20020904Volume 3, pg 248-319.pdf

1 (The following proceedings were

2 had in open hearing.)

3 MR. FELL: And we'd move for the

4 admission of Exhibits 1 through 3, and 17 through

5 22.

6 COMMISSIONER SMITH: Without

7 objection, we will admit Exhibits 1 through 3, and

8 17 through 22.

9 (PacifiCorp Exhibit Nos. 1 through

10 3 and 17 through 22 were admitted into evidence.)

11 MR. FELL: And Mr. Taylor is available

12 for cross-examination.

13 COMMISSIONER SMITH: Thank you.

14 Mr. Olsen, do you have questions?

15 MR. OLSEN: Yes.

16

17 CROSS-EXAMINATION

18

19 BY MR. OLSEN:

20 Q. Mr. Taylor, after Monsanto, wasn't it

21 fair to say that the irrigation class, which is on

22 the PacifiCorp schedule as number ten, is the second

23 largest class of customers on the PacifiCorp's Idaho

24 system?

25 A. Oh, I'd have to look and see. Let me

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1 look at something real quick. Okay?

2 Q. Sure.

3 A. If you're speaking in terms of

4 revenue, in terms of kilowatt hour?

5 Q. Demand, revenue?

6 A. That appears to be correct. They're

7 just slightly larger than the residential class.

8 Q. Now, I worked with you on the prior

9 PAC-E-02-01 case, and in that case we recently

10 reached a settlement between Irrigators and

11 PacifiCorp, and as part of that, the load control

12 feature that the Irrigators had before was removed

13 from the tariff. Isn't that correct?

14 A. That's correct.

15 Q. Now, you're familiar with the prior

16 tariff schedule which was previously referred to as

17 the ABC rates for the Irrigators?

18 A. Yes, generally.

19 Q. Generally. Now, did the A rate

20 provide a firm service to the customers?

21 A. The A rate was the rate for which

22 there were no option to curtail, yes.

23 Q. And the C rate was a curtailment

24 option?

25 A. At the Company's option, yes.

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1 Q. At the Company's option. Okay.

2 Now, what was the price differential,

3 generally, between those two rates?

4 A. I don't recall. If you have a

5 number --

6 Q. Just the A rate was higher?

7 A. A rate was higher. The B rate, which

8 was a designated day rate, was somewhat lower than

9 the C rate, was lower than that.

10 Q. But, generally, interruptibility

11 feature provided some credit back for that?

12 A. Yes, those Irrigators that took the C

13 option had a lower price for electricity.

14 Q. And would it be fair to say that most

15 irrigation customers were on the C rate?

16 A. The bulk of the customers were on the

17 C rate, yes.

18 Q. Now, there has been some discussion in

19 various testimony that the Irrigators had removed

20 interruptibility provisions from the tariff schedule

21 in the recent settlement that had been reached with

22 PacifiCorp.

23 Isn't it fair to say that the ability

24 to allow them to remove that interruptibility

25 feature was due in large part to the -- I guess the

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1 extraordinary BPA credit that mitigated potential

2 price increases and the pass-through of the excess

3 power costs?

4 A. Right. The Company was able to obtain

5 a substantial benefit from Bonneville Power

6 Administration through the BPA credit, the bulk of

7 which or a large substantial portion of which flows

8 to the irrigation customers. Combining that with

9 the rate meant that the Irrigators could actually

10 pump at a lower price than they had previously and

11 get full firm service without any potential

12 interruptions. So the irrigation community thought

13 that was a good deal, the Company thought that was a

14 good deal, and so those options were eliminated.

15 Q. Now, as part of that settlement,

16 wasn't the agreement conditioned on if there was

17 ever a change in the cost of service structure or if

18 the BPA credit expired, that that agreement would go

19 away?

20 A. I don't specifically recall all the

21 issues in the settlement.

22 Q. Subject to check, or I could represent

23 that that was the case?

24 A. Yes, subject to check, I would agree

25 with you.

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1 Q. Now, upon expiration of the BPA

2 credit, which in large part made it -- the ability

3 of the Irrigators to agree to the current rate

4 structure as it is, wouldn't you agree that the

5 irrigation class could potentially face a dramatic

6 increase in energy prices or electric prices upon

7 this expiration of the BPA credit?

8 A. Well, if the BPA credit changes and

9 becomes smaller, then the net price that customers

10 would pay would be higher, yeah.

11 Q. Okay. I want to just ask you a

12 hypothetical scenario:

13 Assume that Monsanto receives a rate

14 in this proceedings that when combined with I guess

15 the world phosphate markets, it just doesn't make it

16 economically feasible for them to operate again or

17 operate here in Idaho. Would it be fair to say that

18 the operating costs for your PacifiCorp's Idaho

19 system that were covered by Monsanto's load and

20 their revenue would have to be re-allocated to other

21 Idaho customer classes?

22 A. No, not necessarily, because what

23 would happen if Monsanto went away completely as a

24 customer, that would change not only costs in Idaho

25 but costs across the whole system and the

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1 jurisdictional allocation would also change, and so

2 Idaho -- any impact of that, Idaho would only see

3 its proportional share.

4 Q. But wouldn't that depend on whether

5 you treat Monsanto as a system customer or a situs

6 customer?

7 A. No. If you treat Monsanto as a situs

8 customer and they shut down, then there's no longer

9 any load for Monsanto to be part of the allocation

10 to Idaho, and so any costs which were formerly

11 allocated to Idaho as a result of serving Monsanto

12 would now go away and be redistributed across all

13 the states through the allocation process.

14 Q. So, I mean, basically there would be

15 no costs that would have to be shifted to the Idaho

16 customers basically?

17 A. I didn't say there were no costs. I

18 mean, if there is a negative impact on the total

19 system -- and at this point we don't know that that

20 would be the case; it might be a net benefit to the

21 system just depending on the load to resource

22 balance -- but any impact on the system, Idaho would

23 see their proportional share, but they wouldn't see

24 the total impact.

25 Q. They wouldn't see the total impact

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1 being positive or negative, and assuming it's

2 negative, then they see their proportionate share

3 from that situation?

4 A. That's correct.

5 Q. Let's just say, for example, we have a

6 situation where either the BPA credit has gone away

7 or Monsanto has gone away and we have pressure on

8 irrigation prices to go up. Would the

9 reimplementation or a further refinement of the

10 irrigation load program be a valid rate-making tool

11 to help keep the irrigation prices low?

12 A. I think if the situation presented

13 itself, that the Company looked at that and there

14 was a benefit to both the Company and to the

15 irrigation customers, we could look at reinstituting

16 some form of load control program or some other

17 instrument that would provide value to both.

18 Q. Do you recall in the most recent rate

19 case here that we had negotiated commitment by the

20 Company to I guess work with the Irrigators to

21 continue a load control program?

22 A. I think we reached an agreement that

23 we would continue to explore those options.

24 Q. And as I recall, we were supposed to

25 do that hopefully by some time the first of January

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1 or the end of January, 2003.

2 MR. OLSEN: I don't have any further

3 questions.

4 COMMISSIONER SMITH: Thank you,

5 Mr. Olsen.

6 Mr. Woodbury.

7 MR. WOODBURY: Thank you, Madam Chair.

8

9 CROSS-EXAMINATION

10

11 BY MR. WOODBURY:

12 Q. Good afternoon, Mr. Taylor.

13 A. Good afternoon.

14 Q. You're familiar with the structural

15 realignment proposal of the Company?

16 A. Yes.

17 Q. You make reference to it on page 7 of

18 your testimony.

19 Do you know what the status of -- does

20 the Company have a filing docket in this -- in this

21 state?

22 A. I'm not sure of the exact status state

23 by state. In some states that filing is just on

24 hold pending the multistate process discussions; in

25 some other states, it's actually suspended. So I

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1 don't know what the exact status is in Idaho, if

2 it's still just pending on being delayed or if it

3 was actually suspended.

4 Q. There's been no action in that docket

5 for some time. Would you agree?

6 A. Yes.

7 Q. And you're familiar also with the

8 multistate process?

9 A. Yes.

10 Q. And would you agree that there are

11 issues being taken up in the multistate process

12 which have a direct bearing on the contract that

13 we're considering today?

14 A. Yeah. Could you be specific in what

15 you're referring to?

16 Q. Sure. Interruptibility, value, the

17 situs versus system treatment of interruptible

18 customers. Those are all presently being discussed

19 in the MSP process?

20 A. Yes, there have been lengthy

21 discussions on how interruptible contracts and other

22 nontariff contracts should be treated in the context

23 of jurisdictional allocation.

24 Q. Is there any reason to put this case

25 into a hold pattern until those issues are resolved

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1 in the MSP forum?

