20100409Response to IPC Application.pdf

Brad M. Purdy
Attorney at Law
BarNo. 3472
2019 N. 17th St.
Boise, ID. 83702
[phone] (Land)
[phone] (Fax)
bmpurdyCåhotmail.com
Attorney for Community
Action Partnership
Association of Idaho
Idaho Bar No. 3472
f?r:: r:E
20l 0 -9 2: 56
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 Parnership Association ofIdaho ("CAP AI") 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 lost sales resulting from the Company's investment in Demand Side Management
("DSM") or energy effciency measures.
1
1 Due to limited resources, CAP AI was unable to paricipate in the original application for approval of a pilot
program and subsequent proceedings that have occured since then, until now.
CAPAI RESPONSE COMMENTS 1
Essentially, the Company posits 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. Without some
mechanism such as the proposed Fixed Cost Adjustment (FCA) in place, Idaho Power contends
that it wil experience decreased, unreimbursed revenue, all other things being equal.
Many would argue that this issue can be complicated and, in many instances, existing
decoupling programs have either failed and been discontinued, have had significant consumer
protection mechanisms installed, or are stil being studied. The intent of these comments,
therefore, is to set forth CAP AI's position regarding those complexities and differences of
opinion, as well as what it perceives to be unanswered conundrus and to explain why a deferral
of permanent approval of the FCA is waranted. Finally, CAPAI wil offer alternatives to the
pilot FCA as it currently exists, as well as to respond directly to the Company's Application.
II. IDAHO POWER'S POSITION
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, however,
CAPAI offers the following, summation of Idaho Power's proposal and supporting rationale.
CAP AI's perception is just that, and in no way is represented to be an exhaustive summation of
Idaho Power's Application.
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 efficiency and demand-
side-management...." Testimony of Scott Sparks, p 3, fl. 6-10. Thus, it seems that the hear of
Idaho Power's argument is the assertion or inference that the Company is in fact capable of not
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only proving a direct causal link between reduced sales and increased DSM investment, but is
also capable of quantifying the actual dollar amount of said direct link. Idaho Power declares
that it is not financially hared by decreases in energy sales under the current pilot FCA's true-
up mechanism, nor does it financially benefit from increases in sales.
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. Idaho Power intends to
continue proposing this arangement.
The Company 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," on the annual amount ofthe
FCA.
The Company asserts that the implementation of the FCA has affected Idaho Power's
efforts toward promoting energy efficiency and DSM activities. Support for this contention 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 ofthe pilot FCA."
Test. Of Scott Sparks, p. 7. Mr. Sparks finishes with the conclusion that "by removing the
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financial disincentive to invest in DSM programs, the FCA has provided the Company an
opportunity to enhance and expand its portfolio of cost effective DSM resources." Id,
The Company also points to an increase in DSM investments, and reduced residential and
small general service sales 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 varing degrees of energy consumption reduction. This Table seems to assume
that every single kilowatt of energy saved was the direct and exclusive result of a Company-
sponsored DSM program. CAP AI contends that there are numerous other variables that can
profoundly affect relative energy consumption and, thus, revenues on an annual basis, as will be
discussed later.
Idaho Power states that it utilzes 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 (e.g.,
membership in the Northwest Energy Effciency Allance "NEEA"), and; 4) Other Programs and
Activities (research, development, education and program marketing).2 In addition, Idaho Power
refers to its involvement in pursuing more energy effcient building codes.3
The Company also notes the efficiency measures incorporated into its own buildings
and/or facilities. Mr. Sparks testified that the FCA pilot program did "aid" in making the
2 CAPAI does not detect, in this paricular Table, any specific amount of energy consumption reduction identified
for each of the four, foregoing tyes ofDSM that has been achieved as a direct and exclusive result.2
3 CAPAI notes that regardless of
the degree of the Company's involvement in the progressive alteration of building
codes, the energy savings benefits associated with this type of policy and legal change are largely unavailable to
owners of existing homes which are far more diffcult and expensive to effectively weatherize after they have been
constructed.
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Company indifferent to choices between DSM and supply-side resources. Test. Of Scott Sparks,
p.12.
As support, the Company states that two years of audited data show that the "tre-ups"
are working to ensure fair treatment of all concerned. It is unclear to CAP AI if the Company has
attempted to account for non-DSM investments in its analysis ofthe cost-effectiveness and
fairness of the FCA program.
