20101101Revised Testimony Cover Letter.pdf

W. MARCUS W. NVE .
RANDAl.l. C. BUDGE
JOHN A. BAll.EY, JR.
JOHN R. GOODEl.l.
JOHN B. INGEl.STROM
DANIEL. C. GREEN
BRENT O. ROCHE
KIRK B. HADl.EV
FRED J. l.EWIS
MITCHEl.l. W. BROWN
ERIC l.. Ol.SEN
CONRAD J. AIKEN
RICHARD A. HEARN, M.D.
DAVID E. Al.EXANDER
l.ANE V. ERICKSON
PATRICK N. GEORGE
SCOTT J. SMITH
STEPHEN J. MUHONEN
BRENT l.. WHITING
JUSTIN R. El.l.lS
JOSHUA D. JOHNSON
JONATHON S. BVINGTON
DAVE BAGl.EV
CAROL. TIPPI VOl.VN
THOMAS J. BUDGE
C..NDICE M. MCHUCH
JONATHON M. YOLYN
M"RK A. SH......ER
JASON E. FLAIG
FERRELL S. RY"N
l.AW OFFICES OF
RACINE OLSON NYE BUDGE Be BAILEY
CHARTERED
101 SOUTH CAPITOL BOULEVARD
SUITE 208
BOISE, IDAHO 83702
TEl.EPHONE [phone]
FACSIMll.E [phone]
WWW.RACINEl.AW.NET
SENDER'S E-MAIL. ADDRESS:
ELO(gRACINELAW.NET
October 28,2010
Jean D. Jewell
Commission Secretar
Idaho Public Utilties Commission
472 W. Washington
Boise,ID 83702
Re: Case No. PAC-E-10-7
Dear Ms. Jewell:
POCAT!LLO OFFICE
201 EAST CENTER STREET
POST OFFICE BOX 1 391
POCATEl.l.O, IDAHO 83204
TEl.EPHONE: [phone]FACSIMll.E: [phone]
IDAHO FALLS OFFICE
477 SHOUP AVENUE
SUITE 203A
IDAHO FAl.l.S, 1083402
TEl.EPHONE: (208) 1528-6101
FACSIMll.E: (208) 1528-6109
ÇQEUR p'ALENE OFFICE
2150 NORTHWEST
BOULEV"RD, SUITE 106A
COEUR D'ALENE, IDAHO 83814
TELEI'HONE: (208) 7615-6888
ALL OFFICI. TOLL FRIl
[phone]
l.OUIS F. R"CINE (1917-2005)
WILLIAM D. OLSON, 01'
COUNSEL
I"=.-.=zo..
I
.-
,......)::xeoco
In compliance with the Commission's October 22,2010 Order No. 32098, please find
enclosed for filing an original and nine copies of the following fied on behalf of Monsanto
Company:
1. Witness List and Exhibit List of Intervenor Monsanto Company.
2. Sumar of Testimony.
3. Direct Testimony of James R. Smith, Mark Widmer, Kath E. Iverson and
Brian Collns.
4. Confidential Direct Testimony of Mark Widmer.
5. Exhibit Nos. 229,230 and 231 (KEI).
Also enclosed is a CD containing an electronic copy of these new filings.
These new fiings replace the same prior filings made October 14,2010 which should be
removed from the fie and website. The Confidential Direct Testimony of Mark Widmer
provided on yellow paper contains pages 27 and 31 from his Direct Testimony containing
information based upon company data responses marked "Confidential". As such, this
Confidential Testimony should be fied under seal and not posted on the website.
Jean Jewell
October 28, 20 i 0
Page 2
The testimony of Monsanto witnesses Kevin Lawrence, Dennis Peseau and Michael
Gorman is unchanged and wil remain as previously fied. All Monsanto exhibits wil remain as
previously filed, except for Exhibit Nos. 232 (BCC-l) and 233 (BCC-2) which may be removed
from the record.
Than you for your assistance.
