Attch 7_IPCE006_StaffComments.doc

CHERI C. COPSEY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 5142

Street Address for Express Mail:
472 W WASHINGTON
BOISE ID 83702-5983

Attorney for the Commission Staff

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION OF IDAHO POWER COMPANY FOR AUTHORITY TO IMPLEMENT THE POWER COST ADJUSTMENT RATE FOR ELECTRIC SERVICE TO CUSTOMERS IN THE STATE OF IDAHO FOR THE PERIOD MAY 16, 2000 THROUGH MAY 15, 2001.
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CASE NO. IPC-E-00-6

COMMENTS OF THE
STAFF

COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its attorney of record, Cheri C. Copsey, Deputy Attorney General, in response to Order No. 28348, Notice of Application and Notice of Modified Procedure in Case No. IPC-E-00-6, issued April 21, 2000, submits the following comments.
On April 14, 2000, in compliance with Commission Order No. 24806 approving a Power Cost Adjustment (PCA) mechanism for Idaho Power in Case No. IPCE-92-25, Idaho Power Company filed an Application with the Commission requesting approval of Tariff Schedule 55 implementing a PCA of 0.1371 cents per kWh and related schedules incorporating the PCA adjustment for the period May 16, 2000 through May 15, 2001. The proposal, if implemented, would increase customer rates.

Because Idaho Power is an electric utility that relies predominantly on hydroelectric generation, its actual cost for generating electricity (power supply costs) can vary dramatically from year to year as stream flows change. When stream flows are low, Idaho Power must rely increasingly on other resources that are more costly than hydro to operate. Therefore, the Commission approved the PCA as a mechanism to adjust customer rates in response to those changing hydro conditions. The Commission found that “a forecastbased PCA with a trueup is most appropriate for Idaho Power. A forecast most closely matches costs to the time period in which they are incurred. This sends the more appropriate price signals to ratepayers.” Order No. 24806 at 7. In that Order, the Commission also approved certain methods for using flow forecasts to forecast expected power supply costs. Based on that Order, Utilities Division Staff reviewed Idaho Power's calculations to determine their accuracy.

DISCUSSION
A. Forecasted Flow Impact on the PCA
The National Weather Service Northwest River Forecast Center in Portland, Oregon, forecasts the April through July Brownlee Reservoir inflow this year will be 3.93 million acre-feet. This is sixty-eight percent (68%) of the normal expected inflow. A regression equation is used to forecast Net Power Supply Costs. See Order No. 24806. Using this forecasted 3.93 million acre-feet and the approved regression equation, Utilities Division Staff calculated Net Power Supply Costs for April 2000, through March 2001, to be $62,987,949. As authorized by order, Utilities Division Staff increased the calculated Net Power Supply Costs by expected qualifying facility costs and decreased them by the expected FMC Second Block Revenue to generate an expected PCA expense of $101,488,260. See Staff Attachment A. Utilities Division Staff found that its calculation agreed with Idaho Power's calculation.

