20100301ICIP, Protest.pdf

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~r.ClJ,B~1t PUCATTORNEYS AT LAW
2010HAR -I PM I: 31
Peter Richardson l ()f:~r1()
UTILITIES
Tel: [phone] Fax: [phone]
perer~ r ichardsonandol eary. com
P.O. Box 1218 Boise,ID 83707 - 515 N. 27rh Sr. Boise, ID 83702
March 1,2010
Ms. Jean Jewell
Commission Secretary
Idaho Public Utilities Commission
472 W. Washington
Boise, 10 83702
RE: IPC-E-09-09
Dear Ms. Jewell:
We are enclosing an original and seven (7) copies of the COMMENTS AND
PROTEST OF THE INDUSTRIAL CUSTOMERS OF IDAHO POWER in the
above case.
An additional copy is enclosed for you to stamp for our records.
Sincerely,~~\~\
Richardson & O'Leary PLLC
encl.
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Peter J. Richardson ISB # 3195
Gregory M. Adams ISB # 7454
RICHARSON & O'LEARY PLLC
515 N. 27th Street
Boise, Idaho 83702
Telephone: [phone]
Fax: [phone]
peter(ßrichardsonandoleary.com
greg(ßrichardsonandoleary.com
2010 ~1AR -I PM 1: 31
Attorneys for the Industrial Customers of Idaho Power
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE
APPLICATION OF IDAHO POWER
COMPANY OF A PRUDENCY
DETERMINATION FOR ENERGY
EFFICIENCY RIDER FUNDS SPENT IN
2002-2007
) CASE NO. IPC-E-09-09
)
) COMMENTS AND PROTEST OF
) THE INDUSTRIAL CUSTOMERS OF
) IDAHO POWER
)
Pursuant to Rule 203 of the Rules of Procedure of the Idaho Public Utilties Commission
(the "Commssion") and the Commssion's Notice of Modified Procedure served Februar 8,
2010, the Industrial Customers ofIdaho Power ("ICIP") hereby file these comments and protest.
As discussed below, ICIP opposes the Commission's approval of the stipulation submitted by
Idaho Power Company ("Idaho Power" or the "Company") and Commission Staff ("Staf') in
this case, and respectfully urges the Commission not to unconditionally approve the
Memorandum of Understanding for Prudency Determination ofDSM Expenses ("Memorandum
of Understading") attched to that stipulation.
BACKGROUND
This case began in Idaho Power's 2008 general rate case (Case No. IPC-E-08-10). There,
the Company sought a Commission order finding that from 2002 though 2007 it had prudently
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OF IDAHO POWER, IPC-E-09-09
spent the entirety of approximately $29 milion in demand side management ("DSM") fuds
collected from ratepayers on the energy effciency rider. See Application of Idaho Power
Company for a Prudency Determination of Energy Effciency Rider Funds Spent in 2002-2007
(hereinafter "Application"), Case No. IPC-E-09-09, ir 2 (April 1,2009). In Idaho Power's 2008
general rate case, Staff initially filed testimony recommending that the Commission defer a
ruling on the prudency determination until afer Idao Power provided documentation of how it
spent the energy efficiency rider fuds. See id. at ir 1. Subsequently, Staf and the Company
fied, and the Commission approved, a stipulation that the Company's expenditure of
approximately $14.3 milion of these rider fuds was just, reasonable and in the public interest,
but the Commission required the Company to fie a pleading regarding the remaining
$14,657,971 by April 1,2009. Id. at irir 2-3 (quoting Commission Order No. 30740). Now, the
Company has fied its application for approval of that remaining amount, and Staff has signed a
stipulation stating that it agrees the Company prudently spent those ratepayer dollars on
programs designed to reduce demand. See Stipulation, In the Matter of Application of Idaho
Power Company for a Prudency Determination of Energy Effciency Rider Funds Spent in 2002-
2007 (hereinafer "Stipulation") Case No. IPC-E-09-09, ir 5 (Janua 25,2010).
