20200505Comments.pdf

STAFF COMMENTS 1 MAY 5, 2020
JOHN R. HAMMOND, JR.
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5470

Street Address for Express Mail:
11331 W CHINDEN BLVD, BLDG 8, SUITE 201-A
BOISE, ID 83714

Attorney for the Commission Staff

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF IDAHO POWER
COMPANY’S APPLICATION FOR AN
ORDER APPROVING THE TRANSFER AND
SALE OF CERTAIN ASSETS TO THE CITY
OF NAMPA, IDAHO.
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CASE NO. IPC-E-20-10

COMMENTS OF THE
COMMISSION STAFF

The Staff of the Idaho Public Utilities Commission submits the following comments
regarding the above referenced case.

BACKGROUND
On March 3, 2020, Idaho Power Company (the “Company”) applied for Commission
approval of a proposed sale and transfer of assets to the City of Nampa, Idaho (“City”) under
Company Rule M,1 and Idaho Code §§ 61-328 and 61-524. Rule M governs the sale of
Company-owned 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’s side, rather than the utility’s side, of the POD. See Order No. 33470 at 1.

1 The Company’s Rule M Facilities Charge Service can be found on the Commission’s website at:
https://puc.idaho.gov/Fileroom/PublicFiles/ELEC/IPC/General/0tariff/Idaho%20Power%20Company.pdf.
RECEIVED
2020 May 5,PM2:15
IDAHO PUBLIC
UTILITIES COMMISSION
STAFF COMMENTS 2 MAY 5, 2020
The Company has agreed to sell the facilities (“Assets”) to the City, subject to Commission
approval. The Company asks the Commission to process the case by modified procedure.
The Company uses the Assets to provide electric service to the City’s wastewater
treatment plant in Canyon County, Idaho under Company Schedule 19, Large Power Service.
Application at 1-2.
The Company and City agree the City will purchase the Assets and “obtain title to and
assume ownership, operation, maintenance, and all liabilities associated with the Assets.” Id.
The Company states the sale price for the Assets is $821,253 and was set through the
Company’s Rule M, Section 3. Id. at 5-6. The Company asserts the Rule M methodology
ensures the transaction will not negatively impact the Company’s other customers. Id. at 6.

STAFF ANALYSIS
Staff reviewed the Application and believes it complies with the requirements of Rule M.
Staff also reviewed the methodology for calculating the sales price and the calculation of the
relocation facilities or “Shifting Facilities” and the removal of the sectionlizer and believes that
they are appropriate and protect other customers of the Company under Idaho Code § 61-328.
Table No. 1 below provides a cost breakdown of the total sales price and cost to the City. By
signing the Agreement, the Company and City have agreed to the sales price and other terms.
Staff thus recommends the Commission approve the Application.

Table No. 1: Calculation of Total Sales Price:
Asset Sale Agreement $ 795,066
Shifting Facilities – POD Relocation $ 9,321
Removal of Sectionalizer – Retirement $ 16,866
Total Sales Price $ 821,253

Asset Sale Agreement
The Commission has authority to approve or reject the proposed Agreement under Idaho
Code § 61-328. All sales of facilities must be approved by the Commission under Section 3 of
Idaho Power's Rule M, the tariff that governs the sale of Company-owned facilities beyond the
POD. Section 3 of Idaho Power's Rule M requires:
1. Compliance with Idaho Code § 61-328;
STAFF COMMENTS 3 MAY 5, 2020
2. No mixed ownership of facilities. A customer purchasing Company-owned
facilities installed beyond the POD must purchase all facilities listed on the
Distribution Facilities Investment Report for that location;
3. The customer to provide the operation and maintenance of all facilities installed
beyond the POD after the sale is complete; and
4. The customer to prepay engineering costs for sales determinations taking more
than 16 estimated hours of preparation. Sales determinations equal to or less than
16 estimated hours of preparation will be billed to the customer as part of the sales
agreement, or after engineering work is completed in instances where the sale is
not finalized.

Under Idaho Code § 61-328, the sale of Assets must meet the following criteria:
1. The proposed transaction must be consistent with the public interest;
2. The cost and rates for supplying service must not be increased because of the
transaction; and
3. The City must have the bona fide intent and financial ability to operate and
maintain the Assets in the public service.

