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Applicant.
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TAKEN BY:
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REPORTED BY:
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JOHN W. BOYD
ATTORNEY FOR NEW ENERGY ECONOMY
PAUL BACA, CCR #112
PAUL BACA COURT REPORTERS
500 4th Street, NW, Suite 105
Albuquerque, New Mexico 87102
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PAUL BACA PROFESSIONAL COURT REPORTERS
500 FOURTH STREET NW - SUITE 105, ALBUQUERQUE, NM 87102
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APPEARANCES
For New Energy Economy:
Mariel Nanasi
mariel@seedsbeneaththesnow.com
343 East Alameda Street
Santa Fe, New Mexico 87501-2229
505-469-4060
John W. Boyd
jwb@fbdlaw.com
Freedman, Boyd, Hollander, Goldberg
Urias & Ward, PA
20 First Plaza Center, Northwest, #700
P.O. Box 25326
Albuquerque, New Mexico 87125-0326
505-842-9960
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Peter Gould
pgould@gmail.com
NMIEC
P.O. Box 32147
Santa Fe, New Mexico 87594-4127
505-988-4804
For Public Service Company of New Mexico:
Patrick T. Ortiz
portiz@cuddymccarthy.com
Cuddy & McCarthy, LLP
1701 Old Pecos Trail
P.O. Box 4160
Santa Fe, New Mexico 87502-4160
505-988-4476
For the Coalition for Clean Affordable Energy:
Charles F. Noble
noble@energyenvironmentlaw.com
409 East Palace Avenue, Unit 2
Santa Fe, New Mexico 87501
505-820-1589
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APPEARANCES (CONTINUED)
For the State of New Mexico:
P. Cholla Khoury
ckhoury@nmag.gov
Assistant Attorney General
Water and Utilities Division
P.O. Drawer 1508
Santa Fe, New Mexico 87504
505-827-7484
INDEX
WITNESS:
PAGE:
GREGORY SMITH
Examination by Mr. Boyd
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Examination by Mr. Noble
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Examination by Mr. Albright
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Examination by Mr. Gould
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Examination by Mr. Throne
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Examination by Mr. Ortiz
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Further Examination by Mr. Boyd
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Further Examination by Mr. Throne
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Further Examination by Mr. Ortiz
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Witness Signature/Correction Page
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CERTIFICATE OF COURT REPORTER
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APPEARANCES (CONTINUED)
For the Albuquerque Bernalillo County Water Utility
Authority:
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Dahl L. Harris
2753 Herradura Road
Santa Fe, New Mexico 87505
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EXHIBIT:
DESCRIPTION
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Complaint
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Excerpt from Budget Book
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Core Quality Trend for 2013
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San Juan Station Reliability
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Discussion
Budget
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Jeffrey H. Albright
jalbright@lrrlaw.com
Lewis Roca Rothgerber LLP
201 Third Street, Northwest, Suite 1950
Albuquerque, New Mexico 87102
505-764-5435
For Southwest Generation Operating Company, LLC:
Bruce C. Throne
bthroneatty@newmexico.com
1440 B South St. Francis Drive
Santa Fe, New Mexico 87505
505-989-4345
For the Witness:
Timothy Butler
tlbpc@aol.com
210 Montezuma Avenue, Suite 200
Santa Fe, New Mexico 87501
505-820-3375
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2 (Pages 2 to 5)
PAUL BACA PROFESSIONAL COURT REPORTERS
500 FOURTH STREET NW - SUITE 105, ALBUQUERQUE, NM 87102
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EXHIBIT:
DESCRIPTION
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Public Service Company of New
Mexico's Verified Notice of Filing
of Fuel and Purchase Power Cost
Adjustment Clause Factor Reset for
July 2014 and through June 2015
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Subpoena
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2000.
And the law degree was around the year
2005.
Q. Okay. And have you had any additional
occupational-type training in the course of your
career related to the jobs you've held as -- in the
management of coal-fired power plants?
A. Absolutely. Probably the most recent, I'm
a graduate of the Idaho -- University of Idaho's
utility executive course.
Q. And when was that?
A. That was in the summer of 2011.
Q. And was that something that PNM sent you
to?
A. Yes, sir. PNM sent me to that course.
Q. Okay. And they paid for it?
A. That is correct.
Q. Okay. Anything else? Any other formal
on-the-job training?
A. Yes. I'm a graduate of the Navy's
propulsion and engineering school.
Q. What is that?
A. That's essentially an entry-level
introduction to steam-powered plant propulsion.
Q. When did you attend that?
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PAUL BACA PROFESSIONAL COURT REPORTERS
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A. In 1981.
Q. How long did that last? How long of a
course is that?
A. That was approximately a three-month
course.
Q. And was that while you were in the
military service?
A. Yes, sir, it was.
Q. All right. And I take it you were in the
Navy?
A. That is correct.
Q. All right. How long were you in the Navy?
A. I was in the Navy a total of 12 years.
Q. Okay. And what rank did you hold?
A. When I left the Navy I was a machinist
mate first class.
Q. Okay. And were you honorably discharged?
A. Yes, sir, I was.
Q. Okay. Now, would you please summarize
your employment history?
And let's start with the Navy.
A. Okay. I was in the Navy for approximately
12 years.
Q. Starting when?
A. From 1980 through 1992.
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4 (Pages 10 to 13)
PAUL BACA PROFESSIONAL COURT REPORTERS
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power plant.
Q. And what were your responsibilities as
operations manager?
A. Essentially in charge of all of the
operators that operate the equipment in the plant,
the dispatch of the unit, the generation of power.
Q. So that I can envision what an operations
manager does, are you sitting in an office? Are you
down on the floor? Are you -- what are you doing
day to day as an operations manager?
A. It's a pretty broad job. It involves the
scheduling of operators, the hiring and promotion
and discipline of operators.
It involves analyzing the technical issues
in the plant and directing the maintenance staff
towards what's the most important priorities to
ensure reliability.
It's analyzing past data and performance
information and seeking opportunities for
improvement.
So it's both office and fieldwork.
Q. Okay. And when you use the term
operators, you're talking about people?
