RICHARDS.txt

1 (The following proceedings were

2 had in open hearing.)

3 (ScottishPower Exhibit Nos. 201

4 through 205 and 220 were marked for identification.)

5 COMMISSIONER HANSEN: Okay.

6 MR. GALLOWAY: Mr. Chairman, at this

7 time, we would respectfully request that

8 Mr. Richardson provide a brief summary of his

9 prefiled testimony. We don't intend this as a

10 general practice, but thought it might be helpful

11 for the Commission to have Mr. Richardson and then

12 Mr. O'Brien provide that brief summary because

13 they're policy witnesses to set the stage for this

14 proceeding.

15 COMMISSIONER HANSEN: The Chair will

16 allow a brief summary.

17 Q. BY MR. GALLOWAY: Mr. Richardson, will

18 you provide a brief summary of your prefiled

19 testimony, sir?

20 A. Thank you, Mr. Galloway. Thank you,

21 Mr. Chairman. I will be brief.

22 I would simply like to say that I'm

23 very pleased to be here to lead ScottishPower's case

24 for this merger with PacifiCorp. It is a very

25 important step for ScottishPower. It's a big step.

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HEDRICK COURT REPORTING RICHARDSON (Di)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 It's six billion dollars. ScottishPower are a

2 leading UK. We have five and a half million

3 customers there. And we've been supplying

4 electricity in Edinburgh and Glasgow for over a

5 hundred years. We're an old company, a power

6 company. And importantly, like PacifiCorp, we're

7 vertically integrated. We generate electricity

8 through transmission distribution and retail.

9 I believe the transaction is

10 overwhelmingly in the public interest and fulfills

11 the Statute. In my direct testimony, I think we

12 demonstrate that fulfillment of the Statute. We

13 demonstrate a focus on customer service and service

14 to customers, focus on the environment, on community

15 benefits, and I would like to add that

16 ScottishPower's attitude to the community is

17 natural, is important. On Staff initiatives, very

18 important if we're going to transform the businesses

19 as we intend to do.

20 And also importantly, significant

21 commitments on cost savings. 10 million per annum

22 in the bank that could be on corporate costs. But

23 also, a transition plan that will follow and a

24 definite commitment that will show prices lower than

25 they would be without the transaction.

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HEDRICK COURT REPORTING RICHARDSON (Di)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 In the supplemental testimony filed

2 under Mr. Sterling's testimony, we clarify a lot of

3 that. We demonstrate the financial benefit arising

4 out of the network reliability commitments that

5 we've made, and they are commitments. The direct

6 testimony is full of commitments, not just promises.

7 It removes ambiguity, particularly around the

8 $10 million that I've already mentioned which is

9 bankable, and I think that will become clear. And

10 it also is clear on the modest cost of $55 million

11 over five years to provide the service standard

12 package. And early on, a point I would make is that

13 service standard package is pretty fundamental for

14 the transformation of PacifiCorp and its delivery of

15 the electric service to customers in Idaho.

16 We also, in the supplemental

17 testimony, just show with a bit more detail our

18 track record, particularly Manweb, which is an

19 English electric company, 1.3 million customers,

20 which we acquired in '95, and that business has been

21 transformed and I think that's clear in the

22 supplemental testimony.

23 In rebuttal, I think we demonstrate

24 how, in our responses to the different Intervenors,

25 but particularly the Staff, we've been able to

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HEDRICK COURT REPORTING RICHARDSON (Di)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 develop conditions that have satisfied most, if not

2 all, of the risks that are identified by Staff.

3 We suggest that Mr. Brattebo and

4 Mr. Burton will deal with the BPA credit this year

5 and with the water rights this year.

6 We also importantly offer the filing

7 of the transition plan with this Commission six

8 months after completion of the merger, and in that

9 way you'll see ScottishPower's intent to deliver not

10 just a low-cost utility, but a one that's offering

11 high service standards to customer in Idaho --

12 customers in Idaho.

13 And we back that up in Idaho with an

14 annual report on progress of that transition plan

15 for the Commission and the Staff to be able to see

16 just how progress is being made.

17 Finally, I would just say that this is

18 a very carefully considered move by ScottishPower.

19 It is not just flat planning. We want to be in the

20 West. We want to serve electricity customers in the

21 West, and we're willing to provide a very successful

22 electric service in the state of Idaho.

23 That completes my summary.

24 Q. Thank you, Mr. Richardson.

25 MR. GALLOWAY: Mr. Chairman,

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HEDRICK COURT REPORTING RICHARDSON (Di)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 Mr. Richardson is available for cross-examination.

2 COMMISSIONER HANSEN: Okay. Let's see

3 if we have any questions. We'll start with Solutia.

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

5 Commissioners.

6

7 CROSS-EXAMINATION

8

9 BY MR. BUDGE:

10 Q. Mr. Richardson, if this merger is, in

11 fact, approved, is it correct that PacifiCorp will

12 then become a wholly-owned subsidiary of

13 ScottishPower?

14 A. That is correct.

15 Q. And if I understand correctly, you

16 presently sit on the board of ScottishPower?

17 A. I do, yes.

18 Q. And if, in fact, the merger is

19 approved, you will then become the chief executive

20 officer of PacifiCorp?

21 A. That's correct.

22 Q. And as such, you'd be the person to

23 whom we should direct policy questions regarding the

24 future of that company postmerger?

25 A. Absolutely.

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 Q. You currently sit on the board of

2 ScottishPower and will continue to sit as CEO of

3 PacifiCorp if the merger is approved?

4 A. That is the intention, yes.

5 Q. And what is the present composition of

6 that board in number?

7 A. The composition of the board is ten

8 directors which are five executive directors, and

9 four nonexecutive directors, plus a nonexecutive

10 chairman.

11 Q. That would be a total of 20 that sit

12 on the board?

13 A. No, ten altogether: Five nonexecutive

14 directors -- sorry, start again -- five executive

15 directors, four nonexecutive directors, and then a

16 nonexecutive chairman.

17 Q. So the total number of people on the

18 board, 19 plus the chairman?

19 A. No, ten altogether.

20 Q. Ten altogether?

21 A. Five executive directors, four

22 nonexecutive directors, and one nonexecutive

23 chairman.

24 Q. And of those ten board seats, will

25 there be others from PacifiCorp?

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 A. On completion of the merger -- sorry,

2 did I interrupt?

3 Q. Excuse me. I -- let me just rephrase

4 that.

5 Following the merger, will there be

6 others beside yourself with PacifiCorp that will sit

7 on that ten-person board?

8 A. Yes. ScottishPower have stated very

9 clearly that upon completion of the merger

10 Mr. Keith McKennon, who is presently chairman and

11 chief executive of PacifiCorp, will join the board

12 as deputy chairman, and two other current PacifiCorp

13 directors -- Mr. Nolan Karras and Mr. Bob Miller --

14 will also join the ScottishPower board, all as

15 nonexecutive directors.

16 Q. Thank you. And does that board sit

17 and act at its principal place of business in

18 Glasgow?

19 A. We -- it normally does because our

20 business is based in Britain presently. What we

21 have said is that going forward after the merger,

22 two meetings a year will be held in the US.

23 Q. And the existing PacifiCorp board,

24 will it become an advisory board?

25 A. Our intention is to create an advisory

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 board. It may not exactly match the PacifiCorp

2 board of today.

3 Q. Do you have available in front of you,

4 I believe, Mr. Richardson, the amendment to the

5 joint Application, your merger that was filed

6 March 31st of 1999?

7 A. I'm not sure I have that, do I?

8 Q. What I intended to refer you to was

9 just a few questions regarding the organizational

10 structure that is set forth in Appendix 4A.

11 MR. GALLOWAY: Could we pause a moment

12 and get the materials before the witness?

13 COMMISSIONER HANSEN: We'll go at ease

14 for a few moments.

15 Q. BY MR. BUDGE: Mr. Richardson, is it

16 my understanding correct that initially,

17 ScottishPower was creating an entity by the name of

18 HoldCo?

19 A. That's correct.

20 Q. And HoldCo subsequently has or will

21 change its name to Scottish Power plc?

22 A. That's correct.

23 Q. And then PacifiCorp then will become a

24 wholly-owned subsidiary of Scottish Power plc?

25 A. That's correct.

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 Q. Referring to what's been identified as

2 Appendix 4A to the amended merger Application, do

3 you have that in front of you, which appears to be

4 an organizational chart or diagram of what the

5 corporate structure will look like?

