20110818final_order_no_32331.pdf

Office of the Secretary
Service Date
August 18,2011
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )OF IDAHO POWER COMPANY FOR A )CASE NO.IPC-E-11-05
PRUDENCY DETERMINATION OF 2010 )ENERGY EFFICIENCY RIDER )ORDER NO.32331
EXPENDITURES )
On March 15,2011,Idaho Power Company filed an Application requesting a
Commission Order finding that its expenditures of $42,479,692 in Energy Efficiency Rider funds
in 2010 were prudently incurred expenses.Idaho Power has implemented or manages a variety
of programs for customers of all classes to participate in demand-side management (DSM)and
energy efficiency programs.The Energy Efficiency Rider,implemented in 2002.provides funds
for Idaho Power’s energy conservation programs.The Company’s Application states its
objectives are to (1)achieve all prudent cost-effective energy efficiency and demand response
resources to meet its electrical system’s energy and demand needs and (2)provide customers
with programs and information to help them manage their energy usage.Application,p.2.
Idaho Power consults with an Energy Efficiency Advisory Group,formed in May 2002,that
provides a broad range of recommendations,including input on new program proposals,
modifications to existing programs,and overall expenditures of Rider funds.
Company expenditures on DSM-related activities in 2010 increased to $45.8 million,
compared to expenses of approximately $35 million in 2009 and $21 million in 2008.Of the
total amount,approximately $42.5 million were Rider funded expenses.Application,p.4.
Between 2002 and 2007,the Commission found that the Company had prudently incurred cost-
effective DSM-related Rider expenses of $29 million.Application,p.2 citing Order Nos.30740
and 31039.
The Application states that the Company in 2010 continued to expand its DSM
programs to increase participation and energy savings.The Company currently offers 16 energy
efficiency programs,3 demand response programs,several educational initiatives,and offers
savings to customers through market transformation programs.Application,p.3.Overall,the
Application states that energy savings from the efficiency activities in 2010 totaled 187,626
MWh,an increase of 31%over the energy savings achieved in 2009.The demand response
ORDER NO.32331 1
programs resulted in a total load reduction of 336 MW in 2010,compared with a reduction of
218 MW in 2009 and 61 MW in 2008.Application.p.3.
The Company attached its 2010 DSM Annual Report to the Application.The
Company uses four analyses to determine cost-effectiveness of each program:the total resource
cost perspective,the utility cost perspective,the participant cost perspective,and the ratepayer
impact measure.The Report also contains an evaluation section that includes the Company’s
evaluation plans,copies of completed program evaluation reports,research reports,and reports
completed by the Company or third parties.The Report contains specific information for each
program,including its 2010 activities,a section on customer satisfaction and evaluations
providing an overview of process,impact,and market effect evaluations.
The Application states that independent,third party consultants are used to provide
impact and process evaluations to verify that program specifications are met,provide viable
recommendations for program improvement and validate energy savings achieved through the
programs.During 2010,third party consultants provided evaluations on nine programs,
including the heating and cooling efficiency,energy house calls,home improvement program,
building efficiency,custom efficiency,and irrigation efficiency programs.Based on the
information provided with its Application,Idaho Power requested that the Commission issue an
Order designating the Company’s expenditure of $42,479,692 in Energy Efficiency Rider funds
in 2010 to be prudently incurred expenses.
On April 26,2011,the Commission issued a Notice of Application and Notice of
Modified Procedure,establishing a time period for interested parties to file written comments.
The Commission subsequently granted Staffs Motion to Extend the Comment Period from June
27,2011 to July 18,2011,and extending the reply comment period to August 1,2011.Written
comments were timely filed by the Industrial Customers of Idaho Power (ICIP),the Idaho
Conservation League (ICL),and the Commission Staff.Idaho Power filed reply comments on
August 1,2011.
WRITTEN COENTS
Idaho Conservation League Comments
The ICL filed written comments stating its support of Idaho Power’s request for
Commission approval of its 2010 Rider expenditures.ICL noted that each of the programs
achieved a cost benefit ratio greater than one,as adequately demonstrated in Idaho Power’s
ORDERNO.32331 2
annual report.In addition,ICL believes the report satisfies the criteria contained in the
Memorandum of Understanding for Prudency Determination of DSM Expenditures that provides
standards for evaluating programs and reporting to the Commission.
