20030929Application.pdf

BARTON L. KLINE ISB #1526
MONICA B. MOEN ISB #5734
Idaho Power Company
O. Box 70
Boise, Idaho 83707
Phone: [phone]
FAX: [phone]
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0 FUBUC
UTILYi-iES COMMISSiON
Attorneys for Idaho Power Company
Express Mail Address
1221 West Idaho Street
Boise, Idaho 83702
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MA TIER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR AN
ACCOUNTING ORDER REGARDING
TREATMENT OF CERTAIN ASSET
REQUIREMENT OBLIGATIONS.
CASE NO. IPC-03-
APPLICATION
COMES NOW , Idaho Power Company ("Idaho Power" or the "Company
and in accordance with the provisions of Idaho Code ~ 61-524, and RP 052, hereby
applies for an accounting order authorizing the Company to (1) record , as a regulatory
asset or a regulatory liability, the cumulative financial statement impact resulting from
the Company s implementation of Statement of Financial Accounting Standards
SFAS") 143; and (2) record on an ongoing basis, as a regulatory asset or a regulatory
liability, an amount equal to the difference between the annual SFAS 143 accretion and
depreciation expenses and the annual depreciation expenses based on Commission-
APPLICATION, Page
approved depreciation rates and coal mine reclamation accruals. Such an order will not
affect the current level of asset removal cost included in the Company s revenue
requirement through depreciation expense. Further Idaho Power respectfully requests
confirmation by the Commission that asset removal costs , in the form of negative net
salvage, are currently accrued through annual depreciation expense which is
recoverable in rates; that these costs are based on estimates of the final removal costs;
and that such costs are trued-up for ratemaking purposes at the time the related assets
are retired and the actual removal costs are determined.
In support of this Application , Idaho Power states as follows:
Idaho Power is an electrical corporation and public utility in the
state of Idaho and is subject to the jurisdiction of the Commission with regard to its
rates , service , and accounting practices.
This Application is filed pursuant to Idaho Code ~ 61-524, which
authorizes the Commission to prescribe the accounting to be used by public utilities
subject to its jurisdiction.
Communications regarding this Application should be addressed
to:
Barton L. Kline
Monica Moen
Attorneys for Idaho Power
Idaho Power Company
O. Box 70
Boise, Idaho 83707-0070
bkline (9) idahopower com
mmoen (9) idahopower com
John R. Gale
Vice President , Regulatory Affairs
Idaho Power Company
O. Box 70
Boise , Idaho 83707-0070
rgale (9) idahopower.com
APPLICATION , Page 2
BACKGROUND
Under the accounting method currently used by the Company for
both financial reporting and ratemaking purposes , the cost of removing a tangible long-
lived asset at retirement is included in the calculation of depreciation rates as negative
salvage and is recovered over the useful life of the asset. Under this method, the
accrued removal cost is included in Account 108, Accumulated Depreciation.
In June 2001 , the Financial Accounting Standards Board ("FASB"
issued SFAS 143 Accounting for Asset Retirement Obligations, effective for fiscal
years after June 15 , 2002. Under SFAS 143, entities are required to recognize and
account for certain asset retirement obligations in a manner different from the way that
Idaho Power and other public utilities have traditionally recognized and accounted for
such costs. Specifically, if a legally enforceable asset retirement obligation ("A RO") , as
defined by SFAS 143 is deemed to exist, an entity must measure and record the liability
for the ARO on its books. The liability must be recorded at fair market value in the
period during which the liability is incurred. SFAS 143 defines "fair market value" as the
amount that the entity would be required to pay in an active market to settle the ARO.
SFAS 143 also provides that if market prices are not available , estimates of fair value
can be calculated by discounting the estimated cash flows associated with the ARO to
their present value at the date the liability is to be recorded.
Under SFAS 143 , at the time the liability is recorded , a
corresponding and equivalent ARO asset is also recorded on the entity s books as part
of the cost of the associated tangible asset. The ARO asset is then depreciated over
the life of the associated tangible asset. In addition , accretion is added to the ARO
APPLICATION , Page 3
liability annually to account for the time value of money, so that at the time of retirement
the recorded ARO liability will be sufficient to equal the cash required to meet the legal
obligation.