In examining Idaho Power's proposed transaction with the City, Staff notes that its
assessment here is specific to this case. Analyses of such transactions under Idaho Power's Rule
M and Idaho Code § 61-328 depend on their unique circumstances. Staffs comments are not
intended as a generic endorsement of Idaho Power's transfer and sale agreements or the
methodologies used therein.
The Company maintains there will be no mixed ownership of facilities, that the
Agreement requires the City to provide operation and maintenance of all facilities beyond the
POD after the sale is complete, and that the City will prepay engineering costs as required in
accordance with Rule M. Staff accepts the Company's assurances.
The Company also asserts that the transaction satisfies the requirements of Idaho Code §
61-328. The Company states that, because the Assets only serve the City, and are all located
beyond the City’s POD, the Asset sale will not affect the deliverability and reliability of electric
STAFF COMMENTS 4 MAY 5, 2020
service to other customers and is thus consistent with the public interest. Staff believes the
transaction between the Company and City meet the requirements.
Staff believes the City has agreed it has the bona fide intent and financial ability to operate
and maintain the Assets. Staff believes that this acknowledgement satisfies the statutory
requirement regarding the City’s intent and ability to operate and maintain the Assets. The
remaining requirement under Idaho Code § 61-328 is that the transaction must not increase the
cost and rates for supplying service.

Analysis of Sales Price Methodology
The Application states that the sales price methodology in this case ensures that the
transaction will not negatively impact the Company or its other customers. The Company applied
a similar methodology in Case Nos IPC-E-15-26, IPC-E-16-31, IPC-E-17-17, and IPC-E-18-10.
Table No. 2 below reflects the five-component methodology described in the Application that the
Company uses for establishing the sale price for the Assets. These components and the amounts
associated with each are listed in the table.

Table No. 2: Calculation of Asset Sale Price
Net Book Value $ 401,075
True-up of Past Levelized Rate of Return $ 118,537
Near Term Rate of Return Impact Resulting from Sale of Assets $ 74,347
Near Term Operational Impact Resulting from Sales of Assets $ 106,132
Net Tax Gross-up $ 93,435
Subtotal $ 793,526
Work Order Closing Costs $ 640
Engineering Costs $ 900
Total $ 795,066

The Company's treatment of each of these components relies on an approach used to
compute the Rule M monthly facilities charge rate, which was established as part of the
Company's last general rate case and approved in Commission Order Nos. 32426 and 32481.
This approach allows the Company to recover its authorized rate of return, book depreciation,
operation and maintenance expenses, administrative and general expenses, income taxes, property
taxes, regulatory fees, working capital, and insurance by means of a flat monthly facilities charge
equal to 1.41% of the original cost of Company-owned equipment installed. The approach
STAFF COMMENTS 5 MAY 5, 2020
establishes a fixed 31-year depreciation life for all Schedule 19 assets subject to the monthly
facilities charge. After 31 years, the monthly facilities charge rate decreases to 0.59% because the
Company is not authorized to recover either depreciation or a rate of return on fully depreciated
capital assets.

Net Book Value
The Assets include facilities installed between 1970 and 2018. The Company has
determined the net book value for each of these assets as original investment cost less
accumulated 31-year straight line depreciation. Staff agrees with the Company's method for
computing net book value and believes its inclusion in the sales price is appropriate.

True-up of Past Levelized Rate of Return
Depreciation causes the net book value of assets, the authorized return on those assets, and
associated income taxes to decrease continuously over 31 years. In order to avoid the need for
imposing an annually decreasing facilities charge, the 1.41% Rule M flat rate charge is computed
to include a "levelized," time-value equivalent for these revenue requirement components. This
allows a single facility charge over the life of the equipment even though net book value
decreases over time. Under the resulting levelized payment schedule, facilities charge customers
effectively underpay the Company for the first 10 years of an asset's life, but then overpay for the
remaining period, so the Company fully recovers its revenue requirement over the asset's
depreciable life. Thus, a customer who purchases a facility from the Company before it is fully
depreciated still owes the Company a "true-up" for the difference between the Company's
authorized rate of return and the levelized rate recovered in the monthly facilities charge. Staff
believes that the true-up and the Company's methodology for computing this component are
appropriate.

Near-term Rate of Return Impact Resulting from the Sale of Assets
The Application states that when a customer buys an asset subject to the facilities charge,
the return that the Company would have earned through the facilities charge is foregone, that the
Company has limited opportunity to re-invest those funds in other assets, and that the Company
will not be able to earn its authorized rate of return until an alternate investment is recognized in a
STAFF COMMENTS 6 MAY 5, 2020
future rate case. To offset this loss, the Company has included the present value of three years of
the levelized rate of return component of the Rule M facilities charge. The Company chose three
years based on its estimate of average intervals between general rate cases.
Staff agrees that the Asset sale could result in lost return until an alternate investment is
made and recognized in a future general rate case. Staff believes that this revenue loss could be a
disincentive for the Company to sell its facilities to the City and other similarly situated
customers. Consequently, Staff maintains that it is reasonable to include a revenue loss
component in the asset evaluation methodology. Staff believes that inclusion of the near-term
rate-of-return impact in the Asset sales price does not violate the requirements of Idaho Code §
61-328.

