20090212final_order_no_30726.pdf

Office of the Secretary
Service Date
February 12 2009
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
CERTIFICATE OF PUBLIC CONVENIENCE
AND NECESSITY TO INSTALL ADVANCED
METERING INFRASTRUCTURE (AMI)
TECHNOLOGY THROUGHOUT ITS SERVICE TERRITORY
CASE NO. IPC-08-
ORDER NO. 30726
Before the Commission is an Application by Idaho Power Company ("Idaho Power
or "Company ) for a Certificate of Public Convenience and Necessity ("CPCN"), pursuant to
Idaho Code ~~ 61-502A, 61-503 , 61-525, 61-526, RP 052, and RP 112
, "
to install Advanced
Metering Infrastructure ("AMI"technology throughout its service territory, granting
authorization to accelerate the depreciation of the existing metering infrastructure, and including
the corresponding operation and maintenance benefits as they occur." Application at
PROCEDURAL BACKGROUND
On August 18, 2008, The Kroger Co., dba Fred Meyer and Smith's Food and Drug,
Kroger ) filed a Petition to Intervene. The Commission issued a Notice of Application and
Modified Procedure on September 9, 2008, granting Kroger s Petition to Intervene and inviting
interested parties to submit written comments concerning Idaho Power s Application within 90
days of the Order publication. See Order. No. 30637. Subsequently, AARP of Idaho, Idaho
Conservation League, Staff and several Idaho Power customers submitted written comments by
the established deadline.
THE APPLICATION
Idaho Power s Application states that the Company plans to implement AMI
technology throughout its service territory over a three-year period commencing in 2009. See id.
at 5. The Company will utilize a phased implementation approach of the AMI technology,
beginning with its Capital Region (including the Boise, Kuna, Meridian, and Eagle communities)
in 2009, Canyon and Payette Regions (including the Nampa, Caldwell, Payette and Ontario
communities) in 2010 and its Southern and Eastern Regions (including the Twin Falls, Hailey,
Jerome, Pocatello and Salmon communities) in 2011. Id. Installation of the new meters will
generally progress along established meter reading routes until completion. Id.
ORDER NO. 30726
As support for its Application, Idaho Power cites numerous Commission Orders
instructing the Company to implement AMI "as soon as possible." Order No. 29196 at 10; see
also Order Nos. 28894, 29026, 29362 and 30102. The Company believes that AMI offers
numerous long-term benefits to its customers. Idaho Power points to the obvious advantages of
reduced operational costs associated with meter reading, as well as future anticipated benefits
referenced by the Commission in a prior Order discussing the issue:
AMR would improve meter reading accuracy, eliminate the need for Idaho
Power to gain access to customer property for monthly meter reads, and allow
Idaho Power to develop new services in the future. An AMR system would
improve outage monitoring, theft detection, and employee safety. AMR'
capacity for remote connects and disconnects would also save customer time
and employee labor. From a billing perspective, AMR would result in fewer
estimated bills, less rebilling, flexible billing schedules, account aggregating,
and flexible rate designs.
Order No. 29196 at 10. Idaho Power adds that the AMI technology it has selected is "fully
capable of enabling the various other functionalities anticipated by the commission, and
mentioned above, as well as other 'smart-grid' operations into the future.Application at 6.
Customers will begin to see better outage management capabilities immediately but the full
benefits associated with hourly data collection will require some additional time to allow for
additional back office systems and rate structures" to be put in place. Id.
Idaho Power states that it has already selected vendors and executed contracts for the
purchase of the necessary hardware, software and labor for AMI installation. Id. at 7-8. The
project will require multiple vendors (4) due to the lack of a single-source vendor offering all of
the requisite products and services necessary for AMI installation. Id.
Idaho Power does not request a rate increase in conjunction with its Application. In
addition to a CPCN permitting the installation of AMI technology throughout its service
territory, Idaho Power requests the following:
. . . that, in the ordinary course of events, Idaho Power can expect to rate base
the prudent capital costs of deploying AMI as it is placed in service, accelerate
the depreciation of the existing metering infrastructure replaced by AMI over
the three-year deployment, and include the operation and maintenance
benefits in the accounting methodology.
Id.
ORDER NO. 30726
The Company claims that it has arrived at a "good faith estimate" of the total capital
cost of the three-year AMI installation project. Id. at 9. The estimate ofthe total capital cost for
the project is listed in the Application as $70.9 million plus "certain additional costs that the
Company knows it will incur but cannot quantify with precision at this time.Id. The capital
cost does not include the accelerated depreciation of the existing metering infrastructure or the
operation and maintenance benefits associated with the deployment of the new AMI technology.
Id.
