20120209Comments.pdf

KRISTINE A. SASSER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 6618
RECEIVED
2812 FEB -9 AM 10: 29
IDAHO PUSUç . 'i
UTILITIES COMMISSIOr'i
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO MODIFY ITS RULE H
TARIFF RELATED TO THE GENERAL
OVERHEAD RATE.
)
) CASE NO. IPC-E-1l-24
)
) COMMENTS OF THE
) COMMISSION STAFF
)
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Kristine A. Sasser, Deputy Attorney General, and in response to the Notice of
Application and Notice of Modified Procedure issued in Order No. 32429 on Januar 4,2012, in
Case No. IPC-E-II-24, submits the following comments.
BACKGROUND
On November 18,2011, Idaho Power Company fied an Application with the Commission
seeking authority to modify the general overhead rate it charges in the Company's Rule H tariff
relating to new service attachments and distribution line installations and alterations. The Company
proposes to remove the 1.5% limitation for recovery of general overhead costs in the "Work Order
Cost" definition of Rule H in an effort to shift more of the cost burden for new service attachments
and distribution line installations or alterations from general ratepayers to customers requesting
construction for these services. Application at 3.
STAFF COMMENTS FEBRUARY 9, 2012
The Company states that, by removing the 1.5% limitation for recovery of general overhead
costs and allowing the Company to recover the full construction overheads under Rule H, the
Company wil receive larger contributions in aid of construction (CIAC) to offset the costs of
providing these construction services. The Company maintains that this wil ultimately reduce the
revenue requirement for general ratepayers and reduce additional upward pressure on rates. Id
Specifically, the Company is proposing to recover all actual general overhead costs related to
construction under Rule H from the party requesting the construction service. Idaho Power proposes
to update this general overhead rate each time accounting adjustments (increases or decreases) are
made to balance the Company's general overhead account. These updates would be automatically
reflected in the Company's work order processing and accounting systems. In addition, the Company
proposes to file its effective general overhead rates in all future anual Rule H updates of charges and
credits to allow the Commission the opportunity to scrutinize the effective rate charged on Rule H
work orders.
The Company requests that the removal of the general overhead cap be approved by
March 1,2012, and become effective on March 15,2012, to coincide with the effective date of the
Company's annual update of its Rule H charges and credits.
STAFF ANALYSIS
In Case No. IPC-E-95-18 a separate direct engineering fee was established. The Commission
Staff recommended, and the Commission ordered, to cap the overhead rate at 1.5% to avoid over-
collecting for engineering fees. At that time, the Company applied a general overhead rate of 17% to
the subtotal of all direct costs. Of the 17%, 15.5% covered construction engineering and supervision,
1.0% covered construction injuries and insurance and 0.5% covered construction accounting, based
on information provided by the Property Accounting section of the Company during the course of the
case. Actual overheads incurred above the 1.5% rate were re,flected in plant in service and collected
in rates from all customers.
The issue of the correct amount for the general overhead rate to be applied to line extensions
under Rule H was revisited in Case No. IPC-E-08-22. In Order No. 30853, the Commission stated:
The Commission finds that customers requesting Rule H line extensions
should bear the overhead costs of those extensions. However, we find that
the appropriate calculations and adjustments are best made during the
Company's next general rate case to ensure that rates are set based on costs
STAFF COMMENTS 2 FEBRUARY 9, 2012
that do not include that portion of construction overhead belonging to Rule
H work orders. Until then, we find that continuing the general overhead
rate of 1.5% is fair, just and reasonable.
In the Company's next general rate case, Case No. IPC-E-II-08, the overhead rate issue was
bifucated from the general rate case as par of the stipulation and as approved by the Commission.
The current filing addresses the issue of the appropriate calculation and adjustment to the overhead
rate in the Company's Rule H line extension tariff.
