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1 BOISE, IDAHO, TUESDAY, JANUARY 11, 1994, 9:00 A. M.
2
3
4 COMMISSIONER MILLER: All right, let's go on
5 the record now and we'll take up our hearing in Idaho Public
6 Utilities Commission Case IPC-E-92-31. At the time of our
7 recess at the last hearings, Mr. Faull was on the witness
8 stand subject to cross-examination by Mr. Orndorff.
9 Mr. Faull has resumed the witness stand. We're going to
10 return to Mr. Orndorff for further cross-examination with
11 respect to a document that has now been marked
12 Exhibit 13-R.
13 (Staff Exhibit No. 13-R was marked for
14 identification.)
15 COMMISSIONER MILLER: Mr. Orndorff.
16
17 THOMAS FAULL,
18 produced as a witness at the instance of the Staff, having
19 been previously duly sworn, resumed the stand and was
20 further examined and testified as follows:
21
22 CROSS-EXAMINATION
23
24 BY MR. ORNDORFF: (Continued)
25 Q Mr. Faull, in looking at Exhibit 13 and then
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1 13-R, do you recall having seen the cover letter which is
2 attached to a diagram?
3 A Yes, I do.
4 MR. KLINE: I'm sorry, I was going to at this
5 stage enter an objection to the introduction of the exhibit
6 and I'd like to ask a couple of questions in aid of
7 objection.
8 MR. ORNDORFF: Can I finish the identification
9 process, Mr. Chairman?
10 COMMISSIONER MILLER: Let's see if we can get
11 it identified and then you can ask questions.
12 MR. KLINE: All right.
13 Q BY MR. ORNDORFF: Can you identify the
14 attachment to the October 8th, 1992 letter?
15 A The attachment is titled, "Master One Line
16 Diagram" and subtitled, "Rosebud Enterprises, Inc., Mountain
17 Home Cogeneration." It appears to be a one line diagram of
18 a generation plant showing the electrical system of the
19 plant. It appears to be from generation through
20 transformation and into interconnect with the utility. It
21 appears to be typical of one line diagrams.
22 Q Can you tell who prepared the diagram from
23 looking at it?
24 A It says "Harris Group, Inc." I'm not familiar
25 with them.
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1 MR. KLINE: At this point, Mr. Chairman, may I
2 interpose my objection and ask Mr. Faull a couple of
3 questions in aid of an objection?
4 COMMISSIONER MILLER: You may.
5 MR. KLINE: Mr. Faull, did you prepare the one
6 line diagram that you are now identifying?
7 THE WITNESS: No, I did not.
8 MR. KLINE: And was it prepared by anyone
9 under your direction and control?
10 THE WITNESS: No, it was not.
11 MR. KLINE: And you can see up on the upper
12 left-hand corner of it where it says, "Idaho Power
13 Transmission Line 115 kV," do you have any knowledge as to
14 whether or not that transmission line even exists?
15 THE WITNESS: No, I don't.
16 MR. KLINE: Mr. Chairman, my objection to this
17 exhibit rests on the fact that there has been no proper
18 foundation laid for introducing this exhibit as an accurate
19 representation of the interconnection between Idaho Power
20 and Rosebud. As a matter of fact, it's really nothing more
21 than kind of a generic representation of a power plant and
22 to try and introduce it through this witness in an effort to
23 demonstrate that in fact this is an interconnection that has
24 somehow been agreed to by the parties is improper and I
25 object on the grounds that no foundation has been laid for
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1 introducing it through this witness.
2 COMMISSIONER MILLER: Okay.
3 MR. ORNDORFF: Mr. Chairman?
4 COMMISSIONER MILLER: Mr. Orndorff.
5 MR. ORNDORFF: I'd like to respond. The
6 exhibit is introduced for purposes of asking Mr. Faull
7 further questions concerning his testimony revised on
8 December 15th, Lines 4 through 9 on Page 20 where he
9 discusses that he is not aware of any specific plant layout
10 to the extent adequate for IPC to estimate interconnection
11 costs and it's only introduced for asking the further
12 question of whether he would expect this to be part of Idaho
13 Power being able to estimate interconnection costs.
14 To my knowledge, and I think Mr. Faull if
15 asked can confirm this, this diagram is not an
16 interconnection with Idaho Power. It is a QF, the Mountain
17 Home QF plant electrical layout and it is not an
18 interconnect.
19 COMMISSIONER MILLER: I think we will at this
20 point admit the exhibit subject to it later being stricken
21 if its relevance isn't fully later explained and admitted
22 only for the limited purpose identified by Mr. Orndorff to
23 aid in cross-examination of a specific part of Mr. Faull's
24 testimony and not for the purpose of proving anything beyond
25 that.
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1 (Rosebud Enterprises, Inc. Exhibit No. 13-R
2 was admitted into evidence.)
3 Q BY MR. ORNDORFF: Mr. Faull, turning now to
4 your testimony, revised testimony, at Page 20, Lines 4
5 through 9, when you prepared this revised testimony, were
6 you aware of this exhibit?
7 A No, I wasn't.
8 Q Having now reviewed this exhibit, would it
9 cause you to change any of that testimony? I'm looking
10 specifically at Line 7 through 9 which starts out, "I am not
11 aware...."
12 A Perhaps it would cause me to expand on that
13 testimony. Whether or not this one line diagram would be
14 adequate for the Company to provide you with interconnect
15 costs I can't say, but it would certainly provide a specific
16 document that could be, that if it was not adequate, the
17 areas of inadequacy could be identified and the additional
18 information requested so that it would be a worthwhile, a
19 useful negotiating document; so I guess I would still say
20 that I'm not aware that specific costs for interconnect
21 could be given prior to signing of a contract at this point,
22 but I think that this document provides certainly a useful
23 negotiating document and I think shows, presuming that it's
24 reasonably accurate and it was presented as a negotiating
25 document, I think it's an indication of good faith
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1 negotiations.
2 MR. ORNDORFF: Thank you, Mr. Faull.
3 Mr. Chairman, I have no further questions.
4 COMMISSIONER MILLER: All right, thank you.
5 Mr. Burleigh, do you have questions?
6 MR. BURLEIGH: No, I do not.
7 COMMISSIONER MILLER: Thank you, sir.
8 Mr. Kline.
9 MR. KLINE: Thank you.
10
11 CROSS-EXAMINATION
12
13 BY MR. KLINE:
14 Q Mr. Faull, what I want to do, I want to ask
15 you some questions to try and get some handle on the
16 relationship that you apparently have laid out in your
17 testimony between the published avoided cost rates and their
18 applicability to projects larger than 10 megawatts as well
19 as the rates that are contained in the Meridian agreement
20 which have been brought into this case, and so what I need
21 to have you do is make a couple of assumptions for me,
22 Mr. Faull.
23 First of all, I would like you to assume that
24 at the conclusion of this case, in part of its
25 consideration, the Commission determines that the existing
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1 published rates for projects less than 10 megawatts are too
2 high for the Commission to use to set the purchase rates for
3 the Rosebud project, that's the first assumption. Second
4 assumption I'd like to have you make is that the Commission
5 also concludes in this case that the rates that are
6 contained in the Meridian Generating contract are not
7 appropriate to use to set the purchase rates that Idaho
8 Power would pay to the Rosebud project.
9 Now, with those two assumptions, do you have
10 those two assumptions in mind?
11 A Yes, and they're clearly your assumptions.
12 Q I understand, that's the nature of assumptions
13 for expert witnesses. With those assumptions, would it be
14 your recommendation that the Commission still order Idaho
15 Power to offer Rosebud rates that are based on either the
16 less than 10 megawatt rates or the Meridian Generating
17 rates?
18 A Maybe I didn't have your assumptions clearly
19 in mind.
20 Q All right. The first assumption is that the
21 Commission determined that the less than 10 megawatt rates
22 are too high to use to set the rates for the Rosebud
23 purchase by Idaho Power. Secondly, they concluded that the
24 Meridian contract rates are not appropriate to include as
25 the rates in the purchase agreement with Idaho Power. With
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1 those two assumptions, would you still recommend to the
2 Commission that the less than 10 megawatt rates or the
3 Meridian rates be used?
4 A Clearly, if the Commission has already
5 determined that they're not applicable, I would not at that
6 point -- that's a change of policy on the part of the
7 Commission and I would accept that change of policy.
8 Q All right. What would you then recommend to
9 the Commission as the way they should set the rates for the
10 Rosebud purchase by Idaho Power?
11 A At this point I don't believe I'd have a
12 recommendation. I presume that if the Commission were to
13 change its policy, it would advise us what the new policy
14 was and I would calculate rates based on whatever they
15 advised. If they asked me to advise them of a potential new
16 policy, I would have to take some time and think about it.
17 I'm not sure that I, in fact, I am sure I don't have a
18 position on that. I haven't considered that in great
19 detail.
20 Q All right. Again, trying to understand the
21 relationship between your testimony and the Meridian
22 agreement, do you believe that once Rosebud offered to sell
23 the output of its Mountain Home project to Idaho Power at
24 the rates contained in the Meridian agreement that Idaho
25 Power was obligated to accept those rates?
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1 A I don't think the rates are the key issue, nor
2 specifically are the contracts terms. As I understand what
3 was going on, Meridian was or Rosebud perceived itself to be
4 in a frustrating position of not being able to get any
5 indication of what contract terms and conditions would be
6 acceptable and so they took the initiative to present Idaho
7 Power with a known, approved contract and presented the
8 position that they would be willing to accept those terms
9 and conditions.
10 Had Idaho Power had specific objections to any
11 of those terms and conditions, I presume they would have
12 advised, had they been negotiating in good faith, they would
13 have advised Rosebud of which terms and conditions weren't
14 acceptable under the conditions and why rather than just
15 saying that's not an acceptable contract.
16 Q You understand, though, do you not, Mr. Faull,
17 that Rosebud did not offer those rates or offer to accept
18 the Meridian contract rates, terms and conditions until
19 after the negotiations had essentially been terminated by
20 Rosebud's rejection of the rates that Idaho Power proposed?
21 MR. ORNDORFF: I've got to object. Mr. Kline
22 is not offering testimony.
23 MR. KLINE: I asked him a question, you
24 understand that that is the chronology.
25 COMMISSIONER MILLER: Wait a second. When an
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1 objection is presented, we should let the Commission rule on
2 it. I think the question probably was tending toward
3 argumentative in the amount of things that it assumed; so I
4 think I'll sustain the objection to the precise form of that
5 question and ask you to try and ask the question again.
6 MR. KLINE: Well, I'll back off.
7 Q BY MR. KLINE: Based on the testimony that
8 you've heard, Mr. Faull, when is it your understanding that
9 Rosebud offered the Meridian Generating rates and terms and
10 conditions to Idaho Power?
11 A I believe that was the letter of May 25th,
12 1993.
13 Q And was that date after the April 1 date at
14 which the parties met and negotiated?
15 A It was certainly after April 1st. I wasn't
16 aware that there was some formal discontinuation of
17 negotiations. I presume when two parties are negotiating as
18 long as they'll speak together there's a negotiation going
19 on.
20 Q But you also understand that at that point in
21 time Rosebud had already filed a complaint against Idaho
22 Power alleging bad faith; correct?
23 A I would have to check the chronology, but I
24 suspect that's the case, yes. In fact, that is how I
25 remember it.
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1 Q And would you agree that that filing of a
2 complaint and negotiations under the filing of a complaint
3 might have a chilling effect on the parties' willingness to
4 continue to negotiate?
5 A No, I wouldn't agree with that at all. I
6 think that negotiations can carry on. In fact, a complaint
7 ought to provide added incentive to both parties to reach
8 agreement rather than have to go through the drawn-out and
9 expensive procedure of litigating.
10 Q Mr. Faull, I also want to see if I can
11 understand the role that the good faith negotiations in the
12 negotiation process has in the case of projects larger than
13 10 megawatts. Do you happen to have a copy of the
14 transcript of the last days of the proceeding that we had in
15 this case?
16 A Yes, I do.
17 Q I'd like to have you take a look at Page 463
18 of that transcript. It's on the December 16th hearing
19 date.
20 A Okay, I've got it.
21 Q All right, and at the bottom of that page, and
22 this is starting on Line 22, there's a question that
23 Mr. Fell asked you and the question and answer is very short
24 and I guess to make sure that everybody doesn't have to dig
25 through the transcript so they can understand the context in
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1 which we're discussing this, I'd like to have you, if you
2 would, please, read the question that starts on Line 22 on
3 Page 463.
4 A The question reads, "Let me understand that.
5 The right to permit or rather to offer a Meridian style
6 contract would not mature until the utility had demonstrated
7 an unwillingness to negotiate with the project over these
8 issues?"
9 Q Would you read the answer over on the top of
10 the next page?
11 A "To negotiate in good faith, yes."
12 Q Now, as I understand your response there,
13 Mr. Faull, and correct me if I'm improperly characterizing
14 your response, it's my understanding that your response says
15 that if the two parties are negotiating in good faith, then
16 the offering by in this case Rosebud of the alternative
17 Meridian contract really has no effect as long as the
18 parties are continuing to negotiate in good faith; is that a
19 correct characterization of your testimony?
20 A It was not the intent of my answer. It
21 certainly is a reasonable interpretation of the answer, but
22 it wasn't the intent of the answer. I believe that the QF
23 could present that as a proposal at any time during
24 negotiations. I think that what I must have intended with
25 the answer that I gave is that you would not necessarily
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1 look to that in order to establish a date. Presuming good
2 faith negotiations are going on, one would expect that you
3 would culminate in a contract without a complaint proceeding
4 and, therefore, there would really be no need to establish a
5 date upon which the developer became eligible for avoided
6 cost rates absent an agreement with the utility, but,
7 nonetheless, during negotiations, I would think that an
8 offer of that sort would be an extremely good way to try and
9 get things, to keep things moving.
10 Q But your understanding is by offering the
11 Meridian Generating contract, Idaho Power did not at that
12 point become obligated to accept that contract, correct, as
13 long as the parties are negotiating in good faith?
14 A No, the Company is not obligated to accept the
15 contract. I think the Company is obligated to identify any
16 areas that are unacceptable in the contract and to explain
17 why they're unacceptable, but certainly, the QF has no
18 unilateral right to dictate contract terms to the Company.
