200143_sw.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
JEAN JEWELL
RON LAW
LOUANN WESTERFIELD
TONYA CLARK
DON HOWELL
LYNN ANDERSON
DAVE SCHUNKE
RICK STERLING
RANDY LOBB
GENE FADNESS
WORKING FILE
FROM:
DATE:
APRIL 3, 2001 RE: CASE NO. IPC-E-01-4 (Idaho Power)
TARIFF SCHEDULE 22—ENERGY BUYBACK TEMPORARY PROGRAM

On February 12, 2001, Idaho Power Company (Idaho Power; Company) filed an Application with the Idaho Public Utilities Commission (Commission) for approval of Tariff Schedule 22, an Energy Buy Back Temporary Program (Program) applicable to the Company’s industrial customers, large commercial customers, and any customer capable of reducing electrical load by 1000 KW.
Current projections of below normal stream flows in the Snake River and its tributaries, coupled with the volatile wholesale energy market in the western United States, Idaho Power states, has created a situation where the Company believes that it is cost effective to acquire reductions in consumption of electrical energy in order to avoid the purchase of high cost power from the wholesale market.
The proposed Program encourages customers to voluntarily reduce electric load in exchange for credit against the customer’s Idaho Power account for the curtailed energy. The goal will be to make this credit, called the Exchange Credit, economically beneficial to both the customer, the Company, and the Company’s other customers as well. Benefits to the Company and other customers will result from reduced system demand as well as reduced costs.
The set of hours that a customer is given the opportunity to exchange electrical load for Exchange Credit is called an Exchange Event. An Exchange Event will typically be initiated during peak load hours when the Company anticipates high electricity costs. Customers will receive notice the day of, the day ahead, or two days ahead of the Exchange Event. Exchange Events will be for a minimum of two hours. The price for kilowatt hour that the Company offers the customer is called the Bid Price. The Bid Price will vary hour to hour and the customer may commit to load reductions for specific hours. The minimum time limit for an Exchange Event will be two consecutive hours for both the customer and the Company. There can be multiple Exchange Events in one day. Load reduction by customer will be a voluntary decision by the customer for a set number of hours in exchange for an agreed upon monetary consideration that will vary hourly and between Exchange Events.
In order to participate, a customer must satisfy certain conditions. The customer may be required to demonstrate to the satisfaction of the Company that the customer is able to reduce its electrical load by at least 1000 KW. The customer must have a meter provided by the Company which is capable of recording interval usage data for intervals no greater than 60 minutes. Customers are required to pay for costs associated with any load monitoring and communications equipment necessary to participate in the Program. Other conditions are set forth in the Application and the Company’s tariff. A secured internet site will allow participating customers and the Company to communicate with one another.
The Energy Buy Back Temporary Program will expire March 14, 2002, unless extended by the Company. This program will not affect the calculation of Demand, Customer, Basic, or Facilities charges associated with a customer’s normal rate schedule. The Company will ask that each customer remain on this schedule for a minimum of one year or until the termination date, whichever is sooner. If a customer voluntarily terminates the agreement, the customer will be responsible for reimbursing the Company for setup costs associated with enrolling the customer in the Program.
Commencement of the Program is dependent upon Idaho Power being assured that it will be entitled to recover through retail sales the payments that the Company will make to the customers participating in the program and that the Company will also be entitled to recover through retail sales its lost revenues resulting from the implementation of the Program. The Company’s ultimate implementation of the Program is conditioned upon the receipt of an appropriate accounting and ratemaking Order which would authorize utilization of the Power Cost Adjustment rate mechanism or similar type of mechanism to recover the Company’s costs.
Idaho Power requested that its tariff be effective March 14, 2001, and that its Application be processed pursuant to Modified Procedure, i.e., by written comment rather than by evidentiary hearing. The Company proposed effective date was suspended by the Commission in Order No. 28653 to March 30, 2000, and was stayed for a further period by informal agreement with the Company.
On February 22, 2001, the Commission in Case No. IPC-E-01-04 issued Notices of Application and Modified Procedure. The deadline for filing written comments was March 14, 2001. Timely comments were filed by the Industrial Customers of Idaho Power Company (ICIP), the Land and Water Fund of the Rockies (LAW Fund), Astaris, LLC, Commission Staff and Jeffrey C. Brooks, one of the Company’s many customers. On March 30, 2001, Idaho Power filed a response to comments. Comments can be summarized as follows:
Idaho Customers of Idaho Power (ICIP)
The Idaho Customers of Idaho Power express approval of the Company’s creative efforts to reduce dependence on high cost wholesale markets and qualified approval of the Company’s Application. ICIP cautions that there are instances when buying down load may not be in the interest of the Company’s other customers, i.e., (1) when payment is made to achieve reductions in load that would occur for other reasons without payment or (2) when cost reductions are small, the load reduction is large and the resultant percentage increase to remaining customers is greater than realized savings. In its analysis of the Company’s proposal, ICIP makes the following comments and recommendations.
Non-symmetrical response to variances in actual load reduction.
ICIP proposes elimination of the penalty imposed for failure to achieve 85% of committed load reduction, recommending instead that the bid price in such instance be simply reduced by 50% for any load reduction actually realized. This it states, mirrors the cost for exceeding committed load by 115% and still encourages load reduction and full participation.
ICIP suggests also that potential cost recoveries by the Company (i.e., Schedule 22 customer pays tariff rates on actual power consumed + the Company in the PCA recovers market costs associated with serving unrealized load reduction) obviate the need to debit the difference between actual load reductions and committed load.
Load Reduction Impact on Demand Charges
The potential for reductions in customer billing demand caused by participation, ICIP contends, creates a disincentive to participate and is a violation of existing tariffs. The same, it states, is also true for calculation of the customer’s basic charge for basic load capacity. This fact, ICIP states, should be recognized in the customer’s bill.
Payment/Credit to Bill
Absent a compelling reason to do otherwise, ICIP contends that a customer’s bill should be credited in the same billing period in which it receives notification, not 45 days after notification.
Ratemaking Treatment
ICIP objects to any recovery of lost revenues. Additionally, program costs, it argues, must be subject to a full prudence review prior to any recovery.
Termination
Noting that customer participation is voluntary, ICIP queries whether failure to accept any bid during the life of the program equates to premature termination, triggering a reimbursement of program enrollment costs.

