20110512Comments.pdf

KRISTINE A. SASSER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BARNO. 6618
RECEIVED
lOll HAY f 2 PH I: 24
¡ON
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
IDAHO POWER COMPANY FOR ) CASE NO. IPC-E-ll-03
AUTHORITY TO IMPLEMENT FIXED-COST )
ADJUSTMENT (FCA) RATES FOR ELECTRIC )
SERVICE FROM JUNE 1,2011 THROUGH ) COMMENTS OF THEMAY 31, 2012. ) COMMISSION STAFF
)
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through its
attorney of record, Kristine A. Sasser, Deputy Attorney General, and in response to the Notice of
Application and Notice of Modified Procedure issued in Order No. 32214 on March 30, 2011, in
Case No. IPC-E-II-03, submits the following comments.
BACKGROUND
On March 15,2011, Idaho Power Company ("Idaho Power", "Company") fied an
Application requesting authority to implement fixed-cost adjustment (FCA) rates for electric
service from June 1,2011, through May 31, 2012. In Case No. IPC-E-04-15, Order No. 30267
issued March 12,2007, the Commission approved a stipulation to implement a three-year FCA
pilot program for residential and small general service customers. On October 1, 2009, the
Company fied an application seeking authority to convert the pilot program to an ongoing,
permanent program. See Case No. IPC-E-09-28. The Commission denied Idaho Power's
request to make the FCA mechanism permanent and, instead, extended the pilot program for an
additional two years. See Order No. 31063. This is the Company's first FCA adjustment filing
STAFF COMMENTS 1 MAY 12,2011
since the Commission issued the extension, and the Company's fourth overall FCA adjustment
fiing. Idaho Power requests that its Application be processed by Modified Procedure.
The FCA is a mechanism to separate Idaho Power's fixed costs from its energy sales, and
establish a rate to allow the Company recovery of its fixed costs separate from energy sales. The
rationale for an FCA is that traditional rate design unintentionally discourages energy
conservation programs; that is, utilties that recover fixed costs through energy rates have no
incentive to reduce sales volume through energy efficiency and demand-side management
programs. Reduced sales are believed to impair the utilty's abilty to recover its approved fixed
costs.
The FCA implemented in 2007 for the pilot program works the same for residential and
small general service customers. For each class, the number of customers is multiplied by a
fixed-cost per customer rate that is determined through the Company's revenue requirement in a
general rate case. This produces an authorized fixed-cost recovery amount, which is then
compared to the amount of fixed costs recovered by the Company through normalized energy
sales. The difference between the authorized fixed-cost recovery and the actual amount collected
by the Company is the fixed-cost adjustment for each customer class.
Idaho Power reports that the rate of growth in the number of residential customers was
more than the rate of growth in the energy sales for the residential customer class in 2010, i.e.,
the average use per customer decreased. As a result, the Company under-collected fixed costs by
approximately $7.9 milion for its residential class.
The Company states that energy usage per customer also decreased in the small general
service class resulting in an under-collection of approximately $1.4 milion in fixed costs.
Consistent with the first three years of the FCA pilot, the Company proposes a combined rate
increase for residential and small general service customers that wil recover approximately $3
millon above what is currently recovered through FCA rates and represents an average increase
of 0.74%.
STAFF ANALYSIS
The FCA Pilot Program
Staff has reviewed the Company's fiing and supporting testimony from Company
witness Sparks, and verified that sales per customer for both residential and small commercial
classes were lower in 2010 in relation to the base year of2008. The result is that (weather
STAFF COMMENTS 2 MAY 12,2011
normalized) actual sales were below a necessary level to collect authorized fixed costs. As such,
the FCA rates should increase during the 20 i 1 PCA year to collect the under recovery from
customers. Staff evaluated and verified the calculation and use of the fixed cost per customer
(FCC) and fixed cost per energy (FCE), the accumulation of fixed costs deferred in 2010 and the
resulting FCA required to recover uncollected fixed costs. Based on its review of the filing, Staff
recommends that the Commission accept the Company's proposed net FCA deferral balance of
approximately $9.47 milion.
