20110131McDougal Sur-surrebuttal.pdf

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Janua 28, 2011 1.8\\ J~Jf28 PM a:4 l
201 South Main, Suite 2300
Salt Lake City, Utah 84111
Via Hand Delivery
Jean D. Jewell
Commission Secetar
Idaho Public Utilities Commission
472 W. Washington
Boise, ID 83702
Re: Case No. PAC-E-IO-07 - Rocky Mountain Power.. Sur-surrebuttal Testiony of
Steven R. McDougal
Dear Ms. Jewell:
Please find enclosed an original and seven (7) copies of the Sur-Surebuttal Testimony of
Steven R. McDougal fied on behalf of Rocky Mountain Power in the above captioned
proceeding. Electronic copies are being sered on the paries today
Please contact me directly at [phone] if you have questions or ifI can be of fuer
assistance.
Ver Truy,ß'///~/
Danel E. Solander
cc: Servce List
Enclosures
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"'OP pl,U 28 PM 4:klit! II v,-Jl
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
)
) CASE NO. PAC-E-IO-07
)
) Sur-surrebuttal Testimony
) of Steven R. McDougal
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Please state your name and business address.
My name is Steven R. McDougal and my business address is 201 South Main,
Suite 2300, Salt Lake City, Utah, 84111.
Are you the same Steven R. McDougal who previously filed testimony in this
proceeding?
Yes. I submitted pre-filed direct testimony in May 2010, rebuttal testimony in
November 2010, and rebuttal testimony on the economic valuation of Monsanto
interrptible products on Januar 14, 2011.
9 Purpose and Summary of Testimony
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What is the purpose of your Monsanto sur-surrebuttal testimony in this
proceeding?
The purpose of my testimony is to discuss Ms. Kathrn E. Iverson's surebuttal
testimony on the economic valuation of Monsanto interrptible products.
What is your response to Ms. Iverson's rebuttal and surrebuttal testimony?
Ms. Iverson is continuing to do the same analysis and has not corrected any of her
fudamental flaws. In response to the Company's criticisms of her JAM study,
she states "To prove they are without merit, I am providing an Idaho class COS
study that separate out Monsanto's "Contract 1" line into four distinct
components." i She then continues to do an identical study based on the incorrect
assumption that Monsanto should only be allocated firm demand of9MW. The
only difference between the two is whether the capacity associated with the
operating reserves and economic curtailment are removed through jurisdictional
allocations, or through a cost of service calculation. She then states "The
i Iverson direct, December 22, 2010, page 16, lines 16-18
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resulting increase of $0.8 milion is very similar to the amount I previously found
($0.9 milion) when I revised the JAM study to better reflect Monsanto's
interruptibility."i Ms. Iverson tries to make a conclusion that since two studies,
both of which erroneously assume Monsanto should only be allocated 9MW of
demand, come out with similar results that the results are validated. Although the
models are consistent in their application of allocation methodology and produce
similar results, it does not validate results because the underlying assumption that
Monsanto should only be allocated 9MW of demand related expenses is not
correct.
Why do you emphasize jurisdictional allocations in your rebuttal testimony?
As pointed out earlier, Ms. Iverson states that the purpose of her COS study was
to prove that the Company's criticisms of her JAM study was without merit. In
doing this, Ms. Iverson has done two studies, both with the same flaws. By
pointing out the flaws in the jursdictional allocation approach, I am also pointing
out the flaws in her COS approach. Apparently, the purpose of the COS approach
was to see if Ms. Iverson could use the same erroneous assumptions in two
models and produce the same result.
Ms. Iverson is continually referring to jursdictional allocations. She
discusses jurisdictional allocations at length in her November 1, 2010, testimony,
and states in her December testimony that she is performing a COS study to try
and validate her original premise. Ms. Iverson also discusses jurisdictional
allocations in her January 14,2011, rebuttal testimony. Despite all of these
2 Iverson direct, December 22, 2010, page 21, lines 5-7
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references, she states on surebuttl that this is not about jurisdictional allocations,
since she is now using the COS model to do the same study.
What did Ms. Iverson state was the purpose of her two studies?
In her November 1,2010, testimony Ms. Iverson states one of the purposes of her
testimony is to "discuss the proper allocation of a non-firm customer such as
Monsanto in the allocation ofjurisdictionalloads.,,3 In her testimony filed
December 22, 2010, she rephrased this to "provide an analysis of the costs
allocated to Monsanto under RMP's premise that Monsanto is served entirely as a
firm customer. ,,4 Both of the studies make the same incorrect assumption that
Monsanto should only be allocated 9MW of demand related expenses.
The same flaws that existed in Ms. Iverson's original testimony continue
in her testimony of December 22, only disguised in a different cloak to try and
hide the similarities. Unfortunately, since both studies used the same faulty
assumptions, the results of both studies were also in error. In this surrebuttal
testimony I wil try to clarify the issues, and describe why they are the same in
both the jurisdictional and COS studies.
Please describe the similarities in Ms. Iverson's November 1,2010, and
December 22, 2010, studies.
