20100325Comments.pdf

Brad M. Purdy
Attorney at Law
BarNo. 3472
2019 N. 17th St.
Boise,ID. 83702
[phone] (Land)
[phone] (Fax)
bmpurdy(âhotmail.com
Attorney for Community
Action Parership
Association of Idaho
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR )
AUTHORITY TO CONVERT SCHEDULE 54 )
-FIXED COST ADJUSTMENT -FROM A )
PILOT SCHEDULE TO AN ONGOING )PERMANENT PROGRAM. )
)
CASE NO. IPC-E-09-28
COMMUNITY ACTION
PARTNERSHIP ASSOCIA-
TION OF IDAHO'S RESPONSE
TO IDAHO POWER'S
APPLICATION
I. INTRODUCTION
COMES NOW the Community Action Partership Association of Idaho ("CAPAI") and,
pursuant to Rules 201 through 204 of the Commission's Rules of Procedure, IDAPA
31.01.01.201-204, and Commission Order No. 31010 issued in this proceeding on Februar 23,
2010, submits the following comments in response to Idaho Power Company's ("Idaho Power"
or "Company"), Application in this docket to make permanent a pilot program decoupling the
recovery of fixed costs from the Company's investment in Demand Side Management ("DSM")
or energy efficiency measures. i
i Due to limited resources, CAPAI was unable to participate in the original application for approval of a pilot
program and subsequent proceedings that have occurred since then, until now.
CAP AI RESPONSE COMMENTS 1
II. IDAHO POWER' POSITION
In a nutshell, the Company believes that the pilot program, approved by the Commission
on March 12,2007 in Order No. 30267, Case No. IPC-E-04-15, if made permanent, wil remove
the disincentive to the Company to invest in DSM due to lost sales revenue. Put another way,
because the utility makes money by sellng and distributing electrons, any investment it makes in
programs that reduce customer demand for those electrons then, without some mechanism such
as the proposed FCA in place, Idaho Power wil experience decreased, uneimbursed revenue, all
other things being equal.
Many would agree that issue can be somewhat complicated. The intent of these
comments, therefore, is to analyze those complexities and differences of opinion, and to offer
alternatives to the pilot FCA as it curently exists, as well as to respond directly to the
Company's Application.
Obviously, the Company's Application and supporting testimony of Mr. Scott Sparks
speak for themselves. For purose of discussion, and to identify areas of disagreement, CAPAI
offers the following, brief, summation ofIdaho Power's proposal and supporting rationale.
CAP AI in no way purports that these comments contain an exhaustive sumation of Idaho
Power's position on every issue.
Idaho Power posits that its FCA mechanism "quantifies the direct link between the
energy consumed by customers and the revenue received from customers in order to remove the
financial disincentive that exists when the Company invests in energy effciency and demand-
side-management.. .." Testimony of Scott Sparks, p 3, ll. 6-10. Thus, at the hear ofIdaho
Power's argument, is the belief that they are in fact capable of not only proving a "direct link"
between reduced revenues and increased DSM investment, but they are also capable of
CAPAI RESPONSE COMMENTS 2
quantifying the actual dollar amount of said direct link. Idaho Power also declares that it is not
financially hared by decreases in energy sales under the current pilot FCA's true-up
mechanism, nor is it financially benefitted from increases in sales.
Idaho Power explains that only residential customers and small general service classes
were initially chosen to paricipate in the pilot FCA project. See, Test. Of Scott Sparks, p. 4.
Apparently, Idaho Power intends to continue proposing that only these two customer classes wil
continue to be included in the FCA mechanism.
Idaho Power contends that if there results a positive adjustment under the FCA, this
would indicate the Company's allowed fixed cost recovery amount was greater than the fixed
costs actually recovered through the energy rate for that class of customers. This, Idaho Power
argues, would stem from the fact that the growth rate in weather-normalized energy was less than
the growth rate in customers, i.e., the use per customer had decreased. The effect of that
decrease would be that the Company had under-collected its fixed costs and, therefore, additional
dollars need to be collected from the customer class in order to make the Company financially
whole. See, generally, Test. Of Scott Sparks, pp. 5-6. Mr. Sparks notes that the FCA is regulated
by the Commission through the imposition of an adjustment "cap," which curently is 3% as a
rate mitigation tool.
