20100122final_order_no_30987.pdf

Office of the Secretary
Service Date
January 22 2010
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF P ACIFICORP DBA ROCKY MOUNTAIN
POWER FOR APPROVAL OF AN
ACCOUNTING ORDER AUTHORIZING
THE DEFERRAL OF COSTS ASSOCIATED
WITH COAL MINE STRIPPING
ACTIVITIES
ORDER NO. 30987
CASE NO. PAC-09-
On October 13 2009, PacifiCorp dba Rocky Mountain Power ("Rocky Mountain" or
Company ) filed an Application with the Idaho Public Utilities Commission ("Commission
pursuant to Idaho Code 9 61-524 and RP 52, for approval of an Accounting Order authorizing
the Company to record, as a regulatory asset, the costs associated with the removal of
overburden and waste materials at its affiliate coal mines.
On November 10, 2009, the Commission issued a Notice of Application and
Modified Procedure establishing a 21-day open comment period. See Order No. 30942.
Commission Staff was the only party to submit within the established comment period.
THE APPLICATION
Rocky Mountain operates numerous coal-fired power plants throughout the western
United States. The Company owns several coal mines, including the Bridger, Deer Creek and
Trapper Mines ("the Mines ), that supply the coal needed to operate these plants. Coal is
extracted from the Mines using "various underground and surface mining techniques.
Application at 2. Surface mining requires the removal of soil, rock or "overburden" on seams of
coal which lie near the surface.Id.The Company refers to the costs of removing the
overburden and waste materials" as "stripping costs.Id.
Rocky Mountain cites to Financial Accounting Standards Board ("F ASB") Emerging
Issues Task Force standard 04-6 ("EITF 04-) and states that "stripping costs incurred during
production are considered a component of inventory when incurred, without consideration of
future potential benefits.Id. In contrast
, "
the coal itself must be extracted from its original
location in order to qualify as inventory.Id. According to Rocky Mountain, this disparate
accounting treatment leads to "an inherent mismatch of stripping costs with coal inventory
ORDER NO. 30987
balances" and ultimately leads to customers paying for "the costs of uncovering coal well before
it is extracted from the mine" to be used as fuel for the coal-fired power plants. Id.
The Company states that 2010 is the first year it will have to "deal with significant
stripping costs since the issuance ofEITF 04-Id. at 3. For example, as its Bridger Coal Mine
transitions from a surface mine to a surface/underground mining complex, the Company believes
that there will be an increasing disparity between the time when stripping costs are incurred and
when the coal is actually extracted. Id.
Rocky Mountain s Application seeks to more closely "match the costs of coal
stripping with the extraction of the coal." Id. The Company requests that the "upfront coal
stripping costs be recorded as a regulatory asset. . . much like a fuel inventory account and
expensed as the coal is extracted. . .Id. at 4. The authorization for recording the coal
stripping costs as a regulatory asset would "eliminate the expensing of coal stripping costs when
incurred as required by EITF 04-Id. Rocky Mountain proposes that these costs be recorded
in Account 182., Other Regulatory Assets and Account 501 , Fuel Expense based on "extracted"
coal delivery. Id. The Company believes that customers will benefit from the modification of
the customary treatment of stripping expenses under EITF 04-through increased
intergeneration equity among customers.Id. at 3-
ST AFF COMMENTS
Staff agreed with the Company s assertion that EITF-04-6 accounting treatment
creates inherent cost mismatches and fuel cost volatility. Staff Comments at 3. Thus, Staff
believes that it is prudent to "allow the Company to create a regulatory asset in FERC Account
182.3 (Other Regulatory Assets) to account for the cumulative effect of removing mine
overburden during the production phase at the affiliate mines.Id. at 4. This type of accounting
treatment would essentially "allow the Company to continue accounting for coal stripping costs
as they did prior to 2006.Id. at 3. Staff withheld its judgment of the "specific ratemaking
impact" associated with the deferral of the stripping costs. Id. at 4.
Staff agreed that allowing a carrying charge on the regulatory asset associated with
mine stripping costs or including it in rate base is not warranted. Id. Staff believes that Rocky
Mountain s dominant market position vis-a.-vis its affiliate coal mines predicate "that all
transactions between affiliates should be subject to greater scrutiny during audit prior to any
inclusion of expenses in rates" during the next general rate case. Id.
ORDER NO. 30987
Staff recommended approval of "Rocky Mountain Power s Application for an
Accounting Order allowing the Company to create a regulatory asset to defer costs associated
with mine stripping during coal production " and to be amortized "over the production life of the
coal mine.Id. Staff recommended that the Company use separate sub-accounts for entries in
its Account 501 (Fuel Expense) in order to facilitate Staffs ability to audit account activity as
needed. Id. Staff also recommended that Rocky Mountain not be permitted to earn a return on
the regulatory asset created by the deferral of coal mine stripping costs. Id. It should be noted
that Rocky Mountain s Application did not include a request to earn a return on the regulatory
asset. Id.
Finally, Staff recommended that the Commission include explicit language in its
final Order reiterating that approval of the Company s Application for an Accounting Order
allows deferral of costs and provides the opportunity for recovery" and should not be interpreted
as "automatic approval of the ' specific dollar amounts recorded in the regulatory assets for
inclusion in the calculation of the Company s revenue requirement." Id. at 5. "The actual
amount to be recovered in rates should be determined in further proceedings addressing the
actual costs.Id.
COMMISSION DECISION AND FINDINGS
08.
The Commission has reviewed and considered all the filings in Case No. P AC-09-
The Commission finds that Rocky Mountain s Application for an Accounting Order
authorizing the Company to record, as a regulatory asset, the costs associated with the removal
of overburden and waste materials at its affiliate coal mines is reasonable. The Commission
orders the Company to record the removal costs in individual sub-accounts within its Fuel
Expense Account. Finally, the Commission withholds its review and judgment regarding the
propriety of these removal costs until such time as the Company files an Application with the
Commission seeking a specific recovery of these costs through its rates.
CONCLUSIONS OF LAW
PacifiCorp dba Rocky Mountain Power is an electric corporation within the definition
of Idaho Code 9 61-119, and a public utility within the definition of Idaho Code 961-129. The
Idaho Public Utilities Commission has jurisdiction over this matter pursuant to Idaho Code 9 61-
524 and IDAPA 31.01.01.052.
ORDER NO. 30987
ORDER
IT IS HEREBY ORDERED that PacifiCorp dba Rocky Mountain Power
Application, pursuant to Idaho Code 9 61-524 and RP 52 , for approval of an Accounting Order
authorizing the Company to record, as a regulatory asset, the costs associated with the removal
of overburden and waste materials at its affiliate coal mines is granted.
IT IS FURTHER ORDERED that Rocky Mountain Power shall record the
aforementioned removal costs in individual sub-accounts within Account 501 (Fuel Expense
Account).
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally
decided by 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 9 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this ;J.:L
A-d
day of January 2010.
D. KEMPT , P SIDENT
1l~
MARSHA H. SMITH, COMMISSIONER
ATTEST:
O:PAC-09-np2
ORDER NO. 30987