20090529final_order_no_30829.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 INCREASE ITS RATES
DUE TO THE INCLUSION OF ADVANCED
METERING INFRASTRUCTURE ("AMI"INVESTMENT IN RATE BASE
CASE NO. IPC-09-
ORDER NO. 30829
On March 13, 2009, Idaho Power Company filed an Application "for authority to
increase its rates due to the inclusion of Advance Metering Infrastructure ("AMI") investment in
rate base." Application at 1. AMI generally refers to upgraded meter technology that is
intended to reduce meter reading costs, monitor service outages, and eventually allow customers
to use energy more efficiently. On April 2, 2009, the Commission issued a Notice
Application and Modified Procedure establishing a 45-day comment period for interested
persons to submit comments regarding Idaho Power s Application. See Order No. 30764.
Thereafter, Commission Staff, the Snake River Alliance and several Idaho Power customers
submitted timely comments. On May 22 2009, Idaho Power submitted reply comments.
THE APPLICATION
Idaho Power proposes "a uniform percentage increase of 1.61 % to Tariff Schedules
, 7, 9 secondary, 24 secondary, 41 metered service, and 42 (residential, small commercial
irrigation, and metered lighting customer classes).Id. at 3. The Company requests that the
proposed increase take effect on June 1 2009, unless otherwise ordered by the Commission, for
service provided on and after that date. Id.
Idaho Power cites to "the Company s investment in AMI through the end of May
2010 into the Company s rate base/revenue requirement" as justification for the increase. Id.
2. The Company seeks to include the capital investment it has made thus far pursuant a
Certificate of Public Convenience and Necessity (CPCN) authorizing the installation of AMI
throughout its service territory, see Commission Order No. 30726, as well as "those investments
that will be made during a June 1 , 2009 through May 31 , 2010, test year.Id. The Company
states that it has included reductions for removed metering equipment and "changes in operating
expenses that accompany the changes in plant investment" in its calculations. Id. Idaho Power
ORDER NO. 30829
believes that "the proposed test year and recovery of the resulting revenue requirement" are
necessary in order to meet "the increased challenges associated with raising capital in the
financial markets during the present financial crisis.Id. at 2-
Idaho Power calculates that the "13-month average plant in service associated with
the AMI system for the test year is $23 981 251." Id. at 3. The Company also estimates that
after applying the Commission-authorized rate of return of 8.18%, the authorized three-year
depreciation period, the operation and maintenance benefits and applicable tax rates, an increase
of $11 181 318 to the Idaho jurisdictional revenue requirement is warranted. Id.
Idaho Power has included tariff sheets reflecting the proposed increase to the Idaho
jurisdictional revenue requirement and a report comparing revenues under its existing rates and
revenues generated under its proposed revenue requirement as Attachments 1-to its
Application. The Company filed the testimony of Gregory W. Said, Director of State Regulation
in the Pricing and Regulatory Services Department, and Courtney Waites, Pricing Analyst
simultaneously with, and in support of, its Application.
COMMENTS
IPUC Staff
Staff supports Idaho Power s request to include AMI investment in rate base and the
Company s request for a June 1 , 2009 effective date. Staff Comments at 3. However, Staff
believes that the "appropriate test year should end December 31 , 2009.Id. Staff concluded that
the Company s proposed recovery period for AMI investment and associated costs and benefits
through May 31 , 2010, is not warranted because the Company s "original installation plan" does
not include a significant history of actual installations and project costs. Id.
The commitment estimate put forth by Idaho Power is based upon a projection of how
many units will be installed on a monthly basis through the three-year installation period. Id.
Staff feels that it is more appropriate to utilize a test period that takes advantage of the actual
investment, costs and benefits incurred to date and project those amounts through the end of the
2009 calendar year. Id. A test year consisting of the 2009 calendar year will allow the Company
to recover its authorized rate of return, increase its cash flow and facilitate the typical project
review process. Id.
Staff also included two attachments in its comments. Attachment A is a summary of
Staffs proposed revenue requirement ($7 322 995 line 37 of Attachment A). Id. at 4, Atch. A.
ORDER NO. 30829
Attachment B is an outline of Staffs proposed rate design. Staff asserted that its proposed CY
2009 test year and "the ongoing AMI project reviews and inclusion in base rates of future AMI
expenditures" would be more amenable to adjustment than Idaho Power s proposal should the
Company receive funds through the American Recovery and Reinvestment Act of 2009
ARRA"
).
Id. According to Staff, the Company continues to solicit ARRA funding but thus far
has not been granted approval. Id.
