20160512Comments.pdf

DAPHNE HUANG
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 8370
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attomey for the Commission Staff
IN THE MATTER OF IDAHO POWER
COMPANY'S APPLICATION FOR
AUTHORITY TO IMPLEMENT FIXED COST
ADJUSTMENT RATES TOR ELECTRIC
SERVICE FROM JUNE I,2016 THROUGH
MAY 31,2017
[IECEIVED
;il15 f{fiy I e pH t: L 7
, r L l?it :,"t[#*] i$u,o*
BEFORE THE IDAIIO PUBLIC UTILITIES COMMISSION
CASE NO. IPC-8.I6.02
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Daphne Huang, Deputy Attomey General, and in response to the Notice of
Application and Notice of Modified Procedure issued in Order No. 33488 on March 30,2016,in
Case No. IPC-E-I6-02, submits the following comments.
BACKGROUND
On March l5,20l6,Idaho Power Company filed an Application asking the Commission
for an Order authorizing collection of its Fixed Cost Adjustment (FCA) rates for electric service
from June 1,2016 through May 31,2017, and to approve changes to tariff Schedule No. 54,
Fixed Cost Adjustment. Idaho Power asked for an effective date of June 1,2016.
STAFF COMMENTS MAY T2,2016
Electric utilities generally recover fixed costsl through each kilowatt-hour (kWh) sold,
and are thus discouraged from reducing sales volume by investing in energy efficiency and
demand-side management (DSM). See Application at2. The FCA is a rate-adjustment
mechanism that separates or "decouples" Idaho Power's fixed-cost revenues from its volumetric
energy sales. Id. at 3. This decoupling enables the Company to recover its fixed costs to deliver
energy - as set in its most recent general rate case - even when energy sales and revenues have
decreased. Order No. 33295 at l; see Application at 3.
Idaho Power's FCA program was first initiatedin2}}T as a pilot program for residential
service and small general service customers. Application at2. In20l2, the Commission
approved the Company's request to make the FCA a permanent program. Order No. 32505. In
2015, the Commission approved a settlement stipulation that changed the FCA calculation
methodology by replacing use of weather-normalized data with actual data,to ensure improved
accuracy. Order No. 33295 at 5; see Application at 3.
Idaho Power proposes an FCA deferral balance of $26,897,109 for the residential class,
and $ 1,1 57 ,433 for the small general service class, for a total of $28,054 ,542. Application at 4.
The proposed FCA deferral balance is an increase above the current FCA deferral balance
collected in customers' rates. Id. at 4-5. Idaho Power proposes an FCA rate increase of 2.2Yo
from billed revenue for residential and small general service customers. Id. at 5. This equates to
new FCA rates of 0.5416 cents-per-kWh for the residential class and 0.6875 cents-per-kWh for
the small general service class. Id. This is a$2.16 increase per month for average residential
customers.
Idaho Power stated it would provide notice to its customers as required by Rule 125 by
issuing a press release to media in its service area, and through a customer notice distributed in
customer bills. 1d at 6. Staff confirmed that this occurred.
STAFF ANALYSIS
Staff has reviewed the Company's filing and verified the calculation, including the use of
the fixed cost per customer (FCC) and fixed cost per energy (FCE) components, and the resulting
balance of the uncollected level of authorized fixed costs. Residential and small commercial
use-per-customer continued to decline when compared to use-per-customer established in the
I "Fixed costs" are a utility's costs to provide service that do not vary with energy use, output, or production, and
remain relatively stable between rate cases.
STAFF COMMENTS MAY 12,2016
Company's last general rate case. The decline in use-per-customer for the two affected rate
classes resulted in an under-recovery of authorized fixed costs and a surcharge to customers.
Staff thus recommends that the Commission accept the Company's proposed $28.1 million net
FCA deferral balance for the 2015 FCA year.
2015 FCA Balance
The 2015 FCA balance of $28.1 million is $11.2 million more than the existing FCA.
The FCA balance increases when use-per-customer decreases and the customer count increases.
Because the Company's 2015 Integrated Resource Plan (IRP) forecasts that both of these trends
will continue, it is reasonable to expect that FCA balances will continue to increase absent a
general rate case, assuming normal weather conditions.
Staff analyzed the effect of residential customer growth on the FCA balance and
determined that nearly $14 million of the current $27 million residential 2015 FCA balance was
due to customer growth, rather than declining sales. As illustrated in the following chart, the
portion of the FCA balance due to new customers continues to become a larger portion of the
FCA balance over time.
Effect of fustomer Growth on FeA Balance
-i 1. L 1,1
r {1. *)
I! rI)
10.ffi
q.(?il ,953 r
frffiEffi
,ttl 1 J ;1u15
=E 9.:S .
ffi
..,::SJ8ffiffiffiffi
/.)'..1
: l{il l}al*ru{'**.,1 I{} {-l',JrrElr} irt LItx: 1-u'r {"uil*r1!rr {',,re;lth*r inrhri*u)
lE t ( A l),il*ilrt' rlu* t{} t rlll urfl{.r (ir0r.,;tlr
For each new customer added to the system, the FCA mechanism allows the Company to
recover the embedded fixed cost per customer established in the most recent general rate case.
STAFF COMMENTS MAY 72,2016
Therefore, as customer counts continue to grow, the FCA balance will continue to cause upward
pressure on rates each year. In total, the Company has collected $30 million through the FCA
attributed only to new residential customers added to the system since the Company's last
general rate case in 201L While Staff recognizes that the FCA provides for additional fixed cost
recovery for each new customer in much the same way a general rate case would, the additional
assumed-investment and recovery through the FCA is without the benefit of Commission review
and verification that would occur in a general rate case.
