20110131Workshop, Boise.pdf

ORIGINAL
~.
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
ACCEPTANCE OF ITS 2011 RETIREMENT
BENEFITS PACKAGE
CASE NO.
IPC-E-10-25
WORKSHOP
WORKSHOP BEFORE
i::t%Nco
-0::
.r:..COMMISSIONER JIM D. KEMPTON (Presiding)
COMMISSIONER MARSHA H. SMITB
COMMISSIONER MACK A. REDFORD
U"W
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PLACE:Commission Hearing Room
472 West Washington Street
Boise, Idaho
DATE:January 24, 2011
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POST OFFICE BOX 578
BOISE, IDAHO 83701
208-336-9208
COURT REPORTING
ettIf' tk ~ ()yt.sir 19
.1 APPEARANCES
2
3 For the Staff:WELDON STUTZMAN,Esq.
Deputy Attorney General
4 472 West Washington
Boise,Idaho 83702
5
For Idaho Power:REX BLACKBURN,Esq.
6 I DAHO POWER COMPANY
Post Office Box 70
7 Boise,Idaho 83707
8 For Industrial Customers RICHARDSON & 0' LEARY,PLLC
of Idaho Power:by GREGORY M.ADAMS,Esq.
9 515 North 27th Street
Boise,Idaho 83702
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11
12.13
14 EXHIBITS
15
16 NUMBER PAGE
17
For Staff:
18
11 Qualifications of Retirement Plans,12 pgs Marked 14
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24.25
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APPEARANCES
EXHIBITS
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1 BOISE, IDAHO, MONDAY, JANUARY 24, 2011, 9:30 A.M.
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4 COMMISSIONER KEMPTON: We'll go on the record.
5 It's Monday, the 24th of January, 2011, 9:30 a.m. in the
6 morning, in the Commission Hearing Room, Boise, Idaho. It's
7 the date, time, and place for a workshop in the matter of the
8 Application of Idaho Power Company for acceptance of its 2011
9 retirement benefits package, otherwise identified as Case No.
10 IPC-E-10-25.
11 And the Notice of Workshop was out on 12th of
12 January, 2011.
13 And just to go through a very quick history on
14 the case today everybody has filings, I'm sure, but just in
15 the way of the history -- the Application is dated 10/1/2010.
16 The Commission had a decision meeting and issued
17 a direction for a Notice of the Application to be sent out.
18 That was sent out with a Notice of Modified Procedure, 60-day
19 comment period, on 15th, 10/15/2010.
20 Intervenor was requested by IPIC. The Industrial
21 Customers of Idaho were granted that in Order No. 32117.
22 Commission Staff comments in that comment period
23 were provided on 12/14/2010.
24 IPC comments with attachments -- I'm sorry, those
25 are the first half comments. The IPC reply comments were
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1 12/28/10.
2 ICIP Motion for Leave to File Surreply Comments
3 on 12/30/2010. ICIP surreply comments on 12/30/2010.
4 IPC Motion for Leave to File Response to ICIP
5 Surreply Comments, and that was on the 1st -- that was January
6 the 6th, 2011. The IPC Response to ICIP Surreply Comments was
7 January 6, 2011.
8 And then as I mentioned earlier, the Notice of
9 Workshop on the 12th of January, 2011. So, with the Notice of
10 Workshop, that defined the tasking for the meeting today.
11 And I think what I would like to do first of all
12 is to go around the room with introductions. I'll just start
13 wi th myself, and we'll go around and go back on the right.
14 So, I'm Jim Kempton, and I am the Chair for the
15 workshop today.
16 COMMISSIONER SMITH: Oh. Marsha Smith, one of
17 the Commissioners.
18 MS. CARLOCK: Terri Carlock, Commission Staff.
19 MR. ENGLISH: Donn English, Commission Staff.
20 MR. STUTZMAN: Weldon Stutzman on behalf of
21 Commission Staff.
MR. LOBB: Randy Lobb with the Commission Staff.
MR. ADAMS: Greg Adams on behalf of the
24 Industrial Customers of Idaho Power..25 MR. READING: Don Reading on behalf of ICIP.
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1 MS. GERSCHULTZ: Sharon Gerschul tz, director of
2 compensation and benefits at Idaho Power.
3 MR. ANDERSON: Darrel Anderson, Idaho Power chief
4 financial officer.
5 MR. BLACKBURN: Rex Blackburn, general counsel,
6 Idaho Power.
7 MR. SAID: Greg Said, vice president of
8 regulatory affairs.
9 COMMISSIONER REDFORD: I'm sorry, I didn't get
10 your name again.
11 MS. GERSCHULTZ: Sharon Gerschultz.
12 COMMISSIONER REDFORD: Oh, thank you, Sharon.
13 I'm Mack Redford, one of the Commissioners.
14 COMMISSIONER KEMPTON: And, Greg, sitting next to
15 you, mister -- what was it, please?
16 MR. BLACKBURN: Blackburn.
17 COMMISSIONER KEMPTON: Okay.
18 MR. BLACKBURN: Rex Blackburn.
COMMISSIONER KEMPTON: Okay, the procedures as I
20 mentioned briefly off the record will be for the lead attorney
21 to identify whoever he wants to speak.
22 And the exchanges don't have to be in order, in
23 any roundabout order like we usually do. It can be a
24 cross-exchange. All I want is one person speaking, and I want.25 that to be kept as clear as possible so the court reporter
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1 doesn't have any problem tracking it.
2 I mentioned how the exhibits will be handled.
3 And I guess with that, are there any questions
4 before we go ahead and start?
5 Okay, you have all of the information that has
6 been filed, and I think it's appropriate to maybe start out
7 wi th Idaho Power. Mr. Said, if you have any points that you
8 would like to bring out to start this off, you are free to do
9 so.
10 MR. SAID: Thank you, Commissioner.
11 Idaho Power believes that this case is really one
12 of asking the Commission to review the Company's proposed 2011
13 retirement benefits package to determine whether or not it's a
14 prudent plan for the Company at this point in time. Your prior
15 Order suggested that the Company needed to look at the cost of
16 retirement benefits and in light of the current economy and
17 wi th an eye towards looking at costs ultimately borne by
18 customers, and whether or not it was appropriate to reduce the
19 cost to customers.
20 As we have looked at the entirety of the case, I
21 think that the Company, the Staff, and the Industrial Customers
22 all have agreement on a couple of issues. One is the
23 understanding of all parties that the Commission does not
24 intend to supersede the Company's operational decision.25 meeting -- or, decision-making process. The second, that it
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1 would be inappropriate to abrogate the cost responsibilities of
2 the plan that has been in existence to date.
3 So with that in mind and in looking at the
4 current plan, our testimony lays out that our plan really
5 consists of three components. It includes a pension or defined
6 benefit portion, a 401 (k), and medical retirement benefits.
7 And as part of the process that we go through, it's actually an
8 annual process where Darrel Anderson asks Sharon Gerschultz to
9 evaluate where we stand with regard to our retirement benefits
10 costs compared to the industry, and she performed that analysis
11 and it's described in her testimony in this case.
12 In specific, I would direct you to Exhibit 1 of
13 Ms. Gerschul tz that shows a summary of the package for 2011,
14 which shows that the costs that Idaho Power incurs associated
15 wi th retirement benefits is well below the energy services
16 industry average as a result of her proposal, and it's also
17 below the average for all industry across the country. In
18 order to make a move that got us below the national average for
19 all industry, we actually reduced the expenses associated with
20 retirement benefit -- associated with the defined benefit plan
21 by 20 percent.
22 When you look at the Staff and the Industrial
23 Customers' comments with regard to our changes, they tend to
24 minimize the value of that reduction, and they look to
25 suggestion that our defined benefit program is somehow inferior
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1 to a defined contribution plan or an al ternati ve. What they
2 don't mention is that there's a cost associated with reducing
3 risk, and we believe that the potential replacement of the
4 defined benefit program that has been suggested by the parties
5 would actually increase costs. And you'll find that their
6 comments are very silent with regard to costs, and I think it's
7 just a bias that they have towards the one type of plan as
8 opposed to another.
9 So, from the Company's perspective, we believe
10 that it's very important that you focus on cost, and at the end
11 of the day we believe that the overall cost associated with our
12 benefits package is not only below our industry average, but
13 also below the national average for all companies.
14 COMMISSIONER KEMPTON: Okay. So let's move on
15 then to the Staff. And, Mr. Stutzman, would you go ahead and
16 lead that discussion?
17 MR. STUTZMAN: Thank you, Mr. Chairman. It's my
18 understanding that the Commission doesn't necessarily want to
19 hear from attorneys today, so --
20 COMMISSIONER KEMPTON: No, it's just to keep the
21 order in whoever is speaking, and if you want Mr. Lobb to do
22 that, that's fine.
23 MR. STUTZMAN: I think Donn English will present
24 comments for Staff.
25 MR. ENGLISH: Thank you, Commission. We'd like
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1 to just clarify Staff' s position today and possibly address a
2 few points of contention that we have with the Company's reply
3 and surreply comments.
4 Basically, Staff's position is that the
5 Commission issued a directive to the Company and the Company
6 just didn't follow it. We go back to prior cases of dealing
7 with pension issues, especially the 10-08 case, and Staff
8 stated in that specific case in comments on page 5 that we
9 understood that the Company needs to provide a total
10 compensation package that attracts and retains employees, and
11 we didn't feel that the Company needed to necessarily reduce
12 benefits. We felt the Company should just evaluate other
13 options and that could provide the same level of benefits but
14 reduce the volatility and rates -- reduce the volatility and
15 contributions that get passed into rates. And in those
16 comments, we recommended that the Company needs to determine
17 the appropriate level of investment risk that should be passed
18 on to customers, determine that shareholders or employees
19 should be assigned a portion of that investment risk, and
20 possibly determine that there was another type of plan that was
21 preferable.
22 At the -- that case ended with Order No. 39- --
23 31091 where the Commission issued its directive to the Company.
24 That directive has been part of the Company's Application, the
25 Company's testimony, the Staff's comments, ICIP' s comments, but
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1 I'm going to pass out just the one paragraph that we've all
2 seen as part of that, that was part of that Order. And not
3 that it's my intention --
4 COMMISSIONER KEMPTON: Mr. English, if I could
5 simply mention here, this particular Commission Order doesn't
6 have an exhibit.
7 I'm going to have to move up here a little
8 closer, I guess. Thanks. So can you hear me all right?
9 THE COURT REPORTER: That's better.
10 COMMISSIONER KEMPTON: Go ahead.
11 MR. ENGLISH: Like I say, it's not my intention
12 to read a lot into the record today, but I do want to read this
13 one paragraph. It says that Idaho Power is advised that,
14 previous Orders not withstanding, approval of the Company's
15 pension contributions in this case does not guarantee
16 Commission approval of future pension plan contributions.
17 Authori ty for the balancing account and regulatory account
18 remain in plant -- and I believe that should say "in place"
19 however, further justification is required before additional
20 rate recovery for future contributions will be authorized.
