20211228Final_Order_No_35273.pdf

ORDER NO. 35273 1

Office of the Secretary
Service Date
December 28, 2021
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IDAHO POWER COMPANY’S
APPLICATION FOR MODIFICATION OF
THE FIXED COST ADJUSTMENT
MECHANISM
)
)
)
)
)
CASE NO. IPC-E-21-39

ORDER NO. 35273

On November 10, 2021, Idaho Power Company (“Company”) applied to modify its
fixed cost adjustment (“FCA”) mechanism by creating separate, and reduced, fixed cost tracking
for new Residential and Small General Service (“R&SGS”) customers added to the Company’s
system starting January 1, 2022. The Company proposed this modification to recover costs from
its investments in promoting more energy efficient methods. The Company requested its
Application be processed by Modified Procedure.
On November 29, 2021, the Idaho Public Utilities Commission (“Commission”) set
deadlines for interested persons to comment on the Application. See Order No. 35242. The
Commission Staff (“Staff”) and Clean Energy Opportunities for Idaho (“CEO”) filed comments
on December 20, 2021. The Company did not file reply comments.
Having reviewed the record, the Commission grants the Company’s Application as set
forth in our findings below.
BACKGROUND
The FCA is an annual rate adjustment mechanism designed to decouple Idaho Power’s
fixed-cost recovery from its volumetric energy sales. Under traditional rate design, a utility
recovers much of its fixed costs through volumetric rates. Fixed costs are a utility’s costs to provide
service that do not vary with fluctuations in energy consumption, whereas variable costs, as their
name suggests, vary based on the energy generated and consumed. When a utility’s customers
demand less energy, the utility’s variable costs decline in proportion to the reduced demand.
However, the utility’s fixed costs to meet customer demand stay the same. Therefore, when fixed
costs are recovered through volumetric rates, an economic disincentive exists for the utility to
invest in energy efficiency and demand-side management (“DSM”) programs, which reduce
customer consumption. Because the Company and the Commission have long agreed that
promoting cost-effective DSM and energy efficiency is integral to least-cost electric service, the

ORDER NO. 35273 2

Commission approved the Company’s use of the FCA for the R&SGS classes. See Order No.
30267 at 13-14 (finding DSM is an integral part of least-cost electric service and approving the
FCA as a three-year pilot program). The FCA mechanism currently consists of three assets: (1)
distribution, (2) transmission, and (3) generation.
APPLICATION
The Company proposed to modify the FCA by instituting separate and reduced
fixed cost tracking and recovery for new R&SGS customers added to the Company’s system
starting January 1, 2022. Through this modification, the authorized level of fixed cost recovery
for new customers would exclude generation and transmission-related fixed costs and continue to
include distribution and other customer-related fixed costs. This change would reduce the amount
of FCA facilitated fixed cost recovery associated with investments that have not been audited and
reviewed for prudency by the Commission.
The proposed FCA modifications work identically for both the R&SGS classes. If
approved, the Company would bifurcate the authorized Fixed Cost per Customer (“FCC”) and
Fixed Cost per Energy (“FCE”) between “existing” and “new” customers. No change is proposed
to the authorized FCC for existing customers. The proposed FCA modification for new customers
modifies the authorized fixed cost per new customer rate to exclude generation and transmission
functionalized costs and comprises distribution and customer fixed costs.
STAFF COMMENTS
Staff recommended approving the Company’s Application as filed. Staff agreed that
the Company’s proposal would bifurcate the authorized fixed cost recovery between existing and
new customers. Staff said the Company’s proposal removes the fixed cost recovery of generation
and transmission investment from new customers added to the system on or after January 1, 2022,
until the next general rate case. Staff was encouraged by the Company’s willingness to continue
working with Staff and other parties to explore rate design solutions that may improve fixed cost
collection and reduce the reliance on the FCA over time. Staff also said that the Company’s
Application is a result of the discussions it had with the Company as ordered by the Commission
in Case No. IPC-E-21-03 and is a “middle ground” solution based on the differences in FCA
methodology between Staff and the Company. See Order No. 35056.

ORDER NO. 35273 3

Staff warned that the FCA mechanism should not be a substitute for a general rate case
because the amount of transmission and generation investment cannot be estimated as new
customers are added to the system as can be done for distribution investment. Thus, Staff argued
that if customer growth causes the Company to incur additional capital investments in transmission
and generation assets, then recovery of those assets would be best addressed through a general rate
case. However, Staff determined that this temporary solution provided the Company some
assurance of fixed cost recovery without eliminating the FCA mechanism altogether. Therefore,
Staff recommended approving the Company’s Application as filed.
PUBLIC COMMENTS
On December 20, 2021, CEO expressed concern that under Staff’s analysis, the FCA
mechanism as currently employed would transfer more costs to residential customers than the
share of residential energy efficiency load reductions warrant. CEO stated that it was not organized
when the Commission issued Order No. 34685 and therefore, did not participate in the meetings
between the Company and Staff where common ground was reached. CEO stated that dramatic
changes have occurred in the electric utility industry since 2004 when the FCA was implemented.
CEO believed that future costs could be mitigated and suggested that other dockets from this year
raised issues related to a probabilistic “ELCC” analysis and posited whether it would displace
specific coincident peak hour loads as a mechanism for determining capacity deficiencies. CEO
asked whether a study of rate designs from these dockets, rate designs related to customer-owned
generation in another docket, and capacity deficiency measurements in a third docket detracted
from a better way to serve the public interest. CEO asked the Commission to deny the Company’s
proposed application as filed and suggested that the FCA modification proposed by the Company
only last through 2022.
COMMISSION FINDINGS AND DECISION
The Commission has jurisdiction over this matter under Idaho Code §§ 61-501, -502
and -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.

ORDER NO. 35273 4

Under the foregoing authority, we have reviewed and considered the record, including
the Company’s Application, Staff’s comments, and CEO comments. Fixed cost adjustment
mechanisms are intended to remove the disincentive for the Company to promote energy efficiency
and conservation, thereby allowing customers more control over their bills. However, we agree
with Staff and CEO that the FCA mechanism should continue to be reviewed as new ways of
recovering fixed costs are explored. The FCA is not a substitute for a general rate case; thus, the
Commission approves the Company’s Application as filed, but expects and encourages productive
dialogue between Staff and the Company to continue in its exploration of rate designs to recover
fixed costs without the need for an FCA.
Because this modification proposed by the Company eliminates fixed cost recovery
due to new customer growth for investments best determined in a general rate case, the
Commission finds that the proposed modification is just, fair, and reasonable.
O R D E R
IT IS HEREBY ORDERED that the Commission approves the Company’s Application
to allow the Company to modify its FCA mechanism and institute separate, and reduced, fixed
cost tracking for residential and small general service customers added to the Company’s system
effective January 1, 2022.
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. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code § 61-626.
//

ORDER NO. 35273 5

DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 28th day
of December 2021.

ERIC ANDERSON, PRESIDENT

KRISTINE RAPER, COMMISSIONER

PAUL KJELLANDER, COMMISSIONER

ATTEST:

Jan Noriyuki
Commission Secretary

I:\Legal\ELECTRIC\IPC-E-21-39\orders\IPCE2139_final_tb.docx