20070928Iverson direct.pdf

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Idaho Public Utilities Commission
In the Matter of the Application of
PacifiCorp DBA Rocky Mountain
Power for Approval of Changes to
its Electric Service Schedules
Case No. PAC-O7-
Direct Testimony and Exhibits of
Kathryn E. Iverson
On Behalf of
Monsanto Company
September 28, 2007
Project 8819
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BRUBAKER &AsSOCIATEs,lNC
Before the
Idaho Public Utilities Commission
In the Matter of the Application of
PacifiCorp DBA Rocky Mountain
Power for Approval of Changes to
its Electric Service Schedules
Case No. PAC-O7-
Table of Contents to the
Direct Testimonv of Kathryn E. Iverson
INTRODUCTION AND QUALIFICATIONS ...................................................................
PURPOSE OF TESTIMONY AND SUMMARY OF CONCLUSIONS............................ 2II.
III.BACKGROUND ON THE TREATMENT OF MONSANTO IN COST STUDIES ...."..... 5
IV.MODIFICATIONS TO ROCKY MOUNTAIN POWER CLASS COST STUDY.............. 7
VALUATION OF MONSANTO INTERRUPTIBILITY ..................................................
Appendix A
Exhibits:
Exhibit 205 (KEI-1) -
Exhibit 206 (KEI-2) -
Exhibit 207 (KEI-3) -
Exhibit 210 (KEI-6) -
Exhibit 211 (KEI-7) -
Exhibit 212 (KEI-8) -
Response to Monsanto Data Request No. 9.
Idaho Coincident Peak and Energy Load From JAM Study
Comparison of Peak Loads and Energy Used in JAM and
Idaho COS Studies
Adjustments to Load to Align with JAM Study
Allocation of Revenue Reduction as a Result of the Rate
Mitigation Cap
Adjusted Total Cost of Service by Customer Class
Value of Monsanto Interruptibility Based on Avoided Peakers
Implied Avoided Capacity Cost of Operating Reserves and
Economic Curtailment
Exhibit 213 (KEI-9) - Value of Reserves Based on Cholla and Gadsby
Exhibit 208 (KEI-4) -
Exhibit 209 (KEI-5) -
Before the
Idaho Public Utilities Commission
Case No. PAC-O7-
In the Matter of the Application of
PacifiCorp DBA Rocky Mountain
Power for Approval of Changes to
its Electric Service Schedules
Direct Testimonv of Kathrvn E. Iverson
I. INTRODUCTION AND QUALIFICATIONS
PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
My name is Kathryn E. Iverson; 17244 W. Cordova Court, Surprise, Arizona 85387.
WHAT IS YOUR OCCUPATION AND BY WHOM ARE YOU EMPLOYED?
I am a consultant in the field of public utility regulation and employed by the firm of
Brubaker & Associates, Inc. (BAI), regulatory and economic consultants with
corporate headquarters in St. Louis, Missouri.
WOULD YOU PLEASE STATE YOUR EDUCATIONAL BACKGROUND AND
EXPERIENCE?
I have a Bachelor of Science Degree in Agricultural Sciences and a Master of
Science Degree in Economics from Colorado State University.I have been a
consultant in this field since 1984, with experience in utility resource matters, cost
allocation and rate design. More details are provided in Appendix A to this testimony.
Testimony of Kathryn E. Iverson - Page 1 BRUBAKER & ASSOCIATES, INC.
ON WHOSE BEHALF ARE YOU TESTIFYING IN THIS PROCEEDING?
I am testifying on behalf of Monsanto Company, along with my colleague, Mr. Mike
Gorman.
II. PURPOSE OF TESTIMONY AND SUMMARY OF CONCLUSIONS
WHAT SUBJECTS DO YOU ADDRESS?
I have been asked to review Rocky Mountain Power s (or
, "
Company ) request for
an increase in rates to serve Monsanto s Soda Springs facility. Mr. Gorman and I will
make recommendations to the Idaho Public Utilities Commission ("Commission ) on
the adjustments to the Company s revenue requirement request as well as the
allocation of the overall net increase to Monsanto.
WHAT SPECIFIC AREAS DOES YOUR TESTIMONY COVER?
My testimony provides the analysis on the class cost of service study used to allocate
costs among all Idaho customers, as well as the valuation of Monsanto
interruptibility. Specifically, I provide testimony on ensuring that Monsanto does not
face additional costs through the fact that other customer class' loads are understated
in the Idaho class cost of service study ("Idaho CaS"), as well as the proper treatment
of the revenue reduction associated with the rate mitigation cap. My testimony also
quantifies the impact of revenue requirements as discussed in Mr. Gorman
testimony.In addition, I provide information as to the appropriate value of
Monsanto s interruptible products in the context of the general rate case, and the
appropriate credit to the firm demand charge.
Testimony of Kathryn E. Iverson - Page 2 BRUBAKER & ASSOCIATES, INc.
ARE YOU SPONSORING ANY EXHIBITS IN CONNECTION WITH YOUR
TESTIMONY?
Yes. I am sponsoring Exhibit 205 (KEI-1) through Exhibit 213 (KEI-9). These
exhibits were prepared either by me or under my supervision and direction.
WHAT PRICE DOES ROCKY MOUNTAIN POWER PROPOSE TO CHARGE
MONSANTO FOR SERVICE?
The Soda Springs facility currently pays an overall average price of $25.55 per MWH:
Total Firm Revenues:$48,668,727
$13.019.289)Less: Non-Firm kW Credit:
Net Revenues:$35,649,438
Divided by 1,395,545.2 MWH = $25.55 per MWH
In its filed case, Rocky Mountain Power originally proposed to increase Monsanto
rates by 33% to $33.96 per MWH:
Total Firm Revenues:$60,411 081
$13.019.289)Less: Non-Firm kW Credit:
Net Revenues:$47 391,792
Divided by 1,395,545.2 MWH = $33.96 per MWH
WOULD YOU PLEASE SUMMARIZE YOUR FINDINGS AND CONCLUSIONS?
My findings and conclusions are as follows:
Cost of Service and Revenue Reauirements:
Rocky Mountain Power has filed two revisions to its Idaho cas study in
response to requests by Monsanto. The cost study reflecting both of these
changes should be the starting point for any further modifications.
The class coincident peaks and energy loads included in the Idaho cas study
are understated when compared with the loads used in the JAM study to
allocate costs to the Idaho jurisdiction. If the loads in the Idaho cas study do
Testimony of Kathryn E. Iverson - Page 3 BRUBAKER & ASSOCIATES, INC.
not wholly reflect the JAM study loads, then customers such as Monsanto will
be forced to pick up more than their fair share.
The Idaho cas study should be adjusted in order to align the monthly loads to
the JAM study loads.
While I agree with the Company s determination of the dollar amount of the
reduction to its revenue requirement as a result of the rate mitigation cap, I do
not agree with the Company s approach to distributing the reduction.
The rate mitigation cap exists to mitigate (that is, lessen) the impact of moving
to the Revised Protocol method. Distribution costs are not affected by the
choice of allocation methodology since these costs are situs and directly
assigned to their respective jurisdictions.
The Company proposes to lower the rate of return across all functions in order
to reflect the revenue reduction stemming from the rate mitigation cap.
recommend this reduction be allocated to classes on the basis of their
generation and transmission rate base. This will better distribute the
mitigation dollars to the classes impacted by the transition from to the Revised
Protocol method.
My testimony includes the estimated impact of revenue requirement
adjustments for return on equity, severance costs, pension expenses, Sa2
allowances and 2007 plant additions.
As a result of the modifications to the cost study and the revenue requirement
adjustments, the firm revenue requirement to serve Monsanto is $53.1 million
or an increase of 9.2% in firm rates.
Valuation of Monsanto Interruptibilitv:
Monsanto has been an exemplary interruptible customer since 1951. As a
reliable customer, it allows Rocky Mountain Power to avoid or defer incurring
capacity costs for generation. It also provides opportunities to reduce fuel or
purchased power expenses during high cost periods.
Based on its current products of operating reserves, economic curtailment and
system integrity, the avoided peaker cost indicates a value of $20 million for
Monsanto.
Price stability and rate certainty have been consistent priorities for Monsanto
management. Valuations methods which produce widely swinging or erratic
values year-to-year cannot be considered either stable or certain.
The Company has offered its valuation of Monsanto s product under two
methods: the Front Office model and the GRID model. These models do not
adequately consider the avoided capacity costs associated with avoiding or
deferring generation.
Testimony of Kathryn E. Iverson - Page 4 BRUBAKER & ASSOCIATES, INC.
Furthermore, the models support conflicting conclusions on the value of
Monsanto and demonstrate wide swings in values. The Front Office model, in
particular, focuses exclusively on valuing Monsanto s reserves on the basis of
its least-profitable gas units.
The results of the Company s "lost profit" reserve valuation in this case are
simply not robust and do not reflect a sound basis on which to value
Monsanto interruptibility. Results can be greatly manipulated merely by
including - or excluding - certain resources. I recommend the Commission
place no weight on the Company s reserve valuations.
The anticipated benefits of using interruptibility as a hedge against market
price increases is entirely missing from the Company s filing. A proper
reflection of the value would alleviate the double-digit increase to Monsanto
and help keep its rates affordable.
I recommend the value of Monsanto s interruptible products be set at not less
than $18 million for purposes of setting rates in this case.
The impact of an increase in firm rates, together with the interruptible
valuation results in a net price of $25.27 per MWH to Monsanto.
HOW IS YOUR TESTIMONY ORGANIZED?
My testimony will first discuss the treatment of Monsanto loads in the cost study.
Next, I discuss the allocation of costs to Monsanto as a firm customer with revisions
to the Company cost study and adjustment for various revenue requirement issues.
Third, my testimony will address the quantification of valuing Monsanto
interruptibility and how Rocky Mountain Power s proposed models fail to account for a
proper level of avoided capacity costs.
III. BACKGROUND ON THE
TREATMENT OF MONSANTO IN COST STUDIES
DOES MONSANTO RECEIVE FIRM SERVICE FROM ROCKY MOUNTAIN
POWER?
Only a very small portion (9 MW) of Monsanto s total 180 MW is served under firm
rates. The vast majority of Monsanto s load is interruptible and is charged a lesser
Testimony of Kathryn E. Iverson - Page 5 BRUBAKER & ASSOCIATES, 1Nc.
demand charge. For cost allocation purposes Monsanto is treated as though it were
100% firm, although in reality Monsanto is primarily an interruptible customer.
IF MONSANTO IS PRIMARILY AN INTERRUPTIBLE CUSTOMER, THEN HOW
DOES ROCKY MOUNTAIN POWER DETERMINE THE COSTS TO SERVE THE
LOAD?