Sincerely,
RCB:rr
Enclosures
c: Service List
/c~
Randall C. Budge, ISB No. 1949
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED
P.O. Box 1391; 201 E. Center
Pocatello, Idaho 83204-1391
Telephone: [phone]
Fax: [phone]
rcb(fracinelaw.net
ZOWNOV -I AH in: 00
Attorneys for Intervenor Monsanto Company
BEFORE TH IDAHO PUBLIC UTILITIES COMMSSION
IN THE MATTER OF THE APPLICATION OF )
ROCKY MOUNTAIN POWER FOR APPROVAL)
OF CHANGES TO ITS ELECTRIC SERVICE )
SCHEDULES AND A PRICE INCREASE OF )
$27.7 MILLION, OR APPROXIMATELY )13.7 PERCENT )
)
Case No. PAC-E-IO-07
DIRCT TESTIONY AND EXHITS OF
INTERVENOR MONSANTO COMPAN
Submitted November 1,2010
-1
1. Kevin P. Lawrence
2. James R. Smith
3. Michael Gorman
4. Dennis Peseau
5. Mark Widmer
6. Kathr E. Iverson
7. Brian Collns
Exhibit No. 201 (JRS-l)
Exhibit No. 202 (MPG-l)
Exhibit No. 203 (MPG-2)
Exhibit No. 204 (MPG-3)
Exhibit No. 205 (MPG-4)
Exhibit No. 206 (MPG-5)
Exhibit No. 207 (MPG-6)
Exhibit No. 208 (MPG-7)
Exhibit No. 209 (MPG-8)
Exhibit No. 210 (MPG-9)
Exhibit No. 211 (MPG-I0)
Exhibit No. 212 (MPG-ll)
Exhibit No. 213 (MPG-12)
Exhibit No. 214 (MPG-13)
Exhibit No. 215 (MPG-14)
Exhibit No. 216 (MPG-15)
Exhibit No. 217 (MPG-16)
Exhibit No. 218 (MPG-17)
Exhibit No. 219 (MPG-18)
Exhibit No. 220 (MPG-19)
Exhibit No. 221 (DEP-l)
Exhibit No. 222 (DEP-2)
Exhibit No. 223 (DEP-3)
Exhibit No. 224 (DEP-4)
Exhibit No. 225 (DEP-5)
Exhibit No. 226 (DEP-6)
Exhibit No. 227 (DEP-7)
Exhbit No. 228 (MW -1)
- 2
MONSANTO WITNSS LIST:RECE
2Bm NOV -I AM 10: no
MONSANO EXHIT LIST:
Schematic-Phosphorus Manufacturing Process
Rate of Retur
Proxy Group
Growth Rates
Constat Growt DCF Model
Electricity Sales Are Linked to U.S. Economic Growth
Proxy Group Payout Ratios
Sustainable Growth Rates
Sustainable Constant Growth DCF Model
Multi-Stage Growth DCF Model
Electric Utility Market/ook Ratio
Electric Equity Risk Premium - Treasur Bond
Electric Equity Risk Premium - Utilty Bond
Utilty Bond Yield Spreads
Utility and Treasur Bond Yields
Value Line Beta
CAPMRetur
Standard & Poor's Credit Metrcs
Adju;sted Hadaway DCF
Accuracy ofInterest Rate Forecasts
PacifiCorp's Website Description of Proposed Energy Gateway
PacifiCorp's Website Description of Proposed Gateway West
PacifiCorp's Website Description of Proposed Gateway South
Page 6 and 7 ofIdaho MEHC Acquisition Order No. 29973
Comparative Investment per Mile Costs of Gateway Central and
Energy Gateway
Map of Western U.S. Competing Transmission Lines
Copy ofPacifiCorp's Response to Monsanto Data Request 4.5
Qualifications of Mark T. Widmer
Exhibit No. 229 (KEI-l)
Exhibit No. 230 (KEI-2)
Exhibit No. 231 (KEI-3)
-3
History of Monsanto Increases and Average Costs Since 2003
Contract
Idaho Results with Monsanto Adjustments to Revenue
Requirements
Sumar of Idaho Class Cost of Service Study with Monsanto
Adjustments to Revenue Requirements
MONSANTO COMPANY
SUMMARY OF TESTIMONY
PAC-E-l0-7
CEl\/ ()
iamrmv -f AM 10: 0 I
October 14, 2010
Monsanto Company provides this summary of its testimony and exhibits filed in
opposition to the general rate increases requested in the Application of Rocky Mountain Power,
Division of PacifiCorp. Copies of Monsanto's filing are available on line on the Idaho Public
Utilties Commission website at www.puc.idaho.gov; click on "Electric" and then select "Open
Electric Cases" and then select "PAC-E-10-07".
