20040504Notice of Commencement of Amortization.pdf

BARTON L. KLINE ISB #1526
Idaho Power Company
O. Box 70
Boise , Idaho 83707
Telephone: [phone]
FAX Telephone: [phone]
HECEIVEO
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20Ut1 MAY -4 PM 4: 43
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UTILITIES Cm'lrllSSION
Attorney for Idaho Power Company
Street Address for Express Mail
1221 West Idaho Street
Boise , Idaho 83702
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR AN
ACCOUNTING ORDER AUTHORIZING
IDAHO POWER TO DEFER THE
EXTRAORDINARY COSTS ASSOCIATED
WITH INCREASED SECURITY MEASURES
IMPLEMENTED ON COMPANY PROPERTY
SINCE SEPTEMBER 11 2001.
CASE NO. IPC-01-
NOTIFICATION OF
COMMENCEMENT OF
AMORTIZATION
On March 28, 2002 , the Commission issued Order No. 28975 in the
above-entitled proceeding granting Idaho Power Company s request for an order
allowing for the deferral of extraordinary costs associated with increased security
measures. The Commission in that Order required that the extraordinary security costs
accrued before January 1 , 2002 be amortized over a five-year period commencing
January 1 , 2003. Costs deferred in each succeeding year would be amortized
beginning January 1 of the next calendar year. At Page 5 of Commission Order No.
28975 the Company has interpreted the Commission s Order to require the
NOTIFICATION OF COMMENCEMENT OF AMORTIZATION , Page
commencement of the amortization of 2003 deferred costs to be January 1 , 2004. The
Company herewith provides notification of the commencement of the monthly
amortization of security costs as follows:
2003
Monthly Amortization $ 5 382.
The Company recognizes that the final amortization amount is dependent upon the
Commission s prudency review of the expenses incurred as well as the ultimate sharing
of costs between Idaho Power Company shareholders and customers.
Attached to this Notification is a brief description of the security measures
that were undertaken by the Company in 2003. Due to the sensitivity of the security
measures, the descriptions of the measures are general in nature, and if the
Commission or its Staff desires additional information , the Company will make available
the Company s Security Consultant.
The Company has also attached a one-page document which sets forth
the Incremental Security Cost, Allocations and Amortizations for the year 2003. The
Company requests that if additional information is required in reference to the cost
allocations and amortization, that the Commission or its Staff contact Mr. Michael J.
Youngblood, Regulatory Affairs Representative , at 388-2882.
2003 is the final year in which the Company intends to defer extraordinary
security costs under Order No. 28975.
Communications with reference to this Notification should be sent to the
following:
NOTIFICATION OF COMMENCEMENT OF AMORTIZATION , Page 2
Barton L. Kline
Senior Attorney
Idaho Power Company
O. Box 70
Boise, ID 83707
bkline(Q) idahopower.com
Michael J. Youngblood
Regulatory Affairs Representative
Idaho Power Company
O. Box 70
Boise, ID 83707
mvounqblood (Q) idahopower.com
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Respectfully submitted this 4 -day of May, 2004.
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BARTON L. KLINE
Attorney for Idaho Power Company
NOTIFICATION OF COMMENCEMENT OF AMORTIZATION , Page 3
Additional Security Measures
Taken In 2003
Additional Security Measures Taken in 2003
Hells Canyon Complex:
At the beginning of the year 2003 , all of the facilities in the Hells Canyon Complex were
covered by electronic surveillance and monitored by four (4), part-time temporary
employees at the Oxbow office.
During the month of August 2003, communication system upgrades allowed the transfer
of the monitoring operations to the M&E facilities located on Franklin Rd. in Boise. The
four (4) part-time employees at the Oxbow office were released and the private contractor
who provides security services for IPCo in the Boise area assumed the monitoring
responsibilities.
