20100113final_order_no_30978.pdf

Office ofthe Secretary
Service Date
January 13 2010
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLI CA TI 0 N
OF IDAHO POWER COMPANY FOR AN
ACCOUNTING ORDER TO AMORTIZE
ADDITIONAL ACCUMULATED DEFERRAL
INCOME TAX CREDIT AND APPROVING RATE CASE MORATORIUM
CASE NO. IPC-09-
ORDER NO. 30978
On November 6, 2009, Idaho Power Company filed an Application requesting a
Commission Order authorizing the Company to amortize accumulated deferred investment tax
credits (ADITC), and approving a Stipulation signed by the Company, Staff and five other
parties. The Stipulation calls for a moratorium on the filing of a general rate case; establishes
Idaho Power s permitted use of AD ITC for the years 2009, 2010 and 2011; establishes a sharing
mechanism for potential revenue sharing between the Company and its customers; and proposes
base rate adjustments according to results of the 2010 annual Power Cost Adjustment (PCA).
The Stipulation is signed by Idaho Power; Idaho Irrigation Pumpers Association, Inc.; Micron
Technology, Inc.; U.S. Department of Energy; Community Action Partnership Association of
Idaho; The Kroger Company; Industrial Customers of Idaho Power and Commission Staff.
Idaho Power filed direct testimony and exhibits to support its request for approval of the
settlement Stipulation and an Accounting Order.
On November 23 , 2009, the Commission issued a Notice of Application and Notice
of Intervention Deadline. Only two Petitions to Intervene were filed, both by parties that
participated in the discussions leading to the Stipulation. The Commission subsequently issued
Order Nos. 30961 and 30962 approving the Petitions to Intervene filed by Community Action
Partnership Association of Idaho (CAP AI) and The Kroger Company dba Fred Meyer and
Smith's Food & Drug.
On December 8 , 2009, the Commission issued a Notice of Modified Procedure
stating that the Commission had determined the public interest may not require a formal hearing
and establishing a time for interested parties to file written comments. Staff and CAP AI filed
written comments formulated as prefiled testimony. The Idaho Conservation League (ICL) and
ORDER NO. 30978
Snake River Alliance also filed separate comments; three comments were received from
members of the public.
TERMS OF THE STIPULATION
The Stipulation states that Idaho Power will not file a general rate case to change its
revenue requirement and resulting rates to become effective prior to January I , 2012. The rate
case moratorium does not affect other revenue requirement proceedings, such as the PCA, the
fixed cost adjustment (FCA), an annual advanced metering infrastructure rate adjustment, an
annual pension expense recovery, or the energy efficiency rider adjustment.
The Stipulation also addresses Idaho Power s use of its accumulated investment tax
credits (ADITC). These are tax benefits the Company has already received based on the level of
plant investment in various years. ADITC normally is amortized over the life of the associated
plant investment and is used to reduce customer tax expense in general rate cases. The
Stipulation will allow Idaho Power to accelerate the amortization of up to $45 million of tax
credits during the years 2009 through 2011. If the Company s return on equity falls below 9.
the Company will be permitted to amortize additional ADITC in an amount up to $45 million
over the three-year period. The Company may use no more than $15 million of additional
amortization in one year (unless there is a carryover). If the Company s return on equity exceeds
10., the Company will share 50% of any profits in excess of a 10.5% return on equity with
customers.
The Stipulation also proposes base rate adjustments dependent upon 2010 PCA
results. Idaho Power and the parties anticipate the 2010 PCA rate calculation will substantially
reduce PCA rates. In a separate case, the Company will request that the Commission change the
base level for net power supply expenses used in both base rates and PCA calculations. The
Stipulation provides that the first $40 million of the 20 I 0 PCA reduction will be allocated
equally between customers and the Company. The Company s share of this PCA rate reduction
will be applied to increase permanent base rates on a uniform percentage basis to all customer
classes and contract customers. The customers' share of this PCA rate reduction will be a direct
customer rate reduction. All of the PCA rate reduction between $40 million and $60 million will
be passed through directly to customers as a rate reduction. A rate reduction in excess of $60
million will be applied to absorb any increase in the base level for net power supply expenses.
the 2010 PCA rate reduction exceeds $60 million, plus the established increase in base net power
ORDER NO. 30978
supply expenses, the next $10 million will be shared equally between the Company and its
customers and any remainder will go entirely to customers.
