20140530final_order_no_33047.pdf

Office of the Secretary
Service Date
May 30,2014
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER )
COMPANY’S APPLICATION FOR )CASE NO.IPC-E-14-03
AUTHORITY TO IMPLEMENT FIXED )
COST ADJUSTMENT RATES FOR SERVICE )
FROM JUNE 1,2014 THROUGH MAY 31,)ORDER NO.33047
2015.)
On March 14,2014,Idaho Power Company (the “Company”)applied to the Idaho
Public Utilities Commission for an Order allowing the Company to increase its Fixed Cost
Adjustment (“FCA”)rates for electric service provided from June 1,2014 through May 31,
2015,The Company proposes to increase residential class rates by 1.17%and small general
service class rates by 1.20%,for an overall rate increase of 1.18%.The Company says the
proposed increase would allow it to collect a total of $14,912,442 from residential and small
general service customers.
On April 2,2014,the Commission issued a Notice of Application and Notice of
Modified Procedure setting a May 8,2014 deadline for persons to file comments in the case,and
a May 15,2014 deadline for the Company to file a reply.See Order No.33004.The
Commission Staff,Idaho Conservation League (“ICL”),and several members of the public filed
timely comments,and the Company filed a reply.
Having reviewed the record,we issue this Order (1)approving the Company’s
Application,and (2)directing that a new case be opened for Staff,the Company,and interested
persons to explore the workability of the FCA mechanism and report their findings to the
Commission.
THE APPLICATION
The FCA is a rate adjustment mechanism that separates the Company’s fixed-cost
revenues from the Company’s volumetric energy sales.The FCA enables the Company to
recover its fixed costs to deliver energy—as set in its most recent general rate case—even when
energy sales and revenues have decreased.’Under the FCA,the Company credits customers
when the Company’s actual fixed-cost recovery has increased from the Commission-established
A utility’s “fixed costs”are its costs to provide service that do not vary with energy use,output,or production and
remain relatively stable between rate cases.
ORDER NO.33047 1
base.On the other hand,the Company surcharges customers when the Company’s actual fixed-
cost recovery has decreased from the base.The Company’s FCA rates are specified in tariff
Schedule 54 and apply to the residential and small general service customer classes.See
Application at 3.
The Company’s Application summarizes how the FCA mechanism works.First,the
Company identifies the amount of fixed costs that the Commission has authorized it to recover
from the residential and small general service customer classes.The Company calculates the
fixed costs it is allowed to recover by multiplying the number of customers in each class by the
fixed-cost per customer rate that was set in the Company’s last general rate case.Second,the
Company compares the authorized recovery amount to fixed-cost amount that the Company
actually recovered.The Company calculates the fixed costs it actually recovered by multiplying
its weather-normalized sales per customer class by the fixed-cost per energy rate as set in the
Company’s last general rate case.The difference between the authorized recovery amount and
the actual fixed costs recovered results in an adjustment each year to the FCA rate.Id.
With this Application,the Company says the difference between the authorized
recovery amount and the actual fixed costs recovered is $14,339,006 for the residential class and
$573,436 for the small general service class,for a total amount to be recovered through this
year’s FCA of $14,912,442 (the FCA “deferral balance”).This year’s proposed FCA deferral
balance is incrementally more than the FCA balance currently collected through rates.To
recover this incremental amount,the Company proposes to increase billed rates by 1.17%for the
residential class and 1.20%for the small general service class,for an overall increase of 1.18%.
The proposed increase would yield a new FCA rate of 0.2913 cents-per-kWh for the residential
class,and 0.3709 cents-per-kWh for the small general service class.Id.at 4.
THE COMMENTS
Commission Staff,ICL,and seven members of the public commented on the
Company’s Application.The Company then filed a reply.The comments and reply are
summarized below.