Staff also reviewed Idaho Power s methodology regarding the allocation of the
increased revenue requirement across the various classes impacted by the AMI installation:
Schedules 1 , 7, 9 Secondary, 24 Secondary, 41 and 42. Id. Staff proposes a uniform 1.28%
base revenue increase for each affected class based upon its proposed "AMI revenue requirement
increase of $7 322 995 . . . and the current overall base revenue of the affected classes. . . from
the reconsideration of the general rate case, Case No. IPC-08-1O.Id. at 5. This differs from
the Company s proposed 2.22% energy rate increase for each class which utilizes the ratio of its
calculated additional revenue requirement and total energy revenue from the reconsideration of
Case No. IPC-08-10. Id. at 4.
Snake River Alliance
The Snake River Alliance ("SRA") is an Idaho non-profit organization primarily
concerned with nuclear safety issues. SRA has also been actively involved in promoting clean
energy initiatives. SRA supports the Company s request to include AMI investment in rate base.
SRA acknowledges the fact that the total benefits of AMI installation will not be realized
immediately. However, the organization believes that the investment is "sound" and that the
eventual benefits will lead to real energy savings that will benefit all customers. . . through
reduced energy bills and a reduced need for additional investments in generation and
transmission. . . ." SRA Comments at 1.
SRA states that while the Company has taken steps to explain the benefits of AMI to
its customers it could "do more to help its customers better understand how to interpret the data
on the face oftheir new meters.Id. at 2.
Idaho Power Customers
The Commission received three comments from Idaho Power customers regarding the
Application. Two customers were opposed to the increase and one customer took a neutral
position. These customers expressed their specific disapproval of the concept of increasing rates
ORDER NO. 30829
in order to fund the Company s investment in energy conservation and to regular and persistent
rate increases in general.
Idaho Power Reply
Idaho Power s reply comments focused upon Staffs recommendation that the
Commission approve a test year consisting of the 2009 calendar year. Idaho Power Reply
Comments at 4. Idaho Power asserts that Staffs recommended test year will have an "adverse
effect 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. . . remain within the previously
discussed Capital Cost Commitment Estimate.Id.
The Company believes that Staff s recommendation amounts to "nothing more than a
reflection of rate base as of mid-year 2009 and 7 months of accelerated depreciation offset by
O&M benefits" and is inconsistent "with the prior Commission Orders that envision funding of
AMI investments as they occur.Id. Idaho Power does not "understand why less than
months of accelerated depreciation should be reflected in the test year.Id. at 5. Staffs
proposed test year will have the practical effect of slowing the accelerated depreciation period
for existing metering infrastructure. Id. at 6.
Finally, Idaho Power took exception to Staffs contention that "the Company s plan
and numbers 'are not tested'" when Staff used the "same plan, investment, and operating costs
and benefits to determine their own proposed rates.Id. Staff provides no logical support for
its conclusion that 7 months of projected amounts are reasonable, but 12 months are not." Id.
DISCUSSION AND FINDINGS
We begin our discussion by noting that we have previously found that the "present
and future public convenience" would be served by the installation of AMI and ratepayers would
benefit from "enhanced outage management and billing accuracy." Order No. 30726 at 8. We
also noted that AMI would inevitably serve as an essential platform for the institution of "smart
grid operations" and allow for the expansion of the Company s existing time-of-day and energy
watch programs. Id.
Based upon our review of the filings and the record in this case, the Commission
approves Idaho Power s request to recover its AMI investment but we do not accept the
Company s proposed test year. The Commission is not persuaded by Idaho Power s request for
ORDER NO. 30829
a future test year beginning June 1 2009, and extending through May 31 , 2010. Instead, we find
that Staffs position of calculating the actual costs already incurred by the Company, as well as
the benefits, and annualizing those amounts through the end of the 2009 calendar year to be the
more reasonable approach. We are confident that such an approach will provide the necessary
protection to ratepayers and ensure that the Company is able to maintain adequate cash flow and
access to sufficient capital to maintain a secure financial footing in the midst of the current
economic downturn.
The Commission has previously authorized the Company to recover the depreciation
on its existing metering infrastructure over an accelerated three-year period. Id. at 10. The
Commission finds that it is reasonable to allow this accelerated depreciation to begin on June 1
2009, as requested by the Company and supported by Staff. The Commission acknowledges
Idaho Power s concern that Staffs proposal does not comply with the Commission s prior
authorization of an accelerated depreciation scheme because it reflects "less than 12 months of
accelerated depreciation." Idaho Power Reply Comments at 4-5. Subsequently, the Commission
has obtained updated information and data from Idaho Power which eliminates this discrepancy
and allows the Company to recover 12 months of accelerated depreciation expense for the 2009
calendar year.
