HESSINGv1.txt

1 (The following proceedings were

2 had in open hearing.)

3 (Staff Exhibit Nos. 101 through

4 111 were marked for identification.)

5 (Staff Exhibit Nos. 101 through

6 111 were admitted into evidence.)

7 COMMISSIONER KJELLANDER: And with

8 that then, Mr. Hessing is available for

9 cross-examination, and let's move first to -- it

10 will be Mr. Pomeroy or Mr. Tarpey?

11 MR. TARPEY: Mr. Pomeroy.

12 COMMISSIONER KJELLANDER: Mr. Pomeroy.

13 MR. POMEROY: Thank you, Mr. Chairman.

14 We had actually discussed with the parties the

15 possibility of our proceeding with cross-examination

16 after the others since Mr. Hessing's testimony is

17 primarily directed at Astaris. So after consulting

18 with the other parties, we thought the order would

19 be as the same as for witnesses: Namely, Mr. Ripley

20 and Mr. Richardson, and then I follow them.

21 COMMISSIONER KJELLANDER: Okay. Thank

22 you. We'll move first then to Mr. Ripley.

23 MR. RIPLEY: We have no questions.

24 COMMISSIONER KJELLANDER:

25 Mr. Richardson.

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1 MR. RICHARDSON: Just a couple,

2 Mr. Chairman.

3

4 CROSS-EXAMINATION

5

6 BY MR. RICHARDSON:

7 Q. Mr. Hessing, do you recall the

8 Industrial Customers, when this Contract was first

9 proposed and put out for comment, that the

10 Industrial Customers argued in comments that the

11 rate it paid Astaris for the buyback should be

12 indexed to the market?

13 A. I didn't directly participate as a

14 Staff member in the initial establishment of the

15 initial approval of the Agreement, but since that

16 time, I have read that that was the position of the

17 Industrial Customers.

18 Q. And had the Commission adopted that

19 position, would we be having a problem here today?

20 A. I don't have a complete

21 understanding. I mean, my understanding of "indexed

22 to the market rate," under my understanding, we

23 would not be having this discussion here today.

24 Q. All right. I read in testimony that

25 as part of the negotiation process between Astaris

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1 and Idaho Power, that one of the options Idaho Power

2 had in front of it was to buy forward 50 megawatts

3 on the market. And had they done that from a

4 marketer or vendor, another Utility, at a fixed rate

5 for the two-year time period, would we be having a

6 problem here today?

7 A. If they had made the choice to buy

8 that power from a marketer, I don't believe that the

9 Commission would have authority to -- to change

10 that. However, I don't think that that was the only

11 option available. I think they could have produced

12 more power with diesel generators. They could have

13 gone for a shorter-term Contract. I mean, there

14 were lots of other options.

15 Q. Okay, now, I didn't ask you if the

16 Commission would have authority. What I asked is --

17 and let me be clear on the question -- if Idaho

18 Power had chosen the option that I had seen

19 discussed in the testimony of purchasing

20 50 megawatts forward for two years, and let's assume

21 it's at the same price that they're paying Astaris

22 for the buyback, would the rates that Idaho Power's

23 charging its customers be unreasonable?

24 A. I guess the reasonableness of rates

25 has a lot to do with the circumstances involved, and

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1 I don't believe the Commission could change those

2 rates under that situation.

3 Q. I wasn't asking you if the Commission

4 could change. I'm not asking you a legal question.

5 MR. HAMMOND: I'm going to object.

6 That's been asked and answered at this point.

7 MR. RICHARDSON: Mr. Chairman, he

8 didn't answer my question. He answered the question

9 that he thought he heard, which is did the

10 Commission have authority or can the Commission

11 change the rates; and I asked him if, under his

12 understanding, the rates would be reasonable.

13 COMMISSIONER KJELLANDER: Okay. We'll

14 go ahead and allow the question and Mr. Hessing to

15 respond to that.

16 THE WITNESS: Whether or not the rates

17 are reasonable has a lot to do with the

18 circumstances around it. Those rates under those

19 circumstances, put in place under those

20 circumstances, may be deemed to be reasonable.

21 Q. BY MR. RICHARDSON: How do you define

22 "reasonable"?

23 A. Well, I think -- I think "reasonable"

24 relates to what's in the public interest, and so --

25 so, I mean, I guess that's how I would define it.

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1 "Reasonable" needs to be in the public interest.

2 Q. Does the definition of "reasonable"

3 change depending upon which position you are in?

4 For example, if I'm a customer of Idaho Power's,

5 does my definition of "reasonable" look different

6 from your definition of "reasonable"?

7 MR. HAMMOND: I'm going to object.

8 That's speculation. He doesn't know what Idaho

9 Power's definition would be. I don't think he has

10 personal knowledge of what their definition would

11 be.

12 MR. RICHARDSON: Mr. Chairman, I'm

13 asking the witness if there's a single definition of

14 "reasonable" from whichever perspective one's

15 looking at the case. Seems like it should be an

16 objective standard. What is "reasonable" in terms

17 of the rates Idaho Power's customers are paying

18 should be the same if you're a customer -- I'm

19 asking him if it is the same if you're a customer or

20 if you're Mr. Hessing sitting on the witness stand.

21 COMMISSIONER KJELLANDER: I think

22 Mr. Hessing could probably provide an answer that

23 would address the question.

24 THE WITNESS: I don't -- I don't

25 believe the definition is different. I believe that

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1 both parties in that situation have a place in the

2 public interest, and they may view it differently,

3 but I don't believe the definition is different.

4 Astaris has a place in the public interest, as do

5 the ratepayers of the state of Idaho, as does Idaho

6 Power Company. And I don't -- I can see how it can

7 be viewed differently, but I don't know that the

8 definition should be different for each one of those

9 parties.

10 Q. BY MR. RICHARDSON: So had Idaho Power

11 incurred these costs with a two-year forward

12 Contract with the vendor, the rates are reasonable?

13 A. They may be deemed to be that way by

14 the Commission.

15 Q. Well, what's your opinion on that?

16 MR. HAMMOND: I think I'm going to

17 object again. I think he's asking Mr. Hessing to

18 provide a view on what Idaho Power's hedging

19 practices may be. I'm not sure Mr. Hessing can

20 answer that. I'm not sure he's the appropriate

21 witness to answer that question.

22 MR. RICHARDSON: Mr. Chairman, the

23 heart of Mr. Hessing's testimony is what is -- what

24 are reasonable rates, and I think it's very

25 important to get to an understanding of what he

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1 believes are reasonable rates.

2 And I was not asking about Idaho

3 Power's hedging practices. I said, If Idaho Power

4 had chosen the option that's addressed in the

5 testimony of buying forward for two years from an

6 independent marketer at the same rates that they're

7 paying Astaris to buy back, would those rates then

8 be reasonable.

9 It isn't a surprise or trick

10 question. It's just, what is a reasonable rate.

11 COMMISSIONER KJELLANDER: Hasn't

12 Mr. Hessing responded, in part, by already saying in

13 response to a previous question that "reasonable"

14 depends on the case specifically as it shows up on a

15 case-by-case basis, and isn't the objection to this

16 you asking him to speculate on something he hasn't

17 seen or reviewed?

18 MR. RICHARDSON: I asked him -- the

19 scenarios in the testimony, 50-megawatt, forward

20 two-year purchase. I asked him if that would be

21 reasonable, and he said, The Commission may consider

22 it reasonable.

23 And I asked him what his opinion was

24 of what if that is reasonable, because his testimony

25 is all about what are reasonable rates.

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1 This scenario is in the testimony and

2 it's addressed, so it seems like a fair question,

3 but if you don't want me to ask it, I won't.

4 COMMISSIONER KJELLANDER: Just a

5 moment. We'll be back in just a second.

6 (Discussion off the record.)

7 COMMISSIONER KJELLANDER:

8 Mr. Richardson, I think in light of the discussion

9 that you and I had just a moment ago, if you could

10 tie that directly to a specific piece of the

11 testimony, I think we can get there and get to a

12 response.

13 MR. RICHARDSON: I don't recall

14 exactly where in the testimony it was addressed that

15 Idaho Power had considered a 50-megawatt forward

16 purchase, I don't have that cite. Perhaps Counsel

17 for Idaho Power could point it out to me, but it is

18 in the testimony.

19 MR. RIPLEY: No.

20 MR. RICHARDSON: I'll withdraw the

21 question, Mr. Chairman.

22 COMMISSIONER KJELLANDER: Okay, we got

23 there then. Thank you.

24 Q. BY MR. RICHARDSON: Mr. Hessing, you

25 referred to a moment ago the possibility of

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1 Idaho Power building diesel generators to meet the

2 50-megawatt load deficit?

3 A. Yes, I think that's one of the other

4 options that might have been chosen.

5 Q. Okay. Had Idaho Power chosen that

6 option instead of the Astaris option or instead of

7 the 50-megawatt forward purchase, had Idaho Power

8 gone out and purchased 50 megawatts of diesel

9 generation capacity at the same price it's paying

10 Astaris and instead of purchase they leased it for

11 two years, 50 megawatts for the same price, would

12 the rates resulting from that action be reasonable?

13 A. Okay, there are some differences

14 here. If you have those kinds of resources that you

15 lease, when the market price goes down, you don't

16 have to operate those and you don't incur all of the

17 costs. You may still have the cost of the lease,

18 but the cost of the lease presumably wouldn't be

19 anywhere near the overall cost of running them to

20 produce the energy, 50 megawatts, for a two-year

21 period of time. So those -- the costs of the lease

22 may be appropriate for ratemaking purposes.

23 Q. You would certainly save the cost of

24 buying diesel fuel, but all the other fixed costs

25 would remain for the two-year period?

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1 A. Which are the smaller portion of the

2 costs, yes.

3 Q. Now, on page 12 of your testimony, you

4 state that -- down on line 17 -- you state that If

5 the Contract prices continue, ratepayers will be

6 adversely affected as the market costs of purchasing

7 the 50 megawatts are passed on to them.

8 Now, isn't there a step before that

9 that has to happen before the ratepayers are

10 adversely affected, and that is that the Commission

11 allows these costs to be passed on to the

12 ratepayers?

13 A. Yes, the Commission would have to

14 allow the cost to be passed on to ratepayers.

15 Q. So if the Commission didn't allow the

16 cost to be passed on to ratepayers, would the

17 Contract prices still be unreasonable?

18 A. If the Commission didn't allow the

19 cost to be passed on to ratepayers, it wouldn't be

20 unreasonable for ratepayers; however, I think that

21 presumes that somebody determines that the

22 Commission finds that -- that the costs were

23 imprudently incurred. And we've gone a long ways

24 down the road already with regard to the imprudence

25 of these kinds of costs. There are Commission

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1 Orders when the Letter Agreement was approved, and

2 there have been reviews by Staff, and there's a case

3 before the Commission now with regard to the

4 approval of these costs. So we're a long ways down

5 the road on that.

6 Q. On page 21, you referred to savings to

7 other jurisdictions down on line 16?

8 A. Yes, I see that.

9 Q. What other jurisdictions are you

10 referring to?

11 A. Energy costs that are included and

12 captured in Idaho Power's power cost adjustment

13 mechanism are allocated 85 percent to the Idaho

14 jurisdiction and 15 percent to other jurisdictions,

15 which I believe at this point in time is Oregon and

16 a FERC jurisdiction.

