20011017Decision Memo.doc

DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
JEAN JEWELL
RON LAW
GENE FADNESS
BILL EASTLAKE
LOU ANN WESTERFIELD
RANDY LOBB
DON HOWELL
LYNN ANDERSON
BEV BARKER
DAN GRAVES
TONYA CLARK
WORKING FILE

FROM: LISA NORDSTROM

DATE: OCTOBER 17, 2001

RE: IN THE MATTER OF THE INVESTIGATION OF IDAHO POWER COMPANY’S DEMAND-SIDE MAMAGEMENT PROGRAMS AND FUNDING, CASE NO. IPC-E-01-13.

In Idaho Power PCA Order No. 28722 issued on May 1, 2001, the Commission opened a demand-side management (DSM) docket in IPC-E-01-13. Citing current market volatility and the opportunity to foster long-term conservation, the Commission directed the Company to “file a comprehensive DSM program by August 1, 2001 that details program structure, potential conservation measures to pursue and funding options that include a tariff rider.” Order No. 28722 at 21. In particular, the Commission directed the Company to “consider addressing conservation proposals for residential customers in the highest block rate that typically use electric space heating.” Id.
IDAHO POWER’S DSM COMPLIANCE FILING
On July 31, 2001, Idaho Power submitted a DSM Compliance Filing (Filing) as required by Order No. 28722. The Filing lists potential conservation measures that were initially reviewed by the Company. Id. at 4.