6 A. I think I have the same diagram.

7 Q. There are some other entities that are

8 in between ScottishPower plc and PacifiCorp, and I

9 wanted to just explore briefly how those other

10 entities fit into the corporate structure. One is

11 entitled NA General Partnership?

12 A. Yes.

13 Q. How does that relate to the postmerger

14 structure as reflected in this diagram?

15 A. Well, I'll have to say that this is a

16 technical diagram, it's not an organizational

17 structure, and it's aimed to demonstrating the way

18 by which ScottishPower will become a HoldCo. And I

19 would really suggest, Mr. Budge, that if you wanted

20 to pursue this diagram in terms of the way it

21 affects business going forward, the questions would

22 be far better directed to Mr. Morris.

23 Q. And with respect to the other entities

24 reflected there, ScottishPower NA-1 and

25 ScottishPower NA-2, is that also part of how the

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 merger gets structure, those entities?

2 A. I think they're simply variables to

3 allow ScottishPower to move to a holding company and

4 they will disappear.

5 Q. So once the merger has been completed

6 and ScottishPower becomes a holding company, do

7 those three entities that are in between PacifiCorp

8 and ScottishPower go away, as far as you understand?

9 A. That is my understanding.

10 Q. I believe you're aware,

11 Mr. Richardson, that Solutia is a special contract

12 company of PacifiCorp?

13 A. I am aware.

14 Q. Okay. You may not be aware of this,

15 but generally speaking, this Commission has directed

16 Solutia as well as other special contract customers

17 to come to the Commission with a special contract

18 that they deem to be fair and reasonable and seek

19 approval; and I think it would be fair to say that

20 the Commission has generally approved those

21 contracts under those circumstances in fairness.

22 Can you explain to me in the future --

23 well, strike that. Let me back up some.

24 I think it would be accurate to

25 portray the relationship that's existed historically

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 between Solutia and its predecessor Monsanto and

2 PacifiCorp as a very good one; and my question is,

3 with respect to future contract negotiations, will

4 the authority to approve such a contract from

5 ScottishPower be vested in the Scottish Power plc

6 board of directors that we've discussed?

7 A. I don't carry in my head the details

8 of the Solutia contract, but like any business,

9 there are limits on the authority levels of managers

10 and executives in any company. And it may be that

11 Solutia -- a Solutia contract, a special contract,

12 may require senior executive approval or board

13 approval. That would be normal; it would not be

14 special.

15 Q. That's not the type of authority that

16 you would expect to be vested in the PacifiCorp

17 advisory board?

18 A. No, not at all.

19 Q. And you're unclear whether or not you

20 would have that authority as the CEO or whether or

21 not ScottishPower board approval would be required?

22 A. I think like any CEO, there are limits

23 on the single signature approval of large contracts

24 or large transactions of any form. I think that's

25 normal.

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 Q. That hasn't been determined then at

2 this point in time?

3 A. No, it has not.

4 Could I add that normally in our

5 business, such a contract would go forward to

6 further approval with a recommendation from myself,

7 and the norm is that that recommendation is

8 endorsed.

9 Q. You mentioned that -- in your opening

10 statement -- that ScottishPower was a

11 hundred-year-old company. Is it accurate,

12 Mr. Richardson, that, in fact, the Company was owned

13 and operated by the UK government until 1991?

14 A. Yes, of course.

15 Q. And that was the year that it became a

16 private company?

17 A. The history of the Company is a long

18 one. It was nationalized, in fact, in 1948. Before

19 that it was a series --

20 Q. Excuse me just a second. I think my

21 question was it was 1991 was the first time it

22 became a private corporation.

23 A. No, that's not correct.

24 Q. Excuse me for interrupting. Go ahead

25 and explain.

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 A. Could I just perhaps explain the

2 history?

3 I think like most electricity

4 companies, ScottishPower's origins were as private

5 or a bunch of private companies, very much like

6 PacifiCorp. And over time in the early part of this

7 century, they merged and formed larger and larger

8 companies. After the war, all electricity companies

9 in Britain were nationalized in 1948, and we

10 remained as South of Scotland Electricity Board,

11 nationalized until, as you correctly state, 1991, at

12 which time we were privatized and renamed then,

13 substantially in the same form, renamed as

14 ScottishPower.

15 Q. At the time of the privatization in

16 1991, would it be accurate to describe ScottishPower

17 as a regional electricity business in Scotland?

18 A. Not quite. We were a middle-sized,

19 vertically-integrated electricity business in

20 Scotland. The world "regional" in Britain has a

21 connotation with the structure in England and Wales

22 where the regional company does not include

23 generation, so ScottishPower, I think importantly,

24 includes generation.

25 Q. At that time, again, referring to the

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 privatization in 1991, was ScottishPower solely

2 involved in the electricity business?

3 A. I think if you include retail stores

4 as the electricity business, that statement would be

5 substantially true, yes.

6 Q. And is it accurate to say that

7 ScottishPower has subsequently developed into a

8 highly-diversified conglomerate or business in a

9 number of areas such as electricity, if I understand

10 from your filing, you know, water, gas,

11 telecommunications, technology, contract services,

12 retail products, Internet sales? That's all come

13 about since 1991?

14 A. I disagree, Mr. Rudge (sic), with your

15 adjective "highly-diversified." I think the

16 structure and the focus of the Company is

17 essentially around its core capabilities, and our

18 core capability is utility management. And, you

19 know, if you looked from the other side -- from my

20 side -- to the statement you just made, I think you

21 would find that all of those businesses in which

22 we're involved are very directly related to our core

23 activity.

24 Q. I can appreciate that. I think the

25 nature of my question was -- is that these other

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 business activities that I identified specifically

2 are something that the Company became involved in

3 subsequent to '91.

4 In other words, you weren't in water

5 in 1991. Is that correct?

6 A. We weren't in water in 1991, that's

7 correct.

8 Q. And is it correct that the Company was

9 not involved in the gas business in 1991?

10 A. That's correct.

11 Q. Would it be accurate that the Company

12 was not involved in telecommunications or technology

13 or the Internet business or the contracting service

14 of businesses that are identified in your filing?

15 A. Can we break that down a little --

16 Q. Certainly.

17 A. -- because it's not accurate.

18 The truth is, we were involved in

19 technology and we are a company that is proud of its

20 engineering strengths and the technology business is

21 important to us and always has been.

22 The contracting business always

23 existed inside the Company.

24 And at that time, we also operated the

25 largest private telecom network in Scotland, in fact

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HEDRICK COURT REPORTING RICHARDSON (X)
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1 in Britain I think.

2 So some of those things have changed

3 shape, I suppose, as we moved into the private

4 world, but those businesses existed, and

5 importantly, the people existed and the people have

6 developed.

7 Q. I note from your filing that the

8 Company acquired Scottish Telecom in '94, then

9 Manweb in '95, and Southern Water in '96, as well as

10 other acquisitions in that time frame.

11 Would it be accurate to say that much

12 of the growth of ScottishPower from '91 until what

13 we see it today has occurred as a result of mergers

14 and acquisitions not unlike in character and nature

15 of what is proposed in this proceeding?

16 A. It would not be entirely accurate to

17 say that. For example, Scottish Telecom was created

18 by ScottishPower out of that private telecoms

19 network that existed at privatization. We developed

20 that business and from between '90, '91 and '94.

21 And in '94 we formally launched Scottish Telecom.

22 That business today has revenues of more than 200

23 million pounds, $300 million. And that business

24 today has a market value of between 800 million and

25 one and a half million pounds, so it's about

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 1.2 billion to $2 billion. And that exists within

2 the Company; that's something that we have created.

3 Q. So for the most part --

4 COMMISSIONER HANSEN: Excuse me.

5 Mr. Richardson, on that question though, could you

6 answer that direct? I didn't believe I got the

7 answer to the question that was asked.

8 THE WITNESS: Right.

9 Q. BY MR. BUDGE: I think the question --

10 COMMISSIONER HANSEN: Would you repeat

11 the question, please?

12 Q. BY MR. BUDGE: The question was simply

13 is it a fact that most of the Company's growth has

14 resulted from mergers and acquisitions from '91 to

15 date?

16 A. I would really need to check the

17 numbers. We have -- in the electricity business

18 there is inherent growth in our activities, largely

19 because ScottishPower operates low-cost generating

20 plant and accesses significant markets in the UK.

21 I'm not sure what you mean by growth, but we have

22 been very effective at reducing costs in the

23 business, and delivering, therefore, more business

24 as a result of that.

25 I would confirm that there has been a

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 significant revenue enhancement from the

2 acquisitions of Manweb and of Southern Water.

