HomeMy WebLinkAbout20090226Answer to Reconsideration Petition.pdfWELDON B. STUTZMAN
DEPUTY ATTORNEY GENERALL
IDAHO PUBLIC UTILITIES COMMISSION
472 WEST WASHIGTON STREET
POBOX 83720
BOISE, ID 83720-0074
Idaho Bar No. 3283
Tele: (208) 334-03 i 8
Fax: (208) 334-3762
E-mail: weldon.stutzran(ßpuc.idaho.gov
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Attorney for Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR )
AUTHORITY TO INCREASE ITS RATES )
AND CHARGES FOR ELECTRIC SERVICE )
TO ELECTRIC CUSTOMERS IN THE )STATE OF IDAHO. )
CASE NO. IPC-E-08-10
COMMISSION STAFF'S
ANSWER TO IDAHO POWER'S
PETITION FOR RECONSIDERATION
The Commission issued its final Order No. 30722 in this case on Janua 30, 2009,
and Idaho Power Company fied a Petition for Reconsideration on Februar 19,2009. Staff fies
this Answer to Idaho Power's Petition for Reconsideration addressing only one subject area
raised by the Company in its Petition. By not addressing the other issues raised in Idaho Power's
Petition, Staff is not agreeing with or acquiescing in the Company's argument on those other
points, and thus does not in any way waive its opportunity to paricipate in additional evidentiar
hearings or to fie legal argument.
The issue Staff addresses in this Answer to Idaho Power's Petition for
Reconsideration is the Company's argument that "removal of purchasing card (P-Card) expenses
from base rates is uneasonable, erroneous, not supported by substantial and competent evidence
in the record, and not in conformity (with) the applicable law." Idaho Power Petition for
Reconsideration, p. 17. The Commission in Order No. 30722 removed $884,787 from the
Company's revenue requirement as an adjustment to 2007 P-Card purchases totaling more than
$11.2 milion. The Company argues in its Petition that this adjustment is not supported by
substantial, competent evidence because Staffs auditing methodology to support it "does not
COMMISSION STAFF'S ANSWER TO
IDAHO POWER'S PETITION FOR RECONSIDERATION 1
conform to any stadard or accepted auditing practice, and the ultimate recommended reduction
is based upon nothing more than an arbitrar amount chosen subjectively by Staff." Idaho Power
Petition for Reconsideration, p. 17.
Idaho Power asks that the Commission on reconsideration reverse its decision to
reduce its revenue requirement by $884,787 in disallowed P-Card purchases. Alternatively, the
Company suggests that additional evidence be taken, and proposes an independent auditing
specialist examine Staffs auditing approach and methodology, and if found to be deficient, to
recommend a sound auditing methodology. The Commission should deny reconsideration of
this adjustment, or approve the Company's alternative proposal to hear additional evidence on P-
Card expenses and consider disallowing a greater amount of the $11.2 milion in P-Card
purchases.
Idaho Power in its Petition primarily criticizes Staffs audit of P-Card expenses. For
example, the Company asserts that a Staff witness made a 50% reduction in restaurant
expenditures "based only upon her personal belief that the Company is too permissive in what it
considers business related expenses, and that the restaurant expenses are too high." Idaho Power
Petition for Reconsideration, p. 18 citing Tr. at 1322-23. Idao Power criticized Staffs
recommended reduction in cell phone expenses as being based on "unverified assumptions
concerning the number of employees that have cell phones." The Company recognizes that
Staffs audit of P-Card expenses was extensive, it nonetheless asserts that Staff did no
investigation into the actual charges in the accounts to justify or support random deductions
ultimately adopted by the Commission. Idaho Power Petition for Reconsideration, p. 19. The
Company pointed out that the P-Card cell phone charges include many legitimate business
charges, such as communication charges for remote stream flow monitoring equipment, remote
equipment monitoring snow levels, communication service for dams, remote metering
equipment, and after-hour and on-call support for the call center. Idaho Power Petition for
Reconsideration, p. 19 citing Tr. at 2327-28. The Company argues that "these valid expenses
may have been uncovered if Staff had followed accepted auditing practices and examined the
underlying data." Id Regarding deductions for restaurant expenses, the Company argues that
"Staff s workpapers do not provide an adequate basis to conclude that the meal expenses were
neither reasonable nor necessary." Idaho Power Petition for Reconsideration, p. 20. The
Company concludes its argument on P-Card purchases by stating that evidence supports a
COMMISSION STAFF'S ANSWER TO
IDAHO POWER'S PETITION FOR RECONSIDERATION 2
finding "that it has adequate oversight controls in place for P-Card purchases in order to ensure
they have a legitimate business purpose and are neither excessive nor uneasonable." Idaho
Power Petition for Reconsideration, pp. 20-21 (italics added) citing Tr. at 2314-36.
