20110330Comments.pdf

Randall C. Budge, ISB No. 1949
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED
P.O. Box 1391; 201 E. Center
Pocatello, Idaho 83204-1391
Telephone: [phone]
Fax: [phone]
rcb(gracinelaw.net
RECEIVËO
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Attorneys for Intervenor Monsanto Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICA nON OF )
PACIFICORP dba ROCKY MOUNTAIN POWER)
FOR APPROVAL OF AMENDMENTS TO )
REVISED PROTOCOL ALLOCA nON )METHODOLOGY )
)
)
Case No. PAC-E-IO-09
COMMENTS OF MONSANTO COMPANY
COMES NOW Monsanto Company ("Monsanto"), through counsel, and hereby submits
the following comments to the Idaho Public Utilties Commission ("Commission") with respect
to PacifiCorp's ("Company") Application to Amend the Revised Protocol Allocation
Methodology and in response to the Commission's Notice of Modified Procedure dated Januar
12,2011.
INTRODUCTION
The allocation of resource benefits and costs among the states within the PacifiCorp
system is criticaL. The importance of interursidictional allocation is signficantly ratcheted up in
today's environment, given PacifiCorp's forecasted growt in demand and their capital
expenditure plans. The future costs PacifiCorp anticipates incurng are extraordinar,
paricularly in light of the $6 bilion estimated investment to complete the Gateway Transmission
project. Balancing these costs among the varous jurisdictions the Company seres requires an
Comments of Monsanto Company - 1
examination of both the drivers for new resources and the spread of benefits derved from the
Company's investments. This is paricularly tre in Idaho where approximately 60% of the load
is attrbutable to two customers, Monsanto and the Irgators, neither of which have experenced
any load growth for thirt (30) plus years nor are expected to grow in the future.
THE IMPACT OF LOAD GROWTH
The Company's proposed changes to interursidictional allocation contained in their filed
testimony in this case fail to recognze or account for key drivers of increasing system cost. Ths
is not surrising given the impetus to open up the question of interstate allocation. As discussed
in Andrea Kelly's testimony (p. 8, lines 12-21), the initial question of whether the existing
allocation procedure was producing fair and equitable results stemed from questions posed by
the Utah delegation to the Standing Committee. Indeed, the need to re-address interstate
allocation became known as the 'Utah issue' - a desire on behalf of Utah to move its state
allocation to reflect a "Rolled-In" interursidictional allocation. Once this 'issue' defined the
cause of the analysis, other issues that could also serve to question the existing interstate
allocation became moot. Accordingly, PacifiCorp now designed their analysis primarly to
address two 'end-states.' As stated by Ms. Kelly (p. 8, lines 19-21),
"In general, it was recognzed that any solution would need to
strke a balance between making progress toward fully Rolled-In
allocations while maintaining a hydro endowment for Oregon and
Wyoming."
Monsanto acknowledges that the curent filing demonstrates that Idaho is projected to
benefit slightly from the proposed changes in interjursidictional allocation. According to
PacifiCorp (McDougal, p. 7, lines 16-18), the move toward a 'Rolled-In' allocation procedure
provides protection to states who are not growing as fast as others (in this case, Utah and
Wyoming identified as states with the highest load growt). Despite this modeling result,
Monsanto continues to have concern regarding an uneven load growt scenaro over the long ru.
Idaho's load growth is not growing relative to the other states and is not projected to grow
relative to the other states in the foreseeable futue. Mr. McDougal's assertion that load growth
among the states with a Rolled-In methodology provides protection to the slow growing states
Comments of Monsanto Company - 2
(McDougal, p. 7, lines 18-19) provides little comfort given the purose of the entire exercise was
not "intended to precisely predict anual revenue requirement though calendar year 2019 and
does not serve to predict future rate setting procedures or price changes in any state."
(McDougal, p. 3, lines 15-17) Considering the high level natue of the modeling that was
undertaken, Monsanto believes that Idaho remains economically exposed to the load growth in
the other states.
