ML20153F735
| ML20153F735 | |
| Person / Time | |
|---|---|
| Site: | Trojan File:Portland General Electric icon.png |
| Issue date: | 02/24/1988 |
| From: | Tophan V UTAH POWER & LIGHT CO. |
| To: | |
| Shared Package | |
| ML20153F598 | List: |
| References | |
| NUDOCS 8805110033 | |
| Download: ML20153F735 (66) | |
Text
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Exhibit B 9
UNITED STATES OF AMERICA BEFORE THE NUCLEAR REGULATORY COMMISSION a-IN THE MATTER OF THE
)
EXHIBIT B to Facility APPLICATION OF PACIFICORP
)
Operating License No. NPF-1
'IOR CONSENT TO THE TRANSFER )
Indemnity Agreement No. B-78 OF LICENSES
)
REBUTTAL TESTIMONY OF VERL R. TOPHAM 8805110033 880509 PDR ADOCK 05000344 T
Exhibit 199 O
l 1
UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSICM 1
Utah Power & Light Company
)
Pacificorp
)
Docket No. EC88-2-000 PC/UP&L Merging Corp.
)
REBUTTAL TESTIMCNY OF VERL R. TOPHAM OH BEHALF OF UTAH POWER & LIGHT COMPANY PACIFICORP PC/UP&L MERGING CORP.
l i
l February 24, 1988 I
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O
'V. R. Topham 1
SUMMARY
OF REBUTTAL TESTIMONY OF VERL R. TOPHAM ISSUES ADDRESSED 1.
Allecations that Contracts Would Produce Similar Benefits A.
Issue Addressed by:
1.
CREDA/PPC witness Curtis K.
Winterfeld, Exhibit No. 125, pp. 7 2.
CREDA/PPC witness Randall P.
Goff, Exhibit No. 118, pp. 4-8 3.
. Nucer Steel witness Matthew I.
- Kahal, Exhibit No. 18, pp.
5-6, 9-10 and 14-16 4.
IRE witness Whitfield Russell, Exhibit No.
20, pp.
2, 41-43 5.
FERC Staff witness W.
Russell
- Porter, Exhibit No. 99, pp.
4, 21-23 6.
EP_q witness Lon L.
Peters, Exhibit No 36, p.5, 22-24 2.
Allecations that Economic Benefits Are Not Mercer i
6 Related A.
Issue Addressed by:
l 1.
CREDA/PPC witness Curtis K.
Winterfeld, Exhibit No. 125, pp. 7 and 13-14 2.
Nucer Steel witness Matthew I.
- Kahal, Exhibit No. 19, p. 19 l
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i V.
R. Topham 2
3.
EEC Witness Lon L.
Peters, Exhibit 36, pp.
6-9 3.
Concerns Raised Recardina UP&L's Aareement with NPC A.
Issue Addressed by:
1.
IPC/MPC witness Robert Miller, Exhibit No.
64, pp. 12, and 15-16 2.
IPC/MPC witness William R.
Hughes, Exhibit No. 84, pp. 25-26, 35 and 52 3.
22E witness Whitfield Russell, Exhibit No.
20, pp. 25-26 4.
CREDA Witness Randall P.
Goff, Exhibit No.
118, p.7 4.
UAMPS' Construction A Transmission Line 4
A.
Issue Addressed by:
1.
UAMPS witness Douglas O.
- Hunter, Exhibit No. 45, pp. 35-36 5.
Recuests for Transmission Service from UP&L A.
Issue Addressed by:
1.
CREDA witness Gordon T.
C.
Taylor, Exhibit l
l No. 178, pp. 16, 32, 34 and 36 2.
IPC/MPC witness Robert Miller, Exhibit No.
64, p. 21 3.
DG&T witness Merrill Millett, Exhibit No.
i 47, pp. 16-25 i
f t
t V. R. Topham 3
i 4.
IDQi witness Whitfield Russell, Exhibit No.
20, p. 20 5.
FERC Staff witness E. Allen Mosher, Exhibit No. 100, pp. 16-17 6.
VAMPS witness Douglas O.
- Hunter, Exhibit No. 45, pp. 30-32 6.
Transmission Service for the City of Washinoton A.
Issue Addressed by:
1.
CREDA witness Cordon T.
C.
Taylor, Exhibit No. 178, pp. 21 and 64 2.
IPC/MPC witness William R.
Hughes, Exhibit No. 84, pp. 51-52 3.
UAMPS witness Douglas O.
- Hunter, Exhibit No. 45, pp. 17-28 4.
UAMPS/DG&T witness James Lim, Exhibit No.
49, pp. 25-26 5.
IRC witness L.
A.
Crowley, Exhibit No. 69
- p. 16 l
7.
The Purchase and Sale of Enercy i
A.
Issue Addressed by:
1.
CREDA witness Gordon T.
C.
Taylor, Exhibit i
No. 178, p. 34 2.
IPC/MPC witness William R.
Hughes, Exhibit No. 84, pp.
7, 24, 36, 51 and 54 i
y 4
s4 a
V. R. Topham 4
3.
129/.2iE.q witness L.
A.
Crowley,' Exhibit No.
69, pp. 18-20 4.
IPC/MPC witness Robert Miller, Exhibit No.
64, pp. 21-22 8.
The Merced Comeany's Transmiss!eq,g,ervice Policies A.
Issue Addressed by:
1.
IEEG witness E.
Allen Mosher, Exhibit No.
100, pp. 8 and 15 2.
UAMPS witness James Lim, Exhibit No.
49, pp. 8-10, 15 and 21-22 3.
CREDA witness Gordon T.
C.
Taylor, Exhibit No. 178, p. 18-21,_
4.
IPC/MPC witness william R.
Hughes, Exhibit No. 84, p. 97 9.
Procesed Mercer Conditions A.
Issue Addressed by:
1.
FERC Staff witness E. Allen Mosher, Exhibit No. 100, pp. 18-19 and 25-27 2.
UAMPS witness Douglas O.
- Hunter, Exhibit No. 45, p.
27 3.
DG&T witness Merrill Millett, Exhibit No.
47, pp. 25-26 4.
UME witnsess Whitfield Pussell, Exhibit No.
20, pp. 8-34 i
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1..
j 4
V. R. Topham 5
a 1
5.
IPC/MPC witness William R.
Hughes, Exhibit No. 84, p. 82 and Exhibit No. 94 6.
NUCOR STEEL witness Matthew I.
- Kahal, Exhibit No. 18, pp. 30-31 t
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SUMMARY
AND CONCLUSIONS Response to Allegations that Contracts would Produce Similar Benefits t
Before agreeing to the merger, UP&L participated in discus-sions regarding the potential for pooling agreements and other contractual arrangements that might help to reduce and stabilize rates charged to customers and enable the Company thereby to be-come more competitive.
These discussions were not~ successful, and the Company's efforts illustrate the difficulty in negotiating agreements of this kind.
But even if an agreement could have been negotiated, it could not have provided the same level of benefits as a merger because of the natural tendency of i
contracting parties to protect what they conr.ider to be confiden-tial information and to look out for their own interests.
It is impossible in a contract to anticipate all future issues that may arise and to provide for them.
Similarly, it is impossible to maintain the level of flexibility required to respond quickly to a changing environment, especially a complex one, without r
sacrificing some level of protection of important interests.
~
Thus if a contract or contracts could have been negotiated, it would not yield the same level of benefits, and it vould undoubt-edly take an extended period of time to place into effect.
m 7
Response to Allegations that Economic Benefits Are Not Mercer-Related I
While it is true that UP&L could implement an economic de-velopment program without the merger, it has only limited experi-ence in the economic development arena, so it could not implement such a program and achieve the benefits as quickly as will be possible with the merger.
PP&L has been through the learning process in the establishment of its economic development program, and it has developed an expertise that would otherwise have been unavailable.
Moreover, because of its network connections with Pacific Rim and European countries and its diversified structure of subsidiary operations, PP&L is particularly well-suited to at-tract industry to the UP&L territory as well as its own.
While there may continue to be some competition between the divisions in encouraging prospective economic development, the diversity betweer ne two service territories enables the major portion of the economic development to be directed at different targeted prospects.
Cooperation between the two divisions will involve sharing of information and sharing of business prospects.
The near and intermediate term benefits of economic development will far exceed any long-term costs that may ultimately be in-volved.
, er e
Response to Concerns Regarding UP&L's Acreement with Nevada Power Comcany UP&L has entered into an agreement with Nevada Power Company
8 i
(NPC) for the sale of 140 megawatts of capacity and associated energy over a maximum period of twenty years.
UPEL has con-i tracted with PP&L to purchase 90 megawatts of summer peaking ca-pacity and associated energy in order to meet a portion of its contractual obligation to NPC.
UP&L had solicited proposals from Idaho Power Company (IPC), Montana Power Company (MPC), and Washington Water Power Company (WWP).
MFC, WWP and PP&L sub-mitted offers.
IPC did not.
The terms and conditions of the PP&L proposal were superior to those of WWF and MPC.
The agree-ment with PP&L is not contingent upon the merger.
Response to Allegations Regarding UP&L's Cocesition to UAMPS' Construction of Transmission Facilities The characterization by witnesses Douglas O. Hunter and Merrill Millett of UPEL's opposition to the construction of a transmission line proposed by Utah Associated Municipal Power Systems (UAMPS) is incorrect.
UP&L and UAMPS filed competing ap-plications before the Utah Public Service Commission for approval of the construction of transmission facilities to Southwestern Utah.
Studies indicated that the UAMPS line, when constructed, would adversely affect the stability and reliability of UP&L's system, so UP&L opposed the construction of those fccilities.
~ The Commission approved the construction by UP&L of approximately 21 miles of this proposed transmission line to meet needs of cus-temers in southwestern Utah, and later to complete construction of the remaining facilities to the Nevada border.
UP&L is in
9 4
ej negotiations with UAMPS and Deseret Generation and Transmission Cooperative (DG&T) for joint ownership of the line.
Response to Allegations Regarding UP&L's Failure to Provide Transmission Service Contrary to the allegations of other parties, UP&L has nu-
- merous contracts pursuant to which the Company provides firm 4
transmission service'for the benefit of some 48 public systems.
In 1966 this service represented approximately 17.5 percent of
.the total firm use cf the transmission system.
Under the Inter-company Pool Agreement with PP&L and six other utilities (including IPC and MPC), these parties have agreed to certain re-4.
ciprocal non-firm transmission right.s.
UP&L has also entered i.to a noit-firm wheeling agreement with the City of Bountiful.
While there have been some past disputes with public systems over transmission issues, the Company anticipates that future re-lations of the merged company with these parties vill be positive and productive.
Response to Allegations Concerning Transmission Service for Washincton City UP&L has, for some time, been villing to provide transmis-sien service for Washington City through the Mena substation.
l Subsequent to the filing of direct testimony we have come to un-derstand that the merger vill not, as originally anticipated, di-minish its ability to provide the service, but rapher will i
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10 enhance it.
