HomeMy WebLinkAboutseder.txt
1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER KJELLANDER: And we will
4 tender the witness for cross-examination. And let me
5 just ask: Was there a preference for
6 cross-examination with regards to this witness? Had
7 it been agreed upon among the parties prior?
8 Then, Mr. Hammond, let's begin with
9 you.
10 MR. HAMMOND: Thank you,
11 Mr. President.
12
13 CROSS-EXAMINATION
14
15 BY MR. HAMMOND:
16 Q Good afternoon, Mr. Seder.
17 A Said-er.
18 Q Said-er; okay. Thank you.
19 Can you tell me, because you were
20 involved in the negotiation of the letter agreement
21 as it was approved, when did the negotiations
22 regarding this agreement begin?
23 A The specific agreement that was
24 entered into in March, the negotiations began in
25 early March.
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1 Q But there wasn't any -- were there
2 discussions prior to that about possible
3 load-reduction arrangements or --
4 A Well, the sequence of events that led
5 up to that discussion were in the early months of
6 2001. There were a number of discussions that
7 occurred between Idaho Power and Astaris, looking for
8 ways to bring additional power to the facility or to
9 move around our block one power in a way that would
10 increase our output from the plant.
11 Those discussions did not go forward
12 effectively. There was a little bit of -- I'll say
13 this a little bit of frustration on my part at one
14 point in this, that they did not go forward. And I
15 asked a question of Idaho Power to the effect, "You
16 know, I'm trying to drive our business forward and
17 keep it successful. What is it you would propose
18 that we would do?"
19 I was referred to a gentleman in the
20 organization who suggested that I consider an
21 arrangement where we would sell back all of our
22 power. Once he had suggested that, I said, "Well,
23 that would be tantamount to us shutting down our
24 business." He said, "Well, think about it."
25 I did think about it. Didn't think it
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1 made a whole lot of sense. But given the role that I
2 had, I wanted to explore it. And put the question
3 back to Idaho Power, "What exactly are you
4 proposing?" As a result of that, Idaho Power came
5 forward with a proposal to buy back, basically, all
6 but ten megawatts of our power for the balance of
7 2001, beginning in April, and offered a price and
8 there was a -- I'm not sure that letter is in
9 evidence here or not. It is in evidence.
10 MR. POMEROY: 201?
11 THE WITNESS: It is 201. That letter,
12 201. And then we considered that offer. We rejected
13 that offer. Some additional time passed. The market
14 situation got worse. An emergency power adjustment
15 was requested by Idaho Power. We were running some
16 deficits in our production versus our demand picture.
17 And we went back and inquired of Idaho Power, was
18 there some partial deal that might work.
19 Idaho Power came back very quickly on
20 that -- this was in the early March time frame --
21 very quickly on that, and said, yes, there was. They
22 proposed a framework by which a deal could go
23 forward. They indicated that a 50 megawatt block
24 would be consistent with a need that they had at that
25 time. And based on that framework and some market
268
1 prices that were given along with it, we engaged in a
2 negotiation, which resolved in the deal.
3 Q BY MR. HAMMOND: So you reached an
4 agreement on a price for this 50 megawatt load
5 reduction; is what you are saying, I gather?
6 A Yes.
7 Q And those were the prices that were
8 attached to Staff Exhibit 111 -- I believe, is
9 Schedule D, or is it Schedule A?
10 A Schedule A would reflect those prices
11 that Idaho Power had given us for forward-market
12 prices, basically, dated from the 13th of March, I
13 believe.
14 Q And you agreed to this form of payment
15 based on these prices?
16 A We agreed to accept the forward-market
17 numbers that Idaho Power had given us as
18 representative of the market. And, ultimately, we
19 agreed to a percentage of that market and affixed
20 price schedule based on the percentage off of that
21 snapshot of the forward market.
22 Q Did you independently on your own
23 verify the reasonableness of the prices of the 50
24 megawatt load reduction?
25 A We did an independent analysis of
269
1 those prices through a company that basically
2 verified that they were in that range.
3 Q Have you had an independent company
4 look at the prices that are used in Mr. Hessing's
5 testimony to determine their reasonableness in the
6 same manner?
7 A I have not.
8 Q Was the Commission Staff involved in
9 any of the negotiations involving the terms of the
10 letter agreement prior to its approval by the
11 Commission?
12 A No.
13 Q In your joint application and letter
14 agreement that was submitted for approval for the
15 Commission, did you propose, or did Idaho Power
16 propose, any other means by which you would be
17 compensated for the 50 megawatt load reduction, other
18 than the prices that were contained in Schedule A?
19 A I'm not sure I understand the
20 question.
21 Q When you came to the Commission with
22 this letter agreement arrangement, did you or Idaho
23 Power propose, or at least I guess you can only
24 answer for your side, but did you propose any other
25 method by which you would be compensated, other than
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1 what was provided in Schedule A, the forward-market
2 prices?
3 A Part of the structure that was
4 proposed by Idaho Power to go forward in this
5 involved eliminating all of the block two demand
6 charge. And, in fact, our original negotiating
7 position on that was that there would be some
8 remaining block two available to us.
9 I'm not sure of the reasons, but Idaho
10 Power indicated that they wanted to eliminate all of
11 that block two. And, basically, the demand charge
12 would be would be waived, and given some other
13 consideration on our part to disconnect two of the
14 furnaces.
15 Q To your knowledge, can you tell me
16 whether -- well, isn't it true that the letter
17 agreement is an amendment to the ESA -- or amends the
18 terms of the electric service agreement?
