20140306Comments.pdf

KARL T. KLEIN
DEPUTYATTORNEYGENERAL rorn\r ,-,. t,'l_, .,i:;I:IIDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5I56
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-59I8
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF AVISTA )
coRPoRATION',S APPLICATION FOR A ) CASE NO. AVU-E-13-09
FINDTNG THAT IT PRUDENTLY TNCURRED ) AVU-G-I3-02
ITS 2010-2012 ELECTRTC AND NATURAL GAS )
ENERGY EFFICIENCY EXPENDITURES. ) COMMENTS OF THE
) COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission comments as follows on Avista
Corporation' s Application.
BACKGROUND
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 l, 2010 through December 3l,2}l2.l
In support of its Application, the Company says its energy efficiency programs provide a
financial incentive/rebate for cost-effective efficiency measures with a simple payback within
one year to l3 years. The Company packages about 300 measures into 30 programs for
customer convenience. Residential programs include high efficiency equipment, electric-to-
' 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 Direct Testimony of Lori B.
Hermanson at 4.
STAFF COMMENTS MARCH 6,2074
natural gas conversions, Compact Fluorescent Lamps, "second" refrigerator recycling,
weatherization, and educational assistance through community events. Id. at2. 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
efficiency measures with a simple financial payback exceeding one year, up to 13 years.
Application at2-3.
In addition, the Company 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. The Company says these programs allow it to acquire
resources that would otherwise be unachievable or more costly without regional cooperation. 1d.
at3.
The Company 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. 1d.
The Company reports that its energy efficiency programs continue to exceed the targets
set in the Integrated Resource Plan ("IRP") and asserts 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. The Company says this represents 190% of the Company's IRP
target of 57,289 MWh, a l3-year levelized total resource cost of $36.55 per MWh saved, and a
2l-year levelized total resource cost of $ I .13 per therm saved. The Company says its tariff rider
funded programs have been very successful. Participating customers benefit from lower bills;
non-participating customers benefit from the Company acquiring lower cost resources and
maintaining the energy efficiency message and infrastructure for the benefit of its service
territory. Id. at 3-4.
STAFF REVIEW
Commitment to Energy Efficiency
Staff recognizes Avista's commitment to energy efficiency that includes over 30 years of
uninterrupted demand-side management (DSM). The Company regularly convenes stakeholder
meetings to review its energy efficiency programs and obtain input from customers, Commission
Staff, and environmental interests. Its commitment stems from a dedication to DSM and
STAFF COMMENTS MARCH 6,2014
customer service that begins at the corporate level and extends through the organizational ranks
to program managers. Staff notes that Avista's current Vice President of Energy Resources
regularly attends Avista's Energy Eff,rciency Advisory Group meetings and attended the annual
NEEA/BPA Efficiency conference in Portland last year alongside the Avista program managers
that deliver these programs to customers.
Examples of Avista's commitment to energy efficiency are numerous. When both
potential partners declined to participate in a utility-funded partnership of the Center for
Advanced Energy Studies (CAES) Energy Efficiency Institute (CEERI), Avista-with the active
and vocal support of its Vice President of State and Federal Regulation-forged ahead and filed
for Commission approval of Idaho-based energy efficiency research and development funding
which will begin to address a much neglected area of utility investment. See AVU-E-13-08.
In2012, Avista achieved significant energy savings in its commercial energy efficiency
program by offering increased incentives and, importantly, a deadline on T-12 to T-8 lighting
conversions.2 Eren with the larger incentives, the program remained cost-effective and
increased Idaho savings by 240%. This contributed toward the Company meeting 190% of its
IRP targets for energy savings over these three years.
These successes have not been without challenges. Falling natural gas prices have made
acquiring cost-effective energy efficiency more difficult for utilities. Avista received
Commission approval to suspend its natural gas DSM programs in late 2012 when those
programs were demonstrated to no longer be cost-effective. Lower avoided costs have also
impacted electric residential programs because these programs frequently have higher overhead
costs and lower energy savings acquisitions than the economies of scale generated by
commercial and industrial (C&I) programs. Avista responded by orchestrating a direct-mail
compact fluorescent lighting (CFL) program and funding a residential behavior-based energy
efficiency program that has the potential to deliver extremely cost-effective savings.
