20061025Comments.pdf

DONOVAN E. WALKER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5921
RECEIVED
2006 OCT 25 Prl I: 45
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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
AMERICAN FALLS REPLACEMENT DAMREFUNDING BONDS
CASE NO. IPC-O6-
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission, by and through it Attorney of
Record, Donovan E. Walker, Deputy Attorney General, in response to the Notice of Application
and Notice of Modified Procedure, issued on October 5 , 2006, Order No. 30142, submits the
following comments.
BACKGROUND
On September 7 2006, Idaho Power Company (Company) filed an Application for
an accounting order for authority to amortize the principal balance owed on American Falls
Replacement Dam Refunding Bonds (the Bonds) over the remaining term of the Bonds and
operating license of the American Falls Dam.
STAFF COMMENTS OCTOBER 25, 2006
The Application
According to the Company s Application, in April 2000 the Company refinanced the
Bonds to a variable rate, interest-only instrument. The principal amount of $19 885 000 is due in
full in February 2025, the same time that the Company s operating license expires at the
American Falls Dam. The interest on the Bonds is currently being paid monthly and expensed to
Water for Power (Account 536). The principal balance is currently recorded as a liability
(Account 224200) with a corresponding deferred debit (Account 186727).
Idaho Power states that since refinancing the Bonds in 2000 it has not amortized the
principal amount and has charged only the interest payments to the Water for Power expense.
The Company states that as a result, Idaho customers have only been paying the interest portion
of the debt since the 2003 general rate case (IPC-03-13). While this has resulted in lower
overall rates in the short term, the principal balance and carrying charge will come due in the
future, affecting rates.
The Company proposes that the deferred debit be amortized over the remaining life of
the Bonds and the license. The Application states that by amortizing the deferred asset over the
remaining lives of the Bonds and license, i., 2025, current retail customers receiving the
benefits of this facility would fund the recovery of the principal portion just as they are currently
funding the interest portion. The Company proposes amortizing the $19 885 000 in equal
monthly amounts beginning January 2006 through January 31 , 2025. This will result in an
additional $1 042 008.72 annual expense for the years 2006 through 2024, and one month'
amortization of$86 834.06 in 2025 before the Bonds mature February 2025. The annual
expense would be included in the next general rate case test year.
STAFF ANALYSIS AND REVIEW
Staff performed a review of the history of the Bond referred to in this Application dating
back to 1976. Staff was interested in the accounting entries made by the Company in regards to
this Bond. Staff s review covered applications and orders issued by the Commission with regard
to this Bond. The history of this Bond is as follows.
In the 1970s, Idaho Power guaranteed the financing required to reconstruct the American
Falls Dam in Power County, Idaho , in exchange for certain water rights for its hydroelectric
plant on the site. Through April 2000, the guaranteed Bonds were structured in such a way that
the Company made principal and interest payments on behalf of American Falls Reservoir
STAFF COMMENTS OCTOBER 25 , 2006
District that were recorded to Water for Power expense and included in the Company s operating
and maintenance (O&M) expenses recovered through general rates. As principal payments were
made, both the liability (Account 224200) and associated deferred asset (Account 186727)
accounts were decreased.
In April 2000, the Company in conjunction with the American Falls Reservoir District
refinanced the Bonds to a variable rate, interest-only instrument. The interest and amortization
of refinancing costs on the Bonds is currently being paid monthly and expensed to Water for
Power (Account 536). The Company in it filing states that since refinancing the bonds in 2000
it has not amortized the principal amount of$19 885 000.
The result is that Idaho retail customers have only been paying the interest portion of the
debt service since the 2003 general rate case (Case No. IPC-03-13). While this has resulted in
lower overall rates in the near term, the remaining principal will come due in the future and will
have to be recovered in rates at that time resulting in a mismatch of benefits and costs.
In early 2006, the Company in consultation with its external auditors, decided that the
principal balance should be amortized over the remaining life of the Bonds and license.
amortizing the deferred asset over the remaining life of the Bonds and license (i., 2025) current
retail customers receiving the benefits of this facility will fund the recovery of the principal
portion just as they are currently funding the interest portion.
The Company proposes amortizing the $19 885 000 in equal monthly amounts of
$86 834.06 beginning January 1 , 2006 through January 31 , 2025. This will result in an
additional $1 042 008.72 annual Water for Power expense for the years 2006 through 2024 and
one month's amortization of$86 834.06 in 2025 before the Bonds mature on February 1 2025.
This annual expense will be included in the next general rate case test year.
The April 2000 accounting entry to record the American Falls Bond obligation is:
Account 186727 Miscellaneous Deferred Debits-
American Falls Water Rights
Account 224200 Other Long Term Debt -
American Falls Bond Obligation
$19 885 000
$19 885 000
STAFF COMMENTS OCTOBER 25 , 2006
The proposed entry requested to record the monthly amortization of the Bond principal balance
over the remaining life of the Bond and license: ($19 885 000/229 Months = $86 834.06)
Account 536000 Operating Power Production Hydro Power-
Water for Power
Account 186727 Miscellaneous Deferred Debits
$ 86 834.
American Falls Water Rights $ 86 834.
Based on its review, Staff concludes that the transaction to record the principal amount of
the Bonds and the current accounts and entries to record interest expenses are reasonable. Staff
also believes the Application for an accounting order to amortize the Bonds over its remaining
life is reasonable.
RECOMMENDATION
Staff recommends that the Commission approve the request for the proposed accounting
order to modify the accounting treatment for the American Falls Replacement Dam Refunding
Bonds and amortize the principal balance owed on the Bonds over the remaining term of the
Bonds.
Respectfully submitted this ~ay of October 2006.
tV (/A----
Donovan E. Walker
Deputy Attorney General
Technical Staff: Lori Ellis
Terri Carlock
i:umisc:comments/ipceO6. 1 9dwletc
ST AFF COMMENTS OCTOBER 25 , 2006
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 25 TH DAY OF OCTOBER 2006
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. IPC-06-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO
THE FOLLOWING:
BARTON L KLINE
LISA D NORDSTROM
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
JOHN R. GALE
VPREGULATORY AFFAIRS
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
SECRETAE
CERTIFICATE OF SERVICE