Direct Testimony of Dr Alan Rosenberg.pdf

Before the

Public Utilities Commission

of the State of Idaho

In the Matter of the Application of PacifiCorp, )
dba Utah Power & Light Company for ) CASE NO. PAC-E-01-16
Approval of Interim Provisions for the Supply )
of Electric Service to Monsanto Company )

Direct Testimony of

Dr. Alan Rosenberg

On behalf of

Monsanto Company

July 2002

Project 7402

PACIFICORP
Before the
Public Utilities Commission
of the State of Idaho

CASE NO. PAC-E-01-16

Table of Contents to the
Direct Testimony of Alan Rosenberg

I. INTRODUCTION AND QUALIFICATIONS .........................................................................1

II. PURPOSE OF TESTIMONY AND SUMMARY OF CONCLUSIONS..................................2

III. BACKGROUND REGARDING MONSANTO’S RATE........................................................7

IV. SHOULD MONSANTO BE CONSIDERED FIRM OR INTERRUPTIBLE?.......................10

V. EVALUATING THE COST OF SERVING AN INTERRUPTIBLE LOAD ..........................20

VI. THE COST OF SERVING MONSANTO AS A FIRM LOAD .............................................36

VII. SUGGESTED TERMS AND CONDITIONS FOR THE NEW CONTRACT .......................40

Appendix A: Qualifications

Exhibits:
Exhibit 222 – Rate Differential Between Firm and Non-Firm Special Contracts
Exhibit 223 – Summary of General Rate Increases in the Past 2 Years
Exhibit 224 – Estimated Effect of Proposed Prices in Case No. PAC-E-02-1

i

PACIFICORP

Before the
Public Utilities Commission
of the State of Idaho

CASE NO. PAC-E-01-16

Direct Testimony of Dr. Alan Rosenberg

I. INTRODUCTION AND QUALIFICATIONS 1
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Q PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
A My name is Dr. Alan Rosenberg, 1215 Fern Ridge Parkway, Suite 208, St. Louis, MO
63141-2000.

Q WHAT IS YOUR OCCUPATION AND BY WHOM ARE YOU EMPLOYED?
A I am a consultant in the field of public utility regulation with Brubaker & Associates,
Inc., energy, economic and regulatory consultants.

Q PLEASE STATE YOUR EDUCATIONAL BACKGROUND AND EXPERIENCE.
A In the course of the past 20 years I have testified before the FERC and the Public
Service Commissions of 18 states and provinces. A brief summary of my experience
and qualifications appears in Appendix A to my testimony.

Q ON WHOSE BEHALF ARE YOU PRESENTING TESTIMONY IN THIS
PROCEEDING?
A I, along with my associate Ms. Iverson, have been asked to present evidence by
Monsanto in connection with its contract dispute with PacifiCorp.

Testimony of Dr. Alan Rosenberg - Page 1 BRUBAKER & ASSOCIATES, INC.
II. PURPOSE OF TESTIMONY AND SUMMARY OF CONCLUSIONS 1
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Q WHAT IS THE SUBJECT MATTER OF YOUR TESTIMONY?
A First, I explain why it is appropriate to continue serving Monsanto on a contract rate
for interruptible service. Second, I show how one may reasonably reflect and
measure the interruptible nature of Monsanto’s service in the calculation of a cost
based rate. Here I examine the issue from several perspectives and demonstrate
that they all point to a relatively narrow range for a contract rate for Monsanto. Third,
I explain how Ms. Iverson’s calculation of the cost of serving Monsanto as a firm
customer should be appropriately modified and utilized to calculate the cost of serving
Monsanto as an interruptible customer. Finally I comment upon some peripheral, but
nevertheless important, terms and conditions for serving Monsanto.

Q PLEASE SUMMARIZE YOUR FINDINGS AND CONCLUSIONS.
A The first and foremost conclusion is that PacifiCorp is proposing a radical break with
its 50-year history of serving Monsanto. Specifically, the Company is proposing a $18
million or 70% increase in Monsanto’s rates for essentially the same level of service
as Monsanto is receiving under its current contract. There is scant evidence that
Pacificorp’s generation and transmission costs have increased by any appreciable
degree over the last seven years, let alone increased to a level that would warrant a
70% increase. PacifiCorp itself notes that generally, its prices have fallen in Utah and
Idaho since the merger.
In my twenty plus years of experience I cannot recall a utility asking, much
less receiving, a 70% increase under any circumstances. PacifiCorp has not even
begun to meet its burden of proof for such a drastic change. Consequently the
Commission should find that PacifiCorp’s request is totally unjustified and must be
rejected out of hand.
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My analysis indicates that a fair and reasonable cost based rate for serving
Monsanto is $26.10 per MWh for its 9 MW of firm service and $19.00 per MWh for the
balance of its load, which should be taken on interruptible terms. The overall cost
would be approximately $19.40 per MWh, or almost $1 per MWH greater than current
contract rate, or an increase of roughly 5%. This compares to no increase, or even
decreases, for other Idaho customers in the recently completed Case No. PAC-E-02-
1. There is, however, a good deal of judgment involved in establishing a rate for an
interruptible contract, especially one as unique as this one. On balance, I conclude
that a rate in the range of from $17.00 to $21.00 per MWh could be considered just,
fair and reasonable.

Q HAVE THE USAGE CHARACTERISTICS OF MONSANTO CHANGED SINCE THE
LAST CONTRACT WAS APPROVED?
A No.

Q THEN HOW DOES PACIFICORP ATTEMPT TO JUSTIFY A 70% INCREASE?
A In its testimony and data responses, PacifiCorp does offer some reasons for its new
position, but I find those to be rather strained. Monsanto witness Richard Anderson
and I refute these excuses in our testimonies. In a letter to Mr. James R. Smith of
Monsanto, Mr. Griswold, a witness for PacifiCorp in this case, does note that the sale
of the Centralia plant has changed the Company’s resource balance. However, that
should not be a reason to denigrate the value of Monsanto’s interruptibility, and
hence increase its rates by 70%. Indeed, the Centralia sale, along with the cessation
of other interruptible service, should logically only make Monsanto’s interruptibility
that much more valuable to PacifiCorp and its other customers.

Testimony of Dr. Alan Rosenberg – Page 3 BRUBAKER & ASSOCIATES, INC.
Q PACIFICORP ALLEGES THAT MONSANTO WILL NOW BE TREATED AS A FIRM
CUSTOMER, RATHER THAN AN INTERRUPTIBLE CUSTOMER. YET YOU
ASSERT THAT PACIFICORP WILL BE SUPPLYING THE SAME LEVEL OF
SERVICE AS UNDER THE CURRENT CONTRACT. PLEASE EXPLAIN.
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A Under the current contract, Pacificorp may interrupt or curtail service to Monsanto
(except for the 9 MW of firm power) at any time to maintain Pacificorp’s system
integrity. Under PacifiCorp’s
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proposed new contract: 7
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PacifiCorp may temporarily interrupt or curtail service of power and
energy when; (i) PacifiCorp's system providing service has actually
become out of balance through inadvertent or unplanned sudden
occurrences and interruption or curtailment is necessary to maintain
service to those retail customers (including Monsanto) receiving firm
service from PacifiCorp; and/or (ii) when, in the considered opinion of
PacifiCorp, pursuant to Prudent Electrical Practice, an interruption or
curtailment of power and energy to Monsanto is necessary to maintain
service to those retail customers (including Monsanto) receiving firm
service from PacifiCorp. Except under emergency conditions,
PacifiCorp shall give Monsanto at least two hours advance notice of
desired interruption and/or curtailment and at least one hour's notice
when interruption and/or curtailment are to be discontinued.

You can judge for yourself whether there is any meaningful difference between the
two contracts. Moreover the new contract, as proposed by PacifiCorp, notes:

PacifiCorp acknowledges that Monsanto's electric furnaces require
shutdowns for maintenance and overhauling, and it is the intent of the
parties hereto that such shutdowns and consequent reduction of power
requirements be predetermined insofar as possible by agreement
between the parties.

If Monsanto were truly a completely firm customer, as PacifiCorp alleges, there would
be no requirement for Monsanto to coordinate with PacifiCorp when it could shut
down its furnaces, but could do so to minimize its own costs, not PacifiCorp’s. Thus
PacifiCorp is only offering Monsanto quasi-firm service.

