20080328Decision memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER REDFORD
COMMISSIONER SMITH
CO MMISSI 0 NER KEMPTON
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:WELDON STUTZMAN
DEPUTY ATTORNEY GENERAL
DATE:MARCH 20, 2008
SUBJECT:CASE NO. IPC-08-
IDAHO POWER COMPANY'S APPLICATION FOR AUTHORITY TO
IMPLEMENT A FIXED COST ADJUSTMENT RATE
On March 14, 2008, Idaho Power Company filed an Application requesting authority
to implement fixed cost adjustment (FCA) rates for electric service from June 1 , 2008 through
May 31 , 2009. In Case No. IPC-04-, Order No. 30267 issued March 12 , 2007, the
Commission approved a stipulation to implement a three-year FCA pilot program for residential
and small general service customers. The Company is nearing the end of the first year of the
pilot program approved by the Commission.
BACKGROUND
The FCA is a mechanism to separate Idaho Power s fixed costs from its energy sales
and establish a rate to allow the Company to recover its fixed costs separate from energy sales.
The rationale for an FCA is that traditional rate design discourages energy conservation
programs; that is, utilities that recover fixed costs through energy sales have no incentive to
reduce their sales volume by encouraging energy efficiency and demand-side management
programs.
The FCA implemented last year for the pilot program works the same for residential
and small general service customers. For each class, the number of customers is multiplied by a
fixed-cost per customer rate that is determined through the Company s revenue requirement in a
general rate case. This produces an authorized fixed -cost recovery amount, which is then
compared to the amount of fixed costs actually recovered by the Company. The difference
DECISION MEMORANDUM
between the authorized fixed-cost recovery amount and the actual amount collected by the
Company is the fixed-cost adjustment for each customer class.
THE APPLICATION
For the residential customer class during 2007, the rate of growth in energy sales
exceeded the rate of growth and number of residential customers; that is, the average energy use
per residential customer increased. Accordingly, the Company collected more for its fixed-costs
(approximately $3.5 million more) than as established in the residential FCA formula. The FCA
thus results in a credit balance for residential customers for the additional fixed costs recovered
during the year. If the credit is incorporated into residential rates, it represents a 1.17% decrease.
The small general service class, however, saw a decrease in per customer energy use
during 2007, which means the Company under-collected its fixed costs. For the small general
service class, Idaho Power proposes an FCA to recover a portion of the $1 187 033 the Company
under-collected for its fixed costs. Recovery of the full amount would result in a 7.3% increase
in the FCA for the small general service customers. Because the stipulation approved by the
Commission to implement the pilot program calls for a 3% cap on any increase in the FCA, the
Company proposes a 3% increase in the FCA for the small general service class.
Idaho Power requests that the FCA rates become effective June 1 , 2008 , and requests
that its Application be processed by Modified Procedure. Staff believes that this Application can
be processed by Modified Procedure by June 1 2008.
COMMISSION DECISION
Should the Application of Idaho Power Company to adjust the fixed-cost rates for
residential and small general service customers be processed by Modified Procedure?
~(;( Weldon Stutzman
Deputy Attorney General
bls!M:IPC-O8-04 ws
DECISION MEMORANDUM