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1 (The following proceedings were
2 had in open hearing.)
3 COMMISSIONER HANSEN: Exhibits marked
4 101, 102, and 103 are identified on the record and
5 will be part of the record if there is no
6 objections. Being none, it's no ordered.
7 MR. PURDY: Thank you.
8 (Staff Exhibit Nos. 101 through
9 103 were marked for identification.)
10 MR. PURDY: Mr. Chair, with your
11 permission, I would just like to ask one additional
12 question of clarification for this witness.
13 COMMISSIONER HANSEN: All right. Go
14 ahead.
15 MR. PURDY: Thank you.
16 Q. BY MR. PURDY: Ms. Carlock, would you
17 turn to page 3 of your direct testimony, and at the
18 bottom of that, toward the bottom of that page, you
19 generally discuss what you believe to be the
20 applicable statutory standard for the Commission's
21 review of the proposed merger in this proceeding.
22 Is that a fair statement?
23 A. That's correct.
24 Q. All right. And at the very bottom of
25 page 3, line -- beginning on line 23, you state that
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HEDRICK COURT REPORTING CARLOCK (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 one of the statutory requirements is that the public
2 interest will not be adversely affected. Do you see
3 that?
4 A. Yes, I do.
5 Q. All right. This is the -- the lawyer
6 in me has had fits throughout this hearing when
7 we've heard, I think, bantered about a number of
8 different types of verbage pertaining to what is the
9 appropriate standard of review of this Commission.
10 So, recognizing that you're not a lawyer, cannot
11 give a legal opinion, I'm just simply going to ask
12 you, where did you get those precise words, what
13 sources you went to?
14 A. It was Idaho Code Section 61-328.
15 Q. So you took those actual words
16 directly out of the Statute?
17 A. That's correct.
18 Q. Thank you.
19 MR. PURDY: Given that, I have no
20 further additional direct and would tender
21 Ms. Carlock for cross-examination.
22 COMMISSIONER HANSEN: Okay. Let's see
23 if we have any questions.
24 Mr. Budge.
25 MR. BUDGE: Just a few if I may,
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HEDRICK COURT REPORTING CARLOCK (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 Mr. Chairman.
2
3 CROSS-EXAMINATION
4
5 BY MR. BUDGE:
6 Q. Mrs. Carlock, on page 7, lines 10
7 through 12, of your testimony, you stated that you
8 weren't proposing a rate reduction at this time, and
9 then went on to state that PacifiCorp's rates will
10 be reviewed in a separate proceeding this summer.
11 We've had some various discussions on
12 this topic of a future rate increase for PacifiCorp.
13 Is it Staff's understanding that the -- PacifiCorp
14 intends to file a general rate case, or is it just
15 your understanding that they will present financial
16 information for review by the Staff?
17 A. At this point, there is a review that
18 is going on. The Company has provided to the Staff
19 and it's my understanding other parties of prior
20 cases a Results of Operations filing that indicates
21 what their actual earnings are and what the revenue
22 requirement would be if a case was filed at this
23 point in their opinion. And that shows that they
24 would be entitled to an increase of $24 million.
25 The Staff is currently reviewing those
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P.O. BOX 578, BOISE, ID 83701 Staff
1 Results of Operations and conducting an audit, and
2 it is my understanding that the Company would file a
3 cost of service study. And at that point, we would
4 then have to look at how we would proceed is how the
5 Staff is viewing this filing at this time.
6 Q. So no real decision has been made by
7 the Staff or the Company, as I understand it, at
8 this point as to whether a case definitely would be
9 filed?
10 A. That is my take on what's going on
11 right now.
12 Q. And following that review, would it
13 still be the Company's decision whether to file or
14 not, or is the Staff in a position that they can
15 request that filing based on the discussions you've
16 been having?
17 A. I think that it is a process that will
18 allow for discussion as to whether that case would
19 be filed or not.
20 Q. Thank you. On page 11, lines 9
21 through 11, of your testimony, Mrs. Carlock, you
22 state beginning there on line 11 that you have
23 concerns relating to refinancing costs and on
24 line 12 regarding up-front payments and regarding
25 costs of new financing.
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 Are there concerns of a financial
2 nature you're referring to? Does that relate to
3 the -- in part to the $5 billion unsecured debt
4 increase by PacifiCorp that has come out in these
5 proceedings that may not have been there when you
6 filed your testimony?
7 A. That could be part of it, but that's
8 not what I was thinking about when I filed this
9 testimony. I know that there are ongoing financing
10 requirements of the Company that would be separate
11 from the merger, but there are also some refinancing
12 issues that would take place as a result of the
13 merger just because of the type of financing that
14 currently exists. If there is a refinancing that
15 has to be made because of the merger, I wanted to
16 make sure that all costs associated with that
17 refinancing that are above the current costs would
18 be recorded below the line so ratepayers would not
19 pay for that.
20 Q. So at the time you prepared your
21 testimony, were you aware of the increase in the
22 unsecured debt of PacifiCorp of $5 billion?
23 A. I was aware, I believe, at that time
24 that there was that discussion. I'm not sure
25 exactly what point in time I was aware that that was
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P.O. BOX 578, BOISE, ID 83701 Staff
1 a go. And it definitely had not been approved at
2 the time of my -- of the filing of my testimony.
3 Q. Would that be of a financial concern
4 to you in reviewing the data of the Company?
5 A. I believe that that fits into the type
6 of review that we do for every security filing, and
7 that when the Company filed for that Application,
8 that we would look at those types of concerns at
9 that time and if there were costs that we believed
10 were merger related, we would address those in that
11 filing.
