Rebuttal Testimony of Kathryn Iverson.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 )

Rebuttal Testimony and Exhibits of

Kathryn E. Iverson

On Behalf of

Monsanto Company

September 2002

Project 7402

PACIFICORP

Before the
Public Utilities Commission
of the State of Idaho

CASE NO. PAC-E-01-16

Rebuttal Testimony of Kathryn E. Iverson

I. INTRODUCTION 1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
Q PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
A My name is Kathryn E. Iverson; 5555 DTC Parkway, Suite B-2000; Greenwood
Village, Colorado 80111.

Q ARE YOU THE SAME KATHRYN IVERSON WHO PREVIOUSLY FILED DIRECT
TESTIMONY ON BEHALF OF MONSANTO IN THIS DOCKET?
A Yes.

Q WHAT ISSUES ARE YOU ADDRESSING IN YOUR REBUTTAL TESTIMONY?
A I am addressing the impact of Monsanto’s updated proposal for additional
interruptibility, specifically as to the valuation of economic curtailment based on the
methodology presented by Stan Watters. In addition, I am rebutting Anthony Yankel
testifying on behalf of The Idaho Irrigation Pumpers Association (“Irrigators”), David
Schunke testifying on behalf of the Staff of the Idaho Public Utilities Commission
(“Commission”), and David Taylor, testifying on behalf of PacifiCorp. These
witnesses have recommended acceptance of PacifiCorp’s proposed firm rate to
Monsanto of $31.4 per MWH. The fact that I do not address a specific issue or
Rebuttal Testimony of Kathryn E. Iverson – Page 1

1
2
recommendation made by any of these witnesses should not be interpreted as an
endorsement of their position or recommendation.

II. VALUATION OF MONSANTO’S UPDATED INTERRUPTIBILITY PROPOSAL 3
4
5
Q HAS MONSANTO UPDATED ITS PROPOSAL FOR INTERRUPTIBILITY?
A Yes. As explained in Mr. Schettler’s rebuttal testimony, Monsanto is willing to provide
interruptibility on all three furnaces under PacifiCorp’s economic curtailment offer.
Monsanto is also willing to increase the number of hours of interruption to
6
1,000
hours . Since all three furnaces are now offered for economic curtailment purpose,
the operating reserve component is eliminated. The original proposal to offer
interruptions for system emergency is retained without modification.
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23

Q HOW SHOULD MONSANTO’S UPDATED PROPOSAL BE VALUED?
A There are two ways Monsanto’s updated proposal can be valued. The first method is
explained in the rebuttal testimony of Dr. Rosenberg. He provides a valuation of
Monsanto’s interruptibility based on the avoided resource costs of a peaker, similar to
the analysis of Mr. Schunke as corrected. Under Dr. Rosenberg’s valuation, shown in
Exhibit 239 (AER-4), Monsanto’s updated proposal is valued at $17.7 million.
My rebuttal testimony provides a valuation of Monsanto’s updated proposal
based on the methodology of PacifiCorp witness Stan Watters. I have taken Exhibit
No. 14 sponsored by Mr. Watters, and simply updated his analysis for the capacity
and curtailed energy amounts now offered by Monsanto. Under this approach, the
value of Monsanto’s interruptibility is $10.9 million for economic curtailment. The
value of System Integrity remains at $486,000 as supported in PacifiCorp’s rebuttal
testimony, for a total value of $11.4 million.

Rebuttal Testimony of Kathryn E. Iverson – Page 2

Q PLEASE EXPLAIN YOUR UPDATE OF EXHIBIT NO. 14. 1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
A In his rebuttal testimony, Mr. Watters provides the calculations for deriving the
Company’s proposed offer of $195,000 per month ($2.34 million annually) for
economic curtailment. His analysis is based on the following assumptions:
• 46 MW of capacity (Furnace No. 7) ; and
• 500 hours of interruptions.
In order to update Exhibit No. 14 to reflect Monsanto’s expanded interruptible
offering, I have revised the assumptions to be:
• 162.5 MW of capacity (all three furnaces, 46 + 49.5 + 67 MW); and
• 1,000 hours of interruptions.