Such service vill be provided pursuant to thJ merged company's transmission service policy at a rate based on embedded costs plus opportunity costs.
Opporcunity costs vould be deter-mined by company-customer negotiation and thereafter filed with FERC.
Resoonse to Allecations Recardinc the Sale of Enercy When the market price of energy is less than the incremental cost of generation, UP&L utilizes its interconnections to receive energy for displacement of the higher cost generction from its own facilities.
Similarly, when the market price of energy ex-ceeds its incremental costs, UP&L sells export energy.
This buy-ing and selling arrangement is an economically efficient prac-tice.
The economic benefits from those transactions flov directly to UP&L's custmers, and the utility from which UP&L pur-chases and the utility to which UP&L sells likevise are benefit-ed.
Some of UP&L's purchases and sales are simultaneous, al-though the purchase and sales decisions are generally indepen-dent.
UP&L's custmers receive the benefits of these transac-tions, which are incidental to the Company's main business of me'eting the electrical needs of customers within its service ter-ritory.
Such a practice does not involve the extraction of "mo-nopoly profits" because UP&L and PP&L have little or no influence over the market price of the energy.
Any benefits received by
11 the Company's customers will be a function of the difference in the Company's incremental cost of energy and the' market price.
Response to Allegations Concerning the Merced Company's Transmission Policies l
The elimination of "bottlenecks" in transmission re~ quires construction of new facilities, and that should be done only when such construction is determined to be, cost-effective.
Allocation of transmission capacity and embedded cost pricing would tend to discourage such construction by sending the wrong price signal.
The Commission should not require an allocation of transmission capacity as a condition of merger approval because it would dis-courage construction and diminish economic efficiencies.
The Transmission Service Policy states in general how trans-
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mission service is to be priced.
Service within integrated ser-vice areas vill be priced at embedded cost rates filed with FERC.
y In the case of other transmission service, firm service vill be priced at embedded cost plus opportunity costs, and non-firm ser-vice vill be based on a sharing of the savings attributable to r
the transaction.
Specific and precise pricing information cannot practically be given at present because different wheellng trans-actions will involve different opportunity costs.
The merger and the Transmission Service Policy vill not in j
l any way diminish the existing rights and future opportunities of l
1 i
public systems to have access to UP&L transmission.
The policy will be administered on a non-discriminatory basis and in a l
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12 manner designed to maximize efficient utilization of the trans-mission system.
The policy adopts the industry-wide standard and accepted regulatory policy that transmission systems be used first fe.- the benefit of the utility's own customers.
Response to Allegations Concerning Procosed Mercer Conditions The merger conditions proposed by intervenor witnesses are designed to enhance the competitive position of individual entities, as distinguished from enhancing competition.
They are not in the public it.terest.
The intervenors have proposed that one or more of the fol-lowing be imposed upon the Applicants as conditions for approval of the merger:
(1) additional Utah interconnections with public entities, (2) terms for non-firm transmission, (3) open capacity on the transmission system, (4) the imposition of price caps, (5) joint ownership of transmission lines, (6) mandatory transmission set-asides for competitors, (7) on-going FERC jurisdiction to assure wheeling requests are neither delayed nor denied, (8) mandatry wheeling tariffs, and (9) imposition of common carrier (open access).
These conditions are neither necessary nor appropriate, nor are they related to the merger.
The intervenors are trying to
13 improve their competitive position by imposing an unlimited obli-gation on the merged company to trar,sfer power for others, all at the expense of efficiency, competition, and existing customers.
Imposition of these conditions would be unprecedented and would single out the merged company for mandatory wheeling at aa time when the national debate on this issue is just beginning, i
a i
.er I
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b..
V. R. Topham 1
l 1
QUESTION 2
Please state your name.
3 ANSWER 4
Verl R. Topham 5
QUESTION 6
Are you the same Verl R. Topham who previously filed 7
testimony in this proceeding?
8 ANSWER 9
Yes, I am.
10 OUESTION 11 Is your v.estimony in this proceeding submitted on 12 behalf of the merged company?
13 ANSWER 14 Yes.
15 OUESTION 16 Will you of fer any exhibits in connection with your 17 testimony?
18 ANSWER 19 Yes.
I have one exhibit, Exhibit 200, consisting of 20 five schedules.
- -21 OUESTION 22 Mr. Topham, have you reviewed the testimony filed by 23 the witnesses for the various interveners in this 24 proceeding?
)
25 ANSWER
iO.
V. R. Topham 2
1 Yes, I have.
2 QUESTION 3
Mr.
- Topham, what are the specific areas that you 4
will address in your rebuttal testimony.
5 ANSWER 6
I am providing rebuttal testimonv on the folicwing 7
topics:
8 I.
A11ecations that contracts Would Produce Similar 1
9 Benef h 10 A.
Issue Addressed by:
11 1.
CREDA/PPC witness Curtis K.
Winterfeld, 12 Exhibit No. 125, pp. 7 13 2.
CREDA/PPC witness Randall P. Goff, Exhibit Nc.
14 118, pp. 4-8 15 3.
Nucer Steel witness Matthew I.
Kahal, Exhibit 16 No. 18, pp.
5-6, 9-10 and 14-16 t
17 4.
UH}f witness Whitfield
- Russell, Exhibit No.
18 20, pp.
2, 41-43 19 5.
FERC Staff witness W.
Russell Porter, Exhibit 20 No. 99, pp.
4, 21-23' 21 6.
EEG witness Lon L.
Peters, Exhibit No 36, p.5, 22 22-24 23 II. Allecations that Economie Benefits Are Not Mercer 24 Related 25 A.
Issue Addressed by:
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V. R. Topham 3-1 1.
CREDA/PPC witness Curtis K.
Winterfeld, 2
Exhibit No. 125, pp. 7 and 13-14 3
2.
Nucer Steel witness Matthew I.
Kahal, Exhibit 4
No. 19, p. 19 5
3.
EEg witness Lon L. Peters, Exhibit 36, pp. 6-9 6
III.
Concerns Raised Recardinc UP&L's Acreenent with NPC 7
A.
Issue Addressed by:
8 1.
IPC/MPC witness Robert Miller, Exhibit No.
9 64, pp. 12, and 15-16 10 2.
IPC/MPC witness William R. Hughes, Exhibit No.
11 84, pp. 25-26, 35 and 52 12 3.
HHH witness Whitfield Russell, Exhibit No.
13 20, pp. 25-26 14 4.
CREDA Witness Randall P.
- Goff, Exhibit No.
15 118, p.7 16 IV. UAMPS' Construction A Transmission Line 17 A.
Issue Addressed by:
18 1.
UAMPS witners Douglas O.
Hunter, Exhibit No.
19 45, pp. 35-36 20 V.
Recuests for Transmi,ssion Service from UP&L
" " ' 21 A. Issue Addressed by:
22 1.
CREDA witness Gordon T.
C.
Taylor, Exhibit No.
23 178, pp. 16, 32, 34 and 36 24 2.
IPC/MPC witness Robert Miller, Exhibit No.
25 64, p. 21
t V. R. Topham 4
1 3.
Efr.iT witness Merrill Millett, Exhibit No. 47, 2
pp. 16-25 3
4.
UMH witness Whitfield Russell, Exhibit No.
4 20, p. 20 5
5.
FERC Staff witness E.
Allen Mosher, Exhibit
~
6 No. 100, pp. 16-17 7
6.
UAMPS witness Douglas O.
Hunter, Exhibit No.
6 45, pp. 30-02 9
VI. Transmission Service for the City of Washincton 10 A.
Issue Addressed by:
11 1.
CREDA witness Gordon T.
C. Taylor, Exhibit No.
12 178, pp. 21 and 64 13 2.
IPC/MPC witness William R. Hughes, Exhibit No.
14 84, pp. 31-52 15 3.
UAMPS witness Douglas O.
Hunter, Exhibit No.
16 45, pp. 17-28 17 4.
UAMPS/DCdl witness James Lim, Exhibit No. 49, 18 pp. 25-26 19 5.
IPC witness L.
A.
Crowley, Exhibit No. 69 p.
20 16
, J1 VII.
The Purcnase and Sale of Enerav 22 A
Issue Addressed by:
23 1.
CREDA witness Gordon T.
C.
Taylor, Exhibit No.
24 178, p.
34
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+
V. R. Topham 5
i 1
2.
IPC/MPC witness William R. Hughes, Exhibit No.
2 84, pp. 7, 24, 36, $1 and 54 3
3.
IPC/MPC witness L.
A.
- Crowley, Exhibit No.
4 69, pp. 18-20 5
4.
IPC/MPC witness Robert Miller, Exhibit No..
i 6
64, pp. 21-22 7
VIII.
Qe Merced Comeany's Transmission Service Policies 8
A.
Issue Addressed by:
9 1.
IIEg witness E.
Allen Mosher, Exhibit No.
10 100, pp. 8 and 15 11 2.
UAMPS witness James Lim, Exhibit No. 49, pp.
12 8-10, 15 and 21-22 13 3.
SJiEDA witness Gordon T.
C. Taylor, Exhibit No.
14 178, p.18-21_
I 15 4.
IPC/MPC witness william R. Hughes, Exhibit No.
i 16 84, p. 97 J
17 IX..Procesed Mercer Conditions
(
18 A.
Issue Addressed by:
19 1.
FERC Staff witness E.
Allen Mosher, Exhibit 20 No. 100, pp. 18-19 and 25-27 21 2.
UAMPS witness Douglas O.
Hunter, Exhibit No.
22 45, p. 27 L
23 3.
DG&T witness Merrill Millett, Exhibit No. 47, 24 pp. 25-26 i
P
V. R. Topham 6
1 4.
MHW witness Whitfield Russell, Exhibit No. 20, 2
pp. 8-34 3
5.
IPC/MPC witness William R. Hughen, Exhibit No.
- ~
4 84, p. 82 and Exhibit No. 94 5
6.
NUCOR STEEL witness Matthew I.
Kahal, Exhibit t
6 No. 18, pp. 30-31 7
A11eaations that Contracts Would Produce Similar Benefits f
8 QUESTION 9
What, if any, alternatives did UP&L investigate prior 10 to signing the merger agreement with PacifiCorp?
11 ANSWER 12 In seeking to reduce and stabilize the rates charged l
13 our customers and thereby become more competitive, UP&L 14 investigated a number of possibilities.
In the spring and 15 summer of 1987, representatives of UP&L discussed entering 16 into a merger agreement with a number of investor-owned 5
i 17 utilities in the Western United States.
i 18 In addition, the manacement of UP&L participated in l
19 discussions regarding the potential for pooling agreements i
20 and other contractual arrangements with rep..esentatives of 21 Idaho Power Company (IPC),
Montana Power
- Company, 1
22 Washington Water Power Company (WWP) and Nevada Power 23 Company (NPC).
During the spring and summer of 1987, the 24 five companies attempted to identify the benefits which
)
, - - - - ~. - -, - - - - -., - - - - - -.,, - - -
V. R. Topham 7
1 could be achieved through various pooling and contractual 2
arrangements.
