28158.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE JOINT APPLICATION AND PETITION OF PACIFICORP AND SCOTTISH POWER PLC FOR A DECLARATORY ORDER OR ORDER APPROVING PROPOSED TRANSACTION AND AN ORDER APPROVING THE ISSUANCE OF PACIFICORP COMMON STOCK.
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CASE NO. PACE991

ORDER NO. 28158

SUMMARY
On August 30, 1999, Solutia, Inc. (“Solutia”) filed a Motion pursuant to Rule 56 of the Commission’s Procedural Rules (IDAPA 31.01.01.056) and Rule 37(a) of the Idaho Rules of Civil Procedure for an Order compelling a response from the Joint Applicants (“PacifiCorp” and “ScottishPower”; “Joint Applicants”) to a Supplemental Data Request submitted to them on August 18, 1999. On the same date, Solutia also filed a Motion to Reopen the technical proceeding in this case for the purpose of introducing new testimony and re-cross examining witnesses. For the reasons set forth below, we hereby deny both Solutia’s Motion to Compel and Motion to Reopen the Technical Proceeding. We believe that Solutia’s Motions, and the Joint Applicants’ Response thereto, were adequately briefed and we will not hear oral argument. Our decision to deny Solutia’s Motions should, in no way, be construed as any indication of a final decision on the merits of the proposed merger.

BACKGROUND
Motion to Compel
On August 18, 1999, Solutia submitted a “Supplemental Data Request” to the Joint Applicants requesting information on various discounted cash analyses mentioned in PacifiCorp’s May 6, 1999 Proxy Statement, financial forecasts, tax calculations and other documents. On August 24, 1999, Joint Applicants objected to the Supplemental Data Request on the grounds that it is untimely and contrary to the Commission’s scheduling Order No. 27939.
Solutia then filed its Motion to Compel on August 30, 1999 requesting that Joint Applicants be ordered to immediately respond. Solutia argues that neither Order No. 27939 nor the IPUC’s Rules of Procedure impose discovery deadlines and that the record will remain open until September 10, 1999 for the filing of written comments. Solutia contends that the information requested is relevant and necessary for its post-hearing brief. The Motion focuses on purported tax savings issues that were reported in the Salt Lake Tribune’s coverage of the Utah Public Service Commission’s proceedings on this proposed merger. Solutia contends that “new evidence was presented in the Utah proceedings [merger proceedings] that ScottishPower will realize up to $100 million per year in tax savings as a result of the merger.” Motion to Compel at p. 2.
Moreover, Solutia contends that in previous discovery requests submitted by it, the Idaho Irrigations Pumpers Association (Irrigators) and the Commission Staff in Idaho as well as by numerous parties in other states, the Joint Applicants were requested to provide detailed information and studies concerning all cost savings resulting from the merger. Solutia contends that the Joint Applicants identified only an estimated $10 million in corporate savings resulting from the merger and failed to mention the estimated tax savings.
Solutia concludes that the information it seeks in its Motion to Compel is relevant to the substantive issues presented in this case and also for the purpose of challenging what it contends is contrary and/or misleading testimony and responses to prior discovery requests.

