20120330final_order_no_32505.pdf

Office of the Secretary
Service Date
March 30,2012
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR )CASE NO.IPC.-E-11-19
AUTHORITY TO CONVERT SCHEDULE 54 )
-FIXED COST ADJUSTMENT -FROM A )
PILOT SCHEDULE TO AN ONGOING )ORDER NO.32505
PERMANENT SCHEDULE )
On October 19,2011.Idaho Power Company filed an Application requesting a
Commission Order authorizing the Company to convert its current Schedule 54 —Fixed Cost
Adjustment (FCA)—from a pilot program to a permanent schedule.The Commission in Order
No.30267,Case No.IPC-E-04-15,approved implementation of a three-year FCA pilot program
applicable to residential and small general service customers.In October 2009,the Company
filed an application seeking to convert the pilot program to a permanent program.The
Commission denied that request and instead extended the pilot program for an additional two-
year period.Order No.31063.The FCA pilot program is set to expire as of December 31,2011.
The FCA removes recovery of a portion of the Company’s fixed costs from its energy
sales.To accomplish this,the average number of customers in the residential and small general
service classes is multiplied by a fixed-cost per customer rate (FCC),which is established in
determining the Company’s revenue requirement in a general rate case.The product of the
average number of customers and the FCC establishes the amount authorized for recovery as
fixed costs.The amount allowed for fixed costs recovery is then compared to the amount of
fixed costs actually recovered by Idaho Power during the FCA year.The fixed costs actually
recovered are determined by the Company’s weather-normalized energy sales for each class
multiplied by a fixed-cost per energy rate (FCE).which is also established in a general rate case.
The FCA is adjusted each year to collect,or refund,the difference between the allowed fixed-
cost recovery amount and the actual fixed costs recovered by Idaho Power during the year.
Idaho Power’s Application states that the purpose of the pilot program was to test the
FCA mechanism to determine “its efficacy in removing the unintended rate design disincentive
for the Company to aggressively pursue DSM programs.”Application,p.5.The Company
contends the first four years of the pilot program demonstrate that the FCA mechanism is
working as intended —it operates to mitigate the adverse affects of energy efficiency programs
ORDER NO.32505 1
by ensuring that the fixed costs authorized by the Commission for recovery are being recovered
through the FCA mechanism.Id.The Company proposes to make the program permanent for
the residential and small general service customer classes,and proposes to true-up the FCA by
combining the deferral balances of each class and implementing rates for each class that
represent a uniform percent change.Idaho Power asserts that by combining the residential and
small general service FCA balances and determining the rate adders based on an equal FCA rate
adjustment for each class,the overall rate impact to customers in these classes is more
representative of the total amount of the required fixed-cost recovery for each class.Application,
pp.5-6.
On November 2,2011,the Commission issued a Notice of Application and Notice of
Intervention Deadline regarding Idaho Power’s Application.Petitions to Intervene were timely
filed by the Idaho Conservation League;Micron Technology,Inc.;and the NW Energy
Coalition,all of which were granted by the Commission in Order No.32402.However,the
parties held a scheduling meeting on January 27,2012,and subsequently recommended the
Commission proceed by Modified Procedure.The Commission accordingly issued a Notice of
Modified Procedure on February 14,2012,establishing a written comment period ending March
1,2012,and a deadline of March 15,2012,for filing reply comments.Order No.32454.
THE WRITTEN COMMENTS
Written comments were filed by the Commission Staff,and the Idaho Conservation
Legaue (ICL),and reply comments were filed by Idaho Power,NW Energy Coalition,and ICL.
All of the comments support the Company’s Application to make the fixed-cost adjustment
schedule a permanent schedule,but Staff recommended a modification to the FCA.More
specifically,Staff recommended modifying the existing FCA to focus on lost fixed costs
recovery resulting from Company DSM programs and its support of energy efficiency activities.
Staff thus proposed that the FCA balance be equally shared between the customers and the
Company,noting that the Company’s DSM reports show that energy savings from DSM
programs acëounted only for between 24 and 43%of reduced consumption.Setting the FCA
recovery at 50%for the Company leaves room for Idaho Power to recover lost fixed costs
associated with non-DSM programs,as well as from its DSM programs.Staff recommended that
the sharing band be symmetrical,that is,it would be applicable to both under-and over-recovery
of fixed costs.Staff Comments,p.10.
ORDER NO.32505 2
Staff’s comments reiterate the initial purpose for the FCA,that is,“to remove the
financial disincentives in the current rate design to encourage greater investment by the
Company in energy efficiency activities.”Staff Comments,p.3.Staff quoted from Commission
Orders stating the purpose of the FCA as removing financial disincentives in pursuing energy
efficient programs.Staff stated it “has found no evidence that the Commission’s main intent was
to separate Idaho Power’s revenues from its sales.”Staff Comments,p.3.Because the current
FCA provides benefits to the Company that exceed removal of the DSM disincentive,Staff
contends the modification it proposes to the current program is warranted.