3 OUESTION 4
Mr. Crowley (Exhibit No.
69, pp 14-15) implied that 5
the negotiation of a pooling agreement were terminated as 6
a result of the merger..
Is this an accurate 7
representation?
8 ANSWER ~
9 No.
Although acknowledging the benefits which could 10 be achieved as a result of the diversities in loads, 11 resources and market access between the utilities, the 12 representatives of the five utilities were unable to reach 13 agreement upon how the benefits should be equitably 14 allocated among the utilities.
After numerous meetings 15 and the expenditure of considerable manpower, an impasse 16 occurred when the lower cost suppliers, such as IPC and 17 WP,
stated that consideration of joint dispatching and 18 operation of generating units could not occur for five 19 years.
The group could not reach an agreement on the 20 equitable allocation of surplus sales margins among the
- 41 utilities generating the energy to be sold on the surplus 22 market.
Because joint dispatch would create ene of the 23 principal benefits we expected from the power pool, UP&L 24 withdrew from the power pool negotiations.
25 OUESTION 1
' s V. R. Topham 8
e 1
Messrs.
Winterfeld (Exhibit No.
- 125, p.
7),
Goff 2
(Exhibit No. 118, pp. 4-8), Kahal (Exhibit No. 18, pp.
5-3 6,
9-10 and 14-16), Russell (Exhibit No. 20, pp.
2, 41, 4
43),
Porter (Exhibit No.* 99, pp.
21-23) and Peters 5
(Exhibit No. 36, pp.
5, 22-24) stated that many of the 6
benefits which will be achieved through the merger of UPSL 7
and PacifiCorp could have been obtained through 8
contractual or pooling arrangements.
Do you agree?
9 ANSWER 10 No.
While UP&L has entered into a
number, of 11 beneficial contracts and pooling arrangements in the past, 12 the negotiations have generally been protracted.
This 13 delays expected benefits.
For example, af ter signing a 14 Preliminary Mona substation Interconnection Agreement on 15 December 22, 1982, UP&L, Deseret Generation & Transmission 16 Co-operative (DG&T) and the Los Angeles Department of 17 Water and Power (Los Angeles), the latter acting as the 18 agent for the Intermountain Power Association (IPA),
19 initiated the negotiations of a interconnection agreement.
20 Although UP&L, DG&T and Los Angeles reached agreement in
~ '21 November of 1987, IPA has withheld its approval and, as a i
22 result, the agreement has not been signed.
23 OUESTION 24 Can an agreement, once negotiated, provide benefits 25 similar to the benefits the merger affords?
I
V. R. Topham 9
1 ANSWER 2
No.
The natural tendency of the parties to protect 3
what they consider to be confidential information makes it 4
difficult, if not impossible, to negotiate and implement 5
a contract which will achieve all the desired effects.
6 The benefits which might be gained through such 7
arrangements are further offset by actions that must be 8
taken by the parties in anticipation of the contract's 9
termination.
The need to establish overall conditions 10 which will allow the contract to be administered in an 11 effective manner and provide for an appropriate allocation 12 of the benefits achieved through the arrangement add to 13 the difficulty in reaching an agreement which will 14 maximize the benefits.
i 15 In addition, as Dr. Landon will testify that, due to 16 the lack of flexibility, maximum benefits can only be 17 achieved through contractual arrangements if the parties 18 are able 'to perfectly predict the future.
Since the 19 environment in which the parties operate is constantly 20 changing and the parties' operations are highly 21 susceptible to such things as the weather, even with 22 lengthy negotiations and provisions for renegotiation and 23 arbitration, operations under contractual and pooling 24 arrangements can never achieve the same level of 25 efficiencies as the operations of a
single utility.
4
i 6
V. R. Topham 10 1
Consequently, they can not produce the benefits that can 2
be achieved through merger.
3-Although there is a possibility that some portion of 4
the benefits associated with the merger might have been 5
achieved through pooling agreements or contractual 6
arrangements, as a practical matter, it is very doubtful 7
whether such arrangements or agreements could have been a
finalized in the near future (if at all) and it is certain 9
that the resulting agreements could not have provided for 10 the extensive coordination, and thereby benefits, to be 11 achieved through the proposed merger.
12 After examining these alternatives, UP&L and 13 Pacificorp have elected to pursue a merget as the best way 14 to achieve the desired benefits.
The issue before this 15 Commission is whether what we propose to do is consistent 16 with the public interest, others may argue that the 17 merger benefits are not as great as we believe them to be 18 or that some portion could have been achieved by some 19 other means, but no one could seriously contend that the 20 benefits are not substantial.
21 Allecations that Economic Benefits Are Not Mercer Related 22 OUESTION 23 As UP&L's Commercial Manager do your responsibilities 24 include economic development?
25 ANSWER
^
f r
V. R. Topham 11 1
Yes.
2 CUESTION 3
Messrs.
Peters (Exhibit No.
36, pp.
6-9),
Kahal 4
(Exhibit No. 19, p.
- 19) and Winterfeld (Exhibit No. 125, 5
pp. 7 and 13-14) claim that the merger benefits have been 6
overstated in the area of economic development as it is 7
inappropriate to include any benefits that could occur 8
without the proposed merger.
Would you please comaant?
9 ANSWER j
10 Yes.
Mr. Peters is correct in his observation that an i
11 economic development program could occur at UP&L absent 12 approval of the merger.
The pertinent assessment, 13 however, is nat whether such will occur but WhAD it will 14 occur and with what success.
Mr. Peters' presumption is 15 that there is no optimum time to conduct economic develop-t 16 ment and that it makes little or no difference to the 17 customer or utility when this. activity takes place.
This 18 notion is simply not true.
The present surplus of 19 capacity and energy in the regions in which the merged 20 company will serve dictates that earlier development will 21 benefit our customers.
22 One major benefit of this merger is that it will I
l 23 shorten the lead time for UP&L to ef fectively enter the economic development arena.
PP&L has an established and t
24 l
25 successful economic development process.
The process has, i
l
V. R. Topham 12 1
1
- however, taken several years to develop.
UP&L has 2
limited experience in the economic development arena and 3
has no reason to believe that it can, as an independent 4
utility, become proficient and experienced in less than 5
the three to four years it has taken PP&L to do so.
In 6
- addition, PP&L's unique success in the economic 7
development arena has been a result, to a.large part, of 8
its network connections with the Pacific Rim and European 9
countries and PacifiCorp's diversified structure et 10 subsidiary operations.
These have been critical 11 instruments in providing the types of other services which 12 are necessary to aid new and expanding businesses.
o 13 CUESTION 14 on page 8, lines 16-23, of Exhibit No. 36, Mr. Peters 15 states that there is a contradiction between claims of 16 competition and cooperation between UP&L and PP&L.
Is he 17 correct?
18 ANSWER 19 While some competition for some loads will exist, it 20 is the intent of UP&L and PP&L to provide the best
- 21 possible site location for the prospective business.
22 However, because of the diversity between the two service 23 territories, the major portion of economic development 24 will be directed at different target prospects.
When 25 competition for the same prospect does occur, clearly the
1 my.
l V.-R.
Topham 13 i
i I,
' decision as to which territory the prospect will locate in 1
2 will be that of the prospect.
In this way, we will better 3
serve the business and our customers.
l 4
Cooperation between the two Divisions will occur in 1
j b
two major areas.
First will be in the sharing of 6
information concerning the process thrcugh which economic l
l 7
development occurs.
The second area of cooperation is in I
4 the sharing of business prospects between companies.
If t
9 one service territory is not suited for a particular i
10 client, the other service territory may be well suited.
t i
11 QU.LTII.QH i
12 Mr.
Winterfeld (Exhibit No.
- 125, p.
14) testifies
[
l 13 that a utility marketing (economic development) program 14 cannot significantly modify labor wage rates, transporta-
{
I 15 tion costs, general recession and other factors.
If this 16 is true, how will UP&L achieve any economic development i
17 benefits?
- 18. ANSWER f
i 19 The economic development benefits identified do not 20 rely on our ability to significantly impact labor rates, f
L j
. 21 transportation costs or general recession pressures.
22
- Rather, the economic development program for Up&L is j
23 designed to provide needed information to prospective 24 businesses to allow them to make an informed and economic l
25 location decision.
The goal of the program is to identify l
f w
t f
V. R. Topham 14 1
the economic benefits of locating in our service territory 2
and match those benefits with appropriate industries thus 3
increasing economic health for the business and the 4
community.
5 OUESTION 6
Do you agree with Mr. Winterfeld's contention that 7
fostering new load development may ultimately prove 8
detrimental in the long run?
9 ANSWER 10 The merged company has a current surplus of capacity and 11 energy.
The near term and intermediate term benefits of 12 increased consumption tar exceed any long-term costs of 13 new resource development.
14 UP&L's Acreement with NPC l
j 15 OUESTION I
16 Mr. Topham, have you reviewed the statements made by 17 Messrs. Hughes (Exhibit No.
84, pp. 25-26, 35 and 52),
18 Miller (Exhibit No. 64, pp. 12 and 15-16), Russell Exhibit 19 No.
20, pp. 25-26) and Goff (Exhibit No.
- 118, p.
7),
20 regarding the events surrounding the signing of the 1
21 agreement providing for the sale of power to NPC and the 22 agreement providing for the purchase of power from PP&L?
23 ANSWER 24 Yes.
25 OUESTION 1
J
O V. R. Topham 15 1
Do you agree with these witnesses' characterization of r
2 the events?
3 ANSWER 4
No.
5 QUESTION 6
When did UP&L sign the agreement to sell NPC 140
?
megawatts of capacity and associated energy?
6 ANSWER 9
I signed the agreement with NPC on August 17, 1987.
10 QUESTION la When were negotiations for the sale of firm capacity 12 and associated energy initiated?
13 ANSWER 14 Negotiations for the sale of capacity and energy were I
15 initiated in the fall of 1986 after the Navada Public 16 Service Commission denied NPC's request for approval to 17 include the purchase of 100 megawatts of Hunter No. 3 in l
18 NPC's resource forecast.
19 OUESTION 20 Please describe the major features of the Power Sales
. 21 Agreement between UP&L and NPC.
i 1
22 ANSWER 23 The Agreement provides for the sale and/or exchange of i
24 firm capacity and energy over a maximum of 20 years.
25 UP&L's agreement with NPC is on file with the TERC.
4
~
V. R. Topham 16 1
QUESTION 2
Does the sale. of firm power to NPC necessitate the 3
construction of new transmission facilities?
4 ANSWER 5
Yes.
Without the construction of additional 6
transmission facilities, UP&L will not have a
firm 7
transmission path over which deliveries can be made to 8
NPC.
9 QUL* M 10 Mr. Topham, did UP&L sign an agreement to purchase 90 11 megawatts of summer peaking capacity and associated energy 12 from PP&L shortly after entering into the agreement with 13 NPC7 14 ANSWER 15 Yes.
UP&L has historically experienced its peak 16 demand for electricity during the summer months and 17 projects that this trend will continue in the future.
