First, Monsanto could shift its electricity
purchases to the Soda Springs Municipal Ele~tric Light & Power
Department (Soda Springs Municipal), displacing all of its
purchases from Utah Power.Soda Springs Municipal could
purchase power at current wholesale prices from any of the many
utilities and power marketers active in the wholesale power
market.This power could be resold to Monsanto with a small
service charge or mark-up to cover Soda Springs . Municipal'
costs.
Second, Monsanto could displace much of its elemental
phosphorus production at Soda Springs with a product produced
from a purified wet acid (PWA) chemical process.Plants
incorporating PWA technology have been built in the
southeastern United States and in other countries, and Monsanto
is a maj or partner in an operating PWA plant in Brazil.Utah
Power has determined that all but approximately 45 megawatts of
Monsanto's electrical load could be displaced in this fashion.
Page
3 -APPLICATION OF PACIFICORP PDX3-127247
STOEL RIVES
ATTO'NEYS
900 SW FIFTH AVENUE. St:ITE 2300 PORTLAND. OREGON 97204-1268
- - --. ---
Page
The New Agreement for service to Monsanto's plant
replaces and extends the Existing Agreement.The New
Agreement, which is subj ect to the Commission I s approval, is
effective from November 1, 1995 until December 31, 2001.
will continue from year to year thereafter subj ect to one
year's notice of termination.
Under the New Agreement, Utah Power will supply Monsanto
with 9 megawatts of firm power and up to 206- megawatts
interruptible power.Utah Power may interrupt or curtail
service to Monsanto at any time to maintain its system
integri ty
Monsanto will pay Utah Power $30 million for the early
termination of the Existing Agreement, a monthly minimum charge
of $66,600, and 1.85 cents per kilowatt-hour for all energy
delivered.The schedule for payment of the $30 million varies
depending on when the Commission approves the New Agreement.
If the Commission approves the New Agreement on or before
December 14, 1995, Monsanto is required to pay the full $30
million on December 28, 1995.Otherwise, Monsanto must pay
Utah Power $7.5 million on December 28, 1995 and the remaining
$22.5 million wi thin 10 days after the Commission I s approval.
The New Agreement provides substantial benefits to
Utah Power's other customers.Monsanto is the Company I s single
largest customer, contributing over 28 percent of all retail
revenues from all customer classes in Idaho.Revenues from
Monsanto contribute to Utah Power's recovery of fixed costs,
4 -APPLICATION OF PACIFICORP PDX3-l27247
SrOEL RIVES
'TTO'"ys
900 SW FIFTH AVENUE. St.:ITE 2300 PORTLAND. OREGON 972~1268
-,. "."""
Page
which allows the Company to charge lower prices to its other
customers.
The Technical Assessment Package compares Monsanto's net
contributions to fixed costs under the New Agreement with its
net contributions to fixed costs under two alternative cases:
(1) Monsanto's purchase of power from third parties, through
Soda Springs Municipal; and (2) Monsanto I s transfer of
production to PWA plants, reducing purchases from Utah Power to
approximately 45 megawatts.This comparison shows the
following ranges for contribution to fixed costs over the term
of the New Agreement:
New Agreement
Alternative 1
Alternative 2
$25 million - $100 million
$16 million - $32 million
$21 million - $49 million
The greater contributions to fixed costs under the New
Agreement will serve to reduce the revenue requirement that
would otherwise be borne by Utah Power I s other customers.
10.The New Agreement will provide additional benefits
beyond the increase in contributions to fixed costs.The $30
million up-front payment will fully compensate for the
termination of the Existing Agreement.This up- front payment
and the lower energy charge will stabilize the Monsanto load by
allowing Monsanto to make energy and production decisions on
the basis of an incremental cost of electricity at Soda Springs
of 1.85 cents per kilowatt-hour.
11.The New Agreement provides that it will be effective
as of November 1, 1995 subject to approval by the Commission.
5 -APPLICATION OF PACIFICORP PDX3-127247
STOEL RIVES
ATTO"'YS
900 SW FIFTH AVENUE. SUITE 2300 PORTLAND, OREGON 97204-1268
-. - --. ..-
If the Commission does not approve the New Agreement by
January 15, 1996, the New Agreement will terminate and Utah
Power will refund any portion of the $30 million paid by
Monsanto.Service will continue to be provided under the
Existing Agreement and Monsanto will pursue its other
alternatives.
12.Utah Power does not seek a determination at this time
on the ratemaking treatment applicable to Monsanto's $30
million payment or the other rates and charges under the New
Agreement.The Company requests that all ratemaking issues be
reserved for a rate case.
13.In order to meet the January 15, 1996 date for
Commission approval of the New Agreement,. Utah Power requests
that this application be processed under Modified Procedure
pursuant to RP 201-204.Modified Procedure is appropriate
because an evaluation of the economic effects of the New
Agreement and the alternatives available to Monsanto can be
undertaken without a hearing, and there are no other Utah Power
customers in the' state of Idaho that purchase power in the
amounts and under circumstances substantially similar to
Monsanto'Written comments by interested parties should be
sufficient for purposes of the Commission' s review,
particularly because Utah Power is not seeking any ratemaking
determinations.
WHEREFORE, Utah Power respectfully requests that the
Commission process this Application under Modified Procedure
Page
6 -APPLICATION OF PACIFICORP PDX3-127247
SrOEL RIVES
ATTDR"'"
900 SW FIFTH AVENUE, SUITE 2300 PORTLAND, OREGON 97204-1268
, ...
,. ..,. ,"n" "'. "on
. and approve the new Power Supply Agreement dated November
Page
1995 for service to Monsanto's Soda Springs plant.
7 -
Dated:November~, 1995
Respectfully submitted,
STOEL RIVES
APPLICATION OF PACIFICORP
PacifiCorp,
Light Company
PDX3-127247
STOEL RIVES
ATTORNEYS
900 SW FIFTH AVENUE. SUITE 2300 PORTLAND. OREGON 9i204-1268
...
I.... -
-- ".-,",.
EXHIBIT 203
Technical Assessment Package for
Power Supply Agreement between
Monsanto Company and PacifiCorp
November 1995
Section 1: Introduction
This Technical Assessment Package analyzes the new Power Supply
Agreement (New Agreement) between Monsanto Company (Monsanto, or the
Customer) and PacifiCorp (PacifiCorp, or the Company) dated November 1
, 1995.The package will describe the New Agreement and how it benefits the CustomerPacifiCorp and other customers.
, Section 2: Customer s Business Profile
Monsanto Company is a major world-wide chemical company and a leading
elemental phosphorus manufacturer in North America. The Customer s Soda Springs,Idaho, facility has shared a business relationship with Utah Power & Light Co. since
1952.
The elemental phosphorus industry has been declining, with several firms
exiting the business in recent years. As a result, the Soda Springs plant is one of onlytwo such facilities remaining in operation in the United States after the end of
1995.The other U.S. plant is the FMC plant, located in Pocatello, Idaho.
