20040426Post-Hearing Brief.pdf

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BARTON L. KLINE ISB #1526
MONICA B. MOEN ISB #5734
Idaho Power Company
O. Box 70
Boise, Idaho 83707
Telephone: [phone]
FAX Telephone: [phone]
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Attorneys for Idaho Power Company
Street Address for Express Mail
1221 West Idaho Street
Boise , Idaho 83702
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO INCREASE ITS INTERIM)
AND BASE RATES AND CHARGES FORELECTRIC SERVICE
CASE NO. IPC-03-
IDAHO POWER COMPANY
POST-HEARING BRIEF
General revenue requirement cases usually present numerous conflicting
views and issues for resolution by the Commission. This case is no exception.
Heeding the Commission s admonition to judiciously manage the scope of post-hearing
briefs, Idaho Power has limited this brief to four issues where the Company believes a
legal brief could be of use to the Commission in making a final decision. These four
issues and the legal concerns they present are summarized as follows:
IDAHO POWER COMPANY POST-HEARING BRIEF, Page
Income Taxes.
Staff's proposal to depart from the use of actual tax rates to
determine Idaho Power s income taxes violates IRS tax normalization requirements and
is contrary to law because it is retroactive ratemakinq.
Staff's recommendation to amortize the income tax
deficiency payment in the test year over three years in inconsistent with prior
Commission orders and is unreasonable.
Annualizing Adjustments and Adjustments For Known and
Measurable Changes.
Staff and intervenor recommendations to exclude
annualizinq adjustments for two system reliability projects are contrary to law because
such exclusion would deny Idaho Power a return on prudent investments currently used
and useful in providinq service to customers.
Staff and intervenor recommendations to exclude known
and measurable system reliability investments from rate base are contrary to law
because such exclusion would deny Idaho Power a return on prudent investments
currently used and useful in providinq service to customers.
Brownlee-Woodhead Park.
Staff's proposal to exclude improvements made to Woodhead Park
from rate base is contrary to law because it denies Idaho Power a return on a prudent
investment that is useful to customers and has been used since 1996.
IDAHO POWER COMPANY POST-HEARING BRIEF , Page 2
Micron Deferred Revenue Proposal.
Micron s proposal that the Commission defer recovery of an
approved revenue requirement without Idaho Power s consent is unreasonable and
contrary to law because it would confiscate Idaho Power s property.
Income Taxes.
Idaho Power Company s Income Tax Calculations.
Idaho Power calculated its test year income tax expense using currently
enacted statutory income tax rates. The Company s state income tax rate is the
combination of Idaho at 5.9 percent, Oregon at 0.3 percent and all other states at 0.
percent, for a total of 6.3 percent. The state income tax rates were determined by
multiplying each state s current statutory income tax rates by their respective
apportionment factor. For example , Idaho s statutory corporate income tax rate is 7.
percent and was multiplied by Idaho Power s state of Idaho apportionment factor of 78
percent, the result being 5.9 percent. This calculation was followed for the other states
in which Idaho Power files an income tax return , and is in conformance with the
Commission s prior rulings on the method to be utilized for computation of state income
taxes. This method is set forth in Case No. U-1006-185 , Order No. 17499 , dated
August 20, 1982. In that Order the Commission stated:
(f) Idaho State Income Tax Rate. the Application
used the 6.5% statutory Idaho state income tax rate to derive
the revenue-to-income multiplier used to calculate the revenue
deficiency. Tr. pp. 1059-1060; Ex. 7, p. 2, footnote 1. The Staff
recommended using an effective Idaho state income tax rate of
8% to derive the revenue-to-income multiplier because it
contended that Idaho state income taxes are not levied on the
approximately 90% of Idaho Power Company s income
IDAHO POWER COMPANY POST-HEARING BRIEF , Page 3
assigned to Idaho for ratemaking purposes, but only on the
approximately 73% of Idaho Power s income assigned to Idaho
for state income tax purposes. Tr. pp. 2464-2465. On rebuttal
the Company defended use of the 6.5% rate in the incremental
tax multiplier because it argued that jurisdictional revenues
would be taxed at the statutory rate and that use of a lower
multiplier would underfund the increase. Tr. pp. 3177-3179.
We find that the 4.8% effective state income tax rate is
the correct rate to be used in calculating the revenue-to-income
multiplier. We find that this rate accurately reflects the
Company s tax liability for revenues from its customers in Idaho
and adopt it for that reason for rate setting purposes.
Idaho Power has used this required methodology since 1982 and
especially in the present proceeding, with the only differences being the use of existing
state statutory tax rates and the changes in the apportionment factors for the various
states. The salient point remains , however, that Idaho Power computed state income
taxes utilizing the existing state statutory rates applied to that portion of Idaho Power
revenue apportioned to each state.
The Company calculated its test year federal income tax expense using
the current statutory federal income tax rate of 35 percent. In order to account for the
allowable federal tax deduction for state income taxes the federal percent was reduced
to 32.795 (35 percent multiplied by 93.7 percent (100 percent of income - 6.3 percent
for state taxes) = 32.795). The salient point again is that the Company utilized the
existing federal statutory rate to compute federal income tax expense.
The Company then computed the net-to-gross multiplier for income taxes
associated with the additional revenue that will be required in this proceeding. This
computation uses the income tax rate calculations as set forth above. The computation
is as follows: 100 percent of income - 6.3 percent of state taxes - 32.795 percent
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 4
federal taxes = 60.905 percent net income. The 1.642 net-to-gross multiplier is derived
by dividing 1 by the resulting net income expressed as a decimal , i.e., 1/.60905 = 1.642.
As acknowledged by Staff witness Holm , the income tax calculations
using statutory rates is the method that traditionally has been followed by the
Commission. Tr. at 1459-1460.
The Company also included in the test year, consistent with Order No.
17499 issued in Case No. U-1006-185 (1982), the federal tax deficiency payments of
942 924. Mr. Ripley, in his direct rebuttal testimony, set out the pertinent provisions
of Order No. 17499. Tr. at 2947-2948. Clearly arid unambiguously, the Commission
ruled in that proceeding that the Company could recover as a tax expense any
deficiencies actually paid in the test year.
Staff's Adjustments To Idaho Power s Income Tax Calculations.
Staff proposes to abandon the traditional method of computing income tax
expense and the resulting net-to-gross multiplier for computing the Company
additional revenue requirement by rejecting the use of current statutory income tax
rates. In their place, Staff proposes (apparently for this case only) to use what Staff
terms as an average effective tax rate. As explained by witness MacMahon for the
Company, Staff has proposed to compute Idaho Power s income tax expense by using
an average ratio of Idaho Power s actual above-the-line income tax expense as a
percentage of actual pre-tax book income for each of the past five years added together
and then divided by five. Tr. at 2907-2909.
