20131021Comments.pdf

KARL T. KLEIN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-03t2
IDAHO BAR NO. 5156
Street Address for Express Mail:
472W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
IN THE MATTER OF AVISTA CORPORATION'S )
APPLICATION TO FUND SELECTED RESEARCH)
AND DEVELOPMENT EFFICIENCY PROJECTS. )
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.tpt ": O.'TIl't"U-I
CASE NO. AVU-E.I3.08
COMMENTS OF THE
COMMISSION STAFF
0l
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
The Staff of the Idaho Public Utilities Commission comments as follows on Avista
Corporation' s Application.
BACKGROUND
On August 30,2013, Avista Corporation applied to the Commission for an Order
authorizing the Company to accumulate and account for customer revenues that will fund
selected electric energy effrciency research and development ("R&D") projects, proposed and
implemented by Idaho's four-year universities. The Company seeks authorization to fund up to
$300,000 per year of R&D from revenue collected through Avista's Schedule 91, "Energy
Efficiency Rider Adjustment" (the "Rider") effective November 1,2013. Application at l, 9.
For a residential customer using 930 kWh per month, the Company's proposal represents about a
$0.08 per month bill increase or approximately $1.00 annually. Id. at3.
In its Application, the Company notes that the utility industry has the lowest R&D share
of net sales among all U.S. industries. The Company explains that the average U.S, industry
STAFF COMMENTS ocToBER 21,2013
R&D funding as a percentage of total sales is 3.syo, but that the average R&D funding for the
utility industry is 0.1%. Further, the Company's spending for R&D included in Idaho rates as a
recoverable expense was $196,000 in2012, or 0.08% of Idaho total electric retail rcvenue. Id. at
2-3. This amount consisted of payments to the Electric Power Research Institute, E-Source, and
the Northwest Energy Efficiency Alliance. Id. at3.
Avista now proposes to recover up to $300,000 per year of applied R&D costs from
Rider revenue. The Company explains that such R&D could benefit customers in the next one to
four years. The Company says that some, but not all, applied R&D projects would likely be
implemented on its system. Id. at3.
The Company says its Application is consistent with Governor Otter's Idaho Global
Entrepreneurial Mission "iGem" initiative, in which industry supplements university R&D
funding provided by the State. Id. at 1,3. The Company says its proposal would enhance
educational and training opportunities for future utility employees, and invest revenues from
customers into Idaho's economy. Id. at 4.
The Company's additional $300,000 per year of applied R&D funding would be a ceiling
and not a requirement that the Company allocate the funding to R&D in any given year. Any
remaining balance (not earmarked) would roll over to a future year and, if terminated, the
unallocated portion would be added back to the Rider balance. Id. at 5.
The Company says it would start the process by issuing a "call for papers" (similar to a
"request for interest"). The Company would choose proposals to fund and would contract with
each selected proposal's Principal Investigator (the lead scientist/engineer for the proposal). A
third-party project manager would be retained to oversee the project and be a liaison to utility
staff. The Company would use "stage gate methodology" and project assessment points when
structuring proposals and managing projects. Id. at 5.
The Company says it would file an annual report by March 3l for the preceding calendar
year. The report would include key events during the reporting period (e.g., discussions about
the "call for papers," project selection process, project descriptions, project manager, associated
contracts, project milestones, research in-progress summaries, etc.) and the accounting for
related expenditures. The Company also would include financial reporting in its annual Demand
Side Management Report, and would discuss R&D activity at its semi-annual energy efficiency
Advisory Group meetings and public interest webinars. Id. at 8.
STAFF COMMENTS ocroBER 2t,2013
Avista says it has notified the public about the revisions proposed in its Application by
posting notice on its website, www.avistautilities.com. Id. at9.
STAFF REVIEW
Staff s review of Avista's request to fund a maximum of $300,000 annually in electric
efficiency research and development from the Rider focused on four main issues: l) the
difference between basic and applied research, 2) jurisdictional allocation, 3) the changing
energy effrciency landscape, and 4) the funding level. These issues are discussed below.
l. Dffirence between basic and applied research.
Staff first investigated the distinction between "basic research" and "applied research."
The Company's Application proposes to finance applied research, not basic research, with rates
collected from customers through the Rider. Basic research typically does not provide near-
term, practical benefits to customers but instead is foundational, exploratory and designed to
answer questions about fundamental principles. Applied research, on the other hand, builds on
previously conducted basic research and is deliberately constructed to have a much higher
likelihood of producing near-term practical benefits. Staff does not necessarily oppose the
Company funding basic research. However, Staff believes it would be inappropriate for the
Company to use ratepayer funds for basic research that is unlikely to provide near-term, practical
benefits to customers. Because Avista's applied research funding proposal is designed to
provide practical, near-term benefits to Idaho customers, Staff believes it is appropriate to
consider allowing the Company to recover the proposed R&D investment through the Rider.
2. Jurisdictional allocation.
Staff also investigated how R&D costs would be allocated between Avista's Idaho and
Washington service territories. While Avista's Application here requests to recover up to
$300,000 annually from Idaho customers for R&D, the Company has not made a similar request
in Washington. Because applied research funded by Idaho customers will result in direct
benefits system-wide, it is reasonable to conclude that Washington customers will receive
benefits without incurring any costs.
While concerned that the costs and benefits of energy efficiency research and
development are properly allocated, Staff recognizes the difficulty in limiting the benefits to a
particular service territory. Staff agrees with Avista's response in discovery that: "Utilities
STAFF COMMENTS ocToBER 2t,20t3
frequently pioneer new concepts and, then, present the details at conferences, or by hosting site
visits, and/or through trade publications. Further, Avista customers benefit from R&D
expenditures from other utilities as well. Examples of this include benefits from the California
investor-owned utilities participation in research consortiums [for consumer electronics] and
Bonneville Power Administration's contribution to regional and national (through EPRI)
research."
