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JUN 30 1992
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATrER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
APPROVAL OF ACCOUNTING ENTRIES
FOR THE PURCHASE OF THE ASSETS
OF PRAIRIE POWER COOPERATIVE
INC. AND FOR APPROVAL OF A
TARIFF S~TTJNG FORTH THE RATES
AND CONDITIONS FOR SERVICE
TO CUSTOMERS IN THE PRAIRIE
SERVICE AREA
CASE NO. IPC-E-92-
ORDER NO. 24398
SUMMARY
On May 15, 1992 the Idaho Public Utilities Commission received an
Application from the Idaho Power Company (Idaho Power; Company) for
approval of the initial accounting entries to record the purchase by Idaho Power
of the assets of Prairie Power Cooperative, Inc. (Prairie Power) and for approval
of a tariff setting forth the rates and conditions for service to customers in what
will be known as the Idaho Power Prairie Service area. By this Order we grant
Idaho Power s Application.
INTRODUCTION
Prairie Power is an electric cooperative providing service to
approximately 683 customers located in Camas and Elmore Counties, Idaho with
its office located in Fairfield, Idaho. According to the Application, the Prairie
Power system consists of 342 miles of distribution line and two distribution
substations. Prairie Power has approximately 574 residential customers, 30
residential seasonal customers, 37 commercial customers and 40 irrigation
customers.
Idaho Power presently holds a Certificate of Public Convenience and
Necessity issued by the Commission authorizing it to provide electric service
within Camas and Elmore Counties, Idaho. The Application states that the
Idaho Power distribution system is adjacent to the Prairie Power distribution
system and, in some places, the two systems are located on opposite sides of the
same county roads. Idaho Power currently provides transmission service
wheeling power from the Bonneville Power Administration to Prairie Power.
ORDER NO. 24398 - 1 -
On December 3, 1991 , Idaho Power and Prairie Power entered into an
Asset Purchase Agreement, amended May 15, 1992 , (the Agreement) in which
Idaho Power has agreed to purchase all of the assets of Prairie Power. The
Agreement enables Prairie Power s customers to obtain electric service from
Idaho Power. The Application states that the Prairie service area will be totally
integrated into Idaho Power s operating system. There will be no separate
operating identity for the Prairie service area.
Prairie Power is a party to three contracts related to each of the
Washington Public Power Supply System Nuclear Projects (WPPSS) Nos. I, II
III. The Application states that these Agreements, complete with all of Prairie
Power s rights, duties and obligations set forth within the Agreements, will be
assigned to the City of Richland, Washington.
In addition the Application states, the Bonneville Power
Administration (BP A) will indemnify Prairie Power, its successors and assigns,
from any liability related to the failure of the City of Richland, Washington to
fulfill any of its obligations under the Assignment Agreement. BP A will also
indemnify Prairie Power from any losses resulting from the litigation Bonneville
Power Administration v. Washington Public Power Supply System which involves
the allocation of costs among the supply system nuclear projects.
The Application states that Idaho Power will not assume any
obligations related to the WPPSS project Nos. I, II, and III except for those
identified in the Asset Purchase Agreement. According to the Application, the
extent of the obligations are estimated to not exceed $20 000 for Prairie Power
involvement in Federal Rural Electric Insurance Corporation v. Prairie Power
Cooperative, Inc. and approximately $20 000 to $30,000 for Prairie Power s share
of the unpaid costs and attorney fees in other WPPSS related litigation, for a
total liability of $40 000 to $50 000.
In exchange for the assets of Prairie Power, Idaho Power will assume
Prairie Power s long-term debt to the Rural Electrification Administration (REA)
of approximately $1.9 million. The Commission approval of this debt
assumption has been requested by Idaho Power in its Application in Case No.
IPC-92-, filed simultaneously with the present Application. Idaho Power
has also agreed to refund to each Prairie Power member their membership fee
which will amount to approximately $2 705 , in total.
