20131118final_order_no_32926.pdf

Office of the Secretary
Service Date
November 18,2013
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )OF PACIFICORP DBA ROCKY MOUNTAIN )CASE NO.PAC-E-13-02
POWER TO CHANGE THE DEPRECIATION )RATES APPLICABLE TO ITS ELECTRIC )ORDER NO.32926
PROPERTY
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On January 22.2013.PacifiCorp dba Rocky Mountain Power (“Rocky Mountain”or
“Company”)submitted an Application seeking a Commission Order,pursuant to Idaho Code §
6 1-525 and Rule 52 of the Idaho Public Utilities Commission (“Commission”)Rules of
Procedure,for approval of proposed changes to depreciation rates applicable to Rocky
Mountain’s depreciable electric plant.The Company proposes an effective date of January 1,
2014 for its proposed changes.
On March 28,2013,the Commission issued a Notice of Application and Intervention
Deadline.See Order No.32772.Subsequently,Monsanto Company (“Monsanto”)and
PacifiCorp Idaho Industrial Customers (“PIIC”)were granted permission to intervene as a party.
See Order Nos.32773 and 32804.
On April 26.2013,the Commission issued a Notice of Public Workshop.A public
workshop was held on May 9,2013,allowing interested parties the opportunity to discuss a
possible settlement of the issues presented in this case.
On September 10,2013,Rocky Mountain filed a settlement document (“Stipulation”)
with the Commission,including attachments,that proposes to settle the relevant issues in this
case.The Stipulation was agreed to by representatives of the Company,Staff,Monsanto,and
PIIC (“Parties”).
THE APPLICATION
In its Application,RMP states that as a public utility operating under the
Commission’s jurisdiction its depreciation accounts must comply with the rates previously
determined by the Commission.The Company’s last depreciation Application.Case No.PAC
E-07-14,was filed on August 31,2007,see Order No.30499,with rates effective January 1,
2008.
The Company performed an updated depreciation study (“Depreciation Study”)and
requests authorization to implement the depreciation rates set forth in the Exhibit No.3 of its
ORDER NO.32926
Application.The Depreciation Study identifies changes that have occurred since the Company’s
last depreciation study,measured the effect of the changes on the prudent recovery of presently
surviving capital,and proposes revisions to the depreciation rates.The results of the
Depreciation Study suggest an increase in annual depreciation expense of approximately $83.9
million ($160.8 million including the accelerated depreciation associated with early retirement of
the Carbon plant)on a total Company basis,based on projected plant balances as of December
31,2013.
RMP states that its proposed changes would result in an estimated increase to the
Idaho jurisdictional depreciation expense of approximately $4.5 million ($8.9 million including
the early retirement of the Carbon plant)beginning January 1,2014.
RMP remarked that in order to maintain consistent depreciation rates across its six
jurisdictions/service territories,the Company filed the Depreciation Study in Oregon,Utah,
Wyoming,and Washington.In support of its Application,the Company attached the direct
testimony of Henry E.Lay,Corporate Controller of PacifiCorp,John J.Spanos,Senior Vice
President of Gannett Fleming.Inc..and K.Ian Andrews,Manager of Resource Development for
PacifiCorp.
THE STIPULATION
The Parties engaged in a collaborative process,including a public workshop and
subsequent correspondence,and eventually reached agreement on the aforementioned Stipulation
that purports to settle the issues involved in this case.The following is a summary of the main
terms of the Parties’Stipulation:
1.The Stipulating Parties agree that the proposed depreciation rates set forth
in Attachment 1,Stipulated Rates,attached and incorporated into the
Stipulation,represent just and reasonable depreciation rates for Rocky
Mountain Power in Idaho commencing January 1,2014.
2.The depreciation rates,originally proposed by the Company in its January22,2013,filing,result in an estimated increase in annual depreciation
expense across PacifiCorp’s six jurisdictions of approximately $160.8
million ($83.9 million excluding the early retirement of the Carbon Plant),
based on estimated plant balances as of December 31,2013,before the
additional Oregon depreciation expense for shorter coal plant lives.Table
I (see document)of the Stipulation shows the estimated impact of the
agreed-upon changes to the depreciation rates on the Company’s fileddepreciationstudy.In Attachment 2 —Jurisdictional Allocation,detailedjurisdictionalallocationsareprovidedbycategory.As a result of the
ORDER NO.32926 2
settlement discussions,the Stipulating Parties have agreed to the following
adjustments to the Company’s filed depreciation study and proposed rates,
as described in Paragraphs 9-29.These adjustments are summarized in
Table 2 of the Stipulation (see document)and indicate the estimated
impact on depreciation expense.
