20101122_3150.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

TO: COMMISSIONER KEMPTON
COMMISSIONER SMITH
COMMISSIONER REDFORD
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL

FROM: WELDON STUTZMAN
DEPUTY ATTORNEY GENERAL

DATE: NOVEMBER 16, 2010

SUBJECT: IN THE MATTER OF AN INVESTIGATION OF APPROPRIATE COST
RECOVERY MECHANISMS FOR IDAHO POWER’S ENERGY
EFFICIENCY PROGRAMS, CASE NO. IPC-E-10-27

On October 22, 2010, Idaho Power filed an Application requesting that the
Commission issue an Order “accepting the Company’s demand-side resources business model.”
Application, p. 1. The Application seeks authorization to adjust ways for the Company to
recover the costs of its energy efficiency programs. More specifically, the Company proposes to
(1) move certain demand response incentive payments into the Power Cost Adjustment on a
prospective basis beginning June 1, 2011; (2) establish a regulatory asset for Custom Efficiency
program incentive costs beginning January 1, 2011; and (3) change the carrying charge on the
Energy Efficiency Rider from the customer deposit rate to the Company’s authorized rate of
return. Application, p. 1.
Idaho Power identified several objectives with its Application, including addressing a
growing negative balance in the Energy Efficiency Rider account, and implementing a realistic
earnings opportunity for Idaho Power for its investments in the demand-side resource (DSR)
programs. Application, p. 5. Currently, all costs for DSR programs are recovered through the
Energy Efficiency Rider (Schedule 91), which is presently 4.75% of base rates. The Rider
balance has been negative since April 2008 and is now negative by more than $16 million.
Application, p. 5. The Company estimates the 2010 year-end negative balance of $17,009,140 in
the Rider account will grow to a negative $29,677,151 in 2012.
DECISION MEMORANDUM 2
Idaho Power requests authority to remove recovery of customer and contractor
incentive payments for the Company’s demand response programs from the Rider balancing
account to the PCA for 100% recovery on a prospective basis. The Company has three demand
response programs that include incentive payments: (1) the A/C Cool Credit program which
provides summer peak reduction benefits by cycling participating residential customers’ air
conditioning units; (2) the Agricultural Irrigation Peak Rewards program, which switches off
participating customer’s irrigation pumps during times when additional system peak resources
are needed; and (3) the Flex Peak Management program, which reduces commercial and
industrial loads when called upon during system peak times. Application, p. 6. The Company
states the demand response incentive payments are expected to be nearly $13.7 million in each
2011 and 2012. Application, p. 7. The Company proposes to include these costs in the PCA
consistent with the current PCA methodology. The Company would forecast demand response
incentive payments to be included in PCA rates effective June 1, 2011. In a future filing, the
Company will request that a normal or base level of expenses for incentive payments be placed
into base rates. Each year as part of the PCA case, the forecasted level of payment expenses
would be compared to the normal level included in base rates to determine the level of demand
response cost recovery to be included in the PCA forecast. Deviations between actual demand
response incentive costs and forecasted costs would be included in the following year’s PCA
true-up.
Idaho Power also proposes to change the method for recovering a separate portion of
energy efficiency program incentive costs currently recovered through the Rider balancing
account. Specifically, the Company proposes to capitalize the direct incentive payments
associated with the Custom Efficiency program to enable the Company to earn a return on this
portion of its demand-side resource activities. The Company proposes to start booking these
incentive payments to a regulatory asset account beginning January 1, 2011. Application, p. 8.
The balancing account would be included in the Company’s revenue requirement in future rate
cases with a four-year amortization period. The Custom Efficiency program began in 2003, and
in 2008 and 2009, the program saved 41,059 and 51,836 MWh, respectively. The Company
estimates Custom Efficiency incentive payments to be approximately $5.2 million in 2011 and
$5.6 million in 2012. The investments made under the program are tangible assets like lighting
DECISION MEMORANDUM 3
upgrades and motor rewinds that are owned by customers rather than by Idaho Power.
Application, p. 9.
The Company states that if the Commission implements the two proposals, the 2010
Rider balance of negative $17 million is projected to shrink to a negative $3,356,306 in 2011,
and start reducing the negative balance in the Rider account. Application, p. 10. The Company
expects the Rider balance account to approach zero in the middle of 2012. Id.
The Company also requests that the Commission authorize a carrying charge on the
Energy Efficiency Rider. The Company expects it will take almost two years to eliminate the
negative balance in the Rider account if the Company’s proposals are implemented. The
Company requests that the Commission authorize a carrying charge on the remaining balance the
same as the Company’s authorized rate of return (currently 8.18 overall rate of return with a 10.5
return on equity component) rather than the interest rate on customer deposits, which currently is
1%. Application, p. 9.
The Company requests that its Application be processed by Modified Procedure.
Staff believes there may be significant interest in Idaho Power’s Application from other parties.
Rather than issue a Notice of Modified Procedure at this point, Staff recommends the
Commission issue a Notice of Application and Notice of Intervention to provide an opportunity
for interested parties to intervene. Following the intervention period the case may be processed
by Modified Procedure if the parties agree that a hearing is not needed.
COMMISSION DECISION
Should the Commission issue a Notice of Application and Notice of Intervention
Deadline in Case No. IPC-E-10-27?

Weldon B. Stutzman
Deputy Attorney General

bls/M:IPC-E-10-27_ws