20080605Comments.pdf

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WELDON B. STUTZMAN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
POBOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3283
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Street Address for Express Mail:
472 WWASHINGTON
BOISE ID 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
PACIFICORP DBA ROCKY MOUNTAIN )
POWER FOR AN ACCOUNTING ORDER TO )
ESTABLISH A REGULATORY ASSET. )
)
)
)
CASE NO. PAC-E-08-2
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through
its Attorney of record, Weldon B. Stutzman, Deputy Attorney General, and in response to the
Notice of Application and Notice of Modified Procedure issued in Order No. 30547 on
May 1, 2008, submits the following comments.
BACKGROUND
On April 11,2008, PacifiCorp dba Rocky Mountan Power fied an Application for an
accounting order authorizing the Company to establish a regulatory asset for costs associated with a
payment made to the owner of a generation facilty. The payment gives PacifiCorp an exclusive
opportunity to negotiate for the purchase of all tangible and intagible assets, contracts, permits and
other rights associated with the generation facilty. The details of the payment and potential
purchase were provided by the Company in confidential proprietay documents filed with the
Application. The Application states that PacifiCorp made a payment in the amount of$8.7 milion
STAFF COMMENTS 1 JUE 5, 2008
for the exclusive right to negotiate with the seller during a specific period. During the exclusivity
period, the seller is prohibited from negotiating with other potential buyers or lessors of the
property. The $8.7 milion payment also is a deposit toward the total purchase price.
PacifiCorp requests by its Application an accounting order authorizing the Company to
establish a regulatory asset for the payment made by the Company. PacifiCorp acknowledges that
an accounting order wil establish the recordkeeping. The prudency and rate treatment of the
payment wil be reviewed and decided in a future rate proceeding.
STAFF REVIEW
Staff has reviewed Rocky Mountain Power Company's Application for an Order authorizing
the Company to establish a regulatory asset for costs associated with an exclusivity payment made
to a third pary (Seller). The purose of the exclusivity payment is for the Company to secure the
exclusive right to negotiate with the Seller for the purchase of a generating facility curently owned
by the Seller. The Company's payment of$8.7 milion wil be treated as a deposit and credited
toward the purchase price at closing or will be forfeited if closing does not occur.
The Company's request in this filing is limited to the exclusivity payment. The Company
has not asked for any approvals of any terms or conditions relating to the transaction, or for
approval that the acquisition of the plant is reasonable and prudent. Staf has reviewed the
transaction from the viewpoint of whether or not the exclusivity payment should be appropriately
accounted for as a deferred asset pending the completion of the exclusivity term and the closing or
non-closing of the transaction.
The Company will record the exclusivity payment in Account 182.3 (Other Regulatory
Assets). Provided the transaction for the generating facility is closed, the exclusivity payment (as a
deposit) would be included in the total purchase price. The total purchase price will ultimately be
credited to "Electric Plant in Service" and included in rates after all approvals are completed and the
proper rate treatment has been determined. Until the amount is included in the "Electric Plant in
Service" account it wil remain on the Company's books as a regulatory asset. Staff recommends
that this regulatory asset not accrue any interest or receive any caring charges. The Commission
has previously determined that an account similar to this should not accrue any interest. (See Case
no. AVU-E-07-10, Order No. 30492). Additionally, this account should not be included in rate base
for determining any rates until such time as the Commission reviews the prudency of the final
purchase transaction.
STAFF COMMENTS 2 JUE 5, 2008
Under Generally Accepted Accounting Principles (GAAP), the payment would be treated as
an expense in the curent period. If this payment was treated curently for accounting as an
expense, it would not be recoverable in any future rate. However, to appropriately match the cost of
the exclusivity payment with the future revenues and expenses of the generating facilty, the
payment should be deferred until it can be included and reviewed with the total cost of the facilty.
FASB No. 71 allows for the appropriate accounting treatment for this type of payment. The
Summar of Statement No. 71 states:
In general, the type of regulation covered by this Statement permits rates
(prices) to be set at levels intended to recover the estimated costs of providing
regulated services or products... For a number of reasons, revenues intended
to cover some costs are provided either before or after the costs are incurred.
