20110420Comments.pdf

Peter J. Richardson (ISB # 3195)
Gregory M. Adams (ISB # 7454)
Richardson & O'Lear, PLLC
515 N. 27th Street
P.O. Box 7218
Boise, Idaho 83702
Telephone: [phone]
Fax: [phone]
peter(ßrichardsonandoleary.com
greg(ßrichardsonandolear .com
RECEIVED
20r l APR 20 PM i.: 36
Attorneys for the Industrial Customers of Idaho Power
BEFORE THE IDAHO
PUBLIC UTILITIES COMMISSION
)IN THE MATTER OF IDAHO POWER )
COMPANY'S REQUEST TO INCREASE ITS )
RATES FOR ELECTRIC SERVICE TO )
RECOVER ITS 2010 PENSION CASH )CONTRIBUTION )
CASE NO. IPC-E-11-04
COMMENTS OF THE INDUSTRIAL
CUSTOMERS OF IDAHO POWER
COMES NOW, the Industral Customers of Idaho Power ("ICIP"), and pursuant to
Idaho Public Utilities Commission's ("Commission's") Procedural Order No. 32215, hereby fies
these comments in the above-captioned matter. For the reasons set forth below, ICIP
respectfully requests that the Commission take note of this pension fund rate increase for
puroses of analyzing Idaho Power Company's ("Idaho Power's" or the "Company's") fiing in
the parallel case for approval of the Company's 2011 Retirement Benefits Plan (Case No. IPC-E-
10-25), and requests the Commission condition the Company's recovery of its $60 milion
pension fud contribution on an extended amortization period of 5 years.
BACKGROUND
Idaho Power's pension fud has sufered in the recent downtur in the economy, and the
Company has been forced to make contributions to the fud in order to keep it solvent.
According to the Commission Staff, "(t)he higher fuding levels are attibutable to poor market
retus over the past several years, and to the aging workforce of Idaho Power and the increasing
benefit payments made to retired employees." Comments of the Commission Staff Case No.
IPC-E-1O-08, at p. 4. Last year, the Company requested authorization to recover in customer
rates its 2010 cash contributions of $5,416,796, which constituted a 0.77% rate increase for each
class of customers. See Order No. 31091, at p. 1. The Commission approved the request, but
expressed concern regarding the obvious need for substantial future rate increases that wil be
necessary to keep the pension fud adequately funded. Id at p. 3.
The Commission stated that "it is uneasonable for Idaho Power's customers to be solely
responsible for large contributions to the Company's defined benefit pension plan." Order No.
31091, at p. 3. "Many employers in recent years have replaced their defined benefit plans with
pension programs that place greater responsibilty and investment risks on employees. Idaho
Power must similarly consider changes to its retirement plan and address shareholder and
employee liabilities in assignment of pension plan investment risk." Id. (emphasis added). The
Commission 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." Id. Later in 2010, the Company made a $60 milion cash
contribution to its pension fud.
The Company then filed a request for approval of its 2011 Retirement Benefits Plan in
Case No. IPC-E-1O-25. The new proposed plan stil did not eliminate the defined benefit
pension plan even for new employees, and failed address any options that would eliminate the
IPC-E-11-04 -- COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
PAGE 2
investment risk posed by a defined benefit pension plan or spread some of that risk from
ratepayers to the Company's shareholders or employees. After Commission Staff and ICIP
opposed the 2011 plan, 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. Although that investigation is ongoing, the Commission
stated the Company was not precluded from filing for recovery of the $60 milion 2010
contribution to its pension fud before resolution on the request for approval of the 2011
Retirement Benefits Plan. Id at p. 2.
Idaho Power's Application in this case requests an Order authorizing it to increase rates
by 1.39 percent to recover an additional $11.7 millon in each of the next three years ($35.1
milion cumulatively) in order to recover the $60 milion the Company contributed to the pension
fud last year. Direct Testimony of Darel Anderson, Case No. IPC-E-11-04, at p. 11.
Specifically, the Company states, "Assuming a projected balance in the balancing account of
$51,461,138, a three-year amortization would result in a request to collect $17,153,713 per year
over the next three years." Id That amount would be reduced by the amount of $5,416,796
curently being collected in rates, thus requiring an increase of $11,736,917 per year. Id Idaho
Power requests the rate increase be effective June 1, 2011, at the same time the Company's
power cost adjustment ("PCA") wil go into effect, and appears to have paired the fiing with the
PCA in order to offset the pension fud rate increase with the PCA rate decrease. See id, at p.
11.
IPC-E-11-04 -- COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
PAGE 3
COMMENTS
A. The Commission should note that this case is but one of many upcoming pension
fund cases which cumulatively wil be equivalent to a one-time rate increase of
approximately 20 percent, and the Commission should take this rate impact into
account in the parallel proceeding regarding Idaho Power's 2011 Retirement
Benefits Plan.
