1684 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 : GENERATING FACILITY CITING : VOLUME V CERTIFICATE : - - - - - - - - - - - - - - - x Iowa Veterans Home Whitehall Auditorium 1301 Summit Street Marshalltown, Iowa Friday, January 18, 2008 Met, pursuant to adjournment, at 9:00 a.m. BEFORE: THE IOWA UTILITIES BOARD JOHN R. NORRIS, Chairperson KRISTA K. TANNER, Board Member DARRELL HANSON, Board Member (Pages 1684 through 1958) JACKIE M. SINNOTT - CERTIFIED SHORTHAND REPORTER PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1685 1 APPEARANCES: 2 For IPL: KENT RAGSDALE, ESQ. PAULA JOHNSON, ESQ. 3 200 First Street SE P.O. Box 351 4 Cedar Rapids, Iowa 52406 5 For the Coalition: CARRIE LA SEUR, ESQ. 6 JANA LINDERMAN, ESQ. Plains Justice 7 100 First Street SW Cedar Rapids, Iowa 52403 8 9 For CIPCO and Corn Belt: DENNIS PUCKETT, ESQ. Sullivan & Ward, P.C. 10 6601 Westown Parkway Suite 200 11 West Des Moines, Iowa 50266 12 For the Office of BEN STEAD, ESQ. Consumer Advocate: JENNIFER EASLER, ESQ. 13 Office of Consumer Advocate Iowa Department of Justice 14 310 Maple Street Des Moines, Iowa 50319 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 1686 1 I N D E X 2 WITNESS DIRECT CROSS REDIRECT RECROSS BOARD 3 For IPL: 4 Eric J. Guelker 1688 1708 1756 1759 1751 (Stead) (Stead) 5 1725 1759 (Easler) (La Seur) 6 1732 1766 (La Seur) (Stead) 7 Robert Holmes 1773 1794 1829 1830 1824 8 (Easler) (Easler) 1814 1831 9 (La Seur) (La Seur) 10 Jody Hillberry 1835 1852 1916 1917 1913 (Easler) (Easler) 11 1866 1918 (Linderman) (Linderman) 12 Patricia Kampling 1926 1937 1954 13 (Easler) 1938 14 (Linderman) 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 1687 1 E X H I B I T S 2 IPL EXHIBITS MARKED RECEIVED 3 16 1689 4 17 1836 5 18 1773 6 19 1927 7 8 OCA EXHIBITS: 9 122 1938 10 124 1772 11 131 1715 1717 12 132 1718 1719 13 133 1728 1728 14 134 1729 1729 15 135 1800 1814 16 COALITION EXHIBITS: 17 211 1900 18 212 1900 19 214 through 221 1879 1882 20 21 22 23 24 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1688 1 P R O C E E D I N G S 2 CHAIRPERSON NORRIS: Good morning. We are 3 back in session with Docket No. GCU-07-1. Anything 4 to come before us before we begin the next witness? 5 All right. Ms. Johnson, your next witness. 6 MS. JOHNSON: IPL calls Eric Guelker. 7 CHAIRPERSON NORRIS: Good morning, 8 Mr. Guelker. Raise your right hand, please. 9 ERIC J. GUELKER, 10 called as a witness by Interstate Power and Light 11 Company, being first duly sworn by Chairperson Norris, 12 was examined and testified as follows: 13 DIRECT EXAMINATION 14 BY MS. JOHNSON: 15 Q. Would you please state your full name and 16 business address for the record. 17 A. Eric J. Guelker, 4902 North Biltmore Lane, 18 Madison, Wisconsin. 19 Q. And on December 10th, 2007 did you file 17 20 pages of rebuttal testimony as well as Exhibit 16, 21 which at that time was labeled EJG-1, Schedules A 22 through E? 23 A. Yes, I did. 24 Q. Do you have any corrections to make to that 25 testimony? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1689 1 A. No, I do not. 2 MS. JOHNSON: And in that case, since the 3 testimony is on the record, I tender the witness for 4 cross-examination. 5 (IPL Exhibit No. 16 was 6 received in evidence.) 7 (Prepared testimony follows.) 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 1707 1 CHAIRPERSON NORRIS: Go ahead, Mr. Stead. 2 MR. STEAD: Thank you, Your Honor. 3 Mr. Kitchen had referred questions about OCA 4 Exhibit 124, which has been admitted, which was a 5 supplemental response by IPL to data request No. 21 6 on the 2008 strategic planning by IPL. 7 The Chair asked IPL and the OCA to confer 8 about how to resolve outstanding issues, and 9 Mr. Guelker will be asked about Exhibit 124, and if 10 he's unfamiliar with any portion of it, he would be 11 willing to accept things subject to check was the 12 resolution we've reached with counsel. 13 CHAIRPERSON NORRIS: Okay. 14 MR. STEAD: Secondly, I would recommend we 15 use the Chairman's procedure and not go into 16 confidential session at this time on OCA Exhibit 124, 17 but let all the cross occur to see if there's other 18 confidential portions that should be included later 19 in the confidential session, if that would be all 20 right. 21 CHAIRPERSON NORRIS: That's fine with me if 22 that works for everybody else. Okay. Yes. 23 24 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1708 1 CROSS-EXAMINATION 2 BY MR. STEAD: 3 Q. Good morning, Mr. Guelker. 4 A. Good morning. 5 Q. A proposal that had been submitted in the 6 United States Congress expires or dies when that 7 specific Congress ends, is that correct? 8 A. I believe so. 9 Q. Senate bill S-139, the 2003 McCain-Lieberman 10 proposal, no longer exists, is that correct? 11 A. That's correct. 12 Q. But that was nonetheless the basis that IPL 13 used in this proceeding? 14 A. No, it was not. 15 Q. What was? 16 A. The basis--the basis for what in this 17 proceeding? 18 Q. The provisions of Senate bill S-139 for CO2 19 regulation prices. 20 A. IPL used information that was provided in a 21 number of different studies that produced CO2 prices. 22 Those studies--some of those studies used information 23 from that proposed bill as inputs to the study, but 24 they did not use the bill itself. 25 Q. But they used the inputs derived from the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1709 1 bill? 2 A. They used some of the inputs derived from 3 the bill as inputs to the study. 4 Q. Now, the now defunct Senate bill S-139 would 5 have put a CO2 cap at 2000 levels from 2010 to 2015, 6 and would put a CO2 cap at 1990 levels beyond 2015. 7 Is that your understanding? 8 A. That's my understanding. 9 Q. Your Schedule A shows there are now a number 10 of newer proposals in the current U.S. Congress, is 11 that correct? 12 A. That's correct. 13 Q. These newer proposals require more stringent 14 reductions in CO2 emissions by 2030 and subsequent 15 years in Senate bill S-139, is that correct? 16 A. The proposals that I show in Schedule A, 17 they have a wide variety of different emissions 18 targets as well as other significant provisions that 19 influence how they reduce emissions. 20 Q. Would it be a fair statement that they are 21 more stringent than Senate bill S-139? 22 A. If you measure stringency based on the level 23 of emissions reductions required, that's a reasonable 24 statement. 25 Q. And Senate bill S-139 that expired in 2003 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1710 1 was sponsored by Senators McCain and Lieberman, is 2 that correct? 3 A. Yes, it was. 4 Q. And in your Schedule A there is now a new 5 proposal by Senators McCain and Lieberman, is that 6 correct? 7 A. Yes, there is. 8 Q. And that new proposal, instead of capping 9 all post-2015 emissions at 1990 levels, the new bill 10 would require reductions to 20 percent below 1990 11 levels by 2030 and to 60 percent below 1990 levels by 12 2050, is that correct? 13 A. That's correct. 14 Q. Have there been any analyses of the emission 15 allowance prices that would be required to achieve 16 the reductions in CO2 emissions under any of the 17 legislative proposals listed in your Schedule A? 18 A. There are just beginning to emerge analyses 19 of prices associated with those various proposals. 20 Q. Are you familiar with the July 2007 EPA 21 assessment of Senate bill S-280, which is the current 22 McCain-Lieberman proposal? 23 A. Generally. 24 Q. Are you familiar with the November 2007 25 Energy Information Administration of the Department PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1711 1 of Energy's assessment of the same Senate bill S-280? 2 A. Generally familiar with it. 3 Q. So those are two studies that have been 4 done? 5 A. They are two studies that have been done 6 that have produced CO2 price information, yes. 7 Q. And that price information is substantially 8 higher than in the old 2003 McCain-Lieberman bill 9 139, correct? 10 A. I'm not certain of that. 11 Q. Subject to check? 12 A. Subject to check. 13 Q. Are you familiar with the April 2007 MIT 14 assessment of U.S. cap and trade proposals? 15 A. Yes, I am. 16 Q. This MIT study looks at ranges of emissions 17 reductions that would be mandated by the proposals 18 that have been introduced in the current United 19 States Congress, is that correct? 20 A. Not directly. 21 Q. But they do rely on that legislation that's 22 been proposed in the current Congress? 23 A. They look at legislation that has been 24 proposed up to that point in time, and then develop 25 three generic scenarios of potential emissions PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1712 1 reductions that would be required as the basis for 2 their study. 3 Q. And, again, those are far higher than the 4 2003 McCain-Lieberman Senate bill S-139 we talked 5 about earlier, correct? 6 A. Actually, they're not. I would like to 7 point out Mr. Schlissel has an exhibit that he 8 provided for the record, and it was Schedule E of his 9 exhibit, which was DAS-1, which shows the results 10 from the study that you're referencing, and shows a 11 huge range of potential prices. 12 For example, in that study, the prices in 13 2015, depending on the stringency of emission 14 reductions required and various other aspects of the 15 climate change proposals in terms of the use of 16 emissions trading, the use of banking, the use of 17 offsets and mitigation, the prices in 2015 in their 18 study range from one cent to $66.70 per ton, and if 19 you look at the data further out in 2050, their 20 prices range anywhere from $38.75 to in one case 21 where they have a price that's in excess of $2,000 22 per ton, so their studies support a very, very wide 23 range of prices. 24 Q. Okay. Thank you. Why didn't IPL use the 25 April 2007 MIT assessments projected CO2 emissions PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1713 1 allowance prices instead of the CO2 prices from a 2 five-year old piece of legislation, Senate bill S-139, 3 that expired in 2003? 4 A. When we examined the information that was 5 emerging, as I've noted, there is an incredibly wide 6 range of prices that can be speculated based upon 7 different pieces of legislation and different 8 provisions of those legislations and the responses to 9 them. 10 IPL examined the information, the price 11 forecast that it was using against the newer 12 information that was coming out, and concluded that 13 its forecasts were both adequate and reasonable for 14 its planning purposes. We didn't regard the fact 15 that one forecast may have been developed at an 16 earlier point in time necessarily made it less 17 adequate or less reasonable than a forecast developed 18 at a later point in time. 19 Q. And the earlier forecast was Senate bill 20 S-139 and analyses of that bill? 21 A. Yes. It was analyses that were based upon 22 information contained within that bill. I don't 23 think I would directly link it to that bill. There 24 are other bills that are proposed as well, and 25 aspects of those bills that may be very similar to PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1714 1 that. 2 Q. If the evidence regarding the dangers 3 proposed by CO2 and climate change continues to mount 4 and the severity of climate change becomes greater, 5 the U.S. Congress may not only not moderate current 6 legislative proposals, but may make them more 7 stringent, is that correct? 8 A. It's possible. I don't know if I would say 9 it's correct. 10 Q. Would you agree that legislation proposed in 11 the current United States Congress generally is more 12 stringent than the sensitivity analyses used by IPL 13 in this proceeding? 14 A. More stringent, again, how? 15 Q. Let's talk about just CO2 prices. 16 A. I don't think from a CO2 price perspective I 17 can draw a conclusion that it's more stringent. With 18 more recent legislation all we see is wider ranges of 19 potential prices in many of the forecasts that we're 20 looking at. 21 Q. And I believe your low CO2 price was eight 22 dollars? 23 A. Eight dollars a ton in 2010. 24 Q. And your high CO2 price was $15 a ton? 25 A. Yes, beginning in 2010 as the starting PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1715 1 point. 2 Q. Right. And you earlier indicated from the 3 MIT study the ranges that MIT was looking at based on 4 current legislative proposals, correct? 5 A. Based upon---well, based upon the scenarios 6 that they had developed based upon information from a 7 variety of different legislative proposals. 8 Q. Right, in the current Congress? 9 A. Well, in the current and past Congresses. 10 They didn't limit themselves to the current Congress 11 in that study. 12 Q. At page 9 of your rebuttal testimony you 13 discuss the April 2007 recommendation by the National 14 Commission on Energy Policy, is that correct? 15 A. Yes, it is. 16 (OCA Exhibit No. 131 was 17 marked for identification.) 18 BY MR. STEAD: 19 Q. I have now marked a document OCA Exhibit 131, 20 and ask you if this is that study? 21 A. I don't believe this is that study. This 22 looks like it's a document that is dated August of 23 2007. 24 Q. And which was yours? 25 A. Mine was April of 2007. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1716 1 Q. Okay. That's fine. 2 CHAIRPERSON NORRIS: Excuse me. Where are 3 you seeing the August? 4 THE WITNESS: On page 5, the letter is dated 5 August 2007. 6 CHAIRPERSON NORRIS: Thank you. I was 7 reading the cover sheet. It said April. 8 THE WITNESS: I stand corrected. The cover 9 letter is dated August 2007. These are the 10 recommendations from April of 2007. So this is the 11 study that contains the recommendations that I'm 12 referring to in my testimony. 13 BY MR. STEAD: 14 Q. This is the study? 15 A. Yes. 16 Q. Okay. Would you turn to page 14 of that 17 study? 18 A. Yes. 19 Q. And read into the record the first full 20 paragraph in the first column beginning with the word 21 "second." 22 A. "Second we wish to stress that while a cost- 23 containment mechanism such as the safety valve 24 remains, in our view, essential to building the 25 bipartisan support needed to advance a timely and PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1717 1 meaningful domestic climate policy, we also 2 anticipate that ecological considerations will argue 3 for an eventual phase-out of this mechanism in favor 4 of greater emissions certainty once a truly 5 international response to global warming is under 6 way." 7 Q. And the rest of that paragraph. 8 A. "Our hope, consistent with our emphasis on 9 encouraging comparable action by other nations, is 10 that near-term leadership by the United States will 11 hasten progress toward that objective." 12 Q. Thank you. 13 MR. STEAD: We would move for the admission 14 of OCA Exhibit 131. 15 CHAIRPERSON NORRIS: Without objection, it's 16 admitted. 17 (OCA Exhibit No. 131 was 18 received in evidence.) 19 BY MR. STEAD: 20 Q. You state in your testimony that the 21 Minnesota PUC had proposed using on an interim basis 22 a nine dollar per ton CO2 cost estimate until a final 23 estimate of the likely range of CO2 costs for future 24 CO2 regulations could be determined, is that correct? 25 A. Yes. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1718 1 Q. Are you aware of a recently issued Minnesota 2 PUC order on this subject matter? 3 A. Yes, I am. 4 (OCA Exhibit No. 132 was 5 marked for identification.) 6 BY MR. STEAD: 7 Q. Mr. Guelker, I've handed you a copy of a 8 Minnesota order that's now been marked OCA Exhibit 9 132, and ask you if that's the same Minnesota order 10 you were referring to? 11 A. Yes, it is. 12 Q. Could you turn to page 11. 13 A. Yes. 14 Q. And under the section titled "Order," would 15 you read the No. 1 entry, please? 16 A. "The Commission estimates that CO2 17 regulation of electricity generation will cost 18 between $4 per ton and $30 per ton for CO2 emitted in 19 2012 and thereafter." 20 Q. Thank you. 21 MR. STEAD: We would move the admission of 22 OCA Exhibit 132. 23 CHAIRPERSON NORRIS: Without objection, 132 24 is admitted. 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1719 1 (OCA Exhibit No. 132 was 2 received in evidence.) 3 BY MR. STEAD: 4 Q. I have one last area I would like to cover 5 with you, Mr. Guelker. It also has been touched upon 6 by Chairman Norris, and that is whether IPL 7 ratepayers, captive ratepayers assume the risk of CO2 8 regulation or not. 9 Under IPL's proposal in this proceeding, the 10 risks and costs of CO2 regulation will be borne by IPL 11 captive customers, not by IPL, isn't that correct? 12 A. Yes, that's correct. 13 Q. Would you accept, subject to check, that we 14 have a number of Iowa statutes that deal with the 15 allocation of risk between IPL and its captive 16 ratepayers? 17 A. Subject to check. 18 Q. Would one such set of statutes be this 19 entire statutory scheme for this certification 20 proceeding? 21 A. I'm not sure about that. 22 Q. Okay. Would another series of statutes that 23 deal with allocation of risk between IPL and its 24 customers be the ratemaking principles statutes? 25 A. Potentially. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1720 1 MS. JOHNSON: I would like to object to this 2 line of questioning. This witness is not qualified 3 to give a legal opinion on the content of the Iowa 4 statutes. He's not an attorney, and that's not the 5 purpose of his testimony. 6 CHAIRPERSON NORRIS: I think Mr. Stead is 7 asking him if he's aware of them. That's fine. As 8 long as you're not asking for Mr. Guelker to give a 9 legal analysis. 10 BY MR. STEAD: 11 Q. Is it true that IPL received ratemaking 12 principles from the Iowa Utilities Board which were 13 beneficial and satisfactory to IPL in order for IPL 14 to proceed with the Emery plant? 15 MS. JOHNSON: I also believe that is outside 16 the scope of the witness' testimony. 17 MR. STEAD: Mr. Guelker is talking about 18 future CO2 regulation, IPL's two scenarios that he ran 19 with the carbon prices, and believes that current 20 legislation in Congress may be moderated. He gets 21 into the entire area of who bears the risk of future 22 CO2 regulation, and that's all my inquiry is going to. 23 MS. JOHNSON: I fail to see how that relates 24 to a prior proceeding where CO2 regulation was, to my 25 understanding, not an issue. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1721 1 MR. STEAD: The question is under the 2 ratemaking statute, does IPL require beneficial and 3 satisfactory ratemaking principles to proceed? This 4 is just an example of an earlier case where that 5 occurred. 6 In the future, if Sutherland Generating 7 Station gets a certificate to be constructed and 8 there's a ratemaking principle case there, whether 9 IPL would require beneficial and satisfactory 10 ratemaking principles before it would proceed with 11 Sutherland Generating Station. 12 CHAIRPERSON NORRIS: I think he is laying a 13 foundation for why that is important. To the degree 14 Mr. Guelker can answer that question, we'll let him 15 answer it if he is able to. 16 THE WITNESS: Can I have the question read 17 back? 18 (Question read by the reporter.) 19 A. I'm aware that IPL received ratemaking 20 principles from the Board regarding the Emery plant. 21 BY MR. STEAD: 22 Q. And did you proceed to construct that plant? 23 A. The company did proceed to construct that 24 plant, yes. 25 Q. Now, if the company had not received PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1722 1 ratemaking principles that were beneficial and 2 satisfactory to the Emery plant, it had the right to 3 abandon the Emery plant; is that your understanding? 4 MS. JOHNSON: Also that's a compound 5 question, and, again, we're getting into issues that 6 are beyond the scope of this testimony generally. I 7 don't believe that Mr. Guelker is responsible for 8 making those decisions. 9 MR. STEAD: I have the same response, Your 10 Honor, that if SGS gets a certificate, there may be a 11 ratemaking principle case. This is just an example 12 of an earlier proceeding and what IPL's options were 13 if it didn't get beneficial and satisfactory 14 ratemaking principles. 15 MS. JOHNSON: Beneficial and satisfactory 16 makes that a compound question. Those can be two 17 completely different standards. 18 MR. STEAD: I can take those separately. 19 CHAIRPERSON NORRIS: Why don't you take 20 them separately, and to the degree Mr. Guelker has 21 knowledge of that, he can answer. If he doesn't, he 22 can respond that way. 23 BY MR. STEAD: 24 Q. With respect to the Emery plant, if those 25 ratemaking principles were not sufficiently PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1723 1 beneficial, IPL could have walked away from the Emery 2 plant, is that correct? 3 A. I'm not sure about that. 4 Q. Again, you're not a lawyer, so I won't refer 5 you to the specific statute on that, but we can brief 6 that. 7 If those ratemaking principles for the Emery 8 plant were not sufficiently satisfactory, IPL could 9 have walked away from the Emery plant, is that 10 correct? 11 A. Again, I'm not sure about that. 12 Q. Are you familiar with the Iowa law relating 13 to emissions plans and budgets? 14 A. Yes, generally. 15 Q. And under that law, is it your understanding 16 that the utilities such as IPL files an emissions 17 plan and budget to comply with then existing state 18 and federal environmental laws? 19 A. Could you repeat that question? 20 Q. Sure. 21 MR. STEAD: Could I have the question read 22 back, please. 23 (Question read by the reporter.) 24 A. I don't think filing the emissions plan and 25 budget is related to compliance with the current PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1724 1 environmental laws or regulations. 2 BY MR. STEAD: 3 Q. What's the purpose of it then? 4 A. My understanding is the purpose is to be 5 able to make a filing to explain the actions or steps 6 that IPL would take to comply with environmental 7 rules and regulations, not only current regulations, 8 but also looking forward at potentially upcoming 9 regulations. 10 Q. Fine. Is it also your understanding under 11 that emissions law that once the Board approves a 12 plan and budget along the lines that you've just 13 discussed, that IPL is assured cost recovery from its 14 customers of those emissions costs? 15 A. I'm not sure. 16 MR. STEAD: Again, that's a statutory issue 17 we can brief, Your Honor. That's all we have at this 18 time, and we will wait for the confidential session. 19 Thank you. 20 MS. EASLER: I did have just a few matters 21 with Mr. Guelker, primarily related to Iowa actions 22 on greenhouse gas reductions. 23 As a preliminary matter, I spoke with 24 counsel for IPL, and with a number of witnesses I 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1725 1 could potentially have some questions on the 2 integrated resource plan that covers the period 2005 3 through 2020. 4 This was a plan that was provided on a 5 courtesy basis to the Board, and I believe all the 6 parties to this case have this plan, and I would 7 just, to speed things along, request that the Board 8 take official notice of this plan. 9 CHAIRPERSON NORRIS: Okay. 10 MS. EASLER: This is the approved plan. 11 CHAIRPERSON NORRIS: Okay. We will take 12 official notice. 13 CROSS-EXAMINATION 14 BY MS. EASLER: 15 Q. Now, Mr. Guelker, your rebuttal testimony at 16 pages 13 and 14 references state and regional 17 initiatives concerning greenhouse gas regulations, is 18 that accurate? 19 A. Yes, it does. 20 Q. And your testimony notes the Midwestern 21 Greenhouse Gas Accord, which Iowa Governor Culver 22 joined on November 15th, 2007? 23 A. Yes, it does. 24 Q. I'm going to hand you a copy of the press 25 release issued by Governor Culver in connection with PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1726 1 this accord. 2 Does this appear to be a press release 3 issued by Governor Culver dated November 15th, 2007 4 on the Midwest Greenhouse Gas Reduction Accord? 5 A. Yes, it does. 6 Q. An opening line in that press release notes 7 that the accord will establish regional goals and 8 initiatives to achieve energy security and promote 9 renewable energy; is that accurate? 10 A. That is what the press release says. 11 Q. Your testimony notes that this accord is a 12 seemingly comprehensive and well-defined accord, but 13 you assert that the requirements, costs, timing and 14 needed actions are still quite uncertain, is that 15 accurate? 16 A. Yes, it is. 17 Q. I would like to have you read from that 18 press release page 2. There are some paragraphs 19 following the bulleted entries. 20 A. Yes. 21 Q. Would you please read those paragraphs? 22 A. Which paragraphs? 23 Q. The paragraphs following the bulleted 24 matters. 25 A. The three paragraphs? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1727 1 Q. Three paragraphs. 2 A. "'I am very pleased Democratic and 3 Republican Midwest Governors, along with Premier Doer 4 of Manitoba, were able to come together to support 5 such a worthy goal,' said Governor Culver. 'The 6 threat of global warming is real and it is our 7 responsibility to take steps to reduce greenhouse 8 gasses. The search for new forms of clean, renewable 9 energy is underway in Iowa with the creation of the 10 Power Fund and the first ever Iowa Office of Energy 11 Independence. Iowa's leadership in renewable energy, 12 combined with our strong manufacturing base, makes us 13 perfectly situated to become the renewable energy 14 capital of the nation.' 15 "Within the next year governors and other 16 participating jurisdictional leaders will establish 17 targets for greenhouse gas emission reductions and 18 complete development of proposed cap-and-trade 19 system. Targets will be consistent with the 60 to 80 20 percent recommended by the Intergovernmental Panel on 21 Climate Change. Full implementation of the accord 22 will be completed within 30 months. 23 "As part of the summit, the Midwestern 24 states, including Nebraska and North Dakota, also 25 adopted an Energy Security and Climate Stewardship PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1728 1 Platform. The platform establishes shared goals for 2 the Midwest region, including specific timelines for 3 the advance of energy efficiency, the promotion of 4 biobased products, the production of renewable 5 electricity and the development of advance coal and 6 carbon capture and storage." 7 Q. Okay. I'm going to hand you a document that 8 should be marked OCA Exhibit 133, and this is the 9 Energy Security and Climate Stewardship Platform that 10 you just read about in that press release. 11 (OCA Exhibit No. 133 was 12 marked for identification.) 13 MS. EASLER: I would move the admission of 14 Exhibit 133. 15 CHAIRPERSON NORRIS: Without objection, it's 16 admitted. 17 (OCA Exhibit No. 133 was 18 received in evidence.) 19 BY MS. EASLER: 20 Q. Directing your attention back to the press 21 release, page 3 of that release, and I believe that's 22 highlighted, that portion, notes that Governor Culver 23 is also relying on Senate File 485, which established 24 the Iowa Climate Change Advisory Council to determine 25 the best strategies for reducing GHG emissions in the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1729 1 state and to assist in the development of a blueprint 2 for lawmakers to help reduce our greenhouse gas 3 emissions. 4 Are you familiar with this body? 5 A. Yes, I am. 6 Q. I would hand you a document that should be 7 marked Exhibit 134. This is the report to the 8 Governor and General Assembly of Iowa from the Iowa 9 Climate Change Advisory Council dated January 1st, 2008. 10 (OCA Exhibit No. 134 was 11 marked for identification.) 12 BY MS. EASLER: 13 Q. Are you familiar with the recommendations 14 that are set forth on the second page of this report, 15 No. 1 through 4? 16 A. Yes, I have reviewed this report. 17 MS. EASLER: I would move the admission of 18 Exhibit 134. 19 CHAIRPERSON NORRIS: Without objection, 134 20 is admitted. 21 (OCA Exhibit No. 134 was 22 received in evidence.) 23 BY MS. EASLER: 24 Q. Are you familiar with the Iowa Office of 25 Energy Independence? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1730 1 A. Yes, I am, generally. 2 Q. And are you familiar with the Iowa Plan for 3 Energy Independence issued by this office in December 4 2007? 5 A. Generally, yes. 6 Q. I'm going to show you a copy of this plan. 7 If I could direct you to page 8, I'll give you a 8 chance to look at the goals and strategies sections 9 represented on this page. 10 A. Yes. 11 Q. It appears, would you agree, that the plan 12 goals include greater energy efficiency and further 13 encouragement of renewable energy in Iowa? 14 A. One of the goals listed is achieve greater 15 energy efficiency. Another one of the goals 16 addresses sustainable and secure energy, yes. 17 Q. Are you having some qualification about the 18 renewable energy aspect? 19 A. Yes. The term renewable energy is not used 20 in this portion of the document. 21 Q. Okay. Turning to page 9 then under the 22 "other policy recommendations." 