20090522Reply Comments.pdf

DONOVAN E. WALKER
Corporate Counsel
esIDA~PO~
An IDACORP Company
May 22,2009
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-09-07
INCLUSION OF ADVANCED METERING INFRASTRUCTURE ("AMI'
INVESTMENT IN RA TE BASE
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.
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Donovan E. Walker
DEW:csb
Enclosures
P.O. 80x 70 (83707)
1221 W. Idaho St.
8oise. 10 83702
DONOVAN E. WALKER (ISB No. 5921) Rr~CE¡
BARTON L. KLINE (ISB No. 1526)
Idaho Power Company 20üQ l1~,'f 2. 2 10: 49
1221 West Idaho Street
P.O. Box 70
Boise, ID 83707
Telephone: [phone]
Facsimile: 208-388-6936
dwalker~idahopower.com
bkline~idahopower.com
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 MA TIER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO INCREASE ITS RATES
DUE TO THE INCLUSION OF ADVANCED
METERING INFRASTRUCTURE ("AMI")
INVESTMENT IN RATE BASE.
)
) CASE NO. IPC-E-09-07
)
) IDAHO POWER COMPANY'S
) REPLY COMMENTS
)
)
Idaho Power Company ("Idaho Power" or "Company") respectfully submits the
following Reply Comments in response to the Comments filed by the Commission Staff
("Staff') on May 18, 2009.
With these Reply Comments, the Company urges the Commission to approve
the new electric rate schedules set out in Attachment Nos. 1,2, and 3 to the Application
IDAHO POWER COMPANY'S REPLY COMMENTS - 1
and to authorize a uniform percentage increase of 1.361 percent to schedule 1, 3, 4, 5,
7,9 secondary, 24 secondary, 41 metered service, and 42 customers with an effective
date of June 1, 2009, and utilizing the Company's proposed test year of June 1,2009,
to May 31, 2010.
I. BACKGROUND
The Company has emphasized from the inception of the current three-year
deployment plan that a timely and successful deployment of Advanced Metering
Infrastructure ("AMI") across its system requires a three-year accelerated depreciation
of the existing metering infrastructure, along with the recovery in rates of the cost of new
metering equipment investment as it is placed in service. The Company also proposed
to include the Operation and Maintenance ("O&M") benefits as an offset to rates as
such benefits begin to occur. See August 31, 2007, AMI Implementation Plan, p. 4,
Case No. IPC-E-06-01; Application for Certificate of Public Convenience and Necessity,
pp. 2, 12, Case No. IPC-E-08-16; Idaho Power Company's Reply Comments, pp. 2-6,
Case No. IPC-E-08-16.
In Case No. IPC-E-08-16, the Commission granted the Company's request for a
Certificate of Public Convenience and Necessity ("CPCN") to install AMI technology
throughout its service territory. Order No. 30726. The Commission approved the
Company's requested three-year accelerated depreciation to coincide with the three-
year deployment plan, along with a Capital Cost Commitment Estimate of $70.9 millon.
1 The Company's originally proposed 1.61 percent increase went down to 1.36 percent following
issuance of Order No. 30754, the Reconsideration Order from the last general rate case. Staffs
Comments also discuss this change. Staffs Comments at pp. 4-5. Similarly, Schedule 3, Master
Metered Residential, is added in this same sentence. This is a new schedule from the last general rate
case, Case No. IPC-E-08-10, that did not exist when this case was filed. Schedule 3 customers were
formerly included in Schedule 1.
IDAHO POWER COMPANY'S REPLY COMMENTS - 2
Id. The Commission considered and rejected a Commission Staff proposal to use a
five-year accelerated depreciation schedule rather than the three-year scheduled
proposed by the Company. In so doing, the Commission reiterated its long-standing
directive to the Company "to move forward with all deliberate speed with its phased AMI
implementation plan." Id., at p. 8.
II. COMPANY RECOMMENDATION
In this Case, the Company has proposed rates to be in place beginning June1,
2009, reflective of (1) the investments made for the installation of AMI throughout its
service territory to date, (2) those investments that wil be made during a June 1, 2009,
through May 31, 2010, test year, (3) 12 months of accelerated depreciation, and (4)
O&M benefits that wil be derived by May 31,2010. Application at p. 2.