12 Q. There's been some testimony in this
13 proceeding regarding the Applicant ScottishPower's
14 shareholders desiring to earn some type of a rate of
15 return on their $6 billion investment in PacifiCorp;
16 and I think you were present, if I recall correctly,
17 yesterday when I believe it was Mr. MacLaren was
18 cross-examined regarding the historic earnings over
19 five years of ScottishPower which had been in the
20 27 percent range?
21 A. I'm aware of the past earnings of
22 ScottishPower to some degree, yes.
23 Q. Is ScottishPower's desire to earn a
24 return on their investment of PacifiCorp, is that a
25 financial cost that would be of concern to you?
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 A. It would be if they were requesting in
2 a case before Idaho that their return on equity be
3 above what I would deem fair and reasonable. And
4 that is a normal process that goes on with a rate
5 case as far as the review of that requested return.
6 I also heard the Company indicate that
7 they -- both on the stand and in prior discussions
8 with them -- that they are aware of the process for
9 regulatory approval, and that they're not expecting
10 anything different.
11 Q. All right. Whatever the expected
12 earnings ScottishPower has on their investment,
13 given the sheer magnitude of the investment, is it
14 of concern to you that that might put financial
15 profession -- financial pressures on PacifiCorp to
16 generate those earnings on that investment?
17 A. I think that that's a concern no
18 matter what the situation is as far as the
19 shareholder owner group. I have that concern
20 whether there's a merger present or not.
21 Q. There are some other numbers that came
22 out in these proceedings and I think were set forth
23 specifically in some of the testimony that at least
24 I didn't see in the proxy statement of PacifiCorp
25 regarding some other benefits for officers and
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 directors. I think you've been here and heard the
2 testimony on some of those: The executive severance
3 plan of about $20 million, the $7 million plan for
4 retention and bonus, the $8.5 million plan for
5 employee recognition bonuses, as well as the
6 payments to preferred shareholders to obtain their
7 vote on the merger of about five million. Are those
8 all financial costs that you would not have been
9 aware of or considered at the time you filed your
10 testimony?
11 A. No, those were costs that I was aware
12 of --
13 Q. You were.
14 A. -- at the time I filed my testimony.
15 I reviewed a significant amount of information prior
16 to filing my testimony that included due diligence
17 reports both on the side of PacifiCorp and
18 ScottishPower, and that information was disclosed in
19 those reports and other information that I had
20 reviewed.
21 Q. One other question I had regarding the
22 Staff's interpretation of the so-called favored
23 nations clause. I noted in your testimony on
24 line 15, you refer to that -- excuse me, on page 15,
25 lines 8 through 11. You had requested on behalf of
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 Staff that any favorable treatment or benefits in
2 other jurisdictions also be received in Idaho. Do
3 you recall that testimony?
4 A. Yes, I do.
5 Q. And I recall yesterday Mr. Richardson
6 testified that he did not feel the cap placed in
7 Wyoming in concept would be transferable to Idaho?
8 A. Yes, he did.
9 Q. Do you recall that testimony?
10 A. Yes.
11 Q. Is it your testimony that that is a --
12 that that favorable treatment in Wyoming in concept
13 should be transferable to Idaho?
14 A. At the time that I wrote this, I was
15 aware of the agreement in Wyoming and I saw that the
16 Staff in Idaho could make a similar agreement with
17 the Company, or that as we go forward, from evidence
18 of the case, something else might come out from the
19 Commission Order; but I did not envision the Wyoming
20 stipulation being something that would fall under
21 the most favored nations clause for a couple of
22 reasons: One, that we can all -- we can go ahead
23 and negotiate something in Idaho based on our review
24 of the Company's results of operations that I
25 thought would be more appropriate.
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 Q. But there has been some discussion
2 recently by the Commission on their cross of the
3 term "rate freeze" versus "rate cap," and I'm sure
4 you understand the difference between the two.
5 A. Yes.
6 Q. From the perspective of providing a
7 level of protection to the Idaho ratepayers should
8 the Commission so choose, is the primary difference
9 in a cap and a freeze is that the cap would leave
10 open the door for Idaho ratepayers to seek
11 reductions at any point in time in the future?
12 A. That is the difference.
13 Q. So it essentially eliminates the risks
14 of an increase on the top end while leaving open the
15 possibility of a reduction on the down side should
16 ScottishPower be successful in achieving the
17 efficiencies that they hoped for?
18 A. That would be the result. Now do you
19 want my opinion on that?
20 Q. I guess I'll let your Counsel bring
21 that out if he'd like.
22 MR. BUDGE: I don't have any further
23 questions. Thank you.
24 COMMISSIONER HANSEN: Ms. Carlock,
25 remember that question. We'll be back to it.
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P.O. BOX 578, BOISE, ID 83701 Staff
1 THE WITNESS: Okay.
2 COMMISSIONER HANSEN: Does that
3 complete your questions then?
4 MR. BUDGE: Yes, it does,
5 Mr. Chairman. Thank you.
6 COMMISSIONER HANSEN: Mr. Nye.
7 MR. NYE: Mr. Chairman.
8
9 CROSS-EXAMINATION
10
11 BY MR. NYE:
12 Q. Ms. Carlock, was there some financial
13 information that came to light after you formulated
14 your recommendation?
15 A. You mean as far as information that
16 came out in the hearing that I was not aware of?
17 Q. Or at any time after you formulated
18 your opinion, either way.
19 A. The shareholder votes were after I
20 filed my testimony. I was aware of what was going
21 to be put before the shareholders, but I did not
22 know the outcome of that.
23 Q. I meant financial information.
24 A. Oh, okay, I'm sorry. As far as
25 financial information, none that I can think of.
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 Q. Okay. Did part of your
2 recommendation -- was a part of it based on the
3 assumption that the Applicant is the utility itself?
4 A. I'm sorry, I don't understand.
5 MR. PURDY: Hold on.
6 Mr. Chairman, I just would like to see
7 if Mr. Nye could clarify: When he uses terms such
8 as "your recommendation," is he referring to a
9 specific part of Ms. Carlock's testimony, specific
10 recommendation? Maybe we could have some
11 clarification.
