20070928Smith direct.pdf

Jean Jewell, Secretary
Idaho Public Utilities Commission
472 W. Washington Street
Boise, Idaho 83702
LOUIS 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
JUSTIN R. ELLIS
JOSHUA D. JOHNSON:j:
JONATHON S. BYINGTON
DAVE BAGLEY
CAROL TIPPI VOLYN:j::j:
THOMAS J. BUDGE
CANDICE M. MCHUGH'"
Dear Mrs. Jewel:
LAW OFFICES OF
RACINE OLSON NYE BUDGE Be BAILEY
CHARTERED
BOISE OFFICE
101 SOUTH CAPITOL
BOULEVARD, SUITE 208
BOISE, IDAHO 83702
TELEPHONE, [phone]
FACSIMILE, [phone]
201 EAST CENTER STREET
POST OFFICE BOX 139 I
POCATELLO, IDAHO 83204-1391
TELEPHONE [phone]
FACSIMILE [phone] IDAHO FALLS OFFICE
www.racinelaw.net
477 SHOUP AVENUESUITE 203A
IDAHO FALLS, ID 83402
TELEPHONE' [phone]
FA~,SIMILE' (208) S28-6109
SENDER'S E-MAIL ADDRESS: rcb(1!!racinelaw.net -ALSO MEMBER WY Ik IL BARS
"ALSO MEMBER UT BAR
"-ALSO MEMBER CO BAR
tALSO MEMBER D. C. BAR
ttALSO MEMBER MO BAR,ALSO MEMBER IL BAR
LSO ME~R WA BAR
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September 27 2007
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Re:PA C-
Enclosed please find for filing in the above matter Monsanto s pre-filed Direct Testimony
and Exhibits as follows:
James R. Smith with exhibits 201 through 204.
Daniel R. Schettler with no exhibits.
Kathryn E. Iverson with exhibits 205 through 213.
Michael Gorman with exhibits 214 through 238.
Confidential Exhibit 213 (KEI-9) and Exhibit 217 (MPG-4) and Michael Gorman
Confidential Testimony page 3 , all submitted under seal and filed pursuant to
Protective Agreement between PacifiCorp dba Rocky Mountain Power and IPUC
Staff dated June 26, 2007.
Notice of Service.
September 27, 2007
Page 2
Please file the original Public Testimony and Exhibits. Please maintain the confidential
filings under seal pursuant to the Protective Agreement. Copies of the same included with the
testimony should be provided only to the Commission and those Staff members who have signed
the Protective Agreement. This information is not being served upon any other parties excepting
PacifiCorp/Rocky Mountain Power.
RCB:rr
Enclosures
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Randall C. Budge, ISB No. 1949
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED
O. Box 1391; 201 E. Center
Pocatello, Idaho 83204-1391
Telephone: [phone]
Fax: [phone]
2ulll SEP
28 AN 9: 37
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jP PUBLV"Ii.. I ki)
. ,.,
' vJilfii1ISs
Attorneys for Intervenor Monsanto Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
ROCKY MOUNTAIN POWER FOR APPROVAL)
OF CHANGES TO ITS ELECTRIC SERVICESCHEDULES
Case No- PAC-
MONSANTO COMPANY'S NOTICE OF SERVICE
You will please take notice that MONSANTO COMPANY, by and through their attorneys of
record, served the Direct Testimony and Exhibits of Daniel J. Schettler, James R. Smith, Kathryn E.
Iverson and Michael Gonnan upon the parties to this action by providing said documents to the following
individuals in the manner specified in the attached Certificate of Service below.
DATED this 27th day of September, 2007.
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED
RANDALL C. BUD
NOTICE OF SERVICE - 1
CERTIFICATE OF MAILING
I HEREBY CERTIFY that on this 27th day of September, 2007, I served a true, correct
and complete copy of the foregoing document, to each of the following, via the method so
indicated:
Jean D. Jewell, Secretary (original and 9)
Idaho Public Utilities Commission
O. Box 83720
Boise, ID 83720-0074
E-mail: jjewell~puc.state.id.Overnight Mail
Brian Dickman
Rocky Mountain Power
201 South Main, Suite 2300
Salt Lake City, Utah 84111
brian. di ckman(0pacifi corp. com Overnight Mail
Dean Brockbank
Justin Brown
Rocky Mountain Power
201 South Main, Suite 2300
Salt Lake city, Utah 84111
dean. brockbank(0paci ficorp. com
Justin. brown~pacificorp. com
Overnight Mail
Data Request Response Center
PacifiCorp
825 NE Multnomah, Suite 2000
Portland, Oregon 97232
Fax: [phone]
datarequest(0paci fi corp. com S. Mail
Maurice Brubaker
Katie Iverson
Brubaker & Associates, Inc.
1215 Fern Ridge Parkway, Suite 208
St. Louis, MO 63141
m brubaker(0consu1 tbai. com
ki verson(0consultbai. com
S. Mail
NOTICE OF SERVICE - 2
James R. Smith
Monsanto Company
O. Box 816
Soda Springs, Idaho 83276
iim.r .smith~monsanto .com u.S. Mail
Eric L. Olsen
Racine, Olson, Nye, Budge & Bailey
O. Box 1391
Pocatello, Idaho 83204-1391
elo~racinelaw .net Hand Delivery
Tim Buller
Agrium, Inc.
3010 Conda road
Soda Springs, Idaho 83276
tbuller(2V,agrium.com S. Mail
Conley E. Ward
Michael C. Creamer
Givens Pursley LLP
601 W. Bannock Street
O. Box 2720
Boise, ID 83701-2720
cew (2V,givenspursl ey. com
S. Mail
Dennis E. Peseau, Ph.
Utility Resources, Inc.
1500 Liberty Street S., Ste. 250
Salem, OR 97302
dpeseau~excite.com S. Mail
'~+
RANDALL . BUDGE
NOTICE OF SERVICE - 3
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
REGEl\:
ZOfil SEP 28 At; 9: 49
IN THE MATTER OF THE APPLICATION OF
ROCKY MOUNTAIN POWER FOR APPROVAL)
OF CHANGES TO ITS ELECTRIC SERVICESCHEDULES
Jr'li5i'jO PUBLIC
Case No. PACD1tl~Vrft5:i COMMISS!Oi
TESTIMONY OF
JAMES R. SMITH
Direct Testimony of
JAMES R. SMITH
On Behalf of
Monsanto Company
September 28, 2007
Testimony of James R. Smith - Page 1
II.
III.
IV.
VI.
201
202
203
204
Table of Contents to the
Direct Testimony of James R. Smith
INTRODUCTION
HISTORY AND OPERATIONS OF SODA SPRINGS PLANT
HISTORY OF MONSANTO'S ELECTRICAL CONTRACTS
REVIEW OF MONSANTO'S CURRENT 2007 ELECTRIC
SERVICE CONTRACT
HISTORY OF INTERUPTIONS
ECONOMIC IMP ACTS OF MONSANTO'S SODA SPRINGS PLANT
EXHIBITS
Phosphorus Manufacturing Process
Monsanto Curtailment History
Interruptible Events
Monsanto Rate Change Graph
Testimony of James R. Smith - Page 2
Page
INTRODUCTION
PLEASE STATE YOUR NAME, EMPLOYER AND BUSINESS ADDRESS.
My name is James R. Smith. I am employed by Monsanto Company at the Soda
Springs Plant and my business address is P.O. Box 816, Soda Springs, Idaho
83276.
PLEASE PROVIDE YOUR EDUCATIONAL BACKGROUND, WORK
EXPERIENCE AND CURRENT POSITION AT MONSANTO.
I graduated ITom Utah State University in 1986 with a B.S. in Accounting. I
began working for Monsanto in 1988 as an accountant at the Soda Springs plant
and have continued to work for Monsanto to date in various capacities. I am
currently the Purchasing Lead for the Soda Springs plant and Rock Springs
Wyoming coke plant.
WHAT RESPONSffiILITIES DO YOU HAVE FOR PURCHASING?
I am responsible for all e~ectricity and other purchases at the Soda Springs and
