20030312Petition for Reconsideration.pdf

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BARTON L. KLINE ISB #1526
MONICA MOEN ISB #5734
Idaho Power Company
O. Box 70
Boise, Idaho 83707
Telephone: [phone]
FAX Telephone: [phone]
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Attorney for Idaho Power Company
Street Address for Express Mail
1221 West Idaho Street
Boise, Idaho 83702
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE
INVESTIGATION OF TIME-OF-USE
PRICING FOR IDAHO POWER
RESIDENTIAL CUSTOMERS.
IDAHO POWER COMPANY'
PETITION FOR RECONSIDERATION
CASE NO. IPC-02-
Idaho Power Company (hereinafter referred to as "Idaho Power" or "the
Company ), Petitioner herein , pursuant to RP 331 and 9 61-626, Idaho Code
respectfully petitions the Commission for reconsideration of Order No. 291961 as set
forth below, on the grounds that Order No. 29196 is unreasonable, unlawful, erroneous
unduly discriminatory, and not in conformity with the facts of record and/or the
applicable law. Idaho Power requests that the Commission hold a hearing in this case
to allow Idaho Power the opportunity to fully present all of the relevant facts to the
Order No. 29196 issued on February 21 , 2003, did not contain a provision that the order was a final
order. On March 12, 2003, Idaho Power filed a Petition For Confirmation that Order No. 29196 is or
is not a final order. Idaho Power has filed this Petition For Reconsideration within twenty-one (21)
days of February 21 , 2003, to avoid any question that this Petition was timely filed.
IDAHO POWER COMPANY'S PETITION FOR RECONSIDERATION , Page
Commission. Idaho Power s request for reconsideration and its request for a hearing
are based on the following grounds:
GROUNDS FOR RECONSIDERATION
Because the Commission did not include the mandatory language
designating Order No. 29196 as a final order, it must be deemed to be an interlocutory
order. Interlocutory orders are not appealable. However, Order No. 29196 orders
Idaho Power to begin replacing all of its retail revenue metering with an automated
meter reading ("AMR") system as soon as possible and orders Idaho Power to file a
plan by March 20, 2003, explaining how it will replace its existing retail revenue meters
and to address the ratemaking and other issues outlined in the order. This leaves Idaho
Power in the position that it is unable to appeal the Commission s decision to require the
deployment of AMR but is required not only to submit a plan to commence such
deployment, but to actually commence deployment in 2003. Such a result is
unreasonable , unlawful, erroneous, unduly discriminatory and not in conformity with the
law.
Because the Commission did not give Idaho Power notice, has not
held a hearing in this case, has not issued a final order, or otherwise given Idaho Power
an opportunity to respond to the Commission s decision to require Idaho Power to
replace all of its existing revenue metering with an AMR system by the end of calendar
year 2004 , Order No. 29196 is unreasonable, unlawful , erroneous and not in conformity
with the law.
IDAHO POWER COMPANY'S PETITION FOR RECONSIDERATION, Page 2
The requirement in Order No. 29196 that Idaho Power replace all of
its existing retail revenue metering with an AMR system by the end of calendar year
2004 is unreasonable , unlawful , erroneous and unduly discriminatory because it was
issued without adequate notice and is based on an erroneous finding, without
evidentiary support in the record, that installation of AMR will result in an immediate
reduction in the Company s revenue requirement.
The requirement in Order No. 29196 that Idaho Power replace all of
its existing retail revenue metering with an AMR system by the end of 2004 is
unreasonable, unlawful , erroneous and unduly discriminatory because it is based on an
erroneous finding, without evidentiary support in the record , that "Given the Company
financial health is improving, we are confident that Idaho Power will find a way to
implement AMR this year." Order No. 29196, p. 11.
Because the Commission has not held a hearing in this case or
otherwise given Idaho Power prior notice and an opportunity to respond, Idaho Power
has been precluded from presenting evidence concerning numerous additional issues
relating to a rapid deployment of an AMR system. These additional issues are more
particularly identified in subsection 4 of Section III of this Petition.
II.