12 MR. NYE: Page 2, line 7 -- 16, 17,
13 recommending the merger.
14 THE WITNESS: And I'm not clear on
15 what your question was. I'm sorry.
16 COMMISSIONER HANSEN: Would you repeat
17 the question, please?
18 Q. BY MR. NYE: When the Staff arrived at
19 a recommendation on the question of whether to
20 approve the merger, was a factor that you considered
21 that the Applicant was a large utility?
22 A. I think -- you mean as far as large
23 utility versus small utility?
24 Q. Of whatever size, the fact it was a
25 utility first of all.
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 A. I don't --
2 COMMISSIONER HANSEN: Mr. Nye, would
3 you ask the question again? Are you asking her if
4 it's a utility or if it is a large utility? Could
5 you give her some direction what you refer to
6 as "large"?
7 MR. NYE: Thank you.
8 Q. BY MR. NYE: The fact that the
9 Applicant was a utility, was that a factor in your
10 recommendation?
11 A. I think it was a given, because if the
12 Company was not a utility, I would not have been
13 looking at it to make a presentation before the
14 Commission, so I didn't look at it in those -- in
15 that light.
16 Q. Did you -- did you look into the other
17 business of ScottishPower that is
18 nonutility-related?
19 A. I did to a certain extent, yes.
20 Q. Are you aware that it is -- has
21 aspects that are totally unrelated to the utility
22 business, such as insurance?
23 A. I was aware of different operations.
24 If there is an insurance operation totally separate
25 from the utility business, I'm not aware of that.
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 They may have an offering, if I remember right, that
2 includes some sort of a program that would make a
3 payment if a customer was, you know, injured or
4 something like that, but I'm not aware of anything
5 other than that for insurance purposes.
6 Q. I'm just referring to the principal
7 subsidiaries of ScottishPower.
8 A. Could you refer me to some sort of a
9 document, either proxy statement or something, so I
10 can follow you closer?
11 COMMISSIONER HANSEN: You may
12 approach.
13 Q. BY MR. NYE: This is from their
14 various filings. I can approach you with it if you
15 want. I just want to know if you knew of any of
16 these subsidiaries.
17 A. That would be helpful if I could view
18 that, please.
19 MR. NYE: May I approach?
20 COMMISSIONER HANSEN: Yes.
21 MR. PURDY: Mr. Chair, if I might
22 also.
23 COMMISSIONER HANSEN: We'll go at ease
24 for just a second while they look at the document.
25 (Discussion off the record.)
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P.O. BOX 578, BOISE, ID 83701 Staff
1 COMMISSIONER HANSEN: Okay, we'll go
2 back on the record.
3 MR. NYE: Mr. Chairman, my only
4 question is are you aware that other subsidiaries of
5 ScottishPower include insurance companies.
6 THE WITNESS: What you showed me was
7 basically a section of the annual report that
8 reflects investments in other areas, and first of
9 all, that's common with all companies, and yes, I
10 was aware of the different operations.
11 You had one that was specifically
12 insurance. I had not remembered that one. That
13 falls into the same category as --
14 Q. BY MR. NYE: My only question is do
15 you remember --
16 MR. PURDY: Excuse me, Mr. Chair. I
17 want to make a couple objections:
18 First, the witness hadn't finished her
19 answer.
20 Second, I really don't want to
21 unnecessarily interrupt cross, but I am at a
22 complete loss as to understanding the relevance of
23 this entire line of questioning. I think a lot of
24 the terms that have been used by Counsel are vague,
25 and this document has not been identified as to its
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 source, and again, I question the relevance.
2 COMMISSIONER HANSEN: Okay. Mr. Nye.
3 MR. NYE: Mr. Chairman, I'm just
4 wanting to get into the record and it's part of the
5 filing by the Applicant the actual annual report of
6 ScottishPower, the fact that this Applicant is not
7 just as represented, it's more. They operate
8 Internet service providers, they do retail, they do
9 insurance, telecommunications, marine treatment, and
10 so on. That's all I was trying to do.
11 COMMISSIONER HANSEN: I think the
12 witness has answered the state- -- or, answered the
13 question. Do you need any further answer from -- in
14 your mind from the witness?
15 MR. NYE: No, I'd like to move on.
16 COMMISSIONER HANSEN: Okay, let's move
17 on.
18 Q. BY MR. NYE: In making the
19 recommendation of the Staff on the merger question,
20 did you take into account the information that we
21 have received from the Wyoming case on how
22 ScottishPower hopes to allocate various costs such
23 as executive severance, bonus pool, and the like?
24 A. When I made my recommendations, I did
25 not have -- if you're referring to your Exhibit
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 504?
2 Q. Yes.
3 A. I did not have that particular
4 information as far as the way it's presented there,
5 but I was aware of all of those areas and I had
6 looked at those areas to determine as far as in my
7 mind what I thought was an above-the-line versus
8 below-the-line expenditure, and was particularly
9 concerned about a mechanism to assure that the
10 Staff, in recommendations to the Commission, would
11 be able to adequately assure them that all
12 below-the-line costs were actually recorded below
13 the line.
14 Q. But any merger can be looked at later
15 through various mechanisms. You can't just rubber
16 stamp any merger, can you?
17 A. No, you cannot. You have to look at
18 whether the merger has benefits and the three areas
19 of my testimony that I addressed that are required
20 by Statute, those areas were addressed with all of
21 that in mind, but I also wanted to make sure there
22 was a mechanism going forward that would assure that
23 that was carried out.
24 Q. So did you specifically consider that
25 close to $12 million would be paid by ratepayers for
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 executive severance as set forth in -- by the
2 Company over in Wyoming, specifically?
3 A. Specifically, $12 million, I did not
4 have that figure. I knew that there would be normal
5 executive severance costs that we always look at.
