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Home My WebLink AboutWatters 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 )Stan K. Watters _______________________________) PACIFICORP Watters, Reb - 1 PacifiCorp Q. Please state your name, business address and position with PacifiCorp (the Company).1 A.My name is Stan K. Watters. My business address is 825 NE Multnomah, Suite 600,2 Portland, Oregon. I am the Vice President, Trading & Origination for PacifiCorp.3 Q. What are your qualifications?4 A.I joined the Company in 1982 and I have held various positions in engineering, finance,5 and wholesale prior to my current position. In my position as Vice President of Trading6 & Origination, I am responsible for the Company’s wholesale sales and trading7 functions including the economic dispatch of PacifiCorp’s system resources. I8 graduated from Oregon State University in 1981 with a Bachelor of Science in Civil9 Engineering.10 Q. What is the purpose of your testimony?11 A.I will provide testimony to explain and clarify the costs and appropriate terms and12 conditions for acquiring interruptibility or curtailment as a power supply resource. I will13 describe how operating reserves and other interruptible products interact with each14 other and what changes are occurring on operating reserves that may affect a long-term15 agreement for operating reserves. I will specifically respond to Monsanto’s proposed16 terms and conditions of interruptibility as provided by Mr. Daniel Schettler in the draft17 Power Supply Agreement, Exhibit 210.18 Q. What interruptible or curtailment products provided by retail customers have the most19 value to PacifiCorp?20 Watters, Reb - 2 PacifiCorp A.There are a wide range of interruptible or curtailment products that PacifiCorp has1 purchased or proposes to purchase from its retail customers. I have summarized those2 products in the table in Exhibit No.12 (SKW-R1). This table contains the product and3 various characteristics that affect how the product is delivered which in turn influences4 the value of the product to PacifiCorp and the resulting price PacifiCorp is willing to pay5 to acquire the product. These characteristics include notice, duration, amount, buy6 through, etc. Our experience is that these products can be categorized as interruptible7 which means that PacifiCorp can as an option, dispatch the interruption. One category8 of curtailment products is less firm than others in that customers have an option to buy9 through the curtailment period. Because of the customer held option for buy-through,10 we cannot plan for that customer load being gone. This requires the Company to11 continue to plan to meet the load requirements of the customer. If the customer12 exercises their option to buy through, we supply that customer at the agreed market13 price shaped to the hours of requested curtailment.14 Q. How are the costs to acquire these interruptible or curtailment products developed?15 A.Because of the wide variation in characteristics, we price these options based on our16 alternative – the cost of acquiring them in the wholesale market or in the case of17 operating reserves, not holding them on our own facilities.18 Q. Can interruptible and curtailment products be combined at the individual customer level?19 A.Yes, however a number of these products have characteristics that do not allow them to20 be held simultaneously on the same load. For example, non-spinning operating reserves21 Watters, Reb - 3 PacifiCorp and economic curtailment can not be held on the same load for the same period. The1 Western Electricity Coordinating Council (“WECC”) criteria for non-spin operating2 reserves requires the load to be operating, available for interruption within the ten minute3 period, and then return to non-contingency mode within the hour after interruption. If4 the same load is notified for economic curtailment, then it has been removed from the5 load and not available to be interrupted for operating reserves. This issue can be6 addressed by holding different loads for reserves and curtailment or holding them during7 different time periods. In many cases this may diminish the value of each option.8 Q. What are the current conditions or WECC requirements regarding operating reserves9 that allow Monsanto to provide reserves to PacifiCorp today?10 A.There are six basic reliability services provided from generation (and sometimes load),11 regardless of regulatory environment, market structure, or organizational framework, to12 ensure system reliability. Some of the generation services are used to achieve13 generation and load balance, for maintaining stability and frequency within defined limits.14 These services are Regulation, Load Following, and Contingency Reserve. Other15 services are used to maintain a secure transmission network including Reactive Supply16 