In its comments in the 2010 FCA case, Staff discussed the history of changes to the FCC
and FCE due to the outcomes of the 2008 general rate case proceedings. See Staff Comments,
Case No. IPC-E-10-07. Since that time, the Company fied to update the FCC and FCE due to
Commission approved recovery of costs associated with pension expenses and investment in
advanced metering infrastructure. See Case No. IPC-E-I0-21. The Commission denied the
request, and ordered the FCC and FCE rates remain at the level established in the 2008 general
rate case "until such time as they can be more thoroughly examined and re-established by the
Commission in the context of the Company's next general rate case filing." See Order No.
32171. In reviewing the Application, Staff has determined that the Company accurately applied
the FCC and FCE rates approved based on the outcome of the 2008 general rate case.
The fourh year of the pilot marks the third time that residential use per customer has
declined relative to the established base year. The 2007 FCA year showed a slight increase in
per-customer usage as compared to 2005, the most recent general rate case at the time and the
basis for setting the FCC and FCE, resulting in a credit to customers. Since 2007, residential use
per customer has declined relative to the base year (in this instance, 2008), leading to customer
surcharges through the FCA. For 2010, the residential class grew by nearly 3% when compared
to 2008, while sales for the class has decreased by nearly 1 %.
Similarly, small commercial customers have experienced a decline in use per customer
when compared to the base period in each of the years that the FCA has been in place. Relative
to 2008, the class continued to witness attrition in customers (over 4% decrease in average
customers) that was outpaced by reduced energy consumption (nearly 21 % for the class) in 2010.
Had the Commission not decided to blend the FCA rate, small commercial customers would
have experienced surcharges all four years of the pilot. Due to the magnitude of the rebate to
residential customers in 2007, all participating classes received a rebate through the application
STAFF COMMENTS 3 MAY 12,2011
of a blended rate. Even though the comparative base years have reset twice during the pilot, the
result has been surcharges that have far exceeded the credit received in the first year.
As par of the Stipulation that established the FCA, the Company agreed to significantly
increase its demand side management (DSM) efforts. In the four years of the FCA, Idaho Power
has increased its spending on energy effciency and demand response programs by nearly $35
milion (a 300% increase) and energy savings has increased by 124 thousand megawatt hours (a
255% increase).! Using Idaho Power's 2010 DSM Report, Staff approximated savings from
Company energy effciency programs to be nearly 80 thousand megawatt hours,2 or roughly 35%
of the lost sales for the residential class in this case.3 The FCA makes no distinction, outside of
weather, to the variations in sales that cause a deferral to accumulate. Staff believes that the
continued depressed state of the economy and new home construction more reliant on natual gas
for heating purposes have significantly contributed to the reduced sales per customer figures.
The FCA Rate
Staff Attachment A depicts how the FCA deferral balances have changed throughout the
four years of the pilot for both the residential and small commercial classes. Staffhas verified
the Company's calculation of unecovered 2010 fixed costs for the residential and small
commercial classes. The deferral balance of$7.9 milion for residential customers represents
over 2% of class revenues. The deferral balance of $1.4 milion for small commercial customers
represents nearly 10% of class revenues, well above the 3% cap established by the Commission.
If the recovery amounts for each class were allocated separately, residential customers would
receive a surcharge of 0.1589 cents per kWh, a 30% increase over the current FCA rate ofO.l218
cents per kWh. The small commercial customers would receive a 0.9335 cents per kWh
surcharge should the balance not be blended, representing an increase of over 500%.
Based on expected sales and revenues for the 2011 PCA year, Staffhas calculated that
the 3% cap for small commercial customers would have resulted in a rate of 0.2848 cents per
kWh, recovering only $426,461 of the unblended balance, with the remainder deferred for future
1 Staff notes this tally is for all customer classes, not specifically those directly affected by the FCA. Staff also notes
that the expenditures include demand response programs, which may affect the timing of energy sales, but not
necessarily reducing the amount of energy sold.