Power costs are of extreme importance to the Customer. Indeed, at about one-third of total production cost, electricity is the single most important cost in the
Customer s manufacturing process. Monsanto /"Ias demonstrated its price sensitivityby shutting down a furnace in lieu of purchasing higher-cost replacement power after
its service has been interrupted. In its quest to remain a low-cost producer, Monsantohas identified several alternatives to its current power supply contract with PacifiCorpwhich expires in 1997. These alternatives include:
the New Agreement with PacifiCorp
low-priced power supply from alternative suppliers purchased
through the Soda Springs municipal utility
substantially reduced production at Soda Springs facility with the
bulk of that plant's output being shifted to a less electricityintensive manufacturing process
All of these options will be discussed in detail in this Technical AssessmentPackage.
Section 3: Current Service from PacifiCorp
On July 3, 1991, Monsanto and PacifiCorp signed a five year Power Supply
Agreement to take effect July 1, 1992 and continue until June 30, 1997. This
contract provided for 9 megawatts of firm demand, 154 MW of interruptible demandexcess interruptible demand above 163 MW and all energy associated with
Monsanto s demand levels. In the event of interruptions , the Customer had the rightto buy replacement energy at the Company s cost. The remaining term of thiscontract is approximately 20 months.
Pricing.Prices for the firm demand and firm energy components
of thecontract were fixed throughout the contract1s term. For interruptible power and energy,the contract included built-in escalators that increased prices four times over the five
year contract term. Three of the increases have already occurred; the remaining one
would have taken effect on July 1 , 1996. Since the current contract began , prices toMonsanto have thus escalated significantly. Under the current contract, Monsantointerruptible power rates have increased 21 % to date and are scheduled to increaseanother 4% on July 1 , 1996.
Section 4: Competition and Power Markets
Significant changes now underway in the electric utility industry are resulting in
excess energy supplies, more competition (especially for large customers) and lower
prices. In fact, less than three years ago prices on the spot energy market exceeded
30 mills; for most of 1995, wholesale prices had fallen below 20 mills. Electricity hasbecome a commodity that is differentiated primarily by price.
PacifiCorp and Monsanto have cooperated previously in replacing agreements
to better reflect business conditions. A contract signed in 1987 was scheduled to be
in effect through June 30, 1993, but was replaced by the current agreement that
became effective on July 1, 1992. The Idaho Public Utilities Commission (IPUC)approved this current agreement in March 1992.
Section 5: Description of New Agreement
The New Agreement -- signed by Monsanto and PacifiCorp on November 11995 and subject to approval by the IPUC -- is designed to replace the current power
supply contract while extending the period of retail service to the Customer through
December 31 , ~001. After December 31, 2001, the New Agreement would be
renewed annually until either party gives a termination notice one year in advance.
The New Agreement would become effective November 1 , 1995.
Demand and energy Firm demand is 9 MW , while interruptible demandincreases from current contract levels to up to 206 MW. All energy is priced at 1.cents per kilowatt-hour (subject to a monthly minimum charge of $66,600). Energyusage is projected to increase during the New Agreement. The Agreement allows forapproximately 1 656 000 000 kilowatt-hours annually. PacifiCorp may interrupt orcurtail service to Monsanto at any time to maintain PacifiCorp s system integrity.
Termination charge. The current contract between PacifiCorp and Monsantoexpires June 30, 1997. In exchange for the early termination of that contract and to
satisfy all obligations under it, Monsanto will pay PacifiCorp $30 million. If thelPUCapproves the New Agreement on or before December 14 , 1995, the full $30 million willbe paid to PacifiCorp on December 28, 1995. Otherwise, PacifiCorp will receive $7.million on December 28, 1995 , with the balance paid within ten days of Commissionapproval. If the New Agreement is not approved by January 15, 1996, service willrevert to the current contract, PacifiCorp will refund the $7.5 million payment andMonsanto will begin pursuing other alternatives.
Section 6: Customer Alternatives
Besides the New Agreement, Monsanto has identified other options for reducing
its energy costs, including:
Annexation by municipal utility.The Soda Springs Municipal Electric Light &Power Department (Soda Springs Municipal) is a fully functioning utility that could
easily acquire additional supply and serve the Customer s facility. Low-pricedwholesale power at economics comparable to the New Agreement could be provided
by other regional utilities and power marketers such as lIIinova and Enron. This option
is the more likely of the two discussed here. .
Different manufacturing process. At the Soda Springs facility, the manufactureof elemental phosphorus is electricity intensive. However, about 70 percent of themarket served by elemental phosphorus from Monsanto s Soda Springs plant can alsobe served with the product of a chemical process called purified wet acid (PWA).Plants incorporating PWA technology have been built in the southeast United States
as well as in several other countries. Monsanto itself is a major partner in a purifiedwet acid plant operating in Brazil. Monsanto is also evaluating the modification of oneof its downstream plants which uses phosphorus to accept PWA material rather than
elemental phosphorus. In order to remain competitive with PWA technology, and alsoto retain its share of the elemental phosphorus market, Monsanto requires the lowestpossible electricity prices.
. Customer s demand currently averages about 175 MW per month. If the bulk
production were transferred to a PWA plant, the Soda Springs facility would require
approximately 45 MW. At this level, sufficient elemental phosphorus would be
produced to meet demand in the market segment that cannot be served by the PWA
product.
Section 7: Economic Impacts
Should the New Agreement not be approved, the negative economic impacts
on PacifiCorp and the local economy would be significant. Following is a detailedanalysis of those impacts assuming service is provided by another supplier or
production is transferred to a PWA plant:
Alternative Scenario 1: Municipalization at Expiration of Current Agreement.
another supplier, through Soda Springs Municipal, secured a contract to serve theCustomer, PacifiCorp would completely lose all electric revenues from the Customer.
For the 12 months ending September 1995 , revenues from Monsanto exceeded $30million on over 1.3 million kilowatt-hours sold.
Monsanto . is the Company s single largest retail customer. Losing the contract toserve Monsanto would eliminate the contributions this Customer makes to the
Company s fixed costs which provide a credit against retail jurisdictions' revenuerequirements. Four percent of the Monsanto credit against revenue requirement isallocated to the Idaho service territory. In the absence of Monsanto s contributions,the revenue requirement to be borne by the Company s other customers wouldincrease correspondingly. This alternative is the more likely of the two alternativespresented here.
Alternative Scenario 2: Production transfer to purified wet acid technology
Monsanto decided to mitigate the effect of electricity costs by'shifting production from
Soda Springs to a PWA plant, a considerable number of jobs would be lost in Idaho.Currently, Monsanto employs approximately 400 full-time employees at the SodaSprings facility. The Customer estimates the plant would support no more thanapproximately 200 jobs if most production was shifted to PWA. It is also estimatedthat for every direct job lost at the Soda Springs facility, three additional jobs would belost in industries which support the plant's operation and in the population of
supporting businesses in Caribou and surrounding counties.
In addition to the job losses, a majority of the revenues and contribution to fixedcosts provided by Monsanto would also disappear. If 75 percent of Monsantorevenues evaporated, revenues from the customer would decline from over $30 million
to about $9 million. Likewise, contribution to fixed costs would drop substantially.
Section 8: Revenue and Cost Comparisons
Revenues under current contract.As shown in Exhibit 1 , Column 4 , Lines 13-, PacifiCorp would collect approximately $53.3 million in sales revenues fromMonsanto over the remainder of the current contract (November 1 , 1995 through June, 1997). The present value of this revenue stream is $47.2 million (Column 4 , Line21). The revenue figures incorporate a price increase on July 1 , 1996 (Column 3,
Line 14) as well as projected kWh usage of 1 250,000 000 annually through June 30
1997. The projected kWh usage is based on historical usage and customer
discussions. These usage figures probably overstate Monsanto s consumption under
the current prices since, in the absence of the New Agreement, Monsanto would be
actively seeking alternative lower-cost supplies of electricity.