3.The Stipulating Parties have agreed to extend the terminal life estimate for
the Gadsby Plant from December 31,2022,to December 31,2032.This
adjustment results in new lower depreciation rates,including the impact of
adding estimated interim retirements for the extended period.The
stipulated depreciation rates also include recognition of the excess reserve
adjustment in the calculation.The stipulated depreciation rates have been
computed using an estimated terminal removal rate of $40/kW.
(Adjustment A)
4.The Stipulating Parties have agreed to shorten the terminal life on the
James River Plant from December 31,2016,to December 31,2015,to
correct an error in the original Application,and to reduce net salvage
estimated in the calculation from -1%to zero.These changes result in
higher depreciation rates.(Adjustment B)
5.The Stipulating Parties agree that,for the Chehalis Plant,Currant Creek
Plant,Lake Side Plant,Hermiston Plant and Gadsby Peaker Plant (Units
4-6),the interim retirement curve for Account 343 Prime Movers is
changed from a 40-Ri to a 45-R25.There is no change in the proposed
terminal removal dates for each of these plants from those presented in the
study.The Stipulating Parties agree to lower the terminal removal cost for
the CCCT gas units from the Company’s proposed level of $20/kW to
$15/kW.(Adjustment C)
6.The Stipulating Parties agree that wind generation units will use a 30-year
terminal life.The terminal removal cost has been lowered from the
Company’s proposed level of $9/kW to $7/kW.(Adjustment D)
7.The Stipulating Parties agree that the Carbon Plant terminal net salvage
estimate is reduced from the proposed $330/kW to $1 17/kW and the
stipulated depreciation rates are calculated based on the April 2015
retirement date.This terminal net salvage estimate of $11 71kW is used for
calculating rates in this Stipulation and will not be relied on in developing
future removal cost estimates for other generation facilities.Until actual
results are available,updated current estimates will be provided as needed
in future filings,and to the extent the updated estimates differ from the
$117/kW,this issue can be reexamined in those filings.The amount
ultimately deferred for the Carbon Plant will be trued up to actual
prudently incurred removal costs in accordance with the procedures set
forth in the stipulation in Case No.PAC-E-13-04 (the “GRC Stipulation”).
ORDER NO.32926 3
The remaining plant balances for Carbon Plant will be recovered through
2020 consistent with the GRC Stipulation.(Adjustment E)
8.The Stipulating Parties accept the Company’s proposed method in the
study to use Iowa Curves to determine interim retirements for production
facilities with terminal lives.The proposed depreciation rates reflect
adjustments to the retirement curves on coal generation facilities in
Account 311 Structures and Improvements from 90-R2 to 120-Ri.5,
Account 312 Boiler Plant Equipment from 60-Li to 68-Se and Account
314 Turbo-generator Units from 55-Li to 57-Se.Reliance on the
Company’s Iowa Curve method for settlement purposes shall not prevent
parties from taking a different position on this issue in future depreciation
cases.(Adjustment F)
9.The Stipulating Parties agree to extend lives on transmission assets by:(1)
extending the curve for Account 353 Station Equipment from the proposed
57-S0 to a 58-Se,(2)extending the curve for Account 356 Overhead
Conductors and Devices from 60-R3 to 63-R3;and (3)merging Account
353.7 Supervisory Equipment with Account 353 Station Equipment
resulting in a change to the life-curve combination and related net salvage
for those assets from the proposed 20-R2 with zero net salvage to 5 8-S0
with -5%net salvage.All other lives and retirement curves are accepted
as proposed by the Company.Any transmission excess reserve balance
will be amortized over the remaining life of the assets rather than on an
expedited basis.As part of calculating the stipulated depreciation rates,
the depreciation reserve has been redistributed within the transmission
function resulting in reduced rates on all accounts within the transmission
function and an overall reduction in the composite depreciation rates on
those facilities.(Adjustment G)
10.The Stipulating Parties agree to extend lives on distribution assets by
merging Account 362.7 Supervisory Equipment with Account 362
Substation Equipment,and using the appropriate state-specific lives for
Account 362 in Utah,Idaho and Wyoming.(Adjustment H)
11.The Stipulating Parties agree to amortize net salvage on specific mining
accounts as follows:(1)stipulated depreciation rates for Utah mining
assets have been established using a terminal life as established in the filed
study;(2)net salvage percentages have been adjusted for Account 399.41
Surface Processing Equipment —Preparation Plant from -7%to -6%and
for Account 399.46 Longwall Equipment from 5%to 7%;and (3)
depreciation reserves have been reallocated within the mining accounts.