Also, Avista has provided approximately $500,000 to Washington State University for
research, reporting, and compliance of grid modernization work. Because this work was specific
to Pullman, Washington, these costs were charged to the Washington jurisdiction. However, the
analysis around system design, customer behavior, evaluation and measurement of voltage
optimization could provide benefits to Idaho customers when similar projects are implemented in
Idaho.
Staff also notes that it has previously supported and the Commission has authorized
utilities' participation in regional organizations, such as the Regional Technical Forum ("RTF"),
that provide benefits extending far beyond the funding region. The RTF publishes measure-level
energy savings estimates, standard protocols, and evaluation guidelines that are free to anyone
who goes to the RTF's website. These data and efforts are funded exclusively by Northwest
utilities (including all three Idaho investor-owned utilities), but the benefits spill over nationally
and internationally-with no objection from funders. Each funder understands that its ratepayers
are largely indifferent to ancillary benefits as long as they receive value from the investment.
Spillover effects can also add to the value of an investment by solidifying efficiency
gains and preventing the need for future funding. NEEAs recent success transforming the
regional television market, an effort that was funded exclusively by western utilities, spilled over
and also transformed the national television market. National traction on regionally funded
initiatives benefits the funders by making regional retailers less likely to revert to buying and
selling less efficient products without receiving on-going incentives from NEEA. A similar
dynamic could result if Avista's R&D funding encourages other utilities to invest in research that
benefits Avista's ratepayers.
Although some aspects of R&D may extend beyond Avista's Idaho service territory, it is
important to recognize that not all benefits spill over. Staff points out that because the entire
STAFF COMMENTS ocToBER 2t,2073
R&D funding amount will be invested exclusively in Idaho universities, the resulting economic
and employment benefits will only occur in Idaho.
3. Changing Energt Efficiency Landscape.
Staff also considered the changing landscape of demand-side management ("DSM").
Until recently, nearly all energy efficiency programs have been "widget" based- incenting
customers to replace standard-efficiency equipment with more efficient equipment. This
approach has been successful, but it is becoming less effective as baseline equipment effrciencies
increase and declining avoided costs compound cost-effectiveness challenges. Under these new
circumstances, R&D to create new approaches for acquiring cost-effective efficiency and
evaluating those new approaches becomes extremely important.
Staff believes Avista lists several potential research areas that could perform these critical
functions. In particular, Staff is encouraged by the Company's consideration of research topics
related to Advanced Metering Infrastructure data analysis, and the impact of human factors like
comfort, preference, and behavior on energy efficiency acquisitions. Both research areas are
likely to provide insights that could inform program design and produce cost-effective energy
savings in the post-widget era of DSM. Advances in these areas would directly benefit Avista's
Idaho ratepayers.
Research to improve Evaluation, Measurement, and Verification methodologies while
reducing associated costs could also benefit ratepayers. Avista spent about $1 million over the
past three years evaluating its Idaho programs. The cost to verify energy savings is an important
and regular expense. Investing in applied research that could effectively reduce that cost could
directly benefit Idaho ratepayers.
4. Funding Level
Lastly, Staff examined the requested R&D funding and found that the proposed amount is
reasonable when compared to the Company's total energy effrciency expenses. On average,
Avista spends about $6.6 million annually on energy efficiency. The $300,000 proposed R&D
funding amount is about 4.4o/o of Avista's annual DSM expenditures.
Staff believes that prudent DSM portfolios include a variety of approaches to acquiring
current and future energy savings. The purpose of R&D funding shares some similarities with
NEEA's market transformation programs because it reduces the risk associated with a DSM
portfolio comprised only of utility-administered programs. Avista currently pays NEEA about
STAFF COMMENTS ocToBER 21,2013
$590,000 annually, which is9o/o of Avista's total annual DSM expense. Staff believesthat4.4Yo
for R&D funding falls within a reasonable range when compared to other non-traditional energy
efficiency investments like NEEA.
Based on its analysis, Staff supports Avista's Application to accumulate and account for
up to $300,000 of R&D funding through ratepayer Rider funds. Staff s support for the
accounting mechanism proposed here is not an advance recommendation that Staff would view
any particular expenditure as prudent. Staff will analyze the prudency of the Company's DSM
expenditures, including R&D expenses, in the Company's next DSM prudency case, Staff
agrees that R&D should not be held to traditional cost-effectiveness standards. Instead, Staff
will review the Company's R&D activities and expenditures for compliance with the
management, stage-gate methodology, and reporting procedures described in the Application.
RECOMMENDATION
Staff recommends that the Commission approve Avista's request to provide up to
$300,000 from Schedule 9l annually to fund selected electric energy efficiency research and
development projects proposed and implemented by the state of Idaho's four-year universities.
Respectfully submitted this Z l>'' day of october 2013.
lt^zt "/u
Karl Klein
Deputy Attorney General
Technical Staff: Stacey Donohue
Donn English
Umisc/avue I 3.8kksdde comments.doc
6STAFF COMMENTS ocToBER 21,2013
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 21ST DAY OF OCTOBER 2013,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAtr'F, IN CASE
NO. AVU-E-13-08, BY E-MAILING AND MAILING A COPY THEREOF, POSTAGE
PREPAID, TO THE FOLLOWING:
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BO){ 3727
SPoKANE W A 99220-3727
E-MAIL: [e-mail]
LINDA GERVAIS
MGR REGULATORY POLICY
AVISTA CORPORATION
PO BOX3727
SPOKANE WA99220-3727
E-MAIL: linda. [e-mail]
CERTIFICATE OF SERVICE