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BEFORE THE i-D;\~r~¡O
UTlllllESIDAHO 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-10-07
Direct Testimony of
Brian C. Collns
(Economic Valuation of Monsanto Interruptible Products)
On behalf of
Monsanto Company
Project 9210
December 22, 2010
BRUIlAnR & AssOCIAns, INC.
CHESTERFIELD, MO 63017
PACIFICORP dba ROCKY MOUNTAIN POWER
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. PAC-E-10-07
Table of Contents to the
Direct Testimony of Brian C. Collns
(Economic Valuation of Monsanto Interruptible Products)
Page
RMP's Treatment of Monsanto's Load .................................................................................3
Peaker Valuation of Interruptibility .......................................................................................6
Other Indicators of Capacity Value.....................................................................................15
Response to RMP's Flawed Front Ofice and GRID Based Valuations...........................20
Exhibits:
Exhibit No. 254 (BCC-1) - Value of Monsanto Curtailment
Based on Avoided Peakers
Exhibit No. 255 (BCC-2) - Value of Monsanto Curtailment
Based on Qualifying Facilty Rates in Utah
Exhibit No. 256 (BCC-3) - Implicit Avoided Capacity Cost
of Operating Reserves
and Economic Curtailment
Collns, Oi - TOC
Monsanto Company
PACIFICORP dba ROCKY MOUNTAIN POWER
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. PAC-E-10-07
Direct Testimony 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 Chesterfeld, MO 63017.
4 Q ON WHOSE BEHALF ARE YOU APPEARING IN THIS PROCEEDING?
5 A I am appearing on behalf of Monsanto Company ("Monsanto"), a special contract
6 customer of Rocky Mountain Power ("RMP" or "Company"). RMP is a division of
7 PacifiCorp.
8 Q ARE YOU THE SAME BRIAN C. COLLINS WHO PREVIOUSLY FILED
9 TESTIMONY IN THIS PROCEEDING?
10 A Yes, i am. On November 1, 2010 I provided direct testimony as to the interrptible
11 nature of Monsanto's loads, the treatment of Monsanto by RMP in its Integrated
12 Resource Plan ("IRP"), and the economic benefis to RMP, its customers and the
13 power system as a whole from a long-term interruptible program such as Monsanto's.
14 Q PLEASE DESCRIBE YOUR EDUCATIONAL BACKGROUND AND EXPERIENCE.
15 A This information was included in my direct testimony filed November 1, 2010.
Collns, Di - 1
Monsanto Company
1 Q
2 A
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7 Q
WHAT IS THE SUBJECT OF THIS DIRECT TESTIMONY?
I provide testimony as to an appropriate basis for the economic valuation of
Monsanto's interruptible load. This information is used by my colleague, Kathryn
Iverson, in her testimony. I wil also respond to the testimony of RMP witness Paul
Clements with regard to the Company's approach to valuing Monsanto's
interrupti bilty.
8 TESTIMONY?
ARE YOU SPONSORING ANY EXHIBITS IN CONNECTION WITH YOUR
9 A
10 These exhibits were prepared either by me or under my supervision and direction.
Yes. I am sponsoring Exhibit No. 254 (BCC-1) through Exhibit No. 256 (BCC-3).
11 Q
12 A
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WOULD YOU PLEASE SUMMARIZE YOUR FINDINGS AND CONCLUSIONS?
My findings and conclusions are as follows:
1. Monsanto's interrptible load is a long-term resource that provides capacity value
as well as the opportunity for 1,050 hours per year of interruption.
2. RMP uses Monsanto's interruptible load resource much like it would a
combustion turbine, which is a peak generation resource or "peaker."
3. One reasonable approach to determining the value of Monsanto's interruptibilty
is to base it on the costs RMP would incur to install and operate a combustion
turbine, or peaker.
4. Based on its current provision of operating reserves, economic curtailment and
system integrity to RMP, the avoided peaker cost indicates a value of
$25.5 milion for Monsanto's interruptibility.
5. Another reasonable approach to determining the value of Monsanto's
interruptible load resource is to base it on the avoided costs that RMP pays
Qualifying Facilties ("QFs").
6. Utilzing the 20-year levelized QF rates results in a value of $25.8 millon for
Monsanto's interruptibilty.
7. The Company has offered its valuation of Monsanto's interruptibilty under two
methods: the Front Offce model and the GRID modeL. These models are strictly
Collns, Dj - 2
Monsanto Company
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short-term and do not consider the benefits associated with avoiding or deferring
generation. The Front Office model, in particular, focuses exclusively on valuing
Monsanto's reserves on the basis of RMP's least-profitable gas units.
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8. The annual market prices used in the Company's models do not adequately
reflect the avoided capacity costs associated with peaking resources. The
$25.5 milion value determined in Exhibit No. 254 (BCC-1) properly accounts for
the avoided costs, which are long-term. The Company's methods are strictly
short-term and do not properly reflect resource values. For this reason, I
recommend that the Commission give no weight to the Company's valuations.
10 Q WHAT AMOUNT OF INTERRUPTIBILITY DOES MONSANTO PROVIDE ROCKY
11 MOUNTAIN POWER?
12 A The 2008 Electric Service Agreement ("ESA")1 provides for three types of interruption:
13 (1) Operating Reserves of at least 95 MW which can be called upon 188 hours per
14 calendar year; (2) Economic Curtailment of 67 MW available for 850 hours per
15 calendar year; and (3) System Integrity of 162 MW available 12 hours per calendar
16 year.
