20030408_431.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:SCOTT WOODBURY
DATE:APRIL 3, 2003
RE:CASE NO. PAC-03-5 (PacifiCorp)
REQUEST FOR DEFERRED ACCOUNTING ORDER
On March 31 , 2003 , PacifiCorp dba Utah Power & Light Company (PacifiCorp;
Company) filed an Application with the Idaho Public Utilities Commission (Commission) for an
accounting Order allowing PacifiCorp to defer, for regulatory purposes (a) excess costs incurred
for forward power purchases made for the summer of 2002, and (b) federal and state payments
made in 2002 resulting from Internal Revenue Service Income Tax Audits. Reference Idaho
Code 9 61-524, System of Accounts.
As a normal and integral part of its operation as a public utility, PacifiCorp states that
the Company purchases electricity from independent suppliers in the wholesale market. Such
purchases, as well as sales in the wholesale market, it contends, are taken into account in setting
PacifiCorp s retail rates through the inclusion of net power costs in the Company s jurisdictional
revenue requirement.
Starting in April 2001 , PacifiCorp contends that it prudently bought forward
approximately 492 000 MWh of power in the wholesale market at an average price of
approximately $152 per MWh. This energy, PacifiCorp contends, was purchased to meet
expected load requirements for July, August and September 2002 and to protect customers from
the exceedingly high wholesale prices and volatility that were experienced in the WECC region
starting May 2000 and which were expected to continue through the 2002 summer season.
PacifiCorp s situation in this regard, it states, is similar to a number of other utilities in the West
which made forward purchases that afterward turned out to be above market. The excess
DECISION MEMORANDUM
forward market purchase costs which PacifiCorp proposes to defer are $56 million on a total
Company basis, and approximately $2.5 million allocated to Idaho.
PacifiCorp proposes to account for the excess forward purchased costs in the
following manner for regulatory purposes: excess forward purchase costs will be credited to
Account 555, Purchased Power, thereby decreasing the recorded power supply expenses, and
debiting Account 182.399, Regulatory Assets.
PacifiCorp also requests approval of deferred regulatory accounting for federal and
state income tax payments made in 2002 resulting from the conclusion of Internal Revenue
Service Income Tax Audits for tax years 1994 through 1998, in which the IRS made its final
determination of the adjustments to the Company s income tax obligations. Such payments
attributable to PacifiCorp s regulated utility operations amounted to approximately $68 million.
These IRS audit-related payments, the Company contends, are a legitimate cost of doing
business, as previously recognized by the Commission. Citing Re: Utah Power Light
Company, Case No. U-1009-157, Order No. 20523 (May 29, 1986), in which the Commission on
reconsideration of a Commission adopted expense adjustment to a disputed IRS tax assessment
determined that if the Company could show it paid a liability arising from an IRS Audit
, ("
will allow it to submit tariffs to recover this alleged liability from its ratepayers as a legitimate
expense.) The 2002 federal and state tax audit determination payments attributable to Idaho are
460 000.
PacifiCorp proposes to account for the federal and state income tax payments, for
regulatory purposes, in the following manner: income tax payments will be credited to Account
409, Income Taxes, thereby decreasing the recorded income tax expense, and debiting Account
182.399, Regulatory Assets.
Deferred accounting treatment for regulatory purposes, PacifiCorp contends, is an
appropriate, just and reasonable means of providing the Company an opportunity to seek
recovery of the extraordinary forward purchase power costs and IRS Audit-related income tax
payments incurred by the Company. PacifiCorp states that it does not request a determination at
this time of prudency or ratemaking treatment of the costs it seeks authority to defer. Any such
determinations, it contends, will be made in a future rate proceeding.
PacifiCorp requests that the Commission consider this matter under Modified
Procedure pursuant to Commission Rules of Procedure 201-204 and enter its Order authorizing
DECISION MEMORANDUM
the deferral of the Company s excess forward purchased costs, and the federal and state income
tax payments.
Commission Decision
PacifiCorp has filed a request for a deferred accounting Order to recover excess costs
incurred for forward power purchases made for the summer of 2002 and federal and state
payments made in 2002 resulting from Internal Revenue Service Income Tax Audits. Staff
recommends that the Company s Application be processed pursuant to Modified Procedure, i.e.
by written comment rather than by hearing. Does the Commission agree with the proposed
procedure?
Scott Woodbury
VldIM:P ACEO305 _
DECISION MEMORANDUM