20150421Comments.pdf

LISA D. NORDSTROTI
Lead Counsel
I nordgbom@ida hooower.com
April2l ,2015
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UTILTTIES tSS4tuill*
VIA HAND DELIVERY
Jean D. Jewell, Secretary
ldaho Public Utilities Commission
472 West Washington Street
Boise, ldaho 83702
Re: Case No. IPC-E-14-17
lnquiry lnto ldaho Power Company's Fixed CostAdjustment - ldaho Power
Company's Comments
Dear Ms. Jewell:
Enclosed for filing please find an original and seven (7) copies of ldaho Power
Company's Comments in the above matter.
Very truly yours,
X6-P@
Lisa D. Nordstrom
LDN:kld
Enclosures
LISA D. NORDSTROM (lSB No. 5733)
ldaho Power Company
1221West ldaho Street (83702)
P.O. Box 70
Boise, ldaho 83707
Telephone: [phone]
Facsimile: [phone]
I nord strom@ idahopower. co m
Attorney for ldaho Power Company
IN THE MATTER OF COMMISSION
STAFF'S INQUIRY INTO IDAHO POWER
COMPANY'S FIXED COST ADJUSTMENT
MECHANISM
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. IPC-E-14.17
COMMENTS OF IDAHO POWER
COMPANY
ldaho Power Company ("ldaho Powe/' or "Company"), pursuant to the ldaho
Public Utilities Commission's ("Commission") Notice of Settlement Stipulation and
Notice of Comment Deadline, Order No. 33261, issued in the above-referenced case,
hereby files the following Comments in support of the settlement stipulation ("Settlement
Stipulation" or "Stipulation"):
I. BACKGROUND
On May 30, 2014, the Commission issued Order No. 33047 in ldaho Power's
annual Fixed Cost Adjustment ("FCA") Case, Case No. IPC-E-14-03. ln Order No.
33047, the Commission approved the Company's FCA Application, but also
acknowledged Staffs concern that the FCA is an imperfect mechanism that warranted
further investigation to evaluate its effectiveness. Order No. 33047 at 8. On June 27,
2014, Commission Staff ("Staff') issued a Decision Memorandum recommending the
COMMENTS OF IDAHO POWER COMPANY - 1
Commission initiate a case to investigate the Company's FCA mechanism, set a 14-day
intervention deadline, and direct Staff to convene an informal prehearing conference
following the intervention deadline.
Case No. IPC-E-14-17 was subsequently opened on July 1, 2014, and the
Commission issued a Notice of lntervention Deadline in Order No. 33068, setting forth a
deadline for intervention 14 days from its issuance. Petitions to lntervene were filed by
the Industrial Customers of ldaho Power ("lClP'), the ldaho Conservation League
('lCL'), and the Snake River Alliance ('SRA'1, all of which were granted in Order Nos.
33074 and 33081, respectively. The lClP, lCL, SRA, Staff, and ldaho Power all
participated as parties ("Parties") in this case.
The Parties met on September 10, 2014, October 16, 2014, February 17, 2015,
and March 11, 2015, for settlement discussions regarding the Company's FCA
mechanism. The Parties discussed issues regarding the FCA including weather
normalization, the rate adjustment cap, calculation of the Fixed Cost per Energy ("FCE')
and Fixed Cost per Customer ("FCC'), and rate design. These discussions ultimately
resulted in the Parties reaching an agreement and on March 26, 2015, ldaho Power
filed a Settlement Stipulation and Motion to Approve Settlement Stipulation in this case.
Staff, ldaho Power, lCL, and SRA signed the Settlement Stipulation. The lClP declined
to sign because the Stipulation does not directly affect the lClP and it advised the other
Parties that it will not support or oppose the Stipulation before the Commission.
ldaho Power believes the Stipulation is a reasonable compromise of the
contested issues in this case and is in the public interest. The Company supports the
Settlement Stipulation and recommends the Commission approve the proposed
Stipulation without modification.
COMMENTS OF IDAHO POWER COMPANY. 2
II. SETTLEMENT STIPULATION
The Settlement Stipulation addresses four main issues: weather normalization,
the FCA rate adjustment cap, calculation of the FCE and FCC, and rate design. Each
of the issues addressed in the Stipulation is discussed in more detail below.
Weather Normalization
The FCA deferral balance has historically been calculated by comparing the
authorized level of fixed cost recovery with the level of fixed costs recovered through
weather normalized billed sales. The cunent use of weather normalized billed sales in
the calculation of the FCA deferral balance removes the effects of weather on energy
use, and the corresponding impact to the FCA rate calculation. By contrast, the use of
weather normalized billed sales in the calculation of the FCA places the risk of weather
impacts on energy sales with ldaho Power. The assumption of weather risk by the
Company in the FCA may result in the Company recovering above the authorized level
of fixed costs on an actual basis during years when actual sales are higher than
weather normalized sales and less than the authorized level of fixed costs on an actual
basis during years when actual sales are lower than weather normalized sales.
However, the Parties concluded that replacing the weather normalized billed sales in
the determination of the annual FCA deferral with actual billed sales would ensure that
the Company will recover no more and no less than the authorized leve! of fixed costs
on an actua! basis through the FCA going forward. The Company supports this
resolution and believes that this modification will address the Parties' concerns related
to the use of weather normalized sales in the FCA without compromising the ongoing
effectiveness of the mechanism.
