20100506Comments.pdf

WELDON B. STUTZMAN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3283
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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 IMPLEMENT FIXED COST ADJUSTMENT )
RATES FOR ELECTRIC SERVICE FROM JUNE)
1,2010 THROUGH MAY 31, 2011. )
)
)
CASE NO. IPC-E-I0-07
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission, by and through its Attorney of
Record, Weldon B. Stutzman, Deputy Attorney General, submits the following comments in
response to Order No. 31045 issued on April 15, 2010.
BACKGROUND
On March 15,2010, Idaho Power Company fied 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 first year of the pilot resulted in a net credit to
customers, while the second year resulted in a net surcharge. The initial pilot ended December
31, 2009, and the rates proposed in this case wil recover the 2009 FCA accrual.
STAFF COMMENTS 1 MAY 6, 2010
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 base amount. To determine the amount actually recovered, the
Company takes weather-normalized sales for each paricipating class and multiplies that sales
figure by the fixed-cost per energy rate approved by the Commission. The FCA allows the
Company to recover or rebate the difference between the fixed costs actually recovered through
rates and the fixed costs authorized for recovery in the Company's most recent general rate case.
THE APPLICATION
According to the Company's Application, the rate of growth in the number of residential
customers continued to outpace the rate of growth in weather-normalized energy sales for the
class in 2009, i.e., the average use per customer declined relative to the 2008 base year. As a
result, the Company states that it under-collected approved fixed costs by approximately $5.2
milion. 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 Company furher states in its Application that the small general service class also
exhibited a decline in average use per customer in 2009 when compared to the base year. The
Company reports that this represents an under-recovery in fixed costs amounting to
approximately $1.2 milion. The additional revenue to be recovered from the small general
service class would amount to an 8.49% rate increase.
However, Idaho Power is proposing to combine the rate increase for the residential and
small general service customers, as has been the case in the previous two FCA filings. Unlike
previous years, the Company proposes to spread the increase on a uniform percentage basis
between the customer classes, rather than an equal cents per kWh basis. Doing so would result
in an increase through the FCA of 1.85% for both customer classes. Idaho Power requests that
the new FCA rate be effective from June 1, 2010 through May 31, 201 1.
STAFF ANALYSIS
2009 Fixed Cost Adjustment (FCA) Calculation
Staff has reviewed the Company's calculations for the third year of the FCA pilot
program, focusing on verification that the Commission-approved methodology was appropriately
applied. Specifically, Staff evaluated and verified the calculation and use of the fixed cost per
STAFF COMMENTS 2 MAY 6, 2010
customer (FCC) and fixed cost per energy (FCE), the accumulation of fixed costs deferred in
2009 and the resulting FCA required to recover uncollected fixed costs. Based on its review of
the fiing, Staff recommends that the Commission accept the Company's proposed net FCA
deferral balance of approximately $6.34 milion.
As indicated in the testimony of Company witness Sparks, the FCC and FCE increased a
number of times for both the residential and small commercial classes due to fixed cost recovery
approved by the Commission in the general rate Case No. IPC-E-08-10. New rates originally
went into effect on February 1, 2009, increasing the authorized FCC from $428.85 to $442.07
per residential customer per year. Upon reconsideration, the Commission modified the
Company's revenue requirement by an additional $6.7 milion, which led to a new FCC of
$451.28 per residential customer that went into effect on April 1, 2009. Concurently, the small
commercial customer class fixed cost per customer fluctuated from $294.79 to $285.16, and
ultimately to $292.83. In reviewing the Application, Staff has determined that the Company
accurately captured the changes in allowed fixed costs for the 2009 period.
The third year of the pilot marks the second time that residential use per customer has
declined relative to the established base year. The 2007 FCA year showed a slight increase in
per-customer usage as compared to 2005, the most recent general rate case at the time and the
basis for setting the FCC and FCE, resulting in a credit to customers. As par of the S,tipulation,
the Company agreed to significantly increase its demand side management (DSM) efforts. In the
three years of the FCA, Idaho power has increased its spending on DSM by nearly $ 1 9 milion (a
120% increase) and energy savings has increased by 57 milion megawatt hours (a 63%
increase). i Concurrently, the Idaho economy and the national economy as a whole have
experienced a significant downturn. Even though the comparative base years have reset twice
during the last two years of the pilot, the result has been surcharges that have far exceeded the
credit received in the first year.
Similarly, small commercial customers have experienced a decline in use per customer
when compared to the base period in each of the years that the FCA has been in place. Relative
to 2008, the class continued to witness attrition in customers (nearly a 3% decrease in average
customers) that was outpaced by reduced energy consumption (nearly 16% for the class) in 2009.
i Staff notes this tally is for all customer classes, not specifically those directly affected by the FCA. Staff has
discussed the discontinuity in DSM growth for residential customers at length recently in its comments in Case No.
IPC-E-09-28.
STAFF COMMENTS 3 MAY 6,2010
The FCA deferral for small commercial customers would have been significantly larger in 2009
had the cost of service model used in the 2008 general rate case not led to a reduction in
authorized fixed cost per customer for that class. Staff Attachment No. A shows how the FCA
deferral balances have changed throughout the three years of the pilot for both the residential and
small commercial classes.
