20110722Comments.pdf

DONALD L. HOWELL, II
KARL T. KLEIN
DEPUTY ATTORNEYS GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NOS. 3366/5156
RECE "'.I.J
lOll JUL 22 PM 3: 0 I
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
CAPITOL WATER CORPORATION TO )
CHANGE ITS SCHEDULE NO.3 PURCHASED )
POWER ADJUSTMENT RATE. )
)
)
CASE NO. CAP-W-ll-Ol
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission comments as follows on Capitol
Water Corporation's June 6, 2011 Application to change its Schedule No.3 Purchased Power
Cost Adjustment (PPCA).
BACKGROUND
Capitol Water seeks to increase its PPCA from 0.81 % to 1.44% on an interim basis
effective July 1, 2011 (subject to refund). Capitol Water requests that the interim increase
become permanent effective August 1, 2011.
Reasons for Increase
Capitol Water asks to increase its PPCA for several reasons.
First, the Company now pays more for power than it did when its base rates were
established. The Commission approved Capitol Water's current base rates in 2008 in
Commission Order No. 30762, which authorized an average cost of 5.19t per kWh based on a
three-year average of 1,454,401 kWh for electricity consumption. Thus, Capitol Water's total
STAFF COMMENTS 1 JULY 22, 2011
electric power cost included in base rates was $75,483 (i.e., 5.l9t per kWh x 1,454,401 kWh x
$1.00/l00t). According to Capitol Water, however, recent Commission-approved changes to
Idaho Power's rates have increased the amount Capitol Water pays to Idaho Power for electric
service. i Capitol Water says that its average cost per kWh at Idaho Power's current rates is now
5.77t per kWh, which has increased Capitol Water's total annual electric power cost by 11.1%
from $75,483 to $83,856.
Second, the Company says it erred in calculating the PPCA in 2010, which resulted in the
under-collection of power costs. The Company proposes to increase the PPCA this year to
correct last year's alleged error.
Third, the Company states that its new PPCA should include $1,000 to offset the
Company's costs to review the recent Idaho Power cases, determine their effect on the Company,
prepare and fie the Application, and respond to any questions about the Application.
Timing of Increase
Capitol Water asked the Commission to approve an interim PPCA rate increase that
would take effect on July 1,2011 (subject to refund) and become permanent on August 1,2011.
However, because Capitol Water did not fie its Application until June 6, 2011, Capitol Water's
proposed July 1, 2011 effective date would have occurred less than 30 days after the filing date.
The Commission ultimately denied the Company's request for an interim rate, and suspended a
proposed July 6, 2011 effective date for sixty (60) days, or until such time as the Commission
may issue an Order accepting, rejecting, or modifying the Application. See Commission Order
No. 32287 (Company did not show "good cause" for a rate change on less than 30-days notice).
STAFF ANALYSIS
Capitol Water asks to change the PPCA that the Commission approved in Order No.
30881. The Company says the proposed increase wil allow it to properly recover its increased
1 Capitol Water refers to Idaho Power's Commission-approved rate changes from Order Nos. 32248 (granting Idaho
Power authority to increase its contribution to its pension plan, resulting in a 1.39% increase for all customer
classes); 32250 (approving Idaho Power's request to reduce the annual Power Cost Adjustment surcharge an average
4.8%); and 32251 (approving an average 0.74% increase to residential and small-business customers in this fourt
year ofIdaho Power's Fixed Cost Adjustment Program). Idaho Power's approved rate changes result in an overall,
net average rate decrease of 3% for all customer classes.
STAFF COMMENTS 2 JULY 22,2011
power supply costs arising from recently approved changes to Idaho Power's electric rate
schedules. The Company proposes a change (which the Company characterizes as a
"correction") in the methodology by which the PPCA is calculated.
As discussed below, Staff agrees that the PPCA change is necessary. However, Staff
believes a methodology change is unwarranted, and that the Company's PPCA should decrease.