1. Proposed DSM Programs
For residential customers, these measures include compact fluorescent (CFL) bulb coupons, Energy Star appliance incentives, high efficiency air conditioner/heat pump rebates, weatherization loan buy-down program, duct sealing, new construction market pull efforts and low-income assistance enhancements. In the commercial and industrial sectors, Idaho Power reviewed Vending Miser technology, commercial CFL bulb coupons, reduced air movement incentives, LED traffic lighting incentives, BacGen incentives, building tune-up programs, lighting acceleration programs, small retrofit programs and projects customized to individual customers. For irrigation customers, Idaho Power has considered existing system modifications and new system improvements. Estimated total resource costs for these programs range from 0.6 cents/kWh to 4.9 cents/kWh.
2. DSM Revenue Recovery
Idaho Power believes a tariff rider that provides for the recovery of expenses on an ongoing basis is the appropriate mechanism for program funding because it provides energy efficiency continuity while eliminating budgeting concerns and regulatory risk. Id. at 6. The Company proposed a two-year Rider that would generate approximately $2.6 million in annual revenue, which would result in a 0.5% surcharge of operating revenues. Id. at 8. The Rider would increase the average residential monthly bill by approximately $0.28. Moreover, it would increase the Company’s total efficiency spending as a percentage of revenue close to 1.0%, as compared to the Northwest investor-owned utility average of 0.7% and Avista Corporation’s recently approved 1.95%. Id. at 7 and 9. The Company states that this funding would match all anticipated Program costs including education, incentives, administration, research and evaluation. Id. at 8.
3. Energy Efficiency Advisory Group
In conjunction with the implementation of a Rider and its comprehensive Energy Efficiency Program, the Company recommends the creation of an “Energy Efficiency Advisory Group.” The primary purpose of this group would be to advise the Company on new measure recommendations, existing measure revisions, measure prioritization, and evaluation. This advisory group would be made of community members eligible for the Rider’s services, Commission Staff, Company employees and technology specialists. Idaho Power states although the Advisory Group will provide recommendations, the Company will make all final decisions on energy efficiency programs. Id. at 11.
COMMENTS
In Order No. 28839 issued on August 30, 2001, the Commission solicited public comments on Idaho Power’s DSM compliance filing. As of October 15, 2001, 25 private citizens submitted comments in this case. While five of these commentors were opposed to a 0.5% increase, 9 of the 20 individuals who favored implementation of DSM programs requested that this funding tariff was too low and should be increased from 1.5% to 3% over a three-year period. Idaho Power DSM programs. The Commission had also received four filings from organizations in addition to those submitted by Commission Staff. These comments are briefly summarized as follows:
1. Micron Technology (Micron)
Micron opposes disproportionate reliance on conservation programs that seek primarily long-term “market transformation” and supports greater emphasis on immediate or short-term conservation measures. Because NEEA cannot identify any savings for over half of its projects, Micron believes Idaho Power’s funding for NEEA should be immediately curtailed and redirected to operate Idaho-based conservation efforts. Moreover, Idaho Power should implement supply-side conservation measures that improve the efficiency of the transmission system. Micron supports the Company’s proposal to create separate accounts for large customers from which self-directed conservation programs can be funded. However, if self-directed programs are implemented, the governing approval procedures must be efficient and require the Company to approve or reject a conservation proposal within 30 days. Finally, Micron agrees with Idaho Power that expenses should be recovered on an ongoing basis.
2. Industrial Customers of Idaho Power (ICIP)
The ICIP generally supports Idaho Power’s compliance filing with several modifications. First, NEEA funding should focus on short-term conservation acquisition rather than long-term market transformation. “Self-funding” custom industrial conservation program proposals should be deemed “approved” if the Company does not respond with 30 days after submission. When implementing the actual budgets allocated to industrial and commercial classes, each class should receive conservation resources in an amount equivalent to the funding they respectively provide rather than be lumped together. The ICIP approves of a professionally run and formally organized Advisory Group that does not provide residential ratepayers with a decisive voting majority. Finally, the ICIP supports use of a tariff rider to recover implementation costs, but does not suggest a specific amount.
3. Natural Resources Defense Council (NRDC)
The NRDC supports the proposed tariff rider as a mechanism for continued funding, but recommends that it be extended with review through at least 2004. The Council is concerned that proposed funding level too low to implement all of the proposed programs and requests that Idaho Power increase its investment levels to be comparable with those of Avista. To better encourage investments in clean and affordable energy by breaking the link between kWh sales and utility revenues, the NRDC urges the Commission to strongly consider modifying current rate design through decoupling, revenue indexing, revenue-per-customer, etc. Finally, the Council advocates adoption of an aggressive implementation, measurement and evaluation schedule.
4. Idaho Rural Council, Idaho Rivers United Northwest Energy Coalition and Mary McGown (Intervenors)
The Intervenors recommend the Company initiate an independent study evaluating all cost-effective DSM opportunities in its service territory and submit a detailed “DSM Plan” for IPUC/public review 90 days after approval of initial program. The Intervenors also advocate increasing the tariff rider funding level to 1.5% initially, ramping-up to 3% over a 3-year period to be effective indefinitely. They disagree with Idaho Power’s June 2001 public opinion survey regarding customer willingness to fund DSM programs and believe the Company should conduct deliberative polling to elicit informed public opinion on rates, energy supply, energy efficiency and renewables for development of its next IRP.
The Intervenors recommend the Commission initiate proceedings to evaluate establishing DSM performance-based incentives or a de-coupling mechanism like PGE’s “Energy Efficiency Adjustment.” In regard to the Energy Advisory Group, the Intervenors believe that it should be comprised of: (1) one member from each rate class; (2) Commission Staff; (3) Company staff; (4) a member appointed by the Community Action Agencies; and (5) a member appointed by the Northwest Energy Coalition. Noting that the Company’s filing provides only preliminary discussion of major DSM measures, the Intervenors insist that more information is needed to determine the most cost-effective strategy for DSM implementation in the long-term.
5. Commission Staff
Staff approves of the Company’s proposed tariff rider surcharge amount ($2.6 million annually or a 0.5% increase) on a pay-as-you-go basis. However, Staff is concerned that use of the Advisory Group may delay DSM program implementation and should also include community action and housing authority representatives. Staff also cautions that utilities often have conflicts of interest with DSM programs and that the Commission may need to monitor the programs.
Staff’s more specific comments suggested that four (including the non-participant cost-effectiveness test) tests be used to screen potential DSM projects. Although the Company’s menu of DSM programs is a starting point, Staff believes that time-of-use metering and rate options were missing. Staff recommends that Idaho Power develop appropriate low-income specific measures. Finally, Staff noted that the Commission may wish to consider whether Idaho Power should notify each of its customers of the proposed DSM surcharge and extend the comment deadline.
6. Idaho Power Company’s Reply Comments
On October 12, 2001, Idaho Power filed reply comments. In regard to time of use and decoupling issues, the Company believes the Commission intended this proceeding to examine traditional conservation programs, not rate design issues. To balance the need to quickly implement programs before the winter heating season with the need for the Advisory Group to review customized programs, Idaho Power recommends that it be authorized to implement some programs once the Rider is implemented, in advance of the Advisory Group’s creation. The Company does not recommend utilizing the non-participant cost-effectiveness test, as it is expensive to prepare and sheds little light on decisions about DSM programs. Idaho Power also offered to notify customers in their billing envelopes of a potential DSM rate increase or extended comment period if the Commission determines such notice is necessary.
COMMISSION DECISION
1. Does the Commission wish to select specific DSM programs to implement prior to the winter heating season?
If so, which programs should be selected?
If so, how should these programs be funded?
If so, how does the Commission wish to address the Company’s recommendation to create an Energy Efficiency Advisory Group?

If not, what further process is needed to facilitate a Commission decision?
2. Does the Commission want a customer notice to be issued that notifies customers of the potential rate increase to pay for these proposed DSM programs?

Lisa D. Nordstrom
M:IPCE0113_ln2
DECISION MEMORANDUM 6