20010125Decision Memo.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
JEAN JEWELL
RON LAW
LOU ANN WESTERFIELD
BILL EASTLAKE
TONYA CLARK
DON HOWELL
RANDY LOBB
DAVE SCHUNKE
TERRI CARLOCK
BEVERLY BARKER
WORKING FILE

FROM: JOHN R. HAMMOND

DATE: JANUARY 25, 2001

RE: IN THE MATTER OF THE APPLICATION OF PACIFICORP dba UTAH POWER & LIGHT COMPANY FOR A DEFERRED ACCOUNTING ORDER. CASE NO. PAC-E-00-5.

On November 1, 2000, PacifiCorp filed an Application for a deferred accounting order. On December 7, 2000, Monsanto Company and the Idaho Irrigation Pumpers Association, Inc., (“Irrigators”) filed petitions to intervene in this case. The Commission granted both Petitions on December 21, 2000. Order Nos. 28597 and 28598. The Commission issued Notice of Application and Notice of Modified Procedure on December 20, 2000. Order No. 28593. However, because of administrative delay this Notice was not timely sent, thus, an Amended Notice of Comment/Protest Deadline was filed requiring interested parties to file comments/protests no later than January 11, 2001. The Commission also determined that it would accept reply comments filed within seven (7) days after this date. On January 11, 2001, the Irrigators’ filed a Motion to Dismiss and Comments, and the Commission Staff and Monsanto also filed comments. PacifiCorp filed its response to Intervenors’ and Staff’s comments on January 18 and 19, 2001, respectively.
PACIFICORP’S APPLICATION
PacifiCorp’s Application seeks Commission authorization to defer excess net power costs starting on November 1, 2000 and continuing until the earlier of October 31, 2001 or until such date as new rates are implemented providing for their recovery. PacifiCorp seeks this authority because it has incurred extremely high wholesale purchased power costs since May 2000 which are substantially above the wholesale market prices upon which its net power costs in rates are based. For example, the Company estimates that for the period from January 1 through December 31, 2001 its actual costs will exceed Idaho’s allocated share of costs by $8,000,000. The Company claims that to this date it has absorbed these excess costs. Accordingly, the Company feels that deferred accounting treatment is the appropriate, just and reasonable means of providing it an opportunity to seek recovery of extraordinary excess purchased power costs it may incur in the future.
PacifiCorp proposes to calculate its deferred excess net power costs by using data from an Oregon rate case because there is no post-merger Utah Power/PacifiCorp rate case where its net power costs were addressed. See, In the Matter of the Revised Tariff Schedules Applicable to Electric Service Filed by PacifiCorp, Docket UE-111, (Oregon P.U.C.; filed November 5, 1999).
PacifiCorp also requests that it be allowed to accrue a carrying charge on the unamortized balance at a rate equal to the weighted average costs of capital most recently recommended by Commission Staff in its audit of PacifiCorp’s results of operations.
The Company states that it will initiate discussions with Staff to develop a mechanism by the end of March 2001 for the recovery of deferred amounts and when it will be employed. Accordingly, PacifiCorp is not requesting a determination of ratemaking treatment at this time and will seek such determination in a later case.
Finally, the Company requests that this Application be processed by Modified Procedure pursuant to the Commission’s Rules.
ISSUES RAISED BY THE COMMENTS
After reviewing the comments and PacifiCorp’s Application the Commission Staff has identified specific issues which should be addressed by the Commission.