In addition to the forward-looking requirements of SFAS 143
entities are also required to recognize the cumulative impact on their financial
statements resulting from the implementation of SFAS 143. This cumulative impact
amounts to a transition entry on the entity s books, so that in future years the financial
statements will appear as if the requirements of SFAS 143 had always been followed.
SFAS 143 recognizes that differences may exist between its
requirements and the treatment of ARO costs for regulatory purposes and provides that
a regulated entity subject to SFAS 71 Accounting for the Effects of Certain Types of
Regulation can recognize any differences between the two approaches as a regulatory
asset or a regulatory liability, subject to the requirements of SFAS 71.
Idaho Power is required to implement SFAS 143 in order to comply
with Generally Accepted Accounting Principles. Due to the lack of an active market for
settling AROs, Idaho Power will use the expected present value method to determine its
ARO liabilities and offsetting assets.
10.After a thorough review, Idaho Power has determined that it will
need to record AROs under SFAS 143 for certain generation assets. The Company
has also identified AROs for transmission and distribution assets. However, the timing
of those obligations is indeterminate and the liability cannot be measured and recorded
at this time. There were no AROs for general plant assets. In addition , Idaho Power
has an equity investment in Bridger Coal Company, which has AROs related to mining
APPLICATION , Page 4
assets. PacifiCorp, Bridger Coal Company s majority owner, has applied to this
Commission for an accounting order related to these assets (PAC-03-08). Idaho
Power follows the accounting prepared by PacifiCorp for Bridger Coal Company.
11.In order to reflect the cumulative impact of SFAS 143 for past
years, Idaho Power will record on its books, as shown on Exhibit 1 , a series of five
transition entries for .the generation assets. The first transition entry will record the
present value of the liability for each ARO at the date it was incurred , offset by an
increase in the carrying value of the related ARO asset. The second transition entry will
record the increase in the ARO liability by the accretion of interest through January 1 ,
2003. The third transition entry will record the accumulated depreciation on each ARO
asset from the date the ARO was incurred through January 1 , 2003, the date on which
Idaho Power implemented SFAS 143.The fourth transition entry will reverse the
accumulated removal costs that have been previously accrued on the Company
books in accumulated depreciation. As part of the implementation of SFAS 143, Idaho
Power is , for financial reporting purposes, required to reclassify accumulated removal
costs, measured as of December 31 2002, from the accumulated depreciation
balance. Idaho Power has received regulatory approval to accrue these removal costs
through negative net salvage and, for regulatory reporting purposes, these accumulated
costs will remain in accumulated depreciation.
The net difference between these four transition entries is the cumulative
impact of the implementation of SFAS 143 12. Idaho Power seeks Commission
approval to record that cumulative impact as a regulatory asset, or a regulatory liability.
As shown in the fifth transition entry on Exhibit 1 , the Company proposes to record the
APPLICATION , Page 5
cumulative impact of the accretion expense related to the ARO liability and depreciation
expense related to the ARO asset. as a regulatory asset and proposes to record the
reversal of previously-accrued removal costs as a regulatory liability. Under this
proposed treatment, the SFAS 143 transition entries will net to zero for ratemaking
purposes.
12.In addition to the transition entries, SFAS 143 accounting will
require three annual entries. One entry will be required to record the annual increase in
the ARO liability from the accretion of interest and another will be necessary to record
the annual depreciation of the associated ARO asset on a straight-line basis over its
remaining life. The third entry will adjust the accumulated removal costs included in
accumulated depreciation to the current amount. Since the Company will continue to
use the Commission approved depreciation rates to determine annual asset retirement
costs for ratemaking purposes , these new accounting entries will not change the level
of the costs included in rates.
13.In order to reconcile the requirements of SFAS 143 with regulatory
accounting practices used in the rate setting process and to maintain revenue neutrality
with respect to these costs , the Company seeks Commission approval to record the
effect of the annual SFAS 143 accretion and depreciation expenses as an adjustment
to the regulatory asset and the net change in accumulated removal costs for
ratemaking purposes as an adjustment to the related regulatory liability. Examples of
the annual SFAS 143 accretion and depreciation entries and the annual adjustments to
regulatory assets are shown in Exhibit 2.
APPLICATION , Page 6
14.Work papers supporting the amounts and values for the journal
entries shown in Exhibits 1 and 2 have been provided with this filing.
