20170330Comments.pdf

CAMILLE CHRISTEN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-03 l4
BARNO. t0177
IN THE MATTER OF THE APPLICATION OF
AVISTA CORPORATION FOR A FINDING OF
PRUDENCE FOR 2OI4-20I5 EXPENDITURES
ASSOCIATED WITH PROVIDING ELECTRIC
ENERGY EFFICIENCY SERVICE IN THE
STATE OF IDAHO.
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Street Address for Express Mail:
472W. WASHINGTON
BOISE, IDAHO 83702-5918
Attomey for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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CASE NO. AVU.E-16.06
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
attorney of record, Camille Christen, Deputy Attorney General, and in response to the Notice of
Modified Procedure, Order No. 33644; and Notice of Revised Comment Deadlines, Order No.
33712; in Case No. AVU-E-16-06, submits the following comments.
BACKGROUND
On September 14, 2016, Avista Corporation dba Avista Utilities filed an Application
requesting the Commission to issue an Order finding that the Company prudently incurred
electric energy efficiency expenses in Idaho from January 1,2014 through December 31,2015.
The Application describes the Company's energy efficiency activities and their cost-
effectiveness. The Application includes supporting testimony and the Company's Idaho 2014
and2015 Demand-Side Management (DSM) Annual Reports. It also includes an evaluation of
the Company's electric energy efficiency program, performed by a third-party contractor,
Nexant, and supporting testimony.
1STAFF COMMENTS MARCH 3O,2OI7
On January 26,2017, the Company filed an amended 2014 DSM Annual Report to
replace the2014 DSM Annual Report originally filed with the Application.
STAFF ANALYSIS
Energy Savings
Avista acquires energy efficiency resources by funding programs through its energy
efficiency tariff rider. During 2014 arrd2015, the Company offered a host of residential and
non-residential energy efficiency programs. The programs were cost-effective at the portfolio
level (considering all programs together) in both years, but energy savings decreased in2015 and
caused the Company to miss its annual IRP target by six percent.
Metric 2014 20r5
Energy Savings 16,292 MWh 14,789 MWh
IRP target 15,330 MWh 15,666 MWh
Expenditures $4,708,389 $5,291,394
Utility Cost Test 2.46 1.48
Total Resource Cost Test 1.s8 1.03
The most significant shortfall in20l5 was in the Company's non-residential programs,
especially site-specific and prescriptive lighting. According to the Company, this was driven in
part by the reduction in lighting incentives associated with the 2012 federal law limiting
manufacturing and importing of T-l2s (less efficient commercial lighting), lack of natural gas
efficiency programs which help drive savings in electric programs, and the fall in the commodity
price of silver which supports a significant portion of Avista's industrial base in Idaho.
The Company emails Idaho and Washington stakeholders a monthly update of year-to-
date electric and natural gas savings and the tariff rider balances in both states. In mid-2015,
Staff noticed that the Company was not on pace to hit its annual energy savings target. Staff
repeatedly brought this to the Company's attention but did not receive an engaged response until
after the year ended and the Company had already missed its targets. In July 2016, the Company
provided Staff with a written explanation about the factors leading to the 2015 shortfall and steps
taken to prevent another occurence. The Company's analysis was thorough and adequately
addressed the causes for missing its annual savings target; however, Staff believes the written
2STAFF COMMENTS MARCH 3O,2OI7
explanation could have been provided earlier instead of being provided in mid-2016.
Nevertheless, as a result of the Company's improved effort to increase program throughput, the
Company's energy savings were 44 percent ahead of the 2016 year-to-date goal at the time of the
report.
Staff understands that program acquisition can fluctuate between years for reasons
outside the Company's control. Staff also recognizes that the 2015 shortfall was mitigated
because the Company exceeded the IRP target by the same amount in the previous year.
However, Staff believes the Company should have identified and addressed the impending
shortfall without Staff s assistance. Further, Staff believes the Company should have been more
proactive in responding to early concerns by Staff that the Company could miss its 2015 IRP
targets.
Financial Review
Staff audited the Company's electric DSM expenditures for 2014 and2015. Staff s audit
consisted of extensive sampling of DSM expenditures, a review of the Company's internal
control processes, interviews with program managers, and a verification ofjurisdictional
allocations. Based upon its review, Staff generally supports the Company's DSM efforts and
recommends that the Commission approve $9,721,985 as prudently incurred expenses for 2014-
2015, This amount is 8277 ,798 less than requested by the Company in its Application and
Exhibits. Table 1 illustrates Staff s recommended expenses to be deemed prudent, along with
the tariff rider ending balance for 2014 and 201 5.
