Case No. IPC-E-11-19, Order No. 32505

April 2, 2012

Contact: Gene Fadness (208) 334-0339, 890-2712


Decoupling mechanism made permanent, but adjustments coming


An Idaho Power Company pilot program that allows the utility to recover its fixed costs of providing power no matter how much revenue is lost as a result of energy conservation is being made permanent.  


The Idaho Public Utilities Commission is allowing the Fixed Cost Adjustment mechanism (FCA), formerly a pilot program, to continue as a yearly adjustment to the rates of Idaho Power’s residential and small-business customers. The FCA has lowered rates once and increased them three times since 2007, though adjustments have been fairly minor.  However, the commission is asking Idaho Power to file a proposal within six months to address how reductions in consumption that aren’t directly related to energy conservation should be treated. 


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, which can be no higher than 3 percent, is designed to ensure the company recovers its fixed costs of serving customers regardless of the amount of energy conservation. 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.


The following is the average monthly rate impact of the FCA for residential and small-business customers in the years from 2007 through 2011:


2007 – 48-cent reduction

2008 – 56-cent increase

2009 -- $1.28 increase

2010 -- $1.89 increase

2011 – 24-cent increase (proposed)


For the 2011 FCA, Idaho Power is asking for a 0.28 percent increase effective June 1. The utility claims it under-collected the fixed costs it was allowed in the last rate case by $8.83 million from residential customers and by $1.48 million from small-business customers. 


All parties participating in the case endorsed making the program permanent, but commission staff proposed that the FCA balancing account be equally shared between customers and company. Commission staff said that Idaho Power reports indicate that energy savings from company programs accounted for between 24 and 43 percent of reduced consumption and that other factors, such as the economy, contributed toward reduced power use.


The Idaho Conservation League said that while staff’s observation may be true, there are other benefits to the FCA mechanism, such as reduced risk to the company and its customers by ensuring Idaho Power’s revenues and its returns are stable, which, in turn, incents cost controls.  ICL said the revenue stability ensured by the FCA decreases the company’s incentive to promote sales.  The Northwest Energy Coalition also argued against staff’s cost-sharing proposal, asserting that the change in the FCA mechanism shifts the risks of sales volatility back to both the utility and its customers. 


Idaho Power also opposed the commission staff proposal to share the FCA deferral balance. Staff’s recommendation compromises the regulatory framework that “paved the way for Idaho Power’s aggressive and successful pursuit” of cost-effective energy efficiency programs. 


Since implementation of the FCA, energy savings have increased from 62,544 megawatt-hours in 2007 to 163,315 MWhs in 2011. The amount of energy saved during 2011 was enough to power more than 12,900 average homes. Programs designed to reduce demand on the company’s system have increased from 50 MW of reduction in 2007 to 403 MW in 2011. Energy efficiency is the least expensive energy source for utilities. Program that encourage reductions in energy demand and more efficient use of energy can delay or defer the utility’s need to build more power plants or buy energy from more expensive resources. 


In its ruling, the commissioners said there is no dispute that the FCA does not isolate or identify changes in cost recovery associated solely with the company’s energy efficiency programs. “Staff’s sharing proposal may have merit, but there is not a sufficient record to support a finding that a sharing of 50/50 between the company and customers is the correct ratio,” the commissioners said. Thus, within six months, Idaho Power is directed to file a proposal to adjust the FCA to address the capture of changes in load not directly related to energy efficiency programs.


A full text of the commission’s order, along with other documents related to this case, is available on the commission’s Web site at Click on “File Room” and then on “Electric Cases” and scroll down to Case No. IPC-E-11-19.


Interested parties may petition the commission for reconsideration by no later than April 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.