20100913Comments.pdf

NEIL PRICE
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 6864
RECE D
1DlßSEP 13 Pl12: 45
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
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 )INCURRD EXPENSES. )
)
CASE NO. IPC-E-IO-09
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through its
Attorney of record, Neil Price, Deputy Attorney General, and in response to the Notice of
Modified Procedure in Order No. 32038 issued on July 28,2010, submits the following
comments.
BACKGROUND
On March 16,2010, Idaho Power Company filed an Application seeking an Order
confirming that the Company's expenditures of$50.7 milion in energy efficiency rider funds in
2008 and 2009 were prudently incurred. In.its Application, Idaho Power stated it currently offers
16 energy effciency programs, 3 demand response programs, and several educational initiatives
designed to promote energy efficiency in Idaho. The Company asserted that it's annual energy
savings from effciency activities increased by 62% from 2007 to 2009, representing a first-year
STAFF COMMENTS 1 SEPTEMBER 13,2010
savings of 140 Gigawatt hours (GWh) in 2008 and an additional 148 GWh in 2009. The
Company also reported that its demand-side management (DSM) programs reduced its load by
48 MW in 2007,61 MWin 2008,.and 218 MW in 2009.
Idaho Power's 2008 and 2009 Demand-Side Management Reports state that these
programs are providing a cost-effective resource to customers and the Company. In 2009, all
energy efficiency programs but one are said to have produced savings with benefit/cost (B/C)
ratios greater than 1.0 when calculated from a total resource cost (TRC) perspective, a utilty cost
(UCT) perspective, and a participant cost perspective. The one exception is the small Holiday
Lighting program ($33,930 utility cost), which although reportedly cost-effective from the UCT
and participant perspectives (B/C ratios of 1.6 and 1.2, respectively), was not TRC cost-effective
with a 0.85 B/C ratio.
ANALYSIS
As indicated by Idaho Power's Application in this case and more directly shown by
Appendix 4 in its Demand-Side Management 2009 Annual Report, the Company's DSM
expenditures have steadily increased from about $2 milion in 2002 to about $20 milion in 2008
and nearly $34 millon in 2009. More than 90% of the Company's funding for DSM is derived
from its Idaho Energy Efficiency Tariff Rider (DSM Rider), which is the subject of the
Application's request for a prudency determination. The benefits of these expenditures, in
addition to the direct bil reductions enjoyed by DSM program paricipants, are the avoided
supply-side costs that would otherwise be necessary for generation and transmission resources
sufficient to meet a larger load requirement by customers. Appendix 4 of the 2009 DSM Report
states that first-year energy savings from DSM programs increased from less than 2.0 average
megawatts (aMW) or nearly 17 milion kilowatt-hours (kWh) in 2002 to nearly 17 aMW or 148
milion kWh first-year savings in 2009. The Report's Revised Supplement 1, Cost Effectiveness,
lists energy efficiency measures as having widely varying average lives ranging from three years
for furnace modifications to 40 years for insulation in ceilings and walls.
In addition to energy savings, the 2009 DSM Report claims that peak demand savings
increased from near zero in 2002 to 236.6 megawatts (MW) in 2009. Peak demand savings,
while generally not resulting in significant energy savings, reduce the Company's need to build
new peaking facilities such a gas-fired combustion generating plants and transmission lines.
STAFF COMMENTS 2 SEPTEMBER 13,2010
Staff Attachment A shows Idaho Power's reported utilty costs of$18.4 milion for its
energy efficiency programs in 2009 compared to its estimated present value of utilty benefits of
$88.8 milion over the projected lives of the measures installed, resulting in a reported 4.8
benefit/cost ratio. Additionally, the peak demand reduction programs are projected to have
average annual benefits of$22.3 milion compared to average annual costs of$15.9 milion,
resulting in a 1.4 utilty B/C ratio for those three programs. Utility net benefits transfer to its
customers in the form of future rates being lower than they otherwise would be.
