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HomeMy WebLinkAbout20020904Volume 2, pg 44-140.pdf 1 (The following proceedings were 2 had in open hearing.) 3 MR. FELL: And we move for the 4 admission of Exhibits 4 through 8, and 9 through 11. 5 COMMISSIONER SMITH: Without 6 objection, those exhibits will be admitted. 7 (PacifiCorp Exhibit Nos. 4 through 8 11 were admitted into evidence.) 9 MR. FELL: Mr. Griswold -- 10 Madam Chair, I have one question I'd like to ask 11 Mr. Griswold. There was -- Monsanto testimony 12 offered the Application of PacifiCorp in a 13 Utah Power proceeding regarding Geneva Steel, and 14 this is a Utah customer. Their exhibits also 15 included a -- the Orders in Utah regarding the 16 Magcorp contract. Since the -- or, actually just 17 within the last few days, on August 27th, a contract 18 was signed with Geneva Steel, and we would like to 19 offer that contract into the record. And we can do 20 it now or we can do it with Mr. Griswold when he 21 comes back for his other rebuttal, but I want to 22 make the contract available to the parties at the 23 earliest time if that would be now. So if you'd 24 like, I could offer -- Mr. Budge, do you want me to 25 offer it now or should I -- would you like to read 44 HEDRICK COURT REPORTING GRISWOLD (Di) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 it overnight? 2 MR. BUDGE: I would -- how about if we 3 do both: Offer it now and I'll try to read it 4 overnight. 5 MR. FELL: Very well. Let me 6 circulate a copy. 7 Madam Chairman, based on a number we 8 have in our prefiled testimony, this would be 9 Exhibit No. 23. 10 COMMISSIONER SMITH: All right. We 11 will mark Exhibit 23. 12 (PacifiCorp Exhibit No. 23 was 13 marked for identification.) 14 Q. BY MR. FELL: Mr. Griswold, would you 15 please identify what Exhibit 23 is? 16 A. It's a -- the electric service 17 agreement between PacifiCorp and Geneva Steel. 18 MR. FELL: Madam Chairman, I would 19 like to defer questions about the content of this 20 until his surrebuttal testimony. It really relates 21 to the response to the Monsanto proposal. 22 We move for admission of Exhibit 23 as 23 well. 24 COMMISSIONER SMITH: How about if we 25 just identify it for now and we will admit it 45 HEDRICK COURT REPORTING GRISWOLD (Di) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 tomorrow. 2 MR. FELL: That's fine. 3 Mr. Griswold then is available for 4 cross-examination. 5 COMMISSIONER SMITH: Thank you. 6 Mr. Olsen, do you have any questions 7 for Mr. Griswold? 8 MR. OLSEN: No, your Honor. 9 COMMISSIONER SMITH: Mr. Woodbury. 10 MR. WOODBURY: Thank you, Madam Chair. 11 12 CROSS-EXAMINATION 13 14 BY MR. WOODBURY: 15 Q. Mr. Griswold, turn first to your 16 direct testimony. You're speaking of the 1995 17 agreement, and that is the -- this agreement that 18 you're presently operating under with Monsanto. Is 19 that correct? 20 A. That's correct. 21 Q. And you indicate that interruptibility 22 in the '95 agreement is for system integrity only; 23 that there is no economic interruption. 24 Did the Company ask for economic 25 interruption in the '95 agreement? 46 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 A. I wasn't involved in the actual 2 negotiations, so I don't know specifically the 3 answer to that. 4 Q. What is your -- do you have an 5 understanding as to whether or not it was requested 6 by PacifiCorp? 7 A. I understand it was removed from the 8 '95 agreement, but I don't know the answer to 9 whether it was requested by Monsanto or by 10 PacifiCorp at the time. 11 Q. Moving to your interruptible -- or, 12 your rebuttal testimony, you speak starting on 13 page 5 with respect to Mr. Schettler's 14 representation that there are only -- that the '95 15 agreement can -- can be used with just minimal 16 changes, and you itemized -- you disagree with his 17 representation and indicate the points -- your 18 points of dispute. Is that correct? 19 A. That's correct. 20 Q. Is it -- it's still PacifiCorp's 21 position that there should be two agreements: One 22 for sale and purchase? 23 A. Yes, it is still our position. 24 Q. And although there can be a common 25 termination date in both agreements? 47 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 A. Yes. 2 Q. The power factor calculation that you 3 speak of as being wrong in Section 4.14 of the '95 4 agreement, do you, in the -- in your proposal, 5 correct that power factor calculation? 6 A. First, the calculation's not 7 necessarily wrong, but it's not consistent with how 8 the rules and regs define power factor correction 9 and calculation. So what we're trying to do is 10 standardize the calculation of power factor 11 correction. 12 Q. And have you incorporated that in 13 your -- in your proposal in this case? 14 A. I have, yes. 15 Q. Yes. You state that Section 2.3 16 carries forward the requirement that PacifiCorp 17 match any third-party offer for power sales to 18 Monsanto, and you say the retail direct access does 19 not exist. 20 Did it exist when you negotiated the 21 1995 contract? 22 A. No, it did not. 23 Q. And why was that clause then included? 24 A. I don't know the answer to that. 25 Q. You state that the -- the 48 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 Section 4.1.5 with the most-favored-nation clause is 2 one-sided and no longer appropriate. 3 Could you explain why it was 4 appropriate then and is not appropriate now? 5 A. No, I don't have the answer to that 6 because I was not involved in the '95 negotiation, 7 so I'm -- I don't have the answer to why it was 8 included in the '95 agreement. 9 Q. Well then can you explain why it's not 10 appropriate now? 11 A. If you look at it, it always means 12 that no matter what transaction you do with another 13 customer -- another retail customer -- we would have 14 to provide that same thing to Monsanto; and each 15 transaction with a retail customer, whether it's the 16 sale of power or the purchase of resource from them, 17 should stand on its own. 18 Q. The '95 agreement Section point -- 2.1 19 was the term of the agreement, and did that contain 20 a termination date? 21 A. Yes: December 31, 2000. 22 Q. And there was also what's called an 23 evergreen clause? 24 A. That's correct. 25 Q. And you state that that clause needs 49 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 to be rewritten and clarified, and have you proposed 2 the new language, the Company's preferred language, 3 in your proposal? 4 A. No, I have not. I have not provided 5 the contract language within our proposal. 6 Q. And this is the subject matter of your 7 Federal District Court litigation? 8 A. That is correct. 9 Q. And do you know the status of that 10 litigation? 11 A. Yes, I do. 12 Q. And is that set for -- that's set for 13 hearing when? 14 A. The hearing I believe is the fall of 15 2003, so approximately a year from now. 16 Q. August 2003? 17 A. August or September, that fall period. 18 Q. And is it your understanding that any 19 Decision by this Commission as to a rate would not 20 be implemented until the Federal District Court 21 makes its Decision the end of next year? 22 A. My understanding of what this hearing 23 is about is to set an interim rate which would then, 24 once the court case is done, would be a true-up to 25 the actual rate. So the court case will decide what 50 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 the true-up should be. 2 Q. So you agree what I said. 3 Is there -- given the fact that it 4 won't be applied even trued-up backwards until the 5 end of next year, does it make sense to determine 6 that rate now rather than closer to the time when 7 the Federal District Court will make its Decision? 8 A. No, I think the -- I mean, this 9 Commission's responsibility is to set an interim 10 rate that would be in place effective when they make 11 their Decision that would then be trued-up when the 12 court case decides the termination clause. 13 Q. It's PacifiCorp's position that any 14 contract that's agreed to should have separate 15 prices both for the firm sale and the purchase of 16 the interruptibility? 17 A. That's correct. 18 Q. Looking at your Exhibit 10 and the 19 terms that it contains as set forth in your rebuttal 20 testimony as starting upon page 7, with respect to 21 the sale component, the firm sale, PacifiCorp's 22 proposing that there be an annual reopener. Is that 23 still your position? That's Point No. 5, I think. 24 A. Would you -- I guess would you clarify 25 what you mean by "reopener"? 51 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 Q. Well, that's the way I read on page 8, 2 item 5: Once per year adjustment to all price 3 components in the electric service agreement based 4 on overall average Idaho jurisdictional rate 5 increase or decrease for that calendar year. 6 Is that not a reopener provision? 7 A. Are you in the exhibit now? 8 Q. No, I'm in your rebuttal testimony. 9 A. Oh, I'm sorry. I was looking -- 10 Q. It's basically -- it's a discussion of 11 your Exhibit 10 and the points that you include. 12 A. Yes, Item 5 is a price adjustment to 13 the price components within the electric service 14 agreement. 15 Q. On an annual basis? 16 A. On an annual basis, that's correct. 17 Q. And you understand PacifiCorp's stated 18 need for price certainty in its contract? Not 19 PacifiCorp, but Monsanto's? 20 A. Yes, they have stated that, that's 21 correct. 22 Q. And do you think that having a price 23 reopener satisfies Monsanto's requirements? 24 A. No. However, the point to remember is 25 that if the agreement is based on cost of service 52 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 and cost of service changes, it should reflect the 2 actual cost of service that's associated with 3 Monsanto. 4 Q. Item 6, you talk about allocation of 5 the electric service on the basis of situs, the 6 electric service agreement, and I think the Company 7 is proposing that interruptibility be allocated on 8 the basis of system, sort of a hybrid type proposal 9 in this case. Is that correct? 10 A. Yes, the interruptible -- the separate 11 interruptible agreement would be system allocated, 12 correct. 13 Q. And is the issue of situs versus 14 system with respect to treatment of interruptible 15 customers, isn't that an issue that's presently 16 being debated in another docket? 17 A. Yes. 18 Q. And that's part of the -- a multistate 19 process? 20 A. That's correct. 21 Q. And as part of the reopener that 22 you're proposing in this case for that interruptible 23 portion, aren't you asking that it essentially be 24 revisited should other jurisdictions decide that 25 issue differently, or does that pertain only to the 53 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 the valuation of the interruptibility? 2 A. Could you re-ask the question? 3 Q. Is PacifiCorp willing to abide by this 4 Commission's determination with respect to site 5 jurisdiction or would the Company be coming in 6 asking for an adjustment if allocation is -- if that 7 allocation is determined differently in its other 8 jurisdictions? 9 A. And for clarification, are you 10 speaking about the electric service agreement or the 11 interruptible agreement? 12 Q. Let's speak about the interruptible 13 portion. 14 A. The interruptible is deemed to be, as 15 we proposed, a system-allocated agreement which 16 would -- which would be allocated across the 17 system. So, yes, there -- if there is other 18 jurisdictions that deem that the system allocation 19 is incorrect or needs to be adjusted, yes. 20 Q. So any cost that cannot be spread -- 21 costs to other jurisdictions, the Company would be 22 coming back, asking that they be absorbed within 23 Idaho on a situs basis, even though you're proposing 24 to handle those on a system basis? 25 A. I guess I don't -- I don't know if we 54 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 would come back to ask Idaho to pick up the -- any 2 differences. What we would -- what we've asked for 3 is that if the agreement is, from a system 4 allocation perspective, is not -- things are -- 5 things are allocated differently throughout the 6 states, that the interruptible agreement get 7 reopened to either change the terms and conditions 8 to comply with -- with the system allocation, 9 whatever the Order comes out to be. It's not we're 10 asking anybody to absorb it; it's we need to 11 readjust it to make sure it does work. 12 Q. Did you participate in any of the 13 Company's merger cases? 14 A. No. 15 Q. Would Mr. Taylor be a better witness 16 to ask questions regarding the merger? 17 A. Yes. 18 Q. In your Exhibit 10 proposal, 19 essentially are you recalculating numbers that you 20 intend to come back with based upon Monsanto's 21 surrebuttal? Are you going to -- are you intending 22 to introduce an additional exhibit in your -- in 23 your -- when you come back to speak of Monsanto's 24 offer? 25 A. I guess I'd like to defer that 55 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 question, because we really haven't had a chance to 2 review it. If it -- if there -- it's deemed that 3 there's something of value to submit a further 4 exhibit, yes, we would do that. At this point, I 5 don't -- I don't have an answer to that. 6 Q. Is it reasonable to talk about this 7 if, in fact, the offer is different now? 8 A. The offer is different, that is 9 correct, from Monsanto. 10 MR. WOODBURY: Madam Chair, no further 11 questions. 12 COMMISSIONER SMITH: Thank you, 13 Mr. Woodbury. 14 Mr. Budge. 