20101101Collins Di.pdf

BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
)IN THE MATTER OF THE )
APPLICATION OF ROCKY MOUNTAIN )
POWER FOR APPROVAL OF )
CHANGES TO ITS ELECTRIC )
SERVICE SCHEDULES AND A PRICE )
INCREASE OF $27.7 MilLION, OR )
APPROXIMATELY 13.7 PERCENT )
)
CASE NO. PAC-E-10-o7
Direct Testimony of
Brian C. Collns
On behalf of
Monsanto Company
Project 9210
November 1, 2010
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BRUBAKER &AsSOCIAUS, INC.
CHESTERFIELD, MOAi3017
1 Q
2 A
PACIFICORP dba ROCKY MOUNTAIN POWER
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. PAC-E-10-o7
Direct Testimony of Brian C. Collns
PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
Brian C. Collns. My business address is 16690 Swingley Ridge Road, Suite 140,
3 Chesterfield, MO 63017.
4 Q
5 A
WHAT IS YOUR OCCUPATION?
I am a consultant in the field of public utility regulation with the firm of Brubaker &
6 Associates, Inc. ("BAI"), energy, economic and regulatory consultants.
7 Q
8 A
9 Q
10 A
PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND AND EXPERIENCE.
This information is included in Appendix A to my testimony.
ON WHOSE BEHALF ARE YOU APPEARING IN THIS PROCEEDING?
i am appearing on behalf of Monsanto Company ("Monsanto"), a special contract
11 customer of Rocky Mountain Power ("RMP" or "Company"). RMP is a division of
12 PacifiCorp.
13 Q
14 A
WHAT IS THE SUBJECT OF YOUR TESTIMONY?
i provide testimony as to the interruptible nature of Monsanto's loads, the treatment of
15 Monsanto by RMP in its Integrated Resource Plan, and the economic benefits to
16 RMP, its customers and the power system as a whole from a long-term interruptible
17 program such as Monsanto.
Collins, Di - 1
Monsanto Company
1 Q DID RMP PROVIDE ANY DIRECT TESTIMONY IN ITS MAY 28,2010 FILING WITH
2 REGARD TO THE VALUATION OF MONSANTO'S CURTAILMENT?
3 A No. In its May 28, 2010 filing, the Company provided no direct testimony whatsoever
4 with regard to the valuation of Monsanto's curtailment. On September 30, 2010, the
5 Company filed supplemental testimony with the Commission regarding the economic
6 valuation of Monsanto's curtailment. In consideration of Order No. 32098 in this
7 proceeding, the issue regarding quantification of this valuation wil be addressed in
8 my direct testimony to be filed December 22,2010.
9 Q DOES MONSANTO RECEIVE FIRM SERVICE FROM RMP?
10 A Only a very small portion (9 MW) of Monsanto's total 182 MW load is served under
11 firm rates. The vast majority of Monsanto's load is interruptible and is charged a
12 lesser demand charge. For cost allocation purposes, Monsanto is treated by RMP as
13 though it were 100% firm, although in reality Monsanto is primarily a non-firm
14 interruptible customer. RMP first determines the cost to serve Monsanto as a firm
15 customer, then deducts from Monsanto's cost of service a credit equal to the value of
16 Monsanto's curtailment.
17 Q IS IT TRUE THAT WHEN DETERMINING MONSANTO'S COST AS A FIRM
18 CUSTOMER, RMP ALLOCATES TO MONSANTO A PORTION OF NOT ONLY THE
19 COSTS OF SHORT-TERM AND LONG-TERM MARKET PURCHASES USED TO
20 MEET FIRM DEMAND BUT ALSO THE COSTS OF GENERATING UNITS THAT
21 THE COMPANY HAS PLANNED AND CONSTRUCTED TO MEET FIRM DEMAND
22 ON ITS SYSTEM?
23 A Yes, that is true. Since Monsanto is not a firm customer, the valuation of Monsanto's
24 curtailment is extremely important. Monsanto's value of curtailment must be
Collns, Di - 2
Monsanto Company
1 deducted from its allocated all-firm costs in order to determine its cost of service as
2 an interruptible customer. The valuation of Monsanto's curtailment should be fair
3 and reasonable such that the overall net costs allocated to Monsanto reflect the non-
4 firm nature of Monsanto's demand on the RMP system.
