HomeMy WebLinkAbout20061106Monsanto supporting comments.pdfLOUIS F. RACINE (1917-2005)
WILLIAM D. OLSON
W. MARCUS W. NYE
RANDALL C. BUDGE
JOHN A. BAILEY, JR.
JOHN R. GOODELL'
JOHN B. INGELSTROM
DANIEL C. GREEN"
BRENT O. ROCHE
KIRK B. HADLEY
FRED J. LEWIS
MITCHELL W. BROWN
ERIC L. OLSEN
CONRAD J. AIKEN'"
RICHARD A. HEARN, M.
DAVID E. ALEXANDERtt
LANE V. ERICKSON"
PATRICK N. GEORGE"
SCOTT J. SMITH
STEPHEN J. MUHONEN
BRENT L. WHITING
LISA R. TANNERttt
JUSTIN R. ELLIS
JOSHUA D. JOHNSON.
JONATHON S. BYINGTON
DAVE BAGLEY
CAROL TIPPI VOLYN,
THOMAS J. BUDGE
LAW OFFICES OF
RACINE OLSON NYE BUDGE Be BAILEY
CHARTERED
BOISE OFFICE
101 SOUTH CAPITOLBOULEVARD, SUITE 208
BOISE, IDAHO 83702
TELEPHONE, (208) 395-0011FACSIMILE, (208) 433-0167
201 EAST CENTER STREET
POST OFFICE BOX 1391
POCATELLO, IDAHO 83204-1391
TELEPHONE (208) 232~101
FACSIMILE (208) 232-6109 IDAHO FALLS OFFICE
www.racinelaw.net
477 SHOUP AVENUE
SUITE 203A
IDAHO FALLS, 10 83402
TELEPHONE, (208) 528-6101FACSIMILE, (20B) 528-6109
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November 2 2006
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Jean Jewell, Secretary
Idaho Public Utilities Commission
472 W. Washington Street
Boise, Idaho 83702-5983
Dear Jean:
Re:Case No. PAC-O6-
Enclosed please find for filing in the above-referenced matter Supporting Comments of
Monsanto Company, an original plus eight copies. Please note the attached Summary and
Comparison has been redacted to delete confidential information pursuant to the Protective
Agreement entered into on June 9, 2006 between PacifiCorp, Monsanto, Commission Staff, the
Idaho Irrigators Pumpers Association and Nu-West, and the Attorney s Certified filed in support
thereof. The following copy of the same document on yellow-colored paper contains all confidential
information, is being served only upon the parties to the Protective Agreement and should not be
included as an attachment to the original filed in the public record, but instead filed under seal.
Thank you for your cooperation and assistance. If you have any questions, please don
hesitate to contact me.
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RCB :rr
Enclosurescc: Parties per Certificate of Mailing
Randall C. Budge, ISB No. 1949
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED
O. Box 1391; 201 E. Center Street
Pocatello, Idaho 83204-1391
Phone: 208-232-6101
Fax: 208-232-6109
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2006 NO" - 3 M1 9: 36
IDAflU I:CUHLI\~
UTILITIES COivii'AiSSIOi'
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
In the Matter of the Application of
PacifiCorp, dba Rocky Mountain Power
for Approval of an Electric Service
Agreement with Monsanto Company.
Case No. PAC-O6-
SUPPORTING COMMENTS OF MONSANTO COMPANY
INTRODUCTION:
COMES NOW Monsanto Company ("Monsanto ), through counsel, and hereby submits
the following Comments in support ofPacifiCorp s Application for Approval of an Electric
Service Agreement with Monsanto dated May 18, 2006 ("Agreement") and in response to the
Idaho Public Utilities Commission ("Commission ) Notice of Modified Procedure, Notice of
Scheduling and Notice of Hearing dated August 21 2006, establishing a deadline of November
2006 for written Comments. Monsanto s Comments will include a discussion of background
information, provide a brief history of Monsanto s Special Contracts, review ofthe current
Contract, discuss the proposed new Agreement and address the Protective Agreement in effect.
BACKGROUND:
Monsanto is PacifiCorp s largest single point customer in its six state service area with an
electric load of just under 200 MW. On average, Monsanto consumes in excess of 1.33 million
MWH of electricity, roughly 43 percent ofPacifiCorp s Idaho jurisdictional load, contributing
annual revenues exceeding $30M. Monsanto mines phosphate ore in Eastern Idaho utilized at
SUPPORTING COMMENTS OF MONSANTO COMPANY -
the Soda Springs plant to produce elemental phosphorus. Following the closure of the FMC
Plant in Pocatello in December of2001 , Monsanto remains as the only elemental phosphorus
producer in the United States.
Monsanto s Soda Springs plant produces the highest quality of phosphorus in the world
in the safest and most environmentally friendly manner. Most ofthe phosphorus produced by
Monsanto at the Soda Springs Plant is used to produce glysophate, the primary ingredient of
Roundup Herbicide. Phosphorus is a commodity that is produced and sold on a global market
that is extremely competitive. Chinese production has labor, electricity, environmental and
safety cost advantages and proposes an ongoing threat to the viability of the Soda Springs Plant.
