20180221final_order_no_33987.pdf

omce of the Secretary
Service Date
February 21,2018
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )CASE NO.IPC-E-17-17
OF IDAHO POWER COMPANY FOR AN )ORDER APPROVING THE TRANSFER )AND SALE OF CERTAIN ASSETS TO THE )ORDER NO.33987
CITY OF MERIDIAN,IDAHO )
On December 6,2017,Idaho Power Company applied to the Commission for an order
approving the Company's agreement to sell certain Company-owned assets to its customer,the
City of Meridian,under Rule M "Facilities Charge Service"in the Company's Tariff.See
Application.The Commission issued an order setting a January 25,2018 deadline for interested
persons to file comments,a February 8,2018 deadline for the Company to file reply comments,
and a January 22,2018 public hearing.Order No.33961.Commission Staff filed the only
comments,and recommended that the Commission approve the Application.The Company did
not reply.No public comments were received,and no one appeared and testified at the public
hearing.
Having reviewed the record,the Commission grants the Company's Application as
follows.
BACKGROUND AND APPLICATION
With this Application,the Company asks the Commission to approve the Company's
proposal to sell to the City assets or facilities 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.The Company
historicallyhas dedicated the assets at issue to serving the City's wastewater treatment plant.The
Company asked the Commission to approve the sale under Company Rule M,'which governs the
sale of Company-owned assets or facilities that are--as here---beyondthe POD.See Application.
The Company and City agree the City will buy these assets and "obtain title to and assume
ownership,operation,maintenance,and all liabilities associated with"them.Id.at 2.
'Tariffs are rules governinga 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,
at:http;//www.puc.idaho.gov/fileroom/tariff/electric/Idaho%20Power%20Companv.pdf.
ORDER NO.33987 1
In its Application,the Company proposed to sell the assets for $761,693.See
Application Exhibit B,at 16.The Company explained this price assumed the sale would close in
2017,and that the parties agreed the price could change if the closing date changed.Id at 8.The
Company also explained it provided the methodology for determining this price to the City,and
answered the City's inquiries,before the agreement was signed.Id at 6.The methodology has
five components:(1)net book value;(2)true up of past levelized rate of return;(3)near-term rate
of return impact resulting from the sale;(4)near-term operational impact resulting from the sale;
and (5)net tax gross-up.Id at 6-8.Additionally,the Company would collect estimated work
order closing costs and costs associated with a sectionalizer that the Company would continue to
own but reprogram to become the wastewater facility's new POD.Id at 8.The Company noted
that,because the City would no longer pay a monthlyFacilities Charge upon closing the sale,the
Company would need the City to pay the sectionalizer's book value and the true up of the past
levelized rate of return to ensure the transaction would not harm other customers.Id at 9.
The Company's Application included a proposed accounting treatment for the
transaction.Id.at 9-10.
After the Company applied,the Company notified the Commission that the closing
date had moved to 2018,and that the price had decreased to $668,805.See UpdatedAsset Purchase
Price,filed January 19,2018.The Company explained the new,lower price primarily was due to
federal corporate income tax-rate changes that took effect January 1,2018.The decreased price
also reflected another year of depreciation in the net book value of the assets,another year of the
true up of the past levelized rate of return,and other updates.The Company explained the new
sales price included:(1)net book value ($338,287);(2)true up of past levelized rate of return
($90,486);(3)near-term rate of return impact resulting from the sale ($63,319);(4)near-term
operational impact resulting from the sale ($83,016);and (5)net tax gross-up ($77,266).Id.
Additionally,the new price reflected that the Company would collect work order closing costs
($480)and costs associated with the sectionalizer ($15,951).Id.at 8.
The Company noted the updated price could change again if the Company replaced any
of the assets before the transaction closed.Id
THE COMMENTS
Commission Staff filed the only comments.Staff opined the proposed asset sale
satisfies Rule M,the sectionalizer terms are appropriate,and the proposed accounting treatment is
ORDER NO.33987 2
reasonable.Staff thus recommended that the Commission approve the Application and sale as
updated by the Company on January 19,2018.Staff's comments are summarized below.
1.Asset Sale and Rule M
Staff explained that Rule M allows the City to buy the Company's "beyond the POD"
facilities if:(1)there is no mixed ownership of facilities;(2)the City will operate and maintain the
facilities;and (3)the City pays engineering costs for sales determinations.See Staff Comments at
3-4.Staff also explained that Idaho Code §61-328(3)has guided the Commission in deciding
whether to approve a Rule M transaction.Id at 4 (citing Order No.33514 at 8-9,Case No.IPC-
E-15-26).2
Staff reviewed the proposed asset sale,and opined that it satisfies Rule M.Staff
determined the transaction will not result in mixed ownership of facilities,and the City will assume
ownership,operation,maintenance,and all liabilities associated with the purchased assets.On
sales determinations costs,Idaho Power indicated the City would pay $480 in work order closing
costs,about which Staff expressed no concern.Id at 4.
Using Idaho Code §61-328 to guide its review of the transaction,Staff considered
whether the:(a)transaction is consistent with the public interest;and (b)cost of and rates for
supplying service will be not increase because of the transaction.Staff determined these factors
were satisfied.Id.Staff noted the Company had represented the assets'price was calculated to
ensure the sale would not harm the Company or its customers.Id at 4.Staff explained the
Company established the assets'sale price using the same method the Company used in Case Nos.
