20030609IPCO Response to Staff Questions.PDF

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IDAHO POWER COMPANY
O. BOX 70
BOISE, IDAHO B3707
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MAGGIE BRILZ
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Director, Pricing
June 9, 2003
Mr. Randy Lobb
Mr. Lynn Anderson
Mr. Dave Schunke
RE:Idaho Power Company s Responses to I PUC Staff's Questions and
Responses Following the AMR Workshop Case No. IPC-02-
Dear Randy, Lynn, and Dave:
Enclosed is a copy for each of you of Idaho Power s responses to Staff's
Questions and Requests 1 through 9 which were e-mailed to me on May 23, 2003. Consistent
with the May 9 , 2003 Protective Agreement, the Company has marked and printed the
propriety portions of its responses on yellow paper. I would appreciate your ensuring this
information is stored in a secure location with limited access and safeguarded from
unauthorized disclosure.
Per my conversation with Lynn Anderson on May 30, Request 10 has been "put
on hold" until Staff has had the opportunity to review the responses to items 1 through 9. It is
my understanding that once Staff has reviewed the information provided, further discussion will
be held between Staff and Idaho Power concerning the specifics of item 10.
As I have mentioned in a conversation with each of you , Idaho Power would
appreciate the opportunity to meet with Staff and review the responses provided as well as
answer any other questions you may have. Please feel free to contact me at any time to
schedule a time that would be convenient for you.
Sincerely,~~6
MB:mb
Enclosures
Ric Gale
Bart Kline
Idaho Power Company s Responses to IPUC Staff Questions and Requests
Following the AMR Workshop for Case No. IPC-O2-
3. How was the equipment life of the AMR meters, station equipment, and software
determined?
Please provide supporting documentation, and lor studies that corroborate the
equipment lives chosen.
Electronic meters and AMR communications equipment have not existed long
enough to determine the actual equipment life. Our equipment useful life utilized in the
updated analysis is based on the depreciation rates for similar equipment, our own
knowledge of equipment life , and information provided by industry contacts.
E ui ment
Software
Personal com uters
Communications E ui ment
Distribution Transformers
Current Idaho Power De reciation Schedules
De reciation Life
7 years
ears
20 ears
25 years
In the Company s analysis the AMR meters were classified as communication
equipment and were similarly depreciated over 20 years. The software costs included in
the analysis were depreciated over 7 years consistent with the Company s current
depreciation life for similar software. The AMR master station equipment consists of
several PCs, a modem bank and a network controller. The station equipment is similar to
SCADA and Communications Equipment. The station equipment was depreciated over
15 years by creating a composite rate of the current depreciation time frame for personal
computers, which is 8 years , and for SCADA communication equipment, which has a
useful life of 20 years. The station transformers are similar to Distribution Transformers
and were modeled to last the same as our distribution transformers , or 25 years. Because
of these similarities, it was deemed reasonable to utilize the lives for the existing
equipment as proxies for the lives of AMR equipment.
4. On page 12 you identify as a risk
, '
the cost of AMR technologies may decrease in
cost as more deployments occur . For that equipment that has an expected life less
than 43 years, why do you replace it at the present cost?
We have been looking at this equipment for several years and have periodically
requested updated quotes on the equipment from vendors. The price of the AMR
technology has not changed during the past several years. However, we are aware that as
technology becomes more available, its price generally falls. This analysis assumes that
both the cost of the equipment and the labor cost to install the equipment remain constant
over the 40 year time period. We do believe that the cost of the equipment may go down
in price or at least resist inflationary pressures over time. However, we believe that
escalating the installation labor cost by the inflation rate would offset any saving from
decreased equipment costs. Based on the potential for decreased capital costs to be offset
by increased labor costs , the Company felt it was reasonable to use current costs in the
analysis.
6. What additional cost would be required for the proposed A1\1R system to perform
remote turn-on and turn-off. If safety is a concern, include the cost for the
capability discussed in the workshop that allows the customer to perform the final
energizing of the home.
