20230411Staff Comments.pdf

CLAIRE SHARP
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE,IDAHO 83720-0074
[phone]
IDAHO BARNO.8026
Street Address for Express Mail:
11331 W CHINDEN BLVD,BLDG 8,SUITE 201-A
BOISE,ID 83714
Attorneyfor the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF ROCKY MOUNTAIN )
POWER'S APPLICATION FOR AUTHORITY )CASE NO.PAC-E-22-15
TO IMPLEMENT THE RESIDENTIAL RATE )MODERNIZATION PLAN )COMMENTS OF THE
)COMMISSION STAFF
COMMISSION STAFF ("STAFF")OF the Idaho Public Utilities Commission,by and
through its Attorney of record,Claire Sharp,Deputy AttorneyGeneral,submits the following
comments.
BACKGROUND
On October 20,2022,PacifiCorp d/b/a Rocky Mountain Power ("Company"),applied to
the Commission requesting authorization to implement a residential rate modernization plan over
a five-yeartransition period ("Residential Rate Modernization Plan"or "Plan").Application at 1.
On November 30,2022,the Commission issued a Notice of Application,Notice of
Suspension of Proposed Effective Date,and Notice of Intervention Deadline.Order No.35615.
Clean Energy Opportunities for Idaho ("CEO");The Idaho ConservationLeague
("ICL");and the NW Energy Coalition ("NWEC")intervened.Order Nos.35634 and 35655.
In its Application,the Company proposed three changes to its residential rates:
STAFF COMMENTS 1 APRIL 11,2023
1.Increasing the Customer Service Charge for both Electric Service Schedule No.1
-Residential Service ("Schedule 1"),and Electric Service Schedule No.36 -
Optional Time of Day -Residential Service ("Schedule 36")to $29.25 per month,
and reduce the energy charges commensurately (the Customer Service Charge is
currently$8 per month for Schedule 1,and $15 per month for Schedule 36);
2.Eliminatingthe inclining block tiered rates for Schedule 1;and
3.Changing the TOU periods in Schedule 36 to define the on-and off-peak periods
to match those listed on Electric Service Schedule No.9 -General Service -High
Voltage.
Application at 2-3.
The Company asserted that this rate modernization would be revenue neutral,and the
proposed changes be phased in over a five-year period.The Change in TOU periods would
occur in year 3.Application at 5.
STAFF ANALYSIS
Staff reviewed the Application,testimony and additional information provided through
discovery.Staff's review focused on:(1)revenue neutrality;(2)each element of the Company's
proposal's alignment with cost causation;(3)each element of the Company's proposal's impact
on energy conservation;and (4)impacts to customers.
Based on Staff's analysis of the Plan and applying each criterion,Staff recommends the
Commission approve the Company's Plan with modifications as outlined below:
1.Approve the increase to the Customer Service Charge over the five-year transition
period,as proposed by the Company;
2.Tiered rates should be retained,but adjusted commensurately to maintain revenue
neutrality;and
3.Approve the adjustments to the time of use ("TOU")periods for Schedule 36,as
proposed by the Company.
In order to implement the Company's proposed Customer Service Charge and to maintain
the tiered rate differential,Staff developedproposed rates for Schedule 1 as reflected in Table
No.1 below.Staff confirmed that Staff's proposed rates will maintain revenue neutrality.
