Monsanto Post Hearing Brief.pdf

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

In the Matter of the Application of PacifiCorp ) Case No. PAC-E-01-16
dba Utah Power & Light Company for )
Approval of Interim Provisions for the Supply )
of Electric Service to Monsanto Company. )
)

MONSANTO=S POST-HEARING BRIEF

October 10, 2002

Submitted By:
Randall C. Budge, ISB 1949
RACINE, OLSON, NYE, BUDGE & BAILEY, CHARTERED
P.O. Box 1391; 201 E. Center
Pocatello, Idaho 83204-1391
Telephone: [phone]
Fax: [phone]

Attorneys for Monsanto Company
MONSANTO’S POST-HEARING BRIEF - 1
INDEX
INTRODUCTION..........................................................................................................................1
ISSUES PRESENTED FOR DECISION ....................................................................................2
SUMMARY OF MONSANTO’S POSITION .............................................................................3
DISCUSSION OF THE ISSUES ..................................................................................................8
1. SINGLE INTEGRATED POWER SUPPLY AGREEMENT...........................8
2. CONTRACT TERM..............................................................................................9
3. CONTRACT START AND END DATES.........................................................11
4. RATE DESIGN....................................................................................................12
5. RATE AMOUNT .................................................................................................13
5.1 FIRM RATE.............................................................................................13
5.2 INTERRUPTIBLE VALUE ...................................................................16
5.3 MR. KLEIN’S REBUTTAL TESTIMONY..........................................25
5.4 BUY-THROUGH INDEX.......................................................................29
5.5 PRINCIPLE OF GRADUALISM ..........................................................29
6. JURISDICTIONAL ALLOCATION.............................................................................31
7. MISCELLANEOUS OTHER CONTRACT TERMS..................................................32
CONCLUSION ............................................................................................................................34

Exhibit 245 – Valuation of Monsanto Interruptibility Based on
PacifiCorp’s Methodology

Exhibit 246 – Valuation of Monsanto Interruptibility Based on the
Avoided Peaker Resource

MONSANTO’S POST-HEARING BRIEF - 2
Exhibit 247 Summary of Economic Curtailment Valuations
From PacifiCorp Exhibit No. 36
Randall C. Budge, ISB 1949
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED
P.O. Box 1391; 201 E. Center
Pocatello, Idaho 83204-1391
Telephone: [phone]
Fax: [phone]

Attorneys for Monsanto Company

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

In the Matter of the Application of PacifiCorp ) Case No. PAC-E-01-16
dba Utah Power & Light Company for )
Approval of Interim Provisions for the Supply ) MONSANTO’S
of Electric Service to Monsanto Company. ) POST-HEARING BRIEF
)

COMES NOW Monsanto Company (“Monsanto”), through counsel, and hereby submits
the following Post-Hearing Brief.
INTRODUCTION
Monsanto submits this Post-Hearing Brief to identify the issues presented for decision
and set forth both Monsanto’s and PacifiCorp’s positions and arguments based upon the
testimony and exhibits presented to the Idaho Public Utilities Commission (“Commission”) at
the September 4-5, 2002 hearing.
MONSANTO’S POST-HEARING BRIEF - 3
Monsanto’s Pre-Hearing Brief addressed legal issues and provided supporting legal
authority, which will not be further addressed, as no new or additional legal issues appear to be
presented by this case. The Pre-Hearing Brief also discussed the nature of the case, described the
course of proceedings, provided a history of the electric service provided to Monsanto, reviewed
relevant prior regulatory proceedings and Orders, and provided a critical discussion of
PacifiCorp’s new policy changes and proposal to eliminate interruptible power and treat
Monsanto as a firm tariff rate customer. Further discussion of those matters previously
addressed is unnecessary here, although Monsanto suggests the Commission review its Pre-
Hearing Brief as appropriate.
ISSUES PRESENTED FOR DECISION
Monsanto submits that the following issues are in dispute and submitted to the
Commission for decision:
1. Single Integrated Power Supply Agreement: Should Monsanto continue to
receive interruptible and firm power from PacifiCorp pursuant to a single integrated special
contract?
2. Contract Term: Should the contract term be a minimum of five years as
proposed by Monsanto?
3. Contract Start and End Dates: Should the contract start on the date the Federal
Court determines the existing 1995 Contract terminates, and subsequently terminate on
December 31, 2007, as proposed by Monsanto?
4. Rate Design: How should the rate be designed and the terms of interruptibility
be defined?
5. Rate Amount: Should the Commission accept Monsanto’s proposed energy
charge of $18.50 per MWH as a fair, just and reasonable rate for electric service?
6. Jurisdictional Allocation: For jurisdictional allocation purposes, should
Monsanto continue to be treated as a system customer, or should that decision be deferred
pending completion of PacifiCorp’s Multi-State Process?
7. Miscellaneous Other Contract Terms: How should the Commission resolve
disputed contract provisions?
MONSANTO’S POST-HEARING BRIEF - 4
SUMMARY OF MONSANTO’S POSITION
Monsanto respectfully submits that PacifiCorp should be required to provide firm and
interruptible power pursuant to a single integrated special contract for a term of not less than five
years, which would terminate no sooner than December 31, 2007. Monsanto proposes to pay a
single blended energy rate of $18.50 per MWH for electric service to its Soda Springs facility.
The terms of interruptibility should be defined to support and justify the requested contract rate.
This rate should be found fair, just, reasonable and non-discriminatory, based upon all special
facts, and every element and circumstance established by the testimony and evidence presented
in this case.
Monsanto’s recommended pricing and contract terms are sought to maintain the Soda
Springs plant as a competitive source of phosphorus for the downstream uses of Monsanto and
other customers. The rate and pricing method proposed by Monsanto will enable the Soda
Springs plant to operate at near full capacity, and remain viable in an increasingly competitive
world-wide market characterized by a declining demand for phosphorus, new technologies, and
foreign suppliers. The Chinese delivery of phosphorous to the U.S. at prices less than U.S.
pricing is a significant existing threat to replace production from the Soda Springs plant if
electric costs increase. (Schettler (Dir.) Vol. IV,_p. 406, l. 13 – p. 407, l. 14.)1 Approval of the
proposed special contract price and terms will provide the necessary signal of price certainty and
stability to Monsanto, as well as its customers and competitors. This price will also support and
enable requisite long-term planning and necessary capital investment to develop ore deposits and
install the next generation of environmental equipment. The testimony of Mr. Schettler

MONSANTO’S POST-HEARING BRIEF - 5
1 The very real risk that a price increase will cause the largest customer to reduce or eliminate purchases from the
Soda Springs plant is detailed in the “Confidential” testimony of Daniel R. Schettler. (Confidential Tr. Vol. V, p.
464-485.)
regarding the current status of the phosphorus market and what is required for the Soda Springs
plant to remain competitive, together with the testimony of Mr. Hofman concerning the
economic importance of the Soda Springs plant to the local and regional economy was received
completely without question or challenge in this proceeding.
PacifiCorp presented a single cost-of-service study in an attempt to support its proposed
increase of 70%, or a firm rate of $31.39 MWH. While a proper cost-of-service study may
provide guidance, it alone should not be accepted as “gospel”, and most certainly PacifiCorp’s
study should not be relied upon. PacifiCorp’s cost study is distorted and should not be used,
since it relies upon 1999 test year data which was unaudited, was not normalized, does not reflect
merger savings and failed to properly allocate the entire unamortized portion of the $30 million
payment made by Monsanto to the Idaho jurisdiction. (Taylor (X), Tr. Vol III, 269-271, 284-
286)
The direct testimony of Mrs. Iverson and Mr. Rosenberg not only critiqued the
Company’s single view of the allocation of costs to Monsanto, but also offered a number of
alternative treatments which provided the Commission with a more complete picture, as well as
increased support for the rate and contract terms proposed by Monsanto. As will be discussed in
detail below, Monsanto’s analysis indicates the cost of providing firm service to Monsanto is in
the range of $26 to $28 per MWH.
Clearly, one of the most important and difficult issues for the Commission to decide is
how to define and value the interruption of service to Monsanto. It is undisputed that interruption
of the Monsanto load provides a unique and valuable resource to PacifiCorp, due to the size of
the load, the flexibility provided by the three furnaces available separately or together, the
immediate and certain availability upon seconds notice, coupled with the fact that Monsanto
MONSANTO’S POST-HEARING BRIEF - 6
interruption can provide PacifiCorp with system integrity, operating reserve and/or economic
curtailment.2 Notwithstanding, PacifiCorp has provided little or no guidance in defining the
level and terms of interruption, choosing instead to criticize Monsanto’s proposals.
Because PacifiCorp’s Application and direct testimony only sought to price Monsanto as
a firm tariff rate customer, and did not offer any long-term interruptible contract, nor provide any
recommendations or methods to establish the level, type or value of interruptions, it became
incumbent upon Monsanto to do so.
From Monsanto’s perspective, PacifiCorp is, in effect, buying a resource to be used as
they see fit. Monsanto’s case values interruptibility based upon the avoided costs of a
combustion turbine (“CT”) or “peaker” plant. This value could range between $9.40 and $12.86
per MWH. Based on this analysis a single blended rate of $18.50 per MWH is clearly fair and
reasonable.
Monsanto’s preference is to continue the same level of service provided by the 1995
Contract, which only allows interruptions for system integrity purposes. It is not Monsanto’s
desire, nor intent, to provide more interruptibility than is needed to achieve a sufficient basis to
support a price of $18.50 per MWH. The use of all three furnaces for continuous production
enables Monsanto to maximize production, achieve the greatest efficiencies, and produce
phosphorus at the lowest cost. Notwithstanding, Monsanto recognizes that some greater level of
interruption may be necessary to justify the requested price and time certainty. Particularly, this
would be the case should the Commission choose to give considerable weight to cost-of-service
pricing methodologies, and reject the historic basis of pricing Monsanto based upon a rate which

