20050216Comments.pdf

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L."DONOVAN E. WALKER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5921
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UTiliTIES CO~1r~iISSION
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, ID 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR AUTHORITY
TO REVISE THE ENERGY EFFICIENCY
RIDER, TARIFF SCHEDULE 91.
CASE NO. IPC-O4-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Donovan E. Walker, Deputy Attorney General, and in response to the Notice
of Application, Notice of Modified Procedure and Notice of Intervention Deadline issued in Order
No. 29673 on January 4 2005 , submits the following comments.
BACKGROUND
On December 6, 2004, Idaho Power Company (Idaho Power, the Company) filed an
Application to increase its Energy Efficiency Rider (Rider), Tariff Schedule 91 , in two steps. The
current Rider is generally equivalent to 0.5% of base revenues, but is applied variously on a
kilowatt-hour basis or on a per customer basis. The current Rider collects about $2.6 million per
year to fund Idaho Power s demand side management (DSM) programs. In this Application the
Company seeks Commission approval to increase the Rider to 1.5% effective June , 2005, and to
2.4% effective June , 2007. The Application also asks that the Rider be applied uniformly on a
STAFF COMMENTS FEBRUARY 16 2005
percentage basis to all monthly customer charges, base energy charges and, where applicable, base
demand charges.
The increased funding for DSM is necessary to enable the Company to pursue the higher
level of DSM identified in its 2004 Integrated Resource Plan (IRP) and to continue its
participation in the Northwest Energy Efficiency Alliance (NEEA), which was funded from
another revenue source through the end of 2004.
Finally, the Application asks the Commission to approve changes in the manner in which
industrial customers' DSM is pursued. Most notably, industrial customers would have the option
to self-direct the use of their DSM charges.
STAFF ANALYSIS AND COMMENTS
General Statement
Staff supports Idaho Power s increased commitment to pursuIng cost-effective DSM
through its various efforts to educate its customers about the best practices and benefits of energy
efficiency, through incentive payments to its customers and their builders and building operators
for practicing energy efficiency, through its programs that allow it to directly control customer
load, and through the market transformation efforts of NEEA. Thus, in general, Staff supports the
Company s request to increase its Rider to a level equivalent to 1.5% of its base revenues effective
June 2005. Staff recognizes that an additional Rider increase will likely be necessary within
two years to support planned DSM levels identified in the Company s 2004 IRP. However, we do
not recommend that the Commission approve the second-step Rider increase to 2.4% effective
June 2007, at this time or as a result of this Application.
DSM Fund Balances and Projected Cash Flow
Currently Idaho Power s DSM Rider collects about $2.6 million annually, approximately
5% of its base energy revenues. The Application asks the Commission to approve two increases
to the rider; first to 1.5% effective June 2005, equal to about $7.7 million annually, and second
to 2.4% effective June 2007, equal to about $12.3 million annually. Company witness Maggie
Brilz s Exhibit 2, page provides an approximate yearly cash flow analysis of the DSM Rider
fund beginning with a $4.5 million reserve balance on December 31 , 2004.
STAFF COMMENTS FEBRUARY 16 2005
However, the beginning DSM reserve balance of $4.5 million is now estimated to be $4.
million. And Ms. Brilz s Exhibit 2 does not explicitly show the Company s additional $2.
million estimated credit balance ($2.04 million Idaho share) with NEEA. This credit balance is
discussed in Company witness Tim Tatum s testimony (pp. 27-28) as a lower estimated $1.9
million and its effect is partially included in Exhibit 2's cash flow. But the DSM costs shown in
Exhibit 2 do not include the Company s portion of its future payments to NEEA that are paid from
its current NEEA balance. Exhibit 2 also excludes interest that will accrue to the DSM balances
and customer growth that has occurred since 2003 and that will likely occur over the next five
years as forecasted in the Company s IRP.
Attachment A shows Staffs updates and refinements to the Company s cash flow analysis
shown in Ms. Brilz s Exhibit 2, page 1. With explicit inclusion of the $2.04 million estimated
Idaho share of its NEEA credit balance, 100% of all future payments to NEEA, the update to its
Rider reserve balance, the assumed nominal interest rates earned on those balances, and the IRP-
assumed sales growth rate, the total balance of DSM funds at the end of 2005 is estimated to be
$5.3 million compared to the $3.6 million shown on page 1 of Exhibit 2. Similarly, at the end of
2009 Attachment A's refinement of the Company s analysis shows a positive $0.75 million
balance at the end of 2009, compared to the negative $0.27 million shown on Exhibit 2, page 1.
