19901210Vol V Hearing.pdf

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,ORIGINAL
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR A
CERTIFICATE OF PUBLIC CONVEN-
IENCE AND NECESSITY FOR THE
RATE BASING OF THE MILNER
HYDROELECTRIC PROJECT, OR IN
THE ALTERNATIVE, A DETERMINATION
OF EXEMPT STATUS FOR THE MILNER
HYDROELECTRIC PROJECT.
RFCE\'f.D lUBEFORE THE IDAHO PUBLIC UTILITIES COMMISSId~LE.O EJ
) gO OEC 16lll '\ 1'\
)) ûAHO pUßJC
~ CASE NO. ip~I1tji\¥-S8 COMU\SSION
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BEFORE
COMMISSIONER DEAN J. MILLER (Presiding)
COMMISSIONER RALPH NELSON
COMMISSIONER PERRY SWISHER
PLACE:Commission Hearing Room
472 West Washington
Boise, Idaho
DATE:November 28, 1990
VOLUME V - Pages 393 - 498
\.
7.-EDRICKCOURT REPORTING
537 W. Bannock P.O. Box 578
Suite 205 Boise, Idaho 83701
[phone] ./
. . . We offer .. BaDataMicrotranscription™ by
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APPEARANCES
For the Staff:BRAD M. PURDY, Esq.
Deputy Attorney General
472 West Washington
Boise, Idaho 83720
For Idaho Power
Company:
EVANS, KEANE, KOONTZ, BOYD
SIMKO &: RIPLEY
by LARRY D. RI PLEY, Esq.
Idaho First Plaza-Suite 1701
101 South Capitol Boulevard
Boise, Idaho 83702
For the Industr ial
Customers of Idaho
Power Company:
DAVIS WRIGHT TREMAINE
by GRANT E. TANNER f Esq.
1300 S.W. Fifth Avenue
Suite 2300
Portland, Oregon 92701
-and-
DAVIS WRIGHT TREMAINE
by PETER J. RI CHARDSON, Esq.
400 Jefferson Place
350 North Ninth Street
Boise, Idaho 83702
For Idaho ConsumerAffairs, Inc.:HAROLD C. MILES
316 Fifteenth Avenue South
Nampa, Idaho 83651
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
APPEARANCES
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I N D E X
WITNESS EXAMINATION BY PAGE
Thomas Faull
(Staff)
Commissioner Miller
Mr. Purdy (Redirect)
393
397
399
401
416
423
424
444
458
461
463
477
488
494
494
Stephanie Miller
(Staff)
Mr. Purdy (Direct)
Pref iled Testimony
Mr. Mi les (Cross)
Mr. Richardson (Cross)
Mr. Ripley (Cross)
Commissioner Swisher
Commissioner Nelson
Bill Eastlake
(Staff)
Mr. Purdy (Direct)
Prefiled Testimony
Mr. Mi les (Cross)
Jan B. Packwood
(Idaho Power)
Mr. Ripley (Direct-Reb)
Mr. Mi les (Cross-Reb)
Mr. Richardson (Cross-Reb)
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
INDEX
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I 1 EXHIBITS
2
I 3 NUMBER PAGE
I 4 FOR IDAHO POWER COMPANY:
5 1.- 3.Admitted 497
I 6 6.Summary, Milner Hydroelectric Identified 489
Pro j ect (Main Powerhouse)Admitted 497
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I FOR THE STAFF:
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101. - 103.Admitted 497
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I FOR THE INDUSTRIAL CUSTOMERS OF IDAHO POWER:
12
201. - 202.Admitted 497
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I HEDRICK COURT REPORTING EXHIBITS
P . 0 . Box 578,Boise,ID 83701
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BOISE, IDAHO, WEDNESDAY, NOVEMBER 28, 1990, 1:30 P. M.
COMMISSIONER MILLER: Well, let's resume our
consideration of Case IPC-E-90-8.
THOMAS FAULL,
produced as a witness at the instance of the Staff, having
been previously duly sworn, resumed the stand and was
further examined and testified as follows:
EXAMINATION
BY COMMISSIONER MILLER:( Con t inued)
Q Just a couple of more questions, Mr. Faull.
I don't want to waste everybody's time here, but I'm not
sure I really understood the answer to the question that
we left off with; so for the purpose of getting this
restated again, I'd like to think about this just in terms
of cost-effectiveness for resource evaluation purposes,
not in terms of revenue requirement questions and rate
impact questions, just in terms of cost-effectiveness
evaluation.
Would you give me your answer again to the
question of in your opinion, is the Milner project
393
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
FAULL (Com)Staff
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cost-effective if evaluated as a deferrable resource?
Does it pass the cost-effectiveness test for a deferrable
resource? The point of the question being is that if the
answer to that is yes, you don't even have to get to the
question of do you give some greater value to
non-deferrable resources.
A Right, and I guess I can't give you a simple
yes or no answer to that. It may be. There are things
about both, what to call the cost-effectiveness standard
and how to analyze the project that need to be determined
before one could say yes or no, but as I've analyzed it,
it appears that it may be cost-effective as it's proposed
and committed to at this point.
Q So in your opinion, we would be wi thin some
zone or some range of cost-effectiveness when evaluated
from the non-deferrable point of view?
A It's within that range. It's close enough
to that range that I would think it should be possible to
develop it cost-effectively.
Q Okay, and that's kind of your qualif ication
on the ultimate cost and how much ultimately gets into
rate base, but from just a cost-effective standpoint as we
look at it today.
A As we look at it today I believe it's
possible to develop that project so that it would be
394
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
FAULL (Com)Staff
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cost-effective by avoided cost standards.
Q Well, let's say that it wasn't or that it
was a very close question and that it looked more likely
than not that it would not pass that sort of a test and
then you had to think of it as a non-deferrable resource.
What advice do you have for us in terms of how you
evaluate a non-deferrable resource from a
cost-effectiveness point of view? What other matters of
judgment or, in other words, at what point would the
Commission say even this non-deferrable resource should
not be built, how do you get to that point?
A In my view, the only issue beyond
cost-effectiveness, and that's not determined yet, but
once you can say concretely that it is or is not
cost-effective, then I think the only outside issue that
can or ought to be looked at is from a policy standpoint
are there non-economic advantages to having regulatory
control over that site, and off the top of my head, I
can't think of any, but there may be some, but to say that
this is a lost opportunity and it's a resource indigenous
to the State of Idaho, therefore, it should be -- with
electricity this is a little bit difficult -- it will be
consumed in the State of Idaho, but the cost of it could
be paid for by somebody outside the state and on paper
appear it's consumed elsewhere, but I don't see any value
395
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
FAULL (Com)Staff
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other than economic off the top of my head that would make
that resource more valuable than it is.
Q Do you think your point of view and
Dr. Eastlake's point of view are totally harmonious in
this case? As I understand Dr. East lake's test imony, he
seems to be saying that electricity is not an
undifferentiated commodity, but there are other values
associated with it and then he goes through a pretty
lengthy, interesting policy analysis of factors you might
consider in addition to strict cost-effectiveness.
You seem to be saying cost-effectiveness is
the test and over and above that it just particularly
isn't relevant at all. Dr. Eastlake seems to be saying
that there are other things over and above
cost-effectiveness you might consider.
A And I think our positions are reconcilable.
When I say you have to establish the cost-effectiveness,
I'm assuming that in some way policysetters will put a
value on these more nebulous things and roll that into the
cost-effectiveness equation. You could either look only
at hard costs and then say we're willing to pay so much
premi um for these other things or you can approach it from
another viewpoint and say these are the hard costs, we
evaluate these softer costs to be worth so much; so that i s
the cost-effectiveness standard; so I think we're saying
396
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
FAULL (Com)
Staff
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the same thing from two different points of view.
COMMISSIONER MILLER: Well, sorry to take up
everyone's time.
Redirect.
MR. PURDY: I just have two questions.
REDIRECT EXAMINATION
BY MR. PURDY:
Q Mr. Faul l, I be 1 ieve in response to a
question by Commissioner Nelson, you stated that your
analysis of Milner capacity factor was perhaps more of a
back-of-the-envelope calculation than a detailed
analysis. Could you explain what you meant by that?
A Yeah,' when I said a back-of-the-envelope
analysis as opposed to a detailed analysis, I don't want
to leave the impression that this is just something I
pulled out of the air. The analysis of the capacity
factor for the Milner project was a fairly detailed
computation. The estimate of what the typical
cost-effective range for hydroelectric projects is based
on some substantial experience in feasibility analysis and
actual construction of hydroelectric power plants, and the
fact that I didn't do more detail is based primarily on
the position I'm in.
397
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
FAULL (Di)Staff
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I can't go out and get believable estimating
costs from turbine manufacturers and generator
manufacturers. My experience with construction is far
enough in the past that to apply that to a plant today
would not be reasonable; so the term back of the envelope
means I didn't delve into these costs extensively because
I didn't feel that I had the resources to do it. I have
the skill and if I were given the resources, I could do
it, but at this point, I didn't think it was justif ied to
go to that extent, but some envelopes are more
sophisticated than others and this is a fairly
sophisticated envelope.
Q Okay. And just a point of clarification, I
think you agreed that the Milner plant is non-deferrable
to Idaho Power Company to the extent that if the Company
doesn't develop it, then somebody else might. Could this
be said to be true of any hydro project that's
economically feasible?
A Yes, I believe any hydroelectric project
that could be licensed and is economically feasible could
fall in the same category. If one entity doesn't develop
that site, somebody else very well could and to that
extent it's non-deferrable.
MR. PURDY: With that, I have nothing
further.
398
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
FAULL (Di)Staff
COMMISSIONER MILLER: Al 1 right. Mr. Faul 1 ,
thank you very much for your help. As always, it's very
informat i ve.
(The witness left the stand.)
COMMISSIONER MILLER: Your next witness,
Mr. Purdy.
MR. PURDY: Stephanie Miller.
STEPHANIE MILLER,
produced as a witness at the instance of the Staff, having
been first duly sworn, was examined and testified as
follows:
DIRECT EXAMINATION
BY MR. PURDY:
Q Would you please state your name?
A My name is Stephanie Miller.
Q Are you the same Stephanie Miller who has
filed pref iled direct testimony in this case consisting of
15 pages with no exhibits?
A Yes, I am.
Q And if I were to ask you the same questions
today as contained in your pref iled direct testimony,
would your answers be substantially the same?
399
HEDRICK COURT REPORTING
P.O. Box 578, Boise, ID 83701
MILLER (Di)Staff
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I 1 A They would.
2 MR. PURDY:I would ask that Ms. Miller's
I 3 test imony be spread upon the record as if read.
I 4 COMMISSIONER MILLER:So ordered.
5 (The following prefiled testimony of
I 6 Ms. Stephanie Miller is spread upon the record.)
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I HEDRI CK COURT REPORTING MILLER (Di)P . O. Box 578,Boise,ID 83701 Staff
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Q. Please state your name and business
address for the record.
A. My name is Stephanie Miller. My
business address is 472 West Washington Street, Boise,
Idaho.
Q. By whom are you employed and in what
capaci ty?
A. I am employed by the Idaho Public
Utilities Commission as Director of the Utilities
Division.
Q. What is the purpose of your testimony in
this proceeding?
A. The general purpose of my testimony is
to address the two alternatives Idaho Power Company has
proposed in this case. Specifically, I will recommend
that the Commission issue a certificate for the present
convenience and necess i ty for the Hi lner Proj ect. I
will also address the proposed certificate of exemption
alternative in the event the Commission should consider
this option.
Q. Did Idaho Power express a preference for
one alternative over the other in its application?
A. No, it did not. It did not state which
a i ternati ve the Company would prefer. Nei ther did it
explain why either alternative would be a benefit to --
IPC-E-90-811/9/90
MILLER (Di)Staff 1401
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Idaho ratepayers or whether one alternative was better
for ratepayers than the other.
Q. Did the Staff investigate the reasonable-
ness of Idaho Power's commitment estimate for the
Milner Project?
A. Yes. Staff audi tor Jack Taylor reviewed
the information upon which the Company relied for its
commitment estimate. He concluded that the manner in
which the estimate was made was reasonable aiid that
with careful management, the Company should be able to
bring the proj ect on i ine at 0 r below the $63,350,600
commi tment.
Q. Mr. Faull has tested the cost-effective-
ness of the Milner Project by comparing its cost to
avoided cost rates offered to cogenerators and small
power producers. How do the rates customers would pay
if the plant is rate based at $63,350,600 compare to
the hypothetical avoided cost rates calculated by
Mr. Faull?
A. Over the 46-year life of the project
ratepayers would pay only slightly more for power from
the Milner Project than for comparable power from
cogenerators or small power producers as estimated by
Mr. Faull. However, under rate of return regulation
customers would pay considerably more in the early
IPC-E-90-811/9/90 MILLER (Di)Staff 2402
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years of the plant's life than with an avoided-cost-
based contract.
