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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE PETITION ON THE )
COMMISSION STAFF REQUESTING THAT ) Case No.
THE COMMISSION INVESTIGATE THE BUYBACK ) IPC-E-01-43
RATES IN THE LETTER AGREEMENT )
ENTERED INTO BY IDAHO POWER COMPANY )
AND ASTARIS LLC. )
_______________________________________)
HEARING BEFORE
COMMISSIONER PAUL KJELLANDER (Presiding)
COMMISSIONER DENNIS S. HANSEN
COMMISSIONER MARSHA H. SMITH
PLACE: Commission Hearing Room
472 West Washington Street
Boise, Idaho
DATE: February 21, 2002
VOLUME III - Pages 161 - 310
1 A P P E A R A N C E S
2
For the Staff: JOHN R. HAMMOND, JR., Esq.
3 Deputy Attorney General
472 West Washington
4 Boise, Idaho 83702
5 For Astaris: HOLLAND & HART, LLP
by ROBERT M. POMEROY, JR., Esq.
6 and THORVALD A. NELSON, Esq.
and JAMES K. TARPEY, Esq.
7 8390 East Crescent Parkway,
Suite 400
8 Greenwood Village, Colorado
80111-2800
9
For Idaho Power: LARRY D. RIPLEY, Esq.
10 Idaho Power Company
1221 West Idaho Street
11 Boise, Idaho 83702
12 For Industrial RICHARDSON & O'LEARY
Customers of by PETER J. RICHARDSON, Esq.
13 Idaho Power: 99 East State Street
Eagle, Idaho 83616
14
15
16
17
18
19
20
21
22
23
24
25
1 I N D E X
2
3 WITNESS EXAMINATION BY PAGE
4 Keith Hessing Mr. Pomeroy (Cross) 162
(Staff) Commissioner Smith (Exam) 205
5 Commissioner Kjellander (Exam) 207
Mr. Hammond (Redirect) 209
6
Gregory Said Mr. Ripley (Direct) 223
7 (IPCo) Prefiled Statement 229
Mr. Nelson (Cross) 240
8 Mr. Ripley (Redirect) 245
9 Alan Seder Mr. Pomeroy (Direct) 247
(Astaris) Prefiled Statement 251
10 Mr. Hammond (Cross) 266
Mr. Ripley (Cross) 282
11
12
13 E X H I B I T S
14
15 NUMBER PAGE
16 For Idaho Power Co.:
1. Copy of Order No. 24308 Premarked 224
17 Idaho Power's Application
18 2. Copy of IPCo Power Cost Premarked 224
Adjustment Analysis
19
3. Copy of Order No. 24806 Premarked 224
20 PUC
21 4. Copy of Agreement of Consent Premarked 224
FMC Electric Service Agreement
22
5. Copy of Assignment of FMC Premarked 224
23 Electric Service Contract
24 6. Copy of Order No. 28695 Premarked 224
25
1 For Astaris:
2 201. Copy of Exhibit Attached Premarked 250
to Prefiled of Mr. Said
3
202. Copy of Exhibit Attached Premarked 250
4 to Prefiled of Mr. Said
5 213. Copy of Purchased Power Marked 201
Account 555 Admitted 222
6
208, 209, 210, 211, 212 Admitted 222
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
1 BOISE, IDAHO, THURSDAY, FEBRUARY 21, 2002, 1:08 P.M.
2
3
4 COMMISSIONER KJELLANDER: We'll go
5 back on the record. And where we were before we
6 broke for lunch was, I believe, we had Mr. Pomeroy
7 was about ready to question the witness Hessing in
8 reference to some exhibits.
9 MR. POMEROY: Thank you, Mr. Chairman.
10 I do have one preliminary matter. It was brought to
11 my attention over the lunch break, that the copies of
12 Exhibit 212 that some people have, and I apologize,
13 some of the copies of Exhibit 212 are missing a page
14 every other page, because it's a double-sided
15 document.
16 So we have corrected that. And with
17 the Chair's permission, I would propose to pass out a
18 replacement version of 212. If you would like me to
19 designate it differently, we can do that.
20 COMMISSIONER KJELLANDER: No, we're on
21 the record. So I think that's good enough. Just
22 give us new copies of that, and that will be fine.
23 MR. POMEROY: Since I'm not asking any
24 questions about that document, would it be acceptable
25 to proceed at this point?
161
1 COMMISSIONER KJELLANDER: That's fine.
2
3 CROSS-EXAMINATION (Continued)
4
5 BY MR. POMEROY:
6 Q Mr. Hessing, do you have your
7 Exhibit 105 in front of you, please?
8 A I do.
9 Q Okay. That document calculates
10 ratepayer impacts and savings from modifying the
11 contract price as the Staff proposes; is that right?
12 A Yes, for the 2002, 2003 PCA year. I
13 guess there is two pages to it. The first page does
14 the 2002-2003 PCA year, and the second page is the
15 2003-2004 PCA year.
16 Q And just so we're clear about the
17 first page, that assumes modification of the price
18 retroactive to some date in January; doesn't it?
19 A It assumes that the price would be
20 modified effective January 1st, 2000.
21 Q Okay. And if it turns out that it's,
22 as Astaris contends, not lawful for the Commission to
23 abrogate prior to a final, final decision, your
24 figures on ratepayer savings would end up being
25 somewhat larger than the savings, in fact, realized
162
1 by ratepayers; is that right?
2 A My figures on if -- please, repeat
3 that question.
4 Q Sure. Well, I'll break it in parts
5 for you. Do you understand that Astaris is
6 contending that the Commission may only modify the
7 contract price after a final decision in this
8 proceeding?
9 A I understand that's correct.
10 Q And if that proves to be correct, your
11 figures on ratepayer impacts are larger, as shown on
12 this exhibit, than those that would actually be
13 realized; is that right?
14 A Yes. The savings that I show here are
15 larger than what would actually be realized that the
16 Commission makes the changes in Astaris' rates
17 effective any time after January 1st, 2002.
18 Q Very well. Now, the other question I
19 have on this particular exhibit, is you've calculated
20 the percentages of ratepayer impacts based only on
21 base rates, not on base rates, plus the PCA; is that
22 correct?
23 A That's correct.
24 Q Do any ratepayers actually get bills
25 that include only the base rates and not the PCA as
163
1 well?
2 A All ratepayers get bills that include
3 the base rates, and all of these ratepayers are also
4 paid PCA rate adjustments.
5 Q So if you were to measure the
6 ratepayer savings in percentage terms based on the
7 full bill, rather than just base rates, your numbers,
8 again, as stated on this exhibit, are larger than the
9 savings that would be realized using that
10 calculation?
11 A Because the PCA rate that's in place
12 now is an increase in rates, the percentages would be
13 smaller, if they would measure from base rates plus
14 current PCA.
15 Q Okay. Let me ask you about the
16 term -- first turn to your Exhibit 101, before I ask
17 you about it. Do you have 101 in front of you?
18 A Yes, I do.
19 Q Okay. Line 28 shows, as I understand
20 it, the amount that Astaris would be paid if the
21 contract were honored as written of January '02
22 through March of '03; is that correct?
23 A That's correct.
24 Q And the number that Astaris would be
25 paid is some-59 million dollars?
164
1 A Yes.
2 Q Now, it also shows on that line,
3 doesn't it, that Idaho Power ratepayers are only
4 paying 45 million dollars of the money that is being
5 paid to Astaris; is that correct?
6 A That's correct.
7 Q Who pays the rest?
8 A Well, the rest of that savings -- 10
9 percent of that savings, at least, accrues to Idaho
10 Power Company. And if they don't have a mechanism
11 for passing that savings back to their other
12 jurisdictions, all of the amount would accrue to
13 Idaho Power Company.
14 Q So do you know how those two different
15 things break out in terms of how much is allocated
16 outside the jurisdiction, and how much is allocated
17 to Idaho Power shareholders?
18 A Well, the Idaho -- within the PCA
19 mechanism, Idaho Power shares on a 90/10 basis with
20 customers: 90 percent going to customers, and 10
21 percent going to Idaho Power.
22 Q And that's done after 15 percent is
23 removed and taken out as outside the jurisdiction; is
24 that right?
25 A That's right.
165
1 Q Okay. Do you know what those numbers
2 amount to in millions of dollars with respect to the
3 difference between these two numbers on line 28?
4 A Right off the top of my head, I don't.
5 I see that there is a problem here, now, as I think
6 about this a little bit. The difference that goes
7 through the PCA isn't the total difference that is
8 identified on this page that's involved in the
9 contract savings. This is the total amount that
10 Astaris is being paid. PCA amounts accumulate to the
11 extent that they are above or below a normalized base
12 number.
13 Q Well, let me ask it in a way that
14 might be more understanding. This line 28 of your
15 Exhibit 101 shows roughly 14 million dollars that is
16 not being paid to Astaris by Idaho Power ratepayers;
17 right?
18 A That is correct.
19 Q And do you know of the 14 million, how
20 much of it is being absorbed by Idaho Power
21 shareholders, and how much is allocated outside the
22 jurisdiction?
23 A Right off of the top of my head, I
24 don't.
25 Q You don't know the split?
166
1 A Not off the top of my head. I believe
2 those numbers are in the testimony here, the
3 calculations.
4 Q You can calculate them by taking 15
5 percent out first of the total amount, and then
6 taking 10 percent of the remainder?
7 A Oh, of the amounts that are -- that go
8 to the PCA. Yes.
9 Q Okay. So the bottom line is, 14
10 million is not being paid by Idaho Power ratepayers;
11 right?