21 During the next three years, Idaho Power anticipates additional
22 payments to its employees' pension plan of approximately 68
23 million. Staff comments, page 4. During 2014-2018 period, the
24 payments may total nearly $157 million.
25 Those numbers are not actually correct, but it
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1 doesn't take away from the point that the paragraph is trying
2 to make.
3 It is unreasonable for Idaho Power's customers to
4 be solely responsible for large contributions to the Company's
5 defined benefit pension plan. Many employers in recent years
6 have replaced their defined benefit plans with pension programs
7 that place greater responsibility and investment risk on
8 employees. Idaho Power must similarly consider changes to its
9 retirement plan and address shareholder and employee
10 liabilities in assignment of pension plan investment risk. The
11 Commission will not approve recovery of additional pension plan
12 contributions from customers without evidence that Idaho Power
13 has carefully reviewed al ternati ves to reduce the burden placed
14 on customers.
15 That was Order No. 31091 on page 3.
16 Now, in that Order -- that's the Commission
17 language. In that Order, the Commission recognizes the trend
18 in retirement plan designs. And just to add some numbers to
19 the record for the Commission's purpose or for the Commission's
20 comment, seven percent of all companies in 2007 had defined
21 benefi t plans; seven percent. Fourteen percent of all
22 utili ties in 2007 had defined benefit plans.
23 Since 1980, the number of DB plans has decreased
24 by more than 80 percent, while the number of defined.25 contribution plans has increased by over 100 percent.
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1 Even the information provided by the Company that
2 was prepared by its consultants Towers Watson indicates that
3 26 percent of the 92 companies in the energy services industry
4 have traditional defined benefit plans: One-fourth.
5 Of the 12 companies that the Company hand picked
6 for their proxy group, only a third of them had traditional
7 defined benefit plans.
8 So when the Company states that it's being
9 proacti ve in this record, Staff just merely disagrees. They're
10 the stragglers. They're not being proactive. Other companies
11 have gone further and done it without Commission Order. Avista
12 has reduced their benefits. PacifiCorp has switched over to a
13 cash balance plan. So this is not something that's new and
14 come about just for Idaho Power; this is something that every
15 company in the United States has been dealing with.
16 Like I said earlier, our position in this case is
17 just simply that the Company failed to do what the Commission
18 told them to. The Company did not provide further
19 justification; they just did the same thing they've always
20 done.
21 They did not consider changes to address
22 shareholder / employee liability. They basically flat out
23 rej ected it by saying, We know our shareholders won't pay for
24 it, so we're not going to consider it.
25 And then they come in and say, Well, we have a
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.1 401 (k) plan, and that's where the employees face risk.
2 Wi th all due respect, I know the Commission was
3 aware the Company had a 401 (k) plan, but this Order was
4 addressing the pension plan, not the retirement plan as a
5 whole, the defined benefit pension plan.
6 And then the Company really didn't review any
7 alternatives other than the cash balance plan. They did not
8 provide any cost figures. They didn't do any proj ections of
9 what the pension contributions would be. They did not provide
10 any comparative analysis of what the costs of the pension plan
11 were going forward versus the cost of an alternative pension
12 plan. They didn't have any studies that showed the impact on.13 revenue requirement and the impact on customers. That's what
14 Staff would have been looking for in this type of evaluation,
15 and the Company didn't do any of that.
16 In fact, the whole premise of their evaluation
17 seems to be based on rating something that will promote
18 employee retention, but they provide no evidence that change in
19 retirement plan designs will have any effect on employee
20 turnover. They simply just make that argument that, We know
21 our employees like this plan; therefore, we have to keep it.
22 And if I was an employee, I'd really like that
23 plan too.
24 The argument of employee retention somewhat.25 contradicts the Company's actions. Vesting schedules are used
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1 in retirement plans to promote employee retention, yet they
2 provide 100 percent immediate vesting on their matching
3 contributions. And if retention is a primary concern, it
4 doesn't really make any sense to reduce the level of benefits
5 you're paying to that of below that of your peers. That's your
6 main competition in the labor market. And so this argument
7 about employee retention, Staff somewhat just finds it a weak
8 argument.
9 With that in mind, both the ICIP and Staff
10 recommended possible alternatives of plan designs that are
11 designed to promote employee retention. The ICIP recommended a
12 tiered matching. Staff recommended a new comparability plan.
13 Both of those plans are completely legal, completely wi thin the
14 means and the bounds of the federal regulations.
15 The Company somewhat completely and erroneously
16 just dismissed those suggestions by making a bunch of legal
17 arguments that, quite frankly, aren't true. I'm going to go
18 through a few quotes here, and I shortened them so just to get
19 the point across.
20 In reply comments, the Company states:
21 The plan formula is designed to give greater or
22 lesser benefits to the different plan participants and may not
23 comply with the regulations. The al ternati ves recommended by
24 Staff and ICIP are likely discriminatory, and, therefore,
25 unlawful. A plan til ted in favor of employees based on
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1 cri teria such as position classification or critical operations
2 would most certainly violate the terms set forth in 401 (a) (4) .
3 Establishing a secondary plan that includes only employees in a
4 certain age range or position would also violate these
5 regulations. Changes to any qualified plan design require
6 careful consideration, taking into account the plan's ability
7 to pass applicable discrimination tests, including, but not
8 limited to, those under Code Sections 401 (a) (4), 410 (b), and
9 414 (s). Certain plan design changes would cause discrimination
10 issues and, thus, threaten the qualified plan's -- the plan's
11 qualified status. It is inappropriate to imply that
12 implementation of a cross-tested plan or tiered matching
13 contribution rates would, in fact, be workable from a legal
14 standpoint. These legal constraints limit the ability to
15 structure defined contribution plans to obtain both cost and
16 operational objectives previously stated.
17 Those statements, all of them, completely untrue.
18 They're -- they demonstrate the Company's lack of understanding
19 of the regulations and applicable testing. And they also
20 further prove the point that the Company didn't even consider
21 these al ternati ves, because had they, they would have
22 understood and known that these are viable, legal options that
23 are all available within the federal regulations. So they
24 somewhat operated on this false notion that if they can't do.25 anything legally, they're just not going to.
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1 I think ICIP recommended in their surreply that
2 the Company could have hired an ERISA attorney to help with
3 their -- with optional plan designs, and I think that's a very
4 valid suggestion. But what I want to do right now is hand out
5 a few handouts that will go over the legal issues raised by the
6 Company.
7 COMMISSIONER KEMPTON: Okay, so this will be --
8 the entirety of this will be -- carried as Exhibit 11.
9 MR. ENGLISH: Yes, I believe that's correct.
10 (Staff Exhibit No. 11 was marked for
11 identification.)
12 MR. ENGLISH: This is a relatively long handout
13 and I don't necessarily want to go through all of it page by
14 page, so to shorten the Commission's time, there's a few areas
15 I want to highlight in here and just invite you to read through
16 it on your own.
17 But Section 401 (a) is the section that deals with
18 the qualification of plan of retirement.
19 COMMISSIONER KEMPTON: Mr. English, would you
20 slow down just a little bit in your presentation.
21 MR. ENGLISH: All right. I'll try to monitor my
22 sips of water and maybe that way you can catch up.
23 Section 401(a) (4) -- Section 401(a) is the
24 section that deals with the qualification of plan status, the
25 retirement plan status. And the basic premise of that section
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1 is that retirement plan can be qualified only if the
2 contributions or the benefits provided under the plan do not
3 discriminate in favor of highly-compensated employees. That's
4 a technical term used in the retirement field. A
5 highly-compensated employee is basically anybody who makes
6 $115,000 or is a five-percent owner of the company. The
7 purpose is to determine whether or not the plans will
8 discriminate in favor of those highly-compensated employees.
9 There are three requirements that a plan must
10 meet to satisfy this nondiscrimination rule:
11 It's either contributions or the benefits
12 provided must be nondiscriminatory in amount. That is, the
13 contributions or the benefits. You don't have to prove that
14 both are nondiscriminatory, just one or the other.
15 The benefits, rights, and features provided under
16 the plan must be available to all participants in a
17 nondiscriminatory manner.
18 And, three, the effect of plan amendments must be
19 nondiscriminatory.
20 Staff is not recommending anything here that
21 would threaten the qualified status of the plan.
22 The Company brings up Section 410 (b). Section
23 410 (b) deals with minimum participation. Excuse me. 410 (b)
24 states that, in general, a trust shall not constitute a
25 qualified trust under Section 401 (a) unless such trust is
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1 designated by the employer as a part of a plan which meets one
2 of the following requirements:
3 The plan benefits at least 70 percent of
4 employees who are not highly compensated, or;
5 The plan benefits a percentage of employees who
6 are not highly-compensated employees which is at least 70
7 percent of the percentage of highly-compensated employees
8 benefi ting under the plan. That's referred to as the ratio
9 test.
10 In this case, an employee is determined
11 benefiting under the plan if they receive an allocation of
12 contributions or forfeitures. Staff isn't recommending the
13 exclusion of any employees, so 410 (b) is not an issue that
14 relates to any of the recommendations by Staff or the ICIP.
15 The Company also brings up 414 (s). 414 (s) isn't
16 a qualification statute. It's a definition of compensation
17 that's used. The maj or definition of compensation is mandated
18 by Section 415 (3) (c). 414 (s) just allows an optional form of
19 compensation to be used. It has nothing to do with anything
20 that Staff is mentioning. So for the Company to even bring it
21 up, it just -- it's somewhat absurd.
22 What Staff is recommending, that the Company at
23 least look at -- we don't necessarily think that they have to
24 make those changes. We want them to look at alternatives and.25 show us why the al ternati ve isn't viable. So Staff recommended
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.1 a cross-tested plan.
2 On the next page you'll see what cross-testing
3 is, and I'm going to go real quickly here because I know we're
4 short on time.
5 COMMISSIONER KEMPTON: Don't go any faster.
6 MR. ENGLISH: Okay.
7 Cross-testing is a method of discrimination
8 testing where rather than testing the contributions for
9 discrimination, you test the benefi ts received at retirement.
10 The premise of cross-testing -- and I'm going to kind of get
11 away from my handout and just discuss this a little bit -- is
12 that when a contribution is made today for an employee, you can.13 take that contribution, compound that up to an employee's
14 normal retirement age, and then test the benefits for
15 discrimination. What typically will happen is you'll see
16 companies with an older workforce can use these plans because
17 they can provide a greater contribution amount to the older
18 workforce than they can to the younger workforce; and when you
19 test those benefits at retirement age, given the compounding --
20 or, the time value of money, the benefits are
21 nondiscriminatory. It's common, it's done frequently, it is
22 perfectly legal.