A.Public Comments
The Commission received seven public comments.One commenter supports the
Company’s proposed FCA increase because “a few extra dollars [per]month ..is a small price
to pay”if it “helps reduce ...carbon pollution.”The remaining commenters oppose the
ORDER NO.33047
proposed increase.They argue that rates are already too high,and that the increase is
unwarranted because the Company is highly profitable,its executives are overpaid,and it does
not pursue renewable energy as much as it could.Further,the Company’s conservation efforts
caused the lower energy use and under recovery of fixed costs of which the Company now
complains.The public commenters note that the proposed FCA would create a hardship for
customers on a single or fixed income.
B.ICL Comments
ICL supports the FCA mechanism and recommended the Commission approve the
2014-2015 FCA as calculated by Staff.See ICL Comments at 1.ICL believes the FCA is an
important tool for correcting a utility’s financial disincentive to promote energy efficiency
programs.ICL acknowledges that the FCA indiscriminately captures energy-use changes
besides those arising from the Company’s conservation efforts,such as the diminished use that
might occur in a poor economy.But ICL says that by capturing such changes,the FCA mitigates
the Company’s risk of losing money during an economic downturn.Investors value this risk
mitigation.ICL thus claims the FCA results in a lower cost of capital and eventually produces
lower rates for customers.Id.at 2.
Although ICL recommended the Commission approve the Company’s Application,
ICL also recommended the Commission:(1)encourage the Company to update the fixed costs
per customer,fixed costs per energy,and baseline consumption levels through a general rate
case;and (2)require the Company to submit a detailed plan,within three months,to increase
participation in energy savings in the residential and small commercial classes.Id.at 3.
C.Commission Staff Comments
Commission Staff also recommended the Commission approve the Company’s
Application.Staff verified that the Company correctly calculated the proposed FCA deferral
balance and rates according to Commission-approved methodology.Staff says the Company’s
sales-per-customer for the residential and small general service classes were less in 2013 than in
2012;as a result,the Company’s weather-normalized sales were too low for the Company to
collect its fixed costs that the Commission authorized in the last general rate case.Staff thus
recommended the Commission approve the Company’s FCA filing.See Staff Comments at 2,
14.
ORDER NO.33047 3
While Staff recommended the Commission approve the Company’s FCA request,
Staff believes the FCA mechanism should be re-evaluated for future application because the
mechanism is fundamentally flawed in the following respects:
•Weather-Normalization Adjustment.The weather-normalization
adjustment in the FCA permits the Company to significantly over recover
the fixed costs that the Commission authorized it to recover in the last
general rate case.Staff notes,for example,that while this year’s weather
adjustment allows for about $16 million in fixed-cost recovery from
customers,the FCA would have resulted in a $1,047,317 credit to
customers if weather had not been normalized.Id.at 3-4;
•Customer count Methodology.By calculating allowed fixed costs based
on the average number of customers,the Company overstates the “typical”
number of customers that it serves in a month.The Company should use
the median to more accurately represent its actual customer count.Staff
notes that by using the median instead of the average number of
customers,the Company would be able to reduce the FCA deferral
balance (and amount to be recovered from customers)by $330,430.
Further,the Company’s FCA calculations ignore that high energy use
customers have been switching from the small general service class
(Schedule 7)to the large general service class (Schedule 9),which
artificially inflates the Company’s FCA recovery by inappropriately
lowering per customer use in the small general service class for FCA
purposes.Id.,at 5;
•Rate-Adjustment Cap.The FCA “incorporates a 3%cap on annual
increases with carryover of unrecovered deferred costs to subsequent
years.”See Order No.30267.Staff notes the Company calculates the rate
increase and cap using forecasted sales and revenues,which results in a
layering effect that continuously increases the FCA deferral balance from
year-to-year,understates the magnitude of the cumulative FCA rate
change on customers,and annually increases the absolute dollar amount
represented by the 3%cap.Staff notes that the Company has increased
the absolute dollar amount represented by the 3%cap by nearly $1 million
since its last general rate case.id.at 6-7.