19 Q Mr. Faull, let me ask you to make another
20 assumption, then. Assume that, again, the Commission looks
21 at the transcript in this case and the testimony that has
22 been presented and comes to the conclusion that Idaho Power
23 has negotiated in good faith with Meridian, I mean with
24 Rosebud. Having made that determination, is Idaho Power
25 obligated then to enter into a contract with Rosebud at the
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1 Meridian rates?
2 A I believe that -- well, that's a decision that
3 the Commission has to make, but it's my opinion that Rosebud
4 is entitled to a contract similar to the Meridian contract
5 at rates at least equivalent to the Meridian rates.
6 Q But if the Commission finds that Idaho Power
7 has negotiated in good faith, what recommendation would you
8 make to the Commission at that point in time as to how they
9 would then resolve this complaint that's been presented to
10 them?
11 A It would be my recommendation that the Company
12 be directed to identify those terms and conditions in the
13 Meridian contract that are unacceptable to the Company,
14 explain why those terms and conditions are unacceptable and
15 if Rosebud and Idaho Power are unable to reach common ground
16 on those specific issues, then I guess that would have to be
17 brought before the Commission for determination.
18 Q I noticed that you mentioned that it was the
19 terms and conditions of the Meridian agreement. What about
20 the rates? What recommendation would you make to the
21 Commission regarding the rates that Idaho Power should be
22 obligated to pay Rosebud, again, assuming that the
23 Commission found that Idaho Power had negotiated in good
24 faith throughout?
25 A I'm not sure what impact that assumption
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1 makes. Whether or not the Company negotiated in good faith
2 or not, it's my belief that Rosebud is entitled to the
3 Meridian rates.
4 Q Well, all right. Now, did you participate in
5 the Commission proceeding where the Commission approved the
6 Meridian contract?
7 A Yes, I did.
8 Q And was it your understanding and is it your
9 understanding now that the rates that came out of that
10 Meridian settlement proceeding would be made available to
11 all QF projects larger than 10 megawatts?
12 A My analysis of the rates in the Meridian
13 contract were as a stand-alone QF. There was no evidence on
14 the record that the Meridian project had any negative
15 effects on the Company's system. The Meridian rates were
16 less than the published avoided cost rates and, therefore,
17 were less than Meridian was entitled to, and so while the
18 rates themselves are not specifically available to any
19 company, any QF, my analysis of the Meridian rates are
20 identical to my analysis of the Rosebud rates. There's no
21 evidence on the record that there's any negative impacts
22 from a 40 megawatt QF located in Mountain Home; so I presume
23 that Rosebud is entitled to the published avoided cost rates
24 adjusted only for its impact on the Appendix A of the
25 Company's avoided cost filing.
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1 Q Is there any portion of the analysis that you
2 just summarized for us, Mr. Faull, that isn't contained in
3 your testimony that's been presented here to the Commission?
4 A No, I think my citing of the Commission's
5 orders to support the Commission's policy is pretty clear.
6 Q And essentially what you've done in citing
7 those orders is provided your opinion to the Commission as
8 to what the legal obligation the Commission is now under as
9 far as setting rates for this contract; isn't that correct?
10 A No, that's not correct. It's not a legal
11 obligation. It's not a legal opinion. It's an
12 interpretation of language.
13 Q It's your opinion as to what those orders
14 mean; is that a better way to characterize it?
15 A Right. It's my interpretation of the
16 language -- well, actually, it's not an interpretation at
17 all. I simply cite the language.
18 Q But you draw conclusions from that language
19 and those conclusions are contained in your testimony; is
20 that correct?
21 A That's correct.
22 Q Well, okay, we need to clarify one more
23 thing. Is it your testimony, Mr. Faull, that Rosebud is
24 entitled to receive the rates that are contained in the
25 Meridian contract?
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1 A Absent evidence that the Meridian project has
2 substantial negative impacts on the distribution system,
3 that is correct.
4 Q Why is that correct?
5 A Because those rates are less than the
6 published avoided cost rates.
7 Q So your testimony is that Rosebud absent some
8 bad faith on the part of Idaho Power is entitled to the
9 rates, terms and conditions verbatim that came out of the
10 Meridian Generating contract?
11 A No, that's not what I said at all. I said
12 that they're entitled to those rates and terms and
13 conditions that are -- and absent evidence that the terms
14 and conditions in the Meridian contract are unreasonable
15 when applied to Rosebud, they are entitled to that, but
16 certainly, if there are terms and conditions in that
17 contract that are unreasonable, Idaho Power ought to make a
18 case to demonstrate that.
19 Q And in making that recommendation, are you
20 recommending to the Commission that they not then take into
21 consideration today's situation as far as loads, resources,
22 needs, those kinds of things?
23 A I'm going to answer you by reading from my
24 testimony which may take a minute to find, but it's a better
25 answer than I can give you off the top of my head. Page 7
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1 of my testimony, beginning at Line 5, "This Commission will
2 no longer countenance a utility position that it asserts
3 that it would not contract on the basis of an obsolete
4 albeit filed avoided cost as opposed to its self-determined
5 but unfiled actual avoided costs." That's my position.
6 Q And this is from which Order?
7 A That is from Order No. 20693, Page 5.
8 Q Which case is that?
9 A Case U-1008-241.
10 Q And who were the parties in that case?
11 A I believe that was Potlatch and Washington
12 Water Power. No, I'm sorry. Apparently, that was Empire
13 and Washington Water Power.
14 Q And, Mr. Faull, how large was the Empire
15 project?
16 A I forget precisely. I think it was about 15
17 megawatts.
18 Q Would you accept, subject to verification,
19 that it was less than 10 megawatts?
20 A Subject to verification, yes.
21 Q All right. And you understand, then, that the
22 Commission was in issuing that particular order which you
23 are now citing was dealing in the context of a project
24 smaller than 10 megawatts, correct, again subject to your
25 ultimate verification?
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1 A That may be the case. I remember it
2 otherwise, but that may be the case.
3 Q And, obviously, if the Commission chooses to
4 apply different standards for projects larger than
5 10 megawatts, then they may not be bound by policies they
6 developed in dealing with projects smaller than 10
7 megawatts; correct?
8 A No. I guess assuming that you're correct on
9 the size, I would have to cite rather than that, rather than
10 that case, I would cite Case No. U-1006-244 which I believe
11 is the Potlatch case in which the Commission said from my
12 testimony beginning on Page 3, beginning on Line 22, "and so
13 forth cannot equate with perceived changes in avoided
14 costs. If Water Power perceived its avoided costs to be
15 changing significantly, then it was incumbent upon it to
16 file an application requesting that they be changed."
17 Q Does that complete your answer?
18 A Yes, it does.
19 MR. WOODBURY: To clarify, that case cited, I
20 believe, should have been 1008 rather than 1006 because 1006
21 is with the prefix for Idaho Power, not Washington Water
22 Power.
23 THE WITNESS: You're correct. That's an error
24 in my testimony, then.
25 MR. KLINE: I understand. Mr. Chairman, could
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1 we take a five-minute recess?
2 COMMISSIONER MILLER: Certainly.
3 MR. KLINE: Thank you.
4 COMMISSIONER MILLER: We'll be in recess for
5 five or ten minutes.
6 (Recess.)
7 COMMISSIONER MILLER: We're back on the
8 record. Mr. Kline.
9 Q BY MR. KLINE: Mr. Faull, in this case Idaho
10 Power has filed a substantial amount of testimony and my
11 question to you is, for example, the testimony of Mr. Church
12 and Mr. Willmorth, Mr. Packwood, has all dealt with changes
13 that the Company perceives have occurred in its need for
14 resources since the last time this Commission established
15 the published rates for projects less than 10 megawatts, and
16 my question to you is, in your view of this process that
17 we're going through, is that testimony regarding changed
18 conditions totally irrelevant to the decision that the
19 Commission has to make here?
20 A Yes, I believe it is.
21 Q And is your opinion that it is irrelevant
22 based on your interpretation of the prior Commission orders
23 that are cited in your testimony?
24 A Primarily, yes, and the fact that those orders
25 reflect what in my opinion is the purpose of publishing
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1 avoided cost rates for QFs larger than 100 kW as required by
2 PURPA and that purpose is to encourage the industry by
3 giving the developers a reasonable understanding of what
4 kinds of rates they're going to have so that they can
5 determine in a reasonable fashion what sort of costs they
6 can reasonably incur, how large a risk to take in project
7 development. Without some sort of a number like that,
8 there's no way in my opinion that a QF developer could even
9 begin to develop a project, and so it's based on the
10 Commission's orders, but it's also based on my understanding
11 that those orders are based on a reasonable, logical goal.
12 Q Is that it?
13 A That's it.
14 MR. KLINE: That's all I have.
15 COMMISSIONER MILLER: All right, thank you
16 Mr. Kline.
17 Redirect, Mr. Woodbury. I'm sorry, we forgot
18 to do the Commissioners. Commissioner Nelson.
19 COMMISSIONER NELSON: Thank you.
20
21 EXAMINATION
22
23 BY COMMISSIONER NELSON:
24 Q Mr. Faull, I don't intend this to be a legal
25 question, but just your understanding, in this case when a
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1 complaint is filed, do you think the parties still have an
2 obligation to go forward with negotiations or could they
3 choose to have the case heard on the basis of the facts that
4 were present when the complaint was filed?
5 A Well, certainly any party can refuse to
6 continue negotiations at any time it chooses, but I don't
7 think that it can obligate the other party to quit trying.
8 Q Well, but a large part of the complaint is
9 that Idaho Power hasn't negotiated in good faith or maybe
10 both parties are complaining about that, but at any rate, a
11 complaint was filed. When the complaint is filed, do you
12 think that the parties have a right to have the case heard
13 on the basis of the facts at the time the complaint was
14 filed?
15 A No, I think the parties have an ongoing
16 obligation to try and reach a reasonable conclusion. If
17 they can reach agreement, they ought to make an effort right
18 up to the day of the hearing in my opinion; otherwise, they
19 waste the resources of the Commission, the Staff and both
20 parties.
21 Q Okay, on what's in front of us here, it
22 appears to me that we have a rate that Idaho Power initially
23 offered and we have full avoided costs as administratively
24 determined in the last case and we have the Meridian
25 contract, we have those three things in front of us. Are
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1 you making a recommendation that the contract be based on
2 the Meridian contract because that's less than full avoided
3 cost without analyzing the other two extremes?
4 A Well, not without analyzing the other two
5 extremes. In fact, it's my analysis of the other extremes
6 that leads me to believe that Idaho Power was not
7 negotiating in good faith. If Idaho Power was a naive
8 organization, the rates they offered might be reasonable
9 because they're calculated from real numbers, but they might
10 just as well offer no rates to a solid fuel Rankin cycle
11 steam plant as to offer the rates that they did. They knew
12 or ought to have known in advance that those rates would not
13 support the project and so those rates are essentially a
14 failure to --
15 Q Is that essential to support the project?
16 A Is it essential to support the project? No,
17 it's not. It's essential to file new avoided cost rates
18 when conditions change and not two years later.
19 Q So offering rates that support the project
20 isn't necessarily essential because you could have
21 experimental projects that would need a special rate in
22 order to go forward or you could have a myriad of facts.
23 A You could have. I mean, certainly the Company
24 could recommend experimental rates that might be higher than
25 full avoided costs if they thought that --
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1 Q Are you recommending a contract based on the
2 Meridian contract because it's the right rate or it's the
3 best rate in front of us?
4 A I guess both. It's the right rate because
5 it's the utility's obligation to have changed the rate if it
6 wasn't right. I'm not necessarily recommending that
7 ratepayers be obligated to bear the full burden of those
8 rates, but certainly the Company ought to -- the Company had
9 an obligation to file full avoided cost rates at the time it
10 became obvious to them that the current avoided cost rates
11 were not reasonable and they didn't do that.
12 Q If we ordered the Company to offer a contract
13 based on the Meridian rates, are you suggesting that we
14 would then turn around and say that that was imprudent and
15 ratepayers shouldn't have to bear the full cost of that
16 contract?
17 A I don't think we can say that on its face, but
18 I think it's a reasonable thing to consider.
19 Q Do we do that by the back door somehow?
20 A No, I think you ought to do it in the front
21 door.
22 Q I mean, isn't it a general assumption that the
23 ratepayers are going to bear the costs of generation, QF
24 generation?
25 A It is. Generally, that's the case. It's also
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1 a general assumption that the utility will maintain
2 reasonably current avoided cost rates.
3 Q Well, don't we by implication put an
4 obligation on the Company to get the best deal they can for
5 the ratepayers when negotiating for new generation?
6 A No, not under PURPA. Under PURPA, the Company
7 is required by law to pay full avoided cost.
8 Negotiations --
9 Q What would they negotiate on a project larger
10 than 10 megawatts if they weren't trying to negotiate terms
11 and conditions that were the most favorable they could get?
12 A The issues available for negotiation are
13 limited and pretty straightforward. They're basically
14 engineering issues.
15 Q Okay, enough of that. You talked about the
16 risk that Rosebud has taken. Could you in your opinion tell
17 me what risk Rosebud has taken to date in terms of
18 obligations?
19 A I can only speculate.
20 Q Okay.
21 A When I was a consulting engineer, we did
22 primarily, well, we never built anything but hydro, but we
23 looked at some thermal plants and we invested substantial
24 man-hours and substantial money in the analysis of those
25 thermal projects prior to even filing for interconnect, and
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1 so the risk, I presume that Rosebud has invested a fairly
2 large sum of money in developing their project to the point
3 that they have with no guarantee that anything will come of
4 it other than an unhappy memory.
5 Q Do you see this project being substantially
6 different than their Montana project?
7 A No, to that extent, they haven't taken the
8 risk that they took on their first project. The costs that
9 they've had to invest are substantially less than they would
10 have had to invest in their first project, but, nonetheless,
11 they've got some engineering and some legal expenses to
12 date, fairly substantial I suspect.
13 Q Well, okay, before the complaint was filed,
14 though, how much do you think they were at risk, just based
15 on your general knowledge?
