20070514ICIP comments.pdf

ORIGINAL . f'
Peter J. Richardson
ISB # 3195
Mark R. Thompson
ISB # 7577
Richardson & O'Leary PLLC
515 N. 27th Street
Boise, Idaho 83702
[phone]
Fax [phone]
peter~richardsonando leafY .com
mark~richardsonandolearv .com
;~O"H .(1'1 i:~~ !:~:G
,_.. i f;'\:~~C
:,
--"..ilillill...h.! ",,- I
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MA TTER OF THE
APPLICATION OF IDAHO POWER
COMPANY FOR AUTHORITY TO
IMPLEMENT POWER COST
ADJUSTMENT (PCA) RATES FOR
ELECTRIC SERVICE FROM JUNE 1
2007 THROUGH MAY 31 , 2008
COMMENTS OF THE
INDUSTRIAL CUSTOMERS
OF IDAHO POWER
CASE NO. IPC-07-
Introduction
In accordance with the Commission s Order No. 30302 in the above-captioned
case, the Industrial Customers of Idaho Power (ICIP) respectfully submit these comments
on Idaho Power Company s application to the Commission for authority to implement
Power Cost Adjustment (PCA) rates for June 1 , 2007 through May 31, 2008. The ICIP is
an unincorporated association of industrial power consumers who purchase power under
Idaho Power s Schedule 19. The ICIP is especially concerned with making sure that
Idaho Power s rates are set as low as is reasonable, while ensuring a level of rate stability
that allows its members to conduct their business in an efficient and continuous manner.
As set forth more fully below, the ICIP requests that the Commission initiate a
proceeding to determine whether changes to the PCA methodology should be made, and
further requests that the Commission approve Idaho Power s application in this
proceeding subject to refund, pending the Commission s determination of the changes
that should be made to the PCA methodology.
Idaho Power s 2007 PCA Application
Idaho Power s 2007 PCA application requests rates that will be a significant
increase from current rates. For Idaho Power s schedule 19 customers, the rates under
the requested PCA will be 22.5 percent higher than current rates.! While it is probably
fair to say that the increase is simply the outcome of the PCA as designed, and that this
year s rate increase is due in part to a baseline that resulted from a PCA rate decrease in
2006, it is also fair to say that the result is extremely difficult for the ICIP's members and
disruptive to their operations. Some of these difficulties are described in the attached
affidavits of Ray Arp of Amalgamated Sugar Company and Don Sturtevant of JR.
Simplot Company.
Because the ICIP has not found any errors or irregularities in Idaho Power
proposed 2007 PCA rates, the ICIP does not object to the Commission s approval of the
Company s application. However, in light of the difficult circumstances caused by the
PCA's operation in the coming year, the ICIP asks that the Commission make any
approval ofIdaho Power s application subject to refund, based on the outcome of a future
determination of whether the PCA should be modified, as outlined below.
Suggested Modifications to the PCA
The ICIP recognizes that the PCA has value for both the Company and its
customers. In times when hydro conditions are better than expected, the PCA allows
customers to keep their money in their own pockets rather than paying Idaho Power for
rates that are higher than necessary to sustain its business operations. Conversely, when
1 Press Release, Customer Notice, p. 2, Case No. IPC-07-10 (April 13 2007).2 See Attachments 1 and 2.
IPC-07-10 COMMENTS OF ICIP
hydro conditions are worse than expected, the PCA allows Idaho Power to receIve
increased revenues from customers to cover the costs it experiences in purchasing power
in the market and in running its higher cost resources to make up generation deficits.
Based on this recognition, the ICIP is not recommending any changes to the PCA that
would undermine the PCA's ability to match customers ' total payments and the
Company s total revenues with actual power supply expenses incurred.Rather, the
ICIP's suggested changes are intended to smooth out, to some extent, the volatility in
rates under the PCA, while still providing a balance that will leave the PCA's value
intact.
1. The PCA should contain a balancing account mechanism that allowscertain positive and negative deviations from normalized power supply
expenses to cancel each other out.
Over the past several years, the PCA rate has demonstrated a cycle of rate
increases and decreases. This is expected, of course, and part of the value the PCA has of
matching Idaho Power revenues with need, based on power supply costs. However, in
some circumstances, the ICIP believes that one year s excess and the next year s deficit
should be allowed to cancel each other out in the interest of rate stability. Given a trend
of increasing volatility in annual Snake River flOWS 3 such a mechanism would seem
prudent. While the ICIP is not able to offer at this time the precise limits under which
this should occur, the last two years provide an example of the situation that could be
mitigated.
In 2006, Idaho Power s industrial customers experienced about a 27 percent
rate decrease under the PCA (although that decrease was partially offset by a general rate
increase). Now, in 2007, Idaho Power s industrial customers will experience a 22.