18 Consequently, in order to meet its contractual obligation 19 to NPC in an economical manner throughout the first nine 20 years of the agreement with
- NPC, UP&L purchased 90 21 megawatts of summer peaking capacity and energy from PP&L.
22 By blending UP&L's generation with purchased power from 23 the northwest, UP&L succeeded in competitively meeting NPC 24
- needs, while minimizing the potential costs associated 25 with the sale.
~
V. R. Topham 17 r
1 OUESTION
?
Did UP&L solicit an offer from Montana Power Company i
3.(MPC)?
l 4
ANSWER r
5 Yes.
As Mr. Russell (Exhibit No.
20, pp. 25-26) 6 suggested UP&L contacted a number of utilities, including
[
7 MPC to discuss the potential purchase by UP&L of summer 8
peaking capaci'cy.
9 OUESTION i
10 Mad UP&L reached agreement with MPC regarding the 11 ' terms and conditions of a purchase prior to signing with t
12 PP&L as alleged by Dr. Hughes on page 52 of Exhibit No.
t 13 847 14 ANSWER 15 No.
While drafts of a Memorandum of Understanding had 16 been circulated, no agreement had been react 3ed regarding i
17 all of the various terms and conditions.
1 18 QUESTION i
19 Did UP&L solicit a similar offer from Idaho Power i
20 Company (IPC)?
21 ANSWER 22 Yes.
5 23 QUESTION 24 Did IPC submit an offer for the sale of power to UP&L i
3 r
25 in connection with the solicitation?
j
[
]
l
V. R. Topham 18 1
ANSWEB 2
No.
A representative of IPC vercally informed Mr.
3 Rasband of UP&L that IPC was not interested in submitting 4
an offer.
5 OUESTION 6
How did MPC's offer compare with other offers 7
submitted to UP&L?
8 ANSWER 9
The rates requested by MPC were higher than UP&L's 10 other alternatives.
In addition, MPC had indicated an 11 unwillingness to reduce its price or sell power to UP&L 12 for the full nine year period.
13 OUESTION 14 Why then was MPC considered as a possible supplier?
15 ANSWER 16 UP&L was contemplating a purchase of only 30 megawatts 17 from MPC.
At no time did UP&L ccnsider purchasing the 18 full 90 megawatts of summer peaking capacity from MPC.
19 UP&L had received a superior offer for the sale of power 20 from WWP.
However, due to a limitation on the ability to 21 transmit power from the WWP system to the UP&L system, it 22 was necessary to seek a second supplier to supplement a 23 potential purchase from WWP.
24 OUESTION
s r
V. R. Topham 19 l
r 1
Why did UP&L elect to contract with PP&L, rather than 2
with WWP and MPC7 3
ANSWER 4
Simply stated, the terms and conditions contained in 5
the PP&L offer ware superior to the combined terms and 6
conditions contained in the WWP and MPC offers.
A 7
comparison of the PP&L offer and the combined WWP and MPC 8
offers is contained in Schedule 200 of Exhibit No.
1.
9 QUESTION 10 Is UP&L's agreement to purchase summer peaking 11 capacity contingent upon the final approval of the merger?
12 ANSWER 13 No.
14 QllERII.QH 15 Is UP&L's sale of power to NPC contingent upon UP&L's 16 ability to purchase power from PP&L7 17 ANSWER 18 No.
UP&L undertook an obligation to sell an amount of 19 capacity and energy to NPC.
It entered into a separate 20 contract with PP&L designed to help assure that, with the 21 sale to NPC, UP&L would be able to supply the electrical 22 needs of all of its customers.
UP&L has an obligation to 23 supply NPC with capacity and energy irrespective of 24 whether or not it is taking delivery of capacity and 25 energy from PP&L.
j,
s V. R. Topham 20 i
1 UEEL's omeosition to UAMpe' 2
construction of Transmission Facilities 3
QUISTION 4
Mr. Topham, are you familiar with testimony of Mr.
5 Hunter (Exhibit No. 45, pp. 35-36) alleging that UP&L 6
attempted to prevent UAMPS from construction of a
7 transmission line in Southwestern Utah?
8 ANSWER 9
Yes, I am.
10 QUESTION 11 Do you agree with the way Mr. Hunter characterized 12 UP&L's opposition to the construction of the proposed 13 line?
14 ANSWER 15 No.
UP&L and UAMPS filed competing applications 16 before the Utah Public Service Commission requesting 17 Certificates of convenience and Necessity for the 18 construction of transmission facilities in southwestern 19 Utah.
20 In its application UAMPS proposed constructing a 345
, - 21 kV transmission line from Intermountain Power Project to 22 southwestern Utah and on to the Utah-Nevada boundary.
23 Based on our studies, we believed that UAMPS' proposed 24 transmission facilities, if constructed, would have 1
25 adversely affected the stability and reliability of UP&L's
V. R. Topham 21 i
i system.
Consequently, UP&L opposed the construction of l
2 the facilities.
3 QUESTION 4
4 Why was UF6L considering the construction of a
5 trans p 4 hn line into southwestern Utah?
6 M Dib 7
Ir addition to, increasing transmission capacity into 8
Southwest Utah to. serve its
- retail, wholesale and 1
9 transmission service cust'..c 's,
UP&L's proposed 345 kV 10 transmission facilities wei-acessary to the sale and 11 delivery '.o NPC of 100 megawatts of capacity from UP&L's 12 Hunter No. 3 coal-fired generating unit.
]
13 QUESTION 14 Did the Utah Public Service Commission issue a
15 Certificate of Convenience and Necessity to UP&L for the 16 construction of transmission facilities in Southwestern 17 Utah?
18 ANSWER l
19 Yes.
The Utah Public Service Commission initially 20 issued an order directing UP&L to construct approximately
]
- 11 21 miles of its proposed transmission facilities in order 22 to meet the immediate needs of the electric customers in 23 Southwestern Utah.
Subsequently, in the fall of 1981 the i
24 Utah Public Service Commission issued UP&L a certificate 25 of Convenience and Necessity for the construction of the f
9
..y
.~,__.__,..~---_+-----,-n._--.-...,-.-,,,,-e..,.
V. R. Topham 22 1
remaining transmission facilities between UP&L's Sigurd 2
substation and the Utah / Nevada boundary.
3 OUESTION 4
Has UP&L offered UAMPS and DG&T ownership in the 5
proposed facilities?
6 ANSWER 7
Yes.
There have been on-going negotiations with
~
8 representatives from both UAMPS and DG&T.
At this time it 9
appears an agreement providing for the joint o:<nership of 10 the facilities will be reached with both parties.
11 A11ecations Recardina UP&L's Failure to Provide 12 Transmission Service 13 OUESTION 14 Does UP&L currently furnish other utili':les firm 15_ transmission service (i.e. wheeling service)?
16 ANSWER 17 Contrary to the allegations expressed by Messrs.
l 18 Taylor (Exhibit No. 17, pp. 16, 32, 34 and 36)
Miller l
19 (Exhibit No. 64, p.
21), Millett (Exhibit No. 47, pp. 16-l l-20
- 25) Russell (Exhibit No. 20, p.
- 20) Mosher (Exhibit No.
" *21 100, pp. 16-17) and Hunter (Exhibit No. 45, pp. 30-32) in 22 their prefiled testimony, UP&L has numerous contracts 23 pursuant to which it provides firm transmission service 24 for the benefit of some 48 municipalities, rural electric l
l l
1 l
V.
R. Topham 23 1
systems and electric service districts.
A list of these 2
entities is contained in Schedule 2, Exhibit No. 200.
3 OUESTION 4
What percent of the firm usage of UP&L's transmission 5
system is attributable to transmission service provided 6
for the benefit of these municipalities, rural electric
-7 systems and electric service districts?
8 ANSWER 9
In 1986, transmission service for the municipal and 10 rural electric systems represented 17.5 percent of the 11 total firm use of the transmission system (Exhibit No.
12 200, Schedule 3).
Firm transmission service provide to 13 other entities for 1986 represented approximately 3,000 14 megawatt hours and $6.6 million of revenue (Exhibit No.
15 200, Schedule 3).
Thus the allegations that UP&L does not 16 provide transmission service are unfounded.
17 OUESTION 18 Has UP&L entered into ani' agreements providing for 19 non-firm transmission service over its facilities?
f 20 ANSWER
, -. 21 Yes.
On September 1,
1973, as amended on July 19, 22 1982 and again en August 1,
- WWP, Sierra Pacific Power
- Company, Portland General l
24 Electric Company and Puget Sound Power & Light Company 25 signed the Intercompany Pool Agreement-(Revised).
Under i
l i
f i
~
V.
R. Topham 24 1
the terms and conditions of this agreement, UP&L, as well 2
as the other Parties, agreed to cortain reciprocal non-3 firm transmission rights among the parties.
4 UP&L also entered into an agreement with the City of 5
Sountiful (Bountiful), Utah on October 4, 1978.
Under the 6
terms and conditions of the agreement, UP&L provides 7
transmission service upon request on a when-available 8
basis to transfer surplus energy from BPA to Bountiful's 9
system.
10 OUESTION 11 Bssed on information obtained through the discovery 12 process Mr. Mosher concludes on pages 16 and 17 that "Utah 13 has had numerous conflicts with its public power utility 14 customers over attempts by those customers to obtain firm 15 and non-firm transmission services from generating sources 16 not located on the Utah system."
In addition, Messrs.
17 Hunter (Exhibit No. 45, page 30-32) and Millett (Exhibit 18 No. 47, page 16-25) characterize UP&L as being unwilling 19 to provide transmission service and attempted to 20 demonstrate the validity of their allegations through a
, -. 21 number of examples.
Does the information contained in 22 Exhibit No.
- 101, Schedule 2,
and the testimonies of 23 Messrs. Hunter and Millett correctly characterize UP&L's 24 relationship with these entities?
25 ANSWER
V.
R. Topham 25 1
No.
In many instances, the materials refer to 2
disputes which occurred long ago or hase been somehow 3
resolved or fully litigated.
Little purpose would be 4
served by restating UP&L's position regarding the 5
allegations presented.
I cm optimistic that the future 6
relationship of the merged company with these parties will 7
be a positive and productive one, notwithstanding our past 8
differences.
9 Transmission Service for the City of Washincton 10 OUESTION 11 Please refer to the letter from UP&L's President and 12 Chief Executive Officer, Mr. Frank N. Davis (Exhibit No.
13 46, Schedule 20).
Messrs. Taylor (Exhibit No. 178, pp. 21 14 and 64),
Hughes (Exhibit No.
84, pp.
51-52),
Hunter 15 (Exhibit No. 45, pp. 17-28), Crowley (Exhibit No. 69, p.
16
- 16) and Lim (Exhibit No. 49, pp. 25-26) stated that UP&L 17 has refused to provide transmission service from IPC's 18 system to Washington's system.
Would UP&L be willing to 19 provide such service?
20 AESEEE
-21 For some time we have been willing to provide such 22 service through the Mona substation.
