20151125Application.pdf

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An IDACORP CompanY
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LISA D. NORDSTROM tilF,llrr i:,UL.;;;Lead Counsel
[e-mail] UTlLiTlESCfih,tl\il$Sl0i',I
November 25,2015
VIA HAND DELIVERY
Jean D. Jewell, Secretary
ldaho Public Utilities Commission
472 West Washington Street
Boise, ldaho 83702
Re: Case No. IPC-E-15-26
Application for Approval of the Transfer and Sale of Certain Assets to the
United States Department of Justice Federal Bureau of lnvestigation
- Idaho Power Company's Application
Dear Ms. Jewell:
Enclosed for filing in the above matter please find an original and seven (7) copies
of Idaho Power Company's Application. An original and seven (7) copies of the
confidential attachment to the Application are provided separately.
Also enclosed is a Protective Agreement Idaho Power Company requests the
parties execute in this matter. lf the Protective Agreement is satisfactory, please have the
attorney assigned to this case execute the same.
lf you have any questions about this filing, please do not hesitate to contact me.
Very truly yours,
-_2,-'*-D ff*+vo",-
Lisa D. Nordstr-om
LDN:kkt
Enclosures
LISA D. NORDSTROM (lSB No. 5733)
SHELLI D. STEWART (lSB No. 7459)
ldaho Power Company
1221 West ldaho Street (83702)
P.O. Box 70
Boise, ldaho 837OT
Telephone: [phone]
Facsimile: [phone]
I nordstrom@idahopower. com
Attomey for ldaho Power Company
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR AN
ORDER APPROVING THE TRANSFER AND
SALE OF CERTAIN ASSETS TO THE
UNITED STATES DEPARTMENT OF
JUSTICE FEDERAL BUREAU OF
INVESTIGATION.
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. |PC-E-15-26
APPLICATION
ldaho Power Company ("ldaho Powe/'or "Compotry"), in accordance with ldaho
Code SS 61-328,61-524, and RP 052, hereby respectfully makes application to the
ldaho Public Utilities Commission ("Commission") for an order on or before February 25,
2016, approving the sale and transfer of certain assets to the United States Department
of Justice Federal Bureau of lnvestigation ("FBl").
ln support of this Application, ldaho Power represents as follows:
APPLICATION - 1
I. INTRODUCTION
1. ldaho Power provides electric service to the FBI pursuant to ldaho
Powe/s Schedule 19, Large Power Service ("Schedule 19") at the FB! facility located in
ldaho Power's service territory. Pursuant to ldaho Power's Rule M, Facilities Charge
Service ("Rule M"), ldaho Power owns and operates transformerc and other facilities
beyond the Point of Delivery ("POD') for the sole purpose of meeting the FBI's service
requirements. ldaho Power provides this optiona! service to the FBI in exchange for the
FBI's payment of a monthly facilities charge. The Company-owned facilities ("Assets")
are more particularly described in the Assef Purchase and Transfer of Title Agreement
("Agreement") dated October 30, 2015, included as confidential Attachment 1 .
II. ASSET SALE AGREEMENT
2. The FBI requested ldaho Power sell the Assets to the FBI in accordance
with Rule M, Section 3. As described in the Agreement, ldaho Power agrees to transfer
and convey the Assets to the FBl, and the FBI agrees to obtain title to and assume
ownership, operation, maintenance, and all liabilities associated with the Assets. The
FBI will own all facilities installed beyond the POD upon sale and transfer of the Assets.
!II.
'DAHO
CODE S 61.328 AND RULE M
3. To fulfill the requirements described in ldaho Code S 61-328, the sale of
the Assets must meet the following criteria:
a. That the transaction is consistent with the public interest.
b. That the cost of and rates for supplying service will not be
increased by reason of such transaction; and
APPLICATION.2
c. That the applicant for such acquisition or transfer has the bona fide
intent and financial ability to operate and maintain said property in
the public service.
This transaction satisfies the above requirements. First, considering the Assets only
serve the FBl, the Asset sale is consistent with the public interest because it will not
affect the delivery and reliability of electric service to other customers. ln addition, the
sale price methodology ensures the cost of supplying service will not increase and rates
will not be impacted. Finally, as stated in the Agreement, the FBI acknowledges its
bona fide intent and financial ability to operate and maintain the Assets backed by the
United States government.