As noted in the 2002 report, Idaho Power Company has continued the agreement with the
Adams County Sheriff's Department to reimburse part of the cost of a full-time deputy in
the Canyon, a vehicle and housing in Hells Canyon. The deputy s primary responsibility
if that of providing immediate response to security related issues and providing a high
profile law enforcement deterrent in the Hells Canyon Complex.
Idaho Power Company also provides housing in Hells Canyon for two (2) other part-time
Adams County Deputies. Their primary responsibility is that of waterway safety,
however, they are also available to assist in other security related issues when necessary.
Corporate Headquarters:
Security manpower has not changed from the report of year 2002. However, electronic
surveillance has been upgraded and is being monitored in conjunction with the Hells
Canyon Complex at the M&E facility.
Boise Bench:
This facility continues to be covered by 24 hr per day, 7 day per week protection by a
physical guard provided by the security contractor. During the year 2004, we anticipate
that electronic monitoring will be fully operational and the physical presence will be
either eliminated or reduced significantly and monitoring of that facility will be
incorporated at the M&E facility.
Swan Falls:
Electronic surveillance at this facility has been upgraded and is also now being monitored
at the Boise M&E facility.
Incremental Security Cost , Allocations
and Amortizations
For the Year 2003
Work
Order 2003
27014398 131 990.
(3,367.89)
128 622.
27104400 134 874.
27104401 80,474.
343,971.
93.89%
322 954.
384.
382.
Incremental Security Cost, Allocations and Amortizations
For The Year 2003
Admininstration (CHQ)
Amount Allocated to IDACORP and Subs
Net Administration
Delivery
Power Supply
Idaho Retail Jurisdictional Percentage
Idaho Jurisdictional Amount To Be Deferred And Amortized
Amount To Be Expensed
Monthly Amortization (60 Months)
CASE NO. IPC-01-
ORDER NO. 28975
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Service Date
March 28. ::WO~
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR AN
ACCOUNTING ORDER A UTHORlZING
IDAHO POWER TO DEFER THE
EXTRAORDINARY COSTS ASSOCIATED
\VITH INCREASED SECURlTY MEASURES
IMPLEJ\1:ENTED ON COMPANY PROPERTY
SINCE SEPTEMBER 11 2001.
) CASE NO. IPC-OI-
) ORDER NO. 28975
On November 15 , 2001 , Idaho Power Company filed an Application requesting the
Commission issue an accouming order authorizing the Company to defer its extraordinary costs
associated v.~th increased security measures subsequent to eve~ns of September 11, 2001.
November 21 , 2001 , the Commission issued a Notice of Application and a Notice of Modified
Procedure requesting public comment in this matter. In response to the Commission s Notices, it
received eight comments from members of the public and comments from the Commission Staff.
On January 4 , 2002, Idaho Power filed a reply to the Staffs comments. After reviewing the
comments in this matter, the Commission grants the Company s Application with conditions as
explained in greater detail below.
THE APPLICATION
In its Application, Idaho Power stated that it has increased security at its facilities and
retained a security consultant to advise the Company of additional security measures that may be
warranted. For "obvious security reasons " the Company did not present more specific details of
its increased security measures. The Company maintained that the additional or extraordinary
security measures are needed to ensure the safety of its employees and to protect the Company's
facilities. Idaho Power asser1ed that the additional "security measures implemented by the
Company benefit all Idaho Power customers." App. at
Idaho Power proposed that the Commission issue an accounting order allowing the
Company to defer in Account 182.3 (Regulatory Assets), with interest, its "extraordinary
security costs incurred since September 11 2001." ld. at 3. The Company reported its normal or
ordinary security costs incurred for the nine months prior to September 2001 were approximately
ORDER NO. 28975
$11 000 per month. The Company proposed to book and defer the extraordinary security costs
over and above the $11 000 per month threshold.