3 Q. Let me just maybe be a little more

4 direct in terms of customers then. Approximately

5 how many customers did the Company have when it

6 privatized in 1991?

7 A. 1.8 million.

8 Q. And you now have five million,

9 according to your --

10 A. 5.5.

11 Q. And how many did you pick up from

12 Manweb and from Southern Water?

13 A. 1.3 million.

14 Q. So is it a matter of mere mathematics

15 then? It would be true that the majority of the

16 customers that the Company has picked up is a result

17 of merger and acquisitions in acquiring Manweb and

18 Southern Water alone, without discussing any of the

19 others?

20 A. The answer to that question is

21 unequivocal, yes.

22 Q. Thank you. Is it a long-term

23 objective of ScottishPower to become a

24 multi-national utility provider?

25 A. ScottishPower's strategy -- the answer

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 is no. ScottishPower's strategy is clear.

2 Q. Is it the Company's plan to initially

3 turn PacifiCorp around, if I understand your

4 testimony, by increasing customer service, improving

5 customer service, and reducing costs, in an effort

6 to improve the earnings for the shareholders of

7 ScottishPower?

8 A. ScottishPower's intention in its

9 merger with PacifiCorp is to transform that business

10 in a whole range of dimensions, one of which would

11 be customer service, another one would be costs per

12 whatever unit, and another one would be environment,

13 for example. There's a whole range of areas where

14 ScottishPower would want to address the PacifiCorp

15 business to take it to the front of electricity

16 supply, electricity service, in the US. I'm not

17 sure if that answers --

18 Q. Part of my question that we didn't

19 touch bases on: Would your intention be in turning

20 PacifiCorp around, if you're successful, to improve

21 the earnings for the shareholders of ScottishPower

22 Company?

23 A. An outcome of our transformation would

24 be improved earnings, yes.

25 Q. And is it the Company's plan -- the

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 Company again, ScottishPower's plan -- to use

2 PacifiCorp here in the United States as a platform

3 to create an electricity and gas empire here in the

4 United States?

5 A. I think the word "empire" is a little

6 strong. I think what you've said --

7 Q. Taking the word "empire" out, then you

8 plan to use PacifiCorp as a platform to expand into

9 other electricity and/or other gas companies here in

10 the United States, as far as a long-term goal?

11 A. Might I just restate what you say,

12 which is that if we are successful in transforming

13 PacifiCorp to where we want it to be, then as the

14 industry consolidates in the US as it certainly is,

15 PacifiCorp will be well positioned to participate

16 very positively in that consolidation; and if that

17 qualifies as expansion of PacifiCorp, then I think

18 that would be a good thing and that may fit our

19 plans. We have no actual plans, however.

20 Q. You're saying you have no specific

21 plans at this point?

22 A. Absolutely not.

23 Q. But as far as a general goal or

24 objective, I believe your answer would be yes, that

25 your plans are to look at other electric and gas

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1 utilities in the US?

2 MR. GALLOWAY: Mr. Chairman, I think

3 he answered the question directly, and I don't think

4 the record has benefitted from a recharacterization

5 of his testimony.

6 COMMISSIONER HANSEN: Mr. Budge.

7 MR. BUDGE: Well, I think the witness

8 answered the question in somewhat of a lengthy

9 monologue but seemed to be a "yes" answer, but I was

10 hoping to get a direct "yes" answer.

11 COMMISSIONER HANSEN: Okay.

12 MR. BUDGE: And I did repeat the same

13 question to that extent, but I think it was a

14 question that he did answer, Yes, that would be part

15 of our long-term plans to look at other markets in

16 the US.

17 COMMISSIONER HANSEN: Mr. Richardson,

18 could you answer that question in a "yes" or "no"?

19 THE WITNESS: Could you repeat the

20 question?

21 COMMISSIONER HANSEN: Could you repeat

22 the question, Mr. Budge?

23 MR. BUDGE: Yes, I am.

24 Q. BY MR. BUDGE: Is it the intention of

25 PacifiCorp to -- excuse me.

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 Is it the objective of ScottishPower

2 to expand into other electricity and gas utility

3 businesses in the United States if, in fact, it is

4 successful in transforming PacifiCorp?

5 A. If PacifiCorp (sic) is successful in

6 transforming PacifiCorp, the answer to that question

7 is "yes."

8 Could I, Mr. Chairman, just add

9 something?

10 COMMISSIONER HANSEN: That's fine; you

11 answered the question fine.

12 And I think in your earlier answer,

13 you did indicate a "yes"; however, in this case,

14 Solutia had a doubt, and so that's why I asked you

15 to readdress that question. I think it's

16 satisfactory now.

17 We'll proceed on, Mr. Budge.

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

19 Q. BY MR. BUDGE: Is it also a desire and

20 goal of ScottishPower to increase the rate of return

21 of PacifiCorp?

22 A. ScottishPower, I think like any

23 electric utility, would expect reasonable returns

24 for its shareholders.

25 Q. Would you agree that rates of return

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 are -- typically must be achieved either by reducing

2 costs or by increasing prices to the customers or a

3 combination of both?

4 A. I would, yes.

5 Q. Is it true, Mr. Richardson, that

6 PacifiCorp was targeted because ScottishPower

7 believed that it was an attractive company for

8 purchase that would increase the earnings to

9 ScottishPower shareholders?

10 A. Obviously, that was one dimension, but

11 PacifiCorp was targeted because they were a good

12 partner from a number of perspectives, not simply

13 earnings, although earnings -- obviously shareholder

14 value is a very important issue for us.

15 Q. But you wouldn't deny that from the

16 perspective of the ScottishPower shareholders, they

17 would expect to have earnings result from their

18 $6 billion investment in this company?

19 A. The expectation of the ScottishPower

20 shareholders is that there would be earnings

21 enhancement in time from this ac- -- this merger.

22 Q. Can you tell me approximately how long

23 ScottishPower had investigated or studied PacifiCorp

24 before you entered into the formal negotiations,

25 which I understand from your filing was

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 approximately August of 1998?

2 A. Yes. I think Mr. MacRitchie would

3 probably better answer the question in detail, but

4 we spent almost two years reviewing possible

5 partners in the US and in other places. And

6 PacifiCorp regularly came up on the radar screen of

7 those reviews. So they would be there for some

8 considerable time, but I think as our proxy

9 statement says, that the formal discussion started

10 in August, 1998.

11 Q. August of 1998 is when formal

12 discussions began?

13 A. Formal approaches, yes.

14 Q. And if I understand from the filings,

15 that culminated in a merger agreement being reached

16 sometime in December of 1998?

17 A. December the 6th, yes.

18 Q. Would it be accurate to say that since

19 that agreement was reached and even during the

20 course of our prior negotiations, that ScottishPower

21 continuously was studying and evaluating its

22 transformation plan and what its intentions would be

23 for PacifiCorp if the merger were approved?

24 A. It could not be accurate to say that.

25 Q. Has it been a continuing effort to

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 investigate?

2 A. No, it has not.

3 Q. So once a merger agreement was entered

4 into, isn't it a fact that you continued to get

5 acquainted with PacifiCorp, evaluate their financial

6 information, and try to determine how best to

7 implement and develop your transition plan?

8 A. I think there are three questions in

9 that question, Chairman, and to give a yes answer to

10 one would not allow me to give a direct -- a correct

11 answer to the others.

12 Q. Let me go about it a different way:

13 Approximately how many ScottishPower

14 employees are now involved in working on the merger

15 transaction here in the US?

16 A. I haven't really counted.

17 Approximately 20.

18 Q. And has the Company also involved

19 outside consultants to assist in the process?

20 A. Very few.

21 Q. And would that consist of, what,

22 public relations people, I assume?

23 A. Yes, but those numbers are one or two.

24 Q. Excluding the lawyers, I guess.

25 A. Excluding lawyers. Are they

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 consultants? I'm not sure.

2 Q. I have some questions I want to ask

3 you regarding the status of the merger. My

4 understanding is that the Applicants in this case

5 have had some direct discussions with the Staff of

6 the Idaho Public Utilities Commission prior to the

7 filing of their testimony in this case. Is that

8 correct?

9 A. I think ScottishPower staff have met

10 with Idaho Commission Staff and many other

11 Intervenors in this state.

12 Q. And those -- did those meetings result

13 in any type of stipulation or agreement being

14 entered into with the Staff as a condition of them

15 filing testimony in support of this proceeding?

16 A. No, they did not.

17 Q. And has the Company reached any

18 stipulation or agreement with any other ratepayers

19 with respect to these merger proceedings to gain

20 their support?

