20060201Vol I Hearing.pdf

ORIGINAL
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE JOINT
APPLICATION OF MIDAMERICAN
ENERGY HOLDINGS COMPANY (MEHC)
AND PACIFICORP DBA UTAH POWER &
LIGHT COMPANY FOR AN ORDER
AUTHORIZING MEHC TO ACQUIRE
Pl\CIFICORP
) CASE NO. PAC-E-O5-8
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HEARING BEFORE -r..
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COMMISSIONER MARSHA H. SMITH (Presiding)
COMMISSIONER DENNIS S. HANSEN
COMMISSIONER PAUL KJELLANDER
PLACE:Commission Hearing Room
472 West Washington Street
Boise, Idaho
Dl\TE:January 17, 2006
VOLUME I - Pages 1 - 113
~-~--'
HEDRICK
POST OFFICE BOX 578
BOISE. IDAHO 83701
208-336-9208
COURT REPORTING
ttl't.'f-V tk eotK/f(QJ(!ttI.fIiru 1978
For the Staff:DONALD L. HOWELL, II, Esq.
Deputy Attorney General
472 West WashingtonBoise, Idaho 83702
For the Joint Applicants:STOEL RIVES LLP
by JAMES M. VAN NOSTRAND, Esq.
900 Southwest Fifth Avenue
Suite 2600Portland, Oregon 97204
For Monsanto:RACINE OLSON NYE BUDGE & BAILEY
by RANDALL C. BUDGE, Esq.
201 East Center
Post Office Box 1391
Pocatello, Idaho 83204-1391
For CAPAI:BRAD M. PURDY, Esq.
ATTORNEY AT LAW
2019 North Seventeenth StreetBoise, Idaho 83702
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID
APPEARANCES
83701
WITNESS PAGE
Brent E. Gale
(Joint Applicants)
Teri Ottens
(CAPAI)
Mark C. Moench
(Joint Applicants)
Terri Carlock(Staff)
EXAMINATION BY
Mr. Van Nostrand (Direct)
Prefiled Direct
Mr. Van Nostrand (Direct)
Mr. Howell (Cross)
Commissioner Hansen
Mr. Purdy (Direct)
Prefiled Direct
Mr. Van Nostrand (Direct)
Prefiled Direct
Mr. Howell (Direct)
Prefiled Direct
Prefiled Supplemental
Mr. Van Nostrand (Cross)
Commissioner Hansen
Commissioner Kj ellander
100
108
109
110
HEDRICK COURT REPORTING
P. O. BOX 578 , BOISE, ID 83701
INDEX
NUMBER PAGE
For the Joint Applicants:
MEHC Adoption Prior Commitments Premarked
Admitted
Combined System Maps Premarked
Admitted
MEC Base Load Plants Premarked
Admitted
MEC Facts and Figures Premarked
Admi t ted
MEC Energy Efficiency Comparisons Premarked
AdIDi tted
Letters from Communi ties Premarked
Admi tted
15.Stipulation and Idaho Commitments Premarked
Admi t ted
For the Staff:
101.Stipulation Premarked
Admi tted 108
Premarked
Admitted 108
102.Staff Recommended Modification to
Idaho Commitments
HEDRICK COURT REPORTING
O. BOX 578, BO IS E , I D
EXHIBITS
83701
BOISE, IDAHO, TUESDAY, JANUARY 17, 2006, 9:30 A.
COMMI S S lONER SMI TH :Good morning.This is the
time and place set for a hearing in Idaho Public Utilities
Commission Case No. PAC-05-8, further identified as In the
matter of the Joint Application of MidAmerican Energy Holdings
Company and PacifiCorp, dba Utah Power and Light Company, for
an Order authorizing MEHC to acquire PacifiCorp.
We I 11 begin this morning with appearances from
the parties.First, I will just tell everyone who might not
know , my name is Marsha Smi th; I'm one of the three
Commissioners on the Idaho Commission.To my left is Paul
Kj ellander, the President of the Commission; and to my right is
Dennis Hansen.And the three of us are the Commission.
So with that, we I 11 begin with the appearances of
PacifiCorp and MidAmerica.Are there two lawyers or one?
MR. VAN NOSTRAND:Just one, your Honor.
behalf of Joint Applicants MidAmerican Energy Holdings Company
and PacifiCorp, James M. Van Nostrand, law firm Stoel Rives in
Portland.
COMMISSIONER SMITH:Thank you, Mr. Van Nostrand.
For the Commission Staff.
MR . HOWELL:m Donald Howell , Deputy Attorney
General, on behalf of the Commission Staff.
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID
COLLOQUY
83701
COMMISSIONER SMITH:Monsanto.
MR. BUDGE:Randy Budge, on behal f of Monsanto.
COMMISSIONER SMITH:And how about the Idaho
Irrigation Pumpers?The record will reflect there is no one
here representing the Pumpers.
Idaho Power Company?And no one representing
Idaho Power.
How about the Community Action Partnership
Association of Idaho?
MR. PURDY:Yes.Brad Purdy, representing that
group.Thank you.
COMMISSIONER SMITH:Thank you, Mr. Purdy.Thank
you for turning on your mike.That's, according to a note
here, one of my responsibilities is to remind you that when you
speak , you need to push the little button that says "touch" so
that your mike light goes red and people can hear you and the
court reporter can get you down.
For the IBEW Local 57?No one.
And how about J. R. Simplot Company?
response.
Thank you.
Are there preliminary matters that need to come
before the Commission before we take up the testimony of the
witnesses?Seeing none, then we I 11 turn to Mr. Van Nostrand to
present the Company I s case.
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID
COLLOQUY
83701
Thank you, Madam Chair.lidMR. VAN NOSTRAND:
just lay the background of sort of how we got here.It might
help you understand how things fit together.
The Application was filed on July 15, and
subsequent to that, the Energy Policy Act of 1 05 was passed
which repealed PUHCA , so that requires a change in the
Application and testimony, so we filed a revised Application
and testimony on August 16.
We had settlement discussions on November 2nd and
December 8th , and we reached a Stipulation which was filed with
the Commission on December 16th.And at the time the
Stipulation was filed with the Commission, there had been
settlements reached in Oregon -- 11 m sorry -- Utah and
California, and sub- - - and subj ect to the most favored nations
provisions process that we have, the parties then met again
last week to see which commitments from the Oregon Stipulation
would be added to Idaho.So we have Terri Carlock I s testimony
today picks up some of these additional commitments from Oregon
that the parties want to adopt in Idaho.So I hope that gives
you some idea where we are.
This morning, on behalf of the Joint Applicants,
we I re proposing to offer the testimony of Brent Gale, and he
will describe sort of how we got where we are and the
commi tments and the Stipulation in Idaho.And we I re also
proposing to offer testimony of Mark Moench, who filed
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID
COLLOQUY
83701
testimony on December 20th in support of the Stipulation.
had an agreement among the parties that these would be the two
witnesses that the Joint Applicants would call , and that
everyone was acceptable just having these two witnesses here on
behalf of the Joint Applicants this morning.
So if there are no questions, we I d like to
proceed by calling Mr. Brent Gale.
COMMISSIONER SMITH:Okay.
MR. GALE:Good morning.
COMMISSIONER KJELLANDER:Good morning.
BRENT E. GALE
produced as a witness at the instance of the Joint Applicants,
being first duly sworn , was examined and testified as follows:
DIRECT EXAMINATION
BY MR. VAN NOSTRAND:
Will you state your name again , Mr. Gale?
Certainly.Brent E. Gale, G-
And who are you employed by, Mr. Gale?
I I m employed by MidAmerican Energy Company, which
is a subsidiary of MidAmerican Energy Holding Company.
Okay.What is your position with MidAmerican
Energy?
HEDRICK COURT REPORTING
P. O. BOX 578 , BOISE , ID 83701
GALE (Di)
Joint Applicants
I I m senior vice president of legislation and
regulation.
What are your responsibilities in that position?
My responsibilities include regulatory affairs,
regulatory strategy, legislative strategy on a state level
legislative relations, regulatory relations, rates, revenue
design
--
or, revenue requirements, rate design , cost of
service.Also, mergers and acquisitions of regulated utility
companies , and some other
- -
other duties as assigned.
And did you have occasion to file direct
testimony in this proceeding?
Yes, I did.
And that was accompanied by exhibits as well?
Yes, that is correct.I believe there were seven
exhibits.
And was your testimony revised in supplemental
testimony filed on August 16th?
Yes, it was.
Do you have any additions or corrections to make
to your testimony or exhibits?
No, I do not.
Okay.If I asked you the questions set forth in
your testimony, would your answers be the same as set forth
therein?
Yes, subj ect to , of course , events that have
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
GALE (Di)
Joint Applicants
occurred in the six months following the filing of the
testimony.
And exhibits were prepared under your direction
and supervision?
Yes, they were.
MR. VAN NOSTRAND:Madam Chair , I I d move the
admission of Mr. Gale's direct testimony and exhibits.
COMMISSIONER SMITH:If there I s no objection , the
direct testimony will be spread upon the record as if read, and
Exhibits will be identified as Exhibits 2 through 7?
THE WITNESS:Yes, I believe that I s correct.
COMMISSIONER SMITH:Okay.Thank you.
(The following prefiled direct testimony
of Mr. Gale is spread upon the record.
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID
GALE (Di)
Joint Applicants83701
Introduction
Please state your name and business address.
My name is Brent E. Gale. My business address is 666 Grand Avenue, Suite
2600, Des Moines, Iowa 50309.
By whom are you employed and in what position?
I am Senior Vice President, Legislation & Regulation, for MidAmerican Energy
Company ("MEC"), a subsidiary and business platform of MidAmerican Energy
Holdings Company ("MEHC"
Please describe the responsibilities of your current position.
My primary responsibilities for MEC include U.S. regulatory and legislative
strategic planning, state legislative relations, federal and state regulatory relations,
rates, regulated cost of service, rate design, utility acquisitions, representation of
MEC's interest in North America regarding electric and gas industry
restructuring, and providing advice and assistance to MEHC regarding federal
legislative policy.
Please describe your background.
I received a B.A. degree from Drake University in 1972 and a J.D. degree, also
from Drake, in 1976. After graduation I joined one ofMEC's predecessor
companies, holding positions of attorney, general counsel and vice president-
general counsel. After the formation of MEC, I held the positions of vice
president-regulatory law & analysis and vice president-legislation & regulation.
I am licensed to practice law in all state courts of Iowa, before the federal
court for the Southern District of lllinois and before the District of Columbia
Gale, Di - 1
PacifiCorp
Circuit. I am a member of the Iowa State Bar Association, the EEl Legal
Committee, the EEl Energy Delivery and Public Policy Executive Advisory
Committee, the boards of the lllinois Energy Association, the lllinois Institute for
Regulatory Policy Studies, and the New Mexico State Center for Public Utilities.
During my career, I have spoken before numerous consumer, industry, and
national and international regulatory conferences, most recently upon the topics of
renewable energy, alternative regulation, electric restructuring, and generation
portfolio diversity.
I have also participated extensively in the negotiation and drafting of
electric and gas legislation in several states and at the federal level. I have
previously testified before the Iowa Utilities Board, lllinois Commerce
Commission and in the courts of Iowa and lllinois.
Summary of Testimony
What is the purpose of your direct testimony in this proceeding?
The purpose of my testimony is as follows:
to provide evidence that the transaction will be in the public interest and to
sponsor some of the commitments that are being offered to protect the
interests of consumers;
to identify the similarities between PacifiCorp and MEC;
to discuss the experience of MEC as evidence of how a regulated utility can
be expected to operate as a subsidiary of MEHC; and
to discuss the various shareholder, state and federal approvals required for
completion of the transaction.
Gale, Di - 2
PacifiCorp
Please summarize your testimony.
My testimony provides evidence that the transaction is in the public interest and
will not harm the ability of PacifiCorp to provide adequate and reliable service to
its customers in all states that it is privileged to serve. This evidence includes the
pro-active offer by MEHC and PacifiCorp to adopt a uniform set of transaction
commitments based upon the commitments in all states from PacifiCorp s prior
transaction. My testimony also includes a detailed discussion of MEC'
experience as an MEHC subsidiary and the similarities between MEC and
PacifiCorp.
The Transaction is in the Public Interest
You have said that MERC's acquisition ofPacifiCorp will be in the public
interest and that commitments will be undertaken to ensure that customers
are protected. What is the basis for your statement?
My reasoning is based upon the following:
As part of my testimony, MEHC and PacifiCorp will adopt a uniform set
of commitments that are based upon the commitments undertaken by
PacifiCorp as a part of the prior merger transaction; these uniform
commitments will be extended to all six states, not just the states that
requested a particular commitment in the previous PacifiCorp transaction.
Also as part of my testimony, in recognition of the differences among the
states, MEHC and PacifiCorp will offer to continue several state-specific
commitments undertaken by PacifiCorp in the previous transaction.
As part ofMEHC witness Mr. Abel's testimony, MEHC and PacifiCorp
will offer numerous new commitments involving generation options
transmission investment, clean air investment, energy efficiency, customer
service and other important matters.
Gale, Di - 3
PacifiCorp
REVISED 8/17/05
PacifiCorp will become a separate business platform under MEHC, with
its own business plan, its own management, its own state policies, and the
responsibility for making decisions that achieve the objectives identified
in the testimony ofMEHC witness Mr. Abel (i., customer satisfaction
reliable service, employee safety, environmental stewardship, and
regulatory/legislative credibility).
The many similarities between MEC and PacifiCorp will facilitate a,n easy
transition ofPacifiCorp as a separate subsidiary ofMEHC.
MEC's operations, as a subsidiary ofMERC, provide demonstrable
evidence that PacifiCorp will have the ability to continue its emphasis on
key utility performance areas such as: customer service; safety; integrated
resource planning; a balanced mix of generating resources, including
renewable generation; use of energy efficiency and demand-side
management ("DSM"); investment in environmental emission control
technology; and collaborative processes.
MEHC and PacifiCorp Commitments
Please explain the uniform set of commitments you referenced.
MERC and PacifiCorp have reviewed the commitments required by the six states
in the Scottish Power pIc ("ScottishPower ) transaction. We have also met with
numerous groups that may have an interest in this transaction and asked them to
identify the risks and concerns that they have at this time.
Exhibit No.2 responds to the risks and concerns addressed in the previous
PacifiCorp transaction and to many ofthe risks and concerns that have been
raised in the meetings with interested groups. This Exhibit identifies MERC'
and PacifiCorp s commitments to address these risks and concerns. The new
commitments sponsored by MERC witness Mr. Abel address other concerns
expressed in the meetings with interested groups. MEHC and PacifiCorp propose
that the commitments in this Exhibit and those in MEHC witness Mr. Abel'
Exhibit No., supersede prior commitments and apply upon the close of the
Gale, Di - 4
PacifiCorp
transaction.
Section I of Exhibit No.2 identifies commitments that address customer
service, regulatory oversight, financial integrity, revenue requirements impact, the
environment, communities, employees and planning. The commitments in
Section I will be applied uniformly to all six states. We are applying these
commitments uniformly to simplify administration for everyone involved,
including PacifiCorp, and to ensure equitable treatment of customers in all six
states. The pro-active adoption of these commitments by MEHC is important
evidence that there will be no harm to the public interest from the transaction.
Moreover, MEHCbelieves the uniform application of the commitments in
Exhibit No.2 to all states also provides evidence of benefits from the transaction.
MEHC understands that no single state was previously provided all of these
commitments. Thus, with the uniform application of these commitments in all
states, each state will be receiving commitments that previously were not
applicable to it. In other words, each state is receiving new benefits and
protections for customers and the public.
While I am sponsoring all of the commitments in Exhibit No., MEHC
witnesses Mr. Goodman and Mr. Specketer in their testimony discuss some of the
regulatory oversight, revenue requirements and the financial commitments in
greater detail. The commitments that they discuss are identified in my Exhibit
No.
Gale, Di - 5
PacifiCorp
Where do you address the state-specific commitments by MEHC and
PacifiCorp related to the prior transaction?
These state-specific commitments are in Section n of Exhibit No.2. These
commitments reflect MEHC's understanding of commitments previously made by
PacifiCorp that reflect unique or state-specific issues.
What is the purpose of the provisions in Section III of that Exhibit?
These are administrative provisions that previously applied in one or more states.
We believe these should be applied uniformly in all states to simplify
administration and to ensure equitable application of the commitments in all
jurisdictions.
