pace992.swksrl.blurb.doc

. The gain associated with the transaction could be reflected as an increase in the accumulated provision for depreciation, the reserve account, and would, in future years, benefit ratepayers by reducing the rate base, the resulting return on rate base and depreciation expense.

Prior Commission-Ordered Treatment of Gains/Losses on Sale of Utility Assets
This Commission has utilized gains on the sale of utility assets in various ways: return to ratepayers through a bill credit, offset expenses, charge (increase) accumulated depreciation or offset plant investment, make special contributions to other accounts (i.e. the Idaho Universal Service Fund), or amortize the gain over a period of years.
1. In Case No. IPC-E-93-24, Idaho Power Company requested authority to offset the net gain from the sale of the Hailey turbine against the recent increase in their income tax rates. The Commission, in Order No. 25339 allowed Idaho Power to offset Omnibus Budget Reconciliation Act, OBRA 93, related tax increases against the gain from the sale of the Hailey Turbine for the entire year of 1993. The decision as to an offset for the 1994 increased tax expense was deferred to the anticipated future rate case.
2. In Order No 25753, Case Nos. PPL-E-94-1 and WWP-E-94-1 (the transfer to Water Power of Pacific Power's Bonner County, Idaho service territory and electrical distribution facilities) the Commission stated:
We find that the customers are entitled to share in any gain attributable
to the sale of depreciable property. The customers have paid rates based
on a revenue requirement that included the assets to be transferred and
therefore have an equitable interest. …We find it reasonable to distribute
this amount to Sandpoint District customers as a final bill credit. The
amount is to be allocated among customer classes on the basis of the most
recent 12 months annual kilowatt hour usage by class and is to be shared
equally by current customers within each class.

3. In Case No. IPC-E-93-20, Idaho Power Company filed an Application for authority to sell electric distribution facilities located on Bald Mountain to Sinclair Oil Corporation, d.b.a. Sun Valley Company. This sale resulted in an accounting loss of $124,058. Idaho Power requested that the loss be absorbed in the accumulated reserve for depreciation account. This would be the conventional treatment of a gain or loss. Under this treatment, the reserve balance would be depleted and this in turn would cause an increase in the Company's rate base. The effect of the treatment would be to pass the loss onto the ratepayers. In the future, depreciation rates would also increase due to the loss. The Commission Staff recommended that the loss from the sale be placed "into a regulatory asset account to be amortized over a period of ten years. The unamortized balance of the loss would be excluded from rate base. The annual amortization expense would be included in revenue requirement." The Commission stated:
In Order No. 24676, Case No. IPC-E-92-9, Idaho Power agreed to
pass the gain from the sale of its Hailey Turbine to its ratepayers.
It would be inconsistent for us to now refuse to allocate the loss from
the sale of the Sun Valley facilities to ratepayers.

We share Staff's concern, however, that ratepayers should not be
required to continue to provide a return on assets no longer owned
by the Company. Staff's proposal to place the loss from the sale into
a regulatory asset account to be amortized over a period of ten years
is a reasonable one. Furthermore, Staff's proposal to exclude the
unamortized loss from rate base and to include the amortization expense
in revenue requirement would accomplish the objectives of allowing the
Company to recover the loss from ratepayers but not requirement
ratepayers to continue providing a return on assets that have been sold.
It is therefore ordered that the net book loss from the sale of the electrical distribution facilities of $124,058, adjusted for income taxes, will be
placed in a regulatory asset account to be amortized over ten years.
Amortization will commence January 1, 1994. The annual amortization
expense will be included in the Company's revenue requirement
determinations.

4. In Case No. U-1025-43, In the matter of the application of Boise Water Corporation to revise and Increase rates charged for water service, the treatment of the gain from the sale of the Company's old downtown headquarters was decided. Order No. 16557 states:
The Staff proposed that the complete after-tax gain from the sale
of property be recaptured for the benefit of the ratepayers. The Company,
on the other hand, contended that that portion of the gain attributable to
non-depreciable property (the land) should inure to the benefit of the
Company's shareholders and that portion of the gain attributable to
depreciable property should inure to the benefit of the ratepayers.