15 MR. BUDGE: Thank you. 16 17 CROSS-EXAMINATION 18 19 BY MR. BUDGE: 20 Q. Mr. Griswold, I want to just clarify 21 one of your responses regarding the termination of 22 the contract and the true-up, and as to how you 23 envisioned that would work. 24 COMMISSIONER SMITH: Mr. Budge, is 25 your microphone on? 56 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 MR. BUDGE: Excuse me. I'm sorry. 2 Q. BY MR. BUDGE: Let me start again just 3 to clarify one of your responses to Mr. Woodbury 4 regarding the termination of the existing '95 5 contract and how the true-up might work. I wasn't 6 real clear about your answer. 7 Is my understanding correct that this 8 Commission will set the rate in this proceeding for 9 Monsanto under a new contract going forward? Is 10 that your understanding? 11 A. That's my understanding. 12 Q. And is it your understanding also that 13 the Court then will determine when the old contract 14 terminates? 15 A. That is correct. 16 Q. And so once that date is determined by 17 the Court, then the true-up mechanism already in 18 place in this proceeding would kick in, perhaps? 19 A. Yes, that's correct. 20 Q. And so let's just assume for 21 discussion purposes the Court ruled the old contract 22 terminated the end of last year, which is 23 PacifiCorp's position. Then from that date, from 24 January 1 of 2002, the true-up would then apply; and 25 to the extent there's any difference between the 57 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 18.50 paid under the old contract and the new rate 2 that might be set by the Commission, the true-up 3 would be applied to that difference and Monsanto 4 would pay the difference plus the specified interest 5 rate in the true-up Order? 6 A. That's my understanding. 7 Q. And, similarly, if the Court were to 8 rule that the contract ends at the end of this year, 9 or some future date for that matter, then that would 10 also be the date at which the new rate would go into 11 effect and there may not be a true-up? 12 A. Yes, that's my understanding. 13 Q. Would you please turn to your direct 14 testimony on page 3, and if you would look to line 1 15 through 4, you make a statement there that 16 PacifiCorp was required to purchase power to serve 17 Monsanto, and you give an example there that at 18 times you had to pay up to $150 per megawatt hour to 19 serve Monsanto's load at the lower price. Do you 20 see that testimony? 21 A. Yes, I do. 22 Q. Isn't it a fact, Mr. Griswold, that 23 color -- the Company doesn't color-code resources 24 from its various -- or, excuse me -- doesn't 25 color-code electrons from various resources going to 58 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 a particular customer? 2 A. That's correct. 3 Q. And would it be accurate to say that 4 PacifiCorp acquires resources to serve its entire 5 load, not a particular customer? 6 A. That is correct. 7 Q. So to the extent that that statement 8 that you made implies that you were buying power at 9 150 to serve Monsanto, that wouldn't be accurate. 10 Correct? 11 A. No, it's not accurate. However, it 12 was meant to point out that if there was the option 13 to interrupt them at that point, we would not have 14 to have purchased an amount higher -- our 15 higher-cost purchases from the market at that time. 16 Q. And if, in fact, the interruptibility 17 that's now proposed by Monsanto which is basically 18 unlimited economic interruptibility for 1,000 hours, 19 had that, in fact, been in place back in 2001 when 20 you referred to, then isn't it a fact that the 21 Company could have avoided to the extent of the 22 interruption of Monsanto the power purchases at this 23 high market price? 24 A. Yes. However, I guess the economic 25 curtailment structure is -- at this point is still 59 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 not defined, so it's kind of difficult to go back 2 and apply it. 3 Q. Just a hypothetical question: Had it 4 been available in '95, you could have interrupted 5 Monsanto and avoided some high market prices? That 6 was my only point. 7 A. If, in fact, if you look at the 8 economic curtailment and you, in fact, gave them 9 notice and they physically interrupted, then, yes, 10 we would avoid purchasing. 11 If they invoke their buy-through 12 clause, then the load would still be there. We 13 would just serve them from some known, higher-priced 14 market. 15 Q. And then, in fact, wasn't the Company 16 purchasing power on the market back in that 2000 end 17 of the year and early 2001 time frame in prices that 18 were as high as $500 per megawatt hour? 19 A. For short durations, yes. 20 Q. And those were some of the costs that 21 were, in fact, the Company sought to recover from 22 all of its ratepayers, including Idaho, in the 23 recent power surcharge case concluded earlier this 24 year? 25 A. That's my understanding, yes. 60 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 Q. In the Commission Staff's Data Request 2 No. 18, the Company was asked the following 3 question: 4 Please provide a detailed list of all 5 interruptions of service to Monsanto under the 6 contract over the last ten years, 1992 to 2001. 7 And the Company's response to that 8 request was as follows: 9 There were no interruptions of 10 Monsanto pursuant to its power sales contract during 11 this period. 12 Are you familiar with that response? 13 A. Yes, I am. 14 Q. Would you accept it, subject to check? 15 A. I would accept it, subject to check, 16 yes. 17 Q. Have you had an opportunity now to 18 review Monsanto's Exhibit 201 and 204 that 19 summarizes what their records show regarding the 20 actual interruptions of their load during this time 21 period? 22 A. I have reviewed it, yes. 23 Q. And would you agree that Exhibit 201 24 accurately reflects the curtailed history and 25 interruptions of Monsanto during the period 61 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 reflected in that exhibit, which I think is 1986 to 2 2001? 3 A. I accept some of it because we have no 4 other -- we tried to find our own records. We have 5 no records historically. 6 Q. So what you're saying is the Company 7 has not made any opportunity to -- has not made any 8 attempt to compare its records with those of 9 Monsanto's because the Company doesn't have records 10 of interruptions? 11 A. We have records of interruptions for 12 the '95 agreement because that dealt with the system 13 integrity issue, and those I've provided in our 14 direct testimony of less than five times under the 15 '95 agreement. 16 Q. And that's different than what 17 Monsanto's exhibit reflects? 18 A. That is correct. 19 Q. And do you have any basis to challenge 20 Monsanto's exhibit if you have no records that 21 you've compared? 22 A. I believe we did ask for them to 23 provide background, their records of showing their 24 interruptions. 25 Q. Well, I don't think that was 62 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 responsive of my question. My question is you 2 haven't made any attempt based upon review of the 3 Company's records, because you don't have any such 4 records, to determine if Monsanto's records are 5 inaccurate? 6 A. Prior to '95, no. 7 Q. Okay. And with respect to 8 Exhibit 204, which reflects the number of 9 interruptions by Monsanto in the years 2000, 2001, 10 and 2002 up through July pursuant to the operating 11 agreement, would you agree that those interruption 12 records compiled by Monsanto are accurate as 13 reflected in Exhibit 204? 14 A. Subject to check. 15 Q. Okay. Let me ask you another 16 question: 17 Regarding how fast Monsanto curtails 18 when the Company requests a curtailment, would you 19 agree it's in a matter of seconds? 20 A. Based on reviewing their records, 21 their records state that it's in a matter of 22 seconds. Our -- could I finish? Our records 23 don't -- do not track the amount of time that it 24 takes Monsanto to shut their furnace down. 25 Q. And as you look at those exhibits over 63 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 that course of years, you can see several thousands 2 of times that Monsanto's been interrupted for 3 various purposes under various agreements. Would it 4 be accurate to say that there's never been a time 5 that PacifiCorp called upon Monsanto to curtail its 6 load that Monsanto did not respond? 7 A. As a general answer, yes, I would 8 agree that they have been responsive. 9 Q. So when you value and look at Monsanto 10 as a possible resource to meet peak load, is it then 11 not accurate to say that the interruption of 12 Monsanto is a resource that's reliable and available 13 at all times on seconds' notice? 14 A. I would agree with the exception of a 15 second's notice, because we've typically, if you 16 look at historical, not always needed it within 17 seconds, unless there's some sort of emergency 18 condition. So I do agree that they have been 19 reliable. They've -- they have been a good customer 20 for curtailment resources, and they have always 21 abided by whatever notice requirements we've given. 22 Q. And if we contrasted Monsanto as a 23 resource to other resources the Company might have 24 available to meet peak load, let's talk about going 25 to market. Would there be times that the Company 64 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 may attempt to go to the market to meet peak loads 2 that they may have difficulties making the purchase 3 or they may have difficulties moving the power from 4 one location to another due to transmission 5 constraints? 6 A. Yes, sir, there could be those 7 situations. 8 Q. So those are problems that may make it 9 difficult to go to the market at all times. Would 10 you agree? 11 A. I would agree. However, I think we go 12 to the market, and if it's not there, then we have 13 to look for other resources. 14 Q. And if the Company chose to build its 15 own peaker plants and rely on that as its primary 16 resource, isn't it a fact that there are times that 17 a peaker plant may not be available; in other words, 18 you could turn a switch on and there might be 19 mechanical problems and it's not there? 20 A. Yes. In any mechanical system, you 21 always have availability. 22 Q. And there may be a period of time that 23 the Company is experiencing curtailment or 24 interruption of its gas supply that that peaker may 25 not be available for some reason. Correct? 65 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 A. Yes, but it depends on the gas 2 contract you have for the peaker. 3 Q. And on that point, isn't it true that 4 the Company's gas supply contracts basically have 5 curtailment or interruptible provisions from the 6 supplier? 7 A. I'm not the fuel person for the 8 Company, so I can't answer that. 9 Q. Would that be a question Mr. Watters 10 could better answer? 11 A. Possibly. 12 Q. You know, at the same time that -- 13 strike that question. 14 You made the comment that you weren't 15 involved in the '95 negotiation so you weren't sure 16 whether it was Monsanto or the Company that chose to 17 eliminate the economic curtailment from that 18 contract. Correct? 19 A. Correct. 20 Q. The testimony of Monsanto as presented 21 in this case said that the Company was willing to 22 eliminate that provision. Have you run into 23 anything to the contrary that indicated Monsanto was 24 coming to PacifiCorp, saying, Take out the 25 interruptibility clause? 66 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 A. We have no -- we have no written 2 records of -- of that from either side. 3 Q. And isn't it true, Mr. Griswold that 4 during this same general time frame back in the '95 5 era that the economic curtailment provisions were 6 eliminated from the Monsanto contract, that the 7 Company was also going about a program or process of 8 eliminating curtailment from other special contract 9 customers? For example, Renco, Kennecott, and 10 Geneva all had had contracts whose interruptible 11 terms were removed in that general time frame of 12 renegotiation? 13 A. Yes; however, the reason for 14 eliminating in those cases was related to the 15 mechanism for buy-through power. We had become 16 involved in litigation with those customers and, 17 therefore, the clause was causing more problems than 18 it was worth for curtailment. 19 Q. Turning further down on page 3 of your 20 direct testimony, line 7 to 8, you indicate that on 21 a going-forward basis, the Company prefers to have 22 separate agreements for firm and interruptibility; 23 and the explanation you give here is to clearly 24 define any terms and conditions for 25 interruptibility, including the months of the year, 67 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 hours of the day, load to be interrupted, frequency, 2 notification period, et cetera. 3 Wouldn't you agree, Mr. Griswold, that 4 there is no reason that those specific terms could 5 not be incorporated in a single integrated 6 contract? And I can appreciate the Company's 7 preferences otherwise, but there's no reason it 8 can't be written in one contract. Correct? 9 A. That -- in order for clarifying the 10 terms and conditions, that is correct. 11 Q. And, in fact, in the Magcorp case, 12 that's what you ended up with was a single contract 13 that addressed both firm and interruptible rates. 14 Correct? 15 A. No, the Magcorp case is simply an 16 interruptible contract. There was no firm contract. 17 There's no firm load within that contract. 18 Q. But it's all contained within a single 19 contract? 20 A. Yes, that is correct. 21 Q. And I believe all of the prior 22 Monsanto contracts have always been a single 23 contract? 24 A. That is correct. 25 Q. Would you please refer, Mr. Griswold, 68 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 to your rebuttal testimony on page 1, and towards 2 the bottom of that page if you have that available? 3 A. I do have it available. 