20110304Lobb Di Supporting Stipulation.pdf

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BEFORE THE -:nii i~'D -L. in. 50
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IDAHO PUBLIC UTILITIES COMNlLSŠlÖfitJ.
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IN THE MATTER OF AN INVESTIGATION
OF APPROPRIATE COST RECOVERY
MECHANISMS FOR IDAHO POWER'S
ENERGY EFFICIENCY PROGRAMS.
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) CASE NO. IPC-E-10-27
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DIRECT TESTIMONY OF RANDY LOBB
IN SUPPORT OF THE STIPULATION
IDAHO PUBLIC UTILITIES COMMISSI~
MARCH 4, 2011
1 Q.Please state your name and business address for
2 the record.
3 A.My name is Randy Lobb and my business address is
4 472 West Washington Street, Boise, Idaho.
5 Q.By whom are you employed?
6 A.I am employed by the Idaho Public Utilities
7 Commission as Utili ties Division Administrator.
8 Q.What is your educational and professional
9 background?
10 A.I received a Bachelor of Science Degree in
11 Agricultural Engineering from the University of Idaho in
12 1980 and worked for the Idaho Department of Water Resources
13 from June of 1980 to November of 1987. I received my Idaho
14 license as a registered professional Civil Engineer in 1985
15 and began work at the Idaho Public Utili ties Commission in
16 December of 1987. My duties at the Commission currently
17 include case management and oversight of all technical
18 Staff assigned to Commission filings. I have conducted
19 analysis of utility rate applications, rate design,
20 proposed tariffs and customer petitions. I have testified
21 in numerous proceedings before the Commission including
22 cases dealing with rate structure, cost of service, power
23 supply, line extensions, regulatory policy and facility
24 acquisitions.
25 Q.What is the purpose of your testimony in this
CASE NO. IPC-E-10-2703/04/11 LOBB, R. (Di)
STAFF
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1 case?
2 A.The purpose of my testimony is to describe and
3 support the Settlement Stipulation signed by most of the
4 parties in this case. Parties that did not sign the
5 Stipulation include the Industrial Customers of Idaho Power
6 Company who participated in settlement discussions and the
7 Idaho Irrigation Pumpers Association who did not.
8 Q.Could you please summarize your testimony?
9 A.Yes. While not fully supporting all details in
10 Idaho Power Company's application, Staff believes it is
11 necessary and reasonable for the Company to recover
12 prudently incurred DSM expenses in a timely manner. Staff
13 also believes that a balanced approach using a variety of
14 methods to recover DSM program costs is more appropriate
15 than a single tariff rider percentage, currently 4.75%.
16 Staff recognizes that DSM programs have been
17 promoted and historically viewed on an equal footing with
18 supply side resources. To the extent the Company earns a
19 return on some of its supply side resources, Staff believes
20 it is appropriate for the Company to earn a return on some
21 of its demand side resources in a similar manner.
22 Consequently, with provisions that mitigate cost
23 shifting among classes within the PCA, extend the
24 amortization period for the regulatory asset, and establish
25 future base and PCA rate treatment, Staff supports the
CASE NO. IPC-E-10-2703/04/11 LOBB, R. (Di)
STAFF
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1 Stipulated Settlement and recommends that it be approved by
2 the Commission.
3 Q.What did the Company propose in its application?
4 A.The Company proposed:(1) moving demand response
5 incentives paid to customers from tariff rider recovery
6 (Schedule 91) into the Power Cost Adjustment (PCA)
7 mechanism on a prospective basis beginning June 1, 2011;
8 (2) establishing a regulatory asset for Custom Efficiency
9 incentives paid to customers beginning January 1, 2011; and
10 (3) changing the carrying charge on the Energy Efficiency
11 Rider from the customer deposit rate to the Company's
12 authorized rate of return.
