20180514Comments - Idaho Power.pdf

KARL T. KLEIN
DEPUTY ATTORNEY GENERAL
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5156
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Staff of the
Idaho Public Utilities Commission
IN THE MATTER OF THE INVESTIGATION
INTO THE IMPACT OF FEDERAL TAX CODE
REVISIONS ON UTILITY COSTS AND
RATEMAKING
REC E IVED
?BIBHAY lh Pt{ 2:25
i SION
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. GNR-U.18.01
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COMMENTS OF THE
COMMISSION STAFF IN
SUPPORT OF SETTLEMENT
STIPULATION RE: IDAHO
POWER COMPANY
The Staff of the Idaho Public Utilities Commission comments as follows on the
Settlement Stipulation and Motion to Approve Settlement Stipulation (the "Stipulation") filed by
Idaho Power Company (the "Company").
BACKGROUND
On December 22,2017, the President signed into law the Tax Cuts and Jobs Act of 2017
("TCJA"). Effective January 1,2018, the TCJA decreased the federal corporate tax rate from
35o/o to 2l%o. In response, the Commission opened this multi-utility case to investigate whether
to adjust the rates of certain utilities that benefit from the reduced tax rate. See Order No. 33965.
The Commission directed all affected utilities-including the Company-to immediately
account for the tax benefits as a regulatory liability, and to report on how the tax changes
affected them, and how resulting benefits could be passed on to customers. See id.
at l-2. The Company filed its report on March 30, 2018.
1STAFF COMMENTS MAY 74,2078
On April 12,2018, the Company filed a Stipulation signed by the Company, Commission
Staff, and the Industrial Customers of Idaho Power (the "Parties"). The Stipulation, if approved,
would directly decrease customer rates by $26,497,560 million from June 1, 2018 through May
31,2019. This direct rate reduction consists of: (l) an $18,678,936 base-rate decrease passed to
customers through a uniform percentage decrease to all base-rate components except the service
charge, and (2) a $7,81 8,624 decrease through a rate credit from the Revenue Sharing component
of the Company's Power Cost Adjustment ("PCA") mechanism.l The $18.7 million base-rate
decrease would continue until the Company's base rates change through a future general rate
case or other proceeding. The initial, $7.8 million PCA credit would continue from June 1, 2018
through May 31,2019. The credit would then decrease to $2,680,957 on June 1,2019, and reach
$0 on June I ,2020. See Stipulation at 6-8.
Besides directly decreasing customers' rates, the Stipulation also would provide a non
cash annual benefit of about $7.4 million that would offset certain deferred costs that customers
would otherwise have to pay through rates. See Stipulation at 8-9.
The Stipulation would also modify the Company's Accumulated Deferred Income Tax
Credit (ADITC) Revenue Sharing mechanism and extend it beyond its December 31,2019
termination date, with the modified terms to take effect starting January 1,2020. See Stipulation
at l0-13.
Because some stipulated benefits would pass to customers through the PCA, which is
proposed to take effect on June 7,2018, the Parties have requested that the Commission process
the Stipulation by Modihed Procedure in time for an approving Order to issue by that date.
STAFF REVIEW
After thoroughly reviewing the Company's 2017 Pro-forma analysis, Staff supports the
Stipulation's resolution of the TCJA's impact on the Company. Staff believes the Stipulation is
in the public interest and represents a fair, just, and reasonable compromise that provides
1 Order Nos. 30978, 32424, and 33149 established the Accumulated Deferred Income Tax Credit (ADITC)/Revenue
Sharing component that enables the Company to either (l) amortize additional ADITC, or (2) share a portion of its
revenues with customers through a credit on their bills when the Company's return on equity exceeds a certain level.
The current ADITC/Revenue sharing mechanism would expire on December 31,2019, absent this Stipulation as
noted below.
2STAFF COMMENTS MAY 14,20t8
customers 100% of the benefits the Company receives under the new federal and Idaho state tax
rate changes.
The Stipulation provides Idaho customers a first-year benefit of $33,915,408 million,
which consists of: (1) direct net base-rate reduction of $18,678,936 million, (2), an additional
fi1 ,818,624 million direct rate decrease provided through the 2018 PCA, and (3) a non cash
annual benefit of $7,417,848 million that offsets other deferred costs. The total annual customer
benefits decrease to$28,777,741 onJune 1,2019, andto 926,096,784 on June 1,2020 remaining
atthat level until the Company's next general rate case. In its report filed on March 30,2018,
the Company illustrated the cash benefits of the TCJA to be used for a base-rate reduction was
$11,178,487. Non cash benefits of $14,918,298 annually would be used to offset regulatory
assets at alater date. The rate reduction provided for in the Stipulation is significantly greater
than what the Company had originally proposed. Details of the Stipulation are provided in the
comments below.