6 Q. How much did you add?
7 A. I was not as concerned about the
8 dollar amount. I knew that it was approximately
9 $20 million total, and that some of that would be
10 normal severance in the Company's mind and there
11 would be other pieces of it that were directly
12 enhanced because of the merger. And the enhanced
13 piece, there was not a question; the normal piece,
14 there is a question, and that is a proper topic for
15 a rate proceeding. And those severance pays are
16 looked at by Staff on a regular basis to see whether
17 they should be included. If they reduce costs
18 overall, they might be included; if they do not,
19 Staff would propose that they be a below-the-line
20 cost also.
21 Q. Well, aren't the -- aren't the costs
22 that may be anticipated from a merger something you
23 look at before approval rather than later in a rate
24 case?
25 A. They are -- they are; however, normal
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 severance costs are not directly resulted from the
2 merger. That's just the normal operations of the
3 Company. The Company could have let these people go
4 anyway, and that happens on a regular basis as far
5 as dealing with different utilities and having to
6 review those costs.
7 Q. Okay. And with your -- just a couple
8 more. With your background in finance and
9 accounting, have you -- in forming your
10 recommendation, has the Staff considered the effect
11 of a stockholder derivative suit or class action
12 against PacifiCorp for the $400 million lost as a
13 result of mismanagement as admitted in this case?
14 A. I did not specifically look at that
15 because that would happen whether there was a merger
16 or not, or could happen whether there was a merger
17 or not.
18 Q. Did you look at the effect that might
19 have on the ratepayer, subject --
20 A. I did not as a result --
21 COMMISSIONER HANSEN: Excuse me just a
22 minute. I'd ask both parties to give the other one
23 a chance to finish their question or statement
24 before they interrupt.
25 Okay, let's proceed on, Ms. Carlock.
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P.O. BOX 578, BOISE, ID 83701 Staff
1 THE WITNESS: I believe your
2 question -- would you just repeat the question,
3 please.
4 Q. BY MR. NYE: For example, if there
5 were a claim to be made saying that PacifiCorp
6 management was guilty of extreme mismanagement --
7 and there has been some indication in this case that
8 there was mismanagement that resulted in losses of
9 up to $400 million and may have affected stock
10 prices from $27 down to $15 -- I take it you have --
11 the Staff hasn't considered that type of potential
12 claim and its impact on the Idaho ratepayer?
13 A. I am aware of that possibility. I did
14 not consider it in this case because that is not
15 directly related to the merger. That would be a
16 suit that could be filed against PacifiCorp whether
17 the merger takes place or not.
18 Q. But you're not here giving a legal
19 opinion on the effect of a merger on the effect of
20 stock, are you?
21 A. What I was giving you was my opinion
22 based on what I had reviewed and how I viewed it for
23 this case to develop my recommendation.
24 Q. Okay. And last question:
25 How did the Staff treat the
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P.O. BOX 578, BOISE, ID 83701 Staff
1 $400 million in write-offs for last year in looking
2 at whether or not there might or might not be a rate
3 increase on the Idaho system?
4 A. First of all, we did not do that for
5 the merger case. We are aware of rate impacts and
6 believe that that should be addressed in the rate
7 proceeding or any rate review where you can look at
8 all aspects of rates.
9 Q. I understand that, but you testified
10 your impression was around $25 million increase
11 might be requested, and I was just asking as a
12 follow-up if Staff has subtracted out the one-time
13 charge-off?
14 A. The Staff would not include one-time
15 write-offs for that type of thing. It would be only
16 ongoing results of operations for the Utility.
17 Q. Thank you, Ms. Carlock.
18 MR. NYE: No further questions.
19 COMMISSIONER HANSEN: Thank you.
20 Mr. Ward.
21 MR. WARD: No questions. Thank you.
22 COMMISSIONER HANSEN: Mr. Richardson.
23 MR. RICHARDSON: Thank you,
24 Mr. Chairman.
25
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 CROSS-EXAMINATION
2
3 BY MR. RICHARDSON:
4 Q. Ms. Carlock, would you please refer to
5 page 15 of your direct testimony?
6 A. Okay.
7 Q. Beginning at line 8 on that page, you
8 state that any assurances, conditions, et cetera,
9 agreed to by ScottishPower that would create a
10 benefit to Idaho customers should also be received
11 in Idaho. Do you see that?
12 A. Yes, I do.
13 Q. And you recommend that as a result of
14 that -- that statement, that without such a
15 condition, Idaho should wait to rule on this merger
16 until all potential benefits agreed to by the
17 Companies in other jurisdictions could be included.
18 Is that correct?
19 A. That's correct.
20 Q. Is that still your testimony?
21 A. I believe that the response to the
22 Company to my recommendation provides sufficient
23 assurance for the Commission that these requirements
24 will be met that I've set out for a condition, and
25 that the Commission could go ahead and make its
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 ruling.
2 Q. So your test- -- that response differs
3 from your testimony then?
4 A. Slightly, because at that point, I had
5 not discussed with the Company how we would actually
6 conduct that most favored nations type of clause.
7 And since my testimony was filed, they sent a
8 Production Request with their recommendatin on how
9 they would treat it, and the Staff found that to be
10 reasonable.
11 Q. Okay. And that Production Request is
12 in this record as Exhibit No. 220. Correct?
13 A. That is correct.
14 Q. And do you have that in front of you?
15 A. I'm afraid I don't have it right
16 handy. I think I pulled it out yesterday.
17 Q. If your Counsel could make that
18 available, I'm going to ask you a question or two
19 about that.
20 COMMISSIONER HANSEN: You may approach
21 the Bench.
