20041223Workshop 5 Summary.pdf

Assessing Financial Disincentives and Resolution Opportunities Workshop
ASSESSING FINANCIAL DISINCENTIVES AND
RESOLUTION OPPORTUNITIES, WORKSHOP Idaho Public Utilities Commission
Office of the SecretaryRECEIVED
DECEMBER 13, 2004, 9:00 A.M. TO 12:00 P.
CONFERENCE ROOM 6 EAST, IDAHO POWER CORPORATE HEADQUARTERS, BOISE, ID
Facilitation
Documentation
DEC 2 2 2004
Susan Hayman, North Country Resources , Inc.
Natalie Chavez, Chavez Writing & Editing, Inc.Boise, Idaho
WORKSHOP OBJECTIVES
1) Review and finalize proposals for
a) Refined true-up mechanism simulation
b) Performance-based mechanism pilot program
2) Finalize the status report for submission to the IPUG by December 15, 2004
3) Determine the final report timelines and responsibilities
ACTION ITEMS
When?What?
Prepare the application for the pilot project and
circulate it to the work group for review and
comment.
Refine the simulation proposal (and retrospective
analysis) and circulate it to the work group for review
and comment.
Draft final report and circulate it to the work group for
review and comment.
File pilot application with the IPUC
Who?
Lynn Anderson , IPUG, and
Idaho Power
February
Mike Youngblood, Idaho
Power; Bill Eddie
Advocates for the West;
and Ralph Cavanagh
NRDG
Bill Eddie, Advocates for
the West
January 14
January 14
Idaho Power Mid-February
WORKSHOP INTRODUCTION
Susan Hayman , North Country Resources, welcomed participants to Workshop #5 (Appendix 1),
reviewed workshop objectives (above), and then reviewed the agenda (Appendix 2). Because Bill Eddie
Advocates for the West, was expected to be a little late, presentations for the true-up mechanism
simulation and performance-based mechanism pilot were switched on the agenda.
Before participants moved on to the first presentation , David Hawk, J.R. Simplot Co., congratulated
Ralph Cavanagh for being chosen to sit on the National Commission on Energy Policy. Hawk also shared
that two natural gas utilities in the Pacific Northwest were looking into decoupling approaches, a situation
that he found interesting given the context of these workshops.
PROPOSAL REVIEW
Performance-Based Mechanism Pilot
Susan Hayman distributed the draft proposal from Darlene Nemnich, Idaho Power, regarding the DSM
fixed-cost revenue recovery and performance incentive pilot. Nemnich reviewed the document, which is
Summary of the December 13, 2004, Workshop
Assessing Financial Disincentives and Resolution Opportunities Workshop
included as Appendix 3. Essentially, Idaho Power proposes to use the Energy Star Homes Northwest
program for the pilot. This program , which is already included in the Integrated Resource Plan will be
implemented by three parties: the Northwest Energy Efficiency Alliance, Idaho Energy Division (a state
office), and Idaho Power. Idaho Power provides an incentive to a builder for meeting a standard set at
approximately 30% above existing Idaho residential building codes , lED qualifies that homes are built to
the standard and conducts quality assurance, and NEEA provides the builder outreach and training
components of the program. This program was started at a very small scale in 2003-2004 (30 to 40
homes), but this implementation of it is 10 times the size (430 homes).
Nemnich also reviewed how savings would be established and verified, how the fixed-cost revenue
requirement would be calculated, and then how the DSM incentive would be calculated. Establishing and
verifying savings would be a two-step process. At the beginning of the pilot, a review would look at
assumptions and identify original savings estimates based on engineering estimates derived from a 2004
Idaho Power study by Ecotope. The review group would also determine any studies to be conducted to
firm up uncertainty and get closer to validating savings by the end of the pilot. Evaluation costs would be
included in program costs but would not exceed 5% of these costs. The second step would be to do any
evaluations that the review group deemed necessary and determine the validated savings estimates. If
the validated savings estimates differed from the original savings estimates, a new cost-effectiveness
analysis would be completed and the program ended, modified, or extended. The validated savings
estimates would feed into calculations of the fixed-cost revenue requirement. Then DSM incentives could
be calculated. These incentives would be earned when at least 1100/0 of the applicable DSM threshold
was met. She showed three possibilities for thresholds. Nemnich proposed that the pilot be conducted for
calendar year 2005. Validated energy savings and DSM incentives would be calculated by March 31
2006, and submitted to the IPUC for review. Then the total fixed-cost revenue requirement and incentives
could be collected from June 2006 through May 2007.
Following her explanation, she answered questions and addressed comments. Flipchart notes regarding
the discussion are included in Appendix 4. The following issues were raised during the discussion:
Calculation of incentive-The second threshold listed in the proposal should be "10% c::: target"
rather than "1 0% ~ target." Participants preferred the option for MWh reduction , with the threshold
being 10% greater than target and the incentive calculated as 100/0 of net annualized savings.