A. People that are physically turning
switches, turning valves, or sitting in front of
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5 (Pages 14 to 17)
PAUL BACA PROFESSIONAL COURT REPORTERS
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Q.
Okay. Okay.
And what were your duties -- or let me ask
it this way, so we don't spend a lot of time.
Were your duties as operations manager at
San Juan similar to the duties that you had had as
operations manager for the Arizona Public Service
Company at the Cholla plant?
A. Essentially, yes, very similar duties:
Analyzing equipment, reliability, in charge of the
operators that actually start and stop equipment.
From a high level the duties are the same.
Q. Okay. Were there any -- did you have any
discussions with PNM's representatives regarding any
critical issues at the plant that they wanted you to
be able to address, or was it just somebody had left
and they were bringing you on and go to work?
A. Well, actually, the reason why PNM was
interested in having me come work with them, they
were having some performance issues. They had
essentially wrecked some large pieces of equipment
on Unit 4.
The performance of the plant had really
taken a dive, and they were interested in having me
be part of their team to help turn the performance
around.
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6 (Pages 18 to 21)
PAUL BACA PROFESSIONAL COURT REPORTERS
500 FOURTH STREET NW - SUITE 105, ALBUQUERQUE, NM 87102
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PAUL BACA PROFESSIONAL COURT REPORTERS
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PAUL BACA PROFESSIONAL COURT REPORTERS
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of the plant.
Q. Okay. Was there a reason discussed at
that meeting as to why they -- there had been
inadequate support before then for maintenance?
A. In the years prior there was significant
environmental upgrades at the plant. And the
dollars devoted towards environmental upgrades were
in competition with the dollars devoted towards
maintenance.
Q. Okay. And how often did meetings of that
type -- I'm sorry.
Again, what was the name of the meeting,
that type of meeting?
A. It's the San Juan owners' E&O meeting,
which stands for engineering and operation.
Q. Okay. How often did those meetings take
place?
A. Typically, those meetings took place on a
quarterly basis. If there's more urgent issues they
could be called at any point in time. In more
recent years they've been called on a monthly basis.
Q. Okay. And was that one a quarterly
meeting or was it...
A. That was a quarterly meeting.
Q. Okay. So after that -- well, strike that.
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At the time of that meeting you were -what was your title?
A. Plant manager day two.
Q. Plant manager day two?
A. That's it.
Q. Okay. And how long did you hold the
position of plant manager?
A. I was in that position for just over three
years. The title changed about halfway through
that, but the roles and responsibilities remained
about the same.
Q. What was your -- how did the title -- what
had it changed from to?
A. Initially, it was plant manager. And then
later on the title changed to director of plant
management.
Q. Okay. What did -- what were the reasons
for the change in title, as you understood them?
A. My understanding was that they wanted to
compensate better for the work that was being
delivered. And with their HR system, they needed to
have a change in title to be able to do that.
Q. In other words, to increase your salary?
A. Yes, sir.
Q. Okay. And was that accompanied by any
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PAUL BACA PROFESSIONAL COURT REPORTERS
500 FOURTH STREET NW - SUITE 105, ALBUQUERQUE, NM 87102
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reliability.
Q. Okay. And can you quantify or
characterize the degree to which you met the goals
that had been set for you in the years that you were
there, in the three years that you were there?
A. Yes, sir. At 2010, the year that I took
over the plant, the equivalent availability factor
was at 73 percent. By September 30th of 2012 the
reliability achieved 87.2 percent.
Q. Did you receive any comments from
management about whether they valued your role in
achieving that?
A. Yes, sir. At about that same time frame,
when I achieved that 87 percent availability, the
company approached me and told me that I was
critical to the continued support of the company
goals, and they offered me an incentive program to
stay with the company for another year and a half,
and they gave me a year's worth of salary on top of
my regular salary to do so.
Q. Okay. And when was that?
A. That was the fall of 2012.
Q. Okay.
A. Excuse me. Let me back that up. I think
that was the fall of 2011.
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categories.
One, you look behind you and see what had
failed in the past. You fix what's been broken.
To that extent, things like boiler tube
leaks had been a large cause of forced outages. I
did a lot of work there.
The second category is developing a
predictive maintenance system: Analyzing and using
technology to determine when equipment may break at
some point in the future, and then being proactive
in taking steps to repair it or fix it or replace it
before it even breaks down.
And then lastly, the category of process
improvement in using industry best practices on how
you conduct your preventative maintenance -- oil
changes, so to speak -- or applying processes so
that operators make good decisions with procedures,
a number of process-related things in industry, best
practices to improve overall reliability.
Q. Okay. Now with respect to the predictive
maintenance system, is that something that is
generally practiced in the industry?
A. Absolutely.
Q. Okay. Is that one element of best
practices?
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A. It is.
Q. Okay. And had it not been practiced in
the past there?
A. It's measured by how many -- we call them
PMs, preventative maintenances -- how often do they
get done? Are they done on schedule? And what is
the size of the backlog of work that should be
getting done which isn't. That's a relative measure
of how effective your preventative maintenance
program is.
At San Juan the backlog was pretty huge,
and the compliance with preventative maintenance was
not as good as it should have been.
Q. Okay. And in your opinion, what was the
relationship of that situation to the low EAF when
it was back in the 70s?
A. Well, if you don't change the oil in your
car it's going to break down, not unlike power
plants. If you don't do the required preventative
maintenance then you end up with corrective
maintenance, fixing it after it broke.
Q. Okay. And what is -- what's the -- this
may seem obvious. But what's the problem with just
fixing it when it breaks?
A. You can't determine exactly when it's
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of generation.
Q. Okay. And does the -- does a coal plant
generate waste?
A. Yes, it does.
Q. Okay. And what is the nature of that
waste, and what do you do with it? What happens to
it?
A. Well, there's several forms of waste.
It's byproducts of the combustion.
The fly ash that I mentioned a moment ago
that's entrained in the flue gas going to the back
of the units, that's captured and then hauled off in
large trucks back towards the mine.