Rocky Mountain Power adjusts Monsanto s test period loads to reflect what Monsanto
would have consumed had it been a firm customer. Then once the cost to serve
Monsanto as a firm customer is established, Rocky Mountain Power deducts from the
firm rate a credit for the interruptibility. The current credit is $6.36 per kW-month.
Applied to 2,047,058 kW-months this results in a $13.0 million credit. My testimony
will discuss the valuation credit in Section V.
WHAT ADJUSTMENTS MUST ROCKY MOUNTAIN POWER MAKE TO
MONSANTO'S ACTUAL METERED LOADS FOR TREATMENT IN ITS COST
STUDIES?
Metered loads reflect "buy through" or "replacement" energy at times. Metered loads
also reflect the fact that one or more furnaces were curtailed or interrupted at times.
Consequently, Rocky Mountain Power must first deduct any "replacement" energy
taken by Monsanto from the actual metered loads.It then adds back the
curtailment/interrupted energy to arrive at a total firm load for Monsanto.
WHAT IS MEANT BY "REPLACEMENT" ENERGY?
During times of economic curtailment, Monsanto may elect to buy through rather than
physically curtail its electric phosphorous furnace load. Under this option, Monsanto
can buy-through by paying Rocky Mountain Power for replacement energy at an
Testimony of Kathryn E. Iverson - Page 6 BRUBAKER & ASSOCIATES, INc.
adjusted index price. This price is meant to directly compensate Rocky Mountain
Power for the costs associated with acquiring the replacement energy from another
entity.Monsanto may not buy-through during interruptions called for operating
reserves or system integrity.
HAS THE COMPANY PROPERLY ACCOUNTED FOR MONSANTO'S LOADS IN
ITS ORIGINAL FILING?
No. Rocky Mountain Power acknowledges that it did not deduct 67 MW of buy-
through in the coincident peaks of September, November and December in its
originally filed Idaho COS.Correction of this error has been made in a revised
Exhibit 30 provided as Attach Monsanto 9.6 to the Company s response to Monsanto
Data Request 9.6. I have attached this response and the summary pages of the
revised Idaho cas study as Exhibit 205 (KEI-1).
IV. MODIFICATIONS TO ROCKY MOUNTAIN
POWER CLASS COST STUDY
WHAT ARE THE RESULTS OF THE IDAHO CLASS COST STUDY AS
ORIGINALLY FILED BY ROCKY MOUNTAIN POWER?
Table 1 presents the results of Rocky Mountain Power s cost study:
Response to Monsanto Data Request 9.6 a.
Testimony of Kathryn E. Iverson - Page 7 BRUBAKER & ASSOCIATES, INC.
TABLE 1
Rocky Mountain Power Results of Class Cost of Service
as Initiallv Filed in Case No. PAC-07-
Increase
Present (Decrease) to Percentage
Revenue Eaual ROR Chanae
Residential $ 51 015 604 $ 3 681,443 7.2%
General Service 34,512 075 635,836)-4.
Irrigation 39,404 679 876 845
Other 977,444 221 661 22.
Agrium 998 852 580,053 14.
Monsanto 48.668.727 11.742.384 24.
Total $178 577 381 $18,466,550 10.
Source:Exhibit No. 28
As the above results illustrate, the Company s filed class cost of service results in an
increase to Monsanto s firm rates of 24.1 %.
HAS THE COMPANY PROVIDED ANY UPDATES TO ITS COST STUDIES SINCE
IT INITIALLY FILED ITS GENERAL RATE CASE?
Yes, it has provided two updates. First, it was discovered that the power supply costs
presented in the Company s rate case were incorrect due to a categorization error in
which one of the Company s systems did not differentiate gas purchases from gas
sales. A revised Exhibit 30 (Idaho CaS) was provided in the Company s response to
Monsanto Data Request 7.
Second , as explained earlier Rocky Mountain Power overstated Monsanto
coincident peaks in its originally filed Exhibit 30. A corrected Idaho cas study was
provided in the Company s response to Monsanto Data Request 9.6. The results of
these two corrections are shown in Table 2:
Testimony of Kathryn E. Iverson - Page 8 BRUBAKER & ASSOCIATES, INc.
TABLE 2
Rocky Mountain Power Results of Class Cost of Service
As Corrected for Gas Categorization Error
and the Overstatement of Monsanto Loads
Increase
Present (Decrease) to Percentage
Revenue Eaual ROR Chanae
Residential $ 51 015,604 $ 3,842 580
General Service 512 075 535,457)-4.4%
Irrigation 39,404 679 739,469
Other 977 ,444 224 339 23.
Agrium 998 852 585 019 14.
Monsanto 48.668,727 358.982 19.
Total $178 577 381 $16 214 931
Source: Response to Monsanto Data Request No. 9.See also
Exhibit 205 (KEI-
Based on this corrected cost study, the overall change in Monsanto s net rate would
be 26% compared to the 33% as originally filed, assuming no change in the
interruptibility credit:
Total Firm Revenues:$58,027,709
$13,019.289)Less: Non-Firm kW Credit:
Net Revenues:$45,008,420
Divided by 1 395,545.2 MWH = $32.25 per MWH
WHAT MODIFICATIONS HAVE YOU MADE TO THE IDAHO CLASS COST OF
SERVICE STUDY?
I have made two modifications to the Company s Idaho COSo First, I have adjusted
class coincident peaks and energy of most non-contract classes to better align Idaho
Testimony of Kathryn E. Iverson - Page 9 BRUBAKER & ASSOCIATES, INc.
cas total loads with those in the JAM study. Second, I have applied the revenue
reduction stemming from the rate mitigation cap to all customer classes based on
their share of generation and transmission rate base. This is an alternative to Rocky
Mountain Power s approach which lowered the rate of return on all functions.
Lastly, as detailed in Mr. Gorman s testimony, there are five other adjustments to
Rocky Mountain Power s revenue requirement which must also flow through the cost
study. I have made separate adjustments to account for the estimate of these
proposals. Other parties may have further revenue requirement adjustments that
could also ultimately impact the cost to serve each class and would then need to also
be incorporated in the JAM study and in the Idaho COSo
A!janmen~Between y,e JA~V an~ the Idaho COs Study
PLEASE EXPLAIN THE LEVEL OF IDAHO LOADS USED IN ROCKY MOUNTAIN
POWER'S JAM STUDY.
Exhibit 206 (KEI-2) details the coincident peaks and energy loads employed by
Rocky Mountain Power in its JAM study. Page 1 provides the coincident peaks by
month starting with the metered loads at input and page 2 details the energy loads.
Replacement (or buy-through) amounts are shown in column 2 on each page, and
the addition of curtailments are shown in column 3. The fourth column shows the
temperature adjustments made in order to normalize load for weather. The total 12
CP for Idaho is 5,784 MW, and the total MWH load is 3,689,647 MWH. These
amounts were used in the JAM study for purposes of allocating costs to the Idaho
jurisdiction.
Testimony of Kathryn E. Iverson - Page 10 BRUBAKER & ASSOCIATES, INC.
HOW DO THESE AMOUNTS COMPARE TO THE LOADS ASSUMED IN THE
IDAHO CLASS COST STUDY?
A comparison of the JAM study monthly loads to the Idaho cas study is provided in
Exhibit 207 (KEI-3). The total coincident peaks of the Idaho cas are 2.1 % lower
than the peaks used in the JAM study and the energy loads are 2.5% lower than the
energy used in the JAM study.
ARE THE DIFFERENCES IN LOADS BETWEEN THE JAM STUDY AND IDAHO
COS STUDY MORE NOTICEABLE IN CERTAIN SEASONS?
Yes. Almost the entire difference for the peaks occurs in the June, July, August time
frame. When we look at just those three months, the Idaho cas loads are 6.8% less
than the loads used for the same months in the JAM study. This is a critical
discrepancy as those three months are used in the development of allocation factors
applicable to seasonal resources:
The costs of Seasonal Resources are allocated using seasonal factors
because they are designed to be used more intensively at certain
times of the year. (Exhibit 30, Tab 1, page 7)
WHY ARE THE TOTAL LOADS SO DIFFERENT BETWEEN THE JAM STUDY
AND THE IDAHO CLASS COST STUDY?
Rocky Mountain Power explains this discrepancy in their response to IIPA Data
Request 1.
The state load data that is used for jurisdictional allocation will not
reconcile to the sum of the class loads used in the cost of service
study because they are calculated differently. Because the metering
points and the treatment of losses are different between the two
calculations, the numbers will not match.
See Response to IIPA Data Request 1.3. Rocky Mountain Power s comparison of JAM study
loads and Idaho COS loads was made before it was discovered that Monsanto s coincident peaks
were overstated in the Idaho COSo
Testimony of Kathryn E. Iverson - Page BRUBAKER & ASSOCIATES, INc.
WHICH CLASSES ARE CONTRIBUTING TO THE DEVIATION OF LOADS
BETWEEN THE JAM STUDY AND THE IDAHO COS STUDY?
We know for certain this deviation is not from the two special contract loads -
Monsanto and Agrium. These customers are metered with interval demand meters
and consequently their loads are known with certainty for all 8,760 hours of the year.
The deviation of loads thus lies with other customer classes. The load for the majority
of all other classes comes from either load research sample data, historical load
research, or data from a prior year. Schedule 8 and 9 are taken from census data.
ROCKY MOUNTAIN POWER CLAIMS THAT THE DIFFERENCES IN LOADS
BETWEEN THE JAM STUDY AND THE IDAHO CLASS COST STUDY ARE ONLY
5% AND 2.6% IN TOTAL. DOES THIS DIFFERENCE REALLY MATTER?
Yes, it most certainly does for customers who are allocated a large share of the Idaho
jurisdictional costs. Costs are allocated to the Idaho jurisdiction based on the monthly
peaks and energy loads of the JAM study, and then those allocated costs are
transferred into the Idaho cas study. If the loads in the Idaho cas study do not
wholly reflect the full JAM study loads, then customers such as Monsanto and Agrium
are forced to pick up more than their fair share.
For example, Monsanto s share of the total 12 CP of the JAM study is 36.
(2,093,891 + 5,783,958 kW). However, because the coincident peaks in the Idaho
cas study are understated, Monsanto picks up 37.0% (2,093,891 + 5,660,775), a
hiaher share of the 12 CP.
The energy discrepancy impacts Monsanto even more so. Monsanto s share
of the total energy load included in the JAM study is 39.54% (1,458,945 + 3,689,647
Response to Data Request IIPA 1-
Testimony of Kathryn E. Iverson - Page 12 BRUBAKER & ASSOCIATES, INc.
MWH).Since the energy loads in the Idaho cas study are so understated,
Monsanto picks up a full percentaqe point more of costs allocated on the basis of
energy; Monsanto s energy allocator in the Idaho cas is 40.56% (1,458,945 +
596,569).
