20140403final_order_no_33009.pdf

Office of the Secretary
Service Date
April 3.2014
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF AVISTA )
CORPORATION’S APPLICATION FOR A )CASE NO.AVU-E-13-09
FINDING THAT IT PRUDENTLY )AVU-G-13-02
INCURRED ITS 2010-2012 ELECTRIC AND )
NATURAL GAS ENERGY EFFICIENCY )ORDER NO.33009
EXPENDITURES )
On September 30,2013,Avista Corporation dba Avista Utilities applied for an Order
finding that it prudently incurred $25,380,857 in electric and natural gas energy efficiency
expenditures from January 1,2010 through December 31,2012.1 Avista asked the Commission
to process the case under Modified Procedure.Application at 1.
On November 5,2013,the Commission issued a Notice of Application and Notice of
Modified Procedure that set comment and reply deadlines.See Order No.32921.At the parties’
request,the Commission extended these deadlines to March 6 and March 20,2014.See Order
No.32965.Commission Staff and the Idaho Conservation League (“ICL”)filed the only
comments in the case,and the Company filed a reply.
Having reviewed the record,we issue this Order finding that Avista prudently
incurred $25,172,700 in energy efficiency expenditures for the years 2010-2012.Our decision is
more thoroughly discussed below.
THE APPLICATION
In its Application,Avista says its energy efficiency programs provide a financial
incentive/rebate for cost-effective efficiency measures with a simple payback of greater than one
year and up to 13 years.Avista packages about 300 measures into 30 programs for customer
convenience.Residential programs include high efficiency equipment,electric-to-natural gas
conversions,Compact Fluorescent Lamps,“second”refrigerator recycling,weatherization,and
educational assistance through community events.Application at 2.Non-residential programs
include prescriptive (standard offer)programs and site-specific (customized)programs.The site-
specific programs provide incentives on cost-effective commercial and industrial energy
The $25,380,857 in total energy efficiency expenditures consists of $20,010.255 in electric energy efficiency
expenditures and $5.370,602 in natural gas energy efficiency expenditures.See Hermanson Direct at 4.
ORDER NO.33009 1
efficiency measures with a simple financial payback exceeding one year,up to 13 years.id.at 2-
3.
In addition,Avista says it helps fund the Northwest Energy Efficiency Alliance
(“NEEA”),which uses a regional approach to obtain electric efficiency by transforming markets
for efficiency measures and services.Avista says these programs allow it to acquire resources
that would otherwise be unachievable or more costly without regional cooperation.Id.at 3.
Avista also says it provided about $700,000 for low-income weatherization in 2012
and $50,000 for conservation education in Idaho,with the program being administered by local
community action agencies.Id.
Avista reports that its energy efficiency programs continue to exceed the targets set in
the Integrated Resource Plan (“TRP”)and that its expenditures of tariff rider revenue have been
reasonable and prudent.The Company has offered programs for all customer classes with total
savings of more than 109,100 MWh and 950,822 therms from January 1,2010 through
December 31,2012.Avista says this represents 190%of the Company’s IRP target of 57,289
MWh,a 13-year levelized total resource cost per saved MWh of $36.55,and a 21-year levelized
total resource cost per saved therm of $1.13 a therm.The Company says its tariff rider-funded
programs have been very successful.Participating customers benefit from lower bills;non
participating customers benefit from Avista acquiring lower cost resources and maintaining the
energy efficiency message and infrastructure for the benefit of its service territory.Id.at 3-4.
THE COMMENTS
Commission Staff and ICL filed comments and Avista filed a reply.The comments
and reply are summarized below.
A.Staff Comments
Staff applauds Avista’s commitment to energy efficiency,which Staff says stems
from a dedication to DSM and customer service that begins at the corporate level and extends
through the organizational ranks to program managers.Staff notes that Avista regularly
convenes stakeholder meetings to review its energy efficiency programs and obtain input from
customers,Commission Staff,and environmental interests.Staff Comments at 2-3.But Staff
raised concerns about a number of program implementation issues.These include insufficient
controls around engineering assumptions and the basis for site-specific incentive payments,
incorrect interpretation of Schedule 90 regarding implementation of prescriptive projects,a
ORDER NO.33009 2
significant upward trend in non-incentive utility costs—primarily labor—despite the suspension
of Idaho gas DSM programs,and escalating evaluation costs driven primarily by Washington’s 1-
937 legislation.Id.at 3-4.