There's bottom ash, which is -- has a
pretty thick consistency. And that falls into the
water in the bottom of the boiler. That has to be
hauled away.
Q. What's the water in the bottom of the
boiler? What's that? Why is there water in the
bottom of the boiler?
A. Yes, that's a great question.
Q. Thank you.
(Discussion off the record.)
A. When the coal is burnt, the ash that's
heavier -- these are little rocks or things that's
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an emission source.
Q. Okay. And those emissions can be or
are -- they can be hazardous, is that correct, other
than simply contributing dust in the air?
MR. BUTLER: I will object as to form.
Go ahead.
MR. BOYD: Okay.
Q. (By Mr. Boyd) Go ahead.
A. Hazardous, I guess, is probably up for
debate. But I do know that we have emissions
requirements, and we maintain fugitive ash emissions
to be within compliance.
Q. Okay. I would now like to turn to the
circumstances -- hang on just a second.
The ash that goes back to the mine, that's
trucked back to the mine, is that wet when it goes
back to the mine?
A. Yes, it is.
Q. Okay. Do you have any way of quantifying
how much water is retained in the ash?
A. The engineering of a plant has fairly
complex water balance diagrams. From an engineering
standpoint, we track every water -- drop of water,
from the time that it's taken out of the river and
put in our lake, and from in the lake to all the
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PAUL BACA PROFESSIONAL COURT REPORTERS
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course of time.
Q. Who were those individuals?
A. During the first part of my role as a
plant manager it was Patrick Themig.
Q. Patrick?
A. Patrick Themig. I mentioned him a little
earlier.
Q. Right.
A. And then in the fall of 2012, Chris Olson
became the vice president of generation.
Q. Okay.
A. You also asked who did I answer to.
I also answered to the other eight owners.
Q. Okay. And did they have equivalent people
in the -- in the role of Chris Olson?
A. Yes, sir.
Q. Individuals that you reported to?
A. That's correct.
Q. Okay. And was your reporting to them any
different than your reporting -- the way you
reported to PNM, to Mr. Olson?
A. Yes. Yes, absolutely.
Q. Okay. In what way?
A. The other owners was more of a customer
relationship.
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PAUL BACA PROFESSIONAL COURT REPORTERS
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doing that.
So if anything, we had an unwritten policy
on how do we manage employees with medical issues.
Q. Okay. Had you had to manage an employee
with a pregnancy issue in the past during your term
there?
A. Yes. During my term there and throughout
my career, I worked with many employees that were
pregnant and had some time off work and came back.
Q. Okay. And can you tell me what the
typical, in your view, appropriate response is to a
woman who gets pregnant and needs time off?
A. Well, not only pregnancy, but any medical
issue. I'm not a doctor. It will be up to the
medical professionals to determine when an employee
can or can't work.
Oftentimes they'll give us restrictions on
what the employee is allowed to do: No lifting or
no working in a hazardous environment.
So we rely on medical professionals to
tell us what employees can or can't do.
To the degree possible, we make reasonable
accommodation. And when the time comes, if they
need to be off work, we honor that.
Q. Okay. And when is that, typically? In
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leader.
Q. And there was no explanation for that from
them, other than what you've just given us here now?
A. To my recollection, that is correct. And
that's all that I can remember at this point, yes.
Q. Okay. Was there any -- did they point to
anything that had occurred at these meetings that
they felt violated their do-the-right-thing policy?
A. Not in that meeting, no, sir.
Q. Okay. At any time?
A. Yes. In the week prior, there was a
meeting in Albuquerque. They took exception to one
of the managers in my meeting. He was concerned
about the liability of a pregnant employee on plant
site delivering the child while on plant site.
And he had words to the effect of, What if
the employee gives birth to the baby in the parking
lot?
Q. Okay. And did they explain what it was
that you had done wrong in connection with that
other person having said that at a meeting?
A. My understanding is they expected me to
put a stop to any inquiry like that.
Q. Okay.
A. Or the use of any language that may be
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taken inappropriately.
Q. So did you understand the implication to
be that you should have disciplined him for having
said that?
A. I understood -- and it didn't come out of
context from me in the meeting.
I understood that the manager was
inquiring about liability.
Did he phrase it properly? Probably not.
He probably could have polished it and sugar-coated
it a little bit more.
And I understood it as a valid inquiry
towards liability. It didn't stand out to me.
In the power plant, it's a culture that's
been around for many years, people talk very openly
and frankly.
So it didn't jump out at me as an issue
until the investigation meeting in Albuquerque,
where they brought it up.
Q. Okay. And what was it, if anything? Was
there anything else about the meeting about
pregnancy that was brought to your attention as a
problem?
A. Yes. I don't recall it from the meeting,
but they alleged that one of the managers used
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inappropriate language.
Q. And that a manager had used inappropriate
language at that meeting about pregnancy?
A. Yes, sir.
Q. Okay. And what was the language that he
used?
A. He used a three-letter word that began
with the letter T.
Q. Okay. And in reference to what?
A. The frontal female anatomy.
Q. So in other words, he -- I know you're
somewhat reticent. I can tell that you're somewhat
reticent about using this language.
But are you -- is it your testimony that
he used the word "tit" for the word "breast"?
A. That's what I was told that came out in
the meeting. I don't recall that.
Q. Okay. And somehow the fact that he said
that contributed to your termination?
A. Yes, sir.
Q. Okay. Was there anything else that you
learned that you understood or that you were told
had contributed to your termination?
A. No, sir.
Q. Okay. Before you were terminated, did you
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not?
A.
Yes, sir.
MR. BUTLER: John, can we take, like a
three-minute break? It's been an hour. I know
we're short on time. But...
MR. BOYD: Yeah, that's fine. Let's take
a break. Well, let's take a 10-minute break.
MR. BUTLER: This is a good time, I think,
isn't it?
MR. BOYD: It is.
THE VIDEOGRAPHER: We are now going off
the record.
The time is approximately 11:15 a.m.
Watch your microphones when you stand up,
please.
(A recess was taken from 11:15 a.m. to
11:27 a.m.)
THE VIDEOGRAPHER: We are now going back
on the record.
The time is now approximately 11:27 a.m.