As a result of 23 reviewing the interveners testimony, we think it is 24 appropriate to reconsider providing the service over our
)
i n'~'-
w-
-e
,e---
,>,,--,--e
V. R. Topham 26 1
northern interconnection pursuant to our transmission 2
service policy.
3 OUESTION 4
Mr. Davis' letter indicated that as a consequence of 5
the joint operation of UP&L's and PP&L's systems, "the S
UP&L-PP&L northern interconnections will be fully loaded."
7 Is this still accurate?
8 ANSWER 9
No.
After the merger, UP&L's northern transmission 10 system will still, from time to time, be fully utilized.
11 However, subsequent to Mr. Davis' letter and the filing of 12 our direct testimony, we have come to understand that the 13 merger will not diminish our ability to provide the 14 service requested by Washington, but will enhance it.
Mr.
15 Tucker's testimony (Exhibit No. 211) will explain this.
16 OUEST10N 17 The merged company's policy, as set forth on page 20 18 of your profiled testimony (Exhibit No.
1),
indicates 19 that the service Vill not be provided if your customers 20 are
- deprived, without compensating
- benefits, of the 21 econot:ic benefits associated with your use of the 22 facilities.
Would Washington be required to compensate 23 UP&L for the potential loss of economic benefits?
24 ANSWER
.n
V.
R. Topham 27 1
Yes. Any agreement would have to insure that UP&L's 2
customers would not be adversely impacted as a result of 3
UP&L's agreement to provide,the requested service.
4 consequently, the agreement would have to provide 5
appropriate compensation for the services provided by 6
UP&L, and any costs incurred, including opportunity cost 7
which appear to be what Mr.
Lim has referred to as 8
"opportunity losses" (Exhibit No. 49, p.
13).
Mr. Mosher 9
also addressed opportunity costs (Exhibit No. 100, p.
21) 10 and accepts the concept.
Based on Mr. Lim's testimony on 11 page 13, that "(i]f there are any opportunity losses, the 12 Company can quantify them and build them into the wheeling 13 rate,"
should Washington elect to initiate further 14 negotiations, it appears that an agreement could be 15 reached.
16 OUESTION 17 What rate would UP&L propose charging Washington for 18 transmissic'n service between IPC's system and Washington's 19 system?
20 ANSWER
" 21 While a definitive rate has not been established, we 22 would propose a base rate which would reflect UP&L's 23 embedded costs plus an amount equivalent to the 24 opportunity costs I have discussed.
This appears to be a
O 2
V.
R. Topham 28 l
I concept embraced by Mr. Mosher (Exhibit No. 100, p.
21) 2 and Mr. Lim (Exhibit No. 49, p. 13).
3 OUESTION 4
Can opportunity costs be calculated?
5 ANSWER 6
Yes.
For example, with fairly limited information, 7
Mr. Lim calculated an amount which he considers to be the 8
"opportunity losses" associated with providing 100 9
megawatts of transmission service.
While a detailed 10 analysis would need to be conducted, I
am sure an 11 ah:propriateamountcouldbedetermined.
12 OUESTION 13 Would UP&L agree to establish a fixed rate to reflect 14 opportunity costs?
15 ANSWER 16 That would be a matter for negotiations.
- However, 17 UP&L would be willing to consider either a fixed rate 18 based on the estimated opportunity costs over the term of 19 the agreement, or a formula rate which would more closely l
l 20 follow the actual opportunity costs over time.
21 OUESTION 22 Would the rate charged by UP&L for such service be 23 subject to FERC jurisdiction?
24 ANSWER t
U 1
V.
R. Topham 29 1
Yes.
Any contract providing for transmission service 2
would be subject to acceptance with FERC of the proposed 3
opportunity cost recovery level.
4 OUESTION 5
On page 31 of his testimony, Mr. Lim states that "UP&L 6
would receive substantial additional revenues from 7
providing 100 MW of firm wheeling across these (UP&L 8
interconnections with IPC) even when these revenues are 9
adjusted for the cost of lost economy purchases."
Do you 10 agree with Mr. Lim's analysis?
11 ANSWER i
il No.
As Mr. Walton will testify, receipt of a payment 13 from Washington, which is based solely upcn average 14 embedded cost, would not result in a net in:rease in i
15 revenues to UP&L.
Conscquently, to the degree UP&L incurs 16 unrecovered opportunity costs in providing the requested 17 service, the customers of UP&L will be harmed.
18 Allecations Recardine the Purchase and Sale of Enerov 19 OUESTION 20 Mr.
- Topham, what is UP&L's current practice with
~
~21 regard to the purchase and sale of non-firm energy?
22 ANSWER 23 When the market price of energy is less than its 24 incremental cost of generation, UP&L utilizes its 25 interconnections with other utilities to import energy to
V.
R. Topham 30 1
displace the higher-cost generation from its own 2
facilities.
Similarly, when the market price of energy 3
exceeds its incremental cost of either generating or 4
purchasing energy, UP&L utilizes its interconnections with 5
other utilities to export energy..
As Mr. Boucher will 6
testify, in purchasing and selling energy, UP&L has little 7
or no influence on the price of energy it either purchases 8
or sells.
9 Through purchasing and selling energy, UP&L is able to 10 use its transmission system to insure that adequate 11 capacity and energy is available to meet our customers' 12 needs at the lowest
- cost, while insuring that the 13 transmission system is utilized to the maximum extent 14 possible, so that no viable transaction is forgone due to 15 a fixed transmission service rate.
As Mr. Walton will 16 testify,,this is an economically ef ficient practice.
A 17 table showing the UPT,L's non-firm purchases and sales for 18 the years 1983 through 1987 is contained in Schedule 4 of 19 Exhibit No. 200.
20 OUESTION
"
- 21 Who receives the benefits of UP&L's ability to
- 12 purchase and sell power?
- !3 ANSWER 14 The economic benefits associated with these non-firm
)
25 transactions flow through to UP&L's customers.
In
f' V. R. Topham 31 1
- addition, both the utility from which UP&L purchases 2
energy and the utility to which UP&L sells energy share in 3
the benefits.
4 OUESTION 5
How are the benefits reflected in UP&L's rates?
6
?JTSWER 7
In the Utah jurisdiction the margin on surplus sales 8
and the benefits from the purchase of lower cost energy 9
flow directly through the Energy Balancing Account.
In 10 the I d a h o,. W y o m i n g and FERC jurisdictions the benefits 11 from these transactions flow through to the customers as 12 revenue credits against expenses and as reduced expenses 13 in the base rates.
14 OUESTLQ1{
id How does the utility from which UP&L pur::hases 16 energy or the utility to which UP&L sells energy benefit?
17 ANSWER 18 The price UP&L pays for purchased energy equals the 19 selling utility's cost of providing the energy plus a 20 margin.
Based on its response to Request No. 42 of the
~ ~2 1 Applicant's Second Set of Data Requests (Exhibit 200, 22 Schedule 5),
which is contained in Exhibit No.
- 200, 23 Schedule 4,
it appears that Idaho Power Company (IPC) 24 concurs with this analysis.
The margin varies depending 25 on the market price at the time of the sale and the cost A
l V. R. Topham 32 1
the selling utility incurs in generating or purchasing the 2
energy.
For utilities with the ability to supply the 3
market with energy generated from hydroelectric 4
facilities, such as IPC and Washington Water Power Company 5
(WWP),
with an incremental cost approaching zero, the e
margin approaches the market price.
For example, if a utility in the Northwest can generate additional energy at 7
8 its hydroelectric plants to sell to UP&L on a non-firm 9
basis and the market price is 14 mills, the margin the 10 selling utility would receive would equal the market price 11 (14 mills) less any cost incurred in delivering the energy 12 to UP&L.
13 Similarly, the utility purchasing energy from UP&L 14 benefits to the degree that the market price is less than 15 the incremental cos,t of either generating electricity from 16 the utility's own facilities or purchasing it elsewhere.
17 Through purchasing and selling energy all parties 18 benefit.
I 19 OUESTION 20 Does UP&L engage in the simultaneous purchase and sale
- -2 1 of energy as alleged by Messrs. Taylor (Exhibit No. 178, 22
- p. 34), Hughes (Exhibit No. 84, pp.
7, 24, 36, 51, and 54) 23 Crowley (Exhibit No.
69, pp. 18-20) and Miller (Exhibit 24 64, pp. 21-22)?
25 ANSWER
~
'o
-V.
R. Topham 33 1
Yes.
The purchase and sale of economy energy is an 2
important factor in the efficient operation of an 3
integrated utility system.
- However, the dncisions 4
regarding whether to purchase or sell are generally 5
independent.
That is, when the market price of energy is 6
less than its, incremental cost of generation, UP&L will 7
purchase energy to displace the higher-cost generation 8
from its own facilities, irrespective of its ability to 9
market energy.
Similarly, if UP&L is unable to purchase 10 energy at a price that is lower than its incremental cost 11 of generation, and the market price of energy exceeds its 12 incremental cost of. generation, UP&L will sell energy 13 generated from its own facilities.
14 OUESTION 15 Messrs. Taylor (Exhibit No. 178, pp. 35-36) and Hughes 16 (Exhibit No. 84, pp.
7, 24-26, 51, 54, 56 and 59) suggest 17 that UP&L's practices relating to the purchase and sale of 18 non-firm energy are inappropriate.
Do you agree?
19 ' ANSWER 20 No.
By investing in its transmission system and 21 engaging in the purchase and sale of energy, UP&L' has 22 attempted to benefit its customers through lower rates.
23 In a similar manner, Northwest utilities, such as IPC and 24 WWF have taken advantage of their location along the 25 Columbia River and its tributaries to develop low cost I
1 V. R. Topham 34 1
generating resources.
Municipal and rural electric 2
systems in the Northwest and Rocky Mountain area have also 3-been able to benefit from their location as well as from 4
the preference laws in order to gain an allocation of low i
5 cost federal hydroelectr." resources.
6 UP&L has a transmission system designed to provide its 7
customers with a
reliable power supply
- and, when 8
economically advantageous, to benefit those customers 9
through the purchase and sale of power.
The thrust of 10 UP&L's business is not the purchase and sale of energy on 11 the bulk market.
Rather, UP&L is in the business of 12 meeting the electrical needs of customers located within 13 its certificated service area.
The fact that from time to 14 time UP&L can reduce the cost of power to those customers 15 through the purchase and sale of power is incidental to 16 its main business.
17 As Mr.
Boucher will
- testify, other utilities, 18 including IPC and MPC, have engaged in the simultaneous 19 purchase and sale of energy.
20 OUESTION
, -.21 Mr. Mosher (Exhibit No.
- 100, p.
8) implied in his 22 testimony that the merged company will take advantage of 23 UP&L's geographical location and its transmission system 24 in order to extract "monopoly profits," unless the FERC
4 V.
R. Topham 35 1
somehow conditions its approval of the merger.
Do you 2
agree?
3 ANSWER 4
Absolutely not.
As Mr. Boucher will testify,'due to 5
the ability of utilities to transfer energy over 6
facilities other than the merged company's facilities and 7
due to the ability of the purchasing utilities to generate 8
electricity to meet their needs in lieu of purchasing 9
energy, UP&L has little or no influence over the market 10 price of energy.