Similarities between PacifiCorp and MEC
Why do you believe the similarities between PacifiCorp and MEC provide
evidence that the proposed transaction will be in the public interest and not
harm the interests of consumers?
There are several reasons. First, the existence of these similarities means that
MEHC has experience with the types of issues and risks that confront PacifiCorp.
Second, the existence of the similarities means that MEC and PacifiCorp have
experiences and advice that can be shared to enable them to better pursue the
objectives of customer satisfaction, reliable service, employee safety,
environmental stewardship and regulatory/legislative credibility. Third, the
similarities suggest compatible corporate cultures that should facilitate
PacifiCorp s transition to a business platform of MEHC, Fourth, in meetings with
interested parties prior to the filing of this testimony, one of the most frequently
Gale, Di - 6
Pacifi Corp
, 13
offered comments was to the effect that it was one thing to "talk the talk" but
most were interested in whether PacifiCorp, under MEHC, would "walk the
walk." MEC's operation as a business platform under MEHC provides
demonstrable evidence of how that company has "walked the walk."
What are some of the similarities between PacifiCorp and MEC that you
deem significant?
The most significant of the similarities are as follows:
The utilities operate in contiguous states.
Wholesale transactions, interconnections and positive relationships with
non-jurisdictional (public power and cooperative) utilities are important to
the conduct and financial health of the business.
The presence of the non-jurisdictional utilities creates unique challenges
and opportunities for transmission planning, coordination and operation.
A demonstrable focus upon customer satisfaction is indicated by
independent survey results.
A willingness to utilize renewable energy technologies has been
demonstrated where the utilization is cost-effective for customers and
there is an opportunity for a fair return to shareholders.
A willingness to make significant investments in infrastructure
improvements has been demonstrated where the investments are cost-
effective for customers and there is an opportunity for a fair return to
shareholders.
Investments in DSM and energy efficiency programs are made to the full
extent determined to be cost-effective by applicable state standards.
Collaborative processes are employed to develop environmental, DSM
and energy efficiency programs.
Low-sulfur, Western-basin coals are the only coals used for generation
and provide more than 80% of the energy serving bundled retail
customers.
Coal shipping options are the Burlington Northern and Union Pacific
railroads.
The delivered cost of coal is among the lowest in the United States.
Wind, natural gas and hydro are included in the regulated generation
portfolio, with the percentage of wind capacity projected to comprise a
significant portion of the portfolio by 2010, if cost-effective.
There is a demonstrable commitment to employee safety.
There is a need to plan for and deal with adverse weather conditions
impacting the reliability of the delivery systems to the extent economical
Gale, Di - 7
PacifiCorp
REVISED 8/17/05
and practicable; such conditions include ice, floods, tornados, storms and
snow.
Regulated delivery and electric supply services are provided in multiple
state jurisdictions, with at least one state having competitive retail electric
supply access.
The economy ofthe service area is significantly tied to the land
(agriculture, forestry, and mining).
On the whole, the area served has a comparatively low-density population
except for a few major population centers.
The maps attached to Exhibit No.3 provide some additional information
regarding the similarities.
MidAmerican Energy Company
Please provide some historical background on MEC.
MEC and its predecessor corporations (M., Iowa Power Inc., Iowa-Illinois Gas
and Electric Company, Iowa Public Service Company and their respective
predecessors) have been providing electric service in Iowa, Illinois and South
Dakota for approximately 100 years. MEC is the product of a merger between
Midwest Power Systems Inc. and Iowa-Illinois Gas and Electric Company in
1995. Midwest Power Systems Inc., in turn, was the result of a prior merger
between Iowa Power Inc. and Iowa Public Service Company 1 in 1992. In 1999
MEC was acquired by CalEnergy Company Inc. (subsequently known as
MidAmerican Energy Holdings Company" or "MEHC"), and in 2000, MEHC
and an investor group comprised of Berkshire Hathaway Inc, Walter Scott, Jr. (a
director ofMEHC), David Sokol (Chairman and Chief Executive Officer of
MEHC), and
1 The utilities' parent holding companies (non-registered , exempt holding companies),
Iowa Resources Inc. and Midwest Energy Company, were previously merged in 1990 creating a
new holding company (also a non-registered, exempt holding company) called Midwest
Resources Inc.
Gale, Di - 8
PacifiCorp
Greg Abel (President and Chief Operating Officer of MEHC), closed on a
definitive agreement and plan of merger whereby the investor group, together
with certain of Mr. Scott's family members and family trusts and corporations
acquired all of the outstanding common stock of MEHc.
Where and how does MEC provide electric service?
MEC provides electric service in Iowa, lllinois and South Dakota, and is the
largest utility in Iowa. It provides service to more than 690,000 electric
customers and more than 670 000 natural gas customers in a 10 600 square-mile
area from Sioux Falls, South Dakota to the Quad Cities area of Iowa and lllinois.
The largest communities served by MidAmerican are Des Moines, Cedar Rapids
Sioux City, Waterloo, Iowa City and Council Bluffs, Iowa; the Quad Cities area
of Iowa and lllinois; and Sioux Falls, South Dakota. I have provided a map of the
areas served by MEC in my Exhibit No.
After MEC's 360.5 MW wind project is completed in 2005 , and its 790
MW Council Bluffs Energy Center Unit No.4 is also completed in 2007, the
company will meet the needs of its electric customers with more than 6,100
megawatts of generating capability: approximately 59 percent fueled by coal; 26
percent by natural gas and oil; 8 percent by wind, hydroelectric and biomass; and
7 percent by nuclear. MEC has majority ownership in four of the five jointly-
owned coal-fueled generating stations in Iowa, and a forty percent ownership in
the fifth. Exhibit No.4 shows the locations ofMEC's base-load generating
facilities. In Exhibit No.5), I have provided some basic facts and figures related
to MEC's performance.
Gale, Di - 9
PacifiCorp
Customer Service
Would it be reasonable for the Commission to expect no diminution in
PacifiCorp s performance in the area of customer service as a consequence of
the transaction?
Based on MEC's experience , the transaction will not diminish PacifiCorp
performance in this area. MEC has a strong track record of success in satisfying
its customers. In both 2004 and 2005, MEC's electric business customers ranked
MEC fIrst in the Midwest for overall customer satisfaction, according to the J.
Power and Associates study. In 2004, the J. D. Power and Associates residential
electric study results placed MEC in a tie for first place in the Midwest on overall
customer satisfaction, and the residential gas study placed MEC in a tie for second
place in the Midwest on overall customer satisfaction.
The following performance factors were included in the respective
customer satisfaction studies: Communications with Customers (Business Study);
Power Quality and Reliability (Business and Residential Studies); Billing and
Payment (Business and Residential Studies); Customer Service (Business and
Residential Studies); Company Image (Business and Residential Studies); Price
(Business Study); and Price and Value (Residential Study).
Please describe MEC's relationship with its major customer stakeholders.
Our largest 800 customers are assigned energy consultants who are capable of
assisting customers with unique needs such as energy efficiency, power quality,
gas transportation and metering. MEC's interruptible qedit program, which
offers customers an opportunity to achieve price reductions, has been popular
Gale, Di - 10
PacifiCorp
among larger customers, with 197 MW of load control currently enrolled. MEC
also works constructively with its largest customers to ensure the rates they pay
are based on their costs of service and appropriately reflect any benefits that the
customers bring to the retail system
~,
interruptibility, co-generation). In
2004, our large commercial and industrial customers rated us second in the nation
on overall customer satisfaction in the TQS Research Inc. study.
Energy Efficiency and DSM
Please discuss MEC's experience with energy efficiency programs and DSM
programs.
MEC and its predecessors have offered cost-effective, energy efficiency and DSM
programs in Iowa for more than fifteen (15) years. MEC is represented on the
boards of the Consortium for Energy Efficiency and the Peak Load Management
Alliance and is a member of the Midwest Energy Efficiency Alliance. Similar to
PacifiCorp, MEC has received numerous state and federal awards for its
programs. MEC estimates that customer demand has been reduced by some 220
MW through DSM programs and some 180 MW from energy efficiency
programs. Further, customer annual energy requirements have been reduced by
some 500 000 MWh as a result of the DSM and energy efficiency programs.
These impacts are taken into account in MEC's resource planning analyses.
Does MEC have state approved energy efficiency plans?
Yes. MEC's plans are reviewed and approved by Iowa regulators, usually every
three to five years. Through the review and approval process, the Iowa regulators
determine which programs proposed by MEC meet the tests for cost-
Gale, Di - 11
PacifiCorp
effectiveness, as discussed below. MEC's actual plan expenditures have
exceeded budget for several years due to the success of and demand for the
programs. For example, in 2004 MEC's actual plan expenditures compared to
budgeted plan expenditures were $35.1 million (actual) and $31.3 million
(budgeted), respectively. In 2003, MEC's actual versus budgeted expenditures
were $31.2 million versus $20.1 million, respectively. A comparison, on a
program-by-program basis, for these same years is provided in my Exhibit No.
MEC utilizes a collaborative process to determine which energy efficiency
and DSM programs it will offer for consideration by regulators. The company
most recent collaborative process involved roughly a dozen different parties.
order to be included in MEC's plan, programs must pass a feasibility screening
process that incorporates a societal test. The societal test is an economic test that
compares the present value of the costs and the benefits over the useful life of an
energy efficiency program or DSM program from a societal perspective.
Exceptions to the requirement to pass the cost-benefit tests are provided by rule
for low-income and tree-planting programs. MEC's plans have included all
programs that were identified as feasible and cost effective.
You mentioned MEC'Iowa programs. What about Illinois and South
Dakota?
These states previously have not been as interested as Iowa in energy efficiency
and DSM programs being offered by regulated utilities. However, that may
change in Illinois as regulators, at the Governor' s reques~, are considering
whether to allow such programs. MEC is an active participant in the Illinois
Gale, Di - 12
PacifiCorp
process and is encouraging the state to allow it to extend its Iowa programs to
lllinois consumers.
Environmental Actions
What has been the experience of MEHC and MEC regarding environmental
stewardship?
MEHC is committed to responsible stewardship ofthe environment and, in 2000
adopted a policy of "Environmental RESPECT" that guides its corporate
commitment to the environment. MEHC is a world leader in geothermal energy
development and believes that good environmental management is a good
business practice. Once again this is revealed in MEC's performance.
Does MEC have a plan to address future air emission reduction
requirements?
Yes. MEC in 2001 helped the state ofIowa develop and adopt an energy and
environmental policy reflected in House File 577. Pursuant to that law, regulated
utilities such as MEC develop, through a collaborative process, a multi-year plan
and budget for managing regulated emissions from their coal-fueled facilities in a
cost-effective manner. Mandatory participants in the review and approval process
for that plan and budget are the Iowa Utilities Board, the Iowa Office of
Consumer Advocate and the Iowa Department of Natural Resources. To be
approved, the plan and budget must: (1) meet applicable state environmental
requirements; (2) be expected to achieve cost-effective compliance with
applicable state environmental requirements and federal ambient air quality
standards; and (3) reasonably balance costs, environmental requirements
Gale, Di - 13
PacifiCorp
economic development potential, and reliability of the electric generation and
transmission systems. The state agencies concerned with environmental matters
and utility rates are involved in the collaborative process with the result that the
reasonableness and prudence of the environmental plan is determined prior to its
implementation.
Does MEC have an approved environmental plan?
Yes. MEC filed its first multi-year environmental plan and budget with the Iowa
Utilities Board and the Iowa Department of Natural Resources in April 2002.
That plan addressed MEC's projected air emission reductions considering
legislative and regulatory proposals at the time, and described a coordinated long-
range plan to achieve those air emissions reductions. The plan proposed specific
actions to be taken at each MEC coal-fueled facility and related costs and timing
for each action through the year 2010. The Iowa Utilities Board approved the
plan on July 17 2003 , covering the period April 1 , 2002 to April 1 , 2004, and
adopted a process to review the plan every two years. MEC filed its most recent
plan on April 1 , 2004, and that plan was approved by the Iowa Utilities Board on
October 4, 2004. This plan covers the period from April 1 , 2004 through
December 31 2006.
Did the plan approved by the Iowa Utilities Board include the addition of
emissions controls?
Yes. MEC's approved initial plan (2002 - 2004) called for installing six neural
networks at Council Bluffs Energy Center Unit No., George Neal Energy Center
Unit Nos. 1-, and Riverside Generating Station Unit No.5 during the period
Gale, Di - 14
PacifiCorp
ending March 31 , 2004. All six neural networks were installed during the 2002-
2004 plan period. The current approved plan (2004-2006) continues the addition
of NOx controls with the installation of low NOx burners and overfire air at
Council Bluffs Energy Center Unit Nos. 1-, George Neal Energy Center Unit
Nos. 1-, and Louisa Generating Station. Low NOx burners have been installed
so far at the Neal 3 and Louisa units, with work continuing on the remaining units
through 2007.
Was MEC required to make these reductions in NOx emissions?
No. MEC has voluntarily moved forward to reduce the NOx emissions from its
facilities. Doing so voluntarily, in advance of required reductions, affords MEC
the advantages of (1) being able to appropriately plan the installation of
equipment during the respective units ' normal outage time and duration; (2)
achieving cost savings by aggregating the projects into a single contract to take
advantage of volume discounts; and (3) achieving NOx reductions earlier
allowing impacted states to begin realizing benefits sooner than ajust-in-time
installation would provide.
Will these voluntary NOx reductions make a significant difference in the
MEC NOx emissions?
Yes. Prior to this voluntary initiative, the ~EC coal-fueled facilities had an
average rate of NOx emissions of 0.41Ibs/mmbtu. By the latter part of 2007
with the completion of the low NOx burner installations, MEC is projected to be
at an average NOx emissions rate from the coal-fired facilities of 0.21Ibs/mmbtu.
This is a 49 percent reduction in NOx emissions that will benefit all impacted
Gale, Di - 15
Pacifi Corp
states.
In addition to the NOx controls, do you anticipate any near-term reductions
in SO2 and mercury?
Yes. MEC has analyzed the Clean Air Interstate and Clean Air Mercury rules as
promulgated by EP A, and MEC will seek approval in July 2005 for an
environmental plan that includes the installation of a scrubber and baghouse at
Louisa Generating Station. In addition, in 2003 MEC was the first company to
commit to the installation of an activated carbon injection system for the control
of emissions at the new Council Bluffs Energy Center Unit No., which is
scheduled to come on-line in June 2007.
Do you anticipate seeking approval for additional emission controls as a part
of the environmental plan process?
Yes. Although compliance with the reduction requirements can be achieved by
installing controls or meeting the emission reduction obligations by obtaining
sufficient allowances to cover the annual emissions or some combination of the
two compliance mechanisms, I anticipate that MEC as a part of the environmental
planning process will seek approval for significant investments in controls
between now and 2018.
Is equivalent environmental planning required of MEC in other states where
it provides service?
There are no equivalent requirements in MEC's other states, but all impacted
states benefit from MEC's Iowa-approved environment~l activities.
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PacifiCorp
Renewable Generation
How do you expect the transaction to affect PacifiCorp s commitment to
renewable generation resources?
I expect that PacifiCorp s commitment in this area will be undiminished and
perhaps even strengthened by MEC's experience with owning and operating wind
energy facilities and MEHC's experience owning and operating geothermal
facilities. MEHC and MEC are leaders in the ownership of renewable resources
particularly geothermal (MEHC) and wind in a regulated portfolio (MEC).
How much geothermal generation does MEHC own?
Worldwide, MEHC has 14 geothermal facilities in California and the Philippines.
It also owns and operates an innovative hydro-electric and irrigation project in the
Philippines and is evaluating the development of one of the largest geothermal
projects (215 MW) in the world in California.
What is MEC's experience with wind and renewable resources?
MEC is in the midst of constructing a 360.5 MW wind project, one of the largest
land-based wind projects in the world. This project was undertaken without a
state mandate. The project will occupy two sites in Iowa to obtain wind resource
diversity. In 2004, MEC placed 160.5 MW of the project into service, and
another 200 MW will be placed into service by the end of 2005. The sites were
developed in coordination with two developers, enXco, Inc. and Clipper
Windpower Development Company, Inc. MEC owns and operates the project as
part of its regulated portfolio. The all-in cost of the wind energy, with the federal
production tax credit, is projected to be about three (3) cents per kWh over the life
Gale, Di - 17
PacifiCorp
of the facilities.
In addition, MEC purchases or owns another 127.6 MW of capacity from
renewable energy sources, including: wind (112.5 MW purchased capacity),
hydro (3.6 MW of owned capacity), and biomass (11.5 MW of purchased
capacity). MEC and another utility are also owners of Ottumwa Generating
Station where supplementing Powder River Basin coal with switch grass is being
tested.