The Company asserts that the implementation of the FCA has affected Idaho Power's
efforts toward promoting energy efficiency and DSM activities. Idaho Power's support for this
statement is reflected in Mr. Sparks' declaration that the Company has "actively pursued new
opportunities to promote energy efficiency and demand-side management since the inception of
the pilot FCA." Test. Of Scott Sparks, p. 7. Mr. Sparks finishes with the conclusion that "by
removing the financial disincentive to invest in DSM programs, the FCA has provided the
CAPAI RESPONSE COMMENTS 3
Company an opportunity to enhance and expand its portfolio of cost effective DSM resources.
1d,
The Company points to an increase in DSM investments, and reduced residential and
small general service revenues in recent years, as proof that removing the financial disincentive
discussed above is the simple fix to prompting Idaho Power to invest in cost-effective DSM.
The Table on page 8 of Mr. Sparks' testimony demonstrates that with increased investment in
DSM has come varying degrees of energy consumption reduction. This Table seems to assume
that every single kilowatt of energy saved was the result of a DSM measure or program, and
nothing else. Even if the data is weather-normalized, there are numerous other variables that
profoundly affect relative energy consumption on an anual basis, as wil be discussed later.
Idaho Power states that it utilizes four types of programs to promote energy and demand
savings: 1) Demand Response (continue to pursue unamed existing programs and pursue new,
unidentified, cost-effective programs; 2) Energy Efficiency; 3) market transformation
(membership in the Northwest Energy Efficiency Allance "NEEA"), and; 4) Other Programs
and Activities (research, development, education and program marketing). There doesn't seem
to be, in this paricular Table, any specific amount of energy consumption reduction identified
for each of the four, foregoing types ofDSM that has been achieved as a direct and exclusive
result.
In addition, Idaho Power refers to its involvement in pursuing more energy efficient
building codes. Regardless of the degree of credit that Idaho Power can legitimately tae for
changes in building codes, this type of DSM is largely unavailable to owners of older homes
which are far more diffcult and expensive to effectively weatherize after the fact.
CAPAI RESPONSE COMMENTS 4
The Company also points out the efficiency measures incorporated into its own
buildings/facilties. Mr. Sparks testified that the FCA pilot program did "aid" in makng the
Company indifferent to choices between DSM and supply-side resources. Test. Of Scott Sparks,
p.12
The Company emphasizes the rationale for its proposal to make the FCA pilot program
permanent by noting that two years of audited data show that the "true-ups" are working to
ensure fair treatment of all concerned. The Company does not attempt to account for non-DSM
investments in its analysis of the cost-effectiveness and fairness of the FCA program on either a
pilot or permanent basis.
Finally, the Company proposes that it no longer be required to document each year
specific ways it had increased its investment in energy effciency and DSM as a direct result of
the FCA mechanism and the effect on energy consumption as a result of said increased DSM
investment.
III. CAPAI'S POSITION
A. SUMMARY
CAP AI most definitely supports the acquisition of cost-effective resources in general. In
fact, all other things being equal, CAP AI would much rather have Idaho Power invest in energy
effciency, DSM, or resources that are renewable.
CAP AI believes that because decoupling presents complex issues, when such programs
are poorly executed and paricularly if implemented without meaningful consumer protections,
decoupling unduly shifts risk to consumers, raises prices during periods of declining sales,
disproportionately raises rates for low-income and low-energy users, and does not guarantee
investment in needed efficiency improvements.
CAPAI RESPONSE COMMENTS 5
Finally, CAP AI proposes that, for the time being, the FCA be continued on a pilot
program basis until additional data are available and/or the many suggestions contained in the
comments fied by other interested persons ("commentors") in this proceeding are taken into
consideration and, possibly, incorporated into any final or continued pilot FCA that the
Commission might approve.
To summarze, CAPAI proposes that Idaho Power's Application to make the FCA, as it is
curently structured, permanent and be denied. CAP AI suggests that the matter remain under
modified procedure with the possibilty of conducting public workshops to resolve the many
issues raised by the commentors in this case.
B. OBJECTIVES OF LEGITIMATE DECOUPLING MECHANISMS
In fairness, most, if not all, mechanisms that legitimately enhance the availability and
feasibility of obtaining cost-effective DSM-type resources, should be given serious
consideration. Their implementation, however, should achieve the following overall objectives
as conditions prerequisite to the implementation or continuation as an FCA program.
Specifically, the mechanism in question must be: 1) fudamentally fair; 2) transparent; 3)
it must be periodically proven by the utility that the implementation and continuation of all DSM
programs were the direct and exclusive cause of actual energy consumption decreases claimed
by the utilty, and to what extent; 5) that there be a quid pro quo back to customers for the
shifting of risk from shareholders to ratepayers due to the fact that the uncertinty of future
revenues for the Company wil be replaced with uncertain rates for customers, and; 6) other
objectives fuher described herein. These comments wil offer but a brief overview of the
means by which to achieve the objectives articulated above.
