20120315Reply Comments.pdf

esllW~POR~
JASON B. WILLIAMS
Corpórate Counsel
jwilliams((idahopower.com
RECEIVED
An IDACORP Company
March 15, 2012
VIA HAND DELIVERY
Jean D. Jewell, Secretary
Idaho Public Utilties Commission
472 West Washington Street
Boise, Idaho 83702
Re: Case No. IPC-E-11-19
IN THE MATTER OF THE APPLICA TlON OF IDAHO POWER COMPANY
FOR AUTHORITY TO CONVERT SCHEDULE 54 - FIXED COST
ADJUSTMENT - FROM A PILOT SCHEDULE TO AN ONGOING,
PERMANENT SCHEDULE
Dear Ms. Jewell:
Enclosed for filng please find an original and seven (7) copies of Idaho Power
Company's Reply Comments in the above matter.
Very truly yours, \.
( ec == ~ --
~n (B. Wiliams
JBW:csb
Enclosures
1221 W. Idaho St. (83702)
P.O. Box 70
Boise, ID 83707
D. Fer. f\!i: ,0,.'l \. _.."" L.\ 'll i- 1;
JASON B. WILLIAMS (ISB No. 8718)
LISA D. NORDSTROM (ISB No. 5733)
Idaho Power Company
1221 West Idaho Street (83702)
P.O. Box 70
Boise, Idaho 83707
Telephone: [phone]
Facsimile: [phone]
jwilliams(iidahopower.com
Inordstrom(iidahopower.com
iUIZ MAR 15 PM i.: 53
Attorneys for Idaho Power Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MA TIER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR ) CASE NO. IPC-E-11-19
AUTHORliY TO CONVERT SCHEDULE )
54 - FIXED COST ADJUSTMENT - ) IDAHO POWER COMPANY'S
FROM A PILOT SCHEDULE TO AN ) REPLY COMMENTS
ONGOING PERMANENT SCHEDULE. )
)
COMES NOW, Idaho Power Company ("Idaho Powet' or "Company"), by and
through its undersigned counsel, and hereby submits to the Idaho Public Utilties
Commission ("Commission") the following Reply Comments in the above-captioned
case. Idaho Power has concerns that Commission Staffs ("Staff) recommendation to
implement a 50 percent sharing between customers and Idaho Power of fixed cost
recovery impacts resulting from load changes, if implemented by this Commission, wil
undermine the effectiveness of a rate mechanism that has successfully removed the
financial disincentive to Idaho Power's pursuit of cost-effective energy efficiency. In
particular, Staff's recommendation is a significant reversal from the Commission's and
the Company's decade-long march towards placing the state of Idaho among the
IDAHO POWER COMPANY'S REPLY COMMENTS - 1
leaders in energy efficiency and conservation. Accordingly, Idaho Power strongly urges
the Commission to reject Staffs recommendation and make permanent the Fixed Cost
Adjustment ("FCA") mechanism for the Company's residential and small commercial
customer classes as proposed by Idaho Power in its Application and supporting
testimony in this case as well as advocated herein.
I. BACKGROUND
In the early 1990s, Idaho Power first adopted a focused, substantial and
increasingly active approach to the development of demand-side resources. During the
period between 1990 and 2000, Idaho Power operated approximately 12 programs
(plus several pilots) in all customer sectors and began participating in the Northwest
Energy Efficiency Allance in 1997. By the late 1990s, however, increasing discussion
of deregulation in the electric industry leading up to the dramatic impacts of the Western
energy crisis in 2000 and 2001 led to the eventual dismantling of the Company's energy
efficiency efforts.
In 2001, Idaho Power, this Commission, and other interested stakeholders began
once again to work cooperatively to develop a comprehensive, progressive, cost-
effective energy effciency program for Idaho Power. From the Company's standpoint,
Idaho Power has consistently advocated that there are three essential components to
an effective business model for energy effciency: (1) timely cost recovery; (2) the
removal of financial disincentives; and (3) the opportunity to earn a return.
Beginning with Order No. 28722 issued on May 1, 2001, in Case Nos. IPC-E-01-
07 and IPC-E-01-11, the Commission directed Idaho Power to file a comprehensive
demand-side management ("DSM") plan. After receiving the DSM Plan from the
IDAHO POWER COMPANY'S REPLY COMMENTS - 2
Company, the Commission issued Order No. 28894 on November 21, 2001, directing
implementation of a limited portion of the plan and creating a DSM advisory group. It
was this initial case which ultimately led to the establishment of the Idaho Energy
Efficiency Rider ("DSM Ridet'), which provides Idaho Power with timely cost recovery
for energy efficiency expenditures, the first of the three essential components as
identified above.
