20090423Reply Comments.pdf

esIDA~PO~
An IDACORP Company
BARTON L. KLINE
Lead Counsel
April 24, 2009
VIA HAND DELIVERY
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
P.O. Box 83720
Boise, Idaho 83720-0074
Re: Case No. IPC-E-09-02
EnerNOC
Dear Ms. Jewell:
Enclosed for filing please find an original and seven (7) copies of Idaho Power
Company's Reply Comments in the above matter.
I would appreciate it if you would return a stamped copy of this letter for my file in
the enclosed stamped, self-addressed envelope.
Very truly yours,ßM~Barton L. Kline
BLK:csb
Enclosures
P.O. Box 70 (83707)
1221 W. Idaho St.
Boise, 10 83702
BARTON L. KLINE (ISB No. 1526)
LISA D. NORDSTROM (ISB No. 5733)
Idaho Power Company
P.O. Box 70
Boise, Idaho 83707
Telephone: [phone]
Facsimile: 208-338-6936
bklineßùidahopower.com
Inordstromßùidahopower.com
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iong e,PR 23 AM 10: 22
Attorneys for Idaho Power Company
Street Address for Express Mail:
1221 West Idaho Street
Boise, Idaho 83702
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER
COMPANY'S APPLICATION FOR
APPROVAL OF AN AGREEMENT TO
IMPLEMENT A COMMERCIAL DEMAND
RESPONSE PROGRAM.
)
) CASE NO. IPC-E-09-02
)
) IDAHO POWER COMPANY'S REPLY
) COMMENTS
)
COMES NOW, Idaho Power Company ("Idaho Power" or "Company") and
hereby replies to the Comments of the Industrial Customers of Idaho Power ("ICIP" or
"Industrial Customers") filed on April 13, 2009.
I.
Idaho Power appreciates ICIP's continuing support of the Company's demand-
side management programs. ICIP's Comments demonstrate its understanding that
innovative, flexible, and cost-effective demand response ("DR") programs wil not only
benefit participating commercial and industrial customers but all customers by providing
long-term reductions in costs and more effcient use of resources.
IDAHO POWER COMPANY'S REPLY COMMENTS - 1
II.
The Irrigation Peak Rewards Program Is Not a Reasonable Comparator
For the Commercial DR Program to Be Implemented
Through the EnerNOC Agreement.
In its Comments, the ICIP makes specifc recommendations for modifications to
the February 23, 2009, agreement between. Idaho Power and EnerNOC (the
"Agreement". The Agreement sets out the terms and conditions under which EnerNOC
wil act as an aggregator to deliver demand reduction voluntarily acquired from the
Company's industrial and commercial customers (the "Commercial DR Program" or
"CIDR Program"). Unfortunately, ICIP's proposals to change the CIDR Program are
based on a faulty premise. The premise underlying the ICIP's proposal for changes to
the CIDR Program is that a demand response program for industrial and commercial
customers can be conducted in a manner that is substantially similar to the Irrigation
Peak Rewards Program. On page 2 of its Comments, ICIP states, "The Program for the
commercial and industrial customers purchases an identical product - dispatchable
demand response - as does the Irrigation Peak Rewards program. It is therefore
reasonable to use the Irrigation Peak Rewards Program as a benchmark against which
to measure the EnerNOC aggregation program." (ICIP Comments, p. 2.)
ICIP's conclusion that demand response is a generic product and therefore
programs for acquiring that generic product can also be generic is incorrect. Idaho
Power has determined that while it is reasonable to implement a demand response
program in which Idaho Power contracts directly with individual irrigation customers, it is
not practical to implement the same type of program for commercial and industrial
customers at this time.
IDAHO POWER COMPANY'S REPLY COMMENTS - 2
II.
A Tariffed. Uniform DR Program Wil Work with Irrigation Customers but It Wil
Not Work With Commercial and Industrial Customers.
