20050218Application.pdf

BARTON l. KLINE, ISB # 1526
MONICA B. MOEN , ISB # 5734
Idaho Power Company
1221 West Idaho Street
O. Box 70
Boise, Idaho 83707
Telephone: [phone]
FAX Telephone: [phone]
Attorneys for Idaho Power Company
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F:;ECEIVED
tHUS FEB 18 PM 2: 13
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UT ILI-r !ES COr1r~IISSlnH
BEFORE THE IDAHO PUBLIC UTiliTIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY FOR
AUTHORITY TO INSTITUTE A
PERFORMANCE-BASED PilOT
DEMAND-SIDE MANAGEMENT
INCENTIVE PROGRAM.
CASE NO. IPC-05-05'
APPLICA TION
COMES NOW , Idaho Power Company ("Idaho Power" or the "Company
and in accordance with RP 052 and RP 201 et. seq.hereby applies to the Commission
for authority for Idaho Power to institute a pilot program intended to remove the
disincentives that hinder the Company s pursuit of cost-effective Demand-Side
Management ("DSM") resources. In support of this Application, the Company submits
the following:
Introduction
Commission Order No. 29558 established Docket No. I PC-O4-15 and
approved a schedule of workshops for the purpose of assessing the financial
disincentives that discourage Idaho Power from investing in energy efficiency. During
APPLICATION , Page
the fall and early winter of 2004 several workshops were held with interested parties to
investigate this issue. During the fifth and final workshop held on December 13, 2004 , it
was agreed to by all parties that Idaho Power and the Idaho Public Utilities Commission
Staff ("Staff") would collaborate in the development of a performance-based pilot
incentive program ("Pilot"
).
The purpose of the Pilot is to test the effects of two
mechanisms designed to remove the disincentives that hinder the Company s pursuit of
cost-effective DSM resources. In the Pilot , fixed-cost lost-revenue recovery, combined
with a performance incentive mechanism will be tested on two of the Company
currently operating DSM programs. This application provides the general
implementation plan for the Pilot, describes in detail the proposed mechanisms for
fixed-cost lost-revenue recovery and performance incentives, and provides an estimate
of the financial impact of the proposed mechanisms. The Pilot is proposed to be in
effect during the calendar year 2005.
II.
DSM Programs Proposed for Inclusion in the Pilot
ENERGY ST ARCID Homes Northwest. The ENERGY ST ARCID Homes
Northwest program is the program currently operated by the Company to acquire the
resources identified in the Residential New Construction Option in the 2004 Integrated
Resource Plan ("IRP") and is proposed as a program for this Pilot. This program was
developed by the United States Environmental Protection Agency/Department Of
Energy, the Northwest Energy Efficiency Alliance ("the Alliance ) and Pacific Northwest
electric utilities. The Company piloted this program with the Alliance in 2004. There are
APPLICATION, Page 2
three implementation partners for this program in the Company s service territory; the
Alliance , the State of 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 establishes building standards that will
result in approximately 300/0 greater energy efficiency than would be the case under
existing Idaho residential building codes. The Company provides a standard incentive
of $750 to the builder for each home built to the higher standard and provides marketing
for the program. lED 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.
The ENERGY ST ARCID Homes Northwest program costs for 2005 are
estimated at $502 400 and will be funded through the Idaho Energy Efficiency Rider
Rider
).
The annual energy savings goal for the program in 2005 is 1 ,070 megawatt-
hours ("MWh"), including line losses. A home constructed to the ENERGY ST ARCID
standard in Idaho will save on average 2 078 kilowatt-hours ("kWh") annually as
measured at the meter or 2305 kWh including line losses. At the stated base energy
savings level , the Company will have to achieve a participation level of approximately
515 homes in order to meet the 2005 energy savings goal. This target number
homes takes into account the assumed 50 homes that lED would have completed
through its former residential new construction program had Idaho Power not
implemented the ENERGY ST ARCID Homes Northwest program. Idaho Power will not
recognize the energy savings associated with these 50 homes in determining the total
energy savings for this program.