The Company s Application states that its current estimate is subject to revision "for
documented, legally-required equipment changes and material changes in assumed escalation or
growth rates not foreseen at the time of this Application.Id. Idaho Power commits to
absorbing any "extra" capital cost above the "adjusted Commitment Estimate" and including in
its rate base only the amount actually incurred up to this "adjusted Commitment Estimate.Id.
In anticipation of project commencement in January 2009, Idaho Power has made
certain equipment and material purchases totaling $1.2 million and states that it will be required
to make additional purchases of approximately $5 million in September and October 2008. Id.
10.
Idaho Power requests that its Application be processed in an expedited manner
through Modified Procedure. The Company filed testimony from employees John R. Gale
Courtney Waites and Marc Heintzelman concurrent with its Application filing. Id.
COMMENTS
Idaho Conservation League
The Idaho Conservation League ("ICL") is Idaho s largest state-based conservation
organization. ICL represents more than 9 500 members. ICL urges the Commission to approve
Idaho Power s Application to install AMI technology throughout its service territory.
ICL believes that the installation of the AMI technology will provide extensive
benefits to Idaho Power, ratepayers and the environment. ICL states that AMI will improve the
Company s planning process by providing enhanced customer usage data and that it will
encourage energy consumers to be more efficient. According to ICL, this will inevitably lead to
a decrease in demand for additional supply-side resources and thus have a dramatic impact on
the environment by reducing carbon dioxide emissions.
ORDER NO. 30726
ICL also states that ratepayers will benefit financially from AMI through reduced
operation and maintenance expenses. Finally, ICL states that ratepayers will benefit from the
improved system reliability, outage detection and billing accuracy offered by AMI.
AARP Idaho
AARP Idaho is the state office of AARP, a national organization which actively
promotes the welfare and interests of senior citizens and retirees. AARP Idaho offered general
criticisms of the purported benefits of AMI and thus recommends that the Commission deny
Idaho Power s Application to install AMI throughout its service territory.
AARP Idaho believes that the Commission should convene a formal hearing in order
to provide a "full opportunity for discovery of the Company s testimony and exhibits, the ability
to offer testimony in opposition to the Company s statements and evidence. . . the opportunity
for cross examination, and a decision 'on the record.
'"
AARP Idaho Comments at 10. The
organization s primary concerns include the following:
1. Providing adequate opportunity for the "public to review the (AMI) costs
that will ultimately be included in rates
2. The ability of many low-income consumers of electricity, including
seniors, to shift enough of their electricity usage to non-peak times;
3. AMI's potential impact upon existing consumer protection, privacy and
customer service policies (e., rules pertaining to disconnection and
billing);
4. The potential that AMI's purported benefits to customers may be exceeded
by the Company s rate recovery;
5. Measuring the "implicit costs" borne by consumers who are compelled to
spend time and effort tracking their kWh usage in order to take advantage
of usage pricing programs;
6. Installing technology that will inevitably eliminate jobs during an
economic recession; and
7. Ensuring that "vulnerable populations, such as low income consumers and
consumers with health problems are not adversely impacted by
substantial bill increases resulting from AMI installation.
Id. at 5-
ORDER NO. 30726
AARP Idaho recommends that the Commission "take no action to approve (Idaho
Power s) proposal" and initiate a technical hearing to more fully "consider the costs and benefits
of AMI. . . .Id. at 7, 21. The organization recommends that the "current pilot programs should
be expanded and more data should be collected to allow for a proper review of the costs and
benefits associated with offering time-based pricing options to IPC's residential customers.Id.
at 7.
Idaho Residents
The Commission received two written comments from Idaho Power customers
regarding the Company s Application. The customers ' concerns included:
1. Risk of increasing customer rates to pay for the capital expense of
installing the AMI technology;
2. Increased control by the Company pertaining to when customers use the
electrical system;
3. Impact of the proposed AMI technology upon a customer s "pre-existing
home automation" technology;
4. Adequate monitoring and oversight of the Company s installation of the
AMI technology; and
5. Access to information regarding the 'pros' and 'cons ' of the proposed
AMI technology.
Staff
Staff reviewed Idaho Power s Application, including the Company s filed testimony,
exhibits and responses to Staff production requests, and is "generally supportive of the
Company s Application requesting a Certificate of Public Convenience and Necessity to install
AMI technology throughout its service territory." Staff Comments at 3.
Staff noted its longstanding belief that "AMI is cost effective and that the operational
savings and potential benefits. . . support the capital expenditure required to deploy AMI." Id.
Staff supports the Company s request to rate base the prudent capital costs of deploying AMI as
it is placed in service, and to capture the operation and maintenance benefits simultaneously.
Id. at 8. Staff believes that the ultimate determination of the prudency of those costs should take
place during a subsequent rate proceeding. Id.