Revenue Band
In 2009 Capitol Water fied a case (Case No. CAP- W -09-01) to initially establish a taiff
to recover its cost of electricity related to the increase in Idaho Power Company's Schedule 55,
Power Cost Adjustment. In the 2009 case, the Commission ordered Capitol Water to utilze a
0.25% revenue band in determining each year whether to file for an adjustment of its total
revenue to recognize changes in power costs. When Staff reviewed the Company's Application,
Staff calculated a different incremental power cost amount than that calculated by the Company.
Staff nevertheless agrees that the change in power supply costs meets the requirement for filing
an adjustment under the revenue band. This is discussed in greater detail on page 6, below.
Idaho Power Rate Adjustments
Staff notes that when the Company fied Case No. CAP-W-09-01, Capitol Water sought
approval from the Commission to establish a new taiff rate to recover purchased power costs
directly related to Idaho Power's Power Cost Adjustment (PCA) (Case No. IPC-E-09-11). Staff
interprets Commission Order No. 30881, cited above, to include changes in Idaho Power's PCA
costs and all other miscellaneous Idaho Power rate changes such as the Fixed Cost Adjustment
(FCA), the Demand Side Management (DSM) tariff rider and base rate changes caused by
increased pension costs and cost recovery of Automated Meter Installation. In analyzing this
case, Staff considers these costs to be included in "changes in power costs" as noted in Order No.
30881.
In Case No. CAP- W -10-01, the Commission approved the Company's request to change
the Company's PPCA rate from 1.45% to 0.81 %. See Order No. 32056. That Order approved a
Schedule NO.3 that includes a $500 rate case fee for the Company's consultant. After the
Commission issued the Order, however, the Commission issued several other Orders affecting
Idaho Power's rates. See Footnote 1, above. The Commission-approved changes to Idaho
STAFF COMMENTS 3 JULY 22, 2011
Power's electric rates changed the amounts that Capitol Water pays Idaho Power for electric
services. Consequently, the Company now proposes to replace the currently approved Schedule
NO.3 PPCA of 0.81 % with a new PPCA of 1.44%. The new PPCA reflects the combined
change in Idaho Power rates, collection of $1 000 in consultant fees, and a change in the
methodology used to calculate the average normalized cost per kWh.
Commission Approved Methodology
The methodology used to calculate the incremental power cost increase in Capitol
Water's previous two PPCA cases stared with actual 2005 energy consumption and actual 2008
energy cost to determine an actual 2008 cost per kWh ($0.0519 per kWh from Order No. 30762).
A test year of 2005 was used in Capital Water's most recent general rate case. Because actual
energy consumption in 2005 was determined to be significantly above normal (1,940,746 kWh),
a three year average was used to calculate normalized annual energy (1,454,401 kWh).
Normalized, base rate power supply costs of$75,483 were then determined by multiplying
normalized energy and the average rate per kWh (1,454,401 X $0.0519).
The average cost per kWh for Capital Water under Idaho Power's new rates was then
calculated by using the 2005 actual energy consumption modeL. The average rate in 2009 and
2010 was calculated to be $0.0580 per kWh and $0.0552 per kWh, respectively. These rates
were then multiplied by the normalized energy (1,454,401) to determine the expected anual
power cost each year. The difference between the expected power cost under new rates and
power costs already collected through base rates ($75,483) was collected from customers
through Schedule 3.
Using the same methodology used in the previous cases, Staff calculated the average cost
per kWh using the new Idaho Power rates effective June 1,2011 to be $0.052891 per kWh.
Again, this new average rate of$0.052891 per kWh was calculated using the new Idaho Power
rates applied to the 2005 actual energy consumption modeL. The proposed electric power costs
using the restated average cost per kWh is $76,925 (1,454,401 kWh x $0.052891 per kWh).
Given that $75,483 in electric power cost are currently embedded in the base rates, the
incremental power cost to Capitol Water due to Idaho Power's rate changes is $1,442 ($76,925-
$75,483). Consequently, Staff believes the current Schedule NO.3 surcharge of 0.81 % to collect
STAFF COMMENTS 4 JULY 22, 2011
$5,311 (including $500 consultant fee) should be reduced to $2,442 (i.e., $1,442 plus the $1,000
consultant fee discussed below).