As a result,the stipulated depreciation rates are lower than the Company’s
proposed rates on most of the mining accounts.(Adjustment I)
ORDER NO.32926 4
12.In order to offset the depreciation expense impacts of the shortened
remaining life at the Carbon Plant,which is calculated to be $34.7 million,
the Stipulating Parties agree to expedite the amortization of the excess
depreciation reserve at the Gadsby Plant and the Hunter Plant.The
Stipulating Parties agree that the excess reserve at the Gadsby Plant and
the Hunter Plant,calculated as of December 31,2011,will be returned on
a straight line basis.The excess reserve of $21,073,503 associated with
the Gadsby Plant will be amortized based on 9 years and the excess
reserve of $29,635,920 associated with the Hunter Plant will be amortized
based on 5 years,resulting in an annual amortization of $8.2 million.
These amounts will be recorded as a separate item by crediting
depreciation expense and debiting the depreciation reserve.The new
depreciation rates for the Hunter Plant and Gadsby Plant have been
recomputed excluding the above identified amounts of excess reserve.
This recalculation of rates produced an estimated increase in depreciation
expense of $2.4 million.Coupled with the $8.2 million excess reserve
amount,this results in a net annual decrease in depreciation expense of
$5.8 million.The Stipulating Parties agree the excess reserve amortization
will occur annually starting January 1,2014,and will continue until the
full $34.7 million is returned or ending with the implementation of new
rates resulting when new rates from the next depreciation study are
implemented.During the next depreciation case,an assessment will be
made as to the final disposition of any remaining amount of the $34.7
million which has not been returned at that time.(Adjustment J)
13.The Stipulating Parties agree to amortize depreciation excess reserve for
two other steam generation plants with an excess reserve as of December
31,2011,the Blundell Plant with an excess reserve of $7,852,016 and the
Colstrip Plant with an excess reserve of $22,930,383,as follows:(1)the
annual amount is determined for each plant with any excess reserve by
dividing the excess reserve by 10;(2)the annual amortization will occur
beginning January 1,2014,until new depreciation rates resulting from the
next depreciation study are implemented;and (3)the stipulated
depreciation rates are determined by excluding the identified excess
reserve in the calculation.This adjustment is intended to offset the large
steam plant increase in this Stipulation and does not set precedent for any
future depreciation study.(Adjustment K)
14.The Stipulating Parties agree to amortize depreciation excess reserve on
distribution plant for Utah,Idaho and Wyoming as follows:the annual
amortization has been determined for each state by identifying the excess
reserve for each state individually in the Company’s filed study as of
December 31,2011,and then dividing the excess reserve for Utah by 6.5
years,the excess reserve for Idaho by 13 years,and the excess reserve for
Wyoming by 15 years.The stipulated depreciation rates have been
determined by excluding the identified excess reserve amounts from the
ORDER NO.32926 5
calculation.The annual amortization will occur beginning January 1,
2014,until new depreciation rates from the next depreciation study are
implemented.This adjustment is intended to offset the large steam plant
increase in this Stipulation and does not set precedent for any future
depreciation study.(Adjustment L)
15.The Stipulating Parties agree to stipulated depreciation rates calculated
using June 30,2013,actual account balances within specific functions
without terminal lives,including transmission,Utah,Idaho and Wyoming
distribution and Utah,Idaho and Wyoming general plant.(Adjustment M)
16.The Stipulating Parties agree to adjust general plant lives to be consistent
with the Oregon Settlement.Utah,Idaho and Wyoming depreciation rates
have been adjusted using the life-curve combinations agreed to in Oregon.