1. Motion to Dismiss
Monsanto argues that PacifiCorp’s Application should be dismissed because its approval would violate a condition set when the Scottish Power/PacifiCorp merger was approved. Case No. PAC-E-99-1, Order No. 28213. Specifically, that the Company would not seek a general rate increase effective prior to January 1, 2002. Order No. 28213 at 31. Based on this possible violation Monsanto requests dismissal of this Application.
Irrigators move the Commission to dismiss PacifiCorp’s Application based on the same argument made by Monsanto. See also, Order No. 28213 at 31.
In response PacifiCorp argues that it is only seeking deferral of excess power costs at this time and not a determination of ratemaking treatment. Therefore, no rate increase will result now if this Application is approved. Accordingly, PacifiCorp contends the general rate condition is not violated and asks that the Intervenors’ requests for dismissal be denied.
After review and consideration of the record, Staff initially recommends the Intervenors’ request for dismissal of this Application be denied.
2. Modified Procedure
Monsanto protests the use of Modified Procedure to process PacifiCorp’s Application. Rather, Monsanto contends that public interests require the issues presented by this Application be resolved through a more formal process. Monsanto offers a variety of reasons for its position. Principally, it believes that PacifiCorp bears the burden of establishing the factual and legal justification for a deferred accounting order and at present has failed to provide the necessary detail to justify its request. Furthermore, Monsanto claims that it has not had time to adequately review what Commission Order No. 28593 refers to as the “additional materials” filed by PacifiCorp and to conduct discovery as is necessary. In addition, Monsanto presents additional concerns about PacifiCorp’s Application: 1) to what extent are the alleged excess power costs incurred to serve native loads, or to support wholesale obligations in the unregulated market; 2) how is PacifiCorp’s Application consistent with the “rate moratorium” in Order No. 28213; 3) as a matter of sound public policy should the Commission discourage PacifiCorp’s proposal which would raise rates based on an isolated look at wholesale power costs, i.e. “piecemeal ratemaking,”; 4) the prudency of using PacifiCorp’s projections of future power costs in 2001 without adequate quantitative analysis; 5) the prudency of using a formula approved by the Oregon P.U.C. which Idaho stakeholders did not participate in and has not been tested or approved by the Idaho Commission; and 6) is it improper for PacifiCorp to attempt to circumvent Commission authority by proposing to confer only with Staff when it develops a mechanism for recovery of deferred costs.
Irrigators, like Monsanto, protest the use of Modified Procedure to process this Application. Irrigators also contend that PacifiCorp should provide justification for its Application in a more formal proceeding. To this end, Irrigators request more time to analyze PacifiCorp’s Application and supporting materials. Irrigators also wish to conduct discovery as necessary. Irrigators also voice 21 issues which it believes PacifiCorp should address prior to approval of its Application.
Despite these comments, PacifiCorp contends its Application still should be processed by Modified Procedure. First, and most importantly, PacifiCorp states again that its Application should not be treated as a general rate case as it is only a request for deferred accounting. PacifiCorp alleges that if the Application is granted its only affect will be to reserve for subsequent review the ratemaking treatment to be afforded deferred costs and will not result in a rate change now as the Intervenors have argued. In fact, the Company states it must seek approval of this Application as failure to obtain deferred accounting treatment may preclude it from recovering excess net power costs in the future. Citing In re Washington Water Power Co., Case. No. WWP-E-98-11, Order No. 28097, 1999 WL 667502 (I.P.U.C. 1999). Second, PacifiCorp claims that the Intervenors had adequate time to analyze this matter and have conducted no discovery. Third, PacifiCorp contends that its Application adequately states the legal basis for a deferred accounting order and the specific methodology for the calculation of costs.
Staff has recommended that PacifiCorp’s Application be processed using Modified Procedure under the Commission’s Rules.
3. Approval of the Application
Staff supports PacifiCorp’s request for a deferred accounting order to track unanticipated costs due primarily to price increases in the electric marketplace. Most of these cost increases are outside the control of Company officials. Therefore, Staff believes it is reasonable to allow for deferred accounting for these extraordinary costs despite the condition discussed above from the PacifiCorp/Scottish Power merger.
Staff also supports conducting discussions for the initial review of deferrals and the proposed ratemaking treatment with PacifiCorp and other parties prior to its presentation to the Commission in a future case. Since the review will be made in the next case, the deferral should not accrue interest prior to that time. If the deferral is approved, PacifiCorp will be allowed to defer the excess power expenses for future recovery. The opportunity for such recovery is not currently allowed under the regulatory model for PacifiCorp in Idaho. If the deferral were not approved, no interest would accrue and even the cost recovery would be questionable. Therefore, the changes to allow PacifiCorp the opportunity to recover these costs along with the improved earnings position that a deferred accounting order will provide are sufficient benefits for the Company without also having interest accrue now on deferred amounts. The ratemaking determination to accrue interest in the future on the Idaho unamortized amounts should be made when the other ratemaking determinations are made.
Staff recommends a deferral period be from December 1, 2000 through November 30, 2001. It is important that the deferral and any recovery mechanism include full 12-month increments to limit the impacts of seasonal usage and supply that can occur over the course of a full year. Staff recommends a beginning date of December 1, 2000 rather than November 1, 2000 to allow the effective deferral date to begin 30 days after the Application was filed on November 1, 2000. If a recovery mechanism has not been approved, Staff recommends a straight-line five-year amortization of the deferral begin January 1, 2003. This will limit the time period this deferral can remain on the books. Staff also recommends PacifiCorp be required to file monthly deferral reports showing all calculations for the monthly deferral, the corresponding accounting entries, and the balances for the associated deferred accounts.
Since PacifiCorp does not have a Power Cost Adjustment (PCA) or an existing deferral to adjust for these costs like Idaho Power or Avista Utilities, Staff believes additional areas and potential regulatory impacts must also be discussed when evaluating the possible recovery mechanisms. These areas include but are not limited to consideration of cost sharing, prudence, potential offsets and review of impacts, if any, from existing differences in regulation between Idaho and Oregon such as treatment of the Irrigation Interruptibility Credit and allocation methods. To facilitate these discussions, Staff proposes that the initial packet of information provided for discussion include the following:
Schedules showing what the monthly deferral would have been historically for 2000.