4 Q. At the bottom of page 1 of your 5 rebuttal, beginning on line 21, you make the 6 following statement: 7 All times during our contract 8 negotiations, we have indicated we are willing to 9 align the terms of all the contracts such that they 10 were of the same length. 11 When you refer to "all times during 12 our negotiations," what time period are you 13 referring to? What's the beginning date and the 14 ending date that you're talking about here? And I 15 don't need an exact date, just approximately when 16 did the negotiations begin and when did they end 17 that you're talking about here? 18 A. Well, I became involved in the 19 negotiations in late 2000, and when we had our first 20 real negotiating meetings with Monsanto that began 21 in, oh, probably first quarter of 2001 and continued 22 on through there, I would suggest that as my 23 recollection is, it's probably around the middle of 24 the summer when we really began talking about -- the 25 summer of 2001 -- began talking about -- seriously 69 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 about -- what the structure would look like of the 2 agreement; and at that time, we talked about 3 different interruptible products such as operating 4 reserves, superpeak, superpeak product. And it was 5 during those times that we talked about making sure 6 that those agreements aligned. That was the 7 beginning. 8 Q. So when you're saying that they were 9 to be aligned, you were talking about -- when you 10 say, "all during the contract negotiations," you got 11 involved during 2000 and continuing right up until 12 recently? 13 A. Yes. 14 Q. And so was that the time period that 15 you're saying the Company was proposing to Monsanto 16 that they could have an interruptible contract and a 17 firm of the exact same terms? 18 A. Starting in summer of 2001. 19 Q. And so is the Company now conceding in 20 this case that whatever -- should this Commission 21 decide to provide two different contracts, one for 22 firm and one for interruptible, the Company is now 23 willing to concede that that would be in a single -- 24 they would be contracts of the same term or 25 duration? 70 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 A. Yes, we've, as I said, since our 2 negotiations, we've always looked to provide 3 something of different -- for different agreements 4 to be coterminus or have the same term. 5 Q. You referred to your Exhibit 9 6 attached to your rebuttal, which was a 7 Frank Mitchell letter of November 5, 2001, to the 8 Commission, and you claim that that supports your 9 position that you've always been offering contracts 10 of the same length? 11 A. Uh-huh. Yes. 12 Q. And the only sentence that I can find 13 in that exhibit that comes anywhere close to that 14 would be the last sentence of Paragraph 1 that 15 states: Our intent is to align the terms of all the 16 agreements such that Monsanto receives the lowest 17 net energy cost over that term. 18 There isn't anywhere in that letter 19 that specifically says the firm contract and the 20 interruptible contract will be the same length. 21 A. No, not in this letter, but I would 22 direct you to Exhibit 4 in my direct testimony 23 and -- 24 Q. Let me get to that, if I could. 25 A. Sure. 71 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 Q. Okay. Exhibit 4 is your -- 2 A. Exhibit 4 is a matrix that we were -- 3 we were utilizing with Monsanto as we went through 4 the negotiating meetings that -- the regular 5 negotiating meetings that we had through the summer 6 and fall and of 2001, and we went through and looked 7 at a lot of different products that you could use 8 for either interruptibility or curtailment. 9 Q. Was this document -- excuse me for 10 interrupting -- was this a document that was 11 presented to Monsanto? 12 A. In the meeting, yes, in one of the 13 meetings. We had a meeting. 14 Q. And where in that document does it say 15 that we will give you a firm contract and 16 interruptible contract that have the same term? 17 A. Well, if you look specifically at the 18 first row, which is the coverage of operating 19 reserves, and if you move over to the payment 20 column, you'll see in there prices for 2002, 2003, 21 2004; and the power supply agreement that we had 22 discussed with Monsanto was for 2002 through 2004. 23 Three-year electric service agreement and this is 24 the three-year operating reserve agreement we had 25 proposed. The reason there's no specific proposal 72 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 around operating reserves is if you look over to the 2 comments and status column, you'll see it says Use 3 existing agreement template. 4 Q. What you're referring to is the 5 existing operating agreement template? 6 A. Right. 7 Q. And the existing operating agreement 8 template is the same one you gave to Monsanto for 9 the years 2001, -2, and -3. Correct? 10 A. 2000, 2001, and we have a short one in 11 place right now. 12 Q. And all of those agreements were 13 short-term agreements, correct, less than a year? 14 A. No, the 2000 -- some of those were a 15 year in length and were extended for beyond a year. 16 Q. There weren't any of them what you 17 would consider long-term agreements? 18 A. Well, in -- I guess in the case of the 19 existing operating reserve agreements, we already 20 had an electric service agreement in place with 21 Monsanto that was long-term, so what we were looking 22 to do was to purchase operating reserve from them at 23 that point. Going forward with a new agreement, our 24 analysis and discussion with them was simply around 25 here's an electric service agreement for three 73 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 years, here's interruptible agreements for three 2 years, and the one that we could -- everybody 3 understood and everybody agreed was workable was the 4 operating reserve because they had been providing 5 it. 6 The second point that I wanted to make 7 is if you look down through here, you see other 8 products that we had looked at and proposed with 9 Monsanto and there's a number of terms sheets that 10 have been provided in Discovery, and in those term 11 sheets we typically look to try to define terms and 12 conditions and prices that made the most sense for 13 Monsanto, and recognizing that we were in a 14 negotiation, what we did was we provided to them 15 simply one year -- a one-year snapshot of what, for 16 example, a superpeak product would be, and what that 17 product was was to say here's the value we pay for 18 it, here's the terms and conditions with it. Is 19 this something that Monsanto can work with from a 20 product perspective? And we continued to go back 21 and forth on those because the hours were not 22 valuable enough, they wanted to do something with 23 more notice, they only want to use one or two 24 furnaces. We tried to look at different scenarios. 25 Because of that, we had the only proposals on a 74 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 one-year basis and as an example of what that 2 product would be. Our intent was once we found a 3 product that would work in combination with the 4 operating reserve was to align it with the 5 three-year electric service agreement. 6 Q. Let's go back to what the point is and 7 your testimony. You're contending that you always 8 told Monsanto that you were going to have a term of 9 the same length, and what's troubling to Monsanto 10 quite frankly, Mr. Griswold, that never during the 11 negotiations and never during the course of these 12 proceedings did they have any indication that the 13 Company was willing to do that until you filed your 14 rebuttal testimony. And as I look at your rebuttal 15 testimony, you submit in support of your contention 16 that Monsanto always knew about it was a letter that 17 you sent to the Commission November 5 of 2001, and 18 you've admitted earlier there's nothing in the 19 letter that specifically says that, and I want to 20 ask you this question relating to it: 21 Isn't it a fact that that letter was 22 not copied or sent to Monsanto, it was simply a 23 letter to the Commission? 24 A. That's correct. 25 Q. So there's no way Monsanto could know 75 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 what you may be telling the Commission about what 2 was going on if you didn't copy them with the 3 letter. Correct? 4 A. No, they did not receive the letter. 5 Q. And isn't it a fact that Monsanto was 6 not invited to that meeting where you were 7 discussing your negotiations with Monsanto? 8 A. That is correct. However, let me 9 clarify that. 10 Q. Well, let's just stick with the 11 questions -- answering the questions I've got if we 12 could. You can clarify it later if your counsel so 13 desires. 14 But my question is is there ever a 15 time that you can produce an interruptible contract 16 that's ever been presented to Monsanto either during 17 the course of negotiations or during any of the 18 filings in this proceedings where you're offering 19 them that contains the terms of interruptible 20 agreement that's of the same length of the firm 21 agreement; and if you have one, we've never yet seen 22 an interruptible agreement, and that's why I'm 23 asking you: Do you have the proposed interruptible 24 agreement that you indicate for the first time in 25 your rebuttal testimony that you're now offering 76 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 Monsanto? Is there such an agreement? 2 A. No, because we never got to the 3 position of writing the actual agreement. We still 4 were discussing prices and commercial terms and 5 conditions. 6 Q. You've submitted exhibits in this case 7 that reflect in your proposed pro forma firm 8 agreement way back in 2000, 2001. Correct? 9 A. I don't understand your question. 10 Q. Well, I think the question is isn't it 11 a fact that the Company's pro forma firm service 12 agreement for Monsanto has been in circulation to 13 Monsanto since the very day you got involved in 14 negotiations, way back in 2000 or 2001? 15 A. No, we never submitted a -- we 16 submitted a template contract to them in I believe 17 it was November 2001 which reflected the cost of 18 service and the contract structure we would propose 19 to use. 20 Q. That's my point. We've had our firm 21 agreement, and one of the things we're struggling 22 with, you've never presented to us to this day an 23 interruptible agreement. Correct? 24 A. Not with the contract terms in it, 25 correct. 77 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 Q. Have you read the Company's 2 Application that was filed in this case December 5 3 of 2001? 4 A. I have read it, yes. 5 Q. Isn't it a fact that nowhere in that 6 Application is any indication given to Monsanto that 7 the Company will provide interruptible service? 8 A. Subject to check, and I can't answer 9 that. 10 Q. Would you also accept, subject to 11 check, that Paragraph 6, page 3, of the Application 12 states: The Company proposes to provide firm 13 service to Monsanto in accordance with the Company's 14 electric service Schedule 9; 15 And then you go on to say in the last 16 sentence: The basis for the Company providing firm, 17 rather than interruptible, service to Monsanto and 18 the pricing therefore is set forth in the testimony 19 of David L. Taylor. 20 Would you accept that as the statement 21 from the Application, subject to check? 22 A. Yes. 23 Q. And if that statement says that you're 24 going to provide firm, rather than interruptible, 25 wouldn't you think a reasonable customer might think 78 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 that you don't want to give us interruptible? 2 A. No, because we've had those 3 conversations with them through the period. 4 Q. Okay. Have you read the testimony 5 that was submitted by Mr. Taylor in this case in 6 support of the Application? 7 A. Yes, I have. 8 Q. Would you accept, subject to check, 9 that there's nowhere in Mr. Taylor's testimony that 10 he makes any mention of an interruptible contract 11 for Monsanto having the same term as the firm 12 contract? 13 A. I would accept that, subject to check. 14 Q. Now I'd like to refer you to your own 15 testimony that was filed in June of this year. 16 Isn't it a fact that in your own direct testimony 17 filed in June of 2002, that you don't give any 18 indication in there that the Company would provide 19 Monsanto an interruptible contract, long-term in 20 nature, the same as a firm contract? 21 A. In the actual testimony, no. 22 Q. In fact, on page 3, lines 11 through 23 13 of your direct testimony, you make this 24 statement: Because these resources are considered 25 short-term, the alternate -- alternative -- is to 79 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 purchase a resource from the wholesale market and 2 must be compared to market. 3 So isn't it a fact, Mr. Griswold, that 4 you're talking about purchasing interruptions from 5 Monsanto on a short-term basis? 6 A. Yes, based on that sentence, yes. 7 Q. Well, let's look to page 4, line 7 8 through 10 of your direct testimony. Do you have 9 that? It states there: Our approach correctly 10 aligns the cost for both supply of power to Monsanto 11 based on cost of service as firm load and the 12 purchase of interruptibility back from Monsanto as a 13 short-term resource. Correct? 14 A. That is correct. 15 Q. Now, have you had an opportunity to 16 read the Company's Responses to Data Requests? 17 A. Not all of them, no. 18 MR. BUDGE: Madam Chair, could I 19 approach the witness? 20 COMMISSIONER SMITH: Yes, Mr. Budge. 21 MR. BUDGE: We'll mark what we'll 22 identify as Monsanto Exhibit No. -- get the right 23 exhibit. 