20101101Smith Di.pdf

BEFORE THE IDAHO PUBLIC UTILITIES COMMSSION
IN THE MATTER OF THE APPLICA nON 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 )
)
Direct Testimony of
JAMS R. SMITH
On Behalf of
Monsanto Company
November 1,2010
E:
zomNOV -, AM fO: 0'
lDAI,¡O
Case No. PAC-E-IO-UILlTIf:S
Table of Contents to the
Direct Testimony of James R. Smith
Page
I. INTRODUCTION ...................................................................................................1
II. HISTORY AND OPERATIONS OF SODA SPRIGS PLANT ...........................3
III. HISTORY OF MONSANTO'S ELECTRICAL CONTRACTS.............................5
IV. REMAINING COMPETITIVE.............................................................................14
V. ECONOMIC IMPACTS OF MONSANTO'S SODA SPRIGS PLANT ...........17
EXlBITS
201 Phosphorus Manufacturng Process
1 I.INTRODUCTION
2 Q PLEASE STATE YOUR NAM, EMPLOYER AN BUSINESS ADDRESS.
3 A My name is James R. Smith. I am employed by Monsanto Company at the Soda
4 Springs Plant and my business address is P.O. Box 816, Soda Springs, Idaho
5 83276.
6 Q PLEASE PROVIE YOUR EDUCATIONAL BACKGROUN, WORK
7 EXPERIENCE AN CURNT POSITION AT MONSANTO.
8 A I graduated from Uta State University in 1986 with a B.S. in Accounting. I
9 began working for Monsanto in 1988 as an accountat at the Soda Springs plant
10 and have continued to work for Monsanto to date in varous capacities. I am
11 currently the Purchasing Lead for the Soda Springs phosphorus plant and Rock
12 Springs, Wyoming coke plant.
13 Q WHT RESPONSIBILITIES DO YOU HAVE FOR PURCHASING?
14 A I have many responsibilities which include all outside purchases at the Soda
15 Springs and the Rock Springs plants, including electricity. Since 1988 I have
16 been directly involved in all electricity contract negotiations and all electrcal
17 contracts entered into between Monsanto and PacifiCorp. I have also reviewed
18 and am familiar with all prior electricity contracts since the Soda Springs Plant
19 began operating, and with related submissions to the Idaho Public Utilities
20 Commission and approval Orders.
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Monsanto Company
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WHT is TH PUROSE OF YOUR TESTIONY?
The purose of my testimony is to (1) provide history and information concerning
the operation of Monsanto's Soda Springs Plant; (2) review the history of the
curent 2008 Electric Service Agreement and the impacts of the regulatory
treatment going forward; (3) discuss loss of market share due to competition from
the Chinese; and (4) discuss economic and other impacts of the Monsanto Soda
Springs Plant.
PLEASE SUMZE YOUR TESTIMONY.
(1) Since 1952, Monsanto's Soda Springs facilities have continuously operated to
mine phosphate ore and manufacture phosphorus, used internally to produce
glyphosate, the active ingredient in RoundupCI herbicide. The glyphosate
business has become extremely competitive with Chinese production undercutting
Monsanto sales and threatening the viability of the Soda Springs plant.
(2) Durng 2009 the Soda Springs plant was required to idle several fuaces 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 salared employees and continues to make
changes and reorganize to reduce the cost of production.
(3) The Soda Springs plant must have affordable electrcity at a price that is
relatively stable and certain. Whle Monsanto's demand on the electrical market
has been unchanged since 1966, we have faced substantial rate increases in recent
years. Monsanto's rates have dramatically and disproportionately increased since
2003 compared to other customers. Monsanto's rates have already increased by
65% since 2003. If PacifiCorp's proposed $22.3 milion increase is approved,
then Monsanto's net rates wil have increased an incredible 153% since 2003.
(4) With a load of 182 MW supplied to three fuaces plus auxiliar needs, the
Soda Springs plant is the largest single point customer of PacifiCorp, with an
anual electric bil exceeding $42 milion. Except for 9 MW of firm load,
Monsanto has always been supplied with non-firm power that is subject to
curailment, with the current contract providing 1,050 hours of curlment per
year of up to 162 MW.