Motion to Reopen
Pursuant to Order No. 28116 issued on August 5, 1999, and in a verbal ruling following the conclusion of the public hearing conducted in Preston, Idaho on August 31, 1999 (Tr. Vol. XI, p. 1624), the Commission adopted September 10, 1999 as the date on which the record in this case would be formally closed. The Commission allowed the parties to submit written briefs advocating their positions in this case on or before the September 10, 1999 closing date.
Solutia seeks to reopen the record to introduce new testimony and evidence and recross-examine certain witnesses of the Joint Applicants with respect to the purported tax savings discussed in Solutia’s Motion to Compel. Referring to articles appearing in the Salt Lake Tribune on August 3 and 7, 1999, Solutia contends that ScottishPower may save $100 million annually on its taxes if the merger is approved “and that such tax savings would result in a 15% international subsidy to Scotland.” Motion to Reopen at p. 2.
In addition, Solutia argues that the Joint Applicants submitted substantial studies and projections regarding cost savings resulting from the merger that originated from financial analysts Solomon, Smith Barney and Morgan Stanley purportedly detailing future cost savings and impacts on rates if the merger is or is not approved. The Joint Applicants have refused to respond to the Supplemental Data Request submitted by Solutia and, consequently, Solutia argues that the record in this proceeding must be reopened to examine what it characterizes as a new issue. Solutia states that “if in fact the merger will result in $100 million in tax savings per year, these tax savings could significantly reduce rates in Idaho, perhaps as much as 10%.” The existence of such cost studies, analyses and savings, Solutia contends, is relevant and pertinent to the issues pending before the Commission.
Answer of Joint Applicants
to Motion to Compel and Motion to Reopen
The Joint Applicants filed an Answer on September 3, 1999 contending that the Motions should be denied because there is not new evidence, the tax savings discussed is speculative and irrelevant, Solutia did not engage in discovery in a timely manner and the Motions are based on factual errors. The Joint Applicants reply that the Salt Lake Tribune articles relied upon by Solutia are “completely inaccurate.” Answer to Motion at p. 3. During the hearings in Utah, the testimony of Committee for Consumer Services witness Neal H. Talbot was cited, incorrectly, by counsel for the Utah Large Customer Group as containing an estimate of tax savings flowing from the proposed merger and a figure of $109 million was used. In fact, the Joint Applicants note, this figure was generated by Talbot as a hypothetical intended to illustrate the impact of double leveraging the capital structure. There was no mention of asserted “tax savings” resulting from the merger. The Joint Applicants contend that the Salt Lake Tribune’s incorrect reporting of this testimony does not constitute “new evidence” as suggested by Solutia.
The Joint Applicants note that parties in other states’ merger proceedings chose to perform discovery on the issue of potential tax savings resulting from the merger. The Joint Applicants contend that the results of such discovery do not suggest that there is a $100 million tax savings that will result from the merger. In fact, the Joint Applicants argue, “there may not be any tax savings whatsoever associated with the transaction.” Answer to Motion at p. 4. The Joint Applicants argue that “tax savings do not arise from the transaction itself, but in the calculation of the tax liability on an ongoing basis following the transaction.” Id. They conclude the tax savings arising from a merger such as proposed in this proceeding are by their very nature speculative as they depend upon the tax legislation in existence at the time the tax liability is calculated. Consequently, the Joint Applicants reason that the issue of tax savings cannot be properly addressed in this proceeding. Rather it should be addressed, if at all, in a subsequent general rate proceeding when the facts are known regarding the tax liability after the transaction is approved; assuming it is approved.
The Joint Applicants further note that, in the Utah merger proceeding all parties preserved their right to address the issue of changes in tax liability in the future. ScottishPower committed to retain records regarding “upstream tax savings” and costs relating to the merger and to make those records available to Utah regulators and other parties. The Joint Applicants suggest that the Idaho Commission “may wish to consider including a condition along the lines set forth [in the Utah merger proceeding] in order to clarify that this issue is preserved for future general rate proceedings.” Answer to Motion at p. 5.
The Joint Applicants dispute Solutia’s contention that information concerning estimated tax savings was deliberately withheld in this proceeding. The Joint Applicants contend that “Solutia did not submit a single data request to Joint Applicants until after the technical hearings had concluded.” Answer to Motion at p. 5. Moreover, the Joint Applicants contend that all of the questions set forth in Solutia’s Supplemental Data Request could have been posed during the discovery phase of this proceeding. Not only that, the Joint Applicants, assert virtually all of the questions now asked by Solutia were, in fact, posed as part of discovery by other parties in the Idaho proceeding or in other states merger proceedings.
The Joint Applicants further argue that Solutia’s Motion to Reopen the case is procedurally improper because there is no “new” evidence which would warrant such a request. Referring to the Idaho Rules of Civil Procedure and Idaho appellate decisions, the Joint Applicants contend that new evidence should be considered by the trier of fact only “if the party seeking to reopen the case shows some reasonable excuse such as oversight, inability to produce evidence, ignorance of evidence or excusable neglect.” Answer to Motion at p. 7. They contend that Solutia has made no such showing in this case because it had ample opportunities to elicit evidence in a timely manner regarding any tax consequences resulting from the merger but chose not to do so. The Joint Applicants also contend that Solutia’s Supplemental Data Request is inconsistent with the schedule adopted by the Commission in this proceeding in Order No. 27939.
Solutia’s Response
On September 3,1999, Solutia filed a Response to Joint Applicants Answer. Solutia insists that there are tax savings that will result from the merger and that the Joint Applicants are in the possession of information identifying exactly what those savings would be. Response at p. 2. Solutia further notes that it did conduct discovery in the Wyoming merger proceeding and stipulated in the Idaho proceeding that information obtained in the Wyoming proceeding would be applicable in Idaho.
Solutia concludes that it was forced to rely upon the Salt Lake Tribune reports because the information regarding the purported tax savings in the Utah merger proceeding was confidential and unavailable to Solutia. Moreover, Solutia argues that its Supplemental Data Request in this proceeding was timely because it was made prior to the conclusion of the Commission’s final public hearings in southeastern Idaho conducted on August 31, 1999.