3 See Attachment 3, Variability in Snake River flows, prepared by Dr. Don Reading.
IPC-07-10 COMMENTS OF ICIP
percent rate increase under the PCA. If these variations from the power supply costs
assumed in rates could be, to some extent, applied against each other, the industrial class
as well as Idaho Power could have been made whole without the pronounced rate
volatility we are now experiencing.The ICIP believes this could be accomplished
through a balancing account mechanism that would, up to a determined level, retain a
year-to-year negative or positive balance that could be offset by subsequent years. The
ICIP believes that the precise limits in the balancing account should be determined
through the additional proceeding requested in these comments. Any such account would
accrue interest, in favor of either the Company or its customers, at a rate determined by
the Commission.
2. The balancing account mechanism should trigger a rate change only
when its balance exceeds a determined threshold.
If the PCA contained a balancing account mechanism, such as the one
described above, slight variations between actual and normalized power supply costs
might not trigger any rate change in a given year. Within reasonable bounds, the ICIP
believes this would be a good result.For large variations in power supply costs
however, the PCA would have to allow those costs to be passed through to rates in order
to maintain the value of the PCA in keeping the customers and Idaho Power whole. The
ICIP believes that this should happen only when the level of the balancing account
exceeds a determined threshold--one that represents the point at which the Company and
its customers would otherwise experience a significant hardship without an adjustment to
rates. Any balance that remains in the balancing account would accrue interest, for both
positive and negative balances. Again, the ICIP would expect that threshold to be
determined by the Commission in a future proceeding.
IPC-07-10 COMMENTS OF ICIP
3. The balancing account mechanism should allow for the recovery of large
balances over a number of years.
Once the threshold established in a balancing account mechanism is reached
the entire balance of the account would be passed on to rates through the PCA. Due to
the recognized variability of Idaho Power s power supply costs, this balance could be
extremely large under some circumstances once triggered. When the balancing account
is so large that it would cause rate shock, the ICIP believes that the balance should be
collected over a number of years. Although the collection period could be determined in
a future proceeding, the ICIP would suggest that a three-year period seems reasonable.
The ICIP envisions this deferred collection of the balancing account total as
working both ways-Idaho Power would collect increased rates (over the level
determined to be rate shock) over a three year period, and customers would collect rate
decreases (over a determined level) over a period of three years. One benefit of this
approach would be that if in the ensuing collection period the PCA accrues a balance that
would offset the amounts that would otherwise be collected under the "trigger" event, the
amount collected through rates could be adjusted to account for those subsequent years
actual power costs.
The ICIP recognIzes that the Company and Commission may view the
deferred collection of revenues or distribution of credits under the PCA as a retreat from
the PCA's purpose, or as an impediment to the Company s ability to match revenues with
costs. However, the ICIP believes that the thresholds in a balancing account could be
determined such that they will ensure the Company receives the revenues necessary to
maintain the liquidity required to sustain yearly operations. The ICIP's goal is to allow
the Company to receive the revenues it needs, and the customers to receive the credits
they are entitled to in a manner that results in a smoother payout. The current operation
IPC-07-10 COMMENTS OF ICIP
of the PCA in making Idaho Power and the customers "completely whole" within a single
year simply results in a detrimental level of rate volatility under some circumstances. In
a future proceeding, the Company, its customers, and the Commission should take a
reasoned look to determine if the PCA's value could be maintained while allowing for a
heightened degree of rate stability.
4. The PCA's soft cap should have a baseline of current rates, rather than
normalized rates.
To the extent the "cap" in the PCA is intended to provide the stability that the
ICIP is requesting in these comments, the ICIP believes the cap should be modified. In
its order approving the PCA, the Idaho Commission required
(IJf forecasted increases above normalized power supply costs in any
given year are predicted to exceed 7% of the Company s normalized
base revenues for the Idaho jurisdiction, then Idaho Power is instructed
to make a filing with the Commission for the purpose of determining
whether a means to defer a percentage of that year s power supply cost
recovery should be investigated.
Under the PCA, therefore, Idaho Power must at least seek the Commission
determination of whether rate collection should be spread out over a number of years
when the PCA results in a rate increase of above 7 percent. However, the baseline for
determining whether the 7 percent threshold is reached is the Company normalized
base revenues rather than the previous year s rates. This means that, as is the case this
year, the PCA can result in a rate increase well above the 7 percent from the prior year
without any investigation into whether any amounts collected should be deferred. The
ICIP does not believe that this current provision prevents against rate shock, since rates
may vary dramatically from year to year without triggering the Commission s review.