2.Financial Review.Staff performed two on-site audits and reviewed Avista’s DSM
expenses.Based on its review.Staff recommended the Commission approve $25.172.700 as
prudently incurred expenses for the years 2010-2012.This amount consists of $19,827,396 in
Idaho electric tariff rider expenses,and $5.345,304 in Idaho gas tariff rider expenses.Id.at 4.
Staff notes that Avista’s Application did not specify an exact amount of expenditures
to be deemed prudent for each year,and that the Company was inconsistent on the total amount
of DSM expenses at issue.Staff says Avista provided different figures in testimony,the DSM
Report,and in response to production requests.And while the expenses reported in each of the
five sources Staff reviewed did not materially differ,Staff found it troubling that Avista could
not provide a consistent amount.Staff said the same problems occurred when trying to
determine tariff rider revenues.Id.at 4.Staff ultimately used the expense amounts provided in
Avista’s discovery responses and the revenues reflected in Avista’s monthly EEAG reports as
the starting point for its audit,as follows:
Table 1.Idaho Electric Tariff Rider
Beginning Tariff Rider Balance
Tariff Rider Revenue
Tariff Rider Expenses
Ending Tariff Rider Balance
Beginning Tariff Rider Balance
Tariff Rider Revenue
Tariff Rider Expenses
Ending Tariff Rider Balance
Total
2010 2011 2012 2010-2012
$(2,369,036)$(466,268)$(26,684)$(2,369,036)
7,347,740 7,707,719 6,804,866 21,860,325
(5,444,972)(7,268,135)(7,300,840)(20,013,947)
$(466,268)$(26,684)$(522,658)$(522,658)
Table 2.Idaho Gas Tariff Rider
Total
2010 2011 2012 2010-2012
$(1,626,625)$(8 14,740)$988,582 $(l ,626,625)
2,769,029 3,763,884 1,284,190 7,817,103
(1,957,144)(1,960,562)(1,453,449)(5,371,155)
$(8l4,740)$988,582 $819,323 $819,323
ORDER NO.33009 3
Id.at 4-5.Staff then adjusted these amounts.The following table illustrates Staffs
recommended expenses to be deemed prudent following the adjustments,along with the tariff
rider ending balances for both gas and electric:
Table 3.Tariff Rider Account Summaries 2010-2012
Electric Gas
Beginning Tariff Rider Balance 1 /1/2010 $(2,369,03 6)$(1,626,625)
Tariff Rider Revenue 21,860,325 7,817,103
Tariff Rider Expenses (20,013,947)(5,371,155)
Adjustment—OER 94,749 1,350
Adjustment —Evaluation Expenses 89,820 12,363
Adjustment—LCSC 1,982 12,138
Ending Tariff Rider Balance 12/31/2012 $(3 36,107)845,174
Staff thus opines that,on December 31,2012,Avista had a surplus balance (customers owe
Company)of $336,107 for the Idaho electric tariff rider,and a credit balance (Company owes
customers)of $845,174 for the Idaho gas tariff rider.Id.at 6.
3.Staffs Proposed Adjustments.Staffs Table 3,above,includes adjustments
related to Office of Energy Resources (“OER)projects,Lewis-Clark State College (“LCSC”)
projects,and evaluation expenses.These adjustments are discussed below.
a.Adjustment-Office of Energy Resources Projects.Staff criticized Avista’s
“lax management”of $96,099 worth of OER projects.First,Staff said Avista signed a customer
energy efficiency contract with OER although OER is not Avista’s customer.OER,in turn,
signed agreements with schools served by Avista under which each school agreed that OER
would collect the school’s incentive.Staff said normal program procedures require the Company
to sign the energy efficiency contract with its customer—the school—and not with OER,a non-
customer that resides outside Avista’s service territory.Id.at 10-li.