23 The next page, on page 4, there's a history of
24 the IRS investigating them, the IRS approving these plans. You
..25 can go through this on your own. There's two pages. There's
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1 one page of citations where it's been determined that it is a
2 perfectly acceptable form of a retirement plan.
3 Starting on page 5, there's a bunch of
4 al ternati ve plans. The next several pages will describe those
5 alternative plans and examples of how they work, but the
6 Company should have at least considered again, Staff isn't
7 necessarily recommending any switches. Our position is the
8 Company just simply did not do a good evaluation. And in order
9 to have a fair evaluation that considered alternatives to
10 reduce the burden on ratepayers, the Company should have at
11 least looked at some of these al ternati ves. So on the first
12 page, very simple ones:
13 Increasing their matching contributions. I think
14 the Company actually did look at that one and that was about
15 it.
16 The second one is a money purchase pension plan.
17 It's the defined contribution plan where written into the plan
18 documents is mandated a set amount of contributions that
19 employees receive every year. It's nonflexible. That
20 contribution must be made regardless of whether the Company has
21 profits or not. It's a pretty simple plan design.
22 I'm going to skip over page 6, would like
23 everybody to read those, but especially the Commission to
24 understand that those options are available.
25 And on page 7, there's an age-based profit
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1 sharing plan. The Company seemed to think that this type of
2 plan was prohibited by the federal regulations. It's, in fact,
3 a plan that is prescribed by the federal regulations.
4 This example on the next page, you'll see how
5 there's an owner and five employees. I'd like to say that
6 Staff was willing to prepare these examples for the Company, do
7 nondiscrimination testing for the Company, to prove that they
8 could pass these tests, and the Company objected to providing
9 us the information that was necessary to complete these tests.
10 But if you look on page 8, you have an owner who
11 makes $200,000 a year at 50 years old, and you have five
12 employees that are younger and make, you know, roughly --
13 significant less money. I would say that I just randomly
14 picked ages and salaries because I didn't have any information
15 to work with.
16 If you go over to the far, right column, you'll
17 see the contribution of $38,000 being made to the owner out of
18 a total of $50,000. On its face it might seem discriminatory,
19 but this type of plan does pass discrimination testing.
20 The next page talks about the new comparability
21 plan, which is something that -- it's a neat little plan that I
22 think the Company could find a lot of use for if they were to
23 look into it. It's a profit sharing plan in which the
24 contribution percentage formula for one category of
25 participants is greater than the contribution percentage
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1 formula for other categories of participants.
2 If you look at this example, you have an owner
3 and an owner's spouse and three employees. It's a very simple
4 example. Contribution of $41,000, which was the maximum
5 deductible contribution. You can see the owner and his spouse
6 are getting a 49 percent of compensation -- 49 percent
7 contribution -- while the rest of the employees are getting
8 five percent. This is just this is an extreme example that
9 is just meant to show that, yes, it's possible. On the face it
10 looks discriminatory, but it isn't.
11 We have a few other types of plans, some DB
12 plans, the Company can look at.
13 And the very last plan design on here, it's kind
14 of a custom design plan, not that Staff would necessarily
15 recommend that these contribution percentages are great or okay
16 or that we approve of them, but just designed to make the point
17 that these things are available. In this particular plan, you
18 have officers receiving eight percent; managers receiving seven
19 percent; critical operations roles receiving 6 percent; all
20 others on a service-based tier where you have less than five
21 years of service you get three percent, five to ten years of
22 service you get four percent, over ten years you get five
23 percent. You can see that this plan, it does pass the
24 regulations. The Company seems to think that they can't do
25 this, but they can.
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1 And one note that I would make is that Staff did
2 request of the Company a listing of all positions that would
3 qualify as a critical operations role. That was approximately
4 1,100 positions wi thin the Company. Looking through those
5 1,100 positions, not a single one of them made more than
6 115,000. That means they would all qualify as
7 nonhighly-compensated employees. I somewhat disagree with that
8 term, but that's the legal definition.
9 The regulations allow you to discriminate in
10 favor of nonhighly-compensated employees. You can discriminate
11 in favor of the nonhighly-compensated employees all you want.
12 The regulations are in place to make sure you're not
13 discriminating against the highly-compensated employees. I
14 think I may have just confused you, but it's okay to benefit
15 nonhighly-compensated employees more. You can discriminate in
16 favor of one highly-compensated employee over another
17 nonhighly-compensated employee (sic). What you can't do is
18 discriminate in favor of that top tier, the highly-compensated
19 employees.
20 So if the Company has critical operations roles
21 where not a single one of them would be considered a
22 highly-compensated employee, the Company can give as much money
23 to those people as they want, subj ect to Commission approval.
24 But as far as the regulations are concerned, the Company can
25 put extra contributions to non- -- these nonhighly-compensated
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1 cri tical operations roles; it's perfectly fine wi thin the
2 regulations.
3 So, the point that I think Staff really wants to
4 make with all of this is, one, we don't believe the Company
5 fully evaluated al ternati ves; we don't believe they provided
6 further justification; we don't believe they addressed the
7 assignment of risk; and then they come back with these legal
8 excuses as to why they didn't, and those legal excuses are just
9 absolutely not true.
10 That's pretty much Staff's case.
11 COMMISSIONER KEMPTON: Mr. Said, I assume you
12 want to discuss across the table on issues that may have been
13 raised.
14 MR. BLACKBURN: Mr. Chairman, if I may --
15 Rex Blackburn -- a couple of introductory comments; and I think
16 that if we may, I'd like to have various of our representatives
17 today address certain of the points that were presented.
18 I would like to address from a legal standpoint a
19 question of procedure. We had understood the record to have
20 been closed. There was an opportunity for Staff to have
21 requested data that would have allowed them to perform an
22 appropriate analysis of the ERISA issues that were raised.
23 Staff presented an argument, as did the
24 Industrial Customers, that the Company, without addressing the
25 actual cost of these plans, could avoid discriminatory testing
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1 that arises under ERISA if we had considered a plan that,
2 again, without having considered the cost, was their preferred
3 approach.
4 The Company did consider alternatives that I
5 would ask Ms. Gerschultz and Mr. Anderson to address in a
6 moment, but it is -- I would interpose very respectfully in
7 obj ection to the notion that introducing purported plan
8 analyses at this juncture in the record is appropriate
9 procedure.
10 A request was made after the record was closed by
11 Staff that we produce substantial amount of data within a few
12 days, less than the time prescribed and permitted under the
13 Rules. They had never requested made that similar request
14 during the course of appropriate discovery in the case. And we
15 did raise a question about whether the Company was being
16 afforded due process under those circumstances, particularly
17 where apparently, as is evidenced by the current submission by
18 Staff, their intention was to submit into the record purported
19 analyses without the opportunity to cross-examine witnesses, or
20 to even consider it. We did object to it at that point in
21 time, and given the condition of the record and the fact that
22 it was closed, they withdrew the request; and we appear today
23 wi th additional analyses that we've never seen before we showed
24 up today. We do have legitimate issues about whether the
25 proposals that were made by Staff without consideration of
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1 ERISA testing before they were even made would pass ERISA
2 muster.
3 But that really is beside the point, and what
4 I hope the representatives of the Company will address is why
5 the plans that are proposed by Staff are not in the best
6 interest of the customers or of the employees of Idaho Power or
7 of the Company generally. They cost more money. They don't
8 provide and satisfy the necessity for retention of skilled
9 employees. The Company currently has a benefits program that
10 costs less -- retirement benefits -- than our industry peers
11 against whom we're competing for in the workforce and costs
12 less than the industry -- the national average for comparable
13 retirement plans.
14 The question of prudency should be addressed
15 primarily and principally from the standpoint of cost, not from
16 a simple, isolated, preferred option by Staff that has not been
17 addressed from a cost standpoint and frankly hasn't been tested
18 or analyzed in the manner of which the Internal Revenue Service
19 would test us. At the end of the day, it's not the preferred
20 preferred plan, and I would ask that our representatives
21 address the reasons why.
22 Mr. Said, would you like to start?
23 MR. SAID: Well, I think it was important to note
24 at the very beginning of the Staff presentation a contention
25 that our defined benefit plan could be replaced with a plan
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1 that would provide similar benefit at lower cast or at least
2 not additional cost, and then from then on, cost was ignored.
3 It was pointed out that a number of the peer
4 utilities that we compared to have alternate plans. If you
5 look at the data contained in Ms. Gerschul tz 's testimony and
6 exhibit, you'll see that those companies that have those
7 al ternate plans have higher costs. So a contention that moving
8 to an alternate plan would somehow provide similar benefits at
9 the same or reduced costs is unsupported by any facts that have
10 been presented by other parties in this case.
11 And, again, coming back to a belief that if you
12 determine a reasonable level of costs, the Company should be
13 permitted to then manage its plan based on what it believes is
14 in the best interests of the Company and our customers that
15 doesn't exceed that cost is the prudent thing to do.
16 So I wanted to reiterate that, and then I'll hand
17 off to Mr. Anderson who can talk about the specifics of the
18 amounts.
19 MR. ANDERSON: I'm just going to make a couple of
20 comments. I'm going to ask Ms. Gerschul tz then to go over some
21 of the information that she went through. But a couple of
22 points from a philosophical standpoint that I wanted to
23 address, and Mr. English covered a lot of ground and I'm just
24 going to try to touch on a couple of his points.
25 But first of all, as it relates to our review of
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1 benefi ts, we do this every year. We do this assessment of how
2 we compare against our peers, how we compare against industry,
3 how we compare against the local economy, with the idea of
4 trying to manage those as prudent as we can or in order to
5 ensure that we can have the right balance between employee
6 retention, employee attraction, as well as balancing for the
7 costs to the customers. So we do this every year. So the fact
8 that we go through this process is something we do every year,
9 so it's not new to us.
10 But what we do do is try to ensure that we can
11 remain competitive. And, again, we have to look at this in
12 totality. We can't just look at whether it's a defined benefit
13 plan or defined contribution plan or retiree medical plan. The
14 way we look at this, we look at it in total, and we believe
15 that's an important aspect of doing this. So you can carve out
16 either any of those plans and say one may be more or less
17 costly than the other; however, in our case, we look at it in
18 total.
19 And one of the things I think that you also
20 should, in the record is a reference to the fact of changes we
21 have made over the years. We have eliminated cost of living
22 increases in our benefit programs.
23 We have gone to the point of eliminating retiree
24 medical for new employees. Now, 50 percent of our current
25 population of employees do not have retiree medical other than
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1 access to a plan.
2 And as Mr. Said just indicated, we also just
3 recently reduced our current defined benefit plan by 20
4 percent.