4. According to Section 3 of Rule M, the tariff that governs the sale of
Company-owned facilities beyond the POD, all sales of facilities must be approved by
the Commission and must meet the following provisions:
a. ldaho Code S 61-328.
b. No mixed ownership of facilities. A Customer purchasing
Company-owned facilities installed beyond the POD must purchase all facilities
listed on the Distribution Facilities lnvestment Report for that location.
c. The Customer must provide the operation and maintenance of all
facilities installed beyond the POD after the sale is complete.
d. The Customer must prepay engineering costs for sales
determinations taking greater than 16 estimated hours of preparation. Sales
determinations equal to or less than 16 estimated hours of preparation will be
APPLICATION - 3
billed to the Customer as part of the sales agreement, or after the engineering is
completed in instances where the sale is not finalized.
No mixed ownership of facilities will occur as a result of this transaction; if the
Agreement is accepted by the Commission, the FBI will own, operate, and maintain all
electrical facilities beyond the POD.
IV. CURRENT FACILITY CHARGE ARRANGEMENT
5. ldaho Power currently owns, operates and maintains distribution facilities
located beyond the POD at the FBI site in exchange for the FBI paying a monthly
facilities charge to the Company equal to 1.41 percent of the installed cost of assets 31
years old or less, and 0.59 percent of the installed cost of assets more than 31 years
old. Those rates are reflected in ldaho Power's Schedule 66, Miscellaneous Charges,
and are comprised of the following components:
Facilities Charqe Rate
Gomponents S 31 yrs
Rate of Return
Book Depreciation
lncome Taxes
Property Taxes
Other Taxes (Regulatory
Fees)
Operation & Maintenance
Administration & General
Working Capital
lnsurance
4.71o/o
3.23%
1.92o/o
0.56%
0.14%
3.58%
2.29o/o
0.140/o
0.320/o
>31 yrs
0.00%
0.00%
0.00%
0.56%
0.14%
3.58o/o
2.28o/o
0.14o/o
0.32o/oa--r@
0.59%
AnnualTotal 16.89%
Monthly
6. The cost components
included in the Company's base
1.41o/o
listed above are the same
rate revenue requirement
cost components
for like facilities.
Descriptions of each cost component are as follows:
APPLICATION - 4
Rate of Return: ldaho Powe/s cost of financing its original investment in facilities.
The rate of return uses a weighted average of the Company's cost of debt and cost of
equity. The facilities charge rate represents a levelized payment stream to simplify the
rate calculation and the administration of the facilities charge.
Book Deoreciation: The straight-line annual depreciation of assets based on a
levelized 31 -year basis.
lncome Taxes: The tax that ldaho Power pays on the amount of revenue
received from the equity portion of the rate of return.
Propertv Taxes: The property tax ldaho Power pays associated with the
Company's distribution facilities.
Other Taxes (Reoulatorv Fees): The fees that ldaho Power pays to the ldaho
Public Utilities Commission and the Public Utility Commission of Oregon. A portion of
these fees is tied to the Company's distribution investment which includes facilities
installed beyond the Company's POD.
Operation and Maintenance: ldaho Power's costs to operate and maintain its
distribution facilities. This component represents an average operation and
maintenance rate for all distribution equipment.
Administration and General: An amount based on total administration and
general expenses as a percentage of total plant investment.
Workinq Capital: The carrying cost of inventory. The working capital is based on
the cost of capital to finance the distribution facilities inventory and the property taxes
that the Company pays on its inventory.
APPLICATION - 5
lnsurance: lnsurance premiums resulting from facilities installed beyond the
Company's POD. lnsurance covers property, casualty, and worke/s compensation.
7. ln the Company's non-levelized determination of class-specific base rate
revenue requirements, the Company determines the tota! revenue required for recovery
on all distribution facilities-related investments (including those investments beyond the
POD), as well as the associated operating, maintenance, and admlnistrative expenses.