Using the same assumptions as those described above, Staff has performed cash flow
analyses under various scenarios with Rider amounts ranging from 1 % to 2.4% over the June
2005 through December 31 2009 period. These analyses showed how estimated year-end fund
balances vary but provided no insight into the impact on Rider reserve balances if actual
conditions vary from those assumed. Staff believes this uncertainty requires a more periodic
evaluation of appropriate tariff rider amounts.
Staff notes that the cash flow analyses described above are merely the projections of
revenues based upon estimated total sales, estimated costs for DSM programs that have been
selected but are not yet fully developed, and rough estimates of future participation by Idaho
Power s customers. Furthermore, Staff and other parties have advocated that the Company should
pursue additional cost-effective DSM programs that were identified in, but ultimately not selected
by, the Company s 2004 IRP. Staff notes that the Northwest Power and Conservation Council'
(NWPCC) 5th Power Plan suggests that a higher level of cost-effective DSM is available to Idaho
Power.Staff also notes that Idaho Power has indicated that it will continue to investigate
STAFF COMMENTS FEBRUARY 16 2005
additional DSM opportunities. In short, Staff believes it will be important to reevaluate necessary
Rider levels to assure that the Company has a sufficient Rider balance to pursue additional cost-
effective DSM opportunities as they are identified and programs are developed.
Consequently, Staff does not at this time support Idaho Power s request for increasing the
Rider to 2.4% effective June , 2007. Instead, we believe the Company should file another
application at such time that its DSM programs are more fully developed and customer
participation can be more accurately estimated. Staff will support increasing the Rider for funding
cost-effective DSM programs, perhaps even above 2.4% at a later date, but we believe it is
premature to speculate at this time exactly what level of funding will be necessary beyond 2006.
Staff estimates that if the Rider stays at 1.5% and DSM costs remain as currently projected
then the Company s total DSM balance will become negative in the fall of 2007 and will continue
to decline more than $300 000 each month. Staff does not believe this scenario should or would
occur. Instead, we anticipate that Idaho Power will have requested a change to the Rider level in
2006 or prior to June , 2007.
Application of Rider and Itemization on Bills
Currently the 0.5% Rider is an approximation that is applied differently among customer
classes. Residential customers are all charged $0.30 per month, regardless of energy used. The
Rider is applied to irrigation pumping as an energy rate equivalent to 0.5% of base revenue, except
that the charge is capped at $15.00 per month per customer site. For all other customer classes the
Rider is applied as an energy rate equal to 0.5% of the class s base revenue.
Idaho Power s Application requests that the Rider be applied uniformly as a percent of
each customer s base bill, which includes customer charges, base energy rates, and base demand
charges where applicable.
Staff agrees that the Rider should apply on an equal percentage basis to energy and
demand charges. Theoretically, we do not believe the Rider should apply to monthly customer
charges because these charges are based on costs not affected by monthly energy usage or demand
and these costs will not be affected by DSM programs. However, because the rider would have to
be set slightly higher if it did not apply to customer charges and because the net effect on
individual customers of applying the Rider to customer charges is relatively insignificant, the Staff
accepts the Company s proposal.
STAFF COMMENTS FEBRUARY 16 2005
Staff agrees with the Company that the Rider should remain itemized on customers ' bills.
Idaho Power has told the Staff that such itemization facilitates the ease with which the Company is
able to track Rider funds, but more importantly, we believe such itemization will increase
customer awareness of the Rider and the programs it is funding. While itemization on bills will
likely result in complaints and inquiries to both the Commission and the Company, Staff believes
these communications will provide further opportunity to promote participation in DSM programs.
Industrial Self-Directed DSM
Ms. Brilz s testimony, pages 14 through 21 , explains in detail the significant changes
proposed for DSM programs for industrial class Schedule 19 and special contract customers.