As a result of these discrepancies, Monsanto is being allocated more costs
than are warranted based on the costs stemming from the JAM study. Furthermore,
the Company proposes to increase rates for Monsanto and Agrium equal to their
full
cost of service results. Thus, it is even more important that these contract customers
costs not be unfairly raised as a result of understating the loads of the non-contract
customers.
HOW CAN THIS PROBLEM BE RECTIFIED?
The loads of the customer classes other than special contract, Schedule 8 and
Schedule 9 should be adjusted either up or down in order to align Idaho cas study
monthly peaks and energy sales to the amounts employed in the JAM study. In order
to determine these monthly adjustments, I have compared the non-contract/Schedule
8/9 loads of the JAM study against the non-contract/Schedule 8/9 loads of the Idaho
class cost study. Adjustment factors were then determined for each month for both
the peaks and energy as shown on Exhibit 208 (KEI-4). The overall adjustment
reflects an increase of 3.8% for coincident peaks, and 4.9% for energy. Thus, when
the cost study is run based on loads which better align to the JAM study, Monsanto
increase is $8.0 million as summarized below:
Testimony of Kathryn E. Iverson - Page 13 BRUBAKER & ASSOCIATES, INc.
TABLE 3
Rocky Mountain Power Results of Class Cost of Service
As Corrected for Gas Categorization Error
the Overstatement of Monsanto Loads and
the Alianment of Class Loads to the JAM Study Loads
Increase
Present (Decrease) to Percentage
Revenue Eaual ROR Chanae
Residential $ 51 015,604 $ 4 140 5828
General Service 512 075 274 058)
Irrigation 39,404 679 644.790 11.
Other 977,444 228 725 23.4%
Agrium 998,852 479,387 12.
Monsanto 48.668.727 995.505 16.4%
Total $178 577 381 $16 214 931
Source:Monsanto Workpapers
Based on this corrected cost study, the overall change in Monsanto s net rate would
be 22.4% compared to the 33% as originally filed:
Total Firm Revenues:$56,664 232
$13.019.289)Less: Non-Firm kW Credit:
Net Revenues:$43,644 943
Divided by 1,395,545.2 MWH = $31.27 per MWH
Testimony of Kathryn E. Iverson - Page 14 BRUBAKER & ASSOCIATES, INC.
of the Rate Mitiaation Cap
WHAT IS THE REDUCTION TO THE REQUESTED INCREASE AS A RESULT OF
THE RATE MITIGATION CAP?
Rocky Mountain Power has reduced the Revised Protocol revenue requirement by
$3,561,268 in its original filing.4 This amount has now been adjusted downward to
$3,308,193 as a result of the correction of the gas categorization error.
HOW DOES ROCKY MOUNTAIN POWER PROPOSE TO HANDLE THIS
REDUCTION?
The Company has reduced its overall requested rate of return in its Idaho cas study
from 8.52% down to 8.07% in order to provide the revenue reduction back to its
customers.6 The Idaho cas study is based on the Revised Protocol method JAM
results, not on the Rolled-In method since the Company no longer performs class
cost studies based on the Rolled-In allocation.
DO YOU AGREE WITH ROCKY MOUNTAIN POWER'S TREATMENT OF THE
RATE MITIGATION CAP?
No. While I agree with Rocky Mountain Power s determination of the dollar amount of
the reduction to its revenue requirement, I do not agree with the Company s approach
to distributing the reduction. By using a lower rate of return in the Idaho cas study,
the Company s method mitigates the increase across all functions. However, the
page 1.0 of Exhibit No. 11.
Rocky Mountain Power Response to IPUG Audit Data Request 107, Attachment
IPUG 107 b 2.
See Response to Monsanto Data Request 7.
See Response to Monsanto Data Request 1.16: "Separate cost of service allocations for
Rolled-In are no longer calculated in any of the company s jurisdictions.
Testimony of Kathryn E. Iverson - Page 15 BRUBAKER & ASSOCIATES, INC.
movement of going from the Rolled-In allocation method to the Revised Protocol
allocation methodology impacts system-wide costs that are allocated among all of
PacifiCorp s jurisdictions, that is, generation and transmission-related costs.
Distribution costs are not affected by the choice of allocation methodology since
these costs are situs and directly assigned to their respective jurisdictions. Lowering
the return to distribution functions is not a proper use of the revenue reduction from
the rate mitigation cap.
WHY IS LOWERING THE RETURN TO THE DISTRIBUTION FUNCTION
IMPROPER?
A review of the Revised Protocol and Rolled-In workpapers show that distribution
expenses and distribution total plant are exactly the same between the two
jurisdictional allocation methodologies.B Since the distribution function is unaffected
by the transition to the Revised Protocol methodology it does not make sense
provide any portion of the rate mitigation cap to reducing the distribution revenue
requirement.
In other words, the rate mitigation cap exists to mitigate (that is, lessen) the
impact of moving to the Revised Protocol method. Since there are no added costs to
mitigate for the distribution and retail functions, it makes no sense to apply any of the
rate mitigation cap dollars to the distribution and retail functions.Instead, the
reduction in revenues should apply only to the generation and transmission functions.
See Pages 2.12 and 9.12 of Exhibit 11 showing that distribution expense is $10 136 621 for
both methods. See Pages 2.26 and 9.26 of Exhibit 11 showing that distribution total plant is
$229,476 980 for both methods.
Testimony of Kathryn E. Iverson - Page 16 BRUBAKER & ASSOCIATES, INC.
HOW DO YOU PROPOSE THE RATE MITIGATION CAP BE TREATED IN THIS
CASE?
Rocky Mountain Power should first calculate the increases to the customer classes
based on the full authorized rate of return. The rate mitigation cap reduction should
then be allocated to all classes based on their share of generation and transmission
rate base. I should emphasize this does not impact the overall amount of rate
mitigation cap dollars, it correctly distributes those mitigation dollars to the classes
impacted by the transition from the Rolled-In method to the Revised Protocol.
HAVE YOU QUANTIFIED THE IMPACT OF YOUR PROPOSAL?
Yes. Exhibit 209 (KEI-5) quantifies the distribution of the $3.million revenue
reduction as proposed by the Company in column (1). Column (2) shows the same
amount of revenue reduction, however, allocated under our proposal on the basis of
generation and transmission rate base. This analysis is based on the results of the
cost study presented in Table 3, and assumes the Company s request for a return on
equity of 10.75%.
Other Revenue ReQuirement Adjustments
WHAT OTHER REVENUE REQUIREMENT ADJUSTMENTS SHOULD BE
INCORPORATED IN THE CLASS COST STUDY?
Mr. Gorman addresses the following revenue requirement issues. The impacts
these adjustments are as follows:
Return on Eauity:Mr. Gorman supports a return on equity ("ROE") of 10.00%
compared to the Company s request for 10.75%, reducing the Company s request
by roughly $3 million.
Testimony of Kathryn E. Iverson - Page 17 BRUBAKER & ASSOCIATES, INC.
Transition Severance:This adjustment reduces Idaho s revenue requirement by
$542,387. As an adjustment to Account 930, it is functionalized on the LABOR
allocator and allocated to the classes.
Pension Expenses:This adjustment reduces Idaho s revenue requirement by
approximately $1 million. It is functionalized and allocated on the same basis as
the severance adjustment above.
SOz Allowances:This adjustment reduces Idaho revenue requirement by
approximately $850 000.
2007 Plant Additions:This adjustment reduces Idaho revenue requirement by
approximately $4.7 million.
HAVE YOU ESTIMATED THE IMPACT OF EACH OF THESE ADJUSTMENTS ON
CUSTOMER CLASSES?
Yes. Starting with the results of the Idaho cas study shown on Table 3, I have
separately estimated the impact of the various adjustments on Exhibit 210 (KEI-6).
While the proper method would be to run these adjustments through the JAM study
(both the Rolled-In and Revised Protocol methods for purposes of the rate mitigation
cap) as well as the Idaho cas study, for purposes of this testimony we have simply
shown the adjustments made external to the cost studies. Any compliance study
created as a result of the Commission s decision in this case would of course adjust
the JAM studies and the Idaho cas study so that all adjustments flow through to their
proper functionalization and allocation.
Summary of Cost Allocation Studies
PLEASE SUMMARIZE THE RESULTS OF YOUR COST STUDIES AND
MODIFICATIONS.
Table 4 summarizes the results of the cost studies with the treatment of Monsanto as
a firm customer:
Testimony of Kathryn E. Iverson - Page 18 BRUBAKER & ASSOCIATES, INc.
TABLE 4
Adjusted Cost of Service Study Results
Increase
Present (Decrease) to Percentage
Revenue Eaual ROR Chanae
Residential $ 51 015 604 $ 1,617,290 3.2%
General Service 512 075 (3,092,821)
Irrigation 39,404 679 647 368
Other 977,444 177 234 18.
Agrium 998,852 207 001
Monsanto 48.668.727 4.472640 9.2%
Total $178 577 381 $ 6 028,712 3.4%
Source: Exhibit 210 (KEI-
Based on this adjusted results of the cost study, Monsanto s firm cost of power would
be $38.08 per MWH. With no change in the interruption valuation, Monsanto s net
rate would be $28.75 per MWH, or an increase of 12.5% above the current net rate of
$25.55 per MWH.
Total Firm Revenues:$53,141,367
$13.019.289)Less: Non-Firm kW Credit:
Net Revenues:$40 122,078
Divided by 1,395,545.2 MWH = $28.75 per MWH
Based on the above firm revenue requirement, the firm rates for Monsanto would be
$1,275 per month customer charge, a demand charge of $10.92 per kW-month and
an energy charge of 1205i per kWh.
Testimony of Kathryn E. Iverson - Page 19 BRUBAKER & ASSOCIATES, 1Nc.
V. VALUATION OF MONSANTO INTERRUPTIBILITY
WHAT AMOUNT OF CREDIT DOES MONSANTO CURRENTLY RECEIVE FOR ITS
INTERRUPTIBILlTY?
The majority of Monsanto s load is served under an interruptible demand charge of
$3.64 per kW-month. This represents a credit of $6.36 off the $10.00 firm demand
charge. As I stated earlier, the $13 million credit offsets the firm revenue requirement
and results in a current net rate to Monsanto of $25.55 per MWH.
IS THE CURRENT CREDIT BASED ON ANY PARTICULAR VALUATION
METHODOLOGY?
No. The 2007 Electric Service Agreement ("2007 ESA") was negotiated in spring
2006 with rates agreed upon by the parties as reasonable and acceptable for service
to the Soda Springs facility. While information was provided by the Company on its
cost study, there was never an attempt to tie either the firm rates to a compliance cost
study, or to claim any particular method as the basis for the reduced demand charge
for non-firm service.
WHAT AMOUNT OF INTERRUPTIBILlTv DOES MONSANTO PROVIDE ROCKY
MOUNTAIN POWER?