5 Q HOW HAS THE COMPANY TREATED THE MONSANTO INTERRUPTIBLE LOAD
6 IN ITS 2008 INTEGRATED RESOURCE PLAN ("IRP")?
7 A RMP has removed Monsanto's interruptible load from its firm demand for planning
8 purposes. Monsanto's load is treated as non-firm. Therefore, RMP does not
9 consider Monsanto's interruptible demand when planning to construct or purchase
10 resources to meet its firm system demand. Since Monsanto is an interruptible
11 customer, RMP avoids the cost of long-term resources (including a reserve margin) to
12 serve the Monsanto interruptible load. RMP's 2008 IRP plainly states:
13 Interruptible. There are three east-side load curtailment contracts in
14 this category. These agreements with Monsanto, MagCorp and Nucor
15 provide 237 MW of load interruption capability at time of system peak.
16 Both the capacity balance and energy balance count these resources17 at the level of full load interruption on the executed hours.18 Interruptible resources diretly curtail load and thus planning19 reserves are not held for them.1 (emphasis added)
20 Q WITH RESPECT TO THE 237 MW REFERENCED ABOVE AND INCLUDED IN THE
21 2008 IRP AS INTERRUPTIBLE RESOURCES, HOW MUCH IS ATTRIBUTED TO
22 MONSANTO?
23 A Monsanto's 67 MW of economic curtailment is included in the 237 MW identified as
24 interruptible load in the 2008 IRP.
1PacifiCorp 2008 IRP, page 87.
Collns, Di - 3
Monsanto Company
1 Q HAS RMP SUBSEQUENTLY INCLUDED MONSANTO'S PROVISION OF
2 OPERATING RESERVE AS AN INTERRUPTIBLE RESOURCE IN ITS IRP?
3 A Yes. In the 2008 IRP Update issued on March 31,2010, RMP now includes 90 MW
4 of Monsanto operating reserve as an interruptible resource. At page 35 of the 2008
5 IRP Update, the Company states:
6 Interruptible contracts - The positive change reflects the inclusion of
7 the operating reserve component of the Monsanto interruptible load
8 contract (90 MW) in addition to the economic curtailment portion
9 previously modeled.
10 All of Monsanto's interruptible load is now deducted by RMP for the purposes of
11 determining its planning reserve obligation.
12 Q WHAT COSTS WOULD RMP INCUR IF MONSANTO WERE A FIRM CUSTOMER?
13 A RMP would have to acquire long-term firm resources equal to Monsanto's load plus a
14 planning reserve margin if Monsanto were a firm customer and RMP would incur the
15 costs of such resources.
16 Q HOW LONG DOES THE COMPANY ANTICIPATE MONSANTO TO BE AN
17 INTERRUPTIBLE CUSTOMER?
18 A The 2008 IRP states at page 83, "For planning purposes, PacifiCorp assumes that
19 current qualifying facility and interruptible load contracts are extended to the end of
20 the IRP study period." The end of the IRP study period is 2018.
21 Q ARE THERE ECONOMIC BENEFITS DUE TO A LONG-TERM INTERRUPTIBLE
22 PROGRAM?
23 A Yes. Economic benefits accrue to RMP, its customers, and the power system as a
24 whole from a long-term interruptible program. There are also economic benefits that
Collns, Di - 4
Monsanto Company
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can accrue directly to Monsanto. 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
managing their energy costs. (Demand response) has also been
credited with several harder to quantify economic benefits, such as
creating a hedge against 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).
(20071RP, Appendix B, page 7, emphasis added)
As the Company's 2007 IRP notes, a customer such as Monsanto should rightfully
expect certain benefits as a result of its 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's interruptible contract should offer a "hedge against market exposure."
While firm costs for RMP capacity go up, the valuation for Monsanto's curtailment
should also increase.
