20100506Comments.pdf

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720'
BOISE, IDAHO 83720-0074
[phone]
BARNO. 1895
REC D
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Uí\\.rnES
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
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-E-IO-6
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilties Commission (Commission), by
and through its attorney of record, Scott Woodbury, Deputy Attorney General, and in response to
the Notice of Application, Notice of Modified Procedure and Notice of Comment/rotest Deadline
issued on April 6, 2010 in Case No. IPC-E-I0-6, submits the following comments.
APPLICATION
On March 15,2010, Idaho Power Company (Idaho Power; Company) fied an Application
with the Idaho Public Utilties Commission (Commission) requesting authority to implement a
0.41 % uniform increase in rates due to the inclusion of Advanced Metering Infrastructure (AMI)
investment in rate base. The Company's filing is accompanied by workpapers and supporting
testimony.
The proposed increase in rates requested by Idaho Power is the result of including the
Company's investment in AMI for a 2010 test year into the Company's rate base/revenue
STAFF COMMENTS 1 MAY 6, 2010
requirement. 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 pre-existing metering plant, the reduced O&M
expenses due to operating efficiencies that are gained from the AMI deployment, and incremental
tax impacts.
As reflected in the Company's filing, its investment associated with the installation of AMI
grew 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 Company's test year data
indicates a revenue deficiency of $2,358,085 for the Idaho jurisdiction.
Idaho Power proposes a uniform percentage increase of 0.41 % to base revenues for 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.
Given the 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 contends the proposed test year and recovery
of the resulting revenue requirement is a necessar component to allow it to continue moving
forward with its three-year AMI deployment. 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-E-08-16, Application, p. 11), and the Commission's prior
authorization of 2009 AMI investment recovery ($10,497,354 or 1.83% uniform increase in rates)
in Order No. 30829, Case No. IPC-E-09-07.
STAFF ANALYSIS
Staffhas reviewed the Company's Application, the testimony of Ms. Courney Waites and
accompanying exhibits along with prior information on record from prior cases and Orders issued
by this Commission. Staff and the Commission have long been supportive of the Company's
efforts to deploy AMI throughout its service territory, recognizing the benefits of reduced meter
reading expenses and providing a solid platform for other efficiency pricing structures. Following a
thorough review, Staff supports the Company's request to increase its rates effective June 1,2010
due to the inclusion of Advanced Metering Infrastructure investment in rate base. However, Staff
STAFF COMMENTS 2 MAY 6, 2010
proposes an increase of $1 ,926,523 or 0.27%, which is $431,562 less than requested by the
Company. The difference is because Staff believes the Company's revenue deficiency calculation
understates the O&M benefits and effciencies attributable to the Advanced Metering Infrastructure.
Staff s calculated revenue deficiency is shown on Attachment A.
In Order No. 30726 issued on Februar 12, 2009, in Case No. IPC-E-08-16, 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-E-09-07, the Commission authorized the
Company to recover its investment in AMI based on a 2009 test year, as opposed to a completely
forecasted test year ending May 31, 2010.
Consistent with the methodology approved in Order No. 30829, the Company 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 $48,348,827. This total is
approximately $3.5 milion higher than the Company's original commitment estimate and can be
attributed to the Company ruing slightly ahead of schedule and equipment orders arrving early.
Staff is not concerned with the overage at this point because it does not appear that it wil 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. 30726.1
The Company continues to accelerate the depreciation on the pre-existing metering
equipment over a three-year period. The accelerated depreciation included for 2010 is
$10,551,216. This amount is $2,586,193 higher than the annualized accelerated depreciation
included in the IPC-E-09-07 case. The difference is attributed to an understatement of the plant
value of the existing metering equipment on May 31, 2009, because the Company did not include
the impacts of the reserve balance in the 2009 estimate. Staff 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 anualized rate of
i The original Commitment Estimate of $70.9 milion 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.
STAFF COMMENTS 3 MAY 6, 2010
$10,551,216, which the Company included in its calculation of revenue deficiency in the current
case.
The projected O&M benefits to be received during 2010 from the installation of AMI are
$3,150,708. This amount consists of$I,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
are diffcult to verify, deployment of AMI has stil created actual reductions in O&M Expenses
due to operating efficiencies. The Company claims that customers received benefits of $262,827
in 2009, which is correct, and then reduces the 2010 benefits by that amount. Because the listed
benefits to O&M on the Company's Exhibit NO.2 are not cumulative, Staff does not agree with the
benefit reduction. The benefits listed in 2009 were received in 2009, and the amounts for 2010 are
independent of any previous benefits and do not include amounts for 2009. Had the Company
listed the accumulation of ongoing benefits from one month to the next on Exhibit No.2, the
benefits listed for each month would increase over the previous month. Since this does not occur,
the amounts listed on Company Exhibit NO.2 for benefits to be received in 2010 do not include
any benefits already received in 2009. 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 are the same
projected benefits that the Company fied in Case No. IPC-E-08-16 when the Company first
applied for the Certificate of Public Convenience and Necessity. The Company 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 fies for its next general rate increase,
many of these benefits wil be captured and wil be more accurately reflected in the resulting
revenue requirement. Therefore, Staff recalculated the Company's revenue deficiency using the
actual O&M benefits received in 2010.
