ipce01.6jhtcrps.doc

JOHN R. HAMMOND
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5470

Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983

Attorney for the Commission Staff

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION OF IDAHO POWER COMPANY FOR AUTHORITY TO INSTITUTE A PILOT PROGRAM TO ALLOW IRRIGATION CUSTOMERS TO TAKE ELECTRIC SERVICE AT TIME-OF-USE ENERGY RATES.
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CASE NO. IPC-E-01-6

COMMENTS OF THE
COMMISSION STAFF

COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its Attorney of record, John R. Hammond, Deputy Attorney General, and in response to the Notice of Application, Notice of Modified Procedure and Notice of Comment/Protest Deadline issued on March 8, 2001, submits the following comments.
On February 21, 2001, Idaho Power Company (Idaho Power; Company) filed an Application seeking authority to institute a pilot program to allow irrigation customers to take electric service at time-of-use energy rates by implementing Tariff Schedule 25, Irrigation Service, Optional Time-of-Use, Pilot Program (the “Program”).
Idaho Power states that the purpose of the Program is to ameliorate the pressure on its system peak demands and associated financial consequences resulting therefrom. Specifically, under this Program the Company will provide an appropriate price signal to its irrigation customers to encourage them to shift their energy usage away from peak times which in turn will help to reduce the Company’s purchase power costs. Accordingly, Idaho Power believes that exploring the potential benefits of this Program is warranted.
The Program will be made available to all of Idaho Power’s irrigation customers who
are not participating in the Company’s Tariff Schedule 22 [Commercial] Energy Buy-Back Temporary Program, or the Irrigation Buy-Back Program. See Case Nos. IPC-E-01-4 and
IPC-E-01-3. The Company also states that enrollment in this pilot program will be limited to 300 metered service points unless it chooses to waive this restriction.
The Program tariff will have the same billing components and charges as Schedule 24 with two exceptions:
1. The irrigation in-season energy charges will no longer be one flat rate
but instead be based on the hours in which the energy was utilized.

2. The installation of more expensive TOU (time-of-use) meter is required
to participate in the pilot program. To contribute toward the increased
cost of the meter as well as the increased meter reading and bill processing
costs, a “TOU Meter Charge” of $3.00 per month during the irrigation season
will be assessed.

Application at p. 5, § VII.

Idaho Power contends that if the Program is successful it may lead to a reduction in the amount of revenue the Company will receive. However, this reduction in revenue is not accounted for in Idaho Power’s Power Cost Mechanism (PCA) and thus the Company entirely absorbs it. Accordingly, Idaho Power requests authorization to include reduced revenues, resulting from this Program, as an adjustment to its PCA mechanism.
STAFF ANALYSIS
1. Proposed Program is a Pilot
This proposed Program differs significantly from the other programs currently being proposed by Idaho Power and other electric utilities in response to expected tight supplies and high market prices. Whereas other programs are intended to help relieve conditions this coming summer, this Program is intended to provide a long-term solution to energy shortages.
Staff believes it is important to keep in mind that this Program is being proposed as a pilot. The purpose of a pilot program is to determine whether a particular strategy can be successful—in this case, in shifting irrigation load from on-peak to off-peak hours. In a pilot program, it is expected that a limited number of participants will be selected, data will be collected, results will be assessed, and changes will be made as needed in order to design a successful program. If successful, the program can then be expanded to achieve the desired goal. Initially, this Program will not likely have much impact because of the limited number of participants. Moreover, even the long-term effects of this Program will remain unknown until at least some results from the pilot are evident.
Staff believes it is worthwhile to try to assess the viability and impact of irrigation time-of-use rates. Since no one is certain about the potential for load shifting in the irrigation sector, it is appropriate to initiate a pilot program. Staff sees few consequences for either the Company or ratepayers if the Program fails, but recognizes significant potential benefits if time-of-use rates can be successfully implemented.
As Program results become available, and assuming the results are positive, Staff recommends that Idaho Power be prepared to offer the Program to as many eligible irrigation customers as demand warrants and as quickly as the Company is able. The Company should not wait five full irrigation seasons before deciding whether to expand the Program. Conversely, participants should be entitled to time-of-use rates for the duration of the pilot even if the Program eventually shows little promise.
2. Proposed Pricing Structure
The value of load shifting to Idaho Power varies both during the day and throughout the season depending on the Company’s cost of providing service at any specific point in time. Customers whose usage is primarily during peak hours justifiably should pay higher rates than customers whose usage tends to be more off-peak. Ideally, time-of-use rates should mimic daily and seasonal real-time price fluctuations. Although rates under this Program would only be established for on-peak, mid-peak, and off-peak time periods, it is still one step closer to real-time pricing. The pricing structure proposed by Idaho Power was chosen based on what the Company felt would be necessary to motivate irrigators to shift load, not based on any connection to expected on-peak and off-peak prices. Staff recommends that Idaho Power closely monitor daily and seasonal price variations and adjust either the months and/or the hours during which time-of-use rates will apply to work towards pricing that accurately reflects the true value of load shifting.

