20041119Comments on Remand.pdf

DONALD L. HOWELL, II
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3366
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UTILI fitS COr"i!",!SSION
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 REMAND
CONCERNING IDAHO POWER COMPANY'
REQUEST TO RECOVER "LOST REVENUE"
FROM THE 2001 IRRIGATION LOAD
REDUCTION PROGRAM THROUGH THE
PCA MECHANISM IN THE 2004/2005 PCA YEAR. )
CASE NO. IPC-01-
(ON REMAND)
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Donald L. Howell II, Deputy Attorney General, and submits the following
comments in response to Order No. 29612 and the Notice of Modified Procedure issued in this
case on October 15 , 2004.
On June 8, 2004, the Idaho Supreme Court issued its amended remittitur in Idaho Power
Company v. Idaho PUC 140 Idaho 139, 90 P.3d 889 (2004). In its Opinion, the Supreme Court
set aside the Commission s decision in Order Nos. 28992 and 291Q3 denYing Idaho Power
Company s request to recover the "lost revenue" associated with the Company s implementation
of the Irrigation Load Reduction Program in 2001. Lost revenue represents a calculated amount
of revenue the Company might have received from the sale of power to irrigation customers if
the Load Reduction Program had not been in operation. Order No. 29103 at 1. On remand, the
Commission has solicited additional comments from the parties and interested persons regarding
the calculation of the lost revenue.
ST AFF COMMENTS NOVEMBER 4, 2004
BACKGROUND
A. The Irrigation Load Reduction Program
During the energy crisis of 2000-2001 , Idaho was faced with two unique conditions: the
second worst drought on record and extremely high wholesale power costs. The drought forced
Idaho Power to purchase large amounts of high-cost power to meet its load requirements. In an
effort to reduce electric consumption and the purchase of wholesale power, the Company
initiated the Irrigation Load Reduction Program. This Program was designed to provide
monetary incentives to large irrigation customers to reduce their electric consumption during the
summer of 2001. Order No. 29103 at 1-2. Under the Program Idaho Power would make
payments to irrigation customers that committed to reduce their energy consumption by at least
100 000 kWh. Order No. 28699, Case No. IPC-01-3. The Company proposed a maximum
purchase price of 15 cents per kWh and a reduced revenue component of 5.2 cents per kWh for a
total cost of 20.2 cents for each kilowatt-hour purchased under the buy-back program.
In May 2001 the Commission issued Order No. 28699 authorizing Idaho Power to
implement the Program. The Commission s Order stated that the "direct costs and lost revenue
impacts of this Program may be treated as a purchased power expense" in the Company s Power
Cost Adjustment (PCA) mechanism. The Commission intended for the Company to track or
account for the direct costs (payments to irrigators) and the lost revenue separately until the
Company filed a later Application seeking authority to recover these amounts. The Commission
sought to preserve judgment on the recovery of lost revenue until the subsequent case. The
Order also directed Idaho Power and the parties to develop and present to the Commission a
procedure for calculating the amount of lost revenue if recovery was permitted in the 2002 PCA
case. Id. at 12.
In September 2001 Idaho Power met with all the parties in the case to discuss its
proposed methodology for computing the lost revenues. At this meeting the Company outlined a
three-part methodology to calculate the lost revenue. Following this meeting the Company
adjusted the proposed methodology. Order No. 28992 at 2.
Although the Irrigation Load Reduction Program operated until the end of November
2001 , the Company in October 2001 filed an Application requesting the Commission issue an
Order authorizing the recovery of the direct costs and lost revenue in the 2002-2003 PCA year.
Case No. IPC-01-34. In its Application, the Company reported its direct costs and proposed
lost revenues as of September 30, 2001 and indicated it would provide a subsequent report with
ST AFF COMMENTS NOVEMBER 4, 2004
end-of-program results. Application at 4. The Application included the prefiled testimony of the
Company s Director of Pricing, Maggie Brilz. Her testimony explained the Company
proposed three-part methodology for computing the lost revenue.
B. The Company s Proposed Methodology for Lost Revenue
Ms. Brilz explained that the methodology has three components: (1) the energy
component; (2) the demand component; and (3) the load reduction offset and loss components.
