20021231PacifiCorp Comments.pdf

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MARY S. HOBSON
Direct [phone]
mshobson(!!)stoel.comDecember 30 2002
VIA HAND DELIVERY
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington
Boise, ill 83702-5983
Re:Case No. PAC-Ol-
Dear Ms. Jewell:
Enclosed for filing with this Commission is an original and eight (8) copies ofPACIFICORP'
COMMENTS REGARDING PROPOSED ORDER NO. 29157 in the above referenced matter.
Thank you for your cooperation in this matter.
Very truly yours
-4t/~ Ih
Mary S. I&bso
:blg
Enclosurescc: John Eriksson (w/enclosures)
Oregon
Washington
Calilornia
Utah
Boise-151344.10058802-00104 Idaho
. 50 &(
James F. Fell
John M. Eriksson
STOEL RIVES LLP
900 SW Fifth Avenue, Suite 2600
Portland, OR 97204
Telephone: [phone]
Fax Number: [phone]
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Attorneys for PacifiCorp
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
In the Matter of the Application ofPacifiCorp
d/b/a Utah Power & Light Company for P ACIFICORP'S COMMENTS REGARDING
Approval of Interim Provisions for the Supply PROPOSED ORDER NO. 29157
of Electric Service to Monsanto Company
P AC-01-
Pursuant to IDAPA 31.01.01.312 and the Notice of Proposed Order and Notice of
Comment Deadline (Order No. 29157) issued December 10, 2002 by the Idaho Public Utilities
Commission ("Commission ), PacifiCorp, d/b/a Utah Power & Light Company ("PacifiCorp" or
the "Company ) hereby submits its comments to the Commission s Proposed Order respecting
the terms and conditions to be included in a new Electric Service Agreement between PacifiCorp
and Monsanto Company ("Monsanto
INTRODUCTION
PacifiCorp appreciates the opportunity to comment on the Commission s Proposed Order
in this proceeding. While PacifiCorp generally supports the Commission s resolution of most of
the issues presented for decision, there are three issues on which PacifiCorp wishes to comment:
(1) jurisdictional allocation (situs v. system) of Monsanto s firm, non-furnace load; (2) billing of
Monsanto s monthly credits for interruptible or curtailment options; and (3) valuation of
PACIFICORP'S COMMENTS REGARDING -
PROPOSED ORDER NO. 29157
Boise-151347.10058802-001O4
Monsanto s buy-through (replacement power) option. Although these comments are limited, the
Company continues to believe its proposed valuation and pricing of service to Monsanto is
correct, and by not taking exception to any other of the Commission s determinations, the
Company is not waiving its right to assert its positions in response to a final order in this case.
COMMENTS
Situs v. System Allocation of Monsanto Firm, Non-furnace Load
Consistent with its cost-of-service firm rate design, PacifiCorp proposed in its post-
hearing brief that Monsanto s firm electric service be allocated on a situs basis to the Idaho
jurisdiction. (PacifiCorp Brief at 4.) The Company also proposed that the monthly credits to
Monsanto for System Integrity, Operating Reserves and Economic Curtailment be allocated on a
system-wide basis. (Id. at 5.
In conjunction with its recommendation that the Commission use the most recent
PacifiCorp/Monsanto interruptible power supply agreement (the "1995 Agreement") as its model
in this case (Monsanto Ex. 210, Tr. 418-19), Monsanto in its post-hearing brief requested that the
Commission defer any changes to its current approach to jurisdictional allocation issues for
resolution in the Multi-State Process docket (P AC-02-3) or in a general rate case. (Monsanto
Brief at 31-32.) Commission Staff and the Idaho Irrigation Pumpers Association (the
Irrigators ) agreed with Monsanto s recommended approach. (Staff Brief at 3; Irrigators Brief
at 5.