23 A. Yes. 24 Q. Do you see recommendations concerning 25 renewable energy? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1731 1 A. Under what portion of the document on page 9 2 are you referring to? 3 Q. Under the "other policy recommendations" 4 section. 5 A. The term renewable energy is not used in the 6 goals and strategies section of this document. 7 Q. Correct. But I'm going further down on 8 page 9, there is a portion entitled "other policy 9 recommendations." 10 A. Yes, in this section of the document, "other 11 policy recommendations," there is a reference to 12 renewable energy, yes. 13 Q. And would you say that those recommendations 14 are supportive of greater encouragement of renewable 15 energy in Iowa? 16 A. Yes. I mean the recommendation clearly 17 states incent and require energy providers to 18 increase the use and supply of renewable energy. 19 MS. EASLER: In order not to burden the 20 record further, I would ask that the Board take 21 notice of this document that is available from the 22 Office of Energy Independence website. 23 CHAIRPERSON NORRIS: Yes, we'll take 24 official notice of that. 25 MS. EASLER: And I believe I entered the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1732 1 other exhibits. That concludes my cross-examination. 2 CHAIRPERSON NORRIS: Ms. La Seur, do you 3 have some nonconfidential questions? 4 MS. LA SEUR: Yes, thank you. 5 CROSS-EXAMINATION 6 BY MS. LA SEUR: 7 Q. Good morning, Mr. Guelker. 8 A. Good morning. 9 Q. Your testimony concerns the adequacy and 10 reasonableness of IPL CO2 price forecasts and the 11 likelihood and likely severity of federal carbon 12 regulation, correct? 13 A. Yes, it does. 14 Q. Do you consider yourself an objective and 15 disinterested analyst of these trends? 16 A. I consider myself an objective analyst of 17 these trends, yes. 18 Q. Do you consider yourself a disinterested 19 analyst of these trends? 20 A. No. I mean I have an interest in my 21 capacity with the company in analyzing these trends. 22 Q. Does IPL or Alliant Energy engage directly 23 or indirectly in any form of lobbying that might 24 affect the passage of proposed climate change 25 legislation? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1733 1 A. Alliant Energy and IPL participate in 2 various working groups and forums where policy 3 related to climate change is discussed. 4 Q. Is that a yes? 5 A. Repeat your question, please. 6 MS. LA SEUR: Could we have the question, 7 please? 8 (Question read by the reporter.) 9 A. I can't answer that question. What do you 10 mean by lobbying? Can you define what you mean by 11 that term? 12 BY MS. LA SEUR: 13 Q. Promoting the passage or defeat of certain 14 legislation. 15 A. Alliant--yes, Alliant Energy is engaged in 16 the process of participating in legislative process. 17 Q. And in what kind of lobbying does Alliant 18 engage? 19 A. That's beyond my area of expertise. 20 Q. Does Alliant engage in lobbying at the state 21 level? 22 A. Alliant Energy actively participates in 23 various working groups and bodies that are active in 24 the issue of developing climate change policy at the 25 state level, yes. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1734 1 Q. And does Alliant engage in lobbying on this 2 subject at the federal level? 3 MS. JOHNSON: I believe it was asked and 4 answered. He has already stated what Alliant's and 5 IPL's participation is generally. 6 MS. LA SEUR: I asked about state, and now 7 I'm asking about the federal. 8 CHAIRPERSON NORRIS: You can respond to that 9 question. 10 A. We engage in efforts at the federal level as 11 well to influence the outcome of legislation and to 12 understand legislation that is proposed and its 13 impacts on our company, yes. 14 BY MS. LA SEUR: 15 Q. Does your answer include participation in 16 trade and industry organization lobbying activities? 17 A. As a company, we're active in a number of 18 trade and industry organizations that have a variety 19 of purposes for which they're established. 20 Q. Are you familiar with an organization called 21 Americans for Balanced Energy Choices? 22 A. Not in any detail. 23 Q. But have you heard of that? 24 A. I've heard of the organization, yes. 25 Q. Is Alliant affiliated in any way with this PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1735 1 organization? 2 A. I don't know. 3 Q. Does Alliant endorse the activities of this 4 organization? 5 A. I don't know. 6 Q. Is Alliant in any way associated with the 7 massive pro coal advertising campaign currently 8 underway in Iowa and around the country? 9 A. I don't know. 10 Q. Does IPL stand to earn larger profits if CO2 11 is not regulated? 12 A. I don't believe so, no. 13 Q. Have you analyzed this matter? 14 A. I have not analyzed this matter in detail, 15 no. 16 Q. Do you hold any degrees in economics? 17 A. No. 18 Q. Do you hold any degrees in climate science? 19 A. No. 20 Q. Have you conducted any independent research 21 into climate change science or policy? 22 A. No. 23 Q. Except for four years as a natural gas 24 trader, have you worked for Alliant Energy for your 25 entire professional career? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1736 1 A. Yes. 2 Q. At pages 8 and 9 of your rebuttal testimony 3 you discuss the likelihood that legislation become 4 more moderate as legislators and policy makers, in 5 your words, realize the limits of renewable energy 6 and DSM, and you cite an Energy Information 7 Administration study evaluating the impacts of a 25 8 percent renewable portfolio study and a 25 percent 9 renewable fuel standard by 2025, and your conclusion 10 is that the projected failure of such standards to 11 reduce CO2 emissions below 2005 levels will make 12 legislators likely to pass less stringent standards, 13 is that correct? 14 A. I believe it will make them likely to pass 15 standards that recognize the evolution that needs to 16 take place to address this issue. That's further 17 supported in my testimony. 18 In my exhibit Schedule C, I have a report 19 from the Congressional Budget Office that was 20 prepared titled "Issues and Climate Changes" that was 21 a presentation at a Congressional Budget Office 22 director's conference on climate change in November 23 of 2007, and in this report they have a number of 24 conclusions, and specifically on the last page of the 25 report, page 15, they discuss what happens--what PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1737 1 needs to happen in the near term and over the longer 2 term to address this topic, and the final sentence in 3 their document states that--and this is in the 4 paragraph dealing with the longer term, "that other 5 renewable energy sources in conservation appear 6 likely to play relatively limited roles." 7 Q. And so my question is about your conclusion 8 that as a result of these projections you make that 9 legislators will enact less stringent climate 10 regulation, is that the correct characterization of 11 your conclusion? 12 A. My conclusion is that they will enact 13 legislation that is reasonably compatible with the 14 ability to comply with legislation. 15 Q. So is that a yes, you're saying less 16 stringent regulation as a result of-- 17 A. It may not be less stringent regulation. I 18 don't think stringency is the issue as much as it is 19 a matter of the staging and progression of the 20 legislation that would be passed. 21 Q. Well, would you refer to legislation that 22 phases in over time as less stringent than 23 legislation that kicks in within a few years of its 24 passage? 25 A. Not necessarily, because legislation that PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1738 1 phases in over time may ultimately have more 2 stringent reductions that are required than 3 legislation that occurs and is implemented more 4 rapidly has, so I think stringency is just one aspect 5 of the legislation to consider. 6 Q. And why is it that you believe that a 7 relatively small impact for renewable portfolio 8 standards and a renewable fuel standards will lead to 9 this kind of slower implementation of climate 10 legislation? 11 A. I ultimately believe, and these are my 12 conclusions based upon the information that I brought 13 forth from these other organizations that have 14 studied this in more detail, that the legislation 15 that's passed needs to reflect the capabilities of 16 the various sources of greenhouse gas emissions to be 17 able to comply with it and still meet other 18 requirements that are placed upon them. 19 Q. And if this particular assumption that 20 you've made is wrong, how would that affect the 21 general conclusions that you reach in your testimony? 22 A. I don't think it changes the general 23 conclusions that I'm reaching in my testimony. 24 Q. Do you have any support for your claim that 25 CO2 legislation is likely to become more moderate? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1739 1 A. Again, define "more moderate." 2 Q. I'm using your phrase. I think you'd have 3 to define it. 4 A. Okay. More-- The information that I 5 presented in my testimony provides support for the 6 staged progression of reductions in greenhouse gas 7 emissions. It doesn't speak to the final end-state 8 stringency of the legislation that would ultimately 9 result. 10 Q. So when you predict more moderate 11 legislation at page 8 of your rebuttal, you're in 12 fact talking about timeline as opposed to the 13 ultimate limits imposed? 14 A. On page 8 when I'm speaking of more 15 moderate, I'm speaking of timeline, and I'm also 16 speaking of the--if you look at all the other aspects 17 that will be, or that are embodied in proposals for 18 climate change regulation beyond strictly the 19 emissions targets, those are the aspects that I'm 20 referring to, such as the inclusion of safety valves, 21 such as the ability to use offsets, both domestic and 22 international, the ability to have other 23 organizations established to evaluate whether or not 24 we are on target to be able to meet the requirements 25 that have been mandated. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1740 1 Q. Okay. Why did IPL choose a carbon price 2 based on Senate bill 139, the McCain-Lieberman bill, 3 as opposed to a model based on another of the bills 4 that have been introduced in Congress and discussed 5 in this proceeding? 6 A. The information that was used was 7 information that was available at the time that we 8 conducted scenario analysis of greenhouse gas CO2 9 prices. 10 Q. And at what time was that? 11 A. That was--we initially conducted an analysis 12 in 2006. 13 Q. Does that analysis carry on, or is that a 14 one-time thing? 15 A. Analysis carries on. We use that 16 information on CO2 pricing in a variety of different 17 analyses that we perform. 18 Q. So was there any update to that analysis 19 today? 20 A. Again, we have not chosen to change the 21 information that we're using, the CO2 prices that 22 we're using, because we haven't--when we examined all 23 the information, we don't necessarily see that 24 there's better or different information that is more 25 reasonable or adequate to use than the information PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1741 1 that we're using. 2 Q. Would it be fair to say then that none of 3 the action that's been taken worldwide in the last 4 two years on climate change has been taken into 5 account in the calculations supporting this 6 application? 7 A. No. We're using information on CO2 prices, 8 and those CO2 prices are not directly related to 9 action, regardless of whether we develop them using 10 more recent proposals or more dated proposals. 11 Q. Why wouldn't more recent proposals change 12 those projections? 13 A. They may change those projections. Clearly 14 there are more proposals to examine now that have 15 been provided, so you can clearly get a wider range 16 of prices to examine, but more recent proposals are 17 not necessarily more likely to become what the final 18 requirements would look like relative to older 19 proposals that have been provided. 20 Q. In your rebuttal testimony at page 6, I 21 think this is lines 20 to 23, you note that some of 22 the bills that have been introduced in Congress 23 require CO2 emissions below those required by McCain- 24 Lieberman. 25 Are you aware of some of the bills that have PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1742 1 already been introduced in Congress calls for CO2 2 emissions reductions far higher than those required 3 by McCain and Lieberman? 4 A. What page are you looking at? 5 Q. This is page 6. 6 A. Yes. 7 Q. And you say-- Let's see. It's your own 8 testimony. I'll let you read it into the record if 9 you would, lines 20 to 23. 10 A. Yes. It says, "When viewed only from the 11 perspective of the required levels of CO2 emissions 12 reductions, numerous bills introduced in the 110th 13 Congress call for emissions reductions to levels that 14 are below those proposed in bill S. 139, on which 15 IPL's low and high CO2 price forecasts are based." 16 Q. So you are saying lower reductions have been 17 proposed than what you're modeling, correct? 18 A. Yes, greater levels of emissions reductions 19 have been proposed. 20 Q. I don't think that's what this says. It 21 says-- So are you saying that the reductions 22 themselves would be lower, or the amount of CO2 would 23 be brought to a lower level? 24 A. The amount of CO2 would be brought to a 25 lower level. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1743 1 Q. So you are actually referring to the bills 2 that propose larger reductions? 3 A. Yes. 4 Q. Okay. And the line graph on page 2 of your 5 first exhibit shows a Pew Center summary of bills 6 that have been introduced into Congress. Can you 7 tell the Board, generally speaking, what the graph 8 represents? 9 A. Yes. The graph represents the amount of 10 total emissions in CO2 equivalent that would be 11 allowed under cap and trade proposals that have been 12 introduced in various years spanning from--spanning 13 until 2050. 14 Q. Okay. Staying with that Pew Center line 15 graph on page 2, isn't it true that the purple line-- 16 and if you've got a color copy it makes sense; 17 otherwise, it's just a blur. The purple line 18 representing the CO2 reductions required by the 19 Sanders-Boxer-Waxman bill require CO2 reductions 20 greater than those required by McCain-Lieberman, 21 which is represented by the green line, I believe? 22 A. Yes. They require greater emissions 23 reductions in terms of the total quantity allowed 24 than the McCain-Lieberman line. 25 Q. There are, in fact, several bills that lead PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1744 1 to greater reductions up to and past the year 2022, 2 correct? 3 A. Yes. 4 Q. And then in light of this data that you've 5 submitted, why did you determine that considering CO2 6 reductions greater than McCain-Lieberman was 7 unreasonable? 8 A. I've never stated that considering CO2 9 reductions greater than McCain-Lieberman was 10 unreasonable. There's two important aspects when you 11 look at the CO2 prices. One is the requirements that 12 you need to meet. The second is the response to 13 meeting those requirements, and when you look at the 14 studies, the study that was introduced by 15 Mr. Schlissel and the range of outcomes prices--a lot 16 of the range of outcome of prices, the wide variance 17 was related to the response of the regulated 18 community to the requirements, not necessarily to the 19 stringency of the requirements. 20 MR. STEAD: Could I ask a point of 21 clarification? Was that the 2003 Lieberman bill you 22 were referring to, or the current Congressional 23 Lieberman bill you were referring to? 24 MS. LA SEUR: These are proposals of the 25 110th Congress. They appear to be introduced as of PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1745 1 October 18, 2007 according to the title of this 2 exhibit. 3 MR. STEAD: Thank you. 4 BY MS. LA SEUR: 5 Q. So when you argue that Alliant's approach is 6 reasonable, you're not saying that other approaches 7 are unreasonable? 8 A. No, no. 9 Q. Okay. Are you aware that nearly all of the 10 leading candidates for president have called for 11 stronger action against CO2 emissions than the current 12 administration has taken? 13 A. I'm not sure about that. I'm not sure if 14 all the candidates have. 15 Q. So you don't follow political statements on 16 these issues very closely? 17 A. I don't follow them to the level of being 18 able to make a judgment about what all the candidates 19 are saying at the level of specificity that's needed 20 to make that comparison. 21 Q. Okay. In your rebuttal at page 7, I believe 22 lines 7 through 10, you state that IPL believes that 23 effective cost controls will be included in whatever 24 CO2 emissions reduction program is adopted, and you 25 make this claim by looking at various cost controls PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1746 1 that have been included in introduced legislation. I 2 think that's at page 8, starting at line 7. Is that 3 a correct evaluation of your testimony? 4 A. Yes, it is. 5 Q. Okay. Mr. Guelker, are you aware that 6 President Bush is, generally speaking, opposed to a 7 stringent CO2 emissions reduction? 8 A. I'm aware to date that CO2 emissions 9 reductions have not--legislation has not passed 10 regarding them. 11 Q. Do you think it's reasonable to presume that 12 legislation introduced during the Bush Administration 13 was tailored to be more moderate to accommodate the 14 president's views? 15 A. I don't know. 16 Q. Okay. Is it--do you think it is reasonable 17 to conclude that cost controls might be less 18 important than legislation introduced under a new 19 administration? 20 A. I can't really speculate on that. 21 Q. Do you acknowledge that the State of 22 Minnesota has implemented CO2 pricing starting in 23 2009? 24 A. What type of CO2 pricing? 25 Q. I don't think I would be able to give a PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1747 1 reliable characterization of exactly what they're 2 doing, but there is legislation that kicks in in 3 January of 2009. 4 A. I'm not aware of the CO2 pricing that that 5 establishes. I'm aware there is legislation. 6 Q. Would you be willing to accept that this 7 legislation will attach some cost to CO2 emissions in 8 Minnesota in 2009? 9 MS. JOHNSON: I would object to that. 10 Counsel herself has stated she doesn't know what the 11 legislation requires. I don't think she can ask the 12 witness to agree to it. 13 CHAIRPERSON NORRIS: You can ask him if he's 14 aware. If he isn't, he isn't. 15 A. I'm not aware of that. 16 BY MS. LA SEUR: 17 Q. Are you aware of action taken by any other 18 states to regulate CO2? 19 A. Generally, yes. 20 Q. And are you able to give any further detail, 21 or are you just aware in a general sense that 22 something is happening? 23 A. I'm aware in a general sense, and I'm more 24 aware of states taking action similar to the actions 25 that the State of Iowa is taking to establish groups PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1748 1 to study the issue and make recommendations as part 2 of the process of establishing legislation and 3 ultimately attempting to establish rules and 4 regulations that govern the emissions. 5 Q. Are you aware of the Clean Energy Import 6 standards being implemented now in California and 7 Oregon? 8 A. Generally, yes. 9 Q. And would Sutherland 4 be able to sell power 10 into those jurisdictions under those new Clean Energy 11 Import standards? 12 A. I'm not sure. 13 Q. Does the action that other states have 14 already taken to regulate CO2 influence your thinking 15 on the likelihood or likely severity of federal 16 regulation? 17 A. It's a factor that is useful in examining 18 when you look at the possibilities of regulation that 19 could emerge. 20 Q. How do you respond to Dr. Hanson's 21 predictions that increasing severe climate change 22 impacts will drive stronger carbon regulation than 23 previously anticipated? 24 A. I don't have an opinion regarding that. The 25 company, Alliant Energy, has a policy regarding PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1749 1 climate change, and the company's position is that 2 sufficient scientific evidence exists to support 3 greenhouse gas reduction. 4 Q. And do you advise Alliant Energy on that 5 climate change policy? 6 A. It is the policy of the company, yes. 7 Q. And who creates that policy? 8 A. That policy has been--it's been created by 9 our management, endorsed by our board of directors. 10 Q. And do you have any input in the creation of 11 that policy? 12 A. I've had some input into the creation of 13 that policy, yes. 14 Q. So would your analysis of climate science 15 and studies on climate policy influence that policy 16 at the corporate level? 17 A. Not heavily. 18 Q. And referring you back to the Office of 19 Energy Independence plan that was submitted as--or I 20 think it was the request to take administrative 21 notice. 22 CHAIRPERSON NORRIS: We take official 23 notice, yes. 24 BY MS. LA SEUR: 25 Q. I believe you have a copy. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1750 1 A. Yes, I do. 2 Q. And I would refer you back to page 9 and the 3 policy recommendations. 4 A. Yes. 5 Q. Is there a policy recommendation with regard 6 to regulation of CO2 by the Department of Natural 7 Resources? 8 A. Are you referring to this document that the 9 Office of Energy-- 10 Q. Yes, I'm referring to the policy 11 recommendations in that Energy Independence plan. 12 CHAIRPERSON NORRIS: Perhaps you could 13 direct him to where at on the page you're referring 14 to, Ms. La Seur. 15 MS. LA SEUR: I don't have a copy here. 16 Fortunately, I carry it with me. 17 BY MS. LA SEUR: 18 Q. If you would turn to page 10, in fact, I 19 believe under the fourth bullet point. 20 A. Yes. 21 Q. And would you read that into the record for 22 us, please? 23 A. "Include greenhouse gas emissions as a 24 criterion for the DNR to issue air permits." 25 MS. LA SEUR: Thank you. That's all I have. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1751 1 CHAIRPERSON NORRIS: Just a couple, 2 Mr. Guelker. 3 THE WITNESS: Yes. 4 CHAIRPERSON NORRIS: Let's see. On page 14 5 and 15 of your testimony, rebuttal testimony, the 6 last sentence on page 14, "As a result, delaying 7 decisions to build a generating facility needed to 8 serve increasing customer load and energy 9 requirements, such as SGS Unit 4, until the desired 10 certainty or clarity emerges is not a viable 11 sustainable regulatory response." 12 What is the desired certainty and clarity 13 you are referring to? 14 THE WITNESS: The desired certainty or 15 clarity that I was referring to there was an 16 understanding of what the cost of CO2 emissions will 17 be, the CO2 prices. 18 CHAIRPERSON NORRIS: As you say, it is not a 19 viable regulatory response. If there were to be a 20 desired certainty or clarity in the next session of 21 Congress that would give us a road map in terms of 22 the cost of carbon cost, be it at once or phased in 23 over time, that that would not be a viable regulatory 24 response? 25 THE WITNESS: I think there is a--in answer PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1752 1 to that there is two components to this that are 2 important when we're looking at the CO2 prices. 3 One is, again, understanding the 4 requirements, and as shown in the studies that MIT 5 did with regard to the carbon pricing, even with 6 exact knowledge of the requirements, understanding 7 the response to the regulated community and the 8 changes that would occur in the future heavily drives 9 the CO2 prices, and even with one given set of 10 requirements, you can have dramatically different CO2 11 prices emerge as the future unfolds, so this is not 12 just a matter of having certainty or clarity about 13 the requirements. 14 It may seem alluring to say if we understood 15 what those requirements were, we would understand the 16 CO2 prices, but I don't believe that to be the case. 17 CHAIRPERSON NORRIS: So that you're saying 18 there are circumstances that will make this-- How 19 long into the future will we be uncertain about the 20 cost of CO2? 21 THE WITNESS: I think just from a rules and 22 requirements perspective, if you look at other 23 significant regulation that's occurred, and I cited 24 two in my testimony, one being the Clean Air Act 25 amendments of 1990 and the acid rain program, and PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1753 1 then the resulting Clean Air Act Interstate rule, 2 we're talking about changes that were phased in over 3 a 15-year period. 4 The same thing is true when you look at the 5 issue of the hole in the ozone that had emerged. 6 There was about a 15-year period of different rules 7 and regulations that came forth and ultimately 8 addressed that problem. There wasn't one single 9 defining rule or regulation. 10 CHAIRPERSON NORRIS: You're saying it's an 11 ongoing process? 12 THE WITNESS: It's an ongoing process. 13 CHAIRPERSON NORRIS: As it is right now? 14 THE WITNESS: Yes. 15 CHAIRPERSON NORRIS: And will be in the 16 future? 17 THE WITNESS: It will be in the future. 18 CHAIRPERSON NORRIS: Further down on that 19 page there you say, right in the middle of that 20 page 15, "IPL believes the need for coal-fired 21 generation is a part of a diversified generation 22 portfolio." 23 How does adding 350 megawatts of coal-fired 24 generation diversify IPL's portfolio, or am I 25 misreading that statement? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1754 1 THE WITNESS: Yeah. That statement, having 2 coal-fired generation is part of having a diversified 3 generation portfolio. 4 CHAIRPERSON NORRIS: Doesn't this plant 5 increase the coal percentage of your generation, not 6 decrease it? 7 THE WITNESS: Yes, it would. 8 CHAIRPERSON NORRIS: So actually less 9 diversity by building this plant, is that correct? 10 THE WITNESS: Less diversity from that 11 perspective, yes. By this statement I was not trying 12 to discuss whether that coal-fired plant would make 13 our specific portfolio more or less diverse, but I'm 14 saying as part of a diversified portfolio. 15 CHAIRPERSON NORRIS: I believe you stated in 16 response to Mr. Stead's question that the risk of 17 carbon costs, which we have uncertainty about, as you 18 state above, would flow to consumers. Would that be 19 through the energy adjustment clause? Is that your 20 understanding? 21 THE WITNESS: Well, it could flow to 22 consumers in that mechanism. It could also 23 ultimately flow to consumers if capital investments 24 are required at generating plants to operate and 25 maintain those plants in compliance with the rules PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1755 1 and regulations. It could also flow to consumers 2 that way. 3 But when I had responded to Mr. Stead's 4 question, the costs associated with carbon and the 5 risk associated with that cost is--it's a cost that 6 the customer bears, not really significantly 7 different than the costs the customer bears of the 8 cost of fuel for the generating units, and there is a 9 variety of different fuel types that are used. 10 So I think one of the things that we intend 11 to do right now is we try to focus on carbon costs 12 and take that out of the overall equation of looking 13 at all the costs and the uncertainty of those costs 14 that the customer bears. 15 CHAIRPERSON NORRIS: So playing devil's 16 advocate here, help me sort through this question. 17 You're going to add a generation source that makes 18 you less diverse from a fuel source of which there is 19 uncertainty, but all that--the majority or all of 20 that cost will be passed on to the consumer. How do 21 we resolve this in the consumer's mind that this is a 22 good deal for them? 23 THE WITNESS: Well, without adding that 24 source, we still have a need to provide the energy 25 that the consumer will demand, and my understanding PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1756 1 is that a significant amount of the energy generated 2 by this unit would displace energy that's generated 3 by other generating units that are not owned by IPL, 4 and that IPL purchases the power, and there's 5 uncertainty associated with the cost of purchasing 6 that power, and to the extent that there's cost 7 associated with carbon, that is able to be passed 8 through in the marketplace, and to a large extent it 9 may be able to be passed through, that's a cost that 10 the customer ultimately will bear as well. 11 So it's really a trade-off between which are 12 the most appropriate costs to have the customer bear. 13 CHAIRPERSON NORRIS: Ms. Johnson. 14 MS. JOHNSON: Thank you. 15 REDIRECT EXAMINATION 16 BY MS. JOHNSON: 17 Q. Mr. Guelker, do you recall being questioned 18 regarding CO2 regulations put in place that might 19 require you to pay a price per ton for CO2 emitted? 