APPLICATION, Page 3
Rebate Advanta9!t.It was suggested at the December 13 , 2004 Workshop that
the Pilot be expanded to include other aspects of residential new construction, including
the manufactured housing market. The Company has examined the issues surrounding
the inclusion of the Company s existing Rebate Advantage for New Manufactured
Homes DSM program into the Pilot and supports the recommendation. The addition of
this program will bring added value to the learning objectives of the project.
The goal of the Rebate Advantage program is to help buyers purchase
Super Good Cents/ENERGY ST ARCID manufactured homes and to encourage
salespeople to discuss energy efficiency. Customers who purchase a Super Good
Cents/ENERGY STARCID manufactured home and site it in Idaho Power s service
territory are eligible for a $300 incentive payment. In addition , the salesperson receives
a $75 incentive payment.
Idaho Power relies on the Northwest Energy Efficiency Manufactured
Homes Program (NEEM) for the specifications and quality control associated with the
Program. NEEM is a consortium of manufacturers and state energy offices in the
Northwest. In addition to specifications and quality control, NEEM tracks the production
and performance of Super Good Cents/ENERGY ST ARCID homes.
Program costs in 2005 for Rebate Advantage are estimated to be $74 320
and will be funded through the Bonneville Power Administration (BPA) Conservation
and Renewable Discount (C&RD) program. The annual energy savings goal for Rebate
Advantage in 2005 is 503 MWh, including line losses. Based on past program
performance, the estimated average meter-level energy savings per qualified
manufactured home in Id~ho is 3 130 kWh , or 3 471 kWh including line losses. At this
APPLICATION , Page 4
assumed energy savings per home , the Company will have to attract approximately 145
program participants in 2005 in order to meet the energy savings target.
III.
Peer Review Group
As part of the Pilot operation, the Company will assemble a collaborative
peer review group ("Peer Review Group ) that will participate throughout the Pilot
process. The Peer Review Group will be a sub-group of the Company s existing Energy
Efficiency Advisory Group ("EEAG") and will consist of members of EEAG who have
expertise in the areas of residential construction, residential energy management, and
marketing and may also include non-EEAG members chosen specifically for their
technical knowledge. This group will also include representatives from both the
Company and Staff.
The first meeting of the Peer Review Group will be held as soon as
possible after the Commission issues an order approving the Pilot. The first meeting
will be an informational session with the purpose of presenting the Pilot design and
establishing the group s role. Members will become knowledgeable of the Pilot design
DSM program assumptions, and DSM Alternative Costs approved by the Commission in
its order. During the first meeting, members will also discuss the assumptions behind
the program estimates and determine the evaluation studies or surveys needed to
validate the energy savings following the Pilot.
APPLICATION , Page 5
IV.
Establishing and Verifying Savings
Qr!ginal SavinQs Estimates.The Original Savings Estimates represent the
established energy savings amount per home that will be used in the calculation of the
Company s performance level in 2005. The estimates are measured in kWh per year
per qualified home and represent the average estimated reduction in energy usage
between a home constructed under the Pilot specifications and a home constructed
under the typical standard. The Original Savings Estimate for ENERGY ST ARCID Homes
Northwest is 2 078 kWh per home , as measured at the meter. This estimate is based
on an engineering simulation study, conducted for the Company in early 2004 by
Ecotope Consulting to determine the program s savings potential in Idaho. Rebate
Advantage has an Original Savings Estimate of 3 130 kWh per home, as measured at
the meter, that is based on savings estimates developed by the Northwest Power and
Conservation Council's Regional Technical Forum ("RTF"
).
The RTF is responsible for
developing the energy savings estimates for programs operated under the BPA's C&RD
program.
Validated SavinQs Estimates. At the end of 2005 , the energy savings
associated with each of the programs included in the Pilot will be estimated using
evaluation study and survey findings. The Peer Review Group will meet to discuss
findings of the Pilot evaluation and to review the Validated Annual Energy Savings. The
Validated Annual Energy Savings will be used in the lost revenue recovery calculation
for the Pilot. Should the Pilot be extended or become a permanent program the
APPLICATION , Page 6
Validated Savings Estimates would be used as the basis for calculating the
performance incentive beyond 2005.
