20100528final_order_no_31097.pdf

Office of the Secretary
Service Date
May 28, 2010
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-I0-
ORDER NO. 31097
On March 15 , 2010, Idaho Power Company (Idaho Power; Company) filed an
Application with the Idaho Public Utilities Commission (Commission) requesting authority to
implement a 0.41 % average increase in rates for identified class schedules due to the inclusion of
358 085 Advanced Metering Infrastructure (AMI) investment in rate base. The Company
filing is accompanied by workpapers and supporting testimony. The Commission in this Order
approves the Company s Application and proposed increase in rates for a June 2010 effective
date.
BACKGROUND
In Order No. 30726 issued on February 12, 2009, in Case No. IPC-08-, the
Company was granted a Certificate of Public Convenience and Necessity (Certificate) to install
AMI technology throughout its service territory, to accelerate the depreciation of its existing
metering infrastructure, and to include the corresponding Operations and Maintenance (O&M)
benefits as they occur. In Order No. 30829, in Case No. IPC-09-, the Commission
authorized the Company to recover $10 497 354 in AMI investment based on a 2009 test year.
APPLICATION
The proposed increase in rates requested by Idaho Power in this case is the result of
including the Company s Idaho investment in AMI for a 2010 test year in the Company s rate
baselrevenue requirement. The Company s AMI investment grows from $28 589 837 at year-
end 2009 to $47 348 827 by December 31 , 2010. The 13-month average AMI plant in service
for the test year is $38 615 913. The test year indicates a revenue deficiency of $2 358 085 for
the Idaho jurisdiction. App., Waites Testimony Exh. 3. In its calculations, the Company is
reflecting the new investment in AMI and the depreciated metering plant replaced by AMI. The
Company s calculations also reflect the expenses of accelerated depreciation of the preexisting
ORDER NO. 31097
metering plant, the reduced O&M expenses due to operating efficiencies that are gained from the
AMI deployment, and incremental tax impacts. Waites Testimony, p. 4.
Idaho Power contends the proposed test year and recovery of the resulting revenue
requirement is a necessary component to allow it to continue moving forward with its three-year
AMI deployment. The Company cites increased challenges associated with raising capital in the
financial markets during the present financial crisis, as well as the Company s competing needs
for capital investment in other system resources. The Company represents that its proposal is
consistent with its request for a Certificate "to rate base the prudent capital costs of deploying
AMI as it is placed in service " (Case No. IPC-08-, App., p. 11), and the Commission
prior authorization of 2009 AMI investment recovery ($10 497 354 or 1.83% uniform increase in
rates) in Order No. 30829 , Case No. IPC-09-07.
An average increase in Idaho jurisdictional revenue of 0.33% over base rates is
needed in order to recover the $2 358 085 revenue deficiency. Idaho Power proposes recovery
of its AMI investment from customers receiving AMI meters, tariff Schedules 1 , 3 , 4, and 5
(Residential Customers), Schedule 7 (Small General Service), Schedule 9 (Large General
Service - Secondary), Schedule 24 (Agricultural Irrigation Service - Secondary), Schedule 41
(Street Lighting Service - Metered), and Schedule 42 (Control Traffic Signal Lighting Service)
effective June 1 , 2010, for service provided on and after that date. App., Atch. 1; Atch. 3
(proposed revenue requirement spread). The average increase over base rates for the affected
rate schedules is 0.41 %. Waites Testimony, p. 13. To maintain relationships between the rate
components, the Company is proposing to spread the revenue requirement uniformly across all
charges of each affected customer class with the exception of Schedules 1 , 3 , 4, 5 and 7 in which
the Company is proposing to spread the revenue requirement uniformly across only the energy
charges.
On April 6, 2010, the Commission issued Notices of Application and Modified
Procedure in Case No. IPC-10-06. The deadline for filing written comments or protests was
May 6, 2010. Comments were filed by Commission Staff and a number of the Company
customers. On May 13 , 2010, the Company filed Reply Comments. The comments can be
summarized as follows:
ORDER NO. 31097
Customer Comments
Most customers submitting comments in this case oppose the Company
Application. There is only limited support. The following is a representative sampling of the
comments submitted:
Smart metering technology should be funded by the Company, not the
consumer. ... I find it ironic that Idaho Power openly encourages energy
conservation and efficiency improvements by its customers, then expects
to be reimbursed for the revenues lost in the process.