The ICIP believes that the proper baseline for triggering the cap built into the PCA
4 Order No. 24806, p. 14 (emphasis added).
IPC-07-10 COMMENTS OF ICIP
should be the prior year s rates. At the retail level, the change in rates from year to year
is a more appropriate indicator of rate shock than is the increase above normalized power
supply costs.
To be clear, the ICIP would support a Commission determination that the cap, if
applied as the ICIP suggests, should apply both ways. In other words, the ICIP would
envision the cap as requiring an investigation into whether a credit to customers should
also be spread over a number of years if the credit results in a rate decrease of more than
7 percent from the prior year s rates. As is the case now, the Commission could retain
discretion to determine whether that would be prudent, based on overall rate levels
economic conditions, and other similar considerations. In some years, however, the ICIP
believes that Idaho Power and its customers would be beneficially protected from
extreme rate volatility by retaining some amount of customer credit in a balancing
account, with interest, to offset future rate increases that the Company and its customers
would otherwise experience if the entire credit was paid out. Again, the details of the
mechanism could be determined in the future proceeding that the ICIP requests in these
comments.
Conclusion
For all the reasons stated above, the ICIP respectfully requests that the
Commission grant Idaho Power s application for authority to implement PCA rates
subject to refund, based on the Commission s future determination of whether the PCA
methodology should be modified, as outlined herein.
III
III
III
IPC-07-10 COMMENTS OF ICIP
Respectfully submitted this 14th day of May, 2007
~k.
Mark R. Thompson
Of attorneys for Industrial
Customers of Idaho Power
IPC-07-10 COMMENTS OF ICIP
ATTACHMENT 1
(AFFIDA VIT OF RAY ARP)
MAY. 9.2007 3:51PM NO. 144 P. 2
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE
APPLICATION OF IDAHO POWER
COMPANY FOR AUTHORITY TO
IMPLEMENT PO vtER COS T
ADJUSTMENT (PCA) RATES FOR
ELECTRIC SERVICE FROM JUNE 1.
2007 THROUGH MAY 31, 2008
STATE OF IDAHO
COUNTY OF CANYON
CASE NO. IP-C-E-O7-
AFFID A VIr: OF RAYMOND
ARP
ON BEHALF OF THE
INDUSTRIAL CUSTOMERS OF
IDAHO POWER
I, Raymond Arp, being first duly swom, state as follows: .
I am employed by Amalgamated Sugar Company as the Corporate Electrical
Engineer, and my business address is 3184 Elder Street, Boise, Idaho 83705. I offer this
affidavit, which is true and correct to the best of my knowledge, in support of the
Comments of the Industrial Customers of Idaho Power in Case No. IPC-E-07-10,
regarding Idaho Power s application for authority to implement Power Cost Adjustment
(PCA) rates for electrical service :fi:om June 1,2007 through May 31,2008.
Amalgamated Sugar Company is a Schedule 19 customer ofIdaho Power, and
spends a significant portion of its operating expenses on purch~g electrical service
from Idaho Power. I tmderstand that this year Idaho Power filed an application for a
PCA rate that will increase its Idaho Customers' electricity costs: by more than six-tenths
of a cent per kilowatt hour (0.6108 cents), and that this equates to a 22.5 percent rate
increase for its Schedule 19 customers as compared to current rates.
MAY. 9.2007 3:51PM NO. 144 . 3
Based on Amalgamated Sugar Company's power usage fi'Q'rn May of 2006 to May
of 2007, I calculated the expected impact of the requested PCA ra~e increase to the
Company' 5 operating account at its three operating facilities in Idaho. These calculations I
show an approximate 20 percent overall average cost increase ftoin May 2007 to May
2008 at the three operating Idaho facilities.
Under the PCA as currently stmctuTed, Amalgamated Sug~ Company learned of
the magnitude of this rate mcrease jn mid-April, after the Company had already prepared
operating cost estimates and budgets. Accounting for such an Impact in the middle of a
budget cycle is extremely problematic. Additionally, in the sugar commodity market
Amalgamated Sugar Company does not have the ability to siroply pass along the costs of
such rate :increases.
While the Industrial Customers ofIdaho Power support tlie use of a PCA, a
modification oftbe PCA to increase rate stability to some degree 'would be desirable.
Dated this day of May, 2007.
SUBSCRIBED AND SWORN before me this day of May, 2007.
~-
OTARY PUBLIC for IDAHO
My Commi~Sion Expires: fOfV2tJ
~w.~
~~~~.O
~~~~~
i!!j :rAA~!'S; .
..~
- '-"t'
':. ~. ;,
r-~ ~~ : -c-
%!p.\~
O~,...." ~
'\ /\"'" "\
...-7
'" \.-" ~,- ~\,-
1'.
......' -(\.'(" ~;.,
... \'v ~
'!!