17 Q. Are the rates being paid by the

18 ratepayers in those other jurisdictions

19 unreasonable?

20 A. I don't know that. I'm not familiar

21 with their laws and I have no idea.

22 Q. So you don't have any concept of

23 whether the ratepayers in these other jurisdictions

24 are paying unreasonable rates --

25 MR. HAMMOND: I'm going to object. I

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1 think that clearly is something Mr. Hessing has

2 already stated he doesn't know. It's outside the

3 jurisdiction that at least I view of this matter.

4 Therefore, I'm going to ask that that be withdrawn.

5 COMMISSIONER KJELLANDER:

6 Mr. Richardson.

7 MR. RICHARDSON: There wasn't a

8 question mark there yet, Mr. Chairman. That was a

9 preface to the question.

10 COMMISSIONER KJELLANDER: Okay. Let's

11 get the question.

12 Q. BY MR. RICHARDSON: So you don't have

13 any concept that the ratepayers in other

14 jurisdictions are paying unreasonable rates as a

15 result of this Agreement with Astaris. Correct?

16 MR. HAMMOND: I'm going to again raise

17 the same objection.

18 COMMISSIONER KJELLANDER: Okay.

19 Mr. Richardson.

20 MR. RICHARDSON: Mr. Chairman, I

21 thought I was restating his answer, but maybe the

22 court reporter could read back the answer to the

23 previous question, and then we'll have to restate

24 it.

25 COMMISSIONER KJELLANDER: We'll have

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1 the court reporter do that.

2 (Whereupon, the requested portion

3 of the record was read by the court reporter.)

4 Q. BY MR. RICHARDSON: Isn't it true,

5 Mr. Hessing, that you were -- if your proposal is

6 accepted, that you are, in fact, affecting the rates

7 that ratepayers in other jurisdictions are paying?

8 A. I don't believe that to be the case.

9 I'm not extremely knowledgable about the rates that

10 are in place in other jurisdictions, but I don't

11 believe they have a power cost adjustment mechanism.

12 Q. Have you done any investigation as to

13 whether the Oregon and FERC jurisdictions --

14 MR. HAMMOND: I'm again going to

15 object. This is beyond Mr. Hessing's knowledge in

16 this case. He's -- this deals exclusively, at least

17 in this matter, with what's happening in Idaho, not

18 in FERC jurisdiction or some other place.

19 COMMISSIONER KJELLANDER: And,

20 Mr. Hammond, I'm going to agree with you on that.

21 Mr. Richardson.

22 Q. BY MR. RICHARDSON: Mr. Hessing,

23 you've identified savings to other jurisdictions at

24 $6.8 million. How did you come up with that number?

25 A. I believe that that number is the

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1 15 percent of the costs of this program that

2 wouldn't be passed through the PCA -- I mean, the

3 savings that is passed through the PCA. I believe

4 that produces the $6.8 million. And all it says is

5 that doesn't get assigned to Idaho customers.

6 Q. Then beginning on line 19, you state

7 that that savings in other jurisdictions may flow to

8 Idaho Power if Idaho Power has no approved mechanism

9 for passing on abnormal power supply costs.

10 I'm not sure what you mean by that

11 statement: May flow to Idaho Power.

12 A. All that statement means is that if

13 there are no -- if there is not a PCA or a mechanism

14 for recovering this kind of power cost in those

15 other jurisdictions, then Idaho Power won't have to

16 pass those savings on to those other jurisdictions

17 and those savings will accrue to Idaho Power

18 Company.

19 Q. Is that sort of a double dip for

20 Idaho Power?

21 A. I don't believe so.

22 Q. Because they're not passing the

23 savings on to the ratepayers?

24 A. Well, they don't pass PCA costs on to

25 ratepayers in those jurisdictions either. If -- if

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1 these rates should be reformed to a level that is in

2 the public interest and Idaho Power captures a

3 portion of the savings in the process of doing that,

4 I don't think that that's unfair.

5 Q. Just one other question:

6 On page 2, you talk about the rates on

7 line 4, you talk about the rates caused by the

8 prices; and then on page 12 again, you talk about

9 the costs of the Contract.

10 And are you using the terms

11 interchangeably? Are the rates unreasonable or the

12 costs unreasonable?

13 A. The rates cause the costs, and

14 therefore, I think the rates and the costs that are

15 caused by the rates are unreasonable if we're

16 talking about the costs to Idaho ratepayers.

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

18 Mr. Chairman.

19 Thank you, Mr. Hessing.

20 COMMISSIONER KJELLANDER: Thank you,

21 Mr. Richardson.

22 Let's move now to Mr. Pomeroy.

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

24

25

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1 CROSS-EXAMINATION

2

3 BY MR. POMEROY:

4 Q. Good morning, Mr. Hessing.

5 A. Good morning.

6 Q. In your direct testimony on --

7 starting on page 4, you talk about the circumstances

8 that led to the creation of the Buyback Agreement,

9 which is what I want to talk to you first about.

10 Can I direct you to page 5, lines 18

11 through 23, please? Do you see that reference?

12 A. I do.

13 Q. You state there, don't you, that

14 Idaho Power had to replace the loss of

15 hydrogeneration with purchases or find other

16 alternatives, such as conservation? Do you see

17 that?

18 A. Yes, I do.

19 Q. By your use of the word

20 "conservation," do you mean that to include the type

21 of Load Reduction Agreement that Astaris entered

22 into with Idaho Power?

23 A. Yes, I believe it does include that.

24 You made reference to the word

25 "buyback." My testimony uses "buyback" and "load

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1 reduction" to be the same thing, just for

2 clarification. So when you talk about "buyback,"

3 I'm talking about "load reduction," and I think --

4 and in the reference in this testimony, they are

5 used interchangeably.

6 Q. I understand. And while we're

7 clarifying terminology, maybe for the record, I can

8 clarify that when I refer to the "Buyback Agreement"

9 or the "Letter Agreement," will you understand those

10 to mean the same thing, the March 2001 Agreement

11 between Astaris and Idaho Power?

12 A. Yes, I will.

13 Q. So just for shorthand, we don't have

14 to go through that every time.

15 A. Thank you.

16 Q. Now, your -- you mention conservation

17 here in your discussion of the events leading to the

18 buyback, and I want to explore that with you in more

19 depth.

20 Are you aware that Idaho Power filed

21 an IRP, an Integrated Resource Plan, in the year

22 2000?

23 A. Yes, I am.

24 Q. And you're aware, aren't you, that the

25 Staff filed comments at that time?

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1 A. Yes, I am.

2 Q. And, likewise, ultimately the

3 Commission issued an Order in connection with that

4 IRP docket?

5 A. Yes, it did.

6 MR. POMEROY: Mr. Chairman, may I

7 approach the witness and ask him to identify two

8 documents?

9 COMMISSIONER KJELLANDER: Yes, that's

10 fine.

11 MR. POMEROY: If I may, may I drop

12 copies off at the Bench?

13 COMMISSIONER KJELLANDER: Please.

14 MR. RIPLEY: Excuse me. Could Counsel

15 wait until we have copies?

16 MR. POMEROY: You bet.

17 (Astaris Exhibit Nos. 208 and 209

18 were marked for identification.)

19 MR. POMEROY: May I proceed?

20 COMMISSIONER KJELLANDER: Has everyone

21 had an opportunity to get a copy of these two

22 documents?

23 MR. RIPLEY: Yes, Mr. Chairman.

24 COMMISSIONER KJELLANDER: Okay, please

25 proceed.

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1 MR. POMEROY: Thank you, Mr. Chairman.

2 Q. BY MR. POMEROY: Mr. Hessing, I have

3 handed you two documents which have been marked as

4 Exhibits 208 and 209. Could you identify what's

5 been marked as Exhibit 208?

6 A. The one that you handed me that you

7 told me would be marked as 208 is identified as the

8 Comments of the Commission Staff in Case No.

9 IPC-E-00-10.

10 Q. And what is document -- the exhibit

11 that's been marked as Exhibit 209?

12 A. It is a Commission Order in that same

13 case.

14 Q. Are you generally familiar with this

15 case in any way?

16 A. In a very general way. I was not the

17 Staff who filed comments in this case.

18 Q. Would it -- would it be -- is your

19 familiarity with this case enough to answer this

20 question:

21 Did the Staff in its comments

22 encourage voluntary conservation and load reduction

23 in the state of Idaho?

24 A. I don't know directly whether the

25 Staff encouraged that or not at this point.

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1 Q. Okay. Does the Staff encourage that

2 now?

3 A. Conservation?

4 Q. Yes.

5 A. Cost-effective conservation is

6 encouraged by the Staff and recommended.

7 Q. All right. Let me -- let me ask you

8 then to -- I want to ask you about one paragraph in

9 particular in Exhibit 209, which is the -- you

10 referenced as the Commission Order in the IRP

11 docket. Do you have that in front of you?

12 A. Yes. It's at least one of the

13 Commission Orders in that docket.

14 Q. Yes.

15 A. I don't know whether there were others

16 or not.

17 Q. That's fair. I want to ask you about

18 a paragraph that's on page 6. Can I direct you to

19 page 6 of Exhibit 209, please?

20 A. I have that.

21 Q. Okay. I want to read to you just a

22 single paragraph, and ask you a few questions about

23 it. It's the first full paragraph on page 6.

24 Paragraph reads It is now early December 2000 and

25 the Northwest region continues to experience record

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1 high prices in the wholesale market. Voluntary

2 conservation is encouraged to reduce the extent of

3 rate increases that will follow purchases at those

4 high prices. For the region, it is a wake-up call.

5 Creative thinking and planning by Utilities and

6 customers may serve to reduce reliance on market

7 purchases to the benefit of both customers and

8 stockholders. Idaho Power and its customers are

9 encouraged to take inventory and stock of available

10 demand-side management and conservation

11 opportunities so that rate increases can be

12 mitigated.

13 Mr. Hessing, do you understand that to

14 be the Commission's policy with respect to voluntary

15 conservation in the state of Idaho?

16 A. At that point in time and under those

17 circumstances, I believe it was.

18 Q. And would you agree with me that that

19 was also a policy the Staff supported at that time?

20 A. The Staff supported that policy at

21 that time.

22 Q. Okay. And would you also agree with

23 me that the Astaris Buyback Agreement was entered

24 into in furtherance of this policy direction from

25 the Commission and the Staff?

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1 A. That may well have been one of the

2 reasons why it was entered into, but it's not like

3 Astaris didn't get anything in return.

4 Q. No, my question was -- was -- and let

5 me ask this, a different question:

6 Is the Astaris Buyback Agreement

7 consistent with this policy as articulated by the

8 Commission and the Staff?

9 A. Yes.

10 Q. And you would agree with me, wouldn't

11 you, that Idaho Power was, by this directive from

12 the Commission, encouraged to enter into

13 arrangements like the Buyback Agreement?

14 A. Yes.

15 Q. All right. Let's proceed then to a

16 few more questions about what led up to the buyback,

17 the discussion you have in your testimony starting

18 on page 4.

