20121207Comments.pdf

WELDON B. STUTZMAN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
P0 BOX 83720
D r-n 7 '.
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BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3283
IDJO PUBLi(
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Street Address for Express Mail:
472 W WASHINGTON
BOISE ID 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
IDAHO POWER COMPANY FOR AUTHORITY ) CASE NO. IPC-E-11-19
TO CONVERT SCHEDULE 54— FIXED COST )
ADJUSTMENT - FROM A PILOT SCHEDULE ) COMMENTS OF THE
TO AN ONGOING PERMANENT SCHEDULE. ) COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
attorney of record, Weldon B. Stutzman, Deputy Attorney General, and in response to the
Notice of Application and the Notice of Modified Procedure issued in Order No. 32668 on
October 23, 2012, submits the following comments.
BACKGROUND
On September 28, 2012, Idaho Power Company filed a pleading requesting Commission
approval of a "Specific Fixed-Cost Adjustment Methodology." Previously, the Commission in
Order No. 32505 approved the Company's Application to make the fixed-cost adjustment (FCA)
a permanent program for residential and small general service customers. The Commission also
noted, however, that the FCA as structured is imperfect, particularly in that it "does not isolate or
identify changes in cost recovery associated solely with the Company's energy efficiency
programs." Order No. 32505, p. 6. The Commission directed Staff and other interested parties to
continue discussing possible adjustments to the FCA, and directed Idaho Power to file a proposal
STAFF COMMENTS 1 DECEMBER 7, 2012
to adjust the FCA to address the deficiency identified by the Commission. Id. The Company's
filing responds to the Commission directive in Order No. 32505 that the Company file within six
months "a proposal to adjust the FCA to address the capture of changes in load not related to
energy efficiency programs." Order No. 32505, p. 9.
Idaho Power recommends the Commission approve the FCA methodology as currently in
place without change because it believes the existing mechanism is the most efficient and
appropriate method to eliminate financial disincentives to pursuing cost-effective DSM resources.
Nonetheless, the Company's filing includes an adjustment to the FCA mechanism that it believes
addresses the capture of significant changes in load not related to energy efficiency programs. The
FCA mechanism currently includes a 3% cap on annual increases over base revenue. The Company
proposes to apply a symmetrical cap (plus or minus 2%) on the change in annual use per customer
where it deviates from the historical average annual change in use per customer. Idaho Power
Filing, p. 5. The Company contends that a capping mechanism based on changes in use per
customer "would adequately respond to the Commission's previously stated desire to address the
capture of changes in load not related to energy efficiency programs without unduly compromising
the effectiveness of the FCA." Id. The Company requests the Commission issue an Order
approving a specific FCA methodology no later than March 29, 2013.
STAFF ANALYSIS
Staff reviewed the Company's filing and compliance report, and does not believe that its
proposal complies with the Commission's directive. Idaho Power's preference to maintain the
current FCA mechanism ignores Commission concerns, and its recommended alternative is largely
unresponsive and ineffective in identifying changes in cost recovery solely associated with the
Company's energy efficiency efforts. Staff maintains that its original proposal to share the FCA
balance between customers and the Company best addresses the concerns of the Commission.
Should the Commission continue to find the Staff proposal deficient, Staff recommends the
Commission reject the Company's proposed 2% cap on changes to consumption per customer and
leave the FCA mechanism unchanged.
The Commission observed that no parties to the case disputed Staff's assertion that the FCA
does not isolate cost recovery solely associated with the Company's energy efficiency programs.
Order No. 32505, p. 6. Staff believes this undisputed fact underscores the Commission's desire to
modify the current FCA mechanism. However, rather than propose a solution addressing the
STAFF COMMENTS 2 DECEMBER 7, 2012
Commission's concern, Idaho Power continues to argue that the FCA should not be altered in any
consequential way because revenue recovery above revenues lost through the Company's energy
efficiency efforts is required to maintain the current level of DSM commitment. This is the same
argument made by the Company in its earlier reply comments and rejected by the Commission in
Order No. 32505.
