27351.docx

(text box: 1)BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF THE WASHINGTON WATER POWER COMPANY FOR APPROVAL OF A PILOT PROGRAM TO ALLOW A PORTION OF THE COMPANY’S RESIDENTIAL AND COMMERCIAL ELECTRIC CUSTOMERS TO CHOOSE FROM A MENU OF ENERGY SERVICE ALTERNATIVES (MOPS II).
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CASE NO. WWP-E-97-11
ORDER NO.  27351
On November 24, 1997, The Washington Water Power Company (Water Power; WWP; Company) filed an Application with the Idaho Public Utilities Commission (Commission) requesting approval of a proposed pilot program that will allow a portion of the Company’s residential and commercial electric customers to choose from a menu or portfolio of energy service alternatives.  The tariff offerings are intended to provide customers a choice of energy service alternatives without having to change energy service providers.  The MOPS II pilot would run for a two-year period beginning May 1, 1998, and would be available to customers in Deer Park, Washington (2,256 customers; 5.3 aMW), and to the Company’s residential (Schedule 1), commercial (Schedule 11, 21), and pumping service (Schedule 31) customers in Hayden (including Hayden Lake), Idaho (5,570 customers; 10.6 aMW).
Water Power proposes four energy alternatives in addition to traditional service.
1.  Traditional Energy Service: customers may elect to remain with existing pricing.
2.  Monthly Market Rate: energy service based on month-to-month market prices.
3.  Annual Market Rate: energy service based on year-to-year market prices.
4.  Standard Rate Offer: a fixed energy rate for the term of the pilot based on the Bonneville Power Administration’s (BPA) preference (PF) rate.  Customers who choose the monthly and/or annual market rate options may not return to traditional energy service.  Those customers who want to return to a more stable energy service may choose the Standard Rate Offer—the Company states that the purpose of the standard rate offer is to reflect in the pilot the fact that in a customer-choice environment, the customer’s “empty chair” may not be saved for them on the chance that they may someday return to use it.
5.  “Green Resource” Rate: this option allows customers the choice of paying an incremental amount on their monthly bills to contribute toward the development and operation of renewable resources.  The incremental revenue would provide funds to acquire new renewable resources (wind), or increase the output of existing renewable resources (WWP-Kettle Falls) through paying above-market transportation costs to secure fuel from further distances than is currently feasible.  ($1.00 per 73 kWh of wood waste generated electricity, or 50 kWh of wind generated power).  
As represented by the Company:
Existing energy commodity rates of electric utilities are based on the cost of providing long term firm resources.  However, the energy “products” that marketers and brokers are offering are different.  Transactions in the wholesale market today are primarily for terms of 5 years or less, from surplus power, and can be as short as trading on an hour-by-hour basis.  Short term energy products today are less costly, yet carry greater risk for future price fluctuation, than the total costs associated with the longer term resources currently held by most utilities.  This is the basis for the MOPS II pricing proposals.  And, thus, participating customers may opt for pricing based on short-term costs that may be cheaper than existing traditional service, but may incur a greater risk for future price changes.
The Company states that its proposal differs from its legislative proposal which, in addition to portfolio access, includes direct access for large use and aggregated customers with reciprocity for service to other utilities’ customers.  The Company is not including direct access provisions in MOPS II.
For customers choosing traditional energy service, the Company proposes to include in their tariff commodity rates for informational purposes to show eligible MOPS II pilot customers the rate they would need to “meet” under other energy service alternatives, in order to save money on their electric bill.
Customers choosing the monthly or annual market rates must remain on that schedule for a minimum of one year.  Adjustments will be made to the market rate to reflect the average load factor for eligible customers.  The market rate will also be increased by $0.0005 per kWh (0.5 mills/kWh) to compensate the utility for the service being provided, including aggregating and purchasing for customers, the cost exposure to the utility from the difference between the energy actually purchased and the customer’s load, non-delivery by the supplier, etc.
The proposed delivery rates for MOPS II include charges for transmission, distribution, ancillary services, A&G, and one-half of the Company’s estimated loss margins.  Ancillary services (2.00 mills per kWh) include such services as regulation and frequency control, spinning and operating reserves, and supplemental operating reserves.  The Company is proposing to use the delivery service rates developed for the MOPS pilot with two adjustments.  First, the transmission component of the delivery rates would be based on the state-determined revenue requirement and methodology.  Second, the estimated loss margin, 50% of which is included in delivery rates, is recalculated based on an estimated market price of $17.9/MWh rather than the lower $14.7/MWh used in the original MOPS pilot.  The resulting delivery rates for MOPS II are lower than for MOPS.
