HomeMy WebLinkAbout20110420Comments.pdfWELDON B. STUTZMAN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-0318
IDAHO BAR NO. 3283
RECEIVED
2811 APR 20 PM 2: 0'
Street Address for Express Mail:
472 WWASHINGTON
BOISE ID 83702-5918
Attorney for the Commission Staff
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 PENSION CASH )CONTRIBUTION. )
)
CASE NO. IPC-EN11N4
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through its
Attorney of record, Weldon B. Stutzman, Deputy Attorney General, and in response to the
Notice of Application and Notice of Modified Procedure issued in Order No. 322 i 5 on
March 30, 2011, submits the following comments. This is a redacted copy of Staff Comments
to protect information Idaho Power Company regards as confidential. The unredacted
copy is provided to parties to the Protective Agreement.
BACKGROUND
On March 15,2011, Idaho Power Company fied an Application requesting an increase in
customer base rates to recover a $60 milion contribution the Company made in 2010 to its
Defined Benefit Pension Plan. The Company's actuary, Miliman, Inc., determined that the
Company needed to make a contribution in 2010 to satisfy requirements of the Employee
Retirement Income Security Act (ERISA). Miliman determined that the minimum funding
required by ERISA was approximately $5.8 millon. The Company determined, however, that if
STAFF COMMENTS 1 APRIL 20, 2011
it contributed only the minimum amount, its fuding level at December 31, 2010, would be
below 80%. Funding below 80% triggers certain plan restrictions, notice requirements to
paricipants, and limitations on future funding alternatives. Accordingly, the Company
determined that making a $60 milion contribution would maintain an 80% fuding level,
avoiding the plan restrictions, and approximating the required minimum fuding through 2011.
Application, pp. 3N4.
Idaho Power and Millman estimated that over a 10-year period, the total amount required
for contribution to the plan would be approximately $11 milion less by contributing $60 milion
in 2010 rather than the minimum required $5.8 milion. In addition, the Company asserts that
the larger contribution in 2010 wil result in savings relating to the variable portion of Pension
Benefit Guarantee Corporation premiums of nearly $1 milion for the years 2010-2012.
Miliman determined that the $60 millon contributed in 2010 is less than adequate to cover the
full minimum fuding needs through 2011. The Application states that a contribution for the
2011 plan year of$3 milion is due by October 15,2011, and that an additional $5.7 millon is
due by January 15,2012. The Company does not request recovery of these anticipated 2011
contributions in this case.
Pursuant to the Commission's Order No.3 1 091, the Company is currently collecting in
rates $5,416,796 each year to recover pension plan contributions. To collect the $60 millon the
Company contributed in 2010, Idaho Power proposes a three-year amortization. Idaho Power
also proposes to increase the base pension amount it currently collects in rates to $17,153,713
per year, an increase of$1 1,736,917 over the amount currently collected.
Idaho Power's Application states that an increase of$1 1.7 milion in customer rates
amounts to a 1.39% increase for all customer classes. However, the Company requests that the
increase it proposes in this case take effect at the same time that rate adjustments relating to fixed
costs and power costs take effect. The Company asserts that the combination wil result in a net
decrease in customer rates effective June 1, 2011.
STAFF ANALYSIS
Staff reviewed the Company's Application and the testimony and exhibits of Darel
Anderson and Kelley Noe, along with other information provided by the Company, and does not
object to the Company's request to increase rates by 1.39% or $11,736,917 anually to fund its
employee pension plan. Staff remains concerned about the costs of the Company's Employee
STAFF COMMENTS 2 APRIL 20, 2011
Retirement Plan and the level of benefits received by Idaho Power employees that are ultimately
paid for by customers. Although Staff is hesitant to support Idaho Power's proposed
amortization of three years in this case, extending the amortization period wil create larger
increases in future years, as discussed later in more detaiL.
