20021107_309.pdf

TO:
FROM:
DATE:
RE:
DECISION MEMORANDUM
COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
JEAN JEWELL
RON LAW
BILL EASTLAKE
LOU ANN WESTERFIELD
DON HOWELL
RANDY LOBB
ALDEN HOLM
TERRI CARLOCK
BEV BARKER
TONY A CLARK
GENE FADNESS
WORKING FILE
SCOTT WOODBURY
OCTOBER 29, 2002
CASE NO. PAC-02-5 (PacifiCorp)
CHANGE IN DEPRECIATION RATES-ELECTRIC PROPERTY
On October 1 , 2002, PacifiCorp filed an Application seeking an Order authorizing a
change in the depreciation rates applicable to PacifiCorp s depreciable electric property. This
change would be for accounting purposes only -- PacifiCorp intends to seek approval of the
requested changes for ratemaking purposes in a future rate case. Pursuant to Idaho Code ~ 61-525
the Commission is empowered to determine the proper depreciation rates of property used to
provide retail electric service. The Company requested that authorized depreciation rate changes
become effective as of April 1 , 2002.
THE APPLICATION
The accounting changes proposed in the Application were supported by the pre filed
testimony of three PacifiCorp witnesses. Their first witness was Mr. Donald S. Roff of Deloitte &
Touche LLP, who prepared PacifiCorp s Depreciation Study ("D&T Study ). The purpose of the
D&T Study was to identify the changes that have occurred since the last PacifiCorp depreciation
study, to measure the effect of the changes on the recovery of presently surviving capital, and to
properly revise the capital recovery rate. If approved, the Application stated that the proposed
depreciation rate changes would decrease the annual depreciation expense by $732 000 on a total
DECISION MEMORANDUM
company basis and would not change the composite depreciation rate of 3.11 % for the Company
electric plant. Based on depreciable plant balances as of March 31 , 2002 , the proposed changes
specific to the Idaho jurisdiction would increase the depreciation expense by approximately
$612 0000.
PacifiCorp s Application is also supported by the prefiled testimony of Ms. Kathryn C.
Hymas, PacifiCorp s Managing Director and Corporate Business Services Controller. She provided
testimony addressing the depreciation rates the Company proposes the Commission find to be
proper for both financial reporting and ratemaking purposes. Ms. Hymas also provided background
information that describes the depreciation process, identifies a number of significant issues
considered during preparation of the D&T Study, and addresses the Company s confidence in the
integrity of the accounting data relied on by Mr. Roff.
Mr. Barry G. Cunningham, PacifiCorp s Senior Vice-President of Generation, explained
the process used to develop estimated life spans for the Company s thermal and hydroelectric
generating plants. Mr. Cunningham also explained the reasons for including terminal net salvage in
the steam generating plant depreciation rates and addressed the inclusion of decommissioning and
removal costs for PacifiCorp s Condit and American Fork Hydroelectric plants. Lastly, Mr.
Cunningham explained why depreciation of water rights acquired for the operation of steam
generating plants is appropriate for ratemaking purposes.
STAFF RECOMMENDATION
The depreciation rate change proposed in this Application could substantially impact the
multi-state cost recovery issues under consideration in Case No. P AC-02-3. In order to efficiently
review the Application, Staff recommends that the Commission issue a Notice of Application but
wait to establish further procedure for processing this case until the depreciation rate issue is more
fully developed at the multi-state level. This proposed procedure is acceptable to the Company.
COMMISSION DECISION
PacifiCorp in Case No. P AC-02-5 seeks authorization to change depreciation rates
applicable to its electric property. Staff recommends that the Commission issue a Notice of
Application. Does the Commission agree?
Scott Woodbury
Vld/M:PACEO205
DECISION MEMORANDUM