IPCE01.4swtcdesmfuss.doc

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 1895

Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983

Attorney for the Commission Staff

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION OF IDAHO POWER COMPANY FOR APPROVAL OF TARIFF SCHEDULE 22, AN ENERGY BUY-BACK TEMPORARY PROGRAM FOR CUSTOMERS THAT CAN REDUCE ELECTRICAL LOADS BY AT LEAST 1000 KW.
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CASE NO. IPC-E-01-4

COMMENTS OF THE
COMMISSION STAFF

COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its Attorney of record, Scott Woodbury, Deputy Attorney General, submits the following comments.
On February 12, 2001, Idaho Power Company (Idaho Power; Company) filed an Application with the Idaho Public Utilities Commission (Commission) for approval of Tariff Schedule 22, an Energy Buy-Back Temporary Program (Program) applicable to the Company’s industrial customers, large commercial customers, and any customer capable of reducing electrical load by 1000 KW.

PROPOSAL
The Company’s proposal is for a temporary, voluntary energy buy-back program for large commercial, industrial and any other customer able to reduce load by 1,000 kW. The customer will be given a credit against their account in the amount offered by the Company for specific load curtailment, at times and amounts as agreed upon by the Company. The set of hours and times that the customer is given an opportunity to exchange electric load for Exchange Credit is called an Exchange Event. It is anticipated that Exchange Events will occur during times of peak usage and high anticipated energy costs. Exchange Events must be a minimum of two hours. Customers will be provided notice on the day, day ahead, or two days ahead of an Exchange Event. The Company will offer a Bid Price to the customer for the Exchange Event and each exchange event could have a different Bid Price and there can be multiple Exchange Events in any given day. Customers can then make their own economic evaluation to curtail and participate in the Exchange Event. When the Company and the customer agree to the Exchange Event, the customer will be credited for the Exchange Credit for recorded load reduction within 15% of the agreed upon load reduction. Customers will be notified of the results within four working days of the Exchange Event, and the Exchange Credits will be credited to the customer’s account within 45 days of the Exchange Event. Notification to customers will occur through a secure Internet site as well as by other means. The program is a temporary program that is proposed to expire March 14, 2002.

STAFF ANALYSIS
Need
Lower than normal precipitation has led to projected below normal streamflows in the Snake River and its tributaries. The low streamflows limit the Company’s ability to meet domestic load with its hydro resources. Idaho Power is now in a position where costly spot market purchases will be required to meet the projected demand. Staff supports this program which is a positive way for the Company to economically meet the energy needs of its customers.
Bid Price
Bid Price appears to be the largest unknown in this program. The Company’s states, ”In most cases the Bid Price will approximate 50% of the wholesale market price.” The inherent variability of the Bid Price provides an opportunity for the Company to minimize the cost of purchase power. Since the Company states "approximately", Staff must assume that the offered Bid Price will be a prudent decision. Staff is concerned that if "approximately" becomes "literally", the Company could still be paying more than necessary for purchase power. If the Company experiences market prices similar to the summer of 2000, the wholesale market price for power could spike to over $3000/MWh. In the case of extremely high prices and with the opportunity for multiple Exchange Events and Pricing, the Company could offer Bid Prices lower than 50% of the wholesale market and achieve sufficient load reduction. It may also be the case that to optimize load reduction, more that 50% may be offered and the program still may make economic sense. Staff is unable at this time to determine what the appropriate Bid Price or percentage should be. Staff recommends that the Company continuously evaluate the program to determine the optimum Bid Price that is most beneficial to all ratepayers.
Internet Vendor
The Company proposes to use Apogee Interactive Inc. to provide Internet software and support for the program. Apogee offers the service under the brand name Demand Exchange or DEMX. Several other Northwest utilities use Apogee for secure DEMX Internet sites including Portland Gas & Electric, PacifiCorp, Utah Power & Light, Bonneville Power Administration, Snohomish P.U.D. and San Diego Gas & Electric. The vendor, in Staff's estimation, has a sufficient track record to assure it can accomplish the tasks required.
The Company’s cost for the Vendor’s services is $23,500 which not only includes operating the internet site but also monitoring the base load data and the Customers load reduction. Apogee also monitors customer load data for anomalies that might be indicative of gaming. The flat rate fee is set for up to 10 Customer Participants and a maximum of 10 Exchange Events. Additional Exchange Events are priced at $100 per customer reconciliation. Based on 10 Exchange Events the cost per Exchange Event is $2,350. As the number of Exchange Events increase the cost per Exchange Event or per MWh saved, decreases, and will approach $50 / MWh. The Company reports that over 150 MW curtailments have occurred in a single event in similar sized utilities. Staff believes the costs of Internet software and services provided by Apogee for the program are reasonable given the anticipated market price of power and the potential for energy savings.
Participation
The conditions for participation appear to be reasonable. The conditions for the program are the following:
Customers must be able to reduce electric load by at least 1,000 kW. The 1,000 kW is less than found in other programs and should allow for a reasonable number of qualified participants. At the same time, the amount is high enough to keep the administrative costs reasonable.
Customers are required to remain in the program for one year or pay for expenses incurred to establish it into the program. Customers are also required to pay for costs associated with any load monitoring and communications equipment necessary to participate in the program. This criteria limits the burden on ratepayers should an individual company start the program and withdraw without providing benefit.
The program will not affect the calculation of Demand, Customer, Basic, or Facility
Charges. Ratepayers are therefore not supplementing other costs not associated with the program.
The Company requires a hold harmless agreement to participate. The agreement will
protect both the Company and ratepayers from undue harm due to possible extenuating circumstance (i.e. equipment damage that may occur during start up).
If the customer is interrupted due to Company emergencies or for reasons outside the
control of the Company, the terms of the Schedule are not applicable. This will protect the Company from free riders during an emergency.
The Company has set a program participation limit of ten customers. Since the response to the program is unknown and the Company has set a limit of ten customers, which matches one of the payment thresholds of the Internet vendor. Staff recommends that the Company provide Staff read only access to the secure Internet site to observe program performance. Staff recommends that the Company submit a program performance summary report to allow review following the completion of the pilot program. The Company is encouraged to increase the number of participants during the life of the program, if a positive benefit for ratepayers can be demonstrated and additional willing customers are interested in participating.
Customer participation is voluntary. Customers signed up for the program have the choice to reduce their load based on the bid price and the Customer’s own circumstances. There are no requirements for additional mandatory load reduction or mandatory curtailment built into the program.