Revenues under New Agreement.Exhibit 1 indicates PacifiCorp would collectrevenues of $212 million over the six-year, two-month contract life of the NewAgreement (Column 4 , Lines 1- 9), which has a present value of $162.5 million(Column 4, Line 10). Total revenues include approximately $182 million for ongoing
electrical service plus the $30 million up-front payment for termination of the existingcontract. The $30 million payment is a unique feature of the New Agreement and
signifies an important commitment to PacifiCorp by the customer.
The New Agreement involves lower risk for other customers and the Company.
This is due to the $30 million up-front payment, which represents a significantinvestment in the Soda Springs facility and the economic health of Caribou County
and surrounding counties. From the Customer s standpoint, incremental productiondecisions at the Customer s facility would be made on the basis of 1.85-centelectricity. This provides the customer with the economics it needs .to defend itsphosphorus business against PWA.
Contribution to Fixed Costs. Exhibits 1 , 2, and 3 present three comparisonswhich establish a reasonable range for estimating the contribution to fixed costs of the
three customer alternatives. The Company has incorporated assumptions regardingfuture customer consumption under the three alternatives.
Exhibit 1 presents a comparison using embedded net production costs. Since
PacifiCorp has served Monsanto for over forty years, no incremental resources need
to be acquired to continue serving the Customer. The Company presents this analysisas an upper bound for contribution to fixed costs. The Net Production Cost analysisindicates that the New Agreement would contribute , in present value terms,approximately $100 million (Column 7, Line 10) in excess of production costscompared with approximately $32 million (Line 21) under Alternative Scenario 1 andapproximately $49 million (Line 32) under Alternative Scenario 2.
Exhibit 2 presents a comparison using the Company s market alternative powercost. PacifiCorp believes these costs are an appropriate reflection of the wholesalepower market costs available to the Company to meet incremental loads. Theincremental cost analysis indicates that the New Agreement would contribute
, inpresent value terms, approximately $46 million (Column 7 , Line 10) in excess ofincremental production costs compared with approximately $20 million (Line 21) under
Alternative Scenario 1 and approximately $29 million (Line 32) under AlternativeScenario 2.
The east-side incremental power cost calculation is designed to reflect the
Company s actual available market alternative costs. It uses the operating cost of acombined cycle combustion turbine (CCCT) to reflect the low end of a market estimate
and the full capital plus running cost of a CCCT to estimate the upper end.
It thenmelds these two extremes on a 50/50 basis to estimate the cost of a fully integratednew market-acquired resource on the Company s system. Finally, it adjusts this fullyintegrated incremental market cost estimate to reflect the Company s east-to-westtransmission limitation. The result is a reasonable mid-ground estimate of theCompanys incremental power cost.
Using IPUC-approved Surrogate Avoided Resource (SAR) incremental
production cost estimates adjusted for the Company s east-to-west transmissionlimitation, Exhibit 3 indicates that the New Agreement contributes, on a present valuebasis, approximately $25 million (Column 7, Line 10) beyond incremental costscompared with approximately $16 million (Column 7, Line 21) under AlternativeScenario 1 or approximately $21 million (Column 7, Line 32) under AlternativeScenario 2. The Company believes current market conditions support lowerincremental production costs and presents Exhibit 4 as a lower bound for contribution
to fixed costs.
Exhibits 2, 3, and 4 establish the following ranges for contribution to fixed costs:
New Agreement:
Alternative Scenario 1:
Alternative Scenario 2:
$25 million - $100 million
$16 million - $ 32 million
$21 million - $ 49 million
These contributions serve to reduce the revenue requirement otherwise borne by the
Company s other customers; thus, these customers will enjoy an economic benefit
flowing from the New Agreement.
Section 9: Summary
PacifiCorp requests IPUC approval of the New Agreement by virtue of the
benefits it provides to other customers , the Soda Springs community, the state ofIdaho, the United States, Monsanto, and PacifiCorp.
Other customers served by PacifiCorp will benefit from Monsanto s continuedcontributions to fixed costs. Indeed, Monsanto would contribute more to fixed costsunder the New Agreement than under either of the two Alternative Scenarios theywould pursue if the New Agreement is not approved. Through the New Agreement,Monsanto reaffirms its commitment to the Soda Springs facility -- and the community -
- into the next century at a time when the combination of energy costs anddevelopments in Monsanto s industry could prompt the Customer to secure a lower-
priced electricity supply from another supplier or to shift production and jobselsewhere.
The New Agreement offers Monsanto price predictability for a major production
expense over the next six years. This will help Monsanto compete in its businessmarkets. Through the New Agreement, a four-decade business partnership betweenPacifiCorp and Monsanto continues to provide benefits to Monsanto and to
PacifiCorp s other customers. PacifiCorp and its Idaho customers also face less
revenue risk due to the innovative up-front payment by Monsanto.
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07/16/2002
Exhibit 204 (JRS 4)
.re II III
111% 12-Dec-
29-Dec-
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07/16/2002
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EXHIBIT 205
, '
MONSANTO
Soda Springs , Idaho Plant
1853 Highway 34
Post Office Box 816
Soda Springs , Idaho 83276-0816
Phone: [phone]
Fax: [phone]
Dennis Hansen, President
Idaho Public Utilities Commission
PO Box 83720
Boise, Idaho 83720-0074
January 9, 2001
Re: Inquires from the Commission about Monsanto s willingness to curtail operations.
Dear President Hansen,
In early December, upon seeing the region in a stat~ of emergency, Monsanto began analyzing
our business and evaluating the impact that curtailment might cause to that business. As you
know PacifiCorp can interrupt our operations during system emergency when no other
alternatives are available. We also began to receive inquires from other energy providers asking
if operationally and legally we would be able to curtail operations to help this state of emergency.
It became apparent to us that power was available, but at record high prices. We determined that
we were capable of sustaining an outage of 4 to 5 days of about 52 megawatts without harming
. our down stream customers, but at a financial loss. Monsanto fully expected PacifiCorp to
approach us and offer us some sharing of the revenues if we would voluntarily curtail our
operations; however, PacifiCorp s call never came and on approximately the 14th or 15th of
December in an attempt to help the situation, I made a call to Bruce Griswold, Director of
Contracts and offered to curtail our operations for a share of the revenues. Mr. Griswold declinedoutright but said he would keep the offer in mind. .
On January 3 , I again contacted Mr. Griswold. Due to temporary operational and inventory
issues we were in a position to offer 47 megawatts of curtailment for 10 to 11 days, beginning as
soon as Sunday the 7th of January. Mr. Griswold said he would explore the issue with his
management On January 5 , He declined the offer.
We were quite surprised by their unwillingness to take advantage or even discuss seriously these
offers, especially in light of the system emergence and revenues that could be gained selling
power into the market. Monsanto believes that for both companies to .remain healthy we must be aware and in fact be diligent in finding creative ways to bring value to both of our business.
Monsanto remains committed to this end.
Should lbe able to answer any more of your questions, or if you would like more details please let
me know.
