20150127final_order_no_33216.pdf

Office of the Secretary
Service Date
January 27.2015
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF AVISTA CORPORATION SEEKING A )CASE NOS.AVU-E-14-07
DETERMINATION BY THE COMMISSION )AVU-G-14-02
THAT THE COMPANY’S ELECTRIC AND )
NATURAL GAS ENERGY EFFICIENCY )
EXPENDITURES WERE PRUDENTLY )ORDER NO.33216
INCURRED
________________________________________________________________________________________
)
On August 12.2014.Avista Corporation (“Avista”or Cornpany”)submitted an
Application seeking a determination by the Commission that the Company’s electric and natural
gas energy efficiency expenditures from January 1,2013 through December 31,2013,were
prudently incurred.In its Application,Avista states that it spent $7,634,864 on Idaho electric
and natural gas DSM programs.
On September 18,2014,the Commission issued a Notice of Application and
Intervention Deadline.See Order No.33 131.The Idaho Conservation League (‘ICL”)
submitted a timely petition to intervene.
On November 11,2014,the Commission issued a Notice of Modified Procedure with
a 21-day comment period.See Order No.33174.Thereafter,Commission Staff (“Staff’)was
the oniy party to submit written comments.
APPLICATION
Avist&s previous electric and natural gas energy efficiency prudency filing was on
September 30,2013.The Company requested a Commission finding of prudency regarding its
electric and natural gas energy efficiency expenditures for the calendar years of 2010-2012
(AVU-E-13-09;AVU-G-13-02).Subsequently,the Commission issued a final Order ruling that
$25,172,700 of the Company’s requested amount of $25,380,857 were prudently incurred.See
Order No.33009.
In support of its current Application,Avista submitted a cover letter and the prefiled
testimony and exhibits of Avista DSM and Products and Service Managers Chris D.Drake and
Bruce W.Folsorn.The Company also included the prefiled testimony of M.Sami Khawaja who
is employed by Avista’s third-party DSM evaluator:The Cadmus Group,Inc.
ORDER NO.33216 1
In its Application,Avista summarized its low-income,residential and non-residential
programs benefitting its Idaho electric and/or natural gas customers.Avista offered the
following low-income programs to Idaho electric and/or natural gas customers:weatherization
assistance and Low Income Energy Assistance Program (LIHEAP).For program evaluation,
measurement and verification,Avista states that it employed Cadmus after a competitive request
for proposal (RFP)process.Avista employs an implementation team made up of program
managers,coordinators,engineers,account executives,and analysts.The Company provided
verification of installation and project invoices.
The Company provided an overview of the Company’s recent Idaho DSM portfolio
results and expenditures for electric and natural gas efficiency programs;Avista’s involvement
with the Northwest Energy Efficiency Alliance (NEEA);an update on the Company’s university
research and development activities;status of the Company’s suspended natural gas DSM
programs;overall evaluation by Avista’s third-party contractor,Cadmus;and stakeholder
involvement.Mr.Folsom attached two exhibits to his testimony depicting a summary of 2013
research and development projects funded by the DSM tariff rider,and Avista’s 2013 Annual
Report —Demand-Side Management,Idaho;summary of DSM energy savings and levelized
costs;a summary of electric DSM cost-effectiveness;and a summary of natural gas DSM cost-
effectiveness.
Avista claims that it achieved Idaho energy efficiency savings for 2013 of 21,999
MWh net savings.This represents 136%of the Company’s target savings of 19,009 MWh
dictated by Avista’s IRP for this period.Avista has achieved over 189 aMW of cumulative
savings through its energy efficiency efforts in the past 36 years.122 aMW of DSM is currently
in place on the Company’s system,with approximately 36 aMW in the Idaho service territory.
Current Company-sponsored conservation reduces retail loads by 10.6%.Additionally,51,772
therms of residual first-year efficiency savings were achieved from January 1,2013 through
December 31,2013.
Avista spent $7,634,864 on Idaho electric and natural gas DSM programs,of which
64%were paid out to customers in direct incentives pursuant to the cost-effectiveness tests
shown in Exhibit No.1.This does not include additional benefits such as technical analyses
provided to customers by the Company’s DSM engineering staff.
ORDER NO.33216 2
Regarding Avista’s participation and funding of Northwest Energy Efficiency
Alliance (NEEA)programs,the Company states the levelized cost of resources acquired through
Avista’s Idaho participation was 1.8 cents per kWh.This compares with $141 per first-year
MWh for Avista-funded local energy efficiency programs in Idaho.During 2013,Avista’s
Idaho-related NEEA funding was $801,838.
