20110315final_order_no_32206.pdf

Offce of the Secretar
Service Date
March 15,2011
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE COMMISSION'S
INQUIRY INTO LOAD GROWTH
ADJUSTMENTS THAT ARE PART OF
POWER COST ADJUSTMENT
MECHANISMS.
)
) CASE NO. GNR-E-IO-03
)
) ORDER NO. 32206
)
Power supply costs represent a significant portion of a utilty's total revenue
requirement and are subject to a high degree of volatility largely outside the utilty's control.
Power cost adjustment mechanisms allow a utilty to collect from customers or credit to
customers the majority of the difference between actual net power costs incured by the utilty to
serve its customers and the normalized amount of power supply costs collected from customers
through rates set in a general rate case.
BACKGROUND
In a recent case (PAC-E-1O-0l), the Commission observed that in periods of
declining load the mechanism "appears to operate much the same as a decoupling mechanism
reimbursing the company for lost revenue for reductions in customer usage (sales)." Order No.
31033. The Commission directed Staff to hold a workshop "to discuss this phenomenon and
report continued justification for use of an LGAR (load growth adjustment rate) when loads
decline." ¡d.
On June 9, 2010, Commission Staff met with representatives from Avista, Idaho
Power and Rocky Mountain Power to discuss the utilties' load growth adjustment mechanisms.
Avista and Idaho Power utilze a Power Cost Adjustment (PCA) mechanism. Rocky Mountain
Power's mechanism is characterized as an Energy Cost Adjustment Mechanism (ECAM). All
three mechanisms are designed to recover/rebate abnormal power supply costs in similar ways.
On September 10, 2010, the Commission initiated this case and issued a Notice of
Workshop to provide a forum for the exploration of issues related to load growt adjustments.
The workshop was held September 28, 2010. Representatives from Avista, Idaho Power, and
Rocky Mountain Power were in attendance. Other participants included: Commission Staff,
Industrial Customers of Idaho Power, and Snake River Allance. During the workshops some
parties supported an asymmetrical approach that would remove dollar amounts from recovery by
the utilities when loads grow but not make cost adjustments when loads decline. Others believed
ORDER NO. 32206 1
that the adjustment can be made symmetrical and fair by simply modifying the load growth
adjustment formula. Stil others believe the LGAR adjustment can be eliminated entirely.
A vista offered a compromise position that amounts to a revision of current methodology.
On November 24,2010, in response to workshop discussions, the Commission issued
a Notice of Filng and Notice of Modified Procedure in order to give interested persons and
paries the opportunity to comment on Avista's proposaL. The Notice set a comment deadline of
January 14, 2011, and responsive comment deadline of January 28, 2011. Order No. 32124.
After reviewing the proposal, comments, and responses of all paries, and noting our initial
concerns regarding decoupling, we approve a modification to the existing LGAR formula
consistent with the symmetrical approach proposed by A vista, and as more fully described
herein.
THE PROPOSAL
Avista's proposal maintains symmetry in growing and declining load scenarios and
substatially reduces the load growth adjustment rate (LGAR). The following table shows the
LGARs under present methodology and Avista's proposed methodology for all three utilties:
CURRNT PROPOSED
UTILITY UNITS METHODOLOGY METHODOLOGY
Avista $/MWh 48.00 30.16
Idaho Power $/MWh 26.63 15.43
Rocky Mountain Power $/MWh 19.53 4.88
The proposal calculates the adjusted rate based upon the energy classified portion of embedded
production revenue requirement as established in the cost of service for each utilty. Presently,
the adjustment for Idaho Power and Rocky Mountain Power is based on all embedded production
revenue requirement. Avista's current adjustment is based on all production and transmission
revenue requirement. The proposed change reduces load decline imputed costs that accumulate
in the three cost adjustment mechanisms. It also minimizes decoupling in the cost adjustment
mechanisms and avoids the possibilty of double recovery of demand classified embedded
production revenue requirement that Idaho Power recovers from residential and small
commercial customers through a Fixed Cost Adjustment (FCA) mechanism.
ORDER NO. 32206 2
THE COMMENTS
A vista Comments
Avista initially offered its compromise proposal at the September 28, 2010,
workshop. A vista claims that its proposal maintains symmetry in growing and declining load
_ scenarios and substantially reduces the rate applied to the change in retail load. Avista's
proposal "would calculate the load growth adjustment rate (LGAR) based upon the energy
classified portion of embedded production revenue requirement as established in the cost of
service for each utility." Comments at 1. The rate calculation would not include demand
classified costs.
A vista explains that symmetry in growing and declining load scenarios is necessary
in order to produce equitable results for the company and its customers. A vista proposes that
any change to the LGAR mechanism be applied prospectively, at the star of the next 12-month
deferral period for Avista's PCA, unless a general rate case is decided before then. Avista also
proposes that the terminology be changed from "Load Growth Adjustment Rate" to "Load
Change Adjustment Rate" to reflect its application when loads grow or decline.