Once MEC's wind farm construction is completed, and after completion
of its new Council Bluffs Energy Center Unit No., renewable energy in MEC's
generation portfolio will equal approximately 8 percent of nameplate capacity and
5 percent of energy production, assuming a 34 percent annual average capacity
factor at the MEC-owned wind project.
Resource Selection
Based on MEC's experience, how can the transaction be expected to affect
PacifiCorp s resource planning process?
MEHC expects its energy business platforms to follow the planning method
preferred in the states where it operates. Obviously, there are limitations to such
an approach. For instance, if the preferred resource planning methods, state-to-
state, become so incompatible as to make efficient resource planning infeasible
some effort would need to be undertaken to harmonize the various methodologies.
I have some familiarity with PacifiCorp s resource planning process, and I
am aware that it has received acclaim for its level of st~eholder input.
PacifiCorp s process is recognized as a good, sound approach to resource
Gale, Di - 18
PacifiCorp
planning. MEHC supports PacifiCorp s continued use of this process for its state
jurisdictions.
Do MEHC and MEC prefer one variety of generation resource above others?
No. In recent years, MEHC business platforms have invested in a broad range of
generation technologies, including coal, gas, geothermal and wind. As explained
below, MEC is completing its investments in gas combined-cycle generation
super-critical western-coal-fired generation and wind generation, all pursuant to a
state policy encouraging a diverse portfolio of generation. MEC also utilizes the
wholesale market when prudent and cost-effective, as demonstrated by its multi-
year power purchase agreements ~., a 250 MW purchase from the Nebraska
Public Power District).
Does MEC utilize integrated resource planning?
Yes, in Iowa. As I have testified, energy efficiency and DSM programs are
reviewed and approved by the Iowa Utilities Board. All programs determined to
be cost-effective must be implemented before supply options are considered. The
supply options are reviewed in separate siting and rate-making principles
proceedings before commencement of construction. Integrated planning occurs in
the sense that supply options are only considered after taking into account the
effects of the utility s energy efficiency and DSM programs. I recognize
however, that there are varying degrees of integration used in different
jurisdictions within the United States, and the meaning of "integrated resource
planning" may vary significantly.
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PacifiCorp
Generation and Transmission Operations
Please provide some insight into MEHC's philosophy regarding operation of
a utility s generation facilities.
Again, I will point to our experience at MEc. MEC has decades of experience
operating traditional generation facilities and owning such facilities jointly with
other utilities, including investor-owned, municipal and cooperative utilities.
Refer for example to Exhibit No.7. MEC has some of the lowest cost coal-fueled
plants in the nation. Power magazine, a publication for the electric generation
industry, recently named MEC's Iowa-based electric plants among the best in the
nation. Power annually ranks the country s top plants, and MEC had four among
the top 22 coal-fueled plants in the category of lowest-cost producers.
MEC's experience in cooperative relationships with other utilities, public
and private, and in the safe and efficient operation of base-load generating plants
matches well with that of PacifiCorp. Again, our MEC experience attests to the
fact that MEHC's ownership of PacifiCorp will result in a continuation of the
good practices for which PacifiCorp is known.
Has MEC invested in nuclear generation?
By virtue of a predecessor corporation s investment, MEC has a 25 percent
ownership interest in both units at Quad Cities Nuclear Power Station, for a total
of 437 MW of accredited capacity. The units are operated by the owner of the
remaining 75 percent of the units, Exelon Generation Company, LLC ("Exelon
In 2004, Exelon obtained license renewals from the Nu~lear Regulatory
Commission, permitting operation of both Quad Cities units through December
Gale, Di - 20
PacifiCorp
2032. These two units represent MEC's only ownership interest in nuclear
generation.
Will PacifiCorp be exposed to any additional risk as a consequence of MEC'
ownership of nuclear facilities and nuclear decommissioning obligation?
No. MEC is ring-fenced. PacifiCorp will be ring-fenced as well.
PacifiCorp will need to construct transmission infrastructure as well as
generation infrastructure. What does MEHC's track record suggest with
respect to such endeavors?
MEHC has recent experience with the construction of transmission facilities
through its MEC operations. This experience demonstrates a commitment to
working well with regulators and the public in siting and locating vital
transmission assets. I believe this to be consistent with PacifiCorp s approach.
Please relate MEC's recent experience with transmission.
MEC has decades of experience operating its transmission system. Again, MEC
jointly owns many such facilities with other utilities, both investor-owned and
publicly-owned. Most recently, MEC obtained franchise authority in December
2004 to construct a 122-mile, 345 kV transmission line to integrate its new
Council Bluffs Energy Center Unit No.4 with the grid. . The new generating plant
will be in service in 2007; the transmission line is due to be in service in 2006.
The capital investment in the interconnection facilities and the system additions
totals approximately $170 million. The new line itself represents approximately
$128 million of investment. MEC was required to use eminent domain authority
with respect to only one landowner, having reached voluntary accommodations
Gale, Di - 21
PacifiCorp
for over 430 easements required along the 122-mile route.
Regional Transmission Memberships
The Federal Energy Regulatory Commission continues to promote oversight
of utility transmission by an independent entity. What has MEHC'
approach been with respect to this subject?
MEHC's approach has been similar to that ofPacifiCorp, in that both companies
efforts have focused upon trying to design solutions that accommodate private
and public utilities while balancing costs and benefits.
What has been MEC's experience?
MEC's approach has been one of caution. MEC has determined that existing
RTO membership options
~,
MISO and PJM) have not been in the best
interests of its customers due to the costs of such membership and the penalties
for ending membership. Given the existence of numerous publicly-owned
utilities in Iowa and states to the north and west of Iowa, MEC is particularly
concerned that unless those entities are also participants, the potential benefits
will be limited.
MEC previously sought to address this concern by joining the effort to
create TRANS Link, an independent transmission company that would encompass
both investor-owned and publicly-owned entities. Although the TRANS Link
proposal addressed many of the difficult issues surrounding regional operation
and pricing of transmission, the Minnesota Public Service Commission and the
Iowa Utilities Board in 2003 expressed concerns regard~ng costs and benefits.
The proposal was subsequently tabled. Since that time, MEC has continued to
Gale, Di - 22
PacifiCorp
monitor potential costs and benefits of other alternatives. I will outline the current
alternative that MEC is pursuing in my testimony regarding regulatory approvals
for this transaction.
Regulatory Experience
Based on MEC's experience, what will MEHC ownership mean for
PaciflCorp s regulatory relationships?
As reflected in MEC's relationships , MEHC seeks positive, constructive working
relationships with the regulators who monitor its utility operations. MEHC will
be committed to the same kind of relationships with PacifiCorp s regulators.
How is MEC's relationship with its state regulators?
MEC understands the role of the public utility commission and has decades of
successful experience working within the regulatory framework. MEC takes
seriously the need to maintain its regulatory credibility. For example, in Iowa, the
company has worked very cooperatively and successfully within the regulatory
process. Through settlements in the previous five years, MEC has sited and
received rate-making principles orders in advance of construction for roughly $2
billion in energy infrastructure and environmental investment.
What is MEC's experience with regulatory treatmen~ of affiliates?
In Iowa, MEC makes an annual filing that reflects its affiliate transactions in the
prior year. This filing includes a copy of the written agreements that govern its
affiliate transactions. In lllinois, MEC is required to obtain prior approval of
affiliate transactions unless they fall within the "ordinary course of business" or
other enumerated exemptions. For several years, MEC has had an Intercompany
Gale, Di - 23
, PacifiCorp
Administrative Services Agreement ("IASA") that governs the provision of
routine services between MEC and its affiliates. This IASA has been reviewed
and approved by Iowa and lllinois regulators. MEHC witness Specketer provides
a copy of the IASA with his testimony and explains its operation.
On the whole, our experience with affiliate transactions has been
uncomplicated. I would note, however, that we have a pending proceeding in
lllinois wherein the lllinois Commerce Commission staff examined MEHC's
transfer of two. new gas turbines to MEC in 2001 for the Greater Des Moines
Energy Center ("GDMEC"). MEC did not seek prior approval of the transaction
because MEC believed the law and regulations exempted the transaction from the
need for approval. A hearing examiner for the lllinois Commerce Commission
determined the exemption was not available. In an effort to resolve the matter
without further litigation, MEC has proposed to Iowa and lllinois regulators that
the portion of GDMEC that would have been allocated to lllinois be allocated to
Iowa. The Iowa Office of Consumer Advocate supports this approach, and this
resolution is proceeding through the regulatory process.
Operations in States with Retail Access
PaciflCorp s service territory includes both a state that operates on a model
of competitive electric supply ("retail access ) and states that operate on a
model of traditional regulated electric service. Based on MEC's experience,
how will the transaction affect PaciflCorp s view of this kind of mixed service
area?
Based on MEC's experience , the transaction should have no impact in that regard
Gale, Di - 24
PacifiCorp
since MEC also has experience serving in states with and without retail access.
MEHC and MEC support the right of a state to determine whether or not to
implement retail access.
lllinois has offered electric retail choice since 1999, following enactment
of a law in 1997. Thus, MEC operates in two states (Iowa and South Dakota) that
do not have electric retail access and one state (lllinois) that does. This makes
MEC's experience similar to PacifiCorp s in that both utilities need to be able to
conduct their utility businesses in states with varying positions regarding retail
choice.
Has MEC been supportive of retail access for electric customers?
MEC has been supportive of retail access in lllinois and participated in drafting
the 1997 restructuring legislation in that state. Since the law s passage, MEC has
supported several implementation measures designed to promote effective
competition in lllinois.
In Iowa, MEC took a leadership role in advancing retail access legislation
but Iowa elected not to pursue retail access. MEC's response was to work with
Iowa s Governor, lawmakers, regulators and consumers to develop an energy and
environmental policy for the state, using the regulatory model Iowa prefers.
Again, MEHC expects its energy business platforms to operate on either model
regulated or competitive, depending on the state s preference.
Gale, Di - 25
PacifiCorp
Serving Communities
What will MEHC's ownership of PacifiCorp mean for the communities that
PacifiCorp serves?
Based on MEC's experience , they can expect a continued focus on good service
and good corporate citizenship.
What efforts does MEC's undertake in the area of community leadership?
A key effort is MEC's Community Contact Program , which relies on the
volunteer efforts of some 170 MEC employees who represent MEC in
approximately 225 communities in Iowa, lllinois and South Dakota. These
employees advise MEC of community needs and represent MEC in the
community. Each of the 170 employees has a small discretionary budget from
which grants are awarded in their communities. In addition, these employees
participate in community meetings (M., city council) and relay community needs
that MEC may be able to satisfy
~,
moving poles, digging holes, providing in-
kind contributions to volunteer fire departments, sponsoring floats in community
parades, sponsoring local events, etc.). These 170 employees also provide MEC
support for community activities such as local environmental clean-up efforts and
tree planting projects on Earth Day and Arbor Day. They also serve as channels
for communicating any community complaints about MEC's quality of service.
As a result, the city councils in these 225 communities know who to contact
regarding concerns with MEC.
MEC is also actively engaged in the annual Uni~ed Way campaigns of the
twenty communities it serves that have such campaigns. MEC actively
Gale, Di - 26
PacifiCorp
encourages its employees to contribute to such campaigns and matches employee
contributions dollar for dollar, up to a maximum value of $436 000. MEC also
promotes employee involvement in local Rotary, Chamber, Kiwanis and
economic development organizations.
In addition to MEHC's corporate gift-matching program, MEHC
shareholders fund an innovative program called Global Days of Service. This
program encourages employees to volunteer time for charitable and educational
organizations through a shareholder contribution to the organizations based upon
employee hours volunteered. Employees simply keep track of the number of
hours spent in volunteer work for charitable groups (501 (c)(3) IRS designation)
and for educational institutions worldwide. Employees submit a form listing the
number of hours (over eight) they have volunteered. At the end of the program
year, the shareholder contribution amount is divided among qualifying
organizations based upon the volunteer hours worked.
Does MEC support economic development in the communities it serves?
Yes. Refer to the letters in Exhibit No.7 for examples of confirmation.
Delivery of Transaction Benefits
Please describe how you envision the delivery of the benefits of the
transaction to PacifiCorp customers.
MEHC expects the benefits of the transaction to be delivered to all customers in
all jurisdictions via rate case proceedings and using PacifiCorp s recently
established multi-state allocation protocol when appropriate.
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PacifiCorp
What impact would the transaction have on the degree of regulatory
oversight this Commission has over PacifiCorp?
It would have no impact. The Commission will continue to exercise the same
degree of regulatory oversight over PacifiCorp as it does today.
Will MEHC offeJ; rate credits, rate reductions or rate freezes as a part of the
benefits of the proposed transaction?
No. We believe the demonstrable benefits of the transaction discussed in the
testimonies should be more than sufficient to satisfy the standards for the
acquisition.
Moreover, rate credits are simply a proxy for capturing the costs and
benefits of a transaction between rate proceedings. In the case of PacifiCorp,
such a proxy is unnecessary given the planned rate proceedings. These rate
proceedings will incorporate new investment into rate base and any cost
reductions in cost-of-service.
Finally, PacifiCorp is currently failing to earn its allowed return.
Providing rate credits, reductions or freezes under such conditions would simply
worsen PacifiCorp s financial performance. This could precipitate ratings
downgrades and higher financing costs. Going forward, as PacifiCorp strengthens
the infrastructure, investment and rate treatment of that investment must be
implemented in a manner that is fair to customers, employees and shareholders.
What impact will the commitments made by MEHC and PacifiCorp have
upon the rate increases projected by PacifiCorp?
We do not expect that the commitments that we are offering will cause an
Gale, Di - 28
PacifiCorp
REVISED 8/17/05
increase in the percentage discussed in PacifiCorp witness Johansen s testimony.
Please also note the commitment, Revenue Requirements hnpacts B, of Exhibit
No.
Review and Approval of the Transaction
Please describe the various reviews and/or approvals of the transaction that
MEHC anticipates.
Following are the shareholder and regulatory reviews anticipated with respect to
the proposed transaction:
approval of the shareholders of ScottishPower;
approval and/or waiver from the public utility commissions in the states of
California, Idaho, Oregon, Utah, Washington, and Wyoming;
approval ofthe transfer of the Trojan spent fuel storage license by the U.
Nuclear Regulatory Commission;
approval ofthe transfer of jurisdictional facilities by the Federal Energy
Regulatory Commission ("FERC") under Section 203 of the Federal
Power Act;
approval by FERC of revisions to the open access transmission tariffs of
PacifiCorp and MEC under Section 205 of the Federal Power Act;
Gale, Di - 29
PacifiCorp
REVISED 8/17/05
review of the proposed transaction by the U.S. Department of Justice
under the Hart-Scott-Rodino Act; and
approval by the Federal Communications Commission of the change of
control with respect to certain communication licenses held by PacifiCorp.
Market Monitor and Transmission Services Coordinator
Please describe the Market Monitor Proposal that MEHC has put forward in
connection with its proposed acquisition of PacifiCorp.
Under the proposal, MEC and PacifiCorp would each contract with a market
monitor to assure nondiscrimination in the management of each company
transmission systems commencing on the day of the closing of the acquisition.
market monitor is an independent organization retained to review, on an after-the-
fact basis, transmission system operations necessary to ensure the transmission
provider does not favor its wholesale merchant function or any energy affiliate.
The market monitor would review and report to the FERC on such matters as the
utility s performance of the following transmission functions:
generation dispatch and potential impacts on constrained facilities
actions to relieve constrained facilities
derating of transmission facilities, and
ratings and other data used for total transfer capability calculations.
Gale, Di - 30
PacifiCorp
REVISED 8/17/05
What are the expected costs to PacifiCorp of the market monitor?
Bids for the market monitor services have not yet been solicited. However, we
estimate that the on-going costs to PacifiCorp will be about $200 000 annually.
Does the market monitor proposal impact the development of Grid West?
No. The efforts are complementary. For example, it is possible that some market
monitor services may be provided as an early service by Grid West. When Grid
West is fully operational it should obviate the need for a market monitor for
PacifiCorp, since Grid West would be providing non-discriminatory transmission
services to multiple parties including PacifiCorp.
Will Grid West also serve MEC?
