Idaho Public Utilities Commission
Case No. IPC-E-11-22, Order No. 32424
December 28, 2011
Contact: Gene Fadness (208) 334-0339, 890-2712
Commission extends Idaho Power revenue sharing agreement
The Idaho Public Utilities Commission has approved an Idaho Power Company application that allows the company to continue to accelerate tax benefits to help level its earnings and share a portion of those earnings above 10 percent with customers.
Idaho Power receives income tax benefits based on the level of plant investment in previous years. The accumulated deferred investment tax credits are typically spread over the book life of the associated plant investment and used to reduce income tax expense included in customer rates during that period. However, as part of the 2010-11 moratorium on base rate increases, Idaho Power and other parties proposed a settlement that allowed the utility to help level its earnings by accelerating up to $45 million of investment tax credits at $15 million a year for three years if its return on equity (ROE) falls below 9.5 percent. The settlement further stated that Idaho Power would split 50-50 with customers the portion of earnings 10.5 percent or greater. The customer benefit would be in the form of rate reductions or an offset to amounts that would otherwise be included in customer rates.
Up until the 2010 agreement, Idaho Power had not been able to earn its authorized rate of return for the previous decade in both its Idaho and Oregon jurisdictions. While the exact amount of the 2011 year-end ROE isn’t known yet, it is above 10.5 percent, creating the sharing opportunity. Without the one-time tax benefits received in 2011, the 2011 ROE was anticipated to be below 9.5 percent.
The agreement approved by the commission Tuesday is a modification of the 2010 settlement that extends the ability of Idaho Power to amortize the credit through Dec. 31, 2014 and provide an even greater share of earnings with customer for 2011. The adjustment lowers the threshold at which earnings will be shared to 10 percent ROE. Earnings between 10 and 10.5 percent will be shared 50-50 with customers with that reduction applied at the same time as the annual Power Cost Adjustment (PCA) every June 1. If earnings are greater than 10.5 percent, 75 percent of those earnings will be used to offset company pension expenses that would otherwise be included in customer rates. Those same provisions for earnings above 10 and 10.5 percent will be included in the 2012-2014 extension of the agreement.
“The existing accounting order approved by the commission has benefitted customers, the company and shareholders,” the commission said. “Rating agencies and shareholders generally view the earnings stability provided by the past agreement as positive.”
The agreement will provide customers an estimated $15 million benefit they would not receive and it reduces amounts that would otherwise be included in customer rates, the commission said.
In addition to commission staff and the company, parties participating in the settlement discussions were the Industrial Customers of Idaho Power and Micron Technology, Inc.
In the original 2010 order approving the accelerated tax treatment and sharing mechanism, the commission said improved earnings are important to maintain Idaho Power’s ability to finance ongoing plant investments needed to serve customers.
“The company’s increased financial stability benefits customers by enabling the company to delay rate cases and potentially lower interest costs. It is beneficial to customers and to Idaho Power if the company can enhance its ability to stabilize earnings in the near term, strengthening the company’s position in the financial markets and enabling it to reduce the cost of borrowing funds for operations or plant investment,” the commission said.
A full text of the commission’s order, along with other documents related to this case, is available on the commission’s Web site at www.puc.idaho.gov. Click on “File Room” and then on “Electric Cases” and scroll down to Case Number IPC-E-11-22.