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Monsanto Company
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(5) In 2006, for the first time ever, Monsanto's non-firm rate was established as if
Monsanto was a "firm" customer with an "interrptible credit" and placed on a
tarff rate. These new methodologies were agreed to with the expectation
Monsanto would achieve rate stability and certainty which has not happened.
Since Monsanto has always been a non-firm customer subject to curailment and
does not sell any power back, it is a complete "fiction" that simply does not
reflect reality to price Monsanto as a firm customer with an interrptible 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 the non-firm service characteristics.
(6) The Soda Springs plant can stay in business only if it can produce phosphorus
at competitive prices, which requires relatively stable electricity prices.
Monsanto's Soda Springs operations provide tremendous economic benefits to the
regioIÌ which wil be lost if recent and planed electricity price increases by
PacifiCorp continue.
ll.mSTORY AN OPERATIONS OF SODA SPRIGS PLAN
PLEASE PROVIE A BRIEF mSTORY AN OVERVIEW OF TH
OPERATION OF MONSANO'S SODA SPRIGS PLAN.
The Soda Springs plant began operations in 1952 and has continuously operated
for nearly 58 years. The plant produces one product, elemental phosphorus
("P4"), an essential building block for many products. Monsanto's primar use is
to produce glyphosate, the active ingredient in RoundupCI herbicide.
DESCRIBE HOW PHOSPHORUS IS MAACTURD.
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 quar west of the plant.
The mixture is placed in one of three electric fuaces and energized with
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Monsanto Company
1 electricity, resulting in a chemical reaction liberating the phosphorus as a gas.
2 The phosphorus is fitered, condensed and then shipped to other locations.
3 Exhibit 201 (JRS-l) depicts this capital intensive phosphorus manufacturing
4 process.
5 Q WHRE is TH PHOSPHORUS SmpPED AN HOW is IT USED?
6 A All of the phosphorus is transported from the Soda Springs Plant by railcar to
7 Monsanto's Louisiana facility or to our Brazil facility by railcar and ocean
8 freightliner. There, phosphorous is converted into glyphosate, the active
9 ingredient in RoundupCI herbicide. Small amounts of phosphorus are sold to
10 other entities for use in a varety of products.
11 Q DESCRIBE TH ELECTRCAL SERVICES AT TH SODA SPRIGS
12 PLA.
13 A At Soda Springs, Monsanto has a total load of approximately 182 MW. This load
14 consists of 162 MW of non-firm power which is provided to Furace No.7 (46
15 MW), Furace No.8 (49 MW) and Furace No.9 (67 MW), approximately 20
16 MW of auxiliar load and 9 MW of firm load. The Soda Springs Plant consumes
17 approximately 1.35 bilion kWh of energy anually and is PacifiCorp's largest
18 single point customer. Monsanto's load has been relatively unchanged since
19 Furace No.9 came on line in 1966.
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Monsanto Company
1 Q AR THRE OTHR ELECTRC FUACES USED TO
2 MAACTU PHOSPHORUS?
3 A Not in the United States. Monsanto's first six electric fuaces used to
4 manufactue phosphorus were built and operated in Columbia, Tennessee. The
5 Tennessee plant closed in 1986 when its costs were no longer competitive, due
6 primarly to rising electricity prices. At Soda Springs, Monsanto constrcted
7 Furnace Nos. 7 and 8 which began operating in 1952, and Furace No.9 became
8 operational in 1966, the last and largest electric fuace constructed in North
9 America. At that time there were 31 electric phosphorus fuaces in operation in
10 North America, but now Monsanto's three electric fuaces are the only ones
11 remaining in operation. I have pictues of the FMC fuaces being dismantled in
12 my office to remind me of the importance of remaining competitive. Outside of
13 Nort America there are fuaces operating in the Netherlands, Kazakstan, and
14 in China.
