20150519Comments.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 IDAHO POWER
COMPANY'S APPLICATION FOR
APPROVAL OF COMPUTATIONAL
MODIFICATIONS TO THE TRUE.UP
PORTION OF THE POWER COST
ADJUSTMENT
f .;-i-''1 ''r.
?tlii llfiY l9 ppl l: S0
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
I l'i l:
CASE NO. IPC.E-15.15
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission comments as follows on Idaho Power
Company's Application for approval of computational modifications to the true-up portion of the
power cost adjustment.
BACKGROUND
On April 28,2015, the Company applied to the Commission for an Order approving a
Settlement Agreement between the Company and Commission Staff. The Settlement Agreement
proposes to modify how the Company calculates the "true-up" component of the Company's
annual Power Cost Adjustment (PCA). The PCA has been in place since 1993 and allows the
Company to adjust its rates up or down to reflect its annual "power supply costs." The Company
calculates its PCA, in part, by truing-up the prior year's projected power costs based on the
Company's actual power costs during that year.
In this case, the Company seeks to modify the true-up calculation by: (l) converting the
PCA's existing Load Change Adjustment ("LCA") deferral calculation to a Sales Based
STAFF COMMENTS MAY 19,2015
Adjustment (.'SBA"), effective January 1,2015; and (2) modifying the PCA deferral balance's
monthly interest calculation to more accurately reflect the Company's actual interest expense
from the monthly accrued deferral. The Company claims the Settlement Agreement, if
approved, will improve the PCA's accuracy and decrease,by $1,470,797, the PCA amounts that
would otherwise be collected from customers in the ongoing 2015-2016 PCA case, Case No.
IPC-E-15-14. Because the new PCA rates are to take effect on June 1,2015, and the Settlement
Agreement would benefit customers if applied to those rates, the Company asks the Commission
to process this case by Modified Procedure in time to issue an Order by June 1,2015.
By way of background, on May 30, 2014, the Commission issued Order No. 33049 in the
Company's 2014PCA case, IPC-E-14-05. In that Order, the Commission acknowledged Staff s
concern that the Company may have applied the true-up in a way that inflated the true-up
revenue to be collected. The Commission found, however, that the "abbreviated time allotted for
the consideration of a PCA case constrains the parties' ability to more thoroughly vet this issue."
The Commission thus directed: "that a separate docket be opened to allow Commission Staff, the
Company, and other interested persons to hold a workshop to further evaluate the Company's
application of the [PCA] true-up [component] and whether a deferral balance adjustment is
appropriate." Order No. 33049 at 13.
On July 1,2074, the Commission opened Case No. IPC-E-14-16 (PCA Inquiry Case) and
scheduled a workshop for the Company, Staff, and interested persons to further explore Staff s
concerns. See Order No. 33067. Workshop participants included Staff, the Company, the
Industrial Customers of Idaho Power, the Idaho Conservation League, and the Snake River
Alliance. Following the workshop, Staff reported to the Commission that the Company had
alleviated Staff s concern about how the Company had applied the true-up component in the last
PCA case, and that Staff was withdrawing its previously recommended adjustment to the PCA
deferral balance. Staff also recommended the Commission close the PCA Inquiry Case, and
noted that Staff would continue to informally meet with the Company and other interested
persons to discuss refining the PCA mechanism to make it more accurate and easy to understand.
See Order No. 33067. The Commission then closed the PCA Inquiry Case, and stated:
STAFF COMMENTS MAY 19,2015
We appreciate the parties' willingness to continue to meet outside this case to discuss
possible ways to make the PCA mechanism more accurate and understandable. Our
goal in implementing the PCA was to ensure the amount recovered is no more or less
than the actual power costs paid by the Company." See Order No. 30828, Case No.
IPC-E-09-1 1. If the parties' informal discussions lead them to believe the PCA's
accuracy can be improved, Staff should advise us of that fact.
After the PCA Inquiry Case closed, the Company and Staff informally explored possible
ways to improve the PCA's accuracy. As a result of these discussions, the Company and Staff
agreed to a number of changes to the calculation of the PCA true-up balance that they believe
will improve the existing methodology. The Company and Staff memorialized their agreement
in the Settlement Agreement the Company now asks the Commission to approve.
