OBRIEN.txt

1 (The following proceedings were

2 had in open hearing.)

3 MR. GALLOWAY: And, Mr. Chairman,

4 again, I would respectfully request that Mr. O'Brien

5 be given an opportunity to provide a brief summary

6 of his testimony.

7 COMMISSIONER HANSEN: It's granted.

8 THE WITNESS: In October of last year,

9 PacifiCorp announced a strategy to return to its

10 roots. In short, PacifiCorp identified that it must

11 focus on its core Western electric business, sell or

12 shut down all unrelated endeavors with the exception

13 of Powercor, our Australian-owned distribution

14 company. In addition, we identified that we must

15 earn an authorized rate of return in every

16 jurisdiction that was closer to the allowed rate of

17 return in each of those jurisdictions, that we must

18 also reduce costs, and that we must commit the

19 Company to higher levels of customer service.

20 Simultaneously, we announced a share repurchase to

21 support our share price and return capital to

22 investors.

23 At the time of this announcement in

24 October, our chairman also suggested that if we

25 could find someone who could do that job better and

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1 faster, that we would listen to them. Shortly

2 thereafter in December of 1998, we announced this

3 transaction with ScottishPower. This is, at its

4 roots, a simple transaction involving a change in

5 shareholders. This simple transaction though should

6 relead -- should lead to customer benefits and not

7 just meet the no-harm standard, but indeed provide

8 benefits to customers.

9 Why is that? ScottishPower is fully

10 committed to the strategy that PacifiCorp embarked

11 on in October: Focusing on costs, focusing on

12 customers. ScottishPower has an enviable track

13 record, as you will hear. That enviable track

14 record has left the PacifiCorp management team and

15 its board with the impression that ScottishPower

16 can, in fact, reduce costs in a way which is better,

17 faster, and more enduring than the costs that

18 PacifiCorp might take out on its own. As a result

19 of that, my testimony sets forth that we believe

20 that prices to customers will be lower than they

21 otherwise would have been with ScottishPower as our

22 partner.

23 In addition, we do believe that the

24 merger will lead to a stronger PacifiCorp, a

25 financially stronger PacifiCorp, a PacifiCorp with

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1 more management muscle, and a PacifiCorp which will

2 stand ready to deliver a broad range of customer

3 service and performance standards to its customers.

4 On a standalone basis, clearly

5 PacifiCorp has numerous challenges. This merger

6 allows us to set those challenges aside and to

7 embark on a new beginning for PacifiCorp.

8 That concludes my summary.

9 Q. BY MR. GALLOWAY: Thank you,

10 Mr. O'Brien.

11 MR. GALLOWAY: Mr. O'Brien is

12 available for cross-examination.

13 COMMISSIONER HANSEN: Okay. Let's see

14 if we have any questions. Mr. Budge.

15 MR. BUDGE: Thank you, Mr. Chairman.

16

17 CROSS-EXAMINATION

18

19 BY MR. BUDGE:

20 Q. If I understand your testimony

21 correctly, Mr. O'Brien, you believe that a number of

22 past activities of PacifiCorp caused it to lose its

23 focus and get itself into financial trouble, so to

24 speak?

25 A. I do.

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1 Q. And were you an employee that

2 participated in those past management decisions that

3 would be who I should direct questions to concerning

4 that?

5 A. I was such an employee, and you're

6 entitled to direct those questions to me, yes.

7 Q. Did that difficulty or lack of focus

8 that PacifiCorp suffered from in part result from

9 its efforts to expand into a number of other areas

10 beyond the core electric service area in the

11 Western US?

12 A. Yes.

13 Q. And did that also relate to efforts to

14 become a multinational utility as well, in your

15 opinion?

16 A. Partially, yes.

17 Q. And as I go through the proxy

18 statement and some of the financial information the

19 Company has submitted, it appears that by year end

20 1988 (sic), you had embarked on a substantial

21 program to divest yourself of many of these diverse

22 business interests. Is that correct?

23 A. Actually, it should be 1998, not 1988,

24 but yes.

25 Q. '98. Excuse me.

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1 A. That's okay.

2 Q. Been a long day.

3 A. That's all right.

4 Q. And as I look at the proxy statement

5 that's been admitted here as ScottishPower

6 Exhibit 223, I note on page 14 there are some

7 significant pretax charges associated with some of

8 these changes that the Company appeared to have made

9 in 1988 (sic) in order to refocus, and I'll ask you

10 about some of those, if I may.

11 It notes that in 19 -- 1998, there was

12 $113.1 million charge associated with a work force

13 reduction?

14 A. That's correct.

15 Q. Is that correct?

16 A. That's correct.

17 Q. And how many people were reduced in

18 that particular year -- 1998 -- if you know,

19 roughly?

20 A. We had both an early retirement

21 program and enhanced severance program that took

22 effect in 1998. Approximately 950 employees

23 retired, and some 125 were provided with enhanced

24 benefits to be severed from the Company.

25 Q. Will there be additional charge-offs

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1 related to the ongoing nature of that program in

2 1999 or future years?

3 A. No, sir.

4 Q. And did that program -- is that a

5 one-time program in '98?

6 A. Yes, it was.

7 Q. When the program was originally

8 adopted and prior to the announcement of the merger,

9 was there more of a long-term program that went into

10 future years as relates to this manpower reduction?

11 A. No.

12 Q. Also, I note that there was a

13 charge-off of 86.2 million in deferred costs related

14 to the failed attempt to acquire The Energy Group.

15 Is that correct?

16 A. That is correct.

17 Q. And is that a utility in the

18 United Kingdom?

19 A. The Energy Group was the parent

20 company of Eastern, which is a utility in the UK,

21 yes.

22 Q. And I note also there was a

23 discontinuation in October of 1998 of what you

24 called the Eastern US energy trading business, and

25 there was a charge-off associated with that of some

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1 $234.5 million. Is that correct?

2 A. Actually, that $234 million, to be

3 precise, is a charge-off related to a number of

4 things, including our energy trading business which

5 was the majority of the charge-off.

6 Q. And these are all basic businesses

7 that you headed into, and when you changed your

8 focus you decide to get out of them and sell them

9 off?

10 A. These are all unregulated businesses;

11 I'm not sure they're basic, but they are unregulated

12 businesses which we had entered into and which we

13 decided to sell off, yes.

14 Q. And if my math is correct, the total

15 of those charge-offs in '98 relating to those

16 particular businesses we've been discussing came to

17 about $430 million?

18 A. That's approximately correct, yes.

19 Q. And would that be a substantial

20 contributing factor to the ordinary loss of

21 $55 million that you showed on page 11 for your 1998

22 financial results?

23 A. Yes.

24 Q. And would those essentially be

25 one-time charges that wouldn't be repeated in future

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1 years?

2 A. Yes.

3 Q. Another note with respect to '98

4 performance appeared to be the $85 million

5 12 percent rate reduction in the state of Utah?

6 A. That's correct.

7 Q. And was that a rate reduction that was

8 granted by the Utah Commission, did that apply

9 retroactively to prior years in part?

10 A. It applied to 11 months of 1997, as

11 well as the full year of 1998.

12 Q. And those are the things that

13 essentially, in part, led to the refocus program

14 then that was developed and implemented initially in

15 I believe it was October of '98?

16 A. In part, those did lead to that, yes.

17 Q. And had that refocus program been

18 under development for some period of time prior to

19 the fall '98 implementation?

20 A. No, sir. The refocus program really

21 started with the departure of our previous CEO, and

22 Mr. McKennon, who is now our chief executive

23 officer, was previously the nonexecutive chairman of

24 PacifiCorp, and he took on the CEO's role when our

25 previous CEO departed in August, and he really

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1 didn't get to work until the first part of

2 September. So as you can see, we really didn't have

3 much time to put together a refocus program starting

4 in September and announcing it in mid October.

5 Q. And as I read in the Company's 1998

6 annual report, it states there with respect to these

7 two -- refers to two what you call as aggressive

8 cost reduction programs that there were implemented

9 as a part of the refocus, and the first program is

10 identified as the early retirement program which is

11 the one you discussed previously?

12 A. That's the 113.1 million, that's

13 correct.

14 Q. Correct.

15 A. Right.

16 Q. And it states here that the annual

17 precost savings are approximately $50 million

18 relating to that program?

19 A. That's correct.

20 Q. And those would be recurring, ongoing

21 savings?

22 A. That's correct.

23 Q. And the other aspect of the program,

24 if I understand it correctly, is the cost reduction

25 program that's expected to achieve $30 million in

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1 savings?

2 A. Yes. And to be precise, when we

3 announced that in October, what we said is it would

4 be $30 million of savings from the then-budgeted

5 numbers for 1999, and the only reason that I say it

6 that way is becauase some of the costs will be real

7 cost reductions. Some of them will be reductions

8 from what would have been increases.

9 Q. Was the program called a refocus

10 program because the Company was going to go back to

11 its basics or roots of core electricity? Was that

12 why that name was chosen?

13 A. That's right. And as I said in

14 Wyoming, surely at some point in our history, we

15 have been focused on the electric utility business.

16 Q. As far as the time line of that

17 particular program, at the time it was adopted and

18 implemented in the fall of 1998, is it a fact that

19 the time line for that program went out through the

20 year 2002?

21 A. No, that's not -- that's not the fact.

22 Q. Okay. What was the time line at the

23 time it was initially developed, that program?

24 A. Could you be a little more precise in

25 what you mean by "it."

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1 Q. The refocus program.

