20150602press release.pdf

Case No. PAC-E-14-10, Order No. 33304
Contact: Gene Fadness [phone], 890-2712
www.puc.idaho.gov

Commission approves accounting treatment
related to closure of Utah’s Deer Creek mine

BOISE (June 2, 2015) – The Idaho Public Utilities Commission is approving an application by
Rocky Mountain Power to set aside expenses related to the utility’s decision to close a Utah
coal mine for possible later recovery from customers.

The Deer Creek Mine near Huntington, Utah, is operated by Energy West Mining Company, a
wholly-owned subsidiary of PacifiCorp, which does business in eastern Idaho as Rocky
Mountain. The utility is seeking authority from the six states where it has customers to 1) incur
costs for closing the mine; 2) withdraw from a contract it has with the United Mine Workers of
American Pension Trust, which will incur a withdrawal liability; 3) sell the assets it has in the
mine and; 4) enter into an agreements with Kentucky-based Bowie Resource Partners to
provide replacement coal for the Huntington and Hunter plants in Utah that had been
previously provided coal from the Deer Creek mine. Bowie trucks in coal to the Huntington
plant from its mines in Utah’s Carbon and Sevier counties.

The Idaho commission is required by state statute to approve any sale or purchase of property
owned or to be owned by a utility it regulates. The commission is to determine whether the
transaction is in the public interest, that rates will not be impacted and that a potential buyer
has the bona fide intent and financial ability to operate and maintain the property in the public
service.

The commission said the proposed sale is in the public interest because it mitigates the
company’s potential exposure to increasing pension and medical obligations to the mine’s 182
employees and that the resulting cost for supplying electric service will be less going forward
than it would have been without the transaction.

However, the commission denied the company’s request to recover carrying charges before the
next rate case. The commission also did not approve the company earning a return on expenses
related to the mine’s closure. Instead, the commission agreed to grant the company an
accounting order that will allow it to defer costs related to the transaction for review by the
commission after the company files its next rate case. A return on deferral during recovery may
also be argued in the next rate case.

Included in the deferred account can be Idaho’s portion (about 6 percent) of any loss on the
sale of assets, construction work in process, closure costs and costs related to a retirees’
medical obligation settlement. The commission denied the company’s request to include
carrying charges or a return on those costs because the plant is no longer “used and useful” to
customers. Rocky Mountain said not allowing carrying charges and a return penalizes the
company for a decision that benefits customers and puts the company in a position of financing
the benefits of the transaction for customers over time. That ratemaking treatment limits the
company’s ability to fully recover costs and could dissuade utilities from undertaking similar
actions in the future, Rocky Mountain Power said.
The commission said it “was not persuaded by Rocky Mountain’s assertion that approval of a
carrying charge is necessary to incentivize well-reasoned and cost-effective business decisions
...” Utilities should not to be “incentivized to act rationally in order to limit their losses,” the
commission said. Further, the commission said, delaying recovery of deferred items until after
a rate case is filed “will enable the commission to fulfill its statutory duty to scrutinize and
evaluate the actual costs of the transaction prior to making its decision regarding a reasonable
return for those costs.”
The PacifiCorp Idaho Industrial Customers and Monsanto opposed the application, stating it is
too early to determine actual costs related to the closure until after a rate case is filed.
The mine, purchased in 1977, produces an average 3.5 million tons of coal annually. The mine
had been the primary source of coal for the Huntington Power Plant in east-central Utah, which
annually consumes about 2.9 million tons. It also supplied some coal to the Hunter Power Plant.
The mine’s depreciable life runs through 2019.

The mine’s employees were represented by the United Mine Workers of America. Rocky
Mountain said Energy West’s health care costs and contributions to the pension trust were
sharply increasing. Under the most recent labor settlement, Energy West was responsible for
almost 100 percent of the health care costs, with employees paying a minimal co-payment and
no premium cost-sharing. The deficit between the market value of the pension trust’s assets
and the present value of the vested benefits is about $5.5 billion.

In addition to labor issues, the mine is producing lower quality coal as it ages, which, in turn,
reduces the volume of coal produced. As Energy West sought to develop additional areas of
the mine’s reserves, it discovered significant volumes of high-ash, high-sulfur coal, meaning
much of it had to be transferred to a preparation plant nearby to be blended with lower-ash
coals to meet coal quality specifications. More coal is available on the market, making it less
advantageous to own coal mining assets, Rocky Mountain claimed.

The commission’s order, along with all the documents related to the case, is available on the
commission’s website at www.puc.idaho.gov. Click on “Open Cases” under the “Electric”
heading and scroll down to Case No. PAC-E-14-10.

###