21 A. No, we have not.

22 Q. Has the Company entered into any

23 stipulations with Staff in other states, stipulating

24 to conditions of the merger?

25 A. We have in the state of Wyoming

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P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 entered into a stipulation with Staff.

2 Q. And did that stipulation in Wyoming

3 involve some commitment or limitation as to future

4 rate application filings in that state?

5 A. No, it did not.

6 Q. It's your testimony here that the

7 Company did not enter into a stipulation with the

8 Wyoming Staff that it would limit future rate

9 increase filings to $12 million next year and $8

10 million the following year?

11 MR. GALLOWAY: Mr. Chairman, the

12 question includes the word the "Company" and I think

13 in this context it would be important to specify

14 which of the Applicants is intended by that.

15 MR. BUDGE: I'm referring to his

16 company, ScottishPower. Excuse me, Counsel.

17 THE WITNESS: Could I perhaps clarify,

18 Chairman?

19 COMMISSIONER HANSEN: Mr. Budge, would

20 you restate your question?

21 MR. BUDGE: Yes.

22 Q. BY MR. BUDGE: Did ScottishPower enter

23 into any stipulations in the state of Wyoming with

24 their Staff that limited future rate increase

25 applications?

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 A. ScottishPower, in its stipulation with

2 Staff, said it would honor an agreement reached

3 between PacifiCorp and Staff, which in turn limited

4 rate increases.

5 Q. And are you knowledgeable concerning

6 the stipulation that was entered into in Wyoming

7 between PacifiCorp and the Wyoming Commission Staff

8 with respect to future rate increase applications in

9 Wyoming?

10 A. Yes, I was.

11 Q. And, in fact, did the PacifiCorp enter

12 into a stipulation with the Wyoming Commission that

13 indicated that there would be no filings in the next

14 year requesting an increase in excess of

15 $12 million?

16 A. I'm not sure what your assertion is

17 completely. I would really need to see the

18 document.

19 Q. Would it be better that I direct those

20 questions to Mr. O'Brien?

21 A. I think so, yes.

22 Q. Okay. But your testimony is that

23 whatever stipulation PacifiCorp entered into in

24 Wyoming, that ScottishPower was agreeable to it if

25 the merger went forward?

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 A. That is correct.

2 Q. Does ScottishPower believe that

3 PacifiCorp is presently underearning from its Idaho

4 customers?

5 A. From the information we have from

6 PacifiCorp, yes, we do.

7 Q. So do you plan on a rate increase then

8 for Idaho customers if the merger is approved?

9 A. My understanding is that there is a

10 rate case pending that is being prepared for. My

11 understanding is that rate cases are extensive and

12 highly investigative, and that will provide its own

13 conclusion. I couldn't predict what that conclusion

14 would be for rates. But there is a rate case

15 pending; that is my understanding.

16 Q. The case hasn't been filed. My

17 question simply was -- is if, in fact, Idaho is

18 underearning and PacifiCorp plans to file a new rate

19 increase case -- or, new rate case, excuse me -- do

20 they intend to file for an increase or a decrease or

21 for nothing?

22 A. I might be a bit dim. I didn't really

23 get the full drift of your question, Mr. Rudge

24 (sic).

25 Q. Let me rephrase that.

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 COMMISSIONER HANSEN: Mr. Budge, I

2 just had a question too on that. Are you asking

3 Mr. Richardson whether ScottishPower is aware of

4 whether PacifiCorp is filing for a rate increase or

5 a decrease? Is that what you're asking?

6 MR. BUDGE: Yes.

7 COMMISSIONER HANSEN: Okay.

8 MR. BUDGE: My understanding that --

9 Q. BY MR. BUDGE: Mr. Richardson, my

10 understanding is that you feel that PacifiCorp is

11 underearning in Idaho.

12 A. Yes.

13 Q. Is that correct?

14 And you do understand that PacifiCorp

15 intends to file a new rate case at some point in the

16 future in Idaho?

17 A. My understanding is that that

18 agreement to file the new rate case was reached last

19 year between PacifiCorp and Staff, yes.

20 Q. And do you know whether or not

21 PacifiCorp, when they make this filing, will ask for

22 the rates of Idaho customers to be increased?

23 A. I'm really not sure how -- what

24 PacifiCorp do when they file a rate case, so I

25 really can't answer that question. It's simply

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 because of my inexperience in rate making in the US.

2 Q. So you know they're going to file for

3 a rate case, and you simply don't know one way or

4 another whether they're going to ask for an increase

5 or not?

6 A. That's correct.

7 Q. Mr. Richardson, has ScottishPower made

8 any quantitative study or analysis that would

9 indicate what PacifiCorp's rates in Idaho would be

10 absent a merger with ScottishPower?

11 A. We have not.

12 Q. Then would it be accurate to say if

13 there had been no study or analysis, that there is

14 no study or analysis that would support the

15 conclusion in your testimony where you stated over

16 time, prices for customers will be lower than they

17 would have been without the merger?

18 A. That statement is based upon the fact

19 that we are very confident that our costs over time

20 would be lower than PacifiCorp alone.

21 Q. I can appreciate that. The question

22 then is you have made no quantitative study or

23 analysis of the future rates of PacifiCorp as a

24 standalone company, then there would be no basis --

25 at least if we looked at a statistical analysis that

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 quantifies the numbers -- that would support your

2 conclusion that the rates would be lower over time

3 if there's a merger with ScottishPower.

4 MR. GALLOWAY: Mr. Chairman, I think

5 that is more in the nature of an argument than a

6 question. I think Mr. Richardson explained the

7 basis for his conclusion as to why he thinks rates

8 are going to be lower in the long term.

9 COMMISSIONER HANSEN: Mr. Budge.

10 MR. BUDGE: Well, I think the witness

11 can certainly testify whether or not the Company has

12 done any study or analysis that would support his

13 conclusion that over time, the rates would be lower

14 with a merger.

15 MR. GALLOWAY: I believe --

16 MR. BUDGE: He just -- if I can

17 finish, Counsel.

18 He just did answer the question that

19 they made no study or analysis to conclude what the

20 rates of PacifiCorp would be over time, and if he's

21 also made no study or analysis that quantifies what

22 ScottishPower rates would be if the merger went

23 through, then there seems to be no basis based on

24 any kind of analysis that supports his statement in

25 his testimony, page 3, lines 7 through 8, that over

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 time, prices for customers will be lower than they

2 would be without the merger.

3 MR. GALLOWAY: Mr. Chairman, again, I

4 think we're giving speeches and not asking

5 questions. I believe Mr. Richardson explained and

6 probably would be pleased to explain again the basis

7 for his conclusion that rates will be lower over the

8 long-term as a result of the transaction.

9 COMMISSIONER HANSEN: Mr. Budge.

10 MR. BUDGE: Let me go ahead and go

11 about it a different way.

12 COMMISSIONER HANSEN: Okay.

13 Q. BY MR. BUDGE: Isn't it a fact,

14 Mr. Richardson, that ScottishPower has made no

15 commitment to any immediate rate reduction for Idaho

16 customers?

17 A. That's correct.

18 Q. And is it also a fact that

19 ScottishPower has made no commitment that there

20 would be a rate reduction in the future for Idaho

21 customers?

22 A. We have made a commitment, as you've

23 just said, Mr. Rudge (sic), that rates will be lower

24 than they would be absent the merger.

25 Q. But you've made no specific commitment

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 in this case that Idaho customers' rates will be any

2 lower than they are today at any point in the

3 future. Isn't that true?

4 A. The commitment we have made is to

5 focus on costs, and I think rates are a subject for

6 the Commission in rate cases. Whether those rate

7 cases bring about reduced rates, I cannot prejudge.

8 We will endeavor to reduce costs to the best

9 possibility.

10 Q. When I recall approximately ten years

11 ago that PacifiCorp merged with Utah Power,

12 PacifiCorp came in here and very specifically told

13 the ratepayers, If you will approve this merger,

14 your rates will go down five percent this year and

15 ten percent next year, and we will commit that there

16 will be a freeze after that for a certain number of

17 years.

18 As I read ScottishPower's filing in

19 this case, I see nothing that committed to a

20 specific percentage reduction in any amount at any

21 point in the future.

22 MR. GALLOWAY: Mr. Chairman, I

23 object. The characterization of the rate

24 commitments made in the PacifiCorp/Utah Power merger

25 in that question are erroneous and substantially

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 overstate the rate reductions that were offered.

2 Is this a hypothetical question or --

3 MR. BUDGE: This is simply trying to

4 place some background for this witness so he can

5 answer the question yes or no whether or not they

6 made a commitment.

