20041123Final Order No 29639.pdf

Office of the Secretary
Service Date
November 23, 2004
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO REVISE DEPOSIT
REQ UIREMENTS IN SCHEDULES 24 AND
25 FOR ELECTRIC SERVICE TO
IRRIGATION CUSTOMERS
ORDER NO. 29639
CASE NO. IPC-O4-
On September 17, 2004, Idaho Power Company filed an Application requesting
authority to revise the deposit requirements under Schedules 24 and 25 for electric service to
irrigation customers. Idaho Power requested an effective date of October 18, 2004, and that its
Application be handled under Modified Procedure. On October 8, 2004, the Commission issued
a Notice of Application and Modified Procedure as well as an Order suspending the effective
date for 60 days. Comments were filed by the Commission Staff and the Idaho Irrigation
Pumpers Association. Idaho Power filed Reply Comments. After reviewing the Application and
comments, the Commission approves Idaho Power s Application as set out below.
THE APPLICATION
According to the Application, Idaho Power indicates that in recent years it has
experienced an increase in unpaid irrigation bills (accounts receivable) and a corresponding
increase in bad debt (net write-offs). At the same time, the number of irrigation service points
has been increasing while the number of persons responsible for those agreements has been
decreasing. The Company states that consolidation of accounts into the hands of fewer
customers raises the level of financial risk to which it is exposed.
In order to minimize its exposure to bad debt, Idaho Power proposes to revise its
deposit policy for irrigation customers by collecting a higher deposit from those customers who
pose a higher credit risk. Under the Company s proposal, customers asked to pay a deposit will
continue to have the option of providing an irrevocable Letter of Credit from a financial
institution. A customer who owes an outstanding balance of over $1 000 on December 31 will
be required to pay a "Tier 2" deposit based upon a formula that in essence collects the
customer s bill for the next irrigation season in advance. A customer who has been discharged
from bankruptcy or who has had receivership proceedings terminated will also be required to pay
a Tier 2 deposit.
ORDER NO. 29639
The Tier 2 deposit will be applied to each monthly bill as it becomes due throughout
the season. A customer who owes less than $1 000 on December 31 but who has received two or
more reminder notices of more than $100 during a 12-month period, or customers whose service
is disconnected during the out-of-season period due to non-payment (i., customers who meet
the current criteria for requiring a deposit), will be required to pay a "Tier 1" deposit. The
deposit criteria and formula currently in use for calculating deposit amounts would be applied to
calculate Tier 1 deposits. A customer required to pay a Tier 2 deposit one year will be required
to pay a Tier 1 deposit the following year.
SUMMARY OF COMMENTS
Comments were filed by the Commission Staff and the Idaho Irrigation Pumpers
Association. Idaho Power filed Reply Comments. The Staff recommends approval of the
Company s Application with a 30-day notice requirement prior to implementing the new deposit
requirements. The Irrigation Pumpers recommend rejecting the proposed Tier 2 deposit and
modifying the Tier 1 deposit requirement. They also recommend that the Commission initiate
further proceedings to examine and modify the deposit requirements for all customers that may
constitute an unacceptable increase in the Company s uncollectible expense.
A. Irrigation Pumpers Association
The Irrigation Pumpers argue that Idaho Power s proposed Tier 2 deposit proposal
unfairly singles out irrigation customers for more stringent deposit requirements as compared to
the deposit requirements for other customers who are also driving an increase in the Company
write-offs. Irrigation Pumpers Comments at 2. The Pumpers maintain that a required deposit
under the proposed Tier 2 would be four (4) times the highest monthly bill, while large
commercial and special contract customers' deposits can range anywhere from zero to no more
than two times the highest monthly bill. Id. at 3. They conclude that the Company s proposal
appears to be an attempt to isolate and apply considerably more stringent deposit requirements to
irrigation customers without addressing the overall problem caused by other customer classes.
B. Commission Staff
Staff is concerned that a rising level of bad debt places upward pressure on rates.
Staff acknowledges that Idaho Power s existing credit policy already recognizes that certain
irrigation customers pose a higher credit risk than others, and views the Company s Application
as a further refinement of its policy to address those circumstances where there is an even greater
ORDER NO. 29639
credit risk. Consequently, Staff recommends approval of Idaho Power s Application stating that
the Company has proposed a reasonable and impartial method for assessing the degree of credit
risk posed by each irrigation customer. Staff anticipates that a relatively small percentage of
customers will be affected by the proposed change , in deposit policy, and that asking those
customers who pose the greatest risk to pay higher deposits will likely minimize bad debt write-
offs. If the Commission approves the proposal, Staff additionally recommends that Idaho Power
give notice to its irrigation customers at least 30 days in advance (no later than December 1
2004).