17 RMP's Treatment of Monsanto's Load
18 Q HOW MUCH OF MONSANTO'S LOAD DOES THE COMPANY CLAIM AS FIRM?
19 A In the response to Monsanto Data Request 16.3 pertaining to the Supplemental
20 Testimony of Paul Clements, Mr. Clements states the following:
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Monsanto's entire load is treated as firm load and their interruptible
products are treated as firm resources. Please see the Rebuttal
Testimony of Gregory N. Duvall in Case No. PAC-E-10-07 for a
detailed explanation of the treatment of Monsanto load in the
integrated resource plan.
1Monsanto Exhibit No. 251 (RGB-X).
Collns, Dj - 3
Monsanto Company
1 Q HOW DOES MR. DUVALL IN HIS REBUTTAL TESTIMONY EXPLAIN THE
2 TREATMENT OF MONSANTO'S LOAD IN THE IRP?
3 A Mr. Duvall states the following:
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Monsanto's load is treated as firm load and their interruptible products
are treated as firm resources. If Monsanto's interruptible products
were no longer economic, the Company would find other means to
meet its firm load obligation and would have an obligation to serve
Monsanto's entire load.
9 Q IS 100% OF MONSANTO'S LOAD TREATED AS FIRM IN THE COMPANY'S IRP?
10 A No. The Company's net fjrm obligatjon formula is defined in the Company's 2008
11 IRP at page 89 as the following:
12 Net Firm Obligation = Obligation - Purchase - DSM - Interrptible
13 where Obligation equals all load plus firm sales at the time of RMP's system peak.2
14 Though Monsanto's entire load is included as an obligation, Monsanto's interrptible
15 load is subtracted from RMP's obligation to arrive at its net firm obligation.
16 Monsanto's interruptible load is excluded from the Company's net firm
17 obligation. Firm resources are not acquired by RMP to serve interruptible loads; firm
18 resources are acquired to serve the net firm obligation.
19 Q IS THERE ANY REASON TO EXPECT MONSANTO'S INTERRUPTIBLE LOAD
20 WOULD EVER BECOME FIRM?
21 A No. Monsanto's interruptible load has been interruptible since 1951. As long as
22 Monsanto is a customer of RMP, it plans to be an interruptible customer. Monsanto's
23 interruptible load is included as a firm resource (i.e., a deduction from its system peak
24 obligation) by RMP in the IRP planning process through 2019.
2Monsanto Exhibit No. 248 (RCB-X).
Collns, Dj - 4
Monsanto Company
1 Q WITH RESPECT TO THE IRP, HOW MUCH OF MONSANTO'S LOAD DOES THE
2 COMPANY DEDUCT FROM ITS SYSTEM PEAK OBLIGATION?
3 A In the 2008 IRP, RMP deducted a total of 157 MW (67 MW for economic curtailment
4 arid 90 MW for operating reserves) from its total system peak obligation. However, in
5 a slide presented at an IRP meeting in October 2010, the Company deducted only
6 49 MW of operating reserves from its system peak obligation. This would result in a
7 total deduction of 116 MW of Monsanto load from the Company's system peak
8 obligation. This proposal has not been published in the Company's final IRP report.
9 Q IS IT APPROPRIATE TO DEDUCT ONLY 119 MW OF MONSANTO'S LOAD FROM
10 ITS SYSTEM PEAK OBLIGATION?
11 A No. Based on my review of the current Monsanto contract with regard to furnace
12 operation, it is my understanding that Monsanto could simultaneously provide both
13 95 MW of operating reserves as well as 67 MW of economic curtailment. Since this
14 could happen at the time of RMP's system peak, it is appropriate to deduct
15 Monsanto's entire interruptible load in the amount of 162 MW from the Company's
16 system peak obligation forecasted in its IRP.
17 Q ARE YOU AWARE OF ANY RECENT INSTANCES WHEN MONSANTO WAS
18 PROVIDING SIMULTANEOUS ECONOMIC CURTAILMENT AND OPERATING
19 RESERVE INTERRUPTIONS TO RMP?
20 A Yes, i am aware of at least six recent instances. On August 29,2008, July 18, 2010
21 (twice), July 20,2010 (twice), and August 2,2010, Monsanto was providing RMP with
22 simultaneous economic curtailment and operating reserve interruptions of up to
23 162 MW.
Collns, Dj - 5
Monsanto Company
1 Peaker Valuation of Interruptibilty
2 Q DOES MONSANTO'S INTERRUPTIBLE LOAD PROVIDE CAPACITY VALUE TO
3 RMP?
4 A Yes. Monsanto's load is a flexible, price-responsive load that may be interrupted in
5 whole or in part during system emergencies, or during periods of high market prices
6 or stressed regional resources. Monsanto has provided RMP and its predecessors
7 with an interrptible load resource for over 59 years, and as long as it is a customer
8 of RMP plans to be interruptible. Because of this long-term commitment, it is
9 appropriate to base the value of this resource not on some short-term value, but on
10 the long-run avoided cost of resources with similar attributes. Like Monsanto's
11 interruptibilty, a combustion turbine is used to meet peak periods of high demand, or
12 in situations where numerous generator outages result in a scarcity of resources.