As a result of the settlement stipulation approved in Commission Order No. 33295, the
2015 FCA was calculated using actual billed sales rather that weather-normalized billed sales.
Staff acknowledges Idaho Power's assertion that removing weather normalization from the FCA
calculation increased the balance by $2.9 million over what it would have been with weather
normalization this year. However, the effect of weather normalization on the FCA balances has
varied from year to year. Previously, if sales were attributed to extreme weather, sales would
have been adjusted downward to reflect normal sales. As a result, the Company could collect its
fixed costs through base rates, and then recover those same fixed costs again after sales were
weather-normalization, as was the case in 2013.
By replacing weather-normalized billed sales with actual billed sales, the deferral balance
calculation no longer ignores above-normal energy sales collected through base rates due to
favorable weather conditions. Moreover, Staff believes the FCA mechanism is now more
transparent because the Company no longer uses its weather-normalization model to calculate
the deferral balance. This makes the mechanism easier for Parties to review and reduces the
possibility that the FCA deferral balance will reflect any error arising from the Company's
weather-normalized model.
2015 FCA Rate Calculation
Staff verified the Company's FCA calculation for the residential and small commercial
classes. Consistent with established practice, Staff proposes spreading the FCA surcharge
uniformly to both the residential and small commercial classes on an equal percentage basis.
Using forecasted sales for June 1, 2016 - May 31,2017, a2.20Yo surcharge over current
residential and small commercial billing rates provides a sufficient opportunity for the Company
to recover its authorized fixed costs. Staff verified that the FCA forecasted sales align with the
forecast used in the Company's2015-2016 PCA filing. This increase of 2.38Yo from existing
STAFF COMMENTS MAY 12,2016
base revenue does not exceed the 3Yo cap on annual rate increases that the Commission set in
Order No. 30267.2
Impact of DSM and Energy Efficiency
The Commission adopted the FCA to remove the Company's disincentive to invest in
programs or initiatives that reduce the amount of energy sold. The Company's energy sales can
decrease for many reasons, including weather, economic cycles, better building codes and
standards, improved appliance standards, increased electric to gas conversions, energy efficiency
programs, and higher energy rates.
The Company's 2015 Annual DSM report shows that its residential energy efficiency
programs resulted in a22oh increase in energy savings from the previous year. While Staff is
encouraged by this achievement and the Company's renewed commitment to energy efficiency,
the Company's programs only contribute a portion of the overall decline in sales recovered
through the FCA.
Since the base inputs to the FCA were reset in 2012, actual residential sales have
increased in some years and decreased in others, resulting in a net decline in sales. While actual
sales have fluctuated in both directions, the energy savings from the Company's residential DSM
program have continued to accumulate over the same period. Staff analyzedthe effect of the
cumulative savings on sales and found that Company-sponsored programs accounted for 32Yo of
the variation in sales over the same period. This means that the remaining 68% of the variation
in sales has been driven by other factors. As a class, residential customer-use peaks in both
summer and winter, so the combination of milder winters and the expansion of natural gas space
heating can si gnificantly affe ct use-per- customer.
Future FCA Filings
Staff recommends that in future filings, the Company provide the five FCA exhibits as
electronic, executable files in addition to the hard copies currently supplied with the filing.
Receiving the electronic files with the filing will assist Staff s expedited review of this annual
filing. Staff also recommends that the Company provide the monthly forecasted sales (in kWh)
2 Dividing the FCA increase ($11,172,832) by the total base revenue for the Company's test year for Residential and
Small General Year customer classes ($469,627 ,674) shows that the FCA increase is 2.38Yo higher than base
revenue.
STAFF COMMENTS MAY t2,2016
on which the upcoming FCA rate-calculation is based as an additional electronic, executable
exhibit.
Customer Notice and Press Release
Idaho Power filed copies of its press release and customer notices with its Application.
Staff reviewed both documents and determined they comply with the Commission's Procedural
Rule 125, IDAPA 31.01.01.125. The customer notice was mailed with cyclical billings. The last
notice was mailed on April 21,2016, which allowed customers a reasonable opportunity to file
timely comments with the Commission by the May 12,2016 deadline. As of May l2,20l6,the
Commission has received one comment from a customer that opposed any increase in rates, but
was not specifically commenting on the FCA mechanism.
STAFF RE,COMMENDATION
Staff recommends that the Commission approve the Company's FCA filing with a net
deferral balance of positive $28,054,542 for 2015. Based on the Company's sales forecast, the
resulting FCA rates for 2015 are 0.5416 cents per kWh for residential customers and 0.6875
cents per kWh for small commercial customers. Staff believes these rates provide adequate
opportunity for the Company to collect its deferred authorized level of fixed costs.
Staff also recommends that the Commission order the Company to provide in future FCA
filings, the five FCA exhibits and monthly forecasted energy sales for the upcoming FCA year as
fully executable electronic files in addition to hard copies.
Respecttully submitted this tTbday of May 2016.
Technical Staff: Stacey Donohue
Donn English
Bentley Erdwurm
Daniel Klein
i:umisc: comments/ipce I 6.2djhdesddkbe comments
STAFF COMMENTS MAY 12,2016
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 12th DAY OF MAY 2016,
SERVED THE FOREGOING COMMENTS OF' THE COMMISSION STAT'F IN
CASE NO. IPC.E.I6-02, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
LISA D NORDSTROM
LEAD COUNSEL
IDAHO POWER COMPANY
PO BOX 70
BOrSE rD 83707-0070
E-mail : [e-mail]
BENJAMIN J OTTO
ID CONSERVATION LEAGUE
710 N 6TH ST
BOISE ID 83702
E-mail: [e-mail]
ZACHARY L HARRIS
REGULATORY DOCKETS
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-mail : [e-mail]
dockets@ idahopower. com
CERTIFICATE OF SERVICE