CAP AI RESPONSE COMMENTS 6
C. SPECIFIC CONDITIONS ENSURING THE FAIR TREATMENT OF COMPANY
CUSTOMERS UNDER AN FCA
In the interests of brevity, CAPAI will briefly list below the most important concerns it
has regarding the FCA proposal and conditions prerequisite that CAP AI thinks should be
imposed in the Final Order should the Commission decide to reject an FCA for Idaho Power as
at least one commentor to this case has proposed. Another commentor has proposed
establishing a new docket and/or maintaining the curent proceeding while conducting
workshop(s) in an attempt to resolve differences among the paries.
Though CAP AI does not wish to unduly delay the processing of this case, it does believe
that there are ample issues of importance that warrant further discussion and analysis to assist the
Commission in reaching its decision. In fact, there is such an ample number of issues that
CAP AI believes need resolution, that it will simply list some as bullet points, and go into greater
detail on those it deems to be of greater importance. The presence herein of numerous rhetorical
questions is one indication that there is insufficient data available to the Commission and
commentators to make a fully-informed decision, or to take a position, in this case:
1) Regulators and policymakers could consider alternate means to promote energy
conservation, such as a banded incentive/penalty structure with specific utility energy effciency
targets.
2) In promoting increased levels of utility investment in energy efficiency through any
means, regulators and policymakers should ensure that initial, 'baseline revenues' are set in a fair
and equitable maner in the course of a general rate case, while isolating the effects of utilty-
sponsored energy effciency, protecting customers from the volatility and variability associated
with frequent tre-ups and adjustments, and protecting customers from avoidable price increases.
CAP AI RESPONSE COMMENTS 7
3) Any approved decoupling mechanism should not reward the utility unduly for reductions
in consumption resulting from conditions the utility did not sponsor or create, including
consumption reductions stemming from customer initiated savings, weather conditions (unless
adequately weather-normalized), reductions in consumption resulting from Advanced Metering
Infrastrctue, recent economic downturs and resultat high unemployment, adoption of public
sector initiatives such as building codes and appliance efficiency standards where such changes
would have occured regardless of utility support or involvement, etc.
4) If approving a decoupling mechanism, regulators and policymakers should consider ways
to protect consumers from unnecessary rate increases, such as:
- Adjustments to compensate ratepayers for the risk shifted to them, such as a lower rate
of retur or lower equity capitalization.
- A rate cap, or more stringent cap if one already exists, such that utility earings from
the added decoupling revenues canot exceed the approved rate of retur.
5) Any decouplingimechanism must be accompanied by a significant increase in the utility's
energy efficiency programs, which should be designed and evaluated in collaboration with
affected staeholders.
6) To receive decoupling revenues, utilties should achieve specific, significant steps in their
conservation savings targets designed and evaluated also in collaboration with affected
stakeholders.
7) A straight-fixed, variable rate design which shifts volumetric charges to the fixed portion
of utilty bils and unduly penalizes low-usage customers, should not be used to accomplish rate
decoupling.
CAPAI RESPONSE COMMENTS 8
8) CAP AI is concerned that the FCA is yet another varying rate change designed solely for
the purose of stabilzing utilty revenues with no commensurate benefit to customers. One need
only recall the periodic drought surcharges and subsequent adoption of a Power Cost Adjustment
mechansm in the 1990s, and the considerable number of occasions where the utilty has sought
and obtained such rate stability assurance for any number of things, the latest being Case No.
IPC-E-09-30 involving the use of and interplay between the Company's retur on equity and
accelerated wrte-off of deferred investment tax credit. There have been numerous other changes
to rates tacked on to the anual PCA, some short-lived, others not.
CAP AI raises this issue for several reasons. First, it is confusing to some customers who
canot understand the increasingly frequent changes to their rates for what are, at times, single-
item matters. Second, these utility requests often seem to follow on the heels of a period of
revenue instability and, consequently, often result in an immediate increase. Finally, as already
noted, there has been no quid pro quo offered to ratepayers for a benefit granted to the utilty.
Adjusting retur on investment or capital structure is one way to recognize the shifting of risk
from shareholders to ratepayers. CAP AI very respectfully submits that it might be time to visit
this issue in detail and assure ratepayers that they are being treated fairly.