Testimony of Dr. Alan Rosenberg – Page 4 BRUBAKER & ASSOCIATES, INC.
Q COULD YOU PLEASE SUMMARIZE HOW YOU ARRIVED AT AN APPROPRIATE
RATE FOR THE NEW CONTRACT?
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A First let me say as a preamble there is no single formula that yields an unerring
precise rate for interruptible service. Even establishing a rate for firm service involves
some knowledgeable judgment and discernment. Rate design for interruptible
service is that much more difficult because there are different levels of interruptible
service. A customer who can interrupt within ten minutes of being notified to curtail is
deserving of a rate that is lower than one who requires two hours notification. The
former is receiving lower quality service, and providing the utility with greater value,
than the latter. Consequently a rate that is just and reasonable for the “two hour”
interruptible customer would be overcharging the “ten minute” interruptible customer.
There are several additional factors that may influence the level of an
interruptible rate. The more important ones are:
• The total number of hours for which the customer can be interrupted; up to a
point, the more hours, the lower the rate.
• The maximum number of hours which the customer can be interrupted with
each notification – in general the longer the duration, the lower the rate that
can be justified.
• The number of times that an interruption can be called – again, generally, the
more the better.

Of course, even these guidelines must be used with discernment. For
example, a customer that can be interrupted for a 4,000 hours in a year may not
deserve a lower rate than a one that can be interrupted for 2,000 hours. The reason
is that after a certain point, all usage is more than likely off peak and so the additional
interruption is of little or no value to the utility. However, because electricity cannot
be stored, it is always true that the shorter the notification period, the more value is
the interruptibility and the lower the rate that can be justified.

Testimony of Dr. Alan Rosenberg – Page 5 BRUBAKER & ASSOCIATES, INC.
Q PLEASE CONTINUE WITH YOUR EXPLANATION OF HOW A FAIR AND
REASONABLE RATE FOR INTERRUPTIBLE SERVICE MAY BE DERIVED.
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A The methods for deriving an interruptible rate fall into three general categories. The
first is by looking at how other interruptible contracts are priced. Of course, the more
comparable the other contract is to the one you are trying to price, the more
relevance there is to the comparison.
A second type of analysis can be thought of as a bottom up approach. In this
method you try to measure the variable cost of serving the load, plus a fraction of the
fixed costs that would be required if the load were firm. The more interruptible the
load, the closer the fraction is to zero. This method is probably the most subjective
because the only thing we can say for certain is that the fraction should be between
zero and one.
The third perspective can be categorized as a top down type of cost analysis.
Here we start out with the cost of serving a fully firm load and then subtract the cost
saved or avoided by the utility interrupting or having the ability to interrupt, even if the
interruptions are not necessary.

Q YOUR RECOMMENDATION IS FOR A RATE THAT IS ONLY APPROXIMATELY
5% HIGHER THAN THE RATE UNDER THE EXISTING CONTRACT. DOES THAT
SEEM REASONABLE?
A Focusing only on the nominal increase of 5% is very misleading. In the first place,
the rate I am recommending is more than 5% higher than the current rate. Under the
current contract, PacifiCorp buys reserves from Monsanto which lowers the actual
effective rate for Monsanto from the nominal $18.50 per MWh. Under the new
contract as proposed by Monsanto, the reserves are already included in the price. In
the second place, the service provided under the new contract would be much more
Testimony of Dr. Alan Rosenberg – Page 6 BRUBAKER & ASSOCIATES, INC.
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interruptible than under the current contract. (This also makes it more costly to
Monsanto.) So the two rates are not directly comparable.

III. BACKGROUND REGARDING MONSANTO'S RATE 3
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Q WHY HAVE YOU FOCUSED ON THE CALCULATION OR DERIVATION OF A
COST BASED RATE FOR MONSANTO?
A My understanding is that Idaho has a requirement to offer all its customers the
opportunity to be served by a rate that is fair, just and reasonable. While there are
certainly other considerations in establishing a just and reasonable rate, cost of
service is a time-honored guideline. Of course, in the case of Monsanto, the term
cost of service must be interpreted in the context of the interruptible nature of
Monsanto's service. Moreover, to the best of my knowledge and belief, this is the first
time that the Idaho Commission has considered such a cost analysis for Monsanto.

Q IS MONSANTO CURRENTLY SERVED UNDER A COST BASED RATE?
A No, not in the usual sense. Historically, a fully distributed cost study was not used to
derive a rate for the Soda Springs plant. Instead the rate was set with two objectives
in mind – first to keep the plant competitive and second to cover the variable cost of
serving the plant plus a reasonable contribution to fixed costs so that other customers
are not only not harmed, but indeed gain by the presence of the plant's usage.
Today, Monsanto is currently served under a rate that was negotiated by
Monsanto and PacifiCorp and approved by the Commission. The Commission
explicitly found the current rate to be fair, just and reasonable. The result was that
not only has the Monsanto facility in Soda Springs been able to operate and
contribute to the economy of Idaho, but the balance of Idaho’s customers even pay
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less for electricity by virtue of Monsanto’s contribution to fixed costs, than they would
have without Monsanto's load.

Q WHY CAN’T MONSANTO BE SERVED ON SIMPLY A STANDARD RATE?
A The size, load factor, service voltage level, history, and interruptibility provisions make
Monsanto unique among PacifiCorp’s Idaho customer level. As noted by the Idaho
PUC in Order No. 22976:
Utah Power’s Idaho operations serve two customers significantly larger
than any other. The first and largest is Monsanto Company. Its load
of over 160 megawatts (but 9 megawatts of which is firm) dwarfs that
of any other customer on Utah Power’s Idaho system. The
determination of a fair rate for Monsanto is more complicated than for
any other customer in the Idaho system because its interruptibility is
treated as a resource of the entire Utah Power (and perhaps Utah
Power – PacifiCorp Power) system, and analyses of the
reasonableness of the Monsanto rate do not apply to smaller firm
customers. (Docket No. UPL-E-89-7, Order 22976, February, 1990)

Consequently, Monsanto has always been served under a special contract rate.
PacifiCorp likewise serves several large industrial customers under special contracts
in other states.

Q WHAT DOES THE CURRENT CONTRACT STIPULATE FOR MONSANTO’S
ELECTRIC RATE?
A Pursuant to the contract, Monsanto can take 9 MW of firm service and up to 206 MW
of interruptible service. The overall rate is $18.50 per MWh.

Q WHAT DOES PACIFICORP PROPOSE TO CHARGE MONSTANTO UPON THE
TERMINATION OF THE CURRENT CONTRACT?
A PacifiCorp is proposing to charge Monsanto $31.40 per MWh, an increase of 70%
over the current rate of $18.50 per MWh. This dramatic increase should be
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contrasted to the 16% average reduction for it's other Idaho customers as a result of
the recent stipulation in Case No. PAC-E-02-1. In my view, the Company proposal
should be rejected if only because of the unduly disruptive magnitude of the rate
being sought. Rate continuity and the avoidance of rate shock is a principle that is
widely respected by regulators across North America.

Q PACIFICORP WITNESS MR. TAYLOR STATES THAT THE CURRENT
MONSANTO RATE IS $23.20 PER MWH. WHAT ACCOUNTS FOR THE
DIFFERENCE BETWEEN MR. TAYLOR’S REPRESENTATION OF THE RATE
AND THE $18.50 RATE NOTED IN YOUR LAST RESPONSE?
A Mr. Taylor arrives at the $23.20 figure by adding to the contract rate, the amortization
of a $30 million payment that Monsanto made to PacifiCorp at the time the current
contract was consummated. However, there is no indication in the contract that that
this one-time payment was to be amortized over the term of the contract. Indeed that
language of the Company's application characterized the $30 million as money
received for the termination of the previous contract, not the current one. Moreover,
from a rate impact perspective, it is clear that the correct rate to use should be the
$18.50 per MWh.
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Q IS PACIFICORP PROPOSING TO LOWER OTHER RATES IN IDAHO AS A
RESULT OF THE DRAMATIC INCREASE PROPOSED FOR MONSANTO?
A No. It appears that the entire increase would be pocketed by Scottish Power, at least
until the next time rates are reset for all of PacifiCorp’s Idaho service territory.

Testimony of Dr. Alan Rosenberg – Page 9 BRUBAKER & ASSOCIATES, INC.
IV. SHOULD MONSANTO LOAD BE CONSIDERED FIRM OR INTERRUPTIBLE? 1
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Q WHY DOES PACIFICORP WANT TO TREAT MONSANTO AS A FIRM
CUSTOMER?
A The Company’s request must first be clarified. Mr. Taylor only wants to treat
Monsanto as a "firm" customer for purposes of setting the new rate for Monsanto.
Obviously the cost of serving a firm customer is significantly greater than serving an
interruptible customer. Thus by portraying Monsanto as a firm customer, PacifiCorp
can ostensibly justify charging a higher rate to Monsanto. Since it is not proposing to
decrease rates to the other customers as a result of this “reclassification”,
PacifiCorp’s shareholders would reap the benefit.
I should note, however, that PacifiCorp does not necessarily consider
Monsanto a firm customer subsequent to the determination of Monsanto’s rate in this
proceeding. PacifiCorp states that it would negotiate a credit with Monsanto for
Monsanto’s willingness to be interrupted, with a separate agreement for "purchasing"
interruptibility from Monsanto on a short-term basis from time to time.