PROCEDURAL HISTORY
In Case Nos. IPC-02-02 and IPC-02-03, cases initiated by Idaho
Power to implement its annual Power Cost Adjustment, the Commission directed Idaho
Power to evaluate and report to the Commission on the viability of a time-of-use (TOU)
residential metering program by September 12, 2002. Order No. 29026 at 22. In
IDAHO POWER COMPANY'S PETITION FOR RECONSIDERATION , Page 3
compliance with that order, Idaho Power submitted its "Residential Time-of-Use Pricing
Viability Study" on September 12 , 2002. In December 2002 , interested parties filed
comments to which Idaho Power replied on January 17, 2003. In Order No. 29196 the
Commission determined that it would not require Idaho Power to implement TOU
pricing. However, without a hearing or any prior notice or opportunity to respond, Order
No. 29196 ordered Idaho Power to immediately begin replacing its existing retail
revenue metering with an AMR system. Order No. 29196 further requires that by
March 20, 2003, Idaho Power must submit a plan to replace the Company s current
revenue meters with meters that are both AMR and TOU capable. Order No. 29196
directs that the plan should set out an implementation timetable , include several cost
estimates from appropriate AMR system vendors, and suggest possible ratemaking
methods to recover the cost of the meters and their installations, together with expense
reductions.
III.
NATURE OF EVIDENCE AND ARGUMENT
PETITIONER WILL PRESENT ON APPEAL
RP 331.01 provides that a petition for reconsideration must include a
statement of the nature and quantity of evidence or argument the Petitioner will offer if
reconsideration is granted. The following outlines the evidence and argument Idaho
Power will offer at a hearing on reconsideration:
Because the Commission did not give Idaho Power notice, has
not held a hearing in this case, and has not issued a final order or otherwise
given Idaho Power an opportunity to respond to the Commission s decision to
require Idaho Power to immediately replace all of the existing revenue metering
IDAHO POWER COMPANY'S PETITION FOR RECONSIDERATION , Page 4
with an automated meter reading system by the end of calendar year 2004, Order
No. 29196 is unreasonable, unlawful, erroneous and not in conformity with the
law.
If the Commission grants reconsideration , Idaho Power will present
argument that the process to date has not provided Idaho Power with procedural due
process.
The requirement in Order No. 29196 that Idaho Power replace
all of its existing retail revenue metering with an AMR system by the end of
calendar year 2004 is unreasonable , unlawful, erroneous and unduly
discriminatory because it was issued without notice and is based on an
erroneous finding, without evidentiary support in the record, that installation of
AMR will result in an immediate reduction in the Company s revenue requirement.
In Order No. 29196 the Commission concluded that the implementation of
AMR , even without the implementation of TOU pricing, would result in immediate annual
savings to customers. In support of this conclusion , Order No. 29196 cites Commission
Staff comments in which the Staff has interpreted data contained in a 2002 automated
meter reading analysis prepared by Idaho Power. Unfortunately, the Staff has
incorrectly interpreted the 2002 AMR analysis to conclude that implementation of an
AMR system would result in immediate annual savings of approximately $2 million
(Order No. 29196, p. 10). In fact , implementation of an AMR system within the
timeframe required in Order No. 29196 would increase total revenue requirement for at
least the first seven years, as compared to the cost of operating the existing meter
reading system. If the Commission grants Idaho Power s request for a hearing on
IDAHO POWER COMPANY'S PETITION FOR RECONSIDERATION , Page 5
reconsideration , Idaho Power would present testimony and exhibits documenting the
following:
(a)In 1999 , Idaho Power completed its Idaho City trial in which the
two-way automated communications system (TW ACS) technology was tested. The
initial investment in AMR meters of $72 million , cited in Order No. 26196, is accurate for
the AMR analysis done in 1999 and adjusted for customer counts as of January 1
2001. The initial AMR investment for January 1 , 2002 customer counts was $76 million
(the Company s current 2002 AMR estimate) and is increasing with Idaho Power
customer growth. Idaho Power estimates that the investment would be approximately
$79 million as of January 1 , 2003.
(b)The 2002 AMR analysis was performed as part of the Company
ongoing review of Company processes and costs , to determine if there are more cost-
effective ways to transact business. While the AMR system that was studied in 2002
would provide a good foundation for time-of-use applications, none of the Company
analyses to date, including the 2002 AMR study, has assessed the cost of all of the
necessary components to add TOU capability to an AMR system. TOU would require
either the installation of meters with more memory than was contemplated in the 2002
AMR analysis or in the alternative some type of ad hoc office solution that would allow
for the daily collection of meter data and the processing of such data into the
Company s billing system. While both alternatives are feasible, the Company has no
estimates of their costs or impact on the AMR analysis.