In implementing the second essential component of an effective business model
for energy effciency, the Commission established Case No. IPC-E-04-15 to investigate
financial disincentives to investment in energy efficiency by Idaho Power. As part of
that proceeding, a series of investigative workshops were held "to assess financial
disincentives inherent in Company-sponsored conservation programs. . .." Order No.
29505 at 68. As part of those investigative workshops, the Commission specifically
requested that the parties "address possible revenue adjustment when annual energy
consumption is both above and below normaL" Id. More specifically, the Commission
stated that the scope of the investigation "should be focused on decoupling and
penormance based ratemaking." Order No. 29558 at 2. The culmination of those
workshops was the filng of a "Final Report on Workshop Meetings," which was filed
with the Commission on February 15, 2005 ("Final Report"). The Final Report called for
two action items: (1) the development of a true-up simulation to track what might have
occurred if a decoupling or true-up mechanism had been implemented for Idaho Power
at the time of the last general rate case and (2) advocacy for filng a pilot energy
efficiency program that would incorporate both penormance incentives and "lost
revenue" adjustments. See Order No. 30267 at 1.
IDAHO POWER COMPANY'S REPLY COMMENTS - 3
As a result of those investigative workshops, Idaho Power filed an application
requesting Commission approval to implement an FCA mechanism for residential and
small general service customers on a trial basis. The Company, Commission Staff, and
the NW Energy Coalition submitted a stipulation to the Commission asserting that it was
in the public interest for the Company to implement the FCA mechanism as a pilot
program for residential and small general customer classes. The Commission approved
the stipulation which implemented a three-year pilot FCA program in March 2007
stating, "Promotion of cost-effective energy efficiency and demand-side management
(DSM), we find, is an integral part of least-cost electric service." Order No. 30267 at
13. The Commission further found that "Making the Company indifferent to reduced
energy consumption and demand is but one half of the quid pro quo agreed to by the
stipulation parties. In return for the FCA, the Company is expected to demonstrate an
enhanced commitment to energy efficiency and DSM." Order No. 30267 at 13-14.
In April 2010, following a request by Idaho Power to make the FCA mechanism
permanent, the Commission approved a two-year extension to the original pilot program
in order to allow additional data to develop as well as to allow this Commission, Staff,
and interested stakeholders an opportunity to evaluate that data and address any areas
of concern. Order No. 31063 at 9.
Within a month of approving the original pilot FCA program that went into effect
in 2007, in a related case, the Commission approved a three-year DSM incentive pilot
program that was geared, in part, at satisfying what the Company believes is the third
essential component of implementing a successful business plan for en~rgy efficiency-
allowing the Company an opportunity to earn on energy efficiency activities. The
IDAHO POWER COMPANY'S REPLY COMMENTS - 4
Commission approved the DSM incentive pilot, finding that "the potential benefits of the
proposed three-year DSM Incentive Pilot Program outweigh any disadvantages in
implementing this pilot contemporaneous with the three-year pilot Fixed Cost
Adjustment (FCA) mechanism. . . ." Order No. 30268 at 6. In March 2009, Idaho Power
filed an application for authority to terminate this pilot program during the final year of its
implementation, primarily based on the complexity of administering the program and the
termination of a primary third-party data source. The Commission granted Idaho
Powets request. Order No. 30806. That said, Idaho Power immediately convened
another series of workshops to explore the possibilty of incentives for Idaho Power's
energy efficiency activities. The culmination of those workshops was the Company's
filng of an application in Case No. IPC-E-10-27 which sought to move the incentive
payments for the demand response programs into the Company's Power Cost
Adjustment ("PCA") mechanism and to establish a regulatory asset for certain Custom
Effciency program incentive costs; this latter proposal affords the Company the abilty
to earn its authorized rate of return on these energy efficiency activities. The
Commission ultimately approved, in part, Idaho Powets request regarding capitalization
of certain Custom Efficiency program incentive costs. Order No. 32245.
As part of its last general rate case filing, Idaho Power submitted a request to
make the pilot FCA mechanism permanent. Case No. IPC-E-11-08. While the
Company's rate case was settled, the signing parties to the stipulation could not reach
agreement as to whether the FCA mechanism should be made permanent and agreed
to remove that issue to a separate proceeding. Pursuant to that understanding, on
October 19, 2011, Idaho Power filed an application requesting that the Commission
IDAHO POWER COMPANY'S REPLY COMMENTS - 5
convert the FCA mechanism from a pilot program to a permanent program. IPC-E-11-
19.
