20101220Vol II Technical Hearing pp 63-310.pdf

ORIGINAL
.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF PACIFICORP DBA ROCKY MOUNTAIN
POWER FOR APPROVAL OF CHANGES TO
ITS ELECTRIC SERVICE SCHEDULES
CASE NO.
PAC-E-10-07
TECHNICAL HE~RI~c_ ~.- -- ~1,_" a::1';::;) rr
rñ:l':::: n(f)(:;, ~
HEARING BEFORE
COMMISSIONER MARSHA H. SMITH (Presiding)
COMMISSIONER MACK A. REDFORD
COMMISSIONER JIM D. KEMPTON
.
PLACE:Commission Hearing Room
472 West Washington Street
Boise, Idaho
DATE:November 30, 2010
VOLUME II - Pages 63 - 310
~ \"n
N.,
Cd.Ii-1"1-.-".~.HEDRICK
COURT REPORTING
POST OFFICE BOX 578
BOISE, IDAHO 83701
208-336-9208
S'el1f tk Ie f,/ffH~.i.l 198
.
.
20
21
22
23
24.25
1 A P PEA R A NC E S
2 For the Staff:
3
4
5
6
For PacifiCorp
dba Rocky Mountain Power
(RMP) :
SCOTT WOODBURY, Esq.
and NEIL PRICE, Esq.
Deputy Attorneys General
472 West Washington
Boise, Idaho 83702
HICKEY & EVANS, LLP
by PAUL J. HICKEY, Esq.
Post Office Box 467
Cheyenne, Wyoming 82003
-and-
DANIEL E. SOLANDER, Esq.
ROCKY MOUNTAIN POWER
201 South Main Street, Suite 2300
Salt Lake City, Utah 84111
RACINE, OLSON, NYE, BUDGE
& BAILEY
by RANDALL C. BUDGE, Esq.
Post Office Box 1391
Pocatello, Idaho 83204-1391
RACIN8, OLSON, NYE, BUDGE
by ERIC L. OLSEN, Esq.
Post Office Box 1391
Pocatello, Idaho 83204-1391
BENJAMIN J. OTTO, Esq.
IDAHO CONSERVATION LEAGUE
710 North Sixth Street
Boise, Idaho 83702
WILLIAMS BRADBURY, PC
by RONALD L. WILLIAMS, Esq.
1015 West Hays Street
Boise, Idaho 83702
-and-
DAVI SON VAN CLEVE, PC
by MELINDA J. DAVISON, Esq.
333 Southwest Taylor, Suite 400
Portland, Oregon 97204
BRAD M. PURDY, Esq.
Attorney at Law
2019 North Seventeenth Street
Boise, Idaho 83702
7
8
9
10
For Monsanto:
11
12
13
14
For Idaho Irrigation
Pumpers Association (IIPA):
15
16 For Idaho Conservation
League (ICL):
17
18
19
For PacifiCorp Idaho
Industrial Customers (PIIC):
For Community Action
Partnership Association
of Idaho (CAPAI):
APPEARANCESHEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
.1 I N D E X
2
WITNESS EXAMINATION BY PAGE
3
A.Richard Walje Mr.Hickey (Direct)76
4 (RMP)Prefiled Direct 79
Prefiled Rebuttal 100
5 Mr.Budge (Cross)114
Mr.Purdy (Cross)199
6 Mr.Williams (Cross)208
Mr.Olsen (Cross)211
7 Mr.Woodbury (Cross)214
Commissioner Kempton 236
8 Commissioner Redford 245
Commissioner Smith 261
9 Mr.Hickey (Redirect)264
10 Bryan Lanspery Mr.Woodbury (Direct)274
(Staff)Prefiled Direct 276
11 Mr.Otto (Cross)300
Mr.Hickey (Cross)308
12.13
14
15
16
17
18
19
20
21
22
23
24.25
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
INDEX
.
.
.
20
21
22
23
24
25
1 EXHIBITS
For Monsanto:
PAGE
3
4
2
NUMBER
237 Berkshire Hathaway Home Page, 6 pgs Marked 124
139
161
161
179
181
190
192
194
195
195
5
238 PacifiCorp Historical Capital Structure Marked
and Net Utility Plant6
7 2/10 Energy Gateway, 5 pgs Marked239
8 240 Energy Gateway, 5 pgs Marked
9 241 Monsanto Rebuttal Data Request 2.4 Marked
10 9/2/10 Monsanto Billing, 3 pgs Marked242
11 Taylor Direct Testimony,
Case UPL-E-90-1, 3 pgs
Marked243
12
244 IPUC Order No. 24220, Case UPL-E-92-2, Marked
6 pgs13
14 11/8/95 Letter, Fell to Walters, 19 pgs Marked245
15 IPUC Order No. 30482, Case PAC-E-07-05, Marked
9 pgs
246
16
247 IPUC Order No. 30783, Case PAC-E-08-07, Marked
9 pgs17
18
19
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
EXHIBITS
.
.
.
1 BOISE, IDAHO, TUESDAY, NOVEMBER 30, 2010, 9:42 A.M.
2
3
4 COMMISSIONER SMITH: Good morning, ladies and
5 gentlemen. This is the time and place set in the technical
6 hearing for Idaho Public Utili ties Commission Case No.
7 PAC-E-10-07. This is in the matter of the Application of
8 PacifiCorp dba Rocky Mountain Power for approval of changes to
9 its electric service schedules.
10 I want to begin this morning by introducing the
11 Commission. To my left is Commissioner Jim Kempton, who is
12 also president of the Commission; to my right is Commissioner
13 Mack Redford; I am Marsha Smith. The three of us are the
14 Commissioners for the state of Idaho.
15 We'll begin with the appearances, and we'll start
16 with the Applicant.
17 MR. HICKEY: Thank you, Chairman Smith, President
18 Kempton, and Commissioner Redford. Paul Hickey of Hickey and
19 Evans, Cheyenne, Wyoming, representing Rocky Mountain Power.
20 MR. SOLANDER: Daniel Solander, senior counsel
21 for Rocky Mountain Power.
22 And also with us at the table is Mark Moench,
23 senior vice president and general counsel for Rocky Mountain
24 Power.
25 COMMISSIONER SMITH: Okay, welcome.
63
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLOQUY
.
.
.
1 Mr. Budge.
2 MR. BUDGE: Randall C. Budge of Racine, Olson,
3 Nye, Budge, and Bailey, Pocatello, Idaho, representing Monsanto
4 Company, Intervenor.
5 COMMISSIONER SMITH: Staff.
6 MR. WOODBURY: Scott Woodbury, deputy attorney
7 general, for Commission Staff.
8 And as cocounsel in this case also with the
9 Attorney General's office, Neil Price.
10 COMMISSIONER SMITH: Okay. Mr. Purdy.
11 MR. PURDY: Brad Purdy, appearing on behalf of
12 the Community Action Partnership Association of Idaho.
13 COMMISSIONER SMITH: Okay. Mr. Williams.
14 MR. WILLIAMS: Ron Williams from Williams and
15 Bradbury on behalf of PacifiCorp Idaho Industrial Customers.
16 Also joining me later this morning will be
17 Melinda Davison of Davison Van Cleve as cocounsel.
18 COMMISSIONER SMITH: Okay. Mr. Olsen.
19 MR. OLSEN: Yes. Eric Olsen with Racine, Olson,
20 Nye, Budge, and Bailey, representing the Idaho Irrigation
21 Pumpers Association.
22 COMMISSIONER SMITH: Mr. Otto.
23 MR. OTTO: Benjamin Otto from the Idaho
24 Conservation League.
25 COMMISSIONER SMITH: I noted that Agrium was
64
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLOQUY
.
.
.
1 granted intervention in this case. Is there anyone here
2 appearing on behalf of Agrium?
3 Okay, I think we have everybody.
4 All right, preliminary issues to come before the
5 Commission: The first thing I think we'll take up is the
6 Request by several parties to file surrebuttal. Who would like
7 to go first? Mr. Olsen looks ready; we'll start with you.
8 MR. OLSEN: Thank you, Madam Chair. Just as I've
9 stated in our Motion, we would like to file some written
10 surrebuttal of IIPA' s president, Mark Mickelsen. This is in
11 response to some rebuttal testimony filed by Carol Hunter and
12 some issues that were raised for the first time in this hearing
13 regarding the load management -- irrigation load management
14 program, and I think his testimony addresses our positions and
15 would shorten my cross-examination of Ms. Hunter if he's
16 allowed to testify or provide that.
17 COMMISSIONER SMITH: Mr. Williams.
18 MR. WILLIAMS: Commissioner, we would have -- we
19 had some short surrebuttal testimony that we could provide
20 ei ther live in a few questions and we can prefile -- we're open
21 to either prefiling a few short rebuttal -- surrebuttal
22 questions and answers or we can do it live from the stand. I
23 think our preference for other parties would be to do it in
24 written format.
25 COMMISSIONER SMITH: And is that prepared and
65
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLOQUY
.
.
.
1 ready to hand out at this time?
2 MR. WILLIAMS: It will be by noon today.
3 COMMISSIONER SMITH: Mr. Budge.
4 MR. BUDGE: Thank you, Madam Chairman. Also, we
5 would like to file some short surrebuttal testimony. I would
6 note that in this case, the Company's filed a rather
7 substantial rebuttal case involving 17 witnesses, five of whom
8 are new that didn't file any direct testimony, and they raise a
9 number of issues that are either new issues or expanded that we
10 did not have an opportunity to address on our initial rebuttal
11 testimonies. And so what we would propose to do would be to
12 file all of that immediately and we have it ready to file
13 immediately and serve on the parties, and this would give the
14 Company at least a couple days before the Monsanto witnesses go
15 on to prepare.
16 And if the Chair would indulge in that Request,
17 we would not have any live surrebuttal and it would
18 substantially reduce the cross on other witnesses and we would
19 limi tit to -- we have considerable cross for Mr. Walj e, but
20 other Company witnesses, very few and very little. So it
21 clearly would shorten our cross-examination, as well as
22 eliminate the need for any surrebuttal.
23 COMMISSIONER SMITH: And could you tell me which
24 witnesses?
25 MR. BUDGE: Yes. It would be Mr. Lawrence,
66
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLOQUY
.
.
.
1 Mr. Smith, Mr. Gorman, Mr. Peseau, and Mr. Widmer.
2 COMMISSIONER SMITH: That's -- is there any other
3 party that's seeking to file or do any other kind of
4 surrebuttal?
5 All right. Mr. Hickey.
6 MR. HICKEY: Thank you, Madam Chair. I'm not
7 surprised to hear Counsel representing to the Commission that
8 they're going to shorten cross by offering surrebuttal. I
9 think that that's the inducement to get you to grant this
10 Motion.
11 Where we're at: I don't know what this testimony
12 says. We're starting the hearing today. The burden is on my
13 client. We accept that burden, we acknowledge it, and at some
14 point, we just need to say, There's no more sur-surrebuttal or
15 surrebuttal.
16 We would suggest, Madam Chair, that you ask these
17 parties to file it, let us take a look at it, and then we can
18 speak more intelligently about whether or not there's a
19 legi timate basis to say it's a burden at the beginning of the
20 case and during the case to address it. But to be told that
2 1 it's available and I can see it later is makes it difficult
22 to give you a concise obj ection, other than the inevitable one
23 that we simply have to have an end point where the testimony is
24 in and the Commission has all the facts you need to make a
25 Decision.
67
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLOQUY
.
.
.
1 I think it's a slippery slope to start opening to
2 Intervenors the opportunity for surrebuttal. Obviously, if,
3 after review, it's decided that you would grant these Requests,
4 we would need the opportunity to rebut this additional
5 testimony that comes in during the hearing.
6 COMMISSIONER SMITH: And I am sympathetic to
7 everything you said. However, I think Mr. Olsen's rebuttal
8 or, surrebuttal, I'm sorry -- was filed yesterday, and I did
9 have the opportunity to read it. And so I think, you know,
10 there might be some -- it might be a valid statement that it
11 would reduce cross. But I like your suggestion.
12 I would -- everyone with surrebuttal, please get
13 it to the Company immediately. And at the end of today, we
14 will look at this again.
15 The Company does have the burden of proof. It
16 always has the opportunity to go last with its rebuttal, and
17 they will absolutely have that opportunity.
18 MR. HICKEY: Thank you, Madam Chairman.
19 COMMISSIONER SMITH: So if that's acceptable to
20 the parties, please see the Company and get your rebuttal
21 immediately. Before we adj ourn for the day, we will revisit
22 this issue and make a determination which way we want to go.
23 Are there any other preliminary matters that need
24 to come up before we begin hearing testimony? Mr. Purdy.
25 MR. PURDY: Madam Chair, this might be premature,
68
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLOQUY
.
.
.
1 but I was wondering if it would be possible at some point in
2 time that I make a Motion or simply Request that the parties be
3 gi ven the opportunity to submit a very limited posthearing
4 brief in light of the magnitude and complexity that this case
5 has taken on.
6 COMMISSIONER SMITH: Right, let's take that up at
7 the end.
8 MR. PURDY: Okay. Thank you.
9 COMMISSIONER SMITH: You might run out of energy
10 before then.
11 MR. PURDY: Pardon?
12 COMMISSIONER SMITH: You might run out of energy
13 before then.
14 MR. PURDY: Never.
15 COMMISSIONER SMITH: Mr. Hickey.
16 MR. HICKEY: Madam Chair, just two quick things:
17 I did have a couple of witnesses that are
18 adopting testimony, and wanted to make that Request into the
19 record and to make sure all parties are aware of those issues.
20 .And, secondly, to take up the Motion to Strike
21 that is pending.
22
23
COMMISSIONER SMITH: Okay.
MR. HICKEY: Beginning first with the adoption of
24 testimony, Mr. Mark Tallman will adopt the testimony of
25 Stefan Bird; Mr. Darrell Gerrard will adopt the testimony of
69
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLOQUY
.
.
.
1 John Cupparo upon your granting these Requests; and then,
2 finally, Mr. Steve McDougal will adopt the testimony of
3 Mr. Ryan Fuller. And we would ask the permission of the
4 Commission to have those witnesses adopt that testimony. I can
5 represent that they will stand available to be cross-examined
6 on those points.
7 COMMISSIONER SMITH: Is there any obj ection to
8 this procedure?
9 Seeing none, that's perfectly acceptable, it's
10 not uncommon, and we will proceed in that manner.
11 MR. WOODBURY: Madam Chair.
12 COMMISSIONER SMITH: Mr. Woodbury.
13 MR. WOODBURY: With respect to adoption of
14 testimony, I would announce that Gary Grayson submitted direct
15 testimony for Commission Staff. Mr. Grayson is -- has left the
16 Commission. His testimony, I propose, would be adopted .by
17 Staff member Lynn Anderson.
18 COMMISSIONER SMITH: Yeah, Mr. Grayson is no
19 longer an employee of the Commission. So, any obj ection to
20 that?
21 All right. Thank you, Mr. Woodbury.
22 Mr. Hickey.
23 MR. HICKEY: Madam Chair, the second Request is
24 to address the Motion to Strike. I'll be brief and concise in
25 my comments. I think it's more properly a Motion to Defer.
70
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLOQUY
.
.
.
1 We took your Order that you entered on the 22nd
2 of October very seriously. We believe that you said at that
3 time we're going to leave the issue of the economic valuation
4 of the Monsanto interruptible product for another day with more
5 time so that all parties can fully develop and present their
6 case on the economic valuation of those interruptible products.
7 Your Order clearly established that that February hearing is
8 when those issues will be taken up.
9 So against that background, when you said on
10 page 4 of your Order -- and I quote -- We direct Monsanto and
11 all parties who establish this issue in their October 14th
12 prefile to separate this issue out and refile their direct
13 testimony on all other issues no later than the close of
14 business November 1, 2010; we took you seriously and believe
15 that you said Mr. Collins's testimony will be part of this
16 second hearing, as Mr. Clements' testimony is part of that
17 second hearing.
18 And we have found numerous instances in
19 Mr. Smith's testimony and in Ms. Iverson's testimony where the
20 issue of the economic valuation of Monsanto interruptible
21 products is addressed, and in order to be more direct and
22 explicit in where those references are, we filed this morning
23 page and line citations in both the Collins and Iverson and
24 Smi th testimony.
25 And so we would suggest that the efficient thing
71
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLOQUY
.
.
.
1 to do, Madam Chair, is simply defer -- excuse me. We don't
2 need to strike this. There is a second phase of this hearing
3 where that testimony is intended to be considered, and that's
4 in conjunction with the February hearing, and I would ask that
5 you defer those testimonies as cited to that second phase.
6 COMMISSIONER SMITH: Mr. Budge.
7 MR. BUDGE: Thank you, Madam Chairman.
8 Obviously, I think I have full confidence in this Commission's
9 ability to review the testimony and discern what is relevant
10 and relative to this immediate first phase, as well as what is
11 relevant to the second phase.
12 I will say this: Let's not forget that the
13 bifurcated proceeding and the resolving burden that was placed
14 upon Monsanto to repackage and refile its testimony was caused
15 by the Company and its untimely late filing of testimony by
16 Mr. Clements, so we thought we complied with the Order the best
17 we could to separate out those issues that dealt with
18 interruptibili ty. So we tried to go through our testimony and
19 anything that had to do with a specific methodology or a
20 calculation or the like to determine what the interruptible
21 credit should be, we took that out of the testimony and will
22 refile it by the December filing date.
23 The nature of the service to Monsanto where they
24 only have a nine megawatt firm load and all the rest is
25 interruptible is such that you can't totally take out the word
72
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLOQUY
.
.
.
1 "interruptible" throughout the testimony.
2 And, furthermore, I note as you review the
3 Company's filings, particularly on rebuttal, they then go on to
4 do what appeared, to me, to be the very thing that they're
5 complaining of, and that is they discuss extensively this issue
6 of firm versus nonfirm, and so on and so forth.
7 So as far as we're concerned, we did the best we
8 could. We thought we complied with the Order. If not, the
9 Commission can certainly choose what to pay attention to for
10 purposes of phase one and defer whatever is appropriate to
11 phase two, and we'll refile accordingly.
12 It was somewhat of a burden on the short time
13 frame put on us to go back through and refile your testimony in
14 a couple weeks, so I can just say we did the best we could.
15 COMMISSIONER SMITH: Thank you, Mr. Budge.
16 Do you want to reply, Mr. Hickey?
17 MR. HICKEY: Madam Chair, could I have 30
18 seconds, or thereabouts?
19 I think there's an easy, practical solution, and
20 it's just for the Commission to make it clear to Monsanto, as
21 well as the Company, that those issues as you ordered relating
22 to the interruptible products of Monsanto are for the second
23 phase of the hearing, and if any of the witnesses in the case
24 try to engage you or get engaged by any party on those issues,
25 they will likely be told by the Chair that those issues will be
73
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLOQUY
.
.
.
1 taken up in the second phase. I think we're all
2 time-challenged to get this case presented, and the best thing
3 both in recognition of this Commission's Order and the time
4 challenges from the Company' s perspective is to defer these
5 issues, as we believe you intended, to the second phase and the
6 February hearings on the Monsanto products.
7 COMMISSIONER SMITH: Tell you what I'm going to
8 do: Now that I have the page and line cites, I will go through
9 that tonight and let you know in the morning if I think there's
10 anything that needs to definitely come out. I think a lot of
11 it is in the nature of background or just informative, and so
12 it's not obj ectionable. The Commission is not going to decide
13 this issue until the February hearing, so from that aspect,
14 Mr. Hickey, I think you can be confident that we won't engage
15 in any extensive review of this issue at this time.
16 So if that's acceptable, I would hold your Motion
17 and let you know in the morning if I think anything absolutely
18 has to come out this round. Otherwise, we'll just go forward,
19 knowing that that issue is to be decided later after a
20 subsequent hearing.
21 MR. HICKEY: Thank you. We welcome your review
22 of those citations.
23 MR. BUDGE: Certainly fine with us.
24 COMMISSIONER SMITH: Okay. All right. Nothing
25 else to come before us, preliminarily.
74
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLOQUY
.
.
.
1 Mr. Hickey, we'll turn to you for -- start the
2 presentation of your case.
3 MR. HICKEY: Thank you, Madam Chair. With the
4 invi tation that you offered earlier in the morning, I certainly
5 want to say to you and President Kempton and Commissioner
6 Redford that Rocky Mountain Power sincerely appreciates the
7 effort that this Commission, your Staff, and all of the
8 Intervenors in this case have given this extensive filing.
9 It's a very serious and important Application for Rocky
10 Mountain Power.
11 We're going to be calling our first witness in a
12 moment, president of the Company Richard Walje, and as
13 Mr. Walj e will share with you, the Company has made significant
14 investments , it's made significant commitments to service in
15 Idaho, significant commitments to see that its generation
16 resources and its transmission resources are as good as any
17 investor-owned utility in this country. And because of this
18 intensi ve build cycle that we find ourselves in, we have a need
19 for rate relief.
20 We don't come to this proceeding lightly. We
21 have certainly attempted to find ways to manage the costs that
22 the Company can manage, and understand that we're all living in
23 an economy that has challenged our abilities to bear additional
24 cost. But we're excited about the opportunity to present these
25 wi tnesses to you, Madam Chair, and to your fellow
75
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLOQUY
.
.
.
1 Commissioners. These people live these issues every day, and I
2 believe you'll find them to be knowledgeable and credible
3 witnesses.
4 So, we're ready to call Mr. Walj e when --
5 COMMISSIONER SMITH: I already told you, I'm
6 ready.
7 MR. HICKEY: Okay. We will call Richard Walj e as
8 our first witness.
9
10 A. RICHARD WALJE,
11 produced as a witness at the instance of Rocky Mountain Power,
12 being first duly sworn, was examined and testified as follows:
13
14 DIRECT EXAMINATION
15
16 BY MR. HICKEY:
17 Q.Good morning, Mr. Walj e.
18 A.Good morning, Mr. Hickey.
19 For the record, could you please state and spellQ.
20 your name?
21 My name is Arlo Richard Walj e. First name isA.
22 spelled A-R-L-O; Richard, R-I-C-H-I-R-D -- I think that's
23 R-I-C-H-A-R-D, misspoke a bit there; and Walje, W-A-L-J-E.
24 And by whom are you employed and what is yourQ.
25 current position in the Company?
76
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Di)~P
.
.
.
20
1 A.I am employed by Rocky Mountain Power. I'm
2 president of Rocky Mountain Power.
3 Q.And are you the same A. Richard Walje that filed
4 direct testimony on May 28, 2010?
5 A.I am.
6 Q.And did you also file rebuttal testimony, sir, on
7 November 16, 2010?
8 A.I did.
9 Q.Do you have any additions or corrections that
10 you'd wish to make to either of those prefiled testimonies?
11 A.I have two minor corrections to my rebuttal
12 testimony.
13 On page 1, lines 13 through 19, I am not going to
14 introduce the Company witnesses in my rebuttal testimony; that
15 was done in my direct testimony. So, that's just bookkeeping.
16 And, secondly, on page 11, lines 2 and 3, there
17 was a mention of two proj ects and yet there was a comment about
18 Monsanto's support of a project, and that project would have
19 been the Threemile Hill project.
Q.And that second reference was also to your
21 rebuttal testimony. Correct?
22
23
24
25
A.Correct.
Q.If I were
COMMISSIONER SMITH: Could we have a line
reference, please?
77
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Di)
RMP
.
.
.
20
21
1 THE WITNESS: Yes. Lines 13 and 19 on page 1;
2 page 11, lines 2 and 3.
3 COMMISSIONER SMITH: And what is the change
4 you're proposing?
5 THE WITNESS: That the singular proj ect refer to
6 the Threemile proj ect, which I believe Monsanto actively
7 participated with the Company in its development.
8 COMMISSIONER SMITH: So it's a clarification.
9 THE WITNESS: A clarification, correct.
10 COMMISSIONER SMITH: All right.
11 MR. HICKEY: Thank you, Madam Chair.
12 Q.BY MR. HICKEY: If I were to ask you the
13 questions that are set out in your prefiled testimony, both
14 direct and rebuttal, would your answers be the same today as
15 are published in those documents, Mr. Walj e?
16 A.They would be.
17 MR. HICKEY: Madam Chair, I would move that the
18 prefiled direct and rebuttal testimony of Mr. Walj e be spread
19 upon the record as if read.
COMMISSIONER SMITH: Is there any objection?
If not, the pre filed testimony of Mr. Budge,
22 was that unreasonable -- the prefiled testimony of Mr. Walj e
23 will be spread upon the record as if read.
24 (The following prefiled direct and
25 rebuttal testimony of Mr. Walj e is spread upon the record.)
78
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Di)
RMP
that the Company's strategy, infrastrctue investments and operations result in
the delivery of safe, reliable electric energy to the Company's customers at
reasonable prices.
Q. Please describe Rocky Mountain Power's presence in Idaho.
A. Rocky Mountain Power provides safe, reliable, and low-priced electrc service to
over 72,700 customers in Idaho. Rocky Mountain Power provides nearly 200
jobs in the communities of southeast Idao. The Company owns and operates 94
substations in Idaho plus over 2,000 miles of transmission lines and 5,600 miles
of distribution lines. In addition, the Company purchases the output of the
Wolverine Creek wind generation facility located near Idao Falls.
Q. What is the purpose of your testimony?
A. The purpose of my testimony is to provide an overview of the Company's 2010
Idaho general rate case ("Application") requesting a revenue increase in the
amount of $27.7 millon, or 13.7 percent on average over Rocky Mountain
Power's current rates.
My testimony also presents policy issues and the implications of the
Company's and industry's need to address rising costs and capital investment
requirements. Specifically, I wil provide a summar of the Company's filng and
introduction of the witnesses who wil address the Company's case. In addition, I
wil address in more detal the following:
. The major cost drvers underlying the need for the price increase,
including the capital investment required to meet curent and future
customer needs;
80
Walje, Di - 2
Rocky Mountan Power
.1
2
3
4
5 Q.
6
7 A.
8
9
10
11.12
13
14
15
16
17
18
19
20
21
22.23
. The impact of the request on Monsanto's rate;
. The Company's efforts to control costs while maintaning reliable service
and customer satisfaction; and
. The cost of service analysis and related tar strctue recommendations.
Please explain why the Company is requesting to increase Idaho electricity
consumers' rates during this downturn in the economy.
Clearly, our customers do not like their electrc rates to increase, nor does the
Company tae lightly a request to raise rates; however, it is critical that rates
reflect the current actual costs of serving our customers. Absent the increase
requested in this case, tle Company wil not receive the revenues it requires to
fund the futue capital. investments necessar to provide reliable service to our
customers and customers wil not receive the price signals they nee to make
sound economic decisions regarding effcient energy usage.
The Company continues its multi-year program of investing in renewable
energy, transmission facilities and environmental controls to serve our customers
and to comply with changing environmental requirements in Idaho and system-
wide. This case includes in rates the investments, costs and benefits of the
Company's activities during and after the test period.
This May 2010 Application means that the new rates wil most likely
become effective Januar 1,2011. When the new rates from this case become
effective, over 20 months wil have passed since the April 18, 2009, effective date
of the 2008 rate case increase. At a total Company level, the test period in this
case includes over $4 bilion of new plant investments and $87 millon increased
81
Walje, Di - 3
Rocky Mountain Power
.1 net power costs that should be reflected in rates.
2 Rate Case Overview
3 Q.
4 A.
5
6
7
8
9
10
11.12
13
14
15
16
17
18
19
20
21
22
.23
Please explain the Company's requested rate increase in thi Application.
The Company's fiing supports a revenue requirment increase of approximately
$27.7 millon or 13.7 percent. Historical data from calenda year 2009 is use as
a base period, with adjustments for known and measurable changes though
December 31,2010, as the test period. Company witness Mr. Steven R.
McDougal, Director, Revenue Requirement, wil discuss the revenue increase and
the sources of the data used in determning the normalizing adjustments related to
revenue, operation and maintenance expense, net power costs, depreciation and
amortization, taxes, and rate base in developing the Idaho revenue requirement.
Mr. McDougal wil also support the Company's proposed inteijursdictional
allocation of common costs, the allocation treatment of Monsanto's curailment,
and the Company's irgation load control programs. Mr. McDougal's revenue
requirement analysis is based on a cost of capital that includes a retu on equity
of 10.6 percent, which is the equity retu authorized in the Company's recent
rate cases in other states and is within the range of common equity costs
supported by the Company's expert witness. The percentage of common equity
in the proposed capital structure is 52.1 percent.
Mr. Bruce N. Wiliams, Vice-President and Treasurer, wil testify
concerning the Company's cost of debt, preferred stock and capital strctue.
Additionally, Dr. Samuel C. Hadaway, FIANCO, Inc. wil testify concerning
the Company's cost of common equity. Both witnesses describe the significant
82
Walje, Di - 4
Rocky Mountain Power
.1
2
3
4
5
6
7
8
9
10
11.12
13
14
15 Q.
16
17 A.
18
19
20
21
22
.23
changes in the capital markets that affect Rocky Mountain Power.
The financial challenges and risks that Mr. Willams and Dr. Hadaway
discuss in their testimony are demonstrably real. The Company has been in a
period of load growth, though slowed by the recession, which is expected to
continue. The Company must make large capital investments to provide
customers with safe, reliable electrc service. This necessar ongoing level of
investment far exceeds both the Company's net operating income and
depreciation expense. Therefore, the Company requires substantial levels of new
financing to fund the investment necessar to meet its customers' electrc service
use. While the Company funds more than 50% of the costs of its investments
with retained earings and equity infusions from its parent, MidAmerican Energy
Holdings Company ("MEHC"), the Company stil nees to access short and long
financial markets fór the remainder of its funding needs and those markets remain
risky and volatile.
How have the changes in the economy impacte cash flow and borrowing
costs?
Following a multi-year period of relative calm and accommodative access to
capital the financial markets entered a period of upheaval beginning in the second
half of 2008, featung more volatilty and substantially less liquidity or access to
credit markets for many paricipants. Financial markets generally view utilties as
relatively stable and creditworthy. However, as utilties across the countr began
to require access to additional capital to meet environmenta compliance
requirements, load growth and routine infrastrcture investments, financial
83
Walje, Di - 5
Rocky Mountain Power
.1
2
3
4
5
6
7
8
9
10
11.12
13
14
15
16
17
18
19
20
21
22
23.
markets began to exhibit much greater differentiation in credit quality within the
utility industr. Highly rated utilties experienced limited difficulty in accessing
reasonably priced capita, while lower rated utilties experienced much higher
borrowing costs, if they were able to access credit markets at alL.
PacifiCorp's solid credit ratings have been beneficial to customers during
the credit crisis, and are expected to be equally importt as the Company
finances approximately $16 to $ 1 8 bilion of inrastrcture investment to serve
load growth and to implement environmental controls on existing facilities over
the next ten years. In addition to having good access to the credit markets, the
Company's financing challenge is being substantially supported though the
receipt of approximately $990 millon in additional cash equity contrbutions from
MEHC, $ 1.7 bilion of earings that have been retained in PacifiCorp and the fact
the Company has not paid any dividends to MEHC since the acquisition. These
actions, plus the positive impact of ownership by MEHC and its parent, Berkshire
Hathaway, have been important in positioning the Company to make additional
investments cost effectively.
The Company's need for new capital is occurrng at the same time that
investors have become increasingly more selective and cautious. While the
Company is fortnate that it can stil access the financial markets on reasonable
terms (unlike some lower rated utilties), Standard and Poor's April 2010 credit
assessment of PacifiCorp states that "the ring-fenced utilty's credit metrcs are
more consistent on a stadalone basis with a 'BBB' category rating." This is
discussed in more detail in the testimony of Mr. Wiliams.
84
Walje, Di - 6
Rocky Mountain Power
.1
2
3
4
5
6
7
8
9
10
11
.12
13
14
15
16
17
18
19
20
21
22
.
In order to moderate the rate increase sought in this case 'and its impact to
customers, the Company is proposing a conservative authorized retu on
common equity in the middle of the range of common equity costs supported by
Dr. Hadaway. The 10.6 percent retu on equity requested in this Application is
the same retu approved in Februar 2010 by the Public Service Commssion of
Utah for Rocky Mountain Power and requested in Oregon and Washington. It is
also consistent with recent settlements in Wyoming and in line with recent
decisions in Idao for other utilties.
The persistent mismatch between actual cash outlay/end of AFDC
accrual and commencement of revenue recovery through rates results in an
earings shortall as well as a cash flow shortfall that must be financed. Coupled
with an ongoing high level of capital investments, the Company's financial
performance metrcs that rating agencies track have been challenging to meet,
which in tu increases the risk of a credit rating downgrade. As the credit crisis
has shown, a credit rating below'A-' can limit the abilty of a utilty to access
capital markets, which can be very costly in the long run for a utilty and its
customers. Additionally, financial analysts regularly cite the need for supportive
regulatory treatment during periods of large investments. Rocky Mountain Power
requests and needs continued support from theIdao Public Utilties Commssion
("Commssion"), other regulatory agencies, and stakeholders in order to meet the
demands of capital markets and to satisfy the growing energy needs of our
customers while maintaining safe, reliable, and low cost service.
85
Walje, Di-7
Rocky Mountain Power
.1 Q.
2
3
4 A.
5
6
7
8
9
10
11
.12
13
14
15
16
17
18
19
20
21
22
23.
If the requested rate increae proposed in this case is not approved, wil the
Company have a reaonable opportunity to recover the costs it incurs to
serve our customers?
No. The investments propose in this case to be recognized in rates are aleady
serving Idaho customers or wil be before the end of 2010. Asa consequence, it.
wil not be possible for the Company to recover its cost to serve customers and to
make an adequate retu on its investments to serve these customers without the
requested rate increase.
Some paries argue that by delaying the inclusion of prudently incured
costs to serve customers in rates or by otherwise financially pressurng the
Company, new efficiencies and cost savings can be identified to make up for the
fact that certain of its investments have not been put in rates. This argument
ignores the fact that, for many years, the Company has identified and undertaken
successful efficiency improvements with minimal operations and maintenance
cost increases. Delays in recognizing prudently made investments in rates wil
not create additional efficiency opportnities for the Company and, in fact,
pressure to reduce costs may have an unintended effect on service.
It is a fundamental and universally accpted principle of ratemang that
customers' rates should reflect the revenue requirements associated with prudent
investments. The investments are either prudent or not and the costs of those
investments are either reasonable or not. An arbitrar delay creates a needless
gap between the end of AFUDC accrual and the commencement of recovery of
the revenue requirement associated with plant beneficially serving customers. A
86
Walje, Di - 8
Rocky Mountain Power
.1
2
3
4
5
6
7
8
9
10
11.12
13
14
15 Q.
16
17 A.
18
19
20
21
22
23.
delay in recovering the costs of these beneficial investments seems punitive.
Every new generation plant, every transmission line, and nearly every
distribution facility built today is significantly more costly than similar facilties
curently in rates. The cost difference is caused by simple inflation and the
vintage of existing facilities. The revenue requirement associated with the level
of capital investment that is being made by the Company is a multiple of its
annual depreciation expense and cannot be entirely offset by cost containment
initiatives, productivity gains achieved by the workforce, compensation and
benefit plan changes, or technological improvements. Nor can the Company rely
upon increased sales revenue as the currnt economic conditions have slowed or
reversed sales growth forecast in pars of the Company's service ara.
Finally, in addition to it being a basic principle of rate regulation,
reflecting prudently-incured costs in rates is also necessar to send customers the
correct price signals regarding the cost of their electrcity use.
Why is it important for the test period in thi proceeding to include costs
after the filing date but before the rates become effective?
If the rates in this case were based upon outdated historical investment levels and
costs, the Company would have no chance of earing the retu authoried by the
Commssion. If rates are set ori purely historical costs ignoring known and
measurable changes, they would not reflect the reality that costs and plant
investment are steadily increasing and would not adequately reflect the
Company's cost of serving customers durng the rate effective period. In order to
better align the costs and plant investment placed in service within the rate
87
Walje, Di - 9
Rocky Mountain Power
.1
2
3
4
5
6
7
8
9
10
11.12
13
14
effective period (the time period from the rate effective date in this case to the rate
effective date in the next rate case) a test period with known and measurble
changes is used. The test period in this case uses calendar year 2009 as the base
with adjustments for known and measurable changes though December 31,2010,
which means at the time of the rate effective date all of the test period revenues
and expenses wil aleady have occured. Stated another way, if rates become
~ive on Januar 1,2011, the test period wil have passed, capital wil have
been expended on working facilities and the Company wil continue to invest in
additional capital. The Company wil be operating on these new rates for at least
12 months into the future, so it is essential that the costs and investments in this
case reflect the rate effective period or the Company wil unable to achieve
retus near Commssion's authorized retu. Ths outcome would be neither
justifiable nor fair to the Company. The Company would be face with finding
other means to achieve performance nearer to the allowed return, and not just
15 through efficiency gains.
