20140314Z.L. Harris DI.pdf

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BEFORE THE TDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OE THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO IMPLEMENT EIXED COST
ADJUSTMENT (*FCA") RATES FOR
ELECTRIC SERVICE EROM JUNE 1-,
201,4, THROUGH MAY 31, 2075.
cAsE NO. 1PC-E-14-03
IDAHO POWER COMPANY
DIRECT TESTIMONY
OF
ZACHARY L. HARRIS
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o.
A.
o.
A.
address is 1,227 West Idaho Street, Boise, Idaho 83702.
O. By whom are you employed and in what capacj-ty?
A.I am employed by Idaho Power Company ("Idaho
Power" or "Company") as a Regulatory Analyst in the
Regulatory Affairs Department.
O. Please describe your educational background.
A. In December of 2008, I received a Bachelor of
Science degree in Accounting from Brigham Young University-
Hawaii. In December of 20LL, T received a Master of
Scj-ence degree in Accounting from Boise State University.
After becoming employed by Idaho Power in May 201-L, I
attended the electric utility ratemaking course offered
through New Mexico State Unj-versity's Center for Publ-ic
Ut j-l-ities. I al-so attended the "Cost-of -Service Concepts
and Technj-quesr " as weII as the "Rate Design for Electric
Utilities" courses offered by Electric Utility Consultants,
Inc. in 20L2.
Please state your name and busj-ness address.
My name is Zachary L. Harris and my business
What is the purpose of your testimony?
The purpose of my testimony is to describe the
Company's request to implement its annual Ej-xed Cost
Adjustment ("FCA") rates per Idaho Publ-ic Utilities
Commission ("Commission") Order No. 32505 (Case No. IPC-E-
11-19), which approved the FCA as a permanent rate
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mechanism for the Residential and Smal1 General Service
customers. The Commission's subsequent Order No. 32131 in
that case directed that. the FCA mechanism continue with its
existing methodol-ogy.
Specifically, my testimony will- discuss three areas
rel-ated to the FCA mechanism and Schedule 54, Fixed Cost
Adjustment. First, I will briefly discuss the FCA
mechanism itself and how the FCA amount is determined.
Second, I wil-l describe the determination of the 20L3 FCA
amount. Lastly, I will discuss the calculation of the ECA
rates the Company is proposing to go into effect on June 7,
20L4.
I. FIXED COST ADJUSIIIEIIT MECEAIIISM
o.
A.
What j-s the purpose of the FCA mechanism?
The FCA is a true-up mechanism that
"decouples," or separates, energy sales from revenue in
order to remove the financial disincentive that exi-sts when
the Company invests in demand-side management resources.
Under the ECA, rates for Residential Service (Schedules L,
3, 4, and 5) and Small- General- Service (Schedul-e 7)
customers are adjusted annually to recover or refund the
difference between the leve1 of fixed cost recovery
authorj-zed by the Commission in the Company's most recent
general rate case and the level- of fixed cost recovery that
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the Company received based upon the weather-normal-ized
energy sal-es during the previous calendar year.
o.Pl-ease describe the FCA mechanism.
A. For both the Residential and Smal-l- General
Service classes, the FCA mechanism is the same. The
formula used to determine the FCA amount is:
FCA : (CUST x FCC) (NORM x ECE)
Where:
FCA : Fixed Cost Adjustment;
CUST : Average Number of Customers, by class;
FCC : Fixed Cost per Customer rate, by class;
NORM : Weather-Normalized Energy, by class; and
FCE : Fixed Cost per Energy rate, by class.
O. How is the ECA amount determined?
A. The FCA amount is the difference between the
Company's l-evel of "authorized fixed cost recovery" (CUST X
FCC) and the level- of weather-adjusted "actual- fixed cost
recovery" (NORM X FCE). The "authorlzed fixed cost
recovery" is determined by multiplying the average number
of customers for the previous cal-endar year by the ECC rate
established as a resul-t of the outcome in the Company's
most recent general rate case proceeding in which the FCC
rate was set. The "actual fixed cost recovery" is
determined by multiplying the weather-normal-ized energy
sales for the previous calendar year by the ECE rate. The
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Idaho Power Company
I FCE rate was also established in the Company's most recent
2 general rate case.
O. Can the FCA true-up amount be either positive
4 or negative?
