20130424Comments.pdf

WELDON B. STUTZMAN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
P0 BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3283
2 L, P4 . 3; -- J
- ......
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-13-06
AUTHORIZATION TO IMPLEMENT FIXED )
COST ADJUSTMENT (FCA) RATES FOR ) COMMENTS OF THE
SERVICE EFFECTIVE JUNE 1, 2013 THROUGH) COMMISSION STAFF
MAY 31,2014. )
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. 32778 on
April 3, 2013, submits the following comments.
BACKGROUND
On March 15, 2013, Idaho Power Company filed an Application to implement Fixed Cost
Adjustment (FCA) rates for electric service effective June 1, 2013 through May 31, 2014. The
FCA is a mechanism that allows Idaho Power to separate a portion of revenue to pay fixed costs
normally recovered in its volumetric energy sales, and it provides symmetry through a surcharge
or credit when fixed-cost recovery per customer varies above or below a Commission-
established base. The FCA rates are identified in tariff Schedule 54 and are applicable to the
residential and small general service customer classes.
STAFF COMMENTS 1 APRIL 24, 2013
The FCA mechanism functions by first identifying an authorized fixed-cost recovery
amount for the residential and small general service customer classes. This amount is a product
of the actual number of customers in each class multiplied by the fixed-cost per customer rate,
which is established as part of determining the Company's revenue requirement in its most
recent general rate case. The authorized recovery amount is then compared to the amount of
fixed costs actually recovered by the Company, which is determined by multiplying the weather-
normalized sales for each class by the fixed-cost per energy rate, also established in the
Company' most recent rate case. The difference between the authorized fixed-cost recovery
amount and the actual fixed costs recovered results in an adjustment each year to the FCA rate.
The Company's Application states there is a 2012 FCA balance of $8,362,974 for the
residential class and $533,387 for the small general services class, for a total amount to be
recovered of $8,896,361. The FCA deferral balance is a small decrease below the FCA balance
currently collected in customer's rates. Accordingly, the Company proposes an FCA rate
decrease of 0.30% for both the residential and small general service customer classes.
STAFF REVIEW
Staff has reviewed the Company's filing and supporting testimony from Company
witness Harris, verified the calculation and use of the fixed cost per customer (FCC) and fixed
cost per energy (FCE) components, the accumulation of fixed costs deferred in 2012 and the
resulting balance of uncollected fixed costs. Staff verified that sales per customer for both
residential and small commercial classes were lower in 2012 in relation to the base year
established in the Company's 2011 general rate case. The result is that weather normalized
actual sales were below the necessary level to collect authorized fixed costs. As such, Staff
recommends that the Commission accept the Company's proposed net FCA deferral balance of
approximately $8.9 million and subsequent residential and small commercial FCA rates for the
2013 PCA year.
2012 FCA
The FCA operated under pilot status for three years beginning in 2007, and was then
extended for an additional two years to evaluate issues raised by Staff and other parties. See
Order No. 31063. The pilot was subsequently approved as a permanent program (Order No.
32505) by the Commission 'as is', stating "annual reviews of the FCA results may suggest a
STAFF COMMENTS 2 APRIL 24, 2013
clearer refinement so it more accurately responds to changes in energy sales resulting from DSM
programs." See Order No. 32731, p. 4. The Company's current filing represents the sixth FCA
rate adjustment and the first since the Commission approved the mechanism as a permanent
program.
Residential and small commercial use per customer continued to decline when compared
to 2011 normalized consumption. For 2012, the residential class grew by roughly 1% while
class energy consumption remained flat. The decline in residential use per customer, as shown
in the graph below, results in an under recovery of authorized fixed costs and a positive FCA
deferral balance.' For the small commercial class, the Company had a net loss of 184
customers, an approximate reduction of 0.7% from 2011, and a decline in class energy sales of
roughly 1.9%. The comparative base use per customer was updated in the Company's 2011
general rate case, which resulted in a greater deviation from "allowed" sales relative to the year-
to-year consumption decline. The net result is the fifth year out of six in which the blended FCA
balance will result in a surcharge to customers, although a reduction to the one currently in place.
Residential Use Per Customer and FCA Balance
1,070 .................................................................................................................................................................... $10,000,000
1,060 .... $8,000,000
1,050 ........ - ............................ $6,000,000
1,040 . .... ........................................................ $4,000,000
kWh/month FCA Balance
1,030 ..1 ......... .. $2,000,000
1,020
........