16 Cost Control Efforts
17 Q.
18
19 A.
20
21
22
.23
Explain the efforts the Company has made to control costs and keep
electricity prices reasonable.
Rocky Mountain Power has an obligation to our customers to provide safe and
reliable service, while keeping electrcity prices as low as reasonably possible.
Effective management of power costs and operating costs is one of the key
elements of the Company's strategy to meet this obligation. Since its acquisition
by MEHC, the Company has continued to increase the effciency of its operations.
88
Walje, Di - 10
Rocky Mountain Power
.
.
.
1 The Company has worked hard to strie the right balance between operational
2 expenses, customer service, and preventive maintenance. In addition, the
3 Company has focused on controllng labor costs. This approach helps to achieve
4 maximum value for each dollar spent on operating and maintaining the
5 Company's electrc facilties. Unfortnately, these efforts wil not be enough to
6 offset the cost increases in other areas described in this case.
7 Additionally, the Company has reduced or deferred its capital investments
8 where feasible, implemented reviews of tax matters and coal stripping issues to
9 identify accounting changes, and effectively managed employee labor costs and
10 its renewable energy credit portolio to benefit customers.
11 Case Components
12 Capital Investments
13 Q. Please provide details on the major cost increases in this case.
14 A.The rnain component of the requested revenue increase in the 2010 Idaho general
15 rate case is the significant capital investment the Company has made on behalf of
16 our customers since the last rate case. In this rate case, several major new
17 generation and transmission facilities wil be in-service and providing benefits to
18 customers, so the costs related to these new facilties definitely should be
19 reflected in rates durng the rate effective period. These include eight new wind
20 generation plants, the Populus to Termnal 345 kV transmission line from
21 Downey, Idaho to Salt Lake City, Utah, the environmental improvements at the
22 Dave Johnston, Huntington and Jim Bridger power plants, turbine upgrades at
23 Hunter, Huntington and Jim Bridger power plants, and hydro plant relicensing
89
Walje, Di - 11
Rocky Mountain Power
.1
2 Q.
3
4 A.
5
6
7
S
9
10
11.12 Q.
13
14 A.
15
16
17
is
19
20
21
22
23.
and upgrade investments.
Has the Company's capital investment plan changed as a result of the new
load projections?
The Company has scaled back local transmission and distrbution capita
expenditures from previously planned levels to more closely match revised load
growth projections. Ths reduces situs based costs in Idaho. A reduction in the
rate of load growth has allowed the Company to delay certai projects, such as
transformer change outs and line re-constrctions a year or more. Even with these
plan modifications this case includes over $4 bilion in new plant investments
made since 200S or that wil be made by the end of the test period, December 31,
2010.
Some argue that the Company should reduce its capital investment plan in
response to the economic recession. What is your response to this argument?
First, as noted above, the Company has already decreased its local capital
spending plans to the extent it can prudently do so and maintain the level of
service customers expect and deserve. Those reductions are reflected by their
absence from this fiing. Second, many long lead projects have a multi-year
development phase. It can take years to obtain permts and these projects wil be
at risk of completion if they are delayed and additional costs wil be incured if
the permtting process is restared later. Because of public opposition to
transmission lines in paricular, we may not be able to restar some delayed
projects. Third, much of the Company's current prudent investment is for
generation that does not emit greenhouse gases, or reduces environmental
90
Walje, Di - 12
Rocky Mountan Power
.1
2
3
4
5
6
7 Q.
8
9
10
11 A..12
13
14
15
16
17
18
19
20
21
22
23.
emissions or improve efficiency. Finally, the Company has reduced its projected
10 year capital budget from nearly $2.2 bilion per year to $1.6 bilion per year,
parially in response to the price increases created by the capital plan. After
completion of curent projects no investments in new Company-owned generation
is planned until 2014. Capital spendig wilfocus on distrbution, transmission
and environmental controls projects.
Some critics have suggested that the Company has complete discretion to
make capital investments, implying that given the current economic
downturn and the corresponding declining load growth, the Company could
choose to cut back. What is your response to this argument?
The decision to build the curent long lead capital projects was made years ago,
before anyone knew that we would be in this type of economic downturn. Even if
the Company had perfect vision into the futue, it would have continued planning
for growth because our load wil continue to grow. We all know that just as there
are economic recessions, there are also periods of robust economic growth. This is
a normal consequence of the business cycle. This geographic area of the countr,
in paricular, wil continue to grow, and the Company must be prepared for that
growth. Because Rocky l\ountain Power has a long term obligation to serve
growing loads and the time between a trnsmission or generation project's
conceptual inception and completion can exceed five years, it is imprudent to stop
and star projects that are in the permtting process, which can easily take up to
three years. The. Company has to make responsible decisions factoring in all
aspects of capital investments and constrction requirements and economic cycles.
91
Walje, Di - 13
Rocky Mountain Power
.1 Q.Please explain the major generation additions in Rocky Mountain Power's
2 capital investment strategy that are included in this case.
3 A.To ensure the Company can continue to meet its customers' electrcity needs and
4 address load growth challenges at the same time that several long-term purchase
5 power contrcts are expirng, the Company is in the process of completing or
6 adding significant new generation resources. Mr. Stefan A. Bird, Senior Vice-
7 President of PacifiCorp Energy's Commercial and Trading organization, and Mr.
8 Mark R. Tallman, Vice-President of Renewable Resource Development, explain
9 in their direct testimony the prudent steps taen by the Company to meet its
10 obligation to serve customers by addig new cost effective purchase power
11 agreements and generation resources. Mr. ChadA. Teply, Vice-President of.12 Resource Development and Construction, explains in his direct testimony the
13 investment the Company has made in existing generation facilities to meet
14 environmenta guidelines and the upgrades made to tubines to increase plant
15 capacity in order to ensure the reliabilty of the existing fleet.
16 Q.Please explain the other major additions in Rocky Mounta Power's capital
17 investment strategy that are included in this case.
18 A.As I described above, the Company continues to make significant transmission
19 investment. Mr. John A. Cupparo, Vice-President of Transmission and Mr.
20 Darrell T. Gerrard, Vice-President of Transmission System Planning wil support
21 the Company's approximate $802 millon investment in the Populus to Termnal
22 transmission line.
.
92
Walje, Di - 14
Rocky Mountain Power
.1 Q.
2
3
4 A.
5
6
7
8
9
10
11.12
13 Q.
14
15 A.
16
17
18
19
20
21
22
23
24
25.26
How would a failure to address the cost related to new investments affect
Rocky Mountain Power's abilty to attract new capital required to serve new
load and maintain its system?
Absent supportive regulatory treatment in this and future rate cases, the
combination of: (1) the Company's needed extensive constrction program;
(2) increasing labor, equipment, materials and fuel costs; and (3) regulatory risks
involving resource coordination among the six states served by the Company
could afect the Company's credit ratings. An unsupportive rate case outcome
would mae it more difficult for the Company to obtan competitively priced
financing that benefits customers. Credt ratings are paricularly critical when
companies are in a "build" cycle and credit markets are as unsettled as they have
been and continue to be.
Did Standard & Poor's rating agency report on PacifCorp note its large
capital expenditure program?
Yes. Standad & Poor's (S&P) recent credit report on PacifiCorp, issued in April
2009, contains the following comments:
"Regulators wil need to consistently support retail rate increases to
recover PacifCorp's planned capital investments....."
This concern is not unique to S&P. Moody's has expressed similar sentiment
including:
"...Moody's expectation that PacifCorp will continue to receive
reasonable regulatory treatment for the recovery of its higher capital
expenditures, and that the funding requirements wil be financed in a
manner consistent with management's commitment to maintain a healthy
financial profile."
Fitch has also expressed its concerns including:
93
Walje, Di - 15
Rocky Mountain Power
.1
2
3
4
5
6
7
8 Q.
9
10 A.
11
12 Q.
13
14 A..15
16
17
18
19
20
21
22
23
"The current ratings and Stable Outlook assume PPW continues to benefit
from parent company support and wil receive reasonable outcomes in
pending and future rate proceedings to recover anticipated, signifcant
capital investments. Ratings concerns facing the company primarily
relate to cost overruns and the potential inability to recover its large,
planned capital investment on a timely basis in a service territory that
spans six states. .... "
Does the Company agree with S&P's observation regarding timely cost
recovery during periods of signifcant capital investment?
Yes. We need support from the Commssion and other paries to ensure that we
can continue to meet this challenge and hope to receive that support in this case.
Does MEHC remain committed to the capital investment required by
PacifiCorp?
Yes, MEHC remains commtted to the capital investment required by PacifiCorp.
As previously mentioned, the commtment is made clear by the fact that MEHC
has not taken any dividends from PacifiCorp since the trnsaction and is not
expected to take any cash out of the business until at least 2012, while at the same
time providing additional equity infusions. The Company expects to receive $100
milion in additional cash equity contrbutions from MEHC before the end of the
test period and may need more to maintain its current credit ratings. MEHC's
commtment can only continue if the Company is provided with a reasonable
opportnity to ear a fair return on its investment, including alowing in rates the
increased amount of common equity asked for in this rate case.
24 Net Power Costs
25 Q.
.26
Please explain the net power costs impacts in this case.
A.Total net power costs consist of fuel, net wholesale transactions (purchases from
94
Walje, Di - 16
Rocky Mountan Power
.
.
.
1
2
3
4
5
6
7
8
9
10
11
12
13
14 Taxes
15 Q.
16
17 A.
18
19
20
21
and sales to other utilties and power maketers) and transmission wheeling costs.
Total net power costs represent approximately 30 percent of the Idao revenue
requirement.
Net power costs curently included in base rates are $982 millon based on
the result in the Company's 2008 general rate case, Case No. PAC-E-08-07. The
Company's net power costs continue to increase. In this case, the Company is
proposing to establish a new base net power cost of approximately $1.069 bilion
on a total Company basis, or approximately $69.2 millon on an Idao allocated
basis. The main components of this increase are coal costs and the expiration of
beneficiallong..term contracts. Ms. Cindy A. Crane, Vice-President, Interwest
Mining Company and Fuel Resources, wil describe the increases to coal costs
and Dr. Hui Shu, Manager of Net Power Costs, wil describe the net power costs
in more detail in their diect testimony.
Is the Company proposing changes to the tax treatment of certin items in
this case?
Yes. Mr. Ryan R. Fuller, Assistant Tax Director, in his direct testimony
describes proposed changes to: (1) the Company's tax treatment of repairs
deductions; (2) flow-though versus full normalization of property related items;
and (3) the tax impacts on post-retirement prescription drg coverage from the
March 23,2010, Patient Protection and Affordable Care Act.
95
Walje, Di - 17
Rocky Mountain Power
.1
2
3 A.
4
5
6
7
8
9
10
11.12
13
14 Pricing
15 Q.
16
17 A.
18
19
20
21
22
.
Historica Loads
Q. How do the Company's and Idaho's 2009 loads compare to historical loads?
While the Company's 2009 system energy usage was down approximately three
percent compared to 2008, Idao experienced a reduction of over 12 percent
reduction in energy usage. Idaho's abnormal reduction compard to the system
average was drven by two customer classes: (l) the unusually wet spring
resulted in a decrease of over 20 percent in irgation sales; and (2) Monsanto
operated only 1 or 2 fuaces durng most of 2009, which reduced its energy
usage over 22 percent. Due to these abnormal impacts, the Company has made
specific adjustments to its 2009 loads to account for the curent economic
downturn and Idaho specific impacts. Dr. Peter C. Eelkema is the Company's
Senior Planner in the Load Forecasting Deparent and wil provide additional
details in his testimony about the loads in this case and how they were developed.
Wil the proposed revenue increase have the same percentage impact on aU
customers' prices?
No. Customers' rates differ based on the Company's cost to serve them. For
example, the overall requested increase in this case is $27.7 millon or 13.7% on
average, and the cost of service study in the filing shows Monsanto's increase is
$11.6 millon or 19.6%. Approximately $6.9 milion of the requested increase is
requird to bring Monsanto to its full cost of service based on 2008 costs, which is
the basis for rates that the rest of Idaho customers are curently paying.
96
Walje, Di - 18
Rocky Mountain Power
.1 general rate case. Mr. Wiliam R. Griffith, Director of Prcing, Cost of Service
2 and Regulatory Operations wil present the Company's rate spread and rate design
3 proposals that determe the ultimate prices customers wil see. Mr. C. Craig
4 Paice, Regulatory Consultant in the Prcing and Cost of Service Deparment, wil
5 present the Company's class cost of service study.
6 Conclusion
7 Q.
8 A.
9
10
11.12
13
14
15
16
17
18
19
20
21
22
23.
Please provide a conclusion to your testimony.
The electrc utilty industry and the Company are in the midst of a significant
capital investment cycle. Additionally, the electrc utilty industr is evolving
rapidly and faces many challenges, including climate change, state and federal
energy policies, volatile and rapidly increasing raw material costs, and generation
and transmission shortages. The situation is exacerbated by the ongoing
economic uncertinty. Rocky Mountain Power continues to effectively meet our
customers' growing energy needs in this uncertain business and industr
environment.
The Company has demonstrated that it is a good corporate citizen and
parner to the state of Idaho. Rocky Mountain Power is managed according to six
core values which are: (1) customer service; (2) employee commtment; (3)
financial strength; (4) environmental respect; (5) regulatory integrty; and (6)
operational excellence. I believe Rocky Mountain Power is an excellent company
that cares about its customers, employees and the communities it serves. The
proposed increase wil allow us to continue to be an excellent provider of energy
services to our valued customers in Idaho.
98
Walje, Di - 20
Rocky Mountain Power
.1 Q.
2 A.
3
4
5
6
7
8
9
10 Q.
11 A..
.
Is this propoed rate increae in the public interest and why?
Yes. This proposed rate increase is in the public interest because it represents a
justifiable and fai balance between the recovery of reasonable and prudent
expenses incurred by the Company on behalf of customers, requests a reasonable
return on the Company's investment, and supports the provision of safe, adequate
and reliable service stil at among the lowest prices in the nation. This rate
increase faily balances price increases against the good service and low rates
provided by the Company. For these reasons, this rate increase is in the public
interest and should be approved by the Commssion.
Does this conclude your direct testimony?
Yes.
99
Walje, Di - 21
Rocky Mountain Power
.
.
.
1 Q.
2
3 A.
4
5
6 Q.
7
8 A.
9 Q.
10 A.
11
12
13
14
15
16
17
18
19
20
Please state your name, business address and present position with
PacifiCorp dba Rocky Mountain Power ("Company").
My name is A. Richard Walje. My business address is 201 South Main, Suite
2300, Salt Lake City, Utah 84111. I am the President of Rocky Mountain Power
(or "Company").
Are you the same A. Richard Walje that submitted direct tetimony in this
proceeding?
Yes.
What is the purpose of your testimony?
The purose of my testimony is to provide a summar of the Company's rebuttal
position for the 2010 Idao general rate case ("Application"), address certain
policy issues raised by intervening paries and the implications those issues would
have to the Company if implemented, and finally, I wil provide an introduction
of the Company witnesses rebutting the intervening paries positions in this case.
Specifically, I wil address in more detail the following issues:
. A summar of the Company's rebuttal position;
. Overview of pares positions;
. The Company's efforts to control costs while maintaining reliable service and
customer satisfaction; and
. Monsanto's service.
100
Walje, Di - Reb - 1
Rocky Mountain Power
.1 Summary
2 Q.What is the revised revenue increase the Company is requesting in this
3 Application?
4 A.The Company's rebuttal position is $24.9 millon or a 12.3 percent average
5 increase over Rocky Mountan Power's current rates. This is a reduction of $2.8
6 milion from the Company's original request. On May 28, 2010, the Company
7 fied its Application with this Commssion requesting a revenue increase in the
8 amount of $27.7 millon, or a 13.7 percent average increase over Rocky Mountain
9 Power's curent rates. The single largest reduction to the Company's original
10 Application was the inclusion of bonus depreciation, which reduces the original
11 request approximately $1.8 millon. When the Company fied ths Application it.12 was not certain whether Congress would extend bonus depreciation through 2010.
13 Since the Application was fied legislation passed that did extend bonus
14 depreciation and the Company has reflected that in its rebuttal filng.
15 Q.Did any of the parties to this case raise this issue?
16 A.No. However, one of the Company's core priciples is regulatory integrity, and
17 with the extension of ths law the Company wil receive tax benefits on the new
18 capital investment that we are obligated to pass on to our customers. As a
19 regulated utilty it is our obligation to our customer to control costs in every way
20 we can and to continually identify cost reduction opportnities such as ths tax
21 benefit. Although the percentage increase requested in this rate case is
22 significant, the Company has made extraordnar efforts to control its costs. It is.23 wortwhile noting that percentage increases do appear large when applied to rates
101
Walje, Di-Reb - 2
Rocky Mountain Power
.1
2 Q.
3 A.
4
5
6
7
8
9
10
11.12
13
14
15
16
that are very low.
Why is the company seeking a rate increase in a diffcult economy?
We do not take lightly this request to raise customer's rates; however, it is critical
that rates reflect the curent actual costs of serving our customers. With the
statutory obligation to serve, utilities must make investments regardless of the
economy. And, these investments are years in planning and execution, meaning
that the investments often sta in strong economic times but are completed when
the economy is not as robust. This same pattern has occurred before, such as in
the late 1970s and early 1980s.
Absent the increase requested in this case, the Company wil be denied
the prudent costs of providing service and an opportnity to ear a reasonable
return on those investments. That would violate the most basic of regulated
ratemakng principles. It is important to emphasize that these are investments the
Company has already made to serve our customers. Our abilty to provide safe,
reliable service to our customers is dependent on the revenues we receive from
them.
17 Overview of Rebuttal Positions
18 Q.
19 A.
20
21
22
.23
What is your response to the overall position of the parties to this case?
Quite honestly, disappointment. As I noted in my direct testimony, the
Company's current rates are based on rate base balances as of December 31,
2007. Since 2007 the Company has invested over $4 bilion of capital in
absolutely necessar new plant investment, and net power costs have increased by
$87 millon to serve our customers. In order to keep our customers' lights on, we
102
Walje, Di-Reb - 3
Rocky Mountain Power
.1
2
3
4
5
6
7
8 Q.
9
10
11 A..12
13
14
15
16
17
18
19
20
21
22.23
have to generate or procure electrc energy, and the Company deserves the abilty
to recover the costs of providing that service. Despite these facts, and the basic
faiess of customers paying for what they use, the cumulative recommendations
of the other paries would have the Commssion. reduce our revenue requirement
by approximately $17 millon. As the Company's witnesses have indisputably
demonstrated and wil continue to demonstrate, the investments and cost increases
in this case were necessar and prudent to serve customers now and in the futue.
If these costs are already incurred how can there be a $45 minion difference
between the Company's position and the intervening parties' cumulative
position?
Some parties argue that $800 millon of prudently incured costs for the Populus
to Termnal transmission line should not be included in rates at this time. Some
paries would have the Commssion ignore the Company's actual capital strcture
and substitute a hypothetical capital strctue for the purose of reducing the
revenue increase request. Some pares want the Commssion to allow a retu on
investment that would be among the lowest level in the nation and threaten the
Company's investment ratings. Others have ignored the outstanding cost control
efforts of the Company and request that the Commssion deny recovery of
employee's salares and benefits. Others acknowledged that net power costs are
one of the Company's single largest expenses yet they would have you believe it
is okay to ignore issues because if they are wrong the Company can collect the
difference through the Company's ECAM with only a one-year lag and 10 percent
haicut. Finally, despite the Herculean efforts of the Company and regulatory
103
Walje, Di-Reb - 4
Rocky Mountain Power
.1 staff from four states, including Idaho, to arve at a mutually acceptable
2 allocation methodology among the states, some paries have proposed different
3 allocation methods that would strand investments and costs among jursdctions.
4 Cost Control Efforts
5 Q.
6
7 A.
8
9
10
11.12
13
14
15
16
17
18
19
20
21
22.23
Explain the efforts the Company has made to control costs and keep
electricity prices reasonable.
Rocky Mountain Power has an obligation to our customers to provide safe and
reliable service, while keeping electrcity prices as low as reasonably possible.
Effective management of power costs and operating costs is one of the key
elements of the Company's strategy to meet this obligation. Since its acquisition
by MidAmerican Energy Holdings Company ("MEHC") in 2006, the Company
has continued to increase the efficiency of its operations. This is demonstrated by
a comparison of the Company's admnistrative and general ("A&G") costs in
Case No. PAC-E-07-05, which was based on Calendar year 2006, to the curent
Application. In 2006, A&G costs were $239 millon, compared to $163 millon in
the curent application. That is a 32 percent decrease in A&G expenditures over a
four year period. The Company has worked hard to stre the right balance
between operational expenses, customer service, and preventive maintenance. In
addition, the Compàny has focused on controllng labor costs. At the time of
MEHC ownership in March 2006 the Company's employee headcount was 5,997
full-time equivalents ("FTEs"), as of the end of December2009 there were 5,650
FTEs. This is a reduction of almost six percent of the Company's workforce.
Over that same period of time the Company has added three new gas plants and
104
Walje, Di-Reb - 5
Rocky Mountain Power
.
.
.
21
1 10 new wind facilities. Employee contrbutions for medical and other benefits
2 have gone from modest amounts to 16 - 30 percent of the cost. Personal time-off
3 has been reduced and the defined benefit plan for pensions was frozen and a new
4 cash contrbution plan implemented. The success of these cost control efforts are
5 demonstrated by the reduction in A&G costs.
6 Additionally, the Company has reduced or deferred its capita investments
7 where feasible, implemented reviews of tax matters and coal strpping issues to
8 identify accounting changes, and made changes to its renewable energy credit
9 portfolio to the significant benefit of customers. Despite this focused effort to
10 control cost, paries propose disallowance of employee salar and benefits, even
11 though per employee benefit costs have been reduced since the MEHC purchase
12 and wage increases for our employees are well within reason.
13 Monsanto's Rate Impact
14 Q.As President of Rocky Mountain Power what is your response to Monsanto's
15 testimony?
16 A.First, I would like to stress that Rocky Mountain Power has been able to provide
17 Monsanto among the lowest, if not the lowest price of electrcity in the world for
18 over 60 years. We are proud that we have been able to do that. In 2003
19 Monsanto stated that its rate was $18.50 per MW,i which is less than two cents
20 per kWh. Ms. Kathrn E. Iverson states that Monsanto currently pays an "overall
average price of $30.64 per MWH"i which is stil less than four cents per KWh.
1 IPUC Final Orer No. 29157 Commission Findings page 6.
2 Iverson direct page 4lines 18-19.
105
Walje, Di-Reb - 6
Rocky Mountain Power
.1 Q.
2 A.
3
4
5
6
7
8
9
10
11.
.
What is your response to Mr. Kevin P. Lawrence's testimony?
While I appreciate Mr. Lawrence's efforts to control costs for Monsanto I
completely disagree with his claim that electrcity is the reason that Monsanto
can't compete against the Chinese market. Mr. Lawrence acknowledges that
Monsanto's operation in Soda Springs is competitive. Yet, like most businesses
and households there is a concern over rising costs. As a low-cost energy
producer, Rocky Mountain Power is extremely cost conscious and our prices
prove it. Idaho has the benefit of some of the lowest electrcity prices in the
nation. Rocky Mountain Power prices figure prominently in that result. Among
Idaho electricity consumers, Monsanto has the lowest priced electricity in the
state. See the following map of electrcity prices (source SNL Financial).
106
Walje, Di-Reb ~ 7
Rocky Mountan Power
.
.
.
2Q09 Statewide Average Price to Ultimate
Customers (Cents per KWH)
cents pe KW
1/15"50 - ltOO
1¡~~¡:¡fffI8.01 - 11.00
. '11.01- '1(00 ...
. '14.01 -17.00
. 17.01. 21.00
,. -~"'HI .2M3 ..
1 Q.Do you agree that Monsanto is challenged by Chinese competitors?
2 A.Yes, competition is a challenge. Yet, the Commssion should be aware of some
3 additional points not mentioned by Mr. Lawrence. Monsanto's patent on
4 Roundup expired in 2000 and yet it maintained an 80 percent (or more) maket
5 share of the glyphosate herbicides sold in the United States until it began to see
6 competition from China after the shar rise in Round Up prices. It is estimated
7 that global consumption of weed killer wil grow over 12 percent annually.3
8 While curent market pressures are challenging, Monsanto appears to have solidly
3 Glyphosate Competitiveness Analysis in Oiina, M2 Presswire, M2 Communications Ltd, 2009,
HighBeam Research, November 8, 2010, http://www.highbeam.com. 107
Walje, Di-Reb - 8
Rocky Mountain Power
.1
2
3 Q.
4 A.
5
6
7
8
9
10
11
12
13
14 Q.
15
16 A.
17
18
19
20
21
22
.
low costs of production. Morningsta says "we believe that Monsanto wil hold
its relatively attactive low-cost position in ths business.,,4
How do Rocky Mountain Power's electric rates compare to Chinese rates?
Based on publicly available data it appears that electrcity in China is
considerably more expensive than the prices Monsanto pays Rocky Mountain
Power. We are unlikely to lear the exact price paid by Monsanto competitors in
China. According to Beijing Electric Power Corporation the price of electrcity
for industral use is 76 fens per kilowatt-hour, or 11 U.S. cents.s In contrast as
noted by Ms. Iverson, Monsanto pays RMP less than four cents per kiowatt-hour.
Thus, China has no competitive advantage in term of electrcity cost. Mr.
Lawrence noted that there are two primar reasons for the insurgence of the
Chinese into the market; technology and the price of electrcity. Contrary to Mr.
Lawrence's claim it appears Monsanto has the clear advantage on electrc prices.
Do you agree with Mr. Lawrence's assertion that electricity is the only input
over which Monsanto has no control?
No. Mr. Lawrence's claim can be shown to be without merit. Kennecott Utah
Copper, which is actually the largest load on Rocky Mountain Power's system,
and many other large industrial customers have built their own generation or
combined heat and power resources to help control their electrc costs. Mr.
Lawrence notes that some of the Chinese glyphosate plants have their own
generation resources. Monsanto certainly has the industral and financial
capabilty and load that would justify this type of investment. It is my
.4 Roundup Weighing on Monsanto, Ben Johnson, Morningstar, May 27,2009.
5 http://news.xinhuanet.com/english/2009-11119Icontent 12492364.htin
108
Walje, Di-Reb - 9
Rocky Mountan Power
.1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17 Q.
18
19
20 A.
21
22
.
understanding that in the Company's ECAM discussions Mr. James R. Smith
contested that he could control the natural gas budget at the Soda plant and
thought it unreasonable that the Company couldn't control its natural gas costs. If
that is the case it seems investment in a generation facility certinly would
provide Monsanto with the price certinty it needs.
Furer, Mr. Lawrence acknowledges that technology is one of the key
cost drvers, yet in Mr. Smith's testimony Monsanto acknowledges that it
constructed two furaces in 1952 and the third in 1966 which are stil in
operation.6 I'm certain that there have been significant technology advancements
that have occured since then that would disadvantage Monsanto with its
competitors. I'm not presumptuous enough to believe that I know what the state
of the ar in furace efficiency is today, but it is not an unreasonable observation
that Monsanto has chosen not to implement capital solutions because of the low
cost of electrcity. Now they would have the Commssion believe that paying the
actual cost of the electrcity Rocky Mountain Power provides is the sole
competitive theat that maes their economic future uncertn.
Ms. Iverson states repeatedly throughout her testimony that; "Monsanto's
loads are served at a lower quality of service.'" What is your response to thi
claim?
This is absolutely false. To use Ms. Iverson's verbiage this "in fact is a fiction that
does not reflect reality."g Monsanto receives exactly the same service as any
other customer on the Company's system. In fact it is just the opposite, the recent.6 Snuth direct page 4, lines 6-14.
7 Iverson, direct page 7
lines 18-19, page 10 lines 3-4, and page 12 lines 14-15, page 16 lines 6-19.
8 Iverson, direct page 3 line 10-13.
109
Walje, Di-Reb - 10
Rocky Mountain Power
.1
2
3
4 Q.
5
6 A.
7
8
9
10
11.12
13
14
15
16
17
18
19
20
21
22
23
24
.25
completion of the Theemile Hil substation and the Populus to Termnal line wil
enhance their already good reliabilty. Ironically Monsanto worked very closely
with the Company on this project because they understood its value to them.
How do you respond to Ms. Iverson's claim that Monsanto is forced to sell its
curtailment product?9
Rocky Mountain Power cannot force Monsanto to do anything. I've read though
Mr. Lawrence, Mr. Smith and Ms. Iverson's testimony and detected a central
theme. They would like you to believe that Monsanto is a poor defenseless victim
at the mercy of utilty cost increases to which they have no alternatives or abilty
to mitigate. That is absolutely false. As a utilty Company we have the obligation
to provide electric service to everyone in our service terrtory--the exact same
service and have no legal or regulatory authority to curail Monsanto's service,
other than those rights mutually agreed to and approved by the Commssion. The
rates we charge our customers are established by this Commssion after careful
review and determnation that they are prudent, cost-based and fair. The service
provided in Idaho is defined and governed by the state's Electrc Service
Regulations. Regulation No.2;
"Service as used herein, usually refers to the availabilty of electrc
power and energy at the point of delivery for use by the Customer
irespective of whether power or energy is actually utilized. The
word "Service" may also be used to refer to the wires between the
Company's supply and the customer's entrance conductors."
Rocky Mountain Power has the obligation to provide electrc service.
There is no obligation to provide non-fir or interrptible service - that type of
service is aranged though a separate agreement between the Company and
9 Iverson, dirct page 14 line 8-12.110
Walje, Di-Reb - 11
Rocky Mountain Power
.1 Monsanto or other businesses that are wiling to allow the Company to interrpt
2 their service and receive just financial consideration for that interrption.
3 Q.Do you believe Ms. Iverson's statement; "Monsanto desires first and
4 foremost to be a non-firm customer of a regulated utiUty,,?io
5 A.I believe Monsanto wants to receive electrc service at well below maket price, I
6 don't believe Monsanto wants or believes that they should receive non-firm
7 service.
8 Q.Why do you say that?
9 A.If Monsanto was trly a non-firm customer as they claim and would like you
10 believe, Rocky Mountain Power's dispatch office would be calling Monsanto
11 each day to let them know which hours of that day they could run their fuaces,.12 because we need the electrc capacity for customers who do pay for fi service,
13 which obviously is not the case. Company witness Mr. GregoryN. Duvall wil
14 furer address Monsanto's appropriate treatment for jurisdictional allocations in
15 his testimony.
16 Q.Historically, has Monsanto paid its true cost of service?
17 A.No. The Company has been working for over two decades to bring Monsanto to
18 full cost of service. In Order No. 30197 the Staf stated: "The proposed increase
19 continues the priciple of cost cost-based service by moving Monsanto more than
20 halfway toward full cost of service."ll In Commssion Order 30783, from the
21 Company's 2008 general rate case (PAC-E-08-07) the results indicated that
22 Monsanto was paying only 87 percent of its cost of service, which was a $6.9.10 Iverson, page 3 lines 10-11.
11 Orer No. 30197 page 4.
111
Walje, Di-Reb - 12
Rocky Mountain Power
.1 milion shortfall per year. The price increases requested in this case represent the
2 Company's actual costs of serving Monsanto
3 Q.Do you have any concluding remarks?
4 A.Yes. I urge the Commssion to grant the Company the rate increase it has
5 requested. The Company has significantly underperformed relative to its
6 authorized rate of retu in Idaho for a long period of time and it is time to correct
7 that situation. The Company continues to build infrastructue to serve customers'
8 energy needs and to provide the reliabilty that they demand and deserve. In
9 meeting its obligations to customers, the Company should be treated faily and
10 receive adequate cost recovery and cash flows to allow it to attract financing so it
11 can continue to meet its obligation to serve customers at reasonable prices..12 Q.Does this conclude your rebuttl testimony?
13 A.Yes.
.
112
Walje, Di-Reb - 13
Rocky Mountain Power
.
.
.
i (The following proceedings were had in
2 open hearing.)
3 Q.BY MR. HICKEY: And because you're the first
4 wi tness, Mr. Walj e, do you have a brief summary that you would
5 like to present to the Commission and to the parties this
6 morning?
7 Yes, I would, Mr. Hickey, and I guess I wouldA.
8 just start by saying good morning, Chairman Smith, President
9 Kempton, and Commissioner Redford, members of Staff, and
10 Intervenors. We really appreciate you taking the time to
11 thoroughly read and diligently work on this Request. It's very
12 important to the Company. It's always very difficult to ask
13 for price increases, particularly under the circumstances where
14 we have a difficult economy and electricity is a vital
15 component of economic prosperity in the country.
16 We pride ourselves on the decision making we use,
17 particularly in our capital investments. We have a rigorous
18 and extensive approach to try and decide what we should do in
19 order to meet our customers' requirements today and in the
20 future. So we try to optimize those decisions, and much of
21 this case, almost three-quarters of it, is related to those
22 investments we've made on behalf of our customers, and we think
23 balance what we needed to do today with the appropriate
24 decisions for our obligation to serve in the future.
25 We also have done a superior job of managing
113
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Di)
RMP
.
.
.
i those controllable costs. I think that comes through in our
2 testimony. And we're very pleased that we were able to do
3 that.
4 So, in essence, this case really is about that
5 necessary investment. We need -- we believe it was absolutely
6 necessary for us in order to meet our obligation to provide
7 safe, reliable, and we believe even with this requested
8 increase competi ti vely-priced electricity in the US.
9 Again, thank you fòr the diligence that you've
10 taken, Staff and Intervenors, and I look forward to answering
11 your questions.
12 MR. HICKEY: Madam Chairman, Mr. Walj e is
13 available for cross-examination.
14 COMMISSIONER SMITH: Okay. Thank you.
15 Mr. Budge, shall we begin with you?
16 MR. BUDGE: Thank you, Madam Chairman.
17
18 CROSS-EXAMINATION
19
20 BY MR. BUDGE:
21
22
23
24
25
Q.Good morning, Mr. Walj e.
A.Mr. Budge.
Q.Randy Budge on behalf of Monsanto Company.
Mr. Walje, can you tell me how many times you've
testified in electric rate proceedings, approximately?
114
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 Oh, approximately, half a dozen, four to six.A.
2 And can you tell me, who was the author of yourQ.
3 direct testimony?
4 It was drafted primarily by Mr. Ted Weston, andA.
5 then reviewed by me and others in Rocky Mountain Power.
6 And how about your rebuttal testimony?Q.
7 A.Likewise.
8 And did you do anything on your own toQ.
9 substantiate the accuracy of the testimony as it was prepared
10 for you?
11 I did some research, frankly through the InternetA.
12 and other resources that we had available to us.
13 Primarily, I suppose you'd rely upon others inQ.
14 the Company to review your testimony?
15 A.Correct.
16 As I review your direct testimony beginning onQ.
17 page 5, which would be lines 13 and 14, you basically express
18 concern about the financial markets and you state that they
19 remain risky and volatile. Is that correct?
20 A.That's correct.
21 And you also continue on on page 6, line 17Q.
22 through 18, and you make the statement, quote: The Company's
23 need for new capital is occurring at the same time that
24 investors have become increasingly more selective and cautious.
25 Correct?
115
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 A.Correct.
2 And so if I understand your testimony there atQ.
3 page 4 and 5, you come to the conclusion that because of this
4 caution out there and this risky and volatile investment world
5 we're living in, that the Company needs to raise its authorized
6 rate of return on common equity from the current number of 5.25
7 percent up to -- excuse me, 10.25 percent to 10.6 percent. Is
8 that correct?
9 Yes, that is correct, and that's based on theA.
10 analysis of Bruce Williams, our treasurer, and Mr. Hadaway, our
11 witness on return on equity.
12 So in the last case, the 2007 case, which wasQ.
13 PAC-E-07-05, the Company, if you'll recall, stipulated to the
14 10.25 percent rate of return. Is that correct?
15 A.We did.
16 And the Commission approved that as being fair,Q.
17 just, and reasonable at the time, if you'll recall from the
18 Order?
19 A.Yes, correct.
20 And is it your testimony today that that 10.25Q.
21 percent was not fair, just, and reasonable in 2007 when the
22 Company agreed to it?
23 Nope, that is not my testimony. My testimony asA.
24 filed today is that market conditions have changed as such that
25 we need to have a higher return on equity.
