20091020Application.pdf

LISA D. NORDSTROM
Senior Counsel
Inordstromtâidahopower.com
esIDA~POR(I
RECEIV
PM 3: \ 3
An IDACORP Company
October 20, 2009
VIA HAND DELIVERY
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
P.O. Box 83720
Boise, Idaho 83720-0074
Re: Case No. IPC-E-09-29
IN THE MA TTER OF THE APPLICA TlON OF IDAHO POWER COMPANY
FOR AUTHORITY TO IMPLEMENT A TRACKING MECHANISM TO
RECOVER ITS DEFINED BENEFIT PENSION EXPENSE.
Dear Ms. Jewell:
Enclosed please find for filing an original and seven (7) copies of Idaho Power's
Application in the above matter.
In addition, enclosed are an original and eight (8) copies each ofthe testimonies of
Timothy E. Tatum and Ken W. Petersen that are being submitted in support of Idaho
Power's enclosed filing. One copy of each of the testimonies has been designated as the
"Reporter's Copy." In addition, a disk containing Word versions of each of the above
testimonies has been provided for the Reporter and has been marked accordingly.
Very truly yours,
;z.. .f. Liz (j~
Lisa D. Nordstrom
LDN:csb
Enclosures
P.O. Box 70 (83707)
1221 W. Idaho St.
Boise, ID 83702
RECEIVE.D
LISA D. NORDSTROM (ISB No. 5733)
BARTON L. KLINE (ISB No. 1526)
Idaho Power Company
P.O. Box 70
Boise, Idaho 83707
Tel: [phone]
Fax: [phone]
Inordstromcæidahopower.com
bklinecæidahopower.com
2009 OCT 20 PH 3: 13
Attorneys for Idaho Power Company
Street Address for Express Mail:
1221 West Idaho Street
Boise, Idaho 83702
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO IMPLEMENT A
TRACKING MECHANISM TO RECOVER
ITS DEFINED BENEFIT PENSION
EXPENSE.
)
) CASE NO. IPC-E-09-29
)
) APPLICATION
)
)
)
Idaho Power Company ("Idaho Powet' or the "Company" or the "Applicant"), in
accordance with Idaho Code §§61-502, -503, -524, and RP 052, hereby respectfully
makes Application to the Idaho Public Utilties Commission ("I PUC" or the
"Commission") for an Order on or before February 12, 2010, approving a mechanism to
track and recover annually the Company's defined benefit pension expenses for
recovery in subsequent proceedings. This Application does not seek current approval
of future expenses associated with the Company's qualified defined benefit pension
plan, nor does it request that current rates be changed at this time.
APPLICATION - 1
In support of this Application, Idaho Power represents as follows:
I. BACKGROUND
1. Idaho Powets defined benefit pension plan was established in 1943 and
continues as part of the Company's total compensation package for eligible employees.
Idaho Power's Fiduciary Committee controls and manages the operation and
administration of the plan. The Bank of New York serves as the !trustee of the plan and,
together with several investment managers, manages the plan's investments under the
oversight of the Fiduciary Committee. The plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA"), as amended. As of
January 1, 2009, Idaho Power had 2,085 active employees in the plan and a total of
3,533 plan participants.
2. Idaho Power accounts for defined benefit pension expense in accordance
with the provisions of Statement of Financial Accounting Standards ("SFAS" or "FAS")
87, Employers' Accounting for Pensions; SFAS No. 88, Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for Termination
Benefits; SFAS No. 132(R), Employers' Disclosures about Pensions and Other
Postretirement Benefits; and SFAS No. 158, Employers' Accounting for Defined Benefit
Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87,
88, 106, and 132(R) as those provisions have been adopted into the Accounting
Standards Codification of the Financial Accounting Standards Board.
3. Based upon a 1984 test year, the Commission issued Order No. 20610 in
July 1986 that allowed Idaho Power to recover defined benefit pension expense based
on actual contributions made during the test year. This included amounts that were
APPLICATION - 2
charged to operations and maintenance, net of known and measurable adjustments.
During the intervening years following the 1984 test year and prior to the 1994 general
rate case, the allowed defined benefit pension expense included in rates was
approximately $4.9 milion per year.
4. In 1986, the Company adopted SFAS 87. That Standard addressed
pension funding issues from an accrual perspective in an attempt to better match the
compensation cost of an employee's pension benefits with the time period over which
the employee earns those benefits and to provide for greater comparability between
companies from year to year. Prior to the adoption of SFAS 87, pension expense was
based on the amount a company chose to contribute to its plans during the year. Since
the adoption of SFAS No. 87 in 1986, the Company has filed general rate cases in 1994
and 2003 that dealt with pension funding issues. With the Company's 1994 general rate
case filing, the Company included in test year O&M expenses pension costs based
upon the SFAS 87 accrual perspective rather than cash contributed to the plan. The
amount approved was approximately $2 milion per year.
5. In its 2003 general rate case, Case No. IPC-E-03-13, Idaho Power again
included in its test year defined benefit pension plan expense derived from accrual
methodology provided for in SFAS 87. The Commission Staff recommended that the
Commission reject the accrued SFAS 87 amount to be included in the Company's
revenue requirement because the Company did not have any actual cash contribution
requirements during the test year. The Commission found Staffs proposed adjustment
to be appropriate and denied any recovery of defined benefit pension expense.
However, in its Order No. 29505 directing the removal of the accrued amounts from the
APPLICATION - 3
Company's revenue requirement, the Commission did not direct the Company to
change to a cash method to account for defined benefit pension expense.
6. In 2007, Idaho Power filed an application with the Commission (Case No.
IPC-E-07-07) seeking clarification that the Company could expect to recover pension
costs based on cash contributed to the plan and account for defined benefit pension
expenses on a cash basis rather than the accrual basis that the Company had used
from 1994 until 2003. In conjunction with the Company's request for clarification of its
authority to utilze cash basis accounting for recovery of defined benefit pension
expense, the Company also requested authority to defer future cash contributions it
would make to its defined benefit pension plan and to record these future defined
benefit pension plan cash contributions as regulatory assets.
7. On June 1,2007, the Commission issued Order No. 30333 authorizing the
Company to account for its defined benefit pension expense on a cash basis, and to
defer and account for accrued SFAS 87 pension expense as a regulatory asset. As part
of its Order, the Commission acknowledged that it is appropriate for the Company to
seek recovery in the Company's revenue requirement of reasonable and prudently
incurred defined benefit pension expense based on actual cash contributions. To date,
the Company has made no cash contributions and therefore has not made a request for
recovery. The Commission found it reasonable for Idaho Power to defer the expense
associated with the pension plan cash contributions and record them as a regulatory
asset. It also stated on page 4 of Order No. 30333, "When the Company's actuaries
notify the Company of ERISA minimum funding requirements, the Company can
APPLICATION - 4
evaluate the circumstances for ratemaking purposes and make a f~~Jl!tling
ratemaking treatment, if needed."2009 NOV -9 PH~: 55
8. Idaho Power's actuary has informed the Company that IEllQtFibtQO . is
UTILITIES COMMISSIOl\!
required for the tax year beginning January 1, 2009. The required contribution wil be
$5,418,662 if paid by October 15, 2009, but if not paid by October 15, 2009, interest wil
accrue until the extended due date for Idaho Power's federal income tax return of
September 15, 2010. The Company did not make an October 15, 2009, payment.
II. TRACKING MECHANISM
9. The requirement to make cash payments is expected to continue over the
next several years, but may vary dramatically from year to year. Therefore, Idaho
Power requests approval for a mechanism that wil ensure that customers pay no more
and no less than the actual cash payments currently made by the Company to fund its
defined benefi pension expense.
10. The Company requests authorization to implement a defined benefit
pension expense tracking mechanism that has similar components to those of the
Power Cost Adjustment ("PCA") mechanism. That is, the proposed mechanism would
include a forecast component and true-up component. As described in the testimony of
Timothy E. Tatum that accompanies this Application, the Company would recover
through rates its forecasted annual cash payments toward defined benefit pension
expense based upon an actuarial determination of those anticipated required
contributions. Each year, the Company would compare the revenue collected through
the tracking mechanism's forecast component rate to the actual cash contributions to
defined benefit pension expense during the period. Any difference would be either
APPLICATION - 5
refunded or collected from customers over the subsequent 12-month period in the true-
up component. The Company recommends that a carrying charge equal to the
Commission-approved interest rate for deposits be applied each month based on the
balance in the regulatory asset account.
11. The Company proposes a March 1 through February 28 (February 29 in
leap years) annual test period with rate adjustments becoming effective each June 1.
This timing will allow the Company to minimize the number of rate adjustments that
customers experience annually. The Company proposes to make an annual filing under
the tracking mechanism on or before April 7 of each year with the associated rate
adjustment effective June 1.
12. Idaho Power requests that it be allowed to recover its defined benefit
pension expense as a percentage rate applied to all base revenue in a manner similar
to the Energy Efficiency Rider, Schedule 91. Under the proposed approach, the
percentage rate would be adjusted annually to a level necessary to recover the
projected annual defined benefit pension expense and the prior yeats true-up amount
determined under the tracking mechanism. This approach wil ensure that pension cost
recovery is not disproportionately assigned to high load factor customers as would be
the case under a flat energy-only charge. Attachment No. 1 to this Application contains
the Company's proposed Schedule 53 detailng the purpose and applicabilty of the
proposed tracking mechanism.
13. At this time, Idaho Power is seeking only the Commission's approval of a
pension cost recovery mechanism that wil allow for the rate recovery concurrent with
future cash contributions to the Company's defined benefit pension plan. Should the
APPLICATION - 6
Commission approve this request, the Company intends to file a request at a later date
to recover defined benefit pension expense based on projected actual cash
contributions.
II. ACCOUNTING TREATMENT
14. In order to qualify for deferral, SFAS 71 requires that the utilty be able to
demonstrate that "future revenues will be provided to permit recovery of the previously
incurred cost." In order to meet the conditions for deferring pension costs under SFAS
71, some form of a mechanism must be in place that assesses whether the actual costs
during the recovery period exceeded the amount in rates, tracks any shortall or excess,
and adjusts rates accordingly.
15. Idaho Power believes that the proposed tracking mechanism would meet
that requirement. Absent such a tracking mechanism, inclusion of pension contributions
as test year expenses in a general rate case wil most likely cause pension expense to
become ineligible for deferral under SFAS 71. Derecognition of its deferred pension
expense regulatory asset would result in serious negative consequences to Idaho
Power. At a minimum, the Company would be forced to write off the $33 milion
balance of deferred pension expense (as of September 30, 2009). Idaho Powets
equity would also likely decrease by $92 millon in addition to the retained earnings
impact of derecognizing the regulatory asset for deferred pension expense. Both of
these accounting changes could have negative impacts on customers.
16. The specific accounting entries necessary to effectuate the proposed
pension tracking mechanism are detailed in the testimony and exhibit of Ken W.
Peterson that accompanies this Application.
APPLICATION - 7
iv. MODIFIED PROCEDURE
17. Idaho Power believes that a hearing may not necessary to consider the
issues presented herein and respectfully requests that this Application be processed
under Modified Procedure, Le., by written submissions rather than by hearing. RP 201,
et seq. However, in support of this Application, Idaho Power has enclosed the direct
testimony of Timothy E. Tatum and Ken W. Petersen. The Company stands ready to
present their testimony in support of this Application in a technical hearing if the
Commission determines that such a hearing is required.
V. COMMUNCIATIONS AND SERVICE OF PLEADINGS
18. Communications and service of pleadings with reference to this
Application should be sent to the following:
Lisa D. Nordstrom
Barton L. Kline
Idaho Power Company
P.O. Box 70
Boise, Idaho 83707
Inordstromcæidahopower.com
bklinecæidahopower.com
Tim Tatum
Greg Said
Idaho Power Company
P.O. Box 70
Boise, Idaho 83707
ttatumcæidahopower.com
gsaidcæidahopower.com
VI. REQUEST FOR RELIEF
19. Idaho Power respectfully requests that the Commission issue an Order
approving a mechanism to track and recover annually the Company's pension
expenses for recovery in subsequent proceedings. The Company further requests that
the Commission use its best efforts to provide a final order on or before February 12,
2010, so that the first forecast filng can be prepared before April 7, 2010.
APPLICATION - 8
DATED at Boise, Idaho this 20th day of October 2009.
Æ,lJt!~
Lisa D. Nordstro .
Attorney for Idaho Power Company
APPLICATION - 9
BEFORE THE
IDAHO PUBLIC UTiliTIES COMMISSION
CASE NO. IPC-E-09-29
IDAHO POWER COMPANY
ATTACHMENT NO. 1
Idaho Power Company
I.P.U.C. No. 29, Tariff No. 101 Original Sheet No. 53-1
SCHEDULE 53
PENSION EXPENSE ADJUSTMENT
APPLICABILITY
This schedule is applicable to all Idaho retail Customers served under the Company's schedules
and Special Contracts. The Pension Expense Adjustment is designed to recover the Company's
defined benefit pension plan expenditures.
PROJECTED PENSION EXPENSE
The Projected Pension Expense is the Company's forecasted annual cash payments toward
defined benefit pension expense based on an actuarial determination for the time period beginning
March 1 each year and ending the following February 29 on Leap Years, and February 28 on all other
years.
PENSION EXPENSE TRUE-UP
The Pension Expense True-up is based upon the difference between the previous Projected
Pension Expense and the actual cash contributions to defined benefit pension expense.
PENSION EXPENSE ADJUSTMENT
The Pension Expense Adjustment is the sum of: 1) the Projected Pension Expense, and 2) the
Pension Expense True-up.
MONTHLY CHARGE
The Monthly Charge is equal to the applicable Pension Expense Adjustment percentage times
the sum of the monthly biled charges for the base rate components. The monthly Pension Expense
Adjustment percentage is X.xX%.
EXPIRATION
The Pension Expense Adjustment included on this schedule wil expire May 31, 2011.
Attachment No. 1
Case No. IPC-E-09-29
Application,lPC
Page 1 of 1
IDAHO
Issued Per IPUC Order No. XX
Effective - June 1, 2010
Issued by IDAHO POWER COMPANY
John R. Gale, Vice President, Regulatory Affairs
1221 West Idaho Street, Boise, ID