20041105Irrigation Pumpers Comments.pdf

Randall C. Budge
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED
O. Box 1391; 201 E. Center Street
Pocatello, Idaho 83204-1391
Telephone: [phone]
Fax: [phone]
E-mail: rcb~racinelaw.net
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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-
COMMENTS OF IDAHO
IRRIGATION PUMPERS
ASSOCIATION, INC.
These comments are being filed on behalf of the Idaho Irrigation Pumpers
Association, Inc. (Irrigators) in response to Commission Order No. 29612. On June 8
2004, the Idaho Supreme Court issued its amended remittitur in Idaho Power v. Idaho
PUC 140 Idaho 139, 90 P.3d 889 (2004). In this Decision, the Supreme Court set
aside the Commission s decision in Orders Nos. 28992 and 29103 denying Idaho Power
Company s request to recover the "lost revenue" associated with the Company
implementation of the Irrigation Load Reduction Program in 2001.
H should be pointed out at the outset that the Irrigators understand the Idaho
Supreme Court's Opinion only applies to Idaho Power s Idaho jurisdiction. Neither the
Idaho Supreme Court nor the Idaho PUC have jurisdiction over the rates in Oregon so
any recovery of lost revenues in Oregon is not before the Commission. Likewise
Prairie Power was a separate jurisdiction of Idaho Power Company and not a subject of
the Company s appeal of Commission Orders 288992 and 29103 to the Supreme Court.
This is not to say that standard jurisdictional allocation factors do not apply, simply that
the level of lost revenue in these other jurisdictions should not to be addressed here.
In most cases the Irrigators would argue that lost revenue is no more than a
myth. The Company s request in this case for the recovery of lost revenue recovery is
generally different than other cases where lost revenues are claimed to be associated
with conservation programs. In this case, the reduced energy levels are far more
quantifiable and isolated than they are in most conservation programs. For this reason
the Irrigators have supported the recovery of some level of lost revenues in this case
only.
With respect to Irrigation Buy-Back Program of2001 , the Company originally
claimed that it had $15 146 639 of Lost Revenue on a system basis or $11 587 179 on
an Idaho Jurisdictional basis . The Irrigators have previously and continue to propose
three adjustments that are needed to bring the these values in line with revenues the
Company actually lost, as opposed to turning this calculation into a windfall for the
Company where it would collect more than the losses in actually incurred.
Additionally, as pointed out above, the starting point for these calculations is not the
entire system lost revenue, but only the Idaho Jurisdictional lost revenue that was the
subject of the Supreme Court Remand. The adjustments proposed by the Irrigators do
not address any other adjustments that may be proposed by other parties that the
Commission may find appropriate. The first adjustment proposed by the Irrigators
deals with the demand component of the Irrigation rates and the other two deal with the
energy component.
Adjustment to the Demand Component of Lost Revenue
The Company calculated the lost revenue associated with the demand component
of the irrigation rate by multiplying the demand charge of$3.58 per kW by the level of
billed kW in 2000 for each metered service point included in the irrigation buy-back
program. The problem with such an approach is that irrigation usage varies widely from
year to year and just looking at the previous year s billed demands would not necessarily
be reflective of any year in the future. This wide variation from year to year is even
recognized by the Company in its development of the energy component it used to
calculate lost revenues.
1 Idaho Power calculated the Idaho Jurisdictional responsibility by multiplying its calculated total
Company figure by 90% in order to reflect the PCA savings mechanism and by an additional 85% in
order to reflect the Idaho Jurisdiction s allocated share of System energy costs.
The energy component of the lost revenues was established by the Company
taking a 5-year average of the energy usage for each of these irrigators. This 5-year
average greatly reduced the calculated reduction in usage (benefit) of the Irrigation
Buy-Back Program over 2000 levels and thus greatly reduced the amount of payment to
Irrigators. In contrast to this, the Company is proposing to only use the most recent
year s data (2000) as an establishment of the demand component to be utilized in its
calculation of lost revenue-money it will receive from its customers. Use of only
2000 demand data creates a mismatch between how the energy and demand
components are calculated. Further, using only the 2000 data (as opposed to the
average of the past five years) will inappropriately result in additional lost revenue
being given to Idaho Power.
By only using 2000 demand data, Idaho Power assures itself of far more lost
revenues associated with the demand component than it would have received if it had
used a 5-year average as it had insisted upon for the calculation of the energy
component when the program was established. This can be demonstrated in the
following table, which lists the amount of total irrigation consumption for each of the
five years prior to the 2001 buy-back program:
MWH x 000
1996 683
1997 581
1998 1,465
1999 706
2000 990
Average energy 685
Clearly, Irrigation usage fluctuates widely from year to year. Assuming that energy and
demand components of irrigation usage are relatively proportional, it can be calculated
that the irrigation demand in the year 2000 was 180/0 higher (l,990 / 1 685 = 1.18) than
the average of the past five years. Using only the demand from the year 2000 for
calculating the demand component of lost revenue would thus result in approximately
an extra 18% being collected for this portion of the lost revenue.
