Testimony of David Schunke.pdf

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Q. Please state your name and business address for
the record.
A. My name is David Schunke and my business address
is 472 West Washington Street, Boise, Idaho.
Q. By whom are you employed and in what capacity?
A. I am employed by the Idaho Public Utilities
Commission as a Public Utilities Engineer.
Q. What is your educational and experience
background?
A. I received my Bachelor of Science Degree in
Civil Engineering at Montana State University in 1972. I
have been licensed as a Registered Professional Engineer
in Idaho since 1977. I have worked in various capacities,
including a Cost and Materials Engineer with Morrison
Knudsen Co., Inc. and a consulting engineer with Stevens,
Thompson & Runyan (STRAAM Engineers). As a consultant, I
worked as Project Engineer on numerous civil engineering
projects in Idaho and Oregon for more than six years.
Since joining the Commission Staff as a
Utilities Engineer in 1979, I have been continuously
involved in rate design and regulatory matters with
virtually all the water, gas and electric utilities
regulated by the Commission. I served as the Engineering
Section Supervisor from 1983 to 1991, Utilities Division
Deputy Administrator from 1991 through 2000 and Engineer
CASE NO. PAC-E-01-16 SCHUNKE, D (Di) 1
08/09/02 Staff

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Manager from 2001 to present.
Q. What is the purpose of your testimony?
A. In my testimony I address the issue of system
allocation vs. situs assignment of the Monsanto load and
revenue. I will discuss cost-of-service. In particular,
the allocation of generation and transmission plant.
I will also discuss the appropriate range of the
Monsanto interruptible contract rate, the term of the
contract and the appropriateness of a single contract.
Q. Please summarize your testimony.
A. I am recommending that the method of allocating
the Monsanto load between the jurisdictions not be changed
at this time. The multi-state process (MSP) has been
specifically established to deal with this and other
jurisdictional allocation issues. Once a recommendation
comes out of that process, it can be presented to the
Commission in a general rate proceeding.
I support PacifiCorp’s (the Company’s) use of 12
coincident peaks (12 CP) in the allocation of generation
plant and transmission plant.
I believe the appropriate range for the Monsanto
interruptible contract rate is between 2.3 cents/kWh and
2.7 cents/kWh. I agree with Monsanto that a single
contract for a five (5) year period is appropriate.
CASE NO. PAC-E-01-16 SCHUNKE, D (Di) 2
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JURISDICTIONAL ALLOCATION – SYSTEM VS SITUS
Q. What is the Multi-State Process (MSP)?
A. On March 5, 2002, PacifiCorp petitioned the
Idaho Public Utilities Commission to initiate an
investigation of inter-jurisdictional issues affecting the
Company as a consequence of its status as a multi-
jurisdictional utility subject to the jurisdiction of six
state regulatory commissions. The Idaho Commission, in
Order No. 28978, established a docket for investigation
(Case No.PAC-E-02-3), and approved the establishment of a
multi-state process for analyzing inter-jurisdictional
issues. The jurisdictional allocation of special
contracts is one of the issues being considered in the
MSP.
Q. How is the Monsanto load and revenue treated in
the current jurisdictional allocation?
A. The current rates are based on a jurisdictional
allocation model (JAM) that treats Monsanto as a system
load. This results in costs being allocated across the
system based on the remaining jurisdictional loads.
Monsanto’s revenue is allocated to all the jurisdictions
as a revenue credit to offset the costs.
Q. Has the Monsanto load ever been assigned situs?
A. No. Since the UP&L-PP&L merger in 1989,
Monsanto has been treated as a system load for
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jurisdictional allocation.
Q. Are there concerns raised by the Company and
other jurisdictions pertaining to the current treatment of
special contracts as system loads?
A. Yes. Mr. Taylor discusses three concerns that
the Company has if Monsanto is treated as a system load.
