HomeMy WebLinkAbout20020905Volume 6, pg 574-595.pdf
1 (The following proceedings were
2 had in open hearing.)
3 (Monsanto Exhibit Nos. 216 through
4 220, 237, and 238 were admitted into evidence.)
5 COMMISSIONER SMITH: Mr. Olsen, do you
6 have questions?
7 MR. OLSEN: No questions, Madam
8 Chairman.
9 COMMISSIONER SMITH: Mr. Woodbury.
10 MR. WOODBURY: Madam Chair, just a
11 couple of questions.
12
13 CROSS-EXAMINATION
14
15 BY MR. WOODBURY:
16 Q. Ms. Iverson, looking at your rebuttal
17 testimony on pages 4 through 5, there's a discussion
18 of buy-through option of Monsanto in your proposal?
19 A. Yes.
20 Q. And you state that Mr. Watters'
21 analysis assumes that PacifiCorp always loses the
22 sale of curtailed energy; and you said that's only
23 true if Monsanto always buys through or if Monsanto
24 never makes up lost production at a later time.
25 In those instances that Monsanto
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HEDRICK COURT REPORTING IVERSON (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 chooses to not buy through, do you know whether the
2 Company has a practice of deferring the scheduled
3 production to a later time?
4 A. No, I'm not aware of that. That would
5 probably be a better question addressed to
6 Mr. Smith, as the operator of the plant.
7 Q. And regarding your direct testimony,
8 on page 3, you state Despite PacifiCorp's testimony
9 that the net effect of the two separate contracts is
10 a cost of 27 or $28 per megawatt hour, the actual
11 net cost is indeterminate since the second
12 contract's quantity, price, and timing are unknown.
13 Would you agree that it also does not
14 factor into the net cost Monsanto's option to buy
15 through and the result in buy-through price?
16 A. That's right. That would be a
17 decision made by Monsanto at the time of any
18 curtailment what they would choose, whether or not
19 to buy through based on their inventory levels and
20 the price of power that they would have to purchase
21 at during a buy-through.
22 Q. Okay.
23 MR. WOODBURY: Madam Chair, Staff has
24 no more questions.
25 COMMISSIONER SMITH: Thank you,
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HEDRICK COURT REPORTING IVERSON (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 Mr. Woodbury.
2 Mr. Eriksson.
3 MR. ERIKSSON: Thank you.
4
5 CROSS-EXAMINATION
6
7 BY MR. ERIKSSON:
8 Q. Ms. Iverson, would you agree that a
9 coal-fired base load plant would provide lower-cost
10 energy than a gas-fired single-cycle combustion
11 turbine?
12 A. Generally it's true that base load
13 plants have lower energy prices and higher fixed
14 investment prices, yes.
15 Q. Now, if you were to say to a customer
16 that is paying for electricity on a per-kilowatt
17 basis, is that the same as to say that the customer
18 is paying for electricity on a demand basis?
19 A. On a per-kilowatt basis, that means
20 that the charge is a dollar per kW typically per
21 month, yes, so that would be typically referred to
22 as a demand charge.
23 Q. Okay. Would you turn to page 12 of
24 your direct testimony, please? At line 19 where you
25 state By allocating 100 percent of the generation of
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HEDRICK COURT REPORTING IVERSON (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 transmission demand-related rate base and expenses
2 on the basis of coincident peak demands, all firm
3 customers will receive equal shares of the cost of
4 constructing the investment on a per-kW basis.
5 Isn't that essentially just saying
6 that by allocating 100 percent of the generation and
7 transmission demand-related expenses on the basis of
8 demand, all the customers will then pay equal shares
9 of the investment on a demand basis?
10 A. In the allocation, that's what it
11 means. It means that all customers will be -- be
12 allocated on a cost-per-kW basis in the
13 cost-of-service allocation process. Then that's the
14 next step would have to be rate design, and that's
15 outside of the cost-of-service study. So my
16 statement here at line 19 was referring to the
17 allocation process and cost-of-service study, not to
18 a rate design.