Idaho Power recently made public the contrbutions it will need to make to its pension
fud in the next several years. Although Idaho Power designated the estimates as protected in
the ongoing case regarding approval of its 2011 Retirement Benefits Plan, the estimates are now
public information fied with the Securities and Exchange Commission in the Company's 2010
Form 10-K. The Company stated, "Unless IDACORP and Idaho Power elect an alternative
amortization schedule under the new legislation . . . , minimum required contributions to the
defined benefit pension plan are estimated to be approximately $3 millon in 2011, $46 milion in
2012, $36 milion in 2013, $32 milion in 2014, and $31 milion in 2015." IDACORP 2010
Form 10-K, p. 124 (Feb. 24, 2011), available online at http://ww.idacorpinc.com/financials/
secreps.cfm. Combined with the $60 millon contrbuted in 2010 at issue in this case, that means
the Company's contributions yet to be recovered in rates will be at least $208 milion bY 2015.
In this case, the Company states its base revenues are $810 milion. Direct Testimony of
Kelly Noe, Case No. IPC-E-11-04, Exhibit NO.1. A one-year increase in revenue requirement
to accommodate the pension fud contributions would be approximately a 25% rate increase for
that year ($208 milion! $810 milion). Even with adjustments for growth in other revenues in
the next several years, one can make a conservative estimate that the necessar pension fud
IPC-E-11-04 -- COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
PAGE 4
contrbutions, if passed onto ratepayers, wil result in the equivalent of a one-time rate increase
of approximately 20 percent.
Idaho Power has stated that it believes that shareholders should not bear any market risk
associated with its retirement benefits package. See ICIP's Opening Comments, Case No. IPC-
E-1O-25, at p. 11 (Dec. 14, 2010) (quoting Idaho Power's discovery response). Most recently,
Idaho Power stated:
Shareholders provide capital to construct plant to serve customers
in exchange for the opportunity to ear a retu on their investment
over time. Customers provide fuding for reasonable utilty
operations and maintenance expenses, including labor expenses
like retirement benefits, through rates. Because shareholders have
no opportty to ear a retur on pension contributions, it would
be improper to assign pension costs and risk to them. Under the
present regulatory model, risk should be assigned between
employees and customers.
Idaho Power Company's Second Reply Comments, Case No. IPC-
E-1O-25, pp. 10-11 (April 15, 2011).
There is no question that Idaho Power plans to pass onto ratepayers all of the $208 milion in
pension fud costs by increasing rates by approximately 20 percent from curent levels. i
Idaho Power's Second Reply Comments in Case No. IPC-E-10-25 could be read to assert
that the Commission may not disallow recovery of any expenses upon which shareholders have
no opportunity to ear a retur. To extent that is Idaho Power's position, ICIP disagrees. The
Commission clearly has authority to disallow from inclusion in customer rates any expense
which is not a reasonable expense. See, e.g., Order No. 32196, at p. 20 (disallowing recovery of
costs associated with Rocky Mountain Power's executive retirement plan on the ground that it
was above and beyond those covered in more conventional retirement plans); Order No. 32224,
at p. 14 (denying Rocky Mountain Power's request for recovery from Idaho ratepayers for a 3%
wage increase for the utilities' employees).
IPC-E-11-04 -- COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
PAGE 5
This 20 percent rate increase will be necessar solely to keep Idaho Power's pension fud
solvent for existing employees. At the same time, the Company seeks Commission pre-approval
of its proposal to continue hiring new employees into a similar defined benefit pension plan in
Case No. IPC-E-I0-25. Although Case No. IPC-E-1O-25 is a separate docket, the issues therein
are inseparable from the rate increase in this case, and the Commission should note the obvious
consequences on rates of Idaho Power's proposal for new employees.
B. The Commission should mitigate the rate impact to customers by extending the
amortization period to 5 years.
The Company has proposed a 3-year amortization period to recover Idaho's share of the
$60 milion contribution. Direct Testimony of Darel Anderson, Case No. IPC-E-I1-04, at p.
11. The Company justifies this 3-year amortization period on the basis that the Commission
approved a 3-year period in Rocky Mountain Power's recent general rate case. Id (citing Case
No. PAC-E-1O-07).
But as discussed above, the Company will need to make much larger contributions in the
coming years which wil also increase rates. See id at p. 12. These additional cash contrbutions
to the benefit plan wil average $30 milion per year for the 2011-2015. IDACORP 2010 Form
10-K, p. 124, available online at http://ww.idacorpinc.com/financials/ secreps.cfm. Large
future contributions were not a factor in the Rocky Mountain Power case where the Commission
approved ofIdaho Power's proposed a 3-year approach. See Order No. 32196, at pp. 19-20.