7 MR. GALLOWAY: I think if you're going

8 to lay background, it should be accurate

9 background.

10 MR. BUDGE: If Counsel wants to

11 correct me on the reduction --

12 COMMISSIONER HANSEN: I think at this

13 time we'll allow the parties to look into this just

14 a moment or two, and I think we need to take a

15 break. We'll break until five till and we'll come

16 back on. We'll go at ease until five till.

17 (Recess.)

18 COMMISSIONER HANSEN: Okay, let's go

19 back on the record. We went a little over. I guess

20 when you're having fun, time flies, so we're back

21 after the break.

22 We'll go back to you, Mr. Budge.

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

24 Q. BY MR. BUDGE: Mr. Richardson, in the

25 direct testimony of Mr. Yankel on behalf of the

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 Irrigators on page 9, he referred to the Order

2 issued by the Utah Public Service Commission, Order

3 No. 21867 -- excuse me, this Commission's Order

4 No. 21867 -- when the merger between PacifiCorp and

5 Utah Power occurred; and the reference there

6 indicated that the -- that PacifiCorp had pledged

7 that the rates in Idaho would not increase for four

8 years following the merger.

9 Is it a fact that in this case, that

10 ScottishPower has made no pledge for any period of

11 time that there would not be a rate increase for

12 Idaho customers?

13 A. I think in Mr. Green's testimony --

14 one of the testimonies at least -- it says that

15 rates will not increase as a result of the merger,

16 and I believe that.

17 Q. All right. Is it a commitment that

18 you are making here today that the rates will not

19 increase if the merger is approved for a specific

20 period of time?

21 A. That's not what I said.

22 Q. So your answer to that would be, no,

23 you're not making a commitment that rates would not

24 increase for a certain period of time?

25 A. No, I'm not making that commitment.

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 Q. Okay. And is the Company willing to

2 make a commitment that it will not come in and seek

3 a rate increase for any period of time in this case?

4 A. I'm not making a commitment.

5 Q. And is it a fact that the Company is

6 not making a commitment to cap any rate increase at

7 a certain level should it file for such an increase

8 in the future?

9 A. I'm not making that commitment either.

10 Q. Are you aware that prior to the time

11 of the merger between PacifiCorp and Utah Power,

12 that PacifiCorp brought to this Commission a

13 detailed analysis of the anticipated savings that it

14 expected to result from that merger if it were

15 approved?

16 A. I'm not aware of that.

17 Q. I had a couple questions regarding

18 your rebuttal testimony. You responded to the

19 witness -- or, the testimony of Staff witness

20 Carlock indicating, if I understand your testimony

21 correct, that if ScottishPower agreed to some

22 specific benefits for conditions in another

23 jurisdiction, that those same benefits would apply

24 in Idaho. Is that basically your position and

25 testimony in this proceeding?

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 A. I'm sorry, could you direct me to the

2 line in my testimony where I say that?

3 Q. Page 3, lines 1 through 7, of your

4 rebuttal testimony, you generally discuss -- and

5 I'll -- without referring to your testimony

6 specifically, as I recall it, you made a statement

7 something to the effect that if the Company makes a

8 deal in another state that provides some benefit in

9 that other state, that that same benefit would

10 transform to Idaho. And I think that was in

11 response to concern that had been raised by the

12 Staff that Idaho is a small state and what if in one

13 of these subsequent proceedings you cut a deal,

14 would we get the benefit of that as well?

15 A. I think what my testimony says is

16 we've clarified the proposed condition with Staff.

17 My -- our position is that I guess you cut all sorts

18 of deals in different states. Some of the deal may

19 be appropriate entirely to that state. Another deal

20 may be appropriate for applying to all states.

21 Our intention is that we will not

22 embarrass Idaho Staff or Idaho Commission in the way

23 we reach conclusions in other states. I think that

24 is what our clarification says. Could I give an

25 example?

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 Q. No, let me ask you a couple of

2 questions specifically on that point.

3 My understanding that PacifiCorp

4 agreed to cap future increases in the state of

5 Wyoming in the next year to $12 million, which

6 amounts to a five percent cap, and in the following

7 year to $8 million, which is a three and a half

8 percent cap. Do you recall that as the commitment

9 that was made pursuant to stipulation with Wyoming

10 Staff?

11 A. I recall that.

12 Q. And that, in fact, is a commitment

13 that ScottishPower has approved of. Is that

14 correct?

15 A. We are prepared to honor that

16 commitment, yes.

17 Q. And do you recall that those

18 amounts -- that $12 million and eight million

19 amount -- would be significantly less than

20 PacifiCorp intended to file for in the way of a rate

21 increase in Wyoming?

22 A. Yes.

23 Q. And didn't the Company intend to file

24 for something in the range of $50 million in

25 Wyoming?

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 A. I don't remember the exact number.

2 Q. But it was substantially more than the

3 12 million and eight million combined?

4 A. I believe so, yes.

5 Q. And so to that extent, in fact, has

6 not PacifiCorp, as well as ScottishPower, agreed to

7 cap any future increases in the state of Wyoming?

8 A. For the next two years, that is

9 correct.

10 Q. Correct. And how, if you can tell me,

11 would ScottishPower transfer this concept of a cap

12 in Wyoming to the Idaho ratepayers?

13 A. It would not be transferred to Idaho.

14 Q. And that's because you're not willing

15 to agree to any cap here on a future increase over

16 the next two years?

17 A. They're your words. That is not

18 correct.

19 Q. Well, let me ask you for your words.

20 You will not agree to a similar percentage cap in

21 Idaho that you just did in Wyoming?

22 A. The agreement reached in Wyoming was

23 for Wyoming. The agreement reached in Idaho is, as

24 far as we've got, for Idaho. The conditions in the

25 states are different in rate making; I'm sure that

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 that is appreciated.

2 Q. So to the extent that -- to the extent

3 PacifiCorp or ScottishPower makes some type of a

4 rate commitment in other states, it is not

5 necessarily going to be transferable to the Idaho

6 customers. Is that your testimony?

7 A. That's correct.

8 Q. Is my understanding correct that the

9 precise dollar amount of the transaction costs

10 associated with the merger aren't known because it's

11 an ongoing and growing number?

12 A. That's correct.

13 Q. And if I recall right, one of the data

14 responses indicated that the estimate was that these

15 transaction costs might go as high as $250 million?

16 A. I believe that to be correct, yes.

17 Q. And those would be the transaction

18 costs of ScottishPower only?

19 A. Yes, that's correct.

20 Q. And would the transaction costs

21 related to the merger of PacifiCorp be a dollar

22 amount something in addition to that?

23 A. That's correct.

24 Q. And I noted that in response to a data

25 request, that PacifiCorp could put something like

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 $13 million as of year-end '99 in the transaction

2 cost category?

3 A. I think that number is correct,

4 subject to check.

5 Q. I had some questions regarding what's

6 been referred to as a bid premium, but depending on

7 whose calculations are used, appears to be somewhere

8 between 1.3 and 1.8 billion dollars?

9 A. It ranges widely, yes.

10 Q. If I understand the production

11 regarding that question, is the bid premium

12 basically the difference between the price that

13 ScottishPower committed to pay for PacifiCorp stock

14 and what the value of that stock would be based upon

15 the fair value of the PacifiCorp assets?

16 A. That is one interpretation.

17 I think definition of bid premium can

18 vary depending on the conversation you have with

19 somebody.

20 Q. And the bid premium, is it variable

21 because it's based upon a formula that's contained

22 in the merger agreement?

23 A. It's variable, I think, essentially

24 based on such a formula, yes.

25 Q. And that's a cost that ScottishPower

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 will be paying, sometimes called a below-the-line

2 cost?

3 A. Yes, that's correct.

4 Q. Would you agree that to the extent of

5 this bid premium, the PacifiCorp shareholders

6 receive a specific dollar benefit?

7 A. Yes, I do.

8 Q. Is it also true that the ScottishPower

9 shareholders would expect to receive benefits in the

10 way of earnings from the transaction if the merger

11 is approved?

12 A. Yes, that's correct.

13 Q. There were some transaction costs that

14 were identified specifically, and it appeared that

15 the total amount of identified transaction costs

16 that ScottishPower came up with were in the range of

17 $135 million that ScottishPower would spend on new

18 programs and initiatives to bring about its package

19 of benefits to PacifiCorp customers?

20 A. So we're now moved away from bid

21 premium?

22 Q. Yes.

23 A. Yes, that's a number I recognize,

24 that's correct.

25 Q. And of that $135 million, is it

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 approximately 90 percent or $120 million that would,

2 in fact, be paid for by the ratepayers?

