1158 STATE OF IOWA DEPARTMENT OF COMMERCE UTILITIES DIVISION - - - - - - - - - - - - - - - x IN RE: : : : DOCKET NO. GCU-07-1 APPLICATION OF INTERSTATE POWER: AND LIGHT COMPANY FOR A : VOLUME IV GENERATING FACILITY CITING : CERTIFICATE : - - - - - - - - - - - - - - - x Iowa Veterans Home Whitehall Auditorium 1301 Summit Street Marshalltown, Iowa Thursday, January 17, 2008 Met, pursuant to adjournment, at 9:20 a.m. BEFORE: THE IOWA UTILITIES BOARD JOHN R. NORRIS, Chairperson KRISTA K. TANNER, Board Member DARRELL HANSON, Board Member (Pages 1158 through 1683) EDIE SPRIGGS DANIELS - CERTIFIED SHORTHAND REPORTER PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1159 APPEARANCES: 2 For IPL: KENT RAGSDALE, ESQ. 3 PAULA JOHNSON, ESQ. 200 First Street SE 4 P.O. Box 351 Cedar Rapids, Iowa 52406 5 6 For the Coalition: CARRIE LA SEUR, ESQ. JANA LINDERMAN, ESQ. 7 Plains Justice 100 First Street SW 8 Cedar Rapids, Iowa 52403 9 For CIPCO and Corn Belt: DENNIS PUCKETT, ESQ. 10 Sullivan & Ward, P.C. 6601 Westown Parkway 11 Suite 200 West Des Moines, Iowa 50266 12 For the Office of BEN STEAD, ESQ. 13 Consumer Advocate: JENNIFER EASLER, ESQ. Office of Consumer Advocate 14 Iowa Department of Justice 310 Maple Street 15 Des Moines, Iowa 50319 16 17 18 19 20 21 22 23 24 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1160 1 I N D E X 2 WITNESS DIRECT CROSS REDIRECT RECROSS BOARD 3 For the OCA: 4 Scudder Parker 1162 1216 1249 1250 1230 (Ragsdale) (Ragsdale) 5 1254 1221 1253 6 (La Seur) (La Leur) 7 For the Coalition: 8 James Hansen 1257 1323 1324 (Stead) 9 10 Kristen Welker-Hood 1334 1359 1359 (Stead) 11 Tom Sanzillo 1363 1425 1431 1427 12 (Stead) 13 Neal Harl 1435 1493 1508 1517 1496 (Stead) (Ragsdale) 14 For IPL: 15 16 Brent Kitchen 1520 1575 1579 1555 (recalled) (La Seur) (Stead) 17 1590 1580 18 (Easler) 19 1586 (La Seur) 20 Robert Vosberg 1592 1600-Stead 21 1602-La Seur 22 Richard Friedman 1608 1625 1672 1674 1660 (Stead) (Stead) 23 1633-Easler 1675-Easler 24 1645-La Seur 1675-La Seur 1681-Stead 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1161 1 E X H I B I T S 2 OCA EXHIBITS MARKED RECEIVED 3 105 1165 4 126 1630 5 127 1165 6 128 1247 1249 7 129 1626 1627 8 130 1628 1629 9 COALITION EXHIBITS 10 200 1259 11 201 1437 12 203 1335 13 213 1549 1550 14 IPL EXHIBITS 15 12 1609 16 13 1592 17 PRODUCTION REQUESTS: PAGE LINE 18 1240 19 19 20 21 22 23 24 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1162 1 P R O C E E D I N G S 2 CHAIRPERSON NORRIS: Good morning, everyone. 3 We are back in session on GCU-07-1. 4 Does anybody have anything before we begin 5 with our next witness? 6 MS. EASLER: No. I was just going to call 7 the first witness. 8 CHAIRPERSON NORRIS: OCA may call the next 9 witness. 10 MS. EASLER: The Office of Consumer Advocate 11 calls Scudder Parker. 12 CHAIRPERSON NORRIS: Good morning, 13 Mr. Parker. 14 If you can raise your right hand, please. 15 SCUDDER PARKER, 16 called as a witness by the Office of Consumer 17 Advocate, being first duly sworn by Chairperson Norris, 18 was examined and testified as follows: 19 CHAIRPERSON NORRIS: Thank you. You may be 20 seated. 21 DIRECT EXAMINATION 22 BY MS. EASLER: 23 Q. Please state your name for the record. 24 A. My name is Scudder Parker. 25 Q. You might spell that as well. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1163 1 A. It's two last names, and that sometimes 2 causes confusion. S-c-u-d-d-e-r; Parker, 3 P-a-r-k-e-r. 4 Q. On or about October 22nd, 2007, did you 5 cause to be filed direct testimony and an exhibit, 6 SHP-1? That should be designated Exhibit 105 in this 7 proceeding. 8 A. I did. 9 Q. Do you have any corrections or updates to 10 your testimony? 11 A. I have one correction or minor revision that 12 I would like to make to a data request that I 13 submitted in response to--an answer that I submitted 14 in response to a data request from IPL. 15 Q. Does this relate to your direct testimony? 16 A. Yes, it does. 17 MR. RAGSDALE: Could I inquire, are we 18 correcting one of his exhibits in the case? 19 MS. EASLER: It's addressing his direct 20 testimony, and then I'll let him identify where 21 that's at. 22 MR. RAGSDALE: I guess, is he updating one 23 of his data request responses that he provided back 24 to one of our requests? 25 MS. EASLER: It's not changing it. It's--I PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1164 1 think if you let me develop this and if you want to 2 object, that's fine. 3 MR. RAGSDALE: Okay. 4 CHAIRPERSON NORRIS: Go ahead. 5 BY MS. EASLER: 6 Q. Would you address where in your testimony 7 this matter is? 8 A. Yes. In my testimony I include a table and 9 a discussion about the level of energy efficiency 10 that various utilities in the country have 11 undertaken, and that table is on page 22, and Vermont 12 is the first utility--the first service territory or 13 the first state which has an efficiency entity 14 delivering services throughout states listed in that 15 table, and I say that the annual energy savings depth 16 is 1 percent. 17 In response to a discovery request, I 18 submitted a document illustrating the level of 19 savings in Vermont's--from Vermont's energy 20 efficiency utility, and I submitted it for 21 illustrative purposes. 22 It had in it a factor called a decay factor, 23 which is not something that is used in Vermont as an 24 ultimate determination of the level of secured 25 savings and is not comparable to the way IPL records PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1165 1 its savings, and Witness Holmes used that discovery 2 response to try to impeach my testimony. 3 Q. Is it your testimony, then, that if you 4 wanted to use that information, that the decay factor 5 would need to be removed? 6 A. That's correct. 7 Q. And have you provided an analysis that 8 represents that decay factor being removed? 9 A. I have, so I have a revised data response. 10 MS. EASLER: If I may, I would offer this as 11 Exhibit 127. 12 BY MS. EASLER: 13 Q. Mr. Parker, is what's represented in 127 the 14 information that you've been discussing in removing 15 the decay factor? 16 A. That is correct. 17 MS. EASLER: I would move the admission of 18 Exhibit 127. 19 CHAIRPERSON NORRIS: Without objection, 127 20 is admitted. 21 (OCA Exhibits 105 and 127 22 were received in evidence.) 23 (The prepared testimony follows.) 24 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1216 1 MS. EASLER: Mr. Parker is available for 2 cross-examination. 3 CHAIRPERSON NORRIS: Mr. Ragsdale. 4 MR. RAGSDALE: Thank you. Just a few 5 questions. 6 CROSS-EXAMINATION 7 BY MR. RAGSDALE: 8 Q. Following up on OCA Exhibit 127, this is a 9 corrected response to a previous data request 10 response that you provided to us? 11 A. That is correct. 12 Q. And can you just provide me the number of 13 that data request response? And I'll certainly allow 14 Ms. Easler to help you as much as possible to get 15 that number. 16 A. Thank you. 17 MS. EASLER: I believe it is the 18 supplemental response to data request No. 4. 19 THE WITNESS: That's right. 20 BY MR. RAGSDALE: 21 Q. And the date of your original--there's an 22 original response, then a supplemental response, and 23 then we have this response now. Is that the 24 chronology? 25 MS. EASLER: I think what Mr. Parker was PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1217 1 providing, the original response was not inaccurate, 2 but for the purposes used in this proceeding by IPL, 3 he needed to provide additional information to make 4 it comparable. 5 MR. RAGSDALE: I was just trying to get the 6 chronology. 7 A. The sequence, the chronology you detailed, I 8 don't have the dates, but that is the correct 9 sequence. 10 Q. Okay. 11 THE WITNESS: I hadn't been aware that I 12 would have a chance for a tanning salon opportunity 13 as part of this, but I appreciate it. 14 MS. LA SEUR: No charge. 15 BY MR. RAGSDALE: 16 Q. Just a few quick questions, Mr. Parker. 17 In reviewing your prepared direct testimony, 18 isn't it correct that you don't provide any 19 discussion regarding the Iowa Code? 20 A. I don't provide legal analysis, but I 21 reference the Iowa Code in a number of places in my 22 testimony. 23 Q. Do you discuss the Iowa Administrative Code 24 in your testimony? 25 A. I'm sorry, I don't--I'm not an attorney, and PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1218 1 I don't know the Administrative Code. 2 Q. Which is the Board's rules. 3 A. I believe that there are a number of places. 4 On page 7 in my testimony, I reference 5 interpretation of Iowa law. 6 There are a number of other places. On 7 page 10, at lines 8 through 10, "Moreover, under the 8 Iowa emissions plan and budget law"--again, I'm not 9 sure where that falls--"IPL will likely be allowed to 10 pass along all cost increases of future state and 11 federal..." 12 So I do discuss law. I did submit data 13 requests which were responded to, I believe--I 14 believe--by Mr. Bennington, or perhaps Mr. Kitchen, 15 about IPL's interpretation of the law, the standard 16 and the tests that IPL needs to meet in order to 17 secure approval of SGS Unit 4. 18 So I do discuss it, not as an attorney, but 19 as a person who has a significant component of his 20 testimony, as policy testimony, that the effect of 21 law on policy is very pertinent to my testimony. 22 Q. And did you participate in the environmental 23 coalition's public forum last night in Des Moines? 24 A. Yes, I did. 25 MS. LA SEUR: I'm going to object as to PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1219 1 relevance to this whole line of questioning about 2 these forums that were not related to the 3 proceedings. 4 CHAIRPERSON NORRIS: Is there relevance? 5 MR. RAGSDALE: Well, I think that there's 6 absolutely relevance. We have the OCA witnesses, who 7 our customers are being required to pay for, coming 8 into the state, meeting with another parties' 9 witnesses and going out on public speaking tours, and 10 then we have Plain Justice's attorney trying to 11 engage in cross-examination of the OCA witnesses as 12 if they are adverse parties. They clearly are not. 13 CHAIRPERSON NORRIS: I believe you 14 established that point yesterday. 15 MR. RAGSDALE: Well, I didn't establish that 16 with Mr. Parker, so I need to make sure that we know 17 that Mr. Parker is one of the participants so that 18 I'm in a position to make whatever objection is 19 necessary when Ms. La Seur tries to do her 20 cross-examination. 21 BY MR. RAGSDALE: 22 Q. So if I can establish that you did 23 participate. 24 A. I did participate. I got to experience 25 firsthand-- PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1220 1 MS. LA SEUR: I need to respond yet with my 2 argument about the objection. 3 I don't believe that there is any rule of 4 procedure, any rule of this Board, that restricts the 5 activities of witnesses, expert or otherwise, outside 6 the proceedings of this Board which would establish 7 relevance in any way. 8 CHAIRPERSON NORRIS: Well-- 9 MR. RAGSDALE: I mean we have a process 10 here. I need to make sure I know what's going on as 11 a matter of the record so I know how parties are 12 aligned, so to the extent I think I need to protect 13 my client's interest to see what is involved, I am in 14 a position to do that. 15 CHAIRPERSON NORRIS: I think to the extent 16 that you want to ask if they participated last night, 17 that's good enough. 18 MR. RAGSDALE: If I ask another question, we 19 can address that, but I just want to make sure. I'll 20 ask again so that there's no misunderstanding in the 21 record. 22 BY MR. RAGSDALE: 23 Q. Mr. Parker, you did participate in that 24 forum that was sponsored, in part, by the 25 environmental coalition in Des Moines last night? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1221 1 A. Yes, I did, and it's very clear that I did 2 not do that on behalf of OCA or paid for in any way 3 by OCA. 4 Q. And how were you then approached to 5 participate in that proceeding? 6 A. I was approached directly by Ms. La Seur. 7 MR. RAGSDALE: Okay. I'll stop at that 8 point in time. Thank you. 9 I don't have any other questions. 10 CHAIRPERSON NORRIS: Mr. Puckett? 11 MR. PUCKETT: I have no questions. 12 CHAIRPERSON NORRIS: Ms. La Seur. 13 CROSS-EXAMINATION 14 BY MS. LA SEUR: 15 Q. Good morning, Mr. Parker. 16 A. Good morning. 17 Q. I would like to direct you to the Holmes 18 rebuttal testimony, please. 19 MR. RAGSDALE: I'm going to interpose an 20 objection to any attempt Ms. La Seur may make to 21 develop additional evidence in the guise of 22 cross-examination, but I'll make that motion at this 23 point in time. I don't mean to cut off Ms. La Seur 24 continuing her questioning at this time, but I just 25 want to make sure that I got that before Mr. Parker PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1222 1 was able to interject any answer. 2 CHAIRPERSON NORRIS: The motion is noted. 3 You may proceed, Ms. La Seur. 4 BY MS. LA SEUR: 5 Q. Will you please turn to page 2 of the Holmes 6 rebuttal? 7 A. Yes, I have page 2. 8 Q. And in particular Mr. Holmes's testimony 9 that IPL has implemented all cost-effective energy 10 efficiency programs. 11 My question is, having reviewed IPL's energy 12 efficiency performance and programs, is it your 13 expert opinion that IPL has implemented all cost- 14 effective energy efficiency programs? 15 A. I find the assertion difficult to evaluate. 16 To say that someone has--I accept on face value the 17 assertion of IPL that it goes through a process that 18 looks at and screens different programs for cost 19 effectiveness. 20 To say that that is the equivalent of 21 securing all cost-effective energy efficiency savings 22 is quite another thing, and that's the implication of 23 Mr. Holmes's testimony, so--and in fact, as energy 24 efficiency programs evolve, what happens is they 25 become less of programs and more a package of PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1223 1 services that are offered to customers on an 2 integrated and seamless basis, so programming is not 3 the definitive test for whether someone has secured 4 or is in the process of securing all cost-effective 5 energy efficiency resources and using all 6 cost-effective energy efficiency strategies. 7 Q. And do you recommend additional or expanded 8 programs on the part of IPL? 9 A. Well, I actually do. I make it very clear 10 in my testimony that this--my assignment is not to do 11 an exhaustive review of the program experience and 12 implementation of IPL, and that I did not review all 13 their programs and program performance. 14 I looked at some evaluation studies that 15 have been done and some of the Board proceedings-- 16 some of the proceedings in which they proposed 17 modifications to programs; but in fact I do propose 18 that they integrate their programs more 19 comprehensively with the gas efficiency programs. I 20 do propose that they offer direct incentives and 21 assert an aggressive and proactive strategy to 22 support comprehensive combined heat and power 23 applications within the service territory. 24 Q. And does your analysis of IPL's energy 25 efficiency performance include analysis of combined PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1224 1 heat and power programs? 2 A. No, it does not, because they don't--they 3 say that they don't do that, that's not a part of 4 their efficiency programs. 5 Q. And is that, then, a part of your 6 recommendation? 7 A. I address it substantially in my testimony 8 and my exhibits, yes. 9 Q. I direct you then to page 11 of the Holmes 10 rebuttal, and on the question of the comparative 11 performance of IPL versus other utilities that are 12 engaged in efficiency programs, are you able to cite 13 other utilities that have performed better than IPL? 14 A. Well, I do. I do that in my testimony in 15 the table that I referenced at the beginning of my 16 testimony, and what I want to say is Mr. Holmes takes 17 offense that I say that IPL is not doing as much as 18 some other utilities. 19 What I want to say is I think IPL has a base 20 of experience and successful program implementation 21 that they and Iowa should be proud of, so I want to 22 be very clear about that. 23 I think in the chart that Mr. Holmes 24 proposes, I think Iowa, as a state--and I know that's 25 not specifically IPL--ranks about around 12th or 13th PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1225 1 in terms of performance on energy efficiency, and I 2 think that's a good thing. I'm not in any way 3 intending to criticize that. 4 What I am saying is that it's nice that Iowa 5 and other utilities throughout the country have 6 started learning how to swim. It would be really 7 nice if they just continued developing those skills 8 and learned how to become really successful swimmers. 9 So I think that this is a learning process, 10 and I think that Iowa, IPL and other Iowa utilities, 11 have a basis in experience, in regulation, and in 12 oversight and building an infrastructure that other 13 states don't have, and that is an asset that actually 14 makes the opportunity for them to avoid the SGS 15 plant, in part, by making ramped-up demand-side 16 management a viable proposal. 17 Q. So then this is--is your recommendation that 18 IPL increase existing programs rather than implement 19 new programs it doesn't currently use? 20 A. Yes. The concept of implementing new 21 programs just is not really where the state-of-the- 22 art of energy efficiency is. 23 Programs are something that regulators pay a 24 lot of attention to. What customers pay attention to 25 is whether they get services that help them save PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1226 1 energy in an effective way. 2 The customers really don't care about 3 programs, and one of the things that we learned in 4 Vermont after we created Efficiency Vermont was the 5 folks who were implementing Efficiency Vermont, a 6 statewide energy efficiency utility, came to us and 7 said, "We don't want to talk about programs anymore 8 after two years of doing it. We want to talk about 9 services to our customers." 10 So really I think the focus should be on 11 what are the services you're providing, how 12 effectively are they overcoming the barriers to 13 investing in efficiency. 14 I think that the cost of energy savings for 15 IPL, which I think is their own number, is about one 16 cent a kilowatt-hour of savings, which is quite 17 favorable to any projected cost of the coal plant; 18 but it's also an incredibly--it indicates a low level 19 of attainment of the available potential savings. 20 Efficiency Vermont does a lot more and other 21 states do more, and their cost is higher for doing 22 that, but it's still resoundingly cost effective. 23 Q. And what do you see as the systemic barriers 24 to increased energy efficiency savings on the IPL 25 system? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1227 1 A. I think it's very clear--and my testimony 2 addresses this consistently, so I'm just restating 3 what's in my testimony. I think it's very clear that 4 IPL, like many other utilities in the country, has 5 done demand-side management and energy efficiency and 6 more broadly distributed resources, which I also 7 testify to in my prefiled testimony, and has regarded 8 activities in those areas as a kind of activity it 9 has to do to comply with regulatory obligations, not 10 as a serious resource acquisition strategy. 11 The focus of my testimony is to encourage 12 the Board and IPL to see the opportunity of the 13 Sutherland coal plant and the choice that is before 14 the Board as an opportunity to say maybe it's time to 15 really begin to see this as a serious resource 16 acquisition strategy that is potentially much more 17 cost effective and under the modeling that we've done 18 has the potential to at least delay the plant and to 19 potentially avoid the plant. 20 Q. Do you see systemic barriers to increased 21 use of combined heat and power or co-generation on 22 IPL's system? 23 A. Well, I've been here throughout the 24 testimony, and I did submit testimony on this issue, 25 as well, evaluating the performance and sort of the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1228 1 planning related to combined heat and power, and 2 what's interesting to me is that I think it's very 3 clear from the record in this case already that IPL 4 does not systematically or comprehensively treat 5 combined heat and power as a resource that it could 6 use strategically. 7 It simply didn't model combined heat and 8 power, although it may have modeled natural gas 9 units, and this is very pertinent because it's--for 10 instance, IPL has lost a large chunk of load, to my 11 understanding, to the ADM plant. I think it's in the 12 range of a hundred megawatts of power when it went 13 offline. 14 It's interesting that an ethanol or biofuels 15 plant, which I believe is a unique area with 16 significant opportunity for combined heat and power, 17 to--that there's the potential that they can go to 18 self-generation and actually move off the system. 19 So there's a sense in which I believe that 20 at the least, IPL is not actively pursuing combined 21 heat and power as a resource acquisition strategy, as 22 an efficiency strategy. It has the potential to 23 lower greenhouse gases, and I think actually it could 24 be a strategy that is very key to Iowa's specific 25 situation that would lower the risk to the other Iowa PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1229 1 ratepayers. 2 If you build a coal plant to meet that 3 ethanol production or biofuels production load, but 4 then they find it's more effective to do combined 5 heat and power and go off the system, then you may 6 well be stuck with a coal plant that is not meeting 7 the needs of the utility service territory or the 8 members. 9 On the other hand, if you aggressively 10 sought, as businesses seek to come online, to do 11 ethanol or biofuels, to partner in developing a 12 combined heat and power strategy--it could be coal, 13 it could be natural gas, it could be biofuels, 14 because sometimes there are residuals that can 15 actually be a feedstock or a combustion source for 16 that combined biomass heat and power--so they 17 developed a strategy or policy that said we will 18 focus on those large increments of load growth which 19 we have been using as a justification for the SGS 4 20 plant, but if we take those and work with them one by 21 one to make them self-generation or combined heat and 22 power resources, they could become a part of a very 23 cost-effective and, I think, more economically viable 24 way of meeting the load that is proposed to be met by 25 the SGS 4 unit. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1230 1 MS. LA SEUR: Thank you. That's all I have. 2 BOARD MEMBER HANSON: Good morning, 3 Mr. Parker. 4 THE WITNESS: Good morning. 5 BOARD MEMBER HANSON: On page 21-- Let me 6 make sure I get the right notebook here. 7 THE WITNESS: Is this in my testimony? 8 BOARD MEMBER HANSON: Your testimony, yes, 9 21, 22, and 23, and you probably won't need to look 10 this up. 11 THE WITNESS: Okay. 12 BOARD MEMBER HANSON: --you offer some 13 examples of experience extending from other states 14 that you've been talking about today. 15 THE WITNESS: Yes. 16 BOARD MEMBER HANSON: Can you say if any of 17 those savings--if those savings are attributed to any 18 specific features of energy efficiency programs in 19 those states and utilities? Are there specific 20 aspects of their programs or their efforts that you 21 can point to and say this is why their savings rate 22 is so high? 23 THE WITNESS: Yes. The specific single 24 attribute that makes those savings high is a 25 commitment to securing those savings. It's a policy PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1231 1 position that's not a feature of any particular, you 2 know, end-use pattern or consumption structure. It 3 is the decision to say, "We will pursue this 4 aggressively and we will invest more and we will set 5 targets that are higher than what we have been 6 setting." 7 BOARD MEMBER HANSON: But you can't point to 8 a specific they did this program and that's why it 9 worked so well and Iowa doesn't do that program or 10 doesn't focus on this market or that set of users? I 11 mean it's an overall commitment level? 12 THE WITNESS: What I would say is if you 13 don't spend much money on this, even if you run all 14 cost-effective programs, you don't secure much 15 savings. 16 BOARD MEMBER HANSON: So you would say that 17 the savings is more or less directly related to 18 spending level? 19 THE WITNESS: Absolutely. It's a 20 resource--that's the point of my testimony, if I can 21 emphasize it-- 22 BOARD MEMBER HANSON: Okay. 23 THE WITNESS: --because it really is about 24 whether you treat it as a resource on the equal 25 footing with a coal plant that runs in the range of a PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1232 1 billion dollars. 2 BOARD MEMBER HANSON: Would you say that IPL 3 or any other utility should be increasing its energy 4 efficiency spending regardless of the impact on 5 rates? I guess it's another way of talking about 6 cost effectiveness. 7 Is there a point beyond which it's not 8 rational for a utility company to increase its 9 spending on conservation, on DSM? 10 THE WITNESS: Well, I think the point at 11 which it is not rational to secure energy efficiency 12 is when you're spending more to get the energy 13 efficiency than you could secure that energy supply 14 in the market, and we're not even close to that 15 number. 16 BOARD MEMBER HANSON: Your description of 17 that tipping point, is that--I don't want to put 18 words in your mouth, but is that essentially--are you 19 saying that that's the point at which it would start 20 to actually raise rates because costs would be higher 21 than the savings? 22 THE WITNESS: No. I think it's possible 23 that efficiency spending could raise rates even 24 though it's cost effective to secure the efficiency. 25 That's a feature of energy efficiency that is often PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1233 1 used to argue against it, that it has a small, and 2 usually very small, rate impact. 3 What's interesting is that you get to focus 4 on that in the political and, you know, policy debate 5 about how much efficiency to invest in. You get to 6 focus on that. If you put in a coal plant and you 7 have ratemaking principles and you have the pass- 8 through of greenhouse gas things, those rates go up, 9 and they're sort of out of control. 10 BOARD MEMBER HANSON: So you would say that 11 if you have the point at which energy efficiency 12 spending begins to raise rates and if you reach that 13 point before the point at which that spending ceases 14 to be cost effective, that it's rational to go to the 15 second point before you quit spending the money, if 16 I'm phrasing that correctly. 17 THE WITNESS: I think you can make judgments 18 about that. You should have good data about what 19 actually the rate impact is, but in fact you need to 20 remember that you are also significantly passing 21 through a benefit that doesn't show up in rates, 22 which is lowering consumer bills. 23 BOARD MEMBER HANSON: That leads me to my 24 next question, so if there's that point at which you 25 need to start balancing energy efficiency costs with PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1234 1 effect on rates and you have to do some sort of 2 balancing there, what method or what should be looked 3 at when you make that balance? What method could you 4 come up with to balance those two goals? 5 THE WITNESS: I think what you need to do 6 is--I think you need to add one other factor into the 7 discussion about rate impacts. It may well be that 8 you see rates go up a little bit over time through 9 efficiency programs because sales are lower, you're 10 distributing fixed costs over a smaller number of 11 kilowatt-hours sold. 12 On the other hand, if you're about to make a 13 decision that has the potential to raise rates 14 significantly, and you can avoid that, you need a 15 methodology that also includes the benefit of the 16 avoided potential rate increase, and that's very 17 difficult to do in the kind of decision-making that 18 you, as a Board, have to take on. You get sort of 19 one case, one instance, one decision before you at a 20 time, but once you've locked in SGS 4, you may 21 see--you may have locked into rate increases that 22 then you don't get to review or you don't get to 23 decide about. 24 So what I would say is you balance the 25 effect of rates. You monitor what that rate impact PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1235 1 is. That's a function of running those programs. 2 You can assess what it is. It's usually a very small 3 effect, and, you know, maybe use other resources, 4 like the sale of the transmission assets, to do that 5 for a period of time that might not have--reap the 6 proceeds from the sale of the transmission assets 7 that might not have an impact on rates. 8 BOARD MEMBER HANSON: Okay. On page 22 you 9 go back to Vermont and the other states or service 10 areas that you described in your testimony that have 11 what you feel are high levels of energy efficiency 12 success. 13 How would you characterize the residential 14 utility rates in those service areas compared to the 15 residential utility rates in Iowa? 16 THE WITNESS: I think in many of these 17 jurisdictions, the rates are higher. I don't have a 18 chart or a table or an analysis that compares that 19 and I don't have that clearly in mind; but what I 20 will say, if I may, is that this secures dramatic 21 savings at a cost less than what the rates are. 22 BOARD MEMBER HANSON: Would it seem logical 23 to you that everything else being equal, spending on 24 DSM efforts might be more successful in areas where 25 residential rates are higher? Because the tradeoff PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1236 1 to the consumer is--the dollar-for-dollar tradeoff, 2 it's a better deal for the consumer to save energy if 3 their rates are higher than if their rates are lower? 4 THE WITNESS: First of all, I'm not sure why 5 you're restricting the question to residential rates, 6 but okay. 7 BOARD MEMBER HANSON: Or for any class of 8 customer. 9 THE WITNESS: Yeah. What I would say is if 10 your avoided costs, if I can use that as a proxy for, 11 you know, against which you test the effectiveness of 12 an energy efficiency program, if your avoided costs 13 are in fact lower, then there will be measures that 14 aren't cost effective, and you shouldn't do them. 15 BOARD MEMBER HANSON: And, I guess, so would 16 that perhaps lead to a modification of the linear 17 relationship between spending and energy 18 conservation, that perhaps it's spending in relation 19 to utility rates that would have an impact on 20 conservation because the same amount of dollars can 21 buy you more conservation if the consumer is saving 22 more money than if they're saving less money? 23 THE WITNESS: Respectfully, I don't accept 24 that as the test to do this. 25 BOARD MEMBER HANSON: Okay. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1237 1 THE WITNESS: If it's cost effective to do 2 it and it saves customers money, the test should be 3 whether it's a cost-effective program and measures 4 that you're securing. 5 BOARD MEMBER HANSON: I'm not arguing 6 against energy conservation. I'm just trying to get 7 at--trying to identify what--basically sort of how to 8 estimate how much savings are possible, if that's 9 directly related to spending or if it's related to 10 spending compared to what the consumer is saving. 11 THE WITNESS: The reality is that in the 12 utility business--and I worked in the equivalent of 13 something approaching the OCA in Vermont during the 14 years in which we created the energy efficiency 15 utility. We had a law that said you'll secure all 16 effective demand-side management. We never did. We 17 never even pretended. We always settled on a level 18 of spending and a target of savings. 19 I'm saying at a time of enormous risk and 20 uncertainty about carbon costs that may be imposed on 21 a plant, about market price of power, about the cost 22 of--capital cost of construction and in a system 23 where risks really flow through to the ratepayers-- 24 and in Iowa, if you approve it and give, you know, 25 ratemaking principles to the plant, the risk really PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1238 1 falls to the ratepayers, and I would say that 2 compared to the risks of doing energy efficiency, the 3 risk of approving the plant and approving ratemaking 4 principles that pass those costs and greenhouse gas 5 costs through to the ratepayers, there's no 6 comparison to the risk that's been imposed on the 7 ratepayers by the decision to go with SGS 4. 8 BOARD MEMBER HANSON: Would it be reasonable 9 to say that if utility rates are higher, then-- Let 10 me back up. 11 Would it be reasonable to say that the level 12 of utility rates in a service territory will 13 influence the point at which you reach a break-even 14 cost-effectiveness point? 15 THE WITNESS: Yes, because the lower rates 16 tend to suggest--unless there's something else 17 keeping the rates artificially low, tend to suggest a 18 lower avoided cost. They aren't an exact 19 correlation, but they tend to have some correlation. 20 So if the rates are lower, not as much stuff is going 21 to screen as cost effective and you shouldn't be 22 doing it. 23 BOARD MEMBER HANSON: Okay. And is it 24 rational for utilities to spend money on conservation 25 until they reach that break-even point? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1239 1 THE WITNESS: I believe that that's true. I 2 think what I want to say is that there are ways to do 3 that without ultimately having the utility pick up 4 all those costs. 5 One of the things--I submitted an exhibit by 6 ACEEE of what other states are doing to achieve 7 target levels of energy efficiency savings, and in 8 many of those cases a significant portion of that 9 target is to be met by utility programs, but in 10 other--another component is steeply ramped-up codes, 11 standards, all of which have the very good effect of 12 internalizing those costs for the consumers who 13 receive the benefit, and the utility doesn't have to 14 pay for each measure. They don't have to pay an 15 incentive. 16 If you have--the federal--the recent federal 17 legislation sets targets for lighting efficiency, for 18 instance, and that's a good thing, and it's partly 19 because of efficiency programs that we got to the 20 point where the industry actually said, yeah, let's 21 go that way, that's where we want our product to go, 22 and if that has the effect, in aggregate, of reducing 23 the amount of programs that utilities have to run to 24 secure lighting efficiency, that's a good thing. If 25 efficiency still gets secured because you've moved PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1240 1 the market--am I being clear with that? 2 BOARD MEMBER HANSON: Sure. 3 THE WITNESS: If you move the market, then 4 the utility doesn't have to pay for it. It's a good 5 thing, and I think utility programs should be 6 targeted at transforming those markets. 7 BOARD MEMBER HANSON: Thank you. 8 BOARD MEMBER TANNER: Good morning. 9 THE WITNESS: Good morning. 10 BOARD MEMBER TANNER: Let me direct you to 11 page 26 of your testimony where you discuss the high 12 efficiency scenario. 13 THE WITNESS: Yes. 14 BOARD MEMBER TANNER: And you state that the 15 high efficiency scenario in the modeling effort 16 performed by you or your associates was based on a 17 maximum savings depth of 1.7 percent of energy in 18 2011. 19 Can you explain what the 1.7 percent of 20 energy means in megawatt-hours? 21 THE WITNESS: Yeah. I'll--I'm sorry. 22 BOARD MEMBER TANNER: For example-- 23 THE WITNESS: Yes. I don't have--I could 24 derive that number, but I don't have it, and that's a 25 good question. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1241 1 I know that, for instance, in the low 2 efficiency, we tell what the increase is, and I don't 3 do a comparable thing in these two. Is that what 4 your concern is? 5 BOARD MEMBER TANNER: Would you mind just 6 filing that as a late-filed exhibit? 7 THE WITNESS: Absolutely. That would be 8 easy to do, and I would be glad to do it. 9 BOARD MEMBER TANNER: Just a couple more 10 questions along the same line. 11 Is the savings depth based on a comparison 12 of megawatt-hours electric efficiency savings to IPL 13 retail megawatt-hour sales? 