19 Q. Okay. And I'm talking about the what
20 I see is circular nature of your statement. You're
21 saying that you're allocating -- by allocating the
22 demand-related costs on a demand basis, they're
23 going to pay an equal share of the demand costs?
24 A. I'm saying that they're going to be
25 allocated equal costs on a per-kW basis. I'm taking
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HEDRICK COURT REPORTING IVERSON (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 a slice of the system. In other words, everyone
2 gets a share of all of the generation, transmission,
3 demand-related investments, so everyone's allocated
4 an equal amount on a per-kW basis.
5 Q. And you're looking at just the
6 demand-related investment though. You're assuming
7 that all of the generation and transmission is
8 demand related?
9 A. Yes, that it's a fixed investment and
10 so should be allocated on a demand basis.
11 Q. And you also agreed that coal-fired
12 base load plant provides a lot of lower-cost energy
13 as compared to a CT. Correct?
14 A. I would certainly agree with you that
15 generation plants generate energy, just like
16 transmission lines transmit energy, just like
17 distribution lines deliver energy, just like meters
18 meter energy. Energy is a product of the generation
19 plants.
20 Q. Okay. Let's turn to figure one,
21 page 15 of your testimony -- direct testimony. In
22 that figure you depict system peaks, and in doing so
23 are you showing PacifiCorp system peaks or Utah
24 Power and Light system peaks?
25 A. I'm showing PacifiCorp's and Idaho's.
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HEDRICK COURT REPORTING IVERSON (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 Q. Separate bar?
2 A. Exactly.
3 Q. The blue shows Idaho's.
4 And in your classification of
5 generation and transmission which you discuss in
6 your testimony, you propose that the Commission use
7 an 8 CP and 12 CP average. Is that correct?
8 A. That's correct.
9 Q. You find support for that position in
10 the Commission's Order in UP&L -- or, UPL-E-90-1?
11 A. That was the last Order that I could
12 find where the Commission did discuss
13 cost-of-service allocation issues.
14 Q. And they -- the Commission at that
15 time looked at a variety of allocation studies,
16 cost-of-service studies?
17 A. Yes, they did.
18 MR. ERIKSSON: May I approach the
19 witness?
20 COMMISSIONER SMITH: Yes, you may.
21 MR. ERIKSSON: Could I please have
22 this marked as Exhibit 26, I guess?
23 COMMISSIONER SMITH: Yes. We'll mark
24 this Exhibit 26.
25
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HEDRICK COURT REPORTING IVERSON (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 (PacifiCorp Exhibit No. 26 was
2 marked for identification.)
3 Q. BY MR. ERIKSSON: Ms. Iverson, do you
4 recognize this as a portion of the Order which was
5 just discussed?
6 A. Yes.
7 Q. If I could have you turn to page 8 --
8 I'm sorry -- yes, page 8 of that Order, the
9 bottom -- second to last paragraph on that page, do
10 you see the statement by the Commission: For the
11 purposes of this Order, UP&L should be viewed more
12 as an independently-operated system?
13 A. Yes.
14 Q. Is it your understanding that UP&L has
15 merged with PacifiCorp just prior to this case, that
16 is, the '90 case?
17 A. That's my recollection, yes.
18 Q. And that it previously had been an
19 independently-operated system that is now PacifiCorp
20 system?
21 A. Right. It was previously Utah Power
22 and Light, which merged with Pacific Power and
23 Light.
24 Q. Now, with respect to the cost --
25 cost-of-service approach that you discussed in your
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HEDRICK COURT REPORTING IVERSON (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 testimony, in your direct testimony, that shouldn't
2 refer to it as the cost-of-service approach but
3 rather the allocation approach where you propose
4 allocating demand cost to Monsanto based on
5 50 percent of their peak demand?
6 A. Yes.
7 Q. Is that correct?
8 Now, actually, is that 50 percent of
9 their nonfirm load?
