ROS1121M.txt

1 BOISE, IDAHO, MONDAY, NOVEMBER 21, 1994, 9:30 A. M.

2

3

4 COMMISSIONER MILLER: Well, good morning.

5 Let's take up Idaho Public Utilities Commission

6 Case UPL-E-92-6. This is the time previously set for an

7 evidentiary hearing and will commence, as always, by

8 taking the appearances of the parties, first for the

9 Complainant.

10 MR. ORNDORFF: Mr. Chairman, Owen H.

11 Orndorff and Lori Orndorff, Orndorff, Peterson, Hawley,

12 representing Rosebud Enterprises. Thank you,

13 Mr. Chairman.

14 COMMISSIONER MILLER: Thank you,

15 Mr. Orndorff.

16 Mr. Fell.

17 MR. FELL: James Fell and John Eriksson of

18 Stoel, Rives, Boley, Jones and Grey representing

19 PacifiCorp, and I'm not sure whether this was done yet on

20 the record, but I would like to move for the admission of

21 Mr. Eriksson for purposes of this proceeding. He is

22 admitted in the State of Utah.

23 COMMISSIONER MILLER: If there is no

24 objection, it will be so ordered.

25 Mr. Woodbury.

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1 MR. WOODBURY: Thank you, Mr. Chairman.

2 Scott Woodbury, Deputy Attorney General, for Commission

3 Staff.

4 COMMISSIONER MILLER: All right, our plan of

5 attack this morning, obviously, would be to take the

6 testimony offered by the Complainant, followed by that of

7 the Respondent. We understand that the Commission Staff

8 has no testimony to offer.

9 MR. WOODBURY: That's correct.

10 COMMISSIONER MILLER: Before doing that, are

11 there any preliminary matters that should be brought to

12 the Commission's attention? Mr. Orndorff.

13 MR. ORNDORFF: Mr. Chairman, the only thing

14 I have is in order to expedite the hearing, I'd like to do

15 my direct and rebuttal at the same time. I have talked

16 with Mr. Fell about that and I think it will move the

17 hearing along a bit and if there are no objections, I'd

18 like to do that.

19 COMMISSIONER MILLER: All right, if there is

20 no objection, we'll proceed in that fashion.

21 Anything else? Opening statements?

22 MR. ORNDORFF: I have nothing else,

23 Mr. Chairman. I am ready to go.

24 COMMISSIONER MILLER: Call your first

25 witness.

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1 MR. FELL: Mr. Chairman.

2 COMMISSIONER MILLER: Yes.

3 MR. FELL: I do have one preliminary matter

4 from our side.

5 COMMISSIONER MILLER: All right.

6 MR. FELL: There is a document that, a

7 production request that was made to Rosebud and Rosebud

8 filed an objection to producing that document. It was

9 correspondence with a Mr. Crow; is that correct,

10 Mr. Orndorff?

11 MR. ORNDORFF: Yes, it is, and Mr. Crow

12 representing Meridian Energy.

13 MR. FELL: This document was made available

14 to us in the discovery room and Mr. John Lowe reviewed the

15 document in the discovery room and on the basis of that

16 review requested a copy of it, we requested a copy of it,

17 and the request was denied, and I suppose what I'd like to

18 do is let Mr. Orndorff explain why the production was

19 refused. We felt the document was relevant and it was

20 made available as part of the documents that were

21 considered to be related to this project.

22 COMMISSIONER MILLER: Do we have a motion

23 pending with respect to this or is this just being raised

24 at this time?

25 MR. FELL: I'm raising it as a motion to

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1 compel production now. This is something that went on --

2 the production request was done on November 10, because in

3 Mr. Orndorff's response to our production when he

4 supplemented his responses, on several of them he said to

5 see our document room which contains these documents. We

6 then made arrangements to do that and it was on the basis

7 of the personal inspection that we asked for a selection

8 of those documents, including this one.

9 When Mr. Orndorff responded, he also filed,

10 I believe he filed with the Commission as well, an

11 objection to the production of that document. I'm

12 referring to an April 9, 1993, letter from Mr. Orndorff to

13 Mr. Crow. Apparently, Mr. Crow is an attorney?

14 MR. ORNDORFF: Mr. Crow is an attorney.

15 COMMISSIONER MILLER: Mr. Orndorff, I guess

16 at this point you could give us your point of view on this

17 question. The Commission, of course, has not seen the

18 letter and it's difficult for us based on what we know at

19 this point to make any judgment, but why don't you tell us

20 what you think this is all about.

21 MR. ORNDORFF: Mr. Chairman, the letter was

22 inadvertently put in one of the boxes. I don't know how

23 it got there. The magnitude of the discovery room is

24 fairly large and given PacifiCorp's rather sweeping

25 request and this document is totally unrelated to this

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1 proceeding. I mean, obviously, I have many file drawers

2 full of documents in cogen cases and whatnot. Mr. Crow,

3 as the Commission knows and I well know, represents

4 Meridian Energy and the Afton interests in Idaho, and

5 there is, obviously, a lot of letters and opinions and

6 privileged information between me and Mr. Crow in what

7 over the years tended to be a very lengthy proceeding.

8 This particular letter I'd represent to the

9 Commission concerns the development plan. I helped

10 Mr. Crow try to come to grips with how to build the

11 Meridian project, what he had to do, what his client had

12 to do, but it was truly correspondence between me and

13 Mr. Crow and had absolutely nothing to do with

14 PacifiCorp. In fact, the letter was first written in '92,

15 I think the spring of '92, as they were looking at the

16 option of converting their Afton contract to another more

17 viable form of project; so I have two considerations:

18 One, it's totally not relevant to this case; and two, I

19 have an ethical problem that doesn't get any better by me

20 turning it over to the Commission. Obviously, if the

21 Commission wants to see it, I will call Mr. Crow and plead

22 for mercy, but ultimately Mr. Crow, I guess, can hang me

23 out to dry if he wants.

24 COMMISSIONER MILLER: Let's go back one time

25 to you, Mr. Fell. At this point you don't have the

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1 document and your case is filed. How would you intend to

2 use it in this proceeding if you had it and how would you

3 think it would be relevant?

4 MR. FELL: First, most of the documents that

5 Mr. Orndorff has in his discovery room relate to other

6 projects. They relate to the Colstrip project or the

7 Billings project. What I've learned this morning that is

8 perhaps unique about this particular document is that

9 Mr. Orndorff is claiming that it relates to a project that

10 is not a Rosebud project in any way. If that's correct,

11 then that does distinguish it from the other documents.

12 If it were just a different project that was also related

13 to Rosebud, then I guess I would say that it's like all

14 the other documents he showed us and that he's relying

15 upon.

16 The document itself, as I understand it,

17 contains an extensive list of tasks that need to be

18 accomplished in order to develop a project of what we

19 thought was the sort of a Rosebud project; so that was the

20 relevance of it, a fairly comprehensive list of tasks that

21 need to be accomplished, but if in fact this project is

22 unrelated in terms of both ownership and design, then I

23 guess I would waive our objection on the refusal to

24 produce.

25 MR. ORNDORFF: Mr. Chairman, I might suggest

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1 that Mr. Fell could ask the president of Rosebud

2 Enterprises and he's also an officer of related companies

3 whether or not we had any economic interest in Meridian

4 Energy and perhaps that would satisfy Mr. Fell.

5 MR. FELL: I would accept Mr. Orndorff's

6 statement on that. I don't need to have a witness testify

7 to it. If that's the case, then we will not pursue this

8 matter. I do not want to put Mr. Orndorff into any

9 ethical difficulty over this.

10 COMMISSIONER MILLER: And it appears to me

11 that it's at least questionable whether a letter from a

12 lawyer would qualify as an admission of a party that would

13 make it admissible or hearsay problems; so I think if we

14 can proceed without having to work our way through that

15 question, I think everybody would be better off.

16 MR. FELL: That's fine.

17 COMMISSIONER MILLER: All right, now can we

18 start?

19 MR. FELL: Yes.

20 COMMISSIONER MILLER: Mr. Orndorff, your

21 first witness.

22 MR. ORNDORFF: Mr. Chairman, Rosebud

23 Enterprises calls Ronald D. Blendu.

24

25

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1 RONALD D. BLENDU,

2 produced as a witness at the instance of Rosebud

3 Enterprises, Inc., having been first duly sworn, was

4 examined and testified as follows:

5

6 DIRECT EXAMINATION

7

8 BY MR. ORNDORFF:

9 Q Mr. Blendu, would you state your full name

10 and business address, please?

11 A My name is Ronald D. Blendu, 1087 West River

12 Street, Suite 200, Boise, Idaho, 83702.

13 Q Would you briefly tell us your position with

14 Rosebud Enterprises?

15 A I'm a principal in Rosebud Enterprises. I

16 generally fulfill the function of vice president and

17 director of operation of engineering, construction and

18 plant technical affairs.

19 Q Now, have you prepared direct and rebuttal

20 testimony in this case?

21 A I have.

22 Q Have you prepared certain exhibits in this

23 case?

24 A I have.

25 Q Are those exhibits marked as part of your

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CSB REPORTING BLENDU (Di)
Wilder, Idaho 83676 Rosebud Enterprises

1 direct testimony, Exhibits 1 -- you have Exhibits 1

2 through 20 that is attached to your direct testimony?

3 A That's correct.

4 Q And there are no exhibits attached to your

5 rebuttal testimony?

6 A I believe that's correct.

7 Q Now, Mr. Blendu, if I were to ask you the

8 same questions that are in your direct testimony and your

9 rebuttal testimony, would any of your answers change?

10 A No.

11 MR. ORNDORFF: With that, Mr. Chairman, I'd

12 like to tender Mr. Blendu and spread on the record both

13 his direct and rebuttal testimony and Exhibits 1 through

14 20.

15 COMMISSIONER MILLER: All right, in the

16 absence of objection, it will be so ordered.

17 (The following prefiled direct and

18 rebuttal testimony of Mr. Ronald Blendu is spread upon the

19 record.)

20

21

22

23

24

25

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CSB REPORTING BLENDU (Di)
Wilder, Idaho 83676 Rosebud Enterprises

1 Q Please state your name, business title and

2 business address.

3 A Ronald D. Blendu, 1087 W. River Street,

4 Suite 200, Boise, Idaho, and I am Vice President/Operations

5 for Rosebud Enterprises and for all Rosebud affiliated

6 projects such as the Montpelier Project.

7 Q Please describe your professional experience

8 in operating solid fuel plants.

9 A I serve as a Director and Vice President of

10 Billings Generation, Inc. (BGI). I have extensive

11 experience in managing alternative energy power plants.

12 From March 1983 through June 1989, I was employed by

13 UltraSystems, Inc. of Irvine, California, serving in the

14 capacities of Plant Manager and later as Director of

15 Operations overseeing the operation of eight circulating

16 fluidized bed cogeneration plants. My duties also

17 included administering engineering and construction

18 contracts and serving as general manager for equity

19 owners. Prior to 1983, I worked for the Proctor & Gamble

20 Co. in various positions of technical and operation

21 management. I hold a Bachelor of Science degree in

22 Engineering from the United States Coast Guard Academy and

23 served as an officer in the Coast Guard for four years.

24 Q Please describe the purpose of your

25 testimony.

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ROSEBUD ENTERPRISES

1 A My testimony is divided into four parts, all

2 generally designed to describe the plant Rosebud proposes

3 to build at Montpelier (parts 1-3) and why Rosebud and

4 PacifiCorp moved the plant site from Arco to Montpelier.

5

6 First, I discuss the plant, its size, cost,

7 technology and projected employment.

8

9 Second, I discuss briefly the air and water emissions

10 together with the emission control equipment which is the

11 best available control technology (BACT) as determined by

12 the Environmental Protection Agency (EPA).

13

14 Third, I discuss plant operations and reliability of the

15 unit.

16

17 Fourth, I discuss in detail my discussions on plant siting.

18

19 I. Description of the Plant

20 Q Please describe Rosebud's proposed plant.

21 A Rosebud's proposed plant is intended to be

22 nearly identical to Rosebud's present operating facility

23 located in Colstrip, Montana of which Rosebud Energy Corp.

24 is the General Partner of Colstrip Energy Limited

25 Partnership (CELP). CELP's

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R.D. BLENDU, Di
ROSEBUD ENTERPRISES

1 limited partners are affiliates of Pacific Gas and

2 Electric Co. and Bechtel Corporation.

3

4 Attached as Exhibit Nos. 1 through 6 are line diagrams

5 generally describing the facility and its operating

6 components. I believe this information was previously

7 provided PacifiCorp in correspondence dated and referred

8 to in the draft agreement attached to Mr. R. Lee Roberts'

9 testimony.

10

11 The Montpelier facility will produce a guaranteed 40 MW

12 net of capacity and approximately 323,000,000 kWh of

13 energy in any twelve-month period, assuming no

14 dispatchability. Because the facility will utilize an air

15 cooled condenser instead of a water cooling tower, the

16 facility will be capable in winter, spring and fall of

17 operating in excess of 40 MW.

18

19 The Montpelier facility will have a construction cost of

20 $72,000,000 assuming Rosebud is able to obtain a Power

21 Sales Agreement in 1994 and shortly thereafter (as soon as

22 permits have been obtained) execute a construction

23 contract. The plant will be scheduled to commence

24 operations January 1, 1999.

25

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1 The Montpelier facility will utilize a high pressure

2 circulating fluidized bed (CFB) steam boiler capable of

3 combusting high sulfur fuels such as petroleum coke. The

4 boiler will also be capable of burning such conventional

5 fuels (if necessary) as oil or run-of-mine coal. A CFB

6 boiler essentially injects fuels into a hot mixture of air

7 and sand to obtain a very efficient combustion of carbon

8 and other fuel components. This unique boiler design

9 permits an operator to inject certain reagents, such as

10 limestone, to capture undesirable emissions such as SO2.

11 In Rosebud's Colstrip plant (and the same will be true for

12 the Montpelier facility), Rosebud injects sufficient

13 limestone to reduce SO2 emissions to operating permit

14 limitations required by governmental agencies. Using the

15 CFB technology, sulfur is combined with calcium contained

16 in limestone to form gypsum. This technology allows for

17 the capture and disposal of SO2 in a dry state without

18 using excessive quantities of water or having large

19 settling ponds.

20 The ash from the Colstrip facility has been determined to

21 be non-hazardous. Rosebud expects that the Montpelier ash

22 can be landfilled as Rosebud's ash is presently disposed

23 of in Montana. Enclosed as Exhibit Nos. 7 and 8 are air

24 emissions and ground water pollution prevention permits

25 presently in effect for Rosebud's Colstrip facility which
may be helpful
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ROSEBUD ENTERPRISES

1 for the Commission to assess the likelihood of Rosebud's

2 plant being permitted by state and federal agencies.

3

4 The Montpelier facility will employ up to approximately

5 250 construction workers during the 26 month construction

6 period and thereafter approximately 30 full time

7 employees. Other jobs will be created as a result of

8 limestone trucking, quarrying of the limestone, fuel

9 handling services, and disposal of ash.

10

11 In the course of this proceeding, I would like to extend

12 to the Commission, its Staff and Intervenors the same

13 invitation Rosebud has made to PacifiCorp to visit the

14 Colstrip operating plant. Rosebud looks forward to

15 hosting any visit the Commission, Intervenors or

16 PacifiCorp would like to arrange to view first hand the

17 operations of a CFB boiler and state-of-the-art solid fuel

18 combustion technology. Rosebud believes that any

19 comparison between a large utility-owned plant and a plant

20 similar to Colstrip will be favorable and show significant

21 environmental advantages that "smaller can be better".

22

23 II. Project Emission Controls

24 Q Please describe the Montpelier project's

25 emissions controls.

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ROSEBUD ENTERPRISES

1 A The emissions controls and technology will

2 be similar to those provided for in Montana. (See Rosebud

3 Exhibit Nos. 9 through 15.)

4

5 The Montpelier project's CFB boiler will capture in excess

6 of 90% of all sulfur in the petroleum coke fuel by

7 injecting limestone into the boiler. Based on current

8 projections, Rosebud expects the plant will be limited to

9 no more than 410 pounds of sulfur dioxide emitted per

10 hour. Inherently, CFB technology generates low NOx levels

11 which are expected to be approximately 205 pounds per

12 hour.

13

14 The ash from the facility will be landfilled either by

15 Rosebud or a commercial landfill facility. Ash from this

16 facility should be similar to cement in that when combined

17 with water the ash will set up like concrete. The ash

18 does not leach and will not be classified as hazardous

19 waste. As with many power plants, Rosebud hopes to

20 commercially sell its ash to cement companies or other

21 manufacturers of cinder block and similar products.

22

23 Given the recent extension of water and sewer facilities

24 to the vicinity of Rosebud's Montpelier site, Rosebud

25 anticipates using city water and sewer.

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ROSEBUD ENTERPRISES

1 Based upon the Colstrip facility experience, it is

2 anticipated the Montpelier plant will use approximately

3 70-80 gpm (gallons per minute) of water. The facility's

4 cooling and condensing of turbine exhaust steam will be

5 done by using an air cooled condenser that utilizes no

6 water. A facility similar to the Montpelier project using

7 conventional technology would require a water source for

8 cooling of several hundred gallons per minute which is

9 continuously contaminated and discharged to ponds or other

10 disposal places.

11

12 Once Rosebud has obtained a Power Sales Agreement, Rosebud

13 will commence obtaining the necessary permits. Prior to

14 permitting being commenced with state and federal

15 agencies, it is necessary to know the amounts of power to

16 be generated and fuel consumed so emission levels can be

17 quantified. Dispatchability of such energy and any other

18 unique requirements which may be negotiated with

19 PacifiCorp can greatly effect permit conditions. In

20 addition, federal and state permitting agencies have

21 limited resources and are unwilling to expend such

22 resources to permit a hypothetical facility which as yet

23 to even have a market to sell its energy and capacity.

24

25

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1 III. Plant Operating and Reliability

2 Q Please describe the Montpelier facility;

3 plant operations.

4 A The facility will be operated by an

5 affiliate of Rosebud Enterprises, Rosebud Operating

6 Services, Inc. (ROSI). ROSI is an Idaho corporation and

7 is responsible for management and operation of the

8 Billings Generation facility, a 50 MW coke fired project

9 at the Exxon refinery in Billings, Montana. ROSI is also

10 responsible managing the operation for the Colstrip plant.

11 Q Where will ROSI be located?

12 A ROSI is headquartered in Boise. The on-site

13 plant manager will be responsible for all plant operations

14 and compliance with permits and plant production. Both

15 Rosebud Enterprises and ROSI are Idaho corporations.

16 Q Who will Rosebud employ to operate the

17 plant?

18 A A core group of existing ROSI personnel will

19 be supplemented with new hires. Several colleges now

20 offer associate degrees in solid fuel boiler operations.

21 Rosebud expects to hire experienced operators based on its

22 highly selective screening and testing program. Such

23 operators will have educational backgrounds significantly

24 more advanced than their utility counterparts.

25

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1 Q Please describe Rosebud's expected plant

2 operations objectives.

3 A Rosebud will finance the project based on an

4 expected 90% plant capacity factor (assuming no

5 dispatchability) of its firm 40 MW of capacity. Based on

6 Rosebud's Colstrip plant, the facility should operate at

7 an actual capacity factor above 90%. In addition, Rosebud

8 should be able to demonstrate to equity and debt

9 financiers a reliable incremental ability to deliver

10 energy above 40 MW during spring, winter and fall. The

11 construction contractor and key vendors will be required

12 to guarantee the minimum generation levels thereby

13 assuring PacifiCorp and its ratepayers of achieving a

14 reliable energy and capacity source.