Staff’s primary concern with the current FCA,is that with the exception of weather,
there is no recognition or identification of the source of the variations in customer energy
consumption.Staff stated that from 2008 through 2010,the annual energy reduction attributable
to non-DSM programs ranges from 24%to 43%.Staff Comments,p.4.In 2009,the FCA filing
indicated that approximately 42,000 MWh of the 54,000 MWh reduction in sales were due to
non-DSM related factors.Staff Comments,p.5.Staff stated it “has no evidence that DSM
savings have contributed to any more than 43%of reduced consumption during the FCA
timeframe.”Staff Comments,p.5.Staff contends the FCA should be modified to address lost
fixed-revenue due to Company DSM programs while not excessively compensating the
Company for non-DSM usage reduction.In addition,Staff believes the FCA mechanism should
remain relatively straight-forward and not rely solely on the Company’s DSM reports for
calculating lost sales or reduced consumption.Staff Comments,p.5.
Staff identified another problem with the current FCA design as failing to minimize
cross-subsidies between customer classes.Staff stated that both it and the Company believe
residential customers have been responsible for more fixed costs recovery than recent cost-of-
service studies show is reasonable.Although this is appropriately a cost-of-service issue and
should be addressed by the Company in its next rate case,Staff contends that the
disproportionate amount of DSM rider revenue generated by the residential class shows that
cross-class subsidies are not minimized under the FCA.Staff Comments,p.6.Finally,Staff
questioned whether the FCA has had a meaningful effect on Idaho Power’s energy efficiency
activities.
The Company in its Application did not address continuation of the discretionary 3%
cap on FCA rate adjustments,and Staff recommended the Commission maintain the 3%cap on
ORDER NO.32505 3
FCA rate adjustments in the event that sales deviate significantly from the base year.In addition,
Staff agreed with the Company’s proposal to blend the residential and small commercial FCA
deferral balances for collection and/or refund.Finally,Staff made a recommendation regarding
identification of the FCA on customers’bills,specifically,that the FCA component be removed
from the energy efficiency services line item and instead be combined with the Power Cost
Adjustment (PCA)line on the Company’s bills.
ICL filed written comments recommending the Commission approve the FCA as a
permanent mechanism,as Idaho Power requests.In reply comments,ICL addressed Staff’s
recommendation that the FCA be shared equally between customers and Idaho Power.ICL
stated that it agrees with some of Staff’s proposals,specifically maintaining the 3%cap on FCA
rate adjustments and combining the FCA with the Company’s PCA on customer bills.
ICL addressed Staff’s concern that the FCA captures all non-weather-related changes
in energy consumption,not just changes resulting from DSM programs.ICL acknowledges this
is true,but nonetheless urges the Commission to maintain the current structure “because it
provides two additional benefits beyond removing the disincentive towards energy efficiency —
mitigating risks and incenting cost controls.”ICL Reply Comments,p.2.ICL asserts that the
current FCA benefits ratepayers by providing a powerful incentive for Idaho Power to control
costs.The FCA helps fix revenue stream,and thus “severely restricts Idaho Power’s ability to
increase revenue by increasing sales.”ICL Reply Comments,p.3.Because the FCA reduces
Idaho Power’s risks,ICL suggests the Commission ensure ratepayers receive a benefit resulting
from a strong FCA by reducing Idaho Power’s capital ratio.
ICL contends other specific concerns Staff identified regarding the current FCA
should be addressed by the Commission in other proceedings.For example,the Commission can
review a potential difference between costs added by new customers in a cost-of-service study in
the Company’s next rate case.ICL Reply Comments,p.5.To address Staffs concern that the
residential class produces a disproportionate amount of DSM rider revenue,ICL suggests the
solution is to expand residential programs,not weaken the current FCA and partially re-institute
the disincentive towards energy savings in this customer class.ICL Reply Comments,p.5.ICL
contends Staffs proposal to share the FCA between customers and the Company limits the
benefits created by the FCA.
ORDER NO.32505 4
The NW Energy Coalition in its written comments also addressed Staff’s proposal to
adjust the FCA mechanism.NW Energy Coalition appreciates Staff’s intent to maintain a simple
mechanism and avoid a lost margin recovery approach that relies heavily on savings calculations.
The Energy Coalition agrees the FCA is not perfect,but states Staff has “recommended an
unnecessary change in the mechanism that shifts the risks of sales changes back to both the
utility and its customers.”NW Energy Coalition Reply Comments,p.3.Energy Coalition
asserts that if the FCA recovery is set at 50%,the mechanism no longer eliminates the through
put incentive nor does it reduce customers’and utility risks from fluctuating sales.Id.
