20090529final_order_no_30827.pdf

Office of the Secretary
Service Date
May 29, 2009
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO IMPLEMENT FIXED-
COST ADJUSTMENT (FCA) RATES FOR
ELECTRIC SERVICE FROM JUNE 1 , 2009
THROUGH MAY 31, 2010.
ORDER NO. 30827
CASE NO. IPC-09-
On March 13 2009, Idaho Power Company filed an Application requesting authority
to implement fixed-cost adjustment (FCA) rates for electric service from June 1 , 2009, through
May 31 , 2010. On March 25 2009, the Commission issued a Notice of Application and Notice
of Modified Procedure and set a comment deadline of May 8, 2009. Order No. 30757. Several
parties, including Staff, filed comments. After reviewing the Application and comments, we
approve the Company s request to implement its fixed-cost adjustment.
BACKGROUND
In 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 present filing represents the second year of the pilot program. The FCA is a mechanism to
separate Idaho Power s fixed costs of its system from its energy sales. The mechanism is also
used to establish a rate that allows the Company to recover its fixed costs separate and apart from
energy sales. The rationale for the FCA is that traditional rate design discourages energy
conservation programs; that is, utilities that recover their fixed costs through the sale of energy
have no incentive to reduce their sales volume by encouraging energy efficiency and demand-
side management (DSM) programs.
The FCA 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 using the Company s revenue requirement derived in a general rate case.
This produces an authorized fixed-cost recovery amount, which is then compared to the weather-
normalized amount of fixed costs recovered by the Company. The difference between the
authorized fixed-cost recovery amount and the weather-normalized amount collected by the
Company is the fixed-cost revenue adjustment for each customer class.
ORDER NO. 30827
THE APPLICATION
According to the Company s Application, the rate of growth in the number of
residential customers was more than the rate of growth in the energy sales for the residential
customer class in 2008, i., the average use per customer decreased. As a result, the Company
under-collected fixed costs by approximately $1.3 million for its residential class. A surcharge
to recover the under-collection would represent a 0.42% increase in residential rates.
The Company also reports that energy usage per customer decreased even more
significantly in the small business class resulting in an under-collection of approximately $1.4
million in fixed costs from its small commercial customers. A surcharge to recover the under-
collection would represent a 10.29% increase in small general service rates. However, to be
consistent with the methodology established in the first year of the FCA pilot, the Company is
proposing a combined rate increase for residential and small general service customers of 0.82%
or 0.0529 cents per kWh to be in effect from June 1 , 2009, through May 31 , 2010. Order No.
30556 at 5
THE COMMENTS
Staff filed its comments affirming its review of the Company s FCA filing and
recommending that the Commission accept the Company s proposed total FCA net deferral
balance of approximately $2.715 million. Staffs review of the Company s calculations in the
second year of the three-year pilot focused on verifying that the Commission-approved
methodology was appropriately applied. Specifically, Staff evaluated and verified the
calculation and use of the fixed-cost per customer (FCC) and fixed-cost per energy (FCE), the
accumulation of fixed costs deferred in 2008 and the resulting FCA required to recover
uncollected fixed costs. Staff further evaluated how Company DSM programs and other factors
such as declining economic conditions may have impacted customer energy consumption and the
size of the FCA.
Staff verified the Company s calculation of unrecovered 2008 fixed costs. The
annual residential amount subject to recovery is approximately $1.32 million and the small
commercial amount is approximately $1.4 million. Consistent with the methodology approved
by the Commission in last year s FCA case, the Company proposed, and Staff supported
spreading the total unrecovered fixed costs over all residential and small commercial customers
combined.The resulting FCA rate is 0.0529 cents per kWh or a 0.82% overall increase.
ORDER NO. 30827
Because the FCA amount increases from a credit of 0.045676 cents per kWh to a surcharge of
0529 cents per kWh, the net rate change is 0.0986 cents per kWh.
While it is impossible to determine what level of DSM activity the Company would
have pursued without the mechanism, Staff stated that it is clear that during 2008, the Company
greatly increased its DSM expenditures and significantly enhanced its program offerings. While
many factors, in addition to DSM programs, can contribute to a reduction in energy consumption
per customer, Staff estimated that 12 000 MWh of 2008 energy savings were achieved from
Company DSM programs in the residential and small commercial classes.
Staff also noted that as customers adapt to the recently implemented tiered rates and
potential rate increases in June of this year, per customer energy consumption could and should
continue to decline regardless of the DSM activities of the Company.Nevertheless, Staff
recommended continuation of the pilot in order to better evaluate longer-term effects during the
three-year pilot.
The Idaho Conservation League (ICL) and Snake River Alliance (SRA) filed joint
comments in support of the Company s Application. The ICLISRA argued that traditional
electric utility rate design creates a financial barrier for utilities to implement aggressive
efficiency programs because utilities recover their fixed costs through each kilowatt-hour sold.
The ICLISRA reasoned that separating collection of fixed costs from energy sales ("decoupling
removes the disincentive from utilities for the implementation of energy efficiency . and
conservation programs. Decoupling is also consistent with the State s energy policy. The
ICLISRA encouraged the Commission to adopt a permanent decoupling mechanism following
completion of the FCA pilot program.
Three public comments were received OppOSIng the FCA increase. Customers
expressed frustration about paying higher electric bills for achieving better energy efficiency.
DISCUSSION
The filing in this case reveals the results of the first two years of the three-year pilot
program. Based upon our review of the Application and comments, the Commission finds it
reasonable and appropriate to accept Idaho Power s FCA filing. Accordingly, we approve the
net deferral balance of $2 714 915. We also find it just and reasonable to distribute the surcharge
1 This represents about 23% of the approximately 54 000 MWh of reduction that actually occurred in these classes.
ORDER NO. 30827
to both the residential and small general service customer classes equally on an energy basis
during the 2009-2010 FCA year. The result is a uniform surcharge rate of 0.0529 cents per kWh.
ORDER
IT IS HEREBY ORDERED that the Application of Idaho Power to implement fixed-
cost adjustment rates for electric service is approved. The Company is authorized to collect the
net deferral balance of$2 714 915 for the second year of the FCA.
IT IS FURTHER ORDERED that the surcharge be distributed to both the residential
and small general service customer classes equally on an energy basis during the 2009-2010
FCA year, resulting in a uniform surcharge rate of 0.0529 cents per kWh for these customers.
IT IS FURTHER ORDERED that the new FCA rate shall be effective from June I
2009, through May 31 , 2010.
THIS IS A FINAL ORDER. Any person interested in 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.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this ;J-4.Hv
day of May 2009.
iI
D. KEMPT , P SIDENT
IJ 6k1L
MARSHA H. SMITH, COMMISSIONER
MACK A. REDFO , COMMISSIONER
ATTEST:
0~1&2~
Bar ara Barrows
Assistant Commission Secretary
O:IPC-09-06 ks2
ORDER NO. 30827