Although the proposal differs somewhat from the changes suggested in Commission Orders 29505
and 29547, the Company, the Staff, and the represented industrial customers all agreed to the
changes. The proposal provides Schedule 19 and special contract customers the option of self-
directing their DSM contributions for DSM projects located at their facilities. Customers
choosing this option will, on June 2005, be able to spend up to three and one-half years worth of
their estimated total DSM payments from June 2004 through December 31 , 2007. (Beginning
in 2008, customers choosing the self-directed option will be able to utilize up to three years worth
of anticipated DSM payments.) The funds must be spent on energy audits and/or DSM projects
that meet Idaho Power s test for cost-effectiveness. DSM funds not used by customers choosing
the self-direct option will revert to the pooled Rider funds. For industrial customers who do not
choose the self-direct option, several changes are proposed that simplify the process for obtaining
incentive payments to perform energy audits and cost-effective DSM proj ects. On page 15 of his
testimony, Mr. Tatum estimates that the already good benefit cost ratio of the industrial program
will increase as a result of these changes.
Staff supports the self-direction of Rider funds and other proposed changes for Schedule
19 and special contract customers ' DSM.
DSM Programs Selected and Additional Potential Programs
The various DSM programs, projects and market transformation efforts that Idaho Power
intends to fund with the increased Rider and how the cost-effectiveness of these programs were
estimated are described in Mr. Tatum s 30-page testimony and his Exhibits 5 - 11. Pages 1 and
STAFF COMMENTS FEBRUARY 16 2005
of his Exhibit 10 show that by the end of 2009 the selected four efficiency programs and the two
direct control programs are estimated to result in a 103 megawatt reduction to the Company s peak
summer demand and an annual savings of 87 165 megawatt-hours of energy. These estimates do
not include the effects of NEEA's market transformation efforts or the effects of Idaho Power
small projects, trials, limited rollouts and education efforts. Mr. Tatum stated that all of the IRP-
selected DSM programs as well as its participation in NEEA are expected to result in benefits
exceeding their costs.
Mr. Tatum provided similar estimates for the cost-effectiveness of two programs that were
not selected for immediate implementation in the IRP, i.e. the residential existing construction and
commercial existing construction programs. He explained that these programs, in spite of their
cost-effectiveness, were not selected for implementation because the Company had reservations
about its ability to ramp-up these two programs in addition to the six major programs that it did
select. He also said that the two programs not selected were estimated to have lower benefit/cost
ratios than the four energy efficiency programs that were selected. However, Staff notes that both
programs not selected are estimated to have better utility benefit/cost ratios than the two demand
response programs that were selected, i.e. Irrigation Peak Clipping and Air Conditioning Cycling.
The two programs not selected are also estimated to have better total resource benefit/cost ratios
than does the AC Cycling program. Mr. Tatum stated that the Company plans a "limited rollout"
of both the residential and commercial existing buildings programs in 2006. Staff appreciates the
additional consideration that the Company has given these two programs since the IRP was filed.
Mr. Tatum explained that the Company has used 2% of Rider funds for small projects and
education efforts and that it will continue to pursue these efforts if the Rider is increased. Staff
believes that energy efficiency education is important even though direct cost-effectiveness may
be difficult to prove.
Mr. Tatum discussed the Company s partnership with NEEA in its Distribution Efficiency
Initiative (DEI), formerly known as Conservation Voltage Reduction (CVR). Staff supports Idaho
Power s limited use of Rider funding ($100 000 per year for two years) to help determine the
benefits and costs of DEI. Nevertheless, we are not yet convinced that Rider funds should be used
for DEI in the event of a larger rollout of this technology.
STAFF COMMENTS FEBRUARY 16 2005
Future Determination of DSM as Reasonable and Prudent
Although Staff supports increasing Idaho Power s Rider to fund more aggressive and cost-
effective DSM programs, Staff cannot forecast at this time whether the Company will implement
and evaluate its programs in a reasonable and prudent manner. To our knowledge the Company is
proceeding prudently in identifying DSM programs to be pursued.
While Staff believes there may be opportunity to obtain even more cost-effective DSM
than the Company has said it is comfortable pursuing, we cannot at this time determine that it is
acting unreasonably by not ramping up DSM more rapidly. Staff is aware that Idaho Power
Energy Efficiency Advisory Group (EEAG) is actively engaged in making suggestions to the
company about its DSM activities and the level of those activities.