FINDINGS
Initially, the Commission notes that this case was filed on December 31, 1998 and Solutia was granted intervention on February 1, 1999. We find that Solutia could have sought the information which is the subject of its Supplemental Data Request prior to the technical hearing conducted in this case. As noted in the Joint Applicants’ Answer, the Solomon, Smith Barney and Morgan Stanley reports identified in Solutia’s requests 1 through 4 were the subject of discovery in the other states’ merger proceedings. This information was posted to the PacifiCorp website that was established to allow parties in all of the affected states to have access to the discovery being conducted in other states. The analysis performed by Solomon, Smith Barney and Morgan Stanley is described in detail in the draft PacifiCorp proxy statement which was provided in February as an exhibit to the direct testimony filed in the Oregon merger proceeding. The due diligence materials identified in Solutia’s data request nos. 8 and 9 were made available to the Idaho Commission Staff for its review prior to the prefiling of Staff’s testimony. Finally, attached as Appendix B to their Answer to Solutia’s Motions the Joint Applicants provide a compilation of the information requested in Solutia’s Supplemental Data Request with cross-references to the data requests where the same information was requested by parties in Idaho or in other states. It seems that the information sought has been available to Solutia for some time and was available prior to the technical hearing.
While Commission Order No. 27939 did not set precise dates for discovery, it did establish the scheduling in this proceeding, and states that “the parties should coordinate discovery requests and responses so that they are able to comply with the established prefiled deadlines.” Order No. 27939 at p. 4. Our clear expectation was that discovery would conclude before the technical hearing. Solutia has failed to provide justification for why it could not have sought the information it now seeks in its Supplemental Data Request prior to the technical hearing conducted in mid-July.
Next, even assuming, arguendo, that information related to the purported “tax savings” resulting from the merger is relevant to this proceeding, we find that the submission of such evidence would not pertain to our ultimate decision whether to approve the proposed merger. Any change in the tax liability of the proposed merged corporation does not constitute a “cost” savings but is simply a result of the tax laws in effect at the time the liability is calculated. To say that change in the tax liability resulting from the proposed merger is speculative would be an understatement. This is best highlighted by the statements contained in the Motions of Solutia itself. On page 2 of its Motion to Reopen, Solutia expresses concern “that ScottishPower may save $100 million annually on its taxes if the merger is approved, and that such tax savings would result in a 15% international subsidy to Scotland.” On the next page, however, Solutia states that “if in fact the merger will result in $100 million in tax savings per year, these tax savings could significantly reduce rates in Idaho, perhaps as much as 10%.”
We are puzzled why Solutia would be concerned about a reduction in the rates of Idaho ratepayers. Regardless, these seemingly inconsistent statements simply highlight the fact that it is impossible to calculate at this time the taxes of a corporation that will exist some time in the future only if the merger is approved and the transaction closes. To say the least, the editorial appearing in the Salt Lake Tribune, whether based on accurate information or not, does not constitute an authoritative statement on the complex subject of post-merger tax consequences. We find that any changes in PacifiCorp’s tax liability resulting from approval of the proposed merger would more appropriately be addressed in a general rate proceeding and are not relevant to this proceeding. See, Rule 26(b)(1), Idaho Rules of Civil Procedure; Rule 221, Rules of Procedure of the Idaho Public Utilities Commission, IDAPA 31.01.01.221; Rules 401, 402, Idaho Rules of Evidence; Rule 261, Rules of Procedure of the Idaho Public Utilities Commission, IDAPA 31.01.01.261.
In its Answer to Solutia’s Motions, PacifiCorp and ScottishPower have indicated that information regarding upstream tax savings and costs relating to the merger will be tracked and these records will be available to this Commission, should it so request. If the Commission utimately approves this transaction, this information will enable us to determine what effect, if any, the merger would have on PacifiCorp’s tax liability.
Finally, the Commission is surprised and disappointed by the personal attacks and innuendoes in the recent filings of the parties on both sides. We find these most distressing and totally inappropriate. We expect a higher level of professional conduct from those who participate in our processes.

CONCLUSION
We find that the Supplemental Data Request submitted by Solutia more than a month following the conclusion of the technical hearing in this proceeding was untimely filed, without justification. Moreover, we find that the information sought would not pertain to our decision whether to approve the proposed merger in this case. Consequently, the Motions to Compel and to Reopen this proceeding filed by Solutia are denied.

O R D E R
IT IS HEREBY ORDERED that Motions to Compel and Reopen this proceeding filed by Solutia, Inc. are denied.
THIS IS AN INTERLOCUTORY ORDER. Any person interested in this Order may file a petition for review within twenty-one (21) days of the service date of this Order with regard to any matter decided in this Order. A petition to review may request that the Commission: (1) rescind, clarify, alter, amend; (2) stay; or (3) finalize this Interlocutory Order. After any person has petitioned for review, any other person may file a cross-petition within seven (7) days. See Rules 321, 322, 323.03, 324, 325 (IDAPA 31.01.01.321-325).

DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho, this
day of September 1999.

DENNIS S. HANSEN, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

PAUL KJELLANDER, COMMISSIONER

ATTEST:

Myrna J. Walters
Commission Secretary

bls/O:pace991_bp4

ORDER NO. 28158 1

Office of the Secretary
Service Date
September 27, 1999