The 2007 ESA provides for three products: (1) Operating Reserves of 95 MW which
can be called upon 188 hours per calendar year; (2) Economic Curtailment of 67 MW
available for 800 hours per calendar year; and (3) System Integrity of 162
available 12 hours per calendar year.
Testimony of Kathryn E. Iverson - Page 20 BRUBAKER & ASSOCIATES, INc.
WHAT RECOMMENDATIONS DO YOU MAKE TO THE COMMISSION FOR
PURPOSES OF ESTABLISHING A PROPER CREDIT FOR MONSANTO'
INTERRUPTIBLE PRODUCTS?
Before going into the details, let me first start with a few basic points regarding the
valuation:
1. Monsanto is a long-term customer. It has been an exemplary interruptible
customer complying with Rocky Mountain Power s curtailment requests over the
last fifty-plus years. Given its long-term commitment, we believe this surely
justifies valuing Monsanto on the basis of avoided capacity and energy.
2. Price stability and rate certainty have been consistent priorities for Monsanto
management. Valuation methods which produce widely swinging or erratic values
year-to-year can not be considered either stable or certain.
3. Rocky Mountain Power assumes that Monsanto s interruptible load contract is
extended to the end of their resource planning period.In order to retain such
contracts in their portfolio, the Company should encourage commitment through
fair and reasonable valuations.
4. Demand response resources, such as interruptible contracts, promote efficient
use of resources in general and depending on generation fuel mix, can help
reduce externalities in power generation and reduce emissions.1O Protecting and
enhancing the environment is at the forefront of Rocky Mountain Power
business strategy and the Monsanto interruptible contract is consistent with that
strategy.
DO YOU BELIEVE THAT ROCKY MOUNTAIN POWER HAS FAILED IN ITS
TESTIMONY TO RECOGNIZE THESE BASIC POINTS?
Yes, I do.
1. Rocky Mountain Power handles valuation on a year-to-year basis. It never
approaches the valuation of Monsanto as a capacity-focused program.
2. Results of Rocky Mountain Power s models are conflicting and show erratic
swings in valuation. For example, the introduction of a single new resource in a
single month can result in wiping out $1.4 million of the annual value.
PacifiCorp 2007 Integrated Resource Plan, Chapter 4, page 74.
PacifiCorp 2007 Integrated Resource Plan , Appendix B, page 8.
Testimony of Kathryn E. Iverson - Page 21 BRUBAKER & ASSOCIATES, INC.
3. The Company s valuation offers no hedge against market prices. Claiming that
the value has decreased 25% since last year, while simultaneously seeking a rate
increase of 24% to Monsanto s firm rates, does not constitute a fair and
reasonable approach to encourage retention of its interruptible contract.
Monsan~o as a Capacity-Focused Lona-Term Resource
HOW LONG HAS MONSANTO BEEN A CUSTOMER?
Monsanto has been a reliable interruptible customer since 1951 and has adequate
ore to be mined for another 40 years. The fact that Monsanto has been an unfailing
customer these fifty-plus years along with its commitment to remain operating in
Idaho in the foreseeable future all point to treating Monsanto s interruptibility as a
long-term resource.
WHAT ARE THE ECONOMIC BENEFITS TO THE UTILITY, THE CONSUMERS
AND THE POWER SYSTEM AS A WHOLE FROM A LONG-TERM
INTERRUPTIBLE PROGRAM SUCH AS MONSANTO'S CONTRACT?
According to PacifiCorp s IRP , there are a host of economic benefits, but cost
avoidance and cost reduction are the main economic drivers.Perhaps the
Company s 2007 IRP stated it best:
Demand response allows utilities to avoid or defer incurring costs for
generation , transmission , and distribution includina capacity costs
line losses, and congestion charges. (PacifiCorp 2007 IRP,
Appendix B, page 7 , emphasis added)
ARE THERE OTHER SYSTEM BENEFITS AS WELL?
The support of reliability in power supply and delivery during system emergencies is
also a benefit when customers such as Monsanto can shed load during emergency
conditions. This is further explained in the 2007 lRP:
Customer demand management can enhance reliability of the electric
supply and delivery systems by providing the utility with the means to
Testimony of Kathryn E. Iverson - Page 22 BRUBAKER & ASSOCIATES, INc.
better balance loads with supply during system emergencies and/or
high-use periods. In this context, (demand response) can help
improve the adequacy and security of the power supply and delivery
(T&D) systems by augmenting the utility s ancillary services, such as
supplemental reserve. (PacifiCorp 2007 IRP, Appendix B, pages 7-
DOES MONSANTO PROVIDE THESE BENEFITS TO ROCKY MOUNTAIN POWER
AND ITS CUSTOMERS?
Yes it does. Monsanto s contract allows Rocky Mountain Power to avoid or defer
incurring capacity costs for generation, It also allows the Company to reduce its fuel
or purchased power expense by calling upon Monsanto for economic curtailment over
800 hours each year. Furthermore, since Monsanto is able to interrupt within a ten-
minute time period, it qualifies as a resource that can provide operating reserves. For
the test period 2006, the Company called on Monsanto 70 times for operating
reserves, with the interruptions occurring fairly consistently across the year.
Interruptions for operating reserves can occur at any time and in any month, and
Monsanto stands available 24 hours per day to provide this product.
Monsanto also provides Rocky Mountain Power the means to balance system
loads during system emergencies. The loads of its three furnaces - 162 MW - are
available for curtailments for system integrity purposes.
IS MONSANTO A "CAPACITY-FOCUSED" RESOURCE?
Yes, Monsanto s load is a flexible, price-responsive load that may be curtailed in
whole or in part during system emergencies, or during periods of high market prices
or stressed regional resources. In valuing the resource then, it makes sense to base
its avoided cost not on some short-term value, but the long-run avoided cost
resources with similar attributes. A combustion turbine ("CT"), like Monsanto, is used
Testimony of Kathryn E. Iverson - Page 23 BRUBAKER & ASSOCIATES, 1Ne.
to meet peak periods of high demand, or in situations where numerous generator
outages result in scarce resources.
DO YOU BELIEVE THAT ROCKY MOUNTAIN POWER CURRENTLY USES
MONSANTO'INTERRUPTIBLE PRODUCTS MUCH LIKE IT WOULD A
COMBUSTION TURBINE?
Yes. Rocky Mountain Power calls upon Monsanto practically every month of the year
to provide either operating reserves or economic curtailment. In times of emergency,
the Company has called on Monsanto to interrupt all three of its furnaces, or has
sought Monsanto s cooperation to keep furnaces from coming on-line. Monsanto has
been highly successful in its performance and the Company has even sought
additional curtailments at critical times. A recent example occurred on July 25, 2006
when Monsanto was able to respond quickly to Rocky Mountain Power s appeal for
an additional 47 MW of curtailment above the existing 67 MW already under
curtailment. The fact that Monsanto is willing to provide additional curtailments when
needed showcases its on-going commitment to work with Rocky Mountain Power for
the good of the system.
ARE THERE PENALTIES IF MONSANTO DOESN'T PERFORM?
Yes, there are penalties set forth in the 2007 ESA, but Rocky Mountain has never
had to exercise them since Monsanto has complied 100% with all requests. In fact, if
Monsanto does not comply, there is a $150,000 penalty for each occurrence and with
only "two strikes" Rocky Mountain Power can petition the Commission for appropriate
relief.
Testimony of Kathryn E. Iverson - Page 24 BRUBAKER & ASSOCIATES, INc.
SINCE MONSANTO'S LOAD IS TREATED LIKE A COMBUSTION TURBINE
SHOULD ITS VALUE BE LIKEWISE DETERMINED ON THE BASIS OF THE
AVOIDED COST OF A COMBUSTION TURBINE?
Yes. The credit should be based on the costs Rocky Mountain Power would incur if it
were to build and install a new CT. A turbine that can provide quick-start capability
less than ten minutes, such as aero-derivative simple cycle combustion turbine ("Aero
SCCT") should be used as the basis for the load which Monsanto can curtail within
ten minutes, in particular the 95 MW of operating reserves. While the 67 MW of
economic curtailment can also be interrupted in a matter of seconds for the 12 hours
of system integrity, the contract currently requires a two-hour notice for the 800 hours
of economic curtailment. Thus, to be conservative I have used the lesser capacity
cost of a turbine that does not have quick-start capability, e., a 2 Frame "F" simple
cycle combustion turbine ("Frame CT"), to model the value associated with the 67
MW furnace load.
WHAT ARE THE COSTS ASSOCIATED WITH THESE TWO TYPES OF
TURBINES?
The avoided capital and running costs of these turbines are shown in Exhibit 211
(KEI-7). These figures represent Rocky Mountain Power s own estimates of peaking
resources in the East as detailed in the May 2007 Integrated Resource Plan ("2007
IRP"
The real levelized11 cost of an Aero SCCT ranges between $92.94 and
$100.79 per kW (2006$) based on construction in Utah of a 78 or 79 MW unit at a
carrying charge of 9.51 % and including fixed operation and maintenance and other
Real levelized capacity costs used in this analysis comprise the first year s deferral. Real
levelization (in contrast to a nominal levelization), assumes that the avoided capital portion would
increase each year by the rate of inflation.
Testimony of Kathryn E. Iverson - Page 25 BRUBAKER & ASSOCIATES, INc.
costS.12 The avoided energy costs range between $68.04 and $81.61 per MWH. The
lower capacity cost of the Frame CT is $47.89 per kW-year on a reallevelized basis
with higher energy costs of $90.70 per MWH.
Applying these two sets of resource costs to the 95 MW of operating reserves,
and the 67 MW of economic curtailment results in a value of roughly $20 million:
$11.8 million attributable to the operating reserves portion 13 and $8.5 million for the
economic curtailment.
YOU HAVE STATED THAT THE COMPANY NEVER APPROACHES THE
VALUATION OF MONSANTO AS A CAPACITY-FOCUSED PROGRAM. WHAT
HAS LED YOU TO THIS CONCLUSION?
Rocky Mountain Power has valued Monsanto under two methods: the Front Office
model, and its GRID net power costs model. The Front Office model separately
values each of Monsanto s products, but only based upon projected forward price
curves and lost "profits" for the years 2008 and 2009. Consequently, the value from
the Front Office model is simply the result of short-run projected market prices (and to
some degree on the running costs of its own "highest cost" plants).
Likewise, the GRID model also values Monsanto based on additional sales in
a single year (either 2008 or 2009) under projected market prices, whether as a result
of reduced sales to Monsanto or additional generation from existing resources. The
GRID model is incapable of calculating a value for the system integrity component.
The only capacity value captured by these two models, consequently, is the extent to
which the forward market piices include an implied capacity payment, as suggested
by the Company:
2007 IRP, page 93 and 95.
This also includes the avoided energy cost associated with system integrity as well.