As could be expected, the tremendous ramp-up of Idaho Power's DSM efforts were not
always executed flawlessly and, as explained by Staff in Case Nos. IPC-E-08-1O and IPC-E-09-
09, the Company's post-implementation evaluations of programs did not keep up with overall
program growth. Credible and transparent program evaluations are necessar for both
optimizing program performance and for enabling the Company, its customers, and the
Commission to have assurance that actual program results are as claimed. The Staff found that
Idaho Power was not alone in its program evaluation deficiencies and, as a result, invited each of
Idaho's three investor-owned electricity utilities to a DSM evaluation workshop convened in the
fall of2009. The result of this workshop was a Memorandum of Understanding (MOU) that was
signed by the IPUC Utilties Division Director and representatives of each of the utilties in
December 2009. A copy of the MOU was included with the Company's 2009 DSM Report in its
Supplement 2, Evaluation. The Application contains language specifically addressing how the
Company complied with the requirements of the MOUand the MOU's Attachment 1, which
contained Staffs additional expectations regarding DSM cost-effectiveness and evaluations.
Staff Attachment B compares 2009 DSM Rider revenue from major customer classes to
DSM program expenses and benefits accruing to those classes. While each of the major classes
have DSM programs available to them, the residential program expenses and benefits appear
disproportionately low compared to that class's DSM revenue contribution. A small portion of
this disparity is mitigated by the fact that the Northwest Energy Efficiency Allance's (NEEA)
market transformation savings have benefitted residential customers disproportionately more
than other customer classes. At least in the short-run, DSM program costs and benefits may be
expected to be disproportional among customer Classes. In the long-run, however, Staff expects
utilties to find ways to pursue all cost-effective DSM while striving toward customer class
equity. If necessary, this could be accomplished through changes in DSM funding distribution.
STAFF COMMENTS 3 SEPTEMBER 13,2010
Staff has reviewed all expenditures charged to the DSM Rider Account for 2008 and
2009 and calculated the DSM rider account balance equivalent to that reported by the Company
in the 2009 DSM Annual report. Below is a summary of the rider account balances for 2008 and
2009:
2008 Beginning Balance
2008 DSM Funding plus Accrued Interest
2008 DSM Expenses
2008 Year End Balance
2009 Beginning Balance
2009 DSM Funding plus Accrued Interest
2009 DSM Expenses
2009 Year End Balance
$ 1,483,075
13,454,883
(18,880,276)
$ (3,942,318)
$ (3,942,318)
26,045,264
(31,821,464)
$ (9,718,518)
During the course of its review, Staff discovered several questionable expenses charged
to the DSM Rider Account. Those expenses include tee shirts, water bottles, multiple purchases
at Starbucks, and several individual meals purchased at local restaurants by local employees
using Company credit cards (One Cards). Staff does not recommend an adjustment to the DSM
rider balance at this time because any adjustment would be de minimus and would not have any
material effect. However, Staff expects the Company to be good stewards of rate payer funds
and strive to decrease the personal use of Company One Cards in the future. Staff wil continue
to review such expenditures in 2010 and wil propose adjustments to the DSM rider balance as
appropriate. Expenses that have been excluded from rates during general rate proceedings must
also be excluded from the DSM tariff rider expenses. Staff expects the Company to properly
verify the prudency of all meals, travel and other miscellaneous expenses during future DSM
prudency reviews.
Staff notes that approximately $2.3 milion in labor expenses have been charged to the
DSM rider account during 2009. Staff is concerned that salary and wage increases for DSM
positions are automatically recovered through the DSM rider regardless of whether or not those
increases are approved in a general rate proceeding. The apparent across-the-board salary range
increase of2.5% for nearly all DSM positions from July 2009 to August 2010 seems
unwarranted given general economic conditions. Staff has opposed any and all salary and wage
increases for 2010 for other utilties serving in Idaho. The 2.5% increase given to Idaho Power
employees is excessive compared to the consumer price. index (CPI). Staff recognizes that
STAFF COMMENTS 4 SEPTEMBER 13,2010
review of salary increases during DSM prudency reviews that occur outside of general rate cases
creates an unanticipated problem, which Staff may need to address in future proceedings.
