HomeMy WebLinkAbout20130211Reply Comments.pdfHHO 99POMR0
An IDACORP Company
713FEBH PHt:43
LISA D. NORDSTROM
Lead Counsel
Inordstrom(idahopower.com
;-MiSSiO
February 11, 2013
VIA HAND DELIVERY
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
Boise, Idaho 83702
Re: Case No. IPC-E-12-24
Customer Efficiency Incentive Payments - 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,
Lisa D. Nordstrom
LDN:evp
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
P.O. Box 70
Boise, Idaho 83707
Telephone: (208) 388-5825
Facsimile: (208) 388-6936
Inordstromidahopower.com
ihiltonidahopower.com
2013 FES I I F . 43
Attorneys for Idaho Power Company
Street Address for Express Mail:
1221 West Idaho Street
Boise, Idaho 83702
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR ) CASE NO. IPC-E-12-24
AUTHORITY TO IMPLEMENT RATES FOR )
ELECTRIC SERVICE TO INCLUDE ) IDAHO POWER COMPANY'S
CAPITALIZED CUSTOM EFFICIENCY ) REPLY COMMENTS
INCENTIVE PAYMENTS. )
Idaho Power Company ("Idaho Power" or "Company") respectfully submits the
following Reply Comments in response to the Notice of Modified Procedure issued in
Order No. 32682 and Comments filed on January 22, 2013, by the Idaho Conservation
League ("ICL"), the Idaho Public Utilities Commission ("Commission") Staff ("Staff'), and
the Industrial Customers of Idaho Power ("ICIP"). The Company concurs with ICL's
contention that the Company's proposal is simple and fair,' and believes that its
approval would accomplish the objective of placing investment in demand-side
resources ("DSR") on equal footing with investment in supply-side resources ("SSR")
Idaho Power respectfully disagrees with Staffs and ICIP's contention that the
'Case No. IPC-E-12-24, ICL Comments, p. 1
IDAHO POWER COMPANY'S REPLY COMMENTS -1
Company's proposal contains several drawbacks, and that the issues presented in this
case should be vetted within the context of a general rate case. In the paragraphs that
follow, Idaho Power further explains its position.
I. PROCEDURAL BACKGROUND
On October 31, 2012, Idaho Power applied for authority to include in rates a
portion of the regulatory asset associated with capitalized Custom Efficiency incentive
payments. The Company requested to implement the new tariff Schedule No. 56
("Schedule 56"), which would result in a uniform rate of $0.000220 per kilowatt-hour
("kwh") for all customer classes. In its initial Application Idaho Power proposed that the
rate change take effect on December 1, 2012, with the expectation that the Commission
would suspend that date to provide for additional time to review and implement rates on
June 1, 2013. On November 20, 2012, the Commission issued Order No. 32682 setting
a comment deadline of January 22, 2013, and suspending the Company's proposed
tariff Schedule 56 to allow time for further review.
On January 22, 2013, Staff, ICIP, and ICL filed Comments on Idaho Power's
Application. In the paragraphs that follow, Idaho Power indicates its support of the
findings and conclusions of ICL and responds to Staffs and ICIP's recommendation that
the Commission reject the Company's Application.
II. DISCUSSION
A. It is appropriate for the Commission to make a determination on the
amortization period and carryina charge for the Custom Efficiency
regulatory asset outside of a eneraI rate case.
IDAHO POWER COMPANY'S REPLY COMMENTS -2
Through Comments filed January 22, 2013, Staff recommends that the
Commission reject the Company's Application on the grounds that the issues presented
therein should be addressed in a general rate proceeding.2 As stated in Staff s
Comments, page 8, "Staff supports the Commission's previous directives that the issue
of recovery and carrying charge is best suited for a general rate case." Idaho Power
respectfully disagrees with Staff's contention for a number of reasons.
