20070312final_order_no_30268.pdf

Office of the Secretary
Service Date
March 12, 2007
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF IDAHO POWER COMPANY
IMPLEMENT A DEMAND SIDE
MANAGEMENT INCENTIVE PILOT
PROGRAM ORDER NO. 30268
CASE NO. IPC-06-
On December 18, 2006, Idaho Power Company (Idaho Power; Company) filed an
Application with the Idaho Public Utilities Commission (Commission) requesting authority to
implement a pilot program that provides for positive incentives (increased revenue or payments)
or negative incentives (reduced revenue or penalties) for achieving, or failing to achieve, agreed-
upon levels of performance in implementing demand-side management (DSM) programs.
Idaho Power proposes that the DSM incentive program first be operated as a pilot
program and applied only to a single DSM program for a three-year period. Idaho Power has
selected the ENERGY STAR
(!!)
Homes Northwest program as the DSM program to be used as the
pilot. The Company s Application is separate from but related to the Joint Motion for Approval
of Stipulation filed December 18, 2006 in Case No. IPC-04-15 (Application to Implement a
Fixed Cost Adjustment Decoupling Mechanism). The Commission in this Order approves the
DSM incentive pilot program.
Proposed Pilot Program
Idaho Power in this Application requests authority to implement a DSM incentive
mechanism that would allow the Company to retain a portion of the cost-reducing benefits
accruing from a DSM program operated by the Company. The incentive would be earned only if
the Company has done an exceptional job in implementing the DSM program. The incentive
mechanism would also allow for a "penalty" payment by the Company if Idaho Power
performance falls below previously agreed-upon goals.
Based on discussions between the parties in the IPC- E-04-15 case workshops, Idaho
Power has selected the ENERGY STAR
(!!)
Homes Northwest program as the DSM program to be
used as the pilot to test the efficacy of a DSM incentive program. The ENERGY STAR
(!!)
Homes
Northwest program is currently operated by the Company to acquire the resources identified in
the Residential New Construction Option in the Company s 2004 IRP. The essential feature of
ORDER NO. 30268
this program is a prescriptive building standard, also called a building option package or BOP
that establishes building standards that will result in approximately 30% greater energy
efficiency than existing Idaho residential building codes. Under the program, the Company
provides an incentive payment of $750 to the builder for each home built to the higher standard
and also provides marketing to encourage participation in the program. The Energy Division of
the Idaho Department of Water Resources certifies that homes are built to the standard and
conducts a quality assurance process. The Northwest Energy Efficiency Alliance (NEEA)
provides the builder outreach and training components of the program. On average, a home
constructed to the ENERGY ST AR
(!!)
standard in Idaho will save 2 078 kilowatt hours (kWh)
annually as measured at the meter or 2 305 kWh including line losses. This estimate is based on
an engineering simulation study conducted for the Company in early 2004 by Ecotope
Consulting to determine the program savings potential in Idaho.
The ENERGY STAR
(!!)
Homes Northwest program, the mechanics of the incentive
program proposed by the Company and the rationale supporting the DSM incentive program are
more particularly described in the testimony of Company witness Timothy E. Tatum filed with
the Application.
Idaho Power is proposing a three-year pilot beginning in January 2007 and ending at
the end of 2009. Under the pilot the Company would receive an incentive payment ifthe market
share of homes constructed under the ENERGY STAR
(!!)
Homes Northwest program exceeds: (1)
7% of the total number of homes for which construction permits are issued in Idaho Power
service area in 2007, (2) exceeds 9.8% of newly permitted homes in 2008 and (3) exceeds 11.7%
of newly permitted homes in 2009. These percentage levels are the target goals and if Idaho
Power exceeds these targets, it would receive an incentive payment equal to the percentage
benefit that exceeds the target. For example, ifIdaho Power is able to achieve 105% of the 7%
target percentage in 2007, Idaho Power would receive a payment equal to 5% of the total
program net benefits. The incentive program would be capped at 10% of program net benefits.
Penalties would be levied for 2007, 2008 or 2009 if in any of those years Idaho Power
ENERGY STAR(!!) Homes Northwest program fails to reach the market share of 4.
preliminarily estimated as achieved in 2006.