Q. (By Mr. Boyd) Mr. Smith, before I hand
you Exhibit 1, your attorney has informed me that
you wanted to make a minor correction to your
testimony.
What is that correction you want to make?
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A.
Q.
That is correct.
Is that correct?
And you filed this complaint on April 11,
2014, according to its caption.
Is that correct?
A. Yes, sir.
Q. Okay. And would you just quickly
summarize the factual -- the factual basis for this
complaint? I don't want you to go through
everything, but just state for the record generally
what your allegation is in this complaint, and then
I'll go into the details.
A. Generally, my allegation in this complaint
is that I had acted to inform PNM that their intent
and actions relative to how San Juan generating
station was being maintained and their intent to
seek recovery of fuel costs through the fuel clause
was inappropriate, and it brought up safety
concerns, and that was the true reason that I was
terminated from PNM.
Q. Okay. All right. And let's -- so your
allegation is that the use of the word -- allowing
or permitting or somehow being involved in or
responsible for the use of the T-word in
substitution for the female, the word breast, at
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A. It happened in November.
Q. Of?
A. 2012.
Q. And where did it take place?
A. I remember that. Let's see. November 14,
2012.
Q. Okay.
A. It took place at the Flying Star Cafe,
which is located just west of the PNM corporate
headquarters.
Q. Okay. And that's on Silver, here in
Albuquerque?
A. I believe that's the street, yes.
Q. Okay. And how was the meeting arranged?
A. Mr. Talbot and I had been in EPA
negotiations the day before, and then he asked me to
meet him for breakfast at the Flying Star Cafe the
next morning.
Q. So in other words, you had been in a
meeting that was also here in Albuquerque?
A. Yes, sir.
Q. Okay. With the EPA.
And what was the nature of that meeting?
What was that meeting about?
A. That was a discussion with the EPA in how
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Q.
Correct?
And this is something that takes
pollutants out of that?
A. That is correct.
Q. Okay. At that meeting, or at about the
time of that meeting, did Mr. Talbot ask you to meet
with him, to meet him for breakfast or to meet him
at the Flying Star?
A. The previous day, November 13th, we were
working the EPA discussions. He asked me to meet
him at the Flying Star Cafe the next morning, wanted
to talk with me.
Q. Okay. Did he tell you what he wanted to
talk to you about?
A. Not until we got to the meeting.
Q. And about what time of day was that?
A. I believe that was the 7:00/8:00 time
frame.
Q. Okay. And did you meet him at the Flying
Star?
A. Yes, sir, I did.
Q. All right. And can you tell me, please,
what transpired between you and Mr. Talbot at the
Flying Star?
A. Yes. Mr. Talbot indicated we need to make
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good things.
But on the same hand -- token, too, you've
got to be careful they're not abused. And I believe
that this was a case where this was an improper use
of the fuel clause.
Q. Okay. And so you learned about the fuel
clause, what they were and how they operated at this
course you took at the University of Iowa?
A. Yes, sir. And in my experience with
Arizona Public Service Company, we worked on fuel
clauses there too. Of course I was management at
APS, and it's a utility industry topic with much
discussion.
Q. Okay. Okay.
By the way, as to this University of Iowa
course, again, PNM sent to you that, correct?
A. Yes, sir.
Q. All right. And who are the people that
tend to go to that course?
A. The people that I rubbed elbows with in
that course were vice presidents and directors such
as myself. There were some chief operating officers
there.
It's a course designed to groom and
educate and enlighten people for future advancement
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in the industry.
Q. In the power industry?
A. In the utility industry.
Q. The utility. We call it -- you call it
the utility industry?
A. Yes.
Q. Okay. All right. And when Mr. Talbot
made this comment to you about being able to make it
up, make up any losses through the fuel clause, what
did you say in response to him?
A. That I did not think that was right. It
was an inappropriate use of the fuel clause.
Q. And why not? Why wasn't it a proper use
of the fuel clause?
A. Because the additional costs weren't
prudently incurred.
I -- when I worked at the Cholla power
plant in Arizona there was a fuel clause with the
Arizona Public Service Company. And under that fuel
clause they had a prudency review. And they came
into the plant and wanted to discuss everything we
did that impacted the reliability of that plant.
I thought the same thing would happen
here.
Q. Okay. Now, did -- from your understanding
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the year.
We were working on making a small
compensation package for hourly employees, so that
they could become aligned with corporate goals.
And the higher -- the managers that worked
for me, they had a compensation package that was a
little higher. I had something more than them. And
the higher we went in the organization -- if you
look on publicly available information, it discuss
compensation packages for chief operating officers
and CEOs and -Q. At PNM?
A. I believe I have seen that in the past,
yes.
Q. Okay. And do those compensation goals
relate both to performance and profit?
A. Yes. As I might have mentioned earlier in
my testimony, you don't get compensation unless the
company is profitable. It needs to make its
earnings requirements to be able to trigger the
compensation.
Q. Okay. And is there -- is there -- I guess
what I don't understand -- I understand that the guy
who works on the boilers or whatever or keeps the
pipes clean, he may get compensated if the
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Unit 1, it failed.
A primary air fan -- and I forget if it
was Unit 1 or Unit 2 -- it failed.
Q. I'm sorry. Say that again.
A. A primary air fan.
Q. A primary air fan.
Okay.
A. There were casing leaks that impacted the
unit reliability, the plant reliability.
Numerous ash handling issues, clinker
grinders, ash conveyance equipment, ash blowers,
nuva feeders.
There was superheater tube leaks on Unit 3
due to overheating.
There was a lot more, but that's all that
comes to mind right now.
Q. Okay. Why do you -- how can you, sitting
here today, attribute those problems to the cut in
the maintenance budget?
A. Because specifically, those were the types
of things that I had in the maintenance budget for
2013 that were cut out of the budget when I needed
to cut 19 million out of the budget.
Q. Okay. And did you -- when you identified
these items as items that you were going to cut, did
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26 (Pages 98 to 101)
PAUL BACA PROFESSIONAL COURT REPORTERS
500 FOURTH STREET NW - SUITE 105, ALBUQUERQUE, NM 87102
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A. Yes, sir.
