20040426Post Hearing Brief.pdf

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William M. Eddie (ISB# 5800)
ADVOCATES FOR THE WEST
O. Box 1612
Boise, ID 83701
[phone]
fax: [phone]
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Express Mail:
1320 W. Franklin St.
Boise, ID 83702
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO.IPC-03-
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO INCREASE ITS INTERIM
AND BASE RATES AND CHARGES FOR
ELECTRIC SERVICE
NW ENERGY COALITION'S POST-HEARING BRIEF
NW Energy Coalition provides this post-hearing brief to succinctly identify key
points of fact relating to: (1) the Coalition s proposal to initiate an investigation into a
true-up mechanism for recovery of Idaho Power s fixed costs; (2) Idaho Power s request
for an increase in fixed service charges; and (3) issues relating to the Low Income
Weatherization Assistance program and demand-side management.
THE COMMISSION SHOULD INITIATE A PROCEEDING TO
INVESTIGATE A FIXED COST RECOVERY MECHANISM
NW Energy Coalition requests the Commission make the policy decision to
investigate removal of financial disincentives that hinder Idaho Power s investments in
cost-effective energy efficiency and clean distributed generation. In a nutshell, Mr.
Cavanagh describes the problem:
After approving a fixed-cost revenue requirement, the Idaho PUC sets
rates based on assumptions about annual kilowatt-hour sales. If sales
NW ENERGY COALITION'S POST-HEARING BRIEF -- ORIGINAL
lag below those assumptions, the Company will not recover its
approved fixed-cost revenue requirement. By contrast, if the
Company were successful in promoting consumption increases above
regulators' expectations , its shareholders would earn a windfall in the
form of cost recovery that exceeded the approved revenue
requirement. And whether consumption ends up above or below
regulators' expectations , every reduction in sales from efficiency
improvements yields a corresponding reduction in cost recovery, to the
detriment of shareholders.
Direct Testimony of Ralph Cavanagh ("Cavanagh Testimony ), pages 3-
As Idaho Power s Ric Gale stated in rebuttal: "Mr. Cavanagh recognizes the
dilemma that the Company faces when fixed costs are not recovered fully through retail
sales because sales volumes are lower than projected." Gale Rebuttal Testimony, page
35 lines 5-
Mr. Cavanagh's testimony further illustrates the magnitude of these disincentives
from a shareholder perspective. The Company s proposed fixed cost revenue
requirement is $303 million, of which $235 million would be recovered from variable
energy charges, and $55 from variable demand charges, if the current fixed customer
charges remain the same as today. Exhibit 601; Cavanagh Testimony at pages 7-
Assuming current rate designs remain intact, the impacts to shareholders of a feasibly
strong set of energy efficiency programs would be quite significant:
Every one percent reduction in electricity use and demand on the
Company s system would cut fixed cost recovery by about $3 million;
every one percent increase would have the opposite effect. Since many
efficiency measures last ten years or more, these one-year impacts
must be multiplied at least tenfold when assessing shareholder
interests.
But the losses get even worse in the context of multi-year programs
initiated under a long-term resource plan. Consider a five-year
program that pursues annual savings equivalent to one percent of
system load, with each year adding new savings equivalent to the
savings achieved during the previous year, and all savings persisting
NW ENERGY COALITION'S POST-HEARING BRIEF -- 2
for at least five years. The first year impact on fixed cost recovery is
then about three million dollars, followed by six million dollars in the
second year (as an equal amount of savings is added), and so on: the
automatic five-year loss to shareholders from this steady-state
utility investment program would be about forty-five million
dollars, with shareholder losses continuing to escalate in succeeding
years as initial electricity savings persisted (with some gradual
erosion) and more savings were added.
Id.(emphasis in original).
This natural tension between Idaho Power s obligation to provide "adequate
efficient, just and reasonable" service to customers, Idaho Code 9 61-303 -- while also
meeting expectations of the investment community -- can be significantly eased.
