20090529final_order_no_30814.pdf

Office ofthe Secretary
Service Date
May 29, 2009
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR ) CASE NO. IPC-09-
AUTHORITY TO REVISE THE ENERGY
EFFICIENCY RIDER, TARIFF SCHEDULE 91 ) ORDER NO. 30814
On March 13 , 2009, Idaho Power Company filed an Application for authority to
increase its Energy Efficiency Rider, Tariff Schedule 91 , from 2.5% to 4.75% of base revenues
effective June 1 2009. The Energy Efficiency Rider is a means for Idaho Power to fund most of
its demand-side management (DSM), or energy efficiency, programs. The Rider, initially
approved in 2002 to collect 0.5% of base revenues, was implemented as a $.30-per-month charge
to residential customers and a cents-per-kilowatt hour charge for all other customer classes.
Irrigation customer charges were capped at $15.00 per month per meter.In 2005, the
Commission approved an increase in the Rider to 1.5% of base revenue applied uniformly to all
customer classes, with residential charges capped at $1.75 per month per customer and irrigation
charges capped at $50.00 per meter per month. The current Rider, in effect since June 1 2008 , is
5% of base revenue, with no caps for any customer class.
On April 10 , 2009, the Commission issued a Notice of Application and Notice of
Modified Procedure establishing a period for interested parties to file written comments. Order
No. 30778. Written comments were filed by the Commission Staff, the Idaho Irrigation Pumpers
Association, Inc., and the Northwest Energy Coalition - all in support of the proposed increase in
the Rider - and by several residential customers of Idaho Power, all but one of whom oppose an
increase in the Rider. By this Order, the Commission approves Idaho Power s Application to
increase the Energy Efficiency Rider from 2.5% to 4.75% of base revenues.
The Application
The Rider currently collects about $17.4 million per year to support Idaho Power
DSM programs. If increased to a 4.75% Rider effective June 1 , 2009, the Company forecasts
Rider revenues of $27.3 million in 2009, and $33.2 million in 2010 and in 2011 , for a total of
$93.7 million over the three-year period. The Company s Application states it anticipates DSM
program expenditures to be $29.7 million in 2009, $29.5 million in 2010 and $31.8 million in
2011; a total of $91.0 million. Updated projections, however, show higher expenditures than
ORDER NO. 30814
stated in the Company s Application. When Idaho Power filed its Application on March 13, it
anticipated that costs for the Irrigation Peak Rewards program would increase from $1.4 million
in 2008 to $7.2 million in 2009. The Company now estimates that this program will cost $10.2
million in 2009.
By the end of 2008 the Rider-funded account had a deficit balance of $3.9 million.
As initially stated in Idaho Power s Application, the sum of 2009-2011 projected expenses and
last year s deficit balance is $94.9 million. If the Rider is increased as the Company proposes
Idaho Power projects the deficit in the Rider account will be $1.2 million at the end of2011.
Idaho Power included with its Application its Demand-Side Management 2008
Annual Report. Exhibit No.1. This Report provides information regarding the Company
DSM programs, including customer participation, costs and funding sources, energy and demand
savings, benefit/cost ratios, program histories, 2008 activities, and 2009 strategies. Idaho Power
provides cost-effectiveness metrics for each of its programs in the detailed program descriptions
in the 2008 DSM Report, as well as in Appendix 4 of the Report, which also provides a year-by-
year history of program participation, costs and benefits. According to this Report, each of Idaho
Power s major DSM programs is expected to produce more beneficial value in energy savings
and peak load reductions over time than the program s cost. Idaho Power also completed post-
implementation program evaluations for many of its programs and has used these evaluations to
both modify programs and to verify their cost-effectiveness.
The Written Comments
In its comments, Staff identified the Rider-funded programs, expenses for 2008 as
stated by Idaho Power in its DSM Report, and recently updated projected expenses for 2009.