It" \ Ii.~'41,~ttJJJJ;:::,;t!"""\\\~'
ATTACHMENT 2
(AFFIDA VIT OF DON STURTEVANT)
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MA ITER OF THE
APPLICATION OF IDAHO POWER
CO~ ANY FOR AUTHORITY TO
IMPLEMENT POWER COST
ADJUSTMENT (PCA) RATES FOR
ELECTRIC SERVICE FROM JUNE 1
2007 THROUGH MAY 31 , 2008
STATE OF IDAHO
COUNTY OF CANYON
CASE NO. IPC-07-
AFFIDAVIT OF DON
STURTEVANT, JR
ON BEHALF OF THE
INDUSTRIAL CUSTOMERS
OF IDAHO POWER
, Don Sturtevant, being first duly sworn, state as follows:
I am employed as Energy Manager by J.R. Simplot Company. My business
address is 999 Main Street, Boise, Idaho 83707. I offer this affidavit, which is true and
correct to the best of my knowledge, in support of the Comments of the Industrial
Customers of Idaho Power in Case No. IPC-07-, regarding Idaho Power
application for authority to implement Power Cost Adjustment (PCA) rates for electrical
service from June 1 2007 through May 31 , 2008.
R. Simplot Company is a Schedule 19 customer of Idaho Power, and purchases
substantial amounts of electricity from Idaho Power at its Idaho facilities. I understand
that this year Idaho Power filed an application for a PCA rate that will increase its Idaho
customers' electricity costs by more than six-tenths of a cent per kilowatt hour (0.6108
cents), and that this equates to a 22.5 percent rate increase for its Schedule 19 customers
as compared to current rates.
Based on calculations J .R. Simplot Company performed in order to assess the cost
impacts caused by the PCA rate increase requested by Idaho Power this year, the
Company now expects to incur a very substantial amount of costs that were unanticipated
at the time the Company set its budgets for this year.
Under the PCA as currently structured R. Simp lot Company did not learn ofthe
magnitude of this rate increase until mid-April. Accounting for such an impact in the
middle of a budget cycle is extremely problematic, and in a competitive market, simply
passing those costs immediately on to the consumer can be detrimental and impractical.
While the Industrial Customers of Idaho Power support the use of a PCA, a
modification of the PCA to increase rate stability to some degree would be desirable.
Dated this 9th day of May, 2007.
Don Sturtevant, Jr.
SUBSCRIBED AND SWORN before me this 9th day of May, 2007.~a.
ARY PUBLIC for IDAHO
My Commission Expires:
"#
1i'
&~~
I ' ~.fJ\
:J NO1'
;. "
: -f
'#.
i rJ') ~
""""'"
J. = I
\;'
~LIC
~V'O/1IDA~~;
-'..........,.
ATTACHMENT 3
(VARIABILITY OF SNAKE RIVER FLOWS,
Prepared by Dr. Don Reading, Ben Johnson Associates)
000
000
000
U; 6 000
(I)
f 5 000
(,)
c( 4 000
~ 3 000
000
000
Snake River Natural Flow near Heise 1911-2006
...~, ". """",..."".~ ~~ ~ ~ ~ ~ ~ $ $ ~ ~ ~ ~ ~ ~ $ $ ~ ~ ~ ~
Annual flow near Heise
+1 SO 1911-1992
-Five year movavg
1 SO 1993 - 2006
1 SO 1911-1992
+1 SO 1993 - 2006
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 14th day of May, 2007 I caused a true
and correct copy of the foregoing COMMENTS OF THE INDUSTRIAL
CUSTOMERS OF IDAHO POWER to be served by the method indicated below, and
addressed to the following:
Jean Jewell
Idaho Public Utilities Commission
472 West Washington Street (83702)
Post Office Box 83720
Boise, Idaho 83720-0074
( ) U.S. Mail, Postage Prepaid
(X) Hand Delivered
( ) Overnight Mail
( ) Facsimile
( ) Electronic Mail
Barton L. Kline
Lisa Nordstrom
Idaho Power Company
1221 W. Idaho St. (83702)
PO Box 70
Boise, Idaho 83707
bkl ine(fYidahopower .com
( ) U.S. Mail, Postage Prepaid
(X) Hand Delivered
( ) Overnight Mail
( )
Facsimile
(X) Electronic Mail
John R. Gale
Gregory W. Said
Regulatory Affairs
Idaho Power Company
O. Box 70
Boise, Idaho 83707
rgale~idahopower .com
( ) U.S. Mail, Postage Prepaid
(X) Hand Delivered
( ) Overnight Mail
( )
Facsimile
(X) Electronic Mail
~u.
Signed: t/
Mark R. Thompson
IPC-07-10 COMMENTS OF ICIP