5 Again, we believe we are proactive, and when you
6 add it all up, you take a look at the total cost of our plans,
7 our plans are less than our peers in total in cost as well as
8 added industry, and that's how we continue to measure. Now,
9 yes, there are issues around how do you fund those plans and
10 those types of things, but those are things that we believe can
11 be worked on.
12 And just one point I want to go back to:
13 Mr. English's reference to the 2007 Department of Labor report.
14 While he is correct at stating the fact that 14 percent of
15 utili ties do have defined benefit plans, but he failed to
16 acknowledge the fact that of those 14 percent, they cover 53
17 percent of the population of plan participants in utility
18 space. So, if you take a look at plan participation, 53
19 percent of those noted in that plan, that 1.8 million
20 participants are still covered by defined benefit plan. So the
21 fact that there are only 14 percent is a little bit misleading,
22 I believe, and you want to take a look at total participant.
23 I'm going to ask Ms. Gerschultz now to at least
24 talk about what we do related to our benefit plans, our
25 analysis, and some of the options that we did take a look at.
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1 MS. GERSCHULTZ: Thank you, Commissioners.
2 As we've discussed, every year we look at our
3 retirement benefit programs and, as we've stated, that includes
4 the defined benefit pension plan, our defined contribution and
5 401 (k) plan, as well as our retiree medical program.
6 Specifically, we took a deep dive into the defined benefit
7 pension plan review this year, and we did consider several
8 al ternati ves.
9 The first al ternati ve we did consider was a shift
10 to contributions to the 401 (k) plan. And I would like to point
11 out that we have some independent data that was provided to us
12 by Towers Watson that indicates that of the 92 utility
13 companies in their survey group, 72 percent, in fact, have a
14 defined benefit plan.
15 Now, there are, as you're probably familiar with,
16 different types of defined benefit plans. There's a final
17 average pay plan that's similar to Idaho Power's, there are
18 also career average pay plans, and there are cash balance
19 plans, but they are all defined benefit plans and they have
20 some of the same characteristics in that there's an obligation
21 that's committed to the employee and the risk for the
22 investments is borne by the companies. So they all have those
23 in common. And, again, 72 percent of the 92 companies still do
24 have defined benefit pension plans..25 So when we looked at a 401 (k) plan, it was clear
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1 to us that having that as a sole al ternati ve would not be
2 competitive, but we continued to look at it and we found a
3 couple other things that were problematic about having a 401 (k)
4 plan solely:
5 It's more costly in the short term because your
6 contributions tend to be larger than a defined benefit plan
7 expense would be for a newer employee.
8 It's also very portable. A 401 (k) plan, the
9 maximum vesting is three years if you a have a cliff vesting
10 schedule and it's six years if you have a tiered vesting
11 schedule, so it's much more portable than a defined benefit
12 plan tends to be.
13 And based on those what we perceived as pretty
14 large negatives in our desire to retain our work force, we
15 decided not to present the 401 (k) option to the office of the
16 CEO as a viable alternative because we did not feel it was
17 meeting with the direction that we had been given in our plan
18 review.
19 We also looked at shifting to a cash balance
20 plan, and similar to the 401 (k) plan has greater costs in the
21 short term, and also has more administrative fees.
22 There's also a great deal of potential employee
23 dissatisfaction with the employees that are switched to a cash
24 balance plan. What we've seen from some of our peers, you have
25 a group of employees that are the haves and a group that are
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1 the haves not. So it can really create some employee relations
2 issues.
3 And it really doesn' t resolve the risk -- the
4 investment risk issue, because, again, it is a defined benefit
5 pension plan.
6 Then we reviewed -- and this is ultimately the
7 recommendation that we made was a reduction in the current
8 formula. And as we stated, we recommended that we reduce our
9 current formula by 20 percent.
10 And we feel like this type of final average pay
11 plan does promote retention of our employees. You probably saw
12 some of our statistics, but we're expecting about 67 percent of
13 our critical operations roles to be eligible for retirement in
14 the next ten years. And this is not just Idaho Power, this is
15 across the utility sector as a whole, and so it's very
16 important that we are able to retain those utility-specific
17 cri tical operations roles.
18 We also think that this allows us to preserve our
19 investment in our work force. We spend a lot of time and money
20 training our apprentice, journeymen, and other critical
21 operations roles, and once we've trained them, anywhere from
22 four to six years typically, we really want to keep those skill
23 sets, and we feel like this plan design affords us the
24 opportunity to do so.
25 We feel like having a consistent base plan
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1 between all our employees -- albeit with a different formula
2 helps to minimize some of the potential employee relations
3 issues that we might have.
4 And, frankly, it is an efficient way to provide
5 retirement benefits to our work force. As you may know, we
6 contributed slightly less than $100 million in testimony for
7 about $600 million in employee benefit payments and residual
8 plan asset value. So it is a very efficient way to deliver
9 retirement plan benefits.
10 So for those reasons, that was the recommendation
11 that my team made to Darrel and the office of the CEO.
12 MR. BLACKBURN: Ms. Gerschultz, would you address
13 the question of whether a defined contribution plan cash
14 balance plan, I should say -- eliminates market risk?
15 MS. GERSCHULTZ: A cash balance plan does not
16 eliminate market risk because the way that a cash balance plan
17 is structured is that it promises a fixed or a variable rate of
18 return to the participants to a notional account, and the
19 Company is committed to providing that rate of return. The
20 assets and the investment gains or losses on the assets, that
21 risk is still there for the Company. So the Company is
22 obligated to pay those stated rates of return to the
23 participant, and yet must absorb any gains or losses in the
24 actual investments of the plan.
25 MR. BLACKBURN: Mr. Said, would you address the
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1 issue, please, of whether you consider it appropriate under the
2 regulatory compact to impose upon shareholders the entirety of
3 market risk?
4 MR. SAID: I think the question of imposing costs
5 on the shareholders is one that under the regulatory compact,
6 the Commissioners have the ability to determine reasonable
7 costs associated with retirement benefits or benefits in
8 general, and that you do have the authority to tell the Company
9 what level of expenses to have. But, I think your authority
10 ends when it comes to being able to say that the Company must
11 incur costs that won't be borne by customers. It seems, to me,
12 that your authority is to say, This is the level of cost that
13 can be recovered from customers, but any costs that are borne
14 by the Company beyond that is really a decision that has to be
15 made by our board of directors and officers, rather than being
16 told that those costs must be incurred but are not recoverable.
17 We believe that these -- that the costs associated with
18 retirement benefits are a legitimate business expense that are
19 recoverable from customers.
20 MR. BLACKBURN: I believe that covers it,
21 Mr. Chairman.
22 COMMISSIONER KEMPTON: ICIP. And for ICIP, I'm
23 not sure which order or if both of you are going to present or
24 what, so let us know.
25 MR. ADAMS: Okay. For the record, my name is
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1 Greg Adams, and I'm here on behalf of the Industrial Customers,
2 and I'm joined by Dr. Reading who might chime in at some point.
3 Wi thout repeating a lot of what Mr. English said
4 on behalf of Staff, I'LL just say that we agree 100 percent
5 wi th Staff's position in this case.
6 And I think we take issue a little bit with what
7 the Company -- the Company's comments, and I think that it's
8 important to look at -- back at what the Commission's Order
9 actually said.
10 The Commission in Order No. 31091 instructed the
11 Company to look at changes to its retirement plan that will
12 address shareholder and employee liabilities in assignment of
13 pension plan investment risk. Now, I think the important term
14 there is "risk," not the "costs" that this plan imposes
15 compared to what percentage of overall base pay other
16 companies' plans impose. The issue is who's going to shoulder
17 the cost of that pension fund investment risk.
18 And the Company just this year made a $60 million
19 contribution I think we saw in discovery to the pension fund
20 because it hasn't been performing at the eight percent that it
21 needs to to stay adequately funded to pay the employees who are
22 retiring. And our problem is not -- we don't want to
23 micromanage the Company, but when they're coming to us for
24 $ 60 million to keep the thing funded and, you know, we're the.25 ones who are shouldering that burden and they don't want the
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1 shareholders to pay for it, then that's when we get involved
2 and concerned.
3 We just don't think that they adequately looked
4 at ways to transition away from this type of plan for new
5 employees. And we're not talking here about disallowing
6 recovery for the $60 million contribution or anything that they
7 need to do to adequately pay for employees that they have an
8 obligation to. This is about hiring new employees in 2011 and
9 forward with a traditional defined benefit pension plan that
10 is -- that hardly anyone has anymore. And I think our comments
11 went into great detail and cited Department of Labor statistics
12 about how these are not these are not really -- this plan
13 was started in 1943 and it's not really something that many
14 employers are offering for new employees any longer.
15 A lot of -- as I look at my notes, Mr. English
16 hit a lot of them and many more, so I don't want to repeat
17 everything into the record, but another thing that we didn't
18 necessarily say in our comments but that we are concerned with
19 was on page 7 and 8 of Staff's comments, Staff talked about how
20 the Commission established a balancing account in Order No.
21 31003 for pension fund contributions. And Staff stated that
22 the Company over 20 years has contributed approximately $26.5
23 million to the defined benefit plan while recovering
24 approximately $44 million from customers in rates in the last
25 20 years, and has capitalized nearly $8 million during that
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1 same period. So it's hard -- it's hard to understand how we're
2 sharing in the benefits of the plan if that's true, when it's
3 doing better than eight percent that it needs to stay
4 adequately funded. So that's another concern that I would like
5 to put on the record.
6 Another issue I think that we dispute with the
7 Company is the Commission's role in this case and the
8 Commission's role in managing the Company's affairs. And we
9 agree that it's not the Commission's role to micromanage their
10 affairs; however, it is the Commission's role to make sure that
11 the expenses that are passed on to ratepayers are prudent and
12 reasonable.
13 And I want to read some quotes from a case that
14 was cited in Idaho Power's reply comments, page 22. It's
15 Washington Water Power Company versus Kootenai Environmental
16 Alliance, citation 99 Idaho 875. Idaho Power cited that case
17 as setting forth the tests for the Commission's review of its
18 expenditures, and the quote in their comments was:
19 The determination of what business expenses are
20 to be incurred by a public utility in its operations is
21 ordinarily a matter left within the discretion of the Utility's
22 management. An inquiry into such expenses by the Commission
23 will normally only be extended into whether such expenditures
24 may be classified as, quote, operating expenses, and thus
25 passed on to the Utility ratepayers.
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1 I think the implication from their comments was
2 that that case stands for the preposition that the Commission
3 should not micromanage business decisions even when the costs
4 will be passed on to ratepayers; however, that case didn't
5 involve expenses that were getting passed on to ratepayers. In
6 that case, the Court merely held that the Commission had
7 improperly ordered the Utility not to send its ratepayers
8 poli tical mailings which its shareholders had paid for. The
9 Court stated, quote:
10 Here, the question is not if the Commission had
11 authority to disallow as an operating expense costs incurred in
12 the mailing, mailing prohibited political material. Such would
13 have been appropriate as a part of the Commission's ratemaking
14 function. However, here, the Commission found that the costs
15 were paid by Washington Water Power and its shareholders, and
16 that those costs were not claimed as an operating expense.