ORDER NO. 24398 - 2 -
As stated, in exchange for its acquisition of all of Prairie Power s assets
Idaho Power has agreed to assume all of Prairie Power s liabilities, with the
exception of the Patronage Capital, any liabilities related to employee benefit
plans and any liabilities covered by insurance.
In accordance with the uniform system of accounts prescribed for public
utilities and licensees subject to the provisions of the Federal Power Act, Idaho
Power proposes to charge the original cost of plant to the appropriate electric
plant in service accounts. The depreciation and amortization applicable to the
original cost shall be credited to the appropriate account for accumulated
provision for depreciation. The Application states that original cost, as applied to
electric plant, means the cost of such property to the person first devoting it to
public service. In this case , therefore, original cost is the cost at which the
electric plant was recorded on Prairie Power s books.
For this acquisition, the Application provides that Idaho Power will
record the assets and liabilities at Prairie Power s original cost in the appropriate
accounts as follows:
ITEM ON PRAIRIE POWER
BALANCE SHEET
Assets
Total Utility Plant in Service
Construction Work in Progress
Accumulated Depreciation for de-
preciation and amortization
Materials and Supplies-- Electric
and Other
All Other Asset Items
Liabilities
Memberships
ORDER NO. 24398
IDAHO POWER ACCOUNTS
Assets
101-Electric Plant in Service
107-Construction Work in Progress
108-Accumulated Provision for
Depreciation of Electric Utility
Plant
111-Accumulated Provision for
Amortization of Electric Utility
Plant
154-Plant Materials and Operating
SuppliesEach of the Items will be analyzedand recorded in the appropri-
ate Idaho Power Asset Account
Liabilities
232-Account Payable (to be refunded
to the Prairie Power members)
- 3 -
Long-term Debt--REA and Other
All Other Liabilities
224-0ther Long-Term Debt
Each of the items will be analyzed
and recorded in the appropri-ate Idaho Power Liability
Account
Because the total assets purchased under the agreement will exceed the
amount Idaho Power is paying to Prairie Power s members (representing the $5
per member membership fee) and the liabilities Idaho Power is assuming as
consideration for the assets , the net difference will result in a credit or negative
electric plant acquisition adjustment. Idaho Power proposes that this credit
acquisition adjustment will be reduced by certain externally incurred acquisition
related costs (i.e., contracted environmental studies of Prairie Power property,
outside legal , accounting and engineering services, termination payments made
to Prairie Power employees, etc.). The Company proposes to amortize the net
balance of the acquisition adjustment over 240 months (the estimated life of the
electric plant being purchased) effective with the date the asset purchase
finalized. The accounting entries for the amortization are proposed to be:
Debit: Account 115--Accumulated provision for amortiza-
tion of electric plant acquisition adjustments
Account 406--Amortization of electric plant acquisi-
tion adjustments
Idaho Power will record the operating expenses incurred in operating
the Prairie Power facilities in the appropriate accounts on Idaho Power s books.
These expenses will not be segregated from the operating expenses of Idaho
Power s other facilities.
For ratemaking purposes, Idaho Power proposes to include the balances
in electric plant in service, accumulated depreciation of electric plant
accumulated amortization of electric plant, electric plant acquisition
adjustments, amortization of electric plant acquisition adjustments and plant
materials and operating supplies in the Company s rate base. Idaho Power will
include the other long-term debt in its cost of capital computation. The operating
expenses and the credit to amortization of electric acquisition adjustments will
be included as appropriate operating expenses for ratemaking purposes.
Credit:
ORDER NO. 24398 - 4-
Attached to the Application is Idaho Power s proposed tariff covering
the rendering of electric service to the Company s Prairie service area. The
proposed rates for Prairie service area customers were established by reducing
existing Prairie Power rates by 15%. In addition, the Application states, eligible
customers will continue to receive the residential exchange credit on Idaho
Power s bills resulting from the annuity exchange credit. The rates for the
Prairie Service area are proposed to remain in effect for ten years from the date
they are approved by the Commission. The Application states that the Company
does not propose to increase these rates during the ten year period. The
Application notes that the Prairie Service area rates will initially be set higher
than the corresponding rates in the general Idaho tariff. This is due to the rural
nature of the area that will be served and the improvements that Idaho Power
will make to the Prairie Power distribution system.