Furermore, the Commission has stated that a longer amortization period may be
appropriate when the Company makes a contribution larger than the minimum fuding
IPC-E-I1-04 -- COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
PAGE 6
requirements under federal law. See Order No. 31003, at pp. 10-11. Specifically, the
Commission adopted the following criteria for the Company's curently authorized rate recovery
mechanism for its pension fud contrbutions:
1. The regulatory asset account previously authorized for the
deferral of cash contributions will be considered a balancing
account for the purose of tracking the difference between
cumulative cash contributions to the pension plan and amounts
recovered in rates; and
2. The timing of the amortization of the deferred cash
contributions as well as the amounts will be matched to the
collection of those costs in rates; and
3. The amounts contributed in excess of the ERISA minimum,
while potentially subject to longer amortization, wil not be
disallowed solely because they are made sooner than they are
legally required to be paid; and
4. The unamortized balance of deferred cash contributions
wil ear a caring charge at the Commission-approved interest
rate for deposit.
Id
In this case, Company's minimum required contribution in 2010 was $5.8 milion, but the
Company contributed $60 milion. See Direct Testimony of Darel Anderson, Case No. IPC-E-
11-04, at pp. 7-9. The Company states that contributing only the minimum required under federal
law would have left the pension fud with less than 80 percent fuding, and "(t)his would have
triggered certin plan restrictions, notice requirements to paricipants, and limitations on futue
fuding alternatives." Id at p. 8. Under the circumstances, this minimal justification for the
IPC-E-11-04 -- COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
PAGE 7
overfding in 2010 does not relieve the need to mitigate the rate impact with a longer
amortization period.
Given Idaho Power's known, future pension fuding rate requests, ICIP recommends a 5-
year amortization period rather than the 3 years proposed by the Company. This would lower
the rate increase from the $11.7 milion anually over the next 3 years to $4.9 milion per year,
or a 0.61% anual rate increase. ICIP has used data from Exhibit NO.2 of the Direct Testimony
of Darel Anderson to provide a table as Att.achment 1 to these Comments that demonstrates
ICIP's recommended rate recovery.
CONCLUSION
ICIP respectfully requests that the Commission tae note of this pension fud rate
increase for puroses of analyzing Idaho Power Company's fiing in the parallel case for
approval of the Company's 2011 Retirement Benefits Plan, and requests the Commission
condition the Company's recovery of its $60 milion pension fud contribution on an extended
amortization period of 5 years.
DATED this 20th day of April, 2011.
RICHARDSON AND O'LEARY, PLLC
By:
J. Richardson
gory M. Adams
Attorneys for the Industrial
Customers of Idaho Power
IPC-E-I1-04 -- COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
PAGE 8
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 20th day of April, 2011, I caused a true and correct
copy of the foregoing COMMENTS and ATTACHMENT NO.1 to be served by the method
indicated below, and addressed to the following:
Jean Jewell
Idaho Public Utilties 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
POBox 70
Boise, Idaho 83707
(x) U.S. Mail, Postage Prepaid
( ) Hand Delivered
( ) Overnight Mail
( ) Facsimile
(x) Electronic Mail
Gregory W. Said
Tim Tatu
Idaho Power Company
PO Box 70
Boise, ID 83707
(x) U.S. Mail, Postage Prepaid
( ) Hand Delivered
( ) Overnight Mail
( ) Facsimile
(x) Electronic Mail
Signed~\ WJ~~
Nina M. Curis
IPC-E-I1-04 -- COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
PAGE 9
BEFORE THE
IDAHO PUBLIC UTILITIES
COMMISSION
CASE NO. IPC-E-11-04
INDUSTRIAL CUSTOMERS OF
IDAHO POWER
ATTACHMENT NO. 1
2010 PENSION FUND
CONTRIBUTION RECOVERY
OVER 5-YEAR PERIOD
APRIL 20, 2011
Idaho Power Company
Idaho Jurisdictional Pension Cost Recovery
Idaho Balancing Account 182327
Expected May 31, 2011 Balance
2010 contribution $60,000,000
2010 subsidiary allocation -53,506
Allocable contribution 59,946,494
2010 Idaho labor allocation 94.26%
2010 contribution -Idaho portion 56,505,566
Current Idaho recovery -5,416,796
Unrecovered portion 51,088,770
Carrying charges 372,368
May 31, 2011 Balance 51,461,138
Amortization period 5 years
Simple amortization 10,292,228
Less current Idaho recovery -5,416,796
Incremental amortization $4,875,432
Current Revenues $798,701,130
Overall Rate Increase 0.61%
source: Direct Testimony of Darrel Anderson,
IPC-E-11-04, Exhibit 2.
Attachment No. 1
ICIP
Case No. IPC.E.11.04