20110114Clements Reb.pdf

E
20fl JAN i 4 AM 10= 24
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE
APPLICATION OF ROCKY
MOUNTAIN POWER FOR
APPROVAL OF CHAGES TO ITS
ELECTRIC SERVICE SCHEDULES
AN A PRICE INCREASE OF $27.7
MILLION, OR APPROXIMATELY
13.7 PERCENT
)
) CASE NO. PAC-E-I0-07
)
) Rebuttal Testimony of Paul H. Clements
)
)
)
)
ROCKY MOUNTAIN POWER
CASE NO. PAC-E-I0-07
January 2011
1 Q.
2
3 A.
4
5
6
7 Q.
8
9 A.
Please state your name, business address and present position with Rocky
Mountain Power (the Company), a division of PacifiCorp.
My name is Paul H. Clements. My business address is 201 S. Main, Suite 2300,
Salt Lake City, Utah 84111. My present position is Originator/Power Marketer
for PacifiCorp Energy. PacifiCorp Energy and Rocky Mountain Power are
divisions ofPacifiCorp (the Company).
Are you the same Paul H. Clements who previously fied testimony in this
proceeding?
Yes. On September 30, 2010 I fied direct testimony in which I provided a
10 recommendation and analysis regarding the economic valuation of the
11 interrptible products offered by Monsanto to the Company to establish the
12 contract rates for Monsanto starting January 1,2011.
13 Purpose and Summary of Testimony
14 Q.
15 A.
16
17
18
19
20
21
22
23
What is the purpose of your testimony?
The purose of my testimony is to provide responses to the direct testimony of
Monsanto witnesses Mr. Brian C. Collns and Ms. Kathr E. Iverson and the
direct testimony of staff witness Mr. Keith D. Hessing as it relates to the
determination of an appropriate valuation of Monsanto's interrptible products. I
wil respond to Mr. Collins' critique of the Company's proposal and wil provide
evidence demonstrating that Monsanto's peaker method is not appropriate for use
in determining the value of Monsanto's interrptible products. I wil provide
comments on Ms. Iverson's comparison of Monsanto to two other industrial
customers and an explanation of why her comparison is incorrect. I will also
Clements, Di-Reb - 1
Rocky Mountain Power
1
2
3
4 Q.
5 A.
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
provide comments on Mr. Hessing's valuation method and wil suggest certain
reasonable and needed modifications to the method that must be implemented
should the Commission elect to adopt it.
Please summarize your rebuttal testimony
My testimony addresses the following points:
. The Company's proposed values for Monsanto's interrptible products are
just and reasonable and should be adopted to set the interrptible product
values in Monsanto's contract.
. The Company's proposal best represents the cost the Company wil incur
if it were to replace the Monsanto interrptible products with other
resources.
. Monsanto's peaker method overvalues Monsanto's interrptible products
and is not appropriate for use since it does not accurately take into account
the vast differences between the products a combustion tubine provides
and the products Monsanto offers, nor does it consider the Company's
resource needs.
. If the Commission elects to assign incremental capacity value to
Monsanto's non-spinning operating reserve product1as proposed by Staff,
certin adjustments are required in order for the proposal to be reasonable.
. The Company recommends two modifications to staff s method should the
Commission chose to adopt it: 1) an adjustment to incorporate the cost of
other units besides Curant Creek and 2) an adjustment to account for the
1 Throughout my testimony I may refer to non-spining operating reserves as simply "operating reserves".
Clements, Di-Reb - 2
Rocky Mountain Power
1 fact that combustion tubines provide other valuable products besides non-
2 spining operating reserves.
3 Q.Could you please provide your summary of the parties' positions regarding
4 valuation of Monsanto's interruptible products?
5 A.Yes. The primar difference between the parties' positions is the applicability of
6 capacity value to the products that Monsanto provides. The Company's proposal
7 assigns capacity value based on the implied capacity value reflected in the market
8 prices for electrcity for the term of the contract offered by Monsanto.
