20200601Final_Order_No_34685.pdf

ORDER NO. 34685 2

Office of the Secretary
Service Date
June 1, 2020
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF IDAHO POWER
COMPANY’S APPLICATION TO
IMPLEMENT FIXED COST ADJUSTMENT
RATES FOR ELECTRIC SERVICE FROM
JUNE 1, 2020, THROUGH MAY 31, 2021
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CASE NO. IPC-E-20-14

ORDER NO. 34685

On March 13, 2020, Idaho Power Company (“Company”) applied for authority to
implement Fixed Cost Adjustment (“FCA”) rates for electric service from June 1, 2020, through
May 31, 2021, and for approval of the Company’s corresponding updated Schedule 54.
On April 17, 2020, the Commission issued its Notice of Application and Notice of
Modified Procedure. Order No. 34627. The Commission Staff (“Staff”) filed written comments
on May 13, 2020. The Company filed reply comments on May 20, 2020.
Having reviewed the record, the Commission enters this Order approving the
Company’s Application.
BACKGROUND
Using traditional rate design, utilities recover fixed costs through each kilowatt-hour
(“kWh”) sold and thus can be discouraged from reducing sales volume by investing in energy
efficiency and demand-side management (“DSM”). See Application at 2. The FCA is an annual
rate adjustment mechanism that separates or "decouples" the Company’s fixed-cost revenues from
its volumetric energy sales. Id. at 3. The FCA enables the Company to recover its fixed costs to
deliver energy - as set in its most recent general rate case - when decreases in energy sales and
revenues would otherwise prevent such recovery. See Order No. 33295 at 1; see also Order No.
33302 at 1. However, if the Company's actual fixed costs recovered exceed the base level of fixed
costs, the Company credits customers under the FCA. See Order No. 33302 at 1-2. "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. See Order No. 33302 at 1, footnote 1. The Company
calculates the FCA at the end of each calendar year when it knows how many customers it had
during the year, and how much energy those customers used. See Order No. 33302 at 2. The
Company recovers the calculated FCA balance through rates that take effect from June 1 through
May 31 of the following year. Id.
ORDER NO. 34685 2

The Company's FCA rates are specified in tariff Schedule 54 and apply to the
Residential and Small General Service customer classes. Id. The Company’s FCA was first
initiated in 2007, as a pilot program. Id. at 2. In 2012, the Commission approved the Company's
request to make the FCA permanent. See Order No. 32505. In 2015, the Commission approved a
settlement stipulation that changed the FCA calculation methodology by replacing the use of
weather-normalized data with actual data, to ensure improved accuracy. See Order No. 33295 at
5; see also Application at 3.
THE APPLICATION
The Company requested recovery of the 2019 FCA balance and approval of
corresponding rates. Application at 1. The proposed FCA is $34,194,871 for the Residential class
and $1,303,985 for the Small General Service class, for a total amount of $35,498,856. Id. at 4.
The Company represented the proposed FCA deferral balance is slightly above the current FCA
deferral balance collected in customer rates. Id. The Company requested Commission
authorization to increase the FCA rate to $0.6622 per kWh for the Residential class and $0.8381
per kWh for the Small General Service class. Id. at 5. If approved, the proposed FCA rates would
increase current billed base revenue from affected customer classes by 0.02% per year. Id. at 4-5.
The Company requested the proposed rates and updated Schedule 54 be effective from June 1,
2020 until May 31, 2021. Id. at 5. The Company also requested this case be processed under
Modified Procedure. Id.
COMMENTS
1. Staff Comments.
Staff recommended the Commission approve the Company’s proposed Schedule 54
and accept the FCA deferral balance of $35,498,856, which includes $34,194,871 for the
Residential class and $1,303.985 for the Small General Service class. Staff Comments at 2. Staff
audited the formula components used to calculate the FCA balance and confirmed it complies with
past Commission orders. Id. Staff verified the Fixed Cost per Customer (“FCC”) and the Fixed
Cost per Energy (“FCE”), the annual sales for the two affected classes, the customer counts, and
all the inputs used to calculate the FCA balance. Id.
Staff noted the Company’s use-per-customer (“UPC”) for Residential and Small
General Service classes was lower in 2019 than in 2018 which resulted in lower sales and increased
FCA rates. Id. The proposed 2019 FCA deferral balance of $35,498,856 exceeds the FCA deferral
ORDER NO. 34685 2

