20120315Reply Comments.pdf

Benjamin J. Otto (ISB No. 8292)
710 N 6th Street
Boise,ID 83701
Ph: [phone] x 12
Fax: [phone]
bottoCPidaoconservation.org
RECEIVED
2011 MAR 15 PM 3= 16
J
Attorney for the Idao Conservtion Lee
BEFORE THE IDAHO PUBliC UTIUTES COMMISSION
IN THE MAlTR OF TH )
APPliCATION OF IDAHO POWER )
COMPANY FOR AUTHORIT TO )
CONVRT SCHEDULE 54-FIXD )
COST ADJUSTMENT-FROM A PIWT )
SCHEDULE TO AN ONGOING, )
PERMANENT SCHEDULE )
CASE NO. IPC-E-1l-19
REPLY COMMENTS OF TH IDAHO
CONSERVATION LEGUE
The Idao Conservtion League (ICL) hereby replies to the Staff proposal, which would reduce the
value of the curent Fixed Cost Adjusment (FCA) to ratepayers without any correspondig
benefits. ICL acknowledges that the priary reason to initiate the FCA pilot was to remove a
company-identifed disincentive towards energ efficiency.' But capturg al non-weather related
changes in consumption, as the curent FCA does, delivers additional benefits beyond removig
this disincentive. Staff acknowledges the curent FCA break the linkage between Idao Power's
financial health and its retai electric saes.2 'Wether intended or not, the Company, and by
extension ratepayers, derive two additional benefits from breakg this linkage: (1) mitigating the
risk of fixed costs recovery, and (2) creating a strong incentive for the utilty to control costs on a
daly basis. Instead of sharg these benefits with ratepayers, the Staff proposa would eliminate
them. The Commission ca best align the interests of the utilty and ratepayers, and maximize
the benefits of the FCA, by approvig the curent mechaism.
i Staff Comments at 3; Order 30267 at 13. .
2 Staff Comments at 3.
ICL Reply Comments
IPC-E-II-19
1 March 15, 2012
ICL agrees with some of the Staff proposa. Maitaiing the 3% cap on FCA rate
adjusments is an important protection for ratepayers. Combining the FCA with the PCA on
customer bils into an "Annua Adjustment Mechaism" lie item increases clarity. And the
annua DSM report is the best venue to document the Company's commitment to energy
effciency. However, ICL digrees with Staffs proposa to shae fixed costs recovery. In support
of their proposa Staff raes four mai "shortcomings": (1) the scope of the curent FCA, (2)
dealing with new customers, (3) potential cross-class subsidies, and (4) spurg investment in
energ effciency.3 As explaied below, none of these issues support changig the curent FCA.
Staffs priar concern is that the FCA captures al non-weather related changes in
consumption.4 Whe true, the Commission should maitai this structure becaus it provides
two additional benefits beyond removig the disincentive towards energ efficiency-mitigating
risks and incenting cost controls. The National Association of Reguatory Commissioners
recognizes that "decouplig can reduce rik for the utility by ensurg that its revenues and retur
on investment remain stable."5 The Commission recognized the FCA would stabilize fixed cost
recovery when initiating the pilot.6 Idao Power admits this benefit in this case.7 Moody's
Investor Servces recently reviewed more tha a decade of decoupling in California and concluded
these mechanisms reduce gross profit volatilty and strengthen long-term credit.8 Capturg all
non-weather related changes in consumption maximizes the vaue of the FCA as a risk mitigation
3 Staff Comments at 4 -7.
4 ¡d. at 4.
5 NARUC Decoupling for Electric and Gas Utilities: Frequently Asked Questions at 9, (2007)
6 Order 30267 at 13 ("The annua FCA true-up mechanism assures a more stable utilty recovery of
fixed costs that are now recovered in the energy rate component(.)")7 Cavaagh Direct at 4; Youngblood Direct at 12.
8 See Exhibit 2, SNL Financial LC, Moody's: Decoupling is positive for utility company credit ratings,
(November 11, 201l)(Ths aricle describes the findigs of a Moody's report published on
November 4,2011. The report is avaable to purchase for $550. As a non-profit orgaization,
ICL has insufficient means to purchase the ful report.)
ICL Reply Comments
IPC-E-II-19
2 March 15,2012
too1.9 Instead of sharg thi benefit with ratepayers the Staff proposal cuts it in half and leaves it
with the Company.
Instead of reducing the vaue of the FCA, the Commission can ensure ratepayers share in
this benefit. In our opening comments, ICL proposed that the best way to share this benefit is by
reducing Idao Power's capital ratio. Whe we stand by this recommendation, we also
acknowledge that other risk mitigation factors influence the magnitude and timing of this kid of
change. For instance, the FCA is one par of a broader package of risk mitigation tools that
includes the Power Cost Adjustment and the binding ratemakgtreatment in i.e. § 61-541.