&0 \0 0
(J:) '-"
....", .:
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.. Sincerely,
James R. Smith
Purchasing Supervisor
EXHIBIT 206
, .
05-09-02 05:48PM FROM-STOEL RIVES POX
1J~/U2SfU'" .I."'.""" --... ...-.
5032202480 T-39T P.O2/04 F-951
RECEIVEe m
FILED
. 2nD\ J~.N \ 9 AM 8: 29
iDiJ.H~ ~U~LiC
UT1L\rIES CGHt1\S51DN
- PACIFICORP
Iflf . - J.::l.)
(iJ~
rh JkR...
. .... . "" .. .~ .' :";
825 E. Multnamah
Porlland, Or 91232
(SD3J B13-50aa
Janumy 16~ 2001
Ma:sha Commissicm
Idaho Puh1ic Utilities Comm;~~\D!i
472 W~ W~gton
Bms~ Id:aha 83720.0074
1m: Monsmrn LeU=' R.egm'diDg Load Curtm1mfmt
Dear CDrn"1iAsianPt"Smitb;
'1'1:ais lc:tter is a :fb11ow-up to DUt acmversa1ian on 1'Imrsday Immuy 111 2001. aDout the letter
Pr=sident Hausen :r=eivcd from Moo~antf\. I ha:vc a number of cxmcerlUi aver: Mr. SI%Utb..s letterthat I wiD. c1arify.
..n:t. I wou1d like to Qut1ine 1he aigned agr:eemCllti we had with MI'"(T'qrW\prim- to D
2.000 that camp Manmno o1umrr for ~1m ~nt riglJ!s.
. Monsmtc'
~g
power supply l11oWi PICifiCcnp to intemJpt Monsanta
three 1iumwes for 5Y5tem reliability purposes m exchange iDr a red~ed power price. vie
manage this option very carefully with !4=ssntQ because 1l1ia represents 17SMW afIoad and
is ccmnu to ManRlUtO. Ii pro~
Wr: 1uI.vc an Qpmting~es agreement with Mm~tIJ for a J"Urdmtm Qf' 46MW tbat was
implement=6 March 1, 2000 8Qd tUnS tbrough FebruaIy 28. 2001. This ~pu1aU:s
that at a .mum lowest den:r~!Umace must be cnutailad according to NIm.C
atandards. We pay a. monthly fee far this aptian'tO 0I1tU11 a. fixed munbBr of1imes per year.
Since the cmrni1m=t aptian is iutenc1ed for operating the a.gr~tlt docs not a11ow
1b.a f\m1ace 10 be cuztaUed for any o1bcr re8SQn" ather t1:Ian preschcdwed m.alTl~ance Of MTCe
majeme.
SCGDUd. d1uU1g 111= past six mmubs we bavc b=u in ncgpri ati DDS with Mo~to regardmg
pptcmti.al that would target the 2001 ~crl whm we ~ate. bi;h peak load and.
power p1i=s Ia. our eastem, oonwl area.. Durmg the :lint week ofDe=mber, as the paten1W. :fOr
power shortages beeame appareJJt, hc:i:fiCalp eslab1ishcd a. tc::am ofpcop1e to s:Qn~ =yar
CUStom.8nl. The IMPOse of1hcse caI1!; was to the si1:uatian aPd 'tQ ~c gene;rAtion or
load curt1rl1""eat a.gt"eemeut!i if it W8i phyaWaUyaadlg; finmoh 1~fa.~1e :far bath purtiC$.
Mr. Smith Wen; that PacifiCOIp was Dever ~ =n:act with MQtI~antQ during tbis pc:riod. which is
inoartect. Varlpus PacitiCarp ~1oyees ed Mr. Smith and the ~~fo 1bmace
~eiators em er 7tA and. 8. n:gantins the poteari.al for a. Sysc:eim n AIett.. and pve notice
a: Monsanto cowd pc: :equhed to oortai1 its 'tbree ~ma =s 1mder a. Systexn Bmetgrmcy, Durlns.
05-09-02 05 :49PM FRau-STOEL RIVES PDX
05/09/02 12: 1:1 1t208 aU,
' '5032202490
,U,ijUlU r u'-
T-39T P.03/04 F-951
r:=i"a;1~s=.izb
~!an:iamn ~CElI
!~ 16.2001-
ihase conVmaUEmS we also discu5sed em interest in
~g
11:1.8 ~1nl=ttpossibilities tmd
extending 1he e1dsting curtanm~agn=aments.
As. a rcSu1t aftbose disC\1ssicms. Mr. Smith that PariuiCoIp consider a. ~d eratit\g
~es agreement for a :iccon1! 49MW fumage that would start immediately and eXpire
Febn.1mY 28,. ZOals as well ~ a oneo-yca:r ~on cf'the first opera:tmg n:seI'ws agrc::1D=t.
Mc"~1w; alwa~ staUil1bat for S'8fetY and. pr~ reasans 1hcy must ruu anc Qfthfl tht'ee
:fuma~at an rlmes, 1hu.s any agree:nentg far cmtaibnent or apcnu:ing ~es CG\ only be done.
on two fQmaceS. Bath of these agreements wd ~ted and siped D er 13 J 2000.
AdditiatWlys we reached agreemRrtt en a st;rodU:re to Sbift a multi-week fnrnas:e mam~~
:from z-1 quaxter to 3~ q\1BttCr 200111 tbU$ moving that load reduo1ioll to offset the higher COSt
~er period. That agrDemctat em a. SO/SO perc=t basis, the dUfmmce iu market value
ofpoWCl' wi1:h Mansantn. That tem:uiJ,eet was signed pecember lZ, zcoq Imd we a:rc cum=dy
=mp1ct1nJ tho dctai1Bd agreem=t.
Thus we bave a. tOtal Qf five agce~c:nts !n place whm'c :paciti~comp Mcns=tc far
cunaUment rights Q1' load sbifting. Our recg~ s1unv 1bat sinca Decembc:r 1. 2000; we ha.ve
curt.aikd tor opera.t.ing -reserves an four separate days.. tWi= at 46MW mm tWice at
9SMW.
On J'~ 3, 2.001. )u. Smith did ggJ) a:nd left me It message that he wantc::d 10 ta1k. I returned
Ids ca.1l au 1:bJ:. 4111 ami Qnt1;~his cum.ilment offer for 47 MW for the be IistBd in JUs
18tter. He a15D did state that he bad. a. specific 3rd party offer to purchase the ~d power far
1bc l1-day cuttai1m=t period. Mt. Smit1i s proposal rc:quired !be :raci1iCotp pc:nxdt Mt:Jmiautn
to leU me uuWied power to tho third pany. I um1 otben 111 aur COUJpBDy UdOm1ed him that me
power was not his to scU. sUwe he did not have a "'ar-pay for tbatblae1t of
power. In addition. we pamtcd out t1mt bis power sop;p1Y ctm.1l~ specifiJ;aI'ly pree1udes sate far
resale. Howwet, I did. agree t() d:u=k wi1h 0\11' Pcrwer Supply b""~us Utdt 0J1 mm:ent prices 'that
PaclfiCmp would pay ifwe cou1d a strUctun: bctweenMmlsanto and pacifiCatp. A
prWing sna1)lSis was QQt1ducted JanUDtY 4th far tbiJproposed ttansac1ion.. I a1sQ ICYiewcd me
pricC5 we were Pastms fQJ' the Etlm"SY E'xcbanJc pragta:m (SDhcdule 71 tarifi) in bath Utah and
Otegan. Both were 1i1ited. at approxim,.te1y tariff (S40 per MWh in Oregon and $35 per MWh in
Ut8l3) which was ccmsisteDt with the -pri~g aualys1$ pcrtb1toed by 01Ir 1'ower Supply bU$inC5
=it.