Persistence of the net benefit-Cavanagh suggested an approach that would enable evaluation of
the durability of savings. For example, Idaho Power could be paid 100/0 of the first year s annualized
savings, with an additional incentive paid at year three to reflect the annualized net benefit for the
additional 2 years of savings. It is important to verify that savings are ongoing and energy
improvements are still in place.
Maximum incentive-It may be beneficial to know the "maximum hit" and consider whether a cap is
needed. The incentive is a percentage so it can increase with additional success.
Effect to other DMS programs-The incentive might cause Idaho Power not to pursue other
programs as aggressively as it could. On the other hand, incentives are designed to motivate. If this
pilot works while other programs do not, it's safe to say that incentives work.
Basis for program budget-Incentives were not originally calculated into the program budget since
this program was already planned for implementation. Nemnich thought that the evaluation costs
could remain roughly the same, at $25,000.
Adequacy of existing building codes-To earn the $750 incentive, program participants have to
show that the house meets the prescriptive building standard. These codes are relatively new and
therefore hopefully adequate. However, enforcement is a problem, which is why utilities should be
involved. Their involvement through DSM programs provides incentives for builders to meet or
exceed code.
Inclusion of manufactured housing-The program as is may favor higher income households.
Inclusion of manufactured housing would likely broaden the economic scope of the program. Different
building codes and standards apply to "stick built" homes than to manufactured homes. Nemnich
commented that another DSM program was aimed at manufactured homes. She will look into
combining the two programs for the pilot.
Summary of the December 2004, Workshop
Assessing Financial Disincentives and Resolution Opportunities Workshop
Collaboration between the IPUC and Idaho Power-Much of the discussion focused on details that
need to be worked out for filing regarding the pilot program. Ric Gale , Idaho Power, suggested that
IPUC and Idaho Power staff collaborate on the filing, work out the details, and e-mail the proposal for
review and comment.
True-Up Mechanism Simulation
Simulation Spreadsheet
Mike Youngblood distributed copies of two handouts: an Excel spreadsheet set up to simulate the fixed-
cost recovery true-up mechanism and a table showing fixed-cost lost revenue per MWh by customer
classes (Appendix 5). The first page of the Excel spreadsheet included those schedules of customer
classes that would be trued up according to customer counts, while the second page included those
customer classes trued up according to forecast sales in the IRP. On the first page, Youngblood had split
large commercial and small commercial because the total fixed-cost loss per MWH differed for these two
schedules (see the table in Appendix 5). Large commercial customers have demand meters in place and
a demand component in their bills. So more of the fixed costs associated with these customers are
captured somewhere besides variable costs. Cavanagh commented that Eddie s proposal trues up
demand revenues as well as kWh revenues. Youngblood agreed to think more about the issue of truing
up demand revenues.
Youngblood then explained how the simulation is set up, using residential customers on the first page and
industrial on the second page as his examples. Blue zeroes will eventually be substituted with real
numbers. On the first page, the actual customer count (column 2) is multiplied by $371.92 (fixed-cost
recovery per customer) to calculate the authorized fixed-cost recovery (column 3). To calculate the actual
fixed-cost revenue recovered (column 5), weather-normalized energy (column 4) is multiplied by $30.
(fixed-cost recovery per MWh). Column 6 shows the difference between amounts in columns 3 and 5.
This is the amount of true-up. Actual customer count may be year-end or average, depending on which
approach was used in the rate case. Youngblood will look that up, although he used year-end customer
count for this spreadsheet.
For industrial and irrigation customers, forecasted energy (column 2) is multiplied by $2.44 (the fixed-cost
recovery per MWh) to calculate the allowed fixed-cost recovery. Once known, weather-normalized energy
use (column 4) is multiplied by the same amount to calculate the actual fixed-cost revenue recovered.
Again , the difference between columns 3 and 5 constitutes the amount of true-up needed. Although the
simulation was originally intended for 2005, Youngblood included 2004 in the spreadsheet since those
numbers will soon be available (March 2005). Per Bill Eddie s proposal , he will include 1994 to 2004
numbers to see what would have happened to customers' rates over the last 10 years with a true-up
mechanism in place.
Simulation Proposal
Bill Eddie spoke about the proposal he had e-mailed to participants on behalf of the Northwest Energy
Coalition. The proposal is included in Appendix 6, while flipchart notes regarding the simulation are
included in Appendix 7.
The first page is a recap of information provided in earlier meetings. Cavanagh commented that truing up
demand charges is not explicit on this page but should be. The second page spelled out details of the
simulation. For item 2, they used the Northwest Power and Conservation Council number of about 0.
sales annually for assumed level of efficiency savings. Although that number is not accurate for 1994, it is
fairly close and can be applied retroactively. Item 4 identifies some parameters to analyze to illuminate
results of the simulation. Eddie said that other parameters could be looked at as well if people had ideas.
Items 5 and 6 are procedural in nature. He would like to see the retrospective analysis included in the
final report in January. Eddie added that he d like to see more frequent analysis of the true-up simulation
but given that only the year-end numbers would be "truth numbers," monthly checks may not be possible
or informative.