THE COMMENTS
A. Public Comments
AlJ eight of the public comments opposed Idaho Power request.Several
commenters indicated that the request represents in essence a rate hike.in addition , several
commenters argued that increasing security was a cost of doing business. As one commenler
stated, the "cost of security is a cost that all businesses must endure. When you enter a place of
business you are not assessed a security cost , it s their cost of doing business."Another
commenter observed that if Idaho Power wants to recover its additional security costs , then it
should reduce other expenses to offset the increased security expenses.
B. The Commission Staff and Company Reply
The only other person to comment was the Commission Staff.The Staff
conceprualJy agreed that Idaho Power should be alJowed to defer and subsequently recover its
reasonable and prudent extraordinary security expenses. However, the Staff qualified its suppon
with several conditions. Set out below is the Staffs comments and the Company s responses to
each Staff recommendation.
I. No Automatic Recovery . Staff agreed that Idaho Power be allowed to defer its
extraordinary security costs in Account 182.3 for security costs in excess of $11 000 per month.
Staff recommended that the accounting order shouJd clearly state that booking and deferring
does not constitute automatic Commission approval to subsequently recover the increased costs
from ratepayers. The prudency of these costs must be demonstrated by the Company prior to
recovery.
In its reply, the Company sought to clarify the Staffs comments. It responded that if
it "does not have assurance that it is appropriately deferring these additional security measure
costs, then it cannot defer what would otherwise be an expense to a future period. If Staff is
recommending a prudency review, then the Company has no objection and recognizes that this is
always within the authority of the Commission." Reply at 2.
2. Reimbursement from Other Sources. Staff recommended that Idaho Power pursue
all alternative resources of reimbursement from government or other programs. Staff noted that
Presidential Executive Order No. 13010 designated certain electrical facilities as critical national
ORDER NO. 28975
infrastructure. Consequently, funding for additional protective measures for these facilrties may
be available from federal sources. Idaho Power said that it wil1 endeavor to seek reimbursement
from other entities
, "
but based upon recent pronouncements, the likelihood of such recovery is
remote at best." Reply at 3. Idaho Power agreed that any reimbursement from other programs or
entities shall be shown as a reduction to the deferred balance when the reimbursement is
received. Jd.
3. Sharing Deferral Costs. Staff next proposed that the cost of additional security
measures be shared between the customers and the Company s shareholders. The sharing of
costs wilJ encourage Idaho Power to mitigate the additional security costs and provide additional
incentives for the Company to spend funds wisely. Staff recommended that the deferral amounts
be shared 50/50. Because the additional security wilJ protect the assets of the Company as well
as benefit all customers, the Staff recommended that other affiliates of Idaho Power should also
share in these costs. Staff also recommended that the annual dderral costs should be subject to
return-on-equity earning test. The test would limit the annual deferral when .Idaho Power
earnings are greater than 11 % return on equity.
The Company insisted that additional secunry costs represent extraordinary or
unusual expenditures, which the Company could not have anticipated and which are not being
recovered in its existing revenue requirement. The Company argued that the Staffs sharing
suggestion is umeasonable. Until such time as the Commission conducts its prudency review
the extraordinary costs fall "within the purview of reasonable expenditures.Jd. Staff submitted
no precedent for its sharing recommendation and , as such, it should be rejected.
CarrYing Charges Staff also recommended that no carrying charges' on the
accrued deferred balance be allowed. The Staff argued that Idaho Power has not justified interest
being accrued on this deferred balance. The Staff suggested that the opportunity to recover these
costs along with the resulting improved earnings position are sufficient reasons to not grant
interest on the account balances. The Company argued that pending the prudency review, the
additional security expenditures are reasonable. Consequently, the Company maintained it
should be entitled to earn interest on the deferred balance. "The cost of money cannot be ignored
when examining or reviewing a Company expenditure.!d. at 4.
5. Amortization Period Finally, Staff suggested that the amount in the security
deferral accounts be amortized. Staff suggested that the deferred expenditures through
ORDER NO. 28975
December 31 , 2001 , should be amonized over a five-year period beginning in January 2002.