As of this writing the Commission has received comments from at least 13 Idaho Power
customers regarding the Application. Nine of those customers expressed opposition to the DSM
surcharge and/or to Idaho Power being the administrator of those funds. Two customers
supported the DSM programs. Two other customers' comments were more relevant to electricity
rate levels and rate design than to the DSM programs. In addition, since 2008 at least 29 other
customers have inquired about Idaho Power's DSM programs and the surcharge to fund them.
Most of these customers do not like paying the surcharge. However, the Application in this case
is not a rate application for future funding, but instead is a request for a determination that past
expenses were prudently incurred. It is important for customers to understand that the
Commission has required Idaho Power to provide cost-effective DSM programs that wil reduce
the Company's future costs of providing electricity to its customers. Absent demand-side efforts
to improve energy efficiency and reduce peak load, the Company wil be forced to invest in
more costly supply-side generation and transmission resources' and, as a result, retail electricity
rates would increase more than they otherwise would.
Overall, the Staff believes Idaho Power's DSM efforts in 2008 and 2009 were generally
prudent and cost-effective. The Company has not yet achieved all goals addressed by the
previously discussed MOU and Staffs Attachment to it, but appears to be on a reasonable track
toward those goals. Because the MOUagreement was not reached until the end of2009, it
contained language indicating Staff would allow reasonable leniency for achieving the MOU
goals through 2009. Nevertheless, Staffs review of the DSM programs in this case has resulted
in identification ofa few issues, some of which are briefly discussed below.
-- Separation between DSM evaluation and implementation. Organization of Idaho
Power's DSM employees appears to be essentially unchanged from July 2009 to August 2010.
Although not specifically addressed in the December 2009 MOU or Staffs Attachment to it,
Staff believes inherent conflcts of interest result from DSM evaluation responsibilities being
placed under the direction of the Customer Research and Analysis Leader, who reports to the
same Manager of Customer Service Relations & Energy Effciency (Manager) as do the two
Energy Efficiency Program Leaders who head the program implementation teams. The conflct
of interest is enhanced by the Manager having the ultimate responsibilty of deciding which
STAFF COMMENTS 5 SEPTEMBER 13,2010
programs wil be implemented - obviously, there is a conflct of interest in having prior
decisions validated by post-implementation evaluation results.
-- Net-to-Gross (NTG). Net-to-gross adjustments to program savings primarily consists
of removing the savings of program participants who would have achieved those savings even
without the program. NTG can also adjust program savings for non-participant "spilover." One
example of an unbelievable NTG ratio assumption is for the 100% NTG Idaho Power assumed
for calculating the cost-effectiveness of its Custom Effciency program. In reviewing
confidential files, Staff found examples of participants who had already stared their own
efficiency efforts, but were able to later parse off some areas in order to be eligible for incentive
payments from Idaho Power. Staff believes that 100% NTG for this large program results in an
overstatement of its cost-effectiveness. In its defense, Idaho Power's Revised Cost-Effectiveness
Supplement 1 to its 2009 DSM Report stated that Company believes there is "considerable
spilover" in this program and, to its credit, it said that it completed a sensitivity analyses for
Custom Efficiency that showed the program to be cost-effective from the TRC perspective down
to 30% NTG. Clearly, NTG is an important program evaluation issue for which having a better
understanding wil help improve both program performance and credibilty of reported benefits.
-- Inconsistent record-keeping. Again, in Staffs review of Custom Efficiency's
confidential fies, some inconsistencies in record-keeping seemed a little out of place for these
very large projects totaling $6.1 millon of utility costs in 2009.
-- Incentives being paid for projects prior to installation dates. For example, of the more
than 1,900 Easy Upgrades projects for which incentives were paid in 2008 and 2009, about 3.5%
had incentive payment dates that preceded the listed installation dates. Payment of incentives
prior to installation of measures is contrary to program standards.