24 COMMISSIONER SMITH: 239. 25 MR. BUDGE: Is that our next number? 80 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 Thank you. 2 A VOICE: 240. There's -- 3 MR. BUDGE: I think it's 239. 4 MR. FELL: Isn't 239 Dr. Rosenberg's 5 last exhibit that we were missing? 6 COMMISSIONER SMITH: Let's be at ease 7 for a moment. 8 (Discussion off the record.) 9 COMMISSIONER SMITH: Okay, we'll go 10 back on the record, and we're marking as Exhibit 240 11 the document that Mr. Budge is now passing out. 12 (Monsanto Exhibit No. 240 was 13 marked for identification.) 14 Q. BY MR. BUDGE: Exhibit 240 is a copy 15 of the Company's Response to Monsanto Data Request 16 No. 140, and if you'll note at the top, that Request 17 by Monsanto was referring to the Company's Response 18 given to Staff Data Request 1.26 and 1.27 in the 19 PAC-E-00-06 case. Do you see those Responses? 20 A. I do, yes. 21 Q. And the first Response says PacifiCorp 22 intends to enter into no more long-term 23 interruptible service contracts. 24 And you go on to say that load 25 curtailment designed on a short-term basis will be 81 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 looked at. 2 And you state again in 1.27 that the 3 Company tends to discontinue the practice of 4 offering interruptible service as a retail purchase 5 option. 6 And Monsanto asked you about that 7 policy in particular, and you indicated, as you can 8 see from the Company's Response on No. 140, that the 9 Company is working towards implementation of the 10 policy as -- implementation of the policy as current 11 contracts expire. 12 Do you see that? 13 A. Yes, I do. 14 Q. And then if you look at the end of the 15 Response to No. 141 where Monsanto says Please state 16 the reasons for this policy change; and the Company 17 responds, just referring to the last sentence, 18 quote: It's unfair for the larger body of customers 19 if the Company pays more for interruptibility in the 20 form of long-term interruptible rates than it would 21 pay for short-term purchases of interruptibility on 22 an as-needed basis. 23 Wouldn't you agree, Mr. Griswold, that 24 these Responses indicate that the Company does not 25 intend to enter into any long-term interruptible 82 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 contracts? 2 A. Based on these statements, yes, but 3 the -- I guess there needs to be a definition of 4 short-term versus long-term, and from our 5 perspective, short-term is reflective of an 6 agreement that's one to three years in nature, 7 versus a long-term agreement of could be five and 8 longer. 9 Q. I'd like to hand you what we will mark 10 as Monsanto Exhibit 241, give you an opportunity to 11 familiarize yourself with that exhibit. 12 (Monsanto Exhibit No. 241 was 13 marked for identification.) 14 COMMISSIONER SMITH: Mr. Budge, would 15 this be a good time to take a short break? 16 MR. BUDGE: Certainly. 17 COMMISSIONER SMITH: We'll be in 18 recess for about eight minutes. 19 (Recess.) 20 COMMISSIONER SMITH: We'll go back on 21 the record. Mr. Budge. 22 MR. BUDGE: Thank you. 23 Q. BY MR. BUDGE: Mr. Griswold, your 24 Exhibit 9 is the letter sent to the Commission 25 November 5, 2001, and I've handed you Exhibit 241 83 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 which is a letter a month or so later dated 2 December 12, 2001, that Mr. Mitchell sent to 3 Monsanto. Have you had an opportunity to review 4 that letter? 5 A. Yes. 6 Q. And have you seen that letter before? 7 A. Yes. 8 Q. In the introductory paragraph, 9 Mr. Mitchell says that he is specifically responding 10 to a letter from Mr. Schettler regarding various 11 contract negotiation terms. 12 And then if you look at the bottom of 13 page 2, the second to the last sentence where they 14 have been discussing interruptibility agreements, 15 says: However, drastic changes in the wholesale 16 market over the last couple of years have shown us 17 that interruptibility can have very different values 18 at different points in time. Recognition of those 19 different values can best be dealt with in separate, 20 shorter-term agreements. 21 Is there anything in that letter, 22 Mr. Griswold, that would give Monsanto some 23 indication that the Company was talking about 24 anything but a short-term agreement for 25 interruptibility? 84 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 A. No. However, our proposal to Monsanto 2 for electric service was for three years also. 3 Q. Excuse me for interrupting, but let me 4 just ask you the question again so you can be 5 responsive. The question was do you see anything in 6 that letter that would give Monsanto indication that 7 the Company was proposing anything other than a 8 short-term curtailment agreement? 9 Let me ask it a different way. The 10 language I just read to you that says the Company 11 wants short-term curtailment agreements, wouldn't 12 that give the reader indication that that's what the 13 Company is proposing: Short-term agreements? 14 A. Yes, to provide short-term 15 interruptible agreements; but we've also, as I was 16 trying to clarify, our proposal for our electric 17 service agreement was short-term also, it was three 18 years. That's the definition for short-term is less 19 than -- three years and less. 20 Q. Okay. Excuse me for interrupting. 21 Let's turn back to your direct testimony on page 6, 22 beginning on line 7. You made this statement: In 23 addition, numerous other demand-side proposals were 24 presented to Monsanto during negotiations that were 25 never agreed. 85 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 And you include these in your 2 Exhibit No. 7, and I'd like to turn you to your 3 Exhibit No. 7. Do you have that available? 4 A. I do, yes. 5 Q. Exhibit 7 is a term sheet of the terms 6 that were being proposed, correct, the Company's 7 term sheet? 8 A. There's several term sheets here, but 9 the first one is for operating reserves. Is that 10 what you're pointing to? 11 Q. No, the first one is entitled Monsanto 12 Load Curtailment. Correct? 13 A. There's several of them, so let me 14 make sure I'm on the right one. 15 Q. Let's start with page 1, Monsanto Load 16 Curtailment. Do you have that? 17 A. I have it. 18 Q. What does line 4 say regarding the 19 term? 20 A. The term under this draft sheet was 21 June 1, 2002, through September 30, 2002. 22 Q. Four months is the proposal here 23 you're saying for the operating -- or, the 24 interruption agreement. Correct? 25 A. Yes, that's correct. However, it was 86 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 to look specifically at a four-month summer period 2 and no other months of the year. So you can't have 3 a longer term than a specific term once you're 4 trying to address. 5 Q. Let's go back to the third page of 6 that proposal. And, again, this is all part of your 7 interruptible proposal to Monsanto. Correct? 8 A. It's one of many, that's correct. 9 Q. And what does the third page reflect 10 regarding the term of that interruptible proposal? 11 A. I'm sorry, I'm missing where you're -- 12 what you're addressing. 13 Q. Page 3, line 4, shows -- of the 14 document I have of Exhibit 7 -- shows as a term 15 January 1, 2002, through December 31, 2002? 16 A. Yes, I see that. That is -- 17 Q. Would you agree that that's the term 18 of that proposal? 19 A. Correct. 20 Q. And if you go back four more pages, if 21 you would, to the second to the last page of your 22 exhibit, which is the operating reserve portion, and 23 what did you state there is the term of that portion 24 of the curtailment agreement? 25 A. The term for this specific term sheet 87 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 is down on the fourth line. It's March 1, 2002, 2 through September 31, 2002. 3 And as I've indicated before, all of 4 these term sheets were to reflect specific 5 conditions we had during the discussions before we 6 submitted a term sheet, so if we were talking about 7 a year-long product, it was a year term. If we were 8 talking about four summer months, it was four summer 9 months. If we were talking about in this case with 10 operating reserves going through the remainder of 11 the year, this is, what, ten months, nine months? 12 Q. Would you agree that each of the 13 proposals contained in your Exhibit 7 reflect a 14 proposed curtailment term of something less than a 15 year? 16 A. Well, with the exception of the one 17 that says a year, so a year or less, that's correct, 18 but that's what was requested. 19 Q. Referring back to your Exhibit 9, 20 makes a statement in there that -- about the meeting 21 on October 25th regarding negotiations with Monsanto 22 was the topic of that meeting, and you indicate in 23 the last paragraph that PacifiCorp continues to 24 negotiate in good faith. 25 There's one matter that arose out of 88 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 this testimony, Mr. Griswold, that's particularly 2 troubling to Monsanto, and that has to do with the 3 nature of settlement negotiations between the 4 parties that have gone on over this contract and 5 otherwise, and is it your understanding that when 6 PacifiCorp and Monsanto sits down to negotiate 7 settlement of this case or the litigation elsewhere 8 and the parties have an express understanding that 9 those matters are to be maintained confidential, 10 what does that mean to you? 11 A. Well, first, what it means to me is -- 12 there's two things I want to address. One is 13 settlement negotiations and negotiations, and as has 14 been described is that the discussions and 15 negotiations have started since 1999 and continued 16 on and it did continue on in good faith, and in 17 those negotiations we did not sign any 18 confidentiality agreement relative to those 19 negotiations. 20 When we filed our case, the case that 21 we're sitting here now for, which was in December of 22 2001, anything after that where we had negotiations 23 would be considered, in my mind, settlement 24 negotiation. 25 Q. So let me just ask you more 89 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 specifically, when you sit down to negotiate 2 settlement with Monsanto, isn't it the clear 3 understanding of both parties that those discussions 4 are to be maintained within the confines of that 5 room and the parties that are within it? Would you 6 agree to that? 7 A. Those -- it was not agreed that those 8 under -- when we were negotiating prior to when we 9 did this -- when this case -- 10 Q. Are you familiar with Rule 408 of 11 evidence in discussions with your counsel? 12 MR. FELL: Objection, Madam Chairman. 13 COMMISSIONER SMITH: Mr. Fell. 14 MR. FELL: It's a legal question. 15 COMMISSIONER SMITH: Use your mike. 16 MR. FELL: Objection on the basis that 17 that calls for a legal evaluation of the Commission 18 Rules. 19 MR. BUDGE: My question is simply if 20 he's familiar with the Rule based upon discussion 21 with Counsel as to the confidentiality -- I didn't 22 quite get my question -- as to the confidentiality 23 of settlement discussions. 24 COMMISSIONER SMITH: I'll allow him to 25 answer that question. 90 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 Q. BY MR. BUDGE: Are you familiar with 2 the Rules of Evidence that do not allow confidential 3 settlement negotiations to be brought into evidence 4 based upon discussions you may have had with Counsel 5 for the Company? 6 A. I have not read the Rules. I'm 7 familiar with anything after the -- that we filed 8 our order for the interim, that those -- and sat 9 down for negotiations -- those were considered 10 confidential. 11 Q. So let me just ask it to you this way: 12 When we have settlement negotiations 13 with you, do you consider those confidential? Are 14 those things that can be divulged to the public and 15 brought out in these proceedings or other court 16 proceedings? 17 A. I consider those confidential. 18 Settlement negotiations I consider confidential, and 19 have been treated confidential. 20 Q. What does it mean to you when you say 21 they're confidential? 22 A. They're not entered into evidence. 23 They're not used publicly. They're between the 24 parties in the room. 25 Q. Well that being the case, why is it 91 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 then that you feel in your testimony it's 2 appropriate to bring to another body the substance 3 and discussions of settlement negotiations that you 4 deem confidential? Is that not troubling to you? 5 MR. FELL: Objection again. The 6 question is unclear, really, that Mr. Budge is 7 moving back and forth between the presentation of 8 this letter as evidence in this proceeding and the 9 conversation that occurred with the Commission back 10 in the fall of 2001, and it would help for me and 11 for the witness if he would clarify which activity 12 he's objecting to here. 13 COMMISSIONER SMITH: Mr. Budge. 14 MR. BUDGE: I'll direct my question. 15 I don't mean to belabor the point, but it's somewhat 16 of phenomenon to come into a rate hearing and find 17 testimony -- if this were a court proceeding and the 18 questions were asked about confidential settlement 19 negotiations, quite obviously I would have an 20 opportunity to object and I would certainly expect 21 that this body or a court would certainly look at 22 Rule 408 and say, If this is settlement negotiation, 23 then we don't talk about it here. 24 But we're left in this proceeding with 25 the troubling situation in that the evidence is 92 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 prefiled, it's already presented before the 2 Commission, and we have a situation that parties who 3 obviously are having difficulty negotiating and are 4 doing our best and the Rules of Evidence are 5 designed to make sure that parties lay the cards on 6 the table, have full and free and open discussions. 