Don Reading asked how the simulation would account for the state s efforts at buying water and retiring
land. Eddie didn t believe that these actions would manifest during the simulation. The next IRP would
Summary of the December 2004, Workshop
Assessing Financial Disincentives and Resolution Opportunities Workshop
consider those activities in its forecasted sales. Anomalies will run through the system , and the simulation
may show the effects of these anomalies.
Eddie, Youngblood , and Cavanagh will refine the simulation proposal, run the retrospective analysis, and
send both out for review and comment in time for inclusion in the January report.
IPUC REPORTS
Status Report
Bart Kline, Idaho Power, provided copies of the redlined status report to the Idaho Public Utilities
Commission (Appendix 8). He commented that a word in the first full paragraph of page 2 ("believes ) will
be changed to "stated." Hayman added that numbered agreements listed in the "Progress" section have
been revised for wording only: the content is the same. Other changes include the following:
In the list of participants, Greg Said's affiliation should be identified as "Idaho Power.
Laura Nelson should be identified as "IPUC Advisor" or something rather than "IPUC Staff." The
Commissioners know that she is coming to the meetings, but she would like it clarified that she is not
entering into any agreements on behalf of the IPUC.
The document will be signed and ready for submission by Wednesday, December 15.
Final Report
At the December 1 workshop, Bill Eddie agreed to coordinate work on the final report. The deadline for
submission is January 31 , 2005. Eddie will e-mail the draft to participants two weeks in advance
(January 14) for review and comment. Participants reviewed the outline developed at the November 8
workshop (see Appendix 9). IPUC staff will help with the first section (history of the issue). The third
section (conclusions and recommendations) will have next steps and discuss the pilot and simulation.
Summaries of the workshops will be included to support the report. The filing for the proposed pilot
program will be submitted in mid-February, but the final report will "lay the groundwork" for the filing. Lobb
agreed to see whether the Commissioners had any additional concerns that might need to be addressed
in a presentation.
NEXT STEPS
Follow-Up Workshop
Participants decided that no follow-up workshop is necessary for January. However, they tentatively plan
to meet again in midsummer to review the status of the pilot and simulation.
Monitoring Plan for Pilot and Simulation
Hayman asked that people forward ideas about evaluation and monitoring to those participants charged
with developing the final documents. She also reminded them about the evaluation criteria that the group
had developed at the December 1 workshop. For the simulation, monitoring means communicating
results to work group members. Ultimate conclusions from the simulation will be worked out in the rate
case.
WRAP-UP AND WORKSHOP EVALUATION
Hayman reviewed action items (Appendix 10). She also reviewed information in the bin: a couple of gas
utilities in the Northwest looking at decoupling and a suggestion to poll customers for their "appetite" for
conservation. Idaho Power is willing to let David Hawk provide details about such a poll.
Hayman also requested that participants evaluate the workshop series. She recorded what worked and
what concerns still exist (Appendix 11). For the most part, participants felt that the process worked well
Summary of the December 2004, Workshop
Assessing Financial Disincentives and Resolution Opportunities Workshop
members were open and honest, and more headway was made than people expected. People did feel
that this series of workshops was just the beginning, and efforts needed to continue into the future.
ApPENDIX 1-PARTICIPANTS
(Shading indicates work group participants unable to participate in person or by phone.
Name and Affiliation
Lynn Anderson , IPUC
Maggie Brilz, Idaho Power
Name and Affiliation
Laura Nelson , IPUC
Darlene Nemnich, Idaho Power
Peter Richardson , Industrial Customers of Idaho
Ralph Cavanagh , Natural Resources Defense
Council
Bill Eddie, Advocates for the West
Ric Gale, Idaho Power
Don Reading, Ben Johnson Associates
Greg Said, Idaho Power
David Schunke, IPUCDavid Hawk, J.R. Simplot Co.
Bart Kline, Idaho Power
Randy Lobb, IPUC
Tim Tatum , Idaho Power
Mike Youngblood, Idaho Power
Scott Woodbury, IPUC
Summary of the December 13, 2004, Workshop
Assessing Financial Disincentives and Resolution Opportunities Workshop
ApPENDIX 2-AGENDA
ASSESSING FINANCIAL DISINCENTIVES AND
RESOLUTION OPPORTUNITIES
WORKSHOP #5
December 13, 2004
9:00am-12:00pm
Confarence Room 6 East
Idaho Power Corporate Headquarters
Boise, Idaho
Objectives:
1) Review and finalize proposals for:
a. Refined true-up mechanism simulation
b. Performance-based mechanism pilot program
2) Finalize the status report for submission to the IPUG by December 15, 2004.