On January 4, 2007, the Commission issued Notices of Application and Modified
Procedure in Case No. IPC-06-32. Under Modified Procedure a case is processed by written
ORDER NO. 30268
submission rather than by hearing. Reference IDAPA 31.01.01.201-204. The deadline for filing
written comments was January 31 , 2007. Comments were filed by the Industrial Customers of
Idaho Power, NW Energy Coalition, Commission Staff and one of the Company s customers.
Comments can be summarized as follows:
Public Comment
The customer filing comments summarizes the Company s two filings in Case Nos.
IPC-04-15 and IPC-06-32. One, he states, would allow an annual increase to customers
electric rates if Company investments in energy efficiency programs increase Company costs.
The other, he states, would give the Company financial incentives for meeting performance
levels in a program to encourage energy-efficient home construction.
As the customer recalls, the most recent rate increase allowed to Idaho Power was
justified by the increase in demand for electricity. Now, as he understands it, Idaho Power is
. seeking a rate increase if demand is decreased by conservation or efficiency measures. The
customer concludes that ratepayers are being asked to pay for both increased and decreased
usage.
NW Energy Coalition
NW Energy Coalition recommends approval of the DSM Incentive Pilot as filed by
Idaho Power. The Coalition was an active participant in the workshops held in the IPC-E- 04-
docket, which evaluated both a fixed-cost adjustment mechanism and performance incentives for
DSM.
The Coalition expresses its long belief that electric utilities should be rewarded for
providing excellent customer service and securing the least-cost and least-risk resources for its
customers. The Coalition contends that the DSM Incentive Pilot is consistent with that goal.
One of the main criticisms of DSM performance incentives, the Coalition contends
is that they tend to place enormous importance on the audit of the DSM program s actual energy
savings. The ENERGY ST AR
(!!)
Homes program, it states, is a good choice for the pilot because
of the active involvement of the Idaho Energy Division. The program s level of success, it
therefore states, will be transparent.
The Coalition supports the DSM Incentive Pilot additionally because it is structured
in such way that it believes Idaho Power will need to show excellent performance in order to
share in the net benefits of the program. The Coalition claims that the Northwest Energy
ORDER NO. 30268
Efficiency Alliance (NEEA) market-share goals are significantly higher than the Company
level of performance in 2006. If the Company s 2007 performance is better than 2006, but not
up to the NEEA goals, no penalty or incentive payment will occur. The Coalition believes this
banding" approach is appropriate because of the dynamic nature of the construction industry.
Lastly, the Coalition believes the Company proposes a reasonable approach to
exclude costs incurred by the NEEA when calculating the ENERGY STAR(!!) program s net
benefits in Idaho.
Industrial Customers of Idaho Power
The Industrial Customers of Idaho Power (ICIP) requests that the Commission deny
Idaho Power s Application to implement the DSM Incentive Pilot Program. ICIP contends that
customers should not be required to pay Idaho Power to induce it to undertake cost-effective
conservation activities. ICIP understands that the amount of money that may be at issue under
the proposed pilot is relatively small. Despite the modest dollar amount, however, the principle
at issue in this proceeding, it contends, is quite significant and troubling to ICIP.
Although Idaho Power s Application for the DSM Incentive Program is in a separate
docket from its Application to implement a decoupling pilot program (Case No. IPC-04-15),
ICIP notes that the two are related. ICIP states that it agreed to not actively oppose Idaho
Power s request for a decoupling mechanism. The purpose of the decoupling mechanism is to
remove disincentives that may be keeping Idaho Power from achieving conservation that it
otherwise would, absent those disincentives. The DSM Incentive Pilot Program would go
further by affirmatively adding financial incentives for Idaho Power to achieve conservation.
ICIP believes that if the Company cannot or will not make every effort to achieve cost-effective
conservation without incentive payments from its customers, the Commission should assign that
task to a third-party provider of conservation.
ICIP further contends that a DSM Incentive Pilot Program (IPC-06-32) should not
be implemented during the decoupling pilot program (IPC-04-15). Doing so, it contends, will
combine the risks that would be associated with each pilot program individually, and may
confound and contaminate the information derived from the decoupling pilot proposal. It is
difficult to understand, it states, how either pilot program could be separately and objectively
evaluated at the end of the pilot period if both have the same end goal and were tested during the
same period.