17 What the Court held on page 881 was: We hold the
18 Legislature intended to limit the Commission's authority under
19 Idaho Code 61-502 and 61-503 to those practices which affect
20 the rates, fares, tolls, rentals, charges, or classifications
21 of the Public Utility. We find under the statutes now in
22 existence no legislative intent to extend the ratemaking
23 authori ty of the Commission to the area of regulating political
24 statements in the absence of a finding that such action by the
25 Utili ty increases expenses to be borne by the ratepayers.
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1 And that last clause is the most important.
2 Obviously, we have a very different scenario here because what
3 we're looking at is a 2011 retirement benefits package that's
4 going to put the investment risk on the ratepayers going
5 forward and the Company has been very clear that the
6 shareholders don't want to assume that investment risk, and
7 that's fine, but it's not fair to then place it on the
8 ratepayers.
9 And we just do not agree with the Company's
10 position that it would be a taking or it would be beyond the
11 Commission's authority if the Commission were to find the 2011
12 benefi ts package for the traditional defined benefits plan is
13 unreasonable in light of the evidence and comments in this
14 case, and then to say that prospectively if Idaho Power wants
15 to continue using that plan, its shareholders have to accept at
16 least some of the liability for any underfunded pension fund
17 obligations that it may incur for new employees.
18 And that's kind of the essence of that argument,
19 and we don't agree that the Commission lacks the authority to
20 rej ect the plan.
21 COMMISSIONER KEMPTON: Mr. Adams, do you have --
22 is that reference broken out on a separate sheet of paper with
23 any other notes?
24 MR. ADAMS: Commissioner Kempton, I have a couple
25 copies of the Opinion, but I'm sure that your attorneys could
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1 find the citation.
2 COMMISSIONER KEMPTON: And I assume that Idaho
3 Power and Staff had not had a copy of that.
4 MR. ADAMS: I only brought two copies.
5 COMMISSIONER KEMPTON: Okay. Wayne, could you
6 make some copies, please?
7 MR. BLACKBURN: Mr. Chairman, we do have a copy
8 of that case, are familiar with it.
9 COMMISSIONER KEMPTON: Okay. All right, Wayne.
10 Okay.
11 MR. ADAMS: That's all for ICIP.
12 COMMISSIONER KEMPTON: Thank you, Mr. Reading --
13 Mr. Adams.
14 So, Mr. Reading, are you going to comment?
15 MR. ADAMS: No, not at this time.
16 COMMISSIONER KEMPTON: Idaho Power.
17 MR. BLACKBURN: Mr. Said.
18 MR. SAID: Let me first respond to the last
19 comment that was made.
20 Idaho Power has never contended that if you don't
21 approve the 2011 plan, that we can then operate under the plan
22 and expect full recovery. You will have given us notice that
23 you believe that the costs are inappropriate and for us to
24 proceed under that plan, we would do so at our own risk. So.25 that's not a contention at all.
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1 I do want to comment on the fact that the -- the
2 discussion regarding risk. Risk and cost are not inseparable.
3 They're related. And, in fact, there is a risk associated with
4 the investment that we make for the defined benefit plan.
5 The question ultimately is can you get the same
6 value from a program by reducing risk, and the answer is no.
7 You take on risk with the anticipation that you will get reward
8 through that program. And as Ms. Gerschul tz has mentioned
9 earlier, the Company and our customers have seen great benefits
10 associated with the retirement benefits program in that we've
11 taken some money in from customers, we've paid out more than
12 that to retirees in benefits, and the assets contained within
13 our plan have grown as well. So there's definitely a benefit
14 that has been derived by the fact that those investments have
15 seen returns that are commensurate with the risk that has been
16 taken.
17 Now, the current economy has driven market
18 returns down, and as a result, there is an impact on the value
19 of the assets that would have been higher if the returns had
20 continued at that previous level. But, the Company believes
21 that it would be a short-sighted determination to say that you
22 wanted the Company to take on a risk-free profile when planning
23 for retirement benefits in the past. There is a reasonable
24 level of risk to be taken on them, and as a result, customers
25 will benefit from that risk.
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1 MR. BLACKBURN: If Mr. Anderson might, can he
2 address in a little more detail the historical performance of
3 the pension plan, and also what conditions currently exist in
4 the market that are causing funding issues, if you would?
5 MR. ANDERSON: First of all, in getting the
6 discussion around investments around the pension plan, we could
7 get into a lot of detail, but what I want to try to do is just
8 talk briefly. And actually I'm going to speak to it's
9 Attachment No. 1 that's included in our reply comments that I'm
10 going to speak to, and on there, there's a schedule that
11 delineates out at least the changes in the market value of the
12 plan going back to 1975 all the way through the end of 2009,
13 and from there we go from an asset value in 1975 of 13.2
14 million to where we sit the end of 2009 of about $313 million.
15 And that plan and over that same period of time, in addition to
16 having $313 million available at the end of 2009, we have also
17 paid out benefit payments in excess of $300 million. And so --
18 and that is all based on total contributions of about $85
19 million. So over that period of time, while we have made
20 investments of $85 million, we have seen in excess of $600
21 million of benefits that continue to be there. Through 2000
22 what's not on that form is through 2010, we are now sitting at
23 about $396 million.
24 And to Mr. Adams' comment, yes, we did contribute
25 $60 million as was required in order to meet the Pension
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1 Protection Act funding requirements in order to be in
2 compliance there. Also, we did that as an effort to ensure
3 that we would minimize our costs as to the PBGC premiums and
4 other things, and so that's one of the reasons the Board
5 approved the contribution of $60 million in the fourth quarter
6 of 2010.
7 Now, I don't have an overall return for the
8 portfolio as a whole over that life, but it's fair to say
9 though that we believe we manage that portfolio very
10 aggressively from the standpoint of mctking sure that we stay
11 within a reasonable asset allocation model that is appropriate
12 for the type of investment and long-life obligations in the
13 form of pension obligations, so we manage the portfolio
14 accordingly.
15 Along those lines, the other thing that Mr. Adams
16 commented on was the fact that over the last 20 years -- again,
17 if we only just capture a 20-year period, he is correct in the
18 fact that we put in about -- I think in this case it was if
19 I add the numbers up correctly, Mr. Adams, you indicated 44
20 million, I believe, if I am not mistaken of estimated pension
21 recovery against a contribution of about $26.6 million, I
22 believe.
23 MR. ADAMS: That's right, and that's directly
24 from Staff's comments on page 7 to 8.
25 COMMISSIONER KEMPTON: If you're going to
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1 speak --
2 MR. ADAMS: Oh, yeah, this is Greg Adams, for the
3 record.
4 MR. ANDERSON: But I think the point there and
5 when you take a look at those two numbers, the disparity
6 between the two numbers, what you also have to recognize is
7 while there was an assumed recovery of expense during that
8 period of time, other expense categories were also increasing,
9 so whether those were actually pension expense numbers. I
10 mean, I think bottom line is expenses were going up during that
11 same period of time, so whether actual pension expense was
12 being recovered and therefore not being contributed I think is
13 still the question in my mind.
14 So I guess what we would like to say is that we
15 believe that the funding mechanism in the defined benefit plan,
16 first of all, is superior to that of a defined contribution
17 plan for a couple of different reasons:
18 One of those reasons is the fact that, generally,
19 the difference between a defined contribution and defined
20 benefit plan, you generally have a professional manager or
21 managers managing those resources, so you generally see better
22 performance. You also generally see less expenses.
23 Another aspect of it is also the asset allocation
24 in the defined benefit program versus defined contribution
25 program. Generally speaking, you have what I would call a
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1 perpetual life with respect to that plan. You are not managing
2 to a retirement life. So you have -- in going into perpetuity,
3 you don't have to change your asset allocation, therefore give
4 up some level of return. So your performance should be better
5 in that type of a plan. And we've seen information basically
6 that says that anywhere between 100 and 150 basis points
7 difference in a minimum on differences between a defined
8 benefi t program and a defined contribution program as it
9 relates to asset returns, which at the end of the day should
10 reduce costs overall for the program, but even though, yes, as
11 Mr. Said indicated, there is some risk associated with that.
12 And the other thing I would just comment on is to
13 the need for a contribution in 2010. As many people here know,
14 when you take a look at asset performances over the last couple
15 of years, probably some of the worst since the Great
16 Depression. Most people would acknowledge that. And so, yes,
17 the fact of the matter is we didn't make any contributions to
18 the plan for 14 years, and so over a 14-year period
19 contributions were zero; so now because of the decline in the
20 markets, we were required to contribute $60 million.
21 The other thing that is contributing to that
22 again is what we would say is historical low interest rates.
23 Because of the function of discount rates today, that also then
24 increases the potential contributions that are required to fund
25 the pension plan. Again, these are anomalous times from the
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1 financial market's perspectives when you take a look at what
2 equity returns have been as well as what's happened in the
3 markets, and so if you look forward -- or, I should say if you
4 look back and you look back even through 1926 and beyond, you
5 can take a look at returns that on average in the equity
6 markets over 1926 to 2009 average about anywhere between ten to
7 11 and a half percent on a long-term basis. And you see bonds
8 kind of in the range of five and a half to 6 percent. And so
9 when you take a combination of those, we believe that the
10 investment opportunities in the defined benefit program are
11 good and do manage risk.
12 MR. BLACKBURN: Mr. Said.
13 MR. SAID: One more comment: With regard to the
14 60 million funding, there's been some discussion as to the
15 impact on customers. As you're well aware in this proceeding,
16 we haven't asked for an adjustment to rates at this point in
17 time. The provisions of the balancing account do not require
18 that recovery be in one year's time or a longer period of time.
19 And so when the time comes to actually request the change in
20 rates, the Company will be looking towards means of smoothing
21 any rate impact on customers and won't necessarily be looking
22 for that as a one-year recovery.
23 MR. BLACKBURN: Thank you, Mr. Chairman.
24 COMMISSIONER KEMPTON: I think what I'll do now,
25 I'll lead off for the Commissioners and each of the
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.1 Commissioners will have an opportunity to insert questions
2 wherever they would like to direct them. So, my first question
3 will be a general question, and I think I'll probably seek an
4 answer from each party.
5 The question is when the Commission is examining
6 information from a benefit plan such as we are examining now,
7 there's two options that seem to be presented to the
8 Commission. One of them is to accept the plan and then at
9 future dates accept costs as prudent. And then the other one
10 is to reject the plan and somehow define more clearly how
11 customer risk might be defined in terms of out years, and based
12 on that out year goal approve the plan..13 And so in neither case is the Commission
14 interfering with what the Company is doing with the plan, but
15 it presents two different issues analytically. In the first
16 case, to make a decision in the out years, I would expect there
17 would have been a number of charts, graphs, analytical
18 projections, forecasts that would assume different risk
19 variables, and through a sensitivity analysis with the various
20 options that the Company would like to have in the plan you
21 would have some idea of what out year impacts would be to
22 ratepayers. So let's deal with that one first.