-- Continuing to offer incentives fornon-cost-effective measures. For example, there are
a few measures in the otherwise cost-effective Easy Upgrades program that are clearly not cost-
effective with TRC benefit/cost ratios near or below 0.5. Idaho Power's explanation is that these
few measures comprise less than one percent of incentives paid with DSM rider funds, that they
were new measures in 2009, and that they wil be reviewed prior to 2011 and removed from the
program if they are stil found to not be cost-effective. The Company further explained that it
has been advised by customers, contractors, and company customer representatives to not change
this program for two years in order to promote paricipation and provide consistency.
Nevertheless, it is at least questionable for incentives to remain in place for even one year after
STAFF COMMENTS 6 SEPTEMBER 13,2010
measures or programs have been discovered to be clearly not cost-effective, regardless of the
relative market size of the measures or the desire for program consistency by people who directly
benefit from continuation of non-cost-effective measures.
-- Possibly too few verifications of installations. For example, verification of Easy
Upgrade installations dropped from 6.6% in 2008 to just 1.7% in 2009. In addition to hampering
future program evaluation efforts, verification rates that are too low may invite fraud as well as
make fraud or other problems more difficultto detect.
-- Less than optimal target marketing. For example, one of the key criteria for direct-mail
promotions of the barely cost-effective AC Cool Credit (aka AC Cycling) program is that
potential participants have used at least 500 kWh during their most recent July biling period.
More cost-effective targeting could have been accomplished by comparing July bils to May
bils, thus eliminating costs of multiple direct mail promotions annually for the many thousands
of customers who heat their water with electricity or who otherwise have year round electricity
use above 500 kWh/month, but who lack central air conditioners necessar to be eligible for the
program. Idaho Power's brochure Practical Ways to Manage Your Electricity Bil lists electric
water heaters as typically using 500 kWhmonth and all other typical uses of electricity,
excluding air conditioning and heating, as using an additional 500-600 kWh.
-- Possible continued evaluation deficiencies for some programs. It is not clear to Staff
what the Company's plans are for future evaluations of its Irrigation Effciency, Lighting
Efficiency, and Weatherization Assistance for Qualified Customers (aka Low-Income
Weatherization). Staffwil continue to monitor those efforts, as well as all others. (Staff
recognizes that the Weatherization program is not funded from the rider, but our intent is to
review all DSM programs and costs during every prudency review process.)
CONCLUSION AND RECOMMENDATION
As previously stated and notwithstanding the issues described above, the Staff believes
Idaho Power's overall DSM efforts in 2008 and 2009 were generally prudent and cost-effective.
While the Company has not yet achieved all goals addressed by the previously discussed MOU
and Staff s Attachment to it, Staff believes the Company is on a reasonable track toward meeting
those goals and addressing progress in the issues previously described.
Staff recommends that Idaho Power's energy efficiency rider expenditures of
$18,880,276 in 2008 and $31,821,464 in 2009 be determined prudent by the Commission.
STAFF COMMENTS 7 SEPTEMBER 13,2010
Respectfully submitted this
i:/umisc/comments/ipce i O.9npla comments. doc
STAFF COMMENTS
.f
,)' day of September 2010.'"