12 A Correct.
13 Q And so that 14 million should not be
14 part of the change in the contract price, because
15 changing the contract with respect to that 14 million
16 does nothing to benefit the ratepayers of Idaho
17 Power; is that right?
18 A That isn't the way that it was
19 calculated. I suppose that you could take that
20 position. I don't necessarily support it.
21 Q How would it benefit Idaho Power
22 ratepayers to change or abrogate or alter that 14
23 million dollar payment?
24 MR. RIPLEY: Mr. Chairman, in aid of
25 an objection, Counsel, in his question is he talking
167
1 about Idaho Power ratepayers or talking about Oregon
2 system ratepayers?
3 MR. POMEROY: May I respond?
4 COMMISSIONER KJELLANDER: Please
5 respond, yes.
6 MR. POMEROY: I'm asking about the 14
7 million that is not being paid by Idaho Power
8 ratepayers. That's the predicate for this question,
9 which I think Mr. Hessing has agreed exists. And I
10 asked him whether or not that should be paid for by
11 Idaho, or whether that portion of the contract
12 payments to Astaris should be changed or altered,
13 since to do so, doesn't benefit Idaho Power
14 ratepayers. I think he agreed also with that.
15 MR. RIPLEY: And that is my objection,
16 Mr. Chairman. I think we're mixing costs and
17 revenue.
18 COMMISSIONER KJELLANDER: Can you get
19 closer to your microphone. I can barely hear you.
20 MR. RIPLEY: And that is my objection,
21 assuming the predicate of Counsel's questions, he's
22 talking about cost savings and the flow-through of
23 costs. When you are talking about Idaho Power
24 Company's entire jurisdictional retail ratepayers,
25 the costs go to the other jurisdiction. They don't
168
1 go into Idaho Power's pocket.
2 MR. POMEROY: I think I now, thanks to
3 Mr. Ripley's explanation, I think I now understand
4 the problem, and I would be happy to rephrase the
5 question.
6 COMMISSIONER KJELLANDER: Please try.
7 Q BY MR. POMEROY: The 14 million
8 dollars, that's the difference between the two
9 figures on your line 28 in your Exhibit 101, is not
10 paid for by Idaho Power's Idaho ratepayers; is that
11 correct?
12 A That's correct.
13 Q Okay. And so that 14 million dollars,
14 if your goal is to protect Idaho Power's Idaho
15 ratepayers, need not -- that payment to Astaris need
16 not be altered; is that correct?
17 A By that amount? I guess I don't
18 believe that this -- that the Commission has the
19 authority, and I don't believe it's clear on the
20 record whether that does or doesn't go to other
21 jurisdictions that Idaho Power provides service in.
22 I don't know whether they have PCAs or rate-sharing
23 mechanisms in other jurisdictions.
24 Q And I do not mean to drag you into
25 that area. I am asking you about Idaho Power's Idaho
169
1 ratepayers do not pay 14 million dollars, you've
2 agreed; correct?
3 A I agree.
4 Q Okay. And as to that 14 million
5 dollars of payments scheduled for Astaris, there is
6 no benefit to Idaho Power's Idaho ratepayers to alter
7 that payment stream to Astaris; is that correct?
8 A For the 14 million dollars, that's
9 correct.
10 Q Okay. Are you advocating holding that
11 14 million dollars out of your recommendation?
12 A Well, I'm advocating that the
13 appropriate -- that these costs be jurisdictionally
14 allocated and shared through the PCA. So to the
15 extent I'm advocating that, I guess so.
16 Q Are you advocating that this
17 Commission should take any action to create savings
18 for ratepayers, other than Idaho Power's Idaho
19 ratepayers?
20 A I guess it's just the way that we deal
21 with costs. The benefits of the 50 megawatts doesn't
22 just go to Idaho Power's Idaho customers. It goes to
23 the whole system. So I don't have any reason to
24 justify not providing savings for that as well.
25 Q So your proposal would accomplish that
170
1 end then?
2 A My proposal says that a portion of
3 this 59 million dollars, 45 million dollars gets
4 allocated in savings to Idaho. And what happens to
5 the rest of it, is unclear to me.
6 Q Okay. Let me ask you to go to your
7 Exhibit 103.
8 A (Witness complying.)
9 Q Do you have that in front of you?
10 A I do.
11 Q There is a line item that applies to
12 the one-year period from April '02 through March '03;
13 do you see that, line 28?
14 A I do.
15 Q Now, for that one-year period, which
16 is roughly the one year going forward from when a
17 final decision might be entered in front of the
18 Commission, the Staff is proposing to pay Astaris 11
19 million dollars; is that correct for that period?
20 A Yes.
21 Q And do you know for that period of
22 time, what Astaris would likely be paying for the 50
23 megawatts of power that this 11-million-dollar
24 payment represents?
25 A Because of the take-or-pay provisions
171
1 of the contract, they would be making those payments
2 for that power. And in addition to that, they would
3 be making the PCA portion of payments on top of that.
4 Q Right. And do you know what that
5 amounts to for the period in question here, in
6 dollars?
7 A I think I did a calculation. Let me
8 look at my notes over here quickly.
9 Q Okay.
10 A Yes. For the take-or-pay portion of
11 the contract for 50 megawatts for that one-year
12 period, Astaris would pay Idaho Power 9.5 million
13 dollars. And for the PCA portion for the PCA rate
14 that's in place now, if you assume that another 7.5
15 million dollars would be paid for that, and that adds
16 up to approximately 17 million dollars.
17 Q Okay. So your proposal would force
18 Astaris to receive only 11 million dollars for power
19 that they are required to pay something like 17
20 million dollars for; is that correct?
21 A My proposal assumes that the
22 take-or-pay provisions in the ESA are there for
23 another reason, a completely separate reason from the
24 rates that Astaris would be paid for the power that
25 they are selling back to Idaho Power and the power
172
1 that's being supplied in the load-reduction
2 agreement.
3 Q And I don't think you answered my
4 question. So you would be forcing Astaris to receive
5 only 11 million dollars for 50 megawatts of power
6 that they would be required to pay 17 million dollars
7 to obtain; is that right?
8 A I don't believe the two things are
9 tied together.
10 Q Okay. So you don't see this as
11 forcing Astaris to lose money on the transaction, if
12 you will?
13 A No, I don't.
14 Q Let me ask you about the volume of
15 power that this line contemplates that Astaris would
16 be paid for during the period April '02 through March
17 '03. And just so we're clear, that's a one-year
18 period; right?
19 A Yes.
20 Q Do you know how much power Astaris
21 would be selling to -- what the volume of power
22 Astaris would be selling to Idaho Power during this
23 period?
24 MR. RIPLEY: Objection; that assumes
25 facts not in evidence. I don't believe Astaris is
173
1 selling any power to Idaho Power.
2 MR. POMEROY: I can rephrase the
3 question.
4 COMMISSIONER KJELLANDER: Please
5 rephrase.
6 Q BY MR. POMEROY: Do you know the
7 volume of power that Astaris is being paid for by
8 Idaho Power during that one-year period?
9 A The load-reduction amount during that
10 one-year period is 438,000 megawatt hours.
11 Q And if you divide that figure into
12 your 11 million price that you are proposing, you can
13 arrive at a dollars per-megawatt-hour payment that
14 the Staff is proposing in this case; right?
15 A Yes.
16 Q And do you know what that is?
17 A It's slightly more than $25 a megawatt
18 hour.
19 Q Now, that rate, the slightly more than
20 $25 per megawatt hour, is based on numbers that were
21 given to you by Idaho Power; is that correct?
22 A It's based on forward market prices
23 that Idaho Power provided in December of 2000 that
24 are included in this testimony.
25 Q All right. And that was calculated
174
1 using the same method as Idaho Power used in
2 establishing a price for the letter agreement?
3 A That's my understanding.
4 Q So you're proposing to use the very
5 same method that you state in your testimony proved
6 to be inaccurate by some 400-plus percent; is that
7 right?
8 A I don't believe it was inaccurate.
9 Those were the forward-market prices. Purchases
10 could have been made at those prices at that time.
11 Prices have changed, circumstances have changed. And
12 those prices -- I guess as you view those prices now,
13 they are not the same. The price is lower now.
14 Q By some 400-plus percent you say;
15 right?
16 A Yes.
17 Q Did you do any analysis or review on
18 the calculations used by Idaho Power in these
19 figures?
20 A My knowledge of the prices that Idaho
21 Power used, and the forward-market prices that were
22 used in that contract and that were later produced,
23 are consistent with my knowledge of what market
24 prices had done. I don't -- without contacting a
25 utility, I don't usually have access to
175
1 forward-market prices that are not -- they are not
2 generally available to me that I know of.
3 Q Did you do any check on the
4 assumptions used by Idaho Power in developing this
5 number, the roughly $25 a megawatt hour?
6 A I don't know what the assumptions are
7 that Idaho Power used were, except that they were
8 provided by their traders, who deal in the market on
9 a daily and hourly basis.
10 Q And did you review or check any of the
11 inputs that went into the calculation?
12 A I didn't have access to those.
13 Q Do you know who did the calculations,
14 specifically?
15 A Idaho Power did those, one of the --
16 one of their traders did those calculations, I
17 believe.
18 Q Do you know which person?
19 A Only as I've been told, and I don't
20 know -- I mean, I've been told that -- I guess I
21 don't know for sure whether it was just one person or
22 more people. I've been told one name of an
23 individual who was involved in those transactions.
24 Q Do you know anything about the
25 qualifications of those people who make those kinds
176
1 of calculations?
2 A I've been over there and watched their
3 trading operation, and I know they do it day-in and
4 day-out. And I believe those people are as qualified
5 as any trader anywhere to deal with the market prices
6 in the mid-Columbia trading area.