The Company maintains in its latest comments and testimony that no additional adjustment is
necessary because using customer counts to recouple was agreed upon as an index for economic risk
allocation. Cavanaugh Supplemental, p. 4; Idaho Power Filing, p. 4. However, the use of customer
counts, as opposed to class-specific lost revenues, was a result of the Company's concern that in
times of class growth it would be making investments in infrastructure while simultaneously
refunding to customers through the FCA. IPC-E-04-15, Summary of the November 8, 2004
Workshop, p. 26. Per-customer recoupling partially offsets this issue, as long as customer growth
outpaces sales growth, but it is not effective as a metric for mitigating effects of reduced
consumption due to non DSM factors. During the recent slowing of the economy, Idaho Power saw
a reduction in year-to-year customer growth, but did not see customer attrition. More importantly,
overall sales have decreased each year for the past three years. The resulting use per customer
declined over that period, as the Company was adding customers. That fact becomes more evident
when combined with the year-to-year growth in the FCA deferral balance, which occurred during the
recession even though the FCC and FCE rate components were updated twice in that timeframe. Put
another way, lost revenue recovered from ratepayers through the FCA does not materially change
with customer growth or attrition. The monetary impact to customers results from the level of
reduction in the use per customer that is included in the FCA. The existing FCA simply assigns the
risk of under recovery of fixed costs to customers irrespective of underlying cause.
Idaho Power's Proposed Alternative
As an alternative to maintaining the current FCA, the Company proposes to cap the FCA
balance based on year-to-year changes in use per customer (UPC). The UPC Cap would limit the
FCA balance to +1- 2% over the historical average change in use per customer, which uses yearly
consumption from 1992 to present in its calculation. Through 2011, use per customer has declined
on average by 0.72%, meaning the UPC cap would be bounded on collections at 2.72% and bounded
on refunds at 1.28% in the first year after resetting the base components of the FCA. Staff does not
believe that the Company's proposal is responsive to the Commission's directive for several reasons.
STAFF COMMENTS 3 DECEMBER 7, 2012
Staffs concern with the Company's proposal is that it would have had no impact on the FCA
balances had it been in place during the entire FCA timeframe. In fact, in the 19 years included in
Idaho Power's historical analysis, only one year had a larger decline in use per customer than the cap
specified under the proposal (4.04 % in 2002), and only one year had a greater increase (1.47% in
2006). 2002 was an abnormal year in which customers' consumption was impacted by the energy
crisis of 2000 and 2001. Although the Company had negligible amounts of energy efficiency
savings at the time, large PCA surcharges raised the effective rate to residential customers by nearly
40%. Electric consumption declined significantly due to the significant rate increases. 2006
represented the peak of the economic boom, where energy sales grew at a faster rate than customer
counts. Aside from these anomalous years, that type of swing in use per customer does not occur.
Moreover, the Company does not include in its long-term forecast any reductions (and no increases
whatsoever) in use per customer of the magnitude proposed in the consumption cap. Consequently,
Staff believes the proposed cap is unnecessarily complicated, ineffective and unresponsive to
concerns previously identified by Staff and expressed by the Commission in its Order.
Table 1 contrasts the amount of sales that fall within the UPC band with the lost energy sales
recovered through the FCA and the reported DSM energy savings of the Company by year. The
UPC cap is greater than the FCA balance each year, and several times as large as the reported DSM
energy savings, indicating that it is improbable that Company-sponsored energy efficiency would
trigger the cap. The first column of the table also demonstrates that the 2.72% UPC cap becomes
less stringent over the years in between rate cases. While the UPC cap is calculated on a year-to-
year basis, it factors in all previous yearly changes in use per customer since the most recent rate
case; the 2010 cap would reflect the changes in use per customer not only from 2009 to 2010, but
also 2008 to 2009. The 2011 UPC cap incorporates yearly changes dating back to 2008 as well. For
Idaho Power, the result is that the UPC cap effectively rose from 350 kWh per customer per year in
2008 to 793 kWh per customer per year in 2011, meaning the UPC cap went from 2.72% of 2008
base usage to 6.2% of 2008 base usage within four years, a growth rate of 126%. In the same
timeframe, the 3% cap on deferral balances only grew by 0.6%, signifying that the UPC cap would
exceed the deferral cap after the first year, and the difference between the two caps would be
deferred for later collection.
