19990921Decision Memo.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
MYRNA WALTERS
DON HOWELL
STEPHANIE MILLER
TONYA CLARK
RON LAW
BILL EASTLAKE
TERRI CARLOCK
WORKING FILE

FROM:

DATE: September 21, 1999

RE: CASE NO. IPC-E-99-6; TRANSFER OF OWNERSHIP INTEREST OF APPLIED POWER CORPORATION AND IDACORP FINANCIAL SERVICES, INC. FROM IDAHO POWER COMPANY TO IDACORP, INC.

Idaho Power Company (Idaho Power, Company) filed an Application on July 22, 1999, requesting authority to transfer its ownership interest in Applied Power Corporation and Idacorp Financial Services, Inc. to Idacorp, Inc. As reflected in Idaho Power’s Application, Applied Power Corporation (APC) is a Lacey, Washington based company that designs, supplies and distributes photovoltaic systems. APC provides solar electric products and systems for industries, contractors, government and dealers and distributors of solar products. APC does not provide any services to Idaho Power, the Company states, nor does it own or lease from Idaho Power any utility operating property. APC does not rent office space from Idaho Power.
Idaho Power acknowledges that it does provide administrative and recordkeeping functions to APC for the employees’ savings plan and related programs, advice and assistance in the preparation of and responses to income tax audits, and legal advice and assistance concerning the review and preparation of certain contracts and agreements.
Idacorp Financial Services, Inc. (IFS), is a Boise-based company that invests in affordable housing programs which provide returns by reducing federal income taxes through the creation of tax credits and tax depreciation benefits through the low-income housing investment tax credit enacted by Congress with the Tax Reform Act of 1986. At the end of 1998, Idaho Power states, IFS was participating in 12 such housing projects. Idaho Power contends that IFS does not provide any services to the Company nor does it own or lease from Idaho Power any utility operating property. IFS does not rent any office space from Idaho Power.
Idaho Power acknowledges that it provides information systems technical support to IFS; payroll support, administrative and recordkeeping functions for participation in the pension plan, the employees’ savings plan, and the medical/dental benefit plans; advice and assistance in the preparation of and responses to income tax audits; and legal advice and assistance concerning the review and preparation of certain contracts and agreements.
Idacorp, Inc. is a holding company that is the parent of Idaho Power as authorized by Commission Order No. 27348 issued in Case No. IPC-E-97-11. Idaho Power proposes that the transfer of ownership interest in APC and IFS from Idaho Power to Idacorp will be accomplished through the transfer of the stock in those two entities from Idaho Power to Idacorp. The transfer, the Company states, will be a non-taxable event and there will be no transfer of any utility operating properties because APC and IFS do not own or control such properties.
The Commission issued a Notice of Modified Procedure soliciting comments in response to Idaho Power’s Application. The Commission Staff was the only party to submit comments.

Staff Analysis
As of June 30, 1999, Idaho Power’s cash investment in Applied Power Corporation equals $5.5 million and represents ownership interest of 86.275%. Idaho Power’s cash investment in Idacorp Financial Services, as of June 30, 1999, equaled $6.5 million. Staff supports the transfer of APC and IFS from Idaho Power Company to Idacorp, Inc. subject to the same conditions established in IPC-E-97-11, Order No. 27348 at pages 4-5. These conditions state that Idaho Power will provide access to the books, records, officials and Staff of affiliated companies and that reports will be supplied (Idaho Power has informed Staff that it does not object to the imposition of these conditions). Staff continues to believe that the moving of non-utility subsidiaries and operations to the holding company from the utility will reduce the risk for the utility operations. This in turn could improve or at least maintain credit ratings for the utility to assure continued access to the capital markets at favorable rates.
The rate freeze/revenue sharing stipulation remains in force through the 1999 calendar year. Earnings from subsidiaries are included in the revenue sharing calculation per the stipulation. To be consistent with the stipulation, the earnings from APC and IFS should be included in the revenue sharing calculation, Staff asserts.
Since the formation of Idacorp, Inc., Staff and Idaho Power have had informal discussions and Staff has completed audit work related to the time card process and the charging of labor to non-utility operations along with the process to charge expenses to non-utility operations directly and through labor loading, to non-utility operations. The Affiliated Service Agreements between Idaho Power Company and other Idacorp subsidiaries were evaluated. While the Staff would prefer to see full absorption costing, the current cost to implement such a system is not currently cost effective and it appears Idaho Power’s direct and incremental allocation approach with an additional 10% contribution to fixed costs provides reasonable results at this time. Idaho Power will continue to evaluate the cost effectiveness of moving to full absorption costing. In the meantime, all new or renewed Affiliated Service Agreements should provide documentation to justify the continued reasonableness of the 10% contribution.

Commission Decision
Should the Commission approve Idaho Power’s Application? If so, should the conditions proposed by Staff be imposed?

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