15 ILL. mSTORY OF MONSANTO ELECTRC SERVICE CONTRACTS
16 Q PLEASE PROVIDE A BRIEF mSTORY OF THE ELECTRIC SERVICE
17 CONTCTS SUPPLYIG TH SODA SPRIGS PLAN.
18 A Monsanto has been a special contract customer of PacifiCorp and its predecessor
19 Utah Power & Light Company since 1951. Special contracts were entered into in
20 1951, 1965, 1991, 1995, 2000, 2003, 2007 and 2008. Each contract provided a
21 non-firm load for the fuaces with a small firm load. Each contract contained
22 varing curailment hours and terms of curailment. In most of the contracts
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1 Monsanto had the option of buying through curailments at replacement energy
2 costs.
3 The rates and terms of all special contracts were arived at by agreement
4 negotiated between the paries and approved by the Commission, with the
5 exception of2003. After PacifiCorp was acquired by Scottish Power in 1999, the
6 paries were unable to arve in agreement by negotiations as in the past. As a
7 result, the rates and terms of the 2003 Contract were established by the
8 Commission in Order Nos. 28918, 29157 and 29206 as a result of contested
9 proceedings in Case No. PAC-E-01-16. The 2003 Contract contained unique
10 features which included 800 hours of curailments for operating reserves, system
11 integrty interrptions and economic puroses.
12 After Mid-American Energy Corporation's acquisition of PacifiCorp from
13 Scottish Power in March of 2006, the paries entered into the 2007 Agreement
14 approved by Commission Order No. 30199 entered December 18, 2006, in Case
15 No. PAC-E-06-09, again based on a stipulation.
16 Q PLEASE SUMZE THE CURNT 2008 CONTRACT.
17 A On June 8, 2007, Rocky Mountain Power fied an Application with the
18 Commission (Case No. PAC-E-07-05) for authority to increase the Company's
19 revenues from electrc service by $18.5 milion anually, or 10.3%. The
20 Company's proposed significant and disproportionate increase to Monsanto of
21 24.1 % would have resulted in a net increase of 32.9% as contrasted with a 10.3%
22 price increase for Idaho as a whole. This case was settled by way of a stipulation
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Monsanto Company
1 between the paries and approved by Commission Order No. 30482 entered
2 December 28, 2007. The increase was spread 13.50% to Monsanto, 6.25% to
3 Agrium, and 4.89% to residential and irrigation customers. Order, p. 5.
4 Additionally, Monsanto's rates increased 3% effective Januar 1, 2009, and 5%
5 effective January 1,2010. The number of curailment hours increased from 1,000
6 in 2008, to 1,030 for 2009, and to 1,050 for 2010. Order, p. 8. In approving the
7 submitted 2008 Agreement Governing Electric Service to Monsanto for the period
8 Januar 1,2008 through December 31, 2010, the Commission stated:
9 "Affordable electricity at a price that is relatively stable and
10 reliable is important to Monsanto. The Commission finds11 that the interrptible products offered by Monsanto
12 provides a means of controllng its net energy price."
13 "Monsanto operates its electric fuaces seven days a week,
14 24 hours a day, 365 days a year, excepting maintenance and
15 repair. Monsanto is an interrptible customer that can
16 provide PacifiCorp with up to 162 MW of curlments. Its17 three fuaces can be interrpted separately as well as
18 collectively in any combination. Interrptions can occur
19 within seconds to meet system emergencies and provide
20 operating reserves. Two hours' notice is required to
21 interrpt for economic reasons. The interrptible products,
22 we find, provide operational benefits to PacifiCorp. We
23 find the products to be priced at a level commensurate with
24 the value they represent today." Order, p. 12.
25 Q PLEASE EXPLAI WH MONSANO'S LOAD CURTAIMENT
26 HOUR AR UNQUE?
27 A Monsanto is unlike any other non-firm customer on the PacifiCorp system
28 because of the magnitude of the curtilment, the hours provided and the short
29 response time. Monsanto provides 1,050 hours and up to 162 MW of curailment
30 which can be taken in a matter of seconds, quicker than any of PacifiCorp's
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Monsanto Company
1 peaker resources, the Irrigators, Nucor and U.S. Magnesium. Monsanto's three
2 fuaces can be curailed separately as well as collectively in combination. The
3 benefit of curtailments to the PacifiCorp system is undisputed, even though the
4 value has been, and continues to be, a matter of substantial disagreement.
