20100915Reply Comments.pdf

1SIDA~POR~
: 45
An IDACORP Company
DONOVAN E. WALKER
Senior Counsel
dwalkerCWidahopower.com
September 15, 2010
VIA HAND DELIVERY
Jean D. Jewell, Secretary
Idaho Public Utilties Commission
472 West Washington Street
P.O. Box 83720
Boise, Idaho 83720-0074
Re: Case No. IPC-E-10-21
IN THE MATTER OF IDAHO POWER COMPANY'S REVISED SCHEDULE
54 (FCA) FILING
Dear Ms. Jewell:
Enclosed for filing please find an original and seven (7) copies of Idaho Power
Company's Reply Comments in the above matter.
Very trly yours, (J
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Donovan E. Walker
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Enclosures
1221 W. Idaho St. (83702)
P.O. Box 70
Boise, ID 83707
DONOVAN E. WALKER (ISB No. 5921)
LISA D. NORDSTROM (ISB No. 5733)
Idaho Power Company
P.O. Box 70
Boise, Idaho 83707
Telephone: [phone]
Facsimile: [phone]
dwalkercæidahopower.com
Inordstromcæidahopower.com
RECE!
ZOIU SEP ! 5 PM 4: 45
Attorney for Idaho Power Company
Street Address for Express Mail:
1221 West Idaho Street
Boise, Idaho 83702
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER
COMPANY'S REVISED SCHEDULE 54
(FCA) FILING
)
) CASE NO. IPC-E-10-21
)
) IDAHO POWER COMPANY'S
) REPLY COMMENTS
)
COMES NOW, Idaho Power Company ("Idaho Powet' or the "Company"), and in
response to Staff Comments filed in this docket, submits the following Reply Comments.
I. BACKGROUND
On June 4, 2010, the Company submitted a compliance filing to the Idaho Public
Utilties Commission to update its fixed cost per customer ("FCC") and fixed cost per
energy ("FCE") rates in Schedule 54, Fixed Cost Adjustment ("FCA"). The Company's
filng was in response to Commission Order Nos. 31042 and 31093 (net power supply
expense stipulation and rate implementation), Order No. 31097 (advanced metering
IDAHO POWER COMPANY'S REPLY COMMENTS - 1
infrastructure investment), and Order No. 31091 (pension expenses) approving
increases to base rates effective June 1,2010.
On July 26, 2010, the Idaho Public Utilties Commission issued Order No. 32036
to process the Company's filing under Modified Procedure to allow Commission Staff
and interested parties additional time to review the filng. The Commission Staff filed
Comments on the Company's compliance filng on August 25,2010.
II. THE COMPANY'S FILING
The Company's compliance filing to update the FCC and FCE rates for the
Residential and Small General Service customer classes applies the same ratios of
fixed costs to total base revenues, which were approved in the Company's last general
rate case, Case No. IPC-E-08-10. These same ratios are applied to the residential and
small commercial base rate revenues (excluding revenue associated with net power
supply expenses) approved by the Commission effective June 1, 2010. The Company
applied these ratios using the same methodology it has used in the past to determine
the new levels of authorized fixed costs being recovered through base rates. These
updated levels of authorized fixed costs are divided by the forecasted number of
customers and sales estimates from the 2010 power cost adjustment ("PCA") filing in
order to determine the updated FCC and FCE rates, respectively. The Company
proposes FCC rates for the Residential and Small General Services classes of $471.89
and $300.44, respectively, and FCE rates of 3.7321 cents/kWh and 5.1140 cents/kWh,
respectively.
The Company believes it is appropriate to update the FCC and FCE rates in
Schedule 54 by utilzing the ratio methodology approved in its original application to
IDAHO POWER COMPANY'S REPLY COMMENTS - 2
implement a fixed cost adjustment mechanism (Case No. IPC-E-04-15 and subsequent
Order No. 30267). In that case, the Commission approved a stipulation signed by Idaho
Power, the Commission Staff, and the NW Energy Coalition that:
The fixed-cost portion of the Company's revenue
requirement would be established for the Residential and
Small General Service customer classes at the time of a
general rate case. Thereafter, the FCA would provide the
mechanism to true-up the collection of fixed costs per
customer to recover 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.
