Irrigation Pumpers Brief.pdf

Eric L. Olsen ISB# 4811
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED
O. Box 1391; 201 E. Center
Pocatello, Idaho 83204-1391
Telephone: [phone]
Fax: [phone]
Attorneys for Intervenor
Idaho Irrigation Pumpers Association, Inc.
RECEIVED IT)FILED
2102 ocr 15 PH~: 02
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j CunUTIES CGi'1f;ISSI~,
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF PACIFICORP DBA UTAH POWER
LIGHT COMPANY FOR APPROVAL OF
INTERIM PROVISIONS FOR THE SUPPLY
OF ELECTRIC SERVICE TO MONSANTOCOMPANY
Case No. PAC-Ol-
IDAHO IRRIGATION PUMPERS
ASSOCIATION, INC.
POST-HEARING BRIEF
COMES NOW the Idaho Irrigation Pumpers Association, Inc. ("Irrigators ), by and through
counsel of record, Eric L. Olsen, and hereby respectfully submits its Post-Hearing Brief.
INTRODUCTION
In PAC-02-, the Commission recently approved a Stipulation among PacifiCorp,
Commission Staff ("Staff'), Monsanto Company ("Monsanto ), and the Irrigators. (Commission
Order No. 29034.Similar to the shortsighted policy pursued toward Monsanto in this case
PacifiCorp sought in P AC- E-02-0 1 to terminate the longstanding firm and interruptible tariff for the
irrigation class, impose a firm tariff schedule set solely on cost of service principals, and subordinate
any interruptible provisions for the irrigation class to short term power purchases under separate
agreements outside the firm tariff. (Case No. P AC-02-0l; Taylor (Dir), p. 6-) The Irrigators
IDAHO IRRIGATION PUMPERS ASSOCIATION, INC.'S POST-HEARING BRIEF -
were able to agree to the removal of the interruptible tariff in PAC-02-0l primarily because the
extraordinary BP A exchange credit made the use of an interruptibility credit 1 to lower rates
unnecessary. (Yankel (Dir), Tr. VoL VI, p. 756, 1. 1-11.) However, take away the BP A exchange
credit and any fixed creal/for interruptibility and the Irrigators could have been confronted with the
rate shocK-and price uRcertatnij1that Monsanto is faced with in this case. (See /d)
Inevitably, the Irrigators felt compelled to intervene and participate in this case because
PacifiCorp continues to implement its myopic internal policies that would (1) eliminate all
interruptible rates, (2) price all customers at "firm" rates set solely on cost-of-services methods in
contravention ofldaho law, and (3) give PacifiCorp the sole discretion of buying back interruptions
pursuant to short-term agreements at market prices which are unknown and volatile. PacifiCorp
policy shift, if adopted by the Commission, will have a dramatic, adverse effect on PacifiCorp
customers (i) by not appropriately pricing interruptible, Demand Side Management ("DSM"
resources, (ii) foreclosing the use of interruptibility as an appropriate rate making tool and taking
advantage of the system benefits it provides, and (iii) taking away price certainty that is needed for
all PacifiCorp customers to make appropriate, long-term planning and investment decisions.
Although at the very end of this case PacifiCorp changed its position to some extent by
agreeing to interruptible rates, the Commission s answers to the remaining questions presented for
decision in this proceeding will still shape energy policy of consequence to all ofldaho' s PacifiCorp
customers, not just Monsanto, into the foreseeable future. As such, the Irrigators would like to
1n response to the Irrigators' concerns over losing its interruptible tariff, the
Stipulation provides that PacifiCorp would discuss individual load control contracts with large
farmers for the 2002 irrigation season and PacifiCorp agreed to cooperate with the Irrigators to
develop an optional load control program for the 2003 irrigation season and thereafter. (PAC -02-
01; Stipulations, ,-r 9.) This program is too be filed with the Commission by January 31 , 2003. (!d.
IDAHO IRRIGATION PUMPERS ASSOCIATION, INC.'S POST-HEARING BRIEF - 2
address three general areas that the Commission must consider in its decision making process in this
case.