Second,although Avista policy is to not pay an incentive unless it has first verified
that the incentivized measure was actually installed,Staff found that Avista paid incentives on
OER projects without verifying that the measures had been installed.Id.at 11.
Third,Staff said Avista issued a $96,099 check to OER without receiving contractor
receipts or invoices to confirm the purchases and labor associated with the measures.Instead,
ORDER NO.33009 4
OER supplied a self-generated tally of installed measures that qualified for incentives and Avista
paid on that basis.Id.
Staff believes the measures were purchased and installed.But Staff recommended
the Commission defer Avista’s recovery of program expenses until Avista:(1)receives invoices
confirming the purchase and installation of these measures,and (2)verifies the installation of the
projects.Staff’s OER-related adjustments are reflected in Table 3 (Adjustment —OER).Id.
h.Adjustment—Lewis-Clark State College Project.On November 11,2011,
Avista paid an incentive of $14,120 to LCSC for an energy efficiency project.But during Staff’s
audit,Avista could not provide project invoices or evidence showing that the incentivized
measures had been installed.In other words,Staff says Avista lacks sufficient documentation
from which to assess whether Avista prudently paid the incentives.Staff thus recommended the
Commission defer Avista’s recovery of LCSC-related expenditures until Avista’s next prudency
filing to allow Avista an opportunity to provide evidence supporting the prudency of its
payments.Staff’s adjustment to Avista’s LCSC-related expenses is represented in Table 3,
above (Adjustment —LCSC).Id.at 10.
c.Adjustment—Evaluation Expenses.With the passage of Initiative Measure No.
937 (1-937)in Washington,Avista has been required to spend more money on third-party
Conservation Potential Assessments (“CPAs”)and independent evaluation and verification of
energy efficiency savings.Although Staff believes the CPAs and independent evaluations have
some benefit to Idaho ratepayers,Staff says Washington requires these items every two years,
which is more frequently than necessary.Staff says Idaho ratepayers should not pay for
additional burdens that other jurisdictions place on Avista.Id.at 15.
Staff and Avista have discussed Staff’s concerns about the jurisdictional allocation of
third-party consultants many times over the past several years.During Staffs audit in this case,
Avista internally reviewed its third-party consulting and evaluation expenses.As a result of that
review,Avista shifted $102,183 ($89,820 electric and $12,363 gas)from the Idaho tariff rider to
the Washington tariff rider.Staff accepts this adjustment (represented in Table 3 as Adjustment
—Evaluation Expenses)and will continue to monitor Avista’s third-party expenses to ensure that
jurisdictional costs are properly apportioned.Id.
ORDER NO.33009 5
4.Other Issues.
a.Site-Specific Projects.Site-specific projects form a significant part of the
savings and expenses from Avista’s DSM portfolio.Staff has some concerns about Avista’s
implementation of these projects.
For example,a 2010-2011 third-party evaluation found that site-specific energy
savings adjustments were needed to correct errors in data entry,installation verification,energy-
modeling simulation,HVAC/lighting interactive effects,and energy savings calculations.Staff
notes that Avista’s internal evaluation reached similar conclusions for 2012.Id.at 6-7;
Likewise,a 2012 third-party evaluation found that many problems with Avista’s non
residential portfolio from 2010-2011 persisted into 2012.Specifically,there was an “overall
reliance on customer-supplied data and the need for a reliable and replicable approach to source
that data.”Further,“[i]nteractive effects were accounted for incorrectly,[p]rojects have missing
documentation,such as invoices,”and “{e]ngineering errors resulted in incorrect claimed savings
and incentive amounts (the significance of these errors varied in size).”Moreover,“18%of all
projects were missing contract date fields in SalesLogix,”and “44%of site-specific projects
were missing post-verification dates (and it is Avista’s policy to conduct-post verification on all
site-specific projects).”Id,at 6-7.