15 Q Do you expect the Montpelier facility to

16 achieve plant reliability significantly greater than the

17 minimums for obtaining financing?

18 A Yes, Colstrip was guaranteed by vendors and

19 the general contractor to produce 35 MW of capacity and

20 262,000,000 kWh per year. Because of significant

21 penalties in construction contracts if vendors do not

22 provide the minimum guarantee production, vendors

23 and the general contractor typically provide;

24 an "insurance margin" to avoid penalties. At

25

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1 Colstrip, the project produces, based on its original 35

2 MW rated capacity, at approximately a 100% capacity factor

3 (306,400,000 kWh for contract year 1992) and has an actual

4 capacity of 38 MW. While Rosebud cannot guarantee a plant

5 similar to Colstrip's outstanding performance, I expect

6 that the vendor guarantees will assure a margin of

7 performance above the minimum projections used by

8 financiers.

9

10 Q What do you then anticipate the Montpelier

11 facility will produce in both energy and capacity?

12 A I expect the facility will produce more than

13 40 MW in the summer hot season, probably at least 41 MW

14 (2.5% vendor insurance margin), and up to 45 MW in the

15 cooler seasons (7.5% margin). Based on these assumptions,

16 the plant's 40 MW of contract capacity should be able to

17 produce PacifiCorp and its ratepayers approximately

18 340,000,000 kWh over the contract year.

19

20 In any case, Rosebud will commit and guarantee PacifiCorp

21 the minimum levels of vendor guaranteed output or 40 MW of

22 capacity and 323,000,000 kWh per contract year.

23

24 Q Do all independent power plants operate in

25 the industry as well as you expect the Montpelier project.

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R.D. BLENDU, Di
ROSEBUD ENTERPRISES

1 A No. Many independent projects have

2 historically not insisted on stringent vendor guarantees

3 (and paid for such guarantees) and in some cases utilized

4 used equipment. Since Rosebud or its affiliates intend to

5 own and operate the facility, Rosebud will not purchase

6 used equipment and will have contractor/vendor guarantees

7 that assure Rosebud, PacifiCorp and PacifiCorp's

8 ratepayers a reliable plant. Additionally, earlier

9 projects utilizing non-typical fuels, such as waste

10 products, did not have an established technology base from

11 which to work. Currently, Rosebud and many other project

12 sponsors have considerable experience with this type of

13 project and vendors now have proven track records.

14 Q Please discuss your involvement in

15 finalizing the plant location.

16 A I have been actively involved in the design

17 and development of the project since its beginning in

18 early 1990. Originally the project was located near

19 Darlington, Idaho at the limestone quarry planned to

20 supply the project. The plan was to interconnect with

21 Bonneville Power Administration (BPA) and supply power to

22 PacifiCorp at the Goshen Substation. In May of 1990,

23 through telephone discussion and its May 15, 1990 letters

24 (attached as Exhibit No. 16), PacifiCorp informed Rosebud

25 it could not

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R.D. BLENDU, Di
ROSEBUD ENTERPRISES

1 interconnect as planned but rather had to deliver power

2 into the Arco substation or the Lost River Substation.

3 Because of interconnect costs and potential wheeling

4 requirements, Rosebud relocated its project to Arco, Idaho

5 after further discussion with PacifiCorp.

6 Q Why did the plant site move from Arco to

7 Montpelier?

8 A On February 26, 1993, Mr. John Lowe

9 (PacifiCorp), Mr. Vance Witbeck (Utah Power & Light) and I

10 met to discuss interconnection equipment from the project

11 site into the Arco Substation. PacifiCorp and I were

12 surprised to learn that, contrary to the May 15, 1990

13 letter, PacifiCorp did not interconnect with the Arco

14 Substation and that 230 KV transmission line ownership

15 began about two miles south of Arco. This created some

16 very expensive and unattractive interconnection

17 alternatives. After subsequent discussions with Messrs.

18 Lowe and Witbeck it was determined the project would

19 better serve both companies by being relocated to

20 Montpelier, Idaho and interconnecting at the Ovid Substation.

21 Q Did PacifiCorp agree with the proposed

22 change in plant site to Montpelier?

23 A Yes, Mr. Witbeck, who is UP&L's Idaho

24 Area Engineer, and I discussed several locations. Of

25 the options studied, it was

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R.D. BLENDU, Di
ROSEBUD ENTERPRISES

1 indicated that the Ovid Substation was most optimally

2 located for power transmission, had space in the

3 substation for additional equipment, and was conveniently

4 located to the proposed site. We subsequently visited

5 Montpelier, reviewed the substation, looked at routing,

6 and confirmed the desirability of the location.

7 Q Was there any correspondence concerning the

8 plant site change?

9 A Yes, I have attached a PacifiCorp letter

10 dated March 5, 1993, a memo-to-file dated March 8, 1993, a

11 Rosebud letter dated March 15, 1993, and a PacifiCorp

12 letter dated March 19, 1993, as Exhibit Nos. 17 through

13 20.

14 Q Is the original Arco plant the same plant

15 proposed as Montpelier?

16 A Yes.

17 Q Did you discuss line losses which would

18 exist at the Montpelier location?

19 A Only briefly. I recall we concluded losses

20 between the project and the substation would be

21 negligible.

22 Q Does this conclude your testimony?

23 A Yes.

24

25

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1 RAMISCH TESTIMONY

2 Q Please state your name and business address.

3

4 A Ronald D. Blendu, Rosebud Enterprises, Inc.,

5 1087 W. River Street, Suite 200, Boise, Idaho 83702.

6

7 Q Are you the same Ronald D. Blendu who

8 offered direct testimony in this case?

9

10 A Yes.

11

12 Q Please summarize your reply testimony.

13

14 A Essentially my reply testimony responds to

15 Mr. Ramisch's testimony which in many cases is inaccurate

16 and incomplete. Since Rosebud's discussions with

17 PacifiCorp commenced in 1990 concerning an eastern Idaho

18 project, PacifiCorp advised me and Rosebud that

19 PacifiCorp's 230 kv line entered the Arco substation.

20 Rosebud relocated its original site in reliance upon such

21 interconnection information. After discovering their

22 error (that PacifiCorp had no distribution line to the

23 substation), PacifiCorp and Rosebud chose what I believe

24 was an optimal site.

25

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R.D. BLENDU, Reb
ROSEBUD ENTERPRISES

1 I further offer testimony concerning Mr. Ramisch's

2 statements on the interconnection study costs, requests

3 for information and willingness to negotiate and

4 investigate Rosebud's project other than as required by

5 the Commission in various prehearing conferences.

6 Q Page 2, line 16, of Mr. Ramisch's testimony

7 indicates PacifiCorp was first introduced to the Rosebud

8 project September 24, 1992. When do you recall PacifiCorp

9 was first approached by Rosebud regarding a project in

10 eastern Idaho?

11 A As I discussed in previous testimony,

12 PacifiCorp was first approached by Rosebud in the spring

13 of 1990. At the time, the project was to be located near

14 Darlington, Idaho, 14 miles north of Arco. Because of a

15 litany of interconnection problems presented by PacifiCorp

16 (see John Lowe letter of May 15, 1990), the project was

17 moved to Arco because PacifiCorp indicated a direct

18 interconnection could be made there. As I recall, the

19 project remained status quo for some time because of

20 difficulties with or suspension of avoided cost rates.

21 When the avoided cost issues were resolved, Rosebud

22 re-opened discussions in the late summer of 1992.

23 Coincidentally with this Rosebud did bid a similar

24 facility, located at Arco, in response to Bonneville Power

25 Administration's (BPA) Request for Proposal (RFP). Rosebud

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R.D. BLENDU, Reb
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1 provided the bid material to PacifiCorp as an indication

2 of how far along development had occurred at the Arco

3 site.

4 Q Page 5, lines 7-21 of Mr. Ramisch's

5 testimony indicate PacifiCorp was not provided any

6 information concerning the project. Why was this?

7

8 A PacifiCorp has consistently and promptly

9 been provided any information it has requested. Please

10 note on the November 11, 1992 letter Mr. Ramisch refers

11 to, PacifiCorp sent an example of the kind of information

12 it would require. It did not request information. Item

13 I.5 of that exhibit clearly states PacifiCorp would not

14 even begin negotiations until permits had been applied for

15 and fuel supply contracts were in place. Mr. Orndorff

16 filed a complaint two days later. As I recall, Commission

17 help was required to resolve this and the detailed

18 interconnection study referred to in Item I.5 became a

19 $2,000-$3,000 feasibility study. It wasn't until February

20 of 1993 that PacifiCorp made any sincere inquiries about

21 the project when we met in Arco to look at the site and

22 interconnection methodology.

23 Throughout these proceedings PacifiCorp has been told the

24 project will be nearly identical to Rosebud's Colstrip

25 facility. Numerous invitations for a site visit have been

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1 extended as well as an opportunity to review drawings.

2 Rosebud could have provided the technical information

3 contained in my previous testimony at anytime.

4 Q On page 5, lines 24-25, of Mr. Ramisch's

5 testimony states Rosebud did not have a viable site at

6 Arco as proven by a simple site visit, what is your

7 response?

8 A Mr. Ramisch either does not know or is

9 misrepresenting the facts. The purpose of the February

10 26, 1993 Arco site visit was to allow PacifiCorp to view

11 first hand the proposed project and to define the scope of

12 the interconnection study. Rosebud had a site location,

13 rail and highway access, limestone supply, ash disposal

14 sites, and transmission line routing in place at the time

15 of the visit. It was only because PacifiCorp suddenly

16 discovered and announced it did not have transmission

17 capabilities out of the Arco substation that the site

18 became unviable.

19 Q On page 6, lines 14-25, of Mr. Ramisch's

20 testimony indicate Rosebud balked at the cost of an

21 interconnection study, why is that?

22 A My recollection of discussions with

23 other Rosebud principals is that Rosebud never

24 objected to paying for an

25

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1 interconnection feasibility study. However, we did make

2 it clear PacifiCorp could not have an open checkbook. I

3 remember our only comments were to keep the cost of the

4 study in an appropriate price range. Mr. Ramisch

5 insinuates that, despite Rosebud's refusal to pay for an

6 interconnect study, PacifiCorp graciously agreed to a site

7 visit in February of 1993. This simply is not true. In

8 early February of 1993 I was requested by Mr. Orndorff to

9 arrange an Arco site visit with PacifiCorp. Mr. Orndorff

10 explained we had reached an agreement with PacifiCorp for

11 the magnitude of an interconnection study not to exceed

12 $2,000-$3,000. The main purpose of this visit was to

13 develop the scope for the interconnection study and to

14 answer any other technical questions PacifiCorp may have

15 had. I remember Mr. Orndorff emphasizing that lawyers,

16 consultants, contract administrators, etc., were being

17 excluded by both visiting parties so that this could be a

18 purely technical exchange free from entanglements caused

19 by the dispute between Rosebud and PacifiCorp.

20 Q On page 7, lines 12-13, Mr. Ramisch states

21 the relocation to Montpelier was of Rosebud's instigation

22 and its benefit. You have testified Rosebud moved to

23 Montpelier at PacifiCorp's suggestion. What is your

24 response?

25

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1 A I agree with Mr. Ramisch that PacifiCorp's

2 discovery that they did not interconnect into the Arco

3 substation, thereby causing a great economic burden to the

4 Arco project, was not a concern to them. Because Rosebud

5 had relied on representations by PacifiCorp that

6 PacifiCorp interconnected to the Arco substation, it was a

7 substantial surprise to Rosebud and its project

8 development effort. However, as I previously testified

9 the selection of Montpelier, Idaho was at PacifiCorp's

10 suggestion. In my March 8, 1993 telephone conversation

11 with Messrs. Lowe, Cory and Morris of PacifiCorp (Exhibit

12 18 of R.D. Blendu Testimony), Rosebud was indicating a

13 relocation to near the Gosten substation, an area of which

14 we were knowledgeable. PacifiCorp indicated it didn't

15 care where in eastern Idaho we located as all choices were

16 poor. It was suggested by PacifiCorp that I discuss

17 location further with Mr. Vance Witbeck (PacifiCorp's

18 regional engineer). I had a telephone discussion with Mr.

19 Witbeck on March 11, 1993, and at his suggestion Rosebud

20 tentatively selected Montpelier and the Ovid substation.

21 I say tentatively because we had not even been there. We

22 had no site, had not seen the substation, rail situation

23 was unknown, and transmission right-of-way was unknown.

24 It is preposterous to think Rosebud suggested this

25 location under those circumstances. Immediately after
that March 11, 1993 phone call we began an intense
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1 investigation and in my March 15, 1993 letter to Mr. Lowe

2 I confirmed the site (Exhibit No. 19 to R.D. Blendu

3 Testimony). Please note that letter also requests

4 PacifiCorp to focus its interconnection study on the Ovid

5 substation. We were hardly balking at paying for the

6 study.

7

8 Q On page 7, line 19, Mr. Ramisch testifies

9 that Rosebud requested the study not be performed. Is

10 this accurate?

11 A No. Mr. Ramisch intentionally misrepresents

12 what PacifiCorp's April 28, 1993 letter to me says. It

13 does say PacifiCorp and Rosebud agreed to put the study on

14 hold. It does not say Rosebud requested the study be put

15 on hold. I would have responded immediately if the letter

16 had said that. When Mr. Witbeck, Mr. Lowe and I visited

17 the Ovid substation the ease of interconnection was

18 obvious and straight forward. The feasibility of

19 interconnection was so clear that we all agreed we would

20 be wasting PacifiCorp's time and Rosebud's money to study

21 this issue further and the site visit accomplished this

22 intent of the study. I was not the one who suggested we

23 did not need the study. Mr. Ramisch on page 8, lines

24 15-16, again misrepresents why the interconnection study

25 was put on hold.

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1 Q Mr. Ramisch on page 10, lines 13-19, states

2 the information you provided in Exhibits 1-6 is the kind

3 of material that would have demonstrated to PacifiCorp

4 Rosebud was ready, willing and able to sign a power sales

5 contract. Why was this not provided sooner?

6 A PacifiCorp never asked for this information.

7 As I stated previously, Rosebud could have supplied this

8 information any time since mid-1992. We are basically

9 proposing a clone to a highly successful operating plant.

10 We are duplicating a design. We have a much more

11 in-depth technical base than most projects do at this

12 stage of development. I believe PacifiCorp knows this.

13 It makes one wonder if they wanted to be confronted with

14 the data.

15 Q On page 12, lines 4-6, Mr. Ramisch states

16 Rosebud told PacifiCorp it was not ready to proceed with

17 an interconnection study. Why?

18 A I was at that meeting. Neither I nor

19 anyone else from Rosebud told PacifiCorp that Rosebud

20 was not ready to proceed with the interconnection study.

21 Frankly, I think it is absurd to suggest Rosebud would

22 jeopardize these proceedings over a $2,000-$3,000 item.

23 The interconnection study was put on hold during the

24 visit to the Ovid

25

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1 substation because Vance Witbeck, John Lowe and I all

2 concluded it would serve no useful purpose. The next step

3 in interconnection study is an actual, in-depth, detail

4 design of the interconnection. Such a detailed study is

5 normally done after financing has been closed as part of

6 the detailed engineering design work cost a project such

7 as Montpelier many thousands of dollars.

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

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1 (The following proceedings were had in

2 open hearing.)

3 COMMISSIONER MILLER: We'll note that for

4 some reason the -- we have a small clerical problem

5 here -- the rebuttal testimony apparently is not included

6 in our binders and so we're going to get that and we'll

7 have it here in just a few moments so that we can follow

8 along if there's cross on the rebuttal.

9 MR. FELL: There will be cross on the

10 rebuttal. Should we wait?

11 COMMISSIONER MILLER: Can you do the cross

12 on the direct or is it all kind of mixed up?

13 MR. FELL: It does cross over and the

14 witness' answers may refer to either one, either set for

15 the questions.

16 COMMISSIONER MILLER: I think we'll wait for

17 a few minutes so that we can be sure we're following along

18 with the examination.

19 (Off the record.)

20 COMMISSIONER MILLER: All right, we

21 apologize for our false start here, that was our error.

22 Now, let's see, we've spread the testimony on the record

23 and we've marked the exhibits; so I guess we're ready for

24 cross-examination; is that correct?

25 MR. ORNDORFF: I think that's right.

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1 COMMISSIONER MILLER: Mr. Fell.

2

3 CROSS-EXAMINATION

4

5 BY MR. FELL:

6 Q Mr. Blendu, your testimony talks about a

7 project that began in early 1990, is that correct, in the

8 Arco area?

9 A That's correct.

10 Q And your Exhibit 16 is communication

11 relating to that project? That's the May 15, 1990, letter

12 from Pacific to Mr. Orndorff. Excuse me, do you have

13 those exhibits with you?

14 A I have some of those exhibits with me. I

15 have more of the technical information. I have the May,

16 '90 letter here, yes, I have that, Exhibit 16.

17 Q Is it your position that the project that

18 we're here to talk about is a qualifying facility that's

19 located in eastern Idaho and that basically is the

20 description of the project?

21 A I'm not sure I understand the question.

22 Q Let me put it in context, or is your

23 proposed project -- let me say the issue is whether it is

24 more specific than that. Your testimony in some of the

25 documents refer to the new project as having continuity

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1 with the older project because it is a qualifying facility

2 in eastern Idaho.

3 A My testimony does not link whether it's a

4 qualifying facility to its location. What I tried to

5 describe is our project was initially sited at the site of

6 a limestone quarry to where we thought we had easy access

7 to transmission and ash disposal. Based on subsequent

8 discussions, it was relocated to Arco as being a more

9 advantageous site, and subsequently, it was relocated to

10 Montpelier for what we hope is its final place. I am not

11 in a position to link any of those moves to how it might

12 relate to PURPA or whether it's a QF.

13 Q Well, I'm interested in the differences

14 between the project that was being discussed in 1990 from

15 the one that was presented in 1992; so if you would look

16 at your Exhibit 16, please. In the second paragraph, that

17 exhibit refers to a 30 megawatt coal-fired cogeneration

18 facility. It was at that time a 30 megawatt project?

19 A We were talking nominally a 30 megawatt

20 coal-fired facility at the time. We were still talking

21 basically a clone of our Colstrip facility. It has a

22 rating in the 35 to 37 megawatt range. We were talking

23 about proposing 30 megawatts of capacity using coal as a

24 fuel, that's correct.

25 Q Would you agree that the size of the

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1 facility has a significant bearing on the interconnection

2 issues?

3 A In these cases?

4 Q Yes.

5 A No, I would not.

6 Q The thermal capacity of the line is not, are

7 you saying that the thermal capacity of the line is not

8 related to the size of the facility?

9 A As I understood the question, the question

10 was does the difference between a 30 megawatt plant and a

11 40 megawatt plant in the three areas we talked about

12 locating have an impact on the thermal rating of the line,

13 my answer would be no, it does not, the difference between

14 30 and 40 megawatts. If you ask me the difference between

15 30 and 300, I would have a different answer.

16 Q Do you know what the capacities are of the

17 lines in that area?