Idaho Power estimates that it will make capital improvements to the
Prairie Service area of approximately $1 million while spending an additional $1
million in operation and maintenance expenses over the first ten years ofoperation.
Two parties timely filed comments in response to the Company
Application; the Commission Staff and Mr. Zane Harrison, past Chairman of the
Board of Prairie Power.
COMMISSION STAFF
Staff asserts that the issues in this case are best framed as follows: (1)
whether the proposed accounting entries to record the acquisition of Prairie
Power are appropriate; (2) whether the rates that Idaho Power proposes to
charge the Prairie Service area customers are fair, just and reasonable, and; (3)
whether the proposed tariff for the Prairie Service area customers complies with
the Commission s Rules, Regulations and Policies governing customer relations.
Staff contends that the accounting entries Idaho Power proposes for the
Prairie Power acquisition comply with the uniform system of accounts prescribed
for public utilities and are, otherwise, appropriate. With the proposed negative
acquisition adjustment, the realized investment per customer will be
approximately equal to the average investment Idaho Power has experienced in
its normal course of business over the last four years. The proposed amortization
ORDER NO. 24398 - 5 -
of the acquisition adjustment over 20 years is also appropriate to spread the
Prairie Power system s value over its useful life.
Staff agrees that the proposed rates for the Prairie Service area
customers are fair, just and reasonable. The approximate 683 customers that
will be added to the Idaho Power Company s system represent approximately 1.
months of normal customer growth averaged over the last four years. The energy
requirements that these additional customers are expected to impose on Idaho
Power s system will represent approximately one half of one month of average
energy growth on the system for the same period of time. Staff believes that in
comparison with the normal growth that Idaho Power experiences on its system
the acquisition of Prairie Power is relatively small in magnitude.
The Asset Purchase Agreement provides for an immediate 15%
reduction in the rates of Prairie customers. Prairie Power s average rate across
all customer classes in 1990 was 8.1~ per kilowatt hour. When reduced by 15%
Staff notes, the average Prairie Service area rate would be 6.88~ per kilowatt
hour. Idaho Power s permanent rates for all tariffed classes averages 4.075~ per
kilowatt hour. It would require an average annual growth in Idaho Power s rates
of almost 6% for the two average rates to equalize in 10 years. Thus, Staff
contends, the rates for the Prairie Service area customers should provide a
sufficient cushion above the rates of Idaho Power base customers to cover the
additional costs they impose on the system. Staff believes that it is highly
unlikely that Idaho Power s rates will increase on the average of 6% per year over
the next 10 years. Therefore, Staff contends that it is equally unlikely that the
average rates paid by Prairie Service area customers will be less than or even
equal to Idaho Power s average system-wide rates before the end of the 10 year
period.
Staff notes that there are some proposed Prairie Service area rate
schedules with rates for certain types of users that are below existing Idaho
Power rates. Prairie Power Company s billing data does not allow Staff to
determine precisely the number of Prairie customers who would pay less than
existing Idaho Power customers from the beginning of the ten year period. It is
Staffs opinion that these exceptions are few and that the overall benefits of the
acquisition justify an allowance of the anomaly.
Staff asserts that there are valid reasons for setting the rates of Prairie
area customers higher than the Company system-wide average. First
ORDER NO. 24398 - 6 -
the Prairie system is in immediate need of an upgrade. Idaho Power intends to
expend $2 million over the next 10 years to bring Prairie s system up to Company
standards. The higher Prairie Service area rates , therefore, will help pay the
costs of the upgrade. Staff believes that the rate differential, together with the
low financing costs associated with Prairie s REA debt to be assumed by Idaho
Power, will adequately recover those costs. Thus , Staff concludes, the proposed
rates are fair to both Idaho Power s base customers and its Prairie customers.