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 5
Specifically, Staff has developed a hybrid income tax rate concept by
taking each of the last five years including the test year and averaging the ratio of total
income tax expense (current tax , deferred tax, and ITC) for each year over the total pre-
tax book income for each year. The resulting ratio for each year was added up and
divided by five to arrive at an average ratio that applied to the previous five years. This
average ratio was applied to regulatory pre-tax income and labeled "current tax
Staff's hybrid ratio was used to value the current change in normalized
temporary differences for deferred income tax expense , disregarding the fact that the
beginning balance in accumulated deferred income taxes was previously established
using statutory tax rates.
The result of Staff's computation was an average federal income tax rate
of 25.24 percent and an average state income tax rate of 5.62 percent, for a total
average composite rate of 30.86 percent. As conceded by Staff witness Holm, the use
of Staff's five-year average was motivated by the non-reoccurring deduction taken on
the 2001 income tax returns with the resulting tax refund paid in 2002. Tr. at 1471 , LL.
7. As noted by witness MacMahon , when the non-reoccurring deduction was
removed from Staff's five-year "average " the computation came out to 39.19 percent
which is extremely close to Idaho Power s federal and state combined statutory income
tax rate of 39.10 percent. Tr. at 2909-2911.
Additionally, this hybrid ratio was also used by Staff to compute the net-to-
gross tax multiplier to set the new revenue requirement to a pre-tax revenue value
without regard to the actual income taxes the Company will pay on these new
revenues.
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 6
Finally, Staff has reduced Idaho Power s 1998-2000 Internal Revenue
Service deficiency payment of $2 942 924 included in the test year income tax expense
to $982 395 and added a state deficiency payment of $55 846 on the theory that the
payments should be amortized over a three-year period , totally ignoring the
requirements of Order No. 17499.
The Capitalized Overhead Cost Method Reduced Revenue
Requirement By Approximately $5 Million in the Test Year.
Staff witness Holm acknowledged that Idaho Power calculated its income
tax expense for test year 2003 using the capitalized overhead costs method that Staff
had questioned for the tax years 2001 and 2002. Staff witness Holm stated that "(T)his
tax benefit of approximately $5 million provides a benefit to customers during 2003 and
is included in the test year." Tr. at 1436 , LL. 13-22. Idaho Power witness MacMahon
agreed and stated" . . . the 2003 test year regulatory income tax expense includes a
total system $14.3 million flow-through tax deduction. This deduction reduced current
income tax expense by $5.6 million. Had Idaho Power not initiated the method change
customers would not be realizing this benefit in the 2003 test year." Tr. at 2905 , L. 22 -
Tr. at 2907, L. 1.
The Staff's Proposal Violates the Normalization Requirements of
the Internal Revenue Code and the utilization of Staff's Proposal Would Result In
Denial of Accelerated Depreciation.
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 7
As stated by Idaho Power witness MacMahon, there are two distinct
methods of computing income tax expense in a regulatory proceeding:
(1) normalization , and (2) flow-through. It should be noted that a majority of the states
use the normalization method , whereas the Idaho Public Utilities Commission has
required Idaho Power to be a "flow-through" company. In making this observation
Idaho Power is not rearguing whether normalization or flow-through is more
appropriate , but simply pointing out that the Idaho Public Utilities Commission has
decided that Idaho Power will be required to flow through tax benefits. The only
exceptions to this flow-through methodology are the temporary differences created by
federal accelerated and bonus depreciation and contributions-in-aid-of-construction
(CIAC) which are excluded from flow-through treatment by federal law (Internal
Revenue Code 9168(f)(2) and Notice 87-82 respectively). A violation of the
normalization requirements in the federal tax law would trigger a repayment obligation
to the federal government of previously accumulated deferred income taxes and the
forfeiture of accelerated tax depreciation methods to Idaho Power in the future.
Accordingly, the Company has provided for deferred income taxes on these items in its
regulatory income tax expense at the federal statutory income tax rate. The
Commission has not normalized these items for state of Idaho income tax purposes
and the state-effect of the adjustment is flowed through to current income tax expense.
Tr. at 2900, L. 15 - Tr. at 2901 , L. 5.
As was pointed out by witness MacMahon, Staff's proposal to utilize a
hybrid tax ratio not tied to the currently enacted statutory federal income tax rate causes
a violation of the required normalization procedures. This is because when Staff utilizes
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 8
an income tax rate which is substantially below the currently enacted statutory tax rate
this , in effect, causes a flow through of the tax benefits on those items which, as stated
above , are excluded from flow-through treatment.
The Internal Revenue Service Has Indicated That Proposals
Similar To Staff's Are Violations of the Federal Tax Normalization Requirements.
There have been various proposals advanced in utility regulatory
proceedings which attempted to avoid triggering a violation of normalization
requirements in the federal tax law. The Internal Revenue Service has consistently
ruled that such proposals, whether directly or indirectly affecting the calculations of
income tax expense, would not be accepted.
For example, in Private Letter Ruli~g 8525156, the Internal Revenue
Service considered whether it was appropriate to use a consolidated group s effective
tax rate, which was lower than the statutory rate, to determine the current and deferred
income tax expense for ratemaking purposes of the group s regulated utility member.
The Service held that use of the lower effective tax rate would result in an
insufficient amount of deferred federal tax for the utility s difference between straight
line and accelerated depreciation. The actual federal income tax liability is not
determined by an effective rate. Normalization accounting requires the use of the
federal income tax rate provided in section 11 (b) of the Code. Also , the Service stated
(B)y introducing variables other than the difference between the deductions for
accelerated and straight line depreciation , the use of an effective tax rate may produce
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 9
a deferred tax adjustment that will be inadequate to meet normalization requirements.
This was a departure from the consistency requirements of normalization.
After determining that using an effective tax rate resulted in the utility not
being in compliance with the normalization requirements of the Code for its depreciation
difference , the Service went on to say ... it follows that it will be equally inappropriate to
use the effective tax rates to compute its current income tax expense for ratemaking
purposes. Because deferred tax expense and current tax expense are simply
components of the total tax expense, when the use of an effective tax rate to compute
deferred tax would violate normalization requirements, its use to determine current tax
expense is no less objectionable. Such use of the consolidated effective tax rate
achieves through current tax expense a cost of service reduction that would violate
normalization requirements if achieved through a reduction of deferred tax expense
and the effect is the same as if there was a partial flow-through of the benefits of
accelerated depreciation as a result of deferring less than all the difference between
straight line and accelerated depreciation. By either view, the use of consolidated
effective tax rates in the determination of deferred tax expense or current tax expense
will cause Subsidiary to fail to comply with the normalization provisions of the Code and
the regulations thereunder.(emphasis added)
The effect of Staff's proposal would result in the same conclusion reached
in the above Ruling. If accepted , Staff's proposal will cause a normalization violation.