Q IS THIS A SATISFACTORY ARRANGEMENT?
A No. PacifiCorp currently serves Monsanto on a monopoly basis. Monsanto does not
have access to other parties who can purchase its interruptions. Consequently,
PacifiCorp could use its monopoly power to impose unfair leverage on Monsanto.
Moreover, without some price certainty, the Soda Springs plant would be in a
precarious financial condition, as testified to by Monsanto witness Daniel R. Schettler.

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Q MR. GRISWOLD STATES THAT ONE REASON TO SEPARATE THE
AGREEMENTS WAS TO "CLEARLY DEFINE ANY TERMS AND CONDITIONS
FOR INTERRUPTIBILITY." DOES THIS RATIONALIZATION MAKE ANY SENSE?
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A No. The frequency notification, duration, and the times when interruption are allowed
can easily be incorporated in a simple purchase power agreement. Mr. Griswold's
excuse is superficial.

Q IN RESPONSE TO THE IPUC DATA REQUEST NO. 18, MR. GRISWOLD STATES
THAT THROUGH 2001 THERE WERE NO INTERRUPTIONS OF MONSANTO
PURSUANT TO ITS POWER SALES CONTRACT. DOES THIS NEGATE THE
VALUE OF MONSANTO AS AN INTERRUPTIBLE CUSTOMER?
A No, not in the slightest. First, we should point out that Monsanto was interrupted
under emergency and certain auxiliary arrangements entered into with PacifiCorp.
There is documented evidence that Monsanto curtailed load on over 100 occasions in
the years 2000 and 2001 alone, as shown in Exhibit 201. The Company states it has
continuing interest to purchase interruptions, or potential interruptions, from
Monsanto. Thus, there can be no doubt concerning Monsanto's capability to interrupt
its draw of power. Second, according to that same data response, it should be noted
that none of PacifiCorp's other interruptible customers were interrupted over the last 5
years pursuant to their power sales agreements. Thus, this is more of a generic
phenomenon relating to how PacifiCorp runs its system and negotiated these
agreements, rather than a problem with Monsanto. Third, the ability to interrupt is of
great value, even if the actual interruption is not triggered. One does not claim a
refund for your fire insurance premiums simply because your house did not catch fire.
Finally, as described in the testimony of Mr. Schettler, Monsanto is willing to enter into
a new contract that will make interruptions both more valuable and more likely.
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Testimony of Dr. Alan Rosenberg – Page 11 BRUBAKER & ASSOCIATES, INC.

Q WHY DOES PACIFICORP WANT TO CHANGE THE STATUS OF MONSANTO
FROM INTERRUPTIBLE TO FIRM, AT LEAST FOR PURPOSES OF SETTING THE
CONTRACT RATE?
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A PacifiCorp’s stated reasons are somewhat ambivalent. In his direct testimony in this
case, PacifiCorp’s witness Mr. Taylor states that the current method of excluding
Monsanto (and other special contracts) and allocating the benefit of Monsanto’s
revenues to the entire PacifiCorp system has not “proved acceptable to all states”.
Second he states that market prices and the Company’s avoided costs make the
“contribution to fixed cost standard much harder to meet”. Finally, he states that
including a price discount for interruptibility assigns a fixed value to the interruptibility
over the term of the agreement. He concludes that this would be somehow
inappropriate given the “dramatic changes in the wholesale market” over the last
couple of years.
However, when asked in Monsanto’s Data Request No. 35 why PacifiCorp
wants to consider the Monsanto load as firm, the Company gave totally different
reasons. There it stated that it wants to consider Monsanto’s load as firm because:
(1) no provision in the supply contract allows for load curtailment due to economics;
and (2) the Company’s practice is to limit load curtailment due to system emergencies
to two hours, which is insufficient duration to be relied upon for capacity.

Q DO YOU CONSIDER ANY OF THESE TO BE COMPELLING REASONS FOR THE
COMPANY’S TREATMENT OF MONSANTO?
A No. I will respond to all five of those reasons. It is true that treating Monsanto as a
system customer and allocating the benefits of the special contract rate back to all
customers sheds no light on an appropriate rate to charge Monsanto. Moreover,
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treatment of Monsanto and other contracts as a system resource may or it may not be
acceptable to other states. However, both those observations are completely beside
the point as to whether or not Monsanto is treated as an interruptible customer. In
other words those considerations are totally independent of the fundamental question
of whether or not Monsanto should be interruptible. Monsanto can be firm and still be
considered in-situs or system (as other firm customers are), or it could be interruptible
and be considered in-situs or system. In fact, it is my understanding that the issue of
system versus situs is being taken up in the new Multi-State Process. In any event, it
would not be necessary for the Idaho Commission to decide on in-situs versus
system treatment until the time that this Commission deliberates on a general rate
application by PacifiCorp.
I would also note that differing treatment by different regulatory bodies is a risk
of doing business in different jurisdictions. Often times, having operations in several
jurisdictions confers advantages to the utility, such as diversity in customer base and
weather. When Utah Power merged with Pacific Power, the Company acknowledged
from the beginning that it had a risk associated with inconsistent allocation methods
from one state to another. If, at times, there are hazards associated in operating in
multiple jurisdictions, PacifiCorp should not be able to shift those risks to its
customers, as Mr. Taylor seeks to do to Monsanto in this case.

Q MR. TAYLOR STATES THAT THE REVENUE CREDIT APPROACH HAS NOT
PROVED ACCEPTABLE TO ALL STATES. PLEASE COMMENT.
A In Data Request No. 39 (a), PacifiCorp was asked to produce sections of all Orders,
Decisions and Opinions of other states that have rejected the “system revenue credit
approach”. In response, Mr. Taylor was able to identify only the testimony of Staff
witnesses in Oregon and Utah on this issue. Moreover, since Utah recently approved
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a special contract for a PacifiCorp industrial customer with interruptible service, along
the lines that Monsanto is seeking in this case, we can see that this issue is a red
herring.

Q HOW DOES MR. TAYLOR'S PROPOSED CHANGE IN TREATMENT, FROM
"SYSTEM" TO "SITUS," AFFECT IDAHO?
A First I might note that, according to the Company response to Monsanto Data
Request No. 5 (Attachment), switching from "system" to "situs" implies that PacifiCorp
as a whole "requires" an additional $23 million. Second, it is the Idaho jurisdiction
that is most adversely affected by this change, as the following table shows:

TABLE 1

Impact of System and Situs Methods

Idaho Other States Total
SYSTEM METHOD
"Required" Increase $5.3 $293.9 $299.2
Percent Increase 3.6% 9.5% 9.3%
SITUS METHOD
"Required" Increase $20.7 $301.9 $322.6
Percent Increase 11.3% 9.9% 10.0%

Q PLEASE CONTINUE WITH YOUR RESPONSE TO MR. TAYLOR’S OBJECTIONS
TO AN INTERRUPTIBLE CONTRACT.
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A I disagree with Mr. Taylor that market prices and the Company’s avoided costs make
the “contribution to fixed cost standard much harder to meet”. PacifiCorp’s revenue
requirement is based on its average embedded costs, which include any market
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purchases that it may or may not have to make, and not its marginal costs. I dispute
Mr. Taylor’s insinuation that Monsanto should only be served by PacifiCorp’s marginal
resources. PacifiCorp itself changed its dependence on marginal resources when it
sold its Centralia plant. PacifiCorp should take full responsibility for how it runs its
system and not use this as an excuse to raise the rates of some of its customers by
70%. Monsanto has been a system customer for 50 years and should have just as
much right to PacifiCorp’s low embedded generation costs as any other Idaho
customer (or Utah or Wyoming or Oregon customer for that matter). Thus as long as
Monsanto’s rate is covering all of its properly allocable variable costs, and still makes
a profit margin, it is contributing to PacifiCorp’s fixed costs. Finally, I would note that
Mr. Taylor was unable to provide the fixed cost contribution of any of the other
customer classes in Idaho, thus demonstrating that this too is a red herring
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Regarding PacifiCorp's third rationale cited above, I disagree that fixing an
interruptible rate for Monsanto in this proceeding necessarily assigns a fixed value to
the interruptibility over the term of the agreement. This excuse is also refuted in the
testimony of Mr. Richard Anderson in this case. Moreover, once again Mr. Taylor is
using anomalous market prices as a pretext to denigrate the value of interruptibility.
The inference is that Monsanto’s rate should be based on embedded costs if and only
if Monsanto is considered firm. That is a false inference. All customers are served
from
19
both owned generation and power purchases. 20

1 Reference Company response to Monsanto Data Request No. 42.
Testimony of Dr. Alan Rosenberg – Page 15 BRUBAKER & ASSOCIATES, INC.
Q BUT DO YOU NOT CONCEDE THAT MARKET PRICE VOLATILITY MAKES IT
MORE DIFFICULT TO SERVE MONSANTO AS AN INTERRUPTIBLE
CUSTOMER?
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A No, I do not agree at all. In fact, just the opposite is true. The fact that market prices
may be very high when Monsanto is interrupted simply enhances the value of having
the ability to interrupt Monsanto. As I will explain in the ensuing section of this
testimony, by not incorporating any additional savings due to economic interruptions,
my proposed contract price for Monsanto gives any benefit of the doubt to PacifiCorp
and not to Monsanto.