The Company criticizes Staffs audit both in testimony and in its Petition for
Reconsideration, but Idaho Power's criticism of Staffs audit methodology is misplaced. Rather,
the Company disagrees with the stadard used to determine whether significant amounts of
employee purchases should be paid by ratepayers.
It is clear that Staff believed that employee purchases should be necessar or
beneficial to customers to justify compensation for them by Idaho Power customers. The
Commission noted in Order No. 30722 that Staff believed these expenditures must be considered
necessar, reasonable and prudent in providing service to customers to be recoverable in rates.
Order No. 30722, p. 25 citing Tr. at 2321. This is evident throughout Stafs testimony. For
example, Staff recommended disallowance of restaurant expenses because they "were neither a
reasonable nor necessary expense for a regulated utilty." Tr. p. 1323. Staff testified it does not
believe it is "necessary for customers to provide food for meetings, to pay for a restaurant meal
for two Company employees, or to entertin a contractor when the Company is not competing
for business with another supplier of power." Id Staff acknowledged that miscellaneous
expenses for things like bottled water, coffee and newspapers generally are allowed for business
puroses, but removed them from ratemaking "since they do not directly benefit the customer."
Tr. p. 1326.
Staff distinctly testified that it did not find any employee abuse of the P-Card system,
that is, Staff did not uncover purchases made outside the Company's policy. Tr. p. 1330. Apar
from any question of violating the Company's P-Card policy, however, Staffs goal by its audit
was "to determine whether those expenditures are appropriately the responsibility of Idaho
Power's customers." Tr. p. 1317. Staff explained that its audit "allowed Staff to evaluate
Company policies that govern P-Card expenditues and to determine whether the expenditures
were made for prudent and reasonable business puroses that directly benefit the customer." Tr.
p. 1318 (italics added). This is the appropriate standard for including costs in customer rates. In
past Orders, the Commission has disallowed costs such as service club dues and membership
fees because they do not provide "any kind of direct benefit to ratepayers." Order No. 14859, p.
25. Corporate image advertising and membership dues have been disallowed in customer rates
COMMISSION STAFF'S ANSWER TO
IDAHO POWER'S PETITION FOR RECONSIDERATION 3
because "these activities do not benefit or educate ratepayers." Order No. 20244, p. 9. See also
Order No. 18235, pp. 17-18 (membership fees and dues disallowed because benefit to ratepayers
not proven); Order No. 15880, pp. 6-7 (portion of Idaho Power's membership fees disallowed
because benefit to customers not apparent); Order No. 14495, p. 35 (Idaho Power's charitable
contribution expenses denied "unless the Company can show that such expenses were incured
solely on behalf of its ratepayers").
It is evident from the transcript and its Petition for Reconsideration that Idaho Power
uses a different standard to allow P-Card purchases by employees. The Company testified it uses
its oversight controls to determine that purchases "have a legitimate business purose." Tr. p.