13 Q DOES MONSANTO'S INTERRUPTIBLE LOAD ALLOW RMP TO DELAY OR
14 AVOID THE CONSTRUCTION OR ACQUISITION OF GENERATING
15 RESOURCES?
16 A Yes. Typically, generating capacity is not constructed or acquired to serve
17 interruptible loads. RM P's predecessor company, Utah Power & Light ("UPL"), was of
18 the opinion that generating capacity is not built or acquired for interruptible loads. At
19 page 2 of Order No. 24220 for Case No. UPL-E-92-2, the Commission cites UPL's
20 Application as stating the following:
21 According to the Application, demand charges are not assigned to Monsanto's
22 interruptible service because the Company provides that service to Monsanto
23 out of its operating reserves (j.e., generation plant is not built to meet an24 interruptible demand). (emphasis added)
Collns, Dj - 6
Monsanto Company
1 Q WHAT ENSURES A SUFFICIENT COMMITMENT IS MADE BY MONSANTO TO
2 ALLOW RMP TO DELAY OR AVOID THE CONSTRUCTION OR ACQUISITION OF
3 NEW GENERATION CAPACITY?
4 A A multi-year contract is suffcient commitment. Monsanto currently has a three-year
5 contract term with RMP. This three-year term requires a significant commitment from
6 . Monsanto and is suffcient for RMP to recognize Monsanto's interruptible load in its
7 integrated resource planning. In fact, Monsanto is wiling to enter into commitments
8 longer than three years if based upon reasonable contract terms and conditions.
9 Q DO YOU BELIEVE THAT RMP CURRENTLY USES MONSANTO'S
10 INTERRUPTIBILITY MUCH LIKE IT WOULD A COMBUSTION TURBINE?
11 A Yes. Under the current contract, RMP calls upon Monsanto practically every month
12 of the year to provide either operating reserves or economic curtailment. In times of
13 emergency, the Company has called on Monsanto to interrupt all three of its
14 furnaces, or has sought Monsanto's cooperation to keep furnaces from coming
15 on-line. Monsanto has been highly successful in its interruptible performance and the
16 Company has even sought additional interruptions at critical times. There are
17 significant penalties set forth in the 2008 ESA for failure to interrupt, but RMP has
18 never had to exercise them since Monsanto has complied 100% with all interruption
19 requests.
20 Q SINCE MONSANTO'S LOAD IS TREATED LIKE A COMBUSTION TURBINE,
21 SHOULD ITS VALUE OF INTERRUPTIONS BE LIKEWISE DETERMINED ON THE
22 BASIS OF THE AVOIDED COST OF A COMBUSTION TURBINE?
23 A Yes. A reasonable approach to determining the interrption value is to base it on the
24 costs RMP would incur if it were to build and install a new combustion turbine. A
Collns, Dj - 7
Monsanto Company
1 combustion turbine that can provide quick-start capabilty in less than 10 minutes,
2 such as an aero-derivative simple cycle combustion turbine ("Aero SCCT") should be
3 used as the basis for the load which Monsanto can interrupt within 1 0 minutes, in
4 particular the 95 MW of operating reserves. While the 67 MW of economic
5 curtailment can also be interrupted in a matter of seconds for the 12 hours of system
6 integrity, the contract currently requires a two-hour notice for the 850 hours of
7 economic curtailment. Thus, to be conservative i have used the lesser capacity cost
8 of a combustion turbine that does not have quick-start capability, e.g., a Frame "F"
9 simple cycle combustion turbine ("Frame CT"), to model the value associated with the
10 67 MW economic curtailment.
I
11 Q WHAT ARE THE COSTS ASSOCIATED WITH THESE TWO TYPES OF
12 TURBINES?
13 A The avoided capital and running costs of these turbines are shown in Exhibit No. 254
14 (BCC-1). The avoided capital costs represent RMP's own estimates of peaking
15 resources in Utah as detailed in the 2010 Update of the 20081RP. The running costs
16 are based on the heat rates of these units used in the 2008 IRP and the delivered fuel
17 costs as detailed in RMP's Utah QF filing from June 2010, which is based on RMP's
18 March 2010 price curve.
The reallevelized3 cost of an Aero SCCT is $107.814 per kW-year based on19
20 construction in Utah at a carring charge of 9.08% and including fixed operation and
3ro determine a levelized cost, the present value of the cost to construct the generating unit is
converted to equal annual costs over its economic life. Real levelized capacity costs used in this
analysis comprise the first yeats deferraL. Real levelization (in contrast to a nominal levelization)
assumes that the avoided capital portion would increase each year by the rate of inflation. Asa result,
this methodology can be used to calculate the capacity value regardless of contract length.
"The $107.81 per kW-year cost is the average of RMP's costs of an Aero SCCT and
Intercooled Aero SCCT.
Colljns, Dj - 8
Monsanto Company
1 maintenance and other costs.5 The avoided energy cost is $79.54 per MWh. The
2 lower capacity cost of the Frame CT is $70.61 per kW-year on a reallevelized basis,
3 with higher energy costs of $96.14 per MWh.
4 Applying these two sets of resource costs to the 95 MW of operating reserves,
5 and the 67 MW of economic curtailment results in a value of roughly $25.5 milion:
6 $14.3 milion attributable to the operating reserve portion6 and $11.2 milion for the
7 economic curtailment.
8 Q WHY HAVE YOU BASED YOUR VALUATION ON THE COST OF A NEW
9 COMBUSTION TURBINE GENERATOR INSTEAD OF THE MARKÈT PRICE FOR
10 CAPACITY?
11 A Currently, combustion turbine generation is the lowest cost form of capacity that is
12 readily available for construction. While the current market price for capacity is lower
13 than the amortized cost of a new combustion turbine generator, this is only a
14 temporary situation. Market prices can be volatile and wil need to average to at least
15 the amortized cost of a new combustion turbine in order for the market to sustain
16 itself. Finally, long-term participation by Monsanto as an interruptible customer allows
17 RM P to avoid the construction or acquisition of new generation that it would incur if it
18 instead had to serve Monsanto's interrptible load as firm load.
