20030224Direct Testimony of Bruce Griswold.pdf

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

In the Matter of the Application of ) CASE NO. PAC-E-01-16
PacifiCorp, dba Utah Power & Light )
Company for Approval of Interim )
Provisions for the Supply of Electric )
Service to Monsanto Company )
______________________________ )

DIRECT TESTIMONY OF BRUCE W. GRISWOLD

Boise-141850.1 0058802-00104
Q. Please state your name, business address and position with PacifiCorp (the
Company).
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R. My name is Bruce W. Griswold. My business address is 825 N. E. Multnomah, Suite
600, Portland, Oregon. I am the Director, Energy Contracts at PacifiCorp.
Qualifications
Q. Please briefly describe your education and business experience.
R. I have a B.S. and M.S. degree in Agricultural Engineering from Montana State and
Oregon State, respectively. I have been employed with PacifiCorp over fifteen years
in various positions of responsibility in retail energy services, engineering, marketing
and wholesale energy services. I have also worked in private industry and with an
environmental firm as a project engineer. I currently work in the Commercial and
Trading Business unit of PacifiCorp. My responsibilities include negotiation and
management of special power supply and resource acquisition agreements with
PacifiCorp’s largest retail customers.
Purpose of Testimony
Q. What is the purpose of your testimony?
R. I will present testimony regarding the general background and negotiations with
Monsanto for both the power supply agreement and separate agreements for operating
reserves, interruptibility or other load curtailment options. I will provide
supplemental testimony regarding interruptibility in support of Mr. Taylor’s direct
testimony. I will show that PacifiCorp has negotiated in good faith and treated
Monsanto consistent with other special contract customers served by PacifiCorp in
Idaho and other states.
Griswold, Di –
PacifiCorp
Boise-141850.1 0058802-00104
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Q. What have been the contractual arrangements for supplying power to
Monsanto?
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R. Monsanto has provided electric service under an interruptible power supply
agreement that was approved in 1995 and, in the Company’s view, terminated
December 31, 2001. During the term of this agreement, PacifiCorp also purchased
operating reserves and a load curtailment product from Monsanto. As the termination
date of the 1995 Agreement approached, the parties were unable to negotiate a new
rate. As a result, on December 07, 2001, PacifiCorp filed an Application with the
Idaho Commission requesting that the Commission approve interim provisions for the
supply of electric service to Monsanto at PacifiCorp’s Cost of Service as provided in
Mr. Taylor’s testimony.
Q. What has changed that requires the existing interruptible contract structure to
be separated into a firm power supply agreement and a separate interruptibility
agreement?
R. The basis for separating the interruptible or curtailment agreements from the power
supply agreement was due to commercial and regulatory reasons. I will address the
commercial reasons. Mr. Taylor has addressed the regulatory reasons in his
testimony. The 1995 Agreement as written allowed PacifiCorp to interrupt Monsanto
for system integrity only. This meant that regardless of the price of power to serve
Monsanto, as long as the PacifiCorp electrical system was operating within the
defined electrical system limits, PacifiCorp was required to purchase that power to
serve Monsanto. For example, during the summer of 2001 we were constantly
purchasing power at prices over $150 per MWh to serve Monsanto’s load at the 1995
Griswold, Di –
PacifiCorp
Boise-141850.1 0058802-00104
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Agreement price of $18.50 per MWh. In fact, during the 74-month term of the 1995
Agreement, PacifiCorp's records show that we interrupted Monsanto less than five
times under the conditions of the agreement. Therefore, on a going forward basis
one reason to separate the agreements was to clearly define any terms and conditions
for interruptibility including the months of the year, hours of the day, load to be
interrupted, frequency, notification period, etc. Second, it was necessary to
accurately reflect the cost of acquiring any interruptibility and align the cost with the
specific resource being acquired. Because these resources are considered short-term,
the alternative is to purchase a resource from the wholesale market and must be
compared to market. Separating the agreement from power supply allows the
Company to acquire the resource at the most appropriate cost for the type of resource
on a short term without impacting the power supply agreement. Third, there are
proposed changes by both NERC and WECC in their operating policies that could
modify both the quantity and requirements of both contingency and spinning
operating reserves. These changes will affect the short notice interruptibility
requirements for PacifiCorp. They are still under review and not finalized; however,
the focus of the change is to increase the system security and real-time recovery after
a contingency. The timeline on changes is anticipated to be mid-2003 but we do not
have a definitive schedule from the WECC yet. Last, PacifiCorp's preferred approach
is to purchase an option for the right to interrupt plus pay for the actual interruption
when used. This is similar to products we are purchasing from third parties in the
market to meet peak load conditions and more closely reflects the value of
interruptibility as a resource – where the alternative option is to quickly ramp up a
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Griswold, Di –
PacifiCorp
Boise-141850.1 0058802-00104
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generator like a peaking unit. A single agreement with a discounted price to tariff
for interruptibility does not reflect this cost structure or flexibility because the cost to
PacifiCorp is fixed whether the interruption is taken or not. Our approach correctly