Although ICE believes the Company’s DSM expenses were prudently incurred,it did
offer two specific comments.ICE noted that one of the four tests the Company uses to evaluate
cost-effectiveness of the programs,the ratepayer impact measure test (RIM),examines “the
potential impact the energy efficiency program has on rates overall.”ICE Comments,p.2.ICE
noted that some programs have an RIM ratio of less than one indicating that,“all else being
equal,DSM spending may cause utility rates to rise.”ICL Comments,p.2.The RIM test does
not indicate whether individual customer bills will increase,and ICE suggests that the proper
focus is on individual customer bills,rather than utility rates in general.ICL stated that although
some programs have an RIM ratio of less than one,“this is no reason to find any of these
programs imprudent.”Id.
ICL’s second specific comment addresses a gap between the economic benefits
actually obtained by the DSM programs and the potential benefits that may be obtained.Noting
that the Commission previously instructed Idaho Power to identify barriers that may prevent
achieving the full potential of DSM programs,ICE states that Idaho Power’s report does not
discuss potential barriers or the Company’s plan to close the gap between achievable and
economic potential.ICL Comments,p.4.ICE suggested the Commission instruct Idaho Power
to address these barriers and the strategy to overcome them in each DSM annual report.Id.
Industrial Customers ofIdaho Power Comments
The ICIP in its comments identified a discrepancy between Idaho Power’s Integrated
Resource Plan (IRP)and its DSM evaluation regarding the Company’s peak demand reduction
programs.ICIP contends that in the Company’s 2011 IRP Idaho Power places limits of 330 MW
for summer 2011,310 MW in 2012 when the Langley Gulch plant comes on line,and 315 MW
in 2013 and 2014 for its demand response programs.ICIP Comments,p.4.In this prudency
determination docket,ICIP asserts that the peak demand programs have resulted in a reduction of
336 MW in 2010.Id.ICIP suggested the Commission require Idaho Power to use the IRP caps
in its cost-effectiveness analysis for these programs in prudency review dockets.ICIP
Comments,p.4.ICIP also recommended the Commission should “now order that Idaho Power
ORDER NO.32331 3
must recognize the full potential of the demand response programs in its IRP process.”ICIP
Comments,p.6.
ICIP also argues that Idaho Power uses stale avoided cost data in evaluating its
programs,thereby likely overestimating the cost-effectiveness of its demand-side management
programs.Idaho Power used the avoided cost from its 2009 IRP in calculating the cost-
effectiveness of the programs in this case.ICIP noted that the Commission has substantially
reduced the published avoided cost rates available to qualifying facilities,“and presumably the
avoided cost applicable to the Company’s demand-side management programs should also have
decreased substantially at that time.”ICIP Comments,p.6.ICIP additionally notes that Idaho
Power updated its DSM avoided cost values in its 2011 IRP filed with the Commission on June
30,2011.ICIP requested “that the Commission require Idaho Power rerun their cost-
effectiveness tests with the avoided cost contained in the 2011 IRP,and order the Company to
use its most current avoided cost in future prudency determination cases.”ICIP Comments,p.7.
Third,ICIP discussed what it believes is a discrepancy in the evaluations of the A/C
Cool Credit and the Irrigation Peak Reward programs,compared to the FlexPeak Management
program.Specifically,the evaluation for the A/C Cool Credit and Irrigation Peak Rewards
programs use a 20-year lifecycle calculation,and the FlexPeak Management program uses a 10-
year lifecycle calculation.ICIP Comments,p.7.ICIP recommended the Commission “require
Idaho Power to use comparable evaluation methodologies for its three demand response
programs,so as not to undervalue the cost-effectiveness of the FlexPeak Management Program
compared to the other two programs.”ICIP Comments,p.8.
Finally,ICIP addressed residential programs,asserting that “residential programs are
not providing an equivalent ratepayer benefit to programs for other customer groups.”ICIP
Comments,p.8.ICIP contends that the residential programs should be evaluated to determine if
they can be improved,or should be discontinued.ICIP recommended the Commission “require
Idaho Power to engage a qualified third party to fully evaluate the cost-effectiveness of each of
its residential programs,including any free-rider problems,and report back to the Commission”
on how to improve the programs or reduce funding for programs as appropriate.ICIP
Comments,p.9.