Staff notes that the rates of the Bonneville Power Administration
(BP A) have risen in recent years and are likely to continue increasing. By
accepting the proposed rates, Prairie customers will not be directly impacted by
future increases in BP A's rates. Prairie customers will also avoid increased rates
that would inevitably have been necessary to pay for the much needed
improvements to the Prairie distribution system that will now be undertaken by
Idaho Power.
Staff also notes that the Prairie Service area customers will continue to
receive the benefit of the annuity credit purchased with the BP A exchange credit
buyout funds which will bring their effective rates closer to those of the Idaho
Power base customers.
In addition, Idaho Power proposes that the Prairie Service area rates be
set under the "contract standard." Under this standard, Staff asserts , the
Commission must find that the contract rates adversely affect the public interest
before changing them. See Agricultural Prod. v. Utah Power & Light Co., 98
Idaho , 557 , P. 2d. 617 (1976). This means that the Prairie Service area rates
if approved by the Commission, will not generally be changed as part of normal
rate case proceedings. Furthermore, the Company has indicated that the rates
would not be proposed for change as a result of special surcharge cases such as
the one just completed in Case No. IPC-92-10.
Staff agrees that the application of the contract standard to the Prairie
Service area rates would be fair, just and reasonable. The rates proposed by
Idaho Power seem reasonably calculated to recover the costs of upgrading the
Prairie Power system. On the average , however, the Prairie rates are very
unlikely to ever be less than Idaho Power s average rate system wide. Thus
Staff believes, the application of the contract standard will provide a benefit in
ORDER NO. 24398 - 7 -
terms of rate stability to the Prairie Service area customers without being a
detriment to existing ratepayers.
As an additional matter, Idaho Power claims that its limited
assumption of Prairie Power s share of attorney s fees resulting from litigation
related to the Washington Public Power Supply System (WPPSS) nuclear
projects is not unreasonable. This potential liability relates to a relatively small
portion, which Prairie Power and, consequently, Idaho Power , are responsible for
related to three separate lawsuits. Idaho Power estimates the total potential
liability to range from $40,000 to $50 000. Staff is no more capable of
speculating on the amount of this potential liability than the Company. Staff did
not analyze the broader issue of Prairie Power s potential liability for the WPPSS
projects and the enforcability of BP A's indemnification of Idaho Power for that
liability.
Similarly, Staff takes no position concerning the enforcability of the
Asset Purchase Agreement or any other potential liabilities being assumed by
Idaho Power, aside from the assumption of the REA debt at issue in Case No.
IPC-92-12. As with any business transaction, there exists a potential for
unforseen liability. Staff believes that any attempt to identify or quantify such
liability would necessarily rely upon speculation. Staff takes no position in this
regard.
In conclusion, Staff asserts the proposed rates for Prairie Power appear
to be fair, just and reasonable. Prairie Power customers receive the benefit of a
15% reduction in current rates which will most likely be locked in for a ten year
period. Its customers also receive the benefit of an improved distribution system
which should lead to increased reliability. Prairie Power customers will also
eliminate their WPPSS exposure and are no longer subject to BPA's upward rate
pressure.
Idaho Power s shareholders receive the benefit of an expanded rate base
and the Company s ratepayers, in the Fairfield area, will receive the benefit of a
new district office with customer support and a line crew with little , if any,
impact on existing rates.
In terms of customer relations , Staff recommends that Idaho Power be
required to take the following actions as soon as possible after the acquisition of
Prairie Power is consummated.
(1) Provide to all Prairie Power customers written summaries of:
ORDER NO. 24398 - 8 -
(a)
(b)
(c)
(d)
The Commission s Customer Relations Rules;
Rates;
Significant changes in policies, e., line extension
policies;Existing demand side measure programs, e.
weatherization.