, at least'not for the foreseeable future. Subject to regulatory approval, MEC is
planning to enter into a contract with an outsource provider of transmission
services to be known as the transmission service coordinator ("TSC"). The TSC
initially will administer or oversee only MEC's transmission assets. However
MEC is working with other utilities located to its west that currently are not part
of any regional transmission organization to consider having them also use the
TSC. Ultimately, the TSC may provide transmission services to an area abutting
that of Grid West. At such time, it may be appropriate to put into place a seams
agreement between the TSC and Grid West to enhance transmission system
coordination among transmission users in the states served by PacifiCorp and
MEC.
Gale, Di - 31
PacifiCorp
REVISED 8/17/05
Proposed Schedule
When does MEHC expect to complete the process of obtaining all of the
foregoing approvals and reviews?
We very much want to complete all of the state approvals by February 28 2006
in time to close on the transaction on or before March 31 , 2006. This is an
important transaction for PacifiCorp customers, employees and communities. In
order to mitigate the ill effects of uncertainty and expedite the delivery of
important benefits, we respectfully request that the Commission act in a manner
that will facilitate an order by February 28, 2006.
Closing on that date will also facilitate the transition ofPacifiCorp
financial reporting from a fiscal year ending March 31 as used by Scottish Power
to a calendar fiscal year consistent with how MEHC companies report their
financial statements. Such calendar year reporting is also consistent with
regulatory reporting, which should enable regulators to utilize a single year
audited financial statements rather than have regulatory reporting span two fiscal
years.
Does this conclude your testimony?
Yes, it does.
Gale, Di - 32
PacifiCorp
(The following proceedings were had in
open hearing.
(Joint Applicant Exhibit Nos. 2 through 7
having been premarked for identification, were admitted into
evidence.
BY MR. VAN NOSTRAND:Mr. Gale, could you
describe the events that have transpired since you filed your
direct testimony and exhibits?
Since we filed the direct testimony andYes.
exhibi ts, we have engaged in numerous meetings with interested
persons and parties in all six states that are served by
PacifiCorp.As a result of those meetings, we have entered
into settlement negotiations in every state with the parties.
The outcome of those settlement negotiations has been that we
have a contested settlement in California.That settlement is
with most all parties except the Union and the Office of
Ratepayer Advocate.That proceeding is awaiting an ALJ' s
Decision, which we expect actually this week.
We have reached a settlement as well in Utah with
all maj or parties, and that settlement is awaiting a Commission
Decision.We I ve had the hearing on the settlement already.
Those two settlements were reflected in our Idaho
negotiations.
And , of course, in Idaho, we also have negotiated
a settlement with all major parties, which has been filed with
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GALE (Di)
Joint Applicants83701
this Commission.
Subsequent to the Idaho negotiations, we were
able to enter into a settlement with all major parties in
Oregon , again, except that I think the major exception there is
the Union.ThatThe Union did not contest that settlement.
settlement is - - was scheduled for hearing on Friday of this
week.Therefore,There were no obj ections to that settlement.
the hearing has been cancelled, and it will be awaiting a
Commission Decision as well.
We are currently negotiating in Washington and
Wyomi ng .We reached settlements in principle on Friday the
13th with both Washington and Wyoming.We are in a process
right now of doing some fine tuning on some language with
Wyoming and Washington, and we I re - - are hopeful that we will
be able to file those settlements in those two states this
week.Once we file those settlements, we I 11 share those
settlements with the parties to this case and hopefully be able
to negotiate with the parties again to amend the Stipulation
and add any additional provisions that Idaho might want from
the Washington and Wyoming settlements, similar to what Staff
wi tness Carlock has added with respect to the Oregon
commi tments and the Oregon Stipulation.
Mr. Gale , the testimony that or the Stipulation
that we filed on December 16th has 50 general commitments and
26 Idaho-specific commitments.Could you give some background
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GALE (Di)
Joint Applicants
as to the purpose of those commitments?
Yes.There are really three purposes to the
commitments ~hat were filed and also negotiated in the
- -
the settlement.
The first purpose is to assure that the customers
of PacifiCorp, including specifically the customers in Idaho,
are held harmless from the transaction.Generally, those
hold-harmless commitments you'll find in Commitments 1 through
32, which were commitments that were continued from the
Scottishpower transaction but also modified to meet the needs
of the customers of PacifiCorp in the various states.
gone through the negotiations, modified those somewhat, and
actually strengthened them, I think, from the standpoint of
providing assurance that customers won t be harmed by the
transaction.
Commitment 33 is simply a procedural commitment
as to how the Commission could choose to enforce the
commitments if it so chose.
I would add that in addition to the first
commitments, as noted in Staff witness Carlock's testimony,
there are some additional hold-harmless provisions that are
being recommended for adoption in Idaho.Those are from the
Oregon Stipulation.I believe you'll find those as now
Idaho-specific Commitments 1-28, 29, and 30, if my numbers are
correct.Let me check.
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GALE (Di)
Joint Applicants83701
Yes.Those particular hold-harmless commitments
are directed toward two items, really.Those are corporate
costs that previously were allocated to subsidiaries or
affiliates
- -
or, not subsidiaries, but affiliates of
PacifiCorp that will no longer be affiliates after the
transaction.Those costs are not currently in rates , and it
was a - - there was a desire to ensure that there was no
increase in that type of cost in cost of service associated
with this transaction , simply because those companies would no
longer be affiliates of PacifiCorp.So, that particularly,
Commitment 28 and 30.
Commitment 29 is another hold harmless that has
been added, and that is a hold - - holds customers harmless from
an increase in insurance costs.PacifiCorp was provided
insurance through a captive insurance company of Scottishpower
previously.MidAmerican Energy Holdings Company has agreed to
create a new captive insurance company or utilize an existing
captive insurance company and freeze insurance costs for
PacifiCorp through 2010 so that they would be no more than the
costs that were billed by ScottishPower in 2005, so that I s
another hold harmless.So, those are really the hold harmless
provisions , and I say that the - - one of the purposes of the
commitment.
The second purpose of the commitment is to
provide benefit, particularly for those states that require a
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GALE (Di)
Joint Applicants83701
showing of net benefits; however , all states will benefit by
that since we I re providing those particular benefits in all six
PacifiCorp jurisdictions.That I S something that we agreed to
do as part of this transaction , and that is provide all of the
general commitments to all of the states, as well as any of the
states I specific commitments that states might want.And
you'll find most of those net benefit commitments are in
Commitments 34 through 53 of the general commitments.
And then in particular , again, in Staff witness
Carlock I S testimony where she is recommending the adoption of
Commitment 08 and Commitment 012 from Oregon, those would
become commitments I -- Idaho-specific commitments 1-27 and 29,
I believe.Let me check a moment, please.
Yes.Those commitments , as well as the others
that I mention, provide net benefits to all customers, not just
those in the states that have a net benefit standard.
The third purpose of the commitments is to give
the Commission some indication of how MidAmerican Energy
Holding Company operates regulated utilities and what it looks
for in terms of making investments, and in particular , I think
I could point you to -- to the commitments that wel ve made with
regard to investigating transmission investments that might not
otherwise have been perceived by PacifiCorp, or perhaps more
importantly, might not otherwise have been funded by
ScottishPower.That, in particular , you would find at
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Commitment 34 , and in some of the new commitments to explore
integrated gas combined cycle technology, or IGCC technology.
You 'll find that in the Idaho-specific commitments.I don I t
recall the number right off hand.
Those are examples of how MidAmerican Energy
Holding Company operates its regulated utilities.It looks at
what investments make sense in the long term for customers,
what investments have the ability to reduce cost of service in
the long term.Those are the type of investments that we fund.
We think in the long term our customers are better off, our
customers are more satisfied, rates are more stable, perhaps
even providing the opportunity in the future for some
mitigation of rate increases that might otherwise be planned.
So that was the third purpose of providing those commitments is
to demonstrate to you how we look at investments that can be
beneficial both to the Utility and its customers.
Mr. Gale, have you had an opportunity to review
the supplemental testimony offered by Staff witness Carlock?
Yes, I have.
And in that testimony, she I s proposing to include
in Idaho various provisions from Oregon that were included in
the commitment in Oregon and in the Stipulation in Oregon.
Correct?
That is correct.
Do you have any concerns or comment with respect
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to any of those, the Oregon provisions which Ms. Carlock is
proposing to apply to Idaho?
I do not have any concerns about the commitments
that she is proposing be adopted in Exhibit No. 102.I do have
one concern about - - about her testimony, and that is the
testimony at pages 7 and 8, starting on line 21 of page 7 and
carrying over through line 16 of page If you'd like me to
explain what that concern is , I I d be pleased to do so.
Would you proceed, Mr. Gale?
In that portion of her testimony, Staff witness
is referring to a particular provision out of the Oregon
Stipulation.That provision in the Oregon Stipulation was made
necessary by the uniqueness of the Oregon Statute.The Oregon
Statute has a provision that could be interpreted to require
that any shareholder that owns more than five percent of an
acquiring company must become an Applicant.
17 .In the case of MidAmerican Energy Holdings
Company, we have only four shareholders , and two of those
Mr. Walter Scott , Mr. Warren Buffett -- own more than five
percent of MidAmerican Energy Holding Company.
The particular Oregon Statute has never been
interpreted by the Courts, it I S not really been interpreted by
the Commlssion either , and so there was an uncertainty as to
whether those individuals needed to be Applicants.
Our concern with Mr. Scott and Mr. Buffett
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becoming Applicants in their own right was a concern that the
particular Oregon Statute , if read to require that Mr. Buffett
and Mr. Scott be Applicants, could also be read to require that
Oregon Commission approval be obtained before the transfer of
Mr. Buffett's and Mr. Scott's interest in MEHC.That was
particularly problematic, because it would mean that, for
example, in the event of Mr. Buffett's death, it would be
necessary to get Oregon Commission approval for the
distribution of his shares, and during that period , the control
of Berkshire Hathaway would be up in the air.That was not an
acceptable result for us and I don't think it was an acceptable
result for any parties either that recognize that that was
certainly not an intended consequence of the Oregon Statute.
Nevertheless, we had to protect ourselves -- MEHC -- as well as
Mr. Buffett and Mr. Scott from a potential interpretation of
that Oregon Statute.
The result was the provision that Ms. Carlock
refers to which is Oregon-specific Commitment 10.That
commitment was that Mr. Buffett and Mr. Scott would not
exercise substantial control over PacifiCorp.The
administration of that commitment will mean that Mr. Buffett
and Mr. Scott do not vote on any matters pertaining to
PacifiCorp as owners of their shares.While we don I t think
that's a desirable outcome, it, nonetheless, was one that we
fel t was necessary to avoid the result that I talked about in
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Oregon.
As I say, this provision is related to the Oregon
To the best of my knowledge , you have no comparableStatute.
statute in Idaho.And I would urge that you not adopt this
particular commitment.We are hopeful that we will be able to
get a change in Oregon law so that this is no longer a problem.
If so, we would be -- we would prefer not to have to come back
to each of the other five Commissions to eliminate this
particular provision.Idaho will be the beneficiary of the
Oregon commitment , as long as the Oregon commitment remains;
but if you have no particular concern about Mr. Buffett and
Mr. Scott exercising control or some degree of control over
PacifiCorp as owners of the stock of MEHC , I would ask that you
not adopt this particular provision.
If you do adopt this particular provision , I
would ask that you do two things:First of all , there was a
definition that was inadvertently omitted from the language
that Ms. Carlock has proposed.As it is written , the term
shareholders I' is not defined , and this could be interpreted to
mean that none of the four shareholders could vote on
PacifiCorp matters before the board , and since we only have
four shareholders and they are the board members, that could be
problematic.So I would ask that if you do adopt this, that in
the first two lines, those be marked
- -
that those lines be
modified to say:The sworn statements of Warren Buffett and
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Wal ter Scott, Junior , paren , together wi th - - together , comma,
the quotation marks, capital S, shareholders, closed quotation
mark, closed paren.
Another change that I would ask you to make in
your Order if you do adopt this provision is to indicate that
if this is no longer a requirement in order
- -
in Oregon, that
it no longer is a commitment in Idaho.That might be
beneficial as well.
Those are the only concerns that I had with
regard to Staff witness Carlock I s testimony.
Thank you, Mr. Gale.
MR. VAN NOSTRAND:With that, Madam Chairman
Mr. Gale is available for cross -examination.
COMMISSIONER SMITH:Thank you.
Mr. Purdy, do you have any questions?
MR. PURDY:No, I do not.
COMMISSIONER SMITH:Mr. Howell.
Thank you.Excuse me.Thank you,MR . HOWELL:
Madam Chairman.
CROSS - EXAMINATION
BY MR. HOWELL:
Mr. Gale , good morning.Just a couple of
questions.I guess let I s start at your most recent testimony
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where you were talking about the Staff witness Carlock I
testimony on page 8 of her supplemental where the Staff
recommended the adoption of the language referring to
Mr. Buffett and Mr. Scott.If the Commission were to recommend
that that condition not be adopted, would that take care of
your concern?
Yes.
Secondly, you were involved with the settlement
conferences between the parties in this case?
Yes, I was.
If I could direct your attention , have you
Well, let me start it this way:Have you had an
opportuni ty to review Ms. Carlock's testimony?
Yes, I have.
And on page 3 of her supplemental testimony which
was prefiled on the 13th, she talks about the adoption of
Oregon general Commitment 18.And if I could specifically
direct your attention to line 25 of supplemental page 3 , and
then the following line , I just wanted to be clear that the
capital structures that are referenced in that Oregon
commitment or general Commitment 18 deal with the Company'
ability to make dividends and they -- the capital structures
are not related to rate-making purposes.
That is correct.
And , finally, if
- -
when you were referring to
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Joint Applicants
the various provisions that the Staff is recommending the
Commission adopt, I believe you may have misspoke when you were
talking about Oregon condition or Commitment 12 , which I think
you said it was Idaho-specific 29, and, in fact, on page 7 of
the Staff Exhibit, Supplemental Exhibit 102 , I think it'
identified as Idaho-specific Commitment 31.I just wanted to
make sure that the record is correct in that regard.
Yes , that is correct.
All right.No further questions.Thank you.
COMMISSIONER SMITH:Thank you.
Mr. Budge.
MR. BUDGE:No questions.
COMMISSIONER SMITH:Do we have questions from
the Commission?
COMMI S S lONER KJELLANDER:I don'
COMMISSIONER SMITH:Commissioner Hansen.
EXAMINATION
BY COMMISSIONER HANSEN:
Thank you.I have a couple of questions
concerning the - - the Stipulation.Maybe you could just fast
clarify a couple areas there for me.
On Exhibit 101, page 11 , Item No.6, it talks
there - - I guess my question is does MidAmerican Energy Holding
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Company currently have in place a cost allocation methodology
for costs shared by its subsidiaries, and if you do, when was
it- adopted?
Yes, we do.That is the intercompany
administrative services agreement that is referred to in
general Commitment 13, which is on page 2 of the commitments in
this - - in this docket.That agreement was adopted by the
Illinois Commerce Commission and the Iowa Utilities Board
believe in 19- -- around 1998 or '99, I believe.There have
been some amendments to that agreement as well.But that
particular agreement covers the affiliate trans- - - the general
affiliate transactions between MEHC
- -
more particularly, this
is MidAmerican Energy Company - - and its various affiliates.
And we would anticipate that that same agreement with
modifications would be the agreement that we would have for
PacifiCorp, and that would be filed with the Commission
pursuant to commitment 13.
Okay.So, would our Staff be aware of that
and I guess I could ask our Staff when they I re on the stand --
of that agreement that you have?
I believe that has been discussed with Staff, and
I obviously can't answer for them , but I can say that we have
discussed it.
Okay.The other one I have , another one, is on
Exhibit -- still Exhibit 101, page -- or, No. 16, and this is
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talking about the exclusion of the acquisition transaction
cost, Exhibit 4 , utility account.I think it's on page 13 of
Exhibit 101.It's numbered 16 Stipulation.
My numbering is a bit different.m going to
ask Counsel , do you have that precise exhibit?
MR. VAN NOSTRAND:(Indicating.
THE WITNESS:Thank you.Okay, now I have the
and that is the correct number , it is 16.m sorry, I was on
a different page.Yes, I have that in front of me.
BY COMMISSIONER HANSEN:Okay.With that along
with what Mr. Abel talks about in his testimony, and also
Terri Carlock addresses it, this issue of excluding the
acquisition or transmission costs from PacifiCorp I s utilities
account and not to rate recovery of these costs.Is that
correct?
Yes , although there is actually another
commitment with regard to the acquisition premium.You III find
that is Idaho-specific Commitment 1-18.But this particular
commi tment covers the transaction costs.
