20060201Hearing Transcript Vol I.pdf

ORIGINAL
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BEEORETHEIDAHOPUBLICUTILITIESCOMMISSIoN
II\I THE MATTER OF THE JO]NT
AT'PLICATION OF MIDAMERICAN
EI\IERGY HOLDING|S COMPANY (MEHC)
AI\ID PACIEICORP DBA UTAH POWER &
L]:GHT COMPANY TOR AN ORDER
ALITHORIZING MEHC TO ACQU]RE
PACIEICORP
CASE NO. PAC-E-o5_B
HEARING BEFORE
f.J
COMMISSIONER MARSHA H. SM]TH (PTESidiNg)
COMMISSIONER DENNIS S. HANSEN
COMM]SSIONER PAUL KJELLANDER
P],ACE:Commission Hearing Room
412 V{est Washington Street
Boise, Idaho
DITTE:Janu,ary !1 , 2006
VOLUMEI-Pagesl-113
HEDRIGK
COURT REPORTING
POST OFFICE BOX 578
BOTSE, |DAHO 83701
208-336-9208
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HEDRICK COUF.T REPORTING
P. O. BOX 578, BOTSE, rD 83701
APPEARANCES
For the Staff:DONALD L. HOWELL, Tr, Esq
Deputy Attorney General
4'72 West WashingtonBoise, Idaho 83102
For the Joint Applicants:STOEL RIVES LLPby JAMES M. VAN NOSTRAND, Esq.
900 Southwest Eifth Avenue,Suite 2600Portland, Oregon 91204
Eor Monsanto:RACINE OLSON NYE BUDGE & BAILEY
by RANDALL C. BUDGE, Ese.
207 East Center
Post Office Box 1391Pocatello, fdaho 83204-1397
For CAPAI:BRAD M. PURDY, Esq.
ATTORNEY AT LAW
2079 North Seventeenth StreetBoise, Idaho 83102
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APPEARANCES
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INDEX
WITNESS EXAMINATTON BY PAGE
Brent E. Gal-e(Joint Appllcants)
Mr. Van Nostrand (Direct)
Prefiled Dlrect
Mr. Van Nostrand (Direct)
Mr. Howell (Cross)
Commissioner Hansen
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Teri Ottens
(CAPAI )
Mr. Purdy (Direct)
Prefiled Direct
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Mark C
( Joint
Moench
Applicants )
Mr. Van Nostrand (Direct)
Prefiled Direct
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Terri Car]ock(Staff)Mr. Howell (Direct)
Prefiled Direct
Pref il-ed SupplementalMr. Van Nostrand (Cross)
Commissioner Hansen
Commissioner Kj ellander
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EXHIBITS
NUMBER PAGE
For the Joint A l-i-cants:
2 MEHC Adoption of Prior Commitments PremarkedAdmitted 39
J Combined System Maps PremarkedAdmitted 39
4 MEC Base Load Pfants PremarkedAdmitted 39
5 MEC Facts and Figures Premarked
Admitted 39
6 MEC Energy Efficiency Comparisons Premarked
ACmitted 39
1 Letters from Communi-ties PremarkedAdmi-tted 39
1q Stipulation and ldaho Commitments PremarkedAdmltted B6
Eor the Staff:
101 .Stipulat ion Premarked
Acimitted 108
r02.Staff
Idaho
Recommended Modiflcation to
Commitments
Premarked
Admitted 108
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HEDRICK COURT REPORTTNG
P. O. BOX 578, BOISE, ID
BO]SE ]DAHO TUESDAY JANUARY 77 2006 9:30 A.M
COMMISSIONER SMITH: Good morning. This is the
time and place set for a hearing in Idaho Public Utilities
Commission Case No. PAC-E-05-8, further identified as In the
matt.er of t.he .ToinL Application of MidAmerican Energy Holdings
Company and PacifiCorp, dba Utah Power and Light Company, for
an Order authorizing MEHC to acquire PacifiCorp.
We'11 begin this morning with appearances from
the parties. First, I will just teII everyone who might not
know, my name is Marsha Smith; I'm one of the three
Commissioners on t.he Idaho Commission. To my left is Paul
Kjellander, the President of the Commission; and to my right is
Dennis Hansen. And the three of us are the Commission.
So with that, we'11 begin with the appearances of
PacifiCorp and MidAmerica. Are there Lwo lawyers or one?
MR. VAN NOSTRAND: .Tust one, your Honor. On
behalf of Joint Applicants MidAmerican Energy Holdings Company
and PacifiCorp, 'James M. Van Nostrand, 1aw firm Stoel Rives in
Portland.
COMMISSIONER SMITH: Thank you, Mr. Van Nostrand.
For the Commission Staff.
MR. HOWELL: I'm Donald Howell-, Deputy Attorney
General-, oD behalf of the Commission Staff.
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COMMISSIONER SMITH: Monsanto.
MR. BUDGE: Randy Budge, ofl behalf of Monsanto.
COMMISSTONER SMITH: And how about the Idaho
Irrigation Pumpers? The record will reflect there is no one
here representing the Pumpers.
Idaho Power Company? And no one representing
Idaho Power.
How about the Communj-t.y Action Partnership
Associ-ation of Idaho?
MR. PURDY: Yes. Brad Purdy, representing that
group. Thank you.
COMMISSIONER SMITH: Thank you, Mr. Purdy. Thank
you for turning on your mike. ThaL's, according to a note
here, one of my responsibilities is to remind you that when you
speak, you need t.o push the little button that says rrtouchrr so
that your mike light goes red and people can hear you and the
court reporter can get you down.
For the IBEW Loeal 57? No one.
And how about ,.I. R. Simplot Company? No
response.
Thank you.
Are there preliminary matters that need to come
before the Commission before we take up the testimony of the
witnesses? Seeing none, then werll turn to Mr. Van Nostrand to
present the Companyrs case.
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MR. VAN NOSTRAND: Thank you, Madam Chair. f'd
just 1ay the background of sort of how we got. here. It might
help you understand how things fit together.
The Applicat.ion was filed on ,Ju1y 15, and
subsequent to that, the Energy Policy Act of '05 was passed
which repealed PUHCA, so that requires a change in the
Application and testimony, so we filed a revised Application
and testimony on August 16.
We had settlement discussions on November 2nd and
December Bth, and we reached a Stipulation which was filed with
the Commission on December 15th. And at the time the
Stipulation was filed with the Commission, there had been
sett.lement,s reached in Oregon I'm sorry Utah and
California, and sub- and subject to the most favored nations
provisions process that we have, the parties then met again
l-ast week to see which commitments from the Oregon Stipulation
would be added to Idaho. So we have Terri Carlock's testimony
today picks up some of these additional commitments from Oregon
that the parties want to adopt in Idaho. So I hope that gives
you some idea where we are.
This morning, or behalf of the ,Joint Applicants,
werre proposing to offer the testimony of Brent Gal-e, and he
will describe sorL of how we got where we are and the
commitment.s and the Stipulation in Idaho. And we're also
proposing to offer testimony of Mark Moench, who filed
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GALE (Di)
,foint Applicants
testimony on December 20th in support of the Stipulation. We
had an agreement among the parties that these would be the two
witnesses that the 'Joint Applicants would cal-1, and that.
everyone was acceptable just having these two witnesses here on
behal-f of the Joint Applicant.s this morning.
So if there are no questions, w€'d like to
proceed by calling Mr. Brent GaIe.
COMMISSIONER SMITH: Okay.
MR. GALE: Good morning.
COMMISSIONER KJELI-,ANDER: Good morning.
produced as
being first
BRENT E. GALE,
a wi-tness at, the instance of the Joint Applicants,
duly sworn, was examined and testified as follows:
DIRECT EXAMINATION
BY MR. VAN NOSTRAND:
O. Will you state your name again, Mr. Gale?
A. Certainly. Brent E. Gale, G-A-L-E.
O. And who are you employed by, Mr. Gale?
A. I'm employed by MidAmerican Energy Company, which
is a subsidiary of MidAmerican Energy Holding Company.
O. Okay. What is your position with MidAmerican
Energy?
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A. I'm senior vj-ce president of legislation and
regulation.
O. What are your responsibilities in that position?
A. My responsibilities include regulaLory affairs,
regulat.ory strategy, legislative strategy on a state 1eve1,
legislative relations, regulatory relations, rates, revenue
design or, revenue requirements, rate design, cost of
servj-ce. Al-so, mergers and acquisitions of regulated utility
companies, and some other other duties as assigned.
O. And did you have occasion to file direct
testimony in this proceeding?
A. Yes, I did.
O. And that was accompanied by exhibits as well?
A. Yes, that is correct.. I believe there were seven
exhibits.
O. And was your testimony revised in supplemental
testimony filed on August 16th?
A. Yes, it was.
O. Do you have any additions or corrections to make
to your testimony or exhibits?
A. No, I do not.
O. Okay. If I asked you the questions set fort.h in
your testimony, would your answers be the same as set forth
therein?
A. Yes, subject to, of course, events that have
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GALE (Di)
,Joint Applicants
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HEDRICK COURT REPORTING
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GALE (Di ),Joint Applj-cants
occurred in the six mont.hs following the filing of the
test imony.
O. And exhibits were prepared under your direction
and supervision?
A. Yes, they were.
MR. VAN NOSTRAND: Madam Chair, I'd move the
admission of Mr. Gale's direct testimony and exhibits.
COMMISSIONER SMITH: If there's no objection, the
di-rect testimony will be spread upon the record as if read, and
Exhibits will be identified as Exhibits 2 through 7?
THE WITNESS: Yes, I believe that's correct.
COMMISSIONER SMITH: Okay. Thank you.
(The following prefiled dlrect testimony
of Mr. Gale is spread upon the record. )
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Introduction
0. Please state your name and business address.
A. My name is Brent E. Gale. My business address is 666 Grand Avenue, Suite
2600, Des Moines,Iowa 50309.
a. By whom are you employed and in what position?
A. I am Senior Vice President,Irgislation & Regulation, for MidAmerican Energy
Company ("MEC"), a subsidiary and business platform of MidAmerican Energy
Holdings Company ("MEHC").
a. Please describe the responsibilities of your current position.
A. My primary responsibilities for MEC include U.S. regulatory and legislative
strategic planning, state legislative relations, federal and state regulatory relations,
rates, regulated cost of service, rate design, utility acquisitions, representation of
MEC's interest in North America regarding electric and gas industry
restructurinS, and providing advice and assistance to MEHC regarding federal
legislative policy.
a. Please describe your background.
A. I received a B.A. degree from Drake University in 1972 and a J.D. degree, also
from Drake , in 197 6. After graduation I joined one of MEC's predecessor
companies, holding positions of attorney, general counsel and vice president-
general counsel. After the formation of MEC, I held the positions of vice
president-regulatory law & analysis and vice presidenrlegislation & regulation.
I am licensed to practice law in all state courts of Iowa, before the federal
court for the Southern District of Illinois and before the District of Columbia
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Circuit. I am a member of the Iowa State Bar Association, the EEI legal
Committee, the EEI Energy Delivery and Public Policy Executive Advisory
Committee, the boards of the Illinois Energy Association, the Illinois Institute for
Regulatory Policy Studies, and the New Mexico State Center for Public Utilities.
During my career, I have spoken before numerous consumer, industry, and
national and international regulatory conferences, most recently upon the topics of
renewable energy, alternative regulation, electric restructuring, and generation
portfolio diversity.
I have also participated extensively in the negotiation and drafting of
electric and gas legislation in several states and at the federal level. I have
previously testif,red before the Iowa Utilities Board, Illinois Commerce
Commission and in the courts of Iowa and Illinois.
Summary of Testimony
a.What is the purpose of your direct testimony in this proceeding?
The purpose of my testimony is as follows:
o to provide evidence that the transaction will be in the public interest and to
sponsor some of the commitments that are being offered to protect the
interests of consumers;
. to identify the similarities between PacifiCorp and MEC;
. to discuss the experience of MEC as evidence of how a regulated utility can
be expected to operate as a subsidiary of MEHC; and
. to discuss the various shareholder, state and federal approvals required for
completion of the transaction.
A.
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a. Please summarize your testimony.
A. My testimony provides evidence that the transaction is in the public interest and
will not harm the ability of PacifiCorp to provide adequate and reliable service to
its customers in all states that it is privileged to serve. This evidence includes the
pro-active offer by MEHC and PacifiCorp to adopt a uniform set of transaction
commitments based upon the commitments in all states from PacifiCorp's prior
transaction. My testimony also includes a detailed discussion of MEC's
experience as an MEHC subsidiary and the similarities between MEC and
PacifiCorp.
The Transaction is in the Public Interest
a. You have said that MEHC's acquisition of PacifiCorp will be in the public
interest and that commitments will be undertaken to ensure that customers
are protected. What is the basis for your statement?
A. My reasoning is based upon the following:
a As part of my testimony, MEHC and PacifiCorp will adopt a uniform set
of commitments that are based upon the commitments undertaken by
PacifiCorp as a part of the prior merger transaction; these uniform
commitments will be extended to all six states, not just the states that
requested a particular commitment in the previous PacifiCorp transaction.
Also as part of my testimony, in recognition of the differences among the
states, MEHC and PacifiCorp will offer to continue several state-specific
commitments undertaken by PacifiCorp in the previous transaction.
a As part of MEHC witness Mr. Abel's testimony, MEHC and PacifiCorp
will offer numerous new commitments involving generation options,
transmission investment, clean air investment, energy efficiency, customer
service and other important matters.
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PacifiCorp will become a separate business platform under MEHC, with
its own business plan, its own management, its own state policies, and the
responsibility for making decisions that achieve the objectives identified
in the testimony of MEHC witness Mr. Abel (i.e., customer satisfaction,
reliable service, employee safety, environmental stewardship, and
regulatory/legislative credibility).
The many similarities between MEC and PacifiCorp will facilitate an easy
transition of PacifiCorp as a separate subsidiary of MEHC.
MEC's operations, as a subsidiary of MEHC, provide demonstrable
evidence that PacifiCorp will have the ability to continue its emphasis on
key utility performance areas such as: customer service; safety; integrated
resource planning; a balanced mix of generating resources, including
renewable generation; use of energy efficiency and demand-side
management ("DSM'); investnent in environmental emission control
technology; and collaborative processes.
MEHC and PacifiCorp Commitments
a. Please explain the uniform set of commitments you referenced.
A. MEHC and PacifiCorp have reviewed the commitments required by the six states
in the Scottish Power plc ("ScottishPower") transaction. We have also met with
numerous groups that may have an interest in this transaction and asked them to
identiff the risks and concems that they have at this time.
Exhibit No. 2 responds to the risks and concems addressed in the previous
PacifiCorp transaction and to many of the risks and concerns that have been
raised in the meetings with interested groups. This Exhibit identifies MEHC's
and PacifiCorp's commitments to address these risks and concerns. The new
commitments sponsored by MEHC witness Mr. Abel address other concerns
expressed in the meetings with interested groups. MEHC and PacifiCorp propose
that the commitments in this Exhibit and those in MEHC witness Mr. Abel's
Exhibit No.1, supersede prior commitments and apply upon the close of the
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transactlon.
Section I of Exhibit No. 2 identifies commitments that address customer
service, regulatory oversight, financial integrity, revenue requirements impact, the
environment, communities, employees and planning. The commitments in
Section I will be applied uniformly to all six states. We are applying these
commitments uniformly to simplify administration for everyone involved,
including PacifiCorp, and to ensure equitable treatment of customers in all six
states. The pro-active adoption of these commitments by MEHC is important
evidence that there will be no harm to the public interest from the transaction.
Moreover, MEHC believes the uniform application of the commitments in
Exhibit No. 2 to all states also provides evidence of benefits from the transaction.
MEHC understands that no single state was previously provided all of these
commitments. Thus, with the uniform application of these commitments in all
states, each state will be receiving commitments that previously were not
applicable to it. In other words, each state is receiving new benefits and
protections for customers and the public.
While I am sponsoring all of the commitments in Exhibit No. 2, MEHC
witnesses Mr. Goodman and Mr. Specketer in their testimony discuss some of the
regulatory oversight, revenue requirements and the financial commitments in
greater detail. The commitments that they discuss are identified in my Exhibit
No. 2.
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t I Q. Where do you address the state-specific commitments by MEHC and
2 PacifiCorp related to the prior transaction?
3 A. These state-specific commitments are in Section tr of Exhibit No. 2. These
4 commitments reflect MEHC's understanding of commitments previously made by
5 PacifiCorp that reflect unique or state-specific issues.
6 O. What is the purpose of the provisions in Section III of that Exhibit?
7 A. These are administrative provisions that previously applied in one or more states.
8 We believe these should be applied uniformly in all states to simplify
9 administration and to ensure equitable application of the commitments in all
10 jurisdictions.
11 Similarities between PacifiCorp and MEC
12 a. Why do you believe the similarities between PacifiCorp and MEC provide
13 evidence that the proposed transaction will be in the public interest and not
14 harm the interests of consumers?