The first concern is that other jurisdictions may not
assume the allocated cost of the special contract. I
believe this is a valid concern and I expect it is the
Company’s primary concern. While special contracts for
industrial customers are approved by the state commission
where that customer resides, the cost to serve that
customer is shared by all the jurisdictions. If the
approved rate is set below the actual cost-of-service, all
the jurisdictions end up subsidizing that special contract
customer.
Q. If the special contract rate is set at full
cost-of-service, does this concern go away?
A. Yes, I believe it does. If rates are set at
full cost-of-service, including a reasonable discount for
interruptibility, there is no subsidy. The costs
allocated to each jurisdiction would be offset by the
revenue credit.
The difficulty is in establishing a rate that
everyone can agree covers the cost-of-service and properly
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values the interruptibility. Cost-of-service for firm
load customers is an imprecise science and establishing
the cost-of-service for an interruptible load is even more
difficult, requiring considerable judgment.
Q. What is the second issue of concern that the
Company has raised with respect to treating Monsanto as a
system load?
A. Mr. Taylor states in his direct testimony on
page 7, line 2:
Second, market prices and the Company’s
avoided costs now make the contribution
to fixed cost standard much harder to
meet. In nearly every case prices under
the contribution to fixed costs standard
would be higher than full embedded costs.

I recognize that the Company is now in a
condition of resource deficit, incremental costs are above
average embedded cost and market prices are volatile.
These conditions make an embedded cost analysis more
appropriate than a contribution to fixed cost analysis.
Mr. Taylor’s statement seems to imply that the
special contract customer should be served from the
incremental or marginal resource, and I don’t think that
is appropriate. The special contract rate, for a native
load customer, should be based on average cost of embedded
resources.
Q. What is the third issue of concern?
CASE NO. PAC-E-01-16 SCHUNKE, D (Di) 5
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A. Mr. Taylor states in his direct testimony on
page 7, line 5:
Third, including a price discount for
interruptibility in an electric service
agreement assigns a fixed value to the
interruptibility over the term of the
agreement. However, the drastic changes
in the wholesale market over the last
couple of years have shown that
interruptibility can have very different
values at different points in time.

I believe that these observations are true;
however, I don’t agree with Mr. Taylor’s conclusion:
Recognition of those different values
can best be dealt with in separate,
shorter-term agreements.

In fact it would seem to me that a long-term
interruptible contract would displace some power purchases
at those volatile market prices, reducing the risk to the
Company. PacifiCorp has also already committed to long-
term contracts to acquire peaking resources. Furthermore,
I believe that price certainty is of importance to
Monsanto. Therefore, it appears to me that a long-term
contract would make sense.
Q. Does PacifiCorp serve other special contracts in
Idaho?
A. Yes. Nu West is served under a special
contract.
Q. Is the Nu West load assigned (situs) to the
Idaho jurisdiction?
CASE NO. PAC-E-01-16 SCHUNKE, D (Di) 6
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A. Yes.
Q. What makes the Monsanto contract different?
A. The fact that the Monsanto contract is
interruptible and that it is such a large load makes it
different from the Nu West contract.
Q. Is the Monsanto contract unique?
A. Yes. The size of Monsanto’s load, about 200 MW,
and its percentage of the state jurisdictional load,
nearly half, make it unique. Even though there are
interruptible contracts in other jurisdictions and Utah
has the greatest number, Monsanto is the largest single
customer of PacifiCorp served under a special contract.
Furthermore, on a percentage basis, Idaho has far more
special contract load than any other jurisdiction. If
Monsanto were assigned situs, nearly half of Idaho’s load
would be served under a special contract.
Q. What are the concerns with situs assignment of
interruptible loads?
A. It is difficult to represent interruptible
contract loads in an embedded cost-of-service study. If
the contract load is included as a firm load in the state
jurisdiction and allocation factors are determined on a
situs basis, then cost responsibility to that jurisdiction
is overstated. I believe this is the point that Mr.
Taylor discussed in his direct testimony on page 5, lines
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5 to 16:
It is very difficult to accurately
reflect the cost responsibility of an
interruptible customer in the context of
an embedded cost allocation . . .
If the interruptible customer’s load is
included in the jurisdictional and class
allocation, the costs associated with
that customer are overstated.