Staff says Avista suspended its internal review process at the end of 2012 after a
third-party evaluator found the internal review process:(1)caused project delays;(2)had
become less effective because Avista had no formal follow through procedure to arbitrate
differences,establish new policies,and assign accountability for meeting new policy
requirements for engineering assumptions,incentive calculations,and invoice documentation;
and (3)reviewed just 1/3 of the projects over 50,000 despite Avista’s policy that all such
projects be reviewed.Id.at 8.
To address these problems,Avista created a new review process that uses “Top
Sheets”to ensure that each project’s engineering and administrative requirements are met.Staff
has three concerns about this solution.First,an engineering or implementation team member
completes the Top Sheets and another member then checks their accuracy even though third
party evaluators have found Avista’s engineering and implementation practices to be flawed.
Second,an internal review of project calculations and documentation occurs after projects are
contracted and sometimes after Avista has paid the incentive.Third,Avista has still not
ORDER NO.33009 6
provided for formal follow through on program management issues.Staff joins the independent
evaluators’recommendation that Avista designate a central decision-maker to determine and
enforce program-management policies.Id.at 9.
b.Pre.ccriptive Projects and DSM Tariff Compliance.Staff expressed concern
that Avista did not comply with its DSM tariff—Schedule 90—with regard to project incentive
caps.For the period that is the subject of this prudency review.Schedule 90 stated,in pertinent
part:Incentives in which the tier structure applies will be capped at 50%of the incremental
project cost with the exception of...[low income,low cost,and market transformation projects]
that may be capped at a maximum of 100%of the incremental cost.”StafT says that despite this
clear language,Avista exceeded the 50%cap on numerous prescriptive projects and on programs
operated by third parties.Staff notes that there are good reasons for exempting prescriptive
projects from the 50%cap.In fact,Avista ultimately filed a tariff advice in August 2013 to do
just that.But Avista did not comply with the tariff before then.Further,the tariff has not been
revised to lift the cap as to third-party programs.Staff thus cautions Avista to comply with its
tariffs going forward.Id.at 12-13.
c.Renewable Projects.Avista designs its measures,programs and portfolio to be
cost-effective under the Total Resource Cost test (‘TRC”).But from 2010 through 2012,Avista
incented 11 small-scale renewable projects that were not cost-effective under the TRC.Avista
explains it did this because each measure or program was just “minimally short of being fully
cost-effective.’Staft on the other hand,found the projects’TRC results to be “exceptionally
low.”But Staff acknowledged that the TRC’s importance can diminish when customers
undertake renewable projects for reasons that do not directly translate into a monetary benefit.
Further,the projects were cost-effective under another cost-effectiveness test (the Utility Cost
Effectiveness test (“UCT”).And Avista revised its tariff to exclude measures with a long
lifecycle payback,such as renewable projects,effective January 1,2011 (the 11 projects at issue
were under contract before to the tariff revision).Staff thus believes that no adjustment is
warranted.
d.Non-Incentive Utility Costs.Staff is concerned that non-incentive utility costs,
primarily labor,have significantly increased over the past few years.For example,residential
and natural gas DSM programs show a very steep increase in non-incentive expenses from 2011
to 2012.Staff understands that reduced energy savings from these programs can make labor
ORDER NO.33009 7
costs appear disproportionately large from one year to the next.However,Staff says Avista may
need to adjust staffing levels to account for the suspension of natural gas DSM in order to
reverse the upward trend of non-incentive utility costs at the portfolio level.Staff does not
recommend any disallowances regarding non-incentive utility costs in this filing but suggests
that Avista more carefully manage non-incentive utility costs and reduce them if necessary.Id.
at 14.
B.ICL Comments
ICL acknowledges Avista’s long-term commitment to energy efficiency programs
and believes that “[miore than other Idaho utilities Avista demonstrates an enhanced
commitment to pursuing cost-effective energy efficiency opportunity and proactively engages
stakeholders.”ICL Comments at 3.ICL recommended the Commission find that Avista
prudently incurred its 2010-2012 energy efficiency expenses.Id.at 1.