Schedules showing the monthly deferral to date for 2001.

Schedules showing the 1998 Net Power Cost and Net System Load for Idaho normalized by month to determine the actual base rate per MWh for each month in 1998.

Schedules showing all wholesale sale or purchase contracts that are long term (i.e. one year or longer) that expired or have been entered into since 1998.

Schedules showing power purchases and costs to replace Centralia generation.

Schedules showing the Total MWh Sales for Idaho customer classes by month for the deferral period.

Schedules showing that the portion of the deferral allocated to Idaho for Monsanto or Nu West will not be collected from other Idaho Customers. Therefore, the Company will have the incentive to get the lowest power cost possible and/or renegotiate contracts.

The deferral period proposed is for a 12-month period. Any recovery mechanism should reflect the 12-month increments (i.e. 1 year, 2 years, 5 years) to limit the impacts of seasonal usage and supply that can occur over the course of a full year.

Schedule showing the location of records for audit. The Company must keep records that will allow Staff to audit all aspects of the cost incurred and methods used to allocate costs to Idaho. This will include the ability to audit affiliates that supply, sell, purchase or negotiate terms for any part of the power cost.

Documentation showing at least the following:

Actions taken by PacifiCorp to mitigate the impact of the “circumstances contributing to these high costs – the combination of high gas prices and significant growth in electricity demand, coupled with little new generation” (Application, page 4),
The prudence of the purchases compared to other options available,

Optimization of Company-owned resources for the benefit of retail customers, and

Any other supply/purchase information PacifiCorp believes is relevant.
The deferred accounting order allowing the Company to defer the cost does not constitute Commission approval to collect the cost from Idaho ratepayers. PacifiCorp will make this request in a subsequent filing. In conjunction with the discussions on recovery mechanisms, Staff will audit the Company records and perform a prudence review.

Based on this record Staff recommends that PacifiCorp’s Application be approved by the Commission, subject to the conditions listed above in the Staff’s recommendation.
PacifiCorp raises three issues in response to Staff’s Comments. First, PacifiCorp disagrees that the deferral period should begin on December 1, 2000, as Staff recommends. PacifiCorp argues that it is unaware of any authority which would support Staff’s position on this matter. Furthermore, the Company states that its Application is not a request for a rate change thus, the 30- day notice requirement of Idaho Code § 61-307 is not triggered. Accordingly, PacifiCorp requests that the deferral period commence on November 1, 2000, as was requested in its Application. Second, PacifiCorp states that the Commission should withhold judgment on the amortization of deferred costs because it is unaware of the basis for Staff’s proposal that amortization not begin until 2003. However, PacifiCorp contends that this issue is ultimately unnecessary for the Commission to decide in this proceeding, as it will be addressed in a subsequent case. Third, PacifiCorp is concerned that Staff’s recommendation number seven listed above would prohibit the Company from recovering deferred excess net power costs to the extent they are attributed to the Nu West and Monsanto loads. Accordingly, PacifiCorp requests that the Commission withhold judgement on this issue as any recovery of deferred costs will be addressed in a later proceeding.
COMMISSION DECISION
Does the Commission wish to grant or deny the Irrigator’s Motion to Dismiss?
Does the Commission still wish to process this Application using Modified Procedure under the Commission Rules?
Does the Commission agree that the questions presented by the Intervenors and Staff should be addressed in discussions and a subsequent case filed by PacifiCorp regarding any recovery of deferred costs and the timing of that recovery rather than in this case?
Does the Commission wish to grant PacifiCorp’s Application for a Deferred Accounting Order?

John R. Hammond

Staff: Terri Carlock

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Order No. 28593 established a reply comment period of seven days after the Staff and Intervenor Comment date. This time frame was not specifically set in the amended notice issued on December 21, 2000, so Staff recommended that the Commission accept reply comments through January 18, 2001.
Irrigators believe that in substance rates for electric consumption prior to January 1, 2002 will go up and that this violates the spirit and intent of this condition.

PacifiCorp’s response presents other arguments which mainly reflect its displeasure with the Intervenors’ comments, thus Staff will not summarize them in this Decision Memorandum.

DECISION MEMORANDUM 1