20040520Respones of Avista to Staff.pdf

Avista Corp.
1411 East Mission PO Box 3727
Spokane. Washington 99220-3727
Telephone [phone]
Toll Free 800-727-9170
~~'
'V'STAOO
Corp.
March 19, 2004
Idaho Public Utilities Commission
472 W. Washington St.
Boise, ill 83720-0074
Attn: Scott Woodbury
Deputy Attorney General
Idaho Public Utilities Commission
Office of the SecretaryRECEIVED
MAY 2 0 200~
Boise, Idaho
Re:Production Request of the Commission Staff
in Case Nos. A VU-04-01 and A VU-04-
Mr. Woodbury,
Per your request, I have attached three additional copies of A vista s response to Staff
Data Request No. (s) 95b-Supplemental, 95c-Supplemental, 225 , 227, 228, 242, 243
243(C), 244(C), 245 , 257, 258, and 260. The remaining data requests due up through
May 20, 2004 will be provide as finished, but no later than Tuesday, May 24, 2004.
If you have any questions, please call me at [phone].
Mike Pi
Rate Analyst
Enclosures
Enclosures
Copy: C. Ward (Potlatch)
D. Peseau (Utility Resources, Inc)
A. Yankel (Yankel & Assoc., Inc)
VISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.
Idaho
A VU-O4-01 / A VU-O4-
IPUC
Data Request
95B Supplemental
DATE PREPARED:
WITNES S
. RESPONDER:
DEPARTMENT:
TELEPHONE:
5/17/04
Don Falkner
Katherine Mitchell
Rates
[phone]
REQUEST:
Please provide a report listing the amounts posted to Gas Operations in 2002 in account 1874 -
Mains & Services Expenses. Please include amount posted, document number and date. Please
also describe underlying reasons for the increase in these expenses. Amounts allocated/assigned
to Idaho Operations in 2000 were approximately $350 000 while in 2001 they were
approximately $440 000 (30% increase) and in 2002 they were approximately $520 000.
(Formerly Audit Request No. 88B, dated on-site September 10, 2003).
RESPONSE:
Preliminary analysis has not indicated any material individual items that impact this account.
However, it should be noted that during 2000 and 2001 the company was impacted financially by
the western energy crisis. As a result, traditional cost trends were altered. Additionally, as noted
in A vista s initial response to this request, a substantial portion of costs in this account are laborand related loadings. During 1998-2002, Avista benefit loading rate increased from
approximately 25% to 43., contributing to cost increases during this time period.
Please refer to Witness Falkner s Exhibit No. 15, Page 8 of 8 , line 25b. It's important to note
that while activity in individual FERC accounts may fluctuate in amount from year to year, thatthe overall increase in O&M and A&G, excluding Depreciation and Taxes, on a per customer
basis from 1998 to 2002, is 5.32%.
VISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.
Idaho
A VU-O4-01 1 A VU-O4-
IPUC
Data Request
95C Supplemental
ATE PREPARED:
WITNESS:
RESPOND ER:
DEP ARTMENT:
TELEPHONE:
5/17/2004
Don Falkner
Katherine Mitchell
Rates
[phone]
REQUEST:
Please provide a report listing the amounts posted to Gas Operations in 2002 in account 1878 -
Meter & House Regulator Expenses. Please include amount posted, document number and date.
Please also describe the underlying reasons for the significant percent increase in these expenses
(system 2001 expenses were approximately $540 0000 and the 2002 expenses were $950 000.
(Formerly Audit Request No. 88C, dated on-site September 10, 2003).
RESPONSE:
Preliminary analysis has not indicated any material individual items that impact this account.
However, it should be noted that during 2000 and 2001 the company was impacted financially by
the western energy crisis. As a result, traditional cost trends were altered. Additionally, as noted
in A vista s initial response to this request, a substantial portion of costs in this account are laborand related loadings. During 1998-2002, Avista benefit loading rate increased from
approximately 25% to 43.5%, contributing to cost increases during this time period.
Please refer to Witness Falkner s Exhibit No. 15, Page 8 of 8, line 25b. It's important to note
that while activity in individual FERC accounts may fluctuate in amount from year to year, thatthe overall increase in O&M and A&G, excluding Depreciation and Taxes, on a per customer
basis from 1998 to 2002 , is 5.32%.
VISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.
Idaho
A VU - E-O4-0 1 / A VU -O4-0 1
IPUC
Data Request
Staff 225
DATE PREPARED:
WITNESS:
RESPONDER:
DEP ARTMENT:
TELEPHONE:
05/17/2004
Brian Hirschkom
Jon Powell
Uti!. Finance
[phone]
REQUEST:
- -
Please provide a brief description of each energy efficiency program implemented since 1995
and the Company s estimate of kWh and therm savings experienced by its Idaho customers as a
result of each of those programs (including the Northwest Energy Efficiency Alliance (NEEAJ as
a whole) for each year from 1995 through 2003 and projected energy savings for the remaining
life of each program measure. Also provide actual utility funds spent for each pro~am for each
year and an estimate of additional amounts spent by customers receiving the program measures.
.III
~"." .
"t.
RESPONSE:
During the period of time that the Company is requesting a finding of prudence (March 1 0, 1995
to October 31 , 2003 for gas DSM activities, January 1 , 1 999 to October 31 , 2003 for electricDSM activities) the organization or the DSM portfolios has been revised several times.
Generally the programs have been divided into three local portfolios: commercial 1 industriallimited income and residential along with Avista s participation in the Northwest Energy
Efficiency Alliance.
The tables below outline the energy savings, utility cost and customer cost associated with the
portfolios and in some cases, the individual program components over the period of time in
question. Energy savings and costs as represented in these tables are based upon Idaho projects
and are realized at the time of project post-verification.
Persistence of energy savings into the future has been subject to several revisions during thisperiod. These revisions are generally associated with changes in the technologies and
applications targeted, the market niche which the program is operated in and analYtical
assumptions regarding new and retrofit measures. In spite of these revisions the weighted
average measure life has been reasonably consistent at approximately 18 years. A vista does not
incorporate re-adoption, early adoption or savings degradations assumptions into our analysis.
The Company is augmenting the description of the programs to follow with a 1996 independent
review of Avista s programs and DSM funding method completed by The Results Center. (See
the attached document entitled Washington Water Power - Distribution Charge and Market
Transformation Programs.
Response to Staff Request No. 225
Page 2
Commercial Industrial Program Description and History
The Site-Specific Program has been the mainstay of the CII portfolio since 1995. This program
allows for the flexible response to any energy-efficiency measure within tariff guidelines. Avista
periodically modifies the implementation of the program with "prescriptive paths . A
prescriptive path allows for streamlined implementation of measures that are numerous and
reasonably uniform. The prescriptive treatment reduces administrative cost and increases the
marketability of the program in circumstances where it is applicable.
Early in the period of time covered within this data request a Trade Ally program was included
as part of the C/I portfolio. This program provided financial payments to trade allies involved in
the auditing and assessment of customer facilities. The utility incentive, customer cost and the
energy savings for those facilities that adopted energy-efficient measures are captured.
The Resource Management Partnership Program (RMPP) involves working with a customer
typically a school district, to comprehensively manage overall resource efficiency. This is done
with the assistance of a Resource Manager designated by the customer in close cooperation with
A vista Utilities. In some circumstances, A vista guaranteed to the customer that the Resource
Manager would obtain sufficient verifiable resource savings to cover their cost of employment.
Resources managed in the program include electric, natural gas, water, sewage and solid waste.
RMPP agreements with any particular customer generally extended for a three-year period.
Projects adopted through other incentive programs at these facilities, such as the site-specific
program, are removed from the RMPP claims to preclude the double-counting of savings and
costs.
The table below represents the energy savings, utility cost and customer cost associated with the
implementation of these three C/I programs within Idaho.
This information is based upon a realization of project and utility incentive cost at time of
completion. It should be noted that reports provided to the External Energy Efficiency board
apply a different standard to the timing of the recognition due to the time periods covered
those reports. Jurisdictional results since 1999 are based upon the physical location of the
project site, the 1995 and 1996 jurisdictional allocation is based upon a breakout of system
projects within the state of Idaho. Customer costs associated with completed projects generating
both gas and electric savings are distributed on a BTU basis.
Electric program savings in first-year kWh'
1999 2000 2001 2002 2003
Site-Specific 296 990 145 719 056 628 967 773 838 325
Trade Ally
RMPP 725 818
Gas program savIngs in first-year therms
1995 1996 2001 2002 2003
Site-Specific 671 057 145,435 137 472 915
Trade Ally 401
RMPP
Response to Staff Request No. 225
Page 3
Electric program utility incentive cost
1999 2000 2001 2002 2003
Site-Specific $320 119 364 631 267 592 $273 777 $95 737
Trade Ally
RMPP
Gas program utility incentive cost
1995 1996 2001 2002 2003
Site-Specific $453 057 $250 016 $404 635 $72 479
Trade Ally
RMPP
Electric program customer cost
1999 2000 2001 2002 2003
Site-Specific $826 761 804 479 $10 239 226 407 452 $479 336
Trade Ally
RMPP
Gas program customer cost
1995 1996 2001 2002 2003
Site-Specific 960 $20 316 $472 208 $871 937 $241 516
Trade Ally $14 790
RMPP
Residential Program Portfolio
A program-by-program description and tabulation of impacts is represented in the table below.
It should be noted that immediately prior to the 1995 approval of the current DSM tariff rider
mechanism A vista offered a series of residential electric-to-gas conversion programs that were
extremely successful throughout the service territory. As a consequence of the success of this
program there was relatively little program activity during the early years of the tariff rider.
Much of the activity that did exist in that early period is actually contained within the costsassociated with regional program participation through the Northwest Energy Efficiency
Alliance.
Local residential programs during this time period include:
Weatherization This program has been offered in several forms over the years. The
program has included ceiling, wall, floor, duct and pipe insulation. This program has been
applied to both electric and natural gas heated homes.
High-Efficiency Furnaces For the installation of high-efficiency (90% AFUE) gas
furnaces or high-efficiency natural gas boilers (85% AFUE) into new or existing homes.
High- Efficiency Water Heating Replacement of existing electric or gas water heaters with
an appliance of like-fuel meeting Avista s "high-efficiency" standards (0.62 EF for gas
91 EF for electric). This program may be used in conjunction with the electric-to-natural
gas conversion of the appliance.
Response to Staff Request No. 225
Page 4
Heat Pumps: Incentives available for customers whose primary heat source is electric who
install air-source heat pumps of 8.0 HSPF with 13.0 SEER cooling efficiency. Standards
for manufactured homes are 7.5 HSPF and 12.0 SEER.
Programmable Thermostat:This program provided rebates for the installation of
programmable thermostats in electric or gas heated homes.
Electric-to-Gas Conversion: This program provides direct incentives to customers for the
conversion of existing A vista electric space or water heat appliances to natural gas. This
program may be used in conjunction with the high-efficiency space and water heat program
if the customer installs qualifying high-efficiency gas appliances.
Energy Star Clotheswasher Program: This program leveraged regional activity by offering
customer incentives and augmenting the marketing of resource-efficiency Energy Star
clotheswashers.
The table below represents the energy savings, utility incentive cost and customer cost associated
with the implementation of these residential programs within Idaho. Utility and customer cost
and energy savings are realized as of the date of payment of the incentive application.
Electric program savings in first-year kWh'
1999 2000 2001 2002 2003
Weatherization 256 887 119 273 126 359
Heat Pump 545 231 786 576 175 059
HE Water Heat 537 842 625
Thermostats 409 895 556
E to G Water Heat 940 190 174 437 163 183
Clotheswasher 104 145 256
- E to G Space Heat 152 412
. .