18 A We were originally given the load flow

19 studies. In the original Darlington area, we were talking

20 about connecting into one of the main BPA transmission

21 lines about three miles off from one of our projects. We

22 were talking about routing down a county line road. In

23 Arco, we were under the understanding that PacifiCorp had

24 major transmission capabilities going into and out of the

25 Arco substation. We had proposed tying in and

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1 over-building a line from the site we had down a roadway

2 into the Arco substation which would have accommodated the

3 capacity from a 40 megawatt project.

4 Q What if you had to interconnect into a 69 kV

5 line?

6 A Where?

7 Q In the Arco area.

8 A Well, in the Arco area, we were under the

9 understanding that PacifiCorp interconnected with main

10 transmission capabilities. When we got there --

11 Q Mr. Blendu, you're getting ahead of me. I

12 was interested --

13 MR. ORNDORFF: Can you let the witness

14 finish, please? He asked a question and he interrupted

15 the witness.

16 MR. FELL: Except that he's not answering

17 the question I'm asking.

18 COMMISSIONER MILLER: Let's wait here now.

19 Mr. Fell, I think if you believe that the answer is not

20 responsive, you should bring that to the attention of the

21 Chair and the Chair will then rule as to whether the

22 answer was responsive or not responsive and that will

23 avoid bickering back and forth between you and

24 Mr. Orndorff.

25 MR. FELL: That will be fine. May I clarify

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1 the question?

2 COMMISSIONER MILLER: Please do.

3 Q BY MR. FELL: I'm interested in the

4 relationship to the 30 megawatt, to the size of the

5 project. If you have a 69 kV line that you're

6 interconnecting into, isn't the size of the project a very

7 significant interconnection question?

8 A No. It depends on the rating of the 69 kV

9 system, how much power it's rated for. When we went to

10 Arco and I was presented with an alternate 69 kV option,

11 which was a complete surprise to us, PacifiCorp has a

12 69 kV that ends part way to the Arco substation that they

13 were only carrying three megawatts on and they claimed we

14 would have to rebuild 29 miles of power line to put it on

15 there, and I'm certainly not disagreeing that that might

16 be the case, but that was certainly a surprise to us. I

17 was told it would carry three megawatts; so the difference

18 between whether 30 megawatts is too big for a three

19 megawatt line or 40 megawatts is too big I don't believe

20 is very significant.

21 Q So if I can understand your answer, either

22 one of them could be too big; isn't that what you just

23 said?

24 A On that line.

25 Q Yes, okay. The other point is that the 1990

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1 project was a cogeneration facility so that it was planned

2 to have a steam host; is that correct?

3 A As part of our business discussion with the

4 limestone quarry, one of the options we were looking at

5 was a potential supply of steam to the limestone quarry.

6 That was desirous of them.

7 Q And then in the next paragraph, that is, the

8 third paragraph, you point out that the 1990 facility was

9 in the vicinity of Darlington; correct?

10 MR. ORNDORFF: I'm going to object.

11 THE WITNESS: Exhibit 16?

12 Q BY MR. FELL: Yes, Exhibit 16.

13 A My understanding is PacifiCorp wrote this

14 letter to Mr. Orndorff and you're claiming I'm pointing

15 out something in this letter. I didn't write this letter.

16 Q Let me rephrase it. At the time was the

17 project located in the vicinity of Darlington?

18 A Yes.

19 Q And at the time was it Rosebud's plan to

20 interconnect with BPA through the Lost River substation?

21 A We were planning on interconnecting with BPA

22 to interconnect with PacifiCorp which we thought was

23 possible based on the information we had available to us

24 about the transmission system. As a result of this

25 information from PacifiCorp and the difficulties that were

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1 going to be required and presented with wheeling

2 agreements and having to go through an REA, which would

3 have been a difficult proposition, that after we got this

4 letter, we decided to relocate the project from Darlington

5 to Arco where we thought we could make a direct

6 interconnection with PacifiCorp.

7 Q Now, when was the decision made to relocate

8 from Darlington to Arco?

9 A I don't recall the exact time. My memory

10 says it was fairly soon after we got this letter.

11 MR. FELL: Mr. Chairman, I'd like to

12 circulate a proposed exhibit.

13 (Mr. Fell distributing documents.)

14 MR. FELL: Mr. Chairman, I have circulated a

15 letter from PacifiCorp dated June 8, 1990, from Mr. John

16 Lowe to Mr. Orndorff stating an understanding that Arco

17 Generation had received what they needed and requesting

18 that Arco Generation let PacifiCorp know when they are

19 ready to proceed.

20 Q BY MR. FELL: Mr. Blendu, do you recognize

21 this letter?

22 A No, I don't.

23 MR. FELL: Mr. Chairman, for purposes of the

24 record, I should get an exhibit number assigned to this.

25 Our last exhibit number is Exhibit No. 120; so this would

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1 be Exhibit No. 121.

2 COMMISSIONER MILLER: All right, this

3 one-page document will be marked as Exhibit 121.

4 (PacifiCorp Exhibit No. 121 was marked

5 for identification.)

6 MR. FELL: Inasmuch as Mr. Blendu is not

7 familiar with this document, we will have one of our

8 witnesses identify it for the record.

9 Q BY MR. FELL: Mr. Blendu, do you have any

10 correspondence in your records from Arco Generation or

11 Rosebud to PacifiCorp following this June 8, 1990, letter

12 indicating that Mr. Lowe's understanding was incorrect?

13 A I don't recall ever having seen this

14 letter. I'm surprised that there's reference to 25

15 megawatts. I have no recollection of ever discussing a

16 25 megawatt project and I have no knowledge of a response

17 ever being made to this, I personally don't.

18 MR. FELL: Thank you. Mr. Chairman, the

19 next document I'd like to distribute is actually the

20 complaint and the exhibits that were attached to the

21 complaint. I want to make sure that the exhibits that are

22 attached to the complaint are part of our hearing record

23 and no witness has sponsored them at this point. I have a

24 limited number of copies of these because it is so thick,

25 but I would like to make sure this is identified as an

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1 exhibit.

2 (Mr. Eriksson distributing documents.)

3 MR. FELL: I assume Mr. Orndorff has a copy

4 of this document in his pleadings file; is that correct?

5 MR. ORNDORFF: Yes, I do, Mr. Chairman. I

6 just wonder if it's a necessary exercise because it is

7 part of the complaint.

8 MR. FELL: The reason, Mr. Chairman, is that

9 we will be making reference to some of these documents

10 during cross-examination.

11 COMMISSIONER MILLER: Well, whether it's

12 strictly necessary or not, I think we'll mark it as

13 Exhibit No. 122 and have this part of the hearing record.

14 (PacifiCorp Exhibit No. 122 was marked

15 for identification.)

16 MR. ORNDORFF: Mr. Chairman, I think I will

17 then want a copy of that before we proceed because I would

18 like to verify what's in there.

19 Q BY MR. FELL: Now, then, Mr. Blendu, I would

20 like to refer you to the document that appears right after

21 the complaint which has a cover sheet that says

22 "Exhibit A" and the document is a September 24, 1992,

23 letter from Mr. Orndorff to Mr. John Lowe of PacifiCorp.

24 Would you please read the first paragraph of that letter,

25 just the first paragraph?

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1 A "Back in 1990 -- back in late 1990, Arco

2 Generation, Inc. sought a Power Sales Agreement from

3 PacifiCorp -- from Pacific Power and Light for a facility

4 to be located in Arco, Idaho. During 1991, the

5 Commission's final security and qualified facility rates

6 were finalized at levels which were insufficient to

7 purchase and transport coal to Arco and Arco Generation

8 concluded a project at Arco, Idaho was not feasible."

9 Q Thank you. Do you have any recollection of

10 any communication occurring between the June 8 letter,

11 June 8, 1990, letter that is Exhibit 121, and this letter

12 which is contained in Exhibit 122?

13 A Ask your question again, please.

14 MR. ORNDORFF: Mr. Chairman, I don't know,

15 there probably is something here that might speed things

16 up. Arco Generation is a separate corporation from

17 Rosebud Enterprises and I'm not sure, I'm having trouble

18 understanding what the nexus is between Arco Generation

19 and Rosebud Enterprises and maybe we could stipulate that

20 the two are separate projects and one died and one was

21 created and they're separate entities.

22 MR. FELL: That stipulation would end my

23 cross-examination on this subject.

24 COMMISSIONER MILLER: You're willing to

25 accept that as a stipulation of fact?

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1 MR. FELL: I am willing.

2 COMMISSIONER MILLER: All right, we'll have

3 the reporter note that the parties have stipulated to the

4 facts recited by Mr. Orndorff and no further proof of

5 those will be required.

6 Q BY MR. FELL: Mr. Blendu, now I'm going to

7 turn to the interconnection issue for the Rosebud project,

8 the 40 megawatt project that was presented in September,

9 1992. Your rebuttal testimony indicates that you were

10 relying in some way on PacifiCorp for some impression that

11 you had that the interconnection at Arco was not a

12 difficult matter; is that a fair interpretation of your

13 testimony?

14 MR. ORNDORFF: Mr. Chairman, it may be

15 helpful if he were to specify where in the testimony he's

16 referring to. It might speed up things.

17 COMMISSIONER MILLER: That is our usual

18 custom, I guess.

19 Q BY MR. FELL: On Page 2 of your testimony,

20 Mr. Blendu, you talk about PacifiCorp having advised

21 Rosebud that PacifiCorp's 230 kV line entered the Arco

22 substation?

23 A In the May 15th, 1990, letter, when

24 PacifiCorp explains the wheeling requirements out of

25 Darlington, they discuss the fact that we would have to

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1 wheel down and direct connect with PacifiCorp into the

2 Arco substation where they had a 230 kV transmission line

3 located there and a 69 kV line; so based on that May 15th,

4 1990, letter and not having accurate and detailed drawings

5 of the PacifiCorp transmission system, we concluded that

6 we could tie in to Arco, yes, based on that letter.

7 Q You didn't find it necessary, then, to

8 request that PacifiCorp conduct an interconnection study

9 to confirm what would be required to interconnect in that

10 area?

11 A No. We've interconnected often enough and

12 the procedures for an interconnection into either a 69 or

13 230 kV are reasonably standard for estimating purposes; so

14 at that point in time if we would have had some unusual or

15 bizarre situation that would have had a dramatic cost

16 impact above the normal, then we may have looked at that a

17 little further.

18 Q What was it from your recollection that was

19 found in Arco during the site visit that occurred in early

20 1993 regarding interconnection?

21 A Well, I met -- I went out there specifically

22 to meet with PacifiCorp people to develop the scope and

23 nature of a preliminary feasibility level interconnection

24 study. That was the purpose of the visit. What we found

25 was PacifiCorp did not interconnect into Arco. They

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1 interconnected on their 230 kV line, they stop three miles

2 short of town, and so I was told our options were to try

3 and get an easement across country through some farm and

4 range land and build three miles or so of 230 kV

5 transmission line and build a substation in the middle of

6 the transmission line three miles south of town or to look

7 at an alternate mechanism of rebuilding 30 miles or 25

8 miles, whatever it was, of basically almost unused 69 kV

9 line that tied down into INEL and then shot over to the

10 Scoville substation, I believe, for an interconnection in

11 there; so as soon as we got there, it got real clear that

12 what our plan was from our site to build a line right down

13 a roadway to the substation which was a two- or three-mile

14 run of running -- we didn't particularly care about the

15 voltage, whether it was 115, 69 kV, 50 kV, it became real

16 obvious that our plan down the right of way we had planned

17 to go down was just not practical under the

18 circumstances.

19 Q Who owned the 230 kV line from where

20 PacifiCorp's ownership ended to the Arco substation?

21 A If I could, I submitted a sketch that was

22 done by the PacifiCorp people that I would like to refer

23 to. I can't recall whether it was the --

24 MR. ORNDORFF: It's an exhibit in discovery.

25 THE WITNESS: This here, my sketch, and

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1 Mr. Witbeck's sketch that he provided, but from the Arco

2 substation, it was determined that BPA then owned the

3 line. There was just a board on the line they pointed

4 to. He said see those cross pieces up there? That's the

5 change of ownership right in the middle of the line and

6 from here it's BPA. It goes 10 miles north to the Moore

7 substation and then from there it interconnects with the

8 Lost River REA which wheels around and comes back to Arco;

9 so we would have had to build a 230 kV substation, get a

10 wheeling agreement with BPA and then Lost River.

11 The other option they said was to rebuild a

12 38 megawatt rated 69 kV line that they currently were only

13 running three megawatts on and was owned by Utah Power &

14 Light with a switch normally open into the Arco sub, that

15 we would have to rebuild that line because they wouldn't

16 accept a 30 or 40 megawatt plant on a 38 megawatt rated

17 line, down to Scoville into INEL where there was a 138 kV

18 line that went over to the Antelope substation, and we

19 just looked at the practicality of those kinds of

20 monumental changes in interconnect and said this isn't the

21 place.

22 Q There was, though, a 230 kV line. The line

23 that PacifiCorp had, the 230 kV line, picking up the three

24 miles of BPA ownership did continue on into the

25 substation?

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1 A No, did not continue into the substation.

2 Q Explain that.

3 A The information provided by PacifiCorp, it

4 picked up and went another 10 miles north into the Moore

5 substation --

6 Q Yes.

7 A -- and then turned around through Lost River

8 REA and came back on a 69 kV line that belonged to Lost

9 River into Arco, and as near as I can tell, the only line

10 that was there was a seldom or non-used Utah Power & Light

11 line that was 38 megawatt rated that they never ran more

12 than three megawatts on that came out of Scoville out of

13 INEL, and that's the only thing that could even remotely

14 go into Arco, but we couldn't hook into that line and

15 rebuild into Arco or you'd have had to wheel back through

16 Lost River, back through Moore substation, down to BPA,

17 and then on to the PacifiCorp line.

18 Q Thank you, that's clearer.

19 Mr. Chairman, I would like to introduce two

20 other exhibits.

21 (Mr. Eriksson distributing documents.)

22 MR. FELL: The first exhibit is a

23 January 29, 1993, letter from PacifiCorp to Mr. Orndorff

24 describing the terms of an interconnection study. We

25 would mark this as Exhibit 123, and the second document is

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1 a March 10, 1993, letter from Mr. Orndorff to Mr. Woodbury

2 at the Commission and we would mark this as Exhibit 124.

3 COMMISSIONER MILLER: All right, we'll mark

4 Exhibits 123 and 124.

5 (PacifiCorp Exhibit Nos. 123 & 124 were

6 marked for identification.)

7 Q BY MR. FELL: Mr. Blendu, I'd simply like to

8 have you identify this first document. The January 29,

9 1993, letter that has been marked as Exhibit 123 which

10 proposes terms for an interconnection study, are you

11 familiar with that letter?

12 A I don't recall specifically seeing this

13 letter. I recall seeing another one that had some similar

14 information on it, but I may have seen this one.

15 MR. FELL: Mr. Chairman, we'll have this

16 identified by one of our witnesses, then.

17 Q BY MR. FELL: And the next document is

18 Exhibit 124, the March 10, 1993, letter to Mr. Woodbury.

19 Do you recognize that letter?

20 A I'm sure I must have seen this.

21 Q This is the letter that informs the

22 Commission that Arco is no longer a suitable site for the

23 project.

24 MR. ORNDORFF: Is that testimony or a

25 question?

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1 MR. FELL: No, I simply want the document, I

2 will move for admission of that document later on, but I

3 think the witness has identified it sufficiently. Unless

4 Mr. Orndorff intends to object to its admission, we'll

5 just move on.

6 MR. ORNDORFF: I don't intend to object to

7 the document. I am puzzled by Counsel identifying the

8 document as purporting to say something and not asking a

9 question.

10 COMMISSIONER MILLER: Well, the

11 Commissioners have the document and we can read it and not

12 be unduly influenced by other characterizations of it.

13 MR. FELL: My characterization was just to

14 identify it so the record was clear.

15 Q BY MR. FELL: Mr. Blendu, when you examined

16 the interconnection situation at Arco, did you in your own

17 mind come to some determination about what the approximate

18 cost of that kind of interconnection, the sort of

19 interconnection that would be required there, what that

20 cost might be?

21 A Yes.

22 Q And what was your ball park sense of that?

23 A Well, I don't personally have detailed

24 expertise in that. I've been involved in the design and

25 construction and we directly oversee our interconnection

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1 studies. The costs of interconnecting directly into a

2 230 kV line, substation equipment and protective devices

3 go up exponentially as the voltage goes up. We were

4 looking at, conservatively, we had estimated between one

5 and one-and-a-half million dollars for interconnection at

6 Arco, the voltage we were talking about, and either of the

7 other options that would have been left available to us

8 would have gone into several million dollars from my view

9 and that's independent of the two wheeling agreements that

10 would have had to have been subsequently developed.

11 Q I'm not sure that I completely understood

12 your answer. Were you saying that a simple

13 interconnection at the substation would have been about a

14 million, might have been a million to a

15 million-and-a-half, but the alternate design that you were

16 having to go to was several million?

17 A It currently costs us between three-quarters

18 of a million and about a million, one, a million, two,

19 depending on the complexities, to build one to two miles

20 of transmission line, build an interconnection in the

21 substation and build a switchyard in our plant. To make

22 either of the kind of interconnections we have talked to

23 would have been several orders of a magnitude above that.

24 Q Thank you. In moving the site to

25 Montpelier, did you also make a ball park estimate based

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1 on your experience of what interconnection costs you

2 expected there?

3 A Well, if you'll review my testimony, we were

4 proposing relocating to near Firth, Idaho at the Goshen

5 substation. Based on discussions with a Mr. Vance Witbeck

6 and I gained some information that there were several

7 lower voltage lines going into the Ovid substation, I

8 believe there was a 100, there was a 69 or 47 kV, they had

9 real estate in the substation, they had an extra support

10 structure, so over the phone with that kind of data and

11 through the discussions with Mr. Witbeck, it's reasonably

12 straightforward to make a ball park estimate within a

13 couple hundred thousand dollars of what your

14 interconnection costs are going to be, and when I left the

15 meeting, as I again said, we selected that tentative based

16 on a review of the site because we had not had an

17 opportunity as a result of that preliminary selection to

18 look at right of way and where the transmission line and

19 where the Ovid substation may lie in relationship to a

20 site we had not yet even selected; so it was tentative

21 selection based on the substation situation.

22 Q Would you please tell us what the time frame

23 was for that visit to the Montpelier area?

24 A I'd have to read my rebuttal testimony to be

25 precise. What I recall is about March the 8th of '93 I

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1 had a discussion with Mr. Witbeck. Based on that

2 discussion and that afternoon I got our engineering

3 resources looking at the transmission situation in Ovid,

4 within a day or two later, Mr. Roberts traveled to

5 Montpelier and located a site and a transmission right of

6 way that enabled us to price it and I could look it over

7 technically and say, yes, we can afford this spot.

8 Q What was your ball park estimate of the

9 price that you relied on for that opinion?

10 A The ball park estimate, we think we can

11 probably do that for $1.1-$1.2 million, depending on who

12 builds the transmission line. Pacific Power has indicated

13 they would like to build and construct the substation

14 work, which is not unusual, and we've left it open on who

15 would build the transmission line and we would build the

16 switchyard in our plant.

17 Q In connection with the move from Arco to

18 Montpelier, did you also investigate the rail

19 transportation availability and cost?

