20200520Reply Comments.pdf

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LISA D. NORDSTROM
Lead Counsel
[e-mail]
May 20, 2020
VIA ELECTRONIC FILTNG
Diane Hanian, Secretary
ldaho Public Utilities Commission
11331 W. Chinden Boulevard
Building 8, Suite 201-A
Boise, ldaho 83714
Re: Case No. IPC-E-20-14
Fixed Cost Adjustment Rates for June 1, 2020, through May 31 , 2021 -
ldaho Power Company's Reply Comments
Dear Ms. Hanian
Attached for electronic filing in the above matter is ldaho Power Company's Reply
comments.
lf you have any questions about the enclosed documents, please do not hesitate to
contiact me.
Very truly yours,
LDN:sdh
Enclosures
LISA D. NORDSTROM (lSB No. 5733)
ldaho Power Company
1221\Nest ldaho Street (83702)
P.O. Box 70
Boise, ldaho 83707
Telephone: [phone]
Facsimile: [phone]
I no rd stro m @ ida hopower. com
Attorney for ldaho Power Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER FOR AUTHORITY TO
IMPLEMENT FIXED COST ADJUSTMENT
RATES FOR ELECTRIC SERV]CE FROM
JUNE 1,2020, THROUGH MAY 31 ,2021
CASE NO. IPC-E-20-14
IDAHO POWER COMPANY'S
REPLY COMMENTS
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ldaho Power Company ("ldaho Powe/' or "Company") respectfully submits the
following Reply Comments in response to comments filed by the ldaho Public Utilities
Commission ('Commission") Staff ("Staff') on May 13,2020.
Based on its audit and review, Staff recommends the Commission (1) approve the
$35,498,856 Fixed Cost Adjustment ('FCA') deferral balance, and (2) approve the
requested FCA rates. However, Staff suggests the "current FCA as structured is no
longer viable, and the Commission should consider capping FCA recovery in between
rate cases beyond the annual 3% cap included in the original FCA design."1 ln its Reply
1 Staff Comments at 5
IDAHO POWER COMPANY'S REPLY COMMENTS - 1
Comments, ldaho Power affirms (1) the importance of the FCA mechanism in enabling
the Company's pursuit of energy efficiency savings, (2) that the Commission has
discretion to limit volatility in its application of the annua! 3 percent cap on FCA increases,
and (3) that rate design is most appropriately evaluated holistically.
I. THE FCA FUNCTIONS AS INTENDED TO BENEFIT CUSTOMERS BY
ENABLING THE COMPANY'S PURSUIT OF COST.EFFECTIVE ENERGY
EFFICIENCY.
Beginning in 2001, ldaho Power, the Commission, and other interested
stakeholders worked cooperatively to develop a comprehensive, progressive, cost-
effective portfolio of energy efficiency programs that benefits ldaho Power's customers.
From the Company's standpoint, ldaho Power has consistently argued that there are
three essential components to an effective business mode! for energy efficiency: (1)
timely recovery, (2) the removal of financial disincentives, and (3) the opportunity to earn
a return.
Recognizing the importiance of the second component, the Commission
established Case No. IPC-E-04-15 to investigate financial disincentives inherent to the
pursuit of the investment in energy efficiency by ldaho Power and ordered parties to
"address possible revenue adjustments when energy consumption is both above and
below norma!."2 After years of investigation, the Commission ultimately approved an FCA
pilot program that was implemented in 2007, stating that in retum for the FCA, the
Company is expected to demonstrate an enhanced commitment to energy efficiency and
2 ln the Matter of the Application of ldaho Power Company for Authority to lncrease lts lnterim
and Base Rates and Charges for Electric Service, Case No. IPC-E-03-13, Order No. 29505, page 68
(June 2, 2004).
IDAHO POWER COMPANY'S REPLY COMMENTS - 2
demand-side management ("DSM").g The Commission approved the FCA as a
permanent mechanism in 2012.t
The FCA continues to remove the financial disincentive that exists under the
existing rate design when the Company invests in DSM resources and energy efficiency
activities. lt has produced the intended result -- on a system-wide basis, ldaho Power
achieved 203,041 megawaft-hours of incremental annual energy efficiency savings in
2019, which is a 10 percent increase from finalized savings achieved in 2018 and
represents the highest single-year savings to date.s The Company also invests in
significant DSM educational and awareness activities and marketing efforts that are likely
to result in energy savings experienced by the customer but are not quantified or claimed
as part of ldaho Power's annual savings.