7 Q But you don't know who specifically
8 did it here, unbeknown to your users specifically?
9 A I know that an individual by the name
10 of Dave Folger was one of the traders who was
11 involved in this. I don't know exactly what his
12 involvement was.
13 Q Do you know what his particular
14 qualifications are, expertise are in that area?
15 A He's a trader that's been involved in
16 the business on a daily basis.
17 Q Did you do any analysis to confirm
18 whether Idaho Power's forward-market projections this
19 time would be any more accurate than they were the
20 last time?
21 A They were absolutely accurate last
22 time, in that those were prices that you could have
23 bought power at for those time periods. And they are
24 absolutely accurate, as far as I know, this time.
25 Q Has the forecast been proved to be off
177
1 by some 400 percent?
2 A I don't know that they ever
3 represented themselves as a forecast.
4 Q But you are using them in a setting
5 to -- as a going-forward price in your proposal; is
6 that right?
7 A The same way they were used in the
8 original proposal that was accepted by Idaho Power
9 and Astaris and the Commission.
10 Q Okay. I take it -- and maybe it goes
11 without saying, but let me ask it anyway -- that you
12 believe your, roughly, $25 per-megawatt-hour price
13 that you would propose for Astaris, I take it you
14 believe that does not create an excessive burden on
15 ratepayers; is that right?
16 A That's correct.
17 Q Is that number a ceiling on where
18 excessive burden starts, in your judgment?
19 A No.
20 Q How high, in your judgment, may the
21 number go that you can pay Astaris before you create
22 an excessive burden on ratepayers?
23 A I haven't tried to make an analysis of
24 where that break point is. It's clear to me that the
25 large quantity, the 43.8 million dollar burden -- I
178
1 mean, it's obvious on inspection that that is a
2 number, in my experience, that causes an excessive
3 burden on ratepayers, and I made those calculations
4 and showed them in Exhibit 105.
5 Q So somewhere between that figure and
6 the downward figure of 25 that you are using in your
7 proposal, there is a break point between an excessive
8 burden and not?
9 A And I don't know that it's a hard line
10 that anybody can draw. I mean, we're dealing with
11 the public interests outside of the ranges of
12 reasonableness, and some of those lines, as drawn by
13 different people, might be different.
14 Q Well, since you are the witness, and
15 you are the person advocating a particular position,
16 and the person who is articulating a public interest
17 standard, would you tell us what to you, the public
18 interest standard that you are applying consists of?
19 A $25 a megawatt hour is below where I
20 would advocate changing rates. I think that's a
21 reasonable rate under today's circumstances. And the
22 rates that cause 43.8 million dollar increases to
23 customers is above it. And in between, I haven't
24 tried to decide where the ranges or lines might be.
25 Q I understand. I'm asking you if you
179
1 can just define for us what constitutes the public
2 interest standard that you are applying when you
3 decide what's an excessive burden and what's not?
4 A The impacts caused by these rates of
5 not changing the rates would be added on top of
6 already the highest rates that we've ever experienced
7 here in Idaho within the Idaho Power service
8 territory, and those rates are already oppressive.
9 And any addition to those that isn't warranted and,
10 especially, that isn't in the public interest, is way
11 off the deep end. It's clear.
12 Q Let's explore that a little bit
13 further. On page 13 of your direct testimony, as I
14 understand it, you are saying that -- this is lines
15 24 and 25. Do you have that in front of you on page
16 13?
17 A I do.
18 Q "The prices should not be discounted
19 as they were in the original agreement." That's your
20 testimony?
21 A The original agreement discounted the
22 forward-market prices by 13.5 percent. My proposal
23 here is that the prices that I've included for
24 December of 2000, should not be discounted, but
25 Astaris should receive the full payment for those.
180
1 Q So that's another change in position
2 from what you were doing back in March of 2001. Why
3 the change?
4 A Market prices at the point in 2001,
5 where they were established, were the highest that we
6 had ever seen. These market prices that are in this
7 proposal that average about $25 a megawatt are
8 returning to normal. And to pass on to ratepayers
9 the costs associated with normal market prices
10 without a discount, seems reasonable to me. If I
11 were to discount these prices by 13.5 percent, I
12 think that would be unfair to Astaris, because I
13 think the risks associated with prices falling that
14 low are not the same as they were in the original
15 price established.
16 Q We talked a little bit about your
17 opinion that the $25 per-megawatt-hour figure that
18 you are proposing for Astaris, does not create an
19 excessive burden on ratepayers. Do you believe that
20 any of the components of Idaho Power's current rates
21 that are presently being paid by ratepayers create an
22 excessive ratepayer burden?
23 A I recognize that there are a lot of
24 components with power supply that go into Idaho
25 Power's current rates. Some are very low, and some
181
1 are substantially higher. I don't believe that there
2 are any components as high as the components that are
3 being caused by the rates that the contract calls for
4 paying Astaris for the remainder of the contract
5 term.
6 And there certainly aren't any that
7 are of the same magnitude with regard to the amount
8 of dollars impact in a given year. Maybe some of the
9 other contracts, if you will, rates that are part of
10 Idaho Power rates, could be examined in a future
11 proceeding. But this one is clearly the one that is
12 causing the most impact on ratepayers going forward
13 at this point in time.
14 Q So the Staff is not alleging that any
15 other components of Idaho Power's current rates
16 create an excessive burden on ratepayers?
17 A I didn't say that. We haven't done a
18 detailed analysis to try to determine whether or not
19 the costs that are above average are excessive.
20 Q Did you do any analysis to determine
21 whether Idaho Power's rates that were prevailing in
22 the prior year, the year 2000, created any excessive
23 burden on ratepayers?
24 A Staff is aware of the rates that are
25 approved by the Commission. And as we've pointed out
182
1 here in this process we've gone through today,
2 usually has some input in terms of comments and to
3 all of the rates that are approved by the Commission.
4 We know as a group what those rates are, and we know
5 what the market prices are, and we know what the
6 costs of new resources are.
7 So I think we evaluate those things,
8 whether we write it down on paper or whether we
9 present it to the Commission or not -- we evaluate
10 those things from time to time, and we assess the
11 impact on ratepayers. We haven't in a formal way
12 brought any of those other evaluations to the
13 Commission.
14 Q Did you actually reach a conclusion
15 that any of the rates being charged -- any of the
16 components of Idaho Power's rates being charged in
17 the year 2000, created an excessive burden or not?
18 A I think that because we didn't make
19 any formal filings with the Commission, it was our
20 conclusion that those rates, and the jurisdiction of
21 the Commission has over those rates, were appropriate
22 at the places they were at that point in time and
23 under those circumstances.
24 Q And once rates are approved by the
25 Commission at a certain level, do you believe that
183
1 that means, at least as of that time, it does not
2 create an excessive burden on ratepayers?
3 A Given the information that's known at
4 the time rates were approved, I think the rates are
5 approved. And, normally, the order says that they
6 are fair and reasonable. And that to me implies
7 there isn't an excessive burden. Circumstances
8 change. If circumstances never changed, there would
9 probably never be a change in rates. But
10 circumstances change, and rates change to react to
11 those circumstances.
12 Q If I can ask you to turn to page 7 of
13 your testimony, your direct testimony.
14 A (Witness complying.)
15 Q There is a statement on line 23, that
16 the total amount of the buyback over the two-year
17 period originally contemplated represents a price of
18 $159 per megawatt hour; do you see that?
19 A I must not be on the same page you are
20 on. I'm sorry.
21 Q I'm sorry.
22 A What page are you on?
23 Q Page 7.
24 A Of my direct?
25 Q Line 23.
184
1 A That isn't what I read there on mine.
2 Q Do you have a question on that page
3 that says: "What are the terms of the letter
4 agreement that amended the ESA?"
5 A No. Does everybody else's have that?
6 Q Are you looking at your direct or your
7 rebuttal?
8 A Oh, I'm sorry. I did turn to the
9 rebuttal. We'll get this thing right.
10 Okay. I'm on page 7 of the direct.
11 Q Okay. And on page 7 of the direct,
12 again, referencing line 23, you state there that,
13 "The total price of the two-year payment stream to
14 Astaris for 50 megawatts of power works out to $159
15 per megawatt hour; right?
16 A Yes.
17 Q Okay. And do you know what -- well,
18 maybe the simplest way to do this is to ask you to
19 look at Exhibit 101. That's the total, the 159 is
20 for the full term. Let's turn to turn to
21 Exhibit 101.
22 A I have it.
23 Q Now, again, I'm going to ask you to
24 just assume with me for a moment that the period that
25 we're talking about is April '02 through March '03,
185
1 based on the Commission's final decision occurring
2 sometime towards the end of March, and then the
3 change in price occurring then.
4 So I'm going to ask you to look at
5 line 29. Do you see that on your Exhibit 101?
6 A I do.
7 Q Do you know what the average price
8 would be paid to Astaris under the contract, as
9 written, if honored, for that period of time?
10 A I believe that we've reviewed a
11 decision memorandum that said that number was 10.8
12 cents on average. Or are you looking for the total?
13 Q Well, I guess I'm asking you to simply
14 divide the volume you specified previously, 438,000
15 megawatt hours, into the total price paid to Astaris,
16 which on your exhibit shows as
17 42-million-and-some-change, and tell me what the
18 average price is on a going-forward basis for that
19 period?
20 A I believe that is 10.8 cents per
21 kilowatt hour. But I'm not absolutely sure of that,
22 because I'm --
23 Q Because you haven't done the
24 calculation?
25 A I believe that is one of the numbers
186
1 that we reviewed in one of the decision memorandums
2 early.