Okay.I I d like to kind of make sure I understand
this.Now , if I understand it correctly, these costs would be
recorded on one of your holding companies' books?
The costs of the acquisition premium will be
recorded at the intermediate holding company, which is PPW
Holdings , LLC.Those acquisition premium costs will not be
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Joint Applicants
recorded at the Utility.
Now , the trans- - - the transaction costs that
we're talking about in Commitment 16 , those may be recorded
at -- some of those may be recorded at the PacifiCorp utility,
but they will be recorded in below-the-line accounts.
I guess the question I'd have is
- -
is those that
are recorded or booked with a holding company, then would there
be nothing to prevent the holding company from transferring
these costs back to PacifiCorp I s account in the future if they
so justified it?
The wording of the specific commitment with
regard to the acquisition premium is at I ~17 , and there we have
a commitment that those costs will be recorded at
- -
in the
accounts of the acquisition company and not the Utility.The
only way that that
- -
those costs could be recorded at the
Utility would be to get the permission of this Commission and
the other five Commissions to do so.So, no , I do not believe
that those costs could be recorded at the Utility without your
approval.
Okay.I have a question regarding Mr. Abel I s
testimony on page 11 , line 18 through 21.
All right.
He states that it proj ected PacifiCorp I s service
territories will require investment of at least one billion per
year for at least the next five years to assure reliable
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service.
And then on page 14 , line 15, he identifies a
Patch C upgrade of 78,000 (sic) in Southeastern Idaho to
Northern Utah.
And - - and so of the five billion, is that the
only capital money that I s proj ected to be spent in Idaho in the
next five years?
That is the
- -
let me start over.TheNo.
answer is still , "No.
What Mr. Abel is identifying at that page in his
testimony are - - is one of the incremental investments that
MidAmerican Energy Holding Company is proposing to implement as
a r~sul t of this transaction.There are other capital
investments that were planned by PacifiCorp for Idaho that will
continue to be made, and indeed as we have -- as we have made
addi tional commitments in the various states, I think there are
at least one other of the commitments that we have made that
will have an impact -- a positive impact -- on Idaho as well.
That includes some of the transmission investments that we are
looking at.I believe the Bridger to Ben Lowman and Bridger to
Miners has some positive impact on Idaho, and I think there'
another one as well.This is the dollars that were referred to
by Mr. Abel , or simply some incremental amounts that would be
associated with Iowa - - the Idaho investment that we would
make.It is not all the investment that PacifiCorp will be
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making in Idaho over the next five years.
, have you prepared the five-year capital
investment plan then that you talk about, the billion dollars a
year for five years, or is that just an estimate out in the
future and you really haven I t documented where that's going to
be spent?
The - - the $1 billion per year number was in the
test - - was provided in the testimony of witness Johansen , and
that reflects ScottishPower and PacifiCorp' s plans for
investment over the next several years.It also -- witness
Johansen also talks about their planned rate activity for the
next several years.
MidAmerican Energy Holdings Company has not
changed that plan , but we were not part of the development of
that plan either.We were provided a prior plan on which to do
the analysis of the valuation of PacifiCorp.You 'll see that
variously referred to as Scenario That is
- -
that plan was
a current plan at the time that was provided to us but it is
not the same as PacifiCorp I s plan today.
We've analyzed that plan and we have looked at
the investments in that plan, but there have been some changes
to that plan by PacifiCorp.For example, their plan now does
include the Path C investment we were just talking about as a
result of a proposal that they made in their last IRP filing.
So to directly answer your question, those
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particular investments were prepared by Scottishpower and
PacifiCorp, they were not prepared by MEHC , but we are aware of
generally what those investments are.
So if I understand correctly, then in the future,
you 'll be updating this $5 billion plan.Is that right?
We will be looking seriously at that plan and
whether we think that
- -
that that I s an appropriate plan for
PacifiCorp.We'll be asking questions of PacifiCorp, more
detailed questions about that plan, perhaps making some
suggestions as to other things that they might look at.
Ultimately, it has to be PacifiCorp' s plan.
They re going to operate as their own company, as a separate
company, and they will be responsible for the results of their
own operations, but we will be making suggestions.
m moving along.I I 11 be through my list here
pretty quick.
Commitment 33, I just wanted to get your comments
on this commitment and I don I t really know what went into the
parties agreeing to this, but on Commitment 33 , I guess as I
look at this, by approving this Stipulation , wouldn I t the
Commission be agreeing to be bound by this provision what
and what if the Commission may want more discretion in
administering compliance with these - - these commitments?And
I I m just
- -
this is the only one I could find that has this in
it that it sounds to me like the Commission is kind of locked,
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Joint Applicants
and I'd like to get your comments.Was that something that you
people were promoting or someone else?
Sure.Let me -- let me start with your first
question , and that is , no , the Commission isn't bound by any of
the commitments.The commitments are being made by MEHC and
PacifiCorp in order to ensure that we meet the standards for
approval of the transaction.As we I ve indicated , I believe
both the Stipulation and I think there I s even a provision in
the commitments themselves , the commitments are binding only on
MidAmerican and on PacifiCorp.You would be simply approving
those commitments as adequate to demonstrate that there is no
harm to the public in Idaho.This particular provision is a
procedural one or an administrative provision that we suggested
as a way of enforcing the commitments.
In our discussions with numerous interested
parties, a concern frequently expressed was how do we enforce
these commitments?And Commi tmentWhat mechanism do we use?
33 was a mechanism that we were suggesting.As you can tell
though by the wording, it simply indicates that MEHC and
PacifiCorp encourage the Commission to use this particular
provision.You don I t haveIt I S purely voluntary on your part.
to use it.If you have another -- if you have another
mechanism either provided by Statute or by rule or by policy,
that's perfectly - - perfectly acceptable.MidAmerican and
PacifiCorp were simply trying to provide a process that could
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Joint Applicants
be used to enforce the commitments, but it is not one that'
binding upon you.You may use it if you so choose or not.
Would you have a problem if the Commission was to
delete that third sentence ending with:The Commi s s i on shoul d
take no action?
No.I f that's - - if that would make the
Commission more comfortable , since this is a voluntary - - a
vol untary process anyway, I don't think I would have a problem
with that.
Okay.One other area is , Mr. Gale , in your
testimony, or Mr. Abel, that I have failed to recall which , but
I thought it was said that the acquisition
- -
there would be no
change in the quality of service that has been provided by
ScottishPower/PacifiCorp.Is that correct?
I believe that is correct.
Do you have any plans in improving the service
quality and reliability in Idaho?
We will certainly be looking at opportunities to
cost-effectively improve service in all states, and that would
certainly include Idaho.
Are you aware the outages that have taken
place in Southeastern Idaho this last year?
m not familiar with the details.am aware
some of the circumstances , yes.
Just take a moment.I received a letter -- a
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Joint Applicants
couple of letters - - and I'd just like to read a couple quotes
from it.This is a letter from a person that owns a business
down in Southeastern Idaho, and just a couple quotes:
We continue to have brownouts.Whenever thi s
happens , if it is after business hours, I have to go to the
store and check everything is turned back on.We had a
brownout on December the 8th.Everything came back on except
our cash register and gas pump.Another time in December we
had a brownout after hours.I didn I t know it though because
was asleep.
Then in her last sentence:Yes, we are
definitely still having problems with our service here.
And then I received another comment for some
people in the Soda Springs area that was without power for
hours, and this happened just I think in the month of November.
And when the power did come on , evidently there was a power
surge and many of these people lost TVs , their stoves , their
Different things were destroyed.They contactedovens.
PacifiCorp and to see if it was covered, and they told them to
fill out these forms and that they had to submit them.This
was over a month ago.Some people, I I ve got here, they lost
garage door openers, TVs , a stove , an oven , different things.
And I guess
- -
I guess where I I m coming from on
this is that I've had customers tell me that they think the
service is actually worse and getting worse in the last couple
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years than it had been before Scottishpower got involved.And
I guess my question to you is if the customers perceive that
the service quality is poor in Southeastern Idaho and yet the
Company is saying that it I s outstanding service quality, how do
we find out who I s really shooting it straight?Do you have any
plans to verify that the customer is getting good service?
maybe in your mind this is good service , I don't know.
I think there are a couple things that I can say
in response to that.
First of all, Commitment 35 , the general
Commitment 35, is one that MEHC has made with regard to some
programs to improve transmission and distribution throughout
the service territory.Those were not programs that were going
to be funded by Scot tishPower; they are programs that are going
to be funded by MidAmerican.There are a number of those
programs.There I s 75 million for the asset risk program,
69 million for additional transmission and several other
investments.
Let me say though more generally that MEHC,
through its operation of MidAmerican Energy Company, has
demonstrated a focus on customer satisfaction.We know that
for customers to be satisfied , you really need three things:
You need reliable service at reasonable cost, number one; you
need to be responsive to the customers; and you need to be
honest with them.
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Now, sometimes when you're honest with them that
you can It give them everything that they want, but I think the
customers still appreciate that you I re honest and you'
responsive.Those are three pillars, I guess, of MidAmerican'
approach to customer service.Customer has to feel like
they're getting a reasonable service, reliable service , at a
reasonable cost, and as I said, we have to be honest and we
have to be responsive.And we 11 be looking at PacifiCorp in
those areas.
Yes , PacifiCorp has very high customer
satisfaction , but that doesn I t mean that improvements are not
possible , and we know that from our operation of MidAmerican
Energy Company that improvements are always possible , and we'll
be looking at those areas, because having satisfied customers
makes our job easier , it makes your job easier , and certainly
it's beneficial for all of us if customers are satisfied with
the service they receive.We'll be looking at that very
carefully.
COMMISSIONER HANSEN:Thank you very much.
That's all the questions I have.
COMMISSIONER SMITH:Commissioner Kj ellander.
Do you have any redirect?
MR. VAN NOSTRAND:, Madam Chair.
COMMISSIONER SMITH:Okay.Thank you f or your
help.
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Joint Applicants
THE WITNESS:Thank you very much.
(The witness left the stand.
COMMISSIONER SMITH:So, Mr. Purdy, I heard that
your witness may need to be somewhere else at 11: 00.
MR. PURDY:Yes , Madam Chair, thank you.She
needs to be at a legislative function and needs to leave here
by 11 ol clock.Should that be a problem, I have a couple
proposals.
COMMISSIONER SMITH:, Mr. Van Nostrand, should
we go with your next witness?
MR. VAN NOSTRAND:We have no problem
accommodating Mr. Purdy and Ms. Ottens.
COMMISSIONER SMITH:It's up to you.
MR. PURDY:Well , to be cautious then , perhaps
now would be the appropriate time to put her on the stand.
COMMISSIONER SMITH:Is there any obj ection from
the other parties?
MR. BUDGE:No objection.
COMMISSIONER SMITH:Okay.Thank you.
MR. PURDY:Thank you.
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TERI OTTENS,
produced as a witness at the instance of the Community Action
Partnership Association of Idaho, being first duly sworn, was
examined and testified as follows:
MR.PURDY:
Idaho.
DIRECT EXAMINATION
Would you please state your name?
Teri Ottens , O-
And who are you representing today, Ms. Ottens?
The Community Action Partnership Association of
And what is your role with that organization?
I am the policy director for CAPAI.
Okay.And you have previously testified before
this Commission , have you not?
- Q.
case?
I have.
And have you prefiled direct testimony in this
Yes, we have.
And that consists of eight pages of text?
Yes.
Is that correct?
And you do not have any exhibits.True?
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OTTENS (Di)
CAPAI
m sorry?
You do not have any exhibits to your testimony.
Is that right?
No, I do not.
All right.I f I were to ask you the same
questions today as contained in your direct testimony, would
your answers be the same?
Yes , they would.
MR. PURDY:Madam Chair , with that, I would ask
that the direct testimony of Teri Ottens be spread upon the
record as if read.
COMMISSIONER SMITH:Without objection, it is so
ordered.
(The following prefiled direct testimony
of Ms. Ottens is spread upon the record.
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
OTTENS (Di)
CAPAI
I. INTRODUCTION
Please state your name and business address.
My name is Teri Ottens. I am the Policy Director of the Community Action Partnership
Association ofIdaho headquartered at 5400 W. Franklin, Suite G, Boise, Idaho, 83705.
On whose behalf are you testifying in this proceeding?
The Community Action Partnership Association ofIdaho ("CAP AI") Board of Directors
asked me to present the views of an expert on, and advocate for, low income customers 0
PacifiCorp on behalf of CAP AI. CAP AI's participation in this proceeding reflects our
organization s view that low income people are an important part ofPacifiCorp
customer base, and that these customers will be uniquely impacted by the proposed
merger between PacifiCorp and MidAmerican Energy Holdings Company (MHEC).
CAPAI is an association of Idaho s six Community Action Partnerships, the Idah
Migrant Council and the Canyon County Organization on Aging, Weatherization and
Human Services, all dedicated to promoting self-sufficiency through removing the causes
and conditions of poverty in Idaho s communities.
Community Action Partnerships ("CAPs ) are private, nonprofit organizations
that fight poverty. Each CAP has a designated service area. Combining all CAPS, every
county in Idaho is served. CAPS design their various programs to meet the unique needs
of communities located within their respective service areas. Not every CAP provides all
of the following services, but all work with people to promote and support increased self-
sufficiency- Programs provided by CAPS include: employment preparation and dispatch
education assistance child care, emergency food, senior independence and support
clothing, home weatherization, energy assistance, affordable housing, health care access
and much more.
Have you testified before this Commission in other proceedings?
~T~~~~ ~~~T' .~, T~T ~~ ~~~T
~~~,
Yes, I have testified on behalf of CAP AI in general rate cases involving Idaho Power
Company, AVISTA, and United Water. CAP AI participated in the recent PacifiCorp
general rate case and was a signatory to the settlement reached in that proceeding.
addition, CAP AI has also submitted comments in Intermountain Gas Company s recent
PGA filing.
Why has CAP AI intervened in this particular proceeding?
CAP AI was concerned that the acquisition ofPacifiCorp by a holding company with non-
utility interests, and the utility holdings of which operate well outside our geographic
reason, was of significant importance to PacifiCorp s low-income Idaho customers.
Furthermore, when PacifiCorp and Scottish Power applied to this Commission for
approval of their merger in the late 1990s, the applicants made certain concessions to
ensure that ratepayers would not be harmed as a result of the merger. CAP AI's intent
was to see that similar assurances were made in support of the merger proposed in this
case.
According to the Department of Commerce in the State of Idaho, 12% of the
State s population, when using the 2000 Census, falls within federal poverty guidelines
and 21 % fall within the state guidelines set at 150% of poverty levels. The 2000 Idaho
Census reveals that those living in poverty are categorized as 8.3% elderly, 13.
children, 8.3% all other families, 35.3% single mothers and 34% all others. In Idaho
104 537 households representing 227 000 citizens were eligible in Idaho for energy
assistance and weatherization but only 31903 households statewide received LIHEAP
assistance in the 2004 heating season and only 1 395 homes received weatherization
services (356 in the Idaho PacifiCorp service area).
According to the Department of Energy, the "affordability burden" for total home
energy is set nationwide at 6% of gross household income and the burden for home
~T~~~~ ~""~T' ,~'nT""'~ ~~~T ""'~~'T""':I
Q18
Q25
heating is set at 2% of gross household income. Idaho ranks # 4 in the nation with the
highest energy burdens. There is a gap of$50 470 559 between what Idahoans can afford
to pay (based on federal standards) for energy in 2004 and what they actually paid.
Currently the LIHEAP program sends $11 million (for energy assistance, Weatherization
and administration) to Idaho.
What types of programs does PacifiCorp currently have in place that directly address the
needs of its low-income customers?
PacifiCorp operates project "Lend a Hand" which is similar to Idaho Power s "Project
Share." In addition, PacifiCorp operates a low-income weatherization program as do
Idaho Power and AVISTA.
Does CAP AI believe that there are improvements that can and should be made to these
programs?
Definitely. Regarding Lend a Hand, CAP AI believes that the current level of funding,
approximately $10 000-$15 000 is hardly enough to make a dent in the needs ofthe
PacifiCorp Idaho customer base. Regarding the company s low-income weatherization,
CAP AI has been strongly encouraging certain program design changes for some time
now. This is the result oftwo particular problems with the current program.
What problems are you referring to?
First, PacifiCorp will only fund 50% of any given low-income weatherization project.
The other funding must come nom other sources such as federal Department of Energy
and Low Income Home Energy Assistance programs. Second, even when federal funds
are fully exhausted for any given year, which they often are, PacifiCorp will only fund
50% of project costs. Finally, CAPAI believes that the total amount of annual funding
should be increased nom the current level of $150 000.