There are some basic differences between
the way costs are recovered from customers through
traditional ratemaking and through contracts using
avoided cost rates. Avoided cost rates are levelized
over the life of the power contract and increase only
slightly as operating and maintenance expenses increase
(or, theoretically, decrease slight ly as O&M expenses
decrease. The capital costs associated with a rate-
based plant are not levelized; they are higher in early
years and lower in later years as the plant is
depreciated. This is especially true for hydroelectric
faci lities with their high construction costs and
relatively lower operating and maintenance expenses
over the life of the plant.
Mr. Faull has calculated a levelized
cost for the Hi Iner Proj ect of 62.73 mi i Is per kwh.
Using Mr. Faull's assumptions, first year costs of the
project under traditional regulation would be 74.14
mills per kwh.
If the power generated at the Milner
Project could be sold at an average rate of 33 mills
per kwh, the Company would need a rate increase from
its customers of $7.7 mi 1 1 ion, or approximately 1.9%,
IPC-E-90-811/9/90 MILLER (Di)Staff 3403
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as a result of including the project in rate base. If
the Company were to buy a comparable amount of power at
the hypothetical contract rate calculated by Mr. Faull
of 61.35 mills per kwh from a cogenerator or small
power producer and receive the same 33 mills for the
power, the net increase to ratepayers would be $5.3
million, or approximately 1.3%. If the power were not
needed and had to be sold strictly on the secondary
market, the increase experienced by ratepayers would be
larger. At a secondary sales price of 20 mills, the
increase would be 2.4% wi th rate basing and 1.9% wi th a
power supply contract.
After 7 years, the average cost of the
power would be less with the plant in ra te base (64.50
mills per kwh) than with a levelized power supply
contract including an adjustable portion that had
escalated, increasing the rate to 65.03 mills per kwh.
Q. How firm are these numbers?
A. These numbers are estimates to help the
Commission make a decision on whether it is reasonable
to grant Idaho Power a Certificate of Convenience and
Necessity. The Company's commitment estimate is just
that, an estimate. Mr. Faul i' s hypothet ica i avoided
cost rate is his estimate of a 46-year avoided cost
rate. The Commission has not approved such a rate.
IPC-E-90-8
11/9/90
MILLER (Di)Staff 4404
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---,
Q. Based on this information, should the
Commission grant Idaho Power a Certificate of
Convenience and Necessi ty for the Mi lner Project?
A. Based on this showing that the cost of
the Milner Project is approximately the same as avoided
cost rates and other policy considerations discussed by
Mr. Eastlake, I believe the Commission should grant a
certificate for the present convenience and necessity.
Q. Does your reco~nendation to the
Commission mean that the Mi lner Proj ect should
inevi tably be included in rate base at $63,350,600 or
more if escalation and scope changes occur?
A. No, it does not. If the Company is able
to construct the project for less than the commitment
estimate it would enter rate base at the lower amount.
Also, whether the cost is $63,350,000 or a number lower
or higher, only construction costs found prudent by the
Commission will enter rate base.
The granting of a certificate simply
means that the Company may proceed wi th construction
wi th the understanding that the plant wi i i ordinari ly
be included in rate base if major changes in either the
cost of the project or the environment in which the
Company operates do not occur between granting the
certificate and the completion of the project.
IPC-E-90-811/9/90 HILtiER (Di)Staff 5405
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Idaho Power should be reminded that a
Certificate of Convenience and Necessity is not an
order to complete a project. It is authority to
proceed with a projectnot a guarantee it will be rate
based. If major project scope or escalation changes do
occur, or if the Company's projected power needs change,
the Company should use its good management judgment to
decide whether to proceed. The filing of quarterly
construction reports will keep the Commission and Staff
generally informed about progress on the project, but
the Commission is not in the business of managing the
Company's construction program. The Company is.
Neither should the Commission be in the business of
prospectively insulating the Company from charges of
mismanagement if the Company completes a cer t i fica ted
plant under circumstances that have changed since the
certificate was issued when those circumstances would
have counseled against the plant had they been known
earlier.
By the same token, the Commission and
other parties should recognize that the Company is
proceeding with the project under the assumption that
it will be used to serve its utility customers. The
Company should not be asked to bear all costs of the
IPC-E-90-811/9/90 MILLER (Di)Staff 6406
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lplant on its own if there are changed circumstances,
provided it reacts prudent ly to those changes.
Q. Idaho Power has presented an a 1 ternat i ve
to including Milner in its regulated rate base. Would
you describe your understanding of what has been
proposed?
A. I f the Commi ss ion determines that it is
not reasonable fo r the Company to const ruct the Mi lner
Project for its regulated utility customers at this
time, Idaho Power requests the Commission issue a
Certificate of Exemption that would allow the Company
to operate the facility on an unregulated basis through
an affiliate for a 20-year period. At the end of the
20-year period, the Company would be obligated to offer
the project to the Commission for service to its
regulated utility customers at that time . The Company
asks the Commission to agree to allow the plant to
enter rate base at that time at "reproduction cost new,
less depreciation".
Q. Is this a reasonable proposal?
A. I think it is a new and innovative
regulatory approach. I t would give Idaho ratepayers an
option on resources that may not be needed now, but may
very well be desirable in the future. There are prime
hydroelectric sites in the Idaho Power service area
IPC-E-90-811/9/90 MILLER (Di)Staff 7407
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depreciation. At first blush, it sounds reasonable.
The utility should be compensated for the gain in the
value of the plant during the time it was used for
contract sales. The Idaho Commission has generally
subscribed to the "original cost" theory of ratemaking,
allowing plant into rate base at the value (ordinarily
the reasonable investment) at which it was originally
devoted to public service. Under Idaho Power's
alternative proposal, that would be the value 20 years
from now.
I am concerned that by speci fica 1 ly
prescribing how reproduction cost new, less depreciation
will be determined, the Company has offered an option
that may very well be no option at all. The method
described by the Company will in all likelihood produce
a "price" that will not reflect the true value of the
plant to be "acquired" by ratepayers when it is
dedicated to public service and, therefore, will be
rejected.
Idaho Power proposes to determine the
cost to "dupl icate" the Mi Iner Proj ect at future cos ts
for all materials, supplies, labor, land and land
rights, transportation, etc. This would ignore contem-
porary products and new technologies that would be
avai lable 20 years f rom now. Not only might the
IPC-E-90-811/9/90 MILLER CDi)Staff 9409
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that are very at tract ive to ut iIi ties serving areas ~
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outside Idaho. A surplus on the Idaho Power system
would preclude Idaho Power under current regulatory
pract ices f rom developing the sites for its customers.
If development is delayed until power is needed, the
site may no longer be available. For example, in the
early 1980s, Idaho Power was interested in bui lding
generating facilities at Lucky Peak Dam, but it did not
need the power. Seattle City Light is now generating
power a t Lucky Peak for use by its customers in
Washington.
Mr. Eastlake has addressed policy issues
important to the development of hydroelectric generation
in Idaho. As Mr. East lake points out hydropower
resources in the state have resulted over the years in
Idaho Power customers paying some of the lowest rates
for power in the country. Idaho Power' s proposal would
give Idaho ratepayers an option on such facilities in
the future, even if they were not needed today.
Al though I 1 ike the concept proposed by
the Company, I have some concern about how it would
actually work.
Q. What are those concerns?
A. My first concern is the detail in which
the application spells out reproduction cost new, less
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physical plant be qui te different, but labor and
construction methods used to construct a plant might
also have changed significantly.
The Company would then reduce the cost
of the duplicate plant by an amount representing the
straight-line accumulation of depreciation of the
reproduction costs. Once again it would ignore the
fact that the plant had become to a certain extent
obsolete, requi ring increased maintenance expense, and
would not be the most valuable plant for generating
power because technological improvements had resulted
in reduced costs, better designs, and enhanced abi lity
to provide service.
I am also concerned about the practical
matter of determining reproduction costs. It will be
no easy matter. The Commission will be faced with a
variety of cost estimates made by thoroughly reputable
engineers who will disagree on what the reproduction
cost of the facility would be. The following is an
excerpt from an Iowa state Commerce Commission Order:
The most serious defect of reproductioncost, and, therefore, of the "fai r
value" method, is that it has no
kinship with fact or reality. It is amass of assumpt ions, est imates hav ing
no sound foundations in fact,
speculations, and conjecture. (We do
not condemn reproduction cost because
estimates are involved. Estimates are
IPC-E-90-811/9/90 MILLER (Di)Staff 10410
often involved in rate making and in
many business matters. But there is a
difference between estimates having a
solid foundation of fact and estimatesderi ved f rom hypothesis and assumptions.
Such estimates are involved in
reproduction cost. They are built on
foundations of sand and have no
probative force.) Subjective judgments
of the engineers preparing the
reproduction cost regarding the methods
of pricing to be used, the assumptions
as to construction, and other elements
involved in the construction of utility
properties, are so vital to the process
that no two valuation engineers arrive
at the same resul t and di ffer so widely
as to cast grave doubt on the results
of each. Reproduction cost departs
from the solid ground of fact and
embarks upon guesswork. Scores of
items are involved on which equally
competent judgments might produce
widely divergent results. Final
figures appear to be so painfully
precise, yet they are built upon an
hypothesis so unreal as to make theexactness ludicrous.
Re Davenport Water Co., Iowa State Commerce Commission,
September 27, 1968 76PUR3d 220.
No doubt, reproduction costing has a Iso
experienced technological changes since the Iowa Order
was issued in 1968. This may inake decision-making
easier, and then again may make it more difficult if
the Commission is deluged with computer models all
professing to estimate the same thing and arriving at
a different result. I include this quotation from the
Iowa Order because it illustrates a Commission's
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frustration when faced with a case that revolves
around conflicting subjective judgments of a number of
highly qualified expert witnesses.
Q. Do you have a recommendation as to how
the plant might be valued 20 years in the future?
A. I think the most sensible thing to do
would be to replace the reproduction cost language
with a general statement that the Commission would
determine the value of the plant at that time for rate
making purposes. The Commission is not now restricted
to book cost, but may ascertain the value of utility
property "and every fact which, in its judgment, may
or does have any (blearing on such value.n Idaho
Code, §6l-523.
If the Commission and the Company are
uncomfortable with the uncertainty that such a general
provision would provide, I have an alternative. That
alternative would be to bring the plant into rate base
at original cost less depreciation accrued using the
annuity method. The annuity method levelizes the
capital costs of a project over the project life by
applying low depreciation rates in early years when
required return is high and high depreciation in later
years when required return is lower. This method was
used in the past for hydroelectric projects like the
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Hells Canyon Complex of three dams. This approach
would have the advantage of relying on veri fiable
booked costs but would recognize that any power sale
made by the Company would probably be based on the
levelized cost of the project. Using the 11.447%
return from the Idaho Power Avoided Cost Order No.
23357 assumed depreciation using this method over 20
years would be $3,374,140 on an original cost of
$63,350,600. The assumed depreciated value of
$59,976,500 would be the price at which the plant was
transferred from the affiliate to the utility.
Q. If neither of these changes is accepted,
would you recon~end accepting Idaho Power's proposa I?
A. If a project is clearly not currently
cost effective to Idaho Power's customers, but appears
to be a good long-term resource, I would recoii~end
approval. If someone other than Idaho Power bui Ids
the plant, ratepayers would have no option on the
facility, and any option is better than no option at
all. It should be understood, however, that if
restricted to the Company's proposed use of reproduc-
tion cost, the value of the option to ratepayers may
not be high.
Q. Is the use of reproduction cost as
defined in the Company' s application your only concern?
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A. No, it is not. Idaho Power proposes to
operate an exempted plant through a subsidiary that
would contract with a third party for a long-term sale
of the power. I am also concerned about the ability
of Staff to insure that there is no subsidization of
the affiliate by the utility and its ratepayers.
At a minimum, the Staff would have to
have access to the power sales contracts signed by the
affiliate to determine exactly what the conditions of
the power sales contracts are. The staff would also
requi re access to the books of the subs idi ary so that
transactions between the utility and affiliate could
be traced. In the case of Milner, which is located iii
the heart of the Idaho Power service area, the staff
would also need to see load and dispatch data to
ensure that system power was not being used to supply
the third party purchaser unless the uti lity was
explici tly compensated for the power. Even wi th
careful segregation of costs and cost allocations
between the affiliate and utility, there would still
be aspects of the relationship between utility and
affiliate that would be unquantifiable, but that might
very well result in higher prices obtainable by the
affiliate for its power.
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Q. Do you cons ider your concerns about cos t
allocation and monitoring the activities of the power
supply affiliate to be insurmountable barriers to the
a i ternat i ve proposed by the Company?
A. No, I do not. I do consider them to be
important issues that would have to be worked out
between the Commission and the Company before final
approval could be given.
Q. Do you have a final coinment on Idaho
Power's second alternative, the proposed certificate
of exemption?
A. Yes. The legal staff advises me there
is no statutory basis for such a certificate. The
Commission may, however, authorize construction of the
project for the future convenience and necessity, not
merely for the present convenience and necess i ty.
This certificate could incorporate the terms of the
Company's proposed certificate of exemption.
Q. Does this complete your testimony?
A. Yes, it does.
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(The following proceedings were had in
open hear ing. )
MR. PURDY: And she is available for
cross-examination.