II. COMMISSION STAFF RECOMMENDATION
Commission Staff states its acceptance of a rate increase for the inclusion of AMI
facilities as the equipment is being installed. Staff proposes rates that are reflective of
(1) the investments made for the installation of AMI throughout its service territory to
date, (2) those investments that wil be made during the June 1, 2009, through
December 31, 2009, time period, (3) 7 months of accelerated depreciation (June 2009
through December 2009), and (4) O&M benefits that wil be derived by December 31,
2009.
Staff accepts and recommends the Company's proposed June 1, 2009, date on
which to begin the three-year accelerated depreciation and as the effective date for the
rates. Staff also recommends and follows the same methodology used by the Company
IDAHO POWER COMPANY'S REPLY COMMENTS - 3
in its filing for calculating rates reflecting the investment, costs, and benefits - both to
date and on a projected basis.
iv. EFFECT OF STAFF RECOMMENDATIONS
As the prior section shows, Staff and the Company are aligned on certain
aspects of the treatment of AMI for ratemaking purposes. The Company and Staff part
ways on one major aspect of AMI cost recovery - the test year that is used to establish
the AMI revenue requirement. Staff recommends moving the test year end date from
May 31, 2010, to December 31, 2009. This one, seemingly minor change wil have a
material adverse affect on the Company's ability to provide adequate cash flow to fund
the AMI installations, to move forward on the three-year implementation timeline, and,
consequently, to remain within the previously discussed Capital Cost Commitment
Estimate. Furthermore, as wil be discussed in greater detail later, Staffs
recommendation is inconsistent with previous Commission orders. In order for AMI
implementation to move forward on schedule, rates for AMI must provide cash flow that
matches the installation of new metering equipment made throughout the year following
implementation of rates, which includes 12 months of accelerated depreciation on
existing metering equipment.
As stated above, upon review of Staffs Comments, the only real driver of the
difference between the positions of the Company and the Staff is Staffs proposal to end
the test year period at December 31, 2009, instead of carrying it through to May 31,
2010. Staff otherwise supports and adopts the Company's rationale, justification, and
methodology for determining the rates. Staff affirmatively states the same in its
Comments:
IDAHO POWER COMPANY'S REPLY COMMENTS - 4
It (Staffs proposed test year) follows the same
methodology used by Idaho Power in its filing. The Staff
proposal is also consistent with the methodology discussed
in CPCN Case No. IPC-E-08-16, it just isn't projected as far
into the future as requested by Idaho Power. Staff believes
the inclusion of the AMI facilities in rates as the equipment is
installed continues to be reasonable for this project. The
phased installation of AMI is specific in nature and the
commitment estimate is utilzed as a benchmark.
Staff Comments at p. 3 (emphasis added). This methodology and all of the components
of the Company's proposal were acknowledged as reasonable by Staff, and even used
by Staff in its own calculations. In describing the Company's request, Staff stated:
The commitment estimate and projected number of meters
to be installed each month is the basis for calculating the
monthly costs on a per unit cost basis. While these
calculations are a reasonable estimate to match the
project recovery with the installation period, the
installation plan, investment and operating costs and
benefits are not tested to the point of accepting a fully
forecasted test period for the first recovery phase.
Staff Comments at p. 3 (emphasis added).
With due respect to Staffs statements, the Staff proposal of a January 1, 2009,
through December 31,2009, test year appears to the Company to be nothing more than
a reflection of fate base as of mid-year 2009 and 7 months of accelerated depreciation
offset by O&M benefits that wil be derived by year end. The Company fails to
understand how this view is consistent with the prior Commission Orders that envision
funding of AMI investments as they occur. The Company also fails to understand why
less than 12 months of accelerated depreciation should be reflected in the test year.
Staff states that it "accepts Idaho Power's request to start the three-year
accelerated amortization period for existing metering infrastructure on June 1, 2009."