5 These curailments are taken every month of the year, although most are
6 taken in the summer and winter peak months. While the types and amounts of
7 curailments have vared over the years based on the different contracts and
8 PacifiCorp's needs, all of our special contracts since 1952 have contained
9 provisions allowing PacifiCorp (and its predecessor Utah Power) to curl
10 Monsanto's load.
11 It is also noteworty that Monsanto operates its fuaces seven days a week,
12 24 hours a day, 365 days a year, except for periods of maintenance and repair. This
13 high load factor provides significant advantage to the utility during their off-peak
14 hours, providing a base load to service with its coal generation assets. Monsanto
15 takes service at transmission levels avoiding the usual distrbution and customer
16 service costs.
17 Q HAS MONSANO AN PACIFICORP EVER AGREED UPON AN
18 SINGLE METHOD TO ESTABLISH THE VALUE OF THE
19 INERRUPTmILE SERVICE?
20 A No. In fact, the curtailment value for the curent contract is much higher than
21 originally proposed by the Company, based on its internal models. This clearly
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1 demonstrates that the Company's models do not reflect a realistic value for the
2 curailment.
3 Q HOW WAS A SATISFACTORY CONTRCT REACHED IN PRIOR
4 YEAR?
5 A In recent cases PacifiCorp presented varous cost-of-service studies and other
6 methodologies, but none were agreed to or accepted. In many prior cases
7 Monsanto simply negotiated a net price for electricity which both paries
8 concured was fair, just, and reasonable under the circumstaces. At the time of
9 the 2008 Contract, Monsanto (and we thought PacifiCorp) believed that the
10 anual rate increases coupled with the additional hours of interrptions,
11 effectively brought Monsanto to a rate that was fair, just, and reasonable, at or
12 near cost of service and fairly valued Monsanto's non-firm service based on the
13 curlment featues.
14 Q WH DID MONSANO AGREE TO CHAGE TO TARFF BASED
15 RATES IN 2006 AFER SOME FIFT PLUS YEAR AS A SPECIA
16 CONTRACT CUSTOMER?
17 A Subjecting Monsanto, in 2006, to tarff rate adjustments for the first time (P AC-E-
18 06-09, Order No. 30197), after more than fifty years as a special contract
19 customer, represented a substantial deparure from all past contracts, and a change
20 to which Monsanto resisted. The change to tarff based rates was a considerable
21 concession made by Monsanto, mindful of the desires of the Commission Staff
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and PacifiCorp to better 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.
WHT DID MONSANO GIV UP BY MOVIG TO TARFF BASED
RATES?
By moving to tarff based rates, Monsanto has given up control over the
frequency and amount of pricing changes and the stability associated with
contract pricing. PacifiCorp now solely controls when rate changes are fied and
the Commission now ultimately controls the amount of price changes. Each time
a new rate adjustment case is filed, Monsanto must now fully paricipate at
considerable time and expense to assess, evaluate and try to protect electrcity
price changes. At the time, Monsanto was led to believe it was not giving up
much in the way of price stability. Unfortately, increases since 2006, and
expectations of the Company's frequent rate cases through the end of the decade,
prove this belief to be wrong.
SHOULD MONSANO'S PREVIOUS AGREEMENT TO MOVE TO
TARF PRICING BE VIWED AS A LESSENIG OF THE
IMORTANCE OF PRICE STABILIT?
No. Price certainty and stabilty 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, milions of dollars on necessar capital projects
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at the Soda Springs mine and plant. We are working on permitting a new mine
and developing the infrastructure needed to safely operate it. Without some
stability in knowing what the cost of production wil be, or if the operation wil be
profitable, it makes committing new capital dollars to the Soda Springs plant very
difficult. Mr. Lawrence, one of Monsanto's senior level managers, addresses this
problem in his testimony.
WH DID MONSANO RASE TH HOUR OF INERRUPION
FROM 800 TO 1,050 HOUR?
In the 2008 Contract Monsanto reluctantly agreed to raise the hours of
interrption from 800 to 1,050 hours, a 31 percent increase from the previous
2003 Contract as a compromise to keep prices within a reasonable range and
achieve the agreement both paries sought. The value achieved through this
compromise was a "black-box" settlement not based upon any methodology.
Both paries then placed considerable value on the size, timing and dependability
of Monsanto interrptions.