STAFF COMMENTS 2 APRIL 11,2023
Table No.1:Revised tiered rates for Schedule 1
STAFF PROPOSAL COMPANY PROPOSAL
Summer Season Winter Season Summer Season Winter Season
Transit First Second First Second First Second First SecondionTierTierTierTierTierTierTierTierYearEnergyEnergyEnergyEnergyEnergyEnergyEnergyEnergyChargeChargeChargeChargeChargeChargeChargeCharge(cents/k (cents/k (cents/k (cents/k (cents/k (cents/k (cents/k (cents/kWh)Wh)Wh)Wh)Wh)Wh)Wh)Wh)Present 11.1966 13.0999 9.3305 10.9165 11.1966 13.0999 9.3305 10.9165
1 10.5846 12.4879 8.8205 10.4066 10.6887 12.2114 8.9073 10.1761
2 9.9726 11.8759 8.3105 9.8966 10.1809 11.3229 8.4841 9.4357
3 9.3606 11.2639 7.8005 9.3866 9.6731 10.4344 8.0609 8.6953
4 8.7486 10.6519 7.2905 8.8766 9.1652 9.5459 7.6377 7.9549
5 8.1366 10.0399 6.7805 8.3666 8.6574 8.6574 7.2145 7.2145
Under these rates,more customers would see a reduction in their monthlybills.The
break-evenpoint is the amount of monthlykilowatt-hour("kWh")consumption where a
customer would receive the same bill in the new Plan as they would in the current structure.Any
customer whose monthly consumption is greater than the break-evenpoint would typically see a
bill reduction and a customer whose monthlyconsumption is less than the break-even point
would typically see a bill increase.Under the Company's Plan,the final break-evenpoint is 778
kWh in summer and 1,002 kWh in winter.Under Staff's proposed tiered rates,the break-even
point is 694 kWh in the summer and 833 kWh in the winter.This means that more customers
will see their monthlybill decrease.The magnitude of the bill increase for low-volume
customers will be less than under the Company's Plan.
Overview of Staff's Evaluation Criteria
To evaluate the Company's proposal,Staff used four criteria to perform its analysis of the
Company's proposal:(1)Revenue Neutrality,(2)Cost Causation,(3)Conservation of Energy,
and (4)Customer Impacts.
STAFF COMMENTS 3 APRIL 11,2023
Revenue Neutrality
Staff assessed whether the proposed new rates attain the same revenue requirement that
was approved in Commission Order No.35277 at the conclusion of the Company's most recent
general rate case,PAC-E-21-07.1 This criterion must be satisfied.
Cost Causation
A long-standing principle in utility regulation is that costs should be aligned with the
those creating the cost.Staff analyzed each proposed rate adjustment for its likely impact on
aligning the costs with the cost-causer.Better cost alignment is generally more desirable.
Conservation of Energy
Conserving energy is desirable because it can ultimatelyavoid expensive infrastructure
investments.For each proposed rate adjustment,Staff assessed the probable change to
conservationincentives.
In support of this principle,Staff notes that in 2005 the National Action Plan for Energy
Efficiency,an initiative consisting of organizations such as the Department of Energy ("DOE"),
Environmental Protection Agency,and National Association of Regulatory Utility
Commissioners ("NARUC"),stated that "Retail rate designs with clear and meaningful price
signals,coupled with good customer education,can be powerful tools for encouraging energy
efficiency."Staff also notes that the DOE stated in a 2007 report to Congress that rate design is
one of ten mechanisms for enhancing energy efficiency.
Customer Impacts
Staff analyzed the impacts that each proposed rate adjustment is likely to have on
Schedule 1 and Schedule 36 customers ("customers").
Increased Customer Service Charge and Reduced Energy Charge
Staff recommends approval of the Company's Plan to increase Customer Service Charges
as filed.Staff believes that the increased recovery of the Company's fixed costs through the
In the Matter of Rocky Mountain Power's Applicationto Increase its Rates and Charges in Idaho and Approvalof
Proposed Electric Service and Schedules and Regulations.Order No.35277.
STAFF COMMENTS 4 APRIL 11,2023
Customer Service Charge outweighs the trade-off of potentiallyreducing the incentive to
conserve energy.
Annual bills will change by less than six percent for approximately 90 percent of
customers.Furthermore,the rate restructuring would stabilize monthly bills,which could be a
customer benefit,especially to low-income customers.Lastly,the Company's Table No.1,
Meredith Direct at 9,shows that the proposed Customer Service Charge is in line with other
Idaho electric utilities.