THE IMPACT OF EXPENSIVE RENEWABLE OBJECTIVES
The fact that certain states are experencing high load growth relative to the other states is
but one contrbuting factor to the problem of creating an equitable distrbution of cost across
jurisdictions. Other factors are also impacting how a fair distrbution should be designed. These
factors include the large capital investment the Company has undertaken in enhancing its
renewable resource portfolio and the pending massive investment in the Gateway Transmission
system. Capital expenditues are also dependent upon the type of capital investment to meet
different state energy policies. PacifiCorp recent history of substantial investment in renewable
energy apparently drven by renewal energy objectives of the Company or other states which do
not exist in Idaho, coupled with its plans for the Gateway Transmission project are substantial
cost drivers that have (or wil) car substantial economic costs to all states. The Company
assers that these 'system resources' are both necessar and beneficial to all customers of the
Company. We remain unconvinced. The Company has yet to make a cogent arguent as to why
the Gateway System needs to be sized far beyond upgrades necessar for reliabilty and its own
projected load growt.
The notion that the Gateway System (particularly Gateway South) wil serve to enance
the wholesale market position of the Company in the deser southwest and Souther California is
terbly flawed. Those markets wil not accept any coal-fired generation out of the current coal
fleet ofPacifiCorp. Secondly, the market strategy to deliver Wyoming wind resources to the
southwest markets is also troublesome. Most of the new resources now being sought in the
desert southwest (Arzona in paricular) are solar, and the California utilties (and municipals)
have already been aggressive in their renewable acquisitions to date. Curent market assessments
of 'unet renewable needs among SCE, SDGE, and PGE show each utility portfolio in excess
Comments of Monsanto Company - 3
of 50% of the renewables required to meet California's RPS targets. Additionally, according to
projections from both the California utilties and the California Public Utilities Commission, the
remaining amount of renewables wil be acquired over the next several years.
Finally, Nevada Energy's latest renewable acquisition program has centered on acquiring
geotheral resources located in state. Ignoring these market signals, PacifiCorp continues to
promote a roughy $6 bilion capital investment designed, in large par, to strengten its
wholesale position in the western markets. Monsanto firmly believes that Idaho should not be
saddled with this over-aggressive capital program whose benefits are highy questionable and are
likely to never materialize.
Monsanto also takes issue with the Company's expansive renewable program and
believes that the cost incured for such resources should be tagged as 'state-specific resources' -
an approach that would more align the cause and effect of such acquisitions. States within the
PacifiCorp system who have implemented RPS stadards should incur the cost of such policy
decisions. Idaho has never implemented a policy that sets renewable targets or goals. Yet, given
the current and proposed interjursidictional allocation procedure, Idaho remains subject to
underwting a portion of these capital expenditues. The benefits derived from these state
policies remain nebulous, but the costs incured are ver substantial. An interursidictional
allocation which does not match the cause/effect of major capital expenditures remains likely to
promote an inequitable distribution of cost among the states. Monsanto believes that it is
imperative that we hold firmly to the ratemakng principle of "cost causation" versus the broad
socialization of costs that we are seeing proposed today.