C. Idaho Power Reply
In reply, Idaho Power states that the proposed deposit requirements are justified by
the greater credit risk and all ready existent differences in credit and collection practices
associated with irrigation customers. The Company provided data that irrigation customers had
when compared with other customer classes, the largest amount of write-offs. The Company
also points out that other customer classes 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. The Company
points out that the proposed Tier 2 deposit is actually very similar to their past policy of
requiring a "seasonal advance ; however, instead of relying on past bill history it is based on
computations for estimated future use using the horsepower size of the pump.
DISCUSSION
Under Modified Procedure the Commission, after receiving comments, may set the
matter for hearing or decide the matter and issue its Order on the basis of the written positions
before it. IDAPA 31.01.01.203. Based upon the Application, the applicable law, and the
comments, the Commission approves the Application of Idaho Power to revise its deposit
requirements in Schedules 24 and 25 for electric service to irrigation customers.
While the Commission recognizes that the great majority of irrigators pay their
electric bills in a timely manner, the evidence shows several trends specific to irrigation
customers that support approval of the Company s Application. First, the Company s bad debt
exposure for irrigation customers has more than doubled over the past three years with irrigation
accounts receivable rising from $1,414 666 in 2001 to $2 867 849 in 2003. At the same time
irrigation net write-offs have increased at nearly the same rate from $223 426 in 2001
ORDER NO. 29639
$413 712 in 2003. Furthermore, the write-off data for 2003 did not include a $668 724 write-off
attributable to a single irrigation customer, and irrigation net write-offs as of July 2004 at
$516 582 already exceed the entire 2003 write-off amount. Lastly, there is a slight trend towards
consolidation of irrigation accounts (more service locations in the hands of fewer people) which
also raises the level of financial risk.
Although the Irrigation Pumpers contend that irrigators are being unfairly singled out
for more stringent deposit requirements, citing data that net write-offs have increased company-
wide for Idaho Power, the following table illustrates that the irrigation customers have, from
2001 through September 2004, far exceeded any other customer class in the rate of write-offs.
Net Write-offs per $1.000 of Billed Revenue
Commercial( 1 Industrial Irrigation Contracts
2001 $1.87 $4.
2002 $2.$4.
2003 $2.$4.45(2)
2004(3)$1.01 $6.
(1) Includes both small and large commercial accounts
(2) Does not include the $668 724 write-off of a single irrigator
(3) Through September
Idaho Power estimates that the proposed deposit requirements will affect a relatively
small percentage of all the irrigation customers. Based on the most recent 2004 irrigation year, if
Idaho Power s proposed credit policy had been in place, approximately 500 out of the 6 400
irrigation customers would have been asked to pay a deposit for the 2004 irrigation season. Of
those 500 customers, 77 would have been required to pay the higher Tier 2 deposit amount.
These 77 customers owed a total amount past due of $2 643 101 as of December 31 , 2003, and
would have been asked to pay an aggregate Tier 2 deposit amount of $3 766 301 for the 2004
season. Each individual deposit would have been applied towards monthly bills throughout the
season.
Consequently, the Commission finds that Idaho Power s proposal is a reasonable and
impartial method for assessing the degree of credit risk posed by each irrigation customer. A
relatively small percentage of customers will be affected by the proposed change in deposit
policy, and asking those customers who pose the greatest risk to pay higher deposits will likely
ORDER NO. 29639
minimize bad debt write-offs. Minimizing bad debt write-offs is in the interest of all Idaho
Power ratepayers.
The Commission finds a notice requirement, as recommended by Commission Staff
to be in the best interest of the ratepayers. All irrigation customers should be given notice of the
new deposit requirement in a timely manner. Additionally, the Commission finds that irrigation
customers who may be subject to the new Tier 2 deposit requirement on December 31 , 2004
(irrigation customers with current outstanding balances in excess of $1 000) should receive 30
days notice prior to implementing the new Tier 2 deposit requirement upon them. This will
allow those customers a chance to bring their account current and possibly avoid the Tier 2
deposit requirement.
ORDER
IT IS HEREBY ORDERED that the Application of Idaho Power for changes to the
deposit requirements in Schedules 24 and 25 is approved. The changes as set forth in the
schedules attached to the Company s Application are approved, effective as of the date of this
Order.
IT IS FURTHER ORDERED that Idaho Power shall provide at least 30 days notice
to those irrigation customers with current outstanding balances in excess of $1 000 prior to
implementing the new Tier 2 deposit requirement upon them (no later than December 1, 2004).
Additionally, Idaho Power shall provide notice to all irrigation customers of the new deposit
requirements in a timely fashion.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally
decided by this Order) may petition for reconsideration within twenty-one (21) days of the
service date of this Order. Within seven (7) days after any person has petitioned for
reconsideration, any other person may cross-petition for reconsideration. See Idaho Code ~~ 61-
626 and 62-619.
ORDER NO. 29639
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this ~.3;-rR..
day of November 2004.
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PRESIDENT
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ATTEST:
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Commission Secretary
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ORDER NO. 29639