Irrigation customers are alike in that they operate similar equipment on a similar
load profile. Program implementation involves the installation of a standard control
device that either turns off or does not allow irrigation pumps to turn on, and affects
customer operations similarly in most cases. In almost all cases, the exception being
the very few locations where fifteen minute metering is available on irrigation pumps
over 1,000 cumulative horsepower on a single meter, all pumps and load on a single
metered service point are controlled. Under these conditions, a tariffed, one-size-fits-all
program wil work.
In contrast, Idaho Power's commercial and industrial customers have a large
variety of energy-using equipment associated with anyone meter. Their usage varies
greatly and their load profiles are very diverse. While one customer may operate
Monday through Friday, 8 a.m. to 5 p.m., and use air-conditioning and lighting only,
another may operate a food processing line 24 hours per day, seven days per week.
One may have the flexibility to curtail their electric use at any time, and the other may
only be able to do it at certain times. In order to accommodate each customer's
individual needs and stil deliver a firm peak load reduction, it is necessary to aggregate
customers into a "reduction portolio." EnerNOC has extensive experience in managing
such a portolio, which includes building an appropriate "reserve margin" of load
reduction capacity so that a firm level of capacity can be guaranteed to Idaho Power. In
addition, each commercial-industrial customer site wil vary in the requirements to install
IDAHO POWER COMPANY'S REPLY COMMENTS - 3
monitoring and control equipment, which is more easily managed by an experienced
aggregator who can negotiate individual customer contracts accordingly.
Given the above-described variables, Idaho Power determined that the cost of
the infrastructure required to operate a commercial-industrial customer DR program in-
house, as well as the added time it would take to ramp a program into full-scale
operation, made third-part implementation the best option.
Idaho Power has had five years to work with irrigation customers on a demand
response program and obtain a level of confidence of demand reduction potential,
utilizing historical data. In contrast, the Company's lack of experience and lack of
historical data for a demand response program for commercial and industrial customers
makes it diffcult to determine demand reduction potentiaL. EnerNOC is able to commit
to a firm demand reduction amount that Idaho Power can utilize for planning purposes.
EnerNOC assumes all risk of underperformance, including liquidated damages, which
creates a system of checks and balances that is important to meet Idaho Power
dispatch needs while being mindful of customer needs.
iv.
Under the CIDR Program. Payments to Participants Wil Reflect Both the Cost to
Acquire and Value of DR Provided by the Individual Participants.
On pages 4 and 5 of the ICIP's Comments, ICIP complains that industrial and
commercial customers under the Agreement may not get paid as much as the irrigation
class for demand response. Again, the ICIP bases this critique on its understanding
that the product being purchased from the irrigators is identical to the product
purchased under the CIDR Program. "There is no offer of justification for this price
IDAHO POWER COMPANY'S REPLY COMMENTS - 4
disparity for the purchase of an identical product - dispatchable demand reduction."
(ICIP Comments, p. 4-5.)
ICIP misunderstands the pricing arrangement under both the Irrigation Peak
Rewards Program and the CIDR Program. The $4.65 per biled kW of demand offered
through the irrigation program is a capacity payment, and does not include the entire
incentive paid to the customer. Participants in Peak Rewards also receive an energy
credit associated with their monthly biled energy use. The combination of the capacity
and energy payments to irrigation customers averages to about $32 per kW per
summer season, but varies by customer, depending on their individual monthly biled
energy use. This does not include the labor costs, equipment costs, and overheads
associated with operating this program.
Similarly, participants in the Commercial DR Program wil be paid a capacity
payment to make demand reduction available, but unlike the irrigation program,
participants wil be paid an energy payment each time an event is called. Irrigation
customers are paid up to $4.65 per kW of billed demand and $0.031 per kWh for their
biled energy usage in June and July. Customers participating under contract with
EnerNOC will receive a kW payment and an energy payment associated with each DR
event based on actual demand and energy reduction calculated from meter data. The
amount paid per kW to the commercial and industrial customers wil vary depending on
the number of events called in a season and the frequency of events called in a week or
month.