Lastly, while it is recognzed that the modeling undertaken by PacifiCorp was not
intended to provide in-depth analysis of different scenaros ("Like the strctural separation study,
the go-it-alone study is a highly assumption driven assessment of a state separation modeL"
Duvall, p. 7, lines 13-14), the questions posed by these studies should not be sumarly
dismissed. Given PacifiCorp's planed capital expenditue programs for a greatly expanded
transmission system and a substantial renewable portfolio, Monsanto believes a state specific
(go-it-alone) jursdictional arangement would better serve Idaho and should be investigated in
detaiL. This would entail undoing the current allocation process and having the state 'opt-in or
Comments of Monsanto Company - 4
opt-out' of certain resources. Such a view has been previously expressed by cerain states in
prior Stading Committee meetings but was not analyzed at that time. Given the enormous
amount of capital expenditues now facing the states withn the PacifiCorp system, such a
analysis is ver much needed and should be directed by the Commission
THE TREATMENT OF INTERRUPTIBLE LOADS
IN THE INTERJURISDICATIONAL ALLOCATION
In addition to PacifiCorp's unprecedented capital expenditue program, Idaho also faces a
unique challenge in the interursdictional allocation of costs. Unlike any other state, the lion's
share ofIdaho's loads result from Monsanto and the irrgators, both long-time interrptible
customers. Monsanto has been an interrptible customer for over 60 years and has experenced
no load growth since the NO.9 fuace was constrcted in 1963. The load of the irrgators has
experienced no growth since the late 1980's and is also interptible pursuant to the Idaho
Irgation Load Control Program under Schedule 72A which has been expanded and provides
dispatchable service interptions of over 200 MW. The interrptible portion of these two
schedules together comprise over 50 percent of Idaho's July peak load and over 57% of the
anual load. Consequently, the ultimate treatment of interptible loads wil playa key role in
the system costs allocated to Idaho. While Utah also has some interptible load as well, the
magntude of their interrptible load is nowhere close to Idaho's amount as a percentage oftotal
jursdictional load. Consequently, the importance of how Idaho can best receive the benefits
associated with its interrptible resources must be addressed in interjurisdictional allocation
issues going forward.
PacifiCorp proposes to make no change to the substance of the two options currently
available for treatment of interptible loads outlined in Appendix D - Special Contracts. Other
than labeling Appendix D as "2010 Protocol", the document remains unchanged. As explained
by Mr. McDougal at page 13 of his testimony, the two options are:
Option 1: The lower cost ofthe interrptible service is directly embedded in the
customer's tarff price, resulting in the jurisdiction approving the contract absorbing the
full cost of the program. In other words, the jurisdiction's revenues directly reflect the
fact that an interrptible customer pays a lower rate for interptible service. Since the
costs are absorbed by the jurisdiction approving the contract, it also receives the benefits
Comments of Monsanto Company - 5
associated with the program though reduced allocation factors. This option is curently
used in Utah for an interptible customer, but is not used for any Idaho jurisdictional
customer.
Option 2: The lower cost of the interrptible serce is separately identified and allocated
to all states as a power cost. i For example, the difference between what the customer
would have paid for firm serice is compared to what the customer pays for interrptible
service, and that difference is treated as a "cost" allocated to all jursdictions. Since the
costs are allocated to all states (including the host jursdiction), the monthly loads used to
calculate allocation factors are calculated assuming no curailment or interrption occurs.
Thus, under Option 2 the host jurisdiction is allocated a higher share of system costs than
under Option 1; however, revenues are higher than in Option 1 due to including revenues
before any discounts for interptible serice. This option is curently used in Idaho for
handling Monsanto's loads and revenues. The Commission recently approved using
Option 2 for the Irgation Load Control program as welL.
Appendix D provides numerical examples of these two options in Tables 1 and 2.2 In
both Option 1 and Option 2, the lower charge (or discount) for interptible servce is $4 milion.
On Table 1, this "cost" is infered based on the difference between lines 11 and 16. On Table 2,
ths cost is shown directly on line 17.
In the last general rate case (Case No. PAC-E-I0-07), Monsanto raised the issue of
treatment of interptible loads in the interursdictional allocation. Although two options exist
under Revised Protocol, PacifiCorp strctly treats Monsanto under Option 2; i.e., Monsanto's
revenues are imputed as though it is served 100% firm, and its loads are assumed firm for
puroses of jursdictional allocation. The problem with Option 2 is that the "cost" of the
interrptible resource must be separately valued - a valuation that is completely divorced now
from any analysis of benefit to Idaho by way oflower allocation factors. While the examples
provided in Appendix D (Exhibit No.1, p. 51 and 52) might appear that the two options lead to
similar results - both Tables indicate $4 milion as the discount or "cost" of the interrptibility -
in real life, our experence has been that no such similarties exist due to PacifiCorp's failure to
1 While we use the term "cost" here, it has also been refered to as a ''value'' or a "valuation". For Monsanto, there
has been no distinction made between the "value" of the interrptible resource and its "cost".