from Generation Sources and Frequency Response. Finally, services are used for17 emergency preparedness and restoration such as System Black Start Capability.18 Each Control Area either acquires access to and/or operates resources to provide for a19 level of Contingency Reserve (Spinning and Non-spinning) sufficient to account for20 Watters, Reb - 4 PacifiCorp errors in load forecasting, generation loss, transmission unavailability, and regulating1 requirements. Three things happen following a contingency:2 1. Frequency Response will immediately begin to control the frequency deviation3 across the system.4 2. Within the affected Control Area, resources providing Regulation will begin to5 adjust outputs within seconds.6 3. In addition, the Control Area may deploy, as needed, Contingency Reserves –7 Spinning and Non-spinning. These reserves are used to restore the pre-8 contingency generation and demand balance, Frequency Response capacity,9 and Regulation capacity.10 Our historical and current operating reserve agreements with Monsanto classify the11 operating reserves purchased from Monsanto as Contingency Reserves – Non-12 spinning. These agreements allow us to utilize the interruption of load as an alternative13 to holding reserves on one of our own generation plants.14 Q. What are Monsanto’s capabilities to provide non-spinning operating reserves?15 A.As a supplier of Contingency Reserves, Monsanto meets the following requirements:16 1.Available for redeployment after the pre-arranged elapsed time as specified by17 Monsanto.18 2.In response to the instructions from PacifiCorp, and subject to the declared19 capabilities of Monsanto, Monsanto will:20 Watters, Reb - 5 PacifiCorp · Reduce specified furnace loads within 7 minutes of a call from1 PacifiCorp requesting reserves.2 · Maintain the stated amount of Reserves for up to 60 minutes3 subsequent to call.4 · Return to the non-contingency consumption upon instructions from5 PacifiCorp.6 · Allow real-time telemetry of the real power output of each resource7 providing reserves.8 · Allow approved data communication service between Monsanto’s9 control room and PacifiCorp.10 · Allow approved voice communication service to provide both primary11 and alternate voice communications between PacifiCorp and12 Monsanto’s operator controlling the resource.13 Q. What changes do you see occurring that would cause PacifiCorp not to want to commit14 to a long term operating reserve agreement as part of a power supply agreement?15 A.Going forward, there are proposed changes by WECC in their operating policies that16 could modify both the quantity and requirements of both contingency reserves and17 frequency response reserves (“FRR”). These changes are still under review and not18 finalized however, the FRR is being considered a more critical service to maintain within19 the Western Interconnect and therefore is proposed to be increased to provide the20 system security and real-time recovery after a contingency. The timeline on changes is21 Watters, Reb - 6 PacifiCorp anticipated to be mid-2003 but we do not have a definitive schedule from the WECC1 yet.2 Q. What are the standards for Frequency Response Reserves?3 A.As we have discussed above, the FRR provides the first line of recovery directly from4 frequency deviations. The key criteria are:5 · It must begin to deploy within 10 seconds of the contingency and be fully6 deployed within 60 seconds of a frequency deviation.7 · The FRR must provide the capability to change, with no manual intervention, a8 resource’s real power output or load in direct response to a deviation from9 scheduled frequency.10 Standards still under review indicate that FRR may be any combination of natural load11 response, generator governor action, under-frequency load shedding of contractual12 interruptible load (such as tripping pump storage units operating in the pumping mode),13 or any other equipment that meets the desired characteristics.14 It is still unclear whether Monsanto’s interruptible load could be considered as a FRR15 or even whether Monsanto would be able to or want to be interrupted automatically in16 response to frequency deviation. Monsanto would have to evaluate their need to17 maintain operational continuity before agreeing to this form of interruptibility.18 Q. Are there changes proposed for Contingency – Non-spinning Reserves?19 A.Yes. The other issue is quantity of reserve type required. It is still unknown what the20 final requirements will be regarding what amounts of FRR or Contingency Reserves will21 Watters, Reb - 7 PacifiCorp be required to be held within the WECC. If the required volume of Contingency1 Reserves - Non-spinning declines significantly then PacifiCorp could be exposed to the2 risk of holding a product that has little value. Although the proposed levels are still3 under evaluation, we