aligns the cost for both supply of power to Monsanto based on Cost-Of-Service as a
firm load and the purchase of the interruptibility back from Monsanto as a short-term
resource acquired from the market. As my testimony indicates, we did purchase
operating reserves from Monsanto and also a load curtailment product by shifting a
major furnace maintenance during the period 2000 through 2001. These were done
under separate agreements that we would not have been able to do through the
existing 1995 Agreement. Throughout the current negotiations we have proposed
several operating reserves, interruptible or curtailment options that paid Monsanto
monthly for the right to interrupt and then for the actual interruption. Exhibit No. 4
(BWG-1) is a summary table of the various demand side products proposed to
Monsanto during the negotiation period and is summarized as of October 11, 2001.
In fact, through February 2002, PacifiCorp continued to provide updated prices and
terms for operating reserves. The flexibility and cost to PacifiCorp for these options
are consistent with our other peak management alternatives that we acquired during
the same period. These various demand side management products when netted with
the Cost-Of-Service power supply agreement provide Monsanto a net power cost of
approximately $27 to $28 per MWh and correctly aligns the cost to serve Monsanto
and the cost to acquire of demand side resources from Monsanto.
Q. What has been the negotiation process leading up to the current arrangement
for supplying power to Monsanto?
Griswold, Di –
PacifiCorp
Boise-141850.1 0058802-00104
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R. As early as 1999, representatives from PacifiCorp held meetings, both at Monsanto’s
request and self initiated, to discuss a new power supply agreement at a cost of
service based rate. As presented in Mr. Taylor’s testimony, the Company realized
during this same period that system allocation of special contracts was becoming
more difficult and a more appropriate approach for power supply agreements was to
move them to tariff or a cost of service agreement as a firm retail load situs to the
state where they were served and develop separate agreements with those customers
for interruptibility, operating reserves and / or generation.
Throughout calendar 2000 and 2001, the parties continued discussions on a number
of power supply and demand side resource acquisition opportunities with several
management levels throughout PacifiCorp. These discussions included the exchange
of proposals for operating reserves, interruptibility, and load curtailment. As a result
of those meetings and the exchange of proposals, PacifiCorp entered into three
separate agreements to purchase interruptible and load curtailment products from
Monsanto that it could not acquire through the existing contract. Two operating
reserve agreements were reached in 2000 and 2001. The first operating reserve
agreement paid Monsanto a monthly option for the minimum of one furnace. The
second operating reserve agreement paid Monsanto a monthly option for a minimum
of a second furnace. These agreements are included in Exhibit No. 5 (marked
CONFIDENTIAL). An outage deferral agreement that shifted Monsanto’s major
furnace outage from the April 2002 to July 2001 was also purchased from Monsanto
in 2001. This agreement split the cost savings of market power purchases with
Monsanto based on shifting the maintenance to the higher market price period. This
Griswold, Di –
PacifiCorp
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agreement is attached in Exhibit No. 6 (marked CONFIDENTIAL). In addition,
numerous other demand side proposals were presented to Monsanto during the
negotiations that were never agreed. These are included in Exhibit No. 7 (BWG-4).
In view of the impending termination of the 1995 Agreement, PacifiCorp and
Monsanto began more intensive negotiation of a new power sales arrangement in July
2001. Principles for the new agreement were discussed during the meetings and
shared in writing in October 2001 by PacifiCorp. This outline of terms assumed that
PacifiCorp would provide Monsanto’s full service requirements at a cost of service
rate as described in Mr. Taylor’s testimony. Under this structure, PacifiCorp offered
to pay Monsanto for curtailment—or the ability to interrupt Monsanto’s load through
a separate agreement. A copy of the principles is attached as Exhibit No. 8 (BWG-5).
Throughout the period, the parties continued their discussions in an effort to arrive at
a new power supply arrangement that included the purchase of interruptibility and/or
load curtailment. Over time, however, the negotiations broke down, with Monsanto
insisting on obtaining a rate that was far below what PacifiCorp could economically
provide either through the Cost-Of-Service or as a prudent purchase of demand side
resources. Monsanto also was unwilling to separate the two agreements.
Because of this gap, the parties were unable to reach an agreement. Given the
parties’ inability to reach an agreement and the impending termination of the 1995
Agreement, PacifiCorp filed an application with the Commission on December 07,
2001 requesting that Monsanto be provided service on an interim basis at the cost of
service PacifiCorp had previously proposed.
Griswold, Di –
PacifiCorp
Boise-141850.1 0058802-00104
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Griswold, Di –
PacifiCorp
Boise-141850.1 0058802-00104
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Q. Has PacifiCorp treated Monsanto any differently than other special contract
customers?
R. No, our approach and dealings have been consistent across all special contract
customers. In particular, in Idaho we have provided Nu-West the same approach and
successfully agreed upon a special contract with them based on their Cost-Of-Service.
We have also negotiated separate agreements with many special contract customers in
other jurisdictions for resources they could and would provide including on-site
generation or demand side management. We have provided offers for the purchase of
Monsanto’s interruptibility that reflects the cost of acquiring those resources.
Q. Does this conclude your testimony?
R. Yes it does.