20120724Reply Comments.pdf

99 0
IDAHO
ECEVE' An IDACORP Company
201?JUL2'3"T,14 5 03
JULIA A HILTON
Corporate Counsel
jhiltoncidahopower.com JTJT rJMMlSSON...
July 23, 2012
VIA HAND DELIVERY
Jean D. Jewell, Secretary
Idaho Public Utilities Commission
472 West Washington Street
Boise, Idaho 83702
Re: Case No. IPC-E-12-15
Determination of 2011 Demand-Side Management Expenses Prudently
Incurred - Idaho Power Company's Reply Comments
Dear Ms. Jewell:
Enclosed for filing in the above matter are an original and seven (7) copies of Idaho
Power Company's Reply Comments.
Very truly yours,
Julia A. Hilton
JAH:csb
Enclosures
1221 W. Idaho St. (83702)
P.O. Box 70
Boise, ID 83707
JULIA A. HILTON (ISB No. 7740)
LISA D. NORDSTROM (ISB No. 5733)
Idaho Power Company
1221 West Idaho Street (83702)
P.O. Box 70
Boise, Idaho 83707
Telephone: [phone]
Facsimile: [phone]
jhiItonidahopower.com
Inordstrom(idahopower.com
RECEiV LE- D
20I2JUL23 PM S.- 03
`)AIC PUBL11
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Attorneys for Idaho Power Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF IDAHO POWER COMPANY FOR A ) CASE NO. IPC-E-12-15
DETERMINATION OF 2011 DEMAND- )
SIDE MANAGEMENT EXPENDITURES ) IDAHO POWER COMPANY'S
AS PRUDENTLY INCURRED ) REPLY COMMENTS
Idaho Power Company ("Idaho Power" or "Company") respectfully submits the
following Reply Comments in response to the Notice of Amended Comment Deadlines
set forth in Order No. 32569 and Comments filed on June 25, 2012.
I. BACKGROUND
On March 15, 2012, Idaho Power filed an Application requesting that 2011
Company expenditures of $35,623,321 in Idaho Energy Efficiency Rider ("Rider") funds
and $7,018,385 in a regulatory asset account (Custom Efficiency incentives) for a total
of $42,641,706 were prudently incurred Demand-Side Management ("DSM") expenses.
On April 12, 2012, the Idaho Public Utilities Commission ("Commission") issued a
Notice of Application and Notice of Modified Procedure, Order No. 32512, establishing a
60-day comment period and a 14-day reply comment period. On June 11, 2012, the
IDAHO POWER COMPANY'S REPLY COMMENTS -1
Commission issued Order No. 32569 extending the comment period to June 25, 2012,
and the reply comment period to July 23, 2012.
In responding to Commission Staff ("Staff') production requests, Idaho Power
discovered that $345 had been inadvertently charged to the Idaho Energy Efficiency
Rider rather than the Oregon Energy Efficiency Rider. The Company explained the
error to Staff in discovery requests and seeks a determination that expenditures of
$35,622,976 in Rider funds and $7,018,385 in Custom Efficiency incentives for a total
requested determination that $42,641,361 were prudently incurred.
The Staff, Idaho Conservation League ("ICU), and the Industrial Customers of
Idaho Power ("ICIP") submitted comments in this case. Idaho Power appreciates that
Staffs and ICL's comments were generally supportive of Idaho Power's DSM efforts.
Staff recommended a partial disallowance of Rider expenditures and critiqued the
Company's demand response programs, labor expenses, and some energy efficiency
programs. ICIP made general assertions regarding the calculation of costs that are not
appropriately addressed in a proceeding to determine the prudence of funds spent
under existing Commission guidelines. Because the Company does not respond to
every issue raised by the parties, silence on an issue should not infer agreement.
II. IDAHO POWER'S DEMAND RESPONSE PROGRAMS
ARE USEFUL AND COST-EFFECTIVE
While Staffs comments taken as a whole were supportive, the Company
disagrees with the statement that the Company's demand response programs are not
being used to their full potential and that demand response programs may be cost-
prohibitive in the near term. Staff Comments at 13. Staff implies that low market prices,
low demand, and cooler weather mean that the programs are not utilized to their full
potential; however, the programs are not designed to be cost-effectively dispatched in
IDAHO POWER COMPANY'S REPLY COMMENTS -2
such times. Rather, they are intended to meet system loads in times of extremely high
demands, high market prices, low water conditions, transmission constraints, and in
system emergencies.
