20110114Comments.pdf

KRISTINE A. SASSER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BARNO. 6618
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
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
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through its
Attorney of record, Kristine A. Sasser, Deputy Attorney General, and in response to the Notice of
Filng and Notice of Modifed Procedure issued in Order No. 32124 on November 24,2010 in
Case No. GNR-E-10-03, submits the following comments.
BACKGROUND
Power supply costs represent a significant portion of a utilty's total revenue requirement
and are subject to a high degree of volatilty 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 supply expense (NPSE) incured by the utility
to serve its customers and the amount ofNPSE collected from customers through rates set in a
general rate case.
STAFF COMMENTS JANUARY 14,2011
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's order also said, "We find the result that is presented by the use of an ECAM
(Energy Cost Adjustment Mechanism L containing an LGAR (load growth adjustment rate L during
periods of declining load growth is a problem that may also occur in the Power Cost Adjustment
(PCA) mechanisms ofIdaho Power and Avista." The Commission directed Staff to hold a
workshop "to discuss this phenomenon and report continued justification for use of an LGAR
when loads decline." ¡d. The workshop was held September 28,2010.
Existing Load Growth Adjustment Mechanisms
Avista and Idaho Power have Commission approved Power Cost Adjustment (PCA)
mechanisms. Rocky Mountain Power has a Commission approved Energy Cost Adjustment
Mechanism (ECAM). In these comments all three of the mechanisms wil be referred to as Power
Cost Adjustment (PCA) mechanisms for simplicity. All three mechanisms are designed to
recover/rebate abnormal NPSE in similar ways. All three currently contain a load growth
adjustment. The adjustment increases or decreases power cost in the PCA based on the product of
the load change, normal as compared to actual, and a Commission approved load growth
adjustment rate (LGAR). When loads increase, power supply costs are removed from the PCA.
When loads decrease power supply costs are added to the PCA. The load growth adjustment rates
are currently based on embedded fixed and variable production costs. The load growth adjustment
formula is currently symmetrical in that when loads decline the load growth adjustments make the
Companies whole in terms of production cost recovery because the recovery of production cost is
decoupled from sales. When loads increase new production revenue generated from growing load
is removed from NPSE subject to recovery by the Company.
Avista's Proposed Methodology
At the workshop, A vista proposed an alternative methodology revising the current LGAR
formula. The proposal calculates the LGAR based upon the energy classified portion of
embedded production revenue requirement as established in the cost of service for each utilty.
The alternative methodology maintains symmetry in growing and declining load scenarios but
substantially reduces the fixed generation component of the (LGAR). The proposal reduces the
STAFF COMMENTS 2 JANUARY 14,2011
impact of imputed costs in declining load scenarios and minimizes the decoupling effect of the
PCA mechanism. The decoupling issue of fixed cost recovery through the mechanism is not
completely eliminated with A vista's proposal because par of each utilties fixed production costs
are classified as energy related in cost of service studies. The proposal does eliminate double
recovery of production revenue requirement that Idaho Power receives from residential and small
commercial customers through its Fixed Cost Adjustment (FCA) mechanism. 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
Load growth adjustment rates are based on embedded costs and are reset with each general
rate case. Rocky Mountain Power's load growth adjustment rates are substantially lower than the
other two utilties because the adjustment is applied at a different point in the PCA process after
some costs have already been netted out.
STAFF ANALYSIS
There are two issues driving this case. They are both associated with declining loads and
the utilties load growth adjustments that are embedded in their power cost adjustment
mechanisms. The first issue deals with the recovery of variable power supply cost also defined as
NPSE and the second issue deals with fixed cost recovery (decoupling).
Recovery of Net Power Supply Expense
An issue with existing PCA load growth adjustments is that they add costs to power cost
adjustment mechanisms when actual monthly loads are less than normalized loads (i.e., when
loads decline). These added costs are later recovered from customers through PCA rate
adjustments. The question is whether or not this is appropriate. The Staff believes that the
purpose of power cost adjustment mechanisms is to make utilties whole in terms of variable
NPSE between general rate cases except for sharing amounts. If this is the goal the formula is
clear:
STAFF COMMENTS 3 JANUARY 14,2011
Actual NPSE = normal NPSE + abnormal NPSE
Abnormal NPSE is captured in the PCA without Load Growth Adjustment. Normal NPSE is
recovered through base rate sales when sales are normal, which they never are. Therefore, Normal
NPSE must be broken into two pars, Actual NPSE recovered through base rates and an
adjustment based on the difference between actual power supply cost and normal power supply
cost embedded in rates (NPSE/kWh x load difference). If this adjustment is called a Load Growth
Adjustment the formula becomes:
Actual NPSE = Actual NPSE in base rates + Load Growth Adjustment + PCA w/o LGA
Actual NPSE is not accurately calculated without including all three components. Base rate sales
recover Actual NPSE included in base rates but the other two components must be recovered out
side of base rates. Therefore, PCA's must include Load Growth Adjustments that are applied
regardless of load increase or decrease.
