26925.docx

(text box: 1)BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE 1996 COMPLIANCE FILING OF IDAHO POWER COMPANY AS REQUIRED BY IPUC ORDER NO. 26216 ISSUED IN CASE NO. IPC-E-95-11
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CASE NO. IPC-E-97-5
ORDER NO.  26925
On April 1, 1997, the Idaho Power Company (Idaho Power; Company) in Case No. IPC-E-97-5 made a com­pliance filing with the Idaho Public Utilities Commission (Commission).  The filing consists of documentation of the Company’s earnings for the year 1996.  The Company’s compliance filing is a result of Order No. 26216 issued by the Commission on October 20, 1995 in Case No. IPC-E-95-11.  Pursuant to the Settlement Agreement adopted by the Commission in that case, Idaho Power is permitted to accelerate the amortization of its Accumulated Deferred Investment Tax Credit if the Company’s current earnings fall below 11.5% on year end common equity.  In addi­tion, the Company is required to refund 50% of all earnings above an 11.75% return on year end common equity.  
Idaho Power reports that for the year 1996 the Company earned a return on common equity of 12.55% in its Idaho jurisdiction.  As calculated by the Company, this is equivalent to a customer shared amount of $4,890,518.  In computing the amount of revenue available for determining the reduction in the Company’s rates however, Idaho Power submits that the appropriate revenue available for refund is $3,474,622.  This lower amount is calculated by deducting from the revenue attributable to refund ($4,890,518) the interest attributable to Demand Side Management (DSM) deferrals for the year 1996 ($1,415,896).
The Company contends that it is inappropriate to include interest earned on the 1996 Demand Side Management deferred balance in the revenues attributable for refund because this balance has not yet been reviewed or approved by the Commission.  The DSM deferrals are attributed to the following Commission Orders and DSM programs:
Order No. 24913Commercial Lighting Energy Efficiency Program
Order No. 23724Industrial Conservation Program
Order Nos. 24408, 23454Conservation Program for Manufactured Homes
Order No. 24858Irrigation Conservation Program
Order No. 22893Design Excellence Award Program
The Company maintains that the status quo can be retained for all parties, the Commission, Idaho Power, and the Company’s customers, by simply deducting the interest earnings attributable to the 1996 DSM interest capitalized from the earnings calculation and reducing the outstanding deferred asset balance by an equal amount.
A second alternative, Idaho Power suggests, is to include the interest earned on the DSM balances.  In so doing, however, the Company contends that the Commission would be approving the amount of interest charged prior to reviewing the balances included in the DSM deferral.
On April 18, 1997, Notices of Application and Modified Procedure were issued in Case No. IPC-E-97-5.  The deadline for filing written comments was May 9, 1997.  Timely comments were received from FMC Corporation (FMC), the Industrial Customers of Idaho Power (ICIP) and Commission Staff (Staff).  Also filed were the responsive comments of Idaho Power.  The comments of the parties can be summarized as follows:
FMC
FMC urges the Commission to authorize a refund of $4,890,518 without any deduction for DSM interest for 1996.  Pursuant to previously approved DSM accounting procedure, FMC notes that the Company is authorized to accumulate or defer the cost of approved DSM programs in Account 186 and to charge interest on the accumulated balance at a rate equal to the last Commission approved overall cost of capital for Idaho Power.  Idaho Power then recovers the accumulated Account 186 balances when they are amortized to operating expenses in the Company’s next general rate case or tracker proceeding.  FMC notes that the Company is presently precluded from filing a general rate case until after the expiration of the existing rate moratorium on January 1, 2000.
The Company’s present proposal to expense 1996 DSM interest on 94-96 DSM investment in 1997 rates, FMC contends, is a departure from previously approved DSM accounting procedure and is unwarranted and unfair to existing customers.
ICIP
ICIP urges the Commission to reject Idaho Power’s proposed treatment of conservation related interest.  ICIP notes that the Commission in its approval of DSM programs has always reserved the right to review the prudency of the program costs incurred prior to the inclusion of any amounts in the Company’s revenue requirement.  ICIP characterizes Idaho Power’s present proposal as an attempt to circumvent the prudency review process by requiring today’s ratepayers to pay the carrying costs on deferred DSM balances, without explicit approval of the underlying program costs.
ICIP contends also that the Company’s proposal is a violation of the state’s anti-CWIP (construction work in progress) statute, I.C. 61-502, which prohibits the Commission from granting ratemaking treatment for property that is not “used and useful.”  There being no review, it is impossible, ICIP contends, to conclude whether the costs associated with the DSM balances is or is not used and useful.
