ROS12151.txt

1 BOISE, IDAHO, WEDNESDAY, DECEMBER 15, 1993, 9:30 A. M.

2

3

4 COMMISSIONER MILLER: Good morning, let's take

5 up our hearing in Idaho Public Utilities Commission

6 Case IPC-E-92-31. Let's start, as we usually do, with the

7 appearances of the parties. Mr. Orndorff.

8 MR. ORNDORFF: Owen H. Orndorff, Orndorff,

9 Peterson, et al., for Rosebud Enterprises.

10 COMMISSIONER MILLER: And for the Respondent.

11 MR. KLINE: Here on behalf of Idaho Power

12 Company is Bart Kline and Larry Ripley.

13 COMMISSIONER MILLER: And for intervenors.

14 IEP?

15 MR. RICHARDSON: Peter J. Richardson on behalf

16 of the Independent Energy Producers of Idaho.

17 COMMISSIONER MILLER: And PacifiCorp.

18 MR. FELL: James F. Fell of Stoel, Rives,

19 Boley, Jones and Grey on behalf of PacifiCorp, and,

20 Mr. Chairman, with me is John Eriksson who is a member of

21 the Utah Bar and we'd move for his admission for purposes of

22 this proceeding.

23 COMMISSIONER MILLER: All right, for the

24 purposes of this proceeding, we'll grant that motion. I

25 think there were other parties who had previously

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1 intervened. Anybody here today on behalf of the Irrigation

2 Districts.

3 MR. BURLEIGH: Yes, sir, Richard Burleigh of

4 Hawley Troxell Ennis and Hawley on behalf of the Irrigation

5 Districts.

6 COMMISSIONER MILLER: And that's Burleigh?

7 MR. BURLEIGH: Burleigh, B-u-r-l-e-i-g-h.

8 COMMISSIONER MILLER: Would you spell that one

9 more time, please?

10 MR. BURLEIGH: B-u-r-l-e-i-g-h.

11 COMMISSIONER MILLER: Thank you,

12 Mr. Burleigh. All right, before we proceed to take the

13 testimony, are there any preliminary matters in the nature

14 of motions or objections or other problems? Perhaps we

15 should get the appearance of the Commission Staff, too.

16 Mr. Woodbury.

17 MR. WOODBURY: Scott Woodbury, Deputy Attorney

18 General, for the Commission Staff.

19 COMMISSIONER MILLER: Thank you, and I

20 apologize for overlooking you.

21 MR. RICHARDSON: Just one little matter,

22 Mr. Chairman. I've talked to the Commission Staff, Idaho

23 Power and the Complainant regarding the order of witnesses

24 and all three of those parties have agreed that we could

25 call our witness first given his schedule. He has to be out

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1 of town later this morning. With leave of the Chair, I

2 would appreciate that consideration.

3 COMMISSIONER MILLER: All right, is there any

4 objection to taking Mr. Mooney out of order? If not, that

5 will be our first order of business. Before that, any party

6 desire opening statements of any kind?

7 If not, I think we're prepared to proceed.

8 Mr. Richardson.

9 MR. RICHARDSON: Thank you, Mr. Chairman. The

10 Independent Energy Producers of Idaho calls Robert Mooney to

11 the stand.

12

13 E. ROBERT MOONEY,

14 produced as a witness at the instance of the Independent

15 Energy Producers of Idaho, having been first duly sworn, was

16 examined and testified as follows:

17

18 DIRECT EXAMINATION

19

20 BY MR. RICHARDSON:

21 Q Good morning, Mr. Mooney. Would you please

22 state your name and business address for the record?

23 A My name is Bob Mooney. My business address is

24 1161 West River, Suite 200, Boise, 83702.

25 Q By whom are you employed and in what capacity?

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1 A I'm currently employed as president of

2 Consolidated Pumped Storage, and also I'm a senior

3 vice president of the parent company Consolidated Hydro.

4 Q Are you the same Robert Mooney who caused

5 prefiled testimony and an exhibit numbered 501 to be filed

6 in this proceeding?

7 A I am.

8 Q Mr. Mooney, if I were to ask you the same

9 questions you were asked in your prepared testimony, would

10 your answers be the same today?

11 A They would.

12 Q And do you have any corrections or additions

13 to make to your testimony?

14 A I do not.

15 MR. RICHARDSON: Mr. Chairman, I would move

16 that the prefiled testimony of Mr. Mooney be spread upon the

17 record as if it were read in full and Exhibit No. 501 be

18 marked for identification purposes.

19 COMMISSIONER MILLER: If there's no objection,

20 we'll spread the testimony on the record as if read and we

21 will mark Exhibit 501. With respect to exhibits, let me

22 inquire whether generally any party anticipates objections

23 to any of the exhibits that have been prefiled. If there

24 are anticipated objections, I would propose to take up the

25 admission of the exhibits as they're offered. If there are

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1 no anticipated objections, we could simply defer admission

2 until the end of the hearing.

3 All right, with that, then, we'll just mark

4 that exhibit and defer admission until later.

5 (The following prefiled testimony of

6 Mr. Robert Mooney is spread upon the record.)

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1 Q PLEASE STATE YOUR NAME AND BUSINESS
ADDRESS.
2
A E. Robert Mooney, 1161 W. River
3
Street, Suite 200, Boise, Idaho 83702.
4
Q BY WHOM ARE YOU EMPLOYED AND IN WHAT
5 CAPACITY?

6 A I am President of Consolidated Pumped

7 Storage, a subsidiary of Consolidated Hydro, Inc. of

8 which I am Senior Vice President. Consolidated Hydro

9 operates seven hydro projects in Idaho, five of which are

10 owned by Consolidated Hydro. A copy of my resume is

11 attached as Exhibit No. 501.

12 Q ON WHOSE BEHALF ARE YOU TESTIFYING?

13 A I am testifying on behalf of the

14 Independent Energy Producers of Idaho, also known as the

15 IEPI.

16 Q WHAT IS THE IEPI?

17 A The IEPI is an unincorporated

18 association of businesses interested in the development

19 of cogeneration and small power production facilities

20 which are also known as CSPP.

21 Q WHAT IS THE PURPOSE OF YOUR TESTIMONY
IN THIS PROCEEDING?
22
A First, I want to be clear on what we
23
do not want to do in this proceeding.
24
Q PLEASE EXPLAIN.
25

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IEPI

1 A We are not interested in injecting

2 ourselves into the midst of a dispute between Rosebud and

3 Idaho Power. We are not interested in issues dealing

4 with the level of negotiations between those two

5 companies or the status of the Rosebud facility.

6 Q WHAT, THEN, IS YOUR PURPOSE FOR
PARTICIPATING IN THIS CASE?
7
A Our industry depends for its very
8
existence on the regulatory climate this Commission
9
fosters for the purchase by regulated utilities of our
10
product.
11
Q WHY IS THAT?
12
A It is common knowledge that
13
regulated, investor-owned utilities would prefer to build
14
and own their own generating plants than purchase
15
electric power from independent sources. Without this
16
Commission's commitment to the implementation of PURPA
17
through the publishing of administratively determined
18
avoided cost rates, and consistent application of those
19
rates and related contract terms, there would be no
20
independent power industry in the state of Idaho.
21
Q WHY IS IT IMPORTANT FOR THE
22 INDEPENDENT POWER INDUSTRY TO HAVE STABILITY AND
PREDICTABILITY IN THE RATES, TERMS AND CONDITIONS THAT
23 ARE ASSOCIATED WITH POWER PURCHASE AGREEMENTS?

24 A The independent power industry is an

25 important contributor to Idaho Power's system. Contrary

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MOONEY, Di
IEPI

1 to the assertions of some, the CSPP industry is a cost

2 competitive provider of new resources on Idaho Power's

3 system. In addition, the CSPP industry provides

4 ancillary public interest benefits that utility owned

5 projects typically do not.

6 Q WHAT ANCILLARY BENEFITS?

7 A For example, a cogeneration project

8 at a food processing plant adds value to the product that

9 the product would not otherwise have, thereby making the

10 Idaho processing plant more competitive. Another example

11 is the small hydro project on a canal drop which makes

12 the water flowing through the canal more valuable and

13 therefore makes the farmer more competitive. Typically

14 utility owned projects do not offer those important

15 ancillary benefits while at the same time providing cost

16 effective, dependable electric power.

17 Q WHAT ARE THE IEPI'S CONCERNS RELATIVE
TO THE ROSEBUD PROCEEDING?
18
A It appears to us, from the pleadings
19
that have been filed in this case, that Idaho Power would
20
like to change several fundamental assumptions that
21
underlay the development of avoided cost rates without
22
first obtaining authorization from the PUC.
23
Q WHAT ASSUMPTIONS IS IDAHO POWER
24 ATTEMPTING TO ALTER?

25

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MOONEY, Di
IEPI

1 A Idaho Power's insistence on

2 dispatchability for projects greater than ten megawatts

3 is novel. I do not believe that Idaho Power has ever

4 insisted on such a contract provision in the past for

5 projects greater than ten megawatts. I also do not

6 believe the Commission requires such dispatchability in

7 its PURPA implementing orders.

8 Q WHAT OTHER ASSUMPTIONS IS IDAHO POWER
ATTEMPTING TO ALTER WITHOUT FIRST OBTAINING AUTHORIZATION
9 FROM THE PUC?

10 A The calculation of its load resource

11 deficit date. Idaho Power is apparently not using what

12 has come to be known as "Appendix A" (which has been

13 approved by the PUC) for calculating load resource

14 deficit dates and instead is relying on a deficit date

15 other than the one approved by the PUC.

16 Q WHAT IS THE SOURCE OF THAT DATE?

17 A The power company's Resource

18 Management Report and Least Cost Plan.

19 Q WHY DOES THE IEPI OBJECT TO IDAHO
POWER'S RELIANCE ON THOSE DOCUMENTS FOR IDENTIFYING ITS
20 LOAD RESOURCE DEFICIT YEAR?

21 A I am not saying the use of a least

22 cost plan or resource management report for purposes of

23 calculating load resource deficit dates is necessarily

24 wrong.

25

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MOONEY, Di
IEPI

1 Q WHEN WOULD IT BE APPROPRIATE TO USE
THE RESOURCE MANAGEMENT REPORT AND LEAST COST PLAN FOR
2 CALCULATING IDAHO POWER'S AVOIDED COST RATES.

3 A Only after the Commission has held a

4 hearing for that purpose. In such a hearing we would

5 participate and possibly offer adjustments to those

6 documents that would be appropriate in the avoided cost

7 context that might not be appropriate in the Resource

8 Management Report context.

9 Q WHAT SORT OF ADJUSTMENTS?

10 A Without going into detail I would

11 guess that some of the adjustments we would recommend

12 would be to use a shorter term planning horizon for load

13 growth projections. In addition our expert witness might

14 recommend the elimination of unrealized conservation

15 projections. But those issues are not really our main

16 concern here.

17 Q WHAT, THEN, IS YOUR MAIN CONCERN?

18 A The concern that Idaho Power, or any

19 other utility, can, without going through the PUC and

20 public hearings, change the ground rules for avoided cost

21 contract rates and negotiations.

22 Q WHAT EFFECT DOES IDAHO POWER'S
INDEPENDENT ALTERATION OF ITS LOAD RESOURCE DEFICIT DATE
23 HAVE ON THE CSPP INDUSTRY?

24 A The effect is devastating for several

25 reasons.

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MOONEY, Di
IEPI

1 Q WHAT REASONS?

2 A First, and most obviously, Idaho

3 Power chooses to use a deficit date that is into the next

4 century causing a radical reduction in avoided cost

5 rates.

6 Q IS THERE ANOTHER REASON?

7 A Yes, the uncertainty of allowing

8 utilities to, on their own, change the Commission's

9 avoided cost orders and rates is intolerable from a

10 financing and planning perspective. It seems to me that

11 allowing utilities to alter Commission requirements also

12 injects substantial uncertainty in the implementation and

13 administration of avoided cost rates and contracts.

14 Q WHAT IS YOUR RECOMMENDATION?

15 A The Commission should hold Idaho

16 Power accountable by requiring the Company to offer to

17 Rosebud (if it is otherwise entitled to a contract)

18 avoided cost rates and terms that are comparable to the

19 rates and terms it has offered to other greater-than-ten-

20 megawatt QFs and that are consistent with the existing

21 avoided cost methodology.

22 Q DOES THIS CONCLUDE YOUR TESTIMONY?

23 A Yes.

24

25

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IEPI

1 (The following proceedings were had in open

2 hearing.)

3 MR. RICHARDSON: Thank you, Mr. Chairman, and

4 thank you for your consideration in allowing Mr. Mooney to

5 testify out of order this morning. Mr. Mooney is now

6 available for cross-examination.

7 COMMISSIONER MILLER: Mr. Orndorff.

8 MR. ORNDORFF: Mr. Chairman, I have no

9 questions.

10 COMMISSIONER MILLER: All right.

11 Mr. Burleigh, do you have questions?

12 MR. BURLEIGH: No, I do not.

13 COMMISSIONER MILLER: Mr. Fell.

14 MR. FELL: No questions.

15 COMMISSIONER MILLER: Mr. Woodbury.

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

17

18 CROSS-EXAMINATION

19

20 BY MR. WOODBURY:

21 Q Mr. Mooney, beginning on Page 3, around

22 Line 19 of your testimony, you begin to discuss IEP's

23 perception that Idaho Power in this case is attempting to

24 change several fundamental assumptions in avoided cost

25 without a hearing, and on Page 4, Line 1, you talk about,

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1 you cite its insistence on dispatchability for QFs larger

2 than 10 megawatts. As an example, does IEP have a position

3 with respect to Idaho Power's insistence on dispatchability?

4 A The IEPI has discussed dispatchability at some

5 length. We understand from a utility planning standpoint

6 that dispatchability is desirable. However, in the past,

7 that has not been a requirement, to the best of my

8 knowledge, and it's typical that there is either some

9 compensation given for dispatchability or at least

10 provisions made to cover capital and/or variable costs in a

11 form that permits a dispatchable project to be economically

12 feasible; so it's really the approach to establishing the

13 concept other than in some kind of a general proceeding

14 where we would have a chance to input and comment on those

15 that is really the source of our question at this point.

16 Q You also cite a few lines down the Company's

17 use of its resource management report or, as it refers to it

18 now, its integrated resource plan for calculating

19 load/resource deficit as opposed to the Appendix A which the

20 Commission has approved. Does the IEP have any preference

21 for utilizing either the Appendix A or the IRP for purpose

22 of calculating first deficit date?

23 A Again, at this point it's really our intent to

24 bring up the matter of procedure. We have not studied

25 carefully which one is preferable. It's quite obvious from

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1 simply looking at the results that what you would come to a

2 conclusion from Exhibit A which is the currently in place

3 methodology versus what you would come to in the IRP are

4 quite different.

5 As a person who participated in the integrated

6 resource planning process as a member of the technical

7 advisory panel, I was unaware that and even had asked

8 questions as to would this be used in terms of looking at

9 either avoided cost, avoided resources and was assured that

10 that was not the case; so ours, again, is one of procedure.

11 If there is a general discussion of which is the approach,

12 there's currently one that's been adopted by the

13 Commission. We think it's appropriate to use that until the

14 Commission changes.

15 Q Would it be fair to summarize IEP's position

16 that you really have no strong objection to either of those

17 changes; however, you feel that there should be a hearing

18 that precedes any adoption of that type of change in

19 methodology?

20 A I wouldn't use we have a strong feeling one

21 way or another. We have not carefully studied the two

22 approaches. We do think that a proceeding is appropriate to

23 adopt changes of that magnitude.

24 Q If the Commission were to utilize the

25 Company's integrated resource plan as a basis for avoided

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1 cost determination with whatever appropriate adjustments are

2 deemed necessary, what procedure should be followed if the

3 Company wants to change something that affects the rate?

4 Have you given that any thought?

5 A We think the Commission has gone through a

6 process like that in the past and we think one of that

7 nature is appropriate and that would be a consideration of

8 all matters that reflect and have some impact on the setting

9 of the avoided cost and the terms and conditions that would

10 apply to how that is used with individual contracts.

11 Q I'm just having a difficult time hearing you.

12 A Excuse me.

13 COMMISSIONER MILLER: I might say that the

14 court reporter has asked me to remind all the parties to use

15 their microphones and to speak into their microphones.

16 Q BY MR. WOODBURY: On Page 6 of your testimony

17 starting about Line 7, you state that allowing utilities to

18 unilaterally or I think you just might say change,

19 unilaterally change Commission avoided cost orders and rates

20 is intolerable from a financing and planning perspective.

21 Let me ask you, from a planning and financing perspective,

22 is the change any more tolerable if done pursuant to

23 Commission order?

24 A The principal difference that I see as well as

25 other members of the IEPI is that there is a process, there

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1 is a time frame which things that are currently in the

2 planning process can revolve around. You can bring along

3 bankers and others who are interested in the eventual

4 outcome, investors in projects, whatever, with at least the

5 certainty of some Commission proceeding. As it comes up in

6 a project-by-project basis, it really appears to me to be a

7 very short kind of time frame that's very difficult in the

8 development business to plan with or around and particularly

9 as an entire development or cogen community to react to; so

10 our feeling, again, is that the process needs to be one that

11 is a full Commission process to get the changes like we were

12 talking about that are being proposed.

13 Q You further state that allowing utilities to

14 alter Commission requirements also injects substantial

15 uncertainty in the implementation and administration of

16 avoided cost rates and contracts. Doesn't the Company

17 application requesting a change in Commission requirements

18 also inject an element of uncertainty into the process?

19 A It does. Again, it's more a matter of input

20 and considered change as opposed to a specific proposal by a

21 utility to an individual developer. The Commission has

22 given careful thought to the ones they've done in the past

23 and at least have weathered the test of time.

24 MR. WOODBURY: Thank you, Mr. Mooney.

25 Mr. Chairman, I have no further questions.

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1 COMMISSIONER MILLER: Mr. Kline.

2 MR. KLINE: Thank you, Mr. Chairman.

3

4 CROSS-EXAMINATION

5

6 BY MR. KLINE:

7 Q Mr. Mooney, who are the members of the

8 Independent Energy Producers of Idaho?

9 A The IEPI or Independent Energy Producers of

10 Idaho is a loose coalition of those interested in the

11 cogeneration business. In each particular proceeding before

12 the Commission, it may be comprised of a different set of

13 people with interest in that particular proceeding. In this

14 particular proceeding, we have Basic American Foods,

15 J. R. Simplot Company, Sithe Energy, Consolidated Hydro,

16 LBI, and Intermountain Gas.

17 Q What is your role in the management of the

18 Independent Energy Producers of Idaho?

19 A Again, you give us the benefit of the doubt by

20 saying that there's management in IEPI. It really is an

21 ad hoc collection of those with a particular interest in a

22 case. There is no management, per se. There is no

23 agreement other than to share costs and to discuss the

24 aspects of a case and to, in this instance, I at least

25 agreed to be the policy witness for the group. It just as

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Wilder, Idaho 83676 IEPI

1 well could have been someone else; so I have no particular

2 position in the group other than my company, Consolidated

3 Hydro, does operate projects in the state and has a

4 considerable interest in how the QF industry does in

5 general. We also have been quite supportive of attempting

6 to look for some other win-win propositions that aren't

7 necessarily of the QF kind of characterization.

8 Q Well, you said that you agree to share costs.

9 Is there an equal sharing of legal costs and those kinds of

10 things among the members?

11 A There is.

12 Q And you're here today, I guess, testifying on

13 policy issues on behalf of the IEPI. In preparing your

14 testimony, with whom did you consult among the members of

15 the IEPI to develop the policy that you're announcing in

16 your testimony?

17 A My recollection is that it was principally

18 shaped from a couple of conference calls that would have had

19 the members or those participating in this case present; so

20 the general thrust of the testimony is that of the

21 collective will of the group.

22 Q In response to a question posed to you by

23 Mr. Woodbury, you discussed the role that dispatchability

24 would play in a contract negotiation and I guess I kind of

25 want to put this in context, Mr. Mooney. What we have here

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1 is a complaint proceeding in which Rosebud Enterprises is

2 alleging that Idaho Power has failed to negotiate in good

3 faith, and I'm interested in whether it is the position of

4 the IEPI that in a negotiating context is it improper for

5 the utility to talk about the dispatchability of a project

6 within the context of negotiations; is that your position?

7 A The IEPI has not expressed a position in that

8 particular instance. I can offer my viewpoint.

9 Q I'm assuming that you're speaking on behalf of

10 the IEPI?

