20070409_1882.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
CO MMISSI 0 NER SMITH
COMMISSIONER REDFORD
COMMISSION SECRETARY
COMMISSION STAFF
LEG AL
FROM:DON HOWELL
DATE:APRIL 6, 2007
SUBJECT:ROCKY MOUNTAIN'S REQUEST FOR AN ACCOUNTING ORDER
RELATED TO THE FLOODING OF THE POWERDALE HYDRO
FACILITY, CASE NO. PAC-07-
On March 22, 2007, Rocky Mountain Power (a division of PacifiCorp) filed an
Application seeking an accounting order related to the November 2006 flooding of the
Powerdale generating facility. Powerdale is located in central Oregon on the Hood River, south
of its confluence with the Columbia River. Rocky Mountain requests an accounting order that
authorizes the Company to: (1) transfer $8.9 million in undepreciated net investment from FERC
Account 101 (Electric Plant in Service) to FERC Account 182.2 (Unrecovered Plant and
Regulatory Study Costs); (2) record $6.3 million in decommissioning costs to FERC Account
182.2; and (3) establish amortization periods for these amounts.
The Company asserts that the $8.9 million in Powerdale costs are currently being
recovered in rates. The Company does not seek any particular rate treatment at this time and
states that any incremental rate adjustments caused by approval of this Application will be
addressed in the Company s next general rate case.
BACKGROUND
Powerdale was constructed in 1922-1923 and includes a small diversion dam, and 3-
mile water conveyance system, and a single MW powerhouse. The facility also contained a 19-
pool fish lab and 5 vertical fish screens.
I On March 30, 2007, Rocky Mountain filed a notice pursuant to Commission Rule 122 that it intends to file for a
general rate increase no sooner than 60 days and no later than 120 days.
DECISION MEMORANDUM
After initiating a FERC relicensing process for Powerdale in 1995 , the Company
subsequently concluded that continued operation of the facility would not be economical.
Consequently, the Company filed a decommissioning plan with FERC in 2003. In November
2005 , FERC adopted a settlement agreement and issued a "Removal Order" for Powerdale. The
Removal Order authorized Rocky Mountain to continue operating Powerdale until April 1 , 2010
and provided for removal of the facilities by February 29, 2012.
In November 2006, the Powerdale generating facility was damaged by flooding and
debris flow. Application at 2. Exhibit 1 to the Company s Application contains photographs
showing the damage to various components of the facility. After conducting another economic
analysis, the Company concluded that it is now more cost effective to retire this facility than to
repair the flood damage.Id. at 3.On February 1 , 2007, Rocky Mountain requested
authorization from FERC to cease operations immediately and sought approval to initiate
decommissioning actions ahead of schedule.
Based upon the substantial damage to the Powerdale facility and the change in the
river channel, Rocky Mountain asserts that it is no longer economical to repair the Powerdale
facilities for the remaining three years of its operating license. After comparing the total cost to
repair and operate Powerdale versus the total cost to retire Powerdale, the Company has
concluded that retirement "is an overall lower cost-to-customers alternative than repair/operation
by approximately $1.611 million.Therefore, (Rocky Mountain J intends to retire the plant
assuming the Commission approves this Petition." Application at 5; Exh. Nos. 4-
ACCOUNTING REQUEST
As set out above, Rocky Mountain seeks an accounting order addressing two
categories of costs: (1) undepreciated investment in Powerdale plant; and (2) decommissioning
costs. If approved, the Company s decision to retire Powerdale will result in the potential
impairment of the physical and intangible assets in accordance with Financial Accounting
Standard (F AS) No. 90
, "
Regulated Enterprises-Accounting for Abandonments and
Disallowances of Plant Costs." The Company states that F AS 90 will require "PacifiCorp to
write-off its undepreciated plant investment in the absence of the requested accounting treatment
from its commissions.Id. at ~ 8. Rocky Mountain proposes to account for the costs by
recording the decommissioning costs and the undepreciated portion of the plant assets in FERC
Account 182.
DECISION MEMORANDUM
As of December 31 , 2006, Rocky Mountain states that the unallocated net book value
of the tangible and intangible plant assets equal approximately $8.9 million. The actual amount
transferred to FERC Account 182.2 "will be the remaining undepreciated net book value as of
the date of the transfer.Id. The Company indicates that it will amortize this balance at a rate
equal to the depreciation rate used for FERC Account 101 , or 4.2% which is currently included
in rates? The Company estimates that the total decommissioning cost will be approximately
$6.3 million subject to final reconciliation and true-up of actual expenditures. The Company
requests a three-year amortization period for the deferred decommissioning expenses upon
inclusion in rates in the next rate case. "Absent Commission authority, the Company would need
to recognize the decommissioning as a current period expense.Id. at 8.
Pursuant to Rocky Mountain s Revised Protocol 3 hydro-related costs are initially
allocated ratably to each of the six state jurisdictions served by PacifiCorp. Rocky Mountain
calculates that the Idaho-allocated share of the undepreciated investment in Powerdale is
approximately $557 000, and the Idaho-allocated share of the decommissioning cost is
approximately $393 000. Id. at ~ 11. The Company further states that
Under the Revised Protocol allocation method, subsequent to the initial
system-wide allocation, hydroelectric generation-related costs are included in
the calculation of the Embedded Cost Differential , which assigns the majority
of hydroelectric costs to the western side of the Company s system. In order
to align cost responsibility with benefits received, the costs for which this
Application seeks an order would be included in the calculation of the
Embedded Cost Differential for future rate-making purposes based on the
continued use of the Revised Protocol.
Application at 9.
In summary, Rocky Mountain requests that the Commission issue an accounting
order authorizing the Company to transfer the remaining undepreciated net book value of the
Powerdale plant to a regulatory asset account; to record the costs related to decommissioning the
2 The Company anticipates a change in this 4.2% rate after it files a new depreciation study in September 2007. The
Company anticipates that the new depreciation rate will become effective as of January 1 , 2008. The Company
intends to file a three-year amortization period for the remaining balance ofthe unrecovered net plant balance in that
study. Application at ~ 10.
3 The "Revised Protocol" is Rocky Mountain s inter-jurisdictional cost allocation methodology utilized in its six
state service areas.
DECISION MEMORANDUM
Powerdale facility to the same regulatory asset account; and establish amortization periods for
these balances.
STAFF ANALYSIS
Idaho Code 9 61-524 authorizes the Commission to establish a System of Accounts
to be kept by public utilities. Pursuant to Accounting Rule 101 , the Commission requires Rocky
Mountain to conform its accounting practices to the Uniform System of Accounts as adopted by
the Federal Energy Regulatory Commission. IDAP A 31.12.01.101.
The Company s Application did not request that the Application be processed under
any particular method. After reviewing the Application and its supporting workpapers, Staff
believes that this matter may be appropriately processed under Modified Procedure.
Consequently, Staff recommends that the Commission issue a Notice of Application and a
Notice of Modified Procedure to process this case.
COMMISSION DECISION
Does the Commission wish to process this matter under Modified Procedure?
Don Howell
blslM:PAC-O7-04 dh
DECISION MEMORANDUM