2 A. Well, I'm not sure how long that

3 holding pattern would be. I would like to think

4 we'll get the issues in MSP resolved in the next few

5 months, but that may be very optimistic on my part.

6 I think a Decision needs to be made here at least

7 that would be implemented in the interim until a

8 final resolution on the treatment of special

9 contracts is agreed to amongst all states in the

10 MSP.

11 Q. It's been -- it's been represented in

12 this case that PacifiCorp in its merger case made a

13 commitment and agreed to assume the risk of

14 disparate treatment I guess by its individual

15 jurisdictional states. Do you recall reading that?

16 A. I'm aware that we've -- that we have

17 committed to take upon ourselves the risk of

18 jurisdictional allocations, yes.

19 Q. And why should this Commission not

20 hold the Company to that commitment?

21 A. Because I think what we're doing here

22 is we're trying to mitigate the issues of exposure

23 of jurisdictional allocation risk. We're still

24 bearing it; we're just trying to do things in this

25 case to mitigate it or manage it. So I think

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1 there's a difference between taking action here and

2 saying the Company doesn't have any responsibility.

3 We're taking the responsibility; we're just trying

4 to mitigate it.

5 Q. With respect to in the MSP process,

6 with respect to treatment of interruptible

7 customers, hasn't it been discussed that -- to treat

8 Monsanto as a separate jurisdictional customer?

9 A. I think that issue has been broached

10 somewhat by some parties that perhaps one way to

11 deal with an interruptible customer such as Monsanto

12 and perhaps more than just Monsanto is to put them

13 in their own separate jurisdiction. So far that's

14 just been a proposal that's been thrown out by

15 parties. The only way that it's been discussed at

16 length are the pros and cons of that.

17 Q. If, in fact, that position were

18 adopted, how would that affect contracting with

19 Monsanto?

20 A. Well, I'm not sure, because I'm not

21 sure under which Commission jurisdiction that new

22 special contract jurisdiction would fall. Would

23 have to fall under the jurisdiction of some

24 regulatory body.

25 Q. Okay. And could you -- is it

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1 reasonable that it should fall under this

2 Commission's jurisdiction?

3 A. If Monsanto were the only customer in

4 that jurisdiction, it would seem to make sense that

5 it should fall here.

6 One of the troubling things I have

7 with a single customer jurisdiction is what do you

8 do in the case if the final establishment of the

9 revenues to be collected from the customer does not

10 match the allocated revenue requirement to the

11 jurisdiction. I don't know how you deal with that

12 if there's only one customer in the jurisdiction.

13 Q. You're familiar with the 1995 contract

14 with Monsanto?

15 A. Generally.

16 Q. And that contract was approved by this

17 Commission in 1995, and as part of that, there was a

18 $30 million payment for a contract buyout payment?

19 A. Yes.

20 Q. Is that your understanding of what

21 that was?

22 A. Yes.

23 Q. And you indicate in your testimony

24 that taking that payment and amortizing that out

25 over the length of the contract gives you an

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1 effective rate of 23.2 mills?

2 A. Yes, if you amortize the 30 million.

3 Q. And that was amortizing it out over

4 how many years?

5 A. I believe there were 74 months in that

6 contract term, if my memory serves me correctly.

7 Q. And should the Federal District Court

8 determine that a longer period was required, what

9 would that do to the amortization amount?

10 A. Well, if you were to spread that over

11 an additional year, it would obviously lower the

12 annual amount.

13 Q. It was represented by PacifiCorp when

14 it presented the '95 contract for Commission

15 approval that Monsanto had other -- had viable

16 alternatives, and could you indicate what those

17 alternatives to service were?

18 A. I didn't participate in that, so I'll

19 tell you what my understanding is and I may not

20 catch them all, but creating I think a municipal

21 utility or something from which to take service from

22 is perhaps one alternative. Going to a different

23 production process that required less energy usage

24 or something I think was another. But there may

25 have been others that I'm not specifically familiar

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1 with.

2 Q. And in considering your negotiation

3 with Monsanto in this case, did the Company perceive

4 that any of those alternatives continue to remain

5 viable?

6 A. I think other than switching the

7 production process to something different, I don't

8 know that the other alternatives are maybe still on

9 the table as viable alternatives.

10 Q. The results -- or, you used a 1999

11 test period in your class cost of service, and the

12 results of operations, those were 1998 results of

13 operations that were pro-formed (sic) to 1999. Is

14 that your understanding?

15 A. I think it was they were both 1999

16 periods, but I could be mistaken.

17 Q. And when you say that they were

18 already filed with the Commission in a particular

19 case docket --

20 A. Well, we have a filing requirement

21 that used to be annual but now it's every other year

22 to file an informal cost-of-service study under an

23 unbundling set of procedures, and this '99 study was

24 originally filed in that proceeding. However, in

25 that proceeding, you know, all special contracts

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1 were treated as system resources, and so there were

2 some modifications made to that.

3 Q. Do you understand -- PacifiCorp

4 understands Monsanto's stated need for price

5 certainty and stability in its contracts?

6 A. Well, Monsanto has certainly made a

7 point of that.

8 Q. Is it PacifiCorp's position that, in

9 fact, Monsanto doesn't need price certainty in its

10 contract?

11 A. I think we're accepting their

12 statements as they lay out that price stability is

13 very important to them.

14 Q. And PacifiCorp is insisting on

15 reopener provisions in both -- both of the

16 contracts, the retail sales and the wholesale

17 purchase, of some form?

18 A. That's my understanding, that

19 Mr. Griswold represented that.

20 Q. Do you know -- are you familiar with

21 the recent contracts of Magcorp and Empire?

22 A. I'm familiar with the Magcorp contract

23 to some degree.

24 Q. And did -- are there reopener

25 provisions included in that contract?

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1 A. That contract's I believe only a

2 three-year duration. The contract -- and I think

3 there are some provisions after the second year

4 based upon the findings of the task force in Utah

5 that has some limited options to revisit it.

6 Q. I believe that Mr. Griswold indicated

7 a one- to three-year contract was a short contract.

8 Are you stating that if a three-year contract were

9 acceptable to Monsanto, that the Company would not

10 be insisting on reopener provisions?

11 A. I think there would be less need for

12 those.

13 Q. In the cost-of-study analysis entered

14 into this case, you're proposing some adjustments.

15 Do you believe it's appropriate to adjust cost of

16 service outside of a general rate case?

17 A. Well, it's been a long time since

18 we've had a general rate case that addressed cost of

19 service issues in Idaho and so I made some specific

20 adjustments here that I thought were relevant to the

21 case at hand, particularly relevant to treating

22 Monsanto as part of the cost-of-service analysis.

23 Q. You do state in your rebuttal

24 testimony that any change in cost allocation away

25 from Monsanto causes a shift of cost toward other

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1 customers?

2 A. That's correct.

3 Q. In looking at that Exhibit 9 letter

4 from Frank Mitchell, it says that PacifiCorp agreed

5 to change several assumptions in a cost-of-service

6 model that reduced the estimate of cost of service

7 for Monsanto by over 10 percent. Do you know

8 whether those changes have been incorporated into

9 the Company's proposal in this case?

10 A. Right. The changes that we made were,

11 one, we agreed to look at the allocation to Idaho

12 under a rolled-in allocation methodology as opposed

13 to modified accord. We made that adjustment because

14 the Staff had indicated that that was the direction

15 they were leaning as they had reviewed the Company's

16 results in the last couple years.

17 Second, we agreed to use a lower rate

18 of return than originally proposed. We proposed

19 originally a 11-and-a-half-percent return on equity,

20 which was consistent with the Company's findings at

21 the time. We agreed to use a rate of return that

22 was more in line to what the Idaho jursidiction is

23 currently producing.

24 And, third, we agreed to a change in

25 how the allocation of demand-side management or

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1 energy efficiency costs were shared among customer

2 classes in a way that assigned fewer of those to

3 Monsanto, so those were incorporated into this

4 filing.

5 Q. And so the result of those changes

6 would be a shifting of costs to Idaho's other

7 customers?

8 A. That's only the last one of those

9 would be a shifting of cost to other customers. The

10 others was a shifting of cost to Idaho -- a

11 reduction of cost to Idaho which would benefit all

12 customers. The rate of return issue was just simply

13 the rate was used to set the target for Monsanto, so

14 that, in and of itself, didn't have any impact on

15 other customers. The change in the allocation of

16 DSM costs, yes, would shift costs between customer

17 classes.

18 Q. Regarding the '95 contract, what would

19 have been the contract price if the previous

20 contract had expired in '95?

21 A. I'm not quite sure I track your

22 question.

23 Q. Assuming that there was -- assuming

24 that the previous contract expired by its terms and

25 the Company was made ineffective if it had an

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1 agreement and you were successful in exercising it

2 and it expired in '95?

