Really confused about 1" NPT threads using hole wizard. Actually all Hole wizard NPT hole sizes do this.

Below is an assembly with a 1" standard wall NPT pipe in a standard 1" NPT hole wizard hole. You can see that Solidworks is adding a tapered hole that the pipe thread does not cut into. This seems weird to me??? The recommended drill size for a 1" NPT is 1 5/32 (1.15625"). That is the lower hole diameter. Why is the tapered hole marked in blue there at all??? MY problem happened when I put a 1" NPT in a 1" thick plate and had it machined. Now there is not enough aluminum to cut threads into - remachining $$$.

The standard NPT threads from the hole wizard start at the blue surface:

And not at the first surface:

Seems wrong to me...help me understand???