20110118Opening Comments.pdf

Peter J. Richardson
Gregory M. Adams
Richardson & O'Leary, PLLC
515 N. 27th Street
P.O. Box 7218
Boise, Idaho 83702
Telephone: [phone]
Fax: [phone]
peter(irichardsonandoleary.com
greg(irichardsonandoleary .com
r~l
znn JMi 14 PMl.: 45
Attorneys for the Industrial Customers of Idaho Power
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE COMMISSION'S )INQUIRY INTO LOAD GROWTH )
ADJUSTMENTS THAT AR PART OF THE )POWER COST ADJUSTMENT )MECHANISMS )
)
CASE NO. GNR-E-I0-03
OPENING COMMENTS
OF THE INDUSTRIAL CUSTOMERS
OF IDAHO POWER
COMES NOW, the Industrial Customers ofIdaho Power ("ICIP"), and hereby submits its
Opening Comments in this docket on Avista's proposal, which would remove fixed costs from a
utility's load growt adjustment mechanism ("LGAR") and rename the mechansm the load
change adjustment mechansm.! Because A vista's proposal wil operate the LGAR mechansm
in a way for which it was never intended and in a maner that would allow the utility to recover
non-existent expenses, ICIP respectfully requests that the Commission reject Avista's proposaL.
A vista and Idaho Power have Commission approved Power Cost Adjustment ("PCA")
mechanisms. Rocky Mountain Power has a Commission approved Energy Cost Adjustment
Mechanism ("ECAM"). Each utility employs some form of load growth adjustment mechanism.
For simplicity, these comments will refer to those mechanisms as the "PCA and "LGAR," even
though the individual utilities sometimes refer to their individual mechansm by a different name.
OPENING COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
GNR-E-I0-03
PAGE 1
ICIP requests that the Commission instead determine that the LGAR should be calculated based
on the marginal cost of energy - not the embedded cost - and that the LGAR (load growth
adjustment mechanism) only operates in times when loads are growing to avoid any decoupling
effect.
I. BACKGROUND
A. History of the PCA and LGAR
This case should be considered in the context of the history of the PCA and the LGAR.
In 1981, the Commission approved setting power supply costs based on normalized conditions
from multiple hydro years. See Case No. U-I006-185. Ensuing severe droughts caused the
Company to file for rate surcharges. The Commission found this method of dealing with volatile
hydro conditions to be undesirable, and developed the PCA. The Commission ultimately
determined ''that the curent system of normalizing power supply costs and granting Idaho Power
a surcharge durng drought years is defective because it is unpredictable and ratepayers do not
receive any rate reduction during high water years." Order No. 24806, at pp. 4-5. The PCA
"addresses this concern and will produce consumer benefit in the form of lower rates during
years of favorable stream flows." Id at p. 5. Thus, the PCA's purose was to create a system
where both Idaho Power and its customers would share in the costs and benefits of changes in
power supply costs, caused primarily by variations in stream flows, that occur between general
rate filings. Nevertheless, in approving the PCA, the Commission stated that it continued ''to
believe that normalization is a valuable ratemaking methodology for other types of expenses and
revenues. Nothing in this Order should be constred to the contrar." Id
The Commission implemented LGAR to prevent the Company from double-recovering
OPENING COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
GNR-E-1O-03
PAGE 2
certn costs under the PCA. Id at p. 20. The load growth adjustment factor is used to adjust for
power supply costs that the Company has already recovered from customers through rates.
Although new loads add to Idaho Power's power supply costs over and above those established
though rate case normalization procedures, these new loads pay Idaho Power's rates for the
power they receive. Allowing the Company to automatically recover in the PCA the full costs of
serving new load would therefore result in an over-recovery by the Company. See id (stating
"Idaho Power's proposed PCA allows it to double recover fuel costs associated with load growth
which, essentially, offsets the cost of constrcting additional plant"). In other words, if the PCA
were not adjusted to tae into account the revenues the Company receives from new customers
or increased load, the Company would again receive them automatically in the PCA as higher
power supply costs. "All paries agree that the principal purose of PC A load growt adjustment
rate is to eliminate the potential for double recovery of power supply expenses. Idaho Power
believes this should be the sole purose of the load growt adjustment." Rebutt Testimony of
Gregory Said, Idaho Power Company, IPC-E-06-08, at p. 27 (October 20, 2006).