15.Nothing in this application is intended to request any approval
regarding future ratemaking treatment. The Company notes, however, that upon
retirement of the related assets and determination of actual removal costs , such costs
will be trued-up for ratemaking purposes , at which time the regulatory accounts
associated with these assets will be eliminated. Consistent with past rate proceedings
the Company will continue to seek recovery of prudently incurred removal costs, not
previously recovered through depreciation expense , in future rate case proceedings.
WHEREFORE , Idaho Power respectfully requests that the Commission
consider this matter under Modified Procedure pursuant to RP 201-204 and issue its
Order as follows:
Authorizing Idaho Power to record, as a regulatory asset or a
regulatory liability, the cumulative financial statement impact resulting from the
Company s implementation of SFAS 143;
Authorizing Idaho Power to record on an ongoing basis, as a
regulatory asset or regulatory liability, an amount equal to the difference between the
annual SFAS 143 accretion and depreciation expenses and the annual depreciation
expenses based on Commission- approved depreciation rates and coal mine reclamation
accruals; and
Confirming that asset removal costs , in the form of negative net
salvage, are currently accrued through annual depreciation expense, which is recoverable
in rates; that these costs are based on estimates of the final removal cost; and that such
APPLICATION , Page 7
costs are trued-up for ratemaking purposes at the time the related assets are retired and
the actual removal costs are determined.
DATED at Boise , Idaho, this 26th day of September, 2003.
BARD: K
~I~
Attorney for Idaho Power Company
APPLICATION , Page 8
EXHIB IT
Idaho Power Company
FAS 143 Implementation
Recorded journal entries
FERC Account Dr.Cr.
Transition entries:
ARO Assets 101 050,508
ARO Liabilities 230 050 508
To record the liabilities for generation asset retirement
obligations with an offsetting increase to the carrying
amount of the related assets
Cumulative effect adjustment 651 966
ARO liabilities 230 651 966
To record the accretion of interest on the asset retirement
obligation liabilities through December 31 , 2002
Cumulative effect adjustment 304 689
Accumulated depreciation - ARO assets 108 304 689
To record the depreciation on the asset retirement
obligation assets through December 31 , 2002
Accumulated depreciation 108 137 645,099
Cumulative effect adjustment 137 645 099
To reverse the removal costs embedded in accumulated
depreciation reserve
Cumulative effect adjustment 131 688,444
Regulatory assets 182_956,655
Regulatory liabilities 254 137 645,099
To record cumulative effect of adoption of FAS 143 as
regulatory assets
Net effect of above entries
ARO assets 101 050 508
Accumulated depreciation - ARO assets 108 304 689
Accumulated depreciation - removal costs 108 137 645 099
Regulatory assets 182.956,655
ARO liabilities 230 702,474
Regulatory liabilities 254 137 645,099
Exhibit 1
EXHIB IT 2
Idaho Power Company
FAS 143 Implementation
Recorded journal entries
FERC Account Dr.
Calendar year 2003 Accretion, Depreciation and Removal Cost Entries
Cr.
1 Regulatory asset (accretion expense)
ARO liabilities
To record accretion expense on the asset retirement obligations
2 Regulatory asset (depreciation expense)
Accumulated depreciation - ARO assets
To record depreciation on the ARO assets
3 Accumulated depreciation
Regulatory liabilities
To record adjustments to the ARO regulatory liability for
the difference between regulatory-approved removal costs
and the FAS 143 accruals (note these amounts are
estimates- The actual amount can not be determined until
the end of the year)
182.
230
182.
108
108
254
394 089
816
418 741
394 089
65,816
418,741
Exhibit 2
WORK PAPERS
FOR
EXHIBITS 1 AND 2
Idaho Power Company
Asset Retirement Obligations
Adoption of SFAS 143
Summary of Assets and Obligations Recorded
Description Bridger Mine Bridger plant Boardman plant Total
Company that recorded Bridger Coal IPC IPC
Date of Adoption 4/1/2003 1/1/2003 1/1/2003
% owned by IPC 33%33%10%
Project 10 n/a 27143467 27143472
Gross asset (101)012,400 952 662 846 062 908
Accumulated depreciation (108)162 000)250,874)(53 815)(8,466 689)
Net asset 850,400 701 789 031 596,219
Accretion of Liability (230)(38,834,600)297 099)(405 376)(45 537 074)
Currently recorded liability (36 000 000)(36,000.000)
Adjustment to liability 834 600 297,099 405 376 537 074
Cumulative effect adjustment (recorded
as regulatory asset 182.015,800 595 310 361 345 940 855
2003-4 Accretion (chg to 182.