Rock Springs plants. During my employment at Monsanto I have been directly
involved in all electricity contract negotiations and all electrical contracts entered
into between Monsanto and PacifiCorp since 1988. I have also reviewed and
familiar with previous electricity contracts serving the Soda Springs Plant and the
related submissions to the Idaho Public Utilities Commission and approval
Orders.
WHAT IS THE PURPOSE OF YOUR TESTIMONY?
The purpose of my testimony is to: (1) provide a history and information
concerning the operation of Monsanto s Soda Springs Plant; (2) review the
Testimony of James R. Smith - Page 3
history of Monsanto s Special Contracts for Electric Service; (3) discuss the
background and status of the current 2007 Electric Service Agreement; (4) discuss
pricing methods proposed by PacifiCorp and adopted by the Commission in prior
contract approval proceedings; (5) review the history and function of Monsanto
interruptibility; (6) discuss past and present methods of valuing Monsanto
interruptibi1ity; and (7) discuss economic and other impacts of the Monsanto Soda
Springs Plant.
PLEASE INTRODUCE OTHER MONSANTO WITNESSES IN THIS
CASE.
1. Daniel Schettler, Vice President of Procurement for Monsanto, will present
testimony regarding the production, sale and use of phosphorus in the world wide
market, the role and commitments made to the Soda Springs plant and factors
necessary for it to remain a competitive and viable facility. Mr. Schettler will also
present Monsanto s senior management perspective and will discuss operational
and economic factors relating to the 1000 hours of interruption of Monsanto
load.
Kathryn Iverson of Brubaker & Associates, Inc. will critique and make
recommendations regarding PacifiCorp s proposed cost of service studies. Mrs.
Iverson will also present testimony valuing Monsanto interruptibility and will
make pricing recommendations.
3. Michael Gorman of Brubaker & Associates, Inc. will make recommendations
regarding adjustments to the Company s claimed revenue requirement and a fair
return on common equity and overall rate of return for Rocky Mountain Power.
Testimony of James R. Smith - Page 4
HISTORY AND OPERATIONS OF SODA SPRINGS PLANT
PLEASE PROVIDE A BRIEF HISTORY AND OVERVIEW OF THE
OPERATION OF MONSANTO'S SODA SPRINGS PLANT.
The Soda Springs plant began operations in 1952. Since opening it has operated
continuously and without any employee layoffs. The plant produces one product
elemental phosphorus ("P4"), an essential building block for many products.
DESCRIBE HOW PHOSPHORUS IS MANUFACTURED.
Phosphate ore is mined in the mountains east of Soda Springs and transported by
truck to the plant. The phosphate ore is calcined in a kiln and then combined with
coke, much of which is manufactured at our sister plant in Rock Springs
Wyoming, and with quartzite, which we mine from a quarry west of the plant.
The mixture is placed in one of three electric furnaces and energized with
electricity, resulting in a chemical reaction liberating the phosphorus as a gas.
The phosphorus is filtered, condensed and then shipped to other locations.
Exhibit 201 depicts this capital intensive phosphorus manufacturing process.
WHERE IS THE PHOSPHORUS SHIPPED AND HOW IS IT USED?
Most of the phosphorus is shipped by rail and by ship to Monsanto facilities in
Louisiana and Brazil. There it is converted to manufacture glyphosate, the active
ingredient in Roundup~ herbicide. Additional amounts of phosphorus are sold to
other entities for use in a variety of products.
DESCRIBE THE ELECTRICAL SERVICES AT THE SODA SPRINGS
PLANT.
Testimony of James R. Smith - Page 5
Monsanto currently operates three electric furnaces totaling approximately 162
, all at the Soda Springs plant. Furnace No.7 is approximately 46 MW,
Furnace No.8 is approximately 49 MW, and Furnace No.9 is approximately 67
, for a total of 162 MW. With approximately 20 MW of auxiliary load, of
which 9 MW is "firm" the total load is approximately 182 MW.
HOW MUCH ELECTRICITY DOES MONSANTO CONSUME AT THE
SODA SPRINGS PLANT?
Approximately 1.4 billion kWh of energy is consumed annually.are
PacifiCorp s largest single point customer.
ARE THERE OTHER ELECTRIC FURNACES USED
MANUFACTURE PHOSPHORUS?
Not in the United States, Monsanto s first six electric furnaces to manufacture
phosphorus were built and operated in Columbia, Tennessee. That plant closed in
1986 when it became uncompetitive to operate, primarily due to rising electricity
costs. At the Soda Springs plant Monsanto initially constructed Furnace Nos. 7
and 8, which began operating in 1952. Furnace No.9 was constructed and
became operational in 1966 and was the last and largest electric furnace
constructed in North America. At that time there were 31 electric phosphorus
furnaces in operation in North America. With the closure of the FMC-Astaris
Plant in Pocatello in 2001 , Monsanto s three electric furnaces are the only ones
remaining in operation in the U.S. I have pictures of the FMC furnaces being
dismantled in my office to remind me of the importance of remaining
Testimony of James R. Smith - Page 6
competitive.Outside of North America there are furnaces operating in the
Netherlands and in China.
WHAT WERE THE PRINCIPAL FACTORS RESULTING IN THE
CLOSURE OF THE OTHER FURNACES IN NORTH AMERICA?
I am aware of three major factors which contributed to the closures of these other
furnaces. First, the rising cost of electricity, which is the largest single cost
component in the production of phosphorus. Second, competition from new
technology called purified wet acid ("PW A") which competes head-to-head with
many end products produced ttom phosphorus. Third, the elimination of tri-
sodium phosphate ("TSP") from laundry detergent. Mr. Schettler will further
discuss the P4 global market and competition.
ISN'T IT INEVITABLE THAT THE SODA SPRINGS PLANT WILL
ALSO BECOME NON-COMPETITIVE AND BE SHUT DOWN?
I strongly believe that the Soda Springs plant can remain competitive and stay in
business for the long term.Monsanto has developed specific products and
businesses that make our phosphorus more viable and marketable. We have 40
plus years of phosphate ore reserves that can be feasibly mined. We have a highly
educated and trained work force, committed to the successful long-term operation
ofthe plant. We have practices and experience which enable us to produce P4 in
the safest and most environmentally responsible manner in the world. We have