16 A I'm not even in a position to give you a ball
17 park figure, probably in excess of 25,000, possibly in
18 excess of 100,000.
19 Q What would this total project cost if
20 completed, approximately?
21 A Oh, 40 megawatts --
22 Q Forty, fifty million?
23 A More than that.
24 Q More than that?
25 A I would expect 70 or 80.
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1 Q Seventy or eighty million?
2 A Sixty or seventy.
3 COMMISSIONER NELSON: Let's say 50, that's a
4 good round number. Okay, that's all I have. Thank you,
5 Mr. Chairman.
6 COMMISSIONER MILLER: Commissioner Smith.
7
8 EXAMINATION
9
10 BY COMMISSIONER SMITH:
11 Q Just a clarification, Mr. Faull. When you
12 were discussing with Mr. Kline the idea of good faith
13 negotiations, I thought I heard you say something like if
14 the two parties were negotiating in good faith, the result
15 would be a signed contract.
16 A I may have said that. That isn't necessarily
17 true.
18 Q That's what I wanted to ask you. Then does
19 any time there fails to be a signed contract indicate bad
20 faith on the part of someone?
21 A No, no, it's not the lack of a signed contract
22 that indicates bad faith. It's failure to negotiate from
23 the established methodology and the established avoided cost
24 rates as directed in past Commission orders.
25 Q Okay; so two parties could just be so far
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1 apart on their calculation or quantification of the various
2 components that they just can't reach agreement and yet both
3 could be operating in good faith.
4 A That has happened in the past.
5 Q And the other thing I heard that kind of
6 scared me was an indication that you believed that following
7 the conclusion of this hearing there was supposed to be more
8 negotiation?
9 A Yes, I believe that's correct. Unless the
10 Meridian contract as it's written is fully acceptable to the
11 Company, I would think that the Company ought to have the
12 opportunity to do what they should have done when the
13 Meridian contract was presented to them and that is to
14 identify any terms and conditions in that contract that it
15 believes are unacceptable and to explain why. They've not
16 done that.
17 Q Is your answer assuming a certain Commission
18 decision, then?
19 A Yes, it is. Certainly, the Commission could
20 order the Company to accept the Meridian contract or, for
21 that matter, any other set of terms and conditions and
22 rates. My assumption is that that -- I guess my
23 recommendation would be that the Commission require or allow
24 the Company the opportunity to present specific evidence if
25 there are unreasonable terms and conditions in the Meridian
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1 contract.
2 Q So whatever the Commission might order in this
3 case, there would still be further negotiations required?
4 A That would be my recommendation or there could
5 be. There may not be. The Company might say at that point
6 that the terms and conditions, if they have to accept those
7 rates and terms and conditions similar to the Meridian
8 contract, it's not worth fighting over the details, but I
9 think it would be in the ratepayer's interest to give the
10 Company the opportunity to present some specific evidence if
11 there are unreasonable terms and conditions or if they
12 believe there are unreasonable terms and conditions in that
13 contract. I'm not looking forward to it either.
14 Q What if the Commission found that there had
15 been no bad faith in any of the negotiations that had
16 happened to date, and the answer is they have to go
17 negotiate more?
18 A That depends on what conclusion you draw from
19 the determination that there has been no bad faith. If you
20 conclude that both positions, that the positions of the
21 parties are reasonable, then I think that ends negotiations
22 because Rosebud will simply go away is my guess. The rates
23 that have been offered to Rosebud would not support their
24 project in my opinion.
25 If you find that there's been no bad faith,
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1 but the policy of the Commission is that as I have stated it
2 in my testimony, then your option, I guess, is either to
3 order a contract identical or equivalent to the Meridian
4 contract with Meridian rates or published avoided cost
5 rates. I guess another option would be to order a contract
6 similar or identical to Meridian, but with the rates
7 proposed by Idaho Power. I doubt that Rosebud would accept
8 those, but they might. Stranger things have happened.
9 Q But whether or not any rates whether they're
10 negotiated or whether they're set by the Commission support
11 any particular project isn't really relevant to the question
12 of whether it's an appropriate reflection of avoided costs,
13 is it?
14 A No, I think the issue is what is full avoided
15 cost at the time that Rosebud demonstrated that it was
16 ready, willing and able to contract.
17 COMMISSIONER SMITH: Thank you.
18
19 EXAMINATION
20
21 BY COMMISSIONER MILLER:
22 Q I just had a couple of areas of questions with
23 which will be brief. First is there's been considerable
24 discussion this morning of the Meridian contract. In
25 testimony we'll receive later, the language of the
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1 Commission order approving that contract will be introduced
2 into the record, but in general, you could say that in
3 approving that contract, the Commission went to significant
4 lengths in its approving order to in effect turn Meridian
5 gold into a purple cow, to make it so unique that it had no
6 precedential value in any other context, merely approve that
7 contract without taking up any of the associated or
8 tangential policy issues that we were in fact urged to take
9 up; so my question is, given the Commission effort to make
10 the Meridian contract approval unique to its own facts, is
11 it appropriate to use the approval of the Meridian contract
12 as a basis for decision in this case?
13 A I think it's appropriate to use the Meridian
14 contract as a basis for the decision that Rosebud had made
15 the best effort it could to obligate itself given the status
16 of negotiations at that time. Idaho Power had asked them to
17 submit terms and conditions that it believed would be
18 acceptable and absent any other thermal QF with
19 contingency-type contracts or contingency language in it,
20 with the possible exception of Cogen, Inc. which was also
21 less than 10 megawatts, about all they could do is look to
22 that contract and determine whether or not the terms and
23 conditions in that contract would be acceptable to them.
24 Q That actually leads to my second question,
25 which requires me to state the premise of the question and
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1 it could be that the premise is wrong so that the question
2 is meaningless, but let me state my premise anyway, and the
3 premise is basically this, that the essence of power
4 contracts or of any contract really is mutuality of
5 obligation; that is, in this context, the Power Company
6 obligates itself to purchase and the QF obligates itself to
7 sell, and in the classic context, the Commission orders the
8 execution of a contract when both parties are otherwise
9 prepared to obligate themselves, but the contract has not
10 been signed due to utility reluctance or some other reason
11 advanced by the utility. That's the classic context; would
12 that be a fair statement?
13 A Yes.
14 Q In this case a twist that hasn't received a
15 great deal of attention, and perhaps there's a good reason
16 that it hasn't, is as I understand the positions of the
17 parties, it's Rosebud's position that Idaho Power Company is
18 required to obligate itself to purchase at avoided cost
19 rates. Rosebud then says, for example, in its letter to the
20 Commission of April 15th of last year on Page 5, "After
21 receiving SAR coal avoided costs from IPC, Rosebud is now
22 entitled to a reasonable time period to prove IPC fuel
23 security"; so Rosebud seems to be saying Idaho Power Company
24 is required to obligate itself. Rosebud, however, is not
25 required to obligate itself until a reasonable period of
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1 time has passed to allow Rosebud to acquire a fuel source.
2 I hope I'm not mischaracterizing the status of things, but I
3 guess my question is, do you view this position, assuming I
4 have correctly stated it, as unusual or a departure from the
5 classic circumstance given the fact that apparently at this
6 point Rosebud is not prepared to obligate itself?
7 A I think as of April 15th it wasn't clear
8 whether or not Rosebud was willing to obligate itself. It
9 didn't become clear to me until the letter of May 25th that
10 they were in fact willing to obligate themselves, and
11 whether or not the intent of Rosebud's letter of April 15th
12 is to say that we are willing to obligate ourselves to make
13 some financial commitment that we will obtain secure fuel
14 supply or not isn't clear, but clearly by saying that they
15 are willing to accept the terms and conditions of the
16 Meridian contract, they are saying that they are willing to
17 commit substantial economic, make a substantial economic
18 commitment to acquire firm fuel sources.
19 Q Another way of phrasing the concept of
20 obligate or obligation is to say that by obligating
21 yourself, you agree that you will pay damages in the event
22 you do not perform. Is it your opinion that Rosebud has
23 progressed to the point where it has said that?
24 A Yes.
25 Q And what's that opinion based on?
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1 A Their submittal of a signed Meridian contract
2 and the letter saying that they're willing to commit to all
3 the terms and conditions of that contract.
4 Q And that's the letter of May 25th?
5 A Right, including the milestones and the
6 liquidated damages clauses contained in that.
7 COMMISSIONER MILLER: All right, that's
8 helpful to me. Mr. Woodbury.
9
10 REDIRECT EXAMINATION
11
12 BY MR. WOODBURY:
13 Q Mr. Faull, in Mr. Kline's cross-examination of
14 you, he seemed to infer that it was improper for Rosebud to
15 present the Meridian Generating contract as a contract with
16 rates, terms and conditions that it would be willing to
17 accept. Is it your understanding, and I believe you
18 indicated that in response to Commissioner Miller, that that
19 was in fact solicited, such an offer was in fact solicited
20 by the Company?
21 A Yes, that's my understanding.
22 Q What do you base that on?
23 A The Company's letter to you dated April 2nd,
24 1993.
25 Q And what language specifically in that?
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1 A It will take me a second to find it.
2 MR. KLINE: Scott, is that letter in the
3 record?
4 MR. WOODBURY: You know, I don't know that
5 that letter is in the record. I don't believe that the
6 parties have submitted a full exhibit of correspondence as
7 within this case. Do you recall -- if you want me to
8 circulate the letter to the Commissioners and the parties, I
9 can do that, Bart.
10 MR. KLINE: I don't even frankly remember
11 which letter you're referring to. If you're going to bring
12 it in and use it as a part of the case --
13 MR. WOODBURY: If I could set the stage, on
14 April 1st, the parties had their only negotiating session in
15 which Idaho Power presented two rate alternatives to Rosebud
16 for consideration. This was a negotiating session which
17 lasted approximately 15 minutes by the party accounts. The
18 letter from you, Bart, to myself on April 2nd, the following
19 day, states that Rosebud categorically rejected Idaho Power
20 Company's proposals. Rosebud is unwilling to make any
21 proposal to Idaho Power Company. Idaho Power is hopeful
22 that Rosebud will reconsider its position and make a good
23 faith effort to continue negotiations by proposing purchase
24 prices and purchase arrangements that Rosebud would find
25 acceptable. It is unreasonable to expect that negotiations
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1 will be successful if they are totally unilateral. It is
2 unfair to require Idaho Power Company to bid against
3 itself.
4 COMMISSIONER MILLER: I think our record would
5 be clarified if that was made an exhibit, Mr. Woodbury.
6 MR. WOODBURY: All right, I'll do that. Can
7 we adjourn for five minutes while I make copies?
8 COMMISSIONER MILLER: Yes.
9 (Recess.)
10 COMMISSIONER MILLER: All right, we'll go back
11 on the record. Mr. Woodbury, we're with you and your
12 exhibit. Would you mark it for the record, please?
13 MR. WOODBURY: Yes, I have marked -- I haven't
14 marked, but I have distributed what I would like to be
15 marked as Staff Exhibit 110.
16 Q BY MR. WOODBURY: And, Mr. Faull, do you have
17 a copy of that?
18 A Yes, I do.
19 Q And does that reflect to be an April 2nd
20 letter from Mr. Kline to myself with a copy to Owen
21 Orndorff?
22 A Yes, it does.
23 Q And in reviewing that, did I accurately
24 reflect some of the content of that letter?
25 A Yes. The part you quoted starts on the first
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Wilder, Idaho 83676 Staff
1 page of the two-page letter, second paragraph from the
2 bottom and continues on through the second page.
3 MR. WOODBURY: Mr. Chairman, I'd ask that that
4 exhibit be identified.
5 COMMISSIONER MILLER: Exhibit 110 will be
6 marked.
7 (Staff Exhibit No. 110 was marked for
8 identification.)
9 Q BY MR. WOODBURY: Mr. Faull,
10 Commissioner Nelson inquired of you as to whether it's
11 reasonable to expect parties that have filed a complaint to
12 continue negotiating and you responded that it was. Did you
13 participate or sit in on early prehearing conferences in
14 this case?
15 A Yes, I did.
16 Q And do you recall a prehearing conference on
17 February 3rd following which the Commission issued a status
18 report reflecting that the parties, that the Commission
19 itself was not inclined to release Idaho Power from its
20 obligation to continue negotiating, that the parties had
21 agreed to continue?
22 A Yes, I do remember that.
23 Q And is your knowledge of, I guess, the interim
24 that the parties in fact did continue negotiating as late as
25 November 15 where a confidentiality agreement was executed
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Wilder, Idaho 83676 Staff
1 in an attempt to resolve, to see whether the matter could be
2 resolved?
3 A Yes, that is my memory.
4 Q I had, I guess, one question going back to the
5 April 2nd letter. Do you have an opinion as to whether it's
6 reasonable to request a QF to present avoided cost rates
7 that it would find acceptable?
8 A Unless the QF is privy to the details of
9 modeling of avoided cost rates, it's not reasonable and if
10 the QF in fact does that, it still seems a little
11 unreasonable, because if they use the same model and the
12 same assumptions, they get the same answers; so it seems
13 more reasonable that the Company would present that.
14 Q Are the rates to be based upon the avoided
15 costs of the utility or the project economics of the QF?
16 A Avoided costs are the costs that the utility
17 avoids and have nothing to do with the costs of the QF,
18 although the characteristics of the generating station may
19 have some slight influence on those costs.
20 MR. WOODBURY: Thank you. Mr. Chairman, I
21 have no further redirect.
22 COMMISSIONER MILLER: Mr. Faull, thank you for
23 your help.
24 (The witness left the stand.)
25 MR. WOODBURY: Staff has no further
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Wilder, Idaho 83676 Staff
1 witnesses.
2 COMMISSIONER MILLER: Mr. Kline, I think we're
3 ready for your witnesses.
4 MR. KLINE: All right, Idaho Power's first
5 witness is Jan Packwood.
6 Mr. Chairman, Mr. Packwood has prefiled both
7 direct and rebuttal testimony and it would be my intention
8 to spread both rebuttal and the direct testimony at this
9 time and make Mr. Packwood available for cross-examination
10 on both portions of his testimony at this time.