DOES MONSANO PLAN TO CONT TO TAK NON-FIRM
POWER?
Yes. Monsanto has always taken non-firm power and been subject to curilment.
We plan to continue to tae non-firm power and provide up to 1,050 hours of
curailment, but we canot go beyond that to remain competitive and would prefer
to provide less hours due to the very thin margins in our glyphosate business
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1 operations as discussed by Mr. Lawrence. However, we are wiling to be flexible
2 in how curailment hours are provided. The Commission has recognized that
3 Monsanto's curailment produces system benefits in approving the current
4 agreement in Order No. 30197 in Case No. PAC-E-06-09. The order stated at
5 page 9:
6 "The Commission also recognizes that the value of interrptible
7 products fushed by Monsanto as well as Monsanto's cost of
8 service wil be important considerations in establishing the net rate
9 to Monsanto in the future. Consequently, we expect the paries to
10 address interrptible product valuation in the context of a general
11 rate case when Monsanto's cost of service is determined."
12 PacifiCorp did not propose any change in the valuation of Monsanto curtailment in
13 their May 28, 2010 Application and initial filing in this case. On September 30,
14 2010, the Company fied supplemental testimony with the Commission regarding
15 the economic valuation of Monsanto's curailment. In consideration of Order No.
16 32098 in this proceeding, the issue regarding quantification of this valuation will be
17 addressed in direct testimony to be filed by Monsanto December 22, 2010.
18 Q WHT WAS THE EXPECTATION OF MONSANO WHN MONSANO
19 WAS PRICED AS A FIRM CUSTOMER WITH AN INERRUPTmLE
20 CREDIT FOR CURTAIMENT HOUR?
21 A When the new concept of pricing Monsanto as a firm customer with an
22 interrptible credit began, it was intended to provide Monsanto with a natual
23 hedge which, if appropriately priced, should provide a level of price stability and
24 reasonable net power costs. Simply put, as the cost of electricity goes up, so
25 should the value of the credit derived from curailment of Monsanto's load.
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Unfortunatly, that expectation has not been met, and Monsanto's rates have risen
substantially, at a much greater rate of increase than other customers, as described
in the testimony of Ms. Iverson.
DOES MONSANO BELIEVE IT is PROPER TO PRICE MONSANO'S
NON-FI LOAD AS IF IT WERE A FI CUSTOMER WITH A
CURTAILMENT CREDIT?
No. To price Monsanto as a firm customer is a complete fiction that does not
reflect reality. Monsanto has always received non-firm power and been subject to
curilment, excepting for the small 9 MW of firm service. The so-called
"interrptible credit" is also a fiction since it in effect presumes that PacifiCorp is
buying back from Monsanto power that was never received in the first place. For
these reasons and because of the benefits provided to the entire system, Monsanto
proposes to amend the jursdictional cost-of-service studies to better reflect the
non-firm service characteristics.
PLEASE COMMNT ON THE RATE INCREASE PROPOSED FOR
MONSANTO IN TmS CASE.
As can be seen from Exhibit 229 (KEI-l), Monsanto's rates have dramatically and
disproportionately increased since 2003 compared to other customers.
Monsanto's rates have already increased by 65% since 2003. If PacifiCorp's
proposed $22.3 milion increase is approved, then Monsanto's net rates wil have
increased an incredible 153% since 2003.
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1 Quite franly, I canot understand or accept how PacifiCorp can now
2 justify disproportionately increasing Monsanto's firm rates an additional 19.7%
3 and non-firm rates an additional 55% on the back of the recent increases. This
4 certainly constitutes rate shock and does not meet the test of fair, just and
5 reasonable rates under these circumstaces. The Soda Springs plant canot
6 remain competitive with increases of this magnitude.
7 iv. REMAG COMPETITIV
8 Q BESIDES CARFULY MAAGING ITS ENERGY USE, WHT OTHR
9 THIGS is TH PLAN DOING TO REDUCE ITS COST AN REMA
10 COMPETITI.
11 A The Soda Springs Plant is challenging every aspect of our business to find ways to
12 reduce its costs. This includes eliminating roles and processes that no longer
13 bring value or that are no longer critical to the business. Every expenditure is
14 being challenged. We have enabled every employee to share ideas and
15 suggestions for cost reduction. We have challenged vendors and contractors to
16 help us find ways to reduce our cost of producing phosphorus. All of Monsanto's
17 key vendors have been challenged to come up with ways to reduce total costs.