14 THE WITNESS: The percentage is a percentage 15 of--for peak, it's a percentage of their peak, and 16 for megawatt-hours, it's a percentage of their retail 17 sales. 18 BOARD MEMBER TANNER: Okay. And on page 29 19 and 30 you state that other utilities are rapidly 20 moving to the high efficiency level. 21 THE WITNESS: Yes. 22 BOARD MEMBER TANNER: Can you provide 23 examples of those utilities which are moving to the 24 high efficiency level? 25 THE WITNESS: Yes, I can. Actually, on the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1242 1 table that I submitted--that we just submitted with 2 the new corrected exhibit for Vermont, I literally 3 spoke the night before last with folks at 4 Efficiency Vermont, and they have in their savings 5 accomplishments for 2007, which they didn't have when 6 I came out here, and they have--if you look at that 7 table, you will see that in the corrected table in 8 the year 2000, for instance, EEU gigawatt-hour annual 9 savings, the third line, the first white line is 10 27, 41, 44, 55, 56, 62, 63. For 2007, the preliminary 11 number is 94. That is a 50 percent increase over the 12 highest year of performance in Efficiency Vermont. 13 So the point that I would like to make is 14 that for six years, roughly, Efficiency Vermont, on 15 average, has been securing 1 percent of total sales, 16 and if you look at it, that shows up as the actual 17 average growth for the utility is 5 percent, so it 18 really is a correlation between the level of savings 19 that Efficiency Vermont is claiming and the actual 20 observed loads, on average, and that is--that's now 21 gone up 50 percent in 2007, and they're proposing to 22 go beyond that. 23 That is--that 1.6 percent or 1.7 percent of 24 Vermont load, that is the target we, I, testify to 25 for IPL. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1243 1 BOARD MEMBER TANNER: Thank you. 2 CHAIRPERSON NORRIS: Good morning, 3 Mr. Parker. 4 THE WITNESS: Good morning. 5 CHAIRPERSON NORRIS: Staying with your 6 testimony on page 31, you cite the risk attendant on 7 failure to build the plant and a weak effort at 8 efficiency and distributive resource generation. 9 THE WITNESS: Yes. 10 CHAIRPERSON NORRIS: Okay. Can you 11 guarantee that IPL will acquire the energy efficiency 12 resources at a level which will minimize the risk? 13 THE WITNESS: No. As a witness from 14 Vermont, I don't think I can do that. 15 CHAIRPERSON NORRIS: Good answer. 16 THE WITNESS: And I want to say this 17 testimony is not predictive. This is a statement of 18 the potential. I think Mr. Holmes somehow treats it 19 as though it was a forecast of performance. I'm not 20 making a forecast of performance. That depends on 21 you and them and decisions made here in Iowa. 22 CHAIRPERSON NORRIS: All right. So if I ask 23 you, can you guarantee that even with a clear and 24 forceful direction to IPL that exogenous events such 25 as economic recession or reductions in energy prices PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1244 1 will not interfere with energy efficiency resource 2 acquisition? 3 THE WITNESS: What I would say is consistent 4 with what some of the Synapse witnesses said 5 yesterday. If you send a message to IPL that you 6 have to secure this resource first and dramatically 7 increase the already good performance, but build on 8 it so that you really are securing the resource in an 9 effective way that lowers risk, that is a lower-cost 10 plan under the EGEAS screening that we did, then 11 there are a couple of ways that you could, I think, 12 ensure that their performance would improve. One is 13 not grant them ratemaking principles or not approve 14 SGS 4. 15 CHAIRPERSON NORRIS: Let me turn to a 16 question that we asked Mr. Schlissel yesterday, and I 17 think he referred it to you. It deals with demand- 18 side management and load forecasting, and the 19 question was, do you agree with IPL Witness Kitchen's 20 rebuttal testimony where he says that the Consumer 21 Advocate's EGEAS analysis effectively double counts 22 the impact of DSM on IPL's load forecast? 23 THE WITNESS: I took that testimony very 24 seriously because I mean my responsibility is to 25 provide you and the folks of Iowa and the OCA an PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1245 1 honest assessment of what I think is doable, and I 2 think in dealing with energy efficiency, you have to 3 be scrupulous and diligent, and I'm willing to say 4 what I think Mr. Kitchen says, let's treat 5 that--let's assume that he is providing a correction 6 to my testimony and that the forecast--and if 7 you--may I refer you to my exhibit, Schedule K in my 8 testimony? 9 CHAIRPERSON NORRIS: Okay. 10 THE WITNESS: What I believe Mr. Kitchen 11 says is that their methodology for projecting energy 12 efficiency, which is not one I would recommend, not 13 one I agree with, is basically kind of rolling 14 forward past experience by the way they do their 15 forecasting, but not by trying to account for the 16 specific level of savings that they've achieved, as 17 is done in this model that I've provided to you, but 18 let's set that dispute aside. 19 If you say, okay, we'll take your numbers 20 from 2007 through 2015, which is strangely less than 21 the prior years, but--the demand savings over in the 22 column incremental demand savings, for instance, is 23 22 megawatts. The incremental energy savings in the 24 next column is four-tenths of a percent of sales, 25 okay? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1246 1 Let's just agree that for argument purposes 2 or analytical purposes that you should discount them 3 from my testimony, and just say, okay, my testimony 4 in the low case says one thing, in the medium case 5 says another, and in the high case says another, that 6 basically you net out--say we made--we agreed that 7 maybe there is some double counting here in the 8 method you used in your forecasting. The high case 9 still with that netted out is equivalent to the 10 medium case and the medium case in the EGEAS 11 screening that we did actually still defers the 12 plant, with--not with--with any CO2 level included in 13 the modeling. 14 So what you've done is you've kind of 15 ratcheted back. You have to reach a higher level of 16 savings, but you've achieved the equivalent of the 17 mid-efficiency case, and that effectively, even 18 considering the argument about double counting, 19 defers the plant. 20 Chairman Norris? 21 CHAIRPERSON NORRIS: Yes. 22 THE WITNESS: I actually have created a 23 table that does show that. If that's of interest to 24 you, we can provide that to you. 25 CHAIRPERSON NORRIS: You created? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1247 1 THE WITNESS: A table that does the 2 discounting based on the proposed double counting. 3 CHAIRPERSON NORRIS: That would be helpful, 4 yes. 5 MS. EASLER: I can mark that as exhibit-- 6 CHAIRPERSON NORRIS: 127. 7 MS. EASLER: 128. 8 CHAIRPERSON NORRIS: That would be helpful, 9 yes. 10 (OCA Exhibit 128 was 11 marked for identification.) 12 CHAIRPERSON NORRIS: While Ms. Easler is 13 distributing that, in a table that was in Dr. David 14 Schlissel's testimony--I don't know if you have that. 15 You may not need it for this. 16 THE WITNESS: I don't have it. I will get 17 it. 18 CHAIRPERSON NORRIS: It's Table 7, and it's 19 the results of the OCA EGEAS scenarios, and you had 20 one where you had IPL inputs with increased wind and 21 low, medium, and high DSM-- 22 THE WITNESS: Yes. 23 CHAIRPERSON NORRIS: --all indicated as not 24 selected. 25 Do you know what the--how many megawatts PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1248 1 were represented by the low, high--low, medium, and 2 high DSM inputs there? 3 THE WITNESS: I think Board Member Tanner 4 asked me a question. We'll give you those specific 5 numbers that were used in the modeling for that. I 6 do do that for the low case, and then I think it's an 7 error in my testimony that I don't in the same way 8 provide the total megawatt-hour in peak numbers. I 9 just provide the percentages for the medium and the 10 high case, and I'll correct that. 11 CHAIRPERSON NORRIS: Okay. 12 THE WITNESS: I'll provide that, if that's 13 useful to you. 14 CHAIRPERSON NORRIS: Yes. 15 THE WITNESS: I've already promised to do 16 it, so you'll get a copy. 17 CHAIRPERSON NORRIS: That will be that same 18 information. Okay. Thank you. 19 THE WITNESS: Thank you. 20 CHAIRPERSON NORRIS: I think that's all I 21 have. 22 Ms. Easler. 23 Thank you, Mr. Parker. 24 THE WITNESS: Thank you. 25 MS. EASLER: I would move the admission of PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1249 1 Exhibit 128. 2 MR. RAGSDALE: That's fine. 3 CHAIRPERSON NORRIS: Without objection, 128 4 is admitted. 5 (OCA Exhibit 128 was 6 received in evidence.) 7 REDIRECT EXAMINATION 8 BY MS. EASLER: 9 Q. Following up on the questions from the 10 Chairman about responding to the double-counting 11 argument, you testified that the mid case would still 12 defer the plant? 13 A. What used to be the high case becomes the 14 equivalent of what we modeled as the mid case, and it 15 would still defer the plant. I hope that's--with a 16 discount, it becomes, in effect, what we modeled in 17 that second run, which was just taking out the high 18 case, and that I described in my testimony. 19 Q. Okay. Would it be helpful to specify in 20 Witness Schlissel's--do you know what the time line 21 for deferral is under that scenario? 22 A. That's in my testimony on page 27, lines 11 23 through 16. That is--I can read it, or whatever, but 24 that's where I address that issue, and I would say 25 that would be applicable. That would be the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1250 1 applicable comparable run. 2 MS. EASLER: Thank you. That's all I have. 3 CHAIRPERSON NORRIS: Mr. Ragsdale. 4 MR. RAGSDALE: Yes, a few questions. 5 RECROSS-EXAMINATION 6 BY MR. RAGSDALE: 7 Q. This first series of questions were 8 triggered by questions from Ms. La Seur. 9 I just want to make sure that I understand 10 some terminology you were using to make sure that I 11 have a clear understanding. You used the term 12 "combined heat and power." 13 A. Yes. 14 Q. Now, is that the same thing as co- 15 generation? 16 A. Yes. 17 Q. Okay. And are you aware that today IPL has 18 facilities where it does engage in co-generation? 19 A. I think I'm aware that there are one or two, 20 not a lot, and I've reviewed your integrated resource 21 plan of 2005, Chapter 4, with your analysis, and I 22 address that in my testimony. 23 Q. And you're aware that IPL's Prairie Creek 24 Generating Station in Cedar Rapids does provide co- 25 generated steam for other commercial enterprises and PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1251 1 industries? 2 A. I think it's a good thing if you have a 3 plant that is-- Is that a coal facility? 4 Q. Well, I was asking you if you were aware of 5 that plant. I wasn't asking your-- 6 A. Not in specific. 7 Q. And do you know whether the company's 8 Sixth Street station in downtown Cedar Rapids 9 provides steam heat for a number of customers in 10 downtown Cedar Rapids? 11 A. I do not know that, and I don't know the 12 percentage of the useful heat that's used in that 13 application. 14 Q. And you've been here through the course of 15 this proceeding this week, and you're aware that 16 Sutherland Unit 4 is being designed to serve as a 17 steam host for other potential customers; is that 18 correct? 19 A. I understand that up to, I believe, 5 or 20 10 percent of the steam is proposed to be made 21 available to customers. I would not consider that a 22 full combined heat and power application. 23 Q. Now, in response to some questions from the 24 Bench, going back to your Exhibit 127, you indicated 25 you were on the phone with some people back in PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1252 1 Vermont last night? 2 A. The night before last, yes. 3 Q. And was that conversation used to put this 4 exhibit together? 5 A. Not this exhibit. I supplemented verbally 6 the exhibit with the 2007 performance, so if you 7 wanted to look at that exhibit and add a column for 8 2007, what I suggested is you could put in 94 at that 9 line that we discussed. 10 Q. Okay. Now, when did you prepare this 11 particular exhibit, which is an update to a data 12 request? 13 A. Just about the time that I came out here. 14 Q. And I've got to confess, I'm not privy to 15 exactly the time that you came out here. 16 A. I'm sorry. I think probably on last 17 Saturday. 18 Q. Okay. And when were you aware that you 19 needed to make that correction? 20 A. When I read the rebuttal testimony of 21 Mr. Holmes, who took the decay factor and used it to 22 compare to IPL's performance in a way that is not 23 apples to apples. 24 Q. Did you advise Mr. Holmes of the need to 25 correct your exhibit--excuse me--your data request? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1253 1 A. Well, no, there wasn't any opportunity for 2 the rebuttal testimony on our part. 3 Q. That wasn't my question. 4 Did you make any attempt to contact 5 Mr. Holmes to let him know that that data request 6 response he was relying upon needed to be corrected? 7 A. I didn't. No, I did not. 8 MR. RAGSDALE: That's all I have. Thank 9 you. 10 CHAIRPERSON NORRIS: Mr. Puckett? 11 MR. PUCKETT: No questions. 12 CHAIRPERSON NORRIS: Ms. La Seur? 13 RECROSS-EXAMINATION 14 BY MS. LA SEUR: 15 Q. Mr. Parker, you discussed with 16 Board Member Hanson scenarios in which rates might go 17 up, but bills go down as a result of energy 18 efficiency investment which might sort of be counter- 19 intuitive. Is this a theoretical possibility or are 20 other jurisdictions currently experiencing lower 21 bills as a result of energy efficiency investment? 22 A. It's not a theoretical possibility. One of 23 the success stories of efficiency programs is that 24 bills go down. Your usage goes down. The 25 kilowatt-hours you're billed for go down, and your PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1254 1 bills go down. I mean one of the features of 2 efficiency programs is telling the story about 3 Business X or Business Y and how they reduced their 4 bills by 20 percent, 15 percent, 10 percent, through 5 the efficiency investments they made. I haven't seen 6 the marketing materials that IPL uses, but I assume 7 that that's the kind of thing they market, and it's a 8 common--it is what happens when you do cost-effective 9 efficiency. 10 MS. LA SEUR: Nothing further. 11 CHAIRPERSON NORRIS: Ms. Easler? 12 REDIRECT EXAMINATION 13 BY MS. EASLER: 14 Q. Turning to the Exhibit 127, the supplemental 15 response to data request No. 4 that this updates, is 16 what you provided in that supplemental response 17 accurate today? 18 A. This is the fair number to compare. 19 Q. But I want to go back to the response you 20 provided to Dr. Holmes and what he relied on. Is the 21 information put forth in there accurate? 22 A. This is the accurate number to use in that 23 comparison. I'm sorry. I'm not-- 24 Q. Well, setting aside not knowing how 25 Mr. Holmes would like to use it-- PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1255 1 A. Yes, this is the number that should be used. 2 Q. But the information you supplied when it was 3 provided, I mean from-- Could you explain the decay 4 factor that is perhaps unique? 5 A. Yes. If I may, the decay factor was 6 provided to me by somebody at Efficiency Vermont, 7 which is the statewide energy efficiency utility, and 8 what they included was a strategy for retiring 9 efficiency measures when their lifetime was met 10 rather than assuming an average measure life. 11 Actually, with efficiency, one keeps track 12 of all of the measures it implements, what their 13 profile is, and what their usage pattern is, and the 14 Department of Public Service in Vermont asked them to 15 do an analysis that took those out as they ran--as 16 though they were gone as efficiency resources. 17 I think it's an extraordinarily conservative 18 strategy to use because in many cases, those measures 19 would be replaced by the same measure and the same 20 level of efficiency would be retained. 21 So inadvertently, that was a correct 22 analysis, but it was a unique analysis required--it's 23 not what Efficiency Vermont is required to report to 24 the board in Vermont. 25 Q. So the information provided in supplemental PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1256 1 data response No. 4 is correct? 2 A. It's correct for what it is. 3 Q. And does Iowa or IPL in the energy 4 efficiency reporting that they do, do they use a 5 comparable decay factor? 6 A. No, they don't. They use an average measure 7 life. 8 CHAIRPERSON NORRIS: Anything further? 9 MS. EASLER: That's all I have. 10 CHAIRPERSON NORRIS: Mr. Ragsdale? 11 MR. RAGSDALE: No. 12 CHAIRPERSON NORRIS: Anybody else? 13 (No response.) 14 CHAIRPERSON NORRIS: Thank you, Mr. Parker. 15 THE WITNESS: Thank you. 16 (Witness excused.) 17 CHAIRPERSON NORRIS: Anything else, 18 Ms. Easler? 19 MS. EASLER: That concludes the OCA's 20 witnesses. 21 CHAIRPERSON NORRIS: All right. Thank you. 22 All right. I think we're ready for the 23 Plains Justice group, and Ms. La Seur. 24 MS. LA SEUR: The Coalition calls 25 Dr. James Hansen to testify. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1257 1 CHAIRPERSON NORRIS: Hello, Mr. Hansen. If 2 you could raise your right hand, please. 3 JAMES HANSEN, 4 called as a witness by the Coalition, being first 5 duly sworn by Chairperson Norris, was examined and 6 testified as follows: 7 CHAIRPERSON NORRIS: Thank you. You may be 8 seated. 9 DIRECT EXAMINATION 10 BY MS. LA SEUR: 11 Q. Dr. Hansen, would you please state your name 12 and title for the record? 13 A. James Hansen. I'm the director of the NASA 14 Goddard Institute for Space Studies. 15 Q. On or about October 31st, 2007, did you 16 submit direct testimony and an exhibit labeled JEH-1 17 in this docket that has been spread upon the record? 18 A. Yes, I did. 19 Q. Do you have any corrections or updates to 20 that testimony? 21 A. Yes. I would like to make two inserts to 22 that testimony, if I may, which are based on things 23 that have been happening in the real world since I 24 wrote that testimony and which I think are 25 particularly relevant. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1258 1 The first one is on page 47, line 1065. 2 After the sentence ending with the word "warming," I 3 would like to insert two sentences which read as 4 follows: 5 "In 2007 alone, there was a 20 percent 6 decrease in the area of Arctic sea ice in the late 7 summer, which places increased stress on seals, polar 8 bears, and other species that are dependent upon sea 9 ice for protection or food source. This rapid change 10 increases the likelihood that the polar bear will be 11 placed--will be listed as an endangered species 12 which, in my opinion, brings us closer to the time 13 that the United States will impose a price on carbon 14 emissions and eventual phase-out of coal use except 15 where the carbon dioxide is captured and 16 sequestered." 17 The second insertion that I would like to 18 make is on page 44, after line 996, where I would 19 like to insert, "Data reported in January of 2008, by 20 Eric Rignot of the NASA Jet Propulsion Laboratory and 21 his colleagues, shows that the West Antarctic ice 22 sheet is losing mass at an accelerating rate that is 23 approaching the rate at which mass is being lost by 24 the Greenland ice sheet. Rignot, et al., interpret 25 this melting of the West Antarctic ice sheet as PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1259 1 being a consequence of warming of the surrounding 2 ocean, which is melting the ice shelves that buttress 3 the West Antarctic ice sheet. Because of the 4 vulnerability of this specific ice sheet, which rests 5 on bedrock below sea level, this recent behavior of 6 the ice sheet adds considerably to our concerns about 7 possible sea level rise if global warming continues 8 to increase. The West Antarctic ice sheet contains a 9 volume of water sufficient to raise global sea level 10 about seven meters, which is about 23 feet." 11 So those are the insertions, and the 12 relation of those to my testimony is, I think, clear 13 from the testimony, so... 14 Q. And are these all the corrections and 15 updates? 16 A. Those are all the changes that I'm going to 17 make, yes. 18 (Coalition Exhibit 200 was 19 received in evidence.) 20 (The prepared testimony follows.) 21 22 23 24 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1323 1 MS. LA SEUR: The Coalition offers this 2 witness for cross-examination. 3 CHAIRPERSON NORRIS: Mr. Ragsdale? 4 MR. RAGSDALE: We don't have any questions. 5 Thank you. 6 CHAIRPERSON NORRIS: Mr. Puckett? 7 MR. PUCKETT: We also have no questions for 8 Dr. Hansen. 9 CHAIRPERSON NORRIS: Mr. Stead. 10 MR. STEAD: Thank you, Your Honor. We just 11 had one question. 12 CROSS-EXAMINATION 13 BY MR. STEAD: 14 Q. Dr. Hansen, I believe you testify about 15 global warming and climate change, is that correct? 16 A. That's right. 17 Q. Are there remedies, if any, for these 18 phenomena? 19 A. Yes. The clear remedies are we must reduce 20 the forcing factors that are causing the climate 21 change, and those forcing factors are increases in 22 gases in the atmosphere that trap the earth's heat 23 radiation and therefore warm the surface of the 24 planet. 25 Carbon dioxide provides just over half of PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1324 1 that human-made increase in greenhouse gases, and it 2 is the gas that is continuing to increase. 3 Methane is the second most important gas, 4 and it has stabilized in its amount, but carbon 5 dioxide is continuing to increase because it is 6 produced by burning of fossil fuels. 7 Fifty percent of the human-made increase in 8 carbon dioxide is from coal, and on the long-run, it 9 will be even more than that because the supply of 10 oil--the amount of carbon in oil is such and such a 11 value, gas another value, and coal another value. 12 Coal is more than oil and gas combined, and so if 13 we're going to avoid large additional warming, we're 14 going to have to phase out coal use unless we capture 15 the carbon dioxide and sequester it, and that is the 16 capability which is not quite ready yet, and it will 17 add to the cost of coal use. 18 MR. STEAD: That's all I have. 19 Thank you, Your Honor. 20 BOARD MEMBER HANSON: Hello, Dr. Hansen. 21 On page 5 of your testimony, line 87, you 22 make a reference to truly--you use the phrase "truly 23 clean coal." 24 How would you define "truly clean coal"? 25 THE WITNESS: It has to capture both the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1325 1 pollutants that affect human health, such as mercury 2 and sulfur dioxide, but it also has to capture carbon 3 dioxide. That's where there is often an 4 inconsistency in what some people mean by clean coal 5 and what other people mean. 6 The President a few years ago would use the 7 phrase "clean coal" and mean only capturing human 8 health-affecting pollutants, but now most recently 9 they have started using clean coal to mean capturing 10 everything, and that's what I mean by it. We 11 really--it's not clean coal unless you capture all of 12 these pollutants. 13 BOARD MEMBER HANSON: And typically in 14 environmental regulations, there is some point beyond 15 which industries are not required to capture 16 pollutants because of feasibility costs or maybe 17 countervailing risk. 18 If our Board or some other agency were to 19 require that sequestration would be mandated, what 20 limits--I mean if you have any ideas on this, what 21 limits would you suggest be placed on that for 22 feasibility costs or other factors? 23 THE WITNESS: Well, I'm not-- 24 BOARD MEMBER HANSON: Your description of 25 truly clean coal implied a 100 percent figure. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1326 1 THE WITNESS: Oh, with regard to the percent 2 of carbon dioxide that should be captured? That is 3 an interesting question which really has not been 4 addressed. 5 I would say that you have to speak at least 6 on the order of 90 percent. Just if you just look at 7 the amount of carbon dioxide that remains in coal in 8 the ground, it's such a large amount that you're 9 going to have to avoid putting most of that into the 10 atmosphere, so you can't expect 100.00 percent 11 effectiveness, and this--I think it--in a way it may 12 be naturally determined by the carbon price, which is 13 bound to be applied, in my opinion, within the next 14 several years. I would be very, very surprised if 10 15 years from now we did not have a substantial carbon 16 price on emissions of carbon dioxide into the 17 atmosphere. 18 BOARD MEMBER HANSON: So to make sure I'm 19 not putting words in your mouth, would you--am I 20 correct in interpreting that as saying that under 21 your concept of truly clean coal, it would be at 22 least 90 percent capture? 23 THE WITNESS: Yes; that would be my 24 estimate, yes. 25 BOARD MEMBER HANSON: Okay. Now, three PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1327 1 assumptions here I want you to accept just for the 2 sake of the question: That sequestration is not 3 feasible now, that the need to do that will drive the 4 development of feasible sequestration--capture and 5 sequestration technology, and that it will be 6 feasible for existing plants to retrofit to adopt 7 that technology. So if those assumptions were 8 correct, would you still see a need for a moratorium 9 on coal plant construction at this point? 10 THE WITNESS: I see a need for a moratorium 11 on coal-fired power construction because it has 12 become clear in just the last few years that we are 13 much closer to a dangerous level of greenhouse gases 14 in the atmosphere than we believed even a few years 15 ago, and I think that it's almost unavoidable that we 16 will actually pass the dangerous level. 17 What it's going to then require is that we 18 reduce emissions enough that the natural sinks for 19 carbon dioxide in the atmosphere, which is taken up 20 slowly by the ocean and, to some extent, by the 21 biosphere, will actually draw down the amount of CO2 22 in the atmosphere. 23 That being the case--but that's going to be 24 a difficult proposition--we will have to encourage 25 agricultural practices that increase storage of PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1328 1 carbon in the soils. We will have to encourage 2 forestry practices that increase storage of carbon in 3 the forests. 4 It means that any additional CO2 that we put 5 by more coal-fired plants into the atmosphere just 6 makes it that much harder, makes it that much more 7 expensive to try to fix the problem in the future. 8 So I think it only makes sense--because 9 there is such a large amount of carbon dioxide put 10 out by coal, much more than any of the other fossil 11 fuels, it only makes sense to have a moratorium now 12 because we can see the problem that is coming down 13 the pike, and the impacts are not yet large so the 14 person on the street doesn't notice that things are 15 really changing that much, but when we look at key 16 aspects of the system, like the ice sheets and like 17 the sea ice, we see that things are already beginning 18 to move fast, and I'm sure, I'm very confident, that 19 within the next several years there will be 20 increasing strong restrictions and costs applied to 21 additional carbon emissions to the atmosphere. 22 BOARD MEMBER HANSON: And my last question, 23 if you haven't already done so, will you be filing 24 your testimony with the Iowa Department of Natural 25 Resources as well? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1329 1 THE WITNESS: Yes. Is there any reason not 2 to do that? 3 MS. LA SEUR: I think that we'll assume that 4 the testimony from this docket will be in all 5 proceedings relevant to the approval of this plant. 6 BOARD MEMBER HANSON: Thank you. 7 THE WITNESS: Thank you. 8 CHAIRPERSON NORRIS: Good morning, 9 Mr. Hansen. Just a couple of questions. 10 We're faced here with a multitude of things 11 to look at in this decision, and the economics of it 12 are obviously one of them. 13 Have you--and I can't recall if you did in 14 your testimony or not. Have you put a dollar figure 15 on what the cost increase is going to be for energy 16 for consumers if we implement a carbon cost that will 17 get us to the levels of reduction that you think we 18 need to achieve? 19 THE WITNESS: No, I have not been involved 20 in trying to define a carbon price. 21 I think that in fact the most effective step 22 that could be taken to preserve the planet that we 23 have been blessed with the last several thousand 24 years is to actually have a moratorium on 25 construction of coal-fired power plants until we have PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1330 1 the technology to capture that, and that's what I am 2 trying to convince politicians and other people. 3 CHAIRPERSON NORRIS: So as opposed to a cap 4 and trade or carbon tax, just a straightforward? 5 THE WITNESS: Yes, because there's a reason; 6 there's actually a fundamental difference from the 7 carbon that you get from burning gasoline from oil, 8 gas, and coal, and that is the simple fact that you 9 have to recognize that a significant fraction of this 10 carbon dioxide will stay in the atmosphere for a very 11 long time. About one-fifth of it is still there 12 after a thousand years. So it doesn't matter that 13 much when you burn it, whether you burn it this year 14 or next year. It's going to be there affecting our 15 children and grandchildren regardless. 16 So if we look--and the oil is going to be 17 burned anyhow. We can conserve that, but it will be 18 burned next year instead, and we can't tell 19 Saudi Arabia or Russia not to mine their oil and sell 20 it, so that amount we're going to get from oil is 21 going to clearly put us up near the dangerous level. 22 What's different about coal is that you can 23 imagine capturing that CO2, and the other point about 24 oil is you can't capture the CO2 coming out of the 25 tailpipe of a vehicle. It's just not practical. The PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1331 1 mass of that is more than three times heavier than 2 the gasoline in your car because it's converted from 3 carbon to CO2, and oxygen is heavier than carbon. 4 What is feasible is with coal, you can say 5 we'll use that at power plants only and we'll capture 6 the CO2 and sequester it. 7 So just to put a carbon tax which treats oil 8 and gas the same is really not as effective as 9 saying, boy, we've got to stop this one source 10 because it's the biggest source and it's the one that 11 we could stop. 12 CHAIRPERSON NORRIS: But I mean is it 13 feasible to continue coal usage at this point even if 14 you could retrofit all the plants that are using it 15 or build new plants? Is it feasible? How far are we 16 away from technology that makes CCS feasible? I mean 17 you're talking about a lot of underground storage, a 18 lot of pipes. Is it realistic? 19 THE WITNESS: Well, I think we're within 20 about a decade of having the technology available so 21 that a power company could order it. We should have 22 pushed that faster than we have, but in the interim, 23 there's enough potential in energy efficiency and 24 renewables that we could say, "No coal until that's 25 ready." There's a lot of potential in energy PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1332 1 efficiency and renewables. 2 I'm not sure if I answered your question. 3 CHAIRPERSON NORRIS: I think you said a 4 decade, but I don't know. 5 THE WITNESS: Yeah, it's on the order of a 6 decade, and it's not so long that we couldn't cover 7 the increased energy needs in the interim via energy 8 efficiency and renewables. 9 CHAIRPERSON NORRIS: Mr. Stead? 10 MR. STEAD: Nothing further. 11 MR. RAGSDALE: Nothing. 12 CHAIRPERSON NORRIS: Mr. Puckett? 13 MR. PUCKETT: Nothing. 14 CHAIRPERSON NORRIS: Ms. La Seur? 15 MS. LA SEUR: No further questions. 16 CHAIRPERSON NORRIS: Thank you very much, 17 Mr. Hansen. 18 THE WITNESS: Thank you. 19 (Witness excused.) 20 CHAIRPERSON NORRIS: Why don't we 21 take--let's come back at 11 o'clock. 22 (Short recess.) 23 CHAIRPERSON NORRIS: We are to your next 24 witness, Ms. La Seur. 25 MS. LA SEUR: The Coalition calls PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1333 1 Dr. Kristen Welker-Hood to the stand. 2 CHAIRPERSON NORRIS: Hello, Dr. Welker-Hood. 3 THE WITNESS: Hello. How are you today? 4 CHAIRPERSON NORRIS: Good. Can you raise 5 your right hand, please? 6 KRISTEN WELKER-HOOD, 7 called as a witness by the Coalition, being first 8 duly sworn by Chairperson Norris, was examined and 9 testified as follows: 10 CHAIRPERSON NORRIS: Thank you. 11 THE WITNESS: One thing that I wanted to 12 bring to the attention of the Board today was 13 something that happened in Iowa yesterday. 14 The Black Hawk County Board of Health, which 15 was looking at the health impacts of a proposed coal 16 plant in Marshalltown--excuse me--in Waterloo--and 17 I'll make this brief--but came to the conclusion that 18 the particulate matter for the State of Iowa needed 19 to be decreased from federal max standards from 20 15 micrograms per cubic meter down to 12 micrograms 21 per cubic meter, and called for a moratorium-- 22 CHAIRPERSON NORRIS: Thank you. I need you 23 to respond, actually, to questions from counsel 24 today. 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1334 1 DIRECT EXAMINATION 2 BY MS. LA SEUR: 3 Q. Would you just begin, please, by stating 4 your name and title for the record, please? 5 A. Yes. My name is Dr. Kristen Welker-Hood. 6 I'm the director of environment and health programs 7 at the national office for Physicians for Social 8 Responsibility in Washington, D.C. 9 Q. And on or about October 31st, 2007, did you 10 submit direct testimony and an exhibit labeled KWH-1, 11 Schedules A through W, in this docket that have been 12 spread upon the record? 13 A. Yes, I did. 14 Q. Do you have any corrections or updates to 15 this testimony? 16 A. Yes, I do have an update, which is what I 17 was saying. I'm sorry that I didn't follow 18 procedure. 19 The update that I wanted to add was current 20 events that happened in Iowa yesterday, that the 21 Black Hawk County Board of Health in Iowa had looked 22 at a report recently done on the health effects of 23 particulate matter in Iowa and came to the conclusion 24 that Iowa--and it will be coming forward with this 25 recommendation--that Iowa should adopt a 12 microgram PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1335 1 per cubic meter standard for fine particulate matter 2 as opposed to the national max standard, which is 15. 3 Beyond that recommendation, they also 4 recommended a moratorium on coal-fired power plants 5 until safer technology could be demonstrated. 6 Thank you. 7 Q. Is this the extent of your corrections and 8 updates? 9 A. Yes. 10 (Coalition Exhibit 203 was 11 received in evidence.) 12 (The prepared testimony follows.) 13 14 15 16 17 18 19 20 21 22 23 24 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1358 1 MS. LA SEUR: The Coalition offers this 2 witness for cross-examination. 3 CHAIRPERSON NORRIS: Mr. Ragsdale. 4 MR. RAGSDALE: We have no questions. Thank 5 you. 6 CHAIRPERSON NORRIS: Mr. Puckett? 7 MR. PUCKETT: I don't have any questions. I 8 just have a clarification. The exhibit--excuse me. 9 Just a clarification, the exhibits, Dr. Hansen's 10 exhibit, I guess I didn't get the number that was 11 going to be used on that for the proceeding, and 12 Dr. Welker-Hood's exhibit, KWH-1, what number has 13 been assigned to that? 14 MS. LA SEUR: Dr. Welker-Hood's exhibit will 15 be No. 203--or her testimony with attached exhibits 16 will be Exhibit 203, and Dr. Hansen's testimony with 17 attached exhibits will be Exhibit 200 for the 18 Coalition. 19 MR. PUCKETT: Thank you. That's all I had. 20 I have no questions. 21 MS. LA SEUR: I do have exhibit numbers as 22 well assigned to the other two witnesses, but we can 23 wait until we're submitting those, if that would be 24 appropriate. 25 CHAIRPERSON NORRIS: All right. Mr. Stead? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1359 1 MR. STEAD: Thank you. 2 CROSS-EXAMINATION 3 BY MR. STEAD: 4 Q. Just one question, Doctor. On the health 5 commission in the Waterloo area, was their 6 recommendation no coal-fired plants in Waterloo or no 7 coal-fired plants in the State of Iowa? 8 A. In the State of Iowa. 9 MR. STEAD: Thank you. That's all I have. 10 BOARD MEMBER TANNER: Good morning. Can you 11 hear me? 12 THE WITNESS: Yes, thank you. 13 BOARD MEMBER TANNER: Your direct testimony, 14 pages 12 through 13, cites sulfur dioxide, mercury, 15 nitrogen oxides, volatile organic compounds, and 16 ozone. Are these regulated hazardous air 17 pollutants--I'm sorry. Are these regulated hazardous 18 air pollutants the jurisdiction of the Iowa DNR and 19 subject to limits and processes established by the 20 EPA? 21 THE WITNESS: They are regulated pollutants, 22 and it is in-- Can you repeat your question? I'm 23 trying to clarify for myself what you're trying to 24 ask me. 25 BOARD MEMBER TANNER: Well, I just wanted PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1360 1 to--for clarification, before I go on to the next 2 question, are they subject to limits and processes 3 established by the EPA? 4 THE WITNESS: Yes, they are. 5 BOARD MEMBER TANNER: And my follow-up 6 question is, are these EPA limits not set by 7 health-based calculations with modeling that is 8 conservative? 9 THE WITNESS: I would say that they are set 10 by health-based information. Your caveat that are 11 they conservative or health protective enough? I 12 would disagree with that statement, so no. 13 BOARD MEMBER TANNER: Okay. 14 THE WITNESS: And may I expand on that? 15 BOARD MEMBER TANNER: Sure. 16 THE WITNESS: I don't believe--that isn't my 17 only--that isn't the opinion of only myself. It is 18 also the opinion of many scientists within the 19 United States, in particular around particulate 20 matter, which the new standard particulate matter, 21 2.5, came around in 2006, and the current standard at 22 that time was set at 15 micrograms per cubic meter, 23 where over 2,000 studies have been published 24 demonstrating the serious adverse health effects, 25 such as impacting both cardiovascular and respiratory PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1361 1 disease, at levels even lower than 15 micrograms per 2 cubic meter. 3 So it was--even through an expert 4 elicitation study that the EPA asked for, they found, 5 among 12 experts on particulate matter, that 6 15 micrograms per cubic meter was not sufficient to 7 protect human health and that a more conservative, if 8 that's what you're looking for, should be set at 12 9 micrograms per cubic meter, although none of those 10 experts could agree that there was a threshold in 11 which health effects, adverse health effects, 12 wouldn't be seen to as low as five micrograms per 13 cubic meter. 14 This is also documented in the staff paper 15 of the EPA; however, Administrator Johnson of the EPA 16 chose not to follow the advice of his own staff, as 17 well as experts across the nation. 18 BOARD MEMBER TANNER: Okay. And then just 19 one more follow-up question. Was your testimony, 20 particularly those addressing criteria on toxic air 21 pollutants that we discussed on pages 12 and 13, 22 filed with the Iowa Department of Natural Resources. 23 THE WITNESS: I filed them to the IUB, and I 24 assume if this case goes forward, they will also be 25 filed with the Department of Natural Resources. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1362 1 BOARD MEMBER TANNER: And perhaps it's a 2 better clarification from counsel. 3 THE WITNESS: Yes. Thank you. 4 MS. LA SEUR: The Department of Natural 5 Resources has not yet reached the stage in its 6 permitting process where it is accepting comments, is 7 my understanding, but as with all the testimony we 8 are submitting in this docket, the Coalition will be 9 submitting testimony in every appropriate 10 administrative venue on the siting of this plant. 11 BOARD MEMBER TANNER: Okay. Thank you. 12 CHAIRPERSON NORRIS: Ms. La Seur? 13 MS. LA SEUR: We have nothing further. 14 CHAIRPERSON NORRIS: Pardon? No follow-up? 15 MS. LA SEUR: No. 16 CHAIRPERSON NORRIS: Okay. Anything, 17 anybody else? 18 (No response.) 19 CHAIRPERSON NORRIS: Thank you. 20 (Witness excused.) 21 MS. LA SEUR: The Coalition calls 22 Tom Sanzillo. 23 CHAIRPERSON NORRIS: Hello, Mr. Sanzillo. 24 THE WITNESS: Hi. 25 CHAIRPERSON NORRIS: Raise your right hand, PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1363 1 please. 2 TOM SANZILLO, 3 called as a witness by the Coalition, being first 4 duly sworn by Chairperson Norris, was examined and 5 testified as follows: 6 CHAIRPERSON NORRIS: Thank you. You may be 7 seated. 8 DIRECT EXAMINATION 9 BY MS. LA SEUR: 10 Q. Mr. Sanzillo, would you please state your 11 name and title for the record? 12 A. My name is Tom Sanzillo, and I'm a senior 13 associate with TR Rose Associates in New York City. 14 Q. And on or about October 31st, 2007, did you 15 submit direct testimony and exhibits in this docket-- 16 the direct testimony we're going to label Exhibit 202-- 17 that have been spread upon the record? 18 A. Yes. 19 Q. Do you have any corrections or updates to 20 that testimony? 21 A. Yes. There's been some subsequent data that 22 have come out that I think I could add two or three 23 sentences and not take up a lot of the Board's time, 24 but I've also filed supplemental testimony. 25 Q. And we will be making an offer of proof of PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1364 1 that this morning. 2 A. Yes. Page 10 of my original testimony, 3 line 9, there's a brief discussion of Census 4 forecasts. 5 In late December the Census Bureau updated 6 its long-term projections, and I'll read a couple of 7 sentences I would like to add: 8 "According to the United States Census 9 Bureau's population division, Iowa's population is 10 projected to grow a total of only 1 percent between 11 2000 and 2030, placing Iowa 48th in the nation in 12 projected population growth and well below the 13 29.2 percent population increase projected for the 14 nation as a whole. From 2010 to 2030, the out years 15 of the Census Bureau projection, Iowa's population is 16 actually projected to experience a net decline of 17 1.8 percent, or approximately 55 residents. According 18 to the Census Bureau data, the vast majority of Iowa's 19 projected population growth for the period 2000 to 20 2030 will take place during the 2000 to 2010 period." 21 The second addition is to page 23 there of 22 my testimony where there is a discussion of raising 23 coal prices, and that would be adding a bit, page 23, 24 line 16. 25 MR. RAGSDALE: If I can have a-- Excuse me. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1365 1 My copy of Mr. Sanzillo's testimony at that page 2 doesn't have a line 16. It's got lines starting with 3 491 and, of course, we had to print ours out and 4 weren't given hard copies of the testimony, so I 5 don't know if I've got the right page. 6 CHAIRPERSON NORRIS: You're probably looking 7 at line 506 or 507, I assume. 8 MS. LA SEUR: Actually, that's incorrect. 9 We did provide a hard copy of the testimony. 10 MR. RAGSDALE: Actually, that's not correct. 11 MS. LA SEUR: He says-she says. 12 CHAIRPERSON NORRIS: Perhaps you can just 13 tell us what the sentence starts with, and we can 14 find it on our page 23 here, Mr. Sanzillo. 15 THE WITNESS: The sentence in the original 16 testimony, it would be prior to the paragraph that 17 starts, "It is plain from both the Alliant 18 application and its corporate filings that the change 19 it is undergoing needs to focus on"-- 20 BOARD MEMBER HANSON: Are you at page 23? 21 THE WITNESS: I must not be. My printout 22 may be causing me some problems, which I apologize, 23 but I have the record here. 24 A. (Continuing) Here it is. I'm sorry. It is 25 page 24, and it would be line 530, which we would PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1366 1 add. There's a brief discussion there of Illinois 2 basin coal, and then there's an additional broader 3 statement. This is just a few sentences. 4 "A December 5th, 2007, article in Business 5 Week sums up the new market situation this way: 'As 6 the ramp-up in electricity demand in the U.S. 7 accelerates as predicted over the next two decades, 8 so will the demand for steam coal to meet the needs,' 9 said Arch Coal Chairman and CEO Steven Leer. As fuel 10 prices soar"--this is not his quote. "As fuel prices 11 soar and electric rate caps expire, forecasted U.S. 12 retail electricity prices will surge 69 percent by 13 2015, more than double the growth seen in last 10 years." 14 Then I would like to also add, "Peabody 15 Energy and Arch Coal, the two leading coal producers 16 in the nation--together they're responsible for 17 35 percent of the coal produced annually in the U.S. 18 A recent presentation by Peabody Energy to its 19 investors touts average annual increases in the price 20 of coal of 10 percent annually between 2007 and 2009. 21 The presentation specifically indicates rises in the 22 Powder River Basin coal of up to 20 percent annually 23 for perhaps as long as a decade." 24 (The prepared testimony follows.) 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1398 1 MS. LA SEUR: At this time the Coalition 2 would like to present evidence in rebuttal titled 3 "Rebuttal Testimony of Tom Sanzillo" previously 4 served on all parties. 5 MR. RAGSDALE: I think that's already been-- 6 CHAIRPERSON NORRIS: This is an offer of 7 proof, right, Ms. La Seur? 8 MS. LA SEUR: Well, under the terms of Iowa 9 Administrative Code 199.7.23(4)(a), in the conduct of 10 the hearing, subject to terms and conditions 11 prescribed by the Board or presiding officer, parties 12 have the right to present evidence in rebuttal, so 13 I'm offering this as part of the hearing record in 14 rebuttal. 15 CHAIRPERSON NORRIS: I had to double-check 16 that this was one of the late-filed rebuttals that we 17 ruled on on Monday, so we have ruled that this is not 18 according to the procedural schedule, that you can 19 surely offer it as an offer of proof for the record, 20 but we're not admitting--we've already ruled on this 21 issue and this document--or this testimony on Monday. 22 MS. LA SEUR: Okay. So if it's the Board 23 ruling that this exhibit will not be accepted into 24 evidence, then we will make an offer of proof of 25 Mr. Sanzillo's testimony, and I would like to PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1399 1 summarize that testimony as directed by the same 2 rule. 3 Mr. Sanzillo's testimony is to respond to 4 the rebuttal testimony offered by IPL witnesses 5 Jeffrey Beer, Randy Bauer, Daniel Otto, Brent Kitchen, 6 Joseph Hillberry, and Patricia Kampling, in 7 particular the portions of their rebuttal testimony 8 that relate to the direct testimony previously 9 offered by Mr. Sanzillo in these proceedings, and to 10 state that the essential points of his direct 11 testimony remain unanswered. 12 CHAIRPERSON NORRIS: All right. 13 (The prefiled Rebuttal Testimony of 14 Thomas Sanzillo is contained at pages 1400 through 15 1424 in a separate transcript as an offer of proof by 16 the Coalition.) 17 18 19 20 21 22 23 24 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1425 1 MS. LA SEUR: And with that we would offer 2 this witness for cross-examination. 3 MR. RAGSDALE: We don't have any questions, 4 but I do want to apologize to Ms. La Seur. I've been 5 advised a moment ago that we eventually did get hard 6 copies of their testimony, so some of my remarks 7 otherwise in the record were inaccurate, and I 8 apologize for that, but we have no questions for 9 Mr. Sanzillo. 10 MR. PUCKETT: I have no questions. 11 CHAIRPERSON NORRIS: Mr. Stead. 12 MR. STEAD: Just two questions. 13 CROSS-EXAMINATION 14 BY MR. STEAD: 15 Q. Mr. Sanzillo, how does that new census data 16 that you just read into the record affect your 17 testimony and exhibits? 18 A. I think it amplifies a point. The basic 19 modeling that has been provided by IPL to the Board 20 looks at an average annual increase of 1.4 percent in 21 internal demand. 22 When you're trying to check these things 23 independently and check the underlying economic 24 assumptions, my work shows that the last few years 25 the actual electric use has been flat within the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1426 1 company. 2 The near-term forecast, which is probably 3 your most accurate economic forecast, is a relative 4 slow growth to perhaps even a decline, and then when 5 you're looking long term, these are very difficult 6 models to put together, but probably our best in the 7 country is the Census Bureau's projections, and 8 there, by looking at a very slow to almost decline in 9 population, you're making the point that the 10 economics of the area are not going to be increasing 11 at the 1.4 percent, very unlikely, in fact almost 12 impossible that the company has put forward in their 13 models. 14 That means, at minimum, you have more time 15 in terms of your capacity and demand curves meeting 16 each other. 17 The argument is that we need this plant by 18 2013. I think this data is showing that would be a 19 number of years off just on that count alone. 20 Q. A number of years later? 21 A. Yes, a number of years later. 22 Q. The last question I have is how does your 23 second update you read into the record, I believe out 24 of Business Week, affect your testimony and exhibits? 25 A. Well, when I performed the original PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1427 1 testimony, there was--and I know the Board has had 2 this. There was a lengthy discussion on the 3 construction cost problems that are going on right 4 now in the industry, and then others have also 5 testified to the complexity and cost factors involved 6 in any potential regulation of coal-fired power 7 plants, both now and in the future, and the added 8 costs that will be there. 9 What has not been discussed very much--I put 10 it in my original testimony, but the data that's 11 comes out afterwards has been of concern--that the 12 coal prices, which is the other cost factor in the 13 running of a coal-fired power plant, are going up at 14 rates that I think the country has not seen before. 15 Coal has historically been a reliable and cheap 16 source of fuel. That is not happening anymore, and 17 as we look forward to the next five, 10, 15 years, 18 we're looking at prices more akin to increases in oil 19 prices. 20 MR. STEAD: That's all I have. 21 Thank you, Your Honor. 22 BOARD MEMBER HANSON: Hello, Mr. Sanzillo. 23 I have just a question on the population projections. 24 THE WITNESS: Uh-huh. 25 BOARD MEMBER HANSON: Granted, population is PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1428 1 only one aspect of load growth, but you choose to 2 rely on Census projections, correct? 3 THE WITNESS: My original testimony relied 4 on both Poole & Woods and Census projections as a 5 long-term surrogate for economics, yes. 6 BOARD MEMBER HANSON: Okay. I always call 7 it Woods & Poole, but either way, they're both widely 8 used, correct? 9 THE WITNESS: Yes. 10 BOARD MEMBER HANSON: Do they have any 11 significant differences in one versus the other 12 projections? 13 THE WITNESS: Yeah, I actually did that in 14 my rebuttal testimony. One shows Iowa-- 15 BOARD MEMBER HANSON: I guess I didn't 16 realize it was in your rebuttal testimony, but I know 17 that there have been questions earlier by IPL 18 witnesses as to why they use Woods & Poole versus 19 Census. 20 THE WITNESS: I think when you're looking at 21 trying to do long-term forecasting, you look at what 22 you can and try and make your best informed judgment, 23 but I'll put it to you how I did it in my testimony. 24 Whether the U.S. population grows at the rate of 25 Iowa's population, as Woods & Poole suggests, or PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1429 1 whether the U.S. population grows at almost 30 times 2 the rate of Iowa's population, as the data from the 3 U.S. Census Bureau suggests, it is not doom and gloom 4 to conclude that IPL's 1.4 percent annual average 5 increase for internal demand during this period is 6 lacking in credibility. 7 I spend a little time on Woods & Poole 8 before that showing that the relationship between 9 Iowa's growth there is maybe--one is 14 percent, the 10 other is 29 percent. 11 BOARD MEMBER HANSON: That's what I wanted 12 to get at, was the difference between the two 13 projection services and whether you thought one was 14 more valid than the other and why. 15 THE WITNESS: Well, I think the 16 Census Bureau, and the reason is is that it is much 17 more current, and when you're looking at these 18 things, I would like to see what Woods & Poole does 19 as a response to this, which is kind of how they 20 function, so that remains to be seen if they adjust 21 theirs or if it's contentious. At this point it 22 could just be a question of adjustment. I'm not sure. 23 BOARD MEMBER HANSON: Okay. Thank you. 24 CHAIRPERSON NORRIS: Mr. Sanzillo, I don't 25 want to open this up to a total opportunity for you PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1430 1 to rebut at this point, but I am interested in your 2 reaction to Mr. Hillberry's load forecast data and 3 why you differ with it. 4 THE WITNESS: Okay. I think I just 5 presented to what I think of as sort of the macro 6 pictures. 7 The fundamental difference is I took the 8 data from IPL, which is their book peak, and then 9 projected based on the numbers that I thought were 10 appropriate, which was about a 1 percent increase 11 annually, and then did the deductions and found that 12 I think by 2013, as I said, you have a surplus of 13 capacity, and then if you're going to have a deficit, 14 that is in the future that I didn't calculate. 15 The difference is in the selection of the 16 peak. IPL presents--I stopped counting at 19 17 definitions of peak in their various data, and then 18 he gives a paragraph that kind of clarifies--what he 19 thinks clarifies the situation, and I think--as I put 20 in my rebuttal testimony, I think he just makes it 21 worse. 22 For purposes of independent review and 23 integrity of presentation, I chose the book peak 24 because it is raw data that is reported and it is 25 defined as the highest use in a given period, and PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1431 1 that it is a number that is reported to the Federal 2 Energy Commission, which I think is then subject to 3 independent audit and is therefore a more credible 4 number than the many other definitions, which I think 5 have operational function and operational utility for 6 a company that needs to understand their operation 7 precisely, but for the planning purposes, I think 8 that's probably your best base number, and then going 9 forward I have a different conclusion on the annual 10 increase. I think those are two significant 11 differences. 12 CHAIRPERSON NORRIS: All right. 13 Ms. La Seur? 14 REDIRECT EXAMINATION 15 BY MS. LA SEUR: 16 Q. Based on the updates you just gave us, what 17 impact would these new coal cost trends and 18 population trends have on the cost of operating 19 Sutherland 4? 20 A. Well, I think the one credit analyst who I 21 quoted talking about the rise in residential rates 22 of, you know, double digit for the foreseeable future 23 is something that the country has not seen before 24 either, and I think as you plan, you have cost 25 factors for the capital costs, cost factors that are PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1432 1 unforeseen, future capital costs, effectively, or 2 capital costs for emissions, and then one of your 3 biggest costs of running the plant, fuel going up at 4 a high level. It turns your overall cost, which is 5 usually expressed in some form of kilowatt-hours, is 6 being considerably higher than what you have now. 7 That means that your coal-fired plants are 8 becoming less competitive and other forms of energy 9 will be--when you cost them out, will be more 10 competitive. 11 In the modeling that was provided, there's a 12 very robust debate between gas and wind, and what 13 have you, but there's no costing out on the coal side 14 of the fluctuations and variabilities in cost and 15 what that means for other forms of energy. 16 So it's two issues: 17 One, what it means relative to the other 18 forms of energy that might be available and doable, 19 and two, to the residential cost that if the plant is 20 approved, the rate-paying principles that you're 21 signing into effect, which I think initially will be 22 at one level, which will be quite high, but then over 23 the long run, we're signing on to a much more likely 24 higher cost scenario than you've ever seen before. 25 Q. And conversely, what impact would PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1433 1 constructing Sutherland 4 have on these most recent 2 Iowa economic trends you've just identified? 3 A. I think you're adding probably one of the 4 most expensive forms of energy into your grid than, I 5 think, maybe currently exists. There may be some 6 other things that are more expensive, but this will 7 be among the most expensive and, of course, it will 8 have to be used in order to make sure that the 9 economics works of the plant, which pushes the 10 overall rates, for both residential and I think all 11 forms of electric industries, upward. 12 So you're asking, in effect--I think 13 Mr. Scudder Parker said it before, and I think he 14 said it well, that the risks here, the construction 15 risks that are moving forward and construction costs, 16 are not going to be borne as much by the normal 17 development process that would take place in other 18 coal-fired plants because of the market conditions. 19 The unforeseen pollution costs and the rising costs 20 of coal are all risks that come right down to being 21 put onto the ratepayer at this point by, I think, the 22 decision that the Board makes if it were to just go 23 forward with it, and you're in a much worse position 24 than you've been in the past. 25 Q. Following up on Board Member Hanson's PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1434 1 questions about the comparison between the 2 Woods & Poole data and the Census data, does either 3 the Woods & Poole analysis or this most recent Census 4 data show Iowa growing faster than the nation as a 5 whole? 6 A. No, neither of them do. 7 Q. And how is this comparison between the 8 Woods & Poole and Census data relevant to the 1.4 9 percent average annual increase in demand projected 10 by IPL? 11 A. I think both serve to show that it lacks 12 foundation, the 1.4 percent that IPL is offering. 13 MS. LA SEUR: That's all I have. 14 CHAIRPERSON NORRIS: Mr. Ragsdale? 15 MR. RAGSDALE: No questions. 16 CHAIRPERSON NORRIS: Thank you, Mr. Sanzillo. 17 THE WITNESS: Thank you. I guess you've 18 spent a long enough time listening to New Yorkers ask 19 for your vote, huh? Thank you. 20 (Witness excused.) 21 MS. LA SEUR: The Coalition calls 22 Dr. Neil Harl. 23 CHAIRPERSON NORRIS: Good morning, 24 Dr. Harl. Raise your right hand. 25 THE WITNESS: Good morning. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1435 1 NEIL EUGENE HARL, 2 called as a witness by the Coalition, being first 3 duly sworn by Chairperson Norris, was examined and 4 testified as follows: 5 CHAIRPERSON NORRIS: Thank you. You may be 6 seated. 7 DIRECT EXAMINATION 8 BY MS. LA SEUR: 9 Q. Dr. Harl, would you please state your name 10 and title for the record? 11 A. Yes. My name is Neil Eugene Harl, H-a-r-l, 12 Ames, Iowa. My title presently is emeritus professor 13 of economics, Iowa State University. I'm also-- 14 excuse me for the voice. I'm recovering from a 15 vicious flu bug. I'm also a Charles R. Curtiss 16 distinguished professor of agriculture at Iowa State 17 University, formerly the director for the Center for 18 International Agricultural Finance. 19 Q. Thank you. On October 31st, 2007, did you 20 submit direct testimony and exhibits in this docket 21 that have been spread upon the record? 22 A. I did. 23 MS. LA SEUR: And we would designate 24 Dr. Harl's direct testimony as Exhibit 201, with 25 attached Schedules A through C. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1436 1 BY MS. LA SEUR: 2 Q. Do you have any corrections or updates to 3 this testimony? 4 A. I submitted later updates. Those are part 5 of the record. 6 Q. We will be making an offer of proof of that 7 testimony. 8 A. An offer of proof. Those were in 9 clarification and extension of the comments-- 10 statements I've made in the October testimony after 11 examining additional data relative to biofuels plants 12 in Iowa, and the other states served by the utility, 13 showing a reduction in the number of proposed plants 14 from 24 to 19, about a 20 percent decrease. 15 In my direct testimony I had made the point 16 that the ethanol industry has encountered a stiff 17 headwind, and especially being felt by the proposed 18 plants, as well as those under construction, and so I 19 noted that in the additional disclosure and commented 20 upon that further. 21 There were other changes made in the data 22 comparing the data of September 30th to the revised 23 data just received in January, early January, but the 24 most notable was the drop in number of proposed 25 ethanol plants in the three states. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1437 1 Q. And is this the whole of your corrections 2 and additions? 3 A. Yes. I would say that I provided comment on 4 some of the other testimony as well, notably that of 5 Dr. Otto. I had also provided some comment on the 6 Center for Agricultural Rural Development 7 publications that had been cited, but that is mostly 8 the gist of my additional submission, except to note 9 that it was very difficult to determine the expected 10 power demand from biofuels from what has been 11 submitted. There is the one-time adjustment of 12 85 megawatts, there is the current usage of roughly 13 75 megawatts, but the question is what is the 14 long-term expectation with respect to biofuels 15 demand, and that is very difficult to ascertain from 16 the materials submitted to date. 17 MS. LA SEUR: Thank you. 18 (Coalition Exhibit 201 was 19 received in evidence.) 20 (The prepared testimony follows.) 21 22 23 24 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1483 1 MS. LA SEUR: The Coalition would again in 2 this case submit evidence in rebuttal under 3 rule 199.7.23(4), and just to make a procedural 4 record ask the Board to confirm that it is rejecting 5 this presentation of evidence as part of the rebuttal 6 evidence in this proceeding. 7 CHAIRPERSON NORRIS: That's correct. 8 MS. LA SEUR: We would then offer this 9 supplemental testimony of Dr. Neil Harl in the form 10 of an offer of proof, and I will summarize the 11 testimony as follows: 12 Dr. Harl in this supplemental testimony 13 responds that the conclusions of his--in his direct 14 testimony related to economics of the biofuel sector 15 remain unchanged. 16 CHAIRPERSON NORRIS: I think Mr. Harl gave 17 us the updates on the correction of his testimony, 18 and I'm not sure we need you to read that into the 19 record. 20 MS. LA SEUR: This is a summary of his 21 supplemental testimony. 22 CHAIRPERSON NORRIS: For the offer of proof, 23 not for the record in this proceeding. 24 MS. LA SEUR: Correct. Those conclusions 25 are as follows: PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1484 1 The first, existing and future uncertainties 2 in the biofuels sector undermine the alleged demand 3 growth in that sector that is relied on by IPL for 4 their forecast. This calls in question the level of 5 need for increased generation capacity that forms the 6 basis for IPL's application for SGS Unit 4. 7 Second, the future viability of biofuels 8 facilities in the IPL service territory is highly 9 uncertain in the face of market adjustments and 10 competing fuel sources and technologies, and IPL has 11 failed to factor those uncertainties into its 12 forecasting models in any meaningful way. 13 Finally, Dr. Harl's testimony outlines the 14 relative cost externalities of the company's 15 coal-fired electric generation, which have not been 16 adequately considered by IPL in its application for 17 SGS Unit 4. 18 I believe the court reporter has copies of 19 these documents. 20 (The prefiled Rebuttal Testimony of 21 Dr. Neil E. Harl is contained at pages 1485 through 22 1492 in a separate transcript as an offer of proof by 23 the Coalition.) 24 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1493 1 MS. LA SEUR: We offer the witness for 2 cross-examination. 3 CHAIRPERSON NORRIS: Mr. Ragsdale? 4 MR. RAGSDALE: No questions. 5 CHAIRPERSON NORRIS: Mr. Puckett? 6 MR. PUCKETT: No questions. 7 CHAIRPERSON NORRIS: Mr. Stead? 8 MR. STEAD: Just one question, Your Honor. 9 CROSS-EXAMINATION 10 BY MR. STEAD: 11 Q. Dr. Harl, I believe you testified that there 12 is a difference of expert opinions currently going on 13 about the future development and the level of that 14 development of ethanol, biofuels, and similar fuels 15 in Iowa. 16 What is your view of that development, if 17 any? 18 A. As to the future trajectory of demand? 19 Q. Yes. 20 A. I think that we are likely to see, my best 21 assessment, a three- to five-year period where 22 ethanol will be a significant factor in fuel supply. 23 Beyond that, I think the future is very, very cloudy 24 as to whether ethanol will be the low-cost fuel 25 source. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1494 1 I studied this area for many years. I 2 taught resource economics, advanced resource 3 economics at Iowa State before my retirement, so I've 4 tracked this question for some time, and I am of the 5 belief that there are presently technologies that are 6 cheaper than ethanol and other technologies that look 7 quite promising, and so I am doubtful that ethanol 8 will be a dominant source beyond two to five years. 9 I cite in my direct testimony, the initial 10 testimony, some data from the International Monetary 11 Fund as to the cost of various biofuel sources, and 12 corn-based ethanol is not the low cost, and is not 13 really very close to being low cost, and I note the 14 cost estimates also for cellulosic-based and for 15 sugar-cane-based ethanol. 16 I think the--well, the data clearly show 17 that sugar-cane-based ethanol is the cheapest of the 18 biofuels group at present, but there are other fuel 19 sources that appear to me likely to emerge over the 20 next few years as a cheaper source. Ultimately the 21 market does the determining. The market determines 22 which will be the dominant source and dominant 23 sources of fuel, and while policy is a major factor-- 24 and presently we have sizable subsidies for ethanol 25 and biodiesel, and we have a sizable barrier to PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1495 1 imports in the form of tariff, 54 cents per gallon. 2 Nevertheless, over the long term, the market usually 3 is the determining factor, and I believe firmly that 4 will be the case here. 5 From the standpoint of the economic activity 6 that's been generated by ethanol, I would certainly 7 like to see ethanol continue and prosper, but there's 8 some reason why I think it may not, and one of the 9 big ones is that ethanol has within it one of the 10 constraints on the ethanol industry, and that is as 11 ethanol becomes more widely used, the demand 12 increases. That increases the demand for corn, and 13 it runs up the price of corn. 14 When we started ethanol back a number of 15 years ago, corn was selling for a dollar, maybe two 16 dollars a bushel. Today, corn is selling for 4.50 to 17 $5 a bushel. It's increased heavily, but not totally 18 because of ethanol demand. 19 Well, as the price of corn goes up, that 20 becomes a major factor for the cost of ethanol 21 production, various estimates up to as high as 70 22 percent. 23 So that success in ethanol reduces the 24 profitability of ethanol plants, and what we've seen 25 happen in the last few months has been first a glut, PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1496 1 a widely discussed glut, in ethanol production, but 2 the longer-term aspect is that the price of corn is 3 going to be a constraining factor on ethanol, and 4 it's related to the price of oil. As the price of 5 oil falls, that makes the problem more serious, and 6 this is a rather unusual situation. Not all industries 7 face this kind of an issue where their success runs 8 up the cost so dramatically of their major input. 9 So I think that we're likely to see a period 10 here with momentum going where ethanol will supply a 11 significant proportion, but I doubt very much long 12 term if that's the case. 13 MR. STEAD: That's all I have, Your Honor. 14 BOARD MEMBER HANSON: Good morning, Dr. Harl. 15 THE WITNESS: Good morning. 16 BOARD MEMBER HANSON: In your direct 17 testimony on page 5, starting at line 93, you state 18 that it's your understanding that the 19 generating--I'll just read it--"that the generating 20 capacity deficit alleged by IPL in the present 21 application is driven heavily by existing and planned 22 ethanol and biodiesel plants in the IPL service 23 territories." 24 Can you maybe elaborate on why you feel that 25 that is either the main driver or one of the main PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1497 1 drivers of IPL's load growth projections? 2 THE WITNESS: Well, drawing upon their data 3 that were submitted as of the 30th of September, that 4 showed ethanol plants in production, ethanol plants 5 under construction, and ethanol plants proposed, 6 three categories, and it shows biodiesel as well as 7 ethanol. 8 Drawing from those data, as well as the 9 national trend in terms of ethanol plants and those 10 that are under construction or proposed, it appeared 11 to me that that was indeed support for that 12 statement. 13 BOARD MEMBER HANSON: Okay. As far as your 14 expectations for the biofuels industry, your original 15 testimony, I believe, was prepared and submitted 16 prior to the passage of the 2007 energy bill. 17 THE WITNESS: That's correct. 18 BOARD MEMBER HANSON: Has the passage of 19 that energy bill affected your expectations? 20 THE WITNESS: At the time I was preparing 21 the initial testimony, the negotiations behind the 22 scenes were going on in Washington, and the belief 23 was that there was going to be an increase in 24 mandates, which has happened, not as great as many in 25 the industry had hoped would be the case, because if PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1498 1 you subtract out the advanced category of ethanol 2 production that is mainly cellulosic and waste 3 materials, and so on, the amount that is mandated for 4 the corn-based ethanol is more modest than many had 5 thought. 6 So I continue to believe that--and by the 7 way, there is a waiver in that legislation if it's 8 not feasible to achieve those levels, and it's 9 difficult to get--to force consumers to consume 10 something they don't want, so it's obvious that there 11 has to be some leeway there. 12 There are parts of the country that do not 13 have ethanol blend plants, that do not have ethanol 14 offered, and those will probably now, at least some 15 of them, increase their ethanol sales, increase their 16 ethanol offerings, and build more pumps, install more 17 pumps. 18 However, I think the Congress recognizes 19 that there is a great deal of uncertainty here 20 relative to how much they can deal with the demand 21 side. It's clear the supply got out in front of 22 demand, and had it not been for the increase in 23 mandates, the ethanol industry would have been in 24 very difficult shape by now or within sometime in the 25 next few months, but this has provided a potential PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1499 1 demand if that can be translated into actual sales of 2 ethanol product. 3 So that, yes, I would say that the 4 Energy Act of 2007, which was signed right about 5 Christmastime, certainly has reduced that uncertainty 6 some, but it has not delivered quite as much as some 7 had hoped in terms of the mandates. 8 BOARD MEMBER HANSON: So you think--has it 9 significantly changed your expectations? 10 THE WITNESS: No, I don't think so. I think 11 ultimately it's the market that will determine this. 12 Long term, the future of ethanol depends on three 13 things: It depends on government policy, and that's 14 policy in the form of mandates, policy in the form of 15 subsidies, policy in the form of tariffs. 