20110204final_order_no_32171.pdf

Office of the Secretary
Service Date
February 4 2011
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER
COMPANY'S PROPOSED REVISIONS TO
SCHEDULE 54 (FIXED COST
ADJUSTMENT)ORDER NO. 32171
CASE NO. IPC-I0-
On June 4, 2010, Idaho Power Company ("Idaho Power" or "Company ) filed a
revised tariff sheet for Schedule 54, the Fixed Cost Adjustment ("FCA"). The FCA mechanism
allows Idaho Power to separate collection of fixed costs from volumetric energy sales.
On July 26, 2010, the Commission issued a Notice of Application and Notice of
Modified Procedure suspending the Company s proposed effective date and establishing a 30-
day comment period. See Order No. 32036. Commission Staff was the only party to file
comments. On September 15 2010, Idaho Power filed reply comments to Staffs comments.
IDAHO POWER'S FILING
Idaho Power submitted updated values in its Schedule 54 for the fixed cost per
customer ("FCC") and fixed cost per energy ("FCE") for residential and small business (small
general service) customers, determined by dividing the Company s fixed cost components by the
average number of residential and small business customers, respectively. The FCC and FCE do
not affect the FCA rates approved by the Commission in Order No. 31081 , but rather set the
benchmark for the prospective year s deferral balances. Idaho Power claims that it was
compelled to update the FCC and FCE rates due to recent increases in base rates that went into
effect on June 1 2010. See Order Nos. 31042, 31097, 31091 and 31093.
Idaho Power contends that these changes in base rates flow through the FCA. The
Company utilized the last Commission-approved cost of service ("COS") study - approved by
the Company in its last general rate case in 2008. Pursuant to the 2008 cas study, the Company
calculated that 54% of base revenues cover fixed costs for residential customers and 59% of base
revenues cover fixed costs for small commercial customers. Maintaining this relationship, and
removing $63.7 million in increased base power supply costs, the Company determined the new
level of authorized fixed costs. Applying the same forecasted sales and customer values used in
the 2010-2011 PCA filing, Idaho Power calculated a FCC for residential and small commercial
ORDER NO. 32171
customers of$471.89 and $300.44 , respectively, and a FCE of3.723l~ per kWh and 5.1l40~ per
kWh, respectively.
The Company s proposed reVISIOns to Schedule 54 would result in a level of
authorized fixed costs of $186 million for residential customers and $8.5 million for small
commercial customers. If approved, Idaho Power s revisions would result in an annual increase
of $20.61 and $7.79 per residential and small commercial customer, respectively. These changes
represent a net increase in fixed costs of $8.8 million over the 2008 amounts.
ST AFF COMMENTS AND RECOMMENDATION
Staff recommended that the Commission approve the updated FCC levels for the
residential and small commercial classes of $467.58 and $336., and FCE levels for the
residential and small commercial classes, 3.6890~ per kWh and 5.7206~ per kWh, respectively.
Staff believes these amounts properly reflect the embedded fixed costs used since the 2008
general rate case and the incremental costs associated with Idaho Power s AMI infrastructure.
Staff noted that the FCC and FCE are used for deferral purposes. Any rates approved by the
Commission will not impact the collection of the FCA for the 2010-2011 rate period.
Staff acknowledged that changes in base rates outside of a general rate case are not
uncommon but, in the context of the FCA, pose a number of challenges. Staff outlined concerns
that it found particularly problematic: (1) parties have no direction on what costs the
Commission deems "fixed" and must make their own assumptions of what should be included in
the FCA; and (2) the lack of an updated COS study forces parties to rely on an earlier model that
may not be representative of current cost relationship conditions. Aside from removing the
explicit increase in base rates due to variable power supply, the Company s methodology does
not address these issues.
Staff stated that the Company s decision to rely on the 2008 COS study ignores a
basic tenet of decoupling, namely severing the link between the utility s sales and fixed cost
recovery. Staff illustrated its point by referencing the Company s implication that, absent any
mcreases in base rates, the small commercial class' fixed costs have declined since 2008.
According to the Company, this occurs as a result of declining sales for the class over the last
two years. Staff believes that, by their very nature, previously authorized fixed costs should
remain at an approved level until a general rate case proceeding establishes a new level.
