20040108Order No 29414.pdf

Office ofthe Secretary
Service Date
January 8, 2004
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER FOR AN ACCOUNTING ORDER
REGARDING TREATMENT OF CERTAIN ASSET
RETIREMENT OBLIGATIONS.ORDER NO. 29414
CASE NO. IPC-O3-
On September 26, 2003, Idaho Power Company (Idaho Power; Company) filed an
Application seeking an accounting Order authorizing the Company to record regulatory assets or
liabilities associated with implementation of Statement of Financial Accounting Standards
(SFAS) 143. Idaho Power s Application asked for an Order authorizing the Company to record
as a regulatory asset or a regulatory liability, (1) the cumulative financial statement impact
resulting from the Company s implementation of SF AS 143, and (2) on an ongoing basis, an
amount equal to the difference between the annual SFAS 143 depreciation and accretion
expenses and the annual depreciation expenses based on Commission approved depreciation
rates and coal mine reclamation accruals. Idaho Power also requested confirmation by the
Commission that (1) asset removal costs, in the form of negative net salvage, are currently
accrued through annual depreciation expense that is recoverable in rates; (2) these costs are
based on estimates of the final removal costs; and (3) such costs are trued-up for ratemaking
purposes at the time the related assets are retired and the actual removal costs are determined.
On December 3, 2003, the Commission issued a Notice of Application and Notice of Modified
Procedure to process Idaho Power s Application. In response to the Commission s Notice
written comments were filed only by the Commission Staff.
In June 2001 , the Financial Accounting Standards Board (FASB) issued SFAS 143
Accounting for Asset Retirement Obligations, effective for fiscal years beginning after June 15
2002. Idaho Power began implementing SF AS 143 in its 2003 fiscal year (January 1 , 2003
through December 31 , 2003). The FASB issued SF AS 143 to address inconsistencies in
accounting practices for asset retirement obligations. F ASB noted that obligations that meet the
definition of a liability were not being recognized when incurred or the recognized liability was
not consistently measured or presented. Idaho Power is required to implement SFAS 143 in
order to comply with Generally Accepted Accounting Principles.
ORDER NO. 29414
As noted in Idaho Power s Application, SFAS 143 requires entities to recognize and
account for certain asset retirement obligations differently than Idaho Power has traditionally
recognized and accounted for such costs. Specifically, if a legally enforceable asset retirement
obligation (ARO) as defined by SFAS 143 1 is deemed to exist, an entity must measure and
separately account and report the liability for the ARO (ARO Liability) on its books. Under the
accounting method used by Idaho Power before SFAS 143, the reasonable cost of removing a
tangible long-lived asset at retirement is included in the calculation of depreciation rates and is
recovered over the useful life of the asset and, as a depreciation expense, is included in the
Company s revenue requirement. Thus, SFAS 143 recognizes the entire cost of removal up-
front while in ratemaking the cost of removal is included in depreciation expense over the life of
the asset. In its Application, Idaho Power did not request any changes to its currently approved
depreciation rates or any change in the level of asset removal included in the Company s revenue
requirement through depreciation expense.
Under SFAS 143, at the same time the ARO Liability is recorded, a corresponding
and equivalent 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, a period-to-period increase in the carrying amount of the liability (accretion expense)
is added to the ARO 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 meet the legal obligation. Any
gain or loss when the actual liability is paid in the future will be recognized in the Company
accounting records.
SF AS 143 applies to rate-regulated entities that meet the criteria for application of
FASB Statement No. 71 , Accounting for the Effects of Certain Types of Regulation. SFAS 143
recognizes that differences may exist between its requirements and the treatment of AROs for
regulatory purposes. SF AS 143 provides that a regulated entity subject to SF AS 71 recognize
differences between the two approaches as a regulatory asset or a regulatory liability.
1 According to SFAS 143
, "
it applies to legal obligations associated with the retirement of a tangible long-lived asset
that result from the acql.1;isition, construction, or development and (or) the normal operation of a long-lived asset
except... for certain obligations of lessees. As used in this Statement, a legal obligation is an obligation that a party
is required to settle as a result of an existing or enacted law, statute, ordinance, or written or oral contract or by legal
construction of a contract under the doctrine of promissory estoppel."
ORDER NO. 29414
Idaho Power has determined that it will need to record AROs under SPAS 143 for
certain generation assets. The Company has also identified AROs for transmission and
distribution assets. The timing of those obligations is indeterminate, however, and the liability
cannot be measured and recorded at this time, according to Idaho Power s Application. Idaho
Power stated that there are no material AROs related to general plant assets.
SUMMARY
SF AS 143 requires entities to separately account and report the liability for asset
retirement obligations, capitalize the asset retirement costs, and charge earnings for the
depreciation of the asset and the accretion of the liability. Pursuant to SF AS 71 , a public utility
is permitted to record a regulatory asset or regulatory liability for differences between SF AS 143
and regulatory accounting for asset retirement obligations rather than recording such differences
as a charge or credit to income. Idaho Power s proposed accounting treatment will use SF
143 for reporting on its financial statements but retain its current methodology for ratemaking
purposes. As a result, there should be no rate change, now or in the future, associated with the
application of the requested accounting treatment.
The Commission approves Idaho Power s Application to record, as a regulatory asset
or liability, the cumulative financial statement impact resulting from the implementation of
SPAS 143 , and the ongoing annual differences between the SF AS 143 depreciation and accretion
expenses and the annual depreciation expenses that are currently authorized by the Commission
in depreciation rates and reclamation accruals. The Corrimission also requires Idaho Power to
file annually and as part of any rate case filing all journal entries made under the requirements of
SFAS 143 , including documents supporting the determination of regulatory assets and liabilities
and related dollar amounts and maintain these financial records in a manner similar to the long-
lived assets to which they relate.
ORDER
IT IS HEREBY ORDERED that Idaho Power s Application to record regulatory
assets or liabilities consistent with Statement of Financial Accounting Standards 143 is approved.
Idaho Power is directed to file annually and as part of any rate case all journal entries made
under the requirements of SF AS 143, including documents supporting the determination of
regulatory assets and liabilities and their amounts and maintain these financial records in a
manner similar to the long-lived assets to which they relate.
ORDER NO. 29414
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues fmally
decided by this Order) or in interlocutory Orders previously issued in this Case No. IPC-03-
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-03-l1. Within seven (7) days after any person has petitioned for
reconsideration, any other person may cross-petition for reconsideration. See Idaho Code ~ 61-
626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 8"'"
day of January 2004.
fKI
~1i
SHA H. SMITH, COMMISSIONER
ATTEST:
D. Jewell
ission Secretary
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ORDER NO. 29414