20150421Comments.pdf

KARL T. KLEIN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5156
Street Address for Express Mail:
472W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
IN THE MATTER OF THE COMMISSION'S
INQUIRY INTO IDAHO POWER COMPANY'S
FIXED COST ADJUSTMENT MECHANISM.
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BEFORE THE IDAHO PUBLIC UTILITIBS COMMISSION
CASE NO. IPC.E-14-I7
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission comments as follows on the
Settlement Stipulation and Motion to Approve Settlement Stipulation filed in this case. For the
reasons discussed below, Staff believes the proposed settlement is reasonable and in the public
interest and recommends that the Commission grant the Motion and approve the Settlement
Stipulation.
BACKGROUND
In Idaho Power Company's last Fixed Cost Adjustment (FCA) case, Case No.
IPC-E-I4-03, Staff recommended that the Commission reevaluate the FCA mechanism for future
application because the mechanism may be flawed. On July 1,2014, the Commission opened
this docket to allow Commission Staff, the Company, and other interested persons to evaluate the
FCA mechanism and determine whether it effectively removes the Company's financial
disincentive to aggressively pursue energy efficiency programs. The Commission set an
intervention deadline and directed Staff to convene an informal prehearing conference after the
opportunity for intervention expired. See Order No. 33068. The Idaho Conservation League
STAFF COMMENTS APRIL 21,2075
(ICL), Snake River Alliance (SRA), and Industrial Customers of Idaho Power (ICIP) then
intervened in the case, and the Parties met to discuss and potentially settle the FCA issues.
On March 26,2015,Idaho Power filed the Settlement Stipulation and moved that it be
approved by the Commission. Staff, the Company, ICL, and SRA (the Parties) signed the
Settlement Stipulation. As the Settlement Stipulation does not directly affect ICIP, ICIP
declined to sign the agreement and advised the other Parties that ICP will not support or oppose
it before the Commission.
In summary, the Settlement Stipulation contains the following provisions related to the
FCA:
l. Weather Normalization. Idaho Power will modit, the quantification of the annual
FCA defenal 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 a3oh cap on annual increases with carryover ofunrecovered deferred costs to
subsequent years." Order No. 30267 at 13. The Company currently calculates the 3o/o cap by
dividing the Proposed FCA Defenal Change by the Forecasted Base Rate Revenue.l The Parties
ask the Commission to clarify that this method of determining the 3Yo 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 Desisn. 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, 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.
I Forecast reflects currently-approved base rates applied to forecasted usage for the subsequent June I through May
3 I FCA rate effective year.
STAFF COMMENTS APRIL 2I,2OI5
STAFF ANALYSIS
The intervenors, Staff, and Company held four settlement conferences to discuss FCA
issues.2 Participants discussed the history of the FCA mechanism and exchanged information to
more accurately evaluate how alternative approaches might compare to the existing mechanism.
Staff believes the resulting Settlement Stipulation, if approved, will improve the accuracy of the
current FCA mechanism and strike a reasonable compromise on the four issues referenced
above. Staff discusses each of these issues in turn.
1) Weather Normalization
The current FCA deferral computation is based on weather-normalized energy sales, not
actual energy sales. If sales increases are attributed to above-normal weather, sales are adjusted
downward to reflect normal sales. As a result, the FCA does not acknowledge the fixed costs
that the Company actually collected. Although the Commission originally designed the weather
adjustment to be symmetrical, historically the Company significantly over collects its authorized
fixed costs because sales are above-normal due to weather.
Because the Company collects about 90% of its fixed costs through energy rates, the
Company recovers its fixed costs twice when weather contributes to above-normal energy sales.
Specifically, the Company collects its fixed costs through base rates during the year, and again
by adjusting energy sales downward in the FCA calculation.
To guard against the double recovery of fixed costs, the proposed settlement replaces the
FCA deferral calculation's use of weather-normalized sales with actual sales. The proposed
settlement thus ensures the FCA deferral balance accurately accounts for variations in fixed-cost
recovery due to abnormal weather. This is particularly important given that the current
adjustment for weather-normalized sales has historically added about $25.5 million to the FCA
deferral balance for residential customers, which is about 60% of residential customers' total
FCA deferral balance since 2007.3 Furthermore, last year's weather adjustment totaled
$15,840,756 for residential customers and $253,804 for commercial customers, which is more
' The Parties met on September lO,2Ol4, October 16,2014, February 17,2015, and March I l, 2015.
3 This calculation utilizes a weighting of the 2008 and 2009 FCA since there were mid-year FCCIFCE changes.
This does not include accrued interest or the impacts of revenue sharing.