Although Staff applauds Avista's general commitment to energy eff,rciency, Staff s
review of the Company's prudency request revealed a number of program implementation
issues. These issues include insufficient controls around engineering assumptions and the basis
for site-specific incentive payments, incorrect interpretation of Schedule 90 regarding
2 This program was based on a 201 I Multi-Sector Process evaluation conducted by Cadmus that found high
saturation of Tl2s in Avista's service territory and little urgency from customers about the need to upgrade.
STAFF COMMENTS MARCH 6,2014
implementation of prescriptive projects, a 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 I-937 legislation.
Staff Financial Review
As part of its review, Staff performed two separate on-site audits and reviewed all DSM
expenditures. Staff s audit consisted of evaluating the Company's internal controls processes,
interviews with Company Staff, and reviews ofjurisdictional allocations. Based on its review,
Staff generally supports the Company's DSM efforts and recommends that 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.
Although the Company's Application did not specify an exact amount of expenditures to
be deemed prudent for each year, Table No. 1 on page 4 of Company witness Hermanson's
testimony includes a chart illustrating total expenses of $20,010,255 for Idaho electric energy
efficiency, and $5,370,602 for Idaho gas energy efficiency for the three years 2010-2012. This
amount is different than what is reported in the Company's Idaho Demand-Side Management
Report. It also differs from the total expenses provided in the Company's response to Production
Request No. I and Production Request No. 3. Staff reviewed five different sources of
information to determine the Company's DSM expenditures for the period in question, and each
source provided a different amount. Although total expenses from the five sources were not
materially different, it is troubling that the Company could not provide a consistent amount. The
same problems occurred when trying to determine the tariff rider revenues.
Staff constructed the following tables to illustrate what it believes to show the appropriate
amount of expenses requested to be deemed prudent by the Company. The expense amounts are
from the Company's reply to Production Request No. l, while the revenues were pulled from the
monthly reports sent to the Company's energy efficiency advisory group.
STAFF COMMENTS MARCH 6,2014
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
Table l.Idaho Electric Tariff Rider
2010 20tt
$(2,369,036) $(466,268)
7,347 ,740 7,707,719
(5,444,972) (7,268,135)
9(466,268) $(26,684)
Table 2. Idaho Gas Tariff Rider
2010 20tt
$(1,626,625) $(814,740)
2,769,029 3,763,884
(1,957,144) (1,960,562)
$(814,740) $988,582
20t2
$(26,684)
6,804,866
(7,300,840)
$(522,658)
Total
20r0-2012
$(2,369,036)
21,860,325
(20,013,947)
$(522,658)
20t2
$988,582
1,284,190
(1,453,449)
$819,323
Total
2010-20t2
$(1,626,625)
7,877,703
(5,371,155)
$819,323
Total expenditures shown in the above tables are slightly greater than those reported in
the Company's testimony ($3,692 for electric and $553 for gas). Staff has verified the above
expenses, and the tariff rider ending balances tie directly to what has been reported to the
Company's external energy efficiency advisory group. Staff has used the numbers above as the
starting point for its audit. Adjustments to the above amounts have been made and will be
discussed in greater detail below.
Table 3 illustrates Staff s recommended expenses to be deemed prudent, along with the
tariff rider ending balances for both gas and electric.
STAFF COMMENTS MARCH 6,2014
Table 3. Tariff Rider Account
Beginning Tariff Rider Balance 1lll20l0
Tariff Rider Revenue
Tariff Rider Expenses
Adjustment - OER
Adjustment - Evaluation Expenses
Adjustment - LCSC
Ending Tariff Rider Balance l2l3ll20l2
Summaries 2010-2012
Electric
$(2,369,036)
21,860,325
(20,013,947)
94,749
89,820
1,982
$(336,107)
Gas
s(|,626,625)
7,817,103
(5,371 ,155)
1,350
12,363
12,138
845,174
On December 31, 2012 the Company had a surplus balance (customers owe Company) of
$336,107 for the Idaho electric tariff rider. The Idaho gas tariff rider balance was a credit
balance (Company owes customers) of $845,174. Both of these ending balances reflect the
adjustments proposed above by Staff.