3 Q That was for a different time period.
4 That was for all of 2002, plus a portion of 2003.
5 A Oh, okay.
6 Q I'm now asking for just the final year
7 of the contract, what the price is? Would you accept
8 $95 subject to check?
9 A $95 would be in the right range.
10 Q Per megawatt hour?
11 A Dollars per megawatt hour.
12 Q And the way you would calculate it is
13 simply dividing, for the record, 438,000 megawatts,
14 or megawatt hours rather, into this 42 million dollar
15 figure; right?
16 A Yes.
17 Q Now, if you take into account what
18 Astaris actually pays for that amount of power, do
19 you know what Idaho Power is actually paying for the
20 50 megawatts load reduction?
21 A Define what "actually paying for the
22 reduction" means.
23 Q I'm asking you to net out the payments
24 that Astaris makes for the 50 megawatts against this
25 number, if you know.
187
1 A I don't believe I've done that
2 calculation.
3 Q Okay. Well, we can get to that number
4 a different way.
5 Let me ask you this question: Do you
6 believe the 2001 Irrigation Load Reduction Program
7 created an excessive burden on ratepayers?
8 A It certainly caused ratepayers' rates
9 to be higher after the prices went down. I guess
10 that was -- because we didn't go back in and
11 recommend changing those rates, those rates were
12 still very high. The rate that we paid, 15 cents per
13 kilowatt hour, was higher than what the market rate
14 became after June of 2001.
15 Q And it's also higher than the price
16 that Astaris would be getting paid for the one year
17 remaining for the final year in the contract?
18 A That's correct.
19 Q And the difference between -- you
20 mentioned earlier -- let's go back to something you
21 said before lunch. There was more than a $100 spread
22 between what the Irrigators were getting paid and
23 what the market prices were in August and September
24 of the year 2001. Do you remember that testimony?
25 A Yes.
188
1 Q Okay. The difference between what
2 Astaris would be paid for the final year in the
3 contract is less than $100, comparing Astaris' $95
4 price to a market price going forward; is that right?
5 A Yes.
6 Q Okay. And there was no abrogation, or
7 to use Mr. Ripley's term, no price modification
8 associated with the irrigation buyback program; is
9 that right?
10 A No. And during the time period that
11 the Irrigation Load Reduction Program was in place,
12 there was no reduction in the costs that Astaris
13 received, that was higher or higher than what was
14 being paid to those Irrigators. So you received all
15 of the payments and more, because your program lasted
16 longer and the amount that was paid to you was
17 higher.
18 Q Right. And I think you may have
19 misspoke in answering the question on the very first
20 word you used. When I said, "is that correct?", you
21 said, "No." So I want to be clear I'm sure on your
22 answer.
23 A Okay. Repeat the question, please.
24 Q The question was: During the period
25 when the irrigation price was in excess of $100 more
189
1 than the market price in 2001, there was no price
2 modification to the load-reduction program involving
3 the Irrigators; right?
4 A There was no price modification during
5 that period. Just like there was no price
6 modification to your contract during that period.
7 Q I understand. Now, there is a further
8 wrinkle here, isn't there, in that the Irrigators
9 had -- or rather the Irrigators in their load buyback
10 program were not also having to pay for power that
11 they were not consuming; isn't that right?
12 A That was not part of the service
13 supply agreements that Idaho Power had with
14 Irrigators.
15 Q And, in fact, there is not anybody,
16 subject to a load-reduction program, that you know of
17 in Idaho, that is paying for power that they do not
18 consume as part of the program; isn't that right?
19 A I'm not aware of anybody else who has
20 a take-or-pay provision and participated in a
21 load-reduction program.
22 Q Now, we've talked a little bit about
23 the components of Idaho Power's current rates. And I
24 want to ask you about a particular one and whether
25 they created an excessive burden. I want to ask you
190
1 about a particular one, and that is: the payments
2 made by Idaho Power to qualifying facilities, or QFs,
3 in the year 2001. Do you know what the average
4 rate --
5 MR. HAMMOND: I'm going to object. I
6 believe this is beyond the scope of cross. I don't
7 know if any of his testimony discusses what a QF is,
8 or how those impacts the prices. I think they are
9 pulling something out of the air and placing it into
10 his testimony.
11 COMMISSIONER KJELLANDER: Mr. Pomeroy,
12 could you refer to any direct language in the
13 testimony, and then address your question?
14 MR. POMEROY: Sure. There is language
15 in his testimony, if you give me a moment, where he
16 asserts that the Astaris' price is creating an
17 excessive burden. And I'm asking him about -- in
18 this question, I'm asking him about whether other
19 things -- or to determine whether there is any
20 consistencies or rhyme or reason.
21 COMMISSIONER KJELLANDER: Where is
22 that place in his testimony?
23 MR. POMEROY: Just a moment. On page
24 21, line 3.
25 COMMISSIONER KJELLANDER: Sorry, for
191
1 the interruption. If you could continue with your
2 explanation.
3 MR. POMEROY: Thank you, Mr. Chairman.
4 My explanation was: He is asserting that the
5 payments to Astaris are creating an excessive burden
6 on ratepayers. I'm trying to ask him questions to
7 determine whether other costs that ratepayers
8 presently bare do or do not also constitute an
9 excessive burden on ratepayers, in his judgment.
10 Since he's making the judgment as to
11 Astaris, I'm trying to understand: Well, what
12 principles is he applying, or how does he reach these
13 conclusions, and how does it apply to other
14 components of rates presently being paid? Not
15 speculative rates, not rates that are coming out of
16 the air or left field, as Mr. Hammond suggested, but
17 rather real rates being paid by real Idaho
18 ratepayers. And comparing whether they, in this
19 witness' opinion, constitute an excessive burden as
20 against what he's saying from Astaris.
21 MR. RIPLEY: Mr. Chairman, to begin
22 with, Mr. Pomeroy keeps talking about the rates that
23 Idaho Power Company ratepayers are paying, and then
24 he's using interchangeably the costs that Idaho Power
25 Company is paying when it purchases cogeneration
192
1 power. Those are not rates that any Idaho Power
2 Company retail ratepayer is paying.
3 And I think at this point, all that
4 needs to be asked is: Did Mr. Hessing take into
5 account cogeneration contracts in arriving at his
6 opinion. He can answer "yes" or "no," and we can go
7 from there. Why do we have to go into this long
8 tirade about cogeneration and its effect in this
9 proceeding. It's at best, tangently remote.
10 COMMISSIONER KJELLANDER: Mr. Pomeroy,
11 response?
12 MR. POMEROY: Yes. I'm not in any way
13 trying to -- and I apologize if my language has not
14 been precise -- to suggests that rates paid to QFs
15 are the same as rates paid by retail customers. And
16 to the extent I left that impression, I misspoke.
17 What I'm trying to do is focus on
18 costs of resources that Idaho Power pays for, and
19 focus on that in comparison to the costs Idaho Power
20 is incurring to pay Astaris for a 50-megawatt load
21 reduction. And comparing those costs, I think in
22 determining what constitutes an excessive burden on
23 ratepayers, one needs to examine what other costs
24 ratepayers are bearing, and whether those costs
25 are -- because they are all ultimately flowed-through
193
1 rates, whether those create likewise an excessive
2 burden to ratepayers.
3 COMMISSIONER KJELLANDER: Mr. Hammond,
4 you raised the original objection. I'll give you
5 another word.
6 MR. HAMMOND: I think it's fine that
7 he's questioning Mr. Hessing regarding the -- well,
8 comparing the Irrigation Buyback Program to this
9 program. That was clearly mentioned in his direct
10 testimony. That's something that was discussed.
11 I think what we're doing here is
12 talking about something that wasn't mentioned in his
13 direct testimony. Now, he's asking if he considered
14 that. I take that as outside the scope. There is
15 not a mention of that type of program or that issue
16 in his direct testimony. And that's why I'm saying
17 it's beyond the scope of direct.
18 COMMISSIONER KJELLANDER: And I'm
19 having some difficulty in finding the relationship
20 with that here, as it relates to going down that
21 path. So I think Mr. Ripley may have offered an
22 opportunity that you may want to use as a question to
23 get to where you need to go. And if perhaps that
24 helps you, let's move forward in that direction.
25 MR. POMEROY: Thank you, Mr. Chair.
194
1 Q BY MR. POMEROY: In assessing what
2 constitutes an excessive burden on Idaho Power
3 ratepayers, have you considered any of the costs of
4 other resources that Idaho Power purchases in your
5 analysis?
6 A I think that the Staff, myself
7 included, is aware of the costs of resources that
8 Idaho Power includes. And one of the reasons that --
9 the reason why we're talking about Astaris here
10 today, is because the costs associated with this
11 contract are by far the greatest of any of the costs
12 for a single contract, especially, that can be
13 reviewed and looked at in a Commission hearing with
14 regarding whether or not those costs and the rates
15 that they turn into are prudent -- or not prudent --
16 excuse me -- in the public interest.
17 Q So you have made a comparison between,
18 in your words just then, that Astaris is the greatest
19 level of impact or burden compared to other resources
20 Idaho Power acquires?
21 A And I've stated before, that Staff is
22 generally aware of the costs of the resources that
23 Idaho Power includes in its rates, because we review
24 those in general rate-case proceedings. So we're
25 generally aware of those.
195
1 Q Fine. And are the costs associated
2 with QF purchases part of those costs that are flowed
3 into rates?
4 A Yes, we have knowledge of what the
5 rates are being paid, the QFs are.
6 Q And what is the average rate, if you
7 know, paid to a QF during 2001 by Idaho Power?
8 MR. HAMMOND: I'm going to object.
9 Again, there is no testimony in his direct testimony
10 relating to that. In fact, there is no direct
11 testimony that he considered that, those impacts. I
12 mean, he's -- I'll leave it at that.