The result of such a violation to Idaho Power and its customers will be the loss of
accelerated depreciation (thereby increasing current income taxes), a repayment
obligation of the accumulated deferred income taxes related to accelerated
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 10
depreciation , and a reduction in the deferred tax liability balance (which will increase
rate base).
Even Assuminq Staff's Proposal Would Be Approved, the Result
Would Be A Dramatic Chanqe In the Reserve For Deferred Income Taxes Which
Would Cause A Sharp Increase In Rate Base.
Mr. Holm reduced deferred income tax expense by using Staff's five-year
hybrid tax ratio on the current year change to temporary differences, while disregarding
the fact that the beginning balance in accumulated deferred income taxes had been
recorded using statutory income tax rates. Setting aside the resulting adverse impact of
triggering a normalization violation, another deficiency in the Staff's proposal is that the
accumulated deferred income taxes would need to be recomputed using the five-year
hybrid tax ratio. Following Staff's proposal , the recomputed reserve for deferred income
taxes would increase the Company s rate base by approximately $53 million as the net
deferred tax liability balance would drop due to the application of the lower rate. Tr.
2917 , LL. 5-18.
Staff's Proposal Violates the Retroactive Ratemakinq Requirement,
Since Staff Is Essentially Takinq Into Account A Past Event To Project Future Income
Tax Expense.
It is clear that Staff is using a past event which will not reoccur to
determine the income tax rate it proposes to use in computing Idaho Power s future
income tax expense and resulting revenue requirement. The Idaho Supreme Court and
IDAHO POWER COMPANY POST-HEARING BRIEF, Page
this Commission have always refused to base future rates on past events. Even
accepting for the sake of argument Staff's assertion that Idaho Power received a
windfall in 2002 as a result of the capitalized overhead method change, Staff cannot
now go back in time and obtain the perceived benefits from this change. Such an
attempt is clearly retroactive ratemaking, which this Commission has always stated it
cannot and would not do. In addition to the Idaho Supreme Court opinion quoted by
Mr. Ripley in his testimony (Utah Power Light v. Idaho Public Utilities Commission
685 P.2d 276 , 107 Idaho 47 (1984)), the Company would call to the attention of the
Commission the Commission s discussion in the last general rate proceedings
concerning the Pacific Hide clean-up expense (Order No. 25880 issued in Case No.
IPC-94-5). There the Commission , at pages 8 and 9 , ruled that it would not go back
in time to review an event which had occurred in the past to set rates for the future.
This is precisely what Staff is recommending when it utilizes its proposed hybrid tax
ratio to determine income tax expense for the future.
Staff's Recommendation To Amortize the Income Tax Deficiency
Payment Made In the Test Year Over Three Years Is Inconsistent With Prior
Commission Orders and Is Unreasonable.
As previously stated , Commission Staff, while not challenging the amount
of $2 942 924 included in the test year, recommends that amount be amortized over a
three-year period. As previously stated , this proposal is directly in conflict with
Commission Order No. 17499, which provided that any income tax deficiency payments
in the test year would be included in the Company s revenue requirement. A deficiency
IDAHO POWER COMPANY POST-HEARING BRIEF , Page 12
amount was included in the Company s revenue requirement in the proceeding that
resulted in Order No. 17499. The trade-off was that the Company would not be
permitted to recover any income tax deficiency payments that it made in a non-test
year. As pointed out by witness MacMahon , the Company paid and absorbed , pursuant
to Commission Order No. 17499, income tax deficiency payments that were not in a
test year, i.e., 1993-1995 , paid in 1998, and 1996-1997 paid in 2000.
Summary.
The Commission should not accept Staff's income tax proposals and
should compute Idaho Power s 2003 test year income tax expense using the current
statutory income tax rates as provided by the Company. Choosing not to use the
current statutory income tax rates because of a non-reoccurring tax deduction from
2001 is retroactive rate making. Additionally, failing to use current statutory income tax
rates will result in a normalization violation of the Internal Revenue Code , which would
adversely affect Idaho Power s cash flow and would increase the Company s revenue
requirement. Also, the current statutory income tax rates should be used to compute
the net-to-gross tax multiplier as those rates properly reimburse Idaho Power for the
actual income taxes it will pay on the new revenue dollars. Staff's proposed net-to-
gross tax multiplier leaves the Company far short of its actual income tax liability.
Finally, Idaho Power s income tax deficiency payment should be allowed in full in
accordance with prior Commission order and practice.
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 13
Annualizing Adjustments and Known and Measurable Changes.
The Commission Staff and Micron Technology, through witnesses Leckie
and Peseau, respectively, urge the Commission to reject Idaho Power s proposed
inclusion in its rate base of: (1) annualizing adjustments for two large system reliability
projects that are currently used and useful; and (2) known and measurable changes to
the test year rate base attributable to several large transmission projects that are
currently used and useful and one project that will be placed in service prior to the
effective date of rates set in this case.
For both the annualizing adjustments and the known and measurable
changes, the Company has satisfied the legal requirements for inclusion of these
system reliability projects in rate base. In Utah Power Light Co. v. Idaho Pub. Uti/.
Com 102 Idaho 282 629 P.2d 678 (1981), the Idaho Supreme Court held that the
Commission should include in the rate base all items which are proven with reasonable
certainty to be justifiably used by the utility in providing services to its customers. (Utah
Power Light Co.102 Idaho 282 at 284).
In the Utah Power Light case the Court elaborated as follows:
Test year data should be adjusted for known and measurable
changes where the changes are shown to be reliable and
certain. E. , Citizens Utility Co. v. Idaho Public Utilities
Comm 99 Idaho 164 , 579 P.2d 110 (1978); Agricultural
Products v. Utah Power Light Co.98 Idaho 23 557 P.
617 (1976). The Commission should include in the rate base
all items which are proven with reasonable certainty to be
justifiably used by the utility in providing services to its
customers. Citizens Utility Co. v. Idaho Public Utilities
Comm , supra. (Utah Power Light 102 Idaho 282 , at 284)
Idaho Code ~ 61-502A adds further clarification regarding the standards
that the Commission must apply in considering whether a particular investment can be
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 14
included in the utility s rate base. Idaho Code 9 61-502A prohibits the Commission
from including investment in rate base which is not currently used and useful. More
specifically, Idaho Code 9 502A provides as follows:
61-502A. Restriction on rates authorizing return on
property not providing utility service.