Curuent Tax Expense Reduction
The Company reports a current tax expense reduction of approximately $1 1.2 million,
resulting in an immediate cash savings to the Company. This amount consists of: (1) the
$7 ,179,463 of current tax expense reduction quantified through the 2017 proforma analysis that
the Company submitted, (2) the $2,073,710 reduction in the North Valmy Power Plant
("Valmy") levelized revenue requirement resulting from tax reform, and (3) the $1,925,914
reduction in the tax gross-up on Allowance for Funds Used During Construction ("AFUDC")
associated with the Hells Canyon Complex ("HCC") relicensing costs currently recovered from
customers under Order Nos. 30722 and 32426.
De-ferued Tax Reduction
As of December 2071, deferred tax amounts must be revalued at the lower corporate tax
rate (2lYo} resulting in excess deferred federal income tax balances. Balances associated with
regulated utility operations resulted in a balance sheet reclassification from deferred tax to
deferred regulatory asset or liability. This revaluation affected plant (permanent tax benefit) and
non plant (temporary tax benefit) balances and reduces the amount customers will owe in the
future.
JSTAFF COMMENTS MAY t4,2018
Direct Rate Reduction.for Customers
Through negotiations, the Parties have agreed to a$26,497,560 first year benefit
associated with the TCJA to be returned to customers. This amount combines the current tax
expense reduction and a portion of the deferred tax reductions, allowing customers to benefit
immediately from some of the non cash savings associated with the tax reform. The direct rate
reduction will be provided to customers via two rate components on June 1,2018: $ 18,678,936
will be provided as a base-rate reduction and $7,818,624 will be provided through the Earnings
Sharing component of the PCA mechanism as shown on the Attachment No. I to the Stipulation.
The base-rate reduction of $18.7 million will be provided to customers as a uniform
percentage decrease to all base-rate components except the service charge and will remain in
place until the Company's next general rate case proceeding or until otherwise modified by the
Commission.
On June 1,2018, the Company will include a one-time credit of $4,244,01 5 in the PCA to
return to customers the accrued January through May 2018 tax savings under Order No. 33965.
The PCA will also include 53,574,609 in temporary Federal Regulatory Energy Commission
("FERC") jurisdictional tax savings for a total benefit of approximately $7.8 million returned to
customers from June 1 , 2018 through May 3 l, 2019.
Because of the TCJA, the Company's Open Access Transmission Tariff ("OATT")
transmission formula rate will be reduced, thereby lowering the Company's third-party
transmission revenues in base rates. These revenues are a credit to retail revenue requirements.
This decrease in third-party revenues will increase the Company's retail revenue requirement
starting October 1,2019. The Stipulation (paragraph I I ), if approved, would allow the Company
to factor how tax reform affects the OATT into its calculations. The Company estimates that, by
October 1,2020, the total annual OATT third-party transmission revenue reduction will amount
to $3,574,609. However, the Parties agreed the FERC's temporary provision for jurisdictional
tax savings to Idaho retail customers depends on FERC upholding the current formula-based
historical test period rate setting methodology. The Parties thus agreed the Company will cease
and adjust the provision of this temporary cash benefit if FERC requires earlier recognition of
TCJA benefits than would otherwise occur under the normal schedule. Furthermore, if FERC
requires an out-of-cycle adjustment to the Company's OATT formula rate, the removal of this
temporary cash benefit would be reflected as a change to the PCA true-up balance.
4STAFF COMMENTS MAY 14,2018
Assuming no out-of-cycle adjustment by FERC, the OATT tax savings passed through
the PCA will be reduced to $2,680,957 on June I ,2019 to reflect the impact of three months of
reduced OATT third-party revenues. Beginning June 1, 2020, this credit to the PCA will be
reduced to zero to reflect the impact of a full year of reduced OATT third-party transmission
revenues.