11 A I'm willing to offer it on behalf of IEPI, but

12 as long as what is currently considered and currently

13 accepted by the Commission, as long as that is one of the

14 alternatives, to discuss other ones I don't believe to be

15 inappropriate.

16 Q The Commission would have to approve all of

17 the things that the utility might conceivably negotiate with

18 an individual large cogenerator prior to that even being

19 placed on the table?

20 A I'm simply saying that since there from our

21 viewpoint is considerable precedence in the form of one or

22 more contracts of greater than 10 megawatt variety that have

23 been put in place that at least from our viewpoint is the

24 standard against -- is as least one of the things that we

25 believe should be offered. Now, should the Company elect to

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1 offer other things in the process of negotiation, I find no

2 problem with that.

3 Q So the question of dispatchability you think

4 would be a legitimate item of discussion in a negotiation

5 with a thermal project; is that correct?

6 A I don't find it inappropriate as long as you

7 have the backdrop of at least consistency with the procedure

8 and the process that's happened in the past and that it's

9 not an either or, I mean, it's not a take it or leave it.

10 Q All right. Now, you also testified in

11 response to a question by Mr. Woodbury that you had

12 participated in the technical advisory panel that Idaho

13 Power convenes as a part of the development of its

14 integrated resource plan; is that correct?

15 A That is correct.

16 Q Did you participate in all of the meetings,

17 some of the meetings, do you recall?

18 A I would say approximately three-quarters of

19 the meetings.

20 Q All right, and based on your participation in

21 that forum, I guess I would be interested to get your

22 response as to what you think the integrated resource

23 planning process is supposed to do as far as determining and

24 evaluating various resource additions that Idaho Power would

25 make.

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1 A Again, you would like my viewpoint or what was

2 expressed at the beginning of the IRP process?

3 Q I'd like your viewpoint as to what you think

4 the IRP process that you participated in was designed to

5 do.

6 A It's my understanding that the process would,

7 was something that first was required or at least suggested

8 by the Utilities Commission as an approach that the

9 utilities, the regulated utilities, in the state would

10 follow in looking at the future and it had a variety of

11 implications which I personally and professionally don't

12 necessarily agree with, but such aspects as approach to

13 conservation, approach to externalities, approach to

14 development of resources of a variety of kinds, either

15 Company-owned or independently developed and is an attempt

16 to come up with a least cost plan. I think that was clear

17 from the beginning.

18 The thing that I think was at least somewhat

19 cloudy and remained cloudy, I think perhaps on purpose, was

20 the link or any potential link to what had gone on in the

21 past in the resetting of avoided cost rates, and

22 specifically to that point upon some questions as to if you

23 considered resources, if you considered the avoided cost,

24 choose a number 10 percent above the currently set avoided

25 cost, you choose a number 10 percent below the currently

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1 avoided cost, how would that influence the resources that

2 might be available that should be considered in the

3 integrated resource plan or the RMR.

4 I think the statement was made that that was

5 not something that was necessarily a matter of the

6 integrated resource planning process. That was a separate

7 venue or approach. The two at some point needed to be

8 reconciled; so at least my observation was, my strong

9 feeling from participating in the meetings was, at some

10 point in the future after some Commission determination and

11 proceeding there may in fact be an integration between what

12 has happened in the past in the avoided cost world and the

13 integrated resource plan or the RMR, that it was really, I

14 would say, convincingly stated that the two were not to be

15 mixed in that process; so that at least is my observation.

16 Q BY MR. KLINE: Just a second.

17 (Off the record.)

18 Q BY MR. KLINE: Again going back, Mr. Mooney,

19 to why we're here, a complaint proceeding from a qualifying

20 facility, 40 megawatts, certainly above the 10 megawatt

21 threshold, in your judgment, is there any question that

22 there is a different procedure that the Commission has

23 initiated or traditionally followed in how utilities will

24 acquire resources larger than 10 megawatts, QF resources?

25 A Would you ask that one more time?

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1 Q Sure. Is there any question in your mind that

2 the Commission has established a separate and distinct

3 procedure whereby utilities negotiate the acquisition of QF

4 resources larger than 10 megawatts as compared to resources

5 smaller than 10 megawatts?

6 A No, there is not.

7 Q And when you're dealing with a project that's

8 larger than 10 megawatts, what is the process that the

9 utility is supposed to follow?

10 A It's my understanding that the utility is to

11 use what has been established for the less than 10 megawatt

12 administratively-set rate and determine the appropriate

13 considerations in offering something for a resource that

14 would be larger than that category.

15 Q So the larger than 10 megawatt resource is

16 entitled to the same prices as the projects smaller than

17 10 megawatts; is that correct?

18 A It's my understanding that that is to be used

19 for the basis for beginning negotiations.

20 Q If you have that as the ending point, I guess,

21 as far as the rate is concerned, what do you negotiate?

22 A Again, I believe I said that it was the

23 beginning point. If that's the ending point, then it's not

24 too difficult of a negotiation I wouldn't expect.

25 Q I think that's why we're here today,

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1 Mr. Mooney. Well, all right, if it's the starting point,

2 what are the things that are left to negotiate?

3 A Well, at least as I understand the current

4 process, it would be a consideration of what is the time of

5 need and that has some influence and is one of the things

6 that's currently taken into account in how Exhibit A works

7 to the best of my knowledge, and other things that would

8 relate to the specific treatment that it might receive until

9 such time as it clearly is needed by the utility, and I'm

10 only generally familiar with some of the other ones that

11 have been attempted by the Company in the past, such as

12 Auger Falls; so in general, that's the only one I know is

13 that the timing of need and the adjustment of either

14 Exhibit A or the approach to looking at the value to the

15 Company and particularly what happens in the years before

16 it's absolutely needed.

17 Q As I understand your answer, one of the

18 legitimate issues that could be negotiated between the large

19 QF and the utility is at what point in time does the utility

20 need the resource; is that correct?

21 A That's my understanding and I think that's

22 appropriate.

23 MR. KLINE: I believe that concludes my

24 cross-examination.

25 COMMISSIONER MILLER: All right.

167

CSB REPORTING MOONEY (X)
Wilder, Idaho 83676 IEPI

1 Commissioner Nelson, do you have questions?

2 COMMISSIONER NELSON: Thank you.

3

4 EXAMINATION

5

6 BY COMMISSIONER NELSON:

7 Q One question, Mr. Mooney, you were just

8 discussing the items you would negotiate in a contract. I'm

9 wondering for a project of 40 megawatts, how important is it

10 where it lies on the utility's transmission grid?

11 A I would think that would be very important or

12 the cost of integration be considered.

13 Q Relative to a 10 megawatt project, how

14 important is that?

15 A I would certainly think that there are fewer

16 places you can put a 40 megawatt facility with any kind of

17 reasonable integration cost on the system than 10 and

18 somewhat relative, but closer to the load than farther from

19 the load, but available transmission would be important.

20 COMMISSIONER NELSON: All right, thank you

21 very much.

22 COMMISSIONER MILLER: Commissioner Smith.

23 COMMISSIONER SMITH: Just one, Mr. Mooney.

24

25

168

CSB REPORTING MOONEY (Com)
Wilder, Idaho 83676 IEPI

1 EXAMINATION

2

3 BY COMMISSIONER SMITH:

4 Q To the extent that the Idaho Power Company has

5 now filed an avoided cost case, are some of the concerns

6 that you've raised here alleviated in the fact that we now

7 have a process?

8 A That we think is appropriate and, yes, they

9 are.

10 COMMISSIONER SMITH: Thank you.

11 THE WITNESS: What we would like to make sure

12 is that this case doesn't necessarily decide the outcome of

13 that one and we also have, as we've expressed, similar

14 concerns with the other utilities that we not have to appear

15 in multiple proceedings to virtually the same issues.

16 COMMISSIONER MILLER: Redirect.

17 MR. RICHARDSON: Just a couple, Mr. Chairman.

18

19 REDIRECT EXAMINATION

20

21 BY MR. RICHARDSON:

22 Q When you were referring to Exhibit A, both in

23 response to Mr. Woodbury and Mr. Kline, you in fact meant

24 Appendix A; correct?

25 A I'm sorry, I did. Thank you for that

169

CSB REPORTING MOONEY (Di)
Wilder, Idaho 83676 IEPI

1 correction.

2 Q What document, to your knowledge, does this

3 Commission currently use to determine when the utility needs

4 new resources? Is it the Appendix A or is it the integrated

5 resource plan?

6 A Appendix A is my understanding.

7 MR. RICHARDSON: Thank you, Mr. Chairman.

8 That's all I have.

9 COMMISSIONER MILLER: Perhaps for the record,

10 I think you could do it, Mr. Mooney, could you more clearly

11 define what is Appendix A and where is it found?

12 THE WITNESS: If I could get some help from

13 Counsel as to a specific description, it might be more

14 accurate.

15 MR. RICHARDSON: Appendix A is the appendix,

16 Mr. Chairman, to the Commission's initial avoided cost order

17 in the Idaho Power Company, I believe it's IPC-E -- I'm not

18 sure of the case number.

19 COMMISSIONER MILLER: Somebody just say the

20 order number for the record.

21 MR. WOODBURY: Commission Order No. 24911 in

22 Case No. IPC-E-93-4 and it's entitled, "Idaho Power Company

23 Energy Load/Resource Balance for Avoided Cost

24 Determination."

25 COMMISSIONER MILLER: All right, I think that

170

CSB REPORTING MOONEY (Di)
Wilder, Idaho 83676 IEPI

1 helps the record.

2 MR. KLINE: Excuse me, but it also goes on to

3 say for projects smaller than 10 megawatts.

4 COMMISSIONER MILLER: My preference at this

5 point was or the purpose here is merely to identify for the

6 record what that document is. What that document says we

7 will take up at some later time.

8 MR. RICHARDSON: Mr. Chairman, that is in fact

9 the Appendix A that Mr. Mooney has been referring to.

10 THE WITNESS: That is correct.

11 MR. RICHARDSON: Mr. Chairman, that concludes

12 the direct case of the Independent Energy Producers of

13 Idaho.

14 COMMISSIONER MILLER: All right. Can

15 Mr. Mooney be excused?

16 MR. KLINE: No objection.

17 MR. ORNDORFF: No objection.

18 COMMISSIONER MILLER: All right, Mr. Mooney,

19 you're free to stay or go as you wish.

20 THE WITNESS: Thank you.

21 (The witness left the stand.)

22 COMMISSIONER MILLER: All right, I think we're

23 now ready for the Rosebud case. Mr. Orndorff, how would you

24 like to proceed with the presentation of your case?

25 MR. ORNDORFF: Mr. Chairman, I would propose

171

CSB REPORTING MOONEY (Di)
Wilder, Idaho 83676 IEPI

1 to call my first witness Mr. Roberts.

2 COMMISSIONER MILLER: And some of your

3 witnesses have both direct and rebuttal. Could you tell us

4 your intention with respect to those?

5 MR. ORNDORFF: My intention right now is do

6 rebuttal and direct at the same time. I think it will speed

7 the proceeding up and I don't think we'll lose very much

8 substance if we use that abbreviated form.

9 COMMISSIONER MILLER: All right, we'll assume

10 there will be no objection to that. For the purpose of

11 planning, I guess my proposal would be to take the Rosebud

12 case, then the PacifiCorp case, then the Staff case, then

13 Idaho Power Company. Would that be agreeable?

14 All right, Mr. Orndorff, let's proceed with

15 your witnesses.

16 MR. ORNDORFF: I'd like to call our first

17 witness Mr. R. Lee Roberts.

18

19

20

21

22

23

24

25

172

CSB REPORTING COLLOQUY
Wilder, Idaho 83676

1 R. LEE ROBERTS,

2 produced as a witness at the instance of Rosebud

3 Enterprises, Inc., having been first duly sworn, was

4 examined and testified as follows:

5

6 DIRECT EXAMINATION

7

8 BY MR. ORNDORFF:

9 Q Mr. Roberts, would you give us your full name

10 and business address?

11 A My name is R. Lee Roberts, 1087 West River

12 Street, Suite 200 in Boise.

13 Q Now, Mr. Roberts, are you the same Mr. Roberts

14 who caused to have certain testimony prepared in this case?

15 A I am.

16 Q Are you sponsoring any exhibits to your

17 testimony?

18 A Only those exhibits that were attached to my

19 testimony when filed.

20 MR. ORNDORFF: Mr. Chairman, I don't believe

21 there are any exhibits that he is sponsoring to his

22 testimony.

23 COMMISSIONER MILLER: Was there an Exhibit

24 No. 5?

25 MR. ORNDORFF: Yes, Mr. Chairman, I'm sorry,

173

CSB REPORTING ROBERTS (Di)
Wilder, Idaho 83676 Rosebud

1 there is an Exhibit No. 5. It's a rather long document.

2 I'd move to have it marked.

3 COMMISSIONER MILLER: All right, if there's no

4 objection, we'll mark Exhibit 5 and spread Mr. Roberts'

5 testimony on the record as if it had been read in full.

6 MR. ORNDORFF: Mr. Chairman, may I ask if he

7 has any corrections before we spread?

8 COMMISSIONER MILLER: Certainly.

9 Q BY MR. ORNDORFF: Do you have any corrections

10 in your testimony, Mr. Roberts?

11 A No, I do not.

12 MR. ORNDORFF: Thank you, Mr. Chairman. With

13 that, I would tender Mr. Roberts for cross-examination.

14 COMMISSIONER MILLER: All right, thank you,

15 Mr. Orndorff.

16 (The following prefiled testimony of

17 Mr. R. Lee Roberts is spread upon the record.)

18

19

20

21

22

23

24

25

174

CSB REPORTING ROBERTS (Di)
Wilder, Idaho 83676 Rosebud

1 Q Please state your name, business title and

2 business address.

3 A My name is R. Lee Roberts, 1087 W. River

4 Street, Boise, Idaho and I am President of Rosebud

5 Enterprises, Inc.

6 Q Please describe your professional experience.

7 A I serve as a Director, Vice President and

8 General Counsel of Billings Generation, Inc. (BGI) and I am

9 also a Vice President and Director of Rosebud and Rosebud

10 Operating Service, Inc. (ROSI). My principal occupation is

11 as senior partner of the law firm of Roberts and Kerner.

12 Prior to founding Roberts and Kerner, I served as a senior

13 partner of Hanna and Morton, a Los Angeles firm with an

14 energy law practice dating back to its inception in 1915 and

15 prior to Hanna and Morton I was Manager of Fuel Supply

16 Services for Southern California Edison Company. I have

17 been actively involved in all aspects of alternate energy

18 project development since 1978.

19

20

21

22

23

24

25

175

ROBERTS (Di)
Rosebud

1 Q Please describe the purpose of your testimony.

2 A My testimony generally covers the following

3 topics:

4 (1) A brief summary of Rosebud Enterprises and

5 its affiliated and operating power projects;

6 (2) Why Rosebud believes petroleum coke presents

7 a unique opportunity for obtaining a low cost

8 fuel for generation in Idaho;

9 (3) Other potential fuels;

10 (4) Potential other economic development which

11 could be forthcoming from Rosebud's project; and

12 (5) Several policy concerns I offer the

13 Commission concerning economic development in

14 Idaho and the need for thermal generation in

15 Idaho.

16 I. Rosebud Enterprises

17

18 Q Please describe Rosebud Enterprises.

19 A Rosebud Enterprises, Inc. is an Idaho

20 corporation located in Boise, Idaho. Rosebud was created

21 specifically to serve as a development entity for qualified

22 facilities burning solid fuel similar to the Colstrip

23 facility previously described by Ronald D. Blendu. Rosebud

24 is a closely held private business owned by five individuals

25 of whom both Mr. Blendu and I are included.

176

ROBERTS (Di)
Rosebud

1 Rosebud and its affiliates presently have the Colstrip

2 facility under operations, the Billings, Montana Yellowstone

3 Energy Limited Partnership project (with an Exxon affiliate

4 as limited partner) under construction, and the Kalamazoo,

5 Michigan project in development with construction now

6 scheduled to start at the James River Power Plant site

7 sometime in mid-1994. In addition, Rosebud affiliates are

8 presently seeking to develop a project at Montpelier, Idaho

9 with PacifiCorp as the purchaser of energy and capacity, and

10 have a contract to build a project at Healy, Alaska with

11 Golden Valley Electric Association of Fairbanks, Alaska.

12 Essentially, Rosebud believes that its solid fuel plants

13 offer a long term new resource for energy and capacity.

14 Rosebud is actively seeking to convince recalcitrant

15 utilities of such benefits and has become accustomed to

16 regulated utilities refusing to select any independent

17 option of a new resource when other higher cost utility

18 options are available.

19 The market place for new resources is generally divided

20 by the debate between providers of natural gas projects and

21 solid fuel technology. While natural gas offers initial

22 lower capital costs to ratepayers and utilities, Rosebud's

23 strategy is to focus on the long term projects without the

24 extreme fuel risk attendant to natural gas projects

25 dependent on gas transmission and price variability as
occurred in the early 1980's.
177

ROBERTS (Di)
Rosebud

1 Q Have your reviewed the costs for circulating

2 fluidized bed (CFB) boilers discussed by Idaho Power in

3 their most recent resource plan?

4 A Yes. Based on Rosebud's actual experience, it

5 is clear to me that Idaho Power was unfamiliar with the CFB

6 technology when their latest resource draft was prepared.

7 Generally, a plant such as Rosebud's Mountain Home facility

8 should cost approximately $1500-$1550 per KW of capacity and

9 the consumption of limestone is not a significant economical

10 factor in the operations of the plant. Other than obtaining

11 financing on a reasonable schedule, Rosebud's understanding

12 is that generally Idaho Power has no right to inquire into

13 project economics.

14 Q Has a Rosebud affiliate recently closed a

15 project development phase and started construction of a

16 project?

17 A Yes, Rosebud's affiliate BGI, recently

18 completed development efforts and construction is presently

19 under way in Billings, Montana. As with the Mountain Home

20 project, the BGI project burns petroleum coke and sells up

21 to 57 MW of capacity and energy to Montana Power Company.

22 The plant also delivers 140,000 pounds of steam per hour to

23 the Exxon refinery. An affiliate of Exxon Corporation is a

24 limited partner with BGI.

25

178

ROBERTS (Di)
Rosebud

1 Attached as Rosebud Exhibit Number 5 is a copy of the

2 BGI and Yellowstone Energy Limited Partnership (between BGI

3 and the Exxon affiliate) Official Statement with which

4 Morgan Stanley, Inc. acting as the underwriter recently sold

5 $120,000,000 of non-recourse revenue bonds issued by the

6 Montana Board of Investments. I call the Commission's

7 attention to the independent engineers study of combusting

8 petroleum coke which may be helpful in understanding the CFB

9 technology and specifically how it applies to combusting

10 petroleum coke.

11 Unless Idaho laws were altered to permit a similar tax

12 exempt financing, I would expect that Rosebud would attract

13 conventional, taxable equity and bank financing for the

14 Mountain Home project. Given a future need to attract low

15 cost generation to Idaho, the Legislature may in the future

16 opt to amend the tax exempt law to provide similar tax

17 benefits for plants in Idaho instead of allowing neighboring

18 state's tax advantages to produce lower cost resources for

19 their competitive benefit.

20 II. Petroleum Coke

21 Q Please briefly describe petroleum coke.

22 A Petroleum coke is a by-product of refining

23 where what would otherwise be residual fuel oil is

24 converted to a solid to maximize the amount of

25 gasoline a refiner can extract. When

179

ROBERTS (Di)
Rosebud

1 crude stocks contain significant amounts of sulfur, the

2 petroleum coke as the residue from the refinery process

3 typically has high sulfur content. Such sulfur makes the

4 petroleum coke impossible to burn in a conventional boiler

5 while remaining in compliance with environmental

6 requirements. As Ronald Blendu described in his testimony,

7 CFB technology with injection of limestone allows combustion

8 of higher sulfur fuels in an environmentally acceptable way.

9 Indeed, a CFB is regarded today as "Best Available Control

10 Technology", or BACT.

11 Q Why is petroleum coke economically available

12 to the Mountain Home project?

13 A During the course of developing the BGI

14 project, Rosebud identified additional sources of high

15 sulfur petroleum coke produced in Montana, Wyoming, Canada,

16 and Minnesota which are presently disposed of at significant

17 negative costs to refineries which are presently shipping

18 large quantities of high sulfur coke to Europe and Japan

19 where environmental restrictions are less restrictive.

