20200825Comments.pdf

DAYN HARDIE
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-007 4
[phone]
IDAHO BAR NO. 9917
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BOISE,ID837T4
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 OF
CERTAIN ASSETS ASSOCIATED WITH THE
HEMINGWAY SUBSTATION
CASE NO. IPC.E.2O-25
COMMENTS OF TIIE
COMMISSION STAFF
STAFF OF the Idaho Public Utilities Commission, by and through its Attorney of
record, Dayn Hardie, Deputy Attorney General, submits the following comments.
BACKGROUND
On June 3,2020,Idaho Power Company ("Company") applied to the Commission for an
order approving the Company's transfer of a 1.91-acre parcel of land in Owyhee County, Idaho
(the "Parcel") to Owyhee County (the "County"). The Company submitted its Application
pursuant to ldaho Code S 6l-328 and requested its Application be processed by Modified
Procedure.
In 2008, the Company purchased 150 acres of land near Melba, Idaho that would become
the site of the Hemingway Substation ("Substation"). The Company constructed a new, unpaved
access road on a portion of the 150 acres to provide access from Highw ay 78 to the Substation.
The Company's access road travels parallel to and partly crosses the Wilson Cemetery Road.
Since the Company's access road was constructed, visitors of the Wilson Cemetery and adjacent
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ISTAFF COMMENTS AUGUST 25,2020
property owners have been using the Company's road rather than the existing Wilson Cemetery
Road. The Wilson Cemetery Road is now overgrown and impassable.
In July 2019, the County denied a building permit for one resident along the south of
Wilson Cemetery Road because the resident could not prove public access to their property. The
County would not grant a waiver or variance upon request. On February 14,2020, to re-
establish legal access for the landowners south of Wilson Cemetery Road, the Company
executed and recorded a deed conveying the Parcel to the County subject to an easement
reserving access for the Company. The Company will no longer have to maintain the portion of
the access road located upon the Parcel.
STAFF ANALYSIS
Staff believes the Company's transfer of 1.91 acres to Owhyee County is a reasonable
way to solve the resident's, the Company's, and the County's issues and should be approved by
the Commission. The transfer avoided potentially costly litigation which benefitted all parties,
saving both time and money.
The Company must obtain approval from the Commission before it sells or transfers
ownership of any property that is located in Idaho and used in the generation, transmission, or
distribution of electricity in Idaho . Idaho Code $ 6l-328(1). The Company's Application states
the transfer of the Parcel meets the requirements of ldaho Code $ 6l-328(3). Staff has reviewed
the proposed transaction and believes that it supports the intent of the electric utility asset
transfer statutes.
In Response to Staff s Production Request No. 1, the Company provided explanations
detailing how this transaction would comply with ldnho Code g6l-328 (3) stating:
a. The conveyance of the land provided several benefits to Idaho Power and
its customers, consistent with public interest: (1) the Company would
continue to have the right to use the access road without having the
obligation to maintain the road, (2) Idaho Power reduced the liability that
accompanied ownership of the portion of the access road conveyed to the
County, and (3) the 1.91 acres conveyed was encumbered by the Wilson
Cemetery Road and therefore, limited for any other uses by the Company.
In addition, the transaction resolved potential litigation and did not impact
Idaho Power's ability to continue to provide safe, efficient, and reliable
electric service to customers.
STAFF COMMENTS AUGUST 25,20202
b. The conveyance of the land was a reasonable solution to avoid incurring
further costs to mitigate access issues, ultimately resulting in little to no
financial impact to Idaho Power and its customers.
The Company submitted the Application on June 3,2020,1ong after the Company and
the County formalized the agreement on February 14,2020. Staff asked the Company why it did
not submit its Application prior to completion of the transfer. As part of the Company's
Response to Production Request No. 10, it stated:
In this circumstance, there was confusion internally over whether or not the
l.9l-acre parcel was considered property used in generation, transmission or
distribution of electric power and energy to the public, requiring pre-approval
from the Commission. Based on the Company's experience with this
transaction, it is developing and implementing control measures to ensure
future property transactions are reviewed for filing requirements in advance of
any such transactions occurring to ensure that all regulatory requirements are
met.
The Company must implement control measures to improve filings of this nature. Staff
recommends that development of control measures be completed and implemented in a timely
manner and supporting documentation be provided to the Commission.
