20100528final_order_no_31081.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 IMPLEMENT FIXED
COST ADJUSTMENT RATES FOR
ELECTRIC SERVICE FROM JUNE 1,2010
THROUGH MAY 31 , 2011
CASE NO. IPC-I0-
ORDER NO. 31081
On March 15 , 2010, Idaho Power Company filed an Application for an order
authorizing the Company to implement Fixed Cost Adjustment (FCA) rates for electric service
from June 1 , 2010, through May 31 , 2011. In March 2007, the Commission approved a
Stipulation implementing a three-year Fixed Cost Adjustment pilot program applicable to
residential service and small general service customers. The third year of the initial pilot
program ended December 31 , 2009, and the rates proposed by the Company in this case will
recover the FCA accrual during 2009. The Commission recently approved a two-year extension
of the FCA pilot program. Order No. 31063.
The FCA mechanism separates the collection of Idaho Power s fixed costs from its
volumetric energy sales and provides a surcharge or credit when fixed-cost recovery per
customer varies above or below a Commission-established base. The FCA allows the Company
to recover the difference between certain fixed costs recovered in rates and the fixed costs
authorized for recovery in the Company s most recent rate case. To determine the actual fixed-
cost recovered amount, the Company takes weather-normalized sales for each class and
multiplies that sales figure by the fixed-cost per energy rate as established in the Company
general rate case. The Company s Application states that the FCA for the residential class
amounts to an increase of $5 173 650. If collected individually from the residential class, these
customers would receive a 1.5% increase in residential rates to collect additional fixed costs
through the FCA.
The 2009 FCA accrual for the small general service class is also an increase, but in
the lesser amount of$I 165 110. The additional revenue to be recovered from the small general
service class would amount to an 8.49% rate increase. The Company proposed combining the
rate increase for the residential and small general service customers, resulting in an increase
ORDER NO. 31081
through the FCA of 1.85% for both customer classes. Idaho Power requests that the new FCA
rate become effective June 2010.
On April 15, 2010, the Commission issued a Notice of Application and Notice of
Modified Procedure establishing a comment period of 21 days. Written comments were filed by
Commission Staff and approximately 14 members of the public.
WRITTEN COMMENTS
Public Comments
All of the customer comments oppose an increase in any Idaho Power rate. Some
customer comments on the FCA were part of objections to other proposed increases, including
for installation of advanced meters and funding for pension contributions. See Case Nos. IPC-
10-06 and IPC-I0-08.Several customers, aware that the FCA increases when average
customer energy use declines, object to the idea of consuming less but paying more. For
example, one customer stated: "The more we save, the less they have to produce: followed by
subsequent rate increase requests to keep the money flowing in at the same level." Another
customer found 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." One customer compared his energy consumption on two different meters during
2009 and 2010, and the relative effect on rates. The customer s usage on one meter declined
17%, but his bill declined 2%. On the second meter, energy consumption dropped 23% and
billing decreased only 10%. Several public comments expressed frustration at a rate increase in
a particularly difficult economic environment.
Staff Comments
Staff in its comments supports the FCA rate proposal in Idaho Power s Application.
Staff verified the Company s calculation of the use of a fixed-cost per customer component and
the fixed-cost per energy component, the accumulation of fixed costs deferred in 2009 and the
resulting FCA rate needed to recover the uncollected fixed costs. Staff noted that the
components that make up the FCA changed several times during the last couple of years. For
example, the fixed-cost per customer amount increased from $428.85 to $442.07 per residential
customer per year, and the small commercial customer class fixed-cost per customer component
fluctuated from $294.79 to $285., and ultimately to $292.83 per year.
ORDER NO. 31081
Staff noted that the third year of the pilot program was the second time that average
residential use declined relative to the established base year, resulting in an increase in the FCA
rate. The small commercial customer class experienced a decline in use per customer compared
to the base period in each of the years that the FCA has been in place. Staff verified the
Company s calculation of the unrecovered 2009 fixed costs for the residential and small
commercial classes. If the recovery amounts for each class were allocated separately, residential
customers would receive an FCA surcharge of 0.1036 cents per kWh, a 1.5% increase, and the
small commercial customers would receive a surcharge of 0.7029 cents per kWh, an increase of
8.49%. The three percent cap in place on FCA increases would reduce the commercial class
FCA to approximately 0.25 cents per kWh and the balance would be deferred for future
collection. The Company proposed blending the surcharge and spreading it uniformly to both
customer classes on an equal percentage basis, resulting in a surcharge of 1.85% for residential
and small commercial customers.
Staff comments support the Company s proposal to spread the FCA rate on an equal
85% increase to both classes of customers. The resulting residential FCA rate would increase
from 0.0529 cents per kWh to 0.1218 cents per kWh. The resulting FCA rate for small
commercial customers is 0.1535 cents per kWh. The net balance of the 2009 FCA accrual is
338 761.
Idaho Conservation League (ICL)
The Idaho Conservation League (ICL) filed comments supporting the FCA
mechanism, but recommended the Commission address specific concerns that ICL believes are
sharply defined" by the implementation of new FCA rates. The issues identified by ICL are (1)
how to address the conflicting price signal sent to ratepayers when reduced energy consumption
results in a rate increase; (2) how to ensure consistent and verifiable data is used in computing
the FCA; and (3) whether to allocate the FCA to residential and small general service classes
together or separately. ICL Comments, pp. 1-2. ICL noted that for three years during the pilot
program residential customers reduced their average energy consumption and yet received an
increase in rates. To address this issue, ICL suggested the Commission require Idaho Power to
better articulate the benefits customers receive from the FCA mechanism." ICL Comments
, p.