20 Given Idaho's geographic advantage (avoidance of large

21 transportation costs to overseas markets), Rosebud concluded

22 that a low cost (or zero cost) fuel opportunity may exist in

23 Idaho thereby eliminating the significant transportation coal

24

25

180

ROBERTS (Di)
Rosebud

1 fuel and transmission costs if an avoided plant was

2 otherwise built at the SAR Wyoming site. After preliminary

3 discussions with representatives of refineries, Rosebud

4 confirmed the potential for low cost fuel but cannot commit

5 to a long term petroleum coke agreement until Idaho Power

6 has agreed to purchase capacity and energy at rates which

7 will support the project. Given the economic advantage to

8 any refinery supplying petroleum coke, it is possible that

9 an affiliate of the refining entity may become a partner in

10 the Mountain Home project similar to BGI's relationship with

11 an Exxon affiliate. Since October of 1992, Rosebud has been

12 seeking an avoided cost consistent with existing rates and

13 to date Idaho Power has refused to make an offer consistent

14 with existing rates offered to Meridian Energy and Auger

15 Falls.

16 III. Other Available Fuel

17 Q If petroleum coke were not available, are

18 there other unmarketable fuels which Rosebud could use at

19 Mountain Home?

20 A Yes, Rosebud has contacted several Montana and

21 Wyoming coal mines and determined that a significant supply

22 of unmarketable waste coal exists which could fuel the

23 Mountain Home project as an alternative to petroleum coke.

24 The project could maintain its QF status under either waste

25 coal or petroleum coke.

181

ROBERTS (Di)
Rosebud

1 Waste coal is typically created in the mining operations

2 by a strip mine spoiling the top 12-18 inches of a seam to

3 remove ash or sulfur. The spoiled waste is typically

4 deposited in the reclaimed pit by the mine and is otherwise

5 lost for any productive use. Existing boilers such as the

6 Valmy plants cannot use such waste coal because of higher

7 ash and sulfur content.

8 IV. Other Economic Development

9 Q Is there a possibility of attracting

10 additional economic development to Mountain Home if Rosebud

11 obtains a Power Sales Agreement from Idaho Power?

12 A Yes, Rosebud's plant as presently envisioned

13 will be designed only to produce electric energy. However,

14 if Rosebud can obtain a Power Sales Agreement from Idaho

15 Power, Rosebud can minimally alter its design to allow for a

16 slightly larger plant to sell low cost steam to adjacent

17 industries such as the arrangement with the Billings project

18 which is providing low cost steam to the Exxon refinery.

19 By Rosebud obtaining a Power Sales Agreement, Rosebud

20 and economic development agencies can offer prospective

21 Idaho industries an attractive economic advantage to locate

22 in Idaho and specifically in Mountain Home.

23

24

25

182

ROBERTS (Di)
Rosebud

1 A steam park for new industry could attract significant

2 new industries which otherwise would not locate in Idaho.

3 Without a Power Sales Agreement from Idaho Power, Idaho and

4 Mountain Home will loose any possibility of attracting new

5 industries to a steam park.

6 V. Competitive Options for New Resources

7 Q Do you have thoughts as generally to policy

8 concerns on selection of new resources which you would like

9 to share with the Commission.

10 A Yes, since the inception of PURPA no regulated

11 utility which I know of has been a willing participant to

12 competition. A project like that proposed by Rosebud and

13 Rosebud affiliates is not paid by ratebasing but rather

14 through the maximization of kilowatt hours delivered, which

15 of course requires a reliable plant capable of attaining

16 high capacity factors. While a large investment provides

17 maximum returns to Idaho Power's shareholders, Rosebud's

18 returns are solely driven by kilowatt hour production. As

19 Idaho Power continues to experience record or near record

20 growth, larger QFs than 10 MW offer the only independent

21 competitive resource in the future which will avoid

22 construction of significant new ratebased resources.

23 Developers cannot afford to obtain federal hydro licensing

24 any longer for small projects. Natural gas projects

25

183

ROBERTS (Di)
Rosebud

1 are possible to build at less than 10 MW but lose

2 significant economics while maintaining the gas

3 fuel/transmission risk. In short, larger QFs have a place

4 in the market place and no regulated utility should simply

5 be able to refuse to purchase from a QF at its whim because

6 of a potential large utility or EWG project. Idaho Power

7 should not be able to avoid Rosebud's project through the

8 use of offering unreasonable avoided costs while Idaho Power

9 seeks to justify its favored projects (litigation settlement

10 at Meridian Energy and Idaho affiliated projects at Twin

11 Falls & Milner). Indeed, Congress passed PURPA to eliminate

12 the very practices Idaho Power is now employing.

13 Q Do you believe there are economic development

14 policy reasons to favor Idaho projects over out-of-state

15 resources?

16 A Yes, Idaho Power has a long and somewhat

17 puzzling history of never developing any thermal projects in

18 Idaho. Only independents have built thermal projects in

19 Idaho such as Boise Cascade's Emmett facility and the

20 Tammerack plant. In recent history, Idaho Power proposed

21 the unfortunate 1000 MW Pioneer facility which remains today

22 as unreasonable as it was over fifteen years ago. The state

23 of Idaho needs reasonable thermal generating resources and

24 should not forever remain dependent on adjacent states to

25 provide resources in droughts without those states being

184

ROBERTS (Di)
Rosebud

1 tempted to propose stiff generating taxes for Idaho

2 residents to pay such as recently proposed by Montana for

3 Oregon and Washington residents.

4 On a policy basis, Rosebud's plant offers a reasonable

5 generating resource from which Idaho Power should be

6 required to purchase capacity and energy. Idaho Power no

7 longer has a monopoly over providing generating resources.

8 The plant sizing should not be an issue that eliminates

9 competition and market place alternatives to projects the

10 utility wishes to foster. Minimum risk to ratepayers and

11 reliable generating resources should be a policy goal. Huge

12 new generating plants, whether gas or coal, bring to

13 ratepayers huge financial risks which are small enough to

14 meet load growth but large enough to allow economies of

15 scale.

16 Q Does this conclude your testimony?

17 A Yes.

18

19

20

21

22

23

24

25

185

ROBERTS (Di)
Rosebud

1 (The following proceedings were had in open

2 hearing.)

3 COMMISSIONER MILLER: Mr. Richardson.

4 MR. RICHARDSON: We have no questions,

5 Mr. Chairman.

6 COMMISSIONER MILLER: Mr. Burleigh.

7 MR. BURLEIGH: We have no questions.

8 COMMISSIONER MILLER: Mr. Fell.

9 MR. FELL: No questions.

10 COMMISSIONER MILLER: Mr. Woodbury.

11 MR. WOODBURY: Thank you, Mr. Chairman.

12

13 CROSS-EXAMINATION

14

15 BY MR. WOODBURY:

16 Q Mr. Roberts, I believe I only have one

17 question. Regarding your testimony starting at Pages 9 and

18 10, you talk about competitive options for new resources,

19 and you state on Page 10 that Idaho needs reasonable thermal

20 generating resources and not remain forever dependent on

21 adjacent states to provide resources in droughts without

22 those states being tempted to propose stiff generating taxes

23 for Idaho residents, and you make reference to a recently

24 proposed tax by Montana for Oregon and Washington

25 residents. Do you know how that's played out?

186

CSB REPORTING ROBERTS (X)
Wilder, Idaho 83676 Rosebud

1 A Yes. That proposed tax was part of a sales

2 tax proposal by the legislature which was subject to a

3 public vote and was voted down. In the sales tax, a small

4 existing electric generation tax was increased dramatically

5 and would have had an impact on the cost of any power sold

6 either internally or outside of the state by generation

7 resources within the State of Montana.

8 Q Are you aware of any other states that are

9 considering similar proposals?

10 A I am not.

11 MR. WOODBURY: Thank you. Mr. Chairman, I

12 have no more questions.

13 COMMISSIONER MILLER: Mr. Kline.

14 MR. KLINE: Thank you, Mr. Chairman.

15

16 CROSS-EXAMINATION

17

18 BY MR. KLINE:

19 Q Mr. Roberts, could you please direct your

20 attention to Page 4 of your prefiled testimony, and the

21 testimony doesn't have line numbers, so what I'm referring

22 to here is your first answer on Page 4, and in that answer,

23 you were kind of critical, I guess, of Idaho Power's

24 unfamiliarity with the technology that you discuss, the CFB

25 technology, and in the second sentence of your answer there,

187

CSB REPORTING ROBERTS (X)
Wilder, Idaho 83676 Rosebud

1 you state that generally, a plant such as Rosebud's Mountain

2 Home facility should cost approximately $1500-1550 per kW of

3 capacity. Do you see that?

4 A I do.

5 Q I'm kind of confused, Mr. Roberts, and I'm

6 going to have to ask you to take a look at Mr. Blendu's

7 testimony.

8 A I'll need a copy of that. I don't have a copy

9 in my possession.

10 Q Do you have some available?

11 A No, I do not.

12 MR. KLINE: Do you have it available?

13 MR. ORNDORFF: No, I do not.

14 MR. RIPLEY: Is that the same place you've got

15 Exhibit 5, Owen?

16 Q BY MR. KLINE: Turn to Page 3 of Mr. Blendu's

17 testimony, if you would, please, Mr. Roberts. Are you

18 there?

19 A I am.

20 Q Mr. Blendu testifies that the Mountain Home

21 facility will have a construction cost of $72 million and he

22 testifies that it's a 4,000 kW facility, and unless my math

23 is off, I read that as being $1,800 per kW.

24 MR. ORNDORFF: Objection, mischaracterizes the

25 testimony. He did not testify it was a 4,000 kW project.

188

CSB REPORTING ROBERTS (X)
Wilder, Idaho 83676 Rosebud

1 MR. KLINE: It's a 40 megawatt project.

2 COMMISSIONER MILLER: One moment, please. My

3 attitude on objections of the nature just stated is that

4 considerable latitude ought to be allowed in formulating the

5 predicate of questions. If a question becomes so far off

6 base as to be argumentative, then I think an objection of

7 that nature is properly sustained, made and sustained; so

8 I'd ask the parties to be guided that principle, but within

9 that range of latitude try and be careful in the formulation

10 of questions so that there isn't room for dispute about the

11 subject of the question; so I'll overrule the objection.

12 Q BY MR. KLINE: Mr. Roberts, what is the

13 capacity in kilowatts of the proposed Mountain Home project?

14 A We have generally discussed it in terms of a

15 40,000 net kilowatt capacity or 40 megawatt net capacity.

16 Q And what is the cost per kilowatt of the

17 project?

18 A Well, I see that Mr. Blendu testified that he

19 estimated that it would have a construction cost of $72

20 million. We don't have a contract in place for construction

21 of that facility since we don't have a utility contract.

22 Q If you divide the construction cost by the per

23 kW, by the kilowatt amount of the project, do you not get

24 $1,800 per kilowatt?

25 A I haven't done that arithmetic.

189

CSB REPORTING ROBERTS (X)
Wilder, Idaho 83676 Rosebud

1 Q Subject to check, would you accept that?

2 A Rather than check, I'll just do it. Yes, you

3 do.

4 Q So your statement on Paragraph 4 of your

5 testimony that it will cost approximately $1500-1550 per kW

6 is incorrect?

7 A Absolutely not.

8 Q Then Mr. Blendu's testimony as to the cost per

9 kW is incorrect?

10 A I clearly differ with Mr. Blendu's estimate if

11 that testimony was meant to be the construction cost of the

12 facility. I don't know and cannot tell from his testimony

13 whether he's including soft costs in there and, if so, what

14 the basis was for his estimate of soft costs. I would

15 expect $1500-1550 a kilowatt to be the appropriate hard cost

16 or construction contract cost for a 40 megawatt net solid

17 fueled facility, and that's fully consistent with the costs

18 of projects currently under construction and with the cost

19 in construction contracts currently being executed by other

20 parties.

21 Q Thank you, Mr. Roberts. On Page 3 of your

22 testimony, second paragraph, you talk about regulated

23 utilities seeking to develop utility options that are more

24 expensive than QF options. Are you there?

25 A I am.

190

CSB REPORTING ROBERTS (X)
Wilder, Idaho 83676 Rosebud

1 Q All right, but in this specific complaint

2 case, Mr. Roberts, isn't the, I don't know, the gravamen or

3 the nubbin of this dispute the fact that lower cost options

4 are available to Idaho Power, costs that are lower than

5 those proposed by Rosebud? In that situation, isn't it

6 appropriate for the utility to attempt to negotiate a lower

7 price?

8 A I think you've mischaracterized the gravamen

9 of this proceeding and of federal law. PURPA requires that

10 a utility pay its avoided cost to a qualified facility or

11 offer to pay it. Avoided cost is cost to the utility had it

12 provided that resource by other means than purchasing from

13 the qualified facility. By definition, if that process is

14 adhered to and followed by the Commission, there cannot be

15 any overpayment for a qualified facility resource.

16 Rosebud has never asked that it be given a

17 contract at above avoided cost. Rosebud has asked that it

18 be given a contract at avoided cost and Idaho Power Company

19 has refused to give Rosebud a contract and that's the

20 gravamen of this proceeding.

21 Q But this is a project that's larger than

22 10 megawatts, is it not?

23 A It is.

24 Q And under the Commission's procedures,

25 projects larger than 10 megawatts, the purchase price, the

191

CSB REPORTING ROBERTS (X)
Wilder, Idaho 83676 Rosebud

1 terms and conditions are negotiated by the utility and the

2 QF. Isn't it reasonable when the utility has lower cost

3 options available to it that those be taken into

4 consideration in the negotiations with the qualifying

5 facility?

6 A You keep referring to lower cost options and I

7 have to keep insisting on what federal law is, which is,

8 among other things, the cost of a qualified facility is

9 irrelevant. The price it is paid is relevant and the price

10 that is required is the utility's avoided cost, whatever

11 that is. In our case, the negotiations stopped immediately

12 upon requesting a contract when we were informed by letter

13 that we would not be offered a contract which necessitated

14 originating this proceeding.

15 Q Wait a minute, Mr. Roberts, it's your

16 testimony that Idaho Power has refused to negotiate with

17 Rosebud?

18 A Yes, by letter authored by you dated

19 December 10th, 1992, and I quote, "Because Idaho Power does

20 not need to add any new resources for such a long period of

21 time, it would be imprudent for Idaho Power to contractually

22 commit at this time to a 40 megawatt, 35-year purchase

23 beginning in either 1998 or 2000. There are simply too many

24 variables that could intervene between now and 2000 that

25 could affect the reasonableness of any such major resource

192

CSB REPORTING ROBERTS (X)
Wilder, Idaho 83676 Rosebud

1 commitment."

2 Q And at that point in time Rosebud filed the

3 complaint; correct?

4 A Within a few days, I believe.

5 Q And subsequent to that time, have there been

6 negotiations between the parties?

7 A There have been negotiations.

8 Q And are those same negotiations the one that

9 was terminated in 15 minutes by Rosebud?

10 A It's my understanding that there are still

11 negotiations going on. It kind of depends on how one

12 defines the term negotiation.

13 Q I think that probably is a key discussion in

14 this case, Mr. Roberts. In your testimony, you discuss fuel

15 sources for this proposed project. Does Rosebud have a fuel

16 contract or a firm option for fuel for the Mountain Home

17 facility?

18 A Rosebud, as we discussed when you took my

19 deposition, has not attempted to secure a firm fuel contract

20 because no fuel supplier commits to firm future deliveries

21 of their product when the potential purchaser doesn't have a

22 contract, utility contract, for their facility.

23 Q What about an option, a firm option, for

24 fuel? Do you have anything like that?

25 A An option is the same thing as a contract.

193

CSB REPORTING ROBERTS (X)
Wilder, Idaho 83676 Rosebud

1 Q How about fuel transportation, have you

2 obtained any kind of commitment or contract for fuel

3 transportation to the Mountain Home facility?

4 A We wouldn't contract to transport fuel we

5 don't have under contract and a railroad would not engage in

6 meaningful negotiations of actual tariff rates for

7 hypothetical transactions.

8 Q So your answer is you don't have a fuel

9 contract and you don't have a fuel transportation contract?

10 A Correct.

11 MR. KLINE: One second.

12 (Off the record.)

13 Q BY MR. KLINE: In your answers, you keep

14 referring to the fact that a fuel supplier or a fuel

15 transporter won't commit to a contract unless there is an

16 avoided cost contract from the utility. What is the avoided

17 cost in the case of a negotiated contract for a project

18 larger than 10 megawatts?

19 A It's my understanding that the cost initially

20 should be the cost for contracts less than 10 megawatts

21 adjusted for the impact of that specific project on the

22 utility, which could, depending upon the utility's

23 alternative, result in either an increase or a decrease in

24 that avoided cost amount. If, for instance, the qualified

25 facility resource is closer to a load center, then the

194

CSB REPORTING ROBERTS (X)
Wilder, Idaho 83676 Rosebud

1 resource utilized to develop the less than 10 megawatt

2 price, the avoided cost based solely on location

3 geographically would be higher assuming adequate

4 transmission capacity at that closer location, but in any

5 event, it's an adjustment for the impact of that facility on

6 the utility's system.

7 Q So each individual project larger than

8 10 megawatts is going to have its own individual

9 characteristics, its own individual impacts on the utility's

10 system, its own individual values to the utility; is that

11 correct?

12 A It's my understanding that the Commission

13 determined that each should be individually assessed if it's

14 larger than 10 megawatts.

15 Q And those kinds of issues are legitimate

16 issues for negotiation, then, are they not?

17 A Yes, so long as there's a means to resolve

18 disputes if negotiations don't result in agreement.

19 MR. KLINE: That's all the questions I have.

20 COMMISSIONER MILLER: Commissioner Nelson.

21 COMMISSIONER NELSON: I have no questions.

22 Thank you.

23 COMMISSIONER SMITH: Neither do I.

24 COMMISSIONER MILLER: I guess I have no

25 questions.

195

CSB REPORTING ROBERTS (X)
Wilder, Idaho 83676 Rosebud

1 Redirect.

2 MR. ORNDORFF: Mr. Chairman, I have no

3 questions.

4 COMMISSIONER MILLER: Mr. Roberts, thank you

5 very much for your help.

6 COMMISSIONER SMITH: I did have a question. I

7 should have looked at my page first.

8

9 EXAMINATION

10

11 BY COMMISSIONER SMITH:

12 Q I guess being unfamiliar with your industry

13 and maybe the construction industry in general, I wasn't

14 sure what you meant by soft costs and hard costs.

15 A Normally, in our business we negotiate and

16 sign a fixed price or guaranteed maximum price contract with

17 a contractor whereby the contractor guarantees for a given

18 amount of money to build a plant that will perform in

19 accordance with the performance guarantees in that

20 contract. That's the hard cost. We pay that contractor

21 that money to build the plant. If he can build it cheaper

22 and can meet the performs guarantees, then he makes more

23 money. If he underestimated, then he pays out of his pocket

24 for the overrun.

25 In addition to the costs that you pay the

196

CSB REPORTING ROBERTS (Com)
Wilder, Idaho 83676 Rosebud

1 contractor, you have costs of financings or you have the

2 costs of lawyers for the banks and the various parties and

3 your own lawyers, and those costs, plus loan fees that you

4 have to pay at the time you take the loan or things, I'm

5 referring to as soft costs.

6 COMMISSIONER SMITH: Thank you for that

7 clarification.

8 COMMISSIONER MILLER: All right, Mr. Roberts,

9 thank you again for your help.

10 (The witness left the stand.)

11 COMMISSIONER MILLER: Can Mr. Roberts be

12 excused if he so desires?

13 MR. ORNDORFF: Mr. Chairman, my next witness

14 is Ronald D. Blendu. I'll call him if you wish to proceed

15 or proceed to another --

16 COMMISSIONER MILLER: Why don't we see how far

17 we can get with Mr. Blendu.

18 MR. ORNDORFF: Thank you, Mr. Chairman. I

19 call Mr. Blendu.

20

21

22

23

24

25

197

CSB REPORTING ROBERTS (Com)
Wilder, Idaho 83676 Rosebud

1 RONALD D. BLENDU,

2 produced as a witness at the instance of Rosebud

3 Enterprises, Inc., having been first duly sworn, was

4 examined and testified as follows:

5

6 DIRECT EXAMINATION

7

8 BY MR. ORNDORFF:

9 Q Mr. Blendu, would you give your full name and

10 business address for the record, please?

11 A My name is Ronald D. Blendu, 1087 West River

12 Street, Suite 200, Boise, Idaho.

13 Q Mr. Blendu, are you the same Mr. Blendu that

14 caused certain testimony to be filed in this case?