As noted above, the Settlement Agreement proposes to: (l) convert the PCA's existing
LCA deferral calculation to an SBA effective January 1,2015; and (2) modiff the PCA deferral
balance's monthly interest calculation to more accurately reflect the Company's actual interest
expense from the monthly accrued deferral.
In its Application, the Company explains that it and Staff believe the proposed changes
will better align the PCA deferral balance calculation with the Commission's intent that the PCA
'oensure the amount recovered is no more or less than the actual power costs paid by the
Company." Application at 1, quoting Order No. 33089. The Company notes that if the
Commission approves the Settlement Agreement effective January 1,2015, the changes will: (1)
decrease the April 2014 through March 2015 PCA deferral amount from $34,515,981 to
$33,045,184; and (2) decrease the deferral amount to be collected from customers in the ongoing
2015-2016 PCA case, Case No. IPC-E-I5-14,by $1,470,797. The Company states:
Idaho Power and the Staff agree that it is appropriate to adjust this year's
requested PCA defenal amount to align with the terms of the Settlement
Agreement and will recommend in comments to be filed in Case No.
IPC-E-I5-1 4 that the Commission approve such an adjustment. Acceptance
of the proposed 2015-2016 PCA deferral adjustment will result in a greater
PCA decrease for customers effective June 1, 2015, adjusting the total PCA
revenue decrease from $ 10.1 million to approximately $ 1 1 .6 million. For the
changes agreed to above to be included in the Commission's order associated
with the Company's annual 2015-2016 PCA filing, the Parties request that the
Commission approve the Settlement Agreement no later than June l, 2015.
See ApplicationatT.
STAFF COMMENTS MAY I9,2OI5
STAFF ANALYSIS
Staff supports the proposed Settlement Agreement and its two main provisions: 1)
converting the LCA mechanism to an SBA mechanism and2) modifying the PCA deferral
balance's monthly interest calculation to more accurately reflect the Company's actual interest
expense from the monthly accrued deferral. Staff maintains that the PCA modifications
proposed in the Settlement Agreement improve the PCA's accuracy, are fair and reasonable, and
should be approved by the Commission. The proposed PCA modifications are discussed below.
I. Converting Load Change Adjustment to Sales Based Adjustment.
The Settlement Agreement provision modifuing the PCA LCA methodology was
previously presented to the Commission by Staff in last year's PCA, Case No. IPC-E-14-05.
Staff maintained in that case that the PCA's purpose was to "ensure the amount recovered is no
more or less than actual power cost paid by the Company."
Staff was concerned that the LCA portion of the PCA's true-up calculation inaccurately
quantifies actual energy sales because the LCA currently uses load-at-generation rather than
Idaho jurisdictional sales. The LCA introduces a line-loss bias because it is based on the
difference between actual load-at-generation and load-at-generation used to establish base rates.
However, actual line loss is the difference between load-at-generation and load-at-sales, and
actual line losses are significantly different than those assumed in the last rate case. In fact,
actual line losses typically are much less than assumed line loses, which results in
underestimated actual sales used to determine Net Power Supply Expenses (NPSE) actually
recovered.
Through workshops and informal discussions, the parties were able to agree on an
approach that reasonably addresses Staff s line loss concern and improves the PCA's accuracy.
The parties have agreed to replace the LCA with an SBA that compares test-year sales
established in a rate case to actual Idahojurisdictional sales.
The Settlement Agreement implementing the SBA requires four specific adjustments:
l) recalculating the LCA rate with Idaho test-year sales rather than test-year system loads to
produce an SBA rate of $26.721Mwh (current LCA rate of $24.34/Mwh); 2) applying the new
rate to the difference between Idaho test-year sales and actual Idaho sales; 3) incorporating a
one-time adjustment to eliminate double counting during the transition from a calendar month
load based adjustment to a billing month sales based adjustment; and 4) applying a monthly
STAFF COMMENTS MAY 19,2015
Idaho jurisdictional allocator to assure that actual Idaho jurisdictional NPSE matches actual
Idaho jurisdictional sales. Staff participated in methodology development and believes that all of
these changes/adjustments are necessary to assure the SBA is accurately implemented.