3 A. I haven't done the arithmetic, but the

4 proposal is that that investment would be for the

5 benefit of ratepayers, and there will be a

6 reasonable expectation subject to approval by

7 Commissioners that that would enter the rate base,

8 that's correct.

9 Q. Roughly 90 percent of 135 million?

10 A. That's your number. I've not actually

11 looked at it in those terms.

12 Q. Would it be accurate to

13 characterize -- strike that. Let me back up.

14 If, in fact, $120 million will be the

15 ratepayers' cost that will be in rate base of those

16 transition expenses that ScottishPower plans to pay,

17 if you accept that subject to check, let me ask you

18 this question: Would it be accurate to characterize

19 the $120 million share paid by the ratepayers as the

20 ratepayers buying benefits for ScottishPower?

21 A. I wouldn't portray it that way, no.

22 Q. But would that be an accurate

23 portrayal?

24 A. No, I don't believe so.

25 Q. You don't think it is?

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 A. No.

2 Q. Well, if the ratepayers pay for that,

3 in fact, aren't the ratepayers expending or paying

4 for this specific program that ScottishPower

5 designed and desires to implement to transform

6 PacifiCorp?

7 A. I think -- my answer is slightly

8 different to that, if I might, which is that this is

9 an investment necessary to achieve levels of

10 efficiencies that the electric utility needs to have

11 in the next millenium.

12 Q. But the $120 million is not a

13 necessary investment of money by ScottishPower. Is

14 that correct?

15 A. I believe it is.

16 Q. Well I thought you just told me

17 previously that of the 135 million, 90 percent, or

18 $120 million, you agreed would be amounts that the

19 ratepayers would pay?

20 A. The nature of the investment is that

21 it would be made by ScottishPower subject to

22 approval by the Commission, so the risk is with

23 ScottishPower. We made those investments on the

24 basis that these are good business investments. And

25 in that, if I could just say I guess you've included

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 50 megawatts or approximately $60 million for

2 renewals, which is actually a separate item

3 altogether.

4 But basically, ScottishPower

5 shareholders would make those investments up front.

6 Q. And then you would seek to recover

7 those from the ratepayers?

8 A. In the normal way, subject to approval

9 from the Commission.

10 Q. So just so I understand specifically,

11 as I go through your filing in this case, the

12 customer guarantees that ScottishPower proposed to

13 implement total some $15 million. Is that correct?

14 A. I would have to take your number --

15 Q. Subject to check?

16 A. -- subject to check, yes.

17 Q. And I would represent I hope I

18 accurately took it out of your filing, but if I

19 didn't, I'll be subject to check as well.

20 A. Okay.

21 Q. But basically, roughly $15 million

22 guarantees the customers that if the Company

23 ScottishPower doesn't perform, those are amounts

24 that will be paid; and, in fact, that is an amount

25 that would be paid by the ratepayers, you would seek

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 to recover from the ratepayers?

2 A. I don't think that's right. I think

3 the $15 million for --

4 Q. For customer guarantees is what you

5 characterize them as?

6 A. I need to check the page. I'm not

7 sure whether you're talking about a penalty payment

8 or the investment.

9 MR. GALLOWAY: Mr. Chairman, there's a

10 lot of numbers and a lot of terms being thrown

11 around. Perhaps if Mr. Budge could refer to

12 specific portions of the witness's testimony so that

13 the witness knows what he's talking about.

14 MR. BUDGE: I'm referring --

15 COMMISSIONER HANSEN: Mr. Budge, I

16 think that's a good analogy. Could you do that,

17 please?

18 MR. BUDGE: We can refer to

19 ScottishPower's response to the Commission Staff's

20 data request SP 33-36. The same numbers are

21 contained in I believe Mr. Anderson's Exhibit

22 No. 207.

23 MR. GALLOWAY: Perhaps if you could

24 show the witness the data request so we could know

25 what you're talking about.

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 MR. BUDGE: If we could have just a

2 moment.

3 COMMISSIONER HANSEN: Okay, we'll go

4 at ease.

5 (Discussion off the record.)

6 COMMISSIONER HANSEN: Let's go back on

7 the record, Mr. Budge.

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

9 I think in lieu of going through the specific costs

10 that we talked about all within the $135 million

11 total, we can raise that point at a later date by

12 referring to the specific exhibits and speed up the

13 cross some, so we'll go forward with another area,

14 if I may.

15 Q. BY MR. BUDGE: Mr. Richardson, within

16 these $135 million of new programs and commitments

17 and training programs and the like that

18 ScottishPower proposed to implement was what you

19 characterize in your testimony as renewable

20 generation and renewable resources, and the Company

21 proposed to expend $60 million in that particular

22 area. Do you recall that testimony?

23 A. I do.

24 Q. Are you aware that the PacifiCorp

25 resource plan indicates that there's presently no

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HEDRICK COURT REPORTING RICHARDSON (X)
P.O. BOX 578, BOISE, ID 83701 ScottishPower

1 need for new generation on the PacifiCorp system?

2 A. I am aware of that.

3 Q. Are you also aware that the renewables

4 that ScottishPower proposed are not the least-cost

5 resource in that particular plan?

6 A. I am, sir.

7 Q. Would you agree that it's not in the

8 public interest to expend funds in a manner that's

9 not cost effective?

10 A. No, I would not.

11 Q. If, in fact, the Company were to

12 expend on a renewable resource that was not

13 economical, would it, in fact, become a stranded

14 investment in a deregulation case, in your opinion?

15 A. That would not be my opinion. Our

16 approach would be to demonstrate to the Commissions

17 that this was a prudent investment. I think the

18 environment is a real dynamic, and I think it's

19 beholden on utilities to represent the future case

20 to advise Commissions of their view of risk and

21 their way of dealing with it.

22 Q. With respect to the various other

23 programs, initiatives that ScottishPower has

24 proposed, would your same testimony apply there,

25 that you would still seek to recover them from the

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1 ratepayers as a prudent investment if they were not

2 economically feasible or cost effective?

3 A. I think you generalize. The other

4 programs that you refer to presumably were in the

5 $135 million. In my view -- now I generalize -- are

6 substantial -- or, are investments which would bring

7 about substantial benefit to customers in a number

8 of dimensions.

9 Q. If, in fact, the cost of a specific

10 program exceeded the benefits derived to the

11 ratepayers, would you agree that would not be a

12 cost-effective program?

13 A. That is -- that is a definition of not

14 being cost effective, I guess.

15 Q. And would you still feel in that

16 circumstance that the ratepayer should bear the cost

17 of the ineffectiveness of your program if the

18 benefits were less than the costs?

19 A. I don't believe ScottishPower are

20 well-known for proposing ineffective programs. I

21 would be confident going forward that the programs

22 we propose to this Commission and others would

23 demonstrate value and cost effectiveness in these

24 utility cases.

25 Q. I appreciate that and I hope they do.

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1 But in the event they did not, is the Company's

2 intention to come before this Commission and ask the

3 ratepayers to pay for a program where the costs

4 exceeded the benefits?

5 A. I would -- I wouldn't want to prejudge

6 what the Commission might do. What I've already

7 said is that we -- ScottishPower -- would make its

8 decisions on its investments, and in the normal way,

9 those investments would be reviewed by the

10 Commission and its Staff; and if we get it wrong,

11 then we -- the shareholder, I guess -- stands at

12 risk.

13 Q. What you're saying is you may come to

14 the Commission and ask that the ratepayers pay for a

15 program even if it is not cost effective?

16 A. That's what you're saying.

17 Q. Is that the Company's intentions?

18 A. We don't have a specific intention in

19 that respect.

20 Q. Let me go into some other expenditure

21 areas that appear to be in excess of the

22 $135 million package that we've been discussing. As

23 I review the proxy statement of May 6, 1999, that

24 was filed by PacifiCorp or sent to PacifiCorp

25 shareholders --

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1 Do you have a copy of that available?

2 A. I don't have a copy here, no.

3 MR. GALLOWAY: Mr. Chairman, could I

4 suggest that since this a PacifiCorp document, that

5 Mr. O'Brien testify in regard to it? I do not

6 believe that Mr. Richardson is intending to sponsor

7 or testify in respect to PacifiCorp's intents or

8 plan.

9 COMMISSIONER HANSEN: That seems

10 reasonable with the Chair. Do you have a problem

11 with that, Mr. Budge?

12 MR. BUDGE: Yeah, I do, Mr. Chairman.

13 I have questions concerning that as to how

14 ScottishPower intends to operate the Company that

15 most properly should be directed to Mr. Richardson.