15 A I am.

16 Q Are you sponsoring any exhibits to your

17 testimony in this case?

18 A No.

19 MR. ORNDORFF: Let the record show he is

20 sponsoring Exhibits 1 through 4.

21 THE WITNESS: I am.

22 MR. ORNDORFF: And I would ask that they be

23 marked.

24 COMMISSIONER MILLER: All right, we'll mark

25 Exhibits 1 through 4.

198

CSB REPORTING BLENDU (Di)
Wilder, Idaho 83676 Rosebud

1 Q BY MR. ORNDORFF: Now, Mr. Blendu, if I were

2 to ask you the same questions that are in your testimony,

3 would you have any corrections?

4 A No.

5 MR. ORNDORFF: With that, Mr. Chairman, I

6 would ask that his testimony be spread on the record and I

7 tender him for cross-examination.

8 COMMISSIONER MILLER: If there's no objection,

9 the testimony of this witness will be spread on the record

10 as if read.

11 (The following prefiled testimony of

12 Mr. Ronald Blendu is spread upon the record.)

13

14

15

16

17

18

19

20

21

22

23

24

25

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CSB REPORTING BLENDU (Di)
Wilder, Idaho 83676 Rosebud

1 Q Please state your name, business title and

2 business address.

3

4 A Ronald D. Blendu, 1087 W. River Street, Boise,

5 Idaho and I am Vice President/Operations for Rosebud

6 Enterprises and for all Rosebud affiliated projects such as

7 the Mountain Home Project.

8

9 Q Please describe your professional experience

10 in operating solid fuel plants.

11

12 A I serve as a Director and Vice President of

13 Bilings Generation, Inc. (BGI). I have extensive

14 experience in managing alternative energy power plants.

15 From March 1983 through June 1989, I was employed by

16 UltraSystems, Inc. of Irvine, California, serving in the

17 capacities of Plant Manager and later as Director of

18 Operations overseeing the operation of eight circulating

19 fluidized bed cogeneration plants. My duties also included

20 administering engineering and construction contracts and

21 servicing as general manager for

22

23

24

25

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1 equity owners. Prior to 1993, I worked for the Procter &

2 Gamble Co. in various positions of technical and operation

3 management. I hold a Bachelor of Science degree in

4 Engineering from the United States Coast Guard Academy and

5 served as an officer in the Coast Guard for four years.

6

7 Q Please describe the purpose of your testimony.

8

9 A My testimony is divided into three parts, all

10 generally designed to describe the plant Rosebud proposes to

11 build at Mountain Home.

12

13 First, I discuss the plant, its size, cost, technology and

14 projected employment.

15

16 Second, I discuss briefly the air and water emissions

17 together with the emission control equipment which is the

18 best available control technology (BACT) as determined by

19 the Environmental Protection Agency (EPA).

20

21 Lastly, I discuss plant operations and the reliability of

22 the unit.

23

24

25

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1 I. Description of the Plant

2 Q Please describe Rosebud's proposed plant.

3

4 A Rosebud's proposed plant is intended to be

5 identical to Rosebud's present operating facility located in

6 Colstrip, Montana of which Rosebud Energy Corp. is the

7 general partner of Colstrip Energy Limited Partnership

8 (CELP). CELP's limited partners are affiliates of Pacific

9 Gas and Electric and Bechtel Corporation.

10

11 Attached as Exhibit Number 1 is a line diagram generally

12 describing the facility and its operating components. I

13 believe similar information was previously provided Idaho

14 Power Company in correspondence dated October 8, 1992. (See

15 Rosebud Exhibit Number 2.)

16

17 The Mountain facility will produce a guaranteed 40 MW net of

18 capacity and approximately 323,000,000 kWh of energy in any

19 twelve month period, assuming no dispatchability. Because

20 the facility will utilize an air cooled condenser instead of

21 a water cooling tower, the facility will be capable in

22 winter, spring and fall of operating in excess of 40 MW.

23

24 The Mountain Home facility will have a construction cost of

25 $72,000,000 assuming Rosebud is able to obtain a Power Sales

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1 Agreement in 1993 and shortly thereafter (as soon as permits

2 have been obtained) execute a construction contract. The

3 plant will be scheduled to commence operations January 1,

4 1998.

5 The Mountain Home facility will utilize a high pressure

6 circulating fluidized bed (CFB) steam boiler capable of

7 combusting high sulfur fuels such as petroleum coke. The

8 Boiler will also be capable of burning such conventional

9 fuels (if necessary) as oil or run-of-mine coal. A CFB

10 Boiler essentially injects fuels into a hot mixture of air

11 and sand to obtain a very efficient combustion of carbon and

12 other fuel components. This unique Boiler design permits an

13 operator to inject certain reagents, such as limestone, to

14 capture undesirable emissions such as SO2. In Rosebud's

15 Colstrip plant (and the same will be true for the Mountain

16 Home facility), Rosebud injects sufficient limestone to

17 reduce SO2 emissions to whatever operating permit

18 limitations are required by governmental agencies. Using

19 the CFB technology, sulfur is combined with calcium

20 contained in limestone to form gypsum. This technology

21 allows for the capture and disposal of SO2 in a dry state

22 without using excessive quantities of water or having large

23 settling ponds.

24 The ash from the Colstrip facility has been determined to be

25 non-hazardous. Rosebud expects that the Mountain Home ash can

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1 be landfilled as Rosebud's ash is presently disposed of in

2 Montana. Enclosed as Exhibits 3 and 4 are air emissions and

3 ground water pollution prevention permits presently in

4 effect for Rosebud's Colstrip facility which may be helpful

5 to the Commission in assessing the likelihood of Rosebud's

6 plant successfully being permitted by state and federal

7 agencies.

8 The Mountain Home facility will employ up to approximately

9 400 construction workers during the 29 month construction

10 period and thereafter approximately 30 full time employees.

11 Other jobs will be created as a result of limestone

12 trucking, quarrying of the limestone, fuel handling

13 services, and disposal of ash.

14 In the course of this proceeding, I would like to extend to

15 the Commission, Intervenors and its Staff the same

16 invitation Rosebud has made to Idaho Power to visit the

17 Colstrip operating plant. Rosebud looks forward to hosting

18 any visit the Commission, Intervenors or Idaho Power would

19 like to arrange to view first hand the operations of a CFB

20 Boiler and the state of the art technology for combusting

21 solid fuel. Rosebud believes that any comparison between

22 Idaho Power's Valmy plant and a plant similar to Colstrip

23 will show that "smaller can be better" because of the

24 significant environmental advantages smaller plants are

25 capable of offering.

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Agr. III

1 II. Project Emission Controls

2

3 Q Please describe the Mountain Home Project's

4 emissions controls.

5

6 A Rosebud believes that the emissions controls

7 and technology will be similar to those provided for in

8 Montana. (See Rosebud Exhibit Numbers 3 and 4).

9

10 The Mountain Home Project's CFB Boiler will capture in

11 excess of 90% of all sulfur in the petroleum coke fuel by

12 injecting limestone into the Boiler. Based on current

13 projections, Rosebud expects the plant will be limited to no

14 more than 410 pounds of sulfur dioxide emitted per hour.

15 Inherently, CFB technology generates low NOx levels which

16 are expected to be approximately 205 pounds per hour.

17

18 The ash from the facility will be landfilled either by

19 Rosebud or a commercial landfill facility. Ash from this

20 facility should be similar to cement in that when combined

21 with water the ash will set up like concrete. The ash does

22 not leach and will not be classified as hazardous waste. As

23 with many power plants, Rosebud hopes to commercially sell

24 its ash to cement companies or other manufacturers of cinder

25 block and similar products.

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Agr. III

1 Given the recent extension of water and sewer facilities to

2 the vicinity of Rosebud's Mountain Home site, Rosebud

3 anticipates using city water and sewer.

4 Based upon the Colstrip facility experience, it is

5 anticipated the Mountain Home plant will use approximately

6 70-80 gpm (gallons per minute) of water. The facility's

7 cooling and condensing of turbine exhaust steam will be done

8 by using a air cooled condenser that utilizes no water. A

9 facility similar to the Mountain Home project using

10 conventional technology would require a water source for

11 cooling of several hundred gallons per minute which is

12 continuously contaminated and discharged to ponds or other

13 disposal places.

14 Once Rosebud has obtained a Power Sales Agreement, Rosebud

15 will commence obtaining the necessary permits. Prior to

16 permitting being commenced with state and federal agencies,

17 it is necessary to know the amounts of power to be generated

18 and fuel consumed so that emission levels can be quantified.

19 Dispatchability of such energy and any other unique

20 requirements which may be negotiated with Idaho Power can

21 greatly effect permit conditions. In addition, federal and

22 state permitting agencies have limited resources and are

23 unwilling to expend such resources to permit a hypothetical

24 facility which has yet to even have a market to sell its

25 energy and capacity.

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1 III. Plant Operating and Reliability

2

3 Q Please describe the Mountain Home facility;

4 plant operations.

5 A The facility will be operated by an affiliate

6 of Rosebud Enterprises, Rosebud Operating Services, Inc.

7 (ROSI). ROSI is an Idaho corporation and is responsible for

8 the management and operations of the Billings Generation

9 facility, a 50 MW coke fired project at the Exxon refinery

10 in Billings, Montana. ROSI is also responsible for managing

11 the operation of the Colstrip plant.

12

13 Q Where will ROSI be located?

14 A ROSI is headquartered in Boise. The on site

15 plant manager will be responsible for all plant operations

16 and compliance with permits and plant production. Both

17 Rosebud Enterprises and ROSI are Idaho corporations.

18

19 Q Who will Rosebud employ to operate the plant?

20 A A core group of existing ROSI personnel will

21 be supplemented with new employees. Rosebud expects to hire

22 operators generally based on their experience and a highly

23 selective screening and testing program. Such operators

24 will have an educational background in solid fuel boiler

25 operations which

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Agr. III

1 will be significantly more advanced than their utility

2 counterparts.

3 Q Please describe Rosebud's expected plant

4 operations objectives.

5 A Rosebud will finance the project based on an

6 expected 90% plant capacity factor (assuming no

7 dispatchability) of its firm 40 MW of capacity. In

8 addition, Rosebud should be able to demonstrate to equity

9 and debt financiers a reliable incremental ability to

10 deliver energy above 40 MW during the spring, winter and

11 fall. The construction contractor and key vendors will be

12 required to guarantee the minimum generation levels thereby

13 assuring Idaho Power and its ratepayers of achieving a

14 reliable energy and capacity source.

15 Q Do you expect the Mountain Home facility to

16 achieve plant reliability significantly greater than the

17 minimums for obtaining financing?

18 A Yes, Colstrip was guaranteed by vendors and

19 the general contractor to produce 35 MW of capacity and

20 262,000,000 kWh per year. Because of significant penalties

21 in construction contracts if vendors do not provide the

22 minimum guarantee production, vendors and the general

23 contractor typically provide an "insurance margin" to avoid

24 penalties. At

25

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Agr. III

1 Colstrip, the project produces, based on its original 35 MW

2 rated capacity, at approximately a 100% capacity factor

3 (306,400,000 kWh for contract year 1992) and has an actual

4 capacity of 38 MW. While Rosebud cannot guarantee a plant

5 similar to Colstrip's outstanding performance, I expect that

6 the vendor guarantees will assure a margin of performance

7 above the minimums vendors and the general contractor

8 guarantee financiers.

9 Q What do you then anticipate the Mountain Home

10 facility will produce in both energy and capacity?

11 A I expect the facility will produce more than

12 40 MW in the summer hot season, perhaps up to 41 MW (2.5%

13 vendor insurance margin), and up to 43 MW in the cooler

14 seasons (7.5% margin). Based on these assumptions, the

15 plant's 40 MW of contract capacity should be able to produce

16 for Idaho Power and its ratepayers approximately 340,000,000

17 kWh over the contract year.

18

19 In any case, Rosebud will commit and appropriate and

20 guarantee Idaho Power the minimum vendor levels of vendor

21 guaranteed output or 40 MW of capacity and 323,000,000 kWh

22 per contract year.

23 Q Do all independent power plants operate in the

24 industry as

25

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Mthblend.tes
Agr. III

1 well as you expect the Mountain Home project?

2

3 A No. Many independent projects have

4 historically not insisted on stringent vendor guarantees

5 (and paid for such guarantees) and in some cases have

6 utilized used equipment. Since Rosebud or its affiliates

7 intend to own and operate the facility, Rosebud will not

8 purchase used equipment and will have contractor/vendor

9 guarantees that assure Rosebud, Idaho Power and Idaho

10 Power's ratepayers a reliable plant. Additionally, earlier

11 projects utilizing non-typical fuels, such as waste

12 products, did not have an established technology base from

13 which to work. Currently Rosebud and many other project

14 sponsors have considerable experience with this type of

15 project and consequently have proven track records.

16

17 Q Does this conclude your testimony?

18

19 A Yes.

20

21

22

23

24

25

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1 (The following proceedings were had in open

2 hearing.)

3 COMMISSIONER MILLER: Mr. Richardson.

4 MR. RICHARDSON: We have no questions,

5 Mr. Chairman.

6 COMMISSIONER MILLER: Mr. Burleigh.

7 MR. BURLEIGH: We have no questions,

8 Mr. Chairman.

9 COMMISSIONER MILLER: Mr. Fell.

10 MR. FELL: No questions.

11 COMMISSIONER MILLER: Mr. Woodbury.

12 MR. WOODBURY: Thank you, Mr. Chairman.

13

14 CROSS-EXAMINATION

15

16 BY MR. WOODBURY:

17 Q Mr. Blendu, how are you this morning?

18 A Fine, thank you.

19 Q Referring to your testimony on Page 4, you

20 start talking about the CFB and you state that to reduce --

21 actually, with this boiler design, limestone is injected in

22 order to reduce sulfur dioxide emissions to whatever

23 operating permit limitations are required by governmental

24 agencies. Is it possible to inject enough limestone to

25 eliminate the sulfur dioxide completely?

211

CSB REPORTING BLENDU (X)
Wilder, Idaho 83676 Rosebud

1 A No, I would qualify this statement within

2 technical or practical capabilities of our technology

3 today. Whether you use circulating fluidized bed or other

4 types of scrubbers, there becomes a practical limitation or

5 impossibility in terms of percent sulfur removals that can

6 be obtained with our technology. Both the scrubbers and the

7 CFBs approach that practical limit in that they're able to

8 get between 90 to 95 percent from a practical standpoint

9 sulfur removal, and so with the CFB, what I was referring to

10 is when I said it could comply with anticipated state

11 requirements, I didn't mean to zero. I meant to what

12 practical limit that is typically required by the states.

13 Q You speak about the process that sulfur is

14 combined with calcium contained in limestone to form gypsum,

15 and you say that this allows for the capture and disposal of

16 the sulfur dioxide in a dry state without using excessive

17 quantities of water. A little further in your testimony, on

18 Page 7, you talk about connection to city water and sewer

19 supplies and you talk about project needs for about 70 to 80

20 gallons per minute. Is that for this purpose?

21 A The CFB itself and the process of using

22 limestone for the recovery or capture of SO2, that process

23 uses no water. The 70 to 80 gallons per minute would refer

24 to approximately 15 to 20 gallons per minute of sanitary

25 sewers, meaning showers, toilets and drinking water. There

212

CSB REPORTING BLENDU (X)
Wilder, Idaho 83676 Rosebud

1 would be the difference in processed waters used for bearing

2 cooling, softening water for the boiler treatment. The

3 boiler would use probably 10 to 12 gallons a minute in the

4 production of steam and the remainder would be for the

5 processes of cooling that I mentioned.

6 Q So then this particular process of adding the

7 limestone, would it be -- you say without using excessive

8 quantities of water or having large settling ponds, then as

9 to that particular process, it would be without using any

10 water at all?

11 A It would use no water. In our Colstrip

12 facility, we take project waste water and because the ash

13 comes out in a very dry, less than five percent moisture,

14 state, it has the ability to absorb water and it behaves

15 like concrete, like cement and forms a concrete-like

16 material; so we do have the capability to dispose of the

17 waste water by adding it to the ash so that it combines with

18 the ash and forms a concrete, but the disposal of ash in and

19 of itself or the production of ash in and of itself does not

20 require the use of any water.

21 Q You state that ash from Colstrip has been

22 determined to be non-hazardous ash that can be landfilled.

23 We're looking at the facility in Mountain Home to be, I

24 think you indicated, identical to the Colstrip facility.

25 A Nearly identical.

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CSB REPORTING BLENDU (X)
Wilder, Idaho 83676 Rosebud

1 Q Nearly identical. Has the ash ever been

2 classified as hazardous? Maybe it's been reclassified?

3 A I'm not sure what Idaho requires. In many of

4 the states, ash is treated separately in its -- you're

5 instructed to treat it as if it were hazardous unless you

6 demonstrate it's non-hazardous. In Montana and in the other

7 states that we've been involved with we have demonstrated

8 through EPA toxicity tests that the material is

9 non-hazardous. We are assuming that we would be required to

10 demonstrate it as non-hazardous in Idaho as well.

11 Q Are there any precautions that must be taken

12 in handling?

13 A The only one that comes to mind is in the

14 handling of ash and discharging it from the ash hopper to

15 the truck we require our people to wear long-sleeved

16 clothing and things of that nature, because of some residual

17 lime in the ash when mixed with sweat, it can cause a skin

18 irritation; so we do have in-plant safety procedures for

19 that. Other than that, there are no safety precautions or

20 material handling requirements that I'm aware of.

21 Q Are you familiar with how many, what quantity

22 of ash is necessary to dispose of per day?

23 A It depends on the fuel and the sulfur

24 content.

25 Q What's been your experience with the Colstrip

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CSB REPORTING BLENDU (X)
Wilder, Idaho 83676 Rosebud

1 facility?

2 A In Colstrip, using a reasonably high sulfur

3 coal of under three percent, averaging about 18 percent ash,

4 for a facility this size, we dispose of in the neighborhood

5 of 75,000 tons per year.

6 Q Are you proposing the same fuel for the

7 Mountain Home facility?

8 A We're considering several fuel options, from

9 petroleum coke to waste coals.

10 Q Does the petroleum coke have a higher sulfur

11 content?

12 A Generally, petroleum coke has a higher sulfur

13 content, but it has almost no ash content. It's usually

14 less than one percent ash.

15 Q Referring to your Exhibit 3 --

16 A I don't have it with me. I'm assuming it's

17 one of the --

18 Q This was the air quality permit.

19 MR. ORNDORFF: Mr. Chairman, if I could

20 approach the witness, I think I might have Exhibits 1

21 through 4.

22 COMMISSIONER MILLER: That would be helpful.

23 (Mr. Orndorff approached the witness.)

24 Q BY MR. WOODBURY: Have you recently reviewed

25 that exhibit?

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CSB REPORTING BLENDU (X)
Wilder, Idaho 83676 Rosebud

1 A Yes.

2 Q Are you generally familiar with the air

3 quality licensing and permitting requirements in Idaho?

4 A I'm not generally familiar with Idaho. I'm

5 generally familiar with neighboring states in air quality

6 permitting, but I have not been involved in a specific

7 permitting process in Idaho.

8 Q Looking at Page 1 of that exhibit, Section I,

9 Permitted Facilities, under B, you speak of a water storage

10 and cooling tower. It's my understanding that there will be

11 a change in Idaho that this will be an air-cooled facility?

12 A There would not be a change. Colstrip has an

13 air-cooled -- this project that you're looking at is for the

14 Colstrip project in Montana which we propose to duplicate.

15 It has an air-cooled condenser. Along with the air-cooled

16 condenser, there is a very small cooling tower that's used

17 to chill water to provide bearing coolers to pumps and

18 motors and cool air compressors; so the permit recognizes

19 that that cooling tower by itself is not a part of the

20 process for the generation of steam or electricity.

21 Q Would you expect the facility requirements and

22 the plant emissions in Idaho in the Mountain Home facility

23 to be the same as reflected in this Exhibit 3?

24 A Ask your question again, please.

25 Q Would you expect the required facilities and

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CSB REPORTING BLENDU (X)
Wilder, Idaho 83676 Rosebud

1 the allowed emissions in Idaho to be similar to those

2 reflected in Exhibit 3?

3 A I would expect them to be similar.

4 Q And that would be true with respect to both

5 your Exhibit 3, air quality permit, and your Exhibit 4 for

6 water?

7 A Yes.

8 Q Is it Rosebud's testimony that there will be

9 no discharge ponds at this facility of any nature?