3 A. Well, actually, I think it would have

4 expired in the end of 1997.

5 Q. No, that would have -- I'm saying if

6 the contract had expired and there was no buyout

7 required of the remaining term, what would the

8 Company have established the rate at?

9 A. I don't know. We would have gone

10 through a proceeding then and established a new rate

11 that we felt was cost compensatory to the Company

12 and to other customers.

13 Q. What rate did the contract call for in

14 1995?

15 A. Let me look for a moment. I know that

16 the contract rate was set to go to -- up as high as

17 $26 a megawatt hour towards the end of the

18 contract. I don't remember exactly what it was year

19 by year. I'd have to find that in my highly

20 organized papers here.

21 Q. It would have escalated to $26 in

22 1997?

23 A. That's correct.

24 Q. Is, looking at your rebuttal on

25 page 17, PacifiCorp's intent that the other states

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1 find the interruptibility credit too high, to come

2 back to this Commission and request situs treatment

3 of the difference? That's correct?

4 A. Yes.

5 Q. Can we discuss, there was concept of

6 gradualism that was addressed by some of the

7 parties -- I believe Monsanto -- and this was

8 apparently an issue in Utah, in your Utah

9 jurisdiction. Does the Company adhere to that

10 concept as it plays into rate shock and --

11 A. Well, it depends on your definition of

12 "gradualism" and what it means by adhering to it.

13 Q. Well, let me say do you feel that the

14 rate that you're proposing for Monsanto in this case

15 and compared to the rate that they presently have

16 is -- could be interpreted by some as rate shock?

17 A. If you look at in that very narrow

18 view going from the rate they pay today to the rate

19 that we propose, that is a big change. You need to

20 understand in the context of that, we're going from

21 one contract that ran for in excess of six years to

22 a new contract. So if you have a fixed-price

23 contract that runs for a long period of time and you

24 go into another fixed-price contract that's set to

25 run for another period of years, you're not going to

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1 have I wouldn't expect a smooth transition in those

2 prices like you'd expect to see under a situation of

3 ongoing rate cases in a jurisdiction where you have

4 periodic opportunities to change prices. You're

5 going to do that in chunks.

6 Also, if you compare that against the

7 '95 contract, which I believe was established under

8 a unique set of circumstances for a specific period

9 of time, I'm not even sure that's the correct

10 comparison to make as to whether or not this is fair

11 or this is a reasonable or this is a gradual change

12 in prices.

13 Q. The 1995 contract contained a rate of

14 18.5 mills that was essentially in place for the

15 entire term of the contract, but the one that

16 preceded it we hear was escalating to 26 mills in

17 1997?

18 A. That's correct.

19 Q. Is it possible to address that

20 gradualism by stairstepping the rate or having an

21 escalating rate in the contract that we're

22 considering here?

23 A. That's possible.

24 Q. You speak of the 12 CP method in the

25 cost of service study. Wouldn't you agree that

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1 unless Monsanto is situs and being served at cost of

2 service, any change to 8 CP would increase the cost

3 to other customers?

4 A. Yes, I think going from a 12 CP

5 allocation to an 8 CP allocation would increase the

6 allocation to Idaho, and therefore would increase

7 costs for other customers in Idaho.

8 MR. WOODBURY: Madam Chair, Staff has

9 no further questions.

10 COMMISSIONER SMITH: Thank you,

11 Mr. Woodbury.

12 Let's take about a short break. How

13 about 25 to four we'll be back.

14 (Recess.)

15 COMMISSIONER SMITH: We'll go back on

16 the record. Mr. Budge.

17 MR. BUDGE: Thank you.

18

19 CROSS-EXAMINATION

20

21 BY MR. BUDGE:

22 Q. Mr. Taylor, in the Company's JAM

23 studies -- Jurisdictional Allocation Model

24 studies -- that determine cost of service, that was

25 based on a 1999 test year. Correct?

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1 A. That's correct.

2 Q. And I think you've clarified now in

3 your correction of your direct testimony that you

4 now agree that that test year was an unaudited

5 number?

6 A. Yes.

7 Q. And the filing with the Commission

8 with respect to that number would have simply been

9 the part of the annual informational filing?

10 A. Yes, that's correct.

11 Q. And is it true that the 1999 test year

12 numbers would have been derived covering a period

13 before the ScottishPower/PacifiCorp merger was

14 approved?

15 A. I think that's right.

16 Q. So when I look at the PacifiCorp 10k

17 report for the fiscal year ending March 31, it makes

18 this statement: The Company achieved 110 --

19 101 million, or 12 percent, reduction in operations

20 and maintenance in administrative, general, and

21 other tax expenses, which can be largely

22 attributable in savings realized in implementation

23 of the transition plan, the May 2000 sale of the

24 Centralia plant and mine, and the favorable variance

25 due to the $23 million pretax write-off of assets

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1 under construction.

2 Would it be accurate to say that none

3 of those savings would be reflected in the data that

4 were part of the input for your cost-of-service

5 study?

6 A. No, nor would any additional costs

7 that the Company had incurred since that time be

8 reflected in that test period.

9 Q. And when I read the ScottishPower

10 annual review for the next two years, 2001 and 2002,

11 it makes a statement that good progress continues to

12 be made with the PacifiCorp transition plan with the

13 cumulative two-year cost savings achieved of

14 117 million, which is ahead of the $113 million

15 projected in the plan for 2001 and 2002.

16 Is it also true that these are savings

17 that would not be captured or reflected in the

18 cost-of-service study that you put together using

19 1999 test year data?

20 A. Yeah, anything that happened after

21 that date wouldn't be reflected in either cost

22 savings or cost increases in other areas of the

23 Company.

24 Q. And isn't it true that the Company, in

25 fact, sold the Centralia assets after '99?

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1 A. I don't recall the date of that, but I

2 wouldn't dispute your statement.

3 Q. Would you accept that, subject to

4 check?

5 A. Yes.

6 Q. Is it also true that the Company has

7 not since '99 constructed any new base load plant?

8 A. No new base load plants, no.

9 Q. And is it true the Company has not

10 constructed any new transmission resources?

11 A. I don't know the extent of the

12 transmission investment since then. I'm sure there

13 have been some transmission investments made.

14 Q. Would it be accurate to say that the

15 last time this Commission made a thorough cost of

16 the Company's cost-of-service study and made

17 specific determinations with respect to the various

18 methods that were used in that study would have been

19 the last general rate case?

20 A. I think that's probably correct.

21 Q. And can you tell us when that last

22 general rate case was?

23 A. Well, if my memory serves me

24 correctly, it was about 1990, or that general time

25 frame. If there's been one in between, then someone

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1 will have to correct me.

2 Q. Certainly been a long time?

3 A. It's been a long time.

4 Q. We do appreciate that.

5 I think you were deferred to by

6 Mr. Griswold regarding some of the proceedings

7 pertaining to the recent power supply cost recovery

8 case in Idaho, the PAC-E-01-2 -- 02-1 case?

9 A. Yes, I recall he gave me the

10 opportunity to answer a couple of questions you sent

11 his way.

12 Q. And you were a testifying witness or

13 participant in that case?

14 A. I participated to some degree in that

15 case.

16 Q. Is it true that the rates were

17 adjusted between the customer classes in that case

18 based on the rate mitigation adjustment?

19 A. That's correct.

20 Q. Is it also true that the basic rate

21 structure for all customer classes, other than the

22 irrigation class, remained unchanged?

23 A. I think that's correct.

24 Q. Would you also accept that the

25 Commission did not, in that case, accept any

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1 particular cost methodology in its Order approving

2 the settlement?

3 A. Right, they made no finding that I

4 recall on cost-of-service issues.

5 Q. And isn't it a fact that the

6 stipulation between the parties in those cases -- in

7 that particular case -- said specifically that it

8 was not an adoption or approval of any cost

9 methodology? Do you recall that?

10 A. I believe that's correct.

11 Q. You state on page 7 and 8 of your

12 testimony --

13 A. Is that direct or rebuttal?

14 Q. Your direct testimony.

15 -- various reasons why you think it's

16 more appropriate to treat the sales of electricity

17 under a single contract and a firm sale under a

18 separate contract, and then have a separate contract

19 for interruptibility. While the Company may prefer

20 that, would you agree that it's certainly possible

21 to price both in a single, integrated contract?

22 A. Yes. I think the key element here is

23 making sure that you account for the two elements of

24 the contract appropriately. Whether you do it in

25 two contracts or whether you do it in one, the

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1 important thing is to account for the sale of

2 electricity to the customer under one as a revenue

3 and account for a credit that's provided back as a

4 power purchase. So if you can break those two

5 elements down separately within the contract and

6 separately upon a bill, then it can be done within

7 one contract.

