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Home My WebLink About20090501Response to Comments.pdfGIVE SLEY LLP LAW OFFICES 601 W. Bannock Street PO Box 2720, Boise, Idaho 83701 TELEPHONE: 208 388-1200 FACSIMILE: 208 388-1300 WEBSITE: ww.givenspursley.com Gary G. Allen Peter G. Barton Christopher J. Beeson Clint R. Bolinder Erik J. Bolinder Jeremy C. Chou Willam C. Cole Michael C. Creamer Amber N. Dina Elizabeth M. Donick Kristin Bjorkman Dunn Thomas E. Dvorak Jeffrey C. Fereday Justin C. Fredin Martin C. Hendrickson Steven J. Hippler Debora K. Kristensen Anne C. Kunkel Jeremy G. Ladle Michael P. Lawrence Franklin G. Lee David R. Lombardi John M. Marshall Kenneth R. McClure Kelly Greene McConnell Cynthia A. Melillo Christopher H. Meyer L. Edward Miler Patrick J. Miler Judson B. Montgomery Deborah E. Nelson Kelsey J. Nunez W. Hugh O'Riordan, LL.M. Angela M. Reed Justin A. Steiner Scott A. Tschirgi, LL.M. J. Wil Varin Conley E. Ward Robert B. White RETIRED Kenneth L. Pursley James A. McClure Raymond D. Givens (1917-2008) May 1,2009 :i~-. i ;0rno ',"n Via Hand Delivery \:~~.. Jean Jewell Idaho Public Utilties Commission 472 W. Washington P.O. Box 83720 Boise, ID 83720-0074 -c::.roU1 Re:IN THE MATTER OF THE APPLICATION OF IDAHO POWER COMPANY FOR AUTHORITY TO MODIFY ITS RULE H LINE EXTENSION TARIFF RELATED TO NEW SERVICE ATTACHMENTS AND DISTRIBUTION LINE INSTALLATIONS Case No. IPC-E-08-22 10495-1Our File: Dear Jean: Enclosed for fiing please find an original and seven (7) copies of The Building Contractors Association of Southwestern Idaho's Response to Comments fied by the Commission Staff in the above entitled matter. Than you for your assismnce iu this ~\D fi ~ ~ Tina M. Adornetto Document Specialist tma cc: Service List (w/enclosures) 555687_1 , Michael C. Creamer, ISB #4030 Conley E. Ward, ISB # 1683 GIVENS PURSLEY LLP 601 W. Banock St. Post Office Box 2720 Boise, Idaho 83701-2720 Telephone: 208-388-1200 Facsimile: 208-388-1300 10495.11555219_1 ¡;c:i'iJ;. BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION ;0rn() rT!Attorneys for Intervenors The Building Contractors Association of Southwestern Idaho -01;-".. "so'oU1 IN THE MATTER OF THE APPLICATION OF IDAHO POWER COMPANY FOR AUTHORITY TO MODIFY ITS RULE H LINE EXTENSION TARIFF RELATED TO NEW SERVICE ATTACHMENTS AND DISTRIBUTION LINE INSTALLATIONS CASE NO. IPC-E-08-22 BUILDING CONTRACTORS ASSOCIATION OF SOUTHWESTERN IDAHO'S RESPONSE TO COMMENTS The Building Contractors Association of Southwestern Idaho ("Building Contractors"), by and through its attorneys of record, Givens Pursley LLP, submits this Response to comments fied by the Commission Staff in the above-captioned matter. INTRODUCTION In this Response, Building Contractors tae issue with the inconsistency of the Staffs analysis and recommendations when compared to its purported position (and curent Commission policy) that Idaho Power Company ("Company" or "Idaho Power") should have an investment in distribution facilties at least equal to the average embedded cost per customer for such facilities. Staff Comments support Idaho Power's proposed line extension tariff modifications, which actually result in the Company's investment per new residential customer BUILDING CONTRACTORS ASSOCIA nON OF SOUTHWESTERN IDAHO'S RESPONSE TO COMMENTS- i . being reduced to as low as $176.00, over $1,000.0 less than Staff s estimate of curent per customer embedtled cost./ The Staff Comments also provide no rationale for the position that new customers, who provide a future revenue stream on which the Company and its shareholders may ear an assured rate of return, should now bear 100% of the investment risk for new distribution facilities. Staffs proposal to convert what have been allowances under historical Rule H tariffs, to refuds, would require developers to car essentially the entire line extension cost with only an expectation that they may receive a vested interest refud in the future, and then only if additional customers come on line within a relatively short five-year window. Staff essentially concurs with Dr. Slaughter's testimony that the increased costs of distribution facilities are attributable to inflation, but it supports a line extension taiff that disproportionately allocates the additional cost of facilties to new customers simply