EnerNOC has publicly stated that participating customers who contract with
EnerNOC will likely receive between $25 and $35 per kW annually, depending on the
IDAHO POWER COMPANY'S REPLY COMMENTS - 5
number of events called, frequency of events called, and the equipment and installation
costs EnerNOC must invest at the site of each participating customer. This range of
payments is very similar to the yearly average of $32 per kW that irrigation customers
wil receive.
Participants wil enter into a standardized contract with EnerNOC. See
confidential Exhibit F - Form of Demand Response Services Agreement - attached to
the Agreement that was filed with the Company's Application.
On page 3 of its Comments, ICIP expresses a concern that EnerNOC may take
advantage of the inexperience of commercial and industrial customers when it
negotiates contracts. Since customers like the Idaho National Engineering Laboratory,
Micron Technology, and ICIP members like J. R. Simplot Company are Idaho Power's
most sophisticated customers in terms of both understanding and analyzing energy and
demand use, it is diffcult to believe that they could not readily evaluate the value of a
proposed relationship with EnerNOC.
Idaho Power acknowledges that some other commercial customers are not as
large and sophisticated as the large industrial customers described above. However, a
fair number of potential participants in the CIDR Program are members of large national
chains of companies such as Rite-Aid, Albertsons, Kroger (Fred Meyer-Smiths Foods),
Home Depot, and others. One of the benefits of utilizing EnerNOC is that many national
chains of commercial businesses have worked with EnerNOC in other jurisdictions and
therefore are familiar with how EnerNOC operates and manages its demand reduction
programs. The bottom line is that there is more customer sophistication associated with
the CIDR Program than ICIP acknowledges.
IDAHO POWER COMPANY'S REPLY COMMENTS - 6
v.
Other Comparisons to Irrigation Peak Rewards Program.
The ICIP makes several additional comparisons between the Commercial DR
Program and the Irrigation Peak Rewards Program. Idaho Power agrees that there are
(and should be) differences between the programs. The rationale supporting those
differences is addressed in the following:
1. Advance Notice Provisions. ICIP notes that participants in the
Irrigation Peak Rewards Program wil receive notice of an event of curtailment by 4:00
p.m. on the day before the event begins. Under the CIDR Program, participants wil
receive a notice of curtailment 2 hours before the event begins. ICIP argues that, "If
day ahead notice is suffcient for the Irrigation Peak Rewards participants, it should also
be made available to the commercial and industrial participants in the EnerNOC
managed program." (ICIP Comments, p. 4.)
Idaho Power evaluated dispatch needs, researched commercial and industrial
DR programs throughout the country, and negotiated with EnerNOC to determine
appropriate notification for a curtailment event. Industry practices for this type of
program ranged from less than 10-minute notification to day-ahead notification, and
many programs operate successfully with 10-minute to 30-minute advance notification.
The Company considered that the attractiveness of the program to customers would
decrease with shorter advance notice, while the usefulness of the program to meet the
Company's dispatch needs would decrease with longer advance notice. In particular,
the cost-effectiveness of the program is dependent on Idaho Powets ability to call an
event during peak demand hours, and the Company reached what it determined to be
IDAHp POWER COMPANY'S REPLY COMMENTS - 7
an appropriate balance between a 10-minute prior notice program and a day-ahead
program. While Idaho Power recognizes there is a potential loss of some load reduction
based on 2-hour notice, the program targets were determined with that in mind. In the
case of the Irrigation Peak Rewards Program, the customer is given day-ahead notice
of a DR event; however, events may be canceled by 1 :30 p.m. the day of the event,
which could result in less than 2-hour advance notification if an event were scheduled to
begin at 2:00 p.m.
