20070227final_order_no_30256.pdf

Office of the Secretary
Service Date
February 27, 2007
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR AN
ACCOUNTING ORDER TO COMPLY WITH
SF AS 158 REGARDING TREATMENT OF
PENSION AND POSTRETIREMENT
BENEFIT OBLIGATIONS
CASE NO. IPC-06-
ORDER NO. 30256
On December 18, 2006, Idaho Power Company ("Idaho Power" or "Company ) filed
an Application for an order authorizing the Company to record certain pension and
postretirement costs in accordance with certain recent changes implemented by the Financial
Accounting Standards Board (F ASB). This Commission has the jurisdiction over such requests
pursuant to Idaho Code ~ 61-524.
On January 18, 2007, the Commission issued a Notice of Application and Notice of
Modified Procedure, and solicited comments from interested parties. Order No. 30223. The
only comments received were submitted by Staff.
THE APPLICATION
Idaho Power sought an order authorizing the Company to: (1) record, as a regulatory
asset or regulatory liability, the cumulative financial impact resulting from the Company
implementation of Statement of Financial Accounting Standards (SFAS) 158 , and (2) record on
an ongoing basis, as a regulatory asset or a regulatory liability, an amount equal to the changes in
the SF AS 158 related balances. The Company stated that this will not materially affect the
current level of pension and postretirement costs or cost of capital calculations included in the
Company s revenue requirement.
The Company currently accounts for penSIOn and postretirement benefits in
accordance with SFAS Nos. 87, 88, 106, and 132(R). SFAS 158 requires companies with at
least one employer defined benefit plan to (1) recognize that funded status of a benefit plan in its
statement of financial position, and (2) recognize as a component of other comprehensive
income, net of tax, the actuarial gains or losses and prior service costs or credits that arise during
the period but are not recognized as components of net periodic benefit cost pursuant to SF
No. 87. SFAS 158 thus requires companies to recognize and account for pension and other
postretirement benefit plans differently than they have been. These changes affect pension assets
ORDER NO. 30256
and liabilities and other comprehensive income, but do not affect the company s income
statement. "Other comprehensive income" is a component of equity that is used in general rate
cases to determine Idaho Power s revenue requirement. Idaho Power stated that unless the
Application is approved, the changes demanded by SF AS 158 will affect the calculation of its
revenue requirement in future rate cases.
The Company stated that it is ready to comply with SF AS 158. It further stated that
this standard will affect capitalization ratios used by regulatory bodies, credit rating agencies
and covenants of debt financings. Thus, the Company sought approval by this Commission to
record the effect of the adoption of the standard, allowing other comprehensive income to be
deferred as a regulatory asset or liability. The Company did not intend by this Application to
request any approval regarding future ratemaking treatment or to change the current cost
recovery of SF AS 87 or SF AS 106 expenses.
STAFF COMMENTS
Staff noted that SFAS No. 158 was put in place in an effort to improve upon the way
publicly traded corporations report their pension assets and liabilities. Staff further noted that the
actual effect that Statement 158 will have on the financial statements of Idaho Power has yet to
be determined since the 2006 actuarial reports have not been completed. Using the 2005
actuarial reports as a surrogate, the cumulative effect of FAS 158 would have created a
regulatory asset of approximately $70 million, though this amount will undoubtedly change as
economic factors during 2006 have yet to be reflected.
Included in the approximately $70 million surrogate amount the Company
requesting authority to defer is $10 928 252 of Prepaid Pension Expense. In Order No. 29505
the Commission removed Prepaid Pension Expense from rate base stating: "Because prepaid
pension assets result from accounting procedures rather than funds actually contributed, they are
not the type of asset providing electric service upon which Idaho Power and its shareholders are
entitled to earn a return on investment." Staff continues to believe that prepaid pension expense
is not an asset used in the generation, transmission or distribution of electricity and is created
only by economic factors, many of which are beyond the Company s control and accounting
procedures and therefore is not an asset that should be used in calculating the Company
revenue requirement.
ORDER NO. 30256
Staff believes that it is reasonable to allow Idaho Power to create a regulatory asset in
FERC Account 182.3 to account for the cumulative effect of SFAS 158 in its entirety. Staff
recommended that the Company use a separate sub-account specifically for SF AS entries.
Staff also addressed Idaho Power s request for approval of ongoing entries required
by SF AS 158 to record the Company s pension and postretirement benefits expense. Staff
believes that after the Company s next general rate case filing, the Staff and the Commission will
have additional information that would better allow them to determine the appropriateness of the
ongoing recordkeeping entries for the statement, and the overall effect that this statement should
have on determining the Company s annual revenue requirement.
Staff Recommendation
Staff recommended that the Commission approve Idaho Power s Application insofar
as allowing the Company to create a regulatory asset or regulatory liability for cumulative impact
of SF AS No. 158. Staff also believes that future entries to comply with SF AS 158 and their
ratemaking effect should be a subject of the Company s next general rate filing, therefore Staff
recommended that the Commission deny the Company s premature request to approve those
entries at this time. Staff further recommended that Idaho Power not be permitted to earn a return
on the regulatory asset created by the implementation of SF AS 158.
FINDINGS AND CONCLUSIONS OF LAW
The Commission has jurisdiction over Idaho Power Company as an electric utility
and to hear this matter pursuant to Idaho Code ~~ 61-119, 61-129 and 61-524 and the
Commission s Rules of Procedure, IDAPA 31.01.01.000 et seq.
We find that the Company s request for an order to comply with SFAS 158 is
reasonable. We further find that the Company should use separate sub-accounts to establish the
regulatory accounts and reflect the ongoing changes to those accounts. This will facilitate Staffs
ability to track the ongoing account activity.
We also find that any bookkeeping entries approved by the Commission in this case
do not predetermine the regulatory expense levels to be included in rates. We encourage the
Staff to evaluate the impact of the statement in the Company s next general rate case filing. At
that time, Staff will be able to review current actuarial calculations as opposed to surrogate
outdated data and will have a better understanding of the effect of the statement. Idaho Power
ORDER NO. 30256
did not request a carrying charge on the resulting regulatory asset, and we find it is appropriate
for the asset not to be included in rate base or accrue a carrying charge.
ORDER
IT IS HEREBY ORDERED that the Application of Idaho Power Company for an
accounting order to comply with SF AS 158, Case No. IPC-06-, is hereby approved. The
Company is authorized to establish the regulatory accounts and reflect the ongoing activity in
those accounts. Ratemaking treatment will be evaluated when the Company submits an
appropriate filing.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code g 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this ;17
j-I.
day of February 2007.
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, PRESIDENT
MARSHA H. SMITH, COMMISSIONER
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MACK A. REDFORD OMMIS, IONER
ATTEST:
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Je D. Jewell
Commission Secretary
O:IPC-O6-33 _cg2
ORDER NO. 30256