2324. Thus, although the Company criticizes Staffs "necessar, reasonable and prudent"
standard as being too subjective, it uses an even more subjective stadard. Tr. p. 2321. The
Company does not define "legitimate business purose," but it is clear that it has a broad scope.
For example, the Company justifies expenses for gifts and awards as providing benefits to
employees "to foster a positive working environment, good morale, and, although indirect, assist
in attracting and retaining quality employees." Tr. pp. 2330-31. The Company allows P-Card
purchases for service award celebrations to recognize employees for their time and contributions
to the Company. The Company allows P-Card purchases for social events such as Christmas
paries and picnics, because "these events promote employee morale as well as develop positive
working relationships and environments." Tr. p. 2332. The Company's P-Card policy allows
purchases for expenses "incured in support of employee community involvement which
enhances employee morale and benefits the local communities that comprise Idaho Power's
service territory." Tr. pp. 2333-34.
Clearly, Idaho Power's stadard for allowable employee P-Card purchases differs
from the standard applied by the Commission to evaluate employee purchases for customer
reimbursement. So long as the Company identifies "a legitimate business purose," the purchase
is allowed under its P-Card policy. In contrast, the Commission has consistently held that these
employee purchases must provide a direct benefit to customers or be necessary to providing
service to customers in order to be included in rates.
The burden of proof is on Idaho Power to establish the necessity, reasonableness and
prudence of expenses to include in customer rates. The Company offered no evidence to
establish its P-Card purchases met this stadard, and Staff thus could have recommended
COMMISSION STAFF'S ANSWER TO
IDAHO POWER'S PETITION FOR RECONSIDERATION 4
disallowance of the entire $11.2 millon in employee purchases. Staff did not make that
recommendation, however, because clearly some P-Card purchases do meet the appropriate
standard for recovery in rates.
It was not possible for Staff to examine each individual P-Card purchase to determine
whether or not it met a reasonable, necessar and prudent stadard or simply met the Company's
broader business purose standard. For things like restaurant purchases, that sort of audit would
entail questioning individual employees as to the purose of the business lunch, whether business
was actually conducted during the meeting, and whether the meeting could have taen place
somewhere else thus avoiding the restaurant charge. Due to the limited time allowed for the rate
case and the huge volume of individual P-Card purchases, Staff identified a representative
amount of charges that were clearly not necessar or directly related to providing service to
customers. Staff does not dispute that the amounts recommended for disallowance met the
Company's broader "business purose" stadard, but removed them from compensation by
ratepayers as not being necessary or beneficial to customers.
The Commission in Order No. 30722 noted that the significant total amount of P-
Card purchases "by itself suggests the Company's policy for authorizing business purchases by
employees may be too lenient." Order No. 30722, p. 26. By approving Staffs "relatively
modest adjustment to the 2007 P-Card purchase expenses," the Commission implicitly approved
the necessary, reasonable and prudent standard for evaluating employee expenditures for
recovery in rates. Order No. 30722, p. 26. The Commission noted the Company's broader
policy for P-Card purchases, especially in regard to gifts and awards and chartable donations.
These benefits identified by the Company - beneficial to fostering a positive working
environment and good morale, recognizing an employee for his contributions to the Company,
and support of employee community involvement - were not adequate to win Commission
approval for recovery in rates. Order No. 30722, p. 26.
Staff made a reasonable effort to identify a modest representative amount of
employee P-Card purchases that should be removed for compensation by ratepayers. The
Commission should deny reconsideration on this issue, and leave alone the disallowance of
$884,787 from more than $11.2 milion in P-Card purchases. If the Commission determines to
grant reconsideration on the P-Card issue, the Commission should grant the Company's
alternative request that additional evidence be taken. The burden of proof falls on Idaho Power
COMMISSION STAFF'S ANSWER TO
IDAHO POWER'S PETITION FOR RECONSIDERATION 5
to demonstrate that (1) its P-Card policy is reasonable and prudent, and (2) that all P-Card
purchases are necessar, reasonable and prudent to justify recovery in rates. A hearng can be
held to examine each of the P-Card purchases, requiring the Company to put on evidence to
establish that it was a necessar expense or provided a direct benefit to customers. If the
Company fails to meet this burden of proof, the Commission should disallow each of the
employee P-Card purchases up to and including the full amount of $11.2 milion.