13 MR. POMEROY: I think that's
14 absolutely contrary to what we just heard by the
15 witness, who said that he's comparing Astaris to
16 other resources, the QFs and some of the resources --
17 MR. HAMMOND: The question is not what
18 he said, but what's in his direct testimony, and it's
19 not in his direct testimony.
20 MR. POMEROY: It's what he --
21 COMMISSIONER KJELLANDER: Give me a
22 second, because I'm starting to tire of the argument
23 for the moment. So I would like to put some heads
24 together and go in that direction. So we'll go off
25 the record for just a moment.
196
1 MR. POMEROY: Thank you.
2 (Discussion had off the record.)
3 COMMISSIONER KJELLANDER: After some
4 review on this, certainly, I think this question
5 could be allowed with regards to QF relationship.
6 However, if we start to go too far down the line on
7 how QFs are established, and where things go from
8 there in terms of details in QFs, I think we've gone
9 well beyond the scope of this case. So I would just
10 like to set up those side boards as you proceed with
11 the question.
12 MR. POMEROY: Thank you, Mr. Chairman.
13 Q BY MR. POMEROY: Do you know what the
14 average price was for paid by Idaho Power to QFs in
15 the year 2001?
16 A Yes. Idaho Power provided some
17 information in a response to a request in this case.
18 And from that information, I've calculated that the
19 average costs is a little more than six cents a
20 kilowatt hour on average.
21 Q Or $62 a megawatt hour if we're going
22 to use that nomenclature?
23 A Yes, my calculation actually was
24 $60.27 cents, but...
25 Q Fine. Let me ask one last question
197
1 along this line, and that is: Do you know what
2 dollars-per-megawatt-hour rate represented the
3 average purchase power cost of Idaho Power in the
4 year 2000?
5 A Right off the top of my head, I don't
6 recall that calculation, and I don't have knowledge
7 of that.
8 Q You don't?
9 A Unless you can refresh my memory.
10 MR. POMEROY: If I may approach the
11 witness, perhaps I can?
12 COMMISSIONER KJELLANDER: Okay.
13 MR. POMEROY: And I would not propose
14 to make this an exhibit. Just to refresh his
15 recollection.
16 COMMISSIONER KJELLANDER: Mr. Pomeroy,
17 is it possible to clarify your question as far as the
18 source of power in relationship to your question?
19 MR. POMEROY: I'm asking about the
20 total portfolio of Idaho Power's resource mix, what
21 the average dollar-per-megawatt-hour price or cost
22 paid by Idaho Power was in the year 2000. And I've
23 provided Mr. Hessing with a FERC Form One from the
24 year 2000 from which that number came to be
25 calculated.
198
1 COMMISSIONER KJELLANDER: Thank you.
2 MR. RIPLEY: Mr. Chairman, again at
3 the risk of burdening this record, I think there has
4 to be some more definitions as to what in the world
5 we're computing, what resources are we including?
6 Are we including daily peaking energy, or including
7 only monthly purchases, firm purchases, non-firm
8 purchases? Unless there is some definition tied to
9 what in the world this number is, I fear that we will
10 have a number in this record that which can be
11 pointed to with great pride, and everyone can point
12 to it differently, and we'll never know what it is.
13 We just need a better foundation.
14 COMMISSIONER KJELLANDER: I think the
15 clarification is for the Board.
16 MR. POMEROY: May I do that through
17 the witness or would you --
18 COMMISSIONER KJELLANDER: Where are
19 you going with this, I think would be an appropriate
20 question to be asked. And I think that's the
21 question I'll pose to you.
22 MR. POMEROY: Okay. And I appreciate
23 your patience. Where we're going is that, in the
24 year 2000, the average purchase power costs for Idaho
25 Power, as reflected in their own FERC Form One, is
199
1 roughly $92 per megawatt hour. That's the number
2 that I seek to have this witness provide, which he
3 can, from the document I gave him.
4 It's an important benchmark because
5 this Commission approved those costs going into rates
6 without anyone declaring, Staff or Commission or
7 anyone else, that that was an excessive burden on
8 ratepayers. It happens to match up pretty closely
9 with the price that Astaris would be paid over the
10 next year. So that's where I'm trying to go, and I
11 apologize if I'm not getting there very well.
12 MR. RIPLEY: Mr. Chairman, in that
13 page of the Form One is helpful, we, obviously, will
14 not object to its introduction. I think that is a
15 far better way, then to have some witness who may not
16 know what goes into the computation, now testifying
17 to a number, which he may not know how it's derived.
18 COMMISSIONER KJELLANDER: And I think
19 that's appropriate, and perhaps that's the best way
20 to get the information into the record.
21 MR. POMEROY: It certainly sounds like
22 the simplest, and I will offer to provide to Counsel
23 around the room and the Reporter and the Commission,
24 and have marked as our next exhibit, a copy of the
25 FERC Form One for the year 2000.
200
1 COMMISSIONER KJELLANDER: And that
2 would be Exhibit 213; is that correct?
3 MR. RIPLEY: I assume, you mean those
4 pages, or the entire form?
5 MR. POMEROY: No, just certain excerpt
6 of pages. That's fair. As everyone knows the FERC
7 Form One is awfully big.
8 COMMISSIONER KJELLANDER: For
9 clarification, that would be Exhibit 213?
10 (Astaris' Exhibit No. 213 was marked
11 for identification.)
12 MR. POMEROY: Mr. Chairman, I believe
13 everybody has copies. May I proceed to have the
14 witness identify the document?
15 COMMISSIONER KJELLANDER: That would
16 be fine.
17 Q BY MR. POMEROY: Mr. Hessing, can you
18 describe what's been marked as Exhibit 213?
19 A What I have here is Exhibit 214.
20 Q I meant to say 213.
21 A Okay. What I have here as Exhibit 213
22 is a copy from pages concerning the Purchased Power
23 Account 555, and Idaho Power's FERC Form One
24 submission. And it's a little hard to read in the
25 upper right-hand corner, but I believe it's December
201
1 31st, 2000.
2 Q And that document shows, doesn't it,
3 on actually quite a number of the pages, the sort
4 of -- the cumulative total is repeated on the bottom
5 of a number of the pages in that exhibit; isn't that
6 right?
7 A Yes, it is.
8 Q And you could take from that exhibit
9 the megawatt hours shown and the dollars shown, and
10 derive from it an average purchase power cost for
11 Idaho Power during the year 2000; is that right?
12 A Yes, you could do that calculation.
13 MR. POMEROY: Mr. Chairman, I'm going
14 to move off the subject since that document is now in
15 the -- I haven't offered it yet into the record, but
16 I will. I'll move to the final subject.
17 Q BY MR. POMEROY: Mr. Hessing, how many
18 years have you been with the PUC?
19 A A little more than 18.
20 Q And during your experience here, are
21 you aware of any other time when the Commission has
22 altered the price midstream an approved contract?
23 MR. HAMMOND: I'm going to object.
24 This question has been asked and answered several
25 times.
202
1 MR. POMEROY: I'll stipulate that
2 that's a "yes, he doesn't know."
3 COMMISSIONER KJELLANDER: Well, I
4 suppose if it's been asked and answered, and you can
5 get to there with a "yes" or "no" or "I don't know"
6 will get it in there one more time.
7 THE WITNESS: Would you please repeat
8 the question? I'm not sure you finished it.
9 MR. POMEROY: Okay. I'll just ask it
10 again.
11 Q BY MR. POMEROY: During the years
12 you've been at the PUC, do you recall any time when
13 the Commission has abrogated a contract during its
14 term, after it's already been approved by the
15 Commission, in terms of changing a price of the
16 contract?
17 A In the Irrigation Buyback Program, the
18 Commission changed a rate in that contract that you
19 might say, abrogated that rate in that contract.
20 Q And that was just the liquidated
21 damages provision as opposed to the payments for load
22 reduction?
23 A The liquidated damages provision was
24 the one that was abrogated. The Commission also had
25 a tariff rate for a Vista Utility (phonetic) in
203
1 northern Idaho earlier that was an all customer
2 buyback case, because the market price fell. So the
3 Commission has responded before to the fact that the
4 rates that were being paid were passed onto
5 customers, if those rates had been left in place,
6 would have had an impact on customers that they
7 didn't think was appropriate.
8 Q Can you think of any other examples?
9 A Those are the two that come to mind
10 right now.
11 MR. POMEROY: Okay. That's all I have
12 for this witness, Mr. Chairman. And appreciate your
13 patience.
14 COMMISSIONER KJELLANDER: Thank you,
15 Mr. Pomeroy. And to the extent I need to apologize
16 for being impatient, I do.
17 Let me see if there are any questions
18 by the Commissioners.
19 Commissioner Smith?
20 COMMISSIONER SMITH: Thank you,
21 Mr. Chairman. I have just a couple.
22
23
24
25
204
1 EXAMINATION
2
3 BY COMMISSIONER SMITH:
4 Q Mr. Hessing, in your experience here
5 at the Commission in other cases, has the Staff
6 proposed adjustments to the prices paid by regulated
7 utilities in contracts for goods and services based
8 on assessment of the reasonableness of the price of
9 those contracts?
10 A No. Those are -- if I understood what
11 your question was -- those are vendor contracts, and
12 I don't believe that the Commission has proposed
13 changes to those or require changes to those.
14 Q Maybe you didn't -- maybe I
15 constructed my question poorly.
16 In other cases, has the Staff proposed
17 adjustments to -- well, I guess maybe it was a
18 poorly-constructed question.
19 A I'm sorry.
20 Q But have we made adjustments for
21 what's allowed in rates based on assessment of the
22 reasonableness in prices in contracts that the
23 utilities have for goods and services?
