20030410Monsanto Comments.pdf

Randall C. Budge, ISB 1949
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED
O. Box 1391; 201 E. Center
Pocatello, Idaho 83204-1391
Telephone: [phone]
Fax: [phone]
RECEIVED FILED
lOG3 APR - 9 PH 2: 23
!Oldie; PUDLiC
UTILITiES COMt11SSION
Attorneys for Monsanto Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISS
t1 :J-.
IN THE MATTER OF THE FILING BY Case No. PAC-9f~
ACIFICORP DBA UTAH POWER & LIGHTOF ITS 2003 ELECTRIC
Integrated resource plan (IRP).
COMMENTS OF
MONSANTO COMPANY
COMES NOW Monsanto Company ("Monsanto ), through counsel, and hereby submits the
following Comments on PacifiCorp' s Integrated Resource Plan ("IRP") in response to the Notice of
Filing and Notice of Comment Deadline issued on February 13, 2003. Monsanto was granted an
extension to April 9, 2003 to submit these Comments and appreciates the opportunity to participate.
Monsanto will provide general comments addressing certain areas of broad concern which
are intended to be constructive in nature, rather than criticism. Monsanto commends PacifiCorp for
its extensive analysis and for soliciting and considering significant input from the Idaho Public
Utilities Commission ("Commission ), Staff and the public. Monsanto also commends the Staff for
taking an active role in critiquing and providing comment on the IRP during the review process.
Monsanto submits that the Commission s Order should address and provide guidance to
PacifiCorp on at least the following issues:
COMMENTS OF MONSANTO COMPANY -
ACKNOWLEDGMENT. Monsanto suggests the Commission "acknowledge , not
approve" or "disapprove" the filing ofPacifiCorp' s IRP. As stated by the Commission in Case No.
GNR-93-, Order No. 25260:
In order to encourage prudent planning. . . an electric utility s plan must be on file
with the Commission and available for public inspection but the filing of the plan
does not constitute approval or disapproval ofthe plan having the force and effect of
law, and the deviation from the plan would not constitute violation of the
Commission s Orders or Rules The prudence of a utility s plan and the utility
prudence in following or not following a plan are matters that may be considered in a
general rate case proceeding or other proceeding in which those issues have been
noticed " (Emphasis added.
Accordingly, the Commission should not follow PacifiCorp s request for endorsement ofthe
IRP conclusions and specific Action Plan. Specific courses of action undertaken by utilities
must remain subject to prudency review in a general rate case when cost recovery is sought.
FREQUENT REVIEW. PacifiCorp is commended for its commitment to revisit and
refresh the Action Plan no less frequently than annually and file new IRP Plans at two-year intervals.
This recognizes the need to remain flexible to adjust for future changes, uncertainties and
opportunities.
The Commission is urged to use a high level of scrutiny in reviewing IRP filings. This
appears particularly important given the past lessons ofthe 2000-2001 energy crisis and in moving
forward when the electric industry is expected to face regulatory change, industry restructuring and
market volatility. An even greater need is warranted for PacifiCorp as it embarks in view of its
Action Plan to add 4000 megawatts of new resources over the next ten years and resulting capital
requirements projected to exceed $2 billion, which will significantly impact rates.
DEMAND SIDE MANAGEMENT ("DSM"). This Commission recently stated in
Order No.2 9189, Case No. IPC-02-, that it is " especially important" for an IRP planning
COMMENTS OF MONSANTO COMPANY - 2
document to "give balance consideration to demand side and supply side resources when formulating
resource plans and when procuring resources." Reference Order No. 22299, Case No. U-1500-165.
Although the IRP includes significant assumed DSM, it does not succeed in adequately placing DSM
resources or customer generation resources on a consistent and comparable basis for purposes of
evaluation or pricing. The Commission should direct PacifiCorp to develop procedures and pricing
mechanisms that will better place DSM measures and customer co-generation projects on an even
and comparable basis with supply side resources, and that will ensure that all efficient and effective
alternatives to traditional utility-built resources will be pursued.
CONSERVATIVE ASSUMPTIONS. The IRP makes a number of conservative
assumptions that dramatically increase the projection of required new resources. Among the most
significant are a new 15 percent planning reserve margin, a 5 percent limit on expected short-term
market exposure, modeling of firm transmission rights only, assumed carbon taxes, renewable
assumptions and restrictions on market products and purchases. Collectively, these assumptions lead
to extreme projections for necessary resource additions.
