20061218Lobb direct support stipulation.pdf

BEFORE THE
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2006 DEC 18 F'r1 4:
IDAHO PUBLIC UTILITIES COMMISSI(j)N.HH.
UTILIT!!::::: CCrvi,;1!~3SI0;'
IN THE MATTER OF THE INVESTIGATION OF
FINANCIAL DISINCENTIVES TO
INVESTMENT IN ENERGY EFFICIENCY BY IDAHO POWER COMPANY.
CASE NO. IPC-O4-
DIRECT TESTIMONY OF RANDY LOBB
IN SUPPORT OF THE STIPULATION
IDAHO PUBLIC UTILITIES COMMISSION
DECEMBER 18, 2006
Please state your name and business address for
the record.
My name is Randy Lobb and my business address is
472 West Washington Streett Boiset Idaho.
By whom are you employed?
I am employed by the Idaho Public Utilities
Commission as Utilities Division Administrator.
What is your educational and professional
background?
I received a Bachelor of Science Degree in
Agricul tural Engineering from the Uni versi ty of Idaho in
1980 and worked for the Idaho Department of Water
Resources from June of 1980 to November of 1987.
received my Idaho license as a registered professional
Civil Engineer in 1985 and began work at the Idaho Public
Utilities Commission in December of 1987.My duties at
the Commission currently include case management and
oversight, of all technical staff assigned to Commission
filings.I have conducted analysis of utility rate
applications rate designt tariff analysis and customer
petitions.I have testified in numerous proceedings
before the Commission including cases dealing with rate
structure cost of service power supply line extensions
regulatory policy and facility acquisitions.
What is the purpose of your testimony in this
CASE NO. IPC-E- 04 -
12/18/06
LOBB
STAFF
(Di)
case?
The purpose of my testimony is to describe the
process leading to the Stipulation on the Fixed Cost
Adjustment (FCA) mechanism filed with the Commission and
explain the basis for Staff s support.
Please summarize your testimony.
Through a lengthy process of workshops and
settlement meetings parties to the case quantified
reduced fixed cost recovery associated with Company
sponsored Demand Side Management (DSM) programs
identified the disincentive perceived by the Company in
implementing such programs and developed a mechanism to
address that disincentive.Staff believes the filed
Stipulation establishes a reasonable pilot mechanism to
track the effects on fixed cost recovery of Company
provided DSM programs and removes the perceived
disincentive by reimbursing the Company for identified
losses.
In exchange for removal of the DSM disincentive
the three-year pilot requires measured improvement by the
Company with respect to the size and availability of DSM
programs provided within its service territory.It also
provides symmetry (surcharge/credit) when fixed cost
recovery per customer varies above or below a Commission
established base.Staff therefore supports the
CASE NO. IPC-04-12/18/06 (Di)LOBB
STAFF
Stipulation.
Would you please briefly describe the process
leading to the Stipulation?
On August 101 2004 the Commission issuedYes.
a Notice of Investigation and a Notice of Scheduling
ini tiating Case No. IPC-E- 04 151 to investigate the
financial disincentives to the investment in energy
efficiency by Idaho Power Company.In its Notice the
Commission approved a series of three workshops to begin
on August 2004.The four parties to the Case the
Northwest Energy Coalition (NWEC) the Industrial
Customers of Idaho Power (ICIP) the Commission Staff
(Staff) and Idaho Power Company (the Company) held a total
of five workshops from August 241 2004 through December
2004.The parties then filed a report with the
Commission on February 141 2005 summarizing the results of
the workshops and the investigation.
What were the results of the investigation?
The Parties agreed that disincentives to DSM did
exist but did not agree that restoration of lost fixed
revenues would result in additional or more effective
investment in DSM by Idaho Power.Nevertheless the
parties agreed to a set of criteria that would be required
for any FCA mechanism and agreed to conduct a simulation
of a proposed fixed cost true-up mechanism to identify
CASE NO. IPC-04-12/18/06 (Di)LOBB
STAFF
potential impacts.
What happened next?
Based on the results of the workshops and the
FCA mechanism simulation r the Company filed testimony on
January 27 2006 that proposed implementation of a fixed
cost adjustment mechanism designed to remove the financial
disincentive to DSM.Subsequent to that filing the
parties held three more workshops/settlement meetings to
develop the Stipulation signed by three of the four
parties to the case (the ICIP did not sign the Stipulation
but will not oppose its approval) .
