20010326Comments.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 FOR A DEFERRED ACCOUNTING ORDER. )
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CASE NO. PAC-E-01-2

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. 28657, the Notice of Application and Notice of Modified Procedure in Case No. PAC-E-01-2 issued on March 5, 2001, submits the following comments.
On February 8, 2001, PacifiCorp dba Utah Power & Light Company (“PacifiCorp”) filed its Application, pursuant to Idaho Code § 61-524, for a deferred accounting order. PacifiCorp requests Commission authorization for an accounting order so that it may defer the costs associated with its Trail Mountain Mine. Specifically, PacifiCorp seeks authorization to defer approximately $27.1 million, which reflects the Company's unrecovered investment in the Trail Mountain Mine. PacifiCorp expects production at this mine will cease by mid-March 2001.

STAFF ANALYSIS
Normal Accounting Treatment
PacifiCorp's request to defer the Trail Mountain Mine unrecovered investment and mine closure costs is a deviation from normal accounting procedures. If normal accounting procedures are followed, the costs of the unrecovered investment and mine closure will be credited to the electric plant account in which it is included. As a depreciable class of property, the book cost of the unit retired is credited to electric plant and also charged to the accumulated provision for depreciation applicable to the property. The cost of removal and the salvage would also be charged or credited, as appropriate, to the applicable depreciation accounts.
The investment that has not been recovered would have normally been recovered through depreciation. Depreciation is the recognition that physical assets are consumed in the process of providing a service or a product. Generally accepted accounting principles (GAAP) require the recording of depreciation to be rational and systematic. Therefore, depreciation expense should match either the consumption of the asset or the revenues generated by the asset. Had PacifiCorp depreciated the assets as the coal was mined, the total remaining unrecovered investment would be in the same ratio as the amount of coal mined to the amount of coal expected to be mined (21.4:25 or 85.6%). It is reasonable for the depreciation of the investment in the mine to have been depreciated in the same relationship as the actual coal reserves to the estimated coal reserves. When the operations changed, PacifiCorp should have requested an adjustment in its depreciation rates to match the expected life of the mining operations. Had it done so, the unrecovered investment would be smaller.
Extraordinary Mine Closure Costs
PacifiCorp in Statement No. 9 of the Application requests deferral accounting so that it may have an opportunity to seek recovery of the extraordinary mine closure costs incurred by the Company, and that ratemaking treatment of the deferred Trial Mountain costs be considered in a future rate case. Staff does not view the mine closure costs as extraordinary. Mine closure costs are a normal cost of doing business. The Company, in its 10-K filed with the Security and Exchange Commission, for the year ended March 31, 2000 under the section titled “Environmental Issues” states:

All of the Company’s mining operations are subject to reclamation and closure requirements. The Company monitors these requirements and annually revises
its cost estimates to meet existing legal and regulatory requirements of the various jurisdictions in which it operates. Compliance with future requirements could
result in higher expenditures for both capital improvements and operating costs.

PacifiCorp March 31, 2000 Form 10-K at p. 8.
Therefore, PacifiCorp should have been accruing these reclamation costs and adjusting the expected liability annually.
The Federal Energy Regulatory Commission, in the Uniform System of Accounts ("USOA") (4-1-99 edition), defines extraordinary items as:
Those items related to the effects of events and transactions which have occurred
during the current period and which are of unusual nature and infrequent occurrence
shall be considered extraordinary items. Accordingly, they will be events and transactions of significant effect which are abnormal and significantly different
from the ordinary and typical activities of the company, and which would not
reasonably be expected to recur in the foreseeable future.

18 CFR Ch. I (4-1-99 Edition) at p. 285.

PacifiCorp is aware of the mine closure costs that will be incurred for all its mining operations, and monitors the cost estimates for closure costs. Clearly this is in the normal course of business and therefore not an extraordinary cost.
The mine was acquired in 1992. The last rate case for PacifiCorp was Case No. U-1009-157, with a 1985 test year, final Order No. 20372 dated April 10, 1986. Since the mine was acquired after the last rate case, this asset has not been reviewed by the Commission for prudency. Subsequent Staff audits have recognized the mine expenditures when reviewing earnings levels, however, in a future proceeding Staff will look at the criteria and conduct a prudency review to assess PacifiCorp’s decision to purchase the mine. Staff will investigate other possibilities and other options available to the Company at the time of the mine purchase to assess whether this was the least-cost option and the most beneficial for the Company and customers. PacifiCorp is asking to defer the remaining investment for recovery in a future rate proceeding. If the purchase of the mine is not found to be prudent or it is found that additional depreciation should have been reflected, Staff could argue that including the deferral balance in rate base or the amortization in rates would not be appropriate. The amortization would then be below the line.

STAFF RECOMMENDATION
Staff recommends that the Company be allowed to defer the mine closure costs and unrecovered investment in the Trail Mountain Mine in separate subaccounts. Staff accepts the
5-year amortization as requested. Additionally, Staff recommends that the amortization begin immediately when the deferral is established.

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

________________________
John R. Hammond
Deputy Attorney General

Technical Staff: Terri Carlock
Kathy Stockton

KLS:TC:JH:gdk:i:umisc/comments/pace01.2jhtckls

STAFF COMMENTS 1 MARCH 26, 2001