because they are new customers. When combined with the fact that the proposed tariff modifications result in the Company paying as much as $1,056.00 less than the curent per-customer embedded cost for distribution facilties, the modifications are inherently discriminatory and inconsistent with longstading Commission policy. DISCUSSION 1. Staff's Policy Statement Compared to Staff's Calculations. Although Staff appears to support the policy stated in Order 26780 (IPC-E-95-18) that new customers are entitled to have the Company provide a level of investment equal to that made to serve existing customers in the same class, examination of Staff s comments reveals significant discrepancies between that policy and Staffs resulting calculations found on Attchment 9, page 2 of 4. On pages 3 and 5, Staff indicates that Company investment should at least equal average embedded cost per customer: BUILDING CONTRACTORS ASSOCIA nON OF SOUTHESTERN IDAHO'S RESPONSE TO COMMENTS- 2 Staff believes that the goal in setting allowance and refud amounts for distribution line extensions should be to eliminate the impact on existing electric rates. More specifically, Staff believes the line extension rules should provide a new customer allowance (Company investment) that can be supported by electric rates paid by that customer over time. . . . Staff calculates a "revenue neutral investment of $1 ,232.44 which Idaho Power can make to provide service to new residential customers." Dr. Slaughter's calculation of the embedded cost in this regard was similar and, for puroses of this Response, Building Contractors accept Staf s $1,232.44 figure as a reasonable approximation. Staff then states that "(b)ecause the average investment of existing customers ($1,232) is fairly close to Staffs estimate of the cost of overhead terminal facilties ($1,444), Staff believes terminal facilities should be provided at no cost to the residential customer." Staff Comments at 5. The proposed changes to Rule H are complex; Building Contractors believes that Staff has inadvertently calculated the cost of terminal facilties assuming one transformer, a 100-foot line drop and a meter as a per lot allowance, and incorrectly concluded that the proposed Rule H tariff modifications will result in an appropriate Company investment. According to Scott Sparks, the Company defines "Terminal Services" as one 25 KVa transformer and one service drop, up to 100-feet in length. Meters are not included in the calculation because meters are free to all customers. Moreover, a line extension often involves more than one transformer, and more than one customer may be connected to a single transformer. If two or more customers (lots) are connected to a single transformer, the service drop is provided for one within the proposed allowance; others are charged to the developer. The table below prepared by Dr. Slaughter compares cost distribution under the existing Rule H tariff, the Company's proposal, and the Staff proposal using subdivision examples presented by Staff, as provided by the Company. This table incorporates Staffs calculated BUILDING CONTCTORS ASSOCIA nON OF SOUTHWESTERN IDAHO'S RESPONSE TO COMMENTS- 3 existing embedded cost of$I,232.44 per customer and Staffs proposal to treat work order cost as being equal to Total Design Cost. 1 ÇOin Piirisoli()fJIi,,~~tinent U ":()~..Kxisting, R.ule n, and ç!lin panyali()Stiiff I'roposiils,... Sl1bcii"isi()ntJxample I 2 3 4 5 No. of Lots 3 IO 32 60 101 .i\verage~inliedd~(Jcost (Stiiff) Total Design C()st I.esigii(\¥()rkorder) cost per lot Allowance (Company)! Eligible for Refund (Staft) $1,232.44 $10,572 $15,1 16 $50,432 $72,528 .$144,771 $3,524 $1,512 $1,576 $1,209 $1,433 $3,560 $1,780 $7,1201 $8,900 i $17,800.."j.. drops):ii""""""j $2,337 . , $1,334 ~1,~54!$1,9691 $1,257 $2,337 $lJ334 I"""""""""""""$i?~54J $i,9~01 ..JI,257" $1,565 $233 $417 $148 $383 L ~ ~"~ - ~ ,,~,~~~,-""--""~~._"'"I "-,,,"~-----..L " ~~-~-"".... i ~~'t I $1,187 I $178 $222 $149 !$176 $1,187 $178 $222 $149 I $176 $1,959 ~i,~??$1,159 $1,061 $1,050 ." $45.44 $1,054.84 $1,010.44 $1,083.64 $1,056.06 26.56),,$(~~~I~)i $73.44 """""" " $ITl.~~ .$182.06 $1,232.44 i $1,232.44 $1,232.44 i $1,232.44 Developer costs per lot (including extra service i Staff Company i .Existing Rule H Company investment per lot: ,.