20110408Comments re IPC Supplemental Report.pdf

RECEIVEDB'1I~r&:(flr.Jm...y
ATTORNEYS AT LAW
Tel: [phone] Fax: [phone]U APR -8 PH It: 22
P.O. Box n18 Boise, ID 83707 - sis N. 27th St. Boise, ID 83702
April 8, 2011
Ms. Jean Jewell
Commission Secretar
Idaho Public Utilities Commission
472 W. Washington
Boise, ID 83702
RE: IPC-E-IO-25
Dear Ms. Jewell:
We are enclosing for fiing in the above-referenced docket an original and seven (7)
copies of the Industrial Customers of Idaho Power's COMMENTS REGARDING
IDAHO POWER'S SUPPLEMENTAL REPORT.
An additional copy is enclosed for you to stap for our records.
1~
Richardson & O'Leary PLLC
encL.
Peter J. Richardson (ISB # 3195)
Gregory M. Adams (ISB # 7454)
Richardson & O'Leary, PLLC
515 N. 27th Street
P.O. Box 7218
Boise, Idaho 83702
Telephone: [phone]
Fax: [phone]
peter~richardsonandoleary .com
greg~richardsonando leary.com
RECEIVED
iou APR -8 PH it: 22
Attorneys for the Industrial Customers of Idaho Power
BEFORE THE IDAHO
PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER )
COMPANY'S REQUEST FOR )
ACCEPTANCE OF ITS 2011 RETIREMENT )BENEFITS PACKAGE )
)
)
)
)
CASE NO. IPC-E-I0-25
COMMENTS OF THE
INDUSTRIAL CUSTOMERS OF
IDAHO POWER REGARING IDAHO
POWER'S SUPPLEMENTAL REPORT
COMES NOW, the Industrial Customers of Idaho Power ("ICIP"), and pursuant to the
Idaho Public Utilties Commission's ("Commission's") Procedural Order No. 32207, hereby files
these Comments in the above-captioned matter. For the reasons stated in prior filings and for the
reasons set forth below, Idaho Power Company's ("Idaho Power's" or the "Company's")
additional analysis, contained in its "Supplemental Report: Retirement Benefits Risk Analysis"
(or the "Supplemental Report") and additional discovery related thereto, has not changed ICIP's
position in this matter. ICIP therefore again respectfully requests that the Commission reject
Idaho Power's request for acceptance of its 2011 Retirement Benefits Package.
BACKGROUND
The Commission has the authority to disallow from inclusion in customer rates any
expenses deemed to be imprudently incured. See LC. §§ 61-502 61-503. "The statutes reflect
the legislative grant of authority to the Commission to deal broadly with existing and futue
rates, rate schedules and contracts affecting rates." Washington Water Power Co. v. Kootenai
Environmental Allance, 99 Idaho 875, 880, 591 P.2d 122, 127 (1979). "Hence, the Commission
has the authority to determine the inclusion as an operating expense in a utilty's rate base either
in par or in whole 'costs' incured by the utility." ¡d. This "is only another way of stating the
question - should the ratepayers bear the expense of certain of the activities of the utility." ¡d.
The reason for the Company's filing in this case was explained the following statement
by the Commission:
It is uneasonable 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 assignent of pension plan investment risk. The
Commission 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.
Order No. 31091, p. 3 (emphasis added).
The Commission was well within its authority in issuing this order and would be well within its
authority to reject any retirement benefits plan filed by the Company which places an
unreasonable burden upon its ratepayers in light of the curent employment market.
IPC-E-I0-25
COMMENTS REGARDING IDAHO POWER'S SUPPLEMENTAL REPORT
PAGE 2
The Company's initial filings in this case failed to conduct any analysis that could lead
the Commission to conclude the Company had seriously considered reducing its customers'
exposure to the investment risk of its pension plan. Subsequently, the Company offered, at the
Workshop on Januar 12, 2011, to provide additional information and analysis regarding the
investment risk to which its customers are exposed. See Order No. 32169, at p. 2. The Company
has now completed its Supplement Report, wherein the Company states it has provided "an
assessment of the risk resulting from market fluctuations and also an assessment of the potential
futue fuding obligations which become revenue requirements that impact customers."
Redacted Supplemental Report, at p.l.
COMMENTS
The Company's Supplemental Report provides only estimated costs to ratepayers of the
defined benefit pension plan compared to estimated costs of a hypothetical defined contribution
plan which would provide an identical benefit stream to retirees. ICIP concurs in the critiques of
the Company's analysis in Commission Staffs Comments fied today. Additionally, ICIP
submits that the Company's additional analysis does not support approval of the 2011
Retirement Benefits Package for the following reasons.