Q BEFORE WE DISCUSS MONSANTO’S EXPANDED INTERRUTPTIBLE
PROPOSAL, IS THE USE OF MONSANTO FURNACE NO. 7 APPROPRIATE IN
EXHIBIT NO. 14 AS PROVIDED BY PACIFICORP?
A No. Mr. Griswold calculates the operating reserves payment for 95 MW, which would
be Monsanto Furnaces No. 7 and 8. At page 8 of his testimony, Mr. Watters states
that “the third furnace is assigned to the economic curtailment product.”
Consequently, the economic curtailment should be calculated for 67 MW, the size of
the remaining Furnace No. 9. Correcting this oversight raises the economic
curtailment valuation to $3.41 million from the $2.34 million as proposed by
PacifiCorp.

Q WHAT IS THE UPDATED VALUATION OF MONSANTO’S EXPANDED
INTERRUPTIBLE OFFER FOR ALL THREE FURNACES AND 1,000 HOURS
UNDER THE METHODOLOGY OF EXHIBIT NO. 14?
Rebuttal Testimony of Kathryn E. Iverson – Page 3

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
A Exhibit 237 (KEI-6) shows that using Mr. Watters’s methodology with updated
assumptions results in a valuation of Monsanto’s economic curtailment of
$10,870,367.

Q HAVE YOU CHANGED ANY OTHER ASSUMPTION?
A Yes, I have made one other change. Mr. Watters includes a “Lost Retail Revenue”
component within the valuation analysis to reflect the fact that when Monsanto is
curtailed PacifiCorp will no longer be receiving revenues for the curtailed energy.
This lost revenue is based on the curtailed energy times the “Retail Cost”. Mr.
Watters uses a “Retail Cost” of $31.40 per MWH in his analysis, presumably based
on the Company’s proposed firm rate. However, there are three problems with his
lost revenue calculation.
First, Mr. Watters has mistakenly used an all-in energy cost in his analysis,
despite the fact that his colleague, Mr. Bruce Griswold, proposes a demand/energy
rate design for Monsanto. According to Mr. Griswold’s proposed rate to Monsanto,
the energy would be priced at $16.31 per MWH.1 Thus, if we were to accept the
Company’s rate design proposal, it is the $16.31 per MWH of revenues which would
be lost during curtailments, not the entire $31.40 per MWH. Merely correcting this
one oversight alone raises Mr. Watters’ $2.34 million economic curtailment valuation
of Monsanto’s initial offering by 15% to $2.69 million.
Second, Mr. Watters’s analysis assumes that PacifiCorp always loses the sale
of the curtailed energy. This would occur only if: (a) Monsanto
20
always buys through
when provided the option; or (b) if Monsanto does not buy through, it
21
never makes up
the lost production at a later time with purchases from PacifiCorp. Neither of these
assumptions are entirely correct. The decision by Monsanto to buy through or not will
22
23
24

1 Rebuttal Testimony of Bruce W. Griswold, page 8, line 5.
Rebuttal Testimony of Kathryn E. Iverson – Page 4

be a function of the buy-through price, and Monsanto’s production scheduling and/or
inventory. It may be possible that Monsanto may choose not to buy through and
instead increase production at a later time. Under this scenario, PacifiCorp has not
“lost” the revenue associated with the curtailed energy. Consequently, Mr. Watters’s
approach to lost revenues calculation represents the
1
2
3
4
maximum possible level, and
thus understates the value of Monsanto’s interruptibility should Monsanto make up
production at a later time.
5
6
7
8
9
10
11
12
Third, as I explain later in my testimony, Monsanto recommends a firm retail
cost of $29.30 per MWH, at the most. Furthermore, Monsanto prefers that the rate
design be a flat all-in energy rate of $29.30. Thus, my updated analysis uses a retail
cost of $29.30 per MWH in the lost revenue calculation. Should the Commission
reject our recommended $29.30 per MWH, and accept PacifiCorp’s proposed rate
design, then as I explained above, the lost revenue calculation should be based only
on the energy component of the rate when deriving the interruptible value. To do
otherwise would be to compensate PacifiCorp for $15.09 per MWH of revenues
13
14
15
16
17
18
19
20
21
22
2
which they have not truly lost.

