Brief.pdf

Page
James F. Fell
Erinn Kelley-Siel
STOEL RNES LLP
900 S.W. Fifth Avenue, Suite 2600
Portland, Oregon 97204
Phone: [phone]
Facsimile: [phone]
Attorneys for PacifiCorp
RECEIVED mFILED
ZagZ OCT 15 PH 3: f 3
IDj:kJ'U FUtWLIC
UTILITIES COMMlSSIQN
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
In the Matter of the Application ofPacifiCorp
d/b/a Utah Power & Light Company for
Approval of Interim Provisions for the Supply
of Electric Service to Monsanto Company
PACIFICORP'S POST-HEARING BRIEF
PAC-01-
INTRODUCTION
PacifiCorp, d/b/a Utah Power & Light Company ("PacifiCorp" or the "Company
requests approval of rates, terms and conditions for the provision of electric service to, and the
purchase of interruptibility options from, Monsanto Company ("Monsanto ). The Commission
once observed that "(tJhe determination of a fair rate for Monsanto is more complicated than for
any other customer in the Idaho system.l The history of this proceeding supports that
observation. Nevertheless, the rates included in PacifiCorp s final proposal not only satisfy the
Commission s statutory just and reasonable standard, they also are the only rates before the
Commission that are not preferential to Monsanto or discriminatory or otherwise
disadvantageous to other Idaho customers. Accordingly, for the reasons stated in PacifiCorp
testimony and in this Brief, the Commission should reject Monsanto s efforts to shift costs away
from itself to the detriment of other Idaho customers and approve the rates, terms and conditions
the Company has proposed.
Re Utah Power and Light Company, Case No. UPL-89- 7 , Order No. 22976
(Feb. 13 , 1990).
PACIFICORP'S POST-HEARING BRIEF (f0
\ '
\ l."
. \ \ : ,,:,
1/ /
~,
'\:::/' LlSTOEL RIVES LLP
ATTORNEYS
900 SW FIFTH A VE~UE, SUITE 2600 PORTLAND. OREGON 97204-1268
Telephone [phone]Portlnd3-1419149.20058802-001O4
Page
BACKGROUND
PacifiCorp has been serving Monsanto s electric needs pursuant to special contract for
over fifty years. (Tr. 331.) Most recently, PacifiCorp has provided electric service to Monsanto
under an interruptible power supply agreement that was approved in 1995 and, in the Company
view, terminated December 31 , 2001 ("1995 Agreement,,2 (Tr. 28.) Beginning as early as
1999 and continuing throughout 2000 and 2001, PacifiCorp and Monsanto tried-albeit
unsuccessfully-to negotiate a new power supply arrangement. (Tr. 31.) Because the
termination date of the 1995 Agreement was imminent, on December 7 2001 , PacifiCorp filed
an Application with the Commission requesting that the Commission approve interim provisions
for the supply of electric service to Monsanto. (Tr. 33.
PacifiCorp initially proposed in this proceeding to provide Monsanto s full service
requirements in a firm power supply agreement and to separately negotiate and purchase
interruptibility and/or load curtailment. (Tr. 31-33.) Monsanto objected to PacifiCorp
proposed power supply arrangement on the basis that it did not meet Monsanto s "critical needs
of price certainty, price stability and reduced risk." (Tr. 413.) Discussing what it viewed as the
four primary areas of disagreement" between the parties, Monsanto listed the following
requirements with respect to specific contract terms necessary to achieve its critical needs:
1. That PacifiCorp continue to supply electric service to
Monsanto pursuant to a single integrated contract providing
both firm and interruptible service;
2. That the contract reflect a single integrated price for firm and
interruptible service that is certain for the term of the contract;
3. That the term of the contract be at least five years; and
2 The termination of the 1995 Agreement is currently being litigated in the US. District
Court for the District ofIdaho, Case No. CV-01-607-BLW. (Tr. 340.
PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-OO104
STOEL RIVES LLP
ATTORNEYS
900 SW FIFTH A VENUE. SUITE 2600 PORTLAND, OREGON 97204-1268
Telephone [phone]
Page
4. That the purchase of curtailment options be included in the
single integrated contract and be factored into the
determination of the single integrated contract price. (Tr. 416-
17.
PacifiCorp s final proposal includes the following elements:
1. PacifiCorp will continue to supply electric service to Monsanto
pursuant to a single contract providing firm, interruptible and
replacement power service;
2. The contract will contain separate pricing components but
when the components are combined, they will reflect a net cost
to Monsanto for firm, interruptible and replacement power
servIce;
3. The contract will be for a fixed term ending December 31
2006 (5 years from December 31 2001 , the date PacifiCorp
contends the last contract ended); and
4. The contract will include the purchase of curtailment options
and sale of replacement power, but will not include a single
integrated price.
As demonstrated by the foregoing, PacifiCorp s final proposal substantially satisfies three
out of Monsanto s four contract requirements. In addition, PacifiCorp s final proposal is the
only proposal before the Commission that is cost justified and provides the price stability,
certainty and reduced risk that are "critical" both to Monsanto and to the economic well-being of
the southeastern Idaho community.
LEGAL STANDARD
The rates adopted for Monsanto must meet the statutory just and reasonable standard.3 In
addition, Monsanto s rates cannot be preferential, discriminatory, or otherwise prejudicial or
disadvantageous.4 As demonstrated below, PacifiCorp s final proposal results in prices that are
See Idaho Code 99 61-301 61-502 61-622.
See Idaho Code 99 61-315, 61-502.
P ACIFICORP' S POST -HEARING BRIEF
Portlnd3-1419149.20058802-OO1O4
STOEL RIvES LLP
ATTORNEYS900 Sw FIFTH A VENUE, SUITE 2600 PORTLAND, OREGON 97204-1268Telephone [phone]
Page
fair, just and reasonable in that they are: 1) cost justified; 2) supported by the evidence; and 3)
mutually beneficial to both parties. Unlike Monsanto s proposal, PacifiCorp s proposal does not
shift costs to other customer classes and, therefore, is neither preferential toward Monsanto nor
disadvantageous to other Idaho customers.
PACIFICORP'S FINAL PROPOSAL
PacifiCorp s final proposal, based on changes Monsanto made in its rebuttal testimony,
can be summarized as follows:
1. A single electric service agreement providing both firm and interruptible service;
2. Although priced separately, the bill to Monsanto will incorporate all charges for
firm, interruptible and replacement power service;
3. The term of the contract will commence on the date established by the
Commission and will end December 31 , 2006;
4. For firm electric service, PacifiCorp will charge Monsanto each month a customer
charge of$282., a demand charge of$9.51 per kW-month and an energy charge
of$16.3l per MWh, based on PacifiCorp s embedded costs of service;
5. The cost-of-service for firm electric service will be allocated on a situs basis to
the Idaho jurisdiction;
6. The rates for firm electric service may be adjusted during the term by the
Commission, subject to the standards applicable to tariffs;
7. Monsanto will receive monthly credits for three interruptible or curtailment
options: System Integrity; non-spin contingency Operating Reserves; and an
Economic Curtailment option with a buy-through provision;
8. PacifiCorp will purchase from Monsanto the right to interrupt all three furnaces
for System Integrity, for up to 12 hours per year. The monthly credit for this right
will be $40 500;
9. PacifiCorp will purchase from Monsanto 95 MW of Operating Reserves for 288
hours per year. The monthly credit for this product will be $326 849.41 , based on
a two-tiered firm rate structure and an energy charge of $16., prorated for
changes in furnace availability;
PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-00104
STOEL RIVES LLP
ATTORNEYS900 SW FIFTH A VENUE
...
SUITE 2600 PORTLAND , OREGON 97204-1268ulephone 1503) 224-3380
Page
10. The Operating Reserves component of the agreement will be subject to reopening
if Western Electricity Coordinating Council non-spinning operating reserve
criteria change;
11. PacifiCorp will purchase from Monsanto 67 MW of Economic Curtailment
available for 500 hours per year. The monthly credit for this product will be
$335,455., based on a two-tiered firm rate structure and an energy charge (or
strike price ) of $16., prorated for changes in furnace availability;
12. Monsanto will have the option to buy through the Economic Curtailment
replacement power ). The replacement power cost for Monsanto will be
calculated by multiplying the curtailed load by the duration of the curtailment
multiplied by the hourly-shaped daily Dow Jones Palo Verde Firm On-Peak Price;
13. The monthly credits for System Integrity, Operating Reserves, and Economic
Curtailment will be allocated on a system-wide basis;
14. In the event Idaho statutes are amended to provide customers with the ability to
choose an electric supplier, either party may terminate the agreement within 90
days of direct access implementation;
15. The agreement would not include: an annual price adjustment, a "most favored
nations" clause, or a clause allowing Monsanto to modify the contract based on
significant changes" in the industry;
16. The termination clause of the contract will be modified to do away with the
current ambiguity over when the contract terminates and what notice is required.
A revised PacifiCorp Ex. 10 containing PacifiCorp s final proposed prices, terms and conditions
for service to Monsanto is attached to this brief as Attachment A.
ARGUMENT
Price for Firm Electric Service.
PacifiCorp Proposal (Supported by Staff).
The Company s proposal with respect to valuation of the firm rate for provision of
electric service to Monsanto has remained the same throughout this proceeding and is supported
PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-OO1O4
STOEL RIVES LLP
ATTORNEYS
900 SW FIFTH A VENUE, SUITE 2600 PORTLAND, OREGON 97204-1268
Telephone [phone]
Page
by Commission Staff 5 (Tr. 719-20.) Using an embedded cost-of-service study, PacifiCorp has
determined that 31.4 mills per kWh is the appropriate rate for firm electric service to Monsanto.
(Tr. 214.) Full cost-of-service is the appropriate "starting point" for determining Monsanto
firm service rate because it ensures that, like other Idaho customers, Monsanto is paying its full
and fair share ofPacifiCorp s costs to provide service. 6 (Tr. 230.) Moreover, at PacifiCorp
proposed firm rate, standard electric service to Monsanto will provide the same return on
investment as is expected of other PacifiCorp customers in Idaho under similar terms and
conditions. (Tr. 214.
Monsanto Proposal.
In its rebuttal testimony, Monsanto concedes that cost-of-service is the appropriate
valuation methodology to apply. (Tr.565.) Using that methodology, Monsanto witness Kathryn
Iverson proposes that $29.30 per MWh be the "maximum" firm rate applied to PacifiCorp
provision of electric service to Monsanto. (Id.Notwithstanding her acknowledgement that both
Staff and the Irrigators support PacifiCorp s application of its cost-of-service methodology, Ms.
Iverson maintains that in her view, use ofthe Company s cost study would "create new
precedent." (Tr. 567-71.) Ms. Iverson also contends that the 1998 test year results should be
