20060814_1635.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:WAYNE HART
DATE:AUGUST 9, 2006
RE:CHANGES TO IDAHO POWER'S RULE H. ADVICE 06-
On June 2006 Idaho Power submitted a tariff advice to change the terms of Rule H
regarding the prepayment of engineering charges for construction projects that are expected to
use less than 16 hours of engineering time. The Company subsequently withdrew this filing, and
submitted an amended advice with a later effective date on July 26, 2006. The current language
of Rule H requires prepayment of the estimated engineering charges for all projects, regardless
ofthe size ofthe project. This results in a delay while this payment is processed and requires
customers to make two payments, one for engineering, and a subsequent payment for the actual
work. This change would allow the engineering charges to be deferred and collected at the same
time as the remaining charges for the project. The amended filing requested an effective date of
September 1 , 2006.
Prior to 1995 , the tarifflanguage gave the Company discretion to require prepayment of
the engineering charges for construction projects, and noted that prepayment was typically
required oflarge or complex projects. At the Company s request incase No. IPC-95-, this
was changed to require prepayment in all cases. At that time, service specialists in the field were
allowed to process such payments, and this processing did not result in a significant delay to the
projects. However, in August 2005, the Company implemented a centralized processing policy
and all payments are now forwarded to the Cash Remittance Department. This requires a
minimum of 5 days and, while this does not delay most projects, it does result in delay for some
projects and this is not desirable to the customer or the Company.
DECISION MEMORANDUM - 1 -AUGUST 9, 2006
STAFF ANALYSIS
The Company indicates that it processes approximately 4000 engineering fee payments a
year. In 2005 over 85% required less than 16 hours of engineering time, and 93% of these
proceeded to construction. The Company claims "the process efficiency of not processing
approximately 3,420 payments represents at least 2000 man-hours when the time of all involved
employees is added together.
For those projects that proceed to construction, Staff finds the proposed change to be
beneficial and positive. However, for those projects that do not proceed to construction, Staff is
concerned about the Company s ability to collect the costs incurred in engineering the cancelled
project, and the risk that a customer may incur charges far in excess of their expectations when
they ask the Company to proceed with engineering a project.
Using its overall rate of un collectibles, the Company estimated that it may not be able to
collect approximately twelve thousand dollars worth of engineering fees each year, an amount
Staff finds to be reasonable, considering the savings projected from this measure. The Company
also indicated it would monitor these uncollectibles on a monthly basis and "take appropriate
mitigation measures ifthe risk escalates . The Company indicated it would include any losses
due to uncollected engineering fees as an uncollectible expense in any future rate case.
The Company assured Staff that customers will be provided with an advance estimate of
the costs of engineering the project and adequate information about the anticipated costs ofthe
projects to make an informed decision prior to the start of the engineering work and prior to the
customer incurring any charges.
Staff believes that the procedures identified by the Company for implementing this policy
are likely to provide customers with adequate information prior to the customer incurring any
charges. Staff finds that the efficiency improvements promised by the change justify the risk that
customers may incur unexpected charges. If subsequent evidence indicates customers are
incurring unexpected charges, the Commission may address this issue again.
The Company also indicated that failure to pay for the engineering work will not
jeopardize any existing service provided to the customer. However, customers failing to pay
bills for engineering work may be turned over to a collection agency. In addition, any customer
with unpaid bills for engineering work that requests new or additional engineering work will
DECISION MEMORANDUM - 2 -AUGUST 9, 2006
need to pay the old bills prior to the Company proceeding with any new engineering work. Staff
finds this process to be reasonable.
STAFF RECOMMENDATION
Staff recommends the Commission approve Idaho Power s proposed changes to Rule H
as contained in Tariff Advice No. 06-02.
COMMISSION DECISION
Does the Commission wish to approve Idaho
i:udmemos/ipc rule h ta drn2
DECISION MEMORANDUM - 3 -AUGUST 9, 2006