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HomeMy WebLinkAbout20030225Griswold Rebuttal Testimony.pdfBEFORE 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 )Rebuttal Testimony of Service to Monsanto Company )Bruce W. Griswold ______________________________ ) PACIFICORP Griswold, Reb - 1 PacifiCorp Q. Please state your name, business address and position with PacifiCorp (the Company).1 A. My name is Bruce W. Griswold. My business address is 825 NE Multnomah,2 Suite 600, Portland, Oregon. I am the Director, Energy Contracts at PacifiCorp.3 Q. Are you the same Bruce W. Griswold that previously filed direct testimony in this case?4 A. Yes.5 Q. What is the purpose of your testimony?6 A. I will provide testimony to clarify the negotiations of the power supply agreement and7 specifically provide rebuttal to testimony provided by Mr. James Smith and Mr. Daniel8 Schettler of Monsanto. I will respond to Monsanto’s recommended terms and9 conditions for electric service as proposed by Mr. Schettler. Finally, I will provide10 PacifiCorp's proposed terms and conditions for electric service to Monsanto.11 Q. Is PacifiCorp willing to provide Monsanto an electric service agreement and separate12 interruptible or curtailment agreements that have the same length of term?13 A. Yes. Both Mr. Smith and Mr. Schettler have indicated in their testimony that PacifiCorp14 is only willing to provide a separate power contract of one to two years and monthly15 agreements for interruptibility. This is incorrect. All during our contract negotiations,16 we have indicated that we are willing to align the terms of all the agreements such that17 they were of the same length of term. In fact in a letter to the Idaho Commissioners18 from Frank Mitchell, Vice President of PacifiCorp, he specifically emphasizes that point.19 A copy of the letter is attached as Exhibit No. 9 (BWG-R1). It should also be pointed20 out we entered additional interruptible and curtailment agreements with Monsanto21 during the 1995 Agreement when there was an opportunity that benefited both22 Griswold, Reb - 2 PacifiCorp companies. The specific price structure, terms and conditions of these interruptible and1 curtailment agreements were not consistent with the 1995 Agreement but that did not2 stop Monsanto from entering those agreements. Clear definition of each component.3 Q. Do you agree with Mr. Smith’s testimony that PacifiCorp entered into agreements to4 interrupt Monsanto for economic reasons while the 1995 Agreement was effective?5 A. No. He is correct that three Operating Reserve Agreements and one Outage Deferral6 Agreements were entered into. These agreements are described and documented in my7 direct testimony and also in Mr. Smith’s direct testimony. However, Mr. Smith8 testimony indicates that these four agreements are interruptible for economic reasons9 and that is not correct. The operating reserve agreements must meet WECC operating10 criteria and these three agreements are limited to transmission or generation11 contingencies as stated in Section 2 of the agreements:12 2.Definitions13 Operating Reserve is defined as a specific amount of electrical resources;14 all control areas must have available at all times to ensure the reliable15 operation of the interconnected system.16 Contingency Operating Reserve, a component of Operating Reserve can17 include interruptible load and is an amount of reserve necessary to reduce18 Area Control Error (ACE) to zero within ten minutes of a loss of energy19 associated with a transmission or generation contingency.20 The operating reserve agreements are not available for interrupting for economic21 reasons. The fourth agreement referenced by Mr. Smith is the Outage Deferral22 Agreement. While Mr. Smith is correct that a maintenance outage was moved to a23 higher power cost period, the maintenance was a planned maintenance by Monsanto24 that was scheduled by them to occur anyway. It was not an agreement for interruption25 Griswold, Reb - 3 PacifiCorp at all. PacifiCorp shared the power cost savings with Monsanto for moving their1 planned maintenance between the originally scheduled outage during a lower power2 cost period in the spring to the final agreed outage period in the higher power cost3 period in the summer. The actual difference in energy reduction as originally planned for4 maintenance and what occurred during the actual outage was minimal. While it had5 financial benefits for both parties, it should not be qualified as an interruptible agreement6 for economic reasons.7 Q. Why is the price paid for acquiring operating reserves in the 2002 Operating Reserve8 Agreement higher than the 2000 and 2001 Operating Reserve Agreements?9 A. The 2002 Operating Reserve Agreement was a short-term agreement effective July 910 through September 15, 2002 and the monthly price of $5.00 per kW-month reflected11 the higher power cost months of the summer. The 2000 and 2001 agreements prices12 were averages of the individual monthly prices because those agreements had terms of13 twelve months. If we had entered into a twelve month agreement versus the two month14 plus term for the 2002 agreement, the average price for the 12 months would have been15 in the range of $2.50 to $3.00 