COMMISSIONER MILLER: Mr. Miles, do you have
questions for Mrs. Miller?
MR. MILES: Yes, I do. I can't get this
good-looking gal up here and let her go scot-free.
CROSS-EXAMINATION
BY MR. MILES:
Q Ms. Miller, if you would turn to your direct
testimony, please, at the bottom of Page 2 and the top of
Page 3, my question is if during the 46-year anticipated
life of the project the plant's fuel source becomes
greatly reduced, how would the effect of, how would this
affect Idaho Power customer's rates if the plant were
allowed in rate base?
A I'm not sure I understand the question. Did
you say something about the fuel source?
Q Yes, if the fuel source becomes greatly
reduced.
A In other words, the water, are we talking
water here?
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Q In the case of a hydro plant, it would be
water, yes.
A Then what was the rest of the question? I'm
sorry.
Q Well, if this were greatly, if the fuel
source or the water were greatly reduced or would be
reduced from what was projected, then how would that
affect Idaho Power's customers as far as the rates are
concerned?
A It would result in higher rates or higher
per unit rates, I would assume. If less power could be
generated at the hydro facility, you would be spreading
fixed costs over a smaller number of kilowatt hours.
Q Thank you. If you would turn to Page 7, you
say at the bottom of Page 7, next to the last sentence,
"There are prime hydroelectric sites in the Idaho Power
service area that are very attractive to utilities serving
areas outside Idaho." Would you care to list or say where
these sites are located?
A Well, I assume, I guess I'm assuming that
Milner is one of them.
Q What other sites? You used plural here.
A Well, I think there are some other sites
along the Snake River that we've been reading about in the
newspaper. I believe Kanaka Rapids is one. Wiley, I
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believe, is another.
Q I see. On Page 13, beginning at Line 14,
the answer, "If a project is clearly not currently
cost-effective to Idaho Power's customers, but appears to
be a good long-term resource, I would recommend
approval." Would you mind defining "long-term resource"?
A I think here I was referr ing to approval of
the Certif icate of Exemption option as opposed to the
current rate base or certif icate for the current
convenience and necessity; so a long-term resource would
be a resource of something longer than 20 years, a hydro
plant with a 50-plus-year life would certainly be a
long-term resource to consider.
Q Well, then if I understand you correctly,
then, it would be 50 years plus?
A Well, 50 years plus would definitely be a
long-term resource, but that wouldn't be the only
def ini tion of a long-term resource.
Q I see.
A Something longer than 20 years.
Q Okay. If you might turn to Page 15, please,
when you say, liThe legal staff advises me there is no
statutory basis for such a certificate. The Commission
may, however, authorize construction of the project for
the future convenience and necessity, not merely for the
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present convenience and necessity," would you, does this
mean deferring putting plants into rate base until the
plant becomes used and useful?
A What it means is that the Commission could
issue a Certificate of Convenience and Necessity and say
it's not for immediate rate basing when the plant is
completed, but for some time certain in the future, and in
this case, Idaho Power Company has asked or has proposed
that it would come back in 20 years and ask the Commission
if it wanted the plant in rate base at that time and the
Commission could make a determination that it would either
yes, go in rate base or no, not go in rate base.
Q Then there is -- of course, this is a legal
question and your counsel might object, but in your
opinion and in your experience before this Commission,
would you anticipate that the Commission had the authority
to do that?
A My attorney advises me that he believes the
Commission does have that authority.
Q I see, thank you. Ms. Mi 1 ler, what is the
annual depreciation of Idaho Power Company's system in
Idaho?
A I don i t have that number with me, Mr. Miles.
Q Would you hazard a guess or render an
opinion as compared to the additional costs of rate basing
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Mi lner and Swan Fal ls, how would that stack up, the annual
depreciation of their entire system for their Idaho
jurisdiction?
A Do you know what the annual depreciation
is?
Q Well, I don' t have Form 10-K with me
ei ther.
A Okay. I'm thinking somewhere in the
neighborhood of 3- to $4 million, but that could be off by
a factor of 10.
Q Forty million?
A Three to four.
Q Oh, three to four mi 1 lion.
A And I may have dropped zeros. I have no
idea is, I guess, the short answer to that. Obviously, it
would be 30 to 40 maybe.
Q Well, now, does that consider, do they have
any plant that is fully depreciated?
A I would assume that the Swan Falls plant is
close to being fully depreciated, if not more than fully
depreciated.
Q i see.
MR. RIPLEY: I've got to ask, how do you
more than depreciate a plant?
THE WITNESS: Only through utility
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accounting.
Q BY MR. MILES: Should the environmental
costs, such as acid rain, pollution and so forth, as well
as the extra O&:M, be factored in when the up-front costs
of hydro sites are determined, that is, when a comparison
is made?
A Would you ask that question again? I think
we're about to get you a number on your depreciation
expense.
Q Well, we can refer back if you've got the --
A Go ahead, I was distracted.
Q Well, when you compare hydro, the up-front
costs of a hydro plant compared to the costs of a thermal
plant, should the environmental costs of a thermal plant,
such as acid rain, pollution and the extra O&:M, be
factored in on a thermal plant when the comparison of the
costs between the two types of generating facilities are
made?
A We find that commissions around the country
are beginning to look more and more at trying to do what
economists call internalize those costs and make them an
actual cost consideration in your cost comparisons. It's
my opinion that to the extent that those sorts of costs
should be quantif ied when they can be in determining the
choice between two plants.
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1 Q And that would include the disposal of the
2 ashes and a lot of other factors, too, wouldn't it?
3 A I would think so, whatever costs there are
4 that were not normally considered.
5 Q Did you finish?
6 A Yeah.
7 Q Well, now, I have a facetious question to
8 ask you, Ms. Miller. Would the exchange of Milner in rate
9 base for the Boardman plant out of rate base be a prudent
10 exchange?
11 A I don i t know. I think I would feel much
12 better with the Milner plant than I have felt in the past
wi th the Boardman plant.13
14 COMMISSIONER SWISHER: Boardman has just
15 gone on line, Mr. Miles. It's too early to judge.
16 Q BY MR. MILES: Ms. Mi 1 ler, do you know how
17 long Boardman has been out of service since l ts been in
18 the rate base?
19 A I think when Commissioner Swisher says it's
20 just gone on line, that's pretty close to the truth.
21 Q When was it put into rate base?
22 A It would have been the very late '70s, I
23 believe, or 1980.
24 COMMISSIONER SWISHER: About' 80.
25 Q BY MR. MILES: And then the ratepayers of
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Idaho Power Company have gotten stuck for the cost of the
Boardman plant all that time and received very little
generating from it; is that right?
A That's true, but I would also assume that
since it' s run so little that the life of the Boardman
plant has probably been extended.
MR. MILES: Thank you, Ms. Miller. I have
no further questions.
COMMISSIONER MILLER: Thank you, Mr. Miles.
Mr. Richardson, do you have questions?
MR. RICHARDSON: Just one question,
Mr. Chairman.
CROSS-EXAMINATION
BY MR. RICHARDSON:
Q Ms. Miller, on Page 6 of your prefiled
testimony, beginning on Line 3, there i s a sentence, is
that sentence exactly how you wanted it to read?
MR. PURDY: I'm sorry, Counsel, which page
is that?
MR. RICHARDSON: Page 6.
THE WITNESS: Yeah, there's a negative left
out of that.
Q BY MR. RICHARDSON: Could you fix it,
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please?
A The word "or" should be replaced with
"not. "
MR. RICHARDSON: That's all I have,
Mr. Chairman.
COMMISSIONER MILLER: Thank you,
Mr. Richardson.
Commissioner Swisher.
MR. RIPLEY: Do you want me to ask my
questions before Commissioner Swisher?
COMMISSIONER MILLER: Oh, do you have
questions?
MR. RIPLEY: Well, I don't know.
COMMISSIONER MILLER: Well, let's find out.
MR. RIPLEY: Yes, I have a few.
COMMISSIONER MILLER: I'm sorry, Mr. Ripley.
MR. RIPLEY: That's all right.
CROSS-EXAMINATION
BY MR. RIPLEY:
Q Ms. Miller, if I could direct your attention
to Page 2 of your prefiled testimony, your answer that
commences on Line 13, I assume you've been in the hear ing
room during the time that Mr. Faull has testified.
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A Yes.
Q Do you understand that the cost-effective
test that Mr. Faull is applying is not a comparison of the
costs to avoided cost rates offered to cogenerators and
small power producers but is some other type of formula?
A I understand that he has adjusted posted
avoided cost rates to arrive at his estimate of what a
rate might be if it were offered under conditions
different than what is available under cogeneration rates.
Q But it's not a direct comparison of the
avoided cost rate set for the purchase of cogeneration and
small power production with a rate that he has computed
for the Milner project, is it?
A No.
Q Now, at the bottom of Page 5 you're
explaining what you believe the granting of a certificate
means and you say, "with the understanding that the plant
will ordinarily be included in rate base if major changes
in either the cost of the project or the environment in
which the Company operates do not occur." What do you
mean by "the environment"?
A Well, I think when I say the environment, I
mean things that are not, events that are happening that
are not directly happening on the actual construction
project itself. I mean things like the Company's load, in
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this case, the source of water, other things that could be
happening that would impair, could possibly impair, the
value of the particular asset that's being constructed.
Q And I appreciate that we're talking
policy-wise and that perhaps what comes out of these
proceedings is something more than just Milner and Swan
Falls, but intuitively, isn't it realistic to assume that
since Milner comes on line in 1992 the likelihood of any
changes in the environment as you refer to them are pretty
remote?
A I think as the construct ion time is
compressed, yes, that the possibility of things happening
becomes probably less.
Q And Milner is projected to go on line in
1992?
A That's correct.
Q So if that is true, then can the Company
reasonably anticipate that if there are no major changes
in its costs as it has provided under its commitment that
its investment in Milner should be rate based?
A I think so, but I don't think that it
relieves the Company of the obligation to use what
Mr. Baggs referred to as, I think, good business practices
during that time and take corrective action if it's
necessary.
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Q But the potential --
A The potential is not as great in a two-year
period as it was over a 10-year construction period, which
is what we had for Valmy Unit No.2, for instance.
Q And when the Commission is exploring what a
Certificate of Convenience and Necessity for a generation
plant provides to a utility, is there a difference in your
mind between the granting of a Certificate of Convenience
and Necessity for a thermal facility as opposed to a hydro
facili ty?
A No.
Q All right, let me ask you this: Obviously,
when a hydro plant is completed, if there is water in the
river, that facility will operate; correct?
A Yeah, that's a simplifying assumption, but,
yes.
Q Well, why is it simplified? The costs of a
hydro facility are capital costs, there are no operating
costs to speak of, are there?
A Tha t 's true.
Q So if you've constructed the facility and
there's water in the river, the utility unless it is
imprudent will permit the turbines to spin and electricity
wi 1 1 be produced.
A I think that's probably a safe assumption to
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make generally speaking, but I know that there are things
that could happen. I mean, people could object or there
could be some reason why your turbines weren't allowed in
the river or al lowed to chew up f ish or something, I don't
know.
Q Barring some environmental, outside
environmental, consequence, if the utility constructs a
hydro facility, it is going to operate the hydro facility
upon completion of the construction.
A I would assume so.
Q Now, that is not true of a thermal facility
as we just heard in this Hearing Room. A thermal facility
can be constructed and never operated.
A Well, I think you could also assume that a
hydro facility could be constructed and never operated.
Q But intuitively, is that a reasonable
assumption to make?
A No.
Q Is ita reasonable assumption to make that a
thermal fac1li ty may be constructed and never operate for
a per iod of time?
A I find that a hard assumpt ion to make, too.
Q Well, let's take Boardman, for example.
Boardman was constructed, it was completed and then it
d1dn't operate.
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A Tha t 's true.
Q Why didn't it operate?
A Power wasn't needed from the facility.
Q The operating costs to produce power out of
that uni t were more than where you could obtain another
source of power.
A Tha t 's true.
Q Now, let's take a hydro facility and when
the hydro facility is completed and it's on line, is there
any place that the utility can go to obtain cheaper power
than what it can obtain from operating the hydro unit?
A You're correct, the incremental cost of
operating a hydro facility is very small.
Q And what I'm grabbling with here in my mind
is the used and useful concept that you answered a few
inquiries from Mr. Miles. Under that concept, once a
hydro facility is constructed, it's always used and
useful.
A It may be used, but it may not be useful.
Q But useful would be in the eye of the value
that you're going attach to the power that's produced.
A If you look only at the incremental costs.
Q Yes.
A It may not be considered to be useful by a
ratepayer who is not only asked to pay the incremental
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cost but is asked to pay the fixed cost as well.
Q In which event, the choice of the ratepayer
is to say I don't want any of the costs of that unit
passed on to me.
A Yes, that's true.
Q Now, in a couple of places in your testimony
we're talking about the alternate proposal of Idaho Power
Company and you say, " It's the Company's proposal to
operate the facility on an unregulated basis," and then
this is my question "through an affiliate for a 20-year
period. "
A Yes, and I realize that that was an
assumption I made that was not necessarily true. When
Mr. Keen, when we asked Mr. Keen yesterday, he indicated
that it was a definite possibility that the plant could be
operated by the utility and the power just be used to
serve in the FERC jurisdiction or the Oregon jurisdiction,
in which case, I think my, if that were the case, I think
my recommendations on at what price it would enter the
Idaho rate base would probably change.