I left a vniccxnaiJ tbT M:r~ Smith au tbe Januat)' Sm.. in which I cl~1iDad the 3rd. patty offer forme
rcasDus abo'\le. :w 1bc m 1 did ClXMJQ tbe offer tha:t we would p~y the posted priQe minns
his CQ~ Fi= far 1:!Ja periacl, wJ:Wm. is ccm5istfmt with what we weot'C Q:Ercring tl:r Q"Ur 1arp
cusmmcn thrcmgb. t1u: EncrsY E7cr~~gc program. in other and us &td in Idabo.l did not
hear from him di:8ctlY.. ~t his assigmd accouut mauap itlfonned met that ~ ~cd.. t
followed up with a can later in the day on the 5"", a:pd we disaassed t:1m rcasoas for gur posiUan.
In addition. tQ the reasons stated a'bovo, 1 ra1so pointed aut that we ha.vc twc
~etatm8 ~tA wbi~ 1"~"""'S th=:Q. ine1iaible ft:It cuttai1Inmt fOT any ether Teascm.
AIr. Smi1h disagrcccl with 1bat 1l!1iO!lill I a1w di~ the E:a.c#gy ;&gbange program and that
U5-09-02 05:49PM FROM-STOEL RIVES PDX
aS/O9/02 1Z~ ~4. V~U4' IJII,,*
p."",5032202480 T-397 P.O4/04 F-951
aQ:j smiIb-Q~J'~ 16, 2001
Page 3
we were filing the wiff in IrlahD on Jamwy S~ aUawing him. to maniter pti1:es daily and pledgec~ as it fit his oper=iou.
D=spite the lack of iU1 et:m~t unacrmnd our cWspatchcrs 'that ~santQ apcn.tors
=lIed Sunday mmnms Janum'Y 7'fA to notify us tbey were sb~~'I'\g down the 46MW m1't1R(".e
Out Emqy Exrbauge proiIam aDd the bilateral we e11M iuto with cn&mn~for~'tS c1=dy do not permit fat ptCSQhed\1kd shntd~WSlS
Pad:tiCorp c.ommues to waIk through th15 power misia and involve its austotrJ~in 1bc SDl\1ti~
but we a1so ha.ve the respaxssibility to CD!1~t the business prud=tly and benefit aU mep~
uotjustspecUic. CCStOmetS. !fyaubave any qu.est:icms1 please call me at SO3.B13.5218.
D~~WUC
Xei& Hessing.lPUC
Andy MacRitcbie .
Wright
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- BEFORE THE PUBLIC SERVICE COMMISSION OF UTAH -
--------------------------------------------------------------------------------
In the Matter of the Application of
PACIFICORP, dba Utah Power & Light
Company for Approval of Provisions for the
Supply of Electric Service to Magnesium
Corporation of America.
DOCKET NO. 01-035-
ORDER
---------------------------------------------------------------------------------
ISSUED: May 24, 2002
By the Commission:
HISTORY
This Docket results from the Application ofPacifiCorp to resolve disputes it has
with Magnesium Corporation of America (Magcorp). Magcorp is a large industrial customer
which received electric service from PacifiCorp under a special service contract. The contract
has been amended eight times since its origination in 1968. Prior to the expiration ofthe last
amended contract, these two parties began negotiations to determine the terms and conditions
under which electric service would continue to be furnished for Magcorp s Utah plant facilities.
As the expiration date of the service contract neare~, contract negotiations apparently stalled.
Then, on August 2 2001 , Magcorp (and its parent, Renco Metals) voluntarily sought Chapter
bankruptcy relief in the United States Bankruptcy Court for the Southern District of New York.
Although the latest service contract expired by its own terms on December 31 , 2001 , and the
parties have been unable to agree to a mutually acceptable new contract, Magcorp continues to
receive electric power service from PacifiCorp by order of the bankruptcy court.
, In its December 14 2001 Application, PacifiCorp asks the Commission to resolve
DOCKET NO. 01-035-
the parties' impasse and resolve their disputes on the tenus and conditions for service to
Magcorp. Magcorp objected to proceedings before this Commission, which might alter
Magcorp s service or set tenus for service to Magcorp, absent bankruptcy court approval.
However, in a March 5 2002 pleading, Magcorp requested that the Commission resolve the
dispute on an expedited schedule, and requested mediation of the dispute and disputes in Docket
No. 02-035-, relating to the tenus and conditions of a contract with Magcorp as a PURP
qualifying facility. Through mediation, Magcorp and PacifiCorp have resolved and reached
agreement on the qualifying facility contract. Interested parties joined with them in
recommending Commission approval of that contract in Docket No. 02-035-, and the
Commission approved it May 16 2002. No resolution of the disputes involved in this docket
was reached and this matter was set for hearing on May 8 and 9, 2002.
At the May hearings, PacifiCorp appeared through counsel Edward A. Hunter, of
the law finu Stoel Rives, LLP; the Division of Public Utilities (Division), Utah Department of
Commerce, appeared through Kent Walgren, Assistant Attorney General, Utah Attorney
General's Office; the Committee of Consumer Services (Committee), Utah Department of
Commerce, appeared through Reed Wamick, Assistant Attorney General, Utah Attorney
General's Office; and Magcorp appeared through Gary A. Dodge, ofthe law finu Hatch, James
& Dodge. Magcorp presented evidence through witnesses Michael H. Legge, Lee Brown, and
Roger J. Swenson. PacifiCorp presented evidence through witnesses Bruce W. Griswold, and
David L. Taylor. The Division presented evidence through witness Dr. Laura Nelson. The
Committee p,resented evidence through the testimony of Andrea Coon. The Commission heard
DOCKET NO. 01-035-
from public witnesses on May 8, 2002.
POSITIONS OF THE PARTIES
In this case, the parties ask the Commission to set a rate for electric service to
Magcorp, a large retail customer. Magcorp requests non-firm, or interruptible, service at a price
lower than that for firm service. All parties agree that large customers who are willing to receive
interruptible service under certain conditions impose less cost on the utility than do firm
customers, and therefore warrant special pricing consideration. Each party provides analysis
supporting its view on how best to consider special pricing for service to Magcorp, and makes
recommendations regarding the rate, terms and conditions of service. Each party, however
tempers its recommendations with the recognition that further study ofthe value
interruptibility is required.