This determination is made for each class of customers and the Company's revenues
for providing facilities charge services are directly assigned as a revenue credit, or
reduction, to the revenue requirement of the associated class of customers. As a result,
any differences between the non-levelized revenue requirement and the levelized
revenue requirement associated with the rate of return exist as intra-class subsidies
between customers paying facilities charges and customers not paying facilities charges
within each customer class. The methodology to determine the sale price described
below is designed to avoid these intra-class subsidies.
V. SALE PRICE METHODOLOGY
8. ldaho Power has developed a methodology for determining its sale price
for customers electing to pursue a purchase of Company-owned facilities beyond the
POD under Rule M, Section 3. The methodology ensures that the Company and its
other customers are not negatively impacted by the transaction.
9. ldaho Power explained the sale price determination methodology and
resulting amounts to the FBI prior to execution of the Agreement and the FBI does not
contest the sale price. ldaho Powe/s methodology consists of the following five
components that collectively establish the sale price of the Assets:
APPLICATION - 6
a. Net Book Value: Remaining book value based on a 31-year asset
life. The net book value of the Assets is $20,681.
b. True-uo of Past Levelized Rate of Return: When a customer seeks
to exit a facilities charge arrangement prior to the end of the 31-year period when the
Assets would be fully depreciated, the Company must "true-up" the difference between
the non-levelized revenue requirement included in base rates and the levelized revenue
received to date under the facilities charge arrangement to address the intra-class
subsidy. Customers will receive the benefit as a reduction in future rate base because
ldaho Power will record this amount as a credit in account 108. The true-up of past
levelized rate of retum associated with the Assets is $11,955.
c. Near-term Rate of Return lmpact Resultino from the Sale of Assets:
When a facilities charge customer requests and ldaho Power agrees to provide facilities
beyond the POD in exchange for the customer paying a monthly facilities charge, ldaho
Power makes an investment decision to invest its capital in assets serving only that one
customer, where it could have chosen instead to invest its capital in utility infrastructure
seeking to include that investment in rate base to earn a return at its authorized rate of
return over the life of the assets. When a customer buys an asset that is subject to the
facilities charge, the return the Company would have earned through the facilities
charge is forgone and the Company has limited opportunity to re-invest those funds in
other assets and will not earn its authorized rate of return until such reinvestment is
recognized in a future general rate case. This component of the sale price partially
mitigates the financial impact to the Company and represents the net present value of
three years of the forgone revenue associated with the levelized rate of return element
APPLICATION - 7
of the facilities charge. The Company believes three years is a conservative proxy to
use as the amount of time that may pass between general rate case filings. The near-
term rate of return impact resulting from the sale of the Assets is $7,428.
d. Near-term Operational lmpact Resultino from the Sale of Assets:
During a general rate case, the revenue requirement for the Schedule 19 customer
class includes a revenue credit, or reduction, equal to the amount of facilities charge
revenue expected to be collected from Schedule 19 customers. Because the Company
will not have an opportunity to recalculate the revenue requirement and reset rates until
the next general rate case, it calculates a near-term operational revenue impact
resulting from the sale. This component partially mitigates the financial impact to the
Company and represents the net present value of three years of the forgone revenue
associated with costs related to the regulatory fees, operations and maintenance,
administrative and general, and working capita! that are incurred in order to service and
maintain the Company's distribution facilities. The near-term operational impact
resulting from the sale of the Assets is $14,776.
e. Net Tax Gross-up: For income tax purposes, assets are
depreciated at an accelerated rate compared to the straight line methodology used for
financial book purposes. The accelerated tax depreciation results in the taxable value
of the Assets being lower than the net book value of the Assets which results in a gain
on the sale of the Assets that is subject to income taxes. The net income taxes
associated with the gain, after removing the deferred tax adjustment, are grossed up to
cover all income taxes that ldaho Power would pay on this transaction. The net tax
gross-up resulting from the sale of the Assets is $24,053
APPLICATION - 8
10. The total sale price of the Assets is $78,893. ldaho Power will also collect
$480 in estimated work order closing costs for a total amount of $79,373. As set forth in
Section 6 of the Agreement, the sale price is subject to change if ldaho Power replaces
any of the Assets before closing the transaction. The sale price may also be reduced
depending on the actual closing date to recognize that an additiona! year of depreciation
has decreased the book value of the Assets.