Q. Okay.
A. When I told you I had a list of risks, it
was a $40 million list of risks.
Q. Were there cuts to anything else?
MR. BUTLER: Repeat that, please.
Q. (By Mr. Boyd) I'm sorry.
Go ahead.
A. When I told you I went back to Mr. Talbot
with a list of risks that we would be chopping, that
total list was about $40 million in maintenance.
And I had to go about halfway up that list
to say, These are things I won't be doing to
maintain the plant next year if you're adamant that
I chop 19 million.
Q. Okay. Did he understand that he was
requiring you to chop about half the maintenance
budget?
A. Yes, sir.
Q. Did you say that to him?
A. I did.
Q. And he -- I showed him my list, and this
is what I am going to chop.
We went line item.
Q. Okay.
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A.
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A.
Yes.
Balanced draft is where you pull more air
out of the boiler than is being put in. So
essentially, the boiler and the ductwork downstream
of it operate at a slightly negative air pressure,
and there's advantages to that.
San Juan was designed with the positive
pressure. And when it's new -- and over the course
of many years, as leaks developed in the casing and
ductwork outside of the boiler, those leaks were
repaired. You have to repair those leaks under
positive furnace pressure because, otherwise, the
burnt fuel and gas would escape out those leaks.
You would essentially be putting burnt flue gas
outside around the unit before it's even being
treated by environmental equipment, and it's
hazardous to employees.
Q. Okay. And it also -- maybe you've
mentioned this -- it would compromise the pressure,
would it not, the leaks?
A. Yes. The flue gas leaking out the boiler
casing or the ductwork does compromise the pressure,
yes.
Q. Okay. And that's a -- is fixing those
leaks a routine part of maintenance of a power plant
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A. That is correct.
Q. Okay. And repairing the leaks. Is -repairing the leaks at the rate of $1.2 million per
year, is that on the capital side of the budget or
the O&M side of the budget?
A. The leak repairs are the O&M side of the
budget.
Q. Okay. And so that is an expenditure
that's normal maintenance, and it's -- that
expenditure is not something that is passed on to
the ratepayers in a source of profit.
Is that correct?
Or I shouldn't have said it that way. Let
me withdraw the question because I think I misspoke.
If it's on the O&M side of the budget,
that's not a capital expenditure to which -- as to
which PNM is entitled to make a profit?
A. That is correct.
Q. Okay. If PNM installs balanced draft,
what will that cost, or what is that projected to
cost? I think you said, but I want you to tell me
again if you don't mind.
A. It's public record that the balanced draft
and the SNCR together are around $150 million for
the two remaining units.
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conveyance.
Q. Okay. And so overall, the effect of
deteriorating quality of the coal on a plant like
San Juan is what?
A. Less reliability.
Q. Okay. Do you need to burn more coal?
A. Yes. If there's higher ash, that
typically means lower BTU content, so you have to
increase the amount of coal being burnt in the plant
to get the same amount of heat content for
generation.
Q. Okay. And so is it fair to say, then,
that the plant operates less efficiently as the coal
quality goes down?
A. Yes, it's less efficient.
Q. Okay. Let's now actually go off the
record for a minute.
THE VIDEOGRAPHER: We are now going off
the record.
It is roughly 1:36 p.m.
(A recess was taken from 1:36 p.m. to 1:39
p.m.)
THE VIDEOGRAPHER: We are now going back
on the record.
The time is approximately 1:39 p.m.
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Thank you.
Q. (By Mr. Boyd) We've been talking about
the issue of the importance to PNM's business model
of capital investment.
A. Yes, sir.
Q. All right. And other than -- without
getting into detail about it, you would -- would you
agree that that statement, capital investment is
important to PNM's business model, is a true -- is a
correct statement?
A. Yes, that is correct.
Q. Okay. When you went off to the University
of Iowa to this program that PNM sent you to and
paid for, do you recall that?
A. It was the University of Idaho.
Q. I'm sorry. University of Idaho. It's
those I states, you know. I can never keep them
straight except for Illinois and Indiana. I know
where they are.
Was there a discussion, or were you -- as
part of the training, did it involve training with
respect to the issue of the future of solar and
other renewable energies to utilities like PNM?
A. Yes, sir.
Q. All right. And what were you trained
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generation.
With solar power, the fuel costs are
essentially zero. So that would tend to pull down
the amount of fuel costs that the average customer
is paying for its electric bill for fuel costs.
Q. Okay.
(Exhibit marked, 3.)
Q. (By Mr. Boyd) I'm handing you what I've
marked as Exhibit 3.
Can you identify that and testify as to
where that document comes from?
A. Yes. I identify this as a document that
is included in the San Juan 2014 budget book that is
produced in October of 2013.
Q. Is that part of Exhibit 2? If you want to
take a moment and look through it and confirm
whether it is or not, feel free.
We've tabbed the places where we've pulled
exhibits from there.
A. Are they in order?
Q. I think so, yes.
(The record was read as requested.)
A. Yes, it appears that it is part of
Exhibit 2.
Q. (By Mr. Boyd) And what does that chart
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Is that correct?
A. The left-hand side of the graph is the EAF
factor.
We haven't discussed the equivalent forced
outage rate yet.
Q. Okay. And do those -- the figures in
that -- well, strike that.
Does that show a forced outage rate?
A. Yes, it does.
Q. Okay. And what has happened to the forced
outage rate over the period of time 2012 through -how far does that go forward through? 2013?
A. Yes. This is the budget book that was
produced in October of 2013. So it appears to be -prior to that time is when they ended the numbers.
But the forced outage rate in 2012 for the
entire site was 8.7. In 2013 it nearly doubled at
14.1 percent.
Q. Okay. And in your opinion, is that
increase related, if at all, to the maintenance
budget cuts that you've discussed earlier in your
deposition?
A. Absolutely. There's a direct correlation.
Q. Okay.
A. For the record, should we define what a
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Q. If it's planned?
A. Yes.
Q. It doesn't go in the category you were
just talking about earlier, which is the -- what is
it, the unplanned outage?