19 The basic concept behind interruptible power is that the utilty does not have
20 to install generation capacity to serve interruptible load because these loads can be
21 interrupted when capacity is needed to maintain service to firm customers.
22 Interruptible demand goes beyond just allowing RMP to avoid making short-term
23 capacity purchases from the market. For all of these reasons, the valuation of
520081RP, page 104, and 2008 IRP Update, page 43.
6This also includes the avoided energy cost associated with system integrity.
Collns, Dj - 9
Monsanto Company
1 Monsanto's interruptible load should be based on the cost of new combustion turbine
2 generation.
3 Q WHY DO YOU INCLUDE A 12% RESERVE MARGIN WHEN CALCULATING THE
4 AVOIDED PEAKER COSTS?
5 A Monsanto's interruptible load allows RMP to avoid constructing or purchasing a firm
6 resource. If Monsanto's load were firm, RMP would need to construct or purchase a
7 resource to serve Monsanto's firm load as well as planning reserves needed to serve
8 the load as firm. Thus, RMP avoids the cost of a long-term resource equal to the load
9 plus the planning reserves. Therefore, it is appropriate to include a reserve margin in
10 any avoided capacity cost valuation of Monsanto's interruptibility.
11 Q CAN YOU PROVIDE AN EXAMPLE TO ILLUSTRATE THE EFFECT OF A
12 RESERVE MARGIN ON THE AMOUNT OF RMP'S AVOIDED CAPACITY
13 RESOURCES?
14 A A utility must have more than 1 MW of capacity available for every 1 MW of net firm
15 load. A reserve margin provides a cushion against expected load growth, extreme
16 weather conditions and outages of generating equipment. According to the
17 Company's IRP, RMP typically plans for a 12% reserve margin. Stated differently,
18 RM P must install at least 112 MW of generating capacity to reliably serve 100 MW of
19 net firm load. It follows, therefore, that by encouraging customers to opt for
20 interruptible service, RMP would not have to install 112 MW of generating capacity for
21 every 100 MW of interruptible load.
Collns, Dj - 10
Monsanto Company
1 Q IN HIS SUPPLEMENTAL TESTIMONY, DOES MR. CLEMENTS ASSERT THAT A
PEAKER VALUATION IS IMPROPER FOR VALUING MONSANTO'S2
3 INTERRUPTIBILlTY?
4 A Yes. In his supplemental testimony at page 20, Mr. Clements states that a peaker
5 valuation is not appropriate to value Monsanto's interrptibilty. He argues that the
6 products, terms and conditions offered by Monsanto are not equivalent to the
7 products, terms and conditions available through ownership or lease of a combustion
8 turbine. This is based on his claim that a combustion turbine is available 8,410 hours
9 per year assuming a 96% availabilty factor.
10 Q DO YOU AGREE WITH MR. CLEMENTS' POSITION?
11 A No. The fact that a combustion turbine might be available 8,410 hours per year is
12 irrelevant to the valuation of Monsanto's interruptibilty. Monsanto's interrptible
13 value depends on the resources it is displacing. What is relevant to Monsanto's
14 valuation is that when RMP interrupts Monsanto's load, it is at times of peak periods
15 of high demand or in situations where generator outages result in a scarcity of
16 resources. At these times, RM P should be operating all of its generating resources,
17 including peaking resources. The decision by RMP to interrupt Monsanto at these
18 times should be based on the economic displacement of RMP's highest cost peaking
19 resources (at times of high demand) or the economic addition to RMP's peaking
20 resources (at the time of generation resource scarcity). Since Monsanto is displacing
21 peaking resources or adding to RMP's economic peaking resources, Monsanto's
22 interruptibility is treated and operated as a peaking capacity resource and should be
23 valued as such.
Collns, Dj - 11
Monsanto Company
1 Q WHAT CHARACTERISTICS SHOULD AN INTERRUPTIBLE LOAD EXHIBIT IN
2 ORDER FOR IT TO BE CREDITED WITH AVOIDING THE COSTS OF A
3 COMBUSTION TURBINE?
4 A An article written by Eric C. Woychik, Vice President of Regulatory Affairs for
5 Comverge, Inc., regarding the benefits of demand response ("DR") resources,
6 including interruptible load, best describes these characteristics:
7 In order for DR to be credited with avoiding supply-side capital cost it
8 must avoid load equally or better than a comparable supply-side
9 resource (proxy) would serve load if the DR weren't available. It10 must respond operationally as quickly as, or quicker than, the11 supply-side proxy. It also must be equivalent or better in terms of
12 certainty and predictabilty, and must exhibit a ramp-rate that is equal13 or better than the supply-side resource. Finally, it must have
14 comparable or higher short-term reliabilty (in terms of FOR and POR)15 than the supply-side resource.
16 DR's value for avoiding supply-side capital costs depends on the
17 resource it's displacing. A critical distinction in power markets is the
18 difference between firm power and non-firm power. Firm power is
19 backed up by operating reserves (spinning reserves and non-spinning20 reserves), while non-firm power is not,
21 Q DOES MONSANTO'S INTERRUPTIBILITY MEET THESE CHARACTERISTICS
22 SUCH THAT IT CAN DISPLACE A COMBUSTION TURBINE?
23 A Yes. i provide additional details as to how Monsanto's interruptibilty meets these
24 characteristics such that it displaces a combustion turbine, later in this section of my
25 testimony.