To put the evolution of this Commission's and the Company's policies in the field
of energy effciency (inclusive of all three essential components of an energy efficiency
business model-timely cost recovery, the removal of financial disincentives, and the
abilty to earn a return on energy efficiency investment) in perspective, between 1990
and 2000, Idaho Power spent just more than $41 milion on energy efficiency initiatives,
which saved a cumulative of 26 average megawatts ("MW"). By comparison, in 2011
alone, Idaho Power spent more than $46 milion dollars on more than 20 different cost-
effective energy effciency programs, demand response programs and education
initiatives, saving a total of nearly 180,000 megawatt-hours ("MWh") of electricity with a
total peak reduction capacity of 400 MW. See, generally, Case No. IPC-E-12-15,
Demand-Side Management 2011 Annual Report. Between 2007, the first year of the
FCA pilot program, and 2011, Idaho Power has spent approximately $164 milion on
energy efficiency activities with savings totaling approximately 736,000 MWh of
electricity. Indeed, the sheer magnitude of the dollars spent and the energy saved on
cost-effective energy efficiency activities is strong evidence that the Commission has
set in motion a comprehensive energy effciency policy for Idaho Power that is achieving
the desired results.
II. STAFF'S PRIMARY RECOMMENDATION IS CONTRARY TO
COMMISSION AND COMPANY POLICY ADVOCATING
THE PURSUIT OF ALL ENERGY EFFICIENCY ACTIVITIES.
As described above, this Commission and Idaho Power have worked over the
last decade to develop a robust, progressive energy efficiency policy within the state of
IDAHO POWER COMPANY'S REPLY COMMENTS - 6
Idaho. Idaho Powets success in deploying cost-effective energy efficiency initiatives
has been premised on the fact that the Commission has allowed the Company to build
and maintain a compellng business model for the implementation of robust energy
efficiency portolio. As noted above, the "three-legged stool" of energy effciency
support for Idaho Power-the DSM Rider, the capitalization of expenses associated
with certain Custom Efficiency expenses, and removal of financial disincentives through
the FCA-provide the Company with the financial assurance necessary to fully and
aggressively pursue all cost-effective energy effciency matters.
Staffs Comments point out the various "shortcomings" of the FCA, citing its
primary concern that with the exception of normalization for weather, "there is no regard
as to the source of variation in sales per customer." Staff Comments at 4. Thus, Staffs
primary concern appears to be that because Idaho Power cannot directly tie reductions
to energy consumption to specific energy efficiency initiatives or the Company's other
non-DSM programmatic activities, there is an assumption that the FCA mechanism is
not working as intended. This fuels Staffs ultimate conclusion to recommend a
modification to the existing mechanism which would "subject (the FCA) to a symmetrical
50% sharing between customers and Idaho Power of fixed cost recovery impacts
caused by load changes."
As explained below, this recommendation is not only arbitrary, it is unsupported
and unsubstantiated by any of the evidence on the record in this case. More
significantly, if the Commission Staffs recommendation in this regard is adopted, the
regulatory framework that paved the way for Idaho Powets aggressive and successful
pursuit of cost-effective energy efficiency wil be compromised.
IDAHO POWER COMPANY'S REPLY COMMENTS - 7
Of particular concern is Staffs recommended reduction in the amount of sharing
to 50 percent of the fixed cost recovery impacts caused by load changes. This
recommendation appears to be driven by the fact that Idaho Powets loads decreased
four of the five years of the FCA pilot, resulting in an upward adjustment on the FCA to
allow full-authorized recovery of the Company's fixed cost revenues from the residential
and small commercial classes. Idaho Power does not dispute that some of the load
reduction it experienced between 2008 and 2011 may have been attributable to the
unprecedented, world-wide economic downturn that, by all indications, is starting to turn
around. Direct Testimony of Michael J. Youngblood ("Youngblood Testimony") at 15.
However, it is also undisputed that during this same time frame, Idaho Power was more
aggressive on energy efficiency activities than ever before. As explained in the
Youngblood Testimony, between 2007 and 2010, the Company increased the number
of DSM programs from 20 to 25 and consistently increased DSM expenditures, which
have resulted in increased first year energy savings. Youngblood Testimony at 7, 12-
15, and Exhibit NO.1. For example, Idaho Power spent nearly $46 millon on DSM
activities for 2010 compared to only $11 milion in 2006, the year before the pilot FCA
mechanism was implemented. Further, outside observers have praised Idaho Power
and this Commission for contributing to the success of energy efficiency initiatives
throughout the state of Idaho. Direct Testimony of Ralph Cavanagh ("Cavanagh
Testimony") at 5-6.
