20180510Comments.pdf

EDITH PACILLO
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5430
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR AUTHORITY
TO IMPLEMENT FIXED COST ADJUSTMENT
((FCA") RATES FOR ELECTRIC SERVICE
FROM JUNE 1,2018 THROUGH MAY 31,2019
REC E !VED
20lB HAY I 0 Pl{ 12: l+t+
CASE NO. IPC-E-18.02
COMMENTS OF
COMMISSION STAFF
.r tJLiU
Llt{ISSION
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
attorney of record, Edith Pacillo, Deputy Attorney General, and in response to the Notice of
Application and Modified Procedure issued in Order No. 34028 on April 1 I , 2018, in Case No.
IPC-E-18-02, submits the following comments.
BACKGROUND
On March 15, 2018, Idaho Power Company applied to implement new Fixed Cost
Adjustment (FCA) rates for electric service from June 1,2018 through May 31,2019 and a
corresponding tariff Schedule 54, Fixed Cost Adjustment. With its Application, Idaho Power
proposed to decrease FCA rates by 3.60 percent from current billed revenue for the affected
customer classes, with the average Residential customer's bill decreasing by about $3.60 per
month. Idaho Power asks for an effective date of June 1,2018, and requests that the
STAFF COMMENTS MAY 10,2018I
Commission process the matter by Modified Procedure. Subsequent to filing the Application,
Idaho Power discovered a formula error in the spreadsheet used to produce Exhibit 4 of
Company witness Pawel Goralski's testimony. With the formula effor corrected, the FCA rates
would decrease by 3.62 percent from current billed revenue for the affected customer classes,
with the average Residential customer's bill decreasing by about $3.61 per month, a one cent per
month decrease in the bill reduction cited in the Application. Mr. Goralski has indicated in
telephone conversations with Staffthat the Company will address this minor error in reply
comments and will file corrected compliance tariffs upon Commission approval of the revised
FCA rates. The Company has already provided a side-by-side comparison of as filed and
updated results to Staff. To avoid confusion, these Comments will refer to the corrected or
updated Company proposal. The Company's comparison is attached at the end of these
Comments as Attachment A.
The FCA is a rate adjustment mechanism. Using traditional rate design, an electric utility
recovers fixed costsl through each kilowatt-hour (kwh) sold, and is thus discouraged from
reducing sales volume by investing in energy efficiency and demand-side management. See
Applicationat2. The FCA separates or "decouples" Idaho Power's fixed-cost revenues from its
volumetric energy sales. 1d 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 initiatedin200T as a pilot program for Residential
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.
After correcting the formula error, Idaho Power proposes an FCA deferral of $14,786,500
for the Residential class, and $820,211 for the Small General Service class, for a total of
$ I 5,606,7 1 | . See Attachment A. The proposed FCA deferral balance is below the current FCA
deferral balance collected in customers' rates. See Application at 4. After correcting the formula
error, Idaho Power proposes an FCA rate decrease of 3.62 percent from current billed revenue
I "Fixed costs" are a utility's costs to provide service that do not vary with energy use, output, or production.
STAFF COMMENTS 2 MAY IO,2O18
for the affected customer classes. See Attachment A. This equates to new FCA rates - after
correcting the formula error - of 0.2923 cents per kWh for the Residential class and 0.3679 cents
per kWh for the Small General Service class. 1d The FCA deferrals and rates from the filed
Application are shown in the footnote below.2
STAFF ANALYSIS
Based on its review, Staff recommends that the Commission accept the FCA deferral
balance of $15,606,711, which reflects correction of the formula error. Staff reviewed the
Company's filing and supporting testimony from Idaho Power witness Pawel Goralski, including
materials showing the correction of the formula error and its effects on FCA deferrals and rates.
Staff verified the Fixed Cost per Customer (FCC) and Fixed Cost per Energy (FCE) components,
the annual sales for the two affected classes, the customer counts, and all inputs necessary to
calculate the FCA balance. The Company's use-per-customer for Residential and Small General
Service classes were higher in2017 than in 2016. Consequently, the higher level of sales
necessitated a decrease in the FCA rates.
2018 FCA Rate Calculation
Staff verified the Company's FCA calculation for the Residential and Small General
Service classes. Consistent with prior practice, the Company proposes spreading the FCA
surcharge uniformly to both the Residential and Small General Service classes on an equal
percentage basis. Using forecasted sales for June 1,2018 through May 31,2079, a surcharge of
0.2923 cents per kWh for the Residential class and 0.3679 cents per kWh for the Small General
Service class is necessary to provide a sufficient opportunity for the Company to recover the
FCA balance. The surcharges represent a decrease of 3.61 percent of current billed rates, and
3.62 percent decrease to base revenue. Staff verified that the FCA forecasted sales align with the
forecast used in the Company's 2018-2019 Power Cost Adjustment (PCA) filing.
2 The filed Application shows an FCA deferral of $14,889,454 for the Residential class and $820,771for the Small
General Service class, for a total of $15,710,225. The filed Application shows that the FCA rate decreases 3.60
percent from current billed revenue for the affected customer classes. This equates to new FCA rates of 0.2943
cents per kWh for the Residential class and 0.3704 cents per kWh for the Small General Service class.
STAFF COMMENTS MAY 10, 2018J
2017 FCA Balance
Formula Error and Monthly FCA Balance Calculation
The FCA is an annual mechanism that is ultimately calculated and determined using
customer counts and billed energy sales data for the entire year. To maintain compliance with
Generally Accepted Accounting Principles, a monthly deferral balance is estimated and recorded
in the Company's accounting records. An annual adjustment is required at the end of the year to
reconcile the total of the monthly deferral balances to the annual FCA defenal balance. The
previously-mentioned formula error involved an inadvertent double-counting of the year-end
adjustment in the FCA deferral calculation. Correction of the error decreases the total deferral
balance by $103,514, which decreases the FCA collection rate for Residential customers from
0.2943 cents per kWh to 0.2923 cents per kWh and for Small General Service customers from
0.3704 cents per kWh to 0.3679 cents per kwh.