Respectfully submitted this '2" ~ay of Februy 2009.
,0L.~~?
Weldon B. Stutzman
Deputy Attorney General
blslN:IPC-E-08-1O ws Answer
COMMISSION STAFF'S ANSWER TO
IDAHO POWER'S PETITION FOR RECONSIDERATION 6
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 26th DAY OF FEBRUARY 2009,
SERVED THE FOREGOING COMMISSION STAFF'S ANSWER TO IDAHO
POWER'S PETITION FOR RECONSIDERATION, IN CASE NO. IPC-E-08-10, BY
MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE FOLLOWING:
BARTON L KLINE
LISA D NORDSTROM
DONOV AN E WALKER
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: bkline(iidahopower.com
lnordstrom(iidahopower .com
dwalker(iidahopower.com
PETER J RICHARDSON
RICHARDSON & O'LEARY
PO BOX 7218
BOISE ID 83702
E-MAIL: peter(irichardsonandoleary.com
RANDALL C BUDGE
ERIC L OLSEN
RACINE OLSON NYE ET AL
PO BOX 1391
POCATELLO ID 83204-1391
E-MAIL: rcb(iracinelaw.net
elo(iracinelaw.net
MICHAEL L KURTZ ESQ
KURT J BOEHM ESQ
BOEHM KURTZ & LOWRY
36 E SEVENTH ST STE 1510
CINCINATI OH 45202
E-MAIL: mkurz(iBKLlawfrm.com
kboehm(iBKLlawfirm.com
BRAD M PURDY
ATTORNEY AT LAW
2019 N 17TH ST
BOISE ID 83702
E-MAIL: bmpurdy(ihotmail.com
JOHN R GALE
VP - REGULATORY AFFAIRS
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: rgale(iidahopower.com
DR DON READING
6070 HILL ROAD
BOISE ID 83703
E-MAIL: dreading(imindspring.com
ANTHONY Y ANKEL
29814 LAKE ROAD
BAY VILLAGE OH 44140
E-MAIL: tony(iyanel.net
KEVIN HIGGINS
ENERGY STRATEGIES LLC
PARKSIDE TOWERS
215 S STATE ST STE 200
SALT LAKE CITY UT 84111
E-MAIL: khiggins(ienergystrat.com
LOTH COOKE
ARTHUR PERRY BRUDER
UNITED STATE DEPT OF ENERGY
1000 INDEPENDENCE AVE SW
WASHINGTON DC 20585
E-MAIL: lot.cooke(ihq.doe.gov
arhur. bruder(ihq.doe. gov
CERTIFICATE OF SERVICE
DWIGHT ETHERIDGE
EXETER ASSOCIATES INC
5565 STERRTT PLACE, SUITE 310
COLUMBIA MD 21044
E-MAIL: detheridge(iexeterassociates.com
DENNIS E PESEAU, Ph.D.
UTILITY RESOURCES INC
1500 LIBERTY STREET SE, SUITE 250
SALEM OR 97302
E-MAIL: dpeseau($excite.com
CONLEY E WARD
MICHAEL C CREAMER
GIVENS PURSLEY LLP
601 W BANNOCK ST
PO BOX 2720
BOISE ID 83701-2720
E-MAIL: cew(igivenspursley.com
KEN MILLER
CLEAN ENERGY PROGRAM DIRECTOR
SNAKE RIVER ALLIANCE
PO BOX 1731
BOISE ID 83701
E-MAIL: kmiler($snakeriverallance.org
~~
SECRETARY
CERTIFICATE OF SERVICE