2 A. Okay, the refocus program, as I said,

3 was put together when Mr. McKennon came on board in

4 early September. We had until mid-October when we

5 announced it on Wall Street. What we announced on

6 Wall Street was an immediate remediation program to

7 take care of 1999, and as I suggested in my opening

8 remarks, that included both commitments to cost

9 reductions, commitments to customer service,

10 commitments to shareholders, which would imply share

11 buy-back.

12 Out of that announcement, we also made

13 some statements with respect to where we thought

14 PacifiCorp's future earnings would go. We thought

15 that was important, because at the time, we had to

16 reset Wall Street's expectation. Their earnings

17 profile was higher than what we thought it should

18 be. Mr. McKennon wanted to reset those

19 expectations, so when we made a presentation in

20 New York, we went so far as to say what we thought

21 the earnings profile for the Company would be over

22 the next several years. However, when we did that,

23 we were not specific with whether those increases in

24 earnings were going to come from cost reductions or

25 from rate increases, and in fact, what I said as

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1 chief operating officer in that October meeting was

2 that we were bound and determined to earn closer to

3 our authorized rate of return in every jurisdiction

4 we did business through a combination of price

5 reductions, price increases, and cost reductions.

6 And we didn't have a plan for exactly how that was

7 going to happen.

8 Q. So what you're saying then, to get

9 back to my question, is at the time the refocus

10 program was adopted, it was relatively short as far

11 as the duration time it was expected to cover?

12 A. Right.

13 Q. And when the ScottishPower people came

14 into play and the merger was announced at the end of

15 the year, there would be no reason for PacifiCorp to

16 pursue its refocus program, anticipating that many

17 of the same programs were going to be taken over,

18 replaced by the ScottishPower programs?

19 A. That's partially correct. What I

20 would say is throughout the year, 1999, we have

21 continued to operate the Company at what I consider

22 to be an efficient level. I think that going

23 forward for 2000, we are in the process of preparing

24 a year 2000 budget. It's not done, but we are in

25 the process of doing that, because anything else I

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1 think would really not be responsible for the

2 management of the Company. We have to look forward

3 to the year 2000 without ScottishPower and we're

4 doing that.

5 Q. I also noted in the -- in the annual

6 report and I couldn't see in that report the

7 publication date. Do you perhaps know when that was

8 published?

9 A. I don't know the exact publication

10 date. I know it was several weeks in advance of our

11 shareholders' meeting. I would say it was probably

12 published the latter part of May.

13 Q. So it would have been after the first

14 quarter of '99?

15 A. Yes.

16 Q. That report makes a statement that

17 these efforts -- referring to the PacifiCorp refocus

18 program -- were yielding results, and that the first

19 reporting period following the implementation of

20 your strategy were in line with expectations, as

21 were the first quarter of 1999 earnings?

22 A. That's correct.

23 Q. So is that essentially saying that the

24 refocus program was working successfully through the

25 third quarter '98, as well as first quarter '99?

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1 A. Actually, it's the fourth quarter 1998

2 and the first quarter of 1999, and that is correct,

3 relative to expectations which we had just set in

4 October.

5 Q. Has PacifiCorp made any study or

6 quantified analysis that would indicate the savings

7 that it had expected to achieve as a result of the

8 refocus programs as a standalone company without

9 ScottishPower?

10 A. Other than as we've discussed them,

11 no.

12 Q. Has there been any study or analysis

13 comparing the potential savings or efficiency in

14 dollars under the new PacifiCorp under the guise of

15 ScottishPower as compared with -- excuse me. Let me

16 rephrase that -- under PacifiCorp as it refocused as

17 compared to what the savings might be achieved

18 looking at PacifiCorp if it had merged with

19 ScottishPower?

20 A. No, sir.

21 Q. There had been some discussion in

22 these proceedings regarding how PacifiCorp ranks

23 with respect to its costs, both by the Commission

24 Chair and others. The question I had, Mr. O'Brien:

25 If one were to look at the overall

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1 costs of operating PacifiCorp which would look at

2 nonproduction as well as the production costs, would

3 you agree that PacifiCorp would already be ranked

4 somewhere at or within the top ten of the US

5 utilities?

6 A. I actually don't have the data in hand

7 to answer that question clearly.

8 I would say, and PacifiCorp has for a

9 long time said, that in total, it is a low-cost

10 operator. I think it would be fair to represent

11 that its generation costs are low, its distribution

12 costs, as Alan has shown, are generally higher.

13 Q. Most of the focus by ScottishPower in

14 its filings has been upon how it might improve upon

15 the nonproduction costs. Is that accurate to say?

16 A. Most of the numbers have focused on

17 tables that talk about that. But actually, behind

18 that is I think a discussion about methodology which

19 applies to every level of the business.

20 Q. So both production and nonproduction

21 costs are going to be looked at?

22 A. Yes. Yes, sir.

23 Q. Since the PacifiCorp refocus program

24 has been adopted and implemented as we discussed,

25 have any of the PacifiCorp ratings in the financial

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1 markets worsened?

2 A. I'd have to go back and look exactly,

3 but to the best of my recollection, at the time that

4 PacifiCorp made its announcement in October of 1998,

5 Standard and Poor's and Moody's both put the Company

6 on credit watch. The reason for that credit watch

7 with an indicated signal pointing down, the reason

8 for that was because the Company had said it was

9 going for set forth a -- a share repurchase, which

10 would add some leverage to the Company even though

11 we had cash on the balance sheet, and also some

12 uncertainty about going forward earnings and

13 recovery.

14 At the time of the announcement of the

15 ScottishPower merger, actually Standard and Poor's

16 came out with an announcement saying that PacifiCorp

17 was on credit watch for an upgrade as a result of

18 the financial strength of the combination.

19 Q. And that would have been in the

20 upgrade that was in the news media in February of

21 '99?

22 A. That's correct.

23 Q. So just one upgrade, but there haven't

24 been any further downgrades of PacifiCorp since you

25 initiated the refocus program?

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1 A. Other than the credit watch first

2 indicator which came before the merger, that's

3 correct.

4 Q. There was some comment earlier today

5 regarding PacifiCorp having on its balance sheet

6 something in the range of a billion or billion and a

7 half dollars cash?

8 A. That's correct.

9 Q. And as I understand from reviewing the

10 proxy statement, Exhibit 223, specifically on

11 page 136 if you have that available --

12 A. I have it.

13 Q. -- it indicates there that there was

14 an increase in the unsecured debt limit of some

15 $5 billion above the existing level. Do you see

16 that?

17 A. I do.

18 Q. Is it a fact, Mr. O'Brien, that that

19 increase in the unsecured debt level is

20 unrestricted; or in other words, no restriction on

21 how it's used?

22 A. Oh, no restriction on proceeds, that's

23 correct.

24 Q. So there would be no prohibition on

25 using any or all of that amount to pay merger costs

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1 should the Company choose?

2 A. There would be no prohibition, yes.

3 Q. And no restriction on the use of that

4 for further acquisition should the Company choose?

5 A. No.

6 Q. And that up of the debt limit, as I

7 understand it, was something that was approved by

8 the shareholders in conjunction with its vote in

9 favor of the vote of the merger at the June 17, '99,

10 annual meeting or special meeting?

11 A. Yes. And to be absolutely precise, it

12 was approved by both classes of PacifiCorp

13 shareholders: Its preferred shareholders and its

14 common shareholders.

15 Q. And, in fact, Mr. O'Brien, were the

16 preferred shareholders paid cumulatively something

17 in the range of $2.5 million in return for their

18 favorable vote for both of those things?

19 A. That's correct. In exchange for that,

20 we now have the right to take out some of that cost

21 we preferred.

22 Q. If I recall correctly, the same proxy

23 statement was an attachment to the original filing

24 in this case?

25 A. As you indicated earlier, it was

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1 actually a draft of this proxy statement.

2 Q. Draft. And this one was the final and

3 that would explain the difference between the

4 $5 billion not being in the draft but it did show up

5 in this final proxy?

6 A. Yes. And if you would like some more

7 details on that, I can provide that.

8 Q. Perhaps just in the timing, from when

9 the draft was submitted to this Commission, you

10 might recall when that original filing was?

11 A. Probably mid-February.

12 Q. Okay. So something after February of

13 '99 --

14 A. Yes.

15 Q. -- there was a change in decision or

16 philosophy that led to the $5 billion --

17 A. That's correct.

18 Q. -- being installed.

19 A. I'm sorry.

20 Q. Did that relate to the -- excuse me.

21 Did that relate to the -- any input or request by

22 ScottishPower in conjunction with the merger?

23 A. No, it did not. It related

24 specifically to PacifiCorp's strategy to get the

25 preferred shareholders to vote for the merger. As

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1 you know, there is no incentive for the preferred

2 shareholders to vote for this transaction as they

3 are not part of the premium.

4 So how do you get preferred

5 shareholders to vote? The tried and true method,

6 you give them money, and you look into the market

7 and you decide how much money do you have to give

8 them, and you give them a market rate and you make

9 sure that whatever money you give them you can

10 recover through lower debt costs going forward.

11 That's exactly what PacifiCorp decided

12 to do, because we had to go to vote with our

13 preferred shareholders anyway; had nothing

14 whatsoever to do with the merger.

15 And, in fact, if you postulate going

16 forward, ScottishPower, if this merger goes through,

17 would own 100 percent of the shares anyway, could

18 make whatever changes to the Articles of

19 Incorporation they decided to do anyway, and all of

20 this would be a moot point for ScottishPower and

21 they have no reason whatsoever to have participated

22 in the process.

