20110718Comments.pdf

WELDON B. STUTZMAN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3283
R '.. C E~ 1\/ r: r'l.Cj J.Cu
znii JUL 18 PM 3: 39
,ì;~
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 THE APPLICATION
OF IDAHO POWER COMPANY FOR A
PRUDENCY DETERMINATION OF 2010
ENERGY EFFICIENCY RIDER
EXPENDITURES
)
) CASE NO. IPC-E-ll-05
)
)
) COMMENTS OF THE
) COMMISSION STAFF
)
The Staff of the Idaho Public Utilties Commission, by and through its Attorney of
Record, Weldon B. Stutzman, Deputy Attorney General, submits the following comments in
response to Order No. 32232 issued on April 26, 2011 and Order No. 32283 issued on June 30,
2011.
BACKGROUND
On March 15,2011, Idaho Power Company fied an Application requesting a
Commission Order establishing that its expenditures of $42,479,692 in Energy Efficiency Rider
funds in 2010 were prudently incured expenses. In responding to Staff s production requests,
Idaho Power discovered that $526,781 had been inadvertently charged to the Idaho Energy
STAFF COMMENTS 1 JULY 18,2011
Efficiency Tariff Rider rather than the Oregon Rider. On July 1,2011, the Company by written
letter reduced its request for a prudency determination to $41,952,911 rather than $42,479,692.
Consistent with the Commission's instructions that Idaho Power should pursue demand-
side management programs, Idaho Power has implemented or manages a wide range of
opportunities for all customer classes to participate in its demand-side management (DSM)
programs. The Company's Application states its objectives are to (1) achieve all prudent cost-
effective energy effciency 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.
The Company states its expenditures on DSM-related activities in 2010 increased to
$45.8 milion, compared to expenses of approximately $35 milion in 2009 and $21 milion in
2008. Of the total amount, approximately $42 milion were Idaho Rider fuded expenses.
Application, p. 4.
Since the Energy Efficiency Rider was implemented in 2002, Idaho Power has steadily
increased the breadth of its DSM and energy efficiency programs, as well as the level of funding
for the programs. The Application states that the Company in 2010 continued to expand its
DSM programs to increase paricipation and energy savings. The Company currently offers
sixteen energy efficiency programs, three demand response programs, several educational
initiatives, and offers savings to customers through market transformation programs.
Application, p. 3. Overall, energy savings from all efficiency activities in 2010 totaled 187,626
anual (or first year) Mwh, an increase of 31 % over the energy savings achieved in 2009. The
demand response programs resulted in a total load reduction of336 MW in 2010, compared with
a reduction of218 MW in 2009 and 61 MW in 2008. Application, p. 3.
The Company attached its 2010 DSM Annual Report to the Application. The Report
provides detailed cost-effectiveness information by program and energy savings measures as
well as detailed financial information separated by expense category and jurisdiction. The
Company uses four analyses to determine cost-effectiveness of the programs: the total resource
cost perspective, the utilty cost perspective, the paricipant cost perspective, and the rate 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 other reports
completed by the Company or third paries. The Report contains specific information for each
STAFF COMMENTS 2 JULY 18,2011
program, including the Company's 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 par 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 pary consultants provided evaluations on nine programs,
including the heating and cooling efficiency, energy house calls, home improvement program,
building efficiency, custom effciency, and irrgation efficiency programs. Based on the
information provided with its Application and the letter fied on July 1, 2011, Idaho Power
requests that the Commission issue an Order designating the Company's expenditure of
$41,952,911 in Energy Efficiency Rider fuds in 2010 to be prudently incured expenses.
STAFF ANALYSIS
The Idaho Energy Effciency Tariff Rider, commonly referred to as the DSM Rider,
fuds 92% of the Company's DSM activities. Program participants get the benefit of a direct bil
reduction, but all ratepayers benefit from the avoided generation, transmission, and distribution
costs that would otherwse be necessar to supply adequate and reliable electricity to Idaho
Power's customers.
Staff Attachment A compares Idaho Power's reported utility costs of$24.6 milion for its
sixteen energy efficiency programs in 2010 to the estimated present value of utilty benefits of
$111.3 milion over the projected lives of the installed measures. This analysis results in a 4.53
benefit/cost ratio. Idaho Power's three peak demand reduction programs are projected to have
average anual costs of $1 0.6 milion, which compares favorably with the reported average
anual benefits of $14 milion for a benefit/cost ratio of 1.32. Net benefits to the utilty indicate
that future rates paid by the utilty's customers wil be lower than they would be without the
investment.