On August 30,2013,Avista filed a request with the Commission to authorize up to
$300,000 per year of Schedule 9,DSM Tariff Rider revenue to fund applied research at Idaho’s
universities through a “call for papers”approach.The intent of this initiative is to supplement
the pipeline of emerging technology.Avista states that the Idaho electric and natural gas tariff
rider balances were $3,459,189 (underfunded)and $674,059 (overfunded),respectively.
Avista states that it intends to reinstate its natural gas efficiency programs as soon as
they are “cost-effective,”as verified through the application of the Total Resource Cost (TRC)
test.Avista alleges that Idaho’s electric programs are cost-effective according to the TRC,
benefit to cost ratio of 1.23,and Program Administrator Cost (PAC),benefit to cost ratio of 1.86,
tests.
Avista also presented the findings of the Cadmus evaluations.Cadmus conducted
impact and process evaluations of the electric and natural gas programs in the residential,non
residential,and low-income sectors.Avista states that although natural gas programs were
suspended in Idaho prior to 2013,there were several instances where natural gas savings were
achieved due to grandfathered projects or dual fuel saving measures.The Company asserts that
Cadmus’s evaluations met industry standards and protocols.
The Cadmus evaluation included 357 phone surveys conducted for the residential
measure verification and over 2,000 general population surveys.The process evaluations
included 357 residential participant,2,160 residential general population,201 non-residential
participant,and 140 non-residential non-participant surveys.The evaluations also included 20
contractor interviews,as well as interviews with several implementation contractors,Avista
PPA,and implementation staff.
Avista believes the evaluation addresses all 13 measurement and verification needs in
accordance with 14 industry and regulatory standards.Impact evaluation on the 2013 program
years verified electric savings exceeding IRP and Avista Business Plan goals.Avista believes
ORDERNO.33216 3
that the process evaluations reveal that the programs run efficiently while some areas for
improvement exist.
STAFF COMMENTS
Staff reviewed Avista’s Application and performed an on-site audit of all of its DSM
expenditures.Staff recommended the Commission issue an Order approving $7,736,994,
$7,579,365 in Idaho electric tariff rider expenses and $157,629 in Idaho gas tariff rider expense,
as prudently incurred expenses for the 2013 calendar year.
Staff confirmed that the above amount includes LCSC incentive payments of $14,120
($1,982 electric and $12,138 gas)and the $96,099 ($94,749 electric and $1,350 gas)of
incentives paid to the Office of Energy Resources (OER).
Finally,Staff recommended the Commission direct Avista to do the following:
present the Issues Tracker to a third-party on a recurring basis to ensure findings and
recommendations are being addressed;complete a full QAIQC review for site-specific projects
reporting savings over 300,000 kWh;and include a substantive review of project Top Sheets in
its next evaluation.
Staff believes the Company continues to be committed to energy efficiency.Staff
noted that Avista exceeded its 2013 electric IRP target,established from the Company’s
Conservation Potential Assessment (CPA),for the fourth consecutive year.Staff applauded
Avista’s high level of savings by continuously innovating,adapting,and expanding program
offerings.
Staff remarked that Avista implemented a cost-effective residential behavioral
program which generated 1.6%energy savings per home,exceeded targets for energy savings by
31%,reported very low opt-out rates of 1.21%,and significantly increased participation in its
existing prescriptive residential programs.
In 2014,Avista filed a tariff advice to streamline its electric-to-natural gas conversion
program and increase the incentive payments.The approved changes were made because its
market assessment determined that the majority of easily-achieved conversions had been
acquired.The Company worked to create demand for the program by embedding gas conversion
messaging in the Home Energy Reports as part of its residential behavioral efficiency program.
Also in 2014,Avista announced or deployed several pilot programs to explore new
opportunities for energy savings.These include a residential smart thermostat program with
ORDER NO.33216 4
contractor and customer installation options.a “fleet heat”pilot to fund sensors to turn off engine
block heaters when ambient air temperatures permit,and a prescriptive gas station canopy LED
campaign.In addition to energy efficiency,the Company has contracted with Applied Energy
Group (AEG)to study the potential for demand response and load following resources,including
direct load control,firm curtailment,time-of-use pricing,critical-peak pricing,and real-time
pricing.These options are being evaluated in its 2015 electric IRP in order to meet capacity
shortfalls forecasted in 2020.