372 067 $
194 267 $
2003-4 Depreciation (chg to 182.
Quarterly amounts to record
Quarterly amounts to record
Disclosure totals:ARO 230
Asset 101
Accum depr 108
Reg asset 182.
see above
see above
see above
see above
Removal costs:acct 108300
Estimate of 1/1/2002 ARO balance:
1/1/2003 balance
Less: 2002 accretion estimate (using 2003 actuals)
Estimated 1/1/2002 balance
Schedule 1 disclosure summary. xis All summary
367 005 084 588,356
63,093 723 437,883
751.25 771.00
15,773.680.
297 099)(405,376)702 474)
1 ,952 662 846 050,508
250,874)(53 815)304 689)
595 310 361 ,345 956,655
139 113 359
297 099)(405,376)702 474)
367,005 27,084 394 089
(5,930,094 378,291 308 385
9/26/2003 2:28 PM
FAS 143 Disclosure Summary
For December 31 , 2002 annual reports
Bridger Coal Mine
Underground( Scenario Surface scenario
Weighted Average (80%)(20%)
Gross asset 36,037 200 563 000 934 000
Accumulated depreciation (21 ,486,000)(21 788,000)(20,278,000)
Net asset 551 200 775,000 13,656,000
Accretion of Liability (116,503,800)(118,232 000)(109,591 000)
Currently recorded liability (111 000 000)(111 000 000)(111 000 000)
Adjustment to liability (5,503,800)232 000)1,409,000
Cumulative effect adjustment (recorded
as regulatory liability)047,400 543 000 065 000
2003-4 Accretion 582 800 684 000 178 000
2003-4 Depreciation 1 ,116 200 1 ,135,000 1 ,041 ,000
1 of 1 disclosure summary.xls Bridger mine summary 9/26/2003 2:28 PM
FAS 143 Disclosure Summary
Bridger Power Plant
Adoption in 2003
Bridger-Water Fence at ash
Total supply FGD Pond 1 disposal site Surge Pond FGD Pond 2 Landfill
Gross asset 857 987 057 186 $ 1 569 002 788 089 341 128 815 795
Accumulated depreciation 752 621)(638 717)387 963)595)(37 793)101 707)(580 847)
Net asset 105 366 418,470 181 038.193.295.239,420.234 948
Accretion of Liability (18 891 296)598 204)771 314)(30 728)(358,489)375 979)756 583)
Currently recorded liability
Adjustment to liability (18 891 296)(6,598 204)771 314)(30 728)(358,489)375 979)756 583)
Cumulative effect adjustment
(recorded as regulatory asset)(16 785 930)179 734)$(3 590 275)(23 534)(334 193)136 558)$ (1 ,521 ,635)
2003 Accretion 101 014 430 075 146 576 986 23,166 412 023 188
2003 Depreciation 189 280 025 346 400 350 68,857 303
Idaho Power 1/3
Gross asset 952 662
Accumulated depreciation 250 874)
Net asset 701 789
Accretion of Liability 297 099)
Currently recorded liability
Adjustment to liability (6,297 099)
Cumulative effect adjustment
(recorded as regulatory asset)595 310)
Quarterly amounts
2003 Accretion 367 005 751.
2003 Depreciation 63,093 15,773.25
1 of 1 disclosure summary.xls Bridger plant summary 9/26/2003 2:28 PM
Bridger Power Plant AROs
Amounts are 100%)
Year ARO occured (end of yr)
Est retirement date (end of yr)
Total years
Remaining vears
Est reclamation year (end of yr)
Total years
Remaining years
Valuation year (end of yr)
Obligation in valuation year $
Escalation rate
Obliaation at retirement date $
Credit adj discount rate
PV to inception
PV at valuation year
Deprn per year
Accum deprn at val yr
Entries at Transition
Asset
Accum depreciation
Reclamation Liability (new)
Cumulative effect adjustment
1 of 2
Total FY2021
Bridger-Water Fence at ashsupply FGD Pond 1 disposal site
FY2020
Surge Pond. FGD Pond 2 Landfill
Fy2020
2002
069.0 $
1973
2021
2021
2002
390.0 $
771%
901.2 $
Annual Accretion Exoense Based on Reclamation Year
i\\X11!i'Sj1j;j!::!?"!!!i:I~:!1(gi.'!'$i'~~J
;).j':,
0:"rJi&I;i.I::!"\:;;A9;99~,5;.