(c)The Staff comments cited in Order No 29196 report that the 2002
AMR analysis shows a positive $32 million net present value. As stated in the 2002
IDAHO POWER COMPANY'S PETITION FOR RECONSIDERATION , Page 6
AMR analysis , this positive $32 million net present value is achieved over 40 years.
the long-term, based on the assumptions included in the Company s analysis, AMR
appears to be cost effective. By trading technology for labor, the AMR system s cost
per customer is anticipated to decrease over time, due to depreciation on assets
whereas the existing metering process s cost per customer is anticipated to increase
due to customer growth and wage inflation. However, in the near-term the benefits of
AMR are less certain.
Assuming an installation schedule similar to the one contemplated in
Order No. 29196, an AMR system would cost more annually to operate than manual
meter reading for the first seven years and would result in a first year increase in
revenue requirement of approximately $6 million. The net present value (NPV) of AMR
compared to the Company s standard metering process would be negative until year 18
when the NPV of AMR would equal the NPV of standard metering. Each year after year
18 the NPV of AMR would exceed the NPV of standard metering, hence the positive
NPV over 40 years. While the technology offers many benefits , Idaho Power is
reluctant to conclude that it is prudent to move forward with a large AMR investment
and require its customers to endure higher costs than necessary for the next seven
years.
(d)Idaho Power is unclear of the origin of Staff's cost-benefit estimate
cited in Order No. 29196. On page 10, Order No. 29196 refers to annual savings in
meter reading expenses of $6 million less annualized costs for AMR of $4 million for a
yearly savings of $2 million in meter reading costs. Based on the Company s AMR
analysis, the annualized cost of the currently employed meter reading system ($26
IDAHO POWER COMPANY'S PETITION FOR RECONSIDERATION , Page 7
million) exceeds the annualized cost of AMR ($22 million) assuming a full 40-year
program. However, the Company is unaware of any information included in the AMR
analysis that would support the conclusion that AMR would result in yearly savings of $2
million. According to the Company s analysis , comparing the annualized cost of AMR to
our current process results in an increase in annualized costs until year 18. In the first
, and 10 years the annualized cost for AMR exceeds our current process costs by
$4.5 million, $3.7 million, and $2.6 million , respectively.
Idaho Power also believes that on reconsideration the Commission should
address the ramifications of rapid technology evolution. If Idaho Power invested in the
AMR technology evaluated in the 2002 study, which did not include the components
necessary to implement TOU , and the technology quickly became technically obsolete
Idaho Power would still have a book value in the AMR system of $64 Million after 5
years, $49 Million after 10 years and $31 Million after 15 years and would still be
required to recover these costs. The Commission must determine after a full
evidentiary hearing whether this level of technology risk is appropriate for Idaho Power
and its customers. Recognizing that numerous TOU pilot programs are currently being
conducted throughout the country, the Commission should consider whether it would be
prudent to wait and let other utilities incur the cost of perfecting the technology. When
an industry standard is established and the costs have stabilized , Idaho Power could
invest at that time.
The requirement in Order No. 29196 that Idaho Power replace
all of its existing retail revenue metering with an AMR system by the end of 2004
is unreasonable, unlawful, erroneous and unduly discriminatory because it was
IDAHO POWER COMPANY'S PETITION FOR RECONSIDERATION , Page 8
issued without adequate notice and is based on an erroneous finding, without
evidentiary support in the record, that Idaho Power can readily absorb the
financial impact of installing an AMR system beginning in 2003 and completed in
2004.