First, the Company feels that the complexity of the issues in this matter are
appropriately addressed in a single-matter case in which the various aspects of its
proposal can be considered in isolation. On page 5 of Comments filed January 22,
2013, ICL noted that "addressing this issue in a stand-alone case is more appropriate
than having the issue lost in the mix of a complex general rate case." The Company
agrees with this sentiment, and feels that it is appropriate to address the various
components of this Application in a manner that allows for undivided focus on the
appropriate mechanism for recovery of this asset. In recent history, complex issues
such as those presented in the Company's Application have been removed from the
context of a general rate case to allow for more comprehensive investigation without
distraction from the broad range of issues associated with a comprehensive general
rate filing. In the Company's most recent general rate filing, Case No. IPC-E-1 1-08., for
example, two issues were explicitly removed from the proceeding to facilitate the
settlement process and to allow for more extensive review in individual stand-alone
cases. Those issues were: (1) increasing the overhead amounts paid by persons or
entities requesting new service under the Company's Rule H Line Extension tariff; and
2 Staff Comments at 2, Case No. IPC-E-12-24.
IDAHO POWER COMPANY'S REPLY COMMENTS -3
(2) whether the Fixed Cost Adjustment pilot program should be made permanent.3
Those components of the Company's general rate filing presented complex issues that
were isolated for separate review so that settlement of the IPC-E-1 1-08 case could be
reached. The Company feels that its Application in this case is based upon similar
underlying issues, and is concerned that the decision to delay a final determination on
these issues until its next general rate case will result in even further delay in the future.
Second, the Company does not believe that determining the appropriate
amortization period and carrying charge for this asset within a single-issue case is
counter to Commission precedent. Within the context of a general rate case, much of
the discussion and debate surrounds the issue of prudence, and whether or not filed
amounts should be authorized for inclusion in rates. In the case of 2011 Custom
Efficiency incentive payments, prudence has already been determined in Order No.
32667 issued in Case No. IPC-E-12-15.4 A second component of ratemaking that is
typically determined through a general rate case is the appropriate rate of return to be
applied to the utility's rate base. This was recently determined by the Commission in
Case No. IPC-E-1 1-08, Order No. 32426. Because prudence has already been
determined, and because the Commission recently set the appropriate rate of return to
be applied to the Company's rate base, the two remaining issues that must be
determined in regard to the Company's current proposal are the appropriate carrying
charge and amortization period for the Custom Efficiency regulatory asset. As
discussed on pages 2 and 3 of ICL's Comments, it is not uncommon for the
Commission to determine these specific issues within the context of single-issue cases.
Order No. 32380 at 3, Case No. IPC-E-1 1-08.
Order No. 32667 at 11, Case No. IPC-E-12-15.
Order No. 32426 at 35, Case No. IPC-E-1 1-08.
IDAHO POWER COMPANY'S REPLY COMMENTS -4
In 2012, for example, the Commission made determinations through single-issue cases
regarding appropriate amortization periods and carrying charges related to
decommissioning costs associated with the coal-fired Boardman generation plant,6
revised depreciation rates,7 removal of accelerated depreciation associated with the
Company's investment in Advanced Metering Infrastructure,8 and the recovery of costs
associated with the Company's Open Access Transmission Tariff resulting from a
Federal Energy Regulatory Commission ruling.9 Because such issues have been
addressed in recent cases, the Company does not understand the rationale for delaying
a decision until its next general rate filing. No additional information is required that
would enhance the Commission's ability to make an informed decision in regard to the
appropriate carrying charge and amortization period for this asset.
The Company believes that the issues addressed in this proposal have been
thoroughly reviewed by all parties to this case in multiple settings, and that nothing is to
be gained by delaying a decision until a general rate case. The concept of capitalizing
investment in DSR was first addressed in a series of three workshops hosted by Idaho
Power in late 2009 and early 2010 to investigate recovery mechanisms to improve the
business case for these investments. Those workshops, sponsored in part by the Idaho
Office of Energy Resources and facilitated by the Regulatory Assistance Project, were
attended by all parties to this case, including Staff, ICIP, Micron Technologies, Inc., ICL,
and others. Through those workshops a number of mechanisms were modeled and
considered, and all parties were provided the opportunity to examine each proposal and
6 Order No. 32549, Case No. IPC-E-12-09.
7 Order No. 32559, Case No. IPC-E-12-08. 8 Order No. 32541, Case No. IPC-E-1 2-07.
Order No. 32540, Case No. IPC-E-12-06.