15 A. There are several reasons. First, the existence of these similarities means that
16 MEHC has experience with the types of issues and risks that confront PacifiCorp.
17 Second, the existence of the similarities means that MEC and PacifiCorp have
18 experiences and advice that can be shared to enable them to better pursue the
19 objectives of customer satisfaction, reliable service, employee safety,
20 environmental stewardship and regulatory/legislative credibility. Third, the
2l similarities suggest compatible corporate cultures that should facilitate
22 PacifiCorp's transition to a business platform of MEHC, Fourth, in meetings with
23 interested parties prior to the filing of this testimony, one of the most frequently
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offered comments was to the effect that it was one thing to "talk the talk" but
most were interested in whether PacifiCorp, under MEHC, would "walk the
walk." MEC's operation as a business platform under MEHC provides
demonstrable evidence of how that company has "walked the walk."
a. What are some of the similarities between PacifiCorp and MEC that you
A.
deem significant?
The most significant of the similarities are as follows:
The utilities operate in contiguous states.
Wholesale transactions, interconnections and positive relationships with
non-jurisdictional (public power and cooperative) utilities are important to
the conduct and financial health of the business.
The presence of the non-jurisdictional utilities creates unique challenges
and opportunities for transmission planning, coordination and operation.
A demonstrable focus upon customer satisfaction is indicated by
independent survey results.
A willingness to utilize renewable energy technologies has been
demonstrated where the utilization is cost-effective for customers and
there is an opportunity for a fair return to shareholders.
A willingness to make significant investments in infrastructure
improvements has been demonstrated where the investments are cost-
effective for customers and there is an opportunity for a fair return to
shareholders.
lnvestments in DSM and energy efficiency programs are made to the full
extent determined to be cost-effective by applicable state standards.
Collaborative processes are employed to develop environmental, DSM
and energy efficiency programs.
Low-sulfur, Western-basin coals are the only coals used for generation
and provide more than 80Vo of the energy servin! bundled retail
customers.
Coal shipping options are the Burlington Northern and Union Pacific
railroads.
The delivered cost of coal is among the lowest in the United States.
Wind, natural gas and hydro are included in the regulated generation
portfolio, with the percentage of wind capacity projected to comprise a
significant portion of the portfolio by 2010, if cost-effective.
There is a demonstrable commitment to employee safety.
There is a need to plan for and deal with adverse weather conditions
impacting the reliability of the delivery systems to the extent economical
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REVTSED 8n7t05
and practicable; such conditions include ice, floods, tornados, storms and
snow.o Regulated delivery and electric supply services are provided in multiple
state jurisdictions, with at least one state having competitive retail electric
supply access.o The economy of the service area is significantly tied to the land
(agriculture, forestry, and mining).o On the whole, the area served has a comparatively low-density population
except for a few major population centers.
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The maps attached to Exhibit No. 3 provide some additional information
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12 regarding the similarities.
MidAmerican Energy Company
13 a. Please provide some historical background on MEC.
14 A. MEC and its predecessor corporations (g€., Iowa Power Inc., Iowa-Illinois Gas
15 and Electric Company, Iowa Public Service Company and their respective
16 predecessors) have been providing electric service in Iowa, Illinois and South
17 Dakota for approximately 100 years. MEC is the product of a merger between
18 Midwest Power Systems Inc. and Iowa-Illinois Gas and Electric Company in
19 1995. Midwest Power Systems Inc., in tum, was the result of a prior merger
20 between Iowa Power Inc. and Iowa Public Service Companyl inl992. In 1999,
21 MEC was acquired by CalEnergy Company Inc. (subsequently known as
22 "MidAmerican Energy Holdings Company''or "MEHC"), irnd in 2000, MEHC
23 and an investor group comprised of Berkshire Hathaway Inc, Walter Scott, Jr. (a
24 director of MEHC), David Sokol (Chairman and Chief Executive Officer of
25 MEHC), and
I The utilities' parent holding companies (non-registered, exempt holding companies),
Iowa Resources Inc. and Midwest Energy Company, were previously merged in 1990 creating a
new holding company (also a non-registered, exempt holding company) called Midwest
Resources Inc.0
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Greg Abel (President and Chief Operating Officer of MEHC), closed on a
definitive agreement and plan of merger whereby the investor group, together
with certain of Mr. Scott's family members and family trusts and corporations,
acquired all of the outstanding common stock of MEHC.
a. Where and how does MEC provide electric service?
A. MEC provides electric service in Iowa, Illinois and South Dakota, and is the
largest utility in Iowa. It provides service to more than 690,000 electric
customers and more than 670,000 natural gas customers in a 10,600 square-mile
area from Sioux Falls, South Dakota to the Quad Cities area of Iowa and Illinois.
The largest communities served by MidAmerican are Des Moines, Cedar Rapids,
Sioux City, Waterloo, Iowa City and Council Bluffs, Iowa; the Quad Cities area
of Iowa and Illinois; and Sioux Falls, South Dakota. I have provided a map of the
areas served by MEC in my Exhibit No. 3.
After MEC's 360.5 MW wind project is completed in 2005, and its 790
MW Council Bluffs Energy Center Unit No.4 is also completed in 2007, the
company will meet the needs of its electric customers with more than 6,100
megawatts of generating capability: approximately 59 percent fueled by coal;26
percent by natural gas and oil; 8 percent by wind, hydroelectric and biomass; and
7 percent by nuclear. MEC has majority ownership in four of the five jointly-
owned coal-fueled generating stations in Iowa, and a forty percent ownership in
the fifth. Exhibit No. 4 shows the locations of MEC's base-load generating
facilities. In Exhibit No. 5), I have provided some basic facts and figures related
to MEC's performance.
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Customer Service
a.Would it be reasonable for the Commission to expect no diminution in
PacifiCorp's performance in the area of customer service as a consequence of
the transaction?
Based on MEC's experience, the transaction will not diminish PacifiCoqp's
performance in this area. MEC has a strong track record of success in satisfying
its customers. In both 2004 and 2005, MEC's electric business customers ranked
MEC first in the Midwest for overall customer satisfaction, according to the J.D.
Power and Associates study. ln2OO4, the J. D. Power and Associates residential
electric study results placed MEC in a tie for first place in the Midwest on overall
customer satisfaction, and the residential gas study placed MEC in a tie for second
place in the Midwest on overall customer satisfaction.
The following performance factors were included in the respective
customer satisfaction studies: Communications with Customers (Business Study);
Power Quality and Reliability (Business and Residential Studies); Billing and
Payment (Business and Residential Studies); Customer Service (Business and
Residential Studies); Company Image (Business and Residential Studies); Price
(Business Study); and Price and Value (Residential Study).
Please describe MEC's relationship with its major customer stakeholders.
Our largest 800 customers are assigned energy consultants who are capable of
assisting customers with unique needs such as energy efficiency, power quality,
gas transportation and metering. MEC's intemrptible cqedit program, which
offers customers an opportunity to achieve price reductions, has been popular
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1 among larger customers, with 197 MW of load control currently enrolled. MEC
2 also works constructively with its largest customers to ensure the rates they pay
3 are based on their costs of service and appropriately reflect any benefits that the
4 customers bring to the retail system (e.s., intemrptibility, co-generation). In
5 2004, our large commercial and industrial customers rated us second in the nation
6 on overall customer satisfaction in the TQS Research Inc. study.
7 Energy Efficiency and DSM
8 a. Please discuss MEC's experience with energy efficiency programs and DSM
9 programs.
10 A. MEC and its predecessors have offered cost-effective, energy efficiency and DSM
1l programs in Iowa for more than fifteen (15) years. MEC is represented on the
12 boards of the Consortium for Energy Efficiency and the Peak Load Management
13 Alliance and is a member of the Midwest Energy Efficiency Alliance. Similar to
14 PacifiCorp, MEC has received numerous state and federal awards for its
15 programs. MEC estimates that customer demand has been reduced by some 220
16 MW through DSM programs and some 180 LrtW from energy efficiency
17 programs. Further, customer annual energy requirements have been reduced by
18 some 500,000 MWh as a result of the DSM and energy efficiency programs.
19 These impacts are taken into account in MEC's resource planning analyses.
20 a. Does MEC have state approved energy efficiency plans?
2l A. Yes. MEC's plans are reviewed and approved by Iowa regulators, usually every
22 three to five years. Through the review and approval process, the Iowa regulators
23 determine which programs proposed by MEC meet the tests for cost-
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effectiveness, as discussed below. MEC's actual plan expenditures have
exceeded budget for several years due to the success of and demand for the
programs. For example, in 2004 MEC's actual plan expenditures compared to
budgeted plan expenditures were $35.1 million (actual) and $31.3 million
(budgeted), respectively. In 2003, MEC's actual versus budgeted expenditures
were $31.2 million versus $20.1 million, respectively. A comparison, on a
program-by-program basis, for these same years is provided in my Exhibit No. 6.
MEC utilizes a collaborative process to determine which energy efficiency
and DSM programs it will offer for consideration by regulators. The company's
most recent collaborative process involved roughly a dozen different parties. In
order to be included in MEC's plan, programs must pass a feasibility screening
process that incorporates a societal test. The societal test is an economic test that
compares the present value of the costs and the benefits over the useful life of an
energy efficiency program or DSM program from a societal perspective.
Exceptions to the requirement to pass the cost-benefit tests are provided by rule
for low-income and tree-planting programs. MEC's plans have included all
programs that were identified as feasible and cost effective.
You mentioned MEC's Iowa programs. What about lllinois and South
Dakota?
These states previously have not been as interested as Iowa in energy efficiency
and DSM programs being offered by regulated utilities. However, that may
change in Illinois as regulators, at the Governor's request, are considering
whether to allow such programs. MEC is an active participant in the Illinois
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process and is encouraging the state to allow it to extend its Iowa programs to
Illinois consumers.
Environmental Actions
A.
What has been the experience of MEHC and MEC regarding environmental
stewardship?
MEHC is committed to responsible stewardship of the environment and, in 2000,
adopted a policy of "Environmental RESPECT" that guides its corporate
commitment to the environment. MEHC is a world leader in geothermal energy
development and believes that good environmental management is a good
business practice. Once again this is revealed in MEC's performance.
Does MEC have a plan to address future air emission reduction
requirements?
Yes. MEC in 2001 helped the state of Iowa develop and adopt an energy and
environmental policy reflected in House File 571. Pursuant to that law, regulated
utilities such as MEC develop, through a collaborative process, a multi-year plan
and budget for managing regulated emissions from their coal-fueled facilities in a
cost-effective manner. Mandatory participants in the review and approval process
for that plan and budget are the Iowa Utilities Board, the Iowa Office of
Consumer Advocate and the Iowa Department of Natural Resources. To be
approved, the plan and budget must: (l) meet applicable state environmental
requirements; (2) be expected to achieve cost-effective compliance with
applicable state environmental requirements and federal ambient air quality
standards; and (3) reasonably balance costs, environmental requirements,
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economic development potential, and reliability of the electric generation and
transmission systems. The state agencies concerned with environmental matters
and utility rates are involved in the collaborative process with the result that the
reasonableness and prudence of the environmental plan is determined prior to its
implementation.
Does MEC have an approved environmental plan?
Yes. MEC filed its first multi-year environmental plan and budget with the Iowa
Utilities Board and the Iowa Department of Natural Resources in April 2002.
That plan addressed MEC's projected air emission reductions considering
legislative and regulatory proposals at the time, and described a coordinated long-
range plan to achieve those air emissions reductions. The plan proposed specific
actions to be taken at each MEC coal-fueled facility and related costs and timino
for each action through the year 2Ot0. The Iowa Utilities Board approved the
plan on July 17, 2OO3, covering the period April 1, Z0fJ.Zto April l, 200,4, and
adopted a process to review the plan every two years. MEC filed its most recent
plan on April 1, 2004, and that plan was approved by the Iowa Utilities Board on
October 4,200,4. This plan covers the period from April l,2OO4 through
December 31,2006.
Did the plan approved by the Iowa Utilities Board include the addition of
emissions controls?
Yes. MEC's approved initial plan (20O2 - 2004) called for installing six neural
networks at Council Bluffs Energy Center Unit No. 3, Qeorge Neal Energy Center
Unit Nos. 14, and Riverside Generating Station Unit No. 5 during the period
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ending March 31,2004. All six neural networks were installed during the 20O2-
20M plan period. The current approved plan (2004-2006) continues the addition
of NOx controls with the installation of low NOx bumers and overfire air at
Council Bluffs Energy Center Unit Nos. 1-3, George Neal Energy Center Unit
Nos. l-4, and Louisa Generating Station. Low NO; bumers have been installed
so far at the Neal 3 and Louisa units, with work continuing on the remaining units
through 2N7.
Was MEC required to make these reductions in NOx emissions?
No. MEC has voluntarily moved forward to reduce the NOx emissions from its
facilities. Doing so voluntarily, in advance of required reductions, affords MEC
the advantages of (l) being able to appropriately plan the installation of
equipment during the respective units' normal outage time and duration; (2)
achieving cost savings by aggregating the projects into a single contract to take
advantage of volume discounts; and (3) achieving NOy reductions earlier,
allowing impacted states to begin realizing benefits sooner than a just-in-time
installation would provide.
Will these voluntary NO* reductions make a significant difference in the
MEC NOa emissions?
Yes. Prior to this voluntary initiative, the MEC coal-fueled facilities had an
average rate of NOy emissions of 0.41 lbs/mmbtu. By the latter part of 2007,
with the completion of the low NOy burner installations, MEC is projected to be
at an average NO1 emissions rate from the coal-fired facilities of O.2l lbs/mmbtu.
This is a49 percent reduction in NOx emissions that will benefit all impacted
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states.
a. In addition to the NOx controls, do you anticipate any near-term reductions
in SOz and mercury?
A. Yes. MEC has analyzed the Clean Air lnterstate and Clean Air Mercury rules as
promulgated by EPA, and MEC will seek approval in July 2005 for an
environmental plan that includes the installation of a scrubber and baghouse at
Louisa Generating Station. In addition, in 2003 MEC was the first company to
commit to the installation of an activated carbon injection system for the control
of emissions at the new Council Bluffs Energy Center Unit No.4, which is
scheduled to come on-line in June 2007.
a. Do you anticipate seeking approval for additional emission controls as a part
of the environmental plan process?
A. Yes. Although compliance with the reduction requirements can be achieved by
installing controls or meeting the emission reduction obligations by obtaining
sufficient allowances to cover the annual emissions or some combination of the
two compliance mechanisms, I anticipate that MEC as a part of the environmental
planning process will seek approval for significant investments in controls
between now and 2018.
O. Is equivalent environmental planning required of MEC in other states where
it provides service?
A. There are no equivalent requirements in MEC's other states, but all impacted
states benefit from MEC's Iowa-approved environmental activities.
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I Renewable Generation
2 0. IIow do you expect the transaction to affect PacifiCorp's commitment to
3 renewable generation resources?
4 A. I expect that PacifiCorp's commitment in this area will be undiminished and
5 perhaps even strengthened by MEC's experience with owning and operating wind
6 energy facilities and MEHC's experience owning and operating geothermal
7 facilities. MEHC and MEC are leaders in the ownership of renewable resources,
8 particularly geothermal (MEHC) and wind in a regulated portfolio (MEC).
9 O. IIow much geothermal generation does MEHC own?
10 A. Worldwide, MEHC has 14 geothennal facilities in California and the Philippines.
I I It also owns and operates an innovative hydro-electric and irrigation project in the
12 Philippines and is evaluating the development of one of the largest geothermal
13 projects (215 MW) in the world in California.
14 a. What is MEC's experience with wind and renewable resources?
15 A. MEC is in the midst of constructing a 360.5 MW wind project, one of the largest
16 land-based wind projects in the world. This project was undertaken without a
17 state mandate. The project will occupy two sites in Iowa to obtain wind resource
18 diversity. 1n2004, MEC placed 160.5 N/tW of the project into service, and
19 another 200 MW will be placed into service by the end of 2005. The sites were
20 developed in coordination with two developers, enXco, Inc. and Clipper
2l Windpower Development Company, Inc. MEC owns and operates the project as
22 part of its regulated portfolio. The all-in cost of the wind energy, with the federal
23 production tax credit, is projected to be about three (3) cents per kWh over the life
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2 In addition, MEC purchases or owns another 127.6 MW of capacity from
3 renewable energy sources, including: wind (112.5 IvtW purchased capacity),
4 hydro (3.6 MW of owned capacity), and biomass (l 1.5 MW of purchased
5 capacity). MEC and another utility are also owners of Ottumwa Generating
6 Station where supplementing Powder River Basin coal with switch grass is being
7 tested.
8 Once MEC's wind farm construction is completed, and after completion
9 of its new Council Bluffs Energy Center Unit No. 4, renewable energy in MEC's
10 generation portfolio will equal approximately 8 percent of nameplate capacity and
ll 5 percent ofenergy production, assuming a 34 percent annual average capacity
12 factor at the MEC-owned wind project.
13 Resource Selection
14 a. Based on MEC's experience, how can the transaction be expected to affect
15 PacifiCorp's resource planning process?
16 A. MEHC expects its energy business platforms to follow the planning method
17 preferred in the states where it operates. Obviously, there are limitations to such
18 an approach. For instance, if the preferred resource planning methods, state-to-
19 state, become so incompatible as to make efficient resource planning infeasible,
20 some effort would need to be undertaken to harmonize the various methodologies.
2l I have some familiarity with PacifiCorp's resource planning process, and I
22 am aware that it has received acclaim for its level of stakeholder input.
23 PacifiCorp's process is recognized as a good, sound approach to resource
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planning. MEHC supports PacifiCorp's continued use of this process for its state
jurisdictions.
Do MEHC and MEC prefer one variety of generation resource above others?