INTERRUPTffiILITY IS A CRUCIAL DEMAND SIDE
MANAGEMENT AND RATE MAKING TOOL
In its most recent integrated resource plan, PacifiCorp recommitted itself to the utilization
of Demand Side Management ("DSM") programs/resources to meet its current and future resource
needs. (RAMPP-, Exec. Sum., p. ii.) Here, PacifiCorp acknowledges that Monsanto and other
interruptible customers are appropriately viewed as a DSM resource, (Griswold (Dir.), Tr. VoL II
p. 30, 1. 10-22 & Ex. 4, p. 31 , 1. 1-3; Watters (Reb.), Tr. VoL II, p. 142 1. 1-15 & Ex. 12), which
provides various benefits to PacifiCorp s system, (Watters (X), Tr. II, p. 173-179; Taylor (Dir), VoL
III, p. 217, 1. 9-11; Schunke (Dir), VoL VI, p. 718, 1. 4-20; Yankel (Dir), VoL VI, p. 754, 1. 2-7).
Notwithstanding its public commitment to DSM planning and its acknowledgment ofthe benefits
of the DSM resource provided by Monsanto s interruptible load, PacifiCorp has concurrently
pursued an internal policy of systematically eliminating all long-term interruptible contracts on its
system and replacing them with short-term purchases of interruptibility on an as-needed basis.
(Griswold (X), Tr. II, p. 81-83 & Ex. 240.) This incongruity between PacifiCorp s DSM policy in
theory and how its implements such policy in practice is a direct result ofPacifiCorp s erroneous
views of interruptibility as a DSM resource.
PacifiCorp states that interruptible rates, such as Monsanto , are only appropriate in times
when it has sufficient excess capacity or when market prices are well below embedded costs.
(Taylor (Dir), VoL III, p. 217 - 218 1. 3-20 & 1-12.) This view may make sense when applied to
economic incentive contracts or for contracts where customers have alternative energy supplies
because the benefit of such contracts is to use up available capacity and thereby make a contribution
IDAHO IRRIGATION PUMPERS ASSOCIATION, INC.'S POST-HEARING BRIEF - 3
to system fixed costs over and above the related variable costs. (Yankel (Dir), VoL VI, p. 755 , 1. 1-
10.) However, this logic fails when applied to Monsanto and other interruptible customers because
interruptibility benefits PacifiCorp s system irregardless of system capacity or market prices in
relation to embedded costs by lowering overall system costs and providing other benefits. (/d;
Schunke (Dir), VoL VI, p. 715 , 1. 1-19.) The record shows that Monsanto and other interruptible
customers provide benefits to PacifiCorp' s system by providing a valuable DSM resources that can
(1) displace market purchases by PacifiCorp in times of volatile market prices and thereby flatten
peak demand on the system, (2) reduce the need for peaking facilities on PacifiCorp s system, (3)
provide a resource for system integrity purposes and, possibly, for operating reserve purposes, and
(4) improve market efficiency and minimize PacifiCorp s exposure to energy market volatility.
(Watters (X), Tr. II, p. 173-179; Taylor (Dir), VoL III, p. 217, 1. 7-11; Schunke (Dir), VoL VI, p. 715
& 718 1. 8-19 & 4-20; Yankel (Dir), VoL VI, p. 754-755, 1. 1-21 & 1-18).
In addition to these system benefits, interruptible customers benefit from lower electricity
prices associated with interruptible loads. (Yankel (Dir), VoL VI, p. 754 1.2-) These lower prices
given in exchange for lower quality electrical service and the benefits provided to PacifiCorp
system, allow customers like Monsanto or the Irrigators to remain competitive in today s tough
business environment. (Schettler (Com), VoL V, p. 463-466.) As such, interruptibility provides the
Commission with a valuable rate making tool to use in times of escalating electricity prices. (Taylor
(X), VoL III, p. 254, 1. 5-, p. 255, 1. 1.) The Irrigators' recent stipulation in P AC-02-01 for the
removal of its interruptible tariff for practical purposes does not diminish the advantages
interruptibility provides as a rate making tool and as a DSM resource. (Yankel (Dir), VoL VII
755 , 1.18-, p. 756, 1. 1-11). Upon the expiration of the extraordinary BPA exchange credit in
IDAHO IRRIGATION PUMPERS ASSOCIATION, INc.'S POST-HEARING BRIEF - 4
2007, the Commission will of necessity be asked by the Irrigators to address interruptibility in the
context of the sound regulatory policy that Irrigators believe the Commission will adopt in this case.