Staffs quantificatione that only 8 percent of the estimated decrease in Residential
sales on a use per customer ("UPC") basis is attributed to the Company's residential and
small general service customers' energy efficiency programs since the Company's last
general rate case ('GRC") in 2011 is flawed for primarily two reasons. First, the numbers
cited by Staff are only the incremental savings claimed for the residential and small
general service customer segments in 2019 which are not reflective of the cumulative
impact of an energy efficiency resource. Energy efficiency savings claimed in 2019
t ln the Mafter of the lnvestigation of Financial Disincentives to lnvestment in Energy Efficiency by
ldaho Power Company, Case No. IPC-E-04-15, Order No. 30267 , pages 13-14 (March 12,2007).
a ln the Matter of the Application of ldaho Power Company for Authority to Convert Schedule 54 -
Fixed Cost Adjustment - from a Pilot Schedule to an Ongoing Permanent Schedule, Case No. IPC-E-1 1-
19, Order No. 32505 (March 20,2012).
5 ln the Mafter of ldaho Power Company's Application for a Determination of 2019 Demand-Side
Managemenf Expenses as Prudently lncurred, Case No. IPC-E-20-15, DSM 2019 Annual Report at 1.
6 Staff Comments at 5-6.
IDAHO POWER COMPANY'S REPLY COMMENTS.3
represent only one year of energy efficiency activity, while actual reductions in residential
and smallgeneralservice UPC since 2011 include the accumulation of prioryear's energy
efficiency activity continuing to yield energy savings. To illustrate: for a measure installed
in2015 with a7-year measure life, the Company only claims the savings in program year
2015, however, the 7-year stream of energy savings claimed as part of the 2015 program
year will continue to contribute to savings on ldaho Power's system for the Iife of that
measure. That is, the customer (and ldaho Power's system) will continue to experience
reduced usage from that measure not only in 2015 when the savings are claimed, but in
the remaining years of that measure's life, which will also contribute to reduced use per
customer in 2019.
Second, Staff relies only on claimed savings from the Company's DSM portfolio,
which ignores any savings achieved on ldaho Power's system as a result of the
Company's robust marketing campaigns aimed at educating, raising awareness, and
encouraging customers to use energy wisely. The Company believes these activities are
likely to result in energy savings experienced by the customer and on ldaho Power's
system but are not quantified or claimed in ldaho Powe/s annual savings.
The Company's pursuit of cost-effective energy efficiency has provided an
increased amount of energy efficiency in nearly each of the last seven years, as
demonstrated in Chart 1 below.
IDAHO POWER COMPANY'S REPLY COMMENTS - 4
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Chart 1. lncrementalAnnual Energy Efficiency Savings MWh) and Energy
Efficiency Expenses ($ millionsl 2002-2019
r Market Transformation (NEEA) (MWh)
I ldaho Power Program Savings (MWh)
-EE
expenses (no DR)
Note: 2019 NEEA market-transformation savings are estimated.
Further, between 2007 (the first year of the FCA pilot) and 2019, ldaho Power has
spent approximately $499 million on energy efficiency activities and has claimed
2,080,486 MWh of incremental savings. The magnitude of ldaho Powe/s investment in
energy efficiency alone is evidence of the Company's commitment to energy efficiency,
effectuated by the Commission's support of the FCA mechanism.
Staffs expresses concern that the FCA is unlikely to produce credits for
customers,z but its position ignores that the FCA was designed to increase as usage per
customer decreases. The very intent of the mechanism is to remove the disincentive
the Company would otherwise have to pursue programs that reduce customers' usage.
The FCA has been and continues to be an effective mechanism that has positioned the
Company to continue to grow energy efficiency resources while maintaining a
7 Staff Comments at 4.
IDAHO POWER COMPANY'S REPLY COMMENTS - 5
2@2 2003 2@4 2@5 2@6 2@7 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2o/.8 2019
reasonable opportunity to recover its fixed cost of servicing residentia! and small
commercial customers.
THE COMMISSION HAS DISCRETION TO CAP FIXED COST RECOVERY
THROUGH THE FCA.
ln the Company's 2004 investigation of financial disincentives to investment in
energy efficiency by ldaho Power, all parties agreed to a 3 percent cap on annual rate
increases to be imposed at the Commission's discretion as part of the Settlement
Stipulation.s The intent of the cap is to reduce volatility in year-over-year changes, with
Commission discretion on its application to limit carry-over collection. The Company does
not believe it is necessary to implement an additional or different cap than previously
approved by the Commission. The Commission has the authority to determine whether
a requested rate change is fair, just, and reasonable based on the facts specific at a
certain point in time and the Company anticipates the Commission will apply that
authority, at its discretion in any case where the Company requests a change in rates.