Amounts incurred on and after January 1 , 2002 , should be amoI1ized over a five-year period
beginning with January foJlowing the date it is booked. Finally, Staff also recommended that
Idaho Power continue to provide confidential briefings to the Staff concerning the ~tatus of the
Company s extraordinary security measures and the associated costs.. Staff recommended that
the Company keep adequate records to document the necessity and prudency of each security
measure.
The Company recommends that the Staff s amoI1ization recommendation be
modified to recognize the timing of the expenditures. The Company agrees with th~ five-year
amoI1ization period but proposes that the commencement of the five-year period should begin
January 2003.The Company fuI1her recommends that before amOI1ization begins , the
Commission shouJd conduct its prudency review on the security expenditures. Consequently, the
Company proposes to submit its extraordinary expenses incurred prior to January 31 , 2002
before the stan of the proposed five-year amOI1ization period on January 1 2003.
FINDINGS AND DISCUSSION
Having reviewed the comments in this matter, we find it is reasonable to grant the
Company s request and issue an accounting order as conditioned below. It is undeniable that
events of September 11 , 2001 have prompted utilities and other entities to institute or enhance
security measures to safeguard their facilities. Although we agree with the public comments that
increasing security is "a cost of doing business " utilities are normaJJy alJowed to recover their
reasonable expenses in providing utility service to the public.
Although the Staff recommended that the Commission issue an accounting order
creating the deferral mechanism, the Staff did qualify its recommendation with several
conditions. We now turn to those conditions.
1. The Account and Amonization . The Company and Staff are in agreement that
once the extraordinary expenditures are booked as deferrals, the prudency of such extraordinary
security costs must be demonstrated by the Company prior to recovering these costs. We agree.
As we noted in Order No. 28900 in this matter, the "reasonableness of such deferred
expenditures wilJ be subject to Commission review before the Company is allowed to recover
the deferred expenses. We fuI1her find that it is appropriate to book these deferred expenses in
Account No. 182.
ORDER NO. 28975
The Company and the Staff also agree that the deferred expenditures should be
amortized over a five-year period but recommended different start dates.The Staff
recommended beginning the five-year amortization period on January 1 , 2002 , while the
Company proposed a start date for amortization of January 1 , 2003. We adopt the Company
proposal that those extraordinary security expenses incurred prior to. January I , 2002 be
amortized beginning January 1 , 2003. Costs incurred in each subsequent year shall begin to be
amortized on January 151 of the next calendar year (e., 2002 costs (from January 2. 2002 to
December 31 2002) will begin to be amortized on January 1 2003). The Compan:/ is instructed
to keep adequate records to document the necessity and prudency of its extraordinary security
measures.
2. Carrvin Q. CharQ.es.Staff next recommended that the Company receive no
carrying charges on the accrued deferral balances to be allowed. For its part , the Company
maintained that it should be entitled to earn interest on the deferred account balance. \Ve find
reasonable that Idaho Power earn interest on the deferred balance at the rate authorized for
customer deposits pursuant to the Utility Customer Relations Rule 106., IDAP A
31.21.01.106.02.
3. SharinQ. and Allocation . There is strong disagreement between the Staff and the
Company about the Staffs proposals regarding sharing and allocations. The Staff suggested that
the deferred amounts be shared 50/50 betvveen ratepayers and shareholders. The Staff also
recommended that when Idaho Power s return on equity is greater than 11 %, the Company not
be allowed to defer its extraordinary security costs.Finally, the Staff proposed that Idaho
Power s other affiliates share in the costs of protecting the assets used by its various affiliates. In
its reply, the Company argued that the additional security costs represent extraordinary and
unusual expenses to which it should be entitled to recover after the Commission conducts its
prudency review.
recommendations.