A. The Supplemental Report does not support the Company's proposal because the
Company's 2011 Retirement Benefits Program wil allow individual employees to
participate in both the defined benefit pension plan and the defined contribution
plan.
Based on the Company's fiing, the Company's employees have the option of
paricipating in both the defined benefit pension plan (with no additional payment by them or
IPC- E-l 0-25
COMMENTS REGARDING IDAHO POWER'S SUPPLEMENTAL REPORT
PAGE 3
reduction in salar) and also paricipating in the defined contribution 401(k) plan. i In other
words, the Company's defined benefit pension plan entitles all eligible employees to defined
payments at retirement, and the Company's employees may also elect to paricipate in the
defined contribution plan wherein Idaho Power will make a matching contribution up to 4% of
base pay. Continuing to provide a defined benefit pension plan while also providing matching
contributions under the defined contribution program seems out of line with today's employment
market, and demonstrates an underlying flaw in the additional analysis in the Supplemental
Report.
Because the Company is already offering a defined contribution plan that provides up to
4% of the base pay in Company contrbution, elimination of the defined benefits plan altogether
would not leave the void assumed to exist in the Company's Supplemental Report. The
Company has proceeded in its Supplemental Report under the assumption that the defined
contribution program that would theoretically replace the defined benefit program must provide
an equivalent benefit to the defined benefit program. The Company appears to assert that in
order to achieve that goal such a defined contribution plan would need to include a Company
contribution of 6.06% or 7.07% of base pay, which for new employees would amount to a $3.6
or $4.2 milion anual revenue requirement impact paid for by ratepayers (depending on whether
the 401(k) plan achieves a 7% or an 8% retur). See Redacted Supplemental Report, at pp. 11-
The Company produced a document describing its defined benefit program which states
that eligible employees are automatically added as paricipants. See Idaho Power's Response to
Commission Staff's Production Request No. 11, Attachment 1, p. 29. A similar document
describes the exclusions from eligibility to paricipate in the defined contribution plan, but it
does not exclude those who wil receive pension benefits. Id., Attachment 3, pp. 8-9.
IPC-E-1O-25
COMMENTS REGARDING IDAHO POWER'S SUPPLEMENTAL REPORT
PAGE 4
12; Idaho Power's Response to Commission Staff's Production Request No. 42. But this
overlooks that the Company is already contributing up to 4% in the existing defined contrbution
plan for employees who paricipate in the defined benefit plan.
Even under its own assumptions and analysis, therefore, the Company could provide a
retirement benefit equivalent to that in its existing defined benefit pension program by simply
increasing the matching contribution in its existing defined contribution plan from the curent
maximum of 4% to 7%. If the Company were to adopt the hypothetical defined contribution
plan in its Supplemental Report without making any other changes, each employee could obtain
a 6.06% or 7.07% Company contrbution in one 401(k) plan on top of the 4% Company
contribution in the existing 401 (k) plan. From the information provided, the hypothetical in the
Supplemental Report seems unealistic, and it is therefore misleading to state that the Company
wil need to ask ratepayers for $3.6 or $4.2 milion per year to provide a defined contribution
plan to new employees with similar retirement benefits to the defined benefits plan.
B. There is no reason to assume that the benefit provided in a replacement defined
contribution plan must be equivalent.
The data presented in the Supplementa Report looked at the costs of "a hypothetical
defined contribution plan that would provide the same level of benefits at retirement as the
curent pension plan. . . ." Idaho Redacted Supplemental Report, p. 10. Using ths approach the
Company concludes, "The analysis presented in this report demonstrate that the level of risk
borne by Idaho Power's customers related to the defined benefit plan is reasonable and is likely
to result in lower costs over time as compared to other alternatives." Id. at p. 11. However, the
IPC-E-I0-25
COMMENTS REGARDING IDAHO POWER'S SUPPLEMENTAL REPORT
PAGE 5
method used and resulting conclusions fail to address the critical issue in this case - the
allocation of investment risk between customers, shareholders and ratepayers under a defined
benefit plan and a defined contribution plan. There is no allegation by Idaho Power that its
wages are so low compared to its competitors that its employees would be unable to make their
own contributions to a defined contribution plan, or some other form of retirement savings
account. Without a complete analysis of the Company's compensation levels compared to its
competitors, it is uneasonable to assume that the Company's matching contributions must keep
its employees in the same position as they would be under the defined benefit program.
C. The Company's Supplement Report only further confirms that the defined benefit
plan wil continue to expose ratepayers to investment risk and wil certainly result in
very significant, future rate increases.
Idaho Power's data confirms the Commission's concern about the risk to ratepayers from
maintaining a defined benefit plan for all employees. ICIP generated the following table from
the data included in Attachment NO.1 to Idaho Power's Reply Comments.