No. In recent years, MEHC business platforms have invested in a broad range of
generation technologies, including coal, gas, geothermal and wind. As explained
below, MEC is completing its investments in gas combined-cycle generation,
super-critical western-coal-fired generation and wind generation, all pursuant to a
state policy encouraging a diverse portfolio of generation. MEC also utilizes the
wholesale market when prudent and cost-effective, as demonstrated by its multi-
year power purchase agreements (e.9., a 250 MW purchase from the Nebraska
Public Power District).
Does MEC utilize integrated resource planning?
Yes, in Iowa. As I have testified, energy efficiency and DSM programs are
reviewed and approved by the Iowa Utilities Board. All programs determined to
be cost-effective must be implemented before supply options are considered. The
supply options are reviewed in separate siting and rate-making principles
proceedings before corlmencement of construction. lntegrated planning occurs in
the sense that supply options are only considered after taking into account the
effects of the utility's energy efficiency and DSM programs. I recognize,
however, that there are varying degrees of integration used in different
jurisdictions within the United States, and the meaning of "integrated resource
planning" may vary significantly.
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Generation and Transmission Operations
O. Please provide some insight into MEHC's philosophy regarding operation of
a utility's generation facilities.
A. Again, I will point to our experience at MEC. MEC has decades of experience
operating traditional generation facilities and owning such facilities jointly with
other utilities, including investor-owned, municipal and cooperative utilities.
Refer for example to Exhibit No. 7. MEC has some of the lowest cost coal-fueled
plants in the nation. Power magazine, a publication for the electric generation
industry, recently named MEC's Iowa-based electric plants among the best in the
nation. Power annually ranks the country's top plants, and MEC had four among
the top 22 coal-fueled plants in the category of lowest-cost producers.
MEC's experience in cooperative relationships with other utilities, public
and private, and in the safe and efficient operation of base-load generating plants
matches well with that of PacifiCorp. Again, our MEC experience attests to the
fact that MEHC's ownership of PacifiCorp will result in a continuation of the
good practices for which PacifiCorp is known.
0. Has MEC invested in nuclear generation?
A. By virtue of a predecessor corporation's investment, MEC has a 25 percent
ownership interest in both units at Quad Cities Nuclear Power Station, for a total
of 437 MW of accredited capacity. The units are operated by the owner of the
remaining 75 percent of the units, Exelon Generation Company, LLC ("Exelon").
1n2004, Exelon obtained license renewals from the Nuclear Regulatory
Commission, permitting operation of both Quad Cities units through December
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14,2032. These two units represent MEC's only ownership interest in nuclear
generation.
Will PacifiCorp be exposed to any additional risk as a consequence of MEC's
ownership of nuclear facilities and nuclear decommissioning obligation?
No. MEC is ring-fenced. PacifiCorp will be ring-fenced as well.
PacifiCorp will need to construct transmission infrastructure as well as
generation infrastructure. What does MBHC's track record suggest with
respect to such endeavors?
MEHC has recent experience with the construction of transmission facilities
through its MEC operations. This experience demonstrates a commitment to
working well with regulators and the public in siting and locating vital
transmission assets. I believe this to be consistent with PacifiCorp's approach.
Please relate MEC's recent experience with transmission.
MEC has decades of experience operating its transmission system. Again, MEC
jointly owns many such facilities with other utilities, both investor-owned and
publicly-owned. Most recently, MEC obtained franchise authority in December
20[,4 to construct a 122-mie, 345 kV transmission line to integrate its new
Council Bluffs Energy Center Unit No. 4 with the grid. The new generating plant
will be in service in2OO7; the transmission line is due to be in service in 2006.
The capital investment in the interconnection facilities and the system additions
totals approximately $170 million. The new line itself represents approximately
$128 million of investment. MEC was required to use eminent domain authority
with respect to only one landowner, having reached voluntary accommodations
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1 for over 430 easements required along the 122-mlle route.
2 RegionalTransmissionMemberships
3 Q. The Federal Energy Regulatory Commission continues to promote oversight
4 of utility transmission by an independent entity. What has MEHC's
5 approach been with respect to this subject?
6 A. MEHC's approach has been similar to that of PacifiCorp, in that both companies'
7 efforts have focused upon trying to design solutions that accommodate private
8 and public utilities while balancing costs and benefits.
9 a. What has been MEC's experience?
10 A. MEC's approach has been one of caution. MEC has determined that existing
I I RTO membership options (e.e., MISO and PJM) have not been in the best
12 interests of its customers due to the costs of such membership and the penalties
13 for ending membership. Given the existence of numerous publicly-owned
14 utilities in Iowa and states to the north and west of Iowa, MEC is particularly
15 concerned that unless those entities are also participants, the potential benefits
16 will be limited.
17 MEC previously sought to address this concern by joining the effort to
18 create TRANSLink, an independent transmission company that would encompass
19 both investor-owned and publicly-owned entities. Although the TRANSLink
20 proposal addressed many of the difficult issues surrounding regional operation
2l and pricing of transmission, the Minnesota Public Service Commission and the
22 Iowa Utilities Board in 2003 expressed concerns regarding costs and benefits.
23 The proposal was subsequently tabled. Since that time, MEC has continued to
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alternative that MEC is pursuing in my testimony regarding regulatory approvals
for this transaction.
Regulatory Experience
a.Based on MEC's experience, what will MEHC ownership mean for
PacifiCorp's regulatory relationships?
As reflected in MEC's relationships, MEHC seeks positive, constructive working
relationships with the regulators who monitor its utility operations. MEHC will
be committed to the same kind of relationships with PacifiCorp's regulators.
How is MEC's relationship with its state regulators?
MEC understands the role of the public utility commission and has decades of
successful experience working within the regulatory framework. MEC takes
seriously the need to maintain its regulatory credibility. For example, in Iowa, the
company has worked very cooperatively and successfully within the regulatory
process. Through settlements in the previous five years, MEC has sited and
received rate-making principles orders in advance of construction for roughly $2
billion in energy infrastructure and environmental investment.
What is MEC's experience with regulatory treatment of affiliates?
ln Iowa, MEC makes an annual filing that reflects its affiliate transactions in the
prior year. This filing includes a copy of the written agreements that govern its
affiliate transactions. In lllinois, MEC is required to obtain prior approval of
affiliate transactions unless they fall within the "ordinary course of business" or
other enumerated exemptions. For several years, MEC has had an Intercompany
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t I Administrative Services Agreement ("IASA") that governs the provision of
2 routine services between MEC and its affiliates. This IASA has been reviewed
3 and approved by Iowa and Illinois regulators. MEHC witness Specketer provides
4 a copy of the IASA with his testimony and explains its operation.
5 On the whole, our experience with affiliate transactions has been
6 uncomplicated. I would note, however, that we have a pending proceeding in
7 lllinois wherein the Illinois Commerce Commission staff examined MEHC's
8 transfer of two new gas turbines to MEC in 2001 for the Greater Des Moines
9 Energy Center ("GDMEC"). MEC did not seek prior approval of the transaction
l0 because MEC believed the law and regulations exempted the transaction from the
11 need for approval. A hearing examiner for the Illinois Commerce Commission
12 determined the exemption was not available. In an effort to resolve the matter
13 without further litigation, MEC has proposed to Iowa and Illinois regulators that
14 the portion of GDMEC that would have been allocated to Illinois be allocated to
15 Iowa. The Iowa Office of Consumer Advocate supports this approach, and this
16 resolution is proceeding through the regulatory process.
17 Operations in States with Retail Access
l8 a. PacifiCorp's service territory includes both a state that operates on a model
19 of competitive electric supply ("retail access") and states that operate on a
20 model of traditional regulated electric service. Based on MEC's experience,
2l how will the transaction affect PacifiCorp's view of this kind of mixed service
22 area?
23 A. Based on MEC's experience, the transaction should have no impact in that regard
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since MEC also has experience serving in states with and without retail access.
MEHC and MEC support the right of a state to determine whether or not to
implement retail access.
Illinois has offered electric retail choice since 1999, following enactment
of a law in 1997. Thus, MEC operates in two states (Iowa and South Dakota) that
do not have electric retail access and one state (Illinois) that does. This makes
MEC's experience similar to PacifiCorp's in that both utilities need to be able to
conduct their utility businesses in states with varying positions regarding retail
choice.
O. Has MEC been supportive of retail access for electric customers?
A. MEC has been supportive of retail access in Illinois and participated in drafting
the 1997 restructuring legislation in that state. Since the law's passage, MEC has
supported several implementation measures designed to promote effective
competition in Illinois.
In Iowa, MEC took a leadership role in advancing retail access legislation,
but Iowa elected not to pursue retail access. MEC's response was to work with
Iowa's Govemor,lawmakers, regulators and consumers to develop an energy and
environmental policy for the state, using the regulatory model Iowa prefers.
Again, MEHC expects its energy business platforms to operate on either model,
regulated or competitive, depending on the state's preference.
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I Serving Communities
2 a. What will MEHC's ownership of PacifiCorp mean for the communities that
3 PacifiCorp serves?
4 A. Based on MEC's experience, they can expect a continued focus on good service
5 and good co{porate citizenship.
6 a. What efforts does MEC's undertake in the area of community leadership?
7 A. A key effort is MEC's Community Contact Program, which relies on the
8 volunteer efforts of some 170 MEC employees who represent MEC in
9 approximately 225 communities in Iowa, Illinois and South Dakota. These
10 employees advise MEC of community needs and represent MEC in the
I I community. Each of the 170 employees has a small discretionary budget from
12 which grants are awarded in their communities. In addition, these employees
13 participate in community meetings (e.q., city council) and relay community needs
14 that MEC may be able to satisfy (e.&, moving poles, digging holes, providing in-
15 kind contributions to volunteer hre departments, sponsoring floats in community
16 parades, sponsoring local events, etc.). These 170 employees also provide MEC
17 support for community activities such as local environmental clean-up efforts and
18 tree planting projects on Earth Day and Arbor Day. They also serve as channels
19 for communicating any community complaints about MEC's quality of service.
20 As a result, the city councils in these 225 communities know who to contact
2l regarding concerns with MEC.
22 MEC is also actively engaged in the annual United Way campaigns of the
23 twenty communities it serves that have such campaigns. MEC actively
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t I encourages its employees to contribute to such campaigns and matches employee
2 contributions dollar for dollar, up to a maximum value of $436,000. MEC also
3 promotes employee involvement in local Rotary, Chamber, Kiwanis and
4 economic development organizations.
5 [n addition to MEHC's corporate gift-matching program, MEHC
6 shareholders fund an innovative program called Global Days of Service. This
I program encourages employees to volunteer time for charitable and educational
8 organizations through a shareholder contribution to the organizations based upon
9 employee hours volunteered. Employees simply keep track of the number of
l0 hours spent in volunteer work for charitable groups [501(cX3) IRS designation]
1l and for educational institutions worldwide. Employees submit a form listing the
12 number of hours (over eight) they have volunteered. At the end of the program
13 year, the shareholder contribution amount is divided among qualifying
14 organizations based upon the volunteer hours worked.
15 a. Does MEC support economic development in the communities it serves?
16 A. Yes. Refer to the letters in Exhibit No. 7 for examples of confirmation.
17 Delivery of Transaction Benefits
l8 a. Please describe how you envision the delivery of the benefits of the
19 transaction to PacifiCorp customers.
20 A. MEHC expects the benefits of the transaction to be delivered to all customers in
2l all jurisdictions via rate case proceedings and using PacifiCorp's recently
22 established multi-state allocation protocol when appropriate.
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0. What impact would the transaction have on the degree of regulatory
oversight this Commission has over PacifiCorp?
A. It would have no impact. The Commission will continue to exercise the same
degree of regulatory oversight over PacifiCory as it does today.
O. Will MEHC offer rate credits, rate reductions or rate freezes as a part of the
benefits of the proposed transaction?
A. No. We believe the demonstrable benefits of the transaction discussed in the
testimonies should be more than sufficient to satisfy the standards for the
acquisition.
Moreover, rate credits are simply a proxy for capturing the costs and
benefits of a transaction between rate proceedings. In the case of PacifiCorp,
such a proxy is unnecessary given the planned rate proceedings. These rate
proceedings will incorporate new investment into rate base and any cost
reductions in cost-of-service.
Finally, PacifiCorp is currently failing to earn its allowed return.
Providing rate credits, reductions or freezes under such conditions would simply
worsen PacifiCorp's financial performance. This could precipitate ratings
downgrades and higher financing costs. Going forward, as PacifiCorp strengthens
the infrastructure, investment and rate treatment of that investment must be
implemented in a manner that is fair to customers, employees and shareholders.
0. What impact will the commitments made by MEHC and PacifiCorp have
upon the rate increases projected by PacifiCorp?
A. We do not expect that the commitments that we are offering will cause an
Gale, Di - 28
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increase in the percentage discussed in PacifiCorp witness Johansen's testimony.
Please also note the commitment, Revenue Requirements Impacts B, of Exhibit
No.2
Review and Approval of the Transaction
A.
Please describe the various reviews and/or approvals of the transaction that
MEHC anticipates.
Following are the shareholder and regulatory reviews anticipated with respect to
the proposed transaction:
. approval of the shareholders of ScottishPower;
. approval and/or waiver from the public utility commissions in the states of
Califomia, Idaho, Oregon, Utah, Washington, and Wyoming;
. approval of the transfer of the Trojan spent fuel storage license by the U.S.
Nuclear Regulatory Commission;
. approval of the transfer ofjurisdictional facilities by the Federal Energy
Regulatory Commission ("FERC") under Section 203 of the Federal
Power Act;
. approval by FERC of revisions to the open access transmission tariffs of
PacifiCorp and MEC under Section 205 of the Federal Power Act;
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a review of the proposed transaction by the U.S. Department of Justice
under the Hart-Scott-Rodino Act; and
,,
approval by the Federal Communications Commission of the change of
control with respect to certain communication licenses held by PacifiCorp.
Market Monitor and Transmission Services Coordinator
a. Please describe the Market Monitor Proposal that MEHC has put forward in
connection with its proposed acquisition of PacifiCorp.
A. Under the proposal, MEC and PacifiCorp would each contract with a market
monitor to assure nondiscrimination in the management of each company's
transmission systems commencing on the day of the closing of the acquisition. A
market monitor is an independent organization retained to review, on an after-the-
fact basis, transmission system operations necessary to ensure the transmission
provider does not favor its wholesale merchant function or any energy affiliate.
The market monitor would review and report to the FERC on such matters as the
utility's performance of the following transmission functions:
. generation dispatch and potential impacts on constrained facilities,
o actions to relieve constrained facilities,
o derating of transmission facilities, and
o ratings and other data used for total transfer capability calculations.
Gale, Di - 30
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RE,VISED 8II7IO5
What are the expected costs to PacifiCorp of the market monitor?
Bids for the market monitor services have not yet been solicited. However, we
estimate that the on-going costs to PacifiCorp will be about $200,000 annually.
Does the market monitor.proposal impact the development of Grid West?
No. The efforts are complementary. For example, it is possible that some market
monitor services may be provided as an early service by Grid West. When Grid
West is fuily operational it should obviate the need for a market monitor for
PacifiCorp, since Grid West would be providing non-discriminatory transmission
services to multiple parties including PacifiCorp.
Wilt Grid West also serve MEC?
No, at least not for the foreseeable future. Subject to regulatory approval, MEC is
planning to enter into a contract with an outsource provider of transmission
services to be known as the transmission service coordinator ("TSC"). The TSC
initially will administer or oversee only MEC's transmission assets. However,
MEC is working with other utilities located to its west that currently are not part
of any regional transmission organization to consider having them also use the
TSC. Ultimately, the TSC may provide transmission services to an area abutting
that of Grid West. At such time, it may be appropriate to put into place a seams
agreement between the TSC and Grid West to enhance transmission system
coordination among transmission users in the states served by PacifiCorp and
MEC.
Gale, Di - 31
PacifiCorp
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I Proposed Schedule
A.
When does MEHC expect to complete the process of obtaining all of the
foregoing approvals and reviews?
We very much want to complete all of the state approvals by February 28,2006,
in time to close on the transaction on or before March 31,2006. This is an
important transaction for PacifiCorp customers, employees and communities. In
order to mitigate the ill effects of uncertainty and expedite the delivery of
important benefits, we respectfully request that the Commission act in a manner
that will facilitate an order by February 28,2006.
Closing on that date will also facilitate the transition of PacifiCorp's
financial reporting from a fiscal year ending March 3l as used by Scottish Power
to a calendar fiscal year consistent with how MEHC companies report their
financial statements. Such calendar year reporting is also consistent with
regulatory reporting, which should enable regulators to utilize a single year's
audited financial statements rather than have regulatory reporting span two fiscal
years.
Does this conclude your testimony?
Yes, it does.
Gale, Di - 32
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HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID
GAI,E (Di)
Joint Applicants
(The fol1owing proceedings were had in
open hearing. )
(Joint Applicant Exhibit Nos. 2 through '7 ,
admitted intohaving been premarked
evidence. )
for identification, were
O. BY MR. VAN NOSTRAND: Mr. Ga1e, could you
describe the events that have transpired since you filed your
direct test.j-mony and exhibits?
A. Yes. Since we filed the direct
exhibiLs, we have engaged in numerous meetings
persons and part.ies in a1l- sj-x states that are
PacifiCorp. As a result of those meeLings,
into settlement negotiations in every state
The outcome of those sett.lement negotiations
have a contested settlement in California.
testimony and
with interested
served by
have entered
with the part.ies.
has been that we
That settlement is
we
with most all parties except the Union and the Office of
Ratepayer Advocate. That proceeding is awaiting an ALJ's
Decision, whi-ch we expect actually this week.