MONSANTO’S POST-HEARING BRIEF - 7
2 PacifiCorp witness Watters acknowledged these unique characteristics of Monsanto interruptibility, indicating also
that Monsanto is “at the top of the heap” as far as providing benefit and value to PacifiCorp. (Watters (X) Tr. Vol.
II, p. 168-172)
would pay variable costs and make a reasonable contribution to fixed costs. In order to achieve
the desired price, Monsanto has offered to provide only sufficient hours of interruption in a
manner that would provide the greatest value to PacifiCorp and resulting credit to Monsanto.
Monsanto initially proposed 500 hours of economic curtailment and 300 hours of operating
reserves, together with unlimited interruptions for system integrity. (Schettler (Dir), Tr. Vol. IV,
pp. 417-418, Exhibit 211-Attachment A.) Operating reserves were offered as a result of earlier
indications by PacifiCorp that operating reserves were of greater value than economic
curtailment.
PacifiCorp takes a single approach of comparing Monsanto’s interruption proposals with
short-term products purchased in the open market. Additionally, PacifiCorp argues Monsanto
interruptibility should not be priced based upon a CT or “peaker”. Instead, PacifiCorp suggests
market prices be utilized and relies upon its “Black Scholes” pricing model. This single point-in-
time pricing model was presented in an eleventh-hour attempt to establish a credit for Monsanto
interruptibility based on projected market prices. Yet, PacifiCorp admits that the economic
curtailment offered by Monsanto is not available in the market and that there are no
counterparties willing to sell this product. (Klein Reb. P. 7, L. 20-23.) On the other hand,
Monsanto, Staff and Irrigator witnesses assert that the value of interruptibility can best be
measured by the embedded cost of the proxy resource it avoids – that is, the avoided cost of a
peaker.
Not until August 23, 2002 when Monsanto received PacifiCorp’s rebuttal testimony, did
PacifiCorp provide their value calculations for curtailment, which placed a considerably higher
value on economic curtailment than on operating reserves. (Griswold (Reb), Vol. II, p. 9, l. 1-7,
Watters (Reb), Tr. Vol. II, p. 8, l. 15-p. 9, l. 9, Exhibits 13, 14, 15.) In response, Monsanto
MONSANTO’S POST-HEARING BRIEF - 8
proposed, as an alternative, the elimination of operating reserves, and offered to provide
economic curtailment on all three furnaces up to a maximum of 1,000 hours annually. (D.
Schettler Rebuttal, p. 6, Exhibit 243.) In response, PacifiCorp’s surrebuttal attempted to
recalculate the value of Monsanto’s alternative curtailment proposals, and to incorporate two
corrections admitted by Mr. Watters. (Tr. Vol III, p.195, l.13 – p.196, l.16, Exhibit 28)
However, the result presented in Exhibits 27 and 29 concluded that doubling the hours of
economic interruption to 1,000 was worth nearly $1 million less than the 500 hours of
interruptibility Monsanto initially proposed.3 This illogical result, pointed out by Mrs. Iverson’s
live rebuttal, and illustrated by Exhibit 244, clearly indicates that PacifiCorp’s “Black Scholes”
model for pricing interruptibility is totally inaccurate and unreliable, and must be invalidated for
purposes of valuing the five-year resource provided by Monsanto. (Tr. Vol. VII, p.827-833)
Certainly Monsanto is not willing to pay $1 million to PacifiCorp to be interrupted an additional
500 hours, if PacifiCorp puts no value on those additional hours.
If additional interruptions provide no more value, as PacifiCorp seems to contend,
Monsanto recommends a total of 800 hours of curtailment (in addition to unlimited system
integrity), which PacifiCorp may utilize and classify in the manner it sees fit, to provide
maximum value as a medium term resource. In any case, Monsanto must limit interruptions to a
maximum of 1000 hours per year. Additionally, Monsanto desires to limit curtailments to two
furnaces, so that one may remain operational at all times. If, in order to achieve the desired
price, all three furnaces are taken at once, Monsanto must have two-hours notice and the option
of buying through the interruption on one furnace based upon the lowest cost of power available

MONSANTO’S POST-HEARING BRIEF - 9
3 In his filed rebuttal testimony of September 27, 2002, Mr. Klein corrects Exhibit 27. This brief will discuss his
rebuttal testimony in more detail in Part 5.
on the market. This permits Monsanto to make an economic decision based upon known
circumstances at the time.
Monsanto also recommends a single, all-inclusive or “rolled in” energy price. With a
single energy price, without demand charges as suggested by PacifiCorp, Monsanto only pays
for the energy it consumes. This provides simplicity. It also avoids either party being
advantaged or disadvantaged as a result of furnace curtailments. Stated differently, a single
energy price eliminates any concern that may be harbored by PacifiCorp, the Commission or
other customers, that Monsanto could permanently shut down a furnace and be subsidized by
reason of the curtailment payment.
Monsanto believes that the contract provisions and precise language can best be worked
out between the parties. Recognizing that the Commission would prefer not to involve itself in
drafting contract language, Monsanto has attempted to resolve such matters so that the
Commission could focus its efforts on the issues of pricing and terms of interruptibility.
However, PacifiCorp has been unwilling to address these matters until the Commission has
provided direction whether certain provisions (discussed in part 6 below) should be included in
the new contract. To the extent the disputed contract provisions are not resolved by the parties
prior to decision, the Commission should provide guidance regarding whether a disputed
provision should be included or excluded from the contract. Accordingly, the Commission must
decide these disputes. This should enable the parties to incorporate the appropriate language in
the contract.
MONSANTO’S POST-HEARING BRIEF - 10
DISCUSSION OF THE ISSUES
1. SINGLE INTEGRATED POWER SUPPLY AGREEMENT.
A. PacifiCorp’s Position: Prior to the final day and final hour of the hearing,
PacifiCorp insisted that Monsanto be subject to completely separate agreements, one to sell firm
power and one to buy back interruptions as a short-term resource.4 During live surrebuttal
testimony, Mr. Griswold acknowledged, for the first time, that the Company was willing to have
a single agreement, provided that the pricing components for firm and interruptible power were
separated. (Tr. Vol. VII, p.815, L.23 – p.816, l.3.) Accordingly, at the conclusion of the
hearings, PacifiCorp has conceded to a single integrated contract, even though rate design and
other terms remained in dispute.
B. Monsanto’s Position: Monsanto has consistently maintained that firm and
interruptible power should be provided pursuant to a single, integrated contract, in accordance
with historic practices. The Commission may or may not choose to discuss the separate pricing
components in its Order. In either case, Monsanto submits it is unnecessary to include separate
4 In the December 7, 2001 Application of PacifiCorp, the Company proposed to provide firm electric
service to Monsanto under the provisions of its Electric Service Schedule No. 9. (App. of PacifiCorp, pp. 4, 5.) Mr.
Taylor’s direct testimony stated: “Sales of electricity to . . . Monsanto will be full, firm service at embedded cost
equivalent prices.” (Taylor (Dir) Tr. Vol. III, p.220, l.13-14) Neither the Company’s Application or its supporting
testimony or exhibits propose that Monsanto would be provided interruptible service or be viewed as an interruptible
resource. Similarly, PacifiCorp’s responses to data requests indicated “PacifiCorp intends to enter into no more
long-term interruptible service contracts” and “intends to discontinue the practice of offering interruptible service as
a retail purchase option”. (Exhibit 242) Instead, the Company approach would provide for “the purchase of
interruptibility back from Monsanto as a short-term resource acquired from the market.” (Griswold (Dir) Tr. Vol. II,
p.30, l. 8-10)
For the first time in its rebuttal testimony, PacifiCorp indicated it was willing to provide an interruptible
agreement that would have the same length of term as the Electric Service Agreement, yet PacifiCorp nonetheless
still required two completely separate agreements.. (Schettler (Reb) Tr. Vol. IV , p.406, ll. 3-16.) Mr. Griswold
stated in his rebuttal testimony, page 1, lines 15-17:
Q: Is PacifiCorp willing to provide Monsanto an electric service agreement and
separate interruptible or curtailment agreements that have the same length of term?
A: Yes. . . .
MONSANTO’S POST-HEARING BRIEF - 11
On cross-examination, both Mr. Taylor and Mr. Griswold admitted that it was possible to provide firm and
interruptible power in a single integrated contract. (Tr. Vol. II, p. 68, Vol. III, p. 274, L. 15-22.)
pricing components in the contract. Monsanto proposes that the rate be reflected in the contract
as a single net energy price only.
2. CONTRACT TERM.
A. PacifiCorp’s Position: The term of the contract was not addressed in
PacifiCorp’s Application or supporting direct testimony. (App. of PacifiCorp, pp. 4, 5) Instead,
the Company proposed that Monsanto’s rate be firm service, tariff based, and subject to price
changes. Mr. Taylor stated in his direct testimony:
... the Monsanto contract is subject to the same level of price changes as the
collective changes in base rates for all other Idaho customers. (Taylor (Dir) Tr.
Vol. III, p. 214, l. 17-19.)