To meet a 15 percent planning margin, the IRP adds peaking resources, as necessary, to
ensure a 1 5 percent margin at the peak hour by fiscal year 2 006/2007. The planning margin
assumption was apparently based on PacifiCorp s reading of FERC's Standard Market Design
SMD") proposal, and R TO West Order. The SMD proposal considered planning margins ranging
from 12 percent to 18 percent. (IRP at 42.) Although it is not clear whether SMD will ever be
adopted and, if so, in what form, the IRP includes a 15 percent planning margin, reflecting the
midpoint in the SMD range, in developing portfolios. The IRP also imposes a cap on expected short-
term market exposure of 5 percent of the hours in any fiscal year to develop the various resource
COMMENTS OF MONSANTO COMPANY - 3
portfolios. These two assumptions have a significant impact on the need for and timing of new
generation resources. The combined effect of these two assumptions allows Pacificorp to almost
totally insolate itself from volatility in the short-term electric markets. While such a strategy will
increase rate stability and mitigate against upward market price risks, the risk insolating affects come
with a significant price tag, driving approximately 1500 of 4000 megwatts of projected new capacity
requirements.
PacifiCorp evaluated the impact of reducing the 15 percent planning margin to 10 percent
four of the resource portfolios. The results indicate that such reduction in planning margin would
decrease needed capacity additions by 500 to 550 megawatts by 2013, with significant revenue
requirement savings. Moreover, the IRP admits that the additional capacity required by a 15 percent
planning margin is not offset by a commensurate reduction of risk (IRP at 141-142). The IRP
nevertheless utilizes a 15 percent planning margin in the "base case" runs.
Monsanto believes it is premature to assume a new RTO or SMD planning margin
requirements, particularly in the development of base case resource portfolios. While it is interesting
and useful to understand the impact that any proposed R TO or SMD planning reserve may have on
revenue requirement, that analysis should be a separate scenario evaluation or stress test. Base case
runs should more accurately utilize current reserve requirements to place the risk of new planning
margin requirements in the proper context within the IRP.
Monsanto also disagrees with the 5 percent limitation on expected short-term market
purchases used in the resource portfolio development. Monsanto is further concerned that the IRP
lacks any adequate analysis or proj ection of future purchase power prices. At a minimum, an IRP
should discuss and analyze the resource addition impacts and the associated revenue requirement
COMMENTS OF MONSANTO COMPANY - 4
impacts of various short-term market exposure limits. Such analysis would allow parties to better
understand the trade-offs between risk reduction and cost. The implicit evaluation contained within
the Stochastic Risk Assessment sheds little light on the most reasonable level of reliance on the
short-term market when determining resource additions in the portfolios. In addition, an explicit
discussion of the issue would allow the parties to consider whether other short-term market risk
mitigation strategies would be a more appropriate means to help insulate ratepayers from short-term
market volatility.
PacifiCorp should be instructed in this and future IRPs to evaluate a wide range of short and
long-term market opportunities and other available resources and hedging instruments, and at various
prices and assumptions. Monsanto believes that numerous market opportunities currently exist and
will arise in the future, and analysis and alternative plans to capitalize on the market opportunities
will benefit Idaho ratepayers.
BASE CASE. An IRP "base case" should represent the utility s best reasonable
projections of future conditions, rather than assuming speculative changes or charges or
incorporating risk mitigation measures (such as increased planning margin requirements, carbon
taxes, unavailability of non-firm transmission, etc.). A meaningful base case that includes only
reasonably known and measurable future changes, along with a wide range of alternative scenarios
and stress tests, makes comparative analysis more meaningful and allows the parties and the
Commission to better understand and evaluate the costs and implications of various resource options
and risk factors.
PacifiCorp should be instructed in future IRPs to utilize a "base case" for analysis purposes
that includes PacifiCorp s best reasonable predictions as to reasonably known and measurable
COMMENTS OF MONSANTO COMPANY - 5
conditions and expectations. The base case run should not assume speculative or unknown events
such as possible new taxes or reserve requirements.
