Attch39_IPCE0113_StaffComments.doc

LISA D. NORDSTROM
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5733

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 INVESTIGATION OF INCREASED DEMAND-SIDE MANAGEMENT PROGRAMS AND THE FUNDING OF THOSE PROGRAMS FOR IDAHO POWER COMPANY.
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CASE NO. IPC-E-01-13

COMMENTS OF THE
COMMISSION STAFF

COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its Attorney of record, Lisa D. Nordstrom, Deputy Attorney General, and submits the following comments in response to Order No. 28839, the Notice of Application/Notice of Modified Procedure issued August 30, 2001.

The Application
On May 1, 2001, the Commission issued Order No. 28722 directing the Idaho Power Company (Idaho Power, the Company) to file a Demand Side Management (DSM) program by August 1, 2001, “that details program structure, potential conservation measures to pursue and funding options that include a tariff rider.” On July 31, 2001 the Company filed its Compliance Filing or DSM Application (Application).
In its filing the Company anticipated that it will spend $1.5 million in 2001 on its existing energy efficiency programs, i.e. $0.3 million for Low-Income Weatherization Assistance and $1.2 million in payments to the Northwest Energy Efficiency Alliance (NEEA). The Company also said that it has committed to spending additional money for conservation advertising, Project Share and the Green Energy Purchase Program.
For new DSM efforts, Idaho Power proposed that the Commission approve an annual budget of $2.6 million. With this budget the Company will be able to implement less than 60% of the project amounts listed in the menu, which total $4.5 million and nearly 50,000 megawatt-hours (MWh) of estimated first year energy savings. Depending upon the projects ultimately selected, the energy savings could be more or less than 60% of the 50,000 MWh total. The estimated total resource costs of all potential projects range from $0.016 to $0.049 per kilowatt-hour (kWh). The Company proposed that 40% of the DSM budget be available for residential customer programs, 45% for commercial and industrial customer programs, and 15% for irrigation customer programs. These percentages are in rough proportion to the amount of revenue received from each customer class. In its proposal Idaho Power recommended that an Energy Efficiency Advisory Group be formed to provide recommendations on program choices, implementation and evaluation, but that the Company would retain ultimate decision-making authority in all areas.
Idaho Power recommended that the new programs be funded through surcharges amounting to 0.5% of operating revenues. The surcharges would be paid by all retail customers through a tariff rider that would apply to only the energy portion of rates. The Company proposed that the DSM programs and the surcharge last for two years.
Based on a June 2001 customer survey, Idaho Power also noted that although a majority of its customers believe it should offer incentives to encourage efficiency, over half of the respondents said they would not be willing to pay slightly higher rates to fund conservation programs.

Customer Notice
On August 1, 2001, the Company issued a press release announcing its filing. The release included a brief description of the Company’s DSM plan, the program cost and proposed method of funding, which included establishing a two year rate adjustment “Rider”, or 0.5% surcharge on customers bills. The Company did not provide notice of the proposal to each customer. Rule No. 102, Notices to Customers of Proposed Changes in Rates, of the Utility Customer Information Rules (IDAPA 31.21.02.102) requires that gas, electric and water utilities provide notice of proposed rate changes to each customer. However, Staff does not consider the lack of notice to each customer in this case to breach this rule because the Application requests Commission consideration of DSM “funding options” and does not request an effective date for the surcharge proposal. The Commission may wish to require the Company to individually notify customers of the potential DSM rate increase and extend the comment deadline to facilitate ratepayer input.