10 A I think we've indicated we would not

11 anticipate having discharge ponds at this facility.

12 Q You also indicate that dispatchability

13 requirements can greatly affect permit conditions. Do you

14 know what changes that would require?

15 A Most of the states start from the basic

16 federal guidelines and using federal guidelines for NOx

17 removal and control and percent reductions, then each state

18 through their regulatory agencies adds some refinements,

19 either for the state as a whole or for local and specific

20 areas, and so in that, I would expect some refinements in

21 Idaho, either site specific to Mountain Home or general

22 requirements of the state. The general organization of

23 those permits would still be required to comply under EPA,

24 and so generally from experience and knowledge of what's

25 been required under EPA and in other ones, I don't know

217

CSB REPORTING BLENDU (X)
Wilder, Idaho 83676 Rosebud

1 exactly what would be required in Idaho, but I have a

2 general idea of where we would get to.

3 Q Did you take part in any of the negotiations

4 with Idaho Power?

5 A No.

6 MR. WOODBURY: Thank you. Mr. Chairman, I

7 have no further questions.

8 COMMISSIONER MILLER: Mr. Kline, how much

9 cross do you anticipate?

10 MR. KLINE: It may be -- I think maybe now

11 would be a good time to take a break.

12 COMMISSIONER MILLER: All right, why don't we

13 do that. Let's reconvene at five minutes to 11:00.

14 (Recess.)

15 COMMISSIONER MILLER: If we could take our

16 chairs, we'll reconvene.

17 Mr. Kline, I think we're ready for your

18 cross-examination.

19 MR. KLINE: Thank you, Mr. Chairman.

20

21 CROSS-EXAMINATION

22

23 BY MR. KLINE:

24 Q Mr. Blendu, during the course of

25 Mr. Woodbury's cross-examination, you spent quite a bit of

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1 time talking about the various permits that the project will

2 need to acquire prior to construction or operation. I guess

3 I don't recall whether you talked about any zoning or land

4 use permits that will be necessary to be acquired. Are you

5 aware of what those would be?

6 A At this point I have not participated in the

7 investigation of those kinds of permits for the siting and

8 construction of the plant.

9 Q But you would anticipate, would you not, that

10 the City of Mountain Home or Elmore County or somebody is

11 going to make a determination as to where the site of that

12 project is an acceptable location?

13 A Yes.

14 Q Have you made any applications for those

15 permits?

16 A Not to my knowledge. That's not to say there

17 haven't been some made.

18 Q Who would know if there were?

19 A Mr. Orndorff.

20 MR. KLINE: Okay, I think we do need to know

21 if any of those permits have been applied for,

22 Mr. Orndorff.

23 MR. ORNDORFF: Mr. Chairman, I am not a

24 witness in this case and I have complied with all of the

25 discovery orders on a continuing basis with Counsel and

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1 Counsel should rely upon that in answering his question.

2 COMMISSIONER MILLER: I think at this point,

3 Mr. Kline, what we'll do is suggest that you proceed with

4 your cross-examination of this witness to the extent it's

5 possible and then at some later time we will take up any

6 motions you have to compel further production of evidence.

7 Q BY MR. KLINE: All right, then, Mr. Blendu, to

8 the best of your knowledge, no permit applications have been

9 made for any kind of land use or zoning for the location of

10 this project at Mountain Home?

11 A I'm just ignorant on the subject.

12 Q Well, you're not ignorant, I guess, about the

13 permits that will be necessary for the requirements, meeting

14 the requirements for air quality; is that correct?

15 A I have not met with people from the State of

16 Idaho, air quality board or permitting agencies such that I

17 know what percent sulfur removals may be specifically

18 required by those agencies. I am familiar and I think I

19 have a good working understanding of what major permits will

20 be required and what they might look like.

21 Q And have any applications for permits been

22 made to the State of Idaho, air quality

23 department/environmental quality people?

24 A Normally, you would not approach the state and

25 burden them with the task of undertaking a permitting

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1 process until you're certain that you have a project to

2 permit; in other words, for us to enter the permitting

3 process and for me to sign myself and members of my staff to

4 that lengthy undertaking and to ask them to do the same

5 thing on a maybe is not something, one, that I would even

6 want to approach a regulatory agency on, and I'm not exactly

7 sure how that would be received.

8 Q So, again, your answer is at this stage you

9 have made no application to the necessary agencies who would

10 authorize or who would issue the air quality permits?

11 A I think that's right.

12 Q How about the agencies that would regulate any

13 ash disposal, made any applications for permits to dispose

14 of ash?

15 A Well, I think the same thing applies. I mean,

16 I would not approach the County of Ada and ask them for a

17 building permit on a home if I didn't know I was going to

18 build a home or not; so I think in this case the same

19 principle applies. We don't have a contract to build a

20 project. I don't have a contract to sell the electricity

21 and I think it would be inappropriate to ask anyone to

22 expend substantial amounts of efforts to permit something at

23 that stage.

24 Q Again, your answer is you have not made that

25 application?

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1 A No.

2 Q How about for the discharge of any water that

3 will be necessary?

4 A We can run through a litany of them. To the

5 best of my knowledge, we have not applied for any kind of

6 the permits environmentally that fall into that category.

7 Q So no applications for any environmental

8 permissions that you'll need, no applications for any land

9 use permits that you'll need; correct?

10 A Correct.

11 Q And you were present in the room when

12 Mr. Roberts testified that there are no fuel contracts nor

13 fuel transportation contracts; is that correct?

14 A That's correct.

15 Q And it's your testimony that you will need to

16 have a power sales contract prior to the commencement of the

17 permitting process; is that correct?

18 A That has not been my testimony. From my

19 experience in the industry, it would not be fruitful to even

20 approach people to obtain those kinds of contracts without a

21 power sales agreement in place and the ability to show a

22 pro forma that shows some reasonable chance of being

23 financially viable.

24 Q Did you participate in the development of

25 Rosebud's Billings facility?

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1 A Yes, I did.

2 Q And what's the name of the entity that

3 developed that project?

4 A It initially started as Rosebud Enterprises.

5 Subsequently, an independent entity was formed with the name

6 Billings Generation, Incorporated, BGI.

7 Q Isn't it true at the Billings facility you in

8 fact made numerous applications for permits prior to the

9 time you received a power sales agreement from Montana

10 Power?

11 A I don't recall making permit applications

12 formally until we were well down the path on the power sales

13 agreements and had in hand a pretty good understanding of

14 the pricing.

15 Q In fact, some of those permits were nine and

16 ten months prior to the time you received a power sales

17 permit at Billings, were they not?

18 A I beg your pardon?

19 Q Power sales contract?

20 MR. ORNDORFF: Mr. Chairman, I'd like to

21 object. I don't think this line of questioning is going

22 anywhere in this case. As to what happened in Billings or

23 didn't happen is immaterial and lacks any relevance to the

24 proceeding at hand.

25 MR. KLINE: Mr. Chairman.

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1 COMMISSIONER MILLER: I think I'll overrule

2 the objection. The witness previously testified that he

3 knows from experience that you can't get those sorts of

4 permits until you have a power sales contract. Mr. Kline is

5 now attempting to explore that question; so I think it's

6 permissible.

7 MR. KLINE: What I'd like to do, if I might,

8 Mr. Chairman, I think it will expedite the completion of

9 this line of cross-examination, is to distribute an exhibit

10 and I'd like the exhibit to be identified as Exhibit 205.

11 COMMISSIONER MILLER: I think you already have

12 an Exhibit 205, don't you?

13 MR. KLINE: I think 4 was our last, wasn't it?

14 MR. ORNDORFF: No, you were all the way up to

15 9, 209.

16 MR. KLINE: Not in this case.

17 COMMISSIONER MILLER: I think the last number

18 I have for you is 213.

19 MR. KLINE: Well, let's mark it 214.

20 (Mr. Ripley distributing documents.)

21 (Idaho Power Company Exhibit No. 214 was

22 marked for identification.)

23 Q BY MR. KLINE: What I have given to you,

24 Mr. Blendu, is a package of documents that relate to

25 Rosebud's Billings Generation project, and the exhibit

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Wilder, Idaho 83676 Rosebud

1 consists of a first summary page and attached documents that

2 are the source of the dates that are contained in the

3 summary page. Do you see that?

4 A Yes.

5 Q And Exhibit 205 [sic] shows that the power

6 sales agreement between BGI and the Montana Power Company

7 was executed on March 1st, 1991.

8 MR. WOODBURY: Bart, 214.

9 Q BY MR. KLINE: Do you see that?

10 A Yes.

11 Q Is that your recollection that that's the date

12 of the power sales agreement for the BGI project?

13 A I'll take it, I'll accept the fact that you

14 submitted that with that being the correct date.

15 Q All right. As you go down Page 1 of

16 Exhibit 205 -- 214, the first item is the air quality permit

17 application and, obviously, in that case, the air quality

18 permit application was filed substantially prior to the time

19 that the power sales agreement was signed; isn't that right?

20 A What I'd like to point out, and, again, I'm

21 not trying to be evasive because this was a long time ago,

22 at this point in time, and if you'll refer to Page 6 of the

23 power sales agreement, at that point in time, we were well

24 down the path of the power sales agreement. I don't

25 remember back in 1989 and 1990 the specific series of

225

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Wilder, Idaho 83676 Rosebud

1 events, but if you see on Page 6 of the power sales

2 agreement, it says, "File the Air Quality Permit," which was

3 a task milestone by July 15th of 1990.

4 In order for a date like that to have been in

5 this power sales agreement, the power sales agreement would

6 have to be well down the path of its conclusion. The fact

7 that it didn't get formally signed until March 1st of 1991

8 does not mean that there wasn't substantial evidence in

9 place that a power sales agreement was going to be obtained

10 and certainly to the level to give enough confidence to the

11 regulatory agencies that we were a viable entity, and I

12 think the same would go true with the close of financing and

13 the commencing of construction, and if you look at the

14 milestone schedules, the contract couldn't have been written

15 the way it was if we hadn't been substantially well on the

16 way with the utility.

17 Q Well, I don't want to beat this thing to

18 death, Mr. Blendu, but I think you need to understand the

19 reason why we keep talking about these permits and the fact

20 that you have not even applied for them. Isn't it correct

21 that in preparing an application for a permit, you at least

22 need to have the basic data regarding the site, regarding

23 the type of equipment that's going to be used, the type of

24 fuel that's going to be used, the land use, all of those

25 things go into the filing of one of these applications;

226

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Wilder, Idaho 83676 Rosebud

1 correct?

2 A Generally, in a broad context, that's correct.

3 Q And one of the issues we're looking at in this

4 case, Mr. Blendu, is in fact the readiness or the ability of

5 the Mountain Home project and Rosebud Enterprises to demand

6 a contract from Idaho Power. If they haven't achieved

7 according to the orders of this Commission a certain level

8 of readiness or an ability to contract, then they're not

9 entitled to file a complaint against Idaho Power saying you

10 haven't negotiated. That's one of the issues in this case.

11 MR. ORNDORFF: I'm going to object,

12 Mr. Chairman. Mr. Kline is not giving testimony.

13 COMMISSIONER MILLER: Sustained.

14 Q BY MR. KLINE: Would you agree that there is a

15 point on a continuum, on a series of events, that have to

16 progress in the licensing of a project before a utility

17 should be obligated to sign a contract?

18 A I think on the very literal answering of your

19 question I would agree there are certain things that a

20 utility is entitled to have in place before it signs a

21 contract and executed as was demonstrated in the scenario of

22 events that you pointed out on the Billings project. By the

23 same token, I think testimony has been provided that we have

24 the technology, we have a price in place pretty close to

25 what the actual costs are, we have a good predictor of what

227

CSB REPORTING BLENDU (X)
Wilder, Idaho 83676 Rosebud

1 the emissions are going to be, and we have a good handle on

2 what our soft costs are.

3 We cannot go forward and I can't assign my

4 staff to go forward technically or assisting a permitting

5 effort until I can get the other side of the equation to

6 price the revenues against the cost, and so the answer is I

7 believe you have been provided with the technology we will

8 use, the amount of emissions we'll have, the quantities of

9 fuel that will be used for several fuel sources. What

10 assurances beyond that you need are unclear to me to

11 convince you that this project is viable. I don't know what

12 more you need at this stage.

13 Q And what you've presented today is essentially

14 a conceptual project at Mountain Home. What you haven't

15 done is take any of the steps --

16 MR. ORNDORFF: Again, I object. Mr. Kline is

17 not here to testify.

18 COMMISSIONER MILLER: Let's let him conclude

19 the question and then it would be proper to rule on the

20 objection.

21 Q BY MR. KLINE: What you have presented today

22 in your testimony describes projects in Billings, Montana,

23 and Colstrip, Montana; is that correct?

24 A What we have presented is the fact that we

25 would intend to build a project in Mountain Home nearly the

228

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Wilder, Idaho 83676 Rosebud

1 same as the project we built in Colstrip.

2 Q So at this stage, the Mountain Home project is

3 a concept based on those projects and your testimony is that

4 there are no concrete applications for permits or any of the

5 necessary regulatory requirements; isn't that true?

6 MR. ORNDORFF: Mr. Chairman.

7 COMMISSIONER MILLER: Mr. Orndorff.

8 MR. ORNDORFF: I object. Mr. Kline is not

9 here to testify that the project is a concept. If Mr. Kline

10 wants to testify, I suggest he be given an opportunity, but

11 he cannot do it on the questioning side.

12 MR. KLINE: I'm entitled to ask leading

13 questions and that's what I'm doing.

14 COMMISSIONER MILLER: My opinion is that that

15 question does come very close to being argumentative; so I'm

16 going to sustain that objection.

17 MR. KLINE: Okay.

18 Q BY MR. KLINE: All right, Mr. Blendu, Rosebud

19 Enterprises is asking Idaho Power to enter into a long-term

20 firm sales contract today prior to your having received any

21 of these necessary permits; correct?

22 A I think that's correct.

23 Q In the event that the contract is signed and

24 the permits are not required, not obtained, what happens?

25 A Typically, what happens, as is contained in

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Wilder, Idaho 83676 Rosebud

1 the power sales agreement you just gave me, the utility

2 protects itself with milestone schedules and security

3 deposits such that they have a mechanism in place if the

4 permits are not obtained in a manner timely enough to

5 prevent some undesirable happening to occur, then either the

6 power sales agreement terminates or there are forfeitures of

7 the security deposit.

8 Q And are those security deposits supposed to be

9 large enough to compensate the utility for the loss of the

10 resource?

11 A I have seen all kinds of security deposits. I

12 don't presume to be able to testify on what the logic behind

13 some of them are.

14 Q Wouldn't that be a reasonable security deposit

15 to be requested?

16 A It would be reasonable if the utility says I

17 don't need a resource that they had a zero security deposit.

18 MR. KLINE: No more questions.

19 COMMISSIONER MILLER: Commissioner Nelson.

20 COMMISSIONER NELSON: I don't.

21 COMMISSIONER MILLER: Commissioner Smith.

22 COMMISSIONER SMITH: Yes, just out of

23 curiosity I do.

24

25

230

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Wilder, Idaho 83676 Rosebud

1 EXAMINATION

2

3 BY COMMISSIONER SMITH:

4 Q Your previous testimony is that this project

5 is going to be identical to the Montana plant?

6 A Nearly identical. Where there would be

7 differences is in the selection of fuel and the kinds of

8 equipment used to receive the fuel.

9 Q Did you want to alter your testimony on Page 3

10 where you said it's intended to be identical? Are you just

11 clarifying now what you really meant?

12 A I'm sorry now, please, where is that?

13 Q It's the first line of your answer.

14 A I would prefer to alter my testimony that it

15 would be intended to be nearly identical.

16 Q And then you clarified that by it's some

17 difference in fuel?

18 A Fuel receiving equipment would be the primary

19 difference. For example, if you received run-of-mine coal,

20 the same kind of fuel used at Colstrip, the plant would

21 essentially be identical. If we used petroleum coke, there

22 would be some differences in the fuel receiving equipment,

23 but when I say identical, to me a plant means the boiler and

24 the turbine and the condenser, and so those things would be

25 the same.

231

CSB REPORTING BLENDU (Com)
Wilder, Idaho 83676 Rosebud

1 Q So the project in Montana does not burn waste

2 coke?

3 A It burns waste coal.

4 Q Educate me.

5 A Petroleum coke is a by-product of the refining

6 industry. As they take crude oil and extract various cuts,

7 as they call it, of gasoline and diesel oils and things of

8 that nature, they're left with asphalt. That's used to

9 either pave the roads or, in the case of our Billings

10 project, the refinery has a process in place that extracts

11 one more cut of gasoline and results in a solid material

12 called petroleum coke. It's primarily a form of carbon; so

13 that's what we burn or will burn in Billings.

14 In the Colstrip project, in the mining

15 process, as they strip the overburden or dirt that's laying

16 on top of the coal down to the coal seam, the upper six

17 inches to a foot of coal is high in ash content and high in

18 sulfur content and is unsuitable for use at Colstrip units

19 1, 2, 3, and 4, and so historically, that top of the coal

20 seam was wasted back to spoils and just buried in the

21 ground.

22 Because of the CFB technologies and the

23 strides that were made since Colstrip units 1 through 4, our

24 Colstrip project is able to take that material that was

25 previously just re-buried and burned in the CFB; so one is a

232

CSB REPORTING BLENDU (Com)
Wilder, Idaho 83676 Rosebud

1 coal and the other is a by-product of refining oil.

2 Q What is it you intend to use in Mountain Home?

3 A Right now we are maintaining the flexibility

4 to burn either.

5 Q And is this waste coal, as you call it, what

6 you mean when you said run-of-mine coal?

7 A Run-of-mine coal is the generic name for the

8 "good coal"; in other words, once you take this waste coal

9 off the top, you get down to run-of-mine coal which they

10 just take out of the mine and ship right to the user.

11 Q Would either the Mountain Home project or the

12 your Montana project be able to burn the run-of-mine coal?

13 A Technically, they would burn it very well.

14 Q Do they ever do that?

15 A Generally do not burn it because of the fuel

16 pricing differences. The run-of-mine coal is more

17 expensive.

18 COMMISSIONER SMITH: Thank you.

19 COMMISSIONER MILLER: Redirect, Mr. Orndorff.

20 MR. ORNDORFF: I just have one question,

21 Mr. Chairman.

22

23

24

25

233

CSB REPORTING BLENDU (Com)
Wilder, Idaho 83676 Rosebud

1 REDIRECT EXAMINATION

2

3 BY MR. ORNDORFF:

4 Q Mr. Blendu, do you remember when in 1990

5 Montana Power gave us a draft contract?

6 A As I said to Mr. Kline, I don't remember the

7 scenario of events back there.

8 MR. ORNDORFF: Thank you, Mr. Chairman.

9 COMMISSIONER MILLER: Mr. Blendu, thank you

10 very much for your help.

11 (The witness left the stand.)

12 COMMISSIONER MILLER: Can this witness be

13 excused?

14 MR. KLINE: As far as I'm concerned.

15 COMMISSIONER MILLER: Mr. Blendu, you're free

16 to come or go as you wish.

17 Mr. Orndorff.

18 MR. ORNDORFF: Mr. Chairman, I can call my

19 next witness. It will be Dr. Richard Slaughter if you want

20 to proceed on.

21 COMMISSIONER MILLER: Why don't we get

22 started. I may want to confer with the Commissioners and

23 adjourn just a few minutes before noon, but we have some

24 time that we can spend between now and then.

25 MR. ORNDORFF: Okay, I'd call, then,

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Wilder, Idaho 83676 Rosebud

1 Dr. Richard Slaughter.

2

3 RICHARD A. SLAUGHTER,

4 produced as a witness at the instance of Rosebud

5 Enterprises, Inc., having been first duly sworn, was

6 examined and testified as follows:

7

8 DIRECT EXAMINATION

9

10 BY MR. ORNDORFF:

11 Q Would you state your full name and business

12 address?

13 A My name is Richard A. Slaughter. My business

14 address is P.O. Box 4126, 7201 Swift Lane, Boise, Idaho.

15 Q Are you the same Dr. Slaughter that caused to

16 be prepared certain testimony that is presented in this

17 case?

18 A Yes.

19 Q Are you sponsoring any exhibits?

20 A Yes, I'm sponsoring Exhibit 6 through 9.

21 Q Does that include the exhibits on your

22 rebuttal testimony?

23 A I believe I did not have any additional

24 exhibits on rebuttal.

