20100323Comments.pdf

Benjamin J. Otto (ISB No. 8292)
Idao Conservtion League
PO Box 844
710 N. 6th St
Boise, ID 83701
Ph: [phone] x 12
Fax: [phone]
botto~idahocon servation .org
RE't~
2010 HßR 2~J.,01 v PM 2' 20.11 .., . ...
Attorney/Energy Advocate for Idao Conservtion League
BEFORE THE IDAHO PUBLIC UTIITS COMMSSION
IN THE MA TIER OF THE APPLICATION OF )
IDAHO POWER COMPANY FOR ) CASE NO. IPC-E-09-28
AUTHORITY TO CONVRT SCHEDULE 54-)
FIXED COST ADJUSTMENT - FROM A ) COMMENTS OF THE IDAHO
PILOT SCHEDULE TO AN ONGOING, ) CONSERVATION LEAGUEPERMENT SCHEDULE. )
)
)
COMES NOW Idaho Conseration League ("ICL"), pursuat to Rule 203 of the Rules of
Procedure of the Idaho Public Utilties Commission (the "Commission") and the Commission's
Notice of Modified Procedure served Febru 23rd, 2010, filing these comments on Idaho
Power Company's ("Idao Power") application to convert the Fixed Cost Adjustment ("FCA")
from a pilot schedule to a peranent rate schedule. The Commission granted ICL's request to
intervene in this Case by Order No. 30975 issued Januar 5, 2010.
INTODUCTION
In this case, Idaho Power asks the Commission to authorize changing the FCA from a
thee-year pilot program to a permanent rate schedule. Durng the thee-year FCA pilot progr
the PUC Staff, Idaho Power, and the Commission addressed some problems with the FCA
mechanism. However, significat unesolved issues remain including: (1) how to accurtely
measure the reduction in energy use attbutable to Idao Power's effort; (2) how to address the
conflcting price signal sent to rate payers when their educed energy consumption results in a
rate increase; (3) how to ensure Idao Power uses consistent, verified, and auditable data in
computing the FCA; and (4) whether to allocate the FCA to the Residential and Small General
Service Classes together or separately. Assuming the Commission authorizes the FCA as a
permanent rate schedule, several more issues arse including: (1) determlning the impact of
newly implemented usage based rate designs; (2) developing an effective, simple, and accurate
incentive mechanism; and (3) continuing to ensure Idao Power is aggressively pursuing all cost
effective energy effciency and DSM investments.
ICL believes the FCA is an important tool for aligning the intere$ts ofIdao Power
shareholders and ratepayers. ICL also believes the Commission should play an active role in
continuing to refine the FCA mechanism. Because removing the financial disincentive to invest
in energy effciency and DSM is critical, ICL strongly encourages the Cnmmission to approve
the continuation of the FCA program as either an extended pilot progr, or a peranent
program. However, importt and complex issues with the FCA and reHited progrs remain
unesolved, therefore ICL believes the Commission, Idao Power, and the public would benefit
from new docket to tae a comprehensive look at the FCA mechanism, the anual FCA
adjustment rates, and the related pedormance based incentive program.
mSTORY OF IDAHO POWER'S FIXD COST ADJUSTMENT MECHASM
The Commission approved the FCA Pilot Progr on March 12, '2007 in Order No.
30267, Case No. IPC-E-04-15. At that time, the Commission explained f'promotion of cost-
effective energy efficiency and demand-side management (DSM), we flld, is an integral part of
Comments ofICL - IPC-E-09-28 - March 23, 2010 2
least-cost electric service." Order No. 30267 at 13. The FCA "removes a Company-identified
financial disincentive to energy efficiency and DSM investment" by reducing the dependence on
stable kilowatt-hour sales to assure recovery of fixed costs. According to the Commission,
decoupling fixed costs from energy sales should assure more stabilty in fixed costs recovery and
result in Idao Power being indifferent to reduced energy consumption and demand. The other
half of this quid pro quo is a commitment by Idao Power to "demonstrte an enhanced
commitment to energy efficiency and DSM." Ill at 14.
To faciltate this quid pro quo, on March 12, 2007 the Commission issued Order No.