and will continue to make the necessary capital expenditures to modernize the
operations and meet the latest environmental restrictions.
Testimony of James R. Smith - Page 7
WITH RISING ELECTRICITY COSTS, WHAT IS NEEDED FOR THE
MONSANTO SODA SPRINGS PLANT TO REMAIN COMPETITIVE?
In my opinion the plant must have affordable electricity at a price that is relatively
stable and reliable. While Monsanto s demand on the electrical market has been
stable and consistent for many, many years, we are highly concerned about the
costly new assets PacifiCorp is constructing to meet the load growth, and the
demand for "green" resources in other states.To offset these rising costs
allocated to Idaho and Monsanto, Monsanto must be able to achieve
commensurate value for the benefits its interruptibi1ity provides to the system.
This most important consideration was recognized by the Commission in Order
No. 30197 in Case No. PAC-06-09 approving the current Agreement stating at
page 9:
The Commission also recognizes that the value of interruptible
products furnished by Monsanto as well as Monsanto s cost of
service will be important considerations in establishing the net rate
to Monsanto in the future. Consequently, we expect the parties to
address interruptible product valuation in the context of a general
rate case when Monsanto s cost of service is determined.
The interruptible credit should provide Monsanto with a natural hedge
which, if appropriately priced, should provide a level of price stability and
reasonable net power costs. Simply put, as the cost of electricity goes up, so
should the value of the credit derived from the interruption of the Monsanto load.
PLEASE EXPLAIN WHY MONSANTO INTERRUPTIBILITY
UNIQUE?
Testimony of James R. Smith - Page 8
Monsanto is unlike any other interruptible customer on the PacifiCorp system.
The value of Monsanto interruptibility to the PacifiCorp system is unique
because of its magnitude, providing 1000 hours and up to 162 MW of
curtailments. Additionally, Monsanto interruptions can be made available in a
matter of seconds, far quicker than any of PacifiCorp s peaker resources.
will be discussed in greater detail below, under the current Agreement
Monsanto s three furnaces can be interrupted separately as well as collectively in
any combination.Interruptions can occur within seconds to meet system
emergencies and provide operating reserves, even though two hours notice is
required to interrupt for economic reasons. The benefit of these products to the
PacifiCorp system is undisputed, even though the price or credit received by
Monsanto for these curtailment products has and continues to be a matter of
substantial disagreement.
Avoided generation, transmission and environmental costs are all factors
to consider in establishing a proper value for the ability to interrupt the Monsanto
load. It is also noteworthy that Monsanto operates its furnaces seven days a week
24 hours a day, 365 days a year, excepting maintenance and repair. This high
load factor provides significant advantage to the utility during their off-peak
hours, providing a base load to service with its coal generation assets. Monsanto
takes service at transmission levels avoiding the usual distribution and customer
service costs.
HOW HAS MONSANTO'S INTERRUPTmILITY BEEN VALUED IN
THE PAST?
Testimony of James R. Smith - Page 9
There has been no specific methodology established and accepted by the
Commission. How interruptibility has been valued has changed over time.
PLEASE EXPLAIN.
Prior to the 2003 Contract, the parties always reached an agreement through
negotiations establishing the value of interruptibi1ity which was jointly presented
to the Commission and approved. The value established in the 2003 Contract was
established by the Commission in contested case No. PAC-01-, Final Order
No. 29157 dated January 27, 2003. In that case Monsanto had offered up to 1000
hours of interruptibility. Monsanto proposed to value interruptibility based upon
the avoided cost of a combustion turbine (CT) or "peaker plant". The Company
proposed a lost revenue adjustment and recommended a "Black Scholes" pricing
model which values economic curtailment based upon projected market prices.
Monsanto challenged the Black Scholes pricing model, asserting that the results
were illogical. This was because PacifiCorp s pricing model purported to show
that economic interruptions greater than 500 hours provided no more value. In
fact the model showed a negative value, in essence showing Monsanto would
have to pay PacifiCorp for economic curtailment greater than 500 hours. Under
those circumstances Monsanto obviously would not offer more hours of
interruptions and reduced its offer to 500 hours of economic curtailment with a
total of 800 hours.The Commission did not accept either Monsanto s or
PacifiCorp s valuation methods and liI!lited total interruptions to 800 hours
consisting of 500 hours of economic interruptions at 67 MW, 288 hours of
Testimony of James R. Smith - Page 10
operating reserve interruptions at 95 MW and 12 hours of system emergency
interruptions at 162 MW
Regarding Monsanto s peaker proposal the Commission stated at page 12
in Final Order 29157:
The peaking resource methodology used by Monsanto results in a
wide range of credit values that are dependent upon the type of
resource selected, the hours and magnitude of interruption assumed
and the amount of energy consumed annually. While we find
merit in the adjustments included by Monsanto for reserve margin
and transmission losses, we are concerned that the resulting credit
values on based on hours and magnitude of interruption that are
beyond those deemed appropriate by the Commission in this
Order. Moreover, the total peaker costs used by Monsanto
(Exhibit No. 246) is considerably higher than the total peaker costs
used by Staff for the same peaking resource. (Exhibit No. 101)
Therefore, we cannot find the avoided peaker resource to be
the definitive methodology for valuing the interruptibi1ity credit."
In rejecting the Company s proposal the Commission stated on page 11-12:
In assessing the reasonableness of the values produced by the
Company s Black-Scholes model, we note, as pointed out by
Monsanto, that the model purports to provide neither value to
Monsanto nor the Company for the additional or second 500 hours
of economic curtailment offered by Monsanto. Exhibit 244 The