Table 1:Idaho Electric DSM Tariff Rider Balances
Beginning Balance
DSM Tariff Rider Revenue
Company Reported DSM Expenses
Staff Proposed Adj ustments
Ending Balance
2014
$ (3,459,189)
6,542,812
(4,708,389)
(t2,73t)
s (1,637,497)
20ts
$ (1,637,497)
6,484,376
(5,291,394)
290,529
$ (153,986)
With the inclusion of Staff s adjustments, the Company had an underfunded balance in
the electric DSM rider account of $153,986 on December 31, 2015.
JSTAFF COMMENTS MARCH 3O,2OI7
Proposed Adjustments to DSM Expenses
Table 2 lists the adjustments proposed by Staff for 2014 and20l5, which will be
discussed in greater detail below.
Table 2:
Adirrsfmenfs 2014 201 5
Simple Steps Allocations
JACO Allocations
Corporate Credit Card Charge
Difference in Reported Expenses
Evaluation Exoense Allocations
$ (24,739)
11,487
480
4l
0
$ 147,339
13,005
0
0
l30.l8sfotat S (t2.ZStl
Simple Steps
Simple Steps is a program launched by the Bonneville Power Administration with the
goal of prompting residential customers to increase the energy efficiency of their home lighting
and water heating by providing retail markdowns on select CFL lamps and fixtures, LED bulbs
and fixtures, showerheads and clothes washers. Avista and other utilities provide reimbursement
for the markdowns. The program is primarily implemented through a third party vendor,
CLEAResult. CLEAResult provides Avista with a monthly invoice that includes spreadsheets
with the data from the previous month's purchases. Information provided includes the name of
the store, the type and number of units sold, and other detailed information that is used by the
Company to assign energy savings to Washington and Idaho. However, rather than assigning
costs based on the location of the sale, Avista simply allocates the costs of the program 70o/o to
Washington and 30o/o to Idaho. The Company has detailed information that allows it to assign
savings to its jurisdictions, so there is no reason to allocate the costs using separate metrics.
Information provided to Staff during the audit indicates that Idaho customers should have paid an
additional $24,739 from the tariff rider in2014 for savings achieved through the program. In
2}ls,Idaho customers were charged $147,339 for energy savings that occurred in Avista's
Washington jurisdiction. Staff has increased the 2014 tariff rider expenses by $24,739, and
decreased the 2015 expenses by $147,339 to account for this misallocation of expenses.
4STAFF COMMENTS MARCH 3O,2OI7
JAC O Env ir o nme nt al Refr i ger at or Re cy cl ing
Avista partnered with JACO Environmental to provide third-party administration of the
refrigerator/freezer recycling program until June 30,2015 when the program was discontinued.
Customers received a $30 incentive to recycle their second refrigerator or garage freezer. JACO
would pick-up the working appliance from the customers' home, recycle and dispose of the
appliance, and process the incentive payment. Each month, JACO would send an invoice to
Avista detailing the incentives paid, administration costs, and the address from which the
appliance was picked up for recycling. Similar to the Simple Steps program above, Avista
would properly assign the savings to its jurisdictions, but then would allocate the costs using
separate metrics. In20t4 and 2015, Idaho customers paid an additional $11,487 and $13,005
respectively for incentives and administration for appliances that were recycled by Washington
customers. Staff has adjusted the rider expenses in the table above to account for the improper
allocation of expenses that should have been directly assigned to Washington.
Corporate Credit Card Charge
On April 16,2014 a purchase was made using a corporate credit card at Argonne
Hardware totaling $2,000. Of this amount, $1,600 was allocated to electric operations with $480
allocated to the Idaho jurisdiction. This expenditure was included in Staff s sample of expenses
to verify during the audit; however, the Company could not provide any documentation and
receipts justifying the purchase. The Company stated that they were unable to locate records in
the Marketing/Corporate Communications area, and that due to a reorganization, the person
making this charge was no longer available. Staff has removed $480 from the Idaho tariff rider
expenses for 201,4 to adjust for this undocumented expense.
Reported Expenses
The Comparry's2014 DSM Annual Report lists expenses of $4,708,389. In Production
Request No. 1, Staff requested a listing of all expenses charged to the DSM Rider in2014 and
2015. For 2014, the Company's response provided expenses totaling $4,708,348, which is $41
less than what the Company is requesting for a prudency determination. Because the expenses
listed in the Company's response was the basis of Staff s audit, Staff cannot accept any amount
in excess of what was provided. Any expenses in excess of $4,708,348 would not have been
5STAFF COMMENTS MARCH 3O,2OI7
included in Staff s audit and therefore should be removed. Staff has adjusted the2014 expenses
by an additional $41.