When I wrote my test imony, I was under the
assumption that it would be operated by a subsidiary and
sold through a private contract. There's some question if
the plant were operated by the utility and devoted to the
public service at the time it was completed, whether it
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was devoted to the public service in Idaho or to some
other jurisdiction, that you would face a very different
question 20 years in the future when you were to bring it
into Idaho.
Q You would face some unique rate base
allocation issues.
A Along the way as well, yes, and then at the
time that it was dedicated to Idaho, I think a very good
argument could be made that it would come in at original
cost less depreciation.
Q And why would that be if it's never been
dedicated to the use of the Idaho ratepayer?
A Because the Company had been recover ing its
costs through traditional regulation over the 20 years; in
other words, it was recover ing the ful 1 return on its
investment plus depreciation in the early years; so I
think it would be something that would be argued at that
time and I think if I were there arguing it, I would make
a case for that.
Q So, as I understand it, if the Commission
were to go the alternate proposal route, which I
understand you don't recommend, then it would be advisable
under your theory if it were adopted by the Commission to
place the unit in some type of subsidiary to operate?
A Not necessarily. It depends on what it IS
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used for. If it's used in the public service, if it's
dedicated as a utility plant, it doesn't make a lot of
difference whether it's used by a subsidiary to serve
Oregon or some FERC, you know, your FERC clients or
whether it's used in Idaho, it's a utility plant.
If you were operating it in a subsidiary and
you had a private contract somewhere, then it wouldn't be
a regular regulated plant and then it would be dedicated
for the first time to the public service when it came into
plant in 20 years.
Q Well, and I don't mean to belabor this and I
understand that we're talking about the alternate proposal
and your recommendation is to rate base it, but
nonetheless, if we assume that the state of the law is
that if a wholly-owned subsidiary of Idaho Power Company
makes a sale to another utility and FERC regulates that
sale, then in your opinion we've gone through an exerc ise
of futility because the plant, although not dedicated for
regulatory purposes for the State of Idaho, it has been
for FERC jur isdict ional purposes and, therefore, we are
stuck with the original cost less depreciation theory.
A Yeah, if it's standard rate base regulat ion,
yes.
Q And it doesn't matter if it's not been
standard rate base regulation by this Commission or not,
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used for. If it's used in the public service, if it's
dedicated as a utility plant, it doesn't make a lot of
difference whether it's used by a subsidiary to serve
Oregon or some FERC, you know, your FERC clients or
whether it i S used in Idaho, it's a utility plant.
If you were operating it in a subsidiary and
you had a private contract somewhere, then it wouldn't be
a regular regulated plant and then it would be dedicated
for the first time to the public service when it came into
plant in 20 years.
Q Well, and I don't mean to belabor this and I
understand that we're talking about the alternate proposal
and your recommendation is to rate base it, but
nonetheless, if we assume that the state of the law is
that if a wholly-owned subsidiary of Idaho Power Company
makes a sale to another utility and FERC regulates that
sale, then in your opinion we've gone through an exerc ise
of futility because the plant, although not dedicated for
regulatory purposes for the State of Idaho, it has been
for FERC jurisdictional purposes and, therefore, we are
stuck with the original cost less depreciation theory.
A Yeah, if it's standard rate base regulation,
yes.
Q And it doesn't matter if it i S not been
standard rate base regulation by this Commission or not,
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we i re still bound?
A Right.
Q Now, you also cited a 1913 code provision.
A Oh.
Q Section 61-523 Idaho Code. That code
provision was adopted in 1913 and has never been amended
or changed by the legislature.
A That's my understanding.
Q Did you do any research as to when this code
provision has been utilized by the Commission?
A No.
Q Then I can't very well ask you.
COMMISSIONER SWISHER: Was that the first
certif icate language in the code that you're talking
about?
COMMISSIONER MILLER: The valuation statute
or the certif icate statute?
MR. RIPLEY: Yes, the 61-523 is the
valuation, the Commission shall have the power to
ascertain the value of the property as I recall the code,
and I'll cover it in my oral argument as to what at least
we believe that statute says.
THE WITNESS: I put that language in here
because I believe that the Commission is not restricted to
original cost. I mean
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Q BY MR. RIPLEY: Can it deviate --
COMMISSIONER SWISHER: It became, just so
that we don't get lost on one of the footnotes, in 1 94~ it
became somewhat of an issue when the State Tax Commission
was implemented and the State Tax Commission's duties
included for tax purposes setting Commission valuation and
I remember the discussions then. I hate to admit my
antiquity.
MR. RIPLEY: That was the old situs argument
as to whether or not the State Tax Commission could
determine the value of property of a public utility
subject to jurisdiction of this Commission. It was in
another state.
Q BY MR. RIPLEY: But I think what my question
for you, Ms. Miller, is that if the Commission deviates
from original cost, it has to provide a very substantial
reason why it is deviating from original cost; isn't that
true?
A Yes, I would assume so.
Q Because the Commission under the Hope cases
is prevented from conf iscating the property of a utility
without affording the utility due process, et cetera,
et cetera.
A Right.
Q So you can't come into this Commission and
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1 say, well, you may have invested $100, Idaho Power. but in
2 my opinion the value is 20 and that's what you get.
3 A That's correct, but by the same token, I
4 don't think that the utility could come in and say. well,
5 we invested $100 20 years ago and we'd like some
6 recogni tion of the value or the increase in the value of
7 that investment and the Commission just say arbitrarily
8 no, you invested $100, that's it.
9 Q But the statute in 1913 was passed, was it
not, to take care of the very issue you are concerned with
and that is there were corporations operating in Idaho
providing a service which the legislature determined
should be subject to the Public Utili ties Commission
14 jurisdiction and accordingly, values had to be determined
for the property which was currently in existence and in
16 use; true?
A Yeah, that l s true.
18 Q All right. and since the property was
currently in use and providing a service, a value for
purposes of revenue requirements and rate base had to be
determined.
22 A That's correct.
Q And so the property was appraised.
24 A To tell you the truth, I don't know what
25 happened in 1913.
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Q Okay, and I think the po:int is this, that
the value that the Commission takes is the value at the
time the property is dedicated to publ:ic use; correct?
A That's what I would argut~, yes.
Q All right, and if the prc)perty has been in
existence for some time, then the orig:Lnal cost of that
property mayor may not be the approprlate value at the
time it is dedicated to public use.
A That's correct.
Q For a utility that has been in existence for
qui te some time, the original cost concept avoids that
because you are determining the value at the time the
utility acquires it and you know what it paid for it or
you know what it cost to construct it, et cetera.
A That's correct.
Q One final question and that is you did not
like the Company's proposal on reproduction cost new less
depreciation and you suggested instead -- and I i m having
trouble finding it, if you could help me, I promise to be
nice.
A Page 12.
Q Thank you. Okay, you say that al 1 that is
necessary is that the Commission have the opportunity to
ascertain the value at a later date and that is a better
standard than the reproduct ion cost new less
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depreciation.
A Yes. I read your definition of exactly how
you would do reproduction cost new less depreciation and
it seemed to me that in some ways it was much too specific
or maybe it was much too general, but what was there would
not necessarily lead to what would be a fair value for the
plant, and it seems to me that the Commission, any
commission, this Commission or a commission 20 years from
now, is obligated to determine what's fair and reasonable
and would take all of the evidence that was presented to
it and arrive at a fair value at that time and their
dec ision would be appealable to the Supreme Court.
I'm afraid that the description, for
instance, Mr. Baggs in his testimony lays out exactly how
the Company would go about doing this without going into a
lot of detail. He says, "Reproduction cost new less
depreciation is the total investment that would be
required by Idaho Power to duplicate the Milner project."
Well, there's some question in my mind whether at that
time it would be appropriate to duplicate the Milner
project. There might be better materials available,
better equipment and if you were really trying to figure
out what the value of the plant was at that time, it's
probably not to duplicate the exact equipment in plant
that i S in place at Milner.
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And then you go on to say "Cost for all
materials," materials might be quite different, materials
available at that time might be quite different than those
available today. Supplies, labor, there might be new
labor methods that would be available then that aren't
available today, land and land rights, transportation,
et cetera, and then he says, "From that total would be
deducted an amount representing the straight line
depreciation of any reproduction costs that are
deprec iable," and what I would assume that that statement
means is that if the plant were 20 years old and the
estimated life were 50 years using straight line
depreciation, you know, 20/50ths of the life of the plant
would be gone and you would have accumulated depreciation
equal to 20/50ths of the value of the plant.
It wouldn i t take into account the fact that
this may not be the best plant to produce or the most
effective, efficient plant available to generate power.
It seems to me that you need when you're doing
reproduct ion cost ing, and I 1m certainly not an expert on
it, I've done some research after having read your
appl icat ion and test imony, it seems to me that the way
you've laid it out it's not going to take into account any
increases and advantages of technology. I mean, you're
going to have a plant there that's not the
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state-of-the-art plant and yet it's going to be valued at
current prices.
Your plant is not going to be that
efficient. Chances are in the last half of its life its
maintenance and operating expenses are going to be higher
than for a new plant. None of that would be taken into
account using your formula and it's not real specific and
yet, it's not real general. It would seem to me that it
would be much better to leave it at something general
enough so that depending on what happens between now and
then, the Commiss ion would not be in a pos i t ion where it
might reject a very good, what could otherwise be a very
good, deal for ratepayers because we had this formula
approach that we were going to take to valuing it in 20
years.
Q I understand, but the conflict we are
talking about is the Commission with the standard that
you J re talking about could take into, the Commission could
take into account anything it wants and arrive at a value
which could indeed be a very good deal for the ratepayer
and a very bad deal for the stockholder.
A But I don't think the Commission could do
that. I think the Commission would have to balance the
interests of the stockholders and the ratepayers.
Q Al 1 right, and the problems that you have
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discussed with the reproduction cost new less depreciation
-- let me ask you this first: In your research, are there
states which use reproduction cost new less depreciation
as the method for valuing utility property for revenue
requirement purposes?
A There are still a few states that take
evidence on reproduction cost new less depreciation. Most
of them use it in concert with original cost, you know,
they have different formulas. Some of them will take half
original cost and have reproduction cost new.
Q But there are jurisdictions that have
devised formulas. We wouldn't be starting from ground
zero as to what reproduction cost new less depreciation
means as far as relying upon precedent from other
regulatory jurisdictions?
A To say formula is to, using one of
Commissioner Swisher's favorite terms, is to
oversimplify. There are ways to do it, but it's the
result of significant engineering analysis, you know,
engineering modeling, a lot of subjective judgment and
assumptions that go into it. It's not a cut-and-dried
formula that can be done. It's something that is going to
involve a lot of qualitative judgment on the part of the
Commission.
Q All right, but today the Idaho State Tax
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Commission promulgates rules and regulations on the use of
reproduction cost new less depreciation for arriving at
the market value of properties for ad valorem tax
purposes; is that true or do you know?
A I don't know.
Q If that were true, then we have a body of
law, do we not, and some rules and regulations at least
where we can start to arrive at what is obviously an
imperfect system, but nonetheless, is at least a system
that is in place that there is some certainty as to how
we're going to arrive at these values.
A I'm not sure that what you've got here would
get you there.
Q Well, and again, we've probably prolonged
this too long, but my point is this, what you are
proposing doesn't give any certainty at all to the utility
as to what's going to occur at the end of 20 years.
A No.
Q It has no idea as to how its property is
going to be valued if it is recaptured because it's
subject to an evidentiary proceeding in which there are no
rules laid down ahead of time as to how we arrive at that
value.
A I think you have some very important rules
already laid down and the first one is the one that you
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pointed out, that the Commission cannot confiscate the
property of a utility. The Commission can't arbitrarily
ignore valid evidence that your property has a certain
value.
Q But again, if we are looking for some type
of certainty as to what could be anticipated if a unit
were recaptured or not at the end of the 20-year
Certificate of Exemption, your proposal provides no
guidelines in advance as to what the utility might
anticipate in such a proceeding.
A I think my proposal would still result in a
fair result to the utility and I think the utility might
actually even be better off. One of the things that I
believe it was Mr. Keen brought out in his testimony was
the value of the site. If all of the hydro sites in the
state have been taken, there are none, there is going to
be a certain value in that particular site that is not
going to be ref lected through this semi-formula approach,
just as technology changes aren't going to be reflected,
neither is the intrinsic value of your hydro site going to
be ref lected. I can't find it in there anywhere anyway
and I would think that would be a major consideration by
the Commission.
Q But under the Certificate of Exemption
approach, there would, obviously, be great incentive on
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1 the part of ratepayer groups to argue before the
2 Commission that the facility that was being recaptured had
3 li ttle or no value as far as what you would put into the
4 rate base.
5 A There's always that incentive. There will
6 be that incentive under your proposal. There will be
7 people there arguing that it' s a technological dinosaur
8 and they ought to pay, you ought to pay them to take it
9 off your hands.