19 A The form that the Idaho Power
20 proposed, which they said would drive forward the
21 deal and make it something that could be brought to
22 the Commission and receive approval, couched the form
23 as an amendment to the agreement.
24 Q According to the letter agreement, do
25 all of the terms of the electric service agreement
271
1 remain in effect, except for those terms that would
2 be specifically amended by the letter agreement?
3 A My recollection is that, yes, it does
4 say that in the agreement.
5 Q Mr. Seder, are you familiar with the
6 electric service agreement?
7 A I have read the agreement, yes.
8 Q Are you familiar, may I ask you, with
9 the Commission's orders that approve the electric
10 service agreement?
11 A No, I am not.
12 Q Okay. Were you involved at all in
13 that process, or were you employed with the Astaris
14 at that time?
15 A Actually, Astaris wasn't in existence
16 at that time.
17 Q Sorry. Sorry.
18 A And I was not part of FMC and was not
19 involved with that. So as I was negotiating this
20 arrangement, I was working from the ESA agreement
21 only.
22 Q Are you aware that in the Commission
23 order, which is Staff Exhibit No. 110 -- do you have
24 those up there?
25 A I do not have them.
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1 COMMISSIONER KJELLANDER: Are you
2 talking about the letter agreement; isn't that 111?
3 MR. HAMMOND: No. Actually, I'm
4 talking about the Commission's order approving the
5 electric service agreement.
6 MR. POMEROY: Before we go any
7 further, may I just object to too much about the ESA.
8 He says he wasn't involved, doesn't know much about
9 it, and it's not relevant to anything in his
10 testimony, as far as I know. Maybe we could tie this
11 to something in his direct testimony, that would help
12 me understand why we need to ask him about a document
13 that he doesn't know much about.
14 COMMISSIONER KJELLANDER: Mr. Hammond?
15 MR. HAMMOND: My understanding, he was
16 intimately involved in the terms of negotiating the
17 letter agreement. By that, maybe I'm making an
18 unjustifiable jump, but it seems that he would be
19 familiar with the electric service agreement if he
20 was negotiating an agreement that would amend its
21 terms.
22 Also, I think earlier in this
23 proceeding, there has been some reference to the fact
24 that did Staff inform anyone of its intention, or is
25 there any notice regarding the Commission's -- the
273
1 possibility that rates in this contract would be
2 abrogated. I think what I'm getting at is trying to
3 provide some evidence regarding what Astaris should
4 have or shouldn't have known regarding abrogation of
5 the contract rates in this case, or at least, the
6 subject matter in this case.
7 MR. POMEROY: If it would help,
8 Mr. Chairman, we would be happy to stipulate that
9 there is a reference to continuing jurisdiction on
10 the Commission in the order approving the ESA. I
11 just think to try and do that through this witness is
12 going to be difficult.
13 COMMISSIONER KJELLANDER: Does that
14 satisfy --
15 MR. HAMMOND: That's fine.
16 (Chairman Smith joined the
17 proceedings.)
18 Q BY MR. HAMMOND: Mr. Seder, I'm going
19 to butcher your name all day.
20 A I'll let her mark down all the
21 different versions you come up with.
22 Q Since entering the letter agreement,
23 have any of the furnaces at the Pocatello plant been
24 physically dismantled or removed?
25 A During the --
274
1 Q I guess since the time the letter
2 agreement was entered into.
3 A To my knowledge, none of them have
4 been dismantled. No.
5 Q Could the furnaces that were shut down
6 be restarted?
7 A In a physical sense, there is -- you
8 can always restart something. From a practical
9 sense, with the economic consequences, the answer
10 would be, no.
11 Q Under the terms of the letter
12 agreement, which I believe is Staff's Exhibit 111,
13 doesn't paragraph 2 doesn't it state that Astaris
14 will reduce its second block demand by 130,000
15 kilowatts; is that correct?
16 A Where are you referencing?
17 Q Under paragraph 2, under the terms of
18 the letter agreement.
19 A Terms of the letter agreement.
20 Q Staff Exhibit 111.
21 A Yes.
22 Q Doesn't it state that Astaris will
23 reduce its second block demand by 130,000
24 kilowatts -- or kilowatt hours? I may be referring
25 to that.
275
1 A Yes.
2 Q However, doesn't the letter agreement
3 also state that: If Astaris were to reconnect
4 furnaces and use block two power, the full demand
5 charge can be reassessed?
6 A That's what the letter states.
7 Q Did Astaris conduct any studies to
8 determine whether or not it would be cost-effective
9 to operate furnaces with block two power once market
10 prices fell back to historical levels?
11 A No, we cannot. And if I can help
12 explain a little bit, I think there may be a little
13 confusion.
14 Q Well, all I'm asking is: Did you do a
15 study with regard to the cost-effectiveness?
16 A No. In our business judgment, it was
17 not even within a practical ranking.
18 Q So Astaris never considered operating
19 additional furnaces with block two power after
20 entering the letter agreement regardless of what the
21 price in the market was?
22 A Recognizing the fact that in addition
23 to the penalty that you mentioned in paragraph 2 of
24 the letter agreement, and the fact that it also
25 states in paragraph 3 that all of -- basically, the
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1 last sentence states that: In the event that Astaris
2 should consume more than 70,000 kilowatts of energy
3 per hour, the energy provisions of the agreement will
4 apply. And the payments set forth in paragraph 4
5 will also be reduced to take into account the
6 consumption of Astaris above 70,000 kilowatts.
