20140508Comments.pdf

Benjamin J. Otto (ISB No. 8292)
710 N 6'h Street
Boise,ID 83701
Ph: [phone] x12
Fax [phone]
[e-mail]
Attorney for the Idaho Conservation League
IN THE MATTER OF THE
APPTICATION OF IDAHO POWER
COMPANY FOR AUTHORITY TO
IMPLEMENT FIXED COST
ADJUSTMENT (FCA) RATES FOR
ELECTRJC SERVICE FROM JUNE I,
2OI4 THROUGH MAY 3I,20I5.
rPC-E-14-03
ICL Comments
BEFORE THE IDAHO PUBLIC UTITITIES COMMISSION
tr,1::i, - i.l
CASE NO. IPC-E-I4-03
THE IDAHO CONSERVATION
LEAGUE
COMMENTS
The Idaho Conservation League (ICL) recommends the Commission approve the Fixed
Cost Adjustment (FCA) rate for 2OI4-20l5.t The FCA remains an important regulatory
mechanism to correct for the inherent disincentive for utilities to pursue reductions in energy
sales. Although the current design of the FCA captures the impact of reduced energy sales beyond
utility sponsored efforts, ICL maintains this can benefit customers. Allowing Idaho Power the
opportunity to coliect the authorized fixed costs despite sales volatility reduces financial risks and
thereby lowers borrowing costs.2 Calculating this risk reduction value remains elusive, but the
presence of this value supports maintaining a robust FCA mechanism.
The FCA is an important compliment to the policies underlying current rate designs. As
the Commission is well aware, the current rate design for the Residential and Small Commercial
customers collects a portion of fixed costs through the volumetric energy charge. While this
creates a structural disincentive to pursue energy efficiency, the principles underlying this rate
design are sound. First, cost of service methodologies to determine fixed and variable costs are
not an exact science, therefore determining the price allocation of costs is an exercise in judgment
as much as mathematics. Second, including fixed costs in volumetric rates, particularly with
' ICL defe.s to the Staff calculations of the specific rate.
' NARUC Decoupling for Electric and Gas Utilities: Frequently Asked Questions at 9, (2007)
(Available at: http://www.naruc.org/Publications/NARUCDecouplingFAQg-07.pdf)
May 8,2014
Idaho Power's low energy costs, sends a price signal to encourage customers to control energy
consumption. Sending price signals to control energy consumption is an important tool to
encourage customers to implement this Commission's policy to "diligently and vigorously
pursue all available, cost effective DSM, conservation, and pricing options that could potentially
displace or defer the need for additional future peaking generation."3 ICL continues to support
these sound public policy reasons to embed fixed costs recovery in volumetric energy rates.
The FCA is an important compliment to these sound rate design choices. The mechanism
allows Idaho Power to track and recover forgone fixed costs associated with lower than expected
energy sales. While this structure does require greater regulatory oversight and resources the
combination of rate design and the FCA encourages customers to conserve resources and helps
Idaho Power to be a willing participant in this effiort. Aligning utility incentives with customer's
interest in conserving energF is sound public policy.
ICL acknowledges the current design of the FCA captures changes in fixed costs beyond
utility supported energy conservation efforts. Since the initiation of the pilot through today,
stakeholders have identified the FCA captures changes in consumption due to changing
economic conditions. Historically utilities shouldered the risks and rewards of changing
consumption attributed to economic conditions. The FCA, in its current form, changes this risk
allocation. However, this change is not inherently unfair and can actually benefit customers by
reducing revenue volatility. A recent treatise by the Regulatory Assistance Project considered this
revenue stabilizing feature and explains the potential benefits to ratepayers as:
"Economic theory supports the notion that risk mitigation is valuable to investors
and that that value will (eventually) be revealed in some way in the market -
through a lower cost of equity, a lower cost of debt, or a lower required equity
capitalization ratio. Any of these will eventually produce lower rates for
consumers, in return for the risk mitigation measure."n
'Order30201 atl2,IPC-E-06-0g,EyanderAndrews CPCN(December 15,2006);Order 32426at
21, IPC-E-I1-08, Idaho Power General Rate Case (December 30,2011)("We continue our
commitment that the Company should pursue all cost-effective energy efficiencies.")
a Regulatory Assistance Project, Revenue Regulation and Decoupling A Guide to Theory and
Application at 39, (fune 20ll) (Available at: http://bit.lylRAPdecouple); NARUC at 9.
IPC-E-14-03
ICL Comments
I|/.ay 8,2014
Capturing all economic-related changes in energy consumption aligns the utility's financial
interest with ratepayer's interest in controlling energy bills and maximizes its value as a risk
mitigation tool.
Despite our overall support for the mechanism and approving the FCA rate for 2014-2015,
ICL submits the following recommendations for the Commission's consideration:
1. Proper functioning of the FCA requires regular updates to the underlying components
used in the calculation. ICL recommends the Commission encourage Idaho Power to
update the fixed costs per customer, fixed costs per energy, and baseline consumption
levels through a general rate case.
2. The fundamental reason to adopt the FCA is to ensure utilities pursue all available cost
effective energF efficiency. Idaho Power's 2013 Demand Side Management (DSM) report
reveals substantially lower energy savings compared to 2012.s Meanwhile the Company's
recent DSM potential study, conducted as part of the 2013 Integrated Resource Plan,
documents a vast untapped potential for cost-effective energy savings. ICL recommends
the Commission require Idaho Power to submit a detailed plan, within 3 months, to
increase participation and energy savings specifically in the Residential and Small
Commercial classes.
Respectfully submitted this 8ft day of May 2014,
b4*-
Benjamin J Otto
Idaho Conservation League
t While total savings declined, participation in residential programs increased. The 2013 DSM
report shows participation by measure installed or participating household depending on
program. In2012 the total was 947,911 "participants" while in 2013 the total was 1,102,935
"participants".
IPC-E-14-03
ICL Comments
May 8,2014
CERTIFICATE OF SERVICE
I hereby certifu that on this 8th day of May 2014,I delivered true and correct copies of
the foregoing COMMENTS to the following persons via the method of service noted:
Hand delivery:
Jean fewell
Commission Secretary (Original and seven copies provided)
Idaho Public Utilities Commission
427W. Washington St.
Boise,lD 83702-5983
Electronic Mail:
Lisa D. Nordstrom
Zachary L. Harris
Greg Said
Idaho Power Company
P.O. Box 70
Boise, Idaho 83707
[e-mail]
[e-mail]
[e-mail]
[e-mail]
Benjamin I. Otto
IPC-E-14-03
ICL Comments
4 May 8,2014