Testimony of Kathryn E. Iverson - Page 26 BRUBAKER & ASSOCIATES, INc.
The market prices used in the company s filing are based on price
quotes from independent third party brokers and other market
intelligence. The company believes there is an implied capacity
component in the market price, but has not attempted to measure the
amount. (Response to Monsanto Data Request 9.
HAVE YOU QUANTIFIED THE IMPLIED CAPACITY COMPONENT OF THE
COMPANY'S VALUES?
Yes. A quantification of the implied avoided capacity component is presented in
Exhibit 212 (KEI-8) under two scenarios: the incremental generating units are
assumed as either peaking resources with an average running cost of $80.12 per
MWH, or the incremental units are assumed as intermediate type resources, such as
a combined cycle unit, with running costs of $52.21 per MWH. These two scenarios
present reasonable approximations for analyzing what amount of capacity costs are
implied within the Company s projected market prices.
For operating reserves (shown on page 1 of Exhibit 212), the implied capacity
costs from the Company s models range from $13 per kW-year to a high of $44 per
kW-year. These low values aptly demonstrate the failure of the Company s models to
reasonably reflect the avoided capacity cost of an Aero SCCT averaging $97 per kW-
year.Furthermore, these implicit capacity values are all substantially less than
PacifiCorp s $98 avoided cost of capacity used in its recent assessment of long-term,
system-wide demand side resources.
For the economic curtailment component (shown on page 2 of Exhibit 212),
the implied capacity values range from $8 to $40 per kW-year. While the amounts
stemming from the Front Office model (line 12, columns 1 and 2) arc somewhat
14"Assessment of Long-Term, System-Wide Potential for Demand-Side and Other
Supplemental Resources " prepared for PacifiCorp, July 11 , 2007, page 17.
Testimony of Kathryn E. Iverson - Page 27 BRUBAKER & ASSOCIATES, INC.
closer to the avoided cost of a Frame CT ($48/kW-yr), the implied capacity costs from
the GRID model are 40% less than the first year deferral cost of a Frame CT.
WHAT DO YOU CONCLUDE FROM YOUR QUANTIFICATION?
The annual market values used in the Company s models do not adequately reflect
the avoided capacity costs associated with peaking resources. While the implied
capacity costs found in the Front Office model value of economic curtailment come to
within 84% of Rocky Mountain Power s avoided cost of capacity of a Frame CT , the
operating reserves valuation performed by the Company significantly understates the
avoided capital cost of the Company. The $20 million value determined in Exhibit
211 properly accounts for the avoided costs and the Company s methods do not.
~v and ~ic swinas under the Company s Methods
WHAT IS ROCKY MOUNTAIN POWER'S UNDERLYING PRINCIPLE TO VALUING
INTERRUPTIBLE PRODUCTS?
As outlined in Mr. Widmer s Supplemental Testimony, the Company follows a
ratepayer indifference" approach:
The Company follows a "ratepayer indifference" approach similar to
what is used in calculating avoided costs for qualifying facilities. In
other words, the Company seeks to pay industrial customers who can
offer curtailment products the same price the Company would
otherwise pay if it were to acquire those same products from other
sources, such as the market or its own resources. ...
Therefore, ratepayer equity suggests that the price paid to industrial
customers for curtailment products should be no greater than the
amount the Company would incur if it were to acquire those same
products from the next lowest cost available resource." (Supplemental
Direct Testimony of Mark Widmer, page 3)
Testimony of Kathryn E. Iverson - Page 28 BRUBAKER & ASSOCIATES, INC.
DO ROCKY MOUNTAIN POWER'S MODELS YIELD CONFLICTING RESULTS?
Yes. First, looking at the Front Office model, the results show a drop of over 40%
the value attributed to the 95 MW reserves between years 2008 and 2009
(Exhibit 212, page 1 , line 1, columns (1) and (2)). However, the GRID model shows
an increase of 33%in the same time frame. The two models support conflicting
conclusions about the changing value of operating reserves.
Second, the Front Office model values economic curtailment consistently at
$5.8 million in both 2008 and 2009 (Exhibit 212, page 2, line 1 , columns (1) and (2)).
However, the GRID model values this curtailment 14% less than the Front Office
model even though their market price curves are within three months of each other.
This difference is not explained by the Company.
Third , the Front Office model considers "lost profits" from only gas-fired
resources in its valuation of operating reserves.The GRID model , however,
considers additional sales from both gas-fired and coal-fired generation. In fact, in
the 2009 GRID model reserves value, the GRID model assumes that additional coal-
fired generation (72,342 MWH) surpasses additional gas-fired generation (66,401
MWH) because of the inclusion of Monsanto s reserves product.
WHY IS IT IMPORTANT WHETHER GAS-FIRED OR COAL-FIRED GENERATION
IS ASSUMED IN THE VALUATION OF OPERATING RESERVES?
The Company uses a "lost profits" method for placing a value on reserves. The
choice of resource type held for reserves and its associated running cost, can result
in huge differences in the "lost margins" assumed in the "lost profits" method.
Testimony of Kathryn E. Iverson - Page 29 BRUBAKER & ASSOCIATES, INc.
WHAT IS A "LOST PROFITS" METHOD?
To value reserves under the Front Office model, Rocky Mountain Power determines
which unit has the highest running cost that is "in the money , that is, where running
costs are less than the market price. This least profitable unit is designated as the
unit being held back for reserves, and thus the Company is losing any profits it could
have made had it not been held back. The opportunity cost, or foregone margin, is
the value the Company ascribes to operating reserves. In the Front Office model
lost profits" from only gas-fired resources are included in the reserve value. In the
GRID model , additional coal-fired generation occurs as a result of Monsanto being
available for reserves. Coal units are less costly to run, thus they provide a greater
margin (that is , a greater "lost profit" potential), and thus ultimately a greater valuation
of Monsanto s 95 MW.Because the Front Office model uses only gas-fired
generation , and it uses only the least profitable gas units, it sets the absolute
minimum value on reserves.
HAS ROCKY MOUNTAIN POWER USED COAL FIRED GENERATION IN ITS
PRIOR VALUATION OF OPERATING RESERVES?
Yes, in Case No. PAC-E01-16, the Company provided a valuation of operating
reserves based on both a coal-fired facility, Cholla (40 MW), and a gas-fired facility,
Gadsby (55 MW). Together, these two resources represented the broad spectrum of
opportunity profits from both types of resources. Cholla s profitability of $25 per MWH
accounted for $4 730 000 of the 2002 valuation , while Gadsby s "out of the money
loss dropped the value by $361 565 resulting in a net value for the 95 MW of
Testimony of Kathryn E. Iverson - Page 30 BRUBAKER & ASSOCIATES, INC.
operating reserves of $4 368,435.15 Consequently, the Commission was provided a
straight-forward reserve valuation by the Company in 2002, with easily understood
assumptions and no "black-box" highly confidential spreadsheets. Unfortunately, in
this case, the models used for reserve valuation are considered extremely
confidential , and the actual units assumed for reserve are not readily apparent from
its models.
WHAT IF THE COMPANY WERE TO UPDATE ITS 2002 RESERVE VALUATION?
If Rocky Mountain Power were to simply update its 2002 reserve valuation for today
prices and costs, as well as Monsanto s additional availability, the value of reserves
would be $10.4 million. The details of this calculation are shown in Exhibit 213
(KEI-9). This method brings the value of the reserves much closer to the $11.
million value I have previously shown in Exhibit 211 based on the avoided peaker.
BUT ROCKY MOUNTAIN POWER HAS ADDED SEVERAL NEW RESOURCES TO
ITS RESERVE STACK SINCE THE 2002 CASE.WHY SHOULD RESERVE
VALUES CONTINUE TO BE BASED ON CHOLLAAND GADSBY IN THIS CASE?
If the Commission wishes another reference point for the reserve value, the 2002
lost profits" method should be retained for several reasons. First. the method shown
in Exhibit 213 is a straight-forward analysis of reserves based on both types of
1n 2002, Cholla s lost profit calculated as $25 per MWH ($39 market price less $14 operating
cost) x 40 MW x 11 months x 430 hours per month = $4 730,000. Gadsby s lost profit calculated as
negative $1.39 per MWH ($39 market price less $40.39 operating cost) x 55 MW x 11 months x 430
hours per month = ($361 565).
For example, there is no direct way to determine which unit is the incremental resource
selected each month in the Company s extremely confidential Front Office model.
1n fact, this $10.4 million value is based on average market prices and costs for 2008 and
2009. Had I simply used 2008 data, the value would have been $11.4 million, even closer to the $11.
million avoided peaker value.
Testimony of Kathryn E. Iverson - Page 31 BRUBAKER & AsSOCIATES, INC.
resources: coal and gas. The GRID model already demonstrates that under the
Company s net power cost model, additional sales can be made from the Company
coal units when Monsanto s reserves are modeled. The Front Office model neglects
to reflect this opportunity for higher "lost margins . Consequently, the 2002 method
provides a clear-cut analysis that reserves are held on both types of resources.
Second, in examining the detailed results of the GRID model, we find that the
Cholla unit represents over half of the additional coal-fired generation. Furthermore,
Cholla represents the coal unit with the highest fuel expense per MWH.
Consequently, Cholla is a conservative representative for the reserves value
stemming from additional sales from coal units.
Third, the addition of new resources should not be used to penalize
Monsanto s reserve value.The addition of newer resources has not entirely
eliminated the opportunity of additional sales from coal-fired generation as the GRID
model demonstrates.
And finally, as the Commission pointed out in the previous 2002 case, it does
not help in assessing the reasonableness of a model when a product is not available
in the market and there are no counter parties willing to sell this product.
18 While the
Commission was speaking to the problems with the valuation of economic curtailment
and the Black Scholes model in that case, we have much the same situation here in
valuing reserves. The Company has no alternative in the market, so it has chosen to
model reserve values on "lost profit". However, unlike the 2002 case, it masks the
valuation in highly confidential spreadsheets and complex net power cost models.
And particularly, with respect to the Front Office model, the Company s method is
focused exclusively on valuing Monsanto on the basis of its least-profitable plants.
Final Order No. 29157 , Case No. PAC-01-16, page 12.
Testimony of Kathryn E. Iverson - Page 32 BRUBAKER & ASSOCIATES, INc.
We firmly believe that the Company s reserve values do not provide a point in an
estimated range of reasonableness. Thus, if any "lost profits" method is to be used in
the estimated range, it should be the 2002 method updated for costs, prices and
additional availability.
DO ROCKY MOUNTAIN POWER'S MODELS EXHIBIT ERRATIC SWINGS IN THE
VALUATION RESULTS?