The additional costs ofremote connect and disconnect devices are listed below.
These costs are based on vendor provided quotes. Because the vendors requested their
costs be kept confidential, we have referred to the vendors by number instead of name.
Only vendor #2 provides a device that allows the customer to take the final action to
energize the home.
Type/Supplier Communications Breaker Lock Installation Total
Module Ring
Collar/Vendor #1 Contained in $200 $7.$14.$221.
breaker
CollarN endor #2 Meter module $145 $7.$14.$186.
(customer close)adder $ 20.
Meter/Vendor #3 Meter adder Contained $14.$248
$234 in meter
The average cost of a connect/disconnect over the last two and a half years (the
time period for which the Company has detailed information available) is $12.00 per site
visit. The installation of automated connect/disconnect devices, based on the information
provided to the Company by vendors, has an upfront cost ranging from $187 to $248.
Depending on the number of annual site visits for service connections and
disconnections, the payback on the investment would range from approximately 2.5 to 10
years. Based on our analysis of repeat visits to perform actual connects and disconnects at
the same premises we identified only 6 accounts that could provide a simple payback in
5 years based on an investment of $187 (each of these 6 accounts had more than 13
repeat disconnect and reconnect visits during the 2.5 year period). We also identified
802 accounts with more than 3 repeat visits during the 2.5 year period for which data
was available. An investment in automatic disconnect and reconnect technology for
these accounts could provide a simple payback inlO years , assuming the accounts
followed their historic trend.
The cost to automate the 6 accounts with more than 13 repeat visits in 2.5 years
would be $1 119 and would eliminate 101 field visits costing $12.00 each over 2.5 years
for a potential total benefit of $93.00 after 2.5 years. The cost of automating the 4 802
accounts with more than 3 repeat visits in 2.5 years would be $895,573 and would
eliminate 93,124 field visits in 10 years, for a potential total savings (on a non-present
value basis) of $221 915 after 10 years, assuming the accounts followed their historic
trend.
Although the reduction in the number of disconnect/reconnect visits that could
occur by automating this function through an AMR system has the potential to reduce
total O&M costs, it is unlikely that such an investment would actually result in cost
savings. The 4 808 accounts that would provide a payback on the investment in
automatic disconnect/reconnect technology after 10 years are spread sporadically across
our service territory. Because these accounts are spread across 17 operating areas, the
number of accounts in any particular area that could potentially provide a benefit from
automation would not be enough to support the elimination of any positions. Even if we
assumed that all the savings were concentrated in one operating area, the potential annual
savings of $22 192 ($221 915 divided by 10 years) would not support the elimination of
a permanent position.
7. Please provide the amount of lost revenue associated with slow meters. Provide at
least three years of history.
Because of our aggressive meter maintenance and testing program, Idaho Power
believes that slow meters and any associated impact on revenues are not an issue for our
utility. As part of our standard meter maintenance program, Idaho Power performs
random tests of meters currently in service and tests on all meters removed from service
for both planned and unplanned maintenance and for service disconnections. Based on
the statistical analyses of the results from these tests, Idaho Power is able to identify
potential problems. If a problem is identified, additional meters of the same type and
classification are removed from service and tested to determine the extent of any problem
and the further actions that should be taken. Actions which might be taken can include
increased meter inspections, targeted meter removal based on age or serial number range
or total removal of all meters of a certain type. These testing programs insure that our
meter systems are as accurate as possible.
If a utility did not perform ongoing meter maintenance such as that performed by
Idaho Power, the potential increase in revenue recovery from replacing all meters in
service with an AMR system could be significant. However, we believe that our meter
maintenance programs are effective in minimizing any revenue impact and that the
potential for recovering additional revenue by replacing our existing meters with an AMR
system is minimal.
8. Please provide the amount of lost revenue associated with theft. Provide at least
three years of history.