22 THE WITNESS: I have the -- I have the
23 Staff Response, but it's not marked Exhibit 220, so
24 it's the same information.
25 Q. BY MR. RICHARDSON: That's fine then.
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 You don't need to see the one marked with the
2 exhibit number in order to respond to my questions.
3 You're asked in referring to
4 Exhibit No. 220, bottom of page 2 over to the top of
5 page 3, if the conditions contained on page 3 were
6 acceptable to the Commission Staff. And then in
7 Response, the Commission -- the Staff Response:
8 Yes, these commitments are acceptable, essentially.
9 Did you or did Staff ever first notify
10 the other parties of this case before you agreed to
11 those differing conditions?
12 MR. PURDY: Well, Mr. Chairman, I
13 would pose an objection. I guess first -- first, I
14 question what the Public Power Council's interest in
15 this line of questioning is given their
16 representative interests and given the testimony of
17 their witnesses yesterday which clarified that.
18 And, second, I guess I'm -- I'm --
19 this might be a little premature, but I question
20 where Counsel is going with this in terms of calling
21 into doubt the appropriateness of responding to a
22 Production Request and that it somehow triggers a
23 require -- requirement for notice. I suspect he's
24 going to tread into areas that require legal
25 interpretations and perhaps suggesting an ethic or a
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 rule or something that doesn't -- that doesn't
2 exist, and so that's my objection.
3 COMMISSIONER HANSEN: Mr. Richardson.
4 MR. RICHARDSON: Mr. Chairman, I'm not
5 quite sure how to respond to the objection. I'm
6 inquiring of this witness about the nature of an
7 agreement that the Staff has entered into with the
8 Company. If the Commissioner would refer to the
9 Rule 272 of the Commission's Rules of Procedure, it
10 prohibits the Staff from engaging in settlements
11 that differ from the record without first notifying
12 the others parties to the proceeding, and so that's
13 where I'm going with this, Mr. Chairman.
14 COMMISSIONER HANSEN: Okay. Yes,
15 Mr. Purdy.
16 MR. PURDY: Thank you. I'd like to
17 respond to that.
18 That's exactly where I thought he was
19 going; that's why I made my objection. This was a
20 Production Request that was submitted to the
21 Commission Staff, presumably -- I don't know if
22 copies were sent to the other parties or not, but I
23 suspect that the parties -- all the parties, yes,
24 did, in fact, get a copy of Staff's Response. I
25 suspect perhaps the Request itself went to the other
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 parties as well; I don't honestly know that right
2 now.
3 But this is not -- but to term this as
4 a settlement that falls within the parameters of
5 Rule 272 I think is inappropriate. First of all,
6 this witness can't testify to that. This is a legal
7 issue that we could brief or we could have oral
8 argument on if necessary, but -- but I believe that
9 this is simply a Response to a Production Request to
10 the effect you would find this reasonable and
11 Staff's Response is set forth on this document. It
12 speaks for itself. This is not a settlement; it's
13 not a negotiated settlement that calls into play the
14 requirements -- the notice requirements of Rule 272
15 of the Commission's Rules of Procedure.
16 MR. RICHARDSON: Mr. Chairman.
17 COMMISSIONER HANSEN: Mr. Richardson.
18 MR. RICHARDSON: Thank you,
19 Mr. Chairman. Mr. Chairman, I didn't ask this
20 witness any legal questions whatsoever. I asked
21 this witness if before they signed this stipulation
22 or, excuse me, this Discovery Response -- that
23 changes this witness's testimony, by the way,
24 because the witness testified that without such a
25 condition, Idaho should wait to rule on the merger
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 until all potential benefits agreed to by the
2 Companies in other jurisdictions can be included.
3 This Production Request, which is now part of the
4 record because it's been introduce as an exhibit by
5 Mr. Richardson, says If such conditions were made,
6 would it be Staff's position that the Commission
7 need not wait to rule.
8 This changes the nature of this
9 witness's testimony, and I simply asked this witness
10 if before they signed this -- this Production
11 Request, whether they first notified the other
12 parties of their intent to do so. That's not a
13 legal question.
14 COMMISSIONER HANSEN: Mr. Purdy.
15 MR. PURDY: If I -- I might have
16 misheard him -- my hearing is not so -- so great
17 these days -- but I thought I heard him mention
18 something about a negotiated settlement in his most
19 recent dialogue, and that's clearly not what this
20 is. Again, this is a Response to a Production
21 Request.
22 COMMISSIONER HANSEN: So, Mr. Purdy --
23 could I just interrupt -- according to what
24 Mr. Richardson just stated, do you have an objection
25 to what he just said that he was inquiring of the
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P.O. BOX 578, BOISE, ID 83701 Staff
1 witness?
2 MR. PURDY: I was just going to say, I
3 mean, if he -- if he wants to ask the witness to
4 explain what he perceives to be a disparity between
5 her testimony and a Production Response, that's
6 fine. But his whole -- but his original question
7 that triggered my objection was along the lines was
8 notice given, and then he indicated in response to
9 my objection where he intends to go with that.
10 COMMISSIONER HANSEN: Let's allow then
11 that question and we'll see -- and if it goes
12 further and you want to make another objection, the
13 Chair will entertain that objection.
14 MR. PURDY: Thank you.
15 Q. BY MR. RICHARDSON: Ms. Carlock, do
16 you have the question in mind?
17 A. The ques- -- the last question I heard
18 as far as responding was did this change my
19 testimony and was notice given. Is that what you're
20 asking?
21 Q. The question -- I think you already
22 responded to the question about the direction of
23 your testimony.
24 The question was -- was did you notify
25 the other parties of the Staff's intent to sign on
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P.O. BOX 578, BOISE, ID 83701 Staff
1 to this Production Request?
2 A. I personally did not, no.
3 Q. To your knowledge, were the other
4 parties notified of the Staff's intent to sign off
5 on this Production Request?
