20101116final_order_no_32113.pdf

Office of the Secretary
Service Date
November 16, 2010
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF IDAHO POWER
COMPANY'S APPLICATION FOR AN
ORDER DESIGNATING THE ENERGY
EFFICIENCY RIDER FUNDS SPENT BY
THE COMPANY DURING 2008-2009 AS
PRUDENTLY INCURRED EXPENSES
CASE NO. IPC-IO-
ORDER NO. 32113
PROCEDURAL BACKGROUND
On March 16, 2010, Idaho Power Company ("Idaho Power" or "Company ) filed an
Application with the Commission seeking an "Order designating Idaho Power s expenditures of
$50 701 740 in Energy Efficiency Rider ("Rider ) funds in 2008 and 2009 as prudently incurred
expenses.Application at 1. Idaho Power does not believe that a technical hearing is necessary
in this case and requests that its Application be processed under Modified Procedure. Id at 8-
On June 25 , 2010, the Commission issued a Notice of Application and Notice of
Intervention Deadline. Subsequently, the Commission received Petitions to Intervene from the
Industrial Customers of Idaho Power ("ICIP"), the Idaho Irrigation Pumpers Association, Inc.
IIP A") and the Idaho Conservation League ("ICL"). The aforementioned parties were granted
the right to intervene in this case.
All of the parties, including Staff, submitted written comments regarding Idaho
Power s Application. The Commission also received several comments from individual Idaho
Power customers. On September 23 2010, Idaho Power submitted reply comments.
THE APPLI CA TI
Idaho Power states that it currently offers its Idaho customers "sixteen energy
efficiency programs, three demand response programs, several educational initiatives, and offers
savings to customers through market transformation efforts.Id at 3. "(A)nnual energy savings
from Idaho Power s energy efficiency activities increased by 62 percent from 2007 to 2009
posting 140 Gigawatt hour ("GWh") savings in 2008 and an additional 148 GWh savings in
2009.Id The Company claims that its "(Demand-Side Management) DSM programs reduced
load by 48 megawatts ("MW") in 2007 61 MW in 2008, and 218 MW in 2009.
ORDER NO. 32113
Approximately $21 million was invested in DSM resources in 2008. Idaho Power
included, as Attachment No., a summary of program expenditures funded by the Rider in 2008
and 2009. Id at 4. The Company invested $21 million in DSM programs in 2008, $18.8 million
of which was from the Idaho Rider. Id In 2009, Idaho Power spent $35 million on DSM-related
activities, with $31.8 million being funded by the Idaho Rider.
Idaho Power believes that the results of these programs demonstrate that they are a
cost-effective resource for customers. Id The Company states that nearly all of its energy
efficiency programs produced savings at a benefit/cost ratio greater than 1.0 when evaluated at a
total resource cost (TRC) perspective, a utility cost (UC) perspective and a participant cost (PC)
perspective. Id The lone exception was the Holiday Lighting program which, due mostly to its
relatively small size and the incremental costs of LED bulbs, was not cost-effective from the
total resource perspective.
Idaho Power has provided its 2008, Attachment No., and 2009, Attachment No.
DSM Annual Reports as support for its Application. Idaho Power filed its DSM 2008 Annual
Report with the Commission on March 13, 2009, pursuant to Order No. 29419 issued in Case
No. IPC-03-19 and in accordance with certain agreed-upon guidelines set forth in the
Memorandum of Understanding for Prudency Determination of DSM Expenditures ("DSM
MOU"), Supplement 2 to Attachment No., filed with the Commission on January 25 2010, as
part of the Stipulation filed in Case No. IPC-09-09. Id at 5. Idaho Power states further that
the DSM 2009 Annual Report, Attachment No.
, "
is intended to satisfy the DSM reporting
obligation set forth in Order No. 29419.Id Pursuant to the DSM MOU, Idaho Power s DSM
2009 Annual Report includes the following:
a. A template building upon past DSM Annual Reports and expanding the
main document to include two new supplements pertaining to cost-
effectiveness and evaluation;
b. A detailed table of contents;
c. An introduction section;
d. A section on cost-effectiveness which describes the relationship between
the Company s DSM Annual Report and the Northwest Power and
Conservation Council's 6th Power Plan, data inputs, assumptions and
sources;
ORDER NO. 32113
e. An evaluation section;
f. A program-specific section with detailed information of all of the
Company s programs and initiatives; and
g. A section titled "Other Programs and Activities" that do not produce
actual savings but nevertheless support the Company s overall DSM
agenda.
Id at 5-
Idaho Power argues that its Application, including supplements
, "
provide a sufficient
basis for the Commission to determine the prudency of these expenses" and "attempted to
address Staff's expectations for cost-effectiveness tests , methods, and evaluations. . . .Id at 7.