25 Q Thank you, Dr. Slaughter. Did you also not

235

CSB REPORTING SLAUGHTER (Di)
Wilder, Idaho 83676 Rosebud

1 cause rebuttal testimony to be prepared in this case?

2 A Yes, I did.

3 Q If I were to ask you the questions that are in

4 both your rebuttal and your direct, would your answers be

5 the same?

6 A Yes, they would.

7 MR. ORNDORFF: Mr. Chairman, I'd like to have

8 the exhibits marked, and with that, I would tender

9 Mr. Slaughter for cross-examination and have his testimony

10 spread on the record.

11 MR. WOODBURY: Mr. Chairman, could I interrupt

12 at this point?

13 COMMISSIONER MILLER: Mr. Woodbury.

14 MR. WOODBURY: With respect to exhibits to

15 Mr. Slaughter's rebuttal testimony, I would point

16 Mr. Slaughter to Page 7, Line 5. Starting there he makes

17 reference to Appendices B and C which he says are attached.

18 I did not receive them. I don't think that they were

19 provided and I don't know whether that was an oversight or

20 whether there was no intention of providing them.

21 THE WITNESS: There should have been two Data

22 Resources articles attached as Appendices B and C. I

23 haven't seen the testimony after it went through the

24 production process; so they may not have been distributed.

25 I expected that they would be.

236

CSB REPORTING SLAUGHTER (Di)
Wilder, Idaho 83676 Rosebud

1 COMMISSIONER MILLER: What page,

2 Mr. Woodbury?

3 MR. WOODBURY: Page 7, beginning around Line 5

4 of the rebuttal testimony. The reference is actually on

5 Line 10 of that Page 7.

6 COMMISSIONER MILLER: Mr. Woodbury and

7 Mr. Orndorff, what do you propose here? We have testimony

8 that refers now to exhibits or appendices that apparently

9 don't exist or at least are not part of the record. We

10 could either supplement the record with those appendices or

11 we could, I assume, strike the paragraph or at least

12 Lines 5 through 16 of that paragraph that refers to --

13 MR. ORNDORFF: Well, Mr. Chairman, I would

14 propose over the lunch hour to find another copy of the

15 exhibits and hand them out. I believe they were filed at

16 the Hearing Room and we've been having some problems in

17 getting exhibits attached to testimony and I don't know if

18 they're on my end or at the filing room, but we will try to

19 get down and get Exhibits B and C.

20 MR. KLINE: We did not receive of a copy

21 either.

22 COMMISSIONER MILLER: I take it that no other

23 party ever came into possession of what are referred to here

24 as Appendices B and C? Apparently not. During the lunch

25 hour, then, Mr. Orndorff, would you locate those documents

237

CSB REPORTING SLAUGHTER (Di)
Wilder, Idaho 83676 Rosebud

1 and make sufficient photocopies of them and then I think it

2 would probably be best to label them as exhibit numbers

3 rather than Appendices B and C; so if you could label those

4 as Exhibits 11 and 12, that would probably keep our record

5 most clear.

6 MR. ORNDORFF: Thank you, Mr. Chairman. I'm

7 sorry for the inconvenience.

8 COMMISSIONER MILLER: All right, with that

9 understanding, then, Exhibits 6 through 9 will be marked,

10 and the direct and rebuttal testimony of Dr. Slaughter will

11 be spread on the record as if read. Thank you for pointing

12 that out, Mr. Woodbury.

13 (The following prefiled direct and rebuttal

14 testimonies of Dr. Richard Slaughter are spread upon the

15 record.)

16

17

18

19

20

21

22

23

24

25

238

CSB REPORTING SLAUGHTER (Di)
Wilder, Idaho 83676 Rosebud

1 Q Please state your name and business address

2 for the record.

3 A My name is Richard Slaughter. I am owner of

4 Richard A. Slaughter Associates, First Interstate Center,

5 Suite 700, Boise, Idaho 83702.

6 Q Have you prepared a statement of your

7 qualifications to offer testimony in this proceeding?

8 A I have. It is attached to this testimony as

9 Appendix A.

10 Q Are you offering any exhibits?

11 A Yes. I have prepared and offer exhibits 6

12 through 9.

13 Purpose and Scope

14 Q What is the purpose and scope of your

15 testimony?

16 A My testimony is on behalf of Rosebud

17 Enterprises, Inc. The purpose of my testimony is to examine

18 the reasonableness of the Idaho Power and Commission load

19 forecasts as they apply to the first deficit date for Idaho

20 Power, Order No. 24911; the impact of the proposed Rosebud

21 plant at Mt. Home on Idaho Power Company's load/resource

22 balance; the appropriate avoided cost rates to be applied to

23 the Rosebud facility; and the issue of dispatchability

24 raised by Idaho Power.

25

239

1 Summary

2 Q Please summarize your testimony.

3 A Idaho Power Company desires to apply its

4 current resource management plan and in-house load estimates

5 to the Rosebud Mt. Home facility. The Company has long

6 believed that its true avoided cost can be determined only

7 by the Company and not by the Commission, and that prior

8 Commission orders allow for such Company discretion in the

9 case of plants over ten megawatts

10

11 /

12

13 /

14

15 /

16

17

18

19

20

21

22

23

24

25

240

1 capacity. This testimony finds that exactly the opposite is

2 true with regard to Commission decisions. Following the

3 Company's logic, while it might promise produce short term

4 ratepayer and shareholder benefits, produces an impossible

5 policy result. It also finds that Idaho Power's load

6 forecast, while reasonable in its parts, is so low overall

7 as to expose the ratepayer to unnecessary risk of power

8 deficits; and it develops a reasonable non-levelized avoided

9 cost structure for the Rosebud plant.

10 Issues Appropriate to this hearing

11 Q Idaho Power, in its response to the Rosebud

12 complaint identifies several issues to be addressed at a

13 special hearing on a Rosebud agreement:

14 1. "...whether Idaho Power needs to acquire

15 any large additional resources prior to the year 2000",

16 involving a Commission "review of Idaho Power's respective

17 load and resource analyses;"

18 2. " whether additional take and pay,

19 non-dispatchable energy purchase contracts like the one

20 demanded by Rosebud, will maintain ratepayer indifference;"

21 and

22 3. "...the impact of additional

23 non-dispatchable, take and pay contracts on the Company's

24 debt-equity requirements."

25 Are these questions appropriate for a hearing on Idaho

241

1 Power's obligations under current Commission orders and

2 Rosebud's rights and obligations?

3 A No, they are not. The issues properly before

4 the Commission include the impact of the Rosebud facility on

5 Idaho Power's

6

7 /

8

9 /

10

11 /

12

13

14

15

16

17

18

19

20

21

22

23

24

25

242

1 load/resource balance, as determined by Commission order for

2 purposes of avoided cost; the proper avoided cost rates to

3 serve as the starting point for negotiations; whether any

4 contract negotiated by Idaho Power and Rosebud adheres to

5 Commission orders; and whether the load forecast utilized by

6 Commission staff in determining the first deficit year is

7 reasonable.

8 The issues as stated by Idaho Power attempt to re-open

9 generic avoided cost in the guise of a contract hearing, and

10 attempt to substitute the utility's internal planning

11 process for the lengthy public hearing process conducted by

12 the Commission. The Commission has previously determined

13 that the utility can not be judge and jury in its own case,

14 and that avoided cost issues must be decided in a case

15 directed to that end.

16 "The utility is in a unique position when

17 negotiating with CSPPs. It controls the

18 resources and data by which a determination

19 can be made as to whether its scheduled

20 avoided costs are in synch with its perceived

21 "true" avoided costs. If it perceives a

22 significant change then, it is incumbent upon

23 the utility to initiate an appropriate filing

24 with the Commission." ...

25 [emphasis added]

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1 "IT IS HEREBY ORDERED that the foregoing

2 discussion be interpreted as a declaratory ruling and be

3 used as an instructive guide in the conduct of CSPP rate

4 negotiations between utilities and QFs greater than 10

5 megawatts." (P-300-12, Order 15746, p.5).

6 This language has never been overturned by the

7 Commission. The general questions of policy and methodology

8 raised by Idaho Power are not at issue here. They are

9 appropriate for a general avoided cost case, which at this

10 date has not been filed.

11 Load Forecast

12 Q The Idaho Power load forecast in the 1993

13 Integrated Resource Plan shows long term load growth

14 averaging 1.4% per year, 2.1%

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1 between 1992 and 1998, while the Commission has adopted a

2 load growth assumption of 3.25%. How would you evaluate

3 these forecasts?

4 A Over a long period of time, point estimates

5 are almost always wrong, and it is frequently impossible to

6 know either how far they will be wrong, or in which

7 direction. A forecast should be examined for the

8 reasonableness of both its components of a forecast to all

9 be biased in the same direction -- conservative or

10 optimistic -- such that although the individual forecasts

11 each reasonable, the overall projection becomes unreasonably

12 high or low.

13 Q Have you prepared an exhibit to help analyze

14 the forecasts?

15 A Yes. Exhibit 6 shows the Idaho Power load

16 history and forecast, from 1988 through 2000. It shows

17 total load and the component loads for Idaho Power Company.

18 Q What are the results of your analysis?

19 A On Exhibit 6, lower half of the page, under

20 the column "Compound Rate of Increase, Since 1990", note

21 that the compound rate of increase by 2000 falls to 1.7%,

22 from 6.4% growth in 1991. It is characteristic of the

23 forecast, whether to 1998 or 2014, that the out years are

24 expected to grow more slowly than the near term. Note that

25 the year to year growth estimated by the Company "Reported

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1 Total Load - %", shows negative growth in 1996 and is

2 virtually flat after that time.

3 The analysis based on 1988 shows a higher rate of

4 growth. Because the latter analysis includes the rapid

5 growth years of 1989

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1 and 1991, it shows a higher overall rate even with the

2 dampening effect of the projections after 1995.

3 Q How do the individual projections explain this

4 result?

5 A Taking the component markets in turn,

6 Residential load appears to grow strongly after 1992, though

7 the 1993 projection of 4% might be low considering the

8 dampening effect of weather in 1992. Employment and

9 population growth (Exhibit 8) are estimated by the Division

10 of Financial Management and the Bonneville Power forecast.

11 Sales and income tax collections, showing surpluses over

12 projected receipts every year but one since 1988, indicate

13 that the Company's projection may low. Given this data,

14 together with continuing declines in the relative price of

15 electricity, one might expect more than 4% residential load

16 growth in 1993.

17 The Commercial sector is projected to grow at a pace in

18 line with history through 1995, though it then declines to

19 2% annually. This projection, again, is defensible in

20 itself but more likely to be too low than too high.

21 Industrial loads show strong growth throughout the

22 decade, but decline below recent experience after 1994.

23 Irrigation growth in 1992 was clearly due in part to

24 drought, and may well show a growth pattern much like the

25 forecast. FMC loads are best predicted to stay flat, as are

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1 additional firm loads resulting from specific contracts.

2 Q You have not mentioned off-system firm loads.

3 How do they impact the forecast?

4 A The load forecast portrays a policy of

5 shedding firm off-system loads. After rising 59% in 1991,

6 they fell 12% in 1992 and are

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1 projected to fall a further 20% in 1995 and 14% in 1996.

2 Eventually the Company shows all off-system firm contracts

3 being eliminated. It is this managed decline, together with

4 low growth expectations in the residential and commercial

5 markets that allow the Company to state that new resources

6 are not needed until 2006.

7 Q Are the residential and commercial

8 projections, which you characterize as "low growth,"

9 unreasonably low?

10 A No, they are not. They could very well occur.

11 None of the forecasts, individually, is unreasonable, and

12 the Company has the option of ending firm off-system

13 contracts. Over the decade and the forecast horizon,

14 however, they collectively say that recent growth in the

15 state and the service area is an aberration, and will soon

16 end.

17 Q What is your assessment of that scenario?

18 A In the 1970s Idaho experienced rapid growth

19 due to inflation, the baby book, and high demand for Idaho

20 resources. During the 1980s, the excesses of that growth

21 became evident and the state experienced several slow years.

22 Current growth is qualitatively different. It is far

23 broader, and less dependent on natural resources. It is not

24 inflation driven. It is grounded more in reduced

25 transportation and communications costs, factors that are

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1 less subject to near term reversal than were the conditions

2 of growth in the 1970s. It can be expected to be more

3 persistent than past growth.

4 Q What are the risks in Idaho's current growth

5 scenario?

6 A There are two engines of our current growth

7 that could turn negative. The first is that we are the

8 beneficiary of bad economic

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1 times in California. Eventually this source of growth will

2 end, but the end is not likely to be found during the next

3 four or five years.

4 A second source of growth, linked to the first, is the

5 electronics industry, which has entered a rapid growth phase

6 following an incubation of about fifteen years. The Boise

7 area has, in a very real sense, become a successor to

8 Silicon Valley. This engine of growth can turn at any time.

9 That turn, however, is not likely until such time as the

10 costs of growth begin to affect the economics of the

11 industry, as has occurred in California. That time may be

12 another quarter century away.

13 Risk Assessment

14 Q We all know the costs of surplus capacity: if

15 firm markets can not be found, the retail price may be a few

16 mills higher than in the optimum situation. But what is the

17 cost of a serious deficit?

18 A One of the absolute requirements of the

19 electronics industry is clean and dependable power, in very

20 large quantities. The equipment they operate can not handle

21 voltage fluctuations, and heavy reliance on uninterruptable

22 power supply (UPS) systems to maintain clean power is very

23 expensive. Continued growth, even the persistence of

24 existing electronics manufacturing, is dependent on high

25 quality, available power.

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1 If Idaho Power, as a result of failing to fully project

2 load growth, were to enter a period of deficits while the

3 region remained in surplus, there might be little effect.

4 Debate before the Commission would center on appropriate

5 least cost resources and life would go on. If, on the other

6 hand, off-system sales have been curtailed, the region

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1 goes into deficit, and the Idaho Power service area also

2 goes into deficit, near term choices would have to be made.

3 Such choices could be very costly.

4 Q Idaho Power has produced five forecast

5 scenarios and performed an uncertainty analysis prior to

6 doing a least-cost analysis. Is this procedure not an

7 adequate safeguard?

8 A This is the area where forecasting becomes art

9 more than science. There are two areas of weakness. The

10 first is that the company's highest scenario is for 2.1%

11 average growth. During the 1970s, a decade of admittedly

12 high growth and declining relative electricity price, the

13 compound rate was 5.9%. In the 1980s, even with years of

14 contraction and rising relative electrical prices, the

15 compound rate was 1.9%. The current decade so far shows

16 strong, broad-based economic growth with level prices.

17 Given this background, a low near-term forecast would appear

18 suspect. The economic forecast shows five scenarios, but

19 the load forecast is done only with the base case of 1.4%.

20 The second difficulty is that an 80% confidence interval

21 for any model with multiple, complex equations looks like

22 the bell on a bass horn. It is just not possible to be

23 confident that load growth over the decade, much less the

24 forecast horizon, will be 1.4%, + .2%, as is necessary to

25 sustain the resource plan.

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1 During the near term, between 1992 and the date the

2 Rosebud plant would become operational, the Commission

3 growth estimate of 3.25% appears to be reasonable and more

4 likely than the Idaho Power projection of 2.1% growth.

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1 Future Conservation and QF Resources

2 Q The Company's resource plan includes several

3 conservation resources between 1993 and 2006, which help to

4 defer need for future capacity. The Appendix A schedule

5 does not include these resources. Which is appropriate for

6 the Rosebud facility?

7 A The procedure followed in the Appendix A

8 schedule is appropriate for all PURPA planning. The

9 Commission has made clear several times that the meaningful

10 difference between plans under 10 MW in size and those over

11 that threshold is their effect on the surplus period. Since

12 the trigger is set at 30 MW, a plant in excess of that size

13 will automatically reset the surplus calculation. The

14 Rosebud plant, for example, will move the estimate of

15 deficit back from 1997 to 1998.

16 Conservation resources are not to be used in making the

17 surplus calculation for several reasons, not the least of

18 which is that their actual impact is problematic. The

19 Commission, in Order No. 22636, July 27, 1989, stated:

20 "...as a result of the evidence presented to date,

21 it is clear that estimated future conservation and QF

22 resources should not be included as resources for

23 determining avoided costs. The cost effectiveness and

24 quantity of QF/conservation resource additions are dependent

25 on the avoidable costs of traditional resources. Using

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1 QF/conservation resource estimates to extend a utility's

2 surplus for determination of avoided cost rates is a

3 circuitous process that falsely reduces QF rates." (Order

4 No. 22636, p. 70)

5 QF resources already contracted for are clearly

6 legitimate components of the resource stack. Projected

7 resources, however, are just that. There is absolutely no

8 basis in logic or Commission decisions for the Company to

9 include in its least cost plan unknown future QF resources

10 under 10 MW in size in order to avoid purchase

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1 of a known facility of 40 MW. The trigger process, whereby

2 the surplus period is extended as capacity is added,

3 automatically adjusts market signals to prospective power

4 developers.

5 Q How dependent is the Company's least cost plan

6 on estimated conservation resources?

7 The near term resource stack (Exhibit 7) is heavily

8 weighted toward conservation resources, many of which have

9 not been implemented. These resource include 67.5 MW

10 of "Agricultural Choices" in 1994 and 36.2 MW of "Commercial

11 Futures" in 2000. The Commission has, prudently, removed

12 those resources from its calculations.

13 Other than these speculative resources and the Shoshone

14 Falls rebuild in 2004 (108 MW), all of the identified

15 resources through 2012 are thermal plants that the

16 Commission specifically wishes to avoid, or are mired in

17 controversy (Wiley). All except Wiley carry 1993 cost

18 estimates higher than avoided cost.

19 Surplus Sales

20 Q The Company's calculation of first deficit

21 year in 2006 incorporates shedding its off-system firm

22 loads. Those loads decline from 152 MWa in 1992 to 115 MWa

23 in 1998 and 6 MWa in 2004. Is shedding of this load an

24 appropriate way to avoid new resources?

25 A It is risky, and may not be appropriate. The

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1 Commission, in Decision No. 24375, Case No. IPC-E-92-6,

2 determined that at least until the next biennial review

3 off-system firm sales should be included in the Schedule A

4 list of requirements. The Company's filing of Schedule A in

5 Case IPC-E-93-4 continues this practice,

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1 though the Company does not believe it appropriate. The

2 Commission notes in Order 24911 that

3 "In Order No. 24375 the Commission accepted

4 Idaho Power's offer to defer resolution of

5 this issue until the next biennial review of

6 avoided costs and avoided cost methodology."

7 Two points are in order. First, this proceeding is not

8 the next biennial review of avoided costs. Reduction of

9 loads by means of shedding firm off-system sales is thus not

10 appropriate at this time, for determination of the first

11 deficit year. Second, the strategy poses what may be

12 unnecessary risks for ratepayers. As the Company is fully

13 aware, economic and load forecasts are fraught with

14 potential for error, especially in the medium to long term.

15 An unexpected uptick in growth rates, persisting for several

16 years, could easily lead to shortages. Coupled with a

17 severe drought, the result could be off-system purchases at

18 high prices if there were no sales contracts coming due. In

19 short, off-system sales under contracts that expire in a

20 rolling fashion provide an element of resource and rate

21 security that cannot be found elsewhere.

22 Rate Structure

23 Q What are current non-level avoided costs?

24 A Exhibit 9 shows non-level avoided costs for

25 Idaho Power Company, effective May 21, 1993. These rates

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1 are exclusive of the adjustable rate, set at 9.9 mills,

2 effective July 1, 1993.

3 Q Are these rates applicable to the Rosebud

4 facility?

5 A Yes. Past Commission decisions have made

6 clear that these rates are the basis for negotiation.

7 "...Such facilities [larger than 10,000 kW]

8 ...represent a significant generating resource on the

9 system and may require

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1 special operating and scheduling procedures unlike those

2 for smaller units. The published rates would still form

3 the starting point for negotiations, but individualized

4 consideration would be given to issues such as losses,

5 reliability, ability to schedule and so forth."

6 [emphasis added]

7 "This approach,...was endorsed by virtually every

8 participant to the June hearings. Idaho Power alone

9 envisioned a somewhat different procedure. ...Each

10 contract would, however, be individually negotiated in

11 all details. ...This procedure appears to us to be too

12 cumbersome for all parties and involves the Commission

13 too closely in the dealings between the parties. ..."

14 (Case P-300-12, Order 15746, p. 34).

15 Q If negotiation does not start at zero with

16 regard to rates, what does it incorporate?