Commission was disappointed that the Company appeared to be
aware of this apparent anomaly yet failed to disclose it to the
parties and the Commission. It also does not help in assessing the
reasonableness of the model that the economic curtailment option
offered by Monsanto was not available in the market and that there
are no counter-parties willing to sell this product. The record, we
find, cannot support a use of the Black Scholes model as a
definitive methodology for valuing the interruptibi1ity credit.
Rather, as in most economic forecasts, it serves only to establish a
point in an estimated range of reasonableness.
Ultimately the Commission exercised judgment in establishing an appropriate
value for interruptibility stating as follows in arriving at the credit value on page
12 of the Order:
Testimony of James R. Smith - Page 11
As noted by Staff witness Schunke and acknowledged by
Monsanto, the '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.' As a result of inconsistencies in both methods used to
derive the value of the interruptibi1ity credit, we find that a credit
value of 7.48 millslkWh representing the mid-point of a range
established by the two methodologies is reasonable. In fact, the
record does not support any finding that is more precise or exact."
The price under the current 2007 Agreement was reached by agreement
negotiated by the parties, submitted to the Commission and approved by the
Commission. As discussed below, the 2007 Agreement for the first time will
have both firm and interruptible rates based on tariff schedules subject to
adjustment in general rate cases. Accordingly, the Commission will again be
required to valuate various mechanisms for establishing Monsanto s interruptible
credit and exercise sound judgment in establishing a net rate to Monsanto in the
future. This was recognized by the Commission when the 2007 Contract was
approved in Case No. PAC-06-, Order No. 30197, where the Commission
stated:
The transition of Monsanto from contract to tariff standard
customer, we find, will facilitate future rate adjustments and
should serve to keep Monsanto s rate better aligned with its cost of
service. We appreciate that in moving to a tariff-based rate
Monsanto has given up some of the certainty provided in a
contract-based rate structure. In doing so , however, we note that
Monsanto was the last ofPacifiCorp s contract customers to make
the transition. While tariff rates may present Monsanto with new
challenges, we perceive the regulatory result to be positive and one
of greater equity. Under the submitted agreement Monsanto
future rates after January 1 , 2008, will be adjusted using the same
process as all other customers.
Testimony of James R. Smith - Page 12
III. HISTORY OF MONSANTO'S ELECTRICAL CONTRACTS
PLEASE PROVIDE A BRIEF HISTORY OF THE ELECTRIC SERVICE
CONTRACTS SUPPLYING THE SODA SPRINGS PLANT.
Monsanto has been a special contract customer of PacifiCorp and its predecessor
Utah Power & Light Company since 1951. The 1951 contract was for a term of
10 years and supplied 54 MW of interruptible and 6 MW of firm power. After
No.9 Furnace became operational, an additional contract was entered into in 1965
to supply an additional 71 MW for 10 years. This contract was also interruptible
for economic and emergency reasons. These contracts continued to be extended
until replaced by a single contract in 1991 which supplied 154 MW interruptible
and 9 MW of firm power. The 1991 contract provided that the power supplied to
Monsanto could be interrupted for both emergency and economic purposes. The
1991 contract was replaced by the 1995 contract providing for 206 MW
interruptible and 9 MW of firm power. This contract allowed Monsanto to be
interrupted for system emergency purposes but not for economic reasons. This is
the first and only contract that did not provide for economic interruptions. The
rates and terms of all special contracts up to this point were arrived at by
agreement negotiated between the parties and approved by the Commission.
After PacifiCorp was acquired by Scottish Power in 1999, the parties were
unable to arrive in agreement by negotiations as in the past. In fact, Monsanto
and PacifiCorp became engaged in litigation in u.s. District Court for the District
of Idaho, Case No. CIV-01-0607-BLW to establish a termination date for the
1995 contract. By reason of the District Court's decision in favor of Monsanto
Testimony of James R. Smith - Page 13
position, affirmed by the Ninth Circuit Court of Appeals, and Commission Order
No. 29918 , December 31 , 2002 was established as the termination date of the
prior 1995 contract The rates and terms of the 2003 Contract were established by
the Commission in Order Nos. 28918, 29157 and 29206 as a result of contested
proceedings in Case No. PAC-01-16.
The 2003 Contract contained unique features which included 800 hours of
interruption options. These consisted 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. As a result of taking both
firm and interruptible service, the overall net rate to Monsanto, after excluding
any economic curtailment buy-through, averaged 22.97 mills per kWh. While the
800 hours of interruption has a negative affect on Monsanto s production and
increases the phosphorus cost per pound, the resulting overall rate enabled
Monsanto s Soda Springs plant to continue to operate competitively.
IV. REVIEW OF MONSANTO'S CURRENT 2007
ELECTRIC SERVICE AGREEMENT
PLEASE DESCRIBE THE CURRENT CONTRACT.
The current contract became effective January 1 , 2007. After Mid-American
Energy Corporation s acquisition of PacifiCorp from Scottish Power closed in
March 2006, the parties entered into a new Electric Service Agreement on May
, 2006 (2007 Agreement) which became effective January 1 , 2007. The 2007
Contract was approved by Commission Order No. 30197 entered December 18
2006, in Case No. PAC-06-09. That case arose out ofPacifiCorp s Application
Testimony of James R. Smith - Page 14
in Case No. P AC-06-04 seeking to revise rates in electric tariff schedules 10
(irrigation), 400 (Monsanto Company) and 401 (Nu-West Industries). As a result
of the stipulations entered into with these three parties, tariff schedules were
revised resulting in a net increase in base rates of $8.25 million (5.1 percent for
retail customers), with rates increasing $6.8 million (16.5 percent for Monsanto),
$150 000 (4 percent for Nu-West), and $1.7 million (5 percent for irrigation).