Evaluation Expenses
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 provide benefits to Idaho customers by identifying cost
effective energy efficiency measures and informing measure savings, the frequency with which
these items are required in Washington is more than Staff believes necessary. Idaho ratepayers
should not pay for additional burdens placed on the Company to satisfy other jurisdictional
requirements.
Staff has routinely expressed its concem with the costs of Washington driven evaluations
since the passage of I-937. During Staff s audit in Case No. AVU-E-13-09, the Company
initiated an intemal review of its independent evaluation expenses and reallocated $89,820 from
the Idaho tariff rider to the Washington tariff rider. In the subsequent case requesting prudency
of DSM tariff rider expenses (Case No. AVU-E-14-07), Staff again expressed concerns with the
Company's evaluation expenses. At that point, the Company began allocating 20Yo of evaluation
expenses to Idaho instead of the standard 30Yo allocation for common costs.
Beginning in 2015, the Company contracted with Nexant to perform the evaluations of its
energy efficiency programs. Nexant would send the Company a monthly invoice for its services
that would attempt to identiff the amounts that should be charged to the Company's Idaho
electric jurisdiction, Washington electric jurisdiction, and Washington natural gas jurisdiction.
After noticing that 44%o of all electric evaluation work was being charged to Idaho, Staff
reviewed several hundred pages of detailed invoices from Nexant and was unable to gain any
confidence that Nexant's jurisdictional billing was accurate. Staff reviewed hours billed to the
separate jurisdictions and discovered that on several occasions, Nexant would split hourly
charges evenly between the Idaho and Washington electric jurisdictions. Other times, charges
were split evenly between the three jurisdictions. For common costs, such as travel and meals,
Nexant would also split costs evenly between the three jurisdictions when an allocation based on
energy savings and expenses would be more appropriate. It became apparent that Nexant was
6STAFF COMMENTS MARCH 3O,2OI7
unfamiliar with how Avista's regulatory jurisdictional allocations should be applied. Rather than
reviewing the allocation of costs provided by Nexant and adjusting them to appropriate
allocation percentages, the Company booked expenses according to the amounts Nexant billed
for each jurisdiction. Staff adjusted the 2015 Nexant evaluation expenses by $130,185 to reflect
the20Yo allocation previously utilized by the Company. This adjustment is only to the Nexant
evaluation expenses; Staff does not recommend an adjustment for the Company's CPA. Staff
does not dispute the prudency of the remaining approximately $180,000 in evaluation expenses
for 2015.
In the Company's previous general rate case and DSM prudency filings, adjustments
have been made and accepted to account for improper allocation of expenses to jurisdictions.
Staff recommends that the Company's regulatory department implement regular and ongoing
training with Company personnel responsible for approving payment to vendors, with a specific
focus on how and when to allocate shared expenses. Staff believes further adjustments will need
to be made when the Company requests a prudency determination on its 2016 DSM expenses
and believes the Company can preemptively address Staff s concerns prior to filing an
Application for prudency of those expenses.
Unresolved Concerns from Previous Cases
In Staff Comments on prior DSM prudency cases, Staff identified program
implementation shortcomings (Case Nos. AVU-E-13-09 and AVU-E-14-07). Since those
filings, the Company made several important changes to create DSM implementation practices
that would effectively resolve long-standing issues centering on low realization rates, tariff
compliance shortcomings, and inadequate documentation for incentive payments.
The Company's changes include creating Standard Operating Procedures for
documenting and processing project specifications and incentives, instituting peer reviews of
engineering calculations for site specific projects, and reorganizing its DSM department. The
reorganization focused on merging the program implementation staff and internal evaluation
teams into a single team which reports to the same director.
Staff carefully reviewed the Company's filing for evidence that these prior concerns havs
been adequately addressed and acknowledges that realization rates for the Company's Site
7STAFF COMMENTS MARCH 3O,2OI7
Specific program have significantly improved according to the Company's most recent impact
evaluation.