Yes. For example, under the Front Office reserve valuation the highest monthly profit
margin was $22.91 per MWH in July 2008, and the lowest monthly profit margin was
only $0.35 in February 2009. These huge swings in profit can cause the reserve
value to swing widely month to month and even year to year.As mentioned
previously, the reserve valuation under the Front Office model dropped by over $2
million between 2008 and 2009.
Furthermore, even tiny movements in the market price and/or running costs
can make huge declines in the reserve valuation in the Front Office model. For
example, the average 2009 market price was only $0.11 per MWH lower than the
average 2008 market price.However, even though the average market price
dropped by only 0.2%, the reserve value dropped 42% -- from $4.9 million in 2008
down to $2.8 million in 2009.
ARE THESE HUGE SWINGS THE RESULT OF MARKET PRICE SWINGS?
No, not really. Suppose the forecast market prices for 2009 had gone the other
direction each month, such that the average market price would have increased by
$0.11 per MWH in 2009. Interestingly, the valuation of the operating reserves would
still have gone down from the 2008 levels by 35% to $3.2 million. Consequently, no
Testimony of Kathryn E. Iverson - Page 33 BRUBAKER & ASSOCIATES, INC
matter if market prices go up slightly or down slightly, the Front Office model
produces huge drops in value.
WHAT ELSE INFLUENCES THESE DOWNWARD SWINGS IN VALUE?
The drop in value is also partly caused by the fact Rocky Mountain Power s plants
assumed held for reserve are getting more expensive to run in 2009, and thus less
profitable. The average running cost of the highest cost "in the money" plant went up
by 5.6% in 2009 in the Company s Front Office model. So even if the Company
operating costs are climbing each year, the value attributed to Monsanto s reserves
are going down. This is just the reverse of what one would expect from a true
avoided cost analysis.
Another reason for the erratic swings in valuation comes from bringing on the
new Lake Side generation facility. As explained in Response to Monsanto Data
Request No. 7.5, the impact of including Lake Side in the reserve stack causes the
value to go down by $1.4 million in a sinqle month 19 It also appears the Company is
removing another $1.9 million of reserve value "... attributed to the Mid-C to PACEU
spread" that was previously credited to Monsanto before the Lake Side resource was
included in the reserve stack assumptions. However, the Company now claims that
With the addition of Lakeside (sic), the $1.9 million in value ... can no longer be
supported."zo
Response to Monsanto Data Request No. 7.5 1 st supplemental.
Attachment Monsanto 3.2L to Response to Monsanto Data Request No. 3.
Testimony of Kathryn E. Iverson - Page 34 BRUBAKER & ASSOCIATES, INC.
DO SWINGS IN VALUE EVER GO THE OTHER WAY - THAT IS, UP?
As shown in Exhibit 212, page 1, the value of reserves under the GRID model go up
33% between 2008 and 2009. The Company states that this increase is related to
the May 2008 expiration of the West Valley lease:
With respect to the GRID model , the year-on-year increase in value is
related to the May 2008 expiration of the West Valley lease. With the
expiration , reserves are carried on lower cost units than West Valley,
which increases the value of the reserves for 2009. (Response
Monsanto Data Request 3.
Interestingly, the existence of the West Valley lease was not even a consideration in
the Front Office model. Thus, depending on what resources are included (or omitted
as in the case of the Front Office model) will lead to huge swings in the reserve value,
ARE THE SWINGS AS NOTICEABLE IN ROCKY MOUNTAIN POWER'S VALUE
OF ECONOMIC CURTAILMENT?
, they do not appear to be. The value attributed to economic curtailment is based
on the 800 highest cost hours in the Front Office model, and thus is not influenced by
the problems which plague the "lost profits" method. The forward market price
curves, as well as the scalars used to shape those forward prices, are more influential
in the economic curtailment value in the Front Office model. The GRID model is
primarily influenced by the assumed market prices for system balancing sales and
purchases.
WHAT CONCLUSIONS DO YOU DRAW FROM YOUR EXAMINATION OF THE
SWINGS AND ERRATIC RESULTS OF THE COMPANY'S MODELS?
The results of the Company s "lost profit" reserve valuation in this case are simply not
robust and do not reflect a sound basis on which to value Monsanto s interruptible
credit. Results can be greatly manipulated merely by including - or excluding
Testimony of Kathryn E. Iverson - Page 35 BRUBAKER & ASSOCIATES, INC.
certain resources. The entire method revolves around providing the verv least value
for Monsanto s reserves based on the least profitable plants. For these reasons, we
recommend that the Commission place no weight on the Company s reserve
valuations. If any "lost profit" method should be considered, it should be similar to
that previously made by Rocky Mountain Power and updated for current market
prices and costs, as shown in Exhibit 213. This method clearly outlines the units held
for reserve and is less susceptible to manipulation.
As for the results of the Company s economic curtailment valuation, these
appear somewhat more stable, and thus could possibly provide one reference point
for valuation.However, the Commission should be aware that the Company
economic curtailment valuations are based on short-run annual market prices which
do not properly reflect the Company s avoided capacity costs.
Encouraaina Commitment throuah Fair and Reasonable Valuations
HOW LONG DOES THE COMPANY ANTICIPATE MONSANTO TO BE AN
INTERRUPTIBLE CUSTOMER?
The 2007 IRP states "For planning purposes, PacifiCorp assumes that current
Qualifying Facility and interruptible load contracts are extended to the end of the IRP
study period." (2007IRP, page 74) The end of the IRP study period is 2016.
HOW DO ROCKY MOUNTAIN POWER'S VALUATIONS COMPARE WITH THEIR
REQUEST FOR CHANGES IN FIRM RATES?
Rocky Mountain Power is seeking an increase of 24%from Monsanto for its firm rates
in this case.21 Oddly at the same time, it purports that it now values Monsanto at only
Recall that the original filing sought an increase of 24% from Monsanto for firm rates. Not
until two corrections were made to its Idaho COS was the proposed increase dropped to 19%.
Testimony of Kathryn E. Iverson - Page 36 BRUBAKER & ASSOCIATES, 1Ne.
$10 million22 despite it valuing the products at $13.4 million23 just last May. This is a
25% drop in the value for Monsanto s curtailment.
DOES THIS SEEM A FAIR OR REASONABLE APPROACH TO ENCOURAGE
RETENTION OF AN INTERRUPTIBLE CONTRACT?
No, not at all. In an earlier section , I addressed the economic benefits that accrue to
the utility, its customers, and the power system as a whole from a long-term
interruptible program. There are also economic benefits that can accrue directly to
Monsanto, and it seems Rocky Mountain Power is intent on eliminating Monsanto
benefits, while retaining its own. For example, as explained in the 2007 IRP, these
customer benefits are:
Economic benefits may also accrue directly to participants in the form
of incentives , rate discounts, and greater ability to adjust their loads to
prices, thereby gaining greater control over their energy use and
managina their enerav costs. (Demand response) has also been
credited with several harder to quantify economic benefits, such as
creatina a hedge aaainst market exposure (price objectives),
helping create a more elastic demand curve by sending appropriate
price signals (elasticity objectives), and reducing the overall market
price by alleviating pressure on reserves (market efficiency objectives).
(2007 IRP, Appendix B, page 7, emphasis added)
As the Company s lRP notes, a customer such as Monsanto should rightfully expect
certain benefits as a result of their commitment to curtail loads. Monsanto actively
manages its energy costs through careful planning, and direct communication with
the Company on curtailment requests, buy-through of energy, and even scheduling of
furnace maintenance. More importantly though, as the 2007 IRP notes, Monsanto
interruptible contract should offer a "hedge against market exposure . In this case,
while firm costs for Rocky Mountain Power capacity go up and up, the Company
Supplemental Direct Testimony of Mark Widmer. page 4. line 7.
Attach Monsanto 7.6 to Response to Monsanto Data Request No. 7.5, value in 2008 of
$13.4 million.
Testimony of Kathryn E. Iverson - Page 37 BRUBAKER & ASSOCIATES, 1Nc.
models show Monsanto s value becoming less and less. This is certainly counter
the notion of the benefits of a hedge against market exposure.
HAS THE COMMISSION STAFF PREVIOUSLY RECOGNIZED THE BENEFITS OF
USING INTERRUPTIBLE RESOURCES AS A HEDGE?
Yes. In Case No. PAC-06-9, the Staff anticipated, specifically, this benefit in its
comments last year:
Revenue paid under the contract to Monsanto for these interruptible
services help to offset the increased costs incurred by Monsanto to
receive electrical service. ... As explained in Section 2.2 of the
Agreement, adjustments may be made to, but not limited to, the
customer charges, demand charges, energy charges, as well as the
credit value.
Not only will the Company be able to collect revenues from Monsanto
based on its cost of service, but the price paid to Monsanto will reflect
the value of the products it provides the Company. Both the Company
and Monsanto have assured Staff that there are opportunities for either
side to reevaluate the credits in the context of a general rate case.
Staff believes it is important for Monsanto to have an opportunity to
reevaluate the value of the credits at the same time rates are changed
to reflect changes in cost of service. This ability will help keeD rates
affordable for Monsanto and reduce the need to argue cost of
service in a general rate case. (Case No. PAC-06-9, Comments of
the Commission Staff, November 3, 2006, page 3, emphasis added)
Despite these hopeful comments penned less than a year ago , Rocky Mountain
Power s filing offers no hedging opportunities whatsoever.
HOW SO?
As I have alluded to previously, the Company s valuation methods are rife with
inconsistencies and manipulated assumptions. For example, Rocky Mountain Power
wants to value Monsanto only for what the Company would gain by running its least
profitable plants more hours, i.e., the "lost profits" structure of the model. But Rocky
Mountain Power could never had made any sales from those least profitable plants
Testimony of Kathryn E. Iverson - Page 38 BRUBAKER & ASSOCIATES, INC.
unless it had first built and sought recovery of their capital costs. All customers of
Rocky Mountain Power, including Monsanto, will be paying for the capital costs of
Gadsby, Currant Creek and other newer resources in their firm rates.Despite
customers paying these capital costs, however, Rocky Mountain Power is only willing
to pay "lost profits" to Monsanto that clearly do not reflect the Company s avoided
capacity cost.
As another example, Rocky Mountain Power has fundamentally changed its
valuation of system integrity since 2002.
HOW HAS ROCKY MOUNTAIN POWER FUNDAMENTALLY CHANGED ITS
VALUATION OF SYSTEM INTEGRITY IN THIS CASE?
In the previous contested case, Rocky Mountain based its value of system integrity
on a system cap of $250 per MWH, for a value of $486,000. The Commission
accepted this valuation as part of the overall Company valuation in establishing an
estimated range of reasonableness. Rocky Mountain Power now declares that the
probability of a double contingency is constant throughout the year."24 Under this
assumption, the Company claims that the value of system integrity should be based
on an annual average on peak market price. This average price is roughly $75 per
MWH, or only 1/4th of the previous $250 per MWH value.