8 I think Mr. Griswold and Mr. Watters

9 have stated some other reasons why they think two

10 contracts are preferable, but it certainly can be

11 done within one.

12 Q. On page 11 of your testimony, you

13 talked about the three basic approaches that you

14 have -- general approaches -- for valuing

15 interruptibility. One was to compare prices, the

16 other one was discounts from a standard tariff, and

17 the other one was to compare what other

18 interruptible customers were paying?

19 A. Now, are you in my rebuttal now?

20 Q. In your rebuttal testimony, I'm sorry,

21 page 11 of your rebuttal.

22 A. Okay.

23 Q. And I recall you had in your testimony

24 some discussion of how you could come up with a

25 discount from standard tariffs and other witnesses

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1 have presented that, but I didn't see too much in

2 the way of comparing rates to other interruptible

3 customers.

4 Would it be accurate to say that the

5 only other interruptible customer that's recently

6 had its rate set -- its interruptible rate set --

7 would be in the Magcorp case?

8 A. That is the last one that has been

9 approved by Commission. There are two other

10 contracts which are currently in the process of

11 going through the review and approval process.

12 Q. And when I look at the Magcorp case

13 and try to compare what's been offered by Monsanto

14 in this case, is it accurate to say that the notice

15 of interruption requirement for Monsanto is less

16 than the two hours required by Magcorp?

17 A. Oh, I think it depends on what

18 provision of the contract we're talking about.

19 Q. Well, let's talk about the system

20 integrity. There's no notice to Monsanto for those

21 kind of interruptions. Correct?

22 A. Okay.

23 Q. And for the economic interruptions, it

24 was six minutes of notice. Correct? Or, excuse me,

25 operating reserves was six minutes' notice?

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1 A. I think that's correct.

2 Q. And Magcorp, in their case, required

3 two-hour notice, is that correct, for operational

4 reasons?

5 A. For their economic curtailment I think

6 is similar.

7 Q. And didn't Magcorp simply offer a

8 maximum of a six-hour block per day?

9 A. I think that's correct. I'd have to

10 review to be specific.

11 Q. And the proposal by Monsanto provides

12 the Company full flexibility to select how many

13 hours they may want in a day. Isn't that correct?

14 A. Yes, I think the Monsanto proposal has

15 more flexibility in it than did the Magcorp.

16 Q. And I think Magcorp required that the

17 Company only accept its interruptions during the

18 months of July and August the first year, and then

19 June through September the second year?

20 A. That's correct.

21 Q. And Monsanto makes them available

22 whenever you want, year-around. Is that correct?

23 A. That's correct. However, you also

24 need to understand that the Magcorp contract was

25 viewed as being an experiment on which to gather

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1 data to learn more. There wasn't a finding by the

2 Commission that that rate was necessarily a

3 cost-justified rate or supported by the evidence in

4 the case. It was accepted as being an experiment to

5 be reviewed and discussed and learned more from.

6 Q. But you would agree that the Utah

7 Commission said the rate was based, in fact, on the

8 Company's cost-of-service study, in part?

9 A. No.

10 Q. Let's take --

11 A. You maybe could refresh my memory on

12 that, but --

13 Q. I believe Exhibit 208 would be the one

14 we need to look at.

15 MR. FELL: May I approach the witness?

16 THE WITNESS: I need a copy of this.

17 MR. BUDGE: Oh, excuse me. Well, let

18 me --

19 MR. FELL: (Indicating.)

20 Q. BY MR. BUDGE: If you would look at

21 the May 24, 2002, Order -- that's the first one of

22 Exhibit 208 -- and turn to page 8?

23 A. Okay.

24 Q. The second full paragraph, the first

25 sentence, states: Our justification for a

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1 21-mill-per-kilowatt-hour rate is based on the

2 record before us, which contains embedded

3 cost-of-service analyses of the value of

4 interruptibility.

5 And it goes on to state in the

6 following -- second following sentence: PacifiCorp

7 and the Committee each introduced embedded cost

8 analyses to support its view of the appropriate

9 terms.

10 And it says: Each of these embedded

11 cost analyses is consistent with prior Commission

12 rulings.

13 So embedded cost studies presented by

14 the Commission -- or, excuse me -- by the Company

15 were, in fact, considered by the Utah Commission in

16 arriving at that rate, were they not?

17 A. Well, I think that may be a stretch of

18 what this says. I'd have to review this in some

19 more length. It just says that we based it on the

20 record, says the record included this, and people

21 presented evidence. It doesn't say what piece of

22 the record they based their Decision on. So I'm not

23 sure I'd interpret this to say that the Commission

24 based 21 mills on the Company's cost-of-service

25 filing.

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1 Q. So is it your statement then that the

2 Utah Commission did not consider your

3 cost-of-service study?

4 A. Well, it's certainly my statement that

5 there was nothing in my cost-of-service study that

6 would support a 21 mill price for Magcorp.

7 Q. So it isn't always necessarily the

8 case that the Commission needs to follow or accept

9 your cost-of-service study. But if one of your

10 methodologies to value is to see what other

11 Commissions do with other similar interruptible

12 contracts, would you agree that there is some

13 precedent based upon your logic for the Commission

14 to look to other rulings such as Magcorp?

15 A. I would hope the Magcorp Decision is

16 not precedential for anything.

17 Q. We were hoping just the opposite.

18 MR. BUDGE: If I could have just a

19 moment?

20 May I approach the witness, please?

21 COMMISSIONER SMITH: Yes, Mr. Budge.

22 Q. BY MR. BUDGE: Handing you an exhibit

23 that we'll mark Monsanto Exhibit 42 (sic) that

24 consists of two pages, and we'll provide copies to

25 the Commission and others as soon as we can mark it.

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1 In the interest of time, if you'd look

2 first at the first page, the Company's Response to

3 Request No. 4 regarding the $30 million states that

4 the $30 million prepayment was not included in the

5 cost-of-service study filed in this docket.

6 A. That's correct.

7 Q. Do you see that?

8 A. Uh-huh.

9 Q. And then if you look at the second

10 Response to No. 122, the Company says: The Monsanto

11 prepayment is included in the unadjusted results in

12 the instant filing.

13 Do you see that?

14 A. Uh-huh.

15 Q. Can you tell me which is correct?

16 A. I'll tell you what we did.

17 Q. Well, let's start with which is

18 correct of those two inconsistencies?

19 A. Well, they might both be correct. Let

20 me explain what we did and then we could determine

21 which, if either, of these statements is correct.

22 In my preparation of the

23 cost-of-service study, historically, the

24 amortization of the revenues has been applied as a

25 revenue credit that's been spread system wide, okay,

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1 and so a small portion of that would accrue to

2 Idaho.

3 When I made the adjustments for

4 bringing the Monsanto load situs to Idaho, I did not

5 make any adjustment to that amortization of the

6 revenue, so I didn't take that revenue and

7 specifically assign it to Monsanto.

8 Q. Does that have the effect of

9 increasing the jurisdictional revenue requirement in

10 Idaho?

11 A. Actually, I think in this particular

12 case it's irrelevant, because by the time we're

13 going to implement this contract, those revenues

14 would have been completely been amortized away, so

15 there's no longer an unamortized balance to offset

16 the rate base implication and there's no more

17 revenue there to apply against the current revenues.

18 What we were trying to do here is to

19 say, What's the appropriate revenue for moving

20 forward.

21 So the only implication of whether or

22 not those revenues were assigned to Monsanto here is

23 in saying what's the delta between current price and

24 the new price. It has no impact on what the new

25 price would be, because those revenues are

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1 completely amortized and gone. So there's none of

2 that left to offset the cost going forward, so I

3 think it would be inappropriate to recognize that in

4 conjunction with setting the price for Monsanto.

5 The only implication it has at all on a

6 going-forward basis is determining what's the delta

7 to compare against the current price and the

8 proposed price.

9 Q. So what you're saying, Idaho did not

10 get the benefit of the allocation of any of the

11 $30 million for the purposes of your '99

12 jurisdictional allocation model. Correct?

13 A. Because we were using this to set a

14 price for a contract going forward starting 2002.

15 Q. And if, in fact, Idaho had received

16 its proportionate share of the $30 million, would

17 that not have reduced the revenue requirement for

18 Idaho?

19 A. If I had taken the annual -- if I had

20 taken the annual revenue associated with the

21 amortization, assigned that to Monsanto and included

22 that in the results, that would have, on a actual

23 return basis for including Monsanto, the revenue --

24 the rate of return would have been somewhat higher.

25 However, the target rate of return that we set was

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1 using the rate of return under a system allocation

2 for all contracts, so in that setting, the target

3 rate of return, Idaho got its share of that

4 allocated revenue consistent with its share of the

5 costs for those contracts. So, again, I don't think

6 Idaho was disadvantaged by the way we treated that.

7 Q. But going back to answering the

8 question of the inconsistency between your Response

9 No. 24 and your Response No. 122, the answer is the

10 Company did not include the $30 million in the 1999

11 test year data?