applied because the 1999 test year used by the Company "has not been audited by the
Commission." (Tr. 571-72.) Finally, Ms. Iverson argues that even if $31.40 per MWh is
5 Initially, Anthony Yankel, witness for the Idaho Irrigation Pumpers Association (the
Irrigators ), also supported the Company s cost-of-service methodology and the resulting firm
rate of$31.40. (Tr. 764-65.) In response to Monsanto s rebuttal testimony, Mr. Yankel
continued to support PacifiCorp s proposed cost-of-service methodology, except that he also
considered Monsanto s proposed firm rate of$29.30 (derived using PacifiCorp s methodology
but capped at the current 8.418% overall rate of return for Idaho) to be reasonable. (Tr. 772.
6 The firm price for electric service has been referred to in this proceeding as the "starting
point" in the sense that it produces an electricity bill against which credits for the value of
interruptibility will be applied.
PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-00104
STOEL RIVES LLP
ATTORNEYS
900 SW FIFTH A VENUE, SUITE 2600 PORTLAND, OREGON 97204-1268
Telephone [phone]
Page
Monsanto s "'true' cost-of-service " the Commission should use $29.30 per MWh instead
because that rate "would bring Monsanto over 80% of the way to full cost-of-service." (Tr. 565.
For the following reasons, the Commission should reject Monsanto s arguments about the
Company s cost-of-service study and resulting firm rate.
Monsanto s proposed firm rate of $29.30 per MWh.
Ms. Iverson is critical ofPacifiCorp s calculation of Monsanto s embedded cost-of-
service firm rate because, she claims, that rate will increase the Idaho jurisdictional rate of return
from 8.418% to 8.867%. (Tr. 543.) Ms. Iverson contends that instead, the increase to
Monsanto s firm rate should be limited to the overall increase necessary to maintain the current
overall Idaho rate of return, 8.418%. Working backward from the current Idaho return, Ms.
Iverson determines that Monsanto s firm rate should be $29.30 per MWh, producing a rate of
return for Monsanto of 6.88%. (Tr. 544.
Limiting Monsanto s rate increase and thereby "freezing" its rate of return at a level that
is below both the state average and a reasonable utility return for a term of five years (the
minimum contract term Monsanto is proposing) will result in a rate subsidy to Monsanto for the
duration of the contract. (Tr. 235.) The effect of such a freeze is to shift costs away from
Monsanto and toward residential, small business, agricultural, and other industrial customers.
Not only does Ms. Iverson s adjustment shift costs toward other Idaho customers, it also denies
them benefits to which they are due under the cost-of-service study in this case. In that study, all
PacifiCorp special contracts throughout its system are assigned on a situs basis , with each state
bearing the full embedded revenue requirement responsibility for all special contract customers
in that state. The revenue shortfall from these contracts was previously allocated to all states
with Idaho bearing its share of the system-wide revenue shortfall. The effect of switching to
situs allocation of these contracts in this cost-of-:.Service study is to reduce the jurisdictional cost-
of-service for Idaho. This benefit belongs to all Idaho customers. By holding the overall rate of
return for Idaho constant at 8.418%, Ms. Iverson arbitrarily allocates to Monsanto Idaho s entire
PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-OO1O4
STOEL RIVES LLP
ATTORNEYS900 SW FIFTH A VENUE, SUITE 2600 PORTLAND, OREGON 97204-1268
Telephone [phone]
Page
share of that benefit and uses it to lower Monsanto s contract rate rather than distributing it
among all Idaho customers. (Tr. 235-36.) If this treatment is accepted by the Commission, other
Idaho customers will be denied this benefit in future rate cases.
Under PacifiCorp s proposal, all Idaho customer groups will benefit from special contract
situs treatment. In addition, PacifiCorp s proposed treatment is fair and nondiscriminatory in
that Monsanto will be expected to pay rates that reflect a reasonable rate of return, just as other
customers do. This is not a general rate case, and the Commission does not have the ability to
bring all rates up to reasonable rate of return. That fact does not entitle Monsanto to a 6.88%
rate of return. It only means that Monsanto is being set at a current rate of return at a different
time than other customers. This is not unreasonable or discriminatory, given that (1) Monsanto
rate has been below embedded cost-of-service throughout the 1995 contract and (2) Monsanto is
asking for a fixed price for a five-year term. Although it is true that PacifiCorp s overall Idaho
rate of return will increase slightly under the Company s proposal, the resulting 0.449 percent
increase in rate of return will not raise the equity portion above PacifiCorp s currently authorized
Idaho return on equity or any return on equity recently approved for PacifiCorp by any other
jurisdiction. In short, unlike Monsanto s proposal respecting its firm service rate, PacifiCorp
proposal does not shift costs to, or benefits from, other Idaho customers.
75/25 classification methodology.
Ms. Iverson s arguments respecting the "precedent" set by PacifiCorp s cost-of-service
classification methodology likewise should be rejected. Both Staff witness David Schunke and
7 Because Monsanto proposes that its rates be fixed for a five-year term, the Commission
would not have the ability to reallocate this benefit in a later rate case.
8 For the same reasons, Ms. Iverson s contention that a proposed firm rate of $29.30 per
MWh would bring Monsanto more than 80 percent of the way to full cost-of-service cannot be
accepted. Under the embedded cost analysis Ms. Iverson agrees should apply, any rate less than
Monsanto s full embedded costs results in a rate subsidy for Monsanto paid for by other Idaho
customers.
PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.2oo58802-00104
STOEL RIvES LLP
ATTORNEYS
900 SW FIFTH A VENUE, SUITE 2600 PORTLAND, OREGON 97204-1268Telephone [phone]
Page
Mr. Yankel support the 75/25 demand/energy classification PacifiCorp proposes for generation
and transmission fixed costs. Mr. Schunke and Mr. Yankel agree that the 75/25 classification
methodology is consistent with the undisputed fact that generation and transmission facilities are
designed and operated to provide both capacity and energy. (Tr. 723-, Tr. 765). By contrast
Ms. Iverson s suggestion that generation and transmission fixed costs should be allocated as 100
percent demand related completely ignores that reality. Although the Commission in Order No.
23508 (PacifiCorp Ex. 26) chose not to address the validity of an allocator based on energy, that
decision was based in part on the fact that the order was issued just after the Pacific PowerlUtah
Power merger, a time when PacifiCorp s system was not yet centrally dispatched. As Mr.
Schunke points out, it is especially appropriate to recognize an energy allocator when
considering an integrated system, like PacifiCorp , that includes hydroelectric generation. (Tr.
723.) In light of the changes that have occurred since Order No. 23508 was issued 12 years ago
the Commission s decision in that order should not affect the classification it applies in this case.
1999 cost-of-service data.
Ms. Iverson proposes using 1998 cost data as opposed to the 1999 data used by the
Company because, she claims, the 1998 test year was audited by the Staff and the 1999 test year
data was not. While it is true that the 1998 test year was audited by Staff, these audits are not
official. Neither the 1998 nor the 1999 cost-of-service study has been formally reviewed or
approved by the Commission. In fact, Idaho s cost-of-service study has not been reviewed by
the Commission since 1990. Simply put, the 1998 test year Ms. Iverson would use to support her
proposed maximum increase to Monsanto s rate is an arbitrary choice and not the most recent
Idaho cost-of-service data available. Mr. Schunke s view that the Company s operating costs
PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-00104
STOEL RIVES LLP
ATTORNEYS900 SW FIFTH A VENUE, SUITE 2600 PORTLAND , OREGON 97204-1268Telephone [phone]
Page
and expenses likely have increased over the last five years supports the reasonableness of using
the most recent cost data on file with the Commission, i., the 1999 data.9 (Tr. 738-42.
Firm rate design.
Both PacifiCorp and Monsanto agree that the Commission-authorized firm rate design is
critical to the valuation ofinterruptibility and economic curtailment. (Tr. 823-24; Tr. 562.
PacifiCorp proposes 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. (PacifiCorp Ex.
10.) Monsanto, by contrast
, "
prefers that the rate design be a flat all-in energy rate." (Tr. 562.
PacifiCorp believes that its rate design is a better reflection of the cost-of-service components
associated with service to Monsanto, will properly match Monsanto s incentives with
PacifiCorp s costs and will provide a better matching of costs and revenues should Monsanto
usage characteristics change during the contract term. If Monsanto adds a furnace, idles a
furnace or otherwise alters its usage characteristics, the separate demand and energy charges will
capture these changes more accurately than an all-in energy rate.
Irrespective of the rate design adopted by the Commission, it is important to keep in mind
the impact that rate design has on the valuation of interruptibility and curtailment. As Mr.
Watters explained, the calculation of lost retail revenues in deriving the payment for Operating
Reserves and the calculation of the "strike price" in deriving the payment for Economic
Curtailment are based on Monsanto s energy charge. (Tr. 195-97; see , PacifiCorp Ex. 27.
The results change significantly depending on whether these calculations are done using an
energy-only charge of $16.31 per MWh or an all-in energy charge of $31.40 per MWh. For
purposes of the following discussion, PacifiCorp assumes that the Commission adopts its
See also Re Utah Power Light Co.Case No. UPL-90-, Order No. 23508 at 8
(PacifiCorp Ex. 26) (Commission will not make ratemaking decisions based on "stale" cost-of-
service data).
10 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-00104
STOEL RIVES LLP
ATTORNEYS
900 SW FIFTH A VENUE, SUITE 2600 PORTLAND, OREGON 97204-1268
Telephone [phone]
Page
proposed demand/energy rate design and these calculations are done using the energy-only
charge of $16.31 per MWh.
Valuation of Interruptibility.
PacifiCorp Proposal.
Based upon the information provided in Monsanto witness Daniel Schettler s direct
testimony, PacifiCorp identified three forms ofinterruptibility or curtailment products to offer:
system integrity benefit ("System Integrity ); non-spinning operating reserves ("Operating
Reserves ); and economic curtailment with a buy-through option ("Economic Curtailment"
(Tr. 147.) PacifiCorp presented specific terms of interruption and values for each form of
interruptibility or curtailment that would provide PacifiCorp with the products it needs and the
greatest overall value to Monsanto. (Tr. 148-49.) Monsanto then changed its proposal in Mr.
Schettler s rebuttal testimony to a single offer of Economic Curtailment on all three furnaces