3) Determine the final report timelines and responsibilities
Final Agenda
(breaks will be taken when most convenient for the group)
Time Topic Process
8:45am Coffeerrea available in meeting room
9:00am Welcome/Introductions/Meeting Overview - Susan Hayman Information
9:15am Proposal Review Presentation
True~up mechanism simulation - Mike Youngblood Discussion
Decision
Performance-based mechanism pilot - Darlene Nemnich
Timeline and process for submission to IPUG - Idaho
Power
0:30am IPUC Reports Discussion
Update on the status report - Bart Kline
Final report preparation - Bill Eddie
Timelines
Responsibilities
11 :OOpm Next Steps Discussion
Follow-upworkshop in January - Susan Hayman
Is it needed?
Monitoring plan for pilot and simulation - Group
When should this be prepared?
Who should be assigned this task?
11 :45pm Wrap-up and Evaluation - Susan Hayman Discussion
12:00pm Adjourn
Summary of the December 2004, Workshop
Assessing Financial Disincentives and Resolution Opportunities Workshop
ApPENDIX D RAFT PILOT PROGRAM
DRAFT
Proposal for DSM Fixed-cost Revenue Recovery and Performance IncelltivePiiot
12/13/04
Proposed:Program for Pilot
The Energy Star Homes Northwest program is the program proposed to acquire
the resources identified in the Residential New Construction Option in the 2004 IRP and
is proposed as the program for this pilot. This program was developed by the EP A/DOE
the Northwest Energy Efficiency Alliance and PNW electric utilities. Idaho Power
piloted this program with the Alliance in 2004. There are three implementation partners
for this program in the Idaho Power service territory; the Alliance, Idaho Energy Division
(lED) and Idaho Power.
The essential feature of this program is a prescriptive building standard, also
called a builder option package or BOP, that is set at approximately 30% above existing
Idaho residential building codes. Idaho Power provides an incentive to the builder for
each home built to the standard and provides marketing for the program. IED qualifies
that homes are built to the standard and conducts a quality assurance process. The
Alliance provides the builder outreach and training components of the program.
Idaho Power s program budget for 2005 is $502 400
Estimated 2005 kWh savings is 1 070 000.
2005 participation estimated at approximately 430 homes.
Establishing and verifying savings
Original Savings Estimates
As close to the beginning of the pilot as possible, Idaho Power proposes to
establish an Original Savings Estimate. This estimate, measured in kWh per month per
qualified house, represents the estimated reduction in customer usage between a program
house and a non-program house. This estimate will be determined through a
collaborative, peer-review process. The Energy Efficiency Advisory Group or a sub-set
of the EEAG could be used for this purpose. Engineering estimates will be the primary
method for detennining savings estimates. An engineering simulation study, conducted
Summary of the December 2004, Workshop
Assessing Financial Disincentives and Resolution Opportunities Workshop
for Idaho Power in early 2004 by Ecotope to estimate program savings in Idaho will be
used as a basis for the collaborative review.
This review group will also determine what assumptions should be tested, ifany,
during or at the end of the pilot to validate the savings estimates. Cost-effectiveness of
the program will be calculated using these estimates. Evaluation costs of the pilot
program will be recovered by the DSM rider, will be included in the cost-effectiveness
calculation and will not exceed 5% of total program costs.
Idaho Power will review the program costs with the review group. Program costs
shall include the cost of planning, developing, implementing, monitoring and evaluating
DSM programs.
Validated Savings Estimates
At the end of the pilot period the collaborative review group will review any
evaluations compiled during or at the end of the pilot and determine a Validated Savings
Estimate per home. Total program savings will be determined by multiplying Validated
Savings Estimate per home by the actual program participation. If the Validated Savings
Estimates are different than Original Savings Estimates, a new cost-effective analysis will
be completed and the program may be ended, modified or extended.
Calculation of Fixed-cost Revenue Requirement
For the pilot period, the Validated Savings Estimates (in MWh) will be
multiplied by the total fixed-cost per MWh for purposes of determining the total fixed-
cost revenue requirement to be recovered. For this pilot the residential total fixed-cost
per MWh is estimated at $30. 14/MWh. Total fixed-cost revenue requirement will be
calculated using the Validated Savings Estimates iITespective of whether program goals
are met.
Calculation of DSM Incentive
DSM Incentives are earned by Idaho Power when at least 110% of the applicable
DSM threshold is met. Energy savings thresholds are calculated by multiplying the
Summary of the December 2004, Workshop
Assessing Financial Disincentives and Resolution Opportunities Workshop
Original Savings Estimate by original participation goals in the calculation of an
incentive. There are three possibilities for this program:
Threshold
MWh reducti on 1. O%:?target
Idaho Power $/kWh 1.0%:?target
Number of part.10%:?target
Incentive
0% of net $ savings
5% of program costs
5 % of program costs
The total fixed-cost revenue requirement and incentives will be quantified and
submitted for Commission review in a time frame that allows for collection during a 12-
month June 2006 through May 2007 timeframe.
Timeframe for PiIot
Idaho Power proposes the pilot timeframe be calendar year 2005. Determination
of Original Savings Estimate will be determined soon after approval of this pilot by the
Idaho PUC. Detem1ination of Validated Energy Savings, fixed-cost revenue requirement
and DSM Incentive will be calculated by March 31.2006.