Later, in rebuttal testimony, the Company changed its position and agreed to provide
Monsanto with an interruptible agreement having the same term as the electric supply agreement.
Mr. Griswold recommended a term of “four years and four months, effective September 1, 2002,
and terminating December 31, 2006.” (Exhibit 10.)
The Staff supports a single contract for a five-year term. (Schunke (Dir) Tr. Vol.VI,
p.711, ll. 23-24.) The Irrigators also support a single, long-term contract. (Yankel (Dir) Tr. Vol
VI, p.761, ll. 15-17, p.762, ll. 20-21) The Company did not present any opposition to
Monsanto’s proposed minimum five-year contract term. On cross-examination from
Commissioner Hansen, Mr. Griswold indicated that the Company preferred calendar year
contract start and end dates, and did not oppose a five year term. (Griswold (Com) Tr. Vol.II,
p.125 l.16-23)
MONSANTO’S POST-HEARING BRIEF - 12
B. Monsanto’s Position: Monsanto has always received power pursuant to special
contracts with terms ranging from five to ten years. (Smith Dir Vol. IV, p. 331, l. 17 - p. 332, l.
18.) Monsanto recommends a term of not less than five years. (Schettler Dir Vol. IV, p. 417, ll.
15-18.) Because the start date of the new contract is undetermined, and because the Company
prefers the contract start and end on a calendar year, Monsanto recommends the contract start
January 1, 2003, and terminate no sooner than December 31, 2007. The result would be either a
five-year term, if the Court determines the old contract ends year-end 2002, or a six-year term, if
the Court determines it ends year-end 2001.5 Monsanto is satisfied with the “true-up”
mechanism established by the Commission in Order No. 28918 as may be applied once the start
date has been determined.
3. CONTRACT START AND END DATES.
A. PacifiCorp’s Position: PacifiCorp’s rebuttal testimony requested a start date of
September 1, 2002, and end date of December 31, 2006, for both the electric service agreement
and the interruptibility agreement. (Griswold Reb, Tr. Vol. II, p. 40, ll. 17-22.) However, on
cross-examination, Mr. Griswold admitted that the start date was dependent upon the Court’s
determination of the end date of the existing contract; and, further, that the Company also
preferred a calendar year start date. (Tr. Vol. II, p. 57, l.7; p.58, l.12; p.125, l.9-14.) If the
earliest date the old contract could end is year-end 2002, as asserted by Monsanto, the
Company’s proposed termination date would result in only a four-year contract.
B. Monsanto’s Position: Monsanto recognizes and agrees that the contract start date
will be determined by the Court. Should this Commission approve the $18.50 per MWH price
as recommended by Monsanto, there would be no need for any true-up, and the Commission
could, for all practical purposes, establish the start date. In response to Commissioner Hansen’s
question, Mr. Griswold also agreed that if the rate set is $18.50 “there is no dollar value
5Nothing stated by Monsanto in this Brief or elsewhere in this proceeding should be construed
as a waiver or admission regarding the termination date of the 1995 Contract for purposes of
the pending litigation between the parties.
MONSANTO’S POST-HEARING BRIEF - 13
associated with” a court hearing. (Tr. Vol.II, p.126, l.4-9) This is because there would be no true-
up amount. Litigation over the old contract termination date would be moot, rendered
meaningless and could be dismissed. In either case, Monsanto recommends a termination date of
December 31, 2007, for the reasons discussed in 2.B. above. This will provide Monsanto with a
contract term of not less than five or more than six years.
4. RATE DESIGN.
A. PacifiCorp’s Position: PacifiCorp initially proposed a seasonal pricing method
consisting of a customer charge in dollars-per-month, a demand charge in dollars-per-KW-
month, and on-peak/off-peak energy charge of dollars-per-MWH, with overall price of $31.4 per
MWH. (Exhibit 2) In rebuttal testimony, PacifiCorp changed its proposed rate design to a non-
seasonal demand and energy rate, and eliminated the on-peak/off-peak differential in the energy
charge component. (Griswold (Reb) Tr. Vol.II, p. 41, ll 3-5.)
B. Monsanto’s Position: Monsanto proposes that the rate design be based on a
single “rolled-in” energy charge only, as in Monsanto’s existing contract. This is consistent with
treatment provided to other recently negotiated industrial rates of PacifiCorp. The rates for both
Magcorp and Geneva Steel contain no demand charges. (Exhibit 208, Exhibit 23.) If
PacifiCorp’s demand charge is included in Monsanto’s rate design, and if Monsanto is
continuously interrupted, as has been indicated by PacifiCorp, Monsanto’s load factor will surely
decrease and its cost will surely increase. As a result, Monsanto would end up paying
substantially more than the Company’s proposed firm price of $31.39 for power in those months,
as admitted by Mr. Klein. (Tr. Vol.VII, p.810, l. 5-13.) Under PacifiCorp’s rate design,
Monsanto’s firm price may be over $36 per MWH as a result of the interruptions, even before
any consideration of the additional cost for buy-through.
MONSANTO’S POST-HEARING BRIEF - 14
By adopting a blended energy price without demand charges, Monsanto only pays for the
energy it consumes. Not only does this provide simplicity, but it also removes the possibility of
either party being advantaged or disadvantaged as a result of furnace curtailments. Utilizing a
blended energy price eliminates any concern that Monsanto might permanently shut down a
furnace in order to benefit from a monthly curtailment subsidization. For these reasons,
Monsanto recommends that it be priced under a single “rolled-in” energy rate.
5. RATE AMOUNT.
5.1 FIRM RATE.
A. PacifiCorp’s Position. The Company proposes to sell firm energy to Monsanto
at an overall rate price of $31.39 per MWH. PacifiCorp bases its proposed price on “situs” cost-
of-service studies using its preferred “12 CP; 75/25" allocation methodology and a 1999 test
year. The 1999 test year data relied upon was unaudited, was not normalized, does not reflect
merger savings, and fails to properly allocate the entire unamortized portion of the $30 million
payment made by Monsanto to the Idaho jurisdiction. (Taylor (X), Tr. Vol. III, p. 269-271, 284-
286) As noted by Staff witness Mr. Schunke:
Cost of service for firm load customers is an imprecise science and establishing
the cost of service for an interruptible load is even more difficult, requiring
considerable judgment. (Schunke (Dir), Tr. Vol.VI, p. 714, l. 1-4)