Previously authorized fixed costs should not decrease as sales decrease, nor should they rise as
ORDER NO. 32171
sales increase. While Staff is concerned about proposing a higher level of fixed costs for small
commercial customers than that proposed by the Company, it believes that such a result is
necessary in order to properly reflect the intent ofthe FCA mechanism.
Staff contended that the 2008 level of fixed costs is the proper starting point for
calculating the FCC and FCE going forward until the next general rate case. Thus, in order to
arrive at the appropriate FCC and FCE levels it is only necessary to add the incremental fixed
costs approved since the last general rate case.
Staff next addressed the issue of what exactly should be deemed a "fixed cost." Of
the Commission Orders cited above, including base power supply (Order Nos. 31042 and
31093), advanced metering infrastructure (AMI) investment (Order No. 31097) and increased
pension expense (Order No. 31091), Staff believes that AMI expenses are the only costs that
should absolutely be considered "fixed" for the purposes of the FCA.
According to Staff, the FCA was originally designed to be a simple true-up
mechanism. Identifying and classifying other costs that have not been explicitly defined by the
Commission as "fixed costs" complicates the methodology. Historically, COS studies have been
used by the Company as the basis for classifying costs as either fixed or variable for purposes of
the FCA. However, Staff asserted that COS models are designed to functionalize costs based on
operating functions (generation, transmission, distribution, etc.), classify costs based on the
service provided (demand, energy, and customer), and allocate these costs to customer classes
based on the notion of cost causation.
Since its inception, the FCA pilot program has classified non-energy related costs as
fixed" for the purpose of setting FCC and FCE rates. The determination as to whether or to
what extent pension expenses, additional power supply costs and other non-specific costs should
be classified as "fixed costs" recoverable in the FCA is subject to dispute absent a specific
determination by the Commission. Staff believes that it is improper, except for the most obvious
cost categories, for Staff or Idaho Power to assume what portion of an undefined base rate
increase is eligible for fixed cost recovery.
Thus, Staff proposed that authorized fixed cost recovery should be limited, with one
exception, to items previously approved by the Commission in Idaho Power s 2008 general rate
case. The exception Staff listed was the Commission s authorization for a base rate increase
associated with the Company s expenditures for AMI deployment in 2009 and 2010. See Order
ORDER NO. 32171
Nos. 30829 and 31097. Staff believes that the Company s investment in AMI constitutes a fixed
cost, and proposes including it at the level approved by the Commission for updating the FCC
and FCE. Staff calculated an increase in AMI expenses of $7.8 million for residential customers
and $350 000 for small commercial customers since the 2008 general rate case. Staff believes
that the costs associated with the Company s pension increases and power supply increases
should be properly classified as variable rather than fixed costs. Additionally, Staff did not
designate any of the non-power supply base rate increase as fixed costs for inclusion in the FCA.
The determination of the fixed and variable components should be made by the Commission in
the next general rate case. Should the Commission accept Staffs incremental AMI addition and
Idaho Power s split of the undefined base rate increase, both the FCC and FCE for all customers
would be higher than that originally requested by the Company.
Staff provided its calculation of the new FCC and FCE rates for residential and small
commercial customers in Attachment 2 of Staff comments. Using the results from 2008 as the
base, Staff increased fixed costs to reflect the Company s AMI expenses for both 2009 and 2010.
Using the forecasted energy and customer counts for the 2010-2011 FCA year, Staff determined
a FCC of$467.58 and FCE of3.6890~ per kWh for residential customers, and a FCC of$336.
and a FCE of 5.7206~ per kWh for small commercial customers. The net result is a combined
level of fixed costs of $194 million, approximately $700 000 lower than the Company proposal.
IDAHO POWER REPLY COMMENTS
Idaho Power believed that Staff does not properly comprehend the FCA settlement
and Commission-approved methodology used to determine the FCC and FCE rates. According
to the Company, simply applying an incremental adder to the 2008 fixed cost revenues approved
in Idaho Power s last general rate case 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 asserted that there are two parts to a decoupling mechanism: (1)
severing the link of the recovery of fixed costs through a volumetric rate, the energy charge; and
then (2) recoupling the recovery of those fixed costs to something else. The FCA mechanism
has , according to Idaho Power, from the beginning always recoupled fixed costs to the number of
customers.
ORDER NO. 32171
Thus, 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. Idaho
Power continued by noting that, in years prior to an 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. Idaho Power believes that the FCA mechanism does
not reflect an authorized dollar amount of 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.
