HomeMy WebLinkAbout20121221Reply Comments.pdfIHO 99POMR6
An IDACORP Company
flt? DEC 2l PM 3:30
JULIA A. HILTON
Corporate Counsel -
jhiIton(idahopower.com UT1L1TO COMM1SS
December 21, 2012
VIA HAND DELIVERY
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
Boise, Idaho 83702
Re: Case No. IPC-E-11-19
FCA Permanent Program - Idaho Power Company's Reply Comments
Dear Ms. Jewell:
Enclosed for filing in the above matter are an original and seven (7) copies of
Idaho Power Company's Reply Comments.
Very truly yours,
Julia A. Hilton
JAH :csb
Enclosures
1221 W. Idaho St. (83702)
P.O. Box 70
Boise, ID 83707
LISA D. NORDSTROM (ISB No. 5733)
JULIA A. HILTON (ISB No. 7740)
Idaho Power Company
1221 West Idaho Street (83702)
P.O. Box 70
Boise, Idaho 83707
Telephone: (208) 388-5825
Facsimile: (208) 388-6936
Inordstrom(ãidahopower.com
jhiIton(idahoDower.com
P F C F! V F
DEC21 P11 130
UTILITES Comm ;Sc.
Attorneys for Idaho Power Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR ) CASE NO. IPC-E-1 1-19
AUTHORITY TO CONVERT SCHEDULE )
54— FIXED COST ADJUSTMENT - FROM ) IDAHO POWER COMPANY'S
A PILOT SCHEDULE TO AN ONGOING ) REPLY COMMENTS
PERMANENT SCHEDULE )
COMES NOW, Idaho Power Company ("Idaho Power" or "Company"), by and
through its undersigned counsel, hereby submits to the Idaho Public Utilities
Commission ("Commission") its Reply Comments.
I. BACKGROUND
Beginning in the early 1990s, Idaho Power, with Commission approval, operated
several demand-side management ("DSM") programs and activities. These programs
were eventually dismantled at the end of the decade in anticipation of deregulation. In
2001, coincident with the California energy crisis, Idaho Power, the Commission, and
other interested parties began to rebuild comprehensive energy efficiency policies which
addressed all necessary components of a sustainable energy efficiency business
IDAHO POWER COMPANY'S REPLY COMMENTS -1
model: timely cost recovery, removal of financial disincentives, and the ability to earn a
return on energy efficiency investment. The fixed cost adjustment ("FCA") is a critical
component of this larger business model.
The FCA was approved in Commission Order No. 30267 as a three-year pilot
program and extended for an additional two years in Order No. 31063. The pilot
program was set to expire at the end of 2011. In October of 2011, Idaho Power
requested that the Commission authorize the Company to remove the pilot status of
Schedule 54 and convert the FCA to an ongoing, permanent tariff schedule.
The Commission approved Idaho Power's Schedule 54 as a permanent program
for Residential and Small General Service customers, retained the three percent cap on
FCA adjustments, ordered the FCA deferral balance be recovered or refunded equally
between the Residential and Small General Service customer classes, and directed that
the FCA be identified on customer bills as part of the Company's annual Power Cost
Adjustment line item adjustment. Order No. 32505. The Commission also ordered
Idaho Power to file, within six months, "a proposal to adjust the FCA to address the
capture of changes in load not related to energy efficiency programs." Id. at 9.
On September 28, 2012, Idaho Power filed a compliance filing and motion as
directed in Commission Order No. 32505. As discussed in its compliance filing and
motion, Idaho Power explored methods of adjusting the FCA mechanism to address the
capture of changes in load not related to energy efficiency programs and presented an
alternative methodology in its compliance filing. However, after evaluating alternatives,
the Company continues to believe that the existing FCA method allocates risks better
than any known alternative. Idaho Power's compliance filing and motion also requested
that the Commission, pursuant to RP 56, Order No. 32426, and Idaho Code § 61-307
approve Schedule 54, Fixed Cost Adjustment, ("Schedule 54") with an effective date of
IDAHO POWER COMPANY'S REPLY COMMENTS -2
November 1, 2012, and adopt a permanent FCA methodology by March 29, 2013, to be
effective for the 2013 FCA calendar year.