Mr. Cavanagh has presented a solution to the problem: the creation of a periodic
system of rate true-ups to ensure that Idaho Power recovers its fixed costs of service
irrespective of fluctuations in kilowatt-hour sales. Relevant experience in Oregon
resulted in minimal rate changes caused by the true-up over a three (3) year period.
Indeed, rate changes under PacifiCorp s "Alternative Form of Regulation" increased by
no more than 1.9%, nor decreased by more than 0.83% for any particular class. Id.
page 12.
The details of such a true-up mechanism surely will need a full vetting through
discussions among the interested parties. At hearing, Staff Witness David Schunke and
ICIP witness Dr. Don Reading both supported an investigation into solutions for the
problem Mr. Cavanagh identified, although neither committed to a specific solution.
pursuit of a reasonable and feasible solution, NW Energy Coalition, Idaho Power
Company, Commission Staff, and the Industrial Customers of Idaho Power have signed
and filed with the Commission an agreement to meet in a workshop setting, with a goal
toward identifying specific mechanisms to address these disincentives. See Joint
NW ENERGY COALITION'S POST-HEARING BRIEF -- 3
Proposal Regarding Potential Approaches to Removing Disincentives for Idaho Power
Company Investments in Energy Efficiency and Clean Distributed Generation.
NW Energy Coalition specifically requests the Commission to determine that the
disincentives Idaho Power faces in evaluating demand-side and distributed generation
resources are significant, and that an investigation into removing such disincentives
should be initiated.
II.ANY INCREASE IN FIXED CHARGES SHOULD BE MINIMAL
Idaho Power failed to present a solid factual basis for its proposal to increase
fixed customer charges for the residential class from the current $2.51 level to $10.00. At
most, this request was pitched as a purportedly acceptable first step toward realizing a
philosophy" of collecting fixed costs through fixed charges. Direct Testimony of John
R. Gale at pages 9-10. Adherence to such a ratemaking philosophy would drive the fixed
charge towards $25.00. See Idaho Power Exhibit 42 (identifying a total residential cost of
service of $24.61). NW Energy Coalition submits that sound, accepted ratemaking
policy calls for a firm rejection of fixed charges at the level requested by Idaho Power.
See Direct Testimony of Nancy Hirsh, pages 6, and 10-13.
NW Energy Coalition witness Nancy Hirsh, as well as Staff witness David
Schunke, and AARP witness Thomas Power each presented analyses of this issue
grounded on fact and well-accepted rate design policies. Fundamentally, any fixed
charge should not exceed a cap of the total "customer-related" costs (e.
g.
meter reading,
billing, and similar costs).
I There is some minor debate over what costs could be identified as "customer-related " with such cost
totals calculated at either $6.77 (by Ms. Hirsh), or $4.20 (by Messrs. Power and Schunke).
NW ENERGY COALITION'S POST-HEARING BRIEF -- 4
From this starting point, Ms. Hirsh, Mr. Schunke, and Dr. Power each presented
reasons why any fixed charge should be less than the total cap of "customer related"
costs. Most obviously, a high fixed charge sends an inappropriate price signal to
customers. At a time when the marginal cost of power is high and variable, customers
should be sent price signals to conserve. See Hirsh Direct Testimony, pages 10-12.
Customers generally desire greater ability to control their electric bills through efficiency
and conservation, rather than less. Naturally when more of a customer s bill is set
through a fixed charge, the customer s ability to reduce the bill through conservation is
diminished.
High fixed charges also create disparate rate impacts (as a matter of percentage)
between high and low usage customers. In that vein, Exhibit 82 (IPC, Average Use per
Customer: All Residential Customers and Customers Receiving LIHEAP Funding) and
Exhibit 608 (Colton, R. "Energy Consumption and Expenditures by Low-Income
Customers ) were the center of a debate concerning whether Idaho Power s low-income
customers generally consume more or less energy than the average customer. Idaho
Power essentially has one set of data indicating that, during the winter time, customers
receiving Low Income Home Energy Assistance Program (LIHEAP)4 funds consume
somewhat more than the average residential customer. Exhibit 82. During the summer
time, LIHEAP recipients consume less than the average residential customer. Id.