(162 MW) of up to 1 000 hours per year. (Tr. 427; Monsanto Ex. 243.) Because this proposal is
not consistent with Monsanto s "critical needs of price certainty, price stability and reduced risk"
or responsive to PacifiCorp s desire for System Integrity and Operating Reserves products
PacifiCorp continues to support the three separate interruptibility products.
System Integrity.
The System Integrity product is an option that would override other interruptibility or
curtailment products and allow PacifiCorp to interrupt service to Monsanto in order to stabilize
its electrical system in a system emergency condition. (See PacifiCorp Ex. 12; Tr. 148.
PacifiCorp proposes to pay Monsanto $486 000 per year for the option to interrupt all three of
Monsanto s furnaces (162 MW) for System Integrity. This is an option that is important to
PacifiCorp to maintain the integrity of its electrical system and should be included in any terms
and conditions adopted by the Commission. Monsanto accepted this form of interruption in its
1992 and 1995 contracts and has not expressed any objection in this proceeding to either this
product or its price.
11 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-001O4
STOEL RIVES LLP
ATTORNEYS
900 SW FIFTH A VENUE
...
SUlTE 2600 PORTLAND, OREGON 97204-1268
ulephone 1503) 224-3380
Page
In pricing this option, PacifiCorp assumed that the system emergency occurs in the hour
that all wholesale prices in the Western Electricity Coordinating Council ("WECC") reach the
FERC price cap of $250/MWh. Because wholesale prices are not expected to exceed this cap,
but will at most times be lower, this assumption gives Monsanto the highest value for this option.
(Tr.812.
Operating Reserves.
The WECC requires each Control Area Operator to acquire or operate resources to
provide a level of Contingency Reserves sufficient to account for errors in load forecasting,
generation loss, transmission unavailability and regulating requirements. Contingency Reserves
must be either Spinning or Non-Spinning. PacifiCorp is a Control Area Operator and is required
to meet this standard. The Operating Reserves that have been purchased from Monsanto in the
past are characterized as Contingency Reserves - Non-Spinning. (Tr. 144.) The requirements
of Contingency Reserves - Non-Spinning are described by Mr. Watters. They include:
Reduce specified furnace loads within seven (7) minutes of a call from PacifiCorp
requesting reserves;
Maintain the stated amount of Reserves for up to 60 minutes subsequent to call;
Return to the non-contingency consumption upon instructions from PacifiCorp;
Allow real-time telemetry of the real power output of each resource providing
reserves;
Allow approved data communication service between Monsanto s control room
and PacifiCorp; and
Allow approved voice communication service to provide both primary and
alternate voice communications between PacifiCorp and Monsanto s operator
controlling the resource. (Tr. 145; see also PacifiCorp Ex. 12.
10 PacifiCorp s proposal for Operating Reserves provides for six (6) minutes notice.
Monsanto has not objected to this notice provision.
12 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.2oo58802-001O4
STOEL RIVES LLP
ATTORNEYS
900 SW FIFTH A VENUE, SUITE 2600 PORTLAND, OREGON 97204-1268
Telephone [phone]
Page
As Mr. Watters testified, the WECC is considering changes to the quantity of
Contingency Reserves - Non-Spinning required. (Tr. 145-46.) If a change in this requirement is
made, PacifiCorp could potentially meet its Contingency Reserves - Non-Spinning as a zero-cost
option on the Company s own resources, without purchasing additional reserves from Monsanto
or others. (Tr. 147.) Because of this potential which is both outside PacifiCorp s control and
critical to fair and equitable valuation of this product, Mr. Watters stated:
(WJe either need the ability to change the agreement based on the
value of the product, shorten the term of the agreement to provide
more certainty that our payment will match the value we receive
or have the option to convert the operating reserve agreement to
another interruptible product of equivalent value to both parties.
(Tr. 147.
Reflecting Mr. Schettler s direct testimony and Exhibit A to his proposed contract
(Monsanto Ex. 210), PacifiCorp proposed in its rebuttal testimony to purchase Non-Spinning
Operating Reserves on two Monsanto furnaces (95 MW) and pay Monsanto $3 112 200 per year.
(Tr. 148; PacifiCorp Ex. 13.) Because the System Integrity and Operating Reserves products
overlap (that is, ifthe System Integrity option is exercised and service to Monsanto s three
furnaces is interrupted, the Operating Reserves will not be available), in calculating the payment
for Operating Reserves PacifiCorp has deducted the 12 hours per year of System Integrity
interruption from the 300 hours per calendar year of Operating Reserves offered by Monsanto.
Thus, the payment for Operating Reserves is based on 288 hours per year.
PacifiCorp initially priced Operating Reserves at $2.73 per kilowatt-month ("kW-mo
based on an assumed all-energy rate of $31.40 per MWh, the proposed price for firm service to
Monsanto for purposes of calculating lost retail revenues. (PacifiCorp Ex. 13.) PacifiCorp
corrected this lost revenue assumption in Mr. Watters' live rebuttal testimony because the
Company is proposing a two-tiered retail price for Monsanto that includes a demand charge and
an energy charge. (Tr. 195-96.) Under this retail pricing structure, when PacifiCorp interrupts
Monsanto the Company will lose retail revenue at the rate of $16.31 per MWh, the amount of the
13 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-00104
STOEL RIVES LLP
ATTORNEYS
900 SW FIFTH A VENUE
...
SUlTE 2600 PORTLAND, OREGON 97204-1268ulephone 1503) 224-3380
Page
energy charge only, because the demand charge is not avoidable. With this lower lost revenue
offset, the price for Operating Reserves increased to $3.44052 per kW-mo and the total annual
payment increased to $3 922 193. (PacifiCorp Ex. 27 and 32.
Monsanto has not disputed either the terms or the amount of payment PacifiCorp has
proposed for Operating Reserves. Monsanto has, however, proposed to eliminate its 300 hours
of Operating Reserves in favor of a total of 1 000 hours of Economic Curtailment. (Tr. 427.
PacifiCorp wishes to retain the Operating Reserves option rather than trade it for hours of
Economic Curtailment. Operating Reserves provide PacifiCorp with the right to interrupt up to
95 MW of Monsanto load (two furnaces) on six minutes notice and can be designed to meet
WECC criteria for Control Area Operators, while Economic Curtailment requires 120 minutes
notice (as proposed by PacifiCorp) and does not meet WECC criteria.
Operating Reserves also offer advantages to Monsanto and southeastern Idaho, because
PacifiCorp will only interrupt service to Monsanto for Operating Reserves when these reserves
are needed to meet WECC operating criteria. On the other hand, because Economic Curtailment
is essentially a financial product, PacifiCorp will exercise Economic Curtailment whenever the
market value of power exceeds Monsanto s energy rate, regardless of load requirements. It is
likely, therefore, that Operating Reserves will be called on less often than an equivalent amount
of Economic Curtailment. This distinction results in less risk of curtailment to Monsanto
furnace operations and less risk of employment disruption in southeastern Idaho. 1 1
In Exhibit A to its proposed contract (Monsanto Ex. 210), Monsanto states that it will
agree to six minutes notice for Economic Curtailment, apparently attempting to meet the notice
requirement for Operating Reserves. Monsanto also proposes, however, that it have the right to
11 PacifiCorp recognizes that Economic Curtailment as proposed in this case would
entitle Monsanto to buy through replacement power to maintain its furnace operations. This
option carries its own risks, because the replacement power must be purchased at market prices.
Mr. Schettler testified that if market prices did not meet Monsanto s operational requirements
Monsanto would curtail its operations. (Tr.448-49.
14 -PACIFICORP'S POST-HEARING BRIEF
Ponlnd3-1419149.20058802-OOIO4
STOEL RIvEs LLP
ATTORNEYS900 SW FIFTH A VENUE
...
SUlTE 2600 PORTLAND, OREGON 97204-1268
I elephone [phone]
Page
':'
buy through to replace the interruption. (Monsanto Ex. 210, Exhibit A.) This buy-through
option would disqualify the interruptibility from meeting the requirements of Operating
Reserves, because the customer has the right to continue taking service and the physical
load/resource balance has not been improved by the desired 95 MW. A customer s right to buy
through is incompatible with the criteria for Operating Reserves. (Tr. 142-43.) For this reason
it is unnecessary and of little value for Economic Curtailment to be exercisable on less than the
two hours notice proposed by PacifiCorp.
Economic Curtailment.
Economic CurtailmentallowsPacifiCorp to curtail service to a customer for any reason
whatsoever, including the opportunity for more profitable transactions with other parties.
Previous Economic Curtailment agreements with Monsanto and others have includ~d the
customer s option to buy through the curtailment; that is, to require PacifiCorp to continue to
plan and physically serve the load at a pre-agreed price or pricing formula. Because daily market
index values are published and hourly market index values are not, the standard proposed for the
buy-through option is at the applicable daily market index shaped to reflect hourly market prices.
Typical terms for super-peak period and all-hours products are shown in PacifiCorp Exhibit 12.
The objective of Economic Curtailment is for PacifiCorp to obtain the economic value of the
difference between market price and Monsanto s contract energy price on the amount of
curtailed energy. Monsanto does not have to pay PacifiCorp its contract energy price for the
amount of curtailed energy, but it bears the economic risk of either curtailing its operations or
buying replacement power at then current market prices.
The terms and value of Economic Curtailment have been the most contentious and
difficult issues in this proceeding. Based on Monsanto s direct testimony and Exhibit A to its
proposed contract (Monsanto Ex. 210), PacifiCorp initially proposed Economic Curtailment of
500 hours for 46 MW ofload (one furnace) in exchange for an annual payment of $2 340 000.
(PacifiCorp Ex. 14.) Monsanto responded that its Furnace No.9 would be available for
15 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-OO1O4
STOEL RIVEs LLPATTORNEYS .900 SW FIFfH A VENUE
...
SUlTE 2600 PORTLAND, OREGON 97204-1268
1 elephone 1503) 224-3380
Page
Economic Curtailment, based on PacifiCorp s identification of Furnaces No.7 and 8 for
Operating Reserves (95 MW), thereby increasing the available load for Economic Curtailment to
67 MW. (Tr. 426.) Monsanto also pointed out that the lost revenue offset for Economic
Curtailment was incorrectly calculated at $31.40 per MWh, the assumed all-inclusive energy
price, while PacifiCorp is proposing a two-tiered demand and energy rate structure with an
energy price of$16.31 per MWh. Monsanto testified that PacifiCorp s lost revenue should be