In Order No. 29196 the Commission acknowledged Idaho Power
concern expressed in its reply comments that implementation of an AMR system
represents a large capital investment, and in today s tight capital markets , rapid
implementation in the near term would be extremely difficult. However, the Commission
expressed its belief that the Company s financial health is improving and indicated a
confidence that Idaho Power would be able to find a way to begin implementing AMR
this year. Order No. 29196 , p. 10-11. In support of its expression of confidence in
Idaho Power s ability to immediately proceed with the implementation of AMR, the
Commission cited statements made in the Company s fourth quarter 2002 earnings
release analyst call ("Analyst Call"). The full text of the Analyst Call is not included in
the evidentiary record in this case, and conclusions that can be drawn from listening to
the call are subject to the personal interpretation of the various listeners. Idaho Power
believes it is incorrect to characterize the discussions in the Analyst Call as supporting a
view that in today s financial markets , based on Idaho Power s current cash flow, the
Company can readily absorb the impact of financing an expenditure of at least $80
million over the next two years. Because there has not been a hearing in this case , and
because the statements in the Analyst Call which Staff apparently believes support the
immediate implementation of an AMR system , were not included in the Staff'
comments, the Company has had no opportunity to respond to those comments cited in
IDAHO POWER COMPANY'S PETITION FOR RECONSIDERATION, Page 9
Order No. 29196. In short, there is no evidentiary record to support the conclusion
contained in the Commission s Order.
If the Commission grants reconsideration, Idaho Power will present
testimony and exhibits concerning the financial impact of Order No. 29126 essentially
as follows:
(a)Budqetinq Process - In its reply comments previously filed in this
case , Idaho Power advised the Commission that AMR costs were not included in the
Company s 2003 budget. In rehearing the Company will testify that Idaho Power s 2003
construction budget of $150 million reflects an increase of over 17% from $128 million
spent in 2002. This increase is driven by customer growth, the on-going maintenance
of an aging infrastructure , and the costs associated with the Company s relicensing
efforts. The Company must balance the needs of the system with the ability to fund
these expenditures. With constrained funds due to existing capital market conditions
and the continued impacts of unprecedented PCA recoveries of 2000-2001 power
supply expenses , projects deemed critical to meet load growth and maintain system
reliability must take precedence.
(b)Idaho Power s Earninqs Improvement - The Analyst Call cited in
Order No. 29196 focused on Idaho Power s improvement of 2002 earnings over the
prior year. For the period ending December 31 2002 , Idaho Power reported earnings
of $2.24 per share , a $1.64 per share increase over 2001. While it is true that earnings
improved over the prior year, certain non-reoccurring items accounted for $.62 of
earnings per share. Of this amount
, $.
82 of earnings per share was related to the one-
time effect of a tax method accounting change only recently allowed by Congress and
IDAHO POWER COMPANY'S PETITION FOR RECONSIDERATION , Page 10
the I RS. This amount was offset by a $.20 per share charge due to the write-off of
Irrigation Lost Revenue. Without these items , earnings would have been $1.62 per
share reflecting that Idaho Power still has not fully recovered from the 2001 high
wholesale power prices and continues to suffer from the on-going drought. Early
indications for the hydro system show that drought conditions appear to be continuing in
2003 placing on-going pressure on earnings and cash flow due to increased power
supply expenses.
(c)Investment Grade Credit Ratinq - Idaho Power s credit rating
remained at investment grade throughout 2002. Remaining at that level is vital to
ensure Idaho Power s access to the capital markets at the lowest level of cost possible.
Rating agencies review a number of quantitative and qualitative variables in determining
the rating. A company s capital structure , cash flow coverage ratios , and interest-to-
earnings coverage ratios are of significant importance in the Rating Agencies
determinations. If a company does not have adequate internal cash generation to cover
its construction activities, it must access the capital markets to support the spending.
The impacts on the Company s capital structure and coverage ratios
during the last three drought years have been substantial. The 2003 construction
budget amounts include prioritized investments in distribution and transmission
infrastructure to support continued service territory customer growth and increased
investments in hydro relicensing and the replacement of equipment at the Company
aging thermal generating plants. Those items also drive increases in the operation and
maintenance areas, depreciation expense, and transmission expense increases
associated with reduced hydro production.
IDAHO POWER COMPANY'S PETITION FOR RECONSIDERATION , Page
(d)Short-Term Debt -While it is true that Idaho Power has decreased
its 2002 short-term debt balance from the prior year, it was not solely due to the
recovery of the 2001 PCA costs. During the fourth quarter of 2002, Idaho Power issued
$200 million of 1 8t Mortgage Bonds to support its construction program. The $200
million was used to pay down short-term debt. It is important to note that approximately
75% of the 2001 power supply costs will be recovered through the Idaho PCA
mechanism. The Company has deferred the Oregon share of 2001 excess power
supply costs and will recover those costs over an extended period of time. The balance
is a permanent reduction to the Company s cash balance and must be funded through
capital markets. Additionally, cash inflows from the PCA mechanism are reduced by
taxes paid on the amounts.