;.'
i'Y,
~;'
i:021~90Jil~?~r0';$\!?;j;~4;22a:4 ;.
BegBal 18 891.3 6 598.2 3 771.2003 1 101.0 430.1 146.2004 1 166.4 458.1 152.
2005 1 232.5 488.0 158.
2006 1 137.9 519.2007 1 204.9 553.2008 1 275.8 589.
2009 1 350.7 628.2010 1,430.0 669.2011 1 514.1 712.2012 1 603.0 759.
2013 1 697.3 808.
2014 1 797.861.42015 1 903.4 917.2016 2 016.977.32017 2 135.3 1 041.
2018 2 261.8 1 108.2019 2 396.1 1 181.2020 2 538.5 1 258.2
2021 1 340.2 1 340.2022 2023 2024 2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
993.5 $
858.
891.
153.
752.
518%
057.
598.
22.
638.
100%
858.
752.
(18,891.
33%
952.
250.
297.1 )
785.595.
!fj9'4',g;\;;;?:;\10;~i0i'1!j\t 0Ik$H?;y.;;;j!;;,,1!9;~1~5
!\;~;" :,
;:02;981;0 .
30.358.5 6 376.0 1 756.0 23.2 412.0 87.1 24.438.6 90.3 26.3 467.0 90.4 28.0 497.2 90.6 29.8 529.3 89.7 31.7 563.88.19 33.7 599.9 86.1 35.9 638.7 83.3 38.2 680.0 79.5 40.7 723.9 75.7 43.3 770.7 70.0 46.1 820.65.42 49.1 873.5 59.5 52.3 929.9 51.8 55.7 990.0 43.1 59.3 1 054.0 34.5.4 63.1 1 122.1 24.8 67.2 1 194.6 12.
FY2005
1979
2005
2005
2002
070.0 $
927%
228.4 $
1988
2020
2020
2002
60.0 $
730%
94.9 $
887%
569.
771.
60.
388.0
6.462%
12.
30,
"!'
:!\,i';;
;~,!.
disclosure summary.xls BridgerCalc
FY2020
1974
2020
2020
2002
700.0 $
730%
106.6 $
6.462%
62.
358.
37.
FY2020
1986 19862020 202034 18
2020 2003-202034 1-18 1-2002 2002
450.0 $ 2 399.
730% various
19,681.5 $ 2 981.
462% various
341.1 815.
376.0 1 756.
68.9 varies
101.580.
9/26/2003 2:28 PM
Amounts are 100%)Total FY2021 FY2005 FY2020 FY2020 FY2020 Fy2020
Annual Depreciation Expense IBased on Retirement Year
. Total,
::.
858,J\05'i'cZ;.1 ,569.0. ',.t2'a::::!/i";/:62:1 34101.815.
Beg Bal 752.638.388.0 37.101.580.
2003 189.22.60.0.4 68.36.
2004 183.22.60.0.4 68.9 30.
2005 179.22.60.0.4 68.9 26.
2006 115.22.68.9 23.
2007 112.22.0.4 68.20.
2008 110.22.0.4 68.17.
2009 107.22.68.9 15.
2010 105.22.68.13.
2011 103.22.0.4 68.9 11.
2012 102.22.1.3 68.
2013 100.22.68.9 8.0
2014 99.22.0.4 68.
2015 98.22.0.4 68.5.4
2016 97.22.68.
2017 95.22.0.4 68.9
2018 95.22.68.9 2.4
2019 94.22.0.4 68.
2020 93.4 22.0.4 68.
2021 22.22.
2022
2023
2024
2025
2026
2027
2028
Annual Reclamation
Beg Ba!
2003 133.
2004 135.
2005 228.4 228.4 138.
2006 141.
2007 144.
2008 147.
2009 151.
2010 155.
2011 160.
2012 164.5
2013 168.9
2014 173.
2015 179.
2016 184.
2017 190.
2018 196.
2019 203.
2020 883.94.106.681.5 210.
2021 901.901.
2022
2023
2024
2025
2026
2027
2028
2012 disclosure summary.xls BridgerCalc 9/26/2003 2:28 PM