ORDER NO. 31081
Regarding the second issue, ICL asserted that the proposed rate calculations are not
based on verifiable and auditable data and thus "do not ensure the mechanism focuses on driving
greater investment rather than insulating the Company from all fixed cost recovery risks." ICL
Comments, p. 2. The primary goal of the FCA is to allow recovery of fixed costs not collected
by Idaho Power that specifically result from reduced energy consumption attributable to its DSM
activities, and ICL believes the current FCA mechanism captures foregone fixed costs
attributable to any number of factors.To address this problem, ICL recommended the
Commission either reduce Idaho Power s authorized rate of return to account for the
shareholders' reduced cost recovery risk , or require Idaho Power to bear the burden of proving
the percentage of the total reduced consumption attributable to DSM investments and calculate
FCA rates that return only this portion of authorized fixed costs recovery. ICL prefers the
second option "because it seems to more accurately address the issue at hand, is simpler than
calculating a proper reduction of the rate of return and properly incents the Company to establish
that the FCA addresses the inherent disincentive to make DSM investments." ICL Comments
, p.
The third issue identified by ICL is the question of whether the FCA rate should be
blended between the residential and small general service classes or remain separate. ICL noted
that different explanations have been provided by Staff and the Company to support a blended
FCA rate, including that allocating the FCA equally has a small impact on residential customers
and avoids a large impact to small general service customers, or that applying the FCA equally
prevents an undue hardship to the small general service class.
ICL stated it "wholeheartedly" supports the FCA mechanism, but only insofar as it
removes the disincentive to invest in DSM programs. To address the issues it discussed, ICL
recommended the Commission either convene a hearing or instruct Staff to convene a formal
workshop on the FCA issues.
COMMISSION DISCUSSION
The issue presented by Idaho Power s Application in this case is whether the rates the
Company proposed for recovery of the 2009 FCA accrual are appropriate. More specifically,
given that the FCA was in place during 2009, did the Company properly determine the accrual
amount and calculate the necessary rates to recover that amount? A secondary issue is whether
the FCA rate increase should be shared uniformly to residential and small commercial customers
ORDER NO. 31081
on an equal percentage basis. The record on these issues supports the Company s calculation of
the FCA for the third year of the pilot program, and the Commission thus has concluded to
approve Idaho Power s Application for new FCA rates effective June 2010.
The record establishes that the net FCA accrual for 2009 is $6 338 761. Staff verified
that the Company properly calculated the fixed-cost per customer component and the fixed-cost
per energy component of the FCA for 2009. Staff Comments, pp. 2-3. Both the residential and
small commercial customer classes saw a decline in average energy sales compared to the base
period applicable to the FCA, resulting in an accrual of unrecovered fixed costs. Staff
Comments, pp. 3-4. If the amount to be recovered was allocated separately to each customer
class, residential customers would receive a surcharge of 0.1036 cents per kWh and the small
commercial customer surcharge would be 0.7029 cents per kWh. The Company and Staff
support spreading the FCA accrual between the two customer groups, resulting in FCA rates of
0.1218 cents per kWh for residential customers and 0.1535 cents per kWh for the commercial
customers. Spreading the FCA accrual evenly between the customer classes has a minimal
impact on the residential rate and allows recovery of the full FCA amount, thereby avoiding an
increasing deferral balance in the FCA account.
On the record in this case, the Commission approves FCA rates, effective June
2010 through May 31 , 2011 , of 0.1218 cents per kWh for residential customers and 0.1535 cents
per kWh for the commercial customers. The Commission appreciates the thoughtful comments
filed by customers of Idaho Power and the concerns raised by ICL in its comments. The
problems inherent in the FCA, including that customers might see small rate increases at the
same time their energy use is declining, caused the Commission to decline Idaho Power s request
in a separate case to make the FCA a permanent program. See Case No. IPC-09-28. We noted
that ongoing issues and potential concerns with the FCA made making it permanent premature
and instead directed that it should continue as a pilot program for two more years, starting
January 2010. Order No. 31063. During that time, the Commission expects additional data to
develop, giving interested parties and customers time to evaluate it and address issues of
concern. Discussion of those issues, and how to correct problems with the FCA, will be part of
another case before the two-year pilot extension ends.
ORDER NO. 31081
ORDER
IT IS HEREBY ORDERED that the Application of Idaho Power Company for
authority to implement Fixed Cost Adjustment rates for electric service from June 1 , 2010
through May 31 , 2011 is approved. The Commission approves FCA rates, effective June 1 , 2010
through May 31 , 2011 , of 0.1218 cents per kWh for residential customers and 0.1535 cents per
kWh for the commercial customers.
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.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this :LflfI-
day of May 2010.
JI. JI . KEMPTON, P IDENT
d5kiA
MARSHA H. SMITH, COMMISSIONER
MACK A. REDFORD, COMMISSIONER
ATTEST:
~~.~
Je D. Jewel
Commission Secretary
bls/O:IPC-IO-O7 ws2
ORDER NO. 31081