We have reached a settlement as well in Utah with
all major parties, and that settlement
Decision. We've had the
Those two
the
is awaiting
settlement
were reflected
a Commission
already.
in our Idaho
hearing on
settlements
negotiati-ons.
And, of course, in Idaho, w€ also have negotiated
a settlement with all major parties, which has been filed with
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this Commission.
Subsequent to the Idaho negotiations, we were
able to enter into a settlement with all- major parties in
Oregon, again, except that I think the major except.ion there is
the Union. The Union did not contest that seLtlement. That
settlement is was scheduled for hearing on Friday of this
week. There were no objections to that settlement. Therefore,
the hearing has been cancelled, and it. wil-I be awaiting a
Commission Decision as weI1.
We are currently negotiating in Washington and
Wyoming. We reached settlements in principle on Friday the
13th with both Washington and Wyoming. We are in a process
right now of doing some fine tuning on some language with
Wyoming and Washington, and werre are hopeful that. we will
be able to file those settlements in those two states this
week. Once we file t.hose settlements, we'11 share those
settlements with t.he parties t.o this case and hopefully be abl-e
to negotiate with the parties again to amend the Stipulation
and add any additional provisions that Idaho might want from
the Washington and Wyoming settlements, similar to what Staff
wj-tness Carlock has added with respect, to the Oregon
commitments and the Oregon Stipulation.
O. Mr. Gale, the testimony that or the Stipulat.ion
that we filed on December 15th has 50 general commitments and
26 ldaho-specific commitments. Could you give some background
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HEDRICK COURT REPORTING
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as to the purpose of those commitments?
A. Yes. There are rea1Iy three purposes to the
commitments that were filed and also negotiated in the
the settlement.
1n
The first. purpose is to
of PacifiCorp, including specifically
are held harmfess from the transaction
assure that the customers
t.he customers in Idaho,
those. Generally,
in Commitments 1- through
continued from the
hold-harm]ess
32, which were
ScottishPower
commitments you'11 f j-nd
commitments that were
transacLion but also modified to meet the needs
of the customers of PacifiCorp in the various states. Werve
gone through the negotiations, modified those somewhat, and
actually strengthened them, f think, from the standpoint of
providing assurance that customers won't be harmed by the
transaction.
Commitment 33 is simply a procedural commitment
as to how the Commission could choose to enforce the
commitments if it so chose.
I would add t.hat. in addition to the first 32
commitments, as noted in Staff witness Carlock's t.estimony,
there are some additional hold-harmless provisions that are
being recommended for adoption in Idaho. Those are from the
Oregon Stipulation. I believe you'11 find those as now
Idaho-specific Commitments l-28, 29, and 30, if my numbers are
correct. Let me check.
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Yes. Those particular hold-harmless commitments
are directed toward two items, rea1Iy. Those are corporate
costs t.hat previously were allocated to subsidiaries or
affiliates or, not subsidiaries, but affiliates of
PacifiCorp t.hat will no longer be affiliates after the
transaction. Those costs are not currently in rates, and it
was a there was a desire to ensure that there was no
increase in that type of cost in cost of service associated
with this transactj-on, simply because those companies would no
longer be affiliates of PacifiCorp. So, that particularly,
Commitment 28 and 30.
Commitment 29 is another hold harmless t,hat has
been added, and that is a hold holds customers harmless from
an increase in insurance costs. PacifiCorp was provided
insurance through a captive insurance company of ScottishPower
previously. MidAmerican Energy Holdings Company has agreed to
create a new captive insurance company or uLil-ize an existing
captive insurance company and freeze insurance costs for
PacifiCorp through 2OL0 so that they would be no more than the
cosLs that were biIled by ScottishPower in 2005, so that's
another hold harmless. So, t,hose are real1y the hold harmless
provisions, and I say that the one of the purposes of the
commitmenL.
The second purpose of the commj-tment is Lo
provide benefit, particularly for those states t.hat require a
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HEDRICK COURT REPORTING
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GALE (Di)
Joint Applicants
showing of net benefits,' however, all states will benefit by
that since werre providing those particular benefits
PacifiCorp jurisdictj-ons. That's something Lhat we
do as part of this t.ransaction, and that is provide
general commitments to all of the states, ds we1I as
t.hat states might want
in all six
agreed to
all of the
any of the
Andspecific commitments
find most of those net.
staLesl
you'11 benefit commitments are in
CommitmenLs 34 through 53 of the general commitments.
And then in particular, again, in SLaff wit.ness
Carlock's testimony where she is recommending the adoption of
Commitment 08 and Commitment 0L2 from Oregon, those would
become commitments f -- Idaho-specific commitments T-27 and 29,
I believe. Let me check a moment, please.
Yes. Those commitments, as well- as the others
that I menLion, provide net benefit,s to all customers, noL just
those in the states that have a net benefit standard.
The third purpose of the commitments is to give
Lhe Commission some indication of how MidAmerj-can Energy
Holding Company operates regulated utilities and what it Iooks
for in terms of making investments, and in particular, I think
I coul-d point you to to the commiLments t.hat we've made wit,h
regard to investigating transmission investments that might not
otherwise have been perceived by PacifiCorp, or perhaps more
importantly, might not otherwise have been funded by
Scot.t.ishPower. That, in particular, you would find at
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HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, TD
GALE (Di)
,Joint Applicant.s
Commitment 34, and in some of the new commitments to explore
examples of how MidAmerican
Holding Company operates its regulated utilities.
what j-nvestments make sense in the long term for
what investments have t.he ability to reduce cosL
the Iong term. Those are the type of investments
We think in the long term our customers are
integrated gas combined
You'11 find that in the
recal-1 the number right
Those are
even providing the opportunity in
mitigation of rate increases that
cycle technology, or IGCC technology.
Idaho-specific commitments. I don't
off hand.
Energy
It looks at
customers,
of service in
that we fund.
customers are more satisfied, rates are more
the future
better off, our
stabl-e, perhaps
for some
might otherwise
So that was the third purpose of providing those
to demonstrate t.o you how we look at invest,ment,s
beneficial both to the Utility and it.s cusLomers.
be planned.
commitments is
t.hat can be
O. Mr. Ga1e, have you had an opportunity to review
the supplemental t.estimony offered by Staff wj-tness Carlock?
A. Yes, I have.
O. And in that testimony, she's proposing to include
in fdaho various provisions from Oregon that were included in
the commitment in Oregon and in the Stipulation in Oregon.
Correct?
A. That is correct.
O. Do you have any concerns or comment. with respect
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HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
GALE (Di)
Joint Applicants
to any of those, the Oregon provisions which Ms. Carlock is
proposing to apply to Idaho?
A. I do not have any concerns about the commitments
that she is proposing be adopted in Exhibit No. lO2. I do have
one concern about about her test.j-mony, and that is the
testimony at pages 7 and 8, starting on line 2l of page 7 and
carrying over through line 15 of page B. If you'd like me to
explain what that concern j-s, I'd be pleased t.o do so.
O. Would you proceed, Mr. GaIe?
A. In that portion of her testimony, Staff witness
is referring
Stipulation.
necessary by
Statute has
to a part.icular provision out of the Oregon
That provision in the Oregon Stipul-ation was made
the uniqueness of the Oregon Statute. The Oregon
a provision that could be interpret.ed to
shareholder that owns more than five percent
require
of anthat any
acquiring company must become an Applicant.
fn the case of M'idAmerican Energy Holdings
Company, we have only four shareholders, and two of those
Mr. Walter Scott, Mr. Warren Buffett own more than five
percent of MidAmerican Energy Holding Company.
The particular Oregon Statute has never been
interpreted by the Courts, it's not really been interpret.ed by
the Commission either, and so there was an uncertainty as to
whether those individuals needed to be Applicants.
Our concern with Mr. Scot.t. and Mr. Buffett
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becoming Applicants in t.heir own right was a concern that the
particular Oregon Statute, if read to require that Mr. Buffett
and Mr. Scott be Applj-cants, could also be read to require that.
Oregon Commission approval be obtained before the transfer of
Mr. Buffett's and Mr. Scott's interest in MEHC. That was
part.icularly problematic, because it. would mean that, for
example, in the event of Mr. Buffett's death, it would be
necessary to get Oregon Commission approval for the
distribution of his shares, and during that period, the cont.rol
of Berkshire Hathaway would be up in the air. That was not an
acceptable result for us and I don't think it was an acceptable
result for any parties either that recognize that that was
certainly not an intended consequence of the Oregon SLat.ute.
Nevertheless, we had to protect ourselves MEHC as wel-l as
Mr. Buffett and Mr. Scott from a pot.ential interpretation of
that Oregon Statute.
The result was t.he provision that Ms. Carlock
refers to which is Oregon-specific Commitment l-0. That
commitment was that Mr. Buffett and Mr. Scot.t would not
exercise substantial control over PacifiCorp. The
administration of that commitment will mean that Mr. Buffett
and Mr. Scott do not vote on any matters pertaining Lo
PacifiCorp as owners of their shares. While we don't think
that's a desirable outcome, it, nonetheless, was one that we
felt was necessary to avoid the result that I tal-ked about in
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HEDRICK COURT REPORTING
P. O. BOX 5'78, BOTSE, rD 83701
GALE (Di)
Joint Applicants
Oregon.
As I say, this provision is rel-ated to the Oregon
Statute. To the best of my knowledge, you have no comparable
statute in Idaho. And f would urge that you not adopt this
particular commitment. We are hopeful t.hat we will be ab1e to
get a change in Oregon 1aw so that this is no longer a problem.
If so, we would be we would prefer not. to have to come back
to each of the other five Commissions to eliminat.e this
particular provision. Idaho will be the beneficiary of the
Oregon commitment, as long as t.he Oregon commitment remains;
but if you have no particular concern about Mr. Buffett and
Mr. Scott exercisj-ng control or some degree of control over
PacifiCorp as owners of the stock of MEHC, I would ask that you
not adopt this part.icular provision.
If you do adopt this particular provision, I
would ask that you do two things: First of all, there was a
definition that was inadvertent.Iy omitted from the language
writt.en, Lhe termthat. Ms. Carlock has proposed. As it is
"shareholders" is not defined, and this
mean that none of the four shareholders
could be interpreted to
could vote on
sj-nce we only have
members, that could be
do adopt this, that in
that those lines be
PacifiCorp matters
four shareholders
before the board, and
and they are the board
would ask that if you
l-ines, those be marked
problematic.
the first two
SoI
modified to say: The sworn statement.s of Warren Buffett and
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HEDR]CK COURT REPORT]NG
P. O. BOX 578, BOfSE, rD 83701
GALE (X)
JoinL Applicant.s
Wal-ter Scot.t, Junior,
the quotat.ion marks,
mark, closed paren.
Another
together with
S, shareholders,
together, comma,
closed quotation
paren,
capital
change that f would ask you to make in
your Order if you do adopt this provision is Lo indicate that
if this is no longer a requirement in order in Oregon, that
it. no longer is a commj-tment in fdaho. That might be
benef icial as well-.
Those are the only concerns that I had with
regard to Staff witness Carlock's testimony.
o Thank you, Mr. GaIe.
MR. VAN NOSTRAND: With that, Madam Chairman,
Mr. Gale is available for cross-examination.
COMMISSIONER SMITH: Thank you.
Mr. Purdy, do you have any quest.ions?
MR. PURDY: No, I do not..
COMMISSIONER SMITH: Mr. Howe11.
MR. HOWELL: Thank you. Excuse me. Thank you,
Madam Chai-rman.
CROSS -EXAMINATION
BY MR. HOWELL
questions. I
Mr. Ga1e, good morning. ,Just a couple of
guess let's start at your mosL recent testimony
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where you were talking about the Staff witness Carlock's
testimony on page B of her supplemental where the Staff
recommended the adopt.ion of the language referrj-ng to
Mr. Buffett and Mr. Scott. If the Commission were to recommend
that. that condition not be adopted, would that take care of
your concern?
A. Yes.
O. Secondly, you were involved with the settl-ement
conferences between the parties in t.his case?
A. Yes, I was.
O. If I coul-d direct your aLLention, have you
WeI1, Iet me start it this way: Have you had an
opportunity to review Ms. Carlock's testimony?
A. Yes, I have.
O. And on page 3 of her supplemental testimony which
was prefiled on the 13th, she talks about the adoption of
Oregon general Commitment 18. And if I could specifically
direct your attention t,o line 25 of supplemental page 3, and
then t.he following 1ine, I just. wanted to be clear that the
capital structures t,hat are referenced in that Oregon
commitment or general Commitment 18 deal with t.he Company's
ability to make dividends and they the capital structures
are noL related to rate-making purposes.
A. That is correct.
O. And, fina11y, if when you were referring to
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Joint Applicants
the various provisions that the Staff is recommending the
Commission adopt, I believe you may have misspoke when you were
talking about Oregon condition or Commitment !2, which I think
you said it was ldaho-specific 29, and, in fact, oD page 7 of
the Staff Exhibit, Supplemental Exhibit !02, I think it's
identified as ldaho-specific Commitment 31. I just. wanted to
make sure that the record is correct in that regard.
A. Yes, that is correcL.
O. A11 right. Thank you. No further questions.
COMMISSIONER SMITH: Thank you.
Mr. Budge.
MR. BLIDGE: No questions .
COMMISSIONER SMITH: Do we have questJ-ons from
the Commission?
COMMISSIONER K,JELLANDER: I don' t..
COMMISSIONER SMITH: Commissioner Hansen.
EXAMINATION
BY COMMISSIONER HANSEN:
o.
concerning
clarify a
there I
Thank you. I have a couple of questions
the the Stipulation. Maybe you could just fast
couple areas there for me.
On Exhibit 101, page i-r-, Item No. 6, it talks
guess my question is does MidAmerican Energy Holding
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Company currently have in place a cost all-ocation meLhodology
for costs shared by its subsidiaries, and if you do, when was
it adopted?
A. Yes, we do. That is the int.ercompany
administrative services agreement that. is referred to in
general Commitment 13, which is on page 2 of the commitments in
t.his in this docket. That agreement was adopted by the
Illinois Commerce Commission and the Iowa Utilities Board I
believe in 19- around l-998 or '99, I believe. There have
been some amendments to that agreement as we11. But that
part.icular agreement covers the affiliate trans the general
affiliate Lransactions between MEHC more particularly, t.his
is MidAmerican Energy Company
And we would anticipate t.hat t,hat
and it.s various af f iliates.
same agreement with
modifications would be the agreement that we would have for
Paci fiCorp,
pursuant to
o.
and I guess
of that agreement that you have?
A. I believe that has
I obviously can't answer
discussed it.
O. Okay. The
Exhibit still Exhibit
51
and that woul-d be filed with the Commi-ssi-on
commitment 13.
Okay. So, would our Staff be aware of that.
I could ask our Staff when theyrre on the stand
been discussed with Staff, and
for them, but I can say Lhat we have
other one I hirve, another one, is on
101, page or, No. L6, and this iso25
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HEDRTCK COURT REPORTTNG
P. O. BOX 578, BOTSE, rD
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,foint Applicants
talking about the exclusion of the acquisition transaction
cost, Exhibit 4, utility account. I think it's on page 13 of
Exhibit 101. It's numbered 1-5 Stipulation.
A. My numbering is a bit different. I'm going to
ask Counsel, do you have t.hat precise exhibit?
MR. VAN NOSTRAND: (Indicating. )
THE WITNESS: Thank you. Okay, now I have the
and that is the correct number, iL is 15. Irm sorry, I was on
a different page. Yes, f have that in front, of me.
O. BY COMMISSIONER HANSEN: Okay. With that along
with what Mr. Abel t.alks about in his testimony, and also
Terri Carlock addresses it, this issue of excluding the
acquisitj-on or transmission costs from PacifiCorp's ut.ilities
account and not to rate recovery of t.hese costs. fs that
correct?
A. Yes, although there is act.uaI1y another
commitment with regard to the acquisition premium. You'11 find
that is Idaho-specific Commitment. I-18. But this particular
commitment. covers the transaction costs.
Okay. f'd like
if I understand it.
t.o kind of make sure I understand
one of your holding
correcLly, t.hese costs would be
companies' books?
The costs of the acquisition premium wiI1 be
the intermediate holding company, which is PPW
Holdings, LLC. Those acquisition premium costs will not be
52
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this. Now,
recorded on
A.
recorded at
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Joint Applicants
recorded at the Utility.
Now, t.he trans the
about in Commitment t6,
transaction costs that
werre talking
at some of
but they will be recorded
O. I guess the
those
those may be recorded at the
may be recorded
PacifiCorp uti1it.y,
accounts.
is is those that
in below-the-line
question I'd have
are recorded or booked with a holding company, then would there
be nothing to prevent the holding company from transferring
t.hese costs back to PacifiCorp's accounL in the future if they
so justified it?
A. The wording of the specific commitment with
regard to the acquisition premium is at I-17, and there we have
a commitment that those costs will be recorded at. in the
accounts of the acquisition company and not. the Ut.i1ity. The
only way that that those costs could be recorded at the
Utilit.y would be to get the permission of this Commj-ssion and
the other five Commissions to do so. So, rro, I do not believe
that those costs could be recorded at the Utility without your
approval.