In addition, in responding to requests for production from Commission Staff, the
Company demonstrated how it has gone above and beyond its obligations specified by
the Commission in Order No. 30267, the Commission Order approving the original pilot
IDAHO POWER COMPANY'S REPLY COMMENTS - 8
FCA mechanism. In particular, the objectives Idaho Power was obligated to fulfil were:
(1) to promote the adoption of energy codes to achieve improved levels of effciency in
new commercial and residential construction and appliance standards in Idaho; (2) to
promote and support appropriate energy code training programs and advocate the
enforcement of energy codes; and (3) to identify ways to support energy code
implementation and enforcement in all jurisdictions in Idaho Powets service terrtory.
As described in the Company's response to the Commission Staffs Request for
Production No.4, each of Idaho Powets DSM Annual Reports (including the 2011 DSM
Annual Report, which is being filed today with the Commission) contains a section
detailng how the Company has fulfiled these obligations. There is no evidence in this
proceeding that the Company has failed to do so.
In addition to achieving these objectives, the Youngblood Testimony describes
how the pilot FCA mechanism has provided benefits to customers and additional energy
efficiency benefits beyond what the Commission contemplated in Order No. 30267.
Youngblood Testimony at 9-15.
Moreover, the Cavanagh Testimony highlights the fact that Idaho Powets
commitment to energy efficiency helped launch the Pacific Northwest's first Center on
Energy Effciency Research and supported the expansion of the Integrated Design Lab
of Idaho, both of which are focused on continuing to explore, support, and develop
energy efficiency activities. Cavanagh Testimony at 6-8. As noted by Mr. Cavanagh,
this example ilustrates "Idaho Power's capacity to influence effciency progress. . . well
beyond the incentive programs that the Company administers. . .." Cavanagh
Testimony at 7-8.
IDAHO POWER COMPANY'S REPLY COMMENTS - 9
Staffs proposal would effectively allow Idaho Power to keep only 50 percent of
any amount in excess of its authorized fixed cost revenues for the residential and small
commercial customer classes. Thus, Staffs recommendation turns the very purpose of
the FCA mechanism on its head by providing Idaho Power with the unintended incentive
to increase its energy sales as it would be allowed to keep 50 percent of any revenues
in excess of its authorized fixed cost revenues. This fact is especially troubling given
that all state and federal indicators suggest the economic downturn that has been
affecting most of the country over the last several years is now on the upswing. Thus,
the timing of Staffs proposal should be cause for concern.
In addition, Staffs recommendation reintroduces for the Company a disincentive
to pursue broad-based energy efficiency initiatives. Specifically, since Staffs proposal
would only allow the Company to recover 50 percent of its authorized fixed costs
revenue associated with lost energy sales, Idaho Power would no longer be indifferent
to its pursuit of energy efficiency activities, as it would be penalized for pursuing such
activities by not being afforded a mechanism whereby it can recover its authorized
fixed costs. Thus, from a business standpoint, Idaho Power would need to reconsider
its current energy efficiency business modeL.
From a larger policy perspective, it appears that Commission Staff is the only
party or stakeholder that has concerns with the workings of the current pilot FCA
mechanism. Bes~des Staff, only two other parties to this proceeding, Idaho
Conservation League ("ICL") and Snake River Allance ("SNA"), submitted comments.
Both sets of comments, strongly supported the adoption of the pilot FCA mechanism as
a permanent mechanism. In addition, individual Commissioners (in other forums) have
IDAHO POWER COMPANY'S REPLY COMMENTS - 10
lauded the FCA mechanism. For example, in 2009 Commissioner Marsha Smith told
the Wall Street Journal that decoupling is "working extremely well in that it's increased
the company's enthusiasm and commitment to energy efficiency." Rebecca Smith,
Less Demand, Same Great Revenue, Wall Street Journal, Feb. 8, 2009.
http://online.wsj.com/article/SB123378473766549301.html. In 2009, in his role as
Director of the Idaho Office of Energy Resources, current Idaho Public Utilties
Commission Commissioner Paul Kjellander oversaw the development of a report touting
the Commission for adopting "one of the first electric decoupling mechanisms in the
nation designed to remove financial disincentives for Idaho Power Company to
implement energy effciency programs." Paul Kjellander, et al., Idaho Office of Energy
Resources, Idaho Public Utilties Comm.: 2009 Report to the Idaho Legislature at 9.