But the stipulation does not only address those remaining $14.6 milion spent from 2002
to 2007. It also shoehorns in a request for the Commission's approval of a new Memorandum of
Understanding between Staff and the three investor-owned-utilities in Idao regarding future
prudency reviews. See id. at irir 3-4 and Attchment 1. This Memorandum of Understanding is
the product of negotiations between Staff and the thee investor-owned-utilities -- Idaho Power,
A vista Utilities, and Rocky Mountain Power. ICIP and other stakeholders received no notice of,
or prior invitation to attend, these negotiations and had inadequate opportunty to shape the
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OF IDAHO POWER, IPC-E-09-09
substantive and procedural requirements for futue DSM prudency reviews contained in the
resulting Memorandum of Understading.
Apparently, the Memorandum of Understanding arose out of Staffs conclusion that
Idaho Power had provided insuffcient evidence that it had prudently spent the remaining $14.6
milion of ratepayer fuds at issue in this case. With regard to whether the Company "provided
sufficient evidence of evaluations of its programs for 2002 through 2007," Staff concluded "( n Jot
entirely." Direct Testimony ofLynn Anderson, Idaho Public Utilities Commission Staff, Case
No. IPC-E-09-09, p. 4 (Februar 19,2010). In response, "Staff convened a workshop," and the
"(t)he end result was an agreement by each of the utilties to formally evaluate all of their
programs on regular, multi-year cycles and to report the results. . . ." Id. at pp. 4-5. "In exchange
for the utilty commitments, Staff agreed that if the evaluation and reporting commitments are
fulfilled and if there is no evidence of DSM imprudence, then, when requested by the utilties,
Sta would recommend that DSM expenditues be found prudent by the Commission." Id. at p.
5. And Staffalso "agreed that it would recommend that Idaho Power's remaining $14,657,971
or Rider-fuded expenses from 2002 through 2007 be found prudent in the present case before
the Commission." Id. Staff therefore believes the utility commitments contained in the
Memorandum of Understanding warant ignoring the insuffciency of Idaho Power's
documentation of its DSM expenditues of rider fuds from 2002 through 2007. See id. (stating
that "Stafs major concerns in the past should be resolved as evidenced by futue evaluations).
However, the Memorandum of Understading only contais weak requirements for the
anlysis of the prudency of utility expenditures of ratepayer- funded DSM dollars. It includes as
an attchment Staff s "expectations" for such reviews. See Stipulation at Attchment 1, p. 9.
Although Staffs expectations include a requirement for cost-effectiveness evaluations from
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OF IDAHO POWER, IPC-E-09-09
different perspectives, this evaluation process does not include a requirement that DSM
programs prove cost-effective to receive Staffs support in a prudency review. Furher, Stafs
expectations do not require a thrd par to evaluate the effectiveness and prudency of the
utilties' DSM expenditures. See id. at Attchment 1, p.9. Most troubling, the Memorandum of
Understanding only requires the utilties to make a "good faith effort to address Staffs
expectations." See id. at Attchment 1, p. 1.
The utilities and Staff agree that "implementation of the DSM prudency guidelines and
evaluation framework. . . will not automatically result in DSM prudency findings" and that
"future prudency findings will require preparation of a formal fiing with the Commission." Id.
at Attachment 1, pp. 2-3. But they go on to assert that a "showing by the utility that it made a
good faith effort to reasonably perform withn these guidelines will constitute prima facie
evidence that the utilty's DSM expenses were prudently incured for cost recovery puroses."
Id. at Attchment 1, p. 6. As such, ''te utility can reasonably expect that in the ordinar course
of business Staffwill support the full cost recovery of its DSM program expenses." Id. To
obtan Staffs support, the Memorandum of Understanding contains only requirements to comply
with guidelines for reporting and analysis of cost-effectiveness -- not substative requirements
that the utilities prudently achieve demand reductions with Commission-approved DSM
programs. See, e.g., id. at Appendix 1, p. 2 (stating that Idaho Power's 2009 Demand Side
Management Annual Report is the template).