6 A. To my knowledge --
7 MR. PURDY: Again -- again -- I'm
8 sorry. Objection.
9 COMMISSIONER HANSEN: Mr. Purdy.
10 MR. PURDY: I object to the
11 implications of the words "sign off."
12 I signed the Response to the
13 Production Request; that's obvious. And so to ask
14 Ms. Carlock whether notice was given of Staff's
15 intent to sign off on this settlement is again
16 mischaracterizing what a Production Request and
17 Response is all about. If he wants to explain why
18 her testimony may or may not be different from --
19 from the production response, that's fine, but he's
20 getting into legal matters clearly and that's his
21 sole intent.
22 COMMISSIONER HANSEN: Mr. Richardson,
23 could you restate the question without using the
24 term "sign off"?
25 MR. RICHARDSON: Yes, Mr. Chairman.
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 Q. BY MR. RICHARDSON: Ms. Carlock, what
2 process did the Staff go through in making the
3 decision to respond to Production Request No. 4 in
4 Exhibit No. 220 to the effect that, yes, these
5 commitments provide Idaho the opportunity, et
6 cetera; what process did you go through? Your name
7 is on this document as the technical staff;
8 apparently that suggests you had some input into
9 this.
10 A. Yes. We went through the normal
11 process of responding to a Production Request.
12 After my testimony was filed, the Company sent the
13 Production Request. I reviewed the Request, I
14 prepared a response, I discussed it with my
15 supervisor and the attorney on the case, and we
16 submitted it as an answer.
17 Q. Correct. And that answer differs from
18 your testimony?
19 A. I do not believe it does.
20 Q. Okay. So you still believe that
21 without the condition that all benefits agreed to by
22 this Company should also be received in Idaho,
23 without such a condition, Idaho should wait to rule
24 on the merger?
25 A. I believe that this responds to that
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P.O. BOX 578, BOISE, ID 83701 Staff
1 condition and meets that condition.
2 Q. And in your Production Request
3 response, it states If Staff believes the commitment
4 made in another jurisdiction should be considered a
5 system benefit available to Idaho customers, Staff
6 will provide notice and an opportunity for
7 discussion to ScottishPower and PacifiCorp before
8 seeking an amendment to the Commission's final
9 Order.
10 So you're no longer suggesting, are
11 you, that Idaho should wait to rule on the merger
12 until all potential benefits are agreed to -- that
13 are agreed to by the Companies in other
14 jurisdictions are included, are you?
15 A. The Company's wording for this was
16 exactly as you read, and I believe that the benefits
17 that have been given to other Comp- -- or, other
18 states so far have been addressed. And if this
19 provides a mechanism to allow Idaho to receive
20 benefits on a system basis that would naturally be
21 ones that I would be concerned about in Idaho, even
22 after the Order is issued.
23 Q. After what Order?
24 A. If this Commission issues an Order in
25 this case and approves the merger -- which was what
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 my concern was originally -- that Idaho be allowed
2 to receive benefits that may come from an agreement
3 with another state that has a hearing after our
4 hearing or after our Order is issued, if the
5 Commission issues one before those hearings are
6 conducted.
7 And I believe that this mechanism that
8 the Company proposed meets that condition as far as
9 having the right and the expectation to receive
10 those system benefits.
11 Q. So is it your testimony -- just to try
12 to -- to get to the nut of this -- is it your
13 testimony that Idaho should not now have to wait
14 until all potential benefits -- until -- should not
15 now wait to rule on the merger until the other
16 agreements or benefits that are agreed to by this
17 Company in other jurisdictions are finalized?
18 A. I do not believe it is a requirement
19 that this Commission wait to issue its Order; that
20 if they decided the merger is in the public interest
21 and issued an Order, that this mechanism will allow
22 us to receive benefits that were my initial concern
23 that we might lose without it.
24 MR. RICHARDSON: Mr. Chairman, I'm
25 going to move that a portion of Exhibit 220 be
917
HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 stricken from the record -- Request No. 4 and the
2 Response to Request No. 4 -- because it violates the
3 Commission's Rule against the Staff from engaging in
4 active settlements after they have taken a position
5 on the record. I'll simply read the rule:
6 The Commission Staff, however, is
7 precluded from entering into an act of settlement
8 without first notifying all parties that it intends
9 to begin or has begun settlement negotiations. The
10 Commission Staff must give all other parties an
11 opportunity to participate in, or be apprised of,
12 the course of the settlement negotiations before a
13 final settlement agreement is reached.
14 And a settlement agreement is defined
15 in this rule as Formal -- as:
16 Settlements in formal proceedings in
17 which one or more parties -- such as Staff --
18 negotiate an agreement -- such as is contained in
19 Response No. 4 -- that differs from the positions
20 that the party previously has on record with the
21 Commission.
22 And that's exactly what this is.
23 MR. VAN NOSTRAND: Mr. Chairman, if I
24 may respond --
25 COMMISSIONER HANSEN: Yes.
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 MR. VAN NOSTRAND: -- since it's our
2 exhibit.
3 I believe Ms. Carlock has already
4 testified that she does not believe her testimony
5 has been changed. I think she's made it clear that
6 what she refers to in lines 11 and 12 -- without
7 such a condition, Idaho should wait -- I think she's
8 made it clear that this is precisely the conditions
9 which she believes addresses her concerns, and
10 therefore, Idaho need not wait.
11 The testimony is very clear that
12 her -- the testimony is very clear that she has not
13 changed her testimony. This does not amount to a
14 settlement and it's a mere clarification of the
15 conditions which she would find acceptable to be
16 inserted in a Commission Order to ensure that Idaho
17 ratepayers get the benefit of any other commitments
18 of system-wide applicability or made in other
19 jurisdictions.