Idaho Power addressed Staffs recommendation to modify the FCA in its reply
comments.The Company contends that if Staffs recommendation to modify the FCA is
adopted,“the regulatory framework that paved the way for Idaho Power’s aggressive and
successful pursuit of the cost-effective energy efficiency will be compromised.”Idaho Power
Reply Comments,p.7.The Company does not dispute that some of the load reduction it
experienced between 2008 and 2011 can be attributed to the economic downturn,but the
Company contends that during the same period the Company was more aggressive on energy
efficiency activities “than ever before.”Idaho Power Reply Comments,p.8.Idaho Power
argues that Staffs proposal to allow the Company to keep only 50%of any amount in excess of
its authorized fixed-cost revenues for the residential and small commercial customer classes,
“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%of any
revenues in excess of its authorized fixed-cost revenues.”Idaho Power Reply Comments,p.10.
Idaho Power agrees with Staffs proposal to maintain the 3%cap on FCA
adjustments,and to recover or refund the FCA deferral balance equally between the residential
and small commercial customer classes.Idaho Power does not oppose moving the FCA
adjustment on the Company’s bill from the energy efficiency services line to the Company’s
PCA line item on customer bills.
COMMISSION DISCUSSION
On the record in this case,the Commission has determined to approve Idaho Power’s
Schedule 54,Fixed Cost Adjustment,as a permanent program.All of the written comments
support removing the pilot designation and implementing the FCA as a permanent schedule for
the residential and small general service customers.The written comments agree the FCA has
ORDER NO.32505 5
removed a disincentive inherent in Idaho Power’s pursuit of energy efficiency programs by
separating recovery of some fixed costs from energy sales.On this record,the Commission
approves the FCA as a permanent program.
The commenters also agree,however,that the FCA as structured is imperfect.There
is no dispute that the FCA does not isolate or identify changes in cost recovery associated solely
with the Company’s energy efficiency programs.Instead,it responds to all changes in load
reduction in the residential and small general service customer classes.To that extent,the FCA
acts as a decoupling mechanism beyond the primary objective of the FCA —to remove a
disincentive to aggressively pursue energy efficiency programs.To address that and other
potential limitations with the FCA,Staff recommended a 50/50 sharing of the FCA results
between customers and the Company.Staff acknowledged that its proposal also is imperfect,but
it has the advantage of keeping the FCA mechanism relatively simple.
Although the Commission approves implementation of the FCA as a permanent
schedule,we also find that the limitations in the FCA as structured,as identified by Staff and the
other parties,warrant further discussion by the parties and review by the Commission.Staff’s
sharing proposal may have merit,but there is not a sufficient record to support a finding that a
sharing of 50/50 between the Company and customers is the correct ratio.Staff and the
Company,and other parties that choose to participate,are directed to continue discussing
possible adjustments to the FCA.Idaho Power is directed 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.
The Commission finds it is appropriate to implement Idaho Power’s Schedule 54,
Fixed Cost Adjustment,as a permanent program for the residential and small general service
customers.The program will retain the 3%cap on FCA adjustments.and the FCA deferral
balance will be recovered or refunded equally between the residential and small commercial
customer classes.The Commission approves moving the FCA adjustment on the Company’s bill
from the energy efficiency services line to the Company’s PCA line item on customer bills.The
Company will not be required to file the separate annual report specifying ways in which it
increased its investment in energy efficiency and DSM as a result of the FCA mechanism.Issues
related to the Company’s acquisition of energy efficiency and DSM are comprehensively
reported in the Company’s annual DSM reports filed with the Commission.The Company will
ORDER NO.32505 6
continue reporting the monthly FCA balance as it has under the pilot and will continue to file
annual applications seeking approval of FCA true-up balances.
APPLICATIONS FOR INTERVENOR FUNDING
On March 21,2012,ICL filed an application requesting an award for intervenor
ftinding in the amount of $lO.000 ($3.000 expert witness fees.57.000 attorney fees).ICL
identified differences between its and Staffs case as (1)ICL opposed Staffs recommendation to
introduce a 50/50 sharing component (2)ICL proposed a finding that the FCA is a risk
mitigation tool and proposed a method to share this benefit with ratepayers;(3)ICL proposed a
method to motivate Idaho Power to “fully pursue their [sic]enhanced commitment towards non-
programmatic energy efficiency efforts.”ICL Application,p.3.
The NW Energy Coalition filed an Application for Intervenor funding on March 26,
2012.The Energy Coalition stated its written comments “demonstrate that the Coalition’s
recommendation is different than the proposed finding of Commission Staff,”and raise
“concerns about the approach recommended by Staff as undermining the fundamental intent of
the FCA mechanism.”NW Energy Coalition Application,p.2.The Coalition requests an award
of $700.85.