Staff Attchment B compares the 2010 DSM Idaho Rider revenue from each major
customer class to DSM program expenses and benefits attached to each class. As was the case in
2009, benefits accruing to the residential class in 2010 were disproportionally lower than for
other classes, paricularly the industrial and irrigation classes. The table shows that the
residential class fuded 46% of the DSM rider revenue, but only received 24% ofDSM
STAFF COMMENTS 3 JULY 18,2011
expenses, 24% of total energy savings, and 12% of peak load reduction achieved through the
rider funding. In contrast, the irrigation class funded 14% of rider revenue, but received 36% of
total rider expenses, mainly through its 77% share of total peak reduction. In 2010 as in 2009,
the inequity between the customer classes was somewhat mitigated by the anual investment in
market transformation efforts through the Northwest Energy Effciency Allance (NEEA) which
frequently benefits the residential class more than other customer classes. However, this benefit
does not bridge the disparity between customer classes. Staff recognizes that cost-effective DSM
programs benefit all customers as a whole, regardless of the fuding source, but nonetheless,
Staff is concerned about the disparity between DSM revenues provided by the residential class
and DSM benefits received. However, Staff does not suggest that the Company should
discontinue more cost effective programs in one class in exchange for less cost effective
programs in another class simply to promote DSM revenue/program cost equity. Instead, Staff
urges the Company to identify and develop DSM programs for the residential class in a balanced
fashion to allow increased program paricipation, paricularly in the higher energy rate blocks.
While reviewing all expenditures charged to the DSM Rider Account for 2010, Staff
calculated the Rider account balance and found it to be equal to the amount reported by the
Company in the 2010 DSM Annual Report when amended to exclude the incorrect assignment of
$526,781 to Idaho. A sumar of the rider account balance for 2010 is below:
2010 Beginning Balance: $ (9,718,518)
2010 DSM Funding plus Accrued Interest: 34,605,272
2010 DSM Expenses 41,952,911
2010 Year End Balance $ 17,066,157
In 2010, Idaho Power charged approximately $2.8 milion, or 6% of the total DSM
budget, in labor expenses to the DSM rider account. Staff is concerned with two issues
regarding labor costs: first, the wage and salar increases for DSM rider-funded employees, and
second, the exclusion of "purchased services" and "other expense(s)" from the administrative
budget category.
Staff notes that all Idaho Power DSM rider-fuded employees received a 2.5% wage
increase on January 9, 2010. In addition, many rider-fuded employees received additional
salary increases throughout the year. The average wage increase for rider-funded employees was
STAFF COMMENTS 4 JULY 18,2011
approximately 4.7%. Staff expressed concern in last year's comments that salary and wage
increases for DSM positions are automatically recovered through a DSM prudency review rather
than in the more appropriate venue of a general rate case. This is paricularly troublesome in the
context of state-wide economic conditions and the wide discrepancy between the stagnant
consumer price index, 1.5%, and the average wage increase for rider-funded employees, 4.7%,
Staff recommends that the estimated $120,070 in DSM rider fuds spent on wage increases not
be approved in this case and instead be deemed prudent to the extent the Commission approves
recovery of wage increases in the Company's upcoming general rate case.
Regarding Staffs second concern, Staff notes that Idaho Power spent approximately $5.5
millon, or 13 % of the DSM budget, on payments to contractors for Idaho Power Company
program administration. These expenses are included in the "purchased services" category of
expenditures. Additionally, approximately $997,000 was spent on marketing, program
evaluation, and program training, which Idaho Power categorizes as "other expense(s)". Staff
believes that third-party program administration (exclusive of NEE A payments), marketing,
program evaluation, and program training are so fundamental to Company program
implementation that they are more accurately described as administrative expenses.
Categorizing these expenditures as separate and distinct from administrative expenses creates an
impression that administrative costs are lower than they actually are. For example, the Company
reports that 6% of its DSM budget was spent on "labor/administration". When expenses
associated with critical administrative functions such as third-party program administration,
marketing, program evaluation, and program training are included as administrative expenses,
the labor/administration budget increases to approximately 21 % of the total DSM budget. This
more accurately represents program administration expenses. If the Company prefers to
distinguish between internal and external administrative expenses rather than lump all
administrative costs together, it should consider restructuring the expense categories for
transparency.