Land and Water Fund of the Rockies (LAW Fund)
The LAW Fund supports the Company’s Application. The LAW Fund expresses its deep concern, however, that while the Company may achieve short-term benefit through programs such as this, it is forsaking investment in permanent long-term conservation and efficiency solutions (e.g., cooperative programs between IPCo, large industrial customers, and organizations such as the Northwest Energy Efficiency Alliance (NEEA). It encourages the Company to pursue both.
The LAW Fund also recommends that IPCo invest in long-term demand side management (DSM) programs for its residential and small customers. E.g., greater investment in low-income weatherization, and financial and technical assistance for conservation and efficiency improvements.

ASTARIS
Astaris supports the Company’s proposed tariff and use of the PCA for recovery of actual program costs. Its support, however, is subject to the following conditions:
Before cost recovery begins, Idaho Power should be required to prove that it has prudently managed its energy supply. Ratepayers, Astaris states, are entitled to reasonable assurances that they are not being asked to pay for errors in judgment or earlier attempts to maximize the regulated or unregulated profits at the expense of system resources.
There is a significant probability, Astaris contends, that the buyback or curtailment of power will at times be oversubscribed, thus producing excess system capacity. Astaris recommends that ratepayers be credited for all profits from market sales of any such oversubscribed power.
Astaris objects to any recovery of lost revenues. Authorized recovery of same, it states, ignores that some of the purchased or curtail power usage would be lost anyway as a result of normal demand elasticity. Noting that the Company has experienced considerable load growth since its last rate case (1994), Astaris contends that any recovery of lost revenue would be unfair until such time as an earnings review can be conducted. Recovery of lost revenue also, ASTARIS contends, unfairly insulates the Company from any share of the economic losses caused by present circumstances.
While agreeing that the PCA is an acceptable mechanism for Idaho Power’s recovery of buyback program costs, Astaris contends that there should be no change to the normal PCA modeling and deferral process. Buyback should be treated the same as if the Company were buying supplemental power from the wholesale market.
To enable program participants to accurately assess the risks and rewards of the Company’s voluntary buyback program, Astaris contends that Idaho Power prior to program implementation should be required to fully disclose any involuntary curtailment plans it may have developed in response to the existing power supply situation (i.e., notice, duration or level of any involuntary reductions they may face in an emergency situation).
Astaris recommends that the Commission combine the voluntary buyback and curtailment program cases (IPC-E-01-03 and IPC-E-01-04) with the emergency surcharge (IPCE-01-07) and annual PCA case and schedule a single hearing to deal with all relevant cost recovery issues.
Commission Staff
Staff in its comments, recommends approval of the Company’s proposed Schedule 22 program. Staff further recommends that
Subaccounts be established in the Purchase Power Account 555 to specifically identify and track program costs and lost revenue,
Staff be provided read only access to the secure internet site,
The Company be required to provide a summary program performance report following completion of the pilot program and,
The Company within the program structure be required to continually monitor and modify program bid prices to develop the most economic power purchase decisions.