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Except upon its
finding of an extreme emergency, the commission is hereby
prohibited in any order issued after the effective date (February
, 1984) of this act from setting rates for any utility that grants
a return on construction work in progress (except short-term
construction work in progress) or property held for future use
and which is not currently used and useful in providing utility
service. As used in this section , short-term construction work in
progress means construction work that has begun and will be
completed in not more than twelve (12) months. Except as
authorized by this section , any rates granting a return on
construction work in progress (except short-term construction
work in progress) or property held for future use are hereby
declared to be unjust, unreasonable, unfair, unlawful and illegal.
When construction work in progress is excluded from the rate
base, the commission must allow a just, fair and reasonable
allowance for funds used during construction or similar account
to be accumulated , computed in accordance with generally
accepted accounting principles. (Emphasis added)
The Company has presented substantial , competent evidence in this case
demonstrating that the facilities for which it is seeking (1) an annualizing adjustment, or
(2) inclusion as a known and measurable change , are all prudent investments that are
currently used and useful.1 As such, these system reliability projects meet all of the
tests required for inclusion in rate base described by the Idaho Supreme Court in Utah
Power Light supra, and Idaho Code 9 61-502A.
The Goshen 345-kV capacitor bank replacement project has been installed and is currently
undergoing final commissioning and testing. The expected "in-service" date is May 15, 2004 , well
before the expected effective date of the rates to be set in this proceeding.
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 15
Staff And Intervenor Recommendations To Exclude Annualizinq
Adjustments For Two System Reliability Projects Are Contrary To Law Because Such
Exclusion Would Deny Idaho Power A Return On Prudent Investments That Are
Currently Used And Useful In Providinq Service To Customers.
The two projects for which the Company is seeking an annualizing
adjustment are both large system reliability projects. The first, known as the Bridger
Unit No.3 rewind project, involves an approximately $6.6 million investment in the Jim
Bridger coal-fired generating plant in Wyoming. (Exhibit 21) The Jim Bridger Plant is
approximately thirty years old, and the Bridger Unit No.3 rewind project was performed
to ensure that Unit No.3 specifically, and the Jim Bridger Plant as a whole, would
continue to operate reliably at the levels included in the Company s power supply model
used in this case. Tr. at 2788, LL. 12-15.
The second annualizing adjustment is an increase of approximately $13
million to transmission plant for the Brownlee-Oxbow 230-kV transmission system.
(Exhibit 21) The Brownlee-Oxbow transmission project was constructed to allow Idaho
Power to fully integrate all of its existing Hells Canyon Complex generation into its
system during the peak summer months. Like the Bridger Unit No.3 rewind project, the
Brownlee-Oxbow transmission line project was closed to plant in the fourth quarter of
2003 and has been used and useful , providing service to customers ever since. Tr.
2789 , LL. 8-17.
By making an annualizing adjustment for these two projects, the Company
has included both the Bridger Unit No.3 rewind project and the Brownlee-Oxbow
transmission project in the Company s rate base during the entire period of the 2003
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 16
test year. Staff and Micron argue that these two projects should be included in rate
base , but only for those months in 2003 after the two projects were closed to plant.
course , by doing that, Staff and Micron limit the amount of investment in these two
projects upon which the Company will be entitled to earn a return in the future.
Idaho Power s Annualizinq Adjustments Properly Match Expense
and Revenue.
Staff and Micron s recommended disallowance of annualizing adjustments
for the Bridger Unit No.3 rewind project and the Brownlee-Oxbow transmission project
are not based on an assertion that the two projects are not currently providing benefit to
customers. In fact, Staff witness Leckie acknowledges that these two projects are both
prudent investments and are currently used and useful. Tr. at 1581 , LL. 1-
The argument advanced by both Staff and Micron against the annualizing
adjustment is that the Company has not matched the expense associated with an
annualizing adjustment and the revenue attributable to the facility for which an
annualizing adjustment is sought. Idaho Power agrees that both this Commission and
the Idaho Supreme Court have indicated that in the case of new production plant that
will produce additional kWh's for sale , an adjustment to revenues as well as expense is
necessary.
However, both this Commission and the Idaho Supreme Court have
distinguished between investment in new production plant, which will produce additional
kWh's for sale , i.e., revenue , and plant investments that , by their nature, do not produce
revenue. In the case of non-revenue producing investment, an adjustment to revenues
is not necessary -- expenses and revenues are already properly matched. In this case
IDAHO POWER COMPANY POST-HEARING BRIEF , Page 17
specifically, revenues and expenses are properly matched because neither the Bridger
Unit No.3 rewind project nor the Brownlee-Oxbow transmission project are revenue
producing.
In Order No. 13448 issued in Case No. U-1009-84 on September 29
1977 (22 PUR.4th 357), the Commission considered Utah Power & Light Company
(UP&L's) proposed inclusion of two "known and measurable" adjustments to rate base.
The first requested adjustment was for the Huntington #2 coal-fired generating unit.
The second was for investment in UP&L's Deer Creek coal mine. In Order No. 13448
(22 PUR 4th , p. 357), the Commission considered the identical issue presented by Staff
and Micron in this case. Staff urged that UP&L's proposed inclusion of Huntington #2
and the Deer Creek mine as known and measurable changes should be rejected
because they were revenue-producing items and it would therefore be necessary to
make adjustments to the test year revenues corresponding to the addition in rate base.
The Commission agreed with Staff on Huntington #2. Addressing the Deer Creek mine
adjustment, the Commission stated:
The Deer Creek coal mining property is much closer question.
On rebuttal , the applicant pointed out that the coal mine is not
revenue-generating property as such , and its inclusion as a
known and measurable adjustment to rate base would not result
in mismatch of test year revenues and expenses. (Emphasis
added) (Order No. 13448, PUR.4th 22 357 358)
In Order No. 13448 the Commission clearly acknowledged the distinction between non-
revenue producing investment and generating plant investment.
The Commission eventually rejected the inclusion of the Deer Creek coal
mine investment because it did not believe that UP&L had adequately demonstrated
that the Deer Creek coal mine was used or useful. UP&L appealed the Commission
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 18
decision not to include both Huntington #2 and the Deer Creek mine investment as
known and measurable changes in the test year. In Utah Power Light Co. v. Idaho
Pub. Uti/. Com 102 Idaho 282 629 P.2d 678 (1981), the Supreme Court overturned
the Commission s decision and ordered the Commission to include both Huntington #2
and the Deer Creek mine investment in UP&L's rate base as known and measurable
changes.
At this juncture it's important to acknowledge that Idaho Code 9 61-502A
became law several years after the above-referenced Utah Power Light Co. case.