IDAHO POWER COMPANY'S REPLY COMMENTS -5
provide input. Following the culmination of those workshops, the Company filed Case
No. IPC-E-10-27, which detailed its proposal to capitalize incentive payments
associated with the Custom Efficiency program. Parties filed testimony, served
discovery, and participated in settlement discussions pertaining to the Company's
proposal. As stated in ICL's Comments on page 1, "After three opportunities, all
stakeholders have had ample time to weigh in on this issue." The Company concurs
with this statement, and believes that no additional information would result from further
delay in this matter. Through the series of workshops and the three cases referenced
by ICL, the Company believes that the issues have been thoroughly reviewed by all
parties, and that ample information has been provided to allow the Commission to make
a timely and informed decision in this matter.
B. Delaying a decision on the Company's Application without determining a
carrying charge would exacerbate the already-inferior regulatory treatment
applied to investment in DSR.
As described above, Staff believes that the issues presented in Idaho Powers
Application should be addressed as part of the Company's next general rate filing.
Likewise, on page 6 of Comments filed January 22, 2013, ICIP states, "... the
Commission should defer selection of an interest rate on the unamortized balance of the
Custom Efficiency Programs until Idaho Power's next general rate case." If the
Commission chooses to follow the recommendation of Staff and ICIP and defer decision
on all aspects of the Company's proposal until its next general rate case, the Company
believes it would worsen the business case for DSR and further relegate this investment
as inferior to SSR from a financial perspective.
IDAHO POWER COMPANY'S REPLY COMMENTS -6
The primary intent of capitalizing incentive payments associated with the Custom
Efficiency program is to improve the business case for investment in DSR.10 As it
currently stands, Idaho Power's shareholders have invested millions of dollars in
Custom Efficiency projects that are currently providing benefits to all customers through
cost-effective energy savings, yet have not been authorized to recover their initial
investment or any return associated with that investment. Further, without an approved
carrying charge for this asset there is no assurance that shareholders will be
compensated for the cost of capital as this asset accumulates on the Company's books.
While the Energy Efficiency Rider ("Rider") mechanism offers no opportunity for return,
shareholders are at least afforded the assurance that they will be allowed to recover
prudently-incurred expenditures in a timely manner. The delays proposed by Staff and
ICIP would leave these investment dollars in limbo with no authorization for recovery of
the initial investment, no assurance of a reasonable carrying charge that fairly
compensates shareholders for the cost of capital, and no approved mechanism to allow
shareholders a fair return on investment. In effect, this would not only fail to improve
the business case for investment in DSR, but actually worsen the already-inferior
position of DSR relative to SSR within the context of the Company's overall business
model.
C. The Company's proposed four-year amortization period Pro perly reflects
the unique characteristics inherent to demand-side resources.
Both Staff and ICIP believe that the Company's application of a four-year
amortization period is inappropriate. On page 4 of Comments, ICIP states, "Idaho
10 Direct Testimony of Matthew Larkin, Case No. IPC-E-12-24, p. 2, II. 14-18.
IDAHO POWER COMPANY'S REPLY COMMENTS -7
Power offers no reasonable rationale for a four-year amortization period of the value of
this regulatory asset." Staff notes on page 5 of its Comments:
When the Matching Principle is applied to fixed assets,
depreciation expense applied to the asset is determined
and matched with the projected life of the asset. The
same would hold true for the Custom Efficiency program
and its amortization expense in order to have treatment
similar to supply-side resources.
The Company believes that the concepts proposed by both Staff and ICIP fail to
recognize the inherent differences between DSR and SSR. While the Matching
Principle discussed by Staff is appropriate for Company-owned assets, the Company
does not believe that the same principle should be applied to DSR when the assets are
not Company-owned and the Company possesses no marketable value throughout the
life of the program. As stated on page 19 of the Direct Testimony of Matthew T. Larkin,
lines 1-4, "This lack of ownership makes investment in DSR inherently riskier than
investment in supply-side resources because the assets on the Company's books are
not backed by physical property." In order to fully level the playing field between these
varying resource types, these inherent differences must be recognized through unique
ratemaking treatment. The Company believes that increasing the amortization period to
coincide with the useful life of the customer-owned projects does not recognize this
inherent difference and is counter to the overall objective of leveling the playing field
between DSR and SSR from a business evaluation perspective.
D. The full rate of return is fair compensation for prudent shareholder
investment in DSR.