17 A A large QF presents issues with regard to

18 timing and the shape of power delivery that may impact the

19 Company's system. These matters are legitimate areas for

20 negotiation. In addition, the Commission has frequently

21 requested the parties to consider dispatchability of large

22 plants.

23 Q Idaho Power has proposed a dispatchable rate

24 structure to Rosebud. Why is that structure not an

25 appropriate starting point for negotiations?

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1 A Because it does not reflect avoided costs.

2 The Commission has made clear that avoided costs are the

3 basis for negotiation for a dispatchable plant:

4 In the -170 case, the Commission made it clear that

5 avoided costs were the starting point for negotiations, and

6 that impact on the surplus ending date was the primary

7 reason for adjustment to the published rates:

8 "Large projects shall be subject to adjustments to

9 the published rates to reflect their effect on the

10 utility's load-resource balance." (Case U-1500-170),

11 Order 22636, p. 68).

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1 Earlier in the same Order, the Commission points out

2 that unless a contract incorporates dispatchability or other

3 enhancements, the avoided cost should be a ceiling rate:

4 "...to be acceptable the present value of such

5 rate structures must not exceed the present value of

6 the Commission established rates, except to the extent

7 that any additional cost is offset by the value to the

8 utility and its ratepayers resulting from

9 dispatchability or other enhancements." (U-1500-170,

10 Order No. 22865, p. 15).

11 The fact that a plant is to be dispatched does not

12 reduce the value of its generation. Rather, its value to

13 the system is increased relative to a plant receiving take

14 and pay avoided cost rates. A dispatchable rate structure

15 must at a minimum reflect the levelized avoided capital

16 cost, currently 54.48 mills/Kwh for a plant with a 75% plant

17 factor. The Company's offer of March 1992 reflected a

18 levelized avoided capital cost of 36 mills/Kwh. The

19 Commission's past declarations on dispatchability have

20 clearly reflected an intent that the Company offer a premium

21 for dispatch because it carriers a premium value.

22 That the Commission is interested in dispatchability is

23 also clear. Later in the same order,

24 "...We encourage... utilities to develop

25 alternative rates to applicable to dispatchable QFs.

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1 We presume such rates would include a fixed capacity

2 portion substantially lower than the capacity portion of

3 the rates resulting from this case..."

4 and

5 "Whether the blended dispatchable rate is more or

6 less than the nondispatchable rate developed hereunder

7 will depend on the value of dispatchability to the

8 utility, the sharing of future variable cost risks, etc."

9 (U-1500-170, Order 22636, p. 56).

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1 Clearly, the Commission envisaged that the level of

2 capacity payment offered be determined by the value of

3 dispatchability to the utility. A capacity payment lower

4 than that required for the SAR would be appropriate in the

5 event that the CSPP desired capacity payments but the

6 utility had no need for further dispatchable resources. In

7 the event that the utility has a strong preference for

8 dispatchable resources, dispatchability carries a premium

9 value, which should be recognized in a payment structure

10 more heavily weighted to capacity payments.

11 Q Idaho Power has stated in its Integrated

12 Resource Plan, and in filings in this case, that its RMR is

13 the basis for rates offered to plants over ten megawatts in

14 size. Is there any basis in Commission decisions for that

15 position?

16 A No. Idaho Power has consistently maintained

17 that its avoided cost rates be based on its own internal

18 planning process. It now offers SAR avoided costs to plants

19 of 9.9 MW and below, but continues to insist on its own

20 current resource stack for all other proposals.

21 From Idaho Power's internal perspective, this position

22 makes sense. Small power, large plants in particular, carry

23 the potential of causing changes in the company's resource

24 stack. They also result in a meaningful deferral of large

25 additions to rate-based generating capital.

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1 From a ratepayer standpoint, however, the company's

2 resource stack is a mixture of known resources, estimated

3 costs of potential future resources, estimated cost of

4 current and future conservation programs, and other

5 elements. It is constantly subject to change in

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1 both its composition and cost, and is the product of

2 internal Company processes.

3 For the Commission to delegate to the Company its

4 responsibility for setting avoided cost would subject the

5 ratepayer to a high degree of potential manipulation and

6 abuse. The Company is primarily responsible to its

7 shareholders, whose interests are different than those of

8 ratepayers. The Company cannot be put into the position of

9 being judge and jury in its own case. Avoided costs, for

10 all projects, must be set by the Commission, not the

11 Company.

12 Q Does this complete your testimony?

13 A Yes.

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1 Q Please state your name and business address

2 for the record.

3 A My name is Richard Slaughter. I am President

4 of RSA, Inc., 7201 Swift Lane, Boise, Idaho 83702.

5 Q Are you the same Richard Slaughter who has

6 previously testified in this proceeding?

7 A I am.

8 Q Have you reviewed the prefiled testimony of

9 Idaho Power witnesses in this docket?

10 A Yes, I have.

11 Economic and Load Forecast

12 Q Mr. Church makes clear his conclusion that

13 your testimony attempted to impeach the IRP economic and

14 load forecast as being deliberately manipulated: "(planting

15 the rather obvious inference that the Company's forecast is

16 bias [sic] downward)" [p. 9], "deliberately abbreviated

17 numbers" [p. 9], "desired 3.25% rate of growth" [p. 5],

18 "... implies ... the Company is biasing the forecast"

19 [p. 6]. Was that your intent?

20 A No. Mr. Church does excellent work, and I

21 would never expect a forecast prepared under his supervision

22 to be anything other than careful, considered, and honest.

23 In the context of this proceeding, the accuracy of the

24 economic or load forecast to 2014 is not at issue, nor is it

25 relevant. What is relevant are the risks facing ratepayers

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1 of excess generation capacity on the one hand and

2 insufficient capacity on the other. The Company's witnesses

3 take great pains to elaborate on the risk and cost of excess

4 capacity, and none whatsoever to examine the cost of

5 insufficient capacity.

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1 Mr. Church misunderstands the thrust of my direct

2 testimony. My testimony considers the possibility that the

3 Idaho Power near term (prior to 1998) forecast may be

4 exceeded, and that the forecast contained in the Appendix A,

5 Order No. 24911 may be more useful for that period; that the

6 probability of the Idaho Power forecast being exceeded is

7 high enough that the consequences are worth considering; and

8 that the Idaho Power IRP contains no strategy for

9 under-estimating load growth. My testimony is certainly no

10 more eclectic than the Company's assertion, in its IRP and

11 its position paper, Staff Exhibit 108, referenced by

12 Mr. Packwood, that low-cost non-firm energy will continue to

13 be available through the remainder of the decade and beyond.

14 Q Has Mr. Church provided evidence of the

15 magnitude of risk involved in the load forecast?

16 A Yes. Mr. Church assigns a probability of .40

17 to his base case forecast, .22 to the medium high forecast,

18 and .08 to the high forecast. In addition, Figure 7, p. 38

19 of the IRP, shows the "Potential Cost Impact of

20 Uncertainties" in the load forecast. These estimates result

21 from sensitivity analyses performed by the Company. The

22 illustration makes clear that there is a wide range of

23 potential error in the point estimate forecast account for

24 about 90% of all uncertainties.

25 Q Mr. Church at one point complains of an

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1 "apples and oranges" comparison between the Idaho Power

2 economic forecast and those of BPA and the Idaho Division of

3 Financial Management. Is his point well taken?

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1 A Certainly, if I were criticizing his forecast

2 for not agreeing with the other works. In point of fact, he

3 makes my case. He states it this way:

4 "... I am sure Mr. Slaughter knows that a forecast is

5 predicated on a view of the world and it's [sic] prospects

6 based on knowledge at a particular point in time. He has

7 failed to point out that the forecast comparisons to the

8 Idaho Power forecast he presents are based on different time

9 frames."

10 Mr. Church implies that the forecast should not be

11 examined on the basis of later data. If the question were

12 the validity of the forecasting procedures, he would be

13 absolutely correct. But the question is the validity of a

14 1998 point estimate. For that purpose, more recent data is

15 definitely a consideration.

16 The relevant question here is not so much Mr. Church's

17 forecast, but the reasonableness of the load forecast

18 contained in Appendix A to Order No. 24911. For purposes of

19 this proceeding, it is my recommendation that the forecast

20 contained in that schedule applies to the present docket

21 unless Idaho Power can demonstrate otherwise. That schedule

22 anticipates 3.14% compound growth in loads from 1992 to

23 1998. Application of the trigger for the Rosebud plant

24 would move the first deficit year to 1998. The accuracy or

25 reasonableness of point forecasts beyond that date are not

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1 at issue.

2 The economic forecast used for the IRP, prepared in

3 August 1992 (Church, Di, p. 7), anticipates 1992 growth of

4 6,761 residential customers. The Company's 1992 Financial

5 and Statistical Report, p. 2, indicates that actual growth

6 was 8,333 customers, for growth 23% higher than predicted in

7 August (3.4% opposed to a predicted 2.8%). The August 1992

8 economic forecast anticipated total non-agricultural

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1 employment growth in the service area of 2.8%, whereas the

2 estimate contained in the March 1993 Statistical Report is

3 of 3.2% growth.

4 These data do not impeach the forecast contained in

5 Appendix A of Order No. 24911. Further, the native load

6 forecast shown by Mr. Church in his Exhibit 211 indicates

7 anticipated growth of 3.6% in 1993, 3.2% in 1994, 2.7% in

8 1995, 1.3% in 1996, and 1.8% in 1997. If the turning point

9 anticipated by Mr. Church is but delayed two years, then the

10 Appendix A forecast will be fulfilled.

11 Combined Cycle Combustion Turbines and Ratepayer Risk

12 Q The Company's testimony speaks of using

13 combustion turbines to firm non-firm purchases. Is there

14 evidence that such a strategy may not be wise?

15 A Yes. The strategy depends on non-firm energy

16 continuing to be available except for short periods of time.

17 The general consensus, however, is not one of continuing

18 surplus but of impending deficit. To quote the 1991

19 Northwest Power plan,

20 "... The region is in what utility planners call

21 `load/resource balance.' This means that there is just

22 about enough power supplied by the existing system to meet

23 regional electricity needs at their present level. ...

24 "Despite the progress [in implementing conservation]

25 of the last 10 years, the region enters the 1990s without

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1 the capability to successfully run conservation programs in

2 all sectors of the economy and without an inventory of

3 resources that can be developed quickly. Even with moderate

4 growth, the region will need an additional 2,000 megawatts

5 by the turn of the century." (1991 Northwest Power Plan,

6 Vol. I, p. 6).

7 Q Dr. Wilmorth, in Exhibit 206, shows the base

8 case used by the Company in modeling its proposed Rosebud

9 rates. Do you have comments on that exhibit?

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1 A Yes. Exhibit 206 shows Idaho Power's

2 anticipated monthly surplus/deficiency and resource plan,

3 including several demand side management programs:

4 Agricultural Choices and Commercial Lighting in 1994,

5 Commercial Custom Measure in 1996, Industrial Futures A in

6 1998, and so on. It then shows combustion turbines in 2006

7 and 2009.

8 I have already testified on the inclusion of

9 conservation resources in the stack (Slaughter, Di,

10 p. 9-10). The first thermal resources in the stack are

11 combined cycle CTs. Combustion plants are essentially

12 peaking and cycling units, not base load. Their inclusion

13 as base load units has the effect of shutting out competing

14 fuels and shifting risk to the ratepayer.

15 Q Please explain that statement.

16 A If combustion turbines are the effective

17 surrogate resource, rates will be set such that only

18 gas-fired combustion units can be built. The capital

19 portion of the rate is too low to support construction of

20 other facilities, so only gas-fired generation will be

21 built. The adjustable portion of the rate will be tied to

22 gas prices. With natural gas as the fuel, the adjustable is

23 large. If gas prices do not rise, the ratepayer reaps the

24 benefit of which the Company speaks. On the other hand, if

25 gas supplies become tight, the ratepayer pays the full cost.

276

1 Other fuels, with lower susceptability to supply constraints

2 and fuel substitution, will have a reduced presence in the

3 market.

4 Any non-gas facility that anticipates continuing

5 increases in gas prices can be bankrupted if the forecast

6 does not come true, because the fixed capital portion of the

7 rate will not cover debt service. For that reason, such

8 facilities will not be able to obtain financing, and will not

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1 be built. Thus, truly renewable and waste fuel projects,

2 such as Rosebud, will not be proposed, and the region will

3 become more dependent on natural gas, a non-renewable fuel.

4 Q There is some precedent in the 1991 Northwest

5 Power Plan (Northwest Power Planning Council, 1991) for the

6 use of combined cycle combustion turbines (CT's) as a low

7 cost thermal resource. Is such a resource a suitable

8 substitute for the coal-fired resource currently included in

9 the Idaho avoided cost methodology?

10 A Combined Cycle CTs are included in the BPA

11 portfolios as hydrofirming resources, not as base load

12 resources. The Plan makes clear that there is far too much

13 price and availability risk with natural gas to depend on

14 those resources for base load. As such, they are

15 inappropriate for the Surrogate Avoided Resource.

16 The 1991 Power Plan does, in some portfolios, use a

17 CCCT as the defining unit, for purposes of hydro-firming,

18 but only up to the point that further hydro-firming is

19 useful for the system. At the same time, the Council

20 recognizes the extreme price escalation risk inherent with

21 gas-fired plants, and strongly recommends that

22 "To hedge against too much reliance on natural

23 gas-fired technologies for hydro firming, the Council

24 recommends that at least two-thirds of the combustion

25 turbine capacity should be at sites that have the ability to

278

1 switch to goal gasification or other fuels.

2 "... To facilitate this conversion, sites that are

3 developed for combustion turbines also should have the

4 necessary land, access to coal supply, and permits to allow

5 for conversion to coal gasification in the future. (1991

6 Northwest Power Plan, Vol. I, page 38)."

7 Q Does the Idaho Power IRP include cost

8 estimates associated with the Council's recommended strategy

9 of switching to coal gasification, siting, and permits?

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1 A No. Inclusion of those costs might well

2 eliminate the perceived cost advantage of gas-fired

3 generation.

4 Q Do you have other evidence that dependence on

5 gas fuels represents high risk for ratepayers?

6 A Yes. Data Resources, Inc. has recently raised

7 concerns about the predictability of the gas market. In two

8 articles published in the May 1993 Review of the U.S.

9 Economy - Ten Year Projection, DRI analysts examine recent

10 low drilling levels, growth of demand since 1988, and the

11 resulting reduction of the supply bubble that has kept

12 prices low. (Attached as Appendices B and C). They

13 conclude that there is substantial risk of gas price

14 strengthening during the 1990's. The analysts note that the

15 longer term price stability is dependent on higher prices

16 producing an increase in the drilling rate that has so far

17 not materialized. (Data Resources, Inc., "New Moves in

18 Natural Gas and Oil Prices," Ten-Year Projections, May 1993,

19 p. 53).

20 The Northwest Power Plan speaks specifically to risks

21 posed by gas:

22 "During the 1980s, there were abundant supplies of

23 natural gas at low prices, but only a decade earlier, price

24 and availability of natural gas were problems. The massive

25 shift to natural gas that is occurring not only in the

280

1 electric power industry, but also in other industrial

2 sectors and among residential consumers, could once again

3 constrict availability of this fuel. For this reason, a

4 heavy dependence on gas-fired electric power generation may

5 bring particular risks to the region." (1991 Northwest

6 Power Plan, Vol. I, P. 27)

7 In Portfolio 4, which deals with natural gas

8 uncertainty, the Plan anticipates no cogeneration, very

9 little hydrofirming from a CCCT, and growing use of coal

10 gasification as early as 1995. It also anticipates a

11 contribution from WNP-1 and/or WNP-3 as early as

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1 1997 to meet medium high loads. The Council's Action Plan

2 contains specific recommendations for dealing with the risks

3 posed by natural gas.

4 Risk Strategies

5 Q You have been criticized for suggesting that

6 limited term firm sales for resale might be retained as a

7 hedge against rapid demand increases. Do you have comment?

8 A Yes. While the Company has no obligation to

9 build (or buy) resources to serve those loads, Dr. Wilmorth's

10 response and criticism begs the question that I posed: How

11 does the plan handle the risk of unexpected rising demand in

12 the context of a regional deficit?

13 The company indicates that "... continued availability

14 [of non-firm energy] is anticipated" over the forecast

15 horizon ("Acquisition of Supply-Side Resources," Idaho Power

16 Company, September 1993). The entire thrust of the IRP is

17 predicated on that assumption. Totally apart from the

18 ability of forecasters to know the future, there is little

19 consideration of the risk to ratepayers and the economy of a

20 capacity deficit. The proposal I put forward is one way of

21 insuring against that risk for a very low premium.

22 The IRP assigns probabilities of .08 and .22 to load

23 growth scenarios higher than the base forecast, while at the

24 same time the IRP indicates that the preponderant portion of

25 potential cost from uncertainties in the IRP is derived from

282

1 the load forecast (Integrated Resource Plan, March 1993,

2 Figure 7, p. 38). I would be much more comfortable with the

3 IRP if it contained a strategy, much like that

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1 adopted by the Regional Power Council, for handling the

2 consequences of a too-low forecast (see 1991 Northwest

3 Conservation and Electric Power Plan, Vol. I, p. 36,

4 "Objective 2: Reduce Resource Lead Times"). I might point

5 out that Idaho Power is itself playing a role in BPA's risk

6 strategy through its Ida-West subsidiary. Ida-West announced

7 in June 1993 that BPA has selected the Ida-West Hermiston

8 co-generation project to be part of the BPA Resource

9 Contingency Program (Idaho Statesman, June 10, 1993).

10 As Dr. Reading points out in his testimony, in the

11 late 1970's an Idaho Power executive put out bumper stickers

12 with the slogan "Let the Bastards Freeze," because the

13 Commission and others saw a developing regional surplus that

14 was not visible to Idaho Power. Today, the Northwest Power

15 Council and BPA foresee a developing regional deficit which

16 does not appear visible to Idaho Power. While the IRP

17 recognizes the impact of errors in the load forecast, the

18 action plan contains no strategy for it. The entire process

19 is geared to the threat of the past ten years instead of the

20 next ten. The strategy of looking to peaking units for base

21 load power essentially shifts base load responsibility to

22 QFs and the risk to the ratepayer. The company bears no

23 cost for being wrong.

24 Use of the Company's IRP to Set Avoided Cost Rates

25 Q Do any of the Idaho Power witnesses address

284

1 your concerns, Mr. Faull's concerns, or the language of

2 prior Commission orders with regard to the applicability of

3 administratively determined avoided costs to projects over

4 10 MW in size?

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1 A No. Dr. Wilmorth's testimony and Mr. Packwood's

2 testimony continue to presume that the Commission has made a

3 sharp distinction between projects under and over 10 MW, and

4 that modeling the IRP is an approved method for determining

5 rates for larger projects. Dr. Wilmorth states that when

6 the base case for modeling Rosebud was built, the "resulting

7 plan to meet expected load growth included the same

8 conservation, power system efficiency improvements, and

9 hydro upgrade projects as were contained in the IRP, and did

10 not alter their timing" [Wilmorth, Di, p. 6, lines 12-16.

11 Emphasis added]. He criticizes Rosebud for insisting that

12 negotiations start with the published rates instead of with

13 the IRP.

14 Q Why are their presumptions not valid?

15 A Other than its disregard for Commission

16 orders, which Mr. Faull and I have spoken to and need not

17 repeat here, their procedure further assumes that all of the

18 assumptions and conclusions of the IRP are valid. Dr.

19 Reading has described several reasons why they should be

20 suspect, and how adoption of such a method carries with it

21 several policy implications for the Commission. Further,

22 the IRP has not been through an adversarial hearing before

23 the Commission, and therefore cannot be binding on the

24 Commission or on developers as regards avoided cost rates.

25 Q Dr. Parkinson describes an ideal method for

286

1 avoided cost price determination, cites examples of

2 utilities flooded with capacity as a result of setting a

3 too-high avoided cost rate, and describes the nature of

4 costs paid by the ratepayer when utilities enter into long

5 term fixed price agreements. Do you have any comments?

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1 A Yes. First, Dr. Parkinson's think piece makes

2 for interesting reading, and he makes many useful points,

3 many of which (e.g., the effects of NEPA) are irrelevant to

4 this case. His paper is not relevant to this proceeding,

5 because this complaint proceeding does not concern changing

6 the Commission's avoided cost methodology. Second, his

7 excessive cost examples do not take the Idaho trigger into

8 account. While Dr. Wilmorth (Wilmorth, Di, p. 16, lines

9 12-21) does not like the method of its operation, the

10 trigger mechanism does in fact work to reduce the avoided

11 cost as the first deficit date moves further out. The Idaho

12 Commission has never, to my knowledge, required a utility to

13 purchase all power offered at a given rate, irrespective of

14 impact on its load/resource balance.