Magcorp witnesses testify that a price of21 mills per kilowatt~hour for
interruptible service, substantially below a firm tariff rate, can be justified. Magcorp s witnesses
testify that Magcorp s operational capabilities permit it to be interrupted from the utility's service
under circumstances which can lower system costs. Specifically, in addition to interruption for
system emergencies, Magcorp states that its load can be interrupted 2 hours per weekday for 12
months and up to 8 hours per weekday depending on electricity buy-through terms and
conditions and the number of months subject to interruption, In direct testimony, Magcorp
proposed an eight-hour per weekday service interruption option in the months of July and
August. Thi~ amounts to 360 hours of potential interruption. Magcorp s subsequent proposal
DOCKET NO. 01-035-
offered in response to the Division s recommendations, is to be interrupted two hours per
weekday, twelve months ofthe year, with day ahead notice, and the option for Magcorp, at its
discretion, to buy-through the interruption based on indexed, on-peak, firm rates. The price for
power consumed during non-interrupted hours would be 21 mills per kilowatt hour. This
amounts to 520 hours per year of potential interruption. Magcorp requests a term ending
December 31, 2004, with a reopener no earlier than 18 months from the date of the contract, or
December 31 , 2003. At hearing, Magcorp stated its willingness to include a two-hour notice for
interruption.
These witnesses testify that by curtailing service to Magcorp during the two-hour
period, PacifiCorp may avoid the cost of generating electricity or purchasing it to serve
Magcorp s load during periods when the cost is particularly high. Magcorp witnesses testify that
a load shedding option was the justification for the discounted pricing Magcorp received through
its initial contract and eight amendments during the past thirty years. Magcorp states that it is
willing to continue to shed its load, and that the value ofthis non-standard or less than firm
service should be reflected in the price it pays for the electricity it consumes. Magcorp wants
prices, terms and conditions in a single, integrated contract, based on its need to estimate future
costs for purposes of bankruptcy proceedings. The 21-mill pricing is in its view required to
attract a potential buyer under the bankruptcy plan. Magcorp states that this rate, coupled with
the terms and conditions proposed, amounts to a 17 to 39 percent increase in rates compared to
its previous contract. Magcorp recommends characterizing the new contract as experimental
subject to further study of the cost and terms of interruptible service. Magcorp recommends the
DOCKET NO. 01-035-
opportunity over eight months ofthe year, eight hours per day, five days per week, totaling 1 440
hours per year. The eight months must include the peak summer months. The term of this
recommended agreement is through December 31 , 2004. To mitigate the impact on Magcorp of
the resultant rate increase, the Division testifies that interruption terms and conditions could be
phased-in over the contract term. The Division also recommends that the pricing, terms and
conditions of the new contract should be considered a pilot, during which the proper value of
interruptibility could be determined. Thus, the Division recommends reopening the contract after
twelve months to consider adjustments. For purposes ofthis study, the Division supports
establishment of a task force.
Based on its embedded cost analysis, the Committee testifies that a cost
compensatory rate for interruptible service is $25.16 per megawatt hour. This rate assumes
Magcorp loads can be curtailed when the PacifiCorp system is short of resources during summer
and winter peak months. The Committee also testifies that the establishment of a task force for
the study of interruptible cost of service is appropriate.
DISCUSSION, FINDINGS AND CONCLUSIONS
The parties request that the Commission address, based on the evidence presented
four aspects of Mag corp service, Thereafter, PacifiCorp and Magcorp will negotiate remaining
terms of a contract, incorporate the Commission s four determinations and present an integrated
written service contract or two separate contracts for future consideration. These four aspects
are, first, whether special pricing should be structured in one integrated contract or two separate
contracts; se9ond, the term of the service agreement and any reopening terms; third, a price for
DOCKET NO. 01-035-
electric service to Magcorp; and fourth, interruption terms and conditions, including the times of
day, week and year when interruption may occur, its duration, required notice, and the provisions
according to which Magcorp may buy-through an interruption.
PacifiCorp proposes, with Division concurrence, to directly assign the contract to
the Utah jurisdiction for ratemaking purposes. We do not address this recommendation in this
Docket. Further, the Division and Magcorp recommend consideration of the Magcorp agreement
as experimental or as a pilot for further study of cost-of-service pricing for interruptible service.
A Single, Integrated Contract Versus Two Separate Agreements
All parties analyze the rate for interruptible service to Magcorp through a single
integrated agreement rather than as PacifiCorp proposes, a firm rate for electricity sales to
Magcorp coupled with an additional agreement for payments to Magcorp for service interruption.
PacifiCorp argues for its two-agreement approach based on its experience of the volatility and
change in the value of interruption that can occur over time, and therefore the difficulty of
assigning an unchanging value to it for the term of a contract. Since the term proposed by all
parties for this agreement is less than three years, we view the risk of fixing a value today for
interruption as less consequential than in the case of a longer-term contract. Support for this
view comes from party recommendations to treat the Magcorp contract as experimental, subject
to adjustment going forward. We conclude that a single, integrated agreement is reasonable.
Contract Term
All parties support a short-term agreement ending December 31 , 2004. Due to the
DOCKET NO. 01-035-
uncertain value of interruption on this record, we agree that this short term is reasonable. Based
on this record, we are unsure of the number of hours of interruptibility required to justify a 21-
mill per kilowatt-hour price, and conclude that a provision to reopen the contract to make
adjustments, if study shows it to be necessary, is appropriate.
Price for Electric Service
Magcorp witnesses testify that the contract price for electric service from
PacifiCorp, coupled with its proposed terms and conditions, cannot exceed $21 per megawatt-
hour (21 mills per kilowatt-hour) if the Company is to successfully exit bankruptcy. They
believe that a price greater than this will deter interested bankruptcy parties, thus ending
Magcorp s operations. Under questioning, Magcorp witnesses acknowledge that factors other
than the price of electricity influence the bankruptcy proceedings and the prospects of avoiding
bankruptcy liquidation. Indeed, Magcorp s witnesses testify that even if the Commission sets the
price for electricity at 21 mills per kilowatt-hour, the price Magcorp desires, the Company may
still be unsuccessful in maintaining operations or emerging from bankruptcy.
All other parties describe terms and conditions which they state could render
compensating value to PacifiCorp and its firm retail customers from sales to Magcorp in the $21
to $25 per megawatt-hour range. For reasons stated below, we approve a $21 per megawatt-hour
rate for service to Magcorp, coupled with the terms and conditions of interruptibililty we adopt in
this order.
Our justification for a 21 mill per kilowatt-hour rate is based on the record before
, which captains embedded cost-of-service analyses ofthe value of interruptibility.
DOCKET NO. 01-035-
PacifiCorp, the Division, and the Committee each introduces embedded-cost analysis to support
its views of appropriate interruption price and terms. Each of these embedded-cost analyses is
consistent with prior Commission rulings. Magcorp also provIdes an embedded-cost analysis to
support its proposed terms, but proposes alterations which reduce cost of service. As noted
other witnesses, Magcorp s embedded cost-of-service proposals are ad hoc adjustments rather
than coherent arguments for changes in allocation factors, the real basis of the cost-of-service
results Magcorp disputes. Moreover, a critique of the results of an embedded-cost analysis must
consider the impact of modifications on the entire customer base, not just a single customer. On
the record before us, we will not adopt Magcorp s modifications. Instead, we employ the
analyses of PacifiCorp, the Division and the Committee to define the areas within which we can
consider the value of interruptibility.
Magcorp and the Division provide testimony concerning the application of the
regulatory principle of gradualism in price changes. They testify that Magcorp price increases
should be gradual rather than abrupt. We acknowledge that the concept of gradualism is a
consideration and has been applied in past rate cases. We believe it is appropriate to price
Magcorp s service at $21 per megawatt-hour, which can be viewed as a gradual increase in the
price Magcorp has paid. Given a $21 price, we must arrive at a level of interruption which
provides sufficient cost reduction to justify that price.