Site-Specific Projects
As part of its review, Staff examined the impact and process analyses conducted by
independent, third-party evaluators during the three-year prudency period. Several of these
evaluations indicated that the implementation of Avista's site-specific projects, which constitute
a large portion of the savings generated and expenses incurred by Avista's DSM portfolio, is an
area of concern.
The Avista 2010-2011 Multi-Sector Electric Impact Evaluation includes an extensive list
of site-specific energy savings adjustments that were needed to correct a number of errors in data
entry, installation verification, energy modeling simulation, HVAC/lighting interactive effects,
and energy savings calculations in the first two years of this prudency review.
A selection of this list reads:
o "Some [non-residential] simulation models did not accurately represent the actual as-
built building or system operation."
o "Avista [non-residential] implementation staff may not have conducted a thorough
analysis of energy savings calculations provided by participants or third-party
contractors for all projects."
STAFF COMMENTS MARCH 6,2014
"Avista implementation staff made errors on some projects in entering data to
char acterize bui ldin g o r measure performance. "3
"Avista should consider revising its methodology for calculating and tracking
HVAC/Ii ghting interactive effects. "
"Avista should create a quality control system to double-check all projects with
savings over 300,000 kwh. An Avista EM&V engineer reported he has begun to
review these types of projects."a
Staff is concerned that these lapses in reliable program management occurred in two of
the three program years included in this filing. Avista's internal evaluation team reached similar
conclusions about program management for the last year of this prudency review, 2on.s
In2012, Cadmus conducted a high-level process evaluation of Avista's non-residential
portfolio and found that many of the problems identified in2010-2011 evaluations persisted into
2012. Cadmus summarized the findings of Avista's internal evaluation, which reported an
"overall reliance on customer-supplied data and the need for a reliable and replicable approach to
source that data." The internal review also documented that "Interactive 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
effors varied in size)."6 In addition, Cadmus "found that 18Yo of all projects were missing
contract date fields in Saleslogix" and "44oA of site-specific projects were missing post-
verification dates (and it is Avista's policy to conduct-post verification on all site-specific
projects)."7 Engineering assumptions and data sources are critical aspects of site-specific
program management because incentive payments are paid based on energy savings generated
with these assumptions.
During one of its on-site audits, Staff requested and reviewed the documents produced by
Avista's intemal evaluation team during the 15 months that the internal review was in place.
Although the internal review was detailed, comprehensive, and found problems similar to those
'Cadmus. Avista 2OlO-2Oll Multi-sector Electric Impact Evaluation, page2.
o Cadmus. Avista 2OlO-2Oll Multi-sector Electric Impact Evaluation, page 5. Staff notes that the EM&V engineer
referenced in this answer was part of Avista's internal review team.s In response to 2010 evaluation, measurement, and verification (EM&V) concerns, Avista created a process under
which an independent, internal evaluation team would review all site-specific projects with potential incentives over
$50,000. This process was in place from August 201I through December 2012 before Avista suspended it without
notice.
u Cadmus. Avista 2012 Process Evaluation Memorandum, page 3.
'Cadmus. Avista 2012 Process Evaluation Memorandum, page 8.
STAFF COMMENTS MARCH 6,2014
identified in the 2010-2011 Cadmus impact evaluation, the internal review process was
discontinued in December 2012, the end of this prudency period.