ApPENDIX 4-FuPCHARTS REGARDING THE PILOT PROGRAM
Pilot Program Discussion
1) What is expected payment and max payments?
2) How much incentive is paid, and how much fixed
costs recovered. This is focus of pilot. Cost
effective is considered too.
3) For pilot, incentive % is fixed, but payments based
on total savings.
4) Incentives are included in program budget
($750/home)-much of program budget is
devoted to builder incentives.
Refinements to Pilot Proposal (cont.
2) Include manufactured housing in with "stick
built"though codes not the same, still incent to
build above code (look at 2 different validated
estimates, etc.
3) IPC-IPUC staff will work to refine incentives, and
look at durability incentive-joint application
Refinements to Pilot Proposal
1) First incentive
Pay 10% of first year s annualized savings
then 3-year evaluation again to test
persistence of program (2 payments in this
scenario)
Base payment on a single point in time
year period between rate cases could be
used to true-up fixed cost recovery
Summary of the December 2004, Workshop
Assessing Financial Disincentives and Resolution Opportunities Workshop
ApPENDIX 5-DRAFT SIMULATION SPREADSHEET
Fixed Cost Lost Revenue per MWh by Customer Class
Base Rate Com onents $/MWh
Small Large
Residential Commercial*Commercialu Irri ation Industrial***
Total Base Energy Rate
(b+c+d+e)(a)$51.$62.$26.$32.$21.
Variable Cost - Class (b)$20.$21.$20.$23.$18.
Variable Cost - Subsidy (c)$1.$1.25 $0.($5.72)$0.
Fixed Cost - Class (d)$28.$38.$4.48 $22.$1.
Fixed Cost - Subsidy (e)$1.$1.$0.($7.33)$0.
Total Fixed Cost Loss/MWh
(d + e)(f)$30.$40.$5.47 $14.$2.44
) Small Commercial rate is schedules 07
(**
) Large Commercial rate is a wghtd. avg. of schedule 09 S, P & T based on energy use.
(***
) Industrial rate is a wghtd. avg. of schedule 19 S, P & T based on energy use.
Summary of the December 2004, Workshop
Assessing Financial Disincentives and Resolution Opportunities Workshop
Fixed Cost Recovery True-up Mechanism
(Simulation for Case No. IPC-O4-15)
RESIDENTIAL
Rate Case Constants:
141.393 Energy
335 605 Customers
$124 816 934 Class Fixed Costs
$371.92 Fixed Cost Recovery per Customer
$30.14 Fixed Cost Recovery per MWH
Allowed Fixed Actual Fixed
Cost Recovery Weather Cost
Actual Customer Based on Actual Normalized Revenue Amount of
Year Count Customer Count Energy (MWH)Recovered True-
(1 )(2)(3)(4)(5)(6)
2003
2004
2005
:)35,605 $124.816,934 141,39:)$124,81tl;9:)4
:::'
:t::jil,IIIII::IIJlrlII11111
Rate Case Constants:
265 336 Energy
316 Customers
$10 694 989 Class Fixed Costs
$330.95 Fixed Cost Recovery per Customer
$40.31 Fixed Cost Recovery per MWH
Allowed Fixed Actual Fixed
Cost Recovery Weather Cost
Actual Customer Based on Actual Normalized Revenue Amount of
Year Count Customer Count Energy (MWH)Recovered True-
(1)(2)(3)(4)(5)(6)
2003 32,316 $10,694,989 265,336 $10,694;989
2004
2005
Rate Case Constants:
014,427 Energy
415 Customers
$16,499 592 Class Fixed Costs
$947.44 Fixed Cost Recovery per Customer
$5.47 Fixed Cost Recovery per MWH
Allowed Fixed Actual Fixed
Cost Recovery Weather Cost
Actual Customer Based on Actual Normalized Revenue Amount of
Year Count Customer Count Energy (MWH)Recovered True-
(1 )(2)(3)(4)(5)(6)
2003 17,415 $16,499,592 014,427 $16,499,592
2004
2005
Summary of the December 2004, Workshop
Assessing Financial Disincentives and Resolution Opportunities Workshop
Fixed Cost Recovery True-up Meehan ism
(Simulation for Case No. IPC-O4-t5)
IN DUSTRIAL
Year
(1 )
2003
2004
2005
Year
(1 )
2003
2004
2005
Forecasted
Energy from 2004
IRP
(MWH)
(2)
~78.824
035 043
104;294
Forecasted
Energy from 2004
IRP
(MWH)
(2)
Rate Case Constants:
1 ,978 824 Energy
105 Customers
821 154 Class Fixed Costs
$45 916 Fixed Cost Recovery per Customer
$2.44 Fixed Cost Recovery per MWH
$4;821,1~4
$4;958,125
128,846
'"""."""., "."",..,.""., ,.".".,. "".""""".....