calculated on the basis of the energy-only charge of $16.31 per MWh, because the demand
payment is not avoidable. (Tr. 561.)
PacifiCorp accepted both of Monsanto s corrections to its calculation ofthe Economic
Curtailment payment. These corrections are contained in PacifiCorp Exhibit 27, which also
increases the Economic Curtailment option to 1 000 hours per year. Exhibit 27 sho~s that for
the right to Economic Curtailment of67 MW of Monsanto load for 1 000 hours per year, with a
lost retail revenue offset of $16.31 per MWh, PacifiCorp would pay Monsanto $2 927 230 per
year. In his post-hearing rebuttal testimony, Mr. Klein made a correction to change the "strike
price" for the Economic Curtailment option from $31.40 per MWh to $16.31 per MWh. (Tr.
808.) The term "strike price" refers to the fixed price at which PacifiCorp would exercise its
right to curtail load under the Economic Curtailment option. The greater the difference between
market price and the strike price, the more likely it is that PacifiCorp will exercise the Economic
Curtailment option. PacifiCorp is more likely to exercise an option with a strike price of $16.31
per MWh than an option with a strike price of $31.40 per MWh, and is likely to exercise an
option more frequently at the lower strike price. Mr. Klein also removed the lost retail revenue
offset from this calculation of Economic Curtailment. These corrections to PacifiCorp Exhibit
27 are incorporated in PacifiCorp Exhibit 32 and result in a payment to Monsanto for Economic
Curtailment of$4 643 950 per year (again based on 67 MW of Economic Curtailment for 1 000
hours per year). The other terms for System Integrity and Operating Reserves remain the same.
(Compare PacifiCorp Ex. 27 and PacifiCorp Ex. 32.
16 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-OO1O4
STOEL RIvEs LLP
ATTORNEYS900 SW FIFfH A VENUE
...
SUITE 2600 PORTLAND, OREGON 97204-1268
1 elephone [phone]
Page
':'
If Economic Curtailment is reduced to 500 hours per year, and the other terms remain the
same (e.the amount of Economic Curtailment remains at 67 MW and the lost retail revenue
offset is removed), the payment to Monsanto would be $4 025,469 per year. (PacifiCorp Ex. 35
p. 2, top table.) Mr. Klein testified that Monsanto could choose either 500 hours or 1 000 hours
of Economic Curtailment. (Tr. 846-48.) If Monsanto proposes a maximum of 1 000 hours for
all forms of interruptibility, PacifiCorp still requests 300 hours in the form of System Integrity
and Operating Reserves. This would leave 700 hours for Economic Curtailment, and the record
does not contain a value for Economic Curtailment between 500 and 1 000 hours. PacifiCorp
would be willing to calculate a value for 700 hours of Economic Curtailment and supplement the
record with this calculation, if the Commission requests such a calculation.
PacifiCorp priced Monsanto s Economic Curtailment using the Black-Scholes model.
This is an industry standard pricing model that explicitly estimates the value of an option. The
developers of the model were awarded the Nobel Prize in economics in 1997 for their work in
developing this model. The value of an option in this model is determined by: the underlying
price of the commodity, the option strike price, the expiration date ofthe option, the option
exercise or settlement structure, the volatility of the price of the underlying commodity, and the
risk-free rate of interest. As an input, the model uses PacifiCorp s forward price curve to
estimate the price that market participants are willing to buy or sell electricity (in this case
electricity at Palo Verde) for certain forward delivery periods. (Tr.809-10.) Monsanto
Economic Curtailment option is not a product that is available in the wholesale market.
(Tr. 812.
Staff Proposal.
Staff witness Schunke calculated a range for the value of Monsanto interruptibility and
the net price for service to Monsanto. The high end of the range was calculated using
Monsanto s proposed levels ofinterruptibility, as contained in Monsanto s direct testimony, and
17 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-OO104
STOEL RIVEs LLP
ATTORNEYS900 SW FIFTH A VENUE
...
SUITE 2600 PORTLAND, OREGON 97204-1268
1 elephone 1503) 224-3380
Page
':'
the low end of the range was calculated by increasing the level ofinterruptibility to the levels
provided in the 1992 Monsanto contract. (Tr. 729.
Mr. Schunke then calculated the value of interruptibility using two different avoided
resources: a potential peaking resource from the Company s RAMPP-6 integrated resource plan;
and market purchases from Case No. GNR-02-01. (!d.
Mr. Schunke determined that the value of the peaking resource is $78.43 per MWh
assuming a capacity factor of 15 percent, or 1 314 hours per year. He did not adjust his value
downward to reflect the fact that Monsanto is offering less interruptibility than 1 314 hours.
(Tr. 730.) Applying this value of a peaker resource to the level of interruptibility proposed by
Monsanto produced an effective value of$4.34 per MWh when spread over 166 MW of total
load at an 85 percent load factor. Mr. Schunke then subtracted this interruptibility yalue from the
all-inclusive energy rate of $31.40 per MWh to arrive at a net price of $27.10 per M-Wh.
(Tr. 730; Staff Ex. 101.) Mr. Schunke performed a similar calculation using market purchases as
the avoided resource, resulting in an effective value for interruptibility of $1.86 per MWhand a
net price of$29.50 per MWh. (Staff Ex. 101.)
Mr. Schunke repeated these calculations using the level of interruptibility provided in the
1992 Monsanto contract, instead of the level proposed by Monsanto in this case. These
calculations resulted in values of interruptibility of $12.16 per MWh for the avoided peaker
resource and $5.20 per MWh for the avoided market purchases and net prices of$19.20 per
MWh for the avoided peaker resource and $26.20 per MWh for the avoided market purchases.
(Tr. 731; Staff Ex. 101.) He testified that a peaker resource provides a more valuable resource
than a market purchase, and therefore his recommendation was closer to the avoided peaker
resource. He also recognized that an interruptible contract may not be as valuable as a peaker
resource because the generating resource offers greater operational flexibility. (Tr. 731-32.) As
noted below, a generating resource also offers the ability to make market sales of energy and
18 -PACIFICORP'S POST-HEARING BRIEF
Port1nd3-1419149.20058802-OO1O4
STOEL RIvEs LLP
ATTORNEYS900 SW FIFrH A VENUE
...
SUITE 2600 PORTLAND, OREGON 97204-12681 eleplwne 1503) 224-3380
Page
ancillary services (e., spinning and non-spinning reserves) and to produce offsetting revenues
when the resource is not needed to serve retail load.
Mr. Schunke concluded that if the interruptibility is limited to the amounts proposed by
Monsanto in its direct testimony, the appropriate net price is $27.00 per MWh. He stated that if
Monsanto were able to provide interruptibility similar to that provided in the 1992 Monsanto
contract, a net price of about $23.00 per MWh could be justified. (Tr. 732.) He emphasized that
Monsanto s net price should not be reduced below $23.00 per MWh, because current conditions
are less favorable than they were in 1995 when the Monsanto contract was last negotiated.
1995 , market prices were very low and PacifiCorp had excess capacity, while today the
Company has no excess capacity, production costs have increased and market prices are volatile.
(Tr. 734.
Mr. Schunke s net price range, then, is between a high of $27.00 and a low of $23.00 per
MWh. Mr. Schunke admitted that greater interruptibility than offered in Monsanto s direct
testimony would lower the upper range of his recommendation, but stated that Monsanto
proposed 1 000 hours ofinterruptibility was still lower than the level in the 1992 Monsanto
contract - so it would not affect the lower end of his range. (Tr. 737.
PacifiCorp witness Taylor generally agreed with Mr. Schunke s calculations, with one
significant exception. He testified that Mr. Schunke used the total resource cost of the peaking
resource in his analysis, which does not take into consideration the revenues from power sales
that are provided by a generating resource. (Tr. 239.) Mr. Taylor recommended that the revenue
production potential of the peaking resource be recognized by considering only the fixed costs of
the combustion turbine, not the total resource cost. This modification would reduce the cost of
the peaking resource to $55.92 per MWh, reduce the interruptibility discount to $3.10 and
increase the net price to $28.29 per MWh. (Tr. 239; PacifiCorp Ex. 17.
19 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-OO1O4
STOEL RIvEs LLP
ATTORNEYS900 SW FIFTH A VENUE
...
SUITE 2600 PORTLAND. OREGON 97204-1268I elephone [phone]
Page
With or without Mr. Taylor s adjustment, Staffs analysis demonstrates that PacifiCorp
Based on:
estimate of the value of Monsanto s interruptibility is well within a range of reasonable values.
300 hours per calendar year of physical interruptibility for Operating Reserves
(95 MW) and System Integrity Benefit (162 MW) combined;
PacifiCorp s two-tiered pricing structure, which places the strike price for
Economic Curtailment at $16.31 per MWh;
Economic Curtailment of 67 MW; and
Monsanto s actual year 2000 energy consumption and load shape of
342 563 MWh
the Company projects that Monsanto s net cost for electric service would be between $25.62 per
MWh for 500 hours per calendar year of Economic Curtailment (pacifiCorp Ex. 35, p. 2, top
table) and $25.16 per MWh for 1 000 hours per year of Economic Curtailment (PacifiCorp
Ex. 32).12 These numbers are in the middle of Staffs range and below the rate of $26.00 per
MWh that would have been in effect in 1996 under the 1992 Monsanto contract. (Tr.734.
Monsanto Proposal.
Monsanto initially proposed to offer emergency curtailment, 300 hours per year of
Operating Reserves and 500 hours per year of Economic Curtailment with an option to buy
through replacement power. (Monsanto Ex. 210, Exhibit A.) In his rebuttal testimony,
Mr. Schettler revised Monsanto s proposal by eliminating the 300 hours of Operating Reserves
12 As noted above, PacifiCorp s Ex. 35 and 32 calculate the net price to Monsanto using
the proposed two-tiered demand/energy retail rate structure and Monsanto s actual 2000 demand
and energy consumption data. The $31.40IMWh all-in firm energy rate is based on 1999 cost-
of-service data. The method used in PacifiCorp Ex. 35 and 32 produces a higher all-in firm
energy rate. Because of this difference, converting the fixed dollar interruptibility credits to
$IMWh and deducting the combined value from $31.40IMWh would not produce the same
$IMWh net prices shown above. In the end, PacifiCorp s fixed dollar interruptibility credits will
be applied to Monsanto s actual monthly demand and energy consumption and electricity bill.
The net price values provided in this brief are for illustrative purposes.
20 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-OO1O4
STOEL RIVEs LLP
ATIORNEYS900 SW FIFTH A VENUE
...
SUITE 2600 PORTLAND, OREGON 97204-1268
uleplwne [phone]
Page
and offering 1 000 hours per year of Economic Curtailment on Monsanto s full three-furnace