THE WRITTEN COMMENTS
The written comments addressing the substance of the settlement agreement all
support and recommend its approval by the Commission. Both CAP AI and Snake River
Alliance briefly address the significant components of the settlement agreement and conclude
that the agreement is in the best interest of Idaho Power s customers. The Alliance stated that
the revenue sharing, PCA sharing, and rate case moratorium components of the settlement in
this case serve the Company and its customers as well as possible in our current economic
times." SRA Comments, p. 2.
CAP AI outlined the terms of the Stipulation and explained how it benefits customers.
In light of Idaho Power s preparation of a rate case, CAPAI stated that given "the Company
recent, substantial investments in infrastructure known as 'plant' that is included in 'rate base
and included through depreciation charges in rates, and given that the Company had incurred
certain, relatively high costs during the test year, CAP AI believes that a general rate case would
likely have resulted in an end result more costly to Idaho Power s ratepayers than what the
Settlement Agreement, if approved, would result in.Ottens Direct, p. 6. CAP AI noted that
allowing accelerated use of ADITC benefits both the Company and customers: "First, the
benefit to Idaho Power of having a mechanism in place that enhances its ability to stabilize
earnings in the near future, during these difficult economic times, also advantages ratepayers in
that it, theoretically, enables the utility to access the financial markets in a strengthened position
which, in turn, might reduce the cost of borrowing necessary funds for operation or plant
investment purposes.Ottens Direct, p. 6. CAP AI recognized that Idaho Power is entitled to
recover its ADITC regardless of the settlement in this case, and "(aJllowing the Company to
accelerate the use of ADITC in years where it does not achieve its authorized rate of return, in
exchange for a rate moratorium, is an advantageous alternative to Idaho Power s low-income
customers as opposed to a traditional, general rate case, under current circumstances.Ottens
Direct, p. 7. CAP AI concluded that "the substance of the settlement agreement is in the best
interest of all Idaho Power ratepayers." CAP AI Comments, p. 9.
Staff in its comments provided more detail on the specific terms of the proposed
settlement. The Stipulation specifies that base rates may not be increased as the result of a
ORDER NO. 30978
general rate case before January 1 , 2012. Idaho Power may obtain specific increases from
separate rate adjustment mechanisms, including the annual Power Cost Adjustment (PCA) and
the fixed cost adjustment (FCA), recovery of advanced metering infrastructure, pension
expenses, and changes in the Energy Efficiency Rider. The Stipulation terms that most affect
rates are applicable to an anticipated reduction in the PCA rate effective June 1 , 2010. The
existing PCA currently collects approximately $200 million per year. The proposed formulation
provides that the Company and its customers will share equally in the first $40 million of any
PCA reduction. Additional reductions to the PCA will address increases in base rate net power
supply costs, provide an additional $5 million in base rate revenue relief for Idaho Power, and
further decrease customer rates.
Staff stated that "the proposed rate settlement incorporating a general rate case
moratorium, use of Accumulated Deferred Investment Tax Credits (ADITC), a three-year
settlement on return on equity (ROE), potential revenue sharing and a formula to share
anticipated reductions in the 2010 Power Cost Adjustment (PCA) provides benefits to both the
Company and its customers." Lobb Direct, p. 2. Staff concluded that the "proposed base rate
relief provided to the Company under the Stipulation represents a better deal for customers than
what might be achieved through a general rate case.Id.
Idaho Power s comments describe the Stipulation s benefits in light of the general
rate case the Company was preparing to file. The Company identified three primary revenue
factors that would justify a request for an increase in its base rates: Decreased revenue from
customers, operating and maintenance costs that are higher than the level authorized by the
Commission in Idaho Power s last rate case, and new plant additions since 2008. Gale Direct
, p.
15. The Company stated it "worked to mitigate the total revenue requirement wherever it could"
as it prepared its rate case; for example, by pushing some significant items into separate cases
deferring a request to increase the amount for Construction Work in Progress, and filing with a
stipulated return on equity. Gale Direct, p. 12. Without these mitigating components, the
Company s rate request would have exceeded 20%. Even with them, the Company stated its
October 2009 rate filing would have requested a rate increase greater than 10%. Gale Direct
, pp.
14.
Idaho Power stated the Stipulation "should enable the Company to remain financially
healthy while helping Idaho Power s customers manage through a difficult time in the
ORDER NO. 30978
economy." Gale Direct, p. 17. The Company identified Stipulation benefits for the Company as
being: The potential for obtaining base rate relief without engaging in a contentious battle before
the Commission, the fact that the Company can participate in any earnings initiatives during the
term of the settlement through the sharing mechanism, and the opportunity to set the net power
supply expense at a more appropriate level. Gale Direct, p. 17. Customer benefits identified by
the Company include a delay in a general rate change until at least January 2012 and no base
rate relief for Idaho Power unless there is also a real customer rate reduction through the PCA.
