20100701final_order_no_32028.pdf

Office of the Secretary
Service Date
July 1, 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 RECORDING
CERTAIN POST-RETIREMENT
PRESCRIPTION DRUG COSTS AS A
REGULATORY ASSET
CASE NO. PAC-IO-
ORDER NO. 32028
On April 2, 2010, PacifiCorp dba Rocky Mountain Power ("Rocky Mountain" or
Company ) filed an Application with the Idaho Public Utilities Commission ("Commission
pursuant to Idaho Code 99 61-301 , 61-307, 61-622, and 61-623 , for approval of an accounting
order authorizing the Company to record a regulatory asset associated with tax benefits
previously reflected in rates that will no longer be realized for certain costs incurred for post-
retirement prescription drug coverage as the result of the Patient Protection and Affordable Care
Act ("Act"
On May 20, 2010, the Commission issued a Notice of Application and Notice of
Modified Procedure establishing a 21-day comment period. See Order No. 31088. Commission
Staff was the only party to submit written comments within the established comment period.
THE APPLICATION
Rocky Mountain states that its Application was instigated by the passage of the
PPACA on March 23 2010. Id. at 2. The PPACA "contains provisions for a federal subsidy for
employers offering post-retirement prescription drug coverage to its retirees. . ..Id. at 3.
According to Rocky Mountain
, "
( t Jhe (PP ACA J changes the deductibility of certain costs
incurred for post-retirement prescription drug coverage.!d. at 2.Prior to the PP ACA
employers were allowed "to deduct the entire cost of providing the coverage, even though a
portion is offset by the subsidy.Id. at 3. The PP ACA eliminates the "current rule permitting
deduction of the portion of the expense that is offset by the subsidy.Id.
As a result, Rocky Mountain requests authorization for the recording of a "regulatory
asset to FERC Account 182.3 (Other Regulatory Assets) and a credit to FERC Account 410.
(Deferred Tax Expense) to recover the Idaho Portion of tax benefits previously reflected in rates
ORDER NO. 32028
that will no longer be realized as the result of the (PPACAJ.Id. at 4. The Company suggests a
four-year amortization period for the regulatory asset beginning January 1 2011 , and a reflection
of "the amortization expense in the Company s next general rate case.Id. at 2-
Rocky Mountain estimates a $30.million system-wide OPEB (Other Post-
Employment Benefit) related costs associated with the change in the law. Id. at 3-4. The
Company attributes approximately $11.4 million of that amount to the first quarter of the 2010
calendar year resulting, when amortized and grossed-up for tax effects, in a revenue requirement
impact of approximately $18.5 million on a total Company basis amortized over four years. Id.
at 4. The Company claims that Idaho s share of the regulatory asset would be approximately
$1.0 million. Id. Rocky Mountain does not request a final Commission decision regarding rate
recovery. Id.
STAFF COMMENTS
Staff explained that the Medicare Modernization Act ("MMA") of 2003 "provided a
28 percent subsidy to companies that provided a retiree drug discount" because it allowed
companies "to deduct 1 00 percent of the cost of the drug benefit provided to their retirees even
though the companies were paying only 72 percent ofthe benefits.Staff Comments at 2.
The PPACA's elimination of that tax subsidy compels companies to "reduce the post-
retirement benefit obligation on the balance sheet by the amount of the actuarially-determined
subsidy to be received.Id. at 3. "(TJhe related deferred tax asset was based on the gross benefit
obligation before the reduction for estimated future subsidies because the subsidy was tax
deductible.Id. (FJuture subsidies receivable will remain non-taxable, but the corresponding
amount of OPEB related costs will become non-deductible for income tax purposes.Id. (TJhe
related deferred tax assets will now be based on the benefit obligation net of subsidy payments
expected after 2012.Id.
Pursuant to Financial Accounting Standards Board Statement No.1 06 (F ASB 106)
(circa 1990), most companies will make a single accounting entry reflecting a liability for "future
retiree health costs" during the first quarter of 2010. Id. The reduction in the deferred tax asset
will be recorded in earnings from continuing operations in the period including the March 2010
enactment date.Id.
Staff supports the creation of a "regulatory asset in FERC Account 182.3 (Other
Regulatory Assets) to account for the effect of the PPACA" and the amortization of "the expense
ORDER NO. 32028
over a four-year period beginning January 1 , 2011." Id. This sort of accounting treatment will
provide "a direct benefit to customers by minimizing the rate impact related to the change in
accounting procedures.Id.
Staff recommended that the Company use separate sub-accounts specifically for these
entries in order to facilitate an audit of Rocky Mountain s account activity. Id. Staff has not
audited or reviewed the financial data provided by the Company. Id. Staff intends to review the
financial data as part of its financial audit related to Case No. PAC-10-7 filed May 28, 2010.
Id.
Rocky Mountain did not request a carrying charge on the regulatory asset emanating
from the revised accounting treatment mandated by the PP ACA. Staff believes that it would be
inappropriate to include a carrying charge in rate base. Id. Finally, Staff recommended that an
Order include specific language noting that the Commission will defer any decision regarding
rate recovery for "specific dollar amounts recorded in the regulatory assets" to its deliberations
concerning the Company s current general rate case (PAC-10-07). Id.
COMMISSION DECISION AND FINDINGS
The Commission has reviewed and considered all the filings in Case No. PAC-10-
04 concerning Rocky Mountain s Application for an accounting order authorizing the Company
to record a regulatory asset for certain post-retirement prescription drug coverage costs resulting
from the loss of a previously held tax benefit that will no longer be realized due to Congress
recent passage of the Patient Protection and Affordable Care Act ("Act"). The Commission
finds the Application reasonable. Therefore, Rocky Mountain is authorized to record the
aforementioned expense as a regulatory asset in its accounting ledger and amortize the expense
over a four-year period beginning on January 1 2011. The Commission will withhold its review
and judgment regarding the ratemaking treatment of these costs until such time as the Company
makes a specific request for the recovery of these costs through its rates during its general rate
case (P AC-1 0-07) currently pending before the Commission.
CONCLUSIONS OF LAW
PacifiCorp dba Rocky Mountain Power is an electric corporation within the definition
of Idaho Code 961-119, and a public utility within the definition of Idaho Code 9 61-129. 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. 32028
ORDER
IT IS HEREBY ORDERED that PacifiCorp dba Rocky Mountain Power
Application, pursuant to Idaho Code 99 61-301 , 61-307, 61-622, and 61-623 , seeking the
Commission s approval of an accounting order authorizing Rocky Mountain Power to record a
regulatory asset, in FERC Account 182.3 (Other Regulatory Assets), to account for the effect of
the PP ACA on the Company s costs associated with its post-retirement prescription drug
coverage program for former employees and to amortize the expense over a four-year period
beginning January I , 20 11 is approved.
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
day of July 20 I
Qff. JI D. , RESIDENT
MARSHA H. SMITH, COMMISSIONER
MACK A. REDFORD , COMMISSIONER
ATTEST:
O:PAC-IO-np2
ORDER NO. 32028