20010625Comments.doc

JOHN R. HAMMOND
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5470

Street Address for Express Mail:
472 W WASHINGTON
BOISE ID 83702-5983

Attorney for the Commission Staff

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

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

COMMENTS OF THE
COMMISSION STAFF

COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its Attorney of record, John R. Hammond, Deputy Attorney General, in response to Order No. 28593,
the Notice of Application and Notice of Modified Procedure in Case No. PAC-E-00-5 issued on December 20, 2000, and Errata to Order No. 28593 issued December 29, 2000, submits the following comments.

SYNOPSIS OF PACIFICORP'S APPLICATION
On November 1, 2000, PacifiCorp (Company) filed its Application for a deferred accounting order. Commission authorization of this request would allow PacifiCorp, starting on November 1, 2000, to defer excess net power costs. The Company alleges that deferred accounting treatment is the appropriate, just and reasonable means of providing it an opportunity to seek recovery of the extraordinary excess purchased power costs which it may incur in the future.
PacifiCorp states that as a normal and integral part of its operation as a public utility it purchases electricity from independent suppliers in the wholesale market. The Company contends that these purchases, as well as sales in the wholesale market, are taken into account in setting its retail rates through the inclusion of net power costs in its jurisdictional revenue requirement. PacifiCorp alleges that since May of this year it has incurred extremely high wholesale purchased power costs which are substantially above the wholesale market prices upon which its net power costs in rates are based. The Company claims that to this date it has absorbed these costs.
PacifiCorp also expects that the annual average market price of power during 2001 will be approximately three times higher than what is currently reflected in rates. PacifiCorp claims that it will experience these high costs in the future until the following underlying circumstances have been addressed: high gas prices; significant growth in the demand for electricity; and the lack of new generation capacity coming on line. 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. Accordingly, PacifiCorp requests authority to defer excess net power costs incurred during the period beginning November 1, 2000 and continuing until the earlier of October 31, 2001 or such date as new rates are implemented which provide for recovery of excess power costs experienced.
PacifiCorp proposes to calculate its deferred excess net power costs by using data from an Oregon rate case. See, In the Matter of the Revised Tariff Schedules Applicable to Electric Service Filed by PacifiCorp, Docket UE-111, (Oregon Public Utilities Commission; filed November 5, 1999). The Company claims that the net power costs from this case are a reasonable surrogate for the “in-rates” net power costs in Idaho because there has been no post-merger Utah Power/PacifiCorp rate case where its net power costs were addressed. Specifically, PacifiCorp states:
The [deferred] excess net power costs . . .will be calculated as the product of (a) the difference between the net power costs implicit in the stipulation approved by the Oregon Public Utility Commission in Docket UE-111, on a per MWh basis, and the Company’s actual net power costs during the deferral period, on a per MWh bases, and (b) the retail load included in rates. Such excess net power costs will be calculated on a monthly basis.

Application at p. 5, ¶ 8 (footnote omitted).
In addition, PacifiCorp also proposes to use the 1998 normalized Idaho retail load that conforms to the load included in the power costs study used in the Oregon rate case.
PacifiCorp proposes to account for these costs in the following manner:
Excess net power costs will be credited to Account 557, thereby decreasing the recorded power supply expenses, and debiting Account 182.3. Deferred income taxes would be recorded by debiting Account 410.10, and crediting Account 283. The amortization of the balance in Account 182.3 would be accomplished by crediting Account 182.3 and debiting Account 557. Deferred income taxes would be amortized by debiting Account 283 and crediting Account 411.10.

Application at pp.5-6, ¶ 9

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.
Finally, PacifiCorp proposes that it will initiate discussions with the Commission Staff to develop a mechanism by the end of March 2001 for the recovery of the deferred amount and when such mechanism will be employed. Accordingly, PacifiCorp does not request a determination of ratemaking treatment at this time and that any such determination will be made in a later case.
The Company requests that this Application be processed under Modified Procedure.

STAFF ANALYSIS AND RECOMMENDATIONS
Staff supports PacifiCorp’s request for an accounting order authorizing it to defer excess net power costs in Account 182.3 Other Regulatory Assets. Staff recommends that the subaccount detail be such that the costs for each deferral program can be easily identified and audited. These unanticipated costs are 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 even though PacifiCorp currently operates under a rate freeze in Idaho.

Staff also supports conducting discussions for the initial review of deferrals and the proposed ratemaking treatment with PacifiCorp 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 review. 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 will result are sufficient benefits for the Company without interest. 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 the deferral period be for the twelve-month period of 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.

The original Notice of Modified Procedure, Order No. 28593 established a reply comment period seven days after the Staff and Intervenor Comment date. Since this reply comment time frame was not specifically established in the amended notice issued on December 21, 2000, Staff recommends that the Commission accept reply comments through January 18, 2001.

DATED at Boise, Idaho, this day of January 2001.

________________________
John R. Hammond
Deputy Attorney General

Technical Staff: Terri Carlock

TC:JH:gdk:i:umisc/comments/pace005.jhtc
A condition of the Commission’s order approving the merger between ScottishPower and PacifiCorp is that the merged Company will not seek a general rate increase effective prior to January 1, 2002. Case No. PAC-E-99-1, Order No. 28213, p.31.

STAFF COMMENTS 6 JANUARY 11, 2001