20090526_2585.pdf

DECISION MEMORANDUM - 1

DECISION MEMORANDUM

TO: COMMISSIONER KEMPTON
COMMISSIONER SMITH
COMMISSIONER REDFORD
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL

FROM: NEIL PRICE
DEPUTY ATTORNEY GENERAL

DATE: MAY 22, 2009

SUBJECT: IDAHO POWER’S APPLICATION FOR A RATE INCREASE DUE TO
INCLUSION OF AMI INVESTMENT IN RATE BASE; CASE NO. IPC-E-
09-07

On March 13, 2009, Idaho Power Company (“Idaho Power” or “Company”)
submitted an Application, pursuant to Idaho Code §§ 61-502, 61-502A and 61-507, and
Commission Rules of Procedure 52, 121 and 123, “for authority to increase its rates due to the
inclusion of Advance Metering Infrastructure (“AMI”) investment in rate base.” Application at
1. The Company requested that its Application be processed through Modified Procedure.
IDAPA 31.01.01.201-.204.
On April 2, 2009, the Commission issued a Notice of Application and Modified
Procedure establishing a 45-day comment period for interested parties to submit comments
regarding Idaho Power‟s Application. See Order No. 30764. Thereafter, Commission Staff, the
Snake River Alliance and several Idaho Power customers issued comments within the
established comment period. On May 22, 2009, Idaho Power submitted reply comments.
THE APPLICATION
Idaho Power proposes “a uniform percentage increase of 1.61 percent to Tariff
Schedules 1, 4, 5, 7, 9 secondary, 24 secondary, 41 metered service, and 42 (residential, small
commercial, irrigation, and metered lighting customer classes).” Id. at 3. The Company requests
that the proposed increase take effect on June 1, 2009, unless otherwise ordered by the
Commission, for service provided on and after that date. Id.
DECISION MEMORANDUM - 2

Idaho Power cites to “the Company‟s investment in AMI through the end of May
2010 into the Company‟s rate base/revenue requirement” as justification for the increase. Id. at
2. The Company seeks to include the capital investment it has made thus far pursuant a CPCN
authorizing the installation of AMI throughout its service territory, see Commission Order No.
30726, as well as “those investments that will be made during a June 1, 2009 through May 31,
2010, test year.” Id. The Company states that it has included reductions for removed metering
equipment and “changes in operating expenses that accompany the changes in plant investment”
in its calculations. Id. Idaho Power believes that “the proposed test year and recovery of the
resulting revenue requirement” are necessary in order to meet “the increased challenges
associated with raising capital in the financial markets during the present financial crisis.” Id. at
2-3.
Idaho Power estimates that the “13-month average plant in service associated with the
AMI system for the test year is $23,981,251.” Id. at 3. The Company also estimates that after
applying the Commission authorized rate-of-return of 8.18 percent, authorized three-year
depreciation period, operation and maintenance benefits, and applicable tax rates, an increase of
$11,181,318 to the Idaho jurisdictional revenue requirement is warranted. Id.
Idaho Power has included revised/proposed tariff sheets reflecting the proposed
increase to the Idaho jurisdictional revenue requirement; and a report comparing revenues under
its existing rates and revenues generated under its proposed revenue requirement as Attachments
1-3 to its Application. The Company filed the testimony of Gregory W. Said, Director of State
Regulation in the Pricing and Regulatory Services Department, and Courtney Waites, Pricing
Analyst, simultaneously with, and in support of, its Application.
STAFF COMMENTS
Staff supports Idaho Power‟s request to include AMI investment in rate base and the
Company‟s request for a June 1, 2009, effective date. Staff Comments at 3. However, Staff
believes that the “appropriate test year should end December 31, 2009.” Id. Staff concluded that
the Company‟s proposed recovery period for AMI investment and associated costs and benefits
through May 31, 2010, is not warranted because the Company‟s “original installation plan” does
not include a significant history of actual installations and project costs. Id.
The commitment estimate put forth by Idaho Power is based upon a projection of how
many units will be installed on a monthly basis through the three-year installation period. Id.
DECISION MEMORANDUM - 3