This observation is particularly relevant since Idaho has not had a general rate case to
review cost-of-service methodology since the Utah Power – Pacific Power merger in the late
1980s. PacifiCorp does not even address the traditional and historic method of pricing Monsanto
at a rate which would pay the variable costs and make a reasonable contribution to fixed costs.
B. Monsanto’s Position. While PacifiCorp chose only a single view to allocate
costs to interruptible customers (i.e., treat Monsanto as a firm customer), Monsanto witnesses
MONSANTO’S POST-HEARING BRIEF - 15
offered a more complete picture by providing alternative means to value both firm and
interruptible service, all of which provide an ample basis to support the conclusion that
Monsanto’s proposed rate is fair, just and reasonable.
The record is undisputed that based on the Company’s own cost-of-service study, the
variable cost to serve Monsanto is $14 per MWH. Accordingly, at the current contract price of
$18.50 per MWH, the contribution to fixed costs is $4.50 per MWH, or $6.3 million. (Iverson
(Dir), Tr. Vol. VI, p. 541, ll. 4-11.) This evidence alone is sufficient to support Monsanto’s
proposed contract rate and terms. Since the “variable cost + fixed cost contribution” standard
was used by the parties and the Commission to justify the 1995 Contract as fair, the same method
remains valid. In rejecting this method, Mr. Taylor argues that it is no longer relevant because
the basis for the fixed costs standard is incremental costs. Mr. Taylor’s argument must be
rejected. First, as Commission Staff witness Mr. Schunke correctly notes in his direct
testimony, native load customers such as Monsanto are served from embedded resources, not
incremental:
Mr. Taylor’s statement seems to imply that the special contract customer should
be served from the incremental or marginal resource, and I don’t think that is
appropriate. The special contract rate, for native load customer, should be based
on average cost of embedded resources. (Schunke (Dir), Tr. Vol. VI, p. 714, l.
19-24)

Second, Mr. Taylor’s argument directly contradicts the Company’s statement in its Technical
Assessment Package, Exhibit 203, at page 5:
Since PacifiCorp has served Monsanto for over forty years, no incremental
resources need to be acquired to continue serving the customer.

MONSANTO’S POST-HEARING BRIEF - 16
The 1995 Contract, in and of itself, is evidence of the reasonableness of Monsanto’s
proposed rate. Rates for other customers in Idaho and other states have been relatively flat, as
depicted by Exhibit 207, prepared by PacifiCorp. In fact, as a result of the recently-concluded
Case No. PAC-E-02-1, the rates of other Idaho customers will be decreasing, most by double
digits, as shown by Exhibit 223. There is no evidence that PacifiCorp’s embedded cost of
generation and transmission has increased since 1995.6 In fact, just the opposite has occurred:
PacifiCorp witness Taylor admitted on cross-examination that the Company’s 10K Report for the
fiscal year ending March 31, 2001 reflected a $101 million, 12% decrease in expenses as a result
of the merger Transition Plan and sale of Centralia; and that the Scottish Power Annual Review
for 2001/2002 indicated cumulative year two cost savings of $117 million. (Tr. Vol. VI, p. 270-
271) The evidence of cost savings since 1995, together with the lack of evidence in the record of
any increase in operating costs provides clear indication that the $18.50 rate found fair and
reasonable in 1995 remains the same today, especially with the addition of increased
interruptibility.
Monsanto proposed through Mrs. Iverson five modifications to the Company’s cost-of-
service studies:
• Correction of the rate of return applied to Monsanto.
• Modification of the 75% demand/25% energy classification for the allocation of
production and transmission demand-related expenses.
• Use of an 8 CP demand allocator, rather than 12 CP; or an average of the results
of 8 CP and 12 CP cost studies.
• Adjustment for administrative and general (A&G expenses) allocated to
Monsanto.
• Incorporation of fuel shaping in the overall allocation of fuel and purchase power
costs.
The results of these proposed adjustments support a firm price in the range of $26 to $28 per
MWH. (Iverson (Dir), Tr. Vol. VI pp.542-554)

MONSANTO’S POST-HEARING BRIEF - 17
6 To the contrary, Mr. Taylor admitted the Company has built no new base load plant and has sold the Centralia
plant since 1995. (Tr. Vol. III, p. 271-272) Those facts coupled with normal depreciation indicates rate base has
decreased.
PacifiCorp’s proposed $18 million increase to Monsanto would actually increase the
Idaho jurisdictional rate of return to 8.867%, exceeding the Company’s proposed rate of return of
8.418% for Monsanto, which PacifiCorp admits. (Iverson (Dir), Tr. Vol. VI, p. 542, l. 20 -
p.543, l. 8). Mr. Taylor also admitted his cost study improperly assigned Monsanto’s $30
million payment to the system, rather than to the Idaho jurisdiction. If the Commission accepted
only Monsanto’s correction to the authorized rate of return, the resulting firm rate is $29.30 per
MWH. Assigning the Idaho jurisdiction the $30 million payment would further lower Idaho’s
revenue requirement, resulting in a firm rate of $28.30 per MWH for Monsanto. (Taylor (X), Tr.
Vol. III, pp. 282 , l. 3-7, 283, l. 15-25, p. 286, l. 8-19; Rosenberg, Tr. Vol VI, p. 593, l. 13)
Another method and perspective that should be considered is to compare the Company’s
$31.39 cost of service rate for Monsanto with the cost that PacifiCorp charges other large
industrial customers. PacifiCorp just entered into a new negotiated special contract with Geneva
Steel, priced at an energy rate only of $29.30 (Tr.Vol. VII, p.818, l.6-10; p.824, l.6-9), which
PacifiCorp admits would be the equivalent of a $29.12 firm rate if applied to Monsanto load.
(Griswold (X), Tr. Vol. VII, p.825, l.4-23.)
In sum, Monsanto’s analysis supports a firm rate as low as $26 per MWH, and no higher
than $29.30 MWH. Monsanto recommends a conservative firm rate of $28.30 per MWH, based
on PacifiCorp’s proposed firm rate corrected to the authorized rate of return and proper
assignment to the Idaho jurisdiction of the $30 million payment.
5.2 INTERRUPTIBLE VALUE.
A. PacifiCorp’s Position: Until their rebuttal testimony had been filed, the
Company proposed to buy back interruptible energy from Monsanto as needed pursuant to a
separate short-term contract. While PacifiCorp’s direct testimony states that the net effect of
MONSANTO’S POST-HEARING BRIEF - 18
these two separate contracts is a cost of $27 to $28 per MWH, the actual net cost was
indeterminate, since the second contract’s quantity, price and timing were all unknown.
(Griswold (Dir), Vol.II, p. 30, l.22 – p. 31, l. 3, Exhibit 4.) Furthermore, PacifiCorp offered no
documentation on the interruptibility terms associated with Mr. Griswold’s purported net price of
$27 to $28 per MWH in his direct testimony.
As a part of the Company’s rebuttal testimony, filed August 23, 2002, in Mr. Griswold’s
“Draft Terms for Electric Service” (Exhibit 10), the monthly credits for interruptibility were
included based on Monsanto’s proposed 800 hours of interruption (500 hours of economic
curtailment plus 300 hours of operating reserves). The Company’s valuation resulted in a $4.39
per MWH credit and a net price of $27.00 per MWH. Mr. Watters’ rebuttal testimony
ostensibly provided supporting calculations for Mr. Griswold’s proposed credit of $4.39 per
MWH for interruptibility. However, based upon Mr. Klein’s later testimony, those numbers are
questionable at best and should not be relied upon.
On cross-examination, Mr. Watters readily admitted two errors on his calculation of the
interruptibility credit. First, in calculating the lost retail revenue, the Company erroneously used
the full firm price of $31.39, rather than the variable energy portion of PacifiCorp’s proposed
pricing, which is $16.31. (Watters (X), Tr. Vol. III, p. 195, l. 13 - p. 196, l.16.)7 Second, the
wrong furnace size for calculating economic curtailment was corrected to 67 MW, the size of
Furnace No. 9. (Watters (Reb) Tr. Vol. II, p.148, ll. 10-12, Iverson (Reb), Tr. Vol.VI, p. 560, ll.
11-20.)
7Mr. Watters indicated in making his calculations that he was unaware this Commission had
denied the recovery of lost revenue in Case No. IPC-E-01-34, Orders No. 28992 and 29103.
(Watters Cross-Rebuttal, Tr. Vol. III, p. 197, ll. 10-19.)
MONSANTO’S POST-HEARING BRIEF - 19
Monsanto presents Exhibit 245 attached for illustrative purposes to show how PacifiCorp
values Monsanto interruptibility after correcting the two admitted mistakes. Column (1) reflects
the PacifiCorp’s proposed value of $4.39, resulting in a net rate to Monsanto of $27.00. This is
based upon Monsanto’s initial 800-hour interruption proposal and includes PacifiCorp’s so
called “lost revenue” amount and the $250 FERC cap for purposes of the system integrity
calculation. Column (2) of Exhibit 245 reflects PacifiCorp’s correction for the third furnace (l.
4) and lost retail revenue cost (ll. 15, 27 and 32), and arrives at a proposed value of $6.15,
resulting in a net rate to Monsanto of $25.24. When the FERC cap is corrected to $1000 per
MWH as pointed out by Commissioner Smith, then Column (2) of Exhibit 245 would reflect an
even higher interruptibility value of $7.22 and a lower net price of $24.17.
Column (3) of Exhibit 245 uses PacifiCorp’s model to calculate the value of 500 hours of
economic interruption and 300 hours of operating reserves with the “lost revenue” removed, the
FERC cap at $1000 and a conservative starting firm price of $29.30. The result is an
interruptible value of $7.63 and a net price of $21.67.
The concept of reducing the value of interruptibility by “lost revenues” was only raised
by PacifiCorp in rebuttal. In fact, Mr. Watters’ rebuttal testimony makes no mention of this
adjustment in his testimony, instead only revealing this adjustment in his exhibits. When
PacifiCorp offered Exhibits 13 and 14, witness Watters “adjusted” (i.e. reduced) the value of the
economic interruptions by $31.40 per MWh for alleged “Lost Retail Revenue”. During cross
examination Mr. Watters conceded that this was, to use his term, a “faux pas”, and when Mr.
Klein later sponsored Exhibit 27 in the last hour of the hearing, he had “corrected” this lost
revenue to $16.31 per MWh. (Watters (X-Reb), Tr. Vol.III, p. 196, l. 2-9)
MONSANTO’S POST-HEARING BRIEF - 20
Monsanto submits that any sort of “lost retail revenue” adjustment should be rejected.
First, the Commission has recently rejected recovery of lost revenue for demand-side
management initiatives in Case No. IPC-E-01-34, Orders No. 28992 and 29103. Second,
allowing the Company to reduce the value of interruptibility by lost retail revenues is bad public
policy because it has the effect of lowering the interruptibility credit and discourages demand-
side resources. Other compelling reasons to reject PacifiCorp’s “lost retail revenue” include:
• PacifiCorp never mentioned, let alone justified, "lost revenues" in either its direct
or rebuttal testimony.
• PacifiCorp is the only party that proposed a lost revenue adjustment.
• Even PacifiCorp did not include a lost revenue adjustment when it prepared its
versions of an Equivalent Resource savings (Exhibits 17, 18, 19 and 20).
• It does not appear that the Utah Commission accepted a “lost revenue”
adjustment in the Magcorp case.
• It is not clear there would be any “lost revenue” to the extent that Monsanto made
up any lost production due to the curtailments, or if PacifiCorp were able to effect
additional off system sales as a result of the curtailment. • If PacifiCorp’s proposed demand/energy rate design were approved, curtailment
would decrease Monsanto’s load factor, thereby increasing its effective rate paid
to PacifiCorp. Monsanto submits that it would be unfair to penalize Monsanto
even once for complying with curtailments that benefit the system, let alone
twice.8