The Company is attempting to lower its business costs by automating
work and eliminating worker s duties. AMI investment should be paid for
by the savings in costs to its employees.
The rate increase being requested is not appropriate at this time
financial stress.
I have looked at this supposedly "smart meter" and all I have ever seen is
a constant number that is there all the time no matter what appliance is
running. With the old wheel I might not have a number but I could have
an idea if the appliance was using a whole lot, moderate or little amounts
by the speed. This thing tells me nothing at all.
. I'm deprived of the right to vote with my feet to shop around and purchase
my electricity elsewhere. Shouldn t these expenses be coming out of
stockholder dividends?
I support the smart meters if they will , in fact, increase efficiency.
In every business I know, when you upgrade, you have to stand the cost
yourself.
. How can this Company keep raising rates?
Enough is enough. It's getting out of hand.
increase. We re in tough times now.
You need to deny this
I think that the service charge for meter reading should be eliminated
when smart meters are installed.
The cost savings should pay for the cost of the new meters and not be
borne by the ratepayers.
ORDER NO. 31097
It's time that the Company hold the line. I know this is a waste oftime but
I want to have my say. Many feel the same way but won t speak up, as it
is a useless exercise. Sincerely disgusted with the greed.
Staff Comments
AMI Investment
Staff in its filed comments recommended that the Commission approve an increase of
926 523 in the Company s annual revenue requirement for the test year ending December 31
2010, effective June 2010 an amount $431 562 less than requested by the Company. The
difference in proposed recovery amounts as calculated by Staff was based on its belief that the
Company s revenue deficiency calculation understated the operation and maintenance (O&M)
benefits and efficiencies attributed to AMI. 1 Staff Comments Atch. A.
Consistent with the methodology approved in Order No. 30829 , the Company, Staff
notes, used a forecasted test year ending December 31 , 2010. The total investment associated
with the installation of AMI, which includes IT expenditures, meter and installation costs, and
station equipment expenses, through year-end 2010 is projected to be $47 348 827. This total is
approximately $3.5 million higher than the Company s original commitment estimate, Staff
states, and can be attributed to the Company running slightly ahead of schedule and equipment
orders arriving early. See Waites Testimony, p. 6. Staff is not concerned with the overage at this
point because it does not appear that it will increase the overall cost of the AMI deployment, and
the Company is committed to absorbing any extra capital costs above the original Commitment
Estimate approved in Order No. 30726?
The Company, Staff notes, continues to accelerate the depreciation on the preexisting
metering equipment over a three-year period. The accelerated depreciation included for 2010 is
$10 551 216. Waites Testimony, p. 9. This amount is $2 586 193 higher than the annualized
accelerated depreciation included in the IPC-09-07 case. The difference, Staff contends, is
attributed to an understatement of the plant value of the existing metering equipment on May 31
I The Company in reply comments represented that the quantification of O&M benefits by Staff was the result of an
initial mischaracterization on the Company s part of incremental savings and cumulative savings. The Commission
is informed that Staff accepts the Company s explanation and concurs in the Company s AMI O&M benefit
calculations.
2 The original Commitment Estimate of $70.9 million approved in Order No. 30726 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 the Application.
ORDER NO. 31097
2009, because the Company did not include the impacts of the reserve balance in the 2009
estimate. Staff states it has discussed this oversight with the Company and agrees that the
reserve balance should be reflected in the net balance of the existing metering equipment subject
to accelerated depreciation. A net plant value of $31 653 649 results in a 36-month straight line
depreciation rate of $879 268 per month, or an annualized rate of $10 551 216, which the
Company included in its calculation of revenue deficiency in the current case. Waites
Testimony, p. 8.
The projected O&M benefits to be received during 2010 from the installation of AMI
are $3 150 708. Waites Testimony, Exh. 4. This amount consists of $1 444 116 of estimated
actual savings that reduce the current rate recovery, and $1 706 592 of avoided rate increases.
Though the avoided rate increases, Staff contends, are difficult to verify, deployment of AMI, it
states, has still created actual reductions in O&M Expenses due to operating efficiencies. The
Company claims that customers received benefits of $262 827 in 2009, which Staff agrees is
correct. The Company, Staff states, then reduces the 2010 benefits by that amount. With the
Company s reply explanation, Staff agrees with the proposed benefit reduction.
