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Commission denies Idaho Power request to make cost adjustment permanent

The Idaho Public Utilities Commission is denying a petition by Idaho Power Company to make the pilot Fixed Cost Adjustment (FCA) program permanent. The results of the program are “mixed” and there are still too many unanswered questions, the commission said in an order.

But the commission allowed the Fixed Cost Adjustment program to continue for another two years as a pilot program.

Idaho Power does not believe that the commission is opposed to the mechanism per se, but rather that the commission feels more time is needed to evaluate the mechanism, Idaho Power Director of Rate Design Mike Youngblood said in an interview. The company will continue its participation in the pilot program, which originally expired Dec. 31.

“We are pleased with the company’s increased efficiency efforts,” the commission said in a release, quoting from the commission’s order. “However, the issues and potential concerns with the FCA, as identified by the parties in this case, support a conclusion that making the FCA permanent at this point is premature.”

Regulated utilities have a built-in disincentive to invest in energy efficiency and conservation programs because they lose revenue when electric consumption declines. To remove that disincentive, the Fixed Cost Adjustment was implemented by the commission three years ago for Idaho Power on a pilot basis. The adjustment is designed to ensure the company recovers its fixed costs of serving customers regardless of the amount of energy conservation, the commission said in a release. Often referred to as “decoupling,” the FCA decouples the link between energy efficiency and energy sales.

If the actual fixed costs recovered from customers by Idaho Power are less than the fixed costs authorized in the most recent rate case, residential and small-commercial customers get a surcharge. If the company collects more in fixed costs than authorized by the commission, customers get a credit. After the program’s first year, customers received a credit (0.8 percent). In the second year, there was a surcharge (0.82 percent), and a surcharge (1.85 percent) is proposed this year.

With implementation of the Fixed Cost Adjustment, the commission expected Idaho Power to significantly increase the size and availability of energy efficiency programs, which the commission said the company has done. There have been reductions in energy consumption, but commission staff and other groups who intervened in the case argued that other variables such as economic conditions, high unemployment, weather and adoption of building codes can all result in energy reduction regardless of Idaho Power’s investment in energy conservation programs, the commission’s release said.

Idaho Power had to document its enhanced contribution to energy efficiency each year, and did not hear concerns about the documentation, Youngblood said. Weather impacts are taken out of the calculations so that they are considered “weather normalized.”

“Any approved decoupling mechanism should not reward the utility unduly for reductions in consumption resulting from conditions the utility did not sponsor or create, the Community Action Partnership Association of Idaho said in case documents. The partnership, long with commission staff and the Idaho Conservation League, opposed making the program permanent. The Community Action Partnership also expressed concern about impact on rates for customers on fixed and low incomes.

While commission staff and these groups did oppose making the program permanent, they did not oppose allowing the program to continue on a pilot basis, the commission said. AARP Idaho, however, said the Fixed Cost Adjustment should be discontinued entirely.

The commission agreed with comments from commission staff and the Idaho Conservation League that disagreements remain about the accuracy of the amount of fixed cost identified for recovery because a cost-of-service study that established that fixed cost is not recent and was never approved by the commission.

Youngblood said the fixed costs are updated with general rate cases, the last of which for Idaho Power was in 2008. Customers who use less energy see lower bills regardless of the Fixed Cost Adjustment because the unused units of energy are variable costs, he said.

The Snake River Alliance and the Natural Resources Defense Council endorsed Idaho Power’s petition to make the Fixed Cost Adjustment permanent. The Snake River Alliance said the FCA has been an “effective mechanism” to promote energy efficiency and that the nominal adjustments in rates are “more than compensated by customers’ reduced energy use.” The Natural Resources Defense Council noted the company’s “impressive growth in energy efficiency and demand-response programs.”

In 2007, Idaho Power upped its investment in conservation programs from $11.5 million to $15.66 million, resulting in an energy savings of 91,145 megawatt-hours, a 29 percent increase from energy saved in 2006. In 2008, conservation investment jumped from $15.66 million to $21.2 million and megawatt-hours saved totaled 104,156, a 54 percent increase over 2007.

Idaho Power maintained the Fixed Cost Adjustment is “performing as the parties and the commission intended when it was implemented.” The company recognizes there are still questions to be answered, but noted the FCA can continue to be adjusted even after it is made permanent. Not doing so adds an element of uncertainty to the commission’s long-running commitment to the FCA, the company said.

The commission acknowledged Idaho Power’s increased investment in efficiency programs, but said that is not justification enough for making the program permanent until the company can show a “demonstrable nexus” between the Fixed Cost Adjustment and company investment in conservation programs. “Evidence suggests that the FCA may have done little to spur Idaho Power’s increased investment, as least for residential customers,” the commission said, noting that energy savings were greater in customer classes that don’t have the FCA.

The commission ordered the program continue on a pilot basis for another two years, beginning June 1, during which time further data can be developed and the issues raised by commission staff and the parties addressed.

Interested parties may petition the commission for reconsideration by May 20. Petitions for reconsideration must set forth specifically why the petitioner contends that the order is unreasonable, unlawful or erroneous. Petitions should include a statement of the nature and quantity of evidence the petitioner will offer if reconsideration is granted.

Petitions can be delivered to the commission at 472 W. Washington St. in Boise, mailed to P.O. Box 83720, Boise, ID, 83720-0074, or faxed to 208-334-3762.



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