(Emphasis added)

Q. Is situs assignment a bigger issue for Idaho
than for other jurisdictions?
A. Larger jurisdictions, with only a small
percentage of their load included in special contracts,
can absorb the revenue effects of situs assignment more
easily within the jurisdiction. However, for Idaho, where
the Monsanto load would make up such a large percentage of
the total, establishing special contract rates below cost-
of-service places an excessive burden on the remaining
jurisdictional customer base. Historically, these
interruptible customers were removed from the
jurisdictional revenue requirement calculation. They were
treated as a system load as they provide unique system
benefits. As Mr. Taylor states in his direct testimony on
page 6, lines 6 through 12:
Had this not been done, the full-
embedded costs associated with the
interruptible customer would be
allocated to the host jurisdiction, but
the revenue from these customers would
be lower than embedded costs and other
CASE NO. PAC-E-01-16 SCHUNKE, D (Di) 8
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customers in the state would be harmed.
Under this situation, keeping the
customer on the system was a benefit to
the total system but a detriment to the
host state.

Q. Does the Monsanto’s interruptible load provide a
system benefit?
A. Yes. If the Monsanto contract provides for
interruption of a significant portion of that load, it has
a system benefit. System benefits from an interruptible
customer vary based on the level of interruption, response
time for interruption and other factors. When not being
interrupted the load available for interruption provides
non-spinning reserves often reducing the need for
additional purchases. With economic interruption
capabilities the system will benefit from reduced
purchased power costs in periods of high prices. Large
interruptible customers flatten the load, not only by
reducing the load in peak periods when they are
interrupted but increase the load in shoulder and non-peak
periods when resources are available. These are greater
benefits than what could be utilized in Idaho alone.
Q. At the time the last Monsanto contract was
signed, how were rates set?
A. Monsanto’s rates and other interruptible special
contracts, signed at that time, were set to cover the
variable cost to serve them plus some contribution to the
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fixed cost. For jurisdictional allocation their load was
treated as a system load.
Q. Is this an appropriate method to set the rate
for Monsanto today?
A. No, I believe that Monsanto’s rate should
reflect the value to the system that its interruptibility
provides, but I don’t believe that “contribution to fixed”
is an appropriate method to use to compute Monsanto’s
rate. As I stated earlier, the Company is now in a
condition of resource deficit, incremental costs are above
average embedded cost and market prices are volatile.
These conditions make an embedded cost analysis more
appropriate than a contribution to fixed cost analysis.
Q. What would be the rate impact on the Idaho
Jurisdiction if the Monsanto load were assigned situs as a
firm load?
A. If you use a 1998 test year, the last year that
was audited and the Company’s proposed cost-of-service
study, revenues would have to increase by about $15
million if Monsanto’s load were assigned situs as a firm
load at present rates. Using an unaudited test year
ending in March 2001, the required increase would be about
$18 million.
Absent a Monsanto rate increase this would
amount to an increase in revenue requirement for the
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remaining customers in the Idaho jurisdiction of 10% to
12%.
Q. What would Monsanto’s rate be in cents/kWh if it
were required to pay this entire amount?
A. For $15 million and $18 million, respectively,
the increase to Monsanto would be 1.2 cents/kWh and 1.5
cents/kWh. Adding this amount to the 1.85 cents/kWh
results in 3.05 to 3.35 cents/kWh, which is essential the
rate that results from the Company’s cost-of-service study
for Monsanto as a firm load (3.14 cents/kWh).
Q. What is your recommendation regarding system vs.
situs allocation of the Monsanto load?
A. The Commission should establish the contract
rate and other terms of the contract agreement. However,
the question of how to jurisdictionally allocate the
Monsanto load need not be determined at this time. The
MSP was established for the express purpose of dealing
with jurisdictional allocation issues like this one. This
Commission has agreed to participate in the MSP, and the
issue of allocation of interruptible contracts is being
debated in that process. Whether a workable resolution
will come forth from this group is yet to be seen;
however, it is premature to circumvent that process by
making a change in allocation methodology in this case.