Staff feels that it is more appropriate to utilize a test period that takes advantage of the actual
investment, costs and benefits incurred to date and project those amounts through the end of the
2009 calendar year. Id. A test year consisting of the 2009 calendar year will allow the Company
to recover its authorized rate of return, increase its cash flow and facilitate the typical project
review process. Id.
Staff also included two attachments in its comments. Attachment A is a summary of
Staff‟s proposed revenue requirement ($7,322,995 line 37 of Attachment A). Id. at 4,
Attachment A. Attachment B is an outline of Staff‟s proposed rate design. Id., Attachment B.
Staff asserted that its proposed test year and “the ongoing AMI project reviews and inclusion in
base rates of future AMI expenditures” will be more responsive should Idaho Power receive
funds through the American Recovery and Reinvestment Act of 2009. Id. The Company
continues to pursue the ARRA option but thus far has not been granted approval. Id.
Staff also reviewed Idaho Power‟s methodology regarding the allocation of the
increased revenue requirement amongst the various classes impacted by the AMI installation,
Schedules 1, 4, 5, 7, 9 Secondary, 24 Secondary, 41 and 42. Id. Staff proposes a uniform 1.28
percent base revenue increase for each affected class based upon its proposed “AMI revenue
requirement increase of $7,322,995 . . . and the current overall base revenue of the affected
classes . . . from the reconsideration of the general rate case, Case No. IPC-E-08-10.” Id. at 5.
This differs from the Company‟s proposed 2.22 percent energy rate increase for each class which
utilizes the ratio of its calculated additional revenue requirement and total energy revenue from
the reconsideration of Case No. IPC-E-08-10. Id. at 4.
SNAKE RIVER ALLIANCE COMMENTS
The Snake River Alliance (“SRA”) is an Idaho non-profit organization primarily
concerned with nuclear safety issues. SRA has also been actively involved in promoting clean
energy initiatives. SRA supports the Company‟s request to include AMI investment in rate base.
SRA acknowledges the fact that the total benefits of AMI installation will not be realized
immediately. However, the organization believes that the investment is “sound” and that the
“eventual benefits will lead to real energy savings that will benefit all customers . . . through
reduced energy bills and a reduced need for additional investments in generation and
transmission. . . .”
DECISION MEMORANDUM - 4

SRA feels that while the Company has taken steps to explain the benefits of AMI to
its customers it could “do more to help its customers better understand how to interpret the data
on the face of their new meters.”
INDIVIDUAL CUSTOMER COMMENTS
The Commission received three comments from Idaho Power customers regarding the
Application. Two customers were opposed to the increase and one customer took a neutral
position. These customers expressed their specific disapproval of the concept of increasing rates
in order to fund the Company‟s investment in energy conservation and to regular and persistent
rate increases in general.
IDAHO POWER REPLY COMMENTS
Idaho Power‟s reply comments focus upon Staff‟s recommendation that the
Commission approve a test year consisting of the 2009 calendar year. Idaho Power Reply
Comments at 4. Idaho Power asserts that Staff‟s recommended test year will have an “adverse
effect on the Company‟s ability to provide adequate cash flow to fund the AMI installations, to
move forward on the three-year implementation timeline, and . . . remain within the previously
discussed Capital Cost Commitment Estimate.” Id.
The Company believes that Staff‟s recommendation amounts to “nothing more than a
reflection of rate base as of mid-year 2009 and 7 months of accelerated depreciation offset by
O&M benefits” and is inconsistent “with the prior Commission Orders that envision funding of
AMI investments as they occur.” Id. Idaho Power does not “understand why less than 12
months of accelerated depreciation should be reflected in the test year.” Id. at 5. Staff‟s
proposed test year will have the practical effect of slowing the accelerated depreciation period
for existing metering infrastructure. Id. at 6. The Company estimates that a 7-month
amortization period (June 1, 2009 through December 31, 2009) recovered over a 12-month
period (2009 calendar year) would lead to a recovery of “approximately 58 percent of what the
Company needs to stay on a three-year amortization schedule” necessary in order to stay on track
with the three-year implementation plan. Id.
Finally, Idaho Power takes exception to Staff‟s contention that “the Company‟s plan
and numbers „are not tested‟” when Staff used the “same plan, investment, and operating costs
and benefits to determine their own proposed rates.” Id. “Staff provides no logical support for
DECISION MEMORANDUM - 5

its conclusion that 7 months of projected amounts are reasonable, but 12 months are not.” Id. at
7.
COMMISSION DECISION
Does the Commission wish to approve Idaho Power‟s Application for authority to
increase its rates due to the inclusion of its AMI investment in rate base? Does the Commission
wish to approve Idaho Power‟s request for a test year through May 31, 2010?

M:IPC-E-09-07_np2