Compact Fluorescents 166 040
Gas program savIngs in first-year therms
1995 1996 2001 2002 2003
Weatherization 116 149 193
HE Furnace 775 700 525
HE Water Heat 4,491 647 300
Thermostat 625 378 533
Electric program utility incentive cost
1999 2000 2001 2002 2003
Weatherization $11 799 135 962
Heat Pump $22 900 $24,400 $36 650
HE Water Heat 900 100 250
Thermostats 291 596 652
E to G Water Heat $164 495 574 740
Clothes washer 700 350
E to G Space Heat 300
Compact Fluorescents 022 560
Gas program utility incentive cost
1995 1996 2001 2002 2003
Weatherization $50 041 $33 352 $14 126
HE Furnace $56 150 $55 200 $54 113
HE Water Heat $10 500 732 000
Thermostats $15 852 950 382
Electric progralTI customer cost
1999
Weatherization
Heat Pump
HE Water Heat
Thermostats
E to G Water Heat
Clotheswasher
E to G Space Heat
Compact Fluorescents
Gas program customer cost
1995
Weatherization
HE Furnace
HE Water Heat
Thermostat
Limited Income Portfolio
2000
1996
2001
$31 142
$304 055
$41 875
709
$271 635
$94 951
37J,.460
2001
$130 561
$864 902
$162 004
$40 258
Response to Staff Request No. 225
Page 5
2002
$16 053
$367 737
$43 303
$11 079
$23 681
$215 449
2002
$97,454
$871 244
$49 168
$29,495
2003
$17,491
$505 167
$41,434
$23 918
$25 035
$32 764
2003
$52 941
$931,410
$47 123
$70 955
Avista utilizes local Community Action Agencies (CAA's) in the implementation of gas and
electric DSM programs. By working with the CAA's we are able to leverage the outreach
income qualification and deliver mechanism that these agencies have in place. The Company
enters into annual agreements with the CAA's for program implementation. One of the five
CAA's currently under contract covers the entire Idaho jurisdiction.
Measures permitted under the limited income program contracts are extremely broad and include
electric to gas end-use conversion, weatherization, infiltration, high-efficiency furnaces, high-
efficiency water heaters, refrigerators, window replacement, compact fluorescent lighting and
other measures. Both electric and gas measures have been funded. There are allowable
components within the contract that address, health and human safety, other dwelling
improvements necessary to maintain the measure life of the efficiency measure and the
habitability of the home, and administrative costs borne by the CAA.
The table below outlines the energy savings and costs associated with the limited Income
portfolio over this time period.
In order to be consistent with the administration of the contracts with the CAA's the energysavings and utility costs are realized at the time that each individual project is submitted to
A vista and paid to the CAA. Utility costs include the administrative allowance permitted to the
CAA within the contract. The incentive covers the entire installed cost of the measure for
qualified limited income customers, thus there is no additional customer cost.
Energy Savings in first-year kWh's or therms
1999 2000 2001 2002 2003
Electric (kWh'275,288 933 430 131 332 364 528 800 060
1995 1996 2001 2002 2003
Gas (therms), 169 817 278
Utility Incentive Cost
1999 2000 2001 2002 2003Electric (kWh'$190 883 $311 118 $233 709 $151 533 $24 143
Response to Staff Request No. 225
Page 6
Gas (therms)
1995 1996 2001
$88 532
2002
$46 842
2003
$103 969
Northwest Energy Efficiency Alliance (NEEAl
NEEA's mission is to acquire electric-efficiency resources by transforming markets to enhance
or accelerate the acceptance of efficient products and services. This is achieved through a series
of market transformation ventures and a supporting portfolio of infrastructure proj ects. A vista
funding is proportionate to the share of regional end-use load within each funding participant.
This has amounted to 4.0% of total NEEA funding for the initial contractual period and for the
subsequent renewal of that original funding agreement.
During this time Avista has had a representative on NEEA's board of directors and, at various
times, has also been represented within the Executive Committee, Board Development
Committee and as a member and chair of the Cost-Effectiveness Committee.
Energy Savings (in average megawatts)
1997 -99 2000NEEA 0.24 0.2001 2002 2003
Utility Cost
NEEA
1999
$937 870
2000
$901 889
2001
$390 235
2002 2003
$96 386 $1 001 973
Customer Cost
NEEA
1997-
$712 041
2000
$404 284
2001
$627 471
2002
$631 286
2003
$689 082
Energy savings and customer cost data is aggregated for the three years of 1997 to 1999 in
accordance with available NEEA data consistent with prior reports released by NEEA.
The costs represented above are for the A vista Washington and Idaho system. Thirty percent of
these system costs are allocated to Avista s Idaho electric tariff rider. They are almost
exclusively the dues associated with A vista s membership in NEEA, but also include the
additional labor costs associated with maintaining an active role in NEEA governance.
i!6 Wa!ihin~Dn
Wat:er POtNer
Di!it:ribut:ioD
Charge and Market:
Tran!iforma1:ion
Programs
TheResultsCenter
Washingt:on Wat:er Power
Dist:ribut:ion Charge Market:
Transformat:ion Programs
Profile # 1 i!
Principal investigators: Barb Hogan and Ted Flanigan
Executive Summary
Program Manager s Perspective
Program Context:
Preparing for Compet:it:ion
Program Design & Delivery
Monit:oring and Evaluat:ion
Program Savings
Addit:ional Program Benefit:s
Cost: of t:he Program
Lessons Learned
Transferabilit:y
References
1 Ei
i!0
i!i!
i!4
i!7
Washington Water Power s Distribution Charge represents one of North America s leading strategies for funding
energy efficiency and stands as a powerful model for the future. As such, it was selected for inclusion in the Series
4 Profiles by The Results Center Board of Advisors. The Results Center salutes Washington Water Power for its
success with the Distribution Charge and commends the utility for developing a successful portfolio of market
transformation programs. In particular, we wish to recognize Bruce Folsom and Bill Johnson of Washington Water
Power and Jim Nybo of the Northwest Power Planning Council for their assistance in developing this Profile.
This Profile is part of a collection of Profiles researched and published by The Results Center over the past four
years. It is intended to provide a thorough understanding of the program and its unique elements. This Profile can
also be used to compare this program with other programs documented by The Results Center. For a complete
listing of the Profile LibralY see the Appendix. For additional information please contact The Results Center.
Copyright C91996 by IRT Environment, Inc. All rights reserved.
The Results Center
Execu1:ive Summary
Washington Water Power s Distribution Charge, formally
known by its regulators as "the DSM Tariff Rider " is the most
sophisticated model of its kind and a powerful harbinger of
what may well become the future predominant energy effi-
ciency services funding mechanism in a competitive utility en-
vironment. As similar structures have been proposed by states
across the nation, Washington Water Power 0NWP) has not
only implemented the first "non-bypassable systems benefits
charge" but is also the first utility to provide results on the ~c-
cess of the model's implementation.
ConCUITent to the introduction of the Distribution Charge was
a complete overhaul of WWP s approach to energy services.
WWP has refined its focus on maintaining efficiency through
market transformations, developing a constructive response to
regional and national pressures. Its staff and advisors created
new efficiency program designs to maximize effects while
minimizing costs through an emphasis on becoming technical
consultants and customer-focused energy service providers.
An enabling aspect of the Distribution Charge' s evolution has
been the corporate culture within WWP. Despite projected ex-
cess capacity well past the year 2000, WWP's management is
committed to efficiency as a customer service and in this re-
gard has responded to competition proactively. It developed
the prototype Distribution Charge long before many others
were aware of the concept. It was the first utility in the North-
west to propose that its largest customers gain direct access to
their choice of suppliers. The Distribution Charge provides a
pay-as-you go mechanism for continuing efficiency in a direct
access environment and in the future will make WWP s power
prices easily comparable with competitors' rates.
The DSM Issues Group, known as "DIG," was formed at the
request of WWPs regulatozy commission and was comprised
of 'vVWP staff along with representatives from seven key re-
gional agencies. The utility' s openness in DIG's extensive
meetings over a 3D-month period have been credited with
shaping WWPs progressive energy services posture. Now its
initiative to open up its tenitory to retail wheeling fills out the
model as the cost of all kilowatt-hours sold within its service
tenitOlY will include the Distribution Charge.
The Distribution Charge has increased electric rates by ap-
proximately 1.55% and gas rates by 0.52%. Thus typical
monthly residential electricity bills have increased by 814: and
gas bills by 16((:,... well within the bounds confirmed accept-
able by a telling customer SUIVey conducted by an indepen-
dent market research firm. Thus '\IVVVPs pioneering efficiency
model provides a win-win result for utility and customers alike.
IRT Environment, Inc.
Program Manager s Per!ipec'tive
III.lgg:~III!:~y:il!:i~-!iN;~.R~I!i:i8Y:!~:~~;a~gl:!::I:~.
Washington Water Power has forged a new path for demand-
side management by developing and implementing a non-
bypassable Distribution O1arge for funding energy efficiency
programs, what s refeITed to in our region as "the DSM Tariff
Rider." Through this model, WWP has addressed competitive
considerations and continues to provide customer-valued de-
mand-side management There are four items about the Dis-
tribution O1arge and the 1995-96 programs _that are particu-
larly important to Washington Water Power:
First and foremost, by continUing to deliver DSM we are con-
tinuing to provide customer seIVice. Our customers have
clearly stated that they want WWP to pursue energy efficiency.
Moreover, by assisting our customers in improving their own
efficiency, WWP achieves one of its primary corporate objec-
tives, notably customer satisfaction.
A second advantage brought forth by the Distribution O1arge
is -that it provide~ DSM with an external source of funding,
alleviating its struggle for budget dollars. DSM funding no
longer " competes" with revenue producing or system rein-
forcement projects. Removing DSM funding from the inter-
nal capital budgeting process and avoiding the stigma df regu- .
latory asset creation has been viewed favorably by the Com-
pany and the financial community. While a shift from capital-
izing DSM to expensing may seem to be a subtle accounting
change, we have found that it is a significant improvement in
the eyes of financial analysts.
A third benefit of the model is realized by the DSM Imple-
mentation Group. The stable, predictable funding brought by
the Distribution O1arge has given staff the capability to im-
prove its administrative efficiencies and to plan programs fur-
ther into the future without the concerns of budget cuts, know-
IRT Environment, Inc.
ing that, if successful, the program will be continued. This re-
liability has also empowered our staff to take on new respon-
sibilities and acquire additional training, allowing the staff to
develop into a "self-directed team.
Lastly, the flexibility built into the target-oriented programs has
allowed DSM offerings to evolve to meet customer needs. Pre-
vious DSM programs were very specific and detailed. Any
changes to the programs generally required regulatory ap-
proval. The 1995-96 programs are broader in scope. Under a
menu of offerings, VVVVP can creatively provide energy effi-
ciency within the regulatory guidelines of cost-effectiveness,
non-disaimination, etc. This ability to do "adaptive manage-
ment" assists WWP in bringing energy savings while satisfying
customers.
I would-like to respond to one criticism I have heard in regard
to the Distribution Charge concept. This criticism, stemming
notably from outside WVVP s seIVice tenitory, is that the Distri-
bution O1arge is akin to a three letter word starting with "
and ending with ". To WWP, this non-bypassable charge is
simply a change in accounting treatment. The previous ac-
counting treatment placed DSM in the ratebase with canying
costs accruing until the time of the next rate case. Now, DSM
is expensed in the year inCUITed. Thus, if DSM is a seIVice that
sl1ould be offered by a utility, then the Distribution Charge is
the superior accounting mechi:lnism given the current changes
in the electric industry.
Our eighteen months of experience have demonstrated that
the Distribution O1arge and programs it has funded have
been successful. Based on this success, WWP is seeking regu-
latory approval for a three-year extension to cany WWP's
DSM programs through 1999. My colleagues and I believe
that WWP s Distribution Charge and DSM programs are a
good response, for customer benefit, to the unknown struc-
tural future of the electric industry environment.