(2) Provide to all irrigation customers written information concerning
the provisions of Idaho Power Schedule 24;
(3) Provide to all master metered customers with sub-metered units or
spaces, written information concerning the master metering policy and
requirement to bill tenants or occupants at applicable Idaho Power rates;
(4) Provide to all Prairie Power customers written information
concerning planned plant improvements designed to eliminate safety hazards
and enhance service quality and reliability;
(5) Provide to all Prairie Power customers written information
concerning who to contact and where bills can be paid, information obtained
concerns expressed and/or complaints filed.
Staff notes that Idaho Power s proposed tariff for the Prairie Service
area customers is a blend of Prairie Power s rate design and Idaho Power
policies. There are several rate design elements and policies that do not conform
to normal, existing Commission approved policies and practices for electric
utilities.
For example, Idaho Power proposes that Prairie Service area customers
be assessed with monthly customer charges rather than monthly minimums.
Prairie seasonal customers will be required to pay for service even when they
have been disconnected. There will be an annual connection charge of $9.35 per
connected horse power assessed to Prairie irrigation customers. There is no
similar charge for Idaho Power s existing irrigation customers. In spite of the
foregoing differences, Staff recommends that the proposed transitional tariff be
approved with the goal of assimilating Prairie Power customers into Idaho
Power s system over a ten year period. Staff does not believe that approval of
this unique tariff signifies a departure from previous Staff positions concerning
appropriate rate making policy nor should it be considered precedential.
Staff notes that Prairie customers will realize certain benefits from the
proposed policies. For example, a new residential customer hooking up under
Prairie Power s current policy would be entitled to a $1 500 allowance toward the
ORDER NO. 24398 - 9 -
cost of line extension. Under the new proposed policy, a new residential
customer without electric space heating and/or water heating will receive a
500 allowance plus the cost of terminal facilities. A residential all electric
customer will receive a $2 000 allowance plus terminal facilities.
Another significant change is that rather than being required to pay a
full season s advance each year, Prairie irrigation customers will be charged a
monthly or full seasons' advance only if their past payment record indicates a
need for obtaining payment prior to receiving service.
ZANE HARRISON
Mr. Harrison, through his attorney, Craig Hobdey, submitted a letter to
the Commission expressing his concerns about Idaho Power s acquisition of
Prairie Power.
Of particular concern to Mr. Harrison is the enforceability of the
contract between Idaho Power and Prairie Power. Specifically, Mr. Harrison
concerned about whether Idaho Power will live up to its agreement to expend
000 000 in upgrading the Prairie system over the next ten years. The letter
states:
Rather than the promise of a $2 000 000.00 upgrade within
the next ten years, Mr. Harrison feels that an immediate
reduction of the rate to Idaho Power s current levels would be
something that could be enforced. Complete performance by
both the parties upon the closing of the sale would eliminate
the need for future "policing" of the contract and questions of
standing would be moot.
The letter concludes that the negotiation process between Idaho Power
and Prairie Power was "somewhat rushed" and the issue of contract
enforceability was not fully discussed.
Furthermore, Mr. Harrison cast doubt upon the willingness and ability
of the current Prairie Board of Directors to enforce the contract in the event
Idaho Power defaults.
FIND INGS
We hereby approve Idaho Power s Application filed in this case. We
find that the accounting entries proposed to reflect the acquisition of Prairie
Power appear to comply with the Uniform System of Accounts and are
otherwise , appropriate.
ORDER NO. 24398 - 10 -
We find that the proposed rates for Prairie service area customers are
fair, just and reasonable. For the reasons discussed below, we also find that the
Application of the "contract" standard to the Prairie service area rates is fair
just and reasonable.
The acquisition of Prairie Power appears, in general, to be beneficial for
everyone involved. Prairie customers will receive an immediate 15% reduction in
rates, stabilized over a ten-year period. By severing their tie with BPA, Prairie
customers will not be directly impacted by any increase in BP A's rates. Finally,
the Prairie Power distribution system will receive a much needed upgrade.