Finally, the Company proposes that it no longer be required to report to the Commission,
anually, certain information regarding the efficacy of the FCA which it currently must do.
III. CAP AI'S POSITION
A. INITIAL SUMMARY
CAP AI obviously supports the acquisition of cost-effective resources in general. In fact,
all other things being equal, CAP AI would much rather that Idaho Power invest in energy
efficiency, DSM, or resources that are renewable and, of course, to continue its commendable
efforts to work with CAP AI on low-income specific issues. Though CAP AI has considerable
concerns about the Company's FCA, it does not yet advocate for a complete rejection of the very
concept. There must be, however, a balancing of interests of shareholders and customers.
CAP AI, therefore, advocates for a more thorough process whereby all stakeholders can attempt
to work out their differences with the Company through a good faith, collaborative process.
CAP AI believes that the submission of wrtten comments by a limited number of entities
through modified procedure, based on a limited amount of data collected during highly
extraordinar times is insufficient to reach final resolution on such a weighty issue and
respectfully questions whether the Company's Application is being needlessly rushed.
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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 durng periods of declining sales, disproportionately raising
rates for low-income and low-energy users, and does not guarantee investment in needed
efficiency improvements.
Finally, CAP AI proposes, 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
filed by other interested persons in this proceeding are taken into consideration and, possibly,
incorporated into any final or continued pilot FCA that the Commission is potentially inclined to
approve.
To summarize, CAPAI proposes that Idaho Power's Application to make the FCA
permanent, as it is curently structured, be denied. CAP AI suggests that the matter remain under
modified procedure, or some other procedural arangement discussed below, with the possibilty
of conducting public workshops to resolve the many issues raised by those who have and/or wil,
comment in this case.
B. OBJECTIVES OF LEGITIMATE DECOUPLING MECHANISMS
In fairness, theoretically all mechanisms that legitimately enhance the availability and
feasibility of obtaining cost-effective DSM resources, should be given serious consideration.
Their implementation, however, should achieve the following overall objectives as conditions
prerequisite to the implementation or continuation of an FCA program.
Specifically, the FCA 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
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utility, and to what extent; 5) there should be a quid pro quo to customers for the shifting of risk
from shareholders to ratepayers due to the fact that the uncertainty of future revenues for the
Company wil be replaced with uncertain rates for customers, and; 6) other objectives fuher
described herein.
C. SPECIFIC CONDITIONS ENSURING THE FAIR TREATMENT OF COMPANY
CUSTOMERS UNDER AN FCA
The bullet points of CAP AI's concerns, proposals and rationale include:
1) Regulators and policyrakers should 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 consider whether initial, 'baseline revenues' be 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 volatilty and varabilty
associated with frequent true-ups and adjustments, and protecting customers from avoidable
price increases.
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,
reductions in consumption resulting from Advanced Metering Infrastrctue, recent economic
downturs and resultant high unemployment, adoption of public sector initiatives such as
building codes and appliance efficiency standards where such changes would have occurred
regardless of utility support or involvement, etc.
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4) Concernng bullet point No.3, CAPAI believes there are serious practical and perceived
problems with permanently approving the existing FCA at this time. Naturally, Idaho Power
does not operate under a truly capitalistic economic regime. Over roughly the past 15 years, the
Company has been authorized to implement numerous programs and mechanisms that stabilze
and enhance the predictabilty of revenue. The Company's PCA, the FCA, the recent approval to
allow the Company to accelerate use of its deferred investment tax credit when needed to
stabilize earnings, and numerous other examples are proof of this.
CAPAI is concerned whether concurrent with these regulatory changes the Company's
rate of retur has been adequately adjusted to account for the changing regulatory regime and
reduction in shareholder risk. Admittedly, the benefit of a financially healthy utilty must be
weighed against the constant upward pressure on customer rates; a difficult but necessar tak.
There are few legal monopolistic industries in this nation and, as pointed out, when
conditions exist that jeopardize Idaho Power's retur on investment for its shareholders, those
shareholders have occasionally been immunized by regulatory mechanisms. Where risk is
removed from shareholders, it is obviously shifted to ratepayers. CAP AI questions why, durng
arguably one of the worst economic times in more than a half centu, the primar mandate
should be to protect the Company's shareholders. All other sectors of the economy, most of all
low-income customers, are suffering tremendously without similar protections as those afforded
by the FCA to shareholders.