16 The subsidy for ethanol will likely be 17 reduced from 51 to 46 cents in another piece of 18 pending legislation, the farm bill. That has not 19 happened, but it probably will over the next few 20 weeks, so there's an evolving policy here, and policy 21 can be changed rather easily and very quickly, and 22 that's the first factor. 23 The second factor, as I mentioned earlier in 24 my testimony, is the unique relationship between the 25 price of corn and the profitability of ethanol and PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1500 1 how that affects ethanol long term. 2 The third issue is the issue of technology, 3 where is technology going. That's the most difficult 4 to anticipate, but it's also the most important, in 5 my view, because that's what's going to reveal, long 6 term, what will be the cheapest source of energy in 7 the quantity we want and the assurance and the safety 8 factors that we insist upon. 9 BOARD MEMBER HANSON: Comparing your--today 10 after the passage of the bill and whatever else has 11 happened in the last--over the recent history, your 12 expectations of the future growth of biofuels in Iowa 13 to your understanding of Dr. Otto's expectations, is 14 it possible to quantify any differences that you 15 might have? It's one thing to say that the future is 16 rosy or the future is less rosy than expected, but 17 it's still rosy, or it's difficult. Is it possible 18 to put a number on the differences in your 19 viewpoints? 20 THE WITNESS: I think that is very difficult 21 to do in light of the uncertainties, the 22 uncertainties in a number of areas, the uncertainty 23 of government policy, the uncertainty of how fast 24 technology is going to develop. 25 In some areas technology is moving faster PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1501 1 than I thought it would two or three years ago. 2 Notably, hydrogen fuel sales are moving faster than I 3 originally had thought to be the case, and the wind 4 energy side is actually moving faster than I had 5 projected that it would, so that there are so many 6 uncertainties that it's very, very difficult to put a 7 believable coefficient, a believable figure on where 8 we think it will be. 9 I feel comfortable that we'll see growth 10 over the next, as I said, three to five years. I 11 think that is likely, and the momentum is there to 12 accomplish that. 13 Beyond that, I think it's up to government 14 policy as to how much government policy wants to try 15 to influence the market and has up until this point, 16 but I'm not as confident going forward, if there are 17 other technologies available, that the Congress will 18 be as willing, and a lot of it depends on the 19 uncertainty of the Middle East, which is very 20 difficult to estimate right now as to what that's 21 going to mean in terms of oil flow. 22 BOARD MEMBER HANSON: So I guess maybe 23 without putting a number on it, then, is it still 24 your assumption that the future growth of biofuel 25 production in Iowa will be less than what Dr. Otto PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1502 1 thinks it will be? 2 THE WITNESS: I think my projection would 3 lie substantially below Dr. Otto's in the long term. 4 I don't think there's that much difference in the 5 next several months, next few years, but I think 6 beyond that, that's where we diverge. 7 BOARD MEMBER HANSON: Okay. And I just want 8 to talk just sort of in general terms, and my guess 9 is from your answer to my previous question, or two 10 questions ago, that you probably can't answer this, 11 but I'm going to give it a shot anyway. 12 If the number of plants to be built in Iowa 13 were to increase or decrease by some arbitrary pick a 14 number for the purpose of the question, do you have 15 any ability to--is it possible to know how many 16 megawatts of load we'd be talking about? 17 THE WITNESS: I think that is rather 18 difficult for several reasons: 19 One reason is that we know that nationally 20 we had about 130 plants, with another 90 that were 21 either under construction or were proposed. The 22 proposed segment has dropped off. The data submitted 23 here in this proceeding shows a dropoff since the 24 September 30th data set. 25 So we are aware and believe it's valid to PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1503 1 say that it's going to be difficult for start-up 2 plants that have no construction commitment at all 3 under the current environment to be able to produce 4 ethanol in a way that makes their investors 5 reasonably happy. 6 BOARD MEMBER HANSON: But you can't 7 necessarily put a megawatt figure on that? 8 THE WITNESS: No. I don't think it's easily 9 done. I was looking for some insight from what was 10 submitted to us or you, hoping that maybe the utility 11 had insights that we didn't have or access to 12 information we didn't have, but we didn't find that, 13 and so I'm reluctant to be too specific relative to 14 that issue because it's going to depend on the 15 economics of ethanol production and how many of those 16 plants now proposed go online, and how many under 17 construction will complete construction and will go 18 online, and how that supply/demand balance works out 19 in terms of the price of ethanol as a fuel. 20 Ethanol dropped to about a dollar-50 a 21 gallon in late summer of last year. It is now up to 22 about 2.25 on the Chicago Board of Trade. It closed 23 yesterday at 2.25. It has fluctuated greatly because 24 of demand/supply considerations. 25 BOARD MEMBER HANSON: Well, since all plants PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1504 1 are not created equal, there are small plants and 2 there are big plants. 3 THE WITNESS: And there are inefficient 4 plants and efficient plants, yes. 5 BOARD MEMBER HANSON: Right, right. Is 6 there any reason to think that if proposed plants 7 fail to materialize, that they would be 8 disproportionately smaller plants or 9 disproportionately larger plants that drop off the 10 table? 11 THE WITNESS: My assessment of that is that 12 the size may not be as big a factor as to those 13 plants that are proposed, but construction has not 14 begun, than it will be for the plants that have 15 proceeded far enough that they have no choice but to 16 complete construction. 17 BOARD MEMBER HANSON: So you don't expect 18 that we can generalize it as mostly the 50 million 19 gallon plants that are not going to be built? 20 THE WITNESS: I don't think so. I don't 21 think so. I'm also watching the failures. There 22 have been, I think, six ethanol plants that have 23 closed, and watching to see are those all inefficient 24 older plants. One is. Some were very new, and I 25 think quite efficient, and the latest was an Illinois PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1505 1 plant that filed Chapter 11 just before Christmas, 2 but there are a total, I think, of seven, and they're 3 scattered all over the country. 4 BOARD MEMBER HANSON: Okay. Thank you. 5 CHAIRPERSON NORRIS: Hi, Dr. Harl. 6 THE WITNESS: Hello. How are you? 7 CHAIRPERSON NORRIS: I'm okay. Like 8 everyone else, everybody is trying to get ready for 9 lunch. I just have a couple of questions for you. 10 THE WITNESS: Sure. 11 CHAIRPERSON NORRIS: That IMF report that 12 you used based on $65 gallon a barrel oil, how does 13 that change the metrics? 14 THE WITNESS: The IMF study, which was 15 published in October, used the price of oil that was 16 the--I believe they termed it the average price 17 during the time they were examining this issue. 18 IMF, the International Monetary Fund, in its 19 report global economic outlook examined the cost for 20 various biofuel types from Brazilian sugar-cane-based 21 ethanol, which was rated at 23 to 29 cents per liter, 22 U.S. gasoline at 34 cents per liter, U.S. corn-based 23 ethanol at 40 cents per liter, and cellulosic at 71 24 cents per liter. 25 The price of oil relates heavily to the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1506 1 question of demand. It relates less directly to the 2 question of cost, and I think that it's important to 3 note that figure of $65 per barrel. 4 The question, I guess, in part is, is our 5 current price of oil, which is around $90--it dropped 6 the last few days from up close to a hundred--is this 7 aberrational. 8 I'm not an oil analyst, but I listen and pay 9 attention to what the oil analysts are saying, and 10 there are many oil analysts who think we may see 11 lower-priced oil, so I think the $65 figure is a 12 useful figure. It is a figure that's in that study, 13 and obviously there is some, I think, modest, on the 14 cost side, impact of oil on the cost of producing 15 ethanol in various forms. 16 The bigger demand is on the demand side--or 17 the bigger impact is on the demand side, and there 18 the falling price of oil has a very negative effect 19 on profitability for ethanol. 20 CHAIRPERSON NORRIS: Okay. Also in those 21 numbers--and you cited them--the ethanol from 22 cellulosic waste is about 79 percent higher than the 23 corn-based price. 24 THE WITNESS: Yes. 25 CHAIRPERSON NORRIS: I don't think you were PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1507 1 here this week--in the hearing room this week when we 2 talked about IPL's proposal to add a biomass capacity 3 to this plant, and I'm trying to get some sense of if 4 they're going to be competing, will they be competing 5 for the same market for cellulosic materials and is 6 that a realistic conversion? 7 THE WITNESS: I think what's important here, 8 in looking at that cellulosic figure of 71 cents per 9 liter, that most everyone who is at all close to 10 cellulosic processes believes there will be some 11 efficiencies, and there will be, it appears, 12 significant differences, depending upon the source, 13 the stock source, and the type of facility, so that 14 this is the IMF's assessment on a worldwide basis, 15 but I am confident that there is a wide range. 16 The important point to note is it's not 17 enough to be able to do something technologically. 18 It has to be done competitively if it's going to 19 compete in the market that's dominated presently by 20 ethanol, corn-based ethanol. 21 Sugar-cane-based ethanol is being produced 22 in various parts of the world beyond Brazil. There 23 are plants in India, there are plants in some parts 24 of Africa, but the important point is that cellulosic 25 has a long way to go before it can be competitive PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1508 1 with the other; but there is in the new energy bill 2 significant incentives to proceed ahead with 3 cellulosic, and the mandate is very aggressive for 4 cellulosic. In fact, I think it's aggressive to the 5 point of maybe being unrealistic unless there are 6 major breakthroughs in efficiency. 7 CHAIRPERSON NORRIS: That's all I have. 8 Ms. La Seur. 9 MS. LA SEUR: One second. 10 (Pause.) 11 REDIRECT EXAMINATION 12 BY MS. LA SEUR: 13 Q. Referring you back to some of Board Member 14 Hanson's questions, and the questions in particular 15 about projected demand based on biofuel production, 16 the question about how many megawatts might be 17 affected by biofuel sector fluctuations, in response 18 to discovery, did you receive satisfactory data from 19 IPL to be able to answer this kind of question? 20 CHAIRPERSON NORRIS: Before you answer that, 21 Ms. La Seur, could you double-check that your 22 microphone is on? 23 MS. LA SEUR: It says it is. It doesn't 24 seem to be working very well. 25 A. I was frustrated because I was hoping to see PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1509 1 in their statistical projections a more transparent 2 factor in the end of ethanol and other biofuels, but 3 I didn't see that. Other than the guidance that 4 comes from the figure on power usage by plants now in 5 operation and the one-time adjustment, which was not 6 explained very clearly, there really wasn't very much 7 help there. I was hopeful that the additional 8 material received just recently would contain more 9 information. I just didn't find it. 10 MS. LA SEUR: I'll just speak up. 11 CHAIRPERSON NORRIS: Okay. I think they got 12 it fixed there too. 13 MS. LA SEUR: Thank you. 14 BY MS. LA SEUR: 15 Q. So without predicting a specific megawatt 16 load increase or decrease, if you don't have that 17 data or adequate data, is it reasonable to assume a 18 steady annual average rate of increase in electricity 19 demands over the next decade from biofuels? 20 A. On the demand side? 21 Q. Let's start with the demand side, okay. 22 A. What the plants will be demanding? Well, I 23 think we can expect, as I've testified earlier, that 24 we'll see additional plants coming online, heavily 25 those that are under construction or planned over the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1510 1 next three to five years. Beyond that, I think it is 2 very, very uncertain as to what the power demand will 3 be. That will relate to the extent of which ethanol 4 as a fuel is competitive in the market, in the 5 marketplace where we have other alternative 6 technologies that will be vying for that demand. 7 Q. Given recent developments in the biofuels 8 sector that you've just cited in your update, is it 9 reasonable to construct significant new electrical 10 generation to go online in 2013 to serve a projected 11 biofuels load increase? 12 A. I find 2013, that is not as far out as you 13 might think, but this is 2008, that's five years 14 away, and that's the point at which I think it 15 becomes very uncertain, a very uncertainty, how much 16 of a position ethanol will then have going forward, 17 and it may come earlier than that, depending upon how 18 fast other technologies are developed and compete 19 more aggressively with biofuels, including ethanol, 20 for demand. I think that becomes almost the outer 21 limit of what we can say very much about with a 22 degree of confidence today. 23 So I find it difficult to justify, based on 24 what we now know and how it has been submitted to us, 25 very difficult to project, with confidence, enough to PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1511 1 be building plants in 2013 based on ethanol. 2 Q. And there's been some reference to the 2007 3 Energy Act, questions from the Board. Based on your 4 long experience observing biofuels policy 5 development, in light of the 2007 Energy Act--and you 6 mentioned the farm bill coming up--what is your 7 forecast as to future federal biofuels policy? 8 A. Well, Congress reflects the views of people 9 of the country, and we've seen that happen over the 10 last 20 years. 11 Congressional support for biofuels, 12 particularly for ethanol, has been very friendly in 13 terms of subsidies, in terms of the tariff, in terms 14 of the mandates. I think that reflects a lot of 15 enthusiasm in the country over ethanol, and I've 16 noticed this in other locations, that the prim 17 growers were very supportive of ethanol, but 18 environmentalists like ethanol because it was more 19 friendly to the environment. 20 People generally like ethanol because they 21 like the notion that we were becoming energy 22 independent, and that is ranked fairly highly, I 23 think, as a public policy issue. 24 The Congress listened to all of that and 25 they responded with the subsidies and the tariffs and PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1512 1 the mandates, and then investors took a look at that 2 and said how could we lose, and so most of the 3 proposed plants sold out in terms of subscriptions 4 rather quickly. 5 We took it almost outside the market over 6 that time period. We gradually moved ethanol into a 7 world where policy was the determining factor rather 8 than the market, and that's what got the industry 9 into trouble this last half a year because we were 10 just producing way too much of it and the price of 11 ethanol fell because we had essentially lost touch 12 with the market. 13 I don't think that this dominance of U.S. 14 energy policy is likely to continue indefinitely. 15 The history of this country is that it rarely has 16 continued to run against the market, so I think that 17 depending on what happens in the Middle East and what 18 happens in technology here, I think we can count on 19 U.S. energy policy not being as friendly going 20 forward as it has been in the past after we get out 21 beyond three to five years, particularly if ethanol 22 by that time is demonstrably a more expensive source, 23 as I think it will be. 24 Q. And with regard to the questions about 25 Dr. Otto's projections, what factors explain the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1513 1 significant difference in your projections? 2 A. I think that Dr. Otto's projections are more 3 nearly static, looking at today's environment, 4 today's situation, today's policies, and mine try to 5 look forward and to take into account, I think, 6 obvious forces that today are very difficult to 7 quantify. 8 Q. And following up on Chairman Norris's 9 questions about the proposal to burn biomass at the 10 Sutherland 4 and to use this generation model in 11 general, will IPL's proposal to burn biomass at 12 Sutherland 4 impact the biofuels industry? 13 A. At the moment it appears unlikely. 14 Q. And will this electrical generation model 15 proposed by IPL of constructing a large centralized 16 baseload plant and sending electricity over 17 transmission lines to biofuels facilities have an 18 impact on the economics and viability of those plants 19 as compared to other potential generation models? 20 A. Well, of course, to really answer that 21 definitively, one would have to know what are the 22 models we're talking about. 23 My question is, I think that there should be 24 very careful assessment in the out years of the 25 amount of potential demand that's likely to come from PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1514 1 biofuels. I just don't see the demand there as 2 contrast to some others who see it in different 3 terms, but I just simply don't see that. 4 The plants that are built will likely 5 continue, but it's a matter of whether there will be 6 any growth, whether there will be any increase, to 7 speak of, after the next few years, and it could very 8 well get to the point of where it would be uneconomic 9 to produce ethanol in the plants that are now 10 operating. 11 Q. My question was also getting to the 12 comparative economics of centrally generated 13 electricity going over transmission lines to an 14 ethanol facility versus a facility that co-generates 15 its electricity. 16 MR. RAGSDALE: I would like to interpose an 17 objection. It's not clear to me that this is in 18 response to any questions that Mr. Stead had or any 19 questions that the Board had. 20 CHAIRPERSON NORRIS: I'm not sure Mr. Harl's 21 testimony anywhere cites co-generation or there's any 22 foundation for that in questions or the testimony, 23 and if you can cite me to some co-generation in his 24 testimony, I don't recall it being in there. 25 MS. LA SEUR: That's okay. I'll withdraw PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1515 1 the question 2 BY MS. LA SEUR: 3 Q. I would like to ask, going back to the 4 initial update of your testimony, that you refer to a 5 general trend of plants shutting down or being 6 withdrawn. Are you able to point to specific 7 instances of that happening? 8 MR. RAGSDALE: Again, I would like to 9 object. I don't think that this is in response to 10 questions from Mr. Stead or from the Board. 11 MS. LA SEUR: This was actually in response 12 both to Chairman Hanson's questions about a-- 13 BOARD MEMBER HANSON: Board Member. 14 MS. LA SEUR: You can be Chair, if you like. 15 BOARD MEMBER HANSON: Actually, no, I don't. 16 MS. LA SEUR: --Board Member Hanson's 17 questions about the referenced glut in ethanol 18 production. 19 CHAIRPERSON NORRIS: Could you restate the 20 question? 21 BY MS. LA SEUR: 22 Q. The question is, are there specific 23 instances that could be pointed to to provide a 24 fuller response to that question? 25 A. In terms of plants that have been shuttered? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1516 1 Q. Yes. 2 A. Yes. Those I could list: One in Grafton, 3 North Dakota, which was an older plant, and my 4 sources tell me a less efficient plant; one in 5 Nebraska, Mead, Nebraska, that was widely touted last 6 spring. It was going to be powered by a 28,000-head 7 feedlot with methane, and that one filed Chapter 11 8 on November 30th. The plant in Illinois just was the 9 latest. The biodiesel plant in Mason City closed for 10 several--for a few weeks and then it opened again. 11 There is a plant in Indiana, Lansing 6, I believe it 12 is. 13 I try to stay in contact with all of these 14 to see what is the probable cause of the closure of 15 the plant. Is it temporary? Is it permanent? Is it 16 related to basic economic issues, or are there 17 management problems? 18 So while these are a small enough 19 assessment, they're about 5 percent of the total 20 plants in the country at the present time. 21 I think the sample is getting large enough 22 so we can begin to determine what some of the reasons 23 are, and I can say at the moment it appears that the 24 reasons have one basic feature, and that is economic 25 competitiveness, but for different reasons. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1517 1 MS. LA SEUR: That's all I have. Thank you. 2 CHAIRPERSON NORRIS: Mr. Ragsdale? 3 MR. RAGSDALE: Well, unfortunately now I 4 have a question. 5 RECROSS-EXAMINATION 6 BY MR. RAGSDALE: 7 Q. I'm intrigued by the facility you mentioned 8 in Nebraska. 9 A. Yes. 10 Q. You said something about it was going to use 11 methane from a feedlot? 12 A. That was the plan. 13 Q. I'm assuming that methane was not going to 14 be the feedstock for the ethanol plant? 15 A. Yes. 16 Q. How were they going to use methane? 17 A. I do not know. That was widely publicized 18 by the governor of Nebraska in May last year, and I 19 was waiting to see it come online to see if it really 20 worked. 21 Q. Was it going to be a methane-based ethanol? 22 A. No. 23 Q. I mean that was my question. They weren't 24 going to use ethanol as a feedstock; they were going 25 to use corn? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1518 1 A. I do not know which it is, and I was hoping 2 that it would come online, and the next thing I knew 3 was they had filed Chapter 11. 4 MR. RAGSDALE: That's all I have. 5 THE WITNESS: It's at Mead, Nebraska. 6 CHAIRPERSON NORRIS: Mr. Puckett? 7 MR. PUCKETT: No questions. 8 CHAIRPERSON NORRIS: Ms. La Seur? 9 MS. LA SEUR: Nothing. 10 CHAIRPERSON NORRIS: Dr. Harl, thank you. 11 THE WITNESS: Thank you. 12 CHAIRPERSON NORRIS: Unless Mr. Ragsdale has 13 been persuaded to withdraw his certificate, I think 14 we'll come back after lunch. 15 (Witness excused.) 16 MR. RAGSDALE: I'm sorry. I didn't hear 17 you. 18 CHAIRPERSON NORRIS: I was just seeing if 19 you were awake. 20 MR. RAGSDALE: Now I have to read the 21 transcript, I guess. 22 CHAIRPERSON NORRIS: It is 12:20. Let's 23 come back at 1:40. 24 (Recess at 12:25 p.m. until 1:45 p.m.) 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1519 1 AFTERNOON SESSION (1:45 p.m.) 2 CHAIRPERSON NORRIS: All right. We are back 3 in session, and unless we have any preliminary to 4 deal with, I think we are to you, Ms. Johnson, and as 5 I recall, I think we're back to witnesses from the 6 company, is that correct? 7 MS. JOHNSON: That's correct, so we need to 8 call Brent Kitchen back to the stand. 9 CHAIRPERSON NORRIS: Mr. Kitchen, raise your 10 right hand, please. 11 BRENT KITCHEN, 12 recalled as a witness by Interstate Power and Light 13 Company, being first duly sworn by Chairperson Norris, 14 was examined and testified as follows: 15 CHAIRPERSON NORRIS: Thank you. You may be 16 seated. 17 I'm trying to recall where we were. 18 MR. STEAD: We were just out of confidential 19 session. 20 CHAIRPERSON NORRIS: That's right; that's 21 right. Thank you. 22 Why don't we just, for convenience sake, go 23 right back to Mr. Stead or Ms. Easler, and-- 24 MS. EASLER: I don't have anything. 25 CHAIRPERSON NORRIS: No more questions, PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1520 1 okay. 2 CHAIRPERSON NORRIS: Ms. La Seur. 3 MS. LA SEUR: One second, please. 4 (Pause.) 5 CROSS-EXAMINATION 6 BY MS. LA SEUR: 7 Q. Good afternoon, Mr. Kitchen. 8 A. Good afternoon. 9 Q. Turning to your direct testimony at page 5, 10 at line 16, you project a capacity deficit of 11 175 megawatts in 2013; correct? 12 A. That's correct. 13 Q. And does this assume an 18 percent reserve 14 margin? 15 A. Yes, it does. 16 Q. And you also testify at page 4, the facing 17 page, that--one page back in yours--that IPL's summer 18 projected net load for 2013 is 3,104--3,104 megawatts. 19 This is line 20. 20 A. Yes. This information comes off my 21 Exhibit BRK-1, Schedule A. 22 Q. Okay. And so would an 18 percent reserve 23 margin be included in that 3,104 megawatts? 24 A. Yeah. You can see on line 14b of that 25 schedule that it assumes an 18 percent reserve PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1521 1 margin. 2 Q. And if we take 18 percent of 3,104, would 3 you agree that's approximately 550 megawatts? 4 A. Yes. 5 Q. So would you agree, then, that the projected 6 175-megawatt capacity deficit for 2013 is less than a 7 third of the 18 percent reserve margin? 8 A. Yes. 9 Q. Turn, please, to line--or page 7, lines 17 10 through 21. 11 A. (Witness complies.) 12 Q. And I'm referring to your figure of 13 64 percent--coal-fired capacity accounts for about 14 64 percent of IPL's coal generation; is that correct? 15 A. That's correct. 16 Q. And is that 64 percent coal-fired owned 17 generation all the coal-fired generation that IPL 18 uses? 19 A. That's correct. 20 Q. Is there any additional purchased coal 21 power? 22 A. That would not show up in that percentage. 23 Q. Are you familiar with the percentage of 24 IPL's total generation portfolio that consists of 25 purchased coal-fired generation? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1522 1 A. No, I'm not. 2 Q. And would you expect that number to change 3 going forward? 4 A. Yes, I would. 5 Q. In what direction and to what extent? 6 A. The purchased power--the coal purchased 7 power would decline with the addition of Sutherland 8 4. 9 Q. Turn to page 8, please. 10 A. (Witness complies.) 11 Q. I'm looking at lines 20 through 21 where you 12 refer to smaller coal-fired units that may have to be 13 operated differently, fuel switched, or even shut 14 down. Under what circumstances would IPL shut down 15 one of these older, smaller, coal-fired units? 16 A. I can't commit to any shutdowns. That would 17 be a management decision. 18 Q. Would you be able to describe the 19 circumstances in which a shutdown would be 20 considered? 21 A. There's many circumstances, but I just can't 22 commit to shutting down any coal plants. 23 Q. Would you be equally unable to commit to any 24 candidates for shutdown if the circumstances were 25 appropriate? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1523 1 A. Could you repeat the question? 2 Q. Would you be able to commit to any candidate 3 plants for shutdowns if the circumstances were 4 appropriate for shutting down plants? 5 A. I believe any of these smaller, older, less 6 efficient coal plants would be potential possible 7 candidates. 8 Q. Would you be able to name any of those 9 plants? 10 A. For example, Dubuque, Lansing. 11 Q. Just those two? 12 A. That's just an example. No, there's many 13 more. 14 Q. How many more? 15 A. I don't have that number off the top of my 16 head. I mean all that stuff is in the EGEAS files 17 that were submitted in response to data requests that 18 you would have had. 19 Q. Would you be able to point us to that data 20 request? 21 A. Well, for instance, data request 9, OCA data 22 request 9, which I believe you have a copy of, gave 23 our base case, and the original 15 gave our original 24 high. 25 Q. Would you please turn to your rebuttal PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1524 1 testimony? 2 A. (Witness complies.) 3 Q. And beginning at page 5, you state that the 4 Minnesota PUC--and I believe the IUB has taken 5 administrative notice of this, of the order discussed 6 here--found most of the IPL 2005 resource plan ably 7 done and reasonably on target; correct? 8 A. That's correct. 9 Q. Are there parts that were not considered 10 ably done or reasonably on target? 11 A. No. That's just typical language that the 12 Minnesota Public Utility Commission puts in all-- 13 basically, in most of or all of the resource plan 14 orders. They basically have recommendations going 15 forward for future resource plans, so that's typical. 16 Q. And is the 2005 resource plan relied on as 17 the basis for the present application? 18 A. No, it is not. 19 Q. And what is the basis for the present 20 application? 21 A. Well, the updated analysis that's presented 22 here, which is the preliminary 2007 resource plan. 23 Q. Is the 2005 plan relied on in any way for 24 this application? 25 A. Well, you know, 2005 is updated, and the same PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1525 1 process and methodology that was employed in the '05 2 resource plan is also employed in the '07 resource 3 plan, so to that extent it is. Now the inputs are 4 reviewed and updated as appropriate. 5 Q. Since you raise the Minnesota PUC's 6 regulations, would Sutherland 4 be eligible to sell 7 electricity into the Minnesota market under the 8 Minnesota carbon regulations to take effect less than 9 a year from now? 10 A. I don't have the answer to that question. 11 Q. Please turn to page 6 of your rebuttal. 12 A. (Witness complies.) 13 Q. And I'm looking at--the lines run over from 14 page 6 into page 7. You state that Coalition Witness 15 Tom Sanzillo did not accurately characterize IPL's 16 need for additional capacity. 17 It looks to me as if his testimony is just a 18 restatement of what you said in your direct 19 testimony, so I'm wondering how you consider his 20 characterization inaccurate. 21 A. Well, I mean I think you can read my 22 rebuttal testimony. He came up with this 92 megawatts 23 of phantom capacity. There is no 92 megawatts of 24 phantom capacity. 25 He interpreted in my Exhibit BRK-1, PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1526 1 Schedule A, he interpreted the line 11a, the total 2 participation capacity purchases, as being new 3 resource additions. They are not. I explained what 4 they are. They're a combination of purchases from 5 Duane Arnold, as well as our wind purchases, and he 6 used that to base a calculation to come up with this 7 92 megawatts of phantom capacity. There is no 92 8 megawatts of phantom capacity. 9 Q. So I'm directing you now to lines 20 to 22 10 at the bottom of page 6, and the question--I believe 11 this is your own question in your own rebuttal, is 12 Coalition Witness Mr. Sanzillo's characterization of 13 IPL's need for additional capacity in his direct 14 testimony on page 6, lines 119 through 129, and on 15 page 7, 130 through 144, accurate, so we're talking 16 about the need for additional capacity. 17 A. That's right. 18 Q. And when you talk about phantom capacity, 19 how is that relevant to this question? 20 A. I don't know. You would have to ask 21 Mr. Sanzillo that. I mean Mr. Sanzillo, in my 22 opinion, was confused and crossed existing capacity 23 with new capacity, and I outline that in my rebuttal 24 testimony here. 25 Q. Do you deny that he was quoting your direct PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1527 1 testimony in the lines cited here? 2 A. In where? 3 Q. Lines 20 through 22 at page 6 of your 4 rebuttal. 5 A. No. This is Mr. Sanzillo's testimony I'm 6 quoting here, that I'm referring to here. 7 Q. And I'm saying that he was in turn quoting 8 you in these lines in his direct testimony. 9 A. Yeah, I mean he was taking numbers, I 10 believe, in these lines. I don't have his direct 11 testimony here, but I believe he was referring to 12 this phantom capacity and the interpretation of the 13 load capability forecast, which is shown on Schedule A 14 of my Exhibit BRK-1. 15 Q. Okay. Let's then look at page 6 of 16 Mr. Sanzillo's direct testimony. 17 A. (Witness complies.) 18 Q. This is where Mr. Sanzillo cites, and he 19 says the application sets forth certain usage data 20 and forecasts demonstrating the need for additional 21 electric capacity, citing projected load, operating 22 capability, 18 percent reserve margin, and my 23 question is, what part of this, exactly, do you 24 consider a-- 25 A. May I see his testimony? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1528 1 Q. --a mischaracterization? It looks to me the 2 lines you were citing consist entirely of a direct 3 citation from your direct testimony. Are you able to 4 find the referenced section? 5 A. This doesn't look like it corresponds to 6 this. Let me see here. 7 Oh. If you read on, it says--yeah, he talks 8 about my Kitchen testimony offers only a cursory and 9 incomplete explanation for the 1.4, this annual 10 increase of 1.4. He says I only offer a cursory and 11 incomplete explanation of the data and assumptions 12 that are the basis for this number. 13 Well, I don't do our load forecasting, for 14 one, but I go over again the calculation on how that 15 1.4 percent is calculated. He basically claims--or 16 I'm interpreting his claim to be that he couldn't 17 determine how we calculated 1.4 percent for the load 18 growth. 19 Q. I think that's exactly his claim. 20 A. That's what I'm addressing here, is from my 21 Exhibit BRK-1, Schedule A, you can look at the number 22 in '07, you can look at the number in 2022, and when 23 you calculate the compounded growth rate, it's 24 1.4 percent per year. 25 Now, the details of that Mr. Hillberry will PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1529 1 address in his testimony, and that's what I state 2 right here in my testimony. 3 Q. Then do you stand by your testimony at the 4 bottom of page 6 of your rebuttal that Mr. Sanzillo's 5 characterization of IPL's need for additional 6 capacity in his direct testimony is inaccurate? 7 A. Yes, I do, because he claimed that I didn't 8 explain how that 1.4 percent was calculated, and I 9 think I did explain how it was calculated. 10 Q. Okay. You then go on with your rebuttal 11 at--I think this is getting into page 7, to the 12 Sanzillo testimony, by stating that IPL's projected 13 adjusted net internal demand for 2007 is 14 2,917 megawatts, and for 2022 is 3,578 megawatts, 15 which results in a compounded annual growth rate of 16 1.4 percent, correct? 17 A. Correct. 18 Q. Was the projected demand used to derive this 19 annual growth rate, or was the projected annual 20 growth rate used to derive the projected demand 21 figure? 22 A. Oh, I don't know. You'll have to ask 23 Mr. Hillberry that. 24 Q. Are you able to speak to the factors that 25 went into determining this baseline assumption? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1530 1 A. No, I'm not. 2 Q. Are you familiar with the projected growth 3 rate for electricity demand nationwide over this same 4 period? 5 A. No, I'm not. 6 Q. Have you ever compared IPL's projected 7 growth rate with national projected growth rates? 8 A. No, I have not. 9 Q. Are you familiar with the Woods & Poole 10 economics 2007 projections for Iowa's population? 11 A. No, I am not. 12 Q. I would refer you, then, to prefiled 13 Coalition Exhibit 202, which is at TS-1. It's an 14 attachment to the Sanzillo testimony, Schedule A. 15 A. TS-- 16 Q. TS-1, Schedule A. 17 A. Okay. 18 Q. And these are the Woods & Poole 2007 19 projections, are they not? 20 A. That's what it--well, I'm not sure. It says 21 2010 to 2030, copyright 2007. I'm not sure what this 22 is. 23 Q. Would you agree that this is a copyright 24 2000 document from Woods & Poole Economics, or at 25 least appears to be? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1531 1 A. It's copyright 2007. 2 Q. And would you agree that the title at the 3 top of the page is "Projections of Total Population 4 for U.S., Iowa, and its Counties: 2010 to 2030"? 5 A. Yes. 6 Q. And does that document appear to you to show 7 that Iowa's population is expected to grow at 8 one-half the rate of the nationwide population 9 between 2010 and 2030? 10 MS. JOHNSON: I would have to object. I 11 have to question the relevance of this to 12 Mr. Kitchen's testimony. This was addressed by other 13 IPL witnesses, and Mr. Kitchen has already stated 14 that the 1.4 percent was derived from other sources 15 and simply used in his calculations. 