However, Staff still has concems about whether all issues have been fully resolved or
have simply been made more difficult to discem. The Company's internal audits, impact and
process evaluations, and annual DSM reports are noticeably less informative than previous
editions. For example, Avista's August 2016 internal audit of the entire DSM department
contained only high level information and in less than two pages, came to the conclusion that the
department was functioning as intended. This is in contrast to the three previous internal audits
that ranged from four to nine pages and contained much more useful recommendations about
precise concerns. The third-party impact and process evaluations conducted by Nexant followed
a similar pattern. While previous evaluations closely examined areas of concern, the 2014-2015
Nexant process evaluation states: "[n]onresidential program staff and implementers did not
report any systemic problems or issues of concern in program implementation. During the mid-
year interviews, they all stated that data tracking and reporting was adequate for their needs and
all reported smooth internal communications with one another." Roy Direct, Exhibit 2, Schedule
2,41 (Process Evaluation of Avista's2014-2015 Energy Efficiency Programs, 33).
In light of the serious issues raised in previous evaluations and prudency determinations,
Staff believes the evaluation could have provided a comprehensive review. No details of
program staff interviews were included in the report outside of this cursory summary. It is also
worth noting that as a result of the reorganization, the four-person internal evaluation team,
which had discovered many of the implementation shortcomings, was eliminated and replaced
with a single person. Although a second person has recently been added to that team, Staff does
not believe that remaining Company employees would feel comfortable providing candid
feedback about the Company's processes or performance.
In addition to the internal and external evaluations containing less useful information,
communication with Avista's Energy Effrciency Advisory Group has also become more limited.
Staff encourages the Company to keep stakeholders informed about program changes with
webinars and conference calls as developments warrant. These type of regular updates were
common in the past but have become less frequent since the re-organization. Combined with the
elimination of the internal evaluation team and the reduced evaluation quality, the Company
appears to have decreased the transparency ofits operations.
STAFF COMMENTS MARCH 3O,2OI78
Staff is also concemed that the Company's DSM Reports do not provide sufficient
information describing how programs are operated or accurately portray the expenses, energy
savings, and cost-effectiveness of Idaho programs. The annual reports do not include program
descriptions, explain delivery strategies, compare savings or participation to previous years, or
explain why program changes were made.
In addition to providing insufficient explanations for programs and program changes,
Staff identified a number of discrepancies in the Idaho Low Income Weatherization Program
section of the 2014 DSM Report. Table 3-12 of the report outlines the total expenditures of the
weatherization program on a per measure basis. Also included within the table are project
counts, realized savings, avoided costs, and costs incurred by the utility. Staff was concerned
with the over expenditure on Health and Human Safety (H&HS) measures. Per the Company's
contract with the Community Action Partnership, the program has a hard cap allowing no more
than l5% of the total $700,000 program allocation to be used for H&HS measures. The
Company reported that approximately 260/o of program funds were used for H&HS measures.
When questioned by Staff as to why H&HS expenditures were so high, the Company was unable
to provide an answer and deferred to Nexant (the contractor hired by Avista to prepare the
reports). Eventually, the Company did provide several different explanations as to how Nexant
derived its numbers. It appears to Staff that instead of using Idaho-specific data to perform its
analysis, Nexant used combined data for both the Idaho and Washington Low Income Programs
and then allocated costs, savings, etc., to the Idaho program. Upon further inspection of Table 3-
12, Staff was unable to reconcile expenditures for any measures within the table using the
Company's financial work papers that include actual program expenses provided to Staff in
Response to Staff Production Request No. 16.
On January 25,2017, the Company filed an amended 2014 Idaho Annual DSM Report to
address Staff s concerns with Table 3-12. Upon review of the amended report, Staff was able to
reconcile expenditures for all of the measures included in the table but found discrepancies in
how the Company was reporting savings. In the Company's initial filing, the Company reported
installing 3,262 CFL and LED light bulbs at a cost of $3,899. The Company also reported
53,325 kWh of savings from those same light bulbs. When the Company filed the amended
report, all expenses for light bulbs were removed but the Company kept the savings as well as
the number of bulbs installed. Savings and expenses for energy conservation measures must be
9STAFF COMMENTS MARCH 3O,2OI7
realized in the program for which they are intended. The Company cannot simply remove the
expense but keep the savings. Additionally, the measure count, avoided costs, customer
incremental costs and non-incentive utility costs should have changed, but the Company made no
changes to those items.
Staff also identified similar discrepancies in Table 3-12 in the 2015 Idaho Annual DSM
Report. Using the Company's financial work papers provided to Staff in Response to Staff
Production Request No. 16, Staff was not able to reconcile any of the expenses for measures
contained within the table. Even the total for program expenditures could not be reconciled.
