20001221Notice of Application - Modified Procedure.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE JOINT APPLICATION OF PACIFICORP, AND PACIFICORP IDAHO, INC FOR AN ORDER APPROVING (1) THE TRANSFER OF DISTRIBUTION PROPERTY FROM PACIFICORP TO AN AFFILIATE, PACIFICORP IDAHO, INC., (2) THE ISSUANCE OR ASSUMPTION OF SECURITIES AND INCUMBRANCE OF ASSETS BY PACIFICORP, IDAHO, INC. AND/OR PACIFICORP, (3) THE TRANSFER BY PACIFICORP OF CERTAIN UTILITY PROPERTY TO AN AFFILIATE, THE SERVICE COMPANY, AND (4) THE PROPOSED ACCOUNTING TREATMENT FOR REGULATORY ASSETS AND LIABILITIES. )
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CASE NO. PAC-E-00-6

NOTICE OF APPLICATION

NOTICE OF
INTERVENTION DEADLINE

YOU ARE HEREBY NOTIFIED that on December 1, 2000, PacifiCorp (Company) and PacifiCorp Idaho, Inc. (jointly, the Applicants) filed an Application with the Idaho Public Utilities Commission (Commission) requesting approval to implement a restructuring of PacifiCorp into six separate state electric companies, a generation company and a service company. The Company is proposing this restructuring because it has concluded that its existing structure and interjurisdictional cost allocation is a source of risk and uncertainty that is not in the long term best interests of its customers or shareholders.
The Company in a cover letter states that it expects a lengthy and thorough review by the Commission. It understands that it will not be able to move forward absent a consensus of all six of the state commissions that regulate it. The Company acknowledges that the materials included in its Application are not sufficient to provide the Commission with all of the information that it will require to assess the impact of the proposed restructuring on the Company’s customers in Idaho. The Company states its intention to make at least two supplemental filings as information is developed. The Company hopes to continue to engage state commissioners, their staffs and other interested parties in a dialogue concerning the restructuring so that each state can provide input on its ultimate shape. The Company understands that each Commission will likely wish to design its own process and timing for moving forward with a review of its Application. To such end, the Company requests that the Commission schedule a prehearing conference with regard to its Application as soon as practicable.
APPLICATION
As reflected in the Application, under the proposed restructuring PacifiCorp will retain ownership and operation of its generating assets and change its name to “PacifiCorp Generation Company.” PacifiCorp will also retain ownership of its transmission assets, although control over and operation of these transmission assets are proposed to be transferred to a regional transmission organization, RTO West. (During the second quarter of 2001, PacifiCorp expects to amend the Application to seek necessary regulatory approvals for this transfer.) PacifiCorp’s non-remaining transmission utility assets will be allocated among six new state electric companies—including PacifiCorp Idaho, Inc.—and a service company (the “service company”). Upon completion of the restructuring, the service company will be renamed “PacifiCorp.” Above all these companies and the corporate structure will be a newly formed, non-operating U.S. holding company, PacifiCorp Holdings, Inc.
The new Idaho electric company, PacifiCorp Idaho, would continue to serve PacifiCorp’s electricity customers in Idaho, and will be a public utility subject to the jurisdiction of the Commission. PacifiCorp Idaho will acquire the necessary power supply to serve its utility customers pursuant to a power sales contract between PacifiCorp Idaho and PacifiCorp Generation Company (“Power Supply Contract”). The Power Supply Contract will provide PacifiCorp Idaho’s current requirements; future requirements will be met through additional agreements with PacifiCorp Generation Company or third party suppliers.
Applicants seek the following regulatory approvals in connection with the proposed corporate restructuring:
Transfer of PacifiCorp’s distribution property within the state of Idaho to PacifiCorp Idaho,

Issuance of stock and issuance or assumption of indebtedness by PacifiCorp Idaho and/or PacifiCorp in connection with the transfer of distribution and service assets from PacifiCorp to be PacifiCorp Idaho (and other new companies), and the encumbrance of such property,

Issuance of short-term debt by PacifiCorp Idaho to provide an initial source of working capital, and

Transfer of certain of PacifiCorp’s utility property to the service company.

In addition, Applicants request approval of proposed accounting treatment for the regulatory assets and liabilities (such as deferred taxes and deferred pension costs) associated with (1) the assets transferred by PacifiCorp to PacifiCorp Idaho, and (2) an allocable share of the generation and transmission assets supporting service to PacifiCorp Idaho under the Power Supply Contract. Specifically, Applicants propose to remove such regulatory assets and liabilities from the books of PacifiCorp and transfer such balances to the books of PacifiCorp Idaho for recovery through PacifiCorp Idaho’s tariffs.
PacifiCorp Idaho
As reflected in its Application, PacifiCorp Idaho will be organized as an Oregon corporation for the purposes of acquiring and operating PacifiCorp’s distribution assets in the state of Idaho. The assets which PacifiCorp proposes to transfer to PacifiCorp Idaho generally are those distribution system assets located in the state of Idaho used to serve the Company’s existing electric customers in Idaho, i.e.:.
Distribution poles and wires, land, rights-of-way
Distribution assets assigned to Idaho by virtue of situs in Idaho
Movable distribution assets (trucks, equipment, etc.) used to serve Idaho customers
Meters used to serve Idaho customers.

