HomeMy WebLinkAbout20020905Volume 4, pg 430-462.pdf
1 (The following proceedings were
2 had in open hearing.)
3 (Monsanto Exhibit No. 243 was
4 marked for identification.)
5 (Monsanto Exhibit Nos. 210, 211,
6 and 243 were admitted into evidence.)
7 COMMISSIONER SMITH: Do you have
8 questions, Mr. Olsen?
9 MR. OLSEN: No, your Honor.
10 COMMISSIONER SMITH: Mr. Woodbury.
11 MR. WOODBURY: Thank you, Madam Chair.
12
13 CROSS-EXAMINATION
14
15 BY MR. WOODBURY:
16 Q. Good morning, Mr. Schettler.
17 A. Good morning.
18 Q. Do you remember the discussion I had
19 with Mr. Smith regarding a '95 contract and the
20 viable options of Monsanto?
21 A. Yes.
22 Q. And Mr. Smith indicated perhaps some
23 unfamiliarity with it, and I was wondering is there
24 any addition or -- that you would like to make to
25 his statements, or do you feel that he adequately
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 represented that --
2 A. No, I think --
3 Q. -- the Company's position?
4 A. Yeah, I think that's an adequate
5 representation.
6 Q. Okay. On page 5 of your rebuttal
7 testimony, you state that a net price of $27 per
8 megawatt hour will not allow the Soda Springs plant
9 to remain competitive, and Monsanto is advocating a
10 lower price be established at 18.5. If that price
11 is, in fact, too low, won't the incidence of
12 buythrough under the Company's -- under Monsanto's
13 proposal for competitive or economical
14 interruptibility, wouldn't you have a higher price
15 for buy-through?
16 A. I think that the testimony we've
17 presented, we believe that the existing price of
18 18 and a half is supportable in a new contract.
19 During our negotiations with PacifiCorp, we've made
20 very little progress in trying to narrow the gap
21 between our expectation and theirs, so we have tried
22 repeatedly to come up with different curtailment
23 options which might deliver value to PacifiCorp and
24 to the system, and to try to structure them in a way
25 that Monsanto can live with the consequences.
431
HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 If we had our choice, we'd have a
2 single contract that had no interruptibility and
3 that would give us the most stability and
4 predictability for planning. We've suggested these
5 various options as a way to try to come to a
6 compromise.
7 Q. I perhaps was a little inarticulate in
8 expressing that, but using the net price, if
9 Monsanto has a buy-through option and exercises that
10 during the term of the contract for any year,
11 wouldn't you be factoring in the buy-through amount
12 paid by Monsanto in determining the net price?
13 A. That's correct, if we chose to buy
14 through.
15 Q. And that might increase it if, in
16 fact -- if you would assume that the net price or
17 that the buy-through price was always greater than
18 the contract price?
19 A. That's correct.
20 Q. And prior to the '95 agreement, the
21 Company, in fact, could be interrupted for economic
22 reasons. Correct?
23 A. That's my understanding of the
24 contract.
25 Q. Do you know whether the Company
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 exercised buy-through during that -- during that
2 period?
3 A. Yes, we did.
4 Q. And did Monsanto calculate the net
5 price of factoring in buy-through?
6 A. I wasn't involved back in -- before
7 really 2000, so I can't really comment. Mr. Smith
8 would be the one to ask that question to.
9 Q. Should this Commission approve pricing
10 which amounted to a net price of $27 per megawatt
11 hour, and it's your testimony that the Soda Springs
12 plant would not remain -- would not be competitive
13 at that point, wouldn't we enter that scenario that
14 Mr. Smith talked about, the death spiral?
15 A. I -- I don't think there's any
16 question that if we end up with a power cost that's
17 as high as $27, it will have a very serious,
18 negative impact on Soda Springs, and could cause us
19 to shut down a furnace and eventually the whole
20 plant as the economics become unattractive.
21 Q. Is the amount -- is the pricing
22 recommended by Monsanto in this case the maximum
23 pricing that is acceptable to them that would be
24 necessary to avoid this scenario or death spiral?