Please explain your specific concerns regarding the aforementioned issues.
~T~~~~ ~....~, r~'n7 ~~ ~~~T ~~~'T""
Idaho Power only asks that an average of 15% in federal weatherization funds be spent
on each project their funds are involved in. Avista makes no requirements at all. Both
recognize the value ofthe program and the need to spread the utility and private dollars
as far as they will go.The customer value of the program was recognized by the utilities
and they saw that more customers could be served if there was not a high match
requirement. There is a limited amount of federal funds available (which looks to be cut
even further this year). In the eastern part ofIdaho, the waiting list for weatherization is
over 2 years long, and for less critical cases as long as six years. Because PacifiCorp
territory is interspersed with municipal and cooperative electrical companies, as well as
Idaho Power territory, it is often difficult to fmd enough houses in one year that are
Pacificorp customers when we can only spend 50% of their money on the home. This
means that PacifiCorp money could be left on the table by this restriction while other
homes in need of critical weatherization may miss out because federal money had to be
used to provide the 50% match. Finally, PacifiCorp is the only utility that has not
completely adopted all of the DOE measures - meaning that we have to use federal
money to pay for certain weatherization aspects (such as hot water heater replacement).
Again this forces federal money to be spent when PacifiCorp money could have been
applied, reducing our flexibility in reaching other homes.
Q19 Did CAP AI participate in the settlement discussion that took place in this case?
A20 Yes, and we participated and ultimately signed the settlement stipulation.
Q21 Does that mean that all of CAP AI's concerns outlined above have been resolved?
No. We believe that much remains to be accomplished. The applicants in this case
expressed their opinion that CAPAI's concerns should be resolved through the general
rate case that PacifiCorp intends to file in the Spring of2006.
Does CAP AI agree with the applicants' contention in this regard?
~T~~~~ ~~~T' '~'nT ~~ ~~T ~~~'T~
, but the fact that PacifiCorp will file a general rate case in the near future, combined
with certain commitments agreed to by applicants, however, convinced CAP AI that
settlement at this juncture was reasonable.
What "commitments" are you referring to?
Concerning CAP AI's specific interests, the applicants agreed to several things. First, the
applicants agreed that for any low-income eligible project, for which federal matching
funds are exhausted or otherwise unavailable, PacifiCorp will fund 100% of
weatherization costs for that project (Idaho-specific commitment # 13 (a)). This reflects a
policy change on the part ofthe company.
Are there additional commitments?
Yes. PacifiCorp agreed (in Idaho-specific commitment # 13(b)) that it will analyze and
directly address CAPAl's contention that the company should be willing to fimd 100% 0
low-income weatherization costs for any given project, regardless of whether there exist
federal monies available. CAP AI raised this issue in PacifiCorp s last general rate case
(Case No. PAC-05-1), but the applicants refused to agree to eliminate the 50%
matching requirement and failed to address it in this proceeding. Thus, CAP AI believes
that the settlement agreement in this case will, at the least, put the issue squarely before
the Commission in the relatively near future.
What about your contention that annual low-income weatherization funding levels should
be increased?
CAPAl's primary objective is to fITst remove the 50% limitation. So long as this
limitation remains in place, we believe that PacifiCorp money will be left on the table
because there are insufficient federal funds to match it against. This anomaly can and
likely will occur even ifPacfiCorp agrees to fund projects at 100% once federal funds are
exhausted. The reason for this is because these limitations decrease flexibility in the
~T~~~~ ~~~T' ,~'n. ~~ ~~T ~~~'T~
manner in which these funds can be best spent to benefit all customers in the PacifiCorp
service area. Regardless, CAP AI believes that the total annual funding level should be
increased and will make this recommendation in PacfiCorp s next general rate case.
Are there any other commitments that convinced CAP AI to agree to the settlement?
Yes. The applicants agreed that shareholder funding of project Lend a Hand would be
increased :&om its current level to $20,000 (Idaho-specific commitment # 14). While
CAP AI believes this level of funding is inadequate, this increase is acceptable until the
next rate case. The applicants further agree to work with low-income advocates to
evaluate additional matching contributions" in the future. CAP AI encourages
PacifiCorp to do so in the upcoming general rate case. Finally, the applicants have
agreed to fund and hire a consultant to study and design for possible implementation an
arrearage management project for low-income customers." The stated purpose of the
project is to fmd means to reduce the numerous system-wide costs attributable to
customers who become delinquent on their bills. The applicants commit to forming a
working group of regulatory agencies and low-income advocates to oversee this project
and, during settlement discussions, indicated that CAP AI would be welcome to be a part
of that working group.
, in summary, do you support the settlement stipulation, with the attached conditions
for approval by this Commission?
Yes. Though there are several important issues yet to be resolved, CAP AI believes that
for purposes ofthis case, the settlement is of benefit to low-income customers. The
applicants did not specifically propose any of the low-income commitments in its direct
ftling. The negotiated settlement constitutes a reasonable settlement for the interim
pending the company s next general rate case.
Does that conclude your testimony?
~T~~""~
~~~~
,~,.....? ~~ ~~~T ~~'T~
Yes it does.
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~~~,
,~'nT ~~ ~~~T ~~'T~
(The following proceedings were had in
open hearing.
MR. PURDY:And she s available for cross, should
there be any.
COMMISSIONER SMITH:Okay.Mr. Budge.
MR. BUDGE:No questions.
COMMISSIONER SMITH:Mr. Howell.
MR. HOWELL:No questions.
COMMISSIONER SMITH:Mr. Van Nostrand.
MR. VAN NOSTRAND:No questions.
COMMISSIONER SMITH:Enj oy the Legislature.
THE WITNESS:Thank you.
COMMISSIONER SMITH:Do we have questions from
the Commissioners?No.Thank you.
THE WITNESS:Thank you very much.
(The witness left the stand.
Thank you.MR. PURDY:That concludes our case.
COMMISSIONER SMITH:Okay.Do you want a break?
All right , let's go.
MR. VAN NOSTRAND:Joint Applicants call
Mark C. Moench.
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
OTTENS (Di)
CAPAI
MARK C. MOENCH,
produced as a witness at the instance of the Joint Applicants,
being first duly sworn , was examined and testified as follows:
DIRECT EXAMINATION
BY MR. VAN NOSTRAND:
Could you state your name for the record, please?
Yes.Mark C. Moench , M-
And who are you employed by, Mr. Moench?
MidAmerican Energy Holdings Company.
And what is your position there?
Senior vice president, law.
What are your responsibilities as senior vice
president of law?
m responsible for overseeing the acquisition
approvals required in each of the states, as well as the
Federal approvals required.
Did you have occasion to file testimony in
support of Stipulation in this proceeding marked as Exhibit
No. 14?
Yes.
Do you have any additions or corrections to make
to that testimony?
No.
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
MOENCH (Di)
Joint Applicants
If I asked you the questions set forth, would
your answers today be the same as referenced upon?
Yes.
And did you also have occasion to file Exhibit
No. 15 to accompany that testimony?
Yes.
Any additions or corrections to make to that
exhibi t?
No.
Is that exhibit true and correct, to the best of
your knowledge?
Yes.
Thank you, Mr. Moench.
MR. VAN NOSTRAND:wi th that, Madam Chair , I'd
move to have Mr. Moench's Exhibit 14 , testimony in support of
Stipulation , spread on the record as if read today, and Exhibit
15 marked.
COMMISSIONER SMITH:If there's no objection , we
will spread the testimony upon the record as if read , and mark
Exhibit 15.
(The following prefiled direct testimony
of Mr. Moench is spread upon the record.
HEDRICK COURT REPORTING
P. O. BOX 578 , BOISE , ID 83701
MOENCH (Di)
Joint Applicants
Please state your name and business address.
My name is Mark C. Moench and my business address is 201 South Main Street
Suite 2300, Salt Lake City, Utah.
By whom are you employed and in what position?
I am the Senior Vice President, Law, for MidAmerican Energy Holdings
Company (MEHC).
Please summarize your education and business experience.
I received a B.S. degree from the University of Utah in 1978 and a J.D. degree
from the California Western School of Law in 1981. My experience in the energy
industry covers a twenty-two (22) year time span. I served as an Assistant
Attorney General for the State of Utah from 1981 to 1987, representing among
other state agencies, the Division of Public Utilities and the Board of Oil, Gas and
Mining. Thereafter I joined the Williams Companies, Inc. in 1987, where I held
positions as senior attorney for Northwest Pipeline Corporation, general counsel
for Kern River Gas Transmission Company (Kern River) and finally senior
counsel for the pipeline holding company, Williams Gas Pipeline Company.
Upon the acquisition of Kern River by MEHC in 2002, I served as Vice President
and General Counsel at Kern River until named to my present position this year.
Purpose and Summary of Testimony
What is the purpose of your testimony?
The purpose of my testimony is to describe the Stipulation in this proceeding,
which was filed with the Idaho Public Utilities Commission (Commission) on
December 16. My testimony explains why the terms of the Stipulation are in the
Moench, Di -
Joint Applicants
public interest and provide a basis for the Commission to find that the proposed
transaction satisfies the standard under Idaho Code ~ 61-328 for approval of the
transaction. A copy of the Stipulation is attached to my testimony as
Exhibit No. 15.
Please describe the process that led to the Stipulation.
On July 15 , 2005 , MEHC and PacifiCorp Gointly referred to as the "Applicants
filed an Application and supporting testimony with the Commission for
authorization of a transaction whereby MEHC would acquire all of the
outstanding common stock ofPacifiCorp (Transaction), and PacifiCorp would
thereafter become an indirect, wholly owned subsidiary ofMEHC.
August 17, 2005 , Applicants submitted a revised Application reflecting the impact
of the enactment ofthe Energy Policy Act of2005, including the repeal of the
Public Utility Holding Company Act of 1935.
Thereafter, Applicants and the parties to the case participated in a
technical conference on October 4, followed by settlement conferences on
November 2 and December 8, in an attempt to understand and reach agreement on
the issues in this proceeding. As a result of that process, the parties to this
proceeding reached agreement on the resolution ofthe issues in this proceeding,
as set forth in the Stipulation. All ofthe parties to the proceeding have either
joined the Stipulation, or have indicated that they do not oppose it.
Please identify the parties to the Stipulation.
The parties to the Stipulation are the Applicants, Idaho Public Utilities
Commission Staff, Monsanto Company, Idaho Irrigation Pumpers Association
Moench, Di -
Joint Applicants
R. Simp lot Company, and Community Action Partnership Association of Idaho.
Two other intervenors in the proceeding, Idaho Power Company and International
Brotherhood of Electrical Workers Local 57, did not join in the Stipulation, but
indicated that they will not oppose it.
General Description of Stipulation and Commitments
Please generally describe the Stipulatioq.
In their direct testimony, the Applicants provided evidence that the Transaction is
in the public interest, including an offer to adopt a set of commitments based upon
the commitments adopted in this and other jurisdictions from the prior transaction
(i.ScottishPower s acquisition ofPacifiCorp). In addition, the Applicants
offered numerous new commitments involving generation options, transmission
investment, clean air investment, energy efficiency, and customer service, among
other subjects. While the parties that participated in the technical conference and
settlement discussions recognized the benefits of those commitments, they raised
some additional issues they thought should be addressed by the Applicants. The
Stipulation addresses and resolves those issues in a way which, the parties to the
Stipulation agree, satisfies the standard in Idaho for approval ofthe Transaction
under Idaho Code ~ 61-328.
Please generally describe the commitments included in the Stipulation.
The commitments included in Appendix A to the Stipulation consist of the
commitments offered in the Applicants' direct testimony with , in some cases
modifications to address issues raised by the parties; new commitments entered
into by the Applicants that apply to all PacifiCorp s jurisdictions; and new Idaho-
Moench, Di-
Joint Applicants
specific commitments that either apply only to the Applicants' activities and
operations in Idaho or could be extended to other states at their option. The
parties were able to build upon the agreements that had been reached in Utah.
Prior to the second settlement conference in Idaho, PacifiCorp and MEHC had
reached agreement with the Utah parties, and filed a stipulation in Utah PSC
Docket No. 05-035-54 (Utah Stipulation) on November 18. The Utah Stipulation
included a number of modifications to the original commitments in response to
issues raised in the Utah discussions; as well as new commitments agreed upon by
the Applicants that were applicable to all of PacifiCorp' s jurisdictions. By using
the Utah Stipulation as the starting point, the parties in Idaho were able to focus
more of their attention on the issues specific to Idaho. This process resulted in
26 Idaho-specific commitments, which are included in Appendix A.
Under the terms of the Stipulation, the Applicants agree to perform all of
the commitments set forth in Appendix A according to the provisions of each
commitment. The commitments set forth in Appendix A are intended to
supersede the commitments from the prior transaction and the commitments
offered in the Applicants' direct testimony.
The commitments are binding only upon MEHC, PacifiCorp and, where
noted, their affiliates. The commitments have been offered by MEHC and
PacifiCorp to ensure that the Transaction provides benefits to customers
addresses identified concerns and risks, creates no harm to the public interest, and
otherwise satisfies the regulatory requirements for approval of the Transaction.
MEHC and PacifiCorp will not allege in any future proceeding before the
Moench, Di -
Joint Applicants
Commission or the courts that by approving or agreeing to the Stipulation and the
Transaction the Commission or the signatories agreed to waive any right to assert
or adopt such positions regarding the prudence, just and reasonable character, rate
or ratemaking impact or treatment, or public interest as they deem appropriate
pertaining to the commitments.
In the event MERC and PacifiCorp determine that a commitment ceases to
be in the public interest or otherwise should be eliminated or modified, MERC
and PacifiCorp will file with the Commission for approval of the elimination or
modification, serving copies of the filing upon all parties to this proceeding.
Does the Stipulation include provisions to address the expansion or
modification of commitments in other jurisdictions?
Yes. We anticipated the Idaho parties ' concerns regarding the potential
uncertainty associated with entering into a stipulation while negotiations were still
underway in other PacifiCorp jurisdictions. In order to address those concerns
the Stipulation provides the Commission with the opportunity and authority to
consider and adopt commitments or conditions accepted by the Applicants or
ordered in another state jurisdiction. Paragraph 7 of the Stipulation provides a
proposed "most favored states" process to facilitate the Commission s and the
parties' prompt consideration and adoption of out-of-state commitments. This
process is based on the recognition that the Transaction cannot close until final
state orders have been issued.
Moench, Di -
Joint Applicants
Idaho-Specific Commitments
Please discuss some of the Idaho-specific commitments included in the
Stipulation.
An issue of particular concern in Idaho is the continued availability of a dedicated
Irrigation Specialist in the Company s Idaho service territory, which is addressed
in Commitment I 1. The Applicants are committing to continue to make available
a dedicated Irrigation Specialist in Rexburg and Shelley, and to continue to
provide an Irrigation Hotline. Another issue important to some parties is the
evaluation of market potential associated with the expansion of load curtailment
programs in Idaho. Commitment I 8 provides that this issue will be considered as
part of the DSM study required under Commitment 44.
Commitment I 10 concerns the implementation of a plan for measuring
network performance in Idaho as an alternative to Momentary Average
Interruption Frequency Index (MAIFI). Commitment I 10 provides that MEHC
and PacifiCorp will promptly implement the proposed measurement plan and
provide the results produced by that plan to Commission Staff and other interested
parties in reliability review meetings.
Please discuss the Idaho-specific commitments regarding resource
acquisition issues.
Idaho-specific Commitment I 22, which is found on pages 13 and 14 of
Appendix A to the Stipulation, sets up a process to address various policy,
technical, economic and planning issues associated with Integrated Gasification
Combined Cycle (IGCC) technology. This Commitment provides for the
Moench, Di -
J oint Applicants
formation of an IGCC Working Group to discuss, consider, share information
regarding and develop a common understanding of issues associated with IGCC
technology, including the benefits, costs and risks of that technology.
Under Commitment I 23 , PacifiCorp will include within its 2006 IRP a
wind penetration study to reappraise wind integration costs and cost-effective
renewable energy levels, and an assessment of transmission options for
PacifiCorp s system identified in the Rocky Mountain Area Transmissions Study
(RMATS) scenario 1 related to facilitating additional generation at Jim Bridger
and, on equal footing, new cost-effective wind resources.
Please discuss the Idaho-specific commitments related to low-income issues.
Three separate Idaho-specific commitments address low-income issues.