19 Are you aware, Mr. Hessing, that

20 having been encouraged by the policies of the

21 Commission and the Staff, Idaho Power, on

22 February 8th, made a formal written Proposal to

23 Astaris to completely shut down all of its

24 four-furnace operation in Pocatello?

25 A. I have read that in the testimony

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1 filed by Astaris in this case, and I believe it to

2 be true.

3 Q. Okay. And you understand that under

4 that Agreement, Idaho Power --

5 MR. RIPLEY: Objection. I believe

6 he's now misstating the record. There was no

7 "Agreement." It was a "Proposal." I think if we

8 tend to get too sloppy with our words, we could

9 perhaps run into considerable trouble.

10 MR. POMEROY: I appreciate the

11 correction, and I will change the question.

12 COMMISSIONER KJELLANDER: Thank you.

13 Q. BY MR. POMEROY: Under the Proposal

14 offered in February of 2001 by Idaho Power,

15 Idaho Power would have been acquiring all of the

16 energy usage from the Pocatello facility of

17 Astaris. Is that your understanding?

18 A. That's my understanding.

19 Q. Okay. And you're aware that at that

20 time, Astaris had the right at its Pocatello

21 facility to operate four furnaces for the production

22 of phosphorus?

23 A. I believe that's correct.

24 Q. Okay. Are you also aware that Astaris

25 did not accept that proposal from Idaho Power at

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1 that time in February?

2 A. Your testimony, the testimony of

3 Astaris witnesses, represent that that's the case,

4 and I believe that to be true.

5 Q. All right. Well then your -- at

6 various parts of your testimony, you discuss the

7 Letter Agreement or Buyback Agreement between

8 Astaris and Idaho Power, so I want to ask you a few

9 questions about your understanding of that document.

10 First of all, you agree, don't you,

11 that the Letter Agreement was filed with the

12 Commission and the Staff for review and approval in

13 March of 2001?

14 A. Yes, the Letter Agreement was filed

15 with the Commission and reviewed by the Staff.

16 Q. And you also agree with me, don't you,

17 that the Staff filed Comments and prepared a

18 Decision Memo on the Letter Agreement?

19 A. Staff filed Comments in that case, and

20 a Decision Memo was prepared.

21 MR. POMEROY: Mr. Chairman, may I

22 approach Mr. Hessing to identify three more

23 documents?

24 COMMISSIONER KJELLANDER: Yes.

25 MR. POMEROY: We're going to do this a

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1 little faster if we double team. Is that okay?

2 COMMISSIONER KJELLANDER: Does

3 everyone have copies of the three documents?

4 Mr. Richardson?

5 MR. HAMMOND: Not yet.

6 COMMISSIONER KJELLANDER: Okay. Thank

7 you.

8 MR. POMEROY: Sorry, going as fast as

9 we can.

10 (Astaris Exhibit Nos. 210 through

11 212 were marked for identification.)

12 (Astaris Exhibit Nos. 201 through

13 212 were admitted into evidence.)

14 MR. RIPLEY: Can I inquire,

15 Mr. Chairman, of Counsel what the purpose of those

16 exhibits are since they're being introduced on

17 cross-examination?

18 COMMISSIONER KJELLANDER: I think

19 that's a fair enough question to ask Mr. Pomeroy.

20 Mr. Pomeroy?

21 MR. POMEROY: Absolutely. The case

22 that you have before you, Commission, is a case in

23 which the Staff is asserting that there needs to be

24 a change in a Contract that my client has relied on

25 to its detriment, and it is our intention in this

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1 process to be sure we develop a complete record of

2 what the understanding of the Contract was at the

3 time, the reasons it was entered into, the

4 understanding of the Staff about how the Contract

5 worked and why it was a valuable resource at the

6 time, all of which go to the fundamental equities

7 that this Commission is being asked to weigh today.

8 Whether or not this Contract should be undone

9 depends significantly on why it was entered into in

10 the first place, and what was the rationale and the

11 understanding at that time.

12 These documents are contemporaneous

13 expressions of the Staff's understanding of what was

14 going on at that time, and if this -- this

15 gentleman, Mr. Hessing, is a recipient and

16 identified as technical Staff on the Decision Memo

17 that was provided to the Commission, which is

18 virtually identical, it turns out, with the Staff's

19 Comments. The two documents are close to

20 interchangeable.

21 The Commission's Order is not

22 presently a part of the record, but the Commission's

23 own voice in ruling on this Contract when it first

24 came before you is a critical piece of how we got

25 here today, and we think it needs to be in the

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1 record as it's developed here.

2 COMMISSIONER KJELLANDER: Mr. Ripley.

3 MR. RIPLEY: My comments,

4 Mr. Chairman, would be I don't necessarily disagree

5 with Counsel. However, I disagree procedurally with

6 how this record is unfolding, and that is, through

7 the device of cross-examination, Astaris is

8 introducing into this record a number of exhibits of

9 which we've not really had any opportunity to review

10 and comment upon as to whether or not there are now

11 additional Orders or additional exhibits or copies

12 that should be introduced. If it is for impeachment

13 purposes, I understand, but if it's then to be used

14 in some Brief down the road as establishing that

15 there is now in the record certain documents which

16 are evidentiary in nature, then -- then I do have an

17 objection with the procedure that's being utilized,

18 which is introducing documents through

19 cross-examination.

20 COMMISSIONER KJELLANDER: Mr. Pomeroy.

21 MR. POMEROY: In my experience,

22 documents are introduced in cross-examination all

23 the time, and it strikes me that for this Commission

24 to consider these documents, they will need to be in

25 the record. And I have quite a number of questions

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1 for this witness on what was the understanding at

2 the time this Contract was entered into, and how

3 is -- is that documented and how is that reflected

4 in the record. It relates directly to his testimony

5 about what the Letter Agreement -- why the Letter

6 Agreement was entered into at the time, and why he's

7 now changing his position.

8 So I cannot imagine that this

9 objection relates to relevance. It's clearly

10 relevant. It's critical to the record not only for

11 this Commission, but for any further proceedings if

12 there are any.

13 MR. RIPLEY: And if I could,

14 Mr. Chairman, that is exactly my point. When we

15 introduce Orders from the Commission for the first

16 time the day of the hearing in an expedited

17 proceeding without giving us any notice that they

18 intended on introducing these documents, then I

19 think the fundamental fairness of this proceeding is

20 put into play. Most certainly, they have the right

21 to cross-examine Mr. Hessing on what Staff thinks,

22 but I do not believe that the introduction of Orders

23 on cross-examination is a standard practice before

24 this Commission, and I do not believe that it gives

25 us the opportunity to respond unless it is clearly

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1 understood that if Idaho Power Company believes

2 there are other Orders which are equally pertinent,

3 we will be given the opportunity after the close of

4 this proceeding to introduce those Orders.

5 COMMISSIONER KJELLANDER: Thank you,

6 Mr. Ripley.

7 I think at this point we're right

8 around 10:30, which is an excellent opportunity to

9 go off the record and take a break and will give the

10 Commission an opportunity to mull over some of the

11 thoughts that have been presented by Counsel for

12 Idaho Power and for Astaris, and we intend to be

13 back in our seats by about 15 minutes, so we'll see

14 you then. And we'll be off the record.

15 (Recess.)

16 COMMISSIONER KJELLANDER: We'll go

17 back on the record. And now that we are back on the

18 record, we were dealing with an objection to the

19 procedure being used to introduce some additional

20 exhibits. And the Commission recognizes

21 Mr. Ripley's concern and appreciates the fact that

22 he posed it before the Commission. At this point

23 though, what we're going to do is allow Mr. Pomeroy

24 to proceed, and we're also going to let all the

25 parties to have ample opportunity before the close

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1 of the record to introduce and present any

2 additional information they believe needs to occur.

3 And if that should require further hearings or

4 briefings, then we'll do our best to accommodate

5 that.

6 With that, then, I believe we are

7 missing one individual who's in the hallway. We'll

8 take note that that is Mr. Richardson, for the

9 record.

10 VOICES: (Laughter.)

11 COMMISSIONER KJELLANDER: And I would

12 like to at least have him avail the opportunity to

13 return.

14 All right, Mr. Pomeroy, we have

15 someone out in hunt, so if you will continue.

16 MR. POMEROY: Thank you, Mr. Chairman.

17 Q. BY MR. POMEROY: Okay, I think where I

18 left off, Mr. Hessing, is I was about to ask you if

19 you would identify for the record the three

20 documents that I handed you as Exhibits 210, 211,

21 and 212. Could you do that for me now?

22 A. Yes. The one that I have marked here

23 as Exhibit 210 is the comments of the Commission

24 Staff in Case No. IPC-E-01-9.

25 Q. Mr. Hessing, may I interrupt you just

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1 long enough to ask what that docket designation is

2 about, what that case is, if you know?

3 A. This case was about the approval of

4 the Astaris and Idaho Power Letter Agreement.

5 Q. Thank you. Please proceed with the

6 other two documents.

7 A. The one that I have as Exhibit 211 is

8 the Decision Memorandum in that same case.

9 And the one -- excuse me -- the one

10 that I have as Exhibit 212 is a Commission Order in

11 that same case.

12 Q. Okay. And the date of that Order, if

13 you would just get that on the record, please?

14 A. The service date is April 10, 2001.

15 Q. Okay. Thank you very much.

16 I'm going to ask you to look at

17 document -- the document that's been marked as 211,

18 please. That's the Decision Memo. Do you have that

19 in front of you?

20 A. I do.

21 Q. And it's true, isn't it, that you are

22 shown as having received a copy of the Decision

23 Memo, as well as on the final page, page 6,

24 identified as a Staff member involved?

25 COMMISSIONER KJELLANDER: Point of

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1 clarification, Mr. Pomeroy: In the copies that the

2 Commission has, we only have up to page 5 in the

3 Decision Memo.

4 MR. POMEROY: Oh. Well, I don't have

5 my file, but are they all -- do they all have that?

6 THE WITNESS: Mine has page 6.

7 COMMISSIONER KJELLANDER: Apparently,

8 some of them don't.

9 MR. POMEROY: Well, I can run and make

10 copies of page 6.

11 COMMISSIONER KJELLANDER: I think why

12 don't you, if you refer to a specific line, make

13 sure as long as the witness does --

14 MR. POMEROY: My apologies, and I will

15 at the next break provide you with that.

16 Q. BY MR. POMEROY: And the purpose of

17 the question was simply to note that you were

18 identified as the Staff member on that page?

19 A. Okay, I'm identified on the first page

20 of that as having received a copy of this Decision

21 Memorandum.

22 And on page 6, it identifies me as the

23 Staff person who worked on this case. That's

24 incorrect. That must have been carried over from a

25 template that we used, because I was not the Staff

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1 member that worked on this case.

2 Q. That designation on page 6 of this

3 case is incorrect?

4 A. That's true.

5 Q. But you did receive a copy of it, did

6 you?

7 A. Yes.

8 Q. Okay. Are you familiar with the

9 document?

10 A. Not very. I was assigned to a lot of

11 cases at this particular point in time. There was a

12 lot going on here at the Commission. They put my

13 name on this case and it turned out, along with a

14 lot of other cases, and this isn't one of the ones

15 that I worked on directly. So I have some general

16 knowledge about this case, but I wasn't reviewing

17 the documents, even though they came to me on a

18 day-by-day basis. I had lots else to do.