The Company's Application complies with the directives previously issued by this
Commission. In Order No. 29505, the Commission allowed the Company to include in its
anual revenue requirement the amount of its actual cash contributions instead of the accrued
expense calculated under Statement of Financial Accounting Standard No. 87. In Order
No. 30333, the Commission authorized the Company to (1) change from accrual accounting to
cash accounting to determine future contributions to the defined benefit pension plan, and (2)
defer future defined benefit pension plan contributions and record them as a regulatory asset with
ratemaking treatment of such asset to be determined in a subsequent revenue requirement
proceeding. On February 17,2010, the Commission issued Order NO.3 1003 allowing the
Company to create a regulatory balancing account in which the deferred cash contributions to the
pension plan would be recovered in rates through amortization. The Company's Application is
consistent with Commission Orders that have led to the rate recovery methodology included in
the Application. Staffhas supported and the Commission has adopted this methodology. The
Company-proposed accounting entries are reasonable.
As par of Order No. 31901 approving the Company's 2010 request for recovery of$5.4
milion in cash contributions to the pension plan, the Commission expressed concern with the
increasing costs of Idaho Power's pension plan stating: "It is unreasonable for Idaho Power's
customers to be solely responsible for large contributions to the Company's defined benefit
pension plan." Order No. 31901 at 3. The Commission fuher directed the Company to
"consider changes to its retirement plan and address shareholder and employee liabilties in the
assignment of pension plan investment risk." The Commission also stated that it "wil 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."
The Commission curently has an open docket (lPC-E- 1 0-25) where the Company contends that
it has complied with the Commission's directive. Staff and the Industrial Customers of Idaho
Power have filed comments in that case.
On September 15,2010, the Company made a contribution of$60 milion to its defined
benefit pension plan. Staff does not disagree with the amount of the contribution and the reasons
STAFF COMMENTS 3 APRIL 20, 201 1
necessitating such a large contribution. Staff continues to remain concerned, however, with the
level of contributions expected to be included in customer rates to maintain a reasonable balance
in the pension plan balancing account established in Order NO.3 1 003. In its Supplemental
Report in Case No. IPC-E-1O-25, the Company provided the following table ilustrating the
potential pension contributions required through 2019 under several different scenarios.
TABLE 1
Retirement Plan of Idaho Power Company
All Participants Including New Entrants
lOOth Percentile
75th Percentile
50th Percentile
25th Percentile
Oth Percentile
Average
In this table, the "100th Percentile" (worst case) results correspond to a scenario where interest
rates remain at current low levels and, simultaneously, Idaho Power experiences its lowest
expected average of anual returns over the next nine years. In that event, the average anual
fuding contributions associated with all paricipants in the Company's retirement plans would
be" milion per year. The "Oth Percentile" (best case) results correspond to a scenario where
interest rates move upward and, simultaneously, Idaho Power experiences its highest expected
average of anual returns over the next nine years. In that event, the average anual fuding
contributions would be . milion. The "50th Percentile" (expected case) would anticipate the
average anual funding obligations of. milion per year over the next nine years.
Staff used the information provided by the Company in Table 1 to analyze the impact of
anual recovery of pension contributions from ratepayers on the regulatory asset balancing
account. The table below ilustrates the remaining balance in the balancing account under four
different scenarios of anual recovery: $17.1 millon (Company's proposal in this case),
$20 milion, $25 milion and $30 milion. The anual recovery in this table is expected to begin
June 1, 201 1 and continue until December 31, 2019 or until the balance in the regulatory
balancing account reaches zero. In places where a date is listed instead of a dollar amount, the
date represents the approximate month when the balancing account wil reach zero.
STAFF COMMENTS 4 APRIL 20, 2011
TABLE 2
Approximate Balance of Regulatory Asset Balancing Account
On December 31, 2019
Annual Recovery
Beginning June 1, 2011 $17.1 milion $20 milion $25 milion $30 milion
100th Percentie ----
75th Percentile ----
50th Percentile ----
25th Percentie ----
Oth Percentile ----
Under the expected case, with the anual recovery of $ 1 7.1 milion requested by the Company
continued through December 31, 2019, the remaining balance of the regulatory asset balancing
account would be approximately _ millon. It would require anual recovery from
customers of. milion in order to pay off the balance in the account by December 2018.
Under the worst case scenario, the remaining balance would be approximately _ millon.