25 A. So I don't think it's appropriate for
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 me, as a member of the management team, to say today
2 that if the price becomes $19 instead of 18.50, that
3 we're going to shut the plant down. We believe that
4 18.50 is a fair price, and supportable by the
5 testimony of others on our team.
6 Q. You state on page 6 of your rebuttal
7 that the alternative curtailment proposal Monsanto
8 makes is to achieve a stable price of 18.50. Is
9 this proposal conditional on Monsanto receiving that
10 price?
11 A. I'd like to repeat an answer that I
12 gave to you a little earlier: We have been
13 struggling as a team to come up with ways to bring
14 value to PacifiCorp through interruptibility. And
15 there's nothing magic about the 1,000 hours; there
16 wasn't anything magic about the previous number of
17 hours. These are ideas that Monsanto has brought
18 forth and supported with our consultants as to the
19 value that we believe that they generate that should
20 help the Commission approve a rate of 18 and a half.
21 Q. Referring to your Exhibit 243, that is
22 the -- that is your -- those are your curtailment
23 options. Does that provide the definition that the
24 Company -- that Monsanto -- requires with respect to
25 quantity, size, and duration of interruption?
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 A. Excuse me.
2 THE WITNESS: Randy, is 243 the --
3 MR. BUDGE: You don't have it?
4 THE WITNESS: No.
5 MR. BUDGE: (Indicating.)
6 THE WITNESS: Thank you. I'm sorry.
7 Your question?
8 Q. BY MR. WOODBURY: Does that provide --
9 In your direct testimony, you talk
10 about the necessity of obtaining sufficient
11 definition with respect to quantity, size, and
12 duration of interruption. And this Exhibit 243,
13 does this provide the specificity that Monsanto
14 requires with respect to your proposal?
15 A. Yes, it does.
16 Q. If I could refer you back to your
17 direct testimony now? On pages 2 and 3, you talk
18 about the phosphorus market and competitiveness of
19 Soda Springs, but you state that electricity
20 represents 30 to 45 percent of the cost of producing
21 elemental phosphorus. That's a pretty wide margin.
22 Is that over a period of years, or is that this
23 year, or is that historically over the 52 years of
24 the Soda Springs plant?
25 A. I would say that that's a general
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 range within the industry, not just Monsanto, and it
2 really depends on the producer.
3 You take the Chinese, for instance,
4 they have very low capital costs. Their plants tend
5 to be much smaller so there's a lot more available
6 cost in energy.
7 Monsanto, on the other hand, is very
8 capital-intensive, more than any other phosphorus
9 plant in the world, so the fixed costs of our
10 capital tend to be a bigger percentage.
11 So that's a range of all producers and
12 over time.
13 Q. Is it a median range or is it -- does
14 it capture the low and the high end?
15 A. No. No, I wouldn't say that. I would
16 say Monsanto is probably even less than that low
17 number at the current time, and we've been within
18 that range at previous times, previous contracts.
19 Q. And are you at liberty to state how
20 far below that low end of the range you're at
21 presently?
22 A. I don't really know the calculation.
23 It's not a number that is more than -- that we would
24 use as more than guidance. You can look at our
25 usage of a million and a half megawatts and times
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 the price and see that we spend an awful lot of
2 money on electricity, and that's the point that we
3 were trying to make. Electricity is, by far, the
4 biggest single factor in the cost of producing
5 phosphorus.
6 Q. The prices of elemental phosphorus
7 that you set forth on page 4 with respect to China,
8 the United States, and Europe, are those 2002
9 prices?
10 A. In my -- in my --
11 Q. For China, you have 50 to 70 cents per
12 pound delivered to the U.S.
13 A. Yeah. So the point I'm trying to make
14 is in the Data Request, we've provided some exact
15 data that comes from other sources than Monsanto,
16 and currently, today, I believe the import price
17 from China is around 55, 57 cents, maybe as high as
18 60. Product from the Netherlands is still about
19 70 cents a pound.
20 Q. That's an import price, a delivered
21 price, also?
22 A. That's correct.
23 Q. And the 90 cents to a dollar per
24 pound, is that the -- is that the range that the
25 Soda Springs plant falls in?
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 A. So I understand from talking to
2 members of our own team that that's a little
3 unclear. The two points that I'd like to emphasize
4 there are, one, that's historically, and, second,
5 that that's price, not cost. So the price U.S.