The Company is proposing to defer the estimated MOPS II pilot costs ($660,500) together with the accrued original MOPS pilot costs through August 1997 ($325,000) and estimated post-August 1997 MOPS pilot costs, and accrued rate of return on the balance, for recovery in its next general rate case.  The Company agrees to cap the deferred MOPS and MOPS II pilot costs to a total of $1,161,500 on a system basis, excluding a return component.  Incremental costs ($122,000) associated with the Odessa/Harrington, Washington component of the MOPS pilot will be assigned to Washington customers for future recovery.
The MOPS II pilot, along with the MOPS pilot, the Company contends provide testing grounds to identify and analyze many of the legal, accounting, administrative, and implementation issues surrounding electric-restructuring.  This the Company represents will benefit all customers in the future, and therefore the Company contends that it is appropriate to spread these costs to all customers.
The Company is proposing to accrue a return on the balance of the deferred pilot costs for no more than one year beyond the MOPS II pilot.  If at the end of such time the Company does not file a general rate case, the Company would cease accruing a return on the balance and would start amortization of the balance over a three-year period.  The Company states that it is proposing to absorb one-third of the lost margin associated with the MOPS II pilot.
The Company proposes to prepare and file periodic reports to the Commission summarizing the findings related to the MOPS II pilot.  
Water Power requests that the Commission:
1.  Approve the proposed MOPS II pilot, including the tariffs, to become effective (as per agreement) February 1, 1998;
2.  Approve the Company’s proposed accounting treatment to defer the incremental program costs, with a return on the balance through April 30, 2001.  Recovery of the costs would be addressed in the next general rate case.  If the Company does not file a general rate case within one year following the end of the pilot, the Company would cease accruing a return on the balance and start amortization of the balance over a three-year period beginning May 1, 2001.
Commission Notices of Application and Modified Procedure in Case No. WWP-E-97-11 were issued on December 18, 1997.  The deadline for filing written comments or protests was January 14, 1998.  The Commission Staff was the only party to file comments.  
Staff expresses several concerns with the MOPS II proposal:
●Beneficiary of MOPS II implementation
It is Staff’s belief that without alternate supplier participation the main beneficiary of MOPS II is the Company.  Information gained through the pilot will improve the Company’s competitive position should full retail access occur rather than the Company’s legislative portfolio access model for electric industry restructuring.
●Scope of MOPS II
A customer electing to participate who subsequently decides that the pilot is not in his or her best interest must stay in the program until it ends.  In a competitive environment, Staff contends that a customer would have more alternatives, including an aggregator or supplier that is willing to assume the risk of market price fluctuations.  
●Deferral and recovery of costs
As competition looms on the horizon ,Staff expresses concern with the deferral of costs for later recovery.
Staff recommends that the MOPS II proposal be approved with modification.  Staff recommends that the Company not be permitted to defer program costs.  Staff proposes that program costs either be absorbed by the Company or that the Company be allowed to recover them from those customers who choose to participate.  Staff further recommends that the MOPS II program changes adopted in Washington in WUTC Docket UE-971668 be incorporated in any approved pilot in Idaho.  
Water Power in a reply filed January 22, 1998, disagrees with the Staff recommendation that the Company’s deferral of incremental program costs not be permitted.  The MOPS II pilot, the Company states, is designed to test customer access to choice from the incumbent utility.  The Company has committed to share information with interested parties.  The Company contends that participating customers will benefit by access to discounted market power; that regulators and legislators will benefit from the pilot’s examination of electric restructuring issues dealing with customer choice, power distribution, and customer education; and that through Company education and media coverage, customers and Idaho citizens will learn more about electric restructuring and potential options.
Water Power represents that the level of MOPS II program costs are reasonable.  Using a 33% allocation factor to Idaho, the Company calculates that a total of approximately $218,000 in incremental administration and general costs would be deferred to Idaho from MOPS II for the two-year program.  Further, the Company notes that only 17% of any actual loss margins would be deferred.  The remainder will either be included in the delivery rates to be paid by participating customers or would be absorbed by the Company.  The Company in additional written reply filed with the Commission on January 23, 1998, represents that it also opposes the recommended spreading of any additional MOPS II costs to program participants, contending that recovering all incremental costs from participating customers would render the pilot uneconomic to participating customers.