23 Q. And is that particular preferred

24 shareholder vote cost of two and a half million

25 dollars an above-the-line cost that would be paid by

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1 the ratepayers?

2 A. Yes, and I presume we will be able to

3 show significant savings to justify that to the

4 Staff and all the Intervenors who would like to

5 participate.

6 Q. Is it your testimony, Mr. O'Brien,

7 that PacifiCorp is presently underearning in the

8 state of Idaho?

9 A. No, it is not my current contention

10 that we are underearning. I think it's fair to say

11 that we are in a process to determine what our

12 earnings are. We have provided the Staff with the

13 results of our 1998 operations. On its face, that

14 filing shows that the Company is earning about six

15 percent. There are several adjustments in there

16 that I would expect the Staff and others to ask

17 about, to address, in a process which we have going

18 forward. I would also expect that in that

19 discussion, we will talk about rate spread. That's

20 not anything we have done yet, but we intend to do.

21 And as we go forward and have those

22 discussions with the Staff, I think the Company

23 would then make a decision about whether or not we

24 think we are underearning to the point where we

25 would actually file a rate case, but at this point I

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1 don't have a plan to file a rate case. I have a

2 plan to keep discussing with the Staff where we are,

3 what issues we think are outstanding, and the best

4 way to handle it after we talk about those issues.

5 Q. So unless and until the Company

6 arrives at the point following these discussions

7 with Staff that it chooses to file for a rate

8 increase case, we can expect accordingly that the

9 rates in Idaho would remain at present levels?

10 A. Until we file a rate case, that is the

11 right expectation, subject always to the BPA credit.

12 Q. I'll let Mr. Nye discuss that with

13 you.

14 A. All right.

15 Q. Has PacifiCorp made any quantitative

16 study or analysis as to what the rates in Idaho

17 would be over time?

18 A. No, as I said, in our refocus program,

19 we looked broadly at earning closer to our

20 authorized rate of return in every jurisdiction.

21 But at that point we didn't even have a

22 state-by-state model to make that projection based

23 on we used the Company averages.

24 Q. I asked these same questions of

25 Mr. Richardson and they may be somewhat duplicative,

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1 but to the extent that he was speaking on behalf of

2 ScottishPower, I think I need to address the same

3 ones to you, if I may.

4 Is it true that PacifiCorp is not

5 making any commitment to the Idaho ratepayers to

6 reduce rates at this time?

7 A. That is true.

8 Q. And would it also be true that the --

9 PacifiCorp is making no commitment to freeze rates

10 at existing levels at this time?

11 A. That is true.

12 Q. And also true that the Company is not

13 making commitment at this time to cap rates at any

14 particular level if it chooses to file a rate

15 increase in the future?

16 A. That is true.

17 Q. Would you agree with me, Mr. O'Brien,

18 that philosophically, a cap on any rate increase

19 would be one means of providing customers with a

20 safety net in the event the anticipated savings from

21 the programs and initiatives proposed by

22 ScottishPower do not result in savings that exceed

23 the cost of those particular programs?

24 A. While I don't recognize the risks you

25 talk about, I certainly agree with you that a rate

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1 cap would be one way to reduce risks.

2 Q. I can appreciate that either you or

3 ScottishPower agree to that, just conceptually that

4 would be one way to provide --

5 A. Yes, sir.

6 Q. -- mitigation of risk to ratepayers?

7 A. Yes, sir. Sorry to interrupt.

8 Q. Do you -- were you working for the

9 Company when PacifiCorp acquired Utah Power some

10 years ago?

11 A. I was working for PacifiCorp, but I

12 worked for a subsidiary of PacifiCorp: NERCO. I

13 was not in the regulated operations at that time.

14 Q. And do you recall what the rate

15 commitments were made at that time as a part of the

16 merger or buyout of Utah Power by PacifiCorp?

17 A. As I said, I was not involved, but I

18 have heard broadly about those rate commitments,

19 yes.

20 Q. You're aware that there were some

21 specific benefits passed on?

22 A. Yes.

23 Q. And is it a fact, Mr. O'Brien, that

24 there's been no increase in rates for Idaho

25 customers since that time?

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1 A. Yes, it is, and I think that some of

2 the exhibits of the Intervenors show that rates have

3 been generally flat, even slightly declined.

4 Q. Now there's been some discussion that

5 I had with Mr. O'Brien (sic) about the cap that was

6 agreed to in Wyoming as a part of some stipulation

7 with their Staff?

8 A. Substitute "Richardson" for "O'Brien,"

9 yes.

10 Q. Mr. Richardson. Excuse me.

11 A. Yes.

12 Q. I think you were present during that

13 testimony?

14 A. Yes, I was.

15 Q. Was it the Company's --

16 PacifiCorp's -- intention to file for a rate

17 increase case in Wyoming?

18 A. Yes. I will confirm Mr. Richardson's

19 representation that in November of last year, we not

20 only talked to the Consumer Advocate Staff in

21 Wyoming, but we also talked to WIEC, which is the

22 Wyoming Industrial Energy Consumers, and basically

23 spoke to both of those people about PacifiCorp's

24 need for a rate filing. And in fact we were

25 proceeding to file rates and we indicated we would

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1 do that sometime in January.

2 In the intervening time, the

3 ScottishPower merger was announced in December.

4 Shortly thereafter, to allow the

5 Commission Staffs and Commissioners to focus on the

6 merger, we suggested that we would delay rate

7 filings for six months. That delay led to two

8 events:

9 One in Wyoming, which I think

10 generally there was a lot of hand ringing by the

11 Staff because they really felt that PacifiCorp was

12 going to file a rate increase, and we couldn't get

13 them to focus on a merger until they found out what

14 the rate increase was going to look like. So the

15 letter agreement was really in response to that.

16 The second piece was actually here in

17 Idaho, where the Idaho Staff was expecting that the

18 Company would file some information about rates and

19 they wanted to ensure that by putting that six month

20 moratorium in there, we were not going back on our

21 commitment which we had made to file that statement;

22 and we ensured them that we would not and that we

23 would file that, and as I mentioned, we have filed.

24 Q. Do you recall testimony by

25 Mr. Richardson earlier when he stated that the

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1 stipulation in Wyoming to cap rates in the merger

2 case was not linked to the rate case?

3 A. Yes.

4 Q. Was not the stipulation in Wyoming a

5 condition as to stipulation to cap rates in the

6 prospective general rate case a condition upon which

7 the Wyoming Staff went on record of approving the

8 merger?

9 A. To be clear, the stipulation was an

10 agreement that ScottishPower, PacifiCorp, and the

11 Staff all signed. The rate agreement is a letter

12 agreement between PacifiCorp and the Staff to which

13 ScottishPower did not sign and they are not a party

14 to that. So if we use the word "rate agreement"

15 instead of "stipulation," what the Wyoming Staff

16 relied on was the stipulation, but I think in their

17 testimony, they also relied on the fact that

18 PacifiCorp was agreeing to reduce rates from where

19 they otherwise thought they could file as part of

20 the discussions that we were having.

21 Q. And when you had your early

22 discussions with Wyoming Staff in November of '98,

23 the Commission -- or, excuse me, the Company gave

24 some indication as to what kind of a rate increase

25 they would seek?

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1 A. We did.

2 Q. And what was the amount of that

3 increase?

4 A. At that time, based on a not-completed

5 1998 year, we were indicating to the Staff that we

6 thought the increase would be somewhere between 35

7 and 45 to $50 million.

8 Q. 35 to $50 million --

9 A. That's correct.

10 Q. -- was the range?

11 A. That's correct.

12 Q. And the cap that was agreed to, as I

13 understand, was that you would limit your filing in

14 1999 to $12 million and to $8 million the following

15 year?

16 A. Those are -- that's correct:

17 12 million, plus 8 million, plus if you read the

18 letter and I'd be happy to give you a copy of it, it

19 also indicates that the Company would be entitled to

20 a dollar-for-dollar increase in rates as a result of

21 any finding that the Wyoming Commission might make

22 with respect to a depreciation case which is

23 currently outstanding in Wyoming.

24 Q. So the caps had perhaps openings under

25 some contingencies that are defined in the letter?

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1 A. In the year 2000.

2 Q. And do those caps amount to an

3 equivalent maximum increase of five percent and

4 three and a half percent?

5 A. Plus the amount from depreciation;

6 that's the point I'm trying to make. It's 12,

7 plus 8, plus whatever we get from depreciation.

8 Q. I had a few questions I wanted to ask

9 you, if I could, regarding the costs associated with

10 the new programs and initiatives that ScottishPower

11 has proposed in this merger case. That's the

12 $135 million cumulative number.

13 Did PacifiCorp participate in the

14 development of those specific cost numbers that

15 total the 135 million?

16 A. We assisted ScottishPower in

17 identification of those numbers, yes.

18 Q. And is it your testimony also that

19 PacifiCorp has not done an independent study or

20 analysis to try to quantify the anticipated savings

21 that might result from any of those various programs

22 and initiatives?

23 A. Yes.

24 Q. And in effect then, from the

25 perspective of us ratepayers, we would not know what

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1 the savings might be unless and until the transition

2 plan was developed?

3 A. That's correct.

4 Q. And once a transition plan is

5 developed, then I assume there will be a period of

6 implementation, and then is it the Company's

7 intention to come back to this Commission at some

8 future date -- I've heard the year 2001 thrown

9 out -- that it would report back as to whether or

10 not they were cost effective and the actual results

11 of the programs? Correct me if I am mistaken on it.