6 producers could receive for phosphorus in the
7 marketplace historically over the last ten, 15 years
8 has been 90 cents to a dollar. Clearly, with the
9 imports from China and from the Netherlands at
10 70 cents and less, the U.S. selling price is
11 considerably lower than that, and U.S. producers
12 have lost market share and, frankly, that was one of
13 the things that led to the demise of Astaris is that
14 imports were so much lower than the then-existing
15 U.S. selling prices that they couldn't compete.
16 Q. It's my understanding from reading
17 through this that the phosphate -- phosphorus
18 particle, molecule I guess, that is derived from the
19 wet -- the wet process, the alternative process, is
20 not suitable for glyphosate herbicide production?
21 A. Correct.
22 Q. And with respect to -- and that's
23 Roundup?
24 A. Yes.
25 Q. And it's also my understanding that
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 the patent of Monsanto with respect to Roundup has
2 expired and there is now competition in that
3 market. Is that correct?
4 A. That's correct. It's expired in the
5 U.S. It's been expired in the rest of the world for
6 over five, six years.
7 Q. And so that there are other furnaces
8 then that are -- that are operating outside the U.S.
9 to present -- that operate in the same manner in
10 order to produce this?
11 A. No, that's not correct. Maybe I'd
12 spend just a minute and tell you a little bit about
13 the business, because that's not clear I guess in my
14 testimony.
15 Probably 80 percent of the glyphosate
16 that's sold in the world today is actually produced
17 by Monsanto in either Luling, Louisiana, or in
18 Camacari, Brazil. That's where the main chemical is
19 made, and then it's shipped around the world to be
20 finished into exactly what's used in individual
21 markets.
22 Monsanto's strategy before our patents
23 expired was to continue to reduce the selling price
24 of Roundup around the world to encourage other
25 producers to, rather than invest themselves, to buy
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 from Monsanto. So virtually every major producer
2 that's selling glyphosate today is buying it from
3 Monsanto at very, very low prices, and that way
4 we've been able to fill out our plant and -- and
5 produce most of the glyphosate that's sold in the
6 world. The big challenge is the Chinese, because
7 the Chinese not only produce phosphorus, they
8 produce glyphosate, and they sell it around the
9 world in competition with Monsanto.
10 Q. Thank you. That's helpful.
11 COMMISSIONER SMITH: Mr. Eriksson.
12 MR. WOODBURY: Oh, I didn't --
13 COMMISSIONER SMITH: I thought you
14 said, "That's all."
15 MR. WOODBURY: I just said his
16 response was sufficient.
17 COMMISSIONER SMITH: I'm sorry. I
18 apologize, Mr. Woodbury.
19 Q. BY MR. WOODBURY: If I could refer you
20 to your Exhibit 210, there are a couple of --
21 And that's your red-lined version.
22 A. Okay.
23 Q. -- to term 2.1, and in the -- and in
24 Monsanto's current proposal, does it still include
25 this 2.1, the term language?
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 A. That's our current proposal, yes.
2 Q. And is it Monsanto's -- does Monsanto
3 insist on an evergreen clause being included, as
4 opposed to a firm termination date?
5 A. I wouldn't say that that's critical,
6 but some evergreen provision makes it certainly
7 easier to have the parties negotiate a new agreement
8 and let the existing one continue until those terms
9 and conditions are agreed upon.
10 Q. If it were understood by the parties
11 how it worked, they wouldn't have been involved in
12 the Federal District Court litigation?
13 A. The language could be clearer, that's
14 true.
15 Q. And could I also maybe clarify the
16 significant changes section, 2.3, and maybe explain
17 how that works is that there are essentially no
18 renegotiation until the -- first renegotiation would
19 occur on January 1, 2005, opportunity. Is that
20 correct?
21 A. Let me just take a minute to look at
22 this. It's been a while since I read this document.
23 Our intent was to leave the existing
24 agreement unchanged except the terms and conditions
25 that were absolutely necessary.
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 Q. Is it your understanding that
2 PacifiCorp is asking that this language be removed?
3 Wasn't that one of the changes that they felt was
4 necessary in the existing contract with Monsanto?