For Idaho,Account 390 Structures and Improvements,the life has been
changed from 55R3 to 58-R1,Account 392.09 Transportation Equipment-
Trailers from 33-L2 to 34-L2 and Account 396.03 Light Power Operated
Equipment from 8-R2 to 9-L3.Each state’s estimated salvage remains as
provided in the Company’s originally filed depreciation study.
(Adjustment N)
17.For the depreciation rates for Wyoming and Idaho,the Stipulating Parties
agree to adjust Klamath-Accelerated depreciation to an end date of
December 31,2022,consistent with the approved life in Utah.The life
may be reassessed in the next depreciation cases in Wyoming and Idaho.
If Klamath-Accelerated facilities are retired prior to December 31,2022,
return of and on any remaining balance will continue after retirement of
the facilities as though it remained in service through December 31,2022,
and the Stipulating Parties agree not to challenge this recovery based on
“used and useful”arguments.(Adjustment 0)
18.The Stipulating Parties agree to the Company’s proposal to move the
balance of communication equipment to mass asset accounting with a
consistent 24-year life and a depreciation rate of 4.3%.The depreciation
reserves will continue to be maintained on a state basis which ensures no
inadvertent jurisdictional transfer of depreciation reserve benefits created
from different depreciation rates historically being used by each state.
19.The Stipulating Parties agree that the Company will provide a section in
the next depreciation study,for informational purposes only,listing the
specific mining assets,reserve balances,and respective lives owned by its
Wyoming mining subsidiary.
20.A new depreciation study will be filed with the Idaho Public Utilities
Commission no later than five years from the date of the written order
resolving the issues in this Docket,or as otherwise ordered by the
ORDER NO.32926 6
Commission.The Stipulating Parties agree the Company will maintain
the right to file a new depreciation study sooner than five years.
21.The Stipulating Parties agree the Company will implement a reporting
system to keep the Stipulating Parties and the Utah,Idaho and Wyoming
Commissions informed regarding any matters likely to have implications
regarding potential stranded costs of generating assets.The Company will
propose a reporting method by no later than December 31,2013.
22.The Stipulating Parties agree the Company will provide updated cost
estimates regarding Carbon Plant’s terminal net salvage,including any
new third-party studies as part of the Company’s next general rate cases in
Idaho,Utah and Wyoming.
23.The Stipulating Parties agree to adhere to the depreciation study treatment
established according to paragraphs 10-14 of the Stipulation in Case PAC
E-13-04 (the “GRC Stipulation”)if approved by the Idaho Public Utilities
Commission.The parties are requesting that the stipulated depreciation
rates from this study be effective on January 1,2014 for purposes of
financial reporting.Per the GRC Stipulation,the Company will establish
a regulatory asset that will track for further recovery or refund,the
aggregate net difference between the depreciation expense that would
have been booked beginning in 2014 under the depreciation rates in effect
as of the date of the GRC Stipulation and the depreciation expense
actually booked beginning in 2014 under the depreciation rates approved
by the Commission in this Case until the new depreciation rates are
reflected in customer rates.Recovery of the deferral shall be allocated to
customers on a proportionate basis,based on the cost of service
relationships established in the next Idaho general rate case with rates
proposed to be effective on or after January 1,2016,as modified by future
cost of service studies in future rate cases.
STAFF COMMENTS
Staff participated in the discussions,reviewed and analyzed the adjustments as
presented and agreed upon in the Stipulation.A complete table of the proposed adjustments is
included in Table 2,page 5,of the Stipulation.However,Staff singled-out the following items
for further explanation:
Adjustments J and K relate to excess reserves in the steam production plants.The
issue evaluates whether the steam production plant should be considered as one category
(function)rather than as individual plants for depreciation purposes.When reviewed on an
individual basis,some plants appear to have depreciation reserve deficits and some appear to
have depreciation surpluses.This is caused by timing differences due to changes in depreciation
ORDER NO.32926 7
factors during the life of the assets.However,if you combine all plants into one function group,
offsetting the surpluses and deficits,it reduces the depreciation expense currently required.
PacifiCorp assured Staff that it had discussed this practice with the Company’s Generally
Accepted Accounting Principles (GAAP)advisors and were advised that it did not violate
GAAP.
Staff looked at the Uniform System of Accounts (USOA)1 08c,other states’reserve
practices,and accounting publications to determine if combining reserves for depreciation
purposes was an acceptable practice.Based on Staff findings and the fact that it is a timing
difference which will correct itself in the near future,Staff accepted the Adjustments J and K as
being a fair compromise of the Parties.These two adjustments account for a reduction in Idaho
depreciation expense of approximately $432,000.
