20040202_744.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER KJELLAND ER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:SCOTT WOODBURY
DATE:JANUARY 29, 2004
RE:CASE NO. PAC-03-S (PacifiCorp)
REQUEST FOR DEFERRED ACCOUNTING ORDER AND RELATED
SURCHARGE
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 ~ 61-524, System of Accounts.
On December 21 , 2003 , following an informal stay of proceedings, the Company
filed an amended Application with the Commission (a) removing its request for deferred
accounting authority for summer 2002 excess power purchase costs, (b) providing additional and
amended information regarding the tax audit payments, and (c) requesting approval of a 16-
month Schedule 93 surcharge to collect the income tax audit-related payments and to recover a
projected under-collection in the present Schedule 93 surcharge for recovery of authorized
excess power costs. Reference Order No. 29034, June 8, 2002.
PacifiCorp requests approval of deferred regulatory accounting for federal and state
income tax payments made in 2002-2003 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 $54 million.
DECISION MEMORANDUM
The revenue requirement associated with the 2002-2003 federal and state tax audit determination
payments attributable to Idaho is $4 198 000. See Application, Exhibit No.2 (revised). 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-I009-157, 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
, ("
we will allow it to
submit tariffs to recover this alleged liability from its ratepayers as a legitimate expense
assuming the audit assessment was not payable from a reserve already accumulated.) Also citing
In The Matter Of The Investigation Of The Effects Of Revisions Of The Federal Income Tax
Code Upon The Cost Of Service Of Regulated Utilities, Case No. U-1500-164, Order No. 21302
(July 1 , 1987), wherein following passage of the 1986 Tax Reform Act which reduced corporate
income tax rates, the Commission allowed the Company to recover the Idaho jurisdictional
portion of approximately $25 million paid in 1987 following an IRS audit of 1983 and 1984
taxes. The audit payments, which the Company seeks authority to defer in this case, the
Company contends, were not paid from a reserve already funded by Idaho ratepayers.
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 federal and state IRS Audit-related income tax payments incurred by the
Company.
In its amended Application the Company includes a request for approval of proposed
electric service Schedule 93 (proposed Schedule 93) to collect the income tax audit-related
payments described in its amended Application and to address the over-collection or under-
collection of excess power costs currently being recovered under present electric service
Schedule 93 (present Schedule 93). The Company requests that the proposed Schedule 93 be
effective immediately upon the expiration of the present Schedule 93 (June 8, 2004). Present
Schedule 93 provides that, subject to Commission review and approval, the surcharge may
DECISION MEMORANDUM
continue at a revised rate to reflect any under-collection or over-collection of the authorized
surcharge amount.Order No. 29034, June 8 , 2002.Current estimates of the power cost
collection under the existing surcharge project an under-collection of approximately $200 000 as
of June 8, 2004. PacifiCorp s proposed Schedule 93 includes the projected under-collection of
power costs in addition to the requested collection of income tax audit-related payments.
approved, the power costs under-collection of approximately $200 000 will be revised based on
current actual data prior to implementation of proposed Schedule 93. The deferred amounts
collected through the surcharge will not include a carrying charge.
The proposed Schedule 93 is designed to recover from tariff customers, on a uniform
percentage basis of revenue from each rate schedule, the deferred amounts over a period of
approximately 16 months. Proposed Schedule 93 would be applied to customers' bills for
electric usage commencing June 08, 2004. Utilizing a test period for the 12-months ending
March 31 , 2003, Application Exhibit No.6 shows the effects of proposed Schedule 93 by rate
schedule and a worksheet containing derivation of the cents per kilowatt hour surcharges for
each rate schedule. For residential customers, the implementation of proposed Schedule 93
would result in a price reduction from current prices averaging 3.3%.Excluding special
contracts, commercial and industrial customers would see a price reduction averaging 3.5%.
Irrigation customers would see a price reduction averaging 3.6%. The overall effect on Idaho
tariff customers would be a price reduction from current levels averaging 3.5%. If the current
surcharge is allowed to expire as scheduled on June 08, 2004, a rate decrease of approximately
5% from current levels will result. The price changes set out in the Company s Application, the
Company notes, do not reflect any impact of reductions to the levels of BP A credits that are
expected to occur in 2004.
PacifiCorp requests that the Commission consider this matter under Modified
Procedure pursuant to Commission Rules of Procedure 201-204 and enter its Order authorizing
the deferral of the Company s excess federal and state income tax payments.
Commission Decision
PacifiCorp has filed a request for a deferred accounting Order to recover federal and
state payments made in 2002 resulting from Internal Revenue Service Income Tax Audits. The
Company also requests approval of a proposed Schedule 93 surcharge to recover the income tax
audit-related payments and any true up of the Company s present Schedule 93 power cost
DECISION MEMORANDUM
recovery. Staff recommends that an intervention deadline be established. Staff apprises the
Commission of its intent to hold public workshops in this matter and to engage in subsequent
settlement discussions with the Company and other parties of record.Reference IDAP A
31.01.01.271-279. Staff recommends that the Company s Application be processed pursuant to
Modified Procedure, i., by written comment rather than by hearing.Reference IDAPA
31.01.01.201-204. Does the Commission agree with Staffs recommended procedure?
Scott Woodbury
Vld/M:PACEO3O5 sw2
DECISION MEMORANDUM