The concept and formula are demonstrated with the following hypothetical example. In a
given month a utilty has normal NPSE of $25 milion and actual NPSE of $27 milion. In the
same month loads and associated energy sales are below normaL. The PCA, without load growth
adjustment, captures the $2 millon difference between normal and actual NPSE. Base rates
recover $24 milion in NPSE because load is below normaL. Base rates and a PCA without load
growth adjustment recover $26 milion (24 + 2) of actual NPSE leaving the utilty $1 milion short
of recovering the $27 millon of actual NPSE it incurred. In a normal load scenario the $1 milion
shortfall would have come from base rates. To make the utilty whole, except for sharng, the $1
milion in lost NPSE revenue due to load decline must be added to the PCA which is done with a
load growth adjustment. When the formula is applied the following result is obtained:
NPSE(actual) = NPSE(base rates) + LGA + PCA
NPSE(actual) = 24 + 1 + 2 = 27
The $27 milion of actual NPSE is not fully recovered unless the $ 1 milion of Load Growth
Adjustment is included. See Attachment A, Scenario 1.
STAFF COMMENTS 4 JANUARY 14,2011
In a scenario where load grows, the load growth adjustment mechanism removes over-
recovered base load NPSE by subtracting an appropriate amount from the PCA. This prevents the
double recovery of a portion ofNPSE that would occur if the PCA captured abnormal NPSE
associated with growing load and an additional increment ofNPSE that is recovered through base
rates when load growth energy is sold to customers. Attachment A to these comments shows the
results of applying the formula in four different hypothetical situations.
The 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. Staff believes that fairness
demands the symmetrical application of load growth adjustment methodology in growing and
declining load situations. Sharing coupled with a PCA that includes a load growth adjustment
mechanism allows the utilty to recover nearly all actual NPSE when load declines and requires
that the utility return nearly all over-recovered actual NPSE when load grows.
PCA Fixed Cost Recovery
Fixed cost recovery is the second load growth adjustment issue. It relates to the recovery
of lost revenue associated with fixed costs due to declining loads and found fixed revenue due to
increasing loads. Curent load growth adjustment rates are based on normal fixed and variable
production costs. In the declining load scenario these costs are added back into the PCA. This
creates two concerns. First, Idaho Power Company already has a functioning fixed cost
adjustment (FCA) mechanism. It is based on use per customer and could double count fixed lost
revenue. Second, Idaho's other two large electric utilties do not have approval for lost revenue
fixed cost recovery. The load growth adjustment rate as curently designed includes both fixed
and variable production costs. Although the LGAR removes fixed production cost from
recoverable NPSE when loads increase, it also provides for recovery of fixed production cost lost
revenues when load decreases. The Staff continues to believe that found fixed production revenue
from load growth should not be retained by the Company when variable production cost to serve
growing load is collected from customers through the PCA. The Staff maintains that fixed costs,
if any, incured by a utilty 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.
As previously discussed, Avista's proposal substantially removes the fixed cost component
from the load growth adjustment rate which reduces the fixed cost adjustment by the PCA
STAFF COMMENTS 5 JANUARY 14,2011
mechanism in both increasing and decreasing load scenarios. A vista proposes to only use energy
allocated production costs in the formulation of the load growth adjustment rate. Since Idaho
Power's FCA rate is based on demand allocated production costs, there can be no double recovery
of these costs under the proposal. Costs allocated by the two factors are mutually exclusive. Staff
believes that while the fixed cost component of the LGAR is not completely removed, the
rationale and treatment under the A vista proposal represents a reasonable compromise.
