20081212Reply Comments.pdf

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IDA~POR~
An IDACORP Company
DONOVAN E. WALKER
Corporate Counsel
December 12, 2008
VIA HAND DELIVERY
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
P.O. Box 83720
Boise, Idaho 83720-0074
Re: Case No. IPC-E-08-16
Advanced Metering Infrastructure (''AMI' Technology
Dear Ms. Jewell:
Enclosed for filing please find an original and seven (7) copies of Idaho Power
Company's Reply Comments in the above matter.
i would appreciate it if you would return a stamped copy of this letter for Idaho
Power's file in the enclosed stamped, self-addressed envelope.
Very truly yours, iB~ú/~
Donovan E. Walker
DEW:csb
Enclosures
P.O. Box 70 (83707)
1221 W. Idaho St.
Boise, ID 83702
DONOVAN E. WALKER, ISB No. 5921
BARTON L. KLINE, ISB No. 1526
Idaho Power Company
P.O. Box 70
Boise, Idaho 83707
Tel: [phone]
Fax: [phone]
dwalker(âidahopower.com
bkline(âidahopower.com
RECEIVED
2008 DEC l 2 PM 3:38
IDAHO P
UTILITIES C
Attorneys for Idaho Power Company
Street Address for Express Mail:
1221 West Idaho Street
Boise, Idaho 83702
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
IDAHO POWER COMPANY FOR A ) CASE NO. IPC-E-08-16
CERTIFICATE OF PUBLIC CONVENIENCE )
AND NECESSITY TO INSTALL ADVANCED ) IDAHO POWER COMPANY'S
METERING INFRASTRUCTURE ("AMI") ) REPLY COMMENTS
TECHNOLOGY THROUGHOUT ITS )SERVICE TERRITORY )
COMES NOW, Idaho Power Company ("Idaho Powet' or "Company") and
submits the following Comments in response to the Comments filed by the Commission
Staff on December 8, 2008.
I. INTRODUCTION
Commission Staff recommends that the Commission grant the Certificate of
Public Convenienæ and Necessity to continue with the Company's AMI deployment
over three years, and also recommends that the Company be allowed to rate base the
prudent capital costs of the deployment up to the commitment estimate. The Company
IDAHO POWER COMPANY'S REPLY COMMENTS - 1
is appreciative of Staffs recommendation. However, Staff has also recommended an
accelerated depreciation of the existing metering equipment over a period of five years
as opposed to the Company's request of a three-year period, which causes the
Company concern. These Reply Comments wil address Staffs proposal to accelerate
depreciation over a five-year period.
II. ACCELERATED DEPRECIATION OF EXISTING METERING EQUIPMENT
Throughout the course of the Company's evaluation of AMI technology in its
service territory, Idaho Power has repeatedly stated that in order to proceed with the
implementation of an AMI system, a critical regulatory need is the acceleration of
depreciation of the existing metering equipment over a three year period of time. In the
Advanced Metering Infrastructure (AMI) Implementation Plan filed with the Idaho Public
Utilities Commission on August 31,2007, the Company stated:
. . . significant customer and economic growth IPC has been
experiencing requires continued investments in infrastructure
to connect and meet the energy needs of these customers.
Additionally, there is an ongoing need to replace existing
infrastructure to continue to reliably serve existing loads.
Although AMI wil provide benefits to customers, it is not an
investment that is necessary in order for IPC to fulfill its
obligation to meet new and existing service requirements.
Further, in order to support the large capital expenditures needed to meet new and
ongoing service obligations as well as to implement AMI, a three-year depreciation of
the existing metering equipment that AMI wil replace is necessary.
A three-year recovery of accelerated depreciation provides adequate cash flow to
improve cash flow coverage ratios to levels that are necessary to maintain Idaho
Power's credit strength and its ability to access external markets for funding capital
projects, thus allowing the Company the greatest opportunity to fund the new AMI
IDAHO POWER COMPANY'S REPLY COMMENTS - 2
equipment with reduæd reliance on borrowing. Staffs recommendation of a five-year
acceleration of depreciation would result in an annual reduction to cash flows of
approximately $3.7 millon during a time when the Company wil be investing over $20
millon a year in AMI technology during its deployment. Given the extensive demands
on Company capital and the current state of the financial markets, the additional
negative cash flow created by the five-year depreciation would make it extremely
diffcult to maintain the current deployment plan.
