20110114McDougal Reb.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
AND A PRICE INCREASE OF $27.7
MILLION, OR APPROXIMATELY
13.7 PERCENT
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) CASE NO. PAC-E-IO-07
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) Rebuttal Testimony of Steven R. McDougal
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ROCKY MOUNTAIN POWER
CASE NO. PAC-E-IO-07
January 2011
1 Q.Please state your name and business address.
2 A.My name is Steven R. McDougal and my business address is 201 South Main,
3 Suite 2300, Salt Lake City, Utah, 84111.
4 Q.Are you the same Steven R. McDougal who submitted pre-fied direct and
5 rebuttal testimony in this proceeding?
6 A.Yes.
7 Purpose and Summary of Testimony
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What is the purpose of your rebuttal testimony in this proceeding?
The purose of my testimony is to discuss how Ms. Kathr E. Iverson's
testimony inappropriately values Monsanto's curailment by alterig jursdictional
allocation to reflect an inappropriate level of Monsanto demand in the monthly
coincident peaks.
Did Ms. Iverson raise some of these same issues previously in this case?
Yes. Some of the same arguments regarding treating Monsanto as "non-firm"
were introduced previously in this rate case proceeding. However, they have been
re-introduced into the economic valuation of Monsanto interrptible products
phase of this case by Ms. Iverson. Therefore, the Company believes it is
important to again point out the flaws in her arguents.
Please summarize your testimony.
Monsanto is treated in jursdictional allocations as a firm customer, consistent
with the treatment in prior cases in Idaho and in all other PacifiCorp states. This
method is consistent with the currently approved Revised Protocol allocation
method. Ms. Iverson, however, is proposing to change the allocation of Monsanto
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1 to a method inconsistent with the Idaho Commission approved method.
2 Monsanto Special Contract Allocation
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Do you agree with Ms. Iverson's assertion that jurisdictional allocations
should reflect only 9 MW of Monsanto's firm demand for purposes of
allocating costs?
No. Ms. Iverson bases her argument on the claim that the Company has not
planned for, or acquired resources, on the basis of Monsanto's interrptible
products. Company witness Mr. Gregory N. Duvall provides testimony
demonstrating that Monsanto's claim is incorrect and that the Company does, in
fact, plan for Monsanto's entire load and is required to provide service to
Monsanto for the vast majority of the time. The curent contract with Monsanto
limits the number of hours in a year the Company can interrpt service to
Monsanto and has specific constraints regarding the amount of load that can be
curtailed at a given time. In order for Ms. Iverson's assertion to be tre the
Company would need the ability to curil service to Monsanto at any time with
no limitation over the course of a year. This type of unlimited curailment of
Monsanto has never existed.
Is the allocation of costs and benefits related to special contracts with
industrial customers a significant issue addressed in the Revised Protocol?
Yes. The issue of allocating costs and benefits related to special contracts is an
important issue addressed by the Revised Protocol allocation agreement.
PacifiCorp's comments supporting the Stipulation state:
"the Revised Protocol, ifratified by all ofPacifiCorp's state
commissions, wil establish uniform policies in respect to a number
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of critical issues. These include.. .how the costs and benefits of
special contracts with industrial customers wil be allocated among
states."!
In addition, the joint motion for approval ofthe settlement signed by PacifiCorp
and the Idaho Commission on Februar 28, 2005 in Order No. 29708 identifies
that the Revised Protocol addresses the allocation of special contracts.
Please provide the language from the Revised Protocol that specifically deals
with the treatment of Monsanto's special contract.