per kW-month for the number of hours per month16 acquired for operating reserves.17 Q. Has PacifiCorp ever declined Monsanto’s offer to curtail its load?18 A. Yes. On more than one occasion, we have been contacted by Monsanto who has19 asked us if we would be interested in paying them for the shutdown of a furnace20 because their product inventory was sufficient to allow them to shutdown. Specifically,21 Mr. Smith references two such instances in his testimony, December 2000 and January22 Griswold, Reb - 4 PacifiCorp 2001. He states that while it serves no purpose to discuss these instances he continues1 on to state that it shows why short-term operating agreements are problematic and do2 not provide price certainty or stability.3 First, let me briefly explain the situation. As a result of discussions in early December4 2000 we were asked by Mr. Smith to consider a second operating reserve agreement5 for 49 MW (a second furnace) that would start immediately and expire February 28,6 2001 and a one-year extension of the first operating reserve agreement. Both of these7 agreements were accepted and signed December 13, 2000. Both were fixed price8 agreements that did provide price certainty to Monsanto over the term of the9 agreements requested. In January 2001, Mr. Smith did contact me and he stated that10 he had a specific third party offer for a multi-day purchase of Monsanto’s power and11 that PacifiCorp would need to accept this offer so that Monsanto could sell their power12 to the third party. I and others in our company informed him that first, the power was13 not his to sell since Monsanto did not have a take-or-pay arrangement for that block of14 power and second, his power supply contract specifically precludes sale for resale. We15 also discussed the fact that we had two Monsanto furnaces on operating reserve16 agreements and they are not eligible for curtailment since the operating reserve17 agreements define the terms under which the two furnaces could be interrupted.18 Monsanto has indicated in negotiations and through their testimony that one furnace19 must be operating at all times for safety reasons. Therefore, if the third furnace were20 curtailed and we called for operating reserves on the other two furnaces, Monsanto21 would be faced with a safety concern. This was simply a situation where the terms of22 Griswold, Reb - 5 PacifiCorp the existing short term operating reserve agreements precluded the use of those two1 furnaces in other short-term agreements. The two operating reserve agreements were2 priced as fixed monthly price and did provide the price certainty and stability Monsanto3 indicates they desire. They know what they are compensated at every month and they4 know exactly how many times PacifiCorp had the right to interrupt each month.5 Q. Please identify and describe what terms and conditions need to be modified or updated6 in the draft Power Supply Agreement presented by Mr. Schettler in his testimony as7 Exhibit 210?8 A. Mr. Schettler’s testimony indicates that the 1995 Agreement can readily be updated9 with minimal changes. I disagree. I have outlined the major areas of disagreement or10 where terms conflict or are unclear.11 · The 1995 Agreement is a single contract with a fixed inclusive energy price for12 delivered power with interruptibility for System Integrity. We believe the13 agreement should be separated into an agreement for electric service to14 Monsanto and a separate agreement for purchase of interruptibility or15 curtailment from Monsanto. Monsanto has kept the same fixed price per MWh16 and made it inclusive of any discount or credit to reflect the cost of acquiring17 three interruptible or curtailment options. The interruptible products described18 in Exhibit A of the contract are not defined and costs of acquiring those specific19 products under those terms and conditions as shown are not clear. The20 agreement keeps the System Integrity definition and interruptibility in Section 321 but then redefines that product in Exhibit A as an Emergency Curtailment. The22 Griswold, Reb - 6 PacifiCorp calculation of power factor in Section 4.14 is not consistent with PacifiCorp's1 standard for power factor calculation.2 · There is no differentiation between the price of power for the proposed 13MW3 of firm load and the interruptible load.4 · The terms in Section 3 need to be updated to reflect any new power quality5 standards or safety standards that have been implemented since 1995.6 Monsanto and PacifiCorp have been addressing safety and flicker issues at the7 plant that could affect their operations, their employees safety, or other8 customers during normal switching of the 138kV lines serving Monsanto and it9 is important to incorporate terms into the new agreement to address this issue.10 · Section 2.1 which deals with the Term of the agreement has modified the basic11 verbiage but kept the word ”thereafter” which is the basis for our current12 litigation with Monsanto over termination of the 1995 Agreement. This clause13 needs to be rewritten and clarified.14 · Section 2.3 carries forward the requirement that PacifiCorp match any third15 party offer for power sales to Monsanto. Third party offers which are not16 available to