The executive and legislative branches of Idaho state government are also
supportive of the FCA mechanism and the broad policy of promoting energy effciency
in a manner that eliminates disincentives for investor-owned utilties. In a March 19,
2009, letter to Secretary Chu of the U.S. Department of Energy, Idaho Governor Butch
Otter, as a condition of receiving funding for the State Energy Program, provided
assurances that he requested the Idaho Public Utilties Commission to continue "their
successful decoupling efforts and consider additional actions to promote energy
efficiency." Youngblood Testimony at 9.
In the 2007 Idaho Energy Plan, the Idaho Legislature directed the Commission to
"establish appropriate shareholder incentives for investor-owned utilties that achieve
conservation targets" such as decoupling. Curt McKenzie, et al., Energy, Env't, and
Tech. Interim Comm.: 2012 Idaho Energy Plan at 3. Similarly, the 2012 Idaho Energy
IDAHO POWER COMPANY'S REPLY COMMENTS - 11
Plan directs the Commission to "seek to eliminate disincentives that stand as barriers to
implementing cost-effective conservation measures" such as decoupling of utilty
revenue from sales. Curt McKenzie, et al., Energy, Env't, and Tech. Interim Comm.:
2012 Idaho Energy Plan at 12.
Lastly, the Commission Staffs very own comments concede that while Staff
analyzed alternative proposals to recover lost revenues associated with energy
efficiency investment, it concluded that "the FCA has merit, and determined that
terminating the FCA at this point would be counterproductive." Staff Comments at 9.
Indeed, the FCA pilot mechanism does have merit. It has been implemented by
Idaho Power as directed by this Commission and it has proven results, namely a
reduction in energy consumption in Idaho Power's residential and small general classes
and Idaho Powets aggressive pursuit of a broad range of energy effciency activities.
Thus, there is no merit in adopting Staffs recommendation to reduce by 50 percent the
sharing between customers and Idaho Power of fixed cost recovery due to load
impacts. Accordingly, the Commission should reject this proposal by Staff and adopt as
permanent the FCA mechanism as described by Idaho Power in its Application and as
further detailed herein.
II. THE TABLE INCLUDED IN STAFF'S COMMENTS WHICH FORMS
THE BASIS OF ITS RECOMMENDATION IS FLAWED.
Page 4 of Staffs Comments includes a table which allegedly shows the
percentage of the reduction in the Company's energy consumption that is attributable
to energy efficiency activities. As described below, this table is not an accurate
representation of load reductions attributable to the Company's overall energy
IDAHO POWER COMPANY'S REPLY COMMENTS - 12
efficiency activities and should not be used by the Commission in making findings in
this proceeding.
First, it is unclear how Staff derived the assumed annual energy efficiency
savings as shown in the column labeled "EE Savings (kWh)"; there is no reference to
the sources relied upon by Staff for calculating the alleged amount of energy efficiency
savings for the residential class. Even a cursory review of the data raises questions as
to its accuracy. For example, for 2010, the table in Staff's Comments shows that
energy efficiency savings for the residential class were approximately 68.8 millon
kilowatt-hour ("kWh"). As provided in the Company's response to Staffs Request for
Production No. 1 and as detailed in the Company's 2010 DSM Annual Report, total
annual energy efficiency savings for the residential class programs in 2010 was
approximately 43 milion kWh, plus an additional 47 milion kWh for the commercial
class.
Second, it is unclear how Staff arrived at its calculation in the third column of the
table which is labeled "Total Reduced Consumption (kWh)." Footnote 4 of Staffs
Comments states: '''Reduced consumption' was calculated by dividing the FCA balance
by the FCE for each year." Idaho Power conducted its own analysis based upon this
premise and was unable to reproduce the same results shown in Staff's Comments.
The result of using inaccurate and unsubstantiated numbers in the analysis
included on the table on page 4 of Staffs Comments is that the fourth column, labeled
"% of Reduction attributed to EE," is incorrect. Importantly, Staffs Comments rely on
these incorrect percentages as the justification for making its recommendation to reduce
by 50 percent the sharing of any FCA balances. See, e.g., Staffs Comments at 5
IDAHO POWER COMPANY'S REPLY COMMENTS - 13
("Staff has no evidence that DSM savings have contributed to any more than 43% or
reduced consumption during the FCA timeframe.") Because it appears that Staffs
fundamental calculations are in error, it undermines, from an evidentiary and factual
standpoint, its recommendation to change the sharing components of the FCA
mechanism.