A. The forced outage rate?
Q. The forced outage rate.
A. Right.
Q. Right. It doesn't go there.
The planned outage, that's -- in other
words, a planned outage is the opposite of a forced
outage?
A. Correct. Maybe a little clarification
there.
If the unit could run all year 100 percent
it would be 100 percent.
If I had a planned outage, take it down
and fix it because I wanted to, it took up
10 percent of that, now I'm looking at a 90 percent
availability factor.
And if I had a forced outage rate, where
it broke down and I didn't want it to, I'll have
another 10 percent. Now my EAF is 80 percent. The
forced outage rate is 10 and the planned outages
were 10.
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Thank you.
MR. ORTIZ: Excuse me. Could -- a
clarification question.
What is the PNM-produced document?
MR. BOYD: This whole thing. Everything
in it.
(Discussion off the record.)
Q. (By Mr. Boyd) Who -- to your knowledge,
who produces this document, this 800-page document
that's in front of you?
MR. BUTLER: Exhibit 2.
A. Exhibit 2 is a document available on the
MSR website.
Q. (By Mr. Boyd) What is the MSR website?
A. MSR is an acronym for one of the owners of
San Juan, Modesto, Sacramento, and Redding. They
are a public power agency located in California.
They're a percentage owner in Unit 4.
This document was on their website. It is
a two-part document.
The first part of the document -- the
first several hundred pages, maybe the first 172
pages, I don't recall -- is information that is
produced by MSR.
Q. Okay. And then what follows from that?
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A.
Q.
A.
Q.
A.
Q.
A.
Q.
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Q.
Okay. Okay.
Does this reflect that at some point -- if
you read the top of that, can you see that the
maintenance budget for Units 2 and 3 stops being
included there at some point?
A. Well, yes.
Q. And what year is that?
A. My understanding is that Units 2 and 3
will cease operations at the end of the year in
2017.
At that point in time it will be just
Units 1 and 4 in operation.
From the average about $80 million budget
that the plant expended for four-unit operation at
that point in time, it looks like the plant is
projecting about 65 million to run two units. 80
million to run four units, 65 million to run two
units.
Q. Okay. Is that -- is that a surprise to
you, or is that expected?
A. It is not a surprise to me, based upon the
selection of units that are going to run.
Q. Okay. Why do you say that?
A. By continuing -- shutting down Units 2 and
3 and continuing to run Units 1 and 4, you're not
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San Juan?
A. Yes. Actually, I led many of those
meetings.
Q. Okay. Did PNM ever inform its partners
that it was going to cut its own O&M budget and that
could likely cause increases in capital budgets?
A. Could you say that again, please?
Q. Did PNM ever inform the other partners
that it was going to cut the O&M budget for San Juan
power plant, and that could likely lead to increased
capital budgets for the San Juan plant?
A. I'd have to answer your question with a
yes and no. Yes to the first part, and may I
explain?
Q. Yes.
A. When -- in the fall of '12, the 2013
budget to chop $19 million in O&M, that O&M -- that
chop in O&M didn't relate to an increase in capital,
but the original capital goal still had to have been
met.
Relative to the information we provided to
the owners, the owners were happy to hear that I was
chopping $19 million out of the budget. Of course
they pay a large portion of that.
The owners were not informed of the risk
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A. Yes, sir.
Q. Okay. Do you have any memos or reports in
which you memorialized any of the conversations that
you mentioned when you were talking to Mr. Boyd with
Ron Talbot?
A. No, I do not.
Q. Okay. Did you put any of the observations
that you had about the impact of taking 50 percent
of that discretionary maintenance budget and doing
away with it? Did you memorialize that in any
document or include that in any report, say for
instance, Exhibit 2?
A. I memorialized it with the company
documents at the time. I do not have those
documents, and I would not expect to see that in
Exhibit 2. That's the 2014 budget.
Q. And would there -- and prior to the 2013
budget, would some of those documents appear in
there or be referenced in that 2013 budget?
A. The 2013 budget, the budget book similar
to what you see in Exhibit 2, was built in October
of 2012 before I was asked to do the budget cuts.
Q. Okay. The type of documents that were the
internal documents that you've mentioned, the
internal PNM documents, what kind of documents are
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A. That's correct.
Q. Okay. I understand. I wanted you to look
real quickly at your Exhibit 9.
A. Okay.
Q. And to the extent you can tell me -- and
this may be beyond your knowledge because it's
beyond your time.
But my understanding is there are going to
have to be some scheduled outages to install the
SNCR equipment that the EPA approved, and there's
also going to be some downtime -- scheduled downtime
to do the balanced draft work.
Do you know how those scheduled outages
impact these capacity factors that are -- that are
about halfway down the page?
A. No, I do not.
Q. In other words, I see a drop of -- you
know, a pretty significant drop in 2017 for Unit 1.
I'm just wondering if that was associated
with the work that's going to be required to
implement the stated implementation plan.
A. That's possible.
Q. Okay.
A. I don't know.
Q. But you don't have any direct knowledge of
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that, do you?
A. No.
Q. Okay. And maybe this is more a question
for your attorney than you.
But do you know if you're going to be
offered as a witness in this case, in the underlying
litigation that's going on at the New Mexico Public
Regulation Commission over the San Juan abandonment
case 13-390?
Do you know if you're going to be a
witness -- asked to be a witness in that case?
A. No, sir.
Q. Do you have any understanding of how your
deposition might be used in that case, this
deposition?
A. Well, I understand at the heart of the
case is getting to the facts, to make the best
decision by the PRC.
And if I've offered information that's
helpful, then...
Q. Okay. But you've not been asked
personally, or through your attorney, to appear as a
witness at this point?
A. No, sir.
Q. Okay.
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A. Yes, sir.
Q. So it's your understanding that this -this would report the equivalent availability
factor, at least for 2013, up until the time this
report was prepared?
A. That is correct.
Q. And do you have any -- based on the kinds
of things that you've discussed in the deposition
today, do you have any basis to form an opinion
about whether or not that EAF factor was a result of
any of the items that you've discussed earlier not
being done in a timely manner?