Q DOES THE USE OF A $29.30 PER MWH RETAIL COST, INSTEAD OF THE
COMPANY’S PROPOSED $31.40, SIGNIFICANTLY CHANGE THE VALUATION
RESULTS?
A Not significantly. Had I included the Company’s proposed retail cost of $31.40 per
MWH in my valuation, the valuation would be $10,529,117, or roughly 3% less. But I
must emphasize again, how important the authorized rate design is in the valuation
analysis. If the Commission should accept the $31.40 firm cost together with Mr. 23

2 $15.09 per MWH = $31.40 - $16.31.
Rebuttal Testimony of Kathryn E. Iverson – Page 5

Griswold’s demand/energy rate design, then the valuation analysis would increase
substantially. If Mr. Griswold’s rate design is accepted, then the correct lost energy
revenue is $16.31 per MWH, and the valuation of our updated interruptibility
increases over 23% to $12,981,242.
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22

3 However, as I indicated previously, it is
Monsanto’s desire to have a flat, all-in energy rate, and for this reason alone have I
kept the lost retail revenues at the all-in proposed firm rate.

Q WHAT IS THE RESULTING NET PRICE TO MONSANTO OF YOUR VALUATION?
A Based on my updated analysis, the interruptibility valuation for Monsanto is:
• System Integrity monthly payment of $40,500 for 162 MW; and
• Economic Curtailment monthly payment of $905,864 for 162.5 MW for
1,000 hours; for a
• Total monthly payment of $946,364.

The annual payments would total $11,356,368, and spread over Monsanto’s
assumed usage of 1,354,000 MWH results in a value of $8.39 per MWH. When this
amount is netted against the firm price of $29.30 per MWH, the net price is $20.91
per MWH, as shown on Exhibit 237.

Q WHY IS YOUR VALUATION OF $11.4 MILLION LESS THAN DR. ROSENBERG’S
$17 MILLION?
A Although we both use the same capacity amounts and curtailed energy, the
difference is in the avoided costs themselves. The following table highlights the
different costs in these two valuations:

3 The 23% increase is based on the correct use of $16.31 per MWH of lost retail cost, versus
the Company’s proposal for $31.04. The valuation using $31.40 is $10,529,117, while the correct
valuation with the $16.31 is $12,981,242, an increase of over 23%.
Rebuttal Testimony of Kathryn E. Iverson – Page 6

RAMPP-6 Peaker
Approach
Exhibit No. 14
Approach
Description RAMPP-6 OR/WA Simple Cycle
Combustion Turbine
Wholesale Reservation and
Energy Charges
Capacity Charge $85.02 per kW-year
Based on $73.48 per kW-year
adjusted by 10% for reserve
margin, and 5.19% for losses
$36.96 per kW-year
Based on $3.08 per kW-month
reservation charge
Energy Charge $23.69 per MWH
Based on $22.52 per MWH
adjusted by 5.19% for losses
$29.95 per MWH
Based on $59.25 per MWH
avoided energy and lost
revenue of $29.30 per MWH
Total Annual
Valuation
$17,665,661 $11,356,368 *
* Includes the annual payment
of $486,000 for System Integrity
Valuation Credit $13.05 per MWH $8.39 per MWH
1
2
3
4
5
6
7
8
9
10
11
12
13
14