The method of calculation of the LGAR has undergone significant changes over the past
few years. In 2008, when the paries settled Idaho Power's general rate case (Case No. IPC-E-
07 -08), the Commission approved the Stipulation in that case, and stated:
The Paries agree to make a good faith effort to develop a
mechansm to adjust or replace the current Load Growt
Adjustment Rate (LGAR) to address costs of serving load growth
between rate cases. As an interim resolution, the LGAR for PCA
year 2008 (April 2008 - March 2009) will be $62.79 per MWh
applied to one-half of the load growth occurng during each month
within the PCA year.
Stipulation, IPC-E-07-08, at p. 4, (Jan. 23, 2008). This approach deviated from prior method of
OPENING COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
GNR-E-I0-03
PAGE 3
using the Company's ful marginal cost to determine the LGAR, applying it to one-half the load
or essentially one-half full marginal cost.
The next change in the methodology moved the calculation of the LGAR to include three
different components - a retu component, an expense component, and a revenue component of
the production-related rate base. The Commission's order approving the stipulation
implementing that change stated:
The curent LGAR is calculated by multiplying the marginal cost
of serving new load by one-half of the difference between curent
load and the load established in the Company's last rate case (Case
No. IPC- 07-08). The curent rate is effectively $31.39 per MWh.
The proposed new methodology recognzes that the Company
incurs additional power supply costs to serve new load between
rate cases and has no opportty to collect those costs. By using
three components - a retu component, an expense component,
and a revenue component of the production-related rate base - the
new calculation recognzes the generation related revenue that is
collected from new load though rates. The proposed LGAR using
the Stipulation's formula is $28.14 per MWh.
Order No. 30715, at p. 2.
B. Recent Use of the LGAR When Loads Are Declining
Although the load growth adjustment was obviously established to deal with double
recovery in rates as the power system experienced load growth, all three utilities are now
experiencing load declines due to worst economic downtu since the Great Depression and
increased conservation efforts. Each utility requested the continued use of their respective
LGAR mechanisms in their 2010 PCA despite declining loads. This use of a load growth
mechanism in the face of declining loads is counterintuitive and yielded unintended
consequences.
In the recent PacifiCorp power cost adjustment case (Case No. PAC-E-lO-Ol), the
OPENING COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
GNR-E-I0-03
PAGE 4
Commission recognized that a load growth adjustment in the face of declining loads can lead to
over recovery by a utility. The Commission stated that operation of the load growt adjustment
mechanism "reveals an unintended consequence in periods of declining retail load." Order No.
31033, at p. 12. It "appears to operate much the same as a decoupling mechanism reimbursing
the Company for lost revenue for reductions in customer usage (sales)." Id Specifically
regarding PacifiCorp's filing, "(s)eventy-five percent of the ECAM deferral in this case is related
to declining load. The (LGAR) adds power supply costs to make up for the generation portion of
lost sales." Id It thus "looks less like a power cost adjustment and more like a vehicle to
restore lost revenue due to decreases in customer usage. We find the result that is presented by
use of an ECAM containing an LGAR during periods of declining load growth is a problem that
may also occur in the Power Cost Adjustment (PCA) mechanisms of Idaho Power and Avista."