Near-term Operational Impact Resulting from Sale of Assets
A portion of the monthly facilities charge paid by the City is intended to recover costs
associated with the regulatory fees, Operations & Maintenance ("O&M") expense, Administrative
& General ("A&G") expense, and working capital. After the sale, the Company will no longer
receive this revenue.
Staff believes that once the Assets are sold, the Company will no longer be responsible for
any associated O&M, A&G expense, or working capital. Once the O&M and A&G expenses are
removed after the sale, the Company should no longer need to receive a component of facilities
charge revenue to cover these expenses. Because the expenses and the revenues are presumably
equal amounts and are both removed simultaneously, other Schedule 19 customers should not be
adversely impacted. There may still be a timing difference. Staff recognizes that the City has
agreed to the sale price and thus inclusion of this component of the facilities charge, and that its
inclusion does not appear to otherwise violate the requirements of Idaho Code § 61-328. Given
the City’s agreement upon its arms-length bargaining with Company, Staff believes the
transaction is reasonable.

Net Tax Gross-up
There is a mismatch between the straight-line depreciation methodology used to determine
book value and the accelerated depreciation methods used for assessing income taxes. This
mismatch will generally result in some, or all, of the asset's book value being treated as a gain for
STAFF COMMENTS 7 MAY 5, 2020
income tax purposes. Accordingly, it is necessary to "gross-up" this portion of the book value, as
well as any other gain resulting from the sale. Staff agrees that the Company's net tax gross-up
methodology is appropriate but believes that the computation of the gross-up amount should be
based only on the components included in the Assets sales price.

Summary
Staff agrees that the Company's treatment of net book value, true-up of the levelized rate
of return, loss of near-term return, and net tax gross-up (based on an adjusted sales price) are
appropriate and protect ratepayers as required by Idaho Code § 61-328. Staff acknowledges that
both the Company and the City have agreed to the Asset sales price in the Agreement of $795,066
and other included terms and conditions. The sales price will not harm other ratepayers or cause
rates to increase. Thus, Staff concludes the proposed transaction satisfies the requirements of
Idaho Code § 61-328 and is consistent with the requirements of the Company’s Rule M.

Shifting Facilities – POD Relocation
The City has requested a relocation of the POD (“Shifting Facilities”) and the Company
has asked for additional compensation to cover this expense. The equipment that is being
relocated is still going to be owned, operated, and maintained by the Company, and the Shifting
Facilities have been separated from the Assets being sold. Staff has reviewed the relocation
expenses and believes the costs are appropriately included in the total sales price.

Removal of Sectionalizer – Retirement
The Agreement also contains provisions requiring the City to compensate the Company
for costs associated with the removal of a sectionalizer located at the wastewater treatment
facility. Pursuant to Idaho Power’s Rule M, the City must pay the “non-salvable cost” (the book
value of the sectionalizer, net of any removal of costs and salvage credit). Staff believes the cost
for removal of the equipment is fair and reasonable and finds it is necessary to retire the
sectionalizer located onsite.

STAFF COMMENTS 8 MAY 5, 2020
Accounting Treatment
The Company's Application outlines the accounting treatment it will apply to the entire
transaction if approved by the Commission. The Company's proposed accounting treatment will
remove the Assets from the Company's books, record the gain on the sale of the Assets, and
record the impact on the Company's income taxes. Although income tax entries may change,
Staff has reviewed the proposed accounting treatment and believes it is acceptable.

STAFF RECOMMENDATIONS
Staff recommends that the Commission approve Idaho Power Company's Application and
proposed accounting treatment for the sale of Assets, and the other costs, to the City of Nampa as
proposed. Staff believes that the proposed sale meets all the requirements of Idaho Code
§ 61-328, as well as meeting the requirements of Idaho Power's Rule M.

Respectfully submitted this 5th day of May 2020.

__________________________________
John R. Hammond, Jr.
Deputy Attorney General

Technical Staff: Travis Culbertson
Kevin Keyt
Mike Morrison

i:umisc:comments/ipce20.10jhtnckkmmcomments

CERTIFICATE OF SERVICE

I HEREBY CERTIFY THAT I HAVE THIS 5th DAY OF MAY 2020, SERVED
THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE NO.
IPC-E-20-10, BY E-MAILING A COPY THEREOF, TO THE FOLLOWING:

LISA D NORDSTROM
SHELLI D STEWART
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: [e-mail]
[e-mail]
[e-mail]

GRANT T ANDERSON
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: [e-mail]

/s/ Reyna Quintero __
SECRETARY