Under every scenario, the amount requested by the Company to be recovered from customers
wil not be suffcient to pay down the balance in the regulatory asset balancing account until at
least.. Under the current regulatory framework approved by the Commission for Idaho
Power's pension plan, it wil be necessary for even greater increases in future years to cover the
costs of the pension plan. Under the worst case scenario, Staff calculates that it would require an
anual recovery from customers of. millon beginning June 1,2011 in order to reach a zero
balance in the balancing account before the end of this decade.
Table 3 below ilustrates the percentage of employee compensation that corresponds to
the anual recovery amounts listed in Table 2. This table uses the actual employee compensation
for 2010, and the projected employee compensation and employee count for years 2011-2019.
The Company projects annual wage increases of 4.5% and employee growth of 3% each year
through 2019. Staff notes that the following percentages apply only to the Idaho Power
Company defined benefit pension plan, and do not include the 4% matching contributions
available to Idaho Power employees under the Company's separate 401(k) plan.
STAFF COMMENTS 5 APRIL 20, 2011
TABLE 3
Pension Recovery Percentage of Employee Compensation
Annual Recovery $17.1 milion $20 millon $25 millon $30 milion
% of 2010 Compensation ----
% of 2011 Compensation ----
Avg % of Comp 2010-2019 ----
Without significant changes, anual pension fud contributions paid by customers wil represent
double digit percentages of total employee compensation. When combined with the 401(k)
matching contribution, Idaho Power's retirement benefits package wil require customers to pay
in rates an amount greater than. of total employee compensation.
Customer Notice and Press Release
The Press Release and Customer Notice were included in Idaho Power's Application.
The Press Release was issued on March 15, 201 1, simultaneous with the fiing of its Application.
Customers Notices were distributed to customers as a biling insert during the biling cycle
ending April 21, 2011. In addition to describing the curent fiing, these customer
communications also describe the proposed rate increase associated with the Company's Fixed
Cost Adjustment.
Customer Comments
As of April 19, 2011, thirteen Idaho Power customers had submitted written comments
regarding the proposed increase in rates, all of which oppose the requested increase. The
comments primarily assert that customers should not pay for increases in pension benefits,
especially under the curent economic conditions, or question why customers should have to pay
for pension benefits at alL. Some customers questioned the availabilty of pension benefits to
Idaho Power employees, instead ofa 401(k) plan. It should be noted, however, that Idaho Power
is not increasing its benefits with this curent Application. This Application is to recover the
cash contribution required to pay for the accrued benefits of its existing plan. Idaho Power has
actually reduced its benefits for new employees hired after December 31, 2010. Staff does not
believe that decrease wil result in any substantial savings for at least another 20 years.
STAFF COMMENTS 6 APRIL 20, 201 1
STAFF RECOMMENDATIONS
Staff continues to be concerned with increasing pension plan costs that are paid only by
Idaho Power's customers. Without significant changes to the Company's retirement benefits
package, or the regulatory framework that assures full recovery of contributions to the pension
plan, Idaho Power's proposed increased rates wil remain insuffcient to cover anticipated costs
of the Company's pension plan.
Staff recommends that the Commission approve the Company's Application and
proposed tariffs to increase customer rates to recover the $60 milion contribution to the pension
plan in September of 2010. If approved, this wil result in an annual increase of $ 11,736,917, or
1.39%, to be effective June 1,2011. The proposed accounting entries are reasonable and should
be accepted.
Respectfully submitted this 1.6 (. day of April 2011.
n~
Weldon B. Stutzman
Deputy Attorney General
Technical Staff: Donn English
i:umisc:commentsipce 11.4wsde.doc
STAFF COMMENTS 7 APRIL 20, 2011
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 20TH DAY OF APRIL 2011,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-E-I1-04, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
LISA D NORDSTROM
JASON B WILLIAMS
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: Inordstrom(fidahopower.com
jwillams(fidahopower.com
PETER J RICHARDSON
GREGORY MADAMS
RICHARDSON & O'LEARY
PO BOX 7218
BOISE ID 83702
E-MAIL: peter(frichardsonandoleary.com
greg(frichardsonandoleary .com
TIM TATUM
GREG SAID
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: ttatum(fidahopower.com
gsaid(fidahopower.com
DR DON READING
6070 HILL ROAD
BOISE ID 83703
E-MAIL: dreading(fmindspring.com
~.\(~cRE
CERTIFICATE OF SERVICE