20060227_1470.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER KJELLAND ER
CO MMISSI 0 NER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEG AL
FROM:SCOTT WOODBURY
DATE:FEBRUARY 24, 2006
RE:CASE NO. IPC-04-15 (Idaho Power)
APPLICATION TO IMPLEMENT A DECOUPLING MECHANISM
BACKGROUND
On August 10, 2004, the Idaho Public Utilities Commission (Commission) in Order
No. 29558 established Case No. IPC-04-15 for an investigation of financial disincentives to
investment in energy efficiency by Idaho Power Company (Idaho Power; Company). In its
Order the Commission approved a series of workshops and directed the participating parties to
provide a written report to the Commission no later than December 15 , 2004 to update the
Commission on the status of the workshops.
On December 15 2004, workshop participants in Case No. IPC-04-15 filed a status
report with the Commission. A final report on workshop proceedings was filed on February 14
2005. The final report called for two action items: (1) the development of a true-up simulation
to track what might have occurred if a decoupling or true-up mechanism had been implemented
for Idaho Power at the time of the last general rate case, and (2) advocacy for filing a pilot
energy efficiency program that would incorporate both performance incentives and "lost
revenue" adjustments.
APPLICATION
On January 27, 2006, Idaho Power filed an Application in Case No. IPC-04-
requesting authority to implement a rate adjustment mechanism that would adjust the Company
rates upward or downward to recover the Company s fixed costs independent from the volume of
the Company s energy sales. This type of ratemaking mechanism is commonly referred to as a
decoupling mechanism." However, Idaho Power in its Application believes that a more
DECISION MEMORANDUM
accurate description of what the Company is proposing is a "true-up mechanism." The true-up
mechanism, entitled "Fixed-Cost Adjustment" (FCA) would be applicable only to Residential
Service (Schedule 1 , Schedule 4 and Schedule 5) and Small General Service (Schedule 7)
customers.
As reflected in the Company s decoupling proposal, the fixed-cost recovery portion
of the Company s revenue requirement allowed for recovery in rates would be established for
these two customer classes at the time of a general rate case. Thereafter, the FCA would provide
the mechanism to true-up the collection of fixed costs to recover the difference between the fixed
costs actually recovered through rates and the fixed rates that were allowed to be recovered.
Accounting for the FCA would be effective as of January 1 , 2006, and the first FCA rate change
would occur on June 1 , 2007.
For the both the residential and small commercial classes, the FCA would work
identically. For each class, the actual number of customers would be multiplied by the fixed cost
per customer rate (established as a part of determining the Company s allowed revenue
requirement in a general rate case). This product would represent the "allowed fixed-cost
recovery" amount. This amount would be compared with the amount of fixed costs actually
recovered by the Company. To determine this "actual fixed-cost recovered amount " the
Company would take weather-normalized sales for each class and multiply that by the fixed-cost
per kilowatt-hour rate (again, established in the Company s general rate case). The difference
between these two numbers (the "allowed fixed-cost recovery" amount minus the "actual fixed-
cost recovered" amount) would be the fixed-cost adjustment for each class. The FCA could be
either positive or negative.
The FCA is proposed to change rates coincidentally with Idaho Power s Power Cost
Adjustment (PCA) and Idaho Power s seasonal rates. Although the FCA would be timed to
adjust on the same schedule as the PCA, the accounting for the FCA will be completely separate
from the PCA. Additionally, the Company proposes to include a discretionary cap of 3% as a
potential rate mitigation tool for the Commission s use.
The purpose of the FCA, the Company contends, is to remove the financial
disincentive to the Company s investing fully in energy efficiency activities embedded in current
rate design. Limiting implementation to only residential and small general service customers
the Company states, allows for an incremental approach for evaluating a new type of mechanism
for the Company and its customers.
DECISION MEMORANDUM
The Company in its Application details proposed FCA accounting entries for monthly
deferrals plus interest. The Company in its Application has filed the supporting testimony and
exhibits of Ralph Cavanagh, Michael 1. Youngblood, and John R. Gale.
The Company believes that consideration of the proposed FCA mechanism would be
facilitated by resuming the workshop process that was conducted earlier in this case. This, the
Company contends, will allow the parties to discuss both the merits and the specific
implementation issues associated with the FCA based on the process already made in this case.
The Company believes that such a workshop process could culminate in a settlement stipulation
that would provide a consensus agreement on the technical details necessary to the operation of a
tracking adjustment, such as the specifics of deferral methodology, the weather normalization
process, and specific provisions to be included in implementing the FCA.
Idaho Power requests that the Commission issue an Order re-initiating the workshop
process and ultimately authorizing the Company to implement the fixed-cost adjustment
mechanism for residential and small general service customers with an initial rate change to
occur on June 1 2007.
COMMISSION DECISION
Idaho Power proposes a decoupling mechanism for residential and small commercial
customers, the first adjustment to occur June 1 , 2007. Idaho Power has recommended that the
Commission re-initiate workshops to discuss its Application.Staff has reviewed the filed
testimony of the Company that accompanies its Application and recommends that the
Commission issue a Notice of Application, establish a deadline for intervention (IDAP A
31.01.01.071-075) and authorize the initiation of settlement discussions (Commission Settlement
Rules of Procedure - IDAP A 31.01.01.272-276). Does the Commission agree with Staffs
recommended procedure?
Scott Woodbury
blslM:IPC-O4-15 sw2
DECISION MEMORANDUM