In addition, special contracts with customers in Idaho will be assigned by the Company to PacifiCorp Idaho.
Following the corporate restructuring and consistent with its obligations as a public utility, PacifiCorp Idaho will be responsible for providing the following functions: maintenance of transmission and distribution facilities in Idaho; customer service; and management, regulatory and public affairs functions necessary to support operation of the electric company within Idaho and associated filings and regulatory approvals from the Commission. PacifiCorp Idaho, it is stated, may contract with the service company for some of the resources to perform these functions.
Service company
The assets which PacifiCorp proposes to transfer to the service company generally are those assets used to perform the following centralized functions: distribution management; transmission asset management and regulation; transmission and distribution construction; call center operations; billing/customer service activities; outage and other integrated, inseparable systems; procurement; meter reading and installation; corporate risk management; fleet management scheduling; load and resource planning; supply bid management for new regulated load; wholesale billing, accounting, settlements (if performed by an integrated, inseparable system); finance; human resources; and senior management and corporate Staff support (except personnel remaining with PacifiCorp assigned to a particular state electric company). As indicated, the service company may contract with PacifiCorp Idaho to provide some of the resources to perform the functions for which PacifiCorp Idaho is responsible.
The assets to be transferred to the service company include the following:
Call centers
Billing system/customer service
Outage and other integrated, inseparable systems
Other assets that serve company-wide functions, such as telecommunications system, Systems and Applications Products (SAP), etc.

Transfer terms/accounting treatment, etc.
PacifiCorp proposes to transfer the Idaho distribution assets to PacifiCorp Idaho in exchange for one thousand shares of common stock of PacifiCorp Idaho and, with exceptions, a note, secured by these assets. The Company’s preliminary analysis indicates that the principal amount of the note will be approximately $75 million, which is intended to achieve a 50% equity ratio for PacifiCorp Idaho. The note would be payable in full in less than one year after issuance, and all payments of principal and interest would be used to service existing indebtedness of PacifiCorp. PacifiCorp Idaho will record the distribution assets on its books at PacifiCorp’s net book value.
The Company requests approval of proposed accounting treatment for the regulatory assets and liabilities associated with (1) the assets transferred by PacifiCorp to PacifiCorp Idaho, and (2) an allocable share of the generation and transmission assets supporting service to PacifiCorp Idaho under the Power Supply Contract.
PacifiCorp Generation Company
Following the corporate restructuring, PacifiCorp Generation Company will perform all generation and mining management, including plant/mine construction, plant/mine operation and maintenance, and plant dispatch and scheduling. In addition, PacifiCorp Generation Company will provide wholesale trading, customer service and risk management. Related to these functions, PacifiCorp Generation Company will own the generation and mining assets, including: mines, plants (and related buildings, land and water rights), step-up transformers, generation systems (including trading, risk management and plant), generation dispatch and scheduling, and power sale contracts. PacifiCorp Generation Company may also retain control of some low voltage transmission assets, depending on how RTO West is ultimately structured.

As reflected in its Application, a fundamental change in the Company’s corporate structure is both imperative and overdue. These developments include: (1) direct access initiatives in Oregon and elsewhere; (2) the need to provide independent control of the Company’s transmission assets, consistent with expectations of FERC; (3) fundamental changes in wholesale power markets and the risk of generation supply shortages; (4) industry consolidation; (5) the divergent policy goals of the state commissions that regulate the Company; (6) the limitations of traditional cost-of-service regulation; and (7) the breakdown of the Company’s interjurisdictional cost allocation process.
The Company represents that the proposed restructuring will produce the following benefits:
Each of the jurisdictions within which the Company operates will be able to pursue regulatory policies that it deems appropriate without affecting customers in other states or causing the Company’s shareholders to be unfairly treated.

The restructuring will facilitate a comprehensive resolution of the issues discussed in its Application, including direct access, interjurisdictional cost allocation and RTO formation. These issues, the Company states, are inextricably linked and require a comprehensive resolution. For example, many people believe that in those states that favor some form of direct access, markets will not be fully competitive in the absence of an RTO. In turn, RTO formation may result in a reallocation of transmission costs which would be difficult to accomplish unless the Company’s various jurisdictions understand how generation is going to be allocated. Any given state is hard-pressed to implement direct access in a manner that does not have adverse consequences on other jurisdictions or shareholders unless there is a permanent allocation of the economic benefits of the Company’s existing generation among states.