19 Q. Okay. Let's -- with that

20 understanding of your limited familiarity with the

21 document, I'm going to ask you questions about your

22 understanding of the Letter Agreement transaction,

23 if you will.

24 A. Okay.

25 Q. And I'm going to use this document to

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1 sort of organize my questions, but to the extent

2 you're not familiar with the wording of the

3 document, I'll point you to where I'm referencing,

4 and you can take a look at it and see if you

5 understand it and agree with it.

6 A. Okay.

7 Q. Do we have that understanding?

8 A. Yes.

9 Q. I'm going to ask you first to look at

10 page 2 of the Decision Memo, and you'll note on that

11 page there are a number of numbered paragraphs. Do

12 you see that?

13 A. Yes, the eight points at the bottom of

14 the page, bottom half.

15 Q. Yes. I'm going to ask you to look

16 specifically at numbered Paragraph No. 2. Do you

17 see that one?

18 A. Yes.

19 Q. Okay. And that references a permanent

20 shutdown of two furnaces, doesn't it?

21 A. Yes, it does.

22 Q. And likewise indicates that that will

23 reduce Contract demand by 130 megawatts?

24 A. Yes, and that's the amount of Contract

25 demand in the second block.

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1 Q. And so this conforms to your

2 understanding of the Agreement?

3 A. I think -- I think the Agreement also

4 provides for the fact that Astaris could pay back

5 demand costs on the second block of power and

6 possibly receive some power under that second block.

7 I think that's another provision of the Agreement.

8 Q. Right. And I'm going to give you an

9 opportunity to talk about a lot of the provisions of

10 the Agreement, so just to speed us along, if

11 you'll -- if you'll try to confine your answer to

12 the part I'm talking about, that would -- that would

13 be appreciated.

14 A. I guess that's in response to the fact

15 that this would be a permanent shutdown. It's not

16 at all clear to me that that's the case, because --

17 because of that other provision.

18 Q. All right. Well, that -- that's your

19 understanding. Let's move on to a related question:

20 Are any of the load reduction payments

21 that the Staff is now contesting associated with

22 this reduction of 130 megawatts that's referenced in

23 this paragraph?

24 A. One of the impacts of the Contract

25 here has to do with the fact that the take-or-pay

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1 provision for the demand costs of this 130 megawatts

2 were also waived, and it may be appropriate for the

3 Commission to consider that along with some of the

4 other recommendations that Astaris makes, that other

5 costs that Astaris has should be considered. So, I

6 mean, there was a take-or-pay demand cost associated

7 with this second block that was also waived as a

8 result of this Letter Agreement.

9 Q. Right. And maybe I didn't phrase the

10 question very well. What I was trying to get at and

11 let me just see if you agree with me, this reduction

12 of 130 megawatts is not related to the Staff's

13 contesting of the 50 megawatts worth of payments to

14 Astaris. Is that right?

15 A. The 50 megawatts worth of payments are

16 50 megawatts in the first block.

17 Q. Right. And not in this 130?

18 A. And not in this 130.

19 Q. Okay. So you mention in your

20 testimony at page 6, you make a statement about

21 Astaris's hope to shift to a different and

22 less-intensive energy process. Do you see the

23 reference to that at lines 19 through 22?

24 A. Yes, I do.

25 Q. And the less-intensive -- less

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1 energy-intensive process is the wet process?

2 A. That's my understanding.

3 Q. And you understand -- or, are you

4 aware -- let's ask it that way -- are you aware that

5 the reduction from a four-furnace operation to a

6 two-furnace operation related to that change in

7 process?

8 A. I think it's been represented by

9 Astaris that that is the case.

10 Q. Do you have any reason to doubt it?

11 A. I do not have any reason to doubt

12 that.

13 Q. Okay. And are you aware that

14 Astaris's shift to that process would only allow

15 Astaris to reduce, at most, the consumption of two

16 of the four furnaces?

17 A. Could you repeat that question?

18 Q. Sure. Are you aware that the shift in

19 process would only allow Astaris to drop from four

20 furnaces to two, and that's all the consumption that

21 is associated with that process shift?

22 A. I'm not sure that I completely

23 understand the wording of your question.

24 Astaris still had the right to operate

25 two furnaces and possibly the right to operate the

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1 other two furnaces under my understanding of this

2 Agreement. I don't know if that gets at your

3 question.

4 Q. Well, let me ask a different question

5 then:

6 Do you believe that Astaris's shift in

7 process would have allowed them to drop to a

8 one-furnace operation in Pocatello?

9 A. I don't know the answer to that.

10 Q. That's fair.

11 MR. POMEROY: For just a moment we're

12 going to pass out the missing page sixes, if that's

13 acceptable.

14 Q. BY MR. POMEROY: Okay, Mr. Hessing,

15 let me direct you to the numbered Paragraph No. 3 on

16 that same page of Exhibit 211. Do you see that?

17 A. Okay, what page was that? Okay, that

18 was the second page.

19 Q. Yes, sir.

20 A. Okay.

21 Q. Does -- is it -- would it conform with

22 your understanding of a Letter Agreement that

23 Astaris was agreeing for two years to consume no

24 more than 70 megawatts of the 120 megawatts that it

25 pays Idaho Power for each month?

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1 A. And I think there were some provisions

2 if Astaris consumed more than that that there would

3 be some penalties assessed, but, yes.

4 Q. Okay. And you agree that Idaho Power

5 agreed to pay Astaris for that 50 megawatts of power

6 not consumed as identified here in Paragraph 4 on

7 this page 2?

8 A. That's my understanding.

9 Q. Okay. And with only 70 megawatts to

10 consume, do you understand that Astaris could only

11 operate as a one-furnace operation in Pocatello?

12 A. It's my understanding that Astaris

13 could only operate one furnace at a time at full

14 load with 70 megawatts.

15 Q. Thank you. Now, do you agree that the

16 Letter Agreement as it was understood by you and

17 Staff at that time did not address in any way

18 whether that final furnace, one furnace, would be

19 run for the full term of the Agreement?

20 A. It's my understanding that it did not

21 address that final furnace.

22 Q. Okay. So summarizing all the

23 discussion we've had so far about furnaces, the

24 Letter Agreement was designed for the reduction from

25 two furnaces to one furnace. Right?

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1 A. It would have required Astaris to not

2 operate more than one furnace at a time in the first

3 block.

4 Q. Right. And it didn't address whether

5 that one furnace would operate or not?

6 A. That's my understanding.

7 Q. Okay. Now, let me turn to a different

8 part of this Decision Memo and ask you about your

9 understanding of what was going on at the time the

10 Letter Agreement was being considered at the

11 Commission. I'm going to reference page 3 of this

12 document, and would you let me know when you have

13 that in front of you?

14 A. I have it.

15 Q. Okay. There's a heading entitled

16 "Load Reduction Payment." Do you see that?

17 A. Yes, I do.

18 Q. In the second paragraph below that

19 contains -- below that heading -- contains the

20 following sentence; let me read it to you before I

21 ask any questions about it:

22 The risk associated with the Agreement

23 when compared to the market purchase alternative is

24 that actual market prices will turn out to be lower

25 than the price paid for the load reduction.

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1 Do you see that sentence?

2 A. I do.

3 Q. Okay. Would it be fair to say that

4 anyone -- the Staff and anyone else reading this

5 document were informed at the time of the

6 Commission's consideration of the Letter Agreement

7 of the possibility that market prices could drop?

8 A. It's fair to say that everybody knew

9 that market prices could drop.

10 Q. Okay. And is that the risk that

11 you're referring to here in this sentence or is

12 referred to here, as you understand it?

13 A. It's my understanding that that's the

14 risk that's referred to.

15 Q. Now, if the Staff, as it claims, has

16 the right to abrogate this Contract with --

17 MR. HAMMOND: I think I'm going to

18 object. I don't think it's Staff that has the right

19 to abrogate the Contract. I think that's the

20 Commission's Decision. It's not our Decision to

21 make.

22 MR. POMEROY: I'll rephrase the

23 question.

24 COMMISSIONER KJELLANDER: Thank you.

25 Q. BY MR. POMEROY: Mr. Hessing, if the

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1 Commission has the right, as the Staff claims, to

2 abrogate this Contract, how is it that there's any

3 risk of market prices dropping associated with the

4 Letter Agreement?

5 MR. RIPLEY: Mr. Chairman, I believe

6 it's important for this record to have a definition

7 of "abrogation." We're throwing this term around as

8 if everybody in the room understands it. So I'm

9 going to object to the question on the grounds it's

10 vague and ambiguous unless we have an understanding

11 between Mr. Hessing and Counsel as to what the term

12 "abrogation" means.

13 COMMISSIONER KJELLANDER: Mr. Pomeroy.

14 MR. POMEROY: I'd be happy to clear

15 that up.

16 COMMISSIONER KJELLANDER: Let's move

17 forward in that direction.

18 Q. BY MR. POMEROY: Mr. Hessing, when I

19 refer to "abrogation," will you understand me to

20 mean changing the price in the Contract? By the

21 "Contract," I mean the "Letter Agreement." Do you

22 understand what I mean?

23 A. I understand that that's the term that

24 was used a lot in the Astaris testimony.

25 I prefer to think of it as reforming

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1 the price or modifying the price, as opposed to

2 abrogating the Agreement.

3 Q. And that's -- why don't we use your

4 terminology.

5 A. Okay.

6 Q. And if that will make you more

7 comfortable, let me re-ask the last question rather

8 than leave it pending, if that's all right?

9 A. Okay.

10 Q. If the Commission, as the Staff

11 claims, has the right to alter the price, modify the

12 price, in the Astaris Contract, why is there a risk

13 that market prices will drop?

14 A. Well, market prices will do what

15 market prices will do. The risk is that the prices

16 will go down below what the Staff was proposing and

17 recommending to the Commission be approved in this

18 Contract, and there is a risk that that would happen

19 and there is space, I guess you would say, in that

20 risk before you get to the point of where it is no

21 longer in the public interest to pay much higher

22 prices than market. So I think there's some areas

23 below a price that's 86-and-a-half percent below

24 what forward market was then where the Staff would

25 not be proposing to reform or change the prices in

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1 this Contract. So there are various kinds of risks

2 here.

3 Q. So far as you know, was the idea of

4 modifying the price of the Contract if market prices

5 fell ever considered by the Staff in connection with

6 approving the Letter Agreement?

7 A. Well, I wasn't one of the Staff that

8 worked on this case, so I probably wouldn't know.

9 Q. So you just don't know?

10 A. I didn't have that discussion with

11 anybody at that time.

12 Q. Let me ask it this way:

13 At any point during the consideration

14 of the Letter Agreement, so far as you know, did the

15 issue of modifying the price ever come up?

16 A. Like I say, I didn't work on this

17 particular case, and to my knowledge, I mean, nobody

18 ever told me that Staff was considering doing that.

19 I think it's a fairly rare event that we're talking

20 about here where the difference gets to be so great

21 that it impacts the public interest.

22 Q. Well, you'll agree that certainly in

23 the documentation associated with the Letter

24 Agreement, there's no reference to modifying the

25 price anywhere if market prices were to drop below a

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1 certain level?