Weather
Normalized
Energy (MWH)
(4)
1 ,978,824
Actual Fixed
Cost
Revenue
Recovered
(5)
$4,821 154
Rate Case Constants:
620,931 Energy
517 Customer~
$23,925 859 Class Fixed Costs
770 Fixed Cost Recovery per Customer
$14.76 Fixed Cost Recovery per MWH
620,931
670 717
677 923
$23,925,859
$24 660 729
$24,767,100
Weather
Normalized
Energy (MWH)
(4)
620,931
Actual Fixed
Cost
Revenue
Recovered
(5)
$23,~25,859
Amount of
True-
(6)
$()
$4,958 125
$5,126 846
Amount of
True-
(6)
$24 660 729
$24,767 100
Summary of the December 2004, Workshop
Assessing Financial Disincentives and Resolution Opportunities Workshop
ApPENDIX 6-DRAFT TRUE-UP SIMULATION PROPOSAL
PROPOSAL FOR SIMULATION OF AN IDAHO POWER TRUE-
MECHANISM
Submitted by Bill Eddie, Ralph Cavanagh, Nancy Hirsh
For discussion at 12/13/04 workshop
Per the discussion at the December 1 , 2004, workshop, NRDC andNWEC propose the
following simulation to illuminate impacts of the revised tnle-up mechanism proposed by
NRDC and NWEC.
Recap of true-up. The key points of the revised true-up mechanism proposal are:
1. Starting point is fixed-cost revenue requirement and retail rates approved by
Idaho pur in latest Idaho Power rate case.
2. For the Industrial and Agricultural sectors, until reestablished in the next Idaho
Power rate case, the currently approved fixed cost revenue requirement would be
automatically adjusted annually to reflect the same rate of increase (or decrease)
shown for retail electricity sales, net of any DSM programs, in Idaho Power s latest
IRP.
3. For the Residential and Commercial sectors, until reestablished in the next Idaho
Power rate case, the currently approved fixed cost revenue requirement would be
automatically adjusted annually to reflect the actual changes in annual customer count
for the residential and commercial sectors (in other words, the fixed cost revenue
requirement per customer would remain fixed until the next rate case).
4. True ups would occur annually by customer class based on any divergence
between the total fixed-cost revenue recovery that forecast sales (for Agricultural and
Industrial sectors) or actual customer growth (for Residential and Commercial)
would have delivered versus the fixed-cost revenues actually recovered through
actual sales.
5. Idaho Power would continue to absorb the risk or benefits of purely weather-
related effects on fixed-cost revenue recovery, as it does now. This would mean
weather normalizing actual sales before making the annual true-up calculation.
6. The maximum annual average rate impact of the true up mechanism for any
customer class would be capped at 2% annually, with any additional amounts carried
over to the next year s true up.
Summary of the December 13, 2004, Workshop
Assessing Financial Disincentives and Resolution Opportunities Workshop
Proposed simulation. The proposed simulation would study this mechanism both
retrospectively (1994-2004 rate case) and prospectively (2004-next rate case):
1. Starting points are the fixed-cost revenue requirement and retail rates approved in
the 1994 and 2003-04 rate cases, including subsequent Commission-approved
adjustments to such revenue requirements.
2. Apply an assumed level of efficiency savings of 0.50/0 annually (roughly
equivalent to the level of savings achievable in Idaho Power s territory per the NW
Power Planning Council's draft 5th Plan) each year starting in 1994 and 2004. For
simplicity, efficiency savings can be zeroed-out after the 2003-04 rate case.
3. Load forecasts for agricultural and industrial sectors will change with each IRP
issued throughout the simulation periods.
4. Simulation should calculate the tnle-up mechanism s impacts in the following
aspects: (1) annual rate impact to each customer class for the true-up alone, and the
true-up together with the PCA; (2) annual and total impact to average customer bill
amounts (assuming the 0.5% annual efficiency savings and the annual net benefit
estimates developed in the recent Quantum consulting energy efficiency assessment),
(3) total impact to IdaCorp shareholders if true-up mechanism were nolin place.
5. Idaho Power will provide the results of the retrospective simulation to the
workshop participants so they may be included in the final report to the Commission
regarding this workshop proceeding. Idaho Power will provide the results of the
prospective simulation to workshop participants and the Commission
contemporaneously with each annual PCA filing.
6. Idaho Power will work with workshop participants as they prepare their next rate
case tiling to analyze the results of the simulation and evaluate incorporation of a
true-up mechanism into the rate filing.
ApPENDIX 7-FuPCHARTS REGARDING THE TRUE-UP SIMULATION
Simulation
1) Would use same method of determining customer
counts as in the last rate case (residential and
commercial)
2) Suggest including 2004 figures with 2005 figures
in simulation
3) NWEC proposal includes demand and kWh
charges4) Simulation will also test anomalies that occur in
next year
5) Testing period
Both for actualized (lAP) and NWPPC
projections
Also look at 1994-2004 period
1994-2000 (back)
2004-next rate case (about 18 months)
(forward)
Summary of the December 13, 2004, Workshop
Assessing Financial Disincentives and Resolution Opportunities Workshop
ApPENDIX a-DRAFT STATUS REPORT
BARTON L. KLINE ISH #1526
Idaho Power Company
O. Box 70
Boise, Idaho 83707
Phone: (208) 388..,2682
FAX: [phone]
Attomey for Idaho Power Company
Express M.ail Address
1221 West Idaho Street
Boise, Idaho 83702
BEFORE TIrE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE INVESTIGATION
OF FINANCIAL DISINCENTIVES TO
INVESTMENT IN ENERGY EFFICIENCY HY
IDAHO POWER COMPANY
INVESTIGATIVE
WORKSHOP
STATUS REPORT
CASE NO.IPC-04-
BACKGROUND
On May 25, 2004, The Idaho Public Utilities Commission (Commission) in Order No.