20 A Yes.

21 Q When did you do that?

22 A Some time between March or May -- no,

23 March 8th of my telephone call and March 15th, I believe

24 it was, when we sent the letter to Mr. Lowe saying we

25 would confirm the Montpelier site, we had active and

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1 ongoing discussions with the railroad and fuel suppliers

2 into Arco at the time. The Montpelier rail situation --

3 Montpelier, for those of you who don't know, is an old

4 railroad switching center, the crews laid over there, and

5 the rail people were very familiar; so to confirm and

6 verify rail prices was relatively straightforward. The

7 site Mr. Roberts picked happened to have a rail spur going

8 right through it.

9 MR. FELL: Mr. Chairman, I'd like to

10 distribute two more exhibits.

11 (Mr. Eriksson distributing documents.)

12 MR. FELL: The first exhibit which I would

13 like to have identified as Exhibit 125 is a February 23,

14 1993, letter from Union Pacific to Mr. Jeff Smith of

15 Rosebud Enterprises.

16 (PacifiCorp Exhibit No. 125 was marked

17 for identification.)

18 Q BY MR. FELL: Mr. Blendu, are you familiar

19 with this letter?

20 A Yes.

21 Q And is this a letter from Union Pacific

22 describing proposed transportation arrangements and prices

23 for transportation to the Arco area?

24 A I believe so, yes. Yes.

25 MR. FELL: And then moving to the next one,

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1 an exhibit which I would like to have marked as

2 Exhibit 126, this is a letter dated April 23, 1993, also

3 from Union Pacific to Mr. Smith.

4 (PacifiCorp Exhibit No. 126 was marked

5 for identification.)

6 Q BY MR. FELL: Mr. Blendu, are you familiar

7 with this letter?

8 A Yes.

9 Q And this then is a letter for similar

10 transportation arrangements to Montpelier?

11 A Yes.

12 Q Now, Mr. Blendu, these letters refer to coal

13 transportation; is that correct?

14 A Yes.

15 Q Are the volumes, the minimum volumes,

16 referred to here the minimum volumes that would be

17 appropriate for fueling the Rosebud 40 megawatt project?

18 A With coal, yes.

19 Q And the February 23 letter identified as

20 Exhibit 125 refers in the second paragraph to the track

21 condition beyond Scoville being very poor and substantial

22 upgrading being necessary. Do see that on the letter?

23 A Yes.

24 Q Is it your understanding -- let me say that

25 as I read the letter, that was built into their price

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1 quote, was that your understanding, whatever upgrading was

2 required?

3 A I'm trying to recall. I can't remember

4 precisely. I recall for the limestone quarry the rail

5 situation was being actively worked between Arco,

6 Blackfoot and the rail people. There were a number of

7 issues that were going on where they were going to -- at

8 first, as I recall, they were going to remove the track,

9 then they were going to replace and rebuild the track. I

10 recall the limestone quarry was relying on rail shipments

11 of limestone to get the limestone out, that our project

12 and coal and/or coke transportation in was helpful in

13 convincing the railroad to rebuild the track and preserve

14 the track into the Arco, Blackfoot area. I don't recall

15 any more specifics than that of the rail situation.

16 Q Now, as I read the April 23, 1993, letter,

17 which is Exhibit 126, I don't see any reference to a need

18 to rebuild track. Was it your understanding that there

19 would be no need to rebuild track for transportation to

20 Montpelier?

21 A That's correct.

22 Q Thank you, and let me further ask, the price

23 for transportation to Montpelier was then -- I mean, that

24 accounts for the significantly lower price for

25 transportation to Montpelier? Let me take the word

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1 significant out, for the lower price for transportation to

2 Montpelier?

3 A Because it's a shorter haul; is that your

4 question?

5 Q No, I was assuming it was because there was

6 no rebuilding of track required.

7 A It's a shorter haul.

8 Q It's also a shorter haul?

9 A Yes. You know, I'd again like to point out

10 we're primarily focusing on coke for Montpelier and while

11 we fully intend to have alternate fuel supplies in place,

12 our primary focus will be on the supply of coke.

13 Q Do you have similar transportation term

14 sheets or letters regarding the transportation of

15 petroleum coke?

16 A Mr. Orndorff has worked that issue pretty

17 heavily. I don't have these documents.

18 MR. ORNDORFF: Mr. Chairman, Mr. Roberts

19 will be willing to answer that question. Mr. Blendu's

20 testimony does not go into this area. He's generally not

21 been talking with the people and not familiar with it.

22 MR. FELL: I'll hold the question.

23 May I take a minute? I might pass on

24 something.

25 (Off the record.)

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1 Q BY MR. FELL: Mr. Blendu, would you be the

2 appropriate witness to ask about permits for the

3 Montpelier site, or the Arco site for that matter, for

4 this project?

5 A No.

6 Q Would that be Mr. Roberts?

7 A Yes.

8 Q And would Mr. Roberts also be the

9 appropriate witness for questions regarding the exhibits

10 in terms of the contract that was being negotiated?

11 A Power purchase contract?

12 Q The power purchase contract.

13 A Yes.

14 MR. FELL: I have no further questions of

15 this witness.

16 COMMISSIONER MILLER: All right, thank you,

17 Mr. Fell. That, I think, makes it a good time for our

18 morning break; is that agreeable? Why don't we resume

19 at -- we'll take a 15-minute break and resume at five

20 minutes to 11:00.

21 (Recess. )

22 COMMISSIONER MILLER: All right, we'll go

23 back on the record.

24 Mr. Orndorff, do you have redirect?

25 MR. ORNDORFF: No, I don't, Mr. Chairman.

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1 COMMISSIONER MILLER: Questions from the

2 Commission.

3 COMMISSIONER NELSON: Well, I think I have a

4 few. Mr. Orndorff, was your stipulation with

5 Mr. Fell that Arco Generation, Inc. and Rosebud were

6 separate corporations?

7 MR. ORNDORFF: Mr. Fell can help me if I

8 need help, but they are separate corporations, they are

9 separate projects and there is no nexus between -- one was

10 a coal project. The one we're talking about today is a

11 coke project. They had different points of origin,

12 different corporations. That's why I stipulated. I think

13 one is a failed project and one is here today.

14 COMMISSIONER NELSON: I just wanted to be

15 clear on that, thank you.

16

17 EXAMINATION

18

19 BY COMMISSIONER NELSON:

20 Q Mr. Blendu, were you a director of both

21 corporations?

22 A Yes.

23 Q When did Rosebud first get involved in this

24 project? I don't know that I have a clear understanding

25 of that.

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1 A I believe it was in 1990 when we were

2 talking about at Darlington, that was done as Rosebud

3 Enterprises. In 1990, when we discovered the difficulty

4 of transmission interconnection, it was moved to Arco and

5 it's not clear to me, then, when Arco Generation became

6 the corporate entity in that.

7 Q In looking at the complaint that was filed,

8 in this September 24th, 1992, letter to Mr. Lowe from

9 Orndorff, Peterson, Hawley, Wight and Gilman, it mentions

10 Arco Generation, Inc. and Arco Generation. It says, "Arco

11 Generation requests that Pacific Power & Light provide a

12 long-term power purchase agreement for 40 megawatts of

13 capacity and related energy pursuant to PURPA and Idaho

14 law at delevelized rates," et cetera; so at this point

15 Arco Generation is the -- when did Rosebud become the

16 sponsor of this project?

17 A I guess I can't answer that. It doesn't

18 appear Rosebud was ever the sponsor. I'm not the right

19 person to ask that question.

20 Q Well, let's go, then, to on Exhibit 122 that

21 Mr. Fell introduced, just past the September 24th letter,

22 there's an October 7th letter with the letterhead of

23 Rosebud Enterprises that says, "It has now been two weeks

24 since I provided to you and Pacific Power extensive detail

25 documentation on Rosebud's petroleum coke project."

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1 MR. ORNDORFF: I don't think the witness has

2 that letter.

3 COMMISSIONER NELSON: Does he have

4 Exhibit 122? It's also part of the complaint.

5 MR. ORNDORFF: I realize that. I just want

6 to make sure that he has it.

7 Q BY COMMISSIONER NELSON: There's a

8 September 24th letter and then there's about five pages of

9 documentation from Louisiana Carbon Company and then

10 there's this letter.

11 A I'm sorry, sir, I'm still lost on where we

12 are. The complaint, is that 122?

13 Q Just a minute. We're right here. This is

14 the same letter that was accompanying the complaint.

15 A And your question, sir, is?

16 Q When did Rosebud get involved in this

17 project? Maybe a better question is, who is filing the

18 complaint in this case on November 13th of '92?

19 MR. ORNDORFF: Mr. Nelson?

20 COMMISSIONER MILLER: Mr. Orndorff.

21 MR. ORNDORFF: I think I've introduced some

22 confusion into this and I didn't mean to. The 1990

23 project I stipulated to.

24 COMMISSIONER MILLER: Mr. Orndorff, you'll

25 have to use your microphone, if you would.

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1 MR. WOODBURY: Mr. Chairman, I think it was

2 sometimes easier to pick him up without the jackhammer; so

3 I think we need microphones now.

4 MR. ORNDORFF: It's been brought to my

5 attention that I may have inadvertently misstated what I

6 thought I had said before. The 1990 project I meant to

7 say is totally different than the '92 project and Arco

8 Generation, Inc. was incorporated in 1990, and Rosebud

9 Enterprises was intended to be and it should be viewed as

10 the sponsor of the project located at the Arco

11 substation. There's a world of difference between the two

12 projects and I can understand there's apparently some

13 confusion, but that's what I was trying to say is that one

14 was a coal project located at Darlington and this one is a

15 totally different project. It's a coke project, it's a

16 different size, it has many different attributes.

17 COMMISSIONER NELSON: Okay, thank you.

18 MR. ORNDORFF: I'm sorry.

19 Q BY COMMISSIONER NELSON: Then let me ask

20 you, Mr. Blendu, when did Rosebud first ask for a power

21 contract from Pacific Power & Light?

22 A I'm not precisely sure when that is. I

23 believe it was in May of 1992.

24 Q In May of 1992.

25 A I don't know when Rosebud first asked.

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1 Q I haven't seen a copy of any letter from

2 May of '92, but perhaps there is one. Well, then, when

3 you moved the site to Montpelier, it's my understanding

4 that you have an option on some property in Montpelier, is

5 that correct, or do you own property in Montpelier?

6 A We own property in Montpelier and we have

7 option on other property in Montpelier.

8 Q And it was your testimony that, was it, that

9 facilities were close enough that you didn't feel the need

10 for an interconnection study?

11 A No, sir, that was not my testimony. My

12 testimony was when we viewed the Ovid substation, the

13 transmission lines that were interconnecting into the

14 substation, it was readily apparent there were several

15 options for interconnection at lower voltage. We

16 identified one transformer that may or may not have to be

17 replaced. We identified some support towers where some

18 interconnection equipment could go, located a spot if an

19 additional one had to go in, and we discussed the

20 potential for transmitting emergency tripping signals and

21 that through some equipment that PacifiCorp already had in

22 place and so what I felt the results of our visit did was

23 confirm very quickly the feasibility of interconnecting

24 there into the equipment that was there with what we would

25 propose.

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1 Q Well, I'm trying to get a perspective here

2 on the progression that took place with this development,

3 and so you moved from Arco to Montpelier, you've purchased

4 some land, you've looked at the substation. At what point

5 did you feel you were ready to sign a power generation

6 contract?

7 A I think from a technical end, we know how

8 much the project is going to cost. I think we know how

9 many people it's going to take to staff. I think we have

10 a pretty good handle on the fuel prices. I don't think

11 until we firm up what the price would be so we can put the

12 two together that we could clearly be in a position to

13 sign a power sales agreement. I think that's the piece

14 we're missing right now.

15 Q Well, I was, I had the impression from

16 reading through this material that you decided that the

17 Arco project was not feasible because of the cost to

18 interconnect; is that correct?

19 A That's correct.

20 Q And you don't feel that's the problem at

21 Montpelier?

22 A No, sir. We've walked right of way. We

23 know how long the transmission line would be. The

24 interconnection into the Ovid substation from what our

25 discussion was will be less complex than what we've just

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1 completed in Montana and with a similar substation, and

2 the cost of the switchyard in our plant will be roughly

3 the same as what we just constructed in Montana; so I

4 think that piece is cleared up at Montpelier.

5 COMMISSIONER NELSON: Okay, thank you. I

6 think that's all the questions I had.

7 COMMISSIONER MILLER: Commissioner Smith.

8 COMMISSIONER SMITH: Just a couple.

9

10 EXAMINATION

11

12 BY COMMISSIONER SMITH:

13 Q I'm curious whether your current proposal

14 for the Montpelier site depends upon rail transportation.

15 A There are two or three fuel sources

16 available to us, both coal and coke. Some of the fuel

17 suppliers have a more advantageous rail situation.

18 Frankly, there is at least one coal supplier and one coke

19 supplier who offer us on a cost competitive basis a backup

20 with trucking.

21 Q Do you know which branch line serves

22 Montpelier?

23 A I believe it's a UP.

24 Q Yeah, but is it the Grace branch?

25 A I don't know that.

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1 Q When you had discussions regarding the Arco

2 branch line with Union Pacific, I noted they even quoted

3 you rates, were you aware that in 1989 this Commission had

4 hearings regarding the abandonment of that branch line?

5 A No.

6 Q And that UP subsequently has gone forward

7 with abandonment in front of the Interstate Commerce

8 Commission?

9 A No.

10 Q And have you any idea or have you inquired

11 what their plans are with regard to the branch line that

12 serves Montpelier?

13 A I have not personally done the discussions

14 with the railroad; so when I say no, I had none of those

15 discussions.

16 Q And in regard to having the option of coke

17 or coal, do you know whether or not a plant that burned

18 purely coal would be a PURPA project?

19 A I'm not an expert on PURPA. My

20 understanding is if it burns a waste fuel, including waste

21 coal like our Colstrip facility, it can qualify under

22 PURPA without a steam host. Again, not being an expert,

23 I'm under the understanding that if you burn a run-of-mine

24 coal, you would also have to have a steam host, but that's

25 the extent of my knowledge.

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1 COMMISSIONER SMITH: Thank you. Those are

2 all my questions.

3 COMMISSIONER MILLER: Mr. Orndorff, I should

4 have asked if you had redirect after the Commissioners'

5 questions rather than before. Anything that has come up?

6 MR. ORNDORFF: No, Mr. Chairman.

7 COMMISSIONER MILLER: All right. Sir, thank

8 you very much for your help.

9 MR. FELL: Mr. Chairman, can I ask one

10 follow-up question?

11 COMMISSIONER MILLER: Yes.

12

13 CROSS-EXAMINATION

14

15 BY MR. FELL:

16 Q Your investigation of the Ovid substation

17 interconnection was, to use a phrase I'll create, an

18 eye-site-type investigation, you investigated what you

19 could see, what was there, and what you thought might need

20 to be done?

21 A That's part of it, Mr. Fell. We use a

22 consultant engineer who specializes in transmission line

23 design, construction management as well as substation.

24 Immediately after my phone call with Mr. Witbeck, I put

25 that person technically in service to give us insight into

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1 the UP&L/PP&L transmission system in the area; so when I

2 went there, I had already had a technical electrical

3 engineering firm review the Ovid substation for

4 feasibility.

5 Q Did you ask PacifiCorp to perform a voltage

6 stability study in connection with that interconnection?

7 A When we went to the Ovid substation, one of

8 the purposes of the substation to look at was to develop

9 the scope of an interconnection study. What we talked

10 there is that at that feasibility level or at that stage

11 we did not need to do that. There was my understanding

12 from Mr. Witbeck not a voltage stability problem there. I

13 recall asking PacifiCorp what power factor they would

14 anticipate us running at. I believe I relayed the power

15 factor we would prefer to operate at, but that we would

16 certainly need to know that before we specified our

17 turbine and generator.

18 MR. FELL: Thank you.

19 COMMISSIONER MILLER: Redirect.

20 MR. ORNDORFF: No, Mr. Chairman.

21 COMMISSIONER MILLER: All right, thank you

22 once again.

23 (The witness left the stand.)

24 MR. ORNDORFF: Mr. Chairman, Rosebud

25 Enterprises would next call R. Lee Roberts.

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1 R. LEE ROBERTS,

2 produced as a witness at the instance of Rosebud

3 Enterprises, Inc., having been first duly sworn, was

4 examined and testified as follows:

5

6 DIRECT EXAMINATION

7

8 BY MR. ORNDORFF:

9 Q Mr. Roberts, would you state your full name

10 and business address?

11 A My name is R. Lee Roberts at 1087 River

12 Street, Suite 200, Boise.

13 Q Now, Mr. Roberts, would you tell us what

14 your business relationship is with Rosebud Enterprises?

15 A I'm president of Rosebud Enterprises and

16 also a director.

17 Q Now, did you have an opportunity to prepare

18 direct testimony in this case?

19 A I did.

20 Q Are Exhibits 21 and 22 attached to your

21 testimony?

22 A Yes, they are.

23 MR. ORNDORFF: With that, Mr. Chairman, I

24 would spread Mr. Roberts' testimony and Exhibits 20

25 through 21 on the record and tender Mr. Roberts for

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Wilder, Idaho 83676 Rosebud Enterprises

1 cross-examination.

2 COMMISSIONER MILLER: If there's no

3 objection, the testimony will be spread on the record and

4 Exhibits 21 and 22 will be marked.

5 (The following prefiled testimony of

6 Mr. R. Lee Roberts is spread upon the record.)

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

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Wilder, Idaho 83676 Rosebud Enterprises

1 Q Please state your name, business title and

2 business address.

3 A My name is R. Lee Roberts, 1087 W. River

4 Street, Suite 200, Boise, Idaho and I am President of

5 Rosebud Enterprises, Inc.

6 Q Please describe your professional

7 experience.

8 A R. Lee Roberts serves as a Director, Vice

9 President and General Counsel of BGI and is also President

10 and Director of Rosebud Energy Corp. and Vice President

11 and Director of Rosebud Operating Services, Inc. (ROSI).

12 Prior to my current occupation I was the senior partner of

13 the law firm of Roberts and Kerner, and before that I

14 served as a senior partner of Hanna and Morton, a Los

15 Angeles firm with an energy law practice dating back to

16 its inception in 1915. Prior to Hanna and Morton I was

17 Manager of Fuel Supply Services for Southern California

18 Edison Company. I have been actively involved in all

19 aspects of alternate energy project development since 1978.

20 Q Please describe the purpose of your

21 testimony.

22 A My testimony generally covers the following

23 topics:

24 (1) A brief summary of Rosebud Enterprises and its

25 affiliated and operating power projects;

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ROSEBUD ENTERPRISES

1 (2) Why Rosebud believes petroleum coke

2 presents a unique opportunity for obtaining a

3 low cost fuel for generation in Idaho;

4 (3) Other potential fuels;

5 (4) Potential other economic development which

6 could be forthcoming from Rosebud's project;

7 (5) Several policy concerns I offer the

8 Commission concerning economic development in

9 Idaho and the need for thermal generation in

10 Idaho;

11 (6) A discussion of the status of contract

12 negotiations and an exhibit of the form of

13 contract nearly complete but for Rosebud and

14 PacifiCorp resolving the appropriate rates.

15

16 I. Rosebud Enterprises

17

18 Q Please describe Rosebud Enterprises.

19 A Rosebud Enterprises, Inc. is an Idaho

20 corporation located in Boise, Idaho. Rosebud was created

21 specifically to serve as a development entity for

22 qualified facilities burning solid fuel similar to the

23 Colstrip facility previously described by Ronald D. Blendu.

24 Rosebud is a closely held private business owned by five

25 individuals of whom both Mr. Blendu and I are included.

