20150327Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER REDFORD
COMMISSIONER RAPER
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL

FROM: KARL T. KLEIN
DEPUTY ATTORNEY GENERAL

DATE: MARCH 26, 2015

SUBJECT: COMMISSION INQUIRY INTO IDAHO POWER’S FCA, CASE NO. IPC-
E-14-17

The issue before the Commission is what procedure it should use to review the
Settlement Stipulation that has been filed in this case. Staff and the other parties to the
Settlement Stipulation recommend that the Commission use Modified Procedure with a 14-day
comment deadline.
BACKROUND
On July 1, 2014, the Commission opened this docket to allow Commission Staff,
Idaho Power Company, and other interested persons to evaluate the Fixed Cost Adjustment
(FCA) mechanism and whether it effectively removes the Company’s financial disincentive to
aggressively pursue energy efficiency programs. The Commission set a 14-day intervention
deadline, and directed Staff to convene an informal prehearing conference after that deadline ran.
See Order No. 33068.
The Commission opened this docket in response to Staff’s comments in the
Company’s last FCA case, IPC-E-14-03. There, Staff recommended that the Commission re-
evaluate the FCA mechanism for future application because the mechanism may be 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;

DECISION MEMORANDUM 2
 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. 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;

 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;

 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.

See Order No. 33047 at 4. Staff also warned that the FCA may no longer serve its intended
purpose of removing the Company’s perceived financial disincentive to investing in energy
efficiency and DSM, the FCA has harmed customers far more than it has benefitted them, and
the FCA’s efficacy has diminished in proportion to the Company’s declining energy efficiency
investments and savings. Id.
THE SETTLEMENT STIPULATION
After the Commission opened this docket, the Idaho Conservation League (ICL),
Snake River Alliance (SRA), and Industrial Customers of Idaho Power (ICIP) intervened. Staff
then met with the intervenors and Idaho Power to discuss the FCA. As a result of these
meetings, Staff, Idaho Power, ICL, and SRA entered into the Settlement Stipulation. As the
Settlement Stipulation does not directly affect ICIP, ICIP has declined to sign it and has advised
the other parties that ICIP will not support or oppose it before the Commission.
DECISION MEMORANDUM 3
On March 26, 2015, Idaho Power filed the Settlement Stipulation and asked the
Commission to approve it. See Settlement Stipulation and Motion to Approve Settlement
Stipulation. The Settlement Stipulation addresses the following issues:
1. Weather Normalization. Idaho Power will modify the quantification of the annual
FCA deferral by replacing weather normalized billed sales utilized in the current annual FCA
determination with actual billed sales. The modification will occur with the determination of the
year-end 2015 FCA deferral, impacting rates effective June 1, 2016.
2. Rate Adjustment Cap. In Order No. 30267, the Commission approved a
discretionary rate adjustment cap for annual FCA-related rate changes as follows: “The FCA
mechanism . . . incorporates a 3% cap on annual increases with carryover of unrecovered
deferred costs to subsequent years.” Order No. 30267 at 13. The Company currently calculates
the 3% cap by dividing the Proposed FCA Deferral Change by the Forecasted Base Rate
Revenue.1 The parties ask the Commission to clarify that this method of determining the 3% cap
is appropriate.
3. Fixed Cost per Energy (FCE) and Fixed Cost per Customer (FCC). The parties
acknowledge that Staff has concerns about the calculation of the FCE and FCC, but that these
issues are more effectively addressed when base rates are reset.
4. Rate Design. The parties agree that without the FCA, the current rate design
causes a financial disincentive for the Company to pursue all cost-effective demand-side
management. The parties thus agree to consider, at a later time, a modified rate design for
residential and small general service customers. This may include, but is not limited to, reduced
energy charges, increased monthly service charges, and the introduction of demand charges for
these rate classes.
In the Settlement Stipulation, the parties agree that the settlement is in the public interest
and is a fair, just, and reasonable resolution of the issues in the case. The parties recommend that the
Commission review the Settlement Stipulation after issuing a notice of modified procedure that sets
a 14-day deadline for interested persons to file comments.
1 Forecast reflects currently-approved base rates applied to forecasted usage for the subsequent June 1 through May
31 FCA rate effective year.
DECISION MEMORANDUM 4
STAFF RECOMMENDATION
Staff recommends that the Commission issue an Order summarizing the Settlement
Stipulation and setting a 14-day deadline for interested persons to file comments in the case.
COMMISSION DECISION
Would the Commission like to issue an Order summarizing the Settlement Stipulation
and setting a 14-day deadline for interested persons to file comments in the case?

Karl Klein
Karl Klein
Deputy Attorney General

M:IPC-E-14-17_kk2