5 Was it removed or reworded?
6 A. Yes, they wanted it removed, yes.
7 Q. Okay. And this couldn't be
8 characterized as a reopener of sorts, could it?
9 A. No.
10 Q. I have one other question: Page 13 of
11 your direct testimony, you speak of the proposed
12 special contract then, the Company's -- Monsanto's
13 requesting a single integrated contract, and we've
14 heard the testimony of the PacifiCorp witnesses.
15 And do you understand that one of the reasons that
16 they are asking for dual contracts or maybe just
17 dual prices, separate prices, for firm and
18 interruptible, is because they -- of their dealings
19 with some of their other jurisdictional states and
20 the -- and the -- and how those states are proposing
21 treatment of interruptible customers?
22 A. Yes, I understand that.
23 Q. Okay. Given that concern of
24 PacifiCorp, would Monsanto be opposed to a contract
25 that really set out separate firm and interruptible
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 values for the power?
2 A. We think that there's value in
3 continuing to have a single integrated contract.
4 Q. But you understand that that's been
5 problematic for PacifiCorp with respect to
6 explaining the value of interruptibility that other
7 states should be willing to express?
8 A. I understand, but it was acceptable to
9 them for Magcorp to have a single integrated
10 contract.
11 Q. And do you understand that concern of
12 other state jurisdictions with respect to the
13 interruptibility value is to determine what that
14 encompasses and whether that encompasses perhaps
15 some customer retention credit having to do with
16 probably the situs data only in that local economy?
17 A. I'm not the expert in that. I
18 understand the point you're making, but I don't
19 think that preclues handling everything in a single
20 integrated contract.
21 Q. Thank you.
22 MR. WOODBURY: Madam Chairman, I have
23 no further questions.
24 COMMISSIONER SMITH: Thank you,
25 Mr. Woodbury.
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 Mr. Eriksson or Mr. Fell?
2 MR. FELL: Mr. Fell, thank you.
3
4 CROSS-EXAMINATION
5
6 BY MR. FELL:
7 Q. Good morning, Mr. Schettler.
8 A. Good morning.
9 Q. Perhaps you could clear something up
10 for me:
11 I understood that Mr. Smith testified
12 that the new administration building cost a few
13 million dollars, and I may be misunderstanding, but
14 I thought the press reports were closer more in the
15 range $30 million. Do you know what the relative
16 magnitude of that investment was?
17 A. No. No, I don't. I think it's
18 important to understand that Monsanto invests
19 between six and $9 million a year in new capital at
20 Soda Springs just to upgrade equipment, upgrade
21 facilities, and so I'm sure it was -- could have
22 been significantly more than two million. I'm not
23 aware of the $30 million. That certainly wasn't
24 just the building; it was probably some other
25 capital additions to the plant.
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 Q. Now, let's go back to your testimony.
2 The -- as I understand your goals, your goals are to
3 achieve a low price and a stable, predictable price?
4 A. That's correct.
5 Q. There was a time, obviously, in 1995
6 when Monsanto investigated the municipal option,
7 purchasing from the Soda Springs municipal utility.
8 Do you recall the testimony about that?
9 A. Yes, I do.
10 Q. That option, as I understood
11 Mr. Smith, would basically be a buy-through: That
12 the municipal utility would buy the power on a
13 long-term contract from somebody else and patch that
14 through. Is that your understanding?
15 A. I'm really not the expert on that. I
16 haven't been -- was not involved in '95. That is my
17 understanding, but I can't help you much with
18 answers on that.
19 Q. Would you agree that that's a fairly
20 customary practice for industrial customers who have
21 that opportunity with the local municipality?
22 A. I really don't know.
23 Q. All right. As this contract goes
24 along or when this contract terminates, would -- do
25 you expect that Monsanto would investigate that kind
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 of opportunity again?
2 A. No, it's our intention to try to
3 secure long-term, reliable, low-cost power with
4 PacifiCorp, and continue to do that in the future.
5 Q. Is it Monsanto's -- let me rephrase
6 that.
7 In the current case, do you agree that
8 the prices that are being discussed are based upon
9 PacifiCorp's embedded cost of service for the firm
10 portion of the service?