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1

2 Rosebud and its affiliates presently have the Colstrip

3 facility (with affiliates of Bechtel Construction and

4 Pacific Gas and Electric Company as limited partners)

5 under operations and the Billings, Montana Yellowstone

6 Energy Limited Partnership project (with an Exxon

7 affiliate as limited partner) under construction.

8 Rosebud affiliates are presently seeking to develop a

9 project at Mountain Home, Idaho with Idaho Power Company

10 as the purchaser of energy and capacity, and have a

11 contract to build a project at Healy, Alaska with Golden

12 Valley Electric Association of Fairbanks, Alaska.

13

14 Essentially, Rosebud believes that its solid fuel plants

15 offer the long term new resource for energy and capacity.

16 Rosebud is actively seeking to convince recalcitrant

17 utilities of such benefits and has become accustomed to

18 regulated utilities refusing to select any independent

19 option of a new resource when other actually higher cost

20 utility options are available. Typically a utility will

21 contend that it has future lower cost options such as

22 off-system purchases or future utility units or upgrades.

23 It then seeks a regulatory determination that because of

24 lower cost options it should not have to contract with

25 the independent resource. The problem is that the

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1 ratepayers are usually going to be disadvantaged because

2 the "lower cost" resource will not be available and the

3 utility will succeed in killing the independent project

4 and then sticking the ratepayer with a higher cost (and

5 usually less reliable) utility unit. If a utility

6 contends that it has equivalent lower cost resources, the

7 Commission should require the utility and its

8 shareholders to guaranty the availability and price of

9 the capacity and energy. Otherwise the utility is

10 inducing the Commission through representations which may

11 ultimately prove to be untrue.

12 The market place for new resources is generally divided

13 by the debate between providers of natural gas projects

14 and solid fuel technology. While natural gas offers

15 initial lower capital costs to ratepayers and utilities,

16 Rosebud's strategy is to focus on the long term projects

17 without the extreme fuel risk attendant to natural gas

18 projects dependent on gas transmission and price

19 variability as occurred in the early 1980's.

20 Q Has a Rosebud affiliate recently closed a

21 project development phase and started construction of a

22 project?

23 A Yes, Rosebud's affiliate Billings

24 Generation, Inc. ("BGI"), recently completed

25 development efforts and

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1 construction is presently under way in Billings, Montana.

2 As with the Montpelier project, the BGI project burns

3 petroleum coke and sells up to 57 MW of capacity and

4 energy to Montana Power Company. The plant also delivers

5 140,000 pounds of steam per hour to the Exxon refinery.

6 An affiliate of Exxon Corporation is a limited partner

7 with BGI.

8

9 Attached as Rosebud Exhibit No. 21 is a copy of the BGI

10 and Yellowstone Energy Limited Partnership (between BGI

11 and the Exxon affiliate) Official Statement with which

12 Morgan Stanley, Inc. acting as the underwriter recently

13 sold $120,000,000 of non-recourse revenue bonds issued by

14 the Montana Board of Investments. I call the

15 Commissions attention to the independent engineers'

16 study of combusting petroleum coke which may be helpful

17 in understanding the CFB technology and specifically how

18 it applies to combusting petroleum coke.

19

20 Unless Idaho laws were altered to permit a similar tax

21 exempt financing, I would expect that Rosebud would

22 attract conventional, taxable equity and bank financing

23 for the Montpelier project. Given a future need to

24 attract low cost generation to Idaho, the Legislature may

25 in the future opt to amend the tax exempt law to provide

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1 similar tax benefits for plants in Idaho instead of

2 allowing neighboring states tax advantages to produce

3 lower cost resources for their competitive benefit.

4

5 II. Petroleum Coke

6

7 Q Please briefly describe petroleum coke.

8 A Petroleum coke is a by-product of refining

9 where what would otherwise be residual fuel oil is

10 converted to a solid in the process of removing the last

11 gasoline a refinery can extract. When crude stocks

12 contain significant amounts of sulfur, the petroleum coke

13 as the residue from the refinery process typically has

14 high sulfur content. Such sulfur makes the petroleum coke

15 impossible to burn in a conventional boiler while

16 remaining in compliance with environmental requirements.

17 As Ronald Blendu describes in his testimony, CFB

18 technology with injection of limestone allows combustion

19 of higher sulfur fuels in an environmentally acceptable

20 way. Indeed, a CFB is regarded today as "Best Available

21 Control Technology", or BACT.

22

23 Q Why is petroleum coke economically available

24 to the Montpelier project?

25

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1 A During the course of developing the BGI

2 project, Rosebud identified additional sources of high

3 sulfur petroleum coke produced in Montana, Wyoming, Canada

4 and Minnesota which are presently disposed of at

5 significant negative costs to refineries which are

6 presently shipping large quantities of high sulfur coke to

7 Europe and Japan where environmental restrictions are less

8 restrictive.

9 Given Idaho's geographic advantage (avoidance of large

10 transportation costs to overseas markets), Rosebud

11 concluded that a low cost (or zero cost) fuel opportunity

12 may exist in Idaho thereby eliminating the significant

13 transportation coal fuel and transmission costs if an

14 avoided plant was otherwise built in the SAR Wyoming

15 site. After preliminary discussions with representatives

16 of refineries, Rosebud confirmed the potential for low

17 cost fuel but cannot commit to a long term petroleum coke

18 agreement until PacifiCorp has agreed to purchase

19 capacity and energy at rates which will support the

20 project. Given the economic advantage to any refinery

21 supplying petroleum coke, it is possible that an

22 affiliate of the refining entity may be a partner in the

23 Montpelier project similar to BGI's relationship with the

24 Exxon affiliate. Since October of 1992, Rosebud has been

25 seeking an avoided cost consistent with existing rates

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1 and to date PacifiCorp has refused to make an offer

2 consistent with existing rates and methodology as

3 established by the Idaho Commission in recent Commission

4 orders.

5

6 III. Other Available Fuel

7

8 Q If petroleum coke were not available are

9 there other unmarketable fuels which Rosebud could use at

10 Montpelier?

11 A Yes, Rosebud had contacted several Montana

12 and Wyoming coal mines and determined that a significant

13 supply of unmarketable waste coal exists which could fuel

14 the Montpelier project as an alternative to petroleum

15 coke. The project would maintain its QF status under

16 either waste coal or petroleum coke. Rosebud's affiliated

17 Colstrip plant currently uses such waste coal as a fuel.

18

19 Waste coal is typically created in the mining operations

20 by a strip mine spoiling the top 12-18 inches of a seam

21 to remove ash or sulfur. The spoiled waste is typically

22 deposited in the reclaimed pit by the mine and is

23 otherwise lost for any productive use. Existing boilers

24 such as the Valmy plant's cannot use such waste coal

25 because of higher ash and sulfur content.

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1 IV. Other Economic Development

2

3 Q Is there a possibility of attracting

4 additional economic development to Montpelier if Rosebud

5 obtains a Power Sales Agreement from PacifiCorp?

6 A Yes, Rosebud's plant as presently envisioned

7 will be designed only to produce electric energy.

8 However, if Rosebud can obtain a Power Sales Agreement

9 from PacifiCorp, Rosebud can minimally alter its design to

10 allow for a slightly larger plant to sell low cost steam

11 to adjacent industries such as the arrangement with the

12 Billings project which is providing low cost steam to the

13 Exxon refinery.

14

15 By Rosebud obtaining a power sales contract, Rosebud and

16 economic development agencies can offer prospective Idaho

17 industries an attractive economic advantage to locate in

18 Idaho and specifically Montpelier.

19

20 A steam park for new industry could attract significant

21 new industries which otherwise would not locate in Idaho.

22 Without a power sales contract from PacifiCorp, Idaho and

23 Montpelier will lose any possibility of attracting new

24 industries to a steam park.

25

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1 V. Competitive Options for New Resources

2

3 Q Do you have thoughts as generally to policy

4 concerns on selection of new resources which you would

5 like to share with the Commission.

6 A Yes, since the inception of PURPA, no

7 regulated utility which I know has been a willing

8 participant to competition. A project like that proposed

9 by Rosebud and Rosebud affiliates is not paid by

10 ratebasing but rather through the maximization of kilowatt

11 hours delivered, which of course requires a reliable plant

12 cable of attaining high capacity factors. While a large

13 investment provides maximum returns to PacifiCorp's

14 shareholders, Rosebud's returns are solely driven by

15 kilowatt hour production. As PacifiCorp continues to

16 experience record or near record growth, larger QFs offer

17 the only independent competitive resource in the future.

18 Developers cannot afford to obtain federal hydro

19 licensing any longer for small projects and small

20 projects will not satisfy the need for huge new base load

21 resources as economic growth remains strong. Natural gas

22 projects are possible to build at less than 10 MW but

23 lose significant economics while maintaining the gas

24 fuel/transmission risk. In short, larger QFs have a

25 place in the market place and PacifiCorp with its 9,000

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1 MW system should not simply be able to refuse to purchase

2 from a QF at its whim because of a potential large

3 utility or EWG project. PacifiCorp should not be able to

4 avoid Rosebud's project through the use of offering

5 unreasonable avoided costs while PacifiCorp seeks to

6 justify its favored projects (the Hermiston project and

7 other West Side Company-owned qualified facilities).

8 Indeed, Congress passed PURPA to eliminate the very

9 practices PacifiCorp is employing now.

10

11 Q Do you believe there are economic

12 development policy reasons to favor Idaho projects over

13 out-of-state resources?

14 A Yes, PacifiCorp and its predecessor have a

15 long and somewhat puzzling history of never developing any

16 thermal projects in Idaho. Only independents have built

17 thermal projects in Idaho such as the Boise Cascade's

18 Emmett facility and the Tammerack plant. In recent

19 history, Idaho Power proposed the unfortunate 1000 MW

20 Pioneer facility which remains today as unreasonable as it

21 was over fifteen years ago. The state of Idaho needs

22 reasonable thermal generating resources and should not

23 forever remain dependent on adjacent states to provide

24 resources in droughts without those states being tempted

25 to propose stiff generating taxes for Idaho residents to

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1 pay such as recently proposed by Montana for Oregon and

2 Washington residents.

3 On a policy basis, Rosebud's plant offers a reasonable

4 generating resource from which PacifiCorp should be

5 required to purchase capacity and energy. PacifiCorp no

6 longer has a monopoly over providing generating

7 resources. The plant sizing should not be an issue that

8 eliminates competition and market place alternatives to

9 projects the utility wishes to foster. Minimum risk to

10 ratepayers and reliable generating resources should be a

11 policy goal. Huge new generating plants, whether gas or

12 coal, bring to ratepayers huge financial risks which

13 should be avoided by seeking blocks of new resources

14 which are small enough to meet load growth but large

15 enough to allow economies of scale.

16

17 VI. Contract Negotiations

18

19 Q Please describe contract negotiations to

20 date.

21 A Rosebud and PacifiCorp have worked with

22 three forms of contract provided by PacifiCorp. The first

23 was a standard 1992 form contract which had limited

24 applicability to Idaho given it was based on Oregon law.

25 The next form contract provided by PacifiCorp was based

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1 on the Hermiston project. The last contract form offered

2 by PacifiCorp was provided in their July 11, 1994

3 proposal. As a result of three prehearing conferences

4 since November of 1992, Rosebud and PacifiCorp have

5 continuously negotiated on the form of the contract and

6 but for the rates being in dispute, the parties have

7 nearly resolved all contract issues.

8

9 Q Do you have any proposed revisions to

10 PacifiCorp's July 11, 1994 proposed contract form?

11 A Yes, I have attached as Rosebud Exhibit

12 No. 22 PacifiCorp's July 11, 1994 proposal with limited

13 changes Rosebud believes appropriate and which in any case

14 are only modifications designed to clarify the contract.

15 But for the determination of rates, Rosebud believes

16 contract negotiations are substantially completed.

17

18 Q Once the rates have been resolved, how long

19 do you believe PacifiCorp and Rosebud would take to

20 resolve the form of the contract?

21 A Negotiations should be completed in short

22 order once the rates have been resolved. If the Commission

23 opts for a dispatchable plant based on the existing coal

24 SAR methodology, all of the system losses discussed by

25 PacifiCorp in their July 11, 1994 proposal become of no

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1 concern given the plant will operate at the energy rate

2 equivalent to Colstrip variable O&M as proposed by

3 PacifiCorp. Since the proposed energy rate of

4 approximately 1 cent/kwh is substantially below any rate

5 for competing technology such as a gas plant, ratepayers

6 will receive substantial benefits over the contract term

7 based on maximum plant output. In any case, contract

8 negotiations should be speedily resolved once rates are

9 agreed upon.

10

11 Q Does this conclude your testimony?

12 A Yes.

13

14

15

16

17

18

19

20

21

22

23

24

25

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1 (The following proceedings were had in

2 open hearing.)

3 COMMISSIONER MILLER: Mr. Fell.

4

5 CROSS-EXAMINATION

6

7 BY MR. FELL:

8 Q Mr. Roberts, on Page 10 of your testimony,

9 Lines 8 through 13, you talk about the ability that

10 Rosebud may have to alter its design to allow for a

11 slightly larger plant. Would that slightly larger plant

12 also have a higher electrical output?

13 A Not unless we desired it to. The reference

14 is to the fact that it is possible with very minor

15 modifications to take a 40 megawatt plant and make -- by

16 minor modifications, to design, both produce the 40

17 megawatts and provide some excess steam which can be made

18 available to potential industrial steam users.

19 Q Mr. Roberts, would you please take a moment

20 and obtain a copy of Exhibit 122, the complaint that had

21 attached to it the draft contract and other documents?

22 A I do not have a copy with me.

23 Q Now, I understand, Mr. Roberts, that you're

24 the appropriate witness to ask about fuel supply and

25 transportation; is that correct?

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CSB REPORTING ROBERTS (X)
Wilder, Idaho 83676 Rosebud Enterprises

1 A Yes.

2 Q As a part of Exhibit 122, and I think it's

3 part of Exhibit A, yes, it is, of that, there is what I

4 will call a fuel term sheet from Louisiana Carbon Company

5 dated September 14, 1992. Would you please locate that?

6 A What was the date of that?

7 Q If I can help, following the complaint, this

8 is close to the top, but there is the complaint and then

9 there's a sheet that says "Exhibit A" and then the

10 September 24, 1992, letter from Mr. Orndorff to Mr. Lowe

11 and immediately after that is this letter from Louisiana

12 Carbon Company.

13 A Yes, I have the letter.

14 Q And then immediately after the letter is a

15 petroleum coke sale term sheet. Do you have that?

16 A Yes.

17 Q Very good. Does this term sheet represent

18 the state of your negotiations for petroleum coke fuel as

19 of November, 1992?

20 A It represents the state of our discussions

21 with Louisiana Carbon Company as of that date. We were

22 and are constantly reviewing availability of fuels,

23 including petroleum coke, from numerous different sources.

24 Q Is my understanding correct that those other

25 reviews have not been reduced to term sheets like this,

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CSB REPORTING ROBERTS (X)
Wilder, Idaho 83676 Rosebud Enterprises

1 have they?

2 A I believe that's correct.

3 Q And have terms for the supply of coke become

4 any more definitive than this term sheet now shows since

5 the date of this term sheet?

6 A We have not executed any documents which

7 contain terms of supplies. We've had continuing

8 discussions with potential suppliers that have established

9 to our satisfaction that once we become a real project,

10 real being defined as having a power sales agreement with

11 prices in it which can be reviewed by coke suppliers and

12 potential project participants, that we will be able to

13 arrange to have coke delivered to our facilities in all

14 probability at no cost to us.

15 Q In our Discovery Request No. 18, we asked to

16 have Rosebud describe in detail Rosebud's efforts to

17 arrange for fuel supply and the response was that the

18 files and information would be available in the discovery

19 room. Did that discovery room then represent -- did it

20 contain, rather, whatever additional documentation you

21 have regarding your fuel supply?

22 A Our room contained those physical documents

23 that we have that address fuel supply. They do not

24 address discussions that are and have been ongoing for

25 years with potential fuel suppliers, nor the status of

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Wilder, Idaho 83676 Rosebud Enterprises

1 discussions today or any interim point because most of

2 those are not reduced to writing.

3 Q Mr. Roberts, I would like to have you turn

4 now to the contract that is contained in this package.

5 This appears behind the sheet titled "Exhibit C" of

6 Exhibit 122. Before I get to that, there was a question

7 that was referred to you which had to do with arrangements

8 for the transportation of the coke. Based on your answers

9 to my earlier questions, is it your perspective, then,

10 that requirements for transportation of coke would be the

11 supplier's problem?

12 A I would anticipate that we would make our

13 arrangements for the transportation of coke with the

14 participation of the supplier. Since the supplier has to

15 be making the coke available and it has to be put into

16 rail cars or whatever in a manner that is consistent with

17 their facilities, they of necessity are involved. What we

18 anticipate is that once those arrangements are made, the

19 supplier will bear the cost of that transportation, if not

20 for the term of our agreement, at least for a substantial

21 part and I would suspect for all of it.

22 We have provided you studies by independent

23 engineers that demonstrate that high sulfur petroleum coke

24 in the West is currently being disposed of at a negative

25 cost of around 30 or more dollars a ton. Transportation

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CSB REPORTING ROBERTS (X)
Wilder, Idaho 83676 Rosebud Enterprises

1 costs to our facility will certainly be substantially less

2 than $30.00 a ton; so those refiners producing that waste

3 product have an opportunity to mitigate their losses by

4 paying those transportation costs to our facility.

5 Q Now, then, regarding this is contract, would

6 you please turn to Page 12? Section 7.1 is what I'm going

7 to focus on. Please let me know when you've found that

8 section.

9 A I have found Section 7.1.

10 Q It's correct, isn't it, that this

11 Section 7.1 does not contain any proposed prices?

12 A It does not contain proposed prices.

13 Q It does, though, contain a proposal for

14 three seasonal prices, is that the intent of the reference

15 to Season 1, 2 and 3?

16 A It appears to.

17 Q Now, if you'll turn back to Page 10,

18 section -- I'm sorry, Page 9, Section 5.1, is it correct

19 that this contract was designed for a term of 35 years?

20 A The contract draft has in it as a term 35

21 years. I believe the document speaks for itself in that

22 regard.

23 Q Yes, I have a follow-up question on that.

24 The Commission standard qualifying facility contract is

25 20 years and longer term contracts, as I understand it,

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Wilder, Idaho 83676 Rosebud Enterprises

1 you'll just have to follow me on this, as I understand it,

2 require some justification for the longer contract. Did

3 you prior to the filing of this complaint provide

4 PacifiCorp with any explanation or justification to

5 warrant a 35-year contract?

6 A I believe we have discussed with PacifiCorp,

7 and we shouldn't have to because PacifiCorp should know of

8 its own knowledge, that well-built and well-designed solid

9 fueled facilities such as coal-fired facilities are

10 expected to have a useful life substantially in excess of

11 35 years as I would expect are the coal-fired facilities

12 in which PacifiCorp has ownership interests. I suspect

13 they do not intend abandoning their facilities after 20

14 years.