The number of energy diversions identified and the total amount billed as a result
of those detections for 2001 2002, and the first quarter of 2003 are:
Year Energy Diversion Reports Billed Amount
2001 335 $27 093
2002 366 $31,448
2003 140 $14,496
We discover energy diversion on about .01 percent of our residential meter
installations annually, typically on accounts that have been disconnected for non-
payment. Consequently, although we bill for the amount of energy theft detected, we do
not collect much of the amount billed. An AMR system could provide for earlier
detection of theft of service than our current process.However, because of the low
volume of theft currently experienced, we do not anticipate the impact to be significant.
National statistics on theft of service run from 1 % to 3%. We believe our theft
rate to be significantly less than the national average for the following reasons:
We have a trained workforce, an effective meter sealing policy, and proactive
theft detection programs.
Our rates are comparatively low compared to the national average.
Our number of accounts disconnected for non-payment is low.
We have a relatively low crime rate in Idaho.
Theft of service over $1 000 is a felony in Idaho.
9. Please revise Table 7, including the supporting work papers, with the following
assumptions:
a) Pocatello, American Falls, Blackfoot and Salmon areas are implemented in
the first year.
b) When AMR equipment has reached its useful life, the replacement cost is
10% lower than the cost of the equipment being replaced.
c) Eliminate 95 % of the Post AMR labor and transportation for the meter
reading function so that in the year after all the standard meters have been replaced
with AMR only 5 % of these costs remain.
d) Customer discount rate of 5%.
e) Standard meters are amortized over a 10-year period instead of a 4-year
period.
0 A verage annual customer meter growth is 2.5 %.
g) Average annual CPI increase is 3.3%.
The results of the Company s analysis incorporating Staff's financial assumptions
are detailed in the attached revised Table 7, Revised Table 8, and Revised Table 9.
a. We have created a modified implementation plan as requested and have
moved the AMR implementation for Pocatello, America Falls, Blackfoot
and Salmon from 2007 to 2004. Due to the interconnected nature of our
system it was necessary to keep the 2004 timeframe for implementation in
Payette to facilitate the subsequent implementation of AMR in Canyon
County.
The implementation plan under the scenario including Staff's requested
assumptions is as follows:
Beginning April 2004
Payette, Pocatello, American Falls , Blackfoot and Salmon First Year
Investment - $21.3 Million
2005
McCall, Mt Home, Hailey, Canyon County, and Emmett. First Year
Investment - $22 Million
2006
Boise Area (Includes Meridian, Kuna, Idaho City) First Year Investment -
$25.1 Million
2007
Twin Falls, Jerome, Gooding, Mini Cassia - First Year Investment $15.4
Million
b. We have included replacement costs for all equipment at 90% of its
current cost. However, for the reason stated in our response to question 5
we believe that this assumption may understate replacement costs and do
not believe it is a reasonable assumption.
c. The initial analysis eliminates 100% of the meter reading costs under
AMR. Therefore we could not further reduce post AMR O&M costs in
this scenario.
d. On table 7 we used a discount factor of 5%.
e. The amortization of existing meters was increased from 4 years to 10
years. With all other Staff-requested assumptions held constant, the
amortization change from 4 years to 10 years actually moves the revenue
requirement crossover year from year 6 to year 9 and increases the
payback from 15 years to 16 years.
f. We increased the number of customers annually by 2.5% as requested by
Staff. Based on our past experience and our current projections, we are
concerned that this assumption grossly overstates the potential growth in
our service territory. Not all areas in our territory are growing at the same
rate and not all of our customer classes are growing. For instance the
number of irrigation customers is not growing at all. In our original
analysis we used area specific and customer class specific growth rates
which included zero customer growth for irrigation. On the opposite end
of the continuum, Staff's assumed 2.5% customer growth actually
decreases the AMR installation costs for the Boise and Canyon County
areas.
g. An annual inflation factor of 3.3% was used for all 40 years or the revised
analysis. This factor is higher than the Idaho economic CPI would
indicate.