20020711Staff Comments.pdf

LISA D.NORDSTROM
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION L 2 JUL l i ŸM 3:26
PO BOX 83720
BOISE,IDAHO 83720-0074 UTILITIESCOMMISSION
[phone]
IDAHO BAR NO.5733
Street Address for Express Mail:
472 W.WASHINGTON
BOISE,IDAHO 83702-5983
Attorneyfor the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )IDAHO POWER COMPANY FOR AN )CASE NO.IPC-E-02-7
ACCOUNTING ORDER AUTHORIZING )
DEFERRAL OF FACILITY CHARGES )
RELATING TO THE MOUNTAIN HOME )COMMENTS OF THENATURALGASFACILITY)COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission,by and through its
Attomeyof record,Lisa D.Nordstrom,Deputy AttorneyGeneral,and in response to the Notice
of Application,Notice of Modified Procedure and Notice of Comment Deadline issued in Order
No.29060 on June 21,2002,submits the followingcomments.
On June 3,2002,Idaho Power Company filed an Application requesting an accounting
order authorizing Idaho Power to defer facility charges relating to the Mountain Home natural
gas facility.On May 13,2002,the Commission disallowed recovery of the Williams Facility
Charge Adjustment as a Purchase Cost Adjustment (PCA)expense in Case Nos.IPC-E-02-2 and
IPC-E-02-3.Order No.29026.
COMPANY APPLICATION
In its Application,the Company requests special accounting treatment of the annual
payment of the Williams Facility Charge (facility charge).In Case No.IPC-E-02-2 and -3,the
STAFF COMMENTS 1 JULY 11,2002
Company requested this amount be included in the PCA with other power supply expenses.In
that case,Staff recommended that the charge not be flowed through the PCA mechanism because
the charge consisted of items that normallyare not allowed in the PCA mechanism.Staff argued
that the underlyingcosts are more like capital investments and equivalent to a capital lease.The
Commission found that "it has many of the characteristics of a capital expense normally
recovered as an asset in rate base."Order No.29026 at 12.Thus the Commission ordered that
the facility charge in general should be considered in the Company's next rate case.Id.The
Company now seeks to have the $419,054 charge incurred in 2001 and future facility charges
deferred and booked as regulatory assets,amortized over time,and recovered with interest in a
future rate case.
STAFF ANALYSIS
This case deals with two questions.First,what were the findings of the Commission
when it set forth the issues associated with the facility charge?Second,what is the proper
accounting treatment of that charge?Staff believes that both of these questions are easily
answered.
Commission Findings
In its Application,the Company interprets the Commission's Order in a very specific
way.The Commission found,"the facilities charge should be considered for recovery in Idaho
Power's next rate case -not in this PCA case.The $419,054 shall not be recovered through the
PCA."Id.(emphasis added)The Company requests that the $419,054 not allowed in the PCA
case be captured as a regulatory asset and any unamortized amount recovered in the next rate
case.However,the Commission did not find that the $419,054 expense incurred in 2001 should
be recovered in the next rate case.Rather,the Commission found only that the facility charge
was the type of charge to be considered as a test-year expense in a rate case and should be
reviewed at that time.That distinction is important when considering the Company's requested
treatment.
Proper Accounting Treatment of the Facility Charge
Staff believes that the facility charge arrangement has many of the characteristics of a
capital lease even though it is not specifically called a "capital lease."According to the
Financial Accounting Standards Board (FASB)Statement No.13,a payment arrangement must
meet at least one of four requirements to be considered a capital lease.The Idaho
STAFF COMMENTS 2 JULY 11,2002,
Power/Williams arrangement meets two.First,facility payments will be paid over the life of the
pipeline.Because the gas plant has a projected life of thirty (30)years,the pipeline lease is for
thirty years.Once the plant ceases functioning,the pipeline will be of no value.Second,the net
present value of the payments is more than 90%of the value of the pipeline.Either of those
characteristics qualify the pipeline payment arrangement to be treated as a capital lease.
The accountingprofession has a specific method to account for capital leases.According
to FASB Statement No.13 as Amended,a capital lease should be accounted for in the following
manner:
1.The Company records an asset equal to the lower of the fair market value of the
leased property (approximately $1.9 million)or the sum of the present value of all the
payments.
2.The Company establishes a liabilityequal to the asset.
3.The asset is amortized over the life of the lease down to the residual value as the
portion of the annual payment that pays for the capital costs reduces the value of the
asset and the liability.
4.The remaining portion of the payment should be expensed justas the depreciation,
maintenance and other charges reimbursed to Williams through the facility charges
would have been expensed if Idaho Power had built the pipeline.
The facility charge includes the amount to be amortized and an interest/expense
component.The amortization and interest are expensed like all other expenses.If the capital
lease asset is allowed in ratebase as proposed by the Company,Idaho Power will earn a return on
the unamortized portion of the pipeline asset while also recovering interest and amortization
charges paid to Williams in rates (after the amount has been approvedby the Commission in a
general rate case.)
As an alternative to the preferred FASB guidelines cited above,Staff would accept
another accounting treatment.The Company could continue to expense the facility charge as it
occurs and in the next rate case propose to recover the average annual amount of the charge as a
non-PCA expense.This expense would be included in base rates during the operating life of the
Mountain Home generation facility and adjusted as needed in future rate cases.This alternative
would impact the income statement only.The balance sheet would not show an asset (owned by
Williams but reflected as a capital lease for Idaho Power)offset with a corresponding liability.
STAFF COMMENTS 3 JULY l1,2002
The Company's proposal is simply an attempt to recover additional expenses that were
not allowed as a PCA expense.Until the next rate case,these facility charges should be properly
recorded as a capital lease or an operating expense not included in rates.
STAFF RECOMMENDATIONS
Staff recommends that the Commission not allow the Company to defer the facility
charge as a regulatory asset because such a treatment is not consistent with past Commission
actions or proper regulatory accounting practices.The facility charge is a normal operating
expense or a capital lease that should be considered in the Company's next rate case.As yet,the
Commission has not authorized the Company to recover the specific $419,054 expensed in 2001
in some future case.
If the Commission does allow Idaho Power to classify the facility charge as a regulatory
asset,the Company should be ordered to begin amortization over the ten-year period that it
requested.However the amortization should begin immediately after the expense occurs,not a
year or more later.There is no reason to wait to begin the amortization of the regulatory asset.
If the deferral and amortization are approved,the Company would recover at least a portion of
the actual expenses that the Commission currentlydoes not allow the Company to recover at all.
The recovery of these costs and the resulting associated earnings sufficientlycompensate the
Company without authorizing interest as well.Therefore,any deferral allowed should not accrue
interest charges.
Respectfully submitted this day of July 2002.
Lis'a D.Nordstrom
Deputy AttorneyGeneral
Technical Staff:Terri Carlock
Alden Holm
LN:i:/umisc/comments/ipce02.71ntcah
STAFF COMMENTS 4 JULY 11,2002
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS llTH DAY OF JULY 2002,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF ,IN
CASE NO.IPC-E-02-07,BY MAILING A COPY THEREOF,POSTAGE PREPAID,TO
THE FOLLOWING:
LARRY D.RIPLEY JOHN R GALE VICE PRESIDENT
SENIOR ATTORNEY REGULATORY AFFAIRS
IDAHO POWER COMPANY IDAHO POWER COMPANY
PO BOX 70 PO BOX 70
BOISE ID 83707-0070 BOISE ID 83707-0070
SECRET Y
CERTIFICATE OF SERVICE