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LISA D. NORDSTROM
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-0314
IDAHO BAR NO. 5733
RECEIVED
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UTILITIES COr"iI"jISSIt3N
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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 INVESTIGATION
OF TIME-OF-USE PRICING FOR IDAHO
POWER RESIDENTIAL CUSTOMERS.
COMMENTS OF THE
COMMISSION STAFF
CASE NO. IPC-O2-
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Lisa D. Nordstrom, Deputy Attorney General, and in response to the Notice
of Filing, Notice of Modified Procedure and Notice of Comment Deadlines issued on September
2002, submits the following comments.
In Case No. IPC-OI-, the Commission directed Idaho Power Company and the
Energy Efficiency Advisory Group (EEAG; Advisory Group) in November 2001 to consider
implementing a Time-of-Use (TOU) metering pilot program "using private contractors through a
Request for Proposals (RFP) process." Order No. 28894 at 7. Although it did not set a deadline
the Commission further encouraged the Advisory Group to "consider installing time-of-use
meters in new subdivisions and the feasibility of allowing existing customers to voluntarily
install time-of-use meters and amortize the cost over multiple years.Id.
In Case Nos. IPC-02-2 and -, the Commission reaffirmed this directive in the context
of a May 2002 Power Cost Adjustment Order that funded DSM programs. Specifically, the
STAFF COMMENTS DECEMBER 6, 2002
Commission directed Idaho Power and the Advisory Group to "evaluate and report to the
Commission on the viability of a Time-of-Use residential metering program by September 12
2002." Order No. 29026 at 22. In compliance with the Order, Idaho Power timely submitted its
Report on Residential Time-of-Use Pricing" (Report).
Automated Meter Reading and Time of Use Pricing
The Christensen Associates' analysis portion ofIdaho Power s Report concluded that
mandatory, critical peak time-of-use (TOU) retail pricing provides the potential for benefits
exceeding $1 million annually. Report at 23. In addition, Christensen Associates stated that this
form ofTOU pricing provides potential for another $12 million annual benefit by avoiding the
capital costs associated with 200 megawatts of new peaking facilities that would otherwise be
needed. Id. at 22. Given Christensen Associates' analysis , Staff finds inconsistent Idaho
Power s conclusion that "Until such time as an AMR (automated meter reading) system is
available on Idaho Power s system, and a PCA (power cost adjustment) methodology is devised
to remove the negative impact to Idaho Power s earnings due to the unequal treatment of the
revenues and expenses impacted by load shifting, residential time-of-use pricing is not
economically viable.!d. at 35.
This apparent inconsistency was strengthened by the results of a separate Idaho Power
AMR study. In that study Idaho Power stated that even without consideration of TOU pricing,
an AMR system has a positive net present value of $32 million over the life of the equipment
compared to the current metering system. In addition, the AMR study listed many customer
service benefits, cost savings, and revenue enhancement opportunities for the Company that
would result from implementing an AMR system. These benefits included:
--additional revenue due to better meter reading accuracy with AMR;
-- fewer customer calls and rebilling due to increased accuracy and fewer estimated bills;
improved outage monitoring, reporting and locating;
improved theft and malfunction detection;
--remote connects and disconnects resulting in quicker service and reduced labor costs;
-- flexible billing schedules and account aggregating to meet customer preferences;
increased employee safety and reduced liability and damage; and
-- flexible rate design options.
STAFF COMMENTS DECEMBER 6, 2002
Idaho Power tested an AMR system in the Idaho City area in 1999 and concluded that the AMR
system was deployable and met the Company s technology requirements.
Given Idaho Power s opposition to TOU pricing absent an AMR system, Staff believes
the Commission should first determine whether Idaho Power should immediately begin to plan
for implementation of an AMR system. While TOU pricing can be accomplished with a variety
of meter types, Staff believes the optimal form ofTOU pricing is dependent upon AMR.
According to Idaho Power, implementation of AMR is cost-effective even ifTOU is not
implemented.
Seasonal TOU pricing can occur with Idaho Power s existing meters. For example
Idaho Power could charge higher rates in the peak -demand summer months and lower rates
during months when the demand for electricity is lower. It can do this with either single-price
rates, tiered rates or a seasonal mixture of both, but it cannot charge different rates within the
same day or even within a single billing cycle without estimating or prorating customer usage.
Seasonal pricing with standard meters is currently used by Intermountain Gas and United Water
Idaho.
If Idaho Power installed "traditional" or "conventional" TOU meters (i.e. without AMR),
it would be able to charge different rates during two , or perhaps three, set periods each day. It
could also vary those prices by season. Utah Power and Light (UP&L) uses this type ofTOU
meter to provide optional TOU rates to its residential customers in Idaho. UP&L's daily TOU
rates include a peak and off-peak rate, both of which vary by summer and winter months. Idaho
Power s Report estimated that the traditional TOU meters necessary for a mandatory TOU tariff
would cost about $47 million.