STAFF RECOMMENDATION
The Staff recommends that the Commission accept the methodology proposed by A vista to
calculate the load growth adjustment rates included in the varous utilties power cost adjustment
mechanisms. Avista's proposal reduces the possibility of unintended fixed cost recovery in the
PCA process. The Staff also supports a symmetrical load growth adjustment when loads increase
and when loads decline as provided by the proposal. The symmetrical application of a load
growth adjustment rate based substatially on embedded NPSE allows recovery of each utility's
actual NPSE between rate cases except for a sharing amount. The Staff believes that it has
demonstrated in these comments that both the revised design of Load Growth Adjustment Rates
and the symmetrical application of load growth adjustments are required to provide fair revenue
recovery and to avoid unintended recovery of fixed costs.
The Staff further recommends that each utility compute its LGAR based on its most recent
Commission accepted 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.
Respectfully submitted this Iiill.. day of January 2011.
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Kris me A. Sasser
Deputy Attorney General
Technical Staff: Keith Hessing
i:umisc:commentslgnrelO.3kskh comments
STAFF COMMENTS 6 JANUARY 14,2011
LOAD GROWTH ADJUSTMENT SCENARIOS
CASE NO. GNR-E-10-03
Scenario 1
NPSE Increases & Load Declines
Normal NPSE
Actual NPSE
Base Rate Recovery of NPSE
25 Million $
27 Million $
24 Million $
NPSE(actual) = NPSE(base rates) + LGA + PCA
NPSE(actual) = 24 + 1 + 2 = 27 Million $
Scenario 2
NPSE Decreases & Load Declines
Normal NPSE
Actual NPSE
Base Rate Recovery of NPSE
25 Milion $
23 Milion $
22 Milion $
NPSE(actual) = NPSE(base rates) + LGA + PCA
NPSE(actual) = 22 + 3 - 2 = 23 Million $
Scenario 3
NPSE Increases & Load Increases
Normal NPSE
Actual NPSE
Base Rate Recovery of NPSE
25 Million $
27 Milion $
26 Million $
NPSE(actual) = NPSE(base rates) + LGA + PCA
NPSE(actual) = 26 - 1 + 2 = 27 Million $
Scenario 4
NPSE Decreases & Load Increases
Normal NPSE
Actual NPSE
Base Rate Recovery of NPSE
25 Million $
23 Million $
22 Million $
NPSE(actual) = NPSE(base rates) + LGA + PCA
NPSE(actual) = 22 + 3 - 2 = 23 Million $
Attachment A
Case No. GNR-E-I0-03
Staff Comments
01/14/1 1
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 14TH DAY OF JANUARY 2011,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. GNR-E-1O-03, BY MAILING A COpy THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
DONOV AN E WALKER
LISA NORDSTROM
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: dwalker(fidahopower.com
lnordstrom(fidahopower .com
MARK C MOENCH
DANIEL E SOLANDER
ROCKY MOUNTAIN POWER
201 S MAIN STREET SUITE 2300
SALT LAKE CITY UT 84111
E-MAIL: mark.moench(fpacificorp.com
daniel. solanderCipacificorp.com
DA VID J MEYER
A VISTA UTILITIES
POBOX 3727
SPOKANE WA 99220
E-MAIL: david.meyerifavistacorp.com
ISRAEL RAY
ATLANTA POWER COMPANY
11140 CHICKEN DINER RD.
CALDWELL ID 83607
MIKE YOUNGBLOOD
IDAHO POWER COMPANY
POBOX 70
BOISE ID 83707-0070
E-MAIL: myoungbloodifidahopower.com
TED WESTON
ROCKY MOUNTAIN POWER
201 S MAIN STREET SUITE 2300
SALT LAKE CITY UT 84111
E-MAIL: ted.weston(fpacificorp.com
KELLY NORWOOD
AVISTA UTILITIES
PO BOX 3727
SPOKANE WA 99220
E-MAIL: kelly.norwood(favistacorp.com
PETER J RICHARDSON
GREGORY MADAMS
RICHARDSON & O'LEARY
515 N 27TH STREET
BOISE ID 83702
E-MAIL: peter(frichardsonandolear.com
greg(frichardsonandolear .com
CERTIFICATE OF SERVICE
E-MAIL: ONLY
DR. DON READING
E-MAIL: dreading(fmindspring.com
KEN MILLER
SNAKE RIVER ALLIANCE
BOX 1731
BOISE ID 83701
E-MAIL: kmiler(ßsnakeriverallance.org
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SECRETARY
CERTIFICATE OF SERVICE