KEVIN P. LAWRENCE
Vice President, Procurement, Engineering and Supply Chain, Monsanto Company, St. Louis
Kevin P. Lawrence, executive for the Monsanto Company headquartered in St. Louis,
Missouri submitted direct testimony in the current Rocky Mountain Power rate case in Boise on
Thursday, October 14th.
Monsanto has a key elemental phosphorus production facility located in Soda Springs,
Idaho which is served by Rocky Mountain Power. The Soda Springs plant is the largest single
connection point in the six state franchised territory served by the parent company, Pacificorp.
Mr. Lawrence testified that electricity is the single largest cost component in the
production of elemental phosphorus which is out of Monsanto's direct control. Elemental
phosphorus is a key component in the production of Round Up herbicide, a flagship product for
Monsanto, which is sold to farmers around the world.
He stated that the new multi-bilion dollar transmission and renewable investments
proposed by Rocky Mountain Power in this case are currently unnecessary to serve the
customers in the State of Idaho.
Mr. Lawrence highlighted the business pressures that Monsanto has experienced in the
past two years as a result of the competitive pressures by the Chinese as they restructured their
elemental phosphorus industry and ultimately flooded the market with very low cost generic
glyphosate. Monsanto's sales and earnings reports have documented dramatic declines as they
attempt to reposition Round Up and recover the lost farmer demand. The bottom line for
Monsanto is that they cannot absorb any additional costs which their competition is not also
experiencing. They must offer a competitive product to their customers.
Monsanto Company Summary of Testimony/PAC-E-IO-07 - Page 1
In closing, Mr. Lawrence indicated that Monsanto is committed to work with Rocky
Mountain Power and the Idaho Utilities Commission to develop a solution which yields
affordable power for the Soda Springs plant and, when combined with Monsanto's best in class
manufacturing efficiencies, wil give Monsanto long term competitive footing in their global
marketplace.
JAMES R. SMITH:
Purchasing Lead - Monsanto Company, Soda Springs, Idaho
Witness James R. Smith describes how Monsanto has continuously operated since 1952
to mine phosphate ore and manufacture phosphorus used to produce glyphosate, the active
ingredient in Roundup Herbicide. Mr. Smith describes how the glyphosate business has
become extremely competitive with Chinese production undercutting sales and threatening the
viabilty of the Soda Springs plant.
Mr. Smith describes how non-firm power is supplied to three furnaces which can be
curtailed up to 1,050 hours per year up to 162 MW. With a load of 182 MW, the Sod.a Springs
Plant is the largest single point customer of PacifiCorp with an annual electric bil exceeding $42
milion. Mr. Smith describes how in 2006, for the first time ever, Monsanto's became a tariff
rate customer with new methodologies employed to established to value Monsanto's non-firm
service as if Monsanto was a lifirm" customer with an liinterruptible credit." These new
methodologies were agreed to with the expectation that Monsanto would achieve rate stabilty
and certainty which has not happened. Mr. Smith concludes that since Monsanto has always
been a non-firm customer subject to curtailment and does not sell any power back to
PacifiCorp, it is a complete fiction that does not reflect reality to price Monsanto as a firm
customer with an interruptible credit. For these reasons and because of the benefits provided
to the entire system, Monsanto proposes to amend the jurisdictional cost of service studies to
better reflect Monsanto's non-firm service characteristics.
. Mr. Smith describes how Monsanto's rates have dramatically and disproportionately
increased since 2003 compared to other customers, a whopping 65% since 2003. If PacifiCorp's
proposed $22.3 milion increase is approved, Monsanto's net rates wil increase an incredible
153% since 2003.
During 2009 the Soda Springs plant was required to idle several furnaces over a course
of several months as a result of lost market share due to competition from the Chinese in the
glyphosate business. In the last twelve months the Soda Springs Plant has cut 15% of its
salaried employees and continues to make changes and reorganize to reduce the cost of
production.
Mr. Smith concludes that the Soda Springs Plant can only stay in business if it can
produce phosphorus at competitive prices which require relatively stable electricity prices. Mr.
Smith also discusses the tremendous economic benefits to the region provided by the Soda
Monsanto Company Summary of Testimony/PAC-E-10-07 - Page 2
Springs operations which wil be lost if recent unplanned electricity price increases by
PacifiCorp continue.
MICHAEL P. GORMAN:
Consultant - Brubaker and AssociatesL Inc.