16 CHAIRPERSON NORRIS: Please restate your 17 question, Ms. La Seur. 18 MS. LA SEUR: I'm asking Mr. Kitchen to 19 speak to the nature of the data on which he has based 20 his own projections. 21 A. I didn't do these projections. I just did a 22 calculation based on the numbers. 23 Q. So you were given these numbers by another-- 24 A. That's correct. 25 Q. --IPL employee? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1532 1 A. Yes. 2 Q. And you did not inquire into the nature of 3 the data they had used? 4 A. They're already fully verified and validated 5 before I get them. 6 Q. And that would have been Mr. Hillberry? 7 A. Yes. 8 Q. Are you familiar with U.S. Census Bureau 9 population projections for Iowa over this same 10 period? 11 A. No, I am not. 12 Q. Did you play any role in analyzing growth 13 rates or population rates in compiling your 14 testimony? 15 MS. JOHNSON: Again, I would have to object. 16 Mr. Kitchen has made it clear that this is under the 17 purview of other employees of IPL to do this form of 18 analysis, and it's not part of his job description to 19 do it. 20 CHAIRPERSON NORRIS: Not part of his job 21 description to do what? I'm sorry. 22 MS. JOHNSON: It's not part of Mr. Kitchen's 23 job description to analyze the population and 24 economic factors that go into projected growth rates. 25 His job is to do the analysis through the EGEAS and PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1533 1 that form of forecasting. The other growth 2 forecasting is performed by other employees, so to 3 continue questioning Mr. Kitchen on this particular 4 topic is outside the scope of his testimony and of 5 his knowledge. 6 CHAIRPERSON NORRIS: I believe he's been 7 indicating that in his answers, I mean, so... 8 MS. LA SEUR: This is a summarizing question 9 asking whether there is any knowledge base on this 10 topic before I move on to other questions. 11 CHAIRPERSON NORRIS: Well, to the extent 12 Mr. Kitchen can answer them, but I mean it's obvious 13 we're continuing here on a lot of the stuff that 14 Mr. Kitchen knows nothing about. 15 MS. LA SEUR: My question is to him whether 16 he knows anything about this form of data before I 17 move on to another question. 18 A. No, I do not. 19 BY MS. LA SEUR: 20 Q. Going on to page 8 of your rebuttal 21 testimony, you refer to a statement in Mr. Sanzillo's 22 testimony at page 7, and your reference is at lines 4 23 and 5, where he refers to a net surplus capability of 24 386 megawatts in 2013, and your testimony takes issue 25 with this statement and asserts that there actually PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1534 1 will be a deficit of 173 megawatts; correct? 2 A. Correct. 3 Q. Isn't the only difference between 4 Mr. Sanzillo's number and yours whether the reserve 5 planning margin has been taken into account in the 6 calculation? 7 A. I don't know. I could not understand 8 Mr. Sanzillo's calculation, so I don't know what the 9 differences are. 10 Q. Okay. If we add-- Let's go back to the 11 mathematics, then. 12 If we assume an 18 percent reserve margin 13 off of the 2013 projected load we discussed earlier, 14 it is approximately 550 megawatts? 15 A. Okay. 16 Q. Would attaching an appropriate proportion of 17 that reserve margin to the projected capacity deficit 18 result in a number something like Mr. Sanzillo's? 19 A. No, because the difference between 500 and 20 173 is 327. 21 Q. Let me ask this another way. Using your own 22 numbers, if you subtract 3,104 megawatts of net 23 internal demand from 3,490 megawatts of net 24 capability, do you not arrive at Mr. Sanzillo's 25 number of a 386-megawatt surplus? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1535 1 A. Repeat that again now. I mean can you point 2 on my Exhibit BRK-1 where you're pulling these 3 numbers from, Schedule A? 4 Q. Okay. So back in your direct testimony at 5 page 4, line 23 at the bottom of page 4-- 6 A. Okay. 7 Q. --you project a summer projected adjusted 8 net capability for 2013 of 3,490 megawatts, correct? 9 A. Summer net capability of 3490, 3490 in '013, 10 okay. 11 Q. Then going right up the page to line 20 you 12 project a summer projected adjusted net load for 2013 13 of 3,104 megawatts, correct? 14 A. Yes. 15 Q. So if you subtract 3,104 megawatts of net 16 internal demand from 3,490 megawatts of net 17 capability, do you not arrive at Mr. Sanzillo's 18 number of a 386-megawatt surplus? 19 A. Yes, but that does not take into account 20 reserve capacity. 21 Q. Precisely. This is my question. So if you 22 take into account the 18 percent reserve margin as a 23 part of that calculation, you arrive at your number 24 of the 173-megawatt deficit, correct? 25 A. If I do what? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1536 1 Q. If you take into account that 18 percent 2 reserve margin as part of this calculation-- 3 A. Yes. 4 Q. --you arrive at a 386-megawatt surplus. 5 A. Yes. 6 Q. Now do you understand Mr. Sanzillo's 7 testimony? 8 A. No, I don't. 9 Q. In that particular do you understand it? 10 A. No, I don't. I don't, because he's 11 talking--I mean he doesn't clarify that--when we 12 refer to net surplus capability, we never look at the 13 example that you just showed without looking at 14 reserves, so I do not agree with that. We always 15 consider a reserve margin when we look at net surplus 16 capability, and he did not do that, so I do not agree 17 with his--I mean that's just--doesn't include any 18 reserves at all, so I still don't agree with that, 19 no. 20 Q. And still referring to Mr. Sanzillo's direct 21 testimony, doesn't Mr. Sanzillo perform that 22 calculation on the very next line of his testimony, 23 citing from your direct testimony the projected 24 175-megawatt deficit? 25 A. I don't recall that. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1537 1 Q. I'll refer you to Mr. Sanzillo's direct 2 testimony. We're back on page 7 of Mr. Sanzillo's 3 direct testimony. 4 A. Okay. 5 Q. And at the top of the page, lines 130 and 6 131 cite this initial calculation by Mr. Sanzillo of 7 a 386-megawatt net surplus capability by 2013, 8 correct? 9 A. Correct. 10 Q. And would you read line 132, please? 11 A. "IPL's net capability deficit is calculated 12 at approximately 175 megawatts by '013." 13 Now, that's my exact point right there 14 because you're comparing two bullet points, one with 15 reserves and the other without reserves, so you're 16 comparing apples and oranges, because my 175 was 17 based on an 18 percent reserve. Mr. Sanzillo's 18 calculation was based on no reserves. 19 Q. Doesn't he make both calculations right 20 here? 21 A. But you just did a comparison where you 22 compared apples and oranges. I don't--I couldn't 23 tell what he was doing here, to be honest with you. 24 That's part of my confusion, is that you're looking 25 on an apples-and-oranges basis. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1538 1 Q. So it's not clear to you that he's citing a 2 net surplus capability without any reserve margin 3 calculated at lines 130 and 131? 4 A. No, it's not when he comes back on the next 5 line and cites my deficit of 175 including a reserve. 6 Q. So your disagreement with Mr. Sanzillo lies 7 in his citing both numbers? 8 A. It didn't appear--yes, because I mean he's 9 basically referring to a surplus--you know, he's 10 referring to them in the same vein and not--he 11 doesn't qualify that one has got reserves and one 12 doesn't. 13 Q. And so where is Mr. Sanzillo mistaken or not 14 understanding your numbers? 15 A. As I explained before, we never think of a 16 surplus capacity or deficit without considering 17 reserves. 18 Q. Is there something wrong with looking at a 19 deficit without reserves? 20 A. I think it's misleading. 21 Q. And in spite of the fact that it's 22 referenced in the very next line? 23 A. I still stand by my testimony. I think it's 24 misleading. 25 Q. That's fine. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1539 1 Please turn to page 10 and 11 of your 2 rebuttal. 3 A. (Witness complies.) 4 Q. This is getting into the reference to 5 phantom capacity. 6 You appear to have a disagreement with 7 Mr. Sanzillo about whether this application requires 8 a showing of need on the part of IPL. Is it your 9 position that such a showing of need is not required? 10 A. I'm not an attorney. I think we've 11 established that throughout this proceeding. 12 Q. It is your rebuttal testimony, is it not, 13 that IPL is not required to demonstrate need for 14 Sutherland Unit 4 in its application for 15 certification? 16 A. I believe that is, yes. 17 Q. And you are now saying that you're not 18 qualified to give such testimony? 19 A. That's my interpretation, but, you know, my 20 interpretation may not be right, but that's the way I 21 look at that Iowa Code. 22 Q. You said a moment ago that you were not 23 qualified to make such an interpretation? 24 MS. JOHNSON: I object. Mr. Kitchen is 25 obviously not an attorney and not able to make a PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1540 1 legal opinion. He's making these opinions from a 2 policy basis, and I think that's pretty clear from 3 his testimony. 4 MS. LA SEUR: If Mr. Kitchen would like to 5 speak from a policy basis or qualify his testimony as 6 being a policy statement, would he please state that 7 for the record. 8 A. No, I do not. 9 BY MS. LA SEUR: 10 Q. You do not what, please? 11 A. I do not want to make a policy statement. 12 Q. Would you then withdraw this testimony? 13 MS. JOHNSON: His testimony refers to the 14 testimony of Mr. Bennington, who was the policy 15 witness. Mr. Kitchen is, you know, following the 16 requirements of his job application in those 17 statements--I mean his job description in those 18 statements. He's not trying to form a legal opinion 19 or make a policy decision. He's just enforcing the 20 policy that he's given. 21 CHAIRPERSON NORRIS: I think counsel is 22 entitled to know why Mr. Kitchen has made this 23 statement in his testimony. 24 A. Well, I believe that the appropriate 25 proceeding to show need in is through the RPU PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1541 1 proceeding. That's my belief. 2 MS. LA SEUR: Well, in that case, given that 3 the witness and his counsel have acknowledged that he 4 does not have the qualifications or basis to make 5 this kind of conclusion or give this testimony, I 6 would move to strike pages 10--page 10, lines 18 7 through 23, and page 11, lines 1 through 3, of the 8 Kitchen rebuttal. 9 MS. JOHNSON: I would have to resist that 10 motion to strike. I mean Mr. Kitchen is putting 11 those statements in based on the policy directives he 12 was given, and it's an illustration in his testimony 13 of why he performs his job duties in a certain order, 14 and I think it's perfectly appropriate to be in 15 testimony. 16 CHAIRPERSON NORRIS: Yeah. I think we'll 17 allow it to remain in the testimony. You're welcome 18 to question him on any of those issues on those pages 19 that you would like to, Ms. La Seur. 20 BY MS. LA SEUR: 21 Q. Mr. Kitchen, you sponsor a section of the 22 application that deals solely with the need for the 23 facility, and you speak on this topic extensively in 24 both your direct and your rebuttal testimony. If 25 need is irrelevant from a policy perspective, why PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1542 1 bother offering that section of the application or 2 any of your testimony for the record? 3 A. We typically, on a courtesy basis, provide 4 that type of information. 5 Q. Would it be your argument that the Board 6 should approve Sutherland Unit 4 even if IPL did not 7 need a single one of the 350 megawatts it plans to 8 get from this facility? 9 A. The Board will have to decide that. 10 Q. But you take no position on that question? 11 A. I take no position on that. 12 Q. Is there some other cutoff you would 13 suggest? 14 A. No, I do not. 15 Q. Isn't part of the argument in that instance 16 that too much excess capacity would not only not be 17 needed by IPL, but would also be bad for the economy 18 of Iowa and Iowa's energy consumers? 19 MS. JOHNSON: Objection. The statements 20 involving the economics were addressed by a 21 different witness, and it's outside of the scope of 22 Mr. Kitchen's testimony. 23 MS. LA SEUR: This is a criticism of 24 Mr. Kitchen's testimony made by one of our witnesses, 25 and we would like to hear his response to it. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1543 1 CHAIRPERSON NORRIS: Restate the question, 2 Ms. La Seur. 3 BY MS. LA SEUR: 4 Q. The question is whether this excess 5 capacity, if not needed by IPL, would be bad for 6 Iowa's economy and consumers? 7 CHAIRPERSON NORRIS: To the degree you can 8 give an opinion on that, Mr. Kitchen, you may. 9 A. What excess capacity are you referring to? 10 Q. You can take it in the form of a 11 hypothetical, if you would like. If this capacity 12 were not needed, would it not actually be harmful to 13 Iowa's economy and Iowa's consumers? 14 A. Not necessarily. 15 Q. And would you please expand on why it would 16 not necessarily be harmful to the economy and 17 consumers? 18 A. This particular unit, whether it's 19 considered excess capacity or not, still provides us 20 options with how we can utilize our existing fleet of 21 older, less efficient coal plants, so in that 22 respect, you know, it may not be needed from a strict 23 load perspective, but it's still beneficial to IPL 24 customers on the perspective that it gives us options 25 and allows us an ability and flexibility to manage PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1544 1 the rest of our resources. 2 Q. So you acknowledge that Sutherland 4 may not 3 be needed? 4 A. No, I disagree with that. 5 Q. Please turn to page 11 of your rebuttal. 6 A. (Witness complies.) 7 Q. And at this page--we're looking down towards 8 lines 15 to 18--you criticize Mr. Sanzillo for not 9 knowing the additional resource options on your 10 exhibit BRK-1, Schedule B, were not selected as 11 economic by EGEAS, and I would like to know where on 12 the exhibit that is indicated. 13 A. Well, by understanding the EGEAS, the 14 output, the units that get selected are indicated 15 they're selected, and by definition, EGEAS is an 16 economic model and has objective functions, and that 17 would be the case, that if it doesn't show up with a 18 tally in the column, then it wasn't selected because 19 of economics. 20 Q. But isn't Mr. Sanzillo's fundamental 21 criticism of your direct testimony that the original 22 application and direct testimony submitted by IPL 23 contained too little information for the decision- 24 maker, in this case the IUB? 25 A. I think we supplied plenty of information PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1545 1 through data requests as well. I think there was 2 clearly the--clearly enough avenues that Mr. Sanzillo 3 could have used to determine that. 4 Q. And so going back to a question ago, are you 5 able to point to a place on Exhibit BRK-1, Schedule B, 6 that would show the additional resource options not 7 selected? 8 A. To show the additional resource options that 9 are not selected? 10 Q. Well, the criticism is that Mr. Sanzillo did 11 not know that the additional resource options on this 12 exhibit were not selected as not economic, and my 13 question is where-- 14 A. Yeah, I think so. I mean alternatives 3 and 15 4, those columns are all zeros. Alternative 3 is a 16 150-megawatt CTL. Alternative 4 is a 300-megawatt 17 combined cycle, none of which have any ones in their 18 columns, so they were not selected, and the reason 19 they were not selected was because they were not 20 economic. 21 Q. And you've gotten a little ahead of me. 22 Okay. So could you indicate the additional 23 resource option information available on BRK-1, 24 Schedule B? If you could just in a general sense 25 explain to me how to read this to understand the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1546 1 additional resource options. 2 A. Well, down below in the middle of the page 3 there there's the unit types, and they're numbered 1 4 through 7. 5 When you look at the matrix, the unit types 6 are across the top, 1 through 7. The years are down 7 through the columns, 2007 to 2022. The matrix--the 8 body of the matrix shows the number of units in each 9 year that get added. 10 Q. And when you say that Mr. Sanzillo clearly 11 does not understand IPL's 2007 load and capability 12 data as presented in BRK-1, Schedule A, and BRK-1, 13 Schedule B, is there a key somewhere or a guide to 14 the abbreviations, the numeric references in these 15 tables that would make them transparent to a 16 layperson, to a Board Member, to anyone? 17 A. Probably not to a layperson, but then again, 18 that question was never asked of us either. 19 Q. So you were not asked to provide data to 20 allow others involved in this docket to interpret 21 this basis data? 22 A. There was no questions asked in the 23 discovery process for me to explain those alternative 24 types, and I would have definitely done that. 25 As a matter of fact, there was one discovery PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1547 1 from the OCA, and I can't remember the--what the 2 alternative costs that we provided that would have 3 given the layperson the connection between this 4 document and the resource types. 5 Q. Okay. So is there any information that's 6 been submitted that would provide justification for 7 why the EGEAS did not select other resources as 8 economic? 9 A. I don't understand the question. EGEAS is 10 an economic model, and the resources that get 11 selected get selected on an economic basis. If they 12 don't get selected, they don't get selected on an 13 economic basis because they are not cost effective if 14 they don't get selected. 15 Q. So it's a black box, if you will? 16 A. Not necessarily. We've been--models of this 17 type, if you don't understand them and are not 18 knowledgeable, irregardless of what model you have, 19 you can always claim that, but if you understand the 20 model, it's not necessarily a black box. I disagree 21 with that characterization. 22 Q. Would it be necessary to provide additional 23 information so that this data was comprehensible to 24 nonspecialists involved in this proceeding? 25 A. Well, I guess I assume that if the question PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1548 1 wasn't asked, that it would have been interpreted and 2 understood. If we didn't get any data requests, I 3 would assume that-- We've been using this model for 4 years in various proceedings. I think for the most 5 part, the parties to this proceeding do understand 6 this model and probably do understand those 7 statements from EGEAS. 8 Q. I would like to refer you to page 19 of your 9 rebuttal testimony, and I'm referring here to OCA's 10 prefiled confidential exhibit to Mr. Fagan's direct 11 testimony, Schedule A, page 116 of 212. I think we 12 can probably ask our questions without having to make 13 reference to confidential data directly. 14 Were you involved in AE's strategic planning 15 for 2008? 16 A. No, I was not. 17 Q. Would you be able to answer any questions 18 regarding strategic planning? 19 A. No, I would not. 20 MS. LA SEUR: Okay. So we'll skip right 21 over that. Let's see. 22 I would like to propose Coalition Exhibit 213, 23 which is a coal price projection from Peabody 24 Energy's web site. 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1549 1 (Coalition Exhibit 213 was 2 marked for identification.) 3 BY MS. LA SEUR: 4 Q. We would propose, as I say, a coal price 5 from Peabody Energy's web site, Mr. Kitchen. Would 6 you be able to identify this as a Peabody trademarked 7 document that is titled "U.S. markets continue to 8 show improvement in 2007"? 9 A. It appears that way. 10 MS. LA SEUR: We would offer Coalition 11 Exhibit 213, the coal price projection. 12 MS. JOHNSON: I would have to object. This 13 has no relation to Mr. Kitchen's testimony. 14 MS. LA SEUR: We are referring to 15 Mr. Kitchen's testimony and rebuttal testimony 16 focusing on the costing out of various scenarios for 17 the Marshalltown plant in relation to natural gas, 18 wind, and coal, and the impact of various emission 19 scenarios, so fuel costs are integral to the 20 scenarios he has testified about. 21 MS. JOHNSON: There was no foundation laid 22 for the source--for this information with this 23 witness and how specifically it's going to tie in. 24 CHAIRPERSON NORRIS: My recollection says 25 that Mr. Kitchen claims that coal is cheap and not PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1550 1 volatile in price, so I would think some information 2 about coal price would be relevant to his testimony. 3 Yes, it's admitted. 4 MS. LA SEUR: Thank you. 5 (Coalition Exhibit 213 was 6 received in evidence.) 7 BY MS. LA SEUR: 8 Q. Just returning to my previous description of 9 our questions in this direction, your testimony, 10 rebuttal testimony, focused largely on the costing 11 out of various scenarios of the Marshalltown plant in 12 relation to natural gas, wind, and coal, and the 13 impact of various scenarios, various capital cost and 14 fuel cost scenarios. 15 There's only one set of possible scenarios 16 that--well, there is one set of possible scenarios I 17 would like to ask you about that's only touched on 18 lightly in your testimony and rebuttal, but seems 19 significant to these scenarios. 20 Over the past few months, Peabody Energy, 21 the U.S.'s largest producer of coal, and Arch Coal, 22 the second largest producer of coal, have been 23 offering scenarios of future price increases for 24 coal, and I would direct you to the Peabody 25 information, these projections for 2007, 2008, and PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1551 1 2009 dollars per ton. Peabody projects Powder River 2 coal prices rising up to 59 percent within the next 3 two years. 4 Powder River Basin coal is intended to be 5 the primary coal source for Sutherland 4, correct? 6 A. I believe that's--it to be one of them, yes. 7 Q. And if prices rose by 20 percent per year 8 between now and 2013 when the plant opens, how would 9 that impact IPL's various planning models? 10 A. I don't know. I did not do that analysis. 11 Q. If costs continue to accelerate at the rates 12 indicated on the Peabody exhibit, 2015, 2017, and 13 through 2022, how would IPL's planning models with 14 regard to wind and natural gas need to be adjusted? 15 A. I don't know. I did not do the analysis 16 with these numbers. 17 Q. I'm asking you to assess the hypothetical 18 situation in which this kind of price increase was 19 reality. 20 A. You want me to speculate on the possible 21 outcome? 22 Q. Yes. I would like you to speak to how IPL 23 would respond to that situation. 24 A. Oh, I'm not in our fuel procurement group. 25 I wouldn't--I can't speak on how we would manage our PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1552 1 fuel portfolio going forward. 2 Q. But as a resource planner, would you be able 3 to speak to how your use of wind and natural gas 4 would change in response to coal prices of that kind? 5 A. No, I cannot. It may not change at all. I 6 just cannot tell without doing the analysis. 7 I mean let's put this in perspective here. 8 If you've got a buck-25, a dollar-25 per MBtu coal 9 price and you increase it by 10 percent, that's 10 12 cents on the dollar increases. With a 9,000 heat 11 rate, you're looking at a dollar per megawatt-hour 12 impact, so that's a cents per kilowatt-hour increase 13 that you would have, one-tenth of a cent per 14 kilowatt-hour. 15 So even though it sounds like a high 16 percentage, when you convert it back to dollars per 17 kilowatt-hour and the impact on the conversion rate, 18 I'm not sure that it would have any impact without 19 doing the analysis. 20 Q. Is there a price rate at which there would 21 be an impact? 22 A. I'm sure there would be, but I couldn't tell 23 you what that would be either. 24 Q. You haven't done that analysis? 25 A. I have not done that analysis, no. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1553 1 Q. And then I have some questions for you on 2 your planning activities in general. 3 The principal assumption behind IPL's model 4 is that net internal demand will rise at an 5 approximate rate of 1.4 percent between 2007 and 6 2022, is that correct? 7 A. That's correct. 8 Q. And this was the same assumption used in the 9 2005 plan, correct? 10 A. The forecasts were updated and changed, and 11 I don't recall what the percent increase on the load 12 forecast from the 2005 resource plan was. 13 Q. Did IPL's 2005 plan project the need for an 14 annual average increase in capacity of 50 megawatts 15 per year? 16 A. I don't recall. 17 Q. Did IPL's 2007 application to the IUB for 18 this plan reduce that amount by 20 percent to 19 40 megawatts? 20 A. It's 40 megawatts, approximately, per year 21 in this application. I do not know what was the 22 exact number for the '05. 23 Q. And taking for the--if you would accept my 24 representation of the 2005 plan as projecting a need 25 for 50 megawatts, would you be able to speak to the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1554 1 basis for the reduction, 50 to 40? 2 A. No, I would not. That would have to be 3 directed to Mr. Hillberry, our load forecast witness. 4 Q. Have there been any adjustments to IPL's 5 forecasting methodology between 2005 and 2007? 6 A. You will have to ask Mr. Hillberry. 7 Q. When IPL provided the IUB with information 8 during the discovery period, didn't its May 15th, 9 2007, submittal show an average annual net internal 10 demand increase through 2013 of 1 percent? 11 A. I don't know what that May 15th submittal 12 was. 13 Q. If the rate of growth of internal demand 14 were 1 percent annually through 2013, would IPL need 15 to add the Marshalltown plant? 16 A. I don't know that. I didn't do that 17 analysis. 18 Q. You wouldn't be able to speak to the general 19 rate of growth as a predictor for the need to put new 20 generation online? 21 A. Not necessarily, no. 22 Q. If you will accept that the rate of growth 23 of internal demand is 1 percent through 2013, isn't 24 the surplus .4 percent just an addition of the 18 25 percent reserve margin? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1555 1 A. Say that again. 2 Q. So if you will accept my representation that 3 documents have been filed by IPL stating that a 4 1 percent average annual net--internal demand 5 increase through 2013 of 1 percent is projected, my 6 question is if this is so, isn't the surplus .4 percent 7 that you are using in your growth projections of 8 1.4 percent just an addition to that 1 percent of the 9 18 percent reserve margin proportionally? 10 A. I believe so. Well, I'll--no, I don't know. 11 I'll take that back because there's additions and 12 subtractions, so I'm not sure when you calculate the 13 deficits and surpluses, so I'm not a hundred percent 14 positive on that without being able to calculate it. 15 Q. Okay. Does IPL offer any evidence to 16 support its assertions that stronger growth will 17 occur after the 2011 period? 18 A. Growth in demand? 19 Q. Yes. 20 A. You'll have to ask Mr. Hillberry. I don't 21 do our load forecasting. 22 MS. LA SEUR: That's all I have. Thank you. 23 BOARD MEMBER HANSON: Okay. Mr. Kitchen, on 24 page 7 of Consumer Advocate--you don't need to look 25 it up, but Mr. Schlissel, a Consumer Advocate PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1556 1 witness, on page 7 states that IPL's 2005 resource 2 plan, the modeling for that, included 18 scenarios. 3 Do you agree with his assessment that in 4 2005 for the resource plan there were 18 scenarios? 5 THE WITNESS: I do. 6 BOARD MEMBER HANSON: Okay. Could you 7 explain why IPL chose to include only three scenarios 8 in your 2007 resource plan filing for this 9 proceeding? 10 THE WITNESS: Yes. Our 2007 resource plan 11 hasn't been completed. That terminology in my 12 testimony is used to refer to the scenarios that we 13 have done to date, but right now we plan on having a 14 complete analysis done on or before July 1st of 2008. 15 BOARD MEMBER HANSON: Okay. 16 THE WITNESS: So they're coming. 17 BOARD MEMBER HANSON: Okay. Could you 18 explain why IPL's expansion plan appears to be the 19 same under your low and high CO2 price scenarios? 20 THE WITNESS: The expansion plan? 21 BOARD MEMBER HANSON: Uh-huh. 22 THE WITNESS: Yeah. That just means that 23 the incremental cost in CO2 had no impact on unit 24 selection. 25 BOARD MEMBER HANSON: Regardless of whether PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1557 1 it was low or high? 2 THE WITNESS: Correct. So the increased 3 cost, you didn't get to the break point where it 4 would actually cause a change in resource selection. 5 BOARD MEMBER HANSON: Okay. Then on page 6 6 of your direct testimony--let me get to that point 7 here--lines 7 through 10, the statement here is IPL's 8 2007 electric resource plan assumes a favorable 9 20-year PPA will be negotiated for IPL's current 10 output from Duane Arnold beginning in 2014. 11 And that's still correct, right? 12 THE WITNESS: Yeah. The assumption in the 13 resource plan in the runs that we have done, in both 14 my direct and my rebuttal testimony, all assume the 15 output from Duane Arnold throughout the study period. 16 BOARD MEMBER HANSON: So just to make sure I 17 understand, anything that you show in terms of 18 capacity going out to 2013 and beyond includes energy 19 that you intend to--includes a continuation of energy 20 from Duane Arnold? 21 THE WITNESS: Yeah, with the one exception-- 22 all of the EGEAS runs do. The one exception is my 23 Exhibit BRK-1, Schedule A, which is the load and 24 capability, and there it does show that the--and 25 this, here again, is before any resource additions or PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1558 1 commitments for the Duane Arnold PPA, so in that one 2 instance, that load-end capability, it does show 3 Duane Arnold going away after 2014, but for all of 4 our planning scenarios Duane Arnold is in there. 5 BOARD MEMBER HANSON: So the numbers in that 6 exhibit are made with the assumption that you're not 7 receiving power from Duane Arnold? 8 THE WITNESS: Yeah. This is just the 9 low-end capability stuff. 10 BOARD MEMBER HANSON: Let's assume for the 11 sake of argument that IPL's assumptions of the most 12 likely scenario for CO2 regulations comes to pass, 13 which is either no or relatively gradual phasing in 14 of carbon restrictions. 15 THE WITNESS: Okay. 16 BOARD MEMBER HANSON: And this plant is 17 built, and in your testimony on--I think it's 18 rebuttal testimony on page 8, maybe. I'll just check 19 quick here. 20 Let's see. I may have gotten that--maybe 21 it's your direct testimony. Just a moment. I want 22 to make sure I find the right spot. Yes, I'm sorry, 23 it's your direct testimony. 24 At the bottom of page 8--you've already 25 alluded to this--where you talk about the possibility PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1559 1 that the older and smaller coal-fired units might be 2 operated differently, might be operated differently 3 or switched to a different fuel or possibly even shut 4 down. 5 THE WITNESS: Correct. 6 BOARD MEMBER HANSON: So under this scenario 7 where carbon costs are relatively low, is it possible 8 that instead of being shut down or run differently, 9 that there would be situations where it would be to 10 the advantage of the company to sell that power to 11 some other utility company that maybe has even older 12 and even less efficient coal plants or, for whatever 13 reason, their alternatives are more expensive than 14 the alternative of purchasing from these plants? 15 THE WITNESS: Yeah. First of all, I'm not 16 our marketing witness, but I believe Witness Friedman 17 could answer this question. 18 BOARD MEMBER HANSON: If it would be better 19 for me to talk to him about that, I will. 20 THE WITNESS: Yeah. He's our next witness, 21 and he would be. 22 BOARD MEMBER HANSON: Okay. I'll save that 23 for him, then. 24 Then my last--I think my last area of 25 questions. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1560 1 On page 26 of your rebuttal testimony, the 2 last--at the bottom of the page, you discuss the--the 3 last sentence, "IPL believes the price of wind and 4 natural gas-powered energy will be much higher as a 5 result of CO2 regulation," and I discussed this with a 6 previous witness, but just for the sake of argument 7 I'll call it a substitution-driven price increase, 8 just that portion of the price increase that is 9 caused by higher demand for wind and natural gas 10 generation because of the higher expensive coal. 11 Speaking specifically of wind, can you tell 12 me specifically which part of the expenses of wind 13 energy generation would be likely to become more 14 expensive due to this substitution-driven demand? 15 Would it be the upfront capital expenses of acquiring 16 the equipment and machinery and materials to build 17 the plant, or would it be the ongoing operation of 18 the plant? 19 THE WITNESS: And here again, I'm going 20 to--I'll take a stab at this, but our wind witness is 21 Bob Vosberg, but I'm going to give you what we've 22 realized in recent past negotiations, the potential 23 wind developers for PPAs. 24 It may be none of those. The big---what 25 we've seen, the big increase, we've negotiated PPAs PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1561 1 with developers before. They come back to us and say 2 they can't do it at that price, and one of the 3 biggest increases--price increases that we've been 4 seeing is due to the transmission upgrades that are 5 necessary to install it, so it may be none of the 6 three that you identified. 7 BOARD MEMBER HANSON: I guess I talked about 8 two. Would you consider transmission expenses to be 9 more of an upfront cost in the life of a plant or a 10 long-term operating cost? I'm talking about the 11 transmission upgrades. 12 THE WITNESS: Here again, Bob Vosberg is 13 probably in a better position to answer that 14 question, but obviously the Internet--interconnect 15 and transmission upgrade costs, you know, I would 16 assume they would be more of an upfront-type cost. 17 BOARD MEMBER HANSON: Okay. With coal-fired 18 plants, increased costs due to CO2 regulations, would 19 that be something that you would see as an ongoing 20 cost to the operation of the plants? 21 THE WITNESS: Could you please restate that? 22 I kind of lost that. 23 BOARD MEMBER HANSON: Okay. If CO2 24 regulations make coal--make the energy from 25 coal-fired plants or make generation for coal-fired PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1562 1 plants more expensive, would you agree that that 2 would be an ongoing operating expense that would be 3 occurring as the plant is operating after it's--even 4 after it's up and running, hooked into the 5 transmission system? 6 THE WITNESS: Yeah, I'm not sure if it would 7 be a capital or an operating expense. 8 BOARD MEMBER HANSON: Okay. I guess the 9 point I'm getting to is if you would agree that if in 10 fact there is substitution-driven increase in wind 11 power, that that would manifest itself primarily in 12 making the construction and early phases of wind 13 energy more expensive as opposed to in a coal-fired 14 plant, making the ongoing operation costs of the 15 plant more expensive. 16 THE WITNESS: Oh, I see what you're getting 17 at there. Yeah, I guess I really haven't thought 18 through that entirely. 19 BOARD MEMBER HANSON: Okay. Well, thank 20 you. 21 THE WITNESS: Yeah. 22 BOARD MEMBER TANNER: Good afternoon. 23 THE WITNESS: Good afternoon. 24 BOARD MEMBER TANNER: You've touched on this 25 a little bit so to the extent that it's repetitive, I PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1563 1 apologize, but if I ask my questions out of order, 2 I'll get confused, so bear with me. 3 Can you refer to Exhibit BRK-1, Schedule A? 4 THE WITNESS: Yes. 5 BOARD MEMBER TANNER: On line 12-- 6 THE WITNESS: Okay. 7 BOARD MEMBER TANNER: --it shows a decrease 8 in the adjusted net capability. 9 THE WITNESS: Yes. 10 BOARD MEMBER TANNER: Can you explain that? 11 I think you said that Duane Arnold was not included. 12 Is that the reason or is there another reason for the 13 reduction there in capability? 