20070226_1847.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER KJELLAND ER
COMMISSIONER SMITH
CO MMISSI 0 NER RED FO RD
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:CECELIA A. GASSNER
DATE:FEBRUARY 20, 2007
SUBJECT:IDAHO POWER COMPANY'S APPLICATION FOR AN ACCOUNTING
ORDER TO COMPLY WITH SF AS 158 REGARDING TREATMENT OF
PENSION AND POSTRETIREMENT BENEFIT OBLIGATIONS, CASE
NO. IPC-06-
On December 18, 2006, Idaho Power Company ("Idaho Power" or "Company ) filed
an Application for an order authorizing the Company to record certain pension and
postretirement costs in accordance with certain recent changes implemented by the Financial
Accounting Standards Board (F ASB). This Commission has the jurisdiction over such request
pursuant to Idaho Code 9 61-524.
On January 2007 the Commission issued a Notice of Application and Modified
Procedure, and solicited comments from interested parties. Order No. 30223. The only
comments received were submitted by Staff.
THE APPLICATION
Idaho Power seeks an order authorizing the Company to: (1) record, as a regulatory
asset or regulatory liability, the cumulative financial impact resulting from the Company
implementation of Statement of Financial Accounting Standards (SF AS) 158, and (2) record on
an ongoing basis, as a regulatory asset or a regulatory liability, an amount equal to the changes in
the SF AS 158 related balances. The Company states that this will not materially affect the
current level of pension and postretirement costs or cost of capital calculations included in the
Company s revenue requirement.
The Company currently accounts for penSIOn and postretirement benefits in
accordance with SFAS Nos. 87 , 88, 106, and 132(R). SF AS 158 requires companies with at
DECISION MEMORANDUM
least one employer defined benefit plan to (1) recognize that funded status of a benefit plan in its
statement of financial position, and (2) recognize as a component of other comprehensive
income, net of tax, the actuarial gains or losses and prior service costs or credits that arise during
the period but are not recognized as components of net periodic benefit cost pursuant to SF
No. 87. SFAS 158 thus requires companies to recognize and account for pension and other
postretirement benefit plans differently than they have. These changes affect pension assets and
liabilities and other comprehensive income, but do not affect the company s income statement.
Other comprehensive income" is a component of equity that is used in general rate case to
determine Idaho Power s revenue requirement. Idaho Power states that unless the Application is
approved, the changes demanded by SF AS 158 will affect the calculation of its revenue
requirement in future rate cases.
The Company states that it is ready to comply with SF AS 158. It further states that
this standard will affect capitalization ratios used by regulatory bodies , credit rating agencies
and covenants of debt financings. Thus, the Company seeks approval by this Commission to
record the effect of the adoption of the standard, allowing other comprehensive income to be
deferred as a regulatory asset or liability. The Company does not intend by this Application to
request any approval regarding future ratemaking treatment or to change the current cost
recovery of SF AS 87 or SF AS 106 expenses.
ST AFF COMMENTS
Staff noted that SFAS No. 158 was put in place in an effort to improve upon the way
publicly traded corporations report their pension assets and liabilities. Staff further noted that the
actual effect that Statement 158 will have on the financial statements of Idaho Power has yet to
be determined since the 2006 actuarial reports have not been completed. Using the 2005
actuarial reports as a surrogate, the cumulative effect of FAS 158 would have created a
regulatory asset of approximately $70 million, though this amount will undoubtedly change as
economic factors during 2006 have yet to be accounted for.
Included in the approximately $70 million surrogate amount the Company
requesting authority to defer is $10 928 252 of Prepaid Pension Expense. In Order No. 29505
the Commission removed Prepaid Pension Expense from rate base stating: "Because prepaid
pension assets result from accounting procedures rather than funds actually contributed, they are
not the type of asset providing electric service upon which Idaho Power and its shareholders are
DECISION MEMORANDUM
entitled to earn a return on investment." Staff continues to believe that prepaid pension expense
is not an asset used in the generation, transmission or distribution of electricity and is only
created by economic factors, many of which are beyond the Company s control, and accounting
procedures and therefore is not an asset that should be used in calculating the Company
revenue requirement.
Staff believes that it is reasonable to allow Idaho Power to create a regulatory asset in
FERC Account 182.3 to account for the cumulative effect of SFAS 158 in its entirety. Staff
recommended that the Company use a separate sub-account specifically for SF AS entries, which
would facilitate Staffs ability to track the account activity. It should also be noted that any
bookkeeping entries approved by the Commission in this case do not constitute any concurrence
by Staff on how the impact of SF AS 158 will affect ratemaking. Rather than debating the
different components of SF AS 158 in this current case, Staff believes that the ratemaking
treatment of the impact of the statement should be addressed in the Company s next general rate
case filing. At that time, Staff will be able to review current actuarial calculations as opposed to
surrogate, outdated data and will have a better understanding of the affect of the statement.
Idaho Power did not request a carrying charge on the resulting regulatory asset. Because the
regulatory asset is created by a change in accounting procedures, Staff believes it is appropriate
for the asset not to be included in rate base or accrue a carrying charge.
Staff also addressed Idaho Power s request for approval of ongoing entries required
by SF AS 158 to record the Company s pension and postretirement benefits expense. Staff
believes that after the Company s next general rate case filing, the Staff and the Commission will
have additional information that would better allow them to determine the appropriateness of the
ongoing recordkeeping entries for the statement, and the overall effect that this statement should
have on determining the Company s annual revenue requirement.
Staff Recommendation
Staff recommended that the Commission approve Idaho Power s Application insofar
as allowing the Company to create a regulatory asset for cumulative impact of SF AS No. 158.
Staff also believes that future entries to comply with SF AS 158 and their ratemaking effect
should be a subject of the Company s next general rate filing, therefore Staff recommended that
the Commission deny the Company s premature request to approve those entries at this time.
Staff further recommended that Idaho Power not be permitted to earn a return on the regulatory
DECISION MEMORANDUM
asset created by the implementation of SFAS 158. Finally, Staff recommended that, if the
Commission approves the Application, that the Commission also find that approval of the
Company s Application provides the opportunity for, but does not constitute automatic approval
, the inclusion of those regulatory assets in the calculation of the Company s revenue
requirement.
COMMISSION DECISION
Does the Commission desire to approve the Application? Does the Commission
desire to make any other determination with regards to the Application?
Cecelia A. assner
M:IPC-O6-cg2
DECISION MEMORANDUM