Q HOW DO YOU RESPOND TO THE REASONS STATED IN PACIFICORP
RESPONSE TO MONSANTO’S DATA REQUEST NO. 35 FOR TREATING
MONSANTO AS FIRM?
A With regards to PacifiCorp’s observation that no provision of the contract allows for
curtailment due to economic reasons, I would note:
• PacifiCorp chose to offer Monsanto a contract which did not allow
interruptions for economic reasons.
• An interruptible load is still of value even if curtailment is allowed strictly for
reliability reasons
• If the contract had allowed for economic curtailments, that would only add to
the value of the interruptible nature of the contract (and lower the quality of
service to Monsanto).

As to PacifiCorp’s observation that a two-hour duration is insufficient to rely
upon for capacity, I would note that:
• The 2 hour "limitation" appears nowhere in the current contract. 24
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• The Company's Emergency Response Plan states that the objective is to
restore supplies to normal "as soon as is reasonably practical – not in just 2
hours.
• The Company Plan for "controlled load reduction" states that emergencies in
this category are those "requiring a large amount of load to be restricted for a
Testimony of Dr. Alan Rosenberg – Page 16 BRUBAKER & ASSOCIATES, INC.
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short period, for example, over the peak period of the day." Certainly the peak
period of the day could be for a longer period than just 2 hours.
• The Company Plan states only that the controlled disconnection will be
maintained with an initial maximum 2-hour disconnection.

Q IN HIS TESTIMONY OF MAY 29, MR. GRISWOLD OF PACIFICORP STATES
THAT MONSANTO HAS NOT BEEN TREATED DIFFERENTLY THAN ANY
OTHER SPECIAL CONTRACT CUSTOMER. PLEASE COMMENT.
A In that response Mr. Griswold notes that PacifiCorp has provided Nu-West a special
contract based on their cost of service. Mr. Griswold does not mention that Nu-West
is one-tenth the size of Monsanto, and that Nu-West takes firm service and not
interruptible service. Furthermore, Mr. Griswold does not mention the recent Utah
Public Service Commission’s Order on Magcorp, an interruptible customer only one-
half the size of Monsanto. Magcorp is now being served by PacifiCorp at a price of
$21.00 per MWh, or 2/3 of the price PacifiCorp is proposing for Monsanto.

Q MR. GRISWOLD NOTES THAT DURING THE SUMMER OF 2001, PACIFICORP
WAS “CONSTANTLY PURCHASING POWER AT PRICES OVER $150 PER MWH
TO SERVE MONSANTO." PLEASE COMMENT.
A First, I should note that the market prices in the west during the summer of 2001 were
most unusual. The on peak prices this summer will be a small fraction of that price.
Second, Mr. Griswold does not mention the many hours when PacifiCorp could have
been purchasing power at less than the contract rate. Third, Monsanto is not served
entirely by purchases but is also served by PacifiCorp’s low cost embedded
generation. Finally, to the extent that prices do peak that high again, and PacifiCorp
chooses to curtail Monsanto during those times, the cost savings would be quite
huge. For example, assume that PacifiCorp could avoid buying $150 power for only
Testimony of Dr. Alan Rosenberg – Page 17 BRUBAKER & ASSOCIATES, INC.
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200 hours out of an entire year. That savings, spread out over the remaining hours of
the year, would equate to a credit of almost $3.50 per MWh.

Q DOES PACIFICORP STILL CONSIDER MONSANTO INTERRUPTIBLE FOR
PLANNING PURPOSES?
A Yes. In its most recent integrated resource plan, RAMPP-6, issued only June 2001,
while PacifiCorp was still in negotiations with Monsanto and insisting on a firm
contract, it considered Monsanto as interruptible (as it always had), and modeled
Monsanto (as it did other interruptible contracts) as a simultaneous purchase and
sale. Put another way, no firm resources were modeled to meet the Monsanto load.

Q IS IT YOUR POSITION THAT MONSANTO SHOULD CONTINUE TO BE TREATED
AS AN INTERRUPTIBLE LOAD?
A Yes. Monsanto should be treated as an interruptible contract because:
• Continuity with past practice warrants it.
• Monsanto has instituted its operations and capital investments on that basis.
• Monsanto is willing to continue taking lower qualify service as an interruptible
customer.
• Monsanto cannot be competitive without the lower rate by virtue of
interruptibility.
• If all interruptible load were switched to firm, PacifiCorp would need additional
capacity, potentially increasing its average cost.

Q WHAT IS THE BASIS FOR YOUR LAST ASSERTION THAT IF ALL
INTERRUPTIBLE LOAD WERE CONSIDERED FIRM, PACIFICORP WOULD NEED
TO ADD ADDITIONAL RESOURCES?
A First, as previously explained, that is indicated in RAMPP-6. Second, in response to
Monsanto Data Request No. 35, PacifiCorp acknowledges that Monsanto’s entire
Testimony of Dr. Alan Rosenberg – Page 18 BRUBAKER & ASSOCIATES, INC.
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Idaho load cannot be served in 2002 and 2003 from PacifiCorp’s owned generation.
In fact, PacifiCorp recently entered into lease arrangements for 200 MW of simple
cycle gas turbines in West Valley City, Utah and is in the process of constructing 120
MW of simple cycle gas turbines at its Gadsby facility. Finally, I would note that
PacifiCorp is becoming more and more dependent upon short-term resources to meet
its requirements as shown in the following table:

TABLE 2

PacifiCorp Short Term Purchases

Year
Net
Short Term
Purchases

% of System
Requirements
1996 0.9 GWh 1.4%
1997 0.8 GWh 2.7%
1998 2.3 GWh 3.4%
1999 1.7 GWh 2.5%
2000 4.5 GWh 6.6%
20012 3.7 GWh 7.1%

This means that PacifiCorp is finding itself short of capacity with increasing frequency.
Eliminating Monsanto as an interruptibility customer exacerbates this situation.
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2 Through October 2001, Source Direct Testimony of Stan K. Waters, Case No. PAC-E-02-1
Testimony of Dr. Alan Rosenberg – Page 19 BRUBAKER & ASSOCIATES, INC.

V. EVALUATING THE COST OF SERVING AN INTERRUPTIBLE LOAD 1
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Q HOW CAN THE COMMISSION REASONABLY EVALUATE THE COST OF
SERVING MONSANTO UNDER AN INTERRUPTIBLE CONTRACT?
A There are several methods that would reasonably derive a cost based rate for serving
Monsanto under an interruptible contract. Moreover to the extent that all or most of
these methods indicate a narrow bandwidth of rates, the Commission can have
confidence that the resultant rate is fair, just and reasonable. I would suggest the
following six methods for consideration in this case:
• An examination of the rates for other comparable interruptible contracts.
• The average cost of short-term purchased power included in the Company
rates.
• A cost of service study that allocates materially less than 100% of the
demand-related generation and transmission costs to Monsanto.
• A cost based firm rate less the average differential PacifiCorp uses between
firm and interruptible service.
• A cost based firm rate less the avoided resource cost by virtue of the load
being subject to interruptibility.
• The average variable cost of production plus losses plus a judgmental adder
for a contribution to fixed cost.

While it would not be advisable to focus only on one of the above benchmarks
to the exclusion of others, it is my opinion that by considering all of the above, the
Commission may arrive at a reasonable estimate of a just and fair rate for Monsanto.
Of course, however the interruptible rate is arrived at, one thing is clear. As
noted in the recent Utah Order involving PacifiCorp and Magcorp, an interruptible
customer:
Testimony of Dr. Alan Rosenberg – Page 20 BRUBAKER & ASSOCIATES, INC.
All parties agree that large customers who are willing to receive 1
interruptible service under certain conditions impose less costs on the
utility than do firm customers, and therefore warrant special pricing
consideration.
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Since PacifiCorp was a party to that case, we see that even the Company
acknowledges that interruptible customers are less costly to serve and thus deserving
of lower rates.

Other Interruptible Contracts 8
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Q WHAT RATE WOULD BE INDICATED BY EXAMINING CURRENT RATES FOR
OTHER COMPARABLE INTERRUPTIBLE CONTRACTS?
A Based on Company supplied information, the following table summarizes pertinent
data for PacifiCorp’s interruptible customers:

TABLE 3

PacifiCorp’s Other Interruptible Customers

Name
Interruptible
Load (MW)

Voltage Level
Indicative Rate (per MWh
at 85% Load factor)
Boise Cascade 50 MW 4.16 kV, 12.5 kV $23.90
Western Electro Chemical 9 MW 138 kV $20.40
Nucor 64 MW 138 kV $28.30
Oremet 20 MW N/A $20.10
Geneva Steel Company 150 MW 138 kV $28.30
Magcorp 80 MW 138 kV $21.00
Kennecot Copper 90 - 150 MW 46 kV $23.50
Simple Average $23.60

3 Order of Public Service Commission of Utah, Docket No. 01-035-38, Issued May 24, 2002, page 3.
[Emphasis added]
Testimony of Dr. Alan Rosenberg – Page 21 BRUBAKER & ASSOCIATES, INC.