9 Monsanto's proposal assigns capacity value based on the full all-in cost of a new
10 simple cycle combustion tubine. Staffs proposal accepts the Company's
11 proposal for economic curailment, system integrty and operating reserves but
12 takes an additional step of assigning incremental capacity value for the operatig
13 reserves product based on the full cost in rates of the Company's existig Curant
14 Creek combined cycle gas unit.
15 Comments on Mr. Collns' Statements on the Company's Proposal
16 Q.Mr. Collns asserts that the Company's methods are strictly short-term and
17 do not properly reflect resource values. Do you agree with this assertion?
18 A.No. A resource value is best determined by evaluating the cost one would incur
19 to replace the resource if it were no longer available for use. The Company's
20 method calculates the cost the Company would incur to replace the interrptible
21 products provided by Monsanto.
Clements, Di-Reb - 3
Rocky Mountain Power
1 Q.
2
3
4 A.
5
6
7
8
9
10
11
12
13
14
15
16
17 Q.
18
19
20 A.
21
22
23
What evidence do you have supporting your position that the Company's
models accurately reflect the value of the resource or product Monsanto
provides?
As explained in my direct testimony, the Company has recently executed similar
contracts for interrptible products with other industral customers. These
customers offer products that are very similar to those offered by Monsanto.
Also, similar to Monsanto's contract, these customers receive firm service from
the Company but have specific terms and conditions in their contracts under
which service can be interrpted. The prices reflected in the contr~cts of these
industral customers were supported by using the results of the same methods and
models the Company is proposing to use to determine the value for the Monsanto
interrptible products. These industral customers were wiling to enter into
contracts at the prices supported by the Company's models and methods. I
believe this validates the Company's methods and models as reasonable indicators
of value for interrptible products since a definition of "value" is the price at
which two parties are willng to enter into an agreement.
Mr. Collns asserts that Monsanto's interruptible products displace a
combustion turbine2. Do you agree that a combustion turbine would be built
if Monsanto's interruptible contract were not available?
No. In fact, for the test period used in the 2010 general rate case, the Company
would only need to replace approximately 37 percent of the operating reserve
product that Monsanto provides. Furermore, the Company is curently able to
replace that 37 percent by cost effectively utilizing existing resources. Monsanto
2 Mr. Collins Direct Testimony, page 12, lines 21-25.
Clements, Di-Reb - 4
Rocky Mountain Power
1
2
3
4
5
6
7
8
9 Q.
10 A.
11
12
13
14
15
16
17
18
provides 770,880 megawatt hours of operating reserves each year3. The
Company performed an analysis to determine the system impact if the Monsanto
operating reserves contract were not available. This was done by comparing the
base case GRID ru with the Monsanto contract available to a second GRID ru
with the Monsanto contract removed. The results of the second GRID ru show
that only 282,127 megawatt hours of operating reserves, or 37 percent ofthe total
amount that Monsanto provides, are replaced when Monsanto's contract is
removed.
What do you conclude from the results of this GRID analysis?
The GRID analysis demonstrates thee key factors for the test period analyzed; 1)
the Company is able to meet its operating reserves obligation with existing
resources if the Monsanto contract is not available, 2) not all of Monsanto's
operating reserves product wil need to be replaced if the contract is not available,
and 3) since no new resources are required to replace Monsanto's contract the
Company's GRID and Front Offce models should be utilzed to determine the
value of the interrptible product since those models accurately reflect the cost to
the Company of replacing Monsanto's interrptible product with available
existing resources.
3 The GRID ru assumes an average of88 megawatts of reserves are available 8,760 hours each year.
Clements, Di-Reb - 5
Rocky Mountain Power
1 Comments on Mr. Collns' Peaker Valuation of Interruptibilty
2 Q.
3
4 A.
5
6
7
8
9
10 Q.
11
12 A.
13
14 Q.
15 A.
16
17 Q.
18 A.
19
Do Monsanto's interruptible products allow RMP to avoid the construction
or acquisition of generating resources4?
No. Monsanto's interrptible products are not equal to the products available to
the Company through constrction or acquisition of a generating resource. A
generating resource can provide many needed and valuable products that
Monsanto does not have the capability to provide. Generation resources are stil
required to provide those products, and therefore Monsanto does not avoid or
defer their acquisition.