The Proposed Order is unclear with regard to one portion of Monsanto s load. Monsanto
has a firm, non-furnace load of approximately 9 MW. This load has always been treated as an
Idaho situs load. In its Proposed Order, the Commission appears to have adopted Monsanto
recommended approach, finding "that it is reasonable to continue with jurisdictional treatment of
P ACIFICORP'S COMMENTS REGARDING -
PROPOSED ORDER NO. 29157
Boise-151347.10058802-00104
Monsanto as a system customer pending conclusion and recommendations in the Multi-State
Process case and Company-related filings." (Order No. 29157 at 5.) PacifiCorp interprets this
Commission finding to mean that Monsanto s firm, non-furnace load will continue to be
assigned situs to Idaho consistent with the Commission s past treatment. 1 This load is not part of
the interruptible furnace load that has been allocated system-wide. Accordingly, the Company
proposes to apply the Commission-ordered firm rate of$283 per customer month, $8.81 per
kilowatt-month ("kW-mo ), and 16.31 mills per kWh to Monsanto s firm, non-furnace load viz.
the first approximately 9 MW of service at 100% load factor or, alternately, the amount of non-
furnace load specifically identified and metered.
Consistent with the finding issued in the Proposed Order, PacifiCorp understands that the
remainder of Monsanto s electric service will be allocated on a system-wide basis. Thus
PacifiCorp s cost of service study proposed in this case will be modified to remove the Monsanto
load above the approximately 9 MW firm load, identified as the furnace load (previously
assigned to Idaho on a situs basis) from Idaho loads, and the revenue earned for furnace service
will be allocated system-wide as a revenue credit. In this regard, the Company proposes to book
the revenue earned from furnace load based on the firm rate and book the total monthly credit for
interruptibility as a power purchase.
PacifiCorp respectfully requests that the Commission clarify in its final order that
Monsanto s firm, non-furnace load will be allocated to the state ofIdaho, consistent with past
practice.
See e., Re PacifiCorp dba Utah Power Light Co.Case No. UPL-95-, Order No. 26282 (1995);
Utah Power Light Co.Case No. UPL-92-, Order No. 24220 (1992); Re Utah Power Light Co.Case No.
UPL-90-, Order No. 23124 (1990); Re Utah Power Light Co.Case Nos. UPL-89-, UPL-89-, Order
No. 22622 (1989); Re PacifiCorp, Case Nos. U-1152-, U-1009-184, U-1046-161 , Order No. 21867 (1988).
PACIFICORP'S COMMENTS REGARDING - 3
PROPOSED ORDER NO. 29157
Boise-151347.10058802-00104
Billing of Monsanto s Monthly Credits for Interruptible and Curtailment Options
In its post-hearing brief, PacifiCorp emphasized that the Commission-authorized firm
rate design is critical to the valuation of interruptibility and economic curtailment. (PacifiCorp
Brief at 10.) In order to better reflect the cost-of-service components associated with service to
Monsanto, properly match Monsanto s incentives with PacifiCorp s costs and provide a better
matching of costs and revenues should Monsanto s usage characteristics change during the
contract term, PacifiCorp proposed a firm rate design that includes the following cost-of-service
components: (1) a monthly customer charge; (2) a demand charge; and (3) an energy charge.
(Id.) For firm electric service, PacifiCorp proposed to charge Monsanto each month a customer
charge of$282., a demand charge of$9.51 per kW-mo, and an energy charge of$16.31 per
MWh. Monsanto, by contrast, proposed that its firm rate be an all-inclusive energy-only rate
without a demand charge. (Monsanto Brief at 12-13.