7 Q But isn't --
8 A The penalty that we would incur, as
9 I've seen to the billing process that we've received
10 thus far in this, is not only the back charges for
11 reconnecting for the second block demand, but, in
12 fact, the way this was structured and the way of our
13 understanding of that structuring is, we would have
14 had to have turned back all of the buyback payments
15 and gotten up to 120 megawatts before we would be
16 allowed to go back into the block two.
17 And, in fact, my understanding is,
18 that's perhaps one of the reasons that Idaho Power,
19 when we had suggested in the original agreement that
20 we have some block two demand remaining to us in the
21 agreement, that they did not want us to be able to
22 sell 50 megawatts and then circumvent the buyback
23 arrangement to go into block two.
24 So the penalty we would have faced
25 would have been rolling back all those payments and
277
1 paying the back charges for the demand charge for
2 block two. So economically, that made absolutely no
3 sense for us.
4 Q Is that document anyplace in this
5 record by any document that you have?
6 A I have a document that actually shows
7 what our original position was that was projected by
8 Idaho Power in the contract negotiation. And, in
9 fact, it basically speaks to the various power
10 contract changes. And my third bullet item here --
11 and this is what we were reporting to our parents at
12 the time as to how we would go forth with the
13 negotiation -- that there will be ten megawatts of
14 additional power available over 70 megawatts, under
15 the current block two contract provision, with the
16 associated minor demand charges. And this is dated
17 March 12th, at the time of the negotiation. And
18 Idaho Power rejected this.
19 Q Is that your own internal document?
20 A This was in discovery, and is one of
21 our business documents, yes.
22 Q Isn't it true that reducing the size
23 of your operation in Pocatello is consistent with the
24 Company's business decision to reduce its reliance on
25 elemental phosphorus material and shift to the
278
1 purified phosphorus acid process?
2 A The answer to that is a little
3 complicated, because there is a couple of different
4 stages that you can take reduction in. There was a
5 planned reduction to a two-furnace operation that
6 would occur in the early 2002 time frame, I believe,
7 somewhere around May, which was in conjunction with
8 an environmental project that we had an environmental
9 project that we were -- put in place, which would
10 have, in fact, restricted the facility to a
11 two-furnace operation.
12 Beyond that, as far as our business
13 plans were at the time of doing this deal, we had two
14 furnace operations going forward basically as far as
15 we knew.
16 Q To your knowledge, do you generate any
17 power at the Astaris plant in Pocatello for resale?
18 A No, we do not generate any power that
19 I know of.
20 Q Under the terms of the letter
21 agreement, did Astaris generate the 50 megawatts of
22 power to sell back to Idaho Power?
23 A We purchased the power and sold it
24 back. We did not generate it.
25 Q In fact, wasn't it not that you had
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1 the power, but you were agreeing to reduce your load?
2 A In fact, again, in our negotiations
3 with Idaho Power in the format that they put forward
4 to us in how we could make this deal go forward, it
5 was stressed to us that it was very important to make
6 it clear that we had a right to purchase that power.
7 And that we actually purchased that power, and then
8 turn that power back. So in effect, I'm doing a
9 transaction where I'm buying it, and another
10 transaction where I'm selling it.
11 Q Referring to your testimony on page 4.
12 A (Witness complying.) Yes.
13 Q You state Astaris was looking to
14 consider ways to purchase additional power more
15 cost-effectively. And on page 5, you state that
16 Astaris continued to look at how best to secure
17 cost-effective incremental power. For these
18 evaluations, did you determine what was a
19 cost-effective power rate?
20 A We never got to a specific rate, no.
21 Q Do you know about what level or range
22 were rates uneconomical for you to operate a plant in
23 Pocatello?
24 A I personally don't know what a
25 specific number would be. The rates we were facing
280
1 in block two at the time were certainly well out of
2 any reasonable range, though.
3 Q What about the rates in block one?
4 A The block one rates prior to the PCA
5 adjustment of last year, were obviously rates that we
6 planned our business around. And we had planned to
7 go forward with a two-furnace operation under these
8 rates. So they were economic to the plan that we had
9 put together. Yes.
10 Q And that was before the PCA increase;
11 is that what you said?
12 A Yes.
13 Q What about after?
14 A After, it's very difficult to say on
15 whether they were or weren't. They were certainly
16 not the same rates that we had put in our plan going
17 forward.
18 Q So you are not aware of whether it was
19 economical or not to run those at that increased
20 cost?
21 A Without an alternative, it really
22 didn't matter. We would have to run with those
23 rates.
24 Q What was the power cost budgeted for
25 2001; would you know?
281
1 A No, I would not. And in fact, Ms.
2 Carlock's testimony would probably be more to that
3 point.
4 Q Okay, thank you. On page 6, lines 11
5 and 12 of your testimony, you state that Idaho Power
6 was preparing to purchase a long-term, 50-megawatt
7 strip on the market. Do you know how long? Do you
8 have any idea what was the term that they were
9 seeking to purchase?
10 A I do not know the specifics of that.
11 Q To your knowledge, did Idaho Power or
12 the Commission approve in the same time frame, any
13 other resources with the term longer than ten months?
14 A I can't say that I've looked, and I
15 have no knowledge.
16 MR. HAMMOND: I don't believe I have
17 any further questions of this witness.
18 COMMISSIONER KJELLANDER: We'll move
19 now for cross by Mr. Ripley.
20 MR. RIPLEY: Thank you.
21
22 CROSS-EXAMINATION
23
24 BY MR. RIPLEY:
25 Q Mr. Seder, if we could first turn your
282
1 attention to page 14, lines 17 and 18 of your direct
2 testimony.