24 A Certainly rates are adjusted based on
25 the reasonableness of those kinds of things.
205
1 Q Thank you. That was a poorly-worded
2 question.
3 A I'm sorry I couldn't understand.
4 Q No. No. It was a poor question, and
5 we got that straightened out.
6 And when we're constructing or talking
7 about QFs --
8 MR. RIPLEY: Excuse me, is your
9 speaker on?
10 COMMISSIONER SMITH: Yes, it is,
11 Larry.
12 MR. RIPLEY: Carefully construct your
13 questions better.
14 COMMISSIONER SMITH: You can read the
15 transcript.
16 MR. RIPLEY: What happens if I want to
17 object?
18 COMMISSIONER SMITH: Too late.
19 Q (BY COMMISSIONER SMITH) I guess
20 turning now, there has been some discussion of QFs
21 and rates paid to independent power purchasers, and
22 is that governed essentially by federal law?
23 A The Public Utilities Regulatory Policy
24 Act of 1978 is a Federal law, and it prescribed and
25 required the program.
206
1 COMMISSIONER SMITH: Thank you.
2 That's it.
3 COMMISSIONER KJELLANDER: Further
4 questions?
5 COMMISSIONER HANSEN: I don't have
6 any.
7 COMMISSIONER KJELLANDER: I do have
8 one.
9
10 EXAMINATION
11
12 BY COMMISSIONER KJELLANDER:
13 Q In your direct testimony on page 19,
14 beginning on line 21, as a preface, Mr. Pomeroy was
15 asking you what should the Commission consider. As
16 we look at line 21 on page 19, it begins to get into
17 factors related to the ceasing of production at the
18 Astaris plant.
19 To what extent should the Commission
20 consider that type of information, which appears in
21 several different points within your direct
22 testimony? Is that a piece of the puzzle? And if
23 so, how so?
24 A It's not -- I think there have been
25 several attempts in this case by various parties to
207
1 identify when Astaris knew that they were going to
2 close their facility. I think some would say that if
3 Astaris knew that they were going to close the
4 facility before they entered into a letter agreement,
5 they were a free rider, and maybe there should be
6 some adjustments.
7 In my reading of this case, I have not
8 been able to determine that that is true. It seems
9 that the decisions, as Astaris has identified those,
10 occurred in a stream that were largely -- even though
11 they had a direction to go to the purified wet acid,
12 purified phosphoric acid process, the decision for
13 the closing of the blast furnace, especially,
14 occurred after this letter agreement was entered
15 into.
16 So I'm not sure that, personally, I
17 can reach the point that Astaris is a free rider in
18 this situation.
19 COMMISSIONER KJELLANDER: Thank you.
20 Further questions from members of the Commission.
21 If not, then we're ready for redirect?
22
23
24
25
208
1 REDIRECT EXAMINATION
2
3 BY MR. HAMMOND:
4 Q Mr. Hessing, a little earlier, Counsel
5 for Astaris asked you if -- and correct me if I'm
6 wrong -- there was nothing in the letter agreement
7 that stated anything about shutting down or dealing
8 with whether Astaris would shut down totally or not;
9 is that correct?
10 A That's correct.
11 Q Are you familiar with the letter
12 agreement?
13 A I've read the letter agreement.
14 Q Is that Staff Exhibit 111?
15 A Yes, it is.
16 Q As you've read that letter agreement,
17 does it give you any indication about what, at least
18 in your opinion, what Astaris' plans were going
19 forward after the letter agreement was entered?
20 A One of the paragraphs in there -- and
21 I don't have it in front of me right now -- reserves
22 the right to negotiate, if you will, to continue
23 operations after the end of the letter agreement.
24 And the letter agreement ends and expires at the same
25 time as the ESA does, also in terms of the letter
209
1 agreement. So they reserve the right to negotiate a
2 new contract and continue operation, presumably.
3 Q To your knowledge, did the letter
4 agreement also provide any other way to use power
5 besides the first block power?
6 A The letter agreement seemed to, I
7 believe, reserve the right to operate the second
8 block for Astaris, and use second block power as
9 well.
10 Q So by its terms, it appears that
11 Astaris, at least in some form in your opinion, was
12 going to keep operating?
13 A At least they reserved the right or
14 the opportunity to do that if they, in their
15 judgment, it was something they wanted to do.
16 Q Now, shifting to something else.
17 Entered an exhibit, the IRP, or the orders regarding
18 the IRP. To your knowledge, does the Staff or the
19 Commission approve or accept that plan, and is there
20 a difference?
21 A IRPs are filed with the Commission,
22 and they are reviewed by Staff, and there is a
23 recommendation normally -- and in this case made by
24 Staff, that they be accepted for filing with the
25 Commission. And the Commission's orders usually use
210
1 that kind of language, that they accepted for filing.
2 And that doesn't say -- it does not say that that is
3 the path, and that is the prescribed way for the
4 utility to go. The Commission does not expressly
5 approve IRPs.
6 Q Now, Astaris has made references,
7 shifting again to the case IPC 01-9, which is the
8 case concerning approval of the letter agreement.
9 And they've made some -- or have asked you some
10 questions about the risks, and that Staff recognized
11 the risks that prices possibly lower; is that
12 correct?
13 A Yes, they asked me some questions
14 about risks.
15 Q Did Staff in any way contemplate --
16 was it reasonable risks that Staff assumed that
17 prices would drop as much as they did?
18 A Well, certainly, that was a
19 possibility that prices would drop as much as they
20 did. They did. And the costs of that, that aren't
21 part of the recommendations that Staff -- you know,
22 Staff's not recommending that rates be set going
23 forward for that period of time in 2001. During
24 which time, Astaris received roughly 80 million
25 dollars in payments, and a large part of those
211
1 payments were made after the price went down. So
2 Astaris has benefited relative to those rates for a
3 period of time before Staff brought this up with the
4 Commission.
5 Q I guess then what I would ask: Is it
6 reasonable risk for the ratepayers and Idaho Power to
7 assume that the rates would drop that much, or is it
8 unreasonable at this point?
9 A Well, it's history at this point. And
10 the ratepayers will pay those costs associated with
11 those payments made to Astaris in their appropriate
12 sharing percentage as a result of that happening.
13 And the ratepayers, apparently, will be shouldering
14 the risks associated with that drop in price for that
15 period of time.
16 Q Do you believe that's a reasonable
17 risk they should assume?
18 A Yes.
19 Q Do you believe that drop? I guess is
20 what I'm getting at.
21 A Well, for that past time period, I
22 mean, those were in the books, and we're not making a
23 proposal.
24 Q Oh, excuse me, with regard to 2001?
25 A Yes, with regard to 2001, that's a
212
1 risk that ratepayers bore. And if those costs are
2 accepted by the PUC Commission, ratepayers will pay
3 those.
4 Q With respect to the risk borne by
5 ratepayers, should customers bare the risks -- or
6 should they bare the risks and bare the costs going
7 forward in 2002?
8 A No, circumstances have changed, and
9 that's unreasonable to do, and it's not in the public
10 interest to do that.
11 Q Now, we've talked about comparing the
12 Astaris load-reduction payment to the Irrigation
13 Buyback or load reduction plan. Are there any
14 differences in those two programs?
15 A We've already talked about some of the
16 differences on the record in those two programs.
17 Q Specifically, are the terms different
18 in both of those programs, the length of time that
19 each program functions?
20 A Certainly. The Irrigation Load
21 Reduction Program was approved during the irrigation
22 season, basically, of 2001. And the Astaris Load
23 Reduction Program started at about the same point in
24 time and continues for two years.
25 Q So the term of the Irrigation Load
213
1 Reduction Program was much shorter?
2 A It was substantially shorter. And as
3 a result of that, the costs that are past onto
4 ratepayers that result from the differences in market
5 prices won't be as great, because the program ended
6 much more quickly or -- than the Astaris' program
7 would in relationship to when the prices dropped.
8 Sorry about that answer. The wording
9 of that answer.
10 Q And just as you said, the Commission
11 or the Staff didn't -- other than the liquidated
12 damages changed, didn't change the Irrigation Load
13 Reduction Program?
14 A That's true.
15 Q Staff nor Commission proposed to
16 change any of the terms of the letter agreement
17 amendment in 2001 for this Astaris' agreement?
18 A That's correct. The irrigation
19 program wasn't changed when the rates dropped, and
20 neither was the agreement that Astaris has.
21 Q Is there a reason why Staff waited
22 until December to file this case?
23 A I think I've already said that Staff
24 was concerned about whether the prices would stay
25 down. We knew that the prices had dropped. We knew
214
1 that if customers were receiving the benefit of lower
2 prices, it would be a benefit. But we wanted to see
3 what was going to happen into the winter of the year
4 when the load went back up again, and see whether
5 prices went back up. If they had gone back up to the
6 levels they were before, then we wouldn't be here
7 talking about changing those rates for Astaris today.
8 Q During your years at the PUC, have you
9 ever seen market prices rise and fall like they
10 have -- or like they did in 2001 and 2002?
11 A In 2000, 2001.
12 Q Sorry.
13 A Nothing like that, not even close. I
14 mean, normal market prices were in the teens and
15 twenties. And when they -- we thought they were high
16 when they went into the twenties. And when they hit
17 50, $50 a megawatt hour, it was extremely high. My
18 experience, I never experienced anything like that
19 before.
20 Q In your experience, had you ever seen
21 a 15 megawatt load-reduction program from the single
22 customer?
23 A Not structured the same way this one
24 is. The FMC contract -- the previous FMC contract
25 had interruptability provisions in it that were 50
215
1 megawatts and bigger, and they received a base rate
2 for an interruptability credit that benefited them
3 for providing that interruptability.