SYSTEM TREATMENT OF MONSANTO'S INTERRUPTffiLE LOAD
SHOULD CONTINUE UNDER AN INTEGRATED LONG TERM CONTRACT
PacifiCorp has sought in this proceeding to change Monsanto s treatment from a system
customer to that of a firm situs/tariff customer that would in turn enter into a separate, short term
agreements with PacifiCorp for the acquisition of various DSM interruptible resources. (Griswold
(Reb), Tr. VoL II, p. 40-42; Taylor (Dir), Tr. VoL III, p. 218 , 1. 13-, p. 219, 1. 1-12.) Although
Monsanto s and PacifiCorp s positions on these issues did converge at the end of the hearing,
(Griswold, (Dir-Reb), Tr. VoL VII, pp. 882-825), it still must be understood that PacifiCorp
reasoning behind its policy shift away from interruptible customers is either premature or unsound.
First, PacifiCorp opposes system treatment of Monsanto and other interruptible customers
because of the disparate results these special contracts have received in recent rate cases in the
various jurisdictions on its system. (Taylor (Dir), Tr. VoL III, p. 218, 1. 16-, p. 219 , 1. 1-
However, this issue is not ripe for the Commission to decide at this time given the fact that this inter-
jurisdictional issue is currently being addressed by the various states in PacifiCorp s Multi-State
Process ("MSP"
).
(Schunke (Dir), Tr. VoL VI, p. 720 1. 11-, p. 720, 1. 1; Yankel (Dir), Tr. VoL
, p. 759 1. 20-, p. 760, 1. 1-) Thus, as a matter of regulatory efficiency, the Commission
should let the MSP run its course and then address the issue in a general rate case. (Schunke (Dir),
Tr. VoL VI, p. 720 1. 16-, p. 721 , 1. 1.)
Second, PacifiCorp favors situs treatment and the application of cost-of-service principals
to Monsanto because it views the "contribution to fixed cost" pricing standard as no longer
applicable in pricing interruptibility. (Taylor (Dir), Tr. VoL III, p. 219, 1. 5.) However, cost-of-
IDAHO IRRIGATION PUMPERS ASSOCIATION, INC.'S POST-HEARING BRIEF - 5
service principals also fall short when trying to model Monsanto s interruptible contract load on a
situs basis because of the possible detrimental affects on Monsanto or the other customer classes.
(Schunke (Dir), Tr. VoL VII, p. 713, 1. 25-, p. 714, 1. 1-, p. 716, 1. 17-, p. 717 1. 1-6; Yankel
(Dir), Tr. VoL VII, p. 758, 1. 18-, p. 759, 1. 1-18.) If Monsanto s credit for interruptibility is
determined only on the basis of the benefits provided to Idaho, then Monsanto s rates will be too
high because the remainder of the Idaho jurisdiction is too small to fully utilize the benefits
Monsanto s interruptibility provides. (Yankel (Dir), Tr. VoL VI, p. 758, 1. 18-, p. 759, 1. 1-18.
In contrast, if Monsanto s credit for interruptibility is based on the resulting system benefits, then
the other Idaho customer classes may be required to make up an Idaho jurisdictional revenue
shortfall that would not exist under system treatment because Monsanto would be viewed as below
cost-of-service. (Schunke (Dir), Tr. VoL VII, p. 716 1. 17-, p. 717, 1. 1-6; Yankel (Dir), Tr. VoL
VII, p. 758, 1. 18-, p. 759, 1. 1-18.) Given the difficulty in modeling Monsanto s interruptible load
with cost-of-service principals and the fact that Monsanto s interruptibilityprimarily provides system
wide benefits, continued system treatment of Monsanto by the Commission is the most prudent
course of action.