load, or 162 MW. (Tr.427.) As discussed above, Monsanto has not contested PacifiCorp
terms or value for emergency curtailment under the System Integrity option.
Monsanto s principal approach for valuing the Economic Curtailment option is reflected
in Dr. Alan Rosenberg s Exhibit 239, page 1. The value he derives would be deducted from
Monsanto s proposed firm retail rate to arrive at an all-energy net rate. (Tr. 427.) At the
hearing, Dr. Rosenberg admitted that he was proposing a value of over $17 000 000 for 1 000
hours of interruptibility, when Monsanto s net annual electricity bill under its expired (or
expiring) contract is only $25 049 000. (Tr. 672.) Even under.a new firm retail rate of $31.40
the 1 000 hours ofinterruptibility (11.42% of the year) would represent a discount of 41.42%.
Clearly, there is something wrong with Dr. Rosenberg s analysis.
Working from Exhibit 239, page 1 , the elements of Dr. Rosenber,g s analysis and
PacifiCorp s responses are as follows:
Avoided Resource. Exhibit 239 uses a simple cycle combustion turbine (or
peaker, as described by Mr. Schunke) generating resource from RAMPP-6 as the hypothetical
avoided resource. This resource has a total fixed cost of$73.48/kW-year (this cost is not
expressed in $/MWh, as used in Mr. Schunke s testimony). (Monsanto Ex. 239, p. 1 , line 3.
Dr. Rosenberg argues that a Utah peaker should be used instead ofthe OregonlWashington
peaker used in RAMPP-, and that a Utah peaker would have higher fixed costs. (Tr.651-52.
Changing to a Utah peaking resource would not favor Monsanto. Mr. Taylor testified that
although the West Valley, Utah peaker has higher fixed costs than the RAMPP-6 peaker, it is
expected to operate at a higher capacity factor--due to a more efficient heat rate than the
RAMPP-6 peaker-and would produce a smaller interruptibility credit for Monsanto. (Tr. 240.
13 $31.40/MWh x 1 354 000 MWh = $42 651 000. $17 665 661 (value ofinterruptibility
from Monsanto Ex. 239) -+- $42 651 000 = 41.42%.
21 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-OO104
STOEL RIvEs LLP
ATTORNEYS900 SW FIFTH A VENUE
...
SUITE 2600 PORTLAND, OREGON 97204-1268
1 elephone [phone]
Page
':'
Dr. Rosenberg does not adjust his total fixed cost value to reflect the fact that a peaking
resource is available year-round and is expected to operate significantly more per year than 1 000
hours. In the case ofPacifiCorp s new West Valley, Utah peaker, the resource can be operated
year-round and is expected to be used 30% of the hours of the year, or 2 628 hours. (PacifiCorp
Ex. 20.) Dr. Rosenberg argues that no adjustment is appropriate because interruptibility
displaces capacity, not energy. This argument makes no sense, however, because the West
Valley peaker can generate at least an additional 1 ,628 hours and produce more energy than
Monsanto s interruptibility can free up. This additional energy can be sold in the market or used
to meet load to generate revenue, which can be used to offset the fixed costs of the resource.
(Tr. 239.) This is what any operator of a generating resource would do - use the resource to
make economic sales and apply the margin on the sales to reduce fixed costs. Also Monsanto
can only be interrupted in increments of full furnaces, which does not provide (1) ramping
flexibility or (2) the ability for use in automatic generation control, both of which PacifiCorp gets
with a peaking generating unit. In addition, a generating resource can provide spinning reserves
which Monsanto interruptibility cannot provide. (Tr. 450, 805.) Disregarding the additional
revenues, operational flexibility and ancillary services that a peaker offers significantly
overvalues Monsanto s interruptibility.
Kilowatts Curtailed. On line 5, Dr. Rosenberg inflates the energy curtailed during
the 1 000 hours of Economic Curtailment per year by 10% to reflect a 10% reserve margin. The
problem with this adjustment is that Monsanto s interruptibility does not allow PacifiCorp to
avoid its obligation to provide this reserve margin. Because Monsanto has the right to buy
through replacement power, PacifiCorp cannot count on being able to physically interrupt the
Monsanto load. (Tr.806.) As Mr. Watters testified, Economic Curtailment with an option to
buy through, from a utility's perspective, is a financial product and not a physical interruption
product. PacifiCorp still must be prepared to serve the load. (Tr. 183-84.) The value to
PacifiCorp of this form ofinterruptibility is that it shifts to Monsanto the financial risk of the
22 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-OO1O4
STOEL RIvEs LLP
ATTORNEYS900 SW FIFTH A VENUE
...
SUlTE 2600 PORTLAND, OREGON 97204-1268
1 eleplwne 1503) 224-3380
Page
incremental cost of market power above the price at which PacifiCorp exercises the option.
(Tr. 803-04.) While this form ofinterruptibility has value to PacifiCorp, it does not avoid
reserve margin. (Tr. 805-06.) Thus, the kilowatts curtailed should be 162 500. Using the total
fixed cost of the peaker of$73.48/kW, the value of avoided capacity on line 6 of Monsanto
Ex. 239 should be $11 940 500. (Tr. 806.
Total Variable Costs. Dr. Rosenberg calculated total variable costs of the avoided
peaker at $22., based on the values for the resource contained in RAMPP-6. (Monsanto
Ex. 239, p. 1 , line 7.) This value does not include any offset for the revenues that could be
produced from a peaking resource but cannot be produced from Monsanto s interruptibility.
Mr. Klein estimated that the Palo Verde on-peak price for next year is approximately $42/MWh.
This means that a peaker with total variable costs of $22.52 would be "in the money." Assuming
total variable costs of $22.52/MWh and revenues from energy sales of $42/MWh, the margin on
these sales would be a positive $19.48/MWh. For 162 500 MWh in the year, the avoided peaker
would produce $3 165 500 in net revenues to offset the $73.48/kW in total fixed costs shown in
line 3 of Monsanto Ex. 239. The value of avoided energy in line 9 should be a negative
165 500 (that is, a credit) instead of positive $3 659 500 (that is, a cost). (Tr.807.
Deducting this $3 165 500 credit for energy sales from the fixed cost of$11 940 500 results in an
avoided total cost of$8 775 000, the corrected number for line 10 of Monsanto Ex. 239. This
number should not be adjusted for transmission losses, as Dr. Rosenberg does in line 11 , because
transmission losses are not avoided when Monsanto exercises its replacement power option. The
replacement power option does not charge Monsanto separately for transmission services or
losses on PacifiCorp s system. (See Attachment A to this brief, p. 5.
Credit for Reserves. Mr. Klein testified that another advantage of a peaking
resource that Monsanto s interruptibility does not provide is the ability to sell reserves from the
unit for the rest of the year. Assuming 162 500 kW of capacity and a price for the reserves of
$1.50/kW-mo which is less than one-half the $3.44/kW-mo price PacifiCorp is proposing to pay
23 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-OO1O4
STOEL RIvEs LLP
ATTORNEYS900 SW FIFfH A VENUE
...
SUITE 2600 PORTLAND, OREGON 97204-1268
ulephone 1503) 224-3380
Page
Monsanto for Operating Reserves, Mr. Klein estimated that the sale of reserves from the peaking
resource could generate revenues of approximately $2.5 million per year. (Tr. 808.) This
calculation was based on 500 hours per year of Economic Curtailment. Assuming 1 000 hours
per year of Economic Curtailment, the peaking resource would be available to provide reserves
approximately 6 months of the year. (Tr. 799, 807-08.) Substituting this assumption in Mr.
Klein s calculation, the precise credit for sales of reserves would be $1,462 500 per year
(6 months x $ 1. 5 OIkW-mo x 162 500 = $1,462 500). This amount or more (if the reserves were
sold for a price closer to the $3.44IkW -mo used to price Monsanto s Operating Reserves) would
be available to reduce the fixed costs of the peaking resource.
Summary. Based on the foregoing adjustments to Dr. Rosenberg s Exhibit 239, the
corrected value for Monsanto s 1 000 hours of Economic Curtailment, assuming Dr... Rosenberg
method, would be calculated as follows:
Total Fixed Costs $IkW year
KW Curtailed
$73.48
162 500
Value of Avoided Capacity
Total Variable Costs $IMWh
$11 940 500
MWh Curtailed
(19.48)
162 500
Value of Avoided Energy ($3 165 500)
775 000Total
Adjustment for Losses (5.19%)
($1,462 500)Revenues from Reserves
Value of Interruptibility 312 500
24 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-OO1O4
STOEL RIVEs LLP
ATTORNEYS900 SW FIFTH A VENUE
...
SUITE 2600 PORTLAND, OREGON 97204-1268elephone 1503) 224-3380
Page
':'
This number is close to the total value of interruptibility PacifiCorp proposed would apply for
000 hours of interruptibility. (Tr. 808.
Applying his analysis respecting the value of Monsanto s proposed 1 000 hours of
curtailment and using Ms. Iverson s firm price of $29.30 per MWh, Dr. Rosenberg concludes
that Monsanto s net price would be $16.25 per MWh. (Tr. 639-, Monsanto Ex. 239.) Using a
firm price of $31.40 per MWh results in a net price of $18.34 per MWh. (Tr. 640, Monsanto
Ex. 239.15 Accepting the adjustments to Dr. Rosenberg s Exhibit 239 discussed above, the
resulting net price to Monsanto is $23.90 per MWh (using a $29.30 firm price) or $26 per MWh
(using a $31.40 firm price). The net price PacifiCorp is. proposing for interruptibility options
based on 1 000 hours per year of Economic Curtailment, is $25.16 per MWh (PacifiCorp
Ex. 32), well within Dr. Rosenberg s range as corrected.
Ms. Iverson s analysis results in a value for 1 000 hours of curtailment (plus system
integrity) that is less than Dr. Rosenberg s $17.6 million. (Tr.563.) Ms. Iverson calculates the
total value for 1 000 hours to be $11 356 368. (Tr.563, Monsanto Ex. 237.) Under Ms.
Iverson s approach, the net price to Monsanto for 1 000 hours per year of Economic Curtailment
is $20.91 per MWh (using a $29.30 firm price) or $23.01 per MWh (using a $31.40 firm price).
The problem with Ms. Iverson s analysis, however, is that she uses the same reservation fee
PacifiCorp determined applies to 46 MW and 500 hours of Economic Curtailment to assign a
value to the much greater amount of curtailment Monsanto proposed on rebuttal, 162 MW and
000 hours of Economic Curtailment. In other words, Ms. Iverson simply compounded the
14 At the hearing, Mr. Klein estimated PacifiCorp s the total value for 1 000 hours of
interruptibility to be "somewhere between ($)7.3 , ($)7.4 (million)." (Tr. 808.) Under
PacifiCorp s final proposal, which would limit the number of hours of Economic Curtailment to
500 hours per year, the total value ofinterruptibility to Monsanto is $8,433 662. (PacifiCorp
Ex. 35 , p. 2, top table.
15 Applying Monsanto s original curtailment proposal of 500 hours, Dr. Rosenberg
calculates Monsanto s net price to be $20.79 per MWh (using $29.30 as a firm price) and $22.
per MWh (using $31.40 as a firm price). (Tr.640.
25 -P ACIFICORP'S POST -HEARING BRIEF
Portlnd3-1419149.20058802-OO1O4
SroEL RIvEs LLP
ATTORNEYS900 SW FIFTH A VENUE
...
SUlTE 2600 PORTLAND , OREGON 97204-1268
I eleplwne [phone]
Page
value PacifiCorp assigned to Monsanto s original proposal. At the hearing, Ms. Iverson
acknowledged that her approach is flawed. (Tr. 583-84.) As Mr. Watters explained on cross