To date, the Commission has received one comment from an Idaho Power customer
regarding this Application. This customer opposes paying the surcharge. This Application is not
a decision about the level of funding for energy efficiency; however, it is an evaluation of
whether or not the expenses incurred by the Company for its DSM programs in 2010 were
prudent. The Commission has consistently directed Idaho Power to provide cost-effective DSM
STAFF COMMENTS 5 JULY 18,2011
programs in order to reduce the future rate increases required to fud more costly generation
investments that wil be necessary to serve Idaho Power's customer load.
With the exception of the wage and salar increases that Staff recommends be based on
salar adjustments ultimately approved by the Commission in a general rate case, Staff believes
that Idaho Power's DSM efforts in 2010 were prudent and cost-effective. Although there are stil
issues to be addressed, the Company has worked to achieve the program evaluation goals
outlned in the Memorandum of Understanding (MOU) signed by utilty representatives in
December 2009 and the recommendations made by Staff in its 2008-2009 prudency
determination comments regarding program deficiencies. In paricular, the Company has:
(1) Adjusted the Net-to-Gross (NTG) calculation for the Custom Effciency 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 Foru (RTF).
(2) Begun evaluating the cost-effectiveness assumptions for each DSM program
anually.
(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.
Despite the substantial improvements achieved by the Company this year, several areas
ofIdaho Power's DSM implementation continue to present issues:
(1) Insuffcient separation between DSM evaluation and implementation teams. Last
year, Staff identified the conflct of interest created when the person responsible for the final
decisions on program implementation is also the person to whom the evaluation team leader
reports. The Company's 2010 organization char of DSM-funded employees shows that this
aspect of the organizational structure remains unchanged from 2009. Two Energy Efficiency
Program leaders who head the program implementation teams report to the same Manager of
STAFF COMMENTS 6 JULY 18,2011
Customer Relations & Energy Effciency as the Customer Research and Analysis Leader, who is
responsible for DSM program evaluation.
Staff identified specific examples in the 2010 DSM Annual report where the conflct of
interest resulting from the same person leading both the DSM implementation and evaluation
teams at Idaho Power could have produced questionable results. First, the large budgets and low
cost-effectiveness of demand response programs has fostered at least the appearance of conflct:
three of the four demand response evaluations planned for 2010 were delayed by at least a year
and the fourth was neither completed nor rescheduled. None of these programs produce a TRC
ratio over 1.37. To be fair, two of those delayed evaluations were for the Irrigation Peak
Rewards program which wil change significantly as the result of a Commission order approving
Idaho Power's request to alter the structure of incentive payments to irrigators.
Furer, all three demand response programs have notable shortcomings. In addition to
the generous 20 year program life and despite the mild summer, the Irrigation Peak Rewards
program does not appear to have interrpted irrigators as frequently as it could have to avoid
relying on incremental cost generation resources. Expenses for the FlexPeak program rose
dramatically without a subsequent increase in demand reduction and the Company did not
address this issue in the DSM report. The A/C Cool Credit program continues to suffer from low
cost-effectiveness ratios despite enjoying a 20 year program life. Staff is concerned that the
evaluations could have been strategically delayed to allow time for program implementation to
improve before undergoing an external review. For example, the 2010 DSM report shows that
the FlexPeak program would have a process evaluation ending in Februar 2011. However, no
process evaluation was conducted and, as mentioned above, it has since been eliminated. The
Company did not explain why the evaluation plan published in March 2011 referenced a
September 2010 to Februar 2011 Flex Peak process evaluation that was not conducted.
In addition to the three delays and one elimination of demand response program
evaluations, Staff noticed several other major changes to the evaluation plan between 2009 and
2010. In total, Commission receipt of three energy efficiency program evaluations was delayed
by at least a year, two evaluations were eliminated, and two were conducted ahead of schedule.