At the end of the hearing, Mr. Klein (sponsoring Mr. Watters’ exhibits 27-29) attempted
to explain his valuation of Monsanto’s interruptibility based upon a “Black Scholes” model.
(Klein (Reb), Tr.Vol. VII, p.293-803, Exhibits 27, 28, 29). PacifiCorp never mentioned, let
alone justified, the use of such a model in either its direct or rebuttal testimony, or during the
cross-examination of the witnesses sponsoring pre-filed testimony. The “Black Scholes” model

MONSANTO’S POST-HEARING BRIEF - 21
8 Monsanto does recognize that this reason would not apply if Monsanto’s preferred rate design of an energy only
rate were approved by this Commission. Nevertheless, the other reasons for rejecting PacifiCorp’s “lost revenue”
adjustment would still be valid.
used by PacifiCorp to value interruptibility relies upon market prices in addition to a number of
other factors which are highly variable, yet established as constants, at a single point-in-time
“snapshot”.
This model is clearly unreliable and should be considered invalid for the purpose of
valuing the five-year interruptible resource provided by Monsanto. The model produced a totally
illogical, if not impossible, result when PacifiCorp attempted to demonstrate the value of
doubling the hours of economic interruption from the 500 hours initially proposed by Monsanto
to the alternate proposal of 1000 hours. Mr. Klein’s “Black-Scholes” model illogically
concluded that 1000 hours was worth less than 500 hours, an erroneous calculation clearly
demonstrated by the live rebuttal of Mrs. Iverson, and illustrated by Exhibit 244. By using
PacifiCorp’s own flawed model and calculations, Exhibit 244 established that the value of 1000
hours of economic curtailment was $2.9 million, actually $1 million less than the $3.9 million
value of 500 hours. (Tr. Vol. VII , p. 827-833.) Mr. Klein admitted that Exhibit 244 was
correctly calculated, according to the PacifiCorp model, and agreed that Monsanto would
certainly not pay PacifiCorp nearly $1 million to be interrupted an additional 500 hours. (Tr.Vol.
VII, p.839, l.19-24) In response to Exhibit 244, Mr. Klein smiled and admitted: “I was a little
worried actually that someone would do this.” (Tr. Vol. VII, p.839, l.7-12) Why Mr. Klein was
not forthcoming in his testimony remains unknown. Clearly, the errors were not corrected by
PacifiCorp upon discovery.9 This credibility gap casts considerable doubt on the reliability of
the Company’s modeling efforts to establish a rate for Monsanto.
The results of PacifiCorp’s “Black Scholes” model of increasing Monsanto interruptions
above 500 hours are totally inconsistent with the testimony of Mr. Watters. Mr. Watters stated