Consequently, any benefits the merged 11 company will be able to derive for its customers will be a 12 function of the difference in the merged company's 13 incremental cost of energy and the market price.
As Mr.
14 Walton will testify, the real issue is how the benefits of 15 a multiparty transaction are to.he shared.
I see no 16 reason why UP&L should not receive a fair share of the 17 benefits arising from a transaction or that any particular 18
20 Merced Comoanv's Transmission Policies 21 OUESTION 22 Mr. Topham, several witnesses have commented on the 23 merged company's transmission service policy that you
(
24 describe on pages 19-22 of your Direct Testimony (Exhibit 25 No. 1).
Have you reviewed those comments?
t
i V.-R. Topham 36 1
ANSWER 2
Yes.
Messrs. Mosher, Lim, Westfall, Hughes and Taylor 3
all are critical of certain aspects of the policy.
4 OUESTION 5
On pages 8 and 15 of his testimony (Exhibit No. 100),
6 Mr. Mosher suggests that the policy should provide for the 7
elimination of physical "bottlenecks" where they exist.
8 Would you please comment?
~
9 ANSWER 10 Yes.
First, I would not use the term "bottleneck" to 11 describe a transmission limitation; unless there are no 12 alternate transmission paths that
' alleviate the 13 "bottleneck" effects.
In any event, alleviation of any 14 physical constraints would require construction, and such 15 construction is prudent only when the project is' cost 16 effective.
We are constantly considering transmission 17 additions and improvements to our systems through our 18 planning process and, when it can be determined that the 19 benefits of new construction will juctify the cost, those 20 projects are authorized.
- 21 One of the factors that may impede a determination of 22 cost-effectiveness is improper pricing.
If, as Mr. Mosher 23
- suggests, limited capacity is allocated among different 24 parties, and those parties are then allowed to use that 25 capacity at embedded cost rates, a price signal is given
V. R. Topham 37 1
that will tend to discourage the possibility of new 2
construction and improvements.
The party receiving the 3
allocation is given no incentive to construct because it 4
has
- obtained, through
- contract, a
right to utilize 5
capacity at a much lower cost than it would incur in 6
constructing new facilities.
The owner of the f aci.lity, 7
likewise, has no incentive to construct, because all it 8
could receive is a price based on the embedded cost of its 9
transmission facilities.
In short, Mr. Mosher's objective 10 of encouraging the construction of additional transmission 11 would be frustrated by his proposal to allocate the 12 limited capacity.
13 OUESTION 14 Please comment on Mr.
Mosher's further suggestion 15 (Exhibit No. 100 p.
8), that information with respect to 16 the availability and price of limitcd transmission 17 facilities be made available.
18 ANSWER 19 Our transmission service policy does this in a way, 20 and I would like to elaborate on that at this point.
As I
- 21 indicated in my Direct Testimony (Exhibit No.
1, p.
19),
22 the charges for transmission service within each 23 integrated service area will be based on cost-based FERC-24 approved rates.
In the case of the other types of
V.
R. Topham 38 i
1 1
1 wheeling that I discussed, I believe some clarification is 2
appropriate.
3 In the case of other firm transmission service, our 4
policy would price that service at em. bedded cost plus 5
opportunity cost, that is, an amount to compensate for the 6
loss of economic benefits that could be obtained by the 7
company if the firm service had not been providad.
Both 8
Messrs. 'losher and Lim have recognized the appropriateness 9
of compensation for lost opportunity.
It is also clear 10 that pricing in this manner gives the appropriate price 11 signal.
As demand for use of the facilities grows, 12 opportunity costs increase, thereby creating an incentive 13 to construct new facilities.
14 Mr.
Mosher appears to suggest that the pricing 15 information should be more specific and precise than 16 appears in our policy.
This is not practical because 17 different wheeling transactions will involve different i
18 lost opportunities and, therefore, different opportunity 19 costs.
Consequently, determination of those lost 20 opportunities must necessarily be based on a case-by-case 21 basis.
22 We recognize that there are difficulties and 23 uncertainties in the determination of opportunity costs, 24 but we believe they are surmountable.
As I
stated l
25
- earlier, the merged company will evaluate the
(
l l
V. R. Topham 39 1
appropriateness of both a fixed opportunity cost component 2
for a specified period, based on a reasonable estimate cf 3
the value of likely lost opportunities and a formula rate 4
which would more closely track actual costs.
In the case 5
of non-firm transmission service, other than withir. an 6
integrated service
- area, it is appropriate for that 7
service to be priced such that all parties share in the 8
savings attributable to the transaction.
Such an approach 9
has been reflected in the Western Systems Power (WSPP) 10 Experiment, to which, as a result of the merger, the UP&L 11 division will become a party.
12 Since the price for non-firm transmission is directly 13 related to the opportunity cost of the transmitting 14
- utility, it assures that if there is a supply and a 15 demand, the intervening transmission facilities will be 16 fully utili::ed.
Allocation of non-firm transmission 17 capacity would not provide for such full utilization, la because one or more of the parties having an allocated 19 share might not be in a pos4. tion to utilize that share i
20 fully at all times.
- 21 OUESTION 22 Should this Commission consider requiring the merged 23 company to allocate transmission capacity for the use of 24 other entities as a condition of the merger?
25 ANSWER
.y
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V. R. Topham 40 1
No.
Should this Commission require the merged company 2
to allocate transmission capacity as a condition of its 3
approval, it would not only discourage the construction of 4
additional facilities, as I discussed earlier; but it l
5 would discourage the economic efficiencies currently being j
6 derived through non-firm transactions.
7 OUESTION 8
Mr.
Lim (Exhibit No. 49, pp. 8-10) states that the 9
transmission service policy is more restrictive and less 10 favorable to "public sector competitors" than the present 11 policy and the present agreement with UAMPS.
Please 12 comment.
13 ANSWER 14 That is not the merged company's intention.
We 15 consider the merged company to be bound by the prior 16 agreement it has in place with UAMPS and DG&T.
The 17
- merger, and the transmission service policy after the 18 merger, will not in any way diminish the existing rights 19 or future opportunities of public systems to have access 20 to UP&L transmission.
, -.21 QUESTION 22 Mr.
Lim also discusses what he calls the 23 compartmentalization of wheeling service on the merged 24 system (Exhibit No. 49, pp. 21-22), indicating that it is 25 contrary to the "single utility concept", and that without e
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y
V. R. Topham 41 1
it, wheeling from Idaho Power to UAMPS could be done 2
readily.
He also indicates that such policy violates the 3
requirement of rolled-in transmission cost.
Do you have 4
any response?
5 ANSWER 6
Yes.
Before I respond, however, it would be useful to 7
further define the merged company's transmission service 8
policy with respect to se'rvice within what Mr. Lim refers 9
to as a compartmentalized area."
The purpose of my 10 testimony on page 19 of Exhibit No.
1 was to identify 11 circumstances under which the merged company will provide 12 transmission service to other utilities as a matter of 13 course, without resorting to a case-by-case analysis.
It 14 was not intended to be exclusive.
15 As is the case with virtually any large utility, the 16 merged company will only be able to offer transmission 17 services without performing a case-by-case analysis within 18 those portions of its system where it has substantial 19 transmission facilities and is essentially unconstrained 20 in its ability to provide transmission services without
, - 21 adverse system or economic impacts.
Therefore, the term 22 "integrated service area," as used on page 19 of Exhibit 23 No.
1, was intended to refer to those geographic areas of 24 the merged company's system within which the merged i
25 company is virtually unconstrained in its ability to
V.
R. Topham 42 1
respond to requests to transmit power in those quantities 2
that can be reasonable
- expected, obviously, the 3
construction of a
large Independent Power Production 4
facility within an "integrated service area" would require 5
an independent review of the situation.
6 Given this clarification, I
believe Mr.
Lim's 7
concerns are misdirected.
8 OUESTION 9
Mr.
Lim pointed out that the large number of 10 "integrated service areas" three for UP&L and sixteen 11 for PP&L - are "unduly restrictive and inconsistent with 12 the stated purposes end claimed effects of the proposed 13 merger (Exhibit No. 49, p. 15)."
Please comment.
14 ANSWER 15 While the concept of integrated service areas has been 16 articulated for the first time in the transmission service 17
- policy, it merely recognizes the physical realities as 18 they exist.
While sixteen areas identified in the PP&L 19 system (See the Applicants supplemental response to 20 Request No. 63 of the Joint Data Request of Nucor Steel
,,21 and Amax Magnesium Corporation) reflect areas served by 22 the PP&L which are joined together by owned transmission 23 lines or contract
- paths, physical and contractual 24 limitations restrict the merged company's ability to 25 provide transmission service without a specific review.
z.
V.
R. Topham 43 1
The three separate service areas of UP&L reflect the 2
constraint at Ben Lomond.
It is that restraint that 3
prevents unrestricted transmission through the Utah 4
- system, and it is necessary to recognize it in the 5
transmission service policy.
6 OUESTION 7
Mr. Westfall also criticizes your transmission service 8
policy.
Please comment on his testimony.
9 ANSWER 10 Mr. Westfall states that the policy provides not only 11 the opportunity for, but encouragement for, discrimination 12 and diminished competition.
He believes that it is 13 necessary to file a
wheeling tariff that provides i
14 transmission service to all other utilities on a non-15 discriminatory basis, such services t'o include firming 16 s e rvice, emergency
- service, economy
- energy, exchange 17
- energy, scheduled maintenance outage
- service, load 18 regulation service and reserve service.
Even if this were 19 done, Mr. Westfall indicates that the merger should not be 20 approved.
21 Mr. Westfall is wrong in his conclusions.
It is our 22 intention to administer our stated policy on a
non-23 discriminatory basis, and in a manner designed to maximize 24 efficient utilization of the transmission system.
A case-l 25 by-case determination of the ability of the merged company l
a
V.
R. Topham 44 1
to provide transmission service is necessary because the 2
system has capacity limitations and transmission service 3
agreements which prevent some desired uses of the system 4
from taking place from time to time.
The wheeling tariff 5
that Mr. Westfall advocates would, in effect, make the 6
merged company a common carrier of power for others.
7 While this may be what many of the parties in this case 8
desire, it has not been required of other utilities and is 9
not appropriate.
10 Incidentally, the numerous transmission service 11 contracts that are presently in effect provide many of the 12 incidental services that Mr. Westfall states should be 13 included in his proposed tariff.
14 OUESTION 15 Do you agree with Mr. Westfall's assertion that the 16 merged company, under the transmission service policy, 17 could either refuse to wheel or charge an exorbitant 18 wheeling rate in order to force a
public system to 19 purchase from the merged company rather than from a lower-20 cost outside supplier?
,,,21 ANSWER 22 Clearly, the policy would not allow that.
As I have 23 indicated, the price would be embedded cost plus 24 opportunity cost, and the merged company certainly will 1
2i not be in a position to exact an opportunity cost that is 4
- ~"-
a V. R. Topham 45 1
unrelated to a
realistic determination of lost 2
opportunities.