18 Most of these are responding to the challenge, they understand that they and
19 Monsanto must be financially viable to enjoy a long term business relationship.
20 Q HAS MONSANTO RECENTLY BEEN REQUID TO REDUCE
21 PRODUCTION AT TH SODA SPRIGS PLAN?
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Yes. During 2009 the Soda Springs plant was required to idle several furaces
over a course of several months as a result of lost market share due to competition
from the Chinese in the glyphosate business.
HAS MONSANO REDUCED JOBS AT THE SODA SPRIGS PLAN?
Yes, in the last twelve months the Soda Springs Plant has cut 15% of its salared
employees and continues to make changes and reorganize to reduce the cost of
production. Such adjustments are necessary to remain competitive.
is IT INVITABLE THT TH SODA SPRIGS PLAN WIL ALSO
BECOME NON-COMPETITIV AN BE SHU DOWN?
No, but it is a real possibility. However, I believe that the Soda Springs plant can
stay in business if we can produce phosphorus at competitive prices which
requires that we control electricity and other costs. Soda Springs has 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 of the
plant. We have practices and experience which enable us to produce P4 in the
safest and most environmentally responsible manner in the world. Monsanto has
the ability to continue to make the necessar capital expenditues to continue
operations at Soda Springs but only provided we can produce phosphorus
competitive in the global market. This challenge is fuer discussed in the
testimony of Kevin P. Lawrence.
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HOW WIL THE SODA SPRIG PLAN OFFSET TH COSTS
ASSOCIATED WITH THE RATES ROCKY MOUNAI POWER is
PROPOSING.
It canot. Electricity represents approximately 20-30% of our cost of production.
Monsanto cannot survive double digit increases as proposed in case filing in
2003, 2007, 2008 and now again in 2010. All of the Soda Springs Plants efforts
to control its cost will be insignificant and not come close to offsetting the
increased costs for its electricity. In my opinion, Monsanto Management wil have
little choice but to replace Soda Springs with purchases from China if electrical
costs continue to increase at the magnitude Rocky Mountain Power is proposing.
The latest methodology for allocating costs and the practice of pricing Monsanto
as if it were firm and then giving them a credit for curilment, is harful to Idaho
and Monsanto, and if continued may well result in the closure of Monsanto's
Soda Spring Plant. Pricing Monsanto as a firm customer for its non-firm service
wil put Monsanto in a death spiraL. I am confident however that when the
Commission reviews this impact, and other more appropriate methodologies for
allocating costs and pricing Monsanto as presented by Ms. Iverson, it will
address these gross inequities and bring back a more fair, just and reasonable
approach.
WITH RISING ELECTRICITY COSTS, WHT is NEEDED FOR THE
MONSANO SODA SPRIGS PLAN TO REMA COMPETITIV?
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In my opinion the plant must have affordable electricity at a price that is relatively
stable and certain. While Monsanto's demand on the electrical market has been
unchanged since 1966, we have faced substantial rate increases in recent years.
Looking beyond the present case we are highly concerned about regular and
substantial PacifiCorp general rate increase cases anticipated in futue years. This
is being drven by huge capital expenditures planed over the next decade to pay
for new transmission, wind and other resources to meet projected load growth and
demands for "green" power in other states. I know that Monsanto canot aford
to pay for the needs of other states, and I seriously doubt other Idaho customers
could bear such costs. Therefore, I urge the Commission to undertake a
significant review of the revised allocation methodology in the recently fied Case
No. PAC-E-I0-09 to make sure Idaho customers do not pay for costs that are not
driven by Idaho policies or load growth.
v. ECONOMIC IMPACTS OF MONSANO'S
SODA SPRIGS PLAN
DO YOU BELIEVE THE COMMSSION SHOULD GIV
CONSIDERATION TO OTHR FACTORS IN ADDITION TO COST OF
SERVICE STUIES?
