20040102Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
WORKING FILE
FROM:P A TRI CIA HARMS
WELDON STUTZMAN
DATE:JANUARY 2, 2004
RE:CASE NO. IPC-03-11 (IDAHO POWER); ACCOUNTING ORDER
REGARDING TREATMENT OF CERTAIN ASSET RETIREMENT
OBLIGATIONS.
On September 26 2003, Idaho Power Company (Idaho Power; Company) filed an
Application with the Idaho Public Utilities Commission (Commission) seeking an Accounting
Order authorizing the Company to record regulatory assets and/or liabilities associated with
implementation of Statement of Financial Accounting Standards (SF AS) 143, Accounting for
Asset Retirement Obligations. Under SF AS 143 , entities are required to recognize and account
for certain asset retirement obligations (AROs) in a manner different from the way that Idaho
Power and other public utilities have traditionally recognized and accounted 1 for such costs.
Specifically, if a legally enforceable ARO as defined by SFAS 143 is deemed to exist, an entity
must measure and record an ARO liability on its books. This change will not affect the current
level of asset removal cost included in the Company s revenue requirement through depreciation
expense. Idaho Power is required to implement SF AS 143 in order to comply with Generally
Accepted Accounting Principles. The Company states that nothing in the Application is intended
to request any approval regarding future ratemaking treatment.
1 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.
DECISION MEMORANDUM - 1 -JANUARY 2, 2004
STAFF RECOMMENDATIONS
On December 3 , 2003 , the Commission issued a Notice of Application and Notice of
Modified Procedure to process Idaho Power s Application. During the written comment period
provided by the Commission, only the Commission Staff filed written comments.
Staff recommends approval for Idaho Power to record, as a regulatory asset or liability,
the cumulative financial statement impact resulting from the implementation of SF AS 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. Staff also recommends that the Commission require in its
accounting order that Idaho Power file annually and as part of its rate case filings, all journal
entries made under the requirements of SF AS 143, including detailed documents supporting the
determination of regulatory assets and liabilities and related dollar amounts. Due to the nature
these entries, Staff will be reviewing the underlying support for them during analyses of assets
and depreciation. As a result, Staff recommends that the Company maintain financial records
associated with these entries similar to the long-lived assets to which they relate.
Staff acknowledges that Idaho Power has a reasonable opportunity to recover prudently
incurred removal costs. Staff recommends that the reasonableness of differences between actual
and estimated costs should be addressed when those events occur. Staff recommends that no
further confirmation, as requested by Idaho Power, be included in the Commission s accounting
order.
Because these new accounting entries will not change the level of the costs included in
rates, Staff is making no recommendation regarding the treatment of SF AS 143 Regulatory
Assets and Regulatory Liabilities in future rate cases. If the assets and liabilities have an
unanticipated affect on rates, then the ratemaking treatment should be determined at the time of a
rate case.
COMMISSION DECISION
Does the Commission authorize Idaho Power to record as a regulatory asset or liability
the financial statement impact resulting from the implementation of SF AS 143 as discussed
above?
DECISION MEMORANDUM - 2 -JANUARY 2, 2004
Does the Commission accept Staff s recommendation to require Idaho Power to file
annually and as part of its rate case filings, all journal entries made under the requirements of
SPAS 143 , including detailed documents supporting the determination of regulatory assets and
liabilities and the calculation of the related dollar amounts and that the Company should maintain
financial records associated with these entries similar to the long-lived assets to which they
relate?
A ~f:Ai\," ~"-G
Patricia Harms
i:\transfer\ipc311dec3Idecmemo
DECISION MEMORANDUM - 3 -JANUARY 2, 2004