Accordigly the Commission can share the risk mitigation value with ratepayers in this case, in
any of the six other pendig cases that impact rates, or in the next general rate cae. '0 But the
FCA is only vauable as a risk mitigation tooÎ, regadless of when and how the Commission decides
to share this benefit, if the FCA continues t~ capture al non-weather related changes in
consumption. Beyond removig the disincentive towards energy efficiency, maximizing the risk
mitigation vaue is a separate reason to reject the Staff proposal and approve the curent FCA.
The curent FCA also benefits ratepayers by providig a powerful incentive to control
costs. The FCA, by fixing revenue, severely restricts Idao Power's abilty to increase revenue by
increasing saes. II Idao Power acknowledges this by describing their "sacrifice of the upside from
increased electricity sales" as an offset for "increased certaity about recovery of authoried
costS."12 Ths cost control incentive is not aimed at controllng additions to rate base.13 Rather, by
establishig a cap on fixed cost recovery between rate cases the FCA focuses the utilty on day
9 Normalizing saes mitigates the risk caused by weather related changes, but only the FCA captures
changes due to customer counts, customer consumption, and the economy.io See IPC-E-12-06, -07, -08, -09, -13, -14, (IPC-E-12-14, Inclusion of Lagley Gulch, is likely the
most appropriate of these six caes.).II See NARUC at 9; Reguatory Assistance Project, Revenue Regulation and Decoupling: A Guide to
Theory and Application at 45 - 46, (June 2011).12 Cavaagh Direct at 4. '
13 See ICL Comments at 3.
ICL Reply Comments
IPC-E-1l-19
3 March 15, 2012
activities that can reduce actua cost below the cap. Whe the utilty enjoys the immediate
benefits of reducing costs, these benefits wi flow to ratepayers in the next rate cae. The staff
does not mention this cost control incentive, but their proposa would cut thi benefit in half.
Restricting the FCA to only 50% of the foregone fixed costs weakens the incentive to
control costs and increass the incentive to promote saes. Whe this might benefit ratepayers in
the short term durg times of declining saes, it has ratepayers when loads are increasing.
Counter to Staffs comment, the curent FCA does not penalize Idao Power when loads
increase.14 Rather the FCA establishes a limit on fixed costs recovery and returs to ratepayers over
collections due to increased saes. Idao Power states the "penalty" of missing the upside of
increased saes is offset by certaity in recoverig fixed costS.15 The Staff proposa would reduce
this certaity and penalize ratepayers when sales increase by alowig Idao Power to keep 50% of
the over collected fixed costs. Furher, the Staff proposal cuts in haf the incentive to control
costs. Beyond removig disincentives towards energ efficiency and mitigating risks, maintaiing
a strong cost control incentive is a separte reason to reject the Staff proposal and approve the
curent FCA.
In regards to new cusomers, ICL reiterates it is not clear there is a meaningful diference
between new and existing cusomers.16 Staff seems to agree by speculating that new customers
may add costs "higher than that embedded in rates," or "viuay no additional fixed costs.'''
Despite this uncertaity, and without referrg to any ~data, Staff then states they believe new
customers add a different amount of fixed costs then those contaied in the curent mechanism.18
The problem aleged by Staff is this alows the Company to recover "a higher level of class fixed
14 Staff Comments at 5.
15 Cavanagh Direct at 4.
16 ICL Comments at 10.
17 Staff Comments at 5 - 6.
18 Id. at 6.
ICL Reply Comments
IPC-E-1l-19
4 March 15, 2012
costs that what was approved in the rate case. "19 Whe this may be true, it is also true the
Commission approves the fixed cost per customer and fixed cost per energy before the Company
collects anythig throug the FCA. Whe the FCA may increase the class revenue, the Staff does
not provide any evidence that it increases the authorized fixed revenue per customer beyond that
approved by the Commission.
Furher, the Staff proposal does not diectly address this potential issue. If the
Commission agrees the potential difference between new and existing customers warts
investigation a better venue is throug the cost of servce study in the next rate case. Then, if
necessar, the paries car use actua 'data to refine the FCA at a future time. Ths solution, as
opposed to the Staff proposa, diectly addresss this issue and does not eliminate the benefits of
the curent FCA mechanism.
