20100528final_order_no_31091.pdf

Office of the Secretary
Service Date
May 28, 2010
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY TO
INCREASE ITS RATES FOR ELECTRIC
SERVICE TO RECOVER ITS 2010 CASH
CONTRIBUTION TO DEFINED BENEFIT
PENSION EXPENSE
CASE NO. IPC-I0-
ORDER NO. 31091
On March 15, 2010, Idaho Power Company filed an Application for an order
approving an increase in rates, effective June 1 2010, to allow recovery of the Company s 2010
cash contribution to its defined benefit pension expenses. In February 2010, the Commission
issued Order No. 31003 directing the Company to establish a balancing account to track the
difference between cash amounts contributed to its pension plan and the amounts included in
rates. The Company s Application states that its actuary has determined that a cash contribution
is necessary to its pension plan for the year beginning January 1 , 2009. The Company expects
the contribution amount to be $5 822 145 as of September 15 2010. The amount allocated to the
Idaho jurisdiction, minus a small reimbursement from a separate IDACORP subsidiary, is
416 796.
Idaho Power s Application seeks approval of $5 416 796 in pension cost recovery
over a one-year amortization period to allow recovery contemporaneous with the Company
2010 cash contributions to the defined benefit pension plan. The Company proposes to
proportionately divide the Idaho-allocated share of the 2010 cash pension payments by total
Idaho base revenues forecast for the period June 2010 through May 2011. The Company also
proposes to recover the 2010 contributions by an equal percentage rate applicable to all base
billing components within each customer class rate schedule. This approach results in a rate
increase of .77% for each class of customers served by Idaho Power. The Company s proposed
revised tariff sheets are Attachment 1 to its Application.
On April 22, 2010, the Commission issued a Notice of Application and Notice of
Modified Procedure to establish a comment period that ended on May 13 2010. Approximately
22 customers of Idaho Power filed written comments all of which oppose any increase in rates.
The comments reflect a concern that customers should not pay for increases in pension benefits
ORDER NO. 31091
especially in the current economic conditions. Some customers stated that customers should not
have to pay for pension benefits at all.
Written comments were also filed by Commission Staff.Staff reviewed the
Company s Application as well as Commission Orders to determine that the Company
Application is consistent with previous Commission directives. For example, in Order No.
30333 , the Commission stated that "when the Company s actuaries notify the Company of
ERISA minimum funding requirements, the Company can evaluate the circumstances for
ratemaking purposes and make a filing requesting ratemaking treatment, if needed." Order No.
30333, p. 4. The Company s actuaries notified the Company that a cash contribution in the
amount of $5 092 774 was due to the pension plan on January 1 2009, and the amount increases
until the final payment amount is due on September 15 2010. When Idaho Power was notified
that a contribution was necessary, it filed a request with the Commission for authority to
implement a tracking mechanism similar to the Company s Power Cost Adjustment. The
Commission denied a tracking mechanism for pension expenses, but did approve a regulatory
balancing account in which the deferred cash contributions could be recovered in rates through
amortization. Order No. 31003, pp. 10-11. The Company s Application in this case is consistent
with those Commission directives. Accordingly, Staff supports the Company s Application to
increase its rates by 0.77% to fund its employee pension plan contribution in the amount of
$5,416 796.
Staff recommended a change in the amortization calculation, and also suggested a
review of the reasonableness of continued customer-supported contributions to Idaho Power
pension plan. The Company requested a 12-month amortization period to recover the amount
contributed as of September 15, 2010. The Company s amortization calculation is based on
monthly forecasted revenues from June 1 , 2010 through May 31 , 2011. Staff recommended the
Company instead use a straight-line amortization rate, which would provide a monthly
amortization expense of $451 ,400.
Staff noted that the Company expects continued large contributions each year to the
benefit pension plan, and expressed concern about continued recovery of increasing costs from
Idaho Power s customers. Because the pension plan is a defined benefit plan, payments to
retired employees are determined by a formula rather than the performance of the invested funds
in the plan. Accordingly, the Company bears all of the investment risk, which is passed on to its
ORDER NO. 31091
customers. When the investments underperform, customers bear the burden of the increased
contributions recovered through their rates. Staff recommended the Company, Staff and other
interested parties examine (a) the appropriate investment risks that should be passed on to
customers; (b) if shareholders or employees should be assigned a portion of the investment risk;
and (c) if another type of retirement plan might be preferable.
COMMISSION FINDINGS
Based on the record presented in this case, the Commission has determined to
approve the Company s Application to increase its rates by 0.77% to fund its employee pension
plan contribution in the amount of$5 416 796. The Application was filed consistent with earlier
Commission Orders, and thus it is appropriate to approve recovery of the amount the Company
will contribute to its pension plan as of September 15, 2010. We also approve a straight-line
amortization period of 12 months to recover the deferred amount contributed as of September 15
2010, to be in the regulatory asset account.
Idaho Power is advised that, previous orders not withstanding, approval of the
Company s pension contributions in this case does not guarantee Commission approval of future
pension plan contributions. Authority for the balancing account and regulatory account remain
in place. However, further justification is required before additional rate recovery for future
contributions will be authorized. During the next three years, Idaho Power anticipates additional
payments to its employee pension plan of approximately $68 million. Staff Comments, p. 4.
During 2014-2018, the payments may total nearly $157 million. Id. It is unreasonable for Idaho
Power s customers to be solely responsible for large contributions to the Company s defined
benefit pension plan. Many employers in recent years have replaced their defined benefit plans
with pension programs that place greater responsibility and investment risks on employees.
Idaho Power must similarly consider changes to its retirement plan and address shareholder and
employee liabilities in the assignment of pension plan investment risk. The Commission will not
approve recovery of additional pension plan contributions from customers without evidence that
Idaho Power has carefully reviewed alternatives to reduce the burden placed on customers.
ORDER
IT IS HEREBY ORDERED that the Application of Idaho Power Company to
increase its rates by 0.77% to fund its employee pension plan contribution in the amount of
ORDER NO. 31091
$5,416 796 is approved. The Commission also directs a straight-line amortization over 12
months to recover the contributions deferred in the regulatory asset account.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally
decided by this Order) or in interlocutory Orders previously issued in this case may petition for
reconsideration within twenty-one (21) days of the service date of this Order with regard to any
matter decided in this Order or in interlocutory Orders previously issued in this case. Within
seven (7) days after any person has petitioned for reconsideration, any other person may cross-
petition for reconsideration. See Idaho Code 9 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this :2f?#
day of May 2010.
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MARSHA H. SMITH, COMMISSIONER
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MACK A. REDFORD, COMMISSIONER
ATTEST:
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Commission Secretary
bls/O:IPC-E- 10-08 ws2
ORDER NO. 31091