- ~ " "'1" Staff! "ç()inpariy Existing Rule H Difference between Staff investment goal and actual Company investment per Staff Attachment 9 P. 2 Difference between Staff estimated embedded cost and current Companyline extension investment $(7 The above table highlights that under the Company's proposal, as supported by Staff, the Company's investment in distribution facilties to serve new residential customers falls far short of its investment to serve existing residential customers for all but the smallest developments. For subdivisions larger than three lots, the Company's investment would be less than $200 per lot. These calculations also show that even under the current Rule H tarif Company investment The Company shows Work Order Cost as being the Total Design Cost less Allowance. The Staff proposal is that the allowance be made an after-the-fact refund. BUILDING CONTRACTORS ASSOClAnON OF SOUTHWESTERN IDAHO'S RESPONSE TO COMMENTS-4 . is less than the embedded cost for developments larger than ten lots. The proposed tariff modifications only make this situation worse. Further, if the terminal facilties allowance is to be $1,780, then for a 32-lot subdivision, terminal facilties constitute approximately $222 per lot. Deducting $222 from a $1,232 embedded cost should yield a per-lot refud of $1,010. This analysis ties closely with Dr. Slaughter's estimated $1,164 per lot, based on the 1995 refud of$800 and accounting for inflation since that time. Based on the foregoing, and the Company's proposed terminal facilities allowance of$I,780 per transformer and one service drop, the per-lot refud should be $1,000 and indexed to the GDP Implicit Price Deflator between major rate cases. Under the Company's and Staffs proposal, the per-lot refud would be only $222. 2. Shift of Terminal Facilties Risk to Developer. Staffs (and ostensibly the Company's) position appears motivated by the goal of protecting curent ratepayers from higher nominal rates. They would do so by requiring a new customer to pay the entire cost of new distribution facilties and its proportionate share of the cost of existing facilities. This strategy shifts all of the investment risk, including inflationar costs and vagaries of the economy to the new customer/developer ofa subdivision. Going a step fuher than even the Company's requested modifications, Staff proposes that the existing terminal facilities allowance become a refundable expense, after calculation of Work Order Cost, rather than an allowance deducted from Total Design Cost. It is not clear why Staff made this proposal, other than to suggest that terminal facilities would be an appropriate basis for refunds-a suggestion that Building Contractors disagrees with. Building Contractors oppose this proposed shift, as the preponderance of line extension cost risks already are borne by the developer and/or new customer. BUILDING CONTRACTORS ASSOCIA nON OF SOUTHWESTERN IDAHO'S RESPONSE TO COMMENTS- 5 3. The Effects of Inflation on Costs. Staff agrees with Idaho Power that rising costs are a fuction of inflation and growth. At the same time, however, Staffs analysis presented in its Attachment lA is in line with Dr. Slaughter's analysis, showing that if inflation is zero, the total revenue requirement rises as customers are added, but the revenue requirement per customer does not. In fact, the revenue requirement per customer actually declines over time. Only in the inflation example does the revenue requirement rise. Thus, rising costs are entirely a function of inflation, which existing customers should not be shielded from any more than new customers. Rapid growth does in fact cause these higher costs to enter rate base faster than they would otherwise, but that is not the same as "growth not paying its way." The tendency of both the Company and Staff to equate rising costs with growt ignores both the effect of inflation and the rising consumption of energy by the installed customer base. The average customer consumes far more energy today than he or she did several decades ago, even if that customer has never been a "new" customer on the Idaho Power system. Further, as Dr. Slaughter explained, new distribution facilties to serve growth reduce the average age of the distribution system and increase its capabilties. They therefore enhance the system, reduce average maintenance costs, and do not contribute to rising real costs. 