MONSANTO’S POST-HEARING BRIEF - 22
9 The discussion of Mr. Klein’s September 27, 2002 Rebuttal Testimony is in section 5.3 of this brief.
that the 1000 hours would cover roughly 6 ½ months of peak loads curtailment, which would
cover all of PacifiCorp’s summer and winter peaks. (Tr. Vol. II, p. 157, 162) Further, Mr.
Watters states PacifiCorp operates their highest cost resource peakers (which includes Gadsby)
“well over 30 percent.” Mr. Waters further stated “these peakers are pretty much in the money
quite a bit of the time…so they provide value beyond typically hitting a peak resource.” (Tr.
Vol.II, p.164-165, 180 l. 15-22) If the Company’s peakers provide value up to 30 percent of the
time (2680 hours), certainly Monsanto interruptions of 11 percent (1000 hours) also provides a
valuable resource. However, the “Black Scholes” model fails to properly value Monsanto’s
interruptibility above 500 hours and so should be rejected by the Commission.
B. Monsanto’s Position: Monsanto proposes to pay a blended energy rate of $18.50
per MWH for electric service to the Soda Springs facility. In order to retain a single rolled-in
net energy rate of $18.50 per MWH, Monsanto values its interruptibility based on the avoided
cost of a peaker. PacifiCorp can make use of Monsanto’s interruptibility for whatever purpose
affords it the best value, that is, PacifiCorp can use these interruptions for system integrity,
operating reserves and/or economic curtailment, to the extent necessary to support and justify
this price, up to a maximum of 1000 hours per year. If necessary, this can include all three
furnaces at one time, provided that if all three furnaces are taken at once, Monsanto receives two
hours notice, and has a right to buy-through on one furnace, based upon the lowest cost of power
available on the market. Monsanto’s intent is to provide PacifiCorp with a resource that it can
utilize as it sees fit to provide the highest benefit. It should be emphasized that Monsanto
does not want to provide any more interruptibility than is absolutely necessary to support
this price. Interruptions reduce production and cause operational economies of scale to diminish
MONSANTO’S POST-HEARING BRIEF - 23
when fixed costs are spread over a few pounds of production, impacting Monsanto’s ability to
produce phosphorus at competitive prices.
From the record established in this case, it is clear that PacifiCorp has adopted and
implemented new policies to reduce or eliminate demand side management resources, such as
interruptible rates. Instead, the Company has chosen to construct new plant and rely upon
market purchases in order to meet peak load growth. The Company adopted policies to eliminate
long-term interruptible contracts. (Exhibit 240) Consistent with these policies, the Company
went about eliminating the previously existing interruption rights from large industrial contracts,
like that offered Monsanto in 1995. While Monsanto’s 1995 Contract continued to allow
unlimited interruptions without notice for system integrity purposes, all rights to interrupt for
operating reserve and/or economic curtailment purposes were eliminated. In retrospect, these
policies proved ill-advised. As a result, when the 2000-2001 energy crisis hit, PacifiCorp not
only suffered excessively as a result of its market exposure, but, like many other utilities,
contributed to the problem.
Because the 1995 Contract did not allow interruptions for operating reserve purposes,
PacifiCorp came to Monsanto and acquired needed operating reserves by separate short-term
contracts in 2000, 2001 and 2002. Additionally, an Outage Deferral Agreement was entered into
in 2001 to move Monsanto off peak. (Exhibit 6) Monsanto was able to enter into the Operating
Reserve Agreements on a short-term basis, only because it already had the $18.50 rate in effect.
As a result of payments received by Monsanto under the Operating Reserve Agreements and the
Outage Deferral Agreement, the actual annual energy rate Monsanto paid was considerably less
than $18.50, being $17.57 in 2000, $16.61 in 2001, and is expected to be in the same range in
2002. (Schettler (Reb), Tr. Vol. IV, p. 428, ll. 11-18.)
MONSANTO’S POST-HEARING BRIEF - 24
Because PacifiCorp in its Application and supporting testimony did not offer interruptible
rates, it became incumbent upon Monsanto to develop an interruption proposal and present
methods to value the same. Based upon indications from PacifiCorp that operating reserves were
of greater value than economic curtailment, Monsanto’s initial proposal provided 300 hours of
operating reserves and 500 hours of economic curtailment, for a total of 800 hours of
interruption. Unlike PacifiCorp, which chose to rely on a single model for valuing
interruptibility, Monsanto recognized that no single formula would yield an unerring and precise
rate for interruptible service.
Through the testimony of Dr. Rosenberg, Monsanto presented five separate methods to
arrive at a cost-base rate for serving Monsanto’s interruptible load, including:
• An examination of the rates for other comparable interruptible contract.
• The average cost of short term purchase power included in the company rates.
• A cost-of-service study that allocates materially less than 100 percent of the demand-
related generation and transmission cost to Monsanto. • A cost-based firm rate less the avoided resource cost by virtue of the load being subject to
interruptibility. • The average variable cost of production, plus losses, plus a judgmental additur for
contribution to fixed costs.
(Rosenberg (Dir), Tr. Vol. VI, p. 615 – 630)
These benchmarks provided a range of net costs from $14 to $23. (Rosenberg (Dir), p.629,
Table 5.)
Monsanto acknowledges that Monsanto interruptibility is not a perfect substitute for a
CT. Both interruptible resources and CT’s have their advantages and disadvantages. The
advantages of an interruptible demand side resource such as Monsanto over a CT noted by Dr.
Rosenberg include:
MONSANTO’S POST-HEARING BRIEF - 25
• Shorter Response Time. In its testimony supporting the Gadsby units,
PacifiCorp notes that one advantage of these units is that they can be ramped up
in 10 minutes. Any two of Monsanto’s furnaces can be interrupted
instantaneously. • No Environmental Risk. A CT, when it runs, has emissions. In fact, as Dr.
Rosenberg noted, the Utah Department of the Environment limits CTs to running
for no more than six months out of the year. In contrast, when Monsanto is
curtailed, emissions are avoided rather than produced. • Greater Reliability. Combustion turbines, when turned on and off repeatedly to
respond to variations in load, frequently do not start. In contrast, Monsanto’s
furnaces have proven to be a reliable resource when called upon to curtail. • Avoidance of Fuel Risk. A peaker is at the mercy of gas prices, which have
proven to be quite volatile. Transportation of the gas might not always be
available and PacifiCorp has gas supply contracts which are interruptible.
• Avoidance of Construction and Permitting Risk. Building peakers could
suffer from delays and cost overruns. In some instances there could be difficulty
in even getting a permit to build the plant.
• Less Transmission Risk. During the summers of 2000 and 2001, PacifiCorp
used non-firm transmission paths, including approximately 300 MW from
Southern California, to meet the summer peaks. In the future, this non-firm
transmission may not be available or may be reduced.