12 A. Well, first of all, there's not

13 $30 million left. There was the remaining year of

14 the amor- -- unamortized portion and the current

15 year's amortization that I did not make an

16 adjustment to situs assign that to Idaho when we

17 made this change.

18 Q. And part of the Company's case is, is

19 it not, that the Monsanto firm load should be

20 treated as a total situs load? Correct?

21 A. Yes.

22 Q. And so on your jurisdictional

23 allocation model, should not the entire $30 million

24 have been allocated to Idaho, rather than shared

25 with the rest of the states?

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1 A. The remaining portion of the

2 30 million, I agree, that should have been done in

3 the allocation. That was an oversight.

4 COMMISSIONER SMITH: Mr. Budge, could

5 you let the witness finish? I think the court

6 reporter is having a little difficulty.

7 MR. BUDGE: Excuse me.

8 THE WITNESS: I agree, that was an

9 oversight on my part when we made the adjustment.

10 However, I think the implication of that is pretty

11 minor, because again, we're not talking about having

12 a full $30 million offset to the rate base in

13 Idaho. We're talking about in this case down in

14 probably the million-dollar range and the current

15 year's amortization would just affect the current

16 revenue, won't have any impact on the target revenue

17 going forward. So, again, yes, that's an oversight

18 on my part, but I don't think Idaho was necessarily

19 disadvantaged by that in the calculation.

20 Q. BY MR. BUDGE: Well, when the

21 Commission approved Monsanto's '95 contract, didn't

22 the Company state that the rate treatment would be

23 deferred for another day?

24 A. That seems to be the statements of

25 people.

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1 Q. And yet the Company has chose, as you

2 just described, to amortize that over whatever

3 period it wants?

4 A. Well, we amortized it over the life of

5 the contract. I think the matching principle of

6 accounting would require us to amortize that over

7 the life of the contract.

8 Q. If we were to be consistent with the

9 Company's proposal that the firm contract for

10 Monsanto all be allocated to Idaho, would that not

11 require that the full $30 million be allocated to

12 Idaho rather than the system?

13 A. Yes, if each of those years when we

14 made the amortization had Monsanto's load and

15 Monsanto's revenue been recognized as part of Idaho,

16 it would have been appropriate for the full

17 recognition of the amortization of the revenues to

18 Idaho and the unamortized balance offset Idaho's

19 rate base, that would have been appropriate.

20 MR. BUDGE: We'd mark that as exhibit,

21 and let me go ahead and hand out, if I can, copies

22 of that. If you want to do that, pass one of each.

23 (Monsanto Exhibit No. 242 was

24 marked for identification.)

25 Q. BY MR. BUDGE: Could we go to 19,

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1 page 19 of your rebuttal testimony, lines 6 through

2 8?

3 A. Okay.

4 Q. And there you basically claim that

5 Mr. Smith's argument is in error regarding

6 allocation of the $30 million to the 1992 contract.

7 Do you recall your testimony about that?

8 A. Well, I think my point here is he just

9 hasn't assigned the money anywhere.

10 Q. Isn't it true that when the '95

11 contract was submitted by PacifiCorp to this

12 Commission for approval, that PacifiCorp did not

13 request any rate-making treatment at that time?

14 A. I'm not specifically aware of that. I

15 do know though that they -- a amortization schedule

16 was established and had been followed in the sense

17 of the implementation of the '95 contract, and the

18 amortization of that has been included in all, you

19 know, results that have been filed with the State of

20 Idaho. And I'm not aware that it's been an issue

21 been taken with the treatment of that here.

22 Q. Would you accept, subject to check,

23 that the Company's Application in that case

24 specifically stated that they were not requesting

25 rate-making?

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1 A. I accept that. I'm just telling --

2 Q. Excuse me.

3 A. I'm just letting you know what's

4 happening in actual practice.

5 Q. Would you also accept, subject to

6 check, that the Commission's Order approving the '95

7 contract -- and that's Order 26282 -- states, quote,

8 The Company requests that all rate-making issues be

9 reserved for a rate case, period, end quote? Do you

10 accept that subject to check?

11 A. Yes.

12 Q. Isn't it a fact, Mr. Taylor, that

13 PacifiCorp indicated in its Application for approval

14 of the '95 contract that it was -- that the

15 $30 million was paid solely to buy out the old

16 contract?

17 A. I understand that that's what the

18 contract itself says.

19 Q. And that would be reflected in

20 Exhibit 201, I believe, of the Application?

21 A. Okay.

22 Q. Isn't it also a fact that the

23 technical assessment package that the Company

24 submitted along with the contract when it sought

25 approval in '95 -- that's Exhibit 203 -- also stated

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1 that it was to buy out the old contract?

2 A. Right. In fact, the technical

3 assessment package recognized that immediately, and

4 it takes zero of the contract to resume its present

5 analysis.

6 Q. And would you also accept, subject to

7 check, that the 1995 contract on its face in

8 Paragraph 4.1.2 states, quote, In consideration for

9 termination of the power supply contract dated

10 July 3, 1991, Monsanto shall pay PacifiCorp $30

11 million?

12 A. Yes.

13 Q. Isn't it true that PacifiCorp, in

14 fact, amortized the $15 million payment over both

15 contracts?

16 A. Yes. What PacifiCorp did is they

17 amortized it more rapidly over the remaining period

18 of the old contract, I think in a way to record on

19 the books of the Company essential equivalent of

20 revenue had the old contract not been terminated,

21 and then the unamortized remaining portion was then

22 amortized over the remaining life of the new

23 contract.

24 Q. And under that amortization you just

25 described, isn't it a fact that only 3.32 million --

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1 3.3 million -- of the payment was actually the

2 amount amortized annually over the new contract?

3 A. Let me look. Okay?

4 Q. You might look at the Company's

5 Response to Data Request No. 122 if you have it, or

6 if not, I'll make it available to you.

7 A. I believe you already made it

8 available to me.

9 Can you restate your question?

10 Q. Isn't it a fact that the Company only

11 amortized $3.3 million annually over the new

12 contract of the 30 million?

13 A. Yes, we amortized on a monthly base

14 $750,000 a month over the remaining term of the old

15 contract, $278,000 a month over the remaining life

16 of the new contract, or the 3.3 million as you

17 state, that's correct.

18 Q. Turning to page 19 of your rebuttal,

19 line 7 or -- lines 9 through 11 --

20 A. What page was that again?

21 Q. Page 19.

22 A. Okay. Lines what?

23 Q. Lines 9 through 11.

24 A. Okay.

25 Q. And here, based on your logic that the

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1 full $30-million payment is allocated over the new

2 contract -- which wasn't the case, but assuming that

3 logic -- you say the starting point ought to be $23?

4 A. Yes.

5 Q. Correct. And based on the Company's

6 new proposal of $27, that only amounts to a

7 17.6-percent increase?

8 A. I think 17.4.

9 Q. If you compare the difference between

10 23 and 27?

11 A. Yes.

12 Q. If you make that comparison as you

13 attempt to do, Mr. Taylor, aren't you, in fact,

14 comparing firm contract -- we ignore the emergency

15 interruptions that exist in both proposals, the new

16 and old one, aren't you essentially trying to

17 compare the firm contract rate of the '95 contract

18 with your new net interruptible contract rate of 27?

19 A. I guess I never realized that Monsanto

20 considered the '95 contract to be firm. I thought

21 they always said it was an interruptible contract.

22 Q. Let me rephrase it. If we ignore the

23 fact that both the new contract and the old contract

24 contain provisions for emergency interruptions -- in

25 other words, the '95 contract contains no economic

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1 curtailment, correct -- and when you arrive at the

2 $23 figure, you were talking about the contract with

3 no economic curtailment, which you were trying to

4 compare with the net price after curtailment that's

5 proposed by the Company today. Correct?

6 A. That's correct. All I was doing was

7 showing the delta between the effective prices of

8 the two contracts.

9 Q. Would you agree that that's the

10 comparison of apples to oranges because the two

11 contracts don't contain similar interruptibility

12 terms?

13 A. Yeah. In fact, I think comparing

14 anything to the 1995 contract is probably apples to

15 oranges comparison, because it was a unique contract

16 for a unique set of circumstances.

17 Q. Isn't it a fact, Mr. Taylor, if you

18 look at the price actually paid by Monsanto since

19 1995, there's never been a year in which they've

20 paid more than $18.50 for their power? Correct?

21 A. Yeah, not taking into account the

22 prepayment, that's correct.

23 Q. So is that a "yes" answer or --

24 A. If you look at, you know, what was on

25 the bill to them, yes.

