20120531final_order_no_32558.pdf

Offlce of the Secretary
Service Date
May 31,2012
BEFORE THE II)AHO PUBlIC UTIlITIES COMMISSION
IN TilE MATTER OF IDAhO POWER
COMPANY’S APPLiCATION FOR )CASE NO.IPC-E-12-13
AUTHORITY TO SHARE REVENUES WITH )
CUSTOMERS IN CONFORMANCE WITh I )
ORDER NOS.30978 ANI)32324 )ORI)ER NO.32558
On March 2,2012.Idaho Power Company applied for authority to share revenues
with customers based on year-end 201 1 financial results.The Company’s rate-sharing proposal
has two components:(1)PCA Sharing,which reduces net rates by 527.098.897 and reduces rates
for all customer classes by 3.25°/o relative to current base revenues,or by 3.21°/o in total billed
revenues:and (2)Pension Balancing Account Sharing:’which results in a 520.324i 73 net
reduction to the pension balancing account.Application at 4.6.The Company proposes that the
rate changes take etTect on June 1.2012,to coincide with the requested effective date in the
Company’s 2012 pox\er cost adjustment (PCA)application in Case No.IPC—E—1 2—1 7.
On March 20.2012,the Commission issued a Notice of Application/Modified
Procedure setting a May 4.2012 comment deadline and May Il.2012 reply deadline.The
Industrial Customers of’Idaho Power (ICIP);Micron Technology,Inc.:and the Idaho Irrigation
Pumpers Association.Inc.([IPA)intervened.S’ee Order Nos.32504 and 32515.The
Commission Staff and II PA subsequently tiled comments.and the Company tiled a reply.With
this Order,the Commission grants the Company’s Application as ftllows.
THE APPLICA’IiON
In 2010 and 2011.the Commission entered Order Nos.30978 and 32424.Among
other things.the Orders established a mechanism by which the Company must share certain
revenues with customers.The first Order requires the Company to provide customers with 50%
of any earnings above a 1 0.5%year-end return on equity (ROE).The second Order requires the
Company to provide an additional customer benefit:specifically,the Company must book 75%
of its share of its Idaho jurisdictional 2011 year-end ROE above 10.5%as an offset against
amounts in the Company’s Pension Balancing Account that the Company otherwise would
collect from customers through rates.With this Application,the Company seeks to share
revenues as required by these Orders.Application at 1-3.
ORDER NO.32558 1
According to the Application,the Company calculates its year-end 2011 Idaho
jurisdictional ROE to be 12.55%.Id.at 3.The Company says the amount above 10.5%equals
S33.007,182.Id.at 4.The Company proposes to share this amount with customers in two ways.
PCA Sharing
First,as required by Order No.30978,the Company proposes to proportionally
allocate 50%of this amount to customer classes.After tax gross-up,this SO%amount results in
customers receiving a total,$27.088.897 rate reduction.Id at 4.For the Company’s four special
contract customers (Micron.Simplot.Department of Energy (INL).and Hoku Materials),the
Company proposes to provide a flat,dollar-per-month credit on billed invoices for the usage
months of June 2012 through May 2013.Id at 5-6.For all other rate classes,the Company
proposes to include allocated revenue-sharing benefits as part of the 2012 PCA filing.Id at 5.
Pension Balancing Account Sharing
Second,as required by Order No.32424,the Company proposes to provide
customers with 75%of its remaining 50%share by reducing the Company’s Pension Balancing
Account by that amount After tax gross-up.this amount is $20.324.173.The Company
proposes to apply this $20 million to the Pension Balancing Account to offset expenses that the
Company otherwise would collect from customers through rates.Id at 6.
According to the Company’s press release and Customer Notice.the Company’s
proposal will decrease average billed rates by 3.2 1%.with the revenue impact by class being:
Residential,(3.17%):Small General Service,(3.16%):Large General Service,(3.25%):Large
Power,(3.26%);and Irrigation.(3.25%).See Press Release at 3-4;Customer Notice at 1-2.
The Company filed the proposed revenue-sharing amounts as an exhibit in this case.