116
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 So it's these changes in the financial market,Q.
2 these risks in uncertainty between 2007 and today, that you
3 believe justifies the Company increasing its rate of return on
4 common equity in order to deal with this market and be able to
5 track the type of investments you need?
6 A.Correct.
7 Just for my understanding of how the CompanyQ.
8 works, do you answer to Greg Abel?
9 I do. I'm a direct report to Mr. Abel.A.
10 And I believe he's the president of MidAericanQ.
11 Energy Holding Company?
12 He's president and CEO of MidAmerican EnergyA.
13 Holdings Company.
14 And are there others in addition to Mr. Abel thatQ.
15 you would answer to?
16 I am a direct report to Mr. Abel. I do not haveA.
17 a straight-line report to others in the Company.
18 Q.And who does Mr. Abel report to?
19 MR. HICKEY: Madam Chair, I'm going to object to
20 the relevancy of this. I've allowed Mr. Budge a little
21 latitude here of who the direct reports are, but it seems, to
22 me, it gets to be an irrelevant line of examination.
23 COMMISSIONER SMITH: Mr. Budge.
24 MR. BUDGE: I intend to tie this together as to
25 the source of the funding the Company relies upon to make its
117
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 capital investments. The Company makes a case in argument here
2 that there is a risky financial market and we need a higher
3 rate of return to be able to attract capital, and I intend to
4 show that the source of the capital is Berkshire Hathaway and
5 their own reports tend to reflect that they are not only
6 desirous of plugging more money into this company, they're very
7 anxious to. And so the very volatility concern that this
8 witness expresses don't seem to be expressed by the parent
9 company that provides the money.
10 COMMISSIONER SMITH: Mr. Hickey.
11 MR. BUDGE: So this is really background material
12 to get into my line of questioning.
13 MR. HICKEY: I'm very glad to have that
14 explanation, because it makes it abundantly clear that the next
15 wi tness, the treasurer of the Company, Mr. Bruce Williams, is
16 who Mr. Budge should be directing those questions to and would
17 think this hearing would be much more efficiently handled with
18 the subj ect matter expert on those points yielding the
19 questions. And, Mr. Budge, that's clearly the treasurer, and
20 you'll get your chance to talk to him next.
21 COMMISSIONER SMITH: Mr. Budge.
22 MR. BUDGE: Well, I appreciate Counsel's
23 good-fai th effort to protect this witness and defer cross to
24 others, but the fact of the matter, this witness chose to
25 testify concerning the rate of return; and he gave his
118
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
20
21
22
1 explanation, as I've already laid out in my preliminary
2 questions, as to why he thinks the rate of return is necessary.
3 So I certainly intend to address general policy questions to
4 the policy witness.
5 COMMISSIONER SMITH: Right.
6 MR. BUDGE: And then the technical questions I'll
7 address to the technical person.
8 COMMISSIONER SMITH: Yeah. Well, it seems, to
9 me, maybe your question should be about if he has knowledge of
10 this.
11 MR. BUDGE: Thank you. I'll move in.
12 BY MR. BUDGE: Is my understanding correct,Q.
13 Mr. Abel, that --
14 COMMISSIONER SMITH: No, this is Mr. Walje.
15 MR. BUDGE: Excuse me?
16 THE WITNESS: I appreciate the --
17 MR. HICKEY: He wants a promotion.
18 THE WITNESS: I appreciate the promotion: Expect
19 to see that on my next paycheck.
Q.BY MR. BUDGE: Can I take your place?
A.Please. I'd love to ask the questions.
Q.Excuse me. So as I understand it, PacifiCorp is
23 a wholly-owned subsidiary of MidAerican. Correct?
24
25
A.Correct.
Q.And so PacifiCorp has no shareholders that it
119
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 answers to in the normal public forum of shareholders?
2 A.We do have some preferred shareholders, but
3 you're correct.
4 Q.In other words, there's no public market for
5 PacifiCorp common stock?
6 A.There is not.
7 Q.And isn't it true that PacifiCorp chooses to pay
8 no dividend as a matter of its Company policy?
9 A.I think our Company has made a significant
10 commitment to our customers by deferring, taking the dividends,
11 from PacifiCorp at this time of --
12 Q.Excuse me for interrupting. I wasn't asking for
13 the reasoning. I simply was asking a "yes" or "no" question.
14 And it is a fact the Company has chose, as a
15 matter of policy, not to declare dividends?
16 MR. HICKEY: Madam Chair, I would ask that
17 Mr. Budge not interrupt the witness. If, after he's tried to
18 answer the question, there's a need to refocus it, certainly
19 understand that, but this style of interrupting the witness
20 before he's finished is one I'm not accustomed to.
21
22
COMMISSIONER SMITH: Mr. Budge.
MR. BUDGE: Well, I guess I would apologize for
23 any interruption, but I think it's also customary the witness
24 would be responsive to questions, not try to reiterate their
25 testimony.
120
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 MR. HICKEY: I would say I think he was trying to
2 be very responsi ve.
3 COMMISSIONER SMITH: Thank you, Mr. Hickey.
4 Mr. Budge, I think we will let the witness
5 respond. I know it's always preferable when you're the lawyer
6 to get the "yes" or "no," but it's very rare that you actually
7 do. If he goes on too long, then we can tell him he's already
8 responded.
9 Q.BY MR. BUDGE: So go ahead then.
10 A.Okay.
11 Q.I apologize for interrupting. My question, just
12 to rephrase, was it's a matter of policy that PacifiCorp
13 chooses not to pay any dividends. Correct?
14 A.For the time being, and my effort was only to try
15 to explain the basis for that policy, which is we have an
16 extremely aggressive capital investment program and that the
17 owners have made their commitment to not take out a dividend
18 and, in fact, have infused additional cash and put all the
19 retained earnings back into the Company in order to help us
20 meet that requirement for all of that new construction.
21 Q.Thank you. And would my understanding be correct
22 that MidAerican Holding Company is a consolidated subsidiary
23 of Berkshire Hathaway?
24
25
A.Yes.
Q.And is it also true that Berkshire Hathaway owns
121
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 about 88.25 percent of the stock of MidAmerican?
2 I'm not sure of the exact percentages, but thatA.
3 sounds about right.
4 And as I review the 10-K report for BerkshireQ.
5 Hathaway , it seems to indicate that the other maj or
6 shareholders -- Mr. Scott and Mr. Sokol and Mr. Abel
7 combined with Berkshire Hathaway, would clearly own all of the
8 stock and be the controlling owners. Would that be correct?
9 A.Correct.
10 Is it also true that there's no public market forQ.
11 MidAerican Energy Holding Company common stock?
12 A.Correct.
13 Is it also true that MidAerican does not pay anyQ.
14 dividends as a matter of policy?
15 I am not as familiar with that, but I believeA.
16 that is the case.
17 Mr. Walj e, I was fortunate to be in the audienceQ.
18 in 2005 when Warren Buffett came to Boise when the Petition
19 was -- of MidAmerican -- was pending before this Commission and
20 I believe all other State Commissions that they operate in
21 concerning the merger, and if I recall correctly, his speech
22 that he gave -- and I did take notes and reviewed those -~ but
23 he made comments to the extent that he felt PacifiCorp was a
24 very good place to invest his money. And he stated that
25 Berkshire Hathaway generated lots of cash to invest, and that
122
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 he thought that utili ties were a good place to invest it.
2 So the question I have, is it true that since the
3 acquisition was approved in 2006, that MidAmerican, as well as
4 PacifiCorp, have had no difficulty attracting capital from
5 Berkshire Hathaway?
6 I can't really comment on those decisions at theA.
7 MEHC level and how they decide which capital to deploy in which
8 of their businesses, and whether there were conversations that
9 said there are alternatives both within MEHC or outside of MEHC
10 that would have a more attractive return than those investments
11 in PacifiCorp.
12 Would it be true today that Berkshire HathawayQ.
13 has an incentive by reason of large amounts of income it's
14 producing, as well as a desire to continue to invest heavily in
15 MidAmerican and PacifiCorp as it did, as was expressed by
16 Mr. Buffett in 2005?
17 Well, yes, I would answer that in having justA.
18 gone through our ten-year business plan, that we do not view
19 our ability to have an unlimited amount of capital, even if
20 that were available through Berkshire Hathaway or MidAerican,
21 for the simple fact that we have to treat our business as a
22 ring fence, standalone business. So all of the financial
23 ratios that rating agencies and others look for require us to
24 be, I would say -- use a high level of discretion in the
25 capital we ask for, and we don't have an unlimited bank
123
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 acçount, I guess, with Berkshire to get that investment.
2 MR. BUDGE: Madam Chairman, may I approach the
3 witness for purposes of introducing an exhibit?
4 COMMISSIONER SMITH: Yes, Mr. Budge.
5 Q.BY MR. BUDGE: Mr. Abel (sic), I'm handing you a
6 copy of what is off of the Berkshire Hathaway Web page taken as
7 of November 24th. This is the official home page of Berkshire
8 Hathaway, and I have some questions to ask relative to that.
9 MR. HICKEY: Mr. Budge, I'm going to assume that
10 this isn't intentional, but you've again called the witness
11 "Mr. AbeL." I think you understand that this is Mr. Walje,
12 who's here in the interests of Rocky Mountain Power.
13 BY MR. BUDGE: Mr. Walje, I apologize. I think IQ.
14 read too many of these cases. I apologize.
15 COMMISSIONER SMITH: Are you wanting this marked?
16 MR. BUDGE: This would be identified as Monsanto
17 Exhibit No. 237.
18 COMMISSIONER SMITH: We will mark this as
19 Exhibit 237.
20 (Monsanto Exhibit No. 237 was marked for
21 identification. )
22 Q.BY MR. BUDGE: Mr. Walj e, please, if you will
23 turn to page 3 of Exhibit 237 from the Berkshire Hathaway home
24 page, you'll note on the top page that it talks about the
25 Company's 2009 net worth was 21.8 billion, and which the
124
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 per-share book value of both the Class A and Class B stock
increased by 19.8 percent.Do you see that?
A.Yes.
MR.HICKEY:Chair,I'm going to object to the
exhibit to the line of questioning on the basis of relevancy.
2
3
4
5
6 We're here on the Application of Rocky Mountain Power.
7 Everyone knows, as Mr. Budge alludes to the history of the
8 acquisi tion, that Berkshire a Hathaway is in the ownership
9 hierarchy above this subsidiary, but this case isn't about
10 Berkshire Hathaway. This case is about Rocky Mountain Power
11 and whether or not it is meeting its burden of proof in this
12 docket to establish a need for additional revenue increase in
13 rates. That's the issue in the case.
14 COMMISSIONER SMITH: Thank you, Mr. Hickey.
15 Mr. Budge.
16 MR. BUDGE: Well, it's directly relevant, Madam
17 Chair, that, as I indicated before, this is the witness who
18 suggests that the return on equity needs to be increased
19 because of the risky environment we're in and the difficulty of
20 attracting capital. And his testimony is absolutely
21 contradicted by the report of Berkshire Hathaway which I'm
22 leading into that will demonstrate that from the perspective of
23 the person who provides the capital, the entity that provides
24 the capital, they don't see those risks and they are not only
25 concerned about the risks, they are anxious to invest in this
125
HEDRICK COURT REPORTING
P.O. BOX 57 8, BO IS E , I D 8 3 7 0 1
WALJE (X)
RMP
.
.
.
1 Company. And I think that directly is relevant to the cost of
2 capital.
3 COMMISSIONER SMITH: Well, Mr. Budge, I think
4 Mr. Walj e kind of just answered that question, so we can go
5 down this road a little further, but I think he just addressed
6 that issue that you're trying to get at.
7 MR. BUDGE: Well, if he did
8 MR. HICKEY: Madam Chair, could I have --
9 COMMISSIONER SMITH: Mr. Hickey.
10 MR. HICKEY: I'm sorry, I didn't mean to get
11 between the two of you.
12 COMMISSIONER SMITH: That's okay. Go ahead.
13 MR. HICKEY: Madam Chair, may I have a continuing
14 line of obj ection to this whole area of examination, and it's
15 really based on the commitment that I know was in the Idaho
16 Order approving the acquisition as well as it was in other
17 states that approved the acquisition, and that's the ring fence
18 provision. There is a ring fencing provision that isolates
19 the -- this subsidiary from the financial acti vi ties and
20 affairs of Berkshire Hathaway. It simply is not relevant to
21 the issues before you in this docket, Madam Chair.
22 COMMISSIONER SMITH: Mr. Hickey, I will note your
23 continuing objection. And Mr. Budge has my direction and how
24 far I think he needs to go with this.
25 Mr. Budge.
126
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 BY MR. BUDGE: Mr. Walje, at the top of page 3,Q.
2 you will see that Berkshire Hathaway makes a note and says to
3 the shareholders and they talk about the Company net worth of
4 21.8 billion in 2009, and they indicate that the increase in
5 book value was 19.8 percent. Would that indicate, to you, as
6 it does to me, that Berkshire Hathaway is doing pretty well in
7 2009?
8 A.Yes.
9 And if you turn to the next page, page 8, there'sQ.
10 a discussion of the regulated utility business, and there it is
11 mentioned that Berkshire has the 89.5 percent interest in
12 MidAerican. Do you see that?
13 Yes, I do.A.
14 Q. And it talks about the number of utili ties that
15 are owned. It includes PacifiCorp, which seems to be the
16 largest customer-wise.
17 And then if you turn onto the next page, which
18 has a title Here are Some Key Figures on MidAerican Operation,
19 and you see there that of those contributors to revenue, that
20 the Western utilities are by far the largest of any of those
21 contributors listed.
22 A.Correct.
23 And then if you would go down, please, to theQ.
24 third full paragraph, the Berkshire report states, if you'll
25 follow along with me -- it says: We continue to pour huge sums
127
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 of money into our operations.
2 And then the following paragraph, the second
3 line, it says: With few exceptions, our regulators have
4 promptly allowed us to earn a fair return on the
5 ever-increasing sums of capital that we invest.
6 MR. HICKEY: Madam Chair, if I could?
7 COMMISSIONER SMITH: Mr. Hickey.
8 MR. HICKEY: I have an additional objection, and
9 it's on the basis of the best evidence rule. The best evidence
10 of what this document says is the document itself. This
11 exercise of Mr. Budge to read these facts into the record, it's
12 his desire to testify to the document and he's not sworn. The
13 best evidence of this report is itself. And if you let it in,
14 Chairman, I would respectfully request that all this
15 highlighting and undue attention to the provisions that
16 Mr. Budge wants to read be redacted, at a minimum. There is an
17 undue emphasis drawn to these particular facts that Mr. Budge
18 wants to testify to. I obj ect on the basis of the best
19 evidence.
20 COMMISSIONER SMITH: Mr. Budge.
21 MR. BUDGE: Well, it's going to be a long
22 proceeding if we have continual obj ections, but I would respond
23 this way, Ms. Chairman: These are preliminary questions, and I
24 want to get to the fundamental question that this witness has
25 testified that there's some problem attracting capital market.
128
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 The person who puts it up provides information on the Web site
2 just the opposite.
3 COMMISSIONER SMITH: So maybe you should --
4 MR. BUDGE: I want to provide this background and
5 then ask him specific questions relating to it. That is all
6 I'm doing.
7 As to the highlighting, we have a number of
8 documents to go through, and it's certainly easier to point the
9 witness and the Commission and the parties to the relevant
10 number than spend an inordinate amount of time trying to sort
11 through it.
12 COMMISSIONER SMITH: Well, I guess I might
13 suggest that I understand and I believe the Commission
14 understands the nature of your background, if you want to get
15 to the questions.
16 MR. BUDGE: Thank you.
17 BY MR. BUDGE: So, the question would be relativeQ.
18 to the last paragraph on page 9, Mr. Walj e. There, the
19 statement is made: Berkshire will generate ever-increasing
20 amounts of cash and we are quite willing to enter into
21 businesses that regularly require large capital expenditures.
22 My question is would you agree that according to
23 the majority and by far the largest shareholder of MidAmerican,
24 which owns PacifiCorp, that Berkshire Hathaway appears from
25 this exhibit not to have any concern or hesitancy about
129
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 investing in PacifiCorp? Would you agree?
2 I would -- I respectfully not agree in totality,A.
3 because if I look at the very last sentence in this document,
4 it says: If our expectations are met.
5 If our expectations are not met, I presume
6 Berkshire won't be that interested in putting large sums of
7 money into any of these businesses that this is referencing in
8 general.
9 And the last sentence of the paragraph on page 9Q.
10 also says that they expect it produces above-average, though
11 certainly not spectacular, returns.
12 So it isn't -- Berkshire have an expectation that
13 PacifiCorp will earn a fair rate of return?
14 Yes, I believe they absolutely would like to earnA.
15 what they consider a fair rate of return.
16 And don't you agree that despite the 10.25Q.
17 percent rate of return, that PacifiCorp is one of those, quote,
18 "good" to "great" businesses that are being referred to in this
19 exhibit by Berkshire?
20 I believe Mr. Munger and Mr. Buffett and ourA.
21 owners all believe that we are doing a good job of managing our
22 business.
23 And I believe they've been pretty happy to investQ.
24 their money in PacifiCorp at the existing rate of return from
25 what we've seen over the last several years. Correct?
130
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 A.Well, I can't -- since I've only attended one
2 shareholder meeting, I'm not involved in any of their capital
3 allocation discussions, what other opportunities they have to
4 spend their money, I can't say that they're happy. They may be
5 a good investment, and clearly they have made a commitment to
6 make those investments, but I'm not in a position to really
7 comment on all of the opportunities that Berkshire might have
8 to deploy their spare capital.
9 Well, you wouldn't dispute that Berkshire hasQ.
10 been very successful in its ability to invest in good
11 businesses that are profitable. You wouldn't dispute that,
12 would you?
13 A.For the most part, I'd say, yes.
14 Well, look at page 2. If you look at the overallQ.
15 gain from 1964 to 2009, Berkshire reports that their -- have an
16 increase in their per-share value of 434,057 percent, as
17 compared to the Standard and Poor's 500 gain over the same
18 period of 5,430 percent. Now, wouldn't you think that suggests
19 they have been quite successful in their ability to invest in
20 revenue-producing businesses?
21 MR. HICKEY: Object: Relevancy.
22 COMMISSIONER SMITH: I do think it's going pretty
23 far afield, Mr. Budge. I could only just wish that we could
24 regulate them.
25 BY MR. BUDGE: Would you agree, Mr. Abel, that --Q.
131
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 or, excuse me, Mr. Walje -- that it's your responsibility, as
2 well as Mr. Abel as president of MidAmerican, to increase the
3 earnings of the companies that you manage in an effort to
4 increase the value to the stockholder, Berkshire?
5 A.Yes.
6 And would you agree that despite some indicationQ.
7 in the Company's testimony that investors are reluctant or
8 concerned to invest in public utili ties, that, in fact, your
9 shareholder -- Berkshire -- has found utili ties to be quite an
10 attractive investment, have they not?
11 MR. HICKEY: Object: Asked and answered.
12 COMMISSIONER SMITH: Sustained.
13 BY MR. BUDGE: Look at page 11, lines 14 throughQ.
14 16, of your testimony, if you would. You state there that the
15 main component of the requested revenue increase in this case
16 is the significant capital investment the Company has made. Is
17 that correct?
18 A.Correct.
19 And that's primarily investment in new windQ.
20 resources and transmission and environmental improvements and
21 plant upgrades and the like?
22 Yes, as described in my testimony.A.
23 And according to your testimony I think earlierQ.
24 on page 3, line 23, the Company has invested about $4 billion
25 since 2008?
132
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 A.Yes.
2 And if you move forward with the plannedQ.
3 investments over the next decade, you plan to spend another 16
4 to eight billion -- 16 to 18 billion dollars. Is that correct?
5 A.Yes, that's correct.
6 So, as customers and ratepayers, we can expect toQ.
7 pay another -- we can expect to have another 1.6 to 1.8 billion
8 dollars every year into the Company's rate base?
9 Unfortunately, those investments are necessary inA.
10 order to keep the lights on.
11 I can appreciate the Company's position on that.Q.
12 My question was -- is the Company is already planning on
13 investing about 1.6 to 1.8 billion dollars a year going
14 forward?
15 That is roughly what's in our ten-year plan, yes.A.
16 And isn't ita fact that those investmentQ.
17 decisions were made in anticipation that the capital would be
18 available from Berkshire?
19 Those plans were made with the anticipation thatA.
20 the capital would be available from Berkshire and that we'd get
21 a reasonable return on those investments through the regulatory
22 process.
23 And the decisions were made knowing that we wereQ.
24 currently at a rate of return of 10.25 percent. Correct?
25 That is the allowed rate of return. That isn'tA.
133
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 the return that we are actually earning.
2 Would it be accurate to say that that return hasQ.
3 not precluded the Company from making the decisions to invest
4 four billion over the last couple years or to invest in the
5 future?
6 Well, I would say to this point in time, I wouldA.
7 agree with you, but, again, if we don' t receive I think a
8 reasonable return in these rate cases, we'll have to reassess
9 that ten-year plan.
10 So when you talk about in your testimony, as youQ.
11 did, the risks and uncertainties in the financial market making
12 it available for some companies to attract capital, that has
13 not been the case for MidAerican and PacifiCorp to date.
14 Correct?
15 A.Not to date, yes.
16 Is my understanding correct that the -- in theQ.
17 Company's filing, the cost of debt to the Company is somewhere
18 in the five to six percent range? Would that be correct?
19 That sounds about right, yes. Mr. Williams wouldA.
20 be able to provide the detail on all of those issues.
21 I can't give you the exact number. I can tellQ.
22 you Mr. Williams' rebuttal on page -- excuse me, Mr. Williams'
23 direct testimony on page 2 said that the 5.92 was the long-term
24 debt average and the rebuttal testimony on page 2 said 5.88, so
25 somewhere in that range, high five, low six, would be the debt
134
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 cost. Correct?
2 A.Correct.
3 And so to the extent that the Company financesQ.
4 new capital requirements with debt, that cost would be
5 considerably less than the authorized rate of return on common
6 equity?
7 If, in fact, we could finance all of ourA.
8 acti vi ties on debt, I guess numerically that would be correct.
9 Well, you never finance all of your debt. It'sQ.
10 some mix between capital, stock, and debt. Correct?
11 A.Correct.
12 And would you agree that that gap or spreadQ.
13 between the cost of debt and the cost of common equity has to
14 be grossed up or down based upon the tax impacts?
15 A.Correct.
16 And so if we're looking at what is the cost ofQ.
17 capi tal or cost of equity, that whatever amount the Commission
18 might choose, whether it's 10.25 or something higher, that
19 number would have to be grossed up to the extent of taxes that
20 the Company would have to recover for ratepayers as well in
21 Order to achieve that cost of capital number?
22 MR. HICKEY: Object: Asked and answered. And
23 Mr. McDougal is the witness that will take up those issues in
24 greater detail, Madam Chair.
25 COMMISSIONER SMITH: Mr. Budge.
135
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 MR. BUDGE: Well, this witness again has talked
2 about the cost of capital. These are simply -- these are
3 simply background questions for a line of questions for this
4 witness on why the Company is making a pretty conscious effort
5 to increase the investment in common equity and reduce the
6 debt.
7 COMMISSIONER SMITH: And is this a question
8 you've asked previously?
9 MR. BUDGE: No. This is a new line going to the
10 change by the Company in their investment of debt versus
11 equity.
12 COMMISSIONER SMITH: Well, I think you should
13 keep in mind that this is the policy witness, and the people
14 with the numbers are coming.
15 MR. BUDGE: That's right. And I want to just ask
16 about the number generally, but as a matter of policy, this
17 witness needs to answer the question as to why the Company has
18 the incentive to substantially increase the common equity and
19 reduce the debt.
20 COMMISSIONER SMITH: So maybe you should just ask
21 him that question.
22 Q.BY MR. BUDGE: So I think where we left off, I'm
23 trying to get a handle on generally the gap in the interest
24 rate between having debt financing and equity financing, and if
25 I recall your answer, you would agree that the actual cost of
136
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 Common equity to shareholders has to be grossed up because the
2 taxes would have to be recovered. Correct?
3 A.Well, I think Mr. McDougal is the expert on
4 exactly how that's done. In general, I presume that's correct.
5 As the policy witness, I don't go into the
6 details of why we would request potentially a ten six. We rely
7 on witnesses and financial market observations. And so I agree
8 wi th your point in general, but I do not have the exact
9 information.
10 Q.And I don't intend to get into the specifics. I
11 simply want to get into the general policy decision that's been
12 made. And as I see it, that the Company has embarked and
13 PacifiCorp has acquired to increase the amount of COmmon equity
14 and reduce the amount of debt. Would you agree?
15 A. I don't know that that was a conscious decision
16 to embark. I think that is a financing decision that was
17 established by the financial organization at MidAmerican and
18 PacifiCorp.
19 MR. BUDGE: Can I approach the witness?
20 COMMISSIONER SMITH: Yes. Actually, let's go
21 let's take a five-minute break because -- we'll go off the
22 record.23 (Recess. )
24 MR. HICKEY: Madam Chair, while we wait for
25 Mr. Budge, I just note on the record that we have not received
137
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 this sur-surrebuttal that he's offered to provide for us.
2 COMMISSIONER SMITH: He's in there. They are
3 I think they've got a big stack of paper.
4 MR. HICKEY: Oh.
5 COMMISSIONER SMITH: So I think they're working
6 on it.
7 MR. HICKEY: Good. Thank you for the update.
8 COMMISSIONER SMITH: I assume that's what that
9 stack--
10 COMMISSIONER REDFORD: You were expecting a small
11 stack.
12 MR. HICKEY: I prefer the small stack.
13 COMMISSIONER SMITH: If Mr. Budge can hear me, he
14 needs to come to the hearing room.
15 MR. HICKEY: Is there a three-minute rule,
16 Madam Chair, that Mr. Walje can be excused if Mr. Budge isn't
17 through the door in three minutes?
18 COMMISSIONER SMITH: No, it just doesn't work
19 that way.20 (Laughter. )
21
22
THE WITNESS: Dang.
COMMISSIONER SMITH: We all find out on a daily
23 basis that life, indeed, is not perfect.
24
25
MR. HICKEY: I would agree.
COMMISSIONER SMITH: So we have changed out
138
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
20
1 Mr. Budge' s microphone so we hope that i s fixed the problem, and
2 if you have problems hearing, let me know. We may also have
3 turned the HVAC to off because that seemed to be interfering,
4 but we may not be able to leave it that way.
5 Mr. Budge, we're ready.
6 MR. BUDGE: Thank you. May I approach the
7 witness?
8 COMMISSIONER SMITH: Yes, you may.
9 Q.BY MR. BUDGE: Handing you what's been marked as
10 Monsanto Exhibit 238, which is identified as a Rocky Mountain
11 Power PacifiCorp Historical Capital Structure and Net Utility
12 Plant, and the source is FERC Form 1.
13 (Monsanto Exhibit No. 238 was marked for
14 identification.)
15 Q.BY MR. BUDGE: Mr. Walje, what we've marked as
16 Exhibit 238 identifies, you'll see, in line 6 the common
17 equi ty, and can you note that about the time of the merger in
18 2005, it was shown to be 46.63 percent?
19 A.Yes.
Q.And the current number is 52.65 percent.
21 Correct?
22
23
A.Correct.
Q.When PacifiCorp acquires financing of its debt,
24 does the debt financing also come from Berkshire?
25 A.It does not.
139
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)~P
.
.
.
1 Q.Does any of it come from Berkshire?
2 A.I do not know.
3 Q.So the equity investment comes from Berkshire,
4 but not the debt?
5 A.I believe that's the case. Mr. Williams can
6 answer that question expertly.
7 Q.Would you agree that from the ratepayers'
8 standpoint, that the cost of equity is greater than the cost of
9 debt?
10 A.Yes.
11 Q.And it's the Company's desire to increase further
12 the cost of equity -- excuse me, the amount of equity as
13 compared to debt?
14 A.I think that the obj ecti ve is to find the best
15 financing method for the capital program we have going forward.
16 Again, Mr. Williams can elaborate in his testimony on why we've
17 chosen the capital structure that we have.
18 Q.Would you agree that increasing the common equity
19 would be to the benefit of the Berkshire shareholders and at
20 the expense of the ratepayers?
21 A.I would not. I would have to understand the
22 entire financing opportunities and requirements, including how
23 to be treated as a standalone business, in order to make that
24 statement.
25 Q.But you don't dispute that the cost of equity to
140
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 the ratepayers is more than the cost of debt, which is a gap
2 between the interest rate which I think you said was around six
3 percent and the cost of common equity which is currently ten
4 something?
5 MR. HICKEY: Object: Asked and answered,
6 Madam Chair.
7 COMMISSIONER SMITH: Overruled. I'll let him
8 continue.
9 THE WITNESS: Okay, I don't recall answering a
10 question on cost of interest. I did have an answer on cost of
11 debt, I think, and that was the two numbers you read for me
12 from Mr. Williams' testimony, and I accepted those.
13 BY MR. BUDGE: Do you have your rebuttalQ.
14 testimony available?
15 A.I do.
Q.Would you turn to page 3,line 19?
A.Yes.
COMMISSIONER REDFORD:What page is that again?
COMMISSIONER SMITH:Three and 19.Line 19.
Page 3,line 19.
16
17
18
19
20
21 BY MR. BUDGE: There in your rebuttal testimony,Q.
22 you state that you were -- you have disappointment in the
23 overall position of the parties. Is that correct?
24 My line items in my version of my rebuttalA.
25 testimony don't match that. That was line 3 page 3 or
141
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 page 2?
2 Q.Yeah, I had page 3, line 19.
3 A.Okay.
4 Q.The question is: What is your response to the
5 overall position of the parties to this case?
6 And then on line 19, your answer was: Quite
7 honestly, disappointment?
8 A.Correct. Yes. I'm on the right page now. Thank
9 you.
10 Q.Have you encountered any of the 70,000 Idaho
11 customers of PacifiCorp who have told you that they're happy
12 about the proposed rate increase?
13 I have spoken to very few customers directly, andA.
14 none of them have said, Gee, thank you for raising my price of
15 electricity.
16 Q.From any of the sources of information the
17 Company has, have you even heard of one customer who said,
18 We're happy to have our rate increased?
19 A.I have not.
20 When I looked back at your direct testimony onQ.
21 page 19, lines 5 through 7, you seem to acknowledge that
22 electrici ty is the highest single cost of Monsanto's operation,
23 about a third?
24
25
A.According to the information that Monsanto has
provided me over the course of time, yes.
142
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
20
21
1 Q.And you also testified at that same page 19 of
2 your direct that since 1973, you were recognizing that
3 Monsanto's rates had, quote, increased 73 percent on a compound
4 basis?
5 A.Yes, I understand our prices have increased
6 dramatically for Monsanto.
7 Q.Are you aware that Monsanto has had rather
8 significant rate increases in recent years, which they agreed
9 to by Stipulation?
10 A.Yes.
11 Q.And would you agree that that increase in 2007
12 was 16.5 percent?
13 A.That number sounds correct. I don't have that in
14 front of me.
15 Q.And that Stipulation was approved by the
16 Commission, was it not, as establishing a fair, just, and
17 reasonable rate?
18 A.It was.
19 Q.Is that your understanding?
A.Yes.
Q.And you're also aware that in the next year,
22 2008, another filing was made with the Commission, and Monsanto
23 again stipulated to an increase over three years: 2008, 2009,
24 and 2010. The increase in 2008 was 13 and a half percent,
25 another three percent in 2009, and another five percent this
143
HEDRICK COURT REPORTING
P. o. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
20
1 year, which would be another total of 21.5 percent?
2 A.That's correct.
3 Q.And are you aware that those increases were also
4 approved by this Commission as being fair and reasonable?
5 A.I do.
6 Q.And would you agree, Mr. Walje, that those
7 increases over the last four years to Monsanto were quite
8 significant each year from their perspective?
9 A. Yes.
10 Q. And do you -- is it your understanding -- strike
11 that question. Excuse me.
12 Wouldn't you believe that Monsanto reasonably
13 anticipated that with those increases we've discussed on each
14 of those past four years, that they were paying a rate that was
15 at or near cost of service?
16 A.I believe that we agreed that that was a
17 reasonable settlement with Monsanto at that point in time. Our
18 analysis was they weren't up to what we would have considered
19 full cost of service, but we did agree to that settlement.
Q.And I think you're aware in this proceeding that
21 Monsanto's rate is proposed to be increased another about 52.6
22 percent?
23
24
25
A.Correct.
Q.And would you expect Monsanto not to be somewhat
disappointed to see an increase of that magnitude on the back
144
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 of the four that we discussed?
2 A.I believe that it would be a significant
3 challenge for Monsanto to try to understand how to manage that
4 big of an increase on a third of their operating cost, yes.
5 Q.And given this substantial increase to Monsanto
6 and its disproportionate amount compared to other customers, do
7 you believe it would be appropriate for this Commission to give
8 consideration to the principle of rate shock?
9 MR. HICKEY: I'll move to strike the question,
10 Madam Chair. It assumes facts not in evidence. There are rate
11 differences between Monsanto and other classes, but to
12 characterize it as disproportionately unfair is not an accurate
13 statement from a cost of service perspective.
14 COMMISSIONER SMITH: Mr. Budge.
15 MR. BUDGE: I didn't characterize it as unfair.
16 I said it was a disproportionate, meaning the increase to
17 Monsanto of 52.6 percent is much higher than any other
18 customer. I can rephrase it if that would help.
19 MR. HICKEY: You're ignoring cost of service then
20 in the question.
21
22
23
MR. BUDGE: I'm ignoring cost of service?
MR. HICKEY: I'm asking you.
COMMISSIONER SMITH: That wasn't the question,
24 Mr. Hickey. I think the question was on the customer's rate,
25 so I'm going to overrule the obj ection.
145
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 THE WITNESS: Could you restate the question,
2 please?
3 Q.BY MR. BUDGE: Thank you. I said, given the
4 substantial increase requested by the Company for Monsanto, the
5 52.64 percent, which is much greater than requested for any
6 other customer, do you believe it is appropriate for this
7 Commission to give consideration to the principle of rate shock
8 in determining the appropriate rate for Monsanto?
9 A.I am not an expert in regulatory policy and what
10 qualifies as policy rate shock. I'm unfamiliar with that term
11 as having been used in any of the regulatory activities I've
12 been in.
13 Clearly, it's a huge increase for customers.
14 We're only asking for what we think it costs to serve Monsanto,
15 and that, in fact, is a large number.
16 Q. SO would I understand that answer to be you're
17 not sure or "yes" or "no"?
18 A.Well, I guess the answer is I'm not sure. I'm
19 not an expert in what the policy is in the state of Idaho on
20 what the regulators should consider or not when undertaking
21 evidence in an Application for a price increase.
22 Q.Thank you. I had a few questions regarding the
23 Gateway Central transmission and as I understand your testimony
24 on page 4, line 11.
25 A.Is that in my direct or my rebuttal?
146
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 Q.Your rebuttal. Well, let me just ask you some
2 general questions, and I can appreciate that Company witnesses
3 Gerrard and Cupparo and I believe Mr. McDougal each have some
4 information on that, but I wanted to generally ask you
5 questions because you also address it in both your direct and
6 rebuttal.
7 And as I read the other testimony, you have Staff
8 wi tness Lobb and you have Monsanto witness Peseau. They each
9 take the position that this -- your transmission line Populus
10 to Terminal is, according to their terms, unreasonably
11 expensive and vastly overbuilt, and you challenge that in your
12 rebuttal testimony. Correct?
13 A.Correct.
14 Q.Is it true that this Gateway Central project,
15 this first leg that we're squabbling about in this case, is the
16 first leg of a big proj ect that's entitled Energy Gateway?
17 A.Correct.
18 Q.As the overall proj ect. And this is the first
19 spoke in that wheel, if you will?
20 A.This is the first line segment that we've brought
21 forward for consideration.
22 Q.And there are a total of eight segments?
23 A.I believe so. They have been reconfigured a
24 couple of times, but that sounds about right.
25 Q.And this first segment that you seek rate base
147
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 treatment on is about 135 miles of a total proj ect of 2,000
2 miles?
3 Roughly, yes. We don't have the final mileageA.
4 yet on the overall proj ect pending routing decisions.
5 So that $801 million cost you talk about isQ.
6 what's been spent on this first segment of the proj ect?
7 A.Correct.
8 And is Idaho the first state that the Company hasQ.
9 come to seeking recovery in?