Once a recommendation is made from that group, the
CASE NO. PAC-E-01-16 SCHUNKE, D (Di) 11
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Commission can consider it in a general rate case.
Q. What other scenario do you see for the possible
resolutions to this allocation issue?
A. I see a number of possible scenarios. None of
them remove the risk to the Company that it may not
receive full cost recovery.
1. Monsanto would remain a system load; the
Idaho Commission would establish a rate that it determines
to be fair and reasonable. Each Commission in the other
jurisdictions would then review that rate in a general
rate proceeding and determine if the rate is reasonable.
If any commission disallows a portion of the discount from
the firm cost-of-service rate (or imputes revenue above
the rate that was established), the Company would have the
option of appeal to that commission or return to the Idaho
Commission and request recovery of the short fall.
2. Monsanto would remain a system load and the
Idaho Commission would set an interim interruptible rate
that would remain in effect until the MSP made its
recommendations. At that time, the Idaho Commission could
consider those recommendations along with the record in
this case and establish a permanent rate.
3. Monsanto’s load would become situs
assigned. The Idaho Commission would set the rate that
may or may not recover the Company’s estimation of the
CASE NO. PAC-E-01-16 SCHUNKE, D (Di) 12
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full cost-of-service.
CLASS COST-OF-SERVICE
Q. Have you prepared a class cost-of-service study
for the Idaho jurisdiction?
A. No, I do not intend to present a detailed
analysis of the class cost-of-service study. The Company
is not asking for any rate adjustments for any of the
other customer classes at this time and none of the
parties in this case are recommending any. Furthermore,
there are a number of jurisdictional allocation issues
that are on the table in the MSP at this time that will
have a bearing on class cost-of-service. It is my
intention to address only the issue of allocation of
generation and transmission (GT) plant on a general basis
and as it relates to the allocation of costs to Monsanto.
Q. What is your opinion of witness Iverson’s
proposed allocation of GT plant?
A. Ms. Iverson states:
By allocating 100% of the generation and
transmission demand-related rate base
and expenses on the basis of coincident
peak demands, all firm customers will
receive equal shares of the cost of
constructing the investment on a per kW
basis. All customers then will share
proportionately in the cost of the
generation and transmission investments
based on their contribution to the
monthly coincident peak demand.

What Ms. Iverson is advocating is to allocate
CASE NO. PAC-E-01-16 SCHUNKE, D (Di) 13
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all (100%) of generation and transmission (GT) plant on
the basis of demand. There would be no split between
demand and energy, so none of the GT plant would be
allocated on the basis of an energy allocator. GT plant
would be allocated based on one’s monthly coincident peak
load only. However, I do not believe this is appropriate.
It is generally recognized that generation
plants produce energy and transmission lines carry energy.
They are designed to meet the peak demand but they are
operated to serve both energy and capacity needs.
Albeit an imprecise division, the 75/25 split,
used in the Company JAM, is intended to recognize the fact
that generation and transmission perform the function of
producing and transporting energy as well as providing
capacity. This is especially true for a system, like
PacifiCorp’s, that includes hydroelectric generation. The
ability of GT to provide both energy and capacity can
perhaps best be demonstrated by considering a
hydroelectric generation plant that includes some storage.
The plant output is limited by the water behind the dam.
It can produce a lot of energy and a little capacity, or a
little energy with a lot of capacity, or some combination.
However, if the water is consumed in the production of
energy it will not be able to produce additional capacity.
Admittedly for thermal generation this argument is not as
CASE NO. PAC-E-01-16 SCHUNKE, D (Di) 14
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strong, which is why the 75/25 split is weighted more
heavily toward the capacity (demand) than the energy.
Idaho Power has a greater reliance on hydro and
for years has been energy constrained, not capacity
constrained. While I am not comparing Idaho Power to
PacifiCorp, I am using Idaho Power to illustrate that,
depending on the makeup of the utility, energy can be even
more critical than capacity.