20 COMMISSIONER HANSEN: Mr. Purdy.
21 MR. PURDY: Because it is my witness,
22 I need to weigh in as well.
23 I agree with what Counsel just said.
24 The rules speak to the requirement of notice when a
25 party has taken a position in a proceeding
919
HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 previously on the record and then has changed that
2 position through a settlement -- negotiated
3 settlement process with another party.
4 What Ms. Carlock's testified was that
5 without a condition such as contained in
6 Exhibit 220, she has some concerns about the
7 treatment that Idaho ratepayers will receive as a
8 result of this merger. The condition was offered
9 subsequent to that, the condition that she said
10 needs to exist. In fact, Staff agreed, by my
11 signature, that this does seem to be an appropriate
12 condition that Ms. Carlock called for in her direct
13 testimony. That is not taking a position different
14 than one previously taken in the -- in the case that
15 requires notice to all parties.
16 And again, just as a practical matter,
17 this Production Request was sent to all parties,
18 including the Public Power Council; Staff's response
19 was sent to all parties, including the Public Power
20 Council; and this is the first time that the Staff
21 has been -- has heard of the Power Council's
22 concerns as to the rules of procedure and whether
23 they were violated. They have known about this for
24 quite some time and I think it's somewhat unfair, in
25 addition to the fact that I think it's misguided, to
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 bring up at this point in time.
2 COMMISSIONER HANSEN: We've had some
3 pretty good discussion, however, Mr. Richardson, did
4 you want to make a further comment?
5 MR. RICHARDSON: If I may respond,
6 Mr. Chairman.
7 First of all, this is -- there's no
8 question this is an agreement, no question it's a
9 settlement that's differing in the position of the
10 Staff. I was -- rhetorically, I would ask if this
11 exhibit doesn't change or differ the testimony,
12 what's the purpose for it? It clearly does offer a
13 differing position.
14 Staff must notify all the parties of
15 its intent to -- to enter into this settlement, and
16 they didn't do so. The fact that the Production
17 Request was sent to all the parties doesn't obviate
18 that requirement.
19 So I would just stand by my Motion to
20 strike, Mr. Chairman.
21 MR. PURDY: One more thing, and I
22 don't want to drag this on, but I think you should
23 look at Exhibit 220 and look at the language itself,
24 the question which says that if such commit -- and
25 I'm sorry, the Request No. 4 -- if such commitments
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 were made, would it be Staff's position. And
2 Staff's response is to the effect that, yes, these
3 would provide us the assurances that Ms. Carlock
4 said were necessary in her direct testimony.
5 To say that that is a negotiated
6 settlement and to say that that somehow differs from
7 her prior testimony when she called for exactly this
8 type of condition, I think it's illogical.
9 COMMISSIONER HANSEN: Well, I
10 certainly appreciate the discussion we've had on
11 this Motion, and where it has the magnitude of
12 controversy, I'm not going to take this on alone.
13 So we're going to go at ease for a few minutes and
14 I'll discuss this with my two colleagues, and we'll
15 come back and make a ruling.
16 We'll go at ease for a few minutes.
17 (Recess.)
18 COMMISSIONER HANSEN: Okay, we'll go
19 back on the record.
20 The Commission is going to deny the
21 Motion of Mr. Richardson. We feel this is not a
22 settlement as regards to our Rule 271 through 280.
23 So we will proceed then with that Motion being
24 denied.
25 Mr. Richardson.
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P.O. BOX 578, BOISE, ID 83701 Staff
1 MR. RICHARDSON: Thank you,
2 Mr. Chairman. That concludes my questions.
3 COMMISSIONER HANSEN: Okay. We'll now
4 go to PacifiCorp. I have two different people down
5 as cross-examining, so --
6 MR. MILLER: Mr. Van Nostrand will --
7 COMMISSIONER HANSEN: Mr. Van Nostrand.
8 Okay.
9
10 CROSS-EXAMINATION
11
12 BY MR. VAN NOSTRAND:
13 Q. I just have one question, Ms. Carlock:
14 Do you recall the question from
15 Mr. Nye about the extent of ScottishPower's
16 nonutility-related activities?
17 A. Yes, I do.
18 Q. Do you have any idea what sort of
19 percentage of ScottishPower revenues are generated
20 by regulated utility operations?
21 A. I'm sorry, I do not remember the exact
22 number, but I know it's a significant amount of
23 that.
24 Q. Would you accept, subject to check,
25 that if you look at the most recent annual report
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HEDRICK COURT REPORTING CARLOCK (X)
P.O. BOX 578, BOISE, ID 83701 Staff
1 for ScottishPower, the portion of earnings generated
2 by regulated operations is 97.7 percent? You can
3 check that on page 48 -- or, 46 of the ScottishPower
4 annual report.
5 A. I'm looking at another document, but
6 that indicates that that would be correct. I do not
7 have the annual report in front of me, but I accept
8 that.
9 MR. VAN NOSTRAND: Thank you,
10 Mr. Chairman. I have no further questions.
11 COMMISSIONER HANSEN: Let's see if we
12 have any questions from the Commissioners.
13 Commissioner Smith.
14 COMMISSIONER SMITH: Yes. Thank you.
15
16 EXAMINATION
17
18 BY COMMISSIONER SMITH:
19 Q. Ms. Carlock, were you in the room
20 earlier this morning when Mr. Yankel testified?
21 A. Yes, I was.
22 Q. And were you familiar with the
23 documents that he was referring to as being reviewed
24 in terms of a potential rate case?
25 A. In the state of Idaho?
924
HEDRICK COURT REPORTING CARLOCK (Com)
P.O. BOX 578, BOISE, ID 83701 Staff
1 Q. In the state of Idaho.
2 A. Yes.
3 Q. Because it seems to me that here --
4 Commission's kind of shaping up to make two big
5 decisions here: One is whether or not to approve a
6 merger, and whether or not to have a rate case.