The assertion also ignores the fact that 3
any rate would be subject to review by this Commission.
4 QUESTION 5
Dr. Hughes has stated that your transmission policy is 6
inappropriate because it would make available to 7
competitors "only the transmission capacity that is-left 8
over" after PP&L had fully utilized the UP&L system for 9
its own sales (Exhibit No. 84 p. 97).
Please comment.
10 ANSWER 11 After the merger, the generation and transmission 12 systems of the two companies will be fully integrated so 13 that efficiencies can be maximized, our proposed 14 transmission policy simply adopts the industry-wide 15 standard that a transmission system be used first for the 16 benefit of the utility's own customers.
Permitting third 17 parties transmission access somehow comparable to our own 18 use of th'e facilities is inconsistent with this well 19 established concept.
20
- Further, as Mr.
Boucher vill testify, in order to
- 11 minimize the cost of energy, the merged company will 22 purchase energy from lower cost suppliers, such as Idaho 23 Power Company (IPC), when the price requested by those 24 suppliers is lower than the cost the merged company's 25 generation.
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-. _ _ - - + - - -,
V. R. Topham 46 1
QUESTION 2
Mr. Taylor (Exhibit No. 178, p.
- 18) argues that your 3
wheeling policy will injure retail competition.
Do you 4
agree?
5 ANSWER 6
No.
Mr. Taylor reaches this conclusion by assuming 7
that
-the policy.
"would deny fair and reasonable 8
transmission access to public agency utilities in the 8
9 Applicants' service areas", giving Washington City as an 10 example (Exhibit No. 178, p.
21).
As I have explained, 11 the merger will improve accern to Washington City and 12 should facilitate service to it.
Therefore, Mr. Taylor's i
13 conclusion as to retail competition is incorrect.
?
14 QUESTION
[
]
15 speaking of retail competition, Mr.
Taylor has 16 offered considerable evidence concerning the efforts of 17 both PP&L and UP&L to serve a new facility of Exxon 18 (Exhibit No.
- 178, p.
19).
Do you consider that to be i
19 retail competition between the two companies?
l 20 ANSWER f
" " ' 21 It is true that the two companies "competed" for this 22 particular customer, but the situation is so unique that 23 it can hardly be evidence of any substantial competition j
24 at retail.
The boundary between the PP&L and UP&L retail 25 service territories runs through the parcel of lond on s
r
}
i
~
V. R. Topham 47 1
which *:he Exxon plant is located, so it was able to choose 2
between the two suppliers.
Obviously, this situation will 3
not arf.se very often.
4 Proeosed Mercer Conditions 5
OUESTIO,H 6
A number of witnesses have recommended that if the 7
merger is approved, it should be made subject to certain 8
conditions.
In your direct testimony, you indicated that 9
a condf. tion requiring the open access to transmission was 10 unwarra.nted and the other conditions that you had heard 11 about were either inappropriate or unnecessary.
Is that 12 still your opinion?
13 ANSWER 14 Ye si.
The conditions that have been proposed seem 15 largely to be designed to enhance the competitive position 16 of the entities whose witnesses sponsor those conditions, 17 as distinguished from enhancing competition.
In almost 18 avery case, they would vastly alter existing competitive 19 relationships to the benefit of the sponsor of the 20 condition and to the detriment of the merging companies.
~ ~ 21 While the merging companies might be able to live with 22 some of the conditions, none of them are either necessary 23 or appropriate.
24 OUEST10N
5 T
V. R. Topham 48 1
Mr. Mosher has suggested a number of conditions one of 2
which is that additional Utah interconnections with public 3
system customers be required.
Please comment.
4 ANSWER 5
On pages 17 and 18 (Exhibit No.
100) of his G
testimony, Mr. Mosher suggests that as a condition of the 7
- merger, the merged company be required to establish 8
"additional interconnection points to the Utah transmission system at which public system customers can 10 arrange the delivery of power and energy from generating 11 sources not located on the merging companies' systems" 12 which are comparable to the Mona substation.
13 Under the merged company's transmission policy, as I 14 set forth on pages 20 and 22 of Exhibit No.
1, public 15 system customers can arrange the delivery of power and 16 energy from generating sources not located on the merged 17 company's sys' tem.
This can be achieved through any 18 interconnection point.
A request for such
- service, 19
- however, would require the case-by-case analysis I
20 discussed in Exhibit No. 1.
The following factors will be
-21 considered in determining whether the service can be 22 provided:
23 1.
The duration of the requested service:
24 2.
Whether new facilities would have to be
+
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V. R. Topham 49 1
constructed in order to provide the requested 2
service over the merged company's facilities; 3
3.
The extent to which the requested service will 4
cause the merged company to forego prosent
~
or 5
reasonably expected wholesale sales or 6
purchase opportunities; 7
4.
Whether other parties desire the same 8
transmission services; 9
5.
Whether the terms of transmission contracts 10 with other utilities permit the requested 11 service; 12 6.
Whather the intentions of the party requesting 13 service are lawful (for example would there be 14 a violation of laws related to a certificated 15 area);
16 7.
Whether transmission losses will be adequately 17 restored; 18 3.
Whether and to what extent providing the 19 requested service will require the generating 20 reserves of the merged company;
- 21 9.
The degree of firmness of the requested 22 service; 23 10.
The service priority of the requested service; 24 11.
The system impacts of the requested service; i
V. R. Topham 50 1
12.
To the ex*;ent the requested service involves 2
the control areas of another utility, whether 3
that other utility will cooperate in providing 4
the servicet 5
13.
Whether the party requesting the service is a 6
scheduling utility; 7
14.
Whether the party requesting the service has 8
other reasonable opportunities available to it 9
through other transmission paths; 10 15.
Current laws and regulations as they apply to 11 the merged company and its competitors; and 12 16.
Whether the proposed rate for the requested 13 service is reasonably compensatory in regard 14 to factors 1,
2, 3,
4, 7,
8, 9,
10 and 11, 15 which I have discussed.
16 If an analysis of these factors indicates that the 17 requested service can be provided and that doing so is in 18 the best interest of the customers of the merged company, 19 the requested service will be provided.
20 With respect to the merged company's policy regarding
~
- 21 requests for transmission service within an integrated 22 service area, the term "source" was intended to generally 2
23 refer to a generating plant.
Unlike the merged company's 24 other points of interconnections,
- however, providing 25 transmission service over the Mona interconnection will
V. R. Topham 51
,1 not adversely affect the operation of the merged system 2
and will not result in significant opportunity costs, and 3
for this reason no case-by-case review,is required.
4 ' consequently, with respect to requests for transmission 5
service within UP&L's service area in the state of Utah, 6
the word "source" was intended to include the Mona 7
substation.
Although conditions may change which would 8
allow additional points of interconnections fron which 9
public system cusl:omers can arrange the delivery of 10 capacity and energy from other generating sources not 11 located on the merged company's system to be established, 12 the Mona substation is currently the only point for which 13 the merged company can provide guaranteed service without 14 a case-by-case review.
15 OUESTION 16 Mr. Mosher (Exhibit No. 100, pp. 18-19) also proposes 17 that terms for non-firm transmission service to public 18 systems be specified.
Do you have any comments?
19 ANSWER 20 The requirements of municipal, public utility
- 21 districts and rural electric distribution systems are 22 generally firm requirements, and at present the 23 transmission service agreements are for firm service.
24 Since these entities can receive their power only over the 25 merged company's system, if the transmission arrangements l
l l
. _ _ _ _ _ _ _ _,, _.. ~,,. _ -. _. _ _ _ _ _ _.. _ _ _ _ _ _. _ _ _.,... -,
e V. R. Topham 52 1
were non-firm, and were interrupted, retail service 2
furnished by these systems would suffer.
However, should 3
these public entities desire non-firm transmission 4
service, the merged company will make it available on the S
same basis that we furnish other non-firm service, based 6
on the WSPP Experiment.
In such event, however, we must 7
be free to interrupt the service.
8 OUISTION 9
What do you think of Mr. Mosher's suggestion (Exhibit 10 No. 100, p.
- 25) that transmission pricing abuse would be 11 prevented by' reporting the degree of use of the Ben 12 Lomond facilities?
13 ANSWER 14 I am uncertain what Mr. Mosher means by reporting as 15 to the degree of projected and actual utilization of 16 transmission facilities in the Ben Lomond region.
When is 17 this to be done?
How meaningful is it?
However, while 18 the merged ' company is willing to provide such reports en a 19 reasonable periodic basis, we believe they will serve no 20 useful purpose.
~
21 OUESTION 22 Do you agree with his proposed requirement that no 23 capacity be withheld?
24 ANSWER v
V. R. Topham 53 1
Whether referring to "bottleneck facilities" or other 2
transmission facilities, the industry-wide standard is 3
that a transmission system should be used first for the 4
benefit of the utility's own customers.
Consequently, I 5
am assuming Mr.
Mosher (Exhibit No.
- 100, p.
25) is 6
referring to the capacity which might be available after 7
the needs of the merged company's customers are satisfied.
8 Given this clarification, the suggestion that no capacity 9
should arbitrarily be withheld except for reasons of 10 reliability is theoretically acceptable, so long as we are 11 entitled to recover our opportunity cost in accordance 12 with the transmission service policy.
In deed, that 13 policy says as much.
We recognize that there will be 14 practical problems in implementation such as determining 15 which non-firm customers are interrupted to make way for 16 the new firm transmission.
17 OUESTION 18 On page 25 (Exhibit No.
100),
Mr. Mosher suggests 19 that price caps should be imposed where the facilities are 20 not fully utilized.
Do you agree?
,- 21 ANSWER 22 No.
We think that is unne:::essary because we have no 23 intention of withholding available capacity from the 24 market.
Indeed, one of the principal objectives of the 25 merger is to improve efficiency, and fuller utilization of
V. R. Topham 54 1
facilities is an important component of that.
This means 2
that we intend never to have unused capacity when there is 3
a use that can be made for that capacity.
Mr. Walton will 4
address the issue of price caps in his testimony.
5 OUESTION 6
What do you think of Mr. Mosher's proposal (Exhibit 7
No.
- 100, p.
26) for pricing flexibility as capacity 8
approaches its maximum.
9 ANSWER 10 As a pricing matter this makes sence, since the value 11 of capacity increases as it becomes more scarce.
The 12 merged company's transmission policy provides such a
13 mechanism since the opportunity costs increase with a i
14 reduction in available capacity.
Further, it is not clear 15 from Mr.
Mosher's testimony how he means for 'this 16 requirement to be imposed.
Consequently, I do not think 17 it should be a condition of the merger, however imposed.
18 OUESTION 19 Do you agree with Mr. Mosher's proposal (Exhibit No.
20 100, p. 26) that joint ownership of new transmission lines l
-
- 21 be required?
22 ANSWER 23 The proposal for joint ownership of new 24 transmission lines as made by several other witnesses as i
)
25 well as Mr.
Mosher.
