20231109Comments of the Commission Staff.pdf

ADAM TRIPLETT
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE,IDAHO 83720-0074 SSION
[phone]
IDAHO BAR NO.10221
Street Address for Express Mail:
11331 W CHINDEN BLVD,BLDG 8,SUITE 201-A
BOISE,ID 83714
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF ROCKY MOUNTAIN )CASE NO.PAC-E-23-18
POWER'S APPLICATION FOR A )DEFERRED ACCOUNTING ORDER )RELATED TO INSURANCE COSTS )COMMENTS OF THE
)COMMISSION STAFF
COMMISSION STAFF ("STAFF")OF the Idaho Public Utilities Commission,by and
throughits Attorneyof record,Adam Triplett,Deputy Attorney General,submits the following
comments.
BACKGROUND
On August 21,2023,Rocky Mountain Power,a division of PacifiCorp ("Company"),
applied for authority to defer incremental costs associated with the Company's commercial
insurance coverage.The Company proposed to defer Idaho's allocated share of the incremental
costs for insurance coverage.The Company estimated the incremental cost to be $92.3 million
--the difference between the $32.7 million already included in rates and estimated insurance
costs of $125 million for policy period beginning August 15,2023,or later.Additionally,the
Company requested this deferral to cover insurance costs for the third-partyclaims on PacifiCorp
for events that may occur under both Federal and State emergency declarations.The potential
STAFF COMMENTS 1 NOVEMBER 9,2023
magnitude of the insurance costs exceeds normal costs anticipatedby PacifiCorp and that are
included in its retail rates and could also far exceed the reasonable business risk associated with
these claims.The Company proposes it would record the incremental costs as a regulatory asset
in Federal Energy Regulatory Commission ("FERC")Account 182.3-OtherRegulatory Assets
and credit FERC Account 925-Injuries and Damages until the Company proposes recovery of the
costs in its next general rate case.
The Company represents that commercial liability insurance,includingwildfire liability
insurance,is a prudent business expense that protects both the Company and customers against
financial losses from third-partyclaims.The Company represents that its current rates were
approvedto reflect a reasonable level of commercial insurance covering third-partyclaims.The
Company represents that wildfire risks for utilities in the western United States have radically
changed in the last few years,leaving it unable to obtain such insurance at past premiums due to
increasing costs resulting from such fires.
STAFF ANALYSIS
Staff reviewed the Company's Application,responses to Production Requests,supporting
documents,and similar concluded cases.Staff believes the Company's request in part is
reasonable based on the extraordinary circumstances of the insurance markets.Staff
recommends the Commission authorize the Company to defer only Idaho's jurisdictional share
of incremental insurance premiums above those booked to FERC account 925,Injuriesand
Damages and already included in rates.However,Staff recommends that the Commission deny
the request to include costs for the third-partyclaims on the Company in this deferral.Staff also
recommends the Company be authorized to defer Idaho's jurisdictional share of incremental
insurance premiums until December 31,2026,or until the effective date of its next general rate
case,whichever occurs first.At that time,recovery of prudentlyincurred expenses can be
determined.Additionally,Staff recommends that no carrying charge be allowed on the
regulatory asset.Finally,Staff recommends that the Company submit its completed Idaho
Wildfire Mitigation Plan ("WMP")as a separate filing with the Commission within 30 days of
its completion.
STAFF COMMENTS 2 NOVEMBER 9,2023
Deferral Request
On a case-by-case basis,the Commission has generally allowed deferred accounting
treatment for extraordinary and unusual expenses mandated by a regulator or similar authority
that have a significant financial impact on the Company.Staff believes that securing liability
insurance is a best practice in the utility industry,which protects the Company and its customers.
Additionally,Staff believes the insurance industryis experiencing extraordinary risks,at this
time,which is also increasing the Company's coverage risk.Staff believes that if this request is
denied,the Company's financial metrics and its ability to secure financing needed to continue
providing safe and reliable service to customers in the future could be negatively impacted.