Absent the Company's proposed capitalization of Custom Efficiency incentive
payments, investment in DSR shifts the entirety of risk to shareholders without providing
IDAHO POWER COMPANY'S REPLY COMMENTS -8
any opportunity for return. Under the Rider mechanism, shareholders invests millions of
dollars in cost-effective DSR projects in the hope that recovery will be authorized in a
timely manner. Investment in DSR is then subject to extensive prudency review on an
annual basis, and under a best-case scenario expenditures are deemed prudent and
recovery is authorized through the Rider balancing account. If expenditures are
deemed imprudent, the Company must write-off these amounts without any further
avenue for recovery, resulting in a direct negative impact on shareholders. Customers,
however, are afforded no risk, yet receive the benefits of the shareholders' investment
in these resources. This business model is asymmetrical and does not effectively align
the interests of customers with those of the Company's shareholders. The Company's
proposal attempts to remedy this issue by allowing shareholders a fair return on
investment in DSR in a manner that adds an element of symmetry to the recovery of
these assets in a fair and equitable manner.
E. Allowing shareholders to earn a fair rate of return on investment in DSR
aligns the recovery of this investment with the standard framework of
regulatory ratemaking.
On page 8 of their Comments, Staff states, "Given [the Company's] admission
that DSR is the resource of choice for all stakeholders, and the directive of this
Commission to pursue all cost-effective DSM, Staff believes it is inappropriate to
provide the Company extraordinary customer-funded incentives for operating a program
that it has already been operating for years without incentive." The Company
respectfully disagrees with Staffs belief that because the Company has been ordered
IDAHO POWER COMPANY'S REPLY COMMENTS -9
by the Commission to pursue all cost-effective DSM,11 that shareholders should not be
allowed a fair return on their investment in these resources. Within the fundamental
regulatory framework, a utility has the obligation to serve customers within its service
area. To meet this obligation the utility makes prudent investments on the customers'
behalf and in exchange is allowed a fair rate of return on its investment. Expenditures
in resources are subject to Commission review, and once deemed prudent are
authorized for inclusion in rates. The Company is proposing in this case to allow
shareholders to earn the same return on DSR that is afforded to SSR. This proposal
does not provide "extraordinary customer-funded incentives," but rather the same
Commission-authorized fair rate of return that is applied to the Company's investment in
SSR.
F. Idaho Power does not have an incentive for its Demand-Side Management
("DSM") programs to be unsuccessful in reducing electricity sales.
On page 3 of Comments, lClP states, "Given that economic reality and the
substantial amounts of money involved, ICIP continues to assert that the Commission
investigate a system whereby Idaho Power's DSM programs are operated by a third
party that does not share Idaho Power's incentive for DSM programs to be unsuccessful
in reducing electricity sales." The Company strongly disagrees with this statement by
ICIP for a number of reasons.
First, the Company has been ordered by this Commission to pursue all cost-
effective DSM,12 and to date has been commended for its commitment to energy
Order No. 30201 at 12, Case No. IPC-E-06-09.
12 Order No. 30201 at 12, Case No. IPC-E-06-09.
IDAHO POWER COMPANY'S REPLY COMMENTS -10
efficiency. 13 To fail to pursue all cost-effective DSM in an effective manner would be a
direct contradiction to a Commission-ordered requirement.
Second, investment in DSM programs is subject to thorough regulatory review,
and only amounts that have been deemed prudent are authorized for recovery in rates.
Failure to prudently invest in DSM programs, or the determination of imprudent
investment or action, results in a write-off having a direct negative impact on
shareholders.
Third, in the event that the Company must construct a new supply-side resource
to meet the electrical needs of its customers, the Company's comprehensive resource
strategy (including the pursuit of DSR) is heavily scrutinized to ensure that the proposed
investment is needed and in the public interest. This was apparent in the Company's
Application for a Certificate of Public Convenience and Necessity related to its Langley
Gulch power plant, Case No. IPC-E-09-03. The Company's DSM strategy was
examined in that case by all stakeholders, and the Commission ultimately found in
Order No. 30892 that "(1) the Company has been aggressively pursuing cost-effective
demand-side management (DSM) options since the Commission issued Order No.
30201" and "(2) that it has implemented its DSM programs as quickly as reasonably
possible.04 The Company is convinced that a lack of a strong commitment to the pursuit
of cost-effective DSM would negatively impact its ability to gain regulatory approval for
the construction of supply-side resources.
G. Divesting DSM programs to a third-party would not be in the public
interest.