Commitment 113 addresses an identified concern relating to the PacifiCorp
current policy of funding 50% of measure cost when federal matching funds are
available. Under this commitment, PacifiCorp will file tariff revisions to effect a
change to 100% funding of conservation measures when federal matching funds
are no longer available, and will also consider in its next general rate case the
possibility of changing its current 50% funding level to it higher percentage
amount.
Under Idaho-specific Commitment 114, MEHC and PacifiCorp commit to
provide up to $20 000 annually for five years to match Idaho customers and
employee contributions to Lend-a-Hand. This contribution will be recorded in
non-utility accounts.
Moench, Di -
Joint Applicants
Idaho-specific Commitment I 15 provides for use of shareholder funds to
hire a consultant to study and design for possible implementation an arrearage
management project for low-income customers. The goals ofthe project will
include reducing service terminations, reducing referral of delinquent customers
to third party collection agencies, reducing arrearages and collection litigation
and increasing voluntary customer payment of arrearages.
Please explain the Idaho-specific acquisition premium commitment.
Idaho-specific Commitment I 18, which is found on page 13 of Appendix A to the
Stipulation, addresses the acquisition premium issue. The commitment, which is
a modified version of the general commitment offered in direct testimony,
requires the premium be recorded in the accounts of the acquisition company and
not in PacifiCorp s accounts.
What exactly does the commitment language allow PacifiCorplMEHC to do?
The commitment language clarifies that PacifiCorp and MEHC are precluded
from deciding unilaterally at some future point to include the acquisition premium
in the retail rates ofPacifiCorp customers. Because the premium will be recorded
at the holding company level, the only way that the acquisition premium could
ever be included in PacifiCorp s rates would be ifPacifiCorp affirmatively
proposed to include the premium in retail rates and the Commission agreed.
The intent of the commitment language is merely to preserve the right to
make an argument to the Commission that the acquisition premium should be
included in retail rates under one limited condition. MEHC is concerned that if it
agrees to a commitment not to include the acquisition premium in rates and if it
Moench, Di -
Joint Applicants
does so without a clear reservation of its rights, it would be denied the opportunity
in a future rate case to even point out a potential violation of the matching
principle, as discussed hereafter.
The commitment leaves the determination of whether the inclusion of a
premium should be allowed in the hands ofthe Commission, not PacifiCorp or
MEHC. MEHC is seeking only to retain the right to make a future argument if
necessary, nothing more.
Under what limited condition would MEllC expect this right to be exercised?
In order for MEHC and PacifiCorp to exercise their right to present its argument
to the Commission regarding inclusion in rates of the acquisition premium
PacifiCorp must be confronted with a potential violation of the matching principle
of original cost ratemaking that (1) imputes to PacifiCorp customers (i.reduces
the regulated revenue requirement on the basis of) a benefit associated with the
premium accruing from a company above PacifiCorp in the holding company
system while (2) failing to recognize in rates the cost associated with achieving
that benefit.
Such a situation would occur, for example, if the Commission were to
attribute a lower cost of capital to PacifiCorp s regulated operations based upon
substitution of debt costs from the holding company for the cost of utility equity,
without recognizing the additional risk (higher cost of equity) to the holding
company of its higher leverage. In this instance, PacifiCorp s regulated
customers would benefit from a lower cost of capital that assumes a greater
percentage of debt, which is typically lower cost than equity, without recognizing
Moench, Di -
Joint Applicants
the increase in the cost of common equity (due to increased risk) that occurs as a
result of that more leveraged financial structure.
No request for inclusion of the acquisition premium in rates would be
triggered, however, in situations where benefits obtained at the holding company
level are appropriately allocated to PacifiCorp, along with the costs of achieving
those benefits. For example, ifMEHC were able to achieve lower insurance costs
post acquisition as a result of combining the insurance needs of itself and
PacifiCorp, a portion of such savings (along with the costs related to achieving
them) would be properly allocated to PacifiCorp. MEHC expects the lower net
costs would be included in retail rates (reducing the regulated revenue
requirement). MEHC would not consider this a situation that would allow
PacifiCorp to argue for inclusion of the acquisition premium in retail rates.
The commitment also makes clear that neither the Commission nor any
party is being asked to accept or agree with any such arguments, or to waive any
of its rights to object to such a request for relief.
Conclusion
Why do you believe the Stipulation is just, reasonable and in the public
interest?
Appendix A to the Stipulation includes 50 general and 26 Idaho-specific
commitments which address issues of importance to PacifiCorp s Idaho
customers. Among those commitments are new commitments related to reducing
costs for PacifiCorp and to address the Idaho-specific issues identified by
Commission Staff and intervenors in our technical conference and settlement
Moench, Di -
Joint Applicants
discussions. The Stipulation also includes commitments which reflect MEHC's
willingness and ability to deploy capital to meet PacifiCorp s significant
infrastructure needs, including increased investment in transmission, renewable
energy and energy efficiency. The Applicants have also agreed, as I discussed
above, that the Commission shall have the opportunity and authority to consider
and adopt conditions and commitments agreed to or adopted in other jurisdictions.
The Applicants submit that this Stipulation, including the commitment to a
most favored states" process, strengthens many ofthe existing commitments
addresses the issues and concerns raised by the parties, and provides real and
significant benefits to PacifiCorp s Idaho customers. For all of these reasons, I
conclude that the Stipulation is in the public interest and should be approved by
the Commission.
Does this conclude your testimony?
Yes.
Moench, Di -
Joint Applicants
(The following proceedings were had in
open hearing.
(Joint Applicant Exhibit No. 14 , having
been premarked for identification , was admitted into evidence.
MR. VAN NOSTRAND:
cross-examination.
COMMISSIONER SMITH:
Mr. Budge?
MR. BUDGE:No questions.
COMMISSIONER SMITH:
MR. PURDY:None.
COMMISSIONER SMITH:
MR . HOWELL:No questions.
COMMISSIONER SMITH:
Mr. Moench is available for
Do you have questions,
Mr. Purdy.
Mr. Howell.
Commissioners.
I guess there can be no redirect.
MR. VAN NOSTRAND:
Chair.
COMMISSIONER SMITH:
I have no redirect , Madam
Thank you.
THE WITNESS:Thank you.
(The witness was excused.
COMMISSIONER SMITH:
case?
MR. VAN NOSTRAND:
COMMISSIONER SMITH:
I move to Mr. Howell.
Does that conclude your
It does, Madam Chair.
Thank you.
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
MOENCH (Di)
Joint Applicants
MR. HOWELL:Thank you , Madam Chairman.The
Staff would call Terri Carlock to the stand.
TERRI CARLOCK,
produced as a witness at the instance of the Staff , being first
duly sworn , was examined and testified as follows:
DIRECT EXAMINATION
BY MR. HOWELL:
Would you please state your full name and spell
your last for the record?
Terri Carlock , C-
Whom are you employed by and in what capacity?
The Idaho Public Utilities Commission as the
accounting audit supervisor.
Are you the same Terri Carlock that has prepared
initial prefiled testimony and filed on December 6, 2005?
On December 20th.
20th?
Yes,am.
And did you also have cause to be prepared Staff
Exhibit 101?
That's correct.
And are you the same Terri Carlock that filed
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
CARLOCK (Di)Staff
supplemental testimony filed on January the 13th?
I am.
And did you have reason to prepare Staff
supplemental Exhibit 102?
Yes, I did.
Do you have any changes to your initial testimony
or Exhibit 101?
, I do not.
Do you have any changes to your supplemental
testimony or supplemental Exhibit 102?
On supplemental testimony, page 8 , Mr. Gale is
correct that I had left out one definition , so on page - - or
ine 5, I would insert the words together the shareholders" to
clarify that Mr. Buffett and Mr. Scott are the shareholders
that are being spoken about in this paragraph.
And that insertion would occur after - - on the
second 1 ine of the indent:Wal ter Scott , comma, Junior,
together the shareholders will provide?
Tha ti s correct.
Do you have any other corrections to your
prefiled?
, I do not.
If I were to ask you the questions laid out in
your initial and supplemental testimony, would your answers be
the same?
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
CARLOCK (Di)
Staff
Yes , they would.
MR . HOWELL:And with that , Madam Chairman,
would move to spread Ms. Carlock's initial and supplemental
testimonies, and mark for identification her Exhibits 101 and
102.
COMMISSIONER SMITH:Without objection , it is so
ordered.
(The following prefiled direct and
supplemental testimony of Ms. Carlock is spread upon the
record.
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE , ID 83701
CARLOCK (Di)
Staff
Please state your name and address for the
record.
My name is Terri Carlock.My business address
is 472 West Washington Street, Boise, Idaho.
By whom are you employed and in what capacity?
I am employed by the Idaho Public Utilities
Commission as the Accounting/Audit Section Supervisor.
Please outline your educational background and
experience.
I graduated from Boise State Uni versi ty in
1980, with B.A. Degrees in Accounting and Finance. I
have attended various regulatory, accounting, rate of
return, economics, finance and ratings programs.
chaired the National Association of Regulatory Utilities
Commissioners (NARUC) Staff Subcommittee on Economics and
Finance for more than 3 years.Under this subcommittee,
I also chaired the Ad Hoc Committee on Diversification.
I am currently the Secretary of the NARUC Staff
Subcommittee on Accounting and Finance.I have been a
presenter for the Institute of Public Utilities at
Michigan State Uni versi ty and for many other conferences.
Since joining the Commission Staff in May 1980, I have
participated in audits, performed financial analysis on
various companies, and have presented testimony before
this Commission on numerous occasions.
CASE NO. PAC-05-
12/20/05 CARLOCK, T (Di) 1
STAFF
What is the purpose of your testimony in this
proceeding?
The purpose of my testimony is to present the
Staff I S recommendations related to the proposed
acquisition of PacifiCorp by MidAmerican Energy Holdings
Company (MEHC).I will discuss issues related to the
acquisition and the examination I conducted.I ssues not
directly related to the acquisition will be addressed in
separate proceedings or regulatory reviews.
Please summarize the overall Staff
recommendations.
The Staff recommends approval of the
acquisition transaction of PacifiCorp by MEHC with
specific commitments, conditions and reporting mechanisms
to be implemented.
Are you sponsoring any exhibits to accompany
your testimony?
Yes, I am sponsoring Exhibit No. 101 consisting
of the parties ' Settlement Stipulation supporting the
acquisition and more importantly the 76 Commitments.
Please explain the overall approach Staff has
taken to arrive at its acquisition recommendations?
Staff reviewed the requirements necessary for
the Commission to approve the acquisition.As Staff
discovered potential issues, it was determined if the
CASE NO. PAC-05-12/20/05 CARLOCK, T (Di) 2
STAFF
issue was created by the acquisition or an issue to be
addressed regardless of company ownership.Issues
resulting from the acquisition were evaluated to
determine if the acquisition should be approved.To the
extent other issues may be identified, they will be
addressed in the upcoming rate review or in other future
proceedings.
What standards did you apply to review this
proposed acquisition?
The applicable standards of review are set
forth in Idaho Code ~ 61-328 and Idaho Code, Title 61,
Chapter 9, Issuance of Securities by Public Utilities.
Idaho Code ~ 61-328 provides that "No electric public
utili ty
...
shall merge, sell , lease, assign or transfer,
directly or indirectly, in any manner whatsoever, any
such property or interest therein,
...
except when
authorized to do so by order of the public utilities
commission. More specifically, this statute requires
that the Commission make three specific findings:
(a) That the transaction is consistent with
the publ ic interest;(b) That the cost of and rates for supplying
service will not be increased by reason
of such transaction; and(c) That the applicant for such acquisition
or transfer has the bona fide intent and
financial ability to operate and maintain
said property in the public service.
CASE NO. PAC-05-
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CARLOCK, T (Di) 3
STAFF
Idaho Code, Title 61, Chapter 9, Issuance of Securities
by Public Utilities specifies the requirements PacifiCorp
and MEHC, if the acquisition is approved, must follow to
obtain authority to issue securities.
Review of all security applications with the
required financial statements and subsequent reports
provides an important opportunity for the Staff to
monitor the stated financial objectives of the
acquisition.
Have you considered these standards in making
your recommendation?
These standards have been seriouslyYes.
considered and are the basis for the analysis upon which
my recommendations are based.I will discuss each
standard separately.
Does Staff believe the transaction is
consistent with the public interest?
Yes, in fact Staff bel ieves the publ ic interest
of Idaho customers will be enhanced by the capital
commi tments, ongoing customer guarantees, access to books
and records, ring-fencing provisions, and guaranteed
reduced cost of debt.These and various other
commitments, totaling 76, are listed in Exhibit No. 101
(Settlement Stipulation).
will the cost of and rates for supplying
CASE NO. PAC-E- 05- 8
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CARLOCK, T (Di) 4
STAFF
service be increased by reason of the acquisition?
No.The cost of and rates for service will not
increase due to the acquisition itself.The acquisition
costs incurred to transact the acquisition through
closing will be excluded from PacifiCorp s utility
accounts pursuant to General Commitment No.1 7 and Idaho-
Specific Commitment No. 18 of Exhibit No. 101.
Consequently, Idaho customers will not pay these
acquisition costs.General Commitment No.3 7 guarantees
a reduced cost of debt of at least ten (10) basis points
over the next five years.The proj ected system benefit
over the post-acquisition five-year period is
approximately $6.3 million.Staff will verify the cost
of debt reduction in all security issuance approvals,
audi ts and rate proceedings.The "all-in-costH will be
evaluated (Idaho Commitment No. 11) when reflecting the
lower debt cost in rates.If the lower costs are not
achieved , the actual adjusting entries will be determined
in future rate proceedings.This commitment guarantee
and review will be used to assure the Commission and
customers that rates will not increase by reason of the
acquisition.
Does this mean that rates will never increase?
Rates will not increase as a result of the
acquisition but that doesn ' t necessarily mean that rates
CASE NO. PAC-05-12/20/05 CARLOCK, T (Di) 5
STAFF
will never increase.Any requested increases will be
thoroughly reviewed to assure that cost increases are not
a result of the acquisition.Staff and the other parties
anticipate that PacifiCorp will file a general rate case
on or about April 2006.
Are you proposing that rates be reduced as a
condition of the acquisition?
I am not proposing rate reductions at this
time.PacifiCorp rates will be reviewed in its 2006 rate
case.The resulting rates from that case should assure
parties and customers that rates are set at a fair and
reasonable level.
Do the Applicants have the bona fide intent and
financial ability to operate and maintain said electrical
property in the public service?
Yes, I believe they do based on my review of
annual financial statements and reports, statements of
regulatory accounts, due diligence reports, disclosure
let ters, board meeting minutes, and the production
request responses in this case and meetings with Company
representatives.The Applicants have committed to make
investments in both transmission and distribution
networks in General Commitment Nos. 34 and 35.
MEHC witnesses ' prefiled direct testimony and
exhibits propose conditions to facilitate the
CASE NO. PAC-E- 05 - 8
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CARLOCK, T (Di) 6
STAFF
acquisition.Do you recommend approval of these
condi tions?
Yes, I recommend approval of these conditions
as they have been modified and supplemented in Exhibit
No.1 01.Exhibit No. 101 reflects the final Stipulation
and Commitments agreed to by most parties in Idaho that
addresses the individual and collective concerns of
parties.
As part of the review and settlement
discussions, please outline some of the concerns that
were addressed by the parties and ultimately included in
the Commitments applicable to all states and the Idaho-
Specific Commitments.
Many of the concerns and commitments are self-
explanatory and included as part of the Stipulation and
attached Commitments.A "most favored nation " clause is
also included in Section III of the Stipulation with a
proposed process to implement this clause.Staff accepts
the proposed process to implement any additional
commitments desired under the "most favored nation
clause.Therefore, any assurances, conditions or benefits
agreed to by MEHC or PacifiCorp in the other five state
jurisdictions that would create a benefit to Idaho
customers could be subsequently adopted in Idaho under the
terms of the Stipulation.
CASE NO. PAC-E- 05 - 812/20/05 CARLOCK, T (Di) 7
STAFF
Other Staff concerns discussed during the
review and settlement discussions include: customer
guarantees and performance standards; access to books and
records of MEHC, PacifiCorp and affiliates; capital
commitments; resource acquisition under a level playing
field; low income customer programs and supplemental
programs for all customers; and most importantly ring-
fencing measures.
Please explain ring-fencing.