26 Q DOES THE COMPANY CONTROL WHEN MONSANTO IS INTERRUPTED?
27 A Yes. The Company controls the interrptions that Monsanto has committed to
28 provide the Company and it is the responsibilty of the Company to manage those
7"Optimizing Demand Response," Public Utiliies Fortnightly, May 2008, page 54, emphasis
added.
Collns, Dj - 12
Monsanto Company
1 interruptions. RMP has historically managed Monsanto's interruptible load such that
2 interruptions occur in every month of the year. Monsanto must stand ready at all
3 times to comply with RMP's interruption requests. This is a 24 x 7 x 52 obligation.
4 Interruptions are not cost free to Monsanto, and being ready to interrupt demand at
5 anytime is an ongoing process. The ability to interrupt is of great value, even if the
6 actual interruption is not triggered.
7 Q ISN'T A COMBUSTION TURBINE MORE FLEXIBLE AND VERSATILE THAN
8 MONSANTO'S INTERRUPTIBILlTY?
9 A No, it is not. Monsanto can interrupt its load within 10 minutes and is available to
10 RMP 24 hours a day during every month of the year, just like a combustion turbine if
1 t the combustion turbine has a fuel supply, and far superior to a combustion turbine
12 when it has not been fueled. Monsanto can actually interrupt its load within seconds
13 for emergency purposes and is willng to do so, which makes Monsanto's operational
14 response and ramp rate even quicker than a combustion turbine. Response time is
15 of utmost importance for an electric system, because generation and load must
16 always be in balance. As more renewable generation, such as wind generation, is
17 added to the electric grid, Monsanto's provision of operating reserves becomes even
18 more valuable. Monsanto can provide operating reserves in a matter of a few
19 minutes.
20 Q HOW DOES MONSANTO'S CAPACITY FACTOR FOR ITS INTERRUPTIBLE
21 LOAD COMPARE TO THE CAPACITY FACTOR OF RMP'S COMBUSTION
22 TURBINE?
23 A When Monsanto provides 67 MW of economic curtailment at its maximum of
24 850 hours per year under the current contract, its annual capacity factor is 9.7%.
Collns, Dj - 13
Monsanto Company
1 This compares favorably to RMP's capacity factor modeled for its Gadsby CT in the
2 test year net power costs.
3 Q DOES INTERRUPTIBLE LOAD PROVIDE ANY OTHER ADVANTAGES RELATIVE
4 TO COMBUSTION TURBINES?
5 A Yes. Monsanto has fully complied with RMP's interruption requests. By contrast,
6 combustion turbines are not guaranteed to start every time their capacity is needed.
7 Since Monsanto has complied 100% with all interruption requests, it has higher
8 reliabilty than a combustion turbine as well as more certainty and predictabilty than a
9 combustion turbine.
10 Q HAS RMP PREVIOUSLY USED THE COST OF A COMBUSTION TURBINE TO
11 VALUE INTERRUPTIBLE LOADS?
12 A Yes. In response to IIPA Data Request 46, RMP states the following:
13
14
15
16
17
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The Company has estimated the system value of the Idaho Irrigation
Load Control Program for cost-effectiveness evaluation using a
methodology first developed in 2007 and reviewed by the IIPA. This
methodology captures the capacity deferral benefit of the resource
via displacement of simple cycle combustion turbine proxy
resources and firm market purchases. The latest estimate, $73.09(81
kW-year, was prepared in April 2009 and cited in the Company's 2009
dispatchable irrgation program report. (Emphasis added)
8This cost is comparable to the cost for the Frame CT ($70.61 per kW-year) used in the
valuation of Monsanto's economic curtailment shown in Exhibit No. 254 (BCC-1). RMP adjusts the
$73.09 per kW-year value for line losses (10.392%) to arrve at a value of $81.56 per kW-year (see
RMP's 2009 Demand Side Management Annual Report - Idaho, Appendix 1, page 22).
Collns, Dj - 14
Monsanto Company
1 Other Indicators of Capacity Value
2 Q PLEASE DESCRIBE RMP'S RECENT INVESTMENTS IN GENERATION
3 RESOURCES ON ITS SYSTEM.
4 A RMP has included both wind resources and coal unit turbine upgrades in the test year
5 of the instant rate case. For example, the Dunlap 1 wind resource included in the
6 rate case costs $2,353 per kW while the coal unit turbine upgrade costs range from
7 $1,583 per kW to $1,988 per kW. These investments on the RMP system are higher
8 on a per kW basis than the peaker cost of $770 per kW (for economic curtailment)
9 and $1,084 - $1,126 per kW (for operating reserves) upon which I recommend that
10 the Monsanto valuation be determined.
11 Q AS THE COMPANY ADDS INVESTMENTS TO ITS SYSTEM GENERATION, WHAT
12 HAPPENS TO ITS RATES?
13 A Its rates increase. RMP is asking for a 13.7% increase in its overall revenue
14 requirement for the instant rate case.
15 Q AS RMP'S SYSTEM COSTS INCREASE, AND IN TURN, ITS RATES INCREASE,
16 WOULD YOU ALSO EXPECT THE VALUE OF MONSANTO'S INTERRUPTIBILITY
17 TO INCREASE?
18 A Yes. Decreasing the value of Monsanto's interrptibilty, while simultaneously asking
19 for an overall increase of 13.7% as RMP has, is counter-intuitive and at odds with
20 reality.