Most programs are expected to have higher participation and costs in 2009 than in 2008, while a
few are expected to decrease. Staff noted that projecting precise future DSM expense levels is
difficult because estimates of future DSM expenses are subject to variables such as future
integrated resource plans ' (IRP) identification of cost-effective DSM and willingness and ability
of customers to participate in new and existing programs. Staff Comments, pp. 2-
Staff projected 2009 DSM expenses to be $32.5 million, nearly $3 million higher than
shown in the Company s Application and exhibits. The discrepancy results from updated
projections provided by Idaho Power and is primarily due to greater-than-anticipated
participation in the recently revised Irrigation Peak Rewards program. The most significant
ORDER NO. 30814
revisions to this program were the addition of a dispatchable irrigation pump interruption and
increased financial incentives for participation in this option. The $8.8 million anticipated
increase for this program represents nearly two-thirds of the $13.7 million expected increase for
the total portfolio of Rider-funded programs from 2008 to 2009. Staff Comments, Attch. A.
Staff expects the Irrigation Peak Rewards program, as modified, is capable of reducing peak
loads by about 200 megawatts (MW). Staff Comments, p. 3.
Staff reviewed the proposed funding level and supports Idaho Power s request to
increase its Energy Efficiency Tariff Rider from the current 2.5% of base revenues to 4.75% of
base revenues. Staff recognized, however, that the proposed increase may be insufficient to both
fund on-going DSM expenses and recover the current Rider balance deficit. To the extent the
75% Rider proves to be insufficient, Staff recommended other funding alternatives be
considered, such as recovering some DSM expenses from base rates as is currently the case for
low-income weatherization. Another alternative is to capitalize, rather than expense, some DSM
costs. Staff Comments, p. 5.
The Northwest Energy Coalition also supports Idaho Power s proposal to increase the
Rider to 4.75% of base revenues, although the Coalition believes the increase "is insufficient to
capture all the cost-effective energy savings potential in Idaho Power s service territory and to
operate robust demand-response programs to reduce peak generation resource needs." Coalition
Comments, p. 1. The Coalition noted that "using electricity more efficiently is the quickest and
least-cost approach to meeting customers' power needs " because it reduces customers' bills and
reduces loads during peak periods when Idaho Power s system is most stressed. Id. The
Coalition expressed concern, however, that a majority of additional Rider revenue will be needed
to pay for the expanded Irrigation Peak Rewards Program, the new commercial demand response
program, and to pay the DSM program deficit. Coalition Comments, p. 3. The Coalition
supports Idaho Power s request to increase rider funding, but recommended the Commission
increase the rider level beyond 4.75 percent to allow for increases in core efficiency program
budgets and additional investments in NEEA (Northwest Energy Efficiency Alliance)."
Coalition Comments, p. 4.
The Idaho Irrigation Pumpers Association, Inc. (Irrigators) filed comments in support
ofldaho Power s proposed increase in the Rider. The Irrigators recognize that a large portion of
the increases in the Company s DSM expenditures relates to the expansion of the Irrigation Peak
ORDER NO. 30814
Rewards Program, but stated that "the new program is expected to increase the avoided summer
peak demand under the program from the 35 MW that was realized in 2008 to approximately 230
MW by 2011.Irrigators Comments, p. 1. The Irrigators noted the "avoided summer peak
demand under the Peak Rewards Program or the A/C Cool Credit benefits the whole system by
avoiding or deferring the acquisition of other higher cost system resources.
Comments, p. 2.