Fixed-Cost Revenue Recovery
Monthly energy savings will be determined by spreading the Validated
Energy Savings over the 12 months of 2005 using an estimated annual usage curve.
Lost revenue will be calculated only for the specific months that the house is occupied.
The occupancy date of a home will be tracked in Idaho Power s customer information
system and will be equal to the date that a new homeowner initiates service. The
monthly energy savings will be multiplied by the residential fixed-cost revenue
requirement per MWh to determine the revenue losses. For example , if a participating
customer takes occupancy of a home on November 1 , 2005 , the percentage of savings
that is estimated to occur in November and December, as determined by the annual
usage curve , will be multiplied by the residential fixed-cost revenue requirement per
MWh to determine the recoverable revenue. Currently, the residential fixed-cost
revenue requirement per MWh is $30.14 based upon the residential revenue
requirement effective June 28 , 2004 as approved by Order No. 29547. Fixed-cost
revenue losses will be recovered even if program goals that would trigger a
performance incentive are not met.
VI.
Performance Incentive Mechanism
The proposed performance incentive is a shared savings mechanism
designed to incent the Company to vigorously pursue and sustain cost-effective DSM
APPLICATION , Page 7
programs without creating any perverse incentives. This performance incentive design
uses a sliding scale approach that increases the incentive amount as program
performance increases. The energy savings target threshold for ENERGY ST ARCID
Homes Northwest is equal to the energy estimate for the New Residential Construction
Program included in the 2004 RP. The Company has an energy savings target
established for Rebate Advantage in 2005 , which will also serve as the target threshold
for the Pilot. Program performance for the Pilot will be determined by multiplying the
number of program participants for each program by its respective Original Savings
Estimate. Each program included in the Pilot will be evaluated individually in the
calculation of the performance incentive.
The incentive is calculated as a percentage of the present value life-cycle
net benefits of the program from a Total Resource Cost perspective. A program s net
benefit represents the difference between the present value life-cycle gross benefits of
the efficiency measures installed and the Total Resource Cost. Gross benefits are
determined by the DSM Alternative costs included in Table 2 by multiplying the annual
savings amount for a given program by the associated DSM Alternative Cost.
Program costs funded by the Rider and the C&RD program include the
cost of planning, developing, implementing, monitoring and evaluating DSM programs
included in the Pilot. Evaluation costs of the programs in the Pilot are not to exceed 50
of program costs and will be included in the cost-effectiveness calculation. The Total
Resource Cost, which includes the cost to a customer for participating in the program in
2005, is estimated to be $685,600 for ENERGY ST ARCID Homes Northwest and
$256 200 for Rebate Advantage.
APPLICATION , Page 8
The graduated design for incentive thresholds detailed below is believed
to provide a strong incentive to motivate the most positive behavior from a DSM
acquisition perspective. As can be seen from the detail in Table 1 below, a
performance incentive would be awarded when the energy savings achieved exceeds
1000/0 of the savings target. The incentive amount awarded would increase for each
percentage of energy savings achieved above the target up to 1100/0 of the targeted
savings.
Table 1: Performance Incentive Thresholds
1000/0 1100
Percent of MWh Target Achieved 101%102%1 030 1040 1 050 106%070 108%1 090 and
less Greater
Utility Share of Net Benefits (TRG)00/0 10.
VII.
DSM Alternative Cost
The DSM Alternative Costs in Table 2 represent the present value avoided
cost of the next best resource alternative on a per MWh basis for the specific programs
listed. Attachment 1 details the calculation of the DSM Alternative Costs. The DSM
Alternative Cost per unit of energy varies depending upon the load shape associated
with the efficiency measures encouraged by a particular program. The Alternative
Energy Costs listed in Table 2 are applicable only to energy savings associated with
residential DSM measures installed in 2005 and should not be used as avoided costs
for any other resource valuation applications. The DSM Alternative Costs are the same
as those used to pre-screen DSM programs for the Company s 2004 IRP. A detailed
APPLICATION , Page 9
description of the DSM Alternative Costs can be found in the Demand Side Resource
Data section of the 2004 IRP Technical Appendix.