14 THE WITNESS: No, no. If you go up to line 15 11a, you can see we're tracking about 442, 441, and 16 then it drops to 330--approximately 30--my eyes 17 aren't that good--a little bit over 30, so you've got 18 a difference there of 400 and change in megawatts, 19 and that's Duane Arnold, primarily. 20 BOARD MEMBER TANNER: But you did model 21 Duane Arnold in EGEAS. 22 THE WITNESS: Yeah. This right here just 23 shows the position with no additions and no 24 commitments, because we currently have no commitment 25 for Duane Arnold post 2014, but I testified that PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1564 1 we're hoping to get a favorable agreement from 2 Duane Arnold. So that is one of the assumptions that 3 is embedded in all of the EGEAS analysis, that there 4 is output, so that is not driving any of the results, 5 that there's a constant output from Duane Arnold 6 throughout the study period. 7 BOARD MEMBER TANNER: Okay. Then to follow 8 up, can you clarify how much capacity from 9 Duane Arnold you modeled in the EGEAS analysis? 10 THE WITNESS: I want to say it's like 405 11 megawatts. It's the same before as it is today as it 12 is post 2013 or throughout the study period, so 13 we--it's just constant, but I believe it's about 405 14 megawatts for reserve capacity. 15 BOARD MEMBER TANNER: And-- 16 THE WITNESS: Actually, I think I state that 17 in my testimony here. 18 BOARD MEMBER TANNER: If you have it in 19 there, you answered my question, so that's fine. 20 Also related, then, if Duane Arnold would 21 have been included here in Schedule A, would 22 that--that would have affected line 13, correct, your 23 reserve percentage? 24 THE WITNESS: No, it would not. Well, yeah, 25 it would have--that reserve percentage is the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1565 1 resultant percentage, so, yeah, it would have 2 affected that. What you would have seen there is the 3 adjusted net capability remaining at that 3489.7, 4 whatever it is, in the previous year, in '013. 5 That contract expires, I believe, in 6 February of '014. Yeah. I mean so instead of 7 showing a 640-megawatt deficit in '014, it would have 8 been that amount plus 405, so you would have only had 9 a negative of 235, I believe. 10 BOARD MEMBER TANNER: Okay. And just--again 11 I think you've answered, but to make sure I hit 12 everything, Duane Arnold is included in your EGEAS 13 analysis, so the EGEAS analysis still selects SGS 4 14 even with the inclusion of the Duane Arnold PPA? 15 THE WITNESS: That's correct. 16 BOARD MEMBER TANNER: Okay. That's all I 17 have. Thank you. 18 CHAIRPERSON NORRIS: Okay. Mr. Kitchen, 19 let's see here. Starting with your rebuttal on 20 page 15, you discuss the modeling of a superfluous 21 unit in an EGEAS analysis. 22 THE WITNESS: Yes. 23 CHAIRPERSON NORRIS: Could you please 24 explain the purpose of modeling superfluous units in 25 an EGEAS analysis? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1566 1 THE WITNESS: Well, basically what a 2 superfluous unit is is it's a unit that gets added 3 over and above your reserve capacity, if economic. 4 By definition, that's what it means, an extra unit 5 that's not needed in your reserve capacity. So in 6 essence, it's a form of excess capacity, in reality, 7 because it's not needed to meet your reserve 8 capacity. It's only selected if economic. 9 CHAIRPERSON NORRIS: Okay. And are you 10 aware of any industry standards that recommend the 11 minimum or maximum number of superfluous units that 12 should be modeled in developing expansion plans? 13 THE WITNESS: No, I'm not. Actually, this 14 is just really specific to the EGEAS model. I don't 15 believe, in this type of expansion plan model--I mean 16 like there's other models mentioned, yesterday, I 17 believe, or the day before that you could potentially 18 use. I don't even think that would be an input to 19 those types of models. This is more an EGEAS-specific 20 type of input control type of input. 21 I can tell you the default value is two in 22 the model. 23 CHAIRPERSON NORRIS: And can they be of any 24 type as an input to the model? 25 THE WITNESS: Absolutely. We would have PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1567 1 been--back in the days when gas was two bucks, we 2 would have been arguing whether we should put two 3 combined cycles in versus one, because I mean that 4 would have been the effect, because you could have 5 effectively--back in the days of $2 gas, you could be 6 over, because it's basically an economic overbuild. 7 In other words, it's allowing you to overbuild your 8 system, irregardless of the type of resource, if it's 9 economic. 10 CHAIRPERSON NORRIS: Okay. Then on page 16, 11 lines 6 through 21--I assume that's your testimony, 12 but let's see here--you discuss the Consumer 13 Advocate's Witness Drunsic's results implied 14 unprecedented demand for new wind resources on IPL's 15 system. 16 THE WITNESS: Correct. 17 CHAIRPERSON NORRIS: Do you have any opinion 18 of why Mr. Drunsic's EGEAS runs chose 800 megawatts 19 of wind resources as viable options? 20 THE WITNESS: Yeah. The cost--basically, 21 when we set up our model, we looked--and our witness, 22 Mr. Vosberg, can explain this a little bit further, 23 but basically what we looked at is what we thought we 24 could reasonably achieve on our system throughout the 25 study period at the pricing we had in the model, PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1568 1 okay? 2 And some of the logic was is that the reason 3 we felt we could get 800 in is because--and still at 4 that cost is that the transmission system would get 5 upgraded and the wind units that would get added 6 later on in the study period would be able to 7 piggyback on those additions and not get directly 8 assigned a hundred percent of the upgrade costs for 9 the transmission system, so that was one of the ways. 10 We also felt that over more time, you would 11 get maybe a higher capacity factor, upward from wind 12 resources, to mitigate some of this upward price 13 pressure on wind. 14 So we felt that the amount that we allowed 15 over the study period was an achievable amount at the 16 price and price escalation that we had in the model. 17 Now, we don't believe that you can get--we 18 don't believe that 800 megawatts of wind over four 19 years is an achievable result. I mean I think I 20 heard testimony either yesterday or the day before 21 that there's a lot of hurdles with respect to wind, I 22 mean turbine availability, transmission. We just 23 don't feel that that's an achievable number. 24 You might be able to get, you know, another 25 hundred than what we've got in the plan, or something PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1569 1 like that, but 800, we just don't, over a four-year 2 period, feel is justified, at the prices we've got in 3 there. 4 Now, if you change the prices, if you're 5 going to assume, you know, that it's going to cost 6 you, you know, 20-, 30-, 40-, 50-million dollars more 7 to get these resources and if transmission is the 8 hurdle, if you bump the price up, I doubt that it 9 would select that amount of wind. 10 So if you get the price correlated to what's 11 happening, I doubt if it would select that much, but 12 that's the reason it selected it. 13 CHAIRPERSON NORRIS: Did the model choose 14 wind as the expansion option? 15 THE WITNESS: Yeah. I mean you can see on 16 my--our base case it selected 200 megawatts. 17 Obviously we had the superfluous units selected too, 18 but it selected the 200 megawatts of wind, and that 19 coordinates to our RPU wind docket. 20 CHAIRPERSON NORRIS: This may be shorter 21 than having the court reporter come back and answer 22 this. I want to make sure that--I missed your 23 answer, I think, to Board Member Hanson, which is 24 your--does your resource plan assume a 20-year 25 purchase power agreement? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1570 1 THE WITNESS: Yes. 2 CHAIRPERSON NORRIS: It assumes that? 3 THE WITNESS: It assumes that, so the output 4 of Duane Arnold is in throughout the study period. 5 CHAIRPERSON NORRIS: This may not be your 6 area or not, but is that in place yet? 7 THE WITNESS: Our next witness, Mr. Friedman, 8 is really close to that. He'll answer any questions 9 on that. 10 CHAIRPERSON NORRIS: Okay. I think 11 Mr. Hanson questioned you a little bit about this, 12 but I want to explore it a little bit more. 13 On page 7 of your direct testimony, you said 14 that coal is abundant in the U.S., relatively low in 15 cost, and experiences less price volatility than 16 other traditional supplies, and then also in your 17 rebuttal you stated that IPL believes the price of 18 wind and natural-gas-powered energy will be much 19 higher as a result of CO2 regulation. 20 Do you figure the potential carbon costs, 21 assuming federal legislation on these carbon costs, 22 as a factor in price volatility? 23 THE WITNESS: They could contribute to price 24 volatility, but let's put things in perspective here. 25 For example, this might help you out here: PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1571 1 The price--and this we haven't really talked about 2 too much, but the price I've got in the model for 3 wind, my recollection is it's about $7 an MBtu in 4 '013, and I believe it kind of escalates a little 5 bit, drifts up to maybe $8 in '020, right around 6 there, 8.50, okay? 7 We've checked, and I've used--in our extreme 8 case in here, we used a 20 percent increase in 9 natural gas. I had Rich pull the NYMEX gas prices 10 for '013 the other day just to see where we're at. 11 They're trading a little bit over $8. So I've got 7 12 in my model, they're trading a little bit over $8. 13 Well, that's 15 percent right there, so you see what 14 I'm saying? 15 CHAIRPERSON NORRIS: Yeah, but I guess what 16 I'm getting at is how you treated coal, because you 17 made the assumption that it's low cost and 18 experiences less price volatility. 19 THE WITNESS: Okay. 20 CHAIRPERSON NORRIS: So let me ask it this 21 way: Did you figure--do you consider the unknown of 22 carbon costs a factor in price volatility, or is it 23 because you figured in a range in your EGEAS model 24 that you don't have to consider it as a volatile fuel 25 source price? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1572 1 THE WITNESS: Basically we've got existing 2 weighted averages of like kind for our starting fuel 3 prices, and then we've escalated them going forward 4 using EIA's annual energy outlook. That's how we 5 handle fuel prices. 6 The CO2 pricing is dealt with in another 7 sector where we actually input the fuel price. 8 So we didn't necessarily change the 9 volatility with respect to natural gas or fuels 10 associated with CO2 regulation. 11 CHAIRPERSON NORRIS: Because you put that in 12 a different place? 13 THE WITNESS: Yeah, yes. We're not--I mean 14 we've got fuel escalation, but we don't--I mean we 15 don't necessarily model fuel volatility, per se, I 16 don't think. 17 CHAIRPERSON NORRIS: Okay. I just wanted to 18 make sure you accounted for it. 19 To me, help me make sure I've got this 20 right, not knowing what the carbon costs may be is 21 volatile, but you're saying you factored that in in a 22 different place in the EGEAS model. 23 THE WITNESS: We input CO2 pricing in the 24 model, okay, and then we've also put in today's gas 25 prices and coal prices and escalate--you know, put PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1573 1 escalation on them. 2 So I mean we did not play--I mean that's one 3 of the things we did not do. We did not change the 4 gas volatility for CO2 regulation. 5 The other thing we did not change is any 6 aspects of the market. I mean I believe the market 7 would also be affected by CO2 regulation. We did not 8 address those types of changes in here as well, so 9 market prices remain as they were under today's 10 conditions. 11 So I mean there's a multitude of things that 12 come into play when you start looking at CO2 pricing, 13 and we just thought that we were going to basically a 14 position that would be hard to refute, if you would, 15 on the percent changes that we did with respect to 16 wind and natural gas. 17 CHAIRPERSON NORRIS: I'm back to an area 18 that Ms. La Seur was asking you about, which is your 19 rebuttal, page 10, where you did make a statement 20 that you don't believe that need is required to be 21 shown for a generation certificate. 22 I am puzzled by that. I mean we seem to be 23 on that issue quite a bit in this hearing. Where 24 does that perception come from? 25 THE WITNESS: Here again, I hate to split PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1574 1 hairs again, but let's go back to that superfluous 2 unit you asked me about. If the unit is superfluous 3 by definition of this code, would you need it? 4 CHAIRPERSON NORRIS: That's not being 5 proposed to us, but this is the one you're proposing. 6 THE WITNESS: But what I'm saying is, 7 though, under the rules, though, how would we argue 8 that we need it if--you know, if you're defining need 9 only by your demand level, you know, I truly believe 10 that we need Sutherland 4. 11 CHAIRPERSON NORRIS: So if the demand level 12 is not defined, is this needed by IPL? 13 THE WITNESS: I mean because, you know, the 14 definition that we were talking about, this whole 15 superfluous unit thing, a superfluous unit would not 16 be needed by IPL to serve its load because it's over 17 and above our minimum reserve requirement, but where 18 we need it is for our customers, because by 19 definition, if it's selected, it's economic and it 20 would actually reduce the cost to our customers. 21 CHAIRPERSON NORRIS: Or if you have excess 22 capacity, do you anticipate seeking a--I'm drawing a 23 blank here--a revenue-sharing agreement from this 24 plant? 25 THE WITNESS: I don't believe we will have. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1575 1 You know, part of this--you know, I think some of the 2 vision here on whether--you know, I truly believe we 3 need this plant, and I also truly believe that any 4 megawatts that are over and above the reserve margin 5 provides us options with, here again, what we can do 6 with our existing facilities under CO2 regulations. 7 So if we've got, you know, a little bit more 8 capacity above our reserve margin, it gives us 9 flexibility in potentially retiring resources that we 10 wouldn't be able to retire if we didn't have the 11 capacity from Sutherland 4, for example. 12 I mean if we don't have Sutherland 4, we're 13 basically stuck with a bunch of--you know, a lot of 14 old, small, less efficient coal resources. 15 I mean is it economic, you know, to put 16 controls on all those? I mean that's a significant 17 risk for the company, I believe. 18 CHAIRPERSON NORRIS: Ms. Johnson. 19 Thank you, Mr. Kitchen. 20 MS. JOHNSON: Thank you. 21 REDIRECT EXAMINATION 22 BY MS. JOHNSON: 23 Q. Mr. Kitchen, it's been a couple of days, but 24 I'm not sure if you recall some of the 25 cross-examination from the OCA regarding energy PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1576 1 efficiency, and I realize that energy efficiency and 2 the numbers that you get aren't strictly under your 3 purview, but just for clarification, can you explain 4 why it is not modeled as a separate resource in the 5 resource plan? 6 A. Well, we've already got it accounted for in 7 the load forecast, and so to the extent that you 8 model it again--and, you know, I heard this morning 9 about, you know, since we've already got it in the 10 forecast, that the new level or the--I can't remember 11 what witness it was. I think it was Sanzillo that 12 did the DSM scenarios, and he basically said, no, his 13 low is now his medium and his medium is his high. 14 Well, that might be, but the problem is when 15 you model it in EGEAS, the costs that were still with 16 the low are now with the medium, so he basically got 17 more bang for his buck, if you will. 18 I mean those are the types of situations 19 where if you don't--if you're not careful in knowing 20 where you're modeling and what types of resources, 21 you get into a situation where you do double count 22 and may overstate savings or underestimate costs. 23 Q. And I believe that testimony was provided by 24 Mr. Parker. 25 A. Oh, that's right, Mr. Parker, yes. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1577 1 Q. So you're saying that it might introduce too 2 much of a margin for error in order to try to account 3 for that? 4 A. Well, in my opinion, it's six of one, half a 5 dozen of the other. 6 If you model--if you've got a load forecast, 7 you know what DSM is in there. If you model 8 scenarios around that and do the costing external 9 with EGEAS, it's no different than allowing EGEAS to 10 pick which resource it selects, because you've still 11 got to put the unit sizes in EGEAS, which could be 12 20, 50, 75, or a hundred, for example, megawatts of 13 demand, let's say, just for simplicity purposes. 14 You're never going to get at the optimal 15 level of DSM because it has still got to decide 16 whether it's 25, 50, or 75 megawatts of savings. The 17 optimal maybe 37 and a half, or something like, so 18 that was the point there. 19 Whether you do the analysis on load 20 forecasting costing outside of EGEAS and combine the 21 costs, I don't think it's any different than allowing 22 EGEAS to select and come up with a composite cost 23 itself. I don't distinguish any difference between 24 the two, and the Minnesota Department of Commerce 25 agreed with that, and that's why we're doing the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1578 1 scenario analysis around DSM in Minnesota as well. 2 Q. Now I would like to direct you back to some 3 of the questioning today from the Coalition, 4 specifically with regard to Exhibit 213. Do you 5 still have a copy of that exhibit in front of you? 6 A. Yes, I do. 7 Q. Now, do you believe that the numbers in this 8 may reflect spot-market pricing? 9 A. Yeah. I mean you've got to be--they very 10 well could. You've got to be very careful when you 11 look at different price projections. I mean, you 12 know, I hear this all the time about, you know, price 13 of coal going up 30 percent, you know, and I heard 14 this morning it was 10 percent and, you know, we use 15 our weighted average of what we see as our actual 16 delivered cost of coal to our facilities, and we use, 17 you know, the Energy Information Administration's 18 projection going forward. So, yeah, these very well 19 could be spot prices as well. 20 Q. And realizing that you stated earlier that 21 you don't deal with fuel procurement so you aren't 22 directly involved in that process, but is it your 23 understanding generally that we operate with 24 contracts for coal purchases? 25 A. I believe that to be the case. I believe we PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1579 1 do enter into like long-term contracts to lock down 2 prices. 3 Q. In your opinion, would that provide more 4 stability in IPL's coal pricing? 5 A. Yes, it would. 6 MS. JOHNSON: I have nothing further. 7 CHAIRPERSON NORRIS: Mr. Stead? 8 MR. STEAD: Just one question. 9 RECROSS-EXAMINATION 10 BY MR. STEAD: 11 Q. Mr. Kitchen, when you were talking with the 12 Chairman about Mr. Drunsic and the 800 megawatts of 13 wind-- 14 A. Uh-huh. 15 Q. --is it a fair statement that in your 16 rebuttal, you had no dispute with Mr. Drunsic and 17 Mr. Shi's utilization of EGEAS in deriving the amount 18 of wind that they did? 19 A. Well, I would still advocate that--yeah, I 20 mean if you're going to get a result like that, I 21 don't believe the inputs that they had for the price 22 of wind would have been appropriate. 23 Q. Right, but you didn't have that in your 24 rebuttal, did you? 25 A. I don't recall. I thought somewhere I said PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1580 1 that our inputs are consistent with today's 2 environment, or something like that, but not 3 specifically, probably. 4 MR. STEAD: Okay. That's all. 5 Thank you, Your Honor. 6 RECROSS-EXAMINATION 7 BY MS. EASLER: 8 Q. Good afternoon, Mr. Kitchen. I just want to 9 hand you-- Well, there was some discussion about 10 resource plan development, and I think we discussed 11 before that the 2007 resource plan is still in 12 development? 13 A. Yeah, that's correct. It has not been 14 completed. 15 Q. Okay. I am going to hand you a page from 16 the currently approved resource plan as far as the 17 Minnesota commission does approve that, and just ask 18 you to read section 3.4. 19 A. "Because IPL does not explicitly model DSM 20 as a resource to be selected in the IRP model, the 21 question remains whether the model DSM implemented by 22 IPL is an optimal model from the resource planning 23 perspective. Since the DSM that IPL implements in 24 Iowa is determined by the Iowa Utilities Board, 25 administration of Iowa statute, any variation would PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1581 1 need to be in Minnesota." 2 Keep going? 3 Q. Please. 4 A. "To address this issue IPL commissioned a 5 study in 2003 to examine the variation in plant 6 impacts relative to plant spending. This study was 7 updated earlier this year to consider the new time 8 frame of the 2005 IRP and incorporate the order point 9 requiring DSM to be extended through the entire IRP 10 planning period. In the updated study three 11 different spending and impact scenarios were 12 developed in addition to the base case, which is 13 consistent with the 2004 and 2005 ECIP. This study 14 is summarized in sections 3.4.2 and 3.4.3. The 15 complete study is included in Appendix 3A. The three 16 additional scenarios, along with the base case, are 17 then provided to the resource planning group for 18 analysis. The result of this analysis is shown in 19 Appendix 3B and is discussed in Section 6." 20 Q. So the analysis in 3A and 3B pertains to 21 Minnesota, is that accurate? 22 A. Yes. The scenario analysis around DSM is 23 from Minnesota, yes. 24 MS. JOHNSON: May I quickly ask for a 25 clarification of the docket number and the page PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1582 1 numbers that came from? 2 MS. EASLER: This is from section 3.4 of the 3 2005 through 2020 integrated resource plan that was 4 filed both with the Board and with the 5 Minnesota--it's the approved one. 6 MS. JOHNSON: Okay. Thank you. I just 7 wanted to clarify. Thank you. 8 BY MS. EASLER: 9 Q. Now, there was some discussion of the 18 10 different scenarios that you evaluated in the context 11 of this approved plan, and those are set forth in 12 Mr. Schlissel's testimony, is that correct? 13 A. Pardon me? 14 Q. The 18 scenarios that you evaluate in the 15 course of your resource plan that was approved? 16 A. Yeah, and the question? He did not do the 17 same--the 18 scenarios that we would do. 18 Q. No, but he just noted that that wasn't what 19 you submitted in this case. 20 A. That's correct. 21 Q. And when you look at those scenarios, it 22 looks at--a few of those scenarios would include a 23 lower load forecast? 24 A. Yes. 25 Q. And it would also evaluate the three PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1583 1 different DSM scenarios for Minnesota? 2 A. Yes. 3 Q. And it does not do that for Iowa? 4 A. Not at the present. Those scenarios that 5 are on that--that are in our resource plans are 6 somewhat flexible; in other words, we have 7 flexibility on what we include. There are only a 8 couple that are required. 9 Q. I believe that during today's questioning 10 you had indicated that if there is CO2 regulation, 11 that that would impact market prices. 12 A. Potentially. 13 Q. It might not? 14 A. I think Witness Friedman would probably be a 15 better candidate to answer that. 16 Q. But I think just earlier you had indicated 17 that you would expect some impact on market prices. 18 A. I believe there would be an impact, yes. 19 Q. But that's not reflected in your EGEAS 20 analysis? 21 A. No. The impact on market prices would be 22 primarily, here again, with respect to the on-peak 23 market, which would be driven by gas. So, you know, 24 if you assume that there's going to be a run-up in 25 gas prices due to CO2 regulation, there would have to PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1584 1 also be an adjustment made to on-peak market prices 2 as well, and we did not. We took the conservative 3 approach and didn't model that. 4 Q. But it would also impact the off-peak market 5 prices? 6 A. Not necessarily. 7 Q. To the extent that coal generation is 8 influencing those, would it? 9 A. Not if there's no coal out there. 10 Q. Is there coal out there? 11 A. Well, there is today, but I heard a lot of 12 witnesses over the last few days advocating for no 13 coal, so it's hard to say what's going to happen on 14 that side of it. 15 Q. Is there a fair amount of coal in the-- 16 A. Yes, but if all of the more expensive coal 17 goes away, I mean you could actually, I mean--or I 18 mean it could go either way. I don't know which way 19 it's going to go because if you're assuming you're 20 going to add controls to all this less expensive 21 coal, it's going to go up. If you assume that's 22 going to get shut down, the market price with respect 23 to off-peak could go down. So I mean I can't sit 24 here today and tell you which way it's going to go 25 with respect to that. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1585 1 Q. You think the market prices in the off-peak 2 might go down with carbon regulation? 3 A. They very well could, but I mean they also 4 could go up as well. I just can't sit here and tell 5 you which direction it's going to go. 6 Q. Another scenario that you model in your 7 resource planning is higher coal capital costs, is 8 that correct? 9 A. That's correct. 10 Q. Will market prices impact the replacement 11 capacity and energy, if any, that is needed for 12 Duane Arnold when the PPA expires in 2014? 13 A. That question is definitely better asked of 14 Mr. Friedman. I mean he's in direct--directly 15 related to the negotiation of the Duane Arnold PPA, 16 and he's our market--bulk power market witness. 17 Q. You don't have any opinion about it? 18 A. I do not. I just do not know. 19 Q. I believe you had some discussion with 20 Ms. La Seur about needing the coal plant not 21 necessarily for--apart from projected load growth, 22 whether that's right or wrong, you had indicated it 23 being beneficial for optionality. 24 A. Yeah, I think that's one of the by-products 25 of having SGS Unit 4, is the flexibility, what we'll PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1586 1 be allowed to do with our existing units. 2 Q. When you run the superfluous units at a 3 level, when you adjust it as the OCA witnesses do, 4 does that allow you to look at optionality? 5 A. A superfluous unit does not--is not directly 6 tied, I don't believe--I mean that's just adding more 7 units. No, I mean, no. 8 Q. It allows you to consider more resource 9 paths? 10 A. Only on new resources, not existing. 11 Q. Correct. Now, if there is a renewable 12 portfolio standard adopted that would have 13 application in Iowa, IPL might have to add wind 14 irrespective of whether EGEAS would select wind based 15 on the price you've inputted, is that accurate? 16 A. That's correct. 17 MS. EASLER: I think that's all I have. 18 Thank you. 19 CHAIRPERSON NORRIS: Ms. La Seur. 20 RECROSS-EXAMINATION 21 BY MS. LA SEUR: 22 Q. Following up on Chairman Norris's question 23 about your rebuttal testimony, when you say that you 24 don't think EGEAS would select wind if capital costs 25 for wind were to rise, have you done any modeling PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1587 1 based on that scenario? 2 A. Yes. In the 2005 resource plan we did. I 3 haven't yet for the 2007, but we have done that type 4 of analysis in the past. 5 Q. You modeled increased costs for wind 6 generation? 7 A. Correct. 8 Q. Can you cite any studies projecting an 9 increased cost for wind generation as a result of 10 carbon regulations? 11 A. Not specifically, but I think another thing 12 you have to consider is the federal PTCs. If they 13 ever go away, you're going to get an immediate bump 14 in prices with the elimination of those, and they may 15 very well go away with CO2 regulations because then it 16 will be no longer necessary to subsidize wind 17 generation. 18 Q. But you're not testifying on federal energy 19 policy, are you? 20 A. No, I'm not. 21 Q. The laws of supply and demand would suggest 22 that the capital cost of wind would ultimately drop 23 due to increased demand, wouldn't they? 24 A. Say that again, please. 25 Q. The laws of supply and demand would suggest PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1588 1 that the capital cost of wind would ultimately drop 2 due to increased demand, wouldn't they? 3 A. Why would the price drop with increased 4 demand? 5 Q. Are you familiar with laws of supply and 6 demand? 7 A. I mean if demand goes up, the price would go 8 up. 9 Q. And doesn't demand ultimately cause an 10 increase in supply that in turn drives down prices? 11 A. I'm not following you. Are you talking 12 about load demand or are you talking about demand for 13 wind resources? 14 Q. No, I'm talking about economic theory just 15 in a general case. 16 A. Okay. Can I have the question again? 17 Q. The economic laws of supply and demand would 18 suggest that the capital cost of wind would 19 ultimately drop due to increased demand, correct? 20 A. I wouldn't necessarily agree with that, no. 21 Q. Let's move on to another one. 22 Does EIA's annual energy outlook factor in 23 carbon costs? 24 A. No, they do not. 25 Q. So when you say that IPL uses average of PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1589 1 actual delivered cost of coal and EIA projections to 2 estimate future cost of coal, you're not taking into 3 account any costs associated with carbon regulation, 4 correct? 5 A. That's correct, and that's consistent with 6 how we develop our base case, and that's why it's so 7 important that that is the reason--and that is the 8 case there because we want all of our assumptions 9 from the start to be internally consistent, and that 10 fits the bill. 11 Q. So then you would add a presumed cost of 12 carbon regulation at some later point in the modeling 13 process? 14 A. It would be considered. 15 Q. And would that cost of carbon regulation 16 include an increased cost to coal? 17 A. It could. 18 Q. What is the meaning of superfluous units in 19 EGEAS modeling? 20 A. Here again, I think I explained that. It's 21 a unit that is not needed to meet your reserve 22 margin, but it's still economic, so it's extra 23 capacity or excess capacity in that term. 24 Q. And is it a technical term referring to new 25 generation options intended to respond to actual PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1590 1 need? 2 A. I believe so. 3 Q. In 2005 when there was a crisis in railroad 4 supply from the Powder River Basin, was IPL's coal 5 supply contract honored or did IPL have to pay 6 significantly higher rates to get the coal supply it 7 needed? 8 A. I have no knowledge of that. 9 Q. Is flexibility sufficient justification for 10 granting a certificate of need? 11 A. I believe it's part of the justification of 12 need. 13 Q. Well, my question is, is it sufficient 14 justification? 15 A. It may be. I'm not--you know, that will be 16 for the Board to determine. 17 MS. LA SEUR: That's all I have. 18 CHAIRPERSON NORRIS: Ms. Johnson. 19 MS. JOHNSON: I just have one very simple 20 question. 21 FURTHER REDIRECT EXAMINATION 22 BY MS. JOHNSON: 23 Q. For clarification for the record, could you 24 define PTC? 25 A. Production tax credit. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1591 1 MS. JOHNSON: Thank you. Nothing further. 2 CHAIRPERSON NORRIS: Okay. Anybody else? 3 (No response.) 4 CHAIRPERSON NORRIS: Thank you, Mr. Kitchen. 5 (Witness excused.) 6 CHAIRPERSON NORRIS: Let's take 15 minutes. 7 Come back at 3:45. 8 (Short recess.) 9 CHAIRPERSON NORRIS: All right. We're back 10 in session, and I understand we have a witness order 11 change. 12 MS. JOHNSON: Yes. With the Board's 13 permission, we would like to take Bob Vosberg now 14 instead of Rich Friedman. 15 CHAIRPERSON NORRIS: And counsel is aware of 16 that, right? 17 All right. Yes, by all means. Go ahead. 18 MS. JOHNSON: IPL calls Bob Vosberg. 19 CHAIRPERSON NORRIS: Hello, Mr. Vosberg. 20 Raise your right hand, please. 21 ROBERT VOSBERG, 22 called as a witness by Interstate Power and Light 23 Company, being first duly sworn by Chairperson Norris, 24 was examined and testified as follows: 25 CHAIRPERSON NORRIS: Thank you. You may be PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1592 1 seated. 2 DIRECT EXAMINATION 3 BY MS. JOHNSON: 4 Q. Could you please state your full name and 5 business address for the record? 6 A. It's Robert Vosberg, 1000 Main Street, 7 Dubuque, Iowa. 8 Q. And did you file in this docket on 9 December 10th, 2007, 15 pages of rebuttal testimony 10 and an exhibit which will be referred to in this 11 proceeding as Exhibit 12 and was marked REF-1, 12 Schedules A through F? 13 A. Yes, I did. 14 Q. Do you have any changes or corrections to 15 make to that testimony? 16 A. No, I don't. 17 (IPL Exhibit 13 was 18 received in evidence.) 19 (The prepared testimony follows.) 20 21 22 23 24 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1600 1 MS. JOHNSON: Since the testimony has 2 already been made a portion of the record, I shall 3 tender the witness for any cross-examination. 4 CHAIRPERSON NORRIS: Thank you, Ms. Johnson. 5 Mr. Stead. 6 MR. STEAD: Thank you. 7 CROSS-EXAMINATION 8 BY MR. STEAD: 9 Q. I've just got a few questions, Mr. Vosberg, 10 on wind manufacturing capacity. 11 A. Yes. 12 Q. Are you aware of the Molded Fiberglass 13 Company's facilities for making wind turbine blades 14 that is scheduled to open later this year in 15 South Dakota? 16 A. Yes, I am. 17 Q. Would you please give some background on 18 that facility? 19 A. I'm aware of it to the extent I know it's 20 going to open up. I can't tell you about the 21 facility itself. 22 Q. Are you aware of the Vestas facility for 23 making turbine blades that is scheduled to open in 24 Colorado later this year? 25 A. I'm aware of that facility to the extent PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1601 1 it's going to open. 2 Q. But only to that extent? 3 A. That's correct. 4 Q. Are you aware of the Acciona plant for 5 making wind turbines that has been announced and is 6 to be located in Iowa? 7 A. I'm aware of that plant opening up. 8 Q. Do you have any further information on that 9 plant? 10 A. No, I don't. 11 Q. Are you aware of the Sieman's power 12 generation facility that opened in 2007 in 13 Fort Madison, Iowa, for making wind turbine blades? 14 A. I'm aware that that plant opened up. 15 Q. And that's the extent of your knowledge? 16 A. That's correct. 17 Q. Are you aware of the TPI Composites plant 18 that was announced in November 2007 to be built in 19 Newton, Iowa, for making wind turbine blades for 20 General Electric's turbines? 21 A. I had read that announcement. 22 Q. And that's the only knowledge you have? 23 A. That's correct. 24 Q. Are you aware that Mitsubishi Heavy 25 Industries is increasing its production of wind PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1602 1 turbine facilities? 2 A. I'm aware that they have intended to 3 increase their production. 4 Q. Do you know the magnitude of that increase? 5 A. No, I don't. They haven't shared that with 6 me. 7 Q. Are you generally aware of any recent 8 reports indicating that wind turbine manufacturers 9 are expecting to double or triple their production 10 capacity in the next three or four years? 11 A. I have read reports to that extent. 12 Q. And that's the extent of your knowledge? 13 A. That's correct. 14 MR. STEAD: That's all I have, Your Honor. 15 CROSS-EXAMINATION 16 BY MS. LA SEUR: 17 Q. Good afternoon, Mr. Vosberg. 18 A. Good afternoon. 19 Q. In your rebuttal testimony you claim that 20 wind turbine costs are projected to rise by 12 to 21 15 percent by 2010; correct? 22 A. That's correct. 23 Q. Have you filed any support for this claim in 24 the record? 25 A. I don't have support in the record. It's PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1603 1 what we're seeing in our discussions with turbine 2 manufacturers. 