The proposed restructuring will substantially improve how the Company is regulated. Each state commission will, in effect, have a single electric company to regulate and each will be free to consider innovative alternatives to traditional cost of service regulation. It can be expected that the most successful of those innovations will be adopted by other states.

Creation of the service company would be a vehicle for each of the Commissions to consider performance-based regulation of the transfer prices between the service company and the state electric companies that will bench-mark the quality and cost of services being provided with less emphasis on traditional means of regulating affiliated interests.

Creation of the service company could also afford all the Company’s customers the benefits of economies of scale by contracting for services (at cost) with non-affiliates. At the same time, each Commission would retain local control over the policies of the state electric company that it regulates.

The proposed Power Supply Contract provides a means of resolving the increasing dilemma opposed by the “revenue credit” method of dealing with the Company’s wholesale prices. The contract is intended to be structured in a fashion that affords PacifiCorp’s retail customers the remaining economic benefits of existing generation and long-term sales contracts, while not relying on new wholesale contracts to moderate retail prices.

The proposed restructuring would eliminate (or least substantially reduce) the controversy and disfunctionality associated with interjurisdictional allocation mechanisms.

The proposed restructuring and follow-on regulatory actions should clarify the rules, roles and responsibilities for the construction of new generation in each of the states. In particular, the terms of the proposed Power Supply Contract establish that each of the state electric companies will have the option of buying future power requirements from PacifiCorp Generation Company or third party suppliers. This ought to provide substantial opportunities and stimulus for a competitive independent power industry. With the rules, roles and responsibilities so clarified, PacifiCorp and independent power producers will be free to make investment decisions that are not unduly burdened by legislative and regulatory uncertainty.

The Company’s filing is accompanied by prefiled testimony and exhibits.
COMMISSION FINDINGS
PacifiCorp in its filing requests approval to implement a restructuring of PacifiCorp into six separate state electric companies, a generation company and a service company. The Company acknowledges that its filing is incomplete and does not provide the Commission with all the information that will be required to assess the input of the proposed restructuring on the Company’s customers in Idaho. The Company anticipates that the ultimate shape of restructuring will be developed by engaging state commissioners and staff and interested parties in constructive dialogue.
The Company in its Application requested that the Commission establish a prehearing conference date for early January. Commission Staff has expressed concern with the incompleteness of the Company’s filing and contends that scheduling a prehearing conference in this case at this time would be premature. It is Staff’s recommendation that should the Commission find it reasonable to accept the Company’s filing, that the Commission issue only a Notice of Application and establish an Intervention Deadline. By letter filed with the Commission on August 18, 2000, the Company pledges its commitment to work with the parties to shape the details of its proposal and acquiesces to Staff’s proposed procedure.

YOU ARE FURTHER NOTIFIED that persons desiring to intervene in Case No. PAC-E-00-6 for the purpose of becoming a party, i.e., to present evidence, to acquire rights of cross-examination, to participate in settlement or negotiation conferences, and to make and argue motions must file a Petition to Intervene with the Commission pursuant to Rules of Procedure 72 and 73 of the Commission’s Rules of Procedure, IDAPA 31.01.01.072 and -073. Persons intending to participate in this case as a formal party must file a Petition to Intervene on or before Friday, January 12, 2001.
YOU ARE FURTHER NOTIFIED that persons desiring to present their views without parties’ rights of participation and cross-examination are not required to intervene and may present their comments without prior notification to the Commission or to other parties.
YOU ARE FURTHER NOTIFIED that discovery is available in Case No. PACE006 pursuant to the Commission’s Rules of Procedure, IDAPA 31.01.01.221-234.
YOU ARE FURTHER NOTIFIED that the Company’s Application together with the filings of record can be reviewed at the Commission’s office in Boise, Idaho and at the Company’s Idaho offices during regular business hours.
YOU ARE FURTHER NOTIFIED that all proceedings in this case will be held pursuant to the Commission’s jurisdiction under Title 61 of the Idaho Code and the Commission will enter any final Order consistent with its authority under Title 61.
YOU ARE FURTHER NOTIFIED that all proceedings in this matter will be conducted pursuant to the Commission’s Rules of Procedure, IDAPA 31.01.01.000 et seq.
DATED at Boise, Idaho this day of December 2000.

DENNIS S. HANSEN, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

PAUL KJELLANDER, COMMISSIONER

ATTEST:

Jean D. Jewell
Commission Secretary

Vld/N:PAC-E-00-06_sw

NOTICE OF APPLICATION
NOTICE OF INTERVENTION DEADLINE 1

Office of the Secretary
Service Date
December 21, 2000