Program I:Dn~E!Xt:
WASHINGTON WATER POWER OVERVIEW
Founded in 1889, Washington Water Power Company 0NWf')
is an investor-owned utility headquartered in Spokane, Wash-
ington which has a service area of 30 000 square miles in east-
ern Washington and northern Idaho. WWP selVes 287 000
retail electric customers and 217 000 natural gas customers in
this region known as the "Inland Northwest" Additional gas
customers are seIVed in regions of Oregon and northern Cali-
fornia by WWP's operating division, WP Natural Gas. (R#3)
WWP has been actively pursuing customer growth and added
nearly 17 000 electric and over 16 000 natural gas customers to
its system in 1995. In 1994, WWP purchased the rights to seIVe
electricity in northern Idaho properties including Sandpoint
from PacifiCorp, which contributed significantly to the 6%
growth in WWP's retail electric customer base for 1995. The
Company also owns Pentzer Corporation, a private investment
firm with interests in businesses ranging from electronic de-
velopment to consumer product promotions. (R#3)
As its name suggests, historically WWP' s primary resource has
been hydroelectric generation. However, this has changed as
its system has grown. WWP owns and operates nine hydro-
electric projects for a total peak capacity of 908 tv1W, along
with a wood-waste-fueled generating station and two gas-fired
combustion turbines, and holds ownership in two coal-fired
plants and contracts with five natural gas pipelines. WWP's
electric supply is also supplemented by purchases from
sources including Bonneville Power Administration and Ca-
nadian utilities. The WWP system has a total resource avail-
ability of 3 855 tv1W to meet its peak demand of 2 545 l'v1W
including wholesale activities. Firm load for WWP's retail
needs is 1 600 tv1W. (R#2
WWP's electric rates are among the lowest in the country with
an average residential rate of 4.98I!jkWh, and 5.411!jkWh and
66(j:jkWh for commercial and industrial respectively. In 1995
WWP's revenues from electric sales totaled $487 million, 22%
of which resulted from wholesale transactions. Natural gas
contributed another $174 million. Total operating revenue for
1995, including non-utility earnings, was a record $755 million.
WWP has become aggressive in the wholesale market; analysts
observe that WWP responds to every wholesale power RFP
posted. In 1995, WWPsold3 909 GWh to wholesale customers
for a total sales revenue of $109 million at an average price of
79(j:jkWh. WWP enjoyed a 20% increase in wholesale power
sales in 1995 and expects to double its wholesale revenue by
1997 as it markets power across the country. (R#3
To improve its competitive edge, in mid-1994 the boards of
directors for WWP and SieITa Pacific Power Company (SPPC)
proposed merging the two utilities to form Altus Corporation.
After two years of negotiations and still no FERC approval,
WWP reconsidered the competitive advantages of the merger
and exercised its option to back out. (R#1 29)
As is the case with other hydroelectric utilities, environmental
issues are a substantial concern. This is especially true in the
Pacific Northwest where several indigenous species of fish
including the Snake River Sockeye, Chinook Salmon
Kootenai River White Sturgeon, and Bull Trout have been
listed or petitioned as either endangered or threatened under
the Federal Endangered Species Act in the past five years.
While none of these listings have impacted WWP's hydro
generation, they do affect some of the power purchases WWP
makes from Columbia River dams. To strengthen its steward-
ship of river ecosystems, WWP has teamed up with Trout
Unlimited to protect trout and salmon. (R# 3 )
DSM HISTORY
Over a seventeen-year period, from 1978-1995, WWP spent a
total of $119 332 832 on electric demand-side management
and $7,495 788 on gas DSM. The total DSM expenditure was
$126 828 620 with $62 696 364 of that spent before 1992 sug-
gesting a significantly increased emphasis in more recent
years. Overall, WWP's efforts through 1995 have resulted in
total annual electricity savings of 559.3 GWh and 2.71 million
therms of natural gas.
IRT Environment, Inc.
NWP s DSM history is divided in three distinct periods: Early
efforts benefitted from the support of the Bonneville Power
Administration (BPA). On a dollar-for-dollar basis, WWP's
most concentrated DSM initiative was the result of its 1992-
DSM Plan. The most recent period is the subject of this Profile
and involves the combination of the model Distribution
Charge and set of market transformation programs. (R#13)
Early efforts: WWP's DSM efforts began in 1978 with resi-
dential weatherization, a program which has remained in its
DSM portfolio ever since. Additional residential programs
funded through BP A's Conservation Buy-back provision were
added to WNP s services with BP A-funded streetlighting and
water heater programs joining the roster in 1982. With the
availability of BP A programs and support, WWP's DSM ef-
forts flourished in the early eighties. BP A's contribution elic-
ited savings of 78.2 GWh. VVVVP continued these BP A pro-
grams through 1984 after which Residential Weatherization
remained the only DSM program available from WWP. In
1987, VVWP expanded its range of qualified customers for this
program by adding a limited-income version, and in 1989 Resi-
dential New Construction was added. A fuel-switching pilot
was conducted in Coeur d'Alene, Idaho in 1991. (R#13)
he 1992-94 DSM Plan: In 1992 VVWP developed a compre-
hensive DSM plan which offered choices and services for all
electric and gas customers. The approved set of programs, for-
mally known as "the 1992-1994 DSM Tariff " included 12
DSM programs for electric customers and addressed its gas
customers for the first time with six similar programs. The total
expenditure over the three-year horizon was $59 639 966
greater than the combined total of all prior DSM
efforts. (R#13)
The thrust of the 1992-94 plan was fuel switching from elec-
tricity to gas, providing needed relief for WWP's retail electric
system load. In fact, VVWP implemented one of the largest
such programs in the countzy with nearly two-thirds of the
total expenditure devoted to a set of fuel switching programs
collectively known as Energy Exchanger. The largest fuel
switching initiative involved converting residential electric
space heating to natural gas. Fully 73% or 213.6 GWh of the
total plan s savings involved fuel switching. Much of the fuel
switching incorporated energy efficiency opportunities that
created a significant part of the gas DSM savings of two mil-
lion therms during this period, but gas use was certainly
increased. (R#l 13 )
)tal DSM savings from 1992-94 reached 34 aMW while load
~rowth for WWP during that period was 23 aMW. With
IRT Environment, Inc.
-----4
achieved savings exceeding growth and surplus power avail-
able to meet demand, WWP made the decision to ramp-down
its DSM efforts in 1994. Annual expenditures dropped from
$29 nUllion to $20 million with a coITesponding drop in sav-
ings of nearly 50%. This cutback was not only related to its
surplus capacity but also to increased competition and thus
increased concern about DSM's rate impacts in light of the
electric industzy s shift towards competition.
The 1995-96 DSM Plan: By the close of its 1992-94 Plan
WWP realized that large DSM expenditures were neither com-
patible with WWP's resource needs nor the electric industzy
newly competitive environment. Thus WWP significantly
scaled back its DSM .efforts and added a revolutionary mecha-
nism for funding DSM expenditures. This experimental treat-
ment took shape as the "1995-96 DSM Tariff Rider " the sub-
ject of this Profile, and what will be refeITed to as WWP's Dis-
tribution Charge throughout.
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$158 202
$536,000
856 000
$10,929,728
$9,671 821
$14 202 603
030,366
$3,860,848
$5,323,035
575,760
$382 705
$560,876
$805,669
802,752
$11 027 977
$28,796,051
$19,815,938
$4,492 289
$126,828,
$317,132
$964 948
530,087
$15 715,241
$13,099,554
$18 637 352
$10,101,721
689,710
$6,347 816
812 956
$422 819
$591 181
$805,669
642 728
$10,245,904
$25 953,016
$17,402,208
$3,833,290
$139,113,
Preparing for Compet:it:ion
COMPETITIVE STRATEGY
Washington Water Power is clearly an example of a utility that
has turned the threat of competition into an exciting opportu-
nity. WWP staff have been busily preparing for what it consid-
ers the inevitable, far more competitive utility environment.
While the utility s Board of Directors has traditionally been
proactive, its addition of General NoIman Schwarzkoff to the
Board was symbolic of its aggressive stance.
Jim Nybo of the Northwest Power Planning Council com-
mented that WWP has forged a highly constructive response
to industry pressures and has effectively turned the tables of
competition. Bolstered by enviably low power rates, WWP is
poised to benefit from direct access, building load while many
other utilities fear the erosion of customers, load, and thus
revenues. It is in the midst of an aggressive growth period and
has experienced steady growth in both electric and gas retail
sales as well as in the electric wholesale market. WWP's sales
and seIVice network now covers the entire Northwest region
and is spreading throughout the West. (R#3
As an entrepreneurial company, WWP has also begun to ad-
vance into the national energy services market. In May of 1996
it established WWP Energy Solutions, an unregulated sub sid-
icuy which will market WVVP's energy services nationally. The
Company seeks to form partnerships through energy services
that will later lead to energy sales as the market opens to full
competition. (R#1,
WWP has taken an additional bold step to advance the transi-
tion to retail wheeling in the Northwest by proposing a plan to
its Washington commission for opening WWP's system. up
for large indusbials. The commission approved the filing on
June 26, 1996, marking the first incident of open competition
in the retail market in the Northwest. (R#20)
DSM IN A COMPETITIVE ENVIRONMENT
Intent on maintaining its commitment to DSM, Washington
Water Power has met the challenge of supporting DSM in a
restructured market despite surplus capacity which is antici-
pated to last well past the year 2000. WWP strategists recog-
nize the values of DSM to the utility and its customers as DSM
not only supports the Company s desire to promote efficiency
and resource diversity, but also provides customers with en-
ergy options and seIVices. Many efficiency advocates welcome
VVVVP s resolution to maintain and enhance the quality of en-
ergy efficiency services for its customers despite surplus, and
applaud the utility for taking such a bold and progressive, long-
tenn position. WWP has exhibited a leadership role in the re-
gion while many other regional utilities are slashing their DSMspending.
VVVVPs goal has been to find a means to, "more cost-efficient
acquisition of DSM " striking a balance among the many is-
sues that sUITound DSM acquisition in the face of the chang-
ing utility environment including possible retail wheeling. To
reach this goal, WWP has tempered its DSM programs to fit a
competitive market and developed a revolutioncuy mechanism
for funding DSM which has caught the industry
attention. (R#4)
THE 1995-96 DISTRIBUTION CHARGE
Competition in the elecbic utility industry is acutely felt in the
Pacific Northwest despite the lowest power rates in the coun-
try. WWP's remedy for competitive pressures to DSM has
been to fonn a Distribution Charge that all customers will pay
regardless of their eventual choice of suppliers. (Other names
are also being used to describe this mechanism including
wires charges" and "systems benefits charges." See T ransfer-
ability section for a complete discussion of various permuta-
tions of this new class of surcharges.) The Disbibution Charge
is attached to the distribution portion of WWP' 5 energy ser-
vice. Distribution charges may ultimately be used to fund a
number of activities, but at WWP the surcharge has been
solely used to fund DSM.
The Distribution Charge features two very important aspects
related to competition: First, it allows the utility to collect rev-
enues to pay for DSM costs up front, providing ongoing re-
(g
IRT Environment, Inc.
covery of DSM costs at a stable rate. This enables the utility to
move away from its practice of capitalizing (or "ratebasing
DSM costs, thereby avoiding the accumulation of "regulatory
assets" and the need for complex and potentially controversial
cost recovery. WWP learned the hard way that capitalizing
DSM can provide for shareholder incentives, but also creates
a future burden on the utility as well as concern among finan-
cial rating agencies. By expensing rather than capitalizing its
DSM costs, as is the case with the Distribution Charge, WWP
customers will experience lower DSM costs. In fact, on a dol-
lar-for-dollar basis, expensing reduces program costs by at
least 15% by eliminating the. income tax effects and share-
holder returns associated with capitalizing DSM over time.