Suffice it to say that a 100% allocation of GT
costs based on demand, as suggested by Ms. Iverson,
ignores the fact that these facilities are also designed
and operated to provide energy.
The 75/25 split has a long history; it has been
accepted in seven jurisdictions for allocation of
PacifiCorp GT plant. When this issue has been addressed
in the jurisdictional allocation group, the tendency is to
increase the percentage that goes to energy, not the other
way around. Currently there is general agreement that the
75/25 split is appropriate in all the PacifiCorp
jurisdictions. I support the 75/25 split for both
jurisdictional and customer class cost-of-service
allocation of generation and transmission plant.
Q. Do you agree with Ms. Iverson’s discussion on
the demand allocator?
A. In general, I agree with her discussion but not
CASE NO. PAC-E-01-16 SCHUNKE, D (Di) 15
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her conclusion.
Q. Would you please comment on the demand allocator
(12 CP vs. 8 CP).
A. I believe that generation and transmission plant
should be allocated on the basis of twelve monthly system
coincident peaks (12 CP). A 12 CP generation and
transmission allocator better represents the actual system
operation. It recognizes that each of the monthly peaks
is of importance. An 8 CP in effect weights four of the
months with zero importance. This misrepresents the
importance of the “shoulder” months on the UP&L system.
In months when loads are typically low, the Company
schedules plant maintenance. When a base load plant is
down for maintenance, the Company is required to operate
its more expensive units. During this time, the Company
may actually have less net reserve margin than in a peak
period.
Prior to the UPL/PPL merger the Company did a
detailed analysis of the system stress factors to
determine which months were critical and, therefore, most
appropriate for demand allocation of GT plant. Mr. Taylor
discussed the system stress factor analysis in the
UPL-E-90-1 case. He stated the following:
CASE NO. PAC-E-01-16 SCHUNKE, D (Di) 16
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The results of the stress factor
analysis done by Utah Power prior to the
merger indicated that the capacity needs
during four months of the year (March,
April, May, and October) were less
stressful relative to the Company’s
needs than during the other eight
months. Based on these results, Utah
Power used eight monthly peak loads
(8 CP) to develop capacity allocation
factors.

The results of the stress factor
analysis done for the merged company
shows that monthly firm peak loads and
the probability of contribution to peak
stress factors do not vary significantly
throughout the year. This supports the
use of the 12 CP capacity allocation
factor. The other four stress factors,
including loss of load hours, indicated
the highest stress during the Spring
runoff period. The high stress
indicated during the spring period for
these factors is created by the
Company’s maintenance practices, which
are driven by economic considerations.
(Emphasis added)

Q. Which of the months is given zero weighting in
the 8 CP method?
A. For the 1999 test year, April, May, September
and October had the lowest loads and would be excluded
with the 8 CP allocator.
Q. Are these always the months with the lowest
system peaks?
A. Not necessarily. Depending on the test year,
March, October and November can also be included with the
lowest four months.
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Q. Ms. Iverson stated, “In the Idaho COS study, the
8 CP method is more justified than in the JAM study.” Do
you agree with her?
A. If generation and transmission plant were being
designed for a stand-alone Idaho system, she would be
correct. Idaho does have a very sharp summer peak lasting
only three months. Furthermore, the difference between
the peak period and the off-peak period is very
significant. The monthly load in the nine off-peak months
is only about 60% of the load in the three-peak months.
Again if Idaho were a stand-alone system, one could make a
good case for using as few as 3 CPs; however, PacifiCorp
is an integrated system and the GT plant is designed to
meet the peaks of the entire system.
If you were to look at Idaho’s December load and
you were designing an Idaho system, you would probably not
include December as one of the critical peak months for
allocation, because load in December is only about 60% of
the highest peak summer month. However, if you were
designing a system to serve Washington, Oregon, Wyoming,
Utah and Idaho, you would add all the December loads
together and find that they were equal to about 98% of the
system peak and, therefore, a critical month in allocating
cost.