ORDER NO. 30726
Staff summarized the procedural and factual background leading up to the
Company s current Application for a CPCN authorizing the installation of the AMI technology
throughout its service territory. Staff identified Commission Order No. 28894 issued on
November 21 2001 , as an early directive by the Commission for the Company to explore time-
of-use (TOU) metering.
The Company responded to this directive by studying the economic feasibility of
installing an Automated Meter Reading (AMR) system and ultimately concluded that it would
not be a prudent investment. The Commission intervened and issued its final Order on the
matter, directing the Company to submit a "Phase One AMR Implementation Plan to replace
current residential meters with advanced meters in selected service areas. .
. (,
)" leading to the
Company s deployment of AMI to approximately 27 000 customers in McCall and Emmett in
November 2004. Order No. 29362.
Staff recounted the improvements to the "AMI modules" since the Company s 2004
Phase One Implementation in McCall and Emmett. According to Staff, the cost of each
individual AMI end-point has declined dramatically from $292 to $136. Id. at 5. The
technology has also improved significantly, providing larger memory for more reliable data
retrieval and expanded data collection bandwidth. Id. Staff believes that the Company has
resolved the technological issues encountered during Phase One Implementation and justified
its selection of AMI equipment. . . .Id. at 7.
Staff identified the immediate and potential future benefits of AMI technology that
have been previously outlined in the Company s Application and prior Commission Orders. See
supra pp. 2-3. Staff "acknowledge(d) that there are additional soft benefits, namely those
associated with improved billing accuracy, that have not been quantified.Id. at 10. Also, AMI
technology will allow the Company to eventually implement "TOU pricing (and) certain demand
response programs. . . .Id. at 15. Nonetheless, Staff believes that AMI's cost-effectiveness is
not contingent upon these potential benefits. Id. The immediate benefits offered by the
proposed AMI technology are enough to justify its implementation. Id.
Staff stated that Idaho Power should be permitted to conduct its system-wide
implementation in substantially the manner proposed by the Company. Staff recommended that
once AMI technology has been installed in a given region of its service territory, the Company
should "offer its Energy Watch and Time of Day (pilot) programs to as many customers
ORDER NO. 30726
current system capabilities will allow.Id. at 15. Customer participation should be voluntary
and these programs should not continue indefinitely. Id.
Staff emphasized the importance of providing "real time" usage information to
customers. Accordingly, Staff recommended that the Company inform customers of the
availability of power cost monitors such as the Blue Line, Aztech and Energy Detective devices.
Id. at 15-16. These commercially available devices enable customers to acquire "information on
energy usage and the associated cost on a real time basis.Id.
Staff does not support the Company s request to accelerate the depreciation of its
existing meters due to the rate impact on customers. Id. at 8. Staff estimated that an accelerated
three-year depreciation period "would increase the Company s revenue requirement by $11.8
million the first year, $10.5 million the second year and $9.2 million in the final year.Id. Staff
noted that "other utilities have successfully implemented AMI in Idaho without accelerating the
depreciation of the old meters.Id. Staff suggested that the cash-flow concerns put forward by
Idaho Power as justification for the three-year period of depreciation should be balanced with the
potential rate impact on customers. Thus, Staff considers an accelerated five-year depreciation
period to be reasonable. Id. at 16.
Idaho Power Reply
The Company s reply comments focused primarily on the appropriate period for
accelerated depreciation of its existing metering infrastructure. As mentioned above, Staff
recommends a five-year accelerated depreciation period of the Company s existing metering
infrastructure. Idaho Power reiterated that a three-year accelerated depreciation period is critical
in order to provide the Company with "adequate cash flow to improve cash flow coverage
ratios(,) maintain Idaho Power s credit strength and its ability to access external markets for
funding capital projects. . ..Idaho Power Reply at 2. The Company estimates that Staffs
recommended depreciation period "would result in an annual reduction to cash flows of
approximately $3.7 million. . . .Id.
Idaho Power also believes that Staff has incorrectly estimated the revenue
requirement impact of the undepreciated balance of its existing metering equipment.The
Company asserts that the balance is approximately $27 million. Thus, the Company states that
with a three-year acceleration of depreciation, the annual revenue requirement would amount to
an increase of $9.2 million" and not the amounts of $11.8 million for the first year, $10.5 million
ORDER NO. 30726
for the second year and $9.2 million for the third year put forth in Staffs comments. Id. at 3. As
support for this contention, the Company pointed to the Operation and Maintenance benefits
from AMI deployment that will be used as an offset to the revenue requirement increase. See
Application, Waites Testimony, Exhibit Nos. 4, 6.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over Idaho Power Company,
an electric utility, and the issues presented in this case pursuant to Title 61 of the Idaho Code
specifically Idaho Code ~9 61-302, 61-336, 61-501 , 61-503 , 61-526 and 61-624.