Cadmus reports that the internal review was suspended for several reasons, with a
primary reason being the project delays caused when "the review required further discussion to
understand the assumptions behind the savings estimation, new data or information request from
the customer, or new analysis..."8 In addition to the time lag created, the effectiveness of the
review was greatly diminished because Avista failed to establish a "formal follow through
procedure"e to arbitrate differences, establish new policies, and assign accountability for meeting
new policy requirements around engineering assumptions, incentive calculations, and invoice
documentation. Lastly, the internal review team was only given about one-third of the projects
over $50,000 to review, even though Avista's policy was that they would review 100% of those
projects.
Staff is concerned about the solutions Avista has instituted to address these findings. The
Company says it has created a new review process in which each project will include "Top
Sheets" designed to ensure that engineering and administrative requirements are met on each
project. On the surface, this seems like a reasonable response to the problem. But three issues
remain. First, the Top Sheets are filled out by a member of the implementation or engineering
team and then double-checked for accuracy by another member of the same team. Because
Cadmus and Avista's internal review found deficiencies with the engineering and
implementation practices, having those members check their own work is unlikely to improve
accuracy. This was the same problem noted in December 2010 Moss Adams report, after the
first year of this prudency review:
o'When nonresidential rebates are submitted, the engineering department
reviews the information and creates a report detailing the savings and
project. Once that report is complete, another engineer within the department
reviews the report. As the engineers are in the same department and
likely peers, Avista may want to consider having engineers from the policy,
planning, and analysis group to perform the review to provide an independent
and fresh look."lo
t Cadmus. 2012 Process Evaluation Memorandum, pages 2-3.
'Cadmus. 2012 Process Evaluation Memorandum, page 3.
'0 Moss Adams. Demand Side Management Programs Observations and Recommendations, Avista 2010 Demand
Side Management Annual Report, page 14l.
STAFF COMMENTS MARCH 6,2014
Second, Avista has modified the role of the internal review to "conduct random spot-
checks" on project calculations and documentation after projects have been contracted, and in
some cases, received an incentive.ll Previously, the internal review team would review the
project and provide input before the incentive was paid. That method helped correct problems
before rider money was spent on a project. But the new method provides input at the end of the
process, often after the incentive check has issued and the opportunity to correct any problems
has passed.
Staff s third and oveniding concern is that the main problem identified during the
internal review process-the lack of formal follow-through on program management issues-has
not been resolved. The absence of a central decision maker to determine-and enforce-
program management policies was a major reason the intemal review process was dissolved.
Instead of addressing that organizational shortcoming, Avista has chosen to minimize the review
so that arbitration is not necessary. Staff agrees with Avista's implementation staff that "this will
help overcome bottlenecks." But Staff does not believe that it will adequately protect tariff rider
money from being paid out imprudently.l2
Cadmus has previously recommended that Avista designate a specific decision-maker for
its site-specific program. In 2011, Cadmus recommended that Avista "[c]onsider designating a
central leadership role for the Site-Specific program to oversee future planning and vision, and
ensure it continues to deliver cost-effective energy savings to the [commercial and industrial]
C&l portfolio," and "noted that no central leadership role exists for overseeing the Site-Specific
progftrm. Based on evaluation experience and best practice research, Cadmus has found
typically large C&l programs-in particular those contributing significant energy savings to
overall portfolios-have a central point of management to oversee planning, vision, and meeting
future goals cost-effectively." l3
The same recommendation appears again in2012: Successful implementation "may
include designating a senior-level point person to serve as the decision-maker for questions or
disagreements regarding a project or its calculation methodolo gy."t4 Staff supports this
recommendation,
rr Cadmus. 2012Large Process Evaluation Memorandum, page 3.
" Cadmus. 2012 Large Process Evaluation Memorandum , page 4.
" Cadmus. 201 I Multi-Sector Process Evaluation Report, pages 5 and 71.
'o Cadmus. 2012 Large Process Evaluation Memorandum , page 17.
STAFF COMMENTS MARCH 6,2014
Importantly, the modified review system and other program changes may still be in flux
and did not become effective until 2013, which is not the focus of this prudency review. But
because the Company has presented the altered review process to address persistent problems
occurring in the 2010-2012 period, Staff believes it is necessary and appropriate to comment on
conspicuous shortcomings in the proposed solution.