B. Discussion of True-Up
Exhibit No. 3 to Idaho Power witness Said’s testimony illustrates the calculation of the 19992000 true-up. Utilities Division Staff reviewed Idaho Power's calculation and agrees with its result; Idaho Power over collected power supply costs by $4,983,547 last year and owes that amount to its Idaho ratepayers. See Staff Attachment B that shows the same calculation. The approximate $5 million true-up is composed of an $11.3 million over collection of costs resulting from last years runoff forecast and a partial offset of $6.3 million created by the under collection of PURPA Qualifying Facility costs. Utilities Division Staff’s audit of the true-up, as discussed below, uncovered an error of approximately $70,000 that accrues to the customers’ benefit. This adjustment has not been corrected in Staff Attachment B because the Utilities Division Staff and Idaho Power have agreed to carry this balance forward in the balancing account which accumulates interest and include it in next years PCA true-up.
Utilities Division Staff audited Idaho Power's true-up calculations shown in Idaho Power Exhibit No. 3. The audit resulted in a change to two line items. Utilities Division Staff’s audit included an examination of the actual results, month by month, of seven line items. These line items are:
Actual Fuel Expense;
Non-Firm Purchase Power Expense;
QF Expense;
Surplus Sales Revenue;
FMC Secondary Revenue; and
System Firm Load.
As a result of that audit, Utilities Division Staff found that actual fuel expense and system firm load, items 1 and 6, need to be adjusted and the remaining four items are correct as calculated.
Due to timing, when Idaho Power filed its PCA Application, the March 2000 fuel expense used in its calculation was an estimate. As shown on Attachment C, the adjustment to the actual fuel expense for the month of March 2000 is $96,468.86. This adjustment reflects the difference between the monthly estimate and the actual amount of fuel expense for March 2000.
In addition, Utilities Division Staff found that a billing for one firm off-system sale customer, Elko Firm Sales, was also estimated and then trued-up. The adjustment to Elko Firm Sales, a component of system firm load, for February 2000 is $13,900.68; the corresponding adjustment to expense is ($18,490.32) and is based on the adjustment to the megawatt hours for Elko Firm sales of 1098 MWh multiplied by the expense adjustment per MWh of 16.84 mills.
The estimated amounts for both of these were shown for PCA purposes but never trued up with the actual amounts in the PCA. Utilities Division Staff found that before applying the PCA sharing ratio and jurisdictional allocations, the total adjustment is $91,879.22. After the sharing allocation of 90% and the jurisdictional allocation of 85%, the total adjustment to be placed in the deferral account is $70,287.60. See Attachment C. These two Utilities Division Staff adjustments true up the estimates to the actual amounts. As previously discussed, Idaho Power and the Utilities Division Staff agree that this amount ($70,287.60) be held in the deferral account as the beginning balance for the next PCA, rather than adjusting the current proposed PCA rates. This dollar amount would result in a small percentage change to the current PCA rate. However, crediting it to Account 182, the PCA deferral account, recognizes the adjustment and accrues the benefit to customers.
During the Utilities Division Staff audit of the true-up portion of the PCA filing, Utilities Division Staff audited the non-operating power marketing transactions, along with the operating power marketing transactions and is satisfied that the accounting and reporting procedures in place in reference to Energy Trading are sufficient to provide reasonable results in the Power Cost Adjustment.
C. Calculating the PCA Rate
Attachment D reduces the forecast and true-up amounts previously identified to an energy rate. The forecast component is calculated as 0.1832 ¢/kWh and the true-up component of the rate is calculated to be –0.0461 ¢/kWh. The total rate adjustment from utility base rates is the sum of these two which is 0.1371 ¢/kWh. The total rate adjustment from existing rates, that are -0.2143 ¢/kWh below the base, is 0.3514 ¢/kWh.
D. Customer Class Increases
Attachment E, page 1, shows the revenue requirement and percentage increases from base rates by rate schedule associated with the proposed rate change. In the bottom right hand corner the average Idaho jurisdictional rate increase is shown to be 3.51 percent. Attachment E, page 2, shows the same information except the increases are measured from existing rates. Measured from existing rates, the average Idaho jurisdictional rate increase is 9.52 percent.
D. History of PCA Rates and Revenue Requirements
Attachment F illustrates the components of all PCA rate adjustments since Idaho Power’s PCA was implemented in 1993. More than sixty percent (60%) of the increase proposed this year, $23.2 million of the $38 million total increase, results from the expiration of a very large decrease that customers experienced last year.
E. Rate Stability and Rate Increase Deferral
In Commission Order 24806 (Case No. IPC-E-92-25) establishing Idaho Power’s PCA mechanism, the Commission considered its impact on rate stability. It ruled that “if forecasted increases above normalized power supply costs in any given year are predicted to exceed 7% of the Company's normalized base revenues for the Idaho jurisdiction, then Idaho Power is instructed to make a filing with the Commission for the purpose of determining whether a means to defer a percentage of that year's power supply cost recovery should be investigated.” Order No. 24806 at 11. This notification requirement also applies if PCA rate changes for a current year, when combined with trueup adjustments for a previous year, would increase rates in excess of 7% of normalized base revenues. Id.
In Case No. IPC-E-98-5, the overall rate increase was 8.46 % but the increase above base rates was only 4.12%. The difference represented the expiration of a large decrease associated with good water conditions from the year before. Staff’s comments in that case suggested that the increase above 7% be deferred to the following year. The Commission rejected Staff’s recommendation and ruled:
[W]hile this year's PCA results in a rate increase of 8.46% over existing PCA rates, those existing rates were 3.88% below the Company's normalized base level. One of the primary purposes of implementing Idaho Power's PCA was to capture for ratepayers the benefits of reduced power supply costs due to good water conditions. The fact that for the past two years customers have enjoyed rate reductions to reflect outstanding water conditions is proof that the benefits anticipated are being realized. This year, forecasted flows are significantly less than last year, and are below what is considered to be normal. Thus, a surcharge is warranted under the PCA. We find that an increase of 8.46% from one year to the next is not outside the range of reasonableness when that increase is measured from a credit for dramatically good water conditions. We further find that adoption of Staff's proposal could set the stage for perhaps even larger increases next year if forecasted flows at Brownlee again are less than average. It is not prudent to push recovery of a portion of the PCA into such an uncertain future.
Order No. 27516 at 4 (emphasis added).
The circumstances in this case are substantially the same. This year, the overall increase proposed is 9.52 percent and the increase over base rates is 3.51 percent. However, the magnitude of the increase is substantially caused by the expiration of a large rate decrease associated with good water conditions last year. Therefore, Utilities Division Staff recommends the full increase be implemented this year with none of the proposed increase deferred to next year.