Monsanto because retail direct access does not exist in Idaho. This17 clause is no longer appropriate.18 · Section 4.1.5 is a most favored nations clause. PacifiCorp treats every19 customer similarly for the benefits that they bring to any transaction. Both20 Monsanto and PacifiCorp want defined contract terms over a specified number21 of years. This clause is one-sided and no longer appropriate.22 Griswold, Reb - 7 PacifiCorp Q. What are PacifiCorp's proposed terms and conditions for electric service to Monsanto1 at their Soda Springs facility?2 A. PacifiCorp proposes to provide electric service to Monsanto under the following3 general provisions. A detailed proposal is attached as Exhibit No. 10 (BWG-R2).4 While both my rebuttal testimony and Exhibit No. 10 (BWG-R2) contain the major5 provisions for electric service, they do not contain all the terms and conditions that6 would go into a definitive agreement. I have only attempted to define the commercial7 structure.8 1. Two agreements – one agreement for electric service to the plant and a9 separate agreement for acquiring interruptibility from the plant.10 2. Term of both agreements would be effective September 1, 2002 or when the11 Idaho PUC issues an Order approving the agreements. Both agreements would12 terminate December 31, 2006. Length of the agreements would be13 coterminous and four years and four months in length.14 3. Price components for the electric service to the plant are cost of service15 components. These specific components would be applied to all power and16 energy delivered and metered at the Soda Springs plant:17 · Customer Charge:$ 282.89 per month18 · Demand Charge:$ 9.51 per kW month19 · Energy Charge:$ 16.31 per MWh20 21 A power factor adjustment to energy usage would also apply when power22 factor is less than 90 percent.23 Griswold, Reb - 8 PacifiCorp 4. Update electric service agreement terms to reflect any new power quality,1 safety or operational standards based on prudent industry practice and modify2 or remove contentious terms including most favored nation, significant changes,3 and termination clauses.4 5. Once per year adjustment to all price components in the electric service5 agreement based on overall average Idaho jurisdictional rate increase or6 decrease for that calendar year.7 6. The electric service agreement to be retail load situs to Idaho jurisdiction.8 7. The interruptible agreement would be a separate agreement. It would pay9 Monsanto monthly payments for three interruptible or curtailment options10 including system integrity, non-spin contingency operating reserves and an11 economic curtailment option which has a buy-through provision at the Palo12 Verde market hub. Total allowed hours of interruption or curtailment would be13 800 hours per calendar year. The monthly payments to Monsanto for these14 options are:15 · System Integrity monthly payment of $40,500 for 162MW minimum.16 · Operating Reserves monthly payment of $259,350 for 95MW minimum17 for 300 hours.18 · Economic Curtailment monthly payment of $195,000 for 46MW19 minimum for 500 hours.20 · Total monthly payment of $494,850.21 8. The interruptible agreement would be subject to reopeners for either party22 based on interruptibility costs developed in other proceedings or task forces or23 Griswold, Reb - 9 PacifiCorp the WECC operating reserve criteria changes that would affect the operating1 reserve component of the interruptible agreement.2 9. The interruptible agreement to be system allocated.3 10. Additional interruptible or curtailment opportunities may be negotiated between4 PacifiCorp and Monsanto as separate agreements during the term.5 These proposed agreements correctly align the cost of service for Monsanto and the6 cost of acquiring interruptibility or curtailment from Monsanto as a power resource. If7 these components are applied under the proposed terms and conditions to the historical8 usage pattern in the cost of service study prepared by Mr. Taylor, Monsanto’s average9 net cost including all interruptible or curtailment option payments would be $27 per10 MWh. Exhibit No. 11 (BWG-R3) summarizes these costs as they apply to Monsanto11 on a monthly basis and converts them to a net price per MWh.12 Q. The Commission previously ordered in this case that there be a true-up mechanism to13 adjust for the difference between the interim rate and the rate finally adopted in this case14 if the federal district court determines that the 1995 Agreement expired December 31,15 2001. Do you have a proposal for such a true-up mechanism?16 A. Yes. The Company proposes that the Commission base the true up on the average17 effective price to Monsanto of $27 per MWh, as described above. Of course, that18 price is based on a level of interruptibility greater than the interruption capability that19 existed under the 1995 Agreement, which we have continued operating under since20 December 31 of last year. Nevertheless, we believe that the net effective price to21 Monsanto, based on the prices for electric service and payments for interruptibility,22 Griswold, Reb - 10 PacifiCorp would provide a basis for true up consistent with the Commission's prior order.1 Q. Does this conclude your rebuttal testimony?2 A.Yes it does.3