Staff believes that Idaho Power also experiences additional efficiency benefits as
AMI is implemented. Staff is not confident that these benefits can be adequately reflected in the
revenue requirement change until a general rate case when all expense categories are reflected.
The O&M benefits listed by Company witness Waites, Staff states, are the same projected
benefits that the Company filed in Case No. IPC-08-16 when the Company first applied for the
Certificate of Public Convenience and Necessity. The Company, Staff contends, has not updated
the benefits of AMI since the deployment began and relies on the projections created prior to the
installation of a single AMI meter. When the Company files for its next general rate increase,
Staff believes many of these benefits will be captured and will be more accurately reflected in
the resulting revenue requirement.
Rate Design
Staff reviewed the Company s methodology for AMI cost recovery, which allocates
the revenue requirement to each class based on their relative Base Revenue. The Base Revenue
of affected classes pursuant to Staff concurrence with the Company s reply comments will
increase 0.41% to recover the $2 358 085 revenue deficiency from the deployment of AMI.
Staff agrees with this methodology. Staff Comments, Atch. B.
ORDER NO. 31097
In the first year AMI rate recovery case (IPC-09-07), the revenue requirement
Staff notes, was spread across the energy charges for all affected classes. In this case, the
Company proposes to spread the revenue requirement across the energy charges for Schedules 1
3, 4, 5, 7, 41 , and 42. However, in addition to the energy charge, the Company proposes to
spread the revenue requirement across service and demand charge for Schedules 9 - secondary
and 24 - secondary. The Company informs Staff that its proposal to spread the revenue
requirement for AMI in this case was a policy decision made to align methodologies between all
filings the Company made with the (Commission) requesting a June 1 effective date. The other
three filings that have the same proposed effective date and incorporate the same proposed rate
design are IPC-09-, the Accounting Order to amortize deferred tax credits and approve
Stipulation; IPC-10-, the Company s Application to increase its rates due to its 2010 cash
contribution to defined benefit pension expense; and IPC-10-, the Company s Application to
implement its yearly Power Cost Adjustment (PCA).
According to Idaho Power, the revenue requirement in this case should be spread to
customer classes and rate components in the same manner as the base rate revenue requirement
increase approved in Case No. IPC-09-30. Spreading the revenue requirement to the various
classes on this basis, Staff agrees , is consistent with the class revenue spread approved by the
Commission in the first year AMI rate recovery case and is supported by Staff.
Staff also supports the Company s proposal to increase the rate components in the
various affected rate classes. The approved Stipulation in IPC-09-30 specified that customer
charges would not increase in the residential and small commercial classes. Staff agrees that the
customer charges for these classes should not be increased in this case also. However, the
proposed uniform increase in Schedule 9 and 24 rate components is consistent with the
previously approved Stipulation and is justified because AMI costs are not driven by energy
consumption alone. Staff will further evaluate both cost allocation to customer classes and the
proper derivation of rate components as part of the next Idaho Power Company general rate case.
Idaho Power Reply Comments
Idaho Power notes that Staff in its filed comments recommended a proposed increase
of $1 926 523, which is $431 562 less than that requested by the Company.Staffs
recommendation, the Company states, is the result of its belief that the Company s calculation of
the revenue deficiency understates the O&M benefits and efficiencies attributable to the AMI
ORDER NO. 31097
investment. The difference between the Company s quantification of the O&M benefits used in
the revenue deficiency calculation for the 2010 test year and Staff s quantification of the O&M
benefits, the Company contends, appears to be due to an initial mischaracterization on the
Company part of incremental savings and cumulative savings which lead to a
misunderstanding on the part of the Staff of what is being represented in the O&M benefits
amounts.
It was not until the preparation of the Company s current Application for authority to
increase rates due to the inclusion of AMI investment in rate base based on a 2010 test year
(Case No. IPC-10-07), the second year of the three-year deployment period, that the Company
states it discovered that the O&M benefits in the initial Certificate case, Case No. IPC-08-
had been incorrectly characterized as incremental savings rather than correctly characterized
cumulative savings. The numbers and the calculations, the Company contends, are correct and
do not change, even between Staffs recommendation and the Company s request. The only
difference is the mischaracterization of those numbers as incremental numbers rather than
cumulative. (See Order, page 4 , footnote 1 - Staff accepts the Company s explanation and
concurs in the Company s AMI O&M benefit calculations.