However, Idaho Code 9 61-502A is not a consideration in this instance. No party to this
case has asserted that either the Bridger Unit No.3 rewind project or the Brownlee-
Oxbow 230-kV transmission line project is not used and useful. Because these two
projects are used and useful , the proscription on the inclusion of construction work in
progress and plant held for future use contained in Idaho Code 9 61-502A is not
applicable. Staff and Micron did not object to annualizing adjustments for the Bridger
Unit No.3 rewind project or the Brownlee-Oxbow 230-kV line project because the
projects were not used and useful. Their concern was the proper matching of expenses
and revenues. As demonstrated in this case , expenses and revenues are properly
matched and do not present an issue in this proceeding.
As noted in the testimony of Idaho Power witness Obenchain , both the
Bridger Unit No.3 rewind project and the Brownlee-Oxbow transmission line project are
large investments the Company is making in equipment that will not produce additional
revenue. Tr. at 2788 , LL. 6-15. The Bridger No.3 rewind project will not increase the
generating capacity of the Jim Bridger plant. The Bridger No.3 rewind project's only
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 19
goal was to increase plant reliability. The Bridger No.3 rewind project will not produce
more revenue , but will make it more likely that the Jim Bridger Plant will actually be able
to produce the level of generation (and revenue) that is already included in the
Company s test year data.
The Brownlee-Oxbow transmission line presents the identical situation.
The Brownlee-Oxbow transmission line investment does not increase revenues. It will
not add additional wheeling revenue or decrease power supply expense below the
levels contained in the test year data. Tr. at 2802, LL. 2-10. Its construction only
increases the likelihood that the Company will actually be able to realize all of the
revenue attributable to the Hells Canyon production plant already included in the test
year data.
Neither Staff nor Micron presented any evidence that there would be any
additional revenues or expense savings associated with the two projects. In support of
their position , they assert the general proposition that utilities don t make investments
unless they expect to receive additional revenues associated with those investments.
That generalization is accurate only when considering generating plant investment that
allows the utility to produce more energy and , thus , the potential for achieving additional
revenues.
Utilities routinely make investments in transmission and other reliability-
related plant that does not produce more energy or create new revenues or reduce
expense. Idaho Power is required by law to provide adequate, efficient , just and
reasonable electric service to its customers. Idaho Code, ~61-302. The Company
regularly makes investments in transmission and other non-production plant simply
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 20
because the existing facilities are reaching the limit of their capacity, and failure to
invest in additional facilities could result in degraded service to existing customers.
Micron , of all of Idaho Power s customers , should have the greatest appreciation that
Idaho Power often makes investments solely for system reliability purposes, not to
generate additional revenue.
In his cross-examination of Mr. Obenchain, counsel for Micron attempted
to equate the construction of transmission and substation facilities in anticipation of load
growth with the receipt of additional revenues. Of course, it is not. While the Company
does its best to prioritize transmission and substation facility construction to anticipate
projected load growth , it must make system reliability decisions and investments without
any certainty that load growth will continue at expected levels or, in fact, occur at all.
Staff and Micron s arguments fail to recognize the reliability aspect of Idaho Power
construction planning process.
Recommendations To Exclude Known and Measurable System
Reliability Investments From Rate Base Are Contrary To Law Because Such Exclusion
Would Deny Idaho Power A Return on Prudent Investments Currently Used and Useful
In Providinq Service To Customers.The arguments both supporting and contesting
Idaho Power s annualizing adjustments are identical to the Company s proposal to
include known and measurable investments in this case. The investments the
Company included in its test year data as known and measurable changes , are all for
transmission facilities required to maintain service reliability and provide adequate
service. Tr. at 2795, LL. 20-24.
IDAHO POWER COMPANY POST-HEARING BRIEF , Page 21
Specifically, the known and measurable investments consist of the Star
substation and related transmission facilities and feeder lines , the Valley View
substation and related transmission facilities and feeder lines , the Midrose substation
and related transmission facilities and feeder lines , the Goshen 345-kV series capacitor
bank replacement project and a portion of the Oxbow-Brownlee 230-kV project , for a
total investment of approximately $18.4 million. The Star, Valley View, Midrose and
Oxbow-Brownlee projects are all completed and currently used and useful serving
customer loads. The Goshen 345-kV series capacitor bank project involves the
replacement of a thirty-year old 345-kV series capacitor bank located on the east side
of Idaho Power s main transmission system. This capacitor bank protects the Jim
Bridger Plant and allows the Company to safely integrate the Jim Bridger Plant
generation onto its system and the system of PacifiCorp. Its installation had to be timed
to coincide with low-load periods on both the Idaho Power and PacifiCorp systems.
The Goshen 345-kV replacement capacitor bank has been installed and the expected
in-service date is May 15 , 2004, well prior to the expected June 1 , 2004 effective date
for the rates to be set in this proceeding. All of these transmission investments have
been made to improve system reliability for current customers and will provide no new
revenue to the Company. Tr. at 2795, LL. 20-24.
No party to the proceeding questioned that the above-described projects
were required for the Company to continue to provide adequate service to existing
customer loads. No party to the proceeding provided any evidence that the above-
described transmission projects are not currently used or useful. No party provided any
evidence that the above-described transmission projects would provide any additional
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 22
revenue. Staff witness Leckie admitted that the transmission projects the Company has
included as known and measurable changes were examples of a utility constructing
facilities to ensure reliability as compared to achieving additional revenue. Tr. at 1593
LL. 11-13.
The Idaho Supreme Court in the previously cited Utah Power Light case
described the requirement for adjusting test year data to include known and
measurable changes. The Court indicated that if the Company demonstrates with
reasonable certainty that the investment will be used by the utility to provide service to
its customers within a reasonable period of time, the Commission must include the
items in rate base. See Utah Power Light Company v. Idaho Pub. Uti/. Com 102
Idaho 282 284 629 P.2d 678 (1981); Citizens Uti/. Co. v. Idaho Pub. Uti/. Com
Idaho 164, 579 P.2d 110 (1978).
In this proceeding, Idaho Power presented substantial competent
evidence that the transmission projects it has included as known and measurable
changes are prudent investments that are either currently used and useful , or in the
case of the Goshen 345-kV capacitor bank replacement project, will be used and useful
before rates are set in this case. No party has presented any evidence to the contrary.
As in the case of the annualizing adjustments , the only real objection presented by any
party was the potential mismatch between expenses and revenues.
As in the case of the annualizing adjustments , Idaho Power presented
evidence in this case that none of these projects are revenue-producing projects and as
such, expenses and revenues are properly matched. Tr. at 2795 , LL. 20-24. As in the
case of the annualizing adjustments, Staff and Micron make the same general assertion
IDAHO POWER COMPANY POST-HEARING BRIEF , Page 23
that no utility makes an investment without an expectation of revenues. As in the case
of the annualizing adjustments , this argument fails to recognize the reliability aspect of
Idaho Power s construction planning process. Idaho Power will not repeat its prior
arguments on its legal obligation to provide adequate, reliable service. (Idaho Code
961-302.