STAFF COMMENTS 4 DECEMBER 7, 2012
Table 1
Idaho Power UPC Cap and Residential Energy Savings
Effect of Propsed 2.72% Energy Reduction Recovered Cumulative Energy
Year UPC Cap (MWh) Through FCA (MWh) Efficiency Savings (MWh)
2008 136,077 39,381 17,035
2009 155,404 146,784 34,613
2010 234,918 226,068 68,824
2011 314,257 257,441 105,551
The FCA balances would not have been affected by the UPC cap had it been in place since
the beginning of the pilot, and Idaho Power has admitted that other factors have contributed to the
reduction in per customer sales. A 2.72% decline in use per customer in a given year is highly
unlikely; a decline of that magnitude over multiple years is unprecedented. If that were to occur, the
underrecovery of fixed costs for only two customer classes would be significant, and signal overall
revenue erosion for the Company, leading the utility to seek general rate relief. In that scenario, the
base is reset, and the UPC cap becomes unnecessary. Therefore, it is reasonable to conclude that the
Company's proposal is more aligned with maintaining the current FCA structure than addressing the
concerns of the Commission. 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. Doing so would acknowledge the non-
programmatic loss in sales all parties agreed exist during the time of the FCA. Regardless of where
the UPC cap is set, the fact that it will not affect the FCA balance each year further demonstrates that
it is an ineffective tool for addressing the Commission's concerns.
Although opposed to modifying the FCA based on the Company's UPC proposal, Staff
nonetheless evaluated the methodology used in its development to further inform the Commission.
Staff believes the timeframe chosen to calculate the trend in consumption per customer is arbitrary
and unjustified by the Company. There is no methodology proposed to systematically update either
the historical trend or the +1-2% cap. The arbitrary timeframe and lack of methodology to update the
historical trend simply introduces another contested element that further complicates the
methodology without addressing the Commission's concern regarding non-DSM related declines in
consumption.
STAFF COMMENTS 5 DECEMBER 7, 2012
Staff's original comments in this case identified shortcomings in the existing FCA
mechanism associated with tracking and reimbursement of non-DSM related reductions in
consumption per customer. Staff also recommended a solution to address the problem. While the
Commission agreed with Staff that there was a problem with the FCA, it did not implement the
Staff's solution given the information on record.
STAFF PROPOSAL
Staff proposed sharing the FCA balance between the Company and customers, and maintains
that this option is superior to what the Company has submitted. The Commission noted that Staffs
proposal had merit, but found the recommended ratio had not been sufficiently supported. Order
No. 32505, p. 6. The Company considered Staff's recommendation as arbitrary, unsupported and
unsubstantiated. Idaho Power Reply Comments, p. 7. Staff believes the five years of experience
with the FCA has provided ample evidence to support its position.
The Company's original reply comments discount the values included on page 4 of Staff's
comments. Staff explained how energy savings were derived in footnote 3 of its comments, and in
greater detail in footnote 3 from Staff's comments in Case No. IPC-E-12-04, which the Company
did not dispute. The source of the data was Idaho Power's own Annual DSM Reports for the
pertinent timeframe. The Total Reduced Consumption was calculated directly from the Company's
monthly PCA/FCA Deferral Report.' In the time since the Commission issued its Order, the
Company has not attempted to reconcile Staff's calculations and has not seriously addressed the
flaws in the FCA.
The Company has also claimed that Staff's proposal did not account for non-programmatic
savings which it believes should be accounted for in the FCA. Idaho Power Reply Comments, p. 14.
