20040520Comments.pdf

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 1895
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
ACIFICORP DBA UTAH POWER & LIGHT
COMP ANY FOR APPROVAL OF REDUCTIONS)
IN BONNEVILLE POWER ADMINISTRATION
REGIONAL EXCHANGE CREDITS.
IN THE MATTER OF THE APPLICATION OF
ACIFICORP DBA UTAH POWER & LIGHT
COMP ANY FOR A DEFERRED ACCOUNTING
ORDER AND APPROVAL OF A SURCHARGE.
CASE NO. P AC-O3-
CASE NO. P AC-O4-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of
Application in Case No. P AC-04-, Notice of Consolidation with Case No. P AC-03-
Notice of Modified Procedure, Notice of Comment/Protest Deadline and Order No. 29489 issued
on May 5, 2004, submits the following comments.
STAFF COMMENTS MAY 20, 2004
BACKGROUND
On March 31 , 2003, PacifiCorp filed an Application with the Idaho Public Utilities
Commission in Case No. PAC-03-5 for an accounting Order allowing the Company to defer
for regulatory purposes (a) excess costs incurred in 2001 for forward purchases made for the
summer of 2003, and (b) federal and state tax payments made in 2002 resulting from Internal
Revenue Service Income Tax Audits.
On December 21 , 2003 , following an informal stay of proceedings , the Company filed an
amended Application with the Commission (a) removing its request for deferred accounting
authority for summer 2003 excess power purchase costs, (b) providing additional and amended
information regarding 2002-2003 tax audit payments, and (c) requesting approval of a 16-month
Schedule 93 surcharge to collect the income tax related payments and to recover a proj ected
under collection in the present Schedule 93 surcharge for recovery of authorized excess power
costs.
On April 21 , 2004, PacifiCorp filed an Application in Case No. PAC-04-2 to reduce
Bonneville Power Administration (BP A) residential exchange credits. The credit reduction
reflects both the annual change in BP A credits and the recovery of a negative balance booked in
2003. In addition to the Application, the Company filed a motion to consolidate its Application
with the pending PacifiCorp proceeding, P AC-03-
In Comments filed on April 30, 2004 in Case No. P AC-03-, Staff apprised the
Commission of its intent to continue working with parties of record and the Company to develop
a comprehensive settlement addressing all of the rate and cost recovery issues incorporated in
Case Nos. PAC-03-5 and PAC-04-2. Staff further apprised the Commission that a
settlement agreement would be submitted no later than May 19 2004.
On May 5, 2004, the Commission issued Order No. 29489 in Case No. P AC-04-
consolidating Case Nos. P AC-04-2 and P AC-03-, establishing modified procedure for
processing the 04-2 portion of the consolidated docket and setting a comment deadline of May
, 2004. The Stipulation and the Supplemental Stipulation were submitted to the Commission
on May 13 , 2004. Reference IDAPA 31.01.01.272. The following Staff Comments support the
Stipulation and the Supplemental Stipulation as reasonably resolving all issues raised in the
consolidated cases.
STAFF COMMENTS MAY 20, 2004
STAFF COMMENTS
The comprehensive settlement submitted to the Commission by PacifiCorp and supported
by all parties including the Commission Staff, actually consists of a Stipulation and a
Supplemental Stipulation. The Stipulation addresses the following issues associated with the
P AC-03-5 Case:
a) The $4.2 million tax audit payment deferrals and surcharge recovery over a
16-month period.
b) An approximate $200 000 Power Cost surcharge true-up recovery over a
16-month period.
c) A commitment by the Company to forego a general rate increase until after
September 16, 2005.
The Supplemental Stipulation includes the following issues addressed in the P AC-04-2 Case:
a) Implementation of a $597 000 reduction in annual BP A Residential Exchange
Credits
b) Recovery over a three-year period of a $ 5.7 million negative residential
exchange credit deferral balance created by over-crediting customers in
2003/2004.
The terms of the proposed Stipulation and the Supplemental Stipulation, referred to from
this point forward collectively as the Stipulation, results in no rate increase for most of
PacifiCorp s Idaho customers when combined with rate changes already scheduled to take effect
on June 8, 2004. While 230 customers served under tariff Schedule 6a and Schedule 8 will
receive a slight rate increase (3.6% and 2.95%, respectively) due to reduced BP A exchange
credits, many more customers will see a net decrease in rates over those currently in effect.
Tax Audit Payments
As indicated in prior Staff Comments, the primary issue subject to resolution in the
consolidated case is the amount and timing of additional tax payments incurred in 2002 and 2003
that are subject to deferral and recovery. These additional tax payments result from IRS audit of
Company tax returns filed for tax years 1994 through 1998. All other rate changes are either
previously scheduled with Commission approval or result from changes in BP A residential
exchange credits that are beyond the control of PacifiCorp.