10 A. That's right.
11 Q. And the nonfirm load that you used in
12 that analysis was how much?
13 A. Nine megawatts, according to the 1999
14 test period.
15 Q. The nonfirm load?
16 A. Oh, excuse me. The firm load was nine
17 megawatts. The nonfirm would be everything above
18 that.
19 Q. And at the time of this analysis, that
20 did not include the entire load, but only two
21 furnaces, correct, at any time?
22 A. Our -- Monsanto's original proposal
23 was for the interruption of up to two furnaces so
24 that they could maintain one furnace at all times,
25 but since that time we have filed an updated
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HEDRICK COURT REPORTING IVERSON (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 interruptibility proposal that allows for all three
2 furnaces to be interrupted to provide the most value
3 to PacifiCorp.
4 Q. Now, you also didn't apply that
5 approach to interruptible contracts in other
6 jurisdictions, did you?
7 A. No, I did not.
8 Q. And those under Monsanto's approach --
9 proposed approach -- would be allocated on a
10 system-wide basis. Correct?
11 A. Could you repeat that one more time?
12 Q. Isn't Monsanto proposing that system
13 allocation treatment be given for Monsanto load?
14 A. I believe what Monsanto's position
15 is -- is that this is not the correct forum to
16 decide whether it's system or situs approach; that
17 that should be handled in a multistate -- the MSP
18 proceedings.
19 Q. And turning to your rebuttal
20 testimony, in that you did what you've I think
21 referred to as a simple update to your analysis to
22 reflect the new proposal of 1,000 hours of
23 interruption?
24 A. I believe what I did was an update to
25 Mr. Watters' exhibit to reflect the 1,000 hours.
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HEDRICK COURT REPORTING IVERSON (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 Q. And in doing so, you simply applied a
2 higher level of hours to the analysis?
3 A. That's correct.
4 Q. And I think yesterday were you in the
5 hearing room when Mr. Watters discussed the lower
6 average price that would or lower value that would
7 be attributable to the 1,000 hours as opposed to
8 500 hours in the market?
9 A. Yes, I was in the room when
10 Mr. Watters discussed that. However, my view of it
11 is that the first 500 hours would be considered the
12 most valuable, and then the second 500 hours, the
13 additional 500 hours, would certainly I could see
14 would be worth less than the first 500 hours so that
15 the overall average will come down somewhat.
16 Q. Okay.
17 A. So I would agree with Mr. Watters that
18 the first 500 hours would be valued at what
19 Mr. Watters had in his rebuttal testimony, and I
20 would agree that the second 500 hours not
21 necessarily be as valuable as the first 500 hours.
22 Q. And that difference in value is not
23 reflected in the update and analysis that you
24 conducted. Correct?
25 A. No, my analysis assumed that all 1,000
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HEDRICK COURT REPORTING IVERSON (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 hours would be at the same value. But I would say
2 that the second 500 hours would be at a lower value
3 than the first 500.
4 Q. And you also recommended that the firm
5 rate, retail rate, retail cost for Monsanto is
6 $29.30 a megawatt hour. Is that correct?
7 A. That's Monsanto's proposal for at the
8 most what they would believe the firm cost of
9 providing service to Monsanto would be.
10 Q. And that rate is based on the 1999
11 cost-of-service study. Correct?
12 A. Well, it was generated by the use of a
13 1999 cost-of-service study, but that rate implies
14 that Monsanto is receiving a $15 million rate
15 increase, and when that type of rate increase is put
16 into the 1998 cost-of-service study which I now find
17 is the last year which we have audited results and
18 audited cost-of-service study, I find that Monsanto
19 has a rate of return that's at 11 and a half percent
20 rate of return.
21 Q. You jumped ahead a little bit.
22 A. Okay.
23 Q. I still want to talk about 1999.
24 A. I will talk about the 1999 study,
25 sure.