2. Opt-Out and Drop-Out Rights. ICIP again argues that the
Commercial DR Program should emulate the Irrigation Peak Rewards Program with
respect to opt-out and drop-out rights. However, in this case, that recommendation is
misplaced. The opt-out and drop-out rights under the Commercial DR Program are
more generous than the opt-out rights available to participants in the Irrigation Peak
Rewards Program. Participants in the CIDR Program wil never pay penalties for failure
to perform and can drop out of the program at any time with no penalties, whereas
Irrigation Peak Rewards participants wil receive a $500 penalty to withdraw from the
program completely. Because commercial and industrial DR customers wil be paid
based on actual metered load reduction, the customer wil be compensated for
performance - if they do not reduce demand, they wil not be compensated.
3. Dates of Potential Curtailments. ICIP notes that under the Irrigation
Peak Rewards Program irrigators can be curtailed between June 15 and June 31, while
under the CIDR Program, curtailments can occur between the dates of June 1 through
August 31. ICIP again argues that the CIDR Program should emulate the Irrigation
IDAHO POWER COMPANY'S REPLY COMMENTS - 8
Peak Rewards Program and shorten the season during when curtailments can be called
by Idaho Power.
The active program months for the CIDR Program were determined based on
Idaho Powets summer On-Peak times. While historical data suggests that the peaks
tend to fall within a smaller window consistent with the irrigation program, the fact
remains that peaks are fluid and may, within the next 5 years, fall outside of the window
of June 15 to July 31, which the irrigation program uses. Given that the purpose of the
CIDR Program is to reduce peak demand, in combination with the fact that the
Agreement with EnerNOC extends over 5 years, it is important that Idaho Power
maintain the flexibility to call events during the summer during all on-peak times,
including all of June and August. This provides maximum value for the entire body of
the Company's customers.
VI.
Conclusion
The ICIP's efforts to make the best parts of both the proposed Commercial DR
Program operated by EnerNOC and the Irrigation Peak Rewards Program available to
its members are understandable. Unfortunately, this approach fails to recognize the
substantial difference between the types of customers involved. Use of an aggregator
like EnerNOC wil allow the Company to move forward much more quickly to implement
DSM programs for the industrial-commercial class. EnerNOC is an experienced
aggregator and has operated this program in numerous jurisdictions. The CIDR
Program is a voluntary program that imposes very limited requirements on the industrial
and commercial customers that choose to participate. Based on its experience,
IDAHO POWER COMPANY'S REPLY COMMENTS - 9
EnerNOC believes that it can demonstrate to the Company's industrial and commercial
customers that participating with EnerNOC in a demand response program wil benefit
the customer, EnerNOC, and Idaho Power. In fact, EnerNOC is suffciently confident
that it wil be successful in marketing its program that it is willng to suffer economic
consequences if it does not meet its goals. It would be unreasonable for Idaho Power
to develop custom, tailored programs for each of its industrial and commercial
customers in a timely manner. Idaho Power requests that the Commission allow the
Company to proceed with the CIDR Program as presented without the changes
proposed by ICIP.
Respectfully submitted this 23rd day of April 2009.
~!ic
BARTON L. KLINE
Attorney for Idaho Power Company
IDAHO POWER COMPANY'S REPLY COMMENTS - 10
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 23rd day of April 2009 I served a true and
correct copy of IDAHO POWER COMPANY'S REPLY COMMENTS upon the following
named parties by the method indicated below, and addressed to the following:
Commission Staff
Neil Price
Deputy Attorney General
Idaho Public Utilities Commission
472 West Washington
P.O. Box 83720
Boise, Idaho 83720-0074
-l Hand Delivered
U.S. Mail
_ Overnight Mail
FAX
-l Email Neil.pricecæpuc.idaho.gov
Industrial Customers of Idaho Power
Peter J. Richardson, Esq.
RICHARDSON & O'LEARY PLLC
515 North 2¡th Street
P.O. Box 7218
Boise, Idaho 83702
Hand Delivered
-l U.S. Mail
_ Overnight Mail
FAX
-l Email petercærichardsonandoleary.com~ic.
Barton L. Kline
IDAHO POWER COMPANY'S REPLY COMMENTS - 11