First, the energy component represents the measured reduction in revenue associated with the
kilowatt hours (kWh) bid into the Irrigation Load Reduction Program. The energy component is
calculated by multiplYing the kWh of reduced energy by the tariffed energy rate applicable for
the specific billing period. Brilz at 5. Second, the demand component is the reduced revenue
associated with the reduction in billed kW relating to the in-season billing periods of June
through September 2001. This is the period during which the irrigation demand charge is
imposed. "Because the billed kW is directly related to the installed horsepower at each metered
service point, the basis for the computation is the difference between the billed k W for the billing
period this year ((2001)) compared to the billed kW for the same billing period last year
((2000)).Id. at 5-6. The demand component is then computed by multiplYing the difference in
billed kW between the two years by the demand charge.
Third, the load reduction offset and loss components eliminate a potential double
accounting of reduced revenues associated with the load change that is embedded in the PCA
methodology and accounts for delivery losses. The rate for load change adjustment within the
PCA was 1.684 cents per kWh. This component also includes an adjustment for delivery losses
not incurred on the buy-back energy. This delivery loss is calculated at the generation level
rather than at the customer, or meter level. The Company utilized a loss factor of 10.8%. Id.
6- 7. Taken together, these two offsets are calculated by multiplYing the kWh of energy
reduction for which customers received payment by 1.108 to adjust for the 10.8% loss, and then
by 1.684 cents per kWh.
After calculating the amount of lost revenue, two other adjustments were made.
Consistent with the PCA mechanism, the amount of lost revenue was reduced by 10% to account
for the 90/10 sharing adjustment in the PCA. In addition, the jurisdictional allocation process
further reduced the calculated amount by 15% to allocate costs to Oregon customers. Id. at 12-
13.
STAFF COMMENTS NOVEMBER 4, 2004
ST AFF REVIEW
In it's Request for Authority to Accept Bids, Case No. IPC-01-, filed with the
Commission on March 7 , 2001 , the Company proposed a lost revenue component of 5.2 cents
per purchased kWh or 100% of the per kWh revenue that would have been generated absent the
buyback program. The Company also stated "without inclusion of the reduced revenues in the
PCA mechanism, the benefits derived from the program are not evenly distributed and can
become detriments to the Company
In comments filed on March 12, 2001 , in Case No.IPC-01-, Staff stated that while it
did not necessarily disagree with the methodology used to estimate the relative impact of the
program, it did not agree with the Company s lost revenue proposal. Based on its calculations
Staff agreed that allowing some lost revenue recovery would make the Company no worse off
with the Irrigation Load Reduction Program than it would have been without it. Staff also stated
that it believed there was uncertainty in measuring energy reduction due solely to this Program.
While Staff believed it difficult to quantify the effect on lost revenues of factors such as "free
riders" (reduction in irrigation energy consumption that would have occurred anyway) and
offsetting new customer growth, it believed that these issues provided further justification for
allowing only a portion of the lost revenue to be recovered. Staff again stated "proper recovery
is an amount that would make the Company revenue neutral."
On September 27, 2001 , Idaho Power met with the Commission Staff and other parties
and interested individuals to discuss the reduced revenue issue. Idaho Power presented a
proposed lost revenue calculation that included the recovery of energy and demand related
revenues associated with irrigation kWhs bought back. The Company reduced this initial
calculation by 1.684 ~/kWh to account for a credit already incorporated in the PCA when actual
energy sales are reduced. This prevents a double counting of this portion of lost revenue.
During the meeting the Company also agreed to reduce lost revenue by the cost of losses that it
does not incur when it buys energy back. Average delivery losses are 10.8 percent of delivered
energy for irrigation customers taking service at the secondary voltage level.
STAFF COMMENTS NOVEMBER 4, 2004
In comments filed on November 30, 2001 supporting the modified lost revenue
calculation, Staff stated:
It is Staff s position that these adjustments along with the
10 % PCA sharing reduction in all of the costs of the program
prevent any "enrichment" to the Company as a result of
proposed Commission approval of lost revenue recovery. The
90/10 sharing adjustment also addresses, in a general way,
concerns that the Staff expressed about free riders in its
previous comments. The fact that 10 % of program costs will
not be passed back to ratepayers provides increased assurance
that free riders would not cause the program to be uneconomic.