Staff believes that Avista’s most notable achievement in 2013 was the critical role it
played facilitating collaboration in NEEA’s budget negotiations to improve its effectiveness and
preserve it as a four-state energy efficiency market transformation organization.
As mentioned above,Staff conducted an on-site audit.Staff evaluated the
Company’s internal controls processes,interviewed program managers,and reviewed
jurisdictional allocations.
Staff’s recommendation for approval of $7,579,365 in Idaho electric tariff rider
expenses and $157,629 in Idaho gas tariff rider expense is $102,183 greater than the S7,634,864
included in the Company’s request.See Folsoni Direct at 6.Staff explains that in its review of
Avista’s previous prudency case (Case Nos.AVU-E-l3-09 and AVU-G-13-02)the Company
discovered that some consulting and evaluation expenses ($89,820 electric and $12,363 gas)
were booked to the Idaho tariff rider and should have been charged to Washington.This error
was corrected on the Company’s books in 2013 with a negative journal entry.When these
journal entries are netted with the rest of the Company’s expenses in its reporting system,it
produces the actual amount the Company requests for prudency determination.
Staff discussed the underfunded balance as of December 31,2013,in the electric rider
account of $3,459,188.On the gas side,the Company owed customers $674,058 at the end of
2013.This money is being returned to customers as a part of the stipulation that extended the
existing rate plan approved by the Commission in Order No.33130.
In Order No.33009,the Commission deferred recovery of incentives paid to Lewis
and Clark State College (LCSC)and the Office of Energy Resources (OER)until this current
case.This allowed Avista an opportunity to provide invoices and verification of measures
installed for those projects.In its filing,Avista provided original invoices and documentation for
ORDER NO.33216 5
the LCSC project.Staff is satisfied with the documentation and recommended the Commission
allow recovery of the $14,120 ($1,982 electric and $12,138 gas)deferred in the previous case.
Staff recommended the Commission approve recovery of the $96,099 ($94,749
electric and $1,350 gas)in incentives paid to the Office of Energy Resources (OER).Staff
expressed a concern with the lack of information provided by the OER to Avista regarding
incentive payments.The OER invoice did not include any itemized documentation for the
measures installed or labor performed at each site,but rather just a total sum of the amount owed
for each project with no detailed information.
Staff stated that it followed the Commission’s directive to verify the installation of
the measures.The Company sent its own personnel to each school and did a physical inventory
of all measures installed.The Company then matched that inventory to the bid proposal
worksheet received from the OER.Based on the verification performed by the Company,Staff
is satisfied that the measures were installed and are producing energy savings.
Staff verified that in accordance with the Company’s reply comments from the
previous prudency case,the Company made a voluntarily commitment to file a Status Report by
July 1,2014,explaining how it addressed Staff’s concerns in that case,The Status Report stated
that Avista established a central decision maker for DSM policy and procedures,undertook a
significant re-organization of its DSM department,establishing a “Senior Manager of Energy
Efficiency”under whose direction “the DSM organization will be fully integrated,”and a Policy,
Planning,and Analysis (PPA)group.
The Status Report also included the Company’s first DSM Standard Operating
Procedures (SOP)document,which “provides a detailed explanation of how the DSM programs
in Idaho are to be implemented.”Avista has also developed an “Issues Tracker”using software
known as CATSweb that will “...improve quality management and compliance performance.”
Staff believes that this tracker will help Avista improve its programs more quickly by
formalizing the process for reviewing and adopting program recommendations when appropriate.
However,Staff shares Internal Audit’s recommendation that “on a reoccurring basis (quarterly,
semiannual,etc)the Issues Tracker should be presented to a third-party,like Internal Audit,to
ensure findings and recommendations are being addressed.”
Staff commented that in the Company’s previous prudency case,Avista instituted a
series of “Top Sheets”for each of its non-residential site specific projects to ensure that the
ORDERNO.33216 6
technical and administrative requirements for each project are consistently met and documented.
When compared to the DSM project database audit conducted during the previous prudency
review,Staff noticed an improvement in project documentation,including invoice tracking and
confirmation of installation verification.Staff believes much of this improvement may be
attributable to the Top Sheets and SOP document.
Despite recent improvements,Staff believes that the Company’s previous process and
documentation issues identified by Staff and others extended beyond 2012 and into 2013.Staff
believes that Avista’s failure to document basic contract compliance on one of its most important
projects ($183,542 incentive to U.S.Silver on a hoist upgrade)represents the Company’s project
management practices prior to mid-2013.However,Staff does not recommend a disallowance
because the problems with this project occurred several years before the significant
improvements Avista has recently made to its program management process.Staff is confident
that future projects will not encounter these issues.