More importantly, the table in Staffs Comments attempts to capture the amount
of reduced energy consumption that is attributable to all of the Company's energy
efficiency activities that impact the residential class. As Staff is aware and as described
by Idaho Power in responding to Staffs Request for Production NO.2, it would be
extremely diffcult, labor intensive, and expensive to attempt to quantify exactly how
much energy savings occur as the result of non-DSM program energy efficiency
activities. As described in the Youngblood Testimony and in each of the Company's
annual DSM Annual Reports over the last five years, there are a number non-DSM
program load reducing activities, including the Company's advocacy for energy
efficiency building code changes, federal weatherization programs, tax incentives and
appliance rebates, federal marketing programs, technological changes, substitutions
between natural gas and electric equipment, rate design changes consistent with this
Commission's energy efficiency policies, customer education and information and other
customer behavioral changes. Youngblood Testimony at 15. Thus, even if the
numbers used in Staffs table were accurate, those numbers would not accurately
capture the Company's non-DSM programmatic energy efficiency activities. Put
differently, Staffs conclusion as to the total annual "EE Savings (kWh)" for the
residential class in column 2 of its table would, if accurate to begin with, underestimate
IDAHO POWER COMPANY'S REPLY COMMENTS - 14
the total amount of energy efficiency savings that result from the broad range of the
Company's energy efficiency activities (both DSM programs as well as the non-program
activities identified above).
iv. STAFF'S COMMENTS IDENTIFY AN ALLEGED "NEW CUSTOMER"
ISSUE BUT THEN FAIL TO PROPOSE A REMEDY.
Commission Staff takes issue with Idaho Powets Application because it fails to
address what Staff perceives as the "new customet' issue. Staff Comments at 5-6.
Staff's Comments assert there are two categories of "new customers": (1) those that
occupy existing premises (like an existing home) and (2) those that require the
construction of new distribution facilties. Staff Comments at 5. Staff suggests that:
(i(t is entirely possible that the fixed costs for new customers
is higher than that embedded in rates, such as new home
construction requiring distribution and metering equipment.
Conversely, a new customer may require virtually no
additional fixed costs, such as a customer moving into an
existing home." Staff Comments at 5-6. Staff's Comments
further allege that the "Company was unable to provide the
level of fixed costs associated with new customers, both
existing and new homes.
Staff Comments at 6.
In responding to the criticism levied against Idaho Power of being unable to
provide requested data, as explained in its response to Request for Production No. 12,
Idaho Power does not currently track the number of meters installed for nèw
construction for purposes of the pilot FCA program. Instead, the Commission-approved
pilot FCA methodology uses actual year-end customer count figures for purposes of
determining the FCA.
More substantively, Idaho Power disagrees with Staffs contention that a
distinction should be made for the two categories of "new customers" it identifies in its
IDAHO POWER COMPANY'S REPLY COMMENTS -15
Comments. Specifically, Idaho Power disagrees with Staffs premise that the
incremental cost of generation and transmission for new-build customers is less than for
those "new customers" that move into an already existing metered location. For
ratemaking purposes, Idaho Power allocates its revenue requirement equally among all
customers within the same customer class. No distinction is made within a class for
new-build metered customers versus new existing metered customers. To create such
a distinction for purposes of the FCA would be contrary to existing ratemaking principles
as well as add an unnecessary layer of complexity to the FCA mechanism.
In addition, Staff's Comments raise the "new customet' issue but do not provide
a proposed solution. Assuming a distinction between the two categories of new
customers does exist (which Idaho Power is not conceding), Idaho Power is at a loss as
to how such a distinction would be calculated and implemented as part of a revised FCA
methodology. Since Staff has provided no insight into this either, the Commission
should not consider the issue as part of its determination in this case.
ICL tees-up the "new customet' issue in a slightly different way than does Staff.
In pointing to previous Staff concerns, ICL suggests that it may be possible that "new
customers" may have different energy consumption patterns than existing customers.
ICL Comments at 10. However, ICL concedes that "it is not at all clear that new
customers have a meaningful difference from existing customers." Id. (Emphasis in
original). Interestingly, even though ICL concedes there is no "meaningful" difference,
they propose a solution should the Commission wish to address the issue. Specifically,
ICL advocates that its "new customet' issue could be addressed by not adding to the
complexity of the existing FCA by requiring a separate rate for new customers ,but to
IDAHO POWER COMPANY'S REPLY COMMENTS -16
instead "require regular updates, such as every third year, to the cost of service study
inputs and results used to calculate the FCA." ICL Comments at 10.
While Idaho Power understands the issue as presented by ICL, the Company is
reluctant that the Commission should implement ICL's suggestion when ICL itself
admits there does not appear to be a "meaningful" problem. Accordingly, the
Commission should disregard ICL's suggestion to require the Company to update its
cost-of-service study inputs and results used to calculate the FCA for the purpose of
calculating the FCA. Instead, Idaho Power suggests the appropriate time for updating
these inputs is each time the Company files a general rate case with this Commission.
v. THE COMMISSION SHOULD NOT ADJUST THE COMPANY'S
CAPITAL STRUCTURE AS PART OF THIS PROCEEDING.