Methodology Change
In its Application, the Company proposes a "correction" to the current methodology by
changing the calculation of annual power costs. The effect of the Company's adjustment is to
increase the cost of energy from the $0.052891 per kWh average using Commission approved
methodology to an average of$0.057657 per kWh. Annual power costs are $6,932 per year
higher under the Company's calculation. The Company has provided insufficient rationale for
such a "correction". Staff disagrees that the Company's proposed adjustment provides a more
accurate estimate of normalized annual power costs.
The Company also requests $1,000 to cover its costs to have a consultant review Idaho
Power's rate increases, determine the effect on Company power costs, and prepare and fie the
Application. In prior cases, the Commission has allowed the Company to recover $500 for
consultant expenses. See Order No. 30881, Case No. CAP- W -09-01 and Order No. 32056,
Case No. CAP-W-I0-01. While Staff does not support the Company's proposed power cost
calculation adjustment, Staff does not oppose the Company's request to recover the $1000
consultant fee. As part of its review, Staff asked the Company to justify the $1,000 amount. The
Company responded with detailed information on the total time the consultat took to quantify
Idaho Power's Commission-approved rate increases, determine their effect on Capital Water, and
prepare the filing including new tariffs. The consultant charged the Company $1 OO/hour for ten
hours of work, for a total charge of $1 ,000. Staff concludes that $1,000 is a reasonable
consultant fee and that the Commission should allow the Company to recover this expense.
Adding $1,000 for rate case expenses results in a total incremental power cost of $2,442
($1,442 + $1,000). This is the amount the Company should be allowed to collect from Schedule
3.
Using the incremental power cost of $2,442, Staff calculated the new PPCA to be a
biling surcharge of 0.37% ($2,442/$651,738). This compares to the Company's current PPCA
rate of 0.81 % to recover $5,311 in additional power costs. The net effect is a reduction in the
biling surcharge and customer rates.
STAFF COMMENTS 5 JULY 22,2011
As par of Commission Order No. 30881, the Commission directed the Company to
utilze a 0.25% revenue band when determining each year whether to ask the Commission to
adjust the Company's total revenue to account for power cost changes. In this case, Staff
calculates the incremental decrease in the Company's power costs to be $2,870 ($654,179 -
$657,049), and the percent decrease in the Company's total revenue requirement to be 0.44%
($2,870 incremental power cost/$657,049 Revenue per Order 32056 x 100). The 0.44% decrease
exceeds the 0.25% band as required by the Order. Therefore, it is appropriate for the Company
to fie for rate adjustments. Attachment A shows the Company and Staff proposals for the
PPCA.
Staff calculates that reducing the Company's curent PPCA from 0.81 % to 0.37% wil
decrease a typical customer's water bil by $1.02 per year.
Staff notes that as of the fiing date for these comments, there have been no comments
from the public.
STAFF RECOMMENDATION
Staff recommends a decrease of the Company's PPCA from 0.81 % to 0.37%. The new
rate should include recovery of$I,OOO for consultant fees. The 0.37% PPCA should be reflected
in the Company's Schedule 3, Other Recurrng and Non-Recurring Charges.
Respectfully submitted this - -¡r!cl.J, £. day of July 2011.
1:~~/~
Karl T. Klein
Deputy Attorney General
Technical Staff: Kathy Stockton
Gerry D. Galinato
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i--Io-
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 22ND DAY OF JULY 2011,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. CAP-W-II-01, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
ROBERT PRICE
CAPITOL WATER CORP
2626 EL DORADO
BOISE ID 83704
e-mail: capitolwatercorpCfyahoo.com
ROBERT E SMITH
2209 N BRYSON RD
BOISE ID 83713
e-mail: utiltyfgroup(iyahoo.eom
SECREJiyf&Æ-
CERTIFICATE OF SERVICE