balance in rates by $710,580. Id. Staff asserted if the Application is approved the monthly bill for
a typical Residential customer using 950 kWh would increase by about $0.02 per month, effective
June 1, 2020. Id. Staff also pointed out the Company has proposed to increase its Power Cost
Adjustment (“PCA”) rates. Id. at 2-3. Staff alleged the proposed PCA’s impact on customers’
bills substantially exceeds that of the FCA. Id. at 3.
2019 FCA Rate Calculation
Staff verified the Company's FCA calculation and consistent with prior practice, the
Company proposed spreading the FCA surcharge uniformly to both the Residential and Small
General Service classes. Id. Staff believes based on forecasted sales for June 1, 2020, through
May 31, 2021, surcharges of 0.6622 cents-per-kWh for the Residential class and 0.8381 cents-per-
kWh for the Small General Service class are necessary to provide the Company the opportunity to
recover the 2019 FCA deferral balance. Id. Staff verified the FCA forecasted sales are appropriate
and align with the forecast used in the Company's 2020-2021 PCA filing. Id.
Trends in the FCA Balance
Staff contended there has been an upward trend in the FCA deferral balance since the
FCC and FCE were updated in the Company’s last general rate case, Case No. IPC-E-11-08. Id.
Staff asserted since the last general rate case, the FCA deferral balance increased in seven years
and only decreased once. Id.
Staff alleged declining UPC coupled with increasing customer counts caused the FCA
balance to grow from 2012 through 2016, and again in 2018 and 2019. Id. at 4. Staff noted the
Company's 2019 Integrated Resource Plan (“IRP”) forecasts these trends will continue. Id. Staff
is concerned the FCA is unlikely to produce credits for customers and that FCA deferral balances
will increase. Id. If UPC declines and customer counts increase, the FCA deferral balance will
grow unless the FCC and FCE are updated in a general rate case. Id. Staff asserted that the
Commission has acknowledged these concerns in Order No. 34346:
But as we frequently have expressed in prior orders, the FCA is designed to
encourage cost-effective DSM and energy efficiency programs, but in practice the
FCA rewards the Company for all reductions in per customer energy consumption,
whether the reduction results from the Company’s efforts or broader trends the
Company has no control over. These limitations in the FCA’s design, coupled with
trends that are likely to create charges rather than rebates for customers in the
coming years, cause us concern about whether the FCA can remain viable as
structured.

ORDER NO. 34685 2

We further note that key components of the FCA calculation have not been updated
since the Company’s last general rate case in 2011. Since then, much has occurred
in the energy industry and in the Company’s service territory to call into question
the continued reasonableness of the numbers established in 2011.

Order No. 34346 at 5. Staff asserted the Company did not address these concerns in its
Application. Instead, the Company relied on the approved methodology to recover an additional
$35.5 million in the 2020-2021 recovery period. Staff Comments at 4.
While Staff recommended approval of the Company’s FCA proposal, Staff stated a cap
on future recoveries through the FCA may be appropriate. Id. at 5. Staff believes the 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. Id. Staff
asserted, unlike the Company’s PCA mechanism, which recovers actual power costs incurred, and
is therefore easily verifiable, the FCC was established in the Company’s last general rate case and
base costs have not been verified since. Id. Staff remains concerned that the FCA allows recovery
of costs without verification that the Company incurred them. Id.
Impact of Company-Sponsored Energy Efficiency
Staff represented the Commission adopted the FCA, in part, to remove the Company's
disincentive to invest in energy efficiency that reduces energy sales. Id. However, Staff asserted
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 households or business customers to higher electric bills (i.e., elasticity
measures). Id.
Staff noted the FCA provides for fixed-cost recovery regardless of the cause for
decreased energy sales and revenues. Id. Staff asserted only 22% of the total energy savings
claimed by the Company is attributed to its Residential and Small General Service energy
efficiency programs. Id. Staff alleged the majority of the 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 FCA. Id.
Staff asserted in the Company’s Residential and Small General Service energy
consumption forecast, the Residential component is over 97% of the forecast, with Small General
ORDER NO. 34685 2