Staffs proposed 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 $1 ,926,523, which is an average increase in Idaho
jurisdictional revenue of 0.27 percent. Because this revenue is only being applied to those
customer classes receiving the AMI meters, the actual increase to those customer classes is greater,
as discussed in further detail below.
STAFF COMMENTS 4 MAY 6, 2010
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 affected classes are
Schedule 1 - Residential Class, Schedule 3 - Master Metered Mobile Home Park, Schedule 4 -
Residential Energy Watch Program, Schedule 5 - Residential Time of Day Program, Schedule 7-
Small General Service, Schedule 9s - Large General Secondary Service, Schedule 24s -,
Agricultural Secondary Service, Schedule 41 - Street Lighting Service, and Schedule 42 - Traffic
Control Signal Lighting Service. The Base Revenue of each class wil increase 0.33 percent to
recover the $1,926,523 revenue deficiency from the deployment of AMI. Staff agrees with this
methodology to spread the AMI revenue requirement uniformly using the base revenue of each
class. Staff and Company proposed revenue spread is shown on Attachment B.
In the first year AMI rate recovery case (IPC-E-09-07), the revenue requirement was
spread across the energy charges for all affected classes. In this case, the Company proposed 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 proposed to spread the revenue
requirement across service and demand charge for Schedules 9 - secondary and 24 - secondar.
From the Company's response to Staff Production Request No.5, the "proposal to spread the
revenue requirement for AMI was a policy decision made to align methodologies between all
fiings the Company made with the (Commission) requesting a June 1 effective date." The other
three fiings that have the same effective date and incorporate the same proposed rate design are
IPC-E-09-30, the Accounting Order to Amortize Deferred Tax Credits and Approve Stipulation,
IPC-E-1O-08, the Company's Application to Increase its Rate due to its 2010 Cash Contribution to
Defined Benefit Pension Expense and IPC-E-1O-12, the Company's Application to Implement
Power Cost Adjustment (PCA) Rates.
According to Idaho Power, the revenue requirement in this case should be spread to
customer classes and rate components in the same maner as the base rate revenue requirement
increase approved in Case No. IPC-E-09-30. Spreading revenue requirement to the various classes
on this basis is consistent with the class revenue spread approved by the Commission in the first
year AMI rate recovery case and is supported by Staff in this case.
Staff also supports the Company's proposal to increase the rate components in the various
affected rate classes. The approved Stipulation in IPC-E-09-30 specified that customer charges
would not increase in the residential and small commercial classes. Staff agrees that the customer
STAFF COMMENTS 5 MAY 6, 2010
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
wil 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. Staff and Company-
proposed rate components increase as shown on Attachment C.
CONSUMER ISSUES
Customer Notice & Press Release
The Press Release and Customer Notice were included in Idaho Power's Application. The
Application was received on March 16,2010. The Customer Notices were provided to customers
in bil statements from March 23 to April 21.
Customer Comments
As of April 29, 2010, fourteen (14) Idaho Power customers had submitted comments
regarding the proposed increase in rates due to the inclusion of Advanced Metering Infrastructue
investment in rate base. Thirteen comments oppose any increase in rates and one comment was in
favor of the Company's proposaL. While Staff is also concerned about the resulting rate increase in
this case, we believe that the overall increase wil be less than it otherwse would have been
without AMI and wil ultimately provide customers with tools to better control energy
consumption.
RECOMMENDATION
After a review of the filing and additional information provided by the Company, Staff
recommends that the Commission approve an increase of$I,926,523 to Idaho Power's annual
revenue requirement for the test year ending December 31, 2010 effective June 1, 2010. Staff
recommends a 0.33 percent base revenue increase for each affected customer class spread to rate
components as proposed by the Company.
STAFF COMMENTS 6 MAY 6, 2010
Respetfly submitted this 6 ~daY of May 2010.