Interruption Terms and Conditions
Time of day and year for interruption. All parties agree that interruption is of
greatest value during the super peak hours of 1 :00 pm to 9:00 pm, mountain daylight time. All
DOCKET NO. 01-035-
10-
parties also agree that interruption during the summer months has greatest value. All parties
agree that the greater the number of months ofinterruptibility, the more likely interruption will
reduce system cost by reducing monthly coincident peak demand.
Some testimony indicates that when the value of interruption is based on average
embedded costs, a $21 per megawatt-hour price requires eight months of interruption, with eight
hours of interruption per peak day. Interruption over fewer months implies that the value of
interruption, in terms of the costs PacifiCorp avoids, must be higher than average embedded cost.
Because the cost of power is highest during peak hours of the summer months, to capture system
cost efficiencies that may be greater than average embedded cost we conclude that Magcorp
load should be subject to interruption during the super peak hours of the summer months of June
July, August and September. To mitigate the impact on Magcorp and in recognition ofthe need
for further study, we also conclude that in 2002, only the months of July and August will be
subject to interruption. Magcorp has indicated that it has the ability to hedge its risk over this
two-month period.
Duration and notice provisions for interruption, and buy-through rates, terms and
conditions. The parties disagree on the number of hours per interruption necessary to justify a
21-niill rate for power. Magcorp argues two hours may be adequate. PacifiCorp argues for eight
hours, though acknowledging six maybe sufficient, to ensure that interruption occurs at the time
ofthe coincident peak, and reduces rather than simply shifts that peak to a different hour. The
Division assumes eight hours is required, but testifies that further study is necessary for
confirmatiol1.
DOCKET NO. 01-035-
11-
In attempting to show what hours are required to ensure that interruptibility has
value, Magcorp reviews PacifiCorp s past power costs, picks high-cost periods as those during
which Magcorp could have been interrupted, sums the identified power costs, and equates this to
the value of interruptibility. Other witnesses question whether this approach accurately
characterizes the value of interruptibility. Identifying optimum interruption periods in the past
when data already shows peak, highest cost load periods, is not the same as selecting the proper
time for future interruption. Data for future peak periods and associated costs is not available
until they have passed. One must therefore predict the optimum time for a future interruption.
That is the reason PacifiCorp and the Division specify an interruption window of eight hours per
day: it is necessary to ensure a high probability that interruption will occur during the actual
peak times of the day. Magcorp s initial testimony also uses an eight-hour window for its July
and August interruption option. As noted, Pacificorp testified that an interruption period of six
hours per day, six days per week, may provide a sufficiently high probability of success to obtain
a value for interruption which could support the low price for electricity sought by Magcorp.
Magcorp plant processing operations place constraints on resolving this dispute as
do other terms of interruption like the length of notice prior to interruption and the option for
Magcorp to buy-through an interruption at its own cost rather than interrupt its load.
While a processing cell at the Magcorp plant can be shut down with adequate
notice, the operational aspects of an electric generation and transmission system obtain greater
value from interruptions which can be achieved on comparatively shorter notice. Magcorp
witnesses te&tify that plant operations may be able to sustain an interruption lasting two hours.
DOCKET NO. 01-035-
12-
electricity were not available for a period longer than two hours, processing facilities may be
harmed and Magcorp could incur additional expense. While obviously desiring as much advance
notice of an interruption as possible, Magcorp testifies that it is willing to accept short notice of
interruptions to increase value to PacifiCorp s operations. This increased value can then justify a
lower price for electric service. Party recommendations attempt to accommodate the conflicting
drivers of providing notice of interruptions, short duration of interruption and planning
opportunities that could lessen Magcorp service rates, while also providing planning and
interruption opportunities that reduce the cost of providing utility service. We conclude that
since Magcorp can respond to a two-hour notice, and since this shorter notice has value to
PacifiCorp, we adopt a two-hour notice.
In an effort to address the impacts on Magcorp s physical plant facilities and
production processing, no party opposes a contract provision which would allow Magcorp to
buy-through a proposed interruption. In a buy-through situation, Magcorp has the opportunity to
weigh the costs it incurs in accepting an actual interruption of electricity to its plant compared to
the costs of continuing processing operations with "alternative" electricity. This alternative
electricity would be delivered by Pacificorp to the Magcorp plant in lieu of a physical
interruption of electric power. Its source would vary, based upon available generation sources
and transmission capabilities at the time of the proposed interruption.
While a buy-through provision can address some of Mag corp s needs, it also
raises anoth~r area of contention between Magcorp and PacifiCorp, the price for such power.
DOCKET NO. 01-035-
13-
Costs are incurred in securing and delivering electric power when Magcorp elects to buy-
through. All parties. agree that compensation must be paid for electricity that is delivered when
Magcorp elects to buy through, rather than have no electricity delivered. Magcorp and
PacifiCorp witnesses testify that a price based upon an existing electric power index would
provide Magcorp with the cost infonnation needed when deciding whether to buy-through an
intelTUption. Other witnesses believe that the actual costs to secure and deliver electricity during
a buy-through situation likely will vary from an index price.
We will authorize a buy-through provision in the contract at a rate based on a
published index. When buy-through occurs, PacifiCorp must remove Magcorp s load from
operational data in order to recognize reduction in load for system and jurisdictional cost-of-
servIce purposes.
Based on the current record and these decisions, we agree that the eight- or six-
hour intelTUptibility period is needed. All witnesses agree that there is little infonnation upon
which to make an evaluation of the predictive capability of shorter intelTUption periods. This is a
reason further study is required. In Magcorp s view, service under a new contract should be
viewed as an experiment to test the validity of current views and analyses relative to the impact
of intelTUptibility on PacifiCorp s system operation and costs, develop better operational tools or
procedures to capture the benefits of intelTUptibility, and develop better methods to determine the
value of intelTUption.
, All witnesses agree that, based on the present record, there is no single, definitive
DOCKET NO. 01-035-
14-
way to resolve these issues. They have reached different recommendations for interruption and
its value. They also present various proposals of terms and conditions which they believe could
translate the value of interruptibility into a service contract which results in a just and reasonable
rate for electricity delivered to Magcorp. Consequently, the Commission finds value in
approving rates, terms and conditions for Magcorp that will be considered experimental.
Accordingly, we conclude that the six hour, five days per week, July and August
interruption scenario be used in the year 2002, and the six hour, five days per week in June, July,
August and September interruption scenario be used in 2003 , and thereafter unless the contract is
reopened. We establish a task force to study the value of interruption and in addition to report to
the Commission on the adequacy of the terms of this contract. A reopener to the contract will be
allowed no earlier than December 31 , 2003 , if changes are warranted.
ORDER
Based upon the foregoing, the Commission orders as follows:
PacifiCorp and Magcorp shall submit a written contract for Commission approval
incorporating the decisions made in this order, providing the terms and conditions for electric
service to Magcorp.
The Division of Public Utilities shall initiate and undertake a study of the benefits
of interruptible service and how they may be captured to the advantage of Pacifi Corp and its
customers, consistent with the public interest. The Division of Public Utilities shall also monitor
DOCKET NO. 01-035-
15-
and analyze the operational performance of the interruptible service provided to Magcorp and
provide an annual report to the Commission, beginning October 31, 2002. This report should
provide information comparing results of operation with anticipated benefits and
recommendations on appropriate terms and conditions of service as analyzed experience with
this interruptible load is gained. Interested parties should contact the Division of Public Utilities
to participate in the study and, to the extent appropriate, in the analysis of the Magcorp
experiment.