Second, the Distribution Charge is and will be applied to all
electricity distributed over WWP's system. Thus in a direct ac-
cess environment WWP will not suffer competitively from the
rate impacts of its DSM offerings because the same charge
will be levied on all other power sales in its tenitory. In this
way, DSM can be maintained and refined in the region for
the benefit of all and delivered by WWP as a new fonn of
energy service. (R#1
Ice Folsom of WWfY s Rates and Tariffs Administration and
15 colleagues identified several seemingly conflicting con-
cerns which had to be appropriately addressed when design-
ing VVWP s new DSM strategy. These included the hannful
accumulation of regulatory assets; the desire to continue
DSM; the business persp~ctive of a utility entering competi-
tion; regulatory concerns; and shareholder obligations. Some
of these concerns have led many utilities to abandon DSM
altogether. WWP, however, looked not only at the added costs
of DSM but the added value in its decision to continue to
provide such services. In order to develop a strategy, WWP
called on all available infonnation resources to help define its
needs and direction for the new market. (R#l J
DESIGN CONSIDERATIONS
Learning from the 1992-94 DSM Plan: WWP's 1992-
DSM Plan tested a robust portfolio of programs which were
IRT Environment, Inc.
supported by WWP's largest DSM budget. Over the three-
year period, however, the utility witnessed a dramatic industry
shift toward competition. With the need to keep operating
costs lean and given WWfY s swplus power, DSM efforts were
ramped down in the final year of the plan, a decision which
received a negative response from DSM advocates.
WWP's 1992-94 DSM filing also provided for capitalizing
DSM investments to earn shareholder incentives and the de-
ferral of amortization of those assets until the utility s next rate
case. By capitalizing and defening its DSM costs, WWP accu-
mulated nearly $60 million in regulatory assets and about $8
million in carrying costs associated with this investment which
were accrued through Allowance for Funds Used to ConselVe
Energy (AFUCE). As part of the commission approval of the
. 1995-96 Tariff filing, WWP began amortizing its $68 million
DSM investment in January of 1995 and accelerated the amor-
tization period from 21 to 14 years in Washington and 15 years
in Idaho. This action has halted the collection of further
AFUCE charges. At the time of its next rate case, WWP may
incorporate recovery on the balance of this debt into its rates.
Thus while WWfY s practice of capitalizing DSM expenses and
defeITing its amortization seemed prudent at the launch of the
1992-94 Plan, given the major competitive shifts in the industry
overall its regulatory assets had quickly become
unattractive. (R#1
The DSM Issues Group: In 1992, at the request of its regu-
lators, the Washington Utilities and Transportation Commis-
sion (WUTC) and the Idaho Public Utilities Commission
(IPUQ, WWP established the DSM Issues Group (DIG) to
selVe as an advisory committee for its DSM activities. DIG
members were comprised of representatives from WWP and
seven external agencies: WUTC, IPUC, the Public Council,
Washington State Energy Office, Northwest Power Planning
Council (NWPPC), Spokane Neighborhood Action Program
the Northwest ConselVation Act Coalition, and the Washing-
ton Industrial Customers for Fair Utility Rates (WICFlJR). Most
of these agencies had one representative participate in DIG.
WWP sent 7-8 representatives to each meeting including non-
managerial staff who were encouraged to speak freely.
Preparing for Competition (conl:inued)
The DIG approach was reinforced by VVWP' s distinctive cor-
porate culture and not only helped to refine the 1992-94 pro-
gram offerings but also set the stage for the design for both a
new cost collection mechanism and a new set of programs
appropriately tailored for industry competition. DIG met 24
times over a period of 30 months and primarily focused on
the economics of DSM in an increasingly competitive utility
environment. (R#1
DIG's initial activity was to review 10 points submitted by the
WUTC related to WVVP' s 1992 DSM filing. The Commission
felt it was necessary to address these issues in a separate fo-
rum because they had not been adequately addressed in the
Integrated Resource Planning (IRP) context. DIG enabled
agencies to talk directly with program managers and their staff
as well as representatives from WWP's Rates Department
about issues related to DSM. 'Input from DIG members re-
sulted in a number or progranunatic adjustments to the 1992-
94 Plan along with harsh criticism when VVWP ramped down
its DSM efforts . 1994. While the exchange provided VVWP
with helpful insights to DSM-related matters, it also led to
strenuous modification of the DSM programs and exposed
the utility to conflict over its DSM pursuits. (R#1
Latter meetings of the group addressed concerns with propos-
als for the utility s future DSM activities. As WWP was deter-
mining what steps to take in regards to DSM once the 1992-
Plan was concluded, it was apparent that expenditures and
thus DSM acquisition were going to be rolled back. consider-
ably. Several members of DIG expressed objection to the ma-
jor cuts in DSM acquisition proposed by WWP. In fact, this
matter was never resolved before the dissolution of the Group.
DIG was disbanded in 1994 although there were a few infor-
mal group meetings in 1995 and 1996. To assist in the devel-
opment of its 1997-1999 DSM Plan, VVWP established a new
advisory group, the DSM Opportunity Group or OOG"
which began meeting in May of 1996. (R#1
While VVWP's DSM cutback toward the end of its 1992-
Plan and reducing the expenditure level even further for its
1995-96 Plan was criticized by some DIG members, this reac-
tion to competition was hardly unique to WWP. DSM savings
projections for the Northwest region overall have fallen from
120 aMW in 1994-95 to 70 aMW for 1997-, reflective of con-
cerns associated with competition, the loss of BP A support for
efficiency, and utilities' wariness about incuning additional
long-tenn debt. (R#1 5J
Corporate considerations: Recognizing its mission to oper-
ate a prosperous utility while focusing on customer satisfac-
tion, loyalty, and retention, WWP outlined certain corporate
objectives for continued acquisition of DSM. Considerations
for future DSM activities included maintaining continuity in
the promotion and support of energy efficiency; providing
long-term resource diversity; recognizing the timing of re-
source needs; promoting the transformation of consumer
markets to energy-efficient choices; and providing customer
service value. These corporate objectives provided direction
for the 1995-96 DSM Plan which fundamentally called for the
conversion of DSM programs from the provision of cash in-
centives to the promotion of market transformations and en-
hanced customer service. To their credit, the visionary archi-
tects of the Distribution Charge were able to accomplish mul-
tiple and seemingly conflicting objectives and to provide a
model structure well suited for a competitive environment.
(R#4)
The Customer Smvey: While WWP officials were quite con-
fident in their decision to fund DSM through the implementa-
tion of a Distribution Charge, to ensure that their assumptions
were indeed in line with their customers' desires, a survey was
carned out by an independent research firm. It conducted a
telephone survey using a random sampling of 300 residential
gas and electric customers who were called in July and August
of 1994. The SUIVey had a confidence level of 95% with a sam-
pling eITor range of +1-7%. (R#4)
The SUIVey found that 83% of the customers queried would
be willing to pay up to $1 more a month for WWP to be able
to offer new energy efficiency programs to customers. Ad-
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ditionally, 69% of those sUIveyed indicated that they would
rather pay $1 a month starting immediately rather than paying
$1.50-75 six months later. (The latter being, of course, how
WWP's capitalized and defeITed DSM expenditures had func-
tionally performed.) Of those surveyed, 65% had never par-
ticipated in any previous WWP energy efficiency programs.
These findings provided the assurance that a relatively small
surcharge would be acceptable - even to those that had his-
torically been program non-participants - and that expensing
DSM costs was favorable to capitalization costs which func-
tionally postponed costs but also increased the DSM rate
impact. (R#4)
DETERMINING DSM ACQUISITION AND BUDGET
As the 1995-96 DSM Plan was being designed, WWP had
enough capacity to meet demand projections through 2006
and enough energy through 2010. Load forecasts showed a
compound demand growth rate of 0.8% over the next 20 years
adding 75 aMW to the system and 14 aMW during 1995-96.
Given the excess in WWP' s power supply, the system s pro-
jected growth was not a problem and from a system capacity
standpoint there was no operational need for large-scale DSM
'Jrograms. Nevertheless, WWP' s executives recognized DSM
as an important strategic tool with customer service value and
societal benefit and the strength of these aspects was enough
to maintain WWP' s commitment to DSM. (R#I,4)
WWP strategists then grappled with setting savings goals for
the upcoming filing. It was clear that WWP' s DSM goals and
expenditures needed to be reduced from previous levels in
order for the utility to maintain its competitive edge. In the
end, a DSM acquisition level of 11 aMW was set for the 1995-
96 Plan, 5.7 aMW and 5.3 aMW in each of the two years re:-
spectively. This was a noticeable decrease from the previous
DSM effort which had set a DSt\1 goal of 28 aMW over a
three-year period and which actually achieved 34 aMW sav-
ings. However, the proposed levels were higher than those
specified in WWP's 1993 IRPwhich included savings targets of
approximately 4 aMW of DSM annually. (R#4)
IRT Environment, Inc.
Identifying realistic levels for DSM acquisition was only half of
the question as determining a reasonable price to pay for DSM
acquisition was equally important. Staff members from several
different utility departments worked together to derive a bud-
get which could realistically achieve acceptable DSM goals.
WWP concluded that $5 million in Distribution Charge rev-
enues annually would allow the utility to create a respectable
level of savings and keep the average rate impact under a dol-
lar a month for residential customers. Staff were concerned
that any higher level of expenditure might lead to customer
objections.
When considering this overall level of 'expenditure on a per
kilowatt-hour basis, the funding for DSM was equal to 1.55%
of the rate for electricity and 0.52% for gas. WWP strategists
agreed that this was an acceptable increment to be added to
customers' bills. In fact, the Distribution Charge would have
less rate impact than the cost of the 1992-94 programs. And, at
the proposed levels, WWfI s overall DSM expenditure would
be equivalent to 1.2% of its revenues, consistent with an Oak
Ridge National Laboratory study which revealed that the aver-
age 1992 utility DSM expenditure was 1.3% of total
. revenues. (R#4)
One element which was not factored into the equation was
lost revenues created by efficiency programs. While staff sug-
gested that it would be preferable to collect lost revenues
through the Distribution Charge, WWP did not want to com-
plicate the approval process and elected not to factor los~ rev-
enues into the equation. Thus, in a departure from the regula-
tory reforms initiated in the early 1990s that were int~nded to
promote DSM capitalizing costs, allowing for collection of
lost revenues, and the provision of shareholder incentives
WWP appeared to have come full circle as it had found a
simple funding mechanism to pay for valued customer energy
efficiency services. Staff and management agreed that provid-
ing customer value in a time of increased competition - es-
sential to retaining customers in the future - was enough of
shareholder incentive for DSM.
Program Design and Delivery
THE 1995-1996 DISTRIBUTION CHARGE
1995-96 DSM filing: WWP filed its 1995-96 DSM Plan with
the Washington and Idaho regulatory commissions on Octo-
ber 25, 1994. The DSM Plan included a savings goal of 5.
aMW for 1995 and 5.3 aMW savings for 1996 and a budget of
$5.7 million in 1995 and $3.7 million in 1996. Additionally,
WWP proposed to pursue gas savings of 198 500 thenns in
1995 and 174 000 therms in 1996 at a budgeted cost of
$475 OCXJ and $378 OCXJ respectively. Submitted with the Plan
was W\NP s landmark proposal for an experimental account-
ing treatment, the Distribution Charge which would be associ-
ated with the utility s distribution system for the purpose of
funding the proposed DSM activities. (R#4)
Commission Approval: The filing was approved by the
WUTC on December 14, 1994 and put into effect in Washing-
ton on January I, 1995. The Idaho PUC approved the DSM
programs outlined in the filing December 20, 1994 but did not
approve the Distribution Charge until March 3, 1995. For this
reason, the Charge did not take effect in Idaho until March 10
1996. Both the WUTC and IPUC responded to the filing with
a list of modifications and clarifications required for approval.