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HEDRICK COURT REPORTING IVERSON (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 Q. And that, with that $15 million
2 increase, you state that the cost-of-service study
3 yields a rate of return for Monsanto of 6.88
4 percent?
5 A. That's right. According to the 1999
6 cost-of-service study, unaudited, Monsanto, at their
7 present rates of 18.50, generates a negative rate of
8 return of negative 5.55 percent, and an increase of
9 15 million gets them up to 6.88 percent.
10 Q. And you understand Monsanto's proposal
11 is to lock into a five-year correct?
12 A. That's my understanding, yes.
13 Q. And if it were set based on that cost
14 of service, that would lock Monsanto into providing
15 a return to PacifiCorp of 6.88 percent?
16 A. That's if you accepted everything in
17 that cost-of-service study, and as my direct
18 testimony went through, we had many modifications to
19 that cost-of-service study.
20 Q. I understand that.
21 Now, your approach there, the use of
22 that approach, has or would have the Commission lock
23 in a rate for Monsanto at a level regardless of the
24 average return -- average rate of return for Idaho
25 based on that cost-of-service study. Correct?
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HEDRICK COURT REPORTING IVERSON (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 A. Well, once again, I'm saying it's not
2 necessarily just based on that cost-of-service
3 study, but I looked at many different considerations
4 in coming up with the 29.3 which I -- per megawatt
5 hour -- which I feel is a reasonable price to start
6 as the firm rate.
7 Q. Okay, what I'm -- I am getting at is
8 the approach or the concept that you're using of
9 bringing, as I understand it, the $15 million which
10 you use, is a level which keeps the Idaho average
11 return at is it eight percent?
12 A. It's 8.418 percent. It keeps the
13 state of Idaho at the rate of return that was found
14 under using the system method.
15 Q. And regardless of what that return
16 was, let's say the return was four percent, the
17 approach that you would have -- you are proposing
18 would lock Monsanto into a rate so that the Idaho
19 average return was left at that four percent.
20 Correct?
21 A. That's correct, but I will just
22 clarify that the Idaho rate of return was not at
23 four percent, it was at 8.42 percent.
24 Q. I understand completely. I'm not
25 asking you to agree to that. I'm just asking you a
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HEDRICK COURT REPORTING IVERSON (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 hypothetical.
2 Now, you also refer to the 1998
3 cost-of-service study and propose or highlight the
4 effect of using that, and the reason you do that is
5 that the '98 cost-of-service study was the last one
6 audited by the Commission Staff?
7 A. Came to my attention after reading
8 Mr. Schunke's testimony that 1998 was the last year
9 that had been audited, and that the Company had
10 filed a cost-of-service study in this case using
11 that test year.
12 Q. And I believe your testimony, I don't
13 know if it was misunderstanding on your part or
14 somebody else's testimony, you refer to the audit of
15 the Commission. You understand that it is the
16 Commission Staff that does the audit?
17 A. I would take that as a clarification,
18 yes.
19 Q. And you understand the Commission does
20 not issue an Order accepting or rejecting the
21 results of that audit?
22 A. I would accept that.
23 Q. And the 1998 cost study is based on a
24 four-year-old test year, isn't it?
25 A. It's certainly a test year that is one
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HEDRICK COURT REPORTING IVERSON (X)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 year earlier than the 1999 test year.
2 MR. ERIKSSON: That's all I have.
3 COMMISSIONER SMITH: Thank you,
4 Mr. Eriksson.
5 Do we have questions from the
6 Commissioners? It appears not.
7 Do we have redirect?
8 MR. BUDGE: Just a couple, if I may.
9
10 REDIRECT EXAMINATION
11
12 BY MR. BUDGE:
13 Q. You were asked questions about this
14 Order No. 23508, Exhibit 26, by this Commission in
15 '91, and as I note on the top of page 9 which
16 further discussed these 8 CP and 12 CP methods, the
17 Commission basically states: We find both the 8 CP
18 and 12 CP methods of allocating generation and
19 transmission costs pose advantages as well as
20 shortcomings.