The Company calculated cost-effectiveness from the utility and total resource
perspectives at the program level across the life of the programs (2008 DSM Annual Report) and
from the participant, utility and total resource perspectives at the program level (2009 DSM
Annual Report), except for those programs with no customer costs. Id at 7-8. Idaho Power
states that in future DSM annual reports it will include the ratepayer impact cost-effective test.
Id at 8.
Idaho Power uses net-to-gross (NTG) adjustments for the 2009 Report and third-party
evaluators when appropriate for the specific study or evaluation being planned. Id In the future
the Company plans to report the total cost of evaluating its programs and provide the names of
primary outside evaluators and the titles ofintemal evaluators for each evaluation listed.
ST AFF COMMENTS
In its comments, Staff took the position that, at least in the near-term, the distribution
of DSM costs and benefits will be necessarily disproportionate among customer classes. Staff
Comments at 3. However, over the long-term Staff expects all utilities to pursue cost-effective
DSM programs and achieve a more equitable distribution of costs and benefits among its various
customer classes. Id The Commission could further this goal through an adjustment of the level
of funding for the various programs.
Upon closer scrutiny of the Company s DSM expenditures, Staff noted several
questionable expenses charged to the DSM Rider Account." Id at 4. These "questionable
expenses" included miscellaneous personal items and meals. Id Staff does not recommend
disallowance ofthese costs because the total amount for these items is de minimis.
ORDER NO. 32113
Staff believes that Idaho Power s efforts in 2008 and 2009 toward its DSM programs
were generally prudent and cost-effective. Id at 7. Staff feels that the Company is on track to
achieve all of the goals outlined in the 2009 MOD. Id Therefore, Staff recommended that the
Commission find that the energy efficiency expenditures of $18 880 276 in 2008 and
$31 821 464 in 2009 were prudently incurred.
Staff asserted that approximately $2.3 million in labor expenses were charged to the
DSM Rider account in 2009. Id Staff expressed concern that salary and wage increases for
DSM positions within the Company are being automatically recovered through the Rider and are
therefore bypassing the rate case process where such matters are typically addressed.
Other issues raised by Staff include:
1. Separation of evaluation and implementation analysis of DSM programs
to avoid the potential for conflicts of interest;
2. Better understanding and implementation of the NTG adjustment process
so as to more accurately calculate the actual benefits of DSM programs;
3. Inconsistent record-keeping, particularly in Idaho Power s Customer
Efficiency Program;
4. A small percentage, 3., of program enrollees received incentive
payments prior to the actual installation of program measures;
5. Continuing incentives for program measures that are at or below a 0.
TRC ratio;
6. The decline in verification of installation. For example, in the Easy
Upgrades program actual verification has declined from 6.6% in 2008 to
7% in 2009;
7. The need for more effective marketing of Idaho Power s DSM programs;
and
8. Lack of clarity as to the Company s future plans to improve the evaluation
of its DSM programs.
Id at 5-
ICIP COMMENTS
ICIP generally supports Idaho Power s energy efficiency programs but argues that the
Commission should order Idaho Power to abandon any program that does not meet a total
ORDER NO. 32113
resource cost/benefit ratio of 1.25 or greater. ICIP Comments at 1. ICIP also encourages the
Commission to order Idaho Power to abandon or modify the Holiday Lighting and AlC Cool
Credit Programs. Id Additionally, ICIP believes that the current Flex Peak program should be
used "as a model for other programs which could be run with third party aggregators.Id at 1-
According to ICIP, the Commission should encourage the Company to establish criteria to
determine when third-party evaluations should be utilized to assess its energy efficiency
programs. Id at 14-15.
ICIP states that cost-effectiveness should be the primary factor in reaching a prudency
determination. Id at 5. Imprudent expenses should be subject to refund. Id However, ICIP
does not argue for any specific disallowance of Rider funds spent in 2008 and 2009.
ICIP favors the TRC test because it takes into account the costs borne by DSM
program participants to comply with the requirements of a DSM program. Id at 6. The
Commission should require more than a "bare minimum of cost-effectiveness.Id at 6-
Setting the TRC ratio at 1.25 or greater would allow some cushion to account for modeling
errors. Id at 7. According to ICIP, both the Holiday Lighting and AlC Cool Credit programs
should be abandoned because they fail to meet ICIP's proposed threshold for minimum cost-
effectiveness. Id at 8-11.
ICIP cites Idaho Power s contract with EnerNOC to manage its Flex Peak program.