On average, 870 people derive full-time employment from the Plant. Monsanto s Soda Springs
operations are by far the largest contributor to the economies of Caribou, Bear Lake and Franklin
Counties in Southeast Idaho.
Electricity is the largest single cost of producing phosphorus at Monsanto s Soda Springs
Plant and represents approximately one-third of the total production costs. Low electricity costs
together with price certainty and stability are critically important to Monsanto because of large
long-term capital costs that must expended to open and operate phosphate mines and meet
stringent environmental requirements in both the mine and plant.
SPECIAL CONTRACT HISTORY:
Monsanto has been a special contract customer ofPacifiCorp and its predecessor Utah
Power & Light Company since 1952. The current Contract became effective January 1 2003
and terminates December 31 , 2006, with rates and other terms established by the Commission in
Order Nos. 28918 , 29157 and 29206 as a result of contested proceedings in Case No. P AC-Ol-
16 ("2003 Contract"
) '
. The rates and terms of all special contracts prior to the 2003 Contract
were arrived at by agreement negotiated between the parties and approved by the Commission.
Monsanto and PacifiCorp became engaged in litigation in the U.S. District Court for the District
ofIdaho , Case No. CIV-OI-0607-BLW to establish the termination date ofthe 1995 Contract.
By reason of the District Court's Decision in favor of Monsanto, affirmed by the Ninth Circuit
Court of Appeals, and Commission Order 28918, December 31 , 2002 was established as the
termination date of the prior 1995 Contract. As a result the start date of the 2003 Contract
SUPPORTING COMMENTS OF MONSANTO COMPANY - 2
2003 CONTRACT:
The 2003 Contract became effective January 1 , 2003 and terminates December 31 2006.
Unique features of the 2003 Contract included 800 hours of interruption options consisting of
288 hours of operating reserves, 12 hours of system integrity interruptions and 500 hours of
economic interruptions. Monsanto was provided with the option of buying through interruptions
at replacement energy costs at an adjusted index price. Under the 2003 Contract, the firm and
interruptible rates for Monsanto are currently as follows:
ITEM 2003 CONTRACT
1. Finn Rates:
Finn Energy Charge 16.31 mills per kWh
Customer Charge $283 per billing period
Finn Demand Charge $8.81 per kW
2. Interru tible Rates:
Interruptible Energy Charge 16.31 mills per kWh
Interrupt. Demand Charge $4.09 per kW
As a result of taking both firm and interruptible service, the overall net rate to Monsanto
averages 22.97 mills per kWh under the 2003 Contract. While the 800 hours of interruption
negatively affect Monsanto s production and increases the per-pound cost of phosphorus, the
resulting overall rate has enabled Monsanto s Soda Springs plant to operate competitively.
PROPOSED NEW CONTRACT:
In early May of 2005, Monsanto began direct negotiations with PacifiCorp in an attempt
to arrive at the rates and terms for a new Agreement to become effective January 1 2007
following the termination of the 2003 Contract. While the parties negotiated earnestly and in
became January 1 2003.
SUPPORTING COMMENTS OF MONSANTO COMPANY - 3
good faith, substantial progress was not made until after Mid-American Energy Corporation
acquisition ofPacifiCorp from Scottish Power was approved in all states and the transaction
closed in March 2006. Thereafter, rapid progress was made with PacifiCorp s new management
and the parties entered into a new Electric Service Agreement dated May 18 , 2006 ("2007
Agreement") to follow the termination of the 2003 Contract.
The 2007 Agreement would become effective January 1 2007, subject to approval ofthe
Commission, with an initial term through December 31 , 2009. The Agreement will
automatically reJ?-ew for successive one-year terms unless and until either party gives not less
than 180 days written notice of termination.
The basic Contract terms of the 2007 Agreement are fundamentally the same as the terms
of the 2003 Contract, with the exception of significant pricing changes and a 25 percent increase
in interruptions from 800 hours to 1000 hours. Attached is a Summary providing a comparison
of the 2003 Contract and the 2007 Agreement.
The most significant changes under the proposed 2007 Agreement are price increases and
a price adjustment mechanism based upon tariff rate changes after January 1 2008. Monsanto
firm rates will increase by $6 843 817, or 16.5 percent above existing firm rates. Additionally,
pursuant to Section 2.2 of the Agreement, the prices specified in Section 4.1 of the Agreement
and in Idaho Electric Service Schedule No. 400 or its successor shall be subject to adjustment
resulting from any general rate case or other filing by PacifiCorp after January 1 , 2008 , effective
on the Commission authorized date.
Subjecting Monsanto s rates to tariff rate adjustments represents a substantial departure
from all past Contracts. This considerable concession by Monsanto was made in order to
establish a new and improved business relationship with PacifiCorp, to align the timing of
Monsanto rate changes with that of other customers and overcome perceived problems with cost
of service studies and the allocation of costs and revenues on an inteIjurisdictional basis. The
new rate adjustment mechanism is likely to render less important in the future the term of the
Contract as the automatic renewal provision is expected to be utilized. The price adjustment
mechanism also meets a strong objective ofPacifiCorp to have the rates of all special contract
customers subject to tariff rate adjustments.
