1. Do Pensions need saving
Prepaid pension assets in regulatory settings
Jaime McGovern PhD
Sr. Economist
Oregon CUB

2. Oregon’s Pension docket
One Oregon utilities applied to have the Prepaid Pension Asset (PPA) included in rates. Others followed suit.
CUB argued to have this treated in a special investigation
The PPA was ultimately litigated and NOT included in Oregon rates
At the time, a first
Jaime McGovern PhD
Sr. Economist
Oregon CUB

3. Complications and inherent assymmetries
Companies requested 30 years ago to move from cash accounting to accrual (FAS87) accounting
Records were incomplete
Black box settlements made retrospective accounting impossible
Jaime McGovern PhD
Sr. Economist
Oregon CUB

4. Factors in customer’s favor
Not all utilities in Oregon were in a PPA position. Some were in a position of accrued pension liability (APL)
Throughout the docket (2 years), the value of the PPA for each Utility moved significantly
The Utilities had not had a consistent policy of treating under or over collection.
The Utilities forecasted lower plan returns than customers would pay on the PPA.
Jaime McGovern PhD
Sr. Economist
Oregon CUB

5. Pension Worksheet Status A Pension Benefit Obligation B
Prepaid pension asset* C
Present value of plan assets in $** D
Funding target in $ E
Unfunded liability in $/funding shortfall F
Target normal cost G
Minimum required contribution H
Credit balance I
Annual contribution in $s I1
Contribution from shareholders in $s I2
Contribution from credit balance in $s I3
Capital cost of shareholder contribution I4
Debt financing cost of contribution J
Funding status (choose one Y/N) J1
Underfunded J2
Overfunded J3
Fully funded J4
Funding target attainment percentage
Status (cont.) K
Amount recovered (authorized) in rates (pre-tax) L
Amount recovered (authorized) in rates (post-tax) L1
FAS 87 expense M
Actual interest rate N
Actual return on plan assets
Assumptions O
Assumed discount*** rate for O1
Benefit obligation O2
Benefit cost P
Expected return on plan assets Q
Wage escalation assumed R
Years of amortization assumed S
Funding target percentage per year T
"at risk" under PPA (choose one Y/N) U
Tax benefit, in dollars of annual contribution V
Cash flow benefit of cash contribution W
Value of prepaid pension asset X
Accumulated Other Comprehensive Income/Expense

6. Prepaid pension asset accumulation
Pension Plan Worksheet, in Millions of $s
YEAR
2005
2006
2007
2008
2009
2010
2011
2012
Prepaid pension asset
$37
$29
$22
$18
$28
$27
$31
$35
Shareholder Contribution $0
$25
$10
$20
$24
Amount recovered in rates $6
FAS 87 expense $7 $8 $4
$15
$11
$16
$19
Jaime McGovern PhD
Sr. Economist
Oregon CUB

7. Pension Plan Worksheet, in Millions of $s
Long history
Pension Plan Worksheet, in Millions of $s
YEAR
1996
1997
1998
1999
2000
2001
Prepaid pension asset
$2.5
$3.3
$6.0
$7.7
$13.2
$17.2
Contribution from shareholders
$0.0
Amount recovered in rates
-$0.3
-$0.5
FAS 87 expense
-$0.8
-$2.6
-$1.8
-$5.4
-$4.1
Jaime McGovern PhD
Sr. Economist
Oregon CUB

8. PPA
Jaime McGovern PhD
Sr. Economist
Oregon CUB

9. In Summary, we found
Putting the prepaid pension asset in ratebase would require ratepayers to finance expenses they already paid for
The PPA is NOT an asset –does not amortize down
The Utilities can fund way beyond the minimum funding level
The Companies did not have records to support the accumulation of the PPA
Several of the Companies’ PPAs peaked before the Pension Protection Act or the Great Recession
Several of the Companies PPAs dissipated greatly during the length of the docket
The open-ness/closed-ness of the pension plan affected the likelihood to be in a PPA vs APL position
Jaime McGovern PhD
Sr. Economist
Oregon CUB

10. Conclusion and recommendation in Oregon UM 1633
Inclusion of the PPA in rates is opportunistic and one sided
Any transition into cash accounting or ratebased PPA would require a full retrospective of 30 years of pension funding and accounting, which is not possible
Jaime McGovern PhD
Sr. Economist
Oregon CUB