III. THE COMMISSION SHOULD FIND ALL A/C COOL CREDIT PROGRAM
EXPENDITURES WERE PRUDENTLY INCURRED
Staff recommended that the Commission find that $165,711 in A/C Cool Credit
program incentives funded from the Rider were not prudently incurred expenditures.
This figure represents the dollar amount of incentives paid to 7,891 participants affected
by software problems the Company encountered when dispatching the program. Staff
Comments at 9-11. The Company disagrees with Staffs characterization of the
difficulties the Company experienced with the NC Cool Credit program as "imprudent
use of ratepayer funds." The program is complex and, when the Company encountered
issues, it promptly approached Staff for recommendations and quickly took corrective
action.
A large-scale, residential air conditioning cycling program such as the A/C Cool
Credit program is complicated to dispatch. The program has approximately 36,000
individual residential customers, the largest number of active participants in any of
Idaho Power's DSM programs. In 2011, the program used four different types of
switches, two different communications methods, and different software and firmware
programs to dispatch each demand reduction event.
When the Company, at the end of the 2011 cycling season, discovered these
issues through a third-party evaluation and its own end-of season program analysis, it
promptly alerted Staff and solicited input from Staff and the Energy Efficiency Advisory
Group ("EEAG") to remedy the problems. Immediately upon discovering these issues,
Idaho Power began taking corrective action. This is precisely what Staff has
IDAHO POWER COMPANY'S REPLY COMMENTS -3
communicated as an expectation for DSM operations—transparency and continuous
improvement.
Further, Staff implies that because in 2010 Idaho Power chose not to use Rider
funds for the amounts paid as customer incentives to those A/C Cool Credit program
participants who were not cycled, it should now be disallowed from funding customer
incentives to non-cycled participants from the Rider. However, there is a distinction
between discovering problems with the program before or after the cycling season. In
2010, Idaho Power was informed prior to the cycling season that paging services had
been discontinued in certain areas. The Company decided that in order to retain
participants, it should follow through on its commitment to pay participant incentives at
shareholder's expense. However, in 2011, Idaho Power implemented the program with
the reasonable belief that the equipment and software were operating as intended. It
was only during post-season analysis that the Company discovered otherwise. Perhaps
if the Company had knowingly made incentive payments to program participants with
knowledge that those participants were not receiving signals, the Company may have
made the same decision as it did in 2010. That was not the case. As is true for the
majority of DSM programs, the best the Company can do is recover its costs dollar-for-
dollar. It is inappropriate for the Commission to deny recovery of program expenses
that were incurred based upon the reasonable expectation that participants were
receiving dispatch signals.
In an effort to remedy past problems and improve the program, the Company is
phasing out radio-controlled paging switches and replacing them with Advanced
Metering Infrastructure ("AMI"). Utilizing AMI is an efficient and reliable way to dispatch
demand response events and the Company plans to continue using new technology to
improve the program. This represents a significant investment in the program that the
IDAHO POWER COMPANY'S REPLY COMMENTS -4
Company believes will alleviate issues and ensure that the program runs correctly.
However, like any program involving new technology, and taking into account the
geographic dispersion and volume of customer participants, the number of controlled
compressors, and the sophistication of software needed to dispatch a signal to every
switch on every compressor, unforeseen issues may arise. The Company will continue
to evaluate the program to ensure consistent improvement.
IV. CUSTOMER-SPECIFIC INCENTIVE PAYMENT INFORMATION FOR
THE FLEXPEAK MANAGEMENT PROGRAM
IS UNECESSARY FOR ANALYSIS OF THE PROGRAM
Staff recommends that the Commission order Idaho Power to detail the amount
of incentives paid by its contractor, EnerNOC, to participants in the FlexPeak
Management program. Staff Comments at 12-13. The Company does not have and is
not entitled to this information. As stated in EnerNOC's comments submitted in this
case, this information is a highly confidential trade secret. Furthermore, the incentive
amounts do not reflect the value of EnerNOC's services or the value added to program
participants. The program is efficient and, as evidenced by cost benefit ratios, cost-
effective. Detailed incentive payment information is unnecessary for Staffs analysis of
whether the program funds were prudently spent.