CONSUMER DIVISION COMMENTS
When Idaho Power filed their Application in Case. No. IPC-E-00-6 on April 14, 2000, neither the customer notice nor the news release were included as part of the filing. A copy of the news release was faxed to the Commission on April 17, 2000. At the Consumer Division’s request, a copy of the customer notice was faxed to the Commission on April 18, 2000. The notice neglected to inform customers that the notice was filed with the Idaho Public Utilities Commission. Neither the news release nor the notice informed the customer where a copy of the Application could be reviewed by the public. Commission Rule No. 102, Notices to Customers of Proposed Changes in Rates, in the Utility Customer Information Rules is specific on the information that is required to be contained in the notice. The notice may be provided prior to, at the same time, or immediately following the filing. The purpose of the notice is to allow the public ample time to comment on the proposal. Idaho Power should note that according to the Utility Customer Information rules, any application that changes rates could be returned as incomplete if the customer notice is not included.
Since the Application was received on April 14, 2000, with a requested effective date of May 16, 2000, Staff is concerned that the length of time for the public to comment is quite short. As of May 3, 2000, the Commission has received seven comments from the public. All comments are in opposition to the proposed increase. Several customers believe that snowpacks are well above normal; an irrigator urges the Commission to consider the impact of this increase on Idaho farmers. In his case, the increase will be $85,000, an amount he had not budgeted for this coming year. One customer objects to the short notice; she just received her bill and notice on April 28, and comments are due May 4. She believes the short notice is deliberate and does not allow adequate time to comment.

The last Idaho Power PCA case, Case. No. IPC-E-98-5, that involved an increase in rates generated 16 contacts from IPC's customers; all objected to the increase. There were no contacts concerning the last PCA case that decreased rates for customers.

STAFF RECOMMENDATION
Staff reviewed Idaho Power's Application and supporting documentation and found the methods, representations and calculations to be correct and in compliance with the Commission's Orders as they relate to the PCA except for the $70,287.60 difference in the true-up amount previously identified. Staff, therefore, recommends approval of the tariff revisions filed by Idaho Power. Staff also recommends that the $70,287.60 difference be carried in the balancing account where it would be trued-up in next years PCA.
The Consumer Division Staff recommends that the Commission return Idaho Power's next Application for a rate change, if it fails to give adequate customer notice.
Both the Utility and the Consumer Division Staff support Idaho Power's proposal that these changes be effective May 16, 2000.

DATED at Boise, Idaho, this day of May 2000.

_______________________________
Cheri C. Copsey
Deputy Attorney General

Technical Staff: Keith Hessing
Kathy Stockton
Nancy Harman
Tonya Clark

CCC:KH:KLS:gdk:i:umisc/comments/ipce006.ccckhkls
The National Weather Service April 1, 2000, forecast for all major tributaries to the Snake River indicates expected runoff volumes above eighty percent (80%) of normal. This includes a forecast for upper Snake River runoff at eighty-five percent (85%) of normal. Large irrigation diversions above Milner Dam are forecasted to take water at one-hundred percent (100%) of normal. This leaves only forty-one percent (41%) of the normal amount of water in the river below Milner Dam. Tributaries below Milner Dam add water to the river in near normal amounts, which allows the runoff volume to build from forty-one percent (41%) of normal at Milner to sixty-eight percent (68%) of normal at Brownlee Reservoir.

COMMENTS OF THE
COMMISSION STAFF -7- MAY 4, 2000