Staff has expressed that their concern with the three-year acceleration of
depreciation is the rate impact on customers. The undepreciated balance of existing
metering equipment is approximately $27 millon. With a three-year acæleration of
depreciation, the annual revenue requirement would amount to an increase of $9.2
milion. However, Staff has incorrectly estimated the Company's revenue requirement
for the three-year deployment as an increase of $11.8 millon the first year, $10.5 millon
the second year, and $9.2 milion the final year. As explained in Witness Waites' direct
testimony, in an attempt to mitigate the impact of the increased revenue requirement,
the Company believes it is reasonable to also calculate the Operation and Maintenanæ
("O&M") benefits expected from the deployment of AMI as an offset to the increase to
revenue requirement resulting from the accelerated deprecation of the existing metering
equipment. Exhibit No. 6 of the Company's Application details this calculation. The
estimated additional 2009 revenue requirement is $8.4 millon or a 1.27 percent
increase in customers' rates. In Exhibit NO.4, the revenue requirement impact for 2010
and 2011 can also be seen; the $9.2 milion in accelerated depreciation each year
IDAHO POWER COMPANY'S REPLY COMMENTS - 3
would be offset by $3.2 milion and $5.6 millon in O&M benefits in 2010 and 2011,
respectively.
As previously described, a five-year acceleration of depreciation would negatively
impact the Company's cash flow by approximately $3.7 milion annually. While this
reduction would have adverse impacts on the Company, the impact to customers is
minimaL. The Company's request estimates the increased revenue requirement in 2009
would result in a 1.27 percent increase in customers' rates. However, if a five-year
acceleration of depreciation is adopted, the estimated increase is 0.46 percent. Based
on an average monthly residential bil of $70, the differenæ between the Company's
and the Staffs proposal to residential customers is only about 57Ø a month.
The Company has emphasized the importance of having adequate and timely
cash flow for funding capital projects. If the Commission determines that the existing
meters should be depreciated over a different length of time than what the Company
has proposed (three years), then the Company respectfully requests that the
amortization of the accelerated depreciation be synchronized with the deployment
period. This synchronization wil help reduce the impact to the cash flow coverage
ratios needed in order to help maintain the Company's financial health. Operationally,
the Company believes that a synchronized four-year or five-year plan is manageable,
but not optimal when compared to the proposed three-year deployment and may
increase the total cost of the project as well as the Company's Commitment Estimate.
II. DYNAMIC PRICING
As Mr. Gale mentioned in his testimony and Staff acknowledged in their
. Comments, the Company wil be required to make additional investments before wide
IDAHO POWER COMPANY'S REPLY COMMENTS - 4
scale applications of pricing programs and information can become a reality. Staff has
recommended that the Company offer its Time of Day and Energy Watch program to
customers as AMI is implemented in each region of its service territory. The Company
must reiterate that there are some additional back offce systems that wil need to be in
place before the broader implementation of these programs can occur.
IV. CONCLUSION
A three-year acceleration of depreciation of the existing metering equipment is an
integral component of the Company's financial analysis which led to the decision to
implement AMI technology in our service area. AMI wil provide benefits to customers.
However, it is not an investment that is technically necessary for the Company to meet
its obligation to serve at this time, as a functioning metering system currently exists. A
change in the timing of the accelerated depreciation would have significant impacts on
the Company's cash flow and may require a reevaluation of the deployment by the
Company. Given the extensive demands on Company capital and the current state of
the financial markets, the additional negative cash flow created by the five-year
depreciation would make it extremely diffcult to maintain the current deployment plan.
The Company respectfully requests that the Commission issue an Order: (1)
granting the Company a Certificate of Public Convenience and Necessity to install AMI
technology throughout its service territory, (2) authorizing that, in the ordinary course of
events, Idaho Power can expect to ratebase the prudent capital costs of deploying AMI
as it is placed in service, (3) authorizing the accelerated depreciation of the existing
metering infrastructure replaced by AMI over the three-year deployment and beginning
the amortization the same month as rates are implemented for the recovery of AMI
IDAHO POWER COMPANY'S REPLY COMMENTS - 5
costs, (4) and including the operation and maintenance benefits in the accounting
methodology.
Respectfully submitted this 12th day of December 2008.
dz
DONOVAN E. WALKER
Attorney for Idaho Power Company
-
IDAHO POWER COMPANY'S REPLY COMMENTS - 6
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 12th day of December 2008 I served a true and
correct copy of the within and foregoing IDAHO POWER COMPANY'S REPLY
COMMENTS upon the following named parties by the method indicated below, and
addressed to the following:
Commission Staff
Neil Priæ, Esq.
Deputy Attorney General
Idaho Public Utilities Commission
472 West Washington
P.O. Box 83720
Boise, Idaho 83720-0074
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Kroger Co.
Michael L. Kurt
KurtJ. Boehm
BOEHM, KURTZ & LOWRY
36 East Seventh Street, Suite 1510
Cincinnati, Ohio 45202
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kboehmCâBKLlawfirm.com
Kevin Higgins
Energy Strategies, LLC
Parkside Towers
215 South State Street, Suite 200
Salt Lake City, Utah 84111
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~ Email khigginsCâenergystrat.com
IDAHO POWER COMPANY'S REPLY COMMENTS - 7