Technical Staff: Donn English
Daniel Klein
TJ. Golo
i:umisc:commentsipce 10.6swdetjdk
STAFF COMMENTS 7
Scott Wood ur
Deputy Attorney General
MAY 6, 2010
Idaho Power Company
Summary of Revenue Requirement
2010 Test Year
RATE BASE
Electric Plant in Service:1 Intangible Plant $2 Production Plant $3 Transmission Plant $4 Distribution Plant $5 General Plant $6 Total Electric Plant in Service $
7 Less: Accumulated Depreciation $
8 Less: Amortization of Other Plant $9 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 Prograrr $15 Add: Subsidiary Rate Base $
16 TOTAL COMBINED RATE BASE $
AMI
Idaho
586,742
24,894,976
25,481,718
13,161,203
17,650
12,302,865
1,061,047
11,241,818
NET INCOME Idaho
Operating Revenues:
17 Sales Revenues 0
18 Other Operating Revenues 0
19 Total Operating Revenues 0
Operating Expenses:
21 Operation & Maintenance Expenses (1,444,116)
22 Depreciation Expenses 2,809,801
23 Amortization of Limited Term Plant 209,784
24 Taxes Other Than Income 0
Regulatory Debits/Credits 0
25 Provision For Deferred Income Taxes 49,673
26 Investment Tax Credit Adjustment (283,700)
27 Federal Income Taxes (472,876)
28 State Income Taxes (629,146)
29 Total Operating Expenses 239,420
30 Operating Income (239,420)
31 Add: IERCO Operating Income 0
32 Consolidated Operating Income (239,420)
33 Rate of Return as filed -2.13%
34 Proposed Rate of Return 8.307%
Earnings Deficiency 1,173,278
Add: Construction Work in Progress 0
35 Earnings Deficiency w/CWIP 1,173,278
36 Net-to-Gross Tax Multiplier 1.642
37 Revenue Deficiency 1,926,523
38 Firm Jurisdictional Revenue 705,392,731
39 REVENUE REQUIREMENT 707,319,254
40 Percentage Increase Required 0.27%Attachment A
Case No. IPC-E-I0-6
Staff Comments
5/6/10
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IPUC Staff
Rate Increase Summary by Customer Class
State of Idaho
AMI Investment In Rate Base Case No. IPC-E-l0-06
IPC Staff
Proposed Proposed
Rate Increase Rate Increase
Schedule 1
Energy Charge, per kWh
Summer
First 800 kWh
801- 2000 kWh
All Additional kWh Over 2000
Non-summer
First 800 kWh
801-2000 kWh
All Additional kWh Over 2000
Schedule 3
Energy Charge, per kWh
all kWh
Schedule 4
Energy Charge, per kWh
Summer
All other hours
Non-summer
First 800 kWh
801-2000 kWh
All Additional kWh Over 2000
Schedule 5
Energy Charge, per kWh
Summer
On-Peak
Mid-Peak
Off-Peak
Non-summer
First 800 kWh
801-2000 kWh
All Additional kWh Over 2000
Schedule 7
Energy Charge, per kWh
Summer
First 300 kWh
All Additional kWh
Non-summer
First 300 kWh
All Additional kWh
0.43%0.35%
0.43%0.35%
0.43%0.35%
0.43%0.35%
0.43%0.35%
0.43%0.35%
0.41%0.33%
0.41%0.35%
0.43%
0.43%
0.43%
0.35%
0.35%
0.35%
0.41%0.35%
0.41%0.35%
0.41%0.35%
0.43%0.35%
0.43%0.35%
0.43%0.35%
0.45%
0.45%
0.37%
0.37%
0.45%
0.45%
0.37%
0.37%
Attchment C
Case No. IPC-E-I0-6
Staff Comments
5/6/10 Page lof2
IPUC Staff
Rate Increase Summary by Customer Class
State of Idaho
AMI Investment in Rate Base Case No. IPC-E-10-06
Schedule 9s
Service Charge, per month
Summer and Non-Summer
Demand Charge, per kW to Billing Demand
Summer
First 20 kW
All Additional kW
Non-summer
First 20 kW
All Additional kW
Energy Charge, per kWh
Summer
First 2,000 kWh
All Additional kWh
Non-summer
First 2,000 kWh
All Additional kWh
Schedule 24s
Service Charge, per month
In-Season
Out-at-Season
Demand Charge, per kW to Billing Demand
In-Season
Out-at-Season
Energy Charge
In-Season
First 1 64 kWh per kW at Demand
All Other kWh per kW at Demand
Out-at-Season
All kWh
Schedule 41
Energy Charge, per kWh
Metered Service (w/ Maintenance), per lamp
Metered Energy-Only Service (No Maintenance)
Schedule 42
Energy Charge, per kWh
IPC Staff
Proposed Proposed
Rate Increase Rate Increase
0.40%0.32%
0.00%
0.25%
0.00%
0.25%
0.00%
0.31%
0.00%
0.31%
0.43%
0.45%
0.36%
0.35%
0.43%
0.45%
0.35%
0.34%
0.32%
0.00%
0.32%
0.00%
0.41%
0.00%
0.41%
0.00%
0.41%
0.41%
0.33%
0.33%
0.42%0.34%
0.45%
0.45%
0.37%
0.37%
0.41%0.33%
Attachment C
Case No. IPC-E-1O-6
Staff Comments
5/6/10 Page 2 of 2
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 6TH DAY OF MAY 2010,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-E-1O-06, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
DONOV AN E WALKER
LISA D NORDSTROM
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: dwalkerêidahopower.com
lnordstromêidahopower.com
COURTNEY WAITES
GREG SAID
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: cwaitesêidahopower.com
gsaidêidahopower.com
CERTIFICATE OF SERVICE