20 A. Yes. 21 Q. And to your knowledge, would there be--can 22 you describe whether there would be any other units 23 beside SGS Unit 4 that might have to pay those costs? 24 A. The majority of the proposals that we're 25 looking at are what's called cap-and-trade proposals, PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1757 1 which cap the amount of emissions that an entity 2 would be able to emit, and the specific source of 3 those emissions is not the driver in a cap-and-trade 4 regulation where you're trying to limit the quantity 5 in total, so essentially every generating unit that 6 emits a ton of carbon would see a cost--if not a 7 direct cost, an opportunity cost associated with that 8 ton of carbon, so all units that generate that have 9 carbon emissions would see that same cost. 10 Q. So that would include numerous other units 11 in IPL's fleet? 12 A. Yes. 13 Q. And so all those units in IPL's fleet would 14 have to pay for their CO2 emissions under that scheme? 15 A. Yes. When you say pay for the CO2 16 emissions, depending on how the allowances to emit 17 are distributed, that will influence the direct cost 18 that different parties that are regulated see, but 19 from an opportunity cost perspective, that--those 20 emissions will have a value associated with them that 21 could be realized if the company did not, or unit did 22 not emit. 23 Q. Now, earlier you testified regarding Alliant 24 Energy's corporate position on climate change. Do 25 you recall that testimony? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1758 1 A. Yes, I do. 2 Q. And I believe you've already provided us a 3 brief summary of that policy, is that correct? 4 A. I provided you with one of the guiding 5 principles that--one of the guiding principles that 6 was used in establishing the formal position on 7 climate change. 8 Q. Could you describe whether there are any 9 other guiding principles you think are kind of 10 relevant towards climate change in light of your 11 questioning you received earlier? 12 A. Yes. Several other guiding principles that 13 are significant is technology solutions that are 14 based on sound science are critical and should be 15 developed, and continued research and demonstration 16 studies must be supported, and another guiding 17 principle was that economic growth and sustainable 18 development is possible while also reducing 19 greenhouse gas emissions. 20 Q. And has this corporate policy been 21 published? 22 A. Yes. This policy, the position on climate 23 change and the guiding principles were published in 24 the Alliant Energy environmental progress report that 25 was published in September of 2007. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1759 1 Q. And to your knowledge-- You were questioned 2 regarding lobbying efforts on behalf of Alliant 3 Energy and IPL earlier. To your knowledge, are those 4 lobbying efforts consistent with the stated corporate 5 policy and the environmental progress report? 6 A. Yes, they are. 7 MS. JOHNSON: Thank you. I have nothing 8 further. 9 MR. STEAD: I have just one question, Your 10 Honor. 11 RECROSS-EXAMINATION 12 BY MR. STEAD: 13 Q. Mr. Guelker, is your response to Ms. La Seur 14 that CO2 regulation would not negatively impact 15 Alliant's profitability predicated upon the 16 assumption that CO2 regulation cost would be borne by 17 IPL customers? 18 A. Yes. 19 MR. STEAD: That's all I have. Thank you. 20 CHAIRPERSON NORRIS: Ms. La Seur. 21 RECROSS-EXAMINATION 22 BY MS. LA SEUR: 23 Q. First, I wanted to be sure I'm understanding 24 your response to one of Chairman Norris' questions. 25 He was asking about the risk to consumers, I believe, PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1760 1 of adding a generation source that makes IPL less 2 diverse from an uncertain fuel source, and your 3 response was that there is a trade-off, I think, 4 between what are appropriate costs to pass to the 5 consumer? 6 A. My response was there's a trade-off between 7 the different types of costs that the customer is 8 exposed to in order to provide the energy that 9 ultimately meets the customer's need. 10 The trade-off in this case is between the 11 cost associated with the power that is purchased, and 12 there's a cost associated with that, and there's an 13 uncertainty and a volatility in that cost, and that 14 cost also ultimately, if carbon regulation comes to 15 pass, would ultimately include some cost associated 16 wit that. 17 There's a trade-off between that cost and 18 the cost associated with constructing a new 19 generating unit, and both expose the customer to 20 various risks. The question is what's the 21 appropriate balance of risk to expose the customer 22 to. 23 Q. Okay. So then would it be fair to say the 24 trade-off you're talking about is the choice between 25 these risks associated with an unknown set of PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1761 1 purchased power generators and the risks associated 2 with a less diverse portfolio and carbon risk 3 attached to coal in building Sutherland 4? 4 A. Yes. I mean those are some of the risks 5 that are-- 6 Q. You also mention in the same response that 7 Sutherland 4 will displace purchased power at an 8 uncertain cost. We're back to an argument that we've 9 heard before, that Sutherland 4 is displacing power. 10 Is Sutherland 4 serving new demand? Is there need, 11 or is it displacing existing demand? 12 A. If we generate energy from Sutherland 4, and 13 that energy is used to serve customer load, given 14 that the customer load, the energy demanded is 15 constant, we're displacing energy that would have 16 come from some other source, because ultimately the 17 demand for energy in a short time period will be 18 whatever it is going to be, and the energy needs to 19 be provided at any point in time from some 20 combination of all the sources that are available. 21 Q. Okay. So when you say displacement, you're 22 just talking about displacing it from Alliant's 23 system. Somebody else would be consuming that power 24 and that generation will continue to operate, but it 25 will not be purchased by IPL? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1762 1 A. Right. It will not be purchased by IPL. 2 Whether or not it would continue to operate depends 3 upon the needs of all the other participants who are 4 connected to the electricity system. 5 Q. But you wouldn't be able to speak to that 6 outside system need? 7 A. Right. 8 Q. You're just arguing there is this additional 9 need on the IPL system? 10 A. Yes. And the need is evidenced by if you 11 examine the sources of energy, one of the sources of 12 energy is purchasing power from others outside of the 13 IPL system. 14 Q. But Alliant is not proposing displacing 15 other generation within its existing owned system, 16 correct? 17 A. Well, when you say displacing generation, in 18 the way I'm speaking about this, and this has been 19 discussed previously, we believe that there would be 20 some reconfiguration of what generation is run at 21 what points in time to serve load, so there may be. 22 Q. But testimony has been given, of course, all 23 existing generation will have to be offered into the 24 MISO market. It wouldn't be an option to just shut 25 things down? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1763 1 A. It's not a unilateral option, but the 2 presence of a new generating unit in the context of 3 the whole MISO market will--there will be a lot of 4 adjustments that take place to rebalance and 5 ultimately provide the same amount of energy that 6 would have otherwise been provided. 7 Q. You're not making any testimony about 8 specific shutdowns? 9 A. No. 10 Q. Okay. Then you refer to the corporate 11 carbon policy. In response to some questions from 12 Ms. Johnson, you referenced the policy on technical 13 solutions based on sound--I think the statement is 14 technical solutions based on sound science are 15 critical, and should be developed? 16 A. Yes. 17 Q. And does IPL consider Sutherland 4 that kind 18 of technical solution? 19 A. Sutherland 4 is not proposed as a technology 20 solution to climate change. 21 Q. Okay. And then the next principle, economic 22 growth, sustainable developments are possible while 23 reducing greenhouse gas emissions? 24 A. Yes. 25 Q. Is that stated correctly? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1764 1 A. Yes. 2 Q. Would you agree that with construction of 3 Sutherland 4, IPL's total corporate greenhouse gas 4 emissions will increase above their current levels? 5 A. If you measure--if you measure greenhouse 6 gas emissions as the emissions from the facilities, 7 the production facilities that IPL owns, greenhouse 8 gas emissions will increase. We've had discussion in 9 this proceeding previously about the carbon 10 footprint, because when we--if we displace energy 11 that's being generated by some other generators, 12 carbon emissions from those generation units would 13 decrease, so it is important to look at it from an 14 overall carbon footprint perspective what changes. 15 Q. Okay. But the absolute level will go up, 16 right? 17 A. The level of greenhouse gas emissions from 18 our production facilities will increase because they 19 will produce more energy with the presence of a new 20 plant than they previously produced. 21 Q. And yet your corporate policy is to reduce 22 greenhouse gas emissions, is it not? 23 A. No, that is not our corporate policy. 24 MS. LA SEUR: That's all I have. 25 CHAIRPERSON NORRIS: Ms. Johnson, before we PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1765 1 go to confidential, any questions? 2 MS. JOHNSON: No questions. 3 CHAIRPERSON NORRIS: All right. We will go 4 into confidential session with Mr. Guelker. Anyone 5 who is not a party to the confidentiality agreement, 6 we would ask you to leave the hearing room. 7 Do you anticipate how many questions you 8 have, Mr. Stead? 9 MR. STEAD: Through the cooperation of our 10 office and IPL counsel, we have a very limited number 11 of questions, Your Honor. 12 CHAIRPERSON NORRIS: For those who want to 13 come back, we may be back in--probably take a break 14 at the end of the confidential session, so you are 15 looking at probably between 11 and 11:15 we'll 16 probably come back in. Don't hold me to that. We'll 17 take one or two minutes here to clear the room. 18 (Pages 1766 through 1771 are contained in a 19 separate confidential transcript.) 20 21 22 23 24 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1766 1 (The following proceedings were held in 2 closed session.) 3 CHAIRPERSON NORRIS: All right. We are in 4 confidential session. Go ahead, Mr. Stead. 5 MR. STEAD: Thank you, Your Honor. 6 BY MR. STEAD: 7 Q. Mr. Guelker, would you please turn in OCA 8 Exhibit 124 to attachment A, page 2 of 2? 9 A. Yes. 10 Q. Subject to check, was this developed 11 recently by Alliant? 12 A. This is a document that was used in Alliant 13 Energy's strategic planning. 14 Q. For 2008. 15 A. Yes. 16 Q. Would you accept, subject to check, that at 17 a minimum, this document has been discussed by top 18 executives at IPL and/or Alliant? 19 A. I'm not certain of that. 20 Q. Subject to check? 21 A. Yes. 22 Q. Mr. Kitchen indicated that the first row, 23 the dark row, was his base case with SGS 4 going into 24 service in 2013 as he sponsored in this proceeding. 25 Would you accept that, subject to check? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1767 1 A. I don't know if-- 2 Q. Subject to check? 3 CHAIRPERSON NORRIS: Mr. Stead, give him an 4 opportunity to answer if he wants to answer. Then 5 you can interject the subject to check. 6 A. The appropriate witness to address this 7 particular attachment is Ms. Kampling. 8 BY MR. STEAD: 9 Q. We aren't going to play this game forever. 10 Would you accept that, subject to check? 11 A. I don't know. I don't have any knowledge of 12 this document. 13 Q. Your counsel does. 14 MR. RAGSDALE: Mr. Stead, before we came 15 back, we did have a discussion about this particular 16 page, and you indicated that you had one question 17 that you were going to ask Mr. Guelker subject to 18 check that I agreed would be appropriate to ask him, 19 and you have not asked that question. 20 MR. STEAD: That's the next question, Your 21 Honor. 22 MR. RAGSDALE: I think that Mr. Kitchen did 23 provide testimony in regards to that top shaded 24 scenario already, so I think that that's been 25 established in the record from Mr. Kitchen already. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1768 1 I don't think there is a need to reestablish what 2 Mr. Kitchen said about that with Mr. Guelker. 3 CHAIRPERSON NORRIS: No. I think Mr. Stead 4 is trying to get to the point, you're certainly 5 welcome to refute what he's asking you subject to 6 check, so for the sake of argument, let's go ahead 7 and proceed with the subject to check, and if he's 8 got it in error, I'm anticipating you'll point that 9 out. 10 MR. STEAD: That's fine, Your Honor. I'll 11 ask the last question that counsel and I discussed 12 briefly before Mr. Guelker took the stand in the 13 confidential session. 14 BY MR. STEAD: 15 Q. Mr. Guelker, the next row, which delays 16 SGS 4 until 2016, shows a lower cost than the IPL 17 base case that's shaded at the top row. Would you 18 accept that, subject to check? 19 MR. RAGSDALE: Again, I think that's a 20 different question than what Mr. Stead and I had 21 talked about that Mr. Guelker would be willing to 22 accept, subject to check. 23 BY MR. STEAD: 24 Q. Let me ask it this way perhaps: The IPL 25 base plan shows zero percent. Do you see that? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1769 1 A. I see what's written on the piece of paper, 2 yes. 3 Q. And the IPL coal delayed until 2016 row, the 4 two under that has a negative .05 percent, is that 5 correct? 6 A. There is a number that says negative .05 7 percent on the page. 8 Q. Okay. Let's turn to attachment B, page 2 of 9 2. 10 A. Page 2 of 3? 11 Q. I apologize. Page 2 of 3. Mine was stamped 12 out. 13 A. Yes. 14 Q. This is, again, part of Alliant's and IPL's 15 strategic planning process for 2008? 16 A. Yes, it is. 17 Q. And it's also part of Exhibit 124 that we've 18 been discussing? 19 A. Yes. 20 Q. If you look at the very top column, CO2 tax 21 analysis. 22 A. Yes. 23 Q. And under "status," I believe there are 24 three sensitivity categories, is that correct? 25 A. Yes. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1770 1 Q. The eight dollars per ton reflects IPL's low 2 sensitivity analysis for CO2 regulation costs in this 3 proceeding, is that correct? 4 A. I am not certain. 5 Q. Okay. Would you accept that, subject to 6 check? 7 A. Yes, subject to check. 8 Q. And the $15 represent--per ton represents 9 IPL's high sensitivity analysis for CO2 cost 10 regulation in this proceeding, subject to check? 11 A. No. The third scenario is the highest 12 scenario. 13 Q. The 15 to 34? 14 A. The 15 to 34 dollar sensitivity analysis is 15 the high case analysis. 16 Q. Okay. So it's your position that the $15 17 per ton was not the high sensitivity analysis by IPL? 18 A. Not in these sensitivity analyses. 19 Q. No, but in this proceeding? 20 A. In this proceeding, no. In this proceeding 21 the high sensitivity analysis that Alliant Energy did 22 began with the price of $15 per ton in 2010, 23 progressed to a price of $34 per ton in 2020, and 24 continued on thereafter in roughly an 8 1/2 percent 25 per year escalation rate. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1771 1 Q. Okay. So the current strategic planning 2 process for 2008 reflects three sensitivity analyses, 3 one at $8, one at $15 and one at 15 to 34 dollars, is 4 that correct? 5 A. Yes. 6 MR. STEAD: That's all we have, Your Honor. 7 Thank you. 8 CHAIRPERSON NORRIS: Ms. La Seur. 9 MS. LA SEUR: I don't have anything. 10 CHAIRPERSON NORRIS: Ms. Johnson. 11 MS. JOHNSON: Nothing. 12 CHAIRPERSON NORRIS: All right. Thank you, 13 Mr. Guelker. 14 (Witness excused.) 15 CHAIRPERSON NORRIS: Let's come back at 11 16 o'clock. 17 (Short recess.) 18 19 20 21 22 23 24 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1772 1 (The following proceedings were held in open 2 session.) 3 CHAIRPERSON NORRIS: Mr. Stead, did you have 4 something? 5 MR. STEAD: Just as an abundance of caution, 6 the court reporter didn't have what had been marked 7 and admitted. We would move the admission of 124, 8 just in the event it hasn't been previously moved. 9 CHAIRPERSON NORRIS: Okay. This is response 10 to the request? 11 MR. STEAD: Yes. 12 CHAIRPERSON NORRIS: 124 is admitted. 13 (OCA Exhibit No. 124 was 14 received in evidence.) 15 MR. STEAD: Thank you, Your Honor. 16 CHAIRPERSON NORRIS: I think there was one 17 exhibit somewhere on Monday or Tuesday you did not-- 18 This was it? 19 MS. EASLER: No. There is one more. 20 CHAIRPERSON NORRIS: All right. Ms. 21 Johnson, your next witness. 22 MS. JOHNSON: IPL calls Bob Holmes. 23 24 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1773 1 ROBERT R. HOLMES, 2 called as a witness by Interstate Power and Light, 3 being first duly sworn by Chairperson Norris, was 4 examined and testified as follows: 5 DIRECT EXAMINATION 6 BY MS. JOHNSON: 7 Q. Could you please state your full name and 8 address for the record. 9 A. Robert R. Holmes, 200 First Street 10 Southeast, Cedar Rapids, Iowa. 11 Q. And on December 10th, 2007 did you file 20 12 pages of direct testimony as well as Exhibit 18, 13 which was labeled RRH-11, Schedules A through 0? 14 A. Yes, rebuttal testimony. 15 Q. Thank you. Do you have any changes or 16 corrections to make to that testimony? 17 A. No. 18 MS. JOHNSON: With Mr. Holmes' testimony on 19 the record, I would now tender him for 20 cross-examination. 21 (IPL Exhibit No. 18 was 22 received in evidence.) 23 (Prepared testimony follows.) 24 25 PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1794 1 CROSS-EXAMINATION 2 BY MS. EASLER: 3 Q. Good morning, Mr. Holmes. 4 A. Good morning. 5 Q. Do you have Mr. Parker's filing with you, 6 his testimony and exhibit? 7 A. The one that was introduced this week? 8 Q. No. The direct testimony filing. 9 A. Yes. 10 Q. And exhibit. Okay. I would like you to 11 look at his Schedule A, please. 12 A. Yes. 13 Q. And looking at the years 2007 through 2015, 14 are the projected expenditures efficiency savings and 15 demand savings included in here an accurate 16 representation of what IPL is currently planning for 17 future energy efficiency investment? 18 A. I believe so. They look like it. These are 19 electric only, right? 20 Q. Correct. Would you agree that for that 21 period of time 2007 through 2015, that the savings 22 kWh or mWh is significantly below IPL's most recent 23 performance? 24 A. Yes. 25 Q. In your testimony-- PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1795 1 A. The last two years anyway. 2 Q. In your testimony you state that IPL has 3 reviewed all commercially available energy efficiency 4 measures and has implemented all cost-effective 5 energy efficiency programs that are available and 6 known to IPL. Does that sound accurate? 7 A. Yes. 8 Q. Does this testimony mean--do you mean to 9 suggest that IPL is doing everything it can to secure 10 all cost-effective energy efficient savings? 11 A. We're doing all the cost-effective programs 12 that we're aware of, and that other parties have 13 brought to the table as part of the proceedings. 14 Q. I understand that, but do you mean to 15 maintain that you are securing all cost-effective 16 energy savings that are possible? 17 A. From what we can see, yes. 18 Q. Okay. So in terms of--it's possible to 19 offer cost-effective programs and to promote them 20 and--offering cost-effective programs, it is possible 21 to pursue them more or less aggressively? 22 A. Well, we-- Our doors are open. We offer 23 the programs. If it looks like we need to add more 24 incentives, we'll raise them. We've had cases where 25 we have changed our incentives, so we're doing what PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1796 1 we can, and we've never shut the doors on anybody 2 that wanted to partake in the programs. 3 Q. And sometimes in the past when you haven't 4 promoted the programs as heavily, their performance 5 has declined, is that fair? 6 A. Yes, ten years ago it was fairly limited, I 7 would say. 8 Q. But promotion and performance do have some 9 relationship, would you agree? 10 A. Yes. 11 Q. Now in terms of achieving all cost-effective 12 energy efficiency, are you referring to what is 13 represented in Mr. Parker's Schedule A for the year 14 2006, or for 2007? 15 A. Well, we're achieving--2006 is what we did 16 that year. 2007 is what was the number that's in the 17 current plan. So we're achieving--if you're saying 18 what we have achieved, that's 2006 to 2007 is the 19 plan. 20 Q. Okay. So just to make it easier for the 21 record, the 2006 shows how much energy savings? 22 A. 121,633 megawatt-hours. That is a 23 preliminary number, so it doesn't tie to some of the 24 more updated numbers, but it is close. 25 Q. And then for 2007 and beyond, what are you PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1797 1 showing? 2 A. 78,042. 3 Q. So would you say that 2006 is more 4 representative going forward than what's contained 5 for the outer years here? 6 A. It looks like it on a couple of recent 7 years. It's hard to be careful about drawing trends 8 from two years. The changing standards, the SEER 9 going from 10 to 13, it cuts out a lot of 10 capabilities. Raising the energy code for the 11 residential building, it all cuts into the 12 capabilities. We're wrestling with that right now 13 going forward. 14 Q. And the numbers--and 2006 was a good year 15 for IPL's energy efficiency? 16 A. I agree. Eight-tenths of a percent is--even 17 Mr. Parker's testimony, the leaders are at 1.0, and 18 we're close to that. 19 Q. And I don't think we would dispute that the 20 trend is good. You achieved substantially more 21 energy savings than projected, is that fair? 22 A. Yes, about 50 percent more than what was in 23 the plan. 24 Q. And you did that within the approved budget? 25 A. Yeah, on the electric side it was close to PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1798 1 the budget, uh-huh. 2 Q. And in your experience, has it been possible 3 to-- Strike that. 4 Do you have an estimate of what greater 5 savings would be possible if you ran all of these 6 programs as aggressively as possible? 7 A. Well, I'm not sure what aggressively as 8 possible means. We are trying to offer the programs 9 and we're trying to set rebates so we don't 10 put--spend more money than we have to, and if we have 11 to raise them, we raise them, so we're trying to get 12 the results. 13 Our plan was the lower number. We're 14 realizing it more, so I'm not sure if this is the 15 time to raise incentives. I'm not sure what "more 16 aggressive" means in this context. 17 Q. Well, incentives is a good example. Like 18 when you increase incentives for insulation, did 19 that--did you also experience greater participation 20 in the programs? 21 A. Yes, somewhat. 22 Q. At a time when IPL is considering the option 23 of a coal plant, does it make sense to consider 24 whether significantly ramped up energy efficiency is 25 a viable option for the company? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1799 1 A. Well, I struggle with this whole concept of 2 doing more of these projections of one and a half or 3 two. This isn't something that can be just turned on 4 and people can--you can say, "Well, we're going to 5 decree that we're going to do more." 6 We have the programs that are open. We 7 never stop people from participating. We promote 8 them. So we're doing in Iowa--at least investor-owns 9 are doing a lot of activity, and so to somehow say 10 that, well, we're going to do more, double, for 11 instance, what like these 1 1/2 percent would 12 suggest, I struggle with how that would happen. 13 Q. Well, apart from-- 14 A. Well, we can ignore costs, I guess. We 15 could--I don't mean to be glib here, but we could go 16 down the street and just start changing out air 17 conditioners and achieve savings regardless of cost. 18 Q. I guess I'm looking for something more in 19 the middle. Is it appropriate at this time to 20 consider what more could be achieved for energy 21 efficiency? 22 A. Well, we're looking at that in the new 23 plant. As your office knows, has been a party to our 24 potential study and the ones in the past, we hope to 25 wrap that up soon and develop new plans, and we're PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1800 1 looking at ways we could do this, and do even more. 2 Does this--can we continue this kind of 3 growth? That's what we're trying to decide in 4 looking at different ways of what measures we might 5 do. So, yeah, we're looking at it. It's premature 6 to talk about exactly where we're going to get to. 7 Q. So we don't really have that to consider in 8 this case, the outcome of that? 9 A. No. We're not--it's close, but it's not 10 here. 11 Q. Are you familiar with the National Energy 12 Efficiency Action plan? 13 A. I believe so. This is the--it was the one 14 that was headed by the head of Duke and Diane Munns 15 and NARUC? 16 Q. Correct. 17 A. Uh-huh. 18 Q. I'm going to hand you what should be marked 19 Exhibit 135, and this is a press release issued by 20 the IUB concerning this national action plan on 21 energy efficiency. 22 (OCA Exhibit No. 135 was 23 marked for identification.) 24 BY MS. EASLER: 25 Q. Could you tell me what date is on this press PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1801 1 release? 2 A. July 31, 2006. 3 Q. And looking down toward the last paragraph, 4 it looks like about--I'm sorry--the last paragraph on 5 page 1, about the--it would be third sentence, I 6 guess, it states that, "Iowa and its utilities are 7 committed to the further expansion and enhancement of 8 these programs." 9 And that would be energy efficiency 10 programs? 11 A. Yes, I see that sentence. 12 Q. And IPL would be one of those utilities, 13 correct? 14 A. Yes. 15 Q. And then turning to page 2, please, it talks 16 about Iowa joining other states and endorsing the 17 national action plan recommendations, and one of 18 these--and this would include making energy 19 efficiency a high priority resource, is that correct? 20 A. Yes, I see that, uh-huh. 21 Q. And it also talks about treating energy 22 efficiency like coal, natural gas, nuclear and other 23 energy resources and energy plans? 24 A. Yes, uh-huh. 25 Q. And other-- And it continues, but is it PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1802 1 your understanding that IPL models energy efficiency 2 like it does other generating--traditional generating 3 resources in its resource plan? 4 A. Well, Mr. Kitchen is the resource planning 5 modeler. The process for energy efficiency planning 6 and modeling is look at all the options, see what is 7 cost-effective, develop plans, and test them against 8 the avoided costs, which is the avoided cost being 9 the cost of the generation that would be displaced, 10 and so we do those and implement those and keep the 11 doors open and promote them. 12 Now, how exactly Mr. Kitchen and the rest of 13 the people model the other things, I guess he can 14 speak to that. 15 Q. But your understanding of that planning 16 process, it doesn't allow the plan to select some 17 higher level of energy efficiency for IPL? 18 A. For Iowa, I don't know that it's relevant, 19 because we're doing all the measures that we can in 20 the plan, so there's no higher level to pick. 21 Q. Well, we talked about what was depicted in 22 Mr. Parker's schedule and what is depicted going 23 forward as lower than recent experience? 24 A. Yes, uh-huh. 25 Q. And so your forecasting would be based on PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1803 1 what you're looking at in 2007 and beyond? 2 A. Forecasting for what? 3 Q. For the energy efficiency that is considered 4 in the resource planning process. 5 A. I'm not sure exactly how they treat the 6 energy efficiency in the forecasting. The plan is 7 the plan, the energy efficiency plan, as we 8 discussed. We're doing what we can in terms of the 9 programs, and so I guess Mr. Kitchen can speak to how 10 he does the plan. 11 Q. Sure. 12 A. Mr. Hillberry will speak to the forecast. 13 Q. Okay. And the nice thing is we have the 14 plan under official notice, so I won't take you any 15 further down that. 16 Has IPL ever secured as much as the .82 17 percent savings, energy efficiency savings as a 18 percent of sales that are claimed to be secured in 19 2006? 20 A. I don't believe so. There's some earlier 21 years that were not as high as this, but then the 22 sales were low, but this is probably--I haven't 23 calculated all the historical years. This is 24 probably the highest. 25 Q. And turning back to Mr. Parker's Schedule A. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1804 1 A. Yes. 2 Q. That .82 would be more than double than what 3 is shown for 2007 and beyond? 