Customers have the assurance that the use of ADITC will be limited while continuing to have the
benefit of the ADITC amortization that is currently in existing rates. Accelerated amortization of
ADITC reduces allowed expenses, and provides the opportunity for customers to share in
Company earnings above agreed-upon levels. Gale Direct, pp. 17-18.
COMMISSION DISCUSSION
The Commission finds the Stipulation to be in the public interest and has determined
to approve it. First, it is notable that all ofIdaho Power s major customers and customer groups
participated in the discussions leading to the Stipulation, and all determined it presented a better
alternative to the likely results of a rate case. The Stipulation is signed by representatives of the
irrigation customers, industrial and major commercial customers, and low-income residential
customers. All of the customers and customer representatives who usually appear in Idaho
Power rate cases participated in the discussions and determined to sign the Stipulation. When
the Commission provided notice and opportunity to intervene, no one not already a signatory to
the Stipulation came forward.
As the filed comments make clear, the specific terms of the Stipulation provide
benefits to both the Company and its customers. The accelerated amortization of ADITC
provides an opportunity for the Company to improve its earnings. Improved earnings are
important to maintain the Company s ability to finance its ongoing plant investments, and also
improve financial ratios evaluated by investors of the Company. The Company s increased
financial stability benefits customers by enabling the Company to delay rate cases and
potentially lower interest costs. It is beneficial to customers and to Idaho Power if the Company
can enhance its ability to stabilize earnings in the near term, strengthening the Company
position in the financial markets and enabling it to reduce the cost of borrowing funds for
operations or plant investment. Allowing the Company to accelerate the use of ADITC in years
ORDER NO. 30978
where it does not achieve its authorized rate of return, and delaying a general rate case as
provided in the Stipulation, is advantageous to both Idaho Power and its customers.
The Commission also finds the Stipulation terms for sharing rate adjustments based
on the 2010 PCA results to be in the public interest. It is likely the 2010 PCA rate calculation
will substantially reduce PCA rates and the Stipulation provides the first $40 million of the
reduction will be allocated equally between customers and the Company. The customers' share
ofthis PCA rate reduction will directly reduce customer rates, while Idaho Power s share will be
applied to increase base rates on a uniform percentage basis to all customer classes and contract
customers. All of the PCA rate reduction between $40 million and $60 million will be provided
directly to customers to reduce rates. A PCA rate reduction in excess of $60 million will be
applied to absorb any increase in the base level for net power supply expenses, established after
the Company requests that the Commission change the base level for net power supply expenses
used in base rates and PCA calculations. Finally, if the 2010 PCA rate reduction exceeds $60
million, plus the established increase in base net power supply expenses, the next $10 million
will be shared equally between the Company and its customers, and any remainder will go
entirely to customers.
The Commission finds the Stipulation incorporating a general rate case moratorium
use of Accumulated Deferred Investment Tax Credits (ADITC), a three-year settlement on return
on equity (ROE), potential revenue sharing and a formula to share anticipated reductions in the
2010 Power Cost Adjustment (PCA) provides benefits to both the Company and its customers.
The terms ofthe Stipulation are fair, just and reasonable and are in the public interest.
The series of meetings that lead to the Stipulation also were the subject of comments.
The Company initially approached Staff in August 2009 to discuss possible accelerated use of
the tax credits and the possibility of reaching agreement on the Company s return on equity in
anticipation of the Company s rate case. On August 28, 2009, the Company filed a 60-day
Notice of Intent to File a General Rate Case. On September 3 , 2009, the Company, Staff and the
parties that had participated in the Company s last rate case met informally to discuss Idaho
Power s proposal to provide revenue sharing in conjunction with accelerated use of tax credits
and an agreement on return on equity. The Company intended to have new base rates in effect
by June 1 , 2010, to coincide with an anticipated reduction in the PCA. At a meeting of the
parties on October 13, 2009, Idaho Power made a comprehensive proposal that included a
ORDER NO. 30978
general rate case moratorium. Staff and the other workshop participants subsequently met on
October 19 2009 , to discuss the Company s proposal and determine whether a counter-proposal
could be developed. A comprehensive counter-proposal was presented to the Company on
October 23 , 2009. A settlement in principle was reached at that meeting and the Company
agreed to drop its rate case filing. The Company subsequently filed its Application including the
Stipulation on November 6 2009.