23 And so my question is to Idaho Power is it not
24 possible to make those kinds of projections, to do it on the.25 basis of a sensi ti vi ty analysis, to take into consideration the
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1 impacts of the market and assumptions in the market up or down,
2 and to have out year projected impacts to customers that can be
3 reviewed by the Commission on a year-by-year basis as we go
4 forward? Idaho Power.
5 MR. ANDERSON: Commissioner Kempton, thank you.
6 I think that as part of our ongoing analysis and I think we
7 indicate there's some materials that are in the record -- they
8 may actually have been a part of the survey, I don't recall if
9 they were actually in the record or not -- where we do show
10 out year looks on changes in expenses, changes in contributions,
11 those types of scenarios have been run with respect to the work
12 that we did in evaluating the plans that we did. And I just
13 was going to look in my book here, but my recollection was that
14 we had some of that information included in the materials. I
15 just have to take a minute to check, if you don't mind.
16 COMMISSIONER KEMPTON: Go ahead, but while you're
17 doing that, part of the question had to do also with the
18 sensitivity of the market to both recovery and to further
19 downgrading of market returns because of the economy.
20 In other words, the economy, to me, is a
21 significant part of this, and there should be some estimates,
22 some projections of what the risks would be to ratepayers as
23 the market could go up or the market would go down. I'm not
24 suggesting that you forecast the market; I'm suggesting that
25 there's sensi ti vi ty analyses associated with that that can give
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1 you some idea of what the risk is to ratepayers in the
2 out years .
3 MR. ANDERSON: Actually, the work that we had
4 performed was more around the potential expense and the related
5 contributions that would otherwise be required for the
6 different scenarios. We did not do the assessments around
7 market sensi ti vi ties, around what happens with the market.
8 Now, I think that work can be done, but as you
9 know with respect to forecasts, especially trying to forecast
10 the stock market, we can use some historical information that I
11 talked about earlier. But I think that information can be
12 provided and that work can be done.
13 COMMISSIONER KEMPTON: Okay. So same question to
14 Staff and to ICIP, recognizing that it's the Company doing the
15 work but just in general your observation as to whether that is
16 done by other companies or whatever you might like to provide.
17 I'm not trying to challenge what the Company is saying at all.
18 So, Staff.
20 Staff.
MR. LOBB: This is Randy Lobb with the Commission
21 One of the things that we looked for is that sort
22 of analysis. I mean, some of the cost comparison, future cost,
23 what can we expect in the future versus -- with the Company's
24 defined benefit pension plan versus what you might expect with.25 other types of plans. Who's going to pay. Who's going to pay,
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1 what the risks are, what the magnitude of the risk is. Those
2 sorts of things, that's really what the Staff was looking
3 for.
4 COMMISSIONER KEMPTON: ICIP.
5 MR. READING: Don Reading, ICIP.
6 As Staff, I was -- when the Company first filed
7 it, I assumed that's what we were going to get, and we didn't
8 get it. And when I -- and why I say that is the paragraph that
9 was quoted earlier from the Commission Order, I thought that's
10 what the Commission was asking for was a look down the road on
11 what those risks are. And being a forecaster and economist as
12 long as I've been, believe me, I understand the dangers of
13 forecasting up and down, but to properly analyze future risk,
14 you need those kind of models or look at what could happen and
15 couldn't happen, and then you get a feel for the potential for
16 risk down the road, which I think this case is about.
17 MR. LOBB: I would add one more thing too, and
18 that is that
19 COMMISSIONER KEMPTON: Mr. Rob -- Lobb.
MR. LOBB: -- we don't typically have that sort
21 of information from other companies, a comparison of plans and
22 risks down the road. So I think the Staff looked at this as a
23 directive of -- by the Commission to the Company to provide
24 that sort of information that has not historically been made.25 available by any other company, and, particularly, in the
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1 context of the large contributions that are required by the
2 Company to meet their pension liability commitments.
3 COMMISSIONER KEMPTON: Okay. My second question
4 is a flip on the first. By that, basically, they're
5 interrelated. And that is, if the Commission were to accept
6 the Company's plan as suggested by the Company and then make
7 decisions on a case-by-case basis in out years, what kind of a
8 standard would you suggest that the Commission actually has in
9 order to evaluate prudency on the basis of the Company if we
10 don't have that kind of information? What would you suggest
11 the Commission use? Because, to me, it looks like we would be
12 right back where we are here today.
13 MR. BLACKBURN: Mr. Said.
14 MR. SAID: I don't think that's an easy question
15 to answer.
16 I think that the costs that are borne as a result
17 of the 2011 plan would certainly be recoverable from the
18 perspecti ve of the Company in that the costs are a direct
19 resul t of the plan itself. But as I understand the question,
20 it's really what happens if the costs as anticipated by the
21 plan become greater than anticipated over -- or, demonstrated
22 as part of the plan itself. In other words, do they rise to
23 greater than the 9.1 percent per -- or 7.8 percent, I may have
24 the wrong number of a customer or a employee's retirement
25 benefi t package is. If the costs end up exceeding that number,
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1 what sort of expectation should the Company have.
2 And I think defining some sort of metric may be
3 the sort of thing that would need to be in place to be able to
4 say, okay, here is how the costs of the plan have moved since
5 the time and the original vision of what those costs might look
6 at as a percentage of employee cost.
7 COMMISSIONER KEMPTON: Anybody else?
8 MR. ANDERSON: This is Darrel Anderson.
9 Commissioner Kempton, as I reflect on your
10 earlier request about running the scenarios, my sense is that
11 your comment about "might we be right back here where we are
12 today" is because I can see a scenario that looks pretty good,
13 I can look at some scenarios that don't look very good. And,
14 again, depending on what happens with the future with respect
15 to interest rates, market considerations, those kind of things,
16 you could -- the forecast and projections could look very good.
17 Again, you could run another spell of another 14 or 15 years,
18 you may not have another contribution in this particular case
19 in this defined benefit plan. But there could also be a
20 scenario that suggests, oh, I'm going to need to put in X
21 millions of dollars each year or some numbers of years.
22 And so we could be right back here saying what is
23 the appropriate level of benefit that should be provided to the
24 employee, and again then there becomes that question between
25 government and management and those kind of things, and I think
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1 that's -- we might be right back in the same spot. But I think
2 what you would see when running these scenarios, you would see
3 some good results and you would see some results that nobody
4 would probably like to see, I believe, and, again, depending on
5 what you believe is going to happen with the marketplace.
6 COMMISSIONER KEMPTON: So you believe that the
7 scenarios that we're talking about would give some additional
8 information to the Commissioners for making a prudency
9 decision?
10 MR. ANDERSON: I think the information could be
11 helpful, but I also believe that you may be in the same place
12 we're in today.
13 COMMISSIONER KEMPTON: Is my question clear to
14 Staff?
15 MR. LOBB: Maybe you could repeat the question.
16 COMMISSIONER KEMPTON: The question has to do
17 wi th the Company presently is suggesting that the Commission
18 accept the plan and then make determinations of prudency in the
19 future on specific costs.
20 I don't think I misrepresented the Company's
21 position on that, have I?
22 MR. SAID: No, I think that's correct. The
23 prudency would come in a determination of whether or not the
24 costs logically fell from the plan.
25 COMMISSIONER KEMPTON: Right. My question had to
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1 do with the foundation on which the Commission would attempt to
2 make those determinations. I'm suggesting that they have to
3 have the scenarios that have been discussed in order to make
4 the prudency decision in future years.
5 That could be adjusted. I understand that once
6 you make a projection and you come back and you look at these,
7 that proj ection may change based on the second run of some
8 additional information, but, to me, that's where the foundation
9 is if you accept the plan that you have a beginning of that
10 kind of statistical information associated with the plan this
11 time so then you could make a prudency cost evaluation in the
12 future.
13 MR. LOBB: Well, certainly in proj ecting the
14 future, you have a wide range of assumptions that you could
15 make and a wide range of outcomes. I would have to agree with
16 the Company that you're going to be back in a situation where
17 you're looking at programs in future forecasts that make one
18 program look good under one scenario and the other look good
19 under another scenario, and it's going to be a little
20 inconclusi ve, frankly. I don't think it's going to give you a
21 definitive answer on what the best plan is and what the least
22 costly plan or what the greatest risks are for any particular
23 plan going forward. It's going to give you more information
24 about market conditions and certainly what types of programs.25 shift risk to what sort of parties.
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1 And the sensi ti vi ty may show that under this plan
2 employees are going to pick up a big risk; under another plan
3 regardless of future conditions, the customers may pick up a
4 bigger portion of the risk. And so based on that, you're going
5 to have some information. Those risks may be offset by costs
6 that the Company contributes under one plan and they don't have
7 to contribute under another plan.
8 So I think there's going to be offsetting risks
9 and costs that you're going to have to evaluate, and certainly
10 more information is better but I don't know that it's going to
11 give you anything that's going to be absolutely conclusive.
12 COMMISSIONER KEMPTON: And I'm not suggesting
13 that we start plan jumping on an annual basis or short-range
14 basis, because, to me, this is kind of a precedent setting
15 point right now. It's a point where we're asking for
16 information we haven't had in the past to make decisions in the
17 future. Right now it's associated, as you pointed out,
18 specifically with Idaho Power because it is what it is, it's
19 where the case is now.
20 And so I'm just interested in that if we don't
21 move forward with the kind of statistical analysis that I was
22 suggesting in the question the first question -- that we
23 really have nothing for the next time that we evaluate the
24 plan, assuming that we approve the plan this time.
25 In other words, once we approve the plan this
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1 time, there's nothing there in the way of a statistical
2 analysis that's forecast as much as we can do. You're left
3 wi th a plan that's been approved, and prudency is sort of
4 automatically -- it's almost like a fait accompli when you look
5 forward into the future years because you've already accepted
6 the plan. And that's where my concern is in the second
7 question.
8 So, I don't know if I can make it any more clear
9 than that. ICIP.
10 MR. ADAMS: Yeah, Greg Adams for ICIP.
11 We agree with you, Commissioner Kempton, that
12 this is a precedent-setting case and for those reasons you just
13 said. That's why this case is important, because if this plan
14 is just accepted, this issue is just going to get kicked down
15 the road who knows how many more years. And to accept it
16 without the kind of statistical analysis that you're alluding
17 to is I view it as almost like giving the Company a blank
18 check to put the risk on the ratepayers. And that's why we
19 think this case is important and why it needs a thorough
20 investigation as to what's the proper course for new employees.