ORDERNO.32331 4
Staff Comments
Staff comments state “that Idaho Power’s DSM efforts in 2010 were generally
prudent and cost-effective,’and that the Company made significant progress in meeting the
evaluation and reporting goals outlined in the Memorandum of Understanding.Nonetheless,
Staff identified several areas it believes Idaho Power’s DSM implementation presents specific
problems.First,Staff stated there is insufficient separation between the DSM evaluation
employees and the implementation teams,which results in the appearance of conflict of interest
in the evaluation report.As an example,Staff identified three delays and elimination of one
demand response program evaluation,as well as other changes to the evaluation plan between
2009 and 2010.Staff Comments,p.7.Staff noted that the Company explained in discovery
responses why each evaluation was rescheduled or removed but Staff thought at least some of
the last minute changes seemed unreasonable.Staff Comments,pp.7-8.Staff stated that “the
large discrepancy between the evaluations plan published in the 2009 DSM report and the
evaluations delivered in the 2010 report suggest that evaluation scheduling could be designed to
highlight implementation successes and minimize deficiencies.”Staff Comments,p.8.
Second,Staff criticized the Company’s marketing for the A/C Cool Credit program,
noting that materials are unnecessarily distributed to customers who have electric water heaters
but lack central air conditioners.Third,Staff stated there is insufficient onsite verification of
building efficiency projects.Fourth,Staff stated the Company “drastically changed its program
life benefit cost ratio calculation methods from 2009 to 2010,resulting in about a 40%increase
in stated cumulative average program life UCT and TRC cost-effectiveness,”without
explanation.Finally,Staff identified mathematical errors and an accounting error the Company
later acknowledged in a letter to the Commission dated July 1,2011.Idaho Power inadvertently
charged $526,781 to the Idaho Energy Efficiency Rider that should have been charged to the
Oregon jurisdiction.Staff Comments,p.9.
Staff also noted that Idaho Power DSM Rider funded employees received a 2.5%
wage increase on January 9,2010,and received additional salary increases throughout the year
averaging 4.7%.Staff is concerned that salary and wage increases for DSM employees are
automatically recovered through a DSM prudency review rather than in a general rate case.Staff
Comments,p.5.Staff recommended that $120,070 in DSM Rider funds spent on wage increases
not be approved in this case and instead be deemed prudent to the extent the Commission
ORDERNO.32331 5
approves recovery of wage increases in the Company s pending general rate case.Staff
Comments,p.9.
Staff reviewed the cost-effectiveness of each of the 16 energy efficiency programs as
provided in the information in the Company’s Application.Staff Comments,Atch.B.Staff
noted that the benefits accruing to the residential class are disproportionately lower than for other
classes,particularly the industrial and irrigation classes.Staff analysis shows that the residential
class funded 46%of the DSM Rider revenue,but received 24%of DSM expenses,24%of total
energy savings,and 12%peak load reduction achieved through the Rider funding.Staff
Comments,pp.3-4.In contrast,the irrigation class funded 14%of Rider revenue and received
36%of total Rider expenses.Id.Staff recognizes that cost-effective DSM programs benefit all
customers but nonetheless expressed concern about the disparity between DSM revenues
provided by the residential class and the benefits received.Staff urges the Company “to identify
and develop DSM programs for the residential class in a balanced fashion to allow increased
program participation,particularly in the higher energy rate blocks.”Staff Comments,p.4.
Staff concluded that Idaho Power’s DSM efforts in 2010 were generally prudent and
cost-effective.Staff recommended the Company’s Energy Efficiency Rider expenditures of
$41,832,841 be determined to be prudent by the Commission.This figure represents correction
of the share that was mistakenly assigned to the Idaho jurisdiction rather than the Oregon
jurisdiction,as well as Staffs recommendation that $120,070 spent on wage increases not be
approved in this case.
Idaho Power Reply Comments
Idaho Power first addressed Staffs recommendation that the increase in Rider funded
employee wages be disallowed pending approval of Company wage increases in Idaho Power’s
rate case.The Company notes its rate case is based on a 2011 test year and does not apply to
expenses incurred in 2010.If the Commission determines the wage increases were not prudent,
the Company states it would have to immediately expense the $120,070,eliminating the
opportunity for the Company to recover the full 2010 costs of the DSM programs.Idaho Power
Reply,p.3.The Company also argues that tying the disposition of a specific expense to a
finding in a general rate case “would suggest that the Company can only provide wage increases
to employees paid for by Rider funds during years in which the Company files a general rate
case.”Id.Finally,Idaho Power notes that the Company’s evaluation demonstrates that the DSM
ORDERNO.32331 6
programs were deemed to be cost-effective under the three cost-effectiveness tests required by
the Memorandum of Understanding,and each of these cost-effectiveness tests included the Rider
employee salaries.Idaho Power argues that it has met its obligation to provide cost-effective
DSM measures even with the wage increases.Idaho Power Reply,p.4.