Appendix D of the Revised Protocol describes the treatment of special contracts,
including those with ancilary service contract attbutes such as the Company's
contract with Monsanto. Specifically, the Revised Protocol states:
"For allocation puroses Special Contracts with Ancilary Service
Contract attributes are viewed as two transactions. PacifiCorp sells
the customer electricity at the retail service rate and then buys the
electrcity back durng the interrption period at the Ancilary
Service Contract rate. Loads of Special Contract customers wil be
included in all Load-Based Dynamic Allocation Factors. When
interrptions of a Special Contract customer's service occur, the
host jursdiction's Load-Based Dynamic Allocation Factors and
the retail service revenue are calculated as though the interrption
did not occur. Revenues received from Special Contract customer,
before any discounts for Customer Ancilary Service attbutes of
the Special Contract, wil be assigned to the State where the
Special Contract customer is located. Discounts from tarff prices
provided for in Special Contracts that recognize the Customer
Ancilar Service Contract attbutes of the Contract, and payments
to retail customers for Customer Ancilar Services will be
allocated among States on the same basis as System Resources."
i Page 4, PacifiCorp Comments in Support of Joint Motion for Acceptance of Settlement, Case No. PAC-E-
02-3.
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1 Q.Have you treated the Company's agreement with Monsanto as a special
2 contract with ancilary servce contract attributes, as described in Appendix
3 D of the Revised Protocol?
4 A.Yes. The Revised Protocol language clearly describes that the service to
5 customers similar to Monsanto should be viewed "as two transactions". The first
6 is for firm service. Monsanto's load is included in the load-based dynamic
7 allocation factors, and the retail revenue is calculated as if there is no interrption
8 and is direct assigned to Idaho. The second transaction identified above is for the
9 ancilary services and is allocated among all states on the same basis as other
10 system resources.
11 Q.Do you agree with Mr. Paul H. Clements that the Company needs to follow a
12 "customer indifference" approach in valuing Monsanto interruptible
13 products.
14 A.Yes. As described above, the transaction for ancilary services is allocated among
15 all states on the same basis as other resources. Because of this, it is important that
16 the cost allocated to other states is consistent with the savings they receive from
17 the contracts. If the Company were to pay Monsanto more than the same price
18 the Company would otherwise pay to acquire those same products from other
19 sources it would harm other Idaho customers along with customers in other states.
20 Q.Has Ms. Iverson addressed any reason why Monsanto's allocation should
21 deviate from prior rate cases and from the Revised Protocol allocation
22 method?
23 A.No. Ms. Iverson continues to value Monsanto by incorrectly changing Idaho
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jursdictional loads, which is contrar to Revised Protocol and prior cases. In
doing so, Ms. Iverson does not address why this departe from Revised Protocol
is appropriate.
Have you reviewed Ms. Iverson's calculation of the impact on revenue
requirement in this case using her suggested 'non-firm' allocation approach?
Yes.
Do you agree with her calculations in Table 3 of her testimony?
No. Ms. Iverson's calculation continues to have the same flaws pointed out in my
rebuttal testimony in Phase I of this proceedig. She incorrectly assumes in her
table 3 that the Company does not plan for her Components 2 and 3, and therefore
assigns no capacity value to them. As pointed out in the testimony of Mr. Duvall,
this is a flawed assumption. Because she claims the Company does not plan for
Monsanto's non- firm load, Ms. Iverson has removed the demand from all 12
monthly coincident peaks used to determine Idaho's contribution to the system
peak. In other words, Ms. Iverson proposes to include only 9 MW of Monsanto
demand in the Idaho jursdictional coincident peak every month. As described in
my earlier testimony, if Monsanto's load were to be excluded from the Idaho
jursdictional peak for a study of this nature, it should only be excluded from a
limited number of months, realistically representing the impact of the curilment
on PacifiCorp's operations. Ms. Iverson's representation of Monsanto
curilment by removing all but 9 MW from the Idaho jursdictional peak every
month and avoiding demand charges for every month of the year is inappropriate.
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Has the Idaho Commission previously ruled on the appropriateness of
Monsanto paying a demand charge?