PLEASE DESCRIBE THE LENGTH OF THE CURRENT 2007
AGREEMENT.
The 2007 Agreement became effective January 1 , 2007, with an initial duration
lasting through December 31 , 2009. The Agreement will automatically renew for
successive one-year terms unless and until either party gives not less than 180
days notice of termination.
PLEASE DESCRIBE THE BASIC TERMS OF THE 2007 AGREEMENT.
The 2007 Agreement contains three significant changes from the 2003
Agreement:
(1) the firm rate was increased 16.5% - $6.8 million;
(2) the hours of interruptions were increased 25%, from 800 hours to
1000 hours;
(3) a new price adjustment mechanism was added with rates based upon
tariff rate changes after January 1 2008.
DID MONSANTO AGREE UPON ANY METHOD TO ESTABLISH THE
V ALUE OF THE INTERRUPTIBILE SERVICE FOR PURPOSES OF THE
2007 CONTRACT?
Testimony of James R. Smith - Page 15
No. While PacifiCorp presented VarIOUS cost-of-service studies and other
methodologies, none were agreed to or accepted. We simply negotiated a net
price which both parties concurred was fair, just and reasonable under the
circumstances. At that time Monsanto (and we thought PacifiCorp) believed that
the new rate increase coupled with the additional hours of interruptions
effectively brought Monsanto to a rate that was fair, just and reasonable, at or near
true cost of service and fairly valuing interruptibi1ity as of January 1 , 2007. Had
that not been the case the parties would not have reached a mutually acceptable
agreement. Otherwise the parties would not have achieved the benefit of their
bargain, or were not negotiating in good faith.
PLEASE DESCRIBE HOW FUTURE PRICE ADJUSTMENTS WILL
OCCUR.
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 are subject to
adjustment resulting from any general rate case or other filing by PacifiCorp after
January 1 2008, effective on the Commission authorized date.
ARE PRICE ADJUSTMENTS MANDATORY UNDER THE CURRENT
AGREEMENT?
No. Like other customers, adjustments to Monsanto s tariff rate schedule are
subject to the exercise of sound discretion by the Commission. However, I
respectfully suggest the Commission resist any urge to change the new contract
rates that just went into effect January 1 2007. By entering into the new contract
Monsanto already just received a substantial increase. Given the new contract
Testimony of James R. Smith - Page 16
its complexity and the increased interruptibi1ity benefits to the system, little or no
increase to Monsanto is appropriate.
IS THIS THE FIRST TIME MONSANTO'S RATES HAVE BEEN
SUBJECT TO TARIFF RATE ADJUSTMENTS?
Yes.
WHY DID MONSANTO AGREE TO CHANGE TO TARIFF BASED
RATES AFTER SOME FIFTY PLUS YEARS AS A SPECIAL CONTRACT
CUSTOMER?
Subjecting Monsanto to tariff rate adjustments after more than fifty years as a
special contract customer represents a substantial departure from all past
contracts. This was a considerable concession made by Monsanto in order to
establish a new and improved business relationship with the new PacifiCorp,
which disliked special contracts and prefers to have all customers on tariff based
rates. More importantly, Monsanto was mindful of the desires of the Commission
Staff and PacifiCorp to align the timing of the Monsanto rate changes with that of
other customers and to overcome perceived problems with cost of service studies
and the allocation of costs and revenues on an inter-jurisdictional basis.
WHAT DID MONSANTO GIVE UP BY MOVING TO TARIFF BASED
RATES?
Monsanto gave up price certainty and stability for a known contract term which it
had enjoyed previously. By moving to tariff based rates, Monsanto has given up
control over the frequency and amount of pricing changes. PacifiCorp now solely
controls when rate changes are filed and the Commission now ultimately controls
Testimony of James R. Smith - Page 17
the amount of price changes. Monsanto has no opportunity to negotiate a tariff
rate, but each time a new rate adjustment case is filed Monsanto must now fully
participate at considerable time and expense to assess, evaluate and try to protect
electricity price changes.
Price certainty and stability remain very important to Monsanto s business
which is very capital intensive and competitive. In recent years Monsanto has
spent and is committed to spend millions of dollars on necessary projects at the
Soda Springs plant. Weare working on permitting a new mine and developing
the infrastructure needed to safely operate it, which takes capital. Without some
stability in knowing what the cost of production will be, or if the operation will be
profitable, it makes committing new capital dollars to the Soda Springs plant very
difficult. Mr. Schettler will discuss this problem as one of Monsanto s senior
level managers.
WHY DID MONSANTO RAISE THE HOURS OF INTERRUPTION
FROM 800 TO 1000 HOURS?
Monsanto reluctantly agreed to raise the hours of interruption from 800 to 1000
hours, a 25 percent increase from the previous 2003 Contract. Both parties
continue to place considerable value on the size, timing and dependability of
Monsanto interruptions. The agreed-upon interruptible credit was a matter
compromise necessary to achieve the agreement both parties strongly sought. The
value agreed upon was not based upon any agreed upon methodology.
Testimony of James R. Smith - Page 18
SINCE THE SCOTTISH POWER MERGER IN 1999 AND CONTINUING
THROUGH THE MID-AMERICAN MERGER IN 2006 HOW HAVE
MONSANTO'S RATES INCREASED AS COMPARED WITH OTHER
IDAHO CUSTOMERS?
Monsanto s rates have gone up significantly and more frequently than other
customers. When PacifiCorp and Scottish Power s merger was approved in Order
No. 28213 issued November 15 , 1999, in Case No. PAC-99-, all customers
except Monsanto received a $6.4 million merger credit allocated among
PacifiCorp s retail customers, $1.6 million per year for the years 2000 through
2003. Next, on June 7 2002, the Commission entered Order No. 29034 in Case
No. PAC-02-1 approving a proposed Settlement Agreement which resulted in a
34% decrease for general service customers, 28.1 % decrease for residential
customers, 28% decrease for irrigation customers, and a maximum of 4% increase
for Schedules 6, 9, 10 and 13. Monsanto, as a Special Contract customer, did not
share in these decreases. Moving forward, on January 1 , 2003 , pursuant to Order
No. 29157 in Case No. PAC-01-, Monsanto s firm rates increased January 1
2003 , 24.1 %, plus Monsanto provided 800 hours of interruptions, while other