4 Q Have you ever seen a load-reduction
5 program set over a two-year time period in your
6 experience here at the Commission?
7 A Mostly -- I mean, certainly, this is
8 the longest one for this circumstance. The
9 interruptability provisions in the FMC contract were
10 over a long period of time, and they weren't
11 prescribed to the point of how many megawatts -- you
12 know, 50 megawatts every hour for two years. It was
13 a different situation, but it was a longer-term
14 situation.
15 Q And in this case, does that longer
16 period for that longer term increase the size of the
17 impact?
18 A The fact that this program goes two
19 years increases the size of the impact over programs
20 that are shorter.
21 Q Now, Mr. Pomeroy discussed that the
22 rates -- or that the costs that are being accumulated
23 in this are the same today as what they were when the
24 letter agreement was approved?
25 A Yes.
216
1 Q Now, when you were making that
2 representation, was that representation based on the
3 rates approved for the buyback portion in comparison
4 to the forward-market prices that were used to
5 establish those rates?
6 A Could you repeat that, please?
7 Q Sure. They represented that things
8 have not changed, the costs have not changed. But
9 has your opinion changed about how those costs are
10 incurred, and whether they are still reasonable?
11 A Certainly, when the market rates went
12 down, it changed my view whether those were
13 reasonable. I believe they were reasonable at the
14 time and with the information that was available when
15 the contract was approved. And the market
16 circumstances changed. And when circumstances
17 change, sometimes rates have to change to stay within
18 the definition of what's reasonable.
19 Q When you discuss or respond to an
20 impact on any party, isn't it true that you are not
21 considering ultimate financial impacts as testified
22 to by Ms. Carlock?
23 A The ultimate financial impacts are her
24 responsibility in this case.
25 Q Now, there has been a lot made about
217
1 how Staff recommended --
2 A I guess I should add one more word to
3 that.
4 Q Sorry.
5 A I calculate the dollar impacts of the
6 changes in rates. And she calculates the impacts on
7 Astaris and the impacts on the contract, and the
8 adjustments that they have proposed making.
9 Q Now, a lot has been made about Staff's
10 recommending approval of this letter agreement. Did
11 Astaris desire to have this letter agreement
12 approved, to your knowledge?
13 A Certainly they were a joint applicant
14 in the filing.
15 Q So there were no concerns raised by
16 Astaris regarding this agreement?
17 A There were no concerns raised by
18 Astaris even with the knowledge that it was an
19 amendment to the ESA, and the ESA was subject to the
20 Commission's jurisdiction, and the rates therein
21 would always be placed in the public interest by
22 Commission decision.
23 Q Did Astaris accept the rates that are
24 attached as Schedule A to the letter agreement --
25 A Certainly.
218
1 Q -- as a basis for payment under the
2 buyback?
3 A Certainly.
4 MR. HAMMOND: Could I have a moment,
5 please?
6 COMMISSIONER KJELLANDER: Sure.
7 (Discussion had off the record.)
8 Q BY MR. HAMMOND: Now, there was
9 discussion also about whether or not the take-or-pay
10 amount that Astaris pays under the terms of the ESA
11 should be offset against the amount that they receive
12 in turn for the buyback. Are there reasons why you
13 didn't take that into a -- make that offset?
14 A Yes, there are reasons why, and it's
15 spelled out in my testimony in this case.
16 Q Does Astaris receive a benefit as a
17 result of the take-or-pay?
18 A It's my understanding that the
19 take-or-pay was tied to Astaris being a hundred
20 percent load factor customer in the cost-of-service
21 study, which gave them a lower-unit cost in terms of
22 rates.
23 Q With respect to the Commission's Staff
24 support of load reduction programs, would you agree
25 that the support for cost-effective programs, for the
219
1 programs that have been changed when they were not
2 cost-effective?
3 A That's true. In at least two cases
4 that the cost-effectiveness of load-reduction
5 programs changed. And one of those was a Vista all
6 customers buyback program when the program was ended
7 early when the rates dropped and made that program
8 not cost-effective anymore to keep paying those
9 people the higher market rates. The other program
10 where the Commission changed the rate, was the
11 Irrigation Load Reduction Program where the
12 liquidated damages provision was removed.
13 Q Based on the questions that you've
14 been asked by Mr. Pomeroy and the circumstances that
15 he has presented to you, the things that you should
16 take into consideration, has that changed your
17 opinion about whether or not these buyback rates in
18 the letter agreement amendment going forward from
19 January 8th, 2002, are still unjust and unreasonable?
20 A No, it hasn't changed my opinion.
21 Q So your opinion, based on what you've
22 heard today and what you've been asked by all the
23 parties, do you still believe that the rates going
24 forward in the buyback portion of the letter
25 agreement will constitute an excessive burden on
220
1 ratepayers?
2 A I believe that to leave them where
3 they are at is unjust and contrary to public
4 interests.
5 MR. HAMMOND: I have no further
6 questions.
7 COMMISSIONER KJELLANDER: Thank you.
8 And that concludes the witnesses you have for direct?
9 MR. POMEROY: Mr. Chairman, I
10 neglected to offer my exhibits that I used for
11 cross-examination. If I may do that at this time,
12 before the witness is excused.
13 COMMISSIONER KJELLANDER: Let's do
14 that.
15 MR. POMEROY: Exhibits 208, 209, 210,
16 211, 212 and 213, I would offer at this time for the
17 record.
18 MR. RIPLEY: Just so the record is
19 clear, and it's not an objection, but simply
20 clarification. Exhibit 213 is for the calendar year
21 2000, the Form One for the year 2000.
22 COMMISSIONER KJELLANDER: Okay. With
23 that clarification. Then without objection then,
24 those exhibits will be admitted.
25 (Astaris Exhibit Nos. 208, 209, 210
221
1 211, 212 and 213 were admitted into evidence.)
2 MR. POMEROY: Thank you, Mr. Chairman.
3 COMMISSIONER KJELLANDER: And I think
4 at this point where we're at, we've got about 15
5 minutes before we need to head over across the
6 street. And so I was wondering at this point, were
7 we looking at trying to get to Idaho Power's direct
8 witness next? We'll try to get there. But also to
9 try to discuss where we need to be perhaps for the
10 remainder of the day before we pick up tomorrow.
11 And let's go off the record.
12 (Discussion had off the record.)
13 COMMISSIONER KJELLANDER: Back on the
14 record.
15 And, Mr. Ripley, did you have a
16 question or a concern before we adjourn?
17 MR. RIPLEY: I was wondering about
18 Staff's exhibits. Have they been admitted?
19 COMMISSIONER KJELLANDER: They were
20 earlier.
21 MR. RIPLEY: Okay. I'm sorry.
22 COMMISSIONER KJELLANDER: I was
23 reminded today in the Commission Rule, that in my
24 ignorance, they were automatically included as
25 admitted.
222
1 And, Mr. Hessing, thank you.
2 (Witness excused.)
3 COMMISSIONER KJELLANDER: Mr. Ripley,
4 if you are ready?
5 MR. RIPLEY: Certainly. We'll call
6 Mr. Said.
7
8 GREGORY W. SAID,
9 produced as a witness at the instance of Idaho Power
10 Company, having been first duly sworn, was examined
11 and testified as follows:
12
13 DIRECT EXAMINATION
14
15 BY MR. RIPLEY:
16 Q Would you please state your name for
17 the record?
18 A Gregory W. Said.
19 Q And have you had cause to be prepared
20 for this proceeding, certain prefiled testimony
21 consisting of 15 pages, and in that testimony have
22 you had identified as Exhibits 1 through 6?
23 A Yes.
24 Q If I ask you the questions that are
25 set forth in your testimony, would your answers be
223
1 the same today?
2 A Yes.
3 Q Are there any changes to your
4 exhibits?
5 A No.
6 Q Any changes to your testimony?
7 A No.
8 MR. RIPLEY: We would ask that
9 Mr. Said's testimony be spread upon the record as if
10 read, and would tender him for cross-examination,
11 noting the marking of Exhibits 1 through 6.
12 COMMISSIONER KJELLANDER: So without
13 objection, we would spread the testimony across the
14 record as if read, and that those specific exhibits
15 be admitted.
16 Hearing no objection, that's what
17 we'll do.
18 (The following prefiled testimony of
19 Mr. Said is spread upon the record.)
20 (IPCo's Exhibits 1 through 6 were
21 marked for identification.)
22
23
24
25
224
1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER KJELLANDER: Is there any
4 order in terms of cross that we need to follow on
5 this? Should we begin with Mr. Richardson?
6 MR. RICHARDSON: Thank you,
7 Mr. Chairman. I have no questions for this witness.
8 COMMISSIONER KJELLANDER: Move to
9 Mr. Hammond.
10 MR. HAMMOND: We don't have any
11 questions.
12 COMMISSIONER KJELLANDER: Such a good
13 record moving here. And Mr. Nelson?
14 MR. NELSON: Yes, Mr. Chairman, we
15 have just a few brief ones.
16
17 CROSS-EXAMINATION
18
19 BY MR. NELSON:
20 Q Good afternoon, Mr. Said. My name is
21 Thorvald Nelson. I'm an attorney representing
22 Astaris in this case.
23 A Good afternoon.
24 Q I would like to refer you to, just
25 briefly, to page 13 of your direct testimony, please.
240
1 A (Witness complying.)
2 Q If you could let me know when you
3 found that?
