20170113final_order_no_33691.pdf

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY TO
APPROVE ITS SALE OF ASSETS TO
MCCAIN FOODS USA, INC.
)
) CASE NO. IPC-E-16-31
)
) ORDER NO. 33691 __________________ )
Office of the Secretary
Service Date
January 13, 2017
On November 15, 2016, Idaho Power Company sent a letter to Commission Staff,
advising that it reached an agreement to sell certain Company-owned assets to its customer,
McCain Foods USA, Inc., pursuant to Rule M "Facilities Charge Service" in the Company's
Tariff No. 101.1 Staff and the Company agreed it was appropriate to treat Idaho Power's letter as
an Application, and the Commission issued a Notice of Application and Notice of Modified
Procedure with a 21-day comment period. Staff filed timely comments; the Company elected
not to file a reply. The Commission now grants the Company's Application as follows.
BACKGROUND
Idaho Power's transaction with McCain Foods is a sale of assets or facilities that are
beyond the "point of delivery." The point of delivery (POD) is the point at which the customer's
power usage is measured, and "beyond the POD" refers to the customer side, rather than the
utility side, of the POD. Order No. 33470 at 1. In this case, the assets at issue meet "McCain's
service requirements" alone, and are "not devoted to the public service." Application at 2. Idaho
Power and McCain agreed that McCain would purchase the assets "and thereby assume
ownership, operation, maintenance, and all liabilities associated therewith," in order to resolve
"current mixed ownership issues." Id. at 1. Idaho Power states the total sale price of the assets,
which was "reached as the result of an arm's length transaction," is $373,974. Id. at 3.
ISSUES
1. Rule M
Under Rule M, McCain may contract with the Company to purchase Company assets
if the following provisions are satisfied:
1 Tariffs are rules governing a particular utility, adopted by Commission Order under Idaho Code§ 61-622. Idaho
Power Company's Rule M Facilities Charge Service can be found on the Commission's web site,
http://www.puc.idaho.gov, by clicking "Approved Tariffs & Price Lists" under Laws & Rules, then "Electric
Tariffs," then "Rules & Regulations & Rate Schedules" for Idaho Power Company.
ORDER NO. 33691 1
1. No mixed ownership of facilities installed beyond the POD (Customer
must purchase all facilities listed on the distribution facilities investment
report for that location).
2. Customer must operate and maintain all facilities installed beyond the
POD after the sale is complete.
3. Engineering costs for sales determinations taking more than 16 estimated
preparation hours must be prepaid by Customer; those taking 16 estimated
preparation hours or less will be billed to the Customer.
Rule M. Also, Rule M provides that the Commission will consider the factors set forth in Idaho
Code § 61-328 for guidance, in assessing whether or not to approve a proposed transaction. Id;
see also Order No. 33514 at 8-9.
Staff Comments. On its review, Staff believes Rule M is satisfied. Staff determined
the transaction will not result in mixed ownership of facilities, and McCain will assume
ownership, operation, maintenance, and all liabilities associated with the assets purchased. As to
sales determination costs, Idaho Power indicated it will "collect $480 in estimated work order
closing costs," about which Staff indicated no concern. Using Idaho Code§ 61-328 as a guide,
Staff determined that the relevant factors were (a) whether the transaction is consistent with the
public interest, and (b) that the cost of and rates for supplying service will be not be increased
because of the transaction. Staff determined that these factors were also satisfied.