Staff supports the Company's effort to include the full amount of general overheads in the
calculation of the line extension tariff. It is appropriate for the Rule H customers, the cost causer, to
pay more of the actual costs incurred to establish service. When customers do not pay the full cost
for providing new service lines or altering existing distribution lines, the remaining cost is included in
base rates paid by all customers. Consequently, base rates include costs that can and should be
directly charged to and paid by the Rule H customer requesting the line extension and causing that
cost to be incurred. Updating the amount that is included in overheads in the Rule H line extension
tariff appropriately directly charges these costs and helps minimize base rates in future rate case
proceedings.
Commission Staff has reviewed the Application and supporting documents, including
information received via audit request. Staff also met with Company personnel to review the
Company's budgeted and actual overhead calculation for 2011.
The Company maintains that direct engineering costs are not included in the general overhead
rate, but instead are captured through a separate engineering fee under Rule H. After review and
audit, Staff has confirmed that the direct engineering charges are not included in the general overhead
rate. Staff is satisfied that there wil not be any over-collection of the engineering costs if the
proposed general overhead rate is applied to the direct construction costs. The Company includes in
the overhead rate calcùlation items such as supervision, training, safety meetings, support and
administrative staff expenses - common costs that canot be directly assigned to individual capital
projects. Consequently, Rule H customers pay direct engineering costs and 1.5% for common
overhead costs.
The Company calculated the budgeted common overhead rate for 2011 as 22%. The overhead
rate, using actual 2011 amounts is 21.5%. Staff recommends that the actual overhead rate, as
calculated based on the most current year, be the overhead rate applied going forward. Therefore,
under the Company's proposal with Staffs adjustment, Rule H customers wil pay direct engineering
STAFF COMMENTS 3 FEBRUARY 9,2012
costs and 21.5% for common overhead costs. Staff notes that although it may look like there is a
large increase in the Company's general overhead rate because the current common overhead rate
charged to the Rule H customer has been capped at 1.5%, the Company's actual overhead rate is
being increased from 17% to 21.5%. Historically, 1.5% of the 17% has been paid for by the customer
requesting the line extension and the remaining 15.5% of common overhead costs is borne by all
ratepayers through base rates. Allowing the Company to charge the full overhead rate, currently
21.5% for 2011 based on actual results, wil more appropriately directly assign amounts curently in
base rates to the customer requesting the Rule H line extension.
The Company has requested to change the overhead rate throughout the year. The Company
states in testimony that "General overhead rates for Rule H construction are evaluated monthly and
updated as needed to balance the Company's overhead account." While Staff is aware of the
rationale for adjusting the overhead rate during the year, Staff notes that this would be the only
component of the Rule H line extension tariff allowed to vary throughout the year, while the other
items are adjusted yearly and only after Staff review. Therefore, Staff recommends that the overhead
rate may be changed no more frequently than anually at the same time as other Rule H updates.
RECOMMENDATIONS
· Staff recommends that the actual overhead rate for 2011 of2L.5% be used in place of
the curent 1.5% overhead rate.
· Staff furher recommends that the overhead rate be changed no more frequently than
anually at the same time as other Rule H updates.
Respectfully submitted this q ~ day of February 2012.
~t1'~LA.
Kr' tine A. Sasser
Deputy Attorney General
Technical Staff: Kathy Stockton
Cathleen McHugh
i:umisc:commentslipcel 1.24ksklscmch comments
STAFF COMMENTS 4 FEBRUARY 9,2012
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 9TH DAY OF FEBRUARY 2012,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-E-II-24, BY E-MAILING AND MAILING A COPY THEREOF, POSTAGE
PREPAID, TO THE FOLLOWING:
LISA D NORDSTROM
JASON B. WILLIAMS
IDAHO POWER COMPANY
P.O. BOX 70
BOISE IDAHO 83707
E-MAIL: lnordstrom(fidahopower.com
j willams(iidahopower .com
SCOTT D SPARKS
GREGORY W SAID
IDAHO POWER COMPANY
P.O. BOX 70
BOISE IDAHO 83707
E-MAIL: ssparks(fidahopower.com
gsaid(iidahopower .com
JJ\ÁA'~\(Ot
SECRETARY
CERTIFICATE OF SERVICE