IS THIS A PROPER VALUATION OF SYSTEM INTEGRITY?
No. There is little basis to assume that Rocky Mountain Power will be able to buy
energy on the market at $75 during times of system emergency. During times of
contingency, market price can easily soar above $300 per MWH. For example, a
Exhibit No. 42, page 3 of 3.
Testimony of Kathryn E. Iverson - Page 39 BRUBAKER & ASSOCIATES, INc.
000 per MWH price ceiling is currently imposed by all independent system
operators and regional transmission operators except CAISO and ERCOT. The
ceiling is currently $400 per MWH in CAISO's real time imbalance market, and $1 500
per MWH in ERCOT. Furthermore, it is set to rise to $3,000 per MWH in ERCOT by
March 2009.25 All of these markets have increased the bid caps in hopes of
encouraging non-utility capacity. Yet here in Idaho, Rocky Mountain Power has
slashed the value of system integrity by 70%.
IS THE SYSTEM INTEGRITY VALUE A LARGE COMPONENT OF THE OVERALL
TOTAL VALUE OF MONSANTO'S CONTRACT?
No, not really. At 162 MW, it was valued at $486,000, or less than 4% of the total $13
million credit currently in place. Rocky Mountain Power has slashed that value back
to $146,000 now based on an average market price of $75 per MWH. While this is
not a huge difference in actual dollars, it speaks volumes about Rocky Mountain
Power s lack of recognition of the value Monsanto brings to the system.
First, Rocky Mountain Power is placing a value on system integrity that
recognizes absolutely no capacity value. Since the running cost of CT is likely to be
in the range of $75 per MWH , valuing system integrity at $75 has effectively assumed
a $0 cost for capacity for reliability purposes.
Second, the Company s use of an average on-peak market price assumes
that times of system emergency are no different than the average times. Clearly, this
is short-sighted. As an example of the costs during regional stress, Rocky Mountain
Power was willing to pay $300 per MWH to Monsanto on July 25, 2006.
If this was
Docket Nos. RM07-19-000 & AD07-000, Comments of the Electricity Consumers
Resource Council (ELCON), American Iron and Steel Institute (AISI), and American Chemistry Council
(ACC), page 22.
Testimony of Kathryn E. Iverson - Page 40 BRUBAKER & ASSOCIATES, INC.
just an "average" event, why didn t the Company just purchase the needed power at
$75? The answer is evident: It couldn
Lastly, if Monsanto were to only receive $146,000 in return for being the "first
one in the dark", then Monsanto would probably reconsider inclusion of this product
its 2007 ESA. Rocky Mountain Power would then need to locate another large load
which could easily and reliably curtail in seconds to avoid the possibility of curtailing
hundreds - perhaps thousands - of other customers. One recent example of this
occurred in the winter of 2005. On December 6 , Rocky Mountain Power lost a line
which triggered a power outage. The minimum temperature that day was 9 degrees
which dropped to 19 degrees below zero the next day. A system emergency event
was called upon Monsanto and all three furnaces were shut down. As Rocky
Mountain Power crews worked to resolve the problem, the furnaces were brought
back on-line only when the system was stable. The two smaller furnaces were
brought back within four to eight hours of the emergency. However, the largest
furnace was kept off for 42 hours, with Monsanto incurring substantial damages due
to icing. We see that curtailment for system integrity purposes provided a direct
benefit to the Company s system during this extraordinary event, but it came at
substantial cost to Monsanto. Thus, in order for Rocky Mountain Power to retain this
provision of the 2007 Agreement, it needs to properly value this option.
WHAT DO YOU RECOMMEND FOR THE VALUE OF SYSTEM INTEGRITY?
At the very least, the system integrity should continue to be valued at the $250 per
MWH in the Company s valuation. While there may be arguments to raise this value
to $400 per MWH to reflect the current ceiling in CAISO, for purposes of my
recommendation in this case, the value can be held at $250 per MWH in the
Company s valuation.
Testimony of Kathryn E. Iverson - Page 41 BRUBAKER & ASSOCIATES, INc.
WHAT DO YOU CONCLUDE OVERALL REGARDING THE COMPANY'
TREATMENT OF MONSANTO IN THIS CASE?
Claiming that the value has decreased some 25% since last year, while
simultaneously seeking a rate increase of 24% to Monsanto s firm rates does not
constitute a fair and reasonable approach to encourage retention of Monsanto. The
anticipated benefits of using interruptibility as a hedge against market price increases
is entirely missing from the Company s filing. A proper reflection of the value would
alleviate the double-digit increase to Monsanto and help keep its rates affordable as
anticipated by the Commission Staff.
Potential Environmental Benefits
YOU MENTIONED EARLIER THAT DEMAND-SIDE RESPONSES CAN OFFER
POTENTIAL ENVIRONMENTAL BENEFITS.HAVE YOU QUANTIFIED THESE
BENEFITS?
No, a quantification of environmental benefits is not available. While interruptible
resources promote efficient use of resources in general and have the potential to
reduce emissions during peak times, there is currently no valuation of these
environmental benefits performed by Company either in this case or its 2007 IRP.
Rocky Mountain Power is taking a leading role to protect and enhance the
environment and the Monsanto interruptible contract is consistent with that role.
2007 IRP. Appendix B, page 11.
Testimony of Kathryn E. Iverson - Page 42 BRUBAKER & ASSOCIATES, INc.
Recommended Value for Monsanto Credit
GIVEN YOUR REVIEW AND ANALYSIS, WHAT IS YOUR RECOMMENDATION
FOR THE VALUE TO BE USED FOR THE MONSANTO CREDIT?
I recommend that the value of Monsanto s interruptible products be set not less than
$18 million for purposes of setting rates in this case.
UPON WHAT BASIS DID YOU ARRIVE AT THIS VALUATION?
First, the value must recognize a proper valuation of avoided capacity costs. Second,
the evidence is clear that the results of the Company s "lost profit" reserve valuation in
this case are simply not robust and do not reflect a sound basis on which to value
Monsanto s interruptible credit. If any "lost profit" method should be considered, it
should be similar to that previously made by Rocky Mountain Power and updated for
current market prices and cost as well as Monsanto s availability. That method plainly
outlines the units held for reserve and is less susceptible to manipulation. As for the
value associated with economic curtailment portion, the Company s models, while not
fully reflective of avoided capacity costs, at least provide a point of consideration for
valuation in this case , despite their shortcomings.The total value from the
Company s methods should be:
Reserves -. "Lost Profits" (Exhibit 213, line 10)$10,385,564
Company s Models of Economic Curtailment
(Average of Exhibit 212, page 2, line 1)$ 5,378,381
System Integrity 486,000
Total Company Method $16,249,945
The average of the Company s models and the avoided peaker approach result in a
value of $18.3 million:
Testimony of Kathryn E. Iverson - Page 43 BRUBAKER & ASSOCIATES, INc.
Peaker Valuation (Exhibit 211 , line 12)$20,243,456
Company Method $16,249,945
Average Peaker/Company $18,246 701
WHAT IS THE MONTHLY DEMAND CREDIT BASED ON AN $18 MILLION
VALUE?
The credit would be $8.79 per kW-month. The resulting net power costs would be
slightly lower than the current net rate of $25.55 per MWH:
Less: Non-Firm kW Credit:
$53,141,367
($18,000,000)
Total Firm Revenues:
Net Revenues:$35,141,367
Divided by 1,395,545.2 MWH = $25.18 per MWH
WOULD THIS VALUATION IMPACT THE FILED NET POWER COSTS IN THIS
CASE?
Yes. The Company s filed net power costs assume the value of Monsanto to be
$12.4 million. Any additional power cost associated with appropriately recognizing
the interruptible value would need to be reflected in the development of firm rates in
this case. For example, a credit of $8.79 per kW would increase the system-wide net
power costs by roughly $4.7 million (162 MW x 12 months x ($8.79 - $6.36)), which
would increase Idaho s power costs by approximately $300,000 based on its
allocation factor of 6.306%. This added cost would be allocated among all customer
classes with approximately $120,000 allocated to Monsanto s firm cost. This would
raise Monsanto s net cost to $25.27 per MWH.
Testimony of Kathryn E. Iverson - Page 44 BRUBAKER & ASSOCIATES, 1Nc.
DOES THIS CONCLUDE YOUR TESTIMONY IN THIS CASE?
Yes.
Testimony of Kathryn E. Iverson - Page 45 BRUBAKER & ASSOCIATES, INC.
Appendix A
Kathryn E. Iverson
Page 1
Qualifications of Kathrvn E. Iverson
PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
Kathryn E. Iverson; 17244 W. Cordova Court, Surprise, Arizona 85387.
PLEASE STATE YOUR OCCUPATION.
I am a consultant in the field of public utility regulation with Brubaker & Associates,
Inc., energy, economic and regulatory consultants.
PLEASE SUMMARIZE YOUR EDUCATIONAL BACKGROUND AND WORK
EXPERIENCE.
In 1980 I received a Bachelors of Science Degree in Agricultural Sciences from
Colorado State University, and in 1983, I received a Masters of Science Degree in
Economics from Colorado State University.
In March of 1984, I accepted a position as Rate Analyst with the consulting
firm Browne, Bortz and Coddington in Denver, Colorado.My duties included
evaluation of proposed utility projects, benefit-cost analysis of resource decisions,
cost of service studies and rate design, and analyses of transmission and substation
equipment purchases.
In February 1986, I accepted a position with Applied Economics Group, where
I was responsible for utility economic analysis including cogeneration projects,
computer modeling of power requirements for an industrial pumping facility, and
revenue impacts associated with various proposed utility tariffs. In January of 1989, I
was promoted to the position of Vice President. In this position, I assumed the
additional responsibilities of project leader on projects, including the analysis of
alternative cost recovery methods, pricing, rate design and DSM adjustment clauses,
BRUBAKER & ASSOCIATES, INC.
Appendix A
Kathryn E. Iverson
Page 2
and representation of a group of industrial customers on the Conservation and Least
Cost Planning Advisory Committee to Montana Power Company.
In March 1992, I accepted a position with ERG International Consultants, Inc.
of Golden, Colorado as Senior Utility Economist. While at ERG, I was responsible for
the cost-effectiveness analysis of demand-side programs for Western Area Power
Administration customers. I also assisted in the development of a reference manual
on the process of Integrated Resource Planning including integration of supply and
demand resource, public participation, implementation of the resource plan and
elements of writing a plan. I lectured and provided instructional materials on the key
concept of life-cycle costing seminars held to provide resource planners and utility
decision-makers with a background and basic understanding of the fundamental
techniques of economic analysis. My work also included the evaluation of a marginal
cost of service study, assessment of avoided cost rates, and computer modeling
relating engineering simulation models to weather-normalized loads of schools in
California.