11 COMMISSIONER MILLER: All right, we'll proceed
12 in that manner.
13 MR. KLINE: Thank you.
14
15 JAN B. PACKWOOD,
16 produced as a witness at the instance of the Idaho Power
17 Company, having been first duly sworn, was examined and
18 testified as follows:
19
20 DIRECT EXAMINATION
21
22 BY MR. KLINE:
23 Q Mr. Packwood, would you please state your
24 name, business address and present position with Idaho Power
25 Company?
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CSB REPORTING PACKWOOD (Di)
Wilder, Idaho 83676 Idaho Power
1 A My name is Jan Packwood. My business address
2 is 1221 West Idaho. I'm a vice president with Idaho Power
3 Company.
4 Q And have you previously filed direct testimony
5 in this case?
6 A I have filed direct testimony in this case.
7 Q And as a part of your direct testimony, did
8 you also sponsor Exhibit 201?
9 A I had one exhibit, 201.
10 Q And with respect to your direct testimony,
11 Mr. Packwood, do you have any additions or corrections that
12 you need to make to either the direct testimony or
13 Exhibit 201?
14 A No, I do not.
15 Q And if I were to ask you the same questions
16 that are contained in your previously filed direct
17 testimony, if I asked you those questions today, would your
18 answers be the same?
19 A Yes, they would.
20 MR. KLINE: With that, Mr. Chairman, I would
21 request that Mr. Packwood's direct testimony be spread on
22 the record as if read.
23 COMMISSIONER MILLER: In the absence of
24 objection, it's so ordered.
25 (The following prefiled testimony of Mr. Jan
Packwood is spread upon the record.)
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CSB REPORTING PACKWOOD (Di)
Wilder, Idaho 83676 Idaho Power
1 Q Please state your name, business address and
2 present position with Idaho Power Company (Idaho Power).
3 A My name is Jan B. Packwood and my business
4 address is 1221 W. Idaho Street, Boise, Idaho. I am Vice
5 President of Power Supply for Idaho Power Company.
6 Q Have you included a statement of your
7 qualifications with your testimony?
8 A Yes. A statement of my qualifications is
9 attached as Appendix A to my testimony.
10 Q What is the scope of your testimony in this
11 proceeding?
12 A I will address Idaho Power's efforts to comply
13 with the Commission's policy of utilizing good faith
14 negotiations to establish the rates, terms and conditions
15 for the acquisition of power from Rosebud Enterprises Inc.'s
16 ("Rosebud's") Mountain Home Project. In that regard, I will
17 address Idaho Power Company's concerns associated with the
18 acquisition of energy from the Mountain Home Project in
19 advance of the Company's need for any new supply-side
20 resources.
21 Q Please describe your understanding of the
22 procedures Idaho electric utilities must follow in acquiring
23 the output of PURPA Qualifying Facilities ("QFs") larger
24 than 10 MW.
25 A From the inception of the implementation of
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Packwood, Di
Idaho Power Company
1 PURPA in Idaho, the Commission has drawn a distinction
2 between the procedures
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1 utilities must follow when acquiring the output of QF
2 projects with a capacity smaller than 10 MW and the
3 procedures to be followed when dealing with QF projects
4 larger than 10 MW. Projects smaller than 10 MW receive
5 relatively standard contracts containing predetermined
6 "published rates". The rates and contract terms and
7 conditions for large projects like Rosebud's 40 MW Mountain
8 Home project are to be determined by individual
9 negotiations. In addition, Commission approval of
10 negotiated contracts with QF projects larger than 10 MW
11 require a special hearing before the Commission. The
12 rationale supporting the special negotiation and special
13 approval requirements for large projects derives from the
14 fact that large QF projects are likely to have a material
15 affect on utilities and their customers on a planning,
16 operating and revenue requirement basis. For example, Idaho
17 Power's estimated total revenue requirement for the Mountain
18 Home Project based on a non-dispatchable 25-year contract at
19 the purchase rates contained in the Meridian Generating
20 Company Firm Energy Sales Agreement (which Rosebud
21 apparently believes it is entitled to receive) will be more
22 than three quarters of a billion dollars. If the Commission
23 concurs with Rosebud's additional demand that Rosebud is
24 entitled to a 35-year contract, the Company estimates that
25 the total revenue requirement for a 35-year contract would
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Packwood, Di
Idaho Power Company
1 exceed one and a quarter billion dollars. If for no other
2 reason, revenue requirements of this magnitude support the
3 Commission's decision to require individual negotiation of
4 rates and contract terms for the acquisition of large QF
5 resources.
6 Q Were the rates Idaho Power offered to Rosebud
7 developed in a manner consistent with the Commission's
8 policies for negotiating large QF purchase rates?
9 A My review indicates that the offered rates are
10 consistent with the Commission's statements and orders
11 addressing the "ground rules" for rate negotiations between
12 large QFs and utilities.
13 Q Could you generally describe how the rates
14 proposed by Idaho Power to Rosebud were developed?
15 A Dr. Willmorth, in his testimony, discusses the
16 specifics of the development of the rates that were offered
17 to Rosebud. In general, to determine the value that could
18 be attributed to the acquisition of the Mountain Home
19 project, Idaho Power utilized its 1993 Integrated Resource
20 Plan ("IRP") to determine future system costs that could be
21 avoided by the acquisition of resources in the time frame
22 requested by Rosebud. In analyzing future resource options,
23 Idaho Power's IRP assumes that Idaho Power will acquire the
24 most cost-effective resources first. The IRP shows that
25 Idaho Power's next resource acquisitions should be
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Packwood, Di
Idaho Power Company
1 conservation and system efficiency improvements. After that,
2 with the possible exception of hydro upgrade projects which
3 the Commission determines should be done in the public
4 interest in connection with FERC relicensing of existing
5 facilities, the preferred resource additions are
6 economically dispatchable resources providing low-cost
7 capacity for those relatively infrequent times during peak
8 load periods and low hydro periods when Idaho Power's base
9 loaded resources and off-system purchases are not sufficient
10 to meet load carrying and reserve requirements. The
11 analysis Idaho Power performed shows that acquisition of the
12 Rosebud project will only allow Idaho Power and its
13 ratepayers to avoid the capacity and energy costs of
14 dispatchable resources expected to operate at relatively low
15 capacity factors to meet system load requirements, primarily
16 during times of high loads or low water conditions.
17 Q In developing the rates that were offered to
18 Rosebud, did Idaho Power utilize the rates and rate
19 structure of the published rates for QFs smaller than 10 MW
20 as a starting point?
21 A Yes. First of all, the unadjusted published
22 rates served as an upper limit reference point in developing
23 project-specific rates for the Mountain Home Project. Idaho
24 Power offered Rosebud three alternative rate proposals. The
25 alternative proposals included an "all-energy" rate
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Packwood, Di
Idaho Power Company
1 proposal, a separate capacity and energy rate proposal, and
2 a "combination" rate proposal. Because of the large size
3 and dispatchability of the Mountain Home Project and
4 because the published rates contain only "all-energy" rates,
5 it was necessary to vary from the published rates to develop
6 the various project-specific rates proposed to Rosebud. To
7 the extent reasonably possible, Idaho Power used the
8 published rates as a starting point for the development of
9 the various Project-specific rates proposed to Rosebud.
10 Q Do the rates that were offered to Rosebud
11 consider the effect of the Mountain Home Project on Idaho
12 Power's load-resource balance?
13 A Yes. One of the primary considerations in the
14 development of the rates offered to Rosebud was the impact
15 of the Mountain Home Project on Idaho Power's load-resource
16 balance. As Dr. Willmorth indicates in his testimony, the
17 value to Idaho Power of acquiring the Mountain Home Project
18 was specifically assessed based on the Mountain Home
19 Project's ability to cost-effectively satisfy Idaho Power
20 loads in the future. This load-resource analysis was
21 performed by Dr. Willmorth with the goal of ensuring that
22 Idaho Power's customers would be indifferent as to whether
23 Idaho Power acquired Rosebud's Project or went ahead with
24 the least-cost resource plan described in the IRP.
25 Q Do the rates that were offered to Rosebud
530
Packwood, Di
Idaho Power Company
1 consider the reliability and dispatchability of the Mountain
2 Home Project?
3 A To the extent possible, yes. Reliability is
4 determined by numerous factors including design,
5 construction quality, fuel supply and the ability to comply
6 with various environmental and other siting permits. It is
7 my understanding that Rosebud has not obtained nor even
8 applied for any of the numerous permits it will need to
9 construct and operate the Mountain Home Project. It is my
10 further understanding that Rosebud has not secured a firm
11 fuel supply for the Mountain Home Project. As a result, it
12 is very difficult to assess at this stage just how reliable
13 the Mountain Home Project will be. As to dispatchability,
14 despite repeated requests, Rosebud has never advised Idaho
15 Power as to the extent of any dispatchability Rosebud was
16 willing to provide. When Idaho Power offered rates based on
17 full dispatchability, Rosebud summarily rejected them and
18 terminated negotiations.
19 Q Has Idaho Power ever negotiated these various
20 issues with Rosebud?
21 A No. The Company has not had an opportunity
22 because negotiations were terminated by Rosebud. In
23 addition, the filing of Rosebud's complaint alleging bad
24 faith on the part of Idaho Power has certainly had a
25 chilling effect on further negotiations.
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Packwood, Di
Idaho Power Company
1 Q Why have Idaho Power and Rosebud reached an
2 impasse in negotiations relating to the Mountain Home Project?
3 A Idaho Power's negotiating team reports
4 directly to me on a
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Idaho Power Company
1 regular basis regarding the status of all QF contract
2 negotiations. Based on the reports I received on the
3 Rosebud negotiations and on my review of the correspondence
4 between Idaho Power and Rosebud, I believe that the primary
5 source of the impasse is Rosebud's position that it is not
6 legally obligated to negotiate except within narrow
7 parameters of its choosing. Rosebud's position in this
8 regard can be traced to its interpretation of the language
9 contained in several Commission Orders which discuss the
10 less than 10 MW published rates as being the "starting
11 point" for negotiations. It seems to me that Rosebud views
12 the "starting point" to also be the ending point.
13 It is my opinion Rosebud does not intend to negotiate
14 with Idaho Power in any meaningful way unless it obtains a
15 Commission Order imposing negotiation parameters that
16 Rosebud finds acceptable.
17 Q Has Idaho Power attempted to negotiate in a
18 manner consistent with the Commission "starting point"
19 guidelines?
20 A Yes. Idaho Power has also tried to negotiate
21 with Rosebud in a manner consistent with the Commission's
22 statements contained in the Notice of Status issued in this
23 case on February 19, 1993. Consistent with the Notice of
24 Status, Idaho Power has operated on the assumption that the
25 Commission expects both Idaho Power and Rosebud to remain
flexible and to work to agree on
533
Packwood, Di
Idaho Power Company
1 reasonable assumptions on which to base energy and capacity
2 payments for the Mountain Home Project.
3 In developing the rates the Company offered to Rosebud,
4 the Company did its best to take into consideration all of
5 the individual considerations such as losses, reliability,
6 and load and resource balance mentioned in the various
7 Commission statements and Orders relating to negotiations
8 with QFs larger than 10 MW.
9 Q Please describe the negotiations that have
10 taken place so far.
11 A It is my understanding that Idaho Power was
12 originally contacted by Rosebud regarding the Mountain Home
13 project in the fall of 1992. The correspondence following
14 that initial contact dealt mainly with obtaining information
15 regarding the permitting status and operating
16 characteristics of the Mountain Home Project. In its
17 correspondence during this period, Rosebud periodically
18 demanded that Idaho Power offer Rosebud a 35 year contract
19 for the purchase of the Mountain Home Project generation.
20 On December 14, 1992, Rosebud filed a complaint against
21 Idaho Power at the Commission. In February of 1993, the
22 Commission held a prehearing conference, and on February 19,
23 1993, the Commission issued a Notice of Status which
24 requested that the parties make a good faith effort to see
25 if a negotiated resolution to their dispute could be
achieved. On April 1, 1993, Idaho
534
Packwood, Di
Idaho Power Company
1 Power and Rosebud conducted the first and only face-to-face
2 negotiating session. At that time, Idaho Power presented
3 two proposals for purchasing power from the Mountain Home
4 project. The April 1 meeting lasted approximately 15
5 minutes. It is my understanding that Rosebud categorically
6 rejected both Idaho Power proposals because they did not
7 include the rates the Commission has approved for QFs
8 smaller than 10 MW. Rosebud further objected to Idaho
9 Power's proposal that the output of the Mountain Home
10 project be purchased as a dispatchable resource. In
11 response to Idaho Power's inquiries as to alternative
12 proposals Rosebud was willing to make, Rosebud responded
13 that it had no obligation to make any proposals regarding
14 purchase rates. Rosebud indicated that it was Idaho Power's
15 obligation to offer rates consistent with the rates for QFs
16 smaller than 10 MW. At the conclusion of the discussions,
17 Idaho Power committed to provide Rosebud with an alternative
18 proposal for purchase of the Project's output on a
19 dispatchable basis that would provide the project with
20 guaranteed revenues beginning in 1998. On April 16, 1993,
21 Idaho Power provided Rosebud with a third alternative rate
22 proposal. Idaho Power's three proposals are attached as
23 Exhibits to Dr. Willmorth's testimony. Subsequently,
24 Rosebud responded to Idaho Power's proposals by demanding
25 that Idaho Power agree to purchase the Mountain Home Project's
535
Packwood, Di
Idaho Power Company
1 output at the rates contained in the Meridian Generating
2 Company Firm Energy Sales Agreement ("MGC Agreement").
3 Q Is Rosebud still seeking the MGC Agreement
4 rate?
5 A Yes. In response to Idaho Power's production
6 request numbers 29 and 30, Rosebud indicated that Idaho
7 Power is obligated to contract with Rosebud at the rates
8 contained in the MGC Agreement. A copy of Rosebud's
9 responses to the production requests are attached as Exhibit
10 201.
11 Q Is Rosebud's demand for the MGC Agreement
12 rates reasonable?
13 A No it is not. The rates contained in the MGC
14 Agreement were negotiated in light of the unique facts and
15 conditions presented by the Meridian Project and associated
16 with the conclusion of the Afton litigation. The Commission
17 approved the MGC Agreement in Order No. 24805 in Case No.