4 A. Yes. 5 Q. Now, how did IPL achieve this? You didn't 6 offer new programs, did you? 7 A. Well, the last two years, 10 percent roughly 8 of the increases of the Change the Light program two 9 to three years, so depending on--I don't know if you 10 call it a new program. It's part of the residential 11 rebate the way we report it, so that's a new program, 12 I guess. 13 Q. It's a recent program? 14 A. Uh-huh. It wasn't new in 2006. It was 15 there in 2005 and maybe 2004. 16 Q. And I think you were somewhat critical of 17 Mr. Parker for not offering more program ideas? 18 A. Yes. When he started off, I thought we're 19 going to get some new ideas here. 20 Q. But it is possible to get more savings out 21 of existing programs just through the various 22 components of those programs? 23 A. Yes. We haven't added new dramatic programs 24 since-- We've redesigned some. 25 Q. Would this experience suggest that programs PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1805 1 are not fixed and need to keep adapting to changing 2 to what is learned from implementation and from 3 better knowledge of customers in the market? 4 A. Sure. 5 Q. In your rebuttal testimony you were, I 6 think, criticizing Mr. Parker's low, mid and high 7 efficiency cases, and in the context of that 8 criticism it is suggested that you were saying that 9 Mr. Parker was making a prediction as to the 10 probabilities of those scenarios being realized. 11 Would you accept that Mr. Parker did not 12 offer probabilities statements with regard to these 13 various scenarios? 14 A. He said something about easily achievable, 15 or some phrase like that, which it's not a numeric 16 number, but it's a characterization of the likelihood 17 that we can do it. I was just trying to understand 18 it and portray it. 19 Q. And I think Mr. Parker testified yesterday 20 and clarified that he wasn't offering a probability 21 as to these various outcomes. Were you present for 22 that? 23 A. Yes, I was here. I don't recall the 24 specifics of his testimony on that. 25 Q. If there are new costs imposed on greenhouse PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1806 1 gas emissions for all fossil fuel plants, including 2 the proposed SGS Unit 4, will those costs be passed 3 through to ratepayers? 4 A. Well, I don't know that's in my bailiwick to 5 answer. We have a fuel cost adjustment. If that's 6 the way the costs--or we'll have a rate case if it's 7 investment-related. That's about the extent of my 8 knowledge of the particulars of it. 9 Q. Do you have an estimate of the increase in 10 rates that would arise from such new costs? 11 A. No. 12 Q. If the cost of the proposed SGS Unit 4 13 increases due to increased materials and construction 14 costs, will those costs be passed on to ratepayers? 15 A. Say it again, please. 16 MS. EASLER: Could you read the question? 17 (Question read by the reporter.) 18 MS. JOHNSON: I would have to object. The 19 witness has already said this is beyond the scope of 20 his testimony, and what he's qualified to testify to. 21 CHAIRPERSON NORRIS: I think he can say 22 that. If you can answer it, fine. But I think he 23 has stated this is not his area of expertise. 24 A. Yeah. I'm not in the pricing department, so 25 I don't know that I'm the person to speak PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1807 1 authoritatively on that, if all the costs are 2 recovered. 3 BY MS. EASLER: 4 Q. Accepting those potential costs, or actual 5 costs, if they become actual, have you included that 6 in your DSM cost-effectiveness analysis? 7 A. The cost-effectiveness analysis now includes 8 an externality factor, 10 percent on the electric 9 side and 7 1/2 on the gas. 10 Q. Right. 11 A. That was implemented in--when the first 12 plans started in 1991, and it was real generally 13 defined, so it was whatever externalities were at 14 that time, so to the extent that other things were 15 not captured by the market, and not internalized, it 16 was to reflect those, whether it was sulfur, carbon, 17 mercury or whatever. 18 To the extent that those have been 19 internalized, and how that factor captures other 20 things, and that's still here, we'll be looking at--the 21 Board's recent order will be looking at some of these 22 scenarios, so there's been a 10 percent adjustment 23 factor for all these years. We'll start to see, at 24 least as it relates to carbon, how that stacks up in 25 terms of the 10 percent versus the carbon costs. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1808 1 Q. Would you accept, though, that the carbon 2 costs would be a new externality factor? 3 A. Well, there was never any definition of the 4 10 percent to say that this reflects mercury or 5 sulfur or whatever, so it reflected whatever wasn't 6 captured or internalized by the market. So to the 7 extent that sulfur has been--there is no--apparently 8 there is no--I'm pushing the envelope of my 9 understanding, but to the extent the market reflects 10 those, then the 10 percent allows for other things. 11 Q. Well, how about we leave it at we're looking 12 at whether the historical 10 percent is adequate in 13 light of future potential greenhouse gas regulations, 14 is that fair? 15 A. Yeah, at it relates to carbon, yes. 16 Q. Okay. Have you done any sensitivity 17 analysis of potential costs that would exceed that 10 18 percent externality factor in your DSM 19 cost-effectiveness? 20 A. No, not for externalities. We've done some 21 sensitivities. 22 Q. Would you agree that increased costs of this 23 sort would tend to make more measures screen and more 24 programs screen as cost-effective? 25 A. To the extent that this is an adder that PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1809 1 raises the avoided costs, there are potentially more 2 measures in the past, yes. 3 Q. Your rebuttal testimony indicates that IPL's 4 plan as a whole must be cost-effective with the 5 benefit/cost ratio of 1.0? 6 A. Yes. 7 Q. Now, IPL has reported benefit/cost ratios 8 for its electric programs quite a bit higher than 9 1.0, hasn't it? 10 A. Individually, or the plan as a whole? 11 Q. The electric individually and as a whole. 12 A. Yes. They are all, with some exceptions, 13 individually cost-effective, and so, of course, the 14 overall plan is cost-effective in that sense, based 15 on that. 16 Q. Right. IPL filed an erratum correcting the 17 cost-effectiveness on its electric programs. I 18 believe it shows that your residential electric 19 programs have a B/C ratio of 3.17? And this would be 20 the societal test. 21 A. Uh-huh. 22 Q. That your nonresidential have a 2.22, that 23 load management has 3.27, and that other category 24 including low income and agriculture, have 1.98? 25 A. That sounds reasonable. I don't recall the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1810 1 specific numbers. 2 Q. Would you accept that, subject to check? 3 A. Yes. 4 Q. Now, the total electric overall benefit/cost 5 ratio is 2.98? 6 A. I'll accept that subject to check, yes. 7 Q. And would you accept that these figures also 8 include other categories of spending that don't--that 9 we don't attribute savings to? 10 A. Yes. 11 Q. And that would be the trees and various 12 assessments? 13 A. Yes, uh-huh. 14 Q. In terms of 2006 performance, do you have 15 reason to expect that certain of your non-residential 16 electric programs could achieve more in the future? 17 A. Certainly I would-- Well, I shouldn't say 18 that. It's probably true we'll get more out of those 19 programs. I guess it remains to be seen. The 20 preliminary numbers for 2007, we're not going to see 21 the dramatic percent increase over the prior year 22 like we have last year. 23 Q. How would you characterize the results for 24 the non-residential new construction? 25 A. After the redesign, it looks promising. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1811 1 Q. But 2006 in terms of results were 2 significantly below target? 3 A. Yes, uh-huh. That plan, the original goal 4 was set too high. We redesigned the program, 5 actually, to make it look like MidAm's program, which 6 looks like a Minnesota Excel one, and it's 7 encouraging, because it gets into the early part of 8 the design process. It costs more money, but it's a 9 long lead time, so 2006 was really the first year we 10 started seeing some results. I would expect we'd see 11 more. 12 Q. Sure. And in terms of targeted kWh from 13 that program, you realize 22 percent in 2006, but 14 that's kind of a strange year. I mean you're 15 expecting to be closer to goal going forward? 16 A. Yes, uh-huh. 17 Q. And the nonresidential performance 18 contracting is also below targeted kWh? 19 A. Yes, I believe so, yes. 20 Q. Sixty-nine percent. And would you 21 anticipate that would do better going forward? 22 A. I would think so. 23 Q. We also had, or you brought up that the 24 Change the Light, Change the World, and your CFL 25 promotions have been driving some impressive PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1812 1 performance results. I'm referring to the report, 2 the final report on the 2006 campaign that was 3 submitted by Wisconsin Energy Conservation 4 Corporation, and this was submitted to MidAmerican 5 and Interstate Power and Light, and I'm in the 6 conclusion section. This report indicates that first 7 year electrical energy savings for 2006 are 8 22,646,161 kWh. Does that sound correct? 9 A. Yes, for MidAm and IPL. 10 Q. And it also concludes that it's important to 11 note, however, that the 2006 promotion has only 12 scratched the surface in terms of the energy savings 13 potential that could be unlocked due to a long-term 14 commitment to transforming the market for CFLs in the 15 state of Iowa. Does that sound consistent with your 16 recollection? 17 A. I'll accept it. I don't recall the 18 specifics. That's an interesting program, because 19 there is a lot of potential, but if CFL, or if 20 incandescents get outlawed, then that changes the 21 base line all of a sudden. 22 Q. That's true, but we will still realize the 23 savings, won't we? 24 A. Right, but somehow we will, but that doesn't 25 mean that we're going to get those from the program PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1813 1 then. 2 Q. Yeah, but that will impact your load? 3 A. Yes, uh-huh. 4 Q. And if they're outlawed, it would be even 5 greater than what you're projecting going forward in 6 terms of savings? 7 A. Probably, uh-huh. 8 Q. Through this week there has been discussion 9 about on-site generation and combined heat and power 10 applications at proposed ethanol and alternative 11 fuels plants that might be of growing interest to 12 such industries. 13 Has IPL worked with existing and potential 14 biofuel plants in its service territory to evaluate 15 on-site CHP applications as a resource option. 16 A. I'm sure the account managers who deal with 17 potential new customers or expansions look at those 18 kinds of alternatives, but in terms of specifics, I 19 can't speak to what exactly we talked about in those 20 individual cases. 21 Q. Are you aware, is that something that you'll 22 be looking at for--at least for Minnesota? 23 A. Well, we're waiting to see what happens in 24 implementing the legislation in Minnesota. It's sort 25 of in a prerulemaking stage now. We're not sure PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1814 1 exactly what we'll be doing there. 2 Q. It's been asserted at various points that 3 one of the reasons the new coal plant is needed is to 4 respond to the energy-intensive nature of ethanol and 5 biodiesel plants. Will these customers be eligible 6 for IPL's interruptible program? 7 A. Their retail electric, yes. 8 Q. And if they would elect that, you would not 9 have to plan to meet their capacity needs? 10 A. Correct. 11 MS. EASLER: I'm going to move admission of 12 Exhibit 135. 13 CHAIRPERSON NORRIS: 135 is admitted. 14 (OCA Exhibit No. 135 was 15 received in evidence.) 16 MS. EASLER: That is the press release, and 17 that concludes my questioning. 18 CHAIRPERSON NORRIS: I didn't think you 19 would object to our own press release. 20 MR. RAGSDALE: It was tempting to remark. 21 CHAIRPERSON NORRIS: Ms. La Seur. 22 CROSS-EXAMINATION 23 BY MS. LA SEUR: 24 Q. Good morning, Mr. Holmes. 25 A. Good morning. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1815 1 Q. Ms. Easler stole a bunch of my questions, so 2 I may not take too long. Let's see. 3 Let's start with this: Do you deny that 4 IPL could achieve increased energy efficiency savings 5 by implementing existing programs more aggressively? 6 A. Well, I think I spoke to that. We're doing 7 all we can. If we think that we need to increase 8 incentives, we will. We try to not have them any 9 higher than we can, so we're not spending more money 10 than we have to. If we have new programs, we'll 11 implement them. 12 Q. So you're saying that there is room to 13 implement higher incentives, additional measures to 14 expand existing programs? 15 A. I don't know about additional measures. I 16 think anything that makes sense, I think we're doing. 17 Again, we could raise incentives. That's a question 18 of do we need to, or do we want to. 19 Q. So the basic question is just could 20 additional energy efficiency savings be achieved with 21 the same programs by implementing them more 22 aggressively? 23 A. We could-- 24 Q. It's a yes or no question. 25 A. Well, aggressively, I'm not sure what that PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1816 1 means. I told you what we do. 2 Q. I could reel off ways I could think of to do 3 them more aggressively, but let's take the one you 4 suggested by increasing incentives. Would increasing 5 incentives allow IPL to increase energy efficiency 6 savings with existing programs? 7 A. Probably, depending on the case. 8 CHAIRPERSON NORRIS: Mr. Holmes, pull your 9 table back from the microphone a little bit. There 10 you go. 11 BY MS. LA SEUR: 12 Q. Do you deny that the cost per weighted 13 kilowatt-hour of current IPL energy efficiency 14 programs is a fraction of the projected cost per 15 kilowatt-hour of electricity to be produced at 16 Sutherland 4? 17 A. Well, I don't know what the cost of--it will 18 be from Sutherland 4. I know what our programs cost. 19 Q. So you are unable to compare the cost of 20 efficiency programs to the cost of producing 21 electricity at Sutherland 4? 22 A. Correct. That's not the standard by which 23 we measure the cost-effectiveness of a program. It's 24 not related to Sutherland 4. It's related to avoided 25 costs, avoided capacity costs, and avoided energy PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1817 1 costs. It's not Sutherland 4. 2 Q. So do you deny that IPL could multiply its 3 current cost per kilowatt-hour for energy efficiency 4 several times before hitting the cost of 5 kilowatt-hour generated by Sutherland 4? 6 MS. JOHNSON: I believe that's asked and 7 answered. He doesn't have a basis for a comparison. 8 CHAIRPERSON NORRIS: I think he said they 9 use the avoided costs, but to the extent he can 10 compare it to avoided costs-- 11 BY MS. LA SEUR: 12 Q. Is there anyone within IPL or Alliant who 13 makes this comparison? 14 A. Well, I compare, as part of our planning 15 process, the costs of our energy efficiency program 16 compared to the avoided costs of what, according to 17 the Board's rules, and which are the industry 18 standards. The capacity cost is generation, the 19 transmission and distribution piece. The generation 20 is the cost of a simple cycle CT. That's the 21 cheapest capacity as the alternative. 22 The energy is 8,760 hours of marginal energy 23 cost from Mr. Kitchen's model going forward. That's 24 the energy we would avoid. So that's the way we do 25 it on the energy efficiency side. We don't compare PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1818 1 it to some unit, because it doesn't make sense to do 2 it that way. 3 Q. Okay. So in preparing this application, 4 have you or has anyone at IPL or Alliant prepared a 5 comparative analysis of the cost of avoiding 6 kilowatt-hour through energy efficiency and the cost 7 of constructing and operating Sutherland 4? 8 A. Not to my knowledge. 9 Q. Has IPL evaluated the potential savings from 10 combined heat and power facilities if implemented at 11 all the biofuel facilities it serves and proposes to 12 serve? 13 A. I don't know. 14 Q. You suggested earlier that this kind of 15 conversation might take place between individual 16 project managers working with-- 17 A. The account managers. 18 Q. --account managers. But would that 19 conversation work its way up the resource planning 20 chain so that at a corporate level, IPL or Alliant 21 would consider the potential savings from CHP 22 programs? 23 A. I guess--I'm not the resource planning 24 person. 25 Q. But in your capacity as an analyst, do you PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1819 1 consider those potential efficiency savings? 2 A. Cogeneration is not--that's handled 3 separately on a case-by-case basis. 4 Q. So there is no corporate strategy to go 5 after those savings? 6 A. I'm not familiar with what the process is or 7 the strategy is with respect to cogeneration. 8 Q. But you don't know of any such strategy? 9 A. No. 10 Q. Okay. And do you then stand by your 11 testimony at page 2 that IPL has reviewed all 12 commercially available energy efficiency measures and 13 has implemented all cost-effective energy programs 14 that are available and known to IPL? 15 A. Yes. 16 Q. Do you deny that Efficiency Vermont has 17 achieved the savings described by Mr. Parker and 18 recommended for IPL? 19 A. Well, there's two questions there. 20 Q. I think it's a descriptive clause. 21 A. Could you repeat the question, please? 22 Q. The question is, do you deny that Efficiency 23 Vermont has achieved the savings described by 24 Mr. Parker and recommended by him for IPL? 25 A. Efficiency Vermont, according to the latest PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1820 1 numbers from Mr. Parker, achieved slightly more than 2 IPL in 2006. The first number was about the same, 3 statistically speaking. So I'm not sure what exactly 4 more we're supposed to do. He didn't give specifics 5 of what Vermont, or what he would have us do. 6 I looked--when his information, when he 7 became a party to the proceeding, I went and looked 8 at what Efficiency Vermont is doing, and the 9 residential class, this number is from several weeks 10 ago, but it was like 60 or some percent was from 11 lighting compact fluorescents. 12 Well, that's a different environment. 13 There's hardly any cooling savings there, so it's a 14 different environment. Did they get a little bit 15 more than we did in 2006? I'll accept that. But 16 it's not dramatic, and beyond that, it's a little bit 17 different environment. 18 One of my exhibits or schedules in one of my 19 exhibits in this ACEEE study has the prices there. 20 The numbers--I could point to it, I guess. I don't 21 want to quote the wrong one. Exhibit RRH-1 schedule 22 M, pages 61 and-- That's not it. Sorry. 23 Exhibit RRH-1, Schedule M, pages 69 and 70 24 of 74, that's a table from ACEEE 2006 score card, and 25 it presents in the first column after the states, PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1821 1 state retail electric rates in 2004, and on the 2 second page it has--Iowa is the first one. The 3 average retail rates in Iowa are 6.4 cents, and 4 Vermont, about halfway down the rest of the table, 5 it's 11.02. 6 So prices are almost double there, so I 7 would expect there is a lot more incentive to partake 8 in programs, or for customers to partake in programs. 9 Q. Is it your position that a utility cannot 10 achieve savings at the level achievable by a separate 11 efficiency organization like Efficiency Vermont? 12 A. That we can't do as well? Is that what 13 you're saying? 14 Q. Yes. Is there some barrier to utility 15 performance? 16 A. No. Efficiency Vermont achieved 1.0 17 apparently in the most recent numbers before it was 18 the same thing versus our 0.8, so in a different 19 environment, it achieved somewhat more, so I don't 20 know that I'm seeing that there's something magically 21 or earth-shakingly better of what's being done in 22 Vermont. 23 Q. Referring to your rebuttal at page 16, your 24 discussion of historical performance by IPL in energy 25 efficiency, do you consider this historical PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1822 1 performance by IPL the best that the utility can do? 2 A. I would hope we get greater results going 3 forward. We're working on our new plan, and 4 it's--we've got a lot of good input from external 5 consultants, and we've got a lot of good people in 6 place, and we've got more experience, so I would 7 expect us to do better. 8 Q. Can I refer you back to the table you were 9 discussing just a moment ago, Schedule M at pages 69 10 and 70. 11 A. Yes. 12 Q. And if you would compare the retail 13 electricity prices and the performance of Iowa and 14 Minnesota, please. 15 A. Yes. Well, I see the prices. You said 16 something else? Comparing the prices? 17 Q. Yes. Their prices at their utility spending 18 and then their score card ratings. 19 A. Yes. 20 Q. Would you be able to give us those numbers 21 to make that comparison, please? 22 A. The prices, the Minnesota number is 6.20, 23 and the Iowa number is 6.40. The Minnesota score 24 card in the first column is 9 and the number for Iowa 25 is 13. The score cards are a host of different PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1823 1 things, not just utility activities, transportation, 2 all kinds of things. So that score card number 3 is--certainly has to be taken in context. 4 Q. And I'm looking also at the energy 5 efficiency spending of Iowa and Minnesota. Could you 6 compare those numbers for us, please? 7 A. The second to the last column? 8 Q. That's right. 9 A. Uh-huh. Yes. 10 Q. Would you just please read those numbers 11 into the record. 12 A. Iowa number is $9.76 and the Minnesota 13 number is $10.95. 14 Q. And so would it be fair to say that 15 Minnesota's energy efficiency spending is greater 16 than Iowa's, and their retail electricity prices are 17 lower? 18 A. For this year, yes. 19 Q. And would it also be fair to say that 20 Minnesota's ranking for this year is higher than 21 Iowa's on this efficiency score card? 22 A. The score card in the first column? 23 Q. Yes. 24 A. Yeah. 25 Q. Okay. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1824 1 MS. LA SEUR: That's all I have. 2 CHAIRPERSON NORRIS: Mr. Holmes, just a 3 couple of questions from me. I want to go back to 4 that 10 percent externality figure. That has been in 5 place since when? 6 THE WITNESS: Since the Chapter 35 rules 7 went into effect in 1991. 8 CHAIRPERSON NORRIS: You've held that 9 consistent throughout the program? 10 THE WITNESS: Yes. 11 CHAIRPERSON NORRIS: Have you tested it? 12 Has there been much variance in that, or how reliable 13 is it still? 14 THE WITNESS: Well, it's there by rule to 15 reflect the externality, so we haven't gone--none of 16 the utilities or the parties have gone and looked 17 over the years and said what is it to reflect. I 18 think that Chairman Nagel at the time adopted it. I 19 think it was very Solomon like, because we could have 20 spent a lot of time arguing in the rulemaking 21 process. 22 CHAIRPERSON NORRIS: Maybe I should know 23 that, but I don't. Nobody has tested it to see if it 24 is reliable as a marker? 25 THE WITNESS: No, not to my knowledge. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1825 1 CHAIRPERSON NORRIS: Okay. Last year in the 2 2006 report you reported .8 percent. 3 THE WITNESS: Yes. 4 CHAIRPERSON NORRIS: What is the goal for 5 the next one? 6 THE WITNESS: For which? 7 CHAIRPERSON NORRIS: For energy efficiency 8 percent reduction comparable to the .8 percent that 9 you achieved in 2006. What is your goal for 2008, 10 2009? 11 THE WITNESS: For 2008, the numbers are all 12 .4, 0.4 percent, and .4, .5. 13 CHAIRPERSON NORRIS: So half of last year's? 14 THE WITNESS: Yes. 15 CHAIRPERSON NORRIS: What led you to set 16 that goal? 17 THE WITNESS: That was the goal from the 18 current five-year plan. That's the last year of the 19 2004 through 2008 plan that we developed, in--we 20 filed it in 2002 and approved in 2003. That was what 21 we thought we could get at the time. 22 These numbers recently are a lot higher. 23 When we first implemented that goal, it was about 24 80,000 megawatt-hours we achieved around that year, 25 or around that amount. We could look it up. So at PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1826 1 the time it seemed a reasonable number, and we've 2 been able to achieve more. 3 CHAIRPERSON NORRIS: So you don't think you 4 can achieve as much in the next round, is that 5 correct? 6 THE WITNESS: Well, in the next plan that 7 we're working towards? 8 CHAIRPERSON NORRIS: Yes. 9 THE WITNESS: Well, certainly I'm sure we'll 10 have a lot higher goal than that 80,000. We're going 11 to file on March 31, and we'll have our goals. We 12 haven't developed them yet, but I'm sure it will be 13 higher. 14 CHAIRPERSON NORRIS: Are there performance 15 awards, either by recognition or financial, from the 16 company for achieving--within your sector, for 17 achieving reductions? 18 THE WITNESS: Well, our product managers, 19 who are the people that are responsible for these 20 programs, have--as part of their performance goals, 21 are getting their programs, getting their goals, and 22 this is on--I'm less clear on this, but I believe 23 some of the account managers that we have, it would 24 take our managed account goals, which are the 25 commercial/industrial ones, and they allocate them PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1827 1 across the regions, and I believe that's the way it 2 works, and that's part of their--they've got a number 3 of goals, but achieving those goals within their 4 customer base. 5 CHAIRPERSON NORRIS: The goals are measured 6 again by how? 7 THE WITNESS: The kWh, the energy. 8 CHAIRPERSON NORRIS: Reduction? 9 THE WITNESS: Yeah. KWh, and there's a 10 cost-effectiveness, too, without--subject to how much 11 we go over spending as well, so the primary--it's a 12 complicated formula, but the idea is to recognize 13 that you want to get the goals, but if we just spend 14 outrageously, we could throw money away, so we try to 15 do it-- A simple way to do it. 16 If we exceed the goals by 40 percent on 17 savings, and we only spend 30 percent more in 18 savings, that's a good thing. If we get 40 percent 19 more in savings, but it takes us 80 percent more on 20 spending, then that's not a good thing. 21 CHAIRPERSON NORRIS: Do you think the 22 cost/benefit way, does that drive more conservative 23 behavior or more aggressive behavior? 24 Are you trying to show a greater gap between 25 cost and benefit, or are you trying to show a greater PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1828 1 savings in reduction in use? 2 THE WITNESS: Well, the cost/benefit is just 3 a threshold. As long as it passes, then the program 4 is--it meets the standard of the overall plan, and so 5 once-- I tell product managers that are thinking 6 about another measure, I say, "Let's look at it and 7 see how cost-effective it is." As long as it doesn't 8 jeopardize the program, and we've even got some 9 flexibility there, that if we can add it, and it's 10 not huge, even if it is marginally cost-effective, 11 but it makes the program better. Leaving it out is 12 kind of leaving out a crucial piece of the package. 13 We can still do it. It's a standard there that we 14 have to have some kind of a measuring stick. 15 CHAIRPERSON NORRIS: Tell me if this 16 characterization is wrong, but I was trying to get-- 17 this kind of notion I take from your testimony and 18 your responses to the other counsel was that you are 19 doing enough, and I'm trying to get to the corporate 20 culture here of why you would be comfortable with 21 saying you're doing enough, and you seem to be 22 hard-pressed to say you could do more, so I'm trying 23 to figure out why is there a mindset of we're doing 24 enough when the greater policy goal in the state is 25 to do more, more, more. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1829 1 Are you saying you really can't do more very 2 effectively, or cost effectively, or it doesn't fit 3 the goals of the organization, or why do I have that 4 sense in my mind right now? 5 THE WITNESS: Well, I guess I wouldn't say 6 that we feel we're doing enough. We're putting out 7 the programs that are cost-effective, and there's 8 even some, like the windows program wasn't 9 cost-effective, but look at water savings, so it 10 doesn't pass the traditional test, but we implemented 11 that, and there are--sometimes we will do a custom 12 project for a large customer. 