1,010 j......... - ... $(2,000,000)
1,000 .1. . ... $(4,000,000)
2007 2008 2009 2010 2011 2012
Use Per Customer N FCA Balance
'The data for the graph was compiled from the FCA summary calculations filed with the previous annual FCA rate
filings.
STAFF COMMENTS 3 APRIL 24, 2013
The 2012 FCA deferral balance is $1.4 million less than the balance from 2011.
Generally there is an inverse relationship between use per customer and the FCA balance - when
use per customer decreases, the FCA balance increases and vice versa. Other things being equal,
a decrease in use per customer for a class would result in a higher level of under recovered fixed
costs. That is not the case for the 2012 FCA balance. Residential use per customer continued to
decline (1% between 2011 and 2012), but the FCA balance also declined relative to last year.
The net change in small commercial use per customer was relatively small (1.3%), but is not
reflected in the magnitude of its class-specific balance.
The FCA balance declined due to the updating of base use per customer assumptions and
the FCC/FCE as a result of the Company's 2011 general rate case. The FCA compares the use
per customer for the deferral year against the base year. The FCA balance is essentially the
product of the FCE, the reduction in use per customer, and the number of customers for the year.
The 2011 rate case adjusted the base residential use per customer downward from the level set in
the 2008 general rate case by 28 kWh/customer/month. For 2012, the difference between base
and actual residential use per customer per month was 33 kWh. Had 2012 sales been compared
to the previous base of 1,078 kWh/customer/month set in the 2008 general rate case (i.e., if the
2011 rate case had not occurred), the difference would have been 61 kWh/month, adding an
additional $4.7 million to last year's deferral balance assuming the FCC and FCE had not
changed.
Because the base use per customer was recently updated, it should be expected that the
FCA deferral balance would be minimal. However, the 2012 residential FCA balance is nearly
equal to last year's balance, even though 2011 is three years removed from the previous base
year. This is mainly due to the difference between the forecasted use per customer from the rate
case and the actual use per customer. The 2011 rate case produced an average residential use per
customer of 1,050 kWh/month, as well as the customer and energy values used to calculate the
FCC and FCE. Residential use per customer was 1,017 kWh/month in 2012, a difference of
nearly 400 kWh per customer for the year. This reduction from the base residential use per
customer set in the 2011 rate case accounts for approximately $5.6 million of the $8.4 million
2012 deferral balance. Likewise, the difference between the Small Commercial use per customer
of 428 kWh/month set in 2011 and the actual 2012 use per customer of 415 kWh/month accounts
for approximately 75% of the commercial deferral balance.
STAFF COMMENTS 4 APRIL 24, 2013
The 2011 rate case also prompted an update to the FCC and FCE, contributing to the
reduction in the FCA balance. Fixed costs grew between the 2008 and 2011 general rate cases at
a greater rate than residential customer growth. Class energy use was basically flat. Since sales
growth was slower than customer growth, spreading the updated fixed costs over projected sales
and customer counts caused the FCE to increase at a greater rate than the FCC, up 48% over the
existing FCE compared to 44% for the FCC. While the opportunity cost of a kWh not sold is
higher (making up the remaining $2.7 million residential FCA balance), the fixed cost revenue
generated in the sale of each kWh is greater than prior years. The end result is that, although
allowed fixed costs increased (by 44%), actual fixed cost collected in energy rates increased at a
greater rate (48%) even though residential sales were flat. All else being equal, had the FCC and
FCE not been updated, the residential FCA balance would have been over $10 million, not $8.4
million as the Company currently seeks to recover.
The results from the current FCA highlight the interplay of the mechanism's inputs and
the role of updated base assumptions. During periods in between rate cases, sales and customer
counts are the only moving parts, and changes in use per customer would be predictive of a
positive or negative FCA balance. When basic inputs change as a result of a general rate case,
additional analysis is needed to decipher what is driving the deferral balance. In this instance, a
combination of baseline use per customer values and relative rates of change in the FCC and
FCE work to simultaneously inflate and mitigate the deferral balance relative to what it would
have been had there not been a recent general rate case.
Idaho Power DSM Savings
Idaho Power's residential energy savings have fallen by approximately 45% in the last
two years. Staff expects that the ongoing implementation of federal lighting standards will
significantly diminish the energy savings produced by the Company's upstream lighting
program, which currently provides 71% of the Company's residential energy savings. Declining
avoided costs identified in the 2013 IRP process and proposed withdrawal from NEEA will
further reduce the Company's residential and small commercial energy savings.
Staff calculated that the Company's DSM programs accounted for about 43% of the
reduction in sales covered by the FCA in 2008, the highest percentage over the period since the
introduction of the FCA. Using the same methodology, Staff calculated that programmatic
savings made up only 25% of reduced residential energy sales in 2012.