30268 in Case No. IPC-E-06-32 approving a Performance-Based Demand-Side Management
Incentive Program. Because the FCA only removes the financial disincentive to invest in energy
demand reduction, the Incentive Program was intended to provide a positive incentive to
encourage investment by Idaho Power. Although they supported the progrm overall, the Idaho
PUC Staff identified seven technical diffculties with the Incentive Program. Dug the pilot
period, the PUC Staff and Idaho Power could not resolve these technical diffculties. On May 14
2009, the Commission ended the incentive program in Order No. 30806 issued in Case Number
IPC-E-09-04 because devising and administering a reasonably objective pedormance-based
incentive presented significant challenges durng the pilot period. As par ofthis Order, the
Commission declined to open a new docket to fuer develop an incentive mechanism, but
encouraged Idaho Power, the Commission Staff, and other interested paries to continue
discussions on this topic.
While ICL agrees the Incentive Program was flawed, ICL also believes that indifference
to reduced energy consumption is an insuffcient goal and the Commission should implement
mechanisms that actully encourage investments in energy effciency and DSM. Because
Comments ofICL - IPC-E-09-28 - Marh 23, 2010 3
devising an appropriate incentive mechanism proves to be complex, ICL believes the
Commission should open a new docket to tae a comprehensive look at both sides of the quid
pro quo, providing fixed costs recovery stabilty though the FCA and incentfvizing Idaho Power
to make fuer commitments to energy effciency and DSM.
The FCA pilot program includes anual rate adjustments that "tre up" the difference
between fixed cost recovery approved in the latest general rate case and actual fixed costs
recovery durng the year. Under the FCA mechanism, if actual sales are less than the forecast in
the rate case, Idaho Power wil under recover fixed costs and request a rate increase under the
FCA for the following year. If actul sales exceed the forecast, then Idao Power over recovers
fixed costs and wil reduce rates for the following year. The FCA applies only to two customer
classes, Residential customers on Schedules 1,4, and 5, and Small General Customers on
Schedule 7.
The Commission approved the first FCA rate adjustment for 2008 though 2009 on May
30, 2008 in Order No. 30556 issued in Case No. IPC-E-08-04. Dug this first yea adjustment,
Residential customers increased their average energy use resulting in a FCA reduction of 1.17%.
Meanwhile, Small General Service customers reduced their average energy use, resulting in an
FCA increase of 7.3%. While the original FCA stipulation called for adjusting each customer
class separately, the Staff recommended, and the Commission approved, spreading the FCA
across both classes on a per kilowatt hour basis. Overall, the Idaho PUC staff endorsed Idaho
Power's requested rate reduction, but the Staff strenuously questioned the fied costs and cost of
service models used by Idaho Power because they arose from stipulated settlement of the 2005
General Rate case. The PUC Staff also questioned whether the FCA actually resulted in
increased investments in energy effciency and DSM beyond what Idaho Power would have done
Comments ofICL - IPC-E-09-28 - March 23, 2010 4
anyway.
The Commission approved the second year FCA adjustment on May 29, 2009 in Order
No. 30827 issued in Case No. IPC-E-09-06. Dung this second year, averge energy
consumption per customer fell durg the year, resulting in a FCA increase of 0.42% for
Residential and 10.29% for Small General Service customers. Like the prior year, the
Commission approved the recommendation of the Staff and Idao Power to spread the FCA
increase across both customer classes on a per kilowatt-hour basis. Addressing a major concer
expressed by the PUC Staff, the second year FCA adjustment used fixed costs per customers,
fixed costs per energy, cost of service models from the General Rate Case No. IPC-E-07-08
completed in the interim.
Turing to the issue of the FCA's impact on Idao Power's investment in energy
efficiency and DSM, the Staff explained that "it is clear that durng 2008, the Company greatly
increased DSM expenditues an significantly enhanced its program offerings." Comments of the
PUC Staff in Case No IPC-E-09-06 at 4. After reviewing Idaho Power's 2008 DSM report, the
Staff verified the Company's claimed expanded expenditues, progr offergs and projected
energy savings. However, the Staff continued to question whetler the reduced energy
consumption per customer is attbutable to Idao Power's investments spurd on by the
disincentive removed by the FCA, or other factors. According to Staff calculations, only 23% of
the reduced energy consumption measured durng the year could be attbuted to energy
effciency and DSM investments by Idaho Power, as opposed to other factors like weather or
economic activity. Id at 4; Order no. 30827 at 3 n. 1. Looking forward, the Staffalso
commented that newly approved tiered rates and rate increases could fuer lead to reduced
energy consumption not fairly attbuted to Idao Power's efficiency and DSM investments.