Witness Michael P. Gorman recommend the Idaho Public Utilties Commission
("Commission") award Rocky Mountain Power a return on common equity of 9.5%, which is the
midpoint of his estimated range of 9.1% to 9.9%. He proposes adjustments to PacifiCorp's
proposed capital structure to exclude common equity supporting assets not devoted to utilty
operations. Based on his recommended return on equity and capital structure, Mr. Gorman
recommends an overall rate of return of 7.70% for RMP. His recommended return on equity
and capital structure wil support RMP's financial integrity, and provide fair compensation for
the risk of utilty operations.
Mr. Gorman also contends PacifiCorp proposed return on equity of 10.6% proposed by
witness Hardawaýs is excessive and should be rejected.
DENNIS E. PESEAU:
Consultant - Utilty ResourcesL Inc.
Dennis E. Peseau challenges PacifiCorp's request in this case to include as a rate base
addition some $801.5 milion for the proposed Gateway Central transmission line. Idaho would
be allocated nearly $45 millon of these costs.
Mr. Peseau testifies that the Commission should instead defer the decision on the entire
$801.5 milion rate base addition until the next general rate case in order to fully evaluate
whether huge and costly transmission line is really used and useful, is vastly over built, and wil
cause Idaho ratepayers to pay the carrying costs of this project that wil ultimately benefit
California ratepayers and PacifiCorp shareholders. If adopted by the Commission, Mr. Peseau's
recommendation would reduce PacifiCorp's requested rate increase by approximately $5.9
millon.
MARK T. WIDMER:
Consultant - Northwest Energy ConsultingL LLC
Witness Mark T. Widmer's testimony presents a primary recommendation which
includes fifteen Net Power Cost reductions totaling $47.37 milion total Company and $2.57
millon Idaho. The proposed adjustments are made to reflect realistic operation of the
Monsanto Company Summary of Testimony/PAC-E-1O-07 - Page 3
Company's system, match costs with benefits, make corrections and reflect reasonable results.
The adjustments include: (1) elimination of the uneconomic APS Supplemental contract which
provides the Company the option to take the energy but does not require it, (2) recovery of
wind integration costs through the ECAM to ensure Idaho customers do not overpay for those
costs, (3) inclusion of non-firm transmission because it pays a substantive part in the Company's
abilty to optimize its system, (4) inclusion of operating reserves for the Dunlap wind project,
(5) exclusion of reserve shutdowns from the Company's forced outage rate calculation to
ensure lost generation is not overstated, (6) inclusion ofthe latest expected in-service date for
the Top of World wind project, (7) removal of Cal ISO expenses from May through December
2010 because there are no wholesale. transactions to justify the costs and inclusion of actual Cal
ISO expenses for the period January through April 2010 to match the inclusion of actual Cal ISO
wholesale transactions for the same period, (8) revised timing for Colstrip 3 and Colstrip 4
planned outages to better optimize results of operation, (9) exclusion of the Energy Gateway
transmission project to match Mr. Peseau's proposed adjustment, (10) correction of Cholla 4
capacity, (11) elimination of uneconomic Morgan Stanley call premiums, (12) proper
normalization of Bear River hydro generation so it is consistent with normalization of other
small hydro projects, (13) reshaping of the Black Hils wholesale sales dispatch to be consistent
with historical dispatch by Black Hils, (14) correction of the Mona market size and, (15)
elimination of a Naughton 3 forced outage to avoid double recovery by the Company, who
already collected liquidated damages for this outage from its contractor.
If the Commission does not adopt Mr. Widmers primary recommendation to recover
wind integration costs solely through the ECAM, his secondary recommendation includes all of
the adjustments proposed above except the wind integration adjustment, plus elimination of a
double count of balancing wind integration costs included in the Companýs filng and exclusion
of wind integration costs for OA TI customers because they are not the responsibilty of retail
customers and the Companýs failure to request revision to its OATI so it can recover the costs
from OATI customers should be the responsibility of stockholders not retail customers.
KATHRYN E. IVERSON:
Consultant - Brubaker and Associates, Inc.
Ms. Iverson's testimony first discusses Monsanto's predominately non-firm service and
the rate impacts Monsanto has experienced recently. With four years of increases totaling
$10.5 milion since 2007, this proceeding has the potential to increase Monsanto's rates by
another $8 milion to $22 milion. Ms. Iverson discusses the proper regulatory treatment of a
non-firm customer such as Monsanto in the allocation of jurisdictional costs and points out
many of the problems with the current treatment which allocates costs as though Monsanto
were a firm customer. Since RMP has not planned for, or acquired resources, on the basis of
Monsanto Company Summary of Testimony/PAC-E-l0-07 - Page 4
Monsanto's non-firm loads, her preferred methodology would remove those non-firm loads
from the inter-jurisdictional allocation.