customers' rates remained unchanged.
Despite these significant and disproportionate increases to Monsanto
PacifiCorp s current filing proposes to raise Monsanto s firm price another 24.1 %
and net rates 32.9% (increasing the net price of $25.55 per MWH to $33.96 per
MWH) as contrasted with a 10.3% overall price increase for other Idaho
ratepayers. PacifiCorp s filing and news releases indicated Monsanto s rate were
Testimony of James R. Smith - Page 19
proposed to increase 21.4%, which is correct as to firm rates.However, I
calculate that our net rate will increase from $25.55 per MWH to $33.96 per
MWH, or 32.9%.
HAVE YOU PREPARED AN EXHIBIT TO REFLECT RECENT
CHANGES IN MONSANTO'S PRICES AS COMPARED WITH OTHER
CUSTOMERS?
Yes. I have prepared Exhibit 204 to reflect changes in Monsanto s rates since
1995 as compared to the rates of other customers based on information PacifiCorp
has produced in this case in response to discovery requests.Exhibit 204 page 1
is a graph reflecting rate changes since 1995. Page 2 of this exhibit reflects the
changes on a percentage basis.Both are prepared based upon PacifiCorp
response to Monsanto Data Request 7., Exhibit 204 page 3. As can be seen from
Exhibit 204, Monsanto s rates have dramatically and disproportionately increased
since 2003 compared to other customers. If PacifiCorp s proposed increase is
approved, Monsanto s net rates will have increased an incredible 83.57% since
2003.
Quite frankly, I cannot understand or accept how PacifiCorp can now
justify disproportionately increasing Monsanto s firm rates an additional 24.
and net rate an additional 32.9% on the back of the recent increases. This
certainly constitutes rate shock and does not meet the test of fair, just and
reasonable rates under these circumstances.
V. HISTORY OF INTERRUPTIONS
Testimony of James R. Smith - Page 20
HAVE YOU PREPARED AN EXHIBIT REFLECTING THE HISTORY
OF CURT AILMENTS AT THE SODA SPRINGS PLANT?
Yes. Exhibit 202 reflects the Soda Springs plant curtailment history from 1986 to
date. It was prepared by me and is based upon the daily logs maintained by our
operators.
PLEASE DESCRIBE EXHIBIT 202 AND 203.
Exhibit 202 reflects from 1986 through September 24, 2007 date the total annual
curtailments in KWH by type. It also shows by year the total amounts paid by
Monsanto to buy-through curtailments. Exhibit 203 reflects the curtailments by
month and year from 1992 through September 24, 2007.It shows that
curtailments are taken every month of the year, although most are taken in the
summer and winter peak months. While the types and amounts of curtailments
have varied over the years based on the different contracts and PacifiCorp
needs, all of our special contracts since 1952 have contained provisions allowing
PacifiCorp (and its predecessor Utah Power) to interrupt Monsanto s load. As
shown in Exhibit 202 there were no operating reserve or economic curtailments
only under the 1995 contract because their was surplus energy in the market at
that time and PacifiCorp had no need for it.
DO YOU EXPECT P ACIFICORP TO USE ALL OF THE HOURS OF
INTERRUPTIONS AVAILABLE THIS YEAR?
Yes. PacifiCorp representatives have indicated to me that all hours of economic
interruptions will be utilized.
Testimony of James R. Smith - Page 21
HAS P ACIFICORP REQUESTED INTERRUPTIONS IN EXCESS OF
CONTRACTUAL ENTITLEMENTS?
Yes. During energy shortages in 2000, 2001 and 2002, Monsanto entered into
four separate agreements with PacifiCorp providing for additional curtailments.
Additionally on July 25 , 2006 we agreed to shut down additional power to assist
PacifiCorp during an emergency they faced in Utah along the Wasatch Front.
VI. ECONOMIC IMP ACTS OF MONSANTO'
SODA SPRINGS PLANT
YOU BELIEVE THE COMMISSION SHOULD GIVE
CONSIDERATION TO OTHER FACTORS IN ADDITION TO COST OF
SERVICE STUDIES?
Yes. Cost of service studies are certainly important to be considered in setting
rates. However, it is well recognized that cost of service studies are based upon
complex models and assumptions which give rise to results which may not
precise, certain or entirely reliable. For that reason it is my understanding that
this Commission, prior Commissions and even the Idaho Supreme Court have
recognized that cost of service studies are but one of many factors that the
Commission may consider in setting rates.For that reason, I believe it is
appropriate to discuss and make a record of other factors which I believe are
important to consider.
PLEASE DESCRIBE SOME OF THE OTHER FACTORS THAT SHOULD
BE CONSIDERED IN SETTING MONSANTO'S RATES.
Testimony of James R. Smith - Page 22
I believe it is important to consider changes in Monsanto s rates in recent years as
compared with other customers. I also believe it is very important to fully
consider and fairly value the long-term past and future benefits Monsanto
provides to the PacifiCorp system as an interruptible customer. I further believe it
is important to consider the economic benefits Monsanto provides to the region
and the importance of maintaining a solid and consistent base of high-paying jobs.
HOW MANY EMPLOYEES ARE EMPLOYED BY MONSANTO
RELATING TO THE OPERATION OF THE SODA SPRINGS PLANT.
On average, 700 fulltime employees are employed in the operation of the Soda
Springs plant. Of these, an average of 380 are direct fulltime employees of
Monsanto. The remaining are fulltime employees of our mining subcontractor
and other subcontractors, as well as additional part-time and seasonal employees
of Monsanto. There have been no significant changes in these employment
numbers over the past 30 years.
WHERE DO THE FULL TIME EMPLOYEES RESIDE?
The breakdown by county is as follows: Caribou - 426, Bannock - 111 , Bear
Lake- 88, Franklin-, and other- 56.
WHAT WAS MONSANTO'S TOTAL PAYROLL FOR YEAR 2006?
The payroll and benefits for all Monsanto fulltime, part-time and seasonal
employees in 2006 was $29.4 million dollars. This does not include payroll
overhead or amounts paid to employees of subcontractors. The average wage rate
for our employees is $24.60 per hour and our average salary $74 252 per year.
Testimony of James R. Smith - Page 23
This is significantly higher than the average of non-industrial wages paid locally
and in the region.
WHY DO THESE JOBS PAY MORE THAN THE AVERAGE JOB IN THE
REGION?
Monsanto jobs require a high level of training and/or education. Our employees
consist of highly-skilled and trained technicians, journeymen and professionals.