Comments ofICL - IPC-E-09-28 - Marh 23, 2010 5
On March 16 2010, Idaho Power applied for the third year of the FCA rate adjustments as
Case No. IPC-E-IO-07. In this third year, average use per customer declined again, resulting in a
FCA increase of 1.57% for Residential Customers and 8.49% for Small General Service
Customers. As in prior years, Idao Power offered to spread the FCA impact across both
customer classes equally resulting in an overall increase of 1.85%. To calculate the FCA Idao
Power used the fixed costs per customer and fixed costs per energy approved by the Commission
in the latest general rate case IPC-E-08-1 O. As requested by the Staff in their comments
regarding the second year FCA rates, for the third year FCA rates Idaho Power used the most
curent weather normalized test year, 2010 - 2011.
Turing to the impact of the FCA on energy effciency and DSM investments, Idaho
Power explains their portfolio of progrs and measures increased energy savings by 7.6% and
reduced peak demand by 28% for a total reduction of 148,256 megawatt hour in 2009.
Testimony of Scott D. Sparks at 7, Case No. IPC-E-IO-07. Idao Power now offers 18 energy
effciency progrs, including thee added in the past year. Harkening back to the Staff
comments in the second year FCA rate adjustment, Idaho Power also refers to "several new
priced-based rate designs" intended to encourge effcient energy usage. Ill at 9. Although the
exact effectiveness of the FCA program requires fuer exploration by the Staff, Commission,
and other paries, this third year FCA adjustment application reveals a continuing expansion of
Idao Power's investments in energy effciency and DSM. More directly on point in this case
however, the third year FCA rate adjustment request reveals continuing disagreement about
some paricular details of the entire FCA mechanism.
IDAHO POWER'S APPLICATION TO MAKE THE FCA PERMENT
Comments ofICL - IPC-E-09-28 - Marh 23, 2010 6
The precise issue under consideration in this docket, IPC-E-09-28, is whether the
Commission should authorize Idao Power to change the FCA from a pilot program to a
permanent rate schedule. In their application, Idao power explains that durg the pilot program
they have increased their investments in energy effciency and reported substatial reuctions in
total energy use and peak energy use.
In their application Idao Power explains the "tre up mechanism is working as
intended" because the Company continues to recover its fixed costs despite varable energy sales.
This addresses one half of the quid pro qou identified by the Commission in approving the FCA
pilot Program in Order No. 30267, Case No. IPC-E-04-15.
Durng the thee-year pilot program the anual FCA rate adjustments have been applied
to both Residential and Small general Service customers equally on a per kilowatt hour basis. In
their original application to implement to pilot program, Idaho Power intended to calculate and
implement the FCA to these customer classes separately. In their application to make the FCA
permanent Idaho Power again intends to allocate the F AC to each customer class separtely
because this "will provide a distrbution methodology that is more representative of the actul
fixed costs recovered by each customer class." Testimony of Scott D. Sparks at 16, Case No.
IPC-E-09-28.
Finally, Idaho Power requests the Commission no longer require specific documentation
regarding their investments in energy effciency and DSM. According to Idaho Power, these..
report are unecessary because their commitment "is now evident." Idaho Power wil continue
monthly reporting of the FCA balance and will fie annual rate adjustments to ''te up" their
fixed costs recovery.
Comments ofICL - IPC-E-09-28 - March 23, 2010 7
IDAHO CONSERVATION LEAGUE'S COMMNTS ON TH APPLICATION
ICL wholeheartedly aggress with the Commission's statement in the original order
approving the FCA pilot program that "promotion of cost-effective energy effciency and
demand-side management (DSM), we fid, is an integral par ofleast-cost electrc serice."
Order No. 30267 at 13. Because traditional ratemakg ties the utilty's recovery of their fixed
costs to the amount of energy sales, the utilty has no incentive to invest in programs that reduce
energy sales. The FCA, by decoupling fixed cost recover from energy sales, represents one half
of changing this incentive strctue towards achieving the Commission's goal of promoting cost-
effective energy efficiency. Essentially, the FCA levels the playing field by making the utilty
indifferent to reduction in energy consumption.
While it seems that all paries agree the FCA is a good mechanism to promote cost
effective investments in energy effciency and DSM, there remain some significant disagreement
about paricular details of the mechanism including: (1) how to accurately measure the reduction
in energy use attbutable to Idao Power's effort; (2) how to address the conflcting price signal
sent to rate payers when their educed energy consumption results in a rate increase; (3) how to
ensure Idaho Power uses consistent, verified, and auditable data in computing the FCA; and (4)
whether to allocate the FCA to the Residential and Small General Service Classes together or
separately.