21 And Dr. Reading was going to comment a little bit
22 too.
23 MR. READING: Yeah, Don Reading, ICIP.
24 Just to sort of join in the comments, without the
25 kind of analysis that you're asking for, Commissioner Kempton,
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1 you don't have a feel for the variability, the standard
2 deviation, the skewness of what the curves may be.
3 As the Company has pointed out in their filings,
4 it looks like they have kind of an unusual profile with a lot
5 of older individuals in the Company, and so without looking
6 at at what Idaho Power is looking at down the road, I don't
7 think the Commissioners would have a feel for what those
8 variables are.
9 And I agree with Randy Lobb that it's not going
10 to give you a defini ti ve answer, but I think it would move down
11 the road significantly in trying to understand what kind of
12 metrics you might want to look at or what kind of lines you
13 might want to draw. Without this analysis, it's a blank slate.
14 COMMISSIONER KEMPTON: Okay, there are two
15 questions that are now before us and I still intend to allow
16 the other two Commissioners to ask questions, but in framing
17 their questions, I would also like them to consider the
18 following, and that is:
19 On the -- this is an informal proceeding, as
20 informal as we can make it and get to the detail that we're
21 trying to get at; and, yet, Idaho Power brought up a very good
22 point, that there's information in here that they have never
23 seen before, haven't had a chance to comment on it, and has
24 been presented in an informal setting. And on that basis, as
25 the Chair, I would be willing to submit to the other two
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1 Commissioners that we consider a comment period, say, of 28
2 days just for discussion purposes to respond to those that
3 information that has come out in this informal setting.
4 And secondarily is the issue of the providing
5 addi tional information on future forecasting for ratepayer
6 impact consideration, and the same thing could be accomplished
7 in that period of time.
8 We haven't talked about this as a Commission,
9 it's just come up at this point, and based on their questions
10 and their input, we may -- the Commission may recess and
11 consider this for just a few minutes, but that's kind of where
12 we are.
13 So right now I'd like to let the Commissioners
14 ask questions if they have any. Marsha -- Commissioner Smith.
15 COMMISSIONER SMITH: Sure. Am I close enough?
16 I guess Mr. Blackburn got his answer when he said
17 he thought the record was closed, and I guess my response would
18 be that the comment deadline was probably concluded, but until
19 the Commission has all the information it needs to be
20 comfortable with a Decision, the record is not closed. So,
21 that would just be my comment on that. I think that's why we
22 had the workshop: Because we just didn't feel like we had
23 gotten everything we needed to say "yea" or "nay."
24 And I think Mr. Said is correct to remind us of
25 our role here. We do not manage the affairs of the Company;
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1 that's something I feel very strongly about. To me, this case
2 was meant as an indicator to the Company that we have a concern
3 about this issue and it would behoove them to do all their due
4 diligence to be sure they had all the information that they
5 needed to present to us when questions of prudency arise. So,
6 to me, the purpose of this is to let you know that we're not
7 comfortable, and you need to do whatever you think is
8 reasonable to get the information lined up to give us a level
9 of comfort.
10 I think our job is to assure ourselves and the
11 customers that the Company did do enough analysis to choose a
12 reasonable course of action and that we prudently incur some
13 costs. You know, the market is not really predictable; at
14 least, I can't predict it. And to the issue of can we have
15 certainty or a foundation, I think the answer is probably "no,"
16 but whatever approval we give this year doesn't necessarily
17 mean it's approved for the year after. Every time the Company
18 comes to recover something, every year when they do their
19 analysis, if we feel they haven't done it correctly or we
20 think, you know, probably it worked okay last year, but they
21 should have, you know, done something different this year,
22 we're free to decide that. We're not setting anything in --
23 for perpetuity. You know, I like to always say the
24 Commission's Decision is final until it's changed. So, that's
25 the only assurance you get, which may not be very comfortable
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1 for you guys.
2 I guess the only question I'd have is curiosity
3 mostly from following what little I did of my -- what happened
4 to me with the market is it all came back last October. I was
5 back 100 percent again. So I don't know if that's happening to
6 you or not, and --
7 COMMISSIONER REDFORD: Not to me.
8 COMMISSIONER SMITH: -- what that says about me.
9 MR. ANDERSON: We have made substantial -- this
10 is Darrel Anderson. We have made substantial inroads with
11 respect to our portfolio. The defined benefit plan for the
12 year, I believe -- I just saw some numbers -- around 16 percent
13 I believe is what the plan did.
14 COMMISSIONER SMITH: Thank you.
15 COMMISSIONER REDFORD: This is Mack Redford. I
16 want to, first of all, address some of my comments to
17 Mr. Blackburn.
18 This certainly is a workshop, and we don't want
19 it to take on the trappings of a hearing, and for that reason
20 we are hoping that we're not stepping on Idaho Power's toes as
21 far as due process is concerned. And that's why, as
22 Mr. Kempton said, we like to make sure that you have all the
23 information you need to kind of divine what it is we've said.
24 Having said that, I was somewhat taken aback
25 about the response of the Company, especially in light of the
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1 material and the statement we made in the Order that was fairly
2 unequi vocal and direct and to the point; I thought it was, at
3 any rate. And when you came back with the information that you
4 did, I didn't think it fulfilled what it is we thought we were
5 asking for. I kind of wanted to say, you know, were we reading
6 the same Order?
7 It appeared, to me, that you've taken one part of
8 our request -- that is, I think in any analysis of what it is
9 we're talking about you certainly have to evaluate the employee
10 benefit and you're retaining employees, and we think that's a
11 necessary item -- but on the other hand, we think at least I
12 think -- you fell fairly short of at least paying some
13 attention to the nation and utilities and what others have
14 done, and in my estimation it should have always ended up with
15 what is the risk and what is the benefit to the shareholder.
16 There's nothing that you've submitted that I can
17 see addressed at all the cost of the programs to the
18 ratepayers. And I think one of the things that we were asking
19 for is that we wanted you to look at all the -- or, not "all"
20 and it's not an easy task.
21 We wanted you to look at the various programs and
22 the companies similar companies -- through in some sort of a
23 test group that was possibly by the Staff and Idaho Power as to
24 what a test group should be and then evaluate and look at what
25 the programs they have as far as retirement, and at that time,
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1 given us give us some sort of analysis of these various
2 programs and how do they impact the customer. And I believe
3 you could have run some numbers for us on the various programs.
4 But it just appeared, to me, that you got to a
5 certain point and you said, no, that we're not going to
6 consider it any further than what we've submitted to the
7 Commission.
8 And what I would like to see happen in addition
9 to what Commissioner Kempton said was maybe we need to kind of
10 start over. And I don't think we need further workshops. As
11 we get more further into workshops, we kind of have a tendency
12 to slip over into hearings, and we certainly don't want that to
13 happen unless it's done appropriately.
14 So I guess I'll ask, Mr. Anderson or Mr. Said or
15 Mr. Blackburn, what is it you thought that we were asking for
16 in that Order?
17 MR. BLACKBURN: Mr. Chairman and members of the
18 Commission, first of all, I recognize fully and we recognize
19 that if the Commission does not feel it has adequate
20 information upon which to make a Decision with regard to
21 prudency, it's incumbent upon the Company to provide you with
22 addi tional analysis.
23 My concerns previously related to the inability
24 to analyze seven or eight or nine pages of information
25 COMMISSIONER REDFORD: Absolutely.
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.1 MR. BLACKBURN:about purportedly legitimate
2 scenarios in a workshop setting, and that is what the obj ection
3 is based upon.
4 We are -- our requested outcome with regard to
5 this particular proceeding, we have asked the Commission to
6 deem prudent the continuation of our existing program as
7 modified, retirement benefits program for 2011. I think that
8 we recognize and have indicated in our comments and our
9 testimony that a single prudency determination cannot apply
10 forever, that circumstances change; and that's one of the
11 reasons we, as a company, take what we consider to be a
12 holistic analysis of our entire compensation program each year,.13 including our retirement benefits program, which is indeed
14 below market currently and anticipated for 2011 to be so as
15 well as compared to other companies.
16 But we are certainly willing to and understand
17 the Commission's desire for some additional information with
18 regard to scenarios, and are prepared, I believe, to undertake
19 that task.
20 The Order as written, if we misinterpreted it or
21 did not understand the full sentiments of the Commission, we
22 understand it's our obligation to provide you with additional
23 information.
24 COMMISSIONER REDFORD: Well, I think that just to.25 follow up a little more, it's not something that we are
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1 certainly singling Idaho Power out. We're talking about this
2 wi th all utili ties, especially in the present economic
3 straights that we're in, and it's just one part of the program
4 in an effort to manage costs and to make sure that the
5 cost/benefi t relationship with the consumer is always -- is
6 paramount.
7 We understand and we don't at all have any -- any
8 idea that we would ever want to manage your Company. That
9 is -- and I've heard that -- I've heard that said a little bit
10 today. And we're very aware of where our responsibilities are
11 as far as managing the Company. And if you wanted to say, no,
12 this is it, and that's what we're going to do and that's all
13 you're going to get, why, then, the shoe falls wherever it
14 falls.
15 And -- but we won't -- we like to make sure that
16 you take -- and I know you do -- take the Order very seriously
17 and I just want to make sure that we don't -- that no stone is
18 unturned to try to manage costs.
19 And I have heard what your board of directors has
20 said and they have fairly unequivocally said, no, the
21 shareholders are not going to participate in the cost of these
22 programs and it all falls upon the ratepayer. That seems to be
23 kind of throwing the gauntlet down a little bit. And I'm not
24 telling you what your board of directors should do, but the
25 Company in general should really, getting back to what I
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1 previously said, take a look at the Order and see what it is
2 we're asking for. It's not something we're not -- we're asking
3 solely from Idaho Power; it's the theme that we're following
4 for every utility.
5 And so I guess that's all I have. And then
6 and the hearing -- or, this workshop is in the spirit of
7 cooperation, and I don't think we ought to have any further
8 workshops unless the workshops are between the Staff and the
9 Company, absent the Commission.
10 And we have heard what you said today, and I hope
11 you've heard what we've said.
12 COMMISSIONER KEMPTON: Is a 28-day comment period
13 sufficient to handle both general issues that we have been
14 talking about, both response to Staff's exhibit and comments,
15 and then also the scenarios?
16 MR. BLACKBURN: Mr. Chairman, may we confer for
17 just a moment?