Collns, Dj -15
Monsanto Company
1 Q ARE THERE ANY OTHER POSSIBLE VALUATIONS OF MONSANTO'S
2 INTERRUPTIBILITY THAT YOU WOULD CONSIDER APPROPRIATE?
3 A Yes. I would also consider RMP's QF rates in Utah (Schedule No. 37) as a
4 reasonable method to value Monsanto's interruptibilty. Using RMP's 20-year
5 levelized QF rate would result in an annual valuation of $25.8 milion for Monsanto's
6 interruptibility. This calculation is shown in Exhibit No. 255 (BCC-2).
7 Q CAN UTAH'S QF RATES BE USED TO EVALUATE SPECIAL CONTRACTS?
8 A Yes. According to the December 14, 2009 order in Docket No. 09-035-T14, at
9 page 2, the Public Service Commission of Utah stated that the QF rates can be used
10 in the evaluation of special contracts:
11 The rates are based on avoided costs developed from the Company's
12 Integrated Resource Plan ("IRP"). Avoided costs are costs the
13 Company would incur to serve its native load but for the generation14 provided by the QFs. Schedule No. 37 prices may also be used to
15 evaluate special contracts, demand side resource programs and form
16 the basis of credits paid under Electric Service Schedule No. 135, the
17 Company's Net Metering Service tariff. Specifically in this filing, the
18 Company updates the rates for known and expected changes to19 system costs.
20 Q HAS RMP PLACED A VALUE ON MONSANTO'S ABILITY TO PROVIDE SYSTEM
21 INTEGRITY INTERRUPTIONS?
22 A Yes. Monsanto makes 162 MW of capacity available to RMP for a maximum of
23 12 hours per year when required to maintain system integrity. RMP has based the
24 value of system integrity using an average annual heavy load hour (6x16) market
25 price for energy. RMP's approach results in a system integrity value of only about
26 $100,000. When system integrity is in jeopardy, market prices wil likely be much
27 higher than the annual average market price. As a result, RMP's approach to value
28 system integrity is not appropriate.
Collns, Dj - 16
Monsanto Company
1 Q WHAT DO YOU RECOMMEND FOR THE VALUE OF SYSTEM INTEGRITY
2 INTERRUPTIBILlTY?
3 A The provision of system integrity interrptions should be valued at not less than $400
4 per MWh. This value reflects the current price cap for power in the Western
5 Electricity Coordinating Council ("WECC"). This is a conservative estimate. The
6 California Independent System Operatots ("CAl SO") energy bid cap is set to increase
7 from $750 per MWh to $1,000 per MWh in April 2011. As a result, on May 20, 2010,
8 the Federal Energy Regulatory Commission ("FERC") in Docket No. EL 10-56-000
9 instituted an investigation into the WECC price cap since $400 per MWh may no
10 longer be just and reasonable and may need to be increased. The FERC has noted
11 that changes in CAISO affect the entire WECC region and a lower cap in the WECC
12 could result in reduced supply options available to WECC purchasers.
13 At $400 per MWh, Monsanto's system integrity valuation is equal to $806,000
14 and at $1,000 per MWh is equal to $2.0 milion.
15 Q IS THIS A CONSERVATIVE VALUATION?
16 A Yes. It assumes that the market purchase alternative actually exists. If it did not (i.e.,
17 no one had power to sell at the time), the result could actually be curtailment of firm
18 load. The cost of firm load curtailments to electricity consumers can be quite high
19 and diffcult to quantify. However, the value of lost load ("VOLL") has been estimated
20 by the U.S. Department of Energy to have an average value in the range of $2,000 to
21 $5,000 per MWh.9
9U.S. Department of Energy, "Benefis of Demand Response in Electricity Markets and
Recommendations for Achieving Them," February 2006, page 83.
Collns, Dj - 17
Monsanto Company
1 Q YOU MENTIONED EARLIER THAT DEMAND-SIDE RESOURCES CAN OFFER
2 POTENTIAL ENVIRONMENTAL BENEFITS. HAVE YOU QUANTIFIED THESE
3 BENEFITS?
4 A No, a quantification of environmental benefits is not available. While interruptible
5 resources promote effcient use of resources in general and have the potential to
6 reduce emissions during peak times, there is currently no valuation of these
7 environmental benefits performed by the Company either in this case or its 2008 IRP.
8 RMP has a goal of protecting and enhancing the environment and the Monsanto
9 interruptible contract is consistent with that goal. Though no quantification of
10 environmental benefits is available for the Monsanto interruptibilty, RMP's recent
11 expenditures on wind turbines, or "green" resources, in excess of $2,300 per kW
12 would suggest that Monsanto's interruptibilty provides even greater value to RMP
13 than I have quantified.
14 Q WHY HAVE YOU NOT INCLUDED A VALUATION OF MONSANTO'S
15 INTERRUPTIBILITY BASED ON THE COST OF AVOIDED SHORT-TERM
16 MARKET PURCHASES?
17 A The current cost of avoided market purchases reflects a short-term valuation. As
18 previously stated, Monsanto's interrptibilty should be valued on the basis of RMP's
19 long-term avoided capacity cost. The use of a short-term method to value
.20 Monsanto's interruptibilty is inappropriate since Monsanto's interruptibilty is a
21 long-term resource and should be valued as such. RMP does not serve its firm loads
22 entirely with purchases at current market prices. If it did, it would never install any
23 capacity. For the same reason, Monsanto's interruptibilty value should not be
24 determined based on the avoided cost of purchases at current market prices.