Service representing less than 3%. Id. Staff calculated the Company's 2020-2021 Residential
energy consumption forecast is approximately 550,000 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-11-08. Id. Staff argued only a fraction of these decreases are
attributable to the Company's energy efficiency programs: the 40,006 MWh saved by Residential
and Small General Service customers represents less than 8% of the estimated decrease in
Residential energy sales. Id. at 5-6. Staff asserted the remaining reductions in energy sales are
due to factors unrelated to the Company's energy efficiency programs. Id. at 6.
Customer Notice, Press Release and Public Comments
Staff stated the Company’s press release and customer notice were included with the
Application. Id. Staff determined both meet the requirements of Rule 125 of the Commission’s
Rules of Procedure. Id.; see also IDAPA 31.01.01.125. The customer notice was included with
bills mailed to customers beginning March 23, 2020, and ending April 20, 2020, providing
customers with a reasonable opportunity to file comments with the Commission by the May 13,
2020, deadline. Id. As of May 12, 2020, the Commission has received no comments from
customers. Id.
Staff Recommendations
Staff recommended the Commission: 1) approve the Company's FCA filing with a net
deferral balance of $35,498,856 for 2020, and, 2) approve the Company’s proposed Schedule 54,
included with the Application as Attachment 1. Id. Staff believes these proposed rate adjustments
provide adequate opportunity for the Company to collect its deferred authorized level of fixed
costs. Id.
2. Company Reply Comments.
The Company asserted: 1) the FCA enables the Company’s pursuit of energy efficiency
savings; 2) the Commission can limit volatility by applying the 3% cap to FCA increases; and, 3)
rate design should be evaluated holistically. Company Reply Comments at p. 1-2.
The Company alleged the FCA continues to remove the financial disincentive under
the existing rate design when the Company invests in DSM resources and energy efficiency
activities. Id. at 3. The Company claimed the FCA has produced the intended result -- on a system-
wide basis, achieving 203,041 megawatt-hours of incremental annual energy efficiency savings in
2019, which is a 10% increase from finalized savings achieved in 2018. Id. The Company also
ORDER NO. 34685 2

asserted it 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 the Company’s annual savings. Id.
The Company disagreed with Staff’s position that only 8% of the estimated decrease
in Residential sales on a 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”)
for two reasons. Id. First, the Company claimed Staff only cites data for the incremental savings
claimed for Residential and Small General Service customers in 2019, which it argues are not
reflective of the cumulative impact of an energy efficiency resource since 2011. Id. at 4. Second,
the Company asserted that Staff relies only on claimed savings from the Company's DSM
portfolio, which it asserts, ignores any savings achieved on the Company’s system because of the
Company's marketing campaigns aimed at educating, raising awareness, and encouraging
customers to use energy wisely. Id. The Company believes these activities are likely to result in
energy savings on its system but are not quantified or claimed in annual savings. Id.
The Company also criticized Staff’s concern that the FCA is unlikely to produce credits
for customers. Id. at 5. The Company claimed Staff ignored that the FCA was designed to increase
as usage per customer decreases. Id. The Company argued that the FCA has been and continues
to be an effective mechanism for the Company to support energy efficiency resources while
maintaining a reasonable opportunity to recover its fixed costs. Id.
The Company also asserted the Commission has discretion to limit volatility as it
applies the annual 3% cap to FCA increases. Id. at 6. However, the Company does not believe it
is necessary to increase the 3% cap on FCA increases. Id. The Company stated that the
Commission has the authority to determine whether a rate change is fair, just, and reasonable based
on facts at a certain point in time and the Company believes it will apply that authority when it
deems necessary. Id.
The Company believes that a “thoughtfully implemented rate design” could reduce the
Company's reliance on a mechanism like the FCA. Id. at 6-7. However, it asserts that the same
basic rate design that existed when the FCA was implemented still exists and modifying the FCA
outside of a general rate review would not be appropriate. Id. at 7.
The Company also disagreed with Staff’s concern that the "FCA allows recovery of
costs without verification that the Company actually incurred them." Id. The Company argued
ORDER NO. 34685 2