During both on-site audits, Staff discovered several site-specific incentives issued in 2013
that may have violated contract rules, lack sufficient documentation, or otherwise represent an
imprudent use of customer funds. Because expenses incurred in 201 3 and are not subject to
prudency review here, Staff withholds comment and fuither investigation of these projects until
Avista files its request for prudency of 2013 DSM expenses.
Insufficient Documentation for Large Projects
Of the instances where Staff identified a lack of proper documentation, two are
particularly noteworthy. On November 1 | , 2071 , the Company paid an incentive of $ 14, I 20 to
Lewis and Clark State College for an energy efficiency project. But during Staff audit the
Company could not provide any project invoices and had no record of an installation verification
being performed. Although the Company reports and claims savings from the project, sufficient
documentation does not exist to determine the prudency of the incentive, or whether or not the
project was actually completed. Staff recommends deferring recovery on this project until
Avista's next prudency filing to allow the Company an opportunity to provide documentation in
support of its incentive payment. Staff s adjustment to the Company's expenses is represented in
Table 3 (Adjustment - LCSC).
Staff also found evidence of lax program management in $96,099 worth of Office of
Energy Resources (OER) projects, beginning with the customer contract and extending to the
installation verification (lV) and documentation required for incentive payment.
First, Avista signed a customer energy efficiency agreement with the OER, even though
OER is not an Avista customer. The OER then signed Memorandums of Understanding with the
schools in Avista's service territory where by each school agreed that its entire incentive would
be collected by the OER. Avista maintains that this was acceptable because OER was acting as
an agent, or contractor, for efficiency projects in the schools. While that may be, normal
program procedures require the Company to sign an energy efficiency contract with its customer,
which in this case would have been each school. In that agreement, the individual schools may
STAFF COMMENTS l0 MARCH 6,2074
choose to assign their incentive payment to the contractor who managed the project. But it is
contrary to established procedure for Avista to sign a customer agreement with an entity located
outside of its service territory who is not a customer.
When Staff asked if Avista had ever before signed a customer agreement with a non-
customer, Avista could not identify any such occurrence or describe a similar situation in which
this might be a reasonable solution. Instead, Avista maintained that this series of projects was
"unique."
As mentioned earlier, all site specihc projects and most prescriptive projects are required
by Avista policy to undergo installation verification (IV) before an incentive payment is issued.
All but two of the nineteen OER projects were prescriptive, but the project path the Company
followed was site-specific and none of the projects underwent IV. Avista said that because a
trusted govemment office was managing the projects, it did not think an IV was necessary. But
Staff points out that Avista, not the OER, is responsible for the prudent expenditure of tariff rider
funds. Further, because the OER receives the incentive for the projects, there is at least an
appearance of a conflict of interest in letting the incentive recipient confirm installation of
incented measures.
The largest problem with these projects is that Avista issued a $96,099 check to the OER
without receiving receipts or invoices from its contractors to confirm the purchase and labor
associated with these measures. Instead, the OER supplied a self-generated tally of installed
measures that qualified for incentives and Avista paid on that basis. When Staff asked Avista to
further explain that approach, Avista said it was atypical and that the Company paid the incentive
"based on the relationship" with the OER. Staff does not believe that this justifies incentive
payments in the absence of minimum documentation requirements.
Staff believes that these measures were purchased and installed. But Staff cannot
recommend recovery of Avista program expenditures without sufficient documentation.
Therefore, Staff recommends that recovery of these expenses be deferred until l) Avista receives
invoices confirming the purchase and installation of these measures and2) Avista has verified
the installation of these projects. Staff s adjustment to the Company's expenses is represented in
Table 3 (Adjustment - OER).
l1STAFF COMMENTS MARCH 6,2014
Prescriptive Projects and DSM Tariff Compliance
Staff is also concerned that the Company's loose program management contributed to
tariff compliance issues regarding prescriptive project incentives. Schedule 90 describes energy
efficiency services offered to Avista's customers and lists the criteria under which incentives will
be provided for electric efficiency, fuel-conversion, and distributed renewable energy measures.