Monsanto s salary jobs are made up of engineers, geologists, safety specialists
accountants and other professionals. Simply put, Monsanto pays market wages in
order to attract the type and quality of workers needed to successfully operate the
Soda Springs facility.
DOES MONSANTO MAKE OTHER FINANCIAL CONTRIBUTIONS TO
BENEFIT THE LOCAL ECONOMY?
Yes. In 2006 Monsanto paid $85.6 million to approximately 400 vendors who
provide material and services to Monsanto. Economists typically use a multiplier
to indicate the indirect economic effects of a business. These indirect effects arise
because payments made to the company s workers and vendors increase the
community's overall income. For example, when workers receive their wages
they use. this income to buy goods or services from others businesses in the local
and regional economy. This income is used to pay employees and purchase goods
and services from other businesses, and in turn they spend this money on goods
and services, and the moneys ripple through the economy. I have seen estimates
that this may occur from 2 to 6 times before the moneys flow out of the local
economy. Using these multipliers, the impact to the local Idaho economy from
Testimony of James R. Smith - Page 24
Monsanto wages, salaries, and payment to vendors which totals approximately
$115 million per year, would produce a range of Idaho economic impact of
somewhere between $230 million and $690 million annually.
WHAT OTHER WAYS DOES MONSANTO'S SODA SPRINGS
OPERATIONS IMP ACT THE LOCAL ECONOMY?
Monsanto pays local property taxes, state mine license tax and federal mineral
royalties as well and other state and local taxes, fees and licenses, which are
important to running and maintaining local, state and federal governments and
programs benefiting all citizens. In addition, Monsanto actively encourages its
employees to be civically and politically active in the community. You will find
Monsanto employees actively involved in local and state government, and in
almost all philanthropic activities in the region.
DOES MONSANTO CONTRIBUTE THESE LOCAL
PHILANTHROPIC EFFORTS?
Monsanto s Soda Springs plant will donate approximately $100 000 to local
philanthropic efforts, with which many Monsanto employees are actively
involved. These donations are in addition to our corporate philanthropic efforts.
Monsanto matches, dollar for dollar, all employee donations to non-profit
philanthropic organizations. Monsanto also routinely donates other items; 28
laptop computers to the local school districts, corn seed to the local Pheasants
Forever Club for a habitat program, and chain link fencing used by the Caribou
County fair board to improve the fair grounds.
Testimony of James R. Smith - Page 25
ARE MONSANTO'S IMPACTS OF PARTICULAR IMPORTANCE TO
THE LOCAL ECONOMY?
Monsanto and Agrium s plants are absolutely the single most important factor in
the local economy. The last census indicated that 70% of the non-farm wages in
the area were paid to 30% of the local work force working in phosphate related
mining and manufacturing jobs. This is significant and shows just how important
this industry is to the area.
IS THE REGION ENJOYING THE SAME STRONG ECONOMIC AND
POPULATION GROWTH OCCURING ESLEWHERE IN IDAHO?
, for the past several years Caribou and Bear Lake Counties have lost jobs.
School student enrollments have significantly declined.This is largely
attributable to the loss of industrial jobs in the area. Plant closures in recent years
include Kerr-McGee, Chemical Lime, and Astaris s purified wet acid plants.
Additionally, a number of mining jobs were lost when the FMC plant, and wet
acid plants were closed. Several businesses have had work force reductions
including J.R. Simp10t, Union Pacific and the local school districts. As these
reductions occur, Monsanto s and Agrium s presence becomes even more
important to the area.
HOW DOES THE COMMUNITY FEEL ABOUT MONSANTO?
A study by Adams Research in 1997 concluded that Monsanto s Soda Springs
plant had the highest level of respect and trust from the residents of the local cities
and counties of any business in any other location, and in fact had received the
highest support they have ever encountered for an industry. Monsanto is also an
Testimony of James R. Smith - Page 26
OSHA STAR facility the highest award OSHA provides for safety. In addition
Monsanto has been awarded numerous awards for its mining and reclamation
efforts. These awards show Monsanto s commitment to earn the right to operate
each and everyday, by being a safe place to work, and a responsible citizen and
neighbor.
HAS THE SIZE AND DISPROPORTIONATELY LARGE AMOUNT OF
THE REQUESTED INCREASES FOR MONSANTO CAUSED
CONCERNS WITH SUPPLIERS AND IN THE COMMUNITY?
Not surprisingly we have received numerous inquiries from our suppliers, local
government leaders and others in the community about Monsanto s future
viability if the proposed large and disproportionate increase for Monsanto went
into effect on the back of the recent substantial increase January 1 , 2007. The
local paper, the Caribou County Sun, has published a number of articles providing
facts, figures and other detailed information about the PacifiCorp filing. While
this has provided information and has been helpful to inform and educate the
public, it has also created "rumors" about the plant's future that we have had to
deal with. Local leaders have requested briefings which we have responded to.
DOES MONSANTO'S SODA SPRINGS PLANT PROVIDE BENEFIT
OUTSIDE OF IDAHO
Yes, in two specific ways. First, through the interruption of our e1ectrica110ad the
operating reserve" and "system emergency" interruptibility provides e1ectricd
system reliability and stability to people and business of all western states, and the
economic interruptibility reduces the need for high cost peaking resources. This
Testimony of James R. Smith - Page 27
reduces cost and eliminates the need to burn fuels, which provides a benefit to the
environment.Second, the Monsanto s Soda Springs plant has significant
expenditures elsewhere, both nationally and globally, including 2006 expenditures
of $8.million with Colorado Businesses, $7.million with California
businesses, $6.8 million with Wyoming businesses, and 5.6 million with Utah
businesses.
DOES THIS CONCLUDE YOUR TESTIMONY?
Yes.
Testimony of James R. Smith - Page 28
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98
.
4
3/0
3