anticipate that PacifiCorp could potentially meet its Non-spinning4 Reserves as a zero-cost option on our own resources without purchases of additional5 reserves. Additionally, the Non-spinning portion of Contingency Reserves has6 increased from a 10-minute to a 15-minute deployment.7 Q. What will these changes do to long-term operating reserve agreements with industrial8 customers such as Monsanto?9 A.At this time, we are willing to move forward with operating reserves as part of an10 overall electric service arrangement; however, we are unwilling to accept the risk that11 the value of the reserves or the ability to utilize Monsanto in the reserve stack will12 continue unchanged. Therefore, we either need the ability to change the agreement13 based on the value of the product, shorten the term of the agreement to provide more14 certainty that our payment will match the value we receive, or have the option to convert15 the operating reserve agreement to another interruptible product of equivalent value to16 both parties.17 Q. How would PacifiCorp value Monsanto’s proposal for interruptibility as presented in18 Mr. Schettler’s testimony?19 A.Monsanto’s proposal includes three specific products that total 800 hours of20 interruptibility or curtailment. I categorize them as (1) an economic curtailment with a21 Watters, Reb - 8 PacifiCorp buy-through option, (2) a non-spinning operating reserve and (3) a system integrity1 product. Each product has a defined number of hours with an allowance for the number2 of furnaces being interrupted or curtailed. These can total up to 800 furnace- hours in a3 calendar year. As Monsanto defines furnace-hour, it is each hour that a single furnace is4 interrupted or curtailed so their proposal would be equal to one furnace being5 interrupted or curtailed 800 hours in a year. Only one product can be exercised at one6 time and it must provide for a six minute notice of interruption except in the system7 integrity product, which can be immediate with no notice if an emergency.8 We have valued each product individually taking into account Monsanto’s defined9 operating limits as they define them and also not double-counting for any products that10 cannot be held on the same furnace through the same period. Specifically we have11 assigned operating reserves to two furnaces for 300 hours and the third furnace is12 assigned to the economic curtailment product. The system integrity product is an13 overriding option such that in a system emergency condition, we would relieve14 Monsanto of obligations under the reserve and economic curtailment products in order15 to stabilize our electrical system. Under this structure, the value associated with the16 non-spinning operating reserves is $2.73 per kW-month based on holding a minimum of17 95 MW of non-spinning reserves on Monsanto versus our own resources. Exhibit No.18 13 (SKW-R2) shows a summary of the cost analysis. The value associated with the19 economic curtailment option held on the third furnace is $195,000 per month.20 Monsanto holds the option to buy through, thereby providing themselves the ability to21 Watters, Reb - 9 PacifiCorp keep the third furnace operating and not impact their kiln operation. Exhibit No. 141 (SKW-R3) shows the cost analysis for this option. Finally, we analyzed the value of2 interrupting Monsanto’s total furnace load for system integrity purposes. This entails3 Monsanto being first off the system before other retail customers. The value to4 PacifiCorp for this option is $486,000 per year, or $40,500 per month. Exhibit No.155 (SKW-R4) shows the cost analysis for the system integrity option.6 Q. What is the total cost to PacifiCorp for acquiring the interruptible products proposed by7 Monsanto?8 A.On an annual basis, the products would cost PacifiCorp $494,850 or in terms of a9 credit per MWh to Monsanto against their firm cost of service, it would be $4.40 per10 MWh based on the estimated annual usage of 1.35 million MWhs.11 Q. Are there other specific characteristics in Monsanto’s proposal for interruptibility that12 require modification?13 A.Yes. The wholesale market index proposed by Monsanto for buy-through is not14 representative of the wholesale market hub we would use to serve Monsanto.15 Monsanto is within our Eastern Control Area and is more closely aligned with the Palo16 Verde or Four Corners hub. Of the two market hubs, Palo Verde is a more liquid17 market hub than Four Corners and therefore maintains higher trading volumes for the18 representative market prices. We would propose using the Dow Jones Palo Verde19 Firm On-Peak Index shaped to the actual hours of curtailment as is used in the20 Watters, Reb - 10 PacifiCorp Magcorp curtailment agreement. A copy of the buy-through structure is included in1 Exhibit No.16 (SKW-R5).2 Q. Does this conclude your rebuttal testimony?3 A.Yes it does.4