13 Q.What is specified in the Stipulation?
14 A.The Stipulation generally accepts the Company's
15 proposal to move demand response incentive payments from
16 Tariff Rider recovery to PCA recovery. The Stipulation
17 also accepts the Company's proposal to establish a
18 regulatory asset for Custom Efficiency incentive payments
19 and allow a carrying charge equal to the Company's overall
20 rate of return during amortization. The Stipulation
21 provides for no increase in the carrying charge on the
22 unrecovered Energy Efficiency rider balance.
23 Q.What was the process leading to the Settlement
24 Stipulation?
25 A.Staff first met with the parties on January 12,
CASE NO. IPC-E-10-2703/04/11 LOBB, R. (Di)
STAFF
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1 2011 to discuss case scheduling and again at a settlement
2 conference on February 7, 2011. Parties attending the
3 settlement conference included Idaho Power Company, the
4 Industrial Customers of Idaho Power (ICIP), the Community
5 Action Partnership Association of Idaho ("CAPAI"), the
6 Idaho Conservation League, the NW Energy Coalition, and the
7 Snake River Alliance. The Idaho Irrigation Pumpers
8 Association (IIPA) was also a party to the case but did not
9 attend the settlement conference.
10 Staff and all of the parties participating in the
11 settlement conference, with the exception of the ICIP,
12 agreed to settle the issues presented in the Case. ICIP
13 and IIPA have not signed the Stipulated Settlement.
14 Q.How does the Stipulation differ from the
15 Company's proposal for PCA cost recovery?
16 A.The Company proposed that DSM incentive payments
17 placed in the PCA would use existing PCA methodology to
18 recover costs. The PCA currently spreads power costs to
19 all customer classes using a uniform rate per kilowatt hour
20 (kWh). The Stipulation separates the DSM costs subject to
21 PCA recovery and allocates them to each customer class
22 based on the amount that would have been recovered from
23 each class through the tariff rider. In the interim period
24 before incentive payments are ultimately moved into base
25 rates, a separate rate per kWh in addition to the uniform
CASE NO. IPC-E-10-2703/04/11 LOBB, R . (D i) 4
STAFF
1 PCA rate will be established for each customer class to
2 recover the DSM costs. This will assure that DSM cost
3 recovery responsibility will not be shifted among the
4 customer classes simply due to the change from tariff rider
5 recovery to PCA recovery.
6 Q.How does the Stipulation differ from the
7 Company's proposal to create a regulatory asset for Custom
8 Efficiency incentive payments?
9 A.The Company proposed to capitalize Custom
10 Efficiency incentive payments by creating a regulatory
11 asset and then amortizing the asset over 4 years with a
12 carrying charge equal to the Company's overall authorized
13 rate of return. The Stipulation provides capitalization
14 through creation of the regulatory asset but amortizes the
15 asset balance over seven years at the Company's overall
16 authorized rate of return.
17 Q.What is the effect of the Stipulation if approved
18 by the Commission?
19 A.If the Stipulation is approved by the Commission,
20 an estimated $15 million annually in demand response
21 incentive payments will be tracked during the 2011/2012
22 April through March period and recovered through the PCA.
23 In addition, an estimated $5.2 million in Custom Efficiency
24 incentive payments will be capitalized in 2011 and another
25 $5.6 million will be capitalized in 2012. All of these
CASE NO. IPC-E-10-2703/04/11 LOBB , R . (D i ) 5
STAFF
1 costs would otherwise be recovered from the Schedule 91
2 tariff rider.
3 Q.Will the current Schedule 91 percentage of 4.75%
4 be reduced to reflect the alternative cost recovery method
5 for these programs?
6 A.Yes, eventually, but not initially. The current
7 Schedule 91 percentage applied to all customer bills has
8 not generated sufficient revenue to cover all of the DSM
9 costs incurred by the Company. Consequently, unrecovered
10 DSM program costs have been accumulating in a deferral
11 account. Deferred costs now total approximately $17
12 million and are estimated to reach $29.7 million by the end
13 of 2012 if the proposed changes are not made.
