20040928Press Release.pdf

IDAHO PUBLIC UTILITIES COMMISSION
Case No. IPC-03-13, Order No. 29601
Case No. IPC-04-9, Order No. 29600
September 28, 2004
Contact: Gene Fadness [phone]
Website: www.puc.state.id.
Commission, Idaho Power announce settlements of rate case, PCA issues
Boise - The Idaho Public Utilities Commission today announced two separate settlements of
is.sues arising out of the recently concluded Idaho Power rate case and the company s annual
power cost adjustment.
The first settlement resolves a disagreement between the company and the commission over how
income taxes should be expensed.
On May 25, the commission approved an average 5.2 percent rate increase for Idaho Power. The
company requested 14.5 percent. After that May 25 order, Idaho Power asked the commission to
reconsider the portion of the order that said income tax expenses Idaho Power can recover from
customers must be calculated on an historic five-year average rather than on the statutory federal
and state income tax rates. The effect of using the five-year average was to decrease Idaho
Power s annual revenue requirement by $11.5 million.
The company used a new tax expense methodology that resulted in a $41 million refund in 2002
on taxes paid in prior years and pushed income tax expense to future dates. To minimize the
future tax expense impact on customers, the commission ordered a five-year average of income
tax expenses. Idaho Power petitioned for reconsideration, expressing concern that the Internal
Revenue Service could challenge the five-year average causing the company to lose its ability to
use accelerated depreciation for incomes tax purposes. If accelerated depreciation is lost, the
company claimed, income taxes would be significantly higher and Idaho Power would be
required to obtain additional financing. That could result in the company seeking to increase
rates further to cover tax expense, the company claimed.
Although we originally approved use of the five-year average, we are concerned about the
uncertainty created by the resulting IRS challenge and the risks that litigation might pose to
ratepayers
, "
the commission said. The benefits - including the company s use of accelerated
depreciation, the potential for lower borrowing costs and the avoided litigation - outweigh the
tax increase, the commission said.
Because the new rates from the rate case became effective June 1 , rates to account for the $11.
in additional revenue will not be adjusted until next year. For this year, between June 1 and next
May 31 , Idaho Power and the commission staff proposed a formula to compute and record
monthly in a regulatory asset account an amount equal to the additional revenue that the
company would have received using the statutory income tax rates rather than the five-year
average. The total will then be included for recovery from customers when Idaho Power has its
annual power cost adjustment process (PCA) next spring.
The second settlement agreement approved today, settles three outstanding issues, that, when
totaled, will result in a $19.3 million credit given to customers over a two-year period.
The first issue involves a change in the accounting treatment associated with a 2002 income tax
refund. That will result in a credit to customers of an undisclosed amount.
Customers will also receive credit for a portion of the $6 million to $7 million in additional
power supply costs the company and ratepayers paid as a result of an equipment failure at the
Valmy generation plant in Nevada.
Idaho Power jointly owns the Valmy plant with Sierra Pacific, a Nevada utility. The generator
unit was out of service from June 26 through Sept 8, 2003. Because of the outage, Idaho Power
was required to purchase replacement power at rates significantly higher than the costs for
Valmy. Staff questioned whether customers should pay the above-normal costs for replacement
power. In the settlement, both parties acknowledge that the outage was atypical and, in part, out
of the control of Idaho Power.
In another matter related to the comprehensive settlement, staff and Idaho Power agreed to leave
a PCA expense adjustment rate for growth at the current level of 1.684 cents per kWh. Idaho
Power argued for a much lower expense adjustment while commission staff argued for a higher
adjustment. The current rate of 1.684 cents is about the midway point between the commission
and company s recommended adjustments. The adjustment is credited against the amount of
money the company is able to claim in its PCA due to growth in energy sales. During those years
when Idaho Power has below-normal energy sales, the expense adjustment is added to the
company s power costs.
Neither of the two settlements will impact customer bills until next June. One settlement results
in an increase to base revenues for Idaho Power for $11.5 million. The second settlement results
in a $9.65 million credit to Idaho Power customers over a two year-period for a total credit of
$19.3 million. The impact on customer rates next spring is minimal.
The orders on both settlements as well other documents related to these cases can be accessed on
the commission s Web site at www.puc.state.id.. Click on "File Room " then on "Recent
Orders and Notices " and scroll down to Order numbers 29600 and 29601.
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