A. Yes. In fact, we have an exhibit here
with pie charts that specifically describes the
performance of Unit 4 and the contributing factors.
And as mentioned earlier in my testimony,
those contributing factors were line items in my
budget prior to them being cut.
Q. And based on your experience as plant
manager, was that drop between 2012 and the 2013
year-to-date figure, was that a significant drop in
the -- in the EAF for that Unit 4?
A. Absolutely.
Q. And looking now at the equivalent forced
outage rate, I have similar questions.
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And for the record, I'm handing the -Mr. Butler a subpoena and cover letter for Mr. Smith
to appear at the January 5 meeting. And I think the
letter is self-explanatory.
And of course we will cover any travel
expenses, in addition to the witness fee.
So will you accept that on Mr. Smith's
behalf?
MR. ORTIZ: Are you going to provide us a
copy of the subpoena?
MR. BOYD: Sure.
MR. GOULD: Can I ask you a question, Joe?
Are you anticipating that we're going to
be taking testimony on January 5?
MR. BOYD: I think he's there for
cross-examination. We're going to submit this as
testimony.
MR. GOULD: Okay. But my question is,
there is -- usually with these hearings that go on
for two or three weeks, there's a lot of scheduling.
MR. BOYD: Right.
MR. GOULD: And my understanding is the
first day is going to be mostly comments.
So are you just saying for the 5th itself?
MR. BOYD: Yes. We'll coordinate. That's
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projection of kilowatts.
Q. And do you know when -- when that -- or
how PNM -- or when PNM made that projection, whether
it's in a PNM rate case, or do you have any idea
where or when?
A. My understanding is it's a mechanism of
the fuel clause, and it's submitted via this type of
report.
Q. Okay. So you don't know whether or not,
in fact, the base rate was established aside from
this?
A. No, sir, I don't.
Q. Okay. Looking at line 11, where it says
"FPPCAC fuel factor before cap," it has a figure of
9.833 cents -- I'm sorry. It's .009883 per kilowatt
hour.
Do you know what the cap refers to?
A. My basic understanding is that there's a
cap on the amount that can be collected through the
fuel clause.
Q. Is that something that's discussed in this
document or do you know?
A. I do not know.
(Discussion off the record.)
(The record was read as requested.)
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Q.
Okay.
(Exhibit marked, 13.)
Q. (By Mr. Throne) All right. The next one.
What I've placed before you, Mr. Smith -and it's been marked as Exhibit 13 -- is a document
filed in New Mexico Public Regulation Commission
Case Number 10-00086UT entitled "Public Service
Company of New Mexico Supplemental Statement
Regarding Fuel and Purchase Power Cost Adjustment
Clause Annual Factor Reset for July of 2013 through
June 2014."
Is that what you have in front of you?
A. Yes, sir, I do.
Q. Now, this is a document that normally you
would not have been provided with while you were
employed by PNM.
And of course this one -- well, let's look
at the date of this first. Let me back up.
This was filed on -- if you will look at
the last page, do you see where it indicates file
dated June -- dated June 28, 2013?
A. Yes, sir.
Q. So again, that's after your termination of
your employment with PNM, correct?
A. Correct.
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A. Yes.
Q. So -- and it looks to me like under
"Coal," on lines 2 and 3, it has some costs. First,
on line 2 it says "San Juan," and on line 3 it says
"San Juan Amortization Deferred Cost."
A. Correct.
Q. So is that -- is that information based on
information that you would have provided to
management, or is that just coming out of their
books and records in some other department, or do
you know?
A. The energy, in terms of the megawatt
produced, is something that would come from my team.
I did have people that were involved -that were involved watching the mine, so to speak.
I do believe they had something to do with
accounting for the coal that had been burned.
So to that extent, that's all the
involvement I know that my team probably had in the
production of this report.
Q. And what about the extent to which the
San Juan generating station may have been used to
make off-system sales to earn -- to earn margins or
revenues?
Would you have been providing -- your
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Okay?
A. Yes, sir.
Q. So again, this is -- this was after your
employment was terminated at PNM, correct?
A. Correct.
Q. Did you have a chance -- again, this is a
document that you -- well, strike that.
Did you have a chance to review this
document before the deposition today?
A. I can't say for sure, sir.
Q. Take some time to look at it and let me
know if you have had a chance to look at that
before.
A. Yes. Some of the information here does
sound familiar to me.
Q. Do you have a general understanding of
whether or not, in this -- in this filing that PNM
asked to recover some of that additional money from
the fuel clause over the cap that we discussed
earlier from the prior year's filing that, in
effect, rolled that over for recovery now in a
future time period as described in this filing?
A. That's my general understanding, is that
it's rolling that over.
Q. Okay. Mr. Smith, you talked a lot today
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A. Yes, sir.
Q. Now my understanding is that even though
there's a stamp on the front page of this that says
"Filed under seal and in camera pursuant to a
New Mexico statute," that, in fact, it's not under
seal any longer.
Is that -- is that your understanding?
A. Yes, sir. That's correct.
Q. Okay. Take -- if you would, look at
paragraph 26 beginning on page 8 of your complaint,
carrying over to page 9. I will give you a chance
to look at that for a second.
A. Yes, sir.
Q. Now what I'm particularly interested in is
on page 9, about three lines down, you state that
prior to his -- or it is stated in the complaint:
"Prior to his termination, PNM had also
required Smith to label many working documents as
confidential and privileged in an attempt to further
limit discovery of its intent and actions."
My first question is: Who -- who
specifically required you to label working documents
as confidential and privileged?
A. I know Mr. Talbot has asked me to do so.
Mr. Olson has asked me to do so.
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Q. And?
A. And in the past, Mr. Themig has asked me
to do so.
Q. And was that orally or in writing?
A. That was orally.
Q. Okay. And when you say working documents,
can you -- can you explain what kinds of documents
you're talking about?
A. Documents that were produced as documents
that -- to be worked through to help us make
business decisions, to analyze different issues, or
as a way of routinely tracking metrics.
Q. So when you say routinely tracking
metrics, are you referring to documents relating to
the performance of the San Juan generating plant?