Staff
Staff recommends acceptance of Idaho Power’s 1996 earnings compliance filing, including the proposed DSM interest adjustment and the resultant $3,474,622 refund revenue figure.  Staff doesn’t believe it makes sense to give customers a refund today and then charge them a larger amount in the future to repay the interest.  Reduction of the current refund by the 1996 interest earnings, Staff contends, eliminates compounding of this interest resulting in a lower amount customers will pay in the future.(footnote: 1)
Idaho Power Response
Idaho Power contends that its proposed adjustment for DSM interest is not an accounting adjustment but is rather a ratemaking adjustment, which it states is clearly permitted under the existing Rate Settlement Agreement.  Idaho Power is proposing to omit the 1996 capitalized interest income from the 1996 revenue sharing amount.  This, the Company contends, retains the status quo and does not circumvent the approval process for DSM expenditures.  Idaho Power contends that all of its customers will benefit from the removal of the 1996 DSM interest capitalization from the outstanding DSM deferred balance.  The commencement of this benefit, it states, will occur on January 1, 1998, when the Company begins the amortization of the 1994 DSM deferred balance as ordered by the Commission in Order No. 25880, Case No. IPC-E-97-5.
Idaho Power disputes the contention of ICIP that the Company’s  proposal is a violation of the anti-CWIP statute.  CWIP, the Company states, refers to property that a utility is currently constructing and that will be later used to provide utility service.  DSM expenditures, the Company states, are not construction work in progress.  Clearly the ratemaking treatment of DSM expenditures, the Company contends, the allowance of a capitalized interest amount, etc., does not fall within the provisions of Idaho Code 61-502a.
Commission Findings
The Commission has reviewed and considered the filings of record in Case No. IPC-E-97-5 including the filed comments of FMC, ICIP and Commission Staff and the responsive comments of Idaho Power.  We continue to find it reasonable to process this Application pursuant to Modified Procedure, i.e., by written submission rather than by hearing.  IDAPA 31.01.01.204.  We find the proposed adjustment for DSM interest to be reasonable and statutorily permissible, and the related comments of the Company and Commission Staff to be persuasive.  As we continue the regulatory transition toward a more competitive electric industry, we find it reasonable to address the elimination of deferrals wherever possible.  The Commission will address the prudence of underlying DSM investment when the Company by application seeks to include the costs in rates.  We find it reasonable to approve distribution of a $3,474,622 refund amount over the calendar year beginning May 16, 1997.  It is the Commission’s understanding that the Company proposes to refund this amount as a line item in its current PCA refund case, Case No IPC-E-97-6.  See Order No. 26924.
Conclusions of Law
The Commission has jurisdiction over Idaho Power Company and the Application and related issues presented in Case No. IPC-E-97-5 pursuant to the authority and jurisdiction granted the Commission under Title 61 of the Idaho Code and pursuant to the Commission’s Rules of Procedure, IDAPA 31.01.01.000 et seq.
O R D E R
In consideration of the foregoing and as more particularly described above IT IS HEREBY ORDERED and the Commission does hereby approve the 1996 earnings compliance filing of Idaho Power Company and the proposed refund distribution amount of $3,474,622 for calendar year distribution beginning May 16, 1997.
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.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this                  day of May 1997.
                                                                                                                                      DENNIS S. HANSEN, PRESIDENT
                                                                                           RALPH NELSON, COMMISSIONER

MARSHA H. SMITH, COMMISSIONER
ATTEST:

Myrna J. Walters
Commission Secretary
cm\O:ipce975.sw
FOOTNOTES
1:
Interest on Demand Side Management programs is similar to Allowance for funds used During Construction (AFUDC).  AFUDC, an overhead cost, is booked as interest earned on the funds used to finance construction during the construction period prior to the time the asset is placed in rate base.  AFUDC and the interest on the deferred balance of the DSM Deferral is imputed “interest” that isn’t actual cash but is reflected as a source of income on the Company’s balance sheet.  The offsetting entry on the Company’s books is a debit to a deferred asset account.  If earnings sharing is calculated without removing this interest income, customers will earn interest today that will then be paid back in the future at a compounded amount.
COMMENTS AND ANNOTATIONS
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Service Date
May 16, 1997