Dr. Rosenberg’s analysis prices Monsanto interruptibility based upon a CT. This
“avoided peaker” approach compares Monsanto interruptibility favorably with the capacity and
energy charges the Company would avoid by not constructing a CT. Monsanto interruptibility
offers a number of advantages over constructing a CT, including certain availability at all times
on seconds notice, avoidance of capital expenditures, and construction cost delays and price
uncertainties, and avoidance of adverse environmental and site problems. The cost of the West
Valley and Gadsby Peakers are $6.13 and $6.32 per KW-month. (PacifiCorp Response to
Monsanto Data Request No. 131.) This is right in line with Dr. Rosenberg’s value of a peaker of
$6.12 per kW-month ($73.48 per kW-year), taken from PacifiCorp’s own resource plan,
RAMPP-6.
MONSANTO’S POST-HEARING BRIEF - 26
Dr. Rosenberg avoided peaker analysis, as summarized in the attached Exhibit 246,
supports a value of Monsanto interruptibility in the range of $8.51 to $12.48 per MWH. Using a
conservative firm price of $29.30 per MWH results in a net price ranging from $20.79 to $16.82
per MWH. This clearly provides cost-based support for determining that Monsanto’s
recommended net price of $18.50 per MWH is fair, just and reasonable.
In his rebuttal testimony, Mr. Taylor argued that any avoided capacity cost savings
should be discounted because Monsanto’s interruptibility of approximately 10% (800 hours
divided by 8,760 hours per year) is less than the “expected” capacity factor of 15% shown for the
Simple Cycle Combustion Turbine posited in RAMPP-6. We expect PacifiCorp to repeat that
argument in its brief (as it indeed argued in the Magcorp case). PacifiCorp’s argument is
specious and should be rejected (as it was in the Magcorp case) because capacity costs are fixed
and do not vary with hours run. All that is necessary for PacifiCorp to realize the savings is it to
actually avoid the stated kilowatts when Monsanto is called upon to curtail.
PacifiCorp itself exposed the speciousness of Mr. Taylor’s argument when Mr. Klein
implied that 1000 hours of interruption were no more valuable (and ostensibly even less valuable
if Mr. Klein’s analysis is taken on face value) than 500 hours of interruption.
In summary, Monsanto has shown that its interruptible resource is as valuable as an
avoided peaker, and so should be valued accordingly. A net price of $18.50 per MWH is
economically supportable based on the number of furnaces and hours which Monsanto is willing
to be interrupted.
5.3 MR. KLEIN’S REBUTTAL TESTIMONY
During the hearing, Monsanto’s Exhibit 244 demonstrated that PacifiCorp was attributing
a negative value to the final 500 hours. The Commission found “the record incomplete” on this
MONSANTO’S POST-HEARING BRIEF - 27
issue, and so reopened the record by Order No. 29118. The Commission requested Mr. Klein to
answer a series of 18 questions in writing. Mr. Klein provided his rebuttal testimony and
accompanying exhibits on September 27, 2002. The Commission found that parties to the case
may respond to the additional record as part of their post hearing briefs.
A. PacifiCorp’s Position: In his rebuttal testimony, Mr. Klein presented Exhibit 36,
a 50-page exhibit showing economic curtailment valuation based on PacifiCorp’s “Black
Scholes” model. Exhibit 36 contained 200 valuations, estimated at 25 points in time (3 in
September 2002, and 2 in each of the preceding 11 months, for a total of 25 dates). For each
point in time, he values either 67 MW or 46 MW of curtailment capacity. He also values this
capacity using a strike price of either $31.4 or $16.31 per MWH, and using either 500 hours or
1,000 hours of interruption for economic curtailment. Thus, he has 200 valuations (25 data
points x 2 levels of capacity x 2 strike prices x 2 hourly interruptions). Mr. Klein further claims
that Exhibit No. 36 provides “all documentation” as requested by the Commission.
B. Monsanto’s Position. Mr. Klein’s testimony and exhibits provide little new
information to the Commission. While he provides a brief explanation of “Black-Scholes” in his
testimony, the real truth of his testimony is found in his exhibits, notably Exhibit 36.
Monsanto summarizes Mr. Klein’s 200 valuations in the attached Exhibit 247. On these
four pages, we have simply organized the results of PacifiCorp’s economic curtailment options
for ease of review. Pages 1 and 2 are Mr. Klein’s results using a strike price of $31.4 per MWH,
with page 1 using a capacity of 67 MW, and page 2 based on a capacity of 46 MW. Pages 3 and
4 are Mr. Klein’s results using a strike price of $16.31 per MWH. Column 1 is taken directly
from the even pages of PacifiCorp’s Exhibit 36, while Column 3 is taken directly from the odd
MONSANTO’S POST-HEARING BRIEF - 28
pages of Exhibit 36.10 Column 2 is the difference between Column 3 and Column 1 in order to
show the value attributed by PacifiCorp to the final 500 hours.
Page 1 shows that based on a capacity of 67 MW and a strike price of $31.4 per MWH,
of the 25 dates examined by PacifiCorp, PacifiCorp consistently values the final 500 hours as
a negative number. Put another way, PacifiCorp is willing to pay on average $2,560,109 for
500 hours of interruptions (Exhibit 247, Column 1, l. 28), but is only willing to pay $1,824,092
for 1,000 hours of interruptions (Column 3, l. 28). Thus, the value of the final 500 hours as
shown in Column 2 is a negative number.
Page 2 of Exhibit 247 shows the value attributed by PacifiCorp to the final 500 hours for
46 MW. Out of 25 dates, only 2 of those dates (September 3, 2002 and August 22, 2002) have
positive values. On average (l. 28), the final 500 hours are negatively valued.
Pages 3 and 4 of Exhibit 247 show the value based on a strike price of $16.31. Using 67
MW (page 3), there are 15 dates where the final 500 hours are valued negatively, and only 10
dates with a positive value.11 On average though, the value of the entire final 500 hours is only
$20,053, compared to $3,383,759 for the first 500 hours. Likewise, page 4 of Exhibit 247 is
based on 46 MW of curtailed capacity. According to PacifiCorp’s “Black-Scholes” model, out
of 25 dates, there are only five where the final 500 hours are valued positively. This means that
20 dates result in a negative value, for an overall average of negative $23,882 (p. 4, column 2, l.
28).
To summarize, out of the 100 data points shown in Column 2 of Exhibit 247, PacifiCorp
places a negative value on the final 500 hours 83 times, or 83% of its runs. The message
10 This is because the even pages (2, 4, 6, etc.) of Exhibit 36 all use 500 hours of interruption, while the odd pages
(1, 3, 5, etc) all use 1,000 hours.
MONSANTO’S POST-HEARING BRIEF - 29
11 Note that September 3, 2002, is the line which Mr. Klein corrects his Exhibit 27, showing that the value of the
1,000 hours is $4,643,950 rather than the $2,927,230.
should be clear by now: PacifiCorp’s “Black-Scholes” model places absolutely no value on
interruptions over 500 hours.
Monsanto finds other problems with Mr. Klein’s testimony, which we briefly describe:
• Mr. Klein shows the same annual capacity and energy payments by Monsanto
regardless of the number of hours interrupted, or the capacity interrupted (i.e., a
constant energy payment of $21,897,209 with a strike price of $16.31, or a
constant energy payment of $42,156,492 with a strike price of $31.4 per MWH.)
This assumes that Monsanto must pay PacifiCorp for energy even when they are
interrupted. This would, of course, negate any argument by PacifiCorp for “lost
revenues”. More importantly, his careless assumption ignores the very real higher
costs Monsanto would incur under PacifiCorp’s proposed firm rate design.
• Exhibit No. 36 shows the “net cost” to Monsanto. However, to come to his net
cost, Mr. Klein has assumed in half of his runs that Monsanto would be
interrupted 1,300 hours, (i.e., 288 hours for operating reserves, 12 hours for
system integrity, and 1,000 hours for economic curtailment, for a total of 1,300
hours.) Monsanto has been quite clear that it can not be interrupted more than
1,000 hours. Thus, Mr. Klein’s proposed net cost is consistently understated on
the odd pages (the pages using 1,000 hours of economic curtailment) of Exhibit
No. 36.
• Mr. Klein’s results reveal how volatile a “snapshot” is, depending on the date the
analysis is performed. For example, looking at page 1 of Exhibit No. 247, the
maximum valuation occurs October 29, 2001 with a valuation of $3,723,394.
Three months later, on January 24, 2002 the valuation for the very same product
drops to $584,089, a decline of 84%. Looking at page 2, the decline is even more
dramatic – falling 93% from the maximum of $2.7 million down to less than
$200,000.
• While Mr. Klein testifies that Exhibit 36 contains “all documentation” of his
valuations, the truth is that his exhibit provides no supporting workpapers or
documentation whatsover – simply a single number is provided for each of his
runs. There is no way for the Commission to ascertain the avoided reservation
fee, avoided energy costs, or gas prices used in each of the runs, similar to the
information he provided to the Commission in earlier runs (Exhibits 14, 27, 29).
MONSANTO’S POST-HEARING BRIEF - 30
• Mr. Klein claims that the economic curtailment valuation must be “modified to
account for Monsanto’s desire for the right to buy-through”. He further testifies
that “Since no physical interruption is involved, the buy-through provision still
requires PacifiCorp to carry the same amount of physical generation to meet its
load obligation.” Mr. Klein is mistaken. The buy-through provision does not
necessitate any obligation on behalf of PacifiCorp as it is a short-term
arrangement whereby PacifiCorp serves Monsanto only if the resource is
available. As Dr. Rosenberg explained, in RAMPP-6, interruptible loads are
treated as short-term purchases, by reason of which there is no need for
PacifiCorp to keep or plan for operating reserves in the event of a buy-through by
Monsanto. (Rosenberg (X), Vol. VI, p. 669, l. 16-p. 670, l. 9.) There is no need
to modify the interruptible valuation because of the buy-through provision. • Mr. Klein admits that the economic curtailment offered by Monsanto is not
available in the market and that there are no counterparties willing to sell this
product. (Klein Reb. P. 7, L. 20-23.) Thus, Monsanto is left with one, and only
one, party to whom it can sell this resource: PacifiCorp. Mr. Klein’s candid
remark in live testimony emphasizes he “is in the business of trying to bring value
back to PacifiCorp.” (Klein (X), Vol. VII, p. 850, l. 3-7), and that PacifiCorp
“would certainly look at it” if “someone is willing to ... basically give that option
away.” Monsanto is clearly not interested in “giving away” its interruptible
resource through a distorted valuation that offers less money for 1,000 hours of
interruption than 500 hours.

In summary, PacifiCorp’s “Black-Sholes” model is clearly unreliable, produces illogical
and volatile results, and should be rejected for the purpose of valuing the five-year interruptible
resource provided by Monsanto.

5.4 BUY-THROUGH INDEX.
PacifiCorp requests that any buy through by Monsanto to keep one furnace operating be
priced at Palo Verde. Mr. Watters admitted Polo Verde is traditionally the most expensive index
in the western grid. (Tr. Vol.III, p. 198) Mr. Watters also admits their proposed Palo Verde
index could in some instances give rise to an arbitrage. (Tr. Vol. II, p.200, 208, l. 4-12) That
would occur by PacifiCorp charging Monsanto at Palo Verde price at times when the power
could be supplied at a lower cost from other market sources or the Company’s own resources.
This would allow PacifiCorp to profit at Monsanto’s expense. Monsanto’s proposed buy-
through at the lowest cost available prevents this inequity, while effectively holding the
Company harmless any time Monsanto may elect to buy through.
MONSANTO’S POST-HEARING BRIEF - 31
5.5 PRINCIPLE OF GRADUALISM.
Considerable, and perhaps excessive, testimony and evidence was presented by both
parties in this case regarding the principle of “gradualism” or avoiding “rate shock”. Monsanto
submits that neither of these principles would come into play in this proceeding if the
Commission accepts Monsanto’s rate proposal. The Commission should consider that simply
retaining the rate of $18.50 will, in fact, result in an increase in Monsanto’s rates. This is
because the 1995 Contract does not provide operating reserve and system curtailments, while
Monsanto’s new proposal will provide both. Given the added interruptibility, the new $18.50
rate results in a rate increase in the range of 5 to 11 percent, compared with the actual net price
Monsanto paid to PacifiCorp the last three years, ranging from $16.61 to $18.24. This range of
rate increase would not violate the principle of gradualism.
Should the Commission choose to reject Monsanto’s cost analysis and price
recommendation, it is appropriate and necessary to consider and apply the principle of
gradualism to avoid rate shock. At the time the 1995 Contract was approved, Monsanto paid
PacifiCorp $30 million for the early termination of the 1992 Contract. The Application of
PacifiCorp for approval of the 1995 Contract, together with PacifiCorp’s supporting Technical
Assessment Paper, clearly stated the payment was compensation for terminating the 1992
Contract. (Exhibit 202, par. 8, 10, 203). Similarly, paragraph 4.1.2 of the 1995 Contract recites
that the payment was for termination of the prior contract. Ratemaking treatment of the payment
was not determined at the time of approval and was reserved for a rate case. (Order No. 26282,
Smith (Dir) p.338, l. 13 – p.16, l.16). By approving the contract the Commission implicitly gave
approval of the payment characterization.
MONSANTO’S POST-HEARING BRIEF - 32
The Company, through witness Taylor, argues the effective rate Monsanto is paying is
$23 per MWH relying solely on a comment made by Monsanto’s attorney Mr. Racine. (Taylor
(Reb), Tr. Vol. III, p. 245, l.16- p. 19, l.13, Exhibit 24) The statement made by Mr. Racine did
not change the payment characterization stated by PacifiCorp and the Commission as discussed
above. The statement was made simply to provide a point that might be considered in finding
reasonable the rate reduction under the 1995 Contract. The Company is yet to seek any
ratemaking treatment of the payment. Had the $30 million payment been a prepayment, as the
Company now argues, there would have been no need to defer its ratemaking treatment, which
the Commission did at the Company’s request. It is significant to note that PacifiCorp’s cost of
service study incorrectly allocated the payment to the system rather than to the Idaho
jurisdiction, which Mr. Taylor admitted was an error. (Taylor (X), Tr. Vol. II, p. 282-286) Since
the Company’s cost study is based on situs treatment of the Monsanto load, the full amount
should have been allocated to the Idaho jurisdiction, thus reducing the revenue requirement.
If rate shock is to be considered, the starting point should not be the Company’s
hypothetical number, and should instead be the rate Monsanto has actually been paying. That
rate was $18.50 from 1995 through 1999, $16.61 in 2000, $17.57 in 2001 and $18.24 through
July of 2002 as a result of the operating reserve purchases. (Schettler (Reb), Tr. Vol. IV, p. 428)
6. JURISDICTIONAL ALLOCATION.
A. PacifiCorp’s Position: The Company proposes that the electric service
agreement be retail load situs to the Idaho jurisdiction, and that the interruptible agreement be
system located. (Griswold (Reb), Tr. Vol. II, p. 41, ll. 13-15, p. 42, l. 12.)
B. Monsanto’s Position: Monsanto asserts that this case presents neither the right
time nor place to address jurisdictional allocation issues. Jurisdictional allocation problems were
MONSANTO’S POST-HEARING BRIEF - 33
well known and expressly assumed by the Company’s stockholders at the time of the 1988 and
1999 mergers. (Smith (Dir), Tr. Vol. IV, p.347, ll. 14-16, Anderson (Dir), Tr. Vol. VI, p. 490 -
493, l. 9, Exhibit 214.) Monsanto has consistently maintained that jurisdictional allocation issues
need not be addressed in this case. This position is also supported by Staff and the Irrigators,
who also assert that allocation issues should be addressed in the Multi-State Process or in a
general rate case. (Schunke (Dir) Tr. Vol. VI, p. 720, l. 13 - p. 721, l. l; Yankel (Dir), Tr. Vol.
VI, p. 750, ll. 1-7.)
7. MISCELLANEOUS OTHER CONTRACT TERMS.
The parties are in disagreement regarding whether certain provisions should be included
or excluded in the new contract. The disputed provisions are discussed as a part of the parties’
positions set forth below. The Commission must decide these disputes. Once this direction has
been provided, Monsanto expects the parties can work out the appropriate language to implement
the Commission’s Decision in the contract. The following summarizes the disputed contract
provisions and the parties positions:
Include
Description PacifiCorp/Monsanto