2 Staff added all reported savings from 2008 and 2009, added half the savings reported for 2010 (assuming programs
are equally distributed through the year) to arrive at this figure.3 A similar calculation could not be made for small commercial customers as, prior to the 20 i 0 DSM Report,
program savings were not identified by class.
STAFF COMMENTS 4 MAY 12,2011
collection. Staff notes that this would be the fourth time that the deferral balance has exceeded
the cap for small commercial customers in the four years the FCA has existed. Without blending
the FCA, the small commercial deferral balance would continue to accumulate, ultimately
representing an extraordinary percentage of class revenues. Full collection would not take place
in the foreseeable future under that scenario should the cap remain in effect. This is similar to
the decoupling experience of Maine in the early 1990's, in which the large deferral balance led
paries to early termination of the program.
The Company proposes blending the surcharge, and spreading it uniformly to both
customer segments on an equal percentage basis, consistent with the 2010 FCA. Using weather-
normalized forecasted sales for June 1, 2011 through May 31, 2012, the Company calculates that
a surcharge of 2.4% for residential and small commercial customers provides a sufficient
opportunity to recover approved fixed costs. Staff concurs with the Company that it is
appropriate to blend the FCA balance for the two customer segments, and has noted its rationale
for doing so in previous comments. Staff also agrees that spreading the FCA balance on an equal
percentage basis is an appropriate method for distributing the deferraL. As expressed by
Company witness Sparks, doing so better represents the fixed cost recovery for each class. In
other words, a smaller portion of fixed cost responsibilty is shifted to residential customers than
by applying an equal cents per kWh rate adder (calculated as 0.1815 cents per kWh). This
adheres with Staffs assertion in previous comments that doing this does not violate principles of
equity as all customers benefit from energy efficiency programs through postponement of
additional capital resources.
If the proposed rates are approved by the Commission, the residential FCA rate would
increase from 0.1218 cents per kWh to 0.1801 cents per kWh. For an average residential
customer consuming 1050 kWh per month, this results in an increase of 61 cents per month over
the curent FCA charge. For commercial customers using 450 kWh per month, the proposed
FCA rate of 0.2273 cents per kWh results in a monthly increase of 33 cents.4 Staff believes these
rates give the Company an adequate opportunity to collect its authorized fixed costs in the
coming FCA year.
4 This value is only an approximate arithmetic mean for a class that displays significant intra-class variation in
consumption.
STAFF COMMENTS 5 MAY 12,2011
STAFF RECOMMENDATION
Staff recommends that the Commission approve the Company's FCA fiing with a net
deferral balance of positive $9,341,093 for 2010. Staff does not oppose the Company's method
of distributing the surcharge on an equal percentage basis, and recommends approval of a 2.4%
increase in residential and small commercial rates over current revenues to recover deferred
fixed costs. Based on the Company's best sales forecasting efforts, the resulting FCA rates for
the 2011-2012 period would equal 0.1801 cents per kWh for residential customers and 0.2273
for small commercial customers.
Respectfully submitted this I J-~ day of May 2011.
~.,a.~-
Kristi e A. Sasser
Deputy Attorney General
Technical Staff: Bryan Lanspery
i:umisc:comments/ipce !!.3ksbl comments
STAFF COMMENTS 6 MAY 12,2011
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 12TH DAY OF MAY 2011,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. IPC-E-11-03, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO
THE FOLLOWING:
JASON B WILLIAMS
LISA D NORDSTROM
IDAHO POWER COMPANY
POBOX 70
BOISE ID 83707-0070
E-MAIL: jwillams(fidahopower.com
Inordstrom(fidahopower.com
SCOTT D SPARKS
GREG SAID
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: ssparks(fidahopower.com
gsaid(fidahopower .com
Jo/~
SECRETAPl
CERTIFICATE OF SERVICE