Yes. In Order No. 29157 the Commission states "the contract for Monsanto
should specify separate rate components for firm service and for the
interrptibility discount. The fixed cost of service to Monsanto should not be
buried in an energy only rate, payable only if energy is used and possibly not
recovered in full, but should be captured in a fixed customer charge and demand
charge. Recovering fixed charges in this manner is consistent with rates
formulated for other customer classes and recognizes the fact that PacifCorp
continues to incur and is required to be ready to serve even when Monsanto is
idle."i (Emphasis added)
This statement demonstrates two important facts that the Idaho
Commission has previously ruled on but Ms. Iverson is refusing to recognize.
First; an energy only rate as she proposes is not appropriate for of rate design, and
second; PacifiCorp continues to incur charges and has to be ready at all time to
serve Monsanto. This statement dispels Ms. Iverson and Mr. Brian C. Collns
argument that because Monsanto offers an interrptible product the Company
does not have to plan for or build facilities to serve Monsanto.
Why is it not realistic to remove 170.1 MW from each of the monthly
jurisdictional peaks?
According to the terms of the Company's contract with Monsanto for 2010,
economic curailment of 67 MW is available for 850 hours and operating reserves
curilment of95 MW is available for 188 hours. After accounting for line losses
2 Final Order No. 29157 January 27,2003, Case No. PAC-E-01-16 page 4.
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the total curilment is 170.1 MW. However, removing all 170.1 MW from each
month's coincident peaks is inappropriate for three reasons:
. Only 1,038 total hours are available for some tye of curilment, less than
12 percent of the hours in the year. For the remaining hours during which
Monsanto load is not curiled the Company must stand ready to provide
electric service to Monsanto.
. Pursuant to the contract, the Company can never actually curail all 170.1
MW at one time. Curilment for operating reserves is assigned to two
smaller fuaces, with total load of95 MW, and economic curailment is
assigned to one larger fuace with a load of 67 MW. I f one of the
fuaces is already not operating either for maintenance or overhaul, the
Company can curil both remaining fuaces, but the total curailment
would be less than the 170.1 MW. If one of the fuaces is already not
operating for economic curailment, the Company can only curil one
additional fuace. This means the maximum actual curilment is 116
MW out of the 170.1 proposed by Ms. Iverson.
. As shown on Tab 5 - Page 6 of Exhibit 49 sponsored by Company witness
Mr. C. Craig Paice, for eight out of twelve months durng the test period
total Monsanto load at the coincident peak is actully less than 170.1 MW.
It would be entirely inappropriate to reduce Monsanto load below zero in a
given month.
Is there another major flaw in Ms. Iverson's analysis?
Yes. When Ms. Iverson performed her allocation analysis she only reduced
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1 Idaho's retail revenues for demand related costs by the net amount, (fi rate
2 minus the interrptible credit). As noted earlier in my testimony Revised Protocol
3 requires that the gross amount of revenues is assigned to the state with the
4 interrptible credit treated as a system net power cost. Therefore Ms. Iverson's
5 analysis overstated the value of the allocation changes by $8.1 millon as a result
6 of only removing the net demand revenues not the gross demand revenues.
8 A.
Have you reviewed the impact of Monsanto curtailment on the system peak?
Yes. I reviewed the Company's annual results of operations reports since 20053
7 Q.
9 to reveal the number of times in a year Monsanto load was actually curiled at
10 the time of the system peak. The table below shows that from April 2004 through
11 December 2009 Monsanto curilment events occured at the time of the monthly
12 system peak at most five times durng a given year.
Curtailment Events at Hour of Monthly System Peak
FY 2005 FY2006 CY2006 CY2007 CY2008 CY2009
January
Febru
March
April
May
June x x
July x x x
August x x x x
September x x
October x
November x x x x
December x x x
Count 3 3 5 5 1 2
13 All of the events in the table above are the result of economic curilment;
14 no operating reserve events occured at the time of the system peak. Based on
3 The ¡PUC approved the Revised Protocol Stipulation on Febru 28, 2005.
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these historical records and the other reasons I have discussed in my testimony it
is improper to remove Monsanto from all system peaks.
Does this conclude your rebuttal testimony?
Yes.
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