13 There's a lot of things, so we're doing--I 14 say we're doing all we can with the existing plans, 15 or existing plan, and we're looking at the new plan 16 to say we're doing more. I guess I wouldn't say 17 we're comfortable, or we've done enough. I shouldn't 18 say that. 19 CHAIRPERSON NORRIS: Ms. Johnson. 20 REDIRECT EXAMINATION 21 BY MS. JOHNSON: 22 Q. I just wanted to quickly clarify something. 23 In your conversation with Chairman Norris, you were 24 discussing the comparison of the 2006 year of .8, and 25 then talking about the .4. I just wanted to clarify. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1830 1 You were referring to it as last year and 2 the next year, and I just wanted to clarify what 3 years you meant were assigned which values. 4 A. The 0.8 was the achieved result for 2006. 5 The 0.4 was associated with the current plan number 6 for 2008. 7 MS. JOHNSON: Thank you. That's all I had. 8 CHAIRPERSON NORRIS: Ms. Easler. 9 RECROSS-EXAMINATION 10 BY MS. EASLER: 11 Q. Just a few. IPL conducted a fairly 12 comprehensive monitoring and evaluation effort in 13 2005, is that fair? 14 A. Yes. 15 Q. And the product of that process was a fairly 16 comprehensive modification plan filing for your 17 energy efficiency plan? 18 A. Right. That was part of that modification, 19 yes. 20 Q. And that was approved by the Board in 2006? 21 A. Actually, it was approved in 2005. 22 Q. Thank you. Okay. But the goals that you're 23 talking about for 2007 and beyond are a product of 24 that-- 25 A. Yes. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1831 1 Q. --review? Then I would also like to turn 2 you back to your Schedule M of the score card that 3 we've been looking at. If you would turn to page 26 4 of 74. 5 A. Yes. 6 Q. And this is the state scoring for CHP. 7 Would that be combined heat and power? 8 A. I would assume so. 9 Q. And Iowa does not rank very well there, 10 would you agree? 11 A. It's a score of two. I'm not sure what the 12 scale is. 13 Q. Would you accept that it's out of five? 14 A. It appears to be. 15 MS. EASLER: That's all I have. Thank you. 16 RECROSS-EXAMINATION 17 BY MS. LA SEUR: 18 Q. Mr. Holmes, you make repeated reference to 19 avoided costs, and that calculation has been disputed 20 and even litigated in this state, as you may be 21 aware, as a disincentive for renewable development. 22 Does IPL consider the current calculation of 23 avoided cost adequate to respond to the current 24 market and regulatory environment? 25 MS. JOHNSON: I would object to this PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1832 1 question. I think it's outside of the scope of the 2 Board's questioning, and I believe Ms. La Seur is 3 limited to any new issues that would have come up 4 during the questioning by the Board. 5 CHAIRPERSON NORRIS: I'll give you a chance 6 to respond. 7 MS. LA SEUR: I'm actually following up on 8 your question, Chairman Norris, about the cost/ 9 benefit analysis driving more conservative or more 10 aggressive behavior, and Mr. Holmes' response 11 directly referenced avoided costs and said that was 12 part of the analysis. 13 CHAIRPERSON NORRIS: I'm going to allow this 14 question, but I think that's a little bit--stretching 15 it a little bit out there. I don't think that he has 16 testified he's an expert on that subject, but you can 17 go ahead with that question. 18 THE WITNESS: Could you restate the 19 question, please? 20 BY MS. LA SEUR: 21 Q. Okay. My question is does IPL consider the 22 current calculation of avoided cost adequate to 23 respond to the current market and regulatory 24 environment? 25 A. You had mentioned renewables. You're not PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1833 1 talking about renewables, are you? 2 Q. No. I'm talking about energy efficiency and 3 your experience with the use of avoided costs. 4 A. The way we do the avoided cost calculation 5 is accurate. We're seeing capturing carbon--we're 6 starting to look at that calculation and seeing what 7 that does, so to the extent we haven't done that yet, 8 it's incomplete. 9 Q. So you are familiar with the avoided cost 10 calculation? 11 A. For energy efficiency, yes. 12 Q. Okay. Would redefining of avoided cost make 13 a difference in the level of energy efficiency 14 investment by IPL? 15 A. Yes. Certainly changing the avoided cost 16 and changing the test would likely change the 17 results. 18 MS. LA SEUR: That's all I have. 19 CHAIRPERSON NORRIS: Ms. Johnson. 20 MS. JOHNSON: I have nothing. 21 MS. EASLER: I have nothing. 22 CHAIRPERSON NORRIS: Thank you, Mr. Holmes. 23 (Witness excused.) 24 CHAIRPERSON NORRIS: I doubt we can press 25 through and get done before everyone is too hungry to PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1834 1 last, so why don't we break now and come back at 20 2 past one. 3 (Recess taken at 12:15 until 1:40 p.m.) 4 5 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 1835 1 AFTERNOON SESSION (1:40 p.m.) 2 CHAIRPERSON NORRIS: I apologize for us 3 being a little tardy. We do recommend the Tremont 4 Grill, but just not be in a hurry. 5 Okay. Ms. Johnson, we're to your next 6 witness, I believe. 7 MS. JOHNSON: IPL calls Mr. Hillberry. 8 JODY HILLBERRY, 9 called as a witness by Interstate Power and Light, 10 being first duly sworn by the Chairperson, was 11 examined and testified as follows: 12 DIRECT EXAMINATION 13 BY MS. JOHNSON: 14 Q. Would you please state your full name and 15 business address for the record. 16 A. Jody Hillberry, 200 First Street Southeast, 17 Iowa City--or Cedar Rapids. 18 Q. And did you on December 10th, 2007 file 15 19 pages of rebuttal testimony as well as what's been 20 designated Exhibit 17, which was labeled JMH-1, 21 Schedules A through E? 22 A. Yes. 23 Q. Do you have any changes or corrections to 24 make to that testimony? 25 A. One addition, and that is on page 7, line PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1836 1 16, after the word "off" we should add "as well as 2 the interruptible and DLC loads." 3 MS. JOHNSON: Thank you. With that 4 correction to the testimony that is already in the 5 record, I would tender Mr. Hillberry for 6 cross-examination. 7 (IPL Exhibit No. 17 was 8 received in evidence.) 9 (Prepared testimony follows.) 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 1852 1 CROSS-EXAMINATION 2 BY MS. EASLER: 3 Q. Good afternoon. 4 A. Good afternoon. 5 Q. I would like to take you to your rebuttal 6 testimony, page 12, and beginning around line 16 7 you're discussing the way that IPL models, that you 8 consider the impact of DSM on load requirements in 9 your peak modeling. 10 A. Okay. 11 Q. And you state that, "By subtracting the 12 interruptible and DLC load that was available but 13 wasn't called from the booked peak, IPL recognizes 14 either the actual or potential impact of DSM programs 15 in the historical data used in developing the firm 16 peak forecast. Therefore, the forecasted values are 17 forecasted firm peaks which take into account the 18 impacts of DSM. Forecasted DSM is then added back to 19 arrive at a forecasted booked load." 20 And then it continues the question, "How 21 does IPL consider DSM in the peak forecast?" And you 22 respond that, "The major component of DSM is the 23 interruptible and DLC load." 24 Is it your position that the primary 25 contribution of DSM to managing IPL's peak load is PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1853 1 through its interruptible and direct load control 2 program? 3 A. I believe that's the case. 4 Q. When you calculate the interruptible and DLC 5 load that was available but wasn't called from the 6 booked peak, where do you get those numbers? 7 A. They are derived from a calculation based on 8 load research data. If you would like me to go into 9 the calculation of those, I can, but in the interest 10 of time-- 11 Q. Is there, in your opinion, a clear and 12 accurate way to distinguish between what was called 13 and coincident with the peak and what was available 14 but not called or coincident? 15 A. The interruptible program at IPL says a 16 customer has to get down to their firm amount, and 17 the way we calculate the estimated interruption is we 18 look at what the customers were using near the time 19 of the peak, and then calculate the difference 20 between that and their firm load, so I believe it's 21 an accurate estimate of available interruption. 22 Q. So for all customers who are called to 23 interrupt, that analysis is done? 24 A. That analysis is done for all interruptible 25 customers, and then that is given to the gentleman by PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1854 1 the name of Dave Acton, who actually is the person 2 who calls the interruption, and because he knows how 3 much interruption is available, he knows how much to 4 call. So I'm not sure-- 5 Q. Were you describing an after-the-fact type 6 of analysis? 7 A. No. It's a prior-to-the-fact analysis. 8 Q. Okay. But I think what I was asking about 9 is a way of confirming that what you called actually 10 was there. 11 A. The confirmation of the interruption is did 12 the customer get down to their firm load. 13 Q. Uh-huh. And you look at that after the 14 fact? 15 A. After the fact we say, did they get down to 16 their firm load, but going into the summer we have an 17 estimate for each customer as to how much they could 18 potentially give us. 19 Q. Okay. And then after an interruption is 20 called, you go back and analyze the actual response 21 of those customers called? 22 A. Only to verify that they got down to the 23 firm peak. 24 Q. And you do that for all customers who are 25 called to interrupt? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1855 1 A. If you're called to interrupt, then they're 2 checked to make sure that they're staying within 3 their contract. 4 Q. For each of those customers? 5 A. Yeah. 6 Q. And you confirmed your belief that the major 7 component of DSM for the peak load is the 8 interruptible and DLC load. When you say major 9 component, what percentage do you have in mind? 10 A. I think Bob Holmes would be the expert on 11 the quantification of the DSM. What I do know is 12 that the interruptible and DLC load makes up almost 13 10 percent of the IPL load, and so I know that's 14 significant. 15 Q. What's the other component of DSM that would 16 play a role in your peak load forecasting? 17 A. Could you repeat the question? 18 Q. You've identified interruptible and DLC as 19 the primary components for DSM for peak load 20 forecasting. What is the other less significant 21 component of DSM that contributes? 22 A. Well, IPL has programs, for example, that 23 will provide a rebate on more energy efficient 24 refrigerators, for example, and so if you 25 participated in the program, then that incremental PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1856 1 difference between the new refrigerator and the old 2 refrigerator would theoretically be reduction in our 3 peak load. 4 Q. Right. And do you capture that in your load 5 forecast? 6 A. I believe I do. 7 Q. And what number do you recognize from the 8 nonload management part of DSM? 9 A. The peak--the forecasted peak is based on 10 the historical peak, and the historical peak is based 11 on our long history of aggressively pursuing DSM; for 12 example, the refrigerator rebates that I just 13 mentioned. The historical peaks would have those 14 historical savings in them. 15 Q. I understand that, but I'm just wondering 16 what kW you attribute to the nonload management 17 programs in your peak load forecast? 18 A. Those would be the actuals that Bob Holmes 19 reports. 20 Q. And what did you use? 21 A. The actuals, the actual historical peaks, 22 which capture the actual historical DSM. 23 Q. Do you make some sort of adjustment to your 24 load forecast to specifically recognize that 25 component? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1857 1 A. As I stated, the historical peaks are what 2 happen after the historical DSM is in there, so I 3 don't double count it, no. 4 Q. I offered in as Exhibit 123 a data request, 5 and I think I offered this with Mr. Kitchen, and he 6 deferred it to you. I have one more copy left. 7 A. Sure. 8 Q. If you would, please read the Part A 9 question and response. 10 A. The question is, "Please explain fully how 11 Iowa demand side management is incorporated in IPL's 12 determination of annual peak load in the July 2005 13 EGEAS expansion plan summary and the summer peak load 14 in IPL's 2005 annual filing pursuant to 199 IAC 15 35-11." 16 And the response is, "No explicit 17 adjustments are made for the effects of IPL's 18 nondemand response DSM programs. The effects of 19 current programs are captured in the historical data, 20 and the future programs are not expected to be 21 dramatically different than past or current programs. 22 See the answer to B for the treatment of DLC 23 interruptible load." 24 Q. Is the process that you've just described 25 consistent with the way you've incorporated the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1858 1 nonload management DSM in your forecast that's been 2 used by Mr. Kitchen in this case? 3 A. Yes. 4 Q. Is it fair to infer from this method that 5 IPL cannot extract the discrete impacts of nonload 6 management DSM in its load forecast? 7 A. Could you restate the question? 8 MS. EASLER: Could you repeat it? 9 (Question read by the reporter.) 10 A. With the method that we're using, what we're 11 saying is that what we've used in the past will 12 continue on into the future. 13 BY MS. EASLER: 14 Q. I understand that. 15 A. And what we've done in the past is the 16 historical DSM plans that Bob Holmes testified to, 17 and, therefore, it's my belief that going forward an 18 accurate representation of what's in the forecast 19 would be what Bob Holmes plans for in his DSM plan. 20 Q. Okay. Is there any way of determining what 21 discrete role the DSM savings nonload management may 22 have had in shaping the IPL experienced load or its 23 load forecast? 24 A. I believe it would be what it has been for 25 the last decade, and that is to gradually slow the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1859 1 growth of the peak, but the point is that my forecast 2 is based on a long history too, and so my forecast is 3 capturing the growth of the post-DSM load. 4 Q. But can you extract from that what 5 contribution DSM has precisely played in that? 6 A. It would be the numbers that Bob Holmes 7 provides, the historical actual DSM savings. 8 Q. Does IPL in any way account for DSM savings 9 on an annual basis-- Let me start it again. 10 Does IPL in any way account for nonload 11 management DSM savings on an annual basis either in 12 energy or peak demand as an independent variable in 13 its load forecast? 14 A. No. 15 Q. Does IPL attempt in any way to account on a 16 cumulative basis for the effects of noninterruptible, 17 non-DLC DSM savings on energy or peak demand as an 18 independent variable in its load forecast? 19 A. I believe I already covered that in my 20 testimony, and, no, we don't have a specific 21 variable. 22 Q. Does IPL use any verification information 23 from program monitoring and evaluation to adjust its 24 claimed energy and peak demand savings in its load 25 forecast? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1860 1 A. Peak or energy forecast? 2 Q. Energy. 3 A. In the energy-- So if I understand your 4 question, you're saying is there an independent 5 verification of the amount of DSM that's in the 6 historical forecast? 7 Q. What I meant to say is do you use any 8 verification information to then adjust your energy 9 forecast based on that verification process? 10 A. What I use is the historical actual data. 11 Q. And if there was some verification 12 monitoring and evaluation process that might have 13 been conducted in any given year to kind of test 14 what-- 15 A. To test Bob Holmes' analysis? 16 Q. Exactly. 17 A. It wouldn't matter, because I'm using actual 18 historical sets. 19 Q. On page 14 of your testimony you suggest 20 that the inclusion of a specific DSM variable would 21 introduce error into the forecast. 22 A. I believe it would. 23 Q. Are you saying that if IPL were, for 24 instance, to propose an increase in its DSM savings 25 over recent levels, that trying to project the impact PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1861 1 of that savings would introduce error into your 2 forecast? 3 A. That's not what I said. 4 Q. Okay. 5 A. You said would including a specific DSM 6 variable-- Actually, I guess looking at line 7, I 7 think that's your question. 8 Q. Uh-huh. 9 A. Would including a specific DSM variable 10 introduce error into the forecast, and I believe that 11 would. 12 Q. I just wanted to make sure I was connecting 13 that. 14 A. Yeah. Well, if I could have a minute, you 15 did ask a second question which was if there was a 16 different DSM number, how would that be incorporated 17 into the forecast, and that's the next question in my 18 testimony. 19 Q. You're saying--as I understand that 20 response, you say that it wouldn't make much 21 difference? 22 A. No. I'm saying if you want to do a 23 different level of DSM in the peak forecast, you can 24 simply subtract that additional DSM off of the peak 25 forecast. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1862 1 Q. Okay. Is that something that's been offered 2 in this case? 3 A. I believe that's what Brent Kitchen tried to 4 explain how different DSM scenarios would be run. 5 Q. Is that something that he submitted for the 6 Board's consideration in this case? 7 A. I don't recall all of Brent Kitchen's 8 testimony. 9 Q. Suppose there was a sudden, unanticipated 10 reduction in load that might be caused by the loss of 11 a major customer, or by the outlawing of incandescent 12 light bulbs. 13 Isn't it likely that the way that IPL 14 forecasts DSM, the effects of past efficiency savings 15 in each of those years could be confused with these 16 other unpredictable impacts, and DSM effects would be 17 disguised by these other dynamics? 18 A. Could you repeat the question? 19 (Question read by the reporter.) 20 A. The reason I'm pausing here is because I'm 21 not clear whether in your hypothetical if the 22 outlawing of incandescents is a proposed DSM program. 23 BY MS. EASLER: 24 Q. It's not. 25 A. Therefore, the historical data, which has PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1863 1 the actual DSM loads, would still be the actual 2 historical DSM loads, and the growth rates from the 3 historical data would be--the growth rates based upon 4 that historical data would still include the current 5 DSM plant. Your one-time event would likely be 6 modeled using an indicator variable. 7 Q. So you're saying that you would specifically 8 adjust your load forecast to address those 9 independent, unanticipated events? 10 A. If there was a known large change in the 11 peak, I would try and capture the impact of that 12 change on future peaks. 13 Q. Do you believe that IPL's programs, energy 14 efficiency programs as they are now designed and 15 conducted, claim savings that should be credited to 16 changes in codes and standards--efficient appliance 17 standards or building codes? 18 A. I'm sorry. Could you repeat the question? 19 Q. Do you believe that IPL's programs as 20 designed and conducted claim savings that should be 21 credited to other initiatives such as building codes 22 and appliance efficiency standards? 23 A. I'm not qualified to answer that. 24 Q. I want to show you just two pages from the 25 currently approved 2005 to 2020 resource plan that PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1864 1 discuss DSM forecasts for Iowa and Wisconsin, and 2 these are pages 2-16 and 2B-3. 3 A. Okay. 4 Q. The explanation for the Iowa DSM forecast is 5 consistent with my understanding of that that you 6 provided in your testimony. 7 A. Okay. 8 Q. And reading the Wisconsin portion, could you 9 read the--I think it's the last sentence or two 10 regarding adjustments. 11 A. I'm not sure where you want me to be. Just 12 the last two sentences? 13 Q. I think so. 14 A. Okay. "It is assumed that improvements in 15 energy efficiency are embedded in the historical 16 data, and that they will continue to be realized at 17 about the same rate throughout the forecast period. 18 If a significant variation from historical 19 conservation implementation is ever anticipated, an 20 exogenous adjustment will be made to the forecast to 21 reflect the expected impact on electricity demand." 22 Q. Now, that last sentence is not included 23 under the Iowa method? 24 A. No. They were written by two different 25 people. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1865 1 Q. Okay. Now, if they were written by two 2 people, do you use the same process that Wisconsin 3 uses? 4 A. Actually, the--the Wisconsin load is done by 5 a different person, and I'm certain that the energy 6 is done differently. I'm not certain on the peak. I 7 believe that's different. 8 Q. Regarding if there is a significant 9 variation from historical, if that's ever 10 anticipated, is that an exogenous adjustment that 11 you've made to your forecast to reflect the expected 12 impact on electricity? 13 A. The IPL forecast is our best understanding 14 of future electric loads. If there were something 15 that we could somehow anticipate, whether it be a 16 large change in DSM, a large additional customer, or 17 a customer that for some reason would be leaving our 18 load, we would incorporate it into the forecast so 19 that we have our best forecast of anticipated loads. 20 Q. Have you ever done that for IPL's Iowa DSM? 21 A. I don't believe we have for IPL's DSM 22 because the history has been continual growth. 23 MS. EASLER: Thank you. That's all I have. 24 CHAIRPERSON NORRIS: Ms. La Seur. 25 MS. LA SEUR: Ms. Linderman is going to take PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1866 1 this one. 2 CHAIRPERSON NORRIS: All right. 3 CROSS-EXAMINATION 4 BY MS. LINDERMAN: 5 Q. We're slowly but surely getting to the end 6 of the witnesses, so I thought I would give my 7 colleague a little break. Okay. I first wanted to 8 follow up on some of the questions that Ms. Easler 9 was asking you about how you modeled DSM in the 10 forecast. 11 CHAIRPERSON NORRIS: Could you check that 12 mic one more time? 13 BY MS. LINDERMAN: 14 Q. Again, following up to the questions that 15 Ms. Easler was asking you about how you take into 16 account possible future changes in DSM and other 17 uncertainties in your modeling, are you able to make 18 any statements evaluating the comparative 19 effectiveness of IPL DSM measures and current 20 external measures in improvements in building codes 21 in terms of what you do with your forecast modeling? 22 A. Do I compare current DSM to building codes? 23 That would be Bob Holmes. 24 Q. I guess my question is how, if at all, would 25 that be taken into account in the modeling that you PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1867 1 yourself do? 2 A. It would not. 3 Q. When you're trying to account for DSM in 4 future forecasting, do you review any external data 5 on the effectiveness of external DSM energy 6 efficiency programs in the IPL service territory as a 7 metric for comparing that with what you are doing and 8 predicting? 9 A. I think it's been established that 10 Bob Holmes predicts future DSM levels. 11 Q. And my question is how is that taken into 12 account in your forecast, if at all? 13 A. As I stated, we use the historical DSM--or 14 we use the historical actual loads which are what 15 happens after the historical DSM, and so therefore 16 when we look at the relationship of loads to things 17 like population and economic growth, then because the 18 economic--to the degree that the economics and the 19 population are related to DSM, and forecasted, then 20 we have forecasted DSM in the resulting forecast. 21 Q. I guess I'm not clear. You have data on 22 internal historical figures for DSM. How are you 23 comparing external data when you are looking forward 24 in your forecasting? 25 A. If there were to be a large change in DSM, I PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1868 1 would rely on Bob Holmes to come to me and say, 2 "There's going to be a large change in DSM," and I 3 would incorporate that into the forecast. 4 Q. And how would that work precisely? 5 A. Bob Holmes would come to me and say, "There 6 is going to be a large change in the DSM." 7 Q. Okay. He's come to you. He's said that. 8 You're doing the forecast. You're sitting down to do 9 it. How does that get incorporated? 10 A. Through one of the one-time adjustments, or 11 at least initially, and then once this one-time event 12 has been in the history for a number of years, then 13 we could incorporate it as an indicator variable. 14 Q. And could you describe that a little bit for 15 me, and how that interacts with your forecasting, 16 indicator variable, specifically? 17 A. An indicator variable basically takes the 18 value of one when it's on, and zero when it is not, 19 and then when the regression is run, the coefficient 20 tells you the impact of that specific variable. 21 Q. What does that mean in plain language for 22 the impact that has on the forecasting? 23 A. Let me point you to my testimony. Okay. If 24 you look at confidential Schedule A, it's page 30 of 25 36. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1869 1 Q. Okay. 2 A. At the top of the page there's a variable 3 called Union Electric indicator, and basically that's 4 an indicator variable that takes the value of one to 5 recognize the addition of the Union Electric 6 territory, and because of that, the peak use per 7 customer is going to be different between before 8 Union Electric was part of the territory and after 9 the time frame that Union Electric was part of our 10 territory, and if you look at the summer peak 11 parameters near the bottom of the page, coefficient 12 is negative 0.093, and what that means is that with 13 the addition of the UE territory, then the peak per 14 customer was actually lower. 15 MS. JOHNSON: I may have to--a quick point. 16 I may have to talk to Mr. Hillberry about whether we 17 need to work with the court reporter to get some of 18 that information marked confidential. What page were 19 you on again? 20 THE WITNESS: Page 2-27. 21 MS. JOHNSON: Okay. That appears to 22 be--that's in the public version. I just wanted to 23 be sure. Thank you. 24 BY MS. LINDERMAN: 25 Q. Were you finished with your answer? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1870 1 A. I believe so. 2 Q. It occurs to me we might have differing 3 definitions of what plain language is, so I'll just 4 move on from that. 5 I have one more question on the line of 6 questioning that I was on. You are talking about 7 making a one-time adjustment if Mr. Holmes comes to 8 you with some new information. Could you give me a 9 real world example of what that might be? What would 10 happen in the real world that would cause you to make 11 a one-time adjustment? 12 A. We can look at the one-time adjustments that 13 I have made, and if we look at--specifically to the 14 peak forecast, we can look at Schedule D, and on 15 Schedule D the adjustments that I've made are for the 16 addition of large customers. There are some 17 customers that will be leaving our system, and so 18 we've accounted for those in our peak forecast. 19 Q. Okay. And are those examples you're giving 20 me examples of one-time adjustments you make in the 21 DSM portion of the forecast? I guess that's what I 22 was looking for. 23 A. The examples that I talked about were in 24 reference to a hypothetical that was posed by 25 counsel. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1871 1 Q. Okay. I guess my follow-up question to 2 that, how possible is it to account for DSM 3 adjustments in a one-time upward or downward 4 adjustment when changes to levels of DSM tend to be 5 incremental and ongoing, either upward or downward, 6 minimal, marginal, reductions or increases? 7 If it is something that occurs over a period 8 of time in small amounts, how do you take it into 9 account in one-time adjustments that are noticeable? 10 A. I think that's the point of my testimony, 11 that the growth in the DSM is incremental and 12 therefore it isn't specifically adjusted as a 13 one-time event. Rather, we rely on the historical 14 growth and the fact that our regression models 15 capture historical growth rates; therefore, the 16 projected forecast accurately, in my opinion, 17 captures forecasted DSM. 18 Q. But if you're using historical data and then 19 maybe an obvious one-time adjustment at the time you 20 do the forecast, how do you take into account the 21 fact that that DSM, although it is increasing or 22 decreasing at a marginal rate, might be significantly 23 different from historical trends? 