3 Q. But no documentation? 4 A. No documentation. 5 Q. Isn't the nature of manufacturing that high 6 demand for turbines will cause more producers to 7 enter the turbine market? 8 A. You would think that, but we are not seeing 9 that. 10 Q. You're not seeing any new entries into the 11 turbine market in Iowa? 12 A. We are seeing new plans, but we're not 13 seeing new turbine manufacturers, per se. 14 Q. You're not seeing a ramp-up in the size of 15 existing plants? 16 A. As far as when you say existing plants, 17 could you define that? 18 Q. A plant that already exists. 19 A. As far as manufacturing? 20 Q. Yes. 21 A. Well, they are increasing their 22 manufacturing. 23 Q. Do you expect entry of more firms and 24 expansion of existing turbine manufacturers to reduce 25 turbine costs after 2010? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1604 1 A. I don't expect it because it's such a 2 worldwide market in demand for wind turbines. 3 Q. You claim that the other component parts of 4 a wind plant are projected to rise by 5 percent by 5 2010, correct? 6 A. That's correct. 7 Q. Do you consider a 5 percent rise significant 8 given an average rate of inflation between 2 to 9 3 percent? 10 A. I don't see that as significant, but those 11 other components of the wind plant are a small 12 portion of the capital investment in a wind plant. 13 Q. I'm sorry. And how is that relevant to the 14 increase in price? 15 A. Well, the turbine itself makes up about 16 65 percent or more of the investment, and then you 17 have the capital costs associated with the 18 transmission, so at the end of the day, those other 19 components are a small component of the total 20 investment. 21 Q. So this is a small cost increase on a small 22 component of the total? 23 A. That's correct. 24 Q. Okay. So you would say this is not a 25 significant factor in the cost of wind plants over PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1605 1 the next five years? 2 A. It's not significant when you look at the 3 share of what the turbine costs you. 4 Q. Your rebuttal also notes that increased 5 international demand will drive prices higher for 6 wind turbines in the future. Do you have any 7 information regarding the likely increased supply of 8 turbines as manufacturing expands globally? 9 A. Could you restate that, please? 10 Q. The question is, do you have any information 11 regarding the likely increased supply of turbines as 12 manufacturing expands globally? 13 A. I don't have information that explicitly 14 tells me what the turbine supply will be in each year 15 as we move forward. 16 Q. Isn't information as to both supply and 17 demand necessary for you to predict higher prices? 18 A. Well, I'm relying for my information 19 strictly on what the turbine vendors are putting to 20 us in writing as we're trying to determine what our 21 turbine prices will be outward in the future. 22 Q. But you have not submitted any of that 23 information for the record? 24 A. I have not. 25 Q. You cite a 2006 National Renewable Energy PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1606 1 Labs study for the proposition that reaching 20 2 percent wind energy market penetration by 2030 is 3 more possible than the same penetration being reached 4 by 2020; correct? 5 A. Yes, I provided that document. 6 Q. Didn't the NREL study also conclude that 20 7 percent wind penetration in the electricity market is 8 possible by 2020? 9 A. They concluded that, but at a cost. There 10 was a cost associated with that. 11 Q. As there would be a cost associated with its 12 equal penetration by 2030, I would assume, correct? 13 A. Yeah. 14 Q. Isn't it true that the NREL study concluded 15 that there were no serious raw material constraints 16 inhibiting high levels of wind energy penetration? 17 A. That was their opinion. 18 Q. In the study that you submitted? 19 A. In that study. 20 Q. And would you agree that the production tax 21 credit is currently federal law? 22 A. It's currently federal law. 23 Q. Has it been the habit of Congress to renew 24 the PTC repeatedly? 25 A. Repeatedly, but late. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1607 1 Q. Is it possible that a CO2 price or other 2 carbon emissions reduction program could serve as a 3 government stimulus to the wind industry? 4 A. Anything's possible. I can't speak to what 5 policy will be for the government, though. 6 MS. LA SEUR: That's all I have. Thank you. 7 THE WITNESS: Thank you. 8 CHAIRPERSON NORRIS: Mr. Puckett? 9 MR. PUCKETT: No questions. 10 CHAIRPERSON NORRIS: Ms. Johnson? 11 MS. JOHNSON: I have no more questions. I 12 do have one clarification I want to make for the 13 record. 14 I took my witness out of order, but I didn't 15 take my notes out of order, so I would like to 16 clarify that Bob Vosberg's testimony was seven pages 17 and the exhibit labeled RMV-1, Schedules A and B, 18 which will also be known as Exhibit 13 for this 19 proceeding, and I apologize for that error. 20 CHAIRPERSON NORRIS: Mr. Stead? 21 MR. STEAD: No questions. 22 CHAIRPERSON NORRIS: Thank you, Mr. Vosberg. 23 THE WITNESS: Thank you. 24 (Witness excused.) 25 MS. JOHNSON: And now so that I can use the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1608 1 appropriate notes, IPL calls witness Rich Friedman to 2 the stand. 3 CHAIRPERSON NORRIS: Hello, Mr. Friedman. 4 THE WITNESS: Hi. 5 CHAIRPERSON NORRIS: Raise your right hand, 6 please. 7 RICHARD E. FRIEDMAN, 8 called as a witness by Interstate Power and Light 9 Company, being first duly sworn by Chairperson Norris, 10 was examined and testified as follows: 11 CHAIRPERSON NORRIS: Thank you. You may be 12 seated. 13 DIRECT EXAMINATION 14 BY MS. JOHNSON: 15 Q. Could you please state your full name and 16 business address for the record? 17 A. My name is Richard E. Friedman. My business 18 address is 4902 North Biltmore Lane, Madison, 19 Wisconsin. 20 Q. And did you file in this docket on 21 December 10th, 2007, 15 pages of rebuttal testimony 22 and Exhibit 12, which was marked at that time REF-1, 23 Schedules A through F? 24 A. Yes, I did. 25 Q. Do you have any changes or corrections to PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1609 1 that testimony? 2 A. No, I don't. 3 (IPL Exhibit 12 was 4 received in evidence.) 5 (The prepared testimony follows.) 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1625 1 MS. JOHNSON: Since that testimony has 2 already been spread upon the record, I will tender 3 the witness for cross-examination. 4 CHAIRPERSON NORRIS: Thank you, Ms. Johnson. 5 Mr. Stead. 6 MR. STEAD: Thank you, Your Honor. 7 CROSS-EXAMINATION 8 BY MR. STEAD: 9 Q. Good afternoon, Mr. Friedman. 10 A. Good afternoon. 11 Q. Other than your own opinion, is there any 12 precise evidence and documentation in your rebuttal 13 testimony or exhibits that show that the wind and 14 natural gas prices used by IPL Witness Kitchen in 15 conjunction with IPL's high CO2 price and the Synapse 16 CO2 prices "are conservative estimates based on recent 17 experience with the prices of these energy sources"? 18 A. I think in my testimony I developed a 19 history of our wind purchasing experience and used 20 that basically to establish, at the very least, a 21 possible future for which the estimate for wind, as 22 price escalation, that Mr. Kitchen used was a 23 fraction of about 50 percent. 24 Q. So that's the extent of the evidence and 25 analysis? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1626 1 A. In this particular case, that's basically 2 what we're using. It's based on experiential 3 analysis and experience in the PPA and development of 4 self-built projects. 5 Q. Okay. There have to date been no actual CO2 6 prices established, is that correct? 7 A. As far as I'm aware, that's correct. 8 Q. Would you agree, then, that there can be no 9 evidence showing how wind and natural gas prices will 10 change in response to actual CO2 prices? 11 A. There's no historical evidence, but I 12 believe that there have been sufficient numbers of 13 studies done that try to estimate, and at this point 14 all we have is estimates of what the impact might be 15 on those other fuel types. 16 Q. But nothing with respect to actual CO2 17 prices? 18 A. Nothing that's based on actual historical 19 observed fuel price impacts, no. 20 Q. I believe you discuss the postulated impact 21 that adoption of federal CO2 legislation would have on 22 the U.S. economy, is that correct? 23 A. That's correct. 24 (OCA Exhibit 129 was marked 25 for identification.) PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1627 1 BY MR. STEAD: 2 Q. Mr. Friedman, if you would look at OCA 3 Exhibit 129, we asked, "Provide copies of all studies 4 and analyses prepared by or for IPL or any affiliated 5 company, or reviewed by IPL Witnesses Friedman or 6 Guelker, which have examined or addressed the impact 7 of adoption of federal CO2 legislation, emissions 8 limits, or regulations will have on the U.S. 9 economy." 10 Would you please read your response there? 11 A. My response is, "No such studies have been 12 prepared by or for IPL. Papers or studies that 13 support this directional assumption are attached as 14 exhibits to Mr. Friedman and Guelker's testimony. 15 IPL has not performed an exhaustive literature search 16 for all possible studies and papers that provide 17 analysis for this topic, nor retained a record of all 18 studies that have ever been reviewed, either in part 19 or in total. 20 MR. STEAD: Thank you. 21 We would move the admission of 22 OCA Exhibit 129. 23 CHAIRPERSON NORRIS: It's admitted. 24 (OCA Exhibit 129 was 25 received in evidence.) PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1628 1 BY MR. STEAD: 2 Q. In those various studies performed by 3 others, did you review critiques of those studies? 4 A. No, I did not. 5 Q. Did IPL attempt to verify the results of any 6 of those studies? 7 A. I don't believe so. 8 (OCA Exhibit 130 was marked 9 for identification.) 10 BY MR. STEAD: 11 Q. Mr. Friedman, I have handed you what has 12 been marked OCA Exhibit 130. 13 A. Yes, I see it. 14 Q. And this was prepared by you, your response 15 to an OCA data request? 16 A. Yes, it was. 17 Q. In your answer No. 208B, you state you 18 looked at the NYMEX data and the EIA publications, is 19 that correct? 20 A. That's correct. 21 Q. And both of these sources of information 22 only provide projected natural gas prices, is that 23 correct? 24 A. I believe that both the NYMEX and the EIA 25 have available historical analysis, as well as PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1629 1 projected information. 2 Q. Neither publication indicates what 3 relationship, if any, there might be between CO2 4 prices and natural gas prices, is that correct? 5 A. That's correct. 6 MR. STEAD: We would move the admission of 7 OCA Exhibit 130. 8 CHAIRPERSON NORRIS: It's admitted. 9 (OCA Exhibit 130 was 10 received in evidence). 11 BY MR. STEAD: 12 Q. And I believe you refer to a 2004 study by 13 Charles River Associates, is that correct? 14 A. That's correct. 15 Q. And this study was prepared by some 16 organization called Tech Central Science Foundation, 17 is that correct? 18 A. I believe it was prepared for that 19 organization. 20 Q. Do you know what that organization is? 21 A. No, I do not. 22 Q. Do you know or would you accept, subject to 23 check, that the funding to pay for this study came 24 from Exxon Mobil? 25 A. I would accept that, subject to check. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1630 1 Q. Does Exxon Mobil have a history of funding 2 studies that are critical of the concept of global 3 warming or global climate change? 4 A. I really don't know. 5 MR. STEAD: Now, I'm again going to refer 6 the Board and counsel to OCA Exhibit 126 that was 7 discussed yesterday with Mr. Schlissel on redirect, 8 and counsel for IPL said that Mr. Friedman would be 9 the appropriate witness to discuss that. This is 10 entitled the "Critique of the Charles River 11 Associates Analysis of the Lieberman-McCain Climate 12 Stewardship Act." 13 BY MR. STEAD: 14 Q. And I believe you said you had never 15 reviewed any critiques of any of the studies, is that 16 correct? 17 A. Other than this one, that's correct. 18 Q. You have reviewed this one? 19 A. Well, I saw this one earlier today. 20 MR. STEAD: Okay. We would admit Exhibit 126, 21 move to admit it. 22 CHAIRPERSON NORRIS: 126 is admitted. 23 (OCA Exhibit 126 was 24 received in evidence.) 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1631 1 BY MR. STEAD: 2 Q. At pages 11 and 14 of your rebuttal 3 testimony, you discuss a new study by CRA 4 International, is that correct? 5 A. Pages 11 and 14? 6 Q. I believe at pages 11 and 14 you refer to 7 the CRA study. 8 A. I refer to a CRA study that was published in 9 November of 2007 by CRA on page 14. On page 11 I'm 10 referring to a speech by Dr. Bernanke. 11 Q. It would be the former. It would be page 14. 12 A. Okay. 13 Q. Are you aware that this study or would you 14 accept, subject to check, that this study was funded 15 by the American Petroleum Institute? 16 A. I would accept that. 17 Q. Are the economic and other interests of the 18 American Petroleum Institute and its fossil fuel 19 producers harmed by significant CO2 regulation in 20 Congress? 21 A. I won't speculate on that. I don't know. 22 Q. Okay. Your Schedule F includes an October 23 2007 study by the Natural Gas Council, is that 24 correct? 25 A. That's correct. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1632 1 Q. Could you please state who the members of 2 the Natural Gas Council are? 3 A. The founding members are the American Gas 4 Association, the Independent Petroleum Association of 5 America, the Interstate Natural Gas Association of 6 America, the Natural Gas Supply Association. 7 Q. Would these organizations' economic and 8 other interests, who are producers of fossil fuels, 9 be harmed if the Federal Government adopted 10 significant CO2 regulations? 11 A. I also will not speculate on that. I don't 12 know. 13 Q. And just to summarize, with the exception of 14 OCA Exhibit 126, which is the critique of the 15 Charles River Associates study, in none of the 16 studies in your testimony or exhibits have you 17 examined any other critiques or attempted to 18 independently verify any of those studies; is that a 19 fair statement? 20 A. That's a fair statement. 21 MR. STEAD: That's all we have, Your Honor. 22 Thank you. 23 MS. EASLER: I have just hopefully a limited 24 portion. 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1633 1 CROSS-EXAMINATION 2 BY MS. EASLER: 3 Q. Would you agree that states are adopting 4 renewable portfolio standards in part to mitigate CO2 5 regulation cost risks and temper the impacts of 6 higher fossil fuel costs? 7 A. I don't think I could confirm that. I'm not 8 sure what all the different motivations might be. 9 Q. Okay. Does IPL's base-case resource plan 10 presented by Witness Kitchen represent the amount of 11 wind that IPL plans to acquire during the 15-year 12 planning period? 13 A. I'm not sure. 14 Q. What is your understanding of that resource 15 plan? 16 A. To be perfectly frank, I'm not entirely 17 certain what the content of the resource plan is. 18 That's Mr. Kitchen's responsibility, and I review it 19 after the fact. 20 Q. But you supply Mr. Kitchen prices for that 21 resource plan? 22 A. We discuss a variety of inputs, and I supply 23 a number of those. 24 Q. And you're not sure what they're used for? 25 A. Oh, I have an idea what they're used for, PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1634 1 but I don't usually look at what the output of the 2 resource plan publication looks like. 3 Q. You filed testimony in connection with the 4 ratemaking principles for the proposed wind in IUB 5 Docket No. RPU-07-5, is that correct? 6 A. That's correct. 7 Q. And IPL, in requesting that, submitted that 8 a wind project is reasonable, would you agree, 9 because it meets customer requirements for additional 10 energy and will not degrade the adequacy or 11 reliability or operating flexibility of the existing 12 transmission system from a regional or local perspective? 13 A. That sounds like a reasonable 14 representation, but understand that I am not the 15 expert on the basis for why it would be reasonable. 16 I'm involved with the economic analysis and not 17 policy making. 18 Q. Would you accept that that was put forth by 19 IPL in that docket? 20 A. Subject to check, I would. 21 Q. Okay. Would you accept that IPL put forth 22 in that docket that the proposed wind is consistent 23 with the overarching policy objectives of the Board 24 and the State of Iowa to encourage the use of 25 renewable energy resources? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1635 1 A. Subject to check, yes. 2 Q. And again in that regard, would you agree 3 that IPL maintained that this wind would support 4 Governor Culver's goal of making Iowa the renewable 5 energy capital of the world? 6 A. I would accept that. 7 Q. And would you accept that IPL also put forth 8 that this wind would represent a major step toward 9 achieving former Governor Vilsack's Order 41, which 10 directs state agencies to generate at least 10 11 percent of their electric consumption from renewable 12 energy resources? 13 A. Yes. 14 Q. And again would you accept that IPL put 15 forth that the wind would improve IPL's emissions 16 portfolio? 17 A. Yes. 18 Q. And again in that regard, would you accept 19 that IPL submitted this wind would provide renewable 20 energy credits to meet IPL's renewable portfolio 21 standards or to be sold to other utilities, with the 22 resulting revenues benefiting IPL's customers? 23 A. Yes. 24 Q. Would you accept that IPL put forth in that 25 case that the proposed wind could be constructed and PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1636 1 operated at a reasonable cost due to IPL's ability to 2 generate supplemental revenue streams; e.g., 3 production tax credit benefits, CO2 or renewable 4 energy credit revenues from the project? 5 A. Yes. 6 Q. Would you accept that IPL put forth in that 7 docket that the proposed wind is environmentally 8 sound? 9 A. Yes. 10 Q. And finally would accept that IPL put forth 11 that this proposed wind would provide benefits to 12 Iowa's economy? 13 A. Yes. 14 Q. Would you accept that another reason for 15 moving forward with this wind is the possibility of 16 future renewable portfolio standards which would 17 require IPL to implement wind regardless of whether 18 it was cost effective for IPL's customers? 19 A. I would accept that. 20 Q. Do you know whether the proposed cost cap 21 for wind in that proceeding included transmission 22 costs? 23 MS. JOHNSON: I question why this witness is 24 being asked this line of questioning when RPU-07-5 is 25 a separate docket, it's on file with the Board, and PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1637 1 the filing speaks for itself, and I think we're 2 getting this witness questioned about some areas in 3 that application that he doesn't necessarily have the 4 full expertise to speak to. 5 MS. EASLER: If you wish to take notice of 6 that filing in that docket, I would be content to 7 leave it at that. 8 CHAIRPERSON NORRIS: All right. 9 MS. EASLER: Okay. 10 BY MS. EASLER: 11 Q. Part of the information that you supplied to 12 Mr. Kitchen for his resource planning analysis 13 included your price expectations for wind. 14 A. That's correct. 15 Q. And as I understand it, you had supplied him 16 with information and your belief that wind would be 17 increasing and that it, in your view, would double 18 over the past five years. 19 A. That it had doubled over the past five 20 years. 21 Q. Well, but you don't have an actual contract 22 representing a doubling of that cost, do you? 23 A. We don't actually have a contract that would 24 establish that. It's based on a combination of 25 anecdotal information, price history for part of that PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1638 1 period of time, and discussions with suppliers of 2 both PPAs and for equipment to go ahead and 3 construct. 4 Q. Sure. And the scope of that information is 5 set forth in your testimony at pages 4 through 5, is 6 that correct? 7 A. That's correct. 8 Q. Would you agree that bringing additional 9 wind generation online is an effective way--bringing 10 it online sooner rather than later is an effective 11 way to address and contain the price risks that you 12 maintain have been observed with wind? 13 A. I would agree with that. 14 Q. Given the ongoing risks of natural gas price 15 volatility and the price risks associated with coal 16 and potential CO2 regulation, would you agree that 17 there is value in mitigating price risks and 18 mitigating these risks through the addition of wind? 19 A. I think to the extent that you could 20 mitigate the volatility of price for natural gas or 21 coal or purchased power, for that matter, it would be 22 desirable to be able to do that. I'm not convinced 23 that the addition of wind necessarily mitigates those 24 particular prices because of the production 25 characteristics of wind. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1639 1 Q. Is your resource model selecting wind as 2 economic, to your knowledge? 3 A. I believe it is. That would be a question 4 that Mr. Kitchen would have been able to answer. 5 Q. But that's your understanding? 6 A. Yes, but it's not an informed understanding. 7 Q. In your rebuttal testimony at page 7, you're 8 discussing at this point the MISO system and the vast 9 number of requests for interconnection studies that 10 have overloaded the analytical capability of the 11 planning process, resulting in a process that takes 12 two years from an initial request to issue a final 13 study identifying needed transmission upgrades. 14 A. That's correct. 15 Q. Is MISO aware of this situation? 16 A. Yes. 17 Q. Is it attempting to address this situation 18 that you describe? 19 A. Yeah. Actually, MISO recently formed what 20 they call a queue management task force to try and 21 figure out how they can better process these, but 22 they've also pointed out that part of the problem, a 23 large part of the problem, are the interconnection 24 queuing requirements that FERC has established that 25 have basically tied MISO's hands in large regard. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1640 1 Q. Is FERC taking a role in this process? 2 A. They may be overseeing it. I don't believe 3 that they're party to the actual task force itself. 4 Q. Did they open up a technical conference to 5 address interconnection? 6 A. I believe that they have. 7 Q. And that process would be to address the 8 concerns that you express here? 9 A. Yeah. It's basically the entire generation 10 and interconnection process. We're seeing it in 11 respect to wind because this is an attractive part of 12 the country to build wind in, but the same problems 13 are happening in other parts of the country and other 14 REOs. 15 Q. You also note that an additional impediment 16 to wind development is the cost of required 17 transmission upgrades? 18 A. Yes. 19 Q. And I believe I asked a previous witness-- 20 and I can't remember who right now--about their 21 knowledge of the Attachment FF that has been proposed 22 by ITC Transmission. 23 A. And I think they referenced me in their 24 response, and unfortunately I have no particular 25 familiarity with ITC's attachment or proposed PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1641 1 attachment. 2 MS. EASLER: Well, anticipating that 3 possibility, I brought a portion of the joint brief 4 filed by Interstate Power and Light Company and ITC 5 Midwest L.L.C. that was filed in the docket 6 concerning the proposed sale of transmission 7 facilities, and I can have the witness read the 8 portions from the brief, or if it would be acceptable 9 to take official notice of that brief, that would be 10 fine too. 11 MR. RAGSDALE: If I could see what portion 12 she's talking about. 13 MS. EASLER: Sure. 14 CHAIRPERSON NORRIS: Yeah. 15 MR. RAGSDALE: I'm a little concerned 16 because I think my name is on that brief. 17 MS. EASLER: It is indeed. 18 MR. RAGSDALE: Mr. Friedman's is not. 19 MS. EASLER: Counsel for IPL has agreed to 20 take official notice of that brief, and that should 21 conclude my line of questioning on that point. 22 BY MS. EASLER: 23 Q. In your rebuttal testimony, page 14, you 24 express your belief that any direct costs that could 25 result from new CO2 regulations will not occur in the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1642 1 immediate future, and I'm kind of curious how you 2 define the immediate future. Would that be within 3 the period encompassed by IPL's resource planning 4 period? 5 A. I guess--and this is taken from my 6 observation over time of new programs that are 7 established at a federal level where there's 8 generally some sort of a phase-in period. 9 I would assume that if there were are CO2 10 regulations that were passed at some point within the 11 next year or so, we might see a phase-in commence 12 within two to three years thereafter, maybe as soon 13 as five years. I guess that's what I would consider 14 to be the immediate future, as perhaps a three- to 15 five-year horizon. 16 Q. But you don't expect to feel any direct 17 costs associated with that? 18 A. In the period prior to that, no, I would 19 not. 20 Q. But during the three- to five-year period, 21 is that a possibility? 22 A. To the extent that there would be some 23 initial step that were taken, it might manifest 24 itself in that time period. 25 Q. And likely continue for some time? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1643 1 A. It might stay at that level for some time. 2 It might start escalating at that point. I mean 3 there's any number of ways it could manifest. 4 Q. Sure. 5 A. I just generally have not observed any 6 sweeping federal legislation that results in a step 7 function to any kind of a tax of substance that's 8 going to change the nature of national behavior that 9 would occur within a day or two days, or whatever 10 else, after the bill is passed. 11 Q. Right. I was just trying to pin down 12 immediate future because that could be a lot of 13 things, and since we are looking at a picture in the 14 long term, I just wanted to see whether you would 15 anticipate direct costs within that future. 16 A. No. At the same time I think it's fair for 17 me to state that I'm not a federal policy expert, and 18 this is only my opinion. 19 Q. Witness Guelker asserts that delaying the 20 decision to build SGS Unit 4 is not a viable and 21 sustainable regulatory response due to Mr. Kitchen's 22 analysis about the need for SGS Unit 4. 23 In the context of the Duane Arnold nuclear 24 plant stale, do you recall testifying that a 25 potentially viable way of sourcing a portion of a PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1644 1 utility's portfolio would be through the purchase of 2 blocks of energy from the market matched with 3 capacity derived from newly constructed combustion 4 turbines? 5 A. Yes, I do. 6 Q. Is this something--is the packaging of these 7 type of components something that you provided to 8 Mr. Kitchen for modeling in EGEAS? 9 A. No. I developed or supplied information 10 based upon the market price of energy and the NYMEX 11 price of natural gas, and then Mr. Kitchen uses the 12 EIA escalators to take them beyond that point; but as 13 far as the capacity components that he's using in his 14 EGEAS analysis, as I understand it, those are 15 benchmark capacity resource prices that he derives. 16 I don't know if he's getting them from Black and 17 Veatch or from other consulting companies as a basis. 18 They are called packaging resources that 19 have not only a capacity component, but also 20 associated energy components, so his model can 21 actually select different combinations. 22 So what I'm providing is basically just the 23 energy price for blocks of economy energy by itself. 24 Q. But you're talking about some different 25 packaging of energy and capacity that IPL is not PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1645 1 modeling? 2 A. That's correct. 3 MS. EASLER: Okay. That concludes my 4 questions. Thank you. 5 CROSS-EXAMINATION 6 BY MS. LA SEUR: 7 Q. Good afternoon, Mr. Friedman. 8 A. Good afternoon. 9 Q. Let's start with some general questions, and 10 these are linked to portions of your testimony, so if 11 you need the cite, I'll be happy to give it to you. 12 Do you have any support in the record for 13 your claim that Washington will allow the wind 14 production tax credit to expire permanently if a 15 significant CO2 price is established? 16 THE WITNESS: Give me a moment to find that 17 cite. 18 BOARD MEMBER HANSON: Page 6. 19 THE WITNESS: Page 6? 20 A. Okay. That's not a statement of fact. 21 That's a statement of my opinion as to what's going 22 to happen with the PTC. 23 Q. But you said you don't claim any expertise 24 in Congressional energy policy, correct? 25 A. I'm not an expert in federal policy PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1646 1 determination. I'm not an elected official, but we 2 follow these markets very carefully, and we have a 3 pretty good idea of how they have moved in the past 4 and what types of things have resulted from various 5 stimuli, and so as a consequence, I think I can 6 relate my opinion on this. 7 Q. And so my question was, do you have any 8 support in the record for this claim? 9 A. No. 10 Q. Do you accept that carbon regulation could 11 serve as a form of government stimulus to the wind 12 energy? 13 A. I think there's no question that carbon 14 legislation would be a stimulative to the wind 15 industry, whether or not--and maybe this is just 16 semantics. Whether the government would do that in 17 order to stimulate the wind industry, if that's what 18 you're asking, I'm not convinced. 19 Q. My question is rather whether carbon 20 regulation could serve as a form of government 21 stimulus that would have an impact something like 22 that of the PTC. 23 A. I think it could, but I also believe that 24 establishing a renewable portfolio standard would 25 have the same effect. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1647 1 Q. And also on page 6, is there any support in 2 the record for your claim that worldwide production 3 of wind turbines is subscribed for two years? 4 A. I'm not sure if there was anything in 5 Mr. Vosberg's testimony to that effect. It may be 6 anecdotal information, and he was closer to it or is 7 closer to it than I am, but that's what I have been 8 told. 9 Q. But I believe we posed that question to 10 Mr. Vosberg, and he was unable to offer support in 11 the record. 12 A. Okay. Well, his testimony would have been 13 supportive, if at all. I don't have anything that 14 supports it. 15 Q. Okay. Isn't the nature of manufacturing 16 that long order backlogs tend to lead manufacturers 17 to rapidly expand production? 18 A. I would say in an efficient market, I would 19 agree with that. I'm not sure that wind 20 historically, at least, has been perceived as an 21 efficient market because absent the production tax 22 credit, wind is not economically self-supporting, and 23 I think manufacturers and developers have been very 24 hesitant to expand their production capabilities 25 without knowing whether or not there would be orders PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1648 1 for wind in the future because of the uncertainty as 2 to not knowing whether or not economically there 3 would be any orders. 4 Q. And at line 22, also on page 6, you state 5 that without additional investment in manufacturing 6 facilities for wind equipment, that you would expect 7 the lead time to expand. 8 Do you accept that additional investments in 9 wind turbine production is likely in the event of 10 carbon regulation? 11 A. I would think that there would be some 12 expansion. I don't know how much I would expect, 13 though. 14 Q. And then this is from page 7. I don't think 15 you need to look it up. My question is, why do you 16 claim that the supply of wind turbines is static? 17 A. As I understand it at present--and we've 18 explored this corporately to some significant 19 degree--all of the wind manufacturing capability 20 worldwide is fully subscribed, and as I had 21 understood it, there was no expansion for the 22 manufacture of certain key components. 23 So while it is possible to expand the number 24 of sites and the locations that were doing assembly, 25 it is not possible to expand the number of, for PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1649 1 example, gearing in the turbine hubs. As I 2 understand it, the number of factories worldwide that 3 manufacture the large gears that actually connect the 4 rotors to the generators is fully subscribed and that 5 there is no expansion of that particular resource at 6 this point taking place. 7 So whether you have more places that are 8 manufacturing blades or not, there aren't going to be 9 any more turbine gearing rigs that are being 10 produced, and that would establish, in my mind, a 11 static production capability. 12 Q. And why would the market not reply to that 13 missing link in the supply chain for wind plants? 14 A. I can't confirm that it won't, but I'm not 15 aware that it has to date. I do know that that's a 16 very capital-intensive portion of the manufacturing 17 process, and it is not something that is likely to 18 have all kinds of new entrants flocking towards it in 19 a short period of time. 20 Q. I asked Mr. Vosberg a few questions just 21 about the general laws of supply and demand, not 22 necessarily electrical demand, but in an economic 23 sense, and referring to those same laws of supply and 24 demand, wouldn't they tend to suggest an increase in 25 the supply of turbines if a high CO2 price were PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1650 1 established and make turbines even more competitive? 2 A. Well, I think that there's a possibility 3 that you could see an increase in supply, but I also 4 believe that the pricing of these things may not 5 necessarily drop. I think instead the pricing is 6 likely to follow the alternatives, particularly if 7 there's an RPS in place. 8 I think the pricing may tend to follow the 9 alternatives right up to the point where there's 10 either economic alternatives provided to utilities 11 under an RPS structure. For example, out East right 12 now--I think it's in Massachusetts--there's a penalty 13 price that has to be paid if you don't have 14 sufficient renewable credits. That penalty price is 15 $55, and as a consequence, renewable credits are 16 trading at $54, just below the penalty price. 17 You could see the same thing with regard to 18 the turbine pricing itself, that they rise to a level 19 that is just below the penalty level of utilities to 20 make them just marginally more attractive than 21 suffering some sort of a regulatory penalty as a 22 consequence of not installing sufficient RPS- 23 producing resources. 24 Q. Would that same logic apply to carbon 25 regulation that was meant to be a driver for PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1651 1 renewables if there is carbon price attached to 2 fossil fuels? 3 A. Can you expand on that? 4 Q. Well, if RPS is causing a price increase up 5 to the point where there is a penalty in place if 6 there is a carbon price attached in some way to 7 fossil fuels, would that not have a similar 8 correlated effect on prices of alternative energy 9 sources? 10 A. I think it might. 11 Q. Are there any particularly scarce raw 12 material components of wind turbines that make 13 expansion of production of wind turbines difficult? 14 A. Not that I'm aware of. 15 Q. Are there other reasons you can think of 16 that would prevent wind turbine production from 17 expanding dramatically over the next decade? 18 A. Again, I think the key components--and there 19 might be a handful of those, but the ones that come 20 to my mind immediately are the gearing in the turbine 21 housings that connect the turbine blades themselves 22 to the generators. 23 Q. IPL Witness Professor Daniel Otto testified 24 Monday about the enormous potential for expansion of 25 wind turbine manufacturing in Iowa and around the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1652 1 country. Do you disagree with his assessment? 