Although the Company could contend that Irrigation billing demand and the
average annual Irrigation energy usage between years may not be proportional, there is
indeed a very high level of correlation. As can be seen from Figure 8 that appeared on
page 35 of Mr. Yankel's direct testimony in Idaho Power s recent Case No IPC-03-
, Irrigation in-season billing demand and average demand (energy) are extremely
well coordinated, with an increase or decrease in one component being reflected in the
other.
Figure 8
Irrigation In-Season
Billing and Average Demand
000 000
800,000
600 000
Rl111np Dem::mci
400 000
200 000 Aver::tpe Dem::mci
Year
The Company is claiming Loss Revenue of$3 142 835 associated with demand charges
in its Idaho Jurisdiction2 based upon only using 2000 data. If this figure was brought
down to a 5-year average demand level, it would be $2 661 145 ($3 275 872 x 1 6851
990 = $2 661 145), which translates into a reduction in the Company s request for
lost revenue of $481 ,691.
2 On a total System basis, the Company claimed $3 275 872 associated with demand charges in all three
of its operating jurisdictions.
Adjustments to the Energy Component of Lost Revenue
The Company s calculation of the energy component of lost revenue includes
the full energy rate that an irrigation customer would face had he been taking service
and not participated in the buy-back program. This consists of three sub-components.
For the summer months these sub-components and the associated prices were as
follows:
Cents/kWh
Basic Tariff Rate
PCA Forecast Rate
8416
0.3861
Total
9554
1831
True-up Rate
Of these three sub-components, only the Basic Tariff Rate is appropriate for
inclusion in the lost revenue calculation. The Basic Tariff Rate includes coverage for
many of the fixed costs that the Company faces. The establishment of the Irrigation
Buy-Back Program does not reduce these fixed costs and thus, the revenue collected
under the Basic Tariff Rate should be maintained.
There are three ways of looking at the PCA Forecast Rate, each of which
dictates that this amount should not be considered as a component of lost revenue.
First, the PCA Forecast Rate is reflective of "anticipated" power supply costs The
PCA Forecast Rate is equal to 90% of the difference between the projected power cost
and the base power costs that were established in the previous general rate case 4. The
PCA Forecast Rate was calculated assuming that normalized loads (including
normalized irrigation load) would need to be supplied.
Case No. IPC-01-34 is not about setting a PCA rate, but is concerned with
the establishment of lost revenues. The fact is that the irrigation buy-back program
reduced the irrigation load and thus, the associated power costs were not incurred.
3 As determined in the May 1 2001 PCA Order, power costs were anticipated to be higher than those
originally calculated in the previous rate case.4 These costs are based upon a normalized 1993 load that had been adjusted to reflect 1998 changes in
the FM C contract.
these higher costs were not going to be incurred because of the irrigation buy-back
program, then it is inappropriate to assign the PCA Forecast Rate to cover this usage
that did not occur. Thus, the PCA Forecast Rate should not be treated as a contributing
component to lost revenue.
The second reason why the inclusion of the PCA Forecast Rate into a lost
revenue calculation is inappropriate is because these additional funds would go to the
Company s bottom line and not as an off-set to the Company s PCA costs as the PCA
Forecast Rate is designed to do. The PCA worksheet that has been in existence (with
minor changes) since the PCA mechanism was established, is used to define the True-
up required in succeeding years by off-setting the previous year s PCA revenues and
expenses. Whether right or wrong, the historical PCA revenues have been simply
defined as normalized load times the PCA Forecast Rate that was in place. Under this
definition, there is no opportunity to include any actual impact of the lost revenue
calculation made in this case. To give the Company lost revenues associated with the
PCA Forecast Rate in this case would result in additional revenues that would simply
go to the Company s bottom line as there is no mechanism to address this increased
revenue as a PCA cost off-set in the next PCA case.
The third reason why the inclusion of the PCA Forecast Rate into a lost revenue
calculation is inappropriate is because the historic calculation of PCA revenues does
not fully reflect the PCA Forecast Rate revenues that have already been collected.
Company workpapers reflect the fact that during the irrigation season a substantial
amount of load was actually served above the "normalized load" used to calculate the
PCA Forecast Rate. Thus, in spite of the significant reductions of load by the irrigation
buy-back program, the Company is still going to collect far more PCA Forecast Rate
revenue during the irrigation season than what can be anticipated to be recorded under
normalized loads . Any additional PCA Forecast Rate revenue will just be a further
windfall for the Company.
