28975.pdf

Office of the Secretary
Service Date
March 28, 2002
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-
) ORDER NO. 28975
On November 15, 2001 , Idaho Power Company filed an Application requesting the
Commission issue an accounting order authorizing the Company to defer its extraordinary costs
associated with increased security measures subsequent to events of September 11 , 2001. On
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
facilities. Idaho Power asserted 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
All 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 commenter
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
conceptually agreed that Idaho Power should be allowed to defer and subsequently recover its
reasonable and prudent extraordinary security expenses. However, the Staff qualified its support
with several conditions. Set out below is the Staffs comments and the Company s responses to
each Staff recommendation.
1. 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 should 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. 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 facilities may
be available from federal sources. Idaho Power said that it will 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. ld.
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 will 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 will 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 deferral costs should be subject to a
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 security costs represent extraordinary
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 unreasonable. Until such time as the Commission conducts its prudency review
the extraordinary costs fall "within the purview of reasonable expenditures.Id. Staff submitted
no precedent for its sharing recommendation and, as such, it should be rejected.
4. 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.ld. 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 amortized over a five-year period beginning in January 2002.
Amounts incurred on and after January 1 , 2002, should be amortized over a five-year period
beginning with January following the date it is booked. Finally, Staff also recommended that
Idaho Power continue to provide confidential briefings to the Staff concerning the status 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 amortization recommendation be
modified to recognize the timing of the expenditures. The Company agrees with the five-year
amortization period but proposes that the commencement of the five-year period should begin
January 2003. The Company further recommends that before amortization begins, the
Commission should 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 start of the proposed five-year amortization 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 normally allowed 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 Amortization. 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 will be subject to Commission review before the Company is allowed to recover
the deferred expenses. We further 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 1 , 2002 be
amortized beginning January 1 , 2003. Costs incurred in each subsequent year shall begin to be
amortized on January 1st 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 Company is instructed
to keep adequate records to document the necessity and prudency of its extraordinary security
measures.
2. Carrying Charges 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. We find it
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. Sharing 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 between 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 affiliates of Idaho Power be allocated their fair share of these extraordinary
security 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 all Idaho Power customers, the same can be said for shareholders and
unregulated affiliates of the Company. We find it is appropriate to allocate some of the
extraordinary security measures to IdaCorp Energy and other affiliates 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
allocated or shared among those entities that benefit from the enhanced security measures.
We also note that the Federal Energy Regulatory Commission (FERC) has issued a
policy statement (Docket No. PLOI-000) regarding extraordinary expenditures necessary to
safeguard national energy facilities. See 96 FERC ~ 61 299 (2001). In that docket, FERC
recognized that utilities may be required to undertake additional security measures 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, we believe it is appropriate to allocate the deferred expenses. However, we have
not been advised about the magnitude of the expenses to be deferred. For purposes of recording
the deferrals, it is not necessary at this time to address the merits of Staffs sharing proposal.
Consequently, we 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 allocation of these expenses shall coincide with the Commission s future prudency
review of the expenses to be recovered from ratepayers. When the Company seeks to recover
these deferred security costs we shall determine whether the costs of specific security measures
benefit assets used to serve ratepayers or unregulated affiliates. Finally, we reject the Staffs
proposal to limit deferrals 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 extraordinary security costs
in excess of $11 000 per month in Account 182.3 (regulatory assets).
IT IS FURTHER ORDERED that deferred extraordinary security costs in this
account accrued before January 1 , 2002, be amortized over a five-year period beginning
January 1 , 2003. Costs deferred in each subsequent year shall be amortized beginning January
1 st ofthe next calendar year.
IT IS FURTHER ORDERED that these deferred costs receive a carrying charge in an
annual amount established in Rule 106., IDAP A 31.21.01.106.02.
IT IS FURTHER ORDERED that the deferred extraordinary security costs be
allocated among the Company s various jurisdictions and affiliates. The Commission specifically
defers making a final decision regarding the final allocation of deferred security expenses to
other affiliates and sharing with shareholders 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 finally
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 matter decided in this Order or in interlocutory Orders previously issued in
this Case No. IPC-01-41.Within seven (7) days after any person has petitioned for
reconsideration, any other person may cross-petition for reconsideration. See Idaho Code 9 61-
626.
ORDER NO. 28975
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 7-f1....
day of March 2002.
PAUL
MARSHA H. SMITH, COMMISSIONER
ATTEST:
Je n D. JewellCo ission Secretary
bls/O:IPCEO141 dh2
ORDER NO. 28975