Control
Customers are required to have a meter provided by the Company that is capable of recording usage for reading intervals no greater than 60-minutes. The majority of Customers that are eligible to participate in the program already have 15-minute meters. The Company has set the 60-minute interval meter due to cost of installation on the remaining few Customers that may choose to participate in the program. Though Staff recognizes that the 15-minute interval meter provides better tracking of load usage, the meters and efforts by Apogee should provide sufficient control for the program.
The Company has also set a settlement time of no more than four days and Exchange Credit is to be provided within 45 days from the Exchange Event. The known timeframes built into the program should provide both the customer and Company information for speedy conflict resolution.
Free Riders
Free riders are a potential problem with programs of this nature. The Company’s proposal incorporates historic usage as the basis for determining load reduction. With historic usage to measure energy savings, the Company can take into consideration not only the prior two weeks of usage but also any seasonality and thereby limit the amount of free riders in the program.
Allocation
The Company proposes to allocate costs and benefits of the program in the same manner as the Company’s power supply expense in Account 555 and allocate to customers according to the existing power supply expense allocators. Staff recommends sub-accounts be established to specifically track this program in detail which should include all supporting documentation including costs for each buy-back program and any lost revenue amounts. The PCA filing should also include a separate line to identify these costs. The allocation is consistent with other programs of this nature for the purchase of power supply.
Accounting and Ratemaking Treatment
The Company states in its filing, “The commencement of this program is dependent upon Idaho Power being assured that it will be entitled to recover through retail rates the payments that the Company will make to customers participating in this Program and that the Company will also be entitled to recover through retail rates its lost revenues resulting from the implementation of this program.”
Ratemaking Treatment for Payments to Participants
The Company should recognize that Staff’s current review of the program is not a prudency review and it is anticipated that prudency of the program will be consistent with other program evaluations and will be performed on the results and not strictly on the validity of the proposal. The Bid Price for purchase power is not fixed in all cases for this program and is undeterminable at this time by Staff and the Company due to the inherent wholesale market variability. In so far as the purchase of power at the rates the Company pays the program participants is found to be prudent then the payments to customers will likely be entitled to be recovered through retail rates. Staff believes that it is only through hindsight that anyone will know exactly the value of the program.
Recovery of Lost Revenues
Idaho Power, in Case No. IPC-E-01-3, requested authority to acquire reductions in electrical demand and associated consumption of electrical energy from irrigation customers. In that case, the Commission ordered that revenue impacts of the Program be treated as a purchased power expense in the Power Cost Adjustment mechanism. The Commission also required Idaho Power and the parties to develop and present a proposal to the Commission recommending a procedure to calculate the appropriate amount of revenue impact that should be passed through the Company’s Power Cost Adjustment mechanism. Reference ON 28676.
Staff believes that the savings due to the Schedule 22 Energy Buy-Back program will provide a more definite result than that of the Irrigation Program. Staff recommends similar accounting and regulatory treatment for the two programs.

STAFF RECOMMENDATION
Staff recommends approval of the program and makes the following additional recommendations:
The Company shall include sub-accounts in the purchase power Account 555 to specifically track the program.

2) The Company shall provide Staff read only access to the Secure Internet Site.

3) The Company shall provide a summary program performance report following the
completion of the pilot program.

4) The Company continually work within the system by modifying Bid Prices to
develop the most economic power purchase decisions.

Respectfully submitted this day of March 2001.

___________________________
Scott Woodbury
Deputy Attorney General

Technical Staff: Michael Fuss
Dave Schunke

SW:MFuss:DES:gdk:i:umisc/comments/ipce01.4.swtcmfussdes
STAFF COMMENTS 6 MARCH 14, 2001