2 Interestingly, Idaho Power s two rate design changes for the residential class (fixed charge increase and
seasonal rates) could have countervailing effects. The seasonal rate tells customers the amount of energy
they consume in the summer matters a great deal; the higher fixed charge sends the opposite signal. Hirsh
Direct Testimony, page 11, lines 18-21.
3 Idaho Power has no internal definition of "low income." Transcript page 3050, lines 7-10.
4 LIHEAP is a federally-funded program wherein customers must amnnatively apply for financial relief
from energy costs.
NW ENERGY COALITION'S POST-HEARING BRIEF -- 5
The Colton study reviewed three (3) sets of distinct federal data5 ,two (2) of
which analyzed consumption at regional levels - to conclude:
The available federal data, on a national and regional basis, supports
the conclusion that low-income households consume less energy
(whether heating energy or total household energy) than do households
on average, and certainly less than non-low-income households. As a
result, it is necessary to find that proposals to move a greater
proportion of utility bills to fixed monthly charges are regressive in
nature and will tend to impose adverse impacts on low-income
consumers.
Exhibit 608 , page 75.
The Direct Testimony of Teri Ottens (at page 4, line 22 through page 5 , line 2),
states that less than one-third (1/3) ofLIHEAP-eligible households in Idaho Power
service territory actually received LIHEAP assistance. It stands to reason that the eligible
customers who are actually motivated to apply for federal assistance have high electric
bills because they are at the higher end of the consumption spectrum, and therefore may
not be representative of all low-income customers. At minimum, the information
presented calls for the Commission to take a cautionary position with respect to the
impacts of the fixed charge on low-income customers.
Stepping back to look at the fixed costs issue generally, NW Energy Coalition
proposal to create a fixed cost recovery true-up mechanism would serve the goal of
providing revenue certainty to Idaho Power, while also avoiding inappropriate price
signals to customers. NW Energy Coalition requests the Commission maintain low ,fixed
charges, and initiate an investigation into creation of a fixed cost recovery true-up
mechanism.
5 Colton analyzed (a) U.S. Dept. of Health and Human Services LIHEAP Home Energy Notebook for
Fiscal year 1999 (July 2001), (b) u.S. Dept. of Labor Consumer Expenditures Survey, and (c) U.S. Dept.
of Energy Residential Energy Consumption Survey (1997).
NW ENERGY COALITION'S POST-HEARING BRIEF -- 6
III.LIW A FUNDING AND DEMAND-SIDE MANAGEMENT ISSUES
At the very end of the hearing, Idaho Power s Ric Gale spoke to a three-pronged
approach toward funding and management of demand-side programs. Transcript, page
3195. Mr. Gale outlined the Company s willingness to consider increases to the Low-
Income Weatherization Assistance Program, together with increases to the current
Schedule 91 Tariff Rider (as may be warranted by findings in the 2004 Integrated
Resource Plan see Transcript at page 3194) and an evaluation of continued commitments
to the Northwest Energy Efficiency Alliance. The Company s general proposal would
include some degree of oversight of each of these three distinct programs by the Energy
Efficiency Advisory Group ("EEAG"). Transcript, page 3195.
NW Energy Coalition agrees that this general approach could be successful. The
Coalition, which is represented on the EEAG by Nancy Hirsh, commits to work with the
Company as it adds details to Mr. Gale s outline.
Some caution should be exercised, however, in placing the LIW A program under
the supervision ofthe EEAG. In NW Energy Coalition s view, the Company s existing
demand-side programs are judged primarily by their cost-effectiveness, including their
efficacy at reducing peak demand. LIW A certainly provides system-wide benefits due
not only to conservation of energy; but LIW A also uniquely has the effect of reducing
arrearages and unpaid bills. Hirsh Rebuttal Testimony, pages 3-
LIW A, however, must not be judged solely by cold economic cost-effectiveness
because the program is critical to help low-income customers maintain comfortable
homes and affordable electric bills. LIW A should be included within the EEAG'
purview if it can be demonstrated that the EEAG will add value to the LIW A program.