In its Proposed Order, the Commission found that "separate rate components in the form
of customer demand and energy charges are appropriate." (Order No. 29157 at 7.) To reflect the
firm rate the Commission found is reasonable -- $30.27 per MWh2 -- the Commission
established a customer charge of $283 per month, a demand charge of $8.81 per kW -mo, and an
energy charge of $16.31 per MWh. (Id.) Starting with $30.27 per MWh as an all-inclusive firm
energy rate, the Commission calculated a total overall energy net price of $23.54 per MWh for
Monsanto s firm and interruptible service. (Order No. 29157 at 10.) In its discussion regarding
the value ofinterruptibility, the Commission affirmed the Company s proposed energy or "strike
price" of $16.31 per MWh upon which the value of interruptibility and curtailment is based, but
2 This flIlll rate was calculated by adjusting PacifiCorp s proposed embedded cost-or-service flIlll rate
(31.4 mills per kWh) by I mill per kWh to reflect the increased revenue on PacifiCorp s Idaho rate of return and by
approving an additional reduction of 0.12 mills to reflect Monsanto s proposed fuel shaping adjustment. (Order No.
29157 at 7.
PACIFICORP'S COMMENTS REGARDING -
PROPOSED ORDER NO. 29157
Boise-151347.10058802-00104
found "a discounted demand charge of $4.56/kW -month to be reasonable based on net annual
revenue of$23.54/MWh." (Order No. 29157 at 11.)
The Proposed Order is not clear as to how the Commission intends that the credits for
interruptibility be reflected on Monsanto s monthly bills. To the extent the Proposed Order
requires PacifiCorp to provide interruptibility credit by billing Monsanto a discounted monthly
demand charge of$4.56/kW, PacifiCorp takes exception to such a requirement. A discounted
demand charge would not maintain the necessary relationship between the credit given for
interruptibility and the amount ofinterruptibility actually available. Specifically, if Monsanto
does not operate a furnace in a billing month or takes a furnace out of service entirely,
interruption of that furnace load will not be available to PacifiCorp. Yet, if Monsanto were
billed at the discounted demand charge, it would be getting a discounted rate in exchange for
something it could not or did not provide. It is not reasonable to require a rate design with a
discounted rate, where the discount is based on the customer providing a level of interruptibility
which the customer, by its own choosing or otherwise, may not be able to provide.
PacifiCorp recommends that the Commission order that the credit for interruptibility
should be billed as individual credits against the non-discounted demand charge each month for
the various types of interruptibility which Monsanto will provide, and that PacifiCorp should
also bill all energy to Monsanto at $16.31 per MWh, and all demand at the non-discounted
demand charge. PacifiCorp proposes that the credits be set at levels consistent with the total
value ofinterruptibility reflected in the Commission s Proposed Order. Specifically, PacifiCorp
proposes the following credits, which would be provided each month based on Monsanto s total
firm and non-firm load: Operating Reserve - $1.97/kW-month; Economic Curtailment-
$2.06/kW-month; and System Integrity - $0.22/kW-month. The sum of these proposed credits
PACIFICORP'S COMMENTS REGARDING - 5
PROPOSED ORDER NO. 29157
Boise.151347.1 0058802-00104
$4.25, is equal to the value ofinterruptibility reflected in the Commission s discount to the
demand charge ($8.81 minus $4.56). The derivation ofthe proposed credits is shown in
Appendix A, attached hereto and incorporated herein.
In addition, PacifiCorp requests that the Commission clarify that the credits are subject to
monthly adjustments to reflect availability of furnace load for interruption and/or curtailment.
As PacifiCorp noted in its post-hearing brief, one ofthe advantages to separate demand and
energy charges is to accurately capture changes to furnace availability and/or usage. (PacifiCorp
Brief at 10.) PacifiCorp will be paying Monsanto substantial sums for the right to interrupt its
furnace load for operating reserves and economic curtailment. If Monsanto s furnace load is
reduced for economic or operational reasons during the term of the agreement, permanently or
temporarily, PacifiCorp will not be able to interrupt Monsanto for the full contractual amount of
load and PacifiCorp would be paying Monsanto for the right to curtail a load that does not exist
unless an adjustment to the credits is made. Such payments would obviously not be reasonable.