Company's Justification
The Company asserts that the "current residential rate structure does not adequately
reflect cost causation...The Customer Service Charge falls far short of covering the fixed costs
that are incurred by residential customers and those fixed costs are thereforerecovered through
volumetric Energy Charges."Meredith Direct at 4.Also,"on average,the cost of service for a
residential customer is $97.32 per month.$22.84 or about 23 percent of this value is energy
related.The remaining $74.48 or about 77 percent is fixed and not energy related.For Schedule
1,only about nine percent of revenue is recovered through the Customer Service Charge.For
Schedule 36,only about eleven percent of revenue is recovered through the Customer Service
Charge."Meredith Direct at 6-7.
The Company also provided Table No.1 that shows the fixed monthlyresidential charges
for all Idaho electric utilities with more than 1,000 customers.The average price of the eleven
companies was $23.32.Meredith Direct at 9.The Company's average Customer Service
Charge in their other service territories range from $6 to $20,with an average of $11.43.2
Analysis of Revenue Neutrality
Staff's analysis confirmed that the prescribed energy consumption,combined with the
Company's proposed Plan,will yield the prescribed revenue approved in Order No.35277 for
both Schedule 1 and Schedule 36.
2 Company response to ICL-NWEC Production Request No.7.
STAFF COMMENTS 5 APRIL 11,2023
Analysis of Cost Causation
Staff analysis confirms that the current Schedule l and 36 rates do not currentlyalign
with cost causation.The Cost-Of-Service Study from the Company's Idaho 2021 general rate
case shows that 77 percent of the Schedule 1 expenses are classified as fixed costs,and 23
percent are energy-relatedcosts.Schedule 36 proportions are 74 percent and 26 percent,
respectively.The current fixed portion of a customer's bill (the Customer Service Charge)
recovers only nine percent of the fixed expenses.The remaining 68 percent of the fixed costs are
recovered through the volumetric Energy Charge.High volume users bear a disproportionate
share of the Company's fixed costs,and low volume users are subsidized.
There are legitimate reasons to increase the Customer Service Charge to have more of the
fixed costs borne by those customers causing more of the cost.First,the accurate assignment of
costs is a fundamentally fair approach.Second,the misalignment of costs can create revenue
recovery distortions.Finally,misaligned costs can give customers an incorrect perception of the
cost and value of Company's services.
The Company's proposal is to recover all fixed costs related to the distribution system
and customer service through the Customer Service Charge.Meredith Direct at 7.This proposal
would shift approximately 22 percent of the fixed costs from the energy charge into the fixed
Customer Service Charge.The resulting ratio of the average customer bill would be 31 percent
fixed to 69 percent variable,which better aligns to the principles of cost causation.
Staff believes the Company's proposal is justifiedfor two reasons.First by shifting
distribution fixed cost into the customer charge,it shifts a reasonable percentage of residential
customer fixed costs into a fixed-type of charge.Second,the peak use of the distribution system
between residential customers is relativelyhomogenous because of relativelysmall service
requirements compared to other customer classes.Thus,distribution fixed costs are relatively
evenly incurred between residential customers,thus striking a good balance of equity and
assurance of fixed cost recovery.
Analysis of Energy Conservation Incentive
One consequence of recovering a higher percentage of the fixed costs through the
Customer Service Charge is the corresponding reduction in the volumetric energy charge,which
can reduce the incentive for customers to conserve.
STAFF COMMENTS 6 APRIL 11,2023
The Company's proposal reduces the summer energy rate to 8.7 cents per kilowatt-hour
("kWh")from the current rate of 12.1 cents per kWh after the five-year transition period.The
lower unit cost of energy may reduce the incentive for some customers to conserve energy.
Analysis of Customer Impacts
Staff analysis confirmed that the Company's Plan would have a minimal effect on the
average customer.For the average Schedule 1 customer,the full rate implementation would
increase the average monthlybill by $2.70,an increase of 3.1 percent.The class average
monthlyusage is 783 kWh.For Schedule 36 customers,the average monthlyusage is 1,397
kWh,and the full rate implementation would decrease the average monthlybill by $1.87,a
decrease of 1.3 percent.