2 A. There isn't any reference in this

3 documentation, but, of course, this is an Amendment

4 to the Electric Service Agreement that Astaris has,

5 and in the approval of that, Astaris, or FMC, was

6 put on notice that this was a possibility, it was

7 within the jurisdiction of the Commission, and that

8 under some circumstances, that this could happen.

9 Q. Are you familiar with the Electric

10 Service Agreement?

11 A. I'm somewhat familiar with the

12 Electric Service Agreement.

13 Q. Okay. And it's your testimony that

14 the Electric Service Agreement provides notice that

15 a later Buyback Amendment would be amended if market

16 prices were to drop?

17 A. It provides notice that the Agreement

18 is under the jurisdiction of the Idaho Public

19 Utilities Commission, and then the Order that

20 approved that ESA specifically stated that there

21 could be changes in the rates if they were not in

22 the public interest.

23 Q. Okay. Let me ask you a little

24 different question about risk.

25 So far as you know, was the risk to

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1 Astaris ever considered in the deliberations on the

2 Letter Agreement?

3 A. In whose deliberations?

4 Q. Either the Staff's or the Commission,

5 so far as you know?

6 A. I didn't -- like I say, I didn't

7 participate in that process, so I really can't

8 answer that.

9 Q. That's fine. Okay, let's look a

10 little further on -- on this Decision Memo on

11 page 3, which you have before you. There is a

12 discussion there about the comparing the Astaris

13 Load Reduction Agreement with the Irrigation Buyback

14 Program. That's in the bottom paragraph of page 3.

15 Do you see that?

16 A. I do.

17 Q. Okay. Let me ask you some questions

18 about that. The first sentence indicates that the

19 Astaris Load Reduction Agreement does not have the

20 same energy acquisition uncertainties that were

21 associated with the Irrigation Buyback Program in

22 Case No. IPC-E-01-4. Do you see that reference?

23 A. I see where it says that, yes.

24 Q. Okay. Do you know enough about the

25 Astaris and the Irrigation Load Reduction Programs

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1 to know whether that's a valid comparison of the

2 two?

3 A. Maybe I could have a moment to read

4 that paragraph?

5 Q. Absolutely.

6 A. Well, at least one of the

7 uncertainties is identified as the cost associated

8 with lost revenue.

9 Q. Right. Would another difference

10 between those two programs, the Astaris Load

11 Reduction Program and the Irrigation Load Reduction

12 Program, be that the Astaris load reduction was

13 designated as a system resource?

14 A. I don't believe so. I don't think the

15 Astaris Load Reduction Program was any more of a

16 system resource than the reduction to the Irrigation

17 load, no. I don't know whether the Commission

18 Orders in both of those cases use those words, but

19 they were clearly the same, to me.

20 Q. Okay. To you, they're the same.

21 What about the dependability of the

22 load reduction resource, comparing those two

23 programs?

24 A. I think the dependability of the

25 Astaris load reduction was probably a little bit

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1 better than the dependability of many hundreds of

2 contracts with Irrigators.

3 Q. And you -- you did agree earlier that

4 there is a valid distinction in this paragraph about

5 lost revenues between the Astaris load reduction and

6 the Irrigators' load reduction?

7 A. Yes, there is a difference there.

8 Q. Okay. And there's further a

9 comparison in this paragraph drawn between the two

10 Load Reduction Programs, Astaris on the one hand and

11 the Irrigators on the other, with respect to price

12 towards the end of the paragraph. Is that right?

13 A. Yes, there is.

14 Q. And do you agree with, so far as you

15 know, the numbers that are contained in this

16 discussion in the Decision Memo on page 3?

17 A. I haven't calculated those numbers

18 myself and I haven't seen at least the first one

19 before, but I don't have any reason to believe

20 they're wrong.

21 Q. Okay. Well, let's assume their

22 accuracy for the moment. If you were to convert

23 these, all the figures in here are in cents per

24 kilowatt hour. If you were to convert those to

25 dollars per megawatt hour, would it be accurate to

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1 say then that the Irrigation program costs $150 per

2 megawatt hour?

3 A. Yes.

4 Q. And if you count the lost revenue

5 figures, the Irrigation program is up to $190 per

6 megawatt hour?

7 A. I don't know that that last number is

8 correct. The last numbers -- well, the last that I

9 heard on lost revenue and the Irrigation Load

10 Reduction Program is that the Commission had denied

11 recovery of those costs, so I think the Irrigation

12 program cost 15 -- $150 per megawatt hour.

13 Q. And going forward for the year 2002

14 and a portion of 2003, the Astaris program's cost

15 using these figures is $108 per megawatt hour. Is

16 that right?

17 A. That's what it says, yes.

18 Q. And you don't have any reason to doubt

19 that?

20 A. I guess the only thing that would

21 change that is if Astaris didn't provide the

22 complete load reduction that it has agreed to

23 provide under the Contract, but generally speaking,

24 I think that will be the cost.

25 Q. Okay. Now, do you know whether there

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1 were any Irrigators operating under this Load

2 Reduction Program last August and September?

3 A. August and September of 2001?

4 Q. Yes.

5 A. Yes, there -- under the Irrigation

6 Load Reduction Program, yes, there were Irrigators

7 who had Contracts to reduce their load during that

8 time period.

9 Q. Right. At a cost of $150 per megawatt

10 hour?

11 A. Yes.

12 Q. And do you know what the market price,

13 the Mid-C market price, was as of August, last year?

14 A. It was under $50 a megawatt hour.

15 Q. Would you accept $38, subject to

16 check?

17 A. Yes.

18 Q. And in September, $22, subject to

19 check?

20 A. Are we talking about -- I mean,

21 there's lots of different market prices out there.

22 What market price are you talking, to date?

23 Q. I specifically referenced and intend

24 to mean the Mid-C market price.

25 A. For heavy load hours or light load

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1 hours? For firm product or nonfirm product? I

2 mean, we're talking about specific prices here.

3 Q. Okay.

4 A. And is it a day-ahead price or is it

5 some other forward price?

6 Q. And can we agree the range of those

7 kinds of Mid-C prices you said was 50 or less?

8 A. I can agree to that.

9 Q. So there's a difference of a spread

10 between what the Irrigators are being paid at the

11 time and the market price at the time in excess of

12 $100 a megawatt hour?

13 A. Yes.

14 Q. And the discrepancy -- do you know the

15 size of the discrepancy between the market price the

16 Staff is recommending in this case be paid to

17 Astaris and what is, in fact, going to be paid to

18 Astaris under the Contract during the year 2003 --

19 I'm sorry, during the year 2002 and the portion of

20 2003 that remains in the Contract?

21 A. Could you repeat that question,

22 please?

23 Q. Sure. Probably be good for both of

24 us.

25 What I was asking is do you know what

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1 the spread is between what the Astaris Contract

2 price is projected for the years 2003 -- I'm sorry,

3 the year 2002 and a portion of 2003 that's in the

4 Contract term, the difference between that and the

5 market price that the Staff is urging the Commission

6 to adopt as the new price in the Astaris Contract?

7 A. I'm trying to recollect if I've done

8 those calculations. You know, the calculations that

9 I did in my exhibits looked at those prices on a

10 month-by-month basis.

11 Q. Right.

12 A. I guess I'm not sure if I've done

13 those calculations.

14 Q. Okay, so we can work our way to that.

15 It's in your exhibits and we'll go there at that

16 point, if that's acceptable.

17 During the time when the spread

18 between what the Irrigators' cost was -- where the

19 Irrigators' cost was $150 a megawatt hour and the

20 then-prevailing market prices, Mid-C market prices,

21 were in excess of $100 lower, was the Staff

22 advocating altering the price to the Irrigators at

23 that time?

24 A. There were discussions among the Staff

25 about that price difference and there were

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1 concerns. I mean, the price -- the price started

2 down in June of 2001, and there were concerns about

3 whether or not that price was going to continue to

4 go down or whether the price might come back in the

5 fall and winter months when the load picked up

6 again, and so Staff was concerned about the price

7 difference that existed and there were discussions

8 among the Staff about that price difference. A

9 formal action like the one that was initiated by

10 Staff in this case was not undertaken.

11 Q. But there was a change made, wasn't

12 there, in the Irrigation Load Reduction Program at

13 essentially that very same time? Is that right?

14 A. Are you talking about the liquidated

15 damages provision change?

16 Q. Yes.

17 A. Yes, the Commission abrogated the rate

18 for liquidated damages in the Idaho Power's Load

19 Reduction -- Irrigation Load Reduction Program.

20 Q. And at that time, there was no

21 recommendation from the Staff or action by the

22 Commission to alter the price being paid to the

23 Irrigators for the load reduction. Is that right?

24 A. At that time, there was no

25 recommendation by Staff to change the price being

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1 paid to Irrigators.

2 Q. And no action by the Commission to do

3 so either?

4 A. No action that I'm aware of.

5 Q. All right. Your direct testimony

6 indicates -- specifically, page 8 -- that you --

7 Staff, rather -- recommended approval of the Letter

8 Agreement, the Astaris Letter Agreement, and I want

9 to go into the specifics of the Staff's

10 recommendatinos a little more closely. I'm going to

11 ask you again just for ease of reference so we're

12 all working from the same document to turn to page 5

13 of the Decision Memo, the same document we've been

14 working in, Exhibit 211. Do you have page 5 in

15 front of you?

16 A. I do.

17 Q. Okay. There's a series of numbered

18 paragraphs that begins at the bottom of page 5 below

19 a sentence that says The following is a summary of

20 Staff's recommendations. Do you see those numbered

21 paragraphs?

22 A. Would you make that reference one more

23 time? Are we talking about under Recommendations?

24 Q. Yes.

25 A. Okay, yes, I see those.

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1 Q. You see those. Okay.

2 The first recommendation that's listed

3 there is that the prices paid for the Astaris load

4 recommendation under the Agreement appear to be

5 lower than reasonably-projected forward market

6 prices and comparable, on average, to prices paid

7 for other resources. Staff recommends that the

8 Agreement be approved as a system resource and that

9 the load reduction be added to the Company's

10 resource portfolio.

11 Now, first of all, to the extent you

12 were involved, did you agree with those -- that

13 particular recommendation?

14 A. I'm -- I agree with the recommendation

15 in general. I might have chosen some different

16 words, but I agree with the recommendation in

17 general.

18 Q. Is there any part of this

19 recommendation that you disagree with or would have

20 at that time?

21 A. No.

22 Q. Okay. It's fair to say then that the

23 Staff thought the prices in the Astaris Buyback

24 Agreement at that time were reasonable? Isn't that

25 right?

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1 A. Yes, that's correct.

2 Q. And at that time, so far as you know,

3 did Staff believe that those prices created an

4 excessive burden on ratepayers?

5 A. At that time, it was Staff's belief

6 that they did not create an excessive burden on

7 ratepayers.

8 Q. Now, do you agree with me that if the

9 Contract is honored for the remainder of the full

10 term, the burden on ratepayers is no more than what

11 was contemplated at the time this Letter Agreement

12 was approved?

13 A. The burden on ratepayers would be the

14 same, but the circumstances have certainly changed.

15 Those circumstances require, in Staff's opinion --

16 the circumstances cause those rates to not be in the

17 public interest and require the change.

