20041112Reply Comments.pdf

BARTON l. KLINE ISB #5734
MONICA B. MOEN ISB #1526
Idaho Power Company
O. Box 70
Boise, Idaho 83707
[phone]
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Attorneys for Idaho Power Company
Street Address for Express Mail
1221 West Idaho Street
Boise, Idaho 83702
FAX Telephone No. [phone]
BEFORE THE IDAHO PUBLIC UTiliTIES COMMISSION
IN THE MATTER OF THE
APPLICATION OF IDAHO POWER
COMPANY FOR AUTHORITY TO
REVISE DEPOSIT REQUIREMENTS FOR
SCHEDULES 24 & 25 FOR ELECTRIC
SERVICE TO IRRIGATION CUSTOMERS
CASE NO. IPC-04-
REPLY OF IDAHO POWER
COMPANY TO COMMENTS
OF THE IDAHO IRRIGATION
PUMPERS ASSOCIATION , INC.
AND COMMISSION STAFF
COMES NOW Idaho Power Company ("Company ) and hereby submits
the following reply comments to the comments offered in this matter by the Idaho
Irrigation Pumpers Association ("Irrigation Pumpers ) on September 28, 2004 and by
Commission Staff ("Staff") on September 29, 2004 regarding the Company
Application to revise the deposit requirements under Schedules 24 and 25 for electric
service to irrigation customers.
IDAHO POWER COMPANY'S RESPONSE TO COMMENTS
OF IDAHO IRRIGATION PUMPERS ASSOCIATION, INC. AND
COMMISSION STAFF Page
The Need for Robust Deposit Criteria for Irrigation Customers
The Irrigation Pumpers assert in their comments that the Company s Tier
2 Deposit proposal imposes more stringent deposit rules on irrigation customers than
on residential or small commercial customers. The Company agrees with the Irrigation
Pumper s assertion but only to the extent that more robust deposit criteria are needed
as a result of the greater credit risk that the Company is exposed to by way of its
irrigation customers. There is a significant difference in the Company s credit and
collection practices for irrigation versus residential and small commercial customers that
supports the more stringent deposit provisions requested by the Company for the
irrigation customers.
Residential and small commercial customers may have their service
disconnected after only two months of unpaid bills. In contrast, the Company will not
disconnect service to irrigation customers during the irrigation season or while crops are
still in the ground. This is a time period that regularly extends over a period of at least
four months and , depending on the crop, can extend over a period of six months or
more. In addition , the amount of energy consumed and , thus, the anticipated revenue
per irrigation customer present a far greater risk than the potential loss from an average
residential or small commercial customer. These additional exposures support the
Company s need to implement robust deposit rules for its irrigation customers.
In their comments , the Irrigation Pumpers also contend that the proposed
deposit provisions are unfair when compared to deposit rules for large commercial and
special contract customers. The Company believes that , in setting deposit provisions
IDAHO POWER COMPANY'S RESPONSE TO COMMENTS
OF IDAHO IRRIGATION PUMPERS ASSOCIATION , INC. AND
COMMISSION STAFF Page 2
the unique set of circumstances presented by each customer class, including different
levels of credit risk, should be considered.Deposit policies should recognize the
inherent risk the Company faces in serving its customers. The following table of
uncollectable net write-offs illustrates the range of risk posed by the various rate
classes:
Net Write~offs QgL$1 000 of billed revenue
Commercial (.1)Industrial rriqation ~ecial Contracts
2001 $1.$0.$4.$0.
2002
2003 45(2)
2004(3)
(1) Includes both small and large commercial accounts.
(2) Does not include the $668 724 write-off of a single irrigator.
(3) Through September.
Given the unique circumstances and the significantly greater credit risk
presented by the irrigation class , the Company believes the proposed Tier 2 Deposit
provisions are fair and reasonable.
II.
Amount of Tier 2 Deposit
The Irrigation Pumpers express concern in their comments that customers
will be required to pay a deposit that is four times their highest estimated monthly bill.
This concern is based on a misunderstanding of the Company s proposal. The amount
of the proposed irrigation deposit is not based on the "highest" estimated monthly bill.
this were the Company s intention, the deposit would be computed based on the largest
energy use at the height of the irrigation season. In stark contrast, the deposit amount
is based on the following:
IDAHO POWER COMPANY'S RESPONSE TO COMMENTS
OF IDAHO IRRIGATION PUMPERS ASSOCIATION, INC. AND
COMMISSION STAFF Page 3
Monthly Demand is determined by multiplying connected horsepower
by 800/0.
Monthly Energy is determined by using a modest 500/0 load factor
that translates into only 360 hours of usage out of the maximum 720
hours in a month.In other words, the formula estimates the
customer runs the irrigation pump for only 1440 hours per season.
For a majority of irrigation customers, this would be a low-end
estimate.
All the bill components (Monthly Demand, Monthly Energy, Service
Charge) are combined to determine the "estimated monthly bill."
It is this "estimated monthly bill" and not the "highest monthly bill" that is multiplied by a
factor of four (4). The results are significantly different.
It is important to note that the Company s proposed Tier 2 Deposit
methodology results in requested deposits that are very similar to the Company s past
policy of requiring a "seasonal advance." The primary difference is that, instead of
relying on past bill history that may be inaccurate based on crop rotation and weather, it
is based on computations for estimated future bills using the horsepower size of the
pump.
The Irrigation Pumpers assert in their comments that the amount of the
proposed Tier 2 Deposit would, in essence , collect more than the customer s total bill
for the following irrigation season. While some customers' Tier 2 Deposits may exceed
their bills for the entire irrigation season, and , in fact, this situation may even occur with
the current deposit requirements , the Company s data suggest that the instance of this
IDAHO POWER COMPANY'S RESPONSE TO COMMENTS
OF IDAHO IRRIGATION PUMPERS ASSOCIATION, INC. AND
COMMISSION STAFF Page 4
occurring is minimal. The Company believes the proposed formula for computing a
Tier 2 Deposit would provide an equitable means of collecting a seasonal amount that
conservatively estimates the customer bill in addition to mitigating risk for the
Company.