General DSM Comments
Staff believes the three most important elements to encourage long-term efficient use of electricity are 1) proper retail price signals, 2) wide distribution of good information regarding energy efficiency measures, equipment and appliances, and 3) sufficient sources of capital to fund efficiency improvements.
Idaho Power’s filing offers a good next-step in encouraging its customers to use electricity efficiently. The Company currently provides energy efficiency information to its customers through advertising, bill inserts, responses to customer inquiries, community outreach and its Internet home site. The Company also helps fund low-income weatherization efforts and NEEA’s market transformation efforts. Most of Idaho Power’s potential new DSM programs will offer efficiency information as well as capital to encourage efficiency improvements. The Company’s temporary rate increases implemented earlier this year, painful as they are, are providing customers with price signals that will encourage efficiency and conservation. The proposed 0.5% surcharge will not only fund DSM, but will also provide a small additional incentive to conserve. The proposed DSM programs will help participants reduce their electricity consumption and bills at a very appropriate time. If the electricity saved as a result of the programs costs less than electricity that would otherwise have to be purchased or generated, the programs will also result in lower electricity rates, thus benefiting non-participants as well as participants.
However, Staff cautions that there is often a conflict of interest for any energy utility to offer information or funding for conservation of the resource that it is selling to make a profit. Depending upon wholesale market conditions and a utility’s own power supply situation, this conflict of interest may or may not exist at any particular time. Staff recommends that the Commission carefully monitor program implementation to minimize conflict of interest concerns and assure prudent long-term investment in conservation efforts.

Summary of Customer Comments
As of September 19, 2001, the Commission had received 13 written comments from customers. Five customers expressed opposition to adding any surcharge to fund conservation programs. Six others wrote in support of energy conservation and efficiency programs and in fact, five thought 0.5% was too low to be effective. Three customers suggested the funding level should be at least 1.5% and then increased to 3.0% over the next few years. One customer suggested a program to provide home energy audits to low-income customers at no cost and at a minimal charge for those that could afford the service. (Staff notes that the Company provides free audits to all customers who specifically request them.) Another customer supported the adoption of the 2000 International Energy Conservation Code for new residential and commercial buildings.
The general feeling of the five customers opposed to the surcharge was summed up by one customer who wrote, “I do not agree with donating money towards low income assistance programs to help alleviate someone else’s burden of paying their own power bills.”

Idaho Power’s Customer Survey
Idaho Power’s survey indicated that nearly 90% of customers think energy conservation is important and about 80% think electricity utilities should offer incentives to encourage customers to purchase energy efficient equipment. However, fewer than 30% said they are willing to pay higher rates to fund conservation programs offered by the utility. It is noteworthy that about 75% of the survey respondents said they had taken action to conserve energy in the prior six months.
Staff believes that informing respondents to the survey that utility-sponsored conservation efforts could result in lower future rates than will otherwise occur without conservation would have resulted in many more respondents indicating a willingness to pay higher rates to enable conservation programs.
Staff agrees with most of Idaho Power’s interpretation of its survey as presented in Appendix 4 to its Application. However, we found some inconsistencies between the company’s written conclusions and the data. For example, under the first bullet in Appendix 4, the Company wrote that customers in all segments think conservation is important but that residential, commercial and industrial customers think this more so than do irrigation customers. This distinction among customer classes is not supported by the data. Actual survey results are that 88.5% of irrigation customers said that conservation was either somewhat or very important, compared to 88.0% of business customers and 89.0% of residential customers.

Idaho Power’s Proposed DSM Funding Mechanism, Amount and Accounting
Staff believes Idaho Power’s proposed tariff rider surcharge is appropriate in regard to both the mechanism and the amount. We agree with the Company that it is more appropriate to implement conservation programs on a pay-as-you-go basis rather than the prior system of accumulating deferred costs which must be recovered at a later time. In addition to accumulating interest charges, the deferral method shifts recovery to a later, somewhat different, customer base and fails to provide timely price signals.
Staff believes that $2.6 million annually is sufficient to encourage some conservation efforts for two years. This amount will allow Idaho Power to demonstrate its conservation commitment. We believe the 0.5% rate increase is an amount that is tenable to most customers if information is provided to them showing how DSM programs can reduce future rates. Customers participating in the DSM projects will receive immediate benefits and we believe that this short-term rate increase has at least the potential to result in long-term rates that will be lower than if the DSM program is not implemented.
Idaho Power’s Application did not address accounting issues. In discussions with Staff, the Company has agreed that the precise accounting details should be worked out with the Commission Staff and filed with the Commission. Staff proposes this information be filed with the Commission within a month. In general, Staff believes that DSM surcharge revenues and associated new costs should be accounted separately from other revenues and costs, that interest should accrue to any balances, and that there should be a true-up of revenues and expenses.