HAS THE IDAHO PUBLIC UTILITIES COMMISSION ("COMMISSION") STAFF
PREVIOUSLY RECOGNIZED THE BENEFITS OF USING INTERRUPTIBLE
RESOURCES AS A HEDGE?
Yes. In Case No. PAC-E-06-9, the Staff anticipated, specifically, this benefit in its
comments:
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.
Collns, Di - 5
Monsanto Company
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Not only wil 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 abilit wil help keep rate
affordable for Monsanto and reduce the need to argue cost of
service in a general rate case. (Case No. PAC-E-06-9, Comments of
the Commission Staff, November 3, 2006, page 3, emphasis added)
12 Q WHAT AMOUNT OF CURTAILMENT DOES MONSANTO PROVIDE RMP?
13 A The 2008 Electric Service Agreement ("ESA") provides for three types of curtailment:
14 (1) Operating Reserves of 95 MW which can be called upon a maximum of 188 hours
15 per calendar year; (2) Economic Curtailment of 67 MW available for a maximum of
16 850 hours per calendar year; and (3) System Integrity of 162 MW available a
17 maximum of 12 hours per calendar year. The amounts and hours of curtailment
18 reflect the terms of the 2008 ESA currently in effect for calendar year 2010.
19 Q WHAT ARE SOME OF THE IMPORTANT FACTORS IN VALUING MONSANTO'S
20 CURTAILMENT?
21 A The valuation should recognize the nature of Monsanto's curtailment and how it is
22 used by RMP, and that Monsanto's curtailment is a long-term resource. This wil
23 provide a fair and reasonable result for all customers and encourage retention of
24 Monsanto's interruptible contract.
25 Q HOW LONG HAS MONSANTO BEEN AN INTERRUPTIBLE CUSTOMER?
26 A Monsanto has been a reliable interruptible customer since 1951 and has adequate
27 ore to be mined for another 40 years. The fact that Monsanto has been an unfailng
28 customer these 50-plus years along with its commitment to remain operating in Idaho
Collns, Di - 6
Monsanto Company
1 in the foreseeable future both point to treating Monsanto's curtailment as a long-term
2 resource.
3 Q WHAT ARE SOME OF THE ECONOMIC BENEFITS TO THE UTILITY, THE
4 CONSUMERS AND THE POWER SYSTEM AS A WHOLE FROM A LONG-TERM
5 INTERRUPTIBLE PROGRAM SUCH AS MONSANTO'S CONTRACT?
6 A There are a host of economic benefits, but cost avoidance and cost reduction are the
7 main economic drivers. Perhaps the Company's 2007 IRP stated it best:
8 Demand response allows utilities to avoid or defer incurring costs for
9 generation, transmission, and distribution, including capacity costs,10 line losses, and congestion charges. (PacifiCorp 2007 IRP,
11 Appendix B, page 7, emphasis added)
12 Q ARE THERE OTHER SYSTEM BENEFITS AS WELL?
13 A The support of reliability in power supply and delivery during system emergencies is
14 also a benefit when customers such as Monsanto can shed load during emergency
15 conditions. This is further explained in the 2007 IRP:
16 Customer demand management can enhance reliabilty of the electric
17 supply and delivery systems by providing the utility with the means to
18 better balance loads with supply during system emergencies and/or19 high-use periods. In this context, (demand response) can help
20 improve the adequacy and security of the power supply and delivery
21 (T&D) systems by augmenting the utility's ancilary services, such as
22 supplemental reserve. (PacifiCorp 2007 IRP, Appendix B, pages 7-8)
23 Q DOES MONSANTO PROVIDE THESE BENEFITS TO RMP AND ITS
24 CUSTOMERS?
25 A Yes, it does. Monsanto's contract allows RMP to avoid or defer incurring capacity
26 costs for generation. It also allows the Company to reduce its fuel or purchased
27 power expense by callng upon Monsanto for economic curtailment. Furthermore,
28 since Monsanto is able to interrupt within a 10-minute time period, it qualifies as a
Collns, Di - 7
Monsanto Company
1 resource that can provide operating reserves. Interruptions for operating reserves
2 can occur at any time and in any month, and Monsanto stands available 24 hours per
3 day to provide operating reserves.