O. Okay. I have a question regarding Mr. Abel's
testimony on page 11, line l-B through 21.
A. A1I right.
O. He states that it projected PacifiCorp's service
territories will require investment of at least one billion per
year for at least the next five years to assure reliable
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HEDR]CK COURT REPORT]NG
P. O. BOX 578, BOISE, ID
GALE (Com)
Joint Applicants
servr-ce.
And then on page L4, line 15, he identifies a
Pat.ch C upgrade of 78,000 (sic) in Southeastern Idaho to
Northern Utah.
And and so of the five bi11ion, is that the
only capital money that's projected to be spent in Idaho in the
next five years?
A. No. That is the Iet me start over. The
answer is st.i11, "No. "
What Mr. AbeI is ident.ifying at that page in his
testimony are is one of the incremental investments that
MidAmerican Energy Holding Company is proposing to implement as
a result of this transaction. There are other capital
investments that were planned by PacifiCorp for Idaho that will
continue to be made, and indeed as we have as we have made
additional commitments in the various states, I think t.here are
at, least one other of the commitments that we have made that
will have an impact a positive impact on Idaho as well-.
That. includes some of the transmission investments that we are
looking at. I believe the Bridger to Ben Lowman
and I
and Bridger to
think Lhere'sMiners has some positive impact on ldaho,
another one as weII. This is the dollars t.hat. were referred to
by Mr. Abel, or simply some incremental amounts that would be
associated with Iowa the Idaho investment that we would
make. It is not all the investment that. PacifiCorp w111 be
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making in fdaho over the next. five years.
O. So, have you prepared the five-year capital
investment plan then that you talk about, Lhe billion dollars a
year for five years, or is that just an estimate out in t.he
future and you real}y haven't documented where t.hat's going to
be spent?
A. The the $1 billion per year number was in t.he
test was provided in the testimony of witness ,Johansen, and
that reflects ScottishPower and PacifiCorp's plans for
investment over the next several years. It also witness
Johansen also talks about their planned rate act,ivity for the
next several years.
MidAmerican Energy Holdings Company has not
changed that p1an, but we were not part of t.he development of
that plan either. We were provided a prior plan on which to do
the analysis of t.he valuation of PacifiCorp. You'11 see that
variously referred to as Scenario A. That. is t.hat plan was
a current plan at the time that was provided to us but it is
not the same as PacifiCorp's plan today.
We've analyzed that plan and we have looked at
the investments in t.hat p1an, but there have been some changes
to that plan by PacifiCorp. For example, their plan now does
include the Path C investment we were just talking about as a
result of a proposal that they made in their last IRP filing.
So to directly answer your question, Lhose
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HEDRICK COURT REPORTING
P. O. BOX 578, BOTSE, rD 83701-
GALE (Com)
Joint Applicants
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HEDRICK COURT REPORT]NG
P. O. BOX 578, BOTSE, rD
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Joint Appli-cants
parti-cu1ar
Paci fiCorp,
investments were prepared by Scot.tishPower and
they were not prepared by MEHC, but we are aware of
investments are.generally what those
O. So if I understand correctly, then in the future,
you'11 be updating this $5 billion p1an. Is that right?
A. We will be looking seriously at that plan and
whether we t.hink that that that's an appropriate plan for
Pacif iCorp. We'l-l- be asking questions of PacifiCorp, more
detailed quest.ions about that plan, perhaps making some
suggestions as to other things that they might l-ook at.
Ultimately, it has to be PacifiCorp's p1an.
They're going to operate as their own compdfly, as a separate
company, and they will be responsible for the results of their
own operations, but we will be making suggestions.
O. I'm moving a1ong. I'l-l- be through my list here
pretty quick.
Commitment 33, I just wanted to get your comments
on t.his commitment and I don't really know what went into the
parties agreeing to this, but on Commitment 33, I guess as I
look at t.his, by approving this Stipulation, wouldn't the
Commission be agreeing to be bound by this provision what
and what if the Commission may want more discret,ion in
administering compliance with these these commltments? And
I'm just. this is the only one I could find that has this in
it that it sounds to me like t.he Commission is kind of locked,
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and I'd like to get your comment.s. Was that something that you
people were promoting or someone else?
A. Sure. Let me let me start wit.h your first
question, and thaL is, Do, the Commission isn't bound by any of
the commitments. The commj-tments are being made by MEHC and
PacifiCorp in order to ensure that we meet the standards for
approval of the transaction. As we've indicated, I believe
both t.he Stipulat.ion and I think there's even a provision in
t.he commitments themselves, t.he commitments are binding only on
MidAmerican and on PacifiCorp. You woul-d be simply approving
those commitments as adequate to demonstrate that there is no
harm to the public in Idaho. This particular provision is a
procedural one or an administrative provision that we suggested
as a way of enforc j-ng the commitments.
In our discussions with numerous interested
parties, a concern frequently expressed was how do we enforce
these commitments? What mechanism do we use? And Commitment
33 was a mechanism that we were suggesting. As you can tel1
though by the wording, it simply indicates that, MEHC and
PacifiCorp encourage the Commission to use t.his particular
provision. ft's purely voluntary on your part. You don't have
Lo use it. If you have another if you have another
mechanism ej-ther provided by Statute or by rule or by policy,
that's perfectly perfectly acceptable. MidAmerican and
PacifiCorp were simply t.rying t.o provide a process that could
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HEDR]CK COURT REPORTING
P. O. BOX 5'78, BOTSE, rD 83701
GALE (Com)
Joint Applicants
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be used to enforce the commitments, but it is not one that's
binding upon you. You may use it if you so choose or not.
O. Would you have a problem if the Commission was to
delete thaL third senLence ending with: The Commission should
t.ake no action?
A. No. If thatrs if that would make the
Commission more comfortable, since this is a voluntary a
voluntary process an)rway, I donrt think I would have a problem
with that.
O. Okay. One other area is, Mr. Ga1e, in your
testimony, or Mr. Abel-, t,hat I have failed t.o recaIl which, but
I thought it was said that the acquisition there would be no
change in the quality of service that has been provided by
ScottishPower/PacifiCorp. fs that correct?
A. I believe that is correct.
O. Do you have any plans in improving the service
quality and rellability in ldaho?
A. We will certainly be looking at opportunit,ies to
cost-effectively improve servj-ce in al-1 states, and that wou1d
cert.ainly include Idaho.
O. Are you aware of the outages that have taken
place in Southeastern Idaho in this last year?
A. I'm not familiar with t.he details. I am aware of
some of the circumstances, y€s.
O. Just take a moment. I received a letter a
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HEDRICK COURT REPORTING
P. O. BOX 5'78, BOTSE, rD 83701
GALE (Com)
,Joint Appli-cants
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HEDRICK COURT REPORT]NG
P. O. BOX 578, BOTSE, fD 83701
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Joint Applicants
couple of letters and T'd just. Iike to read a couple quotes
from it. This is a letter from a person that
down in SoutheasLern Idaho, and just a couple
We continue to have brownouts.
happens, if it is after business hours, I have
sLore and check everything is
brownout on December the Bth.
our cash register and gas pump
had a brownout after hours. I
was asleep.
Then in her last
turned back on.
Everything came
. Another time
didn't know it
owns a business
quotes:
Whenever this
to go to the
We had a
back on except
in December we
though because I
definitely sLi1l having problems with our
And then I received anoLher
sentence:Yes, we are
service here.
comment for some
people in the Soda Springs area that was
hours, and this happened just I think in
And when the power did come on, evidently
surge and many of t,hese people lost TVs,
ovens. Different things were destroyed.
PacifiCorp and t.o see if j-t was covered,
fill out t.hese forms and that they had to
without power for 18
the month of November.
' there was a power
their stoves, their
They contacted
and t.hey told them to
submit them. This
was over a month ago. Some people, I've got here, they lost
garage door openers, TVs, a stove, d[ oven, different things.
And f guess I guess where I'm coming from on
this is that I've had customers teII me that they t.hink the
service is actua11y worse and getting worse in t.he last couple
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HEDRICK COURT REPORTING
P. O. BOX 5'78 , BOTSE, rD 83701_
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Joint Applicants
years than it had been before Scott.ishPower got involved. And
I guess my question to you is if the customers perceive that
the service quality is poor in SoutheasLern Idaho and yet the
Company is saying that it's outstanding service quality, how do
we find out who's rea11y shooting it straight? Do you have any
plans to verify that the cusLomer is getting good service? Or
maybe in your mind this is good service, I don't know.
A. I think t.here are a couple things t.hat I can say
in response to that.
Commitment
programs to
the service
First. of all, Commitment 35, the general
35, is one that MEHC has made with regard to some
improve transmission and distribution t.hroughout
territory. Those that were going
to be funded by Scott.ishPower;
to be funded by MidAmerican.
programs. There's 75 million
were not programs
they are programs
There are a number
that are going
of those
69 million for additional transmission and
for t.he asset risk program,
several other
investments.
Let me say though more generally that MEHC,
through its operat.ion of MidAmerican Energy Company, has
demonstrated a focus on customer satisfact.ion. We know that
for customers to be satisfied, you reaIly need three things:
You need reliable service at reasonable cosL, number one; you
need to be responsive t.o t.he customers; and you need t'o be
honest wit.h them.
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HEDRICK COURT REPORTING
P. O. BOX 578, BOTSE, rD 83701
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Joint Applicants
Now, sometimes when you're honest with them that
you can't give them everything that they want, but I think the
customers still appreciate that you'=" fro.r"=i. and you're
responsive. Those are three piIlars, I guess, of MidAmerican's
approach to customer service. Customer has to feel like
t.hey're getting a reasonable servi-ce, reliable service, dt a
reasonable cost, and as I said, we have to be honest and we
have to be responsive. And we'11- be looking at PacifiCorp in
those areas.
Yes, PacifiCorp has very high customer
satj-sfaction, but that doesn't mean that. improvements are not
possible, and we know that from our operation of MidAmerican
Energy Company that improvements are always possible, and we'IL
be looking at those areas, because having satisfied customers
makes our job easier, it makes your job easier, and certainly
it's beneficial- for all of us if customers are satisfied with
Lhe service they receive. We'11 be looking at that very
carefully.
COMMISSIONER HANSEN: Thank you very much.
That's all the questions I have.
COMMISSIONER SMITH: Commissioner Kjellander.
Do you have any redirect?
MR. VAN NOSTRAND: No, Madam Chair.
COMMISSIONER SMITH: Okay. Thank you for your
he1p.
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HEDRICK COURT REPORTING
P. O. BOX 578, BOTSE, rD 83701
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Joint Applicants
THE WITNESS: Thank you very much.
(The wit.ness left the stand.)
COMMISSIONER SMITH: SO,Mr. Purdy, I heard that
else at 11:00.be somewhereyour witness may need to
MR. PURDY:Yes, Madam Chai-r, thank you. She
function and needs to leave here
shoul-d
then, perhaps
the stand.
be a problem, I have a couple
COMMISSIONER SMITH: So, Mr. Van Nostrand,
we go with your next witness?
MR. VAN NOSTRAND: We have no problem
accommodating Mr. Purdy and Ms. Ottens.
COMMISSIONER SMITH: It's up to you.
MR. PURDY: WeII, Lo be cautious
needs to be at a legislative
by 11 o'c1ock. Should that
proposals.
now would be t.he appropriate time
COMMISSIONER SMITH:
t.he other parties?
any objection from
to put her
Is there
on
MR. BUDGE: No objection.
COMMISSIONER SMITH: Okay. Thank you.
MR. PURDY: Thank you.
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HEDRTCK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
OTTENS (Di )
CAPA]
TERI OTTENS,
produced as a witness at the instance of t.he Community Act.ion
Partnership Association of Idaho, bej-ng first duly sworn, was
examined and testified as follows:
D]RECT EXAMINAT]ON
BY MR. PURDY:
O. Would you please state your name?
A. Teri Ottens, O-T-T-E-N-S.
O. And who are you representing today, Ms. Ottens?
A. The Communj-ty Action Partnership Association of
Idaho.
O. And what is your role with that organization?
A. I am the policy director for CAPAI.
O. Okay. And you have previously t.estified before
this CommJ-ssion, have you not?
A. I have.
O. And have you prefiled direct testimony in this
case?
A. Yes, we have.
O. And that consj-sts of eight pages of text?
A. Yes.
O. Is that correct?
And you do not have any exhibits. True?
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HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
OTTENS (Di )
CAPAI
A. Irm sorry?
O. You do not have any exhibits to your testimony.
Is that right?
A. No, I do not.
O. A11 right. If f were to ask you the same
questions today as contained in your direct testimony, would
your answers be the same?
A. Yes, they wouId.
MR. PURDY: Madam Chair, with that, I would ask
that the direct testimony of Teri Ottens be spread upon the
record as if read.
COMMISSIONER SMITH: Without objectJ-on, it is so
ordered.
(The following prefiled direct testimony
of Ms. Ottens is spread upon the record.)
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65
Q:
A:
Q:
A:
I.INTRODUCTION
Please state your name and business address.
My name is Teri Ottens. I am the Policy Director of the Community Action Partnership
Association of Idaho headquartered at 5400 W. Franklin, Suite G, Boise, Idaho, 83705.
On whose behalf are you testifring in this proceeding?
The Community Action Partnership Association of Idaho ("CAPAI") Board of Directors
asked me to present the views of an expert on, and advocate for, low income customers o
PacifiCorp on behalf of CAPAI. CAPAI's participation in this proceeding reflects our
organization's view that low income people are an important part of PacifiCorp's
customer base, and that these customers will be uniquely impacted by the proposed
merger between PacifiCorp and MidAmerican Energy Holdings Company (MHEC).
CAPAI is an association of ldaho's six Community Action Partnerships, the Idah<
Migrant Council and the Canyon County Organization on Aging, Weatherization and
Human Services, all dedicated to promoting self-sufficiency through removing the causes
and conditions of poverty in Idaho's communities.
Community Action Partnerships ("CAPs") are private, nonprofit organizations
that fight poverty. Each CAP has a designated service area. Combining all CAPS, every
county in Idaho is served. CAPS design their various prograrrs to meet the unique needs
of communities located within their respective service areas. Not every CAP provides all
ofthe following services, but all work with people to promote and support increased self-
sufliciency. Programs provided by CAPS include: employrnent preparation and dispatch,
education assistance child care, emergency food, senior independence and support,
clothing, home weatherizatiorl energy assistance, affordable housing, health care access,
and much more.
Q: Have you testified before this Commission in other proceedings?
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A:Yes, I have testified on behalf of CAPAI in general rate cases involving Idaho Power
Company, AVISTA, and United Water. CAPAI participated in the recent PacifiCorp
general rate case and was a signatory to the settlement reached in that proceeding. In
additiorU CAPAI has also submitted comments in Intermountain Gas Company's recent
PGA filing.
Why has CAPAI intervened in this particular proceeding?
CAPAI was concerned that the acquisition of PacifiCorp by a holding company with non-
utility interests, and the utility holdings of which operate well outside our geographic
reason, was of significant importance to PacifiCorp's low-income Idaho customers.
Furthermore, when PacifiCorp and Scottish Power applied to this Commission for
approval of their merger in the late 1990s, the applicants made certain concessions to
ensure that ratepayers would not be harmed as a result of the merger. CAPAI's intent
was to see that similar assurances were made in support of the merger proposed in this
case.
According to the Department of Commerce in the State of Idaho, l2Yo of the
State's population, when using the 2000 Census, falls within federal poverty guidelines
and2lYo fall within the state guidelines set at l50o/o of poverty levels. The 2000 Idaho
Census reveals that those living in poverty are categorized as 8.3% elderly,13.8%o
children, 83% all other families, 35.3o/o single mothers and 34oh all others. In Idaho,
104,537 households representing 227,A00 citizens were eligible in Idaho for energy
assistance and weatherization but only 31903 households statewide received LIHEAP
assistance in the 2004 heating season and only 1,395 homes received weatherization
services (356 in the Idaho PacifiCorp service area),
According to the Department of Energy, the "affordability burden" for total home
energy is set nationwide at 60lo of gross household income and the burden for home
Q:
A:
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heating is set at 2o/o of gross household income. Idaho ranks # 4 lrl,the nation with the
highest energy burdens. There is a gap of $50,470,559 between what Idahoans can afford
to pay (based on federal standards) for energy n2004 and what they actually paid.
Currently the LIHEAP program sends $l I million (for energy assistance, Weatherization
and administration) to Idaho.
Q: What types of programs does PacifiCorp currently have in place that directly address the
needs of its low-income customers?
A: PacifiCorp operates project "Lend a Hand" which is similar to ldaho Power's "Project
Share." In addition, PacifiCorp operates a low-income weatherization program as do
Idatro Power and AVISTA.
Q: Does CAPAI believe that there are improvements that can and should be made to these
programs?
A: Definitely. Regarding Lend a Hand, CAPAI believes that the current level of funding,
approximately $10,000-$15,000 is hardly enough to make a dent in the needs of the
PacifiCorp Idaho customer base. Regarding the company's low-income weatherization,
CAPAI has been strongly encouraging certain program design changes for some time
now. This is the result of two particular problems with the current program.
Q: What problems are you referring to?
A: First, PacifiCorp will only fund 50%o of any given low-income weatherization project.
The other funding must come from other sources such as federal Department of Energy
and Low Income Home Energy Assistance programs. Second, even when federal funds
are fully exhausted for any given year, which they often are, Pacif,rCorp will only fund
50% ofproject costs. Finally, CAPAI believes that the total amount of annual funding
should be increased from the current level of $150,000.