14 Total DSM expenditures are estimated to be $43.4
15 million in 2011 with Schedule 91 revenues estimated to be
16 approximately $38 million for an additional cost recovery
17 shortfall of approximately $5.4 million. By capitalizing
18 and shifting $20 million in DSM annual costs to the PCA and
19 subsequently base rate recovery, all unrecovered, currently
20 deferred DSM costs should be fully recovered by early to
21 mid 2012. Once deferred DSM costs are recovered, the
22 Schedule 91 percentage of 4.75 should be reduced.
23 Q.Why not just increase the Schedule 91 percentage
24 to cover the higher annual DSM expenses and pay of f the
25 deferral balance over time?
CASE NO. IPC-E-10-2703/04/11 LOBB, R. (Di)
STAFF
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1 A.The Company estimates and Staff agrees that the
2 Schedule 91 percentage would have to increase from 4.75% to
3 6.6% to cover expected annual DSM expenditures and payoff
4 the deferral balance by the end of 2012. While the cost
5 ul timately paid by customers will be the same whether
6 recovery is through base rates, the PCA or Schedule 91,
7 Staff believes using a combination of all three cost
8 recovery approaches makes sense for several reasons.
9 The DSM tariff rider was originally implemented
10 as a mechanism to facilitate timely adjustments to revenues
11 for DSM programs as their costs fluctuated. At the time
12 the rider was implemented, Staff believed that line-item
13 identification on customers' bills would assist the Company
14 in marketing its energy efficiency programs. Both of these
15 reasons still exist for having the tariff rider. However,
16 because the funding needed for the Company to pursue all
17 cost-effective DSM programs has grown beyond 5% of base
18 revenue, it is attracting unwarranted attention and
19 cri ticism. Consequently, timely recovery of DSM costs
20 needed to promote acquisition of cost effective DSM has not
21 occurred.
22 In addition, demand response programs that are
23 viewed as capacity resources with variable payments from
24 year to year should be treated more like capacity related
25 supply side resources with cost recovery through base rates
CASE NO. IPC-E-10-2703/04/11 LOBB, R. (Di)
STAFF
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1 and PCA true up. Finally, DSM costs included in base rates
2 can be more effectively evaluated and incorporated in
3 overall customer rates as part of a general rate case.
4 Q.Why has Staff agreed to accept capitalization of
5 DSM expenses and allow the Company to earn its authorized
6 return on the unamortized balance?
7 A.. Staff agreed to limited capitalization of DSM
8 expenses in this case in recognition that DSM programs have
9 been historically compared and evaluated in a manner
10 equivalent to Company owned supply side resources. The
11 Company is allowed to rate base supply side resource
12 investment and earn its authorized return as the assets
13 depreciate.
14 While Staff continues to evaluate the appropriate
15 level of DSM expense capitalization and assess the
16 resulting customer benefits that may accrue, Staff
17 recognizes that similar treatment has been allowed by the
18 Commission in the past.
19 Q.What has the Commission said in the past with
20 regard to capitalization of DSM expenses?
21 A.In allowing capitalization of DSM expenses in the
22 past, the Commission has stated that conservation (DSM)
23 investment should be treated in a manner similar to the
24 recovery of costs associated with generation resources
25 (Order No. 22299, 22623 and 22758). In Order No. 30201,
CASE NO. IPC-E-10-2703/04/11 LOBB, R. (Di)
STAFF
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1 the Commission directed Idaho Power Company to pursue all
2 cost effective DSM. Finally, in Order No 24417 the
3 Commission has questioned the need for further incentives
4 for a utility to do what is otherwise expected of it.
5 Based on these Commission positions, Staff takes a measured
6 approach to promote cost effective DSM through limited
7 capitalization.
8 Q.Would you please describe Idaho Power's three
9 demand response programs proposed for cost recovery through
10 the PCA and subsequently base rates?