I also believe that the jurisdictional
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allocation and the class cost-of-service allocation should
employ similar methodologies. Costs come to Idaho through
the jurisdictional allocation. It makes sense to be
consistent in the allocation methodology and assign costs
to the customer classes in the same way they are assigned
to the jurisdiction. There can be a disconnect if one
uses a different method of allocating cost in the customer
class cost-of-service.
Q. Can you provide an example of what you mean by
disconnect?
A. Yes. Assume the jurisdictional allocation model
(JAM) uses a 12 CP demand allocator and the class cost-of-
service model (COS) used an 8 CP demand allocator. If a
large customer increases its load in the four shoulder
months that are not included in the Company’s 8 CP, but
are included in the JAM 12 CP. Idaho‘s JAM allocator
increases but the 8 CP allocator for that customer does
not change because the increased load occurred in the
shoulder months. This results in increased costs being
allocated to Idaho with no change in the percentage of
cost being allocated to that customer.
INTERRUPTIBLE RATE
Q. What do you consider a reasonable range for
Monsanto’s interruptible rate?
A. Depending on the amount of interruptibility
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offered, I believe a reasonable range for the Monsanto
interruptible rate is from 2.3 cents/kWh to 2.7 cents/kWh.
Q. How did you arrive at this range?
A. The low end of the range was calculated by
increasing the available interruptibility to the levels
provided in the 1992 Monsanto contract. It also
represents the effective rate that is currently in place.
Under no circumstances do I believe the Monsanto
interruptible rate should be set below this amount, 2.3
cents/kWh.
The upper end of the range was calculated using
Monsanto’s proposed levels of interruptibility.
I accepted the Company’s calculation of 3.14
cents/kWh as a reasonable firm rate. I then calculated
the interruptible credit using two different avoided
resources at the two different levels of availability; the
level proposed by Monsanto and the level included in the
1992 contract.
Q. What did you consider as the avoided resource?
A. I considered both market purchases (taken from
GNR-E-02-01) and a potential peaking resource (taken from
the RAMPP-6) as avoidable resources. PacifiCorp relies on
market purchases to meet its peak but has also recently
committed to both the Gadsby and the West Valley projects.
I assumed that some combination of these resources could
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be avoided through an interruptible contract with
Monsanto.
Q. Please describe how you calculated the
interruptible credit and resulting rate in row A of your
Exhibit No. 101.
A. From the firm rate of 3.14 cents/kWh, I
subtracted the cost of a potential peaking resource listed
in RAMPP-6, $78.43/MWh. I used this as a surrogate for
the avoidable peaking plant. The amount of
interruptibility was assumed to be the amount proposed by
Monsanto, 800 hours per year. Since the RAMPP-6 Peaker
assumes a capacity factor of 15%, or 1314 hours per year,
I recognize the proposed interruptibility is less than the
availability of the RAMPP-6 Peaker, although I made no
specific adjustment for this.
If the unadjusted value of the Peaker is applied
to Monsanto proposed interruptibility (116 MW of
interruptible load for 300 hours and 67 MW for 500 hours),
it would have an effective value of 0.43 cents/kWh when
spread over 166 MW of total power running at an 85%
capacity factor. Subtracting this interruptibility credit
of 0.43 cent/kWh from the Company’s calculated firm rate
of 3.14 cents produces a rate of 2.71 cents/kWh. Exhibit
No. 101 shows this calculation of the interruptible rate
in row A and a similar calculation using short-term
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purchases as the avoided resource in row B. Both of these
calculations are then repeated at greater amounts of
interruptibility and shown in rows C and D.
Q. Please describe the other methods listed in
Exhibit No. 101.
A. The second method is the same as the first
method except I used short-term market purchases as the
avoided resource instead of a peaker unit. I then
repeated both methods using the amount of interruptibility
provided in the 1992 contract instead of the amount
proposed by Monsanto in this proceeding.
Q. Please discuss the appropriateness of these
methods.
A. I believe the appropriate rate results from
using something between the peaker and market purchases.
Market purchases are volatile and using them would tend to
either under value or over value the interruptible credit.
