20120410Comments.pdf

WELDON B. STUTZMAN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
P0 BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3283
RE CE 1 V E C)
2OI2 APR I AMU:148
IDL ( PJt,LIC
UTILITIES COMMISSION
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'S REQUEST FOR CASE NO. IPC-E-12-12
AUTHORIZATION TO IMPLEMENT FIXED )
COST ADJUSTMENT (FCA) RATES FOR )
SERVICE EFFECTIVE JUNE 1, 2012 ) COMMENTS OF THE
THROUGH MAY 31, 2013. ) 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 Notice of Modified Procedure issued in Order No. 32491 on
March 20, 2012, submits the following comments.
BACKGROUND
On March 2, 2012, Idaho Power Company filed an Application requesting authorization
to implement fixed-cost adjustment (FCA) rates for service effective June 1, 2012 through
May 31, 2013. In March 2007, the Commission approved the implementation of a three-year
FCA pilot program for residential (Schedules 1, 3, 4 and 5) and small general service (Schedule
7) customers. In October 2009, the Company filed an Application to convert the FCA from a
pilot to a permanent program. The Commission denied the Company's request and extended the
STAFF COMMENTS 1 APRIL 10, 2012
pilot program for an additional two-year period. The Commission recently approved continuing
the FCA on a permanent basis. Case No. IPC-E-l1-19, Order No. 32505.
The FCA mechanism enables Idaho Power to separate, or decouple, recovery of certain
fixed costs from its volumetric energy sales. The FCA provides a surcharge or credit when
fixed-cost recovery per customer varies above or below a Commission-established base. Thus,
the FCA provides for a mechanism to recover the difference between the fixed costs per
customer actually recovered by the Company through rates and the fixed costs per customer
authorized for recovery in the Company's most recent general rate case.
The FCA works the same for both the residential and small general service classes. For
each class, the actual number of customers is multiplied by the fixed-cost per customer rate
(FCC), which is established as part of the Company's allowed revenue requirement in a general
rate case. This calculation establishes the allowed fixed-cost recovery amount, which is
compared to the amount of fixed costs actually recovered by Idaho Power. The fixed costs
actually recovered is determined by the Company's weather normalized sales for each class
multiplied by the fixed-cost energy rate (FCE) as established in the Company's most recent rate
case. The difference between the allowed fixed-cost amount and the actual fixed-cost amount
recovered establishes the fixed-cost adjustment for each customer class.
The Company's Application states that the FCA shows a balance of $8,837,352.59 for the
residential class and a balance of $1,478,574 for the small general service class, for a total
amount of $10,315,927. Thus, the current FCA surcharge does not allow the Company to fully
recover the total fixed-cost amount. Accordingly, the Company is proposing to increase the FCA
surcharge to recover an additional $1,159,520 annually. The Company is proposing a combined
rate increase for both customer classes of 0.28% over current FCA rates. This equates to a new
FCA rate of 0.2028 cents per kilowatt-hour for the residential class and 0.2597 cents per
kilowatt-hour for the small general service class.
STAFF REVIEW
Staff has reviewed the Company's filing and supporting testimony from Company
witness Harris, and verified that sales per customer for both residential and small commercial
STAFF COMMENTS 2 APRIL 10, 2012
classes were lower in 2011 in relation to the base year of 2008.' The result is that (weather
normalized) actual sales were below a level necessary to collect authorized fixed costs on a per
customer basis. As such, the FCA rates should increase during the 2012 PCA year to collect the
under recovery from customers. Based on its review of the filing, Staff recommends that the
Commission accept the Company's proposed net FCA deferral balance of approximately $10.3
million.
The FCA Pilot Program
The final year of the pilot marks the fourth consecutive time that residential use per
customer has declined relative to the established base year. For 2011, the number of residential
customers grew by approximately 1.3% when compared to 2008, while sales for the class has
decreased by approximately 3.5%. Similarly, small commercial customers continue to
experience a decline in use per customer when compared to the base period in each of the years
that the FCA has been in place. Relative to 2008, the small commercial class witnessed attrition
in customers (nearly a 9% decrease in average customers) that was outpaced by reduced energy
consumption (nearly 24% for the class) in 2011. Use per customer has declined for the small
commercial class each year of the FCA pilot.
The table below depicts how the FCA deferral balances have changed throughout the four
years of the pilot for both the residential and small commercial classes.
FCA Deferral Balances by Year
Period
Residential
Deferral %*
2007-2008 ($3.6 mil)** (1.2)**
2008-2009 $1.3 mil 0.4
2009-2010 $5.2 mil 1.5
2010-2011 $7.9 mil 2.1
2011-2012 $8.8 mil 2.2
Small Commercial
Deferral %*
Blended
Deferral %*
$1.2 mil 7.3 ($2.4 mil)** (0.7)**
$1.4 mil 1Q.3 $2.7 mil 0.8
$1.2 mil 8.5 $6.3 mil 1.9
$1.4 mil 9.8 $9.3 mil 2.4
$1.5 mil 10.0 $10.3 mil 2.5
* Percentage of base revenues for class
**Negative numbers indicate an over collection of approved fixed
costs
'While there have been several adjustments to base rates since 2008, the Commission maintained that the FCC and
FCE are to be established and modified as part of a general rate case.