The parties agreed that the PCA methodology would incorporate the SBA beginning
January 1,2015. Staff had maintained that the SBA should be incorporated for the entire 2014-
2015 PCA deferral period to assure that NPSE collected from customers was accurate. The
Company maintained that it would need to restate 2014 earnitgs if the SBA were retroactively
applied to the entire PCA period. The Company also pointed out that revenue sharing with
customers during 2014 significantly diminished the beneficial customer impact of the SBA.
Finally, the Company provided work papers showing how benefits would accrue to customers
with SBA implementation in June of 2014 versus SBA implementation on January 1,2015.
The analysis shows that customer benefits with a January 1,2015 SBA implementation
date total about $1.47 million, and are about $100,000 higher with a June 1, 2014 SBA
implementation date. Given the potential issues associated with earnings restatement and the
relatively small difference in total customer benefits, the parties agreed to the January 1,2015
SBA implementation date. The Settlement Agreement proposes that the $1.47 million in
benefits be returned to customers in the 2015-2016 PCA, Case No. IPC-E-I5-14. Staff
comments in that case recommend that the SBA benefits be allocated to each customer class
based on forecasted energy consumption. Staff Attachment A to these comments show the SBA
adjustment benefit to each rate schedule as included in the PCA.
Staff fully supports replacing the LCA with the SBA in the PCA using the rate formula
changes described above. Staff has reviewed the one-time adjustment to assure a smooth
transition from monthly calendar load to monthly billed sales and finds it necessary to accurately
track NPSE recovery in the 2015-2016 PCA. Staff has also reviewed the monthly Idaho
jurisdictional allocation methodology proposed in the Settlement Agreement, and believes it is
necessary to match Idaho actual NPSE with actual Idaho loads. While the actual impact on
future PCAs will depend upon specific generation and consumption conditions, Staff maintains
that using an SBA rather than an LCA will always result in more accurate NPSE recovery.
2. Modifying Monthly Interest Calculation on Deferral Balance.
The parties have agreed to modi$ how interest accrues on the NPSE deferral balance
during the PCA period. The current interest-deferral methodology uses the Company's Aurora
STAFF COMMENTS MAY t9,2015
modeling software to spread base NPSE to each month throughout the year. The Settlement
proposes to spread the base NPSE using base rate revenue collection each month as established
in the last general rate case (IPC-E-11-08).
The parties further agree that the proposed modification to the monthly NPSE shaping
will commence on January 1,2015. The parties also agree that the deferral balance in the
Company's 2015 PCA filing should be adjusted to include three months of the modified
methodology. Staff comments in that case (IPC-E-15-14) included a true-up rate adjustment for
both the SBA and the shaping methodology change. The change in the shaping methodology
increases interest expense by about $24,000 and is incorporated in Attachment A.
Staff supports changing the interest-deferral methodology because it better reflects how
monthly NPSE expenses are accrued and how monthly revenues are generated to offset those
expenses. On the other hand, using Aurora to model hypothetical monthly NPSE fails to
recognize how sales revenues are actually collected during the year. The proposed modification
will more accurately reflect the net effect of expenses and sales resulting in a more accurate
interest accrual.
STAFF RECOMMENDATION
Staff has reviewed the Settlement Agreement and fully analyzed the effects of the
proposed SBA change and the shaping for interest accrual. Staffbelieves these agreed-upon
modifications will improve the PCA's accuracy, and recommends that the Commission approve
the Settlement Agreement as filed.
Respecttully submitted this nIL day of May 2015.
Karl T. Klein
Deputy Attorney General
Technical Staffi Randy Lobb
i:umisc/comme nts/ipce I 5. I 5kkrl comments
STAFF COMMENTS MAY t9,2015
Attachment A
Case No. IPC-E-15-15
Staff Comments
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 19TH DAY oF MAY 2015,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. IPC.E-15-15, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO
THE FOLLOWING:
LISA D NORDSTROM
REGULATORY DOCKETS
TDAHO POWER COMPANY
PO BOX 70
BOrSE rD 83707-0070
E-mail : [e-mail]
dockets@ idahopower. com
TIMOTHY E TATUM
IDAHO POWER COMPANY
PO BOX 70
BOrSE tD 83707-0070
E-mail : [e-mail]
CERTIFICATE OF SERVICE