11 A.Yes, the residential air conditioning cycling
12 program (A/C Cool Credit) was implemented in 2003. By 2009
13 more than 30,000 customers were participating in the
14 program with an estimated peak savings of 39 Mw. Idaho
15 Power's total cost for the program in 2009 was $3.5
16 million, of which $0.6 million were incentives paid to
17 participants.
18 The irrigation pump control program (Irrigation
19 Peak Rewards) was implemented in 2004. By 2009 more than
20 1,500 service points were included in the program, giving
21 Idaho Power more than 222 MW of load reduction in 2010.
22 Idaho Power's total cost of the program in 2009 was nearly
23 $9.7 million, of which about $8.2 million were incentives
24 paid to participating irrigation pumpers.
25 The commercial demand response program, FlexPeak
CASE NO. IPC-E-10-2703/04/11 LOBB , R . (D i )
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1 Management, was initiated in May of 2009 and had 33
2 participants by the end of the year providing 19 Mw of peak
3 load reduction. The program provided 34 MW of load
4 reduction in 2010. Idaho Power's total cost of the program
5 in 2009 was a little over $0.5 million, of which about 85%
6 or $0.45 million were incentives paid to the program
7 contractor, EnerNOC. The incentives paid to EnerNOC
8 quadrupled to $1.9 million in 2010. Incentive payments in
9 the three demand response programs totaled to a little over
10 $12 million in 2009.
11 Q.Why do you believe it is appropriate to recover
12 the cost of these particular programs through the PCA and
13 base rates?
14 A.While theoretically any of the DSM programs could
15 be funded through the PCA, the peak load reductions from
16 demand response programs are dispatchable resources that
17 resemble supply-side resources whose costs have
18 traditionally been recovered through the PCA. In
19 particular, the demand response incentive payments are
20 costs that vary from year to year and are most analogous to
21 PCA-type power costs.
22 Q.Would you please describe Idaho Power's Custom
23 Efficiency program proposed for capitalization?
24 A.Yes, the Custom Efficiency program provides
25 incentives for specifically engineered energy efficiency
CASE NO. IPC-E-10-2703/04/11 LOBB, R. (Di) 10
STAFF
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 4TH DAY OF MARCH 2011,
SERVED THE FOREGOING DIRECT TESTIMONY OF RANDY LOBB IN
SUPPORT OF THE STIPULATION, IN CASE NO. IPC-E-1O-27, 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: Inordstromtiidahopower.com
dwalkertiidahopower .com
PETER J RICHARDSON
GREGORY MADAMS
RICHARDSON & O'LEARY
PO BOX 7218
BOISE ID 83702
E-MAIL: peter(ßrichardsonandoleary.com
gregtirichardsonandoleary .com
ERIC L OLSEN
RACINE OLSON NYE ET AL
PO BOX 1391
POCATELLO ID 83204
E-MAIL: elotiracinelaw.net
BENJAMIN J OTTO
ID CONSERVATION LEAGUE
POBOX 844
BOISE ID 83702
E-MAIL: bottotiidahoconservation.org
KEN MILLER
SNAKE RIVER ALLIANCE
E-MAIL ONLY:
kmilertisnakeriverallance.org
JOHNRGALE
DARLENE NEMNICH
IDAHO POWER COMPANY
POBOX 70
BOISE ID 83707-0070
E-MAIL: rgaletiidahopower.com
dnemnichtiidahopower .com
DR DON READING
6070 HILL RD
BOISE ID 83703
E-MAIL: dreadingtimindspring.com
ANTHONY Y ANKEL
29814 LAKE ROAD
BAY VILLAGE OH 44140
E-MAIL: tonytiyanel.net
NANCY HIRSCH
NW ENERGY COALITION
E-MAIL ONLY:
nancytinwenergy.org
BRAD MPURDY
ATTORNEY AT LAW
2019 N 17TH STREET
BOISE ID 83702
E-MAIL: bmpurdytihotmail.com
JJ~
SECRET Y
CERTIFICATE OF SERVICE