1. Direct Access Reopener: Would allow either party
to terminate agreement within 90 days of open
access being allowed in Idaho.
(Tr.Vo. VII, p.812, l.17-21) Yes No

2. Cost of Service Reopener: In the event delivered
power charges are not meeting cost of service, PacifiCorp
will automatically re-open and change the rate. No* No
(* PacifiCorp initially requested this reopener, but conceded it could be eliminated in final
live testimony of B. Griswold, Tr. Vol. VII, p.812, l.2 - p.812, l.9)

3. Interruptibility Reopener: Would allow contract reopen
if other Commissions or task force established
interruptibility tariffs. No* No
MONSANTO’S POST-HEARING BRIEF - 34
(*PacifiCorp initially requested this reopener, but conceded it could be eliminated in final
live testimony of B. Griswold, Tr. Vol.VII, p.813, l.10-13.)

4. Annual Price Adjustment: Allowed once-per-year adjustment
to all price components based on change in average Idaho
jurisdictional rate of return. No* No
(*PacifiCorp initially requested this adjustment, but conceded it could be eliminated in final
live testimony of B. Griswold, Tr. Vol. VII, p. 813, l. 5-8.)

5. Significant Changes Reopener: Would allow Monsanto
to reopen to renegotiate price in the event of certain
significant changes, including changes in power generation
and power purchase costs. (Tr.Vol. VII, p.814, l.1-3) No No

6. Favored Nations Clause: Existing contract paragraph 4.1.5
which provides that after three years, if PacifiCorp
enters into an agreement or establishes a tariff with an
interruptible customer upon more favorable terms, the
same offer would be made to Monsanto.
(Tr.Vol.VII, p.813, l.20-23) No Yes

7. Evergreen Clause: Provides that after the termination
date, the contract would annually renew for an
additional one year, unless either party gave one-year
notice of termination. (Note: both parties agree that
the ambiguous language in the 1995 Contract regarding
when the notice can be given should be corrected.) No No

8. New Power Quality Standards: Update existing quality
standards provision to reflect new standards. Yes No*
(*Monsanto is unaware of any problems with power quality standards as addressed in the
1995 Contract. The proposed “New Power Quality Standards Based on Prudent Industry
Practice” requested by PacifiCorp, are unknown, not defined and cannot be evaluated.)
(Tr.Vol.VII, p.816, l.8-10)

9. Safety Issues: Update to address cooperation in operation
for safety issues. Yes No*
(*Monsanto is unaware of any safety issues not fully addressed by the 1995 Contract.)
(Tr.Vol.VII, p.814, l.11-13)

10. All Agreements Subject to IPUC Approval Yes Yes
(Tr.Vol. VII, p.816, l.1-3)

Monsanto objects to the multitude of reopeners requested by PacifiCorp because
they could have the effect of eliminating the price certainty and stability important to
MONSANTO’S POST-HEARING BRIEF - 35
Monsanto. Furthermore, reopeners in effect shift to the customer planning and
operational risks, which should properly be borne by the public utility as a matter of
sound public policy. If utilities are allowed to eliminate risks by shifting them to
customers, their authorized rate of return should similarly be lowered in line with
treasury bill interest rates.
CONCLUSION
Monsanto respectfully requests that the Commission enter an Order requiring
PacifiCorp to provide firm and interruptible power pursuant to a single integrated special
contract. The term of the contract should be not less than five years and terminate no
sooner than December 31, 2007. The Commission should establish a single energy
rate of $18.50 per MWH for service to the Soda Springs facility. In order to retain a
single rolled-in net energy rate of $18.50 per MWH, Monsanto offers interruptions only
to the extent necessary to support and justify this price, up to a maximum of 1000 hours
per year. In the event the terms of interruptibility allow PacifiCorp to interrupt all three
furnaces at the same time, a minimum of two-hours notice should be required and
Monsanto should have a right to “buy-through” the interruption on one furnace at the
lowest cost energy available, plus transmission losses, if purchases from sources other
than the Company are utilized. It should be emphasized that Monsanto does not want
to provide any more interruptibility than is absolutely necessary to support this price.
The Commission should give direction to the parties regarding the other contract terms
in dispute. Finally, the Commission should enter a finding that the recommended
pricing and contract terms are fair, just, reasonable and nondiscriminatory, as a matter
of law.
MONSANTO’S POST-HEARING BRIEF - 36
RESPECTFULLY SUBMITTED this 10th day of October, 2002.
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED

By_________________________________
RANDALL C. BUDGE

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that on this 10th day of October, 2002, I mailed a true
and complete copy of the foregoing document, postage prepaid, to each of the
following:

Jean D. Jewell, Secretary
Idaho Public Utilities Commission
P.O. Box 83720
472 W. Washington Street
Boise, Idaho 83720-0074
Fax: [phone]
E-mail: [e-mail]

John R. Hammond, Jr.
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington Street
Boise, Idaho 83702-5983
E-mail: [e-mail]

John M. Eriksson
Stoel Rives LLP
201 S. Main St., Ste 1100
Salt Lake City, Utah 84111
E-mail: [e-mail]

Mary S. Hobson
Stoel Rives LLP
101 South Capitol Blvd, Suite 1900
Boise, Idaho 83702-5958
E-mail: [e-mail]

MONSANTO’S POST-HEARING BRIEF - 37

Doug Larson
PacifiCorp
201 South Main, Suite 2300
Salt Lake City, Utah 84140-0023
E-mail: [e-mail]

Rick Anderson
Energy Strategies, Inc.
39 Market Street, Suite 200
Salt Lake City, Utah 84101
E-mail: [e-mail]

Alan Rosenberg
Brubaker & Associates, Inc.
P.O. Box 412000
St. Louis, Missouri 63141-2000
E-mail: [e-mail]

James R. Smith
Monsanto Company
P.O. Box 816
Soda Springs, Idaho 83276
E-Mail: [e-mail]

___________________________________
RANDALL C. BUDGE

MONSANTO’S POST-HEARING BRIEF - 38