Staff Comments at p. 4. While the Company certainly appreciates Staffs concurrence,
IDAHO POWER COMPANY'S REPLY COMMENTS - 5
by changing the test year end date from the Company's proposed date of May 31,2010,
to that proposed by Staff of December 31, 2009, Staff has effectively slowed the
recovery of the accelerated depreciation to approximately five years rather than the
requested and authorized three years. Staff states that it supports the three-year
accelerated depreciation, but its recommended rates do not. Whether intentional or not,
the effect of Staffs proposed adjustment is to slow cost recovery back to a level that
reflects the five-year depreciation schedule Staff originally proposed and the
Commission rejected. Staffs proposal essentially contains only 7 months of
amortization, but the revenue requirement is for a year. When only 7 months is
recovered over 12 months the recovery is approximately 58 percent of what the
Company needs to stay on a three-year amortization schedule - which is what is
required in order to maintain the three-year AMI implementation schedule.
Staffs stated rationale for changing the test year end date to December 31,
2009, is apparently that "th e installation plan, investment and operating costs and
benefits are not tested to the point of accepting a fully forecasted test period for the first
recovery phase." Staff Comments at p. 3. Respectfully, it simply does not logically
follow that if the Company's plan and the numbers "are not tested" to the point that Staff
must reject the Company's proposed test year, that the Staff would simultaneously find
the numbers and the methodology reasonable and that Staff could use the same plan,
investment, and operating costs and benefis to determine their own proposed rates.
Staffs proposal is projected in the exact same way that the Company's proposal is
projected, "it just isn't projected as far into the future as requested by Idaho Power." Id.
IDAHO POWER COMPANY'S REPLY COMMENTS - 6
Staff provides no logical support for its conclusion that 7 months of projected amounts
are reasonable, but 12 months are not.
V. CONCLUSION
The Company's proposed rates are reasonable, and necessary, in order to
match the authorized three-year accelerated depreciation with the three-year
deployment plan and recovery of the investment while it is placed into service. With a
distinct implementation program such as AMI, there is very little risk in using a
projection based upon the Commitment Estimate and the number of meters installed as
a basis for calculating the costs on a per unit cost basis.
The Company has been ordered and directed by the Commission on several
occasions to come up with a plan and to implement AMI across its entire system. It has
been diffcult, and it has taken longer than originally anticipated, but with its August
2007 AMI Implementation Plan, the Company was finally able to formulate a workable
deployment plan and schedule to accomplish the directive of the Commission. This
plan was presented to and accepted by the Commission in its issuance of the CPCN to
install AMI throughout the Company's service territory. The Company has emphasized
from the beginning that certain ratemaking determinations were necessary in order to
make the implementation work. The Company has repeatedly disclosed the same and
made the appropriate filings to do so. The AMI deployment is a very substantial capital
and cash flow intensive undertaking, and it is unfortunate that history has played out the
way it has with the current economic crisis. However, the Company's proposed rates
and methodology are reasonable, appropriate, and, more importantly, are necessary in
IDAHO POWER COMPANY'S REPLY COMMENTS - 7
order for the AMI implementation to remain on schedule and consistent with the
Commitment Estimate.
Idaho Power respectfully requests that its proposed rates be approved. More
specifically, the Company requests that the Commission approve the new electric rate
schedules set out in Attachment Nos. 1, 2, and 3 to the Application, authorize a uniform
percentage increase of 1.36 percent to schedule 1, 3, 4, 5, 7, 9 secondary, 24
secondary, 41 metered service, and 42 customers with an effective date of June 1,
2009, and utilize the Company's proposed test year of June 1, 2009, to May 31, 2010.
Respectfully submitted this 22nd day of May 2009.
~Lú/tLDONOVAN E. WALKER
Attorney for Idaho Power Company
~..
IDAHO POWER COMPANY'S REPLY COMMENTS - 8
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 22nd day of May 2009 I served a true and
correct copy of the IDAHO POWER COMPANY'S REPLY COMMENTS upon the
following named parties by the method indicated below, and addressed to the following:
Commission Staff
Neil Price
Deputy Attorney General
Idaho Public Utilties Commission
472 West Washington
P.O. Box 83720
Boise, Idaho 83720-0074
-l Hand Delivered
U.S. Mail
_ Overnight Mail
FAX
-l Email NeiI.Price~puc.idaho.gov
cWa.
Donovan E. Walker
IDAHO POWER COMPANY'S REPLY COMMENTS - 9