On December 7, 2012, Commission Staff ("Staff') and the Idaho Conservation
League ("ICL") filed comments on the Company's compliance filing. ICL's comments
are generally supportive of the Company's position and requests that the Commission
approve and retain the existing FCA mechanism. As in earlier comments, Staff
continues to advocate for what the Company believes is an arbitrary 50 percent sharing
between customers and Idaho Power of fixed cost recovery impacts resulting from load
changes. Idaho Power has concerns that if Staffs recommendation is implemented by
the Commission, it will undermine the effectiveness of a rate mechanism that has
successfully removed the financial disincentives to Idaho Power's pursuit of cost-
effective energy efficiency.
II. THE COMPANY'S ALTERNATIVE METHODOLOGY IS RESPONSIVE
TO COMMISSION ORDER NO. 32505
Staff characterizes Idaho Powers alternative methodology as unresponsive to
the Commission's directive to address changes in load not related to energy efficiency
programs. The Company respectfully disagrees with that assertion. As stated in its
compliance filing, Idaho Power believes the existing FCA mechanism is effective in its
current form and should remain unchanged. However, to address the Commission's
directive to capture changes in load unrelated to energy efficiency programs, the
Company provided an alternative methodology that introduces a symmetrical cap based
on the annual change in use per customer ("UPC cap"). The UPC cap establishes a
threshold for fluctuations in the annual change in use per customer that could
reasonably be attributed to energy efficiency programs and assumes that any change
IDAHO POWER COMPANY'S REPLY COMMENTS -3
that exceeds that threshold is attributed to factors other than the Company's energy
efficiency activities, acknowledging that other factors influence customers' energy use.
Idaho Power met with Staff on two separate occasions to discuss the difficulty in
quantifying the impact of specific drivers of use per customer outside of energy
efficiency programs. Staff agreed with the Company and stated that the difficulty in
such quantification was the rationale behind its percent sharing proposal. The
Company expressed its belief that such an approach was arbitrary and without
reasonable basis. The Company was also under the impression that, even though Staff
did not embrace the Company's approach to a solution, Staff believed that the
Company had made a good-faith effort to address the Commission's concerns. Due to
those meetings, Idaho Power was surprised to see the level of criticism of the UPC cap
mechanism that was contained in Staffs Comments when Staff seemed neutral to the
idea in prior discussions.
III. THE COMPANY'S ALTERNATIVE FCA METHODOLOGY WOULD
EFFECTIVELY CAPTURE CHANGES IN LOAD
UNRELATED TO ENERGY EFFICIENCY PROGRAMS
Staff describes the Company's alternative FCA methodology as "ineffective."
Staff Comments at 7. While the Company believes that maintaining the current FCA
mechanism is preferable, the Company believes the UPC cap has merit and would
address the Commission's concern of capturing changes in customer usage not related
to energy efficiency programs. The symmetrical application of the Company's
alternative methodology would limit the FCA collection or refund amounts if the annual
change in use per customer exceeds the established threshold, which is intended to
represent an upper limit on the potential impact from energy efficiency programs. This
limitation would effectively account for extraordinary factors that may influence
customers' energy use other than Company promoted energy efficiency initiatives.
IDAHO POWER COMPANY'S REPLY COMMENTS -4
Idaho Power and Staff have proposed two vastly different methodologies, which
demonstrate the difficulty in trying to isolate and identify every factor that influences
customer behavior and energy use. Accurately quantifying the affect of those factors is
even more difficult. The Company's alternative methodology acknowledges that those
factors and their affects are impossible to quantify and instead focuses on capping the
FCA balance due to annual changes in use per customer that are clearly not due to the
Company's pursuit of energy efficiency. Though neither proposal maintains the
simplicity and effectiveness of the current mechanism, Idaho Power believes that its
alternative methodology is closer than Staff's to preserving the intent and integrity of the
FCA mechanism without unduly discouraging the further pursuit of DSM programs and
activities.