Staff has concerns with the methodology used to calculate the monthly deferral balance.
The monthly deferral balances accrue interest, and Staff believes that customers may be unfairly
harmed by a monthly interest accrual based on estimates rather than the year-end FCA deferral
balance. Staff proposes to discuss the methodology with the Company prior to the 2019 FCA
filing, and provide a resolution or recommendation at that time.
Trends in the FCA Balance
The corrected20lT FCA balance of $15.61 million is $19.40 million less than the
existing FCA currently recovered in rates (Order No. 33777). This is the first time the annual
FCA balance has fallen since the FCC and FCE were updated in the Company's last general rate
case. (Case No. IPC-E-11-08.)
The chart below illustrates the FCA balances since the FCC and FCE were last updated.
4STAFF COMMENTS MAY 10,2018
FCA Halance (in Millionr)
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Declining use-per-customer coupled with increasing customer counts caused the FCA
balance to grow from20l2 through 2016. The Company's20lT Integrated Resource Plan (IRP)
forecasts that both of these trends will continue. Although the 2017 balance declined, Staff is
concerned that the FCA is unlikely to produce credits for customers and that FCA balances will
increase over time. If use-per-customer declines and customer counts increase, the FCA balance
will grow unless the FCC and FCE are updated in a general rate case.
Unlike the Company's PCA mechanism (that recovers actual power costs incurred),
absent arate case no audit can be performed to confirm that the FCA is recovering actual fixed
costs incurred. Staff remains concerned that the FCA allows recovery of costs without
verification that the Company incurred those costs.
Impact of Company-Sponsored Energy Efficiency
The Commission adopted the FCA to remove the Company's disincentive to invest in
energy efficiency that reduces energy sales. However, the Company's energy sales can decrease
for many reasons, including, but not limited to, weather, economic cycles, better building codes
and standards, improved appliance standards, fuel switching (e.g., increased electric to gas
conversions), energy efficiency programs, or various behavioral responses of household or
business customers to higher electric bills (i.e., elasticity measures). The FCA rate adjustment
mechanism provides for fixed cost recovery regardless ofthe cause for decreased energy sales
and revenues.
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STAFF COMMENTS MAY 10,2018
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Staff notes that only 64,660 MWh (33.7 percent) of the l9l,47l MWh energy savings
claimed by the Company is attributed to its Residential and Small General Service energy
efficiency programs. The majority of Company's energy efficiency savings are due to its Large
General Service and Large Power Service classes, which are not subject to the Company's
Schedule 54 FCA tariff (Company's Response to Staff Production Request No. 3).
Staff determined that the Company's 2018-2019 Residential and Small General Service
energy consumption forecast arc 445,793 MWh and 13,529 MWh less than what would have
occurred if per-customer energy consumption had remained at the level used to establish base
rates in the Company's last rate case (IPC-E-l l-08, Exhibit No. 29). Staff notes that only a
fraction of these decreases are attributable to the Company's energy efficiency programs: 63,570
MWh (14.3 percent) of the decrease in Residential energy sales, and 1,090 MWh (8.06 percent)
of the decrease in Small General Service energy sales. The remaining reductions in energy sales
are due to other factors unrelated to the Company's energy efficiency programs. The FCA has
been justified as a means to remove a disincentive for energy efficiency. In practice, its impacts
go far beyond this.
CUSTOMER NOTICE AND PRESS RELEASE
The Company's press release and customer notice were included with its Application.
Staff reviewed the documents and determined that both meet the requirements of Rule 125 of the
Commission's Rules of Procedure. IDAPA 31.01.01. The notice was included with customer
bills, with the last notice sent on April 20, 2018. This allowed customers a reasonable
opportunity to file timely comments with the Commission by the May 10, 2018, comment
deadline. Staff is not recommending that the Company provide additional notice regarding the
change attributable to the formula error. Correction of the formula error results in a small benefit
to customers, lowering residential bills by one cent per month. As of May 10, 2018 the
Commission has received no comments from customers.
RE,COMMENDATION
Staff recommends that the Commission approve the Company's FCA filing with a net
deferral balance of $ 1 5,606 ,7 ll for 2017 , as corrected for the formula eror. Based on the
Company's sales forecast, the resulting FCA rates for 2018 are 0.2923 cents per kWh for the
Residential class and 0.3679 cents per kWh for the Small General Service class. Staff believes
STAFF COMMENTS MAY 10,20186
these rates provide adequate opportunity for the Company to collect its deferred authorized level
of fixed costs.
Respectfully submitted this day of May 201
Pacillo
Deputy Attorney General
Technical Staff: Bentley Erdwurm
Joe Terry
Cassie Koerner
Mike Morrison
Johnathan Farley
i : umisc: comments/ipce I S.2edbejtckmmjf comments
7STAFF COMMENTS MAY 10,2018
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Attachment A
Case No. IPC-E-18-02
Staff Comments
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS IOTH DAY OF MAY 2018,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. IPC-E-18-02, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
DONOVAN E WALKER
REGULATORY DOCKETS
IDAHO POWER COMPANY
PO BOX 70
BOISE rD 83707-0070
E-mail : dwalker@ idahopower.com
[e-mail]
PAWEL P GORALSKI
IDAHO POWER COMPANY
PO BOX 70
BOrSE ID 83707-0070
E-mail : [e-mail]
YS
CERTIFICATE OF SERVICE