ICL also urges Avista to develop,by the end of 2014,benchmarks and a timeline for
addressing the process issues raised by the third-party evaluators.Id.at 1-2.Finally,ICL notes
that some individual programs in Avista’s DSM suite had a TRC of less than 1.0.ICL attributes
this to the TRC only including documented and quantifiable non-energy benefits even though
other legitimate non-energy benefits exist.To solve this problem,ICL proposes:(1)including a
10%conservation adder to roughly account for non-energy benefits in all energy efficiency
programs with known but difficult to measure non-energy benefits;and (2)focusing prudency
reviews on the Program Administrator Cost test,which focuses on the costs and benefits that
accrue to the utility and is a better measure of energy efficiency program value.Id.at 2-3.
C.Avista’s Reply
In its reply,Avista says it will address the program management issues raised in the
comments through an overall program review that Avista’s senior management has already
initiated.Avista says it will thoroughly review its DSM implementation practices and renew its
focus on employing utility best practices related to DSM program implementation and oversight.
The Company says it looks forward to working with Staff and others to implement the
recommendations that emerge from this review.The Company also says it will furnish a report
to the Commission,Staff,and others before July 1,2014,describing how the Company has
addressed Staff’s concerns.Company Reply at 1-2.
ORDER NO.33009 8
With regard to Staff’s proposed adjustments,Avista says it “does not oppose the
deferral of the prudency review for the Lewis-Clark State College and OER projects....”Avista
also says “it concurs with Staff that the 2010-2012 program expenditures,as adjusted,were
prudently incurred and in the interest of the Company’s Idaho customers.”Id.at 2.
COMMISSION DECISION
We have reviewed the record,including the Application,comments,and reply.We
find that Avista is an electrical and gas corporation,and that we have jurisdiction and authority
over Avista and the issues in this case under Title 61 of the Idaho Code and the Commission’s
Rules of Procedure,IDAPA 31.01.01.000,et seq.
Like Staff and ICL,we applaud Avista’s long-standing,“top down”commitment to
DSM and stakeholder involvement in energy efficiency issues.We also appreciate Avista’s
ongoing review of its DSM programs and willingness to explore and collaborate with
stakeholders to further address the program management issues raised in the comments.In
particular,we believe that establishing a central decision-maker will greatly aid Avista in
determining and consistently applying its DSM policies and procedures.
Based on our review of the record,including Avista’s agreement to the adjustments
proposed in the comments,we find that Avista prudently incurred $25,172,700 in DSM expenses
for the years 2010-2012,consisting of $19,827,396 in Idaho electric tariff rider expenses and
$5,345,304 in Idaho gas tariff rider expenses.We also find it reasonable to defer consideration
of Avista’s recovery of LCSC and OER project incentives until it files its next DSM prudency
review proceeding.Deferring LCSC and OER project recovery affords Avista an opportunity to
support its claims with evidence such as labor invoices and verification that the incented projects
were installed.
ORDER
IT IS HEREBY ORDERED that Avista’s 2010-2012 DSM expenditures are approved
as prudently incurred in the amount of $25,172,700,consisting of $19,827,396 in Idaho electric
tariff rider expenses and $5,345,304 in Idaho gas tariff rider expenses.
IT IS FURTHER ORDERED that any recovery by Avista of LCSC and OER project
incentives is deferred until Avista’s next prudency filing.
ORDER NO.33009 9
THIS IS A HNAL ORDER.Any person interested in this Order may petition for
reconsideration within twenty-one (21)days of the service date of this Order.Within seven (7)
days after any person has petitioned for reconsideration,any other person may cross-petition for
reconsideration.See idaho Code §6 1-626.
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this ‘
day of April 2014.
PAUL KJLLAIit,PRESIDENT
MACK A.R FORD CO MISSIONER
MARSHA H.SMITH,COMMISSIONER
ATTEST:
/If!LU
Jean D.Jewe
Commission Secretary
O:AVU-E-1 3-09_AVIJ-G-I 3-02_kk3
ORDER NO.33009 10