Has the Company performed an Integrated Resource Plan (IRP) analysis to
determine if Monsanto avoids the acquisition of a generating resource?
Yes. The Company performed an IRP analysis to evaluate if the removal of the
Monsanto interrptible products as a resource created a need for a new resource.
What were the results of the IRP study?
Removal of the Monsanto interrptible product as a firm resource in the IRP did
not create the need for a new resource.
What conclusion do you draw from those results?
Monsanto's interrptible product does not avoid the acquisition by the Company
of generation resources.
4 Collins Direct Testimony, page 6, lines 13-16.
Clements, Di-Reb - 6
Rocky Mountain Power
1 Q.
2
3
4 A.
5
6
7
8 Q.
9
10 A.
11
12
13
14
15
16
Mr. Collns further asserts that RM currently uses Monsanto's
interruptible products much like it would a combustion turbine. Is he
correct in this assertion?
No. A combustion tubine provides many additional products and benefits that
Monsanto does not provide. Therefore, combustion tubines are utilized
differently and provide significant additional value when compared to Monsanto's
interrptible products.
Could you please summarize the differences between the products provided
by a combustion turbine and the products provided by Monsanto?
Yes. I have prepared the table below to summarize some of the differences. The
table includes a list of some energy products, a brief definition of each product,
and whether or not a combustion tubine and Monsanto can provide the specified
product. I have listed the products in the order in which I believe is reflective of
their relative operational value to the Company in regards to responding to
deviations in the system load and resource balance, with the most responsive
product listed first and the least responsive product listed last.
Product Definition Combustion Monsanto
Turbine Provides?
Provides?
Reactive Supply Generation that is under the control of
and Voltage the control area operator that is YES NOControloperated to produce (or absorb) reactive
power.
Regulation and Generation that provides for the
Frequency continuous balancing of resources to
Response maintain frequency at 60 Hz.YES NO
Generation that follows moment-by-
moment changes in load.
Clements, Di-Reb - 7
Rocky Mountain Power
Energy Imbalance Generation that is used to react to
(Load Following)differences between the scheduled and YES NO
the actual loads within a single hour.
Operating Generation that is used to serve load
Reserve-immediately in the event of a system YES NO
Spining Reserve contingency.
Operating Generation or non generation sources
Reserve -that are used to serve load in the event
Non Spinning of a system contingency that are not YES YES
Reserve available immediately but within a short
period of time.
1 The table shows that a combustion tubine provides many products that
2 are needed and utilized by the Company on a daily basis that cannot be provided
3 by Monsanto and are much more valuable than what Monsanto provides. Of the
4 products listed, Monsanto is only capable of providing non-spinning operating
5 reserves while a combustion tubine is able to provide all of these products that
6 allow the Company to respond to changes in the load and resource balance.
7 Therefore, comparing Monsanto to the full cost of a combustion turbine is not
8 reasonable and should not be considered when establishing value for Monsanto's
9 interrptible products.
10 Q.Are combustion turbines operated with more frequency than the amount of
11 interruptible products Monsanto provides?
12 A.Yes. The table below shows the actual operational hours for some of the
13 Company's combustion tubines for the period 2007 through 20095.
Combustion Operational
Year Turbine Hours
2007 Curant Creek # 1 8,058
2007 Curant Creek #2 7,897
5 See Company response to Monsanto Data Request 16.11.
Clements, Di-Reb - 8
Rocky Mountain Power
2007 Gadsby #4 4,995
2007 Gadsby #5 4,869
2007 Gadsby #6 4,805
2007 Lake Side #1 2,451
2007 Lake Side #2 2,476
2007 Little Mountain 8,302
2008 Chehalis #1 1,924
2008 Chehalis #2 1,503
2008 Curant Creek # 1 7,081
2008 Curant Creek #2 6,786
2008 Gadsby #4 3,949
2008 Gadsby #5 3,894
2008 Gadsby #6 3,823
2008 Lake Side #1 6,509
2008 Lake Side #2 6,449
2008 Little Mountain 8,040
2009 Chehalis #1 4,083
2009 Chehalis #2 4,060
2009 Curant Creek # 1 6,789
2009 Curant Creek #2 6,698
2009 Gadsby #4 5,265
2009 Gadsby #5 5,539
2009 Gadsby #6 5,668
2009 Lake Side #1 5,399
2009 Lake Side #2 5,203
2009 Little Mountain 7,976
Average 5,375
1 The average amount of time these tubines were operated on an annual
2 basis over a three year time period was 5,375 hours. Monsanto offers a total of
3 1,000 hours6 of interrptible products on an annual basis. On average, the
4 combustion tubines were operating and providing value to the Company five
5 times more often than Monsanto's interrptible products would allow. This
6 difference in utilization rates fuher supports the Company's position that the
6 Assumes 188 hour of operating reserves, 800 hours of economic curailment, and 12 hours of system
integrity. Note that Monsanto has been wiling to offer up to 850 hours of economic curailment in the
existing contrct.