We agree with the Company…
The next issue presented is how should the gain be apportioned between depreciable and non-depreciable property. The Staff contended that the gain should be in proportion to the book value of depreciable and non-depreciable property at the time of the sale while the Company contended that the gain should be apportioned according to its appraiser's assessment of the relative values. We agree with the Staff.
We find that book values are the appropriate basis for allocating the gain between depreciable and non-depreciable assets…Instead, we find it fair and reasonable to use book values, which are used for determination of rate of return and depreciation expense, to allocate gain for the sale of property….
The Company proposed to amortize the ratepayers' share of the gain over a five-year period by reducing the revenue requirement by 1/5 of the gain attributable to the ratepayers over five years. The Staff proposed to recapture the gain which the ratepayers are entitled by reducing the Company's rate base attributable to the new headquarter by the amount of the gain. We agree with the Staff's approach. …We find that rate base adjustment of the gain rather than relatively quick amortization of the gain over a five-year period is the proper way to treat this item.

5. In the Sale of the Exchanges from U S West to the seven purchasers (Albion Telephone Company, Cambridge Telephone Company Inc., Midvale Telephone Exchange, Inc., Fremont Telcom Company, Silver Star Telephone Company, Rockland Telephone Company, Inc., and Project Mutual Telephone Cooperative Association, Inc.), the treatment of the gain was reached through a settlement stipulation and negotiation between the Commission Staff, U S West, and the purchasing companies. Order No. 26280 states:
Prior to the consolidated technical hearing on the sales cases, the
Commission Staff and U S WEST entered into a settlement
stipulation Ato compromise and resolve the issue of the treatment
of U S West's gain on the sales transaction.@ Staff Exhibit
No. 119. The Stipulation required U S WEST to make a "special
contribution" of approximately $4.35 million to the Idaho Universal
Service Fund (USF). At the hearing, Project Mutual and the
other purchasers suggested a different use for the $4.35 million.
Instead of depositing this amount as a special contribution to the
Idaho USF, the purchasers suggested that this amount be used
to fund the replacement of central office switches in the sales
exchanges including the existing remote switch in Oakley.

In its Order approving the Oakley exchange sale, the Commission adopted the purchasers' alternative proposal for the special contribution. The Commission found that approval of this sale,
. . . should be conditioned upon the payment of $140,000 by U S WEST
to Project Mutual to replace the switch for the Oakley exchange. This
amount will be paid at the time of closing. Because Project Mutual will
not have to pay income tax on this contribution, the full amount may be
applied to the switch cost. This affords ratepayers in the Oakley
exchange a portion of the gain through the contribution toward
the switch replacement cost. We believe this is a fair, just, and
reasonable apportio nment of the gain in the Oakley exchange sale.

Order No. 26198 at 11 (emphasis added).
In Order No. 26353, approving the sale of the exchanges to all parties except Project Mutual, which had already been approved in Order No. 26198, the Commission stated:
As we did in Order No. 26198, we find it is fair and reasonable
to adopt the Purchasers' proposal, as amended for use of a special
contribution by U S WEST. This resolution affords ratepayers in
the purchased exchanges a portion of the purchase premium through
the contribution toward switch replacement costs. It is also fair and
reasonable to return funds to the Revenue Sharing Plan for
Tech II improvements, and for U S WEST to make a contribution to
the Idaho Universal Service Fund. This disposition of the contribution
by U S WEST spreads a benefit from the sales to a significant number
of ratepayers in U S WEST's southern Idaho exchanges, and materially
improves the financial aspects of the sales for the Purchasers.

Of the gain from the sale of the exchanges, some was used to update the switches in the exchanges that had been sold, and thus returned to the ratepayers, some was returned to the revenue sharing funds, and thus returned to the ratepayers, and some was put into the Idaho Universal Service Fund, thus benefiting ratepayers.

STAFF COMMENTS 1 DECEMBER 3, 1999