2 The example assumes an interption of 75 MW in Jursdiction 2 for a total of 500 hour. (75 MW x 500 hours =
37,500 MW Without interrptions considered, the hypothetical load's 12 CP is 900 MW (75 MW x 12 months),
but with interrptions in four months, its 12 CP is 600 MW (75 MW x 8 months).
Comments of Monsanto Company - 6
adequately value interrptible resources.
As explained in Case No. PAC-E-I0-07, Monsanto signed the Stipulation supporting the
use of the Revised Protocol in 2004 based on its expectation that any valuation of its interptible
"products" would be fair and reasonably reflect the avoidance or delay of utilty generation.
PacifiCorp, however, has historically claimed that Monsanto's curailments do not avoid capacity
and the Company insists on valuing Monsanto through "lost profits" and short-ter expense
reduction.
This last general rate case has been no different. It proved to be quite contentious with
PacifiCorp arguing for exceedingly low values based on short-ter market models, and
Monsanto arguing for higher values based on "peaker" avoidance. Even worse, PacifiCorp failed
to recognze Monsanto's interrptible serice whatsoever in its application. During the course of
the rate case, Monsanto provided an Option l-tye analysis to demonstrate the benefit to Idaho
from Monsanto's interrptibility. We are not convinced that PacifiCorp seriously reviewed this
analysis, however. The result was that no meaningful discussion on the advantages and
disadvantages of Option 1 for use in Idaho occurred durng the general rate case, and the issue
was not addressed by the Commission in its Order No. 32196.
This outcome is not that surprising given the number of revenue requirement issues in the
last general rate case. The bifucation of Monsanto's interrptible credit valuation from the
revenue requirement phase may have also contrbuted to the lack of attention paid to anything
other than Option 2. Another contrbutory factor is PacifiCorp's interal handling of Monsanto's
contract where regulatory personnel have a reduced role in the evaluation of the contract.
Instead, PacifiCorp relies on its wholesale power trading group to negotiate and "buy"
Monsanto's interptible products. Whether intentional or not, PacifiCorp focused exclusively
on Option 2 for Monsanto and insistence that Monsanto is a firm rather than an interptible
customer.
In the recent general rate case Staff raised concers over the inequity of the
interursdictional treatment of the Irgation Load Control Program. Staff noted that despite a
system benefit of $20 milion from the Irgation Load Control Program, the Idaho jursdiction
was entirely paying for the cost of the program ($11.4 milion), yet receiving benefits of only
Comments of Monsanto Company - 7
$7.5 milion though the reflection oflower demands in the jurisdictional allocation. Staff
fuher noted that dispatchable servce interptions from this irrgation program allow
PacifiCorp to reduce loads durng peak periods and durng outages at generation plants.
PacifiCorp based the system benefit of the Irgation Load Control Program not on short-ru
market prices as it had for Monsanto, but predominately on the value from avoidance or delay of
generation. Consequently, while Monsanto was questioning the appropriateness of Option 2 for
its own resource, the Commission was supporting Option 2 for the Irgation Load Control
Program based on that program's present costs and benefits.
Monsanto believes the time is overdue for a fran, open discussion of the benefits of
demand-side response programs, such as the Irgation Load Control Program and Monsanto's
long-standing interrptible serice. In particular, we recommend the Commission evaluate
whether benefits are fairly attrbuted to host jursdictions under Option 1. There is no provision
today to pass on any benefit from a reduction in the host jurisdiction's allocation factor in Option
1 uness an interption has been actually called:
"Loads of Special Contract customers wil be included in all Load-
Based Dynamic Allocation Factors.