In short, Staff believes Idaho Power should be allowed to pursue the DSM that it believes
will benefit its customers most. At a future time, Staff will recommend to the Commission
whether or not it should determine that the Company s DSM expenditures have been reasonable
and prudent. Such after-the- fact recommendation is consistent with our treatment of A vista
Utilities' DSM expenditures since the inception of its DSM Rider in 1994.
CONCLUSIONS
Staff believes that increased funding to promote energy efficiency, e.g. reduced electricity
consumption and/or reduced peak system load while providing the same or acceptable levels of
desired cooling, heating, lighting, pumping or production, is in the public interest. Staff
recognizes that individual customers of Idaho Power often are deterred from investing in energy
efficiency due to financial, informational and/or other constraints and barriers.Electricity
providers, such as Idaho Power, are well-positioned to promote energy efficiency by removing
many of these barriers through their own efficiency programs and education efforts and through
their combined efforts to transform regional and national markets.
Staff is convinced many demand-side energy efficiency and direct load control
opportunities are less costly and less risky than many supply-side resources and supports Idaho
Power s increased commitment to providing these opportunities for its customers. Staff further
believes the Company s efforts are best funded through an increase in the Energy Efficiency Rider
in a way that allows periodic review and does not impede implementation of these efforts.
STAFF COMMENTS FEBRUARY 16 2005
RECOMMENDATIONS
Staff recommends that the Commission approve Idaho Power s Application to increase its
Energy Efficiency Rider to 1.5%, effective June 2005. We do not recommend that the
Commission approve the Application s request to increase the Rider to 2.4% effective June
2007. Instead, we recommend that the Rider remain at 1.5% until such time that Idaho Power files
another application, with supporting documents, to further increase the Rider level.
Staff recommends that the Commission approve the Application s request to apply the
Rider to all base revenue charges on a percentage basis.
Staff recommends that the Commission approve the Application s request to change
program rules for funding energy efficiency projects for the Schedule 19 and special contract
customers.
Respectfully submitted this
/~
day of February 2005.
Donovan E. Walker
Deputy Attorney General
Technical Staff: Lynn Anderson
i :umisc :comments/ipceO4 .29dw la
STAFF COMMENTS FEBRUARY 16 2005
Idaho Power s Proposal, Brilz Exh. 2, p. 1 , plus NEEA Bal. and Costs, plus Interest and Growth
Est. Revenue Balances 12/31/04 Interest Rate
IPC Reserve DSM $4 740 000 2.00/0
NEEA (ld.'s 95.50/0 Growth Rate
Total $6 779 880 1.80/0
IPC.DSM Cash Flow 2005-2009
2003 Base Rate Rev $512 064 323
5-mo. Rate 7-mo. Rate Annual DSM Rider NEEA + IPC Simple EoY Bal.Jan.May June-Dec.Avg. Rate Revenue DS M Costs Eo Y Bal.w. int. & grwth200550/0 08010 547 363 218 040 109,203 312,457200650/0 500/0 680 965 637 162 153 006 520 950200750/0 2.40/0 030/0 369 303 065 932 1,456 377 903,42720082.40/0 2.4%2.400/0 289 544 800 764 945 157 1,455 16420092.40/0 2.4%2.400/0 289.544 033 547 201 153 751 937Total$48 176 718 $54 755,445
Each year s DSM revenue matches Ms. Brilz s Exh. No.
, p.
1 of 2, but DSM costs are higher
because she does not show that portion of NEEA costs that is paid from NEEA credit balance.
Assumes NEEA costs will not grow , which may not be the case.
IPC DSM costs are based on IRP which includes customer growth.
Attachment A
IPC-04-
Staff Comments
Feb. 16 , 2005
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 16TH DAY OF FEBRUARY 2005
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF,
CASE NO. IPC-04-, BY MAILING A COpy THEREOF POSTAGE PREPAID
THE FOLLOWING:
BARTON L KLINE
MONICA MOEN
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
MAGGIE BRILZ
DIRECTOR, PRICING
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
NANCY HIRSH
NW ENERGY COALITION
219 1 ST AVE SOUTH
SUITE 100
SEATTLE WA 98104
SECRETARY
CERTIFICATE OF SERVICE