With either existing meters or traditional TOU meters, TOU electricity rates will not
reflect the actual cost of production or wholesale market prices during most hours of the year.
other words, rates will generally be either higher or lower than actual cost and will result in
misallocation of resources as customers adjust their demand to erroneous price signals. The
degree to which prices match costs will also vary among customers due to various fixed meter
reading cycles. Although traditional TOU meters would allow more pricing flexibility (and thus
enable Idaho Power to better match prices with costs than it can do with existing meters), the
Report concluded that mandatory, conventional TOU "would produce very modest potential
benefits." It also concluded that optional, conventional TOU would produce slightly higher
customer benefits but result in net revenue losses to Idaho Power. Id. at 23. The cost of
STAFF COMMENTS DECEMBER 6, 2002
traditional TOU meters is not offset by reductions in meter reading costs or service
improvements.
The most effective TOU rates (i.e. critical-peak TOU) can be implemented only if an
AMR system is in place. With AMR, retail prices can vary as necessary to track costs while
treating all customers the same regardless of billing cycle because the monthly meter reading
schedule is no longer a limiting factor. Although Idaho Power estimated the initial cost of an
AMR system to be $72 million, or about 50% more than that required for traditional TOU
meters, the entire cost of the AMR system is more than offset by savings in meter reading costs.
While Idaho Power s Report stated that critical-peak TOU pricing provides the potential for
significant cost savings in meeting the electricity demands of its customers, the Idaho Power
study of AMR indicated that the cost of such a system will be more than offset by reduced
Company costs and improved customer service.
As a result of reviewing Idaho Power s AMR study and TOU Report, Staff believes that
consideration of TOU pricing should first focus on planning and installing an AMR system.
After Idaho Power has begun AMR installations, the Commission could then consider whether
TOU pricing, either mandatory or optional, is an appropriate rate design. Staff believes that
determination of TOU rates would be best considered during Idaho Power s next general rate
case. Once some of the new meters are installed, the Commission and Idaho Power will be able
to test alternative TOU rate designs to more precisely estimate Idaho customers ' price elasticity
of demand. Although we believe AMR is justified without implementation ofTOU pricing,
Staff believes AMR is just the first step in establishing TOU pricing. We now analyze the
Company s TOU Report in greater detail below.
Staff Analysis of Idaho Power s TOU Pricing Report
In preparing its Report for Idaho Power, Christensen Associates reviewed TOU pricing
programs of several utilities including Puget Sound Energy in Washington, Gulf Power in
Florida, and Electricity de France in France. This review did not include Utah Power and Light's
TOU tariff that has been in use since 1981 in Idaho. Staff believes a study ofUP&L's TOU
program would have been informative given the proximity of its service area to Idaho Power
its use by one-third ofUP&L's residential customers, and its application to one-half of the
kilowatt-hours sold. However, UP&L differs from Idaho Power in that its TOU rates are fixed
for two daily periods during two seasons each year. Because UP&L does not have an AMR
STAFF COMMENTS DECEMBER 6, 2002
system, its conventional TOU pricing system is not easily adaptable to critical-peak TOU
pncmg.
The Report stated that one of the primary problems with traditional TOU pricing (e.
UP&L's) is the inherent inaccuracy of prices for most hours of the year, which results in the
misallocation of resources. Id. at 5-9. Furthermore, the Report noted that "(c)onventional TOU
pricing offers relatively small potential benefits.Id. at 14. Where TOU rates are voluntary
(like UP &L' s), relatively few customers participate. Id. at 15. Idaho Power has further clarified
that "relatively few" generally means five percent or less of customers. Although Staff agrees
with the Report's conclusion that voluntary, non-critical-peak TOU pricing is not the optimum
form of TOU, Staff would have preferred that the Report analyzed UP&L's program given that
one-third of its customers are voluntary participants.
Unlike traditional TOU, the Report indicated that "(c)ritical peak TOU pricing has the
potential to produce substantial benefits.Id. at 14. Under mandatory, critical peak TOU
pricing, the value of load reductions and cost savings potentially exceed $1 million annually. Id.
at 23. But as previously stated, the Report also noted that the avoided capital cost reductions
associated with the 200 MW load reduction would equate to an additional cost savings of up to
$12 million per year. Id. at 22.
Following the analysis by Christensen Associates, Idaho Power discussed three additional
issues: 1) metering capability, 2) power cost adjustment implications, and 3) thoughts from its
Energy Efficiency Advisory Group. Regarding meter capability, the Report estimated that the
AMR system required for critical-peak TOU pricing would cost $72 million as compared to an
estimated $47 million for traditional TOU meters. Id. at 32. However, as previously addressed
in Staff comments, Idaho Power s study of the costs and benefits of implementing an AMR
system concluded that doing so would be cost-effective due to meter reading cost reductions
alone -- even without consideration of critical peak TOU pricing or other benefits. Idaho Power
estimated the annualized cost of an AMR system to be about $4 million, but that AMR would
save nearly $6 million per year in monthly meter reading and customer movement costs.