24 Are there external indicators that you look 25 at to tell you when that might happen, and are you PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1872 1 able to take that into account in your forecasting? 2 A. There are not external factors regarding DSM 3 that I consider in developing the forecast. Having 4 said that, you said that changes in DSM tend to be 5 incremental and relatively small, and therefore, 6 using historical actual peaks is an accurate way to 7 forecast projected loads, because it already captures 8 the historical peak information. 9 Q. What period of time is usually covered by a 10 forecast when you do one? 11 A. I believe this one goes out to 2022. 12 Q. If you are dealing with different rates of 13 increase for something like this, even if they're 14 marginally different, might that not make a 15 significant impact on what numbers you ultimately 16 arrive at over that period of time? 17 A. I'm not the DSM expert. I believe Bob 18 Holmes would be. 19 Q. But you are the modeling expert, correct? 20 You do the inputs into the forecast and are able to 21 tell us where those numbers come from, generally? 22 A. And if you would let me finish my answer, 23 what I was going to say is that I believe that Bob 24 Holmes' incremental DSM numbers were in the range of, 25 say, 20 megawatts, and so if you're talking about, PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1873 1 you know, a percentage change on that, that's like 2 two megawatts. So the incremental change in DSM is 3 insignificant to the overall forecasted peak. 4 Q. Okay. We can move on from that. 5 I would like to go in your rebuttal 6 testimony to pages 10 through 12, if you could. And 7 am I correct in stating that on these pages you are 8 generally discussing the direct testimony that was 9 offered by Coalition witness Dr. Neil Harl? 10 A. Yes. 11 Q. My first question in this portion of your 12 rebuttal testimony would be, do you dispute Dr. Harl's 13 conclusion in his direct testimony that there are 14 existing and future economic uncertainties in the 15 biofield sector due, among other things, to supply 16 and demand imbalance in that sector? 17 A. I'm not sure that I can say there is a 18 supply/demand imbalance in the biofuels sector. 19 Q. What would you base that opinion on? 20 A. I'm not an expert on the biofuels industry. 21 Q. And the question I was asking you, do you 22 dispute Dr. Harl's conclusions in that respect? 23 A. I dispute his characterization that the 24 forecast is overrepresented based on the overly 25 optimistic-- Let me finish the answer, please. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1874 1 Q. I was going to actually redirect you, 2 because I can ask that question, certainly, and I 3 intend to, but I wanted an answer to my original 4 question first, and that was do you dispute Dr. 5 Harl's conclusions with regard to economic 6 uncertainties in the biofuels sector, that there are 7 economic uncertainties in the biofuel sector? 8 A. As with any industry, there's uncertainty. 9 Q. And then I will move on and give you an 10 opportunity to address the answer that you were 11 attempting to give me. Do you dispute Dr. Harl's 12 conclusion that these economic uncertainties in the 13 biofuel sector will lend an uncertainty to the level 14 of electricity demand that can be expected over the 15 next decade from biofuel facilities in the IPL 16 territory? 17 A. If you look at page 12 of my rebuttal, line 18 5, I answer that by saying if all the projects that 19 he assumes are in the forecast come to fruition, we 20 would have an upside risk to the forecast. 21 Q. And so your answer to my question I was 22 asking, do you dispute the conclusion that economic 23 uncertainties in the biofuel sector tend to create 24 uncertainties in projecting electricity demand from 25 the biofuel sector? Do you dispute that conclusion? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1875 1 A. No. 2 Q. Okay. And, finally, and I think this is the 3 gist of your rebuttal testimony, do you dispute 4 Dr. Harl's conclusion that these uncertainties have 5 not been adequately accounted for in the IPL forecast 6 models? 7 A. I dispute his characterization that the peak 8 load is too high based on an overly optimistic 9 assumption about the biofuels industry. 10 Q. Okay. I think one of the main things that 11 you discuss in this part of your rebuttal testimony 12 is a response to a Coalition data request, and that 13 would be data request No. 5, which was submitted as 14 Coalition Exhibit No. 201, confidential Exhibit A, 15 and although this is a confidential exhibit, I'll try 16 my best to avoid the confidential material, and 17 counsel can tell me if I need to address that 18 differently. 19 If you could please turn to-- Do you have 20 that exhibit with you? 21 A. Not Dr. Harl's. 22 Q. Okay. (Witness handed document.) 23 A. Which schedule? 24 Q. It is Schedule A of his Exhibit NEH-1, 25 otherwise known as Coalition Exhibit 201. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1876 1 A. Just a second. Okay. 2 Q. This is IPL's response to Coalition data 3 request No. 5, is that correct? 4 A. It appears to be. 5 Q. And who is the author of that response to 6 data request No. 5? 7 A. The author is Lisa Stump. 8 Q. Okay. Are you familiar with the contents of 9 the exhibit? 10 A. Generally. 11 Q. Generally. The response to this data 12 request was provided in response to a request that 13 IPL documents that projected future need from 14 biofuels facilities that would be met by SGS Unit 4, 15 is that correct? If it would be helpful, you can 16 simply read the data request into the record. 17 A. The question is, "Any documents describing 18 or analyzing the alleged need for IPL's proposed SGS 19 Unit 4 generating facility as that need relates to 20 biofuel facilities in IPL's service area, including 21 both existing and potential biofuels facilities." 22 Q. And could you identify just in general 23 terms, without going into the confidential content, 24 what documents were provided in response to that 25 request? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1877 1 A. Yeah. This is a list of the biofuels, 2 ethanol and biodiesel that is put together by the 3 economic development group, and it basically is a 4 listing of the firms and information about those 5 firms. 6 Q. Okay. And were any other documents provided 7 in response to this data request that you know of? 8 A. Not that I know of. 9 Q. So the documents that you've described was 10 IPL's response to a request for any documentation of 11 future need for biofuels facilities that would be met 12 by SGS Unit 4. No other documentation was provided 13 in response to this request? 14 A. Subject to check. 15 Q. Subject to check. I'll accept that. I 16 would like to refer you to your rebuttal testimony at 17 page 10, if you would. If you could read into the 18 record the sentence on line 16, beginning with, "The 19 schedule listed by Dr. Harl." 20 A. On line 16? 21 Q. Yes. 22 A. "The schedule listed by Dr. Harl as 23 Exhibit NEH-1, Schedule A, is a summary list of the 24 ethanol and biodiesel projects in the IPL service 25 territories compiled after the forecast, and was not PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1878 1 specifically used in the development of the 2 forecast." 3 Going on, "Some of these projects are in 4 IPL's gas service territory, and as such have no 5 impact on the electric forecast." 6 Q. If you could just read the other small 7 sentence at the end of your answer there. 8 A. Okay. "Additionally, a portion of these 9 projects may never come to fruition. As such, the 10 forecast only reflects a handful of these projects. 11 Q. And I would refer you back to the exhibit 12 itself, and IPL's response to this discovery request. 13 Where on the spreadsheet is it indicated that any of 14 these facilities were not included in the IPL 15 forecast? 16 A. I don't believe it specifies. 17 Q. Okay. And regarding this specific list of 18 existing proposed under construction biofuels 19 facilities, are you rebutting Dr. Harl's assessment 20 of whether these proposed facilities and facilities 21 under construction are likely to come on line at some 22 point? 23 A. Could you repeat the question? 24 Q. Using this specific list, are you rebutting 25 Dr. Harl's general assessment of whether these PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1879 1 proposed facilities and facilities under construction 2 are likely to come on line at some point? 3 A. As I stated earlier, I'm not an expert on 4 the biofuel industry, and therefore I'm not certain 5 which of these will or will not come on line. 6 Q. Okay. I'll accept that. As I think a 7 follow-up to your rebuttal testimony, we submitted to 8 you a series of data requests, and I would like to 9 provide those as exhibits at this time, if I could. 10 MS. LINDERMAN: Okay. While Ms. La Seur is 11 handing these around, these are IPL responses to 12 Coalition data request 21 through 28, and they should 13 be marked for the record as Coalition Exhibits 214 14 through 221 respectively, with the first four being 15 confidential exhibits. 16 (Coalition Exhibit Nos. 214 through 17 221 were marked for identification.) 18 BY MS. LINDERMAN: 19 Q. Mr. Hillberry, I'll give you a chance to 20 look at these briefly, but once you've done that, can 21 you please identify the contents of these exhibits 22 for the record? 23 A. Actually, I'm familiar with these, as I did 24 them over Christmas, but the content-- 25 Q. Thank you for that, by the way. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1880 1 A. No problem. The general gist of this is 2 that they were trying to get additional information. 3 In some of the requests it was a clarification of 4 what that original data response said, and in some of 5 the requests it was basically trying to get 6 additional detail on the status of the adjustments 7 that were made in the forecast as to whether or not 8 they were existing, proposed or under construction. 9 Q. So generally these data requests would add 10 more detail to which biofuels facilities were 11 included in the forecast, or more importantly, how 12 demand for biofuels facilities is included in the 13 forecast to the extent it is? 14 A. I disagree with that, because in my exhibit 15 I identify which ones are associated with biofuels, 16 and I identify when those adjustments are made to the 17 forecast, so these data requests, in my opinion, were 18 a waste of time, specifically the ones trying to ask 19 additional detail about the spreadsheet that I had 20 already stated was not used in the forecast. 21 Q. Okay. Well, I certainly apologize for 22 wasting your Christmas holiday. 23 I would like to talk about the data requests 24 in a little bit more detail, and, again, the first 25 four are marked as confidential by IPL, and I'll PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1881 1 attempt to avoid all the confidential content, but if 2 that's not possible, if counsel could please 3 interrupt me and let me know, that would be 4 appreciated. 5 Without getting to the precise numerical 6 figures on megawatt amounts, do these data requests 7 indicate that IPL is projecting that demand from 8 biofuels facilities in IPL's service territory will 9 undergo a one-time upward adjustment over the 10 2007-2008 forecast period? And I would specifically 11 refer you-- 12 A. For the peak-- 13 Q. --to data request 21 and 24 for that. 14 A. Twenty-one through 24? 15 Q. Twenty-one and 24. Excuse me. Twenty- 16 A. Twenty-one and 24. Actually, 21 addresses 17 the actual adjustments to the forecast. Data request 18 24 is back in reference to that NEH-1, and as I had 19 said before, NEH-1 was not used in the development of 20 the forecast. 21 As to what is the one-time adjustments to 22 the forecast, let's see, data request 21 looks 23 at--tries to classify the adjustments as far as under 24 construction or proposed, and there is also the 25 addition of the existing plants. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1882 1 Q. And my question was simply--and maybe it was 2 a mistake to refer you to this specific data request. 3 My question was simply have you indicated here that 4 there's going to be a one-time upward adjustment in 5 the near-term forecast for the biofuels facilities in 6 the IPL territory? 7 A. That's in--that's clear from my rebuttal 8 testimony. 9 Q. Okay. And were there any downward 10 adjustments made for any biofuels facilities in the 11 IPL forecast? 12 A. The downward adjustments were in relation to 13 companies in other industries. 14 MS. LINDERMAN: And before I forget, if 15 there aren't objections, I would like to offer these 16 data requests into evidence as Coalition Exhibits 214 17 through 221. 18 MS. JOHNSON: No objection. 19 CHAIRPERSON NORRIS: No objection? 214 20 through 221 is admitted. 21 (Coalition Exhibit Nos. 214 through 22 221 were received in evidence.) 23 BY MS. LINDERMAN: 24 Q. When you incorporate this one-time upward 25 adjustment for the list of biofuels facilities that PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1883 1 you provided with your exhibits to your testimony, 2 wouldn't that slightly more than double the demand 3 from biofuels facilities when you compare it with the 4 existing levels of demand prior to the one-time 5 adjustment? 6 A. What I was looking for is that I believe one 7 of these data requests said something to the tune of 8 how many megawatts of biofuel load is in the existing 9 IPL peak, and I believe my answer was something along 10 the lines of I'm not sure exactly how much is in 11 existing peak, so for you to ask me if I'm going to 12 double it, I can't answer that. 13 Q. Well, to use some sort of metric, because I 14 understand that your point was the facilities listed 15 on these spreadsheets, whether they are listed 16 specifically by megawatt load, that's the peak for 17 each individual facility, not necessarily coincides 18 with the systemwide system peak, and I think that was 19 your problem with my phrasing the question that way, 20 but just as a general metric, if you take that total 21 for the individual facilities and the one-time upward 22 adjustment, aren't you more or less, with the 23 understanding that it might vary from that somewhat, 24 doubling the demand from biofuel facilities? 25 A. I think there's two things. First of all, PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1884 1 IPL doesn't in general break down and say this is the 2 megawatts from the biofuel industry. There is this 3 list that economic development puts together. I 4 doubt that it's a comprehensive list, and so-- 5 Q. Is there information that--more that could 6 be provided that wasn't provided in response to these 7 data requests? 8 A. I think you've already pointed out that 9 there was a communication problem regarding what 10 actually went into the forecast, but is there a 11 system that could spit out all of the biofuel load 12 that IPL serves? I don't believe so. 13 The second part of your question is, is 14 there a big change related to biofuels coming to the 15 IPL load? The answer is yes. It's from a company 16 that's well established, and I have no doubt that 17 that load is coming. 18 Q. And there are actually several adjustments 19 for biofuels facilities, not just a single one. I 20 think I'm referring to a total number when you add 21 them all up. 22 A. And the majority of it comes from one. 23 Q. Okay. In addition to this one-time upward 24 adjustment, is there additional growth in that sector 25 accounted for in the forecast? Maybe not specific to PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1885 1 that sector, but in terms of general statistical 2 growth? 3 A. There would be some statistical growth 4 applied to the number after the one-time adjustment. 5 Q. Okay. So there is additional growth. Can 6 you tell me whether or not that is specific to the 7 biofuels sector or whether it's a systemwide growth 8 model that you use? 9 A. It would be a systemwide growth model. 10 Q. Okay. Is there any method in your 11 forecasting to take into account specific economic 12 indicators in a specific sector such as the biofuels 13 sector? 14 A. No, there wouldn't be a specific--industry- 15 specific adjustment. 16 Q. So could you tell me if, or to what extent 17 IPL's statistical growth projections would take into 18 account, for example, the rising cost of inputs into 19 the biofuels sector? 20 A. No. 21 Q. I would like to move on to page 11 of your 22 rebuttal testimony, if you could, lines 10 through 23 21. 24 A. Which page? 25 Q. I'm sorry. Page 11, lines--I think I said PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1886 1 10 through 21, but I specifically want you to look at 2 lines 19 through 21. If you could read that portion 3 of your rebuttal testimony for the record, please. 4 A. "Since the majority of the projects for 5 which IPL made adjustments were under construction at 6 the time, there's minimal risk to the forecast from 7 the presumed supply/demand imbalance that is at the 8 heart of Dr. Harl's testimony." 9 Q. Okay. And my question is, is it your 10 understanding of Dr. Harl's analysis that only 11 biofuels facilities in the planning stage and not 12 those that are already in existence or under 13 construction are likely to be impacted by this 14 supply/demand imbalance and other uncertainties that 15 he describes? 16 A. Actually, if I remember his testimony while 17 he was on the stand, he said there would be minimal 18 impact to those that are already existing or under 19 construction. 20 Q. In fact, I think during his live testimony 21 here, didn't he provide a list of facilities that had 22 recently scaled back or shut down? 23 A. And if I remember right, also those were 24 planned facilities; for example, the methane. 25 Q. In fact, in Dr. Harl's direct testimony, PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1887 1 doesn't he discuss different levels of risk for 2 different categories of facilities, and that would 3 include existing facilities, those that are in the 4 construction phase, and those that are proposed? 5 A. And as I stated in my rebuttal, most of the 6 one-time adjustments are for either existing or 7 plants that are under construction, so I don't see 8 that we're overforecasting. 9 Q. Doesn't Dr. Harl's direct testimony--and I 10 think we have a difference of opinion about what was 11 said in his testimony yesterday, but I'll let that 12 go. Doesn't his direct testimony also address risk 13 to existing biofuels facilities and those under 14 construction? 15 A. With any industry there would be some risk. 16 Q. And that is specifically addressed in his 17 direct testimony, is it not? 18 A. Could you point me to a reference? 19 Q. If you would give me just one moment, I 20 could certainly do that. I think trying to avoid the 21 confidential portions, I think if you look 22 specifically at Dr. Harl's testimony on pages 10 and 23 11 to start with. I assume that since you were 24 rebutting his testimony, that you had read it 25 thoroughly? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1888 1 A. I have, but I haven't memorized it. 2 Q. Nor would I expect you to. 3 A. For example, line 218 on page 10 where it 4 says the most dramatic effect is on the impact on new 5 investment. 6 Q. And do you read that to mean the only effect 7 is on new investment? 8 A. No. Like he said, the most dramatic effect. 9 So therefore the facilities that would be under 10 consideration would be highly risky. Those that are 11 under construction, very much less risky. Those 12 existing, I wouldn't take them out of the forecast. 13 Q. But there is a level of risk, and I guess my 14 question is, is it possible for your forecast to even 15 take that into account? 16 A. Of course. As with any industry, if we 17 think that there's a risk to the forecast, we can 18 take it out of the forecast as a one-time adjustment, 19 or as in the case of the bioindustry, not build it in 20 in the first place. 21 Q. I'm referring not simply to the one-time 22 adjustments, but when you model statistical growth 23 that isn't specific to a given sector, how do you 24 take into account sectors that are specific to given 25 economic sectors, like the biofuels industry? Where PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1889 1 does your statistical growth curve come from, and 2 what are the inputs that you put into that? 3 A. That would be outlined in my exhibits where 4 I explain through the filings that we do with the IUB 5 every year in May that we outline the statistical 6 model that goes into the peak forecast. 7 Q. And could you tell me if and how something 8 like a projected stagnation or downturn in a specific 9 sector would be taken into account in that part of 10 the forecasting? 11 A. We don't do forecasts on a sector-by-sector 12 basis. What we do is we look at the historical peak 13 loads, and if there were to be a downturn in a 14 specific industry, then that downturn would be 15 captured in the economic variable. It's an input to 16 the statistical model. That would be one way in 17 which it could be factored into the forecast. 18 Q. And who performs that calculation, the 19 calculation of the variable that you just mentioned? 20 A. The calculation of the economic variable? 21 Q. Yes. 22 A. That would be Global Insight. 23 Q. Is that a process that you are familiar 24 with? 25 A. How Global Insight calculates their economic PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1890 1 variable? 2 Q. Yes. 3 A. Not specifically. 4 Q. So it's not something that you yourself 5 necessarily interact with them on as a part of your 6 job? 7 A. No. 8 Q. Okay. 9 A. Actually, that's the critique that the 10 Minnesota Department of Commerce made in recommending 11 using a third-party economic variable in the 12 statistical model. 13 Q. So would it be accurate to state that you 14 cannot state quantitatively in terms of megawatt 15 total what IPL forecasts its systemwide demand to 16 biofuels facilities to be in 2013? 17 A. You're correct, and I believe that was one 18 of the answers in one of the data requests you've 19 already submitted. 20 Q. Can you state in quantitative terms what the 21 demand for biofuels facilities in 2013 is forecast to 22 be in comparison with existing demands in that 23 sector? 24 A. It would be larger than existing. 25 Q. Okay. I want to then move to the portion of PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1891 1 your rebuttal testimony which discusses the direct 2 testimony of Coalition witness Mr. Thomas Sanzillo. 3 I believe that's pages 3 through 10 generally, and I 4 would like to start at page 3, line 19. 5 A. Okay. 6 Q. Here in your rebuttal of Mr. Sanzillo you 7 are asked whether there are multiple peak forecasts. 8 I believe in your response you identify booked peak, 9 firm peak, adjusted net internal demand, and each of 10 those in turn take into--each of those in turn, 11 excuse me, have a peak for IPL and a peak for each of 12 IPL's two predecessor companies, and by my count this 13 is at least nine distinct definitions or uses of the 14 term peak, and there are still more adjustments that 15 IPL makes to these definitions of peak in its 16 forecast, I assume depending on the purpose of the 17 forecast you are trying to achieve. 18 Is it your position based on that, that the 19 IPL forecasting system, and in particular the 20 documents that have been presented to the Board in 21 this docket, are transparent as to the definition or 22 definitions of peak that are being used to derive 23 forecast demand? 24 A. I believe that the information has been 25 transparent because Brent Kitchen said, or presented PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1892 1 in his testimony, BRK-1, which is--which includes on 2 it the net internal demand, and he bases his analysis 3 on that. 4 In response to that, Mr. Sanzillo says 5 that--misinterpreted BRK-1 and claims that we didn't 6 provide class level peaks, to which I respond we 7 don't forecast class level peaks. We forecast firm 8 peaks, and Mr. Sanzillo still didn't understand my 9 testimony when he says he prefers to use booked 10 peaks, which ignore the interruptible load which, as 11 I've already stated, is approximately a tenth of 12 our--a tenth of our load, so to ignore 300 megawatts 13 is, you know, unbelievable in my case. 14 Q. We could move on to some of the specific 15 differences you have with Mr. Sanzillo, but generally 16 your answer is yes, you believe the definition of the 17 peak that you are presenting in your forecasts are 18 transparent in the documents you've presented to this 19 Board, to summarize? 20 A. I've done the best that I can to explain it, 21 and to the degree that--and so I believe it's 22 transparent, but some people don't always understand 23 me, so-- 24 Q. Well, I have the same problem from time to 25 time, so that's understandable. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1893 1 Moving along to page 5 of your rebuttal 2 testimony, you're still discussing Mr. Sanzillo here. 3 I believe specifically at line 2 you state that he 4 misconstrues IPL's forecast by oversimplifying the 5 forecast. Could you tell me specifically where in 6 his direct testimony you are referring to when you 7 say that? 8 A. I address that on line 11 where he claims 9 that we're forecasting at a 1.4 percent growth rate, 10 and in actuality what we do is we use the Global 11 Insight numbers, and as a result, Global Insight has 12 different economic numbers for each year, and 13 therefore the growth rate each year is different, and 14 therefore as a simplification, Mr. Kitchen said that 15 the average annual growth rate through 2022 is 1.4, 16 and Mr. Sanzillo, as I say in No. 2, oversimplifies 17 this forecast. 18 Q. Okay. I guess addressing that particular 19 part of your testimony that you just referenced at 20 lines 11 to 20, you state that IPL does not assume a 21 steady growth rate of 1.4 percent between 2007 and 22 2022, but the growth rate is an average calculation 23 of the rate of increase over that period of years. 24 Is it your understanding then that 25 Mr. Sanzillo did assume a steady growth rate in his PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1894 1 analysis and not an average one? 2 A. That was my understanding. 3 Q. Okay. And how does this differentiation 4 that you make between steady versus average growth 5 rates address Mr. Sanzillo's criticism that the IPL 6 system simply is not likely to experience that level 7 of growth over that extended period of time 8 regardless of whether the number being used is a 9 steady or average growth rate? 10 A. My understanding of Mr. Sanzillo's criticism 11 of the forecast was that he was pointing to, for 12 example, the current 10K or 10Q, and saying based on 13 the numbers that we see for 2007, we can't possibly 14 see a 1.4 percent growth rate, and so my rebuttal is 15 that in the forecast we do have slower economic 16 numbers in the current--in the short term, but that 17 doesn't invalidate the long-term forecast. 18 Q. I would like to move on to the 1.4 percent 19 average annual growth rate itself that is projected 20 between 2007 and 2022. How do you arrive at that 21 figure? Is it derived independently, or do you have 22 a projected demand in 2022 and a demand in 2007, and 23 you average the growth rate over those years? What 24 calculation is performed to get 1.4 percent? 25 A. That's stated on lines 12 through 14. I PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1895 1 mean the--what is happening here is I take the 2 historical peak data, going back to 1982, actual firm 3 peaks, match that up with--look at the number of 4 customers, look at our large customers, look at the 5 economics, and do a regression analysis based on 6 that, and then factor in the large customer 7 adjustments, one-time adjustments, that kind of 8 thing, and that gives me a forecast of future firm 9 loads. 10 Now, there's a number of steps that are 11 technically needed to get to the adjusted net 12 internal demand. It's roughly the firm demand, but 13 the difference is due to the concept called 14 diversity, but in general terms, in order to get from 15 the firm demand to the net internal demand, we need 16 to step through things like breaking the IPL off-peak 17 into an IES and IPCP, adding back interruptibles for 18 each of those components, taking into account-- 19 Q. Mr. Hillberry, I may have misstated my 20 question. I don't think you're getting at what I was 21 looking for. The actual number of 1.4 percent, is 22 that to start off with a number that you came up with 23 yourself? 24 A. The 1.4 percent was a number that Brent 25 Kitchen derived, but looking at his BRK-1, based on PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1896 1 the forecasts that I had given him, he calculated the 2 average annual increase over the forecasted time 3 period. 