HomeMy WebLinkAbout20090508Comments.pdfKRISTINE A. SASSER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-0357
BARNO. 6618
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iOn9MAY -8 At~ 10: 12
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
IDAHO POWER COMPANY FOR AUTHQlUTY) CASE NO. IPC~E~09~06
TO IMPLEMENT FIXED~COST ADJUSTMENT )
(FCA) RATES FOR ELECTRIC SERVICE ) COMMENTS OF THE
FROM JUNE 1,2009 THROUGH MAY 31,2010.) COMMISSION STAFF
)
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through its
Attorney of record, Kristine A. Sasser, Deputy Attorney General, and in response to the Notice of
Application and Notice of Modified Procedure issued in Order No. 30757 on March 25,2009, in
Case No. IPC-E-09-06, submits the following comments.
BACKGROUND
On March 13,2009, i4aho Power Company fied an Application requesting authority to
implement fixed-cost adjustment (FCA) rates for electric service from June 1, 2009 through May 3 i,
2010. In Case No. IPC-E-04-15, 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 second year of the pilot program
approved by the Commission.
STAFF COMMENTS 1 MAY 8, 2009
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 through demand-side management (DSM) programs.
The FCA implemented in 2007 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
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 adjustment for each customer class.
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 weather-normalized energy sales for the residential
customer class in 2008, i.e., the average use per customer decreased. As a result, the Company said
it under-collected fixed costs by approximately $1.3 milion from its residential customers. A
surcharge to recover the under-collection would represent a 0.42% increase in residential rates.
The Company also reports that weather-normalized energy usage per customer decreased
even more significantly in the small general service class, resulting in an under-collection of
approximately $1.4 milion 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, Case No. IPC-E-08-04, 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. (For comparison, the curent FCA in effect from June 1, 2008,
until May 31, 2009, is a rate decrease of 0.04570 cents/kWh.)
STAFF COMMENTS 2 MAY 8, 2009
STAFF ANALYSIS
2008 Fixed Cost Adjustment (FCA) Calculation
Staffhas reviewed the Company's FCA fiing and recommends that the Commission accept
the Company's proposed total FCA net deferral balance of approximately $2.715 milion, and
distribute the surcharge to residential and small commercial customers on an equal, per energy basis
of 0.0529 cents/kWh. Because the FCA amount increases from a credit of 0.045676 cents/kWh to a
surcharge of 0.0529 cents/kWh, the net rate change is 0.0986 cents/kWh. This amount represents an
increase over combined curent revenue of approximately 1.32%.
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.
As indicated in the testimony of Company witness Sparks, the FCC and FCE for both the
residential and small commercial classes increased during the 2008 FCA period to reflect higher
fixed cost recovery as approved by the Commission in the general rate Case No. IPC-E-07-08.
Company calculations provided in response to Staff Audit Request No. 1 also show significantly
reduced energy consumption per residential customer in the months of July and August 2008. The
combination of higher fixed cost recovery per kWh (FCE) coupled with reduced consumption per
customer results in the lion's share of fixed cost under-recovery occuring in these months for this
class. Energy consumption per customer in the small commercial class declined in all months
resulting in fixed cost under-recovery occuring on a relatively consistent monthly basis throughout
2008.
By comparison, the residential energy consumption per customer in 2007 was consistently
higher than that required to recover approved fixed costs and therefore generated a deferred credit
consistently throughout the year. In 2007, as in 2008, per customer energy consumption in the small
commercial class was consistently below that required to recover fixed costs and similarly sized
deferral surcharges were generated in both years. Staff Attachment No. 1 shows how the FCA
deferral balance changed thoughout 2007 and 2008 for both the residential and small commercial
classes.
STAFF COMMENTS 3 MAY 8, 2009
Idaho Power's Demand Side Management (DSM) Activities
The fixed cost adjustment (FCA) mechanism was designed and implemented to remove the
financial disincentive for Idaho Power to expand and improve its DSM activities. While it is
impossible to determine what level of DSM activity the Company would have pursued without the
mechanism, it is clear that during 2008, the Company greatly increased DSM expenditures and
significantly enhanced its program offerings.
Company witness Sparks testifies that the level ofDSM expenditures increased by 35% from
$15.7 milion in 2007 to over $21 milion in 2008. Mr. Sparks also cites a 72% increase in energy
savings from 62,500 MWh in 2007 to 107,500 MWh in 2008 through 16 energy effciency programs
and two demand response programs. Staffhas reviewed the Company's 2008 DSM report and
verifies the expansion of Company expenditures, programs and projected energy savings.
Because the FCA mechanism was established primarily to track the impact of DSM
programs but actually tracks all weather-normalized changes in energy consumption, Staff believes
it is important to evaluate what role Company DSM programs play in reducing energy consumption
per customer and the resulting need for the FCA surcharge proposed in this case. In response to
Staff Production Request No.1, the Company stated that it had not conducted any formal analysis or
held internal discussions specifically related to the causes of the decreases seen in 2008 average
kWh usage per customer. The Company went on to say that several factors likely contributing to the
reduction include electric and gas prices, demand side management programs, demand side
management education, public awareness of demand side management and green initiatives,
changes to building codes and the curent state of the economy.