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 be
precise, certain or entirely reliable. For that reason it is my understanding that
this Commission, prior Commissions and even the Idaho Supreme Cour have
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1 recognized that cost of service studies are but one of many factors that the
2 Commission may consider in setting rates. F or that reason, I believe it is
3 appropriate to discuss and make a record of other factors which I believe are
4 important to consider.
5 Q PLEASE DESCRIE SOME OF THE OTHR FACTORS THT SHOULD
6 BE CONSIDERED IN SETTING MONSANO'S RATES.
7 A I believe it is important to consider changes in Monsanto's rates in recent years as
8 compared with other customers. I also believe it is very important to fully
9 consider and fairly value the long-term past and futue benefits Monsanto
10 provides to the PacifiCorp system as an interrptible customer. I fuher believe it
11 is important to consider the economic benefits Monsanto provides to the region
12 and the importance of maintaining a solid and consistent base of high-paying jobs.
13 Q HOW MA EMPLOYEES AR EMPLOYED BY MONSANO
14 RELATIG TO TH OPERATION OF THE SODA SPRIGS PLA.
15 A On average, 685 fulltime employees are employed in the operation of the Soda
16 Springs plant. Of these, an average of 370 are direct full-time employees of
17 Monsanto. The remaining are full-time employees of our mining subcontractor
18 and other subcontractors.
Smith, DI -17
Monsanto Company
1 Q WHRE DO TH FUL-TIM EMPLOYEES RESIDE?
2 A The breakdown by county is as follows: Carbou - 385, Banock - 119, Bear
3 Lake - 89, Franlin - 18, and other - 74.
4 Q WHT WAS MONSANO'S TOTAL PAYROLL FOR YEAR2009?
5 A The payroll and benefits for all Monsanto full-time, par-time and seasonal
6 employees in 2009 was $29 milion dollars. This does not include payroll
7 overhead or amounts paid to employees of subcontractors. The average wage rate
8 for our employees is $26.46 per hour and our average salar $80,000 per year.
9 This is significantly higher than the average of non-industral wages paid locally
10 and in the region.
11 Q WH DO THESE JOBS PAY MORE TH THE AVERAGE JOB IN THE
12 REGION?
13 A Monsanto jobs require a high level of training and/or education and experience.
14 Our employees consist of highly-skilled and trained technicians, joureymen and
15 professionals. Monsanto's salar jobs are made up of engineers, geologists,
16 safety specialists, accountants and other professionals. Simply put, Monsanto
17 pays market wages in order to attract the type and quality of workers needed to
18 successfully operate the Soda Springs facility.
Smith, DI -18
Monsanto Company
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DOES MONSANTO MA OTHER FIANCIA CONTRIBUTIONS TO
BENEFIT TH LOCAL ECONOMY?
Yes. In 2009 Monsanto paid over $98 milion to approximately 300 Idaho
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 other
businesses in the local and regional economy. This income is used to pay
employees and purchase goods and services from other businesses, and in tu
they spend this money on goods and services, and the moneys ripple through the
economy. I have seen estimates that this may occur from 3 to 6 times before the
moneys flow out of the local economy. Using these multipliers, the impact to the
local Idaho economy from Monsanto wages, salaries, and payments to vendors,
which totals approximately $127 milion per year, would produce a range of
Idaho economic impact of somewhere between $ 381 milion and $762 milion
anually. The Idaho Deparent of Labor recently estimated, as par of their
official comments on Monsanto's proposed Blackfoot Bridge Mine, that loss of
the Monsanto operations in southeast Idaho would cost the region an additional
1,478 jobs beyond those directly employed by Monsanto. This includes 193 retail
sector jobs, 51 finance and insurance jobs, 158 health care jobs, and 174
governent sector jobs, including school teachers.
Smith, DI -19
Monsanto Company
1 Q WHT OTHER WAYS DOES MONSANTO'S SODA SPRIGS
2 OPERATIONS IMPACT TH LOCAL ECONOMY?
3 A Monsanto pays local property taxes, state mine license taxes, and federal mineral
4 royalties, in addition to other state and local taxes, fees and licenses, all of which
5 contribute to ruing and maintaining local, state and federal governents and
6 programs benefiting all citizens. In addition, Monsanto actively encourages its
7 employees to be civically and politically active in the community. You wil find
8 Monsanto employees actively involved in local and state governent, and in
9 almost all philanthopic activities in the region.