Non Cash Customer Bene.fits to Offset Future Increases
The Stipulation provides that the Company will offset its regulatory assets with the
remaining S7 ,417 ,848 of non cash annual benefits from the TCJA not returned to customers
through a rate reduction, and thus decrease future rate increases. On June 1 ,2018, the Company
will offset the entire regulatory asset account established per Order No. 33706, which includes
about $ I million of incremental deferred operations and maintenance expenses that may be
associated with the Company's participation in the Energy Imbalance Market ("EIM"). The
Company also will offset the $2.8 million regulatory asset approved in Order No. 34031
associated with Idaho's jurisdictional share of the Baker County settlement agreement expenses
incurred through December 31,2015 as a part of HCC relicensing. The remaining $3.6 million
in non cash customer benefits will offset nonspecific current and future deferrals as allowed for
recovery from customers by the Commission.
Beginning on June 1,2019, the entire $7.4 million will accumulate each year in a
regulatory liability account until the Company's next general rate case or until otherwise
modified by the Commission. The liability account will offset prudent nonspecific current and
future deferrals approved for recovery from customers by the Commission. Staff supports, as
reasonable, allowing the accumulated amounts in this account to accrue a carrying charge at the
authorized customer deposit rate.
ADITC/Revenue Mechanism
In Order No. 33149 in Case No. IPC-E-14-1 4,the Commission approved the extension of
the Company's ADITC/Revenue Sharing mechanism through December 31,2019. In this
Stipulation, the Parties agree to extend the ADITC/Revenue Sharing mechanism beyond
December 31,2019 with modifications to be effective January 1,2020. Staff believes the
proposed modifications to the mechanism provide an additional benefit to customers that would
not otherwise have been received without a comprehensive settlement in this docket.
5STAFF COMMENTS MAY 14,2018
Therefore, Staff supports the new and agreed terms of the Revenue Sharing regarding the
Idaho customers' share for the Company's year-end earned Return on Equity (ROE). The
Company agreed to increase the customers' share of its Idaho jurisdictional earnings beginning
in2020. When the Company's earned ROE is higher than l0%o,Idaho customers and the
Company will share all amounts over 10% ROE, up to and including 10.5% ROE, on an 80o/o
customer and20o/o Company sharing basis (as opposed to 75l25oh currently). The Company will
provide this benef,rt to customers as a rate reduction in the next year's PCA. If in any year, the
Idaho jurisdictional ROE exceeds l0.5oA, the Company and its customers will share all amounts
over the 10.5% ROE as follows: (i) 55% will be provided to Idaho customers in a form of a rate
reduction in the next year's PCA, (ii) 25% will be shared with Idaho customers as an offset to
amounts in the Company's pension balancing account, and (iii) 20% will go to the Company.
Staff supports the Company amortizing additional cumulative amounts of up to $45
million of state and federal ADITC, if the Idaho jurisdictional year-end earned ROE falls below
9.4Yo (cnrrently 9.5o/o) for any year beginning January 1,2020. This will allow the Company to
realize a9.4Yo minimum level of actual Idaho ROE.
STAFF RECOMMENDATION
Staff believes the proposed Stipulation represents a reasonable compromise of all issues
while returning all benefits from the TCJA to customers. The Stipulation is just, fair, and reasonable
and in the public interest, and Staff thus recommends the Commission approve it.
Respectfully submitted this l'ltL day of May 2018
fu( / /c-
Karl T. Klein
Deputy Attorney General
Technical Staff: Johan Kalala-Kasada
Donn English
i:umisc/comments/gnrul8. lkkklsjk stip comments ldaho Power
6STAFF COMMENTS MAY 14,2018
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 14th DAY OF MAY 2018, SERVED
THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE NO.
GNR-U-18-01, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWNG:
LISA NORDSTROM
IDAHO POWER COMPANY
PO BOX 70
BOISE rD 83707-0070
E-mail : [e-mail]
dockets@ idahopower. com
MIKE YOUNGBLOOD
TIM TATUM
IDAHO POWER COMPANY
PO BOX 70
BOrSE rD 83707-0070
E-mail '.com
ttatum@,idahopower. com
PETER J. RICHARDSON
RICHARDSON ADAMS, PLLC
P.O. BOX 7218
BOISE, IDAHO 83702
E-mail : oeter(Erichard sonadams.com
DR. DON READING
6070 HILL ROAD
BOISE, IDAHO 83703
E-mail : dreadin [e-mail]
SECRETAR
CERTIFICATE OF SERVICE