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1 Q. Okay. That's what I'm talking about,

2 looking at the bill.

3 Isn't it a fact if you looked at the

4 years 2000, 2001, 2002, when you looked at their

5 bottom-line bill after what Monsanto received back

6 from PacifiCorp as a result of the operational

7 reserve payments, that the actual price they paid in

8 those years was less than 18.50?

9 A. Taking into account the money that

10 PacifiCorp has given them back, that's correct.

11 Q. And would you accept, subject to

12 check, the numbers provided in Mr. Schettler's

13 testimony that the net price in 2000 was 17.57?

14 A. Subject to check, I would accept that.

15 Q. Would you also accept that the actual

16 price paid in 2001 was $16.61?

17 A. Subject to check.

18 Q. Okay. So if we were to take that year

19 2001, for example, which would be a price of $16.61

20 after interruptions, and compare it with the

21 Company's price of $27, which is the net after

22 interruptions, would you accept my math is

23 correct -- if my math is correct -- that that would

24 be a 63-percent increase?

25 A. I'd accept your algebra.

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1 Q. And would you also accept that in that

2 scenario I gave you, you're essentially comparing

3 apples to apples?

4 A. I think you're comparing a contract

5 set under a unique set of circumstances with a

6 contract being established under today's set of

7 circumstances which are a big difference.

8 Q. I had some questions, just a few, that

9 I wanted to ask you on one other topic, and then

10 maybe go back to a couple that were deferred to you,

11 but I think you stated earlier that you agreed the

12 principle of gradualism is a consideration that this

13 Commission should take -- should consider in setting

14 rates?

15 A. Is or is not?

16 Q. Is.

17 Would you agree that the principle of

18 gradualism or avoidance of rate shock is an

19 appropriate rate-making principle that the

20 Commission should consider for purposes of setting

21 the rate for Monsanto?

22 A. I'm just not sure it applies in this

23 case.

24 Q. So you wouldn't agree with that

25 principle?

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1 A. No.

2 Q. Isn't it a fact that that principle

3 did impact the Company's proposal in the excess

4 power supply case, the E-02-1 case that we've been

5 discussing?

6 A. Yeah, when you're dealing with tariff

7 customers where we have opportunities to change the

8 prices whenever the situation warrants.

9 Q. So you're saying gradualism should

10 apply to some customers, but not all?

11 A. I think when you establish long-term

12 contracts and go from one to another, the concept of

13 gradualism loses a lot of its meaning.

14 Q. Is part of the reason that you don't

15 feel the principle of gradualism should apply is

16 because Monsanto had a rate as a special contract

17 customer which didn't change from 1995 up until

18 whenever the new contract ends?

19 A. I think that's part of the reason.

20 I think another reason is if you look

21 at what I presented in my Exhibit No. 22 where I

22 compared the historical contracts with the '95

23 contract with our proposal, you find that the

24 principle of gradualism appeared to be -- have been

25 ignored compared where the target ending rate in the

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1 '92 contract and for the new one at 26 versus 18

2 and a half. I mean, I didn't see a lot of

3 gradualism applied when Monsanto was given a

4 lower-priced contract with a much more firm product

5 than they'd been receiving before. So, I didn't see

6 that the principle of gradualism applied then, so

7 I'm not sure why it's such a big issue that it needs

8 to be applied now.

9 Q. So you don't think a 70-percent

10 increase is a big deal to somebody?

11 A. Didn't say it wasn't a big deal. I'm

12 just saying I'm not sure the principle of gradualism

13 is an overriding issue when you're talking about

14 going from one five- or six-year contract into

15 another contract that's going to run for a four-year

16 term.

17 Q. You just made the comment that since

18 Monsanto's rates have been steady for five years,

19 that's a good reason not to be too worried about

20 gradualism. Correct?

21 A. I just think you need to take that

22 into account.

23 Q. So when we look at all of the other

24 jurisdictional customers in Idaho, as well as all of

25 the other states for that matter depicted in

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1 Exhibit 223 that reflects basically the rates have

2 been flat for ten to 12 years, would that factor

3 alone, based on your concept, warrant the Company

4 coming in in a next general rate case and saying, We

5 could ask for a huge increase and forget about

6 gradualism because you've had flat rates for a long

7 time?

8 A. No, because we've had opportunities to

9 review those rates from time to time, and had there

10 been a need for changes, we would have -- those

11 changes would have been implemented.

12 Q. But isn't the principle of gradualism

13 to design -- to prevent a customer from having a

14 drastic change in its electricity costs from one

15 period of time to the next period of time?

16 A. I think that's the intent of

17 gradualism.

18 Q. And would you also agree that when

19 people -- when Commissions view the concept of

20 gradualism, that that should become a concern

21 ordinarily in a general rate case if we're talking

22 about any increase that would be in excess of single

23 digit?

24 A. I don't know what the definition would

25 be, because there are cases where the overall

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1 revenue changes by more than single digits, so you

2 couldn't apply it in that case to a single-digit

3 change to any customer.

4 Q. In your mind, Mr. Taylor, you said you

5 think it's okay to apply that concept to tariff

6 customers but not to Monsanto as a special contract

7 customer.

8 As a tariff rate customer, at what

9 point in time do you feel that gradualism principle

10 should come into play? Is it a single-digit

11 increase, is it something greater, or do you not

12 have an opinion?

13 A. I think if you look at the last couple

14 of cases that the Company's been involved in,

15 oftentimes you look at changes more than double the

16 average or something like that would be an issue

17 whether or not you should go outside of those

18 bounds. It just changes from time to time based on

19 the size of the overall revenue requirement change,

20 the disparity between the current revenues and

21 customer's cost of service, and all of those issues

22 would play into how big of a change you would expect

23 to get from any one class of customer.

24 Q. Let's say that Monsanto's '95 contract

25 had, in fact, been tied to tariff rates in Idaho.

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1 What would Idaho be paying today based on the recent

2 deferred accounting cases?

3 A. I'm not sure I'm following the

4 arithmetic here.

5 Q. What would Monsanto -- excuse me.

6 Had Monsanto been a tariff rate

7 customer in '95 or had its special contract been

8 tied to tariff rates, as a result of the

9 recently-concluded excess power supply case in

10 Idaho, the PAC-E-02-1 case, what would Monsanto be

11 paying today?

12 A. I don't know, because I haven't

13 established what the rate would have been set in '95

14 at full cost of service for Monsanto.

15 Q. Didn't Mr. Zhang propose in that case

16 that there would be a five percent bandwidth, that

17 no customer's rate would go up or down more than

18 five percent?

19 A. Right, but that would have been

20 predicated on the current rate Monsanto was paying

21 would have been a cost-of-service-based rate to

22 begin with, not this 18-and-a-half-mill special

23 contract rate.

24 MR. BUDGE: Can I have just a moment,

25 please?

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1 COMMISSIONER SMITH: Certainly.

2 (Discussion off the record.)

3 COMMISSIONER SMITH: Let's go back on

4 the record.

5 THE WITNESS: Just a bit of

6 clarification of Dr. Zhang's presentation of

7 bringing customers within the plus or minus five

8 percent range in a cost of service, applying that to

9 Monsanto in this case: If 31.40 is cost of the

10 service, then the rate would be plus or minus five

11 percent of 31.40. So, you know, what's that, a mill

12 and a half between 30 and 33, that would be the band

13 upon which they would say they'd move rates from

14 Monsanto.

15 Q. BY MR. BUDGE: Mr. Taylor, you're

16 ignoring the fact, aren't you, that the rate set in

17 the '95 contract was essentially firm other than for

18 the emergency curtailment, and that rate was based

19 on the Company's cost studies at the time that

20 warranted a 18 and a half. Correct?

21 A. No, that rate was based on a

22 contribution of fixed costs standard that showed

23 that revenues over the life of that contract would

24 provide a positive contribution to fixed cost over

25 the incremental costs of serving that load over that

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1 period of time. That's a far different standard

2 than saying Monsanto's rate was paying a full

3 embedded cost of service rate over that time frame.

4 Two completely different standards. I don't know

5 how you could mix and match them together and say

6 one compares to the other.

7 Q. Let me refer to a couple of questions

8 that were deferred to you, if I may, by other

9 witnesses. Exhibit 207 of Monsanto, which is the

10 Company's historic reflection in graphic form of

11 rates for the various states that show all the rates

12 to be relatively flat, are you familiar with that

13 exhibit?

14 A. No, I need a copy of it, if you want

15 to refer to it. It's in here?

16 Q. Monsanto Exhibit 207. Do you have a

17 copy there?

18 A. We'll see.

19 Okay.

20 Q. The question was deferred to you as to

21 whether or not the recent reductions in the Idaho

22 rates reflected in the 02 case this spring are

23 reflected in Exhibit 207?