examination, the value he assigned to 500 hours of curtailment in his rebuttal testimony is based
on market values and is tied to an ability to curtail during super-peak periods. (Tr. 157.
Although Mr. Watters had not, at that time, calculated the reservation fee that would apply to
Monsanto s new proposal, he predicted that the value could not simply be doubled to account for
000 hours of curtailment. (Tr. 157-, 162). Mr. Klein s exhibits accompanying his post-
hearing rebuttal testimony confirm Mr. Watters' prediction. As demonstrated therein , doubling
the value of 500 hours of Economic Curtailment is not a valid method to calculate the value of
000 hours of Economic Curtailment. (Compare PacifiCorp Ex. 35, p. 2, top table and Ex. 32.
Size of Economic Curtailment.
PacifiCorp s calculations of Economic Curtailment have used the amount of67 MW and
500 hours per year proposed by Monsanto in its direct testimony. In its rebuttal testimony,
Monsanto changed this number to the full, three furnace load of 162 MW and increased the
hours of Economic Curtailment to 1 000 hours. (Monsanto Ex. 243.) PacifiCorp opposes this
substantial increase in Economic Curtailment and urges the Commission not to adopt it.
Economic Curtailment does not provide the Operating Reserves PacifiCorp needs, nor is it an
appropriate product to purchase ftom a customer in such large amounts. Monsanto presented
extensive testimony on the importance of its Soda Springs operations to the economy of
southeastern Idaho and has emphasized its needs for price certainty, price stability and reduced
risk. Exposing Monsanto s full three-furnace load to 1 000 hours of Economic Curtailment per
year is antithetical - even hostile - to these important interests.
Mr. Schettler testified that Monsanto would not automatically buy through; its decision
on whether to buy replacement power would depend on the overall economics of the plant.
(Tr.447-48.) By definition, the price for replacement power will be higher than Monsanto
contract energy rate, and it could be much higher. Exposing Monsanto, its employees and all of
26 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-OO1O4
STOEL RIVEs LLP
ATTORNEYS900 SW FIFTH A VENUE
...
SUlTE 2600 PORTLAND, OREGON 97204-1268
1 elephone 1503) 224-3380
Page
southeastern Idaho to this kind of curtailment of Monsanto s plant simply trades lower retail
electricity rates for higher electricity bills. This is not in the public interest. It is also not in
PacifiCorp s or the Commission s interest. PacifiCorp s experience in other states is that large
industrial customers whose retail prices are based on high wholesale market prices turn to their
utility and state regulatory commission for relief. Monsanto s impact on the southeastern Idaho
economy is too great for the Commission to turn a deaf ear. Where that is the situation, the
Commission should not endorse such risk-taking.
PacifiCorp recommends that the Commission limit Monsanto s Economic Curtailment to
67 MW and 500 hours per year. This is an economical and relatively safe level of Economic
Curtailment.
Buy-Through Terms.
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.) Mr. Watters objected to this market index as not representative of the wholesale
market hub PacifiCorp would use to serve Monsanto. He 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 this brief. Mr. 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
27 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-OO1O4
STOEL RIvEs LLP
ATTORNEYS
900 SW FIFTH A VENUE
...
SUITE 2600 PORTLAND, OREGON 97204-12681 elephone 1503) 224-3380
Page
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.16 (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.) This pricing approach is contrary to the concept of Economic Curtailment.
If Monsanto s interruptibility is available for economic reasons, it is available for any transaction
that is more economic to PacifiCorp. Dr. Rosenberg admitted this point, but then sought to
evade the obvious consequence of it - that the replacement power cost would be the highest
prevailing price. (Tr. 689.
Issues Relating to Monsanto s Net Cost for Firm, Interruptible, and Replacement
Power Service.
. As previously shown, converting the monthly credits for the three interruptible options
13. discussed supra to a $ per MWh basis and applying them to PacifiCorp s proposed firm rate
results in a net cost to Monsanto for firm, interruptible and replacement power service of $25.
per MWh for 500 hours of Economic Curtailment. When compared to the effective rate
Monsanto would be paying for electric service today under the 1992 Agreement , PacifiCorp
proposal results in a 1.5% decrease from $26 per MWh (the end price under the 1992
Agreement) to $25.62 per MWh.
16 Shaping factors were used to value both Monsanto s Economic Curtailment and buy-
through option. Therefore, any change in the shaping factors for replacement power would
require changes in the shaping factors for calculating the payment for Economic Curtailment.
17 What has been referred to in this case as the 1992 Agreement in fact was signed in
1991. (pacifiCorp Ex. 25.) This agreement was scheduled to run through June 30, 1997 with
prices increasing to $26 per MWh for the last year. The agreement was terminated early because
of changes in power markets and the Company s surplus capacity. (Tr. 246-47; PacifiCorp
Ex. 16.
28 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-OO1O4
STOEL RIvEs LLP
ATTORNEYS900 SW FIFfH A VENUE
...
SUlTE 2600 PORTLAND, OREGON 97204-1268
ulephone [phone]
Page
Monsanto s effective price under the 1995 Agreement.
In their direct testimony, the Monsanto witnesses consistently referred to the 1995
Agreement as the basis of comparison for the proposed 2002 contract. In its rebuttal testimony,
however, PacifiCorp noted that the 1995 Agreement was developed under unique circumstances
that did not exist when the pre-1995 contracts were approved and that do not exist today.
(Tr.246.) In 1995 , PacifiCorp had excess capacity, power was trading in the wholesale market
at prices below $20 per MWh, direct access appeared imminent in much of the Company
service territory, and Monsanto had viable alternatives to service from PacifiCorp. (Tr. 247.
For these reasons, the 1995 Agreement was priced based on the prices Mensanto could achieve
by pursuing its competitive alternatives-principally, by transferring its service to the Soda
Springs Municipal Electric Light & Power Department and buying through power (rom power
marketers such as Illinova and Enron.(Monsanto Ex. 203'; p. 3.) The 1995 Agreement was'not
an embedded cost-of-service contract~ it was essentially a market price contract.
It is inconsistent to compare the currently proposed prices to prices under the 1995
Agreement because of the different pricing standards used: the 1995 Agreement was based on a
market price comparison and a contribution to fixed cost standard for Commission approval
while PacifiCorp s proposed prices for Monsanto s new contract are based on an embedded cost-
of-service standard. (Tr. 231.) For these reasons, PacifiCorp does not agree that the 1995
Agreement is a proper base line for comparing the price and terms of a new contract for
Monsanto. (Tr. 231, 246.) Although Monsanto in its rebuttal testimony conceded that
comparing the cost per MWh of the proposed 2002 contract with the cost per MWh of the 1995
Agreement is not an apples-to-apples comparison (Tr. 643), Monsanto witnesses continued to
compare the two in support of their position that PacifiCorp s proposal "totally ignores the
principle of gradualism." (Tr.642-43.
It is true that PacifiCorp is not proposing in this case to adopt an "escalating" rate
structure so as to "transition" Monsanto to a full cost-of-service firm rate. (Tr. 115.) There are
29 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-OOI04
STOEL RIvEs LLP
ATIORNEYS900 SW FIFTH A VENUE
...
SUITE 2600 PORTLAND, OREGON 97204-1268
1 ekphone [phone]
Page
':'
two reasons for this. First, as discussed above, any discount to Monsanto s firm service rate
results in a cost-of-service subsidy for Monsanto at the expense of other Idaho customers.
Second, when compared to the final year price under the 1992 Agreement, $26/MWh, the net
price change proposed by the Company actually results in a slight price decrease. Even if, for
the sake of argument, the effective rate Monsanto paid under the 1995 Agreement were used as a
basis of comparison, the maximum increase to Monsanto s rate is only 11.39 percent over 6
years, or 1.9 percent a year ($23 to $25.62 per MWh). In the decision recently issued in Utah
respecting PacifiCorp s special contract with Magnesium Corporation of America ("Magcorp
the Utah_Public Service Commission found that a rate that resulted in a 17 percent increase
satisfied the principle of gradualism. (Monsanto Ex. 208.
Monsanto disputes PaeifiCorp s characterization of its price under the 1995 Agreement
as $23 per MWh. According to Monsanto, its effective price under the 1995 Agreement should
not include the $30 million it paid PacifiCorp to terminate the 1992 Agreement early and
renegotiate its rate for purposes of what became the 1995 Agreement. (Tr. 640-42.) Monsanto
contends that PacifiCorp s proposed net cost should be compared to the "actual r-ate" provided by
the 1995 Agreement, $18.50 per MWh. (Tr. 642-43.
Monsanto s argument in this case respecting the $30 million payment contradicts the
arguments it made to the Commission previously in support of the 1995 Agreement.
comments filed in support of the reasonableness of the rate provided by that agreement
Monsanto s counsel stated:
The rate Monsanto pays for power (under the proposed 1995
Agreement) will include a one-time $30 million payment and
additional 1.85 cents/kWh for all energy delivered over the life of
the Agreement.
*****
Amortizing the $30 million prepayment at the prime interest rate of
75% over the life of the Agreement, the average Monsanto rate
including the 1.85 cents / kWh energy charge, would be in excess
of2.3 cents / kWh. (PacifiCorp Ex. 24.
30 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-OO104
STOEL RIvEs LLP
ATTORNEYS900 SW FIFTH A VENUE
...
SUlTE 2600 PORTLAND, OREGON 97204-12681 elephone 1503) 224-3380
Page
':'
At least in 1995, Monsanto believed its effective price under the 1995 Agreement was
$23 per MWh. In the event the Commission decides to compare the parties ' proposals for the
2002 contract price to the price paid under the 1995 Agreement, $23 per MWh is the appropriate
price to compare. However, for the reasons discussed above, the 1992 Agreement is a better
comparIson.
Mr. Taylor s Exhibit 22 presents in bar graph form all ofthe options for comparing-the
proposed all-in energy price, net of interruptibility credits, to the 1992 Agreement and the 1995
Agreement. (PacifiCorp Ex. 22.) For convenience, Exhibit 22 is attached to this brief as
Attachment B. This Exhibit shows that the proposed net price is comparable to the final year
price under the 1992 Agreement. It also show that it would be nonsensical to allocate the entire
$30 million payment by Monsanto to the 1992 Agreement, as it would drive the pri~es in the
final two years of that Agreement well above the contract prices. Monsanto would not pay more