Jeffrey C. Brooks
Mr. Brooks opposes the Company’s proposed Schedule 22 program, identifies changes that have occurred since the Company’s last rate case in 1994 and contends that it is time for a full rate case proceeding. Mr. Brooks contends that a piecemeal approach to ratemaking provides the Commission with an incomplete picture and in the context of a partially deregulated electricity environment existing outside the borders of Idaho is not conducive to a comprehensive and appropriate allocation of costs and benefits associated with providing electricity supply and delivery operations.
Idaho Power, Mr. Brooks contends, by its deliberate actions has also seemingly helped to create the energy shortage in Idaho. By its actions, he states, it has encouraged increased electrical consumption in at least three ways:
Through economic development activities designed to lure new industrial customers to Idaho Power’s service territory with a promise of low cost power.
Through the practice of converting all large power rate 19 customers to special contract sales agreements at rates far below prices available to the average customer for the same power on the same system.
And through the Company’s abandonment of proactive DSM activities to foster cost effective energy improvements, to provide demand side energy supply resources and collateral societal benefits.
Further, these activities, he states, were undertaken with no corresponding plan to acquire additional electricity supplies or a reasonable effort to stretch existing power supplies through ongoing energy efficiency or DSM programs.

IPCo Response
Idaho Power in its response stresses that the Schedule 22 program offered is voluntary. Customers are not required to sign up for the program and if signed up are not obligated to participate.
Under Schedule 22, the Company states that there is very little risk that the Company will buy load that would have been reduced without an Exchange Event. This program, it states, is based on buying reduced load on the day of, on the day ahead or two days ahead, on an hour by hour basis. The risk that a customer would offer to reduce load for a short period of time and would then “shut down” during the same period is very small. The Company concludes that the probability of gaming the program is low.
The Company states that it has included a penalty payment in Schedule 22 due to the fact that the value of electrical load that is reduced during an exchange is based on the Company’s ability to plan on that load reduction. If the Company does not reduce load by the committed amount, the Company states that it would need to buy energy on the spot market to serve the unplanned load. Under Schedule 22, the participating customer is given one exchange event with no penalties and is given a 30% compliance band with no penalties after the first event in which they participate.
Noting that references have been made to the reduction in a customer’s demand charges caused by the program, the Company states that it is almost impossible for participation in Schedule 22 to affect a customer’s demand charge in any way. The demand charge is the average kW supplied during the 15 consecutive minute period of maximum use during the billing period. The same is true for the customer’s basic charge for basic load capacity. The basic load capacity is the average of the two greatest non-zero month billing demands established during the 12-month period, which includes and ends with the current billing period. It is almost impossible, the Company states, and extremely improbable that participating in this program would adversely affect a customer’s basic charge.
With respect to the timing of any credit, the Company states that normally a company’s credit would appear on the next bill after an exchange event. The exception would be if the exchange then falls so close to a billing cycle that it is administratively impossible for the credit to appear on the customer’s bill for that billing cycle, in which case the credit would appear on the customer’s bill for the next billing cycle, i.e., approximately 45 days.
As to the issue of recovery of reduced revenues that occur as a result of the program, it remains the Company’s position that the revenue impacts of the program should be treated as a purchase power expense in the Power Cost Adjustment mechanism, in the same manner that the revenue impact of the Company’s irrigation “buyback” program will be treated. Reference Order No. 28676, Case No. IPC-E-01-03.
Commission Decision
Does the Commission find it reasonable to approve the Company’s proposed Schedule 22? With or without qualification and/or modification? The following program changes, etc. were recommended:
Eliminating the penalty for failure to achieve 85% of committed load reduction

No recovery of lost revenues

Full prudence review prior to any permitted recovery of program costs (including a demonstration of prudent management of energy supply)

Clarification that a reimbursement of program enrollment costs is not triggered by a failure to accept any bid

Continued investment in permanent long term conservation and energy efficiency solutions

Company investment in long term demand side management (DSM) programs for residential and small customers

Credit for all profits related to market sales of oversubscribed power

No change to normal PCA modeling and deferral process

Full disclosure of any involuntary curtailment plans

Combine buy-back, curtailment and PCA cases and schedule a single hearing to deal with all relevant cost recovery issues
Establish subaccounts in Account 555 to identify and track program costs and lost revenue

Provide Staff with read only access to secure Internet site

Provide summary program performance report following completion of the pilot program

Initiate a full rate case proceeding

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