24 A. I'm not sure what's reflected in here,

25 whether or not it reflects the results of the recent

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1 case, but I take some exception with your referring

2 to the recent price change in Idaho as a rate

3 reduction. I mean, there was several pieces to

4 that -- to that case.

5 There was a realignment between some

6 customer classes in their base rates. There was an

7 application of a power cost adjustment, which is an

8 addition to rates. And there was also an

9 application of a new credit from the Bonneville

10 Power Administration. The net of all those resulted

11 in, for some customers, their net bills now are

12 lower than they were before, but there was no

13 reduction to the base rates of the Company as a

14 result of this. In fact, there's an increase of

15 revenue collections to the Company via the power

16 cost adjustment.

17 So I think it's a misstatement to

18 characterize that as a rate reduction.

19 Q. Let me just ask it a different way,

20 back to my basic question. Were the overall rate

21 reductions that occurred earlier this year in Idaho,

22 are they or are they not depicted in Exhibit 207?

23 A. I don't know. I suspect probably not.

24 Q. Okay. Monsanto has offered 1,000

25 hours of economic interruption, all three furnaces,

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1 two hours' notice only if all three are taken at

2 once. Can you explain how this can best be utilized

3 by PacifiCorp in order to provide the greatest value

4 to PacifiCorp?

5 A. No, you need to -- I think you would

6 address that with Mr. Watters. He could do a much

7 better job than I at answering that question.

8 Q. I think I brought that question up and

9 he deferred it to you.

10 MR. FELL: No, that was not the case.

11 Mr. Watters said that he needed to analyze the new

12 proposal, and when he comes back after analyzing it,

13 he would be able to respond to that.

14 THE WITNESS: I am not the one to

15 assess how those interruptibles bring the most value

16 to the Company.

17 Q. BY MR. BUDGE: Your answer would be

18 the same: You need to analyze it and he would be

19 the one to sponsor that?

20 A. Mr. Watters will address that, yes.

21 Q. I was under the impression that either

22 Griswold or Watters had deferred that to you.

23 A. I hope not.

24 Q. One question I'm sure was deferred to

25 you is whether or not the policy change that I

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1 discussed with the earlier witnesses where

2 PacifiCorp's changed its policy and no longer wants

3 to have long-term interruptible contracts, I asked

4 the question whether or not that was driven, in

5 part, by allocation problems the Company was

6 experiencing?

7 A. Well I think that's driven by a number

8 of reasons, and certainly one of those reasons is

9 acceptance of the interruptible contracts by other

10 jurisdictions. And let me elaborate on that just a

11 little bit if I could.

12 The reason for breaking the contract

13 into different pieces is so you can reflect,

14 rightfully so, what's the cost of providing service

15 to sell power to a customer. That's a

16 jurisdictional issue, should be recognized by the

17 jurisdiction.

18 The other piece of the transaction

19 which brings system benefits is the fact that

20 customers will allow us to enter into some type of

21 agreement with them through interruptibility or

22 something for a certain payment or a certain credit

23 towards their bill. That's the piece that brings

24 system value.

25 So the reason for separating them into

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1 two is so you can identify the two pieces separately

2 to make sure that what we're giving as a credit back

3 to the customer is reflective as a value to the rest

4 of the customers in the system.

5 Q. Mr. Taylor, I understand. You

6 testified to all that before. My question was

7 relatively simple:

8 Is, in fact, that policy change driven

9 in part by the allocation problems the Company

10 believes it's experiencing?

11 A. Yes, because once you then break it

12 into the two pieces, then it's easier for the

13 Commissions in all the other states to determine

14 what the Company provided in the terms of a rate

15 discount or what they got in exchange. If all

16 they're looking at is a net price to a customer,

17 it's much more difficult for them to see whether or

18 not that was a prudent resource acquisition by

19 PacifiCorp.

20 Q. Isn't it true that the modified PITA

21 accord provided for the modification of all special

22 contracts to the system?

23 A. The modified -- an amendment to a

24 modified accord in 1997 provided that all special

25 contracts, whether they were interruptible or not,

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1 would be allocated system wide.

2 Q. Okay.

3 A. I think that was done in recognition

4 of many of the same reasons that the 1995 contract

5 for Monsanto was entered into, the unique set of

6 circumstances that presented themselves.

7 Q. So the change now being proposed by

8 the Company to allocate Monsanto's contract to the

9 situs is, in effect, a change to the modified PITA

10 accord. Correct?

11 A. That's correct.

12 Q. And isn't it true that this is a

13 change then that the Company has chosen to pursue

14 unilaterally?

15 A. Not necessarily.

16 Q. Were there any other states that have

17 agreed to this in some sort of a modified PITA

18 accord proceeding?

19 A. Yeah, in the last Oregon case, the

20 final settlement that was reached in Oregon was

21 reached upon an understanding that contracts would

22 be treated this way going forward.

23 Q. Didn't the PITA accord process involve

24 all the states?

25 A. Right. This has happened post that

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1 agreement in '97. I mean, almost immediately, that

2 Decision proved to be very unpopular, and in every

3 proceeding we went for, no matter what state it was,

4 the issue was always raised that, wait a minute, our

5 customers are paying for the discounts given to

6 customers in other states. It proved immediately to

7 be extremely unpopular and caused contentions and

8 concern in every proceeding after that. I think

9 that's one of the reasons we proposed a change.

10 Q. Has the state of Idaho walked away

11 from the modified PITA accord?

12 A. We haven't had a full-blown rate case

13 in Idaho or those issues would have had to have been

14 resolved.

15 Q. So from the perspective of the state

16 of Idaho, isn't, in fact, the Company's proposal a

17 uniform withdrawal from the PITA accord as it exists

18 as applied in Idaho?

19 A. It's a change to that element of the

20 accord.

21 Q. And it's a change that the Company has

22 pursued unilaterally?

23 A. We've pursued it because we think it's

24 the right thing to do.

25 MR. BUDGE: No further questions.

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1 Thank you.

2 COMMISSIONER SMITH: Thank you,

3 Mr. Budge.

4 Do we have questions from the

5 Commissioners? Commissioner Hansen.

6 COMMISSIONER HANSEN: I just have one.

7

8 EXAMINATION

9

10 BY COMMISSIONER HANSEN:

11 Q. I think it was mentioned earlier that

12 Magcorps's rate increase was phased in over the next

13 couple years. Isn't that correct?

14 A. No, no, the Magcorp was established at

15 $21 a megawatt hour. What was phased in was the

16 number of months for which we could interrupt them.

17 In the first year we could curtail them for two

18 months, and in the years two and three we could

19 curtail them for four months, but the price was

20 constant.

21 Q. And what was the rate increase in that

22 particular case?

23 A. I don't -- I don't know what those

24 numbers are off the top of my head. I could find

25 that for you.

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1 Q. And do you know the number of years

2 since they had previously had a rate increase?

3 A. The Magcorp contract has changed a

4 number of times over the life of its contract. And

5 I think Mr. Griswold, if you would like to ask him

6 those questions, can give you the history of that

7 probably better than I could.

8 Q. Well, I'll check that out.

9 A. Yeah, I'd be happy to provide that. I

10 just don't have that information in front of me.

11 COMMISSIONER HANSEN: Thank you.

12 COMMISSIONER SMITH: Commissioner

13 Kjellander.

14

15 EXAMINATION

16

17 BY COMMISSIONER KJELLANDER:

18 Q. I have just one, maybe two questions

19 on the Magcorp, and then I want to get back to your

20 rebuttal testimony for just a moment or two.

21 With the Magcorp as I read the Orders

22 that were placed and I look at reconsideration,

23 there's this talk of the experiment. What exactly

24 is the experiment in there?

25 And also in that, Magcorp is in

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1 bankruptcy, is that not correct?

2 A. Not anymore.

3 Q. Not anymore. Okay.

4 A. In fact, Magcorp doesn't exist

5 anymore. There's a new -- a new customer that has

6 assumed that contract.

7 Q. Okay. What's the experiment?

8 A. The experiment is to assess the value

9 in operation of interruptibility and how you reflect

10 that in establishing a contract price.

11 One of the issues that seemed to be

12 very important to the state of Utah as they tried to

13 value interruptibility is how much interruptibility

14 do you need to take a certain customers's load out

15 of the contribution of system peak to avoid the

16 allocation to the state of Utah. That was a real

17 focus of the state of Utah in looking at the Magcorp

18 contract.

19 So I think a big piece of this

20 experiment is looking at the curtailments that we're

21 allowed to make with Magcorp and the seeming

22 implications of those on the contributions -- Utah's

23 contribution to system peak as it relates to

24 jurisdictional allocation.

