20031027_659.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
WORKING FILE
FROM:PATRICIA HARMS AND WELDON STUTZMAN
DATE:OCTOBER 22, 2003
RE:CASE NO. PAC-03-8 (PacifiCorp); ACCOUNTING ORDER
REGARDING TREATMENT OF CERTAIN ASSET RETIREMENT
OBLIGATIONS.
On May 27 2003, PacifiCorp dba Utah Power & Light Company (PacifiCorp;
Company) filed an Application with the Idaho Public Utilities Commission (Commission)
seeking an Accounting Order authorizing the Company to record regulatory assets and/or
liabilities associated with implementation of Statement of Financial Accounting Standards
(SFAS) 143 , Accounting for Asset Retirement Obligations. Under SPAS 143 , entities are
required to recognize and account for certain asset retirement obligations (AROs) in a manner
different from the way that PacifiCorp and other public utilities have traditionally recognized and
accounted1 for such costs. Specifically, if a legally enforceable ARO as defined by SPAS 143 is
deemed to exist, an entity must measure and record an ARO liability on its books. This change
will not affect the current level of asset removal cost included in the Company s revenue
requirement through depreciation expense. PacifiCorp is required to implement SF AS 143 in
order to comply with Generally Accepted Accounting Principles. The Company states that
nothing in the Application is intended to request any approval regarding future ratemaking
treatment.
STAFF RECOMMENDATIONS
On August 22 2003 , the Commission issued a Notice of Application and Notice of
Modified Procedure to process PacifiCorp s Application. During the written comment period
provided by the Commission, only the Commission Staff filed written comments.
1 Under the accounting method currently used by the Company for both financial reporting and raternaking
purposes, the cost ofremoving a tangible long-lived asset at retirement is included in the calculation of depreciation
rates as negative salvage and is recovered over the useful life of the asset.
DECISION MEMORANDUM - 1 - OCTOBER 22, 2003
Staff recommends approval for PacifiCorp to record, as a regulatory asset or liability, the
cumulative financial statement impact resulting from the implementation of SF AS 143 and the
ongoing annual differences between the SPAS 143 depreciation and accretion expenses and the
annual depreciation and reclamation expenses that are currently authorized by the Commission in
depreciation rates and reclamation accruals. Staff also recommends that the Commission require
in its accounting order that PacifiCorp file annually and as part of its rate case filings, all journal
entries made under the requirements of SF AS 143, including detailed documents supporting the
determination of regulatory assets and liabilities and related dollar amounts.
Staff acknowledges that PacifiCorp has a reasonable opportunity to recover prudently
incurred removal costs. Staff recommends that the reasonableness of differences between actual
and estimated costs should be addressed when those events occur. Staff recommends that no
further confirmation, as requested by PacifiCorp, be included in the Commission s accounting
order.
Because these new accounting entries will not change the level of the costs included in
rates, Staff is making no recommendation regarding the treatment of SF AS 143 regulatory assets
and regulatory liabilities in future rate cases. If the assets and liabilities have an unanticipated
affect on rates, then the ratemaking treatment should be determined at the time of the next rate
case.
COMMISSION DECISION
Does the Commission authorize PacifiCorp to record as a regulatory asset or liability the
financial statement impact resulting from the implementation of SF AS 143 as discussed above?
Does the Commission accept Staffs recommendation to require PacifiCorp to file
annually and as part of its rate case filings, all journal entries made under the requirements of
SPAS 143 , including detailed documents supporting the determination of regulatory assets and
liabilities and the calculation of the related dollar amounts?
G~~ ~"M~
Patricia Harms
i:udememos\fas 1431O22decmemo
DECISION MEMORANDUM - 2 -OCTOBER 22, 2003