cl Neil Price
Deputy Attorney General
8 SEPTEMBER 13,2010
Idaho Power Company's 2009 Demand-Side Management Utility Benefits and Costs
Utilty Benefit Utility
Energy Efficiency Programs Avg.(net present Utility Cost Net Benefit B/C
Life value of avoided (Benefit-Costs)
costs)Ratio
Ductless Heat Pump 18 $466,435 $142,004 $324,431 3.3
Energy Efficient Lighting 5 4,380,771 1,207,366 3,173,405 3.6
Energy House Calls 20 820,660 569,594 251,066 1.4
Energy Star Homes Northwest 25 644,080 355,623 288,457 1.8
Heating & Cooling Efficiency 18 1,453,211 478,373 974,838 3.0
Home Improvement 25 1,863,034 321,140 1,541,894 5.8
Home Products 15 1,338,878 511,313 827,565 2.6
Rebate Advantage 25 251,248 49,525 201,723 5.1
See Ya later Refrigerator 8 595,133 305,402 289,731 1.9
Weatherization Assistance 25 4,838,818 1,294,862 3,543,956 3.7
Weatherization Solutions 25 240,800 162,995 77,805 1.5
Building Efficiency, Commercial 12 3,626,854 1,327,128 2,299,726 2.7
Easy Upgrades, Commercial 12 20,754,877 3,325,505 17,429,372 6.2
Holiday Lighting, Commercial 10 55,616 33,930 21,686 1.6
Custom Efficiency, Com./lndust.12 38,638,074 6,061,467 32,576,607 6.4
Irrigation Efficiency 8,816,577 2,293,896 6,522,681 3.8
Total Energy Efficiency $88,785,066 $18,440,123 $70,344,943 4.8
Net Benefit Utility
Peak Demand Programs Utility Benefit Utility Cost (Benefit-Costs)
B/C
Ratio
AC Cool Credit (20 yr. projected)$34,837,294 $32,016,033 $2,821,261 1.1
Commercial Flex Peak (10 yr. proj.)$26,492,787 $23,823,632 $2,669,155 1.1
Irrigation Peak Rewards (10 yr. proj.)$178,888,795 $119,099,366 $59,789,429 1.5-
Avg. Annual Peak Demand, Projected $22,280,023 $15,893,101 $6,386,921 1.4
Note: Appendix 3 in the 2009 DSM Report shows total Peak Demand program costs of $13,635,952 in 2009.
Sources: IPC's 2009 Demand Side Management Report and Revised Supplement 1, Cost Effectiveness
Attachment A
Case No. IPC-E- i 0-09
Staff Comments
09/13/10
Idaho Power's 2009 Demand Side Management (DSM) Customer Sector Comparisons
Most data from Revenue MW Share of
Table 2 & Appdx. 3 from DSM DSM MWh/year Peak Share of Share of DSM Share of Share of
in IPC's 2009 DSM Rider Expenses Energy Load MWh Rider Direct Energy Peak
Annual Report MWh Sales (millions)(millions)Savings Shed Sales Revenue Expenses Savings Savings
Residential 5,294,557 $12.3 $8.9 25,980 40 38%46%27%18%17%
Commercial 3,867,536 $6.9 $5.2 41,460 27 28%26%16%28%11%
Industrial 3,136,405 $3.7 $6.1 51,836 7 22%14%18%35%3%
Irrigation 1,649,758 $3.7 $11.9 13,158 164 12%14%36%9%69%
Market Transformation (NEEA)$-$1.0 15,813 3%11%0%
Other Activities $-$0.0 10 0%0%0%
Total 13,948,256 $26.6 $33.1 148,257 237 100%100%100%100%100%
Attachment B
Case No. IPC-E-IO-09
Staff Comments
09/13/10
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 13TH DAY OF SEPTEMBER 2010,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. IPC-E-IO-09, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO
THE FOLLOWING:
LISA D NORDSTROM
DONOV AN E WALKER
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: Inordstromß!idahopower.com
dwal kerCfidahopower .com
BENJAMIN J OTTO
ID CONSERV A nON LEAGUE
POBOX 844
BOISE ID 83702
E-MAIL: bottoß!idahoconservation.org
ANTHONY Y ANKEL
29814 LAKE ROAD
BAY VILLAGE OH 44140
E-MAIL: tonyß!yanel.net
DR DON READING
6070 HILL ROAD
BOISE ID 83703
E-MAIL: dreadingß!mindspring.com
DARLENE NEMNICH
GREG SAID
IDAHO POWER COMPANY
PO BOX 70
BOISE 1083707-0070
E-MAIL: dnemnichß!idahopower.com
gsaidß!idahopower.com
ERIC L OLSEN
RACINE OLSON NYE ET AL
PO BOX 1391
POCATELLO ID 83204
E-MAIL: eloß!racinelaw.net
PETER J RICHARDSON
GREGORY MADAMS
RICHARDSON & O'LEARY
PO BOX 7218
BOISE 1083702
E-MAIL: peterß!richardsonandoleary.com
gregß!richardsonandolear .com
,bFLSECRETAR
CERTIFICATE OF SERVICE