ipce01.41dhtc comments.doc

DONALD L. HOWELL, II
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3366

Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983

Attorney for the Commission Staff

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. )
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CASE NO. IPC-E-01-41

COMMENTS OF THE COMMISSION STAFF

COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its Attorney of record, Donald L. Howell, II, Deputy Attorney General, and submits the following comments in response to Order No. 28900 issued on November 21, 2001.

APPLICATION
On November 15, 2001, Idaho Power Company filed an Application requesting that the Commission issue an accounting order. More specifically, the Company requested that the Commission allow Idaho Power to defer and account for its “extraordinary” costs associated with implementing increased security measures since the terrorist attacks of September 11, 2001.
Idaho Power states that it has increased security at its facilities and has retained a security consultant to advise the Company of additional security measures that may be warranted. Application at 2. For “obvious security reasons,” the Company does not desire to present more specific details of its increased security measures.
Idaho Power proposes 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.” Id. at 3. The Company reported its ordinary security costs for the nine (9) months prior to September 2001 were approximately $11,000 per month. Id. The Company proposes that extraordinary security costs over and above the $11,000 per month amount be deferred.
The Company maintains that the extraordinary security measures “are needed to ensure the safety of its employees and to protect [Company facilities] used for the generation and transmission of electrical energy. The additional security measures implemented by the Company benefits all Idaho Power customers.” Id.
Order No. 28900 states that “if approved, the creation of the deferral account is not to be construed as allowing the recovery of extraordinary security expenditures. The reasonableness of such deferred expenditures will be subject to Commission review before the Company is allowed to recover the security expenditures.” Order No. 28500 at 2.

STAFF ANALYSIS AND RECOMMENDATIONS
Deferral
Security measures are ongoing costs incurred by all utilities. As a result of the terrorism activity and threats on and after September 11, 2001, many utilities have enhanced security measures since September 11. The Company requests that its costs incurred above the average monthly cost for ongoing measures be deferred.
Staff recommends that Idaho Power be allowed to defer the extraordinary security costs in Account No. 182.3, Regulatory Assets. A separate sub-account should be maintained for these deferred costs. This will ease the audit requirements to separately identify the additional security costs for review. Idaho Power estimates that the additional security measures above ongoing normal expenditures will not exceed $150,000 monthly. This cost is expected to decline as additional security measures can be automated.
Deferral of these costs would allow Idaho Power the opportunity to recover prudently incurred costs at a later date. As the Commission noted in its Order No. 28900, a deferred accounting order does not constitute automatic Commission approval to collect the cost from Idaho Power customers. The prudence of these costs must be demonstrated by Idaho Power prior to inclusion in rates for recovery. This is consistent with prior Commission orders where deferral has been authorized.
In July 1996, the President issued Executive Order No. 13010 designating among other types of facilities certain electrical power facilities as critical national infrastructure. The Executive Order describes critical infrastructure as facilities “so vital that their incapacity or destruction would have a debilitating impact on the defense or economic security of the United States.” See also Executive Order No. 13231 (October 16, 2001). Typically, providing for the common defense is the responsibility of the federal government. U.S. Constitution, Article 1, §8. Consequently, federal government funds may be available. Staff recommends that Idaho Power should pursue all alternative sources of reimbursement from government programs or other programs. The deferral should first be reduced or offset by any cost reimbursement from any and all entities.
Sharing Mechanism
Staff recommends that the costs for additional security measures in response to terrorism be shared between the customers and the shareholders. The sharing of costs will encourage Idaho Power to mitigate the additional security costs and provide additional incentive for the Company to spend funds wisely on cost-effective measures. This will serve to enforce what appears to be the current Company attitude.
Staff recommends that the deferred amounts be shared 50%/50% between customers and shareholders. Security measures are normal expenditures; they protect the investment of the shareholders and the service to customers. As such they benefit all customers, including wholesale customers, transmission customers and IDACORP Services, and shareholders and the deferred costs should be shared accordingly. Staff also recommends that the annual deferred costs should be subject to a return on equity earnings test. The test would limit the annual deferral when Idaho Power earnings are greater than the currently allowed 11% return on equity (see Order No. 25880, dated January 31, 1995).
The additional security costs represent approximately 0.2% of Idaho Power Company’s revenues and less than 2% of its net income. These costs represent approximately 0.13% of IDACORP’s revenues and 1.3% of its net income.

Recovery in Rates
Security measures including the enhanced measures due to terrorism threats are normal expenditures even though they may be higher than the expense level reflected in current rates. This is common for all companies. Staff maintains that recovery of these costs should be reflected in general rates and not a component of the annual Power Cost Adjustment (PCA) mechanism.
Interest on the deferred balances
Staff recommends that there be no carrying charges on the accrued deferred balance for the additional security measures responding to national terrorism threats. Idaho Power has not justified interest being accrued on this deferred balance. Deferred accounting will allow Idaho Power to request recovery of its prudent costs at a future date. Absent deferral, the opportunity for recovery is not currently allowed under the Public Utilities Law. The opportunity to recover these costs along with the resulting improved earnings position are sufficient benefits to the Company without interest thus supporting no interest accruing on the balance. If deferral were not approved, no interest would accrue and the recovery of any underlying costs could even be questionable. The deferral method facilitates later recovery of the amortization of these costs in rates. The responsibility and recovery method should be determined when the Company can demonstrate that it prudently incurred the extraordinary expenses.
Amortization of Deferred Balances
Staff recommends that the amount in the deferred account be amortized. The deferred expenditures through December 31, 2001 should be amortized over a five-year period beginning in January 2002. Amounts incurred after December 31, 2001 should be amortized over a five-year period beginning the January following the date it is booked. This will limit the time period this deferral can remain on the books.
Staff also recommends that Idaho Power continue to provide confidential Staff briefings updating the status of the extraordinary security measures and the associated costs. Idaho Power must keep detailed records of the actual measures implemented and the costs associated with each measure. Idaho Power must also document the necessity and prudence for each measure. The documentation should also reflect measures taken by Idaho Power to mitigate the overall cost and effectiveness of the measures compared to other alternatives. Idaho Power has and should continue to evaluate such options and should document these evaluations.

STAFF RECOMMENDATIONS
Staff recommends that the costs of extraordinary security measures above the normal cost of $11,000 per month be booked to Account 182.3, Regulatory Assets in a separate sub-account.
Staff recommends that the reasonableness of the expenditures be determined at a future date when Idaho Power requests recovery in rates.
Staff recommends that the Company first seek any reimbursement of expenditures from any program or entity. Any reimbursement from other programs or entities shall be shown as a reduction to the deferred balance when the reimbursement is received.
Staff recommends that the additional security measures be shared between the customers and the shareholders. The sharing should be determined prior to the time the costs are included in rates. Staff recommends a 50/50 sharing.
Staff recommends that the PCA is not the appropriate means for recovery.
Staff recommends that no interest accrue on the deferred account balance.
Staff recommends that the amount in the deferred account be amortized. The deferred expenditures through December 31, 2001 should be amortized over a five-year period beginning in January 2002. Amounts incurred after December 31, 2001 should be amortized over a five-year period beginning the January following the date it is booked.

Respectively submitted this 12th day of December 2001.

Donald L. Howell, II
Deputy Attorney General

Technical Staff: Terri Carlock

DH:TC:i/umisc/comments/ipce01.41dhtc

STAFF COMMENTS 5 DECEMBER 12, 2001