12 A. I don't know actually that we have

13 said here in Idaho that we will come back at any

14 specific point in time and show that. I think what

15 we have said is that the ongoing rate process, the

16 rate of return regulation that this Company will be

17 under, whether its own -- by its existing

18 shareholders or by ScottishPower, would continue in

19 place. And as a result of that, we would be subject

20 to all the rules and regulations regarding

21 investments and the prudency of those investments

22 and the recovery of those investments.

23 Q. Okay. You gauge your answer here, in

24 Idaho, you haven't made a commitment to come back

25 and do a follow-up filing, but have you made that

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1 commitment in other states?

2 A. We actually have a stipulation. Part

3 of the stipulation in Wyoming, that we will have a

4 2001 informational filing.

5 Q. And how about in the state of Oregon?

6 A. I don't think that at this point,

7 since we don't have a final stipulation in Oregon,

8 we have stipulated to that.

9 Q. Could I refer you, please,

10 Mr. O'Brien, to page 42 of the proxy statement we've

11 been referring to, Exhibit 223?

12 COMMISSIONER HANSEN: Mr. Budge, what

13 was that page again, please?

14 Q. BY MR. BUDGE: I'm going to change

15 it. I think I gave you the wrong --

16 Yeah, page 42 of the proxy statement,

17 which is part of ScottishPower Exhibit No. 223?

18 A. You're in a different 42 than I am.

19 Can you tell me which exhibit you're in?

20 Q. Yes. It's -- I'm sorry, it would be

21 the last document in that package in the exhibits,

22 and the document is entitled Amended and Restated

23 Agreement and Plan of Merger, which is restated

24 looks like February 23, 1999?

25 A. 42, Additional Agreements, Access to

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1 Information.

2 Q. Yes?

3 A. Is that the page?

4 Okay, I'm there.

5 Q. Now, as I understand it, ScottishPower

6 has had access to Company personnel -- PacifiCorp

7 personnel -- as well as financial records; and in

8 fact, that you did participate directly with them in

9 developing and quantifying specific costs relating

10 to the proposed programs and initiatives of

11 ScottishPower that we've been discussing?

12 A. Actually, what I said was we

13 participated in the general identification of those

14 costs. I don't want to give that a science that it

15 doesn't have. But we did participate in that, yes.

16 Q. We've also heard testimony from

17 Mr. Richardson, however, that while we had access to

18 personnel and information to develop cost

19 information, we have not had access, for

20 confidentiality reasons apparently, to information

21 to enable us to develop now this transition plan

22 that would identify specifically the savings

23 associated with those programs and issues. Is that

24 correct?

25 A. Are you asking me whether that's a

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1 summary of Mr. Richardson's testimony?

2 Q. Well, maybe I didn't accurately -- I

3 obviously didn't accurately reiterate his

4 testimony. But I recall he testified that under the

5 merger agreement, there were some restrictions in

6 access that ScottishPower had and they couldn't get

7 to information PacifiCorp had that would enable them

8 to prepare the transition plan in advance, and so

9 they won't get to that information until the merger

10 is approved and then over the next six months, they

11 will develop a transaction plan. Is that --

12 A. To try to answer what I think is your

13 question, there have been restrictions on their

14 ability to access information, that is true. I

15 think Mr. Richardson said that.

16 Does that stop them from developing

17 certain costs that they have come up with? Yes, I

18 think it does.

19 Mr. Richardson also testified though

20 under Mr. Galloway's direction that part of the

21 engagement that's required for a transition plan is

22 involvement at all levels of the Company. And as

23 you can see, one of the things that is included in

24 Section 601 of this agreement is something that

25 relates to -- if you look about one, two, three,

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1 four, five, six, seven, eight -- eight lines down:

2 Only to the extent that such access

3 does not unreasonably interfere with the business

4 and operations of the Company.

5 It's an important point, because what

6 Mr. Richardson is saying is to really get his

7 transition plan together, he needs about 60 or 100

8 of my people. Well, we just went through a

9 significant staffing reduction last year. This was

10 a significant point of discussion not only at the

11 time of the merger, but shortly after the merger was

12 announced. I don't have the people right now to

13 participate in that kind of planning, so we have not

14 committed those people, nor will we commit those

15 people until this merger gets done.

16 Q. So is the magnitude of the time

17 commitment by PacifiCorp substantially greater to

18 develop a transition plan than it was to develop the

19 cost of $135 million that we've been discussing in

20 this rate case?

21 A. Absolutely. It will take much more

22 commitment than it does -- what we did roughly is we

23 decided how much it would cost over about a two-week

24 period to determine what would it cost to put the

25 customer initiatives in place to be able to make

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1 sure that we could do the things to be able to put

2 that package in place, track the performance, make

3 sure that we could increase the performance

4 standards of the system.

5 We also took a look at what would it

6 cost to get 50 megawatts of renewables. That wasn't

7 a long study.

8 That's about as much time as we've

9 committed to this.

10 Q. Referring again to this page 42,

11 Article VI, on Additional Agreements, this paragraph

12 entitled 6.01, Access to Information; there doesn't

13 seem to be anything in here that would preclude

14 ScottishPower from accessing any property, books,

15 records, or any other information of PacifiCorp that

16 would be necessary to develop the transition plan.

17 Would you agree to that?

18 A. No, I don't. I think I read the

19 provisal which says But only to the extent that such

20 access doesn't reasonably interfere with the

21 business and operations of the Company.

22 Q. So it's been a judgment or decision of

23 PacifiCorp management then that they don't have the

24 personnel and time to make available to enable a

25 transition plan that would have been developed by

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1 this filing?

2 A. I think it's personnel, time, and

3 commitment.

4 Q. But if I understand it correct then,

5 if this Commission grants merger approval today,

6 then all of a sudden you will have the time and

7 commitment to do those things?

8 A. Absolutely. Could I restate: When

9 all the Commissions approve it.

10 Q. Would you agree that philosophically,

11 if this Commission today had before it the

12 quantification of the exact amount of savings that

13 ScottishPower expects to realize from its transition

14 plan, that it then would have a basis to pass those

15 savings in specific amounts through to the

16 ratepayers?

17 A. Did you ask me if I thought they could

18 or if I thought they would?

19 Q. Would the Commission have a more

20 accurate basis to pass through savings to the

21 ratepayers on its rates if those savings were

22 actually known today and quantified?

23 A. I think they would.

24 Q. Do you know, there was some discussion

25 with Mr. Richardson of the -- how the $10 million in

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1 known and quantified corporate savings might be

2 allocated to the Idaho jurisdiction. Do you know

3 that allocation factor on the top of your head,

4 approximately?

5 A. Off the top of my head, no, but I'm

6 going to say it's probably going to be somewhere

7 around seven percent.

8 Q. So would you agree then that seven

9 percent of the ten million -- or about 70,000 --

10 would be the --

11 A. No.

12 Q. -- or, 700,000. Excuse me.

13 A. There you go.

14 Q. My math is poor.

15 -- would be the quantified allocation

16 of those cost savings to the Idaho jurisdiction?

17 A. Under my math, yes, if it's seven

18 percent.

19 Q. And I had a few other questions: In

20 the Exhibit 224, which is the ScottishPower Listing

21 of Particulars, there was indication there that in

22 February 9 of '99, that a PacifiCorp Scott -- excuse

23 me -- PacifiCorp stock initiative plan was adopted

24 which granted a 1,892,000 in stock options at $19,

25 exercisable for ten years. It did not indicate who

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1 those options went to. Do you know who would secure

2 the benefit of those stock options?

3 A. Broadly, yes. Broadly would be the

4 PacifiCorp officers. And I don't -- I have to think

5 about this actually and perhaps we could provide you

6 with a supplemental on this.

7 Q. I think generally I just needed to

8 know who they went to.

9 A. I think generally that's true. We did

10 have another grant of options which was

11 Company-wide, and I'm not sure if that's included in

12 the million number or not, that's why I'm

13 hesitating.

14 Q. I had a couple areas concerning the

15 public interest criteria that's presented to this

16 Commission. What's your understanding of the

17 purpose of this hearing as it relates to meeting

18 that public interest standard?

19 MR. GALLOWAY: Objection. Calls for a

20 legal conclusion.

21 COMMISSIONER HANSEN: Mr. Budge.

22 Q. BY MR. BUDGE: Let me ask it in a

23 different way:

24 Would you agree that the purpose of

25 this hearing, in part, is to determine whether or

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1 not the costs of the merger are in the public

2 interest?

3 A. Did you say one part of it would be?

4 Q. Would some aspect of this proceeding

5 that the Commission is faced with in making a

6 determination as a result of this hearing process is

7 whether the costs of the merger are in the public

8 interest?

9 A. Yes.

10 Q. And would you also agree then that the

11 part of the hearing is also to determine whether or

12 not the benefits of the proposed merger are in the

13 public interest?

14 A. Yeah, I think the standard here is no

15 harm. I think they need to make a determination

16 whether or not the cost and benefits are lined up in

17 a way that this transaction should go forward.

18 Q. Then would you also agree,

19 Mr. O'Brien, that we won't know if the benefits meet

20 the public interest standard for six months until

21 the transition plan is developed that determines

22 whether or not they're cost effective?

23 A. No, I don't agree.

24 Q. I had a few areas of question that

25 Mr. Richardson diverted to you which were probably

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1 misplaced to him in the first place. I'd like to

2 address those, if I could.

3 There was an estimate given that the

4 total transaction costs might be in the $250 million

5 range. Do you recall that?

6 A. I recall a lot of discussion about

7 costs, and I'm not sure what's in your 250 million.

8 Q. Okay. And I think that amount was

9 referring to the transaction costs from Pacific- --

10 or, ScottishPower's perspective only.