Irrigators
Several members of the public filed written comments, all but one opposing an
increase in the Energy Efficiency Rider. The customer expressing support conditioned it upon
Rider funds "being spent in the most effective ways and that energy use is being reduced so as to
keep the rates low because of reducing the need to build new generation and transmission
(facilities)." Customers opposing a rate increase objected to other Company-proposed increases
to pay for fixed cost adjustments (Case No. IPC-09-06) and for installation of advanced meters
(Case No. IPC-09-07). One customer stated that if energy efficiency programs are successful
I would expect Idaho Power to be DECREASING our rates due to the efficiencies they have
already implemented per existing programs." Another customer stated he had never participated
in any conservation program, but had been paying into the Rider since its inception. This
customer believes "each power user should pay for their own efficiency upgrade of its own
facilities. "
Commission Discussion and Decision
The most expensive electricity resources are additional generation, transmission and
distribution facilities, regardless of whether the facilities are thermal, hydro, wind, solar or other
alternatives. The least costly electricity resources are conservation and energy efficiencies
achieved by customers on their own initiative using their buildings, appliances, lights, irrigation
systems, and industrial processes more efficiently, thereby avoiding program administration
costs. However, it is increasingly evident that without incentives most customers do not tend to
use electricity as efficiently as rational economic theory suggests they should. This less-than-
optimum efficiency is perhaps due to a combination of Idaho Power s historically low electricity
rates, lack of customer knowledge and related misconceptions about efficiency, and a perceived
need for inordinately high implicit discount rates; that is, individuals and businesses often require
much higher rates of return for energy efficiency investments than for competing, alternative
investments.
ORDER NO. 30814
The second least costly electricity resource is available when utilities prudently
administer cost-effective programs that provide monetary incentives and education for customers
to increase their efficiencies. Although administration of energy efficiency programs adds to
utility costs, the programs can be cost-effective to the extent that the cash incentives and
educational efforts result in customers improving their efficiencies beyond what they would do
without such programs, and in amounts sufficient to cost-effectively recoup the administration
costs. Prudently designed and managed programs are less costly than currently available supply-
side resources. Appropriate post-implementation evaluations can be completed to show the
actual cost-effectiveness achieved and be used to further improve ongoing programs. Idaho
Power s own analyses, as well as regional and national analyses, show that there remain many
efficiency programs that utilities or other entities can administer cost-effectively.
The Commission initiated the Energy Efficiency Rider in 2002 with a 0.5% Rider
(Case No. IPC-Ol-13), increased it to 1.5% in 2005 (Case No. IPC-04-29), and to 2.5% in
2008 (Case No. IPC-08-03). By encouraging efficiency programs through relatively modest
increases to the Rider, the Commission is delaying, or avoiding altogether, larger rate increases
necessitated by Idaho Power s investment in new generation resources.Cost-effective DSM
including energy efficiency programs and load management programs, helps customers control
their utility bills, reduces the need for higher-cost, supply-side resources, and increases system
reliability. As can be seen by the DSM program detail, all customer classes are receiving
benefits from Idaho Power s DSM programs. Precise comparisons between customer classes of
DSM Rider revenue collected program dollars spent and energy savings realized are complicated
by several factors, including imprecise allocation of NEE A savings and by the peak load savings
goals of the air conditioning cycling and irrigation scheduling programs. Nonetheless, costly
supply-side alternatives can be, and have been, avoided by customers using existing electricity
resources more efficiently.
Based on the record, the Commission has determined that it is reasonable and
appropriate to approve an increase in the Energy Efficiency Rider from 2.5% of base revenues to
75% of Idaho Power s base revenues for its Idaho service territory. Rate increases are never
popular and are especially unwelcome in difficult economic times. However, the information
provided shows that energy efficiency programs have been effective in creating more efficient
use of electricity by customers, and in reducing the peak demand on Idaho Power s system.
ORDER NO. 30814
These results mean that higher rates to support construction of new generating facilities have
been delayed or avoided altogether. Of course, approving an increase to the Rider to fund
specific energy efficiency programs does not constitute a determination that the program
expenditures are reasonable and prudent. Idaho Power recently filed an Application for a
prudency determination on past Rider-funded programs (Case No. IPC-09-09), and similar
reviews will be necessary to ensure the programs achieve satisfactory and measurable results.
ORDER
IT IS HEREBY ORDERED that the Application of Idaho Power Company for
authority to revise the Energy Efficiency Rider, Tariff Schedule 91 , to increase the Rider to
75% of revenues, is approved effective June 1 2009.
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. 30814
-J+.DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this :L
day of May 2009.
KEMPTO , PRE DENT
I.L~
MARSHA H. SMITH, COMMISSIONER
~~IONER
ATTEST:
8)~~Je D. JewellCo ISSlon Secretary
bls/O:IPC-09-05 ws2
ORDER NO. 30814