20070821Monsanto comments.pdf

LAW OFFICES OF
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. ALEXANDER
LANE V. ERICKSON
PATRICK N. GEORGE
SCOTT J. SMITH
STEPHEN J. MUHONEN
BRENT L WHITING
JUSTIN R. ELLIS
JOSHUA D. JOHNSON
JONATHON S. BYINGTON
DAVE BAGLEY
CAROL TIPPI VOLYN
THOMAS J. BUDGE
CANDICE M. MCHUGH
RACINE OLSON NYE BUDGE Be BAILEY
CHARTERED
201 EAST CENTER STREET
POST OFFICE BOX 1391
POCATELLO, IDAHO 83204-1391
TELEPHONE [phone]
FACSIMI LE [phone]
www.racinelaw.net
SENDER'S E-MAIL ADDRESS: rcbiQJracinelaw.net
August 20, 2007
Jean M. Jewell
Commission Secretary
Idaho Public Utilities Commission
472 W. Washington Street
Boise, Idaho 83702
(Overnight MaillUPS)
Re:PacifiCorp dba Rocky Mountain Power 2007 IRP
Case No. PAC-07-
Dear Mrs. Jewell:
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BOISE OFFICE
101 SOUTH CAPITOL
BOULEVARD. SUITE 208
BOISE. IDAHO 83702TELEPHONE' (208) 395.001 I
FACSIMILE, [phone]
IDAHO FALLS OFFICE
477 SHOUP AVENUE
SUITE 203A
IDAHO FALLS, IC 83402
TELEPHONE, [phone]
FACSIMILE, [phone]
COEUR D'ALENE OFFICE
250 NORTHWEST
BOULEVARD. SUITE 108A
COEUR C'ALENE. ID 83814
TELEPHONE: [phone]
ALL OFFICES TOLL FREE(877) 232-8101
LOUIS F. RACINE (1917-2005)
WILLIAM D. OLSON. OF COUNSEL
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Enclosed for filing please find the original and eight copies of Comments of Monsanto
Company.
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Enclosurescc: Brian Dickman, PacifiCorp
James R. Smith, Monsanto Company
Gary R. Kajander, Monsanto Company
BEFORE THE IDAHO PUBLIC UTILITY COMMISSION
IN THE MATTER OF THE FILING BY
PACIFICORP DBA ROCKY MOUNTAIN )
POWER OF ITS 2007 INTEGRATED
RESOURCE PLAN (IRP)
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Case No. PAC-07-
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COMMENTS OF MONSANTO COMPANY
Monsanto Company ("Monsanto appreciates the opportunity to provide
comments to the Idaho Public Utilities Commission ("Commission ) on the PacifiCorp
2007 Integrated Resource Plan ("Plan" or "IRP"). These Comments are submitted in
response to Order No. 30362 authorizing interested persons to submit written comments
no later than August 21 , 2007.
Monsanto recognizes that utility planning in the current market environment is a
difficult task and requires a significant commitment of time and resources. To that end
we believe that PacifiCorp has fulfilled its responsibility to provide a planning document
that can serve as a framework for PacifiCorp s planning decisions as well as discussion
and debate among the various parties affected by the utility's future behavior.
Resource planning and decisions is critically important to ratepayers, yet must
remain the responsibility and risk of the Company. Furthermore, to protect ratepayers
investment decisions and the resulting resource acquisitions must continue to be subject
to full scrutiny and prudency review and acceptance in the normal regulatory process
the past the Commission has accepted the Company s IRP filings without approval or
endorsement. For example, in Case No. P AC-05-, the Commission s Acceptance
Filing dated August 26, 2005" states:
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Our acceptance of the 2004 IRP should not be interpreted as an
endorsement of any particular element of the Plan, nor does it constitute
approval of any resource acquisition contained in the plan.
Monsanto encourages the Commission to continue to follow the process and
practice of accepting IRP filings without approval or endorsement.Similarly,
Monsanto s Comments set forth below addressing certain aspects of PacifiCorp s Plan
should not be construed as approval or endorsement of any aspects of the Plan by
Monsanto, nor construed to waive Monsanto s right to challenge the Company s resource
acquisition decisions in an appropriate proceeding where their acceptance and rate base
inclusion is sought. Monsanto does have considerable concern about various aspects
the Plan which are highlighted below.
