20060626Decision memo.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER KJELLAND ER
COMMISSIONER SMITH
CO MMISSI 0 NER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
FROM:DON HOWELL
DATE:JUNE 26, 2006
SUBJECT:P ACIFICORP'S APPLICATION FOR AN ACCOUNTING ORDER TO
DEFER RATE CREDITS ADOPTED BY THE COMMISSION IN THE
RECENT MIDAMERICAN-ACIFICORP ACQUISITION CASE, CASE
NO. PAC-06-
On April 28, 2006, PacifiCorp (dba Rocky Mountain Power) filed an Application
requesting that the Commission issue an accounting order. Rocky Mountain requested authority
to book and defer the rate credits arising as a result of Commitments 127 and 131 approved by the
Commission in the MidAmerican-PacifiCorp acquisition proceeding, Case No. P AC-05-
See Order No. 29998. On May 17 2006, the Commission issued a Notice of Modified Procedure
requesting that interested parties submit comments in this matter no later than June 14, 2006.
The only comments received were submitted by the Commission Staff and it recommended
approval of the Application.
THE APPLICATION
A. Background
In the MidAmerican-PacifiCorp acquisition proceeding, the Commission adopted
numerous State-specific commitments including 127 and 131.In Commitment 127
MidAmerican and PacifiCorp committed to reduce the annual non-fuel costs on a total Company
basis of the West Valley lease by an expected $3.7 million in 2006, $5 million in 2007, and $2.1
million in 2008. This adjustment would reduce costs by $417,000 per month (total company).
Commitment 127 also provided that: "Beginning with the first month after the close of the
transaction. . . , Idaho s share of the monthly rate credit will be deferred for the benefit of
DECISION MEMORANDUM
(Idaho) customers and accrue interest at PacifiCorp s authorized rate of return.Order No.
29998, Idaho Commitments at p. 17.
In Commitment 132, MidAmerican and PacifiCorp committed to reduce the total
Company administrative and general (A&G) costs by $500 000 per month and to provide
(subject to offset provisions) a total Company rate credit in that amount. Id. at pp. 18-19. On an
annual basis, A&G costs would be reduced in FERC Accounts 920 through 935 by $6 million.
This commitment also provided that Idaho s share ofthe monthly rate credit will be deferred for
the benefit ofIdaho customers and accrue interest at PacifiCorp s authorized rate of return.
B. The Accounting Treatment
In its Application, Rocky Mountain proposed to book and defer the rate credits
beginning on April 1 , 2006. The Company proposed to allocate the deferrals relating to the West
Valley lease (127) among the six states based upon the "seasonal system generation combustion
turbine" (SSGCT) allocation factor for the 12 months ending March 31 , 2006. The amount of
the deferral accounting related to the A&G cost savings in Commitment 131 will be allocated
among the six states based upon the system overhead (SO) allocation factor for the 12 months
ending March 31 , 2006. Application at ~
Rocky Mountain proposed to account for these rate credits by charging the general
cost savings to Account 400 (Operating Revenues) with the credits being recorded in Account
254 (Other Regulatory Liabilities). The Company proposed that the amortization of the balances
would be accomplished by debiting Account 254 and crediting Account 400.Id. at ~ 6.
Rocky Mountain did not request a determination of ratemaking treatment for these
rate credits at this time. Instead, the Company proposed to address these issues associated with
the rate credits in the Company s next general rate case.
ST AFF COMMENTS
After reviewing the Company s proposed accounting treatment, the Staff agreed that
the rate credit created by the Commitments should be deferred as set forth in the Company
Application. The Staff also agreed that the appropriate date for beginning the deferral accounts
is April 1 , 2006. Staff Comments at 3. While the specific amounts of the deferral credits cannot
be determined at this time, the Staff agreed with the Company that the credits should be allocated
to Idaho based upon the SSGCT and the SO allocation factors.
DECISION MEMORANDUM
In addition to the deferral credits, Rocky Mountain agreed that the deferral accounts
will accrue interest at its authorized rate of return and will continue to accrue interest until the
Commission determines the ratemaking treatments of the rate credits in the next general rate
case. Staff proposed that the appropriate interest rate should be 8.827% based upon the Staffs
1999 audit. Staff indicated in its comments that Rocky Mountain agrees that this is the
appropriate interest rate. Id. at 4.
COMMISSION DECISION
Does the Commission wish to issue the requested accounting order?
Does the Commission adopt the proposed accounting procedures with the beginning
deferral date of April 1 , 2006?
Does the Commission find that the appropriate rate of interest on the deferred
accounts is 8.827%?
Anything else?
0---
Don Howell
blsfM:PAC-O6-05 dh2
DECISION MEMORANDUM