Clements, Di-Reb - 9
Rocky Mountain Power
1
2
3 Q.
4
5 A.
6
7
8
9
10
11 Q.
12
13 A.
14
15
16
17
18
19
20
21
differences between a combustion tubine and Monsanto's interrptible products
are significant.
Does the Company have complete control over when the 1,000 hours of
Monsanto interruptible products are used?7
No. The Company only has complete control over the timing of economic
curailment interrptions. The Company does not have complete control over the
timing of operating reserve interrptions and system integrty interrptions since
those interrptions require a specific event to occur prior to interrption being
allowed. If the specific event does not occur, the Company cannot interrpt
Monsanto's load.
Why is this signifcant in comparison to the Company's abilty to control a
combustion turbine?
The Company has complete control over when to utilize a combustion tubine.
Under the Monsanto contract, for a certin percentage of the interrptible hours
Monsanto provides, the Company cannot interrpt Monsanto unless a specific
event occurs. In fact, the maximum amount of megawatts the Company can
interrpt without a specific event occurng is 67 megawatts. This is significant in
that the Company may require additional resources at times but would be unable
to call upon portions of the Monsanto contract unless a specific event was to
occur. The Company's use of a combustion tubine is not limited by these event
triggers.
7 Mr. Collins Direct Testimony, page 12 line 26 though page 13 line 6.
Clements, Di-Reb - 10
Rocky Mountain Power
1 Q.
2
3
4
5 A.
6
7
8
9
10
11 Q.
12
13
14 A.
15
16
17
18
19
20
21
22
Mr. Collns also performs an analysis using the Company's QF rates in Utah
to establish the value of Monsanto's interruptible products.8 Is this analysis
appropriate for use in determining the value of Monsanto's interruptible
products?
No. The QF rates used by Mr. Collins are based on the full cost of a combustion
tubine. Therefore, the QF rate analysis he performed is very similar to his peaker
analysis and should be rejected for the same reasons set fort in my testimony
regarding his peaker valuation method. Furermore, QF contracts tyically have
availability guarantees, liquidated damages for non-performance, and other
contract terms that are not found in Monsanto's contract.
What conclusion have you drawn after reviewing Mr. Collns' proposed
peaker valuation of interruptibilty and his proposed value of $25.5 million
for Monsanto's interruptible products?
Mr. Collns' proposed peaker valuation ofinterrptibi1ity is not a reasonable
method to use to calculate the value of the Monsanto interrptible products. Mr.
Collns' method assigns much more value to Monsanto's interrptible products
than the Company's customers receive in benefits through utilization of the
products. A combustion tubine provides more valuable products, is operated
with more frequency, and provides greater operational control to the Company
than Monsanto's interrptible products. These differences are significant enough
that a comparson to the full cost of a combustion tubine is inaccurate and should
not be considered by the Commission when determining the value of Monsanto's
23 interrptible products.
8 Mr. Collins Direct Testimony, page 16, lines 1-19.
Clements, Di-Reb - 11
Rocky Mountain Power
I Q.Has the Commission previously provided an opinion on the use of the peaker
2 method to set Monsanto's contract value?