When interrptions of a Special Contract customer's serce occur,
the reduction in load wil be reflected in the host jurisdiction's
Load-Based Dynamic Allocation Factors." (Exhbit No.1, page 50
of 57)
Thus, according to Option 1, a customer must actually be interrpted by the utilty
precisely at the time of system peak in order for any benefit to accrue to the host jurisdiction
through lower allocation factors. Ths requirement is one-sided and open to manipulation by the
utilty. It places all the risk on the interptible customer when, in fact, it is PacifiCorp that
controls the timing of interptions. Whether or not an interrptible customer is actually
curtailed durng the system peak in no way negates the benefits of interrptible load. It is the
ability to be interrpted durng peak times that underlies its value, not necessarly if the customer
is actually called.
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CONCLUSION
Every state is looking out for its own best interests when it comes to the 2010 Protocol
allocation methodology. Idaho must do the same and should safegurd the interests of its
ratepayers who are not causing capital expenditues driven by load grown and renewable
resources imposed by other states. Monsanto believes that it is imperative for the Commission
to hold firmly to the ratemaking principle of "cost causation" versus the broad socialization of
costs that continue to be proposed. Given the enormous amount of capital expenditues now
facing the states within the PacifiCorp system, an analysis is very much needed on a "go it alone"
for states such as Idaho with lower load growt and with substantial and valuable interrptible
resources. Monsanto fuher believes the time is overdue for a proper evaluation of the benefits
of demand-side response programs, such as the Irgation Load Control Program and Monsanto's
long-standing interrptible serice.
RESPECTFULLY SUBMITTED this 30th day of March, 2011.
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED
~C'ß&
RANDALL C. BUDGE
By
Comments of Monsanto Company - 9
CERTIFICATE OF MAILING
I HEREBY CERTIFY that on this 30th day of March, 2011, I served a tre, correct and
complete copy of the foregoing document, to each of the following, via the method so indicated:
Jean D. Jewell, Secretar (original and 7)
Idaho Public Utilties Commission
P.O. Box 83720
Boise, ID 83720-0074
E-mail: jjewell~puc.state.id.us Hand Delivery
Ted Weston
Rocky Mountain Power
201 South Main, Suite 2300
Salt Lake City, Utah 84111
E-mail: ted.weston(gpacificom.com E-Mail
Daniel Solander
Mark Moench
Rocky Mountain Power
201 South Main, Suite 2300
Salt Lake city, Utah 84111
E-mail: Daniel.solander(gpacificom.com
E-Mail
Data Request Response Center
PacifiCorp
825 NE Multnomah, Ste 2000
Portland, OR 97232
E-mail: datarequest(gpacificom.com
Electronic Only
Scott Woodbur, Deputy AG
Idaho Public Utilties Commission
472 W. Washington (83702)
P.O. Box 83720
Boise, il 83720-0074
E-mail: scott.woodbury(gpuc.idaho.gov
E-Mail
Gar Kajander, Energy Procurement
Monsanto Company
800 N. Lindburg Blvd., Mailzone C2NF
St. Louis, MO 63167
E-Mail: gar.r.kajander(gmonsanto.com
E-Mail
Comments of Monsanto Company -10
james R. Smith
Monsanto Company
P.O. Box 816
Soda Springs, il 83276
E-Mail: jim.r.smith(gmonsanto.com
Electronic Only
Maurce Brubaker
Brubaker & Associates
P.O. Box 412000
St. Louis, MO 63141-2000
E-Mail: mbrubaker(gconsultbai.com
Electronic Only
Eric L. Olsen
Racine, Olson, Nye, Budge & Bailey
P.O. Box 1391
Pocatello, ID 83204-1391
elo(gracinelaw.net
Hand Deliver
Anthony Yanel
29814 Lake Road
Bay Vilage, Ohio 44140
E-Mail: tony(ianel.net
E-Mail
~/.~RAND BÙDGE
Comments of Monsanto Company - 11