Q HOW RECENT ARE THE ABOVE CONTRACTS? 1
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A These contracts were all entered into in 1996 or later, and one as recently as the year
2000. However, the most recent information concerns the situation with Magcorp.
On May 24, 2002, the Public Service Commission of Utah was asked to resolve a
contract dispute between Magcorp and PacifiCorp, much like the issue which is the
topic of this proceeding. The Utah PSC found that a rate of $21.00 per MWh was
justified.

Q DID PACIFICORP PRESENT THE SAME ARGUMENTS THAT IT NOW APPLIES
TO MONSANTO, IN ITS ATTEMPT TO SET THE RATE FOR MAGCORP?
A Yes. Mssrs. Taylor & Griswold used the same arguments, almost verbatim, to argue
for a $30.20 per MWh tariff rate for Magcorp. I would also note that PacifiCorp
extended an offer to Magcorp to provide service in 2002 at an average price of
$26.50 – far less than the offer to Monsanto in this case of $31.404.

Q HOW DOES THE MONSANTO INTERRUPTIBILITY COMPARE TO THOSE OF
OTHER INTERRUPTIBLE CUSTOMERS OF PACIFICORP?
A The Monsanto contract is much more valuable, principally because of its very short
response time. Response time is of utmost importance for an electric system,
because generation and load must always be in balance. Monsanto can be curtailed
in seconds for emergency purposes, and is willing to do so. Monsanto can provide
operating reserve in a matter of a few minutes. To the best of my knowledge, none of
PacifiCorp's other interruptible customers can do that. For example, the following
4 Reference direct testimony of Bruce W. Griswold, page 5, before the Public Service Commission of
Utah, Dockets No. 01-035-38, 02-035-02.
Testimony of Dr. Alan Rosenberg – Page 22 BRUBAKER & ASSOCIATES, INC.
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table shows the notification provisions for the interruptible contracts on fixed rates
that PacifiCorp supplied during discovery in this case:

TABLE 4

Notification Provisions of Interruptible Customers

Customer Name Notification Provision
Boise Cascade At least 4 hour advance notice
Western Electro Chemical Co. 8 hours notice before interruption
Nucor Corporation Not less than 10 minutes
Oremet As much notice as reasonably possible
Geneva Steel Company Never less than 10 minutes except under
emergency conditions
Magnesium Corporation At least 2 hours advance notice
Kennecott Utah Copper Not less than 2 hours except under emergency
conditions

Short-Term Power Costs in Current Rates 3
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Q THE NEXT BENCHMARK YOU MENTION IS THE PRICE OF SHORT TERM
PURCHASED POWER INCLUDED IN THE COMPANY RATES. WHY IS THIS A
RELEVANT BENCHMARK FOR THE PRICE OF INTERRUPTIBLE POWER?
A In response to Data Request No. 31, PacifiCorp states that in RAMPP-6, Monsanto’s
load was treated as a simultaneous purchase and sale. In other words, in RAMPP-6,
Monsanto is treated as though it is both a short-term resource and a short-term
obligation that is on par with wholesale transactions.

Testimony of Dr. Alan Rosenberg – Page 23 BRUBAKER & ASSOCIATES, INC.
Q WHAT IS THE AVERAGE MARKET PRICE OF SHORT-TERM PUCHASED
POWER INCLUDED IN PACIFICORP’S RATES AT THE CURRENT TIME?
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A According to the testimony of Mr. Stan K. Watters in Case No. PAC-E-02-1, that rate
is approximately $21.50 per MWh. Consequently, I believe that $21.50 per MWh
serves as yet another benchmark to be considered for the Monsanto interruptible
rate.

Demand Adjusted Cost Study 7
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Q YOU STATED PREVIOUSLY THAT ANOTHER METHOD BY WHICH TO GAUGE
THE REASONABLENESS OF AN INTERRUPTIBLE LOAD IS TO USE A COST OF
SERVICE STUDY WHICH ALLOCATED ONLY A PORTION OF THE FIXED
GENERATION AND TRANSMISSION COSTS TO THE INTERRUPTIBLE
CUSTOMER. PLEASE EXPLAIN THAT METHOD.
A In that method the full demand allocator, that would normally be used for a firm
customer, is multiplied by a number less than 1, to reflect the fact that the interruptible
customer does not have the right to electric service at any time it wishes.

Q WHAT PERCENTAGE OF THE FULL DEMAND WOULD BE USED?
A Clearly that is subject to debate. Some observers have recommended that no
demand be used. On the other hand, if zero demand is used then the customer
would not be making a contribution to fixed costs. Perhaps the only thing that is
universally agreed upon is that it be significantly less than 100%

Testimony of Dr. Alan Rosenberg – Page 24 BRUBAKER & ASSOCIATES, INC.
Q WHAT PERCENTAGE WOULD YOU RECOMMEND IN THIS PROCEEDING? 1
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A Since this is simply another method, among many, that we are using to assess a
range of reasonableness, Ms. Iverson and I have examined two different percentages
for this purpose. The first percentage of full demand that we used is 50%.

Q WHAT IS THE BASIS FOR USING 50% OF THE FULL DEMAND IN THE COST
ANALYSIS?
A The first is that 50% is halfway between the two extremes of 0% and 100%. Also, this
is the figure that the Company has used in the past. In the Idaho PUC’s Order No.
22622 it states as follows:
With regard to embedded cost of service studies, historically the
Company recovered its out-of-pocket costs for interruptible customers,
a transmission component, and used a 50% factor for generation.
(Docket No. UPL-E-89-3, Order No. 22622, page 17, July, 1989)

Q WHY HAVE YOU APPLIED THE 50% FACTOR FOR TRANSMISSION AS WELL
AS GENERATION?
A I have applied the 50% factor for transmission as well as generation for two reasons.
First, for most utilities generation and transmission are cross-substitutable. In other
words, sometimes a utility will build transmission to avoid building generation, and
other times the other way around – it will build generation closer to load to avoid
transmission. (Although the former happens more frequently than the latter.) The
second reason is that, as noted, for Monsanto a lower figure than 50% (for
generation) was used in order to keep the customer. In any case, to give the
Commission a more complete picture, we have run our analysis both ways.

Testimony of Dr. Alan Rosenberg – Page 25 BRUBAKER & ASSOCIATES, INC.
Q WHAT ARE THE RESULTS OF INCLUDING 50% OF MONSANTO’S NON-FIRM
DEMAND?
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A The results of Ms. Iverson's analyses are as follows:
• 50% of Demand applied to Generation and Transmission - $19.60 per MWh
• 50% of Demand applied to Generation, 100% to Transmission - $21.80 per MWh

Q HAVE YOU CONDUCTED AN ANALYSIS USING A DIFFERENT PERCENTAGE
OF FULL DEMAND, OTHER THAN THE 50%?
A Yes. In this method we worked backwards to arrive at a percentage of Monsanto’s
full demand that would achieve a predetermined objective.

Q WHAT OBJECTIVE DID YOU SEEK TO ACHIEVE?
A Prior to this proceeding, as explained by Mr. Taylor, Monsanto was treated as a
system customer. In other words, no costs were explicitly assigned to Monsanto.
Rather, Monsanto’s contract revenue was allocated to the entire PacifiCorp system
firm customers as a credit, or negative cost if you will. In this case, PacifiCorp wants
to treat Monsanto as a situs or Idaho customer. Consequently, the objective we
sought to achieve was to hold the remaining Idaho customers of PacifiCorp, those
other than Monsanto, indifferent to the change in status of Monsanto. Put another
way, we sought to keep the revenue requirement allocated to the non-Monsanto
Idaho customers the same under the situs method as under the current system
method.

Q WHAT WERE THE RESULTS OF THIS “HOLD HARMLESS” METHOD?
A Again, Ms. Iverson supports the analysis. The percentage of demand that we arrived
at was 34% of full demand and the indicative result for serving Monsanto was $21.70
Testimony of Dr. Alan Rosenberg – Page 26 BRUBAKER & ASSOCIATES, INC.
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per MWh under the Company’s cost study. The cost for serving Monsanto is even
less under the alternative cost studies.

Use of Historical Rate Differential 3
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Q DID YOU NOTE THAT ANOTHER METHOD FOR DETERMINING A REASONABLE
RATE FOR AN INTERRUPTIBLE LOAD SUCH AS MONSANTO’S IS BY TAKING
A COST BASED FIRM RATE AND SUBTRACTING FROM IT THE AVERAGE
DIFFERENTIAL PACIFICORP USES BETWEEN FIRM AND INTERRUPTIBLE
SERVICE?
A Yes.