Our concerns begin with the review process the Plan receives in Idaho. Monsanto
believes the IRP plan to be of substantial concern to all ratepayers within the State and to
the Commission as well. PacifiCorp has incorporated its IRP results into key inputs into
its filing for new rate adjustments. Accordingly, the IRP itself serves not only as a
framing document outlining future resource needs, but in turn, becomes a supporting
document for capital investments PacifiCorp undertakes. This is a relatively new level
importance given to the IRP results and this increased importance, Monsanto believes
may be not be balanced by the current level of review afforded the Plan. Monsanto
would hope that all ratepayers and advocacy groups become more involved in a detail
review of the plan
Monsanto is also concerned that the capital projects resulting from the Plan do not
reflect all states' interest equally. It is our belief that the Plan is highly influenced by
those parties in the States of Oregon and Utah that participate in those states' respective
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reVIew processes. Perhaps this is to be expected given the market size of those two states
within the PacifiCorp system. However, the costs incurred for those projects that are
promoted by those states are ultimately borne by ratepayers in all states.A more
balanced and inclusive Plan that reflects the interest of all six states in the PacifiCorp
system we believe should be a fundamental characteristic of each Plan.
From a general perspective, Monsanto is very concerned about the increasing
competitive pressures within the global economy. In today s world market place, it is
particularly critical that the cost of production be managed in the most aggressive manner
otherwise a competitive advantage will be awarded to others. This is particularly true
within the realm of manufacturing since the location of a manufacturing plant will, to a
large degree, reflect the relative cost of necessary inputs at that location. It is also true
that in most manufacturing energy cost is often a critical component of the overall cost
production. Failure to control energy cost will often lead to a loss of competitive
advantage and thus threaten the economic viability of the plant itself. For this reason
future energy costs to the manufacture sector of the Idaho economy must be carefully
guarded. The negative impacts to Idaho manufacturers due to increasing energy costs can
and will be very harmful. Sustaining economic viability and retaining high-paying
manufacturing jobs within the Idaho economy is unlikely under a scenario characterized
by unstable and rapidly escalating energy costs.
Because future energy cost are so critical Monsanto urges the Commission to
carefully weigh the impact of increasing energy cost to the Idaho economy.
recognize that in today s environment a number of complex issues influence a utility'
future plans. Risk and uncertainty are clearly present and must be addressed. The
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modeling effort the Company has employed appears to have included market, technology
and environmental risks as mitigating factors that influence the preferred generation
portfolios the Company seeks to develop. We believe to that list must be added the risk
of negative economic impact. It is a critical and major risk that seems to have not been
addressed in any of the PacifiCorp planning models and documents.As a result, the
balancing of this risk against others remains incomplete.In fact, given its lack of
recognition, the modeling effort implicitly assumes a zero value for the risk of negative
economic impacts. This lack of recognition and failure to account for such a critical risk
negates, in Monsanto s opinion, any recommendations the Plan currently advocates.
Beyond the failure to adequately address the economic impacts on the Idaho
economy, Monsanto also offers the following comments in regard to the Plan:
1) Increased reliance on demand side reductions as a way to cost-effectively reduce
the need for expensive new power supplies should be mandated. Demand
reduction alternatives should be given preference in the selection process as they
support broader economic objectives and are better suited to meet the current
environmental agenda. Payments to demand response providers should be based
on fuel, capacity and lost opportunity costs as an incentive. Interruptible contracts
that provide the Company with critical resources at peak demand are a vital part
of a cost-effective resource portfolio. Accordingly, these type resources should
be aggressively pursued.
2) Avoid the development of new gas-fired generation sources. Modeling of the
gas-fired generation sources should include recognition of not only the volatility
ofthe natural gas market (price risk) but also the increasing supply risk associated
with tightening of regional supplies. We were surprised to see that the modeling
of the natural gas market in the western states does not even address the
development of new transportation lines that will carry western gas to mid-west
and east coast markets. This structural change, due to be in place as early as
2009 , will greatly alter the natural gas market in the Rocky Mountain region.