ORDER NO. 30268
Commission Staff
Staff recommends that the proposed pilot incentive mechanism be approved
contingent upon quarterly progress reports being filed by Idaho Power, and a clear understanding
that the pilot's metrics may need to be refined or otherwise modified, or the pilot eliminated
before the end of the three-year trial.
Rewarding Idaho Power for exceptional achievement in encouraging construction of
homes that are cost-effectively built to reduce both overall energy consumption and peak
demand, Staff contends, is conceptually appealing. Clearly, Idaho Power s customers, it states
will benefit if more homes in the Company s Idaho service area are built to ENERGY STAR
(!!)
standards, as opposed to minimum building code standards.
Despite its approval recommendation, Staff notes that the proposed DSM Incentive
Pilot suffers technical difficulties in the following areas: (1) arbitrariness in setting reasonable
average" achievement goals; (2) uncertainty in measuring the actual Energy Star homes
percentage achieved; (3) ambiguity in determining what constitutes "exceptional" and "poor
levels of achievement; (4) potential for rewarding or penalizing Idaho Power due to factors
unrelated to its program efforts; (5) necessary but problematic exclusion of regional marketing
costs and benefits; (6) calculating the incentive or penalty using allocation of joint costs based
only on heating and cooling degree days, not on actual energy savings or peak reductions; and
(7) uncertainties of average savings per home and base percent of Energy Star homes achieved in
2006.
The numerous challenges identified by Staff, Staff cautions, warrant close monitoring
of this pilot. None of the problems by themselves, or even all of them combined, Staff contends
rise to the level of negating the benefits of cost-effectively building more energy efficient homes.
All of the technical difficulties and uncertainties, Staff contends, are metric issues that should
remain negotiable among the Staff, Idaho Power, and other parties during the course of the pilot
incentive mechanism. Staff expects that any modifications to the pilot would be presented to the
Commission for its approval before any incentives or penalties are incurred.
Commission Findings
The Commission has reviewed the filings of record in Case No. IPC-06-32 and the
related filings and recommendations.Based on a review of same we continue to find it
ORDER NO. 30268
reasonable to process this case pursuant to Modified Procedure, i.e., by written submission rather
than by hearing. IDAPA 31.01.01.204.
It is the Commission s belief that all customers will benefit from the cost effective
construction of more energy efficient homes. We find that the potential benefits of the proposed
three-year DSM Incentive Pilot Program outweigh any disadvantages in implementing this pilot
contemporaneous with the three-year pilot Fixed Cost Adjustment (FCA) mechanism we
approve in Case No. IPC-04-15 (Order No. 30267). As identified by Staff there are numerous
challenges presented in the ENERGY ST AR
(!!)
Homes Northwest program that warrant close
monitoring of the pilot. We accordingly find Staff s recommendation regarding quarterly
progress reports to be reasonable.
ICIP contends that if decoupling alone is not sufficient to encourage implementation
of cost effective DSM and conservation measures, that a third party should be designated to
select and run the Company s DSM and conservation programs. The Commission understands
ICIP's position and believes that a more prudent course is to monitor the Company s efforts. We
address the customer s concerns in our FCA Order. The Commission finds it reasonable to
approve the pilot program as proposed. We anticipate, however, that we may be asked to accept
changes to the pilot's metrics before any incentives are paid or penalties are assessed. We also
understand that the program may perhaps be eliminated if successful monitoring metrics cannot
be established.
CONCLUSIONS OF LA W
The Idaho Public Utilities Commission has jurisdiction over this matter and over
Idaho Power, an electric utility, pursuant to the jurisdiction granted under Title 61 of the Idaho
Code and the Commission s Rules of Procedure, IDAPA 31.01.01.000 et seq.
ORDER
In consideration of the foregoing and as more particularly described and qualified
above, IT IS HEREBY ORDERED and the Commission does hereby approve the proposed
three-year Demand-Side Management ENERGY STAR
(!!)
Homes Northwest Incentive Pilot.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code ~ 61-626.
ORDER NO. 30268
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 1;1..
+J...
day of March 2007.
(;j'
, PRESIDENT
MARSHA H. SMITH, COMMISSIONER
ATTEST:
it:
1r~ Je D. Jewell
Co missIOn Secretary
bls/O:IPC-O6-
ORDER NO. 30268