Q WHAT IS THE AVERAGE DIFFERENTIAL BETWEEN PACIFICORP’S FIRM
CONTRACT RATES AND ITS INTERRUPTIBLE CONTRACT RATES?
A Based on the information we received from PacifiCorp the average differential is
anywhere from $8.27 per MWh to $8.98 per MWh, depending upon which data
response is used. The calculations are shown on my Exhibit 222.

Q BASED ON THIS ANALYSIS WHAT WOULD BE THE INDICATIVE DIFFERENTIAL
BETWEEN FIRM AND INTERRUPTIBLE SERVICE FOR PURPOSES OF THIS
PROCEEDING?
A Based on this analysis an appropriate discount to firm service would be $9.00 per
MWh. As supported by Ms. Iverson’s evidence, the firm cost of serving Monsanto is
approximately $26.10 per MWh, the indicated interruptible rate by this standard would
be $26.10 less $9.00 or approximately $17.10 per MWh.
Testimony of Dr. Alan Rosenberg – Page 27 BRUBAKER & ASSOCIATES, INC.

Resources Saved and Avoided 1
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Q WHAT WOULD BE A REASONABLE DISCOUNT TO FIRM SERVICE BASED ON
THE RESOURCES SAVED OR AVOIDED BY THE INTERRUPTIBILE NATURE OF
THE SERVICE?
A There are two ways that a utility can reduce its revenue requirement by providing
interruptible service as opposed to firm service. The first way is the avoided fixed
cost of a peaking resource, simply by having the ability to interrupt the customer. I
call this potential savings, because it is not even necessary to interrupt the customer
to realize these savings. The potential savings can be thought of as an insurance
policy and the discount to the interruptible customer as the premium. In addition to
these savings, the utility could realize even more savings when the customer is
actually interrupted. These additional savings are related to the avoided cost of
production or purchases that would have to be made were it not for the interruption.
While the latter savings are a function of market prices, and therefore difficult to
predict, the potential savings can be readily estimated.

Q HAS MR. TAYLOR ESTIMATED A REASONABLE DISCOUNT TO A FIRM RATE
BASED ON RESOURCE SAVINGS?
A Strangely enough he has not done so for Monsanto. However, in the Magcorp case
he did estimate a discount based on avoided capacity costs of $6.00 per MWh.

Q DO YOU AGREE WITH THAT FIGURE?
A No, I believe that figure is materially understated. In the first place, the fixed cost of
the capacity resource Mr. Taylor used did not comport with the fixed costs used in
RAMPP-6. In the second place, Mr. Taylor ignored the concept of reserve margin. A
Testimony of Dr. Alan Rosenberg – Page 28 BRUBAKER & ASSOCIATES, INC.
1 MW reduction in load avoids the need for more than 1 MW of capacity. Finally, Mr.
Taylor translated the avoided costs into a "per kWh" discount by using a 92% load
factor. The load factor used for Monsanto is approximately 85%.
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Q HAVE YOU ESTIMATED THE RESOURCE SAVINGS ATTRIBUTABLE TO THE
ABILITY TO INTERRUPT MONSANTO?
A Yes. In Chapter 3 of the Company’s most recent planning document, RAMPP – 6,
the Company provides fixed cost estimates of potential resources. The smallest
estimate for a peaking resource was for a simple cycle CT at a cost of $73.48 per kW-
year. This figure should be adjusted for reserve margin requirements because 1 MW
of additional load requires more than 1 MW of additional capacity. On a conservative
basis, I have used 10%, which is in the Company’s base case reserve margin.5 This
brings the capital cost of a peaking resource to $80.83 per kW-year. If we express
this figure at an 85% annual load factor that Monsanto exhibits, and also adjust for a
3% loss factor, we get a resource savings of $11.00 per MWh. Again, using the
$26.10 per MWh firm rate for serving Monsanto, this would indicate an interruptible
rate of $15.10 per MWh.

Q DO YOU BELIEVE THAT MONSANTO'S AVAILABILITY FOR INTERRUPTION
MAKES SUCH A COMPARISON, TO A SIMPLE CYCLE COMBUSTION TURBINE,
REASONABLE?
A Yes. Peaking units, because of their high running costs, normally run for a relatively
few number of hours per year. In RAMPP-6, the all-in cost for a combustion turbine is
calculated at a 15% capacity factor. Under the interruption terms offered by Mr.
Schettler, Monsanto could potentially be interrupted for approximately 800 hours per
5 In other scenarios, the Company’s reserve margin is as high as 18%.
Testimony of Dr. Alan Rosenberg – Page 29 BRUBAKER & ASSOCIATES, INC.
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year. While 800 hours is less than 15%, it is close enough to make a comparison
meaningful.
Furthermore, a combustion turbine does not always start up when it is only
called upon sporadically. In contrast, Monsanto is fairly certain to have a large load
that can be interrupted without fail.

Q ARE THERE ANY FACTORS WHICH WOULD MAKE THE INTERRUPTIBILITY
PROVIDED BY MONSANTO MORE VALUABLE TO PACIFICORP THAN A
COMBUSTION TURBINE?
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A Absolutely. As noted in a May 13, 2002 "Discussion Document", authored by Gordon
McDonald, Regulation Manager of PacifiCorp:
The divisions would have had to purchase peak power or build
additional resources, both of which carry substantial risks. [Emphasis
added]
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For example, building a combustion turbine to meet its capacity requirements would
entail:
• Gas purchase risks
• Siting and community acceptance risks
• Equipment reliability risks
• Cost overrun risks
• Regulatory risk
• Credit risk

If it purchased the capacity, it would entail transmission risk. Of course, PacifiCorp
would seek to transfer those risks to its customers, including those in Idaho. All these
risks would be avoided by utilizing Monsanto's interruptibility as a resource.

Testimony of Dr. Alan Rosenberg – Page 30 BRUBAKER & ASSOCIATES, INC.
Q THE $15.10 PER MWH APPEARS AT THE LOWER END OF YOUR RANGE OF
JUST AND REASONABLE COST ESTIMATES FOR SERVING MONSANTO’S
INTERRUPTIBLE LOAD. IS THIS ESTIMATE AN ANOMOLY?
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A No, I do not believe so. In fact, one could even conclude that the $11 per MWH
resource savings may be conservative, for the following reasons:
• The cost of operating reserves in PacifiCorp’s FERC Open Access
Transmission Tariff is $12 per kW-month, or $144 per kW-year, considerably
higher than the $73.48 per kW-year derived from the RAMPP-6 study.
• The $11 per MWH savings for capacity costs does not include any energy
cost savings for interrupting during periods of high market prices.
• The $11 figure does not contemplate any additional cost savings for
transmission because of interruptibility.

Q ARE YOU AWARE THAT THE $12 PER KW FIGURE FOR OPERATING
RESERVES HAS BEEN SUPPLANTED BY A MORE RECENT APPLICATION TO
FERC?
A Yes. Nevertheless the $12 per kW per month price cap was based on PacifiCorp’s
incremental cost of capacity at certain generating facilities capable of providing
reserves at the time of its 1996 rate case as the FERC.

Q WOULD INTERRUPTING MONSANTO PROVIDE PACIFICORP WITH
PURCHASED POWER SAVINGS IN ADDITION TO THE CAPACITY COST
SAVINGS?
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A Definitely. For example, in justifying its proposed Gadsby project, Ms. Janet
Morrison, Director of Resource Planning for PacifiCorp, submitted an Exhibit which
stated in part:
Because the project will begin to immediately displace higher cost
market purchases once it is operational, it provides an after-tax NPV of
$7.1 million above the regulated rate of return.
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Testimony of Dr. Alan Rosenberg – Page 31 BRUBAKER & ASSOCIATES, INC.

Q HAVE YOU ESTIMATED THE PURCHASE POWER SAVINGS THAT PACIFICORP
MAY POTENTIALLY DERIVE, BASED UPON THE ECONOMIC CURTAILABILITY
OFFERED BY MONSANTO'S PROPOSAL?
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A Yes. Of course, the calculated savings depend upon which furnaces were curtailed
and what market prices were like. Were this feature available in 1999, I estimate
PacifiCorp could have saved anywhere from approximately $850,000 up to almost
$1.5 million. Last year, in 2001, PacifiCorp could have saved between $7 million and
$12.7 million.

Q HAVE YOU FACTORED IN THESE POTENTIAL PURCHASE POWER SAVINGS IN
YOUR ANALYSIS OF A CONTRACT RATE FOR MONSANTO?
A No, I have not. For one thing, the amount is uncertain. For another thing, a portion of
those savings may be given back with buy-throughs.

Q WHAT WOULD BE A FAIR AND REASONABLE INTERRUPTIBLE RATE BASED
SOLELY ON THE CAPACITY RESOURCE SAVINGS?
A Based on my analysis, a fair and reasonable rate would be the firm rate of $26.10
less the resource savings of $11.00, or $15.10 per MWh.