(For a discussion on this point, see the confidential cross-examination of Daniel Schettler, Tr.
pp.468-469.) This clarification would also be consistent with the Commission s recognition in
the Proposed Order that a rate design with cost-of-service components "is a more accurate
reflection of the cost of service components associated with service to Monsanto than an all
energy rate and more properly matches Monsanto incentives with PacifiCorp costs." (Order No.
29157 at 7.
In particular, to address the need for adjustments related to unavailability, PacifiCorp
requests that the Commission approve provisions that the credits for operating reserves and
economic curtailment will be reduced by the ratio of all such hours of unavailability within the
billing month to the total number of hours in the billing month. Such a provision was previously
PACIFICORP'S COMMENTS REGARDING -
PROPOSED ORDER NO. 29157
Boise-151347.10058802-001O4
proposed by PacifiCorp and utilized in prior operating reserve agreements with Monsanto.
(PacifiCorp Brief, Attachment A, pp. 3 4; Exhibit 5).
Valuation of Monsanto Buy-through (Replacement Power) Option
Monsanto originally proposed that the price for buy-through replacement power be based
on the published Mid-Columbia index plus $2 per MWh for transmission. (Monsanto Ex. 210
Exhibit A.) PacifiCorp witness Stan Watters objected to this market index as not representative
of the wholesale market hub PacifiCorp would use to serve Monsanto. Mr. Watters said that
Monsanto is within PacifiCorp s Eastern Control Area and is more closely aligned with the Palo
Verde or Four Corners hub. He proposed using the Palo Verde hub, shaped to the actual hours of
curtailment, because Palo Verde is the more liquid market hub and maintains higher trading
volumes. PacifiCorp s proposed buy-through structure is contained in PacifiCorp Ex. 16 and
Attachment A to its post-hearing brief. PacifiCorp witness Bruce Griswold explained that the
shaping factors in PacifiCorp Ex. 16 exceed 100% because the Palo Verde on-peak prices are for
a 16-hour period. Economic Curtailment allows interruption for only eight hours per day. Any
buy-through would occur during the most expensive eight hours of the day (the "super-peak"
hours). The shaping percentages adjust the Palo Verde on-peak prices to reflect the higher super-
peak values. (Tr. 831.)
In his rebuttal testimony, Monsanto witness Richard Anderson stated that the buy-
through price for replacement power should be the "lowest cost of energy available." (Monsanto
Ex. 243; Tr. 508-09.
In the Proposed Order, the Commission agreed with PacifiCorp "that replacement power
will most likely come from Palo Verde." (Order No. 29157 at 11.) Notwithstanding that
finding, rather than adopt PacifiCorp s proposal or Monsanto s initial proposal respecting the
P ACIFICORP'S COMMENTS REGARDING - 7
PROPOSED ORDER NO. 29157
Boise-151347.1 0058802-00104
replacement power price, the Commission found that to the extent possible replacement power
costs passed on to Monsanto should reflect the lowest possible actual cost at the time the
transaction is made.(Id. (emphasis added).
First, PacifiCorp notes that the language in the Proposed Order regarding replacement
power being provided at the "lowest possible actual cost" is subject to misinterpretation. The
value ofinterruptibility was developed using PacifiCorp s highest incremental costs - market
purchases or peaking generators - under the theory that PacifiCorp can displace or avoid its
highest cost resource by interrupting Monsanto. Indeed, Monsanto proposed to value
interruptibility not on the cost ofPacifiCorp s lowest cost resources, but on the cost of a peaking
generator. Monsanto Brief at. 21. Similarly, Commission Staff developed a value for
interruptibility based on the cost of an avoidable peaking plant. (Tr. at 730.) If "lowest possible
actual cost" were interpreted to mean the lowest cost of all ofPacifiCorp s resources, that pricing
would be inconsistent with the method for valuing interruptibility, and also inconsistent with the
very concept of economic curtailment, which allows PacifiCorp to interrupt Monsanto if it can
apply the power to a more economic transaction. Consistent with the fundamental basis for
economic interruptions
, "
lowest possible actual cost" must mean the lowest price after
PacifiCorp serves all its other retail and wholesale loads.