WWP Amended Schedule 17 Tariff Filing
To conform the Company’s Idaho MOPS II program with MOPS II program changes approved by the Washington Utilities & Transportation Commission, Water Power on February 2, 1998 submitted the following amendment to its WWP Electric Tariff Schedule 17 MOPS II Application:
1.Removal of the 0.5 mill/kWh adder from the Standard Rate Offer.  Reference Schedule 17 Revised Attachment F.
2.Representative ancillary charges of 2 mills/kWh have been moved from the delivery rate to energy commodity portion of the monthly and annual rate.  This change reflects that ancillary charges are related to generation.  Reference Schedule 17 pages 4 of Revised Attachments D and E.
3.The BPA PF rate, upon which the Standard Rate Offer is based, includes ancillary charges.  Reference calculation Schedule 17 pages 1-3 of Revised Attachment G.
The tracking of lost margins will be compiled monthly, and included in the MOPS II reports, as the difference between embedded production cost by class and the monthly market rate.  Fifty percent of the estimated lost margin is included in the proposed MOPS II delivery rates.  Seventeen percent of the actual lost margin is proposed to be deferred in Account 186, Miscellaneous Deferred Debits, for future recovery in rates.  The Company will absorb the remaining 33% of the actual lost margin.
The Company also by way of amendment clarifies its MOPS II customer education and evaluation program, includes a definition section, and changes the name of the “Green Resource” Rate to the “Renewable Resource” Rate.  
Under the Company’s amended tariffs, the following rates represent the energy service prices embedded in the Traditional Energy Service option for the MOPS II pilot program:
Customer Group
Commodity Rate
Cents/kWh
Residential—Schedule 1
Small Commercial—Schedules 11 & 12
Large Commercial—Schedules 21 & 22
Pumping Service—Schedules 31& 32
2.270¢
2.349¢
2.286¢
2.217¢
Commission Findings
The Commission has reviewed and considered the filings of record in Case No. WWP-E-97-11 including the written comments and recommendation of the Commission Staff and the reply comments the Company.  We have also reviewed our prior Order No. 26884 in Case No. WWP-E-97-1, the Company’s original MOPS filing.  
The Company is to be commended for presenting a second pilot program in Idaho for residential and commercial customers.  It was under no obligation to do so.  The MOPS II pilot that we consider is the filed Application together with those amendments submitted by the Company on February 2, 1998.
Although Staff argued that the Company will be the primary beneficiary of the proposed pilot, we find that the information from the MOPS II pilot will be of timely benefit to a greater spectrum of interested parties, including the Commission, the electric industry, and because of experience gained by Water Power, even the Company’s nonparticipating customers as the electric industry continues its movement to a more competitive market.  We find the proposed pilot and the projected program costs to be reasonable.
We therefore find it reasonable to approve the Company’s MOPS II Application, and as recommended by Commission Staff and acquiesced to by the Company, we incorporate the MOPS II amendments submitted in the Company’s February 2, 1998 amended filing with this Commission.  We find the proposed Schedule 17 rates and charges (as amended) to be fair, just and reasonable.  Reference Idaho Code § 61-301.  We also find it reasonable to authorize the Company’s proposed accounting treatment of the program costs associated with MOPS II (Idaho), which the Company has estimated and we find reasonable to cap at $218,000, said amount excluding any return component or percentage of any actual lost margins.
CONCLUSIONS OF LAW
The Commission has jurisdiction over The Washington Water Power Company, an electric utility, and over the issues presented in the Company’s Application in this case pursuant to the authority and jurisdiction granted the Commission under Title 61 of the Idaho Code and pursuant to the Commission’s Rules of Procedure, IDAPA 31.01.01.000 et seq.
O R D E R
In consideration of the foregoing and as more particularly described and qualified above, the Commission does hereby approve the amended MOPS II Application of The Washington Water Power Company in Case No. WWP-E-97-11, and related amended tariff Schedule 17.
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.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this                  day of February 1998.
                                                                                                                                      DENNIS S. HANSEN, PRESIDENT
                                                                                           RALPH NELSON, COMMISSIONER

MARSHA H. SMITH, COMMISSIONER
ATTEST:

Myrna J. Walters
Commission Secretary
bls/O-wwpe9711.sw
COMMENTS AND ANNOTATIONS
Text Box 1:
TEXT BOXES
Office of the Secretary
Service Date
February 6, 1998