7 We don't expect to get into a situation where we 8 come back in in testimony and the witness chooses to 9 go in and testify about what we thought were 10 confidential settlement negotiations. 11 So if he has a different 12 understanding -- I mean, he's testifying that he 13 doesn't think they should come into evidence, yet, 14 in fact, that's what he's done is put them into 15 evidence, and it sure makes it difficult for these 16 parties to be able to communicate. 17 COMMISSIONER SMITH: Mr. Fell. 18 MR. FELL: What evidence is he 19 talking -- is Mr. Budge talking about? I would 20 appreciate it if he would be precise about that. Is 21 it a letter? Is it Exhibit No. 9 that Mr. Budge is 22 objecting to? Or is he objecting to the fact that 23 conversations occurred in the fall of 2001, which is 24 not an evidentiary issue in this particular case? 25 MR. BUDGE: I'm objecting to both. 93 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 The letter states that "we had a meeting October 2 25th regarding negotiations with Monsanto." So 3 apparently the subject was negotiations with 4 Monsanto. That, I think, is objectionable. 5 Number two, Mr. Griswold has testified 6 in his testimony several times, some of which I've 7 pointed out, he's testifying that during negotiation 8 with Monsanto, we told him this and we didn't tell 9 him that. And I don't want to get in a position 10 that we have to rebut by having some Monsanto person 11 say, No, we didn't tell us that in negotations. So 12 I'm trying to cross-examine based on this record in 13 this case, which is an absolute different story from 14 the pleadings presented to this Commission that he 15 now states in his testimony. 16 COMMISSIONER SMITH: Mr. Fell. 17 MR. FELL: So let me take them one at 18 a time. 19 As to the discussions with this 20 Commission in November of 2001 -- 21 COMMISSIONER SMITH: October. 22 MR. FELL: October, thank you, of 23 2001. 24 -- there was no proceeding before the 25 Commission. There was no dispute that was 94 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 engaged -- in which the parties were engaged in 2 settlement. It was a discussion with a customer, a 3 customer that represents approximately half the load 4 of Utah Power in this state, and it is a matter of 5 significant public interest to the Commission. So 6 one would think that would be an all right 7 conversation until a proceeding were commenced over 8 that. 9 As to discussions that were presented 10 in Mr. Griswold's testimony, Mr. Griswold has not 11 sought to admit anything that Monsanto has said in 12 those discussions. He has only sought to admit 13 things that Mr. Griswold or PacifiCorp has proposed 14 in those negotiations, and the Rules regarding 15 admissibility into evidence have to do with 16 admissibility of statements or conduct of the other 17 parties in settlement discussions, so I don't think 18 he's violated that either. 19 COMMISSIONER SMITH: Mr. Budge, can we 20 move on? 21 MR. BUDGE: Why don't we move on. Let 22 me go into a different topic. Thank you for your 23 patience in allowing us lawyers to sometimes do what 24 we like to do, and that's argue. 25 Q. BY MR. BUDGE: Mr. Griswold, would you 95 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 please turn to page 7 of your direct testimony, 2 lines 18 through 20? 3 Let's see. That doesn't seem to be 4 right. I think I misspoke. I believe that's your 5 rebuttal testimony. Yes, I'm sorry. I meant 6 rebuttal testimony, page 7, line 18 through 20. 7 Excuse me. 8 Have you been able to arrive at that? 9 A. I have, yes. 10 Q. When you make the statement here that 11 the term of both agreements would be effective 12 September 1 or when the Commission issues an Order 13 approving the Agreements, you're not attempting to 14 concede when the '95 contract terminates, are you? 15 A. No, this is pretty clear in that it 16 says this is the interim price that would be 17 charged. 18 Q. And I think from our earlier 19 questions, you or the Company acknowledges that the 20 old contract will terminate whenever the Court 21 decides that? 22 A. We're waiting for the Court's 23 Decision, yes. 24 Q. And whatever the Court decides 25 regarding true-up mechanism, the Company is -- or, 96 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 excuse me -- regarding a termination date, the 2 Company still stands by its prior agreement that the 3 true-up mechanism that was contained in the previous 4 Order last December still applies? 5 A. That is correct, yes. 6 Q. On page 8, lines 13 through 15, this 7 is your Item No. 5 where you talk about the prices 8 that Monsanto's contract have will be adjusted once 9 per year based on the overall average Idaho 10 jurisdictional rate increase or decrease for that 11 calendar year. 12 Is it our understanding -- excuse 13 me -- is our understanding correct that the Company 14 then effectively wants to tie the firm service 15 contract proposed by the Company to Idaho tariff 16 rates? 17 A. Yes, the overall -- the overall 18 average Idaho jurisdictional rates, yes, is correct. 19 Q. So would this be an annual adjustment 20 regardless, or would only be an adjustment if, in 21 fact, a general rate case is filed or some other 22 proceeding that results in the changing of the rates 23 of all the other tariff customers? 24 A. It would be an adjustment only if 25 there's been a rate case and an overall adjustment. 97 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 Q. In the separate curtailment agreement 2 the Company proposes, I didn't note anywhere in your 3 term sheet that that would also be subject to 4 adjustment. 5 A. Let me look and then respond. 6 It's -- I agree it's not clear based 7 on the proposal that's in here, that it just says an 8 annual -- other provision, it just says annual price 9 adjustment, so it's not clear whether it's electric 10 service and the interruptible. 11 Q. Could you clarify for us what the 12 Company's intention is regarding the adjustment of 13 the interruptible contract proposed? 14 A. Well, as in the other agreements that 15 we had with other customers, it works on both sides 16 of the fence, so our intent would be to have some 17 sort of adjustment on both sides. So if prices -- 18 if there was an adjustment on one side, you should 19 have a corresponding adjustment on the other side. 20 Q. So is the interruptible agreement 21 subject to the same tariff customer adjustment 22 feature as the firm, or is it tied to some different 23 mechanism or index? 24 A. We didn't propose any other index. 25 We're just looking for the separate agreements. No, 98 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 we did not propose a separate. 2 Q. Are you proposing that now? 3 A. A separate one? 4 Q. Yes, you are proposing a separate -- 5 A. Separate agreement, correct. 6 Q. I understand that, but what I don't 7 understand is are you proposing it would also be 8 subject to adjustment? 9 A. If -- I guess what I've said before 10 was we -- with the other customers where we have 11 separate agreements we put the same adjustment in 12 both sides, so that if there is -- 13 Q. Let's talk specifically your proposal 14 for Monsanto, because then we'll have an 15 understanding of it and be able to respond at some 16 point. So the interruptible will be subject to an 17 annual reopener adjustment? 18 A. We would propose that both the 19 electric service agreement and the interruptible 20 agreement have a price -- the same price adjustment 21 on both sides. 22 Q. All right. So that would be whatever 23 adjustments happen to tariff rates, up or down, 24 affect both contracts identically? 25 A. Right. Right. 99 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 Q. Let me ask you a hypothetical if I 2 may, Mr. Griswold: 3 Let's assume that Monsanto's 1995 4 contract had been similarly tied to tariff rates. 5 Can you tell me what would have happened to 6 Monsanto's rates as a result of the recent deferred 7 accounting power supply case that concluded this 8 spring? I think it was PAC-E-02-1. 9 A. I cannot. I don't know what the 10 percentages were. 11 Q. When I look at Exhibit 223 -- 12 MR. FELL: Madam Chair, that question 13 would be better asked to Mr. Taylor, who's familiar 14 with that case and the rate design issues -- or, 15 rate solution, rather. 16 COMMISSIONER SMITH: Thank you, 17 Mr. Fell. 18 MR. BUDGE: That's fine. 19 Q. BY MR. BUDGE: So from what -- from 20 Counsel's comments, you didn't participate in that 21 case directly? 22 A. No, I did not. 23 Q. Okay. Have you had an opportunity to 24 look at Monsanto's Exhibit 207, which is 25 PacifiCorp's average retail base rates? 100 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 A. Subject to check, yeah. 2 Q. Is that a document that was actually 3 prepared by PacifiCorp? Do you recognize that as 4 one of the Company's documents? 5 A. Without having the document in front 6 of me, I don't know. I can't answer that. 7 Q. Would you agree, subject to check, 8 that that exhibit reflects that the overall rates of 9 Idaho's customers have actually gone down over this 10 period from 1988 through 2002? 11 A. Subject to check, I won't disagree 12 with that. 13 Q. And would you know whether or not that 14 exhibit reflects the further reductions of the Idaho 15 retail rates as a result of the recent 02 case? 16 A. I would not. You would, as Mr. Fell 17 has said, better to check with Mr. Taylor. 18 Q. Thank you. I had some questions 19 regarding your Exhibit 10 which is the draft terms 20 for Monsanto's electric contract that you provided 21 in your rebuttal testimony, if you could turn to 22 that. This is simply a term sheet again, not the 23 detailed terms of either contract. Correct? 24 A. That is correct. 25 Q. And would you agree, Mr. Griswold, 101 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 that this is the first time in this proceeding that 2 Monsanto has been presented any proposal from the 3 Company regarding the terms of curtailment of 4 Monsanto? 5 A. No, I disagree with that. We've -- as 6 in our direct testimony, I've submitted several term 7 sheets around curtailment options. 8 Q. This would be the first term sheet 9 that suggested a coterminus term for the 10 interruptible power and the firm power? 11 A. Yes. This is a -- and to clarify, 12 this is a specific proposal that reflects the 800 13 hours of interruptibility proposed by Monsanto, 14 which includes system integrity or emergency 15 curtailment as they have designated it, operating 16 reserves, and economic curtailment. 17 Q. So even though you testified that 18 we've seen your proposed firm service contract, 19 we're still yet to see the Company's interruptible 20 contract. Correct? 21 A. The actual contract or a proposed term 22 sheet? 23 Q. No, not term sheet, an actual 24 contract. 25 A. Actual contract? No, there's been no 102 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 actual contract delivered to Monsanto. 2 Q. And that's not been developed yet. 3 Correct? 4 A. No, we were still working, as I said, 5 on what the commercial terms would go into it. So 6 what you would take would be to take these terms and 7 conditions and prices as shown in the interruptible 8 pieces and build a specific agreement that defines 9 the duration and defines each of those products 10 within that agreement. So, no, we have not done the 11 agreement, but the core of it sits here. 12 Q. When Monsanto was left with somewhat 13 of a dilemma that we didn't have the Company's 14 specific proposal for curtailment until here in 15 August, would you agree it makes it somewhat 16 difficult for us to evaluate what the Company wants 17 and provides the most value in the way of 18 curtailment? 19 A. I think what -- I think we provided 20 throughout the negotiation a series of term sheets 21 to try and define two things: What was 22 operationally could be provided by Monsanto, and 23 what was financially workable between the two 24 companies. We did not arrive at a -- the basis for 25 a interruptible agreement based on the term sheets 103 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 we provided. 2 Q. When I review your Exhibit 10 that we 3 got here in August a couple weeks ago, PacifiCorp 4 proposes 300 hours of operating reserves and 5 500 hours of economic curtailment. Where did those 6 numbers come from? 7 A. Those were the numbers that -- the 8 hours that were provided from Mr. Schettler's direct 9 testimony from -- I don't know the exhibit number, 10 but it was Appendix A, whatever the attachment was. 11 Q. You just took Monsanto's numbers and 12 put them in there? 13 A. Yes, because until this -- until we 14 saw that, there had been really no commitment from 15 Monsanto on how many hours they could -- could -- 16 were willing to provide for curtailment, for 17 economic curtailment, or commitment to hours that 18 they would provide in order to put together a term 19 sheet and price that product and put a term sheet 20 together. 21 Q. And, similarly, isn't it true that the 22 Company hadn't given anything to Monsanto indicating 23 what it desired or needed in the way of hours in 24 order to utilize Monsanto curtailment as a valuable 25 demand-side resource to the Company? 