While the capacity charge of the Peaker approach is based on the RAMPP-6 fixed
costs of a combustion turbine, Exhibit No. 14 is based on a much lower reservation
fee of $3.08 per kW-month. For purposes of my valuation, I have accepted for the
sake of argument, PacifiCorp’s proposed avoided reservation charge of $3.08 per
kW-month. Should this reservation charge be understated, however, then the value
of Monsanto’s interruptibility would likewise be understated, and would move my
valuation closer to the Peaker approach. Moreover, while Dr. Rosenberg’s valuation
utilizes the RAMPP-6 peaker costs published in June 2001, the valuation based on
Exhibit No. 14 uses reservation charges just only now provided to Monsanto. In
addition, the Exhibit No. 14 approach assumes a maximum level of lost revenues,
which tends to understate the valuation. Based on these two valuation approaches,
however, it is clear that the value of Monsanto’s updated interruptibility is somewhere
between $11 to $17 million regardless of which method is employed.
Rebuttal Testimony of Kathryn E. Iverson – Page 7

III. THE STARTING POINT RATE FOR FIRM SERVICE 1
2
3
Q WHAT STARTING POINT (FIRM PRICE) DO YOU RECOMMEND THE
COMMISSION USE IN THIS PROCEEDING?
A At the most, I recommend that the Commission use a starting point of $29.30 per
MWH.
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31

4 This starting point should be the maximum level for a firm rate for Monsanto
for several reasons:
1. It is based on the Company’s cost study of 12 CP with 75/25 classification,
which seems to be important to other parties.

2. It would still result in an increase of 58% to Monsanto, before consideration of
the value of interruptibility.

3. A rate of $29.3 results in an increase of over $15 million to Monsanto. If you
use a 1998 test year, the last year that was audited, and the Company’s
proposed cost study, Monsanto would provide a return of 11.485% with a $15
million increase.

4. While other parties claim that the Company’s cost study methodology in this
case has been “accepted” or “developed” by the Commission, this is not
entirely true. The Commission rejected the 75/25 classification in the last
Utah Power & Light cost of service case, Case No. UPL-E-90-1, and
specifically in its Order No. 23508. If the Commission accepts the Company’s
cost study in this proceeding, a new precedent will be established without the
benefit of a “full-blown” rate case, and Mr. Yankel’s concern of setting
precedence would be justifiable.

5. The Company uses a 1999 test year, which has not been audited by the
Commission.

6. Even if we accept PacifiCorp’s proposal of $31.4 per MWH as the “true” cost
of service, the Company should recognize the principle of gradualism as it has
in the past.

7. Furthermore, again accepting for the sake of argument that $31.4 per MWh is
the “true” cost of service, the rate of $29.3 per MWH would bring Monsanto
over 80% of the way to full cost of service5, in comparison to PacifiCorp’s offer
to bring some industrials only half-way.

4 See Exhibit 216, page 2.
5 ($29.3 - $18.50) ÷ ($31.4 - $18.50) = 84%
Rebuttal Testimony of Kathryn E. Iverson – Page 8

Cost Study Methodology 1
2
3
4
5
6
7
8
Q UPON WHICH METHOD IS THE $29.3 FIRM PRICE BASED?
A The rate of $29.3 per MWH is based on the methodology Mr. Yankel, Mr. Schunke
and Mr. Taylor all favor in this case – 12 CP with 75/25 classification. Furthermore, I
should point out that a $29.3 per MWH rate would provide the state of Idaho an
overall rate of return of 8.418% based on the 1999 cost study. This rate of return is
exactly equal to the state’s return when Monsanto was treated as a system customer
in the 1999 jurisdictional study.

Increase of 58% Before Valuation of Interruptibility 9
10
11
Q WHAT IS THE INCREASE TO MONSANTO WITH A RATE OF $29.3 PER MWH?
A The $29.3 per MWH rate would be an increase of 58% to Monsanto, before any
consideration for the valuation of interruptibility. This large increase is even greater
than the increase PacifiCorp itself was suggesting for Magcorp in Utah, before
consideration of interruptibility. PacifiCorp proposed an increase of 50.5% for
Magcorp based on Mr. Taylor’s cost study in Utah.6 Consequently, the increase to
Monsanto would be even higher at 58%.
12
13
14
15
16

Results of Company Cost Study With 1998 Test Year 17
18
19
20
21

Q DID THE COMPANY PROVIDE A COST STUDY BASED ON A 1998 TEST YEAR
(AS OPPOSED TO 1999) IN THIS PROCEEDING?
A Yes. The Staff requested runs be made with the 1998 test year data, treating
Monsanto as a situs customer. Those cost studies were provided by PacifiCorp in

6 See Exhibit DLT Exhibit 1 in Docket No. 01-035-38 before the Utah Public Service
Commission.
Rebuttal Testimony of Kathryn E. Iverson – Page 9

1
2
3
4
5
6
response to IPUC Data Request No. 11. Mr. Schunke references the use of a 1998
cost study in his testimony at page 10.