(Order No. 30267, page 3).
In the Company's recent application requesting authority to convert the FCA from
a pilot schedule to an ongoing permanent schedule (Case No. IPC-E-09-28), the
Commission chose not to grant the Company's request but rather to continue the FCA
as a pilot program for an additional two-year period, starting June 1, 2010. In Order No.
31063, the Commission found "that it is too early to determine that specific changes
should be made to the FCA" and that the FCA "should continue the same as it is" for the
additional two-year period. Consequently, the Company believes it is consistent with
Commission orders to use the same ratio methodology approved for the Residential and
Small General Service classes in the Company's 2008 general rate case as the most
appropriate way to update the FCC and FCE rates.
II. STAFF'S PROPOSAL
Staff's proposal deviates from past orders and FCA practices by calculating an
incremental adder to 2008 total fixed cost revenue. Staff proposes to utilze a new
methodology to update the FCC and FCE rates that incrementally adds only the
IDAHO POWER COMPANY'S REPLY COMMENTS - 3
Company's 2009 and 2010 AMI investments to the authorized fixed cost recovery levels
approved in Idaho Powets 2008 general rate case. Staff uses the sum of this
calculation and applies the forecasted customer and sales estimates from the 2010
PCA filing to determine updated FCC and FCE rates. Staff proposes FCC rates for the
Residential and Small General Services classes of $467.58 and $336.08, respectively,
and FCE rates of 3.6890 cents/kWh and 5.7206 cents/kWh, respectively.
Staff treats all base revenue increases resulting from the recent stipulation and
pension expense orders as recovery of what is presumed to be variable costs, and
ignores the fact that both variable and fixed costs are included in the recovery approved
by Order Nos. 31093,31097, and 31091. This methodology is not only inconsistent
with past orders and FCA practices, but it ignores the premise that the FCC and FCE
rates were designed to true-up all fixed costs currently being recovered through a
volumetric rate, the energy charge.
By identifying an incremental addition to fixed costs, Staff's calculation of fixed
costs presents a new methodology that has not been discussed, analyzed, or agreed
upon by the Company, its interveners, the Commission, or the parties to the FCA
settlement stipulation. If Staff desires to examine a different approach to determining
fixed costs and calculating the FCC and FCE rates, it should hold workshops to analyze
alternatives as suggested by the Commission in Order No. 31063 when it declined to
make the FCA permanent (Case No. IPC-E-09-28).
IV. COMPANY'S RESPONSE TO STAFF COMMENTS
If the Commission decides that it is appropriate to consider revising the
methodology of determining fixed costs in the context of this compliance filng to update
IDAHO POWER COMPANY'S REPLY COMMENTS - 4
the FCC and FCE, the Company is compelled to point out several flaws in Staff's logic
and proposed methodology. First, Staff states that the Company "ignores a basic tenet
behind decoupling, namely severing the link between the utilty's sales and fixed cost
recovery." That is not true. Rather, Staff has ignored that there are TWO parts to a
decoupling mechanism. The first is to "decouple," which, as Staff correctly summarized,
is to sever the link of the recovery of fixed costs through a volumetric rate, the energy
charge. But this is not to say that the Company, through decoupling, is no longer
allowed to recover those severed fixed costs. The second part of the compact is to
"recouple" the recovery of those fixed costs to something else. The Company's FCA
mechanism has, from the beginning, recoupled fixed costs to the number of customers.
Therefore, the total amount of fixed costs authorized to be recovered is divided by the
number of customers in order to determine the FCC, the authorized rate of recovery.
Staff states that "previously authorized fixed costs should not decrease as sales
decrease, nor should they rise as sales increase." It is plausible that, apart from growth
or additional investment in plant, the amount of fixed costs does not change with an
increase or decrease in sales. However, because a significant portion of those fixed
costs are recovered through a volumetric rate, specifically the energy charge of the
residential and small commercial customers, the amount of actual fixed costs recovered
does vary with sales. In fact, in years prior to a FCA, if energy use per customer
increased, the Company would recover more than its authorized amount of fixed costs.