DATED at Salt Lake City, Utah, this 24th day of May, 2002.
/s/ Stephen F. Mecham, Chairman
/s/ Constance B. White, Commissioner
/s/ Richard M, Campbell, Commissioner
DOCKET NO. 01-035-
16-
Attest:
Isl Julie Orchard
Commission Secretary
G#29616
- BEFORE THE PUBLIC SERVICE COMMISSION OF UTAH
------- ------- ------ ---- - ------------------------ -- ----- -- ------- -- ------- --- --
In the Matter of the Application of
PACIFICORP, dba Utah Power & Light
Company for Approval of Provisions for the
Supply of Electric Service to Magnesium
Corporation of America.
DOCKET NO. 01-035-
ORDER ON PETITIONS
FOR RECONSIDERATION
---------------------------------------------------------------------------------
ISSUED: July 2, 2002
By the Commission:
On May 24 2002, this Commission issued an order (May 24th Order) resolving
various disputes relating to the terms by which PacifiCorp provides electric service to
Magnesium Corporation of America (Magcorp). On June 13, 2002, PacifiCorp filed a Petition
for Reconsideration, Rehearing and Clarification of our May 24th Order. On June 13 2002
Magcorp also filed a Request for Limited Revievv or Reconsideration of the same order. On June
, 2002 , PacifiCorp, Magcorp and the Committee of Consumer Services filed responses to the
June 13th filings. By this order, we respond to a limited number of the matters raised in the June
" til .J requests or reconSl eratlOn.
PacifiCorp asks that the Commission modify the May 24th Order and establish the
interjurisdictional allocations associated with the service contract for Magcorp. Inteljurisdictional
allocations is the subject being pursued in Docket No. 02-035-04. That docket is a multi state
proceeding, involving PacifiCorp jurisdictions, to address interjurisidictional allocation issues
and endeavoring to reach jurisdictional consensus on such matters; including the proper criteria
and their application, concerning the interjurisdictional allocation of special contracts such as the
DOCKET NO. 01-035-
one with Magcorp. We look to that docket, rather than this docket, as the forum in which to
arrive at the appropriate allocation process, applicable across PacifiCorp s entire operational
territory, to be applied to special contracts for interruptible customers.
Because of the seemingly limited ability of the participants in this docket to derive
measures and methodologies to evaluate, with certainty, the operational benefits of interruptible
service for Magcorp and the current difficulty in estimating the true value which is to be obtained
from such service, our May 24th Order approached service to Magcorp as an experiment. It is an
opportunity for PacifiCorp, regulators and customers to develop measurement and estimation
tools and methodologies to determine the specific values that can be obtained from interruptible
service. It is also an opportunity to gain experience with such tools and methodologies and
confidence that they consistently provide a value estimate which is reflective of actual benefits
obtained. Interruptibility is generally touted as providing system benefits, permitting the utility to
avoid the expense of having to provide or obtain power during high cost periods. The
proceedings in this docket have shown that there is limited ability to move from the generalities
to the specifics of interruptible service to a customer. Because of the experimental approach in
which we cast service to Magcorp and to avoid the attendant uncertainty, we will allow the use of
situs treatment of the Magcorp contract pursuant to the terms of our May 24th Order. We do so in
recognition of Utah's initiation of this limited experiment and the unsettled nature of the issue
pending in the other proceedings.
DOCKET NO. 01-035-
.J-
Both PacifiCorp and Magcorp request clarification concerning the six-hour
interruption period specified in our May 24th Order. Our intent is that PacifiCorp may interrupt
service, for whatever reason, during a six hour, continuous block oftime during each day.
Magcorp requests that we address or clarify other aspects of our May 24th Order as
well. We believe it appropriate to address two of the areas to clarify the intent of our May 24th
Order. We intend that the terms concerning price index and shaping factors contained in the QF
contra('.t between the parties and those terms in the power supply contract, with the buy-through
option, be consistent. If there is merit to using different shaping factors in the power supply
contract than the seasonal shaping factors proposed in the QF contract, the QF contract shaping
factors may be changed to be consistent with those to be used in the power supply contract. Our
intent is to avoid or reduce the opportunity of either party to arbitrage between the two contracts.
We intend that the study of interruptible service ordered in the May 24th Order be
open to the participation of all interested parties. We decline, however, to make the detailed
specifications requested by Magcorp. The identification of relevant information will occur as the
study is initiated and conducted by the Division of Public Utilities. Development of the
appropriate areas of exploration to further the purposes of the study and reports and the
identification of the likely sources and forms of information that will be useful to these ends will
occur as the Division develops its analytical approach and identifies the course of the study and
reportiDg topics it intends to pursue. We suspect that this will be fine tuned as the Division and
participants proceed with the study and prepare to make the reports , which will occur over the
course of the, contract with Magcorp. While the experience with Magcorp will be a potential
DOCKET NO. 01-035-
source of useful information, it is not our intent that the study and reports focus or rely solely on
the Magcorp experience. While we intend that all interested parties be able to participate in the
process, to identify areas of inquiry and the investigative approaches the Division s undertaking
should follow. It is premature, at this time, to prepare a litany of the specific information that
should be used in making the study and in preparing the reports , and how such information is to
be gathered and disseminated.
DATED at Salt Lake City, Utah, this 2nd day of July, 2002.
/s/ Stephen F. Mecham. Chairman
/s/ Constance B. White. Commissioner
/s/ Richard M. Campbell, Commissioner
Attest:
/s/ Julie Orchard
Commission Secretary
GW# 29992
DOCKET NO. 01-035-
Commission establish a task force to study these issues.
All other parties acknowledge that interruption of the Magcorp load can lower
system cost, but differ on the conditions necessary to achieve the lower cost. PacifiCorp s initial
testimony recommends service to Magcorp at the firm service rate of 30.2 mills per kilowatt-
hour. It then proIJoses to treat interruption under a separate agreement as a power purchase by
PacifiCorp from Magcorp. PacifiCorp proposes to directly assign the costs of serving Magcorp
to the Utah jurisdiction, a departure from the past practice of allocating these costs system wide
to match the system wide benefits of interruption. PacifiCorp opposes including a price discount
for interruptibility in one electric service agreement because that would assign a fixed value to
potential interruptions, even though the value of interruption may vary, over the term of the
agreement. If, in the alternative, a single contract is executed, PacifiCorp testifies that the terms
and conditions of interruption necessary to justify a 21-mill rate require the potential to interrupt
Magcorp eight months of the year, eight hours per day, six days per week, or a total of 1 600
hours per year. Otherwise, shareholders or other customers will be adversely affected. This is
based on its embedded cost-of-service analysis. PacifiCorp later testifies that subsequent
statistical analysis indicates six hours per day may be enough to justify this rate. This amounts to
200 hours per year of potential interruption. The term of this recommended agreement ends
December 31 , 2004. PacifiCorp proposes day-ahead interruption notice but indicates that the
shorter the notice, the greater the value of interruption.
Based on its embedded cost-of-service analysis, the Division states that a rate for
an integrated, contract priced in the 21-mill range, to be compensatory, would require interruption