•Cross-Subsidization.The Commission intended for the FCA to apply in a
manner that minimizes cross subsidies across rate classes.See Order
30267,at 6.But the FCA is calculated in a manner that leads the
residential and small general service classes to subsidize fixed-cost
shortfalls from the other classes.Staff notes,for example,that this year
the Company will collect about $8 million from residential customers to
cover an $8 million revenue shortfall from other customer classes.Id.at
7-8.
ORDER NO.33047 4
Staff also notes that,apart from the FCA mechanism’s fundamental flaws,the FCA
no longer serves its intended purpose of removing the Company’s perceived financial
disincentive to investing in energy efficiency and DSM.The Company’s annual energy savings
did grow rapidly during the FCA’s pilot phase.But the energy savings peaked in 2010 and then
declined until they dramatically dropped off in 2013.Further,the FCA deferral amounts to be
recovered from customers substantially increased.In particular,Staff notes that from 2012 to
2013,the Company’s FCA deferral balance jumped from $8.9 million to $15 million while the
Company’s year-over-year energy savings fell by 42%.Staff concludes that as a whole,the FCA
has harmed customers far more than it has benefitted them,and that the FCA’s efficacy has
diminished in proportion to the Company’s documented,declining energy efficiency investments
and savings.See id.at 8-12.
For these reasons,Staff recommended the Commission open a new case so Staff,the
Company,and interested persons can re-examine the FCA methodology and whether the FCA is
working as intended.Id.at 12-14.
D.Company Reply
In its reply,the Company notes that Commission Staff and ICL support the
Company’s proposed FCA rates.See Reply at 2.The Company thus says the Commission
should approve the new FCA rates effective June 1,2014.Id.at 2.
The Company disagrees with Staff’s view that the FCA mechanism is fundamentally
flawed and should be re-evaluated in a separate docket.The Company emphasizes that the FCA
“is critical to the sustainability of [its]efforts to seek out and achieve continued energy savings.”
Id.at 6.Further,the FCA functions as intended under the Commission-approved methodology.
The Company notes that the flaws perceived by Staff were considered when the FCA was
designed and have been consistently applied in every FCA since 2007.Id.at 2-3.The Company
also stresses that the FCA “received an exhaustive review”when the Commission converted it
from pilot to permanent status in January 2013,and re-evaluating the FCA just one year later is
inappropriate.The Company agrees with Staff that the FCA might ultimately be modified or
replaced with a proper rate design and demand charge.But the Company warns that re
evaluating the FCA and changing the FCA methodology outside a general rate case or cost-of-
ORDER NO.33047 5
service/rate design specific case could have unintended financial consequences.See Reply at 3-
4,citing Commission Order Nos.32731 and 32845.2
The Company also disputes Staffs view that the Company has decreased its DSM
efforts and caused energy savings to decline.The Company attributes the recent energy savings
decline to the Company’s and region’s increased evaluation,measurement,and verification
activities,including new lower-estimated or deemed savings amounts approved by the Regional
Technical Forum (“RTF”),Id.at 5.The Company also notes that in 2013 customer participation
grew in most of its energy efficiency programs.But the two programs with the largest savings—
Energy Efficiency Lighting and See ya later,refrigerator®—still saw declining annual energy
savings.The Company attributes that decline to the RTF’s lower deemed savings amounts.The
Company says it would be imprudent to alter the FCA model that supports its DSM efforts when
it is becoming harder to achieve cost-effective energy savings through energy efficiency
programs.Id.at 6.
Lastly,the Company says ICL’s proposal that the Company submit a detailed plan to
increase participation in energy savings is unnecessary and would duplicate the content of the
Company’s annual DSM reports.Id.at 6.
COMMISSION DECISION
The Commission has thoroughly reviewed the record in this case,including the
Application,comments,and reply.Based on this record,the Commission finds that the
Company’s Application should be approved because the proposed FCA rates are fair,just and
reasonable and are adequate to give the Company the opportunity to collect its authorized fixed
costs in the coming FCA year.Specifically,we approve the Company’s FCA filing with a net
deferral balance of positive $14,912,442 for the 2014-2015 periods,and a 1.1 8%increase to total
billed revenue (including the FCA).Based on the Company’s sales forecast,we approve FCA
rates equal to 0.29 13 cents-per-kwh for residential class customers and 0.3 709 cents-per-kwh for
Small General Service customers.