10 Q DOES MONSANO CONTRIBUTE TO THESE LOCAL
11 PHIANOPIC EFFORTS?
12 A Monsanto's Soda Springs plant made donations to local civic organizations
13 totaing $534,400 in 2009. These included scholarships for FF A Chapters
14 throughout southeast Idaho, sponsorship of community atWetic teams and
15 leagues, underwting Idaho Public Television, the donation of laptop computers
16 and the constrction of greenhouses at local high schools. Monsanto's employee
17 matching program matches, dollar for dollar, employee donations to non-profit
18 philanthropic organizations, up to $5,000 per year per employee.
Smith, DI -20
Monsanto Company
1 Q AR MONSANO'S IMACTS OF PARTICULAR IMPORTANCE TO
2 THE LOCAL ECONOMY?
3 A Monsanto's and Agrium's phosphate operations are the two largest contributors to
4 the local economy. The last census established that 70% of the non-far wages
5 in the area were paid to 30% of the local work force working in phosphate mining
6 and manufactung jobs. According to the Idaho Deparent of Labor's recent
7 analysis, Monsanto directly employs 13% of workers in Carbou County and 8%
8 of workers in Bear Lake County. The high wage rate turns this employment into
9 20% of the eared income in Caribou County and 22% of the eared income in
10 Bear Lake County.
11 Q IS THE LOCAL ECONOMY SUFRIG?
12 A Yes. For the past several years Carbou and Bear Lake Counties have lost jobs.
13 School student enrollments have significantly declined. This is largely
14 attributable to the loss of industral jobs in the area. Plant closures in recent years
15 include Kerr-McGee, Chemical Lime, and Astars. All of FMC's plant mining
16 jobs were lost when their operations closed in 2001. Several businesses have had
17 work force reductions, including J.R. Simplot, Union Pacific, Heritage Safe, URS,
18 and the local school districts. When you factor on top of this the national
19 recession the local economy is suffering significantly. Clearly Monsanto's and
20 Agrium's continued presence becomes critically important to the region and
21 Idaho.
Smith, DI -21
Monsanto Company
1 Q HOW DOES TH COMMTY FEEL ABOUT MONSANO?
2 A A study by Greg Smith and Associates in 2008 concluded that Monsanto's Soda
3 Springs plant had the highest level of respect and trst from the residents of local
4 cities and counties of any business in any other location, and in fact had received
5 the highest support that the pollng firm had ever encountered for an industr.
6 The surey demonstrated that, of those familiar with Monsanto's operations, 90%
7 had a "favorable" view of the company's operations in southeast Idaho.
8 Monsanto is also an OSHA STAR facility, the highest award OSHA provides for
9 safety. In addition Monsanto has been awarded numerous awards for its mining
10 and reclamation efforts. These awards show Monsanto's commitment to ear the
11 right to operate each and everyday, by being a safe place to work, and a
12 responsible citizen and neighbor. This was ilustrated by the response to the draft
13 Environmenta Impact Study on Monsanto's proposed new mine. In the public
14 comment process on that mine over 4,500 responses came from Idaho and 98% of
15 those were favorable. Such responses are only achievable when the public sees
16 your commitment being honored every day.
17 Q DOES MONSANO'S SODA SPRIGS PLAN PROVIE BENEFIT
18 OUTSIDE OF IDAHO
19 A Yes, there are two obvious benefits. First, Monsanto's non-firm load provides a
20 total of 1050 hours of curailment for operating reserves, system integrty that
21 benefits to the entire PacifiCorp system through the avoidance of the need to build
22 new plants. It is worth noting in these days of preference for renewable resources
Smith, DI -22
Monsanto Company
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5 Q
6 A
that the curailments are environmentally frendly because they do not result in the
consumption of thermal fueL. Second, the Soda Springs plant and mining
operations provide significant regional and national benefits due to the size of
Monsanto's economic footprint.
DOES TmS CONCLUDE YOUR TESTIMONY?
Yes.
Smith, DI -23
Monsanto Company
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