These considerations were shared by both the Idaho and
Washington commissions. They included a number of provi-
sions: WWP was required. to assume all responsibility for un-
der collection of revenue. WWP was required to assume any
risk due to adverse tax treatment. WWP agreed that its DSM
expenditures would be subject to prudenc.y reviews. In Wash-
ington, VVVVP was reCluired to begin amortizing its post-1991
DSM expenditure~ over a 14-year period starting January I
1995. (A IS-year amortization schedule was established in
Idaho.) Finally, the Distribution Charge was approved for a
two-year period only from 1995 to 1996 at the end of which it
would be evaluated. Additionally, the WUTC clarified that the
Distribution Charge was approved on an experimental basis
only and was not to set a precedent for cost recovery mecha-
nisms indiscriminately. (R#7
Application of the Distribution Charge: The Distribution
Charge is applied to retail electricity distributed over WWPs
distribution system and to company-owned and customer-
owned street and area lighting rates. Similarly, WWP s retail
gas customers are subject to the Distribution Charge. Custom-
ers holding special contracts with WWP for electricity and gas
are exempt from the Charge. Additionally, WWPs recent ac-
quisition of the Sandpoint region from PacifiCorp is not sub-
ject to the Charge in keeping with WWP s transfer agreement
with PacifiCorp to decrease Sandpoint s rates by 1%.
The Amount of the Distribution Charge: The 1995-96 Dis-
tribution Charge as designed by WWP is actually a set of
charges which vary for electricity and gas sales in two states.
There is no cross-subsidization between fuels or states and
WWP's calculations for detennining the amount of Distribu-
tion Charge on a per kilowatt-hour or per thenn basis were
based on 1993 actual sales which were weather
nonnalized. (R#4)
The Charge levies a 1.5481% assessment to all electric custom-
ers in Washington and Idaho, and given the different rates in
those states, the actual rate impact varies. The Charge s rate
impact in Idaho ranges from 0.46 mills to 08 mills for various
customer classes for a mean impact of 0.71 mills. In Washing-
ton, impacts range from 0.47 mills to 03 mills for a mean
impact of 0.73 mills. The total projected 1995 revenue from the
Distribution Charge on electric rates was $4,650,OCXJ. (R#4)
For gas customers, the surcharge adds a 0.52% increase to gas
rates. The rate impact for Idaho ranges from 0.1891t/thenn to
2581t/thenn for a mean impact of 0.243lt/thenn. In Washing-
ton, the rate impact ranged from 0.1341t/thenn to 0.1921t/thenn
for a mean of 0.174It/thenn. The total projected 1995 revenue
from the Charge on gas rates was $427 OOJ. (R#4)
The Charge s impact on customer bills: In Washington the
Distribution Charge results in an approximate 811t increase in
typical monthly residential electric bills and a 161t increase to
gas bills. In Idaho the bill increases are approximately 781t and
1M for electricity and gas respectively. Of course the stated
impacts reflect only bill increases resulting from the Distribu-
tion Charge but do not include any bill reductions resulting
from the ensuing DSM programs. Program participants, as in
other DSM programs, will experience positive cash flow de-
spite the surcharge.
Excess and shortfalls in Distribution Charge revenues:
WWP staff detennined the cost of the Distribution Charge
such that the revenue collected closely matches the anticipated
DSM costs. The approved filing calls for the extension of
DSM programs until any remaining balance is fully expended
to avoid additional rate fluctuations. In the case of revenue
shortfalls, VvWP originally proposed that the Distribution
Charge be continued until a zero balance is reached. How-
ever, the WUTC specified that WWP assumes the responsibil-
ity for any DSM expenses which are not met by the
Charge. (R#1,4J
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5481%5481%
5481%5481 %
0.47 5481%0.46 5481%
5481%5481 %
5481%5481%
149
134
174
Keeping its customers infonned: WWP has placed signifi-
cant effort on keeping its customers infonned of its progres-
sive new funding mechanism for DSM and of its program
offerings. The first billing cycle in 1995 included a notice to
customers explaining the Charge' s purpose and magnitude.
Similarly, the Distribution Charge was fully explained in a cus-
tomer brochure titled, MHow To Calculate Your Bill.The Dis-
tribution Charge, however, is included in the regular rate and
does not appear as a separate line item on customers
bills. (R#6)
THE 1995-96 DSM PLAN
Designing a new portfolio of programs: In rethinking
DSM WWP not only considered the funding of DSM pro-
grams but the programs themselves. The Distribution Charge
was only half of the fonnula presented by WWP as the chang-
ing face of the electric utility industry called for a new means
of delivering energy efficiency services to the market. Maxi-
mizing the effect while minimizing expensitures became an
important part of the equation. WWP made some notable ad-
justments to its DSM portfolio, relying less on incentives and
rebates and more on market transfonnation and education.
The 1995-96 DSM Plan continues several programs that were
previously implemented. In some cases, these programs were
included only to complete existing activities and commitments
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52%
52%
215
189
52%
52%
52%243 52%
and were scheduled to sunset" in 1995. These existing com-
mitments represent the bulk of WWP's programs which rely
on large "incentives. Some of these programs have been or will
be redesigned or replaced to target the same markets using
smaller or no cash incentives at all.
The Plan also includes three CjI pilot programs reflecting
WWf1 s heavier concentration on those customer classes. This
uneven emphasis on the commercial and industrial sectors is
intentional, offsetting the heavy residential focus of the 1992-
1994 Plan. WWP's aim is to even out the expenditures for the
collective five-year period of the two DSM plans in order to
nullify any concerns of class cross-subsidization. (R#4)
THE 1995-96 DSM PROGRAMS
CARRYOVER PROGRAMS
MAP Energy Efficiency: WWP began the Manufactured
Home Acquisition Program (MAP), a BP A-administered pro-
gram, in 1992 and continued it through July of 1995. (See Pro-
file #30) This market transfonnation program for manufac-
tured homes provided incentives for manufacturers of energy-
efficient, electrically heated manufactured homes meeting
BP A specifications. Manufacturers of qualifying homes re-
ceived a payment of $1,500, an incentive which was reduced
from $2 500 as the program was able to rely less on cash and
Program Design and Delivery (continued)
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t/ t/ pilot
All pilot programs included in the 1995-96 DSM Plan expire at year-end 1996.
more on the transformation created by the program s effect.
Originally scheduled to sunset in March of 1996, the program
closed in 1995.
WWP is continuing to support efficient manufactured housing
through the MAP Certification program. This latest rendi-
tion of the BP A-administered MAP program replaces incen-
tives with inspection and certification of units which meet pro-
gram efficiency standards. Those utilities in the region who
also participate in BP A' s Super Good Cents program (See Pro-
file #7) have attempted to piggyback on its name recognition
by calling certifying qualified units .Super Good Cents Manu-
factured Homes.. ( #2)
MAP Fuel Efficiency: An evaluation of the MAP program
revealed that it was significantly influencing fuel choice in
manufactured homes. To counteract this situation, VV'vVP of-
Ii!
f '
fered an additional program to manufactured home purchas-
ers who elected to site a gas space and water heating unit
within VVWP's electric seIVice tenitOIY. The incentive covered
the additional costs of installing gas heating up to $500. This
program also closed in July 1995.
Residential New Construction: The New Residential
Construction program has been implemented to encourage
efficiency in new homes through grants for the installation of
weatherization materials and efficiency measures for custom-
ers building new electrically heated homes. Washington cus-
tomers receive $900 for single family homes under 2 000
square feet and $390 for multi-family units. In Idaho, custom-
ers received an incentive of 40ct per square foot up to $720
BOO square feet) for single family and 2alt per square foot up
to $255 (1 275 square feet) for multi-family units. The program
was extended only to Washington customers that were issued
(!:)
IRT Environment, Inc.
building pernrits prior to July I, 1995. The cut-off date in Idaho
was March IS, 1996.
Non-Residential Energy Code: WWP supports the State of
Washington s new non-residential energy code. WWP and
other participating utilities assist their customers with code
compliance by paying all or part of the cost of the standard fee
levied on non-residential developers. The fee covers code
enforcement training, plan review, and inspection. WWP paid
the full fee for buildings pennitted from April 1 , 1994 through
December 31, 1995. For buildings pelTIlitted from January 1
1996 through March 31, 1997 WWP pays half the cost.
Compact Fluorescent Lightbulb Rebate: VVVVP s Compact
Fluorescent lighting (CFL) rebate program was also carried
over from the 1992-94 DSM Plan. In a effort to move the mar-
ket towards CFLs, WWP offered a $5 point of purchase rebate
for up to five bulbs to its customers. To be eligible for the
rebates, request folTIls needed to be postmarked by Novem-
ber 30, 1995. By continuing the program through that date
WWP fulfilled its goal to run a CFL program for three years.
Completion of this program has allowed WWP to begin a new
initiative for the lighting market. WWP has joined other utili-
ties in the region. in launching LightS aver, a manufacturer' 5
rebate program for CFLs. (See also Profile #113) Shifting the
incentives MupstreamW in the production and distribution chan-
nel for CFLs, from consumer to distributor to manufacturer
highlights WWP's efforts to decrease its levels of incentives
while continuing to support important market transfolTIlations.
Residential Weatherization: WWP is continuing its longest
running program, offering weatherization rebates at 25!tfk.Wh
for first-year savings up to 50% of the measure cost. The fund-
ing level for this program was decreased in this filing from
41!tfk.Wh and windows are no longer an eligible measure for
the rebate. The program also provides a $25 incentive for wa-
ter heater blankets. Customers with electric heat wishing to
participate in this program must use at least 4 000 kWh annu-
ally to heat their home in order to qualify. Applications must
be received no later than December 2, 1996. Residential
Weatherization is one of WWP's few direct incentive pro-
grams; WWP also provides weatherization to gas customers
carried over from the previous gas weatherization program.
Limited Income Energy Efficiency: The Limited Income
Residential Energy Efficiency program combines the weather-
ization and fuel switching efforts from two previous programs.
In collaboration with other agencies WWP provides funding
for weatherization and fuel switching installations. A direct in-
(!;)
IRT Environment, Inc.
centive of 40!tfk.Wh for first-year savings up to $1 600 per
home is issued by the program to agencies providing weather-
ization assistance. Customer who heat with gas receive $4.
per thelTIl saved up to $1,000 per home. The program is avail-
able to all residential customers with an income at or below
125% of the national poverty level and will run through year-
end 1996.
Commercia1lIndustrial Site-Specific Measure Funding:
Commercial and industrial customers, as well as developers
whose properties were to be purchased by future WWP cus-
tomers, were eligible for funding of efficiency measures instal-
lation regarding HV AC and refrigeration, controls, motors and
drives, and other process modifications. Pending approval of
the engineering estimate of potential savings, WWP funded
up to 50% of the incremental measure cost or the equivalent
of the first year' s kWh savings at 5!tfk.Wh, whichever was less.
The program expired year-end 1996 and applicants have until
December 1. 1997 to complete projects and necessary filings
for funding.
Commercia1lIndustrial Gas Efficiency: The Commercial!
Industrial Gas Efficiency program is a continuation of an exist-
ing program which provided C/l gas customers with funding
for gas-saving measures. The amount of funding avallable was
changed for the 1995-96 DSM Plan to the lesser of either half
of the total measure costs or an equivalent to the saved energy
using a rate which varies according to measure life. The pro-
gram expires November 30, 1996 and projects must be com-
pleted by December 2 1997.