104 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 A. No, I disagree. I think if you look 2 at the term sheets that we've provided, all of those 3 term sheets value the transaction that we were 4 willing to enter into with Monsanto for the specific 5 product that they would be willing to offer. So 6 those term sheets are all term sheets that we've 7 offered and were willing to enter into. 8 So, you know, I do think that we've 9 tried to be flexible to meet Monsanto's operating 10 constraints and criteria, and price the products 11 that they're capable and willing to provide to us. 12 In several cases with the term sheets that we did 13 provide to them, we actually proposed a lot more 14 hours of interruptibility than they have indicated 15 either in their testimony or in negotiations they 16 were willing to provide. 17 Q. Referring to Exhibit 10, I just need 18 you to clarify a couple of calculations for me if 19 you would, please. 20 On page 1 when you're summarizing 21 interruptibility down there towards the bottom, you 22 reflect 95 megawatts, 300 hours in operating 23 reserves, and then you show 46 megawatts, 500 hours 24 of economic curtailment. When I total that up, it 25 comes to 141 megawatts that you use for your 105 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 calculations. Correct? 2 A. If you -- if you add those numbers. 3 The key is to look at the word "minimum" after them, 4 after that. 5 Q. Well, but you did your calculations 6 based on the 141 megawatts? 7 A. We did our calculations based on the 8 95 and the 46, correct. 9 Q. But if you turn to page 2 down towards 10 the bottom where you define "interruptible load," 11 you have 162 megawatts? 12 A. Correct, and let me explain that to 13 you. 14 Q. Okay, if you would, please. 15 A. Okay. If you go through and look at 16 the individual products and you had -- if you go 17 through the discussions or you look at some of the 18 discussions we've had with Monsanto and you key -- 19 we keyed in on operating reserves and not being able 20 to hold the same furnaces for the same price, and 21 the 95 is a reflection of them providing 95 22 minimum -- and that's the key there is the word 23 "minimum" -- and the actual operating agreements 24 we've had in the past is that they want the 25 flexibility to use -- to manage which furnaces they 106 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 provide so that they're not caught with a safety 2 issue at the site. And so in the operating reserve 3 agreements we have in place, they have the ability 4 to provide, using either the 46-, the 49-, or the 5 67-megawatt furnace, they can provide 95 total. So 6 they could actually be providing more than 95 if one 7 of the other furnaces was not available. 8 So when we looked at the economic 9 curtailment, we said and what -- and responding to 10 their Exhibit A, their interruptible criteria, we 11 said we'll hold 95, minimum of 95, but give them the 12 flexibility around the furnace that they would 13 choose for economic curtailment; and that's why it 14 says 46 minimum, to allow them that flexibility. 15 Q. And now that Monsanto has proposed to 16 make all three furnaces available at 1,000 hours, it 17 would resolve any need to recalculate those 18 numbers. Correct? 19 A. That's correct, because -- 20 Q. That's part of what you want to do on 21 your rebuttal and have more time to do? 22 A. Correct. 23 Q. Let me ask you a couple questions. 24 What you call -- what you call system integrity 25 interruption portion or some people call emergency 107 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 interruption, is it true under the existing contract 2 and on the Company's proposed contract that all 3 three furnaces would be available for that type of 4 interruption? 5 A. That is my understanding, yes. 6 Q. And with respect to the emergency 7 interruptions, is it also your understanding that 8 there is no limit on the number of those 9 curtailments? 10 A. That's -- yes, that's my 11 understanding. 12 Q. And those interruptions can occur 13 without any notice to Monsanto. Correct? 14 A. For emergency conditions. And let me 15 go back and clarify it. 16 There are limits in that, you know, 17 they have specified no more than one curtailment per 18 day and some limits around operationally how they 19 can recover, and that's fine. It's hours per year, 20 yes. There's no defined hours, except that it's 21 part of the total hours that -- that -- of a total 22 800 hours that have been proposed. 23 Q. But those system integrity hours and 24 interruptions are in addition to the economic 25 curtailment? 108 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 A. Correct. 2 Q. Is that your understanding? 3 A. So they come out of the reserves is 4 where they come out of. 5 Q. Are you in agreement with Mr. Watters 6 that based on the Company's analyses that have been 7 set forth here, the Company is placing a greater 8 value on economic interruptions than they are with 9 operating reserve interruptions? Your calculations 10 indicated and that seemed to be a new concept to us, 11 so that's why I ask. 12 A. Well, I think if you -- if you look at 13 it from the -- simply the perspective of what -- 14 what we were shown was that we've got in there an 15 economic curtailment and we calculated it on the 46 16 minimum, okay, so that reflects a smaller furnace 17 load being taken off for curtailment. It does not 18 reflect a buy-through component on it. 19 Q. Well, all things being equal because 20 Monsanto is attempting to provide a curtailment 21 proposal for the Company that will give you the 22 greatest value, so all things being equal is the 23 Company saying that you place a greater value on 24 economic curtailment than on operating reserve 25 curtailment? 109 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 A. It's difficult to answer that without 2 knowing specifically what the conditions of the 3 product are, both for reserves and for economic, and 4 we're trying to address that tonight in our -- after 5 this is over. 6 Q. I have a few questions regarding your 7 buy-through of the economic curtailment. The 8 Company, as I understand it, says that they want to 9 have a buy-through tied to the Palo Verde index. Is 10 that correct? 11 A. That's correct. 12 Q. And that's different than has 13 traditionally been the case on previous buy-through 14 contracts with Monsanto? 15 A. That is correct, yes. 16 Q. And is the Palo Verde index 17 traditionally the more expensive index in the 18 Western grid? 19 MR. FELL: Madam Chair, this is 20 Mr. Watters' testimony. The cross-examination 21 relates to Mr. Watters' testimony. 22 COMMISSIONER SMITH: Mr. Budge. 23 MR. BUDGE: If he knows. I guess if 24 he wants to defer, that's fine. 25 Q. BY MR. BUDGE: Would you prefer to 110 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 defer that to Mr. Watters? 2 A. Yeah, I prefer to defer it, because 3 he'll address it and he's addressed it in his 4 testimony. 5 Q. So any questions regarding the 6 buy-through that was proposed in your exhibits 7 should go to Watters? 8 A. Correct. 9 Q. That's fine. Anything to shorten you 10 up and load him up. 11 Could you refer to page 9, line 8, of 12 your rebuttal testimony? You make the statement 13 there that the interruptible agreement would be 14 subject to reopeners for either party based on 15 interruptibility cost developed in other proceedings 16 or task forces, or the WECC operating reserve 17 criteria changes. 18 What other proceedings are you 19 referring to? 20 A. Well, there's a number of proceedings 21 going on where they are trying to address 22 interruptibility. 23 Q. So, one of the proceedings would be 24 the Utah Task Force proceeding trying to value 25 interruptibility. Correct? 111 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 A. That is correct, yes. 2 Q. And so what you're saying is if they 3 come up with a new value for interruptibility, the 4 Company should be able to reopen? 5 A. Either party. 6 Q. Isn't it true then that Monsanto may 7 not be able to participate in some of these 8 proceedings? 9 A. Well, my understanding is that, at 10 least from the initial task force, is that the -- at 11 least the Idaho Commission Staff was invited to 12 participate. 13 Q. I guess my question is when you talk 14 about other proceedings, if some other state has a 15 task force or a proceeding and Monsanto is not a 16 customer of that case, our contract may be subject 17 to reopen by some proceeding that we not only don't 18 participate in but can't participate in? 19 A. I think if it provides information on 20 how interruptibility should be valued for all 21 customers, then I think that's information that 22 should be useful throughout the system, because 23 they're all being -- you treat them as system 24 allocated. 25 The other -- I guess the other one is 112 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 the MSP proceeding. 2 Q. But if I look at your Exhibit 10 on 3 page 5 of five, there are three other reopeners that 4 are also laid out there. One of them is if the 5 rates of tariff rate customers changes. But without 6 going into the details of those other openers, 7 suffice it to say that there are a number of 8 different conditions upon which the Company could 9 come in and reopen. Correct? 10 A. Right. Correct. 11 Q. And so would you envision that 12 whenever any of these multitude of reopeners might 13 get triggered, the Company is going to bring a new 14 case before this Commission to try to redo our 15 contract? 16 A. All of these allow changes by either 17 party, so if, for example -- benefit to Monsanto is 18 that if they see something in another jurisdiction, 19 they have the option also. 20 Q. So we could be looking -- in the past 21 we've essentially had a special contract for a set 22 term, and we have stable and known rates for the 23 term of that contract. 24 A. Right. That's correct. 25 Q. And what the Company wants to do now 113 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 is have a contract for a set term, but we have a 2 multitude of reopeners. Correct? 3 A. We have specifically-defined 4 reopeners, correct. 5 Q. But there are numerous ones there? 6 A. There are one, two, three reopeners. 7 Q. And does Monsanto not -- is Monsanto 8 not faced with the risk of each time one of these 9 reopeners may be triggered, that we're back into 10 another case like this with PacifiCorp before the 11 Commission to decide whether or not that reopener 12 should result in an adjustment of our rate? 13 A. If you look at these reopeners, they 14 are designed to be once a year; but on the other 15 hand, it doesn't necessarily mean that you would 16 trigger those reopeners. They're just allowed to 17 address changes that might occur. Even if you have 18 a fixed contract, that doesn't prevent Monsanto or 19 PacifiCorp from coming back to the Commission on it. 20 Q. So then reopeners might be less than 21 once a year, but it could be more than once a year? 22 A. But they're specific. If you look at 23 these, they're specifically saying not more than 24 once a year. 25 Q. And that raises a potential for roller 114 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 coaster rates from time to time. Would you agree? 2 A. It could provide increases; it could 3 provide decreases. 4 Q. And I suppose whether you're in the 5 customer's shoes or Monsanto's shoes or PacifiCorp's 6 shoes, some roller coasters are more fun to ride 7 than others? 8 A. I guess I don't know how to answer 9 that. 10 Q. Is it true, Mr. Griswold, that at no 11 time in this proceeding has PacifiCorp ever proposed 12 to Monsanto that there be a transition of its rates 13 towards what the Company contends is full cost of 14 service tariff rate, base rates? 15 A. To clarify, are you asking if we've 16 looked at gradualism? 17 Q. Any gradualism proposed by the 18 Company? 19 A. No, we have not, in this proposal. 20 Q. Isn't it true that in the Magcorp case 21 when they also were faced with a proposed 70-percent 22 increase, that you did propose to transition their 23 rates over two years? 24 A. There was -- yes, there was a -- and 25 this was before I was involved in it, and my 115 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 understanding was that they looked at a -- an 2 averaging of the current price with the tariff price 3 out here over the remaining life of their contract. 4 Q. So there was a two-year transition? 5 A. Yeah, there was a two-year transition. 6 However, that was during the existing term of the 7 contract, versus after the -- instead of with a new 8 contract. 9 Q. The Company made a statement in its 10 Response to Request No. 132 regarding the benefits 11 of Monsanto's high load factor, and the Company made 12 this statement. It said: Monsanto's load factor 13 and usage patterns allows -- or, excuse me -- shows 14 a higher off-peak usage volume than most typical 15 commercial and industrial customers, and does allow 16 PacifiCorp to sell additional power in the off-peak 17 hours. This does benefit the operation of 18 PacifiCorp's generation plants and allows them to 19 operate more efficiently. 20 Is it your belief that because 21 Monsanto has a high load factor and consumes power 22 off peak, that that adds value to the system? Is 23 that what the Company's essentially saying? 24 A. Yes, with all customers who have a 25 better than average -- better than the average 116 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 industrial commercial customer who have a better 2 than average load factor, they do, in fact, use more 3 power during the off-peak hours. 4 Q. And that type of value doesn't get 5 reflected in the Company's cost of service studies, 6 does it? 7 A. I'm not the person to answer that. 8 Mr. Taylor would be. 9 Q. Direct that to Mr. Taylor? 