10 It is not. We have seeked -- we have sought --A.
11 recovery in the state of Utah through the major plant additions
12 process, and have subsequently filed for consideration for this
13 investment in our recently-filed Wyoming rate case.
14 So there's a new filing in Wyoming?Q.
15 A.Correct.
16 And the first filing is pending in Utah?Q.
17 No, it is -- the proj ect was split into twoA.
18 parts, so we have two major plant additions because the first
19 part of the proj ect was put into service, used and useful, and
20 then the second part was brought into service November 19th,
21 and there was a maj or plant addition filing associated with
22 that that is still in front of the Commission.
23 And is my understanding correct that this PopulusQ.
24 to Terminal line was constructed much larger than what was
25 commi tted to at the time of the merger?
148
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 I think the commitment was to provide at leastA.
2 300 megawatts of transfer capacity on Path C.
3 And it's currently constructed to 700Q.
4 megawatts?
5 1,500, I believe. Mr. Gerrard can verify.A.
6 1,400, 1,450.
7 So is the overconstruction intended to be able toQ.
8 accommodate the anticipated need to move power once the other
9 seven segments are built?
10 I think the sizing was a direct result of lookingA.
11 at the needs of the transmission plan, the topology that we
12 have to go through, the fact that we didn't believe we'd ever
13 get a second line from the Downey area north -- from the north
14 end of Salt Lake City. There was a huge amount of public
15 opposi tion. I personally met with many elected officials, and
16 because of reliability requirements, we were expected to put in
17 a new right-of-way separated from the others. And so we took
18 into account all of those factors, as well as immediate current
19 needs and future needs as our customers' use continues to grow.
20 So, it was a mul tifactor decision.
21 When I read the Company's Response to Monsanto'sQ.
22 Data Request 4.4, the Company said, quote: Once Gateway South
23 is completed, the capacity in both directions is expected to
24 increase to 1,400 megawatts.
25 So, is it my understanding that the ability to
149
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 use the full 1,400 megawatts on the Populus to Terminal segment
2 won't exist until such time as the second segment, Gateway
3 South, is completed?
4 I am not entirely sure. Mr. Gerrard would beA.
5 able to answer that question more exactly.
6 I had a question on the cost. When you divideQ.
7 out the $801 million by the 135 miles, it comes to just shy of
8 $6 million per mile. And the Company when they estimated the
9 $ 6 billion cost of the remaining segments, that comes out to
10 about $2. 79 million per mile.
11 Are we at risk here that the cost of the
12 remaining segment will be much greater than estimated?
13 I believe there were some unique features to theA.
14 Populus-Terminal line that Mr. Gerrard elaborates on in his
15 testimony that indicates why it was a more pricey line than
16 what we're expecting for most of the rest of the segments, but
17 there may, in fact, be segments for certain reasons that are
18 roughly that expensive, but certainly we're expecting them to
19 be less expensive.
20 So that had something to do with the overbuiltQ.
21 nature of the first segment?
22 Had something to do with the fact that we were inA.
23 a very swampy area, required very extensive and expansive
24 footings. We built to a higher wind grade than we had in
25 previous lines because previous lines in that area have blown
150
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 down. And we needed to separate out and provide -- buy
2 entirely new right-of-way. So there were other geotechnical
3 and design reasons to build the line in that configuration.
4 So when the merger was approved by thisQ.
5 Commission, the Company had committed to upgrade to 300 million
6 and the cost was going to be about -- or, excuse me, was going
7 to upgrade to 300 megawatts at a cost of about 78 million.
8 We're now looking at ten times the amount that was expected at
9 that time. Right?
10 A. I think that that is the difference between the
11 original commitment and what this line will end up costing.
12 And is this entire 2, OOO-mile proj ect that theQ.
13 Company proposed to construct, is it all going to be 500 kV
14 lines?
15 Nope. It will be various lines everywhere fromA.
16 138 kV to 500 kV. Some of it is 345 kV double circuit.
17 Again, Mr. Gerrard is our expert and is the
18 person who planned that. He can give you more explanation on
19 the various specifics of the different segments. I don't have
20 them all memorized.
21 Doesn't that estimated cost to complete of sixQ.
22 billion incorporate all of the issues you just mentioned,
23 different line sizes?
24 Of the information we have today.A.
25 Is it true that if this proj ect were everQ.
151
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 completed as planned, it will be the most expensive
2 transmission expansion ever attempted in the United States?
3 I do not know that.A.
4 Is it true that the second segment that youQ.
5 intend to build is called Gateway West?
6 A.Correct.
7 And if I understand it, that essentially is toQ.
8 connect the potential for new wind generation in Wyoming to the
9 Capi tal (sic) Jack substation, and that's kind of the hub going
10 to California?
11 The Captain Jack substation I believe is inA.
12 Oregon, and it is a connection into California. However, none
13 of this line is being built directly for serving California.
14 California is two percent of our load. We don't really need to
15 build this size facility for that load.
16 An the in-service date of that --Q.
17 MR. HICKEY: I'm sorry, Mr. Budge. I don't think
18 the witness has finished his answer.
19 BY MR. BUDGE: I apologize. Excuse me if IQ.
20 interrupt. Did I cut you off? I didn't think that I did.
21 No. All I was saying was that, yes, it goes toA.
22 Captain Jack substation, but that's put in place not for
23 additional sales to California, but for tying into the grid for
24 reliabili ty and transfer purposes. California represents two
25 percent of our business.
152
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 Q.And that second segment, Gateway West, has an
2 in-service date in 2014 to 2018, in that range?
3 A.Somewhere toward the latter part of that range.
4 And is it true that the wind generation that'sQ.
5 anticipated to supply the power to go through the transmission
6 line is yet to be constructed?
7 I think that we shouldn't just characterize it asA.
8 wind generation. The line wasn't designed specifically and
9 exclusively for wind generation. There are other generation
10 sources in Wyoming: Coal, natural gas. So part of the purpose
11 for the design was to be able to take advantage of any number
12 of generation sources. But, in fact, yeah, some of the wind
13 has not been built that would perhaps fill the capacity on that
14 line.
15 Okay. So, to sum it up, the Company is basicallyQ.
16 wanting to rate base now and earn a rate of return on the first
17 segment of the transmission line that's part of a big project
18 before the generation facilities to supply it have actually
19 been built?
20 A.Well, to -- it takes us less than two years to
21 site, permit, and build a wind project, and so one can't assume
22 that you couldn't concurrently get a natural-gas-fired power
23 plant or wind built somewhat in concurrence with the in-service
24 date of the plant, of the transmission.
25 Would you agree that it i S rather unusual andQ.
153
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 unique to build the transmission before you construct the
2 generation facility?
3 I would not say that it's unique. I think theA.
4 industry suffered for many years from the chicken and egg
5 concept, because lots of generation hasn't been built because
6 transmission wasn't available. Lots of transmission was not
7 built because generation wasn't built.
8 And so as we looked at our ten-year resourcing
9 plan that really goes out 20 years, we took into consideration
10 all of the aspects of the resources we have to serve customers,
11 our forecast of customer load growth, and we put together an
12 integrated resource plan that looks into the future because of
13 the long lead time nature of these investments. We have to
14 have a plan that we can build to so that when those customers
15 come on, we have the capacity to provide them.
16 So I wouldn't say it was unique and it's
17 certainly not done in a vacuum. An immense amount of planning
18 is done with our company and regionally for years on some of
19 these assets and proj ects.
20 So you don't believe that this significantlyQ.
21 increased the financial risks to the Company to build the line
22 before the generation?
23 A.No.
24 And do you believe it substantially increases theQ.
25 risk to the customers to build the line before you build the
154
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 generation?
2 A.No, it does not --
3 Q.And if there was
4 It does not. It does, in my opinion, increaseA.
5 the financial risks to the customers.
6 And if there is risks associated with doing this,Q.
7 you want this to be the customer's riskwould this be the
8 because it would be in rate base now?
9 Well, I believe that long term it certainlyA.
10 derisks customers because we're making an investment in the
11 future that will help us bring some stability to prices, rather
12 than do the least-cost-today option which in the long run I
13 believe will cost customers more.
14 What if the Gateway Energy proj ect were to beQ.
15 canceled or abandoned for some reason?
16 Well, there's nothing in our plan, there'sA.
17 nothing in our discussions, that indicate that that's likely to
18 happen.
19 But if that happened, would the risk, in fact, beQ.
20 placed upon the ratepayers rather than the shareholders?
21 On the Gateway -- Gateway West proj ect or on theA.
22 Populus-Terminal segment?
23 Well, on any segment the Commission accepts inQ.
24 rate base?
25 Well, the Populus-Terminal segment on its ownA.
155
HEDRICK COURT REPORTING
P. o. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 will provide a great deal of benefit and reliability in excess
2 capaci ty, assuming we're still going to figure out how to serve
3 our growing needs. That line, you can't assume, wouldn't
4 figure in meeting that growing need even if the other lines
5 were canceled, because we would be trying our very best to make
6 sure that we continued to use that asset on customers'
7 behalves.
8 But according to your Data Response we discussedQ.
9 earlier, if the other segments weren't built, you would have no
10 account to utilize this excess capacity. Correct?
11 We would have the ability to use it in someA.
12 fashion is my point. It wouldn't be we're stranded forever.
13 We'd endeavor to find a way to use it. We've had
14 conversations, for instance, about putting a gas plant in
15 Northern Utah in that case that capacity would be available.
16 So, I don't think that if other projects get canceled, you
17 could assume that there would be no value in that extra
18 capaci ty on Populus-Terminal in perpetuity.
19 Your testimony is -- seems to be in conflict withQ.
20 the Company's filing with FERC, and that is witness Cuparro' s
21 Exhibit 36. And rather than pulling that out, I think I can
22 just point to a couple points.
23 On Exhibit 36, page 4 of 29, this is under item
24 eight, the Company makes this statement in the FERC filing,
25 quote: PacifiCorp also requests authorization to recover all
156
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 prudently-incurred development and construction costs if the
2 proj ect is canceled or abandoned in whole or in part.
3 So, if I understand that, the matter of policy,
4 if there are risks associated with abandonment or cancelment,
5 those would be borne by the ratepayers, not the shareholders,
6 to the extent that this Commission allows that cost in rate
7 base today. Correct?
8 A. I don't -- if, in fact, the project were
9 canceled, I think we were requesting that those costs be
10 considered. Since it hasn't been canceled, I'm not sure it's
11 in the Commission's consideration for today.
12 You've stated earlier that you didn' tthinkQ.
13 building the transmission before the generation increased risk
14 to the shareholders or to the ratepayers, if I understood your
15 testimony correct.
16 A.Correct.
17 And when I turn to that same Exhibit 36, the FERCQ.
18 filing, on page 6, under the topic entitled Risks and
19 Challenges, the Company makes this statement: PacifiCorp
20 states that its approach to this proj ect is a significant
21 departure from past approaches to the development of major
22 transmission proj ects. It notes that, historically, such
23 proj ects were built when associated generation resources were
24 sited.
25 And the last sentence says: PacifiCorp asserts
157
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 wi th this approach, PacifiCorp faces greater risks for
2 transmission investment.
3 MR. HICKEY: I object, Madam Chair. This witness
4 did not sponsor this exhibit. Mr. Budge knows that there's
5 going to be a witness who will testify later who is -- adopted
6 the testimony of Mr. Cuparro, including those exhibits. And to
7 let Mr. Budge read these documents into the record is simply
8 improper.
9 I would obj ect and ask the Chair to direct
10 Mr. Budge to ask those questions of the witness who's
11 sponsoring the exhibits, not Mr. Walje.
12 COMMISSIONER SMITH: Mr. Budge.
13 MR. BUDGE: This is cross-examination. This
14 wi tness testified in response to an earlier question that he
15 fel t that siting the transmission before the generation was
16 built did not increase the risk for the Company or the
17 shareholders.
18 COMMISSIONER SMITH: So you have this witness's
19 opinion, and if you have a question on the exhibit that's
20 sponsored by another Company witness, it seems, to me, you
21 should ask that question of the other Company witness.
22 MR. BUDGE: Well, this is the reason it needs:
23 This is cross-examination because this witness has given
24 testimony that is contrary to what his Company provided to
25 FERC, and so that is one way for me to undermine his
158
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 credibili ty here.
2 COMMISSIONER SMITH: But you need to take that up
3 wi th the witness that's sponsoring that exhibit.
4 MR. BUDGE: Okay.
5 COMMISSIONER SMITH: And not this witness.
6 MR. HICKEY: Madam Chair, thank you for the
7 ruling.
8 MR. BUDGE: Well, I certainly respect the Chair's
9 decision, but it seems rather troubling that a witness can give
10 testimony that's contrary to his Company's filings with the
11 Federal Energy Regulatory Commission and not be subject
12 MR. HICKEY: Madam Chair , with all due respect
13 MR. BUDGE: Excuse me for interrupting me,
14 Counsel.
15 MR. HICKEY: -- you have ruled.
16 MR. BUDGE: I'll finish before you interrupt if
17 you don't mind, and I'll try not to interrupt you.
18 But I'll accept the Chair's ruling, but I'll
19 simply leave it with that. The FERC filing is contrary to his
20 testimony.
21 COMMISSIONER SMITH: Mr. Budge and Mr. Hickey, we
22 need to -- we're going to spend a lot of time here in this
23 room, together, and, frankly, we don't need unpleasantness. If
24 you disagree with my ruling, Mr. Budge, you can take that up
25 with me, but, you know, I believe that you need to
159
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
22
1 cross-examine the witness that's sponsoring that exhibit to
2 show any discrepancy that you believe exists. So other than
3 that, let's just move on.
4 Q.BY MR. BUDGE: Mr. Walje, are you aware of the
5 fact that there are other competing transmission lines that
6 might be deemed in competition with the proposed Gateway Energy
7 line?
8 A.I know there are other proposed lines. I don't
9 view any of them in competition with the Gateway line.
10 Q.So is it your testimony that you anticipate the
11 Company would go forward with the entire Gateway project
12 regardless of other transmission lines that may be built prior
13 to your construction of Gateway?
14 MR. HICKEY: Object: Asked and answered.
15 COMMISSIONER SMITH: Overruled.
16 THE WITNESS: I would not support that statement
17 because we're looking out several years and multiple
18 transmission segments, and there may, in fact, be other
19 transmission lines that come up that we can avail ourselves of
20 some level of participation or obviate the need for certain
21 parts of the Gateway proj ect.
Q.BY MR. BUDGE: Would you agree that the
23 Commission here is faced with the issue of deciding whether the
24 shareholders or the ratepayers should bear whatever risks are
25 associated with this first segment, knowing well that the
160
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
20
21
1 remaining segments are yet to be built, and that the generation
2 to supply them are yet to be built?
3 A.I believe that we have made the case that the
4 Populus-Terminal investment stands on its own irrespective of
5 those future investments, with the changes and the explanation
6 provided in Mr. Gerrard's testimony.
7 MR. BUDGE: May I approach the witness, your
8 Honor?
9 COMMISSIONER SMITH: Yes, you may.
10 MR. BUDGE: I have two exhibits to present: The
11 first is Monsanto Exhibit 239 that has the title of Gateway
12 Energy Bringing New Transmission to the West. And the second
13 is Exhibit 240 -- two four oh -- that is a Rocky Mountain
14 document entitled Energy Gateway Bringing New Transmission to
15 the West, the second simply being an update of the first.
16 Q.BY MR. BUDGE: While I'm passing these out, I
17 only have a couple of short questions to ask you about as it
18 pertains to the map that is attached to each of these exhibits.
19 We'll start with Exhibit 239.
COMMISSIONER SMITH: Don't forget Wendy.
MR. BUDGE: The second one, 240.
22 (Monsanto Exhibit Nos. 239 and 240 were
23 marked for identification.)
24
25
Q.BY MR. BUDGE: Mr. Walje, if you turn on Exhibit
239 about three pages in, you'll see a map that the Company
161
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
20
21
1 published identifying the various Gateway lines we've been
2 discussing?
3 A.Uh-huh.
4 Q.And looking at that map, do you see the line
5 entitled Gateway South as it goes from Wyoming to Crystal,
6 Nevada?
7 A.I do.
8 Q.And is Crystal, Nevada, is that at or near or
9 wi thin that Las Vegas population area?
10 A.Yes.
11 Q.Now, take a look at the Exhibit 240. This was
12 also taken off of the Company's Web site, and you'll note on
13 the bottom left it states it was updated November 10th, 2010.
14 Do you see that? This would be page 2 of Exhibit 240.
15 A.Yes.
16 Q.And I guess my point was both of these maps came
17 off the Company's Web site. The first one was part of the
18 Company's filing, Exhibit 239; and then Exhibit 240 has
19 language that says: Updated November 10, 2010?
A.Correct.
Q.And if you look at Gateway South, it now shows
22 that Gateway South is ending in Southwest Utah at a location
23 called Red Butte?
24
25
A.Yes.
Q.And that the segment going on to Crystal has been
162
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 deleted?
2 A.Correct.
3 Q.If you look at the service of Red Butte, Utah, is
4 there any substantial supply or source of demand in that remote
5 corner of Southwest Utah to warrant utilization of a 500 kV
6 line?
7 A.I think there's two parts to that answer:
8 Washington County in Southwestern Utah was the
9 fastest-growing county in America for five years prior to the
10 recession, has a population of over 250,000. It also feeds
11 other parts of Southern Utah that grew at a great degree.
12 And that proj ect still has an interconnection
13 into Nevada where we can provide energy out of the Southwest
14 out of multiple power plants.
15 Q.So was the map updated November 10, 2010, to
16 actually eliminate that segment of the transmission line to the
17 Crystal-Las Vegas area, or you just want to create that
18 perception among those who might read the Web site map?
19 A.I believe that segment of the line has been
20 deleted from our plan.
21
22
Q.Excuse me?
A.That segment of the line from Red Butte to
23 Crystal has been deleted from the Energy Gateway plan.
24
25
Q.Then can you explain why on Exhibit 240 the
length of the entire proj ect of 2,000 miles and the cost of
163
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 $6 billion has not been reduced to reflect that deletion?
2 Poor bookkeeping on the Web site.A.
3 So is it your testimony that that reduction ofQ.
4 the line wasn i t done in response to some of the criticism
5 presented in this case by others that the purpose of Gateway
6 was to deliver Wyoming wind to the Las Vegas market?
7 That is absolutely my contention. I wasA.
8 unfamiliar that that change had even been made on the Web site.
9 On page 6 of your rebuttal, if you turn there,Q.
10 lines 16 to 18, you state that Rocky Mountain Power has
11 provided Monsanto low-price electricity for 60 years?
12 A.Yes.
13 Would it be more accurate to say that RockyQ.
14 Mountain Power and its predecessors and interests have supplied
15 Monsanto?
16 A.Yes.
17 When you referred to Rocky Mountain Power, youQ.
18 were including --
19 Our predecessor legal entities.A.
20 For years prior to 2006 when the acquisition wasQ.
21 made by MidAmerican, would you have any personal knowledge
22 whether the prices to Monsanto were low or high?
23 I would have some vague knowledge that they wereA.
24 low based on conversations that took place in the management
25 team of PacifiCorp in that period of time.
164
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
20
21
22
23
1 Q.And would you agree -- would you agree that
2 whether a price was low or high depends on whether you're
3 paying or receiving?
4 MR. HICKEY: Obj ect: Relevancy.
5 COMMISSIONER SMITH: Oh, I'm going to overrule
6 that. You can answer that.
7 THE WITNESS: Well, "free" is a better price than
8 anything, but I would actually like lower prices rather than
9 higher prices on any aspect of anything I buy.
10 Q.BY MR. BUDGE: I wanted to turn if I could,
11 Mr. Walje, to your rebuttal testimony, pages 7 and 9 -- 7 to 9.
12 You rebut the testimony of Monsanto witness Lawrence and go
13 into your discussion of the Chinese electricity market, and you
14 state on page 7, beginning on line 3, you say: I completely
15 disagree with his claim that electricity is the reason Monsanto
16 can't compete against the Chinese market.
17 I couldn't find anyplace in Mr. Lawrence's
18 testimony where he made that statement. Are you able to
19 identify any statement to that effect that he made?
A.I am not.
Q.Pardon?
A.I am not.
Q.Isn't it true that Mr. Lawrence's testimony
24 didn't express concern over a single cost item, but instead
25 expressed concern about the overall costs of producing
165
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 phosphorus and glyphosate?
2 A.It did.
3 Q.And you don't disagree that the Chinese certainly
4 would have some cost advantages relative to labor and
5 environmental matters based on what research you did?
6 A.I would presume that's the case, yes.
7 Q.Mr. Lawrence made some testimony again you
8 referred to, the effect that profits have declined some
9 92 percent in 2010 due to price erosion from Chinese
10 competition.
11 Is it true, Mr. Walje, that you didn't make any
12 study or analysis of the cost of producing either phosphorus or
13 glyphosate in China as compared to Monsanto's production costs?
14 A.Nope, I did not undertake a detailed analysis.
15 Q.On the bottom line of page 8 and page 9, you cite
16 some publications that you apparently were relying upon in
17 rendering your testimony questioning the Chinese competi ti ve
18 posi tion. Is it true that those publications you relied upon
19 published in 2009 were relying upon data generated from the
20 year 2008?
21
22
A.In some cases, that's true.
Q.Is it true that you made no attempt to update
23 that data to 2009 or -10 information to be able to accurately
24 compare the costs of production in China with the costs in the
25 Uni ted States of Monsanto?
166
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
20
1 A.No, that is not true. I actually tried to find
2 the more recent information, but there's about a year lag
3 between when everybody provides that information to these types
4 of entities and it's published. So I did, in fact, try to get
5 more current information, but it wasn't readily available.
6 Q.Turning to page 9, if you would, on page (sic) 6,
7 you make the statement: We are unlikely to learn the exact
8 price paid by Monsanto competitors in China.
9 A.Correct.
10 Q.Do you know how many producers of phosphorus
11 exist in China?
12 A.I do not, but there are several, according to
13 trade Web sites that I looked at.
14 Q.Would you be surprised to learn that there are
15 over 80?
16 A.I would not be surprised, no.
17 Q.And do you know how many glyphosate producers
18 there are in China?
19 A.I do not.
Q.Did you make any attempt to try to locate where
21 they might be located?
22 A.I did. It was not publicly-available information
23 for the most part.
24
25
Q.Excuse me? I didn't hear.
A.It's not publicly-available information for the
167
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 most part.
2 Q.So you weren't able to determine where they were
3 located?
4 A.I was not.
5 Well, you cite on line 7 that you looked at theQ.
6 prices of Beij ing Electric Power, and you led that to the
7 conclusion that you reached that perhaps Monsanto has an
8 electric price advantage?
9 A.Well, I said based on what was published for
10 industrial rates in Beij ing Power by that entity, that it
11 wasn't clear to me that Monsanto had a disadvantage with
12 electric power and the one data point I could find actually
13 indicated just the opposite in a generic sense. But it does
14 not, in fact, identify the actual electricity price for any of
15 those 80 Chinese.
16 When you make the statement on line 13, you sayQ.
17 that it appears Monsanto has -- excuse me?
18 A.I didn't say anything.
19 On -- still on line -- page 9, line 13, you makeQ.
20 the statement that Monsanto has the clear advantage on electric
21 prices?
22 A.Based on that one data point.
23 And you made that statement simply based on theQ.
24 price of the Beij ing --
25 A.Correct.
168
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 Q.Power Corporation?
2 Did you make any attempt to determine if there
3 are any phosphorus producers wi thin the service area of Beij ing
4 Power Corporation?
5 A.I did, but I was not -- unable to find.
6 Q.You didn't find any?
7 A.I was unable to.
8 Q.And did you make any attempt to determine the
9 number of glyphosate producers wi thin the service area of
10 Beij ing Power Corporation?
11 A.I did, but again, that information wasn't
12 available through the methods that I had at my disposal.
13 Q.And yet that is the basis upon which you conclude
14 that Monsanto has an electric price advantage?
15 A.Yes.
16 MR. HICKEY: Object: Asked and answered.
17 COMMISSIONER SMITH: I think you're done. Right?
18 Q.BY MR. BUDGE: So, as to the actual producers of
19 glyphosate or the competitors, you made no attempt to determine
20 what they may pay for electricity?
21
22
23
MR. HICKEY: Object: Asked and answered.
MR. BUDGE: That was a different question.
COMMISSIONER SMITH: But it's been previously
24 asked, so that obj ection is sustained.
25 COMMISSIONER REDFORD: Madam Chairman.
169
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 COMMISSIONER SMITH: Commissioner Redford.
2 COMMISSIONER REDFORD: Maybe I was somewhere
3 else, but I didn't hear the answer. Could we run that through
4 again?
5 COMMISSIONER SMITH: Okay, certainly.
6 Q.BY MR. BUDGE: Well, at the risk of further
7 objection, let me just re-ask that. I thought that was a
8 different question.
9 But you were not able to determine any electric
10 costs or overall production costs of any specific producer of
11 glyphosate or phosphorus that would be a competitor to
12 Monsanto?
13 I was unable to find that information.A.
14 Apparently, there are phosphorus furnaces in the Netherlands,
15 Kazakhstan, and China. I was able to get some indicative
16 information in Netherlands, but not the other locations.
17 COMMISSIONER REDFORD: Thank you, Madam Chairman.
18 BY MR. BUDGE: So, Mr. Walje, if you want to useQ.
19 Beij ing Power Company as your surrogate for determining the
20 electric prices of competition, and you're unable to confirm
21 that there are any phosphorus producers or glyphosate producers
22 that they serve, isn't your comparison somewhat analogous to
23 comparing the prices of electricity in New York City with the
24 prices in Boise, Idaho?
25 To some degree, but the statement is madeA.
170
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 repeatedly that our electric prices are not competi ti ve and
2 I've not seen the evidence to make that point either.
3 Q.On page 9, line 14 through 22, you seem to make a
4 suggestion here that Monsanto should be building its own
5 generation to reduce the amount of power it takes from Rocky
6 Mountain Power. Is that what you're suggesting or
7 advocating?
8 A.I think that statement was in response to the
9 notion that I believe Ms. Iverson stated, that Monsanto did not
10 have any options but were at our mercy. Might have been one of
11 the other witnesses.
12 We only were pointing out that other large
13 industrial customers who have large loads and want to help
14 manage the costs more directly have invested in their own power
15 supply operations, so that there are al ternati ves to Rocky
16 Mountain Power service was my only point.
17 Q.Isn't it true that Monsanto has no ability to
18 purchase from anybody but Rocky Mountain Power?
19 A.That is correct, under the current circumstance,
20 but there are alternatives as I just described. If they
21 believe our prices are unduly high, they have options, which is
22 to build some of their own generation. So they are not captive
23 to our company.
24 Q.And are you aware that there's been no change in
25 the Monsanto load since 1966 when the number nine furnace was
171
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 constructed?
2 A.Yes.
3 Q.And so during that period of time when the
4 Company had embarked upon the construction of a number of
5 coal-fired plants to serve load, didn't Monsanto help pay for
6 the costs of those generation facilities in its rates over the
7 years?
8 A.I am unaware of that, not being directly involved
9 in the pricing associated for Monsanto in that period of time.
10 Q.But at least you'd agree that there's been no
11 plant or transmission constructed specifically to serve the
12 Monsanto load that last increased in 1966?
13 A.Correct, as far as I know, nothing specific for
14 Monsanto.
15 Q.And isn't it also true, Mr. Walje, that the other
16 maj or customer class in Idaho, the irrigation pumpers, have had
17 virtually no load growth in the past 30 years?
18 A.I do not know what the load profile is for Idaho
19 irrigators the last 30 years.
20 Q.And do you know what portion of the Idaho load is
21 comprised of Monsanto and the irrigators?
22 A.I do not, off the top of my head. It's
23 somewhere, I believe, in the 70 to 80 percent.
24
25
Q.So a relatively high percent has had no growth,
to your knowledge, for many decades?
172
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
20
21
1 A.Yes.
2 Q.So on page 3, line 23, of your testimony, you
3 state that the Company spent four billion since 2007 in order
4 to keep customers' lights on. You apparently are talking about
5 other customers, not those in Idaho?
6 A.Well, because of the way we are regulated as a
7 mul tistate entity and the allocation methodologies that were
8 adopted over the years and the one that's under consideration
9 now, Idaho pays for only its share of the increases as the
10 allocation factors are modified. And Mr. McDougal can explain
11 that in much more detail than I can.
12 Q.Okay, fair enough. You made a statement on
13 page 7, lines 10 to 11 of your testimony, that Monsanto has the
14 lowest-priced electricity in the state. Which customer class
15 has the highest-priced electricity?
16 A.Some of our residential customers, depending upon
17 their usage patterns.
18 Q.Would street lighting be the highest or among the
19 highest?
A.I'm not sure; can't answer that.
Q.Would there be a difference in those customer
22 classes?
23
24
25
A.Could you be more explicit in your question?
Q.Well, you seem to be making a statement Monsanto
has the lowest prices, suggesting that we're the same as every
173
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)~P
.
.
.
1 other customer. Is that your inference?
2 A.No, my inference is comparable companies.
3 Q.There aren't any other customers in Idaho that
4 provide 1,050 hours of interruptions at the Company option, are
5 there?
6 A.There is not.
7 Q.And there aren't any other customers that provide
8 the Company with the option to interrupt for economic purposes,
9 as well as operating reserves, as well as for system integrity.
10 Is that true?
11 A.Not in the state of Idaho.
12 Q.Could you turn to page 9, line 22, of your
13 rebuttal? Beginning in the very last sentence and then
14 continuing on to the next page, you refer to some discussions
15 that Mr. James R. Smith had during the ECAM settlement
16 negotiations, and you attribute to him making a statement that
17 says Monsanto could control the gas budget at the Soda Springs
18 plant, and he thought it was unreasonable the Company couldn't
19 control their natural gas costs.
20 Why do you think that statement that you made is
21 of any relevance to this proceeding?
22 A.Well, because it ties into the notion that if
23 Monsanto can do a good job of managing natural gas, which is
24 probably the next most reasonable investment opportunity for
25 them to build generation, that they should be good at it and,
174
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 therefore, be able to manage their electric costs through that
2 methodology quite readily.
3 Q.Are you aware that these discussions were part of
4 a settlement conference over the ECAM case?
5 A.I was not.
6 Q.You weren't present at that settlement
7 conference?
8 A.I was not.
9 Q.And so the information concerning what Mr. Smith
10 said or didn't say was relayed to you by a third party?
11 A.Correct.
12 Q.And did you understand that to be hearsay?
13 A.Yes.
14 Q.And that didn't pose any concern to you in
15 reci ting it in your testimony?
16 MR. HICKEY: Object: Argumentative.
17 COMMISSIONER SMITH: I'll allow the question.
18 THE WITNESS: I assumed that the person who
19 participated, since, as I pointed out earlier in some of your
20 first questions, that the -- that the testimony is drafted on
21 behalf of the Company by multiple parties in the Company and I
22 adopt the concepts -- but, yes, I take your point.
23 Q.BY MR. BUDGE: And is it of any concern to you to
24 provide testimony of this nature in a rate proceeding regarding
25 discussions that occurred in a settlement conference where that
175
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 information is usually described as being confidential?
2 A.If I'd have known it was confidential, it
3 wouldn't have been included in this testimony.
4 Q.So you weren't aware this was in the settlement
5 negotiations?
6 A.I was not.
MR.HICKEY:Object:Asked and answered.
COMMISSIONER SMITH:Overruled.
MR.BUDGE:I think the witness already answered.
BY MR.BUDGE:Turn to page 10,lines 6 through
7
8
9
10 Q.
11 14, and you state beginning on line 9, you say: I'm certain
12 that there have been significant technological advancements
13 that have occurred since then that would disadvantage Monsanto
14 with i ts competitors.
15 And you continue on line 13, 14, and you say:
16 Monsanto has chosen not to implement capital solutions because
17 of the low cost of electricity.
18 Have you ever visited the Soda Springs plant?
19 A.Multiple times.
20 Q.Do you have any personal knowledge of the
21 technological advancements that have been employed in
22 Monsanto's Soda Springs operation?
23
24
25
A.On some of the auxiliary processes, yes.
Q.Do you have any personal knowledge of -- strike
that question.
176
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 What are these technological advances that you're
2 referring to here in your testimony that you contend Monsanto
3 should have employed but they have not?
4 A.Well, it was a presumption and an assumption
5 based on the fact that our energy prices were so low, they
6 didn't need to look at technological solutions. But in 1966,
7 there were 31 elemental phosphorus furnaces in North America;
8 now there are three. So just using some sort of a presumption
9 that that technology may have been replaced by other
10 technologies or found itself to be obsolete for any number of
11 reasons.
12 Q.So the fact that Monsanto is the only survivor of
13 those, what did you say, 31
14 A.Thirty-one.
15 Q.-- the fact that Monsanto is the only survivor
16 leads you to conclude that they must not have used
17 technological advances and others did?
18 A.Primarily, I attributed it to the fact that our
19 energy prices, our electricity prices, which are about a third
20 of the Monsanto's production, were competitive, compared to
21 their other technologies.
22 Q.So when you say it was an assumption, you're
23 simply speculating that there may be some technological
24 advancement out there that Monsanto has chosen not to employ?
25 A.Yes.
177
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 Q. Down on line 21 of the same page, you make the
2 statement: Monsanto receives exactly the same service as any
3 other customer on the Company's system.
4 Are you suggesting to this Commission that the
5 service the Company provides to Monsanto is the same as any
6 other customer?
7 A. I'm suggesting in a very direct definition of
8 "service" that is borne by my 38 years in the business,
9 starting as a lineman to my current position, that we have the
10 obligation to keep the lights on, provide reliable service and
11 safe service, and Monsanto expects that to be there 24 hours a
12 day. Whether they have the opportunity to interrupt it or not
13 is part of another arrangement with the Company, but as far as
14 planning for their reliability, planning for their capacity,
15 planning to do proper billing, and all of those other things,
16 they do, in fact, receive the exact same service as every other
17 industrial customer at PacifiCorp.
18 Q.So when you say the "same service," are you
19 referring to the nine megawatt firm load?
20 A.No, I'm talking about the entire 172 megawatts,
21 because if we're not prepared to serve that amount, whether you
22 call it nonfirm, interruptible, or anything else, that
23 electricity can't be delivered. So we have to put in place the
24 exact same facilities for that supposed interruptible load as
25 we do for any other load, whether it's interruptible or not.
178
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 Otherwise, we could only serve nine megawatts.
2 MR. BUDGE: May I approach?
3 COMMISSIONER SMITH: You may.
4 Q.BY MR. BUDGE: I'm handing you what's titled the
5 Company's Response to Monsanto Rebuttal Data Request 2.4.
6 MR. HICKEY: 241?
7 MR. BUDGE: I won't mark this as an exhibit since
8 it's part of the record, I believe.
9 COMMISSIONER SMITH: Actually, you're incorrect
10 in that.
11 MR. BUDGE: Pardon?
12 COMMISSIONER SMITH: Responses to Discovery are
13 not part of the record. So did you want to mark it?
14 MR. BUDGE: Yeah, if we may. I think that would
15 be--
16 COMMISSIONER SMITH: 241.
17 (Monsanto Exhibit No. 241 was marked for
18 identification. )
19 Q.BY MR. BUDGE: Referring to what's been marked as
20 Exhibit 241, when we received your Answer, we were puzzled how
21 the Company could say Monsanto receives exactly the same
22 service, and so we asked you to explain fully how all customers
23 experience hundreds of hours of interruption of service exactly
24 as Monsanto does. And you'll see the Company's Response says:
25 Monsanto receives the same service as any other customers on
179
HEDRICK COURT REPORTING
P. O. BOX 578, BOIS8, ID 83701
WALJE (X)
RMP
.
.
.
1 the Company's system.
2 So you repeat the exact same sentence as your
3 testimony, except you omitted the word "exactly." And then you
4 add the sentence: However, Monsanto's contract allows the
5 Company to curtail that service under terms and conditions that
6 are set forth in the retail special contract.
7 A.I believe my answer actually contained that
8 second statement as well, that Monsanto does have a different
9 arrangement with us, when I answered your question.
10 Q.So you're not disputing the fact that the Company
11 has rights to interrupt Monsanto under its contract
12 distinguishes it from any other customer on the PacifiCorp
13 system?
14 A.There are other customers that we have
15 interruptible contracts with.
16 Q.Any other customer of the magnitude of the rights
17 under the Monsanto contract?
18 A.Not that large.
19 Q.And you don't dispute that the Company bills
20 Monsanto one rate for firm, and a different charge for
21 interruptible demand and interruptible energy?