3 A (Witness complying.)
4 Q And there you say, "As we have advised
5 Idaho Power, for the time being, we are using roughly
6 three megawatts of power." And my first question to
7 you is: When did you advise Idaho Power that you
8 were only going to use roughly three megawatts of
9 power?
10 A Well, I think there are a couple of
11 different times that we explained to Idaho Power in
12 advance of the shutdown that we were -- we were to
13 shutdown the facility that we would be using about
14 that level of power. There was a phone conversation
15 shortly after our announcement of the shut down of
16 the facility at the end of this -- the end of 2001,
17 that I verbally mentioned that that's where we would
18 be is in that kind of rate.
19 I also believe that there was a
20 document that may have been passed somewhere around a
21 hearing, perhaps setting up this meeting, that there
22 was some draft document that was passed, I believe,
23 to you. And then through the interrogatories from
24 Idaho Power, we made that response as well.
25 Q All right. My question to you is:
283
1 Has Astaris ever formally advised Idaho Power Company
2 as to what its requirements for power are going to be
3 for the next year?
4 MR. POMEROY: Can we get a
5 clarification from Counsel on what he means by
6 "formally advised"?
7 MR. RIPLEY: Yes, we've had some
8 testimony already on that. Yes. And the testimony
9 is that we've had some very nebulous conversations
10 and some drafts of letters. And my question is: Has
11 Idaho Power Company ever received a written document
12 from Astaris as to what the requirements for the
13 plant are going to be for the next year?
14 MR. POMEROY: If by "formal," he means
15 a written document, I understand the question then.
16 MR. RIPLEY: Yes.
17 THE WITNESS: The most formal document
18 I would guess would be the answers to the
19 interrogatories that you made to us. Yes.
20 Q BY MR. RIPLEY: All right. Let's go
21 to those interrogatories. Do you have a copy of
22 those interrogatories?
23 A I may if you'll give me a moment.
24 Q Okay.
25 A (Witness compiling.) Yes, I believe,
284
1 I do.
2 Q Now, I assume you participated in the
3 drafting of these responses?
4 A I would review the process, yes.
5 Q All right. Now, the first request is:
6 "Please state what Astaris' plans are that involve
7 power consumption for the Pocatello plant." And the
8 response is: "Without waiving any rights Astaris may
9 have under the letter agreement and electric service
10 agreement, Astaris states that the Pocatello plant is
11 currently using approximately three megawatts of
12 power." Do you see that?
13 A Yes.
14 Q What do you mean by "without waiving
15 any rights Astaris may have under the letter
16 agreement?"
17 MR. POMEROY: I'm going to object to
18 that as asking for a legal conclusion about waiver of
19 legal rights under those two agreements. And I have
20 a further objection as to relevance. I cannot
21 imagine why, with respect to the modifying the price
22 in the buyback agreement, this line of questioning
23 has any probative value for the Commission.
24 COMMISSIONER KJELLANDER: Mr. Ripley?
25 MR. RIPLEY: First, it was not me who
285
1 put the testimony in: We advised Idaho Power for the
2 time being that we were using roughly three megawatts
3 of power. Secondly, I'm not asking of his legal
4 opinion. I asked him if he assisted in the drafting
5 of these interrogatories, and there must have been
6 some reason or some idea as to why the terms "without
7 waiving any rights that Astaris may have under the
8 letter agreement." And I think we're entitled to
9 know that, because the letter agreement is, indeed,
10 the subject matter of this proceeding.
11 MR. POMEROY: I'm going to object that
12 it asks the witness to reveal an attorney/client
13 privilege as to what -- and communication as to what
14 was he advised by lawyers as to what waivers were or
15 were not involved here.
16 MR. RIPLEY: So I'm left with the fact
17 that it's a secret? What that term means in an
18 interrogatory that was given to me without waiving
19 any rights?
20 MR. POMEROY: I'm saying that you are
21 asking this witness to provide some sort of
22 revelation of what he was advised by Counsel about
23 waiver of rights. And I'm not going to permit him to
24 do it, unless he's directed to answer.
25 COMMISSIONER KJELLANDER: I'm going to
286
1 check with my legal Counsel, so hold tight.
2 (Discussion had off the record.)
3 COMMISSIONER KJELLANDER: And as we're
4 back on the record. We will overrule the objection
5 to the extent that the witness feels he can respond
6 to the question.
7 THE WITNESS: Okay. Could you give me
8 the question one more time so I make sure I
9 understand it?
10 Q BY MR. RIPLEY: What do you mean when
11 you responded without waiving any rights Astaris may
12 have under the letter agreement and electric service
13 agreement that Astaris states that the Pocatello
14 plant is currently using approximately three
15 megawatts of power?
16 A I'm not sure I can help much with what
17 the legal terms. And I'm not sure I can help with --
18 you know, I'm sure I understand the question and why
19 it was raised to begin with -- the question you have
20 here in the interrogatory.
21 But I think what we're trying to help
22 with here in saying three megawatts, is to indicate
23 the kind of demand planning that we have going
24 forward. And if that's what you are seeking formal
25 notice about, then our demand plan going forward is
287
1 about three megawatts, unless something changes in
2 our plans.
3 Q Well, as a businessman, Mr. Seder, I'm
4 also asking what do you believe is the obligation of
5 Idaho Power Company to provide power to the Pocatello
6 plant above three megawatts?
7 A I would assume since we're paying of
8 120 megawatts, that if we were to find a way to use
9 120 megawatts, that you would provide it to us.