4 A I'm there.
5 Q On line 10 of that direct testimony,
6 you offer -- you state that, "The Company is entitled
7 to recover 90 percent of the Idaho jurisdictional
8 portion (85 percent) of the Astaris VLR payments from
9 Idaho customers." Do you see that sentence?
10 A Yes, I do.
11 Q Okay. And just so the record is
12 clear, "VLR" in your testimony is an abbreviation for
13 Voluntary Load Reduction?
14 A That's correct.
15 Q That's what we've been calling the
16 letter agreement or buyback agreement; is that
17 correct?
18 A Those terms have been used
19 synonymously, yes.
20 COMMISSIONER KJELLANDER: Is your
21 microphone on, Mr. Said?
22 THE WITNESS: It is now. Excuse me.
23 Q BY MR. NELSON: I'm curious, Mr. Said,
24 could you explain why, in your opinion, Idaho Power
25 is entitled to recover 90 percent of the payments
241
1 that are made under the VLR to Astaris?
2 A Sure. I would refer to Staff Exhibit
3 No. 111, which includes the voluntary load reduction
4 amendment to the agreement. And on page 7 of that
5 exhibit, Condition No. 7 of the letter agreement
6 states, "The payments to be made to Astaris, referred
7 to in paragraph four above, are conditioned upon the
8 Idaho Public Utilities Commission issuing an order
9 finding such payments may be treated as the power
10 supply expense for purposes of Idaho Power's power
11 costs adjustment."
12 And then I would refer to Exhibit
13 No. 6, which is Order No. 28695 issued in Case
14 No. IPC-E-01-9, which is the Commission's approval of
15 VLR. On page 6, the last paragraph under the section
16 entitled "Order," it says, "It is further ordered
17 that the reasonably incurred payments made by Idaho
18 Power to Astaris for purchases of energy should be
19 treated as a purchase power expense and then flowed
20 through Idaho Power's PCA mechanism."
21 As a power supply expense recognized
22 in the Company's power cost adjustment, the standard
23 treatment of those expenses is to first
24 jurisdictionalize the expenses: 85 percent to Idaho,
25 and then share those jurisdictionalized amounts, 90
242
1 percent to customers.
2 Q Let me ask a simpler question then
3 perhaps. Would you agree with me, Mr. Said, that
4 before the costs of the VLR, as you described it,
5 would be recovered through the PCA, the Commission
6 would have to make a determination that those costs
7 were prudent?
8 A I believe that's what occurred, yes.
9 Q Okay. And do I understand what your
10 testimony is then, you believe the Commission has
11 already made that determination that the costs,
12 whatever they may be in the VLR, are prudently
13 incurred by Idaho Power?
14 A I believe that they have issued an
15 order stating at the time of that order, that they
16 were viewed as prudent, yes.
17 Q Okay. Does the fact that the market
18 price for electricity has changed since that order,
19 in any way change your opinion that the costs to the
20 VLR paid from Idaho Power to Astaris are prudent?
21 A At this point in time, until an order
22 states that they are not prudent, I would say, yes,
23 they are prudent.
24 Q And would it be Idaho Power's -- would
25 it be your position and Idaho Power's position, that
243
1 whatever the costs are, regardless of the market,
2 that they have been and continue to be prudently
3 incurred? And when I talk about costs, I'm talking
4 about the costs that Idaho Power pays to Astaris
5 under the VLR.
6 A The costs that we are paying to
7 Astaris under the VLR have been deemed prudent at
8 this point in time, yes.
9 Q I understand that. And in your
10 opinion, do those continue to be prudent going
11 forward through the rest of the life of the VLR?
12 A Unless the Commission determines that
13 those prices are no longer prudent.
14 MR. NELSON: Okay. Can I have just
15 one second?
16 (Pause in the proceedings.)
17 MR. NELSON: Thank you, Mr. Chairman.
18 I have no more questions. Thank you, Mr. Said.
19 COMMISSIONER KJELLANDER: We move now
20 to redirect, Mr. Ripley.
21 MR. RIPLEY: Just one.
22
23
24
25
244
1 REDIRECT EXAMINATION
2
3 BY MR. RIPLEY:
4 Q Mr. Said, if I could refer your
5 attention to Exhibit No. 111, page 7 of 8, which is
6 the last page of the March 2001 agreement.
7 A Yes.
8 Q Do you have that?
9 A Yes, I do.
10 Q Let us assume that the Commission
11 decides to determine that the payments under this
12 agreement are too high and no longer prudent, and
13 would order that they not be flowed through the Idaho
14 Power's power cost adjustment. Can you assume that
15 for me?
16 A I can.
17 Q In that event, would Idaho Power then
18 cease to making the payments to Astaris?
19 A That's my understanding that upon my
20 discussions with you, that legally we might view the
21 contract -- the amendment to the contract null and
22 void.
23 Q Because it's conditioned upon fairable
24 PCA treatment; isn't that correct?
25 A That's correct.
245
1 MR. RIPLEY: That's all the questions
2 I have.
3 COMMISSIONER KJELLANDER: I think at
4 this point, since we're about just a few minutes
5 before where he need to be heading across the street,
6 what we'll do is go off the record.
7 (Mr. Said excused.)
8 (A recess was had and reconvened at
9 4:15 p.m.)
10 (Commissioner Smith not present.)
11 COMMISSIONER KJELLANDER: Back on the
12 record. And being back on the record now, I believe
13 we were ready for direct testimony from Astaris. And
14 Mr. Pomeroy?
15 MR. POMEROY: Yes. Thank you,
16 Mr. Chair. And good afternoon again.
17 COMMISSIONER KJELLANDER: Can you get
18 your microphone, please?
19 MR. POMEROY: Thank you, Mr. Chair.
20 Good afternoon again.
21 Astaris would call Mr. Alan W. Seder
22 to the stand.
23
24
25
246
1 ALAN W. SEDER
2 produced as a witness at the instance of Astaris,
3 having been first duly sworn, was examined as
4 follows:
5 DIRECT EXAMINATION
6
7 BY MR. POMEROY:
8 Q Now, that you've been sworn, would you
9 state your name and business address for the record,
10 please?
11 A My name is Alan Seder. My business
12 address is 622 Emerson Road, Suite 500, St. Louis,
13 Missouri, 63411.
14 Q By whom are you employed and in what
15 capacity?
16 A I am employed by Astaris, LLC. I am
17 currently the VP in sales and marketing. At the time
18 that the transaction was entered into, I was the
19 director of business development and the lead
20 negotiator for Astaris on the buyback arrangement.
21 Q In this document, did you prefile
22 testimony and documents that have been marked as
23 Exhibits 201 and 202?
24 A Yes, I did.
25 Q Do you have a copy of that before you?
247
1 A Yes, I do.
2 Q Do you have any corrections or
3 clarifications to make in your prefile testimony at
4 this time?
5 A I have one correction to make. It's
6 around Exhibit 202, which is referenced on page 8 of
7 my testimony as effectively the current buyback
8 agreement that's in place. I had inadvertently put
9 in here the parallel agreement, which was entered
10 into with Idaho Power in the event that we were to
11 take this buyback arrangement to the off-system
12 rather than on-system.
13 So that's not correctly referenced.
14 And, in fact, what I intended to put in is the
15 exhibit that Mr. Hessing had labeled as Exhibit 111.
16 So there is an exhibit like that already in the
17 record.
18 Q Are there any other corrections or
19 clarifications you need to make?
20 A No.
21 Q If I were to ask you the same
22 questions today as are recited in your prefile
23 testimony, would your answers be the same?
24 A Yes.
25 MR. POMEROY: Mr. Chairman, at this
248
1 time we would move the prefile testimony be spread
2 upon the record of Mr. Seder as if read, and offer
3 it, and our Exhibits 201 and 202 for the record, and
4 tender Mr. Seder for cross-examination.
5 COMMISSIONER KJELLANDER: And without
6 objection?
7 MR. RIPLEY: Well, we have an
8 objection from the standpoint from -- we have an
9 objection insofar as Exhibit 202 is concerned. That
10 was never a document that became an agreement between
11 the parties as Mr. Seder has testified to.
12 Exhibit 111 is the agreement; is it not? Am I
13 mistaken?
14 COMMISSIONER KJELLANDER: That is
15 correct. From his testimony what he said is Exhibit
16 No. 111 more accurately reflects and is the
17 agreement. And as I recall from his testimony,
18 Exhibit 202 was a standby in the event that it went a
19 different direction.
20 MR. RIPLEY: So are they withdrawing
21 Exhibit 202?
22 MR. POMEROY: No. We're just offering
23 it as a picture to fill in what was going on at the
24 time of the buyback agreement. We acknowledge that's
25 not the document that he's described in his
249
1 testimony, and he's now corrected what it is.
2 MR. RIPLEY: Well, Mr. Chairman, if I
3 understand the testimony of Mr. Seder, he said he
4 inadvertently included the wrong exhibit. Now, I
5 find that it's not inadvertent, that they intend to
6 include it in the record. I don't know what for.
7 COMMISSIONER KJELLANDER: Can we get
8 there by not admitting Exhibit 202 and instead,
9 referencing Exhibit 111?
10 MR. POMEROY: Certainly.
11 COMMISSIONER KJELLANDER: Why don't we
12 do that for the record then. 202 is not a number
13 that's been admitted. When we refer to that specific
14 agreement, we will be referring to Exhibit 111. It's
15 already in the record and admitted, and that will get
16 us there.
17 So without further objection then, the
18 testimony will be spread across the record as if
19 read, and Exhibit 201 will be admitted.
20 (The following prefiled testimony of
21 Mr. Seder is spread upon the record.
22 (Astaris' Exhibit Nos. 201 and 202
23 were prefiled and marked for identification.)
24
25
250
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.
266
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
267
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
270
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.
272
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
276
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
279
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
292
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
293
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
294
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
299
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
301
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.
303
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
304
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
307
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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