ICIP believes that EnerNOC's profit incentive and its track record of &chieving meaningful
demand peak reductions as support for its assertion that the Flex Peak program should be used as
a model for other DSM programs. Id at 11-12. ICIP believes that a "third-party aggregator
like EnerNOC should be used to operate and manage a distributed generation program. Id at 12-
13. ICIP attached a letter from the Sierra Club to the California Public Utilities Commission
expressing support for a distributed generation program in that state. Id at 14; Attachment 1.
ICL COMMENTS
ICL commented on several issues that are outside the scope of the specific issue
presented in this case. However, the organization did provide some relevant commentary
regarding the prudency of Idaho Power s 2008 and 2009 DSM expenditures.
ICL believes that Idaho Power has made a "good-faith effort" toward compliance
with "the guidelines and expectations outlined in the (2009) MOU for Prudency Determination
ORDER NO. 32113
of DSM expenditures.ICL Comments at 5. ICL agrees with Staff's assertion that the use of a
NTG ratio of 100% is unlikely to yield an accurate view of cost-effectiveness. Id at 1.
ICL emphasized that DSM expenditures for programs aimed toward the industrial and
irrigation classes are greater than the revenues generated by those programs. Id at 2-3. Thus
ICL has concerns regarding the potential for cross-subsidization between the industrial class
irrigation class and other classes. Id at 2. ICL wonders if it might be more prudent for the
Commission to shift the cost of irrigation DSM programs into the yearly PCA mechanism. Id
lIP A COMMENTS
IIP A believes that the 2009 MOU regarding DSM expenditures probably came too
late to allow Idaho Power to perform a rigorous analysis of its 2009 DSM programs. lIP A
Comments at 2. Not surprisingly, IIP A also believes that the Peak Rewards Program should be
considered Idaho Power s most cost-effective DSM program. Id at 3. IIPA states that it is more
interested in eliminating or modifying DSM programs that are not cost-effective than disallowing
specific costs that may be deemed imprudent. Id at 4.
PUBLIC COMMENTS
Staff outlined the public comments received by the Commission regarding Idaho
Power s Application. Staff Comments at 5. Staff noted that the Commission received comments
from at least 13 Idaho Power customers with 9 of those customers expressing opposition to the
DSM surcharge and/or to Idaho Power being the administrator of those funds. Id. Only two
customers supported the Company s DSM programs. Id Two other customer comments were
singled out as more relevant to electricity rate levels and rate design than to the DSM programs.
Id In addition, since 2008 at least 29 other customers have inquired about Idaho Power s DSM
programs and the surcharge to fund them.
IDAHO POWER REPLY COMMENTS
Idaho Power addressed the class cross-subsidization issue presented by Staff and ICL.
Idaho Power Reply Comments at 2. The Company emphasized that it views its DSM programs
from a "system resource perspective" and seeks to provide opportunities for program
participation to all of its customer classes. Id Idaho Power stated that it has followed the
Commission s direction and focused on implementing programs that will decrease the need for
the addition of supply-side resources. Id at 3.
ORDER NO. 32113
Idaho Power objected to Staff's characterization of certain One Card purchases.
The Company stated that Staff neglected to mention that these One Card purchases were
associated with "reasonable program advancement and outreach opportunities, not personal
employee use.
Next, Idaho Power pointed out that it did not use a NTG adjustment for its Customer
Efficiency program because a third-party evaluator to conduct such an adjustment was not
available. Id at 5. Instead, the Company undertook a "sensitivity analysis" wherein 70 percent
of the program participants were deemed "free-riders.Id Notwithstanding this 30 percent
NTG adjustment
, "
the program was shown to. . . be cost-effective.
Third, Idaho Power believes that ICIP's request that the Commission abandon any
DSM program that fails to achieve at least a 1.25 TRC ratio would be counterproductive.
Nevertheless, if the Commission is inclined to assess ICIP's proposal in greater detail then the
Company asks that a separate case be opened in order to allow Idaho Power to respond in greater
detail.
Idaho Power states that it has discontinued payments for mini-lights after its analysis
showed that this specific measure caused the Holiday Lighting program to move from an overall
cost-effective program to not cost-effective. Id at 5-6. Similarly, the Company is in the process
of a third-party evaluation of its Easy Upgrades program. Id The Company states that it has
identified 10 of the 143 program measures in the Easy Upgrades that appeared "not to be cost-
effective.Id at 6. Idaho Power assures the Commission that any measures which are "found
not to be cost-effective. . . will be removed from the program measures.Id at 7. Finally,
Idaho Power revealed that it is in the process of developing more "robust" data storage and
verification measures for its DSM programs. Id at 7-
COMMISSION FINDINGS AND DECISION
The Commission has thoroughly reviewed Idaho Power s Application, including the
Company s 2009 DSM Report, supplements and reply comments, seeking a Commission Order
declaring that the Energy Efficiency Rider funds spent by the Company during the calendar years
of 2008 and 2009 were prudently incurred. The Commission has also reviewed the comments
submitted by Commission Staff, ICIP , IIPA, ICL (collectively referred to as "the parties ) and
individual ratepayers.