Q WHAT DOES THE 1998 TEST YEAR COST STUDY SHOW?
A Based on the Company’s 1998 cost study filed as Run No. 3 in IPUC Data Request
No. 11, if Monsanto’s rates are increased by $15,128,9367, then Monsanto would
provide a return of 11.485%. The summary page of the cost study is provided as
Exhibit 238 (KEI-7). This rate of return is greater than the return of 8.418% used by
PacifiCorp. Thus, even Mr. Taylor should be satisfied that a return of 11.485% is
sufficient, and that Monsanto is paying its full cost of service.
7
8
9
10
11
12

Q DID YOU MAKE ANY ADJUSTMENTS TO THIS STUDY?
A No. I merely input a target rate of return such that Monsanto’s increase was equal to
$15 million.

Establishing Precedence of Cost Study Methodology 13
14
15
16
17
18
19

Q WHAT FIRM RATE DOES MR. YANKEL SUPPORT AS THE STARTING POINT
FOR MONSANTO?
A Mr. Yankel accepts, uncritically, the Company’s cost-of-service study and the
resulting $31.4 per MWH firm rate to Monsanto. Mr. Yankel argues that none of the
changes I have made to the Company’s cost study should be adopted in this case.

Q UPON WHAT BASIS DOES MR. YANKEL MAKE HIS RECOMMENDATION?

7 The $15,128,936 is the increase to Monsanto as shown on page 2 of Exhibit 216, which
results in a firm price of $29.3 per MWH.
Rebuttal Testimony of Kathryn E. Iverson – Page 10

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
A As explained on page 16 of Mr. Yankel’s testimony, he bases his recommendation
upon two points. His first point is:
1) Such changes would have a tendency to serve as a precedent for
future proceedings. It would be far more appropriate to set allocation
methodologies in full-blown rate cases where cost-of-service for all
classes is reviewed and where there may be wider participation by
various parties. (page 16, line 3)

Q DO YOU AGREE WITH MR. YANKEL’S FIRST POINT?
A Yes. I believe Mr. Yankel has a valid point about this case serving “as a precedent
for future proceedings”. However, I disagree with Mr. Yankel that my changes would
result in a “precedent”. Instead, it is acceptance of PacifiCorp’s cost of service study,
not my changes, which would be precedent setting.

Q PLEASE EXPLAIN.
A The Company’s cost study filed in this case classifies generation and transmission
plant as 75% demand-related and 25% energy-related. The 75/25 classification was
explicitly rejected in favor of a 100/0 classification in the last Utah Power and Light
case which addressed cost of service methodology issues, Docket No. UPL-E-90-1.
If the Commission adopts the use of a cost study with a 75/25 classification in this
proceeding, then Mr. Yankel’s concern of precedent-setting will be justified.

Q WHY DO YOU CLAIM THE 75/25 CLASSIFICATION WAS REJECTED BY THE
COMMISSION?
A Order No. 23508 discusses several different cost-of-service methodologies filed by
Utah Power and Light in Docket No. UPL-E-90-1. According to the Order:
The Company’s studies allocated generation and transmission costs
on the basis of either eight coincident peaks (8 CP), 12 coincident
peaks (12 CP), 1 coincident peak (1 CP), or on the combined basis of
12 CP and energy.
Rebuttal Testimony of Kathryn E. Iverson – Page 11

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25

The Order goes on to detail each study, and comment on their validity.
We find: The 1 CP method for allocating generation and transmission
costs does not accurately reflect cost causation on UP&L’s system
throughout the year and has the potential, if not the tendency, to
produce erratic results. We reject Study D (the single CP study) from
consideration.