OPEN BIDDING. A fair, open and competitive bidding process should be
mandatory for any significant future resource acquisitions. The process should include independent
analysis and oversight in the formulation and evaluation of RFPs and in awarding contracts. It
should also include a process for Commission resolution of disputes that may arise in the RFP
bidding and contracting processes.
PacifiCorp s IRP states a general intention to evaluate available market opportunities through
its procurement policies on a case-by-case basis (IRP at 2), including an "effective RFP process
(IRP at 395). However, it fails to provide sufficient details of its proposed RFP process to provide
any comfort that the process will be open and independent and will produce optimal results.
Monsanto believes that an indispensable prerequisite for any future plant construction, acquisition, or
repowering by PacifiCorp is an effective RFP process that is independently designed, monitored and
analyzed. The Commission should instruct PacifiCorp unequivocally that an open, competitive
independent RFP process is a critical component of future resource acquisition.
The IRP discusses the allocation of risk between shareholders and ratepayers, but it fails to
discuss at least one very important risk dynamic. As a regulated utility, PacifiCorp is permitted to
earn a return for its shareholders only on rate-based assets. The reality creates an inherent bias in
favor of utility construction of resources over acquisition of resources from others. This bias is a
significant part of the reason why the Commission should require an open, competitive RFP process
with independent, outside input and evaluation, to assure ratepayers that the resources selected will
be the optimal resources for ratepayers, not just PacifiCorp.
COMMENTS OF MONSANTO COMPANY - 6
RA'I'-EF-A~R-IMl!AC-1'.-1'he-IRE-attempts-to-e~aluate-coskeffectiyenes s 0 f v ari 0 US
supply side resource options, to identify potential rate impacts, and to identify some social issues.
However, the IRP does not attempt to identify impacts on different classes of ratepayers. The
ratepayer impact section is confusing (IRP at 113-118). PacifiCorp should be directed in this and
future IRPs to include a more comprehensive and understandable analysis of ratepayer impacts, both
collectively and by class.
Additionally, this and future IRPs should consider elasticity of demand by various rate classes
in response to projected rate increases resulting from anticipated resource acquisitions and rate
design options. The IRP does not adequately address price elasticity of demand or how the projected
price increases reflected in the IRP may affect consumption. It is likely that some customers will be
unable to bear the significant projected price impacts, and others will curtail usage in response to
price signals. This will particularly be likely if rate design is used to encourage conservation.
Accordingly, PacifiCorp should be directed in future IRPs to more directly address price elasticity
and forecast effects of proj ected price increases and changes in rate design on consumption by rate
classes.
CONCLUSION
Monsanto appreciates the efforts of Pac if Corp and others in developing the IRP and believes
it complies with the Commission s requirements. While the Commission should acknowledge the
filing ofthe IRP, the Commission s adoption or support ofthe proposed Action Plan is not necessary
or warranted. Monsanto respectfully requests that the Commission take this opportunity to provide
PacifiCorp with meaningful guidance on the need for new procedures and pricing mechanisms to
place DSM measures and customer co-generation projects on an even and comparable basis with
COMMENTS OF MONSANTO COMPANY - 7
supply side resources, the need to more carefully evaluate a variety of market opportunities, the need
for a fair, open and competitive bidding process in connection with resource acquisitions and the
need to identify potential rate impacts and address the elasticity of demand.
RESPECTFULLY SUBMITTED this 9th day of April, 2003.
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED
By
RAND L . BUDGE
COMMENTS OF MONSANTO COMPANY - 8
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 9th day of April, 2003, I mailed a true and complete
copy of the foregoing document, postage prepaid, to each of the following:
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
O. Box 83720
472 W. Washington Street
Boise, Idaho 83720-0074
Fax: [phone]
E-mail: jjewell~puc.state.id.
David Hawk
Director, Energy Natural Resources
lR. Simplot Company
O. Box 27
Boise, Idaho 83707
Scott Woodbury
Deputy Attorney General
Idaho Public Utilities Commission
O. Box 83720
Boise, Idaho 83720-0074
John M. Eriksson
Stoel Rives
201 S. Main St., Ste. 1100
Salt Lake City, Utah 84111
Janet Morrison
Director of Resource Planning
PacifiCorp
825 NE Multnomah Street, Ste 800
Portland, Oregon 97232
~~6-J
RANDALL GE
COMMENTS OF MONSANTO COMPANY - 9