NEW PROGRAMS
Natural Gas Awareness Program: To promote the use of
natural gas as a residential heating fuel, WWP has launched
an awareness program. Education on natural gas benefits is
delivered using several means including the media and adver-
tising. WWP has already launched a major brQchure mailing,
targeting natural gas candidates who are culTently heating with
electricity. To further encourage switching to natural gas, WWP
offers zero down, no fee, market-rate financing to residential
customers for the installation of gas-heating equipment.
This new program stands as a strong example of how WWP's
program shift has worked. The previous DSM plan was domi-
nated by VVVVP s fuel switching efforts collectively known as
the Energy Exchanger program. Through Energy Exchanger
WWP was distributing incentives from $2 700-300 per house-
hold and the program had 3 000-000 participants each year.
Given this success, DIG members were upset that WWP was
,. -. .. -. .
Program Design and Delivery (continued)
discontinuing its fuel-switching incentive. However, the Natu-
ral Gas Awareness program succeeded in drawing 1,300 par-
ticipants in 1995 while eliminating the cash incentive and re-
placing it with attractive financing using no incentive at all.
Resource Conservation Manager Pilot: The Resource
ConseIVation Manager (RCM) pilot market transformation
program aims at improving the efficiency in public schools.
VVVVP will guarantee the salary of two RCMs hired from cur-
rent school district staff who will work with school district fac-
ulty, staff, and students to reduce resource consumption in
district facilities. Each RCM will have a jurisdiction of 25-40
schools. WWP will assist in funding the training for ROv1s as
well as the computer tracking system.
Commercia1lIndustrial Building Commissioning Pilot:
WWP is offering a pilot DSM program for 6-10 commercial
entities that will become WWP customers. The pilot offers
funding of the lesser of either $10 000 per building or the ac-
tual cost of commissioning and will expire at year-end 1996.
CommerciaJ/Industrial Trade Ally Pilot: WWP will work
with C/I customers and trade allies to identify energy-saving
projects which are being blocked by market baniers. The pro-
gram provides.a variety.of assistance including partial funding
of feasibility. studies, measurement. and evaluation of project
savings, and any other service or assistance agreed on by the
customer and WWP. The utility will fund projects at 5q: per
kilowatt-hour saved for up to the first year s energy savings.
MARKETING
As WWP makes its jowney from being .a .. grant dispense( to
technical consultants and customer-focused service providers,
marketing becomes an ever more essential element of suc-
cess. Program leaders recognize that strong marketing and
solid communication with customers must compensate for
having less incentive dollars available to attract customers to
programs. This is the first crucial step toward forming partner-
ships with customers and building cusomter loyalty.
WWP s commitment to an emphasis on building customer
relations has defined WVVP s marketing strategy for its com-
mercial and industrial customers. Marketing and DSM repre-
sentatives have invested a greater amount of time with WVVP
C/I customers, Wonning them of the added values of energy
efficiency and the opportunities available to them at WWP.
Technical seminars on subjects such as HV AC, lighting, and
indoor air quality have been conducted and have included
vendors and trade professionals. Typically these seminars
have attracted 60+ participants, underscoring the interest that
WWP has generated in efficiency in its service territory. W#P
representatives follow up the serrunars with personal calls and
visits to the attendees.
WWP has not only concentrated on building relations and
partnerships with its customers but building a network with
professionals as well. As part of its evolution from incentives
to customer assistance, VVVVP has expanded its seIVices avail-
able for customers. Partnering with third-party contractors,
engineers, and lenders enables WVVP to connect its customers
to the technical and financial support they need for imple-
menting energy efficiency. Overcoming customer barriers
through third-party partnerships is the central thrust behind
the Trade Ally Pilot.
Marketing through the mail has proven quite successful.
Through its Natural Gas Awareness program, WVVP contacted
000 potential fuel switching customers by mailing them a
brochure detailing the savings and benefits of switching to
natural gas. This program has been quite successful in proving
that participation can still be achieved without incentives.
Added support for all of WWf1 s programs is given through
basic marketing methods such as bill stuffers, media advertise-
ments, and through the Internet at WYVW.wvvpco.com.
STAFFING REQUIREMENTS
The development of the Distribution Charge and 1995-
DSM Plan benefitted from the insights and participation of
staff from five separate WWP departments. Contributions were
made from Rates and Tariff Administration, DSM Planning
and Evaluation Department, Electric Power Supply, Gas Sup-
ply, and DSM Implementation. This
..
across the board" repre-
sentation in the process ensured that the various aspects of
the utility were considered in formulating an appropriate ap-
proach to energy efficiency. The core planning committee
consisted of seven people who participated in the DIG meet-
ings as well. However, as many as five to ten others also par-
ticipated in the process. These strategists pieced together in-
formation from both internal and external parties, drawing
from both past experience and customer input to design the
Distribution Charge. Implementation of the DSM Plan has
been carned out by a full time DSM Implementation staff of
five, including Energy Services Manager, Roger Curtis, and
support by three evaluation staff members. In addition, there
are nine to ten core contractors which Curtis and his staff rely
on to deliver programs. (R#1 14)
IRT Environment, Inc.
Monit:oring and Evaluat:ion
One major change in WWP s DSM posture has been its re-
laxed emphasis on monitoring and evaluation (M&E) of pro-
gram savings. For its 1992-94 DSM Plan, each program was
fully evaluated with both a process and impact evaluation. This
required a corporate commitment of approximately $1.5 mil-
lion over the three-year planning horizon. In contrast, the bud-
get for the 1995-96 DSM Plan is only on the order of $50 000
signifying a fundamental difference in its programs from DSM
as a regulated activity to DSM as a desired customer service
offering.
In the past, regulators in Washington, Idaho, and for that mat-
ter states across the nation have carefully scrutinized DSM
program costs to make sure that ratepayers have truly
benefitted from and have been treated equitably by com pre-
hensive programs and most importantly from rather lavish in-
centives. Now as WWP has modified its programs to support
more subtle shifts through market transformations and educa-
tion, and as the utility has reduced its overall -expenditures, its
emphasis on evaluation has been eased off, suggesting that
the ultimate test of its new programs' effectiveness will be con-
sumer response instead of regulato!)' approval.
rograms in the 1992-94 DSM Plan, including the dispropor-
tionately large Energy Exchanger offerings, were carefully evalu-
ated to determine reliable estimates of savings produced by all
measures installed. WWP has continued to use findings from
these proven methods for quantifying program savings for the
canyover programs in 1995-96. Established methodologies for
determining program savings include a prescriptive approach
using data collected from impact studies, billing analyses, and
engineering estimates. Having established mechanisms for cal-
culating energy savings has and will save WWP a considerable
amount of M&E dollars for its 1995-96 Plan.
IRT Environment, Inc.
What is different between WWP's previous and current DSM
Plans is the fundamental shift toward market transformation
programs. Bill Johnson of WWP's DSM Planning and Evalua-
tion Department notes that for these types of programs, the
more traditional tests of program cost-effectiveness no longer
apply. Because WWP's newer program s focus on providing
the customer with information and technical assistance, rather
than issuing a set rebate for each unit of equipment installed
. their perfonnance is more difficult and perhaps impossible to
accurately track.. Thus, evaluation efforts for the current DSM
Plan have focused on the qualitative impacts of the programs.
For example, the CFL Rebate program focused on calculating
energy savings based on established savings estimates and
units sold through the program. Future evaluation efforts for
the LightSaver program will examine penetration and market
transformation, relying primarily on store SUlVeyS.
WWP's pilot programs will necessarily require monitoring since
achievable savings are ambiguous at this point. In the case
the Resource Conservation Manager pilot, tracking program
savings is a necessary function of the program, as WWP is re-
sponsible for any portion of the RCM's salary which is not
recuperated through savings. Thus WWP has contracted an
energy service company to detennine the baseline consump-
tion and estimated savings for participating schools.
For the Building Commissioning pilot program WWP will in-
vestigate numerous methodologies for evaluating program per-
formance. The Building Commissioning pilot will benefit
heavily from methodologies developed by the BP A and now
defunct Washington State Energy Office, both of which are
experienced in implementing commissioning programs. The
Trade Ally pilot, on the other hand, will rely on site-specific
engineering estimates along with follow-up SUIveyS.
Program Savings
ELECTRIC SAVINGS
Electric savings for the 1995-96 DSM plan through April of
1996 totaled 36,704 MWh, 38.7% of the projected savings for
the two-year plan and 38.0% of its originally budgeted savings.
These figures however, do not give a just representation of the
plan s perfonnance to date since the reported figures do not
account for savings which will occur for projects not yet com-
pleted nor for projects which are completed but have not yet
been monitored for savings. New programs also require a cer-
tain amount of time to get started and as such are not expected
to produce immediate savings. Thus the overall actual savings
do not provide a complete picture of how the CUITent programs
are perfonning. WWP's Bruce Folsom and Bill Johnson, both
of whom have heavily participated in the development of the
Distribution Charge, have indicated that the 1995..:96 DSM Plan
is on track for reaching its projected savings. (R#1 , 10, 11)
Carryover Programs: Of VVWP's pre-existing programs
Residential New Construction has been the most successful
achieving near four times its original budget of 613 MWh.
With savings of 2 278 MWh to date, the program is projected
to save a total of 2 540 MWh for the two-year period. MAP
Energy Efficiency has also garnered greater savings than ex-
pected as more than the predicted number of qualifying
manufactured homes were placed in WWP s tenitory..MAP
has produced a total annual savings of4,117 MWh as of April
1996 and is expected to save 7 796 MWh by year-end.
In contrast, the MAP Fuel Efficiency and Rebate captured
much less than their budgeted levels of savings before closing.
Similarly, Residential Weatherization and limited Income En-
ergy Efficiency have achieved 36% and 46% of their original
budgeted savings to date. Projected savings for both these pro-
grams have been scaled back somewhat in recognition of the
fact that after twelve years of running the program the avail-
able market is saturated. WWP s C/I programs have reported
low savings levels to date, undoubtedly due to the longer
implementation time that larger projects require.
New Programs: Over half of the total savings to date
achieved by WWP's 1995-96 DSM Plan has been accom-
plished through the fuel switching effort Natural Gas Aware-
ness, which has produced an electricity savings of 18 659
MWh. Of course, the electric savings" represent only a shift
from electricity consumption to natural gas consumption
DSM but not thennodynamic efficiency per se. WWP s pilots
are still in the process of starting up and, as such, have given
no. indication of whether they vvill be successful or not. (R#10)
GAS SAVINGS
Total gas savings through April 1996 was 196 042 thenns
equivalent to 45% of the originally budgeted savings for the
gas side of the DSM plan. Based on results to date, the origi-
nal budget has been increased by 1300~ to 993,488 thenns.
Again, these figures do not reflect the performance of the pilot
programs which have not reported savings yet. (R#ll)
WWP's Gas Residential Weatherization activities included in
the table reflect an enormous canyover of participants from
the 1992-94 DSM Plan. With sizable obligations remaining
from the previous plan, W'vVP did not include any new efforts
for gas weatherization but focused only on addressing these
spillover customers.The program s spillover achieved the great-
est savingsvvith an annual total of 94 485 thenns. High Effi-
ciency Appliance Education was included in the original bud-
get but was cancelled. (R#ll)
The C/I Gas Efficiency program has also perfonned well. "Sav-
ings to date have totalled 88 336 thenns, 46% of its original
budget. Based on this level of achieved savings, which does
not reflect those projects which are not completed or have not
been verified, the program s savings projections have been
boosted to 827 046 therms, over four times its original ex-
pected savings. (R#ll )
VARIATIONS FROM THE FORMER DSM PLAN
, ,
Electric Programs: WWP s 1995-96 DSM Plan is expected to
achieve a total savings of 94 783 MWh over a two year period
one-third of the 1992-94 DSM Plan savings of 293 690 MWh
over three years. Thus, if WWP meets its 1995-96 goals, its
savings will be equivalent to half the 1992-94 Plan when taking
into account the difference in time. (R#10 13)
Gas .Programs: WWP's new DSM Plan is expected to save a
total of 993 488 therms of gas, 38% of 1992-94 DSM Plan ac-
complishments of 2 551 940 therms. C/I Gas Efficiency ac-
counts for 827 046 therms, or 83% of the projected total. Dur-
ing the 1992 Plan, C/I Gas Efficiency only accounted for 4.3%
of the total savings. This inversion underlines V'./WP's shift in
concentration from the residential sector to commercial and
industrial accounts. The CUITent DSM Plan s Residential
Weatherization and limited Income Energy Efficiency pro-
grams outperfonned the original budget vvith a combined total
annual savings of 106 442 therms, but still only represent 11%
of the total gas savirigs for the 1995-96 Plan. The previous
DSM plan relied heavily on residential programs which gar-
nered an annual savings of 2 441 067 therms. (R#II 13)
IRT Environment, Inc.