A. Yes. The FCA can be either positive or
5 negative. If the ECA was positive, that would indicate the
7 Company's authorized level- of fixed cost recovery was
8 greater than the level of fixed costs recovered through the
9 energy rate. This would stem from the fact that the growth
10 rate in weather-normalized energy was less than the growth
11 rate in customers, i.e., the use per customer had
L2 decreased. The effect wou1d be that the Company had under-
13 coll-ected its authorized l-evel of f ixed costs. In a
L4 simi1ar fashion, if the ECA was negative, that woul-d
15 indicate that the Company's authorized fixed cost recovery
L6 amount was less than the fixed costs determined to have
Ll been recovered through the energy rate and woul-d result in
18 a refund of the adjustment.
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II. FCA DETERMINATION FOR CAIEIIDAR YEJAR 2OL3
O. Did the rates for the FCC and FCE change in
A. No. The FCC and FCE rates used to determine
23 the 201,3 FCA balance are the same rates used to determi-ne
24 the 2072 ECA balance.
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O. How is the authorized level of fixed cost
recovery derived?
A.The authorj-zed l-eve1 of fixed cost recovery is
the product of the FCC and the average number of customers,
by c1ass. The monthly number of customers has historically
been determined by dividing the total- revenue received
attributable to the monthly service charge by $5, which is
the current monthly servj-ce charge for both the Residential
and Small General Service customer cfasses. This method of
quantifying customer count reflects a fractional val-ue for
customers that were only active for part of the month.
In September 2013, the Company implemented a new
Customer Relationship and Billing ("CR&B") system, which
required that the cal-culation of the prorated customer
counts be modified. Because the new CR&B system tracks and
records revenue in a different manner than the prior
billing system, it was necessary to modify the
determination of prorated customer counts to ensure the
ongoing accuracy of the ECA computations. Starting in
August 20L3, the Company began using a prorated customer
count based on the number of active meters at the end of
each month. This approach applies the same methodology
that was used to determine customer counts j-n the Company's
most recent general rate case, Case No. IPC-E-11-08. The
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annual average customer count is derived by calculating the
average of the twelve monthly prorated customer counts.
o.Does the Company compute a monthly ECA bal-ance
and periodically report the estlmated balance of the FCA
amount to the Commission?
A.Yes. To maintain compliance with Genera1Iy
Accepted Accounting Principles, a monthl-y FCA balance is
estimated and recorded on the Company's books. At year-
end, once the annual FCA amount is determined, an
adjustment is made to the sum of the 12 monthly reported
estimates of the ECA balance.
Since 2009, the Company has continued to report the
estimated FCA deferral balance in the monthly FCA report
provided to the Commission. Exhibit No. 1 is a copy of the
monthly FCA Report for calendar year 2013.
O. Were any adjustments made to these estimated
amounts once the Company's financial- books were closed at
year-end 20L3?
A. Yes. Because the monthly FCA amount is an
estimate made for accounting purposes, dD adjustment may be
needed to arrive at the final annual FCA amount. This
adjustment varies from year to year. When the Company's
financial books were cl-osed at year-end, the annual- average
customer counts and annuaf weather-normal-ized energy sales
were determined. Once these were determined, the
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"authorized fixed cost recovery" (average customer count x
FCC) and the "actual fixed cost recovered" (weather-
normalized energy X FCE) coul-d be calcul-ated.
The difference between this year-end determination
of the FCA balances and the sum of the 12 monthly reported
estimates of the ECA balances required adjustments to
arrive at the annual- FCA amount.
O. What is the total amount of the ECA, including
interest, the Company is requesting to implement j-n rates
on June !, 2074?
A.The total amount of the ECA the Company is
requesting to begin recovering in rates on June L, 20L4, is
$L4,912,442.52 reflected on line 32, column T, of Exhibit
No. 2. The ECA for the Residential- class shows
$14,339,006.18 reflected on l-ine 15, column T, of Exhibit
No. 2. The ECA for the Small- General Service class shows
$573,436.34 on l-ine 29, column T, of Exhibit No. 2.
Exhibit No. 2 shows the FCA balances and adjustments, plus
interest calculated through May 2074.
a. What is the significance of these numbers with
respect to the Company's recovery of its fixed costs?
A. Because the Residential ECA is a positive
number, it means that the average use per customer has
decreased from the l-evel established in the Company's last
qeneral rate case. Therefore, in accordance with the
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approved mechanism, the Residential class will receive an
adjustment to allow for recovery of the flxed costs that
were not collected, on a weather-normal-ized basis, through
the energy charges during the year. The same holds true
for the Small General Service class, meaning that the use
per customer for this class has also decreased, and the
Company has under-collected its authorj-zed l-evel- of fixed
costs for the Smal] General Service cIass.