18 COMMISSIONER KEMPTON: Absolutely.
19 MR. BLACKBURN: Chairman and members of the
20 Commission, the question that has arisen from our recent
21 discussion during the recess is there seems to be general
22 consensus of all parties that pre-2011 benefit obligations are
23 appropriately recoverable or at least can be sought through
24 recovery. From the standpoint of accomplishing two obj ecti ves,
25 the first being we want to make sure that we hit the mark in
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1 terms of additional information that the Commission and Staff
2 and others feel is necessary to take a longer-range view going
3 forward, and we would like to have the ample opportunity to do
4 that and if necessary to confer with Staff in a workshop
5 setting with regard to what that might look like or at least in
6 informal conversation; but bifurcating the question of what the
7 future holds, perhaps, in terms of prudency for defined benefit
8 components of our retirement plan from the question of whether
9 we would be allowed to seek some recovery, if necessary, for
10 funding associated with historical obligations. We've already
11 indicated the Company's willingness to pursue that, but if we
12 could perhaps bifurcate those two issues. And I don't know
13 that the current Order as we read it would permit us to make a
14 filing with regard to any historical pension costs while we
15 continue to evaluate what the future may look like. And if we
16 could bifurcate those things, I think from the standpoint of
17 the Company, that would be optimal.
18 COMMISSIONER KEMPTON: So in bifurcating, you're
19 talking about a conditional approval of the plan to meet
20 your--
21 I know that Commissioner Smith pointed out to me
22 and I remember that from earlier reading that you have a
23 February 28th date that you would like to see met on a
24 Commission Decision. So are you suggesting then a conditional
25 approval of the 2011 plan going forward, or what's your time
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1 frame that you're actually talking?
2 MR. BLACKBURN: That's not actually what we're
3 asking for. Mr. Said, would you like to address procedurally
4 exactly what we are trying to accomplish?
5 COMMISSIONER KEMPTON: So I understand that
6 you're not addressing the bifurcation process but still looking
7 toward February 28th as you're doing this.
8 MR. SAID: I think when we originally requested
9 the February 28th date, we were anticipating that we needed a
10 Commission Order that told us we had a reasonable plan going
11 forward before we could address any of the costs associated
12 with the past. And I don't know if that was the intent of the
13 Commission or whether the intent was that we look at the costs
14 going forward and the Company would still have the ability to
15 request recovery of costs associated with the plan to date.
16 And so that's the nature of the question: If the process in
17 this case is extended, does that prohibit the Company from
18 coming and asking for recovery of expenses associated with
19 costs that we've incurred as a result of the plan prior to
20 2011.
21 COMMISSIONER SMITH: Personally, I don't see how
22 it could. I mean, you incurred the costs; you have the right
23 to come and ask that they be recovered. And we didn't have any
24 notice that we had concerns going forward, so --
25 COMMISSIONER KEMPTON: I think it was more just a
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1 question on the date and whether, you know -- so if that's the
2 extent of the bifurcation you're asking about, I don't think
3 it's a problem.
4 COMMISSIONER SMITH: I guess I would question
5 what the Staff believed or whether the past was involved or the
6 future. Sorry.
7 MR. LOBB: Well, the Staff didn't believe that
8 the costs incurred historically to meet your liabilities for
9 your current approved defined benefit pension plan were at
10 issue here, and always believed that you could come in and
11 request recovery of those costs in whatever manner you saw
12 fit.
13 Our concern was with the directive of the
14 Commission that they needed information to evaluate plans, the
15 Company's current plan and plans going forward and alternatives
16 to that plan, and to determine prudency whether in this case
17 I mean, the Company filed their request for approval of the
18 plan going forward and I think there's a certain amount of
19 information that needs to be provided. Staff did not believe
20 that that was provided by the Company, and that's really what
21 we're requesting is additional information going forward for
22 plans going forward, as requested by the Commission in their
23 Order.
24 MR. ADAMS: Greg Adams, the Industrial Customers.
25 We too have no objection to the Company filing
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1 for cost recovery for existing obligations under the pension
2 fund. That's not to say that we're necessarily endorsing
3 whatever is filed, but that can happen before this 2011 plan
4 issue is resolved, in our view. Thanks.
5 MR. SAID: I think we're fine with that response.
6 The only thing that I believe as the case has arisen is that we
7 do have an approved plan in place and that the costs associated
8 wi th that plan are at risk until resolved by acknowledgment of
9 that plan.
10 COMMISSIONER SMITH: Approved by whom? I missed
11 what you said.
12 MR. SAID: So for the 2011 plan, we have
13 implemented that, that is in place now, so we are incurring
14 costs and those costs may not be prudent depending on
15 resolution of -- by the Commission as to whether or not the
16 plan was a reasonable plan until this case is ultimately
17 resolved. So, we would like to move forward in a timely
18 fashion, but the February 28th date is not the driving factor
19 on that. It was more of a concern about the costs of the past.
20 COMMISSIONER KEMPTON: That being said, is 28
21 days sufficient?
22 MR. ANDERSON: I think we -- this is Darrel
23 Anderson.
24 I think the 28-day period, I think we can be able
25 to provide information back on some scenarios that we believe
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1 that you have requested. I think that to Mr. Said's point, I
2 think in connection with working with Staff, to get some
3 agreement on some of those things might be helpful too. So I
4 think 28 days, it will be a lot of work, but I think we can do
5 that in 28 days.
6 MR. STUTZMAN: Mr. Chairman, to clarify, if the
7 purpose is to obtain new information, new scenarios, and
8 recovery of the existing or past payments is not an issue, it
9 might be wise to take as much time as we need. And Staff, of
10 course, is happy to sit down with the Company and work through
11 different scenarios and possibilities, and if that takes more
12 than 28 days because we're providing new analyses rather than
13 just commenting on the existing record, then I guess I'd
14 suggest that we take that time if we need to.
15 MR. BLACKBURN: Mr. Chairman, I think it would
16 be -- it would be and members of the Commission -- it would
17 be prudent for us to confer with Staff about what scenarios may
18 provide the most meaningful information for all purposes so
19 that we're not -- we can minimize the number of disagreements
20 as to what scenarios need to be run and what are best.
21 Would it be acceptable if we were to take seven
22 days to confer with Staff, see if we can come to some agreement
23 with regard -to what sort of scenarios of work should be run,
24 and then jointly propose, if possible, or at least individually
25 if not able to do so, a schedule that would accommodate that?
68
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1 We don't want to leave this open. It's obviously in the
2 Company's interest to get a determination as to prudency of our
3 2011 plan as soon as we can, but I think this may be the most
4 efficient way for us to do it and provide the most meaningful
5 information to the Commission.
6 COMMISSIONER KEMPTON: Commissioner Smith has a
7 thought.
8 COMMISSIONER SMITH: Well, and it's kind of
9 similar and people can shoot it down if you need to, but my
10 thought was what might be useful right now is the Commission
11 issuing an Order stating that the parties will continue working
12 on these future issues, but the Company is not prohibited from
13 requesting recoveries of pension expenses that were incurred in
14 the past. And that way, you guys are free to get together when
15 you can to push it along as fast as you think it can go, but
16 not faster than you can actually go. That was just a thought.
17 MR. BLACKBURN: That, I believe, would be
18 acceptable to the Company.
19 MR. ADAMS: Excuse me, could I -- Greg Adams for
20 the Industrial Customers.
21 We'd appreciate the opportunity to be involved
22 also in any collaborative meeting before filing; and to the
23 extent something new is filed within 28 days or whatever period
24 it may be, we would also appreciate the opportunity to respond
25 in the event that we don't reach an agreement. So, thank you.
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1 MR. SAID: And I have a clarifying question if I
2 could.
3 COMMISSIONER KEMPTON: Mr. Said.
4 MR. SAID: As I understood Commissioner Kempton's
5 request for information and analyses, I believed that it was
6 primarily focused on the area of risk associated with
7 investments. Is that a correct assumption, or are the analyses
8 that are envisioned expanded to the types of studies and
9 comparisons that Staff was interested in, or are we truly just
10 focused on the issue of risk?
11 COMMISSIONER KEMPTON: My interest was in and I
12 think it was the way the Order was intended, although maybe we
13 weren't as clear as we could have been, that we were interested
14 in the risk related to customers. We are not interested, as
15 Commission Smith said, in involving ourselves in micromanaging
16 the Company in the choices that they mayor how they would
17 implement their plan. Once the Commission has information
18 associated with risk and we have that discussion, then as far
19 as what this Commissioner is concerned, the way you internally
20 manage that and do that is Company business.
21 MR. SAID: Thank you.
22 COMMISSIONER KEMPTON: So it's a long answer to
23 simply saying risk to customers and scenarios to give us some
24 sense of, without overworking the word, perhaps the
25 probabili ties or possibilities associated with the scenario
70
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1 variations, the sensi ti vi ty analysis, based on current market.
2 MR. LOBB: Mr. Chairman, Randy Lobb with the
3 Commission Staff.
4 We would be willing to meet with the Company in
5 the next week or two, talk about some scenarios that we would
6 like the Company to look at, and I think it fits very well in
7 the risk assessment. I think what we're trying to do is
8 identify the different plan alternatives, a couple different
9 plan alternatives than the one the Company has, whether that's
10 the cash benefit or 401 (k) contributions, defined benefit
11 pension, but its assessment of risks going forward and revenue
12 requirement as Mr. Greg -- Mr. Said indicated, risks to our
13 cost. And we're interested in revenue requirement, what type
14 of sensi ti vi ty of revenue requirement of comparable plans. And
15 so we could meet with the Company and talk about what we might
16 expect and maybe reach some agreement on what type of
17 sensi ti vi ty analysis.
18 COMMISSIONER SMITH: Don't forget to include
19 Mr. Adams.
20 MR. LOBB: Absolutely.
21 COMMISSIONER KEMPTON: So it is appropriate to
22 put out an Order to the effect of what's been discussed here,
23 just the latter part, and all parties will be included in that.
24 Is there anything else then to bring before the
25 Commission before I adjourn the hearing -- the workshop?
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20
21
22
23
24
. 25
1 MR. BLACKBURN: Nothing further for Idaho Power.
2 COMMISSIONER KEMPTON: Okay. And the workshop is
3 adjourned. Thank you very much for working through this.
4 (The workshop adjourned at 11:28 a.m.)
5
6
7
8
9
10
11
12
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16
17
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19
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. 25
1 AUTHENTICATION
2
3
4 This is to certify that the foregoing is a
5 true and correct transcript to the best of my ability of the
6 proceedings held in the matter of the Application of Idaho
7 Power Company for acceptance of its 2011 retirement benefits
8 package, Case No. IPC-E-I0-25, commencing on Monday, January
9 24, 2011, at the Commission Hearing Room, 472 West Washington,
10 Boise, Idaho, and the original thereof for the file of the
11 Commission.
12
13
14
15
16
WENDY J. LMURRA ,
in and for the tat of Idaho,
residing at Meri ian, Idaho.
My Commission expires 2-8-2014.
Idaho CSR No. 475
17
18
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.A 7';: Of \~ ",,~"
i//,jJ¡..,¡'i1ï1ii.'.......t:
73
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
AUTHENTICATION
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