Q And I've got the scars on my back to show
11 it, but the point is if we're trying to arrive at some
formula that gives some indication, then isn't that
13 important in your opinion or would you just leave it
totally up to the Commission and you'd do it on a
15 case-by-case basis?
16 A I would not put the formula approach in. I
17 might put in some language that says, and the Commission
18 will take into account the fact that the investment was
19 made 20 years ago with dollars valued 20 years ago or take
into account the present value of the investment. I would
21 make it as general as possible and try to be as -- you
know, unless you were to get into a very long, detailed
23 description of exactly how you were going to do it to be
24 fair, I would go the other approach and go, make it as
25 brief with a few brief statements about what the
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Commission today thinks might be fair, what the Company
would think would be fair considerations that should be
made. I think anything in between is going to lead to
resul ts that you don't want.
MR. RIPLEY: That's all the questions I
have.
COMMISSIONER MILLER: All right, thanks,
Mr. Ripley.
Commissioner Swisher.
EXAMINATION
BY COMMISSIONER SWISHER:
Q Well, my questions have more to do with your
job than your testimony. You're the lion tamer of the
utili ties division and the way that Staff put on its case
is in part your responsibility and you i re the one who has
to look at the Company and come up with the equivalent of
policy at the Staff in the utilities division.
When I've listened to the testimony in this
Milner case, Ms. Miller, what has impressed me is that I
do think that the Staff has shown some heal thy paranoia.
As you know, I be 1 ieve in parano ia; in other words, you
have to say what are these guys doing. What will happen
if Idaho Power succeeds in this application. What are the
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implications in terms of cost to ratepayers.
Part of our discussion here has been more on
cross than in the testimony about the public interest, and
we do have this fixation in Idaho, some of it has a legal
base, some of it has a rhetor ical base, some of it has a
purely political base, some of it is cultural, we have
this thing about water, and once the public policy is
enunciated, then, however indirectly, the Staff has to
live with that because the charge of the Commission under
the oath that you take when you take this off ice includes
that public interest consideration. We can't just ignore
the State of Idaho, we can't just deal wi th the customers
of Idaho Power as if it were an independent republic. We
have to deal with the public interest.
Now, if the public interest says that. these
things, I'm going to layout the things that the public
interest would say, then the Staff has a problem, the
Commission has a problem, the public interest says, first
of all, that the utilization of a water resource under the
regulatory function of the state provides some
re inforcement against the loss of that resource out of the
state absent some such function on the part of the state;
the Commerce Clause of the Federal Constitution makes all
our water resources fair game, just simply go to the
highest bidder; okay?
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A Okay.
Q When you live in the West where some pay
seasonally as much as 14 cents a kilowatt hour for
electrici ty and people here pay a nickel, you know what
utter exposure to the full force and effect of the
Commerce Clause could potentially do to the resource,
that's partly where the paranoia at the Staff level should
come in.
Now, another public consideration and an
evolving one and newly in place is the new Clean Air Act,
the one that puts water as a fuel, if you think of it as a
fuel, very high in the stack of resources, puts it right
up there with wind, and when that happens, again, that
gives water a high priority, okay? So we have that
consideration to worry about in the public interest. That
means further focus on the value of water as a source of
electricity.
Well, we also have to deal with the public
interest in a way that so far has proved impossible. It
is the assumption of most of the yuppie generation in
Idaho that Idaho is energy self-sufficient. Nobody under
40 seems to know that we actually burn coal to get
electricity. I've been informed at Boise State
Universi ty, I've been in exchanges with kyakers in the God
damn Statesman, I've gone through this experience so often
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in the last five or six years that I now conclude that
perhaps no more than five percent of the people under
40 years old know where electricity comes from, and since
they are also a little skeptical about God, I don't think
they even think it comes from God; so we have that
problem, and when we have to deal with what we have on an
evidentiary factual basis and we know our sources of
energy, we know we're importing thermal power from every
state we border, here comes Idaho Power, any utility, with
the Milner regime and lays it in front of the Commission
and a policy decision has to be made, then the Staff must
feel, and I get that undercurrent, I mentioned it once
before, the Staff must feel that anybody who has a handle
on a water resource and offers to bring it under the aegis
of PUC regulation for a utility's rate base has a chance
to take advantage.
That is to say, any costs you can load into
the acquisition or renewal of that resource are going to
be very hard to discount, take out, shove aside. If you
could get your costs in place and then you br ing the
resource in, then the Commission is going to be very hard
put, they would get no support from the elective level of
government, probably no support from the appellate
judicial level of government for anything it does in
trying to do the traditional job that the Staff is charged
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1 with doing.
2 You try to keep people from taking a shovel
3 and filling the rate base and then earning on that rate
4 base when that filling, backing of filling, is done for
5 purposes of creating a base from which to earn rather than
6 creating kilowatt hours or therms.
7 A That's correct.
8 Q So you i ve got a tough job.
9 A Uh-huh.
Q Do you feel that -- I think rather than
11 asking do you feel and then my defining how you feel, what
if you tell me how you feel about the world I just
13 described and what your Staff is going to do with it.
A Well, at the time that Idaho Power -- well,
15 let me back up. The first thing for us to do was to give
you some comparisons from which you could make a decision
17 on whether you think that this resource is close enough to
being cost-effective for the Company to pursue
19 construction of it for their utility customers.
We did provide, we tried to provide you with
21 the best estimate that we could, which was avoided cost
rates adjusted as Mr. Faull did. The Company will then if
23 a certificate is granted for the present convenience and
24 necessi ty or rate basing at the end of the construction
25 period, the Company will construct the plant and the Staff
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will audit the numbers and will challenge anything that we
find is excessive, as we always try to do. It's not an
easy job, as you say.
Q Al 1 right, I hear you and it sounds to me
like your rudder is in place and not had it knocked loose
by these new pressures and changes, but when you give me
that answer, then I have to say that there's a new
situation also developing. Here is a utility that is
making a tur~ from those terribly confrontational years of
extremely high exposure to capital costs in a money market
out of control in the early '80s when there was an
absolute coinciding of Company plans for new base load
plants with the 22 percent inflation. If I were to pick a
moment in time when everybody would just as soon have
jumped out the window, that would have been the moment.
A I remember those times.
Q So we're now at probably not 180 degrees
away from there, but let's call it 175 degrees and in that
new atmosphere and because of some of the more traumatic
experiences during that era and the resolution I suspect
on all sides, not to repeat them, there is an effort on
the part of the Company to actually read Commission
orders, I mean to actually read them, and I see response,
I've seen direct responses in the Company file to things
that the Commission has said in its orders, and when you
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have that kind of a climate and the Company comes in and
makes this kind of an application, then think about the
Company's own institutional memory.
Its own institutional memory could say these
si tting Commissioners who have gone through this roughly
three-year era of some reconc i 1 iat ion, some dialogue, some
change of direction on everyone's part, won't be here
forever and, you know, one of them might say to the Power
Company, don i t read a legislator's water meter or
something and be gone tomorrow.
In any event, change is a way of life in the
world we live in, change in the policy-making personnel.
It just happens all the time; so the Company brings in
this case and you say what you and the Staff will do, but
you have a new Commission in terms of who is sitting
here. You can understand, can you not, I don't subscribe
to what the Company is requesting, but you can understand
why the Company would come in and say, look, you asked us
for hard numbers on our new projects, you didn't want
anything like the stuff you got first time around on
Swan Falls, you wanted better numbers. We in turn want
some reassurance so that we don't layout the investment
dollars and then have them disallowed at some point in the
future. How are you going to reconcile, how are you going
to deal with that?
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A I don't think, well, I can understand the
Company's fear and the Company's reluctance to proceed,
but I really don't think that there is that much
difference between what the Company wants and the way that
I think that it will work. I think the only big
disagreement I've heard in all of our discussions about
what is this certificate, is ita promise to rate base or
is it just a worthless piece of paper, I think it's worth
a lot and I think the only difference is that the Company
claims that somehow they agree that they must be held to
prudent construction standards and that if somehow their
actual construction work on the project is not up to par
or could be done more efficiently that an adjustment could
be made.
Q And, of course, that doesn't apply just to
construction, that applies to procurement, the cost of the
turbine.
A Right, the actual physical costs of the
project. The Staff argues that it's not just the costs of
the project that the Company should be held accountable
for, but it's proceeding on with a project that may not be
any longer viable. We think that during the time
Q But to move from that pr inc iple and premise
to this specific project, the likelihood of a turbine in a
dam owned by two canal companies in the center of southern
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Idaho becoming obsolete is quite small, is it not?
A I think it's pretty remote myself. It's
just that if I were a commissioner and I were to grant
somebody a Certificate of Convenience and Necessity and it
was with the assumption that they didn't have to engage in
ordinary good business practices, I think it would be
pretty scary. I don't expect anything to happen between
now and 1992 when Milner is completed.
Inf lation may be a little bit higher than
what was assumed by the Company in their cost estimates.
Their estimates were put together before the crisis in the
Mideast. Most of their equipment has already been
ordered. I don't see that there's anything too terrible
that's going to happen, it's just that I would 1 ike the
reassurance that they are going to be there watching out
to make sure that something doesn't happen and if
something does happen, to take correct ive act ion and I
don't think that that's unreasonable to ask of a utility
or to require of a utility, and I think that's the only
disagreement here.
I would agree that once the Company commi ts
money, spends money, to build a project to serve its
customers that the Commission has an obligation to, if
they do it prudently, if it's reasonable for them to do
that, if it's a plant that an ordinary utility executive
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would consider building
Q What's an ordinary utility executive? Never
mind, go ahead.
A Well, a good utility executive -- if it's at
all reasonable, then they ought to be able to count on
recover ing those funds and earning a return on a plant
that is put into service, and I think we have an
obligation, I would have an obligation as a Staff person
to recommend that rates be set at a rate that would cover
that. I mean, a few years ago, one of the things that we
don't remember is that a few years ago there were several
million dollars of preliminary survey and investigation
charges that the Company had made, expenses investigating
a variety of sites around southern Idaho that were
potential generation sites and the Commission allowed the
Company to amortize those costs.
Q Wiley and so on.
A So I don't think that the Company has been
treated all that unfairly and maybe we need to, they
remind us of all the times that the Commission has maybe
taken them to task or not given them exactly what they
asked for, maybe we should, as a Staff person, I should
remind them of al 1 the things that were approved that were
quest ionable .
Q But that is true, that the North Fork and
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the South Fork, the Payette, the Wiley and the Dyke, all
those exploratory costs were allowed.
A It was assumed that a utility engaged in the
sale of electricity, generation and sale of electricity,
would be exploring for possible new sites; so those
expenses were passed on.
Q Now, I'm going to assume you're
sophisticated enough to know that in spite of the things
that have to be said to make a point that simultaneously
Idaho Power can make money conserving, acquiring new
resources, working in the off-system sales game, dealing
successfully with cogeneration, that all of these things
can go on at once, it isn't an either or thing. So many
of the cross-examining quest ions posed those things as
either or. The reality, the workaday reality, is that the
management of the Company is going to be as sanguine as it
can in making money out of all of these combinations of
things that are happening to them if it can.
A Yes, and I don't know why it couldn't.
Q Well, let me suggest one reason it can't
somet imes or there's a percept ion that it cannot. The
linkage in virtually every state in the union, there's
only one I think that is completely severed and that is
the State of Maine, but the linkage in every state in the
union is still basically there in the regulatory
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structure, again to use my pet phrase oversimplify, to
oversimplify, a utility still makes money on sales, an
electric utility.
I am grossly oversimplifying, but you've got
to get the mind set that I see when I talk with utility
people who are not hearing room people, but just people
who work for Idaho Power. They read the meter, Stephanie,
they read the meter. They sell power. They grew up in a
Company that did that. When a new pump hooked up, when a
new electric water heater went on, that's money in the
bank and when a project went into the rate base, okay?
A Uh-huh.
Q Let me say it this way: The Staff has to
deal on occasion with the people on the marketing side of
the Company, certainly. I'm told just by people who work
for Idaho Power and who knew me before I was a
Commissioner and were not afraid to talk to me ex parte
that they say, for instance, of Don Jenson who is a key
person in how the Company does things on a daily basis
that if he had the motivation to sell conservation that he
already has to sell energy that we would be up to our ears
and over our head in conservation.
If you could turn Don Jenson on, if you
could get the manager of the used car lot off the used car
lot and into conservat ion, I don't mean to downgrade
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sales, that your conservation return would be enormous
because the man is very effective in his work and all he
likes to do is sell. Conservation is as salable as is
aluminum siding or electricity or anything else.
I am saying that the regulatory community,
the public policymakers and the lawmakers have not done
their job. We've been didactic, we've preached and we've
pointed out the value to society and we've pointed out the
economic value to the entire economy, but we've not got to
Don Jenson.
A I don't know how to get to Don Jenson, but
the only
Q I think it's a challenge is what I'm trying
to say.