Further, the requirement to price replacement power at "actual cost" is an invitation for
dispute and litigation. The existence of prior disputes over what is the "actual cost" of
replacement power for interruptible customers is one reason PacifiCorp proposed the use of a
market index. (Tr.at 201-202.) The use of an independent market index avoids the risk and
expense of disputes over what is "actual cost." PacifiCorp s power supply system is too complex
to allow for an easy determination of the actual cost of serving a particular load in any given
PACIFICORP'S COMMENTS REGARDING -
PROPOSED ORDER NO. 29157
Boise-151347.10058802-00104
hour. Id. During an hour of economic curtailment, PacifiCorp could actually be selling power
into the wholesale market, or it might have no transactions whatsoever to which it could point for
determining "actual cost " depending on the Company s load and resource balance going into the
hour.
In order to make the "lowest" cost replacement power available to Monsanto, avoid the
problems associated with utilizing "actual costs " recognize Monsanto s initial proposal to use
the Mid-C index, and also recognize the Commission s acknowledgement that replacement
power will most likely come from Palo Verde, PacifiCorp proposes that the Commission adopt
the following in its final order: During those hours when PacifiCorp s ability to utilize
transmission on "Path C,,3 is not constrained, Monsanto will pay PacifiCorp the lower of the
appropriate (on-peak or off-peak) Dow Jones Mid-Columbia or Palo Verde index price for firm
power, shaped hourly in accordance with the shaping factors proposed by PacifiCorp (Exhibit
16; PacifiCorp Brief, Attachment A, p. 4). For all other hours, Monsanto will pay for
replacement power at the Palo Verde index prices, shaped hourly as previously proposed by
PacifiCorp. Id. PacifiCorp believes that this pricing proposal is reasonable and responsive to the
parties ' and the Commission s concerns.
CONCLUSION
PacifiCorp respectfully requests clarification and modification of the Commission
Proposed Order as described in these Comments. PacifiCorp also requests that the Commission
state in its final order that the approved rates are to be effective as of the termination date of the
prior contract, and pending the determination of such termination date, as of the service date of
the final order.
3 "Path C" is a particular transmission path which is generally constrained during the summer, at which
times the Company cannot move power from the Mid-C market to serve Monsanto. Tr. at 199-200.
PACIFICORP'S COMMENTS REGARDING - 9
PROPOSED ORDER NO. 29157
Boise-151347.10058802-00104
DATED: December 30 2002
PACIFICORP'S COMMENTS REGARDING -
PROPOSED ORDER NO. 29157
Boise-151347.10058802-00104
STOEL RIVES LLP
.6r ,,
John M. Eriksson
Mary S. Hobson
Attorneys for PacifiCorp
CERTIFICATE OF SERVICE
I hereby certify that I caused a copy ofthe foregoing P ACIFICORP'S COMMENTS
REGARDING PROPOSED ORDER NO. 29157 to be served upon the following by United
States mail, postage prepaid, at the addresses indicated on December 30 2002:
Scott Woodbury
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington Street
Boise, ID 83702-5983
Eric Olson
Racine, Olson, Nye, Budge & Bailey
201 E. Center
Pocatello, ID 83204-1391
James R. Smith
Monsanto Company
O. Box 816
Soda Springs, ID 83276
Randall C. Budge
Racine, Olson, Nye, Budge & Bailey
201 E. Center
Pocatello, ID 83204-1391
Brandi L. Gearhart, PLS
Legal Secretary to Mary S. Hobson
Stoel Rives LLP
PACIFICORP'S COMMENTS REGARDING - 11
PROPOSED ORDER NO. 29157
Boise-151347.10058802-00104
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