11 A. Sir, they're based on many things, and
12 we have disagreement on what is the real cost of
13 service for Monsanto. So there are many factors
14 that are involved.
15 Q. But the firm power price is not based
16 upon some market standard, is it?
17 A. No. The firm -- no, I would agree
18 with that. I would not agree with their cost of
19 service calculation.
20 Q. I understand. In the next go-around,
21 the next negotiation of a contract with PacifiCorp,
22 do you believe that the embedded cost of service
23 approach should continue to be used for Monsanto?
24 A. I'm not --
25 MR. BUDGE: I'm going to object to
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 this. He didn't provide any cost of service
2 testimony or policy. We have other witnesses coming
3 up to address that, and I think more appropriate to
4 defer those kind of questions to the cost of
5 service.
6 COMMISSIONER SMITH: Mr. Fell.
7 MR. FELL: We can do that. Of course,
8 the Company can hire a different consultant next
9 time. I am just trying to establish whether there
10 will be consistency on that or whether Monsanto will
11 go back and forth between the option that is most
12 attractive to them, which I think they would do.
13 COMMISSIONER SMITH: That's probably
14 something that's unknown, Mr. Fell.
15 MR. FELL: I guess maybe we'll have to
16 leave it alone then. Sounds like the Chair did
17 rule.
18 Q. BY MR. FELL: Moving on, the
19 understanding I have is that the Soda Springs plant
20 has a plant load factor in the 80 percent range,
21 around 83 percent. Is that something that sounds
22 familiar to you?
23 A. Yeah, that's close. I've heard
24 numbers as high as 90 there's some debate about.
25 It's in that range, yes.
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 Q. So it's pretty much a continual
2 operation, day in, day out, through the year?
3 A. That's correct.
4 Q. And you're personally comfortable, are
5 you, with the 1,000 hours of economic interruption
6 being offered in this?
7 A. No, I'm not at all comfortable. I'd
8 prefer to have no interruptions and the existing
9 rate, but it's clear that we're never going to get
10 the existing rate without some compromise, so that's
11 the compromise that we're willing to make to get to
12 where we need to be. We'll have to find a way to
13 live with it. It causes us significant operational
14 difficulties, but it's manageable.
15 Q. You would -- you would hope, I assume,
16 to be able to buy through the power to continue your
17 operation during the exercise of that option?
18 A. I would anticipate we would not buy
19 through at times, and we will buy through at other
20 times.
21 Q. Is there a price that you -- that you
22 have as an estimate in your own mind as to when you
23 would buy through and when you would not?
24 A. Not at this time.
25 Q. It depends presumably on what's, I
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 suppose, economical at the time for your plant
2 operations?
3 A. For the overall economics of the
4 plant, yes.
5 Q. Okay. Now, when you talk about the
6 1,000 hours of economic interruption that you offer,
7 I'd like to make sure we're all on the same page on
8 how that works. Is it 1,000 hours -- essentially
9 1,000 hours times 162.5 megawatts, so --
10 A. That's correct.
11 Q. So it's not tied to particular
12 furnaces?
13 A. It is, in that we would -- if
14 PacifiCorp chose to curtail all three furnaces, we
15 would have no choice but to buy through for one
16 furnace. We have to have one furnace operating all
17 the time.
18 Q. I was going to ask about that. That's
19 still the case?
20 A. That's correct.
21 Q. All right. Would PacifiCorp be
22 required to exercise its interruption -- economic
23 interruption option -- based on the sizes of the
24 furnaces so that it had to interrupt one, two, or
25 three furnaces?
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 A. No. You could -- we offered all three
2 or one or two, and any one, two, or three, so we
3 have not been specific as to which furnace. As long
4 as we buy through one furnace and keep it operating,
5 that's satisfactory to us.
6 Q. Can they exercise the option at any
7 number between one and 162.5 megawatts, or does it
8 have to be in increments of the furnaces?
9 A. It would have to be in increments of
10 the furnaces. That's not clear in our document.
11 Q. I think your Exhibit 243 suggests
12 that, but I wanted to make sure that was the case.