A The only thing I remember from one marketing
class that I took was that it depends on how you define
your market, this was one of the first principles of
marketing we learned, and there the example that was given
by the instructor was the whale oil distributors who went
out of business when the uses of petroleum were
discovered, and the problem they said with the whale oil
distributor was that he defined his service or his product
that he sold as whale oil. He didn't define it as an
energy service; so I would say the same thing to Idaho
Power, that you've got to define the service you provide
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and it may not be just kilowatt hours.
Q But keep in mind this consensual
description, I'm using an ad hominem, but I think
sometimes an ad hominem works better than just trying to
talk abstractly, I'm talking about a person named Don
Jenson, of giving you the consensual picture of Don Jenson
who if given the job of selling something can sell
anything. Now, he's not the distributor. He's not the
guy who owns the boats that go out and harpoon the whales,
he's the guy who sells the whale oil, and I'm suggesting
that we have not reached Don Jenson. Those of us who
harpoon whales, those of us who supervise those who
harpoon whales have not got to Don Jenson. We still have
that work to do.
A Well, I think you've gotten to a lot of Don
Jensons, a lot of the people higher in the Company than
Don Jenson; so I think you're probably seeing a change in
.the Company and eventual 1 y it wi 1 1 show up.
COMMISSIONER SWISHER: I hear you and I hear
you and I appreciate that it's a hands-on management, but
I leave my non-question at that. We ain't got to Don
Jenson. I thank you.
COMMISSIONER MILLER: Commissioner Nelson.
COMMISSIONER NELSON: Thank you,
Mr. Chairman.
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EXAINATION
BY COMMISSIONER NELSON:
Q A couple of mundane questions here. I want
to follow up on two things Harold or Mr. Miles asked you
about. He asked both you and Tom Faull about what happens
if we reduce the water in the river, and in reality, we're
not going to reduce the water in the river, we're just
going to change who gets it maybe.
A Right.
Q And in the event that the f ish get more and
the irrigators get less, it seems to me like in respect to
the Milner project, you're actually talking about putting
more power, more water, through the generators than
otherwise, and that isn't a big high storage dam down
there.
A No. I haven't been following the fish saga
very closely, but it would seem to me that that statement
overall would make sense.
Q I just want to say that there could be
another side to the story of the fish saga, especially as
it concerns Mi lner or spec i f ical 1 y as it concerns Mi lner
and perhaps Swan Falls which is a very low head project.
A The only thing I can think of would be
possibly the timing and I don't know when the f ish are
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timed to
Q We don't know that, but some of the material
you read, they talk about a run that has about two fish in
it that's in August and so you could be trying to run
water down there in August.
A August would def ini tely improve the
generation.
Q Mr. Miles also asked you about what's come
to be known in the jargon as externalities when he talks
about the added cost to the environment of a coal plant
and doesn't Mr. East lake or Dr. East lake cover that in his
test imony to some extent in a general way?
A I think possibly and if not, he's certainly
very capable of answering questions on that topic.
Q I thought that his testimony talked about
unquantified factors relating to other types of
generation.
A Yeah, general 1 y speaking, his test imony is
to address the non-quantifiable things that need to be
considered besides the cost-effective amount that was
calculated by Mr. Faull.
Q And I guess what I'm getting to is that that
is something that the Staff has looked at?
A Yes, and it's something that we're
interested in and have been for some time, especially when
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making compar isons between two gene rat ion sources.
Q And then a quest ion I wrote down for you and
asked Mr.Faull and that is do you have any idea what the
cost per kW of Valmy is now or has been?
A Oh,shoot,I was going to look that up.
Q I thought you would.
A I'm sorry.
Q I don't think Boardman is a good example or
even comparable at all, but Valmy is an operating plant.
A Yeah, the overall, I would say it would be
something slightly over 60 mills, but I could be wrong.
COMMISSIONER NELSON: Okay. Well, that was
all I had.
COMMISSIONER MILLER: Mr. Purdy, do you have
redirect?
MR. PURDY: No, nothing.
COMMISSIONER MILLER: Ms. Miller, than you
very much for your he lp .
(The witness left the stand.)
COMMISSIONER MILLER: Let's take a
ten-minute recess.
(Recess. )
COMMISSIONER MILLER: All right, let's
resume Case IPC-E-90-8. Mr. Purdy.
MR. PURDY: Staff would call Bill Eastlake.
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BILL EASTLAKE,
produced as a witness at the instance of the Staff, having
been first duly sworn, was examined and testified as
follows:
DIRECT EXAINATION
BY MR. PURDY:
Q Would you please state your name?
A Bill Eastlake.
Q Are you the same Bill Eastlake who's filed
pref iled direct testimony in this case consisting of
14 pages and no exhibits?
A Yes, I am.
Q And, Mr. Eastlake, do you have any changes
to your pref iled direct testimony?
A I have two changes.
Q What are those?
A They are, and the changes apply to both the
Swan Fal ls and the Hi lner test imony, the same page, as a
matter of fact, they are identical with the exception of a
couple of pages later, the first one is on Page 4, Line 3,
"the Milner project actually comes in slightly below," it
should say "slightly above." I left on vacation and
Hr. Faull did a secondary recalculation and we come up
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wi th a number slightly different; so it should read
"above" rather than "below," and on Page 10, Line 13, the
word "charge" should be "change."
Q Do you feel that these two changes alter the
essence of your recommendations made in your testimony?
A No, they do not al ter it.
Q Other than the two changes you've indicated,
if I were to ask you the same questions today as contained
in your pref iled direct testimony, would your answers be
the same?
A They would.
MR. PURDY: All right, with that, I would
ask that the direct testimony of Bill Eastlake be spread
upon the record.
COMMISSIONER MILLER: So ordered.
(The following prefiled testimony of
Dr. Bill Eastlake is spread upon the record.
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Q. Please state your name and bus iness
address for the record.
A. My name is Bill Eastlake. My business
address is 472 W. Washington Street, Boise, Idaho.
Q. By whom are you employed and in what
capaci ty?
A. I am employed by the Idaho Public
utilities Commission as an Economist.
Q. Please describe your educational
background and work experience.
A. I received an H.A.B. (Honors Bachelor of
Arts) with emphasis in classics and economics from
Xavier Uni versi ty in 1965 and completed graduate
course work and genera i examinations in the Ph. D.
program in economics at Ohio State University in 1969.
I taught undergraduate economics
full-time at Boise State University from 1969 through
1976, wi th two years on leave as a Fulbright Exchange
Professor at Cuttington College, Liberia, West Africa.
I have also taught part-time at Boise State University,
College of Idaho, and Ohio State University.
I was a part-time Taxpayer Service
Representative for the Internal Revenue Service during
1977 and 1978. In 1978, I took a position with the
Idaho Office of Energy as an energy economist, with
IPC-E-90-8
11-9-90
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responsibility for energy conservation planning and
then for economic feas ibi 1 i ty ana lys i s of geotherma 1
and other alternative energy proposals. When the
office became a division of the Idaho Department of
Water Resources in 1981, I became responsible for the
Idaho Water Resource Board's financial programs, loans
and grants as well as industrial revenue bonds for
water projects. With the demise of the bond program,
I assumed responsibi Ii ty for the design and imple-
mentation of a statewide energy conservation loan
program. In addition, I provided economic analysis in
support of policy decisions concerning water rights,
water planning, and agricultural water uses.
Q. What is the purpose of your testimony?
A. To suggest policy considerations relating
to the addition of hydroelectric power to an existing
dam like Milner for the Con~ission to use in reaching
a decision in this case.
Q. What is the importance of these policy
issues?
A. They provide a broader envi ronment in
which decisions are made about how much hydroelectric
generation is to be procured and at what cost. The
main point is that the decision to provide even pre-
liminary approval for construction (or a certificate
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of convenience aud necessi ty) for the Hi lD~r project
is not as simple as merely asking whether its projected
cost is greater or less than the published avoided
cost.
Q. Why do you say that?
A. Ratepayers are not buying a simple undif-
ferentiated product (electrical generation), the sort
of purchase where the product is so standard, the only
important factor in the purchase decision is price.
There are subsidiary considerations that
are important to the decision as to whether the
resources available from the Milner project are
preferable to other possible resources. How the
proj ected cost of power from these resources compares
to the cost of other potential resources is indeed
important, but is not the sole decision factor. Some
discretion must be allowed the Commission to consider
other factors in making its decision, except in the
case where the cost of the proposed resource is radi-
cally different from that of competing resources.
Q. Are projected costs from these plauts
significantly different from avoided cost rates?
A. No, they appear to be approximately the
same.
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Even when adj us tments a re made to put
avoided costs in the same 50 year time frame, the
Milner project actually comes in slightly above
avoided cost. Mr. Faul I' s test imony provides more
insight into the specific relationship between the
projected cost of electricity from this plant and the
newly published avoided cost rates. When the dif-
ference is small, as it is here, there are other
factors that should enter into the decision process.
Q. What are some of these other factors
which should allow the Commission some discretion.
A. There are several. Historical experience
with prior hydroelectric installations has some rele-
vance. The probable future course of environmental
constraints through federal legislation is important.
The policy stance of the State of Idaho as evidenced
in prior energy and water matters is also iinportant.
Q. Is hydroelectric power the state's most
important native energy resource?
A. In the past Idaho relied solely on hydro-
electric power for its electric energy needs. As the
state has grown there has been the need to supplement
hydro with some thermal generation located outside the
state. But it remains the f act that Idaho's hydro-
electric base is what has allowed power rates to
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remain at or near the lowest in the country. Making
optimum use of that hydro, which is essentially
Idaho's only s igni f icant energy resource, remains a
sensible policy to protect the legacy of past low
rates.
Where possible it makes sense to keep
local control of that resource, so that the real bene-
fits of low cost hydropower are reaped by utilities
and ratepayers in Idaho rather than out-of-state.
Q. What has been the relevant policy stance
of the state with respect to the sort of hydro projects
proposed here?
A. The most comprehensive policy statement
in this regard comes from the Idaho state Energy Plan,
a study commissioned by the Governor in 1980. The
Idaho Energy Resource Policy Board, a diverse group of
fifteen persons representing a cross-section of inter-
ests within the state, heard testimony from various
energy experts and held public hearings over an
eighteen month period. The Energy Plan, which came
out in February of 1982, was an outline of how the
state could assist in supplying adequate energy for
the future.
Q. What sorts of policy direction were
contained in this plan?
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A. The plan stated generally that ther~
anùto be a high priori ty placed on conservation
renewables, with an emphasis on improving existing
resources.
wi th respect to renewables, it stated
that "the state should give a high priority to hydro-
electric projects, in particular the upgrading of
current facilities within the state."
In its formal policy implementation
guidelines, the plan stated that "priority should be
given to the review of sites and approval of projects
related to hydroelectric generation and existing
hydroelectric upgrades."
In the section on hydro, the plan notes
the presence of many non-power dams wi th the capa-
bility to accept generation equipment and some
existing power projects which can provide increased
capacity through upgrading of generation facilities.
The plan even has a range of anticipated costs, from
50 mills in 1985 to 75-100 mills in 2000, which seems
commensurate with the projected costs contained in the
company's applications.
Q. Does this Plan have force of law?
A. No. The only purpose of citing it here
is to indicate that the upgrades proposed by the
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company seem quite consistent with the policy guidance
provided on this issue by a formRI board convened to
look to Idaho' s energy future.
Simply put, the Resource Policy Board
recognized that hydro has been very good for the state
and recommended continuing to exploit that known
resource where possible.
While it recognized the potential for
some new small hydro development (and, in retrospect,
understated the difficulty of getting new projects
permitted) the Board rather clearly indicated a pre-
ference for getting more of the hydropower potential
available at existing dams.
The proposed proj ect, since it makes use
of an existing dam with generation facilities, is
aligned with that preference.
Q. Wha t was the reason the Board seemed to
prefer hydro from existing structures?
A. From my recollection of staff work (as
an employee of the Energy Bureau of the Idaho
Department of Water Resources) for the Board, there
was reason to believe that power from existing dams
would be less costly than that from new dams. These
were large old infrastructure projects that would have
been inordinately expensive to replicate in current
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dollars. with the water diversion works already in
place the only cost was the addi tiona 1 cost of adding
generation.
Q. Does the same reason to prefer old hydro
still hold today?
A. I believe the rationale for preferring
existing sites would be somewhat different, but the
preference would remain.
Q. Why would the rationale be different?
A. The rationale would still emphasize the
lower cost to be expected from upgrading of existing
facilities, but it would not be based so much on an
expected difference in the physical cost of construc-
tion and equipment. The lower cost expectations would
today probably focus more on the lack of insti tutiona 1
barriers that face an already existing dam. New dams
and diversions face extraordinary obstacles in the way
of permitting requirements, especially environmental
considerations.
The Board's initial deliberations took
place in an era when it appeared that there were lots
of viable small hydro projects available. As time has
passed there has been an increase in the number of
regulations and in the stringency wi th which they are
enforced. What looked like a flood of easily available
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small hydro has become more of a trickle as one after
another has failed to clear the institutional obstacles
associ ated wi th permi tt ing.
Q. Does the current legislative climate
seem likely to become less restrictive?