For similar reasons, it is inappropriate to include the PCA True-up component
in the calculation of lost revenues. As with the PCA Forecast Rate, the appropriateness
of lost revenue with the PCA true-up rate can be viewed from three different
perspectives. First, the PCA true-up rate is calculated on the basis of the difference
between the forecasted costs and the actual costs for the previous year, divided by a
fixed energy amount. The PCA true-up rate is simply a rate at which funds will be
collected (or reduced), and without guaranteeing any total outcome. There is no true-up
of the true-up nor is there any attempt to increase or decrease the true-up rate during
mid-year in order to adjust for higher or lower collections than originally calculated.
As such, there is no lost revenue associated with the lack of collecting the PCA true-up
rate from irrigators in the buy-back program, because there was never a guarantee that
this money would ever be there. The Commission s May 1 , 2001 Order in the PCA
case that was current during the Irrigation Buy-Back Program exemplifies this point:
The Commission finds it appropriate to adopt the Staff and Company
proposal to use normalized 1999 kWh for 12 and one-half months
(13 253 976 MWh) to calculate this year s true-up PCA rate. If the
Company sells this amount of electricity, as it expects to, the Company
will recover all of its true-up costS.
The second reason why the inclusion of the PCA true-up rate into a lost revenue
calculation is inappropriate is to once again recognize that these additional funds would
go to the Company s bottom line and not as an offset to the Company s PCA costs.
Whether right or wrong, historically the PCA true-up rates have been simply defined as
the balance in the PCA account from the previous year, divided by a normalized load.
Under this definition, there is no opportunity to include the actual impact of the reduced
revenue associated with the reduction from the Irrigation Buy-Back Program as there is
no room to include additional revenues from increased sales. A separate calculation has
been proposed by the Company in this case (for the purpose of calculating lost revenue)
that ignores the way increases and decreases in loads are handled in the PCA and would
merely represent a separate mechanism to address only one aspect of usage change in
order to add to the Company s bottom line.
As pointed out above, the simple calculation proposed in this case by the
Company to include the PCA true-up revenues associated with the irrigation buy-back
program does not address the total PCA true-up rate revenues that were actually
collected. Company documents reflect the fact that during the irrigation season there
already exists a substantial amount of load that was actually served above the
5 Page 8 of Commission Order No. 28722.
normalized 1999 load that was used to originally derive the level of the PCA true-up
rate. Thus, in spite of the significant reductions of load by the Irrigation Buy-Back
Program, the Company is still going to collect far more PCA true-up revenue during the
irrigation season than is needed to balance out the previous year s costs. Any
additional PCA true-up rate revenue will just be a further windfall for the Company.
Adding yet additional PCA true-up rate revenue as a part of a lost revenue calculation
will further exacerbate this situation.
Company s request for Lost Revenue includes a total of$6 106 071 associated
with the PCA rate as well as the PCA true-up. The Company s request for lost revenue
should be reduced by this amount.
Summary
The Irrigators propose three adjustments to the Company s request for lost
revenues associated with the Irrigation Buy-Back program in its Idaho Jurisdiction.
The Irrigators have not reviewed other adjustments that may be proposed by other
parties and therefore do not assume that these adjustments are the only ones that the
Commission should make. The adjustments proposed by the Irrigators are necessary
insure that the Company recovers only its lost revenues authorized by the Supreme
Court, while insuring that it does not realize a windfall associated with the program.
listing of the Irrigator proposed adjustments to the Company s lost revenue calculation
on a total Company basis is as follow:
Company s calculation
Less PCA components
$15 146 639
- 6 106 071
Less Demand component
Less Non-Jurisdictional
-=- 481 691
- 639.597
919 280
6 Company s calculation takes a total revenue deficit of $24 463 290 and reduces it by $9 316 650 in
order to reflect Load Offset revenues of$0.01684 per kWh.
The following allocations are needed in order to place this overall adjustment on
an Idaho jurisdictional basis and in order to reflect the ratepayers' portion of these
costs:
Total adjustment
Ratepayer s share
919 280
x .
Idaho share
127 352
x .
058 249
RESPECTFULLY SUBMITTED this 4th day of November, 2004.
RACINE, OLSON, NYE, BUDGE &
BAILEY, CHARTERED
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 4th day of November, 2004, I mailed a true
and complete copy of the foregoing document, postage prepaid, to each of the
following:
Jean Jewell, Secretary (Original and 7)
Idaho Public Utilities Commission
O. Box 83720
Boise, Idaho 83720-0074
Larry Ripley
Maggie Brilz
Idaho Power Company
O. Box 70
Boise, Idaho 83707-0070
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RANDALL C. BUDGE