20080226_2179.pdf

DECISION MEMORANDUM
TO:COMMISSIONER REDFORD
COMMISSIONER SMITH
COMMISSIONER KEMPTON
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:WAYNE HART
DATE:FEBRUARY 25, 2008
RE:AVISTA TARIFF ADVICE NOS. 08-01-E AND 08-01-G, INCREASING
INCENTIVE LEVELS FOR ENERGY CONSERVATION MEASURES.
On January 11 2008, Avista Corp. submitted Tariff Advice Nos. 08-01-E and 08-01-
revising Schedules 90 and 190 of the Company s Tariffs for electricity and natural gas. The
proposed changes increase the incentive rates and revise associated terms and conditions offered
to customers who elect to install demand side management (DSM) measures. The revised
incentive levels are illustrated in the following table.
Incentive levels are based upon the estimated simple pay back of the project and the
estimated savings during the first full year after installation. Incentives are capped at 50% of the
total project cost, except for low income programs, market transformation programs or low cost-
high savings programs, such as compact fluorescent lighting.
Electric Efficiency Measures
Sim le Pa back Period
1 to under 2 years
2 to under 4 years
4 to under 6 years
6 to under 10 years
Over 10 years - Non lighting
Over 10 years - Lighting
Incentive Levels (cents per first year kWh savings)Existing Proposed6 cents 8 cents
10 cents 12 cents
12 cents 16 cents
14 cents 20 cents4 cents 20 cents4 cents 12 cents
DECISION MEMORANDUM - 1 -FEBRUARY 25 , 2008
Fuel Conversion Measures
Incentive Levels (cents per first year kWh savings)
Simple Payback Period Existing Proposed1 to under 2 years 1 cent 1 cent2 to under 4 years 2 cents 3 cents4 to under 6 years 3 cents 5 cents6 to under 10 years 4 cents 7 centsOver 10 years 1 cent 7 cents
Gas Efficiency Measures
Incentive Levels (dollars per first year therm)
Simple Payback Period Existing Proposed18 to 48 months $2.48 to 72 months $2.Over 72 Months $3.
1 to under 2 years
2 to under 4 years
4to under 6 years
Over 6 years
$2.
$2.
$3.
$3.
The incentive structure for gas efficiency measures was changed to be consistent with the
electricity efficiency measures to reduce confusion. The incentive cap is proposed to increase
from 30% to 50% of total installed cost. The special incentive rates for new technology gas
efficiency measures was seldom used and is being replaced with language that allows the
Company to develop special programs to address such applications.
The Company indicated the proposed revisions were reviewed and approved by the
Company s DSM advisory body, its Triple E Board. The Company also provided documentation
to demonstrate that the new incentive levels are cost effective.
STAFF ANALYSIS
The Company s most recent Integrated Resource Plan (IRP) includes a significant
increase in the amount of DSM that the Company will rely upon to meet future load growth. In
its comments on the IRP, Staff indicated that this target level of DSM would require a more
aggressive effort from the Company if it expected to acquire the higher level of savings.
Therefore, a filing increasing the DSM incentive levels was expected.
That plan also indicated that the costs of other resources are increasing, and that the
avoided cost levels used by the Company in determining the cost effectiveness of DSM measures
DECISION MEMORANDUM - 2 -FEBRUARY 25 , 2008
would also be increasing. This is consistent with Staff s understanding of the trends throughout
the industry.
Staff has reviewed the revised incentive levels, the Company s cost effectiveness
calculations using the new avoided cost levels, and the other changes identified in the proposal
and finds that they are a prudent response to the challenges facing the Company and the industry.
However, Staff notes that the Company provided a very simple analysis of the savings
expected from the Company s DSM programs and has not provided a complete evaluation of its
efforts to demonstrate that projected savings will be fully realized. Based upon other utility
efforts, Staff expects the savings estimates to decline somewhat when the impact of "free riders
(customers who would have installed the DSM measures without the utility incentive, but
because it is available, take advantage of the incentive), consumer take-back (greater use of an
efficient appliance because it costs less to operate) and other factors which tend to reduce
savings from projected levels, are taken into account.
Staff also notes that there is still a considerable margin between the projected cost of
DSM measures at the proposed incentive levels and the revised marginal cost levels. The
projected costs are approximately half of the cost of avoided resources. Therefore, Staff is
confident that the proposed incentive levels will remain cost effective when these factors are
taken into account and therefore recommends the Commission approve the Company s filing.
Nevertheless, Staff has advised the Company that it expects these factors to be evaluated
and quantified before it would recommend approval of any additional increases to these
incentive levels.
RECOMMENDATION
Staff recommends approval of Avista Tariff Advice Nos. 08-01-E and 08-01-
COMMISSION DECISION
Does the Commission wish to approve Avista Corp. Tariff Advice Nos. 08-01-E and
08-01-
i:udmemos/Avista tariff advice 08-01 g & e
DECISION MEMORANDUM - 3 -FEBRUARY 25 2008