20100825Comments.pdf

NEIL PRICE
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 6864
nE..""r'
r-\ .l..:. ~o
2Uto AUG 25 PH 3=39
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER )
COMPANY'S REVISED SCHEDULE 54 (FCA) )FILING. )
)
)
)
)
CASE NO. IPC-E-I0-21
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through its
Attorney of record, Neil Price, Deputy Attorney General, and in response to the Notice of Filing
and Notice of Modified Procedure in Order No. 32036 issued on July 26, 2010, submits the
following comments.
BACKGROUND
On June 4, 2010, Idaho Power Company ("Idaho Power" or "Company") fied a revised
tariff sheet for Schedule 54, the Fixed Cost Adjustment ("FCA").
Idaho Power's fiing contains updated values for the fixed cost per customer ("FCC") and
fixed cost per energy ("FCE") to recognize Commission-approved charges in base rates that
went into effect on June 1,2010. The FCC and FCE do not affect the FCA rates approved by the
Commission in Order No. 31081 that will remain in effect through June 2011, but rather set the
benchmark for the prospective year's deferral balances.
STAFF COMMENTS 1 AUGUST 25, 2010
Idaho Power's fiing corresponds to an anual fixed cost increase of$20.61 and $7.79 per
residential and small commercial customer, respectively, and amounts to a net increase in
authorized fixed costs of $8.8 milion over 2008 figures.
The Company's proposed effective date of the updated values, June 1,2010, has been
suspended by the Commission to allow Commission Staff and interested parties additional time
to review the fiing.
STAFF ANALYSIS
Staff has reviewed the Company's fiing and supporting documentation and has several
concerns with the proposed methodology used to develop the FCC and FCE rates for the 2010-
2011 season. Staff wil outline its concerns, describe the method it utilized to prepare its
alternative proposal, and discuss areas of the FCA that need to be addressed in order to mitigate
some of these issues in the future.
The Company states that it was compelled to fie updated FCC and FCE rates due to a
number of base rate increases 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 to
the FCA. Because an updated cost of service (COS) study has not been approved by the
Commission, the Company utilized the COS last approved in the 2008 general rate case. From
the 2008 COS study, the Company deduced that 54% of base revenues cover fixed cost for
residential customers, and 59% of base revenues cover small commercial fixed costs.
Maintaining this relationship, and removing $63.7 milion in increased base power supply costs,
the Company determined the new level of authorized fixed costs. i Applying the same forecasted
sales and customer values used in its 2010 PCA fiing, Idaho Power calculated a FCC for
residential and small commercial customers of$471.89 and $300.44, respectively, and a FCE of
3.7231 ~/kWh and 5.1140 ~/kWh, respectively. The Company's calculation is included as
Attachment 1.
Staff notes that changes in base rates outside of a general rate case is not that uncommon,
but in the context of the FCA, pose a number of challenges. Staff finds two of paricular
concern. First, parties have no direction on what the Commission deems 'fixed', and must make
their own assumptions of what should be included in the FCA. Second, the lack of an updated
1 The Company's fiing indicates a level of authorized fixed costs of $ i 86 milion for residential customers, and $8.5
milion for small commercial customers.
STAFF COMMENTS 2 AUGUST 25, 2010
COS study forces paries to rely on a model that may be a number of years old, and possibly not
representative of curent cost relationship conditons. Aside from removing the explicit increase
in base rates due to variable power supply, the Company's methodology does not address these
issues.
Because the Company chose to rely on the cost-revenue relationship represented in the
2008 COS study, it ignores a basic tenet behind decoupling, namely severing the link between
the utilty's sales and fixed cost recovery. To ilustrate, the Company's method implies that,
absent any increases in base rates, the small commercial class' fixed costs have declined since
2008.2 This occurs as a result of declining sales for the class over the last two years,3 a reason
the Company cited as rationale for the FCA. Staff believes that, by their very nature, previously
authorized fixed costs 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 sales increase. While Staff is concerned about proposing a higher level of
fixed costs for Small Commercial customers in this case than that proposed by the Company, it is
necessary to properly reflect the intent of the FCA mechanism.