STAFF COMMENTS MAY 20, 2004
PacifiCorp s 03-5 Application for a deferral accounting Order filed in March of2003
requested deferral of both extraordinary power purchases made in 2001 and federal and state
income tax audit payments made in 2002. Upon review of the filing, Staff informally expressed
concerns to the Company regarding deferral of additional power purchase costs given the passage
of time since the purchases were made and the fact that a surcharge had just been put in place to
recover similar extraordinary costs. At the same time, Staff requested more information
regarding the annual tax expense paid by customers through rates each year and what additional
audit payments, if any, might reasonably be subject to recovery from customers.
As a result of further discussions with the Company and Staff s request for additional
information, PacifiCorp filed an amended Application on December 23 , 2003 in the P AC-03-
case eliminating its request for deferral of extraordinary power supply costs and requesting
deferral and recovery of tax audit payments incurred in both 2002 and 2003 for 1994-1998 tax
years.
The underlying rationale put forth by the Company and generally accepted by Staff for
the purpose of this Stipulation is that aggressively filed income taxes can decrease tax expense
included in base rates but can also increase periodic tax payments resulting from IRS audit. Staff
agrees with the general proposition that allowing recovery of prudently incurred tax audit
payments provides an incentive for utilities to file income taxes aggressively thereby decreasing
overall tax expense passed on to customers through rates. Staff also takes note of past
Commission Order No. 20523 that recognizes tax audit expense as a potentially legitimate
expense possibly subject to recovery through amortization. Staffhas verified that additional
taxes for the tax periods in question have been paid to the IRS as a result of income tax audit and
have not been collected from ratepayers through other means such as tax reserve accounts. Staff
notes that the Company s request to recover its additional tax audit payment was made
contemporaneous with the IRS tax obligation determination. Consequently, for the purposes of
this Stipulation, Staff accepts the $4.2 million tax audit payments as legitimate expenses subject
to recovery through the proposed 16-month surcharge. At the request of Staff, any future audit
payments will not be recovered by surcharge. Instead, PacifiCorp will file in the next Idaho rate
case a proposed method of recovering future income tax audit payments, other than through
surcharge.
STAFF COMMENTS MAY 20, 2004
BP A Residential Exchange Credits
The next most significant issue subject to negotiation and settlement in the Stipulation is
the recovery of the deferred BP A exchange credit overpayment of $5.7 million. The over
payment accrued when BP A reduced credits paid to PacifiCorp beginning in February 2003 but
PacifiCorp has not reduced credits paid to its Idaho customers. The reduction in BP A credits is
beyond the control ofPacifiCorp and constitutes a direct pass through to customers. Staff has
verified the overpayment amount and supports the proposed reduction in future BP A credits over
an approximate 28-month period to eliminate the deferral balance.
In addition to recovery of the BPA credit overpayment accrued during 2003 , the
Stipulation provides for pass through of a further reduction in BP A credits of $597 000 per year
to reflect the level of BP A credits currently received by PacifiCorp. This reduction is also
beyond the control ofPacifiCorp and constitutes a direct pass through to customers. Staffhas
verified the additional reduction in BP A credits going forward and supports the treatment
proposed in the Stipulation. The overall net change in exchange credits of $2.496 million per
year will be reflected in the tariff Schedule 34. Staff understands that the Company s goal is to
achieve a zero balance in the exchange credit overpayment account by September 16, 2006 and
believes the target date to be reasonable. Additional adjustment in the Schedule 34 rate may be
required depending upon actual credits received from BP A and the annual energy consumption of
PacifiCorp s Idaho customers.
Scheduled Rate Changes
One of the more important events allowing the Stipulation to be implemented with
minimal rate increase is the general reduction in rates that is already scheduled to take place on
June 8, 2004. The changes include elimination of all but a small portion of the Power Supply
Cost (PSC) surcharge put in place by Commission Order No. 29034 issued in 2002. The second
year of the surcharge, currently collected at an annual rate of approximately $7.24 million per
year, will essentially expire with only a $200 000 true up remaining to be recovered over a 16-
month period. While the Commission approved the true-up provision in Order No. 29034, the
recovery period is part of the proposed Stipulation in this case.
In addition to the scheduled reduction in the PSC surcharge, scheduled rate adjustments
will also occur on June 8, 2004 as a result of changes in the Rate Mitigation Adjustment (RMA)
STAFF COMMENTS MAY 20, 2004
previously approved by the Commission in Order No. 29034. The RMA was designed to modify
rates and revenue generated from the various customer classes to more closely match revenues
with class cost of service. During the PSC surcharge period, the RMA was also utilized to
mitigate the surcharge impact on individual customer classes. The third year of the previously
approved RMA established a class revenue shift that remains in place until reset in a general rate
case. These scheduled adjustments are unchanged by the proposed Stipulation.
