20070208Comments.pdf

CECELIA A. GASSNER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO, 6977
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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 TO COMPLY WITH
SFAS 158 REGARDING TREATMENT OF
PENSION AND POSTRETIREMENT BENEFITOBLIGATIONS
CASE NO. IPC-O6-
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission, by and through its Attorney of
record, Cecelia A. Gassner, Deputy Attorney General, in response to the Notice of Application
and Notice of Modified Procedure in Order No. 30223 issued on January 18, 2007, submits the
following comments,
BACKGROUND
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 request pursuant to
Idaho Code ~ 61-524.
STAFF COMMENTS FEBRUARY 8, 2007
Idaho Power seeks 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 SFAS 158 related balances. The Company states 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 SFAS 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 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 states that unless the Application is approved
the changes demanded by SFAS 158 will affect the calculation of its revenue requirement in
future rate cases.
The Company states that it is ready to comply with SFAS 158. It further states that this
standard will affect capitalization ratios used by regulatory bodies, credit rating agencies, and
covenants of debt financings. Thus, the Company seeks approval by this Commission to record
the effect of adopting the standard, allowing other comprehensive income to be deferred as a
regulatory asset or liability. The Company does not intend by this Application to request any
approval regarding future ratemaking treatment or to change the current cost recovery of SF
87 or SF AS 106 expenses.
STAFF ANALYSIS
Statement of Financial Accounting Standards No, 158 is the result of ongoing efforts by
the accounting community to improve upon the way publicly traded corporations report their
pension assets and liabilities. This statement was issued to address concerns that current
STAFF COMMENTS FEBRUARY 8, 2007
reporting standards failed to completely communicate a plan s funded status to the users of the
financial statements. Under prior accounting standards, an employer would only report the
funded status of the defined benefit plan in the footnotes to the financial statements, which made
it more difficult for users of the financial statements to determine a company s financial ability
to satisfy its pension and postretirement benefit obligations. The prior standards also created
situations where an employer could delay the recognition of financial events and report a liability
that was significantly less than the underfunded status of the plan.
To comply with the Statement, employers that sponsor one or more defined benefit plans
must:
Recognize the funded status of a benefit plan in its statement of financial position,
Recognize as a component of other comprehensive income, net of tax, the gains
or losses and prior service costs or credits that arise during the period but are not
recognized as components of the net periodic pension cost as calculated by
Statement of Financial Accounting Standards No. 87.
Measure defined benefit plan assets and obligations as of the date of the
employer s fiscal year-end statements,
Disclose in the notes to the financial statements additional information about
certain effects on F AS 87 expense for the next fiscal year that arise from delayed
recognition of the gains or losses, prior service costs or credits, and transition
asset or obligation.
Idaho Power is requesting authority to record as a regulatory asset or liability the
cumulative effect of Financial Accounting Standard No. 158. The actual effect that Statement
158 will have on the financial statements ofldaho 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 F AS 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 accounted for.
Included in the approximately $70 million surrogate amount the Company is 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
STAFF COMMENTS FEBRUARY 8, 2007
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 only created 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 s revenue
requirement.
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 SF AS 158 in its entirety. Staff
recommends that the Company use a separate sub-account specifically for SF AS entries, which
would facilitate Staffs ability to track the account activity. It should also be noted that any
bookkeeping entries approved by the Commission in this case do not constitute any concurrence
by Staff on how the impact of SF AS 158 will affect ratemaking. Rather than debating the
different components of SF AS 158 in this current case, Staff believes that the ratemaking
treatment of the impact of the statement should be addressed 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 affect of the statement.
Idaho Power did not request a carrying charge on the resulting regulatory asset. Because
the regulatory asset is created by a change in accounting procedures, Staff believes it is
appropriate for the asset not to be included in rate base or accrue a carrying charge,
Idaho Power further requests 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
Upon review of the Company s Application and the related accounting standards issued
by the Financial Accounting Standards Board, it is the recommendation of Staff that the
Commission approve Idaho Power s Application insofar as allowing the Company to create a
regulatory asset for cumulative impact of Statement of Financial Accounting Standards 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 recommends that
STAFF COMMENTS FEBRUARY 8, 2007
the Commission deny the Company s premature request to approve those entries at this time,
Staff also recommends that Idaho Power not be permitted to earn a return on the regulatory asset
created by the implementation of SF AS 158. Finally, Staff recommends that the Commission
insert language in its final order reiterating that approval ofthe Company s application provides
the opportunity but does not constitute automatic approval of the inclusion of those regulatory
assets in the calculation of the Company s revenue requirement.
Respectfully submitted this C2'day of February 2007.
cecel
Deputy Attorney General
Technical Staff: Donn English
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STAFF COMMENTS FEBRUARY 8, 2007
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 8TH DAY OF FEBRUARY 2007
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
MONICA B MOEN
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
JOHN R. GALE
VP -REGULATORY AFFAIRS
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
SECdt4-~
CERTIFICATE OF SERVICE