The Company urged the Commission to reject the Staffs sharing
We believe the arguments of both parties have merit. In particular, we believe that it
is appropriate that affiJiates of Idaho Power be allocated their fair share of these extraordinary
secunty costs.While we have no quarrel with the Company s argument that the security
I We recognize it is normal accounting practice for Idaho Power to allocate a portion of its system costs to the other
jurisdictions (federal and state).
ORDER NO. 28975
measures benefit aIJ Idaho Power customers , the same can be said for shareholders and
unregulated affiliates of the Company.We find it is appropriate to a1Jocate some of the
extraordinary security measures to IdaCorp Energy and other affi)jates that utilize the Idaho
Power system. For example, the extraordinary security costs associated with the transmission of
power, the sale of energy to wholesale customers, or transactions with affiliates should be
aIJocated or shared among those entities that benefit from the enhanced security measures.
\Ve also note that the Federal Energy Regulatory Commission (FERC) has issued a
policy statement (Docket No. PLOl-000) regarding extraordinary expenditures necessary
safeguard national energy facilities. See 96 FERC 'iJ61 ,299 (2001). In that docket , FERC
recognized that utilities may be required to undertake additional security measure~ to' safeguard
their systems. FERC assured utilities that "it would give its highest priority to processing any
filing made for the recovery of such expenditures." 67 Fed. Reg. 3 129" n.2 (January 23 , 2002).
Thus , FERC has recognized that the Company s services subject to its jurisdiction should be
responsible for paying for additional security costs.Consequently, Idaho Power may seek
recovery of some of these costs through the FERC process.
We next turn to the Staffs sharing and equity cap proposals. Consistent with our
findings above , \\le believe it is appropriate to aHocate the defeITed expenses, However, we have
not been advised about the magnitude of the expenses to be defeITed. For purposes of recording
the defeITals, it is not necessary at this time to address the merits of Staffs sharing proposa1.
Consequently, \\le defer making a final decision on the reasonableness of the Staffs suggestion
regarding the sharing of costs between shareholders and ratepayers. A decision regarding the
sharing or aHocation of these expenses shaH coincide with the Commission s future prudency
review of the expenses to be recovered from ratepayers. When the Company seeks to recover
these defeITed security costs we shaH determine whether the costs of specific security measures
benefit assets used to serve ratepayers or unregulated affiliates. FinaHy, we reject the Staffs
proposal to limit defeITals in instances where the Company s return on equity is greater than
11%.
ORDER
IT IS THEREFORE ORDERED that Idaho Power Company s request for an
accounting order to defer extraordinary costs associated with the increased security measures is
granted as conditioned above.
ORDER NO. 28975
IT IS FURTHER ORDERED that the Company defer its extTaordinary security costs
in excess of $ I 1 000 per month in Account 182,3 (regulatory assets),
IT IS FURTHER ORDERED that deferred extTaordinary security costs in this
account accrued before January I , 2002, be amortized over a five-year period beginning
January I , 2003. Costs deferred in each subsequent year shall be amortized beginning January
151 of the next calendar year.
IT IS FURTHER ORDERED that these deferred costs receive a carrying charge in an
annual amount established in Rule 106., IDAPA 31.21.01.106.02.
IT IS FURTHER ORDERED that the deferred extTaordinary security costs be
aJJocated among the Company s various jurisdictions and affiliates. The Commission specificaJJy
defers making a final decision regarding the final aJJocation of deferred security expenses to
other affiliates and sharing with sharehoJders until such time as the Commission conducts its
prudency review of the expenses.
THIS IS A FINAL ORDER. Any person interested in,this Order (or in issues finaJJy
decided by this Order) or in interlocutory Orders previously issued in this Case No.IPC-01-
may petition for reconsideration within twenty-one (21) days of the service date of this Order
with regard to any maner decided in this Order or in interlocutory Orders previously issued in
this Case No. IPC- E-O 1-41.Within seven (7) days after any person has petitioned for
reconsideration, any other person may cross-petition for reconsideration. See Idaho Code ~ 61-
626.
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ORDER NO. 28975