Staff agrees that many factors in addition to Company DSM programs can contribute to the
reduction in energy consumption per customer. While it would be highly speculative to attribute
specific reductions to any specific factors, several general observations can be made. For example,
Staff estimates that 12,000 MWh of 2008 energy savings were achieved from Company DSM
programs in the residential and small commercial classes. This represents about 23% of the
approximately 54,000 MWh of reduction that actually occured in these classes. Therefore, the
remaining decrease in energy consumption per customer is due to other factors.
It is not surrising that energy consumption per customer has declined as economic
conditions have declined. Nor is it surprising that energy consumption declines as energy prices
increase. A large PCA rate increase on June 1, 2008, could easily have contributed to the July and
August reduction in per customer energy consumption. One factor that may slow the decline in
STAFF COMMENTS 4 MAY 8, 2009
consumption per customer is reduced customer growth. Generally, as new customers are added to
the system, the calculated average consumption per customer declines because new customers
primarily use natural gas for space heating. A slowing customer growth rate wil reduce this effect.
The FCA mechanism is designed to reimburse the Company for lost fixed costs as per
customer energy consumption declines regardless of cause. Staff does not recommend any change
in the mechanism at this time. Staff does note that as customers adapt to 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 ofIdaho Power Company.
The FCA Rate
Staff has verified the Company's calculation of unecovered 2008 fixed costs for the
residential and small commercial customer classes. The anual residential amount subject to
recovery is approximately $1.32 milion and the small commercial amount is approximately $1.4
milion. Using weather-normalized sales for 2008, the Company calculates a residential rate of
0.0266 cents/kWh and a small commercial rate of 0.82 cents/kWh. This represents an increase of
0.42% and 10.29% over curent base rates for the residential and small commercial classes,
respectively. The Company then recommends applying the methodology used in the first year of the
FCA pilot to spread the total unrecovered fixed costs over all residential and small commercial
customers combined. The resulting FCA rate is 0.0529 cents/kWh or a 0.82% overall increase.
Staff does not oppose a single FCA rate applied to both residential and small commercial
customers to recover the combined under recovered fixed costs of the two classes. When the
shortfall is spread uniformly over all customers, the increased rate for the residential class has
minimal impact on individual residential customers but it greatly reduces the impact on commercial
customers. Staf also notes that class costs of service used to establish fixed cost per customer class
is an inexact science and has not been fully accepted or applied by the Commission. The combined
uniform rate proposal is also consistent with the combined rate approved by the Commission in the
last FCA Case No. IPC-E-08-04.
Staff proposes to calculate the overall uniform FCA rate in a slightly different maner than
that proposed by the Company in this case. The Company has used weather-normalized 2008
energy to calculate the FCA rate/kWh rather than the energy forecast for the subsequent year as was
used in the first year of the FCA and as is required in the Company tariff. Using the weather-
normalized 2009 forecasted energy of 5.13 milion MWh coincidentally, does not change the
uniform FCA rate of 0.0529 cents/kWh proposed by the Company. Nevertheless, because the
STAFF COMMENTS 5 MAY 8, 2009
FCA mechanism has no true-up adjustment, it is important to consistently apply the most accurate
estimate of energy to assure proper recovery of the deferral balance. The Staff-proposed rate
represents an overall increase of 0.82% in base rates for the two combined classes and an increase of
approximately 1.33 % over curent rates with the FCA credit in place. The Staff calculation of the
rate is shown on Staff Attachment NO.2.
RECOMMENDATIONS
Staff recommends that the Commission approve the Company's FCA filing with a net
deferral balance of positive $2,714,915 distributed to both customer classes on an energy basis
during the 2009-2010 FCA year. Staff recommends that the FCA rate be based on forecasted 2009
energy consumption of 5.13 millon MWh for a uniform surcharge rate of 0.0529 cents/kWh.
Idaho Power's DSM efforts clearly increased in 2008, with increased expenditues and
program offerings. While the decline in residential electric consumption per customer was impacted
by the Company's residential DSM programs, it does not account for the entire decline and the
Company has not attempted to quantify any other causation. The decline in commercial electric
consumption per customer has continued at an accelerated pace but it does not appear that the
Company's commercial DSM programs significantly contributed to the reduction. Staff believes
that factors other than Company-provided DSM wil further reduce energy consumption per
customer in both classes in the third year of the pilot. Nevertheless, Staff recommends the pilot be
continued to fuher evaluate longer-term effects.
Respectfully submitted this 7J~ day of May 2009.
'~~r.r
Kristine A. Sasser
Deputy Attorney General
Technical Staff: Randy Lobb
i: umisc: commentsipce09 .6ksrl.doc
STAFF COMMENTS 6 MAY 8, 2009
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 8TH DAY OF MAY 2009,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. IPC-E-09-6, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
DONOV AN E WALKER
BARTON L KLINE
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: dwalker!iidahopower.com
bklineCiidahopower .com
SCOTT D SPARKS
JOHNRGALE
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: ssparksCiidahopower.com
rgaleCiidahopower .com
~.~~
CERTIFICATE OF SERVICE