25 Q. Okay, so then I'm just going to state

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1 this -- tell me if this is the case or not -- but it

2 sounds like what happened is they set the rate at

3 $21 and then said, We're going to find what kind of

4 interruptibility it takes to get us to $21. Is that

5 what they're doing?

6 A. Well, I'd be hard-pressed to try to

7 guess what they were thinking. It appears that

8 there was.

9 Q. They didn't put a value on

10 interruptibility, a dollar value, but they put a

11 firm rate of $21?

12 A. So is your question why or what was

13 their justification for that?

14 Q. Trying to read that, because I don't

15 see it in the Orders.

16 A. Well, neither do I.

17 Q. Okay.

18 A. My personal opinion is they call it

19 experimental because they couldn't find any basis to

20 support the number.

21 Q. Let me ask this question then: As

22 they go through this experiment of trying to value

23 the interruptibility of Magcorp or whoever the new

24 company is that assumed the contract, the $21 rate

25 doesn't change. Is that correct?

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1 A. That's correct.

2 Q. Okay. Let's go to your rebuttal

3 testimony if I could, page 18, and in that you have

4 an answer, lines 16 through 24, and in that you

5 quoted a gentleman -- Mr. Racine -- who apparently

6 was an attorney for Monsanto during the '95 case,

7 and the quote essentially gets to the amortization

8 issue of the $30 million payment and it's

9 characterized in part then as creating an effective

10 rate. Is that a correct characterization of that

11 quote?

12 A. Yes.

13 Q. Where does this quote appear? Is that

14 in some official transcript that's filed with this

15 Commission?

16 A. Yes, I believe that was from the

17 approval case of the contract. I actually pulled

18 this directly from Mr. Schunke's testimony, but it

19 was -- that was statements that Mr. Racine made

20 before this Commission in the approval process of

21 that contract.

22 Q. Okay.

23 A. What's the real value of knowing what

24 the effective rate is in that '95 case? I hear you

25 talk about apples and oranges in comparison to

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1 response to questions made or directed to you from

2 Mr. Budge. What is the value of knowing what the

3 effective rate is? Does that guide this Commission

4 in any direction at all?

5 A. It has absolutely no impact on the

6 cost basis for what the new rate ought to be. The

7 only implication of what that number has is

8 determining what the delta is between the two

9 rates. That's the only implication of that number.

10 Q. Okay, then let's talk about the delta

11 for just a moment. That $30 million apparently to

12 get the $23 effective rate -- that you claim is the

13 effective rate -- is spread out over the life of the

14 contract. Correct?

15 A. That's correct.

16 Q. The '95 contract.

17 Now, the life of that contract has not

18 yet been pinned down by the U.S. District Court. Is

19 that correct?

20 A. That's correct.

21 Q. Okay. So there could be some shifting

22 sand as it relates to what the effective rate is

23 assuming that you can use that down the road, but it

24 really hasn't been determined yet because if the

25 Court decides at the end of this year that that's

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1 when the contract ends, then you would have to

2 amortize that out over an additional year. Is that

3 correct?

4 A. That's correct.

5 Q. Have you done any math to tell us how

6 much of a shift that might be to determine what the

7 effective rate would be if it extended over another

8 year based on the U.S. District Court Decision?

9 A. Well, let me just do something real

10 quick in my head. If we're talking about the

11 difference between 18 and a half and 23, so that's,

12 what, four and a half mills. If you extend the rate

13 by another year, that's one-sixth. So what's

14 one-sixth of four and a half? That's, what, another

15 point seven. So it takes it down to 22 and a

16 quarter or something, 22.3, something in that range.

17 Q. So then the range then of an effective

18 rate would be the low end of 22 something up to 23.

19 If you were looking for a range, I think I'd use the

20 effective rate in any way, shape, or form in terms

21 of evaluating what the next rate should be?

22 A. I think that would be one way of

23 looking at it.

24 Q. Okay. Thank you.

25 COMMISSIONER SMITH: Makes me feel

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1 very old to realize that Commissioner Kjellander

2 apparently does not know who Lou Racine is.

3 Do you have much redirect, Mr. Fell?

4 MR. FELL: I do.

5 COMMISSIONER SMITH: Well, let's see

6 how far we can get.

7

8 REDIRECT EXAMINATION

9

10 BY MR. FELL:

11 Q. I was going to start on this issue of

12 gradualism and I couldn't wait to get to it, but

13 maybe I will just make one point. So, Mr. Taylor,

14 would you turn to your Exhibit No. 22?

15 A. Okay.

16 Q. And isn't it true that the blue lines

17 that start on the left side represent the prior

18 contracts up until the 1995 contract?

19 A. That's correct.

20 Q. And if you go to the right side of the

21 table, that's the new proposed price net of the

22 interruptibility values?

23 A. That's correct.

24 Q. Okay. So one of your points -- is one

25 of your points, rather -- I'll ask you the

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1 question -- the comparison between the last bar of

2 those light -- of the blue, rather, not light blue

3 but blue bars, the last bar in 1997 and the 2002

4 bar?

5 A. Relatively modest increase.

6 Q. Yes. Now then, so that leads you to

7 the question of what accounts for the drop in the

8 price for this contract between -- for the 1995

9 contract. Now, you have talked about the different

10 standards under which these contracts were

11 developed. We'll start with the 2002 contract.

12 This is a contract based on embedded cost of

13 service. Correct?

14 A. That's correct.

15 Q. Okay. For the 1995 contract, was that

16 contract based on embedded cost of service?

17 A. No.

18 Q. If we turn to the exhibit, I believe

19 it is your Exhibit 20 -- 202 -- you explain and as

20 this exhibit shows on page 3, it states this is the

21 Application for approval of the 1995 contract?

22 A. Okay.

23 MR. FELL: May I approach the witness

24 and show the witness this contract?

25 COMMISSIONER SMITH: Yes, you may.

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1 Q. BY MR. FELL: Section 7 on that page

2 states the basis for the pricing done in that

3 contract, and would you explain what that basis was?

4 MR. BUDGE: Excuse me for

5 interrupting. Can you identify where you were on

6 what document you are referring to?

7 THE WITNESS: I'm on Monsanto

8 Exhibit 202, page 3, starting on line 7. You with

9 me, Mr. Budge?

10 MR. BUDGE: Thank you.

11 THE WITNESS: Okay. It lays out two

12 alternatives here. First, it says that Monsanto has

13 a viable alternative to taking electricity from

14 Soda Springs Municipal Electric Light and Power

15 Department; and, second, could displace -- Monsanto

16 could displace much of its elemental phosphorus

17 production at Soda Springs with a product produced

18 from a purified wet acid chemical process.

19 Q. BY MR. FELL: Now with that in mind,

20 Monsanto then was approaching -- in effect, it was

21 approaching PacifiCorp and telling PacifiCorp that

22 it could acquire power at a cheaper price than the

23 embedded cost of service. Was that the substance of

24 that?

25 A. Appears to be, yes.

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1 Q. Or it could go to a different process

2 and displace its own load, and in that way, in a

3 sense, avoid the higher embedded cost prices?

4 A. That's correct.

5 Q. And so the reaction to that was what

6 in terms of the type of cost development that was

7 used?

8 MR. BUDGE: You know, I'd object.

9 This is beyond the scope of cross, number one.

10 And, number two, I think this

11 witness -- did you not testify you were not a part

12 of the '95 contract negotiations?

13 COMMISSIONER SMITH: Mr. Fell.

14 MR. FELL: It's contained in the

15 technical assessment package, which is the next

16 exhibit. So we could rely on the exhibits that are

17 there but I could argue from them as well, so we can

18 probably move on.

19 MR. BUDGE: That was kind of my

20 concern. This witness said he wasn't involved in

21 the '95 negotiation, the document speaks for itself,

22 and you're asking him to interpret this particular

23 document as to what was intended and he wasn't

24 involved.

25 COMMISSIONER SMITH: I think Mr. Fell

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1 has agreed we are moving on. Is that correct?

2 MR. FELL: Yes, I think I will do

3 that. I will argue it in the Brief.

4 COMMISSIONER SMITH: In fact, I

5 suggest that we just stop for the evening. Is this

6 an acceptable point, Mr. Fell?

7 MR. FELL: Yes, it is.

8 COMMISSIONER SMITH: I apologize for

9 interrupting you.

10 MR. FELL: No, I'll probably have

11 fewer questions tomorrow.

12 COMMISSIONER SMITH: I figured you'd

13 have more, but I hope you're right. So I think we

14 intend to commence in the morning at 9:00 a.m., and

15 if necessary we won't have I hope constraints that

16 will keep us from going on into the evening if we

17 should need to tomorrow.

18 With that, we're adjourned.

19 (The hearing adjourned at

20 4:43 p.m.)

21

22

23

24

25

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