ORDER NO. 32113
The Commission finds that Idaho Power has acted prudently in the administration of
its DSM programs and its 2008 and 2009 Rider expenditures are therefore approved for
ratemaking purposes. The Commission notes that the parties are generally supportive of Idaho
Power s recent DSM efforts. As noted above, Idaho Power agreed to certain DSM principles
and goals which were memorialized in the 2009 MOU. See Stipulation, Atch. 1 , Case No. IPC-
09-09. Although the Commission is not bound by the specific terms of the MOU, we are
encouraged by the Staff's assertion that Idaho Power appears to be on track to achieve all of the
goals set forth in the MOU. We also note the Company s general movement toward enhanced
clarity and transparency in the selection and management of its DSM programs.
Nevertheless, the Commission acknowledges the specific concerns expressed by the
parties regarding Idaho Power s Application. Their concerns include, but are not limited to: the
establishment of an appropriate total resource cost (TRC) ratio; the cost-effectiveness of the AlC
Cool Credit and Holiday Lighting programs; the third-party implementation and evaluation of
Idaho Power s DSM programs; and the potential for cross-subsidization by separate customer
classes of the costs of certain DSM programs.
The Commission has consistently stated that cost-effective DSM programs are in the
public interest and has admonished electric utilities operating in the State of Idaho to develop
and implement DSM programs in order to promote energy efficiency. See Order Nos. 29784
29952. The Commission notes that Idaho Power s 2009 DSM Annual Report revealed that all of
Idaho Power DSM programs are cost-effective from a utility-cost and participant-cost
perspective. Additionally, the Report revealed that some of the Company s DSM programs offer
a proportionally larger benefit to ratepayers than others. However, the Commission finds it
unnecessary to compel the Company to abandon any of its existing DSM programs provided the
benefits derived from any single DSM program outweigh its costs. The Commission explicitly
rejects the use of a 1.25 ratio, proposed by ICIP, as an absolute standard for evaluating Idaho
Power s DSM programs. The Commission will continue to evaluate individual DSM programs
on a case-by-case basis.
Staff and ICL both noted the risk, under Idaho Power s current DSM regime, that
certain classes of customers may be required to subsidize DSM programs which
disproportionately benefit other customer classes. An exact "matching" of the costs and benefits
for an individual DSM program is a worthy, albeit unrealistic, goal. There will always be some
ORDER NO. 32113
level of cross-subsidization ofDSM programs occurring amongst and between a utility s various
customer classes. Some portion of the revenues derived from a particular class of customers will
inevitably be utilized to pay for a DSM program which offers a disproportionate benefit to
another class of customers. So long as the Commission is satisfied that Idaho Power is making
reasonable efforts to minimize the potential for cross-subsidization, we will not order the
Company to discontinue DSM programs that are cost-effective and offer significant economic
and conservation benefits to ratepayers as a group.
Additionally, the parties have argued that Idaho Power s DSM programs should be
subject to more effective third-party evaluation. The Company continues to improve in this area.
In its reply comments, Idaho Power points out that it is employing third-party evaluators where
available and continues to develop more "robust" data storage and verification measures for its
DSM programs. The Commission exhorts Idaho Power to continue on this path toward
improvement. Idaho Power should seek to employ independent evaluators for all of its DSM
programs and take affirmative steps toward achieving measurable improvements in its
documentation, verification and record-keeping processes for these programs.
After duly deliberating in this matter and taking into account all of the foregoing
concerns expressed by the parties regarding Idaho Power s Application, the Commission finds
that Idaho Power s 2008 and 2009 Rider fund expenditures were prudently incurred. The
Commission finds no compelling reason to disallow any of the Company s specific expenditures
or discontinue any of its existing DSM programs.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over Idaho Power Company,
an electric utility, and the issues presented in Case No. IPC-1O-09 pursuant to the authority
granted under Title 61 of the Idaho Code and the Commission s Rules of Procedure, IDAPA
31.01.01.000 et seq.
ORDER
IT IS HEREBY ORDERED that the $50 701 740 in Energy Efficiency Rider
expenditures spent by Idaho Power during the calendar years of 2008 and 2009 are deemed
prudently incurred and are approved for ratemaking purposes.
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)
ORDER NO. 32113
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code ~ 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this liP rh
day of November 2010.
~ /.
D. KEMPTON', PRES ENT
MARSHA H. SMITH, COMMISSIONER
MACK A. REDFORD, COMMISSIONER
ATTEST:
Commission Secretary
O:IPC-I 0-09 _np3
ORDER NO. 32113