Would you please describe the proposed FCA
mechanism?
The Company has previously described inYes.
testimony the specific elements of the mechanismr so
will not repeat them here.However the mechanism is
generally based on an average fixed cost per customer
(Schedule I-Residential Service and 7-Small General
Service) as established by the Commission in the Company
last general rate case.Because the level of fixed cost
recovered annually from each customer is dependent upon
the amount of energy consumedr the lower the per customer
energy consumption, the lower the fixed cost recovery.
Under the mechanism r actual weather normalized
consumption per customer and therefore the fixed cost
CASE NO. IPC-E- 04 -12/18/06
(Di)LOBB R .
STAFF
recovery per customer will be compared to the base
established by the Commission.The Company will then be
either reimbursed for under recovery or customers will
receive a credit for over recovery of fixed costs.
Consequently the financial disincentive for the
Company to implement DSM programs that reduce energy
consumption is removed because the Company is reimbursed
for any resulting lost fixed revenue.
How did Staff determine that the proposed FCA
mechanism was both necessary and appropriately structured?
As a result of the workshop processr simulation
of mechanism impacts and significant additional analysis
and evaluation of cost recovery in between rate cases
Staff concluded that DSM programs reduce fixed cost
recovery over what otherwise would have occurred creating
a financial disincentive for the Company to implement such
programs.To the extent these disincentives are a
significant barrier to cost effective DSMr Staff believes
these barriers should be removed through an annual fixed
cost adj ustment .
Staff further determined that the proposed
mechanism is appropriately structured because it uses a
Commission approved fixed cost recovery level and it
provides symmetrical adjustment to fixed cost recover
above or below the Commission approved base.
CASE NO. IPC-04-
12/18/06
(Di)LOBB
STAFF
Finally Staff determined that the overall
objective of an FCA mechanism is to remove the barriers to
Company implementation of cost effective DSM.By agreeing
to the mechanism as proposed in the Stipulationl Staff
bel ieves the Company has committed to embark on a
significantly expanded level of DSM to the benefit of all
ratepayers.To the extent barriers perceived by the
Company are removed , Staff expects a renewed commitment to
DSM including support for building codes and appliance
standards that otherwise would not have occurred.
What issues were of concern to Staff in
evaluating the FCA mechanism?
Staff identified several issues including the
potential impact on customer rates recovery of assumed
fixed costs associated with new customers recovery of
lost fixed cost due to reasons other than Company DSM
programs and whether removal of disincentives through the
FCA will result in measurable improvement in Company DSM
programs.
How do we know that the Company would not have
expanded and improved its DSM programs without the FCA
mechanism?
Beyond what s stated in its Integrated Resource
Plan (IRP) we don t know what DSM programs the Company
would have actually provided or how effective the programs
CASE NO. IPC-E- 04 -
12/18/06
(Di)LOBB
STAFF
might have been absent the FCA mechanism.However Staff
concluded that approval of the mechanism in pilot form
will allow the Commission and other interested parties to
evaluate Idaho Power s progress in DSM after a Company
ci ted impediment to DSM is removed.If the Company does
not perform DSM at an improved level then payment under
the FCA mechanism could potentially be made in the form of
credits to customers and we may ultimately conclude that
guaranteed fixed cost recovery does not have the DSM
enhanc ing effect intended.
Shoul d the Company be assured of average fixed
cost recovery for new customers in between rate cases
and/or when consumption declines due to reasons other than
Company sponsored DSM?
Staff evaluated the effect load growth on
fixed cost recovery and determined that while actual fixed
costs serve new load in between rate cases not
known DSM programs also reduce the level of fixed cost
recovery from these new customers over what it otherwise
would have been.Whether a new or existing customer
Staff recognized that from the Company s perspectivel the
disincentive to DSM is just as material.Staff concluded
that for a company with consistent customer growth such
Idaho Power an overall per customer comparison is more
practical than trying to remove changes in consumption due
CASE NO. IPC-04-12/18/06 LOBB
STAFF
(Di)
to customer growth.