Ring- fencing provisions are techniques, when
used together, that will essentially isolate the credit
risks of PacifiCorp from the credit risks of the parent
company or other affiliates.Ring-fencing provisions are
clearly identified in the PPW Holdings LLC agreement in
addition to the commitments focusing on separate legal
corporate structures, separate books and records,
preventing cross-subsidization , specific board
requirements and independence measures, separate debt and
preferred stock with separate ratings for each, required
issuance approvals , common equity percentage
requirements, and dividend payment restrictions.
Do you have concerns related to refinancing
costs, dividend payments, capital structure, and cost of
new financings to implement the acquisition or following
the acquisition?
CASE NO. PAC-05-12/20/05 CARLOCK, T (Di) 8
STAFF
Costs directly related to the acquisitionYes.
transaction should be recorded below the line and not
included in future calculations to determine embedded
costs of capital or rates.
How will the acquisition be treated for
ratemaking purposes?
The acquisition will be booked on the books of
the acquisition company.Any acquisition adjustments or
goodwill will not be recovered through rates as reflected
in Idaho Commitment No. 18.
Please discuss further the reporting that
should be required if this acquisition is approved.
The required reports by MEHC and PacifiCorp are
listed in the agreed commitments related to final
transaction details, customer service, movements beyond
target levels set out in the commitments, expansion of
programs, audits and debt costs.Addi tional
documentation will be filed to show the detail behind all
debt savings achieved and detail reflecting all
measurements to determine if the guarantees are met.
What is Staff's recommendation?
Staff recommends that the Commission approve
the Stipulation and adopt the Commitments in Exhibit No.
101.The Commitments and the "most favored nation
clause adequately protect Idaho ratepayers and serve the
CASE NO. PAC-E- 05 - 8
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CARLOCK, T (Di) 9
STAFF
public interest.
Does this conclude your direct testimony in
this proceeding?
Yes, it does.
CASE NO. PAC-05-12/20/05 CARLOCK, T (Di) 10
STAFF
Please state your name and address for the
record.
My name is Terri Carlock.My business address
lS 472 West Washington Street , Boise, Idaho.
By whom are you employed and in what capacity?
I am employed by the Idaho Public utilities
Commission as the Accounting/Audit Section Supervisor.
Are you the same Terri Carlock that submitted
direct testimony in this case on December 20 , 2005?
Yes , I am.
What is the purpose of your supplemental
test imony?
I am providing updated information to the
Commission and parties to this case related to the
additional Commitments by PacifiCorp and MidAmerican
Energy Holdings Company (MEHC)in the Oregon Stipulation
that Staff recommends be adopted as Idaho-Specific
Commi tments in this case.At the time the Idaho
Stipulation (Exhibit No. 101) and direct testimony in this
case were filed, Staff had the opportunity to review the
Stipulations and Commitments in California and Utah. The
Oregon Stipulation with additional Commitments was filed
after the Idaho Settlement Stipulation.My supplemental
testimony and Staff Exhibit No. 102 focuses on the Oregon
Commi tments and recommendations for adoption and inclusion
CASE NO. PAC-05-
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CARLOCK , T (Supp) 1
STAFF
100
in Idaho.
Why review the Oregon Commitments now?
The "most favored nation" clause set forth in
the Idaho Stipulation Section III and Idaho Commitment 25
allows this Commission to review and adopt Commitments
from the other five states.Reviewing the Oregon
Commitments now will simplify adoption and shorten the
required review after the final Orders in the various
states are issued.Any additional requirements , primarily
in the Washington and Wyoming proceedings, will remain for
the final review and adoption process set forth in the
Idaho Stipulation.
The Idaho Stipulation and Commitments, Exhibit
No. 101 , lists 50 General Commitments applicable to all
states.Do you recommend any modifications to the General
Commitments based upon your review of the Oregon
Stipulation and Commitments?
Yes, I recommend some modifications.The
modifications I am recommending be adopted provide
additional benefits or clarification above and beyond
those General Commitments originally included in Exhibit
No. 101 for Idaho.I would also observe that there are
clarifications and other variations in the Oregon
Stipulation that will benefit Idaho but do not necessitate
changes being recommended to the Idaho Settlement.
CASE NO. PAC-E- 05 - 8
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STAFF
101
The recommended modifications are for General
commi tment Nos. II , 18 , 37 , 38 , and 48.I al so
recommend adding two new General Commitment s, Nos. 51 and
52.These Commitments are shown on Staff Exhibit No. 102.
I will discuss each of these changes individually.
Please explain each modification Staff
recommends for the Commitments Applicable to All States.
The change to General Commitment No. 11
clarifies ring-fencing provisions with the attachment of
Appendix 1. Appendix 1 titled "ppw. Holdings LLC
Ringfencing provisions u is included in Exhibit No. 102.
The final signed ring-fencing document will still be filed
with the Commission as required in Idaho-Specific
Commitment No.5 (1-5).
The adoption of Oregon General Commitment No. 17
provides clarification related to unrestricted access to
written information and documents used for credit rating
purposes.
Adoption of Oregon General Commitment No. 18
provides additional detail related to the restriction of
dividend payments when common equity ratios don t exceed
the percentage floors identified.Detail on how the
ratios will be calculated is also included in this
Commi tment General Commitment No. 18 is included for
dividend restrictions only and is not intended by the
CASE NO. PAC-E- 05 - 8
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CARLOCK , T (Supp) 3
STAFF
102
parties as a ratemaking provision that impacts rates.
Staf f next recommends that General Commi tment
Nos. 22 , 37 and 38 be noted as intentionally left blank.
They are replaced with Oregon-Specific Commitment Nos.
0- 9 , 0-, 0-12 and 0-14.These four new Commi tments
will be discussed later as Idaho-Specific Commitment Nos.
28,31 and 1-32.
Next , General Commitment Nos. 51 and 52 are
added to reflect the ownership transfer to PacifiCorp of
the Intermountain Geothermal Company and the associated
steam rights to the steam resources serving PacifiCorp
Blundell geothermal plant.This Commitment will eliminate
some affiliate transactions and payments for steam
purchases at Blundell thus reducing the annual steam
costs.It also allows for expansion of the plant and
purchase of additional steam rights where cost -effective.
Finally General Commitment No. 48 should be
modi f ied to add the reference to Commitment No. 52 in the
IRP consideration list.
Are there Oregon-Specific Commitments that you
recommend being adopted as Idaho-Specific Commitments in
this case?
Yes, I recommend adoption in whole or in part of
Oregon-Specific Commitment Nos. 5 , 7 , 8 , 9,, 11, 12
, 16 , 17 , 18, 21 and 22. These Commitments
CASE NO. PAC-E- 05 - 81/13/06 CARLOCK , T (Supp) 4
STAFF
103
adopted will replace or will be added to existing Idaho-
Specific Commitments as shown on Staff Exhibit No. 102.
The current Idaho-Specific Commitment No. 1-26 will be
modified to become No. 1-36 to include all the recommended
Idaho-Specific Commitments.
Please explain the benefits to Idaho if these
modified or additional Idaho-Specific Commitments shown on
Exhibi t No.1 02 are adopted.
Idaho-Specific Commitment No. 1-14 is replaced
with modified Oregon-Specific Commitment No. 22.
establishes an annual contribution of $40 000 to the Lend-
Hand program that assists low- income residential
customers.It is superior because it does not limit
PacifiCorp and MidAmerican contributions to simply
matching customer and employee contributions up to a
maximum amount of $20 000.If customer and employee
contributions were less than $20 000 (which has been the
case for PacifiCorp ' s Idaho service terri tory
historically), the matching contribution would also be
less than $20 000 , making the total contribution less than
the $40 000 fixed amount guaranteed under 1-(0-22) .
I -14 now provides a predictable funding amount rather than
an amount that varies depending on the generosity of
parties other than the Applicants.
CASE NO. PAC-E- 05 - 8
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CARLOCK , T (Supp)
STAFF
104
Idaho-Specific Commitment No. 1-15 is replaced
with modified 0-21.It improves upon the provisions of
15 by setting timelines for the proposed arrearage
management proj ect and establ ishing the $66,000 proj ect
funding level as a floor rather than a ceiling.
Idaho-Specific Commitment No. 1-21 is replaced
with modified 0-15 to be consistent with General
Commitment No. 18 Applicable to all states.It also
strengthens or reinforces the ring-fencing language and
provisions.
Idaho-Specific Commitment No. 1-24 is replaced
with 0-5 to provide clarification and to strengthen or
reinforce the ring-fencing language and provisions.
I recommend that Oregon-Specific Commitment Nos.
7 through 0-12 become Idaho-Specific Commitment Nos.
26 through 1- 31 .These Oregon- Specif ic Commitments
provide addi tional structure to implement the hold
harmless clauses already recommended in the Idaho
Stipulation and Commitments (Exhibit No. 101)and provide
for rate credits.The rate credits in 1-27 and 1-
provide additional benefits to Idaho customers of
approximately $640 000 annually for test years 2006 and
2007.The rate credits will then decline until eliminated
in a 2011 test year.The hold harmless provisions as
structured and clari f ied in 1-28 through 1- 3 0 guarantee
CASE NO. PAC-05-
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STAFF
105
that approximately $820,000 annually in costs will not be
reflected in Idaho rates for test years 2006 through 2010
with approximately $380 000 annually thereafter.
Idaho-Specific Commitment No. 1-32 replaces
Commi tment No.3 7 appl icable to all states.This is
beneficial to Idaho by protecting customers from any
credi t rating downgrades caused by actions resul ting from
this transaction during the first year.The debt cost
adjustment for each notch of credit rating downgrade will
reduce debt costs until the debt issuance is no longer
outstanding.This Commitment 1-32 must be compared to
37 as only one of these adjustments is available in the
guarantee.Since PacifiCorp s Rating Outlook is negative
it is possible that a credit rating downgrade could occur
making 1-32 beneficial.The actual debt costs as
discussed in 1- 3 7 can still be lower than rates for
comparable companies even without the guarantee.
Idaho-Specific Commitment Nos. 1-33 through 1-
should be adopted to strengthen or reinforce the ring-
fencing language and provisions.
Are there other provisions in the Oregon
Stipulation that should be adopted in this Idaho case?
Yes , paragraph 10 of the Oregon Stipulation
should be adopted in concept in the Idaho Order.This
addition strengthens or reinforces the ring-fencing
CASE NO. PAC-E- 05 - 8
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CARLOCK , T (Supp)
STAFF106
language and provisions.Instead of making Berkshire
Hathaway an Applicant in this Idaho case, paragraph 10 can
be adopted by having the sworn statements filed as
follows:
The sworn statements of Warren Buffett and
Wal ter Scott, Jr. (together , the shareholders)
will provide that neither will exercise anycontrol, directly or indirectly, on matters that
pertain to PacifiCorp (except for matters
relating to PacifiCorp that are ministerial innature). The sworn statements will also provide
that the Shareholders will recuse themselves
from voting as MEHC or Berkshire Hathaway
directors on MEHC or Berkshire Hathaway Board of
Directors matters concerning PacifiCorpacti vi ties or operations. The sworn statements
will provide that the future transfer of theShareholders' shares will require an agreement
by the transferee to abide by the limitations
recited above, as applicable, regarding the
power to exercise substantial influence overPacif iCorp if, to the Shareholders ' knowledge,
the transferee would own 5% or more of the
voting interests of MEHC or Berkshire Hathaway
after such transfer. By the foregoing, the
Shareholders, PacifiCorp, MEHC and Berkshire
Hathaway do not concede that such transferees
are affiliated interests...
Does this conclude your supplemental testimony
in this proceeding?
Yes, it does.
CASE NO. PAC-O5-
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STAFF
107
(The following proceedings were had in
open hearing.
(Staff Exhibit Nos. 101 and 102, having
been premarked for identification , were admitted into
evidence.
MR. HOWELL:And Ms. Carlock is available for
cross -examination.
Thank you.COMMISSIONER SMITH:
Mr. Purdy, do you have questions?
MR. PURDY:No questions.
COMMISSIONER SMITH:Mr. Budge.
MR. BUDGE:No questions.
COMMISSIONER SMITH:Mr. Noestrand - - Nostrand.
MR. VAN NOSTRAND:Thank you, Madam Chair.
CROSS-EXAMINATION
BY MR. VAN NOSTRAND:
Good morning, Ms. Carlock.
Good morning.
I just had a brief question just on that
provision you were referring to, page 8 of your
- -
of your
supplemental testimony.Could you explain what the purpose , in
your mind, of including this - - proposing that this provision
be included in Idaho?
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CARLOCK (X)Staff83701
The purpose that I included this was that it was
an item that was reflected in Oregon's Stipulation that would
increase the ring fencing benefits.It is a provision that we
get whether it's adopted by this Commission or not.It I S one
of the items that if you have it in one state, it automatically
applies to every state.
The concern that the Company expressed regarding
the Oregon provision, I can understand their concern there that
they would have to go back to every state, so whether it I s
included in the Idaho Order or not I would leave to the
Commission , but it I S not required.
Thank you.
MR. VAN NOSTRAND:I have no further questions,
Madam Chair.
Are there questions from theCOMMISSIONER SMITH:
Commissioners?
I just have one.COMMISSIONER HANSEN:
COMMISSIONER SMITH:Commissioner Hansen.
EXAMINATION
BY COMMISSIONER HANSEN:
The question I I d have is a follow-up of earlier
with Mr. Gale.I I d ask is the Staff comfortable with
MidAmerican's cost share allocation methodology of costs to
109
HEDRICK COURT REPORTING
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CARLOCK (Com)Staff
PacifiCorp?
The allocation would be reviewed in proceedings
that we would go forward with.For the initial review, yes, I
am comfortable with that, and that would be an item that we
would continue to review as we moved forward with all
allocations in all cases.
COMMISSIONER HANSEN:Thank you.That I S all I
have.
COMMISSIONER KJELLANDER:Commissioner
Kj ellander.
EXAMINATION
BY COMMI S S lONER KJELLANDER:
Ms. Carlock , if you could for me , I know some of
the other states have some pending Stipulations that may well
be filed within the next week to 10 days.How would it be that
Staff would inform the Commission, along with the Company, with
regards to which Stipulations we may want to adopt and
accept?
The Stipulation in section three of that item
gives the procedure that the Company will follow, the time
lines that they will follow those different Stipulations, as
well as the final Orders with the other states , and also a
procedure that the various parties can follow to adopt those
110
HEDRICK COURT REPORTING
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CARLOCK (Com)Staff
items.
I would expect from the Staff perspective that
would go through each one of those provisions and that there
would be some sort of a written document to the Commission that
would recommend the items for adoption as a supplemental
Attachment A to the Order.
Any redirect, Mr. Howell?COMMISSIONER SMITH:
No redirect.MR. HOWELL:
COMMISSIONER SMITH:Thank you for your help,
Ms. Carlock.
(The witness left the stand.
COMMISSIONER SMITH:By my tally, that concludes
the witnesses that were scheduled to testify today.Do any
parties have any further matters to bring before the Commission
before we close the hearing?
Does any party see the need for a posthearing
brief?
If not, then the Commission will thank the
parties for their diligence in processing this case,
congratulate them on their success in achieving the
Stipulation, and we will consider it as speedily as possible.
I know we cancelled those public hearings, but I no longer
recall the comment deadline.
MR . HOWELL:Madam Chairman , the comment deadline
was the 19th, which was the same day for the two public
III
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COLLOQUY
83701
hearings.
Tha ti s --COMMI S S lONER SMI TH :
Thursday.MR . HOWELL:
COMMISSIONER SMITH:Okay.Then after the
comment deadline has passed, the record will be closed and the
Commission will deliberate as speedily as possible and issue an
Order.And we thank you all for your attendance and your help.
The hearing is adjourned.
(The hearing concluded at 10:31 a.
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COLLOQUY
83701
AUTHENTICATION
This is to certify that the foregoing is a
true and correct transcript to the best of my ability of the
proceedings held in the matter of the Joint Application of
MidAmerican Energy Holdings Company (MEHC) and PacifiCorp dba
Utah Power & Light Company for an Order authorizing MEHC to
acquire PacifiCorp, Case No. PAC-05-8, commencing on Tuesday,
January 17 , 2006, at the Commission Hearing Room , 472 West
Washington , Boise, Idaho, and the original thereof for the file
of the Commission.
Accuracy of all prefiled testimony as
originally submitted to this Reporter and incorporated herein
at the direction of the Commission is the sole responsibility
of the submitting parties.
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WENDY J. MURRAY tar Publlc
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\": in and for the St e of Idaho,
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reSl lng at Merl lan a o.
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pu~y' ~~i My Commission expires 2-2008.
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113
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P. O. BOX 578, BOISE, ID
AUTHENT I CAT I ON
83701