ICL argues that the "risk mitigating" nature of annual true-up mechanisms like the
FCA provides benefis to a utilty's shareholders by reducing revenue volatilty. ICL
Comments at 6. ICL suggests that this benefit for the utilty's shareholders warrants an
adjustment to the Company's debt-to-equity ratio, stating that the "Commission can
immediately reduce the equity ratio without disturbing the utilty's authorized rate of
return and thereby deliver immediate benefits to ratepayers." ICL Comments at 7. ICL
concludes by stating that the Commission can order "Idaho Power to issue debt rather
than equity for new capital or paying a dividend and replacing the equity with debt," but
does not prescribe any specific adjustment to the Company's most recently approved
capital structure.
While the FCA provides stabilty for only the fixed cost revenue portion of its
revenue requirement for the residential and small commercial classes, such stabilzation
does not warrant an adjustment to the Company's currently authorized capital structure,
IDAHO POWER COMPANY'S REPLY COMMENTS - 17
which, contrary to ICL's assertion, would mean an adjustment to the Company's
authorized rate of return. As explained in the Cavanagh Testimony, "rate impacts this
modest simply do not imply appreciable consequences for Company-wide cost of
capitaL." Cavanagh Testimony at 10. "Any gains to utilties in the form of insurance
against lower sales are offset by reduced opportunities for financial gains when sales
increase, and it seems unreasonable to prejudge how that tradeoff might affect the
Company's overall risk profile and cost of capitaL." Cavanagh Testimony at 11.
As mentioned above, ICL contends that an adjustment can be made to the
Company's debt-to-equity ratio without impacting the Company's overall rate of return.
This is simply not the case. In calculating the Company's rate of return, a percentage of
weighted long-term debt costs is multiplied by a percentage of the authorized return on
equity. An adjustment to increase the amount of lower-cost debt, as advocated by ICL,
will result in lowering the Company's authorized rate of return.
As noted in the Youngblood Testimony, "the FCA is recognized by the financial
community as a positive indication of proactive regulation." Youngblood Testimony at
10. An adjustment to the Company's capital structure resulting in a reduced rate of
return could have a negative impact in the financial community, thus directly impacting
Idaho Power's standing and potentially its credit ratings. Further, issuing more debt in
and of itself wil impact the Company's credit ratings, ultimately driving up the cost of
debt over time.
More importantly, the Company does not believe this proceeding is the
appropriate forum to make a determination as to whether the Company's overall risk
profile has changed since the last general rate case proceeding (which was concluded
IDAHO POWER COMPANY'S REPLY COMMENTS - 18
less than four months ago) to warrant a change to the Company's authorized rate of
return. Without conceding that the FCA does warrant any type of adjustment to the
Company's cost of equity, capital structure or rate of return, Idaho Power suggests that
a general rate case is the appropriate forum for such an analysis and determination so
that all of the Company's risks can be examined. Accordingly, Idaho Power urges the
Commission to reject ICL's suggestion that an adjustment to the Company's capital
structure is warranted by making the FCA permanent.
Vi. IDAHO POWER AGREES WITH CERTAIN ASPECTS
OF STAFF'S COMMENTS AND ENCOURAGES
THE COMMISSION TO ADOPT THOSE ASPECTS.
During the five years of the pilot FCA mechanism, any modifications made in
adjusting the FCA amount have had a discretionary cap of 3 percent over the amount
contained as the previous yeats FCA adjustment. Order No. 30267 at 13. In the event
adjustment amounts were to exceed 3 percent, the amounts in excess of 3 percent
would be carried over to the next FCA year. Id. This three percent cap was not applied
during the five-year pilot period. That said, Idaho Power asserts that it is an important
aspect of the mechanism and encourages the Commission to adopt the discretionary 3
percent cap as a potential rate mitigation tool for the Commission's use.
Further, and as explained in the Youngblood Testimony, during the first four
years of the pilot, either the Commission ordered or the Company proposed to recover
or refund the FCA deferral balance equally between the residential and small
commercial customer classes. Youngblood Testimony at 17. In its Application, Idaho
Power proposes to continue this methodology of recovering or refunding the deferral
IDAHO POWER COMPANY'S REPLY COMMENTS -19
balance equally between these two customer classes. Staff agrees with this approach.
Staff Comments at 7.