13 Order No. 32217 at 4, Case No. IPC-E-1 0-27.
14 Order No. 30892 at 22, Case No. IPC-E-09-03.
IDAHO POWER COMPANY'S REPLY COMMENTS -11
As stated above, ICIP believes the Commission should investigate a scenario in
which the utility divests all of its DSM programs to a third-party administrator. The
Company believes that ICIP's recommendation to explore the merits of a third-party
DSM administrator goes beyond the scope of this docket. The Company's request in
this case involves the appropriate regulatory treatment of DSM program costs that have
already been identified by the Commission as having been prudently incurred.
Notwithstanding that view, the Company feels strongly that such a scenario would not
be in the public interest, and that Idaho Power is best-positioned to administer its DSM
programs in an efficient manner. In the Company's opinion, divesting its DSM programs
would be counter to the interest of the public, and negatively impact program design,
implementation, and overall customer satisfaction.
Due to its unique position as the provider of electricity throughout its service
area, Idaho Power is able to leverage its existing relationships with customers and its
nearly 100 years of experience in meeting the electrical needs of its service area to
efficiently implement cost-effective DSM programs in a manner that has proven to be
rewarding for both the Company and customers. For example, the Company is able to
include DSM as part of its overall Integrated Resource Planning ("IRP") process
leveraging organizational expertise and other administrative efficiencies. In addition, the
Company has direct relationships with its industrial and large commercial customers
through its Major Customer Representatives ("MCR"). Combining the expertise of the
Company's energy efficiency staff with its network of MCR5 creates an efficient and
effective network to promote energy efficiency. Further, customer satisfaction data also
demonstrates the Company's ability to offer and implement DSM programs that are
valued by customers. Through the implementation of its DSM programs, the Company
IDAHO POWER COMPANY'S REPLY COMMENTS -12
has experienced high satisfaction ratings among program participants. The Company is
confident that a third-party is not likely to possess this knowledge or experience, and
would not be able to offer or promote DSM programs to the Company's customers as
efficiently or effectively as Idaho Power.
III. CONCLUSION
The Company believes that its proposal in this case offers a fair, reasonable, and
transparent mechanism through which the business case for investment in DSR is
improved. For reasons stated above, the Company believes it is appropriate for the
Commission to make a determination regarding the proper carrying charge and
amortization period for this asset in the current single-issue case, and that delaying
decision until a general rate case would provide no additional information to enhance
the Commission's ability to make a determination. The Company believes its proposal
aligns the interests of customers and shareholders, and allows the business case for
investment in DSR to improve by allowing shareholders a fair return on their investment
in this cost-effective resource.
DATED at Boise, Idaho, this 11 th day of February 2013.
LISA D. NORDSTOM
Attorney for Idaho power Company
IDAHO POWER COMPANY'S REPLY COMMENTS -13
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 11 th day of February 2013 I served a true and
correct copy of the within and foregoing IDAHO POWER COMPANY'S REPLY
COMMENTS, upon the following named parties by the method indicated below, and
addressed to the following:
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X Email weldon.stutzmanDuc.idaho.1ov
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Commission Staff
Weldon Stutzman
Deputy Attorney General
Idaho Public Utilities Commission
472 West Washington (83702)
P.O. Box 83720
Boise, Idaho 83720-0074
Industrial Customers of Idaho Power
Peter J. Richardson
Gregory M. Adams
RICHARDSON & O'LEARY, PLLC
515 North 27th Street (83702)
P.O. Box 7218
Boise, Idaho 83707
Dr. Don Reading
6070 Hill Road
Boise, Idaho 83703
Idaho Conservation League
Benjamin J. Otto
Idaho Conservation League
710 North Sixth Street
Boise, Idaho 83702
Micron Technology, Inc.
Frederick J. Schmidt
Jacqueline B. Rombardo
Brian T. Hansen
Pamela S. Howland
HOLLAND & HART, LLP
777 East Williams Street, Suite 200
Carson City, Nevada 89701
IDAHO POWER COMPANY'S REPLY COMMENTS -14
Richard E. Malmgren
Senior Assistant General Counsel
Micron Technology, Inc.
800 South Federal Way
Boise, Idaho 83716
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X Email remalmcirencämicron.com
ElizaWS Pay Legal Assistant
IDAHO POWER COMPANY'S REPLY COMMENTS -15