III. The Revenue Requirement Settlement
PacifiCorp requested an annual increase of $16.04 million (29.38%). The interim increase granted in D.02-06-071 yielded an annual increase of about $4.6 million. Therefore, PacifiCorp's request was for a revenue requirement increase of $11.4 million above current revenues. In ORA's reports, it recommended a decrease of $2.74 million below current revenues.
In the proposed revenue requirement settlement, included as Attachment A to this decision, PacifiCorp and ORA agreed to the following changes to the ORA report.
· The report inadvertently understated federal, state and deferred taxes. This correction increased the revenue requirement by $1.9 million.
· The report was based on estimated plant balances for the test year that ran from July 1, 2002 through June 30, 2003. Updating the estimate to reflect recorded plant balances as of December 31, 2002, resulted in a revenue requirement increase of $1.4 million.
· ORA proposed an increase in estimated retail electric loads and associated revenues. This caused an increase in the allocation of system costs resulting in a revenue requirement increase of $1.7 million.
· PacifiCorp and ORA agreed to use a 2.99% depreciation rate for distribution plant based on a new depreciation study completed after the general rate increase request was filed. This increased the revenue requirement by $0.6 million.
· PacifiCorp and ORA agreed to an overall rate of return of 8.53%. This used a 10.9% return on equity (ROE), and a capital structure of 48% long-term debt, 6% preferred stock, and 46% common equity.4
The above adjustments to ORA's report resulted in a revenue requirement increase of $2.8 million (4.7%) over current revenues. This is approximately $5.58 million over ORA's recommendation, and $8.6 million below PacifiCorp's request.
In addition, PacifiCorp withdrew its request for a Power Cost Adjustment Mechanism (PCAM).5
4 D.02-11-027 adopted a 10.9% ROE for 2003 for Sierra Pacific Power Company and San Diego Gas & Electric Company. It also adopted an 11.22% ROE for Pacific Gas and Electric Company, and an 11.60% ROE for Southern California Edison Company. 5 Under the proposed PCAM, a base net power cost (BPNC) would be established. The BNPC would be compared to the actual net power cost on a monthly basis with the difference recorded in a PCAM account. Rates would be adjusted as necessary to recover the balance in the PCAM account subject to a reasonableness review.