MEASURE LIFETIME
WWP has supplied average measure lifetimes for all measures
installed through the 1995-96 DSM Plan. Residential Weather-
ization measures are assumed to have lives of 30 years for in-
sulation and 5 years for water-heater blankets. ffis have been
assigned a measure life of 7 years. Manufactured housing
measure life is 30 years. Fuel switching installations are given a
25-year measure life. The C/I Site Specific program has been
assigned measure lifetimes ranging from 10-20 years. The Re-
'::lllts Center also assumed a measure life of 30 years for new
struction and 7 years for showerheads. These values were
IRT Environment, Inc.
540 278
636 I""-
438 438
613 350
205 891 927
36,704 29,784 848
230 230 659
701 701
701 701
701
264
993 488 196 042
,...
used by The Results Center to detennine annual weighted
average measure lifetimes that were used to calculate the cost
of saved energy. Weighted averages for programs with multiple
installations were also calculated by The Results Center based
on the lifetime assumptions stated above.
Addit:ional Program Benefi1:!i
Avoided emissions: WWP has not attempted to quantify the
environmental benefits of its past, present and future DSM
programs. While emissions are not a concern for the hydro-
eleciric portion of the WWP's power supply, approximately
one-third of the utility s daily load is met with thennal genera-
tion, where emission reduction benefits of DSM are realized.
Transferring WWP's 1995-96 DSM Plan s results to date to
other service tenitories, as the table on the next page suggests
could result in reduced CO2 emissions of as much as 84 mil-
lion pounds annually. This does not reflect the added emis-
sions resulting from increased natural gas consumption due to
fuel switching programs.
Additional environmental benefits: Throughout the
Northwest, the ample supply of hydroelectric power has pro-
vided low-cost electricity but at a high cost to the river environ-
ment. The depletion on fish populations in the Columbia
River system has been a major driver of DSM activities
throughout the region thanks to the leadership as spelled out
in the Pacific Northwest Electric Power Plant and Conservation
Act of 1980 and the guidance of the Bonneville Power Admin-
istration. While WWP's hydroelectric system does not directly
contribute to the Mhot spotsW of envirorunentalists' concerns
about the Northwest rivers, its system still benefits from the
energy efficiency efforts of WWP. Many of the regional con-
servation efforts have been measured in saved salmon and .
programs in tenns of the cost per saved salmon!
NON-ENERGY RELATED BENEFITS
WWP's 1995-96 DSM portfolio demonstrates a number of
non-energy related benefits which are exhibited by various
programs. Numerous programs delivering retrofits in both the
residential and C/I sectors have contributed to regional eco-
nomic development by providing added business for local
professionals and suppliers. limited income programs have
provided an obvious benefit of lowering energy bills for those
most in need of such relief. In addition, these programs also
help to mitigate bill aITearages for WWP. The Resource Con-
servation Manager pilot contains an educational component
teaching tomoITow s leaders the importance of effidency.
Customer Value: WWP's decision to pursue DSM despite
its sufficient resource levels is a clear indication that energy
efficiency carnes weight in tenns of customer value. This as-
sertion has been supported by the customer survey which re-
affinned customers' interests in continuing efficiency pro-
grams, while also affinning that DSM is a valuable tool in a
competitive arena. WWP has been at the forefront of bringing
competition to the Northwest and has taken every opportu-
nity to advance its own competitive edge. Its decision to con-
tinue DSM was clearly made with competition in mind, bol-
stered by the
..
customer satisfaction" that the utility was confi-
dent its programs would support.
Strategic Advances for the Competitive Market:
Oearly the greatest benefit of WWP's 1995-1996 DSM Plan
and Distribution Charge is that it has introduced a new genre
of DSM in the Pacific Northwest which works in a competitive
market. The Plan and Distribution Charge funding mechanism
is a highly proactive and constructive response to both regional
and national energy services considerations. WWf1 s early ex-
periment with the Distribution Charge has given DSM a new
home in the competitive market, and has not only solved the
problem of how to deliver energy effidency services in its o
tenitOlY, but has demonstrated a effective model which can
applied in other tenitories throughout the Northwest and for
other part of the countIy as well.
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A voided emissions based on
20%104 973,000 271 ,000 356,000 79,000
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Cost: of t:he Program
WWP's total DSM expenditure for the 1995-96 DSM Plan
through April of 1996 was $5 213 752. Thus far, WWP has ex-
pended 51% of its original DSM budget of $10 289 498. Pro-
jected expenditures through year-end 1996 have been raised to
$11 031 654 in expectation of increased participation primarily
in the MAP Energy Efficiency program. Electric DSM programs
have accounted for $4,712,126 of the total costs to date with the
balance of $501 626 attributed to gas programs. (R#10 11)
Canyover programs for the 1995-96 DSM Plan account for the
93% of the total expenditures to date with costs totaling
$4,867 567. MAP Energy Efficiency accounted for the largest
portion with a total of $1,881 086. Program costs are expected to
reach $3 528 695, nearly four times its original budget. WNP' s
direct incentive programs have collectively cost $2 125 873. All
of these programs, except for GI Site Specific and C/I Gas Effi-
ciency, had reduced incentives from previous years and will be
further reduced or replaced for WWP's next filing. (R#10, 11)
In sharp contrast, WWP's new programs have cost only
$346 185 through ./\pril1996. The tremendous cost difference
belween canyover and new programs is the result WWP was
hoping to see in its shift toward low-cost DSM. Natural Gas
Awareness, which produced half of the utility s electric sav-
ings to date, has had a total expenditure of $94 407. WWP has
also invested $57 518 in developing regional progtams, chiefly,
the UghtSaver program. The balance of the new program costs
is attributed to pilot programs.
DISTRIBUTION CHARGE REVENUES
Both the electric and gas portions of the 1995-96 DSM Plan
are expecting a slight shortfall in their respective Charge rev-
enues. The total revenue for the Distribution Charge is pro-
jected to be $9 606,177 for the two-year period. This falls no-
ticeably short of the projected costs of $11,031 654. However,
this figure includes continued MAP program commitments
which will extend into 1997 to cover program expenses for.
homes manufactured prior to the program' s termination date.
These costs will be paid through Distribution Charges col-
lected in 1997 provided that WWP's filing for its 1997-99 DSM
Plan is approved by the commissions involved. One of
WWP's objectives in its 1995-96 DSM plan was to lower and
stabilize DSM expenditures. The 1995-96 DSM Plan had an
original budget of $10 289 498 which has since been adjusted
to $11 031 654, compared to the previous DSM Plan which
expended $59 639 962, nearly six times as much. (R#10 13)
2.46
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COST EFFECTIVENESS
$900,697 $3,528,695 881 086 $1,605,131
$225,174 $9,202 $9,202 852
$224 581 $560,391 $484 678 $413,576
$477 793 $477 793 $290,577 $247 949
$145 726 $75,090 $76,151 $64 980
$390,983 $219,409 $119,301 $101,800
097 932 $726,557 $461 472 $393,774
651 183 $3,143,346 $1,077 560 $919,482
$574,667 $574,667 $94,407 $80,557
$98,000 $117,416 $36,759 $31 366
$200 000 $214 824 $51 044 $43,556
$200,000 $152 961 $72 371 $61 754
$200,134 $257 652 $57 518 $49,080
$9,386 870 $10,058,003 712 126 020 857
606,249 743,577 $5,796,330 946,008
$75 271 $309,077 $309,077 $263,735
$22 571 $44,494 $39,494 $33,700
$331 981 $515,906 $118,969 $101 516
$16,667 $30,930 $21 965 $18 743
$16,667 $16,667 382 033
$16,667 $56,577 $9,739 $8,310
$422 804
$902 628 $973,651 $501,626 $428,037
802161 862 600 $630,001 $537 580
$10,289,498 $11,031,654 $5,213,752 448,895
$9,408,410 $9,606,177 $6,426,331 $5,483,588
The Results Center s total cost of saved energy for 1995-
electric program activities to date was 78~/kWh levelized to
""90 US$. If WWP meets its savings and budget projections
J overall cost of saved energy will be O.64~/kWh. The Results
Center calculated a cost of saved energy of 1.44~/kWh for the
1992-94 DSM Plan. Based on these figures, even if WWP does
not meet its projections it will have improved its cost effective-
ness from the previous DSM Plan by nearly a factor of two.
WWP own calculation of the cost of saved energy factors in
the utility s cost of capital and taxes and equated to 1.36~/kWh
in 1990 US$. (R#2
IRT Environment, Inc.i:! 1
Lessons Learned
WWP's corporate culture has helped to cultivate innova-
tion among its staff: Bruce Folsom places a strong emphasis
on the importance of WWP's unique corporate culture which
he and others credit with the creation of the progressive Distri-
bution Charge mechanism and W'vVP's CUITent portfolio of
programs. Folsom explains that the culture minimizes hierar-
chy and encourages free speaking to tap employees' energy
and ideas. This empowering approach was evident during the
DIG meetings where strong and open communication was
fostered and effectively transfonned into progressive ideas and
actions. By approaching business with this philosophy, WWP
has nurtured its staff s creativity and honed its operations, so
aitical in today s utility industry environment.
Fundamentally, staff have learned that even a utility
with excess capacity and the nation s lowest power rates
can create a win-win situation with its customers by
funding valued efficiency programs through a Disbibu-
tion Charge: By carefully querying its customers of their in-
terests and then communicating its intentions dearly, Wash-
ington Water Power has been able to turn the tables on DSM.
Staff have taken the negative aspects of DSM - notably its
perceived rate impact - and turned it into an effort that cus-
tomers can be proud to support. Thus the utility has effectively
taken a formerly mandated discipline that it believes had
turned sour, creating a losing situation from both utility and
customer perspectives, to a valued customer seIVice that has
dearly created a win-win situation.
In order to continue to deliver energy efficiency in a
competitive age, utilities must learn to get more bang for
less bucks,... replacing incentives with more service:
WWP recognized that it could' not continue providing costly
incentives to its customers to elicit participation in DSM, espe-
cially given its lack of resource need. Its program developers
understood that there were other viable alternatives for pro-
moting efficiency and transfoI111ing markets. W'vVP's new gen-
eration of DSM is less cash oriented and more infonnation
and service oriented. This requires more creativity and market-
ing and more time for customers to adjust. However, by taking
advantage of alternatives such as third-party financing, con-
tracting, and outsourcing, WWP looks forward to achieving
DSM more cost effectively.
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Programs can indeed continue to be effective without
big incentives: 'WWP has proven that programs can be
highly effective without the attractive incentives that predomi-
nated the .past generation. of DSM programs. This point has
been proven best by the success with the Natural Gas Aware-
ness program. While previous fuel switching efforts garnered
000-000 participants annually, these efforts were also quite
costly as WNP was providing $2 700-$3 300 per home in in-
centives. WWP's CUITent fuel switching program, Natural Gas
Awareness, netted 1 300 participants in 1995 with no incen-
tives at all. Similarly, W'vVP's MAP program incentive dropped
from $2 500 per home to $1 500 while program participation
levels have continued unabated. This trend will progress even
further asWWP replaces the MAP incentive program with the
MAP certification program which continues to transfonn the
manufactured home market without the use of rebates.