15 Q Do you have any record of communication with

16 PacifiCorp on this subject before you filed this

17 complaint?

18 A I don't recall.

19 Q Now, if you could please turn to

20 Appendix A. There are 35 pages to the main body of the

21 contract and Appendix A follows that immediately. We're

22 still in Exhibit 122.

23 A I have turned to Appendix A.

24 Q This relates to interconnection and

25 metering. Is there anything in this Appendix A that

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Wilder, Idaho 83676 Rosebud Enterprises

1 directly reflects the interconnection requirements for the

2 project in Arco in 1992?

3 A Well, to answer that I'd have to read all of

4 Appendix A now in order to respond and I'm certainly

5 willing to do that; however, I should tell you that I am

6 not an engineer and I am not an expert on technical

7 aspects of interconnection, although I am on who has cost

8 liability for them pursuant to PURPA as an attorney; so

9 I'm not sure even after reading it I could productively

10 respond to your question.

11 Q We'll let the document speak for itself,

12 then, if you can't answer that question. Then if you will

13 turn to Appendix B, Appendix A has eight pages, Appendix B

14 follows on Page 9, I suppose the answer will be the same

15 here, but in Item B-1, description of facility, there is

16 no description of the facility there. Was that contained

17 in the body of the contract to the best of your knowledge?

18 A I'd have to read the contract to determine

19 that. I believe this was intended to be an exemplar or

20 model contract from which responses can be made as to how

21 it either fits or doesn't fit with other parties' desires

22 and expectations.

23 Q All right. Just a moment, please.

24 (Off the record discussion.)

25 MR. FELL: I have no further questions for

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Wilder, Idaho 83676 Rosebud Enterprises

1 this witness.

2 COMMISSIONER MILLER: Thank you, Mr. Fell.

3 Commissioner Nelson.

4 MR. FELL: Excuse me, may I ask, I have some

5 other notes here I need to check to make sure.

6 Q BY MR. FELL: Mr. Roberts, this project as

7 originally designed is a fluidized bed project; is that

8 correct?

9 A Yes, circulating fluidized bed.

10 Q Are there any plans for possibly using some

11 other technology for this project?

12 A So long as -- no, there are not. A

13 petroleum coke project in order to be able to meet

14 environmental compliance requirements needs to be some

15 form of fluidized bed, we've chosen a circulating

16 fluidized bed.

17 MR. FELL: Mr. Chairman, may I show the

18 witness a discovery response and ask him to identify it?

19 COMMISSIONER MILLER: Yes.

20 MR. FELL: Thank you. First I'll show it to

21 Mr. Orndorff.

22 (Mr. Fell approached the witness.)

23 Q BY MR. FELL: Mr. Roberts, would you please

24 read the identifying title of that document that I've

25 placed in front of you?

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Wilder, Idaho 83676 Rosebud Enterprises

1 A It's a document stamped "Draft, January 24,

2 1994, Confidential Long-Term Power Sale Agreement Between

3 Rosebud Enterprises, Inc. and PacifiCorp."

4 Q Now, this is a -- is this a draft form of

5 contract that Rosebud presented to PacifiCorp in 1993?

6 A It's my recollection that --

7 Q Excuse me, I'm sorry, it would have been

8 1994.

9 A Well, it's dated January 24th, 1994, on the

10 cover page in any event. It's my recollection that this

11 is a draft agreement that was prepared after reviewing a

12 different draft provided by PacifiCorp, but I'm not

13 positive to that. I think that's its derivation.

14 Q If you would turn to Page 8, Paragraph 1.36,

15 that paragraph defines the word project; is that correct?

16 A Correct.

17 Q And the definition of project begins as

18 originally written, "Project means the circulating

19 fluidized bed boiler and related," and so forth. Now, the

20 document I've showed you has circulating fluidized bed

21 stricken out and could you read what is written in place

22 of that or commenting on that rather?

23 A Well, the second line is unintelligible

24 because there are typeovers on it which makes me happy it

25 was labeled draft. I see handwriting which I recognize as

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Wilder, Idaho 83676 Rosebud Enterprises

1 Mr. Blendu's indicating the words "Circulating fluidized

2 bed," and saying, "Don't tie us to a CFB yet."

3 Q Thank you.

4 A I also see a notation on the front that

5 says, "This is now only the second worst contract ever

6 written. Its predecessor is still the worst"; so I can't

7 interpret either of those very well, but it tells us what

8 he thought of the draft we were preparing at the time

9 before it was transmitted to you.

10 MR. FELL: I appreciate that comment.

11 That's all.

12 COMMISSIONER MILLER: Thank you, Mr. Fell.

13 Now, Commissioner Nelson.

14 COMMISSIONER NELSON: Okay, thank you.

15

16 EXAMINATION

17

18 BY COMMISSIONER NELSON:

19 Q Mr. Roberts, were you also a director of the

20 Arco Generation, Inc. corporation?

21 A Yes.

22 Q Was it Arco that made the bid to Bonneville

23 Power for a 40 megawatt facility at Arco or was that

24 Rosebud?

25 A Well, in my mind Arco and Rosebud are the

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Wilder, Idaho 83676 Rosebud Enterprises

1 same. Rosebud Enterprises is our development company and

2 as projects reach different stages of development, we

3 assign them into specific projects or corporations, but I

4 regard them as the same. The BPA RFP response was

5 prepared by Rosebud Enterprises and I can't tell you off

6 the top of my head whether we had Arco Generation in that

7 response or not. It's in the documentation. Whatever it

8 says it says.

9 Q Was that project a coal facility or a

10 fluidized bed waste coke facility?

11 A The facility that we proposed on

12 September 24th, 1992, to PacifiCorp was a petroleum

13 coke-fueled facility. The facility that we proposed to

14 BPA was a coal-fired facility.

15 Q So they were not the same?

16 A And they were not the same. They were the

17 same in that the power plants would be virtually the

18 same. The same boiler can consume and produce electricity

19 from waste coal as it can from petroleum coke. As a

20 matter of fact, the same boiler that we have in our

21 Colstrip plant currently burning waste coal is the boiler

22 being put into our Billings plant which will burn

23 petroleum coke.

24 Q So the project that you proposed to Pacific

25 Power in September of '92 was not the same project that

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Wilder, Idaho 83676 Rosebud Enterprises

1 you proposed to BPA, it was a different technology?

2 A Well, my recollection is not that it was a

3 different technology but a different fuel, but I can say

4 what we proposed in September of 1994 was a nominal 40

5 megawatt net petroleum coke-fired circulating fluidized

6 bed power plant.

7 MR. ORNDORFF: Mr. Chairman, I think there

8 might be some problems with that testimony. He meant to

9 say, I believe, '92 instead of '94.

10 THE WITNESS: That's correct, I'm sorry,

11 September of '92.

12 COMMISSIONER NELSON: I understood that.

13 Q BY COMMISSIONER NELSON: So in your mind, it

14 would make no difference that when the proposal was made

15 to Pacific Power it was made in the name of Arco

16 Generation, Inc. on September 24th?

17 A No, both companies had the same officers,

18 directors and shareholders as far as I know.

19 Q Was there some transfer by Arco Generation,

20 Inc. to Rosebud?

21 A Well, there wasn't much to transfer since we

22 couldn't get a power sales agreement and you transfer

23 assets when you have assets, and at that point we had a

24 proposed project; so there was nothing of value to it at

25 that time in the sense that without a power sales

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Wilder, Idaho 83676 Rosebud Enterprises

1 agreement, you may be satisfied that you can go ahead and

2 build a plant once you have a power sales agreement, but

3 you don't have it and you can't build it.

4 Q Did you own a site at Arco at this point?

5 A We had a site available to us. We had not

6 purchased the site. Typically, we determine that a site

7 will be available, just as we did in Montpelier, and when

8 it becomes necessary, then you secure it. We purchased

9 the one in Montpelier because it was available and then

10 the owner said I'm now getting an offer from somebody

11 else, you need to go ahead and buy it if you're going to;

12 so we bought it.

13 Q So at Arco you then had an option on a piece

14 of property?

15 A I don't believe we had an option. I just

16 believe we had an understanding that there was adequate

17 property available with willing sellers should we desire

18 to purchase it.

19 Q I guess what I'm trying to get to here is

20 that in your mind, there was no doubt that Pacific Power

21 knew that Arco Generation and Rosebud were pretty much the

22 same entity?

23 A There was no doubt in my mind.

24 COMMISSIONER NELSON: Excuse me just a

25 moment.

200

CSB REPORTING ROBERTS (Com)
Wilder, Idaho 83676 Rosebud Enterprises

1 (Off the record.)

2 COMMISSIONER NELSON: Thank you. That's all

3 the questions I have.

4 COMMISSIONER MILLER: Now redirect.

5

6 REDIRECT EXAMINATION

7

8 BY MR. ORNDORFF:

9 Q Mr. Roberts, if you'd turn to Exhibit 122,

10 Appendix B, which is attached to the back of the

11 complaint, I believe you'll find a three-page document.

12 Have you found that document?

13 A Yes.

14 Q There seems to be some confusion as to who

15 the developer of the project is. Could you tell us who

16 filed the notice of self-certification of the qualifying

17 facility in this document?

18 A The applicant was Rosebud Enterprises, Inc.

19 Q I see, and while you've testified that you

20 consider the two entities the same, in fact, this

21 document, tell us, does it have anything in there about

22 Arco Generation as being the developer of this project?

23 A It has nothing as to Arco Generation. The

24 only place where the word Arco appears is to define the

25 location of the facility.

201

CSB REPORTING ROBERTS (Di)
Wilder, Idaho 83676 Rosebud Enterprises

1 Q I see. Now, in looking at this document,

2 can you tell if it was filed at the Federal Energy

3 Regulatory Commission?

4 A Yes, it has a FERC stamp on it.

5 Q I see, and what does the title of the

6 document say?

7 A "Notice of Self-Certification as a

8 Qualifying Cogeneration Facility."

9 Q I just have one more question about this

10 document. Would you tell us on Page 1 the address of the

11 applicant?

12 A 1087 West River Street, Suite 230, Boise,

13 Idaho.

14 Q And the name of the applicant on that

15 address?

16 A Rosebud Enterprises, Inc.

17 MR. ORNDORFF: I have no more questions,

18 Mr. Chairman.

19 COMMISSIONER MILLER: Mr. Roberts, thanks

20 very much for your help.

21 (The witness left the stand.)

22 MR. ORNDORFF: Mr. Chairman, could I ask

23 that Mr. Roberts and Mr. Blendu be excused so they

24 don't -- they can be available, but I'd just as soon not

25 have them, if possible, in the Hearing Room. They have

202

CSB REPORTING ROBERTS (Di)
Wilder, Idaho 83676 Rosebud Enterprises

1 other things to do.

2 COMMISSIONER MILLER: Any objection,

3 Mr. Fell?

4 MR. FELL: On the condition that they will

5 remain available, I have no objection.

6 COMMISSIONER MILLER: They'll be within

7 calling distance if they're needed?

8 MR. ORNDORFF: I believe that that's right.

9 I've told them both to stay in the office. Unless

10 something happens, they'll be generally available.

11 COMMISSIONER MILLER: All right, you'll be

12 excused from further attendance, but please stay in the

13 vicinity that you can be called back, if necessary.

14 MR. ORNDORFF: Thank you, Mr. Chairman. I'd

15 like to call my next witness, Dr. Richard Slaughter.

16

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203

CSB REPORTING COLLOQUY
Wilder, Idaho 83676

1 RICHARD A. SLAUGHTER,

2 produced as a witness at the instance of Rosebud

3 Enterprises, Inc., having been first duly sworn, was

4 examined and testified as follows:

5

6 DIRECT EXAMINATION

7

8 BY MR. ORNDORFF:

9 Q Dr. Slaughter, could you give us your full

10 name and business address?

11 A Richard A. Slaughter, 7201 Swift Lane,

12 Boise, Idaho.

13 Q Could you give us your affiliation with

14 Rosebud Enterprises?

15 A I do consulting for Rosebud Enterprises on

16 avoided costs.

17 Q And, Dr. Slaughter, do you have any

18 corrections or changes to your testimony, both direct and

19 rebuttal?

20 A Yes. On the direct testimony on Page 1,

21 Line 16, there is a transposition. "24545" should read

22 "25454." Secondly, I prepared and caused to be

23 distributed and everyone should have, I believe,

24 replacement Pages 6 and 7 to the direct testimony.

25 COMMISSIONER SMITH: Is there anything on

204

CSB REPORTING SLAUGHTER (Di)
Wilder, Idaho 83676 Rosebud Enterprises

1 the pages that indicates it's substituted?

2 THE WITNESS: I don't remember. This was

3 two or three testimonies back. I think I marked them 6-C1

4 and 7-C1, but I'm not absolutely positive.

5 MR. WOODBURY: I have the replacement pages

6 in there, but there's no indication.

7 THE WITNESS: In the rebuttal on Page 14,

8 Line 19, the reference to a page and I think Mr. Morris'

9 testimony should read "9" and not "9k." That's all.

10 Q BY MR. ORNDORFF: Dr. Slaughter, with the

11 exception of the changes that you've mentioned, would your

12 testimony be any different if I were to ask you these

13 questions on direct and rebuttal today versus when you

14 prepared them?

15 A No, they would not.

16 Q Now, Dr. Slaughter, you have certain

17 exhibits. Would you go through those exhibits with us,

18 the numbers?

19 A Exhibit No. 50 is a dispatchable capacity

20 calculation for PacifiCorp.

21 Exhibit 51 is a copy of the first page and

22 the fourth page of a publication entitled, "Conservation

23 Monitor" for November 18th, 1993.

24 Exhibit 52 is my curriculum vitae.

25 Exhibit 53 in the rebuttal testimony is a

205

CSB REPORTING SLAUGHTER (Di)
Wilder, Idaho 83676 Rosebud Enterprises

1 calculation of growth rates for summer and winter native

2 load in PacifiCorp's east side and west side drawn from

3 Mr. Weaver's testimony, his Exhibit 113, and a calculation

4 of growth rates from the RAMPP-3 load forecast, medium

5 load growth scenario taken from the April, 1994 planning

6 document published by the Company.

7 Exhibit 54 are selected pages from

8 Appendix 4 to the load forecasting appendix of the RAMPP-3

9 report.

10 Exhibit 5 are selected pages -- I'm sorry,

11 55 are selected pages from a document dated January 1,

12 1994, published by the Western Systems Coordinating

13 Council entitled, "Existing Generation and Significant

14 Additions and Changes to System Facilities, 1993 to

15 2003."

16 Exhibit 56 is my calculation of the costs

17 and rates contained in a contract between Hermiston

18 Generating Company and PacifiCorp.

19 Exhibit 57 is that contract entitled,

20 "Long-Term Power Sale Agreement Between Hermiston

21 Generating Company, L.P. and PacifiCorp."

22 Exhibit 58 is a letter from Mr. Dennis

23 Steinberg to -- I'm sorry, to Mr. Dennis Steinberg from

24 Mr. P. Chrisman Iribe with regard to amendments to the HGC

25 contract.

206

CSB REPORTING SLAUGHTER (Di)
Wilder, Idaho 83676 Rosebud Enterprises

1 MR. ORNDORFF: With that, Mr. Chairman, I

2 would like to spread Dr. Slaughter's rebuttal and direct

3 testimony, Exhibits 50 through 58 on the record and tender

4 Dr. Slaughter for cross-examination.

5 COMMISSIONER MILLER: All right, in the

6 absence of objection, the testimony will be spread on the

7 record and Exhibits 50 through 58 will be marked.

8 (The following prefiled direct and

9 rebuttal testimony of Dr. Richard Slaughter is spread upon

10 the record.)

11

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207

CSB REPORTING SLAUGHTER (Di)
Wilder, Idaho 83676 Rosebud Enterprises

1 Q Please state your name and business address

2 for the record.

3 A My name is Richard Slaughter. I am owner of

4 Richard Slaughter Associates, 7201 Swift Lane, Boise,

5 Idaho 83704.

6 Q Have you prepared a statement of your

7 qualifications to offer testimony in this proceeding?

8 A I have. It is attached to this testimony as

9 Exhibit 52.

10 Q Are you offering any additional exhibits?

11 A Yes. I have also prepared and offer

12 exhibits 50 and 51.

13 Rate Structure

14 Q How do the published avoided costs relate to

15 a facility over 10 MW in size?

16 A The Commission has stated that the published

17 avoided costs form the starting point for negotiations.

18 In Order 25454, case IPC-E-92-31, and repeated in the

19 "Notice of Procedure and Scheduling for UPL-E-92-6, June

20 2, 1994, the Commission said:

21 "The Appendix A load/resource schedule and the
Appendix B variables are the appropriate schedule and
22 variables to be used in utility negotiation with QFs
greater than 10 megawatts until they are changed.
23 Under present methodology the Appendix A load/resource
schedule determines `need' and the first deficit year.
24 A separate procedure has not been established for QFs
greater than 10 megawatts. Consequently, `need' is not
25 to be based on a utility's internal (IRP) definition of

208

1 need. In negotiating with QFs greater than 10
megawatts, a utility under present methodology may make
2 adjustments for "losses, reliability, ability to
schedule, etc. ..."
3

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8 /

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10 /

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209

1 Q What is the starting point for avoided cost

2 calculation in this case?

3 A The starting point for calculation of rates

4 in this case is Order No. 23358, as amended by Order Nos.

5 23429 and 24383, and subsequent "trigger" orders through

6 Order No. 25578. In the pre-hearing conference

7 Commissioner Miller commented:

8 " ... I think the first order of business in
the case, at least from Rosebud's viewpoint is to
9 obtain from the Company avoided costs consistent
with, let's see, commission Order 23358 and then
10 the updated rates which is 24383." [January 20,
1993, tr., p. 2, line 14-18]
11

12 I am unaware of a PacifiCorp disagreement with that

13 statement, except that PacifiCorp does not agree that

14 Rosebud is grandfathered for rates under 23358 and 24383.

15 Order No. 23429 corrects a computational error in Order

16 23358.

17 Q What are current non-level avoided costs?

18 A Exhibit 50, column 1 shows non-level avoided

19 costs for PacifiCorp per Order No. 23358, effective July

20 1, 1992. These rates include the adjustable rate of 9.52

21 mills, now set at 10.89 mills, effective July 1, 1994.

22 Dispatchability

23 Q If a utility wishes to negotiate a

24 dispatchable contract, what is the highest rate that would

25 be allowed?

210

1 A The Commission indicated that 100% of the

2 all energy rate, however distributed to capacity and

3 energy, should be the ceiling, unless there was particular

4 additional value to the contract:

5 "... to be acceptable the present value of
such rate structures must not exceed the present
6 value of the Commission established rates, except
to the extent that any additional cost is offset by
7 the value to the utility and its ratepayers
resulting from dispatchability or other
8 enhancements." (U-1500-170, Order No. 22865,
p. 15).
9

10 In general, the fact that a plant is to be dispatched

11 should not reduce the value of its generation. Further,

12 the Commission noted in its discussion in Order No. 25454:

13 "Dispatchability is generally an added value
available from a QF. Tr. p. 426 `Whether the ...
14 dispatchable rate is more or less than the
non-dispatchable rate ... will depend on the value
15 of dispatchability to the utility, the sharing of
future variable cost risks, etc.' Order No. 22636,
16 p. 56. IPCo acknowledges that it cannot require
dispatchability. However, this is a factor that
17 can be accounted for in rates. A nondispatchable
resource is clearly less valuable than a
18 dispatchable resource. This is especially true as
the size of the project increases." [Order No.
19 25454, p. 9. Emphasis added]

20 Q If a utility believes that its own true

21 avoided cost is less than the published avoided cost, or

22 that its needs do not accommodate an all-energy contract,

23 is it free to design a rate structure around its perceived

24 needs with capacity costs relevant to the plant it

25 believes it would next acquire?