Staff supports the progress Avista has made so far in improving its processes to
protect ratepayer funds.However,several issues identified by Staff,Cadmus,and Avista’s
Internal Auditing department remain unresolved.
In Staffs previous prudency comments,it expressed concern with the Top Sheet peer
review.Specifically,Staff comments stated:“...Top Sheets are filled out by a member of the
implementation team 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 implementation assumption practices,having those members check their
own work is unlikely to improve accuracy.”
Further,Staff discovered that having an external review after the incentive was paid
did not protect ratepayers from funding imprudent projects.During Staffs on-site audit,Avista
confirmed that this additional internal review process was no longer in place.Moreover,Staff
criticized the Company practice of permitting members of the same team to conduct peer review
without any sort of external review.
Avista defends its decision to rely primarily on the Top Sheet and peer review
processes for project management improvements by confirming that it will continue conducting
third-party impact and process evaluations to ensure rigorous program management.
ORDERNO.33216 7
Staff also supports the two recommendations made by Cadmus,a third-party
evaluator,and the Company’s Internal Audit Committee.Cadmus recommends the following:
All large prescriptive or site-specific projects reporting savings over a
threshold of 300,000 kWh or 10,000 therms should undergo a complete
QAIQC prior to incentive payment in addition to the standard Top Sheet
review process.Typically a QAIQC process reviews engineering calculations,
verifies inputs,checks payback period and incentive payments for
reasonableness,and ensures compliance with program requirements and tariff
rules.In order to align the above recommendation regarding program
management with implementation,Cadmus recommends that Avista
determine and document the specific requirements and steps in the QA/QC
process through a collaborative process that will ensure accountability and
balance needs for efficiency and customer satisfaction.
Staff commented that Cadmus’s recommendation is similar to Internal Audit’s position on the
same issue.
Finally,Cadmus recommended that Avista conduct an external third-party review of
Top Sheets,including reviewing a random sample of completed Top Sheets for quality and
accuracy.
Staff recommended that Avista adopt both sets of recommendations to help ensure
continued prudency of tariff rider expenditures.
COMMISSION FINDINGS
The Commission has reviewed the record in this case,including Avista’s Application,
prefiled testimony,and Staff comments.The Commission notes for the record that no party has
objected to Avista’s request for an Order finding that its 2013 DSM-related expenses were
prudently incurred.
The Commission finds that Avista prudently incurred the amount of $7,736,994 in
DSM-related expenses,$7,579,365 in Idaho electric tariff rider expenses and $157,629 in Idaho
gas tariff rider expense,for the 2013 calendar year.
The Commission notes that the amount approved in this Order exceeds the original
request made by the Company in its Application.The Commission approves the additional
amount of $102,183 to Avista’s current DSM-related expense request in order to compensate the
Company for certain appropriate consulting and evaluation expenses ($89,820 electric and
$12,363 gas)that were erroneously booked to the Idaho tariff rider and should have been
properly assigned to Washington.
ORDER NO.33216 8
The Commission is very encouraged that Avista was able to exceed its target savings
of 19,009 MWh,found in its 2013 IRP,by a significant amount.The Company’s achievement of
21,999 MWh net savings and 51,772 therms for the 2013 calendar year is commendable.The
Commission urges the Company to continue this favorable trend and even improve upon its
commitment to the implementation of cost-effective DSM programs.
Accordingly,based on our thorough review of the record and careful consideration of
the Company’s Application and request,the Commission finds that Avista prudently incurred
$7,736,994 in DSM-related expenses,$7,579,365 in Idaho electric tariff rider expenses and
$157,629 in Idaho gas tariff rider expense,for the 2013 calendar year.
CONCLUSIONS OF LAW
Avista is an electrical and gas corporation.The Commission has 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 3 1.01.01.000,et.seq.
ORDER
IT IS HEREBY ORDERED that Avista’s Application for approval of its calendar
year 2013 DSM expenditures is approved as prudently incurred in the amount of $7,736,994.
THIS IS A FINAL 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.
ORDERNO.33216 9
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this
day of January 2015.
PXUL KJELLAER,PRESIDENT
MACK A.REDFORD,COMMISSIONER
MARSHA H.SMITH,COMMISSIONER
ATTEST:
lqan D.Jewell
commission Secretary
O:AVU-L14-07 AVU-G-14-02 np3
ORDERNO.33216 10