3. Participant Criteria
Idaho Power states that it will limit participation in the pilot to 300 meter locations due to limitations in its ability to change out old meters for new time-of-use meters. Given the limited number of participants in the initial phase, Staff recommends Idaho Power screen out customers judged to have minimal ability to shift load and those customers whose participation will not be beneficial. For example, a large irrigator with definite plans for load shifting should have priority over a small farmer who simply wants the metering in place in case he might somehow be able to occasionally shift load. Similarly, meters should not be devoted to part-time “hobby farmers” with small acreage. Staff recommends that criteria be established to better target irrigators most likely to produce valuable results.
Idaho Power is proposing to not allow customers who participate in its load buy-back programs to participate in this Program. Staff believes this restriction should be relaxed to permit customers to participate in both programs. Many irrigators may only devote portions of their acreage to the buy-back program, but may be able to shift load using the remaining acres. In fact, Staff believes those customers most able to successfully participate in the time-of-use program are those who have reduced their acreage. With reduced acreage, irrigators can employ far more strategies for shifting load. In addition, the buy-back program is intended to only last a single season, while the time-of-use program will last at least five years, and if successful, could become permanent. If the Company is truly interested in achieving valuable load shifting, load buy-back program participants should not be excluded from the time-of-use program.
Staff has some concerns about the risk to participants if time-of-use cannot successfully be employed. There can be some risk of yield reduction or crop loss if irrigators devise ways of participating that lock them into irrigation practices or schedules not suited for their crop, soil type, or weather conditions. Idaho Power should not assume responsibility for guaranteeing no yield reductions or crop loss; however, Company personnel do have irrigation expertise that should be made available to counsel irrigators. Staff believes the Company has some obligation to caution participants if it is going to entice them with substantially reduced rates.
4. Unintended Consequences
Staff suggests there are generally two ways that irrigators might be able to participate in this Program. One is by reducing acreage, thereby comparably reducing the amount of water that must be applied. For example, only those portions of a circle that a pivot can cover in off-peak hours might be farmed. The other way to participate is to maintain acreage but increase water application rate by either adding additional hand lines or wheel lines or re-nozzling existing equipment.
Staff has some concerns that implementation of this Program could have some unintended consequences. If the Program is successful in shifting load from on-peak to off-peak hours, it will reduce Idaho Power’s daily coincident peak but could increase its non-coincident peak. Irrigators that do not reduce acreage will generally have to devise methods of applying the same amounts of water in less time. Increasing the non-coincident peak is not a problem as long as the usage remains off-peak. However, if the Program is discontinued and the increased demand shifts back to on-peak hours, Idaho Power could be in a worse situation in normal water years. In addition, there is nothing to prevent irrigators from using increased pumping capacity in peak hours during extremely hot, dry weather. Higher pumping capacity will trigger higher demand charges and provide some disincentive to increase pumping capacity, but it may not be enough.
For several years, Idaho Power conducted an agricultural conservation program. The purpose of the program was to conserve energy and to reduce demand. Payment was made to irrigators for projected energy savings and for demand reductions. The program encouraged optimally designed irrigation systems. The time-of-use program encourages irrigation systems that are overdesigned. In other words, systems most suited to time-of-use are those that can deliver water the fastest, not the most efficiently. Consequently, this Program could be counterproductive to Idaho Power’s objectives in previous years, and negate benefits earned in previous conservation programs.
5. Lost Revenues
For several reasons, Staff does not recommend that Idaho Power be allowed to recover lost revenues as a result of this Program. First, it will be extremely difficult to measure how much load shifting occurs because of deliberate actions of irrigators and how much occurs because of other factors such as weather, cropping patterns, crop rotation, changes in acreage, equipment changes, or irrigation practices. Lost revenues cannot legitimately be assumed unless they are predictable and quantifiable.
Second, this is a small program that will take some time to develop. It may take several seasons for participation levels to increase and for irrigators to perfect their ability to utilize time-of-use rates. In the meantime, Idaho Power is likely to seek a general rate increase. At the time of that filing, any reductions in revenue as a result of this Program would be considered in calculating the Company’s revenue requirement. Any revenue lost in the meantime should not be considered any differently than increases or decreases in revenue due to changes in customer behavior.
Third, while it is true that allowing lost revenue recovery increases Idaho Power’s incentive over not allowing lost revenue recovery, the Company still has significant incentive to offer the Program. Staff contends it would be imprudent not to pursue programs that reduce costs and help keep rates low for customers. If the Company incurred higher power supply costs as a consequence of failing to take actions and implement programs to minimize costs, then a good argument could be made that higher costs were incurred imprudently.
Finally, customers should be entitled to receive price signals and to benefit from them if they can. To the extent price signals can be provided, customers should be given the choice of whether to pay higher or lower rates. As long as the rates established accurately reflect the utility's costs, the Company cannot expect to preserve its former revenue stream.
Recovery of costs associated with implementation of this Program will be entirely through the proposed $3.00 per month “TOU Meter Charge.” Consequently, Staff believes recovery of Program costs through the PCA is not an issue in this case.
STAFF RECOMMENDATIONS
Staff recommends that the Schedule 25, Irrigation Service, Optional Time-of-Use Pilot Program be approved. However, Staff also recommends the following:

As Program results become available, and assuming the results are positive, Staff recommends that Idaho Power be prepared to offer the Program to as many eligible irrigation customers as demand warrants and as quickly as the Company is able.

Staff recommends that Idaho Power closely monitor daily and seasonal price variations and adjust either the months and/or the hours during which time-of-use rates will apply to work towards pricing that accurately reflects the true value of load shifting.

For the initial phase, Staff recommends Idaho Power screen out customers judged to have minimal ability to shift load and those customers whose participation will not be beneficial.

Staff recommends customers be permitted to participate in both the irrigation buy-back and the time-of-use programs.

Staff recommends that Idaho Power offer the expertise of its own irrigation specialists to counsel irrigators if requested on irrigation practices and system modifications that could enable them to successfully utilize time-of-use rates.

Staff does not recommend that Idaho Power be allowed to recover lost revenues as a result of this Program.

Respectfully submitted this day of March 2001.

___________________________
John R. Hammond
Deputy Attorney General

Technical Staff: Rick Sterling

JH:RPS:gdk:i:umisc/comments/ipce01.6jhrps
STAFF COMMENTS 2 MARCH 23, 2001