With regard to TOU pricing s impact on the PCA, the Report stated TOU pricing will not
be viable as long as 90% of the benefits of power cost reductions accrue to its customers and
Idaho Power absorbs 100% of the revenue reduction. Id. at 32-33. It is not clear to Staffwhy
Idaho Power believes that the PCA mechanism and TOU pricing necessarily results in lost
revenue to the Company. To the extent that TOU prices are established to cover costs, reduced
STAFF COMMENTS DECEMBER 6, 2002
revenues should not result from rate design. However, if necessary, the Company may file an
application with the Commission for a regulatory ruling to accommodate new technology or
innovative rate design that results in lower rates, better service to customers, or to allow the
Company to earn its authorized return.
The Report stated that the Energy Efficiency Advisory Group (EEAG, Group) was more
supportive of a rate increase for the existing tariff coincident with implementation of an optional
TOU tariff than of implementing mandatory TOU pricing. Id. at 34. The Report also indicated
that the EEAG favored a demand response program (e.g. air conditioner curtailment) over TOU
pricing and that it did not support mandatory TOU pricing for customers in new housing
developments. !d. at 34. Staff has participated in all of the EEAG meetings and agrees that
these issues were discussed. However, Staff does not believe that the Group, as a whole, would
agree with Idaho Power s assessment ofthe Group s conclusions. No vote was taken on these
issues and Staff does not believe the EEAG reached any conclusions on the TOU issue.
Although Puget Sound Energy (PSE) recently sought early termination of its voluntary
TOU pricing program, Staff believes this should have little impact on the Idaho Commission
consideration of either an AMR system or a critical peak TOU pricing for Idaho Power. PSE
serves customers in a more temperate climate than does Idaho Power and does not experience the
extreme summer peak demand that Idaho Power does. PSE's TOU program offers an optional
tariff to customers, which as described in the Report, results in less than optimal benefits when
compared to a mandatory TOU tariff. In addition, PSE serves primarily an urban area where
costs to manually read meters are presumably much lower than Idaho Power s per customer
meter reading costs.
Staff Conclusion
According to testimony filed in Case No. IPC-01-, Idaho Power forecasts that it may
face a capacity deficit of nearly 200 MW in July 2003 that may grow to over 200 MW in July
2004 and more than 300 MW by July 2005. Case No. IPC-01-, Said Exh. No.6 at 2.
Based on Christensen Associates' conclusion that mandatory, critical peak TOU pricing has the
potential to trim 200 MW from Idaho Power s peak demand, Staff believes that this is an option
that should not be easily dismissed or unnecessarily delayed. TOU pricing, combined with other
demand side management programs, may cost-effectively supplant the need for acquiring
capacity from peaking plants and transmission upgrades for many years. Staff asks that the
STAFF COMMENTS DECEMBER 6, 2002
Commission take official notice of comments and testimony filed in IPUC Case Nos. IPC- E-O 1-
42 (Garnet) and IPC-02-8 (Integrated Resource Plan) for consideration in this case.
Given that Idaho Power s own analysis of implementing an AMR system shows that the
benefits far exceed the costs and that Idaho Power has tested an AMR system that met the
Company s requirements, Staff questions why the Company has not yet implemented a plan to
install an AMR system and apparently is not planning to do so in the near future. Staff
recommends that Idaho Power submit a plan to the Commission in early 2003 for installation of
new meters capable of AMR and critical-peak TOU pricing. This recommendation is based on
the facts that AMR: 1) has been shown by Idaho Power s analysis to be cost-effective due to the
reduction in meter reading costs alone; 2) has been successfully tested by Idaho Power; 3)
provides additional service and cost savings benefits for customers and the utility; and 4) may
enable customers to receive substantial potential benefits from TOU retail pricing. Staff believes
the Company should begin implementing AMR in those areas and for those customers where the
benefits to Idaho Power and its customers are the greatest.
Respectfully submitted this to day of December 2002.
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Lisa D. Nordstrom
Deputy Attorney General
Technical Staff: Lynn Anderson
LN:i :/umisc/commentslipceO2. 1 21nla
STAFF COMMENTS DECEMBER 6, 2002
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 6TH DAY OF DECEMBER 2002
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-02-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
LARRY D RIPLEY
BARTON L. KLINE
SENIOR ATTORNEYS
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
MAGGIE BRILZ
DIRECTOR PRICING
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
WILLIAM M EDDIE
LAND & WATER FUND OF THE ROCKIES
PO BOX 1612
BOISE ID 83701
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SEC TARY
CERTIFICATE OF SERVICE