Staff also recognized that per customer
consumption could decline due to factors other than
Company provided DSM Programs.For example new customers
could simply use less electricity on a per customer basis
than the existing customer average due to reduced
electrical space heating.Per customer consumption could
also be reduced due to general economic conditions or as
electric prices increase.Other than normalizing for the
effects of weather , the proposed FCA mechanism does not
distinguish between changes in consumption due to DSM and
changes caused by other factors.
Consequently Staff analyzed consumption trends
of new customers and evaluated alternative mechanisms that
attempt to "separate out" the effect on energy consumption
of non-DSM factors.Staff ultimately concluded that the
potential improvement in accuracy did not justify the
additional complexity required to remove the effect of
non-DSM factors for purposes of the proposed pilot
mechanism.
Finally the stipulation includes provisions for
Staff to audit FCA results annually to compare actual
savings as adjusted in the mechanism to DSM savings
estimates.Staff will also compare actual new customer
consumption to new customer load growth estimates as
CASE NO. IPC-E- 04 -
12/18/06
LOBB , R
STAFF
(Di)
provided in the Company s IRP.Both the Company and Staff
have the opportunity to request that the mechanism be
discontinued if it fails to perform as intended.
What is the anticipated impact of the proposed
mechanism on customer bills?
The prefiled testimony of Company witness
Youngblood in this case describes in detail the
anticipated impact of the proposed mechanism on customer
bills.The impact was evaluated by simulating the FCA
true-up mechanism over the period 1994 through 2004.The
Company s evaluation of the simulation showed that the
mechanism could result in both customer credits and
surcharges ranging from an annual reduction of less than
1% to an increase of almost 4%.The proposed mechanism
incl udes a 3 % cap on annual increases with carry over of
unrecovered deferred costs to subsequent years.
Staff has evaluated the simulation methodology
and has concerns about the val idi ty' of the results.Staff
also recognizes that the results are highly dependent upon
many variables including relative success of Company DSM
programs new customer energy consumption and the timing
of Company general rate cases. That is why Staff has
insisted upon a three-year pilot program with annual
audits to evaluate the impact of the mechanism as a
condition of agreeing to the Stipulation.
CASE NO. IPC-E- 04 -12/18/06 (Di)LOBB R .
STAFF
Are there any other potential customer billing
impacts?
To the extent DSM programs are significantly
expanded it is likely that the Company will request an
increase in the DSM tariff rider to recover additional
program costs.However the Company has not made a
request to increase the rider at this time nor has it
indicated when it might make such a filing.
The ultimate effect on individual customer bills
will depend on the availability of DSM programs and the
level of customer participation in those programs.
The final report on workshop proceedings
submitted to the Commission in February 2004 described a
pilot energy efficiency program that would incorporate
performance incentives.I s such a program provided as
part of the Stipulation in this case?
Nol it is not.However the parties have agreed
in principal to a pilot DSM program that will incorporate
performance based incentives.It is anticipated that a
signed Stipulation proposing such a program will be filed
with the Commission in the near future.
Could you please summarize Staffl s position with
respect to the Stipulation establishing the FCA mechanism?
Staff supports the FCA mechanism agreed toYes.
in the Stipulation because it has the potential to deliver
CASE NO. IPC-04-12/18/06
(Di)LOBB
STAFF
cost effective DSM that otherwise might not occur.The
pilot nature of the mechanismt the required commitment of
the Company to expand DSM programs and the opportunity for
annual audit with off ramps to modify or terminate the
mechanism all reflect uncertainty regarding the
mechanism t s actual impact and an appropriately cautious
approach to implementation.
Does this conclude your direct testimony in this
proceeding?
Yest it does.
CASE NO. IPC-E- 04 -12/18/06
(Di)LOBB
STAFF
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 18TH DAY 'OF DECEMBER 2006
SERVED THE FOREGOING DIRECT TESTIMONY OF RANDY LOBB, IN CASE
NO. IPC-04-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
MONICA MOEN
BARTON L KLINE
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
PETER J RICHARDSON
RICHARDSON & O'LEARY
PO BOX 7218
BOISE ID 83702
WILLIAM MEDDlE
ADVOCATES FOR THE WEST
610 SW ALDER ST SUITE 910
PORTLAND OR 97205
Jo
SECRET AR ,
CERTIFICATE OF SERVICE