IV. STAFF'S CRITICISM OF THE COMPANY'S ALTERNATIVE
METHODOLOGY IS UNDESERVED
Staff critiqued several aspects of Idaho Power's alternative methodology. For
instance, Staff expressed concerns that the Company did not propose a methodology to
update the historical trend. Id. at 5. Idaho Power did not propose to update the
historical average annual change in use per customer, but, as stated in the Company's
response to Staff's Production Request No. 38, Idaho Power would not be opposed to
updating the historical trend if needed or if the Commission so desired.
Moreover, Staff criticized the Company for analyzing annual changes in use per
customer from 1992 to 2011. Id. Idaho Power began its analysis with 1992 data
because it coincides with Idaho Powers active pursuit of DSM activities and 19 years of
data provides a significant time frame to derive an appropriate average annual change
in use per customer.
IDAHO POWER COMPANY'S REPLY COMMENTS -5
Another critique by Staff is that the Company's proposed UPC cap would not
have been implemented during the life of the FCA. Id. This is true, but it is important to
note that the FCA mechanism has only been in place for five years and Staff has
provided no rationale as to why it believes the mechanism should have had a different
result than it did in any of the last five years. When the data is expanded to include the
19 years of customer data, the UPC cap would have been triggered twice. As
described in more detail below, limiting the FCA balance would have material,
detrimental effects on the intent, purpose, and integrity of the FCA mechanism.
Staff believes that for the UPC cap to have merit, it should be set at or within the
historic year-to-year change in use per customer. Id. Idaho Power believes that Staff
desires to set the UPC cap threshold at the historical average change in annual use per
customer of -0.72 percent. The Company applied a 2 percent deviation from the -0.72
percent to introduce a symmetrical cap that can be applied to both a refundable and
collectable FCA balance and to remove the two outlying years representing the largest
variations in changes in use per customer. This intended to establish a UPC cap that
would encompass the change in annual use per customer in most years. The proposed
UPC cap threshold allows the Company to actively pursue all cost-effective energy
efficiency activities by removing any financial disincentives to such programs, which a
UPC cap of -0.72 percent would reintroduce. Idaho Power believes that a too strict limit
on the UPC cap would unduly compromise the effectiveness of the FCA mechanism
and introduce the perverse incentive as described in the following section.
Staff's Comments include a table which is intended to contrast the amount of
sales falling within the UPC band with lost energy sales recovered through the FCA and
annual DSM savings. Id. However the figures do not include all necessary data. The
"Cumulative Energy Efficiency Savings" numbers on the table do not account for
IDAHO POWER COMPANY'S REPLY COMMENTS -6
savings from some of the other Company-sponsored activities such as the market
transformation organization, Northwest Energy Efficiency Alliance, or the Local Energy
Efficiency Funds. Additionally, those numbers do not account for energy use reduction
from the Company's educational programs and support of energy efficiency codes and
standards. Staffs omission of savings from Company-sponsored programs and efforts
is misleading and arises from the difficulty in identifying and quantifying all factors that
influence customers' energy use.
The "Effect of Proposed 2.72% UPC Cap" numbers presented on Table I
assume that use per customer would decrease by the UPC cap amount of 2.72 percent
every year, which would lead to a large FCA balance in years further away from the
Company's last general rate case. However, the UPC cap is proposed to be used in
conjunction with the current rate cap. When coupled, the UPC cap protects customers
from the impact of large swings in annual use per customer on the FCA balance, while
the rate cap protects customers by preventing the FCA balance from exceeding 3
percent of base revenue.
V. STAFFS SHARING PROPOSAL UNDERMINES
THE PURPOSE OF THE FCA
Staff asserts that the Company has not attempted to reconcile its calculations
and has not seriously addressed flaws in the FCA. Id. at 6. This assertion implies that
flaws in the FCA are "serious." The Company and ICL disagree. The Company and
ICL believe that flaws in the FCA are minor and do not require major tweaking. Idaho
Power thoughtfully considered Staffs proposal of a 50 percent sharing of the FCA
balance, but as previously pointed out in the Company's Reply Comments filed on
March 15, 2012, Staffs sharing proposal has two fundamental flaws.