Staff's comments at page 8 specifically address this issue. Staff proposed the sharing ratio to be
above the calculated savings, specifically to reward the Company for non-programmatic activities
produced by its participation in, for example, energy efficiency education, regional market
transformation efforts, and code and standard improvements. Staff did not presume that the sharing
ratio would remain fixed, and could be adjusted by the Company or the Commission in the future if
any party could show that changing circumstances required adjusting the sharing ratio.
Staff's proposal is still the only one that recognizes the Company's energy efficiency efforts
in times of rising use per customer. While the Company is required to forgo recovery of some lost
The Report does not have lost energy sales, which meant Staff had to calculate it using the deferral amounts and the
monthly FCE, accounting for monthly interest accrual.
STAFF COMMENTS 6 DECEMBER 7, 2012
fixed costs under this scenario, the Staff proposal provides greater lost fixed cost recovery than
would occur under the existing methodology.
Staffs proposed FCA modification to account for changes in per customer consumption due
to non-DSM factors was developed based on three years of discussions and development of the
original FCA pilot program. It is based on evaluation of energy savings and actual operation of the
FCA methodology over the five-year pilot period and it resulted from workshops with the Company
and interested parties prior to Staff's filing its FCA modification proposal. Staff also met with Idaho
Power before the Company filed its most recent FCA modification proposal to discuss alternatives
responsive to the Commission's concerns. Staff hoped the Company would propose a compromise
methodology that would effectively recognize non-DSM impacts in the FCA. However, the
Company's recommendation to maintain the existing FCA methodology and the alternative cap
proposal are effectively the same: no change and no improvement in the methodology.
STAFF RECOMMENDATION
Staff continues to believe that its proposal to adopt sharing methodology in the FCA of 50%
initially is the most reasonable and responsive solution to the Commission's concern. The sharing
method remains the best option to address non-DSM reduction in per customer consumption and still
demonstrate support for the acquisition of cost effective energy efficiency. Staff further believes the
Company's UPC cap proposal is complicated, ineffective and unresponsive, offers no value over the
existing FCA mechanism, and should be rejected.
Respectfully submitted this1 41-day of December 2012.
9~7 _=__J Weldon B. Stutzman
Deputy Attorney General
Technical Staff: Bryan Lanspery
Stacey Donohue
Donn English
Nikki Karpavich
i:umisc:comments/ipcel 1. 19wssdnkbldecomments 12_7j2.doc
STAFF COMMENTS 7 DECEMBER 7, 2012
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 7th DAY OF DECEMBER 2012,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-E-1 1-19, BY E-MAILING AND MAILING A COPY THEREOF, POSTAGE
PREPAID, TO THE FOLLOWING:
JASON B. WILLIAMS
LISA D NORDSTROM
IDAHO POWER COMPANY
P.O. BOX 70
BOISE IDAHO 83707
E-MAIL: [e-mail]
[e-mail]
[e-mail]
BENJAMIN J OTTO
ID CONSERVATION LEAGUE
710N6TFST
BOISE ID 83701
E-MAIL: [e-mail]
THORVALD A NELSON
FREDERICK J SCHMIDT
BRIAN T HANSEN
MARY V YORK
HOLLAND & HART LLP
6380 S FIDDLERS GREEN CIR
STE 500
GREENWOOD VILLAGE CO 80111
E-MAIL: [e-mail]
[e-mail]
[e-mail]
[e-mail]
[e-mail]
MICHAEL J YOUNGBLOOD
ZACHARY L HARRIS
IDAHO POWER COMPANY
P.O. BOX 70
BOISE IDAHO 83707
E-MAIL: myoungb1ood(idahopower.eom
[e-mail]
RICHARD E MALMGREN
SR ASST GEN COUNSEL
MICRON TECHNOLOGY INC
8005 FEDERAL WAY
BOISE ID 83716
E-MAIL: rema1mgren(micron.com
NANCY HIRSH POLICY DIR
NW ENERGY COALITION
8111 1STAVE STE 305
SEATTLE WA 98104
E-MAIL: [e-mail]
9L
SECRETARY
CERTIFICATE OF SERVICE