This even occurred after the first year of the FCA pilot when the residential energy use
per customer increased, and the Company refunded the over-collection. It is important
to understand that the FCA mechanism does not reflect an authorized dollar amount of
IDAHO POWER COMPANY'S REPLY COMMENTS - 5
fixed costs, but an authorized rate of recovery of fixed costs. Through the recoupling, it
is the fixed cost per customer that determines the authorized fixed cost amount to be
recovered.
This docket, which is the Company's compliance filing to update the FCC and
FCE charges, is intended to update the FCC and FCE rates to appropriately reflect the
amount of fixed costs being recovered through the energy charges of the residential and
small commercial classes. Because base rates have changed, the amount of fixed
costs recovered through those energy charges has also changed. Fixed costs have
always been intended to describe those costs which do not vary with energy sales. On
the other hand, variable costs increase or decrease depending on the amount of energy
generated each year. Variable costs related to generation which are above or below
those being recovered in base rates are trued-up through the Company's PCA
mechanism.
On page 4 of its Comments, Staff stated it "believes that AMI expenses are the
only costs that can indisputably be considered 'fixed' for the purposes of the FCA." By
not including all or a portion of the Company's new base revenue associated with the
pension order or the additional amount of revenue associated with the stipulation, Staff
is inherently saying that those revenues reflect no additional fixed costs. It is diffcult to
comprehend how the revenue requirement associated with pension should increase
when energy sales go up and decrease when they go down. In fact, pension expenses
do not; they are a fixed cost. It could be argued that 100 percent of the pension
revenue requirement is fixed independent of energy sales. In a similar fashion, it could
be argued that because the $63.7 millon in revenue for variable power supply expenses
IDAHO POWER COMPANY'S REPLY COMMENTS - 6
has been excluded, that the remaining $25 millon increased revenue from the
stipulation reflects the recovery of fixed costs.
However, the Company has not argued those positions or changes in
methodology. The Company has not presumed to determine what is or is not a fixed
cost without a -revised and approved cost of service study. The Company has relied
upon the Commission's directive to continue the FCA pilot as it is and has
conservatively used the same methodology of ratios previously utilzed by the
Commission to determine the FCC and FCE rates. That is, the Company has applied
the same ratios of fixed costs to total base revenues as was approved in the Company's
last general rate case, IPC-E-08-10. This avoids an arbitrary result that cherry picks
some fixed costs but not others.
V. CONCLUSION
The Company contends that Staff misunderstands the FCA settlement and
Commission-approved methodology used to determine the FCC and FCE rates. By
applying an absolute incremental adder to the 2008 fixed cost revenues approved in
Case No. IPC-E-08-10, Staff ignores the fact that fixed costs are associated with the
stipulation and pension expense orders and that these costs should be included in
determining the Company's authorized level of fixed cost recovery.
Idaho Power respectfully requests that the Commission issue an Order approving
the Company's proposed updates to the FCC and FCE rates in Schedule 54, Fixed
Cost Adjustment. Idaho Power's proposal is consistent with previously agreed upon
FCA methodologies and reasonably estimates the appropriate portion of fixed costs to
IDAHO POWER COMPANY'S REPLY COMMENTS - 7
be used in determining the FCC and FCE rates for the Residential and Small General
Service customer classes.
DATED at Boise, Idaho, this 15th day of September 2010.
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DONOVÃN. WALKER
Attorney for Idaho Power Company
IDAHO POWER COMPANY'S REPLY COMMENTS - 8
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 15th day of September 2010 I served a true and
correct copy of IDAHO POWER COMPANY'S REPLY COMMENTS upon the following
named parties by the method indicated below, and addressed to the following:
Commission Staff
Neil Price
Deputy Attorney General
Idaho Public Utilties Commission
472 West Washington
P.O. Box 83720
Boise, Idaho 83720-0074
--Hand Delivered
U.S. Mail
_ Overnight Mail
FAX
-X Email Neil.price((puc.idaho.gov
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Donovan E: ík
IDAHO POWER COMPANY'S REPLY COMMENTS - 9