As a customer's monthlyusage moves away from the average,the magnitude of the
impact would grow.For customers who use less than the average,their bills would increase.
Customers who use more than the average would see a decrease.Because most customers
cluster around the average consumption,the bill impact will be minimal for most customers.
Company data shows that approximately 89 percent of all Schedule 1 customers would see an
increase or decrease of less than 6 percent in their annual bills.For Schedule 36 customers,91
percent would see an increase or a decrease of less than 2 percent.
By increasing the Customer Service Charge and reducing the energy charge,the recovery
of fixed costs will shift from high-volumeusers to low-volume users.This is in accord with the
principle of cost causation,but the effect should be noted.
In response to CEO Production Response No.3,the Company stated if their proposed
rates were fully applied in past years,annual revenue would have been slightly lower for
Schedule 1,and remained even or would have decreased for Schedule 36.
A benefit of the Company's Plan is that bills will be more stable throughoutthe year.
Generally,bills that fluctuate less from month to month are easier to budget and plan.By
increasing Customer Service Charges and decreasing the energy charge,billed amounts will
become more stable.
Public comments received by solar advocates have stated that the increase in the
Customer Service Charge may impact investments in solar arrays.Staff would like to reiterate
that Idaho Code §48-1805,Contents of Disclosure Statement for any Solar Agreement,clearly
STAFF COMMENTS 7 APRIL 11,2023
outlines that on-site generationparticipants should understand that net metering program,cost
savings,or incentives,are subject to change.In Order No.34509,the Commission
unequivocallyadvised "stakeholders in the on-site generationindustry,[(which include,but may
not be limited to,solar installers,solar advocates,and the Company)]to be completely
transparent with potential investors that a utility'srate schedule is subject to change."
Eliminate IncliningBlock Tiered Rates for Schedule 1
The combined effect of raising the fixed service charge and eliminating tiered rates may
shift the pricing signal too far away from energy conservation.Althoughthe overall bill impact
to customers is minimal,low-volume customers'bills will increase.Reducing the magnitude of
the increases would be beneficial to customers.Therefore,Staff recommends rejection of the
Company's proposal to eliminate tiered rates at this time.However,Staff encourages the
Company to utilize information from advanced meters to explore TOU rate changes in lieu of
tiered rates in a general rate case.
Company's Justification
Company witness Meredith states that "tiered rates produce more problems than they
solve because they are not economically justifiedand undulypenalize customers."Meredith
Direct at 10.
Regarding the lack of economic basis,Meredith states,"There is no cost-based reason
why after using 700 kWh or 1,000 kWh in a given month the next kWh consumed by a customer
should cost more."Meredith Direct at 11.
Regarding the undue penalization of customers,Meredith states,"charging higher prices
for greater usage in a given month causes larger users to subsidize smaller users...Effectively,
inclining block rates unfairly reward some customers and punish others,often for reasons outside
the customer's control."Meredith Direct at 11.
Finally,Meredith asserts that block-tiered rates in Schedule 1 make it difficult for
customers to compare the rates with Schedule 36 to make a fully informed choice.
STAFF COMMENTS 8 APRIL 11,2023
Analysis of Revenue Neutrality
Staff analysis confirmed that the prescribed energy consumption,combined with the
Company's proposed Plan,will yield the prescribed revenue for both Schedule 1 and Schedule 36.
Analysis of Cost Causation
As mentioned above,the primary purpose of tiered rates has been to send a conservation
price signal to customers.Any correlation between tiered rates and cost causation is tenuous.
The costs in question are the demand-relatedexpenses for Production and Transmission.
Combined,the demand-related expenses amount to 46 percent of all Schedule 1 costs,and 49
percent of all Schedule 36 costs.