V. THE IRRIGATION EFFICIENCY REWARDS PROGRAM IS WELL-RUN
AND NEW TOTAL RESOURCE COST ("TRC") TEST
VARIATIONS ARE UNNECESSARY FOR ITS EVALUATION
Idaho Power seeks to clarify several of Staff's statements in its discussion of the
Company's Irrigation Efficiency Rewards program.
Staff pointed out a potential mischaracterization of the Regional Technical
Forum's ("RTF") status of the Company's savings estimates. Staff Comments at 14.
The Company believes that Staff misinterpreted the Company's Demand-Side
IDAHO POWER COMPANY'S REPLY COMMENTS -5
Management 2011 Annual Report ("2011 DSM Report"), which states that the
"measures are currently under review." 2011 DSM Report at 98. "Under review" in the
sentence references Idaho Power's efforts to review the measures within the program
through a University of Idaho Study mentioned in the 2011 DSM Report and does not
refer to the RTF's measure status. Id. Although the RTF's measure status lists these
savings as "out of compliance," in May 2012, the RTF extended Idaho Power's
opportunity to obtain approval of planned changes to the irrigation hardware measures
to November 14, 2012.
Staff compared the reported increase in program costs and non-electric benefits
("NEB") between 2010 and 2011 program years using inequivalent data points. The
increase in NEBs in 2011 is largely attributable to the treatment of participant costs in
the Custom Incentive Option within the program. Staff states that the program budget
(the Utility Cost) increased by 7 percent; however, NEBs are used in the calculation of
the TRC and should be compared to the TRC and not the Utility Cost (the program
budget). The correct comparison shows that the TRC increased by 91 percent. 2011
DSM Report, Appendix 4 at 146-147.
Staff recommends that the Company include the TRC ratio with and without
NEBs in its DSM Annual Report. The Company disagrees with this approach because it
deviates from the guidelines and cost-effectiveness tests set forth in the Memorandum
of Understanding for Prudency Determination of DSM Expenditures ("DSM MOU"),
which Staff, the Company, and other utilities have established as expectations for DSM
programs and which was approved in Order No. 31039. DSM MOU at 9-10. This new
calculation would create an Idaho-specific TRC, which would be calculated differently
from the methods directed by the national standards, such as the End-Use Technical
Assessment Guide (TAG) manual and the California Standards Practice Manual which
IDAHO POWER COMPANY'S REPLY COMMENTS -6
cite the application of NEBs in the TRC. The DSM MOU entered into by Staff and
utilities promotes such consistency and recognizes that NEB5 are "important and
prudent factors to asses in analyzing cost-effectiveness." DSM MOU at 9-10.
Idaho Power's third-party evaluation of the program summarized, "Overall, the
results of IPC's Irrigation Efficiency Rewards program process evaluation show that it is
a robust, ambitious, and leading edge irrigation program." 2010 DSM Annual Report,
Supplement 2: Evaluation. The Company believes that additional ratio requirements,
such as running the TRC with and without NEB5, are unnecessary to analyze the
program and believes that the guidelines set forth in the DSM MOU accurately assess
its value.
VI. STAFF MAY HAVE MISCALCULATED THE TOTAL RECOMMENDED
AMOUNT OF EXPENDITURES
Staff recommends that the Commission approve Rider expenditures of
$35,728,206 as prudently incurred. Staff Comments at 17. The Company believes that
Staffs recommendation contains a calculation error. In spite of recommending a
disallowance, Staffs total recommended amount is greater than the Company's request
that the Commission approve $35,622,976 as prudently incurred Rider-funded
expenditures.
VII. THE COMMISSION SHOULD ALLOW RECOVERY OF
ALL RIDER-RELATED LABOR COSTS
Staff recommends that the Company not fund any future wage increases through
the Rider until the increases can be vetted through a general rate proceeding.
Staff states that 2010 DSM labor expenses were approximately 6 percent of the
total DSM budget and that, in 2011, labor expenses had increased to 7.5 percent of the
total DSM budget. Staff Comments at 8. This is not an "apples-to-apples" comparison
because 2010 Idaho Rider expenses included the Custom Efficiency incentives that
IDAHO POWER COMPANY'S REPLY COMMENTS -7
were moved into a regulatory asset account in 2011. To accurately compare 2010 and
2011, the amount in the 2011 regulatory asset should be included with the Rider
expenses. Like 2011, the labor expenses of $2,637,729 are approximately 6 percent of
the total amount of $42,641,361 requested for prudency. This demonstrates that labor
expenses have not dramatically increased between 2010 and 2011 as implied by Staffs
Comments.