10 Q So then Idaho Power Company is on the
11 block for 120 megawatts, should Astaris request 120
12 megawatts of power?
13 A At the moment, we don't seem to have a
14 plan to utilize that. And if you could find an
15 alternative for us, I'd be happy to let you off the
16 block for it. Yes.
17 Q But that's not the question.
18 Mr. Seder, the question is, is Idaho Power Company,
19 in your opinion, obligated to provide Astaris 120
20 megawatts of power?
21 MR. POMEROY: I'm going to object,
22 again, to the use of terms "are they obligated,"
23 that's a legal term. I don't know how this witness
24 is qualified to answer that.
25 MR. RIPLEY: Mr. Chairman, this man is
288
1 an astute businessman. He negotiated the terms of
2 the agreement. I cannot believe that Mr. Seder
3 cannot give his opinion as to what Idaho Power's
4 obligation is to provide power to the plant.
5 COMMISSIONER KJELLANDER: And I would
6 agree that the witness has the ability to respond in
7 terms of his affiliation of the businessman as
8 involved in negotiations to the contract.
9 And with that, please respond.
10 THE WITNESS: As a businessman and not
11 as a legal opinion, my expectation would be that if
12 we are paying for something, and continuing to pay
13 for it, even if we don't have a current use for it,
14 that as long as we're paying for it, we would have
15 some right to it. Yes.
16 Q BY MR. RIPLEY: Therefore, Idaho Power
17 Company should continue to plan to provide 120
18 megawatts of power to you if you found a reason to
19 use it?
20 A I think as we have spoken before,
21 right now there is no plan to use beyond three
22 megawatts. And I would expect also as a reasonable
23 businessman, that if we were to change that plan, we
24 would give you sufficient notice of that.
25 Q All right.
289
1 A And, in fact, that's a dialogue that I
2 would love to have with you to understand what
3 alternative you would have for this power. And, you
4 know --
5 Q Didn't Mr. Gale send you a letter and
6 ask you what your plans were?
7 A Mr. Gale did send a letter.
8 Q And that letter was never answered;
9 was it?
10 A I do not -- no, my thought was that
11 the letter that was presented to you before, hand
12 delivered, was a response to that.
13 Q Are you sure that wasn't a draft that
14 was given to me to see if that would satisfy our
15 requirements?
16 A As I said before, it was most likely a
17 draft.
18 Q And if I told them the draft was
19 unacceptable, then they could have either chosen to
20 send the draft or try to come up with whatever our
21 desires were as far as notification of Mr. Gale's
22 letter; correct?
23 A That's certainly one of the choices
24 that could have been taken.
25 Q And Astaris chose to do neither?
290
1 A Well, I'm not certain whatever Astaris
2 chose to do at this point, but I personally didn't
3 respond to it.
4 Q And as far as you know, nobody in
5 Astaris responded to Mr. Gale's letter?
6 A At this point, I have no knowledge
7 either way.
8 Q Well, let's move then to Idaho Power
9 Company Request No. 2. And there we ask: Has
10 Astaris commenced the dismantling and/or the removal
11 of the four-level phosphorus furnaces located at the
12 Pocatello plant? And there the response is, no, but
13 FMC is currently evaluating options for such
14 dismantling.
15 My question to you today is: Are the
16 four furnaces currently located at the Pocatello
17 plant, and are they not being dismantled?
18 A Well, the first one is pretty simple.
19 They have always been located at the plant. We
20 haven't moved them. And they are pretty big, so I
21 don't think we ever will.
22 Q All right.
23 A I'm not sure exactly what state of
24 readiness to do anything they are at this point.
25 They've been off-line for a considerable time. Power
291
1 has been disabled from a couple of them. I would
2 seriously doubt that they were to come back into
3 service at any time from a physical standpoint,
4 putting aside all the business reasons for not
5 putting them back in service.
6 Q But today, we don't know if the
7 furnaces are starting to be dismantled, or if they
8 are still remaining in their present state, which is
9 evidently off-line?
10 A I'm assuming this testimony -- this
11 response here is correct in that FMC is still
12 evaluating the plan to dismantle them.
13 Q And then the next question that we ask
14 you is: "If the furnaces are not being dismantled
15 and/or removed, does Astaris have any plans to
16 operate any of the furnaces prior to March 31, 2003?"
17 And there the answer was: "Astaris currently has no
18 plans to operate any of the furnaces." Do you see
19 that?
20 A Yes, I see that.
21 Q What did Astaris mean when it said,
22 "Astaris currently has no plans"? That is, could you
23 change those plans and commence the operation of
24 those furnaces?
25 A Well, having seen the wild ride that
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1 the world has taken in the last couple of years,
2 virtually anything is in the realm of possibility. I
3 think there are strong forces for why that plan
4 wouldn't be changed, but I think this statement does
5 stand for itself. As it stands right now, we don't
6 have any plans.
7 Q Well, but as I understand it, and I
8 want to be crystal clear on this point, Astaris takes
9 the position that it can commence operation of those
10 furnaces if it so chooses?
11 A Well, there is a small technical
12 difficulty that Astaris probably would have
13 difficulty restarting those furnaces, because as I
14 understand it, they've passed to FMC at this point.
15 Q But as far as Idaho Power Company is
16 concerned, in looking at the load that it may be
17 required to serve, it has an obligation, undefined,
18 but it has an obligation to provide power to Astaris
19 if Astaris requests that power?