3 A.Yes. In Final Order No. 29157 issued January 27,2003, the Commission stated
4 the following:
5 "Therefore, we cannot find the avoided peaker resource to be the
6 definitive methodology for valuing the interrptibility credit.,,9
7 Comments on Mr. Collns' System Integrity Valuation
8 Q.
9
10 A.
11
12
13
14
15 Q.
16 A.
17
18
19
20
21
22
Could you please summarize how Mr. Collns has valued the system integrity
product?
Mr. Collns proposes the system integrty product be valued at $400 per megawatt
hour, which equates to $806,000. He bases his approach on the premise that a
system integrity interrption wil always occur at a time when market prices are at
the Western Electrc Coordinating Council ("WECC") price cap of $400 per
megawatt hour.
Is this approach reasonable to value Monsanto's system integrity product?
No. Mr. Collins' proposal assigns more value to the system integrity product than
the benefit the Company receives in utilizing the product. The Company can call
for a system integrity interrption under two scenarios:
1. A voltage related event.
2. A double contingency event, defined as the forced outage of two or
more PacifiCorp generating units totaling 500 MW or more of
capacity.
9 Final Order No. 29157, page 12.
Clements, Di-Reb - 12
Rocky Mountain Power
1 Idaho Electrc Service Regulation NO.4 sets fort rules regarding the supply and
2 use of the Company's electrc service. Section 3 allows the Company to interrpt
3 load for safety and reliability puroses as neededlO. Therefore, Monsanto should
4 not receive additional compensation for voltage related interrptions since all
5 Idaho customers are subject to occasional interrption pursuant to Electric Service
6 Regulation No.4.
7 For double contingency related interrptions, the Company's proposal is
8 more representative of the value this product provides in that it more accurately
9 reflects the costs the Company would incur if Monsanto's system integrity
10 product was not available. The Company values the interrptible system integrty
11 hours using a price that is based on the average anual heavy load hour (6x16)
12 market price for energy. This method is reflective of the fact that the probabilty
13 of a double contingency event is constat throughout the year. When a double
14 contingency event occurs, the Company is able to avoid market purchases. Since
15 the probability of a double contingency event is constant throughout the year, the
16 appropriate price to use to value the product is the average price for the year. It is
17 highly unlikely that all 12 hours of system integrty interrption wil occur durg
18 hours in which the WECC price cap of $400 is setting the market price.
19 Therefore, Monsanto's system integrty valuation should not be considered.
10 Electrc Service Regulation NO.4 State ofIdao, Original Sheet Nos. 4R.2 and 4R.3.
Clements, Di-Reb - 13
Rocky Mountain Power
1 Comments on Ms. Iverson's Comparison to Two Other RMP Customers
2 Q.
3
4
5
6 A.
7
8
9
10
11
12 Q.
13
14 A.
15
16
17
18
19
20 Q.
21 A.
22
Ms. Iverson attempts to compare the contract rates for two other RMP
industrial customers to Monsanto's proposed contract ratell. Is such a
comparison relevant to the determination of Monsanto's interruptible
products value?
If performed correctly, such a comparison is relevant. Ms. Iverson's comparison
is not performed correctly in that it includes a comparison of base retail rates and
does not always compare like products. Ms. Iverson does not attempt to perform
a comparison of the easily identifiable operating reserve product, which is the
only product that is similar enough between the three contracts (Monsanto and the
two other RMP customers) to warrant a comparson.
Has the Company prepared a comparison of the operating reserve contract
values for these three RMP customers?
Yes. In my direct testimony pages 16 through 19, I provide a detailed comparson
of the values included in two recent operating reserve contracts with other RMP
industrial customers to the Company's proposed value for operating reserves in
the Monsanto contract. All three customers provide a non-spining operating
reserves product as defined by WECC. Therefore, a comparison of this product
between these three customers is appropriate.
What did your analysis show?
My analysis showed that the two recent operating reserves contracts support the
Company's proposed operating reserve value for a new Monsanto contract.
11 Ms. Iverson Direct Testimony, pages 22-32.
Clements, Di-Reb - 14
Rocky Mountain Power
1 Comments on Staff Witness Keith Hessing's Proposed Interruptible Products Value
2 Q.
3
4 A.
5
6
7
8
9
10 Q.
11
12 A.
13
14
15
16
17
18 Q.
19
20 A.
21
22
Please summarize Mr. Hessing's proposed method for determining the
interruptible products value for Monsanto's contract.