Staff has again reviewed the various adjustments incorporated in the calculation
methodology and continues to believe that the methodology developed through workshops and
proposed by Company witness Brilz is the appropriate method to calculate lost revenue. The
calculated lost revenue resulting from the methodology is approximately 60% of that proposed
by the Company in its original filing. The methodology includes adjustments for a PCA credit
when actual energy sales are reduced and reduced transmission losses associated with reduced
energy consumption. In addition, the revenue losses are jurisdictionally allocated and shared by
Idaho Power shareholders through the PCA assuring fair treatment of customers and
stockholders. However, Staff continues to maintain that the Irrigation Load Reduction Program
is different than traditional demand side management (DSM) or conservation programs because
the actual energy savings associated with the program are discretely tied to actual kWhs
purchased. In addition, the energy savings produced by this program occur in a single year at a
set price based upon the irrigation customer s bid. Because the energy reductions occur in a
single year, such reductions are not subject to a true-up as is the case with long-term energy
reductions associated with traditional DSM and conservation programs. See Staff Comments at
4 (Nov. 30 2001).
Based upon the unique set of circumstances arising in this case, the Staff recommends
that the Commission allow Idaho Power to recover lost revenues based upon the proposed
methodology. Staff believes the methodology is reasonable and appears to capture all the
relevant costs and cost offsets associated with the program. Staff has audited the lost revenue
accounts and applied the proposed calculation method to the energy and capacity savings
produced by the program. Staff calculates the amount of lost revenue that should be recovered
from Idaho ratepayers to be $11 587 179, the same amount requested by Idaho Power.
STAFF COMMENTS NOVEMBER 4, 2004
In addition to the amount for lost revenues, Idaho Power requests to recover $428 008 for
carrying charges attributed to the program until March 2002, the end of the PCA deferral period.
Interest was calculated using the same method approved for other PCA items, at the then current
authorized rate of 6%. Staff believes that carrYing charges are not appropriate for the period
beyond March 2002 during the pendency of the appeal (April 2002 to June 2004). This is not an
issue because the Company previously waived these carrYing charges.
ST AFF RECOMMENDATIONS
Staff proposes that lost revenue and carrYing charges in the amount of $12 015 187
(Attachment A) be passed through to Idaho customers as part of the Company s 2005 PCA rate
adjustment. Staff further proposes that this amount be added to the PCA deferral balance as a
single adjustment at the end of the PCA calculation period following Commission approval. Due
to the significant differences between the Irrigation Load Reduction Program and other DSM
programs as well as the differences in power supply expense recovery methods among the
various Idaho Electric Utilities, Staff also recommends that the Commission s Order find that
awarding lost revenue using the proposed methodology is unique and only applicable to Idaho
Power s Irrigation Load Reduction Program.
Respectfully submitted this day of November 2004.
Donald L. Howell, II
Deputy Attorney General
Technical Staff: Keith Hessing
Alden Holm
i :umisc/comments/ipceO 1.34dhahkh
STAFF COMMENTS NOVEMBER 4, 2004
STAFF LOST REVENUE CALCULATION
FOR IDAHO POWER COMPANY
CASE NO. IPC-O1-34 ON REMAND
Line Description Amount
($)
No.
Lost Revenue:
Energy Revenue 187,418.
Demand Revenue 275 871.
Sub-Total 24,463 289.
Offsets:
PCA Load Adjustment
Adjustment for Energy Losses Not Incurred7 Sub-Total
(8,408 529.17)
(908 121.15)
316 650.32)
Net Lost Revenue - Total Company 146 639.
PCA Sharing at 90%
10 Idaho s Jurisdictional Share at 85%
13,631 975.
587 179.
11 Accumulated Interest Through March 2002 428,008.
12 Total Lost Revenue w/lnterest to be Recovered 015 187.
ATTACHMENT A
CASE NO. IPC-E-01-34
STAFF COMMENTS11/04/04
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 4TH DAY OF NOVEMBER 2004
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-01-, BY MAILING A COpy THEREOF POSTAGE PREPAID, TO THE
FOLLOWING:
LARRY D RIPLEY
SENIOR ATTORNEY
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
MAGGIE BRILZ
DIRECTOR OF PRICING
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
RANDALL C BUDGE
RACINE OLSON NYE ET AL
PO BOX 1391
POCATELLO ID 83204-1391
ANTHONY Y ANKEL
29814 LAKERD
BAY VILLAGE OH 44140
CONLEY WARD
GIVENS PURSLEY LLP
PO BOX 2720
BOISE ID 83701-2720
ALAN W SEDER
AS T ARIS LLC
622 EMERSON RD, 5TH FLOOR
ST LOUIS MO 63141
CERTIFICATE OF SERVICE