The Commission finds that the annualized depreciatio~ expense on new plant and the
removal of existing plant, accumulated depreciation, deferred taxes and income taxes is
reasonable when calculated in accordance with the 2009 calendar test year. The resulting
depreciation expense is $9 227 270 for the Idaho jurisdiction. Other key numbers include the
following:
Revenue Deficiency
802 609
081 976
$10,497 354
Rate Base
Operating Expense
The Commission orders that the revenue deficiency be spread over the affected classes
(Schedules 1 , 5 , 7, 9 Secondary, 24 Secondary, 41 metered service, and 42 (residential, small
commercial, irrigation, and metered lighting customer classes), leading to an average increase of
1.83% for each of the affected classes. See Attachment A.
The Commission is appreciative of the supportive comments submitted by SRA and
agrees with the organization s assertion that AMI investment will offer substantial benefits to
ORDER NO. 30829
ratepayers well into the future. The Commission also understands and sympathizes with the
short-term ratepayer concerns associated with a utility s request to recover its infrastructure costs
in rate base - leading to an increase in rates. Nevertheless, the Commission must also keep an
eye toward the future and maintain a proactive approach that will best serve long-term customer
interests. In furtherance of that approach, we find it necessary and reasonable to encourage
Idaho Power to institute appropriate and effective demand-side measures enabled by AMI
installation.
We reiterate our admonition that Idaho Power adhere to the phased implementation
plan disclosed in its applications. Accordingly, the Commission orders the Company to seek the
Commission s approval before making any decision that may lead to a deviation from its
implementation plan.
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 99 61-302, 61-336, 61-501 , 61-503, 61-526 and 61-624.
ORDER
IT IS HEREBY ORDERED that the Application of Idaho Power Company for
authority to recover its Advance Metering Infrastructure investment in rate base, is approved as
conditioned above. The Company is authorized to recover $10 497 354, or 1.83%, in additional
revenue based upon a CY 2009 test year.
IT IS FURTHER ORDERED that the revenue deficiency be spread over the affected
classes (Schedules 1 , 4, 5, 7, 9 Secondary, 24 Secondary, 41 metered service, 42 metered
lighting). Idaho Power shall file tariff schedules conforming to this Order within seven (7) days
from the date ofthis Order.
IT IS FURTHER ORDERED that the rate increases set out in Attachment A shall be
effective for service rendered on and after June 1 2009.
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 9 61-626.
ORDER NO. 30829
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
,;;)-q
day of May 2009.
f2lKEMPTON SIDENT
J6JL
MARSHA H. SMITH, COMMISSIONER
~~~
MACK A. REDFO ~ C ' SSIONiR
ATTEST:
~~
rtJtJrA.A o!i2J
~bara Barrows
Assistant Commission Secretary
O:IPC-09-np2
ORDER NO. 30829
Idaho Power Company
Summary of Revenue Requirement
RATE BASE
Electric Plant in Service:Intangible Plant Production Plant
Transmission Plant Distribution Plant General Plant Total Electric Plant in Service
Less: Accumulated Depreciation
Less: Amortization of Other Plant Net Electric Plant in Service 10 Less: Customer Adv for Construction 11 Less: Accum Deferred Income Taxes 12 Add: Plant Held for Future Use 13 Add: Working Capital 14 Add: Conservation - Other Deferred progr $15 Add: Subsidiary Rate Base
16 TOTAL COMBINED RATE BASE
NET INCOME
Operating Revenues:17 Sales Revenues18 Other Operating Revenues19 Total Operating Revenues
Operating Expenses:
Operation & Maintenance Expenses
Depreciation Expenses
Amortization of Limited Term Plant
Taxes Other Than Income
Regulatory Debits/Credits25 Provision For Deferred Income Taxes26 Investment Tax Credit Adjustment27 Federal Income Taxes28 State Income Taxes29 Total Operating Expenses30 Operating Income31 Add: IERCO Operating Income32 Consolidated Operating Income
33 Rate of Return as filed
34 Proposed Rate of Return
Earnings Deficiency
Add: Construction Work in Progress
35 Earnings Deficiency w/CWIP
36 Net-to-Gross Tax Multiplier
37 Revenue Deficiency
Firm Jurisdictional Revenue
AMI
Idaho
302,428
831 765
13,134 193
262 950
32,423
838 820
036 211
802,609
Idaho
(262 828)
227 270
119,412
072,421
830 654
900 057)
004 896)
081 976
081 976)
081,976)
159.94%
18%
393 029
393 029
642
10,497 354
ATTACHMENT A
()RDER NO. 30829
-=:ASE NO. IPC-09-