18 IPC-E-92-4 and noted in that Order that the MGC contract
19 rate was the result of a negotiated settlement including
20 settlement of pending court litigation. Order No. 24805
21 also pointed out that the unique facts relating to the
22 ongoing Afton litigation merited the unique rates, terms and
23 conditions contained in the Meridian agreement.
24 Q Rosebud witnesses Slaughter and Roberts, and
25 IEPI witness Mooney all comment that utilities prefer to
536
Packwood, Di
Idaho Power Company
1 construct their own resources rather than acquire resources
2 from non-utility generators. Can you comment on their
3 perception of utility
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Idaho Power Company
1 preference?
2 A Because of FERC licensing requirements and the
3 desire to retain Snake River hydro-power for use in Idaho,
4 the Company has obtained Commission approval to upgrade some
5 hydro plants ahead of the time when they will actually be
6 needed to carry system loads. That early development has
7 been recognized by the Commission as nondeferrable. This
8 "nondeferrable status" has been unsettling to the QF
9 industry because whenever a Company project receives this
10 determination, future QF projects are priced lower and are
11 pushed further out into the future resource stack. As a
12 result, some QF developers perceive that by conferring
13 non-deferrable status on Idaho Power resources the
14 Commission and Idaho Power have acted inequitably with
15 respect to QF projects. Rosebud's arguments in Idaho
16 Power's Twin Falls upgrade case are the most recent example
17 of one QF developer's perception that Idaho Power prefers to
18 develop its own resources in lieu of buying power from QFs.
19 It may take a long time to convince QF developers that Idaho
20 Power is genuinely willing to evaluate its proposed
21 resources using the same criteria it uses to evaluate QF
22 resources.
23 Q How can QF developers and Idaho Power's
24 customers be assured that larger QF projects will be
25 evaluated on the same basis as other Idaho Power resources?
538
Packwood, Di
Idaho Power Company
1 A The first step is outlined in Commission Staff
2 Exhibit 108. Exhibit 108 is Idaho Power's position paper
3 addressing the acquisition of supply side resources. In
4 Exhibit 108, Idaho Power discusses its commitment to a
5 consistent approach to resource development. In Exhibit
6 108, Idaho Power also describes its willingness to address
7 the cessation of development of the A.J. Wiley Project and
8 the reconsideration of planned FERC relicense upgrades for
9 the Shoshone Falls and Upper Salmon hydro plants.
10 The second step is to continue to move toward the use of
11 the IRP process as the primary vehicle for assessing the
12 value of all potential resource acquisitions. As Dr.
13 Willmorth describes in his testimony, in developing the
14 rates offered to Rosebud, Idaho Power utilized its IRP
15 planning tools to determine a specific value for the
16 Mountain Home Project. As a result, the value of the
17 Mountain Home Project was assessed on the same basis as all
18 other resources in Idaho Power's resource portfolio.
19 Assessing all resources in this manner will assure that
20 Idaho Power's customers will be indifferent as to whether
21 Idaho Power acquires resources by developing them itself or
22 buying them from QF developers. In addition, use of the IRP
23 to evaluate resources will tend to reduce, if not eliminate,
24 premature long-term financial commitments to resources. Use
25 of the IRP process to evaluate
539
Packwood, Di
Idaho Power Company
1 resources will also ensure that the evaluation criteria will
2 be open to public scrutiny and discussion. Resource
3 decisions should be made in a forum in which all interested
4 parties, not just utilities and QF developers, are
5 encouraged to participate. The IRP process is such a forum.
6 In my judgement, to accomplish all of these goals, future
7 resource acquisition issues, including QF acquisitions,
8 should be addressed in the context of the integrated
9 resource planning process.
10 Q Previously in your testimony you indicated
11 that Idaho Power is concerned about the risks associated
12 with acquisitions of large supply-side resources prior to
13 need. Can you elaborate?
14 A Yes. The risks associated with acquiring
15 larger resources before they are needed is becoming an
16 increasing concern to Idaho Power. This concern is equally
17 applicable to Company resources as well a QF resources. The
18 risks are exacerbated by potential increased competition at
19 all levels of the electric utility industry. Such increased
20 competition may include retail access which has the
21 potential to greatly effect future utility operations.
22 Q What is "retail access"?
23 A Retail access refers to a regulatory
24 environment where some or possibly all electric customers
25 have access to alternative sources of electric power and are
540
Packwood, Di
Idaho Power Company
1 not obligated to purchase their electricity from the
2 electric utility holding the certificate for their
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Packwood, Di
Idaho Power Company
1 service area. If retail access becomes a reality, it would
2 obviously have significant impacts on regulated electric
3 utilities. It would also have effects on the regulatory
4 commissions which have jurisdiction over those regulated
5 electric utilities.
6 Q How does Idaho Power Company propose to
7 respond to these potential changes in the utility industry?
8 A The first step is to identify the potential
9 issues. After that we can formulate appropriate responses.
10 To that end, Idaho Power has retained the NorthBridge Group
11 as a part of Idaho Power's long-term strategic planning
12 effort. Mr. Tom Parkinson from NorthBridge has filed
13 testimony in this case describing some of the changes that
14 are already occurring in other parts of the country. Idaho
15 Power and its customers are fortunate that Idaho Power is
16 one of the nation's lowest cost providers of electric
17 service. As a result, retail access may be less of an
18 immediate issue with Idaho Power than with other utilities.
19 That gives Idaho Power, the Commission and our customers the
20 opportunity to observe and learn from other areas of the
21 country where the pressure for retail access is likely to
22 occur first. That is not say, that we should not be
23 responding to these potential changes right now. These
24 changes may come rapidly. As a result, Idaho Power should
25 not make any unnecessary long-term fixed rate commitments to
acquire supply-side resources due to the
542
Packwood, Di
Idaho Power Company
1 potentially adverse financial impacts that such long-term
2 commitments could impose on the Company and its customers.
3 Given the changes which may come to the utility industry,
4 Idaho Power should adopt policies regarding resource
5 acquisition that will allow the Company to remain as
6 flexible and cost competitive as possible while we sort out
7 the ramifications of the 1992 Energy Policy Act and the
8 associated regulatory changes.
9 Q Does that conclude your prepared testimony?
10 A Yes, it does.
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543
Packwood, Di
Idaho Power Company
1 (The following proceedings were had in open
2 hearing.)
3
4 DIRECT EXAMINATION
5
6 BY MR. KLINE: (Continued)
7 Q Now, Mr. Packwood, have you also filed in this
8 case rebuttal testimony?
9 A Yes, I did.
10 Q And as a part of that rebuttal testimony, did
11 you also file Exhibit 216?
12 A There was one exhibit and it is labeled 216,
13 yes.
14 Q Thank you. With respect to your rebuttal
15 testimony, Mr. Packwood, do you have any additions or
16 corrections that you need to make either to the testimony
17 itself or Exhibit 216?
18 A No.
19 Q And, Mr. Packwood, if today I were to ask you
20 the questions that are contained in your rebuttal testimony,
21 would your answers be the same?
22 A Yes, they would.
23 MR. KLINE: With that, Mr. Chairman I would
24 request that Mr. Packwood's rebuttal testimony also be
25 spread on the record.
544
CSB REPORTING PACKWOOD (Di)
Wilder, Idaho 83676 Idaho Power
1 COMMISSIONER MILLER: So ordered, and we'll
2 marks Exhibits 201 and 216.
3 (The following prefiled rebuttal testimony of
4 Mr. Jan Packwood is spread upon the record.)
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545
CSB REPORTING PACKWOOD (Di)
Wilder, Idaho 83676 Idaho Power
1 Q Please state your name, business address and
2 present position with Idaho Power Company (Idaho Power).
3 A My name is Jan B. Packwood and my business
4 address is 1221 W. Idaho Street, Boise, Idaho. I am Vice
5 President of Power Supply for Idaho Power Company.
6 Q Have you previously provided direct testimony
7 in this case?
8 A Yes.
9 Q Why are you presenting rebuttal testimony in
10 addition to your direct testimony?
11 A On December 15, 1993, Commission Staff Witness
12 Faull revised portions of his prefiled direct testimony and
13 introduced a new exhibit, which was identified as Exhibit
14 109. The revised testimony and Exhibit 109 were submitted
15 after my direct testimony was prefiled.
16 Q Have you now had an opportunity to review
17 Mr. Faull's revised direct testimony and Exhibit 109?
18 A Yes I have.
19 Q Do you agree with Mr. Faull's recommendations
20 as outlined in his revised testimony?
21 A No. Mr. Faull recommends that the Commission
22 adopt a new policy entitling developers of proposed QF
23 projects larger than 10 MW to the same rates, terms and
24 conditions contained in prior Commission approved contracts
25 for QF projects larger than 10 MW. This entitlement would
546
Packwood, Re-Di-Reb
Idaho Power Company
1 apparently exist regardless of any difference in operating
2 characteristics between QF projects and regardless of the
3 fact that the approved contract for the first QF project was
4 individually negotiated. I believe Mr. Faull's
5 recommendation is inconsistent with the Commission's
6 expressed intent that purchases of power from QF projects
7 larger than 10 MW are to be individually negotiated based on
8 the specific characteristics of the proposed large QF resource.
9 Q In his revised testimony, Mr. Faull finds that
10 the transmittal of the May 25, 1993 letter (Exhibit 109)
11 from Rosebud's attorney to Idaho Power's attorney "perfected"
12 Rosebud's right to a contract for the Mountain Home project
13 at the rates, terms and conditions contained in the Firm
14 Energy Sales Agreement for the Meridian Generating Project.
15 What is the Meridian Generating Project?
16 A The Meridian Generating Project is a 54 MW
17 cogeneration facility to be located at 1505 East Pine
18 Avenue, Meridian, Idaho. The Agreement for the Meridian
19 Project was negotiated as a part of the comprehensive
20 settlement of various lawsuits and other disputes arising
21 out of the old Power Sales Contract between Idaho Power and
22 Afton Energy, Inc.
23 Q Is it your understanding that by approving the
24 Meridian Project Agreement, the Commission intended to make
25 the Meridian Project Agreement a pattern for subsequent
contracts for large
547
Packwood, Re-Di-Reb
Idaho Power Company
1 QF projects?
2 A No. In fact, the Commission specifically
3 rejected that position when it reviewed and approved the
4 Meridian Project Agreement.
5 Q How did the Commission address the question of
6 the creation of a "pattern contract" in the Meridian Project
7 Agreement approval proceeding?
8 A The Commission reviewed and approved the
9 Meridian Project Agreement by Order No. 24805 in Case No.
10 IPC-E-92-4. Exhibit 216 is a copy of Order No. 24805. In
11 the Meridian Project Agreement approval proceeding, the
12 Independent Energy Producers of Idaho intervened and urged
13 the Commission to adopt several generic policies for large
14 QF projects based on the rates, terms and conditions in the
15 Meridian Project Agreement. The Commission refused to do
16 so. As the Commission stated on page 13 of Order No. 24805:
17 "In this case we consider the results of a
18 Negotiated settlement. The unique facts
19 presented (i.e. the separate energy and
20 capacity rates, the operational history and
21 the protracted litigation of Afton) merit the
22 unique treatment proposed. This Order is
23 specific to the facts before us and should not
24 be read or interpreted as having greater
25
548
Packwood, Re-Di-Reb
Idaho Power Company
1 policy implications...The submitted rate is a
2 Negotiated rate. As a stand-alone rate, it is
3 reasonable. On the facts as presented, we
4 know of no adjustment that is either required
5 or supportable. The Afton contract and
6 resultant litigation has been costly. The
7 Continuing cost of capacity and energy under
8 the Afton contract greatly exceeds current
9 avoided cost and the comparable cost of
10 replacement power. There is little question
11 that termination of the Afton contract is in
12 the best interest of the Company and its
13 ratepayers."
14 In my opinion, Staff Witness Faull's conclusion that the
15 Mountain Home project is entitled to receive the same rates,
16 terms and conditions negotiated by the parties in the
17 Meridian Generating Agreement, is in direct conflict with
18 the Commission's Order No. 24805.
19 Q In your view, has Rosebud provided evidence
20 that it is "ready, willing and able" to enter into a power
21 Purchase Agreement for the 40 MW Mountain Home Project?
22 A No. For QF projects larger than 10 MW, good
23 faith negotiation forms the basis of the "ready, willing and
24 able" analysis.
25
549
Packwood, Re-Di-Reb
Idaho Power Company
1 Rosebud has filed a Complaint alleging that Idaho Power has
2 failed to negotiate in good faith. To the contrary, the
3 facts in the record in this case demonstrate that it is
4 Rosebud who has refused to negotiate. Idaho Power has
5 provided Rosebud with several rate alternatives. Those rate
6 alternatives were developed on the basis of the
7 project-specific value of the Mountain Home Project using
8 tools developed by Idaho Power in response to the
9 Commission's required least-cost resource planning process.
10 Rosebud has rejected Idaho Power's offers and bases its
11 rejection on its belief that it is entitled to the published
12 rates for projects smaller than 10 MW. In my opinion,
13 before Rosebud can claim it is "ready, willing and able" to
14 contract for the 40 MW Mountain Home Project, Rosebud must
15 make a good faith effort to negotiate an agreement that
16 accommodates both the unique characteristics of the Mountain
17 Home Project and Idaho Power's need for resources in the
18 1998-2000 time period. Rosebud's "offer" to accept the
19 standard rates for small QF projects or to accept the rates,
20 terms and conditions from another, non-comparable QF
21 Agreement, do not constitute good faith negotiations on
22 project-specific issues.
23 Q If the Commission is unwilling to require
24 Idaho Power to offer the Meridian Project Agreement rates,
25 terms and conditions to Rosebud for the Mountain Home
Project, how should the
550
Packwood, Re-Di-Reb
Idaho Power Company
1 Commission proceed in this case?
2 A Rosebud's complaint alleges that Idaho Power
3 has failed to negotiate in good faith because Idaho Power
4 has refused to offer Rosebud the approved rates for projects
5 smaller than 10 MW. If the Commission find that Rosebud has
6 not demonstrated that Idaho Power has negotiated in bad
7 faith, then the Commission should dismiss Rosebud's
8 Complaint and order Rosebud to undertake additional good
9 faith negotiations with Idaho Power. The goal of those
10 negotiations would be the development of project-specific
11 rates, terms and conditions for the purchase of the output
12 of the Mountain Home Project.
