20111031_3497.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

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

FROM: WELDON STUTZMAN
DEPUTY ATTORNEY GENERAL

DATE: OCTOBER 27, 2011

SUBJECT: IDAHO POWER COMPANY’S APPLICATION TO CONVERT ITS
FIXED COST ADJUSTMENT FROM A PILOT SCHEDULE TO A
PERMANENT SCHEDULE, CASE NO. IPC-E-11-19

On October 19, 2011, Idaho Power Company filed an Application requesting a
Commission Order authorizing the Company to convert its current Schedule 54 – Fixed Cost
Adjustment (FCA) – from a pilot program to a permanent schedule. The Commission in Order
No. 30267, Case No. IPC-E-04-15, approved implementation of a three-year FCA pilot program
applicable to residential and small general service customers. In October 2009, the Company
filed an application seeking to convert the pilot program to a permanent program. The
Commission denied the Company’s request and instead extended the pilot program for an
additional two-year period. Order No. 31063. The FCA pilot program is set to expire on
December 31, 2011.
Idaho Power asserts in its Application that making the FCA permanent removes the
Company’s financial disincentive to acquire demand-side management (DSM) resources:
“Severing the link between energy sales and the recovery of fixed costs represents a logical
evolution of historic ratemaking practices, an evolution that allows Idaho Power to pursue both
programmatic and non-programmatic DSM initiatives without running the risk of financially
harming its shareholders.” Application, p. 4. Idaho Power contends that making the FCA
permanent “sends the appropriate signal to Idaho Power that this Commission believes the
Company continues to be on the right track in its pursuit of DSM resources.” Id.
DECISION MEMORANDUM 2
The FCA purports to remove recovery of a portion of the Company’s fixed costs from
its energy sales. The accomplish this, the average number of customers in the residential and
small general service classes is multiplied by the fixed-cost per customer rate (FCC), which is
established as part of determining the Company’s revenue requirement in a general rate case.
The product of the calculation of the average number of customers and the FCC establishes the
allowed fixed costs recovery amount. The allowed fixed-cost recovery amount is then compared
to the amount of fixed cost actually recovered by Idaho Power. The actual fixed costs recovered
is determined by the Company’s weather-normalized sales for each class multiplied by sales
figures by the fixed-cost per energy rate (FCE), which is also established in a general rate case.
The difference between the allowed fixed-cost recovery amount and the actual fixed costs
recovered is the amount recovered for each class by adjusting the FCA.
The Application states that the purpose of the pilot program was to test the FCA
mechanism to determine “its efficacy in removing the unintended rate design disincentive for the
Company to aggressively pursue DSM programs.” Application, p. 5. The Company contends
the first four years of the pilot program indicate that the FCA mechanism is working as intended
and operates to mitigate the adverse affects of energy efficiency by ensuring that the fixed costs
authorized by the Commission for recovery are being recovered through the FCA mechanism.
Id. The Company proposes to make the program permanent for the residential and small general
service customer classes, and proposes to true-up the FCA by combining the deferral balances of
each class and implementing rates for each class that represent a uniform percent change. Idaho
Power asserts that by combining the residential and small general service FCA balances and
determining the rate adders based on an equal FCA rate adjustment for each class, the overall
rate impact to customers in these classes is more representative total amount of the required
fixed-cost recovery for each class. Application, pp. 5-6.
Idaho Power is also proposing to eliminate the annual reports required by the pilot
program showing the specific ways in which the Company increased its investment in energy
efficiency and DSM programs. The Company proposes to eliminate the separate annual
reporting requirement because the Company’s acquisition of energy efficiency and DSM
programs are reported in the Company’s annual DSM reports. The Company would continue
monthly reporting of the FCA balance and to file annual applications seeking approval of FCA
DECISION MEMORANDUM 3
true-up balances. The Company requests that the Commission issue an Order no later than
March 30, 2012, making the Schedule 54 FCA program permanent effective January 1, 2012.
Staff recommends the Commission issue a Notice of Application and Notice of
Intervention Deadline providing for a 14-day period for interested parties to file petitions to
intervene.
COMMISSION DECISION
Should the Commission issue a Notice of Application and Notice of Intervention
Deadline providing 14 days for the filing of petitions to intervene?

Weldon B. Stutzman
Deputy Attorney General

bls/M:IPC-E-11-19_ws