Id This creates "benefits differently than (the Commission) anticipated." Id
In short, "(fJor the (load growth adjustment mechanism) to act as a decoupling
mechansm was unintended." Id The Commission concluded that ifPacifiCorp "desires a
decoupling mechansm it should request and justify one in a separate filing." Id The
Commission therefore directed the Commission Staff to conduct workshops to investigate the
issue for the three utilities. Id
The same decoupling effect recognized by the Commission in the PacifiCorp case was at
issue in Idaho Power's and Avista's PCA cases in 2010. Notably, Idaho Power already had a
decoupling mechanism that applies to about 60% of its loads. See Order No. 30267 (approving
the fixed cost adjustment ("FCA") for the commercial and residential classes); Order No. 31063
(renewing the FCA mechanism); see also Direct Testimony of Steven Weiss, Idaho Power
OPENING COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
GNR-E-1O-03
PAGE 5
Company, Case No. IPC-E -06-08, at p. 2 (discussing the interaction ofthe FCA and the PCA).
The Company acknowledged in its discovery response to Idaho Irrgation Pumpers Association
production request no. 2 in the 2010 PCA docket (Case No. IPC-E-1O-12) that "(t)he 2010 PCA
is the first filing where the annual load growth adjustment reflected negative annual growt."
(emphasis in original). In other words, although the LGAR has logically been used to recognize
declining loads within individual months of test year with an overall increase in load, it has never
been used to increase rates in the same maner as decoupling. So, for the first time ever, Idaho
Power proposed to charge ratepayers twice for lost revenue for the same load reduction.
Specifically, the Company's PCA application included an increase of$23.7 milion in
rates from the LGAR adjustment based on actul loads being 5.94% (889,235 MWh) lower than
normalized loads. See Application, Case No. IPC-E-1O-12, at Exhbit 1, line 13. In addition, the
Company filed for the recovery of $6.3 millon though decoupling in Case No. IPC-E-I0-07
from the residential and commercial classes. Ths means the Company applied for rate recovery
of over $30 milion due to declining loads. The combination of these two applications amounted
to 3.4 cents per kWh in rate recovery for each kWh ofload decline -- based on the 889,235
MWh lower than normalized loads found in the PCA.
Although this double recovery will only occur for the residential and commercial classes,
the Commission had not authorized any decoupling recovery for the other classes, including the
industrial class. ICIP opposed this decoupling effect and requested that the Commission not
allow the Company to implement this decoupling effect ofLGAR without providing ICIP the
opportunity to fully present its views on decoupling. While the Commission authorized the
Company's requested recovery, it nevertheless implicitly agreed in par with ICIP's position
OPENING COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
GNR - E-l 0-03
PAGE 6
because it instructed the Commission Staff to convene workshops to devise a method to
"eliminate potential double recovery." See Order No. 31093, at p. 15; see also Order No. 32080,
at p. 5 (Avista's PCA case with a similar result).
C. Avista's Proposal
At the ensuing workshop, A vista proposed a methodology whereby the utility would
calculate the LGAR based upon the energy classified portion of embedded production revenue
requirement as established in the cost of service for each utility. The alternative methodology
maintains symetr in growing and declining load scenarios but substantially reduces the fixed
generation component of the (LGAR). This proposal purorts to minimize the decoupling effect
of the LGAR mechanism. The decoupling issue of fixed cost recovery through the mechanism is
not completely eliminated with Avista's proposal because par of each utilties fixed production
costs are classified as energy related in cost of service studies.
COMMENTS
ICIP opposes Avista's proposal. The LGAR was intended to prevent double recovery,
and Avista's proposal tuns it into a mechanism that allows for decoupling. Avista's proposal
also proposes to use embedded costs to calculate the LGAR. But embedded costs are costs that
should be associated with base rates, not a rate recovery mechanism designed solely to track
changes in power supply costs due to market conditions and hydrological conditions. ICIP
submits that because the LGAR is used through the PCA and is therefore preventing double
recovery of power supply costs, it should be calculated based upon the marginal cost of energy.
The Commission has authorized such use of the LGAR in the past, and ICIP believes it would be
appropriate to return to some form of marginal cost methodology. See Order No. 30715, at p. 2
OPENING COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
GNR-E-1O-03
PAGE 7
(discussing the past methodology).