Staff also argues the FCA fais to minimize cross subsidies across customer class.20 Whe
the Commission should avoid cross subsidies, this is a larer issue that the FCA ca correct. In the
recent general rate case the paries could have reduced cross-subsidies revealed in the cost of servce
model, but choose not to in favor of reachig settlement.21 Staff also points to the
"disproportionate amount of DSM rider revenue generated by the residential class.,,z2 ICL agrees
with Staff this issue warts attention.23 But the proper solution is to expand residential
progrs, not weaken the curent FCA and parialy reinstitute the disincentive towards energ
savings in this customer class. Finaly, despite rasing the cross-subsidy issue Staff continues to
imbed this withi the FCA by blendig the deferr balance for both residential and commercial
19 Id. (emphasis in the origial).
20 Staff Comments at 6.
21 Order 32426 at 8, (ICL paricipated in this cae and agreed to this outcome).
22 Staff Comments at 6.
23 See Order 32113 at 3, 6, IPC-E-IO-09 (Prudency of 2008-2009 DSM spendig); Order 32331,
IPC-E-ll-05 (Prudencyof2010 DSM spendig).
ICL Reply Comments
IPC-E-1l-19
5 March 15, 2012
clases.24 ICL agrees with Staff that cross-subsidies "is more appropriately at cost of servce issue
and should be addressd by the Company in its next rate ca."25 Th issue, whie important, does
not support changig the curent FCA, other tha to stop blendig the deferr balance, which is a
Staff sactioned cross-class subsidy.
Finaly, Staff argues the curent FCA may not be spurg greater investment in energy
effciency.26 However, Staffs recognition that growig energy savigs in the residential class is on
par with the indusrial class belies this arent.27 The classes not included in the FCA have rate
designs with customer, demand, and energ chares that more fuly separte fixed costs from
vaable costs. The FCA trades this typ of rate designJor a tru up mechaism to accomplish this
same objective in the residential and smal commercialclases.28 Furher, these classes are
traditionaly the hardest in which to acquie energ efficiency due to the wide diversity of
individuas and the small savigs per cusomers. Whe savigs in the commercial sector outpaced
the residential class, Staff admits they canot distingush savigs attributable to smal commercial
from lare commercial customers.29 As for the residential class, the fact that growth in energy
savigs ha been on par with savigs in the indusrial class is a testament to the efficacy of the
FCA. Regadless, Staffs proposal to weaken the FCA does not address thi perceived problem.
Rather it is likely to haper the Company's incentives to pure the "considerable amount of cost-
effective achievable energy effciency cited by Staff.3O
24 Staff Comments at 7.
25 Staff Comments at 6.
26 Staff Comments at 7.
27 Id.
28 See Gale Direct at 3-5, IPC-E-04-15, (Mr. Gale explais the Company initialy resisted the FCA
"believig that signifcat movement in the rate design would address the same issues that a true-up mechanism would") "29 Id. (Whe staff states the smal commercial class is 3% of the whole, they do not indicate
whether the savigs in this sector is evenly portioned between the two rate class.)30 Staff Comments at 7.
ICL Reply Comments
IPC-E-1l-19
6 March 15, 2012
The curent FCA provides three ditinct benefits. Al paries agree that it removes the
inherent disincentive towards energy efficiency. ICL notes this also holds true for other actions
that impact sales such as customer owned distributed generation. The curent FCA delivers a
separte set of benefits by incenting cost control and mitigating risks. Ths second set can only be
realized by continuig to capture al non-weather related changes in fixed costs recovery. The
Staff proposal, instead of sharg these benefits, severely impairs them, without addressing any of
the aleged ((shortcomings" they identify. Approvig the curent FCA maximizes these benefits
whie allowig the Commission to diectly address the potential isues in other forus. Mitigating
risks should reduce the cost of capital and ratepayers can share in this immediately or in future rate
cases. Ratepayers directly benefit by aligning utilty financial interests with ratepayers interest in
controlling their own energy bils and the utilty's costs. Instead of cutting the FCA in haf,ICL
urges the Commission to approve the curent FCA and ensure ratepayers share in these benefits.
