20190308Decision Memo - PacifiCorp.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER RAPER
COMMISSIONER ANDERSON
COMMISSION SECRETARY
COMMISSION STAFF
FROM:KARL T. KLEIN
DEPUTY ATTORNEY GENERAL
DATE: MARCH 8,2019
SUBJECT:PROPOSED PHASE II SETTLEMENT REGARDING PACIFICORP DBAROCKY MOUNTAIN POWER IN THE COMMISSION'S
INVESTIGATION INTO THE TMPACT OF FEDERAL TAX CODE
REVISIONS ON UTILITY COSTS AND RATEMAKING;
CASE NO. GNR-U-18-01.
On May 31,2018, the Commission entered an order approving an initial settlement
stipulation signed by Rocky Mountain Power, a division of PacifiCorp ("Company"), Commission
Staff, and intervenors Idaho Irrigation Pumpers Association, Inc., PacifiCorp Idaho Industrial
Customers, and Monsanto Company (the sole intervenors in this multi-utility case as it relates to
the Company). The settlement stipulation set up a two-phase process by which the Company
would return to customers 100% of the tax benefits the Company has realized under new tax laws
that decreased the Company's corporate tax rate and expenses. The Phase I Stipulation required
the Company to refund $6,185,000 to Idaho retail customers effective June 1,2018, as a
preliminary portion of the current tax benefits the Company realized under the tax laws. The refund
would be passed to customers through Electric Service Schedule l97-Federal Tax Act
Adjustment. The Phase I Stipulation provided for a Phase II of the case in which the parties would
have an opportunity to review balances remaining after accounting for the reduction to rates
proposed in Phase I, and to propose ratemaking treatment for the remaining deferred balances. See
Order No. 34072.
On March 5,2019, the Company filed a Phase II Stipulation signed by all parties to
settle the remaining issues in the case. The Phase II Stipulation provides, in summary:
l. Effective June 1,2019, Schedule 197 rates ra'ould be revised to refund to Idaho retail
customers about $7,589,000 annually, for an increase to the Phase I refund of about
DECISION MEMORANDUM 1
$ 1,400,000. The revised Schedule 197 would remain in effect until rates are set in the
Company's next general rate case.
2. Starting June 1, 2019, the Company will use the Energy Cost Adjustment Mechanism
(ECAM) to amortize over two years the $ 1 ,141 ,000 deferred balance of the current tax
savings from January 7, 2018 through May 3 l, 2019 that has not yet been returned to
customers.
3. The Idaho-allocated Excess Deferred Income Taxes (EDIT) resulting from the new tax
laws include protected property-related EDIT of $105,924,604, with estimated annual
amortizations of $2,564,410 in 2018,$2,352,309 in2019, and $2,306,632in2020; and
non-protected and non-property EDIT of $14,883,505. As the EDIT balances amortize
in rates, the amounts will include a rate base carrying charge offset to account for the
corresponding increase in rate base associated with the amortized EDIT until the next
Idaho general rate case.
4. The actual annual ARAM amortization of protected property-related EDIT, and the
annual straight-line amortization of non-protected property and non-property EDIT,
will be reduced by a rate base offset calculated at the pre-tax weighted average cost of
capital of 9.312o/o on the after-tax EDIT amounts until the EDIT rate base balances are
updated and included in the next Idaho general rate case.
5. The actual annual ARAM amortization of protected property EDIT, less the associated
rate base offset, will be refunded to Idaho retail customers in the subsequent year
through the ECAM under Schedule 94 and will not be subject to the sharing band.
Additionally, the non-protected property and non-property EDIT will be amortized
over seven years ($2,126,275 per year less the rate base offset), beginning June 1 ,2019,
and be used in part to offset the 2013 incremental depreciation expense deferral
approved by Commission Order 32910 in Case No. PAC-E-13-04. Both will be
included in Idaho retail customer rates in the ECAM until the rate effective date in the
next general rate case and will not be subject to the sharing band. The Parties may
propose to change the seven-year amortization period for the unamortized portion of
the non-protected property and non-property EDIT balance in the next Idaho general
rate case.
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6. The tax savings to be passed through the ECAM to customers effective June I ,2019
will be accomplished by multiplying Idaho retail energy for June 1,2019 through May
31,2020 by $0.957 per megawatt hour ("MWh").
7. Effective June 1,2020, the Company will update the tax amortization rate to include
any over or under collection from the prior period along with the 2019 protected
property EDIT amount updated based on actual tax retum data and reduced for the
corresponding rate base carrying charge offset. The current estimated rate before these
true-ups is $0.853 per MWh.
8. When the Company files its next Idaho general rate case, the Company's application
will reflect information relating to the tax laws, including: current federal income taxes
calculated using the test period data; annual amortization and updated balances of
protected property EDIT for the test period; annual amortization and updated balances
of non-protected property and non-property EDIT for the test period; and the Schedule
197 rider will end with the rate effective date of the general rate case.
9. The on-going incremental depreciation expense associated with the 2013 depreciation
study will be included in base rates beginning on the effective date of the rates set in
the next Idaho general rate case. Any defened balance associated with the 2013
depreciation will be trued-up in the next ECAM follou'ing the rate effective date in the
next general rate case.
10. With respect to rate design, the above-described rate reductions will be passed through
to customers under Schedule 197 or Schedule 94.
11. The $7,589,000 will be allocated to customer classes using the cost of service Fl0l -
Rate Base factor. The rate reduction will be allocated to all retail tariff customers taking
service under the Company's electric service schedules based on the rate base
allocation to each customer class from the Company's class cost of service study as
filed in Case No. PAC-E-11-12.
12. To avoid impacting demand-side managementprograms, Schedule No. l9l, Customer
Efficiency Services Rate Adjustment will be applied to customers' bills prior to
applying the proposed Schedule 197 sur-credit.
13. The Parties recommend the Commission approve the Phase II Stipulation as being in
the public interest, and state that its terms are fair, just, and reasonable.
aJDECISION MEMORANDUM
STAFF RECOMMENDATION
Staff recommends the Commission process the Phase II Stipulation by Modified
Procedure with comments due twenty-one days from issuance of a Notice of Proposed Settlement
and Notice of Modified Procedure and reply comments due seven days later.
COMMISSION DECISION
Does the Commission wish to issue a Notice of Proposed Settlement and Notice of
Modified Procedure setting a twenty-one day comment period and a seven day reply comment
period?
Karl T
Deputy General
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