IPC-E-I0-25
COMMENTS REGARDING IDAHO POWER'S SUPPLEMENTAL REPORT
PAGE 6
í-~-:~-"--~~p~~~.isi~s:A~t._ ............................::.:_..~::::_:...._.....___:.~
l._.~-- ---1. ri~_R~~I v ~gJ~_IIL.._..-~_..._-.........-....Jf-~E.~~.r.~.llj' ~ i 1I YEAR I (At year end) I i Change I Change I
i_.!~~?~_._?~g!:!~!.??~U . i... '.. __ __,
19971 258,283,8721 i $27,805,199 i 12.1%1¡."..."...~_..'"~.._".....~_".._~,~~~~t,~,___,,'_"~~,,_'H',",~_,_,.".."..~ ~~-,..~..,....-~--'----~'----.'"q----r"-"--~"-."..-~----- '_''_' _ __,____-_____,_,___.__~,,____~_,__,,__.._f____,_____.. ._.._ __'A_"___"_..._________"~
i 19981 291,171,3031! $32,887,431 ¡ 12.7%1
(-"'-'''---~--~-~--..''-~~-"---~r-----'-~..---¥~--''---y--''---,---~~,-,--~-,----..-"~-"f...,~~-~..~---..-~--.-~--..-"---------.-------..~------------"-"..-,-,,---"'---"'.,"--,.---,---------~
i,~.~l~~~~,---~~.!!.~!?, O!~il.......... .~S9.L~~S!?!?t............. ...1?~~~J
¡ 2001 34O,677,2681! ($739,751)1 -0.2%1¡___....._"_.__"~"~__~___'rn~____~_"...-___'_..,____'~'"_'__..---¡-""!"---'~--"-"-'-----~-._~---'"'-------"---'-'-'l..-".,'-......----"-'-----¥-~--"---"--.~-1
r---.-..~~it---.~~i¡i~~~~r.j----~-~¡;:~¡~6H--~i:~.¡~1
r--'-.---'----------"'--';r~'~~~.~-"---"'~----~-~"~-"rt-';~'~'-.,-a~"-""~-'~-"--..-----'--.~--.--r----~--u--u-'----"-'~.-..c_~'-u-'ì
t 2003, 335,483,4951 í $53,063,419 ¡ 18.8% I
r------'-.-'r....'.,~..--~_.--..---lr--.---'-..--~--..........-T-'" ------.;;--1:-------~~".........__ .~s?L?_!.?!.~~SJL..j~g~?~_l!~~J..~.._..._?~.~~J
l_lOQ?Jr-___2.?~!.~~,5!~tJ-..~13,¥7, 1~J~_.___~:~~j
l---.--~QQ§l_.........-~èl?,-¥lJ~--..--l.~Q!?S~2.~~~-L..........~l~~
! 20071 40,577,5461 I $9,261,105 I 2.3%1r-""~____~___"__'U0,__U___,,~""u_..+_,_,,___""_,,_~__,,_.____,,__u,"'_""__,,____~_____~,___.,1-,..-t_~__".--,---~-"--MA"~--'-_"_____u___'''+,,______''u.,_~_,,_'~__~,___l
i 20081 291,077,9371! ($118,499,60)1 -28.9%1r-""__'"__"_'_"___.____.._~_"..v_"'__"_"'_;~-'--"-.------..,--"~--~----..---"--..-"'-'-"-"--'-''''--_-'-=TN-'r_.-''--A..------'-.--------..-""-..-"---"..-'''--''''..~"..'''''------.-'i-' ----",..",,,,,,,,,,------------,,,----,,--,,.,11 2001 313,149,7431 i $22,071,806 I 7.6%1¡~.~"--"~--'-.."'''~'''"'-..;-'--"-,w,.--''--..r-''-''=-...------_'_'''_.''''''''__"'___-~."_~'__''.."'''_wT~__''''-''w-''''''-'-'-,..'''' .''''~~~------.."'~'-".,,---~-~---i--;''----u,,-''''''..-'''-'''--'=--1
L,,,-~__,__"','_'__m__"__~__,,_J,,'______._____"'''___,__,_,,__,.__"._~______-,,____'''~_,,___.__~.,''_,_._'''''_ __"""""'_,t"_:_,,.____ ,.________"____~___".,~_"__,____...___,,___,,..,,_,,-_.,..,,__,,..~_,L___"__._,,-__.,__~_~,...."____,,,'__ '___~__i i¡source: Attachment 1, Idaho Power Reply Comments I
The large anual swings in the market value of the Company's pension fud assets
demonstrate the volatility of the pension fud. The Company's pension fud portfolio has lost
as much as 28% of its value in a single year. The Company has repeatedly stated that its
shareholders wil accept none of this risk, and therefore that is the risk to which ratepayers are
exposed with the Company's approach.