8 CP/12CP: With the exception of Study E, discussed below, the
remaining cost-of-service methodologies employed by the Company
utilized either an 8 or a 12 CP.
* * *
We further find that both the 8 CP and 12 CP methods of allocating
generation and transmission costs possess advantages as well as
shortcomings. As an effort to capture the advantages of both methods
we will use, an average of the Company’s 8 CP and 12 CP methods
for guidance in this case.
* * *
Energy: Since we have chosen an averaging of an 8 CP and 12 CP
for allocation of generation and transmission costs, we find it
unnecessary to discuss the validity of an allocator based on energy
(Study “E”).

Q WHAT WAS STUDY “E” IN THE 1990 UTAH POWER AND LIGHT DOCKET?
A Page 5 of the Order defines Study “E” as:
This study differed from the base case in that generation and
transmission costs were allocated using the combination of 25%
energy and 75% 12 CP. (emphasis added)
26
27
28
29
30
31

Study “E” in the last rate case is the same methodology as used by PacifiCorp in this
proceeding.

Q WHICH STUDIES DID THE COMMISSION ACCEPT IN ORDER NO. 23508?
A The Commission accepted both the 12 CP and 8 CP cost of service studies for Utah
Power and Light. Furthermore, both accepted studies classified all generation and
transmission plant as demand-related. The Commission averaged the results of the
12 CP and 8 CP studies “to capture the advantages of both”. These are the same
32
33
34
35
Rebuttal Testimony of Kathryn E. Iverson – Page 12

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
methodologies I have used for Study “B” (12 CP 100/0 Classification) and Study “C”
(8 CP 100/0 Classification). Thus if we are concerned about any precedent here, it is
the average of the 12 CP and 8 CP which should be used.

Q WHAT IS MR. YANKEL’S SECOND POINT FOR ACCEPTING THE COMPANY’S
COST STUDY?
A Mr. Yankel’s second point is related to his first, generally that this proceeding is not
the right forum for making changes:
2) The classification and allocation methods used by the Company have
been generally accepted and/or developed by both the Idaho
Commission and the Utah Commission over a long period of time. As
stated above, this is not the right forum to make wholesale changes to
cost-of-service methodologies. (page 16, line 3)

Q DO YOU AGREE WITH MR. YANKEL THAT THE COMPANY’S CLASSIFICATION
AND ALLOCATION METHODS HAVE BEEN ACCEPTED BY THE COMMISSION?
A No. Mr. Yankel claims that the methods have “generally” been accepted, but as I
demonstrated previously, the Commission explicitly rejected the use of the 75/25
classification in the last cost study case of PacifiCorp.

Q BUT HASN’T PACIFICORP BEEN MAKING COST OF SERVICE FILINGS WITH
THE IDAHO COMMISSION USING THE 75/25CLASSIFICATION?
A Yes, I would agree that PacifiCorp has been making annual informational filings with
the Commission using this classification methodology. There is a marked contrast
though, in those annual filings and this proceeding. The annual filings are made for
informational purposes to the Commission. Simply by filing this information with the
Commission does not imply the Commission has “accepted” or “developed” all the
costs and assumptions within the cost study.
Rebuttal Testimony of Kathryn E. Iverson – Page 13

1
2
3
4
5
6
7
8
9
10
11
12
13
14
In contrast to informational filings, this proceeding will be establishing a rate
for Monsanto. Use of the PacifiCorp cost study for establishing Monsanto’s firm rate
will establish precedent for future rate developments. While Mr. Yankel has
suggested this is not the right forum for making wholesale changes to the cost study,
he is more than willing to have Monsanto accept a firm rate of $31.4 per MWH as its
starting point – a rate based on a methodology that has been rejected by the
Commission previously, and only provided as informational filings up till now.

Q WHAT STARTING POINT (FIRM PRICE) DOES MR. SCHUNKE RECOMMEND?
A Mr. Schunke also recommends that the Company cost study be accepted. He claims
that “The 75/25 split has a long history, it has been accepted in seven jurisdictions for
allocation of PacifiCorp GT plant.”