Those working in the natural gas industry expect substantial upward pressure on
the price of Rocky Mountain gas as early as 2008 in anticipation of the expanded
transmission service to the Midwest. Forward prices curves employed by the
Company in the IRP appear not to have captured such an event, thus calling in
question the reliance ofthe Company s projected future cost of fuel.
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Coupled to this structural change in the transportation delivery system is the
increasing reliance on natural gas as a generation fuel source in other western
regional markets. New state mandated environmental regulations in California
and Washington (and pending in Oregon) will not only increase the demand for
renewable development but will also likely have a spillover increase in the
demand for gas-fired (CCCT) generation. The Company in their modeling effort
has chosen to address the future gas market simply by reliance on forward price
curves reflecting NYMEX (Henry Hub) values. Regional demand and regional
gas market structural changes are ignored. Recommended gas-fired generation
development must be made to correspond to verifiable increases in competitively
priced supplies of natural gas attainable within the western region.
We remain unconvinced that this increase in the demand for natural gas produced
in the western region can be offset by the import of LNG. The ability of LNG
offset either declining production or expansion in demand for western gas is
highly uncertain. Gas industry experts have advocated that LNG imports into the
west will, at best, simply replace the amount of declining imports from Canada.
Additionally, the LNG market is to be a global market, with competition for the
fuel virtually coming from most industrialized countries of the world. This will
surely increase the price risk associated with dependence on such a commodity.
One only needs to look at Italy, who recently was paying $20 MMBtu for LNG
imports.
3) Lastly, we believe that the gas price modeling undertaken within the IRP fails to
fully account for the volatility of this market. In the recent past, the natural gas
market has experienced volatility as much as 70 %. The modeling of natural gas
prices conducted by the Company does not account for this extreme amount
volatility, thus it fails to account properly for the total price risk associated with
this commodity.
4) Monsanto supports the development of environmentally-responsible coal-fired
generation. PacifiCorp should take a leadership role in the development of IGCC
and other appropriate technologies that will provide an expanded option to
employ our vast source of coal in the western states. We recognize that there
exists considerable technology risk in this type development. However, given the
availability of the supply of the resource juxtaposed to that of natural gas, we feel
that the risk of clean coal technology is likely much less risky than continued
development of gas-fired generation.
5) Monsanto supports an aggressive investigation into the application of nuclear
power within the PacifiCorp system. While the Plan did not pursue such an
investigation, we believe the development of nuclear power should be reviewed
within the same modeling of generation options as those currently contained
within the Company s Plan.
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6) Monsanto is concerned with the increased reliance on Front Office Transactions
(FOTs) as a source of firm resources. The volatility of the wholesale market is
well known. Increased reliance on FOTs will entail additional market risk.
feel that the Company has failed to demonstrate that this proposed increase in
FOTs is a cost effective alternative to increased reliance on more cost-effective
regional generation resources.
7) Monsanto supports PacifiCorp taking a leadership role in reducing environmental
emissions. However, emission reductions must be balanced against the other
components embedded within the Company s energy plan. This would include
the economic impact to industrial customers in Idaho and the overall impact to the
Idaho economy. As mentioned above, it is our concern that the balance of all the
components of a fully developed energy plan has not been addressed in the
current Plan. We recommend that a more complete assessment and measure
such tradeoffs be undertaken prior to the acknowledgement or acceptance of any
proposed generation portfolio resulting from the Company s modeling efforts.
Again, Monsanto appreciate the opportunity to comment on PacifiCorp s 2007 Draft IRP
and its potential impacts on Idaho manufacturers.
Respectively Submitted.this 20th day
of August, 2007.
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED
Attorney for Monsanto
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 20th day of August, 2007 , I served a true and
correct copy of the foregoing document, in the manner indicated, on each of the
following:
Commission Secretary (Overnight Mail)
Idaho Public Utilities Commission
472 W. Washington Street
Boise, Idaho 83702-5983
PacifiCorp dba Rocky Mountain Power (U.S. Mail)
c/o Brian Dickman
Idaho Regulatory Affairs Manager
201 S. Main Street, Suite 2300
Salt Lake City, Utah 84111
James R. Smith
Monsanto Company
O. Box 816
Soda Springs, Idaho 83276
Gary R. Kajander
Monsanto Company
800 N. Lindburgh Blvd.
St. Louis, Missouri 63167
RANDALL C. BUDGE
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