Ms. Iverson also quantifies the increase to Idaho with the modifications to the revenue
requirement provided in the testimonies of Messrs. Gorman, Peseau and Widmer. Under the
existing "All Firm" jurisdictional approach and these modifications, the total increase to Idaho is
$11.8 milion, with Monsanto's increase at $6.4 millon. Using the "non-firm" jurisdictional
method, Ms. Iverson determines that Monsanto's share of the benefits from the reduced
allocation to the Idaho jurisdiction completely mitigate Monsanto's $6.4 millon increase. Ms.
Iverson also offers recommendations as to the rate design of Monsanto's electric tariff.
BRIAN C. COLLINS:
Consultant - Brubaker and AssociatesL Inc.
Mr. Collns provides testimony as to the interruptible nature of Monsanto's loads, the
treatment of Monsanto by RMP in its Integrated Resource Plan, and the economic benefits to
RMP, its customers and the power system as a whole from a long-term interruptible program
such as Monsanto. Mr. Collns notes that Monsanto's load is treated as non-firm and not
considered when the Company plans to construct or purchase resources to meet firm system
demand.
Monsanto Company Summary of Testimony/PAC-E-lO-07 - Page 5
Randall C. Budge, ISB No. 1949
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED
P.O. Box 1391; 201 E. Center
Pocatello, Idaho 83204-1391
Telephone: [phone]
Fax: [phone]
rcb(fracinelaw.net
D,Ç,,,.~.
Zlrtf NOV - i At1 10= 02
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 SERVICE )
SCHEDULES AND A PRICE INCREASE OF )
$27.7 MILLION, OR APPROXIMATELY )13.7 PERCENT )
)
Case No. PAC-E-IO-07
PROOF OF SERVICE
I HEREBY CERTIFY that on this 29th day of October, 2010, I served a true, correct and
complete copy of the foregoing Direct Testimony of James R. Smith, Mark T. Widmer, Kathryn
E. Iverson and Brian Collns, Confidential Testimony of Mark T. Widmer, and Exhibits 229, 230
and 231 to each of the following in the maner indicated:
Jean D. Jewell, Secretar (original and 9)
Idaho Public Utilities Commission
472 West Washington Street
Boise, Idaho 83702-5918
Overnight Mail
Ted Weston
Rocky Mountain Power
201 South Main, Ste 2300
Salt Lake City, Uta 84111
Overnight Mail
Paul 1. Hickey
Hickey & Evans, LLP
1800 Carey Ave., Ste 700
Cheyenne, WY 82003
Overnight Mail
PROOF OF SERVICE - 1
Mark C. Moench
Daniel Solander
Rocky Mountain Power
201 S. Main Street, Ste 2300
Salt Lake City, Utah 84111
Overnight Mail
Katie Iverson
Brubaker & Associates
17244 W. Cordova Court
Surrise, Arzona 85387
U.S. Mail
James R. Smith
Monsanto Company
P.O. Box 816
Soda Springs, Idaho 83276
U.S. Mail
Eric L. Olsen
Racine, Olson, Nye, Budge & Bailey
P.O. Box 1391
Pocatello, Idaho 83204-1391
Hand Delivered
Anthony Yanel
29814 Lake Road
Bay Vilage, Ohio 44140
U.S. Mail
Tim Buller
Jason Hars
Agrium, Inc.
3010 Conda Road
Soda Springs, Idaho 83276
U.S. Mail
Benjamin J. Otto
Idaho Conservation League
P.O. Box 844
Boise, Idaho 83702
U.S. Mail
Dr. Don Reading
6070 Hil Road
Boise, Idaho 83703
U.S. Mail
PROOF OF SERVICE - 2
Melinda J. Davison
Davison Van Cleve, PC
333 SW Taylor, Ste 400
Portland, Oregon 97204
Overnight Mail
Ronald L. Wiliams
Willams Bradbury, PC
1015 W. Hays Street
Boise, Idaho 83702
Overnight Mail
Brad M. Purdy
Attorney at Law
2019N. 17th Street
Boise, Idaho 83702
Overnight Mail
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED
BL~C'&&
RANDALL C. BUDGE
PROOF OF SERVICE - 3