21 Goes on to state: We must reiterate
22 in setting rates we are not bound by any of the
23 Company's cost-of-service studies or even our own
24 selection of 8 CP/12 CP averaging. Our goal is
25 simply to obtain a reasonably accurate overall view
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HEDRICK COURT REPORTING IVERSON (Di)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 of the Company's cost of serving the various
2 customer classes.
3 Did you give consideration to that
4 Order in your recommendation of the 8 CP method?
5 A. Yes.
6 Q. And was this the only thing you
7 considered or was there other factors that chose you
8 to select that particular method?
9 A. Well, after looking at the peaks of
10 both Idaho -- excuse me -- of PacifiCorp and Idaho,
11 it's apparent that it is a very -- it's a system
12 that exhibits strong seasonality, strong peaks in
13 certain months of the year, which would lead a cost
14 allocation analyst to focus more on those peaks in a
15 cost-of-service study, rather than a simple 12 CP
16 that weights each and every month equally.
17 MR. BUDGE: No further questions.
18 Thank you.
19 COMMISSIONER SMITH: Thank you,
20 Mr. Budge.
21 Thank you, Ms. Iverson.
22 (The witness left the stand.)
23 MR. BUDGE: We have no further
24 witnesses. We would move -- oh, excuse me. We have
25 one more. Okay, I was going to have him go in by
589
HEDRICK COURT REPORTING IVERSON (Di)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 stipulation.
2 COMMISSIONER SMITH: I was going to
3 say we could cross him off.
4 MR. BUDGE: My eyesight's going bad
5 too. I looked around and didn't see anyone.
6 COMMISSIONER SMITH: It's old age.
7 It's hard.
8 MR. BUDGE: We'd call Alan Rosenberg.
9 MR. ROSENBERG: That was the scariest
10 moment I've had.
11 MR. BUDGE: I was anxious to be done.
12
13 DR. ALAN ROSENBERG,
14 produced as a witness at the instance of Monsanto,
15 being first duly sworn, was examined and testified
16 as follows:
17
18 DIRECT EXAMINATION
19
20 BY MR. BUDGE:
21 Q. Would you state your name and address
22 for the record?
23 A. My name is Alan Rosenberg, and my
24 business address is 1215 Fern Ridge Parkway,
25 St. Louis, Missouri.
590
HEDRICK COURT REPORTING ROSENBERG (Di)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 Q. And did you prefile direct and
2 rebuttal testimony on behalf of Monsanto?
3 A. Yes, I did.
4 Q. And did you also sponsor Exhibits 221
5 through 223 with your direct testimony, and with
6 your rebuttal Exhibit 239?
7 A. Yes, I did.
8 Q. Do you have any corrections you wish
9 to make to either your testimony or sponsored
10 exhibits?
11 A. I would like to make just a few
12 corrections and clarifications if I may.
13 First of all, on page 37 of my direct
14 testimony, line 7, it reads "Consequently, it" and
15 by "it" the antecedent is PacifiCorp.
16 Consequently, it has not reflected
17 this $30 million whatsoever in its calculations.
18 And by "calculations," I was alluding to the
19 cost-of-service study.
20 After hearing the cross-examination of
21 Mr. Taylor, I think that statement is not quite
22 correct as we heard Mr. Taylor state that there were
23 two different Data Responses from the Company, and
24 in one Data Response, which is the one that I was
25 thinking of when I made the statement, the Company
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HEDRICK COURT REPORTING ROSENBERG (Di)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 represented that the $30 million was not in there,
2 or what was left of the $30 million. But, as it
3 turned out, there was a subsequent Data Response
4 which states that there was approximately, I
5 believe, eight point something -- forget the exact
6 figure, but it was a little over $8 million in
7 unamortized credit that was left on the Company's
8 books in 1999, and also, there was an amortization
9 of $3.3 million of that $30 million credit in 1999,
10 and that was in the Company's cost-of-service
11 study. Unfortunately, as -- as Mr. Taylor noted, it
12 was not, due to apparently an oversight by the
13 Company, it was not treated as a situs item, it was
14 treated as a system item, and it was allocated
15 across the system.