to buyout the 1992 Agreement than it would have paid under that Agreement. Allocating the
$30 million payment to the 1995 Agreement produces the $23/MWh effective price for the 1995
Agreement shown in the yellow bars.
Other PacifiCorp special contract precedent.
Monsanto requested that the Commission use the Utah Commission s recent decision
respecting PacifiCorp s special contract for electric service to Magcorp as precedent on the
following specific issues: (1) approval of a single interruptible contract; (2) establishment of a
contract term; (3) provision of defined terms respecting interruptibility; and (4) deferral of
inteIjurisdictional allocation issues to the Multi-State Process. (Tr. 349.
At the hearing, however, Monsanto witness James Smith clarified that Monsanto did not
wish the Commission to use as precedent the two year Magcorp contract term approved by the
Utah Commission. (Tr.366.) In addition, when it was pointed out to Mr. Smith that the Utah
Commission had concluded that the Magcorp contract terms and conditions relating to the value
of interruptibility should be subject to reopener, Mr. Smith clarified that a similar reopener
31 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-OO1O4
STOEL RIvEs UP
ATTORNEYS900 SW FIFTH A VENUE
...
SUITE 2600 PORTLAND, OREGON 97204-1268
1 elephone [phone]
Page
':'
provision would not be acceptable to Monsanto. (!d.Mr. Smith also acknowledged that on
reconsideration, the Utah Commission had clarified that it would not defer the allocation issues
related to the contract to the Multi-State Process, but would allocate the Magcorp contract as
situs. (Tr. 367.) Ultimately, in response to questions from Commissioner Hansen, Mr. Smith
agreed that "a comparison between what Magcorp received and what Monsanto is asking for is
an apples and oranges comparison." (Tr. 383.
Monsanto also suggested that the Commission consider relevant the circumstances
surrounding PacifiCorp s negotiations for a new special contract with Geneva Steel Corporation
Geneva ). (Tr.348-49.) At the time Monsanto filed its direct testimony, Geneva had filed a
petition with the Utah Commission requesting that the commission establish the rates, terms and
conditions for PacifiCorp s service to Geneva. (Monsanto Ex. 209.) Since that tim , however
PacifiCorp and Geneva had successfully concluded their negotiations and had submitted a signed
agreement to the Utah Commission for approval. (PacifiCorp Ex. 23.) This agreement was
approved by the Utah Commission on September 30 2002.18 Notably, as demonstrated by the
following chart, the terms and conditions of the Geneva special contract approved by the Utah
Commission are substantially similar to what PacifiCorp proposes in this case for its new
contract with Monsanto.
18 Re Geneva Steel Corp.Docket No. 02-035-05 (Utah PSC Sept. 30, 2002).
32 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-OO104
STOEL RIVEs LLP
ATTORNEYS900 SW FIFTH A VENUE
...
SUlTE 2600 PORTLAND, OREGON 97204-1268J elephone 1503) 224-3380
':'
Terms and Conditions of Geneva 2002 PacifiCorp s Proposed Terms and
Electric Service Agreement Conditions for Monsanto s 2002 Electric
Service At!reement
Load: 110 MW after Jan. 1 2003 , plus Load: 163 MW
120 MW beginning on or after Jan. '
total: 230
Single electric service agreement Single electric service agreement
Term: 5 years; both firm and interruptible Term: ending December 31 , 2006; limited
service provisions subject to reopener annually reopener provision respecting Operating
Reserves; firm service subj ect to tariff
standards
Effective Price for Firm Electric Service:Effective Price for Firm Electric Service
1) Embedded cost-of-service based rate for 1) Embedded cost-of-service based rate for all
existing load = $29.load = $31.40
2)Tariffbased rate for new load = $31.
Net" Cost for Firm Service = approx. $30
Interruptible Service Options:Interruptible Service Options:
1) System Integrity: $29 000 monthly credit 1) System Integrity: $40 500 monthly credit
(total that will apply when both existing and for 12 hours of interruptibility
new load are online)
2) Consideration of future interruptible options 2) Operating Reserves: $326 849.41 monthly
to be defined in separate agreement credit based on 95 MW and 288 hours of
interruptibility
3) Economic Curtailment: $335,455.
monthly credit based on 67 MW and 500 hours
per year of Economic Curtailment at a strike
price of$16.31 per MWh
Net Cost for Firm and Interruptible Service:Net Cost for Firm and Interruptible Service:
$29.72 per MWh $25.
Percent Rate Change: 4% increase (based on Percent Rate change:
pre-bankruptcy usage)1) From 1992 Agreement: -5% decrease
2) From 1995 Agreement: 1.9% increase/year
Jurisdictional Allocation:Situs to Utah Jurisdictional Allocation:
1) Firm Cost-of-Service: Situs to Idaho
2) Interruptible or Curtailment Options:
System-wide
Page PACIFICORP'S POST-HEARING BRIEF33 -
Portlnd3-1419149.20058802-OO1O4
STOEL RIVEs LLP
ATTORNEYS900 SW FIFTH A VENUE
...
SUITE 2600 PORTLAND. OREGON 97204-1268elephone [phone]
Page
Based on the foregoing, the terms and conditions contained in PacifiCorp s electric service
agreement with Geneva are more appropriate as bases for comparison in this proceeding than the
terms and conditions the Utah Commission approved for Magcorp s electric service.
Other Proposed Contract Terms and Conditions.
Contract term.
PacifiCorp proposes that the term for its single electric service agreement with Monsanto
terminate on December 31 2006, five years from December 31, 2001. PacifiCorp believes that
this contract duration most appropriately balances the interests of the parties, i., Monsanto
need for price certainty and stability and PacifiCorp s need for-flexibility with respect to the cost
of acquiring interruptibility or curtailment from Monsanto as a power resource. PacifiCorp
emphasizes that the more the Commission exposes PacifiCorp to risk by increasingJhe hours or
value of Economic Curtailment, the shorter the term should be. The Commission should also
shorten the term if it is uncertain about the value of interruptibility. This is the approach the
Utah Commission took in its Magcorp decision to allow for improvements in the methods for
valuing interruptibility. (Monsanto Ex. 208.
WECC reopener.
The WECC is proposing changes in its operating policies that could modify the quantity
and requirements of both contingency reserves and frequency response reserves. (Tr. 145.) It is
still unknown what the final requirements will be, and a decision is not anticipated until mid-
2003. (Tr. 146.) Although PacifiCorp is willing to go forward with Operating Reserves as part
of its electric service arrangement with Monsanto (Monsanto historically has provided a non-
spinning Operating Reserves product), the Company is unwilling to take on the risk of buying a
product for a fixed period of time that ultimately may not have value for its customers.
Accordingly, PacifiCorp is proposing that this agreement be subject to a reopening if the WECC
operating reserve criteria change during the contract term. The purpose of the reopener is to
34 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-OO104
STOEL RIVES LLP
ATTORNEYS900 SW FIFTH A VENUE
...
SUlTE 2600 PORTLAND , OREGON 97204-1268
ulephone 1503) 224-3380
Page
':'
ensure that the value of the operating reserve product is accurately reflected in the contract for its
duration.
Rate subject to tariff standards.
PacifiCorp is proposing that Monsanto s firm cost-of-service rate be subject to tariff
standards, giving the Commission authority in a general rate case to change the rates, terms and
conditions of the firm service portion of the agreement. This clause is PacifiCorp s proposed
alternative to the annual cost-of-service rate adjustment the Company originally proposed be
included in the contract. (Tr. 822.) By making Monsanto s rate for firm service subject to tariff
standards, the Commission will have the opportunity to ensure that Monsanto s firm cost-of-
service rate is consistent with the cost-of-service rates charged to other Idaho customers, and
Monsanto will have the opportunity to oppose a rate increase or support a rate decr"ease on that
same basis. Given the length of the contract term, PacifiCorp believes this provision is a
reasonable compromise that appropriately balances the interests of Monsanto, other Idaho
customers and PacifiCorp.
Most favored nations" clause.
PacifiCorp opposes Monsanto s efforts to include a "most favored nations" clause in the
new agreement. Under the most recent proposals made by both PacifiCorp and Monsanto
Monsanto s rate will be based on its share of embedded costs. Monsanto benefits from use of an
embedded cost standard in this instance because the Company s incremental costs for the term of
the contract are expected to be higher than embedded costs. (Tr. 231.) A most favored nations
clause would give Monsanto the ability to reduce its price to match the lowest price on
PacifiCorp s system at any time and from time to time during the term of the agreement. Mr.
Schettler admitted that it would apply in circumstances similar to the current comparison with
Magcorp. (Tr. 455-56.) The proposal is one-sided and unfair. It would give Monsanto the
opportunity to toggle between cost-of-service and market rates at will, with no risk of its rates
ever going up. It would also separate Monsanto from Commission jurisdiction over its rates
35 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3-1419149.20058802-OO104
STOEL RIVEs LLP
AlTORNEYS900 SW FIFTH A VENUE
...
SUITE 2600 PORTLAND, OREGON 97204-1268J elep/wne [phone]
Page
during the term of the agreement. A rate that is just and reasonable for another customer on
PacifiCorp s system would not necessarily be just and reasonable for Monsanto. As discussed in
Section I above, allowing Monsanto to pay any less than its share of embedded costs results in a
rate subsidy to Monsanto paid for by other Idaho customers.
Significant changes" clause.
PacifiCorp also opposes Monsanto s proposal to include a clause allowing it to modify
the contract based on significant industry changes. This clause would give Monsanto-but not
PacifiCorp-the right to renegotiate the contract in the event of significant changes in either the
elemental phosphorous industry or PacifiCorp s cost structure. (Monsanto Ex. 210, paragraph
) Like its proposal to include a most favored nations clause, this clause is also one-sided and
unfair, benefiting Monsanto to the detriment of other Idaho customers and the Company. 19 It
would be inappropriate to include such a clause in the new contract.
CONCLUSION
For all of the reasons stated in PacifiCorp s testimony at the hearing and in the foregoing
brief, the Commission should approve PacifiCorp s final proposal respecting the rates, terms and
conditions of its electric service agreement with Monsanto. A summary of these rates, terms and
conditions is contained in Attachment A to this brief
DATED: October 15 , 2002.
J; ~ F:1Q b ' UJ
James F. Fell
Erinn Kelley-Sie1
Of Attorneys for PacifiCorp
19 Dr. Rosenberg himself acknowledged the one-sided nature ofthis clause on cross
examination. (Tr. 660.
36 -PACIFICORP'S POST-HEARING BRIEF
Portlnd3:1419149.20058802-OO104
STOEL RIvEs LLP
