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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