Applications for intervenor funding are filed pursuant to Idaho Code §61-617A and
the Commission’s Rules of Procedure 161-165.IDAPA 31.01.0l.161-.165.Section 61-617A
states that the Commission may order a regulated utility “to pay all or a portion of the costs of
one (1)or more parties for legal /èes,ii ‘itness fees and reproduction costs.”Idaho Code §61-
61 7A(2)(italics added).The statute requires that the Commission base its determination to
award fees on (a)a finding that the participation of the intervenor materially contributed to the
decision rendered by the Commission,(b)a finding that the costs of intervention are reasonable
in amount and would be a significant financial hardship for intervenor,(c)the recommendation
of the intervenor differed materially from the testimony and exhibits of the Commission Staff,
and (d)the testimony and participation of the intervenor addressed issues of concern to the
general body of users or consumers.Idaho Code §61-617A(2).Commission Rule of Procedure
165 states the Commission may order an award for intervenor funding pursuant to Section 61-
61 7A,and mirrors the findings required for an award in paragraph 2 of that section.As does the
statute.Commission Rule 162 identifies an award for legal fees,witness fees,or reproduction
fees.
ORDER NO.32505 7
Intervenors filing for a cost award in cases that proceed by Modified Procedure have
difficulty in meeting the statutory requirements for an award,and the Commission in the past has
denied intervenor funding in cases processed by Modified Procedure.For example,in Case No.
IPC-E-08-23,the Commission denied intervenor funding in a case concluded afler informal
workshop meetings and telephone calls.Order No.30771.p.2.The Commission stated that the
informal nature of the proceeding resulted in a record that prevented the Commission from
making the necessary findings to award intervenor funding.Because the case proceeded
informally without hearings.Commission Staff did not file testimony or exhibits.The
Commission noted that that made it difficult for the intervenor to satisfy Rule of Procedure 165
that requires the Commission to find that the recommendations of the intervenor differed
materially “from the testimony and exhibits of the Commission Staff.”Order No.30771,p.3
citing IDAPA 31.01.01.165.0l.d.In addition,Idaho Code §61-617A limits an award of
intervenor funding to “legal fees,witness fees,and reproduction costs.”Because Modified
Procedure normally concludes without an evidentiary hearing,there are no witnesses,and may
be no legal fees,to support an award of intervenor funding for those costs.
Although cases processed by Modified Procedure present difficulties in satisfying
statutory requirements to award intervenor funding,the Commission finds that the circumstances
of this case and the participation of these intervenors support a modest award for intervenor
funding.First,we recognize the importance of the Legislature’s statement of policy in Idaho
Code §61-617A(1)“to encourage participation at all stages of all proceedings before the
commission so that all affected customers receive full and fair representation in those
proceedings.”Second,the record does support a finding that the comments filed by these
intervenors “materially contributed to the Commission’s decision”and “differed materially from
the testimony and exhibits of the Commission Staff,”both necessary findings for an intervenor
funding award.The Commission cannot find,however,in regard to ICL’s request,that it is
reasonable in amount.A case concluded by written comments filed in a Modified Procedure,
following one meeting of the parties.should not reasonably result in a request for funding of
$10,000.In sharp contrast is NW Energy Coalition’s request for $700.The Commission finds
an award of intervenor funding in the amount of $700 for each ICL and NW Energy Coalition is
appropriate.
ORDER NO.32505 8
ORDER
IT IS HEREBY ORDERED that (1)Idaho Power’s Schedule 54,Fixed Cost
Adjustment,is approved as a permanent program for the residential and small general service
customers;(2)the program will retain the 3%cap on FCA adjustments;(3)the FCA deferral
balance will be recovered or refunded equally between the residential and small commercial
customer classes;and (4)the FCA will be identified on customer bills as part of the Company’s
annual PCA line item adjustment.
IT IS FURTHER ORDERED that Idaho Power is directed 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.
IT IS FURTHER ORDERED that ICL and NW Energy Coalition are each awarded
intervenor funding in the amount of $700.
THIS IS A FINAL ORDER.Any person interested in this Order may petition for
reconsideration within twenty-one (21)days of the service date of this Order.Within seven (7)
days after any person has petitioned for reconsideration,any other person may cross-petition for
reconsideration.See Idaho Code §6 1-626.
ORDER NO.32505 9
DONE by Order of the Idaho Public Utilities Commission at Boise.Idaho this 3C
day of March 2012.
j\i
MACK A.REDFOD,CMMISSIONER
MARSHA H.SMITH,COMMISSIONER
ATTEST:
/1 (N /,0
/71.4 ,J /
Jean D Jewell (
Ctfnmission Secretary
bls/O:IPC-E-I !-19ws3
ORDER NO.32505 10