18 Q. But the -- let me ask a different

19 question:

20 The amount that ratepayers would pay

21 if the Contract is honored is exactly the same as

22 the amount that was contemplated at the time the

23 Contract was approved. Is that right?

24 A. That's correct.

25 Q. Okay. And if the Contract is honored,

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1 there is no change in the financial impact on

2 ratepayers than what was contemplated at the time

3 this Decision was approved. Is that right?

4 A. There is no change on the financial

5 impact on ratepayers, that's correct.

6 Q. Okay. Now let's look at Idaho Power.

7 Did the Staff believe, so far as you

8 know, at the time that the Letter Agreement was

9 approved that the prices being paid to Astaris

10 created an excessive burden on Idaho Power?

11 A. At the time that it was approved,

12 Staff did not believe that it created an excessive

13 burden on Idaho Power.

14 Q. And would you agree that if the

15 Contract is honored for its remaining term -- the

16 Contract being the Buyback Contract -- the amounts

17 to be paid by Idaho Power for the Astaris load

18 reduction is exactly the same as the amounts that

19 are contemplated at the time this Buyback Agreement

20 was approved?

21 A. That is true, but circumstances have

22 certainly changed. But what you said is true and

23 the circumstances require some other consideration.

24 The Commission changes rates, whether

25 they be Contract rates or tariffed rates, based on

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1 changes in circumstances and conditions, and those

2 circumstances are different now.

3 Q. Right. Let me -- let me ask the

4 question again. If the -- so that I'm sure that

5 I've got an answer.

6 If the Contract is honored for its

7 remaining term, do you agree that the amounts to be

8 paid by Idaho Power --

9 MR. HAMMOND: I'm going to object.

10 This has been asked and answered several times.

11 COMMISSIONER KJELLANDER: Mr. Pomeroy.

12 MR. POMEROY: Can't have been asked

13 and answered several times: I've just moved to

14 Idaho Power with the previous question.

15 But I asked him a direct question

16 about whether the amounts were the same, and he

17 answered that and had a lot of additional material

18 he wanted to add. And I'm just trying to pin down

19 are the amounts the same or not, whether the

20 disclaimer he was adding somehow changes the other

21 thing.

22 MR. HAMMOND: Mr. President, I think

23 what he just said was that Mr. Hessing answered the

24 question. The fact that he added other material,

25 that is not my fault; that is something that he's

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1 going to have to deal with.

2 COMMISSIONER KJELLANDER: Sustained.

3 MR. POMEROY: All right.

4 Q. BY MR. POMEROY: Mr. Hessing, if the

5 Contract is honored, would you agree that there is

6 no change in terms of the impact on Idaho Power --

7 MR. HAMMOND: I'm going to object

8 again. This has been asked and answered.

9 COMMISSIONER KJELLANDER: Mr. Pomeroy.

10 MR. POMEROY: May I respond?

11 Yes, the prior question was about

12 whether the amounts being paid by Idaho Power would

13 be the same as contemplated, and I believe he said,

14 Yes, but circumstances have changed, to paraphrase.

15 This question is not are the amounts

16 being paid exactly the same, but is there a change

17 in the impact on Idaho Power if the Contract is

18 honored from what was contemplated when the

19 Agreement was approved by the Commission.

20 MR. HAMMOND: Mr. President, I believe

21 that that question has been answered -- or, asked

22 and answered. If I'm incorrect, I apologize, but I

23 believe I remember them asking a question about

24 Idaho Power and the impacts on Idaho Power, and

25 that's -- if I'm incorrect, then I apologize, but

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1 from my memory, I believe that has been asked and

2 answered.

3 COMMISSIONER KJELLANDER: What I'll do

4 is allow that question, and then we'll move forward

5 and see what happens from there.

6 Q. BY MR. POMEROY: Do you understand the

7 question?

8 A. It would be helpful to say it one time

9 in spite of all we've been through.

10 Q. I agree with you. Let me try it

11 again.

12 If the Contract is honored for its

13 remaining term, there is no change in terms of

14 impact on Idaho Power from that that was

15 contemplated at the time the Commission approved the

16 Letter Agreement. Is that right?

17 A. I don't believe there is any change

18 from the impact on Idaho Power.

19 Q. Okay. Now, let me ask you a question

20 that may sound the same, so I'm going to tell you

21 it's different and tell Mr. Hammond it's different,

22 and we'll see if he agrees.

23 Did the Staff believe at the time the

24 Letter Agreement was approved that the prices being

25 paid to Astaris were providing Astaris a windfall?

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1 A. At the time the Letter Agreement was

2 approved, the market prices Staff -- the market

3 prices had not yet fallen and Staff did not believe

4 that Astaris was receiving a windfall as a result of

5 the difference in prices at that time.

6 Q. Now, if the Contract is honored for

7 its remaining term, do you agree that the amounts to

8 be paid to Astaris are exactly the same as the

9 amounts that were contemplated at the time the

10 Letter Agreement was entered into?

11 MR. HAMMOND: Again, I'm going to

12 object. I think it's been asked and answered.

13 COMMISSIONER KJELLANDER: And that is

14 sustained. It has been asked and answered.

15 Q. BY MR. POMEROY: Let me ask a

16 different question:

17 If the Contract is honored for its

18 remaining term, would you agree there is no change

19 in the impact on Astaris from that that was

20 contemplated at the time the Letter Agreement was

21 approved?

22 A. I don't believe that there's any

23 change on the impact on Astaris as a result of -- I

24 guess I forgot the end of the question, so maybe you

25 should ask that question again in spite of all we've

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1 been through here.

2 Q. Okay. Let me try.

3 A. The differences seem to be pretty

4 small, so we have to pick these out.

5 Q. Right. I agree.

6 If the Contract is honored for its

7 remaining term, do you agree that there's no change

8 in terms of the impact on Astaris from what was

9 contemplated at the time the Letter Agreement was

10 approved?

11 A. I agree.

12 Q. Okay. Now then, Mr. Hessing, we can

13 move on to Paragraph 2, page -- it's the bottom of

14 page 5. Can you see that recommendation from the

15 Staff?

16 A. I do.

17 Q. That recommendation is that the

18 reasonably-incurred costs associated with the

19 Astaris Load Reduction Agreement be passed through

20 the PCA like any other power supply expense. Do you

21 see that?

22 A. I do.

23 Q. Okay. What was the term and the price

24 that was contemplated to be passed through the PCA

25 at that time?

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1 A. The price averaged 15.9 cents per

2 kilowatt hour and over the two-year term of the

3 Agreement.

4 Q. And was it the -- your understanding

5 at the time that it was a two-year Agreement at a

6 fixed schedule of prices?

7 A. Yes, subject to the authority of the

8 Commission.

9 Q. And, ultimately, this recommendation

10 was accepted by the Commission, was it not?

11 A. Yes.

12 Q. Okay. Let's turn to Paragraph 3, top

13 of page 6, which I believe has now been provided to

14 the other -- to everyone in the room, or everyone

15 who had a copy of the first five pages anyway.

16 The statement is made The Staff

17 proposes treatment of the Agreement as a nonsystem

18 transaction that accrues benefits solely to an Idaho

19 Power Company affiliate.

20 Do you see that language?

21 A. I do.

22 Q. Okay. To whom did the Staff want the

23 benefits of the load reaction -- the load reduction

24 transaction to accrue to?

25 A. Staff wanted the benefits of that

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1 Agreement to accrue to the customers, and a portion

2 as a result of the PCA sharing, a portion would

3 accrue to Idaho Power Company as well.

4 Q. Okay. And do you agree that the risks

5 flow with the benefits from this deal?

6 A. I believe that risks are tied to the

7 deal and that there were benefits in this deal to

8 all of the parties: To the ratepayers, to

9 Idaho Power, and to Astaris.

10 Q. To whom at the time the Letter

11 Agreement was approved did the -- did the Staff

12 believe the risk of downward market prices fell on?

13 A. Staff -- the best estimates that were

14 available at the time of were forward market prices.

15 Staff believed and hoped that this Contract would

16 provide a benefit to ratepayers and others as a

17 result of prices that were lower than forward market

18 prices, which the Company may have had to purchase

19 power at without this Load Reduction Agreement.

20 Q. You mentioned earlier in your

21 testimony that there was a risk associated with the

22 Letter Agreement that market prices could fall. Is

23 that right?

24 A. Certainly.

25 Q. Okay. And who bears that risk at the

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1 time the Letter Agreement is under consideration, in

2 your view?

3 A. I guess I think there's risk for all

4 the parties, including risk associated with falling

5 market prices. Now, the risk -- the risk may

6 benefit some parties and not benefit others, but

7 there's a risk, and the risk of market prices

8 falling impacts all the parties, both Idaho Power

9 and Astaris, and the customers of Idaho Power.

10 Q. Did you believe the risk fell entirely

11 on the shoulders of Astaris?

12 A. No.

13 Q. Okay, let me refer you to page 13 of

14 your direct testimony, if I may. Do you have that

15 before you?

16 A. I do.

17 Q. Do you see the question at the top of

18 page 13 that references correcting this inequity?

19 A. Yes.

20 Q. Would it be fair to say that this case

21 involves equities and inequities?

22 A. And the public interest.

23 Q. Do you agree equities and inequities

24 are a part of that?

25 A. I think they impact the public

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1 interest.

2 Q. Is it fair to say that the central

3 fact on which the Staff's Proposal rests is that

4 market prices have dropped significantly from those

5 that were prevailing as forward market projections

6 at the time the Letter Agreement was approved?

7 A. Could you repeat that question,

8 please.

9 Q. Sure. Sure. Is it fair to say that

10 the central fact on which the Staff rests its

11 Proposal is that market prices have dropped

12 substantially since the Letter Agreement was

13 approved?

14 A. That, and the associated impacts on

15 the public interest.

16 Q. And in assessing equities and, in your

17 words, "the public interest," is that the only fact

18 that matters, or should the Commission consider any

19 other facts?

20 A. I believe the Commission only has the

21 ability to assess the impact on the public interest,

22 and the public interest isn't limited to just

23 ratepayers.

24 Q. But I obviously didn't ask the

25 question so you understood. Let me try again.

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1 In assessing the equities, is the drop

2 in market prices the only fact that this Commission

3 should consider?

4 A. No, the Commission can consider the

5 affects on all of the parties involved.

6 Q. Okay. So let's touch on whether you

7 agree about what the -- what the Commission should

8 also consider then.

9 Should the Commission consider in

10 weighing the equities here the fact that the Staff

11 and the Commission have adopted for Idaho a policy

12 of encouraging voluntary load reductions?

13 MR. HAMMOND: I'm going to object. I

14 think this has been asked and answered. We covered

15 this about an hour ago, whether Staff encouraged

16 these programs or the Commission encouraged these

17 programs. I don't know if we need to reiterate

18 testimony that's already been in the record.

19 COMMISSIONER KJELLANDER: Mr. Pomeroy.

20 MR. POMEROY: I didn't ask whether the

21 Staff encouraged. I asked whether, in his view, as

22 the Staff's policy witness, it would be appropriate

23 for the Commission to consider certain facts, facts

24 which are now in evidence -- thanks to the

25 cross-examination of an hour ago, they are now in

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1 evidence -- and I want to ask him about a number of

2 those facts and ask him whether he thinks they ought

3 to be weighed by the Commission in its assessing the

4 equities which he is attempting to correct, he says,

5 in his testimony.

