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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 R r: r" E 1\.' '.-: r:~-'lt C ,,/. - ¡ '.---~;-,,' 2009 fEB 26 PM 2: 02 IDAHO ¡lTI\I~¡r i r: '.::t. L, il i."'"" 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