Testimony of Dr. Alan Rosenberg – Page 32 BRUBAKER & ASSOCIATES, INC.
Variable Cost Plus Fixed Cost Adder 1
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Q THE LAST METHOD YOU MENTION FOR ARRIVING AT A REASONBLE RATE
FOR SERVING INTERRUPTIBLE LOAD IS TO ADD A JUDGEMENTAL ADDER
TO THE VARIABLE COST OF SERVING MONSANTO. WHAT IS THE VARIABLE
COST OF SERVING MONSANTO?
A Based on cost information supplied by the Company, Ms. Iverson has derived a
variable cost of serving Monsanto of $14 per MWh. I would also note that this
determination is not dependent upon the usually controversial issues dealing with the
allocation of fixed, as opposed to variable, costs. Consequently, the $14 per MWh
can be used with a fair degree of confidence.

Q IN YOUR OPINION WHAT WOULD BE A REASONABLE FIXED COST
CONTRIBUTION TO ADD TO THAT IN ORDER TO ARRIVE AT A TOTAL
INTERRUPTIBLE RATE FOR MONSANTO?
A Clearly, that is a matter of judgment. In its application to the Idaho Commission for
approval of the existing contract (Point #9), PacifiCorp estimated a range for
contribution to fixed costs over the term of the contract of $25 million to $100 million.
Since PacifiCorp represented that this contract would extend from November 1, 1995
until December 31, 2001 and allow for approximately 1,656,000,000 kilowatts
annually, I calculate that this translates to a fixed cost contribution of between $2.44
per MWh and $9.80 per MWh. PacifiCorp characterized the new contract as
providing "substantial benefits to Utah Power's other customers." The Commission
found the new agreement to be fair, just and reasonable. Based on that, and also
partly on my own general experience, I would say that a fixed cost adder of $5.00 per
MWh would be both appropriate and adequate.

Testimony of Dr. Alan Rosenberg – Page 33 BRUBAKER & ASSOCIATES, INC.
Summary and Recommendation 1
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Q PLEASE SUMMARIZE THE RANGE OF PRICES/COSTS THAT COULD SERVE
AS A GUIDELINE FOR A REASONABLE CONTRACT PRICE FOR MONSANTO?
A These are summarized, from highest to lowest, on the following table:

TABLE 5

Summary of Interruptible Rate Benchmarks

Rate ($ per MWH)
Other Interruptible Contracts $23.60
Short-Term Power Cost in Current Rates $21.50
Magcorp Contract (new)6 $21.00
50% of Demand Cost* $19.60
Variable Cost + Fixed Cost Contribution $19.00
Current Contract $18.50
Hold Harmless Method* $18.50
Historic Rate Differential $17.10
Resource Savings $15.10
Variable Cost Only
* Includes 9 MW of firm power
$14.00

Because the proposed Monsanto contract affords PacifiCorp much more value (and
hence lower cost) than other interruptible contracts I would tend to discount the
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6 The Magcorp contract price is included in "Other Interruptible Contracts." However, because of the
similarities to the Monsanto situation, and because it was fully litigated, this indication is of special
relevance.
Testimony of Dr. Alan Rosenberg – Page 34 BRUBAKER & ASSOCIATES, INC.
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relevance of the $23.60 figure. Also, I would be hesitant to recommend a rate lower
than that indicated by the resource savings analysis. Consequently, a priori a valid
range would be from a low of $15.10 per MWh to a high of $21.50 per MWH.

Q IN LIGHT OF YOUR ANALYSIS, WHAT WOULD BE A JUST, FAIR AND
REASONABLE RATE FOR SERVING MONSANTO ON AN INTERRUPTIBLE
BASIS?
A In my opinion, a figure toward the lower end of the range is fully justifiable. I
recommend an interruptible rate of $19.00 per MWh. I come to this conclusion based
on the following considerations:
• Other than the possibility of possible external power purchases, PacifiCorp
has not evidenced an increase in its cost of generation and transmission since
1995. Even the expensive power purchase may be an anomaly.
• The current rate has been found to be fair, just and reasonable.
• Under the new terms and conditions Monsanto is proposing, PacifiCorp will
have increased opportunity to interrupt Monsanto. Specifically, PacifiCorp will
be able to interrupt for economic reasons and to gain operating reserves; not
only in system emergencies as in the current contract.
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• Monsanto's proposed interruptibility features would make it more valuable to
PacifiCorp than the recently approved contract with Magcorp. These features
include:
o Over twice as much load as Magcorp.
o Monsanto can be interrupted in several minutes, versus a two-hour
notification requirement for Magcorp.
o By having the ability to shut down 1, 2, or all 3 furnaces, PacifiCorp
is afforded a greater degree of flexibility.
• Because not all three furnaces would be interrupted simultaneously (except
for system emergencies), the rate should be somewhat above the absolute
lowest end of the range.

Testimony of Dr. Alan Rosenberg – Page 35 BRUBAKER & ASSOCIATES, INC.
VI. THE COST OF SERVING MONSANTO AS A FIRM LOAD 1
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Q HOW DID MS. IVERSON ARRIVE AT THE COST OF SERVING MONSANTO AS A
FIRM LOAD?
A Ms. Iverson’s starting point was the Jurisdictional Allocation Model (JAM) and Idaho
Retail cost of service models supplied by PacifiCorp. It should be noted that this
study, as would be expected of a cost study put together by the Company, reflects all
of the expenses and investments that are being claimed by PacifiCorp. In other
words, these are the expenses and rate base that the Company could be expected to
claim if it were filing a rate case with a 1999 test year.

Q DO UTILITIES NORMALLY GET ALL OF THEIR CLAIMED EXPENSES AND RATE
BASE APPROVED BY REGULATORS?
A No, they do not. Moreover, PacifiCorp in particular has only received a fraction of its
claimed costs (or equivalently its claimed revenue requirement) in other jurisdictions.
My Exhibit 223 shows the increases the PacifiCorp has sought in recent history and
the final outcome of those requests. Nevertheless, Ms. Iverson and I have not made
any explicit disallowances or exclusions to the full costs and investment contained in
the study. As a consequence, the indicated cost of serving Monsanto, in either the
Company’s analysis or in ours, is most certainly overstated.

Q ARE THERE ARE OTHER REASONS TO BELIEVE THE COSTS REFLECTED IN
THE COMPANY STUDY MAY BE OVERSTATED?
A Yes. When ScottishPower purchased PacifiCorp, it was anticipated that there would
be considerable savings. None of those savings appear to be reflected in the study.
Moreover, a full-blown investigation of PacifiCorp’s allowed expenses is probably
outside the scope of this proceeding.
Testimony of Dr. Alan Rosenberg – Page 36 BRUBAKER & ASSOCIATES, INC.

Q MS. IVERSON FOUND THAT THE FULLY ALLOCATED COST FOR SERVING
MONSANTO IS $26.10 PER MWH. SHOULD ANY FURTHER ADJUSTMENTS BE
MADE TO THAT?
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A There could be. As noted before, Monsanto made a contribution of $30 million to
PacifiCorp as a condition for entering into the current contract. PacifiCorp states that
it amortized this contribution, and that therefore there is no balance left to be credited.
Consequently, it has not reflected this $30 million whatsoever in its calculations. I
disagree with that approach.

Q WHY DO YOU DISAGREE WITH PACIFICORP’S TREATMENT OF THE $30
MILLION MONSANTO CONTRIBUTION?
A In Point 12 of the Company’s application in Case No. UPL-E-95-4, seeking approval
of the current contract with Monsanto, PacifiCorp itself stated:
Utah Power does not seek a determination at this time on the
ratemaking treatment applicable to Monsanto’s $30 million payment or
other rates and changes under the New Agreement. The Company
requests that all ratemaking issues be reserved for a rate case.

On page 2 of Order No. 26282, the Idaho PUC duly noted, and implicitly accepted,
PacifiCorp’s representation of that treatment. However, this is not what PacifiCorp
has done. By amortizing the $30 million it has essentially preempted this promise
and taken the entire $30 million as additional profit for its shareholders.

Testimony of Dr. Alan Rosenberg – Page 37 BRUBAKER & ASSOCIATES, INC.
Q DID PACIFICORP EVER SEEK A DETERMINATION FROM THE COMMISSION AS
TO HOW TO TREAT THE $30 MILLION PAYMENT BY MONSANTO?
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A No. (Reference the Company response to Monsanto Data Request No. 25). It
amortized the $30 million payment in annual reports to the Commission, and smugly
treated the Staff's silence as approval.

Q WAS AMORTIZING THE $30 MILLION OVER THE LIFE OF THE CURRENT
CONTRACT CONTEMPLATED BY THE COMMISSION?
A Obviously not. If it was contemplated, it would not make any sense for the
Commission to explicitly make the observation that a determination on treating the
$30 million "be reserved for a (future) rate case." It would already have been
determined.

