From: Jean Jewell
Sent: Tuesday, July 13, 2004 2:28 PM
Subject: Idaho Power Gets Reconsideration on Some Issues
Case No. IPC-E-03-13, Order No. 29547
July 13, 2004
Contact: Gene Fadness (208) 334-0339 or (208) 890-2712

Idaho Power gets reconsideration on some issues

The Idaho Public Utilities Commission today granted in part and denied in part Idaho Power’s request for reconsideration of an order issued May 25 granting the company an average 5.2 percent increase in rates.

The commission agreed to receive more evidence and conduct a hearing regarding the portion of the order that reduced by $11.5 million the amount Idaho Power wanted to recover from ratepayers for the company’s income tax expenses.

Today’s order also grants Idaho Power an additional $2.67 million in revenue to account for computational errors. That increases Idaho Power’s total revenue requirement to nearly $28 million.

When Idaho Power filed for a rate increase in October 2003, it sought an increase of $85.6 million in annual revenue, which would have resulted in an average 17.7 percent rate increase. The commission’s May 25 order granted the company $25.3 million in new revenue, or an average 5.2 percent increase. The $2.67 million granted today will be placed in rates beginning Aug. 1 and will result in an increase of about one-half of 1 percent.

The commission denied the company’s request for reconsideration on three other accounting issues including: 

-- the commission’s decision to amortize recovery over a three-year period of a $2.9 million tax payment resulting from the company’s 1998-2000 tax audit cycle. The company sought to have the money recovered from customers in one year or even two years.

-- the commission’s decision to not allow the company to recover $352,500 from customers in legal costs resulting from a case before the Federal Energy Regulatory Commission. The commission said customers should not have to pay legal costs for cases that are extraordinary and not likely to be repeated in future years;

-- the commission’s decision to eliminate certain adjustments regarding the company’s incentive pay. The adjustments would have allowed the company to add $387,000 to its annual expenses.

The $11.5 million in tax cost expense remains the largest issue still to be decided in the rate case.  The company requested recovery for a federal tax rate of 35 percent and a state tax rate of 5.9 percent. The commission lowered the federal tax rate to 25.2 percent and the state rate to 5.62 percent. It used an historic five-year average to calculate the tax expense in lieu of a statutory rate, reducing the income tax expense by $11.5 million.

In 2001, Idaho Power changed to a tax computation methodology that resulted in a $41 million refund for the company in 2002. However, the one-time refund must be repaid in the form of higher taxes in the future. Ratepayers did not share in the tax proceeds the shareholders received in 2002, the commission noted, but customers will have to repay more than $41 million in higher tax expense and could be subject to a tax deficiency payment if the IRS determines that Idaho Power did not properly file the 2001 tax return that results from the tax methodology change.

“As we see it, in 2002, the U.S. Treasury essentially made a loan in excess of $41 million to Idaho Power that must be repaid in the form of higher future taxes,” the commission said. “Had this been an outright gift to Idaho Power requiring no future obligations by ratepayers, this commission could find it reasonable to adopt the company’s income tax arguments.”

The company alleges the use of the five-year average violates IRS code and results in “retroactive ratemaking.” The commission, in its May 25 order, said, “The five-year average, a methodology the company has advocated for setting variable interest rates, is a well-established proxy that establishes tax expense using the past as an indicator of the future.”

The commission directed its staff as well as Idaho Power staff to adopt a schedule, including an evidentiary hearing, to complete the reconsideration process.