Q: Please explain your specific concerns regarding the aforementioned issues.
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A:
Q:
A:
Q:
A:
Idaho Power only asks that an average of l5Yo in federal weatherization funds be spent
on each project their funds are involved in. Avista makes no requirements at all. Both
recognize the value of the program and the need to spread the utility and private dollars
as far as they will go. The customer value of the program was recognized by the utilities
and they saw that more customers could be served if there was not a high match
requirement. There is a limited amount of federal funds available (which looks to be cut
even further this year). In the eastern part of Idaho, the waiting list for weatherization is
over 2 years long, and for less critical cases as long as six years. Because PacifiCorp
territory is interspersed with municipal and cooperative electrical companies, as well as
Idaho Power territory, it is often difficult to find enough houses in one year that are
Pacificorp customers when we can only spend 50% of their money on the home. This
means that PacifiCorp money could be left on the table by this restriction while other
homes in need of critical weatherization may miss out because federal money had to be
used to provide the 50%o match- Finally, PacifiCorp is the only utility that has not
completely adopted all ofthe DOE measures - meaning that we have to use federal
money to pay for certain weatherization aspects (such as hot water heater replacement).
Again this forces federal money to be spent when PacifiCorp money could have been
applied, reducing our flexibility in reaching other homes.
Did CAPAI participate in the settlement discussion that took place in this case?
Yes, and we participated and ultimately signed the settlement stipulation.
Does that mean that all of CAPAI's concerns outlined above have been resolved?
No. We believe that much remains to be accomplished. The applicants in this case
expressed their opinion that CAPAI's concerns should be resolved through the general
rate case that PacifiCorp intends to file in the Spring of 2006.
Does CAPAI agree with the applicants' contention in this regard?Q:
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A: No, but the fact that PacifiCorp will file a general rate case in the near future, combined
with certain commitments agreed to by applicants, however, convinced CAPAI that
settlement at this juncture was reasonable.
Q: What'tommitments" are you referring to?
A: Concerning CAPAI's specific interests, the applicants agreed to several things. First, the
applicants agreed that for any low-income eligible project, for which federal matching
funds are exhausted or otherwise unavailable, PacifiCorp will fund 100% of
weatherization costs for that project (Idaho-specific commitment # 13(a)). This reflects a
policy change on the part of the company.
Q: Are there additional commitments?
A: Yes. PacifiCorp agreed (in Idaho-specific commitment # 13(b)) that it will analyze and
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federal monies available. CAPAI raised this issue in PacifiCorp's last general rate case
(Case No. PAC-E-05-1), but the applicants refused to agree to eliminatethe 50%o
matching requirement and failed to address it in this proceeding. Thus, CAPAI believes
that the settlement agreement in this case will, at the least, put the issue squarely before
the Commission in the relatively near future.
Q: What about your contention that annual low-income weatherization funding levels should
be increased?
A: CAPAI's primary objective is to frst remove the 50Yo limitation. So long as this
limitation remains in place, we believe that PacifiCorp money will be left on the table
because there are insufficient federal funds to match it against. This anomaly can and
likely will occur even if PacfiCorp agrees to fund projects at l00o once federal funds are
exhausted. The reason for this is because these limitations decrease flexibility in the
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manner in which these funds can be best spent to benefit all customers in the PacifiCorp
service area. Regardless, CAPAI believes that the total annual funding level should be
increased and will make this recommendation in PacfiCorp's next general rate case.
Q: Are there any other commitments that convinced CAPAI to agree to the settlement?
A: Yes. The applicants agreed that shareholder funding of project Lend a Hand would be
increased from its current level to $20,000 (Idaho-specific commitment # l4). While
CAPAI believes this level of funding is inadequate, this increase is acceptable until the
next rate case. The applicants further agree to work with low-income advocates to
"evaluate additional matching contributions" in the future. CAPAI encourages
PacifiCorp to do so in the upcoming general rate case. Finally, the applicants have
agreed to fund and hire a consultant to study and design for possible implementation an
"arrearage management project for low-income customers." The stated purpose of the
project is to find means to reduce the numerous system-wide costs attributable to
customers who become delinquent on their bills. The applicants commit to forming a
working group ofregulatory agencies and low-income advocates to oversee this project
and, during settlement discussions, indicated that CAPAI would be welcome to be a part
ofthat working goup.
Q: So, in summary, do you support the settlement stipulation, with the attached conditions,
for approval by this Commission?
A: Yes. Though there are several important issues yet to be resolved, CAPAI believes that
for purposes ofthis case, the settlement is of benefit to low-income customers. The
applicants did not specifically propose any ofthe low-income commitments in its direct
filing. The negotiated settlement constitutes a reasonable settlement for the interim
pending the cornpany's next general rate case.
Q: Does that conclude your testimony?
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HEDR]CK COURT REPORTING
P. O. BOX 578, BOTSE, rD 83701
OTTENS (Di)
CAPAT
(The following proceedings were had in
open hearing. )
MR. PURDY: And she 's available f or cross, shoul-d
there be any.
COMMISSIONER SMITH: Okay. Mr. Budge.
MR. BTIDGE: No quest j-ons .
COMMISSIONER SMITH: Mr. Howe11.
MR. HOWELL: No questions.
COMMISSIONER SMITH: Mr. Van Nostrand.
MR. VAN NOSTRAND: No questions.
COMMISSIONER SMITH: Enjoy the Legislat.ure.
THE WITNESS: Thank you.
COMMISSIONER SMfTH: Do we have questions from
the Commissioners? No. Thank you.
THE WITNESS: Thank you very much.
(The witness left the stand. )
MR. PURDY: Thank you. That concludes our case.
COMMISSIONER SMITH: Okay. Do you want a break?
A11 right, Iet's go.
MR. VAIT NOSTRAND: .foint. Applicants cal-l-
Mark C. Moench.
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HEDRICK COURT REPORTING
P. O. BOX 5'78, BOISE, ID
MOENCH (Di)
,foint AppIi-cants
MARK C. MOENCH,
produced as a witness at the instance of the.Toint Applicants,
being f irst duly sworn, was examined and testif ied as fol-l-ows:
D]RECT EXAMINATION
BY MR. VAN NOSTRAND:
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president
A.
Could you state your name for the record, please?
Yes. Mark C. Moench, M-O-E-N-C-H.
And who are you employed by, Mr. Moench?
MidAmerican Energy Holdings Company.
And what j-s your position there?
Senior vice president, 1aw.
What are your responsj-bilities as senior vice
of law?
I'm responsible for overseeing the acquisit,ion
required in each of the states, ES well as theapprovals
Federal approvals required
O. Did you have
of St.ipulation in
occasion to file tesLimony in
support
No. 14?
this proceeding marked as Exhibit
A. Yes.
O. Do you have any additions or corrections to make
to that testimony?
A. No.
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HEDRICK COURT REPORTING
P. O. BOX 578, BOTSE, rD
MOENCH (Di)
.Toint Applicants
O. If I asked you the questions set forth, would
your answers today be the same as referenced upon?
A. Yes.
O. And did you also have occasion to file Exhibit
No. 15 to accompany that testimony?
A. YeS.
O. Any additions or corrections to make to that
exhibit?
A. No.
O. Is that exhibit true and correcL, to the best of
your knowledge?
A. Yes.
O. Thank you, Mr. Moench.
MR. VAII NOSTRAND: With that, Madam Chair, I'd
move to have Mr. Moench's Exhibit
St,ipulation, spread on the record
15 marked.
COMMISSIONER SMITH:
will spread the testimony upon the
Exhibit 1s.
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14, testimony in support of
as if read today, and Exhibit
If Lhere's no objection, we
record as if read, and mark
(The following prefiled direct testimony
of Mr. Moench is spread upon the record. )
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I Q. Please state your name and business address.
2 A. My name is Mark C. Moench and my business address is 201 South Main Street,
3 Suite 2300, Salt Lake city, utah.
4 a. By whom are you employed and in what position?
5 A. I am the Senior Vice President, Law, for MidAmerican Energy Holdings
6 Company (MEHC).
7 Q. Please summarize your education and business experience.
8 A. I received a B.S. degree from the University of Utah in 1978 and a J.D. degree
9 from the California Western School of Law in 1981. My experience in the energy
10 industry covers a twenty-two (22) year time span. I served as an Assistant
1l Attorney General for the State of Utah from 1981 to 1987, representing irmong
12 other state agencies, the Division of Public Utilities and the Board of Oil, Gas and
13 Mining. Thereafter I joined the Williams Companies,Inc. in 1987, where I held
14 positions as senior attorney for Northwest Pipeline Corporation, general counsel
15 for Kern River Gas Transmission Company (Kem River) and finally senior
16 counsel for the pipeline holding company, Williams Gas Pipeline Company.
17 Upon the acquisition of Kem River by MEHC in2002,I served as Vice President
l8 and General Counsel at Kem fuver until named to my present position this year.
l9 Purpose and Summary of Testimony
20 a. What is the purpose of your testimony?
2l A. The purpose of my testimony is to describe the Stipulation in this proceeding,
22 which was filed with the Idaho Public Utilities Commission (Commission) on
23 December 16. My testimony explains why the terms of the Stipulation are in the
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public interest and provide a basis for the Commission to find that the proposed
transaction satisfies the standard under Idaho Code $ 6l-328 for approval of the
transaction. A copy of the Stipulation is attached to my testimony as
Exhibit No. 15.
Please describe the process that led to the Stipulation.
On July 15,2005, MEHC and PacifiCorp (ointly referred to as the "Applicants")
filed an Application and supporting testimony with the Commission for
authorization of a transaction whereby MEHC would acquire all of the
outstanding common stock of PacifiCorp (Transaction), and PacifiCorp would
thereafter become an indirect, wholly owned subsidiary of MEHC. On
August 17,2005, Applicants submitted a revised Application reflecting the impact
of the enactment of the Energy Policy Act of 2005, including the repeal of the
Public Utility Holding Company Act of 1935.
Thereafter, Applicants and the parties to the case participated in a
technical conference on October 4, followed by settlement conferences on
November 2 and December 8, in an attempt to understand and reach agreement on
the issues in this proceeding. As a result of that process, the parties to this
proceeding reached agreement on the resolution of the issues in this proceeding,
as set forth in the Stipulation. All of the parties to the proceeding have either
joined the Stipulation, or have indicated that they do not oppose it.
Please identify the parties to the Stipulation.
The parties to the Stipulation are the Applicants, Idaho Public Utilities
Commission Staff, Monsanto Company, Idaho Imigation Pumpers Association,
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2 Two other intervenors in the proceeding, Idaho Power Company and International
3 Brotherhood of Electrical Workers Local57, did not join in the Stipulation, but
4 indicated that they will not oppose it.
5 General Description of Stipulation and Commitments
6 a. Please generally describe the Stipulation.
7 A, In their direct testimony, the Applicants provided evidence that the Transaction is
8 in the public interest, including an offer to adopt a set of commitments based upon
9 the commitments adopted in this and other jurisdictions from the prior transaction
10 (i.e., ScottishPower's acquisition of PacifiCorp). In addition, the Applicants
11 offered numerous new commitments involving generation options, transmission
12 investment, clean air investment, energy efficiency, and customer service, among
13 other subjects. While the parties that participated in the technical conference and
14 settlement discussions recognized the benefits of those commitments, they raised
15 some additional issues they thought should be addressed by the Applicants. The
16 Stipulation addresses and resolves those issues in a way which, the parties to the
17 Stipulation agree, satisfies the standard in Idaho for approval of the Transaction
18 under Idatro Code $ 6l-328.
19 a. Please generally describe the commitments included in the Stipulation.
20 A. The commitments included in Appendix A to the Stipulation consist of the
2l commitments offered in the Applicants' direct testimony with, in some cases,
22 modifications to address issues raised by the parties; new commitments entered
23 into by the Applicants that apply to all PacifiCorp's jurisdictions; and new Idaho-
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specific commitments that either apply only to the Applicants' activities and
operations in Idaho or could be extended to other states at their option. The
parties were able to build upon the agreements that had been reached in Utah.
Prior to the second settlement conference in Idaho, PacifiCorp and MEHC had
reached agreement with the Utah parties, and filed a stipulation in Utah PSC
Docket No. 05-035-54 (Utah Stipulation) on November 18. The Utah Stipulation
included a number of modifications to the original commitments in response to
issues raised in the Utah discussions; as well as new commitments agreed upon by
the Applicants that were applicable to all of PacifiCorp's jurisdictions. By using
the Utah Stipulation as the starting point, the parties in Idaho were able to focus
more of their attention on the issues specific to Idaho. This process resulted in
26 Idaho-specific commitments, which are included in Appendix A.
Under the terms of the Stipulation, the Applicants agtee to perform all of
the commitments set forth in Appendix A according to the provisions of each
commitment. The commitments set forth in Appendix A are intended to
supersede the commitments from the prior transaction and the commitments
offered in the Applicants' direct testimony.
The commitments are binding only upon MEHC, PacifiCorp and, where
noted, their affiliates. The commitments have been offered by MEHC and
PacifiCorp to ensure that the Transaction provides benefits to customers,
addresses identified concerns and risks, creates no harm to the public interest, and
otherwise satisfies the regulatory requirements for approval of the Transaction.
MEHC and PacifiCorp will not allege in any future proceeding before the
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Commission or the courts that by approving or agreeing to the Stipulation and the
Transaction the Commission or the signatories agreed to waive any right to assert
or adopt such positions regarding the prudence, just and reasonable character, rate
or ratemaking impact or treatment, or public interest as they deem appropriate
pertaining to the commitments.
In the event MEHC and PacifiCorp determine that a commitment ceases to
be in the public interest or otherwise should be eliminated or modified, MEHC
and PacifiCorp will file with the Commission for approval of the elimination or
modification, serving copies of the filing upon all parties to this proceeding.
Does the Stipulation include provisions to address the expansion or
modilication of commitments in other jurisdictions?
Yes. We anticipated the Idaho parties' concerns regarding the potential
uncertainty associated with entering into a stipulation while negotiations were still
underway in other PacifiCorp jurisdictions. [n order to address those concerns,
the Stipulation provides the Commission with the opportunity and authority to
consider and adopt commitments or conditions accepted by the Applicants or
ordered in another state jurisdiction. Paragraph 7 of the Stipulation provides a
proposed "most favored states" process to facilitate the Commission's and the
parties' prompt consideration and adoption of out-of-state commitments. This
process is based on the recognition that the Transaction cannot close until final
state orders have been issued.
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I ldaho-Specific Commitments
2 a. Please discuss some of the ldaho-specific commitments included in the
3 Stipulation.
4 A. An issue ofparticular concem in Idaho is the continued availability of a dedicated
5 krigation Specialist in the Company's Idaho service territory, which is addressed
6 in Commitnent I l. The Applicants are committing to continue to make available
7 a dedicated Irrigation Specialist in Rexburg and Shelley, and to continue to
8 provide an krigation Hotline. Another issue important to some parties is the
9 evaluation of market potential associated with the expansion of load curtailment
10 programs in Idaho. Commitment I 8 provides that this issue will be considered as
1l part of the DSM study required under Commitment 44.
12 Commitment I 10 concerns the implementation of a plan for measuring
13 network performance in Idaho as an alternative to Momentary Average
14 lntemrption Frequency Index (MAIFD. Commitment I l0 provides that MEHC
15 and PacifiCorp will promptly implement the proposed measurement plan and
16 provide the results produced by that plan to Commission Staff and other interested
17 parties in reliability review meetings.
18 a. Please discuss the ldaho-specific commitments regarding resource
19 acquisition issues.
20 A. Idaho-specific Commitment l22,whichis found on pages 13 and 14 of
2l Appendix A to the Stipulation, sets up a process to address various policy,
22 technical, economic and planning issues associated with lntegrated Gasification
23 Combined Cycle (IGCC) technology. This Commitment provides for the
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formation of an IGCC Working Group to discuss, consider, share information
regarding and develop a common understanding of issues associated with IGCC
technology, including the benefits, costs and risks of that technology.
Under Commitment lZ3,PacifiCorp will include within its 2006IRP a
wind penetration study to reappraise wind integration costs and cost-effective
renewable energy levels, and an assessment of transmission options for
PacifiCorp's system identified in the Rocky Mountain Area Transmissions Study
(RMATS) scenario I related to facilitating additional generation at Jim Bridger
and, on equal footing, new cost-effective wind resources.
Please discuss the ldaho-specific commitments related to low-income issues.
Three separate Idaho-specific commitments address low-income issues.
Commitment I 13 addresses an identified concern relating to the PacifiCorp's
current policy of funding 50% of measure cost when federal matching funds are
available. Under this commitment, PacifiCorp will file tariff revisions to effect a
change to 100% funding of conservation measures when federal matching funds
are no longer available, and will also consider in its next general rate case the
possibility of changing its current 50% funding level to a higher percentage
amount.
Under Idaho-specific Commitment I 14, MEHC and PacifiCorp commit to
provide up to $20,000 annually for five years to match Idaho customers and
employee contributions to Lend-a-Hand. This contribution will be recorded in
non-utility accounts.
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Idaho-specific Commitment I l5 provides for use of shareholder funds to
hire a consultant to study and design for possible implementation an arrearage
management project for low-income customers. The goals of the project will
include reducing service terminations, reducing referral of delinquent customers
to third party collection agencies, reducing arrearages and collection litigation,
and increasing voluntary customer payment of arearages.
