20070705Widmer Exhibits.pdf

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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE
APPLICATION OF ROCKY
MOUNTAIN POWER FOR
APPROVAL OF CHANGES TO ITS
ELECTRIC SERVICE SCHEDULES
CASE NO. P AC-07-
APPLICATION OF
ROCKY MOUNTAIN POWER
ROCKY MOUNTAIN POWER
CASE NO. P AC-07-
Supplemental Direct Testimony and Exhibits
July 2007
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE
APPLICATION OF ROCKY
MOUNTAIN POWER FOR
APPROV AL OF CHANGES TO ITS
ELECTRIC SERVICE SCHEDULES
CASE NO. P AC-07-
Supplemental Direct Testimony of
Mark T. Widmer
ROCKY MOUNTAIN POWER
CASE NO. P AC-07-
July 2007
Are you the same Mark T. Widmer that provided prefiled direct testimony in
this case?
Yes.
Purpose and Summary of Testimony
What is the purpose of your testimony?
The purpose of my testimony is to provide clarifying comments describing how
the Company addressed Monsanto s interruptible product valuation in the context
of the general rate case.For purposes of comparison, I will also provide
additional detail regarding the updated forecast value of the interruptible products
for 2008 and 2009, using current data. I also provide clarifying comments
regarding the Company s 2007 interruptible irrigation load curtailment programs.
Curtailment in the General Rate Case
Did the Company address the amount paid to Monsanto for curtailment
products in the Company s general rate case application?
Yes. The Company included the price paid to Monsanto for curtailment products
provided to the Company as a component of the total net power costs in its
general rate case application. Specifically, Page 2 of my Exhibit No. 14 shows a
payment for $12.4 million to P4 Production, a Monsanto affiliate. This payment
includes the annual amount expected to be paid to Monsanto during 2007 for
economic curtailment, operating reserves, and system integrity products included
in the existing Monsanto electric service agreement (Agreement) executed on
May 18, 2006, and approved by the Commission in Case No. P AC-06-
(Order No. 30197). This Agreement became effective January 1 2007 and has an
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initial term of three years.
Why did the Company include the payments for curtailment based on the
2007 credit value set forth in the existing Agreement?
The rate case is based on a historical 2006 test period, adjusted for known and
measurable changes through December 31 , 2007.Since the terms of the
Agreement are known and measurable, the 2007 contract terms were included to
match the adjusted test period.
Does the Company believe that providing the 2007 known and measurable
curtailment values in the original Application complied with Order No.
30197 in Case No. P AC-06-09?
Yes. Order No. 30197 states the following:
" . . .
we expect the parties to address interruptible product valuation in the
context of a general rate case when Monsanto s cost of service is
determined. "
The Monsanto Agreement requires the Company pay Monsanto $12.4 million for
providing the curtailment product in 2007.Furthermore, section 2.2 of the
Agreement states that no adjustments may be made to the rates in the Agreement
prior to January 1 2008.
Adjustments to the charges in Section 4.1 of this Agreement shall
become effective on the effective date of any adjustment to Electric
Service Schedule No. 400 resulting from any general rate case or other
filing by PacifiCorp. Provided, however, that no adjustment to Electric
Service Schedule No. 400 shall go into effect prior to January 1 2008.
Pursuant to the Agreement, the contract terms for the test period applicable in the
general rate case are set and cannot be modified. Therefore, the Company has
addressed the value of the interruptible credit by including it as a known and
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measurable component of 2007 net power costs.
Interruptible Product Valuation Methodology
What is the underlying principle behind the Company s approach to valuing
interruptible products offered by industrial customers?
The Company follows a "ratepayer indifference" approach similar to what is used
in calculating avoided costs for qualifying facilities. In other words, the Company
seeks to pay industrial customers who can offer curtailment products the same
price the Company would otherwise pay if it were to acquire those same products
from other sources, such as the market or its own resources.
Why is it important to price interruptible products that industrial customers
provide consistent with the price the Company would pay to acquire the
same product from other sources?
All customers within each jurisdiction are allocated their proportionate share of
prudent costs incurred by the Company. The price paid to industrial customers
for curtailment products is included in the net power costs and is allocated to all
Idaho customers. Therefore, if the Company pays industrial customers more for
the curtailment products than it would otherwise incur acquiring those same
products from another source, the other ratepayers would be subsidizing the
industrial customers because they are being allocated higher costs than if the
Company were to acquire those same curtailment products from the lowest cost
resource. Therefore, ratepayer equity suggests that the price paid to industrial
customers for curtailment products should be no greater than the amount the
Company would incur if it were to acquire those same products from the next
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lowest cost available resource.
Has the Company performed any analysis quantifying the forecast value of
the interruptible product for the remainder of the initial term in the
Agreement, or 2008 and 2009?
Yes.The Company performed an analysis to determine the forecasted
interruptible value for 2008 and 2009. The analysis indicated an average value of
$10.0 million for the curtailment product credit for calendar year 2008 and an
average value of $9.6 million for calendar year 2009. The details of the analysis
are provided in Exhibit No. 42.
Does the Company offer any additional major interruptible energy programs
to its Idaho customers?
Yes. The Company offers the irrigation load control program under Schedule No.
72 and 72A.
Please explain the Company s interruptible energy programs available under
Schedule No. 72 and 72A.
The Company includes irrigation load curtailment programs in its mix of demand
side management program offerings in Idaho. Since 2003, the Company has
offered irrigation customers the ability to participate in pre-scheduled service
interruptions in exchange for a monthly load control service credit as detailed in
Schedule No. 72.Participation in this program is renewed each year, and
participants ' load is scheduled to be curtailed according to a pre-determined
schedule for the entire irrigation season. In 2007, the Company initiated a pilot
program that would allow participants ' irrigation load to be interrupted at the
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Company s discretion in exchange for an annual load control service credit as
detailed in Schedule No. 72A. Curtailment would be at the Company s option
limited to a certain duration and frequency throughout the irrigation season. The
Commission approved the pilot program in Case No. PAC-06-, and the
Company is currently implementing the new technology required for the program.
Are the costs of this curtailment included in the Company s general rate
case?
Because these programs are part of the Company s demand side management
offerings, program costs are generally recovered through Schedule 191 , Customer
Efficiency Services Rate Adjustment, and are not included in the calculation of
revenue requirement used to set base rates in this case. However, the load control
service credit paid to program participants is included in the calculation of
revenue requirement and is detailed on Page 4.11 . of Exhibit No. 11 to the direct
testimony of Company witness Steven R. McDougal. Consistent with the test
year conventions applied in this case, the Company included the actual load
control service credits paid to irrigation customers during 2006. No adjustment
was made to estimate changes during the 2007 season because of the unknown
impact of introducing the dispatchable pilot program.
Does the Company evaluate the cost effectiveness of the interruptible product
provided by the irrigation load curtailment programs?
Yes. The Company evaluates the overall cost-effectiveness of all its demand side
management programs in Idaho on an annual basis, and provides a detailed
analysis of the irrigation load control programs at the conclusion of each irrigation
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season. The Company seeks to strike a balance between the total cost of the
program and the cost of alternative sources of supply such that ratepayers are not
harmed by the offering of such programs. Because the dispatchable pilot program
offering is still in the early phases of implementation, a detailed analysis of the
program operation or anticipated cost effectiveness has not yet been completed.
The Company intends to comply with the Commission order in Case No. P AC-
06-12 and provide an analysis of the program after the 2007 irrigation season.
Does this conclude your supplemental testimony?
Yes.
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