20070119final_order_no_30225.pdf

Office of the Secretary
Service Date
January 19, 2007
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF PACIFICORP DBA
ROCKY MOUNTAIN POWER'
APPLICATION FOR A DEFERRED
ACCOUNTING ORDER TO DEFER THE
COSTS RELATED TO THE MID AMERICAN
ENERGY HOLDINGS COMPANY
TRANSITION
ORDER NO. 30225
CASE NO. PAC-06-
On October 10, 2006, PacifiCorp dba Rocky Mountain Power (RMP or the
Company ) filed an Application seeking an order authorizing the Company to defer and
amortize over a three-year period the costs related to the MidAmerican Energy Holdings
Company transition (the "MEHC Transition
).
On November 9, 2006, the Commission issued a
Notice of Application and Modified Procedure and solicited comments from interested parties.
Order No. 30176. The only comments received were filed by Commission Staff.
THE APPLICATION
According to the Application, the Company is incurring costs related to the MEHC
Transition for employee severance and conversion of software to an accounting calendar year.
The Company seeks an order authorizing the capitalization of these costs through March 2007
and then amortization of the capitalized balance over a three-year period to begin at the
implementation of new rates from a general rate case filed after December 2006.
The Company anticipates that its costs related to employee severance will exceed
$25 million on a total Company basis. It also estimates that the cost of adapting the software
will fall between $500 000 and $1 000 000. The Company proposes that the MEHC Transition
costs be charged to Account 182.3 Other Regulatory Assets and that they be amortized to
Account 930.2 Miscellaneous General Expenses.It proposes to include the unamortized
amounts in its rate base where they would earn a return at the Company s authorized rate of
return. If not re-allocated to the above-noted accounts, these costs would be charged to the
Company operations and maintenance accounts. The Company does not request a
determination of rate making treatment of the MERC Transition costs in this Application; rather
it proposes to address the recovery of these costs in its next rate case.
ORDER NO. 30225
STAFF COMMENTS
Staff agreed with the proposed accounting treatment for the deferrals, and agreed that
the costs should be segregated in separate deferral accounts until they can be considered in the
next general rate case. Deferral will provide the opportunity to recover prudently incurred costs
while matching benefits with these costs. Staff believes that the Company should not be entitled
to any return, accrued interest or carrying charges associated with the deferred amounts.
Staff believes that a three-year amortization of the approved costs appears to be
reasonable. This allows the Company to match the costs with resulting associated benefits or
reduced expenses.
Staff noted a possible conflict between potential recovery of these costs and the
commitments made by the Company as part of the MEHC acquisition case. One of those
commitments specific to Idaho was to reduce total Company Administrative and General (A&G)
expenses by $6 million annually. See Commitment I 31 in Order No. 29998 , Case No. P AC-
05-8. Staff believes that the committed reduction in total Company A&G should be realized by
the customers before any consideration is given to recovery of the amortization associated with
these deferred costs.
Staff further noted that the Company also previously committed that its acquisition
would not result in ratepayers being charged increased rates. Thus, Staff noted concerns related
to the evidence the Commission may receive from the Company in the rate case as justification
for cost recovery.
Staff believes that the cost of changing the Company s software to accommodate an
accounting year-end that matches MEHC's should not be allowed in rates unless it benefits
ratepayers. In the next rate case, the Company will be required to show that the cost of changing
the software for a different year-end results in a benefit to the customers, and that the benefit is
greater than the cost of the change. Staff noted that the Company will have the burden of
providing all cost/benefit analyses to justify the inclusion ofthis cost in the next rate case.
Lastly, Staff commented that deferral of the costs as requested in the Application
should not limit the right of Staff to audit, question and challenge the appropriateness
reasonableness and prudence of any of the costs included in the deferred accounts or any of the
benefits the Company may include in the cost/benefit studies. This sort of review is critical to
protect ratepayers.
ORDER NO. 30225
COMMISSION FINDINGS
We find that the Company should be allowed to defer in separate subaccounts the
costs related to the severance of certain employees and the costs of revising its accounting
software. The Company shall not be entitled to any return, accrued interest or carrying charges
associated with the deferred amounts.
As noted above, in Case No. P AC-05-, the Company committed to achieving
certain savings that would benefit ratepayers. We find that, in order not to dilute the benefits
that were meant to flow to customers from the acquisition by MEHC, the Company must first
meet its commitment to reduce Company total A&G expenses by $6 million annually. Only then
will the amortization of costs from the severance program or the software change be considered
for ratemaking purposes.
Lastly, we find that the Company may seek to recover these costs in future rate cases;
however, as with any expense for which it seeks recovery, the Company will need to provide
evidence justifying such recovery. We find that cost/benefit studies showing the effects of the
Company s employee severance program and the modification of the relevant software would be
informative. We direct the Company to prepare and file such studies with the supporting
documentation in its subsequent general rate cases in which it seeks to recover the costs that are
being deferred here. We further find our approval of the deferral of the severance and software
costs does not limit or modify the Staff s ability to audit, review or challenge the deferred costs
or any benefits claimed by the Company in its justification of cost recovery.
CONCLUSIONS OF LAW
The Commission has jurisdiction and authority over PacifiCorp dba Rocky Mountain
Power, an electric utility, and the issues raised in Case No. PAC-06-, pursuant to Title 61 of
the Idaho Code and the Commission s Rules of Procedure, IDAPA 31.01.01.000 et seq. The
Commission has jurisdiction over the Company s request pursuant to Idaho Code ~ 61-524.
ORDER
IT IS HEREBY ORDERED that the Application is approved, and the Company is
authorized to defer the costs of the MEHC Transition in Account 182.3 Other Regulatory Assets
as set forth above and amortize the balance to Account 930.2 Miscellaneous General Expenses
over a three-year period.
ORDER NO. 30225
IT IS FURTHER ORDERED that the deferred costs will not include a return, accrue
any interest or reflect any carrying charge.
IT IS FURTHER ORDERED that the Company will be allowed to seek recovery of
these deferred costs in its future rate cases. The Company shall conduct studies regarding the
costs and benefits of its employee severance program and modification of its software to reflect a
different year-end date , and shall file such studies with the supporting documentation in any rate
case in which it seeks recovery of these deferred costs.
IT IS FURTHER ORDERED that the Company will meet Commitment 131 in Order
No. 29998 to reduce the Company s total A&G expenses by $6 million annually before any
amortization of costs associated with the employee severance program or the software change
will be considered for ratemaking purposes.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order with regard to any
matter decided in this Order. Within seven (7) days after any person has petitioned for
reconsideration, any other person may cross-petition for reconsideration. See Idaho Code ~ 61-
626.
ORDER NO. 30225
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this Iqfh.
day of January 2007.
MARSHA H. SMITH, COMMISSIONER
ATTEST:
Co mission Secretary
O:PAC-O6-cg2
ORDER NO. 30225