211

1 A No. In Order 25454 the Commission

2 reiterated that while the design of a rate structure for

3 facilities over 10 MW is a matter for negotiation, a

4 utility's perception of its own load/resource balance and

5 current needs cannot be unilaterally made binding on a QF:

6 "... an attempted unilateral deviation from
established Commission policy ignores a fundamental
7 element of the relationship between a regulatory
Commission and a regulated utility. The Commission
8 establishes its policies after appropriate public
process with an opportunity for appeal. Once,
9 though, a policy becomes final, it is the obligation
of the regulated utility to act in accord with the
10 policy until such time as changed circumstances lead
the Commission to adopt new policy. The regulated
11 utility does not have the prerogative to substitute
its own judgment as to the wisdom of the policy or to
12 unilaterally adopt new policy." (Order No. 25454,
Page 14 [emphasis added]
13

14 Q How does the avoided cost methodology

15 calculate the value of capacity?

16 A The avoided cost methodology calculates the

17 ratepayer's cost per kwh assuming that the SAR has a 75%

18 capacity factor. Thus, the capacity portion is 134% of

19 the SAR plant cost, to make the ratepayer's costs the same

20 from a QF as from a base load SAR operating at 75%

21 capacity factor.

22 If a non-dispatchable QF operates at 75%, the ratepayer

23 pays exactly the same as if the SAR operates at 75%. If

24 the QF operates at 90%, the ratepayer is not adversely

25 affected, nor does he realize any gain from cost
reduction. It should be noted that the same
212

1 situation obtains for rate based plant: The advantages of

2 production above 75% accrue to the shareholder, not

3 the ratepayer.

4 Q What is the ratepayer's position if the QF

5 is dispatched at 75% of capacity?

6 A In that instance, the ratepayer pays exactly

7 the same for QF capacity as for rate based capacity,

8 provided that the utility pays 100% of avoided cost for

9 the 75% of the plant's capacity that is scheduled.

10 Q What did the Commission order in Case No.

11 IPC-E-92-31?

12 A In case IPC-E-92-31, identical in many of

13 its issues to this case, the Commission accepted Idaho

14 Power's proposal to schedule 75% of Rosebud's capacity at

15 full avoided cost, while leaving Rosebud free to sell its

16 remaining capacity and energy to someone else.

17 "We find the proposed variances from the established
underlying methodology and assumptions to be reasonable
18 for QFs greater than 10 MW, i.e. requirement for
dispatchability, unlevelized rates, and separate
19 capacity and energy payments." Order No. 25706, page 3

20 "We find the Company's proposed scheduling
constraints for Rosebud as set forth in IPCo compliance
21 filing Exhibit 1, Attachment C to be reasonable. ... It
reflects the Company's proposal to utilize a 75 percent
22 capacity factor for the Rosebud project; that is it
proposes to purchase only 75 percent of Rosebud's
23 estimated annual generation.
...
24
"We specifically note however, that Rosebud is not
25 required to limit its annual generation to the amount

213

1 of energy IPCo has elected to schedule. It is free to
sell any available excess capacity and energy off
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214

1 system in reliance on IPCo's proposed scheduling.
Idaho Power has committed to wheel same assuming the
2 availability of adequate transmission capability."
Order No. 25706, page 4.
3

4 PacifiCorp Proposal

5 Q PacifiCorp, in John R. Lowe's letter of July

6 11, 1994, presented a rate structure for the purchase of

7 capacity and energy from Rosebud. Does that proposal meet

8 the Commission's standard in Order 25706?

9 A No.

10 Q Please explain.

11 A The schedule attempts to calculate a

12 combined "peaker" and SAR avoided cost. It pays a

13 capacity cost for a simple cycle turbine, and then

14 capitalizes the difference between the cost of the SCCT

15 and the SAR. Full avoided cost is paid for on-peak

16 energy, and only the SAR adjustable is paid off-peak.

17 Q What is wrong with the SAR cost

18 calculations?

19 A There are three problems. First, the

20 calculation uses the Rosebud plant capacity factor (88%)

21 in place of the established SAR capacity factor (75%).

22 That artificially reduces avoided costs by substituting

23 Rosebud's CF for the utility's CF. Second, it effectively

24 buys only 45% of Rosebud's capacity at avoided costs, plus

25 the SCCT payment (only 45% of the hours in a week are
defined as "on-peak"). Finally, by
215

1 paying the Colstrip SAR adjustable rate for off-peak

2 power, it attempts to have it both ways: to buy off-peak

3 capacity using SCCT costs while paying for off-peak energy

4 at base load rates.

5 As I point out under "Dispatchability," full avoided

6 capacity cost is 133.3% of the construction cost of the

7 SAR because the SAR has a capacity factor of 75%. For an

8 all-energy rate, that value accurately represents the

9 ratepayer's cost for capacity, whatever the performance

10 level of the QF. When purchasing from a QF the utility

11 pays to the developer and recovers from the ratepayer only

12 the cost of capacity actually delivered, whether through

13 an all energy rate or a capacity payment, because the

14 ratepayer is not responsible for funding the QF's capital

15 costs. The Company's proposal is to pay for less than 75%

16 of Rosebud's capacity while taking 100% of it.

17 The Company's proposal also violates the Order 25454

18 language:

19 "These previous Commission Orders have found that
established rates that are now determined using the SAR
20 methodology for projects under 10 MW are the starting
point for individual negotiation on larger projects
21 with adjustments for project specifics." [Order 25454,
p. 13],
22

23 and that contained in the scheduling order, which presumes

24 the foregoing language:

25

216

1 "The Appendix A load/resource schedule and the
Appendix B variables are the appropriate schedule and
2 variables to be used in utility negotiation with QFs
greater than 10 megawatts until they are changed. ...
3 A separate procedure has not been established for QFs
greater than 10 megawatts."
4

5 Q How does PacifiCorp's proposal differ from

6 the Commission's treatment in Order No. 25706 and the

7 starting point for the Idaho Power proposal of June 24,

8 1994 for the Mountain Home plant?

9 A The Idaho Power proposal began by

10 capitalizing the non-adjustable portion of the all-energy

11 rate, and then assumed purchase of 75% of the plant's

12 capacity. The Commission found that approach to be

13 reasonable.

14 Q What does the non-adjustable portion of the

15 rate include?

16 A The non-adjustable portion of the all-energy

17 rate includes generation capital cost and fixed O&M,

18 adjusted for transmission losses. To that sum is added

19 the capital cost of required transmission and transmission

20 O&M. All of these components are properly considered

21 capacity costs.

22 Q What does the adjustable portion include?

23 A The adjustable portion includes variable O&M

24 and fuel.

25 Q Why does the procedure outlined in Order No.

217

1 25706 not incorporate a separate EAF for Rosebud?

2 A Because by starting with a payment for 75%

3 of Rosebud's capacity, the issue becomes moot. Idaho

4 Power will

5

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8 /

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10 /

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218

1 schedule 100% of the 75% of Rosebud's capacity that it

2 purchases. Any maintenance and/or downtime must be

3 scheduled within the remaining capacity, over which

4 Rosebud retains control, and which may be sold to another

5 buyer.

6 Q PacifiCorp has indicated that there are

7 transmission constraints on their system that reduce their

8 ability to utilize power during off-peak periods.. Is

9 there reason to discount that assertion?

10 A Yes. First, as the Commission has noted,

11 during the PP&L/UP&L merger proceedings Pacificorp stated

12 that they intended to operate the UPL/PPL systems as a

13 single integrated system:

14 "During the proceedings pursuant to the PP&L/UP&L
merger, PCp was adamant in its assertion that it would
15 operate the two companies as an integrated system. ...
We therefore find that it is appropriate to consider
16 PCp's entire integrated system for determining the
amount and cost of avoidable transmission associated
17 with the SAR." (Order No. 23358, page 12)

18 Second, Roger Weaver, in his direct testimony in Case

19 No. UPL-E-93-5/PPL-E-93-7 stated with regard to

20 transmission costs that "an Idaho QF would not incur

21 transmission expense to serve the Company's Utah system

22 load because they would be located within that system."

23 (Weaver, UPL-93-5/PPL-E-93-7, di., p. 18-19) He further

24 stated that while the Wyoming system is in surplus, the

25 Utah system is not.

219

1 Finally, from a policy perspective, refusing generation

2 because of perceived transmission constraints between

3 portions of a utility's overall system is an untenable in

4 the context of a twenty year contract. Presuming that

5 there are constraints today, the likelihood of such

6 constraints five or ten years hence is low.

7 Q What rate structure do you propose?

8 A I suggest a dispatchable/peaking structure

9 modeled after the structure accepted by the Commission in

10 Order No. 25706. The starting point would be a capacity

11 payment based on the capitalized non-adjustable portion of

12 the all-energy rate, for 75% of Rosebud's capacity. The

13 company would also agree to wheel Rosebud's remaining

14 capacity to another buyer or otherwise pay for such energy

15 based on market rates similar to Idaho Power Company's

16 Schedule 86 rates.

17 Q What are the benefits of this model?

18 A Both PacifiCorp and Idaho Power have

19 indicated near term needs to be of a dispatchable and/or

20 peaking nature rather than base load. At the same time,

21 the methodology created by the Commission is designed for

22 all-energy rates inclusive of both capacity and energy.

23 The Companies have made proposals that effectively

24 discount the value of dispatchable power, contrary to

25

220

1 the fact that dispatchable power, given identical

2 resource/fuel configurations, should be more valuable than

3 non-dispatchable power. They base their proposals on the

4 cost of peaking facilities.

5 That approach creates a logical problem for developers.

6 If a developer agrees to a peaking contract, and a later

7 need for base load capacity arises, with higher attendant

8 capacity rates, the developer has no opportunity to meet

9 that need and obtain the higher rates.

10 Q How does the Order 25706 model alleviate

11 that problem?

12 A The Order 25706 model allows the company to

13 achieve dispatchability and limited peaking capabilities

14 with capacity designed for base load. Thus, incremental

15 energy costs remain low, and the capacity can be converted

16 to base load when the need arises. In the meantime, the

17 developer has not been forced to accept rates below

18 avoided cost because he retains control over capacity not

19 purchased in the original contract.

20 Q But is the capital cost of a peaking

21 facility not lower than that of a base load facility?

22 A Yes, but such facilities are frequently of

23 little use to ratepayers - since they are used very little

24 and their fuel costs are high, the per kwh cost of

25 production from such facilities is high. QF power

221

1 purchased under the Order 25706 model has the advantage

2 that the capacity is flexible, its fuel cost is low, and

3 its cost to the ratepayer falls the more it is used.

4 Q You have suggested 100% of avoided cost as

5 the ceiling for dispatchable contracts. What should be

6 the floor?

7 A Full avoided cost for 75% of capacity is a

8 reasonable floor, because that provides scheduling

9 flexibility to the utility while ensuring sufficient

10 capacity payments to the developer that facilities can be

11 financed. Certainly, if a developer wished to sell

12 smaller portions of capacity to several utilities such a

13 contract could be negotiated. It should not, however, be

14 mandated.

15 Q Has PacifiCorp objected to Rosebud's project

16 on the grounds of having insufficient information?

17 A Yes, PacifiCorp has expressed reluctance to

18 discuss avoided cost rates, conditional or otherwise,

19 until Rosebud has a firm fuel agreement in place.

20 Mr. Fell, in the pre-hearing conference on January 20,

21 1994, indicated:

22 "... From what we've see so far, there is a term
sheet with a fuel supplier under which the fuel
23 supplier essentially agrees to negotiate the price,
does not agree to provide firm deliveries, agrees only
24 t provide the petroleum coke as an when available, as
and when produced by their own facility. If their
25 facility stops producing, they have no obligation to
substitute fuel; so we're not convinced that there is
222

1 a reliable fuel supply." (Fell, tr., January 20, 193,
p. 16, lines 3-4)
2

3 Mr. Fell stated further, with regard to confirmation of

4 fuel supply prior to negotiating an energy purchase

5 contract, that

6 "Project developers routinely go to Canada and
other suppliers and negotiate natural gas purchase
7 agreements prior to having or in the process of having
agreements with utilities. It is not that uncommon to
8 negotiate fuel supply." (Fell, tr., January 20, 1993,
p. 16, lines 9-13)
9

10 Q Has PacifiCorp always followed that

11 standard?

12 A No. PacifiCorp signed a contract with U.S.

13 Generating in October 1993 for the output of the U.S.

14 Generating facility in Hermiston, Oregon. According to

15 Conservation Monitor, U.S. Generating did not at that time

16 have a gas contract:

17 "PacifiCorp has signed up to buy the electricity
produced by U.S. Generating Co's planned 474-megawatt
18 cogeneration plant in northeastern Oregon. ... U.S.
Generating - a partnership of Pacific Gas & Electric
19 and Bechtel Group affiliates - had not secured gas for
the plant as of late October, ..." (Conservation
20 Monitor, November 18, 1993, p. 4) [Exhibit 51]

21 Q Does this complete your testimony?

22 A Yes.

23

24

25

223

1 Q Please state your name and business address

2 for the record.

3 A My name is Richard Slaughter. I am owner of

4 Richard Slaughter Associates, 7201 Swift Lane, Boise,

5 Idaho 83704.

6 Q Are you the same Richard Slaughter who has

7 testified previously in this proceeding?

8 A Yes.

9 Q Are you offering any additional exhibits?

10 A Yes. I have also prepared and offer

11 exhibits 53 through 58.

12 Value of Dispatchable Capacity

13 Q Mr. Weaver has stated that your analysis of

14 capacity cost under Commission approved methodology is

15 wrong, and that he has

16 discussed the true economic cost of
capacity as being the lowest cost
17 alternative source of additional capacity
. . . there is simply no relationship
18 between this cost and . . . the capital
cost of a plant, such as the coal SAR,
19 which is designed with low running costs
in order to be run at a high capacity
20 factor. . . . With separate capacity and
energy prices, the capacity factor plays
21 no pricing role at all. [Weaver, Di, pp.
18-19.]
22

23 Do you have a response?

24 A Yes. Immediately prior to that statement,

25 Mr. Weaver also says:

224

R.A. Slaughter, Reb
ROSEBUD ENTERPRISES

1 The Company's proposal is based on the
load and resource balance and plant costs
2 upon which the SAR-based rates to which
Rosebud seeks grandfathering are based.
3 The Company's proposal is in complete
compliance with Commission directives.
4 [Weaver, Di, p. 18, L1. 13-17.]

5 Mr. Weaver seems to be confused about the meaning

6 of the Commission's language. The Commission has stated:

7 The regulated utility does not have the
prerogative to substitute its own
8 judgment as to the wisdom of the policy
or to unilaterally adopt new policy.
9 [Order No. 25454, p. 14.]

10 and

11 to be acceptable the present value of
such rate structures [dispatchable rates]
12 must not exceed the present value of the
Commission established rates, except to
13 the extent that any additional cost is
offset by the value to the utility . . .
14 resulting from dispatchability . . . .
[Order No. 22865, p. 15; emphasis added.]
15

16 and

17 Dispatchability is generally an added
value available from a QF. Tr. p. 426
18 "Whether the . . . dispatchable rate is
more or less than the non-dispatchable
19 rate . . . will depend on the value of
dispatchability to the utility, the
20 sharing of future variable cost risks,
etc." Order No. 22636, p. 56. IPCo
21 acknowledges that it cannot require
dispatchability. However, this is a
22 factor that can be accounted for in
rates. A nondispatchable resource is
23 clearly less valuable than a dispatchable
resource. This is especially true as the
24 size of the project increases. [Order
No. 25454, p. 9; emphasis added.]
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1 Mr. Weaver says that the Company has followed the

2 Commission's instructions, yet pointedly rejects the

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1 capacity cost calculation inherent in Commission

2 methodology. The Commission states emphatically that the

3 standard for cost is the present value of the cost of an

4 all energy rate, and that dispatchability represents added

5 value. Yet Mr. Weaver supports a calculation that

6 penalizes a QF for efficiency, and produces a lower, not

7 higher, rate for dispatchability. Mr. Weaver claims to

8 have used Commission methodology to produce the July 11,

9 1994 proposal, yet substituted a simple cycle turbine for

10 the SAR for purposes of capacity cost calculation.

11 Q Is there a way to reconcile these views?

12 A Possibly. Mr. Duvall states in his

13 testimony that for QFs in PacifiCorp's Idaho territory,

14 "no developed standard for price calculation exists," and

15 goes on to indicate that adjustments must be made to

16 existing methodology. Those "adjustments" amount to an

17 entirely new methodology. Clearly, Mr. Duvall and I do

18 not interpret Orders 25454 and 25706 in the same way.

19 Q Mr. Weaver has indicated that your analysis

20 is wrong because the developer can potentially receive

21 more payment than the utility does for the same capacity:

22 This additional cost to the utility is,
of course, a windfall gain to the QF
23 because it experiences no increase in its
capital cost in order to receive the
24 additional revenue. [Weaver, Di, p. 21.]

25 Is there a "windfall gain" to a QF when it operates above
the assumed capacity factor?
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1 A Mr. Weaver is confusing a QF's revenues with

2 ratepayer costs. He is correct that a QF, with an

3 all-energy rate structure, can effectively realize

4 additional capacity payments for production above the SAR

5 capacity factor. On the other hand, the developer

6 realizes lower capacity payments with production below the

7 SAR factor. The utility realizes its full actual costs

8 regardless of actual running experience. If the SAR runs

9 above the assumed rate the ratepayer presumably benefits,

10 but just as surely is penalized when the SAR runs below

11 its assumed CF.

12 Q But does not the QF receive capacity

13 payments for capacity not delivered?

14 A No. Whatever the capacity factors, energy

15 delivered instantaneously from a 40 MW QF and a 40 MW SAR

16 will be the same, and will cost the same. Over time,

17 however, the higher capacity factor QF will deliver more

18 energy than the SAR. Put another way, the QF may deliver

19 its full energy a higher percentage of the time.

20 Q How does the PacifiCorp logic, as

21 represented by Column 6 of Mr. Weaver's Exhibit 112, pay

22 for capacity?

23 A By using Rosebud's capacity factor (88%) in

24 his calculation, Mr. Weaver attempts to substitute

25 Rosebud's capacity factor for that of the SAR. The effect

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1 is to reduce avoided cost. Thus, for the same capacity

2 and energy delivered at the same time, PacifiCorp would pay

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1 Rosebud less for capacity than its ratepayers pay for the

2 SAR.

3 Over the year, because Rosebud is able to deliver

4 more energy than the SAR, its capacity is actually more

5 valuable to PacifiCorp than the SAR. Under the PacifiCorp

6 proposal, for peak energy only, Rosebud receives the same

7 payment as the SAR only if it produces 88% of capacity,

8 relative to the SAR's 75%.

9 Mr. Weaver appears to be disturbed by the fact that

10 the developer can control his revenue stream, and can,

11 with a high CF plant, realize more income than if his CF

12 matched that of the utility.