Idaho Power next addressed Staff’s and ICIP’s concerns that some customer classes
receive a greater percentage of Rider fund benefits than they contribute.The Company notes
that the Commission previously recognized that there will always be some level of cross-
subsidization of DSM programs occurring between a utility’s various customer classes.Idaho
Power Reply,p.5.The Company maintains that all of its energy efficiency programs created
system benefits for all customers,regardless of specific customer class measures.Nonetheless,
the Company states that it continues to work on this disparity that particularly occurs in the
residential class.
Idaho Power disagrees with Staff’s suggestion that there is an appearance of a conflict
of interest with having both the energy efficiency program leaders and the customer research and
analysis leader report to the manager of customer relations and energy efficiency.The Company
asserts it has nothing to gain by gaming the efficacy of cost-effectiveness of the programs,denies
that the Company’s evaluations of certain programs were strategically delayed,or that the
evaluations in the 2010 DSM report were designed to highlight implementation successes and
minimize deficiencies.Idaho Power Reply,p.6.The 2010 DSM report shows that all of the
programs meet the Staff-approved cost-effectiveness tests and that a change to the Company’s
internal employee reporting structure would not change the costs or cost-effectiveness of the
programs.
Next,Idaho Power addressed Staffs and ICIP’s criticisms of the Company’s demand
response programs,including Staffs criticism that the Company did not appear to have
interrupted irrigators as frequently as it could have with the Irrigation Peak Rewards Program.
The Company asserts the goal of the demand response programs is to reduce summer peak
electric load during periods of high demand,and it is not designed to reduce real-time power
supply costs.Idaho Power Reply,p.7.The Company defended the use of a 20-year life for the
A/C Cool Credit program and the FlexPeak Management program,noting that regardless of the
program life used in the cost-effective analysis of demand response programs,they are all cost
ORDERNO.32331 7
effective from a program life perspective and from a one-year perspective.Idaho Power Reply,
p.9.
Idaho Power responded to ICIP’s criticism that the Company did not use inputs from
its 201 1 IRP to analyze and value its programs.The Company asserts that it cannot use the
inputs from the 2011 IRP until the Commission acknowledges it,and that the appropriate IRP for
the 2010 prudency review is the 2009 IRP.Idaho Power Reply,p.10.
Idaho Power also denied that it placed a cap on its demand response programs,as
suggested by ICIP.The Company stated that the results of its 2011 IRP analysis demonstrated
that 351 MW (the cap claimed by ICIP)was a reasonable estimate of the demand response
potential that would economically reduce Idaho Power’s future peak demands,Idaho Power
Reply,p.11.The Company noted that it has achieved approximately 400 MW of demand
reduction potential through the administration of its DSM programs,an increase of more than
100 MW from 2010.Idaho Power Reply,p.11.
The Company disagrees with Staffs recommendation that the Company file an
addendum to the 2010 DSM report to explain discrepancies.The Company explained that it
modified its benefit/cost ratio methodology as part of its continuing efforts to enhance its DSM
programs.The Company admits it should have explained this change in methodology in the
2010 DSM report,but asserts it met with Staff and ICIP on July 8,2011,where the Company
explained the change in methodology.Idaho Power Reply,p.12.
Regarding the accounting errors discussed by Staff,the Company stated it identified
the accounting error and updated its prudency request in this docket through a letter dated July 1,
2011.In addition,the Company developed a data repository implemented in 2011 to help reduce
similar errors in the future.Idaho Power Reply,p.12.The Company admits it misallocated
some Oregon funds to Idaho jurisdiction;however,it corrected the error and has implemented
new automated systems to minimize the risk of similar occurrences in the future.Idaho Power
Reply,pp.14-15.
The Company contends its 2010 DSM efforts produce savings at a benefit/cost ratio
of greater than one when analyzed from the perspective of total resource costs,utility costs,and
participant costs.The Company requests that the Commission issue an Order designating Idaho
Power’s expenditure of $41,952,911 in Energy Efficiency Rider Funds in 2010 as prudently
incurred expenses.