ArrORNEYS900 SW FIFTH A VENUE
...
SUITE 2600 PORTLAND, OREGON 97204-1268
1 elephone [phone]
CERTIFICATE OF SERVICE
I hereby certify that on the 15th day of October 2002, I caused to be served, via US. Mail
a true and correct copy of the foregoing PacifiCorp s Post-hearing Brief on the following:
Scott Woodbury
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington Street
Boise, ID 83702-5983
Eric Olson
Racine, Olson, Nye, Budge & Bailey,
Chartered
201 E. Center
Pocatello , ID 83204-1391
DATED: October 15, 2002
Portlnd3-1417122.10058802-OO104
Randall C. Budge
Racine, Olson, Nye, Budge & Bailey,
Chartered
201 E. Center
Pocatello, ID 83204-1391
James R. Smith
Monsanto Company
O. Box 816
Soda Springs, ID 83276
Monsanto
Proposed Electric Service
2002 - 2006
Supply of electric service to Monsanto for the entire facility provides firm, interruptible and
replacement power service including:
Single electric service agreement (the "ESA") for the elemental phosphorous manufacturing
plant (the "Plant") in Soda Springs, Idaho effective September 1, 2002 and terminating
December 31 , 2006. Price components for the electric service to the Plant are cost of service
demand and energy components. The cost of service for delivered power will be retail load situs
to Idaho jurisdiction.
Monsanto receives monthly credits for three interruptible or curtailment options including
system integrity, non-spin contingency operating reserves and an economic curtailment option
which has a buy4hrough provision for replacement power that Monsanto can exercise. Total
allowed hours of interruption or curtailment are 800 hours per calendar year. The operating
reserve component of the ESA would be subject to reopener for WECC operating reserve criteria
changes. The interruptible options included in the ESA will be system allocated.
Summary
Term:
Delivered Power:
Interruptibility:
Credit for Interruptibility
System Integrity:
Operating Reserves:
Economic Curtailment:
TOTAL CREDIT
Effective through December 31 , 2006
Monthly bill for delivered power based on cost of service
components in ESA applied to actual metered usage for
demand and energy
800 hours total
Monthly credit of$ 40 500 based on 162MW. Hours for
System Integrity included in 300 hours of Operating Reserves.
Monthly credit of $ 326 849 based on 95MW minimum for
300 hours inclusive of System Integrity hours.
Monthly credit of $ 335,456 based on 67MW for 500 hours
curtailed at a strike price of $16.31 per MWh.
Monthly credit of $ 702 804
Case No. PAC-01-
(Revised) Exhibit No. 10 (BWG-R2),
Page 1 of 5
Witness: Bruce W. Griswold
Proposed Terms for Electric Service to Monsanto
Electric Service Agreement
Term
Delivered Power Charges
Billing
Interruptibility
Product
Interruptible Load
Availability
Duration of Interruption
Frequency
Notification
Monthly Payment
Portlnd3-1419217.1 0058802-00104
Effective through December 31 , 2006. No extension language.
Customer Charge:
Demand Charge:
Energy Charge:
$ 282.89 per month
$ 9.51perkWmonth
$ 16.31 perMWh
Monsanto will be responsible to maintain at all times a power
factor of 90% lagging, or higher, as determined by measurement.
If the average power factor is found to be less than 90% lagging,
the energy as recorded by PacifiCorp s meters will be increased by
% of 1 % for every 1 % that the power factor is less than 90%.
All billing statements for power and energy shall show the amount
due for the type and quantity of power and energy purchased and
charged in accordance with this agreement and any charges
permitted or required under the applicable Electric Service Rules
and Regulations of Idaho. Credits for interruptibility identified
and applied to monthly bills.
System Integrity
PacifiCorp may temporarily physically interrupt service to
Monsanto Interruptible Load at its Facility if PacifiCorp
reasonably determines, pursuant to Prudent Utility Practice, that an
interruption of Power and Energy to Monsanto is necessary to
maintain System Integrity.
All defined interruptible plant load - up to three (3) furnaces and
auxiliary load - 162MW
All hours HE 0100 through HE 2400. Allowable option days shall
be each Mond~y through Sunday during the Term.
As long as required to stabilize PacifiCorp s electrical system
Limited to System Integrity only - available hours included in 300
hours of Operating Reserves total.
Except under emergency conditions, PacifiCorp shall give
Monsanto as much advance notice as practicable, but not less than
two (2) hours, of any required interruption, and at least one hour
advance notice of when interruption will be discontinued.
Monthly payment to Monsanto for the interruptibility for System
Integrity is $ 40 500.
Case No. PAC-01-
(Revised) Exhibit No. 10 (BWG-R2),
Page 2 of 5
Witness: Bruce W. Griswold
Proposed Terms for Electric Service to Monsanto
Product
Interruptible Load
A vailabili ty
Duration
Frequency
Notification
Monthly Payment
Liquidated Damages / Non-
performance
Product
Interruptible Load
Availability
Duration of Interruption
Frequency
Portlnd3-1419217.10058802-00104
Operating Reserves
Day-of Call option for PacifiCorp s right to interrupt Monsanto
furnace load (capacity and associated energy use).
Minimum 95 MW
All hours HE 0001 through HE 2400. Allowable option days shall
be each Monday through Sunday during the Term.
Up to one (1) hour continuous
Maximum three hundred (300) interruptions per calendar year.
Maximum of twenty- five (25) interruptions per month.
Maximum of three (3) interruptions in any four (4) hour period
per day
PacifiCorp shall provide Monsanto at least 6 minutes notice prior
to the beginning of the Load Interruption Period.
Monthly payment of $326 849 for 95MW minimum prorated for
furnace availability as defined in previous operating reserve
agreements transacted with Monsanto.
NONE - Failure to interrupt load upon notification shall result in
PacifiCorp invoking unilateral right to interrupt Monsanto load
remotely. PacifiCorp shall utilize metering to verify that the
noticed Interruptible Load was actually interrupted when
PacifiCorp executed the option.
Economic Curtailment
Day-of Call option for PacifiCorp s right to interrupt Monsanto
furnace load at the defined Strike Price (capacity and associated
energy use). Monsanto has option to buy-through the interruption
pursuant to the Buy-through Provision at Replacement Power
Price.
67MW
Hours HE 0700 through HE 2200 Mountain Prevailing Time.
Allowable option days shall be each Monday through Sunday
during the Term.
Maximum of 500 hours based on one (1) furnace in calendar year
. Up to eight (8) hours for one (1) 67MW furnace.
Limited to one (1) interruption per day
Case No. PAC-01-
(Revised) Exhibit No. 10 (BWG-R2),
Page 3 of 5
Witness: Bruce w. Griswold
Proposed Terms for Electric Service to Monsanto
Notification
Strike Price
Monthly Payment
Buy-through Provision
Port1nd3-1419217.10058802-OO1O4
PacifiCorp shall provide Monsanto at least 2 hours notice prior to
the beginning of the curtailment period. For example, PacifiCorp
shall notify Monsanto by hour ending 1400 for a curtailment
period that begins hour ending 1600.
$16.31 perMWh
Monthly payment to Monsanto for the interruptibility for would be
$335,456 per month. Payment to be prorated based on hours of
availability on 67MW furnace when noticed.
Monsanto shall have the right to decline the Day-of option and
purchase power for the Curtailment Load for the Duration of
Interruption for the day. ("Replacement Power
Monsanto shall notify PacifiCorp by phone and/or fax of its
decision to decline the Day-of option within one (1) hour after
PacifiCorp provides notification to Monsanto for the Day-of
option to curtail. For example, if PacifiCorp notifies Monsanto by
llAM MPT, Monsanto must respond to PacifiCorp by 12PM
MPT. If Monsanto fails to notify PacifiCorp of its decision to
decline the Day-of option within the one- (1) hour period
Monsanto will be obligated to physically provide Curtailment
Load as agreed.
Replacement Power Price
Monsanto shall purchase daily Replacement Power for the
Duration of Interruption from the PacifiCorp as calculated:
Hourly Shaped Market Price multiplied by the
Interruptible Load multiplied by the Duration of
Interruption (hours).
Hourly Shaped Market Price shall be defined as daily Dow
JonesTM Palo Verde Firm On-Peak Price, as reported at
www.dowiones.com each Monday - Sunday multiplied by the
following hourly shaping factors for each applicable month:
January 114%May 122%September 119%
February 114%June 126%October 113%
March 114%July 130%November 111%
April 110%August 130%December 116%
Holidays include only New Year s Day, President's Day,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day
and Christmas Day. When a holiday falls on a Saturday or
Sunday, the Friday before the holiday (if the holiday falls on a
Saturday) or the Monday following the holiday (if the holiday falls
on a Sunday) will be considered a Holiday.
Case No. PAC-OI-
(Revised) Exhibit No. 10 (BWG-R2),
Page 4 of 5
Witness: Bruce W. Griswold
Proposed Terms for Electric Service to Monsanto
Monthly Replacement Power shall equal the sum of daily
Replacement Power for that month.
- - -..---.
.-...-....--. m._.__.. -.... ---..--
.... - - - - - -...-....-... - - - -- ..----.------ ------.--.. --..-...-- -..---...--- ----.-.-.----.-----... - ----- -
- -. -. ....mm--... ...............mm.......mmm.............mmmm......_.........mm.
""-""""""""'-'"""""""----",,,,,-..-.-.
-.-... ........ ....m..m......----.-
-""-'-""-""'--""'-"'--"""..-...-.. -
........._-,._,.,_.,_. ........................................-.....-......-...-......_mmm.._n..._.._....
'--""--"-",--,,
Agreement Reopeners
Direct Access
Interruptibility
Cost of Service
In the event that the statutes of the state of Idaho are amended to
provide customers with the ability to choose an electric supplier
other than PacifiCorp, either party may terminate this agreement
within 90 days of the date open access commences by written
notice delivered to the other party.
Operating reserve component of the ESA subject to reopener if
WECC operating reserve criteria changes
Delivered Power Charges adjustment subject to tariff standards.
..-. .-.--.--.--.------..----...-...--....--..--..-.-..------.
no_'
Other Provisions
Agreement Language
Portlnd3-1419217.10058802-00104
Remove favored nation clause from Agreement
Remove significant changes clause from Agreement
Modify termination clause to clarify terms and conditions.
Update operations sections to reflect any new power quality
standards based on prudent industry practice.
Power factor correction changed to comply with other tariff
customers.
Update to address cooperation in operation for safety issues.
Case No. PAC-Ol-
(Revised) Exhibit No. 10 (BWG-R2),
Page 5 of 5
Witness: Bruce W. Griswold
Ca
s
e

N
o
.

l
'
OI
-
Ex
h
i
b
i
t

N
o
.

2
2
,
P
a
g
e

1

o
f

I
Wi
t
n
e
s
s
:

D
a
v
i
d

L
.

T
a
y
l
o
r
Mo
n
s
a
n
t
o

C
o
n
t
r
a
c
t

P
r
i
c
e

H
i
s
t
o
r
y
35

-
:I
:
to
I
'
t
15

-B
e
10

19
9
0
19
9
1
19
9
2
19
9
3
19
9
4
19
9
5
19
9
6
19
9
7
19
9
8
19
9
9
20
0
0
20
0
1
20
0
2
L~
P
r
e
-
95

C
-;
'
t
r
a
c
t
s

-
-
.
~
~
9
5

C
nt
r
a
c
Ra
t
e

I:
:
J

19
9
5
ff
e
c
t
i.
v
e
P
r
i
c
e
-
~
.
.

p
r
ep
~
y
~
~
~
t

_
0
J
9
9
5

E
f
f
e
~t
i
~
e
!
,
r
i
~
~

~
B
~
y
~~
_
t
.

pr
o
E.
(
)
~
C~
~
t
r
a
c
t
J