4. Commission Policy. It bears repeating that in its order in IPC-E-2008-10 the Commission made clear its belief that energy prices should reflect market costs, and that to discourage excess demand, the customer should not be artificially protected from market forces. To that end, it is appropriate for slowly rising distribution costs to be reflected in the rate base. As has been shown, however, even the existing Rule H tariff results in Company investment in distribution facilties serving new customers below Staff s estimate of embedded costs. The impression that somehow BUILDING CONTRCTORS ASSOCIAnoN OF SOUTHESTERN IDAHO'S RESPONSE TO COMMENTS-6 "growth does not pay its way" is entirely a fuction of how one characterizes inflation. Mischaracterizing it as a cost of growth to be imposed solely on new customers sends a market signal exactly the opposite of what the Commission has said it desires. CONCLUSION For the reasons stated above, and as set forth in Dr. Slaughter's testimony, the Building Contractors urge the Commission to: 1) deny Idaho Power's Application insofar as it seeks to reduce developer refunds and reduce the vested interest recovery period; 2) increase the terminal facilities allowances under its current tariff; 3) provide for periodic true-ups of these allowances; and 4) increase the period from five years to ten years during which vested interest refunds are made. With respect to the manner in which the refunds are made by the Company, Building Contractors also request that the Commission require the Company to provide an itemized statement with each refund payment showing the calculation supporting the amount refunded and identifying the particular line extension, paricipating developer or customer, subdivision and/or lot for which the refud is being made. DATED this 1st day of May, 2009. GIVENS PURSLEY, LLP ichael C. Creamer Attorneys for Intervenor Building Contractors Association of Southwestern Idaho BUILDING CONTCTORS ASSOCIA nON OF SOUTHESTERN IDAHO'S RESPONSE TO COMMENTS-7 "" .. CERTIFICATE OF SERVICE I hereby certify that on the 1 st day of May, 2009, a tre and correct copy of the foregoing was served upon the following individual(s) by the means indicated: Jean D. Jewell, Secretary Idaho Public Utilities Commission 472 West Washington Street P.O. Box 83720 Boise, Idaho 83720-0074 Lisa D. Nordstrom Baron L. Kline Idaho Power Company PO Box 70 Boise, ID 83707-0070 lnordstrom(iidahopower .com bkline(iidahopower .com Scott Sparks Gregory W. Said Idaho Power Company PO Box 70 Boise, ID 83707-0070 ssparks(iidahopower .com gsaid(iidahopower .com Kristine A. Sasser Deputy Attorney General Idaho Public Utilties Commission 472 W. Washington PO Box 83720 Boise,ID 83720-0074 kris.sasser(ipuc.idaho. gov Original Filed: D D r2D D Service Copies: r2D D D r2 r2 D DD r2 r2 D D D r2 U.S. Mail, postage prepaid Express Mail Hand Delivery Facsimile Electronic Mail U.S. Mail, postage prepaid Express Mail Hand Delivery Facsimile Electronic Mail U.S. Mail, postage prepaid Express Mail Hand Delivery Facsimile Electronic Mail U.S. Mail, postage prepaid Express Mail Hand Delivery Facsimile Electronic Mail BUILDING CONTRACTORS ASSOCIATION OF SOUTHWESTERN IDAHO'S RESPONSE TO COMMENTS- 8 .. l Matthew A. Johnson Davis F. VanderVelde White, Peterson, Gigray, Rossman, Nye & Nichols, P.A. 5700 E. Franlin Rd., Ste. 200 Nampa, ID 83687 mjohnsoncmwhitepeterson.com dvanderveldecmwhitepeterson.com Attorneysfor The City of Nampa and The Association of Canyon County Highway Districts Michael Kurtz Kur J. Boehm Boehm, Kurz & Lowr 36 E. Seventh St., Ste. 1510 Cincinnati, OH 45202 mkurtzcmBKLlawfrm.com KboehmcmBKLlawfrm.com Attorneys for The Kroeger Co. Kevin Higgins Energy Strategies, LLC Parkside Towers 215 S. State St., Ste. 200 Salt Lake City, UT 84111 khigginscmenergystrat.com Representing The Kroeger Co. ~ooo~ ~ooo~ ~ooo~ U.S. Mail, postage prepaid Express Mail Hand Delivery Facsimile Electronic Mail U.S. Mail, postage prepaid Express Mail Hand Delivery Facsimile Electronic Mail U.S. Mail, postage prepaid Express Mail Hand Delivery Facsimile Electronic Mail Michael C. Creamer BUILDING CONTRCTORS ASSOCIATION OF SOUTHWESTERN IDAHO'S RESPONSE TO COMMENTS- 9