while base rates and the FCA components were established in the 2011 GRC, the mere fact that
time has elapsed does not mean that relying on those rates for cost recovery is flawed. Id. The
Company claimed that Staff’s concern ignores the fundamentals of the utility rate-making process
and that this is not the appropriate case to eliminate or modify the FCA. Id.
COMMISSION FINDINGS AND DECISION
The Commission has jurisdiction over this matter under Idaho Code §§ 61-502 and 61-
503. The Commission is empowered to investigate rates, charges, rules, regulations, practices,
and contracts of public utilities and to determine whether they are just, reasonable, preferential,
discriminatory, or in violation of any provision of law, and to fix the same by order. Idaho Code §§
61-502 and 61-503.
The Commission has reviewed the record, including the Application, the comments of
Commission Staff, and the reply comments of the Company. Based on our review, the
Commission finds it reasonable to approve the Application because it complies with the
Commission approved methodology for calculating the FCA. The proposed FCA rates are fair,
just, and reasonable, and adequate to allow the Company an opportunity to collect its authorized
fixed costs in the coming FCA year.
However, the Commission remains concerned that the FCA may reward the Company
for all reductions in per customer energy consumption, whether the reduction results from the
Company’s efforts or matters beyond its control. See Order No. 34346 at 4. The limitations with
the FCA’s design coupled with trends outside the Company’s control have caused increased
charges for customers in seven of the past eight years. We are uneasy about the FCA’s continued
viability without a comprehensive review. Key components of the FCA calculation have not been
updated since the Company’s last general rate case in 2011.
The Company reply comments assert “thoughtfully implemented rate design” could
reduce the Company's reliance on a mechanism like the FCA. Company Reply Comments at 6-7.
The Commission generally agrees with this statement and believes such rate design could alleviate
the Commission’s concerns about the FCA’s limitations. The Commission has previously found
that critical questions related to fixed costs must be addressed and ordered the Company and
interested parties to:
Undertake a comprehensive customer fixed-cost analysis to determine the proper
methodology and "spread" of fixed costs as they relate to the Company's customers.
The Company, with input from interested parties, shall outline the scope of the
ORDER NO. 34685 2

study that should include exploring fixed-cost recovery in basic charges and other
rate design options.

Order No. 34046 at 22; see also Order No. 34608, Case No. IPC-E-18-16.
Based on the foregoing, the Commission encourages the Company, Staff and any other
interested persons to expand prior efforts to collaborate and develop possible rate designs that
provide the opportunity for the Company to recover its fixed costs arising from the provision of
electric service to its customers, while ensuring only just and reasonable rates are being charged
to customers.1 The Commission looks forward to reviewing such rate design proposals.
O R D E R
IT IS HEREBY ORDERED that the Company’s Application is granted. The Company
shall have a net deferral balance of $35,498,856 for the 2020-2021 period, and FCA rates equal to
0.6622 cents-per-kWh for the Residential class and 0.8381 cents-per-kWh for the Small General
Service class. The Company’s proposed Schedule 54 is approved as filed, with an effective date
of June 1, 2020.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order about any matter
decided in this Order. Within seven (7) days after any person has petitioned for reconsideration,
any other person may cross-petition for reconsideration. See Idaho Code § 61-626.
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1 The Commission has often urged the Company, Staff, and any other interested party to collaborate on FCA issues.
In Order No. 34079, the Commission responded to the same concerns raised in this case by stating “[w]e encourage
the Company and Staff to collaborate regarding the issues Staff raised in its comments, prior to the Company making
its 2019 FCA filing.” Order No. 34079 at 4.

ORDER NO. 34685 2

DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 1st
day of June 2020.

PAUL KJELLANDER, PRESIDENT

KRISTINE RAPER, COMMISSIONER

ERIC ANDERSON, COMMISSIONER

ATTEST:

Diane M. Hanian
Commission Secretary

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