20070705Widmer Supplemental.pdf

Case No. PAC-07-
Exhibit No. 42
Witness: Mark T. Widmer
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
ROCKY MOUNTAIN POWER
Exhibit Accompanying Supplemental Direct Testimony of Mark T. Widmer
Interruptible Energy Value
July 2007
Rocky Mountain Power
Exhibit No. 42 Page 1 of3
CASE NO. PAC-O7-
Witness Mark T. Widmer
Interruptible Ener2V Value
The table below shows the value, in millions, of the curtailment credit in the existing
Monsanto Agreement and the projected value ofthe same curtailment contracts for
calendar year 2008 and calendar year 2009 using various valuation methods:
2008 2009 Valuation Methodolo2V
$12.4 $12.4 Existing Contract
$10.$8.Front Office Model
$9.$10.4 GRID Model
Valuation Methodolo2V Details
Consistent with the Commission s findings in Order No. 29157 in Case No. PAC-Ol-
, the Company believes no single model or methodology is precise or exact enough to
provide a definitive cost of service for an interruptible load, but rather a variety of
reasonable and applicable models and methodologies can establish a range of values from
which a single value can be determined through use of reasonable judgment.
Accordingly, the Company utilized two models or methodologies to establish a range of
values for the interruptible products: 1) the front office "opportunity cost" model (front
office model) and 2) the GRID model. Descriptions of the two models and the results
from the models are included in this exhibit.
Monsanto Interruptible Products
The current Monsanto Agreement provides three products:
1. Operating Reserves. Monsanto provides 95 megawatts of operating reserves
available for 188 hours per calendar year. The Company must hold operating
reserves to be able to respond to unit outages and maintain reliability.
industrial customer can be counted as operating reserves if they are able to curtail
their load on a 10 minute notice. Monsanto is able to meet this requirement and
therefore qualifies under WECC as a resource that can provide operating reserves.
The Company can only interrupt Monsanto for an operating reserve interruption if
the Company needs to utilize the operating reserves, which typically occurs
following the unplanned outage of a Company generating asset.
2. Economic Curtailment. Monsanto provides 67 megawatts of economic
curtailment available for 800 hours per calendar year. This product allows the
Company to curtail 67 megawatts of Monsanto s load on a two hour notice for
any reason. Being able to curtail Monsanto in this manner allows the Company to
Rocky Mountain Power
Exhibit No. 42 Page 2
CASE NO. PAC-O7-
Witness Mark T. Widmer
either avoid market purchases or have additional generation available to sell into
the market.
3. System Integrity. Monsanto provides 162 megawatts of system integrity
available 12 hours per calendar year. The product allows the Company to curtail
Monsanto following the occurrence of a double contingency event. A double
contingency event is defined as two or more forced outages of Company
generating assets totaling 500 megawatts or more of capacity within 48 hours of
each other and must overlap for at least an hour.
Front Office Model
The front office model is an Excel based model that utilizes the Company
forward price curves, the operating characteristics and costs of the Company s generating
assets, and other inputs to determine the incremental or marginal cost of providing the
curtailment products from Company resources and/or market purchases instead
purchasing those same products from Monsanto. The front office model values operating
reserves by determining what the marginal cost of holding operating reserves on the
Company s own units. The front office model determines which of the Company s units
are "in-the-money , meaning which units are economic to run given the operating and
fuel costs and the market price for the time period in question. A Company unit is
considered economic to run if the cost to run the Company unit is less than the market
price the Company would receive for sales of the output from the unit. The Company
typically holds operating reserves on the highest cost in-the-money resource, meaning the
most expensive unit that is still economic to. run when compared to market prices.
other words, the Company holds reserves on the unit that has the lowest margin or profit
and thus the lowest opportunity cost of not producing megawatt hours for sale to the
market. The Company then maintains that unit in a state in which it could provide energy
in response to a reserve event. Since that unit is being held back and is not producing
power to be sold to the market, the opportunity cost of utilizing that unit for operating
reserves is the difference between the cost to run the unit and the market price the
Company would receive if the unit were producing megawatt hours to be sold to market.
This opportunity cost, or foregone margin, is the value the Company ascribes to operating
reserves. Therefore, the model assigns that value to Monsanto for its operating reserves
since Monsanto can provide the operating reserves, which then allows the Company
unit to produce megawatt hours for sale to the market.
To calculate the value ofthe economic curtailment interruptions, the model
determines which hours over the time period being evaluated are the most expensive
based on the Company s forward price curves and hourly scalars. Because Monsanto
allows for 800 hours of curtailment each year, the model utilizes the 800 most expensive
hours each year to calculate the market value of the curtailed hours. The market value for
each hour is then multiplied by the number of megawatts Monsanto is curtailing. This
value represents the incremental dollars the Company receives by curtailing the
Monsanto load and selling the megawatt hours to market. That number is then assigned
as the value of the economic curtailment product.
Rocky Mountain Power
Exhibit No. 42 Page 3 of3
CASE NO. PAC-O7-
Witness Mark T. Widmer
The system integrity product is priced using an average annual on peak market
price, with the assumption that the probability of a double contingency is constant
throughout the year. The annual average on peak market price is applied to the number
of megawatts Monsanto will curtail and multiplied by the number of hours Monsanto will
curtail each year. That number is then assigned as the value of the system integrity
product.
GRID Model
The GRID model is a deterministic hourly production dispatch model that simulates the
operation of the Company s system given load, resource characteristics, market prices
fuel costs and system constraints over a variety of hydro conditions. The GRID model is
described in more detail in my direct testimony. The Company believes it is appropriate
to perform resource evaluations and selection using a production cost model consistent
with the assumptions in the Company s planning process. Since GRID determines the
value of the curtailment products by looking at the impact on a system basis, the use of
this production cost run methodology aligns with the concept of evaluating resources by
the benefit to ratepayers on a system basis. To determine the value of the operating
reserve and curtailment products using the GRID model, the Company compares the
results of two model runs. The first run is a base case that does not include the Monsanto
curtailment products. The second run is the same base case, but the Monsanto
curtailment products are added at zero cost. The difference in the two runs represents the
value GRID assigns to the curtailment products. A value for the system integrity
component was not calculated with GRID because it is not capable of calculating a value
for that component.
CERTIFICATE OF SERVICE
I hereby certify that on this 2nd day of July, 2007 , I caused to be served, via U.S. Mail, a
true and correct copy of Rocky Mountain Power s supplemental direct testimony and
exhibits in P AC-07-, to the following:
Eric L. Olsen Randall C. Budge
Racine, Olson, Nye, Budge & Bailey,Racine, Olson, Nye, Budge & Bailey,
Chartered Chartered
201 E. Center 201 E. Center
O. Box 1391 O. Box 1391
Pocatello , ID 83204-1391 Pocatello, ID 83204-1391
Mail: elo~racinelaw.net Mail: rcb~racinelaw.net
Tim Buller James R. Smith
Agrium, Inc.Monsanto Company
3010 Conda Road PO Box 816
Soda Springs, ID 83276 Soda Springs, ID 83276
Mail: tbuller~agrium.com Mail: iim.r.smith~monsanto.com
Tony Yankel Katie Iverson
29814 Lake Road Brubaker & Associates
Bay Village, OH 44140 17244 W. Cordova Court
Mail: ton
y~y
anke1.net Surprise, AZ 85387
Mail: kiverson~consultbai.com
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