2 The first Order,Order No.32731,changes the FCA to a permanent mechanism but notes that the Commission
“welcomes closer scrutiny of the effectiveness in the FCA in [the Company’s]next general rate case.”The second
Order,Order No.32845,issued in the Company’s recent net metering case.In that Order,the Commission rejects
the Company’s proposed,dramatic rate design changes—including increasing the monthly customer charge,
imposing a new BLC charge,and reducing the energy charge for residential and small general service customers—in
part because:“[W]e believe [such]dramatic changes ...should not be examined in isolation but should be fully
vetted in a general rate proceeding.”
ORDER NO.33047 6
While we approve of the Company’s Application,we continue to acknowledge that
the FCA is an imperfect mechanism that warrants monitoring,discussion and review.See Order
Nos.32505 at 6 and 32731 at 4,Case No.IPC-E-ll-19.We thus intend to open a separate,
future docket to allow Commission Staft the Company,and other interested persons to further
evaluate Staff’s concerns about the FCA mechanism (including the weather-normalization,
customer count,rate adjustment cap,and cross-subsidization issues)and whether the FCA is
effectively removing the Company’s financial disincentive to aggressively pursue energy
efficiency programs.
We are somewhat sympathetic to the Company’s position that this kind of review
may be premature,given that Order No.3273 1 issued little more than a year ago after lengthy
proceedings that saw the FCA mechanism continue unchanged as a permanent mechanism.
However,we never intended to limit further review of the FCA mechanism to a general rate case
or similar proceeding.When Staff,other parties,or the Commission have serious concerns that
the FCA is not working as intended,or may be allowing the Company to over recover its fixed
costs to the detriment of customers (Staff suspects the FCA’s flaws enable the Company to over
recover millions of dollars),a timely review is critical.We will continue to monitor the FCA
results each year.If these reviews suggest clearer,more equitable refinements of the FCA,we
will not hesitate to implement them.See Order No.32731 at 4.
Lastly,while we appreciate ICL’s request for the Company to submit a separate plan
on how it intends to increase energy savings participation,we agree with the Company that such
a plan would unnecessarily duplicate existing reporting.We note that the Company’s annual
DSM reports,in particular,already outline the Company’s DSM programs and strategies for
each upcoming year.
ORDER
IT IS HEREBY ORDERED that the Company’s Application is granted;we approve a
net deferral balance of positive $14,912,442 for the 20 14-2015 period,a 1.18%increase to total
billed revenue (including the FCA)for the affected customer classes,and FCA rates equal to
0.2913 cents-per-kWh for residential class customers and 0.3709 cents-per-kWh for small
general service class customers.The Company’s proposed Schedule 54 is approved as filed,
with an effective date of June 1,2014.
ORDER NO.33047 7
IT IS FURTHER ORDERED that a separate docket be opened to allow Commission
Staff,the Company,and other interested persons to further evaluate Staff’s concerns about the
FCA mechanism (including the weather-normalization,customer count,rate adjustment cap,and
cross-subsidization issues)and whether the FCA is effectively removing the Company’s
financial disincentive to aggressively pursue energy efficiency programs.
THIS IS A FINAL ORDER.Any person interested in this Order may petition for
reconsideration within twenty-one (21)days of the service date of this Order.Within seven (7)
days after any person has petitioned for reconsideration,any other person may cross-petition for
reconsideration.See Idaho Code §6 1-626.
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this 3D’
day of May 2014.
——
/FV
t/t
PAUL KJELLANDER,PRESIDENT
MACK A.REDFORD,C MMIS STONER
MARSHA H.SMITH,COMMISSIONER
ATTEST:
/1 )
Jean D.Jewell LI
Commission Secretary
0:IPCE I 4O3kk2
ORDER NO.33047 8