At the current market prices, I believe using them
understates the value of interruptibility. I also believe
that an interruptible contract would tend to be exercised
when market prices are above the average and my analysis
was based on average market prices.
An interruptible contract provides a reliable,
fixed price resource which I believe is more valuable than
a short term market purchase. Therefore, my recommended
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rate is closer to that based on an avoided peaker although
I recognize that an interruptible contract may not be as
valuable as a peaker because the peaker may offer greater
operational flexibility.
Q. What rate are you recommending?
A. If the interruptibility is restricted to the
amounts proposed by Monsanto, I believe the appropriate
rate is 27 mills/kWh.
If Monsanto were able to provide greater
interruptibility a lower rate could be justified. If
Monsanto were to provide interruptibility similar to that
provided in the 1992 contract, then a rate of about 23
mills/kWh could be justified.
Q. How do these rates compare to current rates?
A. The 27 mills/kWh rate would be 17% higher than
the current effective rate of 23 mills/kWh. If the
greater interruptibility were provided, and a rate of 23
mills/kWh were set, there would be no increase to
Monsanto’s effective rate.
Q. Dr. Laura Nelson of the Utah Division of Public
Utilities performed an analysis for the MagCorp contract
interruptible rate. How do her findings compare with
yours?
A. Dr. Nelson found that if the MagCorp contract
provided four months, or 720 hours of interruptibility her
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analysis produced a rate of 27.7 mills/kWh. At 800 hours
of interruptibility I am recommending a rate of 27
mills/kWh for Monsanto.
Q. How has Monsanto’s contract interruptibility
changed since 1992?
A. In the 1992 contract, 154 MW were interruptible
and up to 191,564 MWh per year. In 1995, that contract
was replaced with a contract that allowed no economic
interruption.
The contract proposed in this proceeding would
limit economic interruptions to a maximum of 116.5 MW for
up to 250 hours or 67 MW for 500 hours. It also allows
for 116.5 MW to be interrupted for 300 hours to maintain
reserves. This is about a third of the interruptible
capacity that Monsanto provide in the 1995 contract.
Q. Earlier in your testimony you stated that if
interruptibility was provided at the 1992 contract level,
then a rate approaching the 1992 and 1995 contract rate,
23 or 24 mills/kWh, might be appropriate. Why do you
think that rate should define the minimum rate?
A. I believe that the cost of firm service power
and incremental power have increased since 1995. At the
same time I believe the value of interruptibility has
increased.
In 1995, the Company, Monsanto, the Commission
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Staff and the Commission found the effective rate of 2.3
cents/kWh to be reasonable. This was a period when market
prices were very low and the Company had excess capacity.
Today the Company has no excess capacity, production costs
have increased, and market prices are volatile. All these
suggest to me that Monsanto’s rate should not be reduced
below the current rate of 2.3 cents/kWh.
I have prepared Exhibit No. 102 showing
Monsanto’s effective interruptible rate for all three
furnaces from 1990 to the present. In 1990, they were
paying about 2.06 cents/kWh. With the signing of the 1992
contract, this rate increased to 2.23 cents/kWh and that
contract included a built-in escalator that increased
rates to 2.4, 2.5 and 2.6 cents/kWh in 1993, 1995 and
1996, respectively. In 1995, that contract was bought out
for $30 million and a new rate of 1.85 cents/kWh was
established. In Monsanto’s comments supporting approval
of this new contract, Mr. Louis Racine stated:
Amortizing the $30 million payment at
the prime interest rate of 8.75% over
the life of the Agreement, the average
Monsanto rate, including the 1.85
cents/kwh energy charge, would be in
excess of 2.3 cents/kwh.

My proposal of 2.7 cents/kWh results in a 17%
increase over the current effective rate of 2.3 cents/kWh
and a 3.8% increase over the 2.6 cents/kWh rate that would
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CASE NO. PAC-E-01-16 SCHUNKE, D (Di) 26
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have been in effect had the contract not been modified.
Q. Does this conclude your direct testimony in this
proceeding?
A. Yes, it does.