20 A Again, you are going back to legal
21 terms like "obligation." And my original response
22 was framed as a businessman's perspective. And as a
23 businessman's perspective, I would fall back to the
24 as long as I am paying for the power, I should have a
25 right to utilize it in some way, whether it's a
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1 furnace or any other course that I could go forward
2 with.
3 Q Now, if we could turn to Exhibit 111.
4 A (Witness complying.)
5 Q And as I understand it, that's
6 Mr. Hessing's -- excuse me. Do you have that in
7 front of you?
8 A Yes, I do.
9 Q That's Mr. Hessing's Exhibit No. 11,
10 pages 5, 6, 7 and 8. Do you have that?
11 A Yes.
12 Q And that is the letter agreement that
13 has been referred to already in this proceeding, and
14 let me ask you this: At the time that you were
15 negotiating that agreement with Idaho Power Company,
16 did you understand that that letter agreement would
17 be considered as an amendment the underlying electric
18 service agreement?
19 A Yes. As I believe I stated before,
20 that was the form that was brought forward to drive
21 this -- drive approval of this transaction was to
22 couch it as an amendment no the agreement.
23 Q And I, again, want to be crystal clear
24 on this. No matter what the reasons advanced, you
25 understood that this was an amendment to the
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1 underlying electric service agreement?
2 A Yes.
3 Q And that amendment amended certain
4 portions of the underlying agreement; would that be
5 true, as a businessman?
6 A I don't think that.
7 Q You cite it; did you understand it?
8 A It sounds like a definition. Yes, it
9 seems true.
10 Q All right. Now, in that agreement,
11 the first paragraph sets forth what the obligations
12 of the parties are under the underlying agreement,
13 and that is Idaho Power Company is required to supply
14 electric power, and Astaris is required to purchase
15 electric power under the terms and conditions set
16 forth in the agreement; do you see that?
17 A Yes.
18 Q Now, under the underlying agreement,
19 is it your understanding that the contract that
20 Astaris was assigned by FMC, was a contract whereby
21 FMC, and thus Astaris, was required to pay for 120
22 megawatts of power, whether or not 120 megawatts of
23 power was consumed by Astaris?
24 A My understanding was that the phrase
25 take-or-pay was used with -- specifically, with
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1 respect to at least the energy portion of block one.
2 Q And what was your understanding of
3 take-or-pay?
4 A As a businessman, my understanding of
5 take-or-pay, and having experienced this through
6 numerous other contracts in business, is that
7 generally if the good or service that was on a
8 take-or-pay service was unique to the specific
9 customer, and there were no other places that that
10 material could be, or service could be utilized or
11 placed, and hence, some other form of compensation
12 that could be recovered by the seller, that the buyer
13 would have the obligation to pay the full amount.
14 Q Did you attempt to investigate what
15 the term "take-or-pay" meant?
16 MR. POMEROY: I'm going to object
17 again. I'm going to have a continuing objection, if
18 it's not sustained, that we're asking him for what
19 the definition of various legal terms meant. If he's
20 answering as a business person and not as a matter of
21 law, then I question whether this is even relevant.
22 I'm totally confused as to where this
23 is going or what Mr. Ripley is attempting to prove
24 through this witness. But I want the record to
25 reflect the continued objection about this line of
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1 questioning about what this witness knows about Idaho
2 Power's obligation.
3 COMMISSIONER KJELLANDER: Mr. Ripley?
4 MR. RIPLEY: Do you want me to respond
5 to that?
6 COMMISSIONER KJELLANDER: Yes.
7 MR. RIPLEY: Obviously, the electric
8 service agreement and March agreement are tied
9 inextricably together, in our opinion. And
10 apparently, when they were negotiating the contract
11 with Idaho Power Company, I believe, I'll be able to
12 demonstrate that Astaris knew full-well that they
13 were obligated to pay for 120 megawatts of power
14 whether they consumed it or not.
15 And that that gave rise to the fact
16 that we did not have to ask for lost revenues when we
17 approached the Commission. And that was well
18 understood by all parties. And accordingly, that now
19 to suddenly discover that the take-or-pay
20 arrangements are somehow off in Never Neverland and
21 not understood, causes us great concern. Because
22 that forms one of the cornerstones of this agreement
23 that you are reviewing, and that is that it was a
24 take-or-pay agreement, thus no lost revenues were
25 required.
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1 We then said, "All right. We will
2 then pay you not to consume 50 megawatts." If I'm
3 given the opportunity to go through this witness, I
4 think it's laid out in the letter agreement. And I
5 believe I am entitled to inquire from this witness
6 what his understanding was.
7 COMMISSIONER KJELLANDER: I'll allow
8 you to continue.
9 And the objection that you raised is
10 so noted.
11 MR. POMEROY: Noted as a continuing
12 one on the record. Thank you.
13 COMMISSIONER KJELLANDER: So noted.
14 Q BY MR. RIPLEY: Now, if we direct our
15 attention to paragraph four of the letter agreement,
16 Exhibit No. 111. And as I understand it, you are the
17 one that as the chief negotiator for Astaris when
18 this contract letter agreement was drafted; is that
19 correct?
20 A Correct.
21 Q All right. It states, "In
22 consideration of the reduction in Astaris'
23 consumption of energy"; do you see that?
24 A Yes.
25 Q Was it your understanding that Idaho
298
1 Power Company was going to pay you for the purchase
2 of energy, or that Idaho Power Company was going to
3 pay you to not consume energy?
4 A I would say that a little differently,
5 perhaps. Our understanding was that we first
6 purchased the power. That the power was effectively
7 never delivered to us, but was kept in the system,
8 and we received consideration for that.