6 COMMISSIONER KJELLANDER: I'll allow

7 that. Please proceed.

8 Q. BY MR. POMEROY: Would you like me to

9 repeat the question?

10 A. Well, I guess I would say first off

11 that the inequity that's described there in my

12 testimony certainly isn't the equities and

13 inequities that you're talking about here, first

14 off. But then we can -- if we understand that that

15 isn't what I'm talking about there specifically, we

16 can go on and talk about these inequities.

17 Q. Well, let me ask if you're

18 uncomfortable with that question or you're not --

19 you don't believe it ties to your testimony. You

20 do, in your testimony, reference the public

21 interest. Is that right?

22 A. I do.

23 Q. Okay. And in assessing the public

24 interest, should the Commission consider the fact

25 that the Staff and the Commission adopted for Idaho

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1 a policy of encouraging the type of voluntarily load

2 reduction program that Astaris has entered into?

3 A. Yes, that's acceptable for the

4 Commission to consider.

5 Q. And should the Commission consider

6 that Idaho Power proposed to Astaris a Load

7 Reduction Agreement that was an outgrowth of and in

8 accordance with the Commission's Staff and policy?

9 MR. RIPLEY: Objection. That

10 misstates the record. If he wants to say one was

11 submitted, that's fine, but to say Idaho Power

12 proposed it I do not believe is in this record.

13 COMMISSIONER KJELLANDER: Mr. Pomeroy.

14 MR. POMEROY: I can rephrase the

15 question.

16 COMMISSIONER KJELLANDER: Please

17 rephrase it.

18 Q. BY MR. POMEROY: Should the

19 Commission, in weighing the public interest,

20 consider whether -- or, consider the fact that,

21 rather -- Idaho Power submitted to Astaris and

22 ultimately to the Commission a Load Reduction

23 Proposal that was approved that was an outgrowth and

24 in accordance with Commission and Staff public

25 policy?

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1 MR. RIPLEY: I'll still object. The

2 record assumes that it is Idaho Power Company that

3 made the Proposal. If Counsel wants to state that

4 Astaris and Idaho Power Company jointly developed a

5 Proposal, then I have no objection, but he's

6 misstating the record when he states that it is

7 Idaho Power Company that was the affirmative moving

8 force.

9 COMMISSIONER KJELLANDER: Mr. Pomeroy.

10 MR. RIPLEY: There's nothing in this

11 record that demonstrates that.

12 MR. POMEROY: I'm not trying to pull

13 one over on Mr. Ripley or Idaho Power, and I'll be

14 happy to restate the question as a joint submission

15 of Astaris and Idaho Power.

16 Q. BY MR. POMEROY: Do you understand the

17 question or would you like me to restate it?

18 A. I believe I understand the question,

19 and I believe the Commission should consider that.

20 Q. Thank you. Should the Commission

21 consider that it was Idaho Power and not Astaris

22 that developed the forward market projections that

23 were used in the Buyback Contract that was approved?

24 A. Certainly it was Idaho Power that

25 developed those forward market prices, and the

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1 Commission can consider that.

2 Q. And you agree also that they were --

3 that the forward market prices that are at issue in

4 this case were not developed by Astaris?

5 A. It's my understanding that they were

6 not developed by Astaris.

7 Q. Okay. Should the Commission consider

8 the fact that the Staff at the time recommended the

9 approval of the Buyback Contract, including the

10 price and the terms specified in that Contract?

11 A. Certainly.

12 Q. And should the Commission consider

13 that it, itself, has acted with respect to this

14 Contract and approved it?

15 A. Yes, I believe the Commission should

16 consider that.

17 Q. Okay. And should the Commission

18 consider that in reliance on that Commission

19 approval, Astaris has performed its obligations

20 under the Contract?

21 MR. HAMMOND: Objection. I don't know

22 that Mr. Hessing has any knowledge about whether

23 Astaris has performed their obligations. That's I

24 think for Astaris to prove whether they have or not.

25 MR. POMEROY: That's fair. I'll

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1 withdraw that question.

2 COMMISSIONER KJELLANDER: Thank you.

3 Q. BY MR. POMEROY: Do you know whether,

4 in reliance on the Commission's approval of the

5 Contract, Astaris made any operational changes at

6 their Pocatello facility?

7 MR. HAMMOND: Again, I'm going to

8 object. I don't know that Mr. Hessing has personal

9 knowledge, other than what has been represented by

10 Astaris.

11 MR. POMEROY: That's what the question

12 was: Does he know.

13 THE WITNESS: I believe I can answer

14 the question about what I know.

15 I know that Astaris has alleged that

16 they have expenses in testimonies of their

17 witnesses, and those have been reviewed by Staff

18 witness Carlock.

19 Q. BY MR. POMEROY: And would it be fair

20 for, to the extent that that issue was raised here

21 today, for the Commission to consider the

22 operational changes and costs that Astaris has

23 concerned -- occurred?

24 A. To the extent that the Commission can

25 determine that they were absolutely tied to this

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1 Letter Agreement, some consideration should be

2 given, and I think there's some testimony that will

3 be presented later in this hearing that relates to

4 that.

5 Q. Is the Staff claiming that Astaris has

6 acted in bad faith or done anything improper with

7 respect to the Letter Agreement?

8 A. No.

9 Q. Is the Staff claiming that Astaris has

10 failed to perform under the Agreement in any way?

11 A. No.

12 Q. Now, under the Staff's Proposal, who

13 is it that bears the cost of the price modification

14 that the Staff is seeking?

15 A. The impacts of the price modification

16 are borne by Astaris, and the impacts are also borne

17 by Idaho Power and the customers of Idaho Power, but

18 to the extent that the change in cost negatively

19 impacts Astaris.

20 Q. Right. And it's fair to say that the

21 only party that the Staff's proposal negatively

22 impacts is Astaris?

23 A. I believe that's correct.

24 Q. And you quantify the negative

25 financial impact as you said that you are proposing

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1 for Astaris at page 14 of your direct testimony,

2 line 16. Is that right?

3 A. Yes, the $45.5 million is the impact

4 on Astaris under Staff's Proposal.

5 Q. So under Staff's Proposal, Astaris is

6 not going to receive $45.5 million that the Letter

7 Agreement contemplated at the time it was approved.

8 Is that right?

9 A. That's correct.

10 Q. I want to explore with you for a

11 minute the treatment that Astaris is affording --

12 I'm sorry, the Staff is affording Astaris compared

13 to some other benchmarks, if you will. Both

14 Idaho Power and Astaris are parties to this Buyback

15 Contract. Is that right?

16 A. Yes, both Idaho Power and Astaris are

17 parties to this, to the Letter Agreement.

18 Q. Right. And both Idaho Power and

19 Astaris sought approval from the Commission. Right?

20 A. Yes.

21 Q. And the Commission -- both parties

22 actually obtained from the Commission approval of

23 both the price and the pass-through for the Astaris

24 buyback. Is that right?

25 A. The Commission approved those items

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1 with the approval of the Letter Agreement under the

2 circumstances of that time.

3 Q. Now, both the approval of the price

4 and the approval of the pass-through affect the

5 rates that the Idaho Power ratepayers pay. Right?

6 A. To the extent that they're included,

7 allowed to be included in the PCA, that's correct.

8 Q. And under the theory or the Staff's

9 theory in the case, both parties are subject to the

10 Commission's continuing jurisdiction. Is that

11 right?

12 A. Both parties are subject to the

13 Commission's jurisdiction with its responsibility to

14 the public interest.

15 Q. And you'd agree with me, wouldn't you,

16 that both parties have relied and -- well, have

17 relied on the Contract and the Commission's approval

18 of the price and the pass-through?

19 A. I believe both parties relied on it

20 with all of the information that was provided in the

21 approval of the ESA, and, you know, there's

22 qualifications as to the reliability of that price

23 in the whole approval process.

24 Q. All right. But even though all those

25 things are essentially the same for Idaho Power and

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1 Astaris, the Staff's Proposal is to honor the

2 pass-through commitment that's been made to

3 Idaho Power and modify the price that was approved

4 for Astaris. Isn't that right?

5 MR. HAMMOND: I think I'm going to

6 object. I think some of these questions haven't

7 even been answered with regarding the pass-through

8 amounts that he's talking about. That still is an

9 open question and might be raised in future PCA

10 proceedings. So to the extent that hasn't been

11 decided, I would ask that he can't answer that

12 question. That's still an open question before the

13 Commission.

14 COMMISSIONER KJELLANDER: Mr. Pomeroy.

15 MR. POMEROY: Well, if it is the case

16 that my question is misstated -- namely, that Idaho

17 Power's pass-through has not been approved and is

18 not going to be honored by the Commission -- he can

19 answer it that way; but that, in effect, what I'm

20 asking him is the two parties that he say

21 essentially got -- were both parties to the

22 Agreement, both came to the Commission, both were in

23 the Contract, the Staff is now proposing to honor

24 the commitment to Idaho Power on the pass-through

25 but not to Astaris on the price.

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1 COMMISSIONER KJELLANDER: We have a

2 request for speakers to be cranked up a little

3 louder.

4 Why don't we allow Mr. Hessing to

5 attempt to respond, given the sideboard that I think

6 Mr. Pomeroy tried to attach to the original

7 question.

8 MR. HAMMOND: I would ask though,

9 Commissioners, that he be -- that he not be allowed

10 to answer any question that Staff may have an

11 opinion in a future matter regarding a PCA cost that

12 might be passed through. To the extent that those

13 issues haven't been decided yet, I think it's

14 inappropriate for him to comment in this case.

15 COMMISSIONER KJELLANDER: I think

16 Mr. Hessing might be able to produce a response that

17 could also include those concerns as well.

18 Mr. Hessing.

19 THE WITNESS: It's my understanding

20 that the Commission's jurisdiction is over rates,

21 and to the extent -- and the public interest -- and

22 to the extent that any rate that it approves

23 adversely affects the public interest, then the

24 Commission can modify that rate to where it doesn't

25 do that.

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1 The pass-through in the PCA mechanism

2 is the result of rates but it isn't about the rates.

3 And the PCA mechanism, although it's approved by the

4 Commission, doesn't have the same impact; it's a

5 different thing. And what Staff's proposing in this

6 case is the modification of rates, and the impacts

7 of what happens with those rates are flowed through

8 the PCA.

9 Q. Is it fair to say that the Staff is

10 not -- is proposing not to honor the price that was

11 specified in the Letter Agreement as originally

12 approved?

13 A. Staff doesn't believe that the price

14 as originally approved remains in the public

15 interest.

16 Q. Is the Staff also recommending a

17 parallel treatment for Idaho Power that, namely,

18 that the pass-through not be honored?

19 A. No, that's a matter for discussion in

20 the PCA cases that have not come before the

21 Commission yet.

22 Q. So so far, the Staff has not done

23 that?

24 A. Staff has not considered that with

25 regard to these costs.

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1 Q. Okay. You are, I take it from the

2 drift of your testimony, the Staff's policy witness,

3 is that right, in this case?