SUPPORTING COMMENTS OF MONSANTO COMPANY - 4
Consistent with the firm and interruptible rates set forth in the 2007 Contract, PacifiCorp
has submitted the Revised Tariff Schedule No. 400 in a separate Application, Case No. P AC-
06-, reflecting new rates for Monsanto, together with Schedule No. 401 reflecting new rates
for Nu- West and Schedule No.1 0 reflecting new Irrigation Rates. As a result, upon approval by
the Commission, the firm rates for Monsanto, Nu- West and Irrigation customers will increase
16.5 percent, 3.8 percent and 3.7 percent respectively, while the rates of all other customers will
not be subject to any increase and will remain unchanged. The overall result ofthese proposed
rate adjustments will increase PacifiCorp s Idaho revenues by $8 250 543, or 5.1 percent.
Monsanto reluctantly agreed to raise the hours of interruption from 800 to 1000 hours, a
25 percent increase from the 2003 Contract. After PacifiCorp s cost of service studies indicated
a substantial increase in firm rates, Monsanto felt compelled to increase the interruption hours to
increase the interruptible credit in an amount sufficient to establish a lower net rate in an effort to
keep production costs at a competitive level. Both parties continue to place considerable value
on Monsanto s interruptibility as to its quantity, timing and dependability. The agreed-upon
interruptible credit was a matter of compromise necessary to achieve the Agreement both parties
strongly sought.
PROTECTIVE AGREEMENT:
It should be especially noted that the proposed 2007 Agreement between Monsanto and
PacifiCorp was filed with the Application as "Confidential Information" on yellow-colored paper
pursuant to Protective Agreement entered into on June 9, 2006, between PacifiCorp, Monsanto
the Commission Staff, the Idaho Irrigation Pumpers Association and Nu- West. Pursuant to the
Protective Agreement and in compliance with LC. ~48-801(5) an Attorney s Certificate was filed
by Monsanto s counsel claiming as confidential information the Interruptible Credit in dollars
per kW of interruptible power as set forth in paragraph 4.2 of the Agreement, and the furnace
sizes available for operating reserve, system integrity and economic curtailment interruptions as
set forth in Exhibits A and B attached to the Agreement. This same confidential information is
redacted from the Summary and Comparison of the 2003 and 2007 Contracts attached to these
Comments. The disclosure of this confidential information of Monsanto, particularly phosphorus
SUPPORTING COMMENTS OF MONSANTO COMPANY - 5
production costs and quantities to the Chinese and other competitors, would severely damage
Monsanto s competitive positions. Accordingly, Monsanto provides this further emphasis to the
Commission Staff and other parties of the importance of protecting the described confidential
information under the Protective Agreement from being disclosed in the public record.
RECOMMENDATION:
Based on the foregoing, Monsanto respectfully submits that the proposed 2007
Agreement between PacifiCorp and Monsanto and the Revised Tariff Schedule No. 400 are in
the public interests and that their terms and conditions produce rates that are fair, just and
reasonable. Accordingly Monsanto recommends approval under modified procedure. Monsanto
further recommends approval of the related Tariff Schedules for Nu- West and the Irrigators in
Case No. P AC-06-04.
DATED November 2, 2006.
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED
~L~
RANDALL C. BUDGE
Attorneys for Monsanto Company
SUPPORTING COMMENTS OF MONSANTO COMPANY - 6
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 2nd day of November, 2006 , I mailed a true and
complete copy of the foregoing document, postage prepaid, to each of the following:
Jean M. Jewell, Secretary (Overnight Mail)
Idaho Public Utilities Commission
O. Box 83720
Boise, Idaho 83720-0074
Scott D. Woodbury
Deputy Attorney General
Idaho Public Utilities Commission
O. Box 83720
Boise, Idaho 83720-0074
Mark C. Moench
Senior VP and General Counsel
PacifiCorp/dba Rocky Mountain Power
201 S. Main Street, Suite 2300
Salt Lake City, Utah 84111
James R. Smith
Monsanto Company
O. Box 816
Soda Springs, Idaho 83276
Brian Dickman
P acifi Corp
201 S. Main Street, Suite 2300
Salt Lake City, Utah 84111
Gary Kajander
Monsanto Company
800 N. Lindburgh Blvd.
St. Louis, Missouri 63167
Dean Brockbank
Senior Counsel
PacifiCorp
201 S. Main Street, Suite 2300
Salt Lake City, Utah 84111
Conley E. Ward
Givens Pursley LLP
O. Box 2720
Boise, Idaho 83706
James M. Van Nostrand
Stoel Rives, LLP
900 SW Fifth Avenue, Suite 2600
Portland, Oregon 97204
Eric L. Olsen
Racine, Olson, Nye, Budge & Bailey
O. Box 1391
Pocatello , Idaho 83204-1391
c'~
RANDALL C. BU
SUPPORTING COMMENTS OF MONSANTO COMPANY - 7