The unique circumstances and the process that resulted in the Stipulation created a
concern for some of the participants. For example, although all of the comments and testimonies
filed by the parties who participated in the settlement discussions support the Stipulation and
recommend the Commission approve it, ICL's comments primarily address the procedure and
not the substance of the Stipulation. Specifically, ICL stated that it "seeks clarification on when
public notice and the opportunity for the public to participate should be required.ICL
expressed concern that a case that is settled before it is filed does not give the public an
opportunity to intervene. ICL conceded that the Stipulation "in this case may be in the best
interest of Idaho Power s customers " but that may not be the case in the future in different
circumstances. ICL asks the Commission to provide guidance on "who gets to decide which
parties get to participate in situations like this." Similarly, CAP AI suggested that "the procedure
taken might need to be scrutinized by the Commission for the purpose of future cases " although
CAP AI unconditionally supports the substance of the settlement agreement in this proceeding
and will continue to stand behind it." The Snake River Alliance stated its belief that "a docket of
this significance might have been better handled through a more transparent process rather than
being limited to meetings between the Company and select customer groups.
It is apparent the concerns about the process arise only because meetings were
initiated, leading to settlement discussions, prior to, rather than after, the time Idaho Power filed
a rate case application. All customers and customer groups who usually participate in the
Company s rate cases were invited and, in fact, participated in the meetings and discussions.
When the Application for approval of the Stipulation was filed, the Commission provided notice
and opportunity for any individual or customer group to participate in review of the Application
and Stipulation, and none came forward. On this record, although it was unusual, the
Commission cannot find that the process was inadequate or improper. We encourage the
ORDER NO. 30978
Company, Staff and others to be inclusive in future discussions and will not hesitate to require
full evidentiary hearings if we deem it necessary to achieve broad participation.
INTERVENOR FUNDING
CAP AI timely filed an application for intervenor funding on January 5, 2010. Idaho
Code g 61-617 A authorizes an intervenor cost award not to exceed a total of $40 000 for all
intervening parties. CAP AI requested intervenor funding to recover $4 295 in fees and costs.
Individual intervenor funding awards must be based on findings that the intervenor
participation materially contributed to the Commission s decision, the costs of intervention are
reasonable and would be a significant financial hardship for the intervenor if no award is given
the recommendations made by the intervenor differed materially from Staffs evidence, and the
intervenor s participation addressed issues of concern to the general body of users or consumers.
Additionally, the intervenor funding statute requires the Commission to consider reasonableness
of the costs of intervention and the relative financial hardship for each intervenor. CAP AI fully
participated in the case by presenting pre filed testimony, attending the meetings that resulted in
the Stipulation, and explained its benefits to low-income customers. CAP AI is a public-interest
entity with modest financial resources and might not be able to participate in rate proceedings
without intervenor funding. CAP AI brings a perspective that may otherwise be overlooked or
underrepresented, and the Commission appreciates CAP AI's frugal approach to its funding
requests.
Based on the record and the intervenor funding request, we find that the policy stated
in Idaho Code g 61-617 A to encourage participation in Commission proceedings "so that all
affected customers receive full and fair representation" is furthered by awarding intervenor
funding to CAP AI. The Commission approves intervenor funding in the amount of $4 295 to
CAP AI. Section 61-617 A requires that intervenor funding "be chargeable to the class of
customers represented by the qualifying intervenors." Accordingly, CAP AI's intervenor funding
award is to be recovered from Schedule 1 customers. We believe this award satisfies the
objectives of intervenor funding set forth in Idaho Code g 61-617 A.
ORDER
IT IS HEREBY ORDERED that the Application of Idaho Power Company for an
Order to authorize the Company to amortize accumulated deferred investment tax credits and
approving a Stipulation is approved. The Stipulation submitted by the parties is approved. The
ORDER NO. 30978
Company is authorized to amortize up to $45 million of accumulated deferred investment tax
credits from 2009 through 2011 and to account for the ADITC as specified in the Stipulation.
IT IS FURTHER ORDERED that intervenor funding is awarded to CAPAI in the
amount of$4 295. CAP AI's intervenor funding shall be recovered from Schedule 1 customers.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code g 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this /3 -fA
day of January 2010.
.Jl.
KEMPTON, P SIDENT
ARSHA H. SMITH, COMMISSIONER
ATTEST:
Commission Secretary
bls/O:IPC-09-30 ws3
ORDER NO. 30978