ICL believes the best way to continue encourging investment in energy effciency and
DSM is to continue the FCA while convening a workshop to comprehensively address these
issues along with developing an appropriate and fair incentive to spur even greater investments.
Because the Commission has recognized promoting cost effective investments in effciency is an
importt par of providing least cost service, and the Staffhas recognized that the FCA
Comments ofICL - IPC-&09-28 - March 23, 2010 8
mechanism has to some degree spured investments that Idaho Power would not have otherwse
made, ICL believes the worst outcome in this case would be for the Commission to end the FCA
program entirely.
If the Commission should decide a workshop is not appropriate, ICL requests that the
Commission tae the following actions on Idao Power's application:
First, approve continuing the FCA mechanism as at least an extended pilot program. This
wil allow additional time to fuer refine and improve this importt mechanism.
Second, resolve whether to allocate the FCA across both customer classes or apply it to
them separately. By allocating the FCA to both customer classes, Residential customers are
asked to cover the forgone fixed cost recovery attbutable to the Small Generl Service
customers. As an example of the confusing natue of the issue, in this case Idao Power is
requesting to allocate the FCA to customer classes separtely, meawhile in the third yea FCA
rate adjustment application fied March 16,2010, Case No. IPC-E-I0-07, Idao Power continues
to combine the classes in developing the FCA rate. ICL believes this issue requires fuer
development though additional briefing and a hearng to fully resolve this issue.
Third, the Commission should deny Idao Power's request to not submit anual reports
on their energy effciency and DSM investments. In fact, ICL believes the Commission should
do just the opposite and require a more detailed and precise report. Specifically ICL believes the
Commission should require Idao power to submit the data the Staff requested in ths case, the
monthly actual kilowatt-hour savings attbuted specifically to the residential and small general
service customers. Also these anual report should make ever reasonable effort to determine
the amount of reduced energy consumption attbutable to Idaho Power's investments as opposed
to other factors such as weather or economic activity.
Comments ofICL - IPC-E-09-28 - March 23, 2010 9
CONCLUSION
Durng the thee-year pilot progrm, the FCA has largely fuctioned as intended. While
specific issues regarding certin components of the mechanism require fuer development and
resolution, ICL believes the FCA continues to be an importt effective tool for encourging cost
effective investments in energy effciency and DSM. ICL urges the commission to either extend
the pilot period for the FCA mechanism or approve Idaho power's request to make the program
permanent. ICL believes the worst outcome of this case would be for the Commission to
eliminate the FCA mechanism entirely. Finally, to continue the development of the FCA
mechanism and the good results it has spured thus far, ICL urges the Commission to convene a
formal workshop to address the FCA, develop an appropriate incentive mechanism, and
determine a reporting and verification method the Staff and the public can trst. ICL looks
forward to working with all concerned paries to continue refining the financial incentives to
ensure vigorous investment in all cost effective energy effciency and DSM options.
Respectfully submitted this 23rd day of March 2010,
6&
o (ISB # 8292)
AttorneyÆnergy Advocate
Idao Conservtion League
Comments ofICL - IPC-E-09-28 - March 23, 2010 10
CERTIFICATE OF SERVICE '. ,f1 r
I hereby certify that on this 23rd day of March, 2010 true and correct copies of thtlO llr\R 23 PM ~
foregoing COMMENTS OF IDAHO CONSERVATION LEAGUE were delivered to the .
followig persons via the method of servce noted:
Hand delivery
Jean Jewell
Commission Secretar (Origial and seven copies provided)
Idaho Public Utilties Commission
427 W. Washigton St.
Boise, ID 83702-5983
Electronic Mai:
Barton 1. Kline
Donova E. Waler
Idao Power Company
1221 West Idaho Street
Boise, Idao 83707-0070
BKline~idahopower.com
dwalke~idaopower.com
Scott D. Sparks
John R Gale
Idao Power Company
P.O. Box 70
Boise, Idao 83707
ssparks~idahopower.com
rgae~idaopower.com
Brad M. Purdy
Attorney at Law
2019 N. 17th St.
Boise, ID. 83702
208-384-1299
bmpurdy~hotmail.com
Ken Miler
Clean Energy Progr Director
Snake River Allance
PO Box 1731
Boise, ID 83701
kmiller~snakeriveralliance.org ~
Benjamin J. Otto
Energ Advocate for Idao Conservtion League