Lastly, Idaho Power would not oppose moving the FCA adjustment recovery or
refund from the Energy Efficiency Services line-item to the Company's PCA line-item in
customer bils. In addition, Idaho Power does not oppose changing the "PCA" line item
to the "Annual Adjustment Mechanism."
VII. IDAHO POWER REQUESTS THAT THE COMMISSION
TO ISSUE A FINAL ORDER IN THIS CASE BY
NO LATER THAN MARCH 30. 2012.
The settlement stipulation approved by the Commission in Case No. IPC-E-11-08
contemplated that the issue as to whether to make the FCA pilot a permanent
mechanism would be spun off into a stand-alone proceeding, with the intent that the
Commission would issue a final decision by no later than March 30, 2012. In its
Application, Idaho Power respectfully requested a Commission order in this proceeding
by March 30, 2012, to appropriately track for future FCA true-ups should the
Commission decide to make the pilot FCA mechanism permanent. For financial
tracking and reporting reasons, Idaho Power again respectfully requests that the
Commission issue a final order in this case by no later than March 30, 2012, which is
the closing of the Company's first quarter 2012 financial accounting period. A final
order by March 30, 2012, wil allow the Company to accurately track and defer any FCA
amounts that may result if the Commission concludes to make the FCA mechanism
permanent.
IDAHO POWER COMPANY'S REPLY COMMENTS - 20
VII. CONCLUSION
The Commission and Idaho Power have worked cooperatively over the last
decade to create an energy effciency business model for Idaho Power which allows it to
aggressively pursue broad-based energy efficiency activities. The FCA pilot has been
an integral part of that business modeL. Making the FCA mechanism permanent for the
residential and small commercial classes wil allow Idaho Power to continue to pursue a
robust, diversified energy efficiency portolio. The evidence shows that since the
inception of the FCA pilot mechanism in 2007, Idaho Power has significantly broadened
its pursuit of non-programmatic energy effciency initiatives. By making the FCA
mechanism permanent as advocated by Idaho Power, this Commission wil continue to
provide the Company with the necessary tools to continue to remain a leader in energy
efficiency and conservation.
DATED at Boise, Idaho, this 15th day of March 2012.
A,"/~ ~
~1t WILLIAMS E: ~ 0.
Attorney for Idaho Power Company
IDAHO POWER COMPANY'S REPLY COMMENTS - 21
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 15th day of March 2012 I served a true and
correct copy of IDAHO POWER COMPANY'S REPLY COMMENTS upon the following
named parties by the method indicated below, and addressed to the following:
Commission Staff
Weldon Stutzman
Deputy Attorney General
Idaho Public Utilties Commission
472 West Washington (83702)
P.O. Box 83720
Boise, Idaho 83720-0074
NW Energy Coalition
Nancy Hirsh, Policy Director
NW Energy Coalition
811 First Avenue, Suite 305
Seattle, Washington 98104
Idaho Conservation League
Benjamin J. Otto
Idaho Conservation League
710 North Sixth Street
Boise, Idaho 83702
Carl B. Linvil, Ph.D.
Director of Integrated Planning and Analysis
Aspen Environmental Group
2655 Portage Bay East, Suite 3
Davis, California 95616
Micron Technology, Inc.
Thorvald A. Nelson
Frederick J. Schmidt
Brian T. Hansen
MaryV. York
HOLLAND & HART, LLP
6380 South Fiddlers Green Circle, Suite 500
Greenwood Vilage, Colorado 80111
IDAHO POWER COMPANY'S REPLY COMMENTS - 22
-2 Hand Delivered
U.S. Mail
_ Overnight Mail
FAX
-2 Email weldon.stutzman(ipuc.idaho.gov
Hand Delivered
-2 U.S. Mail
_ Overnight Mail
FAX
-2 Email nancy(inwenergy.org
Hand Delivered
-2 U.S.' Mail
_ Overnight Mail
FAX
-2 Email botto(iidahoconservation.org
Hand Delivered
-2 U.S. Mail
_ Overnight Mail
FAX
-2 Email clinvill(iaspeneg.com
Hand Delivered
-2 U.S. Mail
_ Overnight Mail
FAX
-2 Email tnelson(ihollandhart.com
fschmidt(ihollandhart. com
bhansen(iholland hart. com
myork(iholland hart. com
Inbuchanan(iholland hart. com
Richard E. Malmgren
Senior Assistant General Counsel
Micron Technology, Inc.
800 South Federal Way
Boise, Idaho 83716
Hand Delivered
-X U.S. Mail
_ Overnight Mail
FAX
-X Email remalmgren(imicron.com\~.~Q
ãS Willams
,
IDAHO POWER COMPANY'S REPLY COMMENTS - 23