Additionally, the LGAR should have no decoupling effect whatsoever, and should
therefore be asymetricaL. A vista and the other utilities have not demonstrated that what costs
they are recovering through the LGAR at times of declining loads. Staff itself concedes in its
Opening Comments that Avista's proposal will only "minmize the decoupling effect of the
LGAR mechanism." Staff Opening Comments, at p. 3. Ths is inconsistent with the
Commission's directive to "eliminate potential double recovery." See Order No.3 1093, at p. 15.
Idaho Power already has a decoupling mechanism and should not be allowed to employ a second
decoupling mechanism.
CONCLUSION
ICIP respectfully requests that the Commssion reject Avista's proposal. ICIP requests
that the Commission instead determine that the LGAR should be calculated based on the
marginal cost of energy - not the embedded cost - and that the LGAR (load growth adjustment
mechansm) only operates in times when loads are growing to avoid any decoupling effect.
Respectfully submitted this _ day of Janua 2011.
RICHARDSON & O'LEARY, PLLC
~
J. Richardson
Gregory M. Adams
Attorney for the Industrial Customers of
Idaho Power
OPENING COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
GNR-E-I0-03
PAGE 8
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this \li~ay of Janua, 2011, I caused a true and correct
copy of the foregoing OPEINGIN COMMENTS OF THE INDUSTRIAL CUSTOMERS OF
IDAHO POWER to be served by the method indicated below, and addressed to the following:
Jean Jewell
Idaho Public Utilties Commission
472 West Washington Street (83702)
Post Offce Box 83720
Boise, Idaho 83720-0074
( ) U.S. Mail, Postage Prepaid
(x) Hand Delivered
( ) Overnight Mail
( ) Facsimile
( ) Electronic Mail
Lisa Nordstrom
Donovan Walker
Mike Youngblood
Idaho Power Company
POBox 70
Boise, Idaho 83707
lnordstrom(iidahopower .com
dwalker(iidahopower .com
myoungblood(iidahopower .com
(x) U.S. Mail, Postage Prepaid
( ) Hand Delivered
( ) Overnight Mail
( ) Facsimile
(x) Electronic Mail
David J. Meyer
Vice President and Chief Counsel of
Reguatory and Governental Affairs
A vista Corporation
1411 E. Mission Avenue
Spokane, Washington 99220
david.meyer(iavistacorp.com
(x) U.S. Mail, Postage Prepaid
( ) Hand Delivered
( ) Overnight Mail
( ) Facsimile
(x) Electronic Mail
ISRAEL RAY
ATLANTA POWER COMPANY
11140 CHICKEN DINER RD.
CALDWELL ID 83607
(x) U.S. Mail, Postage Prepaid
( ) Hand Delivered
( ) Overnight Mail
( ) Facsimile
( ) Electronic Mail
TED WESTON
ROCKY MOUNTAIN POWER
201 S MAIN STREET SUITE 2300
SALT LAKE CITY UT 84111
(x) U.S. Mail, Postage Prepaid
( ) Hand Delivered
( ) Overnght Mail
( ) Facsimile
OPENING COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
GNR-E-I0-03
PAGE 9
ted. westonrfpacificorp.com
Kelly O. Norwood
Vice President
State and Federal Regulation
A vista Corporation
1411 E. Mission Avenue
Spokane, Washington 99220
kelly.norwoodrfavistacorp.com
Daniel E. Solander
Mark Moench
Rocky Mountain Power
201 South Main
Salt Lake City, UT 84111
Daniel.solander(ipacificorp.com
Mark.Moench(ipacificorp.com
KRISTINE A. SASSER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
Kris. Sasser(ßuc. idaho. gov
(x) Electronic Mail
(x) U.S. Mail, Postage Prepaid
( ) Hand Delivered
( ) Overnght Mail
( ) Facsimile
(x) Electronic Mail
(x) U.S. Mail, Postage Prepaid
( ) Hand Delivered
( ) Overnight Mail
( ) Facsimile
(x) Electronic Mail
( ) U.S. Mail, Postage Prepaid
(x) Hand Delivered
( ) Overnght Mail
( ) Facsimle
(x) Electronic Mail
Signed el
OPENING COMMENTS OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER
GNR-E-IO-03
PAGE 10