A. Just the oPPos i te. Growing concern fa r
endangered species, recreational, and fish and wildlife
values associated with the use of the water resource
by hydroelectric projects makes it ever more difficult
for a new project to be approved. Though in some cases
mitigation is now being required of older projects
permi tted in an era when there was less concern for
these values, in any case the environmental obstacles
f acing upgrade of existing f aci 1 i ties are substant i a i ly
less than that facing a new project. These trends
translate into lower projected cost~ for pre-existing
,
projects, or the absolute inability to even get a new
project permitted.
Q. How is hydropower considered in the
State Water Plan?
A. The State Water Plan was created in 1976
to help formulate and implement the optimum develop-
ment of water resources in the public interes t.
Adopted by the Idaho Water Resource Board, it is
periodically updated and reviewed by the Legislature.
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The first State Water Plan was in 1976,with revisions ~
in 1982 and 1986. The Plan was altered in its most
recent revision to account for changes needed to
reconci Ie it with the agreement entered into between
the State and Idaho Power Company concerning water
rights at Swan Fa I Is Dam.
Policy LC of the Water Plan lists various
non-consumptive uses of water considered to be "bene-
ficial uses" of water recognized under Idaho law.
More specifically, Policy 5E recognizes hydro genera-
tion as beneficial and acknowledges a public interest
in maintaining minimum river flows at Swan Falls.
This is a striking change from the earlier narrow
conception of "beneficial use" which emphasized
removal of water from the river, usually for
irrigation.
Policy SA actually raised the minimum
flows to 3900 cfs (April-October) and 5600 cfs
(November-March) at the Murphy gauge in recogni tion
of the importance of those f lows to hydrogeneration.
Amounts between those flows and the 8400 cfs originally
claimed by Idaho Power are now held in trust by the
state for allocation according to the more extensive
set of public interest criteria set out by revision to
the Idaho Code, partly in recognition of the fact that
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hydrogeneration was a valuable use of water, fOreg~
by its withdrawal from the river for other purposes.
Q. Is there anything about the existing
structure of water rights that appears to favor the
use of pre-existing facilities for hydrogeneration?
A. The whole Swan Falls controversy arose
because a group of indi vidua Is sued Idaho Power to
force the company to assert its water right for power
generation vis-a-vis the claims of irrigators. Though
this is neither the time nor the place to revisit that
controversy, with existing dams there is already a
water right in place, with particular rights and
responsibilities. New hydropower facilities face a
more stringent set of requi rements and a general
climate in which most of the available water is
already allocated.
New facilities bear the burden of proof
that their use of water, in this case for the purpose
of hydroelectric generation, wi 1 i create no adverse
impact on prior appropriators of water. That burden,
of proving that new uses of water are in the public
interest, of adhering to the expanded set of cri teria
established in Idaho Code Section 42-203C to implement
the Swan Falls Agreement, creates a formidable and
costly process for new hydro developers.
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Q. wi 1 1 Idaho Power Company' s use of flows
from the existing Milner Dam have the kind of adverse
impacts predicted for newly-placed hydroelectric
projects?
A. No. Idaho Power Company' s actua 1
generation will depend on water conditions and on the
dam owner' s pattern of water use for irrigation.
Generation will be subsidiary to irrigation needs and
will have little impact on the existing flow regime.
The proposed project makes use of surplus water which
is currently passed through the spillway. The plant
will operate basically as run-of-the-river with no
additional storage capacity.
Q. What has been the stance of prior Com-
missions in their deliberations concerning certificates
of public convenience and necessi ty for other hydro-
electric projects contemplated by the Company?
A. Several cases seem to give evidence of a
general leaning toward hydroelectric projects as being
in the public interest.
In U-I006-70, a request for a rate in-
crease in anticipation of the Company's participation
in the Jim Bridger Plant, in Order No. 10049, there is
notation that "... it is evident that the power gen-
erated by hydropower proj ects wi 1 1 become increas ing ly
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more valuable." The quotation is vis-a-vis the pro-
posed steam generation plant but nevertheless indicates
a belief that hydropower seems to improve with age.
In U-I006-107, requesting a certificate
of convenience for a new powerhouse at American Falls
in connection with rebuild of the dam, the Commission
used Order No. 12631 to summarily approve this pro-
posed plant that "will permit greater utilization of
waters being released" to meet existing and future
loads.
In U-I006-154, issuing a preliminary
certificate for the addition of generation to the
existing Cascade Dam, the Commission noted in Order
No. 15296 that after instal lation the economics of
hydroelectrici ty genera i ly improve significantly in
comparison with thermal and that the environmental
impact will likely be very slight since the proposed
development will merely replace an existing structure.
Q. Was the decision to grant or refuse a
certificate to any of these proposed facilities a
simple one of comparing the proposed cost to the cost
of alternative resources?
A. No. The Commission is charged with
considering the need for addi tional power to serve the
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utility's load and with the cost of alternative means
of serving such need.
In U-I006-136, requesting a certificate
for South Fork of the Payette projects which were ulti-
mately turned down, in Order No. 15580 the Commission
noted the "process necessari ly requi red the weighing
and ba i ancing of numerous (and of ten compet ing) con-
siderations, many of which cannot be quantified." In
other words, it took judgment, not mere fo 1 lowing of a
rule.
In U-I006-154, the order ci ted above,
there was explici t recogni tion that therma i generation
would cost approximately the same per installed KW as
the proposed hydro project, but that consideration of
issues beyond first cost of construction were more
important in determining what was the best resource
decision.
Q. Does this conclude your testimony?
A.Yes, it does.
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(The following proceedings were had in
open hear ing. )
COMMISSIONER MILLER: Mr. Miles.
CROSS-EXAINATION
BY MR. MILES:
Q Dr. East lake, I' d 1 ike to ask you a general
question first. Have you made any trips or travels
between Arco and Idaho Falls either by the way of Rexburg
or else through Highway 26?
A Yes, I have.
Q And have you noticed in that area a
considerable increase in agricultural development?
A I'm honest 1 y not certain whether it's an
increase. I'm aware that there's a rather significant
change from what was called subirrigation to sprinklers in
part of that area.
Q But there is also a lot of new, I mean a lot
of land that used to be under sage brush is now under
cul tivation in that area; is that not right?
A I would accept that.
Q Is there a possibility that future flows at
Milner might be less than the historic flows at Milner?
A Because of that irrigation development?
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Q Just due to the general weather condi t ions
and the drought situation and so on.
A We ll, I think the Company's, I would assume
that the Company iS, plant sizing and the like was done on
a long span of existing hydrologic data which would
account for drought some years and heavy surplus of water
in other years; so I would assume that has been taken into
account.
Q But there is a possibility that the future
flows at Milner during the life of the project could be
lower than the histor ical ones, at least the last 20
years?
A Well, there is some statistical probability
of that happening.
Q Dr. Eastlake, could the anticipated
generation at Milner turn out to be less than anticipated
making its cost of power more than expected?
A Well, the answer yes would follow directly
from the previous question.
Q Is it true that the difference between
increased costs at Milner under the scenario, under this
scenario and Lucky Peak is that Idaho Power Company's
ratepayers will suffer under Milner and the City of
Seattle's customers under Lucky Peak; is that not correct?
A I really am not familiar at all with the
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data on the Lucky Peak project.
Q Were you in the room when Mr. Faull
testif ied that the cost of Lucky Peak is higher than
anticipated and the City of Seattle is getting more
expensive power?
A I heard that. I would point out that I
think the reason for that is that the Lucky Peak project
went in at the beginning of, we've had three drought
years, very recent past with an inordinate number of what
I call low water years. We don't know whether that's a
trend, but it's certainly out of the ordinary.
Q Well, could that not be the same possibility
at Milner only that Idaho Power Company's customers would
get stuck instead of the City of Seattle's?
A It could happen. I would discount the
likelihood of that happening.
Q This is just an hypothesis.
A Okay.
Q Dr. Eastlake, if you'd turn to Page 2 and 4
of your or Page 2 of your testimony, at Line 11 you say,
"In addition, I provided economic analysis in support of
policy decisions concerning water rights, water planning
and agricultural uses." That refers to your time that you
were employed by the Idaho Department of Water Resources;
is that correct?
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A That's correct.
Q i assume, Doctor, that you're familiar with
the State Water Plan. You wouldn't happen to have a copy,
would you?
A I would.
Q My question is what effect would reduction
in f lows of stream from Milner have on this power
generating capacity if a considerable part of these
additional acres were put into agricultural development
that is referred to on Page 37 of the State Water Plan?
A The acres referred to in Policy 5, I think
it's 5D, of the State Water Plan, that's really a cap
number. It's always been my impression that although
there were various people who worried about that number of
acres actually being developed, it seemed to me that both
economic circumstances in the agricultural industry plus
the increasing scrutiny, I think, that the Department of
Water Resources has put on water right applications in the
last seven or eight years would make the practical limit
considerably below that cap; so No.1, I don't think as
many acres as are here in the cap will ever be developed.
No.2, I recognize that there's a
possibili ty of some expansion of acreage, but i would
argue that for economic reasons as well there are lots of
tendencies forcing agriculture to become more efficient in
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its use of water; so while you may have more acres under
irrigation, I doubt that we will see as a result much
greater withdrawals from the river; in other words, we'll
make the existing water cover more acres.
Q But aren't some of those assumptions that
you are citing based on a high lift pump from the Snake
River, whereas the agricultural development up above
Milner Dam, the water from that is ground water i is that
not true?
A As I understand it, most of the development
in the Upper Snake, the new development in the Upper
Snake, has indeed been ground water. It's ground water
that can go in the center pivots which take much less
water per acre for the crops than what we're accustomed to
wi th different kind of irrigation. It is water that
theoretically doesn't get into the Snake Plain aquifer.
I'm somewhat familiar with some of the
resul ts of modeling efforts that had been done at the
Department of Water Resources and while, theoretically,
there is a connection between the expansion of or the,
yeah, expansion of irrigation to additional acres
irr igated by ground water in the Upper Snake, the
quanti tative significance of that in terms of decreased
flows at Hagerman barely shows up in the modeling that can
be done.
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Q But, Dr. Eastlake, isn't the modeling from
the Idaho Department of Water Resources primarily for the
flows coming out of Thousand Springs and it doesn't really
pertain to the, say, the area under Water District No.1?
A Well, the river models that the Department
has show both injections and withdrawals from the stream
throughout its length and the reach above Milner,
particularly American Falls area, I think there are a
variety of in-flowing springs. This is really beyond my
competence to give you any kind of a decent discussion of
the hydrology of the Snake River Basin.
COMMISSIONER NELSON: Mr. Miles, could I
interrupt with one question here before you go on?
Mr. Eastlake, isn't this particular project mostly
dependent on non-irrigation season water for its
generation; so that the amount of development,
agricultural development, up above the dam. whether it's
great or small, isn't going to have much effect on the
generation at Milner, is it?
THE WITNESS: That sounds very sensible to
me.
COMMISSIONER NELSON: I think, Mr. Miles,
that your point may be good, but on this particular
project it isn't going to matter.
MR. MILES: Well, Commissioner Nelson, the
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fact that the irrigators have the right to totally
de-water the river and if there i s low water years that
there i s still not going to be the water to go through the
turbines, and the more water that is taken from the, as I
see it, the more water that is taken out of the ground up
above Milner will be the less that will be able to be
supplied to the Snake River at Milner.
COMMISSIONER NELSON: My whole point being
that in July, August and September when they're doing that
they're not going to be generat ing power at Mi lner.
THE WITNESS: To the extent that Mr. Miles
is talking about ground water withdrawals, he may be at
least partially correct, but the connection or lack of it
between ground and surface water is again something that
I'm not expert enough to say anything more about.
COMMISSIONER MILLER: Mr. Miles, if I could,
I would ask you to keep in mind our rapidly dwindling time
remaining avai lable to us. I f you would move along, we'd
appreciate it.
Q There i S one other point I'dBY MR. MILES:
like to make, I think it's relevant, is the fact that the
lift in the, you might say, on the Rexburg bench in the
Upper Snake is not nearly as great as it is to pump the
water out of, save it from 550 to 750 feet from the Snake
River, is it?
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A No.
Q On Page 5 of your direct testimony,
beginning at Line 6, you say, "Where possible, it makes
sense to keep local control of that resource, so that the
real benef its of low cost hydropower are reaped by
util ties and ratepayers in Idaho rather than out of
state. " The flip side of the coin would be i wouldn i t it,
that a big part of the power generated that comes into
Idaho, since Idaho is a net exporter or importer of power,
if the other states took that same position, where would
Idaho Power Company's system be in the case of one of the
generators, say, for instance, Brownlee No.5, going out
of service?
A I think you make a generic point that I
would agree with, that absolute independence is
economically ridiculous. I would temper this possibility
wi th some question of the cost-effectiveness of hydropower
versus alternative sources of power, but in a case where
the hydropower, the projected hydropower, costs appear
close to balancing the avoided costs or whatever word you
want to use, then I think in that case you indulge that
preference to keeping your own use of the local resource.
I don't think you utilize your own local resources under
all conditions regardless of alternative costs.