Q WOULD YOU AGREE IT HAS BEEN ACCEPTED IN SEVEN JURISDICTIONS?
A No. I find no indication that the Idaho Commission has ordered the use of the 75/25
classification for PacifiCorp.

Use of Unaudited Test Year 15
16
17
18
19
20
21

Q HAS THE 1999 TEST YEAR USED BY PACIFICORP BEEN AUDITED BY THE
COMMISSION?
A No. On page 10 of his testimony, Mr. Schunke states that the last test year which
was audited by the Commission was 1998. Furthermore, PacifiCorp admits that to
the Company’s knowledge, the 1999 test year was not audited by the Commission.8
As an unaudited test year, the Commission should take this into consideration by

8 PacifiCorp Response to Monsanto Data Request No. 123.
Rebuttal Testimony of Kathryn E. Iverson – Page 14

1
2
accepting our conservative estimate of a $15 million increase, rather the Company’s
proposed $18 million.

Rate Mitigation 3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
Q DOES PACIFICORP ALWAYS INCREASE ALL CUSTOMER CLASSES TO 100%
OF COST OF SERVICE?
A No. I would agree that under the 1999 cost study as proposed by Mr. Taylor, a rate
of $29.3 per MWH implies that Monsanto is providing a return lower than the system
average. However, with a $15 million increase, Monsanto would be paying a higher
return based on the 1998 test year, the last year that was audited, as I show in
Exhibit 238.
Moreover, even if we accept, for the sake of argument, Monsanto’s lower
return in the 1999 cost study, it would still be appropriate to price Monsanto at $29.3
per MWH. PacifiCorp itself has recognized in the past that customer classes need
not be brought to 100% cost of service. Just as recently as this past winter,
PacifiCorp sponsored testimony proposing to redesign rates so that customer classes
fall within 5% of their cost of service:
Due to the changing makeup of customer classes, variations in usage
and other factors, cost of service results can vary from year to year. A
customer class that was at 100 percent of cost of service in one year
can be higher or lower than that in the following year. The Company
chose the five percent cost of service threshold as a way to balance
cost of service precision and appropriate cost responsibility for
customer classes. We believe it makes reasonable movement
toward bringing each customer class closer to cost of service,
while recognizing the inherent variability from year to year.
(Direct Testimony of James Z. Zhang, Case No. PAC-E-02-1 before
the Idaho Public Utilities Commission, emphasis added)

Rebuttal Testimony of Kathryn E. Iverson – Page 15

Rebuttal Testimony of Kathryn E. Iverson – Page 16
Transitioning to Full Cost of Service 1
2
3
4
Q DOES THE $29.3 PER MWH FIRM PRICE MAKE A REASONABLE MOVEMENT
TOWARD FULL COST OF SERVICE?
A Yes, it does. First, if one looks at the 1998 test period cost study filed by the
Company, it moves Monsanto completely to full cost of service. Second, if one looks
at the 1999 test period cost study filed by the Company, bringing Monsanto up to a
firm rate of $29.3 per MWH recognizes significant movement and achieves 93% of full
cost of service rate, as measured by Mr. Taylor’s 1999 unaudited cost study
methodology.
5
6
7
8
9
10
11

Q HAS PACIFICORP IN THE PAST RECOGNIZED TRANSITIONING INDUSTRIAL
CUSTOMER RATES TO FULL COST OF SERVICE?
A Yes. PacifiCorp has offered another industrial customer the option of going only half-12
way to its full cost of service rate from its existing contract. As explained in Dr.
Rosenberg’s rebuttal testimony, PacifCorp offered to average Magcorp’s existing rate
with the full cost of service rate. Looked at another way, the rate of $29.3 per MWH
means that Monsanto would go not just 50% of the way – but over 80% of the way --
to full cost of service from its current rate of $18.50 per MWH, in one single step.
13
14
15
16
17
18
19

Q DOES THIS CONCLUDE YOUR TESTIMONY IN THIS CASE?
A Yes.