4 A. Certainly about most of the issues in

5 this case.

6 Q. Okay. If a Utility Contract to buy

7 something, make an investment, is prudent when it's

8 entered into, does the Staff believe that the

9 Commission should engage in hindsight and disallow

10 costs after the fact that the Utility has incurred?

11 A. Prudency is a completely different

12 issue than the one that the Staff is discussing in

13 this case. With regard to prudency, Staff doesn't

14 believe that hindsight should affect the evaluation

15 of prudency. But that isn't the issue we think

16 we're talking about.

17 Q. Right. And if the shoe is on the

18 other foot and the contracting party is a customer

19 and not a Utility, it's okay to second-guess the

20 Decision, the approval, after the fact and change

21 the Contract?

22 A. The Commission has authority under the

23 public interest to review those Contract rates and

24 change them if they're not in the public interest.

25 Q. And that's exactly what the Staff has

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1 recommended here, isn't it?

2 A. Yes.

3 Q. Does the Staff agree that it's

4 important to honor the take-or-pay provision that's

5 in the ESA that you mentioned earlier?

6 A. Yes.

7 Q. Okay. And that's a commission made

8 to -- for Astaris to pay Idaho Power?

9 A. That's correct.

10 Q. So it's okay to honor that commitment

11 but not the commitment made to Astaris under the

12 Staff's view of this case?

13 A. Well, Idaho Power is providing

14 services to Astaris, or has until recently, with

15 regard to their Pocatello operation, and those

16 services required payment, and part of that payment

17 was involved in the take-or-pay provisions of the

18 Contract.

19 Q. Has the Staff ever recommended, so far

20 as you know, forcing a Utility to lose money on a

21 Contract?

22 A. Not that I can recall.

23 Q. Has the Staff ever recommended

24 changing a Contract after the fact to something that

25 a Utility would not have agreed to in the first

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1 instance?

2 A. Could you please repeat that question?

3 MR. HAMMOND: Could I -- I have an

4 objection. I just want to see clarification on the

5 question. I guess I'm concerned that -- whether he

6 is asking about Mr. Hessing's personal knowledge or

7 whether he is asking about Staff in general.

8 MR. POMEROY: I can limit it to what

9 Mr. Hessing knows.

10 COMMISSIONER KJELLANDER: Okay, if you

11 could restate the question.

12 MR. POMEROY: Sure.

13 Q. BY MR. POMEROY: To the extent you

14 know, has the Staff ever recommended changing a

15 Contract that a Utility enters into into a different

16 Contract that the Utility would not have agreed to

17 in the first instance?

18 A. Not that I know of.

19 Q. Do you think it's acceptable to

20 force -- to change a Contract so as to force a

21 customer to lose money on a Contract?

22 A. It's only acceptable to change the

23 rates that are subject to the jurisdiction of this

24 Commission if the public interest requires it, and

25 that's what we think we have here.

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1 Q. So in your view, it's acceptable to

2 force a customer in that set of circumstances to

3 lose money on a Contract?

4 A. It's acceptable to change the rate so

5 that the rate is in the public interest.

6 Q. Has the Commission -- I'm sorry. Let

7 me ask it more precisely.

8 To the extent you know, has the Staff

9 ever recommended that a price in any supply-side

10 resource Contract with Idaho Power be modified or

11 altered after the Contract has been approved?

12 A. I don't believe -- I don't believe

13 that the Staff has ever made that kind of a

14 proposal.

15 Q. Can you identify for me the ways in

16 which you think this Contract, the Astaris Buyback

17 Contract, is different from a supply-side Contract

18 with Idaho Power?

19 A. This Contract is for -- is with one of

20 Idaho Power's customers for the supply of utility

21 services, and then there's a whole lot of services

22 that are included in the Electric Service Agreement

23 and in this Amendment to the Electric Service

24 Agreement.

25 Q. With respect to simply the buyback

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1 portion of this Agreement, how is it different from

2 a supply-side sale of a resource to a Utility, in

3 your opinion?

4 A. Well, one of the ways would be that

5 Astaris does not generate energy to sell to

6 Idaho Power; that the energy that's under discussion

7 here is energy that the Utility has an obligation to

8 supply to Astaris without, except for the fact that

9 we have the Letter Agreement.

10 Q. Okay. Let's come back to that.

11 Are there other ways in which you see

12 this, the buyback portion of this Agreement between

13 Astaris and Idaho Power, as being different from the

14 supply-side resource to Idaho Power?

15 A. Well, supply-side resources come from

16 vendors and other people, PURPA producers, and then

17 they supply kilowatt hours to Idaho Power, and that

18 is not happening here.

19 Q. Okay. Any other differences that are

20 significant, in your opinion?

21 A. None that occur to me at the moment.

22 Q. Okay. Now, from the standpoint of the

23 system, could you explain to me how the Astaris

24 Agreement which is purchasing 120 megawatts of power

25 and consuming only 70 so as to free up 50, can you

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1 tell me how is that different from an

2 inside-the-fence cogenerator who takes 120 megawatts

3 of power and then generates 50 for the system? From

4 the system's point of view, what's the difference?

5 MR. HAMMOND: I'm going to object. I

6 hardly see how this is relevant. I don't think

7 Astaris cogenerates, I don't think they have a

8 facility that generates power, I don't think the

9 situation is even analogous. So to the extent this

10 isn't even relevant, I would object.

11 COMMISSIONER KJELLANDER: Mr. Pomeroy.

12 MR. POMEROY: It's our contention, and

13 we intend to attempt to prove, that there is no

14 difference to the system. He's already testified

15 that independent power supply-side Contracts, the

16 Staff has not recommended in any instance he can

17 recall altering the price after the Contract has

18 been executed and implemented. If they are, in

19 fact, indistinguishable from one another for the

20 system, it's an important fact for the Commission to

21 consider in whether they're going to change this

22 Contract if the Staff has never recommended doing

23 anything of the same order or of the same type with

24 a Contract that has effectively the exact same

25 impact on the electric system.

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1 MR. RIPLEY: Mr. Chairman, for the

2 record, are we now making comparison that an

3 Agreement not to consume is the same thing as

4 generated energy? Is that Counsel's question that

5 he wants to pose?

6 MR. POMEROY: I posed that question

7 previously and it's been asked and it's been

8 answered, and now I'm asking from a system point of

9 view, what's the difference between the Astaris

10 situation and an inside-the-fence cogeneration with

11 120 megawatts being purchased and 50 being generated

12 from outside the fence, what's the difference

13 between the two? So I am asking for the comparison

14 that Mr. Ripley seems to want me not to ask.

15 MR. RIPLEY: I just want to make sure

16 the record is clear here.

17 MR. HAMMOND: My objection still

18 stands that there's been no evidence introduced into

19 the record that Astaris has any characteristic

20 similar to those, other than their stretched

21 argument. If the insinuation is that they are

22 somehow a cogenerating facility, then maybe they

23 should introduce evidence regarding that point; but

24 at this point, I don't see how the two cases are

25 even similar or analogous, therefore, I don't see

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1 how the question is relevant.

2 MR. POMEROY: That's precisely the

3 question I asked the witness. Mr. Hammond's

4 testimony isn't what I was looking for, it was

5 Mr. Hessing's, on whether he sees them as the same

6 from outside the fence.

7 COMMISSIONER KJELLANDER: I think I'll

8 allow Mr. Hessing to respond since we're clear what

9 the question is, and perhaps then we can move on

10 from that point.

11 Mr. Hessing.

12 THE WITNESS: The -- if I understand

13 your question correctly, the net of the load and the

14 resources that the Company has may be the same under

15 the two situations that you presented, but the load

16 that Idaho Power faces under the second case is it's

17 50 megawatts higher, and the supply that they

18 received from this outside cogenerator is 50

19 megawatts higher that offsets the load. The net

20 might be the same, the circumstances are very

21 different, and the treatment should be very

22 different under the authority of the Commission.

23 Q. BY MR. POMEROY: And when you say,

24 "the net might be the same," can you tell me what

25 that means?

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1 A. Well, I think that you postulated that

2 in one case there was a 50-megawatt load reduction,

3 and in the other case there was a 50-megawatt

4 outside cogeneration -- cogeneration resource and

5 100 megawatts of load with the customer.

6 Q. No.

7 A. Maybe you need to restate the

8 question.

9 Q. Okay. Let me restate the facts we're

10 working with here. I'm asking you to compare two

11 different things. The first thing is the Astaris

12 situation where Astaris pays for 120 megawatts of

13 power, consumes 70, sells back 50 as a load

14 reduction to Idaho Power. Do you understand that?

15 A. Yes.

16 Q. Okay. Now, the second scenario I'm

17 asking you to compare to the Astaris buyback is one

18 in which a cogenerator purchases 120 megawatts of

19 power, the same amount as Astaris, and generates in

20 its own self-generation facility inside the fence

21 50 megawatts of power. Do you understand that

22 scenario?

23 A. Okay, repeat that one one more time,

24 please.

25 Q. Sure. This is a consuming entity that

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1 buys 120 megawatts of power from Idaho Power,

2 generates 50 at its facility inside the fence, and

3 sells that to Idaho Power. Do you understand that

4 scenario?

5 A. Yes.

6 Q. Okay. What I'm asking is from outside

7 the fence -- in other words, from the system point

8 of view -- what's the difference, if any, between

9 those two scenarios?

10 A. Well, the difference is that the load

11 that Idaho Power sees under the first one is 50

12 megawatts less than the load that they see under the

13 second scenario.

14 Q. So you don't think that from an

15 electron point of view, they are identical?

16 A. No.

17 Q. Okay. Is the purpose of the Staff's

18 Proposal here to protect the ratepayers of

19 Idaho Power or to protect Idaho Power?

20 A. The purpose of Staff's position in

21 this case is to protect the public interest, which

22 involves Idaho Power and the ratepayers of

23 Idaho Power, and it has an impact on Astaris.

24 Q. Okay. Let me ask you to -- let's turn

25 to your exhibits. I have some questions on those.

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1 Do you have Exhibit 105?

2 COMMISSIONER KJELLANDER: Before we

3 move any further, Mr. Pomeroy, I'm wondering what

4 you're looking at in terms of time. I think that we

5 are approaching the noon now -- in fact, we are into

6 it -- and was curious what you saw with regard to

7 your questioning and how much time you may need with

8 Mr. Hessing.

9 MR. POMEROY: I may have another hour.

10 COMMISSIONER KJELLANDER: Since we're

11 about to move into a new subject area, which would

12 be the exhibits, I think this might be an

13 appropriate time to take a lunch break.

14 I would also like to inform the

15 parties here today that the Commission had been

16 summoned to appear over at an Interim Committee at

17 the Legislature which begins at three o'clock, and

18 so we will likely be trying to break around 2:45

19 today. I'm not sure where we'll be at that time,

20 but that may be the breaking time for today

21 depending on how things unfold, and then we would

22 come back tomorrow. So I just want you to be

23 apprised of that in case we need to do any planning

24 around that schedule.

25 So at this point, what we'll do is we

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1 will take a break for lunch, and I would like to

2 have us all back here at about five minutes after

3 one where we could pick up and continue with the

4 proceedings at that point.

5 So at this point, we'll go off the

6 record.

7 (Noon recess.)

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