The FCA Rate
Staff has verified the Company's calculation of unecovered 2009 fixed costs for the
residential and small commercial classes. If the recovery amounts for each class were allocated
separately, residential customers would receive a surcharge of 0.1 036 cents per kWh, or a 1.57%
increase, while the small commercial customers would receive a 0.7029 cents per kWh
surcharge, or an increase of 8.49%. With the Commission approved cap of 3% in place, the
actual surcharge would be approximately 0.25 cents per kWh, with the remainder deferred for
future collection. The Company proposes blending the surcharge, and spreading it uniformly to
both customer segments on an equal percentage basis. Using weather-normalized forecasted
sales for June 1, 2010 through May 31, 201 1, the Company calculates that a surcharge of 1.85%
for residential and small commercial customers provides a sufficient opportunity to recover
approved fixed costs.
Staff believes it is appropriate to apply a blended FCA rate in this case, as in the previous
two years of the pilot for a number of reasons. When the shortfall is spread over all customers,
the impact on individual residential customers is minimal but greatly reduces the impact to
commercial customers. Also, timely recovery of approved costs is beneficial to both Idaho
Power and its commercial customers, who otherwise would continue to have a mounting FCA
balance due to the accumulation of previous years' deferrals because of the 3% cap. Aside from
blending the surcharge, the only opportunity commercial customers have to reverse the growing
deferral balance would be a significant increase in per customer energy consumption, which rus
contrar to a basic principle behind the FCA mechanism. Finally, Staff is aware that the class
cost of service used to establish fixed cost is an inexact science and has not been fully accepted
or applied by the Commission; hence assignment of fixed cost responsibilty may not be
suffciently precise to apply anything other than a blended rate.
STAFF COMMENTS 4 MAY 6, 2010
Previously, the Company proposed calculating the FCA rate based on either test year or
preceding year's energy usage for each class. Staff opposed this method in last year's FCA
filing, citing the importance of consistently applying the most curent and accurate estimate of
energy sales to assure proper recovery of the deferral balance. In this Application, Idaho Power
calculates the FCA rates based on the same forecast it uses in the 2010-2011 PCA filing. Staff
believes this is an appropriate methodological adjustment as it utilzes the Company's most
recent and best estimate of energy consumption for the upcoming FCA period.
The Company's proposal to administer the FCA rate as an equal 1.85% percentage
increase to each affected class is also a slight change in methodology from the earlier FCA
filings. In previous years, the FCA rate was an equal cents per kWh charge applied to both sets
of customers. Based on anticipated sales, the Company proposes an FCA rate of 0.1 2 1 8 cents
per kWh for the residential class and 0.1535 cents per kWh for the small commercial class.
Using the previous equal rate method, Staff calculated a rate ofO. 1228 cents per kWh for each
class would be necessar to collect the FCA accrual. The Company's current proposal results in
a modest reduction of less than 1 % in the residential FCA rate when compared to the previous
method due to approximately $50,000 of fixed cost responsibility remaining with the small
commercial class. While the Commission accepted the equal cents per class method in prior
years, it did not officially establish a method for calculating a blended rate. Staff believes the
impact of changing to a percentage-based FCA adjustment does not unduly harm either customer
class, and maintains an equitable distribution of the deferral amount.
If the proposed rates are approved by the Commission, the residential FCA rate would
increase from 0.0529 cents per kWh to 0.1218 cents per kWh. For an average residential
customer consuming 1050 kWh per month,'this results in an increase of72 cents per month over
the current FCA charge. For commercial customers using 450 kWh per month, the proposed
FCA rate of 0.1 535 cents per kWh results in a monthly increase of 45 cents.2 Staff believes these
rates give the Company an adequate opportunity to collect its authorized fixed costs in the
coming FCA year.
2 This value is only an approximate arithmetic mean for a class that displays significant intra-class variation in
consumption.
STAFF COMMENTS 5 MAY 6, 2010
STAFF RECOMMENDATIONS
Staff recommends that the Commission approve the Company's FCA filing with a net
deferral balance of positive $6,338,761 for the 2009-2010 collection year. Staff does not oppose
the Company's method of distributing the surcharge on an equal percentage basis, and
recommends approval of a 1.85% increase in residential and small commercial rates to recover
deferred fixed costs. Based on the Company's best sales forecasting efforts, the resulting FCA
rates for the 2010-2011 period would equal 0.1218 cents per kWh for residential customers and
0.1535 for small commercial customers.
Respectfully submitted this ~ day of May 2010.
o ~I'_-.~'.-
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Weldon B. Stutzman
Deputy Attorney General
Technical Staff: Bryan Lanspery
i:umisc/commentslipce i o. 7wsblkls comments
STAFF COMMENTS 6 MAY 6, 2010
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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-lO-07, 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: dwalker(iidahopower.com
Inordstrom(iidahopower ,com
SCOTT D SPARKS
GREG SAID
IDAHO POWER COMPANY
POBOX 70
BOISE ID 83707-0070
E-MAIL: ssparks(iidahopower.com
gsaid(iidahopower .com
SECRE~yÎ~
CERTIFICATE OF SERVICE