In November of 1994, I accepted a position with Drazen-Brubaker &
Associates, Inc. In April, 1995 the firm of Brubaker & Associates, Inc. was formed.
includes most of the former DBA principals and Staff. Since joining this firm, I have
performed various analyses of integrated resource plans, examination of cost of
service studies and rate design, fuel cost recovery proceedings, as well as estimates
of ~ransition costs and restructuring plans.
HAVE YOU EVER TESTIFIED BEFORE A REGULATORY BODY?
Yes.I have testified before the regulatory commissions in Colorado, Georgia,
Michigan, Montana, Oregon, Texas, Washington and Wyoming.
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u
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h

M
W
.
PAC-07-05/Rocky Mountain Power
September 14, 2007
Monsanto 9th Set Data Request 9.
Case No. PAC-O7-
Exhibit 205 (KEI-
Page 2 of 5
c. A revised Exhibit 30 is provided as Attach Monsanto 9.6. This version of the
cost of service model also incorporates the net power cost adjustment that was
provided in response to Monsanto 7.
(Mark E. Tucker prepared this response, is the recordholder, and is expected to
sponsor this response at hearing. Please contact Brian Dickman at 801-220-4975
to discuss this response.
Case No. PAC-07 -
Exhibit 205 (KEI-
Page 3 of 5
IDAHO
P AC-O7-
ROCKY MOUNTAIN POWER
MONSANTO DATA REQUESTS SET 9 (1-13)
TT ACHMENT MONSANTO 9.
ON THE ENCLOSED CD
Ca
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N
o
.

P
A
C
-
07
-
Ex
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b
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2
0
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M
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MS
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9
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4
9
%
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29
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01
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1
79
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56
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71
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6
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15
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l

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D
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23
5
97
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7
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97
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16
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.
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65
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n
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c
e

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a
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e
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,
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42
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10
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1
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10
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04
0
61
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28
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98
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27
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16
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27
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50
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l
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94
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98
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4
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29
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26
9
97
3
51
%
Ge
n
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r
a
l

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Case No. PAC-07-
Exhibit 206 (KEI-
page 1 of 2
ROCKY MOUNTAIN POWER
Idaho Coincident Peak Load From JAM Stud
Metered Plus:
Loads Less:Plus:Temperature CP Loads for
lacement Curtailments Adiustment JAM Study
(1)(2)(3)(4)(5)
1/31/2006 416.420.
2/17/2006 451.4 (24.427.
3/13/2006 424.(3.420.
4/6/2006 380.0.4 381.
5/18/2006 546.(7.539.
6/26/2006 666.(2.663.
7/24/2006 560.70.633.
8/22/2006 512.4 70.(6.576.4
9/5/2006 491.(70.70.(0.4)491.
10/31/2006 351.(10.341.
11/29/2006 459.(70.70.(20.439.4
12/18/2006 465.(70.70.(15.450.
Total 726.(212.354.(84.784.
Source:
Exhibit 11 Page 10.Page 10.Page 10.Page 10.Page 10.
Note: All loads shown as MW (g) input.
Case No. PAC-07-
Exhibit 206 (KEI-
page 2 of 2
ROCKY MOUNTAIN POWER
Idaho Ener Load From JAM Stud
Metered Plus:MWH Loads
Loads Less:Plus:Temperature for
MWH Replacement Curtailments Adiustment JAM Study
(1)(2)(3)(4)(5)
January 290 582 609 659 295 850
February 264 603 606 833)262 376
March 273 101 135 610)271 627
April 248 773 323 564 249 659
May 311 230 223 295)309 158
June 386 312 (841)1,410 872)385 009
July 451 549 10,406 682)458 272
August 373,430 (547)599 529)377 953
September 286 306 821)526 152)285 858
October 258 106 407 737)256 776
November 237 261 261)1 ,467 875 238 343
December 296.755 (5.884)825 298.765
Total 678 008 (10 353)536 (14 544)689 647
Source:
Exhibit 11 Page 10.Page 10.Page 10.Page 10.Page 10.
Note: All loads shown as MWH (g! input.
Case No. PAC-07-
Exhibit 207 (KEI-
ROCKY MOUNTAIN POWER
Com arison of Peak Loads and Ener Used in JAM and Idaho COS Studies
Coincident Peak Loads MWH Loads
In JAM In Idaho Deviation In JAM in Idaho From JAM
StudY cas Study From JAM Study cas Study Study
(1)(2)(3)(4)(5)(6)
January 420 809 401 840 295 850 289,794
February 427 223 461 086 262 376 261 329 0.4%
March 420 819 443 127 271 627 268,169
April 381 173 411 130 249 659 252 398
May 539,168 429 737 20.309 158 245.348 20.
June 663,486 596 940 10.385,009 330 512 14.
July 633 160 552 362 12.458 272 421 838
August 576 370 597 245 377 953 420 625 11.
September 491 295 542 771 10.285 858 333 196 16.
October 340 955 341 180 256 776 253 088 1.4%
November 439,394 421 076 238 343 225,603
December 450 106 462 280 298 765 294 669 1.4%
June, July, Aug 873 016 746,547 221 235 172 975
Other Months 910,942 914 228 2,468,412 2,423,593
Total 783,958 660 775 689,647 596 569
Case No. PAC-07-
Exhibit 208 (KEI-4)
ROCKY MOUNTAIN POWER
ustments to Load to Ali n with JAM Stud
CP ADJUSTMENT
Idaho Load from JAM Idaho Load used in Idaho Class COS
Contract Contract
Loads &Loads &
Schedules 8 Remaining Schedules 8 Remaining Monthly
JAM CP and 9 Load Idaho CP and 9 Load Adjustmet
1/31/2006 420,809 202 576 218 233 401 840 202 576 199 264 09519
2/17/2006 427 223 212 061 215 162 461 086 212 061 249 025 86402
3/13/2006 420 819 212 115 208 704 443 127 212 115 231 012 90343
4/6/2006 381 173 190 194 190 978 411 130 190 194 220,936 86441
5/18/2006 539,168 198 014 341 154 429 737 198 014 231 722 1.47225
6/26/2006 663,486 208 932 454 554 596 940 208 932 388,007 17151
7/24/2006 633 160 211 599 421 562 552 362 211 599 340,763 23711
8/22/2006 576 370 220 577 355,793 597 245 220 577 376 668 94458
9/5/2006 491 295 203,250 288 045 542 771 203 250 339 522 84839
10/31/2006 340 955 150 477 190,478 341 180 150,477 190 703 99882
11/29/2006 439 394 206,558 232 836 421 076 206 558 214 518 08539
12/18/2006 450 106 211,490 238,617 462 280 211,490 250 791 95146
Total 783,958 2,427 844 356,114 660,775 2,427 844 232 931 03810
MWH ADJUSTMENT
Idaho Load from JAM Idaho Load used in Idaho Class COS
Contract Contract
Loads &Loads &
Schedules 8 Remaining Schedules 8 Remaining Monthly
JAM MWH and 9 Load Idaho MWH and 9 Load Adjustmet
January 295,850 153 106 142 744 289 794 153,106 136 689 04430
February 262 376 139,258 123,118 261 329 139 258 122 072 00857
March 271 627 148 067 123,559 268,169 148 067 120,101 02879
April 249,659 145 900 103 760 252 398 145 900 106,498 97429
May 309 158 126,496 182 662 245,348 126,496 118,853 53688
June 385,009 138,683 246 327 330,512 138 683 191 829 28410
July 458,272 142,437 315,836 421 838 142,437 279,401 13040
August 377 953 151 574 226 380 420,625 151 574 269 052 84140
September 285 858 142 680 143 179 333 196 142 680 190 516 75153
October 256 776 141 230 115 546 253,088 141 230 111 858 03297
November 238 343 111 223 127 120 225 603 111 223 114 380 11139
December 298,765 150,531 148 234 294 669 150 531 144 138 02842
Total 689 647 691 183 998,464 596 569 691 183 905,386 04885
Case No. PAC-07-
Exhibit 209 (KEI-
ROCKY MOUNTAIN POWER
Allocation of Revenue Reduction
as a Result of the Rate Mitigation Cap
Allocated on
Generation &Line Schedule Company Transmission
No.No.Description Method Rate Base (1)Difference
(1)(2)(3)
Residential 565 074 421 971 (143 104)
Residential - TOO 399 215 328 321 (70 894)
General Service - Large 323 912 338 275 363
General Service - Medium Voltage 205 2,407 202
General Service - High Voltage 199 703 504
Irrigation 781 163 627 392 (153 770)
Street & Area Lighting 581 516 065)
Traffic Signals 229 180 (48)
Space Heating 668 598 (70)
General Service - Small 184 920 152 661 (32 259)
SPC Contract 1 667 724 058
SPC Contract 2 891 339 230,423 339 084
Total State of Idaho 308 172 308 172 (0)
(1) Idaho CDS results based on Attachment Monsanto adjusted to align loads to JAM study
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Case No. PAC-07-
Exhibit 211 (KEI-
ROCKY MOUNTAIN POWER
Value of Monsanto Interruptibility Based on Avoided Peakers
Economic
Operating Reserves Curtailment
Intercooled SCCT Frame
Aero SCCT SCCT Aero (2 Frame "
(1)(2)(3)
Avoided Capital:
Avoided Capacity Cost ($/kW-year) (1)$100.$92.$47.
Capacity (kW)000 000 000
Adjustment for Reserve Margin 12%12%12%
Capacity adjusted for Reserves 106,400 106,400 040
Value $10 724 056 888 816 593 666
Avoided Energy:
Hours curtailed 188 188 800
MWH Curtailed 860 860 53,600
Avoided Energy Cost ($/MWH) (1)$68.$81.$90.
Value 215 194 $1,457 555 861 520
Avoided Energy Cost - System Integrity $132 270 $158 650
Total Value $12 071 520 $11 505 020 $8,455 186
Total Value $11,788,270 $8,455,186
Total
$20,243,456
(1) PacifiCorp 2007 IRP, page
(2) Includes the 12 hours of system integrity
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Case No. PAC-07-
Exhibit 213 (REDACTED) (KEI-
ROCKY MOUNTAIN POWER
Value of Reserves Based On Cholla and Gadsby
Assumed kW
Hours assumed available per day
Days per year
Hours available per year
MWH
Market Price (REDACTED)
Cost (REDACTED)
Opportunity Profit (REDACTED)
Times MWH
Opportunity $
Cholla Gadsb Total
(1)(2)(3)
000 000 000
365 . 365
840 840
233 600 321 200
233 600 321 200
$10 385,564
(1) Market price is average 2008-2009 forward price of 7x16 Mona from Attachment 3.2a (CONFIDENTIAL).
(2) Cost of Cholla and Gadsby from Attachment 2 a (CONFIDENTIAL) average 2008-2009