Respectfuly submitted this 15th day of March, 2012
Øi&
Benjamin J. Otto
Idao Conservtion League
ICL Reply Comments
IPC-E-1l-19
7 March 15, 2012
Benjamin J. Otto (ISB No. 8292)
71 0 N 6th Street
Boise,ID 83701
Ph: [phone] x 12
Fax: [phone]
bottoCPidaoconservtion.org
Attorney for the Idao Conservtion Le
BEFORE THE IDAHO PUBliC UTIliTIES COMMISSION
IN THE MAlTER OF TH )
APPliCATION OF IDAHO POWER )
COMPANY FOR AUTHORITY TO )
CONVRT SCHEDULE 54-FIXD )
COST ADJUSTMENT-FROM A PIWT )
SCHEDULE TO AN ONGOING, )
PERMANENT SCHEDULE )
CASE NO. IPC-E-1l-19
REPLY COMMENTS OF TH IDAHO
CONSERVATION LEAGUE
Exbit 2
SNL Financi LC
Moody's: Decoupling is positive for utility company credit ratings
(November ll~ 2011)
ICL Reply Comments
IPC-E-11-19
March 15, 2012
o
~:~SNL SNlIancial
Friday, November 11, 201111:41 AM MT :::'Exlusive
Moody's: Decoupling is positive for utilty company credit
ratings
By Abby Grun
Deupling in california ha strengthe the longter creit of a numbe of utilitie by reducing their prfit groh volatilty,
according to a reent Moo's rep,
Utilitie facing riing costs and capital ne, and reulator haing to balance state en efciency plan wih conumer
bil fatigue, are turning mor to deoupling mechanisms as a mens to mana all-n rae increases,
"Mooy's believes an incresed use of single issue rate ride an traker, alogsid a mor proactive and wispr
adoption of energ efciency prorams, can hold a criical key to bring the ga to a 21st century busines modl,"
Moo's analyst Ryan Wobrok wre in the No, 4 rert
In Califoria, which has had deoupling for more than a dead, PG&E Co., Semor Energy subsidiar San Diego Gas &
Electric Co, and Southern california Gas Co" and Edison Intational subidiar Southem Califomja Edison Co, had les
gros prot groh volatilty than their pe over the past seven years, Moo's found,
"Deoupling, particularl whn you have low than expeed sale groh, is an impont issue, particularl beuse there
has ben evidece tha wether adjusted sales for many utilitie ha ben delining in som cases beause of conervation
efforts," Glenrock Associates LLC equit analyst Paul Paterson said, "It is on more tool in the kit to derese volumeri
risk associated wih utiltie, and it may beome more of an issue in the future."
Moo's see a geerally poitive regulator enironme for utilities, which have be able to ge siza bae rate
increases in a number of reent rae cases, Moo's pricts tha regulaor wíll graually phe in speial reover and
decoupling mechanisms in the future,
''To that end, a more deliberaive transition towrd singlesue rae ri, traker and increasing acance of varius
revenue decoupling mechanisms acorpanying ene eficienc coneration prras, would be wíde vie to be a
creit positive," Wobk wrte in the No, 4 re.
Mooy's said ofsets to bae rate increases fro lo commodit prce may be "running ther course,. and suggeted that
annual true-p prisio in decoupling rule may be a means to man consumer rate shock,
"We view these deoupling and speial rae making mechanisms to be poitive for the credit profle, no only beause they
give increased visibilit and cost recover assurae, bu also beause they can allo for mor fruet srnalle, autoratic-
type 'bites of the app' that can hep reuce rae shok poential," Wobbrk said in an interiew,
Regulator adoption has vari across the U,S. wh disparae view can divid commission, Oppnets of depling
say utilitie have more incentive to conrol costs whn the are afeced by the, Mooy'S said,
Moo's found tha deoupling did no stabilize creit raios, such as cah fl cover of interet and debt, which it
factors in to its creit raing proess, bu it did find that deupling causes prictabl gross prfi, which is a "quantitative
creit poitive."
Coyright e 2012, SNL Financial LC
Usag of th prodct is govered by the License Agreement.
SNL Financial LC, One SNL Plza, PO Box 2124, Chattvill, Virginia 22902 USA (43) 977-1600
ww.sn.com/lntraetivXlartcle.aspx?îd=1369185&Tabtates&Printable=1 1/1
Exhibit 2, ICL Reply Comments
IPC-E-11-19 March 15,2012
CERTIFICATE OF SERVICE
I hereby certify that on this 15th day of March 2012, I delivered tre and correct copies of
the foregoing REPLY COMMNTS OF TH IDAHO CONSERVATION LEAGUE to the
following via the method of service noted:
Hand deliery;
Jean Jewell
Commission Secretar (Origial and seven copies provided)
Idao Public Utilties Commission
427 W. Washigton St.
Boise, ID 83702-5983
Electonic Mai:
Idaho Power
Jason B. Wiliams
Lisa D. Nordstrom
Idao Power Company
1221 West Idao Street
Boise, Idao 83707-0070
jwiliams CPidaopower.com
InordstromCPidaopower.com
Micron
Richad E. Malmgren
Sr. Asst. Genera Counsel
Micron Technology, Inc.
800 South Federa Way
Boise. ID 83716
remalgrenCPmicron.com
Michael J. Youngblood
Zacha 1. Har
Idao Power Company
P.O. Box 70
Boise, Idao 83707
myoungbloodCPidaopower.com
zhasCPidaopower.com
Thorvald A. Nelson
Frederick J. Schmidt
Holland & Har LLP
6800 South Fiddlers Green Circle, Ste. 500
Greenwood Vilage, CO 80111
Tnelson~ollandhar.com
fschmidt~hollandhar.com
NWEC
Nancy Hirsh
NW Energ Coalition
811 1st Ave., Suite 305
Seattle, WA 98104
Ph: [phone]
nancynwenerg.com t/ z;
Benjamin J. Otto
Certificate of Serice
IPC-E-11-19 March 15,2012