The Company also tiled its 2012 PCA application on April 13,2012;that application included an
electric rate schedule containing the Company’s proposed revenue-sharing amounts.See
Application at 7.The Company says it will make an appropriate compliance filing when final
Orders are received on all proposals to change rates effective June 1.2012.Id
THE COMMENTS
The Commission Staff and IIPA submitted comments,and the Company submitted
reply comments.The partiet comments are summarized below.
ORDER NO.32558
Staff Comments
Staff’s comments support the Company’s Application.Staff concludes the
Application is reasonable following a three-step analysis.See Staff Comments at 3.
First,Staff analyzed the Company’s total system net income and the jurisdictional
separation study (JSS).Staff verified that the Company’s system net income is $193,632,649,
the Idaho jurisdictional share is $180,499,658 for 2011,and the sharing amount over the 10.5%
ROE is $33,007,182 for the Idaho jurisdiction.With respect to the sharing amount above the
10.5%ROE,Staff determined that the Company developed jurisdictional separation percentage
factors consistent with 2009 and 2010 year-end ROE determinations.Specifically,the Company
used third quarter financial information as of September 30,2011,and the 2010 Federal Energy
Regulatory Commission Form 1 allocation factors.Staff confirmed the Company’s calculations
and agrees that $33,007,182 is the amount that exceeds the 10.5%ROE.Id.
Second,Staff verified that the Company proposes to return amounts to customers that
are consistent with the Company’s revenue-sharing obligations from Commission Order Nos.
30978 and 32424.Staff agrees that the Company should (1)share revenues of $16,503,591 as a
direct decrease to customer rates;and (2)offset $12,377,693 against the pension balancing
account.These amounts,grossed-up for taxes,respectively are $27,098,897 and $20,324,173.
Id.at 3-4.
Third,Staff determined that the Company properly allocated the amounts to be
returned to each customer class and accurately designed rates to refund those amounts.The
Company proposes to allocate the $27,098,897 revenue-sharing benefit to customer classes
“based on each class’s proportional share of forecasted base revenues for the June 1,2012,
through May 31,2013,sharing period.”For tariff customers,the Company further proposes to
decrease energy rates by a uniform /kWh amount within each class.Staff notes that the
Company’s methodology produces a different 0/kWh rate for each class,but also an average
class decrease of 3.25%.For special contract customers,the Company proposes to return the
allocated credits as 1/12 the annual total credit each month for 12 months.The uniform percent
decrease of 3.25%of base revenue is an average 3.21%decrease in billed revenue.Staff verified
that the Company’s calculations are correct.Accordingly,Staff recommended that the
Commission approve the Company’s proposed rates and amounts.Id.at 4.
ORDER NO.32558 3
Based on this analysis,Staff recommended that the Company return $27,098,897 in
revenue-sharing benefits to customers through a reduction in base rates,and that the tariff rates
and special contract amounts be approved as filed.Staff further recommended that the rates and
amounts be included in Schedule 55 along with PCA rates and that the combined rates take effect
on June 1,2012.Lastly,Staff recommended that the Commission approve the Company’s
requested reduction to the Pension Balancing Account of $20,324,173 for grossed-up revenue
sharing;the Company booked this amount to the Pension Balancing Account on December 31,
2011.Id.at4-5.
IIPA Comments
The IIPA’s comments argue that Idaho Power used an inappropriate Jurisdictional
Separation Study (“JSS”).Specifically,the IIPA notes that while it would generally seem
appropriate for the Company to use the same JSS methodology here that it used in the year-end
2009 and 2010 ROE determinations,“the fact is that the Company changed its JSS in its last
general rate case,”that rates “are now being set on a different set of assumptions,”and that it is
“inappropriate to set rates using one JSS methodology and reduce rates through a different JSS
methodology.”See IIPA Comments at 2.Further,IIPA argues that the Company
inappropriately incorporates “incomplete third quarter allocation factors based upon actual
results 9 months”(Actual as of September 30,2011)and then applies “these actual to a full 12
months of costs at year end December 31,2011.”Id.at 3.
