Agenda Date:  August 30, 2000
Item Number:  2B

Docket:  UE-000969
Company Name: PacifiCorp

Staff:   Thomas Schooley, Policy Research Specialist
   Roland Martin, Regulatory Consultant

Recommendation:
Grant PacifiCorp’s request to capitalize and amortize the costs of a Voluntary 
Enhanced Early Retirement Program and an Employee Severance Program as amended.

Discussion:
PacifiCorp’s proposal
On June 23, 2000, PacifiCorp (“the Company”) filed a petition seeking authority 
to capitalize and amortize the costs of an early retirement program and a 
severance program.  The programs are designed to reduce staffing levels by 
1,600 employees within two years while providing high quality customer service 
through improved management tools and skills, consistent with the Company’s 
Transition Plan.  

Employees with fifteen years of service and at least 53 years old qualify for 
the early retirement program.  Nine hundred employees met these requirements 
and 732 of them accepted the offer by the June 30, 2000, deadline.  PacifiCorp’
s severance plan was instituted in 1998.  Upwards of 868 employees may be laid 
off under this plan.

The costs of the programs include increased retirement and other post 
retirement benefit expenses, severance benefit expenses, and administrative 
costs related to the programs (such as the costs of plan workshops and 
re-education workshops).  Actual costs of the programs depend on the number of 
employees in each plan, the ages of the employees, the final salaries, and 
other relevant characteristics.  For purposes of this Petition, PacifiCorp 
estimates total system-wide costs of $175 million. (Washington’s allocation is 
approximately 8.7%, or $15 million.)

PacifiCorp states the costs of the programs are concentrated in the next couple 
years while the benefits of reduced wages are realized over several years.  
Therefore, PacifiCorp presents this accounting petition to more closely align 
the program costs with the program benefits.

Specifically, PacifiCorp requests an order which authorizes the Company:  
A. to capitalize the costs of the retirement program and severance program in 
Account 182.3, Other Regulatory  Assets; 
B. to amortize these costs to Account 930.2, Miscellaneous General Expenses, 
over the five-year period   commencing from the date of the Order; and 
C. to include the unamortized amounts in the Company’s rate base.

Staff analysis
Staff does not oppose this accounting petition in concept.  We reviewed the 
recent merger stipulation and the just concluded rate plan stipulation.  We 
find nothing to preclude PacifiCorp from filing this type of accounting 
petition.  

The subject of this accounting petition, the costs of staff reductions, and the 
reason for the merger savings credits, operational efficiencies, are 
essentially the opposite sides of the same coin.  The merger savings credit 
passes back $3 Million per year for four years ($12 million total).  The effect 
of the accounting petition is to levelize the costs to achieve the savings at 
about $3 Million per year for five years ($15 million total).

PacifiCorp proposes to capitalize its estimated total costs ($175 M) and to 
amortize this equally over five years.  This essentially spreads the cost over 
the stipulated rate plan period, but no further.  Staff suggested changes to 
the proposed order to codify those concepts and PacifiCorp accepted those 
suggestions.  

Staff generally accepts deferred debits as a component of investor-supplied 
working capital.  If there is a positive net investor-supplied working capital, 
then this is added to the rate base and the investors receive a return on what 
they invest.  Staff maintains this theory of working capital for any future 
rate cases.   Pacific’s proposal to add the balance to rate base is contrary to 
this theory.  PacifiCorp agrees to include the deferred debit in rate base as a 
component of investor supplied working capital, but not necessarily by the same 
method used by Staff.

The amended petition includes the following modifications:  
A. The deferred debit for Washington is approximately $15,200,000 for both 
programs;  
B. The deferral account will be Account 186, Miscellaneous Deferred Debits; 
C. The deferred debit will be amortized to Account 930.2, Misc. General 
Expenses, over a period ending by the  termination of the rate plan established 
in Docket No. UE-991832 (i.e., December 31, 2005) with the tax  benefits to 
follow the expense; 
D. During the rate plan period, the unamortized balance of the deferred debit 
will be included in rate base in an  investor supplied working capital 
calculation; 
E. The costs of the early retirement and severance programs announced during 
2000 will not be included in rates  for any years after 2005.
 
Summary
PacifiCorp proposes to capitalize the costs of an early retirement program and 
severance program and to amortize those costs over five years.  Staff accepts 
the proposal as modified to protect consumer interests beyond the end of the 
new rate plan period.

Conclusion:
Staff recommends the Commission grant the accounting petition as amended.