Mr. Hessing accepts the Company's proposed value for the system integrity and
economic curilment products. Mr. Hessing accepts the Company's proposed
value for the operating reserves product as estimated energy value but believes
there is an additional capacity component that must be added.12 In summar, Mr.
Hessing agrees with the Company's proposal but believes an incremental value
should be added to the operating reserve product to account for capacity value.
Does the Company agree that an incremental value needs to be added to its
proposed operating reserve value to account for capacity value?
No. The Company believes that its proposal already accurately reflects any
implied capacity value for the distinct time period considered in its proposal
(2011- 2013) since the Company utilized recent market price curves for firm
energy products for this time period and because the Monsanto interrptible
products do not avoid a resource acquisition in this time period, as explained
earlier in my rebuttl testimony.
Please provide a brief summary of how Mr. Hessing determines the
incremental capacity value.
Mr. Hessing starts by describing a preferred method in which an analysis is
performed to allocate capacity costs to non-spining operating reserves based on
the percent of time each resource holds these reserves with and without the
12 Mr. Hessing Direct Testimony, page 6, lines 3-9.
Clements, Di-Reb - 15
Rocky Mountain Power
1
2
3
4
5
6
7
8
9
10 Q.
11
12
13 A.
14
15
16
17
18 Q.
19 A.
20
21
22
23
Monsanto operating reserves contract13. This method would determine the
implied operating reserve portion of the capital costs of the actual units that hold
reserves if Monsanto's contract was not available. Mr. Hessing acknowledges
that this method might produce the most accurate results, but the amounts of data
and calculations are administratively impracticaL.
In place of this detailed method, Mr. Hessing proposes a surogate
methodology in which he uses the full plant in service cost of the Curant Creek
unit from PacifiCorp's FERC Form 1 as the proxy capacity value for the
operating reserve product.
Is there a scenario in which Mr. Hessing's proposed method would have
merit in determining a contract value for Monsanto's operating reserves
product?
Yes. If the Commission were to determine that it is reasonable to assign some
incremental capacity value above what is already included in the forward market
prices to Monsanto's operating reserves product, a method similar to Mr.
Hessing's proposal, in which he utilzes the capacity costs of existing resources,
may have merit if certain reasonable adjustments are made.
Why must certain adjustments be made to Mr. Hessing's method?
As I noted earlier in my testimony a combined cycle resource such as Curant
Creek provides much greater value than the non-spinning operating reserves
product provided by Monsanto. Mr. Hessing's method must be adjusted to more
accurately reflect the actual cost to the Company of providing a non-spinning
operating reserves product. The following two adjustments must be made:
13 Mr. Hessing Direct Testimony, page 8 line 22 though page 9 line 13.
Clements, Di-Reb - 16
Rocky Mountain Power
1
2
3
4
5
6 Q.
7
8 A.
9
10
11
12
13
14
15
16
17 Q.
18
19
20 A.
21
22
23
1. Mr. Hessing's method must be modified to utilize the capacity costs of
multiple resources that are used by the Company to provide non-spining
operating reserves instead of using the single Curant Creek resource costs.
2. Mr. Hessing's method must be modified to account for the fact that the
resources provide other products besides non-spining operating reserves.
Please explain why Mr. Hessing's method must be modifed to utilize the cost
of other resources besides Currant Creek.
Mr. Hessing's preferred method, which he deemed too administratively
impractical, would have taken into account the weighted average cost of all the
resources utilized by the Company to meet its non-spinning operating reserves
obligation. While the Company agrees such calculations may be impractical if
performed on a frequent basis, Mr. Hessing's proposal to utilize only the capacity
costs of the combined cycle gas plant Curant Creek oversimplifies the analysis
since other tyes of resources besides Curant Creek provide non-spinning
operating reserves. The Company suggests modifying Mr. Hessing's analysis to
include the capacity costs of other resources besides Curant Creek.
Please explain why Mr. Hessing's method must also be modifed to account
for the fact that the units provide other products besides non-spinning
operating reserves.