16 And of course to the extent that Mr. Richardson

17 doesn't know or wants to defer it to Mr. O'Brien,

18 I'll certainly accept that as an answer. But I

19 think most of the questions he can answer, I would

20 hope, "yes" or "no" or he doesn't know.

21 COMMISSIONER HANSEN: Okay, we'll

22 proceed on.

23 MR. GALLOWAY: Are you without a copy?

24 THE WITNESS: I am without a copy,

25 yes.

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1 MR. GALLOWAY: May I approach the

2 witness?

3 COMMISSIONER SMITH: Mr. Budge, I

4 missed what we're referring to. Could you tell me

5 what you're referring to?

6 MR. BUDGE: Pardon?

7 COMMISSIONER SMITH: What are we going

8 to look at?

9 MR. BUDGE: We're referring to a proxy

10 statement prepared by PacifiCorp under date of

11 May 6, 1999. And if I understand correctly -- and

12 Counsel may have to correct me on this -- a draft

13 copy of this proxy statement was a part of the

14 Company's original filing as an attachment to its

15 Application, but I understand from PacifiCorp

16 Counsel that that was a draft proxy statement only,

17 and when they took matters to the shareholders for

18 approval at a meeting on June 17th, a proxy

19 statement in final form was then submitted. And so

20 my intention was to direct the question based upon

21 the actual proxy statement filed, even though I

22 think the content is pretty much the same as the

23 draft that was filed with the Application.

24 COMMISSIONER HANSEN: Okay.

25 Q. BY MR. BUDGE: And I believe most of

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1 the questions I can ask just without necessarily

2 having to have the proxy statement there, but I

3 wanted to have it available for you to review.

4 Mr. Richardson, there is discussion on

5 page 55 of that proxy statement of an executive

6 severance plan that has been developed. Are you

7 generally familiar with that?

8 A. Generally.

9 MR. GALLOWAY: Mr. Chairman, I believe

10 this is precisely the nature of my objection. I

11 suggested that Mr. O'Brien should be the one to

12 testify to PacifiCorp programs. The response was

13 the questions would go to Mr. Richardson's

14 management of PacifiCorp post transaction, and the

15 first question out of the box has to do with a

16 PacifiCorp severance plan put in place by

17 PacifiCorp. I think Mr. O'Brien is the appropriate

18 witness to respond to this, not Mr. Richardson.

19 COMMISSIONER HANSEN: I'm going to

20 sustain that objection. I think you need to keep

21 those questions that relate just to ScottishPower

22 and the others to Mr. O'Brien.

23 MR. BUDGE: And I'll attempt to do

24 that, but Mr. Richardson just testified he was

25 generally familiar with that program and I thought

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1 it might be appropriate that we ask some questions

2 on it because it would relate to whether

3 ScottishPower intends to keep those very executives

4 or not and how they may do that. And those are the

5 issues that I want to get to after I ask some very

6 preliminary questions about his knowledge.

7 COMMISSIONER HANSEN: Let's try it and

8 see if --

9 MR. BUDGE: Okay. All right. Well

10 I'll give it a whirl.

11 COMMISSIONER HANSEN: We can get

12 through this.

13 Q. BY MR. BUDGE: Is it your

14 understanding, Mr. Richardson, that this executive

15 severance plan, in total, costs something in the

16 range of $20 million.

17 A. That is my understanding, yes.

18 Q. And if I understand it correctly, this

19 is simply an executive severance plan that would pay

20 compensation to some 26 PacifiCorp employees if they

21 did not stay on with ScottishPower?

22 A. Yes, that's correct.

23 Q. And would that entire amount be paid

24 if, in fact, all of those 26 executives did not stay

25 with ScottishPower, to your knowledge?

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1 A. To my knowledge, yes.

2 Q. And do those 26 executives that would

3 receive the benefit of this severance plan, does

4 that constitute the top 26 executives of PacifiCorp?

5 A. I would guess so. I don't actually

6 know that precisely.

7 Q. And will it, in fact, be

8 ScottishPower's decision whether or not to keep any

9 or all of those top 26 executives?

10 A. Ultimately, yes.

11 Q. And to the extent that those top

12 executives then are not kept and take their

13 severance plan, would that not be an above-the-line

14 cost that ultimately would be paid by the ratepayers

15 if this Commission approved it?

16 A. I think the answer to that question is

17 probably best dealt by Mr. Morris, who was dealing

18 with it last week.

19 Q. Okay. I'll address that with him.

20 Then to the extent that ScottishPower

21 may want to keep some of those executives, would it

22 be accurate for me to believe that you would want to

23 offer them some incentive to stay with ScottishPower

24 greater than they would receive under this

25 particular severance plan?

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1 A. We have no such plans.

2 Q. No such plan to keep any of them?

3 A. No, your question was -- I think you

4 asked were we prepared to offer an incentive to

5 stay.

6 COMMISSIONER HANSEN: Mr. Budge, I

7 believe your question is different than what --

8 Q. BY MR. BUDGE: Yeah, I think that we

9 misunderstood each other, so let me rephrase it.

10 A. Try again.

11 Q. I wasn't asking if you planned to keep

12 any. My question was if you desire to keep any of

13 these PacifiCorp top 26 executives, would you not

14 expect to have to pay them something in excess of

15 what they would get if they chose to take the

16 severance plan and leave?

17 MR. GALLOWAY: Mr. Chairman, I object.

18 This is a mischaracterization of the severance plan.

19 Only one employee has an option to elect to take the

20 severance.

21 COMMISSIONER HANSEN: I'm going to

22 sustain the objection.

23 Q. BY MR. BUDGE: Let me -- instead of

24 severance, if they were all terminated, if all the

25 top executives were terminated by ScottishPower,

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1 they would then get the severance. Is that correct?

2 A. That is my understanding.

3 Q. And if ScottishPower chose not to

4 terminate then, would you not expect you would have

5 to induce those top executives by paying them

6 something more than they would otherwise have got if

7 they were terminated?

8 A. I would not, and that has not been my

9 experience in the long time in business.

10 Q. And do I understand your testimony:

11 You haven't decided how many, if any, of those top

12 executives might be retained?

13 A. We have not decided that, no.

14 Q. If all of those top executives in the

15 Company were not retained and they were replaced by

16 ScottishPower, do you believe there would be some

17 management void at PacifiCorp given their past

18 functions and years of experience?

19 A. There is no question that the top 26

20 have considerable experience. I will say that it is

21 not in my mind to remove a large proportion of them,

22 but your presumption that there would be a void of

23 some sort would be correct for a period.

24 MR. BUDGE: Mr. Chairman, if I could

25 have just a second, I think I'm going to

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1 recategorize some of these questions to Mr. O'Brien.

2 (Discussion off the record.)

3 Q. BY MR. BUDGE: Before leaving this

4 area, in the area of cost that ScottishPower expects

5 to incur in order to initiate these new programs and

6 initiatives, did the Company have access to records

7 of PacifiCorp to be able to generate these specific

8 costs?

9 A. We worked with a PacifiCorp team. I

10 think Mr. Moir did that work and the question would

11 be best answered by Mr. Moir.

12 Q. You did, in fact -- you're aware that

13 you were working with PacifiCorp people in order to

14 generate these costs, program cost numbers?

15 A. I think an output of the work that was

16 done included a cost review, yes.

17 Q. And, in fact, you also had access to

18 the financial and business records of PacifiCorp to

19 the extent necessary to develop these rather precise

20 cost numbers?

21 A. You might presume that, but I'd rather

22 you address the question to Mr. Moir.

23 Q. Would it be accurate to say that as

24 you continue to be involved with PacifiCorp, that

25 ScottishPower is able to further identify and

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1 redefine the specific costs of the new programs and

2 initiatives that could be changing as you become

3 more familiar with the Company?

4 A. No, that piece of work is behind us

5 and we've really not revisited it.

6 Q. In your -- excuse me. Strike that.

7 As I read your direct and rebuttal

8 testimony, you've identified one specific cost

9 savings, and that is the $10 million in corporate

10 costs that you would expect to achieve as a result

11 of the merger?

12 A. We've identified $10 million that we

13 commit to bank.

14 Q. And do you know what Idaho's share of

15 that $10 million savings would be?

16 A. I don't.

17 Q. If you could please turn to your

18 rebuttal testimony, page 2?

