20150519Comments.pdf

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An IDAO(nP CompanY
LISA D. NORDSTROTT'
Lead Counsel
I [e-mail]
May 19,2015
5
iIiHi
UTILITIE
VIA HAND DELIVERY
Jean D. Jewell, Secretary
!daho Public Utilities Commission
472 West Washington Street
Boise, ldaho 83702
Re: Case No. !PC-E-15-15
Modifications to the True-Up Portion of the Power Cost Adjustment
Idaho Power Company's Comments
Dear Ms. Jewell:
Enclosed for filing in the above matter please find an original and seven (7)
copies of ldaho Power Company's Comments.
Very truly yours,dr-n@
Lisa D. Nordstrom
LDN:kkt
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 no rd strom @ ida hopower.com
Attorney for ldaho Power Company
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AN ORDER APPROVING CERTAIN
COMPUTATIONAL MOD! FICATIONS TO
THE TRUE-UP PORTION OF THE POWER
COST ADJUSTMENT.
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
)) CASE NO. rPC-E-1s-15
)) TDAHO POWER COMPANY',S) CoMMENTS
)
ldaho Power Company ("ldaho Powe/' or "Comp?f,y"), pursuant to the ldaho
Public Utilities Commission's ("Commission") Order No. 33293, respectfully submits the
following comments in support of the settlement stipulation ("Stipulation") filed as
Attachment 1 to the Company's Application dated April 23, 2015 ("Application").
I. BACKGROUND
As discussed in the Company's Application, Commission Staff ("Staff') voiced
concerns in the Company's 2014 Power Cost Adjustment ("PCA") filing, Case No. IPC-
E-14-05, regarding a potential line-loss bias impacting the calculation of the PCA
deferral balance. These concerns resulted in the opening of a new docket, Case No.
IPC-E-14-16, to further discuss the calculation of the 2014 PCA deferral and other
IDAHO POWER COMPANY'S COMMENTS . 1
potential improvements to the quantification of the PCA. Following a workshop on July
30, 2014, Staff informed the Commission through a Decision Memorandum that its
concerns regarding the 2014 PCA calculations had been alleviated, and recommended
that the Commission close the case. Staff also committed to continue informal
discussions with the Company and other interested parties related to potential PCA
improvements. On August 6, 2014, the Commission issued Order No. 33089, closing
Case No. IPC-E-14-16 and advising Staff to notify the Commission if the informal
discussions led to the identification of potential refinements to the PCA.
As a result of continued informal discussions, Staff and ldaho Power (hereafter
referred to as "Parties") have reached an agreement regarding a number of refinements
to the PCA methodology. These refinements are described in detail in the Stipulation,
and represent changes that improve the accuracy of the PCA with respect to quantifying
the differences between actual net power supply expenses ('NPSE") incurred by the
Company and the level of NPSE recovered through rates.
The Stipulation primarily addresses modifications necessary to convert the
existing Load Change Adjustment ("LCA') in the PCA deferral calculation to a Sales
Based Adjustment ('SBA"). As described in more detail below, Parties agree that the
conversion to the SBA will more closely align the calculation of the PCA deferral
balance with the intent of the PCA, i.e., to "ensure the amount recovered is no more or
less than the actual power costs paid by the Company."l ln addition to the SBA
transition, the Stipulation also contains a provision to modify the monthly interest
calculation included in the PCA deferral balance, which ldaho Power believes more
1Cr." No. IPC-E-14-16, Order No. 33089 at 2 (August 6, 2014).
IDAHO POWER COMPANY'S COMMENTS - 2
accurately reflects actual interest expense incurred by the Company as a result of the
monthly accrued deferral.
For the reasons detailed below, ldaho Power respectfully requests that the
Commission approve the Stipulation without material change or condition.
II. SUPPORT FOR STIPULATION PROVISIONS
A. Conversion from the LCA to the SBA Reflects an lmprovement to the
Accuracv of the PCA.
Under the existing methodology, the LCA is calculated by first determining the
appropriate Load Change Adjustment Rate ("LCAR") that measures the level of energy-
related generation revenue requirement embedded in base rates. This rate is
calculated by dividing the Company's final approved energy-related generation revenue
requirement by ldaho-specific loads from the corresponding test year. The LCAR is
then applied to the monthly difference between test year loads and actual loads,
resulting in a dollar amount that reflects the deviation between approved normalized
costs and the actual recovery of those costs through base rates. This amount is
ultimately applied as an adjustment to the PCA deferral balance.
As detailed above, Staff raised concerns in the Company's 2014 PCA filing
regarding the calculation of the LCA and its impact on the PCA deferral balance. Page
13 of Staffs comments summarized this concern:
The problem with the Company's true-up calculation is that it
uses load-at-generation in the [LCA] rather than ldaho
jurisdictional sales. Taking the difference between actual
load-at-generation and load-at-generation used to establish
base rates introduces a line loss bias.... ln this case, actual
line losses are significantly less than those assumed in the
last rate case resulting in underestimated actual sales used
to determine NPSE actually collected.