To calculate the expected O&M benefits, the Company states it compared O&M costs
assuming business as usual (no AMI installation) to expected O&M costs with AMI in place for
each of the three years of the deployment period. This resulted in an expected O&M savings per
year. The O&M benefits identified for the three-year deployment period, shown in Company
witness Courtney Waites' Exhibit No.4 to the Certificate case (Case No. IPC-08-16),
identified savings of $262 828 in 2009, savings of $3 150,708 in 2010 , and savings of
570,400 in 2011.
Staff, the Company notes, expressed concerns with the Company s O&M benefits
quantification stating that "Staff is not confident that these benefits can be adequately reflected in
the revenue requirement change until a general rate case when all expenses categories are
reflected" and that "the Company has not updated the benefits of AMI since deployment began
and relies on the projections created prior to the installation of a single AMI meter." In response
the Company states just as Idaho Power tracks its expenses in new AMI investment and has
provided this information to Staff in production request responses, it has tracked its actual O&M
ORDER NO. 31097
savings experienced in 2009. The Company states that it realized savings of$273 146 in 2009-
very close to the projected savings quantified prior to the installation of a single AMI meter.
COMMISSION FINDINGS
The Commission has reviewed and considered the filings of record in Case No. IPC-
10-06 including the Company s Application and accompanying workpapers and testimony.
We have also reviewed the submitted comments and recommendations of customers and
Commission Staff, and the reply comments of Idaho Power.
In 2009, we authorized the Company to recover the costs of installing AMI
throughout its service territory, specifically including the corresponding operation and
maintenance benefits as they occur. Order No. 30726, p. 10. The instant Application is the
Company s request to recover those costs.
Idaho Power s increase in rate base from the AMI deployment, the accelerated
depreciation of existing metering equipment, and the inclusion of net O&M expenses related to
the AMI deployment create a revenue deficiency of $2 358 085 , which is an average increase in
Idaho jurisdictional revenue of 0.33% over base rates. Waites Testimony, p. 12. Because the
Company proposes that this revenue be collected only from those customer classes receiving the
AMI meters, a 0.41% uniform increase over base rates is requested.Staff concurs and
recommends that the Company s Application be approved. We find the Company s Application
request to be supported by the record developed in this case and find it reasonable to approve the
proposed increase in rates.
As we did in 2009 when we granted Idaho Power a Certificate to install AMI
technology, we continue to find that both present and future public convenience will be served
through the enhanced outage management and billing accuracy, as well as reduced operating and
maintenance expenses, offered by the introduction of AMI technology throughout the
Company s service territory. We also continue to believe that the deployment of AMI
technology will provide an essential platform for time-of-use pricing and other "smart grid"
operations. As reflected in the Company s notice to customers in this case
, "
customers with
smart meters currently have detailed access to their usage, and will eventually be able to become
more energy aware and save money by adjusting their usage to take advantage of lower price
periods if time-of-use rates are implemented for all customers. Smart meters also will allow
ORDER NO. 31097
more customers to participate in more demand-side management programs, such as the
(Company s) A/C Cool Credit air conditioner cycling program.
We note customers ' concerns in this case and remind the Company, as we did before
that in the current economic climate its fiscal responsibility will be reviewed extensively and
continually. As reflected in Idaho Power s reply comments, just as the Company tracks its
expenses in new AMI investment, it also tracks its actual O&M savings. Implementation of
AMI, we find, will inevitably benefit customers and lower the pressure for increased rates.
CONCLUSIONS OF LAW
The Commission has jurisdiction and authority over Idaho Power Company, an
electric utility, and the issues raised in Case No. IPC-10-06 pursuant to Idaho Code, Title 61
and the Commission s Rules of Procedure, IDAPA 31.01.01.000 et seq.
ORDER
In consideration of the foregoing and as more particularly described above, IT IS
HEREBY ORDERED and the Commission does hereby approve Idaho Power s Application in
Case No. IPC-1O-06 and authorizes the proposed 0.41% average increase in base rates for
identified class schedules for a June 2010 effective date. Tariffs conforming with our Order
were filed by the Company as Attachment 1 to its Application for identified class schedules.
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.
ORDER NO. 31097
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this J?!
day of May 2010.
4.
D. KEMPTO , P ENT
MARSHA H. SMITH, COMMISSIONER
MACK A. REDFO
ATTEST:
~(J.
. D. Jewell
Commission Secretary
bls/O:IPC-10-O6 sw
ORDER NO. 31097