A deferred accounting order does not constitute Commission approval to recover these
costs from the Company's customers.In this case,the granting of a deferral order does not limit
Staffs right to audit,question,or challenge the appropriateness,reasonableness,and prudence of
any cost to be deferred,as this sort of review is necessary to protect customers.Staff expects the
Company to provide sufficiently detailed supporting documentation when it seeks recovery of
these costs in a subsequent filing.Staff also expects the Company to mitigate these expenses as
much as possible and provide supporting evidence of such efforts.Therefore,Staff recommends
the Commission authorize the Company to defer Idaho's share of incremental insurance
premium expenses into a regulatory asset account,with recovery of prudentlyincurred costs to
be determined in a subsequent rate proceeding.
Absent an accounting order from the Commission,the Company would not be able to
recover these costs unless they were incurred during the Company's test year in a general rate
case.Staff believes that allowingthe Company to defer otherwise unrecoverablecosts provides
a sufficient benefit to the Company and,therefore,the Company should not be granted a carrying
charge on the regulatory asset account.
Additionally,the Company requested that this deferral covers insurance costs for the
third-partyclaims on PacifiCorp for events that may occur under both Federal and State
emergency declarations.Application at 3.Staff recommends that the Commission deny this
request to include these type of expenses.Staff believes that future,unknown third-partyclaim
expenses are not appropriate to book as a regulatoryasset at this time.Staff recommends that for
STAFF COMMENTS 3 NOVEMBER 9,2023
individual third-partyclaims that occur under both State and Federal emergency declarations,the
Company should have individual filings with the Commission to address accounting treatments.
Increased Risk
The Company's Application stated that insurance premiums are increasing due to
wildfire liability risk and other factors.The Company provided a few factors that have
influenced the increase in insurance premiums,such as large losses paid by the insurers to the
utility industry,natural disasters,inflation,overhead electric transmission and distribution lines,
physical location of assets,etc.Response to Production Request No.6.Althoughthe Company
listed many factors that insurers may consider when determining the Company's coverage risk,
the Company ultimatelystated that insurers do not share details about their interpretations of
risk.Response to Production Request No.8.Staff believes that given the circumstances of
increased risks in the region due to wildfires,it is reasonable that the Company's insurance
premiums have also increased.
Risk MitigationEfforts
Staff inquired about the steps that the Company is taking or plans to take to help mitigate
factors that may influence coverage risk and insurance premiums.The Company stated it strives
to mitigate insurance risk factors through the followingactivities,but not limited to:(1)
continuouslysetting improvement targets for safety performance,(2)leveraging technology to
proactively identify and address vehicle accident risk,(3)targeting zero workforce
incidents/accidents,(4)putting cybersecurity program in place,(5)puttingdam safety programs
in place for performance monitoring,(6)developing and updating wildfire and extreme weather
mitigation plans in partnership with local and state-wide authorities and emergency services
leaders that incorporatesthe use of state-of-the-art technology,(7)keeping costs stable and
affordable through disciplined management,(8)expanding clean energy,(9)strivingto achieve
net zero greenhouse gas emissions by 2050,(10)enhancing reliability and resiliency,(11)
making annual environmental and climate-related disclosures to investors,and (12)conducting
supply chain advanced planning for capacity.Response to Production Request No.7.Staff
encourages the Company to continue efforts that help mitigate coverage risk.However,Staff
believes that some of the efforts listed above,such as expanding clean energy,achieving net zero
greenhouse gases,and updating investors on annual environmental and climate-related
STAFF COMMENTS 4 NOVEMBER 9,2023
disclosures,are Company initiatives and do not necessarily help mitigate insurance coverage
risk.
Additionally,the Company stated it anticipates completing a map that identifies areas
that are at substantial risk of wildfires from utility asset ignition as part of its Idaho WMP.
Response to Production Request No.8.Staff supports the Company's development of an Idaho
WMP and recommends that the Company submit its completed Idaho WMP as a separate filing
with the Commission for review.
Insurance Premiums
Staff reviewed all documentation the Company has provided to support the estimate of
$125,000,000 (system)in liability insurance premium expenses.Application at 3.After
reviewing the invoices provided,Staff determined that insurance premium invoices for the policy
periods commencing August 15,2023,or later,total $113,585,367 (system).Response to
Production Request Nos.1 and 9.This results in an amount of $11,414,663less than the
estimate the company provided.Based upon known information,additional liability insurance
costs,other than premiums,are not appropriate to book as a regulatory asset at this point in time.