COMMISSION DECISION AND FINDINGS
Based upon our review of the filings and the record in this case, the Commission
finds that Idaho Power s Application satisfies the requirements found in the Commission
Procedural Rules Idaho Code 99 61-502A, 61-503 , 61-525 , and 61-526. Thus, we approve
Idaho Power s Application for a Certificate of Public Convenience and Necessity authorizing the
Company to install AMI technology throughout its service territory; accelerate the depreciation
of their existing metering infrastructure; and include the corresponding operation and
maintenance benefits as they occur. The Commission strongly urges Idaho Power to move
forward with all deliberate speed with its phased AMI implementation plan.
We find that both the present and future public convenience will be served through
the enhanced outage management and billing accuracy, as well as reduced operating and
maintenance expenses, offered by the introduction of AMI technology throughout Idaho Power
service territory. We find that the deployment of AMI technology will also offer substantial
future benefits by providing an essential platform for remote connect-disconnect capabilities
time-of-use pricing and other "smart grid" operations. Finally, AMI technology will also prepare
the Company to meet the future demand-capacity requirements posed by rapidly evolving
technologies; e., charging stations for hybrid electric vehicles. The Commission directs Idaho
Power to submit a report detailing the Company s plan to introduce its Time of Day, Energy
Watch and/or other pilot programs throughout its service territory once the requisite AMI
technology is fully deployed.
While Idaho Power has expressly acknowledged the numerous benefits of AMI/ AMR
technology, it has continually expressed concerns about the necessity and "cost effectiveness" of
the deployment of AMR technology throughout its service territory. See Order No. 29362 at 10.
ORDER NO. 30726
Accordingly, Idaho Power s current Application requests Commission approval of an accelerated
three-year depreciation period for the Company s existing metering infrastructure in order "
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. . . ." Idaho Power
Reply at 2.
The Commission is not unsympathetic to the Company s concerns and is mindful of
the relatively large capital expense Idaho Power estimates, approximately $70 million, for this
project. However, we must weigh those concerns along with the potential effect that an
accelerated depreciation period might have on ratepayers. After reviewing the testimony and
exhibits offered by the parties, we are convinced that the impact on the Company s annual
revenue requirement caused by an accelerated depreciation period for the existing metering
equipment can be adequately offset by the anticipated yearly Operation & Maintenance benefits.
Further, the Commission finds that authorizing Idaho Power to depreciate its existing meter
reading equipment over an accelerated three-year period will benefit ratepayers because an
enhanced credit rating and strong cash flow basis for the Company will inevitably lead to lower
financing costs and, ultimately, lower the pressure for increased rates for energy consumers.
Notwithstanding our approval of the accelerated depreciation period, the Commission
directs Idaho Power to take reasonable measures to maximize the amount of any offset to the
capital expense of AMI deployment through the resale of its existing metering infrastructure.
Within 120 days of the issuance of this Order, Idaho Power shall submit a report containing a
detailed evaluation of the types of measures considered and/or utilized by the Company in order
to facilitate the resale, recycle or prudent disposal of its existing metering equipment.
The Commission was particularly interested in the comments submitted by AARP
Idaho and several Idaho Power customers, and finds their concerns to be valid and noteworthy.
In response, the Commission once again expresses its expectation that Idaho Power will
demonstrate its ongoing effort to reduce operating costs and increase efficiencies" and reminds
the Company that "in the current economic climate (its) fiscal responsibility will be reviewed
extensively and continually.Order No. 30722 at 3. The Commission emphasizes that this
Order does not address issues relating to the propriety or prudency of the actual costs associated
with the installation of the AMI technology. Issues related to the Company s rate recovery for
such costs will be deferred until the Company makes a formal request to the Commission for
ORDER NO. 30726
recovery In its next rate case or in a subsequent proceeding deemed appropriate by the
Commission - allowing concerned parties yet another opportunity to offer comments regarding
the prudency of the costs associated with AMI installation.
ORDER
IT IS HEREBY ORDERED that the Application of Idaho Power Company for a
Certificate of Public Convenience and Necessity authorizing the Company to install AMI
technology throughout its service territory, accelerate the depreciation of its existing metering
infrastructure, and include the corresponding operation and maintenance benefits as they occur
is approved.
IT IS FURTHER ORDERED that within 120 days ofthe issuance of this Order Idaho
Power Company shall submit a report containing a detailed evaluation of the types of measures
considered and/or utilized by the Company in order to facilitate the resale, recycle or prudent
disposal of its existing metering equipment.
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 with regard to any matter decided in 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.
ORDER NO. 30726
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this J... H.
day of February 2009.
MARSHA H. SMITH, COMMISSIONER
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ATTEST:
O:IPC-08-np2
ORDER NO. 30726