Collns, Dj - 18
Monsanto Company
1 Q IS IT IMPORTANT THAT THE VALUATION OF MONSANTO'S INTERRUPTIBILITY
2 BE FAIR AND REASONABLE?
3 A Yes. RMP assumes that Monsanto's interrptible load is a firm resource available
4 over the entire IRP time horizon, which is through the end of 2019. In order to retain
5 interruptible loads in its resource portolio, the Company should encourage this
6 commitment through fair and reasonable valuations.
7 It is important to recognize that industrial end-users are principally attempting
8 to operate their businesses to profiably produce their core products. When energy
9 consumption is interrupted, these end-users can incur significant lost production
10 margins and other costs they would not otherwise incur. It is obviously not desirable
11 to incur these costs, but, if the net reduction in electricity costs adequately exceeds
12 the cost incurred by the customer for interrupting, the customer wil generally be
13 willng to interrpt its consumption.
14 Q IS SUCH AN APPROACH CONSISTENT WITH CURRENT FERC POLICY ON
15 DEMAND RESPONSE RESOURCES?
16 A Yes. The encouragement of interruptible loads to participate as demand response
17 resources available to electric utilties is consistent with FERC current policy on
18 demand response. On page 1 of FERC's June 17, 2010 National Action Plan on
19 Demand Response, FERC states the following:
20 Demand response is a valuable resource for meeting the nation's
21 energy needs. By lowering the peak demand for energy, demand22 response programs reduce the need to construct new, expensive
23 generation units. However, according to a Federal Energy Regulatory
24 Commission (FERC or Commission) staff report - A National
25 Assessment of Demand Response Potential (National Assessment),
26 submitted to Congress in June 2009 - current demand response
27 programs tap less than a quarter of the total market potential for
28 demand response. FERC staff has worked with stakeholders to
29 develop this National Action Plan on Demand Response (National
30 Action Plan), which sets out actions to achieve the demand response
Colljns, Di - 19
Monsanto Company
1 potential in the United States. Congress required FERC to develop
2 such a plan in the Energy Independence and Security Act (EISA) of
3 2007. Because current efforts have missed a significant portion of
4 the cost effective demand response potential, it is evident that
5 action needs to be taken to either create new programs or expand
6 existing ones where cost-effective. (Emphasis added)
7 Response to RMP's Flawed Front Office and GRID Based Valuations
8 Q DID RMP PROVIDE ANY TESTIMONY WITH REGARD TO THE VALUATION OF
9 MONSANTO'S INTERRUPTIBILITY?
10 A On September 30,2010, the Company provided the Supplemental Testimony of Paul
11 Clements. Mr. Clements has handled the valuation on a year-to-year basis. He has
12 not attempted to value Monsanto's interrptibility as a long-term capacity resource.
13 Q WHAT HAS LED YOU TO THIS CONCLUSION?
14 A Mr. Clements has valued Monsanto's interruptibilty under two methods: the Front
15 Offce model, and RMP's GRID net power costs modeL. The Front Offce model
16 separately values each component of Monsanto's interruptions, but only based upon
17 projected forward price curves and "lost profits." Consequently, the value from the
18 Front Offce model is simply the result of short-run projected market prices (and to
19 some degree on the running costs of its own "highest cost" plants).
20 Likewise, the Company has also used the GRID model to value Monsanto's
21 interruptibility based on additional sales in a single year under projected market
22 prices, whether as a result of reduced sales to Monsanto or additional generation
23 from existing resources. The GRID mod~1 is incapable of calculating a value for the
24 system integrity component.
25 The only capacity value captured by these two models, consequently, is the
26 extent to which the forward market prices include an implied capacity payment.
Collns, Dj - 20
Monsanto Company
1 Neither of these methods were approved by the Commission in Case No.
2 PAC-E-07-05 to value Monsanto's interruptibility. The December 28, 2007 order
3 (Order No. 30482) in that case stated the following at page 8:
4
5
6
The curtailment valuation for Monsanto is based on a "black box"
determination with no part accepting a specific methodology for
setting this valuation.
7 Q WHAT ARE "LOST PROFITS" UNDER THE FRONT OFFICE MODEL?
8 A To value reserves under the Front Offce model, RMP determines which of its
9 generating units has the highest running cost "in the money," that is, where running
10 costs are less than the market price. This least profiable unit is designated as the
11 unit being held back for reserves, and thus the Company is losing any profits it could
12 have made had it not been held back. The opportunity cost, or foregone margin, is
13 the value the Company ascribes to operating reserves. In the Front Offce model,
14 "lost profits" from only gas-fired resources are included in the reserve value. Because
15 the Front Offce model uses only gas-fired generation, and it uses only the least
16 profitable gas units, it sets the absolute minimum value on reserves.
17 Q WHAT VALUE DOES MR. CLEMENTS' MODELS PLACE ON MONSANTO'S
18 INTERRUPTIBILlTY?
19 A For the period 2011 to 2013, Mr. Clements determined the annual value of
20 Monsanto's operating reserves to be in the range of $2.4 milion to $3.7 milion and
21 the annual value of Monsanto's economic curtailment to be in the range of
22 $3.2 millon to $4.3 millon.
Collns, Dj - 21
Monsanto Company
1 Q HAVE YOU QUANTIFIED THE IMPLIED AVOIDED CAPACITY COMPONENT OF
2 THE COMPANY'S VALUES?
3 A Yes. A quantification of the implied avoided capacity component is presented in
4 Exhibit No. 256 (BCC-3) under two scenarios: the incremental generating units are
5 assumed as either peaking resources with an average running cost of $85 per MWh,
6 or the incremental units are assumed as intermediate type resources, such as a
7 combined cycle unit, with running costs of $59 per MWh. These two scenarios
8 present reasonable approximations for analyzing what amount of avoided capacity
9 costs is implied within the Company's projected market prices.