NW ENERGY COALITION'S POST-HEARING BRIEF -- 7
NW Energy Coalition strongly supports an increase in funding for the LIW
program. The Community Action Partnership Association ofIdaho (CAP AI) has
proposed an increase in funding for the LIW A program from $212 000 to $1.2 million
annually. Without doubt, this would be a significant increase - but NW Energy
Coalition submits that the current level of funding is unreasonably low, while CAP AI's
requested amount is "comfortably within the range of investments by other utilities in this
region." Hirsh Rebuttal Testimony at page 4-5 (including comparative spending by other
utilities). NW Energy Coalition supports CAP AI's specific requests for increases in
LIW A funding, as stated in CAPAI's Post-Hearing Brief.
CONCLUSION
NW Energy Coalition requests the Commission (a) initiate an investigation into
removing disincentives to investment in energy efficiency and distributed generation; (b)
rej ect significant increases in fixed customer charges; and (c) approve increases to LIW A
funding as requested by CAP AI.
Dated: April 26, 2004 Respectfully submitted
William M. Eddie
Attorney for NW Energy Coalition
NW ENERGY COALITION'S POST-HEARING BRIEF -- 8
CERTIFICATE OF SERVICE
I hereby certify that on this 26th day of April 2004, true and correct copies of the
NW ENERGY COALITION'S POST-HEARING BRIEF, NW ENERGY
COALITION'S APPLICATION FOR INTERVENOR FUNDING and JOINT
PROPOSAL REGARDING POTENTIAL APPROACHES TO REMOVING
DISINCENTIVES FOR IDAHO POWER COMPANY INVESTMENTS IN ENERGY
EFFICIENCY AND CLEAN DISTRIBUTED GENERATION were delivered to the
following persons via hand delivery (for Commission and Idaho Power recipients) and
S. Mail (for all others):
Don Reading
Ben Johnson Associates
6070 Hill Road
Boise, ID 83703
Jean Jewell
Commission Secretary
Idaho Public Utilities Commission
472 W.Washington
Boise, ID 83702
Lisa Nordstrom
Weldon Stutzman
Deputy Attorney Generals
Idaho Public Utilities Commission
472 W.Washington
Boise, ID 83702
Randall Budge
Eric Olsen
Racine, Olson, et al.
201 E. Center
O. Box 1391
Pocatello, ID 83204-1391
Anthony Yankel
29814 Lake Road
Bay Village, OH 44140
Barton Kline
Monica Moen
Idaho Power Company
O. Box 70
Boise, ID 83707-0070
Lawrence Gollomp
Assistant General Counsel
S. Dept. of Energy
1000 Independence Ave., SW
Washington, DC 20585
John R. Gale
Idaho Power Company
O. Box 70
Boise, ID 83707-0070
Dennis Goins
Potomac Management Group
5801 Westchester St.
Alexandria, VA 22310-1149
Peter Richardson
Richardson & O'Leary
99 E. State St., Suite 200
O. Box 1849
Eagle, ID 83703
Dean Miller
McDevitt & Miller
O. Box 2564
Boise, ID 83701
Jeremiah Healy
United Water Idaho
O. Box 190420
Boise, ID 83719-0420
Conley Ward
Givens Pursley
601 W. Bannock St.
O. Box 2720
Boise, ID 83701-2720
Dennis Peseau
Utility Resources
1500 Liberty St, S.
Suite 250
Salem, OR 97302
Brad Purdy
2019 N. 1 ih St.
Boise, ID 83702
Michael Karp
147 Appaloosa Lane
Bellingham, W A 98229
Thomas Power
Economics Dept.
Liberal Arts Bldg. 407
University of Montana
32 Campus Drive
Missoula, MT 59812
Michael Kurtz
Kurt J. Boehm
Boehm, Kurtz & Lowry
36 E. Seventh St., Suite 2110
Cincinnati, OH 45202
William Eddie