Q If you may refer to Page 10, Doctor, you
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refer to Policy 5A of the State Water Plan, and so my
question ,~ould be how many cubic feet a second that
comprise this water in trust is reserved actually for
additional agricultural development? Would it be the
8400 cfs that Idaho Power Company had a decreed water
right for minus the 3900 cfs of the Swan Falls agreement?
Would that be the 4500 cfs minus the 150 cfs set aside for
industr ial and commerc ial and munic ipal use?
A Again, I'm kind of going by memory from my
own invol'~ement in some of these Swan Falls dealings at
Water Res'ources several years ago. I think the trust, the
appropriate cap there for the trust water really is not
the 8400 cfs, which was sort of a theoret ical right, but a
number cl,oser to 6400 cfs, I believe, which was the
average actual f low in the river, and it would be the
differenc1e between that 6400 and the 39- or 5600, which
would be water that's really there to be set aside as
so-called trust water, and as you pointed out, a very
small portion of that, 150 cfs, I think, was set aside for
commerc ial, industr ial and munic ipal use; so al 1 the rest
is theoretically available for agricultural development.
MR. MILES: Thank you. I have no further
questions, Mr. Chairman.
COMMISSIONER MILLER: Thank you, Mr. Miles.
Mr. Richardson has no questions I'm told.
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DR. READING: Yes, no questions.
COMMISSIONER MILLER: Thank you,
Mr. Reading.
Mr. Ripley, I understand you have no
questions?
MR. RIPLEY: That's correct.
COMMISSIONER MILLER: Commissioner Swisher.
COMMISSIONER SWISHER: And I have no
questions.
COMMISSIONER NELSON: I have no questions.
COMMISSIONER MILLER: I have no questions
ei ther other than to say that I thought your testimony,
Doctor, was very good policy testimony in the sense that
it referred to and analyzed authoritative documents and it
took into account prior Commission orders. Oftentimes it
seems 1 ike we're kind of asked to dream up so-cal led
policy basically out of thin air and it is helpful to me
anyway to have policy actually tied to something that is
tangibile and readable and capable of being studied; so I
appreciated that type of testimony.
COMMISSIONER SWISHER: Mr. Chairman, it
might help Dr. Eastlake in light of the cross by
Mr. Miles to just confirm or not that the adjudication
process underway on the river conceivably could free up
some Upper Snake River water that heretofore has not made
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its way down the channel of the Snake; that is, the
over-appropriation exposure seems to be the greatest in
the Upper Snake River Val ley.
THE WITNESS: Parenthetically, as an
economist, I thought that was what the adjudication was
supposed to do, find people who were using more water than
needed and essentially take it from them to free up for
other uses. I may be misspeaking, but I certainly had the
distinct impression from the way I saw the law being
administered through Water Resources that no water was
going to be taken from anyone. I was real disappointed to
find that out, but I believe that to be the case.
COMMISSIONER SWISHER: You just broke my
heart. Thank you, Mr. Chairman.
COMMISSIONER MILLER: Redirect?
MR. PURDY: None.
COMMISSIONER MILLER: As always, thank you
for your help.
THE WITNESS: Thank you.
(The witness left the stand.)
MR. PURDY: The Staff rests its case.
Mr. Chairman, we would ask that all exhibits identified
thus far in the hearing be admitted into the record.
COMMISSIONER MILLER: Why don't we come to
that when we get through with the Company's rebuttal, if
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any.
MR. RIPLEY: Yes, we have only some very
brief rebuttal. We'd recall Mr. Packwood.
COMMISSIONER MILLER: Certainly.
MR. RIPLEY: Whi le Mr. Packwood is taking
the stand, let me distribute a document.
(Mr. Ripley distributing documents.)
JAN B. PACKWOOD,
produced as a rebuttal witness at the instance of the
Idaho Power Company, having been previously duly sworn,
was examined and testified as follows:
DIRECT EXAINATION
BY MR. RIPLEY:
Q Mr. Packwood, the Commissioners commented,
frankly, I can't remember in whose test imony at this
point, that there was not sufficient backup to Exhibit 3
and they would desire some additional information, and let
me ask you, in the discovery requests that went back and
forth and the information that was available to Staff and
any party that might be interested in reviewing it, did we
have additional data as to how the cost commitment was
arrived at?
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1 A Yes, sir, we did.
2 hopefully, you have one.Q And I hand you
3 A I do have one.
4 Q -- a four-page document entitled, "Summary,
5 Milner Hydroelectric Projectll; do you have that?
6 A Yes, I do.
7 MR. RIPLEY: If we could have that marked
8 for identification as Exhibit No.5, Mr. Chairman.
9 COMMISSIONER MILLER: Exhibit No.5, a --
COMMISSIONER SWISHER: Summary, Milner
Hydroelectric Project.
MR. RIPLEY: I'm sorry, I think that's
Exhibit No.6.
COMMISSIONER MILLER: Exhibit No.6, a
15 four-page document entitled "Summary, Milner Hydroelectric
Project, Main Powerhousell is marked.
17 (Idaho Power Company Exhibit No. 6 was
18 marked for identification.)
19 Q BY MR. RIPLEY: Could you briefly describe
where you obtained this document and, without going into
21 great detail, what it depicts?
A Certainly. In my direct testimony at
23 Exhibi t 3 was a one-sheet summary estimate that I believe
24 the Commissioners were uncomfortable with for lack of
25 level of detail. The summary that's been distributed is
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the next level of detail in which the categories on the
left side correspond with those in Exhibit 3, but I
believe it gives you the degree of itemization and
breakout, assuming you can read the fine print, that you
expressed an interest in seeing.
Q Now, Mr. Packwood, if I could direct your
attention to Page 11 of your direct testimony.
A I'm there.
Q Questions were asked of Mr. Baggs as to what
the Company's position was relative to the need for this
project, what studies had been performed by the Company to
ascertain the cost-effectiveness of the project,
et cetera; do you recall those questions?
A Yes, I do.
Q And Mr. Baggs responded that he had not
performed those studies, but the studies that had been
performed would have been done under your department.
A That's correct.
Q Let me first ask you, what is the position
of the Company in this proceeding insofar as how those
studies would come into play on the Company's position as
to the timing of the Milner project?
A As I think we spent a great deal of time on
today, our position on the Milner project is that it is
non-deferrable for reasons that have been, I think, amply
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debated; therefore, the studies that many have
characterized as being part of the least cost planning
process were not directly applicable to the timing of this
application, but that's not to say we're not doing those
studies.
Q And could you briefly describe for me what,
how Milner fits into, what studies that have been
performed by the Company relative to need, et cetera?
A To do that it may be helpful to have a
little bit of background as briefly and succinctly as I
can state it. This Commission as well as the Oregon
Commission as of March of 1989 has required a resource
management report in Idaho or a least cost plan in Oregon
be prepared, and we have been embarked on that process
since those orders were issued.
What we have done in that process is prepare
supply curves for all available resources we believe to be
options for Idaho Power Company. Conservation is
certainly included. In fact, we bring before this
Commission yearly, and the last was in April of this year,
a conservation plan that outlines what we have in mind and
, what we propose, and it was my impression that that plan
was favorably received here, and the discussion on
Don Jenson notwithstanding, there is considerable movement
in that direction, but as you pointed out,
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Commissioner Swisher, it's concurrent with the view that
supply side, demand side, cogeneration are acquired
together and in combinat ion taking from the most
cost-effective projects on each of the supply curves, not
go get all the conservation that exists in the world and
then go to Step 2. We're doing it all concurrently, if
you will, but since that's not at issue with Milner
because of our position on a non-deferrable or lost
opportuni ty, we haven't provided that in our testimony
here.
Q Now, Commissioner Miller in attempting to
summarize what the issues were in this proceeding
commented that one of the issues that appear7d to be
evolving out of this proceeding was the idea that if Idaho
Power Company presented a non-deferrable project that the
Commission had no guidelines or no gauge as to analyze the
ramifications of that contention as far as what would be
placed into rate base, et cetera; do you recall generally?
A Yes, sir.
Q And hopefully, I'm paraphrasing the good
Commissioner correctly. What's the purpose of the cost
commi tment that Idaho Power Company has presented in this
proceeding insofar as his queries in that area are
concerned?
A As I tried to explain the first time I was
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on the stand, it was an effort to provide some certainty
to the fear we've certainly heard the Staff explain that
once the certificate is issued it's Katy, bar the door,
whatever we can shovel in to the rate base trough, we'll
shovel in.
We are at this point in time sharing with
this body everything we know about this plant, and while
some have argued this shouldn't be a prudency review of
what has taken place to date at this point in time, I
think that i s exactly what this is is a prudency review of
what has taken place to date on Milner as best we know it,
as best we try to comply with the directives of this
Commission, and again, the cap was nothing more sinister
than our effort to quantify the costs as we believe them
to be to provide the security or the certainty that they
weren't buying an open-ended obligation.
MR. RIPLEY: That's all the redirect we
have.
COMMISSIONER MILLER: Thank you,
Mr. Ripley. Let's see, Mr. Miles.
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CROSS-EXAINATION
BY MR. MILES:
Q Well, Mr. Packwood, I just have one general
statement to make is I hope when we you use the shovel at
the rate base door that you use a flat bottom shovel
instead of a grain scoop.
A We'll let you buy the shovel, I guess.
COMMISSIONER MILLER: All right, thank you,
Mr. Miles, for that observation.
Mr. Richardson.
MR. RICHARDSON: Thank you, Mr. Chairman.
CROSS-EXAINATION
BY MR. RICHARDSON:
Q Mr. Packwood, you stated that it is your
opinion that this proceeding is in fact or should be
indeed a prudency review of what has taken place to date
on the Milner project. Is it your opinion that
construction has already begun on the Milner project?
A As we discussed yesterday , dam repair
certainly is under way due to the FERC deadline on repair
of the dam and we are moving into the procurement phase of
construction at Milner.
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1 MR. RICHARDSON: That's all I have,
2 Mr. Chairman.
3 COMMISSIONER MILLER: Mr. Purdy.
4 MR. PURDY: I have none.
5 COMMISSIONER MILLER: Commissioner Swisher.
6 COMMISSIONER SWISHER: Well, an observation,
7 Mr. Packwood, that the breakout in Exhibit 6 on the
8 procurement contracts, you know, not to prejudge what is
9 necessarily a massage administered by the Staff, but this
sort of a breakout had it occurred in the Valmy scenario,
had it occurred in the first round on Swan Falls, I think
12 some of the language that was rec i ted in the opening of
this hearing would never have been written by the
14 Commission. We've not had this kind of thing before and I
15 for one think that's an important step.
16 THE WITNESS: I appreciate that comment.
17 COMMISSIONER MILLER: Commissioner Nelson.
18 COMMISSIONER NELSON: I have nothing. I do
19 think this exhi bit is qui te he lpful to me, though.
20 THE WITNESS: Thank you.
21 COMMISSIONER MILLER: With respect to the
22 exhibi t, do I take it that the document was prepared not
23 for the purpose of this proceeding, but for the Company's
24 own internal business purposes?
25 THE WITNESS: It's an internal management
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document and the best thing we could get you wi th a few
hours' notice.
COMMISSIONER SWISHER: Well, that's better
than something pretty, you did it, at Mr. Ripley's
direct ion. We apprec iate it.
COMMISSIONER MILLER: The point being,
though, just so I'm clear, that this isn't something put
together as a summary just for the purpose of this case,
it's an internal document that was used by the Company for
other business purposes?
THE WITNESS: Yes, sir, it is.
COMMISSIONER MILLER: Okay, redirect.
MR. RIPLEY: We have none.
COMMISSIONER MILLER: Mr. Packwood, thanks
again for your he lp .
(The witness left the stand.)
COMMISSIONER MILLER: So that brings us to
the end of your rebuttal?
MR. RIPLEY: That is our rebuttal for
Mi lner . We rest.
COMMISSIONER SWISHER: Did the Staff have
any rebuttal? Somebody mentioned rebuttal.
COMMISSIONER MILLER: The other question I
had was did any other party desire to present any form of
rebuttal testimony?
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1 MR. PURDY: None.
MR. RICHARDSON: We do not, Mr. Chairman.
COMMISSIONER MILLER: All right, I think
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5 in this case and we will order, unless there's any
6 objection, that all exhibits that have been marked be
7 received into the record.
8 (All exhibits previously marked for
9 identification were admitted into evidence.)
COMMISSIONER MILLER: We'll now adjourn or
recess this proceeding until tomorrow morning for closing
argument.
(The Hearing adjourned at 3:55 p.m.)
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AUTHENTICATION
This is to certify that the foregoing
proceedings held in the matter of the application of Idaho
Power Company for a Certif icate of Public Convenience and
Necessity for the rating basing of the Milner
Hydroelectric project. or in the alternative, a
determination of exempt status for the Milner
Hydroelectric project, commencing at 9:00 a.m., on
Tuesday, November 27, and continuing through Wednesday,
November 28, 1990, at the Commission Hearing Room,
472 West Washington, Boise, Idaho, is a true and correct
transcript of said proceedings and the original thereof
for the file of the Commission.
Accuracy of all pref iled testimony as
originally submitted to the Reporter and incorporated
herein at the direction of the Commission is the sole
parties.
.
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AUTHENTICATION