Idaho Power Comments
Idaho Power's preferred methodology would be based solely on the per unit variable
power supply expense amount included in base rates. Comments at 3. However, Idaho Power
believes that Avista's proposal "is a reasonable alternative to the Company's preferred approach
and an improvement over the stipulated methodology currently in effect." ¡d. at 4. Although
Avista's proposal stil includes a fixed-cost component, the proposed methodology would
remove any potential double counting between Idaho Power's FCA and load growth adjustment
within its PCA because Idaho Power derives its FCA rates based upon the portion of revenue
requirement that is classified in cost of service as demand related fixed-cost.
Idaho Power proposes to calculate its revised LGAR using the energy related fixed-
cost components from the cost of service study approved in Case. No. IPC-E-08-1O. "The
Company fuher recommends that the denominator (Idaho jurisdictional firm load) used in the
revised LGAR calculation also be updated to include the current Idaho jurisdictional firm load
used in the calculation of the base rates that went into effect on June 1,2010." ¡d. at 5. Idaho
ORDER NO. 32206 3
Power suggests that any new LGAR be implemented for Idaho Power on April 1, 2011, to
correspond with its PCA year.
Staff Comments
Staff maintains that the purose of a power cost adjustment mechanism is to make
utilties whole in terms of variable net power supply expense (NPSE) between general rate cases
(except for sharing amounts). Comments at 3. "Normal" NPSE is recovered through base rate
sales. However, an adjustment must be made outside of base rates to captue the difference
between actual power supply cost and the "normal" power supply cost embedded in rates.
Actual NPSE recovery is not achieved without considering increases and decreases from base
load. Furthermore, Staff believes that to remove over-recovered NPSE when load grows and to
not restore under-recovered NPSE when load declines is unbalanced and unfair. Therefore, Staff
supports a symmetrical application of the load growth adjustment methodology.
All three power cost adjustment mechanisms, as currently designed, include both
fixed and varable production costs. Staff maintains that "fixed costs, if any, incured by a utility
to serve load growth have not been reviewed or approved by the Commission and have not been
shown to be in excess of variable production costs on the margin collected through the PCA."
¡d. at 5. Staff notes that Avista's proposal substantially removes the fixed-cost component from
the load growt adjustment rate. Because the proposal uses only energy classified production
costs in the formulation of the load growth adjustment rate and Idaho Power's FCA rate is based
on demand classified production costs, there would be no double recovery of fixed costs under
the proposal. Staff believes that, although the fixed-cost component of the LGAR is not
completely removed, the rationale and treatment under the proposal represents a reasonable
compromise.
Finally, Staff recommends that each utilty compute its LGAR based on its most
recent Commission-approved cost of service results and that the new rates be used in PCA
calculations beginning the first of the month following the Commission's Order in this case.
Industrial Customers of Idaho Power (ICIP) Comments
ICIP asks that the Commission reject Avista's proposal for maintaining symmetry in
growing and declining load scenarios. ICIP argues, instead, that the LGAR should be calculated
based on the marginal cost of energy and that the LGAR operate only in times when loads are
growing. ICIP maintains that its proposal avoids any decoupling effect. Comments at 2. ICIP
ORDER NO. 32206 4
maintains that "use of a load growth mechanism in the face of declining loads is counterintuitive
and yielded unintended consequences." ¡d. at 4 (emphasis in original). ICIP states that the
LGAR was intended to prevent double recovery, and that Avista's current proposal turns it into a
mechanism that allows it to remain a decoupling mechanism.
Rocky Mountain Power (RMP) Reply Comments
RMP maintains that an LGAR is not appropriate for inclusion in its ECAM because
the ECAM compares net power costs included in rates to actual net power costs incurred to serve
customers on a cents-per-kilowatt-hour basis. "Because Rocky Mountain Power's ECAM is
based on a cents-per-kilowatt-hour comparison any net power cost changes driven solely by
volumetric swings are automatically excluded eliminating the need for an LGAR for Rocky
Mountain Power." Comments at 5.
If the Commission utilzes an LGAR as par of a net power cost mechanism, RMP
urges the Commission to adopt a symmetrical approach. The Company argues that asymmetrical
application of an LGAR would be inequitable and unfair. RMP is supportive of Avista's
proposal as a better alternative than the current LGAR calculation "because the proposal only
includes the energy component of the production plant cost of service rather than total costs.
(RMP) believes this is closer aligned to net power costs." ¡d. at 6.
Avista Reply Comments
In its reply, Avista takes exception to ICIP's proposal to base a load growth
adjustment rate on the marginal cost of energy with an asymmetrical application. A vista
explains that "( m )arginal costs of power have nothing to do with the over-recovery or under-
recovery of production costs that are built into base rates." Reply at 2. Avista also insists that
application of a load growth adjustment rate be symmetrical to avoid passing through undue
benefits when loads decline, and to avoid an over-collection of costs when loads grow.