Tn 20!3, the customer count for the Residential
customer class continued to increase throughout the year
The level of authorized fixed cost recovery had a direct
correl-ation with the increase in the customer count. As
customer growth increases, fixed costs al-so increase,
impacting the level- of authorj-zed fixed cost recovery.
growth in customer count exceeded the growth in the
weather-adjusted energy sa1es.
The
III. CAI,CUI,ATION OF THE FIXED COST ADITTISE!{ENT RATE
O. Please describe the calculation of the FCA
rates the Company is proposing to go into effect on June 7,
20L4.
FCA rates the Company proposes to go intoA. The
effect on June L,
balances for each
2074, were cal-culated by taking the FCA
class described above and dividing by the
respective weather-normalized energy sales forecast for the
June t, 2014, through May 31, 20L5, timeframe ("test
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year"). This is the same perj-od as the Power Cost
Adjustment test year.
o.What has the Company determined the test year
weather-normal-j-zed energy sales to be for both the
Residential and Smal-I General Service classes?
A. The Company's test year weather-normalized
energy sales is 4,937,076,922 kilowatt-hours (*kwh") for
the Residential class and t43,247,424 kV0h for the Small
General Service class.
O. What are the corresponding FCA rates for the
Residential- and Small General Service cl-asses based on a
combined and equal ECA rate changer ds defined in the
approved mechanism?
A.In Order No. 32505, the Commission ordered
that the FCA deferral balance wil-l continue to be recovered
or refunded equally between the Residential and Small
General Service customer classes. Order No. 32505 at 9.
Because the Residential and Smal-I Genera] Service classes
reduced their energy consumption per customer such that the
Company under-collected its authorized l-evel- of fixed costs
as established in Case No. IPC-E-11-08, each class requires
a rate surcharge. In order to recover the authorized level
of fixed costs, the ECA rate for the Residential cfass
would be 0.2973 cents per kWh and the corresponding rate
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for the Small General Service class would be 0.3709 cents
per kwh.
o.What is the difference between the ECA
deferral balance currently in amortization and the proposed
ECA deferral balance?
A.In Order No. 32811, issued in Case No. IPC-E-
13-06, the Commission approved the total FCA deferral-
balance of $8,896,361 with rates based on that balance
effective for the period June L, 2013, through May 31,
2074. In this filing, the Company is proposing to collect
rates based on an ECA deferral- balance of $74,912,442,
which would be $6,016,081 more than the current FCA
deferral balance.
O. What is the percentage change in billed
revenue as measured from total billed amounts currently
recovered from Residential and Smal1 General Service
customers, including the current FCA?
A. The total FCA deferral bal-ance of $1,4,972,442
the Company is proposing to col-l-ect through the FCA rates
effective June l, 201,4, through May 31, 2075, represents an
annual- increase of 1.18 percent from current billed rates
for the affected customer classes.
O. How will the Company incorporate the FCA
surcharges for the Residential and Small General Service
classes on customers' bilIs?
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A. The Company proposes to continue including the
FCA with the Annual Adjustment Mechanism Charge on
Residential and Smal1 General Service customers' biIIs.
O. Does this complete your testimony?
A. Yes, it does.
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STATE OF IDAHO
County of Ada
ATTESTATION OF TESTII@IW
SS.
I, Zachary L. Harris, having been duly sworn to
testify truthfuJ-1y, and based upon my personal knowledge,
state the following:
I am employed by Idaho Power Company as a Regulatory
Analyst in the Regulatory Affairs Department and am
competent to be a witness in thls proceeding.
I declare under penalty of perjury of the laws of
the state of Idaho that the foregoing pre-filed testimony
and exhibits are true and correct to the best of my
information and belief.
RN to before me this yfu^o ",
-+ot
HARRIS, DI T2
Idaho Power Company
DArED this L day of March 2074.
SUBSCRIBED AND SWO
March 2074.
Harris
No/ary Pub
Residing at:
My commission
for Idaho
expr-res:
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BEFORE THE
IDAHO PUBLIC UTILITIES GOMMISSION
CASE NO. IPG.E.14.O3
IDAHO POWER COMPANY
HARRIS, DI
TESTIMONY
EXHIBIT NO. 1
coP
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Exhibit No. 't
Case No. IPC-E-14-03
Z. Harris, IPC
Page 1 of 1
BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
GASE NO. IPC-E-14-03
IDAHO POWER COMPANY
HARRIS, DI
TESTIMONY
EXHIBIT NO.2
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Exhibit No. 2
Case No. IPC-E-14-03
Z. Harris, IPC
Page 1 of 1