As explained in detail earlier in my testimony, generating resources provide many
products in addition to non-spinning operating reserves. Each product provided
by a combustion tubine has a value (cost), and the sum of the individual product
values (costs) should equal 100 percent of the cost of the resource. Therefore, to
Clements, Di-Reb - 17
Rocky Mountain Power
1
2
3
4
5
6
7
8
9
10 Q.
11
12 A.
13
14
15
16
17
18
19
20
21
22
assign 100 percent of the capacity cost of a resource to a single product, such as
non-spinning operating reserves, when the resource is used for multiple products
is not accurate. That would imply that the other products provided by that
resource, such as base load energy, load following, regulation control, and
spinning reserves, have zero capacity value (cost). Such an approach overvalues
non-spinning operating reserves and undervalues the other products provided by
the resource. The Company suggests modifying Mr. Hessing's analysis to
account for the fact that resources provide other products in addition to non-
spinning operating reserves.
Please explain the Company's proposal for adjusting Mr. Hessing's method
for valuing the non-spinning operating reserves product.
The Company's recommends two modifications be made to staffs proposed
method. The Company has prepared recommended values using a modified staff
method for a contract of up to three years in length for the term 2011 through
2013. The primary deficiencies of Mr. Hessing's method are he uses only one
resource tye (Curant Creek) as a cost basis and he assigns 100% of that
resource's capacity cost to just the non-spinning operating reserves product.
My first proposed adjustment would be to use the average of the capacity
cost of multiple units instead of just the single capacity cost of Curant Creek. I
propose to use the average capacity costs of the combined cycle Curant Creek
unit and the simple cycle Gadsby units. Ideally, this calculation would be a
weighted average cost based on each PacifiCorp resource that is used to meet the
Clements, Di-Reb - 18
Rocky Mountain Power
I total operating reserves requirement. However, for puroses of this evaluation, a
2 simple average of these two tyes of gas units provides a reasonable result.
3 My second adjustment would be to allocate the appropriate percentage of
4 the total capacity cost to the non-spining operating reserve product by takig into
5 account the amount of time the resource is used to provide other products. Mr.
6 Hessing allocates 100 percent of the total cost of the resource to just the non-
7 spining operating reserves product. I propose to allocate 46.2 percent of the total
8 cost instead of 100 percent, since, on average, 46.2 percent of the time the
9 resource is being used to provide a non-spining operating reserves product and
10 53.8 percent of the time the resource is being used to provide products other than
11 a non-spining operating reserves product.
12 Using data taken from the same GRID study referenced in Mr. Hessing's
13 testimonyl4, the Company calculated the amount of the time the Gadsby and
14 Curant Creek resources were used for operatig reserves as a percentage of the
15 total amount of time they were in operation. This average, based on the GRID
16 study referenced by Mr. Hessing, is 46.2 percent. This means these resources, on
17 average, were used for other puroses besides operating reserves 53.8 percent of
18 the time they were in operation. Again, a weighted average calculation based on
19 each PacifiCorp resource that is used to meet the total reserve requirement would
20 be ideaL. However, for puroses of this evaluation, a simple average of these two
21 gas units provides a reasonable result.
14 Mr. Hessing Direct Testimony, page 11, lines 4-5.
Clements, Di-Reb - 19
Rocky Mountain Power
1 Q.
2
3 A.
4
5
6 Q.
7
8
9 A.
10
11
12
13
14
15
16 Q.
17
18 A.
19
20
21
22
What adjustment results from applying these two modifications to Mr.
Hessing's proposed method?
These two modifications adjust Mr. Hessing's proposed incremental operating
reserves capacity value from $7.3 millon to $3.0 milion. The details of this
calculation are provided in RMP Exhibit No. 97.
Can you provide evidence that supports the use of Gadsby and Currant
Creek values as proposed by the Company instead of just the Currant Creek
value proposed by Mr. Hessing?
Yes. Mr. Hessing's method uses the Company's Front Offce and GRID model
results as the basis for what he considers to be the energy value of the non-
spinning operating reserves product. The results of the Front Offce model show
that both combined cycle resources and simple cycle resources are used.