7 Do you share his seeming confidence
8 that if the Company filed a rate case, that rate
9 reductions would ensue for all customer classes?
10 MR. NYE: Objection. Lack of
11 foundation.
12 COMMISSIONER HANSEN: The objection is
13 denied, in that a Commissioner can ask a question
14 they want to ask, Mr. Nye.
15 (Laughter.)
16 MR. NYE: Understood.
17 COMMISSIONER HANSEN: Go ahead.
18 THE WITNESS: I do not share his
19 confidence. I believe that in viewing any filing,
20 that there is the opportunity for it to go either
21 way, and from the evidence that I have or at least
22 the review that we have done so far, we have not
23 seen the evidence that would share that confidence.
24 I can't say that I know where it would go.
25 Q. BY COMMISSIONER SMITH: Well no one
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P.O. BOX 578, BOISE, ID 83701 Staff
1 knows.
2 A. But I'm not as confident as he is that
3 there would be a reduction.
4 Q. Well no one knows where it would go.
5 A. Right.
6 Q. If you had to guess, would you say
7 it's more likely to be an increase?
8 A. At this point in time, I would -- I
9 would not want to venture a guess that there would
10 be a decrease.
11 Q. I respect that. Thank you.
12 COMMISSIONER SMITH: Thank you,
13 Mr. Chairman.
14
15 EXAMINATION
16
17 BY COMMISSIONER HANSEN:
18 Q. I just have one question,
19 Ms. Carlock:
20 There's been a lot of Production
21 Requests, a lot of information involved in this
22 merger, in a short period of time. Do you feel that
23 you've had the adequate time to review and analyze
24 all the data that has been submitted so that you
25 are -- with the Production Requests, as well as all
926
HEDRICK COURT REPORTING CARLOCK (Com)
P.O. BOX 578, BOISE, ID 83701 Staff
1 the other information -- that you feel very sure and
2 confident in the Staff's and your position that
3 you've taken?
4 A. Of course, I would always like to have
5 more time to review information, but I do believe
6 that in this case, I did have sufficient time to
7 look at the documents that were filed in the case
8 and additional documents that I had requested to at
9 least feel confident and assured that my
10 recommendations were accurate.
11 Q. Thank you.
12 COMMISSIONER HANSEN: Do we have any
13 redirect, Mr. Purdy?
14 MR. PURDY: Just briefly.
15
16 REDIRECT EXAMINATION
17
18 BY MR. PURDY:
19 Q. Mr. Budge deferred to me to ask you
20 your opinion on the appropriateness of a rate cap
21 versus a rate freeze were those possibilities to be
22 considered. What is your opinion?
23 A. In looking at the merger, I was
24 concerned about where we would go down the line in
25 the public interest, and I felt that at this
927
HEDRICK COURT REPORTING CARLOCK (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 particular point, that I was not going to request
2 that; but as far as a freeze versus a cap, I -- I
3 personally believe that the freeze would be the
4 appropriate mechanism, because then the procedure
5 that I have outlined for the review would be
6 symmetrical going forward, and that review process
7 could pick up any savings, but we would also be
8 giving the Company the opportunity to show
9 legitimate costs.
10 Q. And in that symmetry, do you find
11 fairness? Is that what you're suggesting?
12 A. That's correct.
13 Q. Now, Mr. Nye asked you a question
14 pertaining to the severance benefits of roughly
15 $12 million that -- that -- that he thinks are going
16 to be incurred. Isn't that -- doesn't that amount
17 constitute a maximum and is based on the assumption
18 that all 26 of the affected executives will be
19 terminated or will leave the Company?
20 A. That number is the Company's estimate
21 of what that maximum could be, yes, and what they
22 would view as their request for inclusion in the
23 results of operation. That does not say that there
24 would not be objections to that inclusion.
25 Q. And it could be -- could turn out to
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HEDRICK COURT REPORTING CARLOCK (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 be actually something less, could it not?
2 A. Exactly.
3 Q. And you were asked as to the timing of
4 receiving that information about severance costs;
5 and it came after your testimony was filed, I
6 believe you testified. Does it in any way change
7 your testimony?
8 A. No. I was aware of those potentials
9 before I filed my testimony. The breakdown of the
10 enhanced and the normal operations is what I
11 received after the filing of testimony. It does not
12 change my opinion at all.
13 Q. And you were asked a number of
14 questions about costs that potentially could be
15 incurred through litigation against PacifiCorp or --
16 and I think there were several other scenarios
17 offered by Mr. Nye.
18 Did you -- did you find that -- find
19 it relevant to -- to focus on costs that may or may
20 not be incurred by PacifiCorp regardless of -- of
21 the merger, or did you just focus on what effects
22 the merger would have?
23 A. As I stated in my testimony, that was
24 the first distinction that I made, was what were
25 merger-related issues and what were not
929
HEDRICK COURT REPORTING CARLOCK (Di)
P.O. BOX 578, BOISE, ID 83701 Staff
1 merger-related issues. I dealt with what I felt
2 were merger-related issues in this case. I believe
3 nonmerger-related issues have to be dealt with
4 whether there's a merger or not, and this is not the
5 place that I felt was appropriate to deal with all
6 of those.
7 MR. PURDY: That's all I have. Thank
8 you.
9 COMMISSIONER HANSEN: Thank you,
10 Ms. Carlock.
11 (The witness left the stand.)
12 COMMISSIONER HANSEN: We will now take
13 a break and recess. We'll go for lunch and then
14 come back on at 1:15.
15 MR. MILLER: Very good.
16 (Noon recess.)
17
18
19
20
21
22
23
24
25
930
HEDRICK COURT REPORTING COLLOQUY
P.O. BOX 578, BOISE, ID 83701