Staff contends 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. From there, it is only necessar
to add the incremental fixed costs approved since the last general rate case. Staff notes that this
too is cumbersome, as it requires an assertion of what is and what is not a 'fixed cost'. The
Commission Orders cited above relate to base rate increases including base power supply (Order
Nos. 31042 and 31093), advanced metering infrastrcture (AMI) investment (Order No. 31097)
and increased pension expense (Order No. 31091). With the exception of$63.7 milion in power
supply costs, all three components factor into Idaho Power's computation of the FCC and FCE.4
Staff believes that AMI expenses are the only costs that can indisputably be considered 'fixed'
for the purposes of the FCA.
The FCA was originally designed to be a simple true-up mechanism but identifying fixed
costs that have not been explicitly defined by the Commission complicates the methodology.
COS studies have been used by the Company as the basis for classifying costs as either fixed or
2 Even including the Company's requested increase in fixed costs, the Small Commercial class sees a reduction in
fixed costs of $500,000 since 2008.3 Sales for Schedule 7 during the 2008 base year was 190,586,226 kWh compared to forecasted sales of 165,753,188
kWh for June2010 through May 201 i. Coincidentally, customer counts for the class dropped 9.5%.
4 $25 millon in unspecified expenses were included by the Company as a result of the tiered PCA rate reduction
allocation process outlined in the Stipulation approved in Order NO.3 1042.
STAFF COMMENTS 3 AUGUST 25, 2010
varable, though that has rarely been their intended use. COS models are designed to
fuctionalize 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 the FCA Pilot Program
began, non-energy related costs have been considered fixed for the purpose of setting FCC and
FCE rates. In deciding whether or to what extent pensions, additional power supply costs and
other non-specific costs constitute fixed costs, it became obvious that fixed cost recoverable in
the FCA are 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 for fixed cost recovery.
At this time, Staff proposes authorized fixed cost recovery as approved by the
Commission in Idaho Power's 2008 general rate case with one exception. The Commission
authorized base rate increases for Company expenditures for AMI in 2009 and 2010. See Order
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 has calculated an increase in AMI expenses of$7.8 millon for residential
customers and $350,000 for small commercial customers since the 2008 general rate case. Staff
believes that these are the only definitive incremental costs that are appropriate to add to the
previously approved fixed costs authorized for recovery.
In the curent setting, Staffhas not included any fixed costs associated with the
Company's pension increases or power supply increases in the calculation of the FCC and FCE
because in Staffs opinion these costs are variable rather than fixed. Nor has Staff attempted to
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 has provided its calculation of the new FCC and FCE rates for Residential and
Small Commercial customers in Attachment 2. Using the results.from 2008 as the base, Staff
STAFF COMMENTS 4 AUGUST 25,2010
has increased fixed costs to reflect the Company's AMI expenses for both 2009 and 2010.5
Using the forecasted energy and customer counts for the 2010-2011 FCA year, Staffhas
determined a FCC of$467.58 and FCE of3.6890 ~/kWh for residential customers, and a FCC of
$336.08 and a FCE of 5.7206 ~/kWh for small commercial customers. The net result is a
combined level of fixed costs of $194 millon, approximately $700,000 lower than the Company
proposal.
STAFF RECOMMENDATION
Staff recommends the Commission approve updated FCC levels of$467.58 and $336.08,
and FCE levels of 3.6890 ~/kWh and 5. 7206 ~/kWh for the residential and small commercial
classes, respectively. Staff believes these levels 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 notes that the FCC and FCE are used for deferral purposes, and any rates
approved by the Commission wil not impact the collection of the FCA for the 2010-2011 period.
Respectfully submitted this ~ø day of August 2010.
'--Ne~
Deputy Attorney General
Technical Staff: Bryan Lanspery
i:/umisc/comments/ipce i 0.2 i npbl comments. doc
5 The Company did not fie for an increase in the FCC and FCE rates in 2009 even though base rates increased
nearly 2% due to AMI investment.
STAFF COMMENTS 5 AUGUST 25,2010
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 25TH DAY OF AUGUST 2010,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. IPC-E-I0-21, BY MAILING A COpy THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
SCOTT SPARKS
REGULATORY AFFAIRS
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: ssparks(iidahopower.com
J~~SECRET Y
CERTIFICATE OF SERVICE