Importantly, with the exception of the Home Improvement Program, all programs
reviewed for prudence in this case were deemed cost-effective pursuant to the three
cost-effectiveness tests required by the DSM MOU. Notably, each of those cost-
effectiveness tests included the Rider employee salaries, inclusive of the wage
increases at issue.
Staffs recommendation that the Company not fund wage increases through the
Rider is not appropriate in a case for determination of DSM expenditures as prudently
incurred. As the Company set forth in Case IPC-E-1 1-05, the setting of prospective
rates in a general rate case based upon a determination of prudent levels for salaries in
a test year is very different than evaluating the prudence of costs already incurred.
Following a general rate case, if the Commission determines that recoverable salary
expenses are appropriately set at levels lower than those proposed by the Company,
the Company has the ability to react to such a Commission directive and prospectively
adjust employee compensation and any other expenses disallowed or adjusted by
Commission order. However, in this case, the Company has already expended the
funds. If the Commission approves Staffs recommendation, the Company will have no
ability to recover any of those expenses. This is a wholly inequitable result, and the
Commission should deny Staffs recommendation.
IDAHO POWER COMPANY'S REPLY COMMENTS -8
In addition, tying the disposition of a specific expense such as payroll to a finding
in a future general rate case filing poses significant practical problems on a forward-
looking basis. If the logic of Staffs recommendation is followed, it 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. Again, this yields an
inequitable result for the Company. The timing of when the Company chooses to file a
general rate case should not dictate when Rider-funded employees should receive
wage increases.
With the anticipation that cost recovery will be allowed through the Rider, the
Company has funded a significant amount of program expenses demonstrated to be
cost-effective at its own risk. If Rider payroll-related expenditures are disallowed, the
Company will be penalized the amount of the disallowance even though it was
demonstrated to be cost-effective. Expenditure disallowance highlights the asymmetric
risk and reward proposition for the majority of the Company's cost-effective energy
efficiency efforts. The best the Company can do is recover its expenses for its efforts.
The Commission should consider this lack of symmetry and conclude that Staffs
recommendation is not warranted.
VIII. THE COMPANY'S COST OF CAPITAL IS THE APPROPRIATE INTEREST
RATE FOR THE CUSTOM EFFICIENCY PROGRAM INCENTIVES
RECORDED IN A REGULATORY ASSET ACCOUNT
Idaho Power maintains that the currently recognized cost of capital is the
appropriate interest rate for the Customer Efficiency program incentives recorded in a
regulatory asset account. By using the cost of capital as the interest rate for a DSM
program capitalization account, DSM program expenditures are treated in a manner
similar to the recovery of costs associated with other capital investments the Company
makes to serve its customers. This concept was supported by the Commission in the
IDAHO POWER COMPANY'S REPLY COMMENTS -9
past in Order Nos. 22299 and 22758. Staff also supported using the then-current cost
of capital in the stipulation in Case IPC-E-10-27.
IX. PROPOSED CHANGES TO EEAG MEETINGS
Staff suggested increasing the frequency and depth of the EEAG meetings to
provide better outcomes for the advisory group. In May, the Company sought and
obtained input from EEAG members, several of whom travel to attend meetings, on
meeting frequency in order to optimize the use of advisory group members' time. Most
supported more frequent meetings. In order to increase effectiveness of the EEAG,
Idaho Power's July 19 EEAG meeting included a mini-workshop on objectives and
content to improve EEAG meeting quality. The EEAG provided constructive
suggestions, such as wanting to learn more about DSM emerging issues and struggles,
program evaluation, Idaho Power hosted webinars to EEAG members to provide
information and education on specific programs, and a longer-term meeting scheduling.
Idaho Power is evaluating the suggestions and is looking for ways to incorporate them.
While EEAG meetings are open to the public, the meetings are held primarily for
EEAG members. The Company relies upon its EEAG members for advice and input
because the 12-member committee represents various stakeholder groups such as
each major customer group, governmental and environmental entities, and the
Company. The Company strives for balance when relying on member representatives.