Please explain the ldaho-specific acquisition premium commitment.
Idaho-specific Commitment I 18, which is found on page 13 of Appendix A to the
Stipulation, addresses the acquisition premium issue. The commitment, which is
a modified version of the general commitment offered in direct testimony,
requires the premium be recorded in the accounts of the acquisition company and
not in PacifiCorp's accounts.
What exactly does the commitment language allow PacifiCorp/MEHc to do?
The commitment language clarifies that PacifiCorp and MEHC are precluded
from deciding unilaterally at some future point to include the acquisition premium
in the retail rates of PacifiCorp customers. Because the premium will be recorded
at the holding company level, the only way that the acquisition premium could
ever be included in PacifiCorp's rates would be if PacifiCorp affirmatively
proposed to include the premium in retail rates and the Commission agreed.
The intent of the commitment language is merely to preserve the right to
make an argument to the Commission that the acquisition premium should be
included in retail rates under one limited condition. MEHC is concerned that if it
agrees to a commitment not to include the acquisition premium in rates and if it
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does so without a clear reservation of its rights, it would be denied the opportunity
in a future rate case to even point out a potential violation of the matching
principle, as discussed hereafter.
The commitment leaves the determination of whether the inclusion of a
premium should be allowed in the hands of the Commission, not PacifiCorp or
MEHC. MEHC is seeking only to retain the right to make a future argument if
necessary, nothing more.
Under what limited condition would MEHC expect this right to be exercised?
In order for MEHC and PacifiCorp to exercise their right to present its argument
to the Commission regarding inclusion in rates of the acquisition premium,
PacifiCorp must be confronted with a potential violation of the matching principle
of original cost ratemaking that (l) imputes to PacifiCorp customers (i.e., reduces
the regulated revenue requirement on the basis of) a benefit associated with the
premium accruing from a company above PacifiCorp in the holding company
system while (2) failing to recognize in rates the cost associated with achieving
that benefit.
Such a situation would occur, for example, if the Commission were to
attribute a lower cost of capital to PacifiCorp's regulated operations based upon
substitution of debt costs from the holding company for the cost of utility equity,
without recognizing the additional risk (higher cost of equity) to the holding
company of its higher leverage. In this instance, PacifiCorp's regulated
customers would benefit from a lower cost of capital that assumes a greater
percentage of debt, which is tl,pically lower cost than equity, without recognizing
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the increase in the cost of common equity (due to increased risk) that occurs as a
result of that more leveraged financial structure.
No request for inclusion of the acquisition premium in rates would be
triggered, however, in situations where benefits obtained at the holding company
level are appropriately allocated to PacifiCorp, along with the costs of achieving
those benefits. For example, if MEHC were able to achieve lower insurance costs
post acquisition as a result of combining the insurance needs of itself and
PacifiCorp, a portion of such savings (along with the costs related to achieving
them) would be properly allocated to PacifiCorp. MEHC expects the lower net
costs would be included in retail rates (reducing the regulated revenue
requirement). MEHC would not consider this a situation that would allow
PacifiCorp to argue for inclusion of the acquisition premium in retail rates.
The commitment also makes clear that neither the Commission nor any
party is being asked to accept or agree with any such arguments, or to waive any
ofits rights to object to such a request for relief.
Why do you believe the Stipulation is just, reasonable and in the public
interest?
Appendix A to the Stipulation includes 50 general and26Idaho-specific
commitments which address issues of importance to PacifiCorp's Idaho
customers. Among those commitments are new commitments related to reducing
costs for PacifiCorp and to address the Idaho-specific issues identified by
Commission Staff and intervenors in our technical conference and settlement
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discussions. The Stipulation also includes commitments which reflect MEHC's
willingness and ability to deploy capital to meet PacifiCorp's significant
infrastrucfure needs, including increased investment in transmission, renewable
energy and energy efficiency. The Applicants have also agreed, as I discussed
above, that the Commission shall have the opportunity and authority to consider
and adopt conditions and commitments agreed to or adopted in other jurisdictions.
The Applicants submit that this Stipulation, including the commitment to a
"most favored states" process, strengthens many of the existing commitments,
addresses the issues and concems raised by the parties, and provides real and
significant benefits to PacifiCorp's Idaho customers. For all of these reasons, I
conclude that the Stipulation is in the public interest and should be approved by
the Commission.
Does this conclude your testimony?
Yes.
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HEDRICK COURT REPORTING
P. O. BOX 5'78 , BOTSE, rD
(The fol-lowing proceedings were had in
open hearing. )
been premarked
(.loint Applicant Exhibit No. L4, having
for identificatJ-on, was admitted into evidence. )
MR. VAN NOSTRAND: Mr. Moench is available for
cross - examinat. ion .
COMMISSIONER SMITH: Do you have quesLions,
Mr. Budge?
MR. BUDGE: No questions.
COMMISSIONER SMITH: Mr. Purdy.
MR. PURDY: None.
COMMISSTONER SMITH: Mr. Howe11.
MR. HOWELL: No questions.
COMMISSIONER SMITH: Commissi-oners.
I guess there can be no redirect.
MR. VAN NOSTRAND: I have no redirecL, Madam
Chair.
COMMISSIONER SMITH: Thank you.
THE WITNESS: Thank you
(The wit.ness was excused. )
COMMISSIONER SMITH: Does that concl-ude your
case ?
MR. VAN NOSTRAND: It does, Madam Chair.
COMMISSIONER SMITH: Thank you.
I move to Mr. Howe11.
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HEDRICK COURT REPORT]NG
P. O. BOX 578, BOfSE, ID 83701
CARLOCK (DT)
Staff
MR. HOWELL: Thank you, Madam Chairman. The
Staff would call Terri Carlock to the stand
produced as
duly sworn,
TERRI CARLOCK,
a witness at the instance of the Staff, being first
was examined and testified as follows:
D]RECT EXAMINATION
BY MR. HOWELL:
O. Would you please state your fuII name and spelI
your last for the record?
A. Terri Carlock, C-A-R-L-O-C-K.
a. Whom are you employed by and in what capacity?
A. The Idaho Public Utilities Commission as the
accounting audit supervisor.
O. Are you the same
initial prefiled testimony and
A. On December 2Oth.
o. 20Lh?
A. Yes, I am.
O. And did you also
Exhibit l-01?
Terri Carl-ock that has prepared
filed on December 6, 2OO5?
have cause to be prepared Staff
That's correct.
And are you the same Terri Carlock that filed
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HEDRICK COURT REPORTING
P. O. BOX 5'78, BOISE, ID
CARLOCK (Di)
Staff
supplemental testimony filed on ,January the 13th?
A. I am.
O. And did you have reason to prepare Staff
supplemenLal Exhibit LO2?
A. Yes, I did.
O. Do you have any changes to your initial testimony
or Exhibit 1-01-?
A. No, I do not.
O. Do you have any changes to your supplemental
testimony or supplemental Exhibit L02?
A. On supplemental testimony, page B, Mr. Gal-e is
correcL that I had left. out one definition, so on page or,
line 5, I would insert the words "together the shareholdersrt to
clarify that Mr. Buffett and Mr. Scott are the shareholders
that are being spoken about in this paragraph.
O. And that insertion would occur after on the
second line of the indent: Walter Scott, comma, .Tunior,
together the sharehol-ders will provlde?
A. That's correct.
Do you have any other corrections to yourO.
prefiled?
A.
o.
your
the
No,
If
f do not
f were to ask you the questions laid out in
initial and suppl-ement.a1 testimony, would your answers be
same?
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HEDRICK COURT REPORT]NG
P. O. BOX 578, BOISE, ID
CARLOCK (Di)
Staff
A. Yes, they wouId.
MR. HOWELL: And with that, Madam Chairman, I
would move to spread Ms. Carlock's initial and supplemental-
testimonies, and mark for identification her Exhibits 101 and
to2.
COMMISSIONER SMITH: Wj-thout object.ion, it is so
ordered.
supplemental
record. )
(The following prefiled direct and
testimony of Ms. Carlock is spread upon the
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O. Please sEate your name and address for the
record.
A. My name is Terri Carlock. My busj.ness address
is 472 West Washington Street, Boise, Idaho.
O. By whom are you employed and in what capacity?
A. I am employed by the Idaho Public Ut.ilities
Commission as the Accounting/Audit Section Supervisor.
O. Please outline your educational- background and
experience.
A. I graduated from Boise SLate University in
1980, with B.B.A. Degrees in Accounting and Finance. I
have at,t.ended various regulatory, accounting, rate of
return, economics, flnance and ratings programs. I
chaired the National Association of Regulatory Utilities
Commissioners (NARUC) Staff Subcommittee on Economics and
Finance for more than 3 years. Under this subcommittee,
I also chaired the Ad Hoc Committee on Diversification.
I am currently the Secretary of the NARUC Staff
Subcommittee on Accounting and Finance. I have been a
presenter for the Institute of Public Utilities at
Michigan State University and for many other conferences.
Since joining the Commission Staff in May 1980, f have
participated in audits, performed financial analysis on
various companies, and have presented testimony before
t.his Commission on numerous occasions.
CASE NO. PAC-E-05-8t2/20/0s CARLOCK, T (DT) 1
STAFF
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O. What is the purpose of your testimony in this
proceeding?
A. The purpose of my test,imony is to present t,he
Staff's recommendations reLated to the proposed
acquisition of PacifiCorp by MidAmerican Energy Holdings
Company (MEHC). I will discuss issues related to the
acquisition and t,he examination I conducted. Issues not
directly related to the acquisition will be addressed in
separate proceedings or regulatory reviews.
O. Please summarize the overall Staff
recommendat ions .
A. The St.aff recommends approval of the
acquisition transact.ion of PacifiCorp by MEHC with
speclflc commitmenLs, conditions and reporting mechanisms
Eo be implemented.
O. Are you sponsoring any exhibits to accompany
your testlmony?
A. Yes, f am sponsoring Exhibit lUo. 101 consist,ing
of the parties' Settlement Stipulation supporting the
acquisit.ion and more importantly t.he '76 Commj-t.ments.
O. P1ease explain the overall approach Staff has
taken to arri-ve at its acquisition recommendations?
A. Staff reviewed the requirements necessary for
the Commisslon to approve Lhe acquisition. As Staff
discovered potential issues, it was determined if t.he
CASE NO. PAC-E-05-B
L2/20/05
CARLOCK, T (Di) 2
STAFF
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issue was created by the acquisition or an issue to be
addressed regardless of company ownership. Issues
resulting from the acquisition were eval-uat,ed to
determine if the acquisition should be approved. To t.he
extent other issues may be identified, they will be
addressed in t.he upcoming rate review or in other future
proceedings.
O. What standards did you apply to review this
proposed acquisition?
A. The applicable standards of review are set
forth in fdaho Code S 51-328 and ldaho Code, Title 6L,
Chapter 9, fssuance of Securities by Public Utilities.
Idaho Code S 51-328 provides that. "No electric public
utility ... shall merge, seI1, lease, assign or transfer,
direct.ly or indirectly, in any manner whatsoever, any
such property or interest therein, ... except when
authorized t,o do so by order of the public utilitj-es
commission." More specifically, this stat,ut.e requires
that the Commission make three specific findings:
(a) That the transaction is consistent withthe public interest.;(b) That the cost of and rates for supplyingservice will not be increased by reasonof such transaction; and(c) That the applicant for such acquisitionor transfer has the bona fide intent andfinancial ability t.o operaLe and maintainsaid property in the public service.
CASE NO. PAC-E-05-B
t2/20/05
CARLOCK, T (Di) 3
STAFF
Idaho Code, Title 6!, Chapter 9, Issuance of Securities
by Public Utilities specifies the requirements PacifiCorp
and MEHC, lf the acquisition is approved, must folIow Lo
obtain authority to issue securit.ies.
Review of all security applicat,ions with the
required financial stat,ements and subsequent reports
provides an important opportunity for the Staff to
monitor t.he staEed financial objectives of the
acquisition.
O. Have you consj-dered these standards in making
your recommendation?
A. Yes. These standards have been seriously
considered and are the basis for the analysis upon which
my recommendat.ions are based. I will- discuss each
standard separately.
O. Does Staff believe the transaction is
consistent with the public int.erest?
A. Yes, in fact St.aff believes the public interest.
of ldaho customers will be enhanced by the capital
commitments, ongoing cusLomer guarantees, access to books
and records, ring-fencing provisions, and guaranteed
reduced cost of debL. These and various other
commitments, Lotaling 76, are listed in Exhibit uo. 101
(Settlement Stipulat,ion) .
O. Will the cost of and rates for supplying
CASE NO. PAC-E-05-8
L2/20/os
CARLOCK, T (Di) 4
STAFF
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service be increased by reason of the acquisition?
A. No. The cost of and rates for service will not
increase due Eo the acquisition itself. The acquisition
cosEs j-ncurred to transact the acquisition through
closing will be excluded from PacifiCorp's utility
accounts pursuant to General Commit,ment No. l7 and Idaho-
Specific Commitment No. 18 of Exhibit No. 101.
Consequently, Idaho customers will not pay these
acquisition costs. General- Commitment No . 37 guarantees
a reduced cost of debt of at least ten (10) basis points
over the next five years. The projected system benefit
over the post-acquisition five-year period is
approximately $5.3 million. Staff will verify the cost
of debt reduction in all security issuance approvals,
audj.ts and rate proceedings. The "alf-in-cost" will be
evaluated (Idaho Commitment No. 11) when reflecting the
lower debt cost in rates. If the lower costs are not
achieved, the acEual adjusting ent,ries will be determined
in future rate proceedings. This commitment guarantee
and review will be used to assure t.he Commission and
customers that, rates will- not increase by reason of the
acquisit.ion.
O. Does this mean t.hat rat.es will never increase?
A. Rates will noL i.ncrease as a result of the
acquisition but. t.hat doesn't necessarily mean that rates
CASE NO. PAC-E-05-8
t2/20/0s CARLOCK, T (Di) 5
STAFF
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will never increase. Any requested increases wilI be
thoroughly reviewed to assure that cost increases are not
a result of the acquisition. Staff and the other parties
ant,icipate that PacifiCorp will file a general rate case
on or about April 2006.
O. Are you proposing that rates be reduced as a
condition of the acguisition?
A. I am not proposing rate reductions at t.his
time. PacifiCorp rates will be reviewed in its 2005 rate
case. The resulting rates from that case should assure
parties and customers that rates are set at. a fair and
reasonable Ievel.
O. Do the Applicants have the bona fide intent. and
financial ability to operate and maintain sald electrical
property in the public service?
A. Yes, I believe they do based on my review of
annual financiaL statemenEs and reports, statements of
regulatory accounts, due diligence reports, disclosure
l-etters, board meeting minutes, and the production
request responses in lhis case and meetings with Company
representatives. The Applicants have committed to make
investments in both transmission and distribution
networks in General Commitment Nos. 34 and 35.
O. MEHC wiEnesses' prefiled direct testimony and
exhibits propose conditions to facilitate the
CASE NO. PAC-E-05-Bt2/20/os CARLOCK, T (Di) 5
STAFF
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acquisition. Do you recommend approval of these
conditions?
A. Yes, I recommend approval of these conditions
as they have been modified and supplemented in Exhibit
No. 101. Exhibit No. 101- reflect,s the final SEipulation
and Commitments agreed to by most parties in Idaho that
addresses Ehe individual and collective concerns of
parties.
O. As part of the review and settlement
discussions, please outline some of the concerns that
were addressed by t.he part.ies and uLtimately included in
the Commitments applicable to al-l states and the ldaho-
Specific Commitments.
A. Many of the concerns and commit.ments are self -
explanatory and included as part of the Stipulation and
at.tached Commitments. A "most favored nation" cl-ause is
al-so included in Sect,ion III of the Stipulation with a
proposed process Lo implement this clause. St.af f accept.s
the proposed process to implement any additional
commitments desired under the "most favored nation"
clause. Therefore, dtry assurances, conditions or benefit.s
agreed t.o by MEHC or PacifiCorp in the other five state
jurisdictions that would create a benefit to Idaho
customers could be subsequently adopted in Idaho under the
terms of the Stipulat.ion.
CASE NO. PAC-E-05-8
L2/20/05
CARLOCK, T (DT) 7
STAFF
Ot.her Staff concerns discussed during the
revlew and settlement discussions include: cusLomer
guarantees and performance standards; access to books and
records of MEHC, PacifiCorp and affiliates; capital
commitments; resource acquisition under a level playing
fie1d,. low income customer programs and supplemental
programs for all customersi and most important.ly ring-
fencing measures.
O. P1ease explain ring-fencing.
A. Ring-fencing provisions are techniques, when
used together, that will essentially isolate the credit
risks of PacifiCorp from the credit rlsks of the parent
company or other affil-iates. Ring-fencing provisions are
clearly ident.ified j-n the PPW Holdings LLC agreement in
addit.ion to the commitments focusing on separate 1ega1
corporate sLructures, separate books and records,
preventing cross-subsidization, specific board
requirements and independence measures, separate debt and
preferred stock wi.th separate rat.ings for each, required
j-ssuance approvals, common equity percentage
requirements, and dividend payment restrictions.
O. Do you have concerns related Lo refinancing
costs, dividend payments, capital structure, and cost of
new financings to implement the acquisition or following
the acquisition?