COMMENTS OF IDAHO POWER COMPANY. 3
FCA Rate Adiustment Cap
The FCA rate adjustment cap is quantified annually to allow the Commission the
discretion to protect customers from potential large swings in the FCA deferral balance
if the annual increase exceeds 3 percent. Order No. 30267 at 13. The Company
currently calculates the rate adjustment cap by dividing the Proposed FCA Deferral
Changel by the Forecasted Base Rate Revenue.2 Because prior Commission orders
do not prescribe a clear methodology for the determination and application of the FCA
rate adjustment cap, the Parties ultimately decided to request clarification that the
Company's current methodology is acceptable. ldaho Power believes its current
methodology is appropriate because it identifies the impact that the annual increase
would have on customers during the time period that the proposed FCA would be
effective and allows the Commission the discretion to cap the FCA rate change if the
annual FCA rate change exceeds 3 percent of the forecasted base rate revenue. Idaho
Power requests clarification that the Company's current methodology used to determine
the 3 percent FCA rate adjustment cap is appropriate.
Fixed Cost per Enerov and Fixed Cost oer Customer
The FCE and FCC are typically updated when base rates are reset during a
general rate case, and are derived from the amount of fixed costs attributable to each
customer class. The Parties ultimately agreed that the appropriate time to review the
calculation of the FCE and FCC would be when base rates are reset. ldaho Power
'The Proposed FCA Deferral Change is the difference between the proposed FCA deferral
balance and the current Commission-approved FCA balance.
2The Forecasted Base Rate Revenue is the current Commission-approved base rates applied to
the forecasted energy sales coinciding with the same time frame the proposed FCA would be effective.
COMMENTS OF IDAHO POWER COMPANY - 4
agrees that issues regarding the calculation of the FCE and FCC are more effectively
addressed when base rates are reset.
Rate Desiqn
The need for the FCA is predicated upon a rate design that recovers the majority
of fixed costs through a volumetric energy charge for the residentia! and small general
service customer classes. ln the direct testimony of Mr. John R. Gale in Case No. IPC-
E-04-15, which first established the FCA as a pilot, Mr. Gale stated that "significant
movement in the rate design would address the same issues that a true-up mechanism
would." Case No. IPC-E-04-15, Gale Testimony, p. 4. The rate design for both
customer classes affected by the FCA consists of two billing components - the service
charge and the energy charge. For both classes, the service charge recovers a small
percentage of the total revenue while the volumetric energy charge recovers the vast
majority. Most of the Company's costs recovered in base rates are fixed costs, which
are primarily recovered through the volumetric energy charge. This rate design creates
a financial disincentive for ldaho Power to pursue Demand-Side Management ("DSM').
As ldaho Power continues to encourage customers to use less energy, the Company
recovers less revenue per customer, including the fixed costs. The declining use per
customer indicates, in part, that the Company's DSM efforts are working effectively.
However, the successful implementation of DSM does not reduce the level of existing
authorized fixed costs that must still be recovered from customers. Recognition of these
financial disincentives led to the establishment of the FCA to provide the Company an
opportunity to recover its authorized level of fixed costs as it pursued the acquisition of
cost-effective DSM.
The same basic rate design that existed when the FCA was implemented still
exists today. ldaho Power now has the technology needed in its Advanced Metering
COMMENTS OF IDAHO POWER COMPANY. 5
lnfrastructure (AMl) to design rates based on billing components that more closely align
with the Company's cost-of-service. As part of the settlement, the Parties agreed to
consider modified rate design for residential and small general service customers. The
modifications to rate design include, but are not limited to, an increased monthly service
charge, an introduction of demand charges, and reduced energy charges. The gradual
movement of fixed-cost recovery from volumetric energy charges toward billing
components such as the monthly service charge and demand charges would allow for
less reliance upon the FCA mechanism over time. That is, as the leve! of fixed-cost
recovery through volumetric energy charges is reduced, the FCE and FCC (the
components that determine the FCA balance) would corespondingly decrease.
ldaho Power believes that proper rate design represents the most effective and
sustainable method of removing financial disincentives related to utility pursuit of DSM.
Therefore, the Company supports the exploration of modified rate design as a long-term
solution to the fixed-cost recovery issues the FCA is currently in place to address.
III. CONCLUSION
ldaho Power urges the Commission to approve the Stipulation without
modification as the Company believes the Settlement Stipulation to be in the public
interest as well as representing a tair, just, and reasonable resolution of the issues in
this case.
Respectfully submitted at Boise, ldaho, this 21"t day of April 2015.
Attomey for Idaho Power Company
COMMENTS OF IDAHO POWER COMPANY. 6
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 21" day of April 20151 served a true and correct
copy of the COMMENTS OF IDAHO POWER COMPANY upon the following named
parties by the method indicated below, and addressed to the following:
Commission Staff
Kar! Klein
Deputy Attomey General
!daho Public Utilities Commission
472 W esl Washington (83702)
P.O. Box 83720
Boise, Idaho 83720-007 4
lndustrial Customers of ldaho Power
Peter J. Richardson
Gregory M. Adams
RICHARDSON ADAMS, PLLC
515 North 27th Street (83702)
P.O. Box 7218
Boise, ldaho 83701
ldaho Gonservation League
Benjamin J. Otto
ldaho Conservation League
710 North Sixth Street (83702)
P.O. Box 844
Boise, ldaho 83701
Snake River Alliance
Ken Miller
Snake River Alliance
P.O. Box 1731
Boise, Idaho 83701
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COMMENTS OF IDAHO POWER COMPANY - 7