10 For operating reserves (shown on page 1 of Exhibit No. 256 (BCC-3)), the
11 implied avoided capacity costs from the Company's models range from $8.69 per
12 kW-year to a high of $27.40 per kW-year. These low values aptly demonstrate the
13 failure of the Company's models to reasonably reflect the avoided capacity cost of an
14 Aero SCCT which averages $108 per kW-year.
15 For the economic curtailment component (shown on page 2 of Exhibit No. 256
16 (BCC-3)), the implied avoided capacity values range from -$27.16 to $11.99 per
17 kW-year.1o These low values aptly demonstrate the failure of the Company's models
18 to reasonably reflect the avoided capacity cost of a Frame CT which averages
19 $71 per kW-year.
20 Q WHAT DO YOU CONCLUDE FROM YOUR ANALYSIS?
21 A The annual market prices used in the Company's models do not adequately reflect
22 the avoided capacity costs associated with peaking resources. The $25.5 millon
23 value determined in Exhibit No. 254 (BCC-1) properly accounts for the avoided costs,
lOA negative capacity value indicates that the Company's models fail to even capture the
entire avoided energy component of peaking resources.
Collns, Di - 22
Monsanto Company
1 which are long-term. The Company's methods are strictly short-term and do not
2 properly reflect resource values. For this reason, I recommend that the Commission
3 give no weight to the Company's valuations.
4 Q DOES THIS CONCLUDE YOUR DIRECT TESTIMONY REGARDING THE
5 ECONOMIC VALUATION OF MONSANTO INTERRUPTIBLE PRODUCTS?
6 A Yes, it does.
\\DoclSharesIrolawDocsISDW210\T esimony - BAli 189282doc
Collns, Dj - 23
Monsanto Company
Monsanto Company
Exhibit No. 254 (BCC-1)
Page 1 of 1
Case No. PAC-E-10-07
Witness: Brian C. Collns
Rocky Mountain Power
Value of Monsanto Curtailment Based on Avoided Peakers
Economic
Operating Reserves Curtailment
Intercooled SCCT Frae
Line Description AeroSCCT or AeroSCCT (2 Frame "F")Total
(1)(2)(3)(4)
Avoided Capilal:
1 Avoided Capacity Cost ($/kW-yea) (1)$102.97 $112.69 $70.61
2 Capacity (kW)95,000 95,000 67,000
3 Adjustment for Reserve Margin 12%12%12%
4 Capacity Adjusted for Reserves (kW)106,400 106,400 75,040
5 Adjustment for Losses 4.98%4.98%4.98%
6 Capacity Adjusted for Losse (kWl 111,699 111,699 78,777
7 Capacity Value $11,501,304 $12,587,418 $5,562,759 $17,607,120
Avoided Energy:
8 Hours Curliled 188 188 850
9 MWh Curtailed 17,860 17,860 56,950
10 Adjustment for Losse 3.61%3.61%3.61%
11 MWh Curtailed 18,505 18,505 59,006
12 Avoided Energy Cost ($/MWhl (1)$76.62 $82.47 $96.14
13 Energy Value - Curtailment $1,417,889 $1,526,018 $5,672,543
14 Avoided Energy Cost - System Integrity (2)$805,671 $805.671
15 Energy Value $2,223,560 $2,331,690 $5,672,543 $7,950,168
16 Total Value (3)$14,321,986 $11,235,301 $25,557,287
(1) PacifiCor 2ooBIRP, page 104; PacifCorp 200BIRP Update (March 2010), page 43.
(2) Incudes the 12 hors of system integrit (162 MIN at $400 per MW.
(3) Total Value = Capacity Value + Energy Value-CurtaHment + Avoided Enery Cos-System Integrit
Total Value includes the averge of the Operting Resees value base on /he cost of an Intercoed Aer SCCT
and the cost of an Aero SCCT.
Monsanto Company
Exhibit No. 255 (BCC-2)
Page 1 of 1
Case No. PAC-E-10-07
Witness: Brian C. Collins
Rocky Mountain Power
Value of Monsanto Curtailment Based on Qualifying Facility Rates in Utah
Operatjng Economic
Line Descrjption Reserves Curtailment
(1)(2)Avoided Capital:
1 Avoided Capacity Cost ($/kW-year) (1)$115.80 $115.80
2 Capacity (kW)95,000 67,000
3 Adjustment for Reserve Margin 12%12%
4 Capacity Adjusted for Reserves (kW)106,400 75,040
5 Capacity Value $12,321,120 $8,689,632
Avoided Energy:
6 Hours Curtailed 188 850
7 MWh Curtailed 17,860 56,950
8 Avoided Energy Cost ($/MWh) (1)$53.40 $53.40
9 Energy Value - Curtailment $953,724 $3,041,130
10 Avoided Energy Cost - System Integrity (2)$805,671
11 Energy Value $1,759,395 $3,041,130
12 Total Value (3)$14,080,515 $11,730,762
Total
(3)
$21,010,752
$4,800,525
$25,811,277
(1) Rocky Mountain Power, Utah Electric Service Scheule No. 37, 20- Year Levelized.
(2) Includes the 12 hours of system integrity (162 MW) at $400 per MWh.
(3) Total Value = Capacity Value + Energy Value-Curtailment + Avoided Energy Cot-System Integrity.
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