During the period under review, eligible measures were required to have a measure life
greater than 10 years and incentives were capped at of 50% of the incremental project cost. The
tariff specified three exceptions to these rules: low income programs, low-cost electric efficiency
measures (e.g. compact fluorescent lights), and market transformation efforts.
In mid-2013, Avista filed a tariff advice to revise Schedule 90. In that filing, Avista
asked to raise the incentive cap on some projects from 50Yo to 70oh of the incremental cost and to
add prescriptive measures to the list of exceptions that allow incentives to be capped at 100% of
incremental cost.
In its explanation to Staff, Avista stated that the design and management of its DSM
programs would not change. The Company explained that the filing, among other things, was to
align the tariff language with long-standing program implementation practice under which the
50Yo cap was not interpreted to apply to prescriptive measures. Avista maintained that it filed
the tariff revision to "clarify" that l00Yo caps on prescriptive incentives are acceptable.
Staff supported the tariff revisions, but made clear that it would examine Avista's
program implementation-which should conform to the tariff in place at the time-during the
Company's next prudency review, which is the subject of this case.
Staff carefully reviewed the language in the Company's tariff and finds no reasonable
room for interpretation. The tariff language pertaining to funding reads: 'olncentives in which the
tier structure applies will be capped at 50oh of the incremental project cost with the exception
of... fiow income, low cost, and market transformation projects] that may be capped at a
maximum of 100% of the incremental cost."l5
The 2012 Large Process Evaluation conducted by Cadmus audited Avista's site-specific
and prescriptive nonresidential projects to determine if the program implementation aligned with
the DSM tariff. The evaluation concluded that a significant number of 2012 prescriptive projects
'5 Avista received approval for a revision to Schedule 90 effective January l, 20 I I . However, the quoted language
remained unchanged from March 3,2008 through August 22,2013.
STAFF COMMENTS t2 MARCH 6,2014
in Idaho and Washington that were not specifically exempted exceeded the 50Yo cap. In addition
to prescriptive projects, Avista was exceeding the incentive cap on programs operated by third
parties.l6
Staff agrees that there are valid program management reasons for exceeding a 50Yo cap
on prescriptive and third-party programs. But the fact that Avista designed and ran programs for
several years outside clear tariff language raises concems about the rigor with which Avista
managed its programs.
Staff acknowledges that although the cap on third-party programs remains an issue, the
August 2013 tariff revision addresses the prescriptive cap issue going forward. However, the
revised tariff does not absolve the Company of responsibility for the previous three years of
operating outside the tariff. Staff also notes that incentive payments above the 50o/o cap between
January and Augustz}l3 will be an issue in the Company's upcoming 2013 prudency
determination. Staff does not recommend a disallowance because Staff believes the Company
should have simply filed to amend its tariff several years earlier to raise the cap on incentive
levels. But Staff cautions Avista to conform to the specific language in its tariffs going forward.
Renewable Projects
From 2010 through2012, Avista incented l1 small-scale wind and solar projects totaling
$21,214 in incentives and $5,703 in non-incentive utility costs under Schedule 90. These
renewable energy measures are subject to Schedule 63 Net Metering rules and allow for solar,
wind, biomass, hydropower, and fuel cell technology with generation capacity not to exceed 100
kW. Based on the Company's cost-effectiveness calculations, none of the projects were cost-
effective from a Total Resource Cost ("TRC") perspective. The Utility Cost Test ("UCT"),
which does not include the individual customer's contribution to the project, came in
substantially higher and passed the cost-effective threshold.
The Company has previously stated that it designs its measures, programs and portfolio
to be cost-effective from a TRC perspective (in most cases, the TRC is more difficult to pass
than the UCT). It does not want to economically incent a measure that may be detrimental to the
individual though it may be beneficial from the UCT perspective. But the Company makes an
exception when a measure or program is "minimally short of being fully cost-effective."lT Staff
'u Avista's Energy Smart Grocer program is operated by Portland Energy Conservation Inc.