13 Q Does that complete your rebuttal testimony?
14 A Yes, it does.
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Packwood, Re-Di-Reb
Idaho Power Company
1 (The following proceedings were had in open
2 hearing.)
3 MR. KLINE: With that, Mr. Chairman, I believe
4 Mr. Packwood is available for cross-examination.
5 COMMISSIONER MILLER: All right, thank you.
6 Mr. Burleigh, do you have questions?
7 MR. BURLEIGH: No, I do not.
8 COMMISSIONER MILLER: Mr. Fell.
9 MR. FELL: No questions.
10 COMMISSIONER MILLER: Mr. Richardson.
11 MR. RICHARDSON: No questions, Mr. Chairman.
12 COMMISSIONER MILLER: Mr. Woodbury.
13 MR. WOODBURY: Thank you, Mr. Chairman.
14
15 CROSS-EXAMINATION
16
17 BY MR. WOODBURY:
18 Q Mr. Packwood, your position with the Company
19 is vice president of power supply?
20 A That's correct.
21 Q And does that give you general responsibility
22 for all QF purchases?
23 A Yes, it does.
24 Q And how long have you held that position?
25 A Since 1988.
552
CSB REPORTING PACKWOOD (X)
Wilder, Idaho 83676 Idaho Power
1 Q You were in that position and had those
2 responsibilities when the Commission last revisited avoided
3 costs in the U-1500-170 case?
4 A Yes, I was.
5 Q And do you routinely review all Commission
6 orders regarding PURPA and QF?
7 A No, I don't.
8 Q And is there someone in your employ that
9 performs this duty for you?
10 A Yes, they do.
11 Q Who would that be?
12 A Our counsel here today and then we have a
13 staff who's dedicated to customer generation. John Ferree
14 is the gentleman that reviews most of these orders along
15 with Bart Kline.
16 Q And as part of the Company's internal process
17 for contracting with QFs, do you play a role in that
18 process?
19 A Yes, I do. I review the contracts and sign
20 the majority of them.
21 Q Do you play any role in the negotiation
22 process?
23 A I have not participated directly in any
24 negotiation with a developer.
25 Q Are you provided with periodic reports as to
553
CSB REPORTING PACKWOOD (X)
Wilder, Idaho 83676 Idaho Power
1 the status of negotiation with QFs with whom the Company is
2 negotiating?
3 A We discuss it as negotiations proceed in a
4 timely manner, particularly if the employees involved with
5 negotiation need direction or want to talk about issues.
6 Q With respect to the matter under consideration
7 today, have you reviewed all of party documentation and
8 correspondence with respect to the Mountain Home proposed
9 Rosebud facility?
10 A I highly doubt it. I reviewed as many
11 documents as I could, but I couldn't say with any certainty
12 that I saw them all.
13 Q Do you know whether the Company keeps a
14 separate correspondence file with respect to back and forth
15 negotiation between Company personnel and Rosebud?
16 A I believe we do.
17 Q And have you reviewed that?
18 A I've reviewed a number of letters that have
19 been exchanged between the Company and Rosebud. Whether
20 I've reviewed them all, I don't know.
21 Q Do you know when the first contact was made
22 with Idaho Power Company with respect to a proposed project
23 from Rosebud?
24 A I know when the paper trail started. I'm not
25 sure when the first verbal contact was made.
554
CSB REPORTING PACKWOOD (X)
Wilder, Idaho 83676 Idaho Power
1 Q And when did that start?
2 A There was an Idaho Power letter written
3 March 26th to Mr. Orndorff that I believe to be, that would
4 be March 26th, 1992, which I believe to be the first letter.
5 Q In a complaint case before the Commission with
6 respect to a QF's entitlement to a contract and avoided cost
7 rates, how would you expect the Commission to assess what
8 progress had been made, if any, by way of negotiation?
9 A Based on the record and representations in
10 this proceeding as to what had occurred.
11 Q Is it your understanding that as far as
12 face-to-face confrontations outside of the Hearing Room that
13 the parties only had the April 1st meeting?
14 A I'm familiar with the April 1st meeting.
15 Q 1993?
16 A Yes. I'm also aware of numerous telephone
17 calls. I don't know whether other face-to-face meetings
18 took place.
19 Q I guess there was perhaps some of the
20 discovery that took place over in Owen's office. Do you
21 know whether the Company keeps a record of all face-to-face
22 meetings?
23 A I don't know if there is a phone log or a
24 meeting log that goes along with the correspondence file.
25 I've not reviewed it personally.
555
CSB REPORTING PACKWOOD (X)
Wilder, Idaho 83676 Idaho Power
1 Q Is it a matter of policy in your negotiation
2 staff, including Mr. Ferree, to record the substance of all
3 telephone conversations?
4 A In those occasions where I've asked questions
5 of them, it appears they maintain a pretty thorough record
6 of discussions and the interactions they have.
7 Q And was such a record provided to you for your
8 review?
9 A No, it was not.
10 Q Did you have the opportunity to review the
11 testimony of Mr. Faull, including his exhibits?
12 A Yes, I did.
13 Q Would it be fair to characterize the orders
14 that Mr. Faull has included in his exhibits as establishing
15 methodology for QFs larger than 10 megawatts, the
16 Commission's approved methodology?
17 A I guess I don't know the answer to that
18 question.
19 Q Does the Company in this case perceive that
20 it's asking for a change in Commission policy regarding the
21 calculation of avoided cost rates for QFs larger than 10
22 megawatts?
23 A We're not asking for a change in a policy
24 because the policy is not well understood. What we have
25 here is a specific case in which we have attempted to comply
556
CSB REPORTING PACKWOOD (X)
Wilder, Idaho 83676 Idaho Power
1 with what we believe the ground rules to be in negotiating
2 with a project larger than 10 megawatts.
3 Q You state on Page 3, Line 8, that the offered
4 rates are consistent with the Commission's statements and
5 orders addressing the ground rules for rate negotiations
6 between large QFs and utilities. Specifically, what
7 statements and orders are you attributing to the Commission?
8 A The primary one that I find useful myself
9 comes from the 170 case and it says, and I believe I'm
10 quoting directly --
11 Q And what Order number is that?
12 A That would be Order No. 22636.
13 Q Okay.
14 A And the quote is, "Large projects shall be
15 subject to adjustments to the published rates to reflect
16 their effect on the utility's load/resource balance."
17 There's also language in Order 25227 of this case that says,
18 "Both the Commission and the utilities that we regulate
19 have very little history and experience with PURPA projects
20 greater than 10 megawatts. As our experience with these
21 projects greater than 10 megawatts increases, so too will
22 this particular area of the law continue to evolve."
23 Q You're then familiar with the Commission's
24 orders and notices in this particular case?
25 A I've reviewed them three or four times.
557
CSB REPORTING PACKWOOD (X)
Wilder, Idaho 83676 Idaho Power
1 Q Regarding the development of rates, you state
2 on Page 3, perhaps around Line 16, that Idaho Power utilized
3 its 1993 integrated resource plan to determine future system
4 costs that could be avoided. Is utilization of the
5 Company's integrated resource plan part of the methodology
6 for determining avoided costs for QFs smaller than 10
7 megawatts?
8 A No, it is not.
9 Q Are there parts to your integrated resource
10 plan that have been specifically rejected by the Commission
11 in the U-1500-170 case as being inappropriate for avoided
12 cost methodology?
13 A The two I'm familiar with is how we treat our,
14 what I would call a, short-term firm off-system sale
15 contracts and how conservation is treated. There may be
16 other adjustments that I'm not as familiar with.
17 Q What was your role, if any, in preparation of
18 the integrated resource plan?
19 A Again, as the executive responsible for
20 resource planning. Dr. Willmorth who is a witness in this
21 proceeding reports to me and he has the primary
22 responsibility for putting together the resource plan,
23 publishing it.
24 Q Was there also a separate document that went
25 out, it was distributed at the Commission, some sort of a
558
CSB REPORTING PACKWOOD (X)
Wilder, Idaho 83676 Idaho Power
1 policy statement?
2 A We have, some people call it a white paper,
3 some people call it a green paper because of its cover which
4 was published early this fall as a position paper and I
5 believe is included in this record, I want to say
6 Exhibit 108 in somebody's testimony.
7 Q And did you have any role in the preparation
8 of that position paper?
9 A Had considerable role in the philosophical
10 discussions that led to the decision to develop that paper.
11 I was absent during most of the time that it was actually
12 flushed out by an internal group of employees assigned the
13 task. I've certainly seen what was published and reviewed
14 it several times.
15 Q You state on Page 4, Line 10, that as part of
16 Idaho Power's analysis in this case, the acquisition of the
17 Rosebud project will only allow Idaho Power and its
18 ratepayers to avoid the capacity and energy costs of
19 dispatchable resources expected to operate at relatively low
20 capacity factors to meet system load requirements, primarily
21 during times of high loads or low water conditions. Is that
22 what you modeled in order to determine the rates that you
23 offered to Rosebud?
24 A No, that's a conclusion of our review of what
25 really is avoided by a project such as Rosebud.
559
CSB REPORTING PACKWOOD (X)
Wilder, Idaho 83676 Idaho Power
1 Q Does the Company believe that you can attract
2 a reasonable bid for the dispatchable resource you say you
3 need with the rates that you offered to Rosebud?
4 A The Company is not attempting to attract that
5 resource at this point in time. The rates that were
6 developed in this case reflects its value if it were to be
7 contracted with at this point in time.
8 Q Is such a resource, a dispatchable resource,
9 the next generating resource that the Company proposes to
10 construct?
11 A Our planning process indicates that when
12 resources are needed, they will be of a peaking-type
13 resource, which means a relatively low capacity factor as
14 opposed to a base load resource that supplies primarily
15 energy.
16 Q Can you explain to me how Staff is to view or
17 how the Commission is to view the integrated resource plan
18 and in what context in this particular case?
19 A I'm not sure I can tell you how you should
20 view it. I can discuss how we view it or where we're trying
21 to go with the process.
22 Q The integrated resource plan was presented to
23 the Commission in March?
24 A On two occasions biennially, '91 and '93.
25 Q And in presenting that, does the Company -- I
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1 believe that the Commission acknowledged receipt of that as
2 opposed to approved?
3 A I believe that's true in both cases.
4 Q Does the Company believe that it has, that it
5 needs to have flexibility with its integrated resource plan?
6 A We certainly do.
7 Q Would you want this Commission to approve the
8 integrated resource plan for purposes of determining avoided
9 cost rates for projects larger than 10 megawatts?
10 A My personal belief is it's a very valuable
11 tool. We've entered into the resource planning process at
12 the Commission's or acting upon a Commission order to do
13 so. We've invested considerable time and effort in both
14 hours and dollars and modeling capability to try to develop
15 a modeling capability that represents accurately the power
16 supply situation and also represents accurately how we
17 operate the power system so it is being operated truly at a
18 least cost basis and that cost is as borne or seen through
19 the eye of the Idaho Power Company ratepayer; so it seems to
20 me that if we're going to put that level of effort into that
21 tool and that planning process, then we do need to decide
22 here with the Commission what role it ultimately is going to
23 play.
24 Q And what role do you believe that it should
25 play?
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1 A We believe it's a very powerful planning tool
2 that let's you make well-timed and intelligent decisions
3 about supply, both supply side and demand side resource
4 acquisitions.
5 Q So what does it provide us with? Does it
6 provide us with your next deficiency date?
7 A I guess I don't know what a next efficiency
8 date is.
9 Q Are you familiar with the methodology that the
10 Commission has established for load/resource?
11 A Do you mean to use the word deficiency as
12 opposed to efficiency or deficit date?
13 Q Deficit would have been more accurate, yes.
14 A I'm aware of what deficit dates are, yes.
15 Q Is that what you're proposing? Are you
16 indicating that as utilizing your integrated resource plan
17 we will come out with a deficit date which we could use for
18 avoided costs?
19 A It could be used that way. It will give you
20 that information.
21 Q And is that what you used to calculate the
22 first deficit date for the Rosebud negotiation?
23 A It's what we used to make adjustments to the
24 published avoided costs. The whole crux of the proceeding
25 to date has been everyone agrees that you negotiate for
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Wilder, Idaho 83676 Idaho Power
1 projects greater than 10 megawatts. Everyone agrees that
2 you start at the current published avoided costs, but no one
3 can suggest or agrees on what or how you adjust those
4 published avoided costs to come up with an appropriate rate
5 for a project such as Rosebud. We think this is an
6 appropriate way to do it and we think we've offered the only
7 reasonable way to do it and absent any other guidelines that
8 it's the process that should be used.
9 Q But it's not a process that the Commission has
10 explicitly approved?
11 A My belief is there is no explicitly approved
12 process. It was left to the Company to develop how these
13 adjustments should be made and what is the subject of this
14 review is how we chose to do that.
15 Q All right, you state that in developing the
16 rates for Rosebud, you utilized the rates and rate structure
17 of the published rates for QFs less than 10 megawatts as a
18 starting point.
19 A Are you reading from my testimony?
20 Q No. Would that be summarizing your testimony?
21 A Yes.
22 Q Actually, that was a question in your
23 testimony, Page 4.
24 A It sounded familiar, but you didn't reference
25 a line so I wasn't sure.
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Wilder, Idaho 83676 Idaho Power
1 Q The answer was the same. I haven't tripped
2 you up yet.
3 A That's always gratifying.
4 Q But you go on to qualify that and you state
5 that the unadjusted published rates served as an upper limit
6 reference point in developing project-specific rates for the
7 Mountain Home project.
8 A That's how it turned out.
9 Q So I'm wondering if that was your only -- you
10 only used the established rates for that reference point and
11 basically you went about building a rate structure and
12 methodology from scratch?