As discussed below, ICIP supports requiring transparency going forward with regard to
how utilities are spending ratepayer-fuded DSM dollars, and will not challenge Staff s finding
ofprudency as to Idaho Power's expenditue of the remainng $14.6 milion spent from 2002 to
Page 4 - COMMNTS OF THE INDUSTRIL CUSTOMERS
OF IDAHO POWER, IPC-E-09-09
2007. But ICIP opposes unconditioned Commission endorsement of the Memorandum of
Understading between Sta and the thee investor-owned-utilties.
DISCUSSION
To star, ICIP urges the Commission to recognize that this case involves large sums of
money paid by ratepayers on their power bils to be used for conservation and electricity demand
reductions by investor-owned, electrc utilities in the business of profiting off of electricity sales.
Although Idaho Power's initial filing only addressed the remaining $14.6 milion of energy
effciency rider fuds from 2002 to 2007, this case now includes a request for Commission
approval of the Memorandum of Understading that will address futue prudency reviews. And
those futue reviews will involve far larger sums of money. Idaho Power curently collects an
energy efficiency rider of 4.75% of base rates, from which Idaho Power projected it would
collect $29.7 milion in 2009, see Application at ir 4, and over $33 millon in 2010. See Direct
Testimony of Tim Tatum, Exhbit No.3, Case No. IPC-E-09-05 (March 16,2009). Any
procedure that provides for anything less than a completely transparent, open, and independent
review of how an investor-owned, electrc utility spends that amount of ratepayer money to
"unell" electricity would not adequately protect ratepayers.
ICIP supports efforts by Staff and the utilties to avoid a situation where a utilty seeks a
rubber stap on its several-year-old DSM expenditues such as in this case where Idaho Power
seeks approval of$14.6 millon of rider fuds long after they were spent. However, ICIP
respectfully urges the Commission to require a more thorough and independent review ofDSM
expenditues than called for in the Memorandum of Understading. Commission Staff and the
utilties provided no public notice of the DSM Evaluation Workshop held on October 5, 2009.
Ratepayers and other stakeholders were not invited to, and have not paricipated in, the process
Page 5 - COMMNTS OF THE INDUSTRIL CUSTOMERS
OF IDAHO POWER, IPC-E-09-09
that resulted in the Memorandum of Understanding. The guidelines contained therein were
obviously designed to shape the utilties' futue prudency reviews. Unfortunately, the ratepayers
and the other staeholders did not have any opportunty to paricipate in and help shape that
process.
To the extent the opportity to provide these comments allows for such after-the-fact
paricipation, ICIP respectfully submits that an investor-owned-utility ought not be allowed to
ru its own demand-side reduction programs. The overarching utility-incentive structure
accepted by most utility economists is the Averch-Johnson effect. See Harey Averch and
Leland Johnson, "Behavior of the Firm Under Regulatory Constraint," American Economic
Review, VoL. LII (December 1962). That well-accepted principle holds that utilties will seek to
fulfill their fiduciary duty to their shareholders to maximize returs by pursuing capita
investments, so long as the authorized rate of retur on those investments exceeds the cost of
capitaL. Some economists have applied the A verch-Johnson effect to decoupling mechanisms
and concluded that even revenue decoupling mechansms canot overcome the overarching
incentive for capital investments resulting in ineffective utilty promotion ofDSM programs.
See Steve Kihm, "When Revenue Decoupling wil Work... and When It Won't," The Electricity
Journal, Volume 22, Issue 8 (October 2009). Utilities profit from selling electricity and from
building capital resources to sell electricity. They have significant economic incentive - and
even a fiduciary duty - to pursue capital investments supported by higher electrcity use.