Adjustment E adjusts for a reduction in estimated Carbon Plant costs.Originally,
the Company estimated a Carbon Plant removal cost of $330/kW.Existing depreciation rates
include $40/kW for removal costs.Based on Staffs calculations,the $117/kW removal cost
appears to be a fair compromise of the Parties.This amount will be re-examined as estimates are
updated and will be trued up to actual prudently incurred removal costs in accordance with the
procedures set forth in the Stipulation in Case No.PAC-E-13-04 (the “GRC Stipulation”).Staff
agrees with this adjustment as a fair and reasonable compromise by the Parties.This adjustment
reduces Idaho depreciation expense by approximately $1.5 million.
Adjustment L deals again with the issue of surplus and deficit reserves,as discussed
earlier regarding Adjustments J and K,only Adjustment L relates to Distribution Plant for Idaho.
Staff accepts this adjustment as being a fair compromise of the Parties.This adjustment reduces
Idaho depreciation expense by approximately $1.1 million.
The Company’s initial Application requested $8,851,848 as Idaho’s allocated share of
depreciation expense.See Staff Comments,Table 1,page 3.In the Stipulation,the Parties agree
that Idaho’s allocated share would be $4,614,970,a difference of -$4,236,878.Id.
Staff believes that the Stipulation is a fair,just and reasonable compromise of the
issues.Staff issued a caution regarding the limitation of depreciation expense for current
customers.Staff warns that the Commission must take care so as not to unfairly defer
depreciation expense to future customers.Staff recommended the Commission approve the
Stipulation and all of its terms and conditions.
ORDER NO.32926 8
COMMISSION FINDINGS
The Commission reviewed the record in this case,including RMP’s Application,the
Stipulation,and Staff comments.’The Commission is satisfied that the major stakeholders in
this case reached an amicable settlement regarding proposed changes to depreciation rates
applicable to RMP’s depreciable electric plant.Accordingly,the Commission accepts the
Parties’Stipulation as filed.
The Commission affirms the Parties’negotiated agreement to include slightly more
than half of the depreciation expense originally proposed in RMP’s Application.Specifically,
the agreed-upon adjustment of reserve amounts and carbon removal costs moving forward
directly impacts Idaho customers.The Commission finds that the Parties’decision to adjust
excess or surplus plant reserves and increase the $/kW cost of carbon removal above the existing
cost are reasonable and appropriate.
The Commission believes that Idaho’s allocated share of RMP’s depreciation expense
included in the Stipulation strikes a fair and reasonable balance between the inclusion of existing
depreciation expense in rates beginning on January 1,2014,and the deferral of a portion of
depreciation expense to future customers.The stipulated rates,attached and incorporated into
the Stipulation,are fair,just and reasonable depreciation rates for RMP customers in Idaho
beginning January 1,2014.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over PacifiCorp dba Rocky
Mountain Power,an electric utility,and the Application in Case No.PAC-E-13-02 pursuant to
Title 61,Idaho Code,and the Commission’s Rules of Procedure,IDAPA 3 1.01.01.000 etseq.
ORDER
IT IS HEREBY ORDERED that the Parties’Stipulation pertaining to PacifiCorp dba
Rocky Mountain Power’s Application for approval of proposed changes to depreciation rates
applicable to the Company’s depreciable electric plant is approved.The depreciation rates set
forth in Attachment Ito the Stipulation shall be effective as of January 1,2014.
The Commission notes that the Company’s last request for approval of changes to its depreciation rates was filed
in 2007,with a January 1,2008 effective date,PAC-E-07-14 (Order No.30499).
ORDER NO.32926 9
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,Within seven (7)
days after any person has petitioned for reconsideration,any other person may cross-petition for
reconsideration.See Idaho Code 6 1-626.
DONE by Order of the Tdaho Public Utilities Commission at Boise,Idaho this /‘
day of November 2013.
PAUL K LA i5,PRESIDENT
2S7
MACK A.REDFGPD,COMMISSIONER
3LA z[L
MARSHA H.SMITH,COMMISSIONER
ATTEST:
Jn D.Jewe
dmmission Secretary
o PAC-E-I 3-02_np4
ORDER NO.32926 10