29505 (Idaho Power Company general rate case No. IPC-O3-13) detennined that a separate
proceeding to assess financial disincentives inherent in Company-sponsored conservation
programs is appropriate and should proceed by informal workshops." The Commission s Order
provided in relevant part as follows:
The Commission specifically directs the parties (Idaho Power, NW Energy
Coalition, Industrial Customers of Idaho Power (ICIP) and Commission Staff) to
address possible revenue adjustment when annual energy consumption is both
above and below normal. The parties should also consider how much adjustment
is necessary to remove DSM investment disincentives and whether (and to what
extent) performance-based incentives such as revenue sharing could or should be
incorporated into the resolution of this issue. The Commission is interested in
proposals that could provide Idaho Power the opportunity to share and retain
lNVESTIGA TlVE WORKSHOP STATUS REPORT, Page 1
Summary of the December 2004, Workshop
Assessing Financial Disincentives and Resolution Opportunities Workshop
benefits gained from efficiencies, especially technologies... In short, the
Commission believes opportunities exist for improvements in operating efficiency
that would benefit the Company shareholders and its customers, and we
encourage the parties to creatively consider the options for a performance-based
mechanism to present to the Commission. The parties to the agreement are
directed to propose a workshop schedule and initiate a proceeding. (emphasis
added)
Order No. 29505 at pp. 68, 69
As a follow up to the Commission s Order, the NW Energy Coalition on June 18, 2004
formally requested that a proceeding be initiated and that a workshop schedule be established.
The Commission in Order No. 29558 established this docket to investigate the financial
disincentives which hinder Idaho Power s investment in cost-effective energy efficiency
resources. The Commission believes that the scope of the investigation should be focused on
decoupling and performance based ratemaking. The Commission directed the participating
parties to provide a written report to the Commission no later than December 15, 2004 to update
the Commission on the status of the investigative workshops.
PROCESS
The parties have participated in fry~_feltf workshops to date: August 24, September 27
November 8, fH'!4-December 1 2004, and .December 13 2004. These workshops have included
presentations by participants, group discussion, and sensing for areas of agreement and
disagreement. Workshops are designed and facilitated by Susan Hayman, North Country
Resources, Inc., a Boise-based facilitation/mediation firm. Workshops are designed in
cooperation with four designated workshop coordinators representing each of the four major
interests at the table (Idaho Power Company, Idaho Public Utilities Commission Staff, Industrial
Customers of Idaho Power, and Northwest Energy Coalition). Copies of all workshop
summaries are provided as attachments to this Status Report.
PARTICIPANTS
The following people have attended one or more workshops, receive meeting materials
and summalles, and are considered active workshop participants:
INVESTIGA TIVEWORKSHOP STATUS REPOR T Page 2
Summary of the December 2004, Workshop
Assessing Financial Disincentives and Resolution Opportunities Workshop
Name and Affiliation
Lynn Anderson, IPUC Staff
Maggie Brilz, Idaho Power
TeITi Carlock, IPUC Staff
Ralph Cavanagh, Natural Resources Defense
Council
Bill Eddie, Advocates for the West
Ric Gale, Idaho Power
David Hawk, IR. Simplot Co.
Nancy Hirsh, NW Energy Coalition
Bart Kline, Idaho Power
Randy Lobb, IPUC Staff
Name and Affiliation
Laura Nelson, IPUC Staff
Darlene Nemnich, Idaho Power
PeterRichardson, Industrial Customers of Idaho
Brad Purdy, Community Action Partnership
Association of Idaho
Don Reading, Ben Johnson Associates
Greg Said, IPC
David Schunke, IPue Staff
Tim Tatum, Idaho Power
Mike Youngblood, Idaho Power
ScottWoodbuty,IPUe Staff
PROGRESS
Since the inception of the workshops on August 24, participants have reached the
following agreements:
1) Agreed on a set of operational principles that guide the workshops.
2) Clarified the nature and extent of financial disincentives to Idaho Power for
investment in energy conservation through demand-side management programs
(DSM).
3) Agreed that material financial disincentives do exist an yviJJ in9J~5ISe-f1dL.l!SM
expenditures increase. , though nNot all participants agree that restoration of lost
fixed cost revenues would directly result in additional investment in DSM programs
by Idaho Power.
4) Agreed on a set of evaluation criteria by which to compare and contrast potential
mechanisms for removing financial disincentives and/or providing incentives for
DSM programs.