13 A. Yeah.
14 Q. Now, regarding the maintenance of your
15 furnaces, does your proposal contemplate giving
16 PacifiCorp any right to coordinate with you on the
17 scheduling of the maintenance of your furnaces?
18 A. I would expect that we would
19 coordinate.
20 Q. Would PacifiCorp have an option, for
21 example, to try to schedule -- to move that
22 scheduled maintenance into the high value hours?
23 A. Well, I think we indicated in what we
24 proposed in 2001, Monsanto offered to PacifiCorp to
25 move our maintenance shutdown from April, when it
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 was scheduled, to the summer, to bring maximum value
2 to the system and to PacifiCorp. So, yeah, we'd
3 certainly try to do that. We couldn't give
4 PacifiCorp the absolute decision right on that, but
5 we'd certainly be willing to work together on that.
6 Q. Thank you. That's helpful. Would
7 the -- I assume the way the economic curtailment
8 option is structured, that that would not -- that
9 coordination would not constitute an exercise in
10 economic curtailment. That would just be a matter
11 of cooperation on scheduling?
12 A. Yes.
13 Q. Thank you. Now, Mr. Schettler, in
14 your Exhibit 211, in Section 3.1, you made a
15 correction to change the number to 206,000 kilowatts
16 of interruptible power and energy. Your proposal
17 offers 162.5 megawatts of interruptible curtailment,
18 of economic curtailment. If you increase your load,
19 I assume the 206,000 -- let me ask this first:
20 Does the 206,000 kilowatts contemplate
21 some increase in your load in order to get there?
22 A. That's correct.
23 Q. If your load were to increase to that
24 level, would the economic curtailment option
25 increase along with that?
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 A. Probably not.
2 Q. So we're fixing the economic
3 curtailment?
4 A. For our purposes today, I think that's
5 the right thing to do.
6 Q. Thank you. And, let's see. On
7 Exhibit 210 -- these two exhibits are really the
8 same document but I just happen to have this one --
9 Mr. Woodbury took you through some of the provisions
10 that PacifiCorp disagrees with. Let's turn to
11 Section 2.1, which has to do with the termination of
12 the agreement.
13 Is it correct that you have not
14 altered this section to remedy the problem that
15 causes our two parties to be in litigation over when
16 the last agreement terminated?
17 A. This document was presented to
18 PacifiCorp long before we got into the legal
19 challenge that we have today, so, no.
20 Q. And as -- I'm not involved in that
21 dispute so maybe we can get through this together,
22 but it's my understanding that the point of that
23 dispute is that that agreement, while we thought it
24 terminated December 31, 2001, based upon a one-year
25 notice, Monsanto believes that that notice could not
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HEDRICK COURT REPORTING SCHETTLER (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 be exercised then but it could only terminate at the
2 end of this year, December 31, 2002. Is that a
3 layman's explanation?
4 A. That's not entirely correct. There is
5 some question of whether proper termination had been
6 given to have it expire the end of this year, but
7 generally that the two sides have said we believe it
8 expires -- has expired January 1 of this year, and
9 we generally believe it's January 1 of next year.
10 Q. Well, I don't want to prejudice
11 anything going on in the other litigation, but let's
12 just say that this language -- and we're just
13 talking about this language in this contract for the
14 future, and we're not trying to influence anything
15 in the other litigation -- if PacifiCorp gives one
16 year's notice before this five-year period specified
17 here, would this contract terminate -- would you be
18 expecting this contract to terminate at the end of
19 that five years then?
20 A. If we change the language to read as
21 such, yes.
22 Q. Okay. And you would be willing then
23 to change it so that it is just five years; it
24 doesn't somehow become six or seven years?
25 A. That's correct.
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1 Q. Very good.
2 MR. FELL: Did I get through that,
3 Mr. Budge?
4 MR. BUDGE: Well, you were pretty
5 close to getting some legal questions of a
6 nonlawyer, but I think you're essentially fine.
7 And I will state this since I am
8 involved in the other litigation, that the key
9 language in the other contracts is to when the
10 notice can be given because of language in there
11 that says the contract goes through December 31,
12 2001, and thereafter may be terminated upon one-year
13 notice.