Avista opposes Staffs proposed implementation date of the first of the month
following the Commission's Order. Avista believes it is appropriate to update the LGAR when
new rates are implemented as a result of a general rate case or at the start of the next 12-month
PCA deferral period, whichever occurs first.
Idaho Power Reply Comments
Idaho Power asserts that symmetrical application of an LGAR assures that, in periods
of load growth, the Company does not receive double recovery of power supply expenses and
ORDER NO. 32206 5
other specific generation-related costs. Likewise, in periods of load decline, customers do not
receive a double benefit associated with reduced costs through the PCA. In its reply, Idaho
Power argues that "the A vista proposal represents a reasonable compromise that wil avoid the
unintended recovery of fixed costs, thereby resulting in customer rates that are fair and
reasonable." Reply at 2.
FINDINGS AND CONCLUSIONS
The Idaho Public Utilities Commission has jurisdiction over Avista, Idaho Power,
and Rocky Mountain Power, electric utilties, and the issues raised in Case No. GNR-E-I0-03
pursuant to the authority granted the Commission in Title 61, Idaho Code, and the Commission's
Rules of Procedure, IDAP A 31.01.01.000, et seq.
In general, power cost adjustment mechanisms track and defer deviations between
normal and actual power supply costs. The deferred costs that accumulate over a one-year
period are then passed on to customers as a rate surcharge or credit. The Commission has
approved this mechanism for each electric utilty because power supply costs represent a large
portion of the utility's total revenue requirement and are subject to a high degree of volatility
largely outside of the utility's control. The load growth adjustment portion of the power cost
adjustment mechanism removes some costs from PCA recovery when loads grow and adds some
costs to PCA recovery when loads decline.
The Commission recently observed that, in periods of declining load, the load growth
adjustment mechanism appeared to operate as a decoupling mechanism, reimbursing the utilty
for lost revenue when customer usage declined. Order Nos. 31033, 31093, 32080. The current
load growth adjustment rate is based on embedded production revenue requirement. Avista's
proposal calculates the load growth adjustment rate based only on the energy classified portion
of embedded production revenue requirement. By removing demand classified embedded
production revenue requirement from the calculation, the added costs during periods of declining
load are reduced, thereby minimizing any potential decoupling effect. A symmetrical application
of the methodology reduces the costs added to the PCA when loads decline and reduces the
amount removed from the PCA when loads grow.
We find that Avista's proposal effectively addresses our concerns regarding
decoupling within the utilities' power cost adjustment mechanisms and eliminates the possibilty
of double recovery of demand classified embedded production revenue requirement that Idaho
ORDER NO. 32206 6
Power recovers through its Fixed Cost Adjustment (FCA) mechanism. This approach stil allows
the utilty to recover its variable energy costs incurred to reliably serve its customers, while
limiting the utilty's recovery oflost revenue in periods of declining load. We continue to find
that a symmetrical approach for growing and declining loads is just and reasonable to both the
utilty and its customers.
A vista also proposed changing the terminology from "Load Growth Adjustment
Rate" to "Load Change Adjustment Rate" in order to more accurately reflect its application in
growing and declining load scenarios. We find that a change in terminology is appropriate.
Load Change Adjustment Rate more closely characterizes the nature of the adjustment.
Finally, the Commission directs each utilty to compute its LCAR based on its most
recent Commission-approved cost of service results. We note the utilties' desire to implement
any change at the star of each utilty's next 12-month PCA deferral period. However, no utilty
has provided an explanation as to why the change in calculation could not be implemented
earlier. It is the Commission's intent that any decoupling effect created by the present
calculation end immediately. As such, the newly-calculated LCAR shall be used in PCAIECAM
calculations beginning on April 1, 2011.
ORDER
IT is HEREBY ORDERED that Avista, Idaho Power and Rocky Mountain Power
modify their load growth adjustment rate as it pertains to each utilty's power cost adjustment
mechanism as more fully set out above.
IT is FURTHER ORDERED that the proposed change in terminology from "Load
Growth Adjustment Rate" to "Load Change Adjustment Rate" is approved.
IT is FURTHER ORDERED that each utilty compute its LCAR based on its most
recent Commission-approved cost of service results and apply the new rates to PCA calculations
beginning on April 1, 2011.
THIS is A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code § 61-626.
ORDER NO. 32206 7
DONE by Order of the Idaho Public Utilties Commission at Boise, Idaho this /S''¡
day of March 2011.~d~)íMPT~ IDT
~¡j~
MARSHA H. SMITH, COMMISSIONER
ATTEST:
~fJ.~J ~Je~e~
Commission Secretary
O:GNR-E-IO-03_ks3
ORDER NO. 32206 8