STAFF COMMENTS 3 APRIL 10, 2012
Had the Commission not decided to blend the FCA rate, small commercial customers would
have experienced surcharges exceeding the 3% cap in all years of the pilot. Due to the
magnitude of the rebate to residential customers in 2007, all participating classes received a
rebate through the application of a blended rate. Even though the comparative base years have
reset twice during the pilot, the result has been surcharges that have far exceeded the credit
received in the first year.
As part of the Stipulation that established the FCA, the Company agreed to significantly
increase its demand side management (DSM) efforts. While the FCA makes no distinction,
outside of weather, to the source of variation in sales, Staff continues to believe the general state
of the economy and other factors have contributed to the decline in use per customer. 2 Using
Idaho Power's 2011 DSM Report, Staff approximated savings from the Company's residential
energy efficiency programs to be nearly 106 thousand megawatt hours, or roughly 41% of the
lost sales for the residential class in this case.
The FCA Rate
Staff has verified the Company's calculation of unrecovered 2011 fixed costs for the
residential and small commercial classes. The Company proposes blending the surcharge, and
spreading it uniformly to both customer segments on an equal percentage basis, consistent with
the past two FCA filings. Using weather-normalized forecasted sales for June 1, 2012 through
May 31, 2013, the Company calculates that a surcharge of 0.28% above the current FCA rate for
residential and small commercial customers provides a sufficient opportunity to recover
approved fixed costs.
The deferral balance of $8.8 million for residential customers represents over 2.2% of
class revenues. The deferral balance of $1.5 million for small commercial customers represents
10% of class revenues. If the FCA balances were not blended, residential customers would
2 In Order No. 32505, the Commission directed Idaho Power, Staff, and other interested parties to discuss how the
current FCA mechanism could be modified to address this issue. Idaho Power is directed to file a proposal for
adjusting the FCA for changes in load not related to energy efficiency programs.
Staff added all reported savings from 2008 through 2010, and added half the savings reported for 2011 (assuming
programs are equally distributed through the year) to arrive at this figure. A similar calculation could not be made
for small commercial customers as, prior to the 2010 DSM Report, program savings were not identified by class.
STAFF COMMENTS 4 APRIL 10, 2012
receive a surcharge of 0.1803 cents per kWh, and the small commercial customers would receive
a 1.0205 cents per kWh surcharge, which exceeds the 3% cap on rate adjustments. Based on
expected sales and revenues for the 2012 PCA year, Staff has calculated that the 3% cap for
small commercial customers would have resulted in a rate of 0.30980 cents per kWh, recovering
only $448,868 of the unblended balance, with the remainder deferred for future collection.
Using the revenues approved in the 2011 general rate case, the blended balance represents 2.5%
of total base revenues for residential and small commercial classes.
Without blending the FCA balances, the small commercial deferral balance would
continue to accumulate, ultimately representing an extraordinary percentage of class revenues.
Full collection would not take place in the foreseeable future under that scenario should the cap
remain in effect. Staff has estimated that the small commercial deferral balance alone would be
nearly 30% of base revenues for 2012.
Staff concurs with the Company that it is appropriate to blend the FCA balance for the
two customer segments. Staff also agrees that spreading the FCA balance on an equal
percentage basis is an appropriate method for distributing the deferral. As expressed by
Company witness Harris, doing so better represents the fixed cost recovery for each class. In
other words, a smaller portion of fixed cost responsibility is shifted to residential customers than
by applying an equal cents per kWh rate adder (calculated as 0.20359 cents per kWh). This is
consistent with Staff's position in previous comments that doing so does not violate principles of
equity as all customers benefit from energy efficiency programs through postponement of
additional capital resources.
If the proposed rates are approved by the Commission, the residential FCA rate would
increase from 0.1801 cents per kWh to 0.2028 cents per kWh. For an average residential
customer consuming 1050 kWh per month, this results in an increase of 24 cents per month over
STAFF COMMENTS 5 APRIL 10, 2012
the current FCA charge. For commercial customers using 450 kWh per month, the proposed
FCA rate of 0.2597 cents per kWh results in a monthly increase of 15 cents.4 Staff believes these
rates give the Company an adequate opportunity to collect its authorized fixed costs in the
coming FCA year.
STAFF RECOMMENDATION
Staff recommends that the Commission approve the Company's FCA filing with a net
deferral balance of positive $10,315,927 for 2011. Staff does not oppose the Company's method
of distributing the surcharge on an equal percentage basis, and recommends approval of
residential and small commercial FCA rates that collect 2.5% of current base revenues to recover
deferred fixed costs. Based on the Company's sales forecast, the resulting FCA rates for the
2012-2013 period would equal 0.2028 cents per kWh for residential customers and 0.2597 cents
per kWh for small commercial customers.
Respectfully submitted this day of April 2012.
vl~:11~-~-~~- ~
Weldon B. Stutzman
Deputy Attorney General
Technical Staff: Bryan Lanspery
i:umisc:comments/ipce 12.12 wsbldesdnk comments.doc
This value is only an approximate arithmetic mean for a class that displays significant intra-class variation in
consumption.
STAFF COMMENTS 6 APRIL 10, 2012
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 10TH DAY OF APRIL 2012,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-E-12-12, 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: jwi11iams(idahopower.com
[e-mail]
ZACHARY L HARRIS
GREG SAID
IDAHO POWER COMPANY
P.O. BOX 70
BOISE IDAHO 83707
E-MAIL: [e-mail]
gsaidZiidahopower.com
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SE RETARY
CERTIFICATE OF SERVICE