11 Do you know what the transaction costs

12 to date are for PacifiCorp?

13 A. I think they are approximately 20 --

14 $22 million. I think at the end of the year we had

15 about $13 million as a result of our shareholders

16 approval. We had another payment to our investment

17 bankers. I think at this point our total is a

18 little over $20 million.

19 Q. There was some questions regarding

20 these identified transaction costs, and I'm not

21 going to go into each one individually, but the

22 cumulative lump of transaction costs that were

23 identified total some $135 million. Basically

24 accept that number subject to check?

25 And would you agree that approximately

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1 90 percent of that, or $120 million, would be costs

2 that would be above the line and paid by the

3 ratepayers?

4 MR. GALLOWAY: Mr. Chairman, did

5 Mr. Budge say transition costs or transaction?

6 Q. BY MR. BUDGE: I said transition

7 costs. If I said transaction, I meant to say

8 transition costs.

9 Basically, the costs of the programs

10 and initiatives proposed by ScottishPower?

11 A. And your question is whether

12 90 percent of that would be above-the-line.

13 I could try to restate

14 Mr. Richardson's testimony, I'm not sure if that's

15 helpful, but I think what he said is that

16 renewables, the 60 million, if I understand your

17 135 -- I'm going to try to get there -- 60 million

18 in renewables, 55 million in customer service and

19 other benefits. Is that correct? That gets me to

20 115 unless I'm adding wrong. I'm missing some

21 $20 million. The 60 million, I think Alan has

22 already said that that will be the subject of a

23 prudency hearing with respect to the 50 megawatts of

24 renewables, and I think on the others he said it

25 would be subject to cost effectiveness and the

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1 ability to recover, and I think he gave you an

2 indication for what the time line for those

3 investments would be.

4 Q. Let me ask you specifically about

5 those again rather than you and I both guess on

6 whose testimony. Basically, there was a number for

7 customer guarantees or something, $15 million that

8 would be a ratepayer cost above the line?

9 A. Did you say "15" or "50"?

10 Q. Fifteen, one-five, in customer

11 guarantees.

12 MR. GALLOWAY: Mr. Chairman, this line

13 of questioning seems to be entirely repetitive of

14 Mr. Richardson's testimony.

15 MR. BUDGE: This was a line of

16 questioning that Mr. Richardson directed to me we

17 ask Mr. O'Brien.

18 MR. GALLOWAY: I don't believe so.

19 COMMISSIONER HANSEN: I believe that

20 was my understanding, that he did refer those

21 questions to Mr. O'Brien, and so I'm going to allow

22 the questions.

23 MR. GALLOWAY: I believe he referred

24 questions regarding the transaction costs to

25 Mr. O'Brien, but I think the questions concerning

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1 the transition costs are ones he answered; and to

2 the extent he referred them anywhere, it was to

3 Graham Morris.

4 MR. BUDGE: The $135 million and

5 particular aspects of that I am discussing are

6 referred to in Mr. O'Brien's testimony, I believe,

7 as identified transaction costs. We're talking --

8 I'm talking about identified transaction costs.

9 MR. GALLOWAY: Transaction costs.

10 MR. BUDGE: This is essentially

11 ScottishPower's estimate of $135 million in total

12 that they will spend on new programs, initiatives,

13 and training to bring its package of benefits to

14 PacifiCorp customers.

15 MR. GALLOWAY: Well, my concern is you

16 keep using the word "transaction" costs when I think

17 in most contexts people have referred to these as

18 "transition" costs, and the record gets confused.

19 MR. BUDGE: Well, the one I'm

20 referring to -- you can call them transition or you

21 can call them transaction, but I'm referring to the

22 costs of the new programs and initiatives identified

23 specifically by PacifiCorp -- excuse me, by

24 ScottishPower that they intend to bring to

25 PacifiCorp, and there are some specific amounts that

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1 are shown there on Response to the Commission

2 Staff's Data Request 33-36. They're also shown

3 specifically in Mr. Anderson's exhibit to his

4 testimony, and I think we've been discussing them

5 throughout most of the testimony, and this is the

6 proper finance witness to ask whether those

7 expenditures will be paid by the ratepayers of the

8 Company.

9 MR. GALLOWAY: That's fine. I just

10 think that the record is muddied when we refer to a

11 commitment by ScottishPower to not impose

12 transaction costs on customers and when you use the

13 word "transaction" costs, I think we lose a sense of

14 where this is going. But if we understand they're

15 transition costs, that's fine.

16 COMMISSIONER HANSEN: I think that's

17 been cleared up now to understand. I think we can

18 continue on.

19 Q. BY MR. BUDGE: If we go through

20 specifically, one of the programs are guaranteed to

21 customers, and those guarantees were expected to be

22 $15 million in costs. And my question is simply is

23 that not a cost that would be a ratepayer cost above

24 the line?

25 A. Yes.

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1 Q. And as far as the performance

2 standards that are to be developed and implemented,

3 I think the cost to the Company's filing was

4 something in the range of 41 and a half million

5 dollars. Would they also be above the line?

6 A. Yes.

7 Q. And as far as the training and open

8 learning center initiative of $6 million, that would

9 be a ratepayer cost above the line?

10 A. Yes.

11 Q. And there was a PacifiCorp Foundation

12 contribution of five million. That would be a

13 below-the-line cost --

14 A. That's correct.

15 Q. -- of ScottishPower?

16 A. That's correct.

17 Q. And how about customer care

18 initiatives of $6 million? I didn't see that that

19 was determined in the filing -- if you know.

20 A. I don't.

21 Q. We are not sure whether that's above

22 or below the line. Maybe that hasn't been

23 determined?

24 A. I don't know.

25 Q. I think you also already testified

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1 that the renewable generation of 60 million would be

2 a ratepayer cost?

3 A. Yes.

4 Q. There's some other expenditures that I

5 started into with Mr. O'Brien (sic) that I need to

6 explore with you, and they're mostly addressed in

7 the proxy statement beginning on page 55. Again,

8 this is a proxy statement in Exhibit 223. There is

9 discussion of the executive severance plan?

10 A. Yes.

11 Q. Is that executive severance plan

12 that's described there applies to 27 -- excuse me,

13 26 executives at PacifiCorp. Is that correct?

14 A. I think that's correct.

15 Q. And would those be all of the top 26

16 executives of the Company?

17 A. Yes.

18 Q. The amount did not appear to be

19 quantified here in the proxy statement on page 25,

20 but there's been some indication given in the record

21 that that's a $20 million figure. Would you accept

22 that?

23 A. Generally, yes.

24 Q. So if I understand it correctly, the

25 purpose of this severance plan would be to pay any

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1 of those top executives who were to leave the

2 Company and not stay on with ScottishPower an amount

3 that's equal to two or two and a half or three times

4 their annual cash compensation?

5 A. That's correct.

6 Q. And would this be a cost, this

7 severance plan be a cost to the ratepayers if those

8 employees chose to leave and take the severance?

9 A. It would be a cost to the ratepayers

10 only to the extent that it would be the normal

11 severance that the Company would pay. Because this

12 is a change in control, there is another trigger in

13 the plan which increases the amount of the benefit.

14 I think it is the Company's position that that

15 amount would be recovered for the basic severance

16 package so long again as we could meet the standard

17 of whether or not it was cost efficient. The amount

18 above that for the change in control would be a

19 below-the-line expense.

20 Q. So is it your understanding then that

21 ScottishPower at least would hold the authority to

22 choose to terminate any or all of the top-level

23 executives of PacifiCorp, and then would decide --

24 which would trigger whether or not this severance

25 plan applies?

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1 A. For every top executive except for

2 myself, ScottishPower gets to decide.

3 Q. And should they choose to retain a

4 top-level executive, would you expect that that

5 executive would be required to be compensated in an

6 amount greater than the severance plan to stay?

7 A. No. No, I wouldn't.

8 Q. Not necessarily related.

9 Also on page 57 of that particular

10 proxy we've been referring to, it identifies

11 payments being made to nonemployee directors of

12 $50,000 each. Do you see that?

13 A. I do.

14 Q. And is that basically compensation for

15 the fact that they would lose their position as a

16 result of the merger?

17 A. Yes.

18 Q. And there's also?

19 A. Below the line, by the way.

20 Q. Excuse me?

21 A. Below the line, by the way.

22 Q. Below-the-line expense?

23 A. And you can confirm this with

24 Mr. Morris, but I'm giving you the Company's

25 interpretation.

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1 Q. There's a retention in bonus incentive

2 plan -- excuse me. Strike that. Let me back up.

3 On the payments to directors, how many

4 directors does that apply to, the 50,000 each?

5 A. To the nonexecutive directors and I

6 think at this point, I think there are seven.

7 I don't have my annual report or I

8 could count faces.

9 Q. There's also identified on page 57 a

10 retention in bonus incentive, and does that relate

11 to an incentive to retain certain key employees of

12 PacifiCorp?

13 A. A portion of it does, yes.

14 Q. Do you know what the total cost of

15 that program is?

16 A. I do.

17 Q. What is that?

18 A. The estimated cost of the retention

19 agreements is $7 million.

20 Q. There is also a program called --

21 excuse me. Is that a below-the-line or

22 above-the-line expense?

23 A. That's below the line, is my

24 understanding.

25 Q. And there is also what's entitled

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1 Employee Recognition Bonus, which I understand

2 from -- is $8.5 million. Is that correct?