VI. ACCOUNTING TREATMENT
11. ldaho Power will record this transaction using the accounting treatment
below. The accounting follows existing generally accepted accounting principles in the
United States of America and consists of the following three elements:
a. Removinq the Orioinal Cost of the Assets from ldaho Powe/s
Accountino Records. ldaho Power will remove the assets from its accounting records
as follows:
o Debit 108 - Accumulated Depreciation
. Credit 101 - Electric Plant in Service
$82,641
$82,641
b. Recordinq the Gain on the Sale. ldaho Power will record the gain
on the sale of the Assets as follows:
Debit 131 - Cash $79,373
Credit 421 - Miscellaneous Non-Operating !ncome $46,737
(Near{erm rate of retum impact of $7,428, near-term
operational impact of $14,776, net gross-up for tax of $24,053,
plus work order closing costs of $480)
o Credit 108 - Accumulated Depreciation
(Remaining net book value of $20,681 plus true-up of past
levelized rate of return of $1 1,955)
$32,636
c. Recordino the lmpact on ldaho Powe/s Income Taxes. Idaho
Power will record the impact on ldaho Poweds income taxes as follows:
APPLICATION - 9
o Debit 409 - Income Taxes
o Credit 236 - Taxes Accrued
o Debit 282 - Accumulated Deferred lncome Taxes
o Credit 410 - Provision for Deferred lncome Taxes
$14,649
$14,649
$2,861
$2,861
The values used for ldaho Powe/s income tax joumal entries are subject
to change depending on federal statutes in effect at the time of the sale, and the actual
impact to income taxes.
V!!. MODIFIED PROCEDURE
13. ldaho Power does not believe a hearing is necessary for the
Commission's consideration of this Application and respectfully requests processing
under Modified Procedure (i.e., by written submissions rather than hearing). RP 201 ef
seg. lf, however, the Commission determines a technical hearing is required, ldaho
Power will present testimony in support of the Application.
14. ldaho Power respectfully requests the Commission issue an order no later
than February 25, 2016, to accommodate closing the Asset sale prior to the FBI's April
15,2016, expected in-service date. The closing deadline for the Asset sale coincides
with ldaho Power's projected deadline for installing other ldaho Power-owned facilities
necessary to provide the FBI additional electric power at the FBI's facility. lf the
Commission approves the Agreement on or before February 25,2016, ldaho Power wilt
have sufficient time to install system protection equipment preceding the POD prior to
closing as detailed in Section 4 of the Agreement.
12.
APPLICATION - 1O
VII!. COMMUNICATIONS
15. Communications and service of pleadings with reference to this
Application should be sent to the following:
Lisa D. Nordstrom
Shelli D. Stewart
ldaho Power Company
1221West Idaho Street (83702)
P.O. Box 70
Boise, Idaho 83707
I nordstrom@ idahopower. com
[e-mail]
TamiWhite
ldaho Power Company
1221West ldaho Street (83702)
P.O. Box 70
Boise, Idaho 83707
twh ite@ idahopower. com
dockets@ idahopower.co m
!X. REQUEST FOR RELIEF
16. As described in greater detail above, ldaho Power requests the
Commission issue its order on or before February 25, 2016, approving the sale and
transfer of the Assets to the FBl.
DATED at Boise, ldaho, this 25th day of November 2015.
SA D. NORDS
APPLICATION - 11
VERIFICATION
STATE OF IDAHO
County of Ada
LISA D. NORDSTROM, being duly sworn, deposes and states that she is an
attorney for ldaho Power Company, that she has read the foregoing Application and
knows the contents thereof, and that the same are true to the best of her knowledge
and belief.
SUBSCRIBED AND SWORN TO before me, a notary public of the state of ldaho,
tnisdS{a'y ot November 2015.
Residing at: t\tAl. I d aluo
My commission expiies l8 -J0-9O9o
)
) ss.
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fr',*41
APPLICATION - 12
BEFORE THE
IDAHO PUBLIC UTILITIES GOMMISSION
GASE NO. IPC-E -15-26
IDAHO POWER COMPANY
ATTACHMENT 1
THE ATTACHMENT IS
GONFIDENTIAL
AND WI LL BE PROVI DED
TO THOSE PARTIES
THAT SIGN THE
PROTECTIVE
AGREEMENT