In both studies, Ms. Iverson's underlying premise is that Monsanto is responsible
for only 9 MW of firm capacity, and all other capacity charges should be
allocated to other customers. As discussed in the testimony of Mr. Duvall, this is
inappropriate because the Company plans to serve the Monsanto load. In
3 Iverson direct, November 1, 2010, page 2, lines 9-10
4 Iverson direct, December 22,2010, page 2, lines 11-12
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Rocky Mountain Power
1 addition, as clearly stated in her table 3, the operating reserves are only available
2 for 188 hours per year, or approximately 2% of the hours. However, she is
3 assigning the full peak capacity associated with this 95MW of capacity to these
4 188 hours in each of the twelve months. This incorrectly assumes that these 16
5 hours per month wil occur at the time ofPacifiCorp's monthly system peak.
6 In her original testimony Ms. Iverson reduced the allocation of cost to
7 Monsanto by altering inter-jurisdictional allocations. As described in my earlier
8 testimony, this is against the approved allocation method and is inappropriate. In
9 her December 22, 2010, testimony, instead of allocating the load to other states,
10 Ms. Iverson is trying to use a more circuitous route to get the same result. She is
11 incorrectly breaking down Monsanto's load into four components, and assigning
12 virtually all of the capacity to Components two and three. She then claims that
13 customers in other states should pay for components two and three, through an
14 overpriced power supply contract, leaving Monsanto only responsible for 9MW
15 of capacity costs on the system. Below is a char showing how this is done.
Allocated to Idaho.
then Monsanto
Allocated to Other States using
Jurisdicational Allocations
Firm Load
(9MW)
Operating
Reserves
Economic
Curtailment
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Allocated to Components 2 & 3 in COS Study. Paid for by
Other States through Net Power Cost Contract
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As shown in the above char, under both approaches Ms. Iverson is
allocating the costs of Monsanto's operating reserves and the economic
curtailment to other customers. The only difference is whether it is done through
inter-jurisdictional allocations, where the costs are pushed to other jurisdictions,
or through the COS study and the amount Monsanto is paid for curlment
products. The problem with both approaches is that she continues to incorrectly
allocate all of the capacity associated with the furnaces to the operating reserves
and economic curailment, even though they are for a minimal par of the year.
She does this because of her argument that Monsanto somehow receives a 'lower
quality of service' .
What is your response to Ms. Iverson's other criticisms?
With the understading above about what Ms. Iverson is trying to accomplish, it
is easy to see why each of her points is invalid. She is assigning capacity costs to
the operating reserves and economic curtailment (although as noted above it was
done incorrectly), but she is maintaining that these costs should be borne by other
customers, with none of the capacity cost assigned to Monsanto. She maintains
that the complete capacity cost of these contracts should be refuded to Monsanto
through a credit, and included in net power costs at this lofty leveL. These costs
would then be allocated to all states using an SG allocation factor.
Do you have any specific comments on Ms. Iverson's cost of service approach
valuation?
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Ms. Iverson has suggested removing almost 95 percent of Monsanto's
contribution to system peak using either jurisdictional allocation or a class cost of
service study. I disagree with her study for three reasons:
First, I don't believe this reduction in Monsanto's share of capacity costs
is an even exchange for the option to interrpt a portion of their load less than 10
percent of the hours in a year and another portion of their load for about two
percent of the hours in the year. PacifiCorp's generation fleet consists of a variety
of resources, including coal fired resources, hydro resources, combined cycle gas
plants, and wind resources. The combination of these plants must be available 24
hours a day, seven days a week, 365 days a year to serve our customers needs,
including Monsanto. Monsanto proposes to remove its share of these costs for all
but 9MW of firm capacity because a portion of their load can be interrpted a
fraction of the hours each year.
Second, Ms. Iverson removes 100 percent of the entire load Monsanto
identifies as non-firm (all but 9 MW). However, Monsanto's contract only allows
the interrption of their entire "non-firm" load under very limited circumstances.
They propose to allow one furnace (67 MW) to be curtailed for economic reasons
for less than 10 percent of the hours of the year. In addition two furaces (95
MW) can be interrpted for operating reserves for only two percent of the hours
of the year, but only one of these fuaces can be interrpted for reserves
concurently with the economic curailment. This means that at most 116 MW of
Monsanto's load can be curailed for two percent of the hours of the year. That
hardly justifies removing Monsanto's entire furnace load from either Idaho's
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jurisdictional allocation or Monsanto's class cost of service allocation of capacity
related costs.
Third, Monsanto's load adjustment also reduces its allocation of
transmission costs. Historically, while interruptible customers have reduced the
Company's generation capacity requirements, the Company has always planned
to have adequate transmission capacity to deliver their energy requirements. If
any load adjustment is made you should apply that load adjustment to generation
costs only, leaving the allocation of transmission costs unchanged.
Is your conclusion about Ms. Iverson's study stil the same?
Yes. As described above, Ms Iverson is performing the same analysis as her
original testimony, with the same erroneous assumptions. However, she is trying
to modify her study and dress it up differently in hopes that she can convince
people that it is a different analysis and should be used to support the Monsanto
valuation. However, she has not corrected any of the flaws in her original
proposaL. Ms. Iverson continues to assume Monsanto receives a lower quality of
service and is not responsible for any capacity associated with the operation of
their fuaces.
Does this conclude your rebuttal testimony?
Yes.
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