Idaho Power customers will realize the benefit of an expanded customer
base acquired through favorable financial terms. The rates that Prairie
customers will pay over the next ten years will exceed those of Idaho Power
existing customers and will help to recover Idaho Power s costs of upgrading the
system. In short, Idaho Power s existing customers will not, in any manner, be
adversely impacted by the acquisition of Prairie Power.
We agree with Staff that it would be inappropriate for the Commission
to speculate about the likelihood that BP A's indemnification of Idaho Power may
somehow fail or that the attorney fees that Idaho Power has agreed to assume
related to WPPSS litigation will exceed the estimated amount. We make no
judgment in this regard. Any costs that Idaho Power ultimately incurs related to
the WPPSS nuclear projects will not be analyzed until the Company comes before
the Commission seeking to include them in rates.
Finally, we are satisfied that the proposed Prairie service area tariff, as
it relates to customer rules and policies, although differing in terms from Idaho
Power s existing tariff, is acceptable. It appears that Prairie customers will
receive fair, just and reasonable treatment over the next ten years before being
assimilated into Idaho Power s base tariff. The Company is directed to comply
with the requested actions identified by Staff and set forth earlier in this Order.
An additional matter relates to the numbering assigned to the Prairie
Service area customer schedules by Idaho Power in its proposed tariff. We note
that, in some cases, the customer schedule numbers assigned to Prairie
customers are identical to those of existing customers. As noted above, however
rates and general tariff provisions for these identically numbered schedules are
different. This situation may lead to confusion, particularly when customers
ORDER NO. 24398 - 11 -
inquire of the Commission regarding their billing or service. We believe it is
appropriate, therefore, for the Company to revise its tariff to utilize a customer
schedule numbering system for Prairie Service area customers which is not
identical to existing schedule numbers. The Company is directed to file a revised
tariff no later than July 10, 1992.
Regarding the concerns expressed by Mr. Zane Harrison, we note that
Idaho Code ~ 61-302 provides as follows:
61-302. Maintenance of Adequate service-Every public
utility shall furnish, provide and maintain such service
instrumentalities, equipment and facilities as shall promote
the safety, health, comfort of its patrons, employees and the
public, and as shall be in all respects adequate, efficient, just
and reasonable.
Pursuant to the foregoing statute, Idaho Power is obligated to provide
reasonable service to the Prairie customers. Prairie customers are entitled to file
a complaint with the Commission in the event that they feel that Idaho Power
has not satisfied its obligation to provide reasonable service.
ORDER
IT IS HEREBY ORDERED that the Application of Idaho Power for
approval of accounting entries and approval of tariff related to its Prairie service
area is hereby approved subject to the terms and conditions of this Order.
The Company shall file a revised tariff utilizing a different numbering
system for its Prairie service area customer rate schedules no later than July 10
1992. If the revised tariff complies with the terms and conditions of this Order it
shall become effective on July 21 , 1992.
The Company is also directed to take the "customer relations" actions
recommended by Staff and specified earlier in this Order.
THIS IS A FINAL ORDER. Any person interested in this Order (or
in issues finally decided by this Order) or in interlocutory Orders previously
issued in this Case No. IPC-92-11 may petition for reconsideration within
twenty-one (21) days of the service date of this Order with regard to any matter
decided in this Order or in interlocutory Orders previously issued in this Case
No. IPC-92-11. 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. 24398 - 12 -
11111
11111
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III/I
III/I
DONE by Order of the Idaho Public Utilities Commission at Boise
Idaho, this .30 day of June 1992.
~ ~/~
MARSHA H. SMITH, PRESIDENT
~.
uOMMISSIONER
~~~~
RALPH LSO , COMMISSIONER
0(/??Z
AJ. WALTERS, SECRETARY
BP:vld/O-1795
ORDER NO. 24398 - 13 -