10 A. Yes. 11 Q. Let me ask you this: When you go to 12 the market and buy peak, there's some indication 13 that the Company has to buy a product that's 16 14 hours. 15 A. That's the -- yes, that is the current 16 wholesale standard product is a 16 hour block, 17 correct. 18 Q. And the peak load that the Company has 19 difficulty meeting is essentially an eight-hour peak 20 or four-hour superpeak? 21 A. There is, yes. Our peak is not a 22 16-hour block, so you end up having to either try 23 and meet that, or buy standard products and fit them 24 together. 25 Q. So your choice would either be to sell 117 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 that excess off or to have it utilized by your 2 customers? 3 A. Correct. There are new products being 4 developed to try and address the superpeak in the 5 West, and there is now a superpeak product which is 6 more of an eight-hour block which is in the 7 development for trading. 8 Q. In Monsanto's rebuttal, they give an 9 alternate offer of providing 1,000 hours of economic 10 interruptions totally on all three furnaces, same 11 short or no notice available, except in the instance 12 that all three furnaces are taken at one time. 13 Let me ask you this, if you know, 14 Mr. Griswold: How can the Company best utilize that 15 to enhance value to the Company, and, in turn, 16 Monsanto? 17 A. Well, I think we, you know, we 18 would -- well, I think we're going to defer that 19 question, because that's the piece we're trying -- 20 we're looking at now as part of the proposal from 21 Monsanto. 22 Q. And to the extent that you're able to 23 analyze that further and give us an answer, we could 24 have that, perhaps, as well in between the 25 proceedings? 118 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 A. Correct. 2 Q. And do you understand, Mr. Griswold -- 3 and if not, let me just make it clear -- that our 4 intention is to make the interruption available 5 within some of the operational constraints that we 6 have in such a way that it maximizes value to the 7 Company? 8 A. Yes, we understand that, but we also I 9 think from our point is to make it -- we want to 10 make whatever product we put in place with Monsanto 11 something that doesn't cause adverse effects to 12 Monsanto operationally. So there's a balance there 13 between what we need and what Monsanto can provide, 14 and we just have to find the balance. 15 Q. Just a few questions in a couple other 16 areas if I may: 17 We talked earlier about the policy 18 change of the Company that according to Response 140 19 said that in 2000, PacifiCorp's senior management 20 made the decision not to offer long-term 21 interruptible contracts. That was the exhibit we 22 discussed earlier? 23 A. Correct. 24 Q. Is it true that this policy change 25 was, in fact, driven by interjurisdictional cost 119 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 allocation problems the Company was experiencing? 2 A. Well, I believe the actual -- I mean, 3 if you go to the Answers, there's a list of reasons 4 that the best thing to do would be to look at the 5 list of reasons that were given for the change. 6 Q. So part of it, that's one mechanism to 7 solve your interjurisdictional cost allocation 8 problem: We'll just get rid of interruptible rate 9 contracts on a long-term basis and simply go with 10 short-term products. Correct? 11 A. I think it's more reflective of at the 12 time of trying to put the value with what the 13 interruptible product was, versus having it be a 14 fixed discount to a cost to service, because you can 15 never -- you never could track that value across it. 16 Q. Are you familiar with the fact that 17 the modified PITA accord provided that all special 18 contracts would be allocated to the system? 19 COMMISSIONER SMITH: Mr. Budge. 20 MR. BUDGE: Yes. 21 COMMISSIONER SMITH: Just so a reader 22 of this transcript might understand, could you 23 please identify "PITA"? How about -- 24 MR. BUDGE: I hope I can. 25 PacifiCorp -- 120 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 COMMISSIONER SMITH: 2 Interjurisdictional Task Force. 3 MR. BUDGE: -- Interjurisdictional 4 Task Force. I always thought it was the pita that 5 we get for lunch. 6 MR. FELL: Have we identified it now? 7 It's the PacifiCorp Interjurisdictional Task Force 8 Allocations, P-I-T-A. 9 MR. BUDGE: Thank you. 10 Q. BY MR. BUDGE: But -- do you want me 11 to repeat that question? 12 A. I think that probably better be 13 deferred to Mr. Taylor. 14 Q. When I look at the PacifiCorp's Data 15 Responses, they identify seven special contract 16 customers that have been moved from interruptible 17 rates to tariff rates, and the Response states that 18 there's only a handful of interruptible customers 19 remaining. That would seem to indicate that 20 PacifiCorp has gone about implementing the policy of 21 eliminating interruptible contracts. Would you 22 agree? 23 A. No, I disagree. What we've done is 24 we've moved them to a cost of service or a tariff 25 for providing service to them, and then if there is 121 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 an opportunity to acquire interruptibility from 2 them, we've -- we've put agreements in place for 3 those. 4 Q. And essentially in other instances, 5 you propose to use short-term agreements? 6 A. No. In fact, in all cases what we 7 have with customers who have gone to tariff or cost 8 of service and provided us a -- some sort of 9 agreement relative to interruptibility or 10 generation, those have been coterminus. 11 Q. Well, when you read the Company's 12 policy and you take it in conjunction with their 13 summary of all the interruptible contracts that used 14 to exist and have now been moved to firm tariff rate 15 contracts, the conclusion would seem to be that in 16 order to meet new load growth, the Company wants to 17 either build its own plants or go to the market, as 18 opposed to demand-side resources. Would you agree 19 with that? 20 A. No, I think that we've looked at a 21 portfolio and, in fact, that portfolio is actually 22 being addressed going forward in our integrated 23 resource plan process, but specifically, there is -- 24 where we've been able to, we've acquired resources 25 from customers, large or small, for interruptibility 122 HEDRICK COURT REPORTING GRISWOLD (X) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 or curtailment. So we consider it an important part 2 of our resources. 3 MR. BUDGE: Can I have just a moment, 4 please? 5 COMMISSIONER SMITH: Certainly. We'll 6 be at ease for a few minutes. 7 (Discussion off the record.) 8 COMMISSIONER SMITH: Okay, we'll be 9 back on the record now so Mr. Budge can say that. 10 MR. BUDGE: Thank you. I have no 11 further questions for Mr. Griswold. Thank you. 12 COMMISSIONER SMITH: Thank you, 13 Mr. Budge. 14 Do we have questions from the 15 Commissioners? Commissioner Hansen. 16 17 EXAMINATION 18 19 BY COMMISSIONER HANSEN: 20 Q. I'm surprised I have a couple of 21 questions with all the questions that probably have 22 been asked, but probably more for clarification, if 23 I understand you correctly, PacifiCorp's position 24 has been opposed to a five-year contract. Is that 25 correct? 123 HEDRICK COURT REPORTING GRISWOLD (Com) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 A. That's correct. Back when they were 2 looking at the original when we went through this 3 original review of special contracts, it was also 4 from a Company's perspective looking at risks 5 associated with longer-term special contracts, 6 whether they were wholesale or retail, and the 7 Company put in place based on risk policies was to 8 limit longer-term contracts or any contract of three 9 years in a special contract. 10 Q. Well, I guess this is where I need you 11 to clarify. On page 7 of your rebuttal testimony on 12 line 18 through 20, if I read that correctly, there 13 you are agreeing to a contract that would last four 14 years and four months. Is that correct? 15 A. That's correct. 16 Q. And I guess my question would be 17 what's so significant about eight months? I mean, 18 why would you go four years and four months, but 19 you're opposed to five years? 20 A. Well, what we did was we aligned it to 21 a calendar year because we simply said, We'll start 22 in September and we'll go to the end of 2006, and 23 that's the only reason that is four years and four 24 months. That's because we're using -- for electric 25 service part of this, there's no reason why it 124 HEDRICK COURT REPORTING GRISWOLD (Com) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 couldn't be a five-year agreement for the electric 2 service and then a interruptibility agreement that 3 would be five years in duration. There's nothing 4 that limits it. Our issue was to, on the electric 5 service side, was to unless it was specifically for 6 electric service based on kind of the cost of 7 service components, that you didn't really want to 8 have a long-term agreement in place. 9 Q. Well, using -- is it critical to use a 10 calendar year, December 31st? Is that critical to 11 use that as a cutoff of a contract? 12 A. No, only -- only it was done so it 13 worked with some of our billing folks so that they 14 had calendar year. 15 We actually, you know, from a Company 16 perspective operate on a fiscal year which is 17 different than a calendar year, so we're not opposed 18 if you wanted to make it a -- you know, not begin or 19 end on the beginning of the year or end of the year, 20 that there's no reason that you couldn't do that. 21 Q. So really then if I understand 22 correctly, you move closer to the five year? 23 A. Correct. 24 Q. One other question then and this is 25 regarding Mr. Woodbury asked you the importance of 125 HEDRICK COURT REPORTING GRISWOLD (Com) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 setting the rate now when the court case is a year 2 away, and this may not even ever be a likelihood, 3 but I'm just kind of curious: 4 If the Commission were to set the rate 5 at 18.50 as it is now and as requested by Monsanto, 6 what value would it be to PacifiCorp having the 7 court hearing? 8 A. There probably is no dollar value 9 associated with it, but I think that part of our 10 issue is the language around termination is very 11 unclear, and Monsanto has actually proposed using 12 similar language going forward. 13 Q. So it goes a little bit beyond just 14 whether there would be a true-up or not? 15 A. Correct. 16 Q. Just one other quick question, and I 17 know Mr. Budge discussed this somewhat with you, but 18 just so I understand it, the Company's position, 19 does the large load that is interruptible such as 20 Monsanto have a high enough value so it should 21 always be utilized first by PacifiCorp before 22 PacifiCorp builds peakers or relies on the market 23 for purchases? 24 A. That's a hard question to answer and 25 it's probably a question you would want to ask 126 HEDRICK COURT REPORTING GRISWOLD (Com) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 Mr. Watters, because he will go through the 2 different pieces of interruptibility as it compares 3 to peakers. 4 Q. Okay. One last question; maybe if 5 this isn't for you, you could refer it: 6 Do you agree that Monsanto's 7 interruptibility provides a value to all PacifiCorp 8 customers, not just Idaho? 9 A. The interruptibility, yes, we believe 10 it should be system allocated. 11 Q. Thank you. 12 COMMISSIONER HANSEN: That's all I 13 have. 14 COMMISSIONER SMITH: Commissioner 15 Kjellander. 16 17 EXAMINATION 18 19 BY COMMISSIONER KJELLANDER: 20 Q. If I could get some clarification on 21 your rebuttal testimony, is PacifiCorp now proposing 22 that the interruptibility contract be firmed up; in 23 other words, a known quantity of interruptibility 24 for a known price? Is that now the Company's 25 position? 127 HEDRICK COURT REPORTING GRISWOLD (Com) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 A. That's always been our position. In 2 order to value interruptibility, you needed to know 3 very specifically things like duration, notice, how 4 many megawatts, you know, what are the constraints 5 around the interruptibility. 6 Q. Then why the reopener as a piece of 7 this, because doesn't that seem to conflict with the 8 issues associated with certainty? 9 A. We can -- I mean, I think the things 10 you're seeing is that there's a lot of interest in 11 trying not only here with this Commission but with 12 other Commissions and other industrial customers to 13 understand what's the value of interruptibility, and 14 it varies depending upon where it is in our system. 15 It depends on what the customers have to offer. And 16 we're going through some -- some task force and some 17 analyses even through the IRP process to try and 18 define more standardized interruptible products. 19 Maybe the best thing to do is develop 20 an interruptible tariff that's got very specifically 21 defined conditions that a customer can sign up for, 22 an interruptible rider. And, you know, if you put 23 in place a interruptible agreement that's five years 24 or four years in duration here and things come along 25 that change what those values are, we're just trying 128 HEDRICK COURT REPORTING GRISWOLD (Com) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 to provide flexibility for both parties that it may 2 make more sense to go to one of these other products 3 or go to a tariff or do something different. 4 Q. Going back then to your rebuttal 5 testimony on page 9, line 8, where they're referring 6 again to the possibility of the reopeners and you 7 mentioned several of those, is the WECC operating 8 reserve criteria proposed changes one of the more 9 likely to actually occur in the region? Is that 10 your anticipation? 