IDAHO POWER COMPANY'S COMMENTS - 3
Through informa! discussions following the close of Case No. IPC-E-14-16, Staff
proposed to correct the line-loss bias by replacing the existing load-based LCA with the
SBA. The SBA would function in the same manner as the existing LCA, but the
corresponding Sales-Based Adjustment Rate ("SBAR') would be calculated utilizing test
year sales rather than test year loads, and be applied to deviations in ldaho-specific
sales rather than total system loads.
Idaho Power believes that a transition to the SBA reflects an enhancement to the
PCA deferral calculation that more closely aligns the determination of deferred amounts
with the above-stated intent of the PCA. Because ldaho base rates are applied to ldaho
jurisdictional sales (not system level loads), the SBA more accurately determines the
level of actual expense recovery than the existing LCA, and eliminates the potential for
undue impacts to the PCA deferral balance resulting from differences between line
losses assumed in a rate case test year and actual line losses experienced by ldaho
Power. Consequently, the transition to the SBA will result in a deferral balance that
more accurately reflects the deviation between expenses and recovery.
B. The Quantification of the SBAR is Appropriate and Alisns with the lntent of
the PCA.
As detailed in the Stipulation, the proposed SBAR will be determined utilizing the
same numerator as the existing LCAR, as neither Staff nor ldaho Power are proposing
to modify the costs included in the LCA at this time. The only proposed change to the
rate determination is a modification to the denominator, replacing test year ldaho Ioads
from Case No. IPC-E-11-08 ("2011 Rate Case") with corresponding ldaho sales from
the 2011 Rate Case test year.
IDAHO POWER COMPANY'S COMMENTS - 4
The proposed determination of the SBAR is appropriate because it better reflects
the actual level of energy-related generation revenue requirement recovered through
the Company's base rates. Under the proposed methodology, the SBA would more
accurately calculate the Company's actual recovery of energy-related costs by applying
the per-unit leve! of recovery embedded in base rates to the actual Ieve! of sales
experienced in the Company's ldaho jurisdiction.
C. A Transitional Adiustment is Necessarv to Eliminate Double-Gountins of
Enerov and Ensure a Proper Transition from the Existing LCA to the
Proposed SBA.
Upon implementation of the SBA, an adjustment will be necessary to avoid the
double-counting of energy sales during the transitional months. The need for this
adjustment arises from the use of calendar-month loads in the LCA and billing-month
sales in the SBA.2 Absent the proposed adjustment, catendar-month sales from the
final months of the LCA would overlap with billing-month sales from the initial months of
the SBA, resulting in a double-counting of sales in the PCA deferral calculation.
Because the majority of ldaho Powe/s customers are billed according to a
schedule of 21 different billing cycles, the physical delivery of electricity within a given
calendar month does not coincide with the amount of electricity billed in that month.
Consequently, a portion of calendar-month sales from each month overlaps with a
portion of billing-month sales recorded in the subsequent month(s). This overlap must
be accounted for during the transition from the LCA to the SBA because the LCA
utilizes calendar-month loads while the SBA utilizes billing-month sales. Without the
adjustment detailed in paragraph 3 of the Stipulation, the calculation of the SBA in
2 "Calendar-month" refers to electricity that is physically delivered and consumed within a calendar month
(e.9., January 1 to January 31), while "billing-month" refers to electricity that is billed within a month
regardless of when the electricity was physically consumed.
IDAHO POWER COMPANY'S COMMENTS.5
January and February 2015 would include sales that were already captured in the
calendar-month LCA calculations for the final months of 2014. Through the adjustment
detailed in paragraph 3 of the Stipulation, this double-counting of sales will be
eliminated.
D. The Modification to the Jurisdictional Allocation of the NPSE Deferral
Appropriatelv Alisns the Jurisdictional Assisnment of Expense and
Revenue Recognition.
Due to the ldaho-specific nature of the SBA, a modification to the PCA deferral
calculation is required to align the jurisdictional assignment of NPSE with the
jurisdictional assignment of base revenue recognition, i.e., the SBA. Under the existing
LCA methodology the jurisdictional assignment is consistent, as both the LCA and
NPSE deviations are calculated on a system basis then allocated to the ldaho
jurisdiction utilizing a flat 95 percent factor. Under the proposed methodology, however,
an adjustment is required to maintain consistency in the jurisdictiona! allocation of these
two components.
Unlike the LCA (which is calculated on a system basis then allocated to the ldaho
jurisdiction) the SBA is calculated on an ldaho-specific basis and directly applied to the
ldaho deferral balance. Through the application of an ldaho-specific SBAR to an ldaho-
specific sales number, the SBA effectively assigns recognition of revenue recovery to
the ldaho jurisdiction proportionally to actual ldaho billed sales in each month. During
the last four years (2011-2014), the ldaho jurisdictional proportion of tota! billed sales
accounted for 95.37 to 95.59 percent of total jurisdictional sales on an annua! basis.