9) CAP AI also submits that, as somewhat already stated, there should be energy
conservation tagets set, or by some other means, to ensure that Idaho Power wil aggressively
pursue all cost effective DSM resource opportunities.
10) As at least one commentor has pointed out so far, an analysis of whether to consolidate
residential and small general service for FCA puroses, is waranted.
11) IPCO should be required to continually, and periodically prove that increased investment,
or static investment in DSM has reduced energy consumption and to what extent.
CAPAI RESPONSE COMMENTS 9
12) CAPAI also wonders what effect, ifany, approval of an FCA would have on the
legitimacy of the Company's tendency to file for, and often receive, increases to its basic
monthly charge.
13) Because of their income levels, low-income customers wil pay a relatively higher
surcharge under the FCA in years wherein a surcharge is approved. This, coupled with the fact
that low-income customers often do not have the means to reduce their energy consumption, no
conservation program is available to them, or they use very little electricity in the first place,
creates a prejudicial effect against those customers.
14) In this case, Idaho Power is relying on only two full years' of data regarding the
legitimacy, or lack thereof, of the FCA. CAP AI questions whether this is sufficient for the
Commission to be able to address the many issues raised by the commentors to this case.
15) It simply cannot be overstated that Idaho Power has made critical assumptions and
reached conclusions based on relatively little empirical data and more on the assumption that
electricity consumption reductions over the past 2-3 years are the sole and exclusive result of the
implementation of the FCA. Again, there is no shortage of factors that interplay with
consumption over recent years.
16) Should the Commission, as a condition of approving the FCA, ensure that it has
exhausted rate design changes, such as adjusting Idaho Power's tiered rate structure, to
ameliorate the financial impact that the proposed FCA wil have on low-income customers with
little or no abilty to further reduce their energy consumption?
17) If Idao Power is contending that revenue stability wil enhance the Company's standings
with rating agencies which, in turn, wil benefit customers, should empirical studies be
conducted to attempt a quantification of such a benefit?
CAP AI RESPONSE COMMENTS 10
18) Assuming approval of the Company's Application, should Idaho Power's FCA be
continued indefinitely, renewed anually, or something else? If it is automatically renewed, or
there is simply no end-date to the program, should there be periodic cost of service studies
conducted to reveal the efficacy of the decoupling proposal.
19) A decoupling proposal should be accompaned by a plan for evaluating its effcacy
through, among other things, a defined set of reporting requirements. As noted above, Idaho
Power proposes to reduce the nature and depth of its FCA reporting to the Commission. CAP AI
opposes this, and proposes engaging in the following studies with resulting reports on a periodic
basis:
1) Revenue Comparison: How would revenues under traditional regulation have
differed from those collected under the decoupling regime? All possible causes of decreased
revenues, aside from increased investment in DSM, should be taken into account in making this
analysis.
2) Bil Comparisons: How have average bils differed from those under traditional
regulation?
3) Energy Efficiency: Is the Company meeting its energy effciency savings goals?
What proof exists, if any, that energy effciency achievement been enhanced under the
decoupling mechanism?
4) Service Quality: Is the Company meeting its service quality targets? Has quality
declined?
5) Risk: Has the decoupling regime stabilized revenues as expected and, if so, how
has this affected the utility's overall risk profie?
CAPAI RESPONSE COMMENTS 11
iv. CONCLUSION
For all of the reasons stated herein, CAPAI opposes Idaho Power's Application to make
the FCA program permanent, at this time. CAP AI recognizes the legitimate desire for the
Company to want to have as much predictabilty as possible in terms of revenue flow and cost
recovery, as well as the fact that an FCA program might sit well with rating agencies. CAPAI
objects to permanent approval at this time, however, pending review of the data is considers to
be absent from the Application and until the philosophical and technical questions posed herein
have at least been responded to by the Company. This is why CAPAI does not propose an
outright rejection of the very concept of an FCA; just an opportunity to examine the curent
proposal with greater scrutiny and data.
By leaving the docket open for the time being, this will allow all involved to voice their
concerns and review additional data that very well could ameliorate certain concerns that exist,
and/or open the door to possible settlement in the form of making modifications to the proposal,
whether through a workshop or some other scenario
Finally, CAP AI opposes, for the time being, the Company's proposal to reduce the
reporting requirements it has been operating under with the pilot FCA. What CAP AI, and likely
other commentors desire most right now, is additional information, not less. CAPAI is willng to
work cooperatively with Idaho Power in this and every other regard.
DATED, this 25th day of March, 2010.
CAP AI RESPONSE COMMENTS
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