&

4
/
0
4
6/
0
4
3/
3
1
/
2
0
0
3
RM
A

3
r
d

Y
e
a
r
,
P
o
w
e
r

Co
s
U
Ba
s
e
91
.
96
.
74
.
76
.
98
.
4
Ja
n

2
0
0
4
17
2
.
12
/
0
4
1/
0
5
3/
3
1
/
2
0
0
4
BP
A

R
e
d
u
c
t
i
o
n
Ba
s
e
91
.
96
.
74
.
76
.
98
.
4
Ja
n

2
0
0
5
17
7
,
1/
0
5
9/
0
5
3/
3
1
/
2
0
0
4
GR
C
Ba
s
e
95
.
10
1
.
8
78
.
79
.
10
2
.
06
/
0
6
1/
0
7
9/
3
0
/
2
0
0
5
Ra
t
e

C
h
a
n
g
e

f
o
r

I
r
r
g
.

a
n
d

S
p
c
l

C
o
n
t
r
.

-
Ba
s
e
97
.
10
1
.
78
.
79
.
10
8
.
Ja
n

2
0
0
7
18
9
.
08
/
0
6
2/
0
7
9/
3
0
/
2
0
0
5
BP
A
Ba
s
e
97
.
10
1
.
78
.
79
.
10
8
.
6/
0
7
12
/
3
1
/
2
0
0
6
Pr
o
p
o
s
e
d

G
R
C
Ba
s
e
10
1
.
10
8
.
78
.
79
.
11
5
.
No
t
e
:

T
o

c
a
l
c
u
l
a
t
e

t
h
e

p
e
r
c
e
n
t
a
g
e

b
e
t
w
e
e
n

t
w
o

y
e
a
r
s
,
d
i
v
i
d
e

t
h
e

l
a
s
t

i
n
d
e
x

f
o
r

t
h
e

s
e
c
o
n
d

y
e
a
r

b
y

t
h
e

l
a
s
t

i
n
d
e
x

o
f

t
h
e

p
r
e
c
e
d
i
n
g

y
e
a
r

a
n
d

s
u
b
t
r
a
c
t

1
.
So
u
r
c
e
:

B
u
r
e
a
u

o
f

L
a
b
o
r

a
n
d

S
t
a
t
i
s
t
i
c
s
,
C
P
I

-

A
l
l

U
r
b
a
n

C
o
n
s
u
m
e
r
s
. W
e
s
t

R
e
g
i
o
n