Therefore, without a corresponding adjustment to the allocation of NPSE, the deferral
calculation would assign revenue recognition to the ldaho jurisdiction at a value that has
IDAHO POWER COMPANY'S COMMENTS - 6
historically been higher than 95 percent, while only assigning ldaho a flat 95 percent of
the corresponding expenses. This would result in an undue impact to the ldaho PCA
defenal balance through the application of inconsistent allocation methodologies.
To correct this issue, Parties have agreed to modify the existing PCA deferral
calculation by assigning actua! NPSE to the ldaho jurisdiction according to ldaho's
proportion of actual billed sales in each billing month. These expenses will then be
compared to ldaho-approved base NPSE to determine the appropriate ldaho-specific
NPSE deviations to include in the PCA deferral calculation. By allowing the allocation of
the NPSE deferral to float with the ldaho proportion of actual billed sales, the
jurisdictional assignment of revenue recognition and NPSE will remain consistent,
removing the potential undue impact of inconsistent allocation factors from the PCA
deferral calculation.
E. The Ongoins Proration Requirement Will Ensure that the SBAR Will be
Applied to the Appropriate Correspondinq Sales in the Event of a Future
SBAR Ghanqe.
As detailed in Section C above, the billing-month sales utilized in the SBA
calculation straddle multiple calendar months. Because rate changes occur on a
specific calendar day, in the event of a change to the SBAR, an adjustment will be
required to ensure that the different SBARs are applied to the appropriate sales (i.e.,
sales that physically occur prior to the rate effective date will be subject to the prior
SBAR, while sales that physically occur on or after the rate effective date will be subject
to the new SBAR). Because the root cause of this adjustment is the same as that
described in Section C above, the solution to this issue is the same. The adjustments
set forth in Table 2 of the Stipulation provide a detailed methodology that separates
IDAHO POWER COMPANY'S COMMENTS. 7
billed sales that occur on either side of a specific calendar day, whenever the SBAR
changes.
F. The Revenue Shapins of Base NPSE Better Reflects the Actual Accrual of
lnterest on the Monthlv Deferral Balance.
As detailed in the Stipulation, in order to calculate monthly interest on the
accrued balance of the PCA deferral, annual base NPSE must be spread over the 12
months of the PCA year. ln the Stipulation, Parties agree to transition from the existing
methodology that assigns NPSE to each month based on the output of the Company's
NPSE modeling software, AURORAxmp ("AURORA"), to a monthly shaping that reflects
normalized test year base revenue.
ldaho Power believes this approach is appropriate because it more accurately
reflects how interest expense is actually incurred by the Company. Generally speaking,
interest is a function of cash, i.e., monthly interest is accrued on defened amounts that
reflect the difference between the level of actual expenses incurred and cash collected
through base rates to recover base NPSE. Within the context of the PCA deferral,
these two components are measured as follows: (1) actual expenses are recorded on a
monthly basis as they are incurred and (2) base rate revenue collection is reflected on a
monthly basis by the sum of the monthly SBA and the monthly shaped base NPSE.
Therefore, the shaping of base NPSE should not reflect the months in which these
expenses were theoretically incurred in the AURORA model, but rather how the
Company expects to recover these expenses throughout the year. When compared to
actual expenses, the resulting deviation ultimately reflects the amount of deferred
recovery upon which interest is actually accrued. By shaping the authorized level of
base NPSE recovery over the 12 months of the PCA year according to expected
IDAHO POWER COMPANY'S COMMENTS - 8
collection of base revenues, the monthly defenal balance more appropriately reflects
the difference between actua! recovery (cash) and actual expenses, which results in an
interest calculation that more accurately reflects how the Company's interest is actually
accrued.
1il. coNcLusroN
ldaho Power believes the changes to the PCA contained in the Stipulation reflect
improvements to its overall accuracy that better accomplish the stated intent of this
mechanism. For reasons outlined in these comments, ldaho Power believes the terms
of the Stipulation are fair, just, and reasonable, and respectfully requests that the
Commission approve the Stipulation without material change or condition.
Respectfully submitted at Boise, ldaho, this 19h day of May 2015.
Attorney for ldaho Power Company
IDAHO POWER COMPANY'S COMMENTS . 9
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 19h day of May 20151 served a true and conect
copy of IDAHO POWER COMPANY'S REPLY COMMENTS upon the following named
parties by the method indicated below, and addressed to the following:
Commission Staff
Karl T. Klein
Deputy Attorney General
ldaho Public Utilities Commission
472 West Washington (83702)
P.O. Box 83720
Boise, Idaho 83720-007 4
Overnight Mail
FAXX Email karl. klein@puc. idaho.qov
X Hand Delivered
U.S. Mai!
IDAHO POWER COMPANY'S COMMENTS. 1O