At issue is whether high-volumeusers within each class are the cost-causer of the
demand-related expenses.The demand-related expenses are caused by high electric usage at
specific times of the day on specific days.It does not necessarily follow that high-volumeusers
are using any more or less energy during the times when demand expenses are incurred.A high-
volume user who uses electricity in the middle of the night would not cause any of the demand-
related expenses.Conversely,a frugal consumer who uses electricity during the peak hour of the
day will cause a portion of the demand-related costs.Without advanced meter information and
TOU rates,it is not feasible to accurately assign demand-related costs to the cost-causer.
Therefore,Staff concludes that the nexus between tiered rates and cost causation is minimal.
Analysis of Energy Conservation Incentive
The Commission's stated purpose for tiered rates is for sending price signals to customers
to conserve.However,it is important to remember that the primary price signal comes from the
absolute cost of a kWh,regardless of whether it is in the first tier or the second tier.The
incremental increase from one tier to the next sends a smaller signal.Under the current rate
structure,the incremental price increase between tiers is 17 percent.
Some customers may have a limited ability to significantlyalter their energy
consumption.A customer with electric home heat or a large family will unavoidably use more
electricity and therefore bear a disproportionately larger share of the fixed costs that are
imbedded in the volumetric rate.
STAFF COMMENTS 9 APRIL 11,2023
On the contrary,some customers do have the opportunityto limit their energy
consumption in areas.Small actions such as turningoff lights,unplugging unused electronics,or
altering a thermostat's temperature a few degrees contributes to reducing a customer's energy
consumption.Price signals from inclining block rates or TOU rates could promote shifts in
energy consumption helping to avoid expensive infrastructure investments.
Shifting recovery from volumetric rates reduces incentives for conservation and by
preservingtiered rates,some incentive for conservation is maintained.
Analysis of Customer Impacts
Staff's analysis of Customer Impacts for the "Higher Fixed Charge and Lower Energy
Charge"section pertains equally to this section.The analysis considered the change in fixed
charges and the elimination of tiered rates.
The elimination of tiered rates would effectivelyreturn a small amount of the fixed cost
recovery from high-volumecustomers to low-volume customers.
The elimination of tiered rates would reduce bill complexityfor customers.Tiered rates
can make customer bills harder to understand and make it more difficult for customers to project
their costs,whether for budgeting purposes or for financial investments.However,with the
installation of advanced meters,customers can track their hourly,daily,weekly,and monthly
energy usage data online,thus allowingcustomers to better project their energy consumption and
bills for each billing cycle.
Change the On-Peak Hours for Schedule 36
Staff recommends that the Company's proposed adjustment to Schedule 36 be approved
as filed.Staff's recommendation is based on its analysis of the Company's proposal using
Staff's four criteria described above.
Company's Justification
Company witness Meredith states that "The time of use periods for Schedule 36,that
have been in place since the early 1980's,are no longer reflective of costs....The Company is
proposing to change the time of use periods...that better reflects times when it is more costly for
the Company to serve."Meredith at 13-14.Meredith also states,"In the 2021 Rate Case,the
STAFF COMMENTS 10 APRIL 11,2023
Company identified these hours as the times during both seasons when the Energy Imbalance
Market ("EIM")pricing was the highest and used them to set time varyingpricing definitions
that are currentlyin place for Schedule 9."Meredith at 14.
Analysis of Revenue Neutrality
Staff's determined that total on-peak hours in a year will be reduced from 3,795 to 2,920,
and the off-peak hours will be increased commensurately.To determine the rates that would
remain revenue neutral,the Company had to estimate how much energy would be consumed in
the new on-peak and off-peak periods.The Company used 2019 hourly consumption data for the
class and re-correlated each hour of consumption to the new on-and off-peak periods.Staff
validated this re-correlation.