Finally, PacifiCorp has rejected the use of long term contracts to set the value
interruptibility, and further contends that the value of interruptible DSM resources are more
appropriately determined under separate, short term agreements in light of the recent volatility in the
wholesale power markets. (Taylor (Dir), Tr. VoL III, p. 219, 1. 5-12.) However, this policy destroys
price certainty that business customers such as Monsanto and the Irrigators need to plan their
operations. (Yankel (Dir), Tr. VoL VI, p. 761 , 1. 2-17.) The use oflong term contracts and the rate
making procedure before the Commission give customers price certainty and aids in their efficient
IDAHO IRRIGATION PUMPERS ASSOCIATION, INC.S POST-HEARING BRIEF - 6
use of electricity. (/d) Further, with this policy, PacifiCorp appears to be seeking to shift the risks
or uncertainty they face in the wholesale power markets to the interruptible customers. However
as the Staff appropriately points out, a long term, interruptible contract would tend reduce
PacifiCorp s exposure to volatile wholesale power markets by avoiding some power purchases.
(Schunke (Dir), Tr. VoL VI, p. 715 1. 1-19.) For these enumerated reasons, PacifiCorp s change to
pricing interruptibility only under short-term contracts should be soundly rejected by the
Commission.
PRICING METHODOLOGY FOR INTERRUPTffiILITY
As a matter of sound rate making policy, the approach adopted by the Commission must
appropriately value Monsanto s interruptible DSM resource so as to (1) properly account for the
benefits it brings to PacifiCorp s system and (2) not provide a disincentive to Monsanto and other
interruptible customers to ever offer or provide interruptible DSM resources. As has been pointed
out, this is a formidable task that will require a considerable amount of judgment on the
Commission s part. (Schunke (Dir), Tr. VI, p. 713 , 1. 24-, p. 714, 1. 1-) PacifiCorp s approach
has primarily focused on valuing Monsanto s interruptible DSM resource based on what it thinks
it could acquire a similar energy product for in the wholesale market at a certain point in time.
the other hand, the Irrigators independently developed a pricing methodology very similar to that of
the Staff which values the interruptible DSM resource based on the cost of the avoided resource.
(Yankel (Dir), Tr. VoL VI, pp. 744-747, pp. 764-768.) Because the pricing method developed by
the Irrigators and Staff appropriately treats Monsanto s interruptible load as a DSM resource
comparable in value to the avoided cost of PacifiCorp s other supply side resource options, the
Irrigators believe that this pricing methodology is the most appropriate starting point for the
IDAHO IRRIGATION PUMPERS ASSOCIATION, INc.'S POST-HEARING BRIEF - 7
Commission in terms of prudent rate making policy. Following PacifiCorp s model, on the other
hand, would lead to an undervaluation of the interruptible DSM resource Monsanto provides and
would effectively stymie the use of interruptibility as a DSM resource because of its narrow focus
on market power purchases.
CONCLUSION
Interruptibility is a valuable DSM resource to PacifiCorp s system, it provides the benefit of
lower prices to interruptible customers such as Monsanto and the Irrigators, and it is an important
rate making tool the Commission has to shape Idaho s energy policy in a way that is beneficial to
all PacifiCorp customers. Although, PacifiCorp incorporates DSM into its integrated resource plan
its action of seeking to eliminate interruptibility speaks louder than its hollow words found in
RAMPP-6. PacifiCorp s policy of seeking to eliminate interruptible contracts and tariffs is
premature and is based on bad policy. Monsanto should be provided electric service under a long
term, integrated contract that will provide the price certainty needed by all PacifiCorp s customers.
The pricing methodology developed by Staff and the Irrigators most appropriately values the
interruptible DSM resource that Monsanto provides.
When the BP A exchange credit terminates, the Irrigators will be looking for appropriate
methods to help keep the irrigation class rates down so that the farmers can stay in business and
continue to contribute to Idaho s economy. The sound energy policies that the Irrigators anticipate
the Commission will adopt toward interruptibility in this case will then be utilized to reach a fair
just, and reasonable result with the irrigation class and all other Idaho customer classes in the future.
IDAHO IRRIGATION PUMPERS ASSOCIATION, INC.S POST-HEARING BRIEF - 8
Respectfully submitted this 15th day of October, 2002.
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED
ERIC . OL
Atto ~fi r lIP A
IDAHO IRRIGATION PUMPERS ASSOCIATION, INc.'S POST-HEARING BRIEF - 9