3 A. That is correct.

4 Q. Is that above or below the line?

5 A. Yes.

6 Q. Which one: Above or below the line?

7 A. Both.

8 Q. Some in each?

9 A. Yes.

10 Q. If I can have just a second, I'll

11 finish up here.

12 COMMISSIONER SMITH: Certainly,

13 Mr. Budge.

14 (Discussion off the record.)

15 Q. BY MR. BUDGE: Thank you,

16 Mr. O'Brien.

17 MR. BUDGE: I don't have any further

18 questions.

19 COMMISSIONER SMITH: Okay.

20 MR. NYE: I have no questions.

21 COMMISSIONER SMITH: Mr. Ward.

22 MR. WARD: No questions. Thank you.

23 COMMISSIONER SMITH: Mr. Richardson.

24 MR. RICHARDSON: Thank you,

25 Madam Chairman, Madam Commissioner.

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1 CROSS-EXAMINATION

2

3 BY MR. RICHARDSON:

4 Q. Mr. O'Brien, has the Company ever

5 considered selling its Idaho service territory?

6 A. The Company has sold portions of its

7 Idaho service territory. Historically, the piece

8 around Sandpoint was sold, if I'm not mistaken, in

9 1995. The balance of the portion of its service

10 territory we haven't recently considered that in my

11 history at PacifiCorp.

12 Q. And has anyone approached the Company

13 with an offer to purchase your Idaho service area?

14 A. People approach us all the time about

15 purchasing all sorts of things. I don't necessarily

16 recall an approach in Idaho, but it wouldn't

17 surprise me that that could have happened.

18 Q. And your testimony, is it your

19 position that the Idaho service territory is not for

20 sale?

21 A. No, it's not.

22 Q. And is that because it's part of your

23 core electric business?

24 A. Yes, sir.

25 Q. And back in October of '98, the

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1 Company announced that it intends to refocus on its

2 core electric business. Correct?

3 A. Yes, sir.

4 Q. And that would include electric

5 distribution systems?

6 A. In all places but California, which we

7 announced at the time in October that we were

8 selling our California jurisdiction for other

9 reasons.

10 Q. And didn't you also sell your Montana

11 service territory after the Company made that

12 announcement?

13 A. Actually, we were in discussions to

14 sell the Montana service territory far in advance of

15 that refocus announcement, but yes, we did sell it.

16 Q. The sale was after that announcement.

17 Correct?

18 A. It was, yes.

19 Q. And would you characterize Montana as

20 not part -- the Montana distribution service

21 territory as not part of your core electric

22 business?

23 A. We don't own it.

24 Q. Would you have characterized it as

25 part of your core electric business when you owned

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1 it?

2 A. I would not have. I think several

3 people in the Company probably did, yes. It was

4 remote, it was far flung, it was very difficult for

5 the Company to serve, and like California, I think

6 that the Company provided very little in the future

7 for customer benefits in those areas.

8 Q. And how many customers did you have in

9 Montana?

10 A. I don't recall the precise number.

11 Q. About 35,000, does that sound right?

12 A. That sounds about right, yes.

13 Q. And how many do you have in Idaho?

14 A. If you'll give me a minute, I can

15 actually find it. I don't have it on the top of my

16 head.

17 COMMISSIONER HANSEN: We'll go at ease

18 for a minute.

19 (Discussion off the record.)

20 THE WITNESS: The Company has, in

21 total, about 53,000 customers in Idaho.

22 Q. BY MR. RICHARDSON: And how many

23 customers total does the Company have?

24 A. In total, about 1.4 million.

25 MR. RICHARDSON: That's all I have,

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1 Mr. Chairman.

2 COMMISSIONER HANSEN: Thank you. Go

3 to the Staff. Mr. Purdy.

4

5 CROSS-EXAMINATION

6

7 BY MR. PURDY:

8 Q. I just have one area I believe

9 Mr. Richardson deferred to you, my question

10 regarding the PacifiCorp Foundation, so maybe you

11 could enlighten us a little bit on that. My

12 question essentially was how will contributing

13 $5 million to that Foundation directly benefit the

14 Company's Idaho customers?

15 A. I would hope that the contribution of

16 $5 million would increase the Company's giving

17 ability. In re-examining that giving ability, I

18 think we would try to direct the contributions on a

19 more rational basis than the Company has in the past

20 in terms of how much has gone to each of the various

21 service territories. So it's my hope that those

22 investments would help Idaho customers and

23 communities by making effective contributions from

24 the Foundation, which is a below-the-line expense

25 and one that really is the Company trying to be a

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1 part of the community.

2 MR. PURDY: One second.

3 (Discussion off the record.)

4 MR. PURDY: Thank you. That's all I

5 have.

6 COMMISSIONER HANSEN: Let's see if we

7 have any questions from the Commission.

8 Commissioner Kjellander.

9

10 EXAMINATION

11

12 BY COMMISSIONER KJELLANDER:

13 Q. Just have one question:

14 In your last response, you mentioned

15 more rational contributions. I guess I'm going to

16 pick you on that just a little bit. That would

17 indicate that today those contributions are

18 irrational by characterization. What's irrational

19 about them today?

20 A. Actually, I think there are levels of

21 rationality. I think what we do is it's more

22 sporadic giving based on active employees coming

23 forward with good suggestions, and I think the

24 Company has a limited amount of money to spend, and

25 like anything else, I think when you reach that

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1 level, you stop. And I think what we need to do is

2 make sure that we "reprioritize" is probably a

3 better way to say it than "rationalize," to

4 prioritize in a way which is really more fair.

5 Q. As a follow-up, all the money that

6 ends up in the Foundation originally comes from

7 pockets of ratepayers. Is that correct?

8 A. No, it's not.

9 Q. Okay.

10 A. It's clearly not. What was put into

11 the Foundation was money that PacifiCorp

12 shareholders funded into the Foundation. This is

13 really supposed to be an investment by the Company's

14 shareholders back into the communities from which

15 the money comes from that they earn.

16 Q. Are you familiar at all with what the

17 assessment of the communities' needs are before you

18 go out and invest in a project? What role do

19 ratepayers and members of the community have in

20 helping to guide the direction of some of those

21 projects?

22 A. The community really interfaces

23 through our employees, and as I said, I think it's

24 the employee voices that carry forward, the sort of

25 guiding principles of the Foundation. And I think

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1 we have an anticipation that employees are the best

2 place for us to identify what community needs are.

3 We do not go through a rigorous assessment of all of

4 the communities we serve and where their highest

5 priorities are, but we'd be more than happy to

6 provide you with a report on where the Company has

7 expended its money in its Foundation to let you see

8 how we have focused in on areas where we think we

9 can provide some ongoing commitments to efforts like

10 education, efforts like trying to make sure that

11 communities have programs that can involve children

12 along the way in either educational projects or

13 environmental projects. And we have a whole host of

14 activities that we sponsor.

15 COMMISSIONER KJELLANDER: Thank you.

16 COMMISSIONER HANSEN: Commissioner

17 Smith?

18

19 EXAMINATION

20

21 BY COMMISSIONER HANSEN:

22 Q. I have a couple of questions. I guess

23 the first question I would ask is have earnings

24 improved over the last five years with PacifiCorp or

25 have they gone down?

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1 A. For the corporation, they have gone

2 down.

3 Q. I thought I heard you say also earlier

4 to a question that operating -- the Company was not

5 at an efficient level now. Is that true? Is that

6 what you said?

7 A. I hope that's not a direct quote. I

8 think we are getting more efficient in how we

9 operate the Company. We have some improvement that

10 we need to make.

11 Q. What would you suggest is the reason

12 that over the last, say, couple of years or three --

13 because I understand you're getting better now, as

14 you say. What do you think the cause was for the

15 inefficiency of the Company that you said happened?

16 A. Let me be clear that I think the

17 employees of our Company have -- especially in our

18 electric operations -- have continued to do the job

19 that we have asked them to do. I think that the

20 Company had underinvested in some areas, including

21 technology and including its approach to how it did

22 work in all areas of the business.

23 But notwithstanding the employees'

24 commitment and I think the employees' best effort to

25 deliver good service in the domestic electric

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1 business, I think that at the most senior management

2 level of the Company, I think there was less

3 emphasis given to the domestic electric operations

4 than there should have been for a period of time.

5 And that period of time really came about as result

6 of the energy group transaction which the Company

7 embarked on using the unregulated balance sheet of

8 the Company. We made a decision to try to acquire

9 expertise to assist our domestic electric business

10 and our business practices in total through an

11 acquisition of the energy group. That acquisition

12 was announced on Friday, June 13 of 1997. Never

13 announce a transaction on Friday, June 13.

14 On August 1st, our transaction was

15 sidelined by Margaret Beckett, who at that time was

16 the director of trade and industry in the UK; and at

17 that point, the Company had a transaction which,

18 under the UK law, the transaction was void. The

19 Company had committed an immense amount of time and

20 money to putting that transaction in place.

21 At that point, we were referred to the

22 equivalent of the Federal Trade Commission, the

23 Monopolies and Mergers Commission in the UK. We

24 spent several months as a management team trying to

25 get the transaction put through.

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1 We came out in December with the green

2 light to proceed with the transaction. Shortly

3 thereafter, although it's not as short as it sounds,

4 February 2nd of 1998, we announced another

5 acquisition plan for the energy group and within two

6 months we were topped by Texas Utilities.

7 At that point, the Company had endured

8 some $80 million pretax in a foreign exchange

9 transaction loss. We had experienced about

10 $80 million of costs related to the energy group.