22 A.I'm not entirely familiar with the structure of
23 the contract and how the compensation is set. My understanding
24 was we endeavor to charge tariff for electricity delivered and
25 then pay Monsanto for firm energy not delivered.
180
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 Q.Have you ever examined a billing statement that
2 the Company sends to Monsanto?
3 A.I have seen
4 MR. HICKEY: Madam Chair -- if I may,
5 Mr. Walj e -- I've tried to be quiet intentionally to let this
6 go for background purposes, but I would offer as an obj ection I
7 think we're now in the phase two hearing which includes
8 establishing the economic value of the curtailment products,
9 and would obj ect on the basis that that hearing is to be held
10 in February.
11 COMMISSIONER SMITH: Well, I guess I disagree,
12 Mr. Hickey. I don't think we're there. I think this is
13 probably a difference of opinion on what the words "service
14 quality" mean, which mayor may not be useful, but I don't
15 think it goes to the economic value of curtailment.
16 MR. BUDGE: May I approach?
17 COMMISSIONER SMITH: You may.
18 Q.BY MR. BUDGE: Handing you what I believe is now
19 Exhibit 242. This is Rocky Mountain Power's monthly billing
20 statement to Monsanto for the month of September 2010.
21 (Monsanto Exhibit No. 242 was marked for
22 identification. )
23 Q.BY MR. BUDGE: Mr. Walje, I'll represent to you
24 that this is, in fact, the statement Monsanto received for
25 September 2010, and it shows it's for the month of August 2010.
181
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
20
1 And you note on the first page that Monsanto's bill is
2 separated out between firm and interruptible demand in energy?
3 A.I do.
4 Q.And if you look to the last page, you will see
5 what the Company reports to Monsanto as when curtailments were
6 taken by the Company for economic purposes on the top, and then
7 the middle group are the interruptions for operating reserves,
8 and the bottom for system integrity?
9 A.Yes.
10 Q.Does that make the service to Monsanto unlike any
11 other customer in that it has the right to make these kind of
12 interruptions whenever the Company wants under the terms of the
13 contract?
14 A.There are other customers that have similar
15 provisions, not exactly; and, yes, it makes them different than
16 most industrial customers or commercial customers.
17 Q.Not only different than most industrial
18 customers, but different than most other customers?
19 A.Correct.
Q.So would you agree that it's not entirely
21 accurate to say Monsanto's service is exactly the same as
22 others?
23 A.Well, I'll go back to my original answer. I said
24 very much as an operating manager and the person who ultimately
25 Monsanto plant people will call if the lights are not on when
182
HEDRICK COURT REPORTING
P. o. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 they want to have them on, that our planning and our
2 dispatching and everything else is exactly the same for
3 Monsanto's entire load that it is for other customers except
4 for the fact that we have this other business arrangement that
5 does, in fact, make them unique.
6 Q.Is it true, Mr. Walje, that the decision to
7 interrupt Monsanto is solely and exclusively that of the
8 Company?
9 A.Yes, based on the negotiated provisions of the
10 contract.
11 Q.I don't suppose you examined any of the logs
12 maintained by the Company or Monsanto as to when those
13 interruptions come?
14 A.I do not, as a matter of course.
15 Q.Would you accept, subject to check, that at least
16 from 2007 on, there's never been a month in any year when
17 Monsanto -- excuse me, when PacifiCorp still did not have
18 available hours to interrupt at the very end of the year in
19 December?
20 A.I'll accept that.
21 Q.Would you also agree that subj ect to the terms of
22 the various contracts that have been in place over the years,
23 that PacifiCorp and its predecessors have always had certain
24 rights to curtail or interrupt the Monsanto load for 60
25 years?
183
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
22
1 A.I can't personally attest to the 60-year time
2 period, not having been there for the entire 60 years, but to
3 my knowledge, there has always been some sort of special
4 relationship.
5 Q.On the top of page 11, lines 1 through 3, and
6 actually starting on the last sentence in page 10, line 22, you
7 state: In fact, it's just the opposite. The recent completion
8 of the Threemile Hill station and the Populus to Terminal line
9 will enhance their already good reliability.
10 In the next sentence, you say: Ironically,
11 Monsanto worked very closely with the Company on this project
12 because they understood its value to them.
13 Was this the correction you made
14 A.That's correct. I was specifically speaking
15 Q.-- where you were referring to the Threemile Hill
16 project?
17 A.Yes. I was specifically referring to the
18 Threemile Hill proj ect. To my knowledge, Monsanto wasn't
19 acti ve in the discussions around Populus-Terminal.
20 Q.And the Threemile Hill proj ect is simply the new
21 transformer station built north of Monsanto?
A.A 345,000-volt main grid transformer station to
23 feed Monsanto that previously had been fed on a lower voltage
24 transmission system.
25 Q.And the working closely relationship was simply
184
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
19
20
21
22
1 on changing some of the power lines around to accommodate
2 that?
3 A.And finding property and timing of plant outages
4 with construction schedules.
5 Q. On page 11, lines 8 through 11, you make the
6 statement: They would like you to believe Monsanto is a poor,
7 defenseless victim at the mercy of utility cost increases.
8 Is it true that there's nowhere in the Monsanto
9 testimony that they used any of those words: Poor,
10 defenseless, victim, or mercy?
11 A.Correct.
12 Q.That's your characterization of how you view the
13 Monsanto case?
14 A.Well, the notion that Monsanto doesn't have
15 options to stay competi ti ve other than having us provide
16 electrici ty at below cost to us.
17 Q.And does Rocky Mountain Power consider all of its
18 customers in Idaho to be victims in this case?
A.No.
MR. HICKEY: Object: Argumentative.
COMMISSIONER SMITH: Sustained.
Q.BY MR. BUDGE: So just Monsanto is the only
23 victim?
24
25
MR. HICKEY: Object: Argumentative.
COMMISSIONER SMITH: Sustained.
185
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 MR. BUDGE: I'll move on.
2 COMMISSIONER SMITH: Thank you, Mr. Budge.
3 Q.BY MR. BUDGE: So I guess if the Company wants to
4 characterize Monsanto as being a poor, defenseless victim,
5 would it be the equivalent of Monsanto or other customers
6 characterizing the Company's filing as one of a rich, greedy
7 thief?
8 MR. HICKEY: Object: Argumentative.
9 COMMISSIONER SMITH: I'm going to sustain that,
10 Mr. Budge.
11 Q.BY MR. BUDGE: On page 11, lines 9 through 10,
12 you state that we have the obligation to provide electric
13 service to everyone in our service terri tory, and have no legal
14 authority to curtail Monsanto's service.
15 My question is are you contending that the
16 contract that PacifiCorp has signed that's in place now -- and
17 those have been in place for the past 60 years -- did not give
18 the Company any legal right to curtail Monsanto?
19 A.I did actually want to clarify that I don't
20 contend that those contracts aren't legal documents. I'm
21 talking about the fundamental basic service out of the state of
22 Idaho. The only way we can curtail Monsanto and their load is
23 if, in fact, Monsanto agrees to it, so we don't treat them
24 differently from that perspective.
25 Q.Let's turn to page 12, lines 9 through 12. You
186
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
20
21
1 seem to suggest here that Rocky Mountain Power doesn't have any
2 control over when Monsanto operates.
3 A.I guess the context for that set of statements
4 again goes back to absent the contractual relationship with
5 Monsanto, if Monsanto were to be characterized as a nonfirm
6 load, we wouldn't have the obligation to serve. So it's a
7 distinction about a fundamental tariff relationship instead of
8 the contractual relationship.
9 Q.Well, when -- if I understand how this works,
10 Monsanto's standing there, operating, running full out, and
11 they don't know when PacifiCorp might choose to interrupt.
12 Correct?
13 A.Correct.
14 Q.And so PacifiCorp makes the decision to send a
15 fax to Monsanto if it's an economic curtailment. Correct?
16 A.I'm not sure of the methodology.
17 Q.Well, is my understanding correct that if they
18 want to make a system integrity or operating reserve, they
19 simply pick the phone up and take them off?
A.I believe that's the case, yes.
Q.So to the extent that PacifiCorp makes the
22 decision to shut Monsanto off, they do, in fact, control when
23 and how they operate?
24
25
A.Correct. And we go back to my previous answer,
though: This is in the context of Monsanto not having that
187
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 contractual relationship that we would not have the right to
2 interrupt them at our discretion.
3 Q.So let's ignore -- excuse me for that.
4 So what you're saying is if we ignored the 60
5 years of history and the right to interrupt by contract and
6 suddenly we made their whole load firm, then there would be no
7 right to interrupt. Is that what you're saying?
8 MR. HICKEY: I'll object: It's argumentative,
9 Chairman. The witness has consistently said Monsanto
10 voluntarily entered into the contract.
11 COMMISSIONER SMITH: Mr. Budge.
12 MR. BUDGE: I can move on.
13 COMMISSIONER SMITH: Thank you.
14 BY MR. BUDGE: Let's turn to page 12, lines 17 toQ.
15 18. You make the statement -- I guess the question on line 16
16 is: Historically, has Monsanto paid its true cost of service?
17 And you answered: No. The Company has been
18 working for over two decades to bring Monsanto to full cost of
19 service.
20 Is that your testimony?
21 From my perspective, our perspective, mostA.
22 specifically the last ten years that I'm more directly engaged
23 in the discussions, we don't believe that we've been
24 compensated adequately for the electricity provided to Monsanto
25 even though we have agreed to settlements.
188
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
20
1 Q.You say "for over two decades," so for how many
2 years over 20 are you saying Monsanto was under cost of
3 service?
4 A.I don't have a personal knowledge.
5 Q.But you're saying 20 or more?
6 A.No, I'm saying I know specifically for ten years
7 and indirectly for a period of time previous to that, but not
8 beyond 20 years.
9 Q.So should I cross-examine you based on what's
10 happened the last ten years or should I go back 20 years? Are
11 you conceding we're dealing with the last ten years?
12 A.Primarily, yes.
13 Q.Huh?
14 A.Primarily, yes.
15 Q.So you're going to concede that prior to ten
16 years, that wouldn't be accurate to state Monsanto was under
17 cost of service?
18 A.I do not know the answer to that.
19 Q.What is the basis of this statement?
A.The basis of this statement is information
21 provided to me during the course of putting together this
22 testimony by others who were involved at that point in time.
23 Q.So you didn't actually go back and read any of
24 the Orders of this Commission as they approved prior contracts
25 of Monsanto in this 20-year period?
189
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
20
21
1 A.I am familiar with about the last ten years.
2 Q.And I suppose you didn't go back and review any
3 filings of the Company over this 20-year period to see what
4 they may have said in their filings with this Commission on the
5 cost of service?
6 A.I did not.
7 Q.Now, let's start with --
8 MR. BUDGE: The next exhibit, 243?
9 COMMISSIONER SMITH: I believe that's correct.
10 (Monsanto Exhibit No. 243 was marked for
11 identification.)
12 MR. HICKEY: Madam Chair, given the length of
13 time, could I ask the witness if he'd like one of his lawyers
14 to get him a cup of water while he's still
15 COMMISSIONER SMITH: Doesn't he have water? He
16 has water.
17 THE WITNESS: I have water. Thanks.
18 MR. HICKEY: Oh, I couldn't see underneath there.
19 Thanks.
COMMISSIONER SMITH: He's not dehydrating.
MR. HICKEY: Good. May be hungry, but not
22 dehydrated.
23 COMMISSIONER SMITH: Sometimes people work faster
24 when they're hungry.
25 MR. HICKEY: I agree. Sure hope so.
190
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 MR. BUDGE: This is kind of the last line of
2 questioning on cost of service issues.
3 MR. HICKEY: If I buy your lunch, Mr. Budge, will
4 you promise that?
5 MR. BUDGE: I promise that. Cost of service is
6 the last line, but I've been known to change my mind.
7 Q.BY MR. BUDGE: Mr. Walje, I'm handing you what's
8 been identified as Monsanto Exhibit 243, and that is testimony
9 of David L. Taylor in UP&L Case UP&L-E-90-1. And if you look
10 on page 1, Mr. Taylor states that he's the -- responsible for
11 the development and preparation of the Company's cost of
12 service studies?
13 A.Yes.
14 Q.And if you'll turn over to page 15, you will note
15 that Mr. Taylor is asked a question on line 14: How have the
16 nonfirm revenues from the special contract customers been
17 treated in the cost of service study?
18 And his answer beginning on line 18 says that the
19 nonfirm portion of special contract loads are not allocated any
20 cost directly in the embedded cost of service study. The
21 revenues collected from the nonservice are treated as revenue
22 credits and are not used to offset the revenue requirement for
23 all firm customers.
24 COMMISSIONER SMITH: I believe you inserted the
25 word "not," and it's not there.
191
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 MR. BUDGE: Pardon?
2 COMMISSIONER SMITH: They are used to offset the
3 revenue requirement.
4 MR. BUDGE: Are not -- are used, yes.
5 COMMISSIONER SMITH: Are used.
6 MR. BUDGE: Excuse me. Pardon.
7 MR. HICKEY: Thank you.
8 Q.BY MR. BUDGE: Would you agree, based on the
9 filing of the Company's cost of service witness at that time,
10 that Monsanto could not have been below cost of service because
11 they were not included in the cost of service studies as they
12 were done at that time?
13 A.Yes.
14 MR. BUDGE: Now I'd like to again approach if I
15 may?
16 Q.BY MR. BUDGE: You have a copy of this
17 Commission's Order 24220.
18 COMMISSIONER SMITH: Mr. Budge, let's mark this
19 Exhibit 244. Although the Commission can take notice of its
20 own Orders, for purposes of having the record complete, I think
21 it would be more convenient to have it as an exhibit.
22 MR. BUDGE: Okay. So you prefer to go ahead and
23 mark it as an exhibit?
24
25
COMMISSIONER SMITH: I do.
(Monsanto Exhibit No. 244 was marked for
192
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 identification. )
2 Q.By MR. BUDGE: So Exhibit 244, and if you'll turn
3 to page 2, on the second full paragraph this Order states:
4 According to the Application -- this is referring to the
5 Company's Application -- demand charges are not assigned to
6 Monsanto's interruptible load service because the Company
7 provides that service to Monsanto out of its operating
8 reserves; i. e., generation plant is not built to serve
9 excuse me, is not built to meet an interruptible demand. The
10 Application states that the prices for interruptible service
11 under the proposed Agreement are expected to cover the
12 Company's variable costs, transmission costs, and make a
13 contribution to fixed costs over the term of the contract.
14 And if you turn in the same Order to page 5 under
15 the Commission's Finding, the Commission makes a similar
16 statement, that the rates for interruptible service will cover
17 the variable costs, transmission costs, and make a contribution
18 to fixed costs. And then the Commission goes on and says:
19 Based on the foregoing, we find that the rates for both
20 interruptible and firm service set forth in the power supply
21 Agreement are fair, just, and reasonable.
22 Based upon your review of that Order in 1992,
23 would you agree in 1992 that there is no basis for you to make
24 the statement that Monsanto was under its cost of service at
25 that time?
193
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
20
1 A.Yes.
2 Q.Next, I'd like to hand you what we i II mark as
3 Monsanto Exhibit 245.
4 (Monsanto Exhibit No. 245 was marked for
5 identification. )
6 Q.BY MR. BUDGE: Monsanto Exhibit 245 should
7 contain a cover letter to the Commission dated November 8,
8 1995, and then there's a copy of the Application of PacifiCorp
9 in Case UPL-E-95-4. Do you see that?
10 A.Yes.
11 Q.And if you look to page 2 of the Application, in
12 Paragraph 4, it indicates that attached is a technical
13 assessment package that describes in greater detail the terms
14 and conditions of the new Agreement?
15 A.Yes.
16 Q.And then do you see that technical assessment
17 package prepared by PacifiCorp that's an Attachment to the
18 Application?
19 A.I do.
Q.And then if you would, please, look to the bottom
21 of page 5 under the topic entitled Contribution to Fixed Costs,
22 and follow with me, if you will. The first paragraph following
23 that, the second sentence reads: Since PacifiCorp has served
24 Monsanto for over 40 years, no incremental resources need to be
25 acquired to continue serving the customer. The Company
194
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 presents this analysis as an upper bound for contribution to
2 fixed costs.
3 And then if you go to the top of the -- excuse
4 me, the bottom of the next page, 6, the Company states: These
5 contributions serve to reduce the revenue requirements
6 otherwise borne by the Company's other customers; thus, these
7 customers will enj oy an economic benefit flowing from the new
8 Agreement.
9 And that same statement is made on the following
10 page in the summary: Other customers served by PacifiCorp will
11 benefi t from Monsanto's contribution to fixed costs.
12 This contract was also approved by Order, which I
13 won't go into, but would you agree at this point in time, in
14 1995 then, the filing that the Company has shown in Exhibit 245
15 gi ves no indication that Monsanto would be under its cost of
16 service in 1995?
17 A. Yes.
18 Q. I have two other Orders that I'll place into the
19 record as Exhibit 246 and 247 together to expedite matters.
20 (Monsanto Exhibit Nos. 246 and 247 were
21 marked for identification.)
22 Q.BY MR. BUDGE: Just for the record, Exhibit 246
23 would be the Commission's Order No. 30482 in the case of
24 PAC-E-07-05, and the next Exhibit would be Order No. 30783 in
25 Case No. PAC-E-07 (sic).
195
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 MR. HICKEY: Mr. Budge, do you intend to ask the
2 witness if he's ever seen these Orders before so there's at
3 least some foundation? Obviously, they're part of this
4 Commission's files so I don't obj ect to them, Madam Chair and
5 members of the Commission, but since he's examining this
6 witness on the content of them, I think there ought to be some
7 foundation as to whether Mr. Walj e has ever seen these
8 particular Orders.
9 COMMISSIONER SMITH: Mr. Budge.
10 MR. BUDGE: I'm glad you asked me that.
11 COMMISSIONER SMITH: Gene, would you mind helping
12 Mr. Budge?
13 Q.BY MR. BUDGE: So turning first to Exhibit 246,
14 which should be Order 30482
15 A.Excuse me. You neglected to give me a copy.
16 COMMISSIONER SMITH: Here, give him mine.
17 Q.BY MR. BUDGE: I was going to make it easy for
18 you to say you hadn't seen it.
19 A.Yeah. Well, consider that done then.
20 (Laughter. )
21 Q.BY MR. BUDGE: Exhibit -- do you have both now?
22 I'm sorry.
23 Let's start with Exhibit 246, which is Order
24 30482, and you'll note that that Order pertains to approving a
25 Stipulation.
196
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 MR. HICKEY: I think the foundational request was
2 whether or not Mr. Walj e has ever seen the exhibit. Can you
3 ask him that?
4 MR. BUDGE: Yeah.
5 Q.BY MR. BUDGE: Have you ever seen the Order?
6 A.I have not seen the Order referenced as 246, 247,
7 245, 244, or the testimony of Dave Taylor which I don't have
8 the evidence on.
9 MR. HICKEY: I object to the further examination
10 of this witness on Orders that he hasn't seen. The Orders
11 speak for themselves and are part of the record, but we're not
12 developing relevant facts, in my view, for the Commission to
13 base a Decision on with Mr. Walj e not having that assigned
14 responsibili ty wi thin the Company.
15 COMMISSIONER SMITH: And, Mr. Budge, I think your
16 point has been made, and, you know, he gave you the first ten
17 years but we did those anyway, so if this is the same point,
18 then the Commission will take notice of these Orders.
19 MR. BUDGE: Yeah, to expedite it then, if, just
20 for purposes of the record, if the Commission would note on
21 page 8 of Order 30482, Exhibit 246, the Order states: The
22 curtailment valuation for Monsanto is based on a black box
23 determination with no party accepting a specific methodology
24 for setting value.
25 And then with respect to Order 30783, which was
197
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.25
1 in the 2009 case approving a settlement with other parties,
2 that Order is quite specific that Monsanto was not a party to
3 that Stipulation --
4 COMMISSIONER SMITH: Okay.
5 MR. BUDGE: -- and, therefore, did not agree to
6 any specific methodology.
7 COMMISSIONER SMITH: Thank you.
8 Q.BY MR. BUDGE: Mr. Walje, is the Company
9 contending that these Settlement Stipulations entered into with
10 Monsanto and others to settle the cases in 2006, -7, -8, and -9
11 where the Commission found the rates to be fair, just, and
12 reasonable, is the Company contending that that was not the
13 case?
14 A.No, we agreed at that point in time that the
15 rates were fair, just, and reasonable, but also noted that we
16 had accepted not receiving full compensation for some of the
17 energy we provided Monsanto.
18 Q.And you don't dispute that in each of those
19 Settlement Stipulations, there was no specific cost of service
20 methodology adopted by Monsanto nor adopted by the
21 Commission?
22 A.I agree.
23 MR. BUDGE: No further questions for this
24 wi tness. Thank you for your indulgence.
COMMISSIONER SMITH: Thank you, Mr. Budge.
198
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
20
25
1 Wi th unbridled optimism, I ask Mr. Purdy if he
2 has questions.
3 MR. PURDY: Well, I don't mean to dash your
4 hopes: I just have a couple.
5 COMMISSIONER SMITH: Okay, that's it. We'll go
6 to lunch. We'll be back at -- can we do it in an hour -- 1:40.
7 That allows time for slipping on the ice and the snow,which
just started falling at noon.
We're adjourned till 1: 40.
(Noon recess. )
COMMISSIONER SMITH:We're ready to get started.
8
9
10
11
12 If you could take your seat, I'd appreciate it. When we broke
13 for lunch, we were continuing the cross-examination of
14 Mr. Walje. Mr. Purdy.
15 MR. PURDY: Thank you.
16
17 CROSS-EXAMINATION
18
19 BY MR. PURDY:
Q.Good afternoon, sir.
21 A.Good afternoon.
22 Now, if I understand, you're not only presidentQ.
23 of Rocky Mountain Power, but you sit on the PacifiCorp
24 Foundation board of directors and PacifiCorp board as well. Is
that correct?
199
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 A.I am on the PacifiCorp board of directors, and
2 I'm chairman of the PacifiCorp Foundation.
3 Q.All right, thank you. I want to ask you a few
4 policy-related questions pertaining to the Company's low-income
5 weatherization assistance program. Given your high level
6 wi thin the Company, I assume that you don't make the day-to-day
7 types of decisions that are made with respect to that program,
8 but are you generally made aware of what the program is and how
9 much it's funded every year?
10 A.I do have a general awareness of the program and
11 level of funding.
12 Q.All right. And I think your testimony stated
13 that you are responsible for the states of Idaho, Utah, and
14 Wyoming. Correct?
15 A. Correct.
16 Q.All right. Do you know whether, in any given
17 rate case such as this one when the Company makes a proposal
18 wi th respect to funding or conditions of the low-income
19 weatherization program -- who it is within the Company that
20 makes that final decision, final proposal?
21 A.I would say it's a j oint decision between me and
22 several other of the executives, particularly associated with
23 customer service and our community relations.
24 Q.Aside from you, who would that be? Who would
25 those be?
200
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 Vice president of customer service is KarenA.
2 Gilmore.
3 I would also confer with our regulatory staff,
4 vice president of regulation, Jeff Larsen. Ted Weston.
5 Basically, we'd have a discussion about what would be the
6 appropriate level from our perspective.
7 All right. And as a company wholly owned byQ.
8 Berkshire Hathaway and given that that entity owns a number of
9 utili ties throughout the nation, does Berkshire pass down to
10 its various utility companies any type of a template or a
11 directive with respect to how to fund and manage low-income
12 weatherization programs?
13 To my knowledge, it does not. We willA.
14 occasionally confer with our colleagues at MidAerican Electric
15 Company in Iowa, but there is no directive from outside of the
16 executi ve management of PacifiCorp and Rocky Mountain Power.
17 All right. And given that PacifiCorp, of course,Q.
18 operates in multiple jurisdictions, is there an overarching
19 directi ve to the various entities -- Rocky Mountain Power,
20 Pacific Power and Light in Washington, for instance that
21 also pertains to funding or conditions of a low-income
22 weatherization program?
23 As far as I know, there are no standards orA.
24 policy decisions. It really is left up to the circumstances
25 associated with the management in that area and the perceived
201
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
20
21
22
1 need and how those acti vi ties are funded.
2 Q.Are you aware of the funding levels in other
3 any other states that PacifiCorp operates in compared to
4 Idaho?
5 A.I do not have that information at hand.
6 Q.I'm sorry, could you repeat that?
7 A.I do not have that information with me; be
8 readily easy to get. But, no, I do not have either the gross
9 amount or the per-customer amount that we provide in the other
10 states.
11 Q.Do you have any sense at all how Idaho compares
12 to PacifiCorp' s other jurisdictions?
13 A.My understanding is, right now, Idaho does not
14 have legislation that helps support the low-income programs,
15 but it's about $3, I believe, in our other states.
16 Q.All right. I think you might have jumped to a
17 separate topic. Now, are you talking about when you say
18 "legislation," are you talking about bill assistance as opposed
19 to weatherization?
A.Correct.
Q.I'm sorry?
A.Pardon me. I'm a little bit confused. You're
23 talking about low-income weatherization?
24
25
Q.Yes, I was.
A.Okay. I do not know what our weatherization
202
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 program is in Idaho compared to the other states. Carol Hunter
2 would have that information right at her fingertips.
3 Q.Cheryl Hunter?
4 A.Carol Hunter, our vice president of demand-side
5 management programs.
6 Q.That person is not -- has not filed testimony in
7 this case?
8 A.She has.
9 Q.Okay.
10 A.She will be a witness later in the proceeding.
11 Q.I'm sorry. All right.
12 And you did jump ahead to another question I had,
13 which was that you are aware, are you not, that in at least one
14 or two other states that your Company operates in --
15 PacifiCorp, that is -- there are also low-income bill
16 assistance programs, as well as weatherization?
17 A.Correct.
18 Q.All right. As president of Rocky Mountain Power,
19 is it fair to say that you look at any cost-effective
20 demand-side management program as being a desirable resource to
21 maximize?
22 A.I believe that -- well, that's not a simple
23 question to answer, because different states have different
24 standards of whether it is a prudent, cost-effective program or
25 not. There are at least five different measurements of
203
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 prudence. Some states apply all five, others don't. So I
2 don't think I could make a blanket statement that anything
3 that's cost effective without understanding how those various
4 measures are applied. There is some comparison to our other
5 options to provide energy. There are new generation or new
6 transmission. It all needs to be taken and is in our
7 integrated resource plan. So we don't look at these things
8 necessarily standalone.
9 Q.Well, you have been operating a low-income
10 weatherization program in Idaho for a number of years now. Are
11 you suggesting that it's not prudent or cost effective?
12 A.No, I didn't talk about that specific program.
13 You asked me if there was any demand-side management program
14 that was cost effective, and that's too much of an open-ended
15 question for me to give you a direct answer to.
16 Q.All right, fair enough. Do you believe that your
17 low-income weatherization assistance program for Idaho is a
18 prudent and cost-effective resource?
19 A.I do.
20 Q.All right. And you are aware, I assume, given
21 your involvement in setting the funding level for that program,
22 that you're currently funding up to an annual amount of
23 $150,000. Is that right?
24 A.Again, Ms. Hunter can verify that number. We
25 have 36 demand-side management programs in six states that we
204
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
20
1 oversee, and I don't know the details on all 36 of them.
2 MR. HICKEY: Mr. Purdy, just so that
3 COMMISSIONER SMITH: Mr. Hickey.
4 MR. HICKEY: If I may, Chairman, I believe it's
5 actually Barb Coughlin is the witness that these particular
6 questions would be best addressed to, and have her testimony
7 available if you need another copy of it.
8 MR. PURDY: I appreciate that, Counsel. I don't
9 know if that was an obj ection or not.
10 MR. HICKEY: It wasn't. It was an effort to try
11 to be helpful, but if it wasn't, so be it.
12 MR. PURDY: Thank you. I am asking the witness
13 policy questions.
14 Q.BY MR. PURDY: And my understanding, Mr. Walje,
15 is that you, along with a couple other executives, do or are
16 invol ved in the decision in any given rate case of what level
17 of funding to propose for a low-income weatherization program.
18 That's correct, is it not?
19 A.That's correct.
Q.All right. You just don't know if your current
21 funding level is capped at $150,000 in Idaho?
22 A.I do not. Again, I apologize. I thought we were
23 back still on the low-income weatherization program, not the
24 assistance.
25 Q.Do you know what the Company pays out in
205
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 executive bonuses every year?
2 A.I do not.
Do you know what the Company's gross operating
4 revenues for the test year subj ect to this rate case is?
3 Q.
I don't, but Mr. McDougal can answer those
Do you know what the Company's proposed revenue
8 requirement in this case is?
20
21
22
5 A.
I do.
And what is that amount?
24.2 million. 24. 7, I apologize.
I'm not asking for the proposed increase. I'm
13 as king for your total, your overall revenue requirement.
I do not have that information at hand.
What is your proposed increase?
It's 12.6 percent --
And that amount --
-- on average, across all customers.
That amounts to how many dollars?
24.9 million.
All right. All right. So from a strictly policy
well, strike that.
23 It's true, is it not, that the Company is
6 questions.
7 Q.
24 proposing to not increase low-income weatherization assistance
9 A.
25
10 Q.
funding in this case a single penny?
206
11 A.
12 Q.
14 A.
15 Q.
16 A.
17 Q.
18 A.
19 Q.
A.
Q.
standpoint
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)~P
.
.
.
1 A.Correct.
2 And as the president of Rocky Mountain Power,Q.
3 given that you are asking for 24 or whatever million dollars in
4 increase in rates every year, that you are funding -- and let's
5 assume for the sake of argument that I am correct, it's
6 $150,000 a year for low-income weatherization funding -- does
7 that give you any heartburn at all that that amount is such a
8 small fraction of what the Company pulls in in rates every
9 year?
10 Well, I do understand the impact of a priceA.
11 increase on those with a low income and we don't look at that
12 at all lightly. But we haven't done and I have not done a
13 thorough analysis of how many people fall into that category,
14 how many people -- what the funding would need to be to hit
15 some sort of percentage, or other items. That proposed amount
16 was proposed by the folks who work with you and others as they
17 thought a reasonable amount to ask for in this case.
18 But you made that -- you participated in makingQ.
19 that decision without -- without doing any kind of evaluation.
20 Is that what you just testified?
21 No, I'm assuming that the people who made theA.
22 proposal made the analysis.
23 Q.You're assuming that?
24 A.Yes.
25 Q.All right.
207
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 MR. PURDY: That's all I have.
2 COMMISSIONER SMITH: Thank you, Mr. Purdy.
3 Mr. Williams or Ms. Davison.
4 MR. WILLIAMS: Thank you, Madam Chairman.
5
6 CROSS-EXAMINATION
7
8 BY MR. WILLIAMS:
9 Q.Good afternoon, Mr. Walj e.
10 A.Good afternoon.
11 On page 13 of your direct testimony at line 3,Q.
12 you make the statement that after completion of current
13 projects, no investments in new Company-owned generation is
14 planned until 2014.
15 So I just wanted to briefly explore that
16 statement in conjunction with your all-source competitive
17 bidding process that is somewhat in a rapid phase. Would you
18 agree with that?
19 A.Yes.
20 And you're seeking about 1,500 megawatts of newQ.
21 generation, total Company. And, correct me if I'm wrong, but
22 the decision will be made moving forward with resources
23 probably sometime the summer of 2011. Is that correct?
24 Yes, probably sometime in that time frame,A.
25 perhaps a bit sooner.
208
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 Q.Okay. And is ita correct assumption that a
2 significant portion or even all of those net potential resource
3 additions is covered by what I would call self-build options?
4 I know you're looking at more than the self-build world, but
5 wouldn't you have close to that number of self-build options
6 also being evaluated in that Rand P process?
7 A. I believe that we are looking at potentially two
8 options. Mr. Teply could verify and elaborate on that.
9 Q. Well, let's just take one of them, which might
10 be -- well, we don't even have to name it. But if you selected
11 the self-build option in that process and that decision is made
12 this summer and you start that investment, how does that
13 movement forward on that project in 2011 square with your
14 statement in your testimony that there's no investments in
15 Company-owned generation until 2014?
16 A.Well, I guess to clarify, in 2014, that asset
17 wouldn't be used and useful and we wouldn't be bringing that
18 forward to the various regulatory bodies for recovery, and it
19 would depend upon the payment schedule for whoever built the
20 proj ect when cash would actually be expended by the Company.
21 So that's a distinction I would make.
22 Q.Some of the bids coming in May include progress
23 payments that you would make on what would be named a build
24 transfer type of project, is that correct, even if it was a
25 third party?
209
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 A.Certainly, yes.
2 So even if there's -- whether it's a buildQ.
3 transfer or self-build, you would not intend to -- you would
4 not be seeking any rate recovery for those assets until after
5 the year 2014?
6 A.Roughly in that time frame.
7 And you wouldn't be seeking construction work inQ.
8 progress for a self-build option prior to that?
9 I don't know whether construction work inA.
10 progress is a feature of the Idaho regulatory environment. I
11 don't believe it is in other regulatory environments.
12 But even if it was, it was not your intention toQ.
13 seek early rate recovery for any of those assets under
14 construction?
15 I can't answer at this point in time. I don'tA.
16 believe it's in our ten-year plan, so the answer would be I
17 expect "no," but I don't want to preclude that change in
18 posi tion at some point in the future.
19 But your position in your testimony is that thereQ.
20 be no investments in Company-owned generation. We would maybe
21 change that going into rate base until 2014?
22 A.Correct. I think that is a more accurate
23 statement, that it will take two to three years to build any of
24 these proj ects, whether it's a self-build or third-party build
25 owned transfer. Heretofore, we haven't brought those in for
210
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 construction work in process.
2 Q.Okay.
3 MR. WILLIAMS: No further questions.
4 COMMISSIONER SMITH: Thank you.
5 Mr. Olsen.
6 MR. OLSEN: Thank you, Madam Chair.
7
8 CROSS-EXAMINATION
9
10 BY MR. OLSEN:
11 Q.Good afternoon, Mr. Walj e.
12 A.Mr. Olsen.
13 I'd just like to have you turn to page 3 of yourQ.
14 rebuttal testimony, and beginning on line 2, you provide a
15 response in why the Company is seeking, you know, a rate
16 increase in these difficult economic times. Just ask you a
17 general question:
18 Why shouldn't the payments or the recovery that
19 Rocky Mountain is seeking be dependent on the status of the
20 economy that your ratepayers are facing right now?
21 Well, I guess that what we need to be able to doA.
22 is secure the financing to make these proj ects happen, and
23 they're long lead time proj ects. Some of the transmission
24 projects can be five to seven years, power plants three years,
25 and in order to encourage people to make those contributions to
211
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 build those assets, they have to be able to be assured of some
2 level of return.
3 And so it's unfortunate that we're in a build
4 cycle at the same time we're in one of the worst recessions in
5 a long period of time, but I think in order to assure we have
6 the cash and that people are willing to fund this program, we
7 can't just start it and stop it. And we've basically looked at
8 all opportunities we have to reschedule some of our bigger
9 proj ects and those that we have a shorter lead time on --
10 distribution proj ects -- we've moved out. So we have tried to
11 take into account the economy and load growth associated with
12 it in our overall ten-year plans. But once these proj ects
13 start, and several of them started before the recession, it's
14 very important that we continue to build them, and some of them
15 we may not even get restarted if we don't continue.
16 Q.Now, further on in page 3, beginning on line 6,
17 you talk about these expenditures and the planning process that
18 you have, that it takes years of planning and execution. Is
19 that where the IRP comes into place?
20 A.Yes, the IRP is a two-year process where we
21 update our load forecast, the resources we have available and
22 the resources we think we're going to need into the future, and
23 that does serve as the basis for our planning to meet
24 load-serving requirements.
25 Q.Now, Mr. Walj e, are you familiar with the
212
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 irrigation load management programs that Rocky Mountain Power
2 has?
3 A.I am.
4 Q.Okay. Isn't -- aren't those programs considered
5 in the IRP?
6 A.They are.
7 Q.And considered part of the resource mix, albeit
8 not on supply side but on demand side part of the ledger, I
9 guess?
10 A.They are, as all of our other demand reduction
11 and energy efficiency programs are.
12 Q.Okay. To the best of your knowledge, has the
13 irrigation load management program evolved over the last ten
14 years?
15 A.It has.
16 Q.Okay. And just, you know, starting back in '02
17 from the simple timer program to where it is now, hasn't it
18 been considered a tremendous success?
19 A.I believe it's been successful, yes.
20 Q.Okay. Now, given your position on these
21 long-term planning issues that the Company is considering right
22 now and the status of the economy, do you think that the
23 planning and development and the execution of the Idaho
24 irrigation load management program should be set aside until
25 the economy improves or you get funding for that program?