Energy Efficiency Advisory Group
Idaho Power’s Application recommends creation of an Energy Efficiency Advisory Group whose primary purpose is to advise the Company on the use of rider funds. This Group would include members of the community eligible to receive services provided by the rider, Commission staff, Company staff and technology specialists.
Staff recommends the Company include in this Advisory Group a representative of the Idaho Community Action Agency Association and a representative from at least one community housing authority that administers low-income rental assistance programs. Housing Authority representatives could provide helpful insight into the needs of rental assistance recipients and the landlords and managers responsible for maintaining these rental properties. According to housing authority representatives, landlords of rental properties do not always provide adequate maintenance let alone weatherization upgrades.
It is worth noting that according to Idaho Power’s customer survey, 58% of renters have electric space heat compared to 41% of homeowners. The survey also showed 17% of homeowners are past participants of an electric utility’s DSM program compared to only 11% of renters. Nevertheless, 45% of renters said they were willing to pay higher rates to fund Idaho Power’s conservation efforts compared to only 30% of homeowners.
Staff believes the Advisory Group may provide a forum to discuss and develop recommendations to Idaho Power for ways in which to provide conservation incentives to landlords and property managers. Weatherization improvements in apartments and rented homes will have an immediate impact in reducing both peak energy demand and total consumption.
Staff is concerned that the creation of the Advisory Group and its subsequent meetings to discuss recommendations to be made to the Company may delay the implementation of DSM projects until well into the winter heating season. We recommend that Idaho Power take steps to prevent or minimize such delays. In the first year, if necessary, the Advisory Group could be used to fine-tune DSM projects that the Company has already initiated.

Tests to Screen Potential DSM Projects
Idaho Power proposes using three cost-effectiveness tests to screen projects for inclusion in its DSM program. These proposed tests are total resource cost test, utility cost test and participant test. Application at Appendix 7. In response to Staff’s Production Request No. 6, the Company said it did not analyze projects using the non-participant (or no-losers or ratepayer impact) test for two reasons. First, it said few programs pass the non-participant test under normal conditions (i.e. when rates are higher than avoided marginal costs) because revenue losses exceed the benefit of avoided supply costs. Second, the Company said its decision to not use this test was influenced by Order No. 22299, dated January 26, 1989, in which the Commission said “We generically reject the ‘no losers test.’ The societal viewpoint dictates that Idaho is best served by not permitting the ‘no losers test’ price to be a ceiling on conservation measure rates.” Order No. 22299 at 16.
Staff interprets the Commission’s 1989 order differently than does Idaho Power. In that same order, the Commission said “We expect some [conservation] resources may be priced at full avoided cost, some at ‘no losers’ cost, and some below ‘no losers’ cost.” Id: at 17.
Thus, Staff does not believe that the Commission prohibited the use of the non-participant test in evaluating DSM projects, but instead eliminated use of that test as the sole evaluation of projects. Furthermore, Staff does not believe that the degree of difficulty of passing the non-participant test is sufficient reason to not use this test for comparing the relative benefits of different projects. We believe all four tests (total resource, utility cost, participant and non-participant) provide different and useful information for evaluating potential projects. Staff recommends that Idaho Power and its Advisory Group use the non-participant test in conjunction with the other tests to screen potential DSM projects.