(e)O&M Expenses - The Commission s statement on page 11 of Order
No. 29196 that "Operation and Maintenance expenses during 2002 were below forecast
and are expected to remain so" appears to be based on information that was taken out
of context. 2002 O&M expenses were approximately $205 million , a 1.6% decrease
from 2001. However, the outlook for 2003 shows upward pressure on those costs.
Substantial increases are expected in pension expense and insurance expenses due to
the declining market conditions and the effects of 9/11. Other material non-
discretionary increases are expected in health care , relicensing, and transmission. The
Company has also instituted a policy to limit new employment to replacement of critical
positions and has frozen salaries for officers and senior management personnel in
2003.
IDAHO POWER COMPANY'S PETITION FOR RECONSIDERATION , Page 12
In addition to the evidence previously described in this
petition , at rehearing Idaho Power would present testimony and exhibits on the
following items:
(1 )Appropriate accounting and ratemaking treatment of the
approximately $39 million of undepreciated asset value in the existing inventory of non-
AMR meters.
(2)The additional costs associated with making the AMR equipment
described in the 2002 AMR report capable of supporting TOU rates.
(3)Appropriate ratemaking treatment that would fully address the cost
of implementing AMR. This could include an increased customer charge to support the
higher cost of the AMR system.
(4)Recognition of the financial exposure related to the risk of rapid
technological obsolescence of AMR equipment.
(5)The labor-related expenses accruing as a result of an accelerated
severance of meter reading personnel.
(6)The logistical problems associated with the replacement of the
existing retail revenue meter inventory on an accelerated basis. Idaho Power has
approximately 420 000 retail revenue meters. Physically removing them and installing
new AMR meters by the end of calendar year 2004 would be extremely difficult and
expensive.
(7)The difficulty and additional expense associated with the purchase
of a much larger number of AMR meters than anticipated in the 2002 AMR analysis
within a compressed time period.
IDAHO POWER COMPANY'S PETITION FOR RECONSIDERATION , Page 13
CONCLUSION
The Company believes that the ev,identiary record in this proceeding is not
sufficient for the Commission to make a determination on Idaho Power s Petition For
Reconsideration. Idaho Power believes that additional evidence is required , and Idaho
Power requests that the Commission hold a hearing on this matter.
The Company respectfully requests that the Commission agree to
reconsider Order No. 29196 and establish a reasonable schedule for the Company and
interested parties to present testimony and exhibits addressing the issues identified in
this Petition For Reconsideration.
Idaho Power respectfully suggests that because Order No. 29196 is not a
final order, in granting reconsideration the Commission could decide to hold an
evidentiary hearing before issuing a final order. A hearing under these circumstances
would not be required to be held within the 17 -week period prescribed for
reconsideration of final orders.
Alternatively, because no final order has been issued , the Commission
could also decide to close this docket and open a new docket to fully explore all of the
costs and benefits of installing an AMR system independent of TOU rates. In this new
docket the Commission could convene a prehearing conference to set a reasonable
schedule for prefiling testimony and holding an evidentiary hearing.
Respectfully submitted at Boise, Idaho , this 12th day of March , 2003.
BAR
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Attorney for Idaho Power Company
IDAHO POWER COMPANY'S PETITION FOR RECONSIDERATION , Page 14
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 12th day of March , 2003, I served a true
and correct copy of the within and foregoing IDAHO POWER COMPANY'S PETITION
FOR RECONSIDERATION upon the following named parties by the method indicated
below, and addressed to the following:
Lisa Nordstrom
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington Street
O. Box 83720
Boise, Idaho 83720-0074
Hand Delivered
S. Mail
Overnight Mail
FAX
William M. Eddie
Land & Water Fund of the Rockies
O. Box 1612
Boise, Idaho 83701
Hand Delivered
S. Mail
Overnight Mail
FAX
Dan Delurey, Executive Director
Demand Response and Advanced
Metering Coalition (DRAM)
O. Box 33957
Washington , D.C. 20033
Hand Delivered
S. Mail
Overnight Mail
FAX
CERTIFICATE OF SERVICE