213
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
20
1 A. I believe that, as we expect all of our
2 demand-side management and energy efficiency programs, that
3 they be funded concurrently with the expenditures like they
4 have traditionally and shouldn't be necessarily set aside.
5 Those programs still require some investment and new equipment
6 and other things that require investment, so we can't just, I
7 think, put all of that in abeyance.
8 MR. OLSEN: No further questions, Madam Chair.
9 COMMISSIONER SMITH: Mr. Woodbury. Oh, Mr. Otto.
10 MR. OTTO: Yes, I'm still hiding back here.
11 Fortunately, though, I think everybody else has covered it, so
12 I have no questions for Mr. Walj e.
13 COMMISSIONER SMITH: Okay. Thank you very much.
14 THE WITNESS: Yes, thank you, Mr. Otto.
15 (Laughter. )
16 MR. WOODBURY: You might think there are no more
17 questions, but there are.
18
19 CROSS-EXAMINATION
21 BY MR. WOODBURY:
22 Q.Mr. Walj e, directing your attention first to I
23 think they were Monsanto Exhibits 239 and 240, those were off
24 of the Company's Web site, I believe?
25 A.Yes.
214
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.25
1 Q.And pages -- page 3, the maps in each exhibit,
2 239 shows a map where the line extends to Crystal?
3 A.Yes.
4 Q.And that -- the publication itself shows a date
5 of February 2010, but it's not really indicated when that map
6 reflects a planning decision. Is that prior to February
7 2010?
8 A.Yes, this design was conceived of in the late
9 2006, early 2007, and this was our plan program at that point
10 in time. It wasn't finalized until I believe sometime in the
11 first part of 2007. Mr. Gerrard, I think, can verify the
12 timing.
13 Q.Okay. So this reflects the Energy Gateway
14 project as of 2007?
15 A.I believe that it hasn't varied some. I'd have
16 to go back and see what actual map we had in 2007, but it looks
17 familiar. We have had another discussion about segment H not
18 going to Captain Jack but going up towards McNary, so some of
19 those projects.
20 Q.That's reflected in the Exhibit 240?
21 A.Right.
22 Q.Other than the deleted portion, could you
23 indicate why the planned transmission from Hemingway to Captain
24 Jack is now -- is now a line under consideration, it's sort of
a derating in the plan process?
215
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 A.Well, we -- I believe, again, Mr. Gerrard can
2 verify this -- but we need to be able to have a line all the
3 way into our service territory in the Pacific Northwest to gain
4 the full advantage of the other investments.
5 Q.It's not an interim step to deletion?
6 A.Well, I think that in all cases as we get more
7 information, whether it be cost, line routing, public
8 opposi tion, load growth factors where some generation shows up,
9 we will always adjust our plan and what other projects might
10 come to pass. We always approach other utili ties and other
11 line developers about options for joint ownership, other
12 share -- cost sharing examples, so it would be, I think,
13 prudent for us to take a look at those changes as they come
14 forward on a proj ect of this duration.
15 Q.Looking at your direct testimony on page 12,
16 around line 17 --
17 A.Which page, please?
18 Q.Page 12, line 17, direct testimony.
19 -- and speaking of -- you said: Many long lead
20 proj ects have a multiyear development phase.
21 And you're speaking, I guess, in general terms of
22 Energy Gateway.
23 And you go on to indicate some of the timelines
24 for the Energy Gateway project, and Gateway West, originally
25 planned for 2014, is perhaps extended to 2018, and Gateway
216
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 South from originally 2013 to a time period of 2018 to 2020.
2 And are there -- Populus to Terminal is just one of three
3 segments in Gateway Central.
4 Has there been any delay in the proposed
5 development of the other two segments?
6 There has been no delay in the Mona-Oquirrh line.A.
7 That's one of the two components in Gateway Central.
8 The other piece of Gateway Central is under
9 construction today, I believe, if we're talking about Camp
10 Williams to 90th South.
11 The other dates have slipped to accommodate a
12 couple of things: One, changes in load growth; but also delays
13 in permitting and difficulty in citing the transmission lines
14 in certain areas.
15 You state at line 20 that because of publicQ.
16 opposi tion to transmission lines in particular, the Company may
17 not be able to restart some delayed proj ects.
18 Has that happened to any of the Gateway energy
19 segments?
20 It has not, but we haven't stopped or delayed anyA.
21 of the Gateway segments.
22 I can just say as somebody who does public
23 meetings in three states with community leaders, elected
24 officials, and others, there's a great deal of opposition to
25 any line routing in some locations; and if you can get them
217
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 built, you need to get them built. Otherwise, I think you do
2 run the risk of not being able to complete the proj ects.
3 Q.The Company applied for a Certificate for the
4 Populus to Terminal in Idaho?
5 A.Correct.
6 Q.Did you apply for a Certificate for that segment
7 in any of your other states?
8 A.In Utah.
9 Q.And do you know whether or not that was a
10 requirement in Idaho?
11 A.I do not believe it was a requirement. I believe
12 we did it for information, but I'm not sure.
13 Q.I think you're correct. Do you intend to require
14 a Commission Certificate in Idaho for any other portions of the
15 Energy Gateway transmission proj ect?
16 A.Yes. We will be bringing any other segments that
17 affect Idaho in to the Commission for consideration.
18 Q.Looking at your direct testimony on page 1, you
19 speak of your responsibilities as president of Rocky Mountain
20 Power, and that you have a responsibility for ensuring that the
21 Company's strategy, infrastructure investments and operations
22 resul t in deli very of service.
23 Do you participate in the development of strategy
24 or do you just implement it?
25 A.No, I participate in transmission, and in
218
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 particular, there's a three-person board that oversees our
2 maj or transmission investments. That's Mr. Abel, my
3 counterpart in Pacific Power Pat Rei ten, and myself. And maj or
4 transmissions are discussed there.
5 For maj or generation decisions, Michael Dunn --
6 president of PacifiCorp Energy -- Pat Rei ten, and myself, and
7 Greg Abel have discussions with our power supply people about
8 which proj ects to implement, and to the degree we can because
9 of FERC restrictions, we try to figure out how to make that all
10 work cohesively in order to provide service to our customers.
11 Q.Do you participate or are you part of the
12 strategy team, I guess, of determining service to Monsanto?
13 A.I would say that we do not have a strategy team,
14 but I would say that in working with Mr. Dunn and people on the
15 power supply side of the business, we have a discussion about
16 the services that Monsanto provides, how that fits into our
17 overall plan, what the pricing should be. My emphasis is
18 primarily on making sure that there's an adequate supply of
19 electricity when Monsanto needs it for their operation.
20 Q.Does Mr. Paul Clements report to you?
21 A.Mr. Clements does not report to me.
22 Q.Who does he report to?
23 A.He reports up through our commercial and trading
24 organization I believe to Stacey Kusters, who reports to
25 Mr. Bird, who then reports to Michael Dunn.
219
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 Q.And then do you have -- did you play any role in
2 the negotiation sessions that occurred earlier this year as far
3 as oversight or input with Monsanto Company?
4 A.I did, yes; in fact, visited Monsanto's corporate
5 headquarters in St. Louis at the beginning of the discussions
6 about where to go with the next version of the contract.
7 Q.Are you aware that in these proceedings, there
8 was an oral argument that occurred on October 18th?
9 A.I am not.
10 Q.And you weren't -- you didn't attend that, did
11 you?
12 A.I did not.
13 Q.And did you subsequently -- well, there was a
14 transcript of those proceedings. Did the Company request and
15 were they provided with a copy, and have you reviewed the
16 transcript of this?
17 A.I don't know whether we requested a copy, whether
18 one was provided, but I have not reviewed that transcript.
19 Q.Did you meet with participants in that oral
20 argument or receive a summary of the hearing proceedings?
21 A.I believe I may have received a verbal update on
22 the proceedings, but I don't recall receiving a written
23 summary. I am directly engaged in the conversations about how
24 to proceed with Monsanto, so I -- but I don't know whether I
25 recei ved those specifics or not.
220
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 Q.Would you accept that there was a
2 characterization in that -- in those proceedings that -- well,
3 there was the Company's characterization in some of the filings
4 wi th this Commission that there had been ongoing negotiations
5 between the parties, and Monsanto in the Oral Argument stated
6 that there were no negotiations, only discussions; and that the
7 record in the transcript in that proceeding is on page 12,
8 reflects that Monsanto representative Mr. Clements began each
9 discussion with the same comment: We have no offer to make
10 you, number one; and, number two, I have no authority to make
11 an offer.
12 And my question is what kind of portfolio
13 authority do you provide your negotiators?
14 A.I would say that we provide our negotiators with
15 about the same portfolios of the average negotiating team. I'm
16 unfamiliar of a negotiating team in these settings that don't
17 have some requirement to go back and check their ideas or
18 progress with their superiors, and in this case that team
19 Mr. Larsen is a member of that team -- actually do the planning
20 and thinking and discussion with Monsanto to come back and say,
21 What do you think would be a reasonable thing to offer? And so
22 absent our final say-so, just like many negotiating teams, they
23 don't have the authority, necessarily, to close the deal.
24 Q.Okay. You indicate you play a role in developing
25 strategy for Rocky Mountain Power. Does the Company have a
221
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 uniform strategy for its three Rocky Mountain Power states, or
2 is it sort of a general overview but there are elements that
3 are different for each state?
4 A.I would say that there is a general overview.
5 The Company relies on six principles of management that we're
6 all expected to follow as we go forward. There is some
7 lati tude wi thin the various states for those solutions and what
8 we need to do in order to meet our obligation to serve that are
9 based on the growth in the state, the regulatory environment,
10 the Rules and Regulations, and the needs of that state. So
11 there is kind of an overarching approach to business that we're
12 expected to take, but we are then also expected to adopt that
13 and adapt it based on the needs of that state and those
14 customers.
15 Q.Is the Company's strategy with respect to Idaho a
16 matter of public record in the filings with the Commission as,
17 you know, part of that, I guess, being the integrated resource
18 plan filings at FERC and other organizations?
19 A.I would say, yes.
20 Q.I was just listening to your answers with respect
21 to the CAPAI agencies.
22 A.Uh-huh.
23 Q.Would you agree that what may be a reasonable
24 price may not be an affordable price to your customers?
25 A.For some customers, I expect that's true.
222
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 However, I can point out that during the recession, our bad
2 debt write-offs have not increased because of our outreach
3 efforts to make sure that they take advantage of programs, and
4 also that we provide them with payment programs. And so we
5 have taken many actions to try to respond to individual
6 customers when they have challenging circumstances.
7 Q.You're talking about your uncollectibles have not
8 increased
9 A.Uh-huh.
10 Q.wi thin the last couple of years?
11 A.Or a minimal amount, very little in Rocky
12 Mountain Power.
13 Q.On page 3 of your direct testimony, you state the
14 Company's desire to send price signals to customers so that
15 they can make sound economic decisions regarding efficient
16 energy usage.
17 Have you read and are you familiar with the
18 testimony filings in this case?
19 A.I have not read all of the testimony, nor the
20 filings in this case.
21 Q.Are you familiar with the testimony and filings
22 of Marilyn Parker for Commission Staff?
23
24
25
A.I am not.
Q.Okay. Would you accept that she submitted
testimony regarding the Company's turn-off policy between
223
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 customers, and the Company has a policy that it allows the
2 meter to run until it reaches a certain level before it goes
3 and does a readout? Would you accept that?
4 A.Yes.
5 Q.Okay.
6 A.I don't have any independent verification, but
7 I'll accept it.
8 Q.And so I understand in the Company's Response
9 that they have made a -- they do that for cost reasons, that it
10 would cost more to send a meter reader out than it would to
11 just, I guess, burn the kilowatt hours. But to the extent that
12 you want your customers to have appropriate price signals and
13 behave in a responsible fashion, how does that translate to
14 your own internal policies?
15 A.Well, I think our own internal policies is to do
16 the thing that's most cost effective for customers, and if it's
17 to not send someone out, take a two-hour labor cost and to
18 disconnect a meter, versus to let it run for a while, that
19 decision really is a cost benefit decision on what customers
20 will end up ultimately paying for.
21 Q.On page 6 of your testimony, you speak of
22 Standard and Poor's credit assessment of the Company?
23
24
25
A.Yes.
Q.And -- page 6 of the direct testimony.
Is the Standard and Poor's isn't the only
224
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 rating agency for the Company. Moody's and Fitch also provide
2 ratings?
3 A.Correct.
4 Q.And is the Company generally satisfied with the
5 accuracy of their assessments?
6 A.Generally. We don't agree in all parts on all
7 aspects of their rating.
8 Q.And is a fee paid to the rating agencies for
9 their credit assessment?
10 A.I do not know.
11 Q.Who would know?
12 A.Mr. Williams.
13 Q.Okay. Would you accept that -- are you generally
14 aware of the financial, I guess , meltdown wi thin Wall Street
15 and the industry?
16 A.I've heard about it.
17 (Laughter. )
18 Q.BY MR. WOODBURY: And the role of the rating
19 agencies and the criticism of their role?
20
21
A.Yes, I am familiar with that criticism.
Q.And that they're -- part of that criticism is
22 that they do accept fees from entities that they're assessing,
23 and that that's seen as a conflict?
24
25
A.That is seen by conflict from some for asking for
higher ratings than maybe they deserve.
225
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 Q.Page 8 of your direct testimony, you talk about
2 the investment proposed by the Company in this case are already
3 serving or will be before the end of 2010, and I know that
4 there were some resources that had online dates as recent as
5 today, I think. Were those dates met?
6 A.I don't know. I don't have the in-service date
7 of every capital investment we've made. I do believe that the
8 Populus-Terminal line came in on November 19th to completion,
9 but all of the other investments like Dunlap I think came in
10 already. There were investments beyond those that are smaller
11 magnitude. I'm not familiar with the in-service dates.
12 Q. You state on page 8 that some parties argue that
13 by delaying the inclusion of prudently-incurred costs to serve
14 customers--
15 And I'm assuming when "some parties argue"
16 this was your direct testimony filed before any of the
17 parties--
18 A.Right.
19 Q.-- filed in this case. Whose are you referring
20 to, other states?
21 A.Talking about other states and informal
22 conversations with other parties --
23 Q.Okay.
24 A.-- and conversations about why can't you delay
25 more of your investments so that we can mitigate the impact
226
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 based on the state of the economy. So, kind of general
2 conversations.
3 Q.Thank you. You state on page 8 also that
4 investments are either prudent or they're not, that costs of
5 those investments are either reasonable or they're not?
6 A.Correct. That's what we've applied for in this
7 filing.
8 Q.You would agree though, wouldn't you, that there
9 are other factors that the Commission takes into account, and
10 that's -- those are timing, and used and useful, with respect
11 to recovery of costs?
12 A.I understand that Commissions, at times, consider
13 those factors.
14 Q.That the Commission's economists? Is that what
15 you said?
16 A.No, I said I understand, at times, the
17 Commissions undertake and consider some of those factors.
18 Q.Thank you. And in the and in a decision
19 regarding used and useful, that they look at whether or not
20 that plant is beneficially of service to customers?
21
22
A.Correct.
Q.Okay. And you state that you believe that a
23 delay in recovery of costs is perceived by the Company to be
24 punitive?
25 A.Well, if we are investing hundreds of millions of
227
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 dollars and people say, "We don't want you to put that in rates
2 now," we are continuing to increase costs through AFUDC and
3 there's always a gap between when we put the proj ect in service
4 and it actually winds up being considered in end rates. And so
5 I think my conversation was in that -- my testimony was in that
6 context.
7 Q.And you always have that regulatory gap or timing
8 difference in -- to the extent that you serve in multiple
9 states?
10 A.Correct, and we just try to not exacerbate the
11 situation.
12 Q.You state on page 10 that if the Company is
13 unable to achieve returns near the Commission-authorized
14 return, it will be forced to find other means to return
15 performance nearer to the allowed return and not just through
16 efficiency gains.
17 You're the Company's -- one of the Company's
18 strategists, I guess. What means will the Company look to in
19 Idaho to -- when you talk -- are you talking about a reduction
20 in operational expenses, customer service, deferred
21 maintenance?
22 A.We i d have to take a look at where the gap is
23 between what we asked for and what we think is a reasonable
24 amount. We take the revenue that we receive from our customers
25 as the baseline for establishing our budget. So, if customers
228
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 want to pay for a certain amount, then we actually then have to
2 match our expenditures and our strategies to what customers are
3 willing or able to pay for. And so then my comment is a more
4 general comment that since revenues establish our plan about
5 how to provide our service and which investments to make, we
6 have to understand what those revenues are going to be and what
7 they actually can fund.
8 Q.In your Idaho service terri tory, you don't have
9 smart meters for any residential customers, do you?
10 A.We do not, though we do have some time of use
11 meters.
12 Q.Is it in the Company's plans to install smart
13 meters in Idaho?
14 A.Not anytime in the future, because we haven't
15 found them to be economic for our service terri tory.
16 Q.Do you provide in any of your states smart meters
17 for residential customers?
18 A.We do not.
19 Q.On page 12 of your direct testimony, you state
20 that the Company has scaled back local transmission and
21 distribution capital expenditures from previously planned
22 levels to more closely match revised load growth projections.
23 What, in particular, are you referring to?
24 A.Particularly, I'm referring to some local
25 transmission investments and some distribution substations that
229
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
20
21
1 were actually required in the state of Utah and Wyoming. Some
2 of the Wyoming customer corrections are transmission voltages,
3 so some of that has been evolved as the economy's affected
4 those customers and their potential plans.
5 Q.Are you talking about any cutbacks in Idaho?
6 A.Not at this point, no.
7 Q.On page 12, you state that some argue that the
8 Company should reduce its capital investment plan in response
9 to the economic recession. Who i s the "some argue" there:
10 Rating agencies? Persons wi thin the Company?
11 A.Basically, customers who don't like the number of
12 rate increases they have already experienced previously, were
13 feeling the pain of higher unemployment than there was prior to
14 our previous plan, and any number of public forums that I'm
15 invol ved in, and other rate proceedings in other states.
16 Q.On page 18, line 1, of your direct testimony, you
17 talk about historical loads, and state that -- speaking
18 particularly of 2008 to 2009 -- that there was a wet spring and
19 a 20 percent decrease in irrigation sales?
A.Yes.
Q.It's my understanding that 2010 was another wet
22 spring?
23
24
25
A.Correct.
Q.And how did that translate into irrigation
sales?
230
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 A.Irrigation sales were down still below historical
2 averages as we'd put it, but it did affect the loads to some
3 degree; though there's some indication loads went up a little
4 bi t this year as well, which we haven't completely understood
5 why, because it was, in fact, about the same weather pattern
6 this year as 2009.
7 Q.In your rebuttal testimony, page 2, you're
8 speaking of the core principles of the Company, I guess, of
9 which there are six; but you state that as a regulated utility,
10 our obligation to our customers is to control costs in every
11 way we can.
12 And I was -- you know, as I was preparing for
13 this case, I'm reading through, clearing up, and I noticed that
14 the Company had a -- an action in Oregon brought against it by
15 Rough and Ready Lumber. Are you familiar with that case?
16 A.I am not, in any detail.
17 Q.Would you accept that in that case, the County
18 Circuit Judge found that it was obvious that PacifiCorp was
19 oblivious to the actual costs being incurred during the
20 interconnection process and showed a lack of concern as to the
21 costs that they were charging, and if you could perhaps tell me
22 how that meshes with the core principles that the Company
23 follows with respect to its obligation to customers to control
24 costs in every way?
25 A.Well, I guess I would just start with my own
231
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 experience:
2 Last year, I didn't receive a pay increase.
3 Since MidAmerican has purchased our company, my
4 contribution to my benefits is now up to 20 to 30 percent of
5 the cost of medical service.
6 Our AIP is actually part of our base salary; we
7 took a reduction in that amount last year as a direct result of
8 trying to manage some of the impact; likewise, this year, did
9 the same.
10 I no longer have a fixed benefit of retirement, a
11 final average pay, which is very expensive and actually puts a
12 great deal of risk on customers.
13 So we've taken that market risk off of customers
14 and we have also run -- we've built ten new generation -- wind
15 generation -- plants and we have fewer employees today than we
16 did last year, and also brought on more transmission, more
17 substations. And we do all of these things more efficiently
18 and more effectively, and so those things that we can actually
19 put our hands on and control we do an excellent job, at in my
20 opinion.
21 I have no idea what the components of the Rough
22 and Ready case were. A judge can make any statement he wants.
23 That doesn't necessarily not mean that I understand what
24 aspects of the cost structure of that line extension he found
25 to be unacceptable. All I know is every single thing I do
232
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 every day is related to not making unnecessary investments and
2 managing those costs we keep our hands directly on.
3 We've invested in information technology where we
4 now handle a considerably larger number of telephone calls with
5 the same amount of employees we always did and I think provide
6 other customer service channels we did in the past.
7 So I would say of those things we can put our
8 hands right on, we've done a fantastic job of managing direct
9 operating costs.
10 Q.And I appreciate that. And I -- you know, I was
11 reading through your rebuttal testimony. You talk about the
12 reduction in work force since 2006 when MEHC took over, but
13 then, you know -- and as far as increasing employee
14 contributions for medical and other benefits and taking away
15 time off for them and deferring defined pension -- you know,
16 defined benefit plan for pensions was frozen and I'm just
17 wondering, how does this translate into your work force as far
18 as happiness?
19 A.Well, I can assure you when I first got the news,
20 I didn't go out and have myself a cold beer. I was
21 reassessing, actually, what my future was going to be.
22 The Company doesn't owe me. I'm not entitled to
23 a certain set of benefits or costs. And, in fact, I think our
24 obligation because our customers don't have choice, because we
25 get a certificated service terri tory, we have a higher level of
233
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 obligation to not have I call them gold-plated or
2 top-of-the-line benefits.
3 And so, yes, people weren't all that pleased
4 about it, but I do believe most of us understood why that was a
5 prudent thing to do for customers.
6 Q.Was this reduction in work force from almost
7 6,000 to the 5,650, was that split between management and union
8 equally, or
9 A. I believe -- I don't have the statistics in front
10 of me, but, for instance, when we've had hiring freezes, it
11 hasn't been related to our craft people, because we understand
12 they're the frontline people who do the work. And so
13 management level analysts, any of those sorts of people, it's
14 much more difficult to get them hired than craft people.
15 So, I don't know the statistics. I just know I
16 question every request for a nonunion employee and I basically
17 just go ahead and approve all linemen, estimators, call center
18 reps.
19 Q.In your rebuttal on page 3, lines 8 and 9, you
20 state: It is critical that rates reflect the current actual
21 cost of serving our customers.
22 Does including the cost in rates today to serve
23 customers in the future meet your critical obj ecti ve that rates
24 reflect the current actual cost of serving customers?
25 A.Yes.
234
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 Q.Is there any cost to meet future needs that
2 customers should not pay for today?
3 A.I don't believe so, because if we don't ask
4 customers in the future to make some of those investments
5 part of the reason we were able to keep our prices low and
6 almost flat and reducing in the '80s and '90s is because those
7 customers and Commissions made the decision to allow us to
8 invest in assets that were useful for a period of time and not
9 immediately useful.
10 So if I look at Populus-Terminal, we could easily
11 have built a 230 kV line somewhere, met our 300 megawatts of
12 obligation, but it would have been just the wrong thing to do
13 for our customers long term because you're probably only --
14 that's the only right-of-way I think you're ever going to get
15 through there again, and you needed to build an optimal size
16 line.
17 And so I do believe it's in customers' long-term
18 interests to fund those activities, even though we can't parce
19 and break up every single investment into the absolute
20 one-megawatt increments that would make them perfectly matched
21 with when consumers need them.
22 Q.Thank you, Mr. Walj e.
23 MR. WOODBURY: Madam Chair, Staff has no further
24 questions.
25
235
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (X)
RMP
.
.
.
1 COMMISSIONER SMITH: Thank you, Mr. Woodbury.
2 Do we have questions from the Commission?
3 COMMISSIONER REDFORD: No.
4 COMMISSIONER SMITH: Commissioner Kempton.
5 COMMISSIONER KEMPTON: Madam Chairman, I have a
6 couple. I think most of them have certainly been answered, but
7 I have just a couple left over.
8
9 EXAMINATION
10
11 BY COMMISSIONER KEMPTON:
12 Q.So, Mr. Walje, on your direct testimony on
13 page 13, there's a discussion there in the second half of the
14 page about the timing of when to go into proj ects: That
15 sometimes you start them at a time when the economy is good,
16 and then you go into periods of a not so robust economy, or in
17 the case of the period 2008 to the present to an economy that's
18 gone bust in many ways.
19 And then you speak further down about the fact
20 you have long-term obligations to serve growing loads, and the
21 time between a transmission or generation project's conceptual
22 inception and completion can exceed five years. It is
23 imprudent to stop and start projects that are in the permitting
24 process, which can easily take up to three years.
25 So I'd like to talk about two things: One, the
236
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)~P
.
.
.
1 permi tting process; and the second, proj ects that have already
2 been permitted and are in the process of being completed.
3 And so in the permit, recognizing that at each
4 one of those stages if you delay it, it's going to cost more
5 A.Right.
6 Q.-- grant that at the beginning of the
7 questions
8 A.Yes.
9 Q.-- but, Mr. Walje, don't you agree, or maybe you
10 would prefer to state your own position on this, that when an
11 economy goes down and the ratepayers who are involved in this
12 and there is no prospect for a short-term solution in the
13 economy, that there can be reasonable considerations in both
14 delaying permitting and delaying construction in progress?
15 A.Well, I don't know on any given proj ect what the
16 impact would be on a ratepayer and what the long-term versus
17 the short-term benefit would be. You would almost have to look
18 at each of those individually.
19 But I don't -- as somebody who's been in the
20 construction business, starting as a lineman in '72, you have
21 mobilization, demobilization. Even if you have your permits,
22 some of them have expiration dates. You have to have acti vi ty
23 underway at a certain point in time.
24 And so it's not just as clean as I have my
25 permi t, I have my right-of-way. In some states, you're not
237
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 allowed to use eminent domain or condemnation if you're not
2 proceeding on your proj ect, so you lose some of your --
3 potentially some of your property rights.
4 And so it's not as easy as just shutting things
5 down. And assuming that's going to have a significant benefit
6 to customers that outweighs additional costs, as you agree
7 happen later on, so you're putting a battle wave of additional
8 costs below the lowest cost solution, you know, to customers
9 into the future.
10 So what we try to do is pick those projects that
11 we don't think will have any of those construction issues or
12 large incremental cost issues, and we do reschedule them and we
13 do repriori tize them wi thin reason. But as somebody who, as I
14 said, have been involved in community and customer meetings in
15 all three of our states around transmission line siting, you
16 best build those things if you possibly can as soon as you can,
17 because they're the single hardest things we do is find a
18 location for transmission lines.
19 So I guess I wish I had a cleaner answer, but I
20 think in the end, my opinion is we're better off taking the
21 lowest-cost position on our projects now rather than implement
22 a higher-cost project. If our costs weren't going up already
23 and we didn't have all of these other investments, it might be
24 a different answer, but since, as our plan says, we already
25 have plans to spend 1.6 to two billion a year in the next ten
238
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 years, moving a couple, three hundred million into another
2 future year basically just exacerbates that unfortunate cycle
3 we're in of asking for increases in prices on a regular basis.
4 Q.Okay then, Mr. Walj e, would you agree that if
5 that's the philosophy that you adhere to, that you have adhered
6 to it in the cases of capital investment that you have made in
7 this rate case?
8 A.I would agree with that, yes.
9 Q.Mr. Walje, would you also agree then, or not,
10 that when you do this sort of thing and you're ahead of the
11 economy to the extent that you may be, that there may be a time
12 when used and useful becomes an issue because plant, in fact,
13 may be completed, but because of the economy or other
14 si tuations that preclude connecting proj ects that have to be
15 completed in order for the whole proj ect to perform as you
16 expected, wouldn't you agree, or not, that used and useful may
17 be a restriction that the Commission would have to consider in
18 terms of the rate case?
19 A.Well, I believe the Commission has quite a bit of
20 discretion to look at what we put in front of them. We like to
21 think that our case is strong and presents why we think this
22 level of price increase is appropriate. I recognize that it's
23 a large price increase at a time when there's a high level of
24 unemployment -- relatively high -- and -- but, again, we try to
25 take a longer-term view of what our obligation is, and if the
239
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 recession lasts two more years, does that mean we don't do
2 anything for two more years and then at some point we do wind
3 up in a position of perhaps not having adequate capacity or
4 supply?
5 So I think in the end for those bigger-ticket
6 items, the five-year permitting for the Gateway West proj ect,
7 for instance, we need to not back off that at all, in my
8 opinion, or that project is somewhat at risk. So, I understand
9 the Commission has some latitude; would ask it not to exercise
10 it in this case.
11 Q.Okay, Mr. Walje, on direct, page 19, bottom third
12 of the page, you say that Rocky Mountain's current overall
13 average Idaho price compares favorably to other US
14 investor-owned utilities, according to the Edison Electric
15 Insti tute, and that the Company's rates in Idaho have
16 historically been and will remain favorable even after
17 incorporating the price increase proposed in this Application.
18 How would you address the phrase "will remain
19 favorable" and, as a matter of fact, "have been favorable
20 historically and will remain favorable"?
21 A.I would address it by saying, first, we have a
22 relati vely large low-cost basis to grow from. The energy
23 policies in the three states in the Rocky Mountain Power are
24 basically, I think, a bit more frugal in some of the other
25 states. There is a reason why energy prices are higher than
240
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 other states because of policy decisions, resources that they
2 have or haven't made, and we always try to be very economic in
3 the decisions we make.
4 I think if you read some of the literature from
5 the rating agencies, what you'll find is the electric industry
6 in general is all going through a similar phase where there was
7 no transmission built for several years; people thought they
8 were going to build coal units, now they're pretty sure they
9 aren't; the al ternati ves to those lower-cost resources are more
10 expensive. And so the assumption is all of the other states
11 are likewise going to come out of the recession, electricity
12 growth is still going to happen, there's still large
13 proj ections for load increases across America by 2030. And so
14 those new resources will all be incrementally more expensive
15 than the embedded level we have.
16 So, our analysis is that even though our prices
17 are going up and going up, I would agree rather markedly, other
18 states are also going through a similar process and some asking
19 for significantly more in revenue increases than we are.
20 Q.Okay. And then on that point, would you look at
21 your rebuttal, page 7, lines 8 and 9?
22 A.Yes.
23 Q.Okay, so we don't want to do that. Wai t.
24 Okay, finally.
25 And on eight, you say -- and nine -- Idaho has
241
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 the benefit of some of the lowest electric prices in the
2 nation.
3 Do you still stand by that?
4 A.I do, yes.
5 Q.And so taking the testimony that you gave just
6 prior to this point that it has the lowest electricity prices
7 in the nation, do you believe that price is the only thing that
8 you should take into consideration in talking about the
9 benefi ts that Idaho has in terms of Rocky Mountain Power,
10 specifically considering the region you're in?
11 A.Absolutely not. I think we have also the
12 obligation to make sure that our facilities are safe, that our
13 reliabili ty is improving, that our customer service is beyond
14 acceptable.
15 We also have community managers that participate
16 in economic development activities in communities. I'm the
17 Chairman of the Economic Development Corporation of Utah, I'm
18 on the board of directors of the Wyoming Business Council,
19 which is their primary economic development corporation.
20 So we get involved in other ways other than our
21 low prices. But ,frankly, there's a land rush to our service
22 terri tory to build data centers, and they're coming there for
23 one reason: Our prices are considerably lower compared to
24 their al ternati ve locations.
25 All of those things are extolled by economic
242
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 development people. And I believe because we have physical
2 resources in all of our customers' yards, that we have the
3 obligation to be good environmental stewards as well. So I
4 think there's many things that we have an obligation to
5 provide.
6 Q.And when you talk about the low prices that
7 exist, do you also take into consideration on a national basis
8 the per-capita income of the residents of the population you
9 serve?
10 A.We haven't directly, but I do understand that the
11 Mountain West has a lower average per-capita income for the
12 most part than either of the coasts. I'm not that familiar
13 with Southeastern United States. We do do wage and market
14 surveys as part of our compensation program for our company,
15 but I'm not an expert and not well versed on, you know, the
16 per-capi ta wage in all states in the Union.
17 Q.And would you generally accept that in the region
18 that you serve, having good knowledge, I would say, of the
19 population, the employment base, and the incomes generally from
20 agriculture in that area, that while the your prices may be
21 in the top end, say top ten percent, prices in the United
22 States as far as the low side, that you would probably find
23 yourself in the middle of the United States, somewhere in the
24 mid-20s to 30 percentile at least for the impact to customers
25 because of the per-capita income level?
243
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
22
23
24
25
1 A.I think that may be the case, but I'd have to go
2 off and do a little more analysis.
3 Q.And I will admit that the numbers were very
4 obscure in terms of having data behind it, but I do know from
5 some of the numbers that have been provided in other
6 testimonies in other cases that the incorporation of the
7 consideration of per-capita income in conj unction with the
8 price of the power is a significant element in Eastern Idaho.
9 A.Well, I haven't done -- I have actually been on
10 the Idaho governmental Web site looking at average wages, say,
11 in Caribou County. There are a segment of employees in Caribou
12 County who average about $75,000 in the manufacturing business
13 and there are a segment in lower-paying wages, and those kind
14 of wages are comparable in BYU-Idaho. They have a little bit
15 higher average wage because of the Uni versi ty and the scale of
16 the employment there. So, I haven't really surveyed every --
17 every county that we serve, but have done some cursory review.
18 COMMISSIONER KEMPTON: Okay. That's all I have,
19 Madam Chair.
20 COMMISSIONER SMITH: Commissioner Redford.
21 COMMISSIONER REDFORD: Thank you.
244
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)~P
.
.
.
20
21
1 EXAMINATION
2
3 BY COMMISSIONER REDFORD:
4 You're the president and CEO of Rocky Mountain
5 Power?
6 A.Just the president. We don't have a chief
7 executi ve officer. That role is played by Mr. Abel at the
8 PacifiCorp level.
9 Q.And do you have -- your board members, are they
10 employees or -- excuse me, I'm screwing that up. Are they
11 employees of Rocky Mountain or PacifiCorp or Berkshire? How is
12 the board made up?
13 A.The board is all internal employees of
14 PacifiCorp. They come from our corporate functions, but
15 primarily from our three operating units: Rocky Mountain
16 Power, Pacific Power, and PacifiCorp Energy.
17 Q.Are there any members of your board of directors
18 that are from Berkshire Hathaway?
19 A.There are no outside directors at PacifiCorp.
Q.Thank you. I'm -- you have indicated that
you've you speak and are -- let me see if I can slow that
22 down.
23 COMMISSIONER REDFORD: Do I still get the
24 feedback? Are you getting the feedback?
25 MR. HICKEY: Just a little, yes. It's not bad.
245
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 COMMISSIONER REDFORD: Okay, how about now?
2 MR. HICKEY: Don't hear it.
3 Q.COMMISSIONER REDFORD: You've -- thank you for
4 that, for the answer.
5 Do you have any members that are employees from
6 Rocky Mountain that are on the board?
7 A.I'm a member of the PacifiCorp board of
8 directors, as is Mark Moench, the Rocky Mountain Power general
9 counsel who also serves as the general counsel for PacifiCorp.
10 Q.But you -- there is no board of directors of
11 Rocky Mountain Power?
12 A.There is not. We have a management team.
13 Q.So, really, Rocky Mountain Power is an operating
14 division of PacifiCorp?
15 A.Correct.
16 Q.And I'm just -- you've stated generally that you
17 participate in outreach programs, economic groups, and so on
18 about the difficulties that you're finding in your business, as
19 well as the economy.
20 I'm wondering, how do you justify such a capital
21 large investment program when you have such a large retained
22 earnings and that there aren't dividends? It seems, to me,
23 that some of these people might be concerned that you're going
24 to be using the retained earnings or not paying any dividends
25 on the basis that you might want to overcapitalize your
246
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 proj ects.
2 A.All I can say is I disagree with that position.
3 We absolutely try to, in spite of what some may think, we do
4 not have an unlimited budget from Berkshire Hathaway that will
5 just grant us down any amount of capital that we think we might
6 need. We do have restrictions, because PacifiCorp is a
7 standalone reporting entity to the SEC and so we have to meet
8 the standard financial metrics. And so the only reason we are
9 take -- not paying dividends and we're retaining those earnings
10 and putting them back in the investments for customers is
11 because we think we need to do that to provide the lowest-cost
12 financing to get that work done.