ORDER NO.32331 8
COMMISSION DECISION.
The Commission has fully reviewed the information in this case and has determined
to approve Idaho Power’s 2010 DSM expenditures in the amount of $41,952,911 as prudently
incurred.The evidence demonstrates that the Company actively evaluates its energy efficiency
programs to ensure they meet reasonable standards,resulting in tangible benefits to all
customers.Importantly,Idaho Power is making a good faith effort to meet the evaluation and
reporting requirements in the Memorandum of Understanding so that the Commission and third
parties are informed of program implementation and results.Finally,the evaluations of the
different programs demonstrate their effectiveness,as shown by most of the cost/benefit ratios
for each program.
The record demonstrates the Company has worked to achieve the program evaluation
goals outlined in the Memorandum of Understanding signed by Idaho Power and other utility
representatives in December 2009.In addition,Idaho Power has addressed identified program
deficiencies in the past year.Specifically,the Company has:
(1)Adjusted the Net-to-Gross (NTG)calculation for the Custom Efficiency
program from 100%to a more realistic 69%.In any other cases where a
program’s reported NTG is 100%,the Company has specified that the
NTG calculation has already been incorporated into the deemed savings
calculated by the Regional Technical Forum (RTF).
(2)Begun evaluating the cost-effectiveness assumptions for each DSM
program annually.
(3)Eliminated the Holiday Lighting program when it became clear that one of
the program’s main goals,market transformation,had been achieved.
(4)Increased the installation verification rate for the Easy Upgrades program
from 1.7%in 2009 to 5.6%in 2010.While Staff appreciates this
improvement,Staff notes that Cadmus,who conducted a process
evaluation of this program in 2010,recommends that 10%of projects be
verified to meet industry standards.
(5)Eliminated incentives for Easy Upgrades measures that were not cost
effective in 2010.
Staff Comments,p.6.
Idaho Power uses four tests to evaluate cost-effectiveness of each of its efficiency
programs:the total resource cost test (TRC)“reflects the total benefits and costs to all customers
ORDERNO.32331 9
(participants and non-participants)in the [utilityj service territory:”the utility cost test (UTC)
“calculates the costs and benefits of the program from the perspective of ...the utility
implementing the program;the participant cost test (PCT)“assesses the costs and benefits from
the perspective of the customer installing the measure.”ICL Comments,p.2 quoting the
Memorandum of Understanding.Atch.I.A cost/benefit ratio greater than 1 .0 under each of
these tests means the program is prudent for the utility and all ratepayers,whether they
participate in a program or not.The MOU states “that all programs and individual measures
should have the goal of cost effectiveness from the total resource,utility,and participant
perspective.”Idaho Power’s DSM report shows that all the programs pass these three most
significant tests.DSM 2010 Report,Supplement 1.
The Commission appreciates the thorough review of Idaho Power’s report and
programs provided by Staff and the other interested parties.The diligent review provided by
Staff and other third parties helps Idaho Power identify limitations and potential problems in
DSM programs,and is vital to the Commission’s understanding of the programs’effectiveness.
The Commission has carefully considered each of the points raised in the written comments and
has concluded that no corrective action need be directed by the Commission.The Company in
its report shows improved compliance with the standards contained in the Memorandum of
Understanding,and the Commission expects those efforts,and the oversight by Staff and others,
will continue.The Commission further expects the Company to make adjustments to individual
programs as their effectiveness changes,consistent with outstanding Commission instructions
that Idaho Power pursue all cost-effective programs.
On the record in this case,the Commission approves Idaho Power’s 2010 DSM
expenditures in the amount of $41,952,911 as prudently incurred.
ORDER
IT IS HEREBY ORDERED that the Commission approves Idaho Power’s 2010 DSM
expenditures in the amount of $41 ,952,91 1 as prudently incurred.
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)
days after any person has petitioned for reconsideration,any other person may cross-petition for
reconsideration.See Idaho Code §61-626.
ORDERNO.32331 10
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this i.I
day of August 2011.
‘iI
MACK A.REDFORD,COMMISSIONER
MARSHA H.SMITH,COMMISSIONER
ATTEST:
JIan D.Jewel
Commission Secretary
bls/O:IPC-E-1 1-05 ws3
ORDERNO.32331 11