Summary.In considering whether to include the above-described
annualizing adjustments and known and measurable investments in Idaho Power s test
year data, the Commission must focus on the following facts: (1) All of these projects
are currently used and useful and serving customer loads; (2) All of these investments
were prudent and made to satisfy the Company s statutory obligation to provide
adequate, reliable service; (3) None of these projects produce additional revenue; and
(4) Failure to include these reliability-enhancing investments as annualizing
adjustments and known and measurable changes means that the Company will earn no
return on this investment, even though all of the facilities will be in place serving
customer loads for years to come.
Based on those facts , the Company s proposed annualizing adjustments
and known and measurable changes fully comply with the Idaho Supreme Court test for
inclusion in rate base as described in the Utah Power Light and Citizens Utilities
cases and are in full accord with Idaho Code 9 61-502A.
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 24
Brownlee-Woodhead Park.
Staff's proposal to exclude improvements made to Woodhead Park
from rate base is contrary to law because it denies Idaho Power recovery of a return on
a prudent investment that is useful to customers and has been used since 1996.
In 1996, in compliance with the requirements of Idaho Power s Federal
Energy Regulatory Commission (FERC) license for the Hells Canyon Complex (FERC
Project 1971), Idaho Power completed construction of substantial improvements at
Woodhead Park on Brownlee Reservoir. All of the upgraded facilities at Woodhead
Park have been utilized by the public since that time. Tr. at 630 , LL. 23-24. In his
testimony, Mr. Prescott describes in considerable detail the extensive use that the
public makes of Woodhead Park. Tr. at 631 , LL. 2-6. Staff, through witness Leckie
recommends that the Commission disallow a return on the Company s $7.5 million
investment in the improvements made to Woodhead Park and that this amount be
deferred and included in the Hells Canyon Complex relicensing costs for recovery in the
future. Tr. at 1561 , L. 24 and p. 1562 , LL. 1-
Staff makes this recommendation in spite of the fact that Woodhead Park
is an integral part of the Company s Hells Canyon hydroelectric facility, which facility is
currently used and useful. Tr. at 3159, LL. 3-4. The license for the Hells Canyon
Project is subject to the jurisdiction of the FERC, and the FERC has approved all
improvements the Company made to Woodhead Park. Tr. at 3159, LL. 4-6. Witness
Leckie acknowledges that the Company s existing license requires that Idaho Power
optimize and provide adequate recreational opportunities for the public. Tr. at 1562 , LL.
12. Staff does not contend that the improvements to Woodhead Park are imprudent.
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 25
Tr. at 1594, L. 20. Staff does not contend that the improvements to Woodhead Park
are not used and useful. Tr. at 1594, L. 9. Staff's only contention is that Woodhead
Park will be a factor in the Hells Canyon relicensing process, and as a result
recognition of the investment in Woodhead Park improvements should be deferred until
approximately 2008 when the larger investment the Company is currently making in
Hells Canyon relicensing costs is presented to the Commission for inclusion in the
Company s revenue requirement. Tr. at 1596 , LL 9-13. Staff adds insult to injury by
arguing that the Company should continue to depreciate the investment in Woodhead
Park. Tr. at 1596, L. 17. Should the Commission accept Staff's recommendation on
this issue, the Woodhead Park investment amount will continue to decline .due to
depreciation so that in 2008 , when the Company requests inclusion of Hells Canyon
relicensing costs , the amount attributable to Woodhead Park will be less and the
Company will never have earned its authorized rate of return on that investment over
that time period. In essence, Staff argues that it is appropriate for the Company to
depreciate its investment in Woodhead Park improvements from 1996 until
approximately 2008, but it is not appropriate for the Company to earn a return on its
investment over the same time period. Such a result is clearly unfair and confiscates
Idaho Power s property.
The Idaho Supreme Court, in Utah Power Light Co. v. Idaho Pub. Util.
Com 105 Idaho 822 673 P.2d 422 (1983), describes what makes up a utility "rate
base." Quoting Intermountain Gas v. Idaho Public Utilities Commission 97 Idaho 113
116 , 540 P.2d 775 , 778 (1975), the Court defined "rate base" as follows: "The rate
base consists of the capital invested in the utility upon which the company is entitled to
IDAHO POWER COMPANY POST-HEARING BRIEF , Page 26
a fair and just return. Citing Federal Power Com n v. Hope Natural Gas Co.320 U.
591 , 64 S.Ct. 281 , 88 L.Ed. 333 (1944). Quoting Citizens Util. Co. v. Idaho Public Util.
99 Idaho 164 169 579 P.2d 110, 115 (1978), the Court went on to describe rate base
as follows:
A utility s "rate base" represents the original cost minus
depreciation of all property justifiably used by the utility
providing services to its customers. Utilities are allowed to
charge customers rates which will yield a certain percentage
return on the utility s total investment.
Staff bases its recommendation to deny rate base treatment for the
Woodhead Park investment on the fact that the investment in Woodhead Park will
improve the Company s chances to relicense the Hells Canyon Project. Tr. at 1596 , LL.
13. While Idaho Power is somewhat baffled why it should be penalized for taking
steps today that will improve its chances to relicense the Hells Canyon Complex , the
reality is that the Woodhead Park improvements were performed primarily to satisfy
current FERC license requirements. Tr. at 631 , LL. 12-14.
The Company has presented unchallenged evidence that the investment
and improvements at Woodhead Park were made to comply with the current FERC
license for the project. Tr. at 628-31. If there is a secondary benefit by way of an
increased chance of relicensing, so much the better. No party in this proceeding
argues that the investment in Woodhead Park improvements was not made at least
partially to satisfy current license requirements. Tr. at 1596.
Summary.In the final analysis, the Company has presented
substantial competent evidence by way of the unchallenged testimony of Ric Gale that:
(1) the Woodhead Park investment property has been used by Idaho Power to provide
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 27
services to its customers since 1996. Tr. at 3159 , L. 3; (2) the investment in
improvements in Woodhead Park are an integral part of the Company s Brownlee
Hydroelectric facility and subject to the Company s FERC license for the Hells Canyon
project. Tr. at 3159 , LL. 3-6; (3) the FERC has approved the improvements to the
park. Tr. at 3159, LL. 6-7; (4) the investment is prudent and is used and useful now;
and (5) the investment was undertaken in compliance with the current license for the
Hells Canyon Project. Tr. at 3159, L. 3.
To deny shareholders a return on an investment that is prudent, currently
used and useful and currently dedicated to public convenience and necessary is
unreasonable and confiscates Idaho Power s property.
Micron s Deferred Revenue Proposal.