Staff recommends that only insurance premiums be considered to be deferred as a regulatory
asset.
Proposed Account Treatment
The Company indicated that it used the "system overhead allocation factor"to calculate
the liabilityinsurance premium expenses imbedded in Idaho base rates.Response to Production
Request No.11.Idaho's allocation factor is 5.6057%and was determined by the Company in its
last general rate case (Case No.PAC-E-21-07).Applying this allocation factor to the
$113,385,367of actual liabilityinsurance premium expenses incurred on system basis would
result in $6,367,253 allocated to Idaho.The current liability insurance embedded in Idaho base
rates is $1,833,063,which is calculated by multiplyingthe $32,700,000 (system total)by the
Idaho allocation factor.This results in an incremental amount of $4,534,190,in which liability
insurance premiums exceed the current amount embedded in Idaho base rates.
The Company is currentlyrecording liabilityinsurance expenses in FERC Account 925.
Response to Production Request No.11.Staff does not have issue with the Company continuing
STAFF COMMENTS 5 NOVEMBER 9,2023
to record liability insurance expenses to this account.In similar cases,such as AVU-E-20-05
and IPC-E-21-02,the Commission authorized similar incremental insurance premium expenses
to be recorded to FERC 182.3-Other Regulatory Assets.Staff agrees that the proper accounting
procedure is to record the associated expenses by debiting FERC Account 182.3 -Other
Regulatory Assets and crediting FERC Account 925-Injuries and Damages.
Lengthof Deferral
The amount the Company would be deferring annuallyis substantial.The Company
states that they do not know whether liability insurance premiums will increase,decrease,or
remain stable.Response to Production Request No.4.Allowingthe Company to defer these
expenses annuallycould create a rate pancaking effect on customers if the Company is allowed
to defer for too long of a period,especially if insurance rates continue to trend upward.Staff
contends that the Company should have a defined length of time which they are authorized to
accumulate the deferred liabilityinsurance premium expenses as a regulatory asset.Three years
of historical data would allow the Company and Staff to have supporting data to set a new
baseline for insurance expenses and would mitigate pancaking of customer rates.Staff
recommends that the Commission allow the Company to defer the regulatory asset until
December 31,2026,or the effective date of its next general rate case,whichever occurs first.
STAFF RECOMMENDATIONS
Staff recommends the Commission issue an Order that:
1.Authorizes the Company to defer Idaho's jurisdictional share of incremental
liability insurance premiums above those already in base rates into FERC account
182.3-Other Regulatory Assets until December 31,2026,or until the effective
date of its next general rate case,whichever occurs first;
2.Does not allow a carrying charge on the regulatoryasset;
3.Denies the request to include the insurance costs for third-partyclaims on the
Company under both State and Federal emergencies in this deferral;and
4.Orders the Company to submit to the Commission its Idaho WMP in a separate
filing within 30 days of its completion.
STAFF COMMENTS 6 NOVEMBER 9,2023
Respectfully submitted this 9th day of November 2023.
Adam Triplett
Deputy AttorneyGeneral
Technical Staff:James Chandler
Kimberly Loskot
i:umisc/comments/PAC-E-23-18 Comments
STAFF COMMENTS 7 NOVEMBER 9,2023
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 9th DAY OF NOVEMBER 2023,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF TO
ROCKY MOUNTAIN POWER,IN CASE NO.PAC-E-23-18,BY E-MAILING A COPY
THEREOF,TO THE FOLLOWING:
MARK ALDER JOE DALLAS
ROCKY MOUNTAIN POWER ROCKY MOUNTAIN POWER
1407 WEST NORTH TEMPLE STE 330 825 NE MULTNOMAH ST
SALT LAKE CITY UT 84116 STE 2000
E-MAIL:[e-mail] PORTLAND OR 97232
E-MAIL:[e-mail]
DATA REQUEST RESPONSE CENTER
E-MAIL ONLY:
[e-mail]
SECRETARY
CERTIFICATE OF SERVICE