4 Q. And what I was trying to arrive at also is 5 so there was a demand forecast made for 2022, and 6 with that in mind, you were able to calculate an 7 average annual rate of increase from that? 8 A. Yes. 9 Q. Okay. So what went into the base line 10 assumption, which I take it in this case would be the 11 demand that you're forecasting for 2022? If that's 12 the number that came before the growth rate that's 13 being presented, what went into that base line 14 assumption? 15 A. I believe this was addressed in data 16 requests--in actually two separate data requests that 17 were provided, but basically-- 18 Q. If you could provide your answer in just 19 general and plain language terms, it would be much 20 appreciated to the extent that that's possible. 21 A. Okay. I mean the methodology to arrive at 22 that forecast is explained in my Schedule A, which is 23 the methodology that we provide to the IUB in our 24 annual filings. Specifically I point to beginning at 25 2-25, summer peak forecast. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1897 1 Q. Okay. Are you familiar with the projected 2 growth rate for electricity demand nationwide over 3 the time period we're discussing, 2007 to 2022? 4 A. In general. 5 Q. Could you give me a general idea what that 6 is compared to the growth rate that's being projected 7 for IPL? 8 A. I believe they're similar. 9 Q. Okay. I want to move then into some of the 10 specific economic data that Mr. Sanzillo used in his 11 direct testimony. I would refer you to Coalition 12 Exhibit 202 TS-1, Schedule B, which is a report from 13 the Iowa Economic Research Council, and-- 14 A. Please let me find that. 15 Q. Yes, please. Go ahead. 16 A. What was the citation again? 17 Q. This is another of Mr. Sanzillo's exhibits, 18 Schedule B. 19 A. Schedule E? 20 Q. B as in boy. I know they're quite 21 voluminous. 22 A. Okay. There is an attachment A and 23 attachment B. 24 Q. Yes, I believe that's right, but let me 25 double-check so I make sure that I'm looking at the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1898 1 right thing as well. I believe that I am looking at 2 actually both attachment A and attachment B. They 3 contain similar economic data. Have you had a chance 4 to review either of these exhibits? 5 A. Yes. 6 Q. And would you agree that--don't they 7 generally indicate slow rate of economic growth 8 between 2007 and 2009? 9 A. And as I stated earlier, this forecast 10 covers through 2022. 11 Q. Understood. Isn't a component of that 12 slowing economic growth supposed to include actual 13 decline in the manufacturing base in Iowa? And if 14 you're unfamiliar with the data in the report, that's 15 fine. 16 A. Well, I'm confused about the relevance, 17 because in the forecast we have an independent 18 economic forecast of economic variables, so the fact 19 that your economist says there's going to be a 20 decline in the manufacturing sector and mine says 21 that the Iowa gross state product will be slightly 22 lower, they're saying the same thing. 23 Q. And my question is how is that taken into 24 account in your forecast and the projected growth 25 rate in electricity demand, which is your number? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1899 1 A. As shown in my exhibit in the peak forecast, 2 there is a variable that is the real personal income 3 per capita, and that's the data that comes from 4 Global Insight, and so that is the data that would 5 show this slow economic trend that Mr. Sanzillo is 6 trying to point out. 7 Q. So would it be correct to say that you are 8 getting that information maybe in the form of a final 9 number from Global Insight as opposed to performing 10 the analysis yourself in the forecasting? 11 A. Yes. And that's the critique that Minnesota 12 brought up in the 2005 research. 13 Q. Because I think we've covered this--this 14 line of questioning, but I just wanted to get a 15 couple of other things in the record, but I won't 16 dwell on it too much more because I understand your 17 response. 18 The Woodman Poole economics population 19 projections for Iowa which have been discussed 20 previously in our Schedule A to Mr. Sanzillo's 21 exhibits to his direct testimony, which we've already 22 discussed briefly, if you could just turn to those. 23 I don't know if you are familiar, or had a chance to 24 review these and I believe they were reviewed by your 25 economist, Dr. Otto, as well. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1900 1 Doesn't this data indicate that Iowa's 2 population is expected to grow at one-half the rate 3 of the population nationwide between 2010 and 2030? 4 A. The point with the population data is that 5 Sanzillo assumes that population data directly 6 transfers to economic data-- 7 Q. Mr. Hillberry, I was just asking for your 8 assessment of what population trend is apparent from 9 this population data. 10 A. I haven't done analysis on it. 11 MS. LINDERMAN: I have one additional 12 exhibit on this point, and if I could offer that. 13 It's actually two separate attachments, and these 14 would be Coalition Exhibits 211 and 212. We tried to 15 address this yesterday with Mr. Kitchen, and he 16 referred us to you. 17 (Coalition Exhibit Nos. 211 and 18 212 were marked for identification.) 19 BY MS. LINDERMAN: 20 Q. I think if those have all been passed 21 around, would you generally agree that these 22 documents contain population projections from the 23 U.S. Census Bureau, or appear to? 24 A. They appear to. 25 Q. Okay. The document labeled "Interim PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1901 1 projections ranking of census 2000 and projected 2030 2 state population and change," if you go to the 3 right-hand column under "percent," could you tell me 4 what the population change is projected for Iowa over 5 that time period 2000 to 2030? 6 A. According to this, the projected percent 7 growth is, if I read this correct, 1.0 for the state 8 of Iowa. 9 Q. And ranking Iowa out of the 50 states and 10 the District of Columbia, what rank does Iowa have on 11 this list? 12 A. Forty-eight. 13 Q. What is the growth rate projected for the 14 nation as a whole during that same time period, if 15 you go to the top of that column? 16 A. 29.2 percent. 17 Q. Okay. And I think we've covered whether and 18 to what extent this sort of data is included in your 19 forecast model, so we can simply move on from there. 20 A. No, I disagree, in that the population data 21 isn't an input to the model. What the input to the 22 model is is IPL customers, and there is a big 23 difference between IPL customers and the population 24 of Iowa. 25 Q. Are you suggesting that the population in PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1902 1 the IPL service territory is going to surge while the 2 Iowa population as a whole stagnates? 3 A. What I'm saying is that the--actually, as 4 Board Member Hanson pointed out, load growth has two 5 components. One is growth in the number of 6 customers, and second is growth in the use of those 7 customers, and so simply looking at population and 8 saying, "Well, the population isn't growing at the 9 same rate as your total load" completely misses the 10 growth in the use per customer. 11 Q. But my question, Mr. Hillberry, is if the 12 state of Iowa is going to experience substantially 13 less population growth, and I'll grant you that's 14 only one factor, is it realistic to conclude that the 15 country as a whole in Iowa will have similar 16 increases in electricity demand, because we're 17 talking about percentage increases? 18 A. What you're missing is that Iowa has one of 19 the largest per capita industrial--the percentage of 20 the Iowa economy that comes from large industrial 21 companies is one of the highest per capita in the 22 nation, and so to the effect that Iowa has a growing 23 industrial base, that is going to drive growing 24 industrial loads. 25 I think this is kind of an interesting thing PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1903 1 to look at, because what we have is we have two 2 different projections. We have my projection of 3 customers, which is based on historical data, and we 4 have your population projections, and both of these 5 are going to be projections based on historical 6 numbers, but what's relevant is that the Board is 7 trying to decide do we want to approve Sutherland 8 Generating Station, and as we saw Monday, if we 9 approve Sutherland Generating Station, what we're 10 doing is we're providing jobs to the state of Iowa, 11 and if we have the jobs in the state of Iowa, we'll 12 have the--we won't have this low economic growth--or 13 population growth that you're projecting. 14 Q. So we need the demand in order to have the 15 demand that's going to be met by SGS Unit 4, because 16 we have a burgeoning manufacturing sector, and we're 17 going to have a burgeoning manufacturing sector if 18 and only if we build SGS Unit 4? 19 A. You're saying that the Iowa population is 20 dying and going away, and so we don't need Sutherland 21 Generation Station. 22 Q. I'm not saying that. The United States 23 Census Bureau seems to be. If we could-- 24 A. And you're quoting the U.S. Census Bureau. 25 Q. I think we've covered that somewhat PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1904 1 exhaustively. If I could refer you to page 6 of your 2 rebuttal testimony, line 16 through 21, you refer 3 here to the 40 megawatts of average annual demand 4 growth forecast by IPL, and I can let you flip to 5 that hopefully. 6 A. Which page? 7 Q. Page 6, line 16 through 21, and I 8 specifically was referring to the 40-megawatt average 9 annual demand growth that was being forecast. Are 10 you familiar with the similar growth projection that 11 was made in IPL's 2005 resource planning, and was 12 that the same number in the 2005 resource plan, or 13 has it changed? 14 A. Again, this is an oversimplification of the 15 forecast, but I believe-- 16 Q. Let me start over then because I don't want 17 to oversimplify. Was there an average annual demand 18 growth forecast made in the 2005 resource plan? 19 A. Not that I know of. 20 Q. That calculation-- How did you do your 21 forecasting for the resource plan if there wasn't a 22 forecasted average annual demand growth? 23 A. In the 2005 resource plan, the load forecast 24 was done almost identical to what was done here with 25 a forecast of customer load using historical firm PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1905 1 peaks. 2 Q. What I'm getting at, in the 2005 resource 3 plan where you were forecasting that over the 4 forecast period average annual demand would increase 5 by 40 megawatts. Has that number changed since the 6 2005 resource plan? 7 A. I haven't computed an average annual growth 8 from the 2005 forecast. 9 Q. And do you have a general sense if it has 10 increased or decreased since then? 11 A. It may have decreased slightly. 12 Q. And what would be the reason for that? 13 A. The reason for that would be the actual data 14 that came in between then and now. There's also 15 things like a large one-time adjustment for a 16 customer that will be leaving the system, and so that 17 would impact the average annual growth for the long 18 term. 19 Q. So you believe, without having reference to 20 specific numbers, that the growth rate that was being 21 projected in the 2005 resource plan may have 22 decreased since then to the 40 megawatts that's in 23 IPL's present application and your testimony? 24 A. It may have. 25 Q. Okay. I then want to move on to page 7 of PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1906 1 your rebuttal testimony, and I believe you had 2 discussed this previously in a previous answer. 3 At the bottom of page 7 on lines 20 through 4 22 you refer to slow growth being forecast for the 5 years 2007 to 2008, and state that doesn't 6 necessarily translate into slow growth for the entire 7 forecast period, and while that seems reasonable 8 enough, what economic indicators lead you to believe 9 that slow growth over that period is going to 10 suddenly pick up over the rest of the forecast 11 period? 12 A. That would be the Global Insight numbers 13 that were used in that forecast. 14 Q. Okay. And, again, moving on to page 8 of 15 your rebuttal testimony, I believe this is something 16 you had also previously mentioned the 10K, 10Q SEC 17 filings by Alliant, IPL in the third quarter of 2007, 18 and you quote from them and you suggest that it is 19 inappropriate to extend short-term growth projections 20 over the long term. 21 First of all, my question would be, isn't 22 that somewhat the nature of forecasting? 23 A. Not to extend short-term trends over long 24 periods, no. The regression model is based on data 25 extending back to 1982. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1907 1 Q. Aren't short-term trend indicators of 2 population increase or decline in key manufacturing 3 sectors at least useful metrics to determine if your 4 historical trends are going to hold up over the long 5 term? 6 A. Absolutely not. To the degree that there 7 are business cycles, short-term growth could be a 8 one-, two-year event. What we're trying to capture 9 is the long-term growth. 10 Q. And how is that done if you're not looking 11 at present economic and population statistics? 12 A. To the degree we're using the Global Insight 13 data that captures the--that captures both the 14 current trends as well as the long-term trends. 15 Q. Okay. I want to move on to page 9 of your 16 testimony. There is a factual dispute you seem to 17 have with Mr. Sanzillo, and I'm specifically 18 referring to lines 13 to 24 on page 9, and your 19 statement that you do not agree with Mr. Sanzillo's 20 argument on page 14, line 294 of his direct testimony 21 regarding the IPL forecast, and if you could read 22 just the one sentence on line 15 to 16 of your 23 testimony here starting, "Apparently this number." 24 A. "Apparently this number comes from the IPL 25 firm forecast of 3,175 megawatts less the retail PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1908 1 interruptible load of 280." 2 Q. Okay. And do you have Mr. Sanzillo's 3 testimony with you? 4 A. Just a second. 5 Q. Sure. 6 A. Which page? 7 Q. Page 14. 8 A. Is that confidential? 9 Q. I don't believe so, no. The confidential 10 and the public portion should be numbered the same. 11 MS. JOHNSON: I would just like to clarify, 12 the public version of the testimony I have of 13 Mr. Sanzillo on page 14 is blank. I can only find 14 the written portions in the confidential version. 15 CHAIRPERSON NORRIS: Okay. Have you posed a 16 question yet, or are we just directing him to that 17 testimony? 18 MS. LINDERMAN: I haven't posed the question 19 yet. Before I do, Ms. Johnson, I didn't realize 20 that. If you could look at page 14 of the 21 confidential version and just that portion of 22 Mr. Sanzillo's testimony that's on line 291, and tell 23 me if you would like me to ask any questions about 24 that in confidential session. 25 MS. JOHNSON: The numbers themselves are PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1909 1 confidential. 2 CHAIRPERSON NORRIS: Okay. 3 MS. LINDERMAN: I will do my best to avoid 4 the number itself. 5 BY MS. LINDERMAN: 6 Q. Could you confirm for me, Mr. Hillberry, 7 that at line 291, Mr. Sanzillo refers to the 2007 8 actual peak load? 9 A. He does. 10 Q. Okay. And then referring back to the 11 portion of your testimony that we had just 12 referenced, you refer on page 15 to the IPL firm 13 forecast. Is it your understanding that firm 14 forecast and actual peak load are the same thing? 15 CHAIRPERSON NORRIS: You mean line 15, 16 right? 17 MS. LINDERMAN: Yes. Thank you. 18 A. I think it's safe to say based on my line 15 19 where I'm saying apparently that there is confusion 20 about what Mr. Sanzillo is doing in the load--doing 21 in his calculation. 22 BY MS. LINDERMAN: 23 Q. So you-- 24 A. I'll admit I wasn't clear if he understood, 25 when he said actual peak load, if he was referring to PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1910 1 the booked peak, firm peak. 2 Q. Could I then ask you again, without 3 referring to the specific number in Mr. Sanzillo's 4 testimony, if you recognize that number as the booked 5 peak load in 2007? 6 A. Subject to check. 7 Q. Okay. And would it be accurate to state 8 that firm forecast and booked peak load are not, in 9 fact, the same thing? 10 A. Sure. 11 Q. So this just may have been a confusion as to 12 what Mr. Sanzillo was talking about, but assuming 13 that on page 9 of your rebuttal at line 15, when you 14 say apparently the number comes from the IPL firm 15 forecast, would you be prepared to say perhaps you 16 were mistaken that that was in fact Mr. Sanzillo's 17 starting point? 18 A. It's possible I was mistaken, yeah. 19 Q. Okay. Thankfully, I just have one final set 20 of questions for you. If you could go to page 10 of 21 your rebuttal testimony at lines 1 through 8. 22 A. Could I just add one thing on that prior 23 topic before I go on? 24 Q. I think you answered the question that I 25 wanted answered, so we can move on. Unless you want PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1911 1 to clarify your answer, I think you answered the 2 question that I was asking. 3 A. So that it is clear where I was confused, 4 it's actually on line 292 of Sanzillo where he says 5 adjusting it accordingly without any reference as to 6 what adjustment he's making, and, hence, the source 7 of the confusion, but we can go on. 8 Q. Fair enough. Thank you very much. Page 10, 9 lines 1 through 8 of your rebuttal testimony, please. 10 A. Okay. 11 Q. The question is posed to you as to whether 12 you agree with Mr. Sanzillo's argument that the IPL 13 forecast should be updated for the 2007 peak, and you 14 state that you would generally disagree with that 15 proposition, and my question is ultimately the IPL 16 forecast, even if it is not in this docket, will be 17 updated to include 2007 information, won't it? 18 A. Yeah. 19 Q. Okay. And on page 14 of his direct 20 testimony it would appear that Mr. Sanzillo is making 21 observations using the 2007 booked peak, and we had 22 this discussion about whether he was using that 23 number or not, but using the 2007 booked peak as his 24 starting point, is that correct? I think you said 25 you would agree, subject to check, that that was the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1912 1 2007 booked peak? 2 A. Yes. 3 Q. Is there a particular reason for 4 Mr. Sanzillo, who is not performing a forecast for 5 IPL, but trying to examine and analyze it, is there a 6 particular reason to ignore 2007 information when it 7 becomes available? 8 A. The key point goes back to your--I mean what 9 you started off with, is that what I provide to 10 Mr. Kitchen for his long-term planning is a 11 comprehensive forecast both peak, energy, long-term 12 energy, and if you say, "Oh, we got new information 13 today, let's update everything," then it would be a 14 nightmare for Brent and for everybody here. 15 Q. And I think we understand that you can't 16 redo your forecast every day, and my question would 17 just be is there a problem with somebody trying to 18 look at your forecasts and analyze them and try to 19 determine if they're accurate to use the most 20 up-to-date information that's available? 21 A. I disagree with picking and choosing which 22 information you want to update, and for that matter, 23 you say that he isn't producing a forecast, but if 24 you give me a second-- 25 Q. I think the question that I was asking, just PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1913 1 as a general proposition, is there a problem with 2 somebody looking at the IPL forecast trying to use 3 the most up-to-date information that has been made 4 available to them as a metric for analysis? 5 A. If you want to do an updated analysis, I 6 think you would want a comprehensive updated 7 analysis. 8 MS. LINDERMAN: Fair enough. Those are all 9 my questions, and thank you very, very much for 10 answering them all. 11 BOARD MEMBER TANNER: First, just a point of 12 clarification. When you said with regard to the 13 numbers that you got from the third-party vendor, you 14 don't remember what the name of that group was-- 15 THE WITNESS: It is Global Insight. It is 16 similar to what-- 17 BOARD MEMBER TANNER: You said that that was 18 a critique from the Minnesota Commission. Do you 19 mean that they recommended that you use a third 20 party, or what do you mean by critique? The way you 21 used the word, I don't know if I mean critique the 22 way you meant critique. 23 THE WITNESS: Actually, I believe the 2005 24 Minnesota RP was entered into the record, and if you 25 read the recommendations, one of the recommendations PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1914 1 is regarding the forecast and basically saying that 2 in the future we should use a third-party economic 3 data source. 4 BOARD MEMBER TANNER: So the Minnesota 5 Commission recommended that you use this third-party 6 source. Is that what you're saying? 7 THE WITNESS: They recommended that we use a 8 third party, and we had access to this one, and so 9 that's the one we used. 10 BOARD MEMBER TANNER: That's what I thought 11 you meant, but I wanted to be sure that's what you 12 meant. 13 A quick question. Coalition Witness 14 Sanzillo on page 5, lines 94 through 96-- Do you 15 have that in front of you? 16 THE WITNESS: Just a second. 17 BOARD MEMBER TANNER: This is a confidential 18 portion. I think we can talk around it, though. 19 THE WITNESS: Okay. 20 BOARD MEMBER TANNER: On this page he 21 asserts that IPL's internal documents show lower 22 demand growth than the load growth estimate shown on 23 your and other IPL witnesses' testimony. Can you 24 provide any clarification regarding Mr. Sanzillo's 25 assertion regarding this discrepancy in projected PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1915 1 growth numbers? 2 THE WITNESS: I'm not certain as to where he 3 derives his number. I believe that it comes from his 4 use of booked peaks and ignoring the IPL 5 interruptible, but I may be mistaken on that. 6 CHAIRPERSON NORRIS: I think--I'm not sure 7 that what--he wasn't referring to IPL's internal 8 documents. It had a different number than the 1.4 9 percent load gross that's the public number we've 10 been talking about. You're saying that he 11 didn't--you're not sure where he got that number from 12 your information? 13 THE WITNESS: That the data requests--I 14 don't know of any data requests that IPL has 15 provided, and I mean I don't know of any data 16 requests that show basically a load growth of net 17 internal demand of other than what's been presented 18 in this case. He may have been--I'm not certain 19 what he's basing that on, basically. 20 CHAIRPERSON NORRIS: Give us one second. 21 MS. JOHNSON: Could I ask for, while the 22 Board is looking this up, for a very quick break? I 23 could be benevolent and claim it's for the court 24 reporter's sake, but I have a personal interest. 25 CHAIRPERSON NORRIS: I think the court PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1916 1 reporter is a good enough excuse. Let's take ten 2 minutes. 3 (Short recess.) 4 CHAIRPERSON NORRIS: Mr. Hillberry, I think 5 we've been unable to find the source for the 6 statement from Mr. Sanzillo we were referring to, so 7 I'm not sure we can go any further on that 8 questioning. 9 Ms. Johnson, I believe it is to you. 10 REDIRECT EXAMINATION 11 BY MS. JOHNSON: 12 Q. You were being cross-examined regarding some 13 of the information provided by Mr. Sanzillo in this 14 proceeding, and I believe you were specifically 15 looking for a forecast that Mr. Sanzillo may or may 16 not have provided. Could you provide more 17 information on that, please? 18 A. Give me a second to find it. Counsel, do 19 you have the source of where we were talking earlier 20 about the adjustment to the peak? 21 Q. I believe it was while you were being-- 22 A. Page 14. 23 Q. I believe so. I believe you were being 24 questioned by Ms. Linderman, and you were cut off 25 before you could provide a complete answer on that. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1917 1 A. Right. On 14 of Sanzillo, on line 294. 2 Q. Just remember some of the numbers are 3 confidential, just to refresh your memory. 4 A. Correct. On that line Mr. Sanzillo 5 forecasts a load for 2013. 6 MS. JOHNSON: I believe that's all I wanted 7 to clarify. Thank you. 8 CHAIRPERSON NORRIS: Ms. Easler. 9 RECROSS-EXAMINATION 10 BY MS. EASLER: 11 Q. Let's see. This would relate to your 12 testimony on page 10, and I don't think you'll 13 necessarily need to grab it, but the matter of IPL's 14 forecast being updated for the 2007 booked peak, is 15 that something that will be included in the forecast 16 that is part of your integrated resource plan that 17 gets filed this summer in Minnesota? 18 A. Brent Kitchen is in charge of assembling the 19 integrated resource plan, and I'm not certain on what 20 he is using on--in that plan. 21 Q. Do you have any-- What would be your 22 recommendation? 23 A. What I was anticipating your question would 24 be is if it would be part of the May 15th filing, but 25 as I consider it, I believe that's only required in PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1918 1 years in which there's not a DSM plan, so I'm not 2 certain right now at what point there will be a 3 complete update to the long-term forecast. 4 Q. Would you envision including 2007 data in 5 that plan filing for 2008? 6 A. I'm not certain what numbers Brent would 7 choose to use. 8 Q. It's a possibility you would include those 9 in your plan filing? 10 A. Like I said, I'm not sure what Brent would 11 use. 12 Q. But it would be a possibility? 13 A. I mean it's a possibility, I guess. 14 Q. Is that his choice? 15 A. I believe that would be his call, yeah. 16 RECROSS-EXAMINATION 17 BY MS. LINDERMAN: 18 Q. I just have one thing I wanted to refer you 19 to, and this was in follow-up to what Chairman Norris 20 had asked you. 21 If you could refer to, and this is in the 22 Sanzillo exhibits at Schedule J, Attachment B, and 23 this is confidential, so I'm going to watch the 24 information I want to talk about to determine whether 25 it is, in fact, confidential information. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1919 1 Perhaps this was Board Member Tanner's 2 questioning. Maybe both of you may have touched on 3 it, the 1 percent rate of increase, Schedule J, 4 Attachment B. 5 CHAIRPERSON NORRIS: Let's pause. You may 6 want to look at the record there. I think we're 7 getting into some confidential information there. 8 MS. LINDERMAN: I was going to determine--I 9 was going to preface the specific information I 10 wanted to talk about in that exhibit. 11 CHAIRPERSON NORRIS: I think you may have 12 used the confidential number is the reason I stopped 13 you. 14 MS. LINDERMAN: I apologize. 15 THE WITNESS: From here I can recognize what 16 the sheet looks like. Let me--I'm familiar with-- 17 Let me find the information. 18 CHAIRPERSON NORRIS: Ms. Linderman, can you 19 give us the cite again what's he's looking for? 20 MS. LINDERMAN: It's schedule J, Attachment B. 21 BOARD MEMBER HANSON: D or E? 22 MS. LINDERMAN: B. 23 THE WITNESS: Okay. 24 MS. LINDERMAN: Do you have that over there, 25 Ms. Johnson? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1920 1 MS. JOHNSON: I have that schedule, yes. 2 Thank you. 3 MS. LINDERMAN: I guess I may have already 4 done this, and I apologize again. The percentages at 5 the right-hand side of the table, would those be 6 confidential data? 7 MS. JOHNSON: Yes. 8 MS. LINDERMAN: So we're going to have to 9 discuss this in confidential session. 10 CHAIRPERSON NORRIS: You want to refer to 11 the actual numbers? 12 MS. LINDERMAN: Yes. That's going to be 13 helpful. 14 CHAIRPERSON NORRIS: We will--I anticipate 15 this will be brief. Anyone in the room who is not a 16 confidential-- 17 THE WITNESS: On this sheet, on this second 18 table, there's a number called peak there. That 19 would be the firm forecast that would show up in my 20 nonconfidential exhibits, if that would facilitate 21 the discussion. 22 MS. LINDERMAN: I actually wanted to discuss 23 the percentages and the rate of increase that's 24 indicated on this exhibit. 25 THE WITNESS: Okay. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1921 1 CHAIRPERSON NORRIS: I take it this is a 2 response to the question the Board asked? 3 MS. LINDERMAN: Okay. 4 BOARD MEMBER TANNER: Can you give us the 5 exhibit number again? 6 MS. LINDERMAN: Sanzillo Schedule J, 7 Attachment B. 8 CHAIRPERSON NORRIS: I believe we're going 9 to have to close the hearing room for a brief period 10 of time, so if you're not a party to the confidential 11 agreement, I would ask you to please leave the room. 12 (Pages 1922 through 1925 are contained in a 13 separate confidential transcript.) 