'' From Avista's response to Staff Production Request 40.
STAFF COMMENTS t3 MARCH 6,2014
recognizes that renewable projects may be undertaken by customers for reasons that do not
directly translate into a monetary benefit, which diminish the importance of the TRC. Staff
notes, though, that the TRC results for all of these installations were exceptionally low.
In an attempt to improve cost-effectiveness, the Company revised its Schedule 90 tariff to
exclude measures with a long lifecycle payback, such as renewable projects. The revised tariff
became effective on January 1,201I . According to the Company, the I I projects cited above
were under contract before to the tariff revision. Staff has reviewed the projects and does not
believe an adjustment is warranted.
Non-Incentive Utility Costs
Staff is concerned that non-incentive utility costs, primarily labor, have increased
significantly over the past few years. In response to discovery, Avista produced a graph showing
that non-incentive utility costs have increased from about 260/o of the total DSM budget in 2010
to 32Yo in2012. At the November 6,2013 annual Fall Avista Advisory Group meeting, Avista
reported that"43Yo of utility expenditures are non-incentive in nature (excluding supplementary
expenditures). [This is] a consequence of less than proportionate reduction in infrastructure to
the overall portfolio size." Staff points out that including supplementary expenses, 53olo of
Avista's DSM expenses are non-incentive. Staff understands that both of these percentages
represent dual-fuel system expenses, but is concerned that it may be indicative of a upward trend.
In its prudency filing, Avista reports incentive and non-incentive expenses for each
program. Some programs, especially residential and natural gas DSM programs, show a very
steep increase in non-incentive expenses from 201 1 to 2012. Staffunderstands that reduced
energy savings from these programs can make labor costs appear disproportionately large from
one year to the next. But 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. While Staff does not make a recommendation regarding non-incentive utility
costs in this filing, Staff believes Avista should more carefully manage, and if necessary reduce,
non-incentive utility costs.
STAFF COMMENTS t4 MARCH 6,2014
External Evaluation and Consulting
With the passage of Initiative Measure No. 937 (I-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, the frequency with
which these items are required in Washington (every two years) is more than Staff believes
necessary. Idaho ratepayers should not pay for additional burdens placed on the Company to
satisfy other jurisdictional requirements.
Staff and the Company have discussed Staff s concems about the jurisdictional allocation
of third-party consultants many times over the past several years. During Stafls audit in this
case, the Company intemally reviewed its third-party consulting and evaluation expenses. As a
result of that review, the Company 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 the Company's
third-party expenses to ensure that jurisdictional costs are apportioned properly.
STAFF RECOMMENDATION
Staff recommends that the Commission issue an order that:
l. Approves $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 $5,345,304 in
Idaho gas tariffrider expenses.
2. Directs Avista to identify-or if missing, establish-its central decision maker for DSM
policy and procedures.
3. Defers recovery of Lewis and Clark State College and OER project incentives until
Avista's next prudency filing to provide the Company an opportunity to obtain purchase
and labor invoices and verify installation of all incented projects.
t5STAFF COMMENTS MARCH 6,20T4
Respectfully submitted this lr+day of March2014.
,L/ //"-
Karl T. Klein
Deputy Attomey General
Technical Staff: Stacey Donohue
Donn English
Nikki Karpavich
i:umisc/comments/avugl 3.9_avuel3.2kksddenk comments
STAFF COMMENTS 16 MARCH 6,2014
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 6M DAY oF MARCH 2014,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NOS. AVU-E.13-09/AVU-G-13-02, BY MAILING A COPY THEREOF,
POSTAGE PREPAID, TO THE FOLLOWING:
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BOX 3727
SP0KANE WA 99220-3727
E-MAIL: david.meyer@avi$tacom.com
LINDA GERVAIS
MGR REGULATORY POLICY
AVISTA CORPORATION
PO BOX 3727
SPOKANE WA99220-3727
E-MAIL: linda. [e-mail]
CERTIFICATE OF SERVICE