11 We had also lost money in the Eastern energy trading

12 business in June of last year, June and July during

13 the hot months of summer, and the Company

14 reported -- underreported earnings in three

15 consecutive quarters to Wall Street. So this was a

16 Company that was under immense pressure from its

17 shareholders because our stock price had traded up

18 as high as $27 at the end of 1997, because people

19 thought we were going to be able to successfully

20 complete that transaction. We were not able to do

21 that. We had missed our earnings expectations three

22 quarters in a row. We had embarked on some cost

23 reductions to try to get the business more stable.

24 It turned out in August that the board

25 had had their fill of missed projections, had had

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1 their fill of global expansion in terms of our doing

2 global expansion. At that point, the board decided

3 to change its CEO, and we refocused. And I think

4 all of that left the Company on very shaky legs in

5 terms of where were we going to be going forward,

6 and that is why we have the refocus program so that

7 people knew we were going to focus our energies on

8 the domestic electric business as Mr. McKennon, our

9 CEO, has stated, going back to our roots.

10 I know that's a long answer, but there

11 are a lot of things that have happened to this

12 Company which have left us in a position where we

13 are financially vulnerable.

14 Q. So are you basically saying that

15 senior management then that was probably responsible

16 for the dip in performance?

17 A. I am.

18 Q. Is this the same senior management

19 that you're proposing are being proposed to receive

20 $20 million in severance pay or bonuses?

21 A. No, I think some of these people have

22 already left the Company or been reassigned.

23 Q. So the people, the 26 or 27 executives

24 that could qualify for the severance or bonus pay,

25 are you saying that none of those would be

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1 responsible for the dip then in service quality and

2 that with PacifiCorp?

3 A. No, I'm not saying that. I think that

4 some of the portion of some of their work would

5 relate to this. I don't think all of the portion of

6 all of their work would relate to this problem.

7 Q. One question I'd like to ask you, and

8 this probably relates more to a rate case, but with

9 your evaluation of the Company's performance over

10 the last couple of years, do you think that could

11 have an effect on the rate of return that they're

12 allowed to make?

13 A. I think there are several things that

14 should go into a rate of return calculation.

15 Q. I agree, but do you think that's one

16 that would be considered?

17 A. Not unless other things were

18 considered, no.

19 Q. But along with others, it could be --

20 A. Yes.

21 Q. -- a consideration?

22 A. Yes.

23 Q. I guess I had the question that I'd

24 asked earlier -- oh, one other question before I get

25 to that:

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1 PacifiCorp has already reduced the

2 number of its support centers and reorganized its

3 customer service in Idaho. We've seen a lot of the

4 smaller communities, those service centers close.

5 Do you see any more consolidation or

6 closure of service centers in Idaho?

7 A. I don't see any further closure of

8 service centers. What we have closed is customer

9 offices, which don't generally relate to the

10 servicement in the field, but relate to how bills

11 are paid and how orders are taken. I don't see any

12 further consolidation in the service centers. I

13 don't currently foresee any further consolidation in

14 the customer service centers.

15 Q. The last question I had, and I asked

16 Mr. Richardson earlier and he referred the question

17 to you:

18 Can you tell me what the $5 billion is

19 going to be used for that I had asked him the

20 question earlier on?

21 A. Yes, the unsecured debt that the

22 Company received approval for from its two

23 shareholder classes was -- we sought approval

24 because we could, because we had a shareholder

25 meeting. Because we were offering preferred

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1 shareholders incentive to vote, we knew we could get

2 their vote.

3 And the reason that we sought that is

4 because the Articles of Incorporation of PacifiCorp

5 have had a longstanding limit on unsecured debt.

6 That has forced the Company in the past -- in the

7 most recent past -- to at times have to issue

8 long-term secured debt when it may have been a

9 little more favorable for the Company to issue

10 short-term unsecured debt.

11 As a result of that, and as a result

12 of the general view of deregulation and what might

13 happen to securities of utility companies going

14 forward -- and that relates to the potential for

15 disaggregation, that the view that utility bonds

16 have generally limited how companies can

17 disaggregate -- and trying to provide some

18 flexibility for the Company going forward, we

19 determined that we would ask for an increase.

20 We have an outstanding goal for the

21 Company to maintain a single A rating for the

22 Company. How much debt the Company issues is really

23 set by that one. This was really about what mix of

24 debt, what's the optimum mix of debt the Company

25 might want to use between unsecured short term,

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1 unsecured long term, and bonded indebtedness of the

2 Company. We have no plan to rush out and spend

3 $5 billion. We really just had a leverage point

4 with the shareholders to be able to get this

5 approval so in the event the merger doesn't go

6 forward, the Company has some more flexibility in

7 its capital structure. As I said earlier, if the

8 merger does go forward, this is really just a moot

9 point.

10 COMMISSIONER HANSEN: Mr. Galloway, do

11 you have any redirect?

12 MR. GALLOWAY: I do.

13 COMMISSIONER HANSEN: Okay.

14

15 REDIRECT EXAMINATION

16

17 BY MR. GALLOWAY:

18 Q. Mr. O'Brien, Mr. Budge asked you about

19 the PacifiCorp's multinational strategy that

20 preceded the refocus program. Do you recall that?

21 A. I do.

22 Q. Did that strategy include activities

23 of various sorts in Turkey, the Phillipines, India,

24 Norway, as well as Australia and the United Kingdom?

25 A. Yes.

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1 Q. Does that multinational strategy bear

2 any similarity to the strategic direction that you

3 perceive that ScottishPower is undertaking?

4 A. No, ScottishPower's strategy is much

5 more focused on one or two different areas,

6 including expansion in the multiutility area in the

7 UK, and expansion in the US.

8 Q. Have they evidenced any interest in

9 Turkey or the Phillipines or India that you have

10 seen?

11 A. No.

12 Q. Again, as to the refocus initiatives,

13 in your view, is there any material duplication

14 between the initiatives that you're taking in cost

15 reductions in the refocus initiatives and your

16 expectations of what PacifiCorp can accomplish in

17 partnership with ScottishPower?

18 A. No duplication.

19 Q. In response to the questions about the

20 unsecured debt, do I understand it that you have no

21 specific plans, insidious or otherwise, for the use

22 of that?

23 A. We do not have any plans, especially

24 insidious plans.

25 Q. You stated that the use of the

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1 duly-authorized unsecured debt was unrestricted. Do

2 you recall that?

3 A. I did say that.

4 Q. And you meant that, did you not, in

5 the context of the Articles of Incorporation?

6 A. Yes.

7 Q. In fact, in order to issue that debt,

8 the approval -- actually issue it -- the approval of

9 several Commissions would be required, would it not?

10 A. That's correct.

11 Q. And nothing about the proposed

12 transaction with ScottishPower changes the

13 Commission's authority to review the prudence of any

14 issuance of debt, does it?

15 A. No, it does not. Nor does it change

16 creditors' willingness -- or rather debtors'

17 willingness to purchase said debt.

18 Q. So, in fact, as a practical matter,

19 the issuance of that debt is restricted both by

20 regulatory limitations and the practicalities of

21 maintaining an appropriate --

22 A. Market conditions.

23 Q. Okay. I believe you misspoke and I

24 want to make sure the record is clear. If you

25 indicated that preferred shareholders were paid to

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1 vote on the merger, would that have been accurate

2 testimony of ScottishPower?

3 A. Would that have been accurate

4 testimony? Yes.

5 Q. Okay.

6 A. Did I not say that?

7 Q. And when you say you had a free ride,

8 is that because you already expected their votes on

9 the merger because of the compensation and they

10 would therefore vote for the change in the Articles?

11 A. That's correct.

12 Q. Is the expectation that the payment to

13 the preferred shareholders will be above the line or

14 below the line?

15 A. Should be below the line. We should

16 be able to show financing savings which would

17 indicate that that payment would be saved which we

18 couldn't have gotten without this.

19 Q. Mr. Budge asked you about a mitigation

20 of risk associated with ScottishPower's proposed

21 investments in enhanced service standards. Do you

22 recall that?

23 A. I do.

24 Q. And he had some notion that a rate cap

25 might be an appropriate means of mitigating that

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1 risk. Do you recall those questions?

2 A. I do.

3 Q. Who is at risk, in your view, in those

4 investments?

5 A. Shareholders.

6 Q. Are you aware of any customer risk

7 that needs to be mitigated?

8 A. No.

9 Q. Are ScottishPower's plans for

10 refocusing investment in the business any different

11 than what PacifiCorp could do on a standalone basis?

12 A. Yes. The ScottishPower team has both

13 an impressive record of actually instituting

14 long-term measures that reduce costs, and they have

15 an impressive tool set to get that done.

16 PacifiCorp, on the other hand, has

17 taken a one-off approach generally to cost

18 reductions, which don't always equate to cost

19 efficiencies. Cost reductions can be scurried out

20 but sometimes just come back. And you really need

21 cost efficiencies to keep the long-term focus on

22 cost reductions.

23 PacifiCorp, I think with

24 ScottishPower, has the capability to employ the

25 tools that ScottishPower uses to make long-term

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1 effective cost reductions, which, as I said, should

2 lead to costs and prices lower than they would be

3 with PacifiCorp.

4 Why do I think that? Because I think

5 that PacifiCorp, while we have good employees and

6 good intentions, I think that we have not learned as

7 much as ScottishPower has had to learn in its

8 history, and that learning curve can be expensive.

9 Whether it's a technology learning curve where if

10 you are the first-time investor in technology, you

11 have much more risk than if you are down the road.

12 It's an engineering learning curve where sometimes

13 they have had the learning and the relearning, and

14 as a result of that, we can use that experience to

15 reduce the costs and to increase the certainty of

16 being able to get those cost efficiencies through.