Table 2: 2005 DSM Alternative Costs
(Present value based on a 30 Year Measure Life)
Alternative Energy Cost ($/annual MWh)
ENERGY ST ARCID Homes
1017.
Rebate Advantage
* Costs include line losses of 10.9%.
791.
VIII.
Potential Pilot Results
Tables 3 and 4 detail the possible effects of the proposed Pilot as applied to the
ENERGY ST ARCID Homes Northwest and Rebate Advantage program energy targets for
2005. The estimated incentive amounts shown in Tables 3 and 4 are for illustration
purposes only. Actual incentive amounts will vary depending upon actual program
performance. The gray areas in each table show the estimated fixed-cost revenue
recovery and performance incentive amounts at various energy savings performance
levels. For example, to find the estimated performance incentive amount assuming the
Company achieves 1050/0 of its energy savings target for Rebate Advantage, refer to
Table 4, Column E, Row 2. The Customer Share of Net Benefit shown in Column F on
each table represents the estimated present value decrease in net power supply costs
at various program energy savings performance levels that would be passed through to
customers over the life of the efficiency measures.
APPLICATION , Page 10
Table: 3 Pilot Analysis
Potential Lost Revenue & Incentive Amounts
At Various Performance Levels
ENERGY ST ARCID Homes NW
Energy Savings Target: 1070 MWh
% of MWh Energy % of Net Customer
Target Savings in Benefit Share of Net B/C Ratio
Achieved MWh Earned Benefit (TRC
101%083 00%$ 298,146 1.43
105%131 00%$ 301 ,406
110%190 10.00%$ 303 669 1.45
115%250 10.00%$ 321 795 1.45
Notes:
(B) Column B includes line losses of 10.9%.
(C) Column C is calculated as follows: (B + 1.109 * $30.14)
Fixed-cost lost revenue will likely be less in 2005 since most homes will not achieve full year of energy
sa vings by December.
(E) Column E is calculated as follows: ((B + 1.109 * DSM Alternative Cost) - Total Resource Cost))*
(F) Column F is calculated as follows: ((B + 1.109 * DSM Alternative Cost) - Total Resource Cost))*(1-
(G) Column F is calculated as follows: ((B + 1.109 * DSM Alternative Cost) + Total Resource Cost))
% of MWh Energy % of Net Customer
Target Savings in Benefit Share of Net
Ach ieved MWh Earned Benefit
101%508 00%$102 955
105%528 000 $102 707
110%554 10.000 $101 935
115%579 10.00%$106,569
Table: 4 - Pilot Analysis
Potential Lost Revenue & Incentive Amounts
at Various Performance Levels
Rebate Advantage
Enefi Savin Tafi et: 503 MWh
1.40
1.40
1.40
Notes:
(B) Column B includes line losses of 10.9%.
(C) Column C is calculated as follows: (B + 1.109 * $30.14)
Fixed-cost lost revenue will likely be less in 2005 since most homes will not achieve full year of energy
savings by December.
APPLICATION Page
(E) Column E is calculated as follows: ((B + 1.109 * DSM Alternative Cost) - Total Resource Cost))*
(F) Column F is calculated as follows: ((B + 1.109 * DSM Alternative Cost) - Total Resource Cost))*(1-
(G) Column F is calculated as follows: ((B + 1.109 * DSM Alternative Cost) + Total Resource Cost)
IX.
Recovery of Lost Revenue and Incentive Amounts
The total fixed-cost revenue requirement and incentive amounts will be quantified
at the conclusion of the Pilot and submitted for Commission review in a timely manner
that will allow for recovery of these amounts over a 12-month period beginning June 1
2006.