14 COMMISSIONER SMITH: You know, this is
15 really exciting for people that are following the
16 other case, but we're not.
17 MR. BUDGE: But the intent was to
18 correct that by this exhibit which I did draft that
19 you can give the notice anytime you want to
20 terminate at the end of the original contract. If
21 PacifiCorp doesn't think that's right since this is
22 our proposal, I certainly stand amenable to rewrite
23 that language so that you and I both agree it means
24 the same thing.
25 MR. FELL: I just want to make sure we
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1 have the fixed five-year period that we're dealing
2 with for purposes of pricing all of this.
3 COMMISSIONER SMITH: We could fix it
4 with a tariff.
5 MR. FELL: Yeah.
6 COMMISSIONER SMITH: Okay, Mr. Fell.
7 Q. BY MR. FELL: Section 2.3 on
8 significant changes, did I understand you correctly
9 in your discussion with Mr. Woodbury that you want
10 Section 2.3 to remain in there?
11 A. Yes.
12 Q. All right. So we have a disagreement
13 over that point as well -- or, over that point.
14 Very good.
15 And then moving to Section 5.1. -- I'm
16 sorry, 4.1.5, which is what we referred to as the
17 most-favored-nations clause, this is also a section
18 that PacifiCorp has objected to including. Do
19 you -- would you agree with them to remove that
20 section from this contract?
21 A. No, we think that it should remain.
22 Q. If this -- if this clause is in there
23 and PacifiCorp -- let's say that PacifiCorp has not
24 signed the Magcorp agreement yet and signs that
25 after we sign this one, and signs it at 21 mills as
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1 in the way it is now. Would you say that your price
2 then must go down to the Magcorp price based on this
3 section?
4 A. Well, our price is lower, and so we
5 wouldn't expect that you would raise our price to
6 21.
7 Q. All right. If your price were higher,
8 would you say that this triggers?
9 A. Yes.
10 Q. Would you consider it reasonable for
11 PacifiCorp to have the same desire for
12 predictability on its prices that Monsanto is
13 seeking?
14 A. I'm really not the expert on what
15 PacifiCorp needs. I can't really answer that.
16 They're the experts in energy and Monsanto is not.
17 Q. Uh-huh. Would you agree that the
18 most-favored-nations clause conflicts with a
19 predictability objective that PacifiCorp -- that
20 would conflict with a predictability objective on
21 the other party's part?
22 A. No, I don't think I would. I can tell
23 you in my experience with Monsanto we're the largest
24 purchaser of most of the things that we buy, and we
25 have favored-nations clauses in virtually every
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1 contract, every major contract.
2 Q. Would it be reasonable for that to be
3 bilateral in the sense that if the Company were to
4 file a rate case in Idaho, that the Monsanto
5 contract would be subject to adjustment in that
6 contract as well?
7 A. No.
8 Q. One more small matter:
9 Mr. Smith testified that you and
10 others from Monsanto flew back to Portland recently
11 for a last-ditch effort to negotiate the contract.
12 Who initiated that meeting?
13 A. Bob Kline.
14 Q. From PacifiCorp?
15 A. Correct.
16 Q. Thank you.
17 MR. FELL: That's all. Thank you.
18 COMMISSIONER SMITH: Thank you,
19 Mr. Fell.
20 Do we have questions from the
21 Commission? Commissioner Hansen.
22 COMMISSIONER HANSEN: Just a couple
23 quick ones.
24
25
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1 EXAMINATION
2
3 BY COMMISSIONER HANSEN:
4 Q. On the page 9, lines 6 through 8, of
5 your testimony -- direct testimony -- you state:
6 Given continued low-cost power, the Soda Springs
7 plant can remain a competitive source of phosphorus
8 for Monsanto and Astaris.
9 What is the rate you consider to be
10 low-cost power?
11 A. Our current price.
12 Q. Then in the 1992 contract that
13 Monsanto agreed to, I believe the rate that's been
14 stated was 22.27 for the years '92, '93; and then it
15 went up to 24; and then 25 and 26 in the year of
16 '96, '97. At that time then, would you consider
17 those rates low-cost power?
18 A. I wasn't involved at that time, so I
19 really -- I really couldn't comment.