In response to Staff s first production request, the Company explained why each evaluation was
rescheduled or removed. Many of these explanations seem reasonable, but in other cases the
Company cited factors it should have anticipated before publication of the evaluation plan,
STAFF COMMENTS 7 JULY 18,2011
making last minute changes seem unreasonable. These factors include outsourcing program
applications, regional studies by organizations with which Idaho Power partners, energy code
updates, and reductions in program paricipation due to declining economic conditions. Staff
understands that the Company should retain flexibilty to adjust its evaluation plan according to
unforeseen developments. However, the significant differences between the 2009 and 2010
plans diminish the value of publishing an evaluation plan other than to state, as recommended by
the MOU, that programs wil be evaluated on two-to-three year cycles. Again, the large
discrepancies 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.
(2) Less than optimal marketing for the A/C Cool Credit Program. This program
continues to be afficted by imperfect but correctable marketing efforts. While many of the
fiters used to determine which residential customers receive direct mail marketing materials are
effective and useful, Idaho Power continues to target customers for enrollment if their electrical
usage for the previous summer was at least 500 kWh. Staff noted in last year's comments that
these methods unnecessarily distribute marketing materials to customers who have electric water
heaters but lack central air conditioners. A more appropriate metric would be to target customers
whose electrical use increases significantly between spring and summer months, because this is
more indicative of central air conditioning than relatively high year-round electrical use.
(3) Insufficient on-site verification of Building Efficiency projects. To correct this,
Idaho Power plans to hire a third-party consultant to provide field installation verifications on at
least 5% of completed projects in 2011, as stated in the Company's response to the Staffs first
production request. Staff notes that while installation verification of 5% of completed projects
would be an improvement, Cadmus' process evaluation of this program recommends inspecting
10% of all completed projects.
(4) No disclosure of major changes to program life benefit-cost ratio calculation
methods. 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. There is no explanation of this calculation
change in the DSM Report.
STAFF COMMENTS 8 JULY 18,2011
(5) Mathematical errors. Appendix 4, DSM Expenses and Performance 2002 - 2010, on
pages 131-142 of the DSM Report suffers from several mathematical errors. The costs and
savings for 2010 are not included in the total for several programs. Several other program totals
are not the sum of the yearly figures provided, and in other cases the program life benefit-cost
ratios are incorrect.
(6) Accounting Errors. In its July 1,2011 letter to the Commission, the Company
acknowledged inadvertently charging $526,781 to the Idaho Energy Efficiency Rider which
should have been charged to the Oregon Rider. While Staff appreciates the disclosure and the
correction anticipated in the 2011 DSM Report, it is concerned that such a large error could
occur and very nearly go unnoticed.
STAFF RECOMMENDATION
Staff believes that Idaho Power's DSM efforts in 2010 were generally prudent and cost-
effective. The Company made significant progress in reaching the goals outlined in the MOU,
and Staff looks forward to the Company making further progress on those goals and addressing
the issues discussed in these comments. Despite the progress made this year, Staff recommends
that the Company fie an addendum to the 2010 DSM Report that includes an explanation of the
changes to its program life benefit-cost ratio methodology, a revised Appendix 4 with corrections
highlighted, and an explanation of how the Company's accounting practices have been improved
to prevent the incorrect allocation of program expenses. This addendum wil ensure that outside
paries and futue reviews have access to complete and accurate information regarding the
Company's 2010 DSM Report.
Staff recommends that Idaho Power's energy effciency rider expenditures of
$41,832,841 in 2010 be determined prudent by the Commission. This is the total amount
requested by the Company in its July 1,2011 letter except for $120,070 spent on wage increases
for DSM rider funded employees. Staff recommends the wage increase be deemed prudent if
and to the extent the Commission approves recovery of wage increases in the Company's general
rate case.
STAFF COMMENTS 9 JULY 18,2011
Respctfly submitted tls \ ~ V" day of July 20 I I .