5) Agreed to continue exploring two specifically proposed mechanisms: A true-up
mechanism (refeITed to as a decoupling mechanism in early workshops) and a
performance-based incentive mechanism.
6) Agreed to design a true-up mechanism simulation and a pilot program perfoffi1ance-
based incentive mechanism to evaluate the effects of these two mechanisms. The
INVESTIGA TIVEWORKSHOP STATUS REPOR T Page 3
Summary of the December 13, 2004, Workshop
Assessing Financial Disincentives and Resolution Opportunities Workshop
simulation and pilot program will be the subject of further review and discussion at
the next workshop.
TIMELINE
Participants established the foHowing timeline at the December 1 workshop:
1) Provide this ft-,status report to the Cornmissionon or before December 15, 2004, as I
specified in Order No. 29558-
2) Provide a full report to the Comrnissicm no later than January 31, 2005, including
participant recommendations and rationale.
This Status Report to the Cornrnission has been reviewed and approved by Idaho Power
Company, Northwest Energy Coalition, the Commission StatY and the Industrial Customers of
Idaho Power.
Date Barton L. Kline
Attorney for Idaho Power Company and on behalf
of Northwest Energy CoalitioR the Commission
Staff and the Industrial Customers of Idaho Power
ApPENDIX 9-FuPCHARTS REGARDING THE FINAL REPORT
Commission Report
January 31 Deadline-Bill Eddie Lead
History of issue that generated work group (with
help from IPUC staff)
II.What did the workgroup do?
Studies undertaken
Mechanisms proposed
Results of investigation
III. Conclusions and recommendations
Schedule/timeline for addressing pilot and
simulation findings-final recommendations
IV. Figures and tables, studies, workshop summaries
Summary of the December 2004, Workshop
Assessing Financial Disincentives and Resolution Opportunities Workshop
ApPENDIX 1Q-FuPCHARTS REGARDING NEXT STEPS AND ACTION ITEMS
1 )
Next Steps
If Randy gets feedback from Commissioners that
there is something of concern, Randy will let the
workgroup know-could possibly meet with them
as a group
Possible mid-summer workgroup check-in (TBD)
Action Items
What Who When
1) IPC-IPUC staff will
prepare pilot
application and
circulate for review
and comment (include
monitoring
mechanism)
Lynn-February
2) IPC and NWEC refine
simulation proposal
(and retrospective
analysis) for review
and comment by
workgroup (include
monitoring mechanism
for March)
Mike, Bill
Ralph
January
Bin
1) Gas utilities -7 decoupling mechanism
2) Still interested in evaluation customer "appetite
for conservation at higher levels. (David Hawk to
bring proposal to IPC)
Action Items
What Who When
Draft final report to Bill January
workgroup by mid-
January for R&C
File pilot application IPC Mid-
with IPUC February
Summary of the December 13, 2004, Workshop
Assessing Financial Disincentives and Resolution Opportunities Workshop
ApPENDIX 11-FuPCHARTS REGARDING THE WORKSHOP SERIES
What's Worked Outstanding
Concerns
1) Open , honest
discussion and
bringing to table
2) Quality of recording-
capturing essence of
meetings
3) Appreciate
organization of
meetings/tracking
what happened
quality of info
presented
4) Very successful
workshop
5) Facilitation helpful
6) Interchange
fo rth rig ht-advanced
issue further than
thought we would
1 )Feels like we
have just
begun-need to
take next steps
seriously-need
to accomplish
something
together
Need to monitor
and carefully
evaluate results-
issue is not
dropped
What's Worked Outstanding
Concerns
13) IPC participation and
get numbers out that
people could
understand
14) Not everyone got
what they wanted, but
lots accomplished
15) Candid discussion
16) Appreciate IPC going
along with this in a
positive way
17) Ralph and Bill's
analysis and numbers
6) What
Commissioners
will say about the
group s work!
agreements
(curious)7) Establishing
program
evaluation criteria8) Proof is in the
pudding
9) Building codes/
enforcement
What's Worked
7) Pleased with results
of workshop
8) Good solution
reached fairly quickly
with good deliberation
9) Appreciated everyone
attending
10) Appreciated
openness of everyone
to hear other
perspectives
11) Always had goals
sight-felt movement
and progress towards
goals
12) Impressed with us all!
Came a long way.
Outstanding
Concerns
Language in
order about
PBR" that we
didn t get to.
Hope it meets
needs of
Commissioners
Easy to do pilots
and simulation-
hope we have
enough
information to
make follow-up
decisions
Being able to
capture how we
really will
evaluate these
things as we go
along-ability to
modify evaluation
criteria
What's Worked Outstanding
Concerns
18) Group has had form
and substance
19) Frank and fair
20) Possible solution to
issue, and
conservation as a way
to get at issue
21) I PC collaborative
involvement
10) Asking IPC to do
additional things
to an already "full
plate
11) Look for results to
sell" process
Summary of the December 2004, Workshop