Notices
Communications with reference to this Application should be sent to the
following:
Barton L. Kline
Monica B. Moen
Idaho Power Company
O. Box 70
Boise, I D 83707
bkline (Q) idahopower.com
mmoen (Q) idahopower.com
Maggie Brilz
Idaho Power Company
O. Box 70
Boise , I D 83707
mbrilz(Q) idahopower.com
WHEREFORE , Idaho Power respectfully requests that the Commission
issue its Order under modified procedure authorizing Idaho Power to implement the pilot
program described above.
DATED at Boise , Idaho, this day of February, 2005.
BARTON L. KLINE
Attorney for Idaho Power Company
APPLICATION , Page 12
TT A CHMENT
Calculation of DSM Altemati ve Cost
Inputs
Discount Rate
Escalation Rate
Line Losses
Seasons
Costing Periods
Hours per Costing Period
Energy Savings per Costing Period
Energy Star(B) Homes NW
Rebate Advantage
Idaho Power Company
852%
52%
10.90%
Summer (Jun. 1 - AU2. 31)
On-Peak Mid-Peak Off-Peak512 960 736
~on-summer (Sept. 1 - May 31)
Mid-Peak Off-Peak3616 2936
14.13%
6.49%
23.38%
10.84%
11.47%
52%
32.82%
45.85%
18.19%
31.30%
Year
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
30-Year Present Value (Mid-Year)
Weighted * DSM Alt. Cost in
$Ik Wh (includes losses)
Energy Star(B) Homes NW
Rebate Advantage
DSM Alternative Cost
Combined Capacity and Energy $IkWh
Summer (Jun. 1 - AU2. 3D ~on-summer (Sept. 1 - May 31)
On-Peak Mid-Peak Off-Peak Mid-Peak Off-Peak
$0.186 $0.036 $0.030 $0.036 $0.029
$0.188 $0.037 $0.031 $0.037 $0.030
$0.189 $0.068 $0.035 $0.038 $0.031
$0.191 $0.073 $0.037 $0.040 $0.033
$0.193 $0.077 $0.038 $0.040 $0.034
$0.195 $0.079 $0.038 $0.043 $0.036
$0.197 $0.082 $0.040 $0.046 $0.037
$0.199 $0.084 $0.041 $0.047 $0.038
$0.201 $0.086 $0.042 $0.048 $0.039
$0.203 $0.088 $0.043 $0.049 $0.040
$0.206 $0.091 $0.044 $0.051 $0.041
$0.208 $0.093 $0.045 $0.052 $0.042
$0.210 $0.095 $0.046 $0.053 $0.043
$0.213 $0.098 $0.047 $0.055 $0.044
$0.215 $0.100 $0.048 $0.056 $0.046
$0.217 $0.103 $0.050 $0.057 $0.047
$0.220 $0.105 $0.051 $0.059 $0.048
$0.223 $0.108 $0.052 $0.060 $0.049
$0.225 $0.111 $0.053 $0.062 $0.050
$0.228 $0.114 $0.055 $0.063 $0.052
$0.231 $0.116 $0.056 $0.065 $0.053
$0.234 $0.119 $0.057 $0.067 $0.054
$0.237 $0.122 $0.059 $0.068 $0.056
$0.240 $0.125 $0.060 $0.070 $0.057
$0.243 $0.129 $0.062 $0.072 $0.058
$0.246 $0.132 $0.064 $0.074 $0.060
$0.250 $0.135 $0.065 $0.075 $0.061
$0.253 $0.139 $0.067 $0.077 $0.063
$0.256 $0.142 $0.068 $0.079 $0.065
$0.260 $0.146 $0.070 $0.081 $0.066
$2.438 $1.004 $0.511 $0.586 $0.479
$0.382
$0.176
Total
$1.017
$0.791
$0.260
$0.121
$0.065
$0.031
$0.213
$0.298
$0.097
$0.166
Notes:
* DSM Alternative Costs are weighted by the percentage of energy that is expected to occur within each costing period
according to the values shown in the Inputs section under the heading "Energy Savings per Costing Period.