STAFF COMMENTS 5 APRIL 24, 2013
The FCA Rate
The Company proposes spreading the FCA surcharge uniformly to both customer
segments on an equal percentage basis, consistent with the previous FCA filings. Using weather-
normalized forecasted sales for June 1, 2013 through May 31, 2014, the Company calculates that
a surcharge of 2.12% over current residential and small commercial base rates provides a
sufficient opportunity to recover approved fixed costs. Staff confirmed that the proposed sales
levels are consistent with the forecast used in the Company's 2013-2014 PCA filing.
Staff verified the Company's calculation of unrecovered 2012 fixed costs for the
residential and small commercial classes. The deferral balance of $8.4 million for residential
customers represents over 2% of class revenues. The deferral balance of $0.53 million for small
commercial customers represents nearly 4% of class revenues, which is above the 3% cap
established by the Commission. If the recovery amounts for each class were allocated
separately, residential customers would receive a surcharge of 0.1837 cents per kWh, a 9%
decrease over the current FCA rate of 0.2028 cents per kWh. The small commercial customers
would receive a 0.3720 cents per kWh surcharge were the balance not blended, representing an
increase of over 43%.
Based on expected sales and revenues for the 2013 PCA year, Staff has calculated that
the 3% cap for small commercial customers would have resulted in a rate of 0.3131 cents per
kWh, recovering only $448,868 of the unblended balance, with the remainder deferred for future
collection. Staff notes that the small commercial deferral balance has exceeded the class-specific
rate adjustment cap each year since the beginning of the FCA.
If the proposed rates are approved by the Commission, the residential FCA rate would
decrease from 0.2028 cents per kWh to 0.1770 cents per kWh. For a residential customer
consuming 1,050 kWh per month, this results in a decrease of approximately 27 cents per month
over the current FCA charge. For commercial customers using 415 kWh per month, the
proposed FCA rate of 0.2262 cents per kWh results in a monthly decrease of approximately 14
cents. Staff believes these rates give the Company an adequate opportunity to collect its
authorized fixed costs in the coming FCA year.
STAFF COMMENTS 6 APRIL 24, 2013
Customer Notice and Press Release
The Customer Notice and Press Release were included in Idaho Power's Application.
Both comply with Procedural Rule 125, IDAPA 31.01.01.125. The Customer Notices were
mailed to Idaho Power customers with cyclical billings beginning March 25, 2013 and ending
April 23, 2013. Customers were given until April 24, 2013 to file comments. As of April 19,
2013, no comments had been filed. Because the final Customer Notices were not inserted in bills
until April 23 and the final comment date was April 24, some customers in the last cyclical
billing cycles will not have received their notices and/or had adequate time to submit comments
before the deadline.2 Because this year's FCA results in a slight reduction to customer rates, it is
less likely customers will object to the proposed rate changes. However, customers must have
the opportunity to file comments and have those comments considered. In this instance, Staff
encourages the Commission to consider any late-filed comments from customers.
STAFF RECOMMENDATIONS
Staff recommends the Commission approve the Company's FCA filing with a net
deferral balance of positive $8,896,362 for 2012. Based on the Company's best sales forecasting
efforts, the resulting FCA rates for the 2013-2014 period would equal 0.1770 cents per kWh for
residential customers and 0.2262 for small commercial customers. Staff believes these rates
provide adequate opportunity for the Company to collect its deferred authorized fixed costs.
Respectfully submitted this 2.4 kay of April 2013.
GL/f-- - Weldon B. Stutzman
Deputy Attorney General
Technical Staff: Bryan Lanspery
Marilyn Parker
Stacey Donahue
I :umisc:comments/ipce 13 6wsblmpsd comments
2 According to Idaho Power, a total of about 46,000 residential and small commercial customers are in the last three
billing cycles. Bills for these three cycles will be mailed on April 19, 20 and 23.
STAFF COMMENTS 7 APRIL 24, 2013
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 24TH DAY OF APRIL 2013,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. IPC-E-13-06, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
LISA D NORDSTROM
REGULATORY DOCKETS
IDAHO POWER COMPANY
P0 BOX 70
BOISE ID 83707-0070
E-MAIL: [e-mail]
[e-mail]
ZACHARY L HARRIS
GREG SAID
IDAHO POWER COMPANY
P0 BOX 70
BOISE ID 83707-0070
E-MAIL: [e-mail]
gsaididahopower.com

CERTIFICATE OF SERVICE