13 Q. In your dealings -- that is, with PacifiCorp
14 are you directed or are you, by Berkshire Hathaway or your
15 parent I'm trying to get MidAmerican and everything --
16 A. Right.
17 Q. -- those you report to -- are you given any
18 target or contribution to the overall operation of the parent
19 company as to what you're required to meet for the parent?
20 A.We do -- we are given some financial goals
21 basically to meet our obligation to serve: How do we go about
22 funding that, try to manage our operating costs. Operating
23 costs for Rocky Mountain Power have been flat. That was
24 somewhat directed from MEHC and that was helped -- we put that
25 in place to mitigate where we could direct the cost of the
247
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 price increases. But we're not necessarily given a target that
2 is not adj usted in certain years, so we --
3 Q.Well, what do you mean by, "not necessarily"?
4 A.Well, sometimes -- for instance, last year when
5 we did have the most direct impact on our company as a result
6 of the downturn in the economy and the reduction in
7 consumption, we adjusted our business plans accordingly
8 mid-year. But our ten-year plan basically lays out what
9 MidAmerican Energy Company's expect -- financial expectation
10 for our performance is, so, yes.
11 Q.So, in fact, you are given a directive as to what
12 your contributions are to the bottom line of your ultimate
13 parent company?
14 A.That, or adj usted on a yearly basis based on the
15 circumstances.
16 Q.And how does that fit wi thin your planning for
17 rate cases?
18 A.Well, one of the most important aspects of that
19 review is to calculate what we think the impact are going to be
20 on each of our states with that plan, and so putting together
21 if we do this plan, this will be the expected price increase
22 pressures on our customers. And we've adj usted our plan two or
23 three times in order to mitigate that somewhat. So we do, in
24 fact, directly factor into our planning what do we think the
25 price impacts are going to be for customers.
248
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 Q.And for your parent company?
2 A.Right now, our parent company is not receiving
3 any dividends, so what they want us to do is maximize operating
4 income that we can put back into the business so they don't
5 have to put more capital into the business, because right now
6 they've not taken a dividend and they have put down $900
7 million of cash equity, so --
8 Q.So that, in effect, is your TOD as it might be
9 stated for the parent company?
10 A.Correct.
11 Q.So it's taking from one hand, giving it to the
12 other hand, a little bit. We're not going to give it to you in
13 dividends and we're going to retain earnings, and this, on the
14 other hand, can be used to further our capital investment
15 programs?
16 A.All of those retained earnings go back to --
17 well, I would argue it's just the opposite. It would be if we
18 sent them money and then they sent us equity back, then you
19 would just be moving money back and forth. But right now,
20 they're foregoing any actual cash return in this business to
21 take that cash to meet our operating and construction
22 requirements, so I'd portray it that way.
23 Q.So from a tax standpoint, you don't view it as a
24 consolidated tax reporting?
25 A.I will have to turn that over to our treasurer,
249
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
20
21
1 Mr. Williams, because that has evolved a little bit in the last
2 couple years.
3 Q.So there is no revenue to your parent company at
4 all?
5 A.I don't believe so.
6 Q.Well, where does the revenue come from, and how
7 much is it?
8 A.It will be, across PacifiCorp, in the range of
9 about four billion.
Q.Four billion?
A.From customer electric consumption.
Q.And that goes back into the earnings of the
parent company?
10
11
12
13
14 A.No, it stays in PacifiCorp. We are a ring-fenced
15 organization, so we can't -- part of the repeal of PUHCA
16 required FERC to oversee the fact that as a holding company,
17 they can't actually take cash out of our business, that we have
18 to have a standalone financial relationship with our owners.
19 Q.And this is managed by FERC?
A.FERC is the oversight body, I believe, now.
Q.And you filed reports to FERC demonstrating that,
22 in fact --
23 A.We file to the SEC, and on occasion FERC audits
24 our actions.
25 Q.I don't think there's any question that we all
250
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 agree that this has been a tremendous last three years and for
2 everybody including consumers to corporations beside yourself,
3 and we've all had to do belt tightening and so on. And now
4 when this all started to evolve, I'm sure that your planning
5 process kicked into gear again to see where we're going to go
6 and where are we going to cut, and I'm interested that you
7 steadfastly stated that the Gateway proj ect is going to go?
8 A.Well, I have devoted hours and hours -- hours and
9 hours of my life, as have others of our employees, and there is
10 no plan for stepping back in any way right now.
11 Is there a potential that it doesn't get done?
12 Some transmission lines have been trying to get built for
13 15-plus years
14 Q.And probably longer?
15 A.And probably longer.
16 -- and some do get canceled, but right now, we
17 believe it's an integral part of what we need to do to serve
18 our customers at lowest cost. And so we don't want to walk
19 away from that or back down, because constant vigilance is the
20 only way it will get done.
21 Q.And without being trite, that's your position and
22 you're sticking with it?
23 A.Yeah. Well, I think we have to, or I think we
24 increase the risk that those proj ects won't get done at all.
25 Q.And the whole priority of your planning during
251
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 this recession period, I'm interested, where do you start? Do
2 you start by -- in the area of operations, maintenance before
3 you got to the point of looking at, for instance, Gateway?
4 No, I think the way I would portray it,A.
5 Commissioner Redford, is we estimate how much electricity we're
6 going to have to deliver and clear, and we identify whether we
7 have the resources in order to meet that future demand.
8 And then we look at any number of things: Energy
9 efficiency, demand reduction, transmission lines; we have
10 considered smart grid, we're not sure that's the right way to
11 go at this point; when we bring on larger or smaller traunches
12 of self-build generation or whether we go out for request for
13 proposal for a smaller increment; whether we do market
14 purchases. And so -- and we go through a very detailed
15 planning process year to year that we execute on, but the
16 foundation for all of that is our biannual integrated resource
17 plan.
18 So, when the recession hits, we adj ust our load
19 forecast by location and then we start thinking about, well,
20 what can we do in the plan, what is the right thing to do, for
21 the very reason that President Kempton raises: We still want
22 these assets to be timed as closely as they can be with when
23 the customers need them so that they're used and useful. The
24 problem is on some of the bigger ones you get a much lumpier
25 investment, and so those are the ones we try to stay pretty
252
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 adamant on moving forward.
2 But even with that, we have adjusted the power
3 plant and that we were thinking about building it lakeside in
4 Orem, Utah, or Juab County. We do think about, well, can we
5 delay that a year and start ita year later because it's a
6 little more tractable case, but when you come to transmission,
7 many more uncertainties about the process.
8 Q.When you start this process within PacifiCorp,
9 you say, Okay, everything is on the table, nothing is
10 sacrosanct, and we're going to look at everything, except
11 Gateway. Is that what you say?
12 A. No, we actually have adjusted some of the Gateway
13 dates based on the realistic outcomes of some of the
14 preliminary efforts on siting and permitting. You probably
15 heard about some of the opposition to the proposed line routes
16 between Idaho Power and us. Those things aren't going to get
17 resol ved readily or anytime soon. So if we don't keep
18 prosecuting those things with vigor, I believe that they won't
19 get done.
20 Q.How do you tell your customers and this
21 Commission and the public generally that as far as Gateway is
22 concerned as regards to criticism that, yeah, you're building
23 all these lines through Idaho and the other states from Wyoming
24 and you are going to produce power in Wyoming to send to
25 California and we get stuck with the bill? I mean, I'm sure
253
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 you've gotten that statement.
2 A.On many occasion.
3 Q.And what do you say?
4 A.I say, It's not true. I say, Simply stated, we
5 only build lines at PacifiCorp to serve retail customers.
6 We don't have any sideline commercial acti vi ties.
7 We don't have a plan to take Wyoming wind and ship it to
8 California to take advantage of renewable energy credit sales
9 or green power sales. We have about two percent of our load's
10 in California. It just so happens connecting into the
11 Northwest or Happy (sic) Jack, as discussed earlier, are the
12 right things to do from the overall grids perspective. All of
13 those sales that we put off, if we do have some renewable
14 energy credits that we can't sell, it's unclear whether
15 California is going to let you sell all of your renewable
16 energy credits to them anyways, so that's not something that
17 somebody would want to plan to do. But even if we do that or
18 we have excess capacity at times and do a wholesale sale, those
19 sales come back as direct credits to customer cost and reduce
20 their costs, so we actually don't make any money on those sales
21 anyway from our perspective.
22 Q.So the transmission lines that are -- which you
23 presently have and those that are in the pipeline are going to
24 be used specifically to provide power to the three or four
25 states?
254
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 A.Correct.
2 And the other thing I'd say is one of the reasons
3 the Utah/Pacific merger I believe turned out to be a valuable
4 thing for customers is the notion that you now have generation
5 resources in 14 states, 128 transmission interconnections. So,
6 you have di versi ty in fuel, you have di versi ty in geography,
7 you're protected from single-shaft failures to some degree.
8 States can do a little bit more around their own policy, and
9 those costs and again those allocations can be described more
10 directly by other witnesses than me, should only be going to
11 Idaho in proportion to its consumption of energy and its peak
12 demand. And so even though those lines are being built,
13 Idaho's share of the cost of those lines is roughly six
14 percent. So it's not as if Idahoans are paying for the full
15 cost of that line and we're taking RECs from California and
16 sending them somewhere else.
17 Do you -- when the Gateway line is finallyQ.
18 if itcompleted in its various iterations and so on, do you
19 was completed today, do you have the power to use all the
20 capacity?
21 A.We do not.
22 Q.How long will it take before you reach that
23 capacity?
24 A.That's a very good question. It depends upon
25 loads and our load forecast. I think that the -- that this is
255
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 integral for us to get done wi thin the next ten years, the
2 Gateway proj ect and the associated generation, to meet that
3 next traunch of load growth. And we think it's the best
4 long-term solution to take us out decades and not just a couple
5 of years by making these large investments now. So, I agree
6 that it's going to take some period of time before --
7 But by the same token, you're telling the IdahoQ.
8 and other states' customers on an allocation basis all of these
9 great things and you're going to need the power in the next ten
10 years, but, oh, by the way, you've got to pay for it now.
11 Your kids and your grandkids are going to needA.
12 the power as well, and it's an investment in their future.
13 Well, I think I've done about as good as I canQ.
14 for my kids.
15 I'm just trying to do my part to help.A.
16 Q. Okay. I've just got a -- I just want to get back
17 a little bit. Now, I think we've established that the Gateway
18 project, barring unforeseen issues, is pretty sacrosanct?
19 Well, we think if we are unable to build theA.
20 Gateway project, we will have to recraft an entire different
21 strategy to meet load growth of our customers.
22 And that would be by power purchases?Q.
23 It would be some power purchase. It would beA.
24 building generation closer to load, perhaps, more energy
25 efficiency. Some think we can make significant reductions in
256
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 future demand by significantly more expenditures on energy
2 efficiency. So we would have to look at all of the options.
3 Certainly, you're doing that now anyway?Q.
4 At a level that most customers are willing toA.
5 tolerate, yes.
6 On the other proj ects that weren't, as I said,Q.
7 sacrosanct
8 And maybe that's not the right term, but I think
9 you understand it.
10 Yeah, probably stronger than I'd put it, butA.
11 Those items that were on the table that were inQ.
12 your capital investment portfolio or plans, what kind of a
13 process do you use to start taking those proj ects in the
14 drawing stage or permitting stage to say, this is just -- we
15 just can't do this?
16 So far, we haven't run into that specificA.
17 eventuali ty where we've had to cancel or take out of our plan,
18 if you will, a significant piece of our infrastructure. It
19 could happen, but so far the thing that we've done most, as I
20 have mentioned, we have shifted a year or two the in-service
21 dates for a couple of our gas plants, really in direct response
22 to load growth.
23 So I guess what I'd say, Commissioner, is we
24 don't necessarily just stop things. We actually try to adjust
25 them. And, of course, that adjustment has a ripple effect on
257
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 all of the rest of our plans. And so on an annual basis and
2 sometimes in between, we try to assess which projects -- their
3 actual status. For instance, the record of decision on the
4 Gateway proj ect is a couple years behind where we thought it
5 was going to be with the BLM, so we have to adj ust other plans
6 in order to accommodate that.
7 Q.You used the term "significant." I'm just kind
8 of wondering how that plays with the public and others. You've
9 said, first of all, We're not going to do anything with Gateway
10 and we're not going to do anything with anything else unless it
11 has some significance; and yet you haven't found any of this
12 significance yet. So, what is "significant"?
13 A.Actually, I'd say "significant" is a distribution
14 substation or a ten- or 15-mile transmission line. And, yes,
15 we've found several of those that the Rocky Mountain Power
16 capital budget for distribution assets was cut $50 million last
17 year, and the year before that it was cut $30 million. And
18 some of those proj ects were pushed out and in other cases we
19 found a different way to do it. So we did, in fact, take $80
20 million out of our capital budget for those projects, again,
21 that didn't have as long of lead time and they were easier to
22 stop and start or relocate.
23 Q.Thank you for your tolerance.
24 A.I'm getting practiced up.
25 Q.Excuse me?
258
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 A.I'm getting practiced up.
2 Q.I'm -- earlier, you testified that you have no
3 AMI metering goals, at least in Idaho, and you're looking at
4 the whole area of smart grid. Can you tell me a little bit
5 more why you flatly turned down these meters, AMI meters, the
6 automatic metering instrument? What do you tell your peers
7 that are going all out in the area of smart grids, smart
8 meters, and so on?
9 A.Well, most of my peers that I talk to and have an
10 honest conversation with say, Gee, we wish you'd done -- we'd
11 done what you've done.
12 If you follow the regulatory treatment and the
13 success of the broad-scale MMI smart grid implementation that's
14 across the United States, nearly all of them are in some form
15 of cost, time, or regulatory duress, because it's unproven
16 technology, they're expensive meters. Just putting together
17 the data network is hugely expensive. And so as a former CIO
18 of the Company and a former CIO of ScottishPower, I have a very
19 I think direct understanding of the amount of data that's
20 required to be managed under the premise that if people have
21 some other information and other things, that that will not
22 only pay for itself , it will reduce cost elsewhere.
23 So we're not saying we'll never do AMI. The
24 standards aren't created yet. There's no firm vendor winner or
25 loser yet. There's still a great deal of regulatory
259
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 uncertainty. So all we're saying is we want to wait and see
2 and let others be the pioneers and go through all of the
3 learning curve problems, and then we'll be able to pick and
4 choose, I think.
5 Because smart grid is everything from acti vi ties
6 on the transmission system to a heads-up display on your
7 laptop, and so when we talk about smart grid, it could be
8 almost anything. So what we're doing -- and we have a smart
9 grid team that reports to me that's been put in place for two
10 years. I personally have visited five of the smart grid
11 proj ect, the bigger ones and more renowned ones. And there's
12 some exciting things and there's some valuable things that are
13 going to come. We just want to not be on the front edge of
14 making those decisions and bring something back to where we're
15 more comfortable, number one, we can deliver on, and number
16 two, customers will find it valuable to them.
17 Q.We use a lot of acronyms. What's "CiO"?
18 A.Chief information officer. I apologize for that.
19 So I was responsible for all of the information, technology,
20 computers, and software for ScottishPower' s international
21 business.
22 Q.Thank you. I have no further questions.
23 A.Thank you, Commissioner, and apologize to
24 President Kempton for not thanking him for asking questions as
25 well, so I lost my manners there for a minute.
260
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 COMMISSIONER SMITH: They must not have done a
2 great job if you're thanking them.
3 THE WITNESS: It's just -- it's a marketing
4 pitch.
5 (Laughter.)
6 COMMISSIONER SMITH: I knew it.
7
8 EXAMINATION
9
10 BY COMMISSIONER SMITH:
11 Q.So, I don't have a map of your service area in
12 front of me, but my recollection is it's pretty rural. Would
13 you agree with that?
14 A.I -- it's an interesting question, Chairman
15 Smith, because if you define "urban" as a population center of
16 50,000 or more, the Rocky Mountain Power PacifiCorp service
17 terri tory is actually a bit more urban than most.
18 Q.I'm talking about Idaho.
19 A.Well, I'm talking about Idaho as well. So if you
20 take Rexburg and Rigby and those locations, there are certainly
21 farmers, but if you're in Idaho Falls -- though we don't serve
22 them -- and the surroundings, that Idaho is probably the
23 exception to what I said. But in general, our three states,
24 it's a little more urban than most.
25 Q.Yeah, I'm just looking at Idaho. Utah and
261
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 Wyoming will have to take care of themselves.
2 A. Yeah.
3 And a long time ago, I suggested to one of yourQ.
4 predecessor companies that perhaps they should look at
5 divesting Idaho, because like you said, you don't serve Idaho
6 Falls, you don't serve Soda Springs, but there's lots of public
7 power out there serving there, and it just occurred to me that
8 it would be more efficient if these areas that you serve were
9 served by the adj acent public power entities. And this idea
10 didn't catch on. So, I'm trying it once more to see if it even
11 tweaks your interest in even the least amount?
12 Well, I can say that I've been privy toA.
13 conversations in the past on that very topic. Of course, there
14 is another solution to that: That is, we buy the municipal
15 companies because -- municipal systems because I don't
16 believe their rates are lower than ours, for the most part, so
17 customers would probably be better off if we purchased the
18 municipal systems than vice versa. But we'd have to take a
19 look at that.
20 But I do think, at times, I totally agree with
21 you as our sort of sliver of Idaho compared with other ways of
22 serving it, and we have had those conversations. But I think
23 in the end, we think we do a good job, we provide a good
24 service at a good price, and, in essence, it's the best thing
25 for our customers to remain our customers.
262
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
20
1 Q.Well, I don't know that all of your customers
2 would agree with you. I think one commenter suggested that
3 they ought to have the option of choosing Idaho Power over
4 Rocky Mountain Power, so maybe that's another way to look at
5 it.
6 A.I don't know what Idaho Power's tariffs are, but
7 I think they're a bit higher than ours, or somewhat lower.
8 Q.I would think you need to check again.
9 A.Well, in fact, if Idaho Power made us a good
10 offer, then I think we might consider it. You're right, I
11 apologize.
12 Q.Anyway --
13 A.Idaho Power is one of the few utili ties in
14 America lower than us.
15 Q.It's just fun to think outside of the box once in
16 a while, and you have a very good point that public power
17 doesn't necessarily have any better access to energy, and with
18 Bonneville's latest rate increase announcement it doesn't look
19 like it's going to get better.
A.Yes. And, Chairman Smith, I agree, and it goes
21 back to the point I raised with President Kempton. Every
22 utili ty, whether they' re private or public, is facing this same
23 issue: Lack of capacity, in some states more mandates on the
24 type of energy you have to use. And so everybody's electric
25 prices are, I think, headed up across the nation, and I know
263
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Com)
RMP
.
.
.
1 that not all of the publics have excess capacity and neither
2 does Bonneville, so
3 Q.Okay. Thank you.
4 COMMISSIONER SMITH: I think we need a break
5 until 3: 30, and then we'll do redirect, and then we'll do
6 Mr. Lanspery.
7 (Recess.)
8 COMMISSIONER SMITH: All right, we'll go back on
9 the record. We're ready for redirect.
10 MR. HICKEY: Thank you, Madam Chairman, just a
11 few.
12
13 REDIRECT EXAMINATION
14
15 BY MR. HICKEY:
16 Mr. Walje, I'd like to go back to some questionsQ.
17 that were asked --
18 COMMISSIONER SMITH: Is your mic on?
19 MR. HICKEY: Thank you for the reminder.
20 Q.BY MR. HICKEY: I'd like to pick up with a
21 question that was asked by the Industrial Customers and it was
22 in the context of the calendar year 2014, and you were asked
23 whether or not there would be any new resources coming on line
24 by 2014. Do you remember generally that area of examination?
25 A.I do.
264
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Di)
RMP
.
.
.
1 Q.Is there any further explanation you'd like to
2 add to your response?
3 A.Yes. I was thinking specifically about the RFP
4 process we have out now for a couple of plants, but I just want
5 to point out that given market opportunity, much like we had
6 wi th Chehalis if we think that's in our customers' best
7 interests, we would certainly pursue those sort of
8 opportunistic purchases that we think are and that could
9 happen at any time. And so I just wanted to make sure that I
10 was clear that those comments were in reference to the existing
11 RFP process and not any sort of other opportunity that might
12 come along, so --
13 Q.At a somewhat higher level, can you tell us what
14 the economic opportunity of Chehalis was?
15 A.It was the opportunity to buy an existing plant
16 wi th a proven operational record at a price that I think was
17 roughly half of what we thought it was going to take to build
18 the gas plant al ternati ve.
19 Q.I'd like to pick up some redirect on some
20 questions asked of you by Monsanto, and I've, with the
21 assistance of the court reporter, put in front of you
22 Exhibit 237. Do you have that?
23 A. I do, ye s .
24 MR. HICKEY: And for the benefit of those at the
25 Bench picking this up, it's the Berkshire Hathaway official
265
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Di)
RMP
.
.
.
20
21
22
1 home page.
2 Q.BY MR. HICKEY: And directing you to page 9 of
3 that exhibit
4 First of all, do you recall that Mr. Budge had
5 numerous pages highlighted that he alluded to during his
6 examination of you?
7 A.I do, yes.
8 Q.I'm going to ask you to look at the last
9 paragraph on page 9, and Mr. Budge had you read a statement
10 about anticipating, however, that Berkshire will generate
11 ever-increasing amounts of cash, we are today quite willing to
12 enter businesses that regularly require large capital
13 expendi tures.
14 Do you remember him asking you to confirm that
15 that was on the Web page?
16 A.Yes, I do.
17 Q.Is the next sentence highlighted?
18 A.It is not.
19 Q.Did Mr. Budge ask you to read that one?
A.He did not.
Q.Would you read that for me, please, Mr. Walje?
A.We expect only that these businesses have
23 reasonable expectations of earning decent returns on the
24 incremental sums they invest.
25 Q.And then I'd like to direct you to another
266
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Di)
RMP
.
.
.
20
1 Monsanto Exhibit. It's Exhibit No. 245. I believe it's also
2 in front of you, Mr. Walj e.
3 A.I have that, Commissioners.
4 Q.And try to refresh our recollection with so many
5 exhibi ts that have come in today, this is the power supply
6 Agreement between PacifiCorp and Monsanto that was filed per
7 Commission approval in 1995. Correct?
8 A.Correct. That is the one with the cover letter
9 signed by James F.Fell.
Q.Yes.
A.Yes.
Q.And there is
contract,is there not?
a narrative document attached to the
10
11
12
13
14 A.I believe that's the one titled Technical
15 Assessment Package for Power Supply Agreement between Monsanto
16 Company and PacifiCorp, November 1995.
17 Q.And would the purpose of this document have been
18 to persuade the Commission to find additional justification for
19 the approval of the contract, or do you know?
A.I was not involved in that process, but I presume
21 because it's attached to this letter from Mr. Fell, that was
22 part of the program.
23 Q.Do you know whether or not the Attachment at
24 Section 6 addressed the issue of customer alternatives in the
25 context of other sources of electrical power that were
267
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Di)
RMP
.
.
.
1 identified as potentially available to Monsanto?
2 A.If I look at --
3 MR. BUDGE: I'd -- excuse me. I'd obj ect --
4 COMMISSIONER SMITH: Mr. Budge.
5 MR. BUDGE: -- to the question: No foundation
6 was laid. The witness has already stated he didn't know
7 anything about this document, and Counsel wants to now ask him
8 about it.
9 MR. HICKEY: I'd just say, thanks to Mr. Budge,
10 it's an exhibit in the record; and thanks to his examination to
11 present this and opening the door of it, I think we're entitled
12 to an opportunity to further examine on the exhibit that was
13 received at his request, Madam Chair.
14 COMMISSIONER SMITH: Yeah, I'm going to overrule
15 the obj ection and allow him to proceed.
16 Q.BY MR. HICKEY: So going back to the question
17 before the obj ection, am I correct, Mr. Walj e, that Section 6
18 of the Attachment addresses al ternati ves that Monsanto had
19 identified in asking the Commission to approve the contract
20 that were available potentially to it for other sources of
21 electrical supply?
22 A.Not having been involved in the case, I'm not
23 exactly sure how this was used, but it does describe two
24 options that Monsanto had at the time that they considered as
25 al ternati ves to reducing its energy cost. One was annexation
268
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Di)
RMP
.
.
.
23
1 by a municipal utility -- Soda Springs in this case -- and the
2 other one was a different manufacturing process in that it
3 would greatly reduce Monsanto's requirement for electricity
4 from 175 megawatts per month to 45 megawatts per month.
5 Q.And are those two al ternati ves found at page 3
6 and the top of page 4 of the Attachment?
7 A.Correct.
8 Q.There have been several questions posed to you
9 over the course of the day regarding the Populus to Terminal
10 transmission system and investment. Are you familiar generally
11 with the questions that were posed to you in that regard?
12 A.I am.
13 Q.I would like to ask some limited redirect on the
14 issue of what kind of review, if any, this transmission
15 investment has had in any state, and let's begin with the
16 process of Certificates of Public Convenience and Necessity.
17 What states, if any, Mr. Walje, have reviewed this project in
18 the context of Certificate jurisdiction?
19 A.The states of Idaho and Utah reviewed our
20 Application for a Certificate for Public Convenience and
21 Necessity, which is how it's described sometime in general, and
22 both entities found that it was in the public interest.
Q.And then let's look at it in the context -- look
24 at Populus to Terminal, in the context -- of rate-setting
25 proceedings. What jurisdictions in the six-state terri tory
269
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Di)
RMP
.
.
.
1 have had rate proceedings that involved this investment?
2 A.There is something called a major plant addition
3 mechanism in the state of Utah that allows us to bring our
4 bigger capital investments into -- for consideration outside of
5 a general rate case. Half of the Populus-Terminal line has
6 been submitted in the state of Utah and approved. We currently
7 are in the process of a hearing on the second half of the
8 Populus-Terminal line. We have submitted the first half of the
9 line into the Wyoming Commission, it's been approved, and our
10 most recent filing submits requests for recovery of the cost
11 for the second piece.
12 Q.And that first half of the Populus to Terminal
13 investment was the Ben Lomond to Terminal investment.
14 A.Correct.
15 Q.Is that correct?
16 And the Wyoming Commission approved that earlier
17 this year. Correct?
18 A. Yes.
19 Q. You alluded to the fact that there's a
20 Stipulation in the second major plant addition case in Utah.
21 Do you know when the Utah Commission will consider that
22 Stipulation?
23 A.I believe there's a hearing scheduled for
24 December 6th.
25 Q.Do you know whether or not all parties to that
270
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Di)
RMP
.
.
.
1 docket have joined on that Stipulation?
2 A.I believe there is a all-party Settlement that's
3 been agreed to by the Intervenors in that case.
4 Q.Just one final area, Mr. Walj e:
5 Gi ven the state of the economy in the state of
6 Idaho and the other states that Rocky Mountain Power and
7 PacifiCorp operate in, these have been, in general, some tough
8 economic times for lots of folks, not just in Idaho, but
9 throughout your service terri tory. Isn't that true?
10 A.That is true.
11 Q.And, understandably, questions are asked of you,
12 as the president of the Company, about how these economic
13 condi tions impact the Company and i ts perspectives on
14 customers' abilities to pay. Correct?
15 A.Correct.
16 Q.My question of you, sir, is when the economy
17 improves, do the same rate-setting principles apply to the
18 Company as apply today in tougher economic times?
19 A.I believe that, historically, irrespective of the
20 economic times, we only ask for those dollars that we need in
21 order, we think, to provide our primary mission; and we're
22 proud to do it and actually are very fond of our Idaho service
23 territory, the people in it, and all of our customers. And I
24 think that there is no treatment that's more generous when we
25 were at a very high time in the economic conditions for our
271
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Di)
RMP
.
.
.
1 regulatory processes, nor do we believe there should be an
2 offset in the other direction when times are a little tougher,
3 because when it's all said and done, we've been at this almost
4 a hundred years, hope to be at it another hundred years, and
5 all we're asking for is the money to do our business. And it
6 is unfortunate that we are in these economic times, but I think
7 that we're looking for symmetry, really, in how the Company is
8 treated sort of in good times and bad times.
9 Q.So when the economy is good or bad, does the
10 Company attempt to have its rates set by the Commissions that
11 have jurisdiction over it based upon the cost of providing
12 electrical service and a reasonable opportunity to earn your
13 authorized rate of return?
14 A.Yes, that's correct.
15 Q.Those don't change based on the economy?
16 A.Those don't change. We believe that's a
17 fundamental aspect of the relationship we have with our
18 customers and the regulators.
19 Q.And regardless of whether the economy is in good
20 times or bad, do you strive to deliver reliable, safe, and
21 reasonably-priced power throughout the state of Idaho?
22 A.We do. We have employees who work and live in
23 Idaho, and they are absolutely dedicated to providing reliable
24 service, good customer service, and all of the support of the
25 communi ty that they live in. And so even though there's a
272
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Di)
RMP
.
.
.
1 headquarters somewhere else or there's some owners somewhere
2 else, most of the people who deliver the end-use service to
3 Idaho customers are Idahoans, and they strongly hold that
4 belief that they have basically a public service obligation,
5 and I'm proud to be associated with them.
6 MR. HICKEY: No further questions. We'd ask that
7 Mr. Walj e be excused.
8 COMMISSIONER SMITH: Okay. Is there any
9 objection to excusing Mr. Walje?
10 Mr. Walj e, we thank you for your endurance and
11 your help, and you are excused.
12 MR. WALJE: Thank you, Chairman Smith. I will
13 forgo my treadmill tonight.
14 (The witness left the stand.)
15 COMMISSIONER SMITH: We will now go to
16 Mr. Woodbury for his witness.
17 MR. WOODBURY: Thank you, Madam Chairman. I
18 appreciate the indulgence of the Commission, and Staff would
19 call Bryan Lanspery to the stand.
20
21
22
23
24
25
273
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
WALJE (Di)
RMP
.
.
.
18
1 BRYAN LANSPERY,
2 produced as a witness at the instance of the Staff, being first
3 duly sworn, was examined and testified as follows:
4
5 DIRECT EXAMINATION
6
7 BY MR. WOODBURY:
8 Q.Good afternoon, Mr. Lanspery.
9 A.Good afternoon.
10 Q.Would you please state your first and last name,
11 and spell both for the record?
12 A.My name is Bryan Lanspery: B-R-Y-A-N,
13 L-A-N-S-P-E-R-Y.
14 Q.And for whom are you employed and in what
15 capaci ty?
16 A.I am employed by the Idaho Public Utili ties
17 Commission as a rate analyst and economist.
Q.And in that capacity, did you have occasion to
19 prepare in this case direct testimony consisting of 24 pages
20 and three exhibits, Exhibits 109, -10, and 111?
21
22
A.I did.
Q.And have you had the opportunity to review that
23 testimony and those exhibits prior to this hearing?
24
25
A.Yes.
Q.And is it necessary to make any changes or
274
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LANSPERY (Di)Staff
.
.
.
18
19
20
21
22
23
24
25
1 corrections?
2 A.No.
3 Q.If I were to ask you the questions set forth in
4 the testimony, would your answers be the same?
5 A.They would.
6 MR. WOODBURY: Madam Chair, I would ask that the
7 testimony be spread on the record, that the exhibits be
8 identified, and then I would present Mr. Lanspery for cross.
9 COMMISSIONER SMITH: If there is no obj ection, it
10 is so ordered.
11 (The following prefiled testimony of
12 Mr. Lanspery is spread upon the record.)
13
14
15
16
17
275
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LANSPERY (Di)Staff
.
.
.
8
1 Q.Please state your name and address for the
2 record.
3 A.My name is Bryan Lanspery and my business address
4 is 472 West Washington Street, Boise, Idaho.
5 Q.By whom are you employed and in what capacity?
6 A.I am employed by the Idaho Public Utili ties
7 Commission as a utilities rate analyst.
Q.Please give a brief description of your
10
9 educational background and experience.
A.I received a Bachelor of Arts degree in Economics
11 with a social science emphasis from Boise State University
12 in 2003. I also earned a minor in Geographic Information
14
13 Systems from Boise State University in the same timeframe.
I received a Master of Arts in Economics from Washington
15 State University in 2005. My Masters work emphasized Labor
16 Economics and Quantitative Econometric Analysis.
1 7 Concurrent to pursuing my Masters degree, I functioned as
18 an instructor of Introductory and Intermediate Economics as
20
19 well as Labor Economics.
22
21 Commission?
Q.Would you describe your duties with the
A.I was hired by the Commission in late 2005 as a
23 utilities analyst. As such, my duties revolve around
24 statistical and technical analysisJ of Company filings,
25 including cost/benefit analysis, resource evaluation, price
CASE NO. PAC-E-10-0710/14/10 LASPERY, B. (Di) 1
STAFF
276
.
.
.
13
14
1 forecasting, and weather normalization methods. I have
2 participated in several general rate cases, focusing on
3 power supply, cost of service, and rate design. I have
4 also been actively engaged in integrated resource planning,
5 DSM/energy efficiency program evaluation, and revenue
6 allocation issues. I completed the Practical Skills for
7 the Electric Industry held by New Mexico State University
8 in 2006, among numerous other conferences.
9 Q.What is the purpose of your testimony?
10 A.My testimony will discuss the Company's filed net
11 power supply expenses, describe why Staff believes it is
12 too high, and offer a recommendation that Staff believes
reasonably reflects the Company's net power costs for the
pro forma test year.I will also address rate design, and
15 provide recommendations that Staff believes reflect a
16 balanced approach to revenue recovery and sending
17 appropriate price signals to customers.
18 Q.Could you please summarize Staff' s position
20
19 regarding net power supply expenses?
A.Yes. The Company filing indicates an increase in
21 net power costs of $87.7 million to $1.07 billion on a
22 system-wide basis since the 2008 general rate case. This
23 results in an additional $3.1 million above what is
24 currently reflected in Idaho rates. I believe a more
25 representative net power cost figure for the Company's test
CASE NO. PAC-E-10-0710/14/10 LASPERY, B. (Di) 2
STAFF
277
.
.
.
1 year is $1.03 billion, which represents an increase over
2 current base power supply expenses for Idaho customers of
3 $454,000 dollars.
4 Q.Could you please summarize Staff's position
5 regarding rate design?
6 A.Yes. Staff maintains that rate design should be
7 based on sending cost-based price signals that promote
8 efficient consumption of energy. While the Company does
9 propose a tiered rate design for residential customers as
10 directed by the Commission, I do not believe it
11 sufficiently promotes conservation and energy efficient
12 consumption. Staff proposes implementing a two-tiered
14
13 residential rate design with different rate blocks for both
summer and winter rather than year round rate blocks as
15 proposed by the Company.
16 Net Power Supply
17 Q.Have you reviewed the Company's net power supply
19
18 filing?
A.Yes, I have reviewed the Company's
20 recommendations on power supply outlined in Company witness
21 Shu's testimony, as well as the supporting exhibits and
22 documentation. I have also examined the Company's GRID
23 model, which provides the Company's calculation of net
25
24 power supply.
Q.What is Rocky Mountain Power recommending as the
CASE NO. PAC-E-10-07
10/14/10 278 LASPERY, B: (Di) 3
STAFF
.
.
.
1 net power supply cost to be included in its revenue
2 requirement?
3 A.Rocky Mountain Power is recommending a net power
4 supply cost of $1.07 billion on a system basis, up from
5 $982 million included in the last general rate case. On an
6 Idaho basis, this equates to an increase from $66.1 million
7 to $69.2 million, or a $3.1 million increase.
8 Q.Do you accept the power supply costs proposed
10
9 made by the Company?
A.No, I do not. I believe the Company's
11 recommendation is too high for a number of reasons, the
13
12 most important being the inclusion of wind integration
14
costs totaling over $34 million on a system basis.
Q. Why does the Company believe wind integration
15 costs should be included in net power supply expenses?
16 A.According to Company witness Shu's testimony,
17 aside from two wind projects located in BPA's control area,
18 the wind integration charge serves as a proxy for the
19 variable costs incurred to integrate intermittent wind
21
20 resources into the Company's resource portfolio.
Q.What value does the Company use for a wind
23
22 integration cost?
A.The Company uses a value of $6.50 per MWh of wind
24 generation. This is based on the level approved by the
25 Commission in Case No. PAC-E-09-07 for setting published
CASE NO. PAC-E-10-07
10/14/10
279 LASPERY, B. (Di) 4
STAFF
.
.
.
14
1 avoided cost rates.
2 Q.You do not think it is reasonable for the Company
3 to include this rate in its net power cost filing?
