20070102_1782.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER KJELLAND ER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEG AL
FROM:SCOTT WOODBURY
DATE:DECEMBER 22, 2006
RE:CASE NO. IPC-04-15 (Idaho Power)
JOINT MOTION FOR APPROVAL OF STIPULATION
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 to Implement a Decoupling Mechanism
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 I , 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. As
proposed in the Application, accounting for the FCA would be effective as of January 1 , 2006
and the first FCA rate change would occur on June 1 , 2007.
The Company represents the FCA would work identically for both the residential and
small commercial classes. For each class, the actual number of customers would be multiplied
by the fixed cost per customer rate (calculated 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.
To facilitate consideration of the proposed FCA mechanism the Company proposed
that the parties resume the workshop process that was conducted earlier in this case. The
Company stated its belief 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.
On March 6, 2006 , the Commission issued a Notice of Application in Case No. IPC-
04-15 and established a March 17 , 2006 deadline for intervention. Intervenor status was
granted to the Industrial Customers of Idaho Power (ICIP) and the NW Energy Coalition
(NWEC). In its Notice, the Commission acknowledged the intention of the Company and
Commission Staff (together with other parties of record) to initiate and engage in settlement
discussions. Reference Commission Settlement Rules of Procedure, IDAPA 31.01.01.272-276.
Joint Motion for Approval of Stipulation
Based on settlement negotiations a Joint Motion for Approval of Stipulation was filed
with the Commission on December 18, 2006 by Idaho Power, Commission Staff and the NW
Energy Coalition. Reference Commission Rule of Procedure 274. Other than the parties signing
the Stipulation, the only other party to this proceeding, the Industrial Customers of Idaho Power
(ICIP) has advised the parties that even though it has not signed the Stipulation, the ICIP will not
actively oppose it.
Terms of Stipulation
The stipulation parties agree that it would be in the public interest for the Company to
implement, as a pilot program the FCA mechanism proposed by the Company in its Application
in Case No. IPC-04-15 with the following conditions and provisions.
a. Any differences between Schedules 1 and 7 class revenue requirements
and the corresponding fixed cost per customer approved by the
Commission in Case No. IPC-05-28 (2005 general rate case) must be
reconciled with the fixed cost per customer and fixed cost per energy
utilized in the approved FCA mechanism.
b. To determine the actual number of customers determined by class on a
monthly basis, the Company will utilize the same customer count
methodology used in the Company s 2005 rate case filing.
DECISION MEMORANDUM
c. The methodology used to weather-normalize actual monthly energy used
in the FCA will be the same weather normalization methodology used in
the Company s filing in the 2005 rate case.
d. The FCA mechanism will be implemented on a pilot basis for a three-year
period beginning January 1 , 2007 and running through December 31 , 2009
plus any carryover. The first rate adjustment will occur June 1 , 2008
coincident with the 2008-2009 PCA and subsequent rate adjustment will
occur on June 1 of each year during the term of the pilot.
Calculation of the monthly FCA deferral will be recorded as a separate line
item in the monthly PCA report provided to the Commission. The
Commission approved FCA adjustment will be combined with the
Conservation Program Funding Charge for purposes of customer bill
presentation. There will be no separate line item for the FCA on customers
billing statements.
The Company will file its FCA adjustment request on March 15th of each
year. Staffs audit of the FCA adjustment request will include review of
deferral balances, comparison of actual energy savings to DSM energy
savings estimates as normally provided in the DSM Annual Report and
load growth forecasts and verification ofthe resulting FCA adjustment.
g.
Either Staff or the Company can request the Commission to authorize
discontinuance of the pilot program during the three-year period. Requests
to discontinue the pilot program, with supporting justification must be filed
with the Commission during the March 15 to June 1 review period.
The Company will provide with its annual March 15 filing a detailed summary of DSM activities
that demonstrate an enhanced commitment to DSM resulting from implementation of the FCA
mechanism and removal of the financial disincentive to DSM. Evidence of enhanced
commitment will include, but not be limited to , a broad availability of efficiency and load
management programs, building code improvement activity, pursuit of appliance code standards
expansion of DSM programs, pursuit of energy savings programs beyond peak shaving/load
shifting programs and third party verification. As part of this commitment, the 2008 Integrated
Resource Plan will include an evaluation of the costs and potential for energy savings that would
occur if the appliance and equipment efficiency standards adopted by the State of Oregon were
applicable in the State of Idaho. In addition, the Company will make the following specific
commitments in regard to building code improvements, and enforcement of such standards:
a. The Company will promote the adoption of energy codes to achieve
improved levels of efficiency in new commercial and residential
DECISION MEMORANDUM
construction and appliance standards in Idaho consistent with the Model
Conservation Standards released by the Northwest Power and
Conservation Councilor that exceed the 2003 IECC and ASHRAE 90.
codes.
b. As part of its enhanced commitment to DSM described above, the
Company will promote and support appropriate energy code training
programs and advocate the enforcement of energy codes. Idaho Power
will identify ways to support energy code implementation and enforcement
in all jurisdictions in Idaho Power s service territory.
The parties to the Stipulation agree that the Stipulation represents a compromise of the
positions of the parties of the case. The Stipulation is supported by the filed testimony of the
Stipulation parties.
CO MMISSI 0 N D ECISI 0 N
Filed in Case No. IPC-04-15 is a Joint Motion for Approval of Stipulation together
with supporting testimony. Reference IDAP A 31.01.01.274 (Consideration of Settlements). The
parties recommend that the matter be processed pursuant to Modified Procedure, i., by written
submission rather than by hearing. Reference Commission Rules of Procedure IDAP A
31.01.01.201-204. The parties stand ready for a more formal hearing should the Commission
require same. A related DSM incentive pilot program (ENERGY STAR Homes Northwest
program) has been filed in Case No. IPC-06-32. Does the Commission find it reasonable to
process the Company s Stipulation in Case No. IPC-04-15 pursuant to Modified Procedure?
Does the Commission find it reasonable to establish a hearing date following the comment
deadline for purposes of spreading testimony and providing the Commission the opportunity to
ask questions of the parties to the Stipulation?
Scott Woodbury
blsfM:IPC-O4-15 sw3
DECISION MEMORANDUM