9 Q So you were paid to reduce your
10 consumption?
11 A If what I just said means the same
12 thing to you then, well, then, yes.
13 Q Well, I want to make sure that it
14 isn't just me, Mr. Seder. What did you understand
15 the words meant, "in consideration of the reduction
16 in Astaris' consumption of energy," as set forth in
17 paragraph 3 above mean?
18 A My understanding around this deal, and
19 as we discussed it in negotiation was, that we first
20 had to purchase the power, and whether it was
21 delivered or not delivered, we were then selling it
22 back to Idaho Power. That's my understanding. The
23 fact that --
24 Q What were you selling back?
25 A Selling back the effectively, I would
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1 assume, the right to have that power delivered to me
2 rather than you take it to the system.
3 Q Then how does your explanation there
4 not jibe with a consideration of the reduction in
5 Astaris' consumption of energy?
6 A Well, certainly, if I don't have the
7 power, I'm going to reduce my consumption.
8 Q Now, in addition to that, Astaris was
9 insistent that Astaris be entitled to receive up to
10 120 megawatts of energy on an ongoing basis even
11 after March of 2003; is that correct?
12 A That's correct.
13 Q You think that places any financial
14 burden on Idaho Power Company or the system of Idaho
15 Power Company to be in a position of being able to
16 provide 120 megawatts of power at embedded costs
17 rates?
18 A Idaho Power never brought that up in
19 the negotiation. And I would assume that if it were
20 something that were a burden, they would have
21 mentioned it, and we would have negotiated perhaps
22 something different. But that never came up.
23 Q That's not a cost burden, in your
24 opinion, to be obligated to serve up to 120 megawatts
25 of power?
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1 A Well --
2 Q And did Idaho Power power have to
3 spell that out to you?
4 MR. POMEROY: He's got two questions
5 pending, so...
6 MR. RIPLEY: All right. I strike the
7 last one.
8 THE WITNESS: Is there a question
9 pending? I'm not sure.
10 Q BY MR. RIPLEY: I'll rephrase the
11 question.
12 A Please.
13 Q Do you believe that it was necessary
14 for Idaho Power Company to explain to you that there
15 was costs attached to agreeing to provide you with up
16 to 120 megawatts of power at embedded costs rates,
17 that that was a cost burden, as a businessman?
18 A What I know is that when we put
19 forward a proposal, for example, to have 10 megawatts
20 of block two left in the agreement, Idaho Power came
21 back very quickly and said that was not acceptable
22 and drove us to zero in that area.
23 If I'm recalling the negotiation
24 correctly, Mr. Gale did not make any indications that
25 there was difficulty in doing that or any burden
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1 associated with it. Holding ready to do something
2 has the potential to have costs to it. But I don't
3 know what Idaho Power's overall situation was, and
4 what their plans were going forward. So it would be
5 presumptuous of me to, even as a businessman, decide
6 that you had some costs associated with it.
7 Q Do you think it would have been a
8 natural inclination on the part of both Idaho Power
9 Company and the Commission to assume that Astaris had
10 some goals of staying in business at the Pocatello
11 plant at the time the letter agreement was entered
12 into?
13 A Would you say that again, please?
14 Q Yes. Because the letter agreement
15 provided that even after March of 2003, when the
16 letter agreement expired, and the letter agreement
17 provided that the underlying electric service
18 agreement would also expire, that the letter
19 agreement provided for a mechanism by which Astaris
20 would continue to be entitled to receive up to 120
21 megawatts of embedded costs power.
22 Do you think that could have created
23 an anticipation on the part of Idaho Power Company,
24 as well as the Commission, that there was a desire on
25 the part of Astaris to remain in business at the
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1 Pocatello plant?
2 A And, in fact, I believe in my
3 submitted testimony, I did make a statement something
4 to the effect that we did have this clause in here,
5 because we anticipated and believe it was in the
6 realm of possibility that we would continue
7 operations there. And, in fact, at the time we
8 entered into this arrangement, our business plan was
9 to continue some level of operations at the Pocatello
10 facility.
11 Q And was that not the business plan or
12 the intention that everyone in the proceeding in
13 which the letter agreement was approved believed that
14 would occur, and that Astaris would continue to
15 operate one furnace?
16 A I can't speak for everyone else's
17 beliefs at the end of the day.
18 Q Well, Astaris itself, believed it
19 would be --
20 A But I can say that, yes, we believed
21 that there was a high probability of continuing
22 operations. And, in fact, as we discussed this in
23 the contract, one of the things that we said at
24 Astaris was, hopefully, this would stabilize the
25 operations at the Pocatello facility.
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1 Q And do you believe that the payment to
2 Astaris for failing to consume 50 megawatts could
3 have been regarded as an infusion of dollars to
4 attempt to stabilize the Pocatello plant and keep it
5 in operation?
6 A Again, I can't read other people's
7 minds at the end of the day. What we had stated at
8 the time of doing this deal was that we were going to
9 accelerate a program -- by "accelerate," I really
10 mean both in terms of time and volume -- of moving
11 away from production at Pocatello, hopefully
12 stabilizing to a one-furnace operation at the end of
13 the day. And that in order to embark on that
14 transition, particularly in the rapid time frame to
15 make power available to Idaho Power and to the system
16 in April of last year, that we would incur
17 considerable costs and that we needed to have
18 consideration through this buyback arrangement in
19 order to attempt that.
20 Q But you believed, did you not, that
21 the Pocatello operation would remain at a 70-megawatt
22 level at the time you entered into the agreement?