Asset Valuation and Accounting Treatment
The Application states the original cost of the Parcel was $26,488 and had improvements
with an original installed value of $41,394.1 The Company conveyed the Parcel to the County
for $ 10. Staff reviewed the asset value listed in the Agreement. Staff believes that the
Company's accounting treatment of the transfer properly removes the book value of the
conveyed assets and the associated accumulated depreciation from the Company's books.
However, customers will continue to pay the associated revenue requirement until the
Company's next general rate case.
Since the Company was already maintaining the road because of its access requirements,
Staff believes the incentive for the County to purchase it, and its potential market value, was
likely negligible.
I On page 4 of the Application, the Company stated that the improvements had a net book value of $41,394, but later
reported to Staff that its original installed value, before accumulated depreciation, was $41,394. The net book value
of the improvements is estimated at $33,936.
STAFF COMMENTS AUGUST 25,20203
While the $10 conveyance payment is less than the book value, the transfer does offer the
Company some measurable and unmeasurable benefits. The Company said its budgeted annual
maintenance expense for the entire access road prior to the transfer was $2,700. Because the
transfer decreased the length of road the Company must maintain by half, it is likely this
maintenance expense will also decrease. Additionally, the Company indicated its property tax
expense will decrease by $292 per year due to the transfer. Staff estimates the current annual
revenue requirement associated with the parcel to be approximately $9,750, as shown in Table
No. I below.
Table No. 1- Estimated Revenue Requirement Associated with Parcel
Expenses
Depreciation Expense
Maintenance Expense
Property Taxes
Total Expenses
Rate Base
Land at Cost
Land Improvements at Book
Total Rate Base
Return on Rate Base @7.86Vo
Revenue Requirement before Gross Up
Tax Gross Up
Estimated Revenue Requirement
$ 778
1,350
292$ 2.420
$ 26,488
33.936$ 60.424
$ 4,749
$ 7.169
1.36003
$___9J50
At today's book values, customers will pay this estimated amount until new rates become
effective after the Company's next general rate case. Because it is unknown when the Company
will file its next general rate case, Staff is concerned that customers will continue to pay the
associated revenue requirement for the conveyed parcel without receiving the benefit of any
proceeds from the conveyance of this property. Because there is no gain on the sale of assets,
and customers will continue to pay the a revenue requirement associated with the property for an
unknown amount of time, Staff believes an offsetting adjustment may be necessary in the
Company's next general rate case.
The transaction does offer specific unmeasurable benefits to the Company. These
benefits include a reduction in legal liability and a positive relationship with neighboring
landowners to the Hemingway site. The Company did not provide an estimate of its legal
STAFF COMMENTS AUGUST 25,20204
liability, but members of the public using its formerly private land does present a possible
liability. Additionally, the lack of legal access to neighboring properties and subsequent denial
of a building permit also could have led to legal action and legal expense against the Company.
If legal action against the Company was pursued, it is possible the Company would incur legal
expenses far greater than the value of the improved parcel.
Given the additional unmeasurable benefits and the limitations to receiving adequate
financial compensation from the County for the transferred assets, Staff believes the Company's
Application should be approved. Because customers will continue to pay a revenue requirement
associated with the conveyed property for an unknown time, and because customers did not
receive the benefit of a gain on the sale of the property, Staff will reevaluate the transaction in
the Company's next general rate case to determine if an offsetting adjustment to revenue
requirement is necessary.
CUSTOMER NOTICE, PRESS RELEASE AND PUBLIC COMMENTS
No customers are affected by this transfer and therefore the Company did not publish a
notice or press release. As of August 24,2020, no written public comments had been submitted
for this case.
STAFF RECOMMENDATIONS
Staff recommends that the Commission approve the transfer of the 1.91 Acre Parcel at
the Hemingway Substation to Owhyee County. Staff reserves the right to reevaluate the benefits
of the transaction during the Company's next general rate case to determine if an adjustment to
revenue requirement is appropriate.
STAFF COMMENTS AUGUST 25,20205
25t^,Respectfully submitted this day ofAugust 2020.
Deputy Attorney General
Technical Staff: Kevin Keyt
Michael Eldred
Brad Iverson-Long
6STAITF COMMENTS AUGUST 25,2O2O
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 25th DAY OF JUNE 2O2O,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. IPC-E-20-25, BY E-MAILING A COPY THEREOF, TO THE
FOLLOWING:
LISA D NORDSTROM
REGULATORY DOCKETS
IDAHO POWER COMPANY
PO BOX 70
BOISE rD 83707-0070
E-MAIL: [e-mail]
dockets @ idahopower.com
MATT LARKIN
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: [e-mail]
SECRET Y
CERTIFICATE OF SERVICE