20090112Decision Memo.pdf

DECISION MEMORANDUM - 1

DECISION MEMORANDUM

TO: COMMISSIONER REDFORD
COMMISSIONER SMITH
COMMISSIONER KEMPTON
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL

FROM: NEIL PRICE
DEPUTY ATTORNEY GENERAL

DATE: JANUARY 9, 2008

SUBJECT: IDAHO POWER’S APPLICATION FOR A CERTIFICATE OF PUBLIC
CONVENIENCE AND NECESSITY AUTHORIZING THE
INSTALLATION OF AMI TECHNOLOGY THROUGHOUT ITS
SERVICE TERRITORY; CASE NO. IPC-E-08-16

On August 5, 2008, Idaho Power Company (“Idaho Power” or “Company”)
submitted an Application for a Certificate of Public Convenience and Necessity (“CPCN”),
pursuant to Idaho Code §§ 61-502A, 61-503, 61-525, 61-526, RP 52, 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 1. The
Company requested that its Application be processed through Modified Procedure. IDAPA
31.01.01.201-.204.
On August 19, 2008, the Kroger Company dba Fred Meyer and Smith‟s Food and
Drug (“Kroger”) filed a Petition for Leave to Intervene pursuant to IDAPA 31.01.01.071-.073.
On September 9, 2008, the Commission issued a Notice of Application and Modified
Procedure and allowed 90 days for interested parties to submit their comments to the
Commission regarding Idaho Power‟s Application. See Order No. 30637. Thereafter, the
Commission received written comments from the Commission Staff, Idaho Conservation
League, AARP Idaho and Idaho residents.
DECISION MEMORANDUM - 2

THE APPLICATION
Idaho Power‟s CPCN 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, 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.
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's
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.
DECISION MEMORANDUM - 3

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.
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 of the 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. at
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.
IDAHO CONSERVATION LEAGUE COMMENTS
Idaho Conservation League (“ICL”) is Idaho‟s largest state-based conservation
organization. ICL represents over 9,500 members. ICL urges the Commission to approve Idaho
Power‟s Application for a CPCN to install AMI technology throughout its service territory.
DECISION MEMORANDUM - 4

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.
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 COMMENTS
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 for a CPCN 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.g. 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;

DECISION MEMORANDUM - 5

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 5-8.
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 RESIDENT COMMENTS
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 COMMENTS
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.
DECISION MEMORANDUM - 6

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.
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 then 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 p. 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
DECISION MEMORANDUM - 7

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 recommends 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 as
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 recommends 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 estimates 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 suggests 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 COMMENTS
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 Comments at 2. The Company estimates that
DECISION MEMORANDUM - 8

Staff‟s 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
for the second year and $9.2 million for the third year put forth in Staff‟s 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.
COMMISSION DECISION
1. Does the Commission wish to grant Idaho Power‟s Application for a CPCN
authorizing the Company to install AMI technology throughout its service territory?
a. If so, does the Commission wish to authorize a three-year (Idaho Power) or five-
year (Staff) period of depreciation for the Company‟s existing metering infrastructure in Account
370.00?
b. If so, does the Commission wish to direct Idaho Power to offer its Energy Watch
and Time-of-Day Pilot Programs to its customers concurrent with the implementation of its AMI
technology throughout its service territory?

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