X. ICIP'S COMMENTS ARE NOT APPROPRIATELY
ADDRESSED IN THIS PROCEEDING
ICIP's comments describe issues, concepts, and testimony currently being
contested in Commission Case No. GNR-E-11-03, a docket in which it is not an
intervening party, in order to recommend that the Commission use decisions that they
have not yet made in that case to find that expenditures for all DSM programs in the
IDAHO POWER COMPANY'S REPLY COMMENTS -10
future be assessed in the same manner as Public Utility Regulatory Policies Act of 1978
avoided costs for determining prudence. While the comments of ICIP may identify
interesting issues and concepts proposed in a different docket, they are only
tangentially related to the subject of this case. At issue in this docket, Case No. IPC-E-
12-15, is whether the Company's DSM expenditures in 2011 were prudently incurred.
Idaho Power asserts that the 2011 DSM expenditures were prudently incurred.
Furthermore, the Company has applied the same methodology that it has applied in
every prudence determination approved by the Commission since the inception of the
Rider to establish the alternate costs derived in the 2011 Integrated Resource Plan to
determine cost-effectiveness of DSM programs.
The Company believes in this proceeding it is most appropriate for the
Commission to focus on the determination of whether the Company's 2011 DSM
expenditures were prudently incurred. It is inappropriate to recommend that avoided
cost calculations or rates, not yet determined in a separate docket, be used to
determine the prudence of past DSM expenditures, which have already been incurred
by the Company. Similarly, it is inappropriate to recommend that future DSM
expenditures, which are not the subject of the prudence determination in this case, be
determined by avoided cost calculations without allowing the parties the opportunity to
present testimony and arguments for such a change in methodology. If the Commission
finds any merit in ICIP's Comments, the Company recommends that an evaluation on
whether to change the current avoided cost methodology for DSM expenditures would
most appropriately be addressed in a separate docket where the subject can be
thoroughly evaluated by all parties.
IDAHO POWER COMPANY'S REPLY COMMENTS -11
XI. CLARIFICATION OF ISSUES RAISED IN ICL COMMENTS
Idaho Power appreciates ICL's general support of Idaho Power's 2011 DSM
expenditures and would like to clarify a few issues ICL raised.
ICL pointed out that Idaho Power did not include some of the information found in
Portland Energy Conservation, Inc.'s ("PECI") impact evaluation of the A/C Cool Credit
program in its 2011 DSM Report. The Company includes copies of all evaluations in its
DSM Annual Report, Supplement 2: Evaluations, but it is not required and it would not
be practical to repeat all the information and findings from each evaluation separately in
the DSM Annual Report as well. The Company has taken PECI's recommendations
into account, including testing various cycling strategies occurring in the summer of
2012 and these results will be included in the 2012 DSM Annual Report.
ICL proposes that the Commission focus on increasing customer participation in
programs with Ratepayer Impact Measure ("RIM") scores greater than 1.0. However,
the RIM test, also called the "no losers" test, was specifically excluded from tests the
Commission directed the Company to use:
To screen the cost-effectiveness of potential DSM projects,
the advisory group shall use the following tests: total
resource cost, utility cost and participant cost. However,
these tests are merely guidelines that should not be used to
exclude projects that may be desirable as good public policy.
The advisory group is not required to use the non-participant
("no losers") test.
Order No. 28894 at 6. Therefore, as directed by the Commission, the Company
pursues all cost-effective DSM programs by aiming to have benefit-cost ratios greater
than one under the TRC, Utility Cost Test, and Participant Cost Test for each program.
The ICL points out a "huge" gap between economic and achievable potential that
is shown in the Company's most recent potential study, conducted in 2009. ICL
IDAHO POWER COMPANY'S REPLY COMMENTS -12
Comments at 4. Economic potential calculates savings when cost-effective measures
are installed. Nexant Potential Study, August 14, 2009, page 1-2. There is no
expectation that the Company or any energy efficiency organization could achieve the
economic potential. On the other hand, achievable potential is potential that the
consultant deemed achievable by the Company, and Idaho Power has consistently
exceeded its achievable potential. Due to inevitable changes in economic, technical,
and societal characteristics and Idaho Power's consistent ability to exceed achievable
potential identified in the Nexant study, Idaho Power is currently under contract with
EnerNOC Utility Solutions to complete a new potential study which should be available
by August 2012.
XII. CONCLUSION
In 2011 Idaho Power achieved substantial DSM results by following the
guidelines set forth in past Commission orders. Although some programs encountered
issues, the Company took immediate action to rectify them as soