20100129Reply Comments.pdf

LISA D. NORDSTROM
Senior Counsel
InordstromCiidahopower.com
eslDA~POR~
An IDACORP company
January 29, 2010
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 ITER OF THE APPLICATION 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 the Reply
Comments of Idaho Power Company in the above matter.
Very truly yours,
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Lisa D. Nordstrom
LDN:csb
Enclosures
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LISA D. NORDSTROM (ISB No. 5733)
BARTON KLINE (ISB No. 1526)
Idaho Power Company
1221 West Idaho Street
P.O. Box 70
Boise, Idaho 83707
Telephone: [phone]
Facsimile: [phone]
Inordstromcæidahopower.com
bklinecæidahopower.com
2010 JAN 29 PH 3: ~4
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 ) CASE NO. IPC-E-09-29
AUTHORITY TO IMPLEMENT A )
TRACKING MECHANISM TO RECOVER ) REPLY COMMENTS OF IDAHO
ITS DEFINED BENEFIT PENSION ) POWER COMPANYEXPENSE. )
)
COMES NOW, Idaho Power Company ("Idaho Powet' or the "Company") and
hereby responds to the Comments of the Staff of the Idaho Public Utilties Commission
("Staff') filed on January 14, 2010.
In 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 Statement of Financial Accounting Standards ("SFAS") 87 pension
expense as a regulatory asset. The Commission stated, 'When the Company's
actuaries notify the Company of ERISA minimum funding requirements, the Company
REPLY COMMENTS OF IDAHO POWER COMPANY - 1
can evaluate the circumstances for ratemaking purposes and make a filing requesting
ratemaking treatment, if needed." Order No. 30333 at 4. In the present case, Idaho
Power filed its Application requesting a tracking mechanism to receive clarity on the
method and timing of recovery of prudently incurred defined benefit pension expenses
and to allow the Company to evaluate the method to ensure that it satisfies the
requirements for continued deferral of pension costs under SFAS 71.
i. STAFF COMMENTS
On January 14, 2010, Staff filed its Comments regarding the Company's
Application recommending that the Commission deny the Company's request for its
proposed pension tracking mechanism. As part of its recommendation, the Staff
encouraged the Commission to reaffrm its commitment detailed in Order No. 30333,
which states that reasonable and prudently incurred cash contributions based on the
ERISA minimum funding requirements may be properly included in the Company's
revenue requirement. The Staff also recommended that the Company be allowed to
recover in a future rate case a reasonable amortization of the deferred balance
associated with the cash contributions of its defined benefit pension plan after the costs
are actually incurred and deferred.
The Staff argued that "(rlecovery of pension expense continues to be
appropriately dealt with during the course of a rate case." The Staff also stated that it
would, "support a reasonable amortization of actual deferred cash contributions. This
recovery method wil meet the requirements of SFAS 71 to recover the deferral balance
in future rates. The amortization can change as needed to recover the remaining
deferral balance of actual cash contributions," Staff Comments at 5.
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II. CLARIFICATION OF THE STAFF'S POSITION
On January 21, 2010, Company representatives met with the Staff to seek
clarification on a number of issues raised by the Staff in its Comments. Specifically, the
Company sought to confirm its understanding of the Staffs recommendations with
regard to the Company's future recovery of pension expenses and to explore how the
Staffs recommendations would be implemented.
As a result of the January 21, 2010, discussion, the Company believes that the
Staff would support the following treatment of deferred pension expense:
1. The Company wil establish a balancing account that would track,
on a cumulative basis, the difference between cash amounts contributed to the pension
plan and amounts included in rates.
2. An appropriate amortization period for deferred cash contributions
wil be evaluated during a revenue requirement proceeding and wil begin
simultaneously with the approved period for recovery.
3. There may be circumstances where the Company could choose to
contribute in excess of the minimum amount required by ERISA or prior to the final due
date of the minimum payment; such contributions, while potentially subject to longer
amortization, wil not be disallowed solely because they are made sooner than legally
required.
4. The Company wil not be expected to expense its prudently
incurred cash contributions prior to the Commission's review during a revenue
requirement proceeding and inclusion in rates.
REPLY COMMENTS OF IDAHO POWER COMPANY - 3
5. As part of a revenue requirement proceeding, the Company may
request the inclusion of imminent, but as yet unpaid, contributions that have been finally
determined by the Company's actuary as "known-and-measurable" expenses to be
incurred.
6. The Company should earn a carring charge on the unamortized
balance of deferred cash contributions at the Commission approved interest rate for
deposit.
II. THE COMPANY'S POSITION
The Company has evaluated Staffs recommendation as stated in its Comments
and as clarified at the meeting on January 21, 2010, and is satisfied that the
recommendation meets both of the requirements for continued deferral under SFAS 71.
SFAS 71 provides that a previously incurred cost may be deferred if: (1) it is "probable
that future revenue in an amount at least equal to the capitalized cost will result from
inclusion of that cost in allowable costs for rate-making purposes" and (2) "future
revenues wil be provided to permit recovery of the previously incurred cost rather than
to provide for expected levels of similar future costs. . .." The use of a balancing
account that tracks the difference between cumulative cash contributions and amounts
collected in rates wil provide adequate evidence for the Company to conclude that it
expects future revenue equal to the amount capitalized. Recovery that is derived from
amortization of the deferred cash contributions provides recovery of previously incurred
costs and satisfies the second requirement.
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IV. CONCLUSION
While the Company continues to believe that its proposed tracking mechanism
would better match the recovery of pension costs with the Company's cash outlays to
fund the pension, the Company is not opposed to the recommendations included in
Staffs Comments as clarified in Section II. Further, the Company is satisfied that Staffs
proposed methodology would meet the deferral requirements of SFAS 71. Should the
Commission choose to adopt Staffs recommendations, the Company requests that the
Commission provide the following clarifications:
1 . The regulatory asset account previously authorized for the deferral
of cash contributions wil be considered a balancing account for the purpose of tracking
the difference between cumulative cash contributions to the pension plan and amounts
recovered in rates; and
2. The timing of the amortization of the deferred cash contributions as
well as the amounts wil be matched to the collection of those costs in rates; and
3. The amounts contributed in excess of the ERISA minimum, while
potentially subject to longer amortization, wil not be disallowed solely because they are
made sooner than they are legally required to be paid; and
4. The unamortized balance of deferred cash contributions wil earn a
carrying charge at the Commission approved interest rate for deposit.
Respectfully submitted this 29th day of January 2010.ki2~~LISA D. NOR TROM
Attorney for Idaho Power Company
REPLY COMMENTS OF IDAHO POWER COMPANY - 5
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 29th day of January 2010 I served a true and
correct copy of REPLY COMMENTS OF IDAHO POWER COMPANY upon the
following named parties by the method indicated below, and addressed to the following:
Commission Staff
Scott Woodbury
Deputy Attorney General
Idaho Public Utilties Commission
472 West Washington
P.O. Box 83720
Boise, Idaho 83720-0074
.i Hand Delivered
U.S. Mail
_ Overnight Mail
FAX
-2Email Scott.Woodburvcæpuc.idaho.gov
Lf)'t~
Lisa D. Nordstro
REPLY COMMENTS OF IDAHO POWER COMPANY - 6