20100505ICL Comments.pdf

Benjamin J. Otto
ISB No. 8292
710 N 6th Street
PO Box 844
Boise,ID 83701
Ph: [phone] x 12
Fax: [phone]
botto~idaoconservation.org
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IDAHO PUc,Li'''.. êY.
UTlUTiES COMMiS~lvN
Attorney for Idao Conservtion Leage
BEFORE 1H IDAHO PUBliC UTIliTIES COMMISSION
IN THE MAITR OF 1H
APPliCATION OF IDAHO POWER
COMPANY FOR AUTHORITY TO
IMPLEMENT FIXED COST
ADUSTMENT (FCA) RATES FOR
ELECTRIC SERVICE FROM JUNE 1,
2010, THOGH MAY 31,2011.
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CASE NO. IPC-E-1O-07
COMMENTS OF
IDAHO CONSERVATION LEAGUE
Please consider the followig comments of the Idao Conservation League. As Idao's
largest state-based conservtion organization, we represent over 9,500 members many of whom
are customers of Idao Power. As cusomers of Idaho Power, ICL and its members have a deep
interest in promoting the efficient use of our energy resources in order to protect clean air, water,
and open space. Whe not an offcial intervenor in this cas, ICL has played an active roll in the
administration of the FCA.
BACKGROUND.
As we argued in Case No. IPC-E-09-28, ICL believes the FCA is an important tool for
removig the disincentive to reduce energy demand inherent in traditional rate makg. Because
of this importance, ICL is pleased the Commission extended the FCA pilot for an additional two
years. See Order No. 31063. However, In that case, ICL raised three significant issues regadig
the detais of the FCA mechanism. The Commission summared these as "how to address the
conflicting price signal sent to ratepayers when reduced energy consumption results in a rate
ICL Comments 1 May 5,2010
increase; how to ensure consistent, verified, and auditable data is usd in computing the FCA; and
whether to allocate the FCA to the residential and smal general servce çlass together or
separately." Id., at 8. In considerig the FCA program generaly, the Commision rued these
"issues have not been addressed or . . . remai un resolved ( .)" Id. By approvig the FCA rates in
this case without indicating how or when these issues wil be resolved, the Commission wi tum
the theoretical impacts of these problems into the practical.
ISSUES
ICL believes Idao Power's curent application to implement fixed rates for 2010-2011
implicates the exact same issues. Furhermore, because this case focuses on the practical impact of
the mechanism, these issues are more sharply defined than before. First, the rates Idao Power
requests are the precise price signal consumers wil receive. For three year now residential
customers have reduced their average energ consumption and been rewarded by an increase in
rates. ICL firmly believes that this reduction is more than offset by lower bils and the avoided
costs of new supply side resources. To address this issue, ICL submits thr Commission should
requie Idao Power to better ariculate the benefits customers receive from the FCA mechaism.
For example, the Company could include a notation on the bil explaining the avoided costs
caused by reducing individua consumption.
Second, because these rate calculations are not basd on veriable and auditable data
isolating the impact of Idao Power's DSM investments, these rates do not ensure the mechanism
focuses on drving greater investment rather than insulating the company from al fixed costs
recovery risks. ICL offers a possible solution for this problem below.
Thrd, these FCA rates continue to requie the residential customers to subsidize the smal
general servce class. To date the Commission has not articulated a reason for thi subsidition.
In the 2008-2009 FCA rate cae, the Staff suggested alocting the FCA equaly becaus the
ICL Comments 2 MayS, 2010
individua increase to the smal general servce clas would have been over the 3% cap, and the
fixed cost n umbers were based on an unapproved cost of servce study. Comments of Commission
Staff Case IPC-E-08-04, at 5-6; See Order No. 30556, at 2-3. Idao Power offered a different
justification, that "spreadig the deferr equaly between the classes recognizes a power supply
portfolio approach to energy effciency(.)" Order No. 30556, at 4. The Commission did not
endorse either rationale specifically in findig it "just and reasonable to distribute" the FCA
equay. Id., at 5.
For 2009-2010, the Staff explained that individua allocation is ((an inexact science" and
allocating the FCA equaly would have a smal impact to residential customers whie avoidig a
large impact to smal genera servce customers. Comments of Commission Staff Case IPC-E-09-06,
at 5. Idao Power offered no reason other than being ((consistent with the methodlogy applied
in the first year of the FCA pilot." Application of Idaho Power, Case IPC-E-09-06, at 4. Aga,
the Commission offered no rationale for its findig that cross class subsidiation was just and
reasonable. Order No. 30827, at 3-4.
For 2010-2011, Idaho Power picks up one justification offered by the Staff, that applyig
the FCA equaly prevents ((undue hardship" to the smal genera servce class. Direct Testimony of
Sparks, at 17-18. Furher, Idao Power alleges they are being ((consistent with the methodology
applied in the first two year of the FCA pilot(.)" Application, at 4. But in reality, a new feature
has arrved in the methodology, the use of different rate adders for each clas. Mr. Sparks explais
that ((by not applyig the same rate adder to the residential and smal general servce class as
done in the first two years of the FCA pilot, the company collects a more representative amount
of requied fixed costs from each class." Sparks Direct, at 18. Whe ICL supports this explanation
for applyig a different rate adder to each clas, we believe it is time for the Commission to
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explai why some level of cross class subsidiation is just and reasonable.