20 But I would add that business
21 conditions for Monsanto are significantly different
22 in 2002 than they were in 1993. The competition
23 that we're facing, the raw material import price of
24 phosphorus from other areas of the world, that
25 didn't exist in 1993. U.S. was the major supplier
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1 of phosphorus all around the world in 1993, and
2 today the only plant left in the U.S. is
3 Soda Springs. So the conditions are significantly
4 different. Where we may have been able to live with
5 a price of 24 or 25 in 1993 is totally unacceptable
6 in today's environment.
7 Q. So -- so you're saying that actually
8 those prices today then, in your mind, does not
9 classify as low cost?
10 A. That's correct.
11 Q. You -- you go on and you say on
12 page 10, lines 17 through 21, you say that Monsanto
13 cannot have the uncertainty of being profitable only
14 when power is cheap.
15 And I guess you just defined that
16 cheap power is defined as the top amount is 18.50.
17 Is that what you're saying?
18 A. That's what I'm saying, yes.
19 Q. So if -- if all of a sudden energy
20 prices increase in the Northwest and the
21 United States and it isn't feasible at all to meet
22 that price of 18.50, are you saying then Monsanto is
23 out of business?
24 A. Over time, I think that's -- that's
25 exactly right.
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1 Q. Over time, like -- define "time."
2 A. Well, we've just recently had --
3 Can I -- can I talk to Mr. Budge
4 privately for a second?
5 COMMISSIONER SMITH: No.
6 THE WITNESS: Well, I have some --
7 some testimony that I consider to be extremely
8 confidential and I'm not quite sure it should not
9 be.
10 COMMISSIONER SMITH: All right. Let's
11 go at ease for about three minutes.
12 (Discussion off the record.)
13 COMMISSIONER SMITH: We're back on the
14 record. Mr. Budge.
15 MR. BUDGE: If I could, I don't think
16 we have a problem here we can't handle readily. In
17 order to respond to that question fully,
18 Mr. Schettler is concerned about divulging some
19 confidential information about one of its purchasers
20 that he is subject to a confidentiality agreement
21 on; but I do note for the Commission we do have a
22 protective agreement in this case which I know most
23 of the parties have signed, and it appears that that
24 agreement does provide specifically that if we're
25 going to go into confidential matters, that we can
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1 have an in camera hearing and the transcript can be
2 in camera, and I would simply move to the Commission
3 that for purposes of this answer he's concerned
4 about, that we go into an in camera hearing, and
5 that the transcript be maintained in camera.
6 And, frankly, looking around the room
7 at who is here, I don't know who did not sign the
8 confidentiality agreement. Rather than make a big
9 issue with it, let me just suggest rather than
10 trying to sort that out and have people leave the
11 room that we either have everybody leave the room
12 other than Counsel and maybe a lead witness; or we
13 could simply have an understanding that whatever
14 information he provides in this response will be
15 maintained confidential within the confines of this
16 hearing room, and will not be disclosed outside to
17 any person or any entity in any other proceeding.
18 If we can have that understanding in order for the
19 Commission I think based on who's in here, I think
20 we just have the parties anyway --
21 MR. FELL: May I speak to that?
22 COMMISSIONER SMITH: Mr. Fell.
23 MR. FELL: My experience is that the
24 fewer people who hear confidential information, the
25 better. So from our perspective, we would have
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1 Counsel and one person from PacifiCorp, and we'd ask
2 the others to go.
3 COMMISSIONER SMITH: I think that is
4 probably the best procedure, and I will even turn
5 off the system that allows everyone in this building
6 to hear what's going on in this room while sitting
7 in their offices.
8 MR. BUDGE: And, frankly, I think I
9 would prefer that, and I would prefer to exclude all
10 of the Monsanto people with the exception of --
11 Does Jim know about this?
12 -- Mr. Smith.
13 COMMISSIONER SMITH: Thank you. So
14 everyone who is not there is excused for the
15 purposes of this answer.
16 You can't leave.
17 Could you shut the door, please?
18 Thank you. He got it.
19 (Whereupon, the open public
20 portion of the hearing was adjourned and
21 confidential proceedings were had in the hearing
22 room.)
23
24
25
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