Based on the most recent 2004 irrigation year, the Company has
identified 77 customers from year-end 2003 who would have been requested to pay a
Tier 2 Deposit under the Company s proposal.Out of these 77 customers , it is
significant to note that only 46 customers remained active irrigation customers for the
2004 irrigation season; the other 31 customers were not active irrigation customers
during the 2004 irrigation season. Of those 46 remaining customers , the computed Tier
2 Deposits on their 177 service points would have equaled $1.6 million. In comparison
the total bills for these 46 customers for 2004 equaled $1.8 million. The computed Tier
2 Deposit would have exceeded total bills for only 16 customers while the remaining 30
customers had total bills that would have exceeded their deposits.
For the 31 customers who were not active during the 2004 irrigation
season , the Company has already written-off a total of $437 770.15. The Company is
still working with some of these 31 customers in an attempt to receive payment on the
remaining outstanding balance of $566,707.76. The combined financial impact of these
31 customers is over $1 million in actual or potential uncollectable bills. The ability to
collect a Tier 2 Deposit from customers with outstanding balances greater than $1 000
at December 31 would effectively reduce this risk of nonpayment.
In summary, the data indicates two important points: (1) in aggregate, the
Company would not have over-collected deposits in excess of bills and , (2) while it is
IDAHO POWER COMPANY'S RESPONSE TO COMMENTS
OF IDAHO IRRIGATION PUMPERS ASSOCIATION , INC. AND
COMMISSION STAFF Page 5
possible for a customer s deposit to exceed his or her seasonal bills , those situations
are in the minority.The Company believes the proposed Tier 2 Deposit amount
appropriately addresses the higher risk that certain irrigators pose to the Company.
III.
Tier 1 Deposits
The Irrigation Pumpers recommend that the Company modify the existing
Tier 1 deposit requirement by changing the multiplier from 1.5 to 2 in effect, increasing
the amount of the deposit for all customers. An increased deposit amount for all
customers would have adversely affected 423 of the 500 irrigation customers who
made deposits for irrigation year 2004. The Company does not believe it is necessary
to request larger deposits from customers who were late with payments during the year
but have only small or no outstanding balances at the end of the year. The proposed
Tier 2 Deposit requirements are only intended to address those irrigation customers
with sizeable outstanding balances that pose a higher credit risk to the Company.
IV.
Further Proceedings
The Company does not believe further proceedings to examine the
deposit requirements for all customers as recommended by the Irrigation Pumpers are
necessary. As part of its effort to decrease uncollectable expenses , the Company is
taking a multi-pronged approach. As part of its recent general rate case , the Company
proposed and the Commission approved provisions allowing for deposits from industrial
and special contract customers. In addition, the Company is investigating how it may
utilize the revisions made to the Commission Utility Customer Relations Rules
IDAHO POWER COMPANY'S RESPONSE TO COMMENTS
OF IDAHO IRRIGATION PUMPERS ASSOCIATION , INC. AND
COMMISSION STAFF Page 6
adopted in 2003 to collect even more deposits from its credit-risk customers. Proposing
a Tier 2 Deposit mechanism for irrigation customers is just one of many efforts the
Company is making to decrease uncollectable expenses.
Even though the introduction of a Tier Deposit mechanism will not
eliminate all the issues and problems associated with unpaid irrigation bills, the
Company contends it is a valuable step toward fairly reducing uncollectable amounts
while, thereby, protecting the Company and the overwhelming majority of its other
irrigation customers.
Notification to Customers
Staff recommends that the Company, upon approval by the Commission
of its Application , provide its irrigation customers at least 30 days advance notice of the
change in deposit provisions in order to allow customers with large past due balances
sufficient time to take action to reduce their outstanding balances. The Company
agrees with Staff's suggestion to provide notice to its customers. However, since the
Company provided information regarding its proposed changes in the deposit
provisions to all of its irrigation customers through a direct mailing at the time the
Application was filed, the Company would suggest that an additional direct mailing be
made immediately only to those customers with current outstanding balances in excess
of $1 000. In this way, the Company would provide prompt information to targeted
customers and could utilize more cost-effective means of providing information to the
remaining customers in a timely fashion.
IDAHO POWER COMPANY'S RESPONSE TO COMMENTS
OF IDAHO IRRIGATION PUMPERS ASSOCIATION , INC. AND
COMMISSION STAFF Page 7
RESPECTFULLY SUBMITTED the ~;/;I"day of November, 2004.
fb.
MONICA B. MOEN
Attorney for Idaho Power Company
IDAHO POWER COMPANY'S RESPONSE TO COMMENTS
OF IDAHO IRRIGATION PUMPERS ASSOCIATION , INC. AND
COMMISSION STAFF Page 8
CERTIFICATE OF MAILING
I HEREBY CERTIFY that on this I~~day of November 2004 , I served a
true and correct copy of the within and foregoing document upon the following named
parties by the method indicated below, and addressed to the following:
Donovan E. Walker
Deputy Attorney General
Idaho Public Utilities Commission
O. Box 83720
Boise , Idaho 8320-0074
Hand Delivered
S. Mail
Overnight Mail
FAX
Randall C. Budge
Racine, Olson, Nye, Budge & Bailey
201 E. Center
O. Box 1391
Pocatello, ID 83204-1391
Hand Delivered
S. Mail
Overnight Mail
FAX
~'
(6.
MONICA B. MOEN
CERTIFICATE OF SERVICE