IPC-E-15-26 (sale of assets to the Federal Bureau of Investigation)and IPC-E-16-31 (sale of assets
to McCain Foods).The Company's method bases an asset's price on 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.The
method used a flat monthlyFacilities Charge (established in the Company's last general rate case
in Order Nos.32526 and 3248 l)equal to 1.41%of the original costs of Company-owned
2 Idaho Code §61-328 governs an electric public utility's sale of assets that have been used to generate,transmit,or
distribute electricity "to the public or any portion thereof."In Order No.33514,the Commission found these sections
do not strictly apply where the property being transferred serves only a single customer and thus is not "devoted to
public service."Order No.33514 at 8-9.However,the Commission determined that the factors in §61-328 are "aneffectivemeansofprotectingthepublicinterestandensuringthatratepayerswillnotbeharmedbysuchtransactions,"
therefore they would be used for guidance.Id
ORDER NO.33987 3
equipment installed,which decreases to 0.59%at the end of the assets'established 31-year
depreciation life.Id at 5-7.
Staff opined that the Company appropriately determined the sales price by including
the assets'net book value and the true up of the assets'decreasing net book value and levelized
payment schedule.Id at 5.Staff agreed the transaction "could cause lost 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 6.Staff did not fully agree with the Company includingthe near-term operational impact in the
sale price because,after the sale,the Company will have no Operation &Maintenance (O&M)or
Administrative &General (A&G)expenses for the facilities.Staff thus opined the Company no
longer needed to receive a component of Facilities Charge revenue to cover these expenses.Id
However,"Staff recognizes that the City has agreed to the sale price"and the agreement is
otherwise consistent with provisions of Idaho Code §61-328.Id at 7.Finally,Staff agreed that
the net tax gross-up was 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 7.
Having opined that the Company had appropriately priced the assets,Staff cautioned it
was not suggesting the Company's pricing method should be used in all future cases.Staff
explained that each sale is unique,and that different circumstances may warrant different pricing
methods and contract terms.Id at 8-9.
2.Sectionalizer Terms.
Staff opined that the Company's proposed treatment of the sectionalizer was
appropriate and would protect customers.Staff stated the Company originally installed the
sectionalizer solely to benefit the City,with the City paying a monthlyFacilities Charge.Under
the agreement,the Company would continueto own,operate,and maintain the sectionalizer,which
will be reprogrammed to serve as the wastewater treatment facility's new POD.The City would
no longer pay a monthly Facilities Charge for that investment.But the City would pay the
followingsectionalizer-related amounts:
ORDER NO.33987 4
Updated Sectionalizer Book Value $9,321
Updated Sectionalizer True up of Past evelized Rate of Return $4,908
Net Tax Gross-up $1,722
Total $15,951
Staff opined that the book value,true up of the levelized rate of return,and net tax gross-up (based
on an adjusted sales price)for the sectionalizer are appropriate and protect customers.Id at 7-8.
3.Accounting Treatment
The Company proposed to account for the transaction by removing the assets from its
books,recording the gain on the sale of the assets,and recording the impact on the Company's
income taxes.Staff opined that the proposed accounting treatment is reasonable.Id at 8.
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 the Company's Application,its
agreement with the City,and Staff Comments.The Commission also held a public hearing.The
Commission did this because Idaho Code §61-328 mandates "[t]he [C]ommission shall issue a
public notice and shall conduct a public hearing"whenever an electric utility applies to transfer
property the utility uses to generate,transmit,distribute,or supply electric power and energy "to
the public or any portion thereof...."Idaho Code §61-328(1)and (2).The Commission
previously has found Idaho Code §61-328 does not strictly apply where,as here,the property
historicallyhas served only a single customer beyondthat customer's POD,rather than the "public
or a portion thereof."See e.g.,Case No.IPC-E-15-26,Order Nos.33470 at 5,33514 at 1 and I1;
Case No.IPC-E-16-31,Order No.33691 at 1 -4.But here,the Commission held the statutorily
required hearing because the single customer-the City of Meridian-also is a public
entity.Arguably,the property served the "public or a portion thereof"by serving the City,and the
statutory hearing requirement applied.Though only Idaho Power and Staff had participated in the
case,and no public comments had been received,the Commission held the hearing,thus satisfying
the statutory mandate.No one appeared and testified.
ORDER NO.33987 5
Having reviewed the record,the Commission finds that Rule M is satisfied.The sale
will not result in mixed ownership of facilities,and the City will own,operate,and maintain all
facilities beyond the POD after the sale is complete,and will pay requisite engineering costs.
Using Idaho Code §61-328 as guidance,the Commission finds the sale is consistent with the
public interest and will not increase costs and rates of supplying service.The Commission is
satisfied the Company appropriately determined the assets'net book value.Also,because of the
levelized payment schedule,customers underpayfor the first 10 years of an asset's life but overpay
the remaining period.Thus,the true up component appropriately accounts for decreasing net book
value while allowingthe Company to fully recover its revenue requirement over the assets'
depreciable life.Further,it is 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.
The Commission notes that Staff expressed concern that the asset price would have
been lower if the Company had not included near-term operational impacts associated with O&M
and A&G expenses.But as Staff acknowledged,the City agreed to the sales price "based upon its
arms-length bargaining with Idaho Power."Staff Comments at 7.The Commission received no
comment asserting otherwise.
For these reasons,the Commission finds the proposed transaction satisfies Rule M
regarding the proposed asset sale,and is reasonable as it relates to the sectionalizer terms.The
Commission also finds the proposed accounting treatment is reasonable and appropriate.The
Commission thus finds it reasonable to grant the Application and approve the sale,as updated on
January 19,2018.
ORDER
IT IS HEREBY ORDERED that the Company's Application,as updated on January
19,2018,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.33987 6
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this
day of February 2018.
PAUL KJELLANDER,PRESIDENT
KRISÏINE RAPER,COMMISSIONER
ERIC ANDERSON,COMMISSIONER
ATTEST:
Diane M.Hanian
Commission Secretary
I \Legal\LORDERS\IPCE1717kk Final Order docx
ORDER NO.33987 7