20050209Comments.pdf

WELDON B. STUTZMAN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3283
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR AN
ACCOUNTING ORDER REGARDING THE
TREATMENT OF THE SHOSHONE-BANNOCK)
TRANSMISSION RIGHT-OF-WAY EASEMENTGRANT.
CASE NO. IPC-O4-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through
its Attorney of record, Weldon B. Stutzman, Deputy Attorney General, and in response to
the Notice of Application and Notice of Modified Procedure issued in Order No. 29689 on
January 19 , 2005 , submits the following comments.
BACKGROUND
On December 27, 2004, Idaho Power Company filed an Application for an accounting
Order authorizing the Company to amortize the cost of the Shoshone-Bannock Tribe (Tribe)
Transmission Right-of-Way Easement Grant. The accounting order would allow the Company
to amortize the cost of a newly negotiated easement across tribal property. The term of the
easement extends through December 31 , 2027, but also covers the period between 1996 to the
present. The total-amount of the negotiated easement grant is $7,490 000, most of which will be
paid in three annual installments.
STAFF COMMENTS FEBRUARY 9, 2005
The new Easement Grant results from negotiations that began in 1996 to renew four
right-of-way easements for five transmission lines that cross the Fort Hall reservation near
Pocatello, Idaho. The total amount of the Easement Grant payments is $7 490 000, representing
145 000 in total cash payments and $345 000 in college scholarship payments over the 23-
year life of the easements. Idaho Power requests confirmation from the Commission that the net
amount of the Easement Grant may be booked and amortized through 2027 with the expenses
recoverable in future rates.
STAFF ANALYSIS
Accounting Methodology
The Company is proposing to book this particular easement to a unique sub account in
FERC Plant Account #302 - Franchises and Consents. Transmission right-of-ways are usually
booked to FERC Plant Account #350 - Transmission Plant, Land & Land Rights. The Company
maintains that this Easement Grant is different because the easement is for the contract time
period. The Company states there is a precedent for this type of separate accounting treatment
because it currently has another right-of-way agreement with the Tribe that is being accounted
for in a similar fashion.
Staff acknowledges that using the same accounting for similar easements is reasonable.
Staff supports the proposed accounting treatment where the Company capitalizes the easement
grant to a unique sub account in FERC Plant Account #302.
Cost of the Shoshone-Bannock Easement Grant
The Company has agreed to pay the Tribe a cash payment of$7 145 000 and scholarship
payments of$15 000 per year totaling $345 000 through the end of the agreement. Staffhas
reviewed this compensation package. When negotiations began, both the Tribe and the
Company valued the easements in substantially different ways. The Company took an asset
approach, looking at what the real estate is worth. The Company s standard approach is to value
the easement at 50% of the land value. Idaho Power obtained an independent appraisal of the
easements in connection with its applications to renew the easements. The appraisal was based
on standard land valuation principles, in this case the value of the dry grazing land. The
STAFF COMMENTS FEBRUARY 9, 2005
Company received an appraisal for the four easements of $448 030. The Tribe, on the other
hand, used a market approach. The Tribe based its valuation on the easements using an
opportunity cost valuation of $19 million. The opportunity cost is calculated by determining
what the cost would be to the Company to circumvent the reservation.
The Company made several offers and counter-offers to the Tribe. For example, in April
of 2001 the Company made an offer for $4.2 million for a 25-year easement. Another offer was
made for $6.1 million for a 20-year right of way, and yet another offer of$7.1 million for a 25-
year right of way. The Tribe ultimately accepted the negotiated offer in October of 2004 that
would pay $7.1 million over 3 years for a 23-year right-of-way.
This approach by the Tribe is similar to the market approach used when evaluating other
amounts paid for similar items. For instance, the Fort Peck Tribe in Montana recently approved
a 50-year agreement with Northern Border Pipeline for a natural gas pipeline. Under the
agreement, the pipeline company will pay $7.4 million in back taxes to the tribe, which extends
an existing 25-year contract set to expire in 2011. The pipeline company also agreed to pay
$1.55 million in annual taxes to continue piping gas across the reservation.
According to Idaho Power Company, other companies that have challenged the tribes and
have pursued legal avenues to renew their easements on the reservations have ending up paying
higher compensation than would be paid for similar easements off the reservation. In light of
this, Staff is comfortable with the efforts of the Company to obtain the easements across the
Shoshone- Bannock Reservation at the lowest cost.
RECOMMENDATIONS
Staff recommends that the Company be authorized to amortize the expenses associated
with the Shoshone-Bannock Easement Grant as requested. No increase in rates is requested with
this filing. In the next general rate case, the Company plans to include the unamortized plant in
the rate base and the annual amortization in expense when determining its revenue requirement.
STAFF COMMENTS FEBRUARY 9, 2005
Respectfully submitted this
Technical Staff: Kathy Stockton
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STAFF COMMENTS
qfV'--day of February 2005.
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Weldon B. Stutzman
Deputy Attorney General
FEBRUARY 9, 2005
CERTIFICA TE OF SERVICE
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HEREBY CERTIFY THAT I HAVE THIS 9TH DAY OF FEBRUARY 2005
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-04-, BY MAILING A COpy THEREOF POSTAGE PREPAID, TO THE
FOLLOWING:
PATRICK A. HARRINGTON
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
JEANNETTE C. BOWMAN
SR. ANALYST
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
SECRETARY
CERTIFICATE OF SERVICE