Idaho Power’s DSM Program Menu
We believe Idaho Power’s menu of DSM programs as contained in Appendix 3 to its Application provides a good starting point for discussion among the future members of the Company’s proposed Advisory Group. Although, we do not believe detailed analyses of the various potential programs is necessary at this time, the following initial observations may be useful for future Advisory Group discussions.
Time-of-use (TOU) metering and rate options were noticeably missing from Idaho Power’s list of potential DSM projects. Staff believes TOU rates could help some customers reduce their bills as well as help Idaho Power reduce its peak demands. Data supplied by Idaho Power shows that in July 2000, the daily system demand for electricity usually climbed all day until it peaked during late afternoon/early evening and then slowly declined. From December 2000 through March 2001, the demand typically peaked for the day just before 8 a.m. but there is a definite shoulder peak typically occurring between 7 and 9 p.m. Marginal generation costs and wholesale market prices tend to be highest when demand peaks. TOU rates would help provide proper price signals to customers, which could ultimately reduce Idaho Power’s costs and its customers’ bills. The Company has initiated a pilot TOU rate schedule for its irrigation customers. Utah Power and Light in Southeastern Idaho has had optional residential TOU rates for many years. Staff believes the Company and its Advisory Group should consider optional TOU metering and rates, including real-time rates, as a potential DSM program. This is consistent with Idaho Power’s proposed Schedule 90 that states, “Peak reduction or load shifting measures may also be included as available measures.” Application at Appendix 6.
The Company’s proposed compact fluorescent light bulb (CFL) program for residential customers could potentially deplete essentially the entire DSM allocation for that customer class. While CFLs are much more efficient in providing light than are incandescent light bulbs, the extra heat produced by incandescent bulbs does not represent near the inefficiency in the winter as it does in the summer. In fact, in some cases incandescent light bulbs may be a more efficient heat source than customers’ central heating systems. In any event, the CFL programs proposed by Idaho Power would have been much more useful going into the summer cooling season than they will be going into the winter heating season.
Idaho Power’s proposed residential loan buy-down program would have a 6.9% interest rate. The Company said it may work in conjunction with Idaho Department of Water Resources’ existing loan program. It is worth noting that IDWR’s program has a 4.0% interest rate.
When evaluating Idaho Power’s proposed residential air conditioning and heat pump program, the Company should keep in mind the relative inefficiency of using natural gas to generate electricity compared to using it to fuel high-efficiency gas furnaces. The Staff also believes that there may be more efficient methods to keep houses cool than paying to improve the average efficiency of installed air conditioners.

Residential Energy Audits and Information Distribution
In an effort to help customers improve the energy efficiency of their homes and reduce their electricity bills, Idaho Power recently developed an “Energy Planner” or home energy audit packet. The packet contains conservation ideas and ways to improve the energy efficiency of homes. The Energy Planner is a tool used by Customer Service Representatives (CSR) when customers call the Company with high energy use concerns.
When a customer calls the Company with a high-consumption bill inquiry, the CSR attempts to answer the customer’s question by reviewing family consumption patterns and offers to provide the customer the Energy Planner packet. This packet contains a printed history of the customer’s usage, an Energy Cost Calculator and the business card of the Delivery Service Representative (DSR) assigned to the customer. The Company employs ten DSRs trained to conduct home energy audits and assist residential customers in lowering their home energy use.
If the CSR or the Energy Planner packet does not satisfactorily answer the customer’s question, the customer is encouraged to call the DSR directly. Also, if the customer is insistent, the DSR is contacted for immediate resolution.
Once a DSR is assigned to further address a customer’s concerns, the DSR then decides if a site visit and home energy audit is appropriate. If so, the DSR schedules an appointment with the customer in order to conduct the audit. The process is intended to give customers a greater understanding of usage impacts in the home and to help them implement conservation measures.
Staff concurs with in Idaho Power’s CSR and DSR protocols in responding to high bill inquiries, distributing the Energy Planner, and conducting home energy audits. The Company said these protocols represent relatively recent changes and Staff believes they will help many inquiring customers reduce their consumption and thus, their electricity bills. Staff recommends that Idaho Power and the Advisory Group consider whether to and how to expand these efforts to reach additional customers with consumption in the highest rate block (typically those with electric space heat).