However,the implicitassumption in this approach is that class customers won't change
their behavior given the new on-peak hours.Presumably,customers will modify their usage
patterns in favor of the off-peak periods,which will drive the class revenue down.Until actual
data can be collected,the impact on behaviors are unknown and should be reevaluated in the
future.Therefore,Staff believes the Company's proposal is revenue neutral.
Analysis of Cost Causation
Staff confirmed that the adjusted on-peak hours align more closely with the higher cost
energy periods in the real-time EIM.This alignment was also validated in the 2021 rate case.
Therefore,Staff concludes that this proposal improves the alignment of costs to cost causers.
Analysis of Energy Conservation Incentive
Schedule 36 is a TOU rate,which is fundamentallydesigned to incentivize energy
conservation.However,the proposal will increase the number of off-peak hours in a year,which
will increase the opportunity to use inexpensive energy.It is possible energy consumption may
increase,but the extent to which customers will change their behavior is difficult to predict.
Staff believes the change will be small because participants in this program are presumably
conservation conscious.
On the other hand,Staff believes that the new,focused,on-peak hours will be more
manageable for customers;therefore,more customers may opt for this TOU Schedule supporting
STAFF COMMENTS 11 APRIL 11,2023
increased energy conservation.Realistically on balance,Staff believes that the impact of this
proposal will have minimal impact on the incentives to conserve energy.
Analysis of Customer Impacts
Changing the on-and off-peak hours has no direct financial impact on customer bills.It
could have an indirect impact on customers whose main hours of energy usage fall within the
new on-peak time windows.If these customers are unable or unwillingto modify their energy
behavior,the impact could be substantial.However,the Company plans to use the first two
years to educate and inform customers of the change.Customers who cannot adapt their energy
consumption will always have the option to leave Schedule 36 and return to Schedule 1 service.
Transition Period
The Company's Plan will modify Schedule 1 and Schedule 36 residential rates gradually
over a five-year transition period to mitigate impacts on individual customers.Staff's analysis of
the customer impacts shows that the incremental year-to-year impact for each of the five years
should be nearly imperceptible.Thus,Staff recommends using a transition period of five years.
CUSTOMER NOTIFICATION,PRESS RELEASE,WORKSHOP AND CUSTOMER
COMMENTS
Customer Notification and Press Release
The Company submitted a Press Release and Customer Notice with the Application.The
customer notice was included as an insert in the customer billingand was also available on the
Company's website.The Company also posted notice of both Company and Commission
workshops on its website.
Customer Workshop
A customer workshop was held at the Idaho Fish and Game office in Idaho Falls,Idaho
on Tuesday,March 14,2023,beginning at 6:00 pm.There were four people in attendance as
well as Company representatives.The Customers represented concerns similar to those
presented in customer comments submitted to the case record.
STAFF COMMENTS 12 APRIL l1,2023
Customer Comments
As of April 6,2023,42 customer comments have been received.All of the customers
were against the transition to higher Customer Service Charges.Customers view the change as
harmful to low usage customers and to customers with limited income.Customers with existing
solar arrays are concerned about a decreased return on their investment if the fixed monthly
charge increases.
STAFF RECOMMENDATION
Staff recommends approval of the Company's Application as filed except for its proposal
to eliminate tiered rates.In addition,Staff recommends:
1.Tiered rates be continued for Schedule 1 as shown in Table No.1,and that the tier
differential remain constant as they are stepped down commensurate with the
increasing Customer Service Charge;and
2.Approving a transition period of five years.
Respectfully submitted this day of April 2023.
Claire SÌ1arp
Deputy Attorney General
Technical Staff:Travis Culbertson
Jolene Bossard
Matt Suess
Joseph Terry
Ty Johnson
Chris Hecht
i:umisc/comments/pace22.15cstnc comments
STAFF COMMENTS 13 APRIL 11,2023
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I HEREBY CERTIFY THAT I HAVE THIS 1lth DAY OF APRIL 2023,SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF,INCASENO.PAC-E-22-15,BY E-MAILING A COPY THEREOF,TO THE
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