Q WHAT ARE THE IMPLICATIONS OF POINT 12 OF THE COMPANY'S
APPLICATION IN CASE UPL-E-95-4?
A The implications are two-fold. First, it is highly presumptuous for PacifiCorp to claim
the benefits for the entire $30 million solely for its stockholders. Second, at least a
portion of the $30 million should arguably be available to offset rates for Idaho
customers. I just wanted to bring this to the attention of the Commission, even
though I have made no adjustment to Monsanto’s proposed rate relating to the $30
million.

Q WHAT MODIFICATIONS MIGHT BY APPROPRIATE TO THE RESULTS
INDICATED BY THE COST OF SERVICE STUDY?
A In this case, PacifiCorp has unabashedly requested an increase of 70% compared to
the current rate. The evidence of Ms. Iverson and myself suggest a much smaller
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increase is warranted. If however, for some reason, the Commission finds
PacifiCorp’s arguments more persuasive, it would be appropriate to moderate the
strict results of the cost study to moderate the increase.

Q DOES PACIFICORP SUBSCRIBE TO THIS PRINCIPLE OF MODERATION?
A In theory it appears to. For example, in the direct testimony of PacifiCorp witness
James Z. Zhang in Idaho Docket PAC-E-0201, rate schedules falling outside a plus or
minus 5% cost of service bandwidth were adjusted to the outer edges of the
bandwidth as a way to “balance cost of service precision and appropriate cost
responsibility”. In a recent Wyoming rate case, the Company made a similar proposal
to use a 95/105 bandwidth because it produced “reasonable results”. In that case
“reasonable” was interpreted as no major rate schedule receiving an increase greater
than two times the overall average.

Q WHY WAS THE 5% TOLERANCE BANDWIDTH NOT APPLIED IN THIS CASE?
A According to the Company, it was not applied because the Monsanto price is being
established outside the context of a general rate case.

Q DO YOU AGREE WITH PACIFICORP’S RATIONALE IN THIS REGARD?
A No. Frankly, I find the reasoning quite strained. In the first place, why should the
avoidance of unduly disruptive rates be any less important in this proceeding than
they would be in a general rate case? Secondly, in this case the “overall average”
increase for Idaho is actually a decrease as shown on Exhibit 223. Third, I would
note that PacifiCorp extolled the virtues of rate stability in Case PAC-E-02-1, despite
the fact that that was not a general rate case. Finally, in a case where there is no
“general rate case”, and hence no detailed scrutiny and oversight of the Company’s
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Testimony of Dr. Alan Rosenberg – Page 39 BRUBAKER & ASSOCIATES, INC.
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claimed expenses, it is that much more important to have a customer safeguard
against cost imprecision.

VII. SUGGESTED TERMS AND CONDITIONS FOR THE NEW CONTRACT 3
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Q MR. TAYLOR STATES THAT HE ONLY SUPPORTS HIS RATE IF THE
MONSANTO CONTRACT IS SUBJECT TO THE SAME LEVEL OF PRICE
CHANGES AS THE COLLECTIVE CHANGE IN BASE RATES FOR ALL OTHER
IDAHO CUSTOMERS. DO YOU AGREE WITH HIS SUGGESTION?
A No. In the first place, this would be contrary to precedent. The Monsanto contract
has always been fixed for the term of the contract. In fact, I am not aware of any
other non-tariff contract that PacifiCorp has with any of its large industrial customers
that calls for such an escalation.
Second, such a provision would defeat one of the purposes of the contract,
namely to provide a degree of price stability.
Third, other tariffs could increase for reasons that have nothing to do with the
cost of serving Monsanto. For example, suppose that the price of general service
increases because PacifiCorp experiences an increase in distribution costs. Since
Monsanto is not served by distribution facilities – but only transmission facilities – it
would be inappropriate to extrapolate that increase to Monsanto.
Finally, I would note that Mr. Taylor is inconsistent with his application of the
“parallel” escalation principle. If he truly believed in the validity of the principle, he
should be advocating a new contract price for Monsanto equal to that of the present
rate, adjusted for the level of change in base rates since 1995, and not the 70%
increase he is seeking.

Testimony of Dr. Alan Rosenberg – Page 40 BRUBAKER & ASSOCIATES, INC.
Q MR. SCHETTLER RECOMMENDS THAT THE TERM OF THE NEW CONTRACT
BE NO LESS THAN FIVE YEARS. DO YOU FIND THAT PROPOSAL TO BE
REASONABLE?
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A Yes. Such a term would provide benefits to both parties. This would give Monsanto
the price stability it needs while also providing PacifiCorp the certainty of having this
interruptible resource for planning purposes. Moreover, paragraph 2.3 of the
proposed contract allows for renegotiations in the event of significant changes in
either the elemental phosphorous industry or PacifiCorp's cost structure.

Q IS IT YOUR SUGGESTION THAT THE NEW CONTRACT ALLOW PACIFICORP
TO INTERRUPT MONSANTO FOR ECONOMIC REASONS AS WELL AS FOR
RELIABILITY CONSIDERATIONS?
A Yes, with three provisos. First, the number of calls for interruption should be limited
to those proposed by Mr. Schettler. This should give PacifiCorp sufficient latitude to
curb its peak demands and potentially limit its exposure to high price purchases as
well. Second, Monsanto should be given the option of buying through any economic
interruption at the firm Mid-C index price plus $2 per MWh for transmission. This
would give Monsanto the opportunity for making economic decisions while at the
same time serve to protect the Company as well. Third, Monsanto should not be
interrupted significantly more than comparable interruptible customers on PacifiCorp’s
system.

Q DOES THIS CONCLUDE YOUR TESTIMONY AT THE PRESENT TIME?
A Yes.
7402/30552
Testimony of Dr. Alan Rosenberg – Page 41 BRUBAKER & ASSOCIATES, INC.

Appendix A

QUALIFICATIONS OF DR. ALAN ROSENBERG
Q PLEASE STATE YOUR NAME AND BUSINESS ADDRESS. 1
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A Dr. Alan Rosenberg. My business mailing address is P. O. Box 412000, 1215 Fern
Ridge Parkway, Suite 208, St. Louis, Missouri 63141-2000.

Q WHAT IS YOUR OCCUPATION?
A I am a consultant in the field of public utility regulation and am a principal in the firm of
Brubaker & Associates, Inc., energy, economic and regulatory consultants.

Q PLEASE STATE YOUR EDUCATIONAL BACKGROUND AND EXPERIENCE.
A I was awarded a Bachelor of Science Degree from the City College of New York in
1964 and a Doctorate of Philosophy in Mathematics from Brown University in 1969.
Subsequently, I held an Assistant Professorship of Mathematics at Wesleyan
University in Connecticut. In the summer of 1975, I was a Visiting Fellow at Yale
University. From July, 1975 through January, 1981, I was Assistant Controller for a
division of National Steel Products Company. My responsibilities there included
supervision of management accounting, cost accounting and data processing
functions. I was also responsible for internal control, working capital levels, budget
preparation, cash flow forecasts and capital expenditure analysis. From February,
1981, through December, 1981, I was Project Manager of the Steel Fabricating and
Products Group, National Steel Corporation, responsible for implementing an
integrated general ledger system. I have published in major academic journals and
am a member of the International Association for Energy Economics.

BRUBAKER & ASSOCIATES, INC.
Appendix A
Dr. Alan Rosenberg
Page 2

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In January, 1982, I joined the firm of Drazen-Brubaker & Associates, Inc., the
predecessor of Brubaker & Associates. Since that time, I have presented expert
testimony on the subjects of industry restructuring, open access transmission,
marginal and embedded class cost of service studies, prudence and used and useful
issues, electric and gas rate design, revenue requirements, natural gas transportation
issues, demand-side management, and forecasting.
I have previously testified before the Federal Energy Regulatory Commission
as well as the public service commissions of Arizona, Connecticut, Delaware, Florida,
Illinois, Iowa, Massachusetts, Michigan, Montana, New Jersey, New Mexico, New
York, Ohio, Pennsylvania, Rhode Island, Vermont, Virginia, Wyoming and the
Provinces of Alberta, British Columbia, Nova Scotia, and Saskatchewan in Canada. I
was an invited speaker at the NARUC Introductory Regulatory Training Program and
a panelist at a conference on LDC and Pipeline Ratemaking sponsored by the
Institute of Gas Technology. I have presented a paper on stranded costs at the 21st
Annual International Conference of the International Association for Energy
Economics. I have had a paper on transmission congestion pricing published in The
Electricity Journal. I have also spoken at several conferences on the topic of
competitive sourcing of electricity for industrial users.
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In addition to our main office in St. Louis, the firm also has branch offices in
Denver, Colorado; Chicago, Illinois; Asheville, North Carolina; Kerrville, Texas; and
Plano, Texas.

BRUBAKER & ASSOCIATES, INC.