4 A.No, I do not. The wind integration charge
5 approved by the Commission is used as an adjustment to
6 published avoided cost for mandatory purchases from
7 qualifying wind generation facilities under PURPA.
8 approved 2 contracts for Windland.)
(Just
9 Q.Do you believe Rocky Mountain Power should
10 include the wind integration charge as a variable cost to
11 its own wind facilities and power purchase contracts?
12 A.No, I do not, for several reasons. First of all,
13 these are internal costs that are neither paid under
contract or to any other utility. The assumption is that
15 wind causes the power system to operate in a less than
16 optimal fashion due to its variability. That may be the
17 case, but I believe that the Company's filing already
19
18 reflects integration costs.
20
Q.How so?
A.For wind resources in service during the 2009
21 test year, wind integration costs are captured in actual
22 test year expenses. This is reflected in a number of
23 accounts, such as purchases and sales, along with fuel
24 burning expenses. These costs simply are not part of the
25 GRID modeling for the pro forma test year.
CASE NO. PAC-E-10-0710/14/10 280 LASPERY, B. (Di) 5
STAFF
.
.
.
3
1 Q.Do you believe that wind integration costs should
2 be included for the pro forma test year?
A.No. There is no basis to explicitly add these
4 costs into the rate case since estimates are neither
5 accurate nor predictable.
6 Furthermore, Rocky Mountain Power has an energy
7 cost adjustment mechanism (ECAM). According to the
S Company, the ECAM was designed to capture the volatility in
9 net power costs due to, among other things, wind
10 variability (see Duval's testimony in Case No.
11 PAC-E-OS-OS). The actual costs of wind variability, both
13
12 on the Company's system and to the extent it provides sales
15
14 ECA.
opportunities outside the system, will be captured in the
Q.Has the Commission granted wind integration costs
16 to any other utilities in its jurisdiction?
17 A.No. The Commission has never expressly approved
1S wind integration costs as part of base power supply expense
19 for the purposes of setting base rates in any utility's
21
20 general rate case.
Q.What is the impact to net power supply expense of
23
22 removing wind integration costs?
A.Removing all but the wind integration costs paid
24 to BPA reduces the net power supply expense by
25 approximately $34 million on a system basis.
CASE NO. PAC-E-10-0710/14/10
281 LASPERY, B. (Di) 6
STAFF
.
.
.
1 Q.Do you have any further adjustments to the
2 Company's power supply filing?
3 A.Yes. During the course of reviewing recent rate
4 case proceedings in other jurisdictions, it became apparent
5 that there are a number of inconsistencies in the Company's
6 power supply modeling.
7 Q.Do you have specific examples?
8 A.Yes, there are three that I have incorporated
10
9 into Staff's net power cost calculation.
11
Q.What is the first?
A.The first is a pair of supplemental purchase
13
12 contracts that Rocky Mountain Power has in its GRID model,
14
labeled 'APS Supplemental Purchase Coal' and 'APS
Supplemental Purchase Other'. The GRID model selects these
15 resources even though it is uneconomic to do so. It is my
16 understanding that these contracts are not considered 'must
17 take', and excluding both from the model results in a lower
19
18 net power supply.
Q.What is the reduction in net power supply
20 calculated by the GRID model if these contracts are not
22
21 included?
A.Exclusion of the contracts results in a reduction
23 of $1.9 million on a system basis. I include this
25
24 adj ustment in Staff's net power cost recommendation.
Q.What is the second modeling inconsistency you
CASE NO. PAC-E-10-07
10/14/10 282 LASPERY, B. (Di) 7SnFF
.
.
.
1 have incorporated?
2 The second inconsistency involves the modeling ofA.
3 non- firm transmission in GRID. As noted in recent
4 PacifiCorp rate case proceedings in other jurisdictions,
5 and confirmed in the Company's response to Monsanto Data
6 Requests 2.50 and 2.52, a level of non-firm transmission
7 contracts and Company-owned assets used by the Company to
8 optimize its system have been included as expenses in base
10
9 rates, yet the offsetting benefits through reduced power
I have adjustedsupply costs have not been accounted for.
11 the GRID model to account for the average cost and capacity
12 for the transmission links included in the Company's
13 response to Monsanto Data Request 2.50. This only includes
14 non-firm transmission transactions greater than one average
16
15 MW.
Q.What is the reduction in net power supply expense
17 calculated by the GRID model if non-firm transmission
18 benefits are included?
19 A.I have calculated this to be a reduction in net
20 power supply expense of $2.5 million on a system basis. I
21 include this adjustment in Staff's net power cost
23
22 recommendation.
Q.What is the third inconsistency you have
25
24 incorporated?
The third inconsistency surrounds the medianA.
CASE NO. PAC-E-10-07
10/14/10
283 8LASPERY, B. (Di)
STAFF
.
.
.
1 output of the Company's Bear River hydro generation. As
2 noted on page 10, lines 19 through 21 of Company witness
4 or flood control years, in its calculation of median stream
3 Shu's testimony, Rocky Mountain Power excludes high water,
6
5 flow for the Bear River system.
7
Q.Do you agree with this calculation?
A.No, I believe this inappropriately biases the
8 potential hydro output downward by skewing the median.
9 While the Company may think it is unlikely this will occur
10 in the future, there are no indicatìons that severely dry
11 years, while of equally low probability, have been removed
13
12 as well.
14
15
Q. What is the impact of adjusting the Bear River
median hydro normalization?
A.The result of adj usting the Bear River median
16 hydro normalization results in a reduction of approximately
17 $2. 2 million on a system basis. I include this adjustment
19
18 in Staff's net power cost recommendation.
Q.Do you have any other adjustments to the
20 Company's net power cost filing?
21
22
A.No, I do not.
Q.What is the overall impact on net power cost
24
23 based on your recommendations?
A.The sum of my four adjustments total a reduction
25 in net power cost from the Company's filing of $40.9
CASE NO. PAC-E-I0-0710/14/10 LASPERY, B. (Di) 9
STAFF284
.
.
.
1 million on a system basis. I recommend that the net power
2 cost included in base rates for Rocky Mountain Power be
3 $1.03 billion on a system basis. As reflected in Staff
4 witness Vaughn's Exhibit 108, this results in an Idaho
5 allocated net power cost of $66.6 million, or $2.6 million
6 below the Company's filing. I should note this does not
7 include the treatment of costs associated with the
8 Irrigation Load Control Program as a power purchase
9 expense, as explained in Staff witness Carlock's testimony.
10 The Company has indicated that it will file aQ.
11 revised net power cost upon rebuttal. Do you believe this
12 is appropriate?
13 A. While an argument can be made for having the most
14 recent available data included in this case, I do not agree
15 that updating the net power cost on rebuttal is
16 appropriate. The complexity and the modeling along with
17 the voluminous accompanying data make it impossible for any
18 other parties to thoroughly vet the updated power cost.
19 Rate Design
20 Q.Have you reviewed the Company's rate design
22
21 proposals?
23
A.Yes, I have.
Q.Could you please summarize the Company's
25
24 position?
According to Company witness Griffith'sA.
CASE NO. PAC-E-10-0710/14/10
LASPERY, B. (Di) 10
STAFF
285
.
.
.
1 testimony i Rocky Mountain Power i s proposed revenue increase
2 by class is based on the results of its class cost of
3 service model, essentially moving all rate classes to full
4 cost of service. Staff witness Hessing further discusses
5 class revenue spread required in order to achieve cost of
6 service. For large industrial customers i including special
7 contract customers, the Company proposes equal increases to
8 all billing determinants. For the remaining commercial
9 customers and irrigation class i the Company proposes a
10 slightly larger increase to demand charges than energy
11 charges based on the results of the cost of service study.
12 The same can be said for time-of-use residential customers
13 (Schedule 36) i with the Company maintaining the current
14 relationships between on- and off -peak energy rates.
15 The biggest change proposed by the Company is a
16 two-tiered inverted block rate design for residential
17 Schedule 1 customers. The proposed tier break would be at
18 800 kWh both in the summer and non-summer seasons i with
19 higher comparative rates in the summer. Rocky Mountain
20 also proposes eliminating the monthly minimum charge of
21 $10.41 and adding a monthly customer charge of $12.00.
22 Q.Do you believe it is reasonable to increase all
23 billing components on an equal percentage basis for large
25
24 industrial customers?
A.Yesi I do.
CASE NO. PAC-E-10-0710/14)10 286 LASPERY iB. (Di)
STAFF
11
.
.
.
1 Why do you believe that is appropriate for all ofQ.
2 these classes?
3 It has been said in countless general rate caseA.
4 proceedings in the past, but it is true that cost of
5 service is an inexact science. While it can provide
6 guiding principles for revenue distribution between rate
7 schedules and within rate schedules, the results cannot be
8 looked upon as absolutes.
9 Also, equally spreading the revenue increases to
10 all billing determinants still provides a significant level
11 of fixed cost recovery while sending customers a strong
12 price signal through relatively higher energy rates.
13 Do you support the Company's proposal to keep theQ.
14 on- and off-peak differentials for Schedule 36 customers?
15 Yes, I do. Rocky Mountain Power has consistentlyA.
16 demonstrated its time-of-use rates are both aggressive and
18
17 fair.
Q.Turning to general residential rate design, what
19 do you believe constitutes effective rate design for
21
20 residential customers?
A.Effective rate design entails promoting efficient
22 consumption of energy through proper pricing. Rocky
23 Mountain Power, like most utili ties in the Northwest, has
24 relatively low cost generating resources to meet its
25 average loads but relies on more expensive gas-fired"
CASE NO. PAC-E-10-0710/14/10
287 LASPERY B. (Di)
STAFF
12
.
.
.
1 resources and market purchases through much of the summer
2 and deep winter months to meet peak loads. Flat rate
3 design, in which kilowatt hour (kWh) rates are based on
4 average costs and do not vary based on timing or level of
5 consumption, do not reflect the disparity in costs to serve
6 load during peak periods and off -peak periods.
7 Effective rate design also provides customers
8 with a cost-based price signal that when consumption
9 reaches a certain threshold, or occurs in a particular time
10 period, the cost to provide that energy can be
11 significantly higher than the embedded rate, and the rate
12 charged to customers should reflect that fact. There are
13 many ways that rates can reflect the variable cost to
14 serve, but the two most prevalent ways are through tiered
15 rate design and time-of-use (TOU) rates. Rocky Mountain
16 Power has offered residential TOU rates for a number of
17 years. This filing represents its first proposal for a
18 tiered rate structure for residential customers.
19 Q.You mention that sending proper price signals is
20 an important part of effective rate design. What other
21 factors did you consider when approaching residential rate
22 design?
23 A.I alluded to the fact that prices should reflect
24 the cost to provide the energy. If this were carried to
25 the extreme, an inverted rate design, which both the
CASE NO. PAC-E-I0-0710/14/10 LASPERY, B. (Di) 13
STAFF
288
.
.
.
13
14
1 Company and the Staff support, would have stark
2 differentials between the first block or tier, and the tail
3 block, in order to reflect the substantial difference
4 between the embedded cost of resources and the cost of
5 marginal resources. But the ability for customers to
6 respond must not be ignored. When promoting tiered rates,
7 one must not lose sight of general rate design principles:
8 rate equity, rate stability, and opportunity for the
9 utility to recover its approved costs.
10 Q.Do you believe the Company's proposal meets these
11 design principles?
12 A.In many respects I do, but overall I believe
there are some deficiencies in the filing. Rocky Mountain
Power has proposed that its rate differential between
15 blocks be set at 35%. I believe that this differential is
16 substantial enough for customers to receive a strong price
17 signal while still allowing them to control their bills.
18 Average customers would not see a significant change in
19 their bills under the Company's proposal, and only those
20 smallest of users and largeßt of users would see
22
21 significant percentage increases in their bills.
Q.Why would the smallest users receive larger
24
23 increases under the Company's proposal?
A.The large percentage increase is due to removing
25 the minimum charge currently set at $10.64, and replacing
CASE NO. PAC-E-10-0710/14/10 289 LASPERY, B. (Di) 14
STAFF
.
.
.
1 it with a $12.00 monthly customer charge. Under the
2 current structure, those using up to a little more than 100
3 kWh per month paid just the minimum. Under the Company
4 proposal, the customers would pay both the customer charge
5 and the per-kWh rate for all energy consumed.
6 Q.Do you support the removal of the minimum charge
7 in lieu of the monthly customer charge?
8 A.I do, though I believe the Company proposed
9 customer charge is too high.
10 Q.Please elaborate.
11 A.While the high customer charge does reflect the
12 third principle of cost recovery for the utility, it
13 violates the first two principles. Moving to a high fixed
14 monthly charge diminishes the price signal in the energy
15 charge to conserve electricity. It also results in a
16 nearly doubling of the monthly bill for a subset of small
17 energy consumers, violating the rate stability concept.
18 Q. What do you propose as a monthly customer charge?
19 A. I propose a $5.00 monthly charge for Schedule 1
20 customers. Based on Rocky Mountain Power's Exhibit 53,
21 this amount sufficiently covers the meter reading and
22 billing costs for the class, which has been Staff's
24
23 traditional basis for setting customer charges.
25 other electric utilities in Idaho?
Q.How does your proposed customer charge compare to
CASE NO. PAC-E-10-0710/14/10 290 LASPERY, B. (Di) 15
STAFF
.
.
.
1 A.If the Commission approved a $5.00 customer
2 charge for Rocky Mountain Power, it would rank as the
3 highest among the three investor-owned electric utilities
4 under its jurisdiction, excluding Atlanta Power.
5 Q.Returning to tiered rates, is it generally
6 regarded that this particular rate structure is an
7 effective means to promote energy efficiency?
8 A.Yes. In 2005 the National Action Plan for Energy
9 Efficiency, a public-private initiative consisting of
10 organizations such as the Department of Energy (DOE),
11 Environmental Protection Agency (EPA), and National
12 Association of Regulatory Utility Commissioners (NARUC),
13 stated that "Retail rate designs with clear and meaningful
14 price signals, coupled with good customer education, can be
15 powerful tools for encouraging energy efficiency." The DOE
16 stated more recently in a 2007 report to Congress that rate
17 design is one of 10 mechanisms for enhancing energy
18 efficiency. The 2007 Idaho Energy Plan listed adoption of
19 rate designs that encourage energy efficiency in its action
20 plan to promote conservation. In each case cited, it is
21 noted that rate design must consider the unique
23
22 characteristics of the customer class.
24
Q.Are tiered rates common in Idaho?
A.Yes. Idaho Power currently has a three-tiered
25 rate structure for residential and small commercial
CASE NO. PAC-E-I0-0710/14/10 LASPERY, B. (Di)
STAFF
16291
.
.
.
customers during the summer and non-summer periods. Avista
2 also has a two-tiered rate structure for residential
1
3 customers in Idaho. While Rocky Mountain Power currently
4 has a flat rate structure in Idaho, it does have tiered
5 residential rate structures in several other jurisdictions.
6 Q.You mentioned that characteristics unique to the
7 customer class should be considered when designing rate
8 structures. What "unique characteristics" of the
9 residential class did you consider in your rate design?
10 A.Residential customers as a class tend to be quite
11 homogeneous when compared to small commercial and
12 irrigation customers, but more volatile when compared to
13 industrial customer classes. This can be attributed to end
14 use of electricity. Residential basic electric usage can
15 cover lighting and home appliances, such as refrigerators
16 and electric ovens. These tend to vary mainly with the
17 size and occupancy of the residence. I would suggest that
~18 heating and, to a lesser degree, cooling should also be
19 considered basic end uses, as well as a point at which
20 residential customers begin to differ from one another.
21 Based on the response to Staff Production Request 192,
22 appro~imately 21% of Rocky Mountain Power's residential
23 customers use electricity for space heating purposes, while
24 others use natural gas, propane, or biofuels, such as wood-
25 fired stoves, for heating. Similarly, many homes have
CASE NO. PAC-E-10-07
10/14/10
LASPERY, B. (Di)
STAFF
17292
.
.
.
1 central cooling systems or some means of air conditioning
2 while many do not.
3 Beyond basic consumption, there is great
4 di versi ty in discretionary usage such as home computers and
5 home entertainment systems. Between discretionary usage
6 and weather sensitive usage, the residential customers as a
7 whole have relatively low load factors (average load
a divided by peak load). This impacts the cost to serve
9 residential customers, along with the utility's ability to
10 recover its approved costs.
11 How does this affect residential rate design?Q.
12 The low load factor reflects the "peakiness" ofA.
13 residential load profiles. Usage tends to be relatively
14 low in spring and autumn months and higher in winter and
15 summer months. In fact, for Rocky Mountain Power the
16 residential class peaks in winter with a smaller peak in
17 the summer. When designing tiered rates, it is appropriate
ia to provide price signals that reflect the dual-season
19 peaking nature of the class and reduce the class average
21
20 use per cus tomer .
Does the Company's proposal reflect the dual-Q.
22 peaking nature of the residential class?
23 No, I do not believe it does. The CompanyA.
24 proposes setting the tier block break at aoo kWh year-
25 round, which is slightly below average annual residential
CASE NO. PAC~E-I0-07
10/14/10
293 LASPERY, B. (Di)
STAFF
ia
.
.
.
consumption according to Company witness Griffith. When
2 looking at monthly consumption, it is evident that the
1
3 average is considerably higher in the winter months (949
4 kWh) and lower in the summer months (729 kWh), presumably
5 due to the prevalence of electric space heating in an area
6 of Idaho that can experience quite cold winters.
7 Q.What do you propose as an alternative?
8 A.I propose a two-tiered inverted rate structure
9 with the summer (May through October) blocks of 0-700 kWh
10 and 701 kWh and above. For the winter (November through
11 April) season, I propose setting the block break at 900
12 kWh. I agree with the Company's proposed rate differential
13
14
between the two blocks.
Q. Why do you believe this is a better design than
15 the Company's proposal?
16 A.I believe that my proposal better adheres to the
17 principles I outlined above. Reducing the monthly customer
18 charge to a more reasonable $5.00 maintains a level of rate
19 stability while covering the monthly billing and meter
20 reading costs. Setting the blocks at different seasonal
21 levels preserves the concept of cost-based price signals
22 and rate equity. While the class may be winter peaking, it
23 is small relative to the Company's system, which faces
24 higher costs to serve in the summer months. The higher
25 summer costs and lower average consumption led me to reduce
CASE NO. PAC-E-10-0710/14/10 LASPERY, B. (Di) 19
STAFF
294
.
.
.
1 the first tier block, which better reflects Company costs
2 and sends a stronger price signal to customers. Setting
3 the winter block higher than the Company's proposal may
4 lessen the price signal to a degree, but maintains the
5 block-to-average consumption relationship demonstrated in
6 the summer design and still sends a strong price signal to
7 customers, but acknowledges that the harsh winter
8 conditions these customers face are not being ignored in
9 the process.
10 Q.In the most recent Idaho Power general rate case,
11 you strongly advocated for a three-tier residential rate
12 design. Why are you not doing so in this instance?
13 A. There are many reasons. First, for rate design
14 to have a significant impact on usage, customers must learn
15 to adapt to the price signals. Idaho Power had a two-
16 tiered residential rate in place at the time of its filing,
17 and while it may not have been the most aggressive design,
18 it was nevertheless the standard for residential customers
19 during the summer months since June of 2004. It seemed a
20 natural progression to go from a two-tiered structure to a
21 three-tiered structure in that case.
22 Rocky Mountain Power customers in Idaho have not
23 faced anything other than seasonal flat rates since the
24 1970' s, at least. The movement to a tiered rate structure
25 will have immediate positive bill impacts on some customers
CASE NO. PAC-E-10-0710/14/10 LASPERY, B. (Di) 20
STAFF
295
.
.
.
1 and negative impacts on others. I do not want to
2 overestimate the rate at which customers will be able to
3 adjust their consumption patterns to the new rate design,
4 thus jumping to a three-tiered rate seems premat~re at this
5 point for Rocky Mountain Power.
6 Q.What other reasons lead you to advocate a two-
7 tiered rate over a three-tiered rate?
8 A.I do not believe that the rate design can have as
9 material an effect on Rocky Mountain's long-term resource
10 acquisition path as it could for Idaho Power. Residential
11 customers account for a significant portion of Idaho
12 Power's system demand and peak. The same cannot be said
13 for residential customers in Rocky Mountain Power's Idaho
14 service territory. The fact that this rate class
15 contributes such a small percentage to system peak and load
16 reduces the long-term benefits that may manifest through
17 tiered rates. That said, it does not diminish the argument
18 that in the short run, rates should reasonably reflect cost
19 to serve and provide price signals to customers to promote
20 conservation and efficient energy consumption.
21 As a final point, Rocky Mountain Power is much
22 less reliant on expensive peaking resources to meet its
23 demand and energy needs when compared to Idaho Power. In
24 other words, its resource mix leans more heavily on
25 baseload and intermediate resources (as well as market
CASE NO. PAC-E-I0-07
10/14/10
LASPERY, B. (Di) 21
STAFF
296
.
.
.
1 purchases) than Idaho Power, thus muting the immediate need
2 to institute a tier for the highest energy consumers.
3 Q.Have you incorporated the results of Staff
4 witness Hessing's cost of service and revenue spread into
5 your rate design?
6 A.Yes, I have. As described by Mr. Hessing, all
8 increase in revenue requirement. I propose increasing the
7 residential customers would receive an equal percentage
9 Schedule 36 monthly customer charge to $14.00, and
10 spreading the remaining revenue deficiency equally to the
11 energy rates. Under Staff's proposal, Schedule 1 customers
12 would have a $5.00 monthly charge and the remaining revenue
13
14
shortfall spread would be distributed as proposed by the
15 increase while others would see a decrease. Of the
Company, which means some customers would see a bill
16 remaining classes, I have spread the revenue deficiency
18
17 equally to all billing components.
20
19 increase to Schedule 1 and Schedule 36 customers?
Q.Why does Staff propose an equal percentage
A.Staff does not believe the Company has provided
21 adequate justification through cost of service to support
22 its proposed increase in residential Schedule 36
24
23 residential customers.
25
Q.Please elaborate.
A.The Company's filing demonstrates a belief that
CASE NO. PAC-E-10-07
10/14/10 297 LASPERY, B. (Di) 22
STAFF
.
.
.
1 Schedule 36 will shrink compared to Schedule 1. Rocky
2 Mountain supported this notion due to recent trends in the
3 customer groups. But based on the Company response to
4 Staff Production Request 288, I do not believe the trends
5 are necessarily accurate. The Company continued the
6 downward trend in Schedule 36 customer numbers from 2009,
7 but failed to incorporate the fact that the previous three
8 year did not exhibit such a trend. Company response to
9 Staff Production Request 291 confirmed that estimates used
10 to forecast Schedule 36 energy were significantly
11 understated in relation to Schedule 1 consumption. Until
12 the Company's load research data becomes more reliable, I
13 propose that residential customers remained aggregated, as
14 it is for calculating jurisdictional load factors. The end
15 result is a uniform percentage increase for Schedule 1 and
17
16 Schedule 36.
Q.Have you prepared an exhibit demonstrating the
19
18 results of Staff's rate spread proposal?
A.Yes, I have included Staff Exhibit No. 109, which
20 shows the rate components currently in place, as proposed
21 by the Company, and Staff's proposal for each class. It
22 should be noted that Staff's energy rate for Schedule 1 is
23 higher than that proposed by the Company even with Staff's
24 lower revenue requirement. That is due to the
25 significantly lower proposed customer charge. The revenue
CASE NO. PAC-E-I0.,07
10/1.4/10 298 LASPERY, B. (Di) 23
STAFF
.
.
.
1 generated by the class is equal to that submitted by Mr.
3
2 Hessing.
Have you prepared an exhibit demonstrating theQ.
4 impact of Staff's proposal on Schedule 1 customer bills?
5 Yes. I have updated a version of Company ExhibitA.
6 54, Schedule 1 with Staff's revenue requirement and rate
8
7 design proposals. It is included as Staff Exhibit No. 110.
Have you prepared an exhibit demonstrating theQ.
10
9 impact of Staff's proposal on Schedule 36 customer bills?
Yes. I have updated a version of Company ExhibitA.
11 54, Schedule 36 with Staff's revenue requirement and rate
13
12 design proposals. It is included as Staff Exhibit No. 111.
Q. Does this conclude your direct testimony in this
14
15
16
17
18
19
20
21
22
23
24
25
proceeding?
A.YeS, it does.
CASE NO. PAC-E-10-0710ti4/10 LASPERY, B. (Di) 24
STAFF
299
.
.
.
1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER SMITH: Do you have questions,
4 Mr. Purdy?
5 MR. PURDY: No questions.
6 COMMISSIONER SMITH: Ms. Davison?
7 MS. DAVISON: No, thank you.
8 COMMISSIONER SMITH: Mr. Olsen.
9 MR. OLSEN: No questions, Madam Chairman.
10 COMMISSIONER SMITH: Mr. Otto.
11 MR. OTTO: Yes, I do have a few questions.
12 COMMISSIONER SMITH: Please.
13 MR. OTTO: I'm going to stand up so I don't get
14 lost behind the sea of people here.
15
16 CROSS-EXAMINATION
17
18 BY MR. OTTO:
19
20
21
Q.Thanks, Bryan, for being here.
A.Thank you.
Q.Good morning, Bryan. I just have a few questions
22 for you and they're centered on the tiered rate design that you
23 proposed for Rocky Mountain, and, basically, they center on the
24 fact that you're proposing two tiers. Correct?
25 A.Correct.
300
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LANSPERY (X)Staff
.
.
.
1 Q.And so in developing that, it seems from reading
2 your testimony that you've relied on certain principles of rate
3 design, those I could point to, page 14, lines about 5 through
4 9 of your testimony. Could you just kind of let me know what
5 those principles are?
6 A.Based off the testimony, the ability for
7 customers to respond to price signals, rate equity, rate
8 stabili ty, the opportunity for the Utility to recover its
9 approved costs.
10 Q.And you would agree that those are general rate
11 design principles, as most people call them?
12 A.Yes.
13 Q.Then on page 16, lines 20 to 22 or thereabouts,
14 you talk about some -- concerning the unique characteristics of
15 the class that you're trying to design rates for. Is that
16 correct?
17 A.That's correct.
18 Q.Could you tell me a little bit about some of the
19 unique characteristics of Rocky Mountain Power's residential
20 class in Idaho?
21 A.The residential class I guess, specifically, the
22 residential customers that are not on time of use, they tend to
23 be, compared to the two other regulated utilities -- they use a
24 li ttle bit lower average usage. They tend to use more in the
25 winter months than they do in the summer months.
301
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LANSPERY (X)Staff
.
.
.
1 Q.I know it's pretty hard to understand why
2 indi vidual people use electricity, but in your opinion, why do
3 you think that is?
4 A.A myriad of reasons: Just your basic lighting,
5 heating, water heating, entertainment purposes, appliances.
6 Q.And part of your testimony -- forgive me, I don't
7 have the exact page written down here -- but you do refer to
8 Idaho Power, and try to make some comparisons between the
9 residential class in Idaho Power's usage as compared to Rocky
10 Mountain Power's service terri tory?
11 A.Correct.
12 Q.Do you recall that section?
13 A.Yes.
14 Q.Could you tell me a little bit about those
15 differences?
16 A.Idaho Power residential customers, they tend to
17 have a higher use per customer. You might consider it
18 significant. It's about 200 kilowatt hours more, on average,
19 than the Rocky Mountain Power customers.
20 The Idaho Power customers tend to use much more
21 in the summer months as compared to the winter months.
22 Those are probably the two main differences that
23 I see.
24 So, to summarize, you'd say Idaho Power'sQ.
25 residential customers are more summer peaking, as opposed to
302
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LANSPERY (X)Staff
.
.
.
1 Rocky Mountain Power residential customers are more winter
2 peaking?
3 A.Correct.
4 Q.Thank you. Now, on page 18 of your direct
5 testimony, lines about 16 to 20, you do mention that there's
6 the residential class is dual peaking for Rocky Mountain Power.
7 And could you tell me a little bit about the size of that
8 summer peak as compared to what would be more of the average of
9 the summer season? Is it significant? Is it not a very big
10 peak? Just that kind of ballpark.
11 I -- if we're going to stay in the comparativeA.
12 realm, comparatively the peak in the summer is not as large as
13 you would see in, say, in Idaho Power's service terri tory, but
14 you would see a pronounced increase during the hottest periods
15 in the summertime, and the same can be said with the winter
16 months. The winter months include some shoulder months where
17 you would see relatively low usage compared to the heart of the
18 winter.
19 All right. And then looking -- did you haveQ.
20 occasion to kind of look at the overall system peak of Rocky
21 Mountain Power and compare Rocky Mountain Power's residential
22 class in Idaho to that system load profile?
23 Cursory view.A.
24 And what -- understandable, but what was kind ofQ.
25 your take away from that cursory view?
303
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LANSPERY (X)Staff
.
.
.
1 Rocky Mountain Power is what we would consider aA.
2 dual-peaking utility. I think that's a function of its
3 geographic footprint. So you do see both spikes in the summer
4 and in the winter months. If my recollection is correct, I
5 believe they're within the same magnitude with the summer being
6 a little bit larger.
7 Okay. Just a few more questions; I'm not goingQ.
8 to go on for hours.
9 So on page 18 again, lines about 5 through 10 --
10 I'm sorry, page 21, lines 14 through 17, you kind
11 of talk about the size of the residential class in Rocky
12 Mountain Power's Idaho service terri tory compared to the rest
13 of their service. How did you characterize that?
14 The residential sector for Rocky Mountain Power'sA.
15 Idaho territory is relatively small in the grand scheme of the
16 Company.
17 So for -- do you agree that a small class wouldQ.
18 have a fairly low impact overall on Rocky Mountain Power's cost
19 of service or volatility rate volatility?
20 I would agree with that.A.
21 So, turning to page 18, on lines 5 through 10,Q.
22 again, you do talk about the kind of low load factor of
23 residential -- or, the high load factor -- I'm sorry. Let me
24 back up a second.
25 I'm sorry, I meant on page 21, and this we're
304
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LANSPERY (X)Staff
.
.
.
1 looking at continuing lines i 7 through 21. Because that
2 residential class is a small factor, you cite to some other
3 principles or some goals for rate design that you think are
4 appropriate. Can you tell me those goals?
5 A. Those lines, I state that in the short run, rates
6 should reasonably reflect cost to serve and provide price
7 signals to customers to promote conservation and efficient
8 energy consumption.
9 Great. Thank you. And how do you set priceQ.
10 signals; and I know it's an obvious question, but --
11 You set -- you send price signals by I guess inA.
12 this case we support a tiered rate structure in which as you
13 use more energy, the rate that you pay reflects the higher cost
14 to serve. So, there's a higher rate associated with higher
15 levels of usage.
16 Would you agree that price signals are moreQ.
1 7 effective if they're more finely targeted, or are they just as
18 effective if they're kind of broadly-based price signals?
19 I think within reason if you could target them,A.
20 they probably would be more effective.
21 Okay. And do you think that having j list twoQ.
22 tiers is a defined target or a more broad target?
23 I think relatively speaking, since the CompanyA.
24 currently has a flat rate structure, that we're doing some fine
25 targeting in relation to where they currently stand.
305
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LANSPERY (X)Staff
.
.
.
1 Q.Fair enough. True.
2 When you're designing a rate for a class of
3 customers, and if your goal, as you've kind of said, we should
4 look at kind of promoting conservation and efficiency, is it
5 important to consider -- and I think you do state -- you do
6 state this in your testimony; forgive me for not having the
7 line. But looking at the ability of that customer to respond
8 to a price signal is important?
9 A.Correct.
10 And thinking about kind of what people generallyQ.
11 use in their households, the amount of electricity used, would
12 you agree that people with a very high usage probably have a
13 higher ability to respond to price signals?
14 I think, in general, I would agree with that.A.
15 And would you agree that -- okay, strike that.Q.
16 Just two more questions:
17 We've already kind of covered that the
18 residential class is very small compared to Rocky Mountain
19 Power's system, and that it probably has a relatively low
20 impact on Rocky Mountain Power's need for resources or the
21 volatility of their ability to recover rates, which are two of
22 the main principles that you cite in rate design. So we're
23 left with equity and stability.
24 In designing rate design, assuming those factors
25 that we're looking at are a very small group, one that probably
306
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LANSPERY (X)Staff
.
.
.
20
21
22
23
24
25
1 has a small impact on the overall system, so turning to equity
2 is very important. Do principles of equity come in in
3 targeting tiers so that very high users should maybe not
4 subsidize very low users?
5 A.I believe that that would be one of the tenets
6 for moving toward a tiered rate structure. You know, also the
7 equi ty is a -- I think a big factor, and as we've discussed
8 before, the ability for customers to respond is also
9 considered.
10 Q.And one last question is are you aware that Rocky
11 Mountain Power has tiered rates in its other states?
12 A.Yes, I am.
13 Q.I'm sorry, this is the last one:
14 And are you aware that three-tiered rates in
15 their two largest states?
16 A.Yeah. Yes, I am.
17 MR. OTTO: That's all.
18 COMMISSIONER SMITH: Thank you, Mr. Otto.
19 Mr. Budge, do you have questions?
MR. BUDGE: No questions.
COMMISSIONER SMITH: Mr. Hickey.
MR. HICKEY: Yes, I do. Thank you.
307
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LANSPERY (X)Staff
.
.
.
1 CROSS-EXAMINATION
2
3 BY MR. HICKEY:
4 Q.Good afternoon, Mr. Lanspery.
5 A.Good afternoon.
6 Q.I would like to get some perspective on the net
7 power cost component of your testimony, and have some questions
8 that I think we can agree on. I know if we can't, you'll let
9 me know.
10 We can agree that you agree that the net power
11 costs of Rocky Mountain Power should increase in this case from
12 the current level that they were last set at. Correct?
13 A.Correct.
14 And of the one billion, 70 million that theQ.
15 Company is requesting, you've identified approximately 40.9
16 million that you take issue with. Isn't that true?
17 A.That's correct.
18 So while that's still a lot of money on aQ.
19 relative percentage of the total net power costs of the
20 Company , it's a relatively small percentage. Fair statement?
21 A.I would agree.
22 And could we also agree, Mr. Lanspery, that outQ.
23 of that $40.9 million, most of it relates to the wind
24 integration charge?
25 A.That's true.
308
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LANSPERY (X)Staff
.
.
.
1 And you would agree with me that when a companyQ.
2 like Rocky Mountain Power adds a wind resource to its available
3 generation or takes a wind resource off of its system, there is
4 cost attendant for that exercise. Isn't that true?
5 Yeah, I do not deny that there are costs to windA.
6 resources.
7 And would you also agree that the whole industryQ.
8 of electrical power -- little hard here; we've got everybody
9 accounted for would you agree with me that we're at sort of
10 the beginning of bringing on large amounts of megawatts on a
11 national perspective from wind resources?
12 I think wind and renewable resources areA.
13 defini tely at the forefront.
14 So, you would also, I think, agree that in thisQ.
15 state in the avoided cost docket, the Commission has endorsed
16 $6.50 as a reasonable wind integration charge in the context of
17 setting avoided cost rate for a QF providing wind facilities?
18 Yeah, for PURPA proj ects, that is correct.A.
19 And you're also aware of the fact that some ofQ.
20 the power purchased through Bonneville Power Administration is
21 a wind resource that has embedded in that cost a wind
22 integration cost. Fair statement?
23 Fair statement.A.
24 And you haven't challenged that as of thisQ.
25 time?
309
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LANSPERY (X)Staff
.
.
.
1 No, I have not. We've included BPA-related windA.
2 costs.
3 Would it be fair to say that irrespective of theQ.
4 filed position you've taken in the case on wind integration
5 charges, you would acknowledge that this Commission has the
6 discretion to award a wind integration charge in this case
7 should it determine to do so?
8 That is the Commission's discretion.A.
9 MR. HICKEY: I have no further questions,
10 Commissioner.
11 COMMISSIONER SMITH: Do we have questions from
12 the Commissioners?
13 No.COMMISSIONER REDFORD:
14 COMMISSIONER SMITH: Do we have redirect,
15 Mr. Woodbury?
16 MR. WOODBURY: Thank you, Madam Chair. No
17 redirect.
18 COMMISSIONER SMITH: All right. Then,
19 Mr. Lanspery, we thank you for your testimony, and your help in
20 the case.
21 THE WITNESS: Thank you.
22 COMMISSIONER SMITH: If there's no obj ection,
23 Mr. Lanspery will be excused.
24 MR. HICKEY: None whatsoever, Madam Chair.
25 (The witness left stand.)
310
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
LANSPERY (X)Staff