13 A I think that probably overstates it. Again,
14 what I believe we did was start with the rate we had,
15 determined what type adjustments should be made so that they
16 reflected their effect on our load/resource balance as
17 suggested in the 170 case and adjusted from there, but it
18 did not lend itself to a simple engineering debit and
19 credit-type adjustment that Staff witness Faull has
20 suggested. I honestly wouldn't know how you'd do it that
21 way.
22 Q Did you provide Rosebud or have the Company
23 prepare workpapers used to develop the rates?
24 A I'm not sure what we provided. I could find
25 evidence in the record of four different rate offerings to
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1 Rosebud, but I don't know how much support paper went with
2 the four.
3 Q I believe of record there are three. There
4 are three in the record, what is the fourth?
5 A The first one is a 20-year levelized rate that
6 accompanied the letter of March 26th and that is in
7 Exhibit A of the Complaint, and then there are three that
8 originated -- two in the April 1 meeting and then a third on
9 April 16th.
10 Q All right, thank you. You indicate that
11 because of the large size and dispatchability of the
12 Mountain Home project and because the published rates
13 contain all energy rates, it's necessary for the Company to
14 vary from the published rates. The dispatchability, does
15 the Company believe that it can require dispatchability of a
16 QF that's otherwise entitled under federal law to sell to
17 the Company?
18 A We certainly believe it's a subject for
19 negotiations with a project over 10 megawatts.
20 Q But it's nothing that the Company can require?
21 A No, it's what the Company needs and so if
22 there's going to be a mutual meeting of interests in a
23 negotiation it is what the Company seeks.
24 Q You state that to the extent reasonably
25 possible, Idaho Power used the published rates as a starting
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1 point, and you state that at Page 5, Line 4.
2 A Yes.
3 Q You've got three alternative rate proposals,
4 you've got an all energy rate proposal, a separate capacity
5 and energy proposal and then a combination, and did you use
6 the published rates as a starting point for any of those
7 alternatives?
8 A As far as I know, we used them for all those
9 alternatives. How the mechanics of the preparation of those
10 rates were actually done is the subject of Dr. Willmorth's
11 testimony. The rates, I believe, appear as his exhibits. I
12 don't have the knowledge of exactly how the adjustments were
13 made.
14 Q Is it your understanding that Dr. Willmorth's
15 testimony contains workpapers showing how those rates were
16 calculated?
17 A I don't recall workpapers as such in his
18 testimony.
19 Q So it would be very difficult to determine
20 exactly what the starting point was, we just know where you
21 wound up?
22 A Yes, you have our testimony as to how the
23 process took place.
24 Q On Page 5, starting about Line 22, you
25 indicate with respect to reliability of the proposed project
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1 that it's determined by numerous factors including design,
2 construction quality, fuel supply and the ability to comply
3 with various environmental and other siting permits, and
4 stating that, you say it's difficult to assess the
5 reliability of this project. Is that still your belief?
6 A Yes.
7 Q Is it your belief that all of those factors
8 need to be resolved prior to any contracting?
9 A No, they don't need to be resolved, but they
10 need to be addressed in a satisfactory resolution agreed to
11 by the two parties as to how we're going to handle them.
12 Q And have the parties to your knowledge
13 addressed those issues?
14 A To my knowledge, the parties never got past
15 price.
16 Q Isn't that where we started there on price
17 because, I mean, initially when this complaint was filed and
18 the initial prehearing conferences even through the status
19 report, Rosebud was wanting to obtain from the Company a
20 price in order to determine project viability?
21 A You have to kind of put that into a
22 chronological context.
23 Q Am I incorrect?
24 A You're blending inappropriately.
25 Q I'm blending inappropriately. Tell me where.
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CSB REPORTING PACKWOOD (X)
Wilder, Idaho 83676 Idaho Power
1 A There were eight letters that exchanged hands
2 in a period of nine months between March 26th and when the
3 complaint was filed on December 14th. Four of these letters
4 were from us, the first of which offered a rate. Four were
5 from the Rosebud project. In each case, the Rosebud project
6 rejected a rate, requested 35-year rates and demanded
7 coal-based avoided costs and threatened to file a
8 complaint. That was the context of the negotiations leading
9 up to the complaint. Terms and conditions never came to the
10 table.
11 Q With respect to the reliability, back in
12 September 30th of '92, a letter from Rosebud to Idaho Power
13 Company, do you have a correspondence file in front of you?
14 A I recall the letter.
15 Q Rosebud indicated that it would be willing to
16 match Idaho Power Company's average plant capacity factor at
17 Idaho Power Company's coal plants and have a bonus penalty
18 for deviations from Idaho Power Company's capacity factor.
19 Was this a reasonable offer with respect to reliability?
20 A It may have been and later on we agreed or
21 offered to pursue that in some detail with Rosebud, but it
22 misconstrued the reliability issue we had raised. We have
23 no quibble with circulating fluidized bed coal technology,
24 have every reason to believe it will operate reliably. Our
25 question is can this project be permitted, sited and built
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Wilder, Idaho 83676 Idaho Power
1 in Mountain Home, Idaho, and so it had more to do with
2 whether it would ever come on line, as to whether it would
3 operate reliably once on line.
4 Q The company in that letter, the company being
5 Rosebud, I'll say Rosebud, also indicated that its proposed
6 plant would be nearly identical to Rosebud's operating plant
7 in Colstrip, Montana, will burn petroleum coke pursuant to a
8 long-term contract.
9 A Right.
10 Q Does the Company, Idaho Power, what difficulty
11 does the Company have with this representation that the
12 plant that we propose to build will be almost nearly
13 identical to the plant that they have constructed in
14 Colstrip?
15 A None whatsoever.
16 Q Has Idaho Power visited, I know that you have
17 been invited on a number of occasions to visit the Colstrip
18 facility, have you done that?
19 A We were invited on one occasion and, no, we
20 haven't.
21 Q And then an October 2nd letter of '92 from
22 Idaho Power to Rosebud, you stated that it's necessary for
23 Idaho Power Company to determine the value of energy and
24 capacity to be produced by the project as a part of the
25 Company's least cost resource plan. You requested that
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Wilder, Idaho 83676 Idaho Power
1 Rosebud provide you with information regarding generation
2 characteristics, petroleum coke and the source of the fuel
3 and also with respect to dispatchability. Do you recall
4 receiving a response from Rosebud?
5 A Yes, we got a response on October 7th and it
6 had a couple of letters from potential petroleum coke
7 suppliers, talked about a site and provided a site location
8 drawing, discussed circulating fluidized bed technology a
9 little bit. That's all I recall.
10 Q Did it -- basically the information the
11 Company requested, was it provided?
12 A I think the information we were really seeking
13 was some indication on a more site-specific nature rather
14 than simply reproducing materials from other projects.
15 Q Do you find it necessary for a project that
16 has a track record, a development record, when it says it
17 wants to build a project just the like the one we have in
18 Colstrip to reinvent the wheel as far as hoops the Company
19 would expect a QF to jump through?
20 A Certainly not.
21 Q And then how was the information that they
22 provided you which was based on an operating plant
23 insufficient?
24 A Colstrip, Montana, is decidedly different than
25 Mountain Home, Idaho, and, again, as I previously indicated,
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1 our concerns are as much as to whether the facility could be
2 permitted, sited and built as to whether it would operate
3 efficiently. I take the technology on face value. It's
4 good technology.
5 Q So the technology is not an issue here?
6 A Not in my mind.
7 Q And whether or not the plant can be properly
8 sited and permitted is a risk that the QF would take?
9 A It is a risk of the developer and for anyone
10 who enters into a contract and relies on performance of that
11 contract.
12 Q And there was a similar risk involved in the
13 Meridian Generating contract?
14 A And it did exist and still does.
15 Q And how did the Company address that risk in
16 the Meridian contract?
17 A By discussing each of the items and
18 determining how we would handle site-specific risk.
19 Q And was there a significant performance bond
20 put up by Meridian?
21 A I think it would be viewed by them as
22 significant, not so much a bond as the contract provisions
23 for security payments.
24 Q It was not viewed by the Company as
25 significant?
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Wilder, Idaho 83676 Idaho Power
1 A I guess I don't have to make that judgment.
2 Q And do you remember what the amount was?
3 A Forty-three dollars per kW which would
4 translate to roughly a $2 million payment at a certain
5 milestone. I don't remember exactly which one.
6 Q And had the Company required such a security
7 milestone payment of any of its other projects?
8 A I'm sure we have in accordance with the
9 security provisions that have been worked out prior.
10 Q Do you know of a specific project?
11 A I don't know of a specific project, no.
12 Q On October 15th of '92, a letter from Idaho
13 Power to Rosebud, Idaho Power says we will attempt to
14 determine the value of the energy and capacity that might be
15 produced by the proposed project based on the information
16 you have provided. Was Idaho Power at that time of the
17 belief that Rosebud had provided all the information that it
18 needed in order to calculate rates?
19 A That was the first time in the chronology
20 we've been discussing that we actually had a request for
21 interconnection from Rosebud. It came with their
22 October 7th transmittal.
23 Q And did the Company believe that it had the
24 information it needed in order to calculate rates?
25 A We must have since we did then calculate rates
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Wilder, Idaho 83676 Idaho Power
1 three more times.
2 Q Between October 15th of '92 and December 10th
3 of '92, was there a change in Company policy with respect to
4 QF purchases?
5 A Not in that time frame. The concern about the
6 QF purchases was evolving as evidenced by the fact that we
7 spoke to it in a September green paper that we've already
8 talked about; so, no, I recall nothing in that time frame
9 that triggered a decision to change anything.
10 Q And yet, on December 10th, Idaho Power sent
11 another communique or correspondence to Rosebud indicating
12 that the Company had determined it will not need to acquire
13 any additional resources prior to the year 2000 and that it
14 would be imprudent for the Company to contractually commit
15 at this time to a 40 megawatt 35-year purchase beginning in
16 either '98 or 2000.
17 A That's correct.
18 Q And was this language directed to Rosebud
19 merely because of the size of the facility?
20 A The language you quoted, there's other things
21 in the letter and it's a bit out of context.
22 Q That's true. The letter states that Idaho
23 Power has carefully evaluated its projected need for
24 additional resources as well as the type of resource it
25 should acquire when such acquisitions become appropriate and
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Wilder, Idaho 83676 Idaho Power
1 that the Company had determined it will not need to acquire
2 any additional resources prior to the year 2000.
3 A And it goes on to request a deferral of
4 negotiations while we work through the issue as to how best
5 to determine what the needs really were and it was that
6 request to defer negotiations that triggered a complaint
7 four days later.
8 Q Did you send out a similar letter to any other
9 QFs?
10 A That was the only over 10 megawatt QF with
11 whom we were dealing at the time and we did not send it to
12 the under 10s simply because the impact and the cost of the
13 smaller projects was not as great a concern to us as the
14 large projects.
15 Q It's not your recollection that a similar
16 letter was sent to Earth Power?
17 A I don't recall a letter to Earth Power.
18 Q Are you familiar with the Earth Power project
19 in Nevada?
20 A I'm familiar with the project, but I haven't
21 reviewed any correspondence recently and I'm not familiar
22 with any specific correspondence to them.
23 Q You state in this December 10, '92, letter
24 Idaho Power is filing its RMR with the Commission, resource
25 management report with the Commission, in March of '93.
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Wilder, Idaho 83676 Idaho Power
1 Following the Commission's review of its management report,
2 it's the Company's intention to file revised avoided cost
3 data with the Commission for the purpose of establishing
4 revised purchase rates for dispatchable and non-dispatchable
5 capacity and energy to be purchased from QFs, and did the
6 Company make such a filing?
7 A Yes, we did.
8 Q In March you filed your resource management
9 report?
10 A Filed the resource management report in March.
11 Q And you filed your avoided cost case when?
12 A In December as best I recall.
13 Q And as part of your avoided cost case, is the
14 Company proposing both dispatchable and non-dispatchable
15 rates?
16 A We're proposing to use the integrated resource
17 plan as the basis for determining what the rates should be.
18 Q And the Company is also proposing reducing the
19 availability of those rates from 10 megawatts to one
20 megawatt?
21 A That's correct.
22 Q And your proposal is that for projects larger
23 than one megawatt, negotiations should be based on the
24 Company's integrated resource plan?
25 A That's correct.
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Wilder, Idaho 83676 Idaho Power
1 Q And rates calculated on a model, on modeled
2 data from that plan?
3 A That's what the plan is essentially, a
4 modeling process.
5 Q And using that model that you have presented
6 in the avoided cost case, if you were to plug in the Rosebud
7 40 megawatt facility, would the rates that they would be
8 otherwise entitled to the rates that you proposed in your
9 three alternatives?
10 A If you plug any facility into the IRP modeling
11 process, the result will be the value of that resource to
12 our integrated system and by extension to the ratepayer.
13 Q My question is would we come out with the same
14 number?
15 A I don't know.
16 Q Have you made any, has anybody made that
17 assessment?
18 A Oh, I'm sure Dr. Willmorth has modeled these.
19 Q Well, it is that number that you want this
20 Commission to adopt in this particular case, isn't it, the
21 number that comes out of your integrated resource plan?
22 A I guess in my mind you're talking about the
23 outcome of a proceeding that has not yet been started and as
24 I tried to answer you, what I'm acknowledging is I have no
25 idea whether the model then is the same, will be the same as
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Wilder, Idaho 83676 Idaho Power
1 it is today; therefore, to say that if adopted in the
2 avoided cost proceeding it's the same rate, I simply don't
3 know. We've explained in great detail in our testimony how
4 the rate was developed for the Rosebud proceeding and that's
5 a subject appropriately addressed to Dr. Willmorth.
6 Q Okay, my question was for Dr. Willmorth,
7 apparently. Anyway, this December 10th letter you state
8 that you're apprising Rosebud that it should be aware that
9 the Company's most recent analysis shows that future
10 deferrable resource acquisitions should be fully
11 dispatchable, and yet you earlier said that dispatchability
12 is merely an item for negotiation and that the Company would
13 not be requiring dispatchability; correct?
14 A And the difference is what do you negotiate
15 with a project over 10 megawatts versus what does the system
16 need in the way of a resource. We need dispatchability in
17 the resource; therefore, it should be a subject of
18 negotiation.