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 1922 1 (The following proceedings were held in 2 closed session.) 3 CHAIRPERSON NORRIS: Go ahead and proceed, 4 Ms. Linderman. 5 BY MS. LINDERMAN: 6 Q. Is this a document that you recognize, 7 Mr. Hillberry? 8 A. Yes. 9 Q. Could you generally identify for me the data 10 that's included in Table A and Table B? 11 A. Yeah. Table B is the firm peak forecast, 12 specifically spread back to the months, and then the 13 interruptible and DLC is added on top of that to get 14 to Table A, which would be comparable to what the 15 peak--what the booked peak would be if we didn't 16 interrupt. 17 Q. Which of these sets of numbers would you 18 tend to use in your forecast when you forecast a 19 demand number for, say, 2022 at the end of the 20 forecast period? 21 A. The value that Brent Kitchen uses does not 22 show specifically up here. What does show up is what 23 comes out of the statistical model, so I take the 24 historical data, run my statistical models, and that 25 says here's the forecast of the IPL firm peak, and PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1923 1 then that gets spread out to two pages which Sanzillo 2 doesn't include, which are identical to this specific 3 to IPC and IES, and on the IPC one we have to 4 subtract off the Illinois load. 5 We add back the interruptible and the DLC 6 for each of those to get to Table A for--it's called 7 internal demand here, but it's the peak without any 8 interruptible for IES and IPC. That would show 9 up--those two numbers would show up for each of those 10 companies on a load and capability. 11 For Brent's BRK-A, he takes those two 12 numbers and sums them together, and that gives you 13 line 1 of BRK-1. Then from that number we subtract 14 off the interruptible load and the DLC and the 15 diversity to get the net internal demand. So that's 16 how this relates through to what we've filed. 17 Q. On the right-hand side of the exhibit there 18 are percentages listed, and I don't think these 19 columns were labeled in the original spreadsheet, but 20 are you familiar with how this was prepared? 21 A. Yeah, and subject to check they are the 22 growth rates--the annual growth rates of the peak and 23 the energy respectively. 24 Q. So the first column would be the growth rate 25 for peak and the second column with percentages would PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1924 1 be the growth rate for energy? 2 A. Subject to check. 3 Q. Okay. Is it the case that in the column 4 that indicates the growth rate per peak, the rate of 5 increase generally is going up over the entire period 6 as compared to, say, the first five or six years of 7 the forecast? 8 A. No. For example, in 2021 the growth rate is 9 only 1.5 where previously it is 1.6. 10 Q. I guess my point, if you average those 11 percentages to derive an average growth rate, it 12 would be greater over the entire period than for the 13 period 2007 to 2012 before SGS 4 would be projected 14 to come on line? 15 A. And that's driven by the economic forecast. 16 Q. But you tend to agree that if you're 17 averaging growth rates as you've done in your 18 documents, that average growth rate over this entire 19 period is greater than average growth rate at the 20 period immediately after 2007 running up to 2012? 21 A. That's right. 22 Q. Okay. And I guess that's--that is what I 23 was trying to clarify without having the advantage of 24 conferring with my witnesses. I believe this is at 25 least one of the sources of data for his assertion, PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1925 1 and--that he makes. Hence, the Board can feel free 2 to ask questions about that. You can expound on that 3 further. 4 CHAIRPERSON NORRIS: I don't think the Board 5 has any further questions. 6 MS. JOHNSON: Nothing further. 7 MS. EASLER: No questions. 8 CHAIRPERSON NORRIS: Mr. Puckett. Sorry. 9 MR. PUCKETT: No questions. 10 CHAIRPERSON NORRIS: Thank you, 11 Mr. Hillberry. 12 (Witness excused.) 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 1926 1 (The following proceedings were held in open 2 session.) 3 CHAIRPERSON NORRIS: We are back in open 4 session. 5 Your next witness, Ms. Johnson. 6 MS. JOHNSON: IPL calls Pat Kampling. 7 PATRICIA KAMPLING, 8 called as a witness by Iowa Power and Light, being 9 first duly sworn by Chairperson Norris, was examined 10 and testified as follows: 11 DIRECT EXAMINATION 12 BY MS. JOHNSON: 13 Q. Could you please state your full name and 14 address for the record. 15 A. Patricia Kampling, Alliant Energy at 4902 16 North Biltmore Lane, Madison, Wisconsin. 17 Q. And on December 10th, 2007, did you file 18 nine pages of rebuttal testimony as well as Exhibit 19, 19 which is labeled PLK-1, Schedule A through D? 20 A. Yes, I did. 21 Q. And do you have any changes or corrections 22 to make to that testimony? 23 A. No, I do not. 24 MS. JOHNSON: Since Ms. Kampling's testimony 25 has been spread upon the record, I will tender her PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1927 1 for cross-examination. 2 (IPL Exhibit No. 19 was 3 received in evidence.) 4 (Prepared testimony follows.) 5 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 1937 1 CROSS-EXAMINATION 2 BY MS. EASLER: 3 Q. Good afternoon, Ms. Kampling. 4 A. Good afternoon. 5 Q. Just a few questions, and this is following 6 up. I had asked Mr. Kitchen about a presentation 7 that has been marked OCA Exhibit 122. 8 A. I have a copy of it. 9 Q. Okay. Mr. Kitchen expressed that he had no 10 knowledge of this document, so I agreed to save it 11 for you. 12 A. Sure. 13 Q. Because I see your name on page 2 of this 14 document. 15 A. Pretty obvious. 16 Q. Okay. Is this what this document purports 17 to be on the cover page? 18 A. Sure. If I could just explain for one 19 minute what this is. This is our standard investor 20 relations presentation that you can find on our 21 Alliant Energy dot com website under the investor 22 page. This is the presentation when we go meet with 23 investors that we hand out to them and they can view 24 it on the website. 25 Q. And on the safe harbor, page 3, that sets PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1938 1 forth the matters? 2 A. Of course. 3 MS. EASLER: I would move for the admission 4 of OCA Exhibit 122. 5 MS. JOHNSON: No objection. 6 CHAIRPERSON NORRIS: 122 is admitted. 7 (OCA Exhibit No. 122 was 8 received in evidence.) 9 MS. EASLER: That's all I have. Thank you. 10 CROSS-EXAMINATION 11 BY MS. LINDERMAN: 12 Q. Good afternoon. 13 A. Good afternoon. 14 Q. Our last witness. 15 A. Yes. Exciting. 16 Q. Is it correct that in your rebuttal 17 testimony you address the direct testimony of 18 Coalition Witness Thomas Sanzillo? 19 A. That is correct. 20 Q. I want to refer you to your rebuttal 21 testimony at page 3, lines 4 through 9. 22 A. Okay. 23 Q. Give me a second to find it as well. 24 A. Uh-huh. 25 Q. It's your statement here that--you qualify PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1939 1 this by saying "I'm informed by legal counsel," but 2 that financing details are not a requirement of the 3 siting application and that the Board does not have 4 jurisdiction over financing issues. Is that your 5 understanding still? 6 A. Yes, it is. 7 Q. Would you agree that this Board does have 8 jurisdiction over any element of the new generation 9 approval that will ultimately impact the cost to 10 ratepayers in Iowa? 11 A. Yes, I would. 12 Q. And would you further agree that the cost of 13 capital to IPL for construction of SGS 4 will 14 ultimately affect Iowa ratepayers? 15 A. Yes. It would be part of the 16 cost-of-service calculation. 17 Q. Okay. Moving further down on page 3, lines 18 10 through 14 and over on to page 4, lines 1 through 19 5, I just want to address this briefly. You make a 20 comment about Mr. Sanzillo's use of the term "project 21 financing," and apparently that has a very particular 22 technical definition in the finance world. 23 Isn't it reasonable that there's also a 24 plain language meaning of that phrase in the sense of 25 financing a project? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1940 1 A. No. The term "project financing" is really 2 a very basic financial term. That means you're 3 financing a specific asset. That's been around for 4 decades. It is very different when we are 5 constructing a project that's going to be financed 6 with the company's total asset base, total capital 7 structure. 8 Q. I guess I was just trying to get at if 9 you're a layperson and there is a plain language 10 definition. 11 A. Sure. 12 Q. Might it be reasonable to assume that it 13 just means financing of a project as opposed to a 14 particular professional technical definition? 15 A. The term "project financing" is very 16 specific to the term, though. 17 Q. Okay. 18 A. And has different criteria to raise the 19 money. 20 Q. And that's from your viewpoint as a 21 finance-- 22 A. Yes, it is. 23 Q. --specialist. Okay. That was just a small 24 verification I wanted to make. 25 On page 4, lines 13 to 23, spilling on over PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1941 1 to page 35, you are describing in general terms the 2 creditworthiness of IPL, and you make a statement at 3 page 4, lines 16 to 17, and if you could just read 4 that for the record. 5 A. You said 16 through 17? 6 Q. Actually, if you want to read the whole 7 sentence. 8 A. I'll start at line 15. 9 Q. That's fine. 10 A. It says, "Since IPL intends to finance SGS 11 Unit 4 using general obligation debt and preferred 12 stock of IPL, the credit quality of the company is 13 critical to its ability to access the capital markets 14 and secure the associated financing." 15 Q. So the credit quality of the company is a 16 very important aspect to the financing process, you 17 would say? 18 A. Yes, exactly. 19 Q. And you go on to quote excerpts from two 20 reports that you included as exhibits, one from 21 Moody's and one from Standard and Poor's, and the 22 excerpt that you quote from Moody's refers to a, 23 quote, supportive regulatory environment. In your 24 opinion, what would you say was meant by that phrase? 25 A. Iowa, by both rating agencies, is considered PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1942 1 to be one of the most supportive states in terms of 2 allowing recovery of costs on--in general ratemaking 3 purposes. 4 Q. Okay. And you go on to put an excerpt from 5 Standard and Poor's that describes both Alliant 6 Energy and IPL as having business risk of five out of 7 ten. 8 A. Uh-huh. 9 Q. Would you agree that this indicates there is 10 at least some room for improvement in IPL's risk 11 profile? 12 A. Sure. Business risk five is definitely a 13 satisfactory credit rating, and it can be higher, but 14 five is fairly traditional--four and five for utility 15 companies at this point in time. 16 Q. Okay. And, again, in this quoted excerpt 17 from Standard and Poor's, IPL's business risk score 18 of five is premised on a supportive regulatory 19 environment and relatively low-cost generation. 20 Would you agree that IPL's risk profile 21 would change, or at least be subject to reevaluation 22 if there were significant changes to the regulatory 23 environment or the cost of coal-fired generation that 24 makes up the majority of the IPL system at this 25 point? PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1943 1 A. Yes, I would agree. However, I would also 2 state that these reports are very recent and they are 3 after meetings with the rating agencies in which they 4 did review our plan to build a unit here. 5 Q. Okay. But if there was some future 6 development in terms of the regulatory environment, 7 either at the state level or the federal level, or 8 additional costs in coal-fired generation, those 9 would need to be taken into account and a 10 reevaluation of the credit situation would need to be 11 done? 12 A. And that would be reviewed, yes. 13 Q. Okay. And this would--I guess maybe you've 14 already answered this. Typically the type of 15 question that a reasonable risk analysis in the 16 finance sector would take into account in assessing 17 the risk for developing private financing for SGS 18 Unit 4? 19 A. It would be the overall risk review of IPL 20 in general, which would include the addition of SGS 21 Unit 4. 22 Q. Okay. At page 6 of your testimony where you 23 have the excerpt from the Moody's and Standard and 24 Poor's reports that are Schedule A and B, I believe, 25 and these excerpts discuss among other things the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1944 1 availability under Iowa law of preapproved ratemaking 2 principles and preapproval of the costs of new 3 generating facilities. Would you agree with that? 4 A. Yes, I would. 5 Q. Okay. And do you, or would it be your 6 conclusion that these elements of Iowa utilities 7 regulation support the creditworthiness of IPL in 8 this specific context of constructing SGS 4? 9 A. It's one of many factors, not the sole 10 factor. 11 Q. But it is relevant to the consideration? 12 A. It is relevant--it's an important factor, 13 but one of many. 14 Q. Isn't this just another way of stating that 15 the costs of this facility of SGS Unit 4 aren't going 16 to have much of an impact on IPL's creditworthiness 17 because cost and risk to the new facility can be 18 passed on to Iowa ratepayers through the ratemaking 19 process? 20 A. I would say that's a simplification. The 21 rating agencies realize there's more to it than just 22 passing the costs through to the customers. 23 Q. But that would be an element of the 24 advantage of preapproval in ratemaking principles? 25 A. Without a doubt. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1945 1 Q. Okay. Moving on to page 8 of your testimony 2 at lines 2 through 8, here you're discussing your 3 exhibit Schedule D at page 5, and you quote from-- 4 A. Which? 5 Q. I'm sorry. Page 8, lines 2 through 8. 6 A. Okay. 7 Q. And you're quoting from page 5 of your 8 Schedule D at the Standard and Poor's reports in your 9 rebuttal testimony. You quote at the end of the 10 first paragraph on that page where it states, "The 11 essentiality of coal-fired electricity remains an 12 important credit factor but it alone does not support 13 credit quality. To do this, utilities must manage 14 the financial pressures created by coal." 15 If you could refer to that part of your 16 Schedule D in your exhibits, I would like you to read 17 the next paragraph for the record. 18 CHAIRPERSON NORRIS: It's already in the 19 record, is that right? 20 MS. LINDERMAN: It's an excerpt from an 21 exhibit that's been filed with her testimony. 22 MS. JOHNSON: So it would be already on the 23 record. 24 CHAIRPERSON NORRIS: Right. If she needs to 25 read it to refer to a question you have, but PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1946 1 otherwise-- 2 MS. LINDERMAN: I do have a follow-up 3 question. 4 THE WITNESS: I want to add that the reason 5 I added this to my testimony was that it refers to 6 the top--the title of this exhibit is "Coal Remains a 7 Burning Issue for Electric Cooperatives and Public 8 Power Utilities," so I included it because it 9 doesn't--it's not relevant to investor-owned 10 utilities, so, again, that's why I attached it, 11 because Mr. Sanzillo did not, and he referred to it. 12 BY MS. LINDERMAN: 13 Q. Okay. But if you could read the language in 14 the paragraph that I indicated. 15 MS. JOHNSON: I think reading it to refresh 16 her memory is fine. I don't think she needs to read 17 it out loud for the record. 18 A. Okay. I will do that. Page 5. You want me 19 to read the-- 20 BY MS. LINDERMAN: 21 Q. The second paragraph. 22 A. Okay. Again, realizing what this article 23 was written for is the one starting with, "As part of 24 our credit reviews"? 25 Q. That's correct. PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1947 1 A. Okay. "As part of our credit reviews we 2 assess the magnitude of the exposure to additional 3 costs and work to understand whether customers have 4 the economic wherewithal to absorb the costs of 5 supporting new investment and controlling emissions. 6 At the same time we also focus on the utilities board 7 or governing body to understand whether those that 8 set rates have the political will to shoulder the 9 potential unpalatable responsibility for implementing 10 what may be sizable rate increases needed to preserve 11 financial margins and credit quality." 12 Q. Given that, as part of a risk strategy in 13 building this new coal-fired facility, is IPL relying 14 on the willingness of this Board to give sizable rate 15 increases to Iowa ratepayers? 16 A. What I would say is we are relying on the 17 company recovering its costs for the plant. 18 Q. And that would take place in ratemaking, and 19 possibly sizable rate increases? 20 A. I can't speak to sizable. 21 Q. If this Board is unwilling to approve 22 sizable rate increases, and I'm quoting from your 23 exhibit, to the extent necessary to preserve 24 financial margins and credit quality for IPL, 25 wouldn't that have the potential to negatively impact PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1948 1 IPL's risk profile? 2 MS. JOHNSON: I would object to that 3 question. She is specifically referring to the 4 exhibit in relation to IPL, but as Ms. Kampling has 5 already pointed out, this is related to different 6 types of utilities, and not necessarily to the 7 structure of IPL, so I don't see the relevance. 8 CHAIRPERSON NORRIS: I believe Ms. Kampling 9 did point out there is a distinction between what 10 that article refers to and this case, so I think your 11 question probably is mischaracterized in terms of how 12 Ms. Kampling has represented that document. 13 MS. LINDERMAN: She's free to indicate that 14 in her response to my question. I don't know that 15 this language necessarily is impacted by that 16 distinction. 17 CHAIRPERSON NORRIS: Okay. 18 MS. LINDERMAN: This particular paragraph 19 that I'm referring to and the issue that I'm 20 discussing, if that's impacted by the distinction 21 that you've drawn, you're free to say that as part of 22 your response to my question. 23 A. I'll answer it this way. You tell me if I'm 24 answering your question. The ability to recover the 25 cost is a critical component of the company's credit PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1949 1 quality. 2 BY MS. LINDERMAN: 3 Q. Okay. Finally I want to refer you to page 8 4 of your testimony, lines 22 to 24, and spilling over 5 to page 9, lines 1 to 2, that small portion. 6 Referring to--this was a Coalition Exhibit 7 202 as part of Mr. Sanzillo's testimony, Exhibit O, a 8 report from Bernstein Research. You state that the 9 report does not conclusively state that coal power 10 market pricing will be consistently eroded to the 11 point where financing coal-fired generation becomes 12 impossible. 13 Would you agree that short of impossibility 14 there is a point at which financing coal-fired 15 generation becomes at least prohibitively expensive? 16 A. I would not agree, because financing for IPL 17 would be based on the IPL credit ratings at the time. 18 Again, that's a distinction between project financing 19 and financing of total company. 20 Q. And don't you think the nature of the 21 project that is the impetus for the financing has 22 anything to do with the credit concerns? 23 A. We have not seen it at this point and, 24 again, we've gone to the rating agencies and the 25 market. They're all aware of our plans to build this PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1950 1 plant and we have not seen that. 2 Q. Would you agree then that short of 3 impossibility or perhaps even prohibitively expensive 4 for the company, there is a point at which financing 5 coal-fired generation becomes expensive to the point 6 where it would be inappropriate to pass those costs 7 on to Iowa's ratepayers? 8 A. Again, we've been--we've had full disclosure 9 of what our plans have been, and we have not seen 10 that in our credit markets. 11 Q. But I guess I'm talking about in terms of 12 what is fair for the ratepayers in the state, not 13 what the company thinks it's able to recover in 14 ratemaking proceedings. 15 MS. JOHNSON: I think that would be outside 16 of the scope of the witness' testimony. She's here 17 for testimony regarding the financial rating, not 18 rate recovery. 19 CHAIRPERSON NORRIS: I guess I lost the 20 follow-up question. I thought she answered your 21 question, but then you shifted it to a ratemaking 22 question. Help me understand where you're going. 23 BY MS. LINDERMAN: 24 Q. Either I didn't state my question clearly or 25 some other confusion, but I think my question was PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1951 1 you're characterizing the relationship between the 2 cost of financing coal-fired generation and at what 3 point that makes--the coal market prices make that an 4 unrealistic possibility, and just in terms of what's 5 possible for the company, I'm asking how does that 6 relate to this Board's decision on what's fair for 7 Iowa's ratepayers? 8 A. I guess I'm not understanding the question. 9 What I can tell you is that we would be financing 10 this plant in accordance with the way we finance the 11 entire company, not doing specifically coal-fired 12 fund-raising, if that's your question. 13 At this point we fully disclosed to the 14 rating agencies, to the analysts what our intentions 15 are, and we have not seen any change in our credit 16 ratings or cost of capital at this point. 17 Q. And that speaks to perhaps the willingness 18 of the credit community to finance a utility that's 19 engaging in coal-fired generation and expansion of 20 coal-fired generation, but my question is at some 21 point these expenses are paid either by the company 22 or by Iowa's ratepayers, and when you're analyzing 23 the effects of coal power market prices, which is 24 what you reference here, and your ability to get 25 financing, at what point does that drive up the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1952 1 financing costs to where the company isn't willing to 2 come before this Board and ask that Iowa's ratepayers 3 pay for that? Is that a consideration that is--that 4 the company feels is important in considering what is 5 the ceiling for financing costs? 6 A. If I could answer it a different way, IPL is 7 taking--has taken many efforts over the last few 8 years, including selling the transmission assets, to 9 get ready to fund this coal plant. Our balance sheet 10 is the best it's ever been. We're sitting on cash 11 from the transmission assets. We are prepared 12 financially to fund this additional generation. 13 Again, we're using the total assets of IPL, 14 and that's why we've been getting IPL in such strong 15 financial strength to take on this effort. 16 Q. And touching on a couple of other points 17 that are in this report as you reference it-- 18 A. I'm sorry. Which report is this in? 19 Q. This was Mr. Sanzillo's Schedule O, a report 20 from Bernstein Research. 21 A. Do I need to look at it? 22 Q. It may be helpful to be able to refer to it. 23 I wasn't going to quote you any particular part of 24 it. 25 Would you agree that this report that you PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1953 1 refer to, and this is in terms of the regulatory 2 environment and IPL's creditworthiness right now, 3 would you agree that this report predicts economywide 4 emission limits, the sale, rather than the granting 5 of allowances to CO2 emitters, and caps on the 6 absolute level of emissions other than emissions 7 intensity? 8 A. The report is in the record. I'm not going 9 to comment on it. 10 Q. Okay. Would you also agree that this report 11 recognizes growing political support for regulatory 12 caps on greenhouse gas emissions on the national 13 level? 14 A. Again, it's in the record. 15 Q. Okay. And do you have any opinions one way 16 or the other as to what that means to the 17 creditworthiness of IPL? 18 A. Again, all I can say, we've been very 19 transparent on what we're planning to do, and we have 20 not seen any impacts on the credit markets on IPL's 21 ratings or creditworthiness. 22 Q. I believe that in response to one of my 23 questions about how the company is going to pass on 24 or not pass on the costs of building this facility 25 you mentioned the transmission sale that IPL recently PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1954 1 undertook. 2 Hasn't it been, or are you now changing the 3 position taken by IPL witnesses in this matter this 4 SGS Unit 4 was not dependent on funds from that 5 transmission sale? 6 A. That's true, but now that it has closed, we 7 have the proceeds in order to apply. 8 Q. So it's at least helpful in financing the 9 plant? 10 A. Of course it is. Of course it is. 11 Q. And would you qualify that characterization 12 in light of the fact that the transmission sale is 13 the subject of a pending appeal? 14 A. No comment on that. 15 MS. LINDERMAN: No further questions. Thank 16 you. 17 CHAIRPERSON NORRIS: Ms. Kampling, just one 18 question. I'm curious. Iowa has and is one of the 19 first states to approve the advance ratemaking 20 principles, which has been touted as a positive for 21 moving forward on investment in infrastructure. 22 Why did your company choose to go with a 23 generating--the GCU process first ahead of the 24 ratemaking principles? 25 THE WITNESS: I don't know that I'm the PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1955 1 right witness to be answering that question. We're 2 planning on filing for the ratemaking principles at 3 the end of March, so I really can't speak for the 4 sequence. 5 CHAIRPERSON NORRIS: I was mainly curious. 6 This is a situation created to help cut down on 7 uncertainties, yet you didn't utilize it. 8 THE WITNESS: We are planning on filing for 9 it, though. 10 CHAIRPERSON NORRIS: So you cite in your 11 testimony on page 6 the rating agencies and how they 12 view Iowa, and as what you've stated here is the 13 State of Iowa provides support to regulated utilities 14 through above-average authorized returns, and timely 15 recovery of fuel and purchased power costs. 16 What do you think of the characteristics 17 that Iowa has looked for in the past to justify 18 authorizing above-average returns? 19 THE WITNESS: You know, the comments we get 20 from the rating agencies, again, Iowa is a very 21 supportive environment. As you apply for new 22 construction, which, again, is new around the 23 country, advance ratemaking principles is very 24 important. 25 But, secondly, having a backwards looking PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1956 1 test year is another reason why you need to have 2 slightly higher ROEs. 3 Again, in the construction cycle, having 4 advance ratemaking principles is a key component of 5 keeping your credit quality. 6 CHAIRPERSON NORRIS: Do you think this 7 proposal will meet those characteristics? 8 THE WITNESS: This proposal meaning-- 9 CHAIRPERSON NORRIS: This plant. 10 THE WITNESS: Yes. And, again, we were at 11 the rating agencies several months ago going over 12 what our plans were, so they fully understand our 13 plans, and again they came out reaffirming our 14 ratings, very supportive of the company. 15 CHAIRPERSON NORRIS: Ms. Johnson. 16 MS. JOHNSON: We have nothing. 17 CHAIRPERSON NORRIS: Okay. 18 MS. EASLER: Nothing. 19 CHAIRPERSON NORRIS: All right. Thank you, 20 Ms. Kampling. 21 (Witness excused.) 22 CHAIRPERSON NORRIS: All right. Other than 23 going over the briefing schedule, anything else to 24 come before us? You're done with witnesses, right? 25 MS. JOHNSON: That's right. We are done PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1957 1 with our case. 2 CHAIRPERSON NORRIS: He's very happy to hear 3 that. He thought there was still one more, 4 Mr. Hanson. 5 MR. RAGSDALE: We'll see if we can find one. 6 MS. JOHNSON: If we continue much longer, my 7 son is going to be a witness in this case. 8 CHAIRPERSON NORRIS: We have decided on 9 initial briefs on February 11th, and reply briefs on 10 February 25th. So is that-- Everyone has been 11 informed of that? Okay. I presume that you had some 12 input in that, Ms. Johnson, and we will respect your 13 input in that briefing schedule. 14 MS. JOHNSON: I appreciate that the brief is 15 due slightly before my child. I do appreciate that 16 sincerely. 17 CHAIRPERSON NORRIS: Absolutely. Good luck 18 with that. 19 Ms. La Suer, on behalf of the Board, our 20 condolences for your father, and thank you for 21 sticking with us. I know it had to be tough. So 22 thank you. 23 I think that concludes our business, and we 24 are adjourned. 25 (Proceedings concluded at 4:35 p.m.) PETERSEN COURT REPORTERS 317 Sixth Avenue, Suite 606 Des Moines, IA 50309-4155 (515) 243-6596 1958 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