20031015_648.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:LISA NORDSTROM
DATE:OCTOBER 10, 2003
RE:PROPOSED SETTLEMENT OF IDAHO POWER'S APPLICATION TO REVISE
ITS DEPRECIATION RATES FOR PLANT IN SERVICE.
CASE NO. IPC-03-
On October 9 2003, Idaho Power Company filed a Motion for Acceptance of Settlement
on behalf of itself, Commission Staff, and the Industrial Customers ofIdaho Power (ICIP), which are
collectively referred to as "the Parties." The changes agreed to by the Parties resulted in an overall
reduction in the Company s requested depreciation rate from approximately 3.15% to 3.06%, or a
reduction in the Company s annual requested increase in depreciation expense from about $7.
million to $4.3 million. If approved by the Commission, the proposed settlement would resolve the
outstanding issues in this depreciation docket.
PROCEDURAL BACKGROUND
Idaho Power Company filed an Application on May 6, 2003 , requesting authority to
revise its depreciation rates for the Company s electric plant in service. Idaho Power s depreciation
rates have not been significantly changed since the Commission issued Order No. 24739 in 1993.
Although the Company s total annual depreciation expense would increase by nearly $7 million
under its proposal, the present Application did not request a change in electric rates.
The proposed depreciation rates are based on the results of a detailed depreciation study
ofIdaho Power s electric plant in service as of December 31 2001 , that was conducted by Gannett
Fleming, Inc. Gannett Fleming identified and measured changes as well as recommended
depreciation rates. The most significant rate change is in the category of General Plant, which
DECISION MEMORANDUM
Gannett Fleming recommends be increased from 5.52% to I 1.24%. Gannett Fleming s study also
updates net salvage percents and service life estimates for all plant assets.
Idaho Power s current depreciation rates have been applied to the investment in each
primary and subplant account. The proposed depreciation rates are based on the straight line
remaining life method, average service life procedure for all electric plant. A summary schedule
detailing the December 31 , 2001 original plant cost, depreciation accrual amount, and rate is set forth
in Attachment 1 to the Application.
Based on $2 900 657 420 of depreciable electric plant in service on December 31 , 2001
Idaho Power s requested depreciation rate changes would increase its total annual depreciation
expense by $6 994 021. Idaho Power Company requests that its Application be processed pursuant
to the Commission s Rules of Procedure, i., by written submission rather than by hearing.
Commission Rules of Procedure, IDAPA 31.01.01.201-204. The Company also asks that the
Commission issue an Order approving the proposed depreciation rates effective December 1 , 2003.
On June 3, 2003, the Commission issued a Notice of Application, Modified Procedure
Public Workshop as well as Intervention and Comment Deadlines. The ICIP was the only party who
requested and was granted intervention in these proceedings. Order No. 29274. The Parties met on
multiple occasions to negotiate a settlement prior to filing this Settlement Agreement. To allow
additional time for resolution, the Commission extended the deadlines for comment and reply
comments from August 8 and 19 2003 to August 29 and September 9 2003 , respectively. Prior to
the filing of this Settlement, Staff filed comments on August 29, 2003, setting forth the same
principles now embodied in this proposed Settlement.
PROPOSED SETTLEMENT
To settle the depreciation matters identified above, the Parties agree to reduce Idaho
Power s requested increase in depreciation expense from $6 994 021 to $4 310 591 per year, based
upon 2001 plant levels, in accordance with the following:
1. Steam Production Plant (Accounts 311.00, 312.10, 312.20 and 314.00): The
Company will lower the salvage costs for the Jim Bridger Plant from a
negative ten percent to a negative five percent which coincides with the rates
recently approved by the Commission for PacifiCorp. Idaho Power and
PacifiCorp are joint owners of the Bridger Plant. As illustrated in Exhibit
to the Agreement, changes to accounts 311.00, 312., 312.20 and 314.
will reduce the depreciation expense of the Company s steam production
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plant from $22 672 796 as requested in its Application to $21 693 983 , orby
$978 813 per year based on 2001 plant levels.
2. Hydraulic Production Plant (Accounts 331.00, 332. L 332.2 and 334.
Idaho Power will reduce the proposed depreciation expense of its hydraulic
production plant from $13 445 303 as proposed in its Application to
$12 393 839 (based upon plant levels as of December 31, 2001) by adjusting
the net salvage rate for accounts 331.00, 332., 332.2 and 334.00. These
changes will result in an overall depreciation expense reduction of
$l ,051 ,464 per year based on 200 I plant levels for the Company s hydraulic
production plant as illustrated in Exhibit 1. Idaho Power and Staff
acknowledge that they do not agree on the weight that should be given to the
term of FERC operating licenses in setting depreciation expense. Idaho
Power and Staff agree that this settlement does not constitute acquiescence on
that issue by either Party.
3. Transmission Plant (Accounts 354.00 and 355.00).The Company will
reduce the negative salvage rate of its towers and fixtures (account 354.00)
from a proposed negative salvage rate of 50% to a negative salvage rate of
30%. Furthermore, the Company will adjust the negative salvage rate of its
poles and fixtures (account 355.00) from a negative salvage rate of75% to a
negative salvage rate of 60%. The combined effect of these changes will
reduce the proposed depreciation expense of the Company s transmission
plant from $10 717 860 to $10 064 707 for a reduction of $656 153 in
proposed depreciation expense based upon 2001 plant levels and as
illustrated in Exhibit 1 to the Settlement.
4. General Plant (Accounts 391.20 and 391.21): The Parties agree to divide the
two existing computer equipment plant sub-accounts (391.200 and 391.21 0)
into four sub-accounts. Equipment with a vintage prior to 2002 will be
amortized at the rates proposed by the Company in its original Application.
Equipment with a vintage 2002 and thereafter will be amortized at the
straight-line rate for the agreed-upon service lives: 5 years for 391.200 and 6
years for 391.210. The actual implementation process for vintages prior to
2002, including rates and/or retirements, shall be further determined during
the general rate case that is expected to be filed in October 2003.
5. The Parties agree to the depreciation accruals originally proposed by the
Company in its Application for its distribution plant, its general plant (with
the exception of computer Accounts 391.200 and 391.210), and its other
production plant categories as shown on Exhibit 1 to the Settlement.
6. The Parties agree that the depreciation rates agreed to herein shall become
effective on December 1 , 2003. The Parties agree that this Stipulation is in
the public interest with respect to the issues covered by it and that all of the
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terms of the Stipulation are fair, just and reasonable. The Parties have
negotiated this Stipulation as an integrated settlement document. The Parties
recommend that the Commission accept this Stipulation without material
change or condition.
COMMISSION DECISION
Given that it has been signed by all the parties to this case, does the Commission wish to
approve the proposed settlement?
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DECISION MEMORANDUM