III. CHANGES TO THE FCA AND THE UNDERLYING RATE DESIGN MUST BE
CONSIDERED HOLISTICALLY.
ln filing to establish the FCA pilot, the Company expressed that "significant
movement in the rate design would address the same issues that a true-up mechanism
would"e and parties to the 2014 Settlement Stipulation agreed to consider modifications
to rate design to address the financial disincentive which exists absent the FCA for the
Company to pursue al! cost-effective demand-side management.to ldaho Power
8 Case No. IPC-E-04-15, Order No. 30267 at 13.
e Case No. IPC-E-04-15, Gale D! at 4
10 ln the Matter of Staff's lnquiry into ldaho Power Company's Fixed Cost Adjustment Mechanism,
Case No. IPC-E-14-17, Settlement Stipulation at 4.
il
IDAHO POWER COMPANY'S REPLY COMMENTS - 6
continues to believe that a thoughtfully implemented rate design could reduce the
Company's reliance on a mechanism like the FCA as it relates to removing the financial
disincentive associated with pursuing energy efficiency. However, the same basic rate
design that existed when the FCA was implemented still exists today and modifying the
FCA outside of a general rate review where base rate design can be evaluated would not
be appropriate.
The Company disagrees with Staffs concem that the "FCA allows recovery of
costs without verification that the Company actually incurred them."tr While base rates
and the FCA components were established in the 2011 GRC, the mere fact that time has
elapsed since 2011 doesn't mean that relying on those rates for cost recovery is flawed.
That characterization ignores the fundamentials of the utility rate making process. Rates
are established at a point in time, and those rates are relied on to collect the revenue
requirement authorized at a point in time. Customer counts and energy sales fluctuate
over time, and the utility is required to charge customers in accordance with the rates
established by the Commission.tz
It is important to remember that while customer counts and overall energy sales
have increased since 2011, the Company's investment in infrastructure to serve
customers has also increased, which has increased its overall cost to provide service.
The net book value of property, plant and equipment has increased by approximately $1.2
billion (45 percent) since the last GRC and annualdepreciation and amortization expense
has increased $44 million (36 percent) during the same time period, while the Company's
rr Staffs Comments, page 5.
12 ldaho Code $ 6't-313.
IDAHO POWER COMPANY'S REPLY COMMENTS - 7
operations and maintenance expense has experienced an annualgrowth rate of less than
1 percent.
While the fixed costs incurred to provide service to customers have increased
since the last GRC, the Company's careful management of operating expenses and
reliance on the Commission-approved FCA and revenue sharing mechanism have
benefited customers because the Company has not needed to file a GRC. The Company
quantified a 2019 ldaho jurisdictional ROE of 9.8 percent as part of its recent power cost
adjustment ('PCA") filing.13 When the Company's Return on Equity ('ROE") exceeds 10
percent, the Company shares a portion of that revenue with customers. Since 2011,
revenue sharing in the amount of $126.2 million has been shared with customers either
as a direct offset to the PCA or as an offset to amounts that would have been otherwise
collected in rates.la
The Company believes the Commission has thoughtfully and carefully balanced
customer and Company interests through the combination of rate design and adjustment
mechanisms that have been established at and since ldaho Power's last GRC. The
Company believes modification of any one of those @mponents is only reasonably
considered when the entirety can be evaluated.
tv. coNcLustoN
ldaho Power appreciates the opportunity to respond to comments filed in this case
and respectfully requests that the Commission issue an order approving its Application
13 ln the Matter of ldaho Power Company's Application forAuthority to lmplement Power Cost
Adjustment (PCA) Rates for Electric Service from June 1,2020 through May 31 .2021, Case No. IPC-E-
20-21, Application at 8.
la Case No. IPC-E-20-21, Blackwell Dl at 8.
IDAHO POWER COMPANY'S REPLY COMMENTS - 8
determining the 2019 FCA defena! balance of $35,498,856 and approve the requested
FCA rates with an effective date of June 1 ,2O2O.
DATED at Boise, ldaho, this 20h day of May 2020.
&;,0.ff"1-t--*,
LISA D. NORDSTROM
Attomeyfor ldaho Power Company
IDAHO POWER COMPANY'S REPLY COMMENTS .9
CERTIFICATE OF SERVICE
' I HEREBY CERTIFY that on the 20h day of May 2019 I 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
John R. Hammond, Jr.
Deputy Attomey General
ldaho Public Utilities Commission
47 2 W est Washington Street (837 02)
P.O. Box 83720
Boise, ldaho 83720-007 4
_ Hand Delivered
_U.S. Mail
_Overnight Mail
_FAXX Email [e-mail]
/** )-z//*,"_
Sandra Holmes, Lega! Assistrant
IDAHO POWER COMPANY'S REPLY COMMENTS. 1O