~---(c
Weldon B. Stutzman
Deputy Attorney General
Technical Staff: Stacey Donohue
Lynn Anderson
i:umisc:commentslipcl I .5wslasdde comments
STAFF COMMENTS 10 JULY 18,2011
Attachment A
Idaho Power Company's 2010 Demand-Side Management Utilty Benefits and Costs
Utility Benefit Net Benefit
Energy Efficiency Programs Avg.(net present Utilty Cost (Benefit-Utility B/C
Life value of avoided Ratio
costs)Cost)
Ductless Heat Pumps 20 $426,533 $189,231 $237,302 2.25
Energy Efficient Lighting 5 10,347,541 2,501)78 7,846,263 4.14
Energy House Calls 20 1,113,261 762,330 350,931 1.46
Energy Star Homes Northwest 25 919,699 375,605 544,094 2.45
Heating & Cooling Efficiency 20 1,294,243 327,669 966,574 3.95
Home Improvement 45 9,108,030 944,716 8,163,314 9.64
Home Products 15 l,229A76 832,161 397,315 1.48
Rebate Advantage 25 176,281 39A02 136,879 4.47
See Va Later, Refrigerator 8 942,941 565,079 377,862 1.67
Weatherization Assistance 25 4,321,334 1,321,132 3,000,202 3.27
Weatherization Solutions 25 361,849 228A25 133A24 1.58
Building Efficiency, Commerical 12 7,326A83 1,509,682 5,816,801 4.85
Easy Upgrades, Commercial 12 24,008,222 3,974Al0 20,033,812 6.04
Holiday Lighting, Commericial 10 112,279 46,132 66,147 2.43
Custom Effciency, Comm/lndust.12 41,374,386 8,778,125 32,596,261 4.71
Irrigation Efficiency 8 8,259,177 2,200,814 6,058,363 3.75
Total Energy Efficiency $111,321,735 $24,596,191 $ 86,725,544 4.53
Net Benefits Utility
Peak Demand Programs Utilty Benefit Utility Cost (Benefits - Cost)
B/C
Ratio
AC Cool Credit (20 year projected)34,911,044 31,346,915 3,564,129 1.11
Commercial Flex Peak (10 year projected)26,760,987 23,558,953 3,202,034 1.14
Irrigation Peak Rewards (20 year projected)191,869,987 133,824,526 58,045A61 1.43
Average Annual Peak Demand, Projected 14,016,500 10,614,467 3,402,033 1.32
Sources: I PC's 2010 Demand Side Management Report, Supplement 1: Cost Effectiveness
AtIachlentA
Case No. IPC-E- i i -05
Staff Comments
07/18/1 i
Attachment B
Idaho Power's Demand Side Management (DSM) Customer Sector Comparisons
Revenue MW Share of Share of
from DSM DSM MWh/yr Peak Share of DSM Share of Share
Customer Sector MWh Sales Expenses Energy MWh Rider Energy of PeakRiderLoadDirect
(milions)*(milions)*Savings Shed Sales Revenue Expenses Savings Savings
Residential 4,793,139 $16,043,165 9,947,011 41,939 38.60 37%46%24%24%12%
Commercial 3,616,430 $9,063,079 6,343,816 46,002 18.05 28%26%15%26%6%
Industrial 2,838,110 $4,919,074 8,437,235 65,148 18.05 22%14%20%37%6%
Irrigation 1,661,014 $ 4,698,830 15,233,486 10,575 245.50 13%14%36%6%77%
Market
Transformation $2,271,656 14,567 0%0%5%8%0%
(NEEA)
Total 12,908,693 $34,724,148 42,233,203 178,231 320.20 100%100%100%100%100%
Appdx.Appdx
5, pg.5, pg.
IPC IPC 143-144 143
production production DSM DSM
response response no.Report Report
no. 19 and 18 and July and July and July
Sources:July 1, 2011 1,2011 1,2011 1,2011
letter letter Derived letter letter Derived Derived Derived Derived Derived
*The difference between the total amount of revenues and expenses reflect DSM revenues
that are not collected through the rider (e.g. $1.3 milion for WAQC, etc.) and the DSM
funding shortfalL.
Attachment B
Case No. IPC-E- i i -05
Staff Comments
07/18/1 i
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 18TH DAY OF JULY 2011,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. IPC-E-I1-05, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO
THE FOLLOWING:
JASON B WILLIAMS
LISA D NORDSTROM
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: jwiliams(iidahopower.com
lnordstrom(iidahopower .com
PETER J RICHARDSON
GREGORY MADAMS
RICHARDSON & O'LEARY
PO BOX 7218
BOISE ID 83702
E-MAIL: peter(irichardsonandoleary.com
greg(irichardsonandoleary.com
DARLENE NEMNICH
GREG SAID
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-MAIL: dnemnich(iidahopower.com
gsaid(iidahopower .com
DR DON READING
6070 HILL ROAD
BOISE ID 83703
E-MAIL: dreading(imindspring.com
Jo~SECRETA Y --
CERTIFICATE OF SERVICE