17 And I think that it's -- for

18 PacifiCorp on its own, it's not enough to give us an

19 instruction manual for how to reduce costs. It's

20 really important to bring with that the people and

21 the experience who can help you use that instruction

22 manual to really be effective in reducing costs.

23 Q. My question went more to a more

24 narrower regulatory issue, which is that on a

25 standalone basis, could you, as chief operating

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1 officer, decide to spend $600 million on improving

2 anything that you thought needed improvement?

3 A. No.

4 Q. Would you need -- would you need any

5 regulatory approval to do that?

6 A. At some point, the Company would be at

7 risk -- substantial risk -- if we made investments

8 without getting regulatory review and including it

9 in rates.

10 Q. But there's nothing about this

11 transaction, is there, that changes the paradigm

12 where in the first instance --

13 A. Shareholders.

14 Q. -- the Company makes investments

15 and -- but it is at risk in ultimately recovering

16 them through rates?

17 A. Nothing in this transaction changes

18 that at all. Shareholders are at risk first for the

19 costs that have to be spent, and then we will make a

20 determination in rate hearings as to what will

21 actually be recovered.

22 Q. So there's nothing unique about a

23 decision to divert $55 million over a five-year

24 period to a new initiative as ScottishPower is

25 suggesting?

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1 A. No. I mean the Company spends in

2 excess of 400 and some million dollars a year on

3 distribution-related expenditures. Over the

4 five-year period, that's two million -- about

5 $2 billion. We redirect money all the time.

6 Q. And you don't get prior approval from

7 regulators before you do that, do you?

8 A. No. We don't get prior approval. We

9 are at risk that the things we were investing in

10 will actually be things that can either be put into

11 rate base or will provide efficiencies; otherwise,

12 we won't get recovery.

13 Q. You may have testified that PacifiCorp

14 told the Wyoming Staff that it intended to increase

15 prices by 35 to $50 million. Would it be more

16 accurate to say that you told the Wyoming Staff that

17 you could do that based on the numbers that were

18 presented, as opposed to saying that was your

19 intention?

20 A. Yes, it would be, to say we could do

21 that, yes.

22 Q. Mr. Budge asked you if we had a

23 transition plan in hand, it would be easier for the

24 Commission to determine what savings should be

25 passed through to customers. Do you recall that?

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1 A. Yes.

2 Q. And you agreed to that proposition as

3 he stated?

4 A. I did.

5 Q. Do you believe it is appropriate for

6 savings to be passed through to customers before

7 they're realized?

8 A. Absolutely not.

9 Q. Does a rate case provide an

10 opportunity to pass through savings that are

11 realized to customers?

12 A. Yes, it's a great mechanism, because

13 it allows for review of the expenditures to make

14 sure they're prudent. Then if costs come down,

15 customers benefit.

16 Q. And is the quality and accuracy of

17 information presented in a rate case as to actual

18 savings that have been enjoyed superior to what you

19 would expect from a transition plan?

20 A. Absolutely, because it's facts versus

21 hypothetical.

22 Q. You were also asked whether one of the

23 functions of the Commission in these proceedings was

24 to determine whether the, quote, costs of the merger

25 were in the public interest. Do you recall that?

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1 A. I do.

2 Q. And you agreed with that?

3 A. I did.

4 Q. Are you able to identify any costs of

5 the merger that are expected to be borne by

6 customers?

7 A. Not in the first instance. As I said,

8 they're all to be borne by shareholders.

9 Q. Okay. So when one weighs costs versus

10 benefits, and if that equation has to be zero or

11 positive, if by virtue of the algebra, is there a

12 problem in arriving at a conclusion that the

13 statutory standards are met?

14 A. No, not at all, no problem.

15 Q. Because?

16 A. Because zero equals zero if you look

17 at it that way.

18 Q. Okay. And even in respect to the

19 $55 million that is intended to be spent over five

20 years on service standard improvements, you

21 understand that it is Scottish Power's intention to

22 find offsetting savings so that there's no net

23 burden on customers?

24 A. I understand that, yes.

25 Q. And it's also your understanding that

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HEDRICK COURT REPORTING O'BRIEN (Com)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp

1 it is ScottishPower's intention to demonstrate the

2 prudency of that $55 million of expenditures?

3 A. Yes.

4 Q. You were asked a series of questions

5 about what costs were above the line and below the

6 line. Do you recall that?

7 A. I do.

8 Q. And as to those that you identified as

9 being above the line, is it your expectation that in

10 this proceeding, the Commission is being asked to

11 agree that those costs are appropriately in rates?

12 A. No, I think he was asking my opinion

13 of where I thought they should go. I think it would

14 accurately be determined in a rate case.

15 Q. And in the first instance, aren't all

16 these costs below the line?

17 A. Absolutely.

18 Q. You testified as to the refocus

19 program and the early out program and the enhanced

20 severance. Do you recall that?

21 A. I do.

22 Q. And there were about 900 employees

23 associated with that --

24 A. That's correct.

25 Q. -- program?

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HEDRICK COURT REPORTING O'BRIEN (Com)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp

1 And there are costs associated with

2 those severance programs, are there not?

3 A. There are.

4 Q. And those costs or costs like them are

5 routinely included in rate proceedings above the

6 line where there can be a demonstration on balance

7 they saved money for customers?

8 A. That's correct.

9 Q. And when you said that some portion of

10 the executive severance payments that might arise

11 going forward could be included above the line, did

12 you intend any departure from the normal way in

13 which severance payments are handled in rate making

14 proceedings?

15 A. I did not.

16 Q. And, finally, you said that the

17 employee recognition bonus pool would go some above

18 the line, some below the line. Could you explain

19 that answer?

20 A. Yes. What I meant by that answer is

21 that I think that the pool was put together by the

22 board for a variety of reasons, including

23 recognition of superior customer service and

24 recognition of staying focused in the goals that we

25 have put forward in the refocus program; and to the

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HEDRICK COURT REPORTING O'BRIEN (Com)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp

1 extent that those things relate to the domestic

2 electric utility business, those are costs that we

3 would generally, while they are in the first

4 instance shareholder expense, we would try to seek

5 recovery for.

6 The other costs, if there are payments

7 that the board has made to recognize special or

8 significant efforts related to this transaction, I

9 think it would be my opinion that that portion of

10 the costs would go below the line.

11 Q. And in respect to the enhanced

12 severance, that is expected to be below the line?

13 A. The enhancement piece would be below

14 the line. The basic severance is as we talked

15 about.

16 Q. There was some testimony that enhanced

17 severance arrangements are not unusual in large

18 transactions. Can you please describe why it is to

19 the benefit of the shareholders to provide for

20 enhanced severance benefits in the context of these

21 sorts of transactions?

22 A. Yes. To start with, the reason that I

23 say it's not unusual is actually our board had

24 engaged a compensation consultant before this merger

25 was even announced to review the Company's severance

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HEDRICK COURT REPORTING O'BRIEN (Com)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp

1 program, and at the time they reviewed the severance

2 program, they also reviewed the change in control

3 components of the severance program. And they have

4 a study which they looked at which looked at

5 comparable utility companies across the US and

6 determined that this package was in the market

7 compared to the package that our board adopted.

8 The reason that boards generally adopt

9 executive severance programs is really twofold. The

10 first reason is because at the officer and executive

11 level, regardless of what kind of company you are

12 with, it's almost by definition, because of the sort

13 of pyramid hierarchy that companies run through,

14 that there are less jobs available and it takes

15 longer for executives at that level to find another

16 job, so that if they are displaced, they can take

17 more time to find a similar job.

18 The second reason is really to provide

19 the opportunity for employees to stay and to

20 contribute not just after the period after the

21 merger, but up until the merger is completed. What

22 we don't want is we don't want people out looking

23 for jobs in the period that we don't know for sure

24 if the merger is going to go through, and that is

25 especially in utility mergers, which as you know

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HEDRICK COURT REPORTING O'BRIEN (Com)
P.O. BOX 578, BOISE, ID 83701 PacifiCorp

1 take a significant amount of time from the time they

2 are announced to the time they are completed. The

3 officers of the Company are really the first line of

4 operations from the board's perspective, and I think

5 they want to make sure that those people are engaged

6 in the operations in going forward.

7 So I think that the dual purposes

8 there are really to make sure that if people do

9 leave, or if they are asked to leave, rather, that

10 they have a compensation package that really allows

11 them to find a similar job; and, secondly, to make

12 sure that in the intervening period for which we

13 consider this transaction, that we keep them

14 absolutely focused on the job they're doing today.

15 MR. GALLOWAY: Thank you. I have

16 nothing further.

17 COMMISSIONER HANSEN: Thank you,

18 Mr. O'Brien.

19 (The witness left the stand.)

20 COMMISSIONER HANSEN: I don't think we

21 can get through very many more witnesses tonight.

22 MR. MILLER: Not by five.

23 COMMISSIONER HANSEN: I think we will

24 call it a day and we will recess until 9:30 tomorrow

25 morning.

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HEDRICK COURT REPORTING COLLOQUY
P.O. BOX 578, BOISE, ID 83701

1 MR. GALLOWAY: Mr. Chairman, may

2 Mr. O'Brien be excused from further participation in

3 these proceedings?

4 COMMISSIONER HANSEN: Is there any

5 objection that Mr. O'Brien be excused from the rest

6 of this hearing? That's fine.

7 (The hearing recessed at

8 4:58 p.m.)

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HEDRICK COURT REPORTING COLLOQUY
P.O. BOX 578, BOISE, ID 83701