Given that economic reality and the substatial sums of money now involved, ICIP
continues to assert that Idaho Power's DSM programs should be operated by a thrd pary
without an incentive for the DSM programs to be unsuccessful in reducing electricity sales. See
In the Matter of the Application of Idaho Power Company to Implement a Demand Side
Page 6 - COMMNTS OF THE INDUSTRI CUSTOMERS
OF IDAHO POWER, IPC-E-09-09
Management Incentive Pilot Program, Case No. IPC-E-06-32, Order No. 30268, p. 4 (March 12,
2007) (stating ICIP's suggestion that the Commission should assign the tak ofDSM
implementation to a third-pary provider of conservation). Staff too has expressed interest in
fuer exploring the option of having a third pary ru the DSM programs. See Comments of the
Commission Staff In the Matter of the Application of Idaho Power Company for Authority to
Implement Modifcations to the Performance-Based Demand-Side Management Incentive Pilot
Program, Case No. IPC-E-09-4, p. 4 (May 1,2009).
At a minimum, ICIP respectfully requests that the Commission impose additional
conditions on its approval of the Memorandum of Understading. ICIP recognizes that even if a
utilty implements Staff s DSM prudency guidelines and evaluation framework in the
Memorandum of Understanding, the utility wil stil need Commission approval of the
expenditues in a formal filing, such as a general rate case. See Stipulation at Attchment 1, pp.
2-3. Nevertheless, Staffs support or opposition of the utility's expenditue ofDSM fuds is
importt. Thus, ICIP would support Commission approval of the Memorandum of
Understanding only with the addition of the following conditions, which would limit the
Company's inherent motivation to inadequately operate its DSM programs and provide for a
more adequate prudency review.
1. The Memorandum of Understanding should require an independent, third-
part evaluation ofDSM expenditures to receive Staff's support.
Staff recognizes the importance of evaluating DSM programs. DSM program results
"can only be estimated though a combination of engineering measurements, verification of
installations and assumptions, and overall program evaluation." Direct Testimony ofLyn
Anderson, Idaho Public Utilties Commission Staff, Case No. IPC-E-09-09, p. 4 (Febru 19,
Page 7 - COMMENTS OF THE INUSTRIL CUSTOMERS
OF IDAHO POWER, IPC-E-09-09
2010). Staff concludes that "(p)rograms that are not properly evaluated wil suffer from
uneliable cost-effectiveness estimates and will not likely be improved to their optimum
performance levels."
ICIP submits that the only way to obtan an unbiased and accurate evaluation of an
investor-owned utilty's DSM programs is though the use of an independent, third pary
evaluator. Staff recognizes that thrd pary evaluations "tend to be perceived as being more
objective and transparent, and thus more credible, than evaluations performed by utility staff."
See Stipulation at Attchment 1, p. 9. But Staffs expectations in the Memorandum of
Understading do not require a thrd pary to evaluate the effectiveness and prudency of the
utilities' DSM expenditues, see id., and even if they did, the Memorandum of Understading
only requires the utilties to make a "good faith effort to address Staffs expectations." See id. at
Attachment 1, p. 1. Without requiring investigation by a third-pary evaluator with specialized
knowledge ofDSM programs, Staff and ratepayers will have difficulty determining ifIdaho
Power is prudently spending the approximately $30 milion per year it wil collect from rate
payers for its DSM programs. The Company should not be allowed to conduct its own
evaluation of the prudency of its own DSM expenses.
2. The Memorandum of Understanding should expressly provide that Staff wil
only support a prudency finding if the utilty demonstrates that it actually prudently
incurred the DSM expenses at issue.