This leads to a perception problem for customers and, arguably, is self-contradictory to
DSM programs such as the Company's Low-Income Weatherization Program (LIWA). For
example, there remains a significant backlog of eligible candidates for weatherization under the
cost-effective LIW A who have not received DSM benefits due to inadequate fuding.
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Regardless of the technicality of the FCA's structure, low-income customers who receive
assistance under LIW A, must then pay for those benefits because they caused reduced
consumption.
As anathema as it might be to a trly capitalistic enterprise, one could argue that a
regulated monopoly has a public obligation to implement cost-effective DSM, regardless of the
fact that it causes a reduction in revenues. Again, however, CAP AI believes that an FCA
constrcted with adequate safeguards could potentially be justified.
5) Any decoupling mechanism must be accompanied by a significant increase in the utilty's
energy efficiency programs, which should be designed and evaluated in collaboration with
affected stakeholders. This would include an increase in LIW A funding to begin eliminating the
backlog referred to.
6) To receive decoupling revenues, utilties should achieve specific, significant steps in their
conservation savings targets designed and evaluated also in collaboration with affected
staeholders.
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.
8) CAP AI is concerned that the FCA is yet another varying rate change designed solely for
the purose of stabilizing utilty revenues with no commensurate benefit to many customers.
CAP AI raises ths issue for several reasons. First, it is confusing to some customers who
cannot understand the increasingly frequent changes to their rates for what are, at times, single-
item issues. Second, as noted, there has been no quid pro quo offered to ratepayers for a benefit
granted to the utility. Adjusting retur on investment or capital structure is one way to recognize
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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 there should be energy conservation targets set to ensure that
Idaho Power will aggressively pursue all cost effective DSM resource opportities.
10) As at least one interested person has pointed out so far, an analysis of whether it is fair to
consolidate residential and small general service for FCA puroses, is warranted.
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.
12) 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, or
there might be no conservation program available to them, due to inadequate fuding, or they use
very little electricity in the first place, places an unfair burden upon them.
13) In this case, Idaho Power is relying on only two full years of data regarding the
legitimacy, or lack thereof, of the FCA. CAPAI questions whether this is suffcient for the
Commission to be able to address the many issues raised by those who have commented on the
Company's Application, paricularly due to the fact that the past two years have been
extraordinary in terms of high unemployment, reduced housing stars and customer growt, and
the general financial struggle that, in particular, low-income customers face.
14) It simply canot be overstated that Idaho Power has made critical assumptions and
reached conclusions based on what seems to be relatively little empirical data supporting the
conclusion that electricity consumption reductions over the past 2-3 years are the sole and
CAPAI RESPONSE COMMENTS 10
exclusive result of the implementation of the FCA. Again, there is no shortage of factors that
interplay with consumption over recent years.
15) Respectfully, it should be addressed whether 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.
16) If Idaho Power is contending that revenue stability wil enhance the Company's standings
with rating agencies which, in tur, will benefit customers, as stated above, should empirical
studies be conducted to attempt a quantification of such a benefit?
17) 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 effcacy of the decoupling proposal?
Additionally, it is stil unclear why only residential and small commercial customers are
subject to the FCA and not all of the Company's other customer classes. It seems intuitive that
these classes also benefit from DSM targeted specifically for them. They also benefit from
avoided generation and new transmission that effective DSM supposedly provides.
18) Because a decoupling proposal should be accompanied by a plan for evaluating its
effcacy, the Company's request to reduce or eliminate reporting requirements should be denied.
CAP AI 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
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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 Effciency: Is the Company meeting its energy efficiency savings goals?
What proof exists, if any, that energy efficiency has 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 stabilzed revenues as expected and, if so, how
has this affected the utilty's overall risk profie?
iv. CONCLUSION
For all ofthe 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 predictability 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. As one
interested person noted in comments, the Company's efforts have received widespread
recognition. That is why CAP AI, in spite of the extent of critique contaned herein, does not
oppose decoupling out right, or even termination of the existing pilot program at this time.
CAPAI does object to permanent approval, pending review of the data it considers to be absent
from the Application and until the philosophical and technical questions posed herein have at
been more fully worked through with greater scrutiny and, if it seems justified, to create a
superior program that protects the interests of shareholders and customers alike.
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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,
apparently, other interested persons desire most right now, is additional information, not less.
CAP AI is willng to work cooperatively with Idaho Power in this and every other regard.
DATED, this 9th day of April, 2010.
12;:.J~:;-Brad M. Purdy
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