Therefore, since both resource tyes are used in the model that determines the
staff s proposed energy value, both resource tyes should be used in the model
that determines staff s proposed incremental capacity value.
Please summarize the Company's recommendation for contract values for
the Monsanto interruptible products for years 2011 through 2013.
The Company recommends the Commission adopt the Company's proposed
values as described in my direct testimony. The Company recommends a total
credit to Monsanto of $6.1 millon in 2011. If the term ofthe Monsanto contract
covers 2012 or 2013, then the Company recommends values of$7.1 millon and
$7.6 milion for 2012 and 2013, respectively, as shown in the table below:
Clements, Di-Reb - 20
Rocky Mountain Power
Product 2011 2012 2013
Operating Reserves $2.4 $3.0 $3.3
Economic Curihent $3.6 $4.0 $4.2
System Integr $0.1 $0.1 $0.1
Total $6.1 $7.1 $7.6
1 The Company does not agree with Monsanto's peaker method and has
2 provided evidence demonstrating how the value produced by that method greatly
3 exceeds the benefit the Company receives from the Monsanto interrptible
4 products.
5 If the Commission determines incremental capacity value should be added
6 to the operating reserves product, the Company recognizes that staffs proposal
7 has merit. However, the Company recommends the Commission adopt the
8 modifications to Mr. Hessing's method as described in my rebuttl testimony.
9 These modifications are necessary to more accurately reflect the actual value of
10 the operating reserves product to the Company.
11 If the Commission determines incremental capacity value should be added
12 to the operating reserves product as proposed by staff, the Company's
13 recommended values using a modified staff method are as follows:
Product 2011 2012 2013
Operating Reserves $5.4 $6.0 $6.3
Economic Curihent $3.6 $4.0 $4.2
System Integrty $0.1 $0.1 $0.1
Total $9.1 $10.1 $10.6
14 Q.What conditions does the Company note in conjunction with its proposed
15 contract values?
16 A.The proposed contract values assume Monsanto wil enter into a contract with
Clements, Di-Reb - 21
Rocky Mountain Power
1
2
3 Q.
4 A.
terms and conditions equal to those found in the existing agreement and that
Monsanto's load characteristics remain similar to historical patterns.
Does this conclude your rebuttal testimony?
Yes.
Clements, Di-Reb - 22
Rocky Mountain Power
Case No. PAC-E-IO-07
Exhibit No. 97
Witness: Paul H. Clements
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
ROCKY MOUNTAIN POWER
Exhibit Accompanying Rebuttl Testimony of Paul H. Clements
Capacity Value of Monsanto's Non-Spinning Operating Reserves
Januar 2011
"'c:
'-):z
.¡
::::Õ..N.¡
CAPACITY VALUE OF MONSANTO'S
NON-SPINNING OPERATING RESERVES
Rocky Mountain Power
Exhibit No. 97 Page 1 of 1
Case No. PAC-E-10-07
Witness: Paul H. Clements
PacifiCorp Adjustment #1
Averaging of Gadsby and Currant Creek Values
PacifiCorp Adjustment #2
Applying 46.2% Multiplier to Account for Other Products
PacifiCorp Adjusted Capacity Value
Units Gadsby 4, 5 & 6 Currant Creek
($)77,063,978 352,856,465
(kW)181,100 566,900
($/kW)426 622
0.1112 0.1043
($/kW)47.3 64.9
($/kW)10.45 8.27
($/kW)57.8 73.2
(kW)95,000 95,000
(%)4.98 4.98
(kW)99,731 99,731
($)5,760,111 7,301,756
7,301,7561
($)6,530,934
(%)46.2
($)3,017,291
Description
Capital Cose
Installed Capacity1
Unit Cost
Levelized Carrying Charge Rate
Annual Revenue Requirement
Annual Fixed a & M Costs2
Annual Revenue Requirement
Monsanto Non-Spinning Operating Reserves
Contract Capacity
Capacity Losses3
Contract Capacity at Generation
Capacity Value
Staffs Proposed Capacity Value
1 2009 FERC Form 1 - Page 402.4
2 PacifiCorp 2008 IRP - Table 6.4
3 Case No. PAC-E-10-07, COS "Input" sheet