Furher, the confidential figues in Char 6 of the Supplemental Report provide estimates
of the contributions the Company must make to its pension fud between now and 2019.
Although the exact figures have been designated as confidential, they are very significant
IPC-E-IO-25
COMMENTS REGARDING IDAHO POWER'S SUPPLEMENTAL REPORT
PAGE 7
numbers.2 The cumulative effect of those futue contrbutions make the recent $60 milion
contribution to the pension fud appear small in comparson. The rate impact will be very
significant. See Application, Case No. IPC-E-II-04, ~ 11 (March 15, 20l1) (stating that
recovery from ratepayers of the $11.7 milion requested in 2011 will increase rates 1.39 percent).
The Commission should not authorize the Company to perpetuate this system into the futue with
new employees without the Company's shareholders accepting some ofthe responsibility to keep
the fud solvent.
D. The Supplemental Report fails to even analyze the risk beyond 2019.
The Company states it is unable provide the economic impact of its retirement programs
beyond 2019. See Idaho Power's Response to Commission Staff's Production Request No. 38.
But the implications for the Company's abilty to maintain an adequate level in its retirement
portfolio will impact ratepayers well beyond the next 9 years because Idaho Power expects 56
percent of its curent employees wil be eligible for retirement by 2020. See Direct Testimony of
Sharon Gerschultz, p. 8. Idaho Power provided a confidential table demonstrating that the
number of employees who wil be retired and receiving pension benefits will be much larger in
2
ICIP submits that all of the Company's customers should be made aware of how large the
Company's estimated contributions to its pension fud will be in the next 9 years, and how much
customers wil be asked to contribute. To ICIP's knowledge, the Company has only released
publicly available data regarding the expected $157 millon payments to retirees from 2014-
2018, and not the amount of actual contributions to the plan it will request from ratepayers. See
Staff's Opening Comments, p. 5, n. l. Such information should not be limited to those who have
signed the protective agreement in this case. There is surely some way to present estimated
customer contributions in a maner in which it is not a "trade secret." See LC. §§ 9-340D, 48-
801(5).
IPC-E-I0-25
COMMENTS REGARDING IDAHO POWER'S SUPPLEMENTAL REPORT
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2019 than it is today.3 See Idaho Power's Response to ICIP's Production Request No. 16. The
retirees will continue to collect benefits under the pension plan after 2019, and the risk to
customers wil only increase. New employees at issue in the Company's proposed revisions to
its retirement benefits plan wil not be vested in the plan and retired in any meanngful number
within 9 years. Under these circumstances, an analysis going only 9 years into the future
provides a fatally incomplete picture of the risk to customers.
CONCLUSION
ICIP respectfully requests that the Commission reject Idaho Power's 2011 Retirement
Benefits Package on the ground that it is uneasonable and imprudent. ICIP respectfully requests
that the Commission require the Company to devise a plan that shifts responsibility and risk to its
employees and/or shareholders, or alternatively advise the Company that pension contributions
made under the 2011 Retirement Benefits Package may be deemed imprudent expenses in the
future.
DATED this 8th day of April, 2011.
By:
r J. Richardson
Gregory M. Adams
Attorneys for the Industrial
Customers of Idaho Power
3 Again, it is unfortunate that those who have not signed the protective agreement cannot
view this information that Idaho Power designated as trade secrets.
IPC-E-I0-25
COMMENTS REGARING IDAHO POWER'S SUPPLEMENTAL REPORT
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 8th day of April, 2011, I caused a tre and correct
copy of the foregoing COMMENTS OF THE INDUSTRIL CUSTOMERS OF IDAHO
POWER to be served by the method indicated below, and addressed to the following:
Jean Jewell
Idaho Public Utilities Commission
472 West Washington Street (83702)
Post Office Box 83720
Boise, Idaho 83720-0074
( ) U.S. Mail, Postage Prepaid
(x) Hand Delivered
( ) Overnight Mail
( ) Facsimile
( ) Electronic Mail
Lisa Nordstrom
Donovan Walker
Idaho Power Company
PO Box 70
Boise, Idaho 83707
( ) U.S. Mail, Postage Prepaid
(x) Hand Delivered
( ) Overnight Mail
( ) Facsimile
(x) Electronic Mail
Gregory W. Said
Tim Tatu
Idaho Power Company
PO Box 70
Boise, ID 83707
( ) U.S. Mail, Postage Prepaid
(x) Hand Delivered
( ) Overnight Mail
( ) Facsimile
(x) Electronic Mail
Signed
. Adams
IPC-E-I0-25
COMMENTS REGARDING IDAHO POWER'S SUPPLEMENTAL REPORT
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