Nearly all of the parties to this proceeding advocated increasing
rates charged to the irrigation class to alleviate a long-standing failure on the part of the
irrigation class to contribute sufficient revenues to cover the cost of providing service to
the irrigation class. Throughout the case , this shortfall between the cost of service and
the revenues contributed by the irrigation class was referred to as the "irrigation
subsidy." A number of parties , including the U.S. Department of Energy, Micron
Technology, AARP, United Water and Kroger, all proposed that the Commission
establish a specific time-line over which the "irrigation subsidy" would be eliminated.
Micron Technology went even further and proposed a formal regulatory accounting
approach to provide that the shortfall under Micron s proposal would be made up.
IDAHO POWER COMPANY POST-HEARING BRIEF , Page 28
Under Micron s proposal , the irrigation class rates would continue to fall
short of full recovery of its cost of service. But, rather than charging the other customer
classes a higher rate to make up the shortfall , Micron proposes that (1) the other
customer classes only cover their cost of service, and (2) the resulting revenue shortfall
be deferred and treated as a regulatory asset for recovery in future irrigation rates. Of
course, the upshot of Micron s proposal would be that the rates approved for Idaho
Power in this case will not produce the authorized revenue requirement approved by
the Commission. While Idaho Power, like all the other participants in the case, is
uncomfortable with the continuing disparity between the cost of providing service to the
irrigation class and the revenues received from that class, Idaho Power does not
believe that Micron s proposal is a fair or appropriate way to address that problem.
It is basic "black letter" law that Idaho Power, as a regulated utility, is
legally entitled to recover its prudently incurred expenses and earn a return on the value
of its property justifiably used in providing service to its customers. Bluefield Water
Works Improvement Co. v. West Virginia Pub. Servo Com 262 U.S. 679 , 692, 43
Ct. 675, 67 LEd. 1176 (1923), FPC v. Hope Natural Gas Co.320 U.S. 591 , 603, 64
Ct. 281 88 LEd. 333 (1944), Utah Power Light CO. V. Idaho Pub. Util. Com 105
Idaho 822 673 P.2d 422 (1983), Citizens Utility CO. V. Idaho Pub. Util. Com 99 Idaho
164 579 P.2d 110 (1978). In order to recover its prudently incurred expenses and earn
a return , the Commission establishes the Company s authorized revenue requirement
and approves rates that will allow the Company to recover the revenue requirement. If
Micron s proposal is adopted by the Commission , Idaho Power will not be allowed to
charge rates that will recover all of the revenue requirement authorized by the
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 29
Commission. The rates authorized will ab initio be insufficient to fund the authorized
revenue requirement. Deferral of a portion of an approved revenue requirement in
anticipation that the deferred revenue will be funded by future customers is a refusal to
put in place rates sufficient to fund Idaho Power s approved revenue requirement.
Deferral of a revenue requirement, even if it is coupled with a regulatory asset, is not
the same as setting rates which will fund the Commission approved revenue
requirement.
The Commission cannot intentionally set rates that are insufficient
to recover a utility s authorized revenue requirement.
Idaho Code 9 61-502 provides that:
Whenever the commission , after hearing and upon its own motion
or on complaint, shall find that the rates, fares , tolls , rentals
charges or classifications , or any of them. . . are unjust
unreasonable, discriminatory or preferential , or in anywise in
violation of any provision of law or that such rates, fares, tolls
rentals, charges or classifications are insufficient, the commission
shall determine the just, reasonable or sufficient rates, fares
tolls.
. .
to be thereafter observed and in force and shall fix the
same by order as hereinafter provided. . . (Emphasis added)
In Agricultural Prod. v. Utah Power Light Co.98 Idaho 23 557 P.
617 (1976), the Idaho Supreme Court held that: "When the Commission finds that
rates charged are unjust, unreasonable , discriminatory or preferential, or are
insufficient, it must set those rates at a just and reasonable level." Idaho Code 9 61-
502. Agricultural Prod. v. Utah Power Light Co.98 Idaho 23, 25 (1976).
The New Mexico Supreme Court considered a similar situation in 1982.
In General Tel. Co. of the Southwest v. Corporation Com 98 New Mexico 749 , 652
2d 1200 (1982), the New Mexico Supreme Court ruled that when the State
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 30
Corporation Commission establishes a revenue deficiency and then subsequently sets
rates that will not allow the utility to recover that revenue deficiency, such a result is
unlawful. Quoting a number of cases from multiple jurisdictions , the New Mexico
Supreme Court stated: "We agree with the rationale stated in the foregoing cases , that
a regulatory commission has no authority to deny an increase in rates in an amount
which it has first found to be just , fair and reasonable, by means of imposing a
subsequent penalty for poor or inadequate service.General Tel. of the Southwest v.
Corporation Com 98 New Mexico 749 754 652 P.2d 1200, 1205 (1982).
While the fact situation in the New Mexico case is certainly different than
the facts presented in this case, the underlying principle is analogous. Once the
Commission has established a revenue requirement, it is obligated to set rates that will
allow the utility the opportunity to earn that revenue requirement. Ordering the utility to
defer a portion of its revenue for recovery some time in the future is conceptually no
different than establishing a revenue requirement and then consciously setting rates
that will not allow the utility to recover that revenue requirement to penalize the utility.
Idaho Power believes there is a critical distinction between the situation
where (a) the utility, realizing that it will incur an extraordinary expense voluntarily
approaches the Commission and requests an order allowing deferral of that expense
until a subsequent period when the expense can be amortized, and (b) the situation
where the Commission orders the utility to defer revenue until a future period. Under
Micron s proposal , taken to the extreme, the Commission could set an authorized
revenue requirement and then order the utility to defer all of its authorized revenue
requirement to a future period. Obviously this is an unrealistic scenario but it is not
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 31
logically inconsistent. Idaho Power believes that a mandatory deferral of authorized
revenues is a violation of Idaho Code 9 61-502 as discussed in the Agricultural
Products case , supra, and falls squarely within the prohibition on confiscation of
shareholder property described in Bluefield Waterworks Improvement Co. v. Pub.
Service Com n of West Virginia 260 U.S. 679 43 S.Ct. 675, 67 LEd. 1176 (1923), In
Bluefield the United States Supreme Court said:
The question in the case is whether the rate prescribed in the
Commission s order are confiscatory and therefore beyond
legislative power. Rates which are not sufficient to yield a
reasonable return on their value in the property used at the time
it is being used to render the services are unjust , unreasonable
and confiscatory, and their enforcement deprives the public
utility company of its property in violation of the Fourteenth
Amendment. This is so well settled by numerous decisions of
this Court that citations of the cases is scarcely necessary:
...