Table 3-12 reports a total program expense of $608,304 and the Company's financial work
papers show a total program expense of $700,000. It is Staff s belief that the number contained
in Table 3-12 of the 2015 DSM Report does not reflect actual expenses incurred by the Company
and the table does not accurately reflect the savings of the Idaho Low Income Program.
Staff believes that it is the responsibility of the Company to understand the content and
ensure that its reports are accurate, regardless of whether it is prepared by the Company itself or
a contractor. In this case, the Company's Annual Reports were unreliable for use by Staff
because there are questions as to the validity of information contained within it. Staff
encourages the Company to review Idaho Power's and Rocky Mountain Power's Annual DSM
Reports and work with Idaho Commission Staff members to develop a more accurate and
informative report prior to the next prudency case. In addition, Staff intends to closely examine
the expenses associated with producing the annual reports included in this filing when the
Company asks for recovery of those expenses in its next prudency determination.
Residential Home Energy Reports
Avista launched a residential behavioral program through OPower in 2013. Under the
program, Opower provides each participating residential customer a monthly summary of its
energy usage compared to a sample of similar customers in similar locations. The program has
been cost-effective and well-received by customers with only 0.88% of Idaho customers opting
out of the program. However, the program ran into an unforeseen hurdle when Avista completed
its transition to a new customer service system. In that transition, Avista's new customer service
system did not connect properly to the OPower software that generates and mails home energy
reports to participants. There was no indication to either Avista or OPower that the software
STAFF COMMENTS 10 MARCH 3O,2OI7
system had not connected properly, but as a result, the OPower reports ceased being issued
around January 2015. Avista eventually became aware of the report lapse and notified its
advisory group in early May 2015. Correcting the software connection problem took longer than
anticipated, but was eventually resolved and OPower resumed issuing reports approximately six
months later.
Staff examined the financial and resource consequences to examine the impact to
customers. Although Avista continued making its contractual quarterly payments to OPower
during the report lapse, OPower has agreed to continue sending reports for an additional six
months beyond the original contract date to fulfill their program obligation. The impact
evaluation of 2015 program year found that savings were stable even during the six month report
lapse. This shows that customers were not harmed and the durability of savings supports the use
of a multi-year measure life for cost-effectiveness.
Conservation Potential Assessment
Avista has traditionally used the Total Resource Cost test (TRC) as the threshold for
electric cost-effectiveness screening in its CPA. Staff believes it would be more appropriate for
the Company to use the Utility Cost Test (UCT) for this purpose because it better aligns with the
method used to value supply side resources. Staff also believes that while reporting the cost-
effectiveness results for all tests is important, it is also important to place more emphasis on the
results of the UCT in cost-effectiveness evaluations because it more accurately represents the
value of the resource to the utility and its customers. Staff notes that Avista has requested and
been granted permission to use the UCT as the cost-effectiveness threshold for its natural gas
DSM programs and Staff notes that expanding this treatment to its electric program would align
those methodologies.
STAFF RECOMMENDATION
Based upon Staff s review of the Application and Exhibits, audit of expenditures, and
understanding of the Company's programs, Staff recommends that the Commission order that
the Company prudently incurred $9,721,985 in tariff rider funded energy efficiency expenses for
2014 and2015. Staff further recommends that the Commission establish the ending balance in
STAFF COMMENTS 11 MARCH 3O,2OI7
the tariffrider account to be $153,986 underfunded (customers owe Company) as of December
31,2015.
Respectfrrlly submitted this 3 f day of March 2017.
0";lxb Ql;---
Camille Christen
Deputy Attomey General
Technical Staff: Donn English
Stacey Donohue
Johnathan Farley
i:umisc,/commcnts/avucl 6.6o$csdkkjf commcnts
STAFF COMMENTS t2 MARCH 3O,2OI7
CERTIFICATE OT' SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 30th DAY OF MARCH 2017,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-E-I6-06, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
LINDA GERVAIS
SENIOR MGR REGULATORY POLICY
AVISTA CORPORATION
PO BO){ 3727
SPOKANE WA99220-3727
E-MAIL: linda. [e-mail]
BRAD M PURDY
ATTORNEY AT LAW
2019 N ITTH ST
BOISE TD 83702
E-MAIL: [e-mail]
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BOX3727
SPOKANE WA99220-3727
E-mail: [e-mail]
BENJAMIN J OTTO
ID CONSERVATION LEAGUE
7IO N 6TH ST
BOISE ID 83702
E-MAIL: [e-mail]
YS
CERTIFICATE OF SERVICE