If regulation provided assurance that incurred costs will be recovered in the
future, this Statement requires companies to capitalize those costs.
Regulatory assets can be established for expenses that are curently not included in rates, yet
are significant enough to warant deferring until the next rate case for possible inclusion in rates at
that time. If a company proposed in a general rate case that certin expenses from past years be
included in the curent rates, that proposal would generally be denied as retroactive ratemaking. In
order to be considered in the general rate case, the utilty usually must have an accounting order
allowing it to defer the costs for possible futue recovery. If a utility defers costs for futue recovery
in a general rate case without Commission approval, it risks denial as a violation of the proscription
on retroactive ratemaking.
The Company maintains that acquiring the facilty is consistent with its curent generating
portfolio, its IRP and the industry's general direction of new generation. The Company has shown
in its previous IRPs that it wil need to increase its generation fleet and this transaction can be
utilized to meet some of that future need. The Company adds that the transaction may also increase
the flexibilty ofPacifiCorp's system. Staff does not necessarily disagree with these statements.
However, the prudency and accuracy of these statements will be par ofa more extensive review of
the generating facilty acquisition prior to the investment being included in rate base in a futue rate
case. Allowing the Company to defer the exclusivity payment permits the total cost of the facilty
and the prudency of all the costs to be reviewed by the Staff in a futue rate proceeding.
Staffs recommendation to issue an accounting order allowing the establishment of a
regulatory asset on the Company's books should not be interpreted as approval of all other aspects
of the transaction or of the reasonableness or prudence of the purchase of the facilty. Staffs
STAFF COMMENTS 3 JUE 5, 2008
recommendation acknowledges the payment and allows the total transaction to be reviewed at the
same time in a future proceeding. Staff wil make recommendations on the prudence of the
purchase and/or reasonableness at that time. As par of that review, Staff also wil make
recommendations regarding the purchase price of the facility.
STAFF RECOMMENDATION
Staff recommends approval of Rocky Mountain Power Company's Application for an
Accounting Order authorizing the Company to establish a regulatory asset for costs associated with
an exclusivity payment made for the right to have an exclusive period to negotiate with a third par
for the purchase of a generating facilty subject to the following conditions and reservations:
1. That the cost of the exclusivity payment be booked to a regulatory asset account on the
books and remain separate from the Electric Plant in Service account until the facilty is
owned by the Company.
2. That the regulatory asset not accrue any interest or caring charges.
3. That the cost of the exclusivity payment would not be considered in any ratemaking
proceeding until such time as the total cost of the facilty is considered in a futue
ratemaking proceeding.
4. The Commission reserves the right to review the prudency and proper ratemaking treatment
for the total cost of the facilty in a futue proceeding when the Company proposes these
costs be included in rates.
Respectfully submitted this ~ day of June 2008.
uJ~
Weldon B. Stutzman
Deputy Attorney General
7
Technical Staff: Joe Leckie
Terri Carlock
i:umisc:commentslpace08.2. wstcjl.doc
STAFF COMMENTS 4 JUE 5, 2008
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 5TH DAY OF JUE 2008,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. PAC-E-08-2, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
TED WESTON
MGR, ID REGULATORY AFFAIRS
ROCKY MOUNTAIN POWER
20 I S MAIN ST STE 2300
SALT LAKE CITY UT 84111
E-MAIL: ted.weston(ßpacificorp.com
DANIEL SOLANDER
SENIOR COUNSEL
ROCKY MOUNTAIN POWER
201 S MAIN ST STE 2300
SALT LAKE CITY UT 84111
E-MAIL: danieL.solander(ßpacificorp.com
JOHN R HAMMOND JR
FISHER PUSCH & ALDERMAN LLP
101 S CAPITOL BLVD, 5TH FL
PO BOX 1308
BOISE ID 83701
E-MAIL: jrh(ffpa-Iaw.com
DATA REQUEST RESPONSE CENTER
PACIFICORP
825 NE MUL TNOMAH STE 2000
PORTLAND OR 97232
E-MAIL: dataeguest(fpacificom.com
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CERTIFICATE OF SERVICE