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WWP has learned that offering consistent services is es-
sential not only for the success of a program but also for
the company: Toward the end of the 1992-94 DSM Plan
many of WWP's programs experienced drastic reductions in
program funding, in fact by as much as 8()0;6. This caused fluc-
tuations in participation as customers rushed to . get in before
the barn door dosed." It also led to external aiticism. As WWP
shifts to programs which are service and education oriented
without large rebates and incentives, staff believe that long-
tenn stability will be even more aucial for making customers
and trade allies familiar with the seIVices.Program consistency
provides another benefit to the utility as it allows the adminis-
tration of a program to become streamlined, thus trimming
costs. The Distribution Charge supports this concept by pro-
viding a known and stable level of funding for programs.
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Customers want energy efficiency services: While many
utiliti~~ in the Northwest and around the country are scaling
back if not completely abandoning their DSM programs as a
short-tenn response to competitive pressures, WWP could
have easily done the same. The utility has no need to supple-
ment its resources for the next decade. However, WWP chose
to continue to deliver energy efficiency services to its custom-
ers because of its perceived customer value. WWP reaffirmed
this understanding by conducting a customer SUIVey which
revealed overwhelming support for paying a little more each
month for continued energy efficiency services.
IRT Environment, Inc.
WWP's experience is an excellent illustration of the
strength and importance of good communication: WWP
is well reputed for communicatihg with both customers and
outside agencies and regulators, establishing good faith on
both fronts. Customers trust the utility enough to tell them in
a SUlVey that they are willing to pay extra for energy efficiency.
Likewise, maintaining strong and thorough communication
with regulators has afforded WWP the flexibility to learn, grow
and adapt its DSM programs as needed.
Precollecting funds for DSM has allowed greater flex-
ibility in implementing programs: Traditional means of
funding DSM recovered costs through rates after the fact. This
procedure proved very restricting for utilities which avoided
program exceptions or digressions which might risk recovery.
By minimizing the concern over cost recovery and paying for
program activities up front, WWP has earned itself some lati-
tude for creativity. As long as savings occur and the programs
are perfonning cost effectively, WWP s regulatory commis-
sions will remain satisfied with the utility s new-found empha-
sis. Regulators maintain the right to review the prudency
any program activities and expenditures, thereby keeping
WWP bound to performing cost-effective DSM. This has en-
abled WWP to submit fairly broad filings, bypassing the need
for regulatory approval for any changes or exceptions. Such
flexibility enables WWP to run its programs more effectively
and efficiently. For example, the Building Commissioning Pi-
lot has very open definitions, allowing WWP to experiment
and evaluate building commissioning as a DSM application.
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IRT Environment, Inc.
Including lost revenue recovery in the Distribution
Charge will likely be desirable in the future: WWP pur-
posefully did not include lost revenue recovery in its filing
because it wanted the Distribution Charge to be expeditiously
approved. Given the big issues in front of both commissions,
there was concern that one more potentially contentious issue
could" tip the boat" and further delay WWP s new DSM pos-
ture. Also, with such a large portion of WWP s electric savings
resulting from fuel switching. many of the related revenues
are not "lost" but rather " transfeITed" to gas sales. However
Bruce Folsom recommends to other utilities that they consider
including lost revenues in the collection of Distribution
Charges to the extent that lost revenues are indeed measur-
able and real.
i!3
ransferab ilit:y
Washington Water Power s pioneering efforts with establish-
ing and testing its Distribution Charge has been a major con-
tribution to the electric utility industIy as it searches intensely
for new and viable structures to support efficiency in a time of
industIy re~tructuring. The model and its concept is very much
the talk of the town" as it stands poised to fulfill multiple ob-
jectives and to create Win-win energy services opportunities
for utilities and their customers.
While distribution charges, or what are also known infonnally
as "wires charges" and "systems benefits charges " have not
actually been implemented by other utilities, they have been
examined and proposed all across the countIy. Similar struc-
tures have been proposed in states including California, Con-
necticut, New York, Maine, Massachusetts, Rhode Island
Vennont, and Wisconsin. California has been in the forefront
of the restructuring debate since its "blue book" proposal in
1994. The California PUC's long-awaited ruling on restructur-
ing in December of 1995 made the industIy familiar with the
tenn "non-bypassable public goods charge " a model that
closely resembles WWP s Distribution Charge. WWP s charge
happens to be the first of its kind to provide empirical evi-
dence on the success of the model's implementation.
PERMUTATIONS OF DISTRIBUTION CHARGES
There are many potential pennutations of WWP s Distribu-
tion Charge model: For instance, the charges can be levied at
a number of points and by a number of different parties. Po-
tentially they can be attached to transmission systems for
wholesale transactions and/or distribution systems as is the
case with WWP s charge. "Systems benefits charges" are being
considered in both California and New York that will be uni-
versally applied to all utilities' distribution systems in these
states. Note that "systems" in this case is plural, as are "ben-
efits." Ralph Cavanagh prefers the tenn "Universal Systems
Benefits Charges" and advocates multiple purpose charges that
are universally applied within a state or region. (R#30)
When considering applying distribution charges, another ma-
jor option crops up: Who will distribute the funds to imple-
ment efficiency programs? In several states discussions are tak-
ing place as to whether this function will best be served by the
local utility or by an independent referee. David Wooley of
the Pace Energy Project commented that it's still unclear in
New York as to whether the funds will be best directed to
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programs per se, or allocated on a bidding basis. Managing
. this function could potentially be fulfilled by a state energy
. office, an independent agency or non-profit organization, or
by another existing government or power pooling agency.
These options are being explored in the Northwest where es-
tablishing an energy efficiency trust is also being discussed.
(R#31)
Another issue to consider pertains to what gets funded. In
general the types of programs that distribution charges will
fund are those that won t take place in the free market. This
might include a number of conventional DSM programs as
well as intriguing market transfonnation activities, low-income
assistance, investments in renewable energy, and well as a
host of research and development on important long-tenn is-
sues such as the effects of electromagnetic fields. In California
Competitive Transition Charges" will be used to recover
stranded assets. Stranded asset recovery accounts for a major
share of the distribution charge being levied in the New
Hampshire Retail Wheeling Pilot.
One of the unsavory aspects of distribution charges is that
they may become regarded as taxes. In reality, these fonns of
charges effectively unbundle the costs of beneficial programs
from the costs of power generation, transmission, and distri-
bution. While distribution charges explici~y reflect the true
costs of beneficial programs, their perception as "taxes" could
potentially spell the kiss of death for this mechanism. (It s hard
not to remember the public s overt reaction to relatively small
3(j:/gaIlon rise in gasoline taxes.) Ashok Gupta of the Natural
Resources Defense Council says his organization is concerned
about this potential perc~ption as it could lead to unnecessaI)'
and politically charged, annual oversight. Given this potential
liability, the distribution charge concept must be very carefully
com~~nicated. For better and worse, to date, approval of
DSM program costs has resided at the state regulatory com-
mission level,... associating distribution charges with taxes
could result in funding levels detennined annually by state
legislatures. (R#27)
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THE SURCHARGE CONCEPT
While collecting DSM costs up-front has taken new meaning
in today s dynamic regulatory environment, the concept is not
new to Europeans. In Oslo, Norway, electric customers have
been paying a surcharge to fund energy efficiency since 1982.
IRT Environment, Inc.
The surcharge equates to about 2.9% of the average electric
rate and finances the Oslo Ekon Fund, a revolving fund that
has been used to promote a host of energy efficiency projects
through grants and loans. (See Profile #79) Originally the Fund
was administered by Oslo Energi, more recently it has been
moved out of the utility context and is administered by an
agency of the city government.
In 1991, electric utility competition was ushered in throughout
NOIway with the passage of the Norwegian Energy Act. As is
the case in the United States, this led to concern about the
swvival of DSM in a competitive market. Thus the Norwegian
government took action to support energy efficiency by im-
posing a surcharge of 0.03ctjkWh (approximately 1% of rates).
Utilities collect the revenue which funds government-estab-
lished Regional Energy Efficiency Centers. (R#18 22)
In Denmark, the Copenhagen lighting Department has imple-
mented a similar strategy through which a 0.083ctjkWh sur-
charge is levied on all electricity sales. (See Profile #80) The
surcharge, which is less than a half a percent of Copenhagen
average rate of 28.2ctjkWh, funds efficiency retrofits in both
the residential and commercial sectors.
In England and Wales, the energy industry was privatized in
1992 and a similar "levi has been implemented to fund effi-
ciency programs there. The UK's Office of Electricity Regula-
tion (Offer), a government body, has levied a fl CUS$1.50)
per year charge for all "franchise market customers" who de-
mand less that 100 kW. Its enabling legislation provided that
the charge will be collected for four years ending in 1998 and
is will raise approximately f25 million annually. The revenue
collected from the charge will be administered by regional
electric companies subject to approval by the government's
Energy Savings Trust which was established in 1992 in re-
sponse to the Rio Earth Summit's Agenda 21. (R#18)
In the United States, Washington Water Power is clearly the
most advanced of any form of distribution charge and the first
explicitly non-bypassable charge to be implemented. How-
ever, Arizona Public Service (APS) has implemented the En-
ergy Efficiency and Solar Energy (EESE) charge since 1992 as a
means of tracking its energy efficiency expenditures. For APS
the EESE charge was merely a means of unbundling its costs
to distinguish its DSM expenditures for accounting purposes.
Its model was not established as a competitive tool, nor does it
(g IRT Environment, Inc.
play an integral part of the utility s corporate strategy of ensur-
ing stable funding for DSM in a restructured, competitive in-
dustry. APS' DSM programs have been funded by the sur-
charge which has been levied at a flat rate of 0.057ctjkWh
rather than a flat percentage as is the case with WWfY s Distri-
bution Charge. The APS model also differs from WWfY s in
that the charge provides for the recovery of lost revenues.
Renewables have also been funded by the surcharge in order
to meet Arizona Corporation Commission requirements. EESE
will reportedly be discontinued at year-end 1996 to streamline
administration and thereafter DSM will be funded through a
traditional rate-embedded mechanism. (R#18 19)
APPLICATION TO A COMPETITIVE ENVIRONMENT
The price of power is unquestionably a, if not the, mostim-
portant metric of value in the eyes of customers. While it is the
amount of the monthly bill, not the price of each kilowatt-
hour, that ought to be more important, the latter will likely be
of greater and greater importance as the electric utility industry
becomes more and more competitive. Distribution charges,
fortunately, provide a means for funding public purpose pro-
grams without affecting the competitive position of various
generators. Use of such charges enables utilities to pursue cus-
tomer-valued programs without suffering competitively. In the
future and akin to various charges itemized on telecommuni-
cations bills, such charges will likely appear as line items on
customers' bills so that the costs of both the power they pur-
chase, and the costs of transmission and distribution services
are readily transparent to consumers. (To date, however, this
sort of bill manipulation has not been necessary.) Inversely,
past funding mechanisms for DSM do not support viable
competitive postures. Embedded and hidden DSM power
costs, inflated by the accumulation of stranded regulatory as-
sets which earn shareholder returns, cause utilities' overall
rates to be noncompetitive as customers cannot easily identify
nor choose the costs they pay for various services.
A second related feature of distribution charges is that they
provide for a smooth transition into retail wheeling by attach-
ing the charge to distribution services, not power sales. In the
New Hampshire two-year pilot retail wheeling program, fund-
ing DSM has been separated from the market-driven portion
of electric costs. While customers will have a choice in their
cost of power from different suppliers and will thus carefully
scrutinize each option s cost per kilowatt-hour, all pilot partici-
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