4 Monsanto also provides RMP the means to balance system loads during
5 system emergencies. The loads of Monsanto's three furnaces - 162 MW total - are
6 available for curtailments for system integrity purposes.
7 Q HAS RMP PREVIOUSLY RECOGNIZED THE BENEFIT OF AVOIDED CAPACITY
8 INVESTMENTS FOR LOAD MANAGEMENT PROGRAMS?
9 A Yes. In RMP's 2009 Demand Side Management Annual Report - Idaho at page 35,
10 the Company states:
11 The cost/benefit analysis of the load management programs are based
12 on the avoided value of peak or capacity investments.
13 Q HAVE YOU QUANTIFIED THIS CAPACITY VALUE?
14 A Yes. However, in response to the Commission's Order No. 32098, i will file direct
15 testimony supporting the quantification separately on December 22,2010.
16 Q DOES THIS CONCLUDE YOUR DIRECT TESTIMONY?
17 A Yes, it does.
Collns, Di - 8
Monsanto Company
Qualifications of Brian C. Collns
1 Q PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
2 A Brian C. Collns. My business address is 16690 Swingley Ridge Road, Suite 140,
3 Chesterfield, MO 63017.
4 Q WHAT IS YOUR OCCUPATION AND BY WHOM ARE YOU EMPLOYED?
5 A I am a consultant in the field of public utility regulation with the firm of Brubaker &
6 Associates, Inc. ("BAI"), energy, economic and regulatory consultants.
7 Q PLEASE STATE YOUR EDUCATIONAL BACKGROUND AND EXPERIENCE.
8 A I graduated from Southern Illnois University Carbondale with a Bachelor of Science
9 degree in Electrical Engineering. I also graduated from the University of Illnois at
10 Springfield with a Master of Business Administration degree. Prior to joining BAI, i
11 was employed by the Illnois Commerce Commission and City Water Light & Power
12 ("CWLP") in Springfield, 1L.
13 My responsibilities at the Ilinois Commerce Commission included the review
14 of the prudence of utilties' fuel costs in fuel adjustment reconciliation cases before
15 the Commission. My responsibilities at CWLP included generation and transmission
16 system planning. While at CWLP, I completed several thermal and voltage studies in
17 support of CWLP's operating and planning decisions. I also performed duties for
18 CWLP's Operations Department, including calculating CWLP's monthly cost of
19 production. I also determined CWLP's allocation of wholesale purchased power
20 costs to retail and wholesale customers for use in the monthly fuel adjustment.
21 In June 2001, I joined BAI as a Consultant. Since that time, I have
22 participated in the analysis of various utility rate and other matters in several states
Appendix A
Collns, Di - 1
Monsanto Company
1 and before FERC. I have fied or presented testimony before the Florida Public
2 Service Commission, the Illnois Commerce Commission, the Indiana Utility
3 Regulatory Commission, the Minnesota Public Utilities Commission, the Missouri
4 Public Service Commission, and the Public Service Commission of Wisconsin.
5 In 2009, i completed the University of Wisconsin - Madison High Voltage
6 Direct Current ("HVDC") Transmission Course for Planners that was sponsored by
7 the Midwest Independent Transmission System Operator, Inc. ("MISO").
8 BAI was formed in April 1995. BAI and its predecessor firm has participated in
9 more than 700 regulatory proceeding in forty states and Canada.
10 BAI provides consulting services in the economic, technical, accounting, and
11 financial aspects of public utility rates and in the acquisition of utility and energy
12 services through RFPs and negotiations, in both regulated and unregulated markets.
13 Our clients include large industrial and institutional customers, some utilities and, on
14 occasion, state regulatory agencies. We also prepare special studies and reports,
15 forecasts, surveys and siting studies, and present seminars on utility-related issues.
16 In general, we are engaged in energy and regulatory consulting, economic
17 analysis and contract negotiation. In addition to our main office in St. Louis, the firm
18 also has branch offces in Phoenix, Arizona and Corpus Christi, Texas.
l\Huey\SharesIPlDocISDWl921 OIL eslimony - BAli 1863.doc
Appendix A
Collins, Di - 2
Monsanto Company