One other aspect of Micron s proposal that is of concern to Idaho Power is
the impact it would have on the irrigation class. Micron s proposal glosses over the
substantial amount of interest that would be charged to the irrigation class if Micron
proposal is adopted. Exhibits 709 and 710 that accompanied Micron witness Peseau
rebuttal testimony show hypothetical five-year and ten-year recoveries of the deferred
irrigation rate subsidy. Exhibits 709 and 710 show that, under Micron s five-year
recovery program, irrigators would pay total carrying charges in excess of $8 million. In
the ten-year proposal, the carrying charge would exceed $30 million.
Looking at the ten-year recovery scenario described in Exhibit 710
undoubtedly Idaho Power will be required to come back to the Commission for
additional rate relief during that period. In that event, irrigators could be paying rates to
(1) recover the revenue requirement set at the beginning of the ten-year deferral period
IDAHO POWER COMPANY POST-HEARING BRIEF , Page 32
(2) an additional amount to recover the deferred costs and including the $30 million in
carrying costs and (3) potential future increases in their rates from future rate cases.
the testimony of the irrigators in this case that any increases in electric rates will drive
some irrigators out of business is correct, adoption of the Micron proposal could present
something of a "death spiral" for the irrigation class. As rates increase, there are fewer
irrigators left to pay the increasing prices needed to cover both the Company s ongoing
revenue requirement and the substantial carrying charge component contained in the
amortization of the deferred amount.
To its credit, Micron emphasizes in its testimony that if its proposal is
adopted, Idaho Power should be held harmless and not be required to shoulder any of
the costs if Micron s deferral proposal does not turn out as expected. Nevertheless, if
the scenario plays out as Idaho Power is concerned that it might, the Company is not so
na"ive as to believe that transferring costs to other customers that cannot be recovered
from irrigators in the future will be viewed with anything other than hostility by the other
customer classes.
Micron s proposal is also unreasonable because of its rigidity. Micron
proposal assumes the Commission can set rates based solely on cost of service. In
fact, the Commission is legally obligated to consider other factors when setting rates. In
Idaho Underground Water Users Ass n v. Idaho Power Company, 89 Idaho 147 404
2d 859 (1965), the Idaho Supreme Court acknowledged that the Commission is
obligated to consider a number of factors in setting rates. The Court in that case
stated:
Concerning assignment of error VIII wherein it is asserted the
Commission failed to consider the value of the services to
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 33
particular classes of customers , the specific economic conditions
affecting members of the appellant association , or the economy of
the State of Idaho , we deem this assignment to be without merit.
The Commission had before it voluminous testimony concerning
the economic conditions of the farming community, the future
demands for power for pumping, and many other factors. Certainly
we do not minimize the problems created by the "economic
squeeze" of increased costs with lowering prices , as testified to by
members of appellant; but the record discloses these factors were
fully considered by the Commission, and thus are not reviewable by
this court, except to determine whether there was evidence to
sustain the determination made. Idaho Underground Water Users
Ass 89 Idaho 147 167.
Adoption of Micron s regulatory asset proposal , without consideration of
the factors enumerated by the Court in the Idaho Underground Water Users Ass
case , supra , would clearly make the Commission s decision vulnerable on appeal.
Finally, it's important for the Commission to keep in mind that a deferred
asset doesn t generate cash. Idaho Power cannot use a deferred asset to pay its bills
or its dividends. As Mr. Gribble noted in his testimony, financial rating agencies and the
financial community as a whole considers at the quality of the Company s earnings in
making their ultimate evaluations of the Company s value and creditworthiness. Tr. at
2762.
Summary.While Idaho Power is certainly sympathetic to the
concerns expressed by the other customer classes regarding irrigation rates , Idaho
Power does not believe that the proposal presented by Micron is either fair or workable.
The inescapable fact remains that cost-of-service is not a static, precise science. It
changes over time and it is necessary for the Commission to exercise its judgment to
set a revenue requirement and establish rates in which cost of service is one of several
considerations. Idaho Power s prior ability to avoid a general rate case for ten years
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 34
was clearly viewed as a benefit by most customers. Unfortunately, it is not likely that
Idaho Power will be able to defer general rate cases in the future. Knowing that the
Bennett Mountain Plant is under construction , that the Company s capital budgets are
dramatically increasing in the next several years in all areas and that the Hells Canyon
relicensing is scheduled for completion in 2008, Idaho Power believes that the
Commission will have several opportunities to look at the cost of serving the irrigation
class prior to the end of this decade. Micron s proposal to create a regulatory asset is
both unnecessary and has the potential of creating serious adverse effects for both
irrigators, the Company and the Commission.
CONCLUSION
While there were numerous issues raised in this case which the Company
could have addressed in its brief, Idaho Power believes that the four items selected all
constitute material matters that are significantly affected by legal precedent. The fact
that the Company has not addressed other issues in this brief should not be construed
as the Company s concurrence with positions taken or recommendations made by Staff
or intervenors.
Idaho Power originally filed this case seeking a 17.6 percent rate
increase. It has reduced its rate increase request from 17.6 percent to approximately
14.6 percent. Considering that this requested increase covers a ten-year period , the
requested 14.6 percent rate increase is less than the cumulative inflation rate over the
same period. When you further consider that since the last rate case , the Company
has invested nearly $900 million in additional plant to serve customer requirements, the
IDAHO POWER COMPANY POST-HEARING BRIEF , Page 35
requested 14.6 percent rate increase should certainly be considered fair, just and
reasonable.
DATED at Boise, Idaho, this 26th day of April , 2004.
LL:-
BARTON L. KLINE
Attorney for Idaho Power Company
IDAHO POWER COMPANY POST-HEARING BRIEF, Page 36
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 26th day of April, 2004 , I served a true
and correct copy of the within and foregoing IDAHO POWER COMPANY POST-
HEARING BRIEF upon the following named parties by the method indicated below, and
addressed to the following:
Lisa D. Nordstrom
Weldon B. Stutzman
Deputy Attorneys General
Idaho Public Utilities Commission
472 W. Washington Street
O. Box 83720
Boise, Idaho 83720-0074
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29814 Lake Road
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99 East State Street, Suite 200
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Don Reading
Ben Johnson Associates
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Dennis Goins
Potomac Management Group
5801 Westchester Street
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Conley E. Ward
Givens , Pursley LLP
601 W. Bannock Street
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Dennis E. Peseau , Ph.
Utility Resources, Inc.
1500 Liberty Street S., Suite 250
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Dean J. Miller
McDevitt & Miller LLP
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Boise, ID 83701
Jeremiah Healy
United Water Idaho, Inc.
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Boise, ID 83719-0420
William M. Eddie
Advocates for the West
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Boise , ID 83701
Nancy Hirsh
NW Energy Coalition
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39 Market Street, Suite 200
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Thomas M. Power
Economics Department, LA 407
University of Montana
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-ill. (j BARTON L. KLINE