As discussed above, the Memorandum of Understanding requires Staff to support all
utility DSM expenditues if the utilities merely comply with the reporting requirements of the
Memorandum of Understading. It states "(b)y performing withn these gudelines, assuming
there is no evidence of imprudent actions or expenses, the utility can reasonably expect that in
the ordinar course of business Sta will support full cost recovery of its DSM program
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OF IDAHO POWER, IPC-E-09-09
expense." Id. at Attachment 1, pp. 2-3, 6. This languge improperly shifts the burden of proof
to Staff. This means that Staff will have the burden of demonstrating that the utilties incured
DSM expenses imprudently, not that the utilities must demonstrate prudent expenditues. The
Commission authorizes individual DSM programs. But without an auditing backstop to ensure
the utilties actually implement the programs adequately, ratepayer fuds are at risk. The
Memorandum of Understanding should expressly provide that the utilities have the ful burden of
proof that their DSM expenditues are prudent. In addition, Staff and any interveners reserve the
right to challenge the prudency of DSM expenditures.
For example, the Memorandum of Understading requires utility analysis of the cost-
effectiveness of their programs, and requires that evaluation include "changes in the program due
to evaluation results." Stipulation at Attchment 1, p. 5. But it does not state that Staffwill
oppose a prudency finding for programs the utilty has pursued despite their lack of cost-
effectiveness. Furher, the Memorandum of Understading does not state that Staffwill not
support the continued operation of programs that prove to lack cost-effectiveness. Cost-
effectiveness needs to be the governing factor of the DSM programs to ensure that ratepayer
fuds achieve the greatest demand-side reductions for ratepayer benefit. The Memorandum of
Understanding should expressly state that Staff and interveners reserve the right to oppose a
prudency finding for non-cost-effective DSM programs.
3. The Memorandum of Understanding should make explicit that the utilities
wil be subject to a ratepayer refund of energy efficiency rider funds that the
Commission finds to be spent imprudently.
Finally, there needs to be a serious deterrent to Idaho Power imprudently spending $30
milion per year of ratepayer dollars because the utility uses that money to implement DSM
programs that, if successful, will lower its profits. ICIP proposes that the Commission make
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OF IDAHO POWER, IPC-E-09-09
explicit in any order approving the Memorandum of Understanding that the utility risks paying a
ratepayer refud and corresponding revenue requirement reduction for amounts of ratepayer-
supplied DSM fuds found to be imprudently spent. Without such a deterrent, the utility has
little incentive to adequately ru the Commission-authorized programs.
CONCLUSION
In sum, ICIP submits that ifIdaho Power is allowed to continue rung its own $30-
milion-dollar-per-year program to decrease futue electricity sales, the Commission should at
least require a third-pary evaluation of the prudency of the utilty's DSM expenditures and
expressly state conditions deterring the utility from inadequately ruing the DSM programs.
Respectfuly submitted this 1st day of March 2010,~,
Greg ams
RICHARDSON & O'LEARY, PLLC
Page 10 - COMMNTS OF THE INDUSTRIL CUSTOMERS
OF IDAHO POWER, IPC-E-09-09
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on the 1st day of March, 2010, a true and correct copy of the
within and foregoing COMMETNS AND PROTEST OF THE INDUSTRIAL CUSTOMERS OF IDAHO
POWER was served in the manner shown to:
Ms. Jean Jewell
Commission Secretary
Idaho Public Utilities Commission
PO Box 83720
Boise, 1083720-0074
L Hand Delivery
_ U.S. Mail, postage pre-paid
Facsimile
Electronic Mail
Weldon B. Stutzman
Deputy Attomey General
Idaho Public Utilties Commission
P.O. Box 83720
Boise, Idaho 83720-0074
weldon .stutzman(Çpuc. idaho.gov
.l Hand Delivery
_ U.S. Mail, postage pre-paid
Facsimile
2L Elèctronic Mail
Lisa Nordstrom
Barton L. Kline
Idaho Power Company
PO Box 70
Boise, Idaho 83707-0070
Inordstrom(Çidahopower.com
bkline(Çidahopower.com
-. Hand Delivery
U.S. Mail, postage pre-paid
Facsimile
L Electronic Mail
~.