CASE NO. PAC-E-05-B
L2/20/05
CARLOCK, T (Di) 8
STAFF
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A. Yes. Costs directly related to the acquisition
transaction should be recorded below the line and not
included in future calculations to determine embedded
costs of capital or rates.
O. How will the acquisition be treated for
ratemaking purposes?
A. The acquisiLion will be booked on the books of
the acquisition company. Any acquisition adjustments or
goodwill will nel be recovered through rates as reflected
in Idaho Commitment No. 18.
O. Please discuss further the reporti-ng that
should be required if this acquisition is approved.
A. The required reports by MEHC and PacifiCorp are
listed in the agreed commitments related to final
transaction details, customer service, movements beyond
target 1eve1s set out in the commitments, expansion of
programs, audits and debt costs. Additional
documentation will be filed to show the detail behind all
debt savings achieved and detail reflecting all
measurements to determine if the guarantees are met.
O. What is Staff's recommendation?
A. Staff recommends that t.he Commission approve
the St.ipulat.j-on and adopt the Commitments in Exhibit No.
101. The Commitments and the "most favored nation"
clause adequat.ely protect Idaho ratepayers and serve t.he
CASE NO. PAC-E-05-BL2/20/0s CARLOCK, T (Di) 9
STAFF
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public interest.
O. Does this conclude your direct testimony in
this proceeding?
A. Yes, it does.
CASE NO. PAC-E-05-B
t2/20/05
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O. Please state your name and address for the
record.
A. My name is Terri Carlock. My business address
is 472 West Washington Street, Boise, Idaho.
O. By whom are you employed and in what capacity?
A. I am employed by t.he Idaho Public Utilities
Commission as the Accounting/Audit. Section Supervisor.
O. Are you the same Terri Carlock that submitLed
dlrect testimony in this case on December 20, 2005?
A. Yes, I am.
O. What is the purpose of your supplemental
test imony?
A. f am providing updated information Lo the
Commission and parties to this case related to the
additional Commit.ments by PacifiCorp and MidAmerican
Energy Holdings Company (MEHC) in Lhe Oregon Stipulation
that Staff recommends be adopted as fdaho-Speclflc
Commitments in thls case. At t.he time [he Idaho
Stipulation (Exhibit No. 101) and direct testimony in this
case were filed, Staff had the opportunity to review the
Stipulations and Commitments in Californra and Utah. The
Oregon Stipulation with additional Commitments was filed
after the Idaho Settlement Stipulation. My supplement.al
testimony and Staff Exhibit No. 702 focuses on the Oregon
Commitments and recommendatrons for adoption and incl-usion
CASE NO. PAC-E-05-B
t/L3/06 CARLOCK, T (Supp) 1
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in Idaho
O. Why revi-ew t.he Oregon Commitments now?
A. The "most favored nation" clause set forth in
the Idaho Stipulation Section III and Idaho Commitment 25
al-lows this Commission to review and adopt Commitments
from the other five states. Reviewing the Oregon
Commltments now wil-l- simplify adoption and shorten the
required review after the final- Orders in the various
states are issued. Any additional requirements, primarily
in the Washington and Wyoming proceedings, will remain for
the final revj-ew and adopti-on process set forth in t.he
Idaho Stipulati-on.
O. The Idaho StipulaLion and Commitments, Exhibit
No. 101, lists 50 General Commitments applicable to all
sLates. Do you recommend any modifications to the General
Commitments based upon your review of the Oregon
Stipulat.ion and Commitment s?
A. Yes, I recommend some modi-fications. The
modifications f am recommending be adopted provide
additional- benefits or clarification above and beyond
those General Commitments originally included in Exhibit
No. 101 for fdaho. I would also observe that there are
clarificat.ions and other variations in the Oregon
Stipulation that wlIl benefit Idaho but do not necessitate
changes bej-ng recommended to the Idaho Settl-ement.
CASE NO
L/L3/06
CARLOCK, T (Supp) 2
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The recommended modifications are for General
Commitment Nos. 11, L7,18, 22,3J,38, and 48. I also
recommend adding two new General CommiLments, Nos. 51 and
52. These Commi-tments are shown on Staff Exhibit No . L02.
I will discuss each of these changes individually.
O. Pl-ease explain each modif ication Staf f
recommends for the Commitments Applicable to A11 States.
A. The change to General Commitment No. 11
clarifies ring-fencing provisions with the attachment of
Appendix 1. Appendix 1 titl-ed *PPW. Holdings LLC
Ringf encing Provi-sions" is incl-uded in Exhibit No . 702.
The final signed ring-fencing document will still be filed
with the Commission as required in Idaho-Specific
Commi-tment No. 5 (I-5).
The adoption of Oregon General Commitment No. 17
provides cl-arification related to unrestricted access to
written information and documents used for credit rating
purposes.
Adoption of Oregon General- Commitment No. 18
prowides additi-onal det.ail rel-ated to the restriction of
dividend payments when common equity ratios don't exceed
the percentage floors identified. Detail on how the
ratios wlll be calculated is also included in this
Commitment. General Commit.ment No. 18 is included for
dividend restrictions only and is not intended by the
CASE NO
7/13/06
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parti-es as a ratemaking provision that impacts rates.
Staff next. recommends that General Commitment
Nos. 22, 37 and 38 be noted as intent.ionally left blank.
They are repLaced with Oregon-Specific Commitment Nos.
O-9, O-11 , O-L2, and O-14. These four new Commitment.s
will be di-scussed Iater as Idaho-Specific Commitment Nos.
I-28, I-30, I-31 and I-32.
Next, General Commrtment Nos. 51 and 52 are
added to refl-ect the ownership transfer to PacifiCorp of
the InLermountain Geothermal Company and the associated
steam rights to the sLeam resources serving PacifiCorp's
B1unde1l geothermal plant. This Commitment will eliminate
some affiliate transacLions and payments for sLeam
purchases at BIundeIl- thus reducing Lhe annual- sLeam
costs. IL also allows for expansion of the plant and
purchase of addit.ional steam rights where cost-effective.
Finally General Commitment No. 48 should be
modified to add the reference to Commit.ment No. 52 in the
IRP consideration IisL.
O. Are t.here Oregon-Specific Commitments that you
recommend being adopted as Idaho-Specific Commitments in
this case?
A. Yes, I recommend adoption in whole or in part of
Oregon-Specific CommiLment Nos. 5, 7, B, 9,10, Ll,12,
14, 15, L6, I7, 18, 2l and 22. These Commj-tments if
CASE NOt/B/a6
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adopted w1ll replace or will- be added to existing Idaho-
Specific Commitments as shown on St.aff Exhibit No. 102.
The current ldaho-Specific Commitment. No. I-26 will be
modified to become No. I-35 to include all t.he recommended
Idaho-Specif ic Commitments .
O. Please explain the benefits to fdaho if these
modified or addj-tional ldaho-Specif ic Commi-tments shown on
Exhibit No. 702 are adopted.
A. Idaho-Specif ic Commi-tment No. I-L4 is replaced
with modified Oregon-Specific Commitment No. O-22. It
establishes an annual contribution of $40,000 to the Lend-
a-Hand program that assist.s l-ow-income residential
customers. It is superior because it does not limit
PaclfiCorp and MidAmerican contributions to simply
matching customer and employee contributions up to a
maximum amounL of $20,000. If customer and employee
contributions were less than $2O,O0O (whrch has been the
case for PacifiCorp's Idaho service territory
historically), the matching contribution wou1d also be
l-ess than $20,000, making the total contribut.ion less than
the $40,000 fixed amount guaranteed under l-14 (O-22).
I-14 now provides a predictabl-e funding amount rather than
an amounL that. varies depending on the generosity of
parties other than the AppIicant.s.
CASE NO. PAC-E-05-8
t/73/06
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Idaho-Specific Commitment No. I-15 is replaced
with modified O-27. It. improves upon the provi-sions of
I-15 by setting timelines for the proposed arrearage
managemenL project and establishing the $65,000 project
funding level as a floor rather than a ceil-ing.
Idaho-Specif ic Commit.ment No . I-21 is replaced
wiLh modified O-15 to be consistent with General
Commitment No. 18 Applicable to all states. It also
strengthens or reinforces the ring-fencing language and
provisions.
Idaho-Specif j-c Commitment No. l-24 is replaced
with O-5 to provide clarification and to strengthen or
reinforce the ring-fencing language and provisions.
f recommend that Oregon-Specific Commitment Nos.
O-'7 through O-L2 become Idaho-Specific Commitment Nos.
I-26 through I-31. These Oregon-Specif i-c Commit.ments
provide additional structure to implement the hold
harmless clauses already recommended in the Idaho
Stipulation and Commj-t.ments (Exhibit No. 101) and provide
for rate credits. The raLe credits in I-27 and f-31
provide additional benefits to Idaho cusLomers of
approximately $640,000 annually for test years 2A06 and
2007. The rate credits will then decline until eliminated
in a 20Ll test year. The hold harml-ess provisions as
structured and clarified in 7-28 through I-30 guarantee
CASE NO
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that approximaLeJ-y $820,000 annually in costs will not be
reflected in Idaho rates for test years 2006 through 2010
with approximat.ely $380, 000 annually thereafter.
Idaho-Specif i-c Commitment No. I-32 replaces
Commitment No. 37 applicable to aII states. This is
beneficial to Idaho by protecting customers from any
crediL rat.ing downgrades caused by actions resulting from
this transaction during the first year. The debt cost
adjustment for each notch of credit rating downgrade will
reduce debt cosLs until the debt issuance is no longer
outstanding. firis Commitment l--32 must be compared to
I-3'7 as only one of these adjustment.s is available in the
guarantee. Since PacifiCorp's Rating Outlook is negative,
it is possible that a credit. rating downgrade could occur,
making I-32 beneficial. The actual debt costs as
discussed in I-31 can stiIl be l-ower than raLes for
comparable companies even without the guarantee.
rdaho-Specific Commitment Nos. I-33 through I-35
should be adopted to strengthen or reinforce the ring-
fencing language and provisions.
O. Are there other provisions in the Oregon
Stipulation that should be adopted in this Idaho case?
A. Yes, paragraph 10 of the Oregon Stipulation
should be adopted in concept in the Idaho Order. This
addition strengthens or reinforces the ring-fencing
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CASE NO
L/73/06
CARLOCK, T (Supp) 7
STAFF
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PAC-E-05-B
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l-anguage and provisions.
Hathaway an Applicant in
be adopted by having the
follows:
o.
in this
A.
Instead of making Berkshire
this Idaho case, paragraph 10 can
sworn statements filed as
The sworn statements of Warren Buffet.t andWal-ter Scott, Jr. (together, the shareholders)will provide that neither will exercise anycontrol, directly or indirectly, on matters thatpertain to PacifiCorp (except for mattersrelat.ing to PacifiCorp that are minj-sterial innat.ure) . The sworn statements wil-l also providethat the Sharehol-ders will- recuse themselvesfrom voting as MEHC or Berkshire Hathawaydirectors on MEHC or Berkshire Hathaway Board ofDirect.ors matters concerning PacifiCorpactivities or operations. The sworn statementswill provide that the future transfer of theShareholders' shares will require an agreementby the transferee to abide by the limitationsrecited above, ds applicable, regarding thepower to exercise substantial- influence overPacifiCorp if, to the Sharehol-ders' knowledge,the t,ransferee would own 5Z or more of thevoting interests of MEHC or Berkshire Hathawayafter such transfer. By the foregoing, the
Sharehol-ders, PacifiCorp, MEHC and Berkshire
Hathaway do not concede that such transfereesare affiliated interests...
Does t.his conclude your supplemental testimony
proceeding?
Yes, it does.
CASE NO. PAC-E-05-8
7/L3/06 CARLOCK, T (Supp) 8
STAFF
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HEDRICK COURT REPORT]NG
P. O. BOX 578, BOISE, ID 83701
CARLOCK (X)
Staff
open hearing. )
been premarked
evidence. )
cros s - examinat i-on
(The following proceedings were had in
(stafr Exhibit. Nos. 10L and 1-02, having
for identification, were admitted into
MR. HOWELL: And Ms. Carlock is available for
COMMISSIONER SMITH: Thank you
Mr. Purdy,
MR. PURDY:
do you have questions?
No questions.
SMITH: Mr. BudgeCOMM]SS]ONER
MR. BUDGE: No questions.
COMMISSIONER SMITH: Mr. Noestrand Nost.rand
MR. VAN NOSTRAND: Thank you, Madam Chair.
CROSS - EXAMINAT]ON
BY MR. VAN NOSTRAND:
O. Good morni-ng, Ms. Carlock.
A. Good morning.
a. I just had a brief question just on that
provision you were referring to, page 8 of your of your
supplemental testimony. Could you explain what. the purpose, in
your mind, of including this proposing that this provi-sion
be incl-uded in Idaho?
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HEDRICK COURT REPORT]NG
P. O. BOX 5'78, BOTSE, fD 83701
CARLOCK (Com)
Staff
A. The purpose that I included this was that 1t was
an item that was reflected in Oregon's Stipulation that would
increase the ring fencing benefits. It is a provision that we
get whet.her it's adopted by this Commission or not. It's one
of the items that. if you have it in one state, it automatically
applies to every state.
The concern that the Company expressed regarding
the Oregon provision, f can understand their concern t.here that
they would have to go back to every state, so whether it's
included in the Idaho Order or not I would leave to the
Commj-ssion, but it's not, required.
O. Thank you.
MR. VAN NOSTRAND: f have no further questions,
Madam Chair.
COMMISSIONER SMITH: Are there questions from the
Commissioners?
COMMISSIONER HANSEN: I just have one.
COMMISSIONER SMITH: Commissioner Hansen.
EXAMINAT]ON
BY COMMISSIONER HANSEN:
The question I'dO
with Mr. GaIe. I rd ask is the
have is a foll-ow-up of earl-ier
Staff comfortable with
MidAmericanrs cost share allocation methodology of costs to
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HEDR]CK COURT REPORT]NG
P. O. BOX 5'78, BOISE, ID
CARLOCK (Com)
Staff
PacifiCorp?
A. The allocation would be reviewed in proceedings
that we would go forward with. For the initial review, y€s, I
am comfort.able with that, and that would be an item that we
would continue to review as we moved forward with all
all-ocations in all cases.
COMMISSIONER HANSEN: Thank you. That's all I
have -
COMMISSIONER K,JELLANDER: Commissioner
Kj e1l-ander.
EXAMINATION
BY COMMISSIONER KJELLANDER:
O. Ms. Carlock, if you could for me, I know some of
the other states have some pending Stipulations that may well
be filed within the next week to 10 days. How would it be that
St.aff would inform the Commission, along with the Company, with
regards to which Stipulations we may want to adopt and
accept.?
A. The Stipulation in section three of that item
gives the procedure that the Company will fo1low, the time
lines that they will follow those different Stipulations, ds
well as the final Orders with the other states, and also a
procedure that the various parties can folIow to adopt those
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HEDRICK COURT REPORTING
P. O. BOX 5'78, BOTSE, rD
items.
I would
would go through each
would be some sort of
expect from the Staff perspective that I
one of those provisions and that there
a written document to the Commission that.
woul-d recommend the items for adoptj-on as a supplemental
Attachment A to the Order
COMMISSIONER SMITH: Any redirect, Mr. Howe1l?
MR. HOWELL; No redirect.
COMMISSIONER SMITH: Thank you for your he1p,
Ms. Carlock.
(The witness
COMMISSIONER SMITH:
the witnesses that, were scheduled
parties have any further matters
before we close the hearing?
Does any party see
left the stand. )
By my taIIy, that
to testify today.
to bring before the
concludes
Do any
Commission
the need for a posthearing
brief?
If not, then the Commission will thank the
parties for their diligence in processing this case,
congratulate them on their success in achieving the
Stipulation, and we will consider it as speedily as possible.
I know we cancelled those public heariflgs, but I no longer
reca11 the comment deadline.
MR. HOWELL: Madam Chairman, the comment deadline
was t.he l-gth, which was the same day for the t.wo public
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HEDRICK COURT REPORTING
P. O. BOX 5'78, BOTSE, rD 83701
hearings.
COMMISSIONER SMITH: That' s
MR. HOWELL: Thursday.
COMMISSIONER SMITH: Okay. Then after the
comment deadline has passed, the record will be closed and the
Commission will deliberate as speedily as possible and issue an
Order. And we thank you all for your attendance and your he1p.
The hearing is adjourned.
(The hearing concluded at l-0:31- a.m.)
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HEDRICK COURT REPORTING
P. O. BOX 578, BOTSE, rD 83701
AUTHENT]CAT]ON
This is to certify that the foregoing is a
true and correct transcript. to the best of my ability of the
proceedings held in the matter of the Joint Application of
MidAmerican Energy Holdings Company (MEHC) and PacifiCorp dba
Utah Power & Light Company for an Order authorizing MEHC to
acquire PacifiCorp, Case No. PAC-E-05-8, commencing on Tuesday,
.fanuary 17, 2006, dt the Commission Hearj-ng Room, 472 West
Washington, Boise, fdaho, and the original thereof for the file
of the Commission.
Accuracy of all prefiled testimony as
originally submitted to this Reporter and incorporated herein
at the direction of the Commission is the sole responsibllity
of the submitting parties.
lal I
t MUR
WENDY J ta Public
E
t
*in and for the SL e of Idaho,residing at Meridian, Idaho.
My Commission expires 2-5-2008.
Idaho CSR No. 475?r of
113e25
AUTHENTICATION