STAFF COMMENTS APRIL 2I,2OI5
than the deferral balance itself. Without the weather adiustment last year, the deferral balance
fbr residential customers would have been a credit of approximately $l ,361,976.4
By replacing weather-normalized billed sales with actual billed sales, the deferral balance
calculation will no longer ignore above-normal energy sales collected through base rates due to
favorable weather conditions. Moreover, Staff believes the FCA mechanism will be more
transparent because the Company will no longer use its weather-normalization model to calculate
the deferral balance. This makes the mechanism easier for Parties to review each year, and
reduces the possibility that the FCA deferral balance will reflect any error arising from the
Company's weather-normalization model.
2) Rate Adjustment Cap
In past FCA applications and supporting testimony, the Company has not clearly
articulated how it calculates whether an annual increase exceeds the 3o/o discretionary rate-
adjustment cap approved in Order No. 30267. However, according to the Company, it currently
calculates the 3%o cap by dividing the proposed change in the FCA deferral by the forecasted
base rate revenue. The forecast reflects currently approved base rates applied to forecasted usage
for next year, when the FCA rate will take effect (June I - May 3l).
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 3Yo cap on
annual increases with carryover of unrecovered deferred costs to subsequent years." The
Company has never exceeded its cap. But Staff still believes the calculation of the 3o/o cap on
annual increases is ambiguous and could be calculated differently by various parties. Staff thus
believes, and the proposed settlement provides, that the Commission should clarify that the
Company's present approach for determining the 3Yo cap is reasonable.
3) FCC and FCE
In Case No. IPC-E-14-03, Staff expressed concerns about how the Company calculates
the FCE and FCC. Specifically, Staff is concerned that the Company calculates the FCC and
FCE in a way that may exacerbate cross subsidies in cost-of-service. Because the Company's
method of calculating the FCC and FCE may be inequitable, Staff believes it should be
a This estimate excludes interest,
STAFF COMMENTS APRIL 2I,2OI5
reevaluated to see if a more equitable method can be developed based on various cost-of-service
studies. However, as specified in the proposed settlement, Staff agrees these issues can be more
effectively addressed when base rates are reset.
4) Rate Design
The FCA is an imperfect mechanism designed to reduce the risk of fixed cost under
recovery caused by inaccurate rate design. Because the current residential and small general
service rate design recovers fixed costs almost exclusively through the energy charge, fixed cost
recovery declines when energy sales decline for any reason, including demand side management
(DSM). While fixed costs do not n...rruiily change with the level of energy consumption,
recovery of those fixed costs does. This creates the financial disincentive for DSM.
One alternative to the current FCA mechanism is to modify residential and small general
service rates to recover a larger portion of fixed costs through customer or demand charges so
that fixed cost recovery is unaffected by changes in energy consumption. Consequently, while
Staff believes the FCA modifications proposed in the Settlement Stipulation are reasonable at
this time, the Settlement Stipulation also provides that the Panies will consider, at a later date,
the possibility of modifying the current residential and small general service rate design. Staff
supports consideration of potential rate design changes as a more permanent alternative to the
FCA mechanism.
STAFF RECOMMENDATION
Staff recommends that the Commission accept the proposed Settlement as fair, just, and
reasonable and in the public interest.
Respecttully submitted this 'L I 'f day of April 2015.
/1 /L
Karl T. Klein
Deputy Attorney General
Technical Staff: Matt Elam
i:umisc/comments/ipcel4. lTkkme comments
STAFF COMMENTS APRIL 2I,2OT5
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 21ST DAY oF APRIL 2015,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. IPC-E-14-17, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
LISA D NORDSTROM
IDAHO POWER COMPANY
PO BOX 70
BOISE rD 83707-0070
E-mail: [e-mail]
dockets@ idahopower.com
PETER J zuCHARDSON
RICHARDSON ADAMS PLLC
515 N 27TH ST
BOISE ID 83702
E-mail: [e-mail]
BENJAMIN J OTTO
ID CONSERVATION LEAGUE
7IO N 6TH STREET
BOISE ID 83702
ZACHARY L HARRIS
GREG SAID
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL : zharris@.idahopower.com
[e-mail]
DR DON READING
6070 HILL ROAD
BOISE ID 83703
E-mail : [e-mail]
KEN MILLER
SNAKE RIVER ALLIANCE
BOX 1731
BOISE ID 83701
E-mail: [e-mail]
SECRETAR
CERTIFICATE OF SERVICE