19 A. Okay.

20 Q. Do you have that in front of you?

21 A. I do.

22 Q. Beginning on line 5 and then

23 continuing through about line 16, you summarize, if

24 you will, the benefits of the transaction, and you

25 basically though state that those benefits will

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1 include an unmatched package of system performance

2 and customer service standards, that the level of

3 service will be raised, certain efficiencies in cost

4 savings of PacifiCorp would happen. You refer to

5 your environmental commitment to renewable

6 resources, the commitment to the PacifiCorp

7 Foundation, the educational programs, and the like.

8 A. Yes.

9 Q. Let me ask you: Has ScottishPower

10 made any specific study or analysis quantifying the

11 savings that will result from any of these

12 particular programs and initiatives?

13 A. No, we have not.

14 Q. And is it a fact that ScottishPower

15 makes no commitment or guarantee to the ratepayers

16 that the savings that you anticipate to be generated

17 from these particular transaction benefits will

18 exceed the cost of the particular benefits?

19 A. That is true, but our experience as

20 utility managers is that these are just the sort of

21 investments that do deliver the economies.

22 Q. So what you're basically saying,

23 Mr. Richardson: That even though you've made no

24 specific study or analysis to quantify the benefits,

25 as a utility manager, based on your experience,

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1 you're quite confident that those benefits will be

2 achieved?

3 A. I am very confident.

4 Q. You are very confident. And despite

5 the fact that you're very confident that you'll

6 receive the benefits, would it be accurate to say

7 that you're not sufficiently confident to protect

8 the ratepayers by providing any kind of a rate

9 freeze or cap?

10 A. No, I don't think that is appropriate.

11 Q. Okay, it's not appropriate, meaning

12 you are willing to provide a rate freeze or cap?

13 A. No, what I say is that our commitment

14 to costs and cost reductions will be reflected in

15 the transition plan and in the annual filings that

16 follow, and there will be opportunities going

17 forward in rate cases to take advantage of those

18 cost reductions in moderating or in time perhaps

19 even reducing rates.

20 Q. Did I understand your prior testimony

21 right that you are very confident that ScottishPower

22 will be able to achieve benefits from its programs

23 that exceed the cost?

24 A. Absolutely.

25 Q. And if you're absolutely confident of

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1 that, then there should be no risk to ScottishPower

2 in granting any freeze or rate cap to the

3 customers. Is that true?

4 A. I think there's considerable risk to

5 ScottishPower.

6 Q. There would be no risk in granting a

7 rate freeze to the customer if you're certain the

8 benefits will exceed the costs. Isn't that true?

9 A. I -- we're starting today where, for

10 example, we've already covered that it is likely

11 that PacifiCorp are underearning in this service

12 territory. That is part of the equation. So talk

13 about rate freeze or rates needs to be done in the

14 context of earnings and returns, reasonable returns

15 to shareholders.

16 Q. Let me move into another area. As I

17 understand from your rebuttal testimony on page 4,

18 you basically intend, on behalf of ScottishPower, to

19 provide what you call an action plan. I think you

20 categorized it as a transition plan that would

21 identify the specific areas of cost savings that the

22 Company expects to resolve from these various

23 programs and initiatives to be installed?

24 A. That's correct.

25 Q. And is that particular action plan or

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1 transition plan something that won't be developed

2 for six months?

3 A. I think it is not an action plan; it

4 is a transition plan. I think Mr. MacRitchie's

5 rebuttal testimony in particular goes into

6 considerable detail as to just what a transition

7 plan is.

8 Q. But my question is we've discussed a

9 number of costs that have been specifically

10 identified based upon Company records, but the

11 benefits or savings we expect to achieve are

12 something that will not be developed until you

13 create a transition plan in six months. Is that

14 correct?

15 A. We stepped forward and said that there

16 were $10 million savings available from year three

17 committed and guaranteed.

18 Q. I'm not worried too much about the

19 10 million; what I'm worried about, the difference

20 between the 10 and the other 120 million that we

21 know the ratepayers are committed to. So my

22 question is -- is although we've identified some

23 specific program costs, the program benefits aren't

24 known at this point and they won't be developed for

25 six months. Is that true?

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1 A. I think you're confused.

2 Q. Most of the time, I am. Can I just

3 rephrase the question then?

4 A. Could I perhaps --

5 Q. Well --

6 A. Let me go --

7 Q. Let me --

8 COMMISSIONER HANSEN: Try rephrasing

9 the question.

10 Q. BY MR. BUDGE: Let me rephrase it.

11 A. Okay.

12 Q. The Company does not intend to

13 identify specifically the cost savings until you

14 have the transition plan developed. Is that true?

15 A. Other than the 10 million to which we

16 have committed.

17 Q. Other than the 10 million?

18 A. That's correct.

19 Q. Other than the 10 million?

20 A. That's correct.

21 Q. And that plan won't be developed for

22 approximately six months?

23 A. That plan will be presented to the

24 Commission six months after approval, yes.

25 Q. And the reason the plan has not been

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1 developed in advance is that -- that you contend

2 that you do not have available necessary information

3 from PacifiCorp?

4 A. I think I need to refer you to

5 Mr. MacRitchie's rebuttal testimony, and even to

6 Mr. MacRitchie himself.

7 But you will see the transition plan

8 is not a small piece of work. It is a significant

9 piece of work, highly intrusive, and highly

10 important to us in defining the shape and the way

11 forward for the business in terms of its performance

12 and its costs. And it is not a lightweight piece of

13 work and requires full and detailed cooperation of

14 PacifiCorp management.

15 Q. Would it be accurate to say that the

16 reason the transition plan won't be developed for

17 six months is because that's the way you've designed

18 this particular merger proposal?

19 A. No, that would not be accurate.

20 Q. Well, didn't ScottishPower and

21 PacifiCorp make the conscientious decision that they

22 would not have the transition plan available for

23 review in this proceedings?

24 A. No, we did not.

25 Q. Who made the decision?

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1 A. The nature of the merger agreement

2 does not allow ScottishPower access to the details

3 of PacifiCorp's books, in particular, in order to

4 develop a transition plan.

5 Q. Precisely. And who negotiated the

6 merger agreement that had that restriction in it?

7 Was it not ScottishPower and PacifiCorp?

8 A. It was.

9 Q. So, in fact, this restriction or lack

10 of access to Company records is a self-imposed

11 constraint that was negotiated by ScottishPower as a

12 part of the deal with PacifiCorp. Correct?

13 A. But that constraint was put in place,

14 and I would guess Mr. O'Brien would respond to this

15 with more clarity, but that was put in place to

16 protect PacifiCorp going forward.

17 Q. But that's part of the merger

18 agreement that ScottishPower signed and you were a

19 party to those negotiations?

20 A. It is, and the result of that merger

21 agreement means that we are unable to work to

22 develop the transition plan.

23 Q. So that's the way the merger agreement

24 was structured by ScottishPower?

25 A. The merger agreement prohibits us from

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1 developing a transition plan.

2 Q. Is it true that this transition plan

3 that's not available for review today will be

4 submitted to this Commission for review and approval

5 in an open hearing at a later date when it is

6 developed?

7 A. That is not my understanding. We have

8 committed to file the transition plan on an

9 informational basis to the Commission.

10 Q. So it won't be subject to Commission

11 approval?

12 A. I don't believe so.

13 Q. And it won't be subject to review in

14 any kind of a hearing format like this?

15 A. I don't believe so.

16 Q. To that extent then, the transition

17 plan will be ScottishPower's alone?

18 A. It will.

19 Q. Would you agree, Mr. Richardson, that

20 if this Commission had in front of it now the

21 transition plan that identified with some degree of

22 specificity the costs and savings that ScottishPower

23 expected to resolve or regenerate as a result of

24 these new program expenditures, that this Commission

25 would then have a basis in front of it to pass those

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1 savings on to the ratepayers in the form of some

2 condition of approval?

3 A. I don't want to seem ignorant, but I

4 really don't know enough about the rate making

5 process as to whether this Commission, on the basis

6 of that sort of evidence, could make that sort of

7 decision. I really don't know.

8 Q. That's something maybe I could direct

9 to Mr. O'Brien.

10 MR. BUDGE: Could I have just a

11 moment?

12 COMMISSIONER HANSEN: Yeah. We'll go

13 at ease.

14 (Discussion off the record.)

15 MR. BUDGE: Mr. Chairman, we have no

16 further questions for Mr. Richardson, and we thank

17 him for his testimony.

18 COMMISSIONER HANSEN: Okay. Thank

19 you.

20 I believe maybe what we will do so we

21 can start on time at 1:00, why don't we recess now

22 for lunch and we will come back on at 1:00. And we

23 will then start with the Idaho Irrigation Pumpers

24 Association at 1:00.

25 (Noon recess.)

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