2. Sales Price Methodology
The Company stated that it used the same price methodology in this case as it did in
Case No. IPC-E-15-26, a sale of assets to the Federal Bureau of Investigation. This methodology
includes five components: (1) net book value; (2) true-up of past levelized rate of return; (3)
near term rate of return impact from sale of assets; ( 4) near-term operational impact from sale of
assets; and (5) net tax gross-up. Letter Application at 3-4. The methodology uses a flat monthly
Facilities Charge (established in the Company's last general rate case in Order Nos. 32526 and
32481) equal to 1.41 % of the original costs of Company-owned equipment installed, and
decreases to 0.59% at the end of the assets' established 31-year depreciation life. Id
Staff Comments. Staff examined the Company's sales price methodology and
believes it is appropriate; the methodology includes the Company's calculation and inclusion of
net book value in the sale price, and the true-up of the assets' decreasing net book value and
levelized payment schedule. Comments at 4. Staff agrees the transaction "could result in lost
ORDER NO. 33691 2
return until an alternate investment is made and recognized in a future general rate case," thus it
is "reasonable to include a revenue loss component" by way of the "near-term rate of return
impact" in the sale price. Id. at 5. Staff does not fully agree with inclusion of the near-term
operational impact in the sale price; Staff explains that, after the sale, Idaho Power will not be
responsible for any operation & maintenance or administrative & general expenses associated
with the facilities, thus the Company should not receive a component of facilities charge revenue
to cover these expenses. Id. However, "Staff recognizes that McCain Foods has agreed to the
sale price" and the agreement is otherwise consistent with provisions of Idaho Code § 61-328.
Id. at 5-6. Finally, Staff agrees that the net tax gross-up is appropriate because of the "mismatch
between the straight-line depreciation methodology used to determine book value and the
accelerated depreciation methods used for assessing income taxes." Id. at 6.
3. Accounting Treatment
The Company proposed that it will remove the assets from its books, record the gain
on the sale of the assets, and record the impact on its income taxes.
Staff Comments. Staff believes the proposed accounting treatment is reasonable.
Ultimately, Staff recommended that the Commission approve the proposed transaction, but that it
not endorse the Company's pricing methodology as precedent going forward.
DISCUSSION AND FINDINGS
The Commission has jurisdiction over this matter under Title 61 of the Idaho Code,
specifically Idaho Code §§ 61-502 and 61-503 (Commission has power to investigate a public
utility's contract). The Commission has reviewed and considered Idaho Power's Application, its
Agreement with McCain Foods, and Staff comments.
We find that Rule Mis satisfied. We find the sale will not result in mixed ownership
of facilities, and that McCain Foods will provide operation and maintenance of all facilities
beyond the POD after the sale is complete, and will pay requisite engineering costs. Using Idaho
Code § 61-328 as guidance, we find that the sale is consistent with the public interest and the
cost and rates of supplying service will not be increased.
In addition, we are satisfied the sales price methodology, using the Company's
determinations of net book value for each of the assets, is appropriate. Also, because of the
levelized payment schedule, customers underpay for the first 10 years of an asset's life but
overpay the remaining period, thus the true-up component appropriately accounts for decreasing
ORDER NO. 33691 3
net book value while allowing the Company to fully recover its revenue requirement over the
assets' depreciable life. Further, we find it appropriate to include the revenue loss component by
way of the near-term rate of return impact, as well as the net tax gross-up, to account for the
mismatch between the straight-line depreciation method used to determine book value, and the
accelerated depreciation method used for assessing income taxes.
We note that Staff expressed concern with the Company's inclusion of near-term
operational impacts associated with operations & maintenance and administrative & general
expenses. Without that component, the sales price for the assets would be lower. However, as
Staff acknowledged, McCain Foods agreed to the sales price "based upon its arms-length
bargaining with Idaho Power." Staff Comments at 6. The Commission received no comment
asserting otherwise. Absent evidence to support a conclusion to the contrary, we find that the
Agreement satisfies Rule M and is otherwise reasonable.
ORDER
IT IS HEREBY ORDERED that Idaho Power Company's Application to approve the
sale of assets to McCain Foods is granted as set forth above.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code § 61-626.
ORDER NO. 33691 4
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 1 '3f/,
day of January 2017.
ATTEST:
~
Diane M. Hanian
Commission Secretary
O:IPC-E-16-3 l_djh2
ORDER NO. 33691
ERIC ANDERSON, COMMISSIONER
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