A. Yes, sir. I believe that was included in
the things that we marked privileged and
confidential. We had a very liberal policy on that,
a very liberal use of confidential and privileged.
Q. And were these documents that you were
being asked to prepare for just those three
individuals -- Mr. Talbot, Mr. Olson, or
Mr. Themig -- or were these documents that were
being prepared also for attorneys at PNM?
A. These were being prepared by the three
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Mr. Olson.
Q. At the time you communicated that document
to Mr. Talbot and Mr. Olson, did -- at the same time
communicate that document, to your recollection, to
any attorney of PNM?
A. That, I do not recall.
Oh, yes, I do. The chief counsel for PNM.
Q. Do you recall his name?
A. I'm searching for that.
Gosh, I -- I forget his name.
Q. Would that be Patrick Apodaca?
A. Yes, Mr. Apodaca.
THE VIDEOGRAPHER: Excuse me, Counsel.
I need to take a break and change tapes.
We're now going off the record.
The time is approximately 4:07 p.m.
(A recess was taken from 4:07 p.m. to 4:15
p.m.)
THE VIDEOGRAPHER: We're now going back on
the record.
The time is approximately 4:15 p.m.
Q. (By Mr. Throne) Mr. Smith, going back to
your answer -- your answer to my last question.
Did you have any communications while you
were employed by PNM directly with Patrick Apodaca,
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was?
MR. BUTLER: Object as to form. It may be
invading attorney/client privilege and work product,
so I will object as to form.
Go ahead and restate it, if you will.
Q. (By Mr. Ortiz) Is there a document that
states the Attorney General's position with regards
to your complaint?
MR. BUTLER: The same objection. I'll
direct you to the pleadings in the civil lawsuit
where the Attorney General did file a position
statement regarding their intention not to
intervene, but to reserve the right at this point in
time -- to reserve the right to intervene in the
future.
MR. ORTIZ: And Mr. Smith couldn't answer
that?
MR. BUTLER: The same objection.
Mr. Smith, are you a layperson or are you
a practicing attorney?
THE WITNESS: I am not a practicing
attorney.
Q. (By Mr. Ortiz) Did you read the Attorney
General's pleading?
A. I don't recall if I got anything in
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time.
Q. At night?
A. The fuel source for the solar voltaic is
not available 100 percent of the time.
Q. Do you think that if the New Mexico
Environmental Department has included in San Juan's
operating permit that it has to have balanced draft,
that it needs to put it in?
MR. BUTLER: I will object as to form.
Go ahead and answer.
And lack of foundation.
Go ahead.
A. I've worked with the New Mexico
Environmental Department on several issues, and
we've come to agreement on several issues.
And once we came to agreement on things we
carried out with those agreements.
Q. (By Mr. Ortiz) Do you know if the
San Juan operating permit requires balanced draft?
A. My understanding is that it currently
does.
Q. I can't find it in my notes, but I think
at some point -- well, let me ask you this.
Is it your understanding that PNM can't -cannot shut down any of the units at San Juan
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couldn't do that.
Q. Okay. And in getting that approval, did
you have to represent to PNM that you were not privy
to material nonpublic information?
A. I don't recall that.
Q. I may not have the name correctly, but are
you familiar with a PNM policy called the capital
improvement -- capital approval policy?
A. No, sir. I'm not familiar with that.
Q. You mentioned that you were ordered to
copy Mr. Apodaca on documents related to the FIP and
the SIP.
Is that correct?
A. Yes, sir.
Q. Were you aware that PNM was involved in
litigation over the FIP and the SIP and in
settlement discussions at the time?
A. Yes. I believe it was in the 10th
District Court.
MR. ORTIZ: I don't think I have any more
questions at this time, and we will reserve any
further cross-examination until the hearing.
MR. GOULD: Pat, while we're still on the
record, can you give me the nonconfidential
designation of the document you are reading from?
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Who it's to, who it's from, what the name of it and
the date of it was?
MR. ORTIZ: No. I think that's
attorney/client privilege.
MR. GOULD: I think you have to generally
identify it if you had a privilege log.
Can you give me whatever information you
feel -MR. ORTIZ: These were -MR. GOULD: I don't want you to -- you
know, I don't want you to trespass on what you
believe is confidential.
MR. ORTIZ: Well, let me look at -MR. GOULD: But if I was going to
request -MR. ORTIZ: There may be -- there may be
some public documents here.
MR. GOULD: Could you generally
describe -- are they disciplinary documents? Are
they reports? Are they personnel files?
MR. ORTIZ: They are investigative
reviews -- investigative reports.
MR. GOULD: Internal to PNM?
Was there an outside investigator or was
this just HR stuff?
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of PNM.
Q. Okay. And the communications that you had
with him, did you understand that he -- that they
were being used in connection with litigation in
some fashion?
A. No, sir. I did not understand that.
Q. Okay. And what was the nature -specifically, so that I understand it, what was the
nature of the instruction that you had from him
about what categories of communications and what
communications should be copied to the legal
department or to a lawyer?
A. Yes. Communications relative to things
that are concerning the FIP or the SIP, and I think
I mentioned that in the previous testimony.
Financial documents and performance
projections.
Q. Okay. And -- and what are the FIP and the
SIP, for the record? What are those acronyms and
what do they stand for?
A. Yes. The FIP is the Federal
Implementation Plan relative to regional haze and
EPA's plan to eliminate that by using the best
available retrofit technology.
The SIP is the State Implementation Plan
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____________________________
GREGORY SMITH
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CERTIFICATE
I, Paul Baca, RPR, CCR in and for the
State of New Mexico, do hereby certify that the
above and foregoing contains a true and correct
record, produced to the best of my ability via
machine shorthand and computer-aided transcription,
of the proceedings had in this matter.
____________________________
PAUL BACA, RPR, CCR
Certified Court Reporter #112
License Expires: 12-31-14
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66 (Page 258)
PAUL BACA PROFESSIONAL COURT REPORTERS
500 FOURTH STREET NW - SUITE 105, ALBUQUERQUE, NM 87102