Rate Impact Summary
When all of the rate changes, both previously scheduled and those proposed in the
Stipulation are combined on June 8 , 2004, only two rate classes experience any rate increase over
rates in place the prior year. This increase for some 230 customers in Schedule 6A and Schedule
8 is the result of previously approved and scheduled rate changes. Recovery of the tax audit
payments and elimination of the BP A credit over payment balance were applied to each customer
class in such a way as to assure that rates decreased, stayed the same or increased no more than
they otherwise would have absent the Stipulation.
Table A attached to the Stipulation shows that irrigation customers will see a decrease of
3 %, residential customers will see an overall decrease of 1.7% and general service customers
will see a decrease of 10.8%. Absent continuation of the Schedule 93 surcharge to recover the
tax audit expense, irrigation customers would experience a 5.9% rate reduction, residential
customers would experience a 6.07% reduction and general service customers would see a 16.
reduction in rates. This assumes that the BP A credit over-payment balance is eliminated over 28
months (or 3 irrigation seasons) without carrying charges as proposed in the Stipulation.
The General Rate Moratorium
A crucial aspect of the Stipulation for Staff was the Company s commitment to forgo
filing a general rate increase that would become effective prior to expiration of the 16-month
Schedule 93 tax audit surcharge on September 16, 2005. While the Stipulation does not prohibit
the Company from filing a general rate case with the Commission prior to that date, general rate
changes cannot become effective until that date. From a practical standpoint, this gives Idaho
ratepayers a minimum of about 4 to 5 extra months before rates from a general rate case could be
put in place. For irrigators, this translates to an extra irrigation season.
STAFF COMMENTS MAY 20, 2004
The assessment of minimum rate commitment benefit is based on the amount of time it
would likely take the Company to file a general rate case, have the case processed through the
Commission and have new rates implemented absent approval of the Stipulation. Obviously, any
rate increase that might result from a general rate case is not known at this time. However, the
Company has had general rate cases in all five of its other state jurisdictions within the last two
years requesting increases ranging from $125 million in Utah to $16 million in California.
Approved rate increases have been in the 5 to 10% range. Consequently, Staff believes the
general rate commitment has benefit given what appears to be the Company s ability and
incentive to file an Idaho general rate case in a relatively short time frame absent approval of the
Stipulation.
Conclusions and Recommendations
All parties to the consolidated case including the City of Firth, the Idaho Irrigation
Pumpers ' Association, PacifiCorp and the Commission Staff support the proposed Stipulation.
allows the Company reasonable recovery of tax audit payments; it allows amortization without
carrying charges of BP A credit overpayments; and it includes a general rate moratorium
commitment from the Company, all without a significant increase in customer rates. While it is
possible that rates could be lower for a short period absent approval of this Stipulation, Staff
believes the agreement strikes a reasonable balance of cost recovery for the Company and rate
stability for the customers. Therefore, Staff recommends that the Commission approve the
Stipulation (and Supplemental Stipulation) as filed.
Respectfully submitted this :JO
7J. day of May 2004.
Scott Woodbury
Deputy Attorney General
Technical Staff: Randy Lobb
i :umisc:comments/paceO3.5 -paceO4.2swrl
STAFF COMMENTS MAY 20, 2004
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 20TH DAY OF MAY 2004
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. PAC-03-05 / PAC-04-, BY MAILING A COpy THEREOF POSTAGE
PREP AID TO THE FOLLOWING:
JOHN ERIKSSON
STOEL RIVES BOLEY ET AL
SUITE 1100
201 S MAIN ST.
SALT LAKE CITY, UT 84111
BOB LIVELY
ACIFICORP
201 S MAIN ST. SUITE 2300
SALT LAKE CITY, UT 84111
JAMES C PAINE
STOEL RIVES LLP
900 SW FIFTH AVE STE 2600
PORTLAND OR 97204
DATA REQUEST RESPONSE CENTER
ACIFICORP
825 NE MUL TNOMAH SUITE 800
PORTLAND OR 97232
TIMOTHY J SHURTZ
CITY COUNCILMAN
CITY OF FIRTH
PO BOX 37
FIRTH ill 83236
ANTHONY Y ANKEL
29814 LAKE ROAD
BAY VILLAGE OH 44140
ERIC L OLSEN
RACINE, OLSON, NYE, BUDGE
& BAILEY, CHARTERED
PO BOX 1391
POCATELLO ill 83204-1391
CERTIFICATE OF SERVICE