Low-Income Issues
Idaho Power’s Low-Income Weatherization Assistance is designed to provide more affordable energy services to low-income customers and reduce the overall demand for electricity. The Company provides grants to local non-profit agencies that supplement federal funds supporting weatherization projects for its low-income customers. Candidates and qualified households are recruited by the agencies using state low-income eligibility requirements. Idaho Power pays 50% of the cost of qualifying conservation measures plus a $75 administration fee per dwelling. In year 2000, 213 weatherization jobs were completed in Idaho at a Company cost of $211,273. The Company’s Application said it expects to increase this amount to $300,000 in 2001.
The Commission’s Consumer Assistance Staff receives many complaints from customers who are unable to pay high-energy bills. Frequently, these customers, when asked if they have applied for energy assistance, reply that they tried but did not qualify. Staff believes this problem will continue to grow as energy costs continue to escalate. Programs such as LIHEAP and Project Share provide financial assistance to low-income customers who qualify under federal low-income guidelines. However, there appears to be a growing segment of our population that does not qualify for low-income programs and does not have the means to participate in grant or rebate programs that tend to benefit customers with more disposable income.
Staff is concerned that customers in this segment of the population, often referred to as the “working poor,” may have an increasingly difficult time paying their home energy bills. Customers whose income is slightly above the federal income guidelines fail to qualify for energy assistance. However, due to the recent increases in energy costs, a greater portion of their income must go to pay higher energy bills. These customers tend to fall through the cracks of the system and often do not qualify for food stamps, housing assistance or medical assistance for their children. This year, 791 families throughout the state were denied energy assistance because they did not qualify under the federal income guidelines. This figure would have been significantly higher had the state not increased the income threshold from 133% to 150% of the federal poverty guidelines in March 2001. Also, this information does not adequately reflect the number of families who might have qualified, but for whatever reason chose not to apply for energy assistance. According to the 2000 Census, 13% of Idaho’s population lives at or below the federal poverty guideline. This equates to 168,214 people.
Staff recommends that Idaho Power develop appropriate DSM measures to address the needs of low-income customers. In particular, Staff suggests that the Company and the Advisory Group consider providing “energy conservation bags” to customers who apply for energy assistance. These bags could contain items such as coupons for free CFL bulbs, a programmable thermostat if they have electrically heated homes, the Energy Planner packet and other literature on home energy conservation and efficiency. The local community action agency could distribute the bags when customers apply for energy assistance.

Summary of Recommendations
Staff suggests the Commission consider whether to have Idaho Power notify each of its customers of its proposed demand side management (DSM) surcharge and program. If so, then Staff recommends that the comment deadline be extended to accommodate additional customer comments.
Staff concurs with the Company’s proposed DSM surcharge and, conceptually, with its methods for choosing projects. However, Staff cautions that energy utilities often have conflicts of interest that could hinder the long-term effectiveness of DSM programs. Thus, we recommend that the Commission carefully monitor DSM programs. We agree with the Company that the precise accounting procedures can be determined at a later time, but that generally DSM costs/revenues should be separated from other costs/revenues and that DSM balances should accrue interest and have a true-up.
We recommend that representatives of community action agencies and housing authorities be included in the Company’s Energy Efficiency Advisory Group to better ensure that the needs of low-income and rented-home customers are considered.
In addition to Idaho Power’s proposal to use the total resource cost test, the utility cost test, and the participant cost test to screen potential projects for inclusion in the DSM program, Staff recommends that the non-participant test also be used to compare potential projects.
We offer a few initial observations regarding some of the Company’s proposed projects. Perhaps most notably, we suggest that it consider offering optional time-of-use rates and meters.
Staff concurs with Idaho Power’s recent changes in how its employees respond to customer high-bill complaints by providing energy usage and efficiency information and conducting home energy audits when appropriate. We suggest that the Company consider expanding these efforts to reach additional high-use customers. We recommend specific conservation aid targeted to low-income customers.
Finally, we recommend that Idaho Power expedite the Advisory Group process so as not to delay implementation of programs as we approach the winter heating season.

Respectfully submitted this day of September 2001.

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Lisa Nordstrom
Deputy Attorney General

Technical Staff: Lynn Anderson
Dan Graves

LN:LA:DG:i:umisc/comments/ipce01.13.lnladg

NEEA is comprised of utilities, public agencies and private entities from Idaho, Oregon, Washington and Montana. Its goal is to permanently transform markets for improved energy efficiency.

STAFF COMMENTS 11 SEPTEMBER 20, 2001