We have no objection to joint
s V. R. Topham 55 1
ownership in proper cases.
It is one way of capturing 2
economies of scale that might not otherwise be available.
3 Joint ownership, however, may not be appropriate in all 4
- cases, and the terms of the joint ownership, such as 5
relative ownership shares and, the sharing of costs, will 6
always be important.
Our Sigurd-Las Vegas transm,ission 7
line is an example of a line where we have embraced joint 8
ownership.
There should not, however, be any absolute 9
requirement for joint ownership because there may be 10 instances in which the entity seeking such ownership does 11 not have a legitimate interest in the facility, and this 12 should be a threshold determination in all cases.
13 OUESTION i
14 What do you think of Mr. Mosher's suggestion (Exhibit 15 No.
100 p.
19) that internal transfer prices be 16 established for the divisions?
17 ANSWER 18 This suggestion is certainly worth exploring.
It 19 seems to me that it may provide a good internal cost 20 tracking and cost control mechanism.
This is one of the
" ~ '21 many things that we would plan to
- study, and if 22 appropriate, implement in due
- course, but we do not i
23 believe everything can be done at once.
There is no 24 reason for it to be required as a condition to the merger.
25 OUESTION
V. R. Topham 56 1
Mr.
Mosher (Exhibit No.
- 100, p.
27) concluded by 2
suggesting that if the merger goes through, and there is 3
no other way "to protect the competitors of the merging 4
companies from the abuse of monopoly power ever 5
transmission resources," the commission should consider 6
mandatory transmission set-asides for non-affiliated 7
competitors.
Please comment.
8 ANSWER 9
As Messrs. Landon, Boucher and Tucker will indicate l
10 the merged company does not have monopoly power over 11 transmission resources to abuse.
We believe there would i
12 be no justification for a requirement to allocate or set 13 aside capacity, and there is considerable doubt as to the 14 commission's authority to order it.
But, Mr. Mosher's 15 testimony on this point is important because it confirms a 16 point I made earlier, he and other witnesses who 17 suggested conditions a r e' trying "to protect the 18 competitors of the merging companies" rather than to 19 enhance competition.
Protection of competitors can itself 20 be very anti-competitive.
Dr. Landon's testimony shows
~21 that when the focus is on competition, rather than 22 competitors, the companies have no monopoly power and 23 there is, therefore, no need for the types of conditions i
24 that have been proposed.
25 OUESTION
[
r
-.--______-_.-~_y
V. R. Topham 57 1
Mr. Hunter (Exhibit No. 45 p.
- 16) has suggested that 2
the approval be conditioned upon a requirement that the 3
company wheel 60-85 MW for UAMPS, that it honor option 4
agreements with municipalities, that it wheel through all 5
interconnections not fully committed to firm power 6
contracts, and that it require joint ownership of new 7
facilities and enhancement for others at their expense.
l 8
Do you agree with these suggestions?
I 9
ANSWER 10 No.
I have,already stated the reasons why j
11 transmission capacity should not be a allocated or set-12 aside.
Instead, we will provide the service, when the 13 need arises, pursuant to a firm contract that provides for i
14 the recovery of opportunity costs as stated in our l
~
15 transmission service policy.
The question of when the 16 need arises is important in this case, because the 60-85 17 MW to which Mr. Hunter refers would, as I understand it, 18 be transferred to municipalities that presently receive Y
19 retail service from Up&L (Exhibit No. 45 p.
27).
Many 20 participants in this case are concerned about inadequate t
~
21 firm transmission
- capacity, and obviously it is not I
l 22 efficient to set aside 60 to 85 MW of that scarce resource 23 for public systems that do not yet exist.
i 24 With respect to the suggestion that we be required to 25 wheel through all interconnections, the policy which I set l
I I
1 l
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-~.___
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V. R. Topham 58 E
1 forth on pages 20 and 22 of Exhibit No. 1 applies to all-l P
2 interconnections.
3 I
have already addressed the question of joint 4
ownership of new facilities, and the answer is the same j
5 for enhancements for others at their expense.
Both joint i
6. ownership and enhancements are appropriate in many cases, 4
7 but each case needs to be evaluated.
A blanket i
8 requirement would be inappropriate.
[
9 We have no problem with the requirement that we honor 10 any existing option agreements with municipalities.
We
[
11 intend to do so.
This does not, however, mean that we t
12 should be required to accept Mr. Hunter's interpretation 13 of each of those option agreements.
Some of those 14 agreements have given rise to genuine disagreements as to 15
- meaning, and when such problems arise there are 16 mechanisms for resolving them.
In the absence of such 17 disagreements, or once those disagreements have been 18 resolved, the options will be fully performed on our part.
t 19 OUESTION i
20 Mr. Millett (Exhibit No. 47, pp. 25-26) has proposed 21 that FERC maintain a subdocket and retain continuing
{
22 jurisdiction te assure that future requests for wheeling 23 are not unreasonably delayed or denied.
Is this a good I
24 idea?
25 ANSWER I
--n
V. R. Topham 59 1
No.
No need has been demonstrated for such continuing 2
FERC involvement.
Mr.
Millett's alternative proposal 3
(Exhibit No.
47, p.
29), that FERC require the merged 4
corporation "to provide pathways between Deseret and 5
markets selling and buying non-firm snergy and markets 6
buying firm power for the next ten years" clearly shows 7
that his objective is to obtain a preference for a single 8
competitor in a very complex market.
Once again, the 9
emphasis is on protecting the competitor, not enhancing 10 competition.
11 Mr. Millett also favors a condition that would require 12 joint participation in future construction.
I have 13 already indicated that joint participation is efficient 14 and appropriate in many casus, but it should not be 15 required in all.
16 oUESTION 17 Mr. Russell (Exhibit No. 20, pp. 8-34) has suggested 18 extensive and detailed merger conditions.
Would you 19 please comment on them?
20 ANSWER
- -21 Many of the propcsals for conditions that other 22 witnesses have made are not really related to the merger, 23 but instead grow out of dissatisfaction with existing 24 competitive relationships.
This is especially true in the
)
25 case of Mr. Russell's proposals, and his own testimony l
-. ~.
m.
V.
R.* Topham 60 1
makes this clear.
The extensive and very stringent 2
conditions that he proposes would be applicable only to 3
the Utah
- division, and they grow out of pre-merger 4
conditions, not anything that will result from the merger.
5 Mr. Russell's proposals are answered in the testimony 6
of Mr. Boucher, so I will a,ddress them only briefly.
What 7
these proposals amount to is a requirement for total open 8
access, making the Utah division a common carrier.
Not 9
only that, it would be a common carrier that would be 10 required to displace firm arrangements whenever a lower 11 priced non-firm opportunity comes along.
This would work 12 great mischief and
- would, in
- effect, convert firm 13 transmission capacity into non-firm.
A supplier generally 14 pays more to have his power transferred on a firm basis, 15 and to undermine that supplier's contractual bargain in 16 order to accommodate a supplier who pays less for non-firm 17 service stands logic on its head.
18 I have already commented on the filing of wheeling 19 tariffs, set-asides for other suppliers, sharing ownership 20 of new construction, and enhancements for others at their
~~21 expense.
In summation, Mr.
Russell's suggestions are 22 unworthy of serious consideration.
23 OUESTION 24 Dr. Hughes (Exhibit No. 94) has proposed a detailed f
25 merger condition.
What are your views on it?
l
.,____-___,___m.
t V. R. Topham 61 1
ANSWER 2
As he describes in his testimony (Exhibit No. 84, p.
3 82)
Dr. Hughes proposes what he calls an "allocative 4
solution" in which the merged company would be required to 5
allocate 300 MW to other utilities'in the Northwest, with 6
a limit of 100 MW per transaction.
He suggests that this 7
arrangement be reviewed by FERC after five years.
I have 8
indicated earlier that set asides of this kind are not 9
appropriate.
They do not promote the most efficient 10 utilization of resources, with the result that they intend 11 to favor the recipients of the set-asides at the expense 12 of all other competitors and competition generally.
The 11 proposed condition should be rejected.
14 QUESTION 15 Mr. Kahal (Exhibit No. 18, pp. 30-31) suggested that 16 if retail transmission access is made available, it 17 should be on a nondiscriminatory basis.
Do you have any 18 comment?
19 ANSWER I
l 20 The question of requiring retail wheeling has not been
' ~ ~21 raised by any party in this case, and Mr.
Kahal has 22 expressly disavowed any intention to raise that question.
23 Under the circumstances, no further comment is necessary.
24 OUESTION f
J
w V. R. Topham 62 1
Messrs. Collingwood, Casazza, Kahal, siems and Smith 2
all made suggestions for additional merger conditions.
3 Are you responding to those suggestions?
4 ANSWER 5
No.
Mr. Boucher will respond to Messrs. Collingwood 6
and Casazza.
Mr. Colby will respond to Mr. Smith, and Mr.
7 Reed will respond to Messrs. Siems and Kahal.
3 OUESTION 9
After considering all of these proposals, do you have 10 any final comments on them?
11 ANSWER 12 Yes.
A wide variety of proposals has been~made, but 13 the bulk of them involve, in one way or another, attempts 14 to impose on the merging. companies what is virtually an 15 unlimited duty to transfer power for others.
These 16 proposals are, for the most part, unrelated to the merger 17 and they would set a dangerous legal precedent.
They are I
18 intended to alter the status quo by giving certain 19 competitors an improved competitive position after the g
20 merger.
This is done at the expense of the customers of
~
~21 the merging companies and at the expense'of efficiency and 22 competition as well.
23 As I stated in my direct testimony, imposition of 24 transmission wheeling requirements on the merged company 25 would be discriminatory, damaging and unfair.
.i
4 4
f V. R. Topham 63 2
1 Transmission access is an issue of considerable interest 2
today on a national scale, and of considerable importsnce 3
to companies within the industry.
In my opinion, to 4
single out the merged company for mandatory wheeling at a 5
time when the national debate on mandatory wheeling is 6
just beginning would, in my opinion, be an inappropriate 7
response to this merger application.
8 OUESTION j
9 Does this conclude your testimony 10 ANSWER I
i 11 I hope so.
I t
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9 UNITED STATES OF AMERICA BEFORE THE FEDERAL ENERGY REGULATORY COMMISSION Utah Power & Light Company
)
PacifiCorp
)
Docket No. EC88-2-000 PC/UP&L Merging Corp.
)
AFF7 DAVIT STATE OF UTAH
-)
ss.
COUNTY OF SALT LAKE )
Verl R. Topham, being first duly sworn, deposes and says:
that he has read and is familiar with the contents of the foregoing Rebuttal Testimony of Verl R. Topham; that if asked the questions contained in said Testimony, the answers and response hereto would be as shown in said Testimony; that the facts contained in said answers are true to the best of his knowledge, information and belief; and that he adopts these answers as his own.
/ 3. 4 /d 5 b VerlR[.Topham SUBSCRIBED AND SWORN to before me this 22nd day of February, 1988.
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. !y t, t i
Notary Public r
i My Commission Expires Residing att'
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