Idaho Power also took issue with Staff s statement that it "believes that AMI
expenses are the only costs that can indisputably be considered 'fixed' for the purposes of the
FCA." Idaho Power believed that implicit in Staffs statement is an assertion that those revenues
reflect no additional fixed costs. The Company argued that because the revenue requirement
associated with pension costs does not necessarily increase when sales go up and decrease when
sales go down such costs should be properly considered "fixed costs.
Finally, Idaho Power argued that it is not requesting changes to the established FCA
methodology and does not attempt to determine what is or is not a fixed cost without a revised
and approved COS study. The Company stated that it relied upon the Commission s directive to
continue the FCA pilot as it is and conservatively used the same methodology of ratios
previously utilized by the Commission to determine the FCC and FCE rates. The Company
applied the same ratios of fixed costs to total base revenues as was approved in the Company
last general rate case, IPC- E-08-1 O. Idaho Power finished by reiterating its request for a
Commission Order approving the Company s proposed updates to the FCC and FCE rates in
Schedule 54.
COMMISSION FINDINGS AND DECISION
The Commission thoroughly considered Idaho Power s Schedule No. 54 revised tariff
sheet filing, including comments by Staff and the reply comments of the Company. Based upon
our review, we do not approve Idaho Power s updated FCC and FCE values contained in
Schedule 54. In reaching this conclusion, the Commission notes that it is not making a definitive
ORDER NO. 32171
ruling as to whether the costs associated with the cases cited I by Idaho Power in its filing qualify
as fixed costs. Rather, we defer this decision until the Company s next general rate case filing.
In Case No. IPC-08-, the Commission observed that Idaho Power and
Commission Staff mutually agreed "that the FCC and FCE components should be established in
the context of a general rate case." Order No. 30556. Subsequent to this acknowledgement, the
Company filed a general rate case, IPC-08-, wherein the Commission established a specific
dollar value of fixed costs. The Commission did not establish or approve the methodology put
forth by Idaho Power in its revised tariff sheet filing. Idaho Power s proposed methodology
seeks to remove the Commission from the determination of the level of fixed cost recovery for
Residential Service (Schedules 1 4 and 5) and Small General Service (Schedule 7) customers.
It would simply allow the Company to utilize the percentages or ratios of fixed costs found in its
2008 cost of service (COS) study and apply those ratios contemporaneously to base revenues
derived from residential and small general service customers.
The Commission sees no compelling reason to deviate from the procedure it adopted
and that was agreed to by Staff and Idaho Power. Accordingly, the FCC and FCE values for
Schedule No. 54 shall accurately represent the level of fixed costs previously established by the
Commission in IPC- E-08-1 0 and remain at that level until such time as they can be more
thoroughly examined and re-established by the Commission in the context of the Company
next general rate case filing.
Therefore, the Commission does not approve Idaho Power s suggested revisions to its
Schedule No. 54 tariff sheet.
ORDER
IT IS HEREBY ORDERED that Idaho Power s proposed revisions to tariff sheet
Schedule No. 54 containing updated values for fixed cost per customer and fixed cost per energy
is not approved. The FCC and FCE values shall reflect the amount authorized for fixed cost
recovery in the Company s last general rate case, Case No. IPC-08-10.
IT IS FURTHER ORDERED that Idaho Power s existing Schedule No. 54 tariff
sheet, with FCC and FCE values reflecting the level of fixed costs previously approved by the
1 Idaho Power s revised tariff sheet references IPC-l 0-01 (Order No. 31042), IPC-I0-06 (Order No. 31097),
IPC-I0-08 (Order No. 31091) and IPC-l 0-12 (Order No. 31093).
ORDER NO. 32171
Commission in the Company s last general rate case and reconfirmed in this Order, shall remain
effective.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally
decided by this Order) may petition for reconsideration within twenty-one (21) days of the
service date of this Order with regard to any matter decided in this Order. Within seven (7) days
after any person has petitioned for reconsideration any other person may cross-petition for
reconsideration. See Idaho Code 9 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this iff
day of February 2011.
ff. w.-=1M D. KEMPTON, PRE DENT
dShJL
MARSHA H. SMITH, COMMISSIONER
MACK A. REDFO ISSIONER
ATTEST:
J 'n D. Jewel
Commission Secretary
O:IPC-10-op2
ORDER NO. 32171