16 Now, Mr. Taylor states that it doesn't
17 make any difference because in 2003 there will be no
18 amortization left. There are two problems with that
19 observation. One is that we're using a 1999
20 cost-of-service study in this case, or at least the
21 Company is using a 1999 cost-of-service study in
22 this case. And the second reason that I disagree is
23 that this Commission has never -- never declared
24 what regulatory treatment that $30 million would be.
25 Now, in the 1999 study, Mr. Taylor
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HEDRICK COURT REPORTING ROSENBERG (Di)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 uses that credit, that $8 million unamortized
2 portion and the $3.3 million amortized portion, as a
3 offset to revenue, but because it's a system
4 treatment, Idaho only gets about five or six percent
5 of that credit, and of course Monsanto would get its
6 portion as being an Idaho customer.
7 I calculate that if that -- that
8 8.8 million unamortized portion, close to 3.3
9 million amortization portion -- amortization -- were
10 given situs treatment the way it was -- and using
11 the Company's cost-of-service study -- it would
12 lower Monsanto's apparent firm cost of service by
13 approximately $1 per megawatt hour, or point 17.
14 That's a ballpark.
15 The second correction I'd like to make
16 is in my rebuttal testimony, page 12, line 7, the
17 fourth line from the end of the sentence reads
18 "rate," R-A-T-E, and I think it's obvious it should
19 read "weight," W-E-I-G-H-T.
20 And the last item I would like to make
21 for accepting these exhibits is just really a
22 clarification, and that is in my rebuttal testimony,
23 I basically redid an avoided resource type analysis
24 based both on Monsanto's original interruptibility
25 proposal as well as upon the latest proposal that
593
HEDRICK COURT REPORTING ROSENBERG (Di)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 Mr. Schettler offered, and that analysis really was
2 inspired more by Mr. Schunke's own analysis so it
3 took off from Mr. Schunke's analysis, and because I
4 have two -- two avoided resource analyses, one in my
5 original testimony and one in my rebuttal testimony,
6 I would like to state for the record that I think
7 the one in the rebuttal testimony is more relevant
8 and should be taken -- given precedence over the one
9 in my direct testimony.
10 And with those clarifications, I would
11 accept my testimony and exhibits.
12 Q. Thank you. Mr. Rosenberg, if I were
13 to ask you the same questions today contained in
14 your direct and rebuttal testimony, would your
15 answers be the same?
16 A. Subject to those just clarifications I
17 made, yes.
18 MR. BUDGE: With that, we would move
19 that the testimony of Mr. Rosenberg be spread on the
20 record, tender him for cross-examination, and would
21 also move the admission of the exhibits he
22 sponsored.
23 COMMISSIONER SMITH: Did we ever get
24 Exhibit 239?
25 MR. BUDGE: Yes, I believe that was --
594
HEDRICK COURT REPORTING ROSENBERG (Di)
P.O. BOX 578, BOISE, ID 83701 Monsanto
1 that was all handed out and filed with the
2 Commission secretary late yesterday, but if I may,
3 let me make a copy if you don't have it.
4 COMMISSIONER SMITH: We'll be at ease
5 for a moment.
6 (Discussion off the record.)
7 COMMISSIONER SMITH: Okay, be back on
8 the record. If there is no objection, we will
9 spread the prefiled direct and rebuttal testimony of
10 Mr. Rosenberg upon the record, and admit
11 Exhibits 221 through 223, and 239.
12 (The following prefiled direct and
13 rebuttal testimony of Mr. Rosenberg is spread upon
14 the record.)
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HEDRICK COURT REPORTING ROSENBERG (Di)
P.O. BOX 578, BOISE, ID 83701 Monsanto