IDAHO POWER COMPANY'S REPLY COMMENTS -7
First, the intended purpose of the FCA mechanism is to eliminate the financial
disincentives that exist for the Company to pursue DSM programs and activities. The
Commission and Idaho Power have worked over the last decade to develop and pursue
a progressive energy efficiency policy within the state of Idaho. Idaho Power's 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 compelling
business model for the implementation of a robust energy efficiency portfolio. The
removal of financial disincentives through the FCA mechanism provides the Company
with the financial assurance necessary to fully and aggressively pursue all cost-effective
energy efficiency savings. By sharing the FCA balance, those financial disincentives
are no longer removed and the regulatory framework that allowed for the successful
pursuit of cost-effective energy efficiency will be compromised.
Second, Staffs proposal introduces a perverse incentive that is detrimental to the
purpose of the FCA and the pursuit of energy efficiency. Allowing the Company to
retain a percentage of a refundable FCA balance would not only incent the Company to
reduce its pursuit of energy efficiency, it could actually incent the Company to
encourage customers to use more energy. A refundable FCA balance occurs when the
use per customer increases. Staff points out that its sharing proposal recognizes the
Company's energy efficiency efforts in times of rising use per customer. Id. While
Idaho Power understands the value of symmetry and appreciates Staffs effort to
introduce a mechanism that shares risks and rewards, the Company believes that it
may have the unintended effect of damaging years of progress made toward the
successful pursuit of energy efficiency.
Regardless of the percentage or ratio of a sharing proposal, the financial
disincentives for pursuing cost-effective energy efficiency would not be fully removed
IDAHO POWER COMPANY'S REPLY COMMENTS -8
and an unintended incentive for the Company to encourage increased energy
consumption could be introduced. The Company is concerned that Staff's sharing
proposal undermines the purpose and effectiveness of the FCA mechanism. While the
Company's alternative methodology avoids the pitfalls found in Staffs sharing proposal
and does not place unwarranted restrictions on the FCA balance, the Company believes
that the existing FCA mechanism addresses both of these issues in a more
straightforward manner.
If Staffs proposal is accepted, the intended purpose of the FCA mechanism
would be compromised and, from a business standpoint, Idaho Power would need to re-
evaluate its current energy efficiency business model. Staff states that if the
Commission finds its proposal deficient, the existing FCA mechanism should remain
unchanged. Id. at 2. Idaho Power believes that Staffs proposal is problematic and
undermines the intent of the FCA and agrees that the existing FCA mechanism should
remain unchanged.
A. IDAHO CONSERVATION LEAGUE COMMENTS
ICL's Comments point out the effectiveness of the existing FCA mechanism and
recommend that the Commission maintain the existing FCA. ICL Comments at 1, 7.
Idaho Power appreciates ICL's comments in support of the Company's position. ICL
urges the Commission to reinforce the Company's "enhanced commitment" to energy
efficiency, which includes five components. Id. at 2. Idaho Power is not opposed to the
concepts presented by ICL, but must point out that the application of quantifying and
measuring compliance with such amorphous concepts would be difficult and may
conflict with other Company objectives that are beneficial to customers. For example,
ICL's fourth enhanced commitment requests that the Company continue to develop rate
designs for all customer classes that drive customers towards energy efficiency. This is
IDAHO POWER COMPANY'S REPLY COMMENTS -9
one of the Company's regulatory goals for rate design; yet, the Company also designs
rates to reflect as closely as possible the cost of service for the specific customer
classes. Because these two goals will, at times, be contradictory, Idaho Power does not
believe that ICL's enhanced commitments should be mandatory.
VII. CONCLUSION
For the reasons set forth above, Idaho Power requests that the Commission
issue an order authorizing the continued use of the existing FCA methodology, or in the
alternative, the Company requests that the Commission issue an order implementing
the alternative methodology presented by the Company in its compliance filing
establishing the use of the UPC cap.
Respectfully submitted this 21st day of December 2012.
IAA. WHILTON
Attorney for Idaho Power Company
IDAHO POWER COMPANY'S REPLY COMMENTS -10
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 21st day of December 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 Utilities 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. Linvill, 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
Mary V. York
HOLLAND & HART, LLP
6380 South Fiddlers Green Circle, Suite 500
Greenwood Village, Colorado 80111
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Richard E. Malmgren
Senior Assistant General Counsel
Micron Technology, Inc.
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IDAHO POWER COMPANY'S REPLY COMMENTS -12