13 Q Isn't that wrong?

14 A No, because the point of PURPA is cost to

15 the ratepayer, not revenue to the producer.

16 Q Is there another way to describe the

17 situation?

18 A Yes. The 100% avoided cost rate, capacity

19 and energy portions, however defined, is set for a 75%

20 capacity factor utility plant. Avoided cost, therefore,

21 pays for an avoided plant's 75% capacity factor, not 88%

22 or 95%. If a developer brings on line a plant with higher

23 than 75% capacity factor the utility avoids additional costs

24 associated with construction of more 75% capacity factor

25 plant. The cost of QF power to the utility does not rise
because a developer produces above the 75% level. The
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1 all energy rate thus correctly defines avoided capacity

2 cost, and Mr. Weaver is simply wrong.

3 Q Pacificorp witnesses argue that their plants

4 operate at more than 75%. Should they not be able to

5 introduce that consideration?

6 A Yes, if their capacity factors are actually

7 higher than 75%, but not in this proceeding. If the

8 utility's avoided plant is in fact higher than 75%

9 capacity factor, it is incumbent on the utility to present

10 that information in an avoided cost case. Mr. Weaver has

11 proposed 90% capacity factor based on a gas CCCT for final

12 avoided cost rates, but retains 75% for his proposed

13 interim rates. In this case the binding decision is Order

14 23358, and even if Rosebud were not grandfathered, Mr.

15 Weaver has still proposed a 75% capacity factor for rates

16 covering this period of time.

17 Q For off-peak capacity, Mr. Weaver proposes

18 payment based on a SCCT and energy payments based on the

19 SAR. Are these standards in conflict?

20 A Yes. Under established methodology

21 PacifiCorp has a right to energy at the Colstrip variable

22 cost only if they are paying for capacity based on the

23 SAR. The Company's proposal attempts to have the best of

24 both worlds, at Rosebud's expense. To be consistent,

25 either Mr. Weaver's SCCT must burn coal, or the adjustable
rate must be based on gas.
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1 Q In his discussion of the rate structure

2 proposed by PacifiCorp on July 11, on pages 2 and 3 of his

3 testimony, Mr. Weaver states:

4 the different pricing for off-peak energy
reflects the energy costs that Rosebud
5 would allow the Company to avoid. These
adjustments implement the "ability to
6 schedule" line item upon which the
Commission allows negotiation. [Weaver,
7 Di, pp. 2-3.]

8 and

9 The Company's proposal assumes that the
Company will not have the ability to
10 schedule Rosebud's operation. [Weaver,
Di., p. 3, L1. 5-6.]
11

12 The "adjustment" under discussion is the

13 substitution of simple cycle CT cost for the SAR for

14 purposes of capacity payment during off peak hours. What

15 is your interpretation of the Commission's phrase,

16 "ability to schedule?"

17 A "Ability to schedule," as I interpret the

18 Commission's order and as interpreted in the ongoing

19 negotiations between Rosebud and Idaho Power, means that

20 there can be a downward adjustment in the payment for

21 capacity if the developer does not allow the utility to

22 schedule its output. Rosebud has never refused scheduling

23 or dispatch reasonable to the proposed facility, provided

24 that PacifiCorp buys its capacity. To my knowledge,

25 PacifiCorp has never asked. What Mr. Weaver has done is

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ROSEBUD ENTERPRISES

1 to substitute an entirely different surrogate plant under

2 the guise of a scheduling adjustment.

3 Definition of Dispatchable

4 Q How does Mr. Weaver define dispatchability?

5 A On page 4 of his direct testimony,

6 Mr. Weaver says that

7 Dispatchability refers to whether the
utility has control over when and to what
8 extent the resource is run . . .
Dispatchability does not, in general,
9 refer to the specific technological
characteristics, construction costs or
10 realized capacity factors of generating
resources. [Weaver, Di., p. 4, L1. 6-
11 12.]

12 and

13 Utility-owned resources will typically be
dispatchable. This is true of base-
14 loaded units such as the Company's Dave
Johnson plant, which is operated at over
15 a 90 percent capacity factor, through
swing units such as Gadsby at just under
16 50 percent . . . [Weaver, Di, p. 4, L1.
16-20.]
17

18 He does say that capacity can be limited by technology,

19 but is referring to wind, solar, and hydro.

20 Q Is his interpretation correct?

21 A Technically, yes, but its application flies

22 in the face of logic. Dave Johnson is a relatively new

23 coal plant, while Gadsby is an old plant at least

24 partially converted to gas. For several years in the

25 1980s it was not run at all. He also refers to a

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ROSEBUD ENTERPRISES

1 winter capacity purchase from Southern California

2 Edison, whose dispatchability

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1 characteristics may be very different for SCE than they

2 are for PacifiCorp.

3 While it is technically true that "a base load

4 resource may be dispatchable," it may not be very smart.

5 Cycling of coal units is understood to have a

6 significantly negative effective on their life expectancy

7 and maintenance costs. The Commission, in Order 22636,

8 commented on exactly what Mr. Weaver is preaching:

9 We reject the contention that a coal
fired plant "is the epitome of a
10 dispatchable resource. . . ." Coal fired
plants are high capital cost, low fuel
11 cost resources designed for base-load
operation. Cycling operation of coal
12 fired plants shortens their lives and
increases their maintenance costs.
13 UP&L's investment in coal plants for
cycling service probably contributed
14 significantly to its recent corporate
structural changes. [Order No. 22636,
15 p. 54.]

16 While coal plants may be dispatchable, as Mr.

17 Weaver says, such use is economic only if Company

18 personnel consider both short and long term costs. It is

19 not evident from Mr. Weaver's testimony that PacifiCorp

20 personnel include those considerations.

21 Q Is there evidence that PacifiCorp actually

22 uses the Utah coal plants as dispatched resources?

23 A It is questionable. Mr. Duvall testifies

24 that PacifiCorp receives "about 80 percent of its energy

25 requirements from baseload coal plants, which are

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ROSEBUD ENTERPRISES

1 primarily located in Utah and Wyoming," and has an

2 1100 MW peaking contract

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1 with BPA for load shaping. They are therefore in a

2 situation where some of the Utah plants may have to be run

3 on a dispatchable basis, though Mr. Weaver's testimony

4 [supra], would indicate that they do so as little as

5 possible.

6 Q What is the effect of PacifiCorp's load

7 shaping agreement with BPA?

8 A The effect is to make the coal plants

9 dispatchable, because BPA provides a peaking resource with

10 payback. Thus, the Utah/Wyoming plants can run as

11 baseload while BPA takes up the slack. In fact, it is the

12 BPA resources that are dispatched, not the PacifiCorp coal

13 plants.

14 Q Mr. Weaver argues that since PacifiCorp's

15 Idaho wheeling capacity is less than the Company's east

16 side surplus, any new QF resource must be designed to

17 provide power only during peak periods; that energy

18 provided off peak has value only to the extent that fuel

19 is saved at other PacifiCorp Utah resources. Since

20 Rosebud would be the marginal resource, why is this view

21 not correct?

22 A Technically, given his perspective from

23 within the company, Mr. Weaver is correct. If viewed as

24 the marginal resource, Rosebud's value would be as

25 described. There are three reasons, however, why

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ROSEBUD ENTERPRISES

1 Mr. Weaver's perspective should not be adopted by the

2 Commission.

3 Q Please elaborate.

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ROSEBUD ENTERPRISES

1 A First, the Company's perspective is molded

2 by the short term situation. They ask "What resource

3 would we most like to have today?", whereas the Rosebud

4 facility and existing UPL resources are long term

5 resources. The short term constraint came into existence

6 because of poor planning by UPL and PacifiCorp, not

7 Rosebud. PacifiCorp's proposal is to pay Rosebud less

8 than avoided cost as a solution to their underlying

9 problem. Following the Commission's logic, dispatchable

10 Rosebud capacity should have a positive, not negative,

11 value for PacifiCorp.

12 Second, the Commission has addressed a similar

13 problem in the IPC-E-93-28 case, wherein Idaho Power

14 attempted to assign to Rosebud the full potential effect

15 of all prior independent power acquisition on Idaho

16 Power's cost of capital. In Order 25706 the Commission

17 said:

18 It further seems unreasonable to place
the cumulative effect of all QFs on
19 Rosebud. [Order No. 25706, p. 4.]

20 The fact is that the UPL resource structure is

21 excessively oriented to baseload resources, and that the

22 problem is of long standing. PacifiCorp witnesses have

23 not, to my knowledge, previously raised this issue in

24 avoided cost cases in ways that would allow calculation

25 of the value for the Company of dispatching Idaho
resource. Idaho avoided cost rates have for some time
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R.A. Slaughter, Reb
ROSEBUD ENTERPRISES

1 been based on deficit calculations relative to the entire,

2 integrated, PacifiCorp system. PacifiCorp's proposed

3 solution, new in this case, is to visit the cost of their

4 past decisions onto developers.

5 Q PacifiCorp recently bought out the Firth

6 cogeneration contract, citing avoided costs higher than

7 those of the Hermiston project. That contract was signed

8 only last April. Did PacifiCorp, in negotiating that

9 contract, cite transmission capacity constraints

10 sufficiently severe that the company could not utilize

11 Firth's output?

12 A Not to my knowledge.

13 Q What is the final reason that the Commission

14 should reject Mr. Weaver's view?

15 A Whatever the constraint situation is today,

16 it must logically be improved by 2000, when the Rosebud

17 plant would come on line. It is inconceivable that PPL

18 has no need for additional resources over the next six

19 years, in a region that is growing at a rate well in

20 excess of 2% per year. PPL witnesses have made no claim

21 that the Utah market is in surplus, nor that their Idaho

22 market is in surplus. [Weaver, UPL-E-93-5 Di, pp. 18-19.]

23 Q But Mr. Morris has made a claim that the

24 transmission constraint will not be eased by the year

25 2000, and Mr. Weaver shows, in his Exhibit 113, that there

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ROSEBUD ENTERPRISES

1 will be basically no off-peak load growth in the Utah

2 market by that time. How do you respond?

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ROSEBUD ENTERPRISES

1 A Unless off peak demand moves in entirely

2 different ways than total demand, it is not clear where

3 Mr. Weaver gets his forecast. It does not correspond at

4 all to the RAMPP-3 planning forecast that the Company

5 published in April 1994.

6 Q Please explain.

7 A I have prepared Exhibit No. 53 to show the

8 compound growth rate contained in Mr. Weaver's Exhibit 113

9 and that from the medium forecast from RAMPP-3, attached

10 as Exhibit 54. Mr. Weaver's projection for off peak

11 native load growth on the east side is 0.4% in the summer

12 and 0.0% in the winter. The medium forecast shown by the

13 RAMPP-3 model is for 3.7% annual growth in the Utah

14 region, 1.9% overall, including Montana. With Mr.

15 Weaver's projections, the constraint remains in 2000 at

16 the same level it is today. Using RAMPP-3 projections,

17 the east side of the Company's system needs at least 500

18 MW more capacity by 2000.

19 Exhibit 113 also shows Westside native load growth

20 of 1.7% summer and 1.6% winter. This is in contrast not

21 only to the RAMPP-3 forecast, but also to the Appendix A

22 load forecast, submitted by Mr. Weaver in Case

23 No. PPL-E-93-5/UPL-E-93-7 of between 2.16% and 2.5%

24 annually for the entire PacifiCorp system. Simple

25 consistency demands that these differing growth rates be
reconciled, and the differences explained.
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ROSEBUD ENTERPRISES

1 Q What is the current growth rate assumption

2 for PacifiCorp for Idaho avoided cost purposes?

3 A The Commission approved Appendix A for

4 PacifiCorp shows 3.0% annual growth in energy demand. For

5 purposes of calculating Rosebud's rates, the Commission

6 should remain consistent with their reasoning in Order

7 No. 25454, and reject attempts to substitute and subdivide

8 growth rates.

9 Transmission

10 Q In his direct testimony, Mr. Morris

11 describes the off-peak flows between the company's east

12 and west sides, using a wheeling agreement with Idaho

13 Power. In Exhibits 117-120 Mr. Morris shows that for both

14 winter and summer off-peak there is no appreciable

15 reduction in the east side surplus. His testimony is

16 based on Mr. Weaver's Exhibit No. 113. How do you analyze

17 these exhibits?

18 A The exhibits take no cognizance of the

19 transmission construction identified by the WSCC --

20 capacity which, in Mr. Morris estimation, is capable of

21 transmitting over 1000 MW of energy. [Morris, Di., p. 9,

22 lines 2-3] While the lines do not tie into the company's

23 western system, they do appear to tie into the Southwest

24 market, where power can be sold, even non-firm, at more

25 than the Colstrip adjustable rate. It is hard to believe

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ROSEBUD ENTERPRISES

1 that the company would build those lines from a static

2 resource base and an area with static demand

3 (Exhibit 113 with no

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1 intention of gaining higher revenues thereby. In

2 addition, the Idaho Power line from midpoint to the

3 Southwest market must provide PacifiCorp with at least

4 some opportunity to wheel their captive energy to other

5 markets. No PacifiCorp witness has demonstrated that

6 these marketing opportunities do not exist.

7 Q To what transmission construction do your

8 refer?

9 A In my response to PPL discovery request No.

10 40, I cited data from the Western System Coordinating

11 Council on PacifiCorp's planned transmission construction:

12 The statement is based on Weaver, Case
No. PPL-E-93-5/UPL-E-93-7, Exhibit 3,
13 Page 1 of 2, and on planned transmission
additions of PacifiCorp in the UPL area,
14 reported in the Western Systems
Coordinating Council document "Existing
15 Generation and Significant Additions and
Changes To System Facilities, 1993-2003,"
16 April 1994, pp. 92-98. Specifically, the
following are reported by PacifiCorp,
17 addition to the IPC 1200 Mva line from
Midpoint, ID to the Southwest market and
18 IPC additions between Midpoint and Borah:

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R.A. Slaughter, Reb
ROSEBUD ENTERPRISES

1 These planned additions, all of which are expected

2 to be operating prior to Rosebud, are documented in the

3 cited WSCC report, the relevant pages of which are

4 attached as Exhibit 55. In light of these planned

5 additions, as well as existing ties between the Utah

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1 region and the Southwest market, and the planned Idaho

2 Power line to the Southwest, it is difficult to believe

3 that the best PacifiCorp can do with Rosebud's off peak

4 energy is to back down Hunter.

5 Q Has this issue been raised before?

6 A Yes. In the -170 case Mr. Morris also

7 "originally testified that there would be no avoidable

8 transmission integral with an SAR located in PCp's service

9 territory." The Commission rejected the contention,

10 saying

11 During the proceedings pursuant to the
PP&L/UP&L merge, PCp was adamant in its
12 assertion that it would operate the two
companies as an integrated system. . . .
13 We therefore find that it is appropriate
to consider PCp's entire integrated
14 system for determining the amount and
cost of avoidable transmission associated
15 with the SAR. [Order No. 23358, p. 11.]

16 Q Does the Bonneville Power load shaping

17 agreement provide a long term solution for PacifiCorp?

18 A Not necessarily. The Commission noted in

19 the -170 case that rates offered by BPA were typically

20 short term: "One of the great drawbacks in the NR/7-F

21 alternative is that the BPA is not offering long-term

22 fixed rate contracts at a 7-F rate. As now structured the

23 rate floats." [Order No. 22636, p. 46.] If PacifiCorp's

24 load shaping agreement is similarly short term, new

25 resource demands on BPA could cause it to be abrogated.
Q What would then happen?
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1 A PacifiCorp would be faced with the full

2 reality of their resource balance problem. They may

3 eventually be forced to develop dispatchable resource in

4 Utah, base load on the west side, and/or build

5 transmission. They currently appear to be building

6 transmission to the Southwest and baseload resources on

7 the West side. In any event, these difficulties are not

8 of Rosebud's making. If Rosebud is to be part of

9 PacifiCorp's solution, its value is clearly a positive

10 one, and must be priced as such, consistent with existing

11 orders setting avoided costs.

12

13 The Hermiston Contract

14 Q PacifiCorp has moved to alleviate their

15 supply shortage on the west side of the system by

16 acquiring the output of a gas fired CCCT. Mr. Weaver has

17 prepared an exhibit in which he compares the Hermiston

18 costs to his analysis of Rosebud's proposed prices and his

19 proposed prices. PacifiCorp has frequently cited the

20 Hermiston contract as a standard by which to measure

21 avoided costs. Are his estimated costs accurate?

22 A Mr. Weaver's estimate of Hermiston's costs

23 are very close to what I estimate them to be, per Exhibit

24 C of the contract. I have provided my analysis of

25 Hermiston contract costs in Exhibit 56. The levelized

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1 costs for periods of fifteen, twenty, and thirty-five

2 years are shown toward the top of the page.

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1 What is notable here is that there is a difference

2 in kind between Rosebud prices and Hermiston prices. The

3 Rosebud estimated costs are mostly fixed for the life of

4 the contract. The adjustable portion, which initially is

5 about 25% of the firm rate, is set every year based on

6 actual experience. It can go both up and down.

7 With the Hermiston project, the costs shown are the

8 floor costs. With gas projects, fuel prices account for

9 about half of total initial cost. In the Hermiston

10 contract, fuel costs are escalated at 5.5% annually for

11 the first fifteen years, beginning from November 1993

12 levels. They can not be lower than that. On the other

13 hand, there is no ceiling. PacifiCorp ratepayers will pay

14 at least the 5.5% escalation, and may pay much more.

15 Exhibit C of the "Long-Term Power Sale Agreement

16 between Hermiston Generating Company, L.P. and PacifiCorp"

17 provides that the variable energy charge shall be

18 "$12.118/megawatt hour escalated at 5.5% per annum from

19 November 1, 1993," and that for years 16 through 20 the

20 charge shall be the "Project's actual fuel cost per

21 megawatt hour of net Project output." This is the fuel

22 charge alone.

23 The October 29, 1993 letter, signed by Mr. Dennis

24 Steinberg for PacifiCorp and Mr. P. Chrisman Iribe for

25 HGC, provides that if (because of price rise or other
reason) there is a breach or series of breaches in gas
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ROSEBUD ENTERPRISES

1 supply contracts that result in more than 75,000 "lost

2 generation megawatt hours," "HGC shall use diligent

3 efforts to terminate the breached contract . . . and then

4 enter into long-term firm contracts with terms and

5 conditions (other than price) comparable . . . ."

6 [Emphasis added.] Exhibit C and the letter together

7 place a floor under ratepayer cost, but provide no

8 ceiling. That arrangement is in no way comparable to

9 avoided cost pricing in Idaho, and certainly presents no

10 standard for avoided costs. The Long-term Power Sales

11 Agreement is attached as Exhibit 57. The October 29, 1993

12 letter is attached as Exhibit 58.

13 Q Does this complete your testimony?

14 A Yes.

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1 (The following proceedings were had in

2 open hearing.)

3 COMMISSIONER MILLER: Let's see, Mr. Fell,

4 by our clock, it's about five minutes to noon. Would you

5 like to start for a few minutes or would you prefer to

6 wait?

7 MR. ERIKSSON: We could -- actually, I think

8 I prefer to just wait for the five minutes.

9 COMMISSIONER MILLER: Let's do that. All

10 right, let's resume at 1:30.

11 (Noon recess.)

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CSB REPORTING COLLOQUY
Wilder, Idaho 83676