The IIPA argues that it would be far more appropriate to use the allocation factors
that came out of Idaho Power’s last general rate case “on a going forward basis than the third
quarter values suggested by the Company.”Id at 3 (citing Order No.32426 in Case No.IPC-E
11-08).Id.
The IIPA also notes that the Company used the rate case JSS methodology in the
Company’s recent filings in Depreciation Case No.IPC-E-12-08 and Boardman Case No.IPC-E
12-09.IIPA states that if the Company used consistent JSS methodology and allocation factors
here,customers would receive additional rate-sharing benefits;specifically,an additional $5.5
million reduction to base rates and an additional $4.2 million reduction to the Pension Balancing
Account.Id.at 4-5.
ORDER NO.32558 4
Company Reply Comments
The Company’s reply comments concur with Staffs comments.See Company Reply
Comments at 3.They also rebut IIPA’s comments that the Company should have determined the
2011 actual year-end ROE for this case using the JSS allocation factors that the Company used to
determine the revenue deficiency in the rate case.The Company provides three reasons why it
should not use the prior JSS methodology and allocation factors here.First,the Company argues
that applying normalized,rate case-adjusted allocation factors to actual results of operations is
inappropriate and produces counterintuitive results.Id.at 3-7.Second,the Company argues that
using full-year 201 0 Federal Energy Regulatory Commission Form I allocation factors applied
to actual third quarter 201 1 financial results is the most current and accurate way to determine
the Idaho-specific actual year end-ROE.Id.at 7-8.Third,the Company notes that it is
inappropriate to use the revised JSS methodology from the 2011 rate case to allocate actual year-
end financial results here because the 2011 rate case factors reflect rate case adjustments that
would improperly allocate actual financial results in the context of an actual year-end ROE
determination.Id.at 8-9.
FINDINGS ANI)DISCUSSION
We have reviewed the filings in this case.including the Company’s Application,the
comments from Staff and the IIPA,and the Compans reply comments.Based on our review of
the record,we find the Company’s revenue-sharing proposal to he fair,just.and reasonable.In
doing so,we note that the revenue-sharing funds approved here will offset the rate increase
approved in the Company’s recent PCA case (Case No.IPC-E-12-17).We find that the revenue-
sharing rate decrease approved here will combine with the PCA rate increase to result in rates in
Schedule 55 that are fair,just and reasonable.
We agree that the Company correctly calculated the Idaho ROE determination,and
we find that the Company used an appropriate JSS methodology and allocation factors in this
case.The sharing trigger was met and sharing dollar amounts were primarily attributed to one
time events occurring in 2011.These one-time tax items are not normalized in base rates.It is
proper to use the jurisdictional separation percentages based on actual data during the year with
the actual results of operation to determine the earnings to be shared from 2011.With respect to
the 11PA’s argument that the Company should have used the JSS methodology from the rate
case,we note that the sharing of actual historical earnings is a different process than decreases or
ORDER NO.32558
increases in rates based on a normal rate setting process.The depreciation and Boardman cases
identified by JIPA (IPC-E-12-08 and IPC-E-12-09)relate to annualized revenue requirements for
changes after the last general rate case on a prospective basis.We note that the depreciation
stipulation filed by the parties in Case No.IPC-E-l2-08 decreases the Company’s revenue
requirement and,if approved by the Commission,will reduce rates using the JSS proposed in the
general rate case.
ORDER
IT IS HEREBY ORDERED that the Company’s revenue-sharing proposal is
approved.
IT IS FURTHER ORDERED that the Company shall return $27,098,897 in revenue-
sharing benefits to customers through a reduction in base rates.These revenue-sharing credits
shall combine and offset with the PCA revenue increase from Case No.IPC-E-12-17.
IT IS FURTHER ORDERED that the combined revenue-sharing and PCA rates
contained in tariff Schedule No.55 shall be effective for service on June 1,2012.
IT IS FURTHER ORDERED that the Company’s separate,$20,324,173 reduction to
the Pension Balancing Account is approved effective as of December 31,2011.
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 No.IPC-E-12-17
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 §6 1-626.
ORDER NO.32558 6
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