2001712_sw.doc

DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
JEAN JEWELL
RON LAW
LOU ANN WESTERFIELD
GENE FADNESS
DON HOWELL
RANDY LOBB
DAVE SCHUNKE
TONYA CLARK
BOB SMITH
MICHAEL FUSS
TERRI CARLOCK
BEVERLY BARKER
WORKING FILE

FROM: SCOTT WOODBURY

DATE: JULY 12, 2001

RE: CASE NO. UWI-W-01-2 (United Water)
REQUEST FOR A DEFERRED ACCOUNTING ORDER
ELECTRIC POWER COSTS

On May 18, 2001, United Water Idaho Inc. (Company or United Water) filed an Application requesting authorization to defer on its books, beginning May 1, 2001, certain electric power costs. United Water purchases all of its electricity from Idaho Power Company (Idaho Power). The costs to be deferred are the incremental costs the Company will realize as a direct result of Commission Order No. 28722 dated May 1, 2001 in Cases IPC-E-01-07 and IPC-E-01-11. That order authorized a change in Idaho Power’s electric rates. United Water does not request a determination of ratemaking treatment of these costs at this time, but will request they be recognized in rates in the Company’s next general rate case application.
United Water’s current water rates were established by Order No. 28505 dated September 5, 2000 in Case No. UWI-W-00-1. That order recognized the level of Idaho Power Company’s electric rates at the date of the order. United Water estimates the magnitude of the increase in electric power rates to be approximately $389,815 representing an increase of 35.75% over the level of electric cost authorized in United Water’s last rate case and an approximate 3.54% increase in the Company’s authorized operation and maintenance expense. Reference Order No. 28705. United Water characterizes the increase in expense as extraordinary and material. Because the Company has continued to add customers (test year 1999 65,054 customers; April 2001 69,406 customers), the actual expense increase will be somewhat larger.
As a regulated public utility, the Company notes that it is obligated to provide safe and reliable water service at all times. Reference Idaho Code § 61-302. Unlike businesses that are not regulated, United Water states that it does not have the option to reduce or curtail production as a way of avoiding higher energy costs.
United Water requests that the period of deferral commence on May 1, 2001. United Water further requests that the deferral be approved for any additional increases in Idaho Power Company rates that may be ordered by the Commission in Cases IPC-E-01-7 and IPC-E-01-11 and any subsequent PCA rate increase or related surcharge that may be authorized prior to the Company’s next general rate case. The Company also proposes to apply a 5% carrying charge on the unamortized deferred balance. The 5% carrying charge is the rate the Commission approved for interest on customer deposits by Order No. 28575 on November 27, 2000 in Case No. GNR-U-00-5. Allowance of a carrying charge is fair, just and reasonable, the Company contends, because it fairly compensates the Company for the use of funds which will be necessary to pay extraordinary electric power costs.
On June 18, 2001, the Commission issued Notices of Application and Modified Procedure in Case No. UWI-W-01-2. The deadline for filing written comments was July 9, 2001. Commission Staff was the only party to file comments. The Company filed reply comments on July 11, 2001.
Staff recommends approval of the Application except the Company’s request to accrue a 5% carrying charge and the portion regarding accounting for amortization of deferred amounts (Application, ¶ IX). Staff recommends that the Commission specifically reserve judgment regarding any future ratemaking treatment or amortization of the accumulated balances of deferred costs and associated income taxes until the Company’s next general rate case. Staff recommends that the Company be required to maintain detailed records sufficient to replicate the Company’s calculations of deferred charges at the time the Company files an application requesting recovery of the deferred amounts.
Regarding the Company’s proposal to accrue a 5% carrying charge on unamortized deferred balances, Staff notes that the Commission in Order No. 28630 (Case No. PAC-E-00-5) in the matter of a similar application by PacifiCorp stated, “the Commission finds that interest should not accrue on the deferral balance. The reasonableness of accruing interest may be presented to the Commission for decision when the determination of ratemaking treatment for these amounts in a future case is made.” PacifiCorp in that case, Staff states, had requested authorization to accrue a carrying charge on deferred excess power costs. Staff in comments filed in that case opposed the carrying charge stating
If the deferral is approved, PacifiCorp will be allowed to defer the excess power expenses for future recovery. The opportunity for such recovery is not currently allowed under the regulatory model for PacifiCorp in Idaho. If the deferral were not approved, no interest would accrue and even the cost recovery would be questionable. Therefore the changes to allow PacifiCorp the opportunity to recover these costs along with the improved earnings position that will result are sufficient benefits for the Company without interest. The ratemaking determination to accrue interest in the future on the Idaho unamortized amounts should be made when the other ratemaking determinations are made.

Staff believes the benefits discussed in the PacifiCorp case are applicable to United Water as well and therefore recommends similar treatment in this case.
United Water in reply comments contends that the circumstances in Case No. PAC-E-00-5 differ materially from those in the present case and that Order No. 28630 is not controlling. The PacifiCorp application, United Water notes, came at an early stage of the Northwest region’s recent experience with volatile energy prices and was aimed at preserving the opportunity to recover uncertain and unknown excess power costs.
A key component of the Company’s proposal in this case, United Water states, is the right to accrue a carrying charge. United Water is willing to forego current recovery of extraordinary and uncontrollable increases in electric power costs. But, it states that the Company should be compensated for this foregone opportunity and for the costs of funds necessary to pay its increased expenses. The Company shareholders, it contends, do not profit from the Company’s proposal. The proposed carrying charge, the Company states, is intended only to keep the Company whole and in a very minimal sense of that.
United Water notes that Idaho Power is permitted to accrue a carrying charge equal to the customer deposit rate on deferred balances in its PCA. Reference Order No. 28722, p. 7. There is no logical basis, the Company states, for granting a carrying charge to Idaho Power but denying the charge to United Water.
United Water recognizes that Commission Order permitting deferral is not a prudence determination.
Commission Decision
United Water has requested authorization to defer on its books, beginning May 1, 2001, certain electric power costs. The Company also proposes to apply a 5% [sic] carrying charge on the unamortized deferred balance. (As recognized in the Company’s reply comments the current customer deposit rate is 6%. Reference Order No. 28575.) Should the Company’s Application be approved in whole or part? Should the Company be required to maintain detailed records sufficient to replicate the Company’s calculations of deferred charges?

Scott D. Woodbury

bls/M:uwiw012_sw

DECISION MEMORANDUM 4