23 A The word that I had used was
24 "hopefully." That was our desire. That was the
25 direction we were moving. That was consistent with
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1 our plan.
2 Q You didn't provide a guarantee?
3 A No, there was no guarantee.
4 Q But you were hopeful --
5 A We were hopeful.
6 Q -- and desirous, and you believed that
7 to be the case?
8 A We were hopeful and desirous, yes.
9 Q Now --
10 A We were also incidentally going into
11 that year hopeful and desirous of running two-plus
12 furnaces.
13 Q Now, Idaho Power Company asked in
14 information requests for any documents that might
15 have passed between Astaris and its two parents
16 concerning the closure of the Pocatello plant, and we
17 received the response that was too onerous in parts.
18 Do you believe that it's important for
19 this Commission to know that Astaris intended to keep
20 the plant open at the time the letter agreement was
21 entered into?
22 A Would you say that again?
23 Q Yes. Do you believe that it is
24 important that this Commission be assured that at the
25 time it approved the March 15 letter agreement, that
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1 Astaris intended to keep the plant at Pocatello
2 opened at a 70-megawatt level?
3 A Well, I'm not sure how my opinion on
4 that is relevant. But, you know, I think we did
5 produce documents in discovery that show what our
6 plans were at the time frame of doing this buyback
7 arrangement, and that we intended to continue on.
8 Q Did you provide those copies to Idaho
9 Power; do you know?
10 A I understand they were in discovery,
11 yes. Was there -- I can look for a specific
12 document, if you like?
13 MR. POMEROY: If it's a discovery
14 question, perhaps I can speed it up by clarifying the
15 answer to the question?
16 COMMISSIONER KJELLANDER: You can
17 assist.
18 MR. POMEROY: By providing it. The
19 overbroad question that was asked was objected to by
20 Idaho Power. We did provide yesterday to the parties
21 on the service list, the documents that we provided
22 to Staff yesterday in response to their discovery
23 after working with Counsel for Staff on narrowing the
24 question to make it possible for us to answer in the
25 time frame.
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1 We did not provide confidential
2 documents to parties who did not sign the protective
3 agreement, and that includes, at this point,
4 Mr. Ripley. So he and Idaho Power have in their
5 possession the non-confidential documents that were
6 provided to the Staff.
7 MR. RIPLEY: Mr. Chairman, for the
8 record, I would like to say that I was not made aware
9 that we had any opportunity to sign any
10 confidentiality agreement. Counsel from Astaris has
11 certainly not approached me on any of these matters.
12 COMMISSIONER KJELLANDER: Noted on the
13 record. Please continue.
14 MR. RIPLEY: I would like the record
15 to show, that our request is simply objected to and
16 no offer was made to produce any documents.
17 MR. POMEROY: Well, if we're going to
18 build this record about discovery, I need to say on
19 the record that once you answer a discovery request,
20 the burden is on the asking party to come and see if
21 there is some way to work it out. And we never heard
22 from Mr. Ripley asking about the objection until
23 today that there was a problem with the objection.
24 COMMISSIONER KJELLANDER: With that on
25 the record, Mr. Ripley, what was the question that we
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1 were at before we moved into this direction?
2 Q BY MR. RIPLEY: The question that I
3 was asking is: Do you believe, Mr. Seder, that it is
4 important that the Commission receive some assurance
5 in this investigation that Astaris intended to keep
6 its plant open after the Commission approved the
7 March letter agreement?
8 A Well, there has clearly been a lot of
9 interest in it in some of the testimony and other.
10 So from the interest level that's been shown, I would
11 shape my belief that people want to know. And we
12 have provided through this discovery process, I
13 think, information that supports that.
14 Q BY MR. RIPLEY: All right. Now, let's
15 move to the chain of events that led up to the
16 closure of the Pocatello plant, and if we could go to
17 your testimony.
18 MR. RIPLEY: Mr. Chairman, how late do
19 you propose to go? I would rather not get into this
20 chain and then have to pick it up in the morning.
21 COMMISSIONER KJELLANDER: I think that
22 you raise a very good question. And the answer to
23 that is 5:30. And since this chain sounds like it
24 will go well past ten minutes.
25 MR. RIPLEY: Yes.
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1 COMMISSIONER KJELLANDER: I think that
2 this would be an appropriate time for us to adjourn
3 for the day. And with that said, then we will
4 adjourn for the day and resume tomorrow at 8:30.
5 And at that point then, Mr. Ripley,
6 you will be able to continue. And also, please be
7 reminded, Mr. Seder, that you are under oath. And we
8 will be looking forward to seeing you in the morning.
9 (The hearing adjourned for recess at
10 5:25 p.m.)
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1 AUTHENTICATION
2
3
4 This is to certify that the foregoing
5 is a true and correct transcript to the best of my
6 ability of the proceedings held in the matter of the
7 Petition of the Commission Staff requesting that the
8 Commission investigate the buyback rates in the
9 Letter Agreement entered into by Idaho Power Company
10 and Astaris LLC, Case No. IPC-E-01-43, commencing on
11 Thursday, February 21, 2002 at the Commission Hearing
12 Room, 472 West Washington, Boise, Idaho, and the
13 original thereof for the file of the Commission.
14 Accuracy of all prefiled testimony as
15 originally submitted to this Reporter and
16 incorporated herein at the direction of the
17 Commission is the sole responsibility of the
18 submitting parties.
19
20
21
22 _______________________________
23 COLLEEN P. KLINE, Notary Public
in and for the State of Idaho.
24 My Commission expires 8-5-05.
Idaho CSR No. 345
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