15 Finally, Dr. Parkinson's allusion to the cost of lost

16 investment flexibility when entering into long term

17 contracts (Parkinson, Di, pp. 25-28), like other company

18 arguments, begs the question of the cost of foregoing

19 opportunity. Risk works both ways. Making a commitment, at

20 the bottom of the market, to spot prices for future needs is

21 a lot like a homeowner opting for 5.5% variable instead of

22 6.5% fixed. There is very little opportunity for rates to

23 move downward in comparison with their opportunity to move

24 up. The difference here is that the Company takes none of

25 the risk.

288

1 During the 1970s and early 1980s the Idaho economy

2 benefited considerably from the insulation provided by

3 stable electric rates when oil and gas prices were rising

4 rapidly. Since then, relative gas prices have been falling,

5 and the Company desires that acquisition policies be shifted

6 toward the spot market, in order to maximize the gain from

7 that trend. The Company and Dr. Parkinson ignore the risk

8 associated

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1 with their proposed policy: that the market may tighten

2 quickly, leaving ratepayers fully exposed to changes in fuel

3 price.

4 Dr. Parkinson is also concerned with potential retail

5 wheeling, and indicates that high cost utilities may have

6 trouble in the potential new environment. He does not

7 explain how, given that "Idaho Power is one of the nation's

8 lowest cost providers of electric service" (Packwood, Di,

9 p. 14, line 13-15), it could fail to be advantaged in such a

10 market.

11 I submit that the Company can not have it both ways.

12 The Commission's policy has been to promote acquisition of

13 long term resources at prices which reflect long term base

14 load acquisition costs. This policy may, arguably, fail to

15 maximize the near term benefit to the ratepayer during

16 periods of falling fuel prices. On the other hand, it

17 protects the ratepayer from both sharp upturns in fuel costs

18 (e.g., the "drought" increase recently granted to Idaho

19 Power -- no qualified facility will have its payments

20 increased as a result) and the step effect of acquiring

21 large rate-based facilities such as Valmy or a combined

22 cycle turbine large enough to realize economies of scale. I

23 recommend that the Commission reject this attempt to change

24 fundamental policy outside the appropriate adversarial

25 process.

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1 Q Does this complete your testimony?

2 A Yes.

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1 (The following proceedings were had in open

2 hearing.)

3 COMMISSIONER MILLER: Mr. Richardson.

4 MR. RICHARDSON: We have no questions for this

5 witness, Mr. Chairman.

6 COMMISSIONER MILLER: Mr. Burleigh.

7 MR. BURLEIGH: No questions.

8 COMMISSIONER MILLER: Mr. Fell.

9 MR. FELL: No questions.

10 COMMISSIONER MILLER: Mr. Woodbury.

11 MR. WOODBURY: Thank you, Mr. Chairman.

12

13 CROSS-EXAMINATION

14

15 BY MR. WOODBURY:

16 Q Mr. Slaughter, referencing your testimony

17 beginning Page 1, around Lines 11 through 14, you make

18 reference to Commission Order No. 24911, which I believe is

19 in Case Idaho Power-E-93-4, to the Appendix A attached to

20 that, and also you make reference to Idaho Power's

21 integrated resource plan. Is it your contention or the

22 contention of Rosebud that Order No. 24911, Appendix A,

23 load/resource schedule and revised first need for capacity,

24 is the appropriate schedule to use for Rosebud for

25 determination of first deficit year and avoided cost

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CSB REPORTING SLAUGHTER (X)
Wilder, Idaho 83676 Rosebud

1 determination?

2 A Yes.

3 Q Do you believe that it's preferable to Idaho

4 Power's integrated resource plan?

5 A In this proceeding I believe it is preferable

6 to Idaho Power's resource plan and I go into some of the

7 issues for that. It's my recommendation that the resource

8 plan not be part of this proceeding partly because it's not

9 part of the avoided costs that were established prior to

10 this complaint being filed. It is not currently part of the

11 avoided costs. Idaho Power has now, I believe last week,

12 filed a case that proposes to incorporate the integrated

13 resource plan, but that plan raises a large number of issues

14 that need to be examined in an adversarial proceeding before

15 it could be used for establishing avoided costs.

16 Q Conceptually, do you, assuming that we have a

17 hearing and determine what's appropriate to include or

18 exclude from the integrated resource plan, do you see that

19 as a better source for determining first deficit need than

20 the Appendix A that we've already established?

21 A I'm sorry Mr. Woodbury, I'm not picking up the

22 first part of your question. Just a little louder, if you

23 may.

24 Q Assuming that we have a hearing on Idaho

25 Power's integrated resource plan and determine what's

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CSB REPORTING SLAUGHTER (X)
Wilder, Idaho 83676 Rosebud

1 appropriate or inappropriate for inclusion, do you believe

2 that the integrated resource plan as a whole is a better, I

3 guess, starting document for determining first deficit year

4 than the Appendix A that we've established?

5 A I'm not sure that's an answerable question,

6 Mr. Woodbury. My recommendation -- with regard to the

7 question, to the extent as I understand it, I would say that

8 the IRP process is an alternative way to come up with the

9 kind of information that is necessary for an Appendix A or a

10 document that does what Appendix A does, and it is my

11 recommendation that if the IRP process is to be so used that

12 it go through an adversarial proceeding prior to such use.

13 Q Did you participate in the hearing where we

14 established an Appendix A?

15 A I participated in the 1500-170 case. I

16 participated in the early rounds of the -- the first round

17 of the utility specific cases. I did not participate in the

18 Water Power appeal.

19 Q Do you believe that the Appendix A that we use

20 to determine the first deficit year is deficient in any way?

21 A Is deficient? No, I don't.

22 Q In the Notice of Case Status in this case

23 issued on February 19th, the Commission summarized Rosebud's

24 position in the following way: "Rosebud seeks an avoided

25 cost rate to ascertain project viability." Do you believe

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CSB REPORTING SLAUGHTER (X)
Wilder, Idaho 83676 Rosebud

1 that this summary of position is still accurate?

2 A I would answer a qualified yes to that in that

3 I don't have the entire document in front of me right now,

4 but I would expect that -- I would say yes, it is.

5 Q Have you reviewed or are you familiar with

6 party correspondence in this case?

7 A Correspondence? I have reviewed it. I may

8 not remember all the details.

9 Q Are you familiar with correspondence dated

10 May 25th from Rosebud to Idaho Power regarding an offer or

11 in it the following language appears: "Rosebud hereby

12 offers to provide Idaho Power Company firm capacity and

13 energy based on the identical contract Meridian Energy

14 signed including rates, terms and conditions excepting only

15 the site, fuel, initial date of operations changed to

16 January 1, 1998, and sizing of the project"; do you remember

17 reading that letter?

18 A Yes, I do.

19 Q Do you interpret that as an unequivocal and

20 firm commitment to sell with respect to those rates?

21 A Yes.

22 Q And do you know what Idaho Power's response to

23 that offer was?

24 A I can't say off the top of my head exactly

25 what the response was, no.

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CSB REPORTING SLAUGHTER (X)
Wilder, Idaho 83676 Rosebud

1 Q Are you familiar with the three rate offers

2 that Idaho Power made to Rosebud? I believe those are in

3 Company Exhibits 207 and 208 and 209. Have you reviewed

4 those?

5 A Yes.

6 Q And with respect to Exhibit No. 207, which I

7 believe is, it's called Full Utility Dispatch - Capacity

8 Payments Commencing 2006, did Rosebud find that offer to be

9 acceptable?

10 A My memory would indicate that they found it to

11 be unacceptable.

12 Q Is it your understanding that all of the rate

13 offers of Idaho Power were for, were estimates and were not

14 firm commitments on behalf of the Company? I believe that

15 there's qualifying language at the bottom of each rate

16 offer. Do you have those exhibits in front of you?

17 A I have the exhibits and, for example, on

18 Exhibit 207, Page 1 of 1, Footnote 2, the values, and

19 footnote -- well, Footnote 2, "The values in this column are

20 estimates for discussion purposes." They do not represent

21 an offer to purchase rates, yes.

22 Q Could you explain why the rates offered in

23 Exhibit 207 do not comport with the project that Rosebud

24 proposes to build?

25 A Well, one fundamental reason is that the

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Wilder, Idaho 83676 Rosebud

1 capacity value doesn't begin until the year 2006, which is

2 the year identified in the IRP as the first deficit year;

3 whereas, Appendix A adjusted for the impact of Rosebud would

4 indicate the year 1998. A second reason is that the

5 estimated annual dispatch amount is less than, is either at

6 or a little less than, 10 percent of the capacity of the

7 plant.

8 Q And what changes would that require in how the

9 plant is built, if any?

10 A I don't know that I can answer the question or

11 respond to what it would require in how the plant was

12 built. My expectation would be that the plant couldn't be

13 built under a revenue stream produced from this schedule.

14 Q Is it your understanding that although they

15 factor in an eight percent dispatchable, well, rates based

16 on -- is it eight percent or ten percent dispatchability?

17 A I haven't calculated it, I can, but my

18 understanding of the output of the plant at a 75 percent

19 capacity factor is 330, 340,000 megawatts a year; so this is

20 around 10 percent.

21 Q Would that limit the amount of energy that

22 Idaho Power could require from the facility?

23 A Would it limit the amount of energy Idaho

24 Power could require? You mean to dispatch from the

25 facility?

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Wilder, Idaho 83676 Rosebud

1 Q Yes. Could they require that Rosebud be

2 dispatched on a 24-hour basis, 365 days year?

3 A I would expect that, yes, they could.

4 Q Exhibit 208, how do those rates differ from

5 those in 207?

6 A Exhibit 208 presents energy only rates that

7 are indicated to be non-dispatchable. They also contain an

8 indication of a rate structure that's flat at $21.20 per

9 megawatt-hour through 2005.

10 Q Do you know what rate that compares to? Is

11 that comparable to the Company's or equivalent to the

12 Company's Schedule 86 non-firm rate?

13 A The 21.20? I would expect that it is, yes.

14 Q And those were the two rates that were offered

15 prior to the negotiating session that took place on

16 April 1st?

17 A That is my understanding.

18 Q Did you participate in the negotiation session

19 that took place?

20 A No, I did not.

21 Q Do you know whether Rosebud was provided with

22 workpapers supporting the calculation of the rates that were

23 offered?

24 A No, I do not.

25 Q Subsequent to your April 1st -- subsequent to

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CSB REPORTING SLAUGHTER (X)
Wilder, Idaho 83676 Rosebud

1 the April 1st negotiation session, an additional set of

2 rates was prepared by Idaho Power and presented to Rosebud

3 and those are reflected in the Company's Exhibit 209. Do

4 you know how those rates compare to the other two sets that

5 were provided?

6 A Well, Exhibit 209 purports to, again, offer

7 full utility dispatch and, again, the estimated average

8 annual dispatch is the same schedule as that shown in

9 Exhibit 207. The energy value when dispatched is the same

10 as that shown in Exhibit 207. The capacity value begins in

11 1998.

12 Q And did Rosebud find those rates to be

13 acceptable?

14 A Finds them to be acceptable?

15 Q Acceptable. Did Rosebud find those rates to

16 be acceptable?

17 A No, I don't believe so.

18 Q And in determining the acceptability of any of

19 the rates that were offered, again we're looking at whether

20 those rates would make the project viable?

21 A That would be a basic criterion for myself,

22 yes.

23 Q Did you participate at all in the evaluation

24 of any of those rates?

25 A No, I did not.

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CSB REPORTING SLAUGHTER (X)
Wilder, Idaho 83676 Rosebud

1 Q Are you familiar with Commission notices and

2 orders in this case? Have you reviewed those?

3 A Yes, I have.

4 Q The Commission Notice, which is dated

5 July 12th, 1993, does that form a more accurate statement of

6 party positions than the original Complaint and Answer?

7 MR. KLINE: Objection.

8 COMMISSIONER MILLER: Sustained.

9 Q BY MR. WOODBURY: Does it form a more accurate

10 statement of Rosebud's position than the original Complaint?

11 A I'm sorry, Mr. Woodbury, I don't have that in

12 front of me, I don't believe. I can look for it.

13 MR. ORNDORFF: Mr. Chairman, if I might, I'm

14 not sure this witness is offering testimony as to the

15 negotiations and specifically trying to compare the

16 Complaint to the Commission's July 12th Order.

17 MR. WOODBURY: Could you speak into your

18 microphone?

19 COMMISSIONER MILLER: I don't think

20 Mr. Woodbury heard you, Mr. Orndorff.

21 MR. WOODBURY: Am I asking questions of the

22 wrong witness?

23 MR. ORNDORFF: I think probably that's how it

24 boils down. Dr. Slaughter has not been in the testimony.

25 He is not a policy witness as to what the Complaint says and

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Wilder, Idaho 83676 Rosebud

1 how it's changed and where the processes have evolved to in

2 July of 1993 and where it might have evolved to, if it has,

3 from July of 1993. He really hasn't offered testimony.

4 I've kind of encouraged the testimony because I think they

5 are good questions and they're helpful in getting to some of

6 the issues, but I'm just not sure that Dr. Slaughter is

7 capable of responding.

8 COMMISSIONER MILLER: Mr. Woodbury.

9 MR. WOODBURY: I think that what I had asked

10 were prefatory questions, but I can ask more direct

11 questions in relation to his testimony on Page 2; so maybe

12 if I could proceed.

13 COMMISSIONER MILLER: It does appear to me

14 that much of what we've gone through in the last few minutes

15 is beyond the scope of Dr. Slaughter's direct testimony; so

16 from now we'll ask you to confine your questions to matters

17 that are within the scope of his direct testimony.

18 MR. WOODBURY: All questions --

19 COMMISSIONER MILLER: All questions.

20 MR. WOODBURY: -- or just this particular

21 area?

22 Q BY MR. WOODBURY: On Page 2, starting around

23 Line 9 through 21, you talk about the identification of

24 issues of Idaho Power Company.

25 A Yes.

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CSB REPORTING SLAUGHTER (X)
Wilder, Idaho 83676 Rosebud

1 MR. KLINE: This is the direct testimony I

2 take it?

3 MR. WOODBURY: Yes, it is.

4 Q BY MR. WOODBURY: And you identify the issues

5 as an attempt to reopen generic avoided cost issues and an

6 attempt to substitute the utility's integrated resource plan

7 for Appendix A. On Page 3, Line 26 --

8 MR. KLINE: Is there a question there? Excuse

9 me.

10 COMMISSIONER MILLER: Are we working toward a

11 question, Mr. Woodbury?

12 MR. WOODBURY: Of course.

13 COMMISSIONER MILLER: All right.

14 Q BY MR. WOODBURY: You state: "The general

15 questions of policy and methodology raised by Idaho Power

16 Company are not at issue." We previously discussed

17 Commission Notice dated July 12th --

18 MR. KLINE: I'm going to object. He didn't

19 even have that in front of him at the time that the question

20 was asked; so there wasn't really any discussion.

21 COMMISSIONER MILLER: I think the objection is

22 a little premature. Let's see if we can get to a real

23 question that is capable of being either answered or

24 objected to.

25 Q BY MR. WOODBURY: In that particular Notice,

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Wilder, Idaho 83676 Rosebud

1 the Commission stated: "The parties' identification of

2 issues appears to be a fair depiction of what will be

3 considered in this case. Idaho Power contends that the

4 rates, terms and conditions should be negotiated based on

5 need, dispatchability and other least cost planning

6 criteria." My question then is, is it still your testimony

7 that the general questions of policy and methodology raised

8 by Idaho Power Company are not at issue?

9 A Well, it was my testimony and that it is my

10 testimony that, and I don't have the July 12th decision in

11 front of me, is that while those issues may be discussed in

12 the context of this case that my understanding is that there

13 are existing avoided cost rates that have been filed. There

14 is an existing Appendix A, and that these issues which are

15 appropriate to a biennial review and I believe some of the

16 issues were considered by the Commission -- in a previous

17 order there is language speaking of deferring consideration

18 of some of these issues to the next biennial review, and my

19 point there is that this is not that review and that my

20 feeling is that they're inappropriate for this case.

21 Q I'd like to move on to another area now. With

22 respect to load forecasting, your testimony starting Page 3,

23 around Line 29 and going forward, you speak of the load

24 growth assumption contained in the existing methodology of

25 3.25 percent. That's the load growth that's contained and

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CSB REPORTING SLAUGHTER (X)
Wilder, Idaho 83676 Rosebud

1 used in the Exhibit A load/resource schedule; is that

2 correct?

3 A Yes.

4 Q And you state on Page 4, Line 4, that point

5 estimates are almost always wrong. I'm wondering, have you

6 had the opportunity to review Mr. Church's testimony for

7 Idaho Power?

8 A Yes, I have.

9 Q Mr. Church states at Page 3, Line 7, of his

10 direct that the actual 1988-92 native load growth without

11 firm off-system sales was 2.25 percent.

12 MR. KLINE: Can you give me that page

13 reference again, Scott? I'm sorry.

14 MR. WOODBURY: Church testimony, Page 3,

15 Line 7.

16 MR. KLINE: Okay.

17 Q BY MR. WOODBURY: Do you believe that the

18 number cited by Mr. Church has any relevance with respect to

19 continued use of the 3.25 percent which is in Appendix A?

20 A As I believe I pointed out in my rebuttal or,

21 I'm sorry, yes, in my rebuttal testimony, and then I will

22 preface that I did not go through Mr. Church's comments one

23 by one because what I'm concerned with here is not the use

24 of a 3.25 percent load growth infinitely, you know, the

25 growth from 2010 to 2015 for my purposes is not at issue in

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CSB REPORTING SLAUGHTER (X)
Wilder, Idaho 83676 Rosebud

1 this case, the load growth from 2000 to 2010 is not at

2 issue, and I would definitely agree with Mr. Church that to

3 use 3.25 percent for the period from now until then would be

4 excessive. The question is whether or not the load growth

5 assumptions in Appendix A are reasonable for the period of

6 time between now and 1998.

7 Q And 1998 being the date that you propose to

8 bring your project on line or the date that is the first

9 deficit year?

10 A I believe it works out to be the same thing.

11 Q I know, but why are you choosing 1998?

12 A Because if the Rosebud plant were to come on

13 line in 1998 or any time prior to that, it would according

14 to Appendix A move the first deficit date back to 1998.

15 Q On Page 6, Line 18, you indicate that current

16 growth can be expected to be more persistent than past

17 growth. Is there -- I guess you cite the reasons as past

18 growth was dependent on inflation, baby boom and high demand

19 for Idaho resources. Are there any other reasons that you

20 would point as supporting your statement that the growth

21 cycle that we're in now should be more persistent?

22 A To the extent that the growth cycle we are in

23 now is compared to the growth experienced during the 1970s,

24 these are the fundamental reasons: Growth in the 1970s was

25 largely driven by inflation and driven by demographics.

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Wilder, Idaho 83676 Rosebud

1 Q Is this your opinion or is that conclusion

2 reached by other forecasters?

3 A Well, to a large extent you can characterize

4 that as my opinion. Let's see, the first time I came across

5 that view was in, I think it was, the Pacific Northwest

6 Regional Economic Conference in Spokane in about 1981 or

7 1982 and the reference was made by the, by a vice president

8 and chief economist of First Interstate Corporation. I've

9 reflected considerably on that view since that time and it

10 makes a great deal of sense.

11 During the 1980s, a lot of the contraction

12 that Idaho experienced was due to working off of the excess

13 growth, as I view it, in the 1970s; that is, the structure

14 of the timber industry changed, the structure of the mining

15 industry changed, and a great many jobs were lost in these

16 high wage industries, export industries, during that period

17 of time.

18 Growth in the 1990s is far, has a far broader

19 base than it did in the 1970s and it is being experienced in

20 a period of low or zero inflation.

21 COMMISSIONER MILLER: Why don't we take our

22 noon recess now if that would be all right, Mr. Woodbury.

23 MR. WOODBURY: Fine.

24 COMMISSIONER MILLER: Mr. Orndorff, I think we

25 will reconvene at 1:30 which should give you a few extra

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CSB REPORTING SLAUGHTER (X)
Wilder, Idaho 83676 Rosebud

1 minutes if you need them to make those photocopies.

2 MR. ORNDORFF: Thank you, Mr. Chairman.

3 COMMISSIONER MILLER: All right, we'll see you

4 all at 1:30.

5 (Noon recess.)

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