2 A. Well, when he described manufacturing, I'm 3 not sure exactly what he considers to be 4 manufacturing. For example, in Cedar Rapids, 5 Clipper Wind Power just put in place within the last 6 two years a manufacturing plant. They don't actually 7 build anything there. They just assemble the final 8 product. 9 I'm not sure how many locations domestically 10 are actually going to go into incremental 11 manufacturing where something unique is being 12 constructed rather than simply assembly. I know 13 there's a number of sites that are going into blade 14 manufacture, but as far as the turbine manufacture, 15 I'm just not sure. 16 Q. So would you be unable to answer the 17 question about Professor Otto's testimony? 18 A. Because I don't understand what he was 19 addressing, I cannot answer that. 20 Q. Okay. Do you have any support in the record 21 for your claim that any direct costs that could 22 result from any new CO2 regulations will not occur in 23 the immediate future? 24 A. That's my opinion. 25 Q. And do you have expertise in this area? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1653 1 A. I have anecdotal evidence over a 2 professional career of approximately 30 years. 3 Q. But you are not testifying as an expert in 4 federal energy policy, correct? 5 A. No; that's just my observation. 6 Q. You claim that a high CO2 price could lead 7 to recession or worse for the U.S. economy. Does 8 your professional expertise include making 9 macroeconomic predictions of economy growth or 10 contraction? 11 A. No, but that's part of the point of my 12 including a couple of additional exhibits that 13 address that issue rather directly. 14 Q. Yes. And since you mention those exhibits, 15 does the Charles River Associates study attached to 16 your exhibit at Schedule C consider the potential 17 economic impacts of climate change? 18 A. I don't believe so. 19 Q. Are you familiar with any of the studies 20 regarding the economic impact of climate change? 21 A. I don't believe so. 22 Q. Would you be able to compare the economic 23 impact of climate change versus the economic impacts 24 of the kind of carbon regulation necessary to 25 stabilize CO2 at acceptable atmospheric levels? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1654 1 A. Since I haven't reviewed any of those, I 2 don't know if I would be capable of that or not. 3 Q. Do you believe that federal policy makers 4 will conduct this analysis in weighing the need for 5 stringent carbon regulation? 6 A. Well, I know that, for example, with regard 7 to the current pending Senate bill 280, Congress 8 asked the EIA to take a look at the impact and try 9 and decide what the impacts might be, and they did 10 so, and they came out with a study that--actually, it 11 was referenced as the core case in my Exhibit 1, 12 Schedule G, which is a study for the Natural Gas 13 Council, and their conclusion, as they analyzed this, 14 is that if you put a fairly high carbon tax on coal 15 products and if you provide for the addition of 145 16 gigawatts of nuclear, then the price of gas will 17 drop, so I'm somewhat familiar with some of those 18 studies. 19 Q. I'm sorry. Did you say Schedule G? 20 A. Schedule F. I'm sorry. 21 Q. Schedule F. Okay. And this is the study 22 from the Natural Gas Council? 23 A. That's correct. 24 Q. And you referred first to the Energy 25 Information Administration? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1655 1 A. Well, the EIA actually did a study in 2 response to a request from Congress, and most 3 everybody that has taken a look at that S-280 4 proposal is using that as the baseline for their 5 studies. 6 Q. But that is not included in your testimony 7 today? 8 A. Well, it's included in my exhibit. That's 9 very carefully detailed in the Natural Gas Council 10 study. 11 Q. So the Natural Gas Council study discusses 12 the EIA study, but the EIA study is not included as 13 an exhibit? 14 A. That's correct. 15 Q. Okay. Would you acknowledge that nearly all 16 developed economies in the world today have already 17 established CO2 prices under cap and trade or by tax? 18 A. CO2 prices? I'm sorry. Would you say that 19 again? 20 Q. Would you acknowledge that nearly all 21 developed economies have already established CO2 22 prices--and I'm referring to a variety of regulations 23 that could be called CO2 prices--or greenhouse gas 24 prices under cap and trade or by tax? 25 A. I'm not prepared to agree to that. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1656 1 Q. Can you point the Board to any countries 2 that have been driven to recession or worse because 3 of CO2 regulation? 4 MS. JOHNSON: I believe this is getting 5 beyond the scope of Mr. Friedman's testimony. He's 6 providing this analysis on behalf of IPL in Iowa. 7 Tangentially, that has included some national market 8 studies, but I think beginning to question him on 9 worldwide policy is getting a little bit beyond the 10 scope. 11 CHAIRPERSON NORRIS: We're getting a little 12 broad here. Let's go ahead, Ms. La Seur, but I'm not 13 going to let you go too far off. 14 MS. LA SEUR: Mr. Friedman made the claim 15 that CO2 regulation risks driving the U.S. economy 16 into recession or worse, so I'm asking him if he's 17 seen that happen somewhere else. It's directly 18 relevant to that claim. 19 CHAIRPERSON NORRIS: I'm saying you can go 20 ahead and ask that question. 21 To the degree you can answer that question, 22 Mr. Friedman, go ahead. 23 A. I have not made that type of study for any 24 area on a worldwide basis. 25 Q. And back to your rebuttal at page 6, would a PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1657 1 renewable portfolio standard negate the need for a 2 production tax credit for wind by forcing utilities 3 to shift from fossil fuels to renewables? 4 A. I'm not sure I understand how those would 5 relate to each other. 6 Q. Well, are you familiar with the renewable 7 portfolio standards that have been enacted in various 8 states? 9 A. Yes, I am. 10 Q. If a renewable portfolio standard requires a 11 certain amount of electrical capacity in renewable 12 energy generation, doesn't that have the kind of 13 investment and installation forcing function that a 14 production tax credit would tend to have? 15 A. I think that's the point of my testimony. 16 Q. The point of your testimony is what? 17 A. Is that if you had an RPS, then the PTC 18 becomes unnecessary. 19 Q. Okay. And also at page 6, doesn't a pre- 20 carbon regulated environment--and you discuss the 21 shift that would take place--provide an excellent 22 opportunity for investment in wind if your prediction 23 is near-term price increases in wind? 24 A. Are you talking about investment in wind 25 insofar as utilities committing to add additional PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1658 1 wind in their systems or insofar as making financial 2 investments in companies that develop wind? 3 Q. I'm talking about utility investment in wind 4 generation. 5 A. As a resource? 6 Q. As an owned resource, yes. 7 A. I think it might, but it would depend on the 8 economics of the individual projects being evaluated 9 by the utilities. 10 Q. And then at page 9, what factors lead you to 11 conclude that installing 1,000 megawatts of wind 12 beyond IPL's base plan by 2022 is technically 13 impossible? 14 A. I think my primary consideration here is 15 that I don't think it's going to be possible to be 16 able to make that kind of installation given the 17 transmission limitations. 18 Q. So the impossibility is in the transmission? 19 A. I think that's probably the primary 20 limitation. 21 Q. And you believe it's technically impossible 22 to fix those transmission problems by 2022? 23 A. Well, they're not transmission problems. 24 There simply is insufficient transmission transfer 25 capability to move those types of volumes of wind PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1659 1 from the places that it would like to be sited to the 2 load centers. 3 I think that what we're really talking about 4 here--and I would have liked to have been able to 5 refer this question to Mr. Vosberg, who is better 6 capable of explaining this, but what I've heard 7 proposed is in order to be able to put in the amount 8 of wind that is being evaluated for southwestern 9 Minnesota or--yeah, southwestern Minnesota and north- 10 western Iowa and into the Dakotas, it would be 11 necessary to reconductor that entire part of the 12 system to 765,000 volt systems. I can't imagine that 13 there's going to be any siting authorization and 14 coordination and installation of those types of 15 things in anything less than 15 to 20 years. 16 Q. "Impossible" seems like a strong word. Do 17 you stand by that analysis? 18 MS. JOHNSON: Well, I would have to 19 interject here that he doesn't necessarily use the 20 term "impossible," and I think his testimony is being 21 mischaracterized. 22 A. Yeah, I would agree, I do not use the word 23 "impossible." I just said that I have serious doubts 24 that it's technically possible. 25 Q. Okay. So serious doubts, you stand by that? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1660 1 A. Yes. 2 Q. And in testimony for the application for the 3 sale of IPL assets to ITC Midwest, a number of 4 representations were made as to the positive impacts 5 on the transmission grid improvement that would 6 result from that sale. 7 In making this analysis of serious doubts 8 about transmission expansion for wind up to 2022, do 9 you take into account the activities of ITC Midwest 10 and the representations made in that docket? 11 A. I was in no way involved in that docket so I 12 can't comment on that. 13 MS. LA SEUR: That's all I have. Thank you. 14 BOARD MEMBER TANNER: Good afternoon. 15 I just have a couple of questions that you 16 touched on a little bit, but I think these are a 17 little different. 18 On page 6 of your rebuttal testimony you 19 state that a CO2 emissions cost tax should not be used 20 in modeling if a production tax credit for wind is 21 included because the PTC would presumably not be 22 necessary and go away, correct? 23 THE WITNESS: Correct. 24 BOARD MEMBER TANNER: How do the EGEAS 25 modeling inputs reflect this assumption that you PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1661 1 would not include the PTC? I'm sorry. 2 How would they reflect the assumption that 3 CO2 emissions tax should not be used in modeling if a 4 production tax credit for wind is included? 5 THE WITNESS: I'm not really sure and I'm 6 not an EGEAS modeler, so I don't think I can answer 7 that question. 8 BOARD MEMBER TANNER: Okay. That's fine. 9 That's all I have. 10 THE WITNESS: I'm sorry. 11 BOARD MEMBER HANSON: Mr. Friedman, first of 12 all, just a quick question on the production tax 13 credit. 14 THE WITNESS: Yeah. 15 BOARD MEMBER HANSON: Again you said that 16 you believe that when it becomes unnecessary, it 17 would be allowed to expire. In your observation of 18 the legislative process, do you think it's normal 19 that tax credits and tax deductions and other tax 20 incentives expire or are repealed as soon as they're 21 not necessary? 22 THE WITNESS: Sometimes they are, sometimes 23 they're not, but what I can tell you is that the 24 production tax credit that's presently targeted to 25 expire at the end of this year, in the recent energy PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1662 1 legislation it was not renewed. 2 BOARD MEMBER HANSON: Okay. 3 THE WITNESS: Whether it will be renewed, 4 but it's going to take a finite effort to renew it. 5 BOARD MEMBER HANSON: Then in a 6 previous--when I was questioning a previous witness, 7 he said I should talk to you about this, and I want 8 to explore what happens in scenarios where the 9 generation from SGS 4, the new plant, displaces 10 generation from older less efficient plants, and I'm 11 going to start with the assumption that IPL's 12 assumption of the most likely future for carbon costs 13 is the correct prediction. 14 THE WITNESS: Okay. 15 BOARD MEMBER HANSON: We have a delay before 16 they take effect and such costs, if any, will be 17 relatively moderate to begin with and then phased in 18 down the road. 19 Since IPL has not designated plants for 20 closure or for scaling back generation, are there 21 scenarios that you can imagine where instead of 22 reducing production in those older coal plants-- 23 excuse me--generation, that generation instead is 24 used to sell power to other companies that have 25 perhaps even more costly generating facilities? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1663 1 THE WITNESS: I don't know that it would be 2 likely that we would sell that power to other 3 companies, per se, but I certainly could imagine that 4 we would offer them into MISO. In fact, we would be 5 obligated to offer them into the MISO system, and 6 while we would put some sort of price adder into 7 their cost to recognize the cost impact of CO2, if 8 they were more economic and if the operational 9 characteristics were such that MISO wanted to operate 10 those units, I think they probably would. 11 BOARD MEMBER HANSON: Then that presumably 12 would displace some other generation someplace else 13 from a customer that rather than use--rather than run 14 their more costly plants, might get power from 15 another source? 16 THE WITNESS: I think that's a possibility. 17 BOARD MEMBER HANSON: Sort of a chain 18 reaction of moving down the scale to more and more 19 expensive generating capacity that's turned off or 20 turned on? 21 THE WITNESS: I think that's a possibility, 22 but now I would also say that right now MISO does a 23 dispatch--well, a unit commitment where they decide 24 in advance which units are going to run and which 25 ones they're not, and they're dispatched, which PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1664 1 actually moves them down, and it's based upon a 2 combination of economics and reliability. 3 It's possible that there could be a--and I'm 4 just theorizing this at the moment. No one has ever 5 said, you know, that this is what is coming, but I 6 think that there could be a dispatch modification 7 that also starts to incorporate CO2 impacts or other 8 pollutant-type impacts. 9 BOARD MEMBER HANSON: Just speaking of the 10 scenario or the chain reaction of moving to costlier 11 and costlier generating facilities that they are 12 displacing, if your assumptions on the future 13 increases of building new wind generation turn out to 14 be correct and such new generation is relatively--is 15 significantly more expensive and--becomes 16 significantly more expensive, is it possible that 17 this chain reaction process, if it happens, could 18 instead of displacing power from older, more 19 expensive coal plants end up displacing power that 20 could have been generated from new wind facilities if 21 the power wasn't already available from some other 22 source at perhaps some lower cost? 23 THE WITNESS: I'm not sure I'm understanding 24 the scenario that you're projecting. Are you saying 25 that older-- PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1665 1 BOARD MEMBER HANSON: Well, building the 2 plant makes more power available, right? 3 THE WITNESS: Uh-huh. 4 BOARD MEMBER HANSON: And presumably 5 companies that purchase power or make a choice to 6 purchase rather than to generate, or purchase rather 7 than to generate at a higher capacity, make that 8 decision based on cost. 9 THE WITNESS: Right. 10 BOARD MEMBER HANSON: And I'm just asking 11 you if down the road you see the possibility under 12 the scenarios that you suggest where carbon costs are 13 not very high, but there is, you know, escalating 14 costs of creating new generation, including wind, 15 that this potential displacement process might 16 actually make power available that displaces or 17 causes somebody to not need to create more wind 18 generation. Is that a possible scenario? 19 THE WITNESS: I would say that that's 20 certainly possible. 21 BOARD MEMBER HANSON: How likely do you 22 think that might be? 23 THE WITNESS: I think it's relatively 24 unlikely. I think that we're already concerned about 25 the volatility of the power markets. I think that PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1666 1 there's still going to be volatility associated with 2 the natural gas, which will show up, then, in power 3 markets as well. 4 I think that not having the ability to plan 5 your system in the future with any degree of 6 certainty because you don't know whether or not the 7 resource will in fact be available a year from now, 8 two years from now, is a risk that most people don't 9 want to take, and I think the market is relatively 10 effective when it comes to identifying what the 11 alternative costs of various systems would be, so we 12 might see something like that happen in the short 13 term. I don't anticipate that that would happen in 14 the long term. 15 BOARD MEMBER HANSON: Okay. Then on 16 page 6--and this again is something I began to talk 17 to Mr. Kitchen about, and he suggested I talk to you, 18 but I think you've already sort of covered some of 19 what I want to talk about here, so maybe I can 20 short-circuit this a little bit. 21 You would agree, I believe, based on your 22 comments to previous questions, that the portion of 23 the increase in wind generation costs that you would 24 attribute to increased demand for wind generation due 25 to higher carbon prices on coal, you know, due to PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1667 1 people substituting away from coal, that that would 2 affect primarily the upfront costs of building the 3 generation, taking care of transmission issues, and 4 not so much the operating costs in the future of the 5 plant, right? 6 THE WITNESS: I would agree with that. 7 BOARD MEMBER HANSON: Okay. And those 8 carbon costs that would be driving that substitution 9 would affect coal plants primarily in their operating 10 costs, at least more so than it would with wind. 11 THE WITNESS: I would agree with that except 12 to the extent that the solution to those higher costs 13 is to perform some sort of capital modifications to 14 the units. If that happened, then I think it starts 15 to take on-- 16 BOARD MEMBER HANSON: Maybe I shouldn't say 17 capital versus operating. Maybe I should talk about 18 long term versus short term. Maybe that's a better 19 way to put it. 20 THE WITNESS: Yeah, but I would agree with 21 you. 22 BOARD MEMBER HANSON: That's a good point. 23 But the carbon costs on the coal side would be more 24 long-term ongoing costs; the carbon costs on the wind 25 side would be more short-term upfront costs. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1668 1 THE WITNESS: Yes, I would think so. 2 BOARD MEMBER HANSON: So if you were 3 comparing the relative economics of a coal-fired 4 plant with getting power from wind, does it stand to 5 reason, then, that you would use the--that that 6 economic comparison would be affected greatly by 7 whether you were comparing the cost of building the 8 two types of facilities now versus the cost of 9 building one type of facility now and the other type 10 in the future or building one type of facility now 11 and purchasing power from another type in the future? 12 THE WITNESS: I guess that really depends on 13 how accurately you could project what the cost 14 impacts might be and what the market in general would 15 be able to project, because they'll build that 16 pricing into it. 17 BOARD MEMBER HANSON: I guess I should say 18 everything else equal except for whatever 19 carbon-related substitution we have. 20 In other words, I guess what I'm getting at 21 is the argument you make that the OCA has under- 22 estimated the potential for price increases in wind 23 generation because of this expected transfer of 24 demand to wind energy. Would you agree that that is 25 a less significant criticism if the choice is between PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1669 1 building wind now and building coal now than it would 2 be if the choice is between building coal now and 3 waiting to build wind in the future or purchasing 4 wind in the future? 5 THE WITNESS: I guess I'm not really sure. 6 BOARD MEMBER HANSON: Okay. Okay. Thank 7 you. 8 CHAIRPERSON NORRIS: Just a couple of 9 questions, Mr. Friedman. 10 I'll refer you back to page 14. I believe 11 Ms. Easler asked you some questions about this as 12 well, and this was, I think, in response to 13 Mr. Schlissel's predictions where you said that you 14 tend to believe that any direct cost that could 15 result from new CO2 regulations would not occur in the 16 immediate future-- 17 THE WITNESS: Uh-huh. 18 CHAIRPERSON NORRIS: --and will not be 19 nearly as severe as in Mr. Schlissel's forecasts. 20 Your belief that they won't be as severe, is 21 that based on the costs--or the carbon costs to reach 22 the goal--I can't remember Mr. Schlissel's set of 23 goals--of 80 or 90 percent by 2050 will be less than 24 expected, or do you think that the costs will be so 25 high that they just won't set that high a goal, or is PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1670 1 there some other reason why you think they won't be 2 as severe? 3 THE WITNESS: I really believe that what 4 will happen is that this will come in in phases, and 5 as people start to find out how much it's going to 6 cost to achieve these types of goals, that there will 7 be resistance to that and that the implementation 8 will not be as severe as is necessary to reach those 9 type of goals. I think there's going to be an 10 economic backlash 11 CHAIRPERSON NORRIS: So they won't adjust 12 the goals--they'll adjust the goals based on it costs 13 too much and people won't accept that cost? 14 THE WITNESS: I think that's exactly right, 15 and that's without making a qualitative statement as 16 to what it is going to cost to reach those goals. 17 I'm not an expert on that. 18 I just think that if the question were put 19 to people in general are you in favor of, you know, 20 doing something to reduce global warming, I think 21 everybody would say yes. If you asked them the 22 question are you willing to pay 10 times as much for 23 your power, I think the answer would be in most cases 24 no, and that's just again my opinion, but I think 25 people have a tendency to be very much in favor of PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1671 1 things until they find out they have to pay for it. 2 Once that happens, then I think they're willing to 3 step back a little bit and say, well, let's do some 4 of this, but let's not go all the way. 5 CHAIRPERSON NORRIS: I think Mr. Kitchell 6 referred this to you, so let me know if this is the 7 appropriate place. 8 We asked Mr. Kitchell about whether the 9 EGEAS model he used figured in a purchase power 10 agreement with the Duane Arnold facility post-2014. 11 THE WITNESS: Correct. 12 CHAIRPERSON NORRIS: And I believe he said 13 that was correct, it was based upon that. 14 THE WITNESS: Uh-huh. 15 CHAIRPERSON NORRIS: Has that purchase power 16 agreement been executed? 17 THE WITNESS: No, it has not, but what I can 18 tell you is that I'm in the middle of negotiating 19 with FP&L. 20 CHAIRPERSON NORRIS: Is there a right of 21 first refusal or some reserved contractual ability 22 for you to match any offer, or should you presume 23 that they will go to market when they will get the 24 most for that contract and that waiting for carbon 25 costs to be a wise move on their part? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1672 1 THE WITNESS: No, I don't think that that's 2 what's going on. 3 We didn't wind up in that case with any kind 4 of an official commitment that we had a right of 5 first refusal; however, you may recall that they 6 actually did make that offer during the hearing, and 7 they're living basically by the intent that they 8 offered up. But we are in the middle of negotiations 9 right now, and I'm hoping that--I won't commit, but 10 I'm hoping that by the end of this year, we'll have 11 something that will basically lock down that resource 12 for the relicensing period, and in fact we're 13 committed to the point where we're simply embedding 14 that in all of our planning. 15 CHAIRPERSON NORRIS: Ms. Johnson. 16 MS. JOHNSON: I do have a few questions. 17 Thank you. 18 REDIRECT EXAMINATION 19 BY MS. JOHNSON: 20 Q. Earlier in your--during the cross- 21 examination you used the term "production 22 characteristics" of wind. Can you explain 23 specifically what you meant by that term? 24 A. Yeah. Wind has the characteristic that it 25 generates fairly substantial percentages of its PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1673 1 capability at night and in the nonpeak periods of the 2 year. For example, in March and April, there's a lot 3 of wind generation in the summer and the winter. 4 When it blows, it tends to be at night. 5 What we found is historically there's very 6 little wind generation that occurs in the middle of 7 the summer, and during those months, there's almost 8 none that occurs whatsoever in the middle of the day 9 when you're hitting your electric peaks. 10 Because of that, I don't believe that--and 11 that's what I would consider to be the wind 12 characteristics. 13 Because of that, wind usually does not 14 compete with natural gas production, and so the 15 economics of wind and the economics of natural gas 16 really don't overlap each other. They don't compete 17 with each other. 18 Q. Now, is that because the wind is put on the 19 system or the grid whenever it is run? 20 A. That's correct. It's not a dispatchable 21 resource. 22 Q. Okay. So given that it's a must-run 23 resource, can you think of any scenario where the 24 wind generation would be displaced? 25 A. Left to its own production, it would never PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1674 1 be displaced; however, we have built into PPAs our 2 right to request the suppliers to terminate the 3 production of wind if the transmission grid becomes 4 sufficiently congested that the cost impact to our 5 customers becomes too substantial. 6 Q. And with regard to a wind facility, what's 7 the expected life of a facility, particularly with 8 reference to what we proposed in RPU-07-5 that's been 9 referenced several times in this proceeding? 10 A. I think nominally 25 years. I think that 11 was what we committed. 12 Q. And do you know what the expected life is of 13 a coal-fired facility? 14 A. Somewhere in excess of 50 years. 15 MS. JOHNSON: I have nothing further. 16 CHAIRPERSON NORRIS: Mr. Stead? 17 MR. STEAD: Just one question, Your Honor. 18 RECROSS-EXAMINATION 19 BY MR. STEAD: 20 Q. During your discussion with Board Member 21 Hanson, do you remember the discussion about IPL 22 having its dirtier plants possibly displace more 23 costly plants in MISO? 24 A. Yes. 25 Q. And that's a MISO requirement? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1675 1 A. Yes. 2 Q. Those displaced plants might not be as dirty 3 as the IPL plants, correct? 4 A. That's a possibility. 5 MR. STEAD: That's all I have. Thank you. 6 RECROSS-EXAMINATION 7 BY MS. EASLER: 8 Q. Mr. Friedman, just following up on the PPA 9 you're trying to negotiate for the Duane Arnold, is 10 the owner of Duane Arnold, the owner of the share 11 that you sold, a for-profit entity? 12 A. Yes. 13 Q. And do you think that this owner of your 14 share will seek to maximize the value of the 15 Duane Arnold nuclear plant? 16 A. I would if I were them. 17 MS. EASLER: Okay. Thank you. 18 RECROSS-EXAMINATION 19 BY MS. LA SEUR: 20 Q. I just wanted to ask for a clarification 21 first. I wasn't sure I entirely understood your 22 response to the question from Board Member Hanson 23 that Mr. Stead just asked about. 24 He asked how likely it would be that the 25 escalating cost of new generation might make power PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1676 1 available that displaces additional wind, and your 2 response, I think, began more concerned about the 3 volatility of power markets not having the ability to 4 plan your system because you don't know if the 5 resource will be available in a year or two. I 6 wasn't sure what you were referring to there. What 7 resources might not be available? 8 A. Blocks of power on the market. 9 Q. I thought we were talking about the old 10 plants taking some amount of generation that would 11 otherwise be provided by additional wind, so could 12 potentially be within IPL's system, right? It could 13 potentially be a choice within IPL, could it not, to 14 use these older plants rather than additional wind? 15 A. I guess I'm not sure, and maybe I was 16 mistaken. I didn't think that was the combination of 17 choices that really we were looking at. 18 BOARD MEMBER HANSON: No, but it's a good 19 one. 20 MS. LA SEUR: I didn't mean to be asking a 21 new question. I was just trying to understand your 22 question and the answer. 23 A. I thought we were talking about whether the 24 older plants could actually displace other systems 25 generation in such a way that our plants continued to PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1677 1 operate and somebody else's plants shut down, but I 2 didn't think it was comparing it against wind. 3 Q. Okay. So your answer was assuming that this 4 power would be purchased on the market as opposed to 5 being part of a utility's generation portfolio? 6 A. That's correct. 7 Q. Okay. Would your answer still be true if 8 you assumed that this was a utility's interior 9 decision about generation choices? 10 A. Help me understand what "interior" choice 11 means. 12 Q. So if a utility had to make these choices, 13 that has its own generation portfolio, between older, 14 dirtier coal-fired power that for whatever reason was 15 economic because of the slow progress of CO2 16 regulation versus additional wind that would be 17 subject to these additional costs that you are 18 predicting, then getting back to Board Member 19 Hanson's original question, how likely is that 20 scenario? 21 A. Well, I think that's a little bit easier 22 scenario to assess because we would know what 23 locations the statutory limitations on various 24 emissions would be, and so we would be better able to 25 control that. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1678 1 What I told Board Member Hanson is that 2 under the MISO regulations, we are not permitted to 3 withhold generation, so if the generation is 4 available on our system--and we might choose to 5 continue to operate older, dirtier plants with the 6 expectation that to the extent that we need to use 7 that as reserve capacity, it's possible to run those 8 for liability purposes, but I think MISO would 9 probably look at those and say as long as they're 10 operable, you have an obligation to make them 11 available within the market. 12 There might be a mechanism--and this is I 13 think what I was starting to suggest. There might be 14 a mechanism that provides for additional pricing that 15 keeps them from running for simply economic 16 determination within the market, but it would have to 17 be done under the approval of the market monitor 18 within MISO. 19 Q. Okay. 20 A. Otherwise, it's basically a violation of 21 federal policy at FERC. 22 Q. Then getting back to the likelihood 23 question, that means it actually would be fairly 24 likely that those plants would continue to operate 25 right up to the point where the carbon cost shut them PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1679 1 down, making them uneconomic? 2 A. Whether it was carbon cost or whether it was 3 some sort of a policy decision made by the state or 4 at a federal level, I can't speculate as to exactly 5 what it might be that would cause their ultimate 6 removal from the operation. 7 It might be possible that they're only 8 available on a very limited term, emergency-only 9 operation basis. 10 There's any number of different ways this 11 could manifest. 12 Q. As to the likelihood that they would 13 displace additional wind in your projected scenario 14 when wind prices are increasing? 15 A. Honestly, I never see them displacing wind. 16 I think if wind is constructed, the wind will run. 17 If the wind is not made available, it probably would 18 not be because these plants are there. It would 19 probably be because the wind itself was not economic 20 in the first place or it was physically impossible to 21 install it timely. 22 Q. But could the wind be considered uneconomic 23 because those older plants were already built and 24 generating and didn't have any capital costs 25 associated with additional production? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1680 1 A. I don't think so, because wind really 2 doesn't have any capacity value, so when you take a 3 look at your resource mix, you probably would 4 never--well, you would almost never add wind because 5 you wanted additional capacity. You would add it 6 because you wanted the additional energy, the energy 7 was clean, and once the plants were constructed, the 8 energy resource is free or very close to free, so I 9 think that putting wind on your system is an energy 10 play, it's not a capacity play, and so it would not 11 displace the existence of older units that are 12 serving a reliability purpose. 13 Q. I think I get it now. Thank you. 14 Following up on one of, I think, 15 Chairman Norris's questions, you say that CO2 costs 16 will move slowly and goals will adjust downward as 17 people realize the cost, but wouldn't it cost less to 18 get global warming under control by reducing 19 emissions sooner rather than later? 20 A. I don't think I can comment on that. 21 Q. Well, just to put it in really simple terms, 22 isn't it harder to get out of a hole if you keep on 23 digging, creating a greater price attached to every 24 new unit of CO2 if the problem is already larger? 25 A. Your argument has a certain emotional PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1681 1 appeal, but I'm not qualified to determine whether 2 we're digging ourselves a hole, and so I can't 3 determine whether the hole is getting bigger or 4 smaller or exists at all. Again, I'm not qualified 5 to. 6 Q. You flatter me. I was trying to make an 7 economic argument, and if I made an emotional 8 argument, that was just gravy. 9 Does your prediction take into account 10 Dr. Hansen's testimony that we are at a tipping point 11 and that we will see more and more shocking 12 destruction from climate change in the near future? 13 A. No, it doesn't. 14 MS. LA SEUR: Okay. That's all. 15 CHAIRPERSON NORRIS: Ms. Johnson? 16 MS. JOHNSON: I have nothing further. 17 MR. STEAD: Just one question. 18 FURTHER RECROSS-EXAMINATION 19 BY MR. STEAD: 20 Q. To follow up on the wind not having any 21 capacity value, isn't it true that your power pool 22 gives a capacity credit to wind? 23 A. Well, they provide for us to be able to 24 supply data that supports an accredited capacity 25 amount, and that works out to be, I think, 10 percent PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1682 1 for new resources. 2 Our calculations, once the unit has been 3 online for a couple of years, is somewhere in the 9 4 to 10 percent range for accredited capacity. 5 My comment is in general there is not enough 6 capacity value to really look at wind as any kind of 7 a capacity-based resource. 8 MR. STEAD: That's all I have. Thank you. 9 CHAIRPERSON NORRIS: Anybody else? 10 (No response.) 11 CHAIRPERSON NORRIS: Thank you, 12 Mr. Friedman. 13 (Witness excused.) 14 CHAIRPERSON NORRIS: Thank you all for 15 bearing with us some extra time tonight in hopes of 16 wrapping up tomorrow. 17 So we will reconvene at 9 a.m. 18 (Recess at 5:30 p.m. until 9:00 a.m., 19 Friday, January 18, 2008.) 20 21 22 23 24 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1683 1 C E R T I F I C A T E 2 I, the undersigned, a Certified Shorthand 3 Reporter of the State of Iowa, do hereby certify that 4 I acted as the official court reporter at the hearing 5 in the above-entitled matter at the time and place 6 indicated; 7 That I took in shorthand all of the 8 proceedings had at the said time and place and that 9 said shorthand notes were reduced to typewriting 10 under my direction and supervision, and that the 11 foregoing typewritten pages are a full and complete 12 transcript of the shorthand notes so taken. 13 Dated at Des Moines, Iowa, this 25th day of 14 January, 2008. 15 16 17 CERTIFIED SHORTHAND REPORTER 18 19 20 21 22 23 24 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596