20100413NRDC Comments.pdf

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To: ~~io~ l~ton, Mack Redford and Marsha SmithRE
From: ~it Cavanagh (N:a(;, 111 Sutter Street, 20th Floor, San Fra"fdf~~' CA 94104,rcavanagh(gnrdc.org) '. '" RPR 12 PM 3: 35
Re:. Application of I~aho Power Company fo~ Authority to Convert Fi~m. ~ii~F:"h. ecc,:;;; "..,.. ,
Adjustment from a Pilot Schedule to an Ongoing Permanent Schedule, Case No~ IPC..E"'i;1';' J
09"28
Date: April 9, 2010
I am writing to provide a perspective on the Idaho Power Company's request to make permanent
its current fixed cost adjustment (FCA). I direct the Northwest Energy Project of the Natural
Resources Defense Council, which has more than 2,600 Idaho members, and I was an
uncompensated witness for the company in the proceeding that led to Order No. 30267,
establishing a three year pilot program designed to test a crucial principle: recovery of a utilty's
authorized fixed costs should not be tied to whether and how fast retail electricity use increases.
I urged you to launch this effort in order to help Idahoans secure more of the cost savings and
environmental benefits that cost-effective efficiency improvements deliver. As initial evidence
of the soundness of your decision, look no further than the front page of the Business Section
from the New York Times of Januar 24,2010, where Idaho Power is highlighted as "in the
vanguard" of utilties that help their customers save energy, and Torn Eckman of the Northwest
Power and Conservation Council is quoted as concluding that the company "is clearly iconic in
terms of a utility that's turned the corner." (K. Galbraith, Why Is A Utility Paying Customers?,
New York Times, Sunday Business, Januar 24, p. 1).
Since your initial order, I have personally addressed meetings of the company's entire energy
efficiency team, and had the opportunity to experience first-hand its enthusiasm and
commtment; the Snake River Alliance's comments rightly underscore (p. 2) "impressive growth
in the company's energy effciency and demand response measures." I note also that Idaho
Power was an early and effective supporter of the U.S. Deparment of Energy's brand-new
efficiency standards for gas and electric water heaters, and that Idaho Power provided crucial
leadership in the process that convinced the Regional Council to raise its five-year regional
efficiency targets by more than 70% earlier this year (I was a member of the advisory group that
provided technical assistance on the targets, which were raised from 700 average megawatts to a
minimum goal of 1200 average megawatts over the next five years).
Those last two examples underscore a point that some of the commentators on this Application
have missed: Idaho Power's capacity to influence effciency progress extends well beyond the
incentive programs that the company administers (meritorious though they clearly are). Lifting
the historic addiction to throughput has freed the company to be a much stronger efficiency
educator and advocate as well as investor. Add to this the fact that rate impacts of the FCA pilot
have gone in both directions and remained well within the 3% rate impact limit established by
the Commssion, and the case for granting the company's request is overwhelming.
Some of the objections to the Application appear to reflect simple misunderstandings of its
content. I agree with the Community Action Parnership Association that shifting volumetric
charges to the fixed portion of utility bils would inappropriately penalize low usage customers
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and that weather normalization is an appropriate par of a decoupling mechanism (p. 8) -- but of
course the Application does not propose to shift volumetric charges to fixed charges, and it
already incorporates weather normalization. I also join CAP AI in support of the goal of
acquiring all cost-effective DSM resource opportunities (p. 9), but I find in the company's
unflnching support of that goal in the recent Regional Council proceedings an additional reason
to grant its Application. Finally, while it is true that the FCA raises rates (very modestly) during
periods of declining sales (p. 5), CAP AI overlooks the fact that the converse is also true: when
sales (and bils) rise faster than expected, the FCA delivers rate reductions (as recent experience
with the Idaho Power mechanism confirms). The FCA is not an automatic rate increase, and it
protects customers against over-recovery of authorized fixed costs.
Similarly, AARP refers to recent controversies in Ohio (p. 4) that have nothing to do with FCA-
style "decoupling." Ironically, the Ohio Commssion ran into difficulty by applying the very
approach endorsed (p. 5) by AARP: "redesigning the FCA formula in such a way that recovery
is limited to sales lost directly due to measurable and verifiable energy savings resulting only
from IPC's energy effciency programs." The Ohio payments of whichAARP complained did
not result from rate true-ups of the Idaho varety; instead, they were desighed to reward only
verified savings from CFLs distributed by the company, and we agree with AARP that this
approach resulted in gross overpayments. But Idaho Power's FCA mechanism is an effective
way to avoid this problem, not an ilustration of it (as suggested by the lack of any ilustrations in
the AARP comments of overpayments for Idaho's efficiency gains). AARP also contends that
"IPS's customers are at risk of falling into a 'save more, pay more' trap where ever escalating
add-ons to recover program costs and utility incentives overwhelm any savings consumers could
see by engaging in energy conservation (p. 7)." But Idaho's experience proves the opposite:
trivial decoupling rate adjustments that go both ways, coupled with cost recovery for cost-
effective energy effciency programs, do not materially affect customer benefits. As the Oregon
Commssion found when it followed Idaho's good example by adopting a decoupling mechanism
for Portland General Electric in Januar 2009, responding to analogous claims that decoupling
would rob customers ofthe rewards of conservation: "We believe the opposite is true: an
individual customer's action to reduce usage wil have no perceptible effect on the decoupling
adjustment, and the prospect of a higher rate because of actions by others may actually provide
more incentive for an individual customer to become more energy efficient." Oregon PUC
Order No. 09-020, p. 28 (Jan. 2009). The comments of the Snake River Alliance make a similar
point very effectively (p. 2); any FCA-related "increase is more than offset by a reduction in the
bil due to the deployment of Idaho Power's demand-side management measures."
The most important thing for me to say in conclusion is that I had high expectations when this
pilot program began, and that the Idaho Power Company has met them fully. The company has
eared approval of this Application and I strongly encourage you to grant it.
Cc: Commssion Secretary, service list