19 Q In the meantime, you're telling the company --
20 you're telling Rosebud we don't really want to talk to you
21 until 1998 or thereabouts?
22 A I don't think we said that.
23 Q When would have been a good time to begin
24 negotiation with you?
25 A Our letter of the 10th asked if the
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Wilder, Idaho 83676 Idaho Power
1 negotiations could be deferred until the avoided cost
2 proceeding was completed. If that was unacceptable, then
3 negotiations could have continued indefinitely or from the
4 time of the complaint being filed.
5 Q In the meantime, you told the project to go
6 about securing all necessary state, federal and local
7 contractor and siting permits?
8 A That was a suggestion we had for them.
9 Q Well, what it says is, "Please provide
10 satisfactory evidence that the developer has obtained all
11 necessary state, federal and local construction and siting
12 permits."
13 A That's what we'd like to see.
14 Q It sounds like more than a suggestion. It
15 sounds like this is a Company requirement.
16 A That's probably too harsh a characterization.
17 Q Okay. How was this letter perceived by
18 Rosebud?
19 A I personally don't know.
20 Q Did Rosebud respond on December 14th?
21 A There was a letter back on December 14th and a
22 complaint filed on December 14th and so that is a response.
23 Q Well, Rosebud's response was, "Idaho Power
24 does not have the legal right to suspend PURPA unilaterally
25 by refusing to purchase the Mountain Home project's capacity
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Wilder, Idaho 83676 Idaho Power
1 and energy. Avoided costs for a '98 resource must be
2 offered to the Mountain Home project based on existing
3 Commission orders. Unless I'm otherwise immediately
4 advised, I will promptly file a complaint."
5 A And, of course, the letter of December 10th
6 made no effort to suspend PURPA. I think the words you'll
7 find in the letter of December 10th is "defer
8 negotiations."
9 Q Does PURPA provide a mechanism where the
10 Company can defer negotiations?
11 A PURPA doesn't require that you do or not
12 attempt to defer negotiations.
13 Q PURPA requires that the Company purchase.
14 A Yes, it does.
15 Q And is it the Company's position that it
16 determines when that contract will be executed and when that
17 purchase will take place?
18 A I think, again, because this is a project over
19 10 megawatts and we are negotiating those conditions, we
20 have the right to ask the project to try to meet the types
21 of needs we have. The project can choose not to do so, as
22 this one has done, and file a complaint and force the
23 proceeding.
24 Q You would agree that under the methodology
25 established by the Commission that Idaho Power has an
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Wilder, Idaho 83676 Idaho Power
1 obligation to purchase the generation from the Rosebud
2 facility?
3 A Under PURPA, we have an obligation to purchase
4 power from a qualifying facility.
5 Q You state on Page 6 that Rosebud has never
6 advised Idaho Power Company as to the extent of any
7 dispatchability it was willing to provide. Is that still
8 the case?
9 A As far as I know, that's still the case.
10 Q You state that Rosebud's complaint alleging
11 bad faith has had a chilling effect on further
12 negotiations. By that, are you saying that the Company has
13 been reluctant to negotiate with Rosebud because it did file
14 a complaint?
15 A No.
16 Q Are you saying that the Company's efforts have
17 not been, they've not had their heart in them because
18 Rosebud has filed a complaint?
19 A No.
20 Q Are you saying that the Company has so much
21 emotion invested in this project that it can't in both --
22 well, the fact that they filed a complaint and what other
23 factors, I guess, go into whether or not there's a chilling
24 effect in negotiating? What do you mean by "chilling
25 effect"? This is your language.
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Wilder, Idaho 83676 Idaho Power
1 A A chilling effect in my mind is whether two
2 parties are making any effort to identify mutual or
3 overlapping interests and then working to accommodate both
4 parties' interests. To us, that's what negotiation implies
5 and so that's what we go into a negotiation to try to
6 obtain.
7 Q You didn't actually participate in any of the
8 negotiations with Rosebud, so I'm assuming that either
9 somebody under you or somebody working for you indicated to
10 you that this chilling effect resulted from the complaint
11 filing.
12 A No, I reached that conclusion based on reading
13 four letters.
14 Q Reading four letters?
15 A Yes.
16 Q Which letters are you referring to?
17 A The four from Rosebud preceding the
18 December 14th complaint in which complaints were threatened
19 in each letter, rates demanded that we had expressed an
20 opinion were not appropriate. How do you negotiate when
21 there's no common ground between two parties?
22 Q It's not your belief, though, that the filing
23 of a complaint in a QF case is -- the results should be to
24 polarize the parties so that there can be no meaningful
25 discussion between them?
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Wilder, Idaho 83676 Idaho Power
1 A No, we try not to let that happen. We
2 recognize that that's a legitimate right available to the
3 parties and they'll exercise it if it's in their best
4 interest.
5 Q You state on Page 7, Line 3, that the primary
6 source of impasse is Rosebud's position that the published
7 rates are to form the starting point for negotiations.
8 MR. KLINE: Where is that, Scott? I'm sorry.
9 THE WITNESS: Line 9 through 11, Page 7.
10 Q BY MR. WOODBURY: That position is really no
11 more than a reiteration of the Commission's order language,
12 is it?
13 A Again, it comes back, as that sentence goes on
14 to say, as to whether those published rates are the starting
15 point or the end point. We believed them to be the starting
16 point and suggested appropriate ways in our judgment as to
17 how to adjust from the starting point. Rosebud saw them as
18 the end point and we haven't had a lot of success in finding
19 any closure.
20 Q Well, you would agree, though, that in the
21 P-300-12 case, Order No. 15746, that the Commission did
22 state that published rates would form the starting point for
23 negotiations?
24 A I found that language, yes, in a number of
25 orders.
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Wilder, Idaho 83676 Idaho Power
1 Q And they reiterated that in Order 20859 in the
2 1008-244 case and as late as the last revisitation of
3 avoided costs in the 170 case; is that correct?
4 A That's correct.
5 Q And in that 170 Order, Order No. 22636, the
6 Commission at Page 49, they're talking about the QF size and
7 that the filed avoided cost rates are to form the starting
8 point for meaningful negotiations for facilities larger than
9 10 megawatts. On Page 50, the Commission states, "Idaho
10 Power continues to insist that only a utility's actual
11 resource plan can represent the avoided costs."
12 A I don't have the Order with me, but I'll
13 accept that you're reading from it.
14 Q You would agree that the Company's proposed
15 methodology in this case is really, it's nothing new to the
16 Commission, that the Company has made this presentation
17 before?
18 A What I've said about the methodology is it's
19 the method we're suggesting as appropriate to adjust from
20 the published avoided costs because we know of no other way
21 to do it. I mean, that's our best efforts as to how to
22 appropriately adjust.
23 Q On Page 7, Line 18, you indicate that the
24 Company has negotiated in a manner consistent with the
25 Commission's statements contained in a February 19th Notice
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Wilder, Idaho 83676 Idaho Power
1 of Status. Do you interpret the Notice of Status as
2 changing in any way the Commission's prior order language?
3 A No. I recognize it or interpret it as a
4 reaffirmation that there's something there to negotiate and
5 that it would be represented by what is in the utility's
6 interest as well as what is in the developer's interest.
7 Q Page 9, Line 5, a discussion of the
8 April 1st negotiations and the two rate alternatives that
9 were presented to Rosebud, you state that Rosebud
10 categorically rejected both Idaho Power Company proposals
11 because they did not include the rates the Commission
12 approved for QFs less than 10 megawatts.
13 A That was my understanding based on what our
14 representatives who were present at that meeting told me.
15 Q Do you have Exhibit 201 in front of you?
16 A My own? Yes, I do.
17 Q What was the question posed by the Company in
18 the Second Production Request No. 29?
19 A 14 September.
20 Q Pardon? Your Exhibit 201.
21 A Your question is the date on this
22 production --
23 Q No, that wasn't my question. The question
24 was, what was the question posed by the Company in the
25 Second Production Request No. 29?
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1 A You mean other than as stated here in the
2 exhibit or do you want me to read the exhibit?
3 Q Yes.
4 A "Is it Rosebud's legal position that Rosebud
5 is entitled to a contract with Idaho Power Company
6 containing the existing posted QF purchase rates established
7 by the Idaho Public Utilities Commission for QFs with a
8 capacity of 10 megawatts and less?"
9 Q And how did Rosebud respond to that?
10 A They answered no and sent us a bridge copy of
11 the Meridian Generating contract.
12 Q So your basis for the statement that they did
13 not include -- that Rosebud rejected them because they
14 didn't include rates that the Commission approved for QFs
15 less than 10 megawatts is based upon what Company
16 representatives told you?
17 A It was a conclusion we drew from the April 1st
18 meeting.
19 Q Is it supported by any written documentation?
20 A None of which I'm aware.
21 Q Did Rosebud ever indicate that the Company was
22 obligated to purchase at the Meridian Generating rates?
23 A I assume they are since they're proposing them
24 in this May 28th letter that's part of that exhibit.
25 Q did you reach the conclusion that the Company
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CSB REPORTING PACKWOOD (X)
Wilder, Idaho 83676 Idaho Power
1 was -- that Rosebud was stating that the Company was
2 obligated to purchase at those rates as opposed to Rosebud
3 was in fact just offering to sell at those rates as a result
4 of the May 25th correspondence?
5 A I guess I don't know the answer to that.
6 Q Okay. How do the Meridian rates compare to
7 the rates that are offered to Rosebud?
8 A In what way?
9 Q Mills per kilowatt-hour.
10 A I haven't calculated the percentage
11 difference.
12 Q Do you have a ball park idea as to where it
13 would come in?
14 A Well, this exhibit contains those rates,
15 Dr. Willmorth's exhibit contain the other rates. I suppose
16 we could compare the two.
17 Q Okay. Mr. Reading in his testimony at Page 4,
18 Line 18, stated that this was not a hearing on the
19 reasonableness of Idaho Power Company's integrated resource
20 plan. Would you agree with his assessment?
21 A Yes, I would.
22 Q The Company's proposed use of the integrated
23 resource plan, you state that you would like to see the
24 Commission move toward use of its IRP as a primary vehicle
25 for assessing the value of all potential resource
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1 acquisitions.
2 A That's correct.
3 Q And in all resource acquisitions, you're
4 talking about all QF projects?
5 A We're actually talking about all, our own, any
6 resource this Company would build, any resource this Company
7 would buy as well as demand side programs.
8 Q You also state that use of the integrated
9 resource plan to evaluate resources, this is at Page 12,
10 Line 21, will tend to reduce, if not eliminate, premature
11 long-term financial commitments to resources.
12 A That's my belief and hope, yes.
13 Q What you're saying, then, is if the Commission
14 utilizes an integrated resource plan to determine avoided
15 costs, then essentially what we would be doing would be
16 negating the federal requirement that the Company purchase
17 QF power when offered?
18 A No. The federal requirement speaks also to
19 need and it says you don't have to purchase prior to need
20 and we will determine how need is determined in the avoided
21 cost proceeding that lays in front of us or we will revisit
22 that issue. I don't know that anything will be changed.
23 Q We determine the Company's need for resources
24 in the existing methodology, don't we?
25 A Yes, we do.
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CSB REPORTING PACKWOOD (X)
Wilder, Idaho 83676 Idaho Power
1 Q Then it's the Company's position that a
2 determination of need under the existing methodology is
3 different than that result under the Company's integrated
4 resource plan?
5 A Well, the determination of need for the
6 purpose of determining an avoided cost rate for a project
7 under 10 megawatts has explicit assumptions in it that
8 you've already raised that are there for the purpose of
9 setting an administratively-determined avoided cost. To
10 evaluate need on an integrated system planning basis
11 produces another result; so, yes, we agree that the process
12 laid out for projects less than 10 megawatts has been
13 evolving for 15 years, is clearly understood by virtually
14 all parties. It gets real fuzzy when you apply it to
15 something greater than 10 megawatts and when you apply it to
16 a system, to a utility's entire integrated resource mix, it
17 has other implications, and what is being suggested is that
18 we need to begin the transition towards planning the way we
19 operate and operating the way we plan.
20 Q Do we begin that transition in this case?
21 A No, we don't.
22 Q We have discussed the Company's use of the
23 integrated resource plan or proposed use and that the
24 Company believes it's necessary for it to maintain a
25 significant degree of flexibility in that plan.
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CSB REPORTING PACKWOOD (X)
Wilder, Idaho 83676 Idaho Power
1 A One of the things we would like to retain is a
2 degree of flexibility, yes.
3 Q And so you would not like the plan approved in
4 such a manner that for the Company to change anything within
5 it, it would require Commission approval?
6 A I think quite the contrary. I'd welcome
7 Commission involvement in settling what the integrated
8 resource plan is and does and how it would be utilized.
9 Q If the Commission is to allow the Company to
10 determine avoided costs or who determines avoided costs?
11 Does it continue to reside in the ambit or jurisdiction of
12 the Commission or is the Company proposing that in moving
13 toward an integrated resource plan the Company itself will
14 be in the driver's seat as far as determining avoided costs
15 for any projects greater than one megawatt?
16 A The only thing at issue here is how to adjust
17 the administratively-determined or published rates for
18 projects greater than 10 megawatts and the record being
19 established in this case, we've suggested one way to do it.
20 Staff witness Faull has suggested find the last available
21 contract and use it as a proxy. Dr. Reading on behalf of
22 Rosebud says these things are negotiable, but you should
23 just fuss with them, but doesn't define fuss factors.
24 Again, it comes back to all we're trying to do here is
25 suggest a methodology that allows us to take the published
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CSB REPORTING PACKWOOD (X)
Wilder, Idaho 83676 Idaho Power
1 avoided costs and determine an appropriate rate for Rosebud,
2 not reinventing the wheel of the world or anything else.
3 Q And have you presented that proposed
4 methodology which could be utilized for projects above a
5 given size in its entirety in this case?
6 MR. KLINE: Mr. Chairman, I'm going to
7 object. I think we've reached the asked and answered stage
8 on about the last three questions.
9 COMMISSIONER MILLER: I agree, and I also see
10 that it's time for the noon recess. We'll reconvene at
11 1:30.
12 (Noon recess.)
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