ICL Comments 3 May 5,2010
Ths case also rases the same issues identified by the PUC Staff and other paries in the
prior FCA rate cases, IPC-E-08-04 and IPC-E-09-06. Firt, Staff noted in the 2009-2010 FCA
rate case that newly implemented tiered rates and potential rate increass in June of 2009 ((could
and should" cause per customer energy consumption to decline. Order No. 30827, at 3. For
2010-2011, Mr. Sparks notes these new rate designs, ((to encoure the effcient use of electricity,"
went into effect in Februar of 2009. Sparks Direct, at 9. However, neither Idao Power's
application, nor Mr. Sparks' testimony, explais how these rates may relate to reduced energy
consumption measured durg the year, or if the forgone fixed costs that might be attributable to
these rates shonld be recovered though the FCA. ICL submits that the new rate designs should
have accounted for fixed cost recovery outside of the FCA mechanism.
Second, Staff and the Commission have repeatedly explaied that the priar goal of the
FCA is to true up authorized fixed costs not collected by Idao Power due to reduced energy
consumption attributable to their DSM activities. However, the curent mechanism, and thus the
rates proposed in this application, captures forgone fixed costs attributable to any number of
factors. In the 2008-2009 FCA rate case Staff calculated that Idao Power's DSM investments
accounted for 14% of the measured reduction in energy consumption. i See Comments of
Commission Staff Case No. IPC-E-08-o4, at 10-11. For the 2009-2010 FCA rates, Staf calculated
that Idaho Power's DSM activity accounted for 23% of the total decline in consumption for both
the residential and sm"a general servce customers. See Order No. 30827, at 3 n.1. Despite two
years of ariculating the need for Idao Power to more clearly delineate the level of reduction
attributable to their DSM investments, the Company's curent application continues to recover
all forgone fixed costs regadless of the cause.
COMMENTS
i Staff calculated that Residential customers accounted for 1 % of the decline whie smaUgeneral
servce consumption dropped by 13%. Idao Power could not explai what factors drove the
decline in the small genera servce clas.
ICL Comments 4 May 5,2010
ICL wholehearedly supports the FCA mechaism, but only in so far as it removes the
disincentive to invest in DSM. To the extent the FCA mechanism insulates Idao Power from
the risks of forgone fixed cost recovery caused by other factors, ICL believes the FCA should not
shift this risk onto customers as it curently does. To remedy this issue ICL submits two proposas.
One option is the Commission could reduce Idao Power's authoried rate of retur to
account for the shareholders' reduced cost recovery risks. In their origial application to create the
FCA pilot program, Idao Power ared "that reguatory mechanisms that improve the Company's
abilty to recover its costs are perceived by the debt rating agencies and financial community as
positive attributes and may have the effect of reducing the Company's cost of capital." Order No.
31063, at 7. Since then, Idao Power has never offered to share this reduced cost with ratepayers.
Alternatively, the Commission could require Idao Power to bear the burden of provig
the percentage of the total reduced consumption attributable to DSM investments, and then
calculate FCA rates that retur only this portion of forgone authoried fixed cost recovery. ICL
prefers this option becaus it seems to more accurately address the issue at hand, is simpler than
caculating a proper reduction of the rate of retur, and properly incents the Company to establish
that the FCA addresses the inherent disincentive to make DSM investments. Ths option
addresses a primar concern of Staff, that determining the impact of the FCA is exceedigly
dificult, by placing the burden on the pary who already has the data and capacity to make this
determination. Furher, if Idao Power must prove the amount of forgone fixed costs attributable
to their DSM investments, then the FCA rates wi more accurtely align with the overrdig goal--
removig the disincentive.
ICL acknowledges this is a complicated and novel suggestion and aserts this is precisely
why the Commission should either hold a hearg in this case or instruct the Staff to convene a
formal workshop on the FCA. Just last month, in extendig the FCA pilot for an additional two
years, the Commission explaied ('(tJhere must be a demonstrable nexus between the FCA and
ICL Comments 5 MayS, 2010
the Company's investment in effciency programs," but that Idao Power did not provide this
nexus. Order No. 31063, at 8. In prior FCA rate cas, and hopefully in the present case as well,
the Staff seemed to have identified a nexus represented by their percentage of reduction
attributable to DSM measures calculations. Presumably, the Staff uncovered sufficient data to
make this calculation with some level of confidence. ICL submits that the identifcation of this
issue for severa years and the Staffs apparent abilty to determine a nexus durg this time should
address the Commission's concern "that it is too early to determine specific changes should be
made to the FCA(.)" Id., at 9.
CONCLUSION
ICL aggess with the Staff and Commissions repeated findig that traditional ratemakg
creates a disincentive for utilties to reduce energy demand Accordigly, ICL wholehearedly
supports the FCA mechanism, but only in so far as it removes the disincentive to invest in DSM.
To address the issue of the FCA capturng al forgone fixed costs regardless of caustion, ICL
suggests returing only that portion of forgone fixed costs the Company ca prove are attributable
to their DSM investments. By applyig for these FCA rates, the issues are more sharly defined
and ICL urges the Commission to indicate precisely when and how it wi require al paries to
resolve them.
DATED this 5th day of May 2010.
Respec~y submitted,Ør ~
Benjamin J. Otto
On behalf of the Idao Conservtion League
ICL Comments 6 MayS, 2010