11 A. That -- yes, that's our anticipation, 12 but the issue is we don't know where they're going 13 to come out on it. You know, they're looking to 14 look to change the amount of reserves that you are 15 going to have to hold. They're looking for more 16 short notice. When I say "short notice," we're 17 talking about less than a second of automatically 18 responding to frequency adjustments. So that 19 would -- you know, until we know what those 20 conditions are, you really can't define what the 21 value is of a product. 22 Q. Mr. Budge was asking in some of his 23 rebuttal whether or not you knew how quickly, in 24 essence, that they could turn down some of their 25 furnaces and provide some of that in a matter of 129 HEDRICK COURT REPORTING GRISWOLD (Com) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 seconds. I think I saw somewhere in testimony that 2 it was ten seconds to initiate the curtailment and 3 60 seconds to have it fully operational as one of 4 the proposed WECC standards. Have you checked with 5 the Company to find out whether or not they can meet 6 even some of these proposals that are out there on 7 the table? 8 A. No, we haven't gone through any 9 discussions about whether they could, like spinning 10 reserves or frequency response reserves, which is 11 the new one that they're proposing. Their condition 12 right now is with nonspinning reserves is they have 13 a I think a six or seven minute window in which to 14 shut down. So we typically look at when we make the 15 call and we have to know that within that period of 16 time they do respond. But as far as the looking at 17 whether they can be spinning reserves for us, we're 18 not even sure if we'll be able to hold those kind of 19 reserves on customers yet. 20 Q. Okay. Let's say then based on page 9, 21 line 8, about the possibility of the reopener, if 22 you do reopen it, is it the Company's intention then 23 to pitch a proposal that the interruptibility that 24 would be proposed would be of similar value, the 25 exact same value, then to Monsanto? 130 HEDRICK COURT REPORTING GRISWOLD (Com) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 A. That would be our intent would be to 2 sit back down and say we no longer have to hold 3 let's say nonspinning reserves for a much lower 4 amount, therefore, what would be a substitute 5 product, interruptible product, that Monsanto could 6 provide that would have value to us and still meet 7 their same value for them. 8 Q. What happens though if the Company 9 can't meet those types of operational 10 interruptibilities and still be able to manage its 11 company? What happens then? Does the rate then 12 have to go back up because that piece of 13 interruptibility has to go away and the value goes 14 away with it? Is there any other option other than 15 that? 16 A. Well, I think from our perspective is 17 if they can't meet the new criteria, then what we 18 would look toward is a different interruptible 19 product. Maybe, for example, if at the end of the 20 day we have an agreement that has economic 21 curtailment in it as a piece, you look at adding 22 something into that. 23 Q. And you feel good about your Company's 24 ability to negotiate this with Monsanto? 25 A. I think I feel better about 131 HEDRICK COURT REPORTING GRISWOLD (Com) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 negotiating the interruptible part than the cost of 2 service. 3 Q. Let's move to your direct testimony if 4 we could and just briefly, and I don't have much, 5 and I appreciate your stamina. In your direct 6 testimony, you make some comparisons to the high 7 market rate during the Western energy crisis to help 8 illustrate that Monsanto's proposal of 18.5 is 9 unacceptable. And I guess from that then, doesn't 10 that then assume that you believe that market rates 11 are going to return to a degree of volatility and be 12 high again? Is that correct? 13 A. It's hard to say. I mean, if you look 14 at some of the measures that have been put in place 15 to alleviate high power prices, including the FERC 16 caps, we know that the FERC caps are increasing. 17 However, we also know that there is increased 18 generation coming into the West. 19 Do we expect them to ever repeat and 20 return to that level? I don't know. I don't know 21 the answer to that. 22 Are we trying to put measures in place 23 to deal with that? Yes, we are. 24 Q. So then is that an unfair comparison 25 to even make in reference to the volatility of the 132 HEDRICK COURT REPORTING GRISWOLD (Com) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 Western energy crisis that we've just come through? 2 A. I think it was only to illustrate that 3 if we had interruptibility in there other than 4 system integrity, that we would have been able to 5 use it or we would have likely have used it to help 6 us through that period of time. That was kind of 7 the intent of pointing to that. 8 Q. Okay. 9 A. I mean, but, you know, you -- when you 10 look at $150 versus a retail customer who's at let's 11 say six cents, it's still higher than that, so it's 12 just to make a point that if we have an 13 interruptible agreement, we want to be able to have 14 very clear terms of when you can use it. 15 Q. Okay. I'll save any questions that I 16 have with economic curtailment probably for the 17 rebuttal. That would probably be best. I guess 18 with that, thanks. 19 COMMISSIONER SMITH: Do you have 20 redirect, Mr. Fell? 21 MR. FELL: Just a few. 22 23 24 25 133 HEDRICK COURT REPORTING GRISWOLD (Com) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 REDIRECT EXAMINATION 2 3 BY MR. FELL: 4 Q. Mr. Griswold, you'll recall the 5 exchange -- 6 COMMISSIONER SMITH: Mr. Fell, is your 7 mike -- 8 MR. FELL: I beg your pardon. 9 Q. BY MR. FELL: Mr. Griswold, you recall 10 the exchange with Mr. Budge regarding reconciling 11 statements about the Company's policies regarding 12 short-term interruptibility contracts versus how 13 these negotiations were conducted or versus the 14 longer term now being proposed. Would you please 15 just explain and summarize now what your point is 16 with regard to the Company's policies regarding the 17 longer-term interruptible contracts and how you, as 18 a negotiator with Monsanto, conducted your 19 negotiations? 20 A. Sure, I'd be glad to. 21 I guess in some of the questions we've 22 had today, we've talked about our senior management 23 group and the policy they put in place to move 24 interruptible customers to firm service or cost of 25 service structure and then purchase interruptibility 134 HEDRICK COURT REPORTING GRISWOLD (Di) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 from them. If you look at that as the general 2 policy and then you include the point about our 3 corporation putting a limit on special contracts of 4 three years because of risk, it kind of defined the 5 playing field that we've used with all of our 6 special customers in -- particularly as their 7 contract terminated. 8 Through our negotiations with 9 Monsanto, we've provided and discussed those -- 10 that -- those policies with them and in hopes of 11 making them realize that at the end of the day, they 12 would have a structure that gave them power at the 13 cost of service, and we would acquire from them a 14 valuable resource whether it's interruptibility or 15 curtailment -- in other customers it could be their 16 generation -- and you would have the lowest combined 17 net price and have the things allocated correctly. 18 We've in both cases provided Monsanto 19 a cost to service structure for electric -- for the 20 electric service side of it, and we've also put into 21 place with them a number of proposals that attempted 22 to look at the -- what are the conditions for 23 interruptibility, including what furnaces or what 24 load, what kind of notice was required, what kind of 25 duration was required, and try to build those all 135 HEDRICK COURT REPORTING GRISWOLD (Di) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 together so you would have a kind of a combined 2 structure with a customer that would give them 3 stability through -- at that point, it was through 4 the three-year period. 5 Q. And as a balance between what the 6 customer wants on stability and what the Company 7 wants in regard to purchasing resources, what is it 8 the Company is looking for in purchasing resources? 9 A. Well, first it has to be a prudent -- 10 a prudent decision to purchase a resource. It has 11 to have clearly defined terms so that we know what 12 we're purchasing, we know it's there when we 13 purchase it and when we need it the most, and we 14 value it accordingly. So, we've attempted in our 15 case to try and define here's the notices that make 16 the most sense, and line -- align those with 17 Monsanto's operation. It doesn't make any sense for 18 us to have agreements in place that Monsanto cannot 19 perform against or impacts their business adversely. 20 Likewise, when we need a resource to have in place, 21 whether it's for economic curtailment or reserves, 22 we want to know when we call on it that it's there. 23 Q. And this is maybe too apparent, but is 24 the policy regarding the length of term of contracts 25 related to the relationship between risk and term? 136 HEDRICK COURT REPORTING GRISWOLD (Di) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 A. Yes. 2 Q. In that sense, the Company has decided 3 to try to find a balance between the riskiness of 4 longer-term commitments and the requirements of the 5 customers for predictability? 6 A. Yes, we -- if you look at the electric 7 service side and the thing that makes us -- makes it 8 able for us to do the longer-term electric service 9 agreement is having a separate -- it's really based 10 on cost of service for the -- for the customer, and 11 it's basically the customer's own, quote, tariff so 12 that it's -- we're able to have a longer term 13 agreement for them, then it's a matter of aligning 14 the interruptibility to go along with that that the 15 customer can provide. 16 Q. Now, switching to another subject, 17 Mr. Woodbury asked questions about whether it 18 matters what the timing of the Commission's Decision 19 is on this new contract because you have this 20 proceeding going in Federal Court. 21 Whatever comes out of the proceeding 22 in the Federal District Court, don't you need a new 23 rate effective for the year 2003? 24 A. Yes, that's our belief, yes. 25 Q. There were also some questions 137 HEDRICK COURT REPORTING GRISWOLD (Di) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 regarding the Company's discontinuance of some of 2 these economic curtailment contracts with other 3 customers, and you mentioned that the Company was -- 4 I think that the drift of the testimony was that the 5 Company was disinclined to enter into some of these 6 economic curtailment contracts that they had with 7 other customers in the past. What was it about 8 those contracts that was unsatisfactory? 9 A. The main thing was the price for 10 replacement power. And I don't have the text in 11 front of me, so let me try and just summarize it. 12 It looked at prices that we would see 13 internally versus an external known market index, 14 and therefore, there was always questions about and 15 concerns that where the prices came from that the 16 customer was paying for without some sort of 17 auditability, and in decision, you know, questions 18 about our decision-making on purchasing power. 19 We ended up in litigation on a number 20 of those, and because of that litigation our path is 21 to choose a known, referenced, easily-viewed liquid 22 market index that's out there that everybody can see 23 that's representative of power that you would 24 acquire for the customer. 25 Q. And that's the reason that you're 138 HEDRICK COURT REPORTING GRISWOLD (Di) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 proposing for the buy-through the Palo Verde market 2 hub? 3 A. That's correct. 4 MR. FELL: I have no more questions. 5 COMMISSIONER SMITH: Thank you, 6 Mr. Fell. 7 Thank you, Mr. Griswold. 8 Mr. Griswold is stepping down; he is 9 not excused. 10 (The witness left the stand.) 11 MR. FELL: Our next witness will be 12 Mr. Stan Watters. 13 14 STAN K. WATTERS, 15 produced as a rebuttal witness at the instance of 16 PacifiCorp, being first duly sworn, was examined and 17 testified as follows: 18 19 DIRECT EXAMINATION 20 21 BY MR. FELL: 22 Q. Mr. Watters, would you please state 23 your name and position with PacifiCorp? 24 Please state your name and position 25 with PacifiCorp. 139 HEDRICK COURT REPORTING WATTERS (Di-Reb) P.O. BOX 578, BOISE, ID 83701 PacifiCorp 1 A. I'm Stan K. Watters. I'm the vice 2 president of trading and origination for PacifiCorp. 3 Q. Mr. Watters, are you sponsoring 4 prepared rebuttal testimony in this case? 5 A. I am. 6 Q. And are you also sponsoring Exhibits 7 numbered 12 through 16? 8 A. I am. 9 Q. Now, in your prefiled testimony, would 10 you please turn to page 9, line 7, and do you have a 11 correction on that line? 12 A. Yes, I do. Instead of "on an annual 13 basis," it should read "on a monthly basis." 14 Q. And with that correction, if I were to 15 ask you today the questions that are contained in 16 your prefiled testimony, would your answers be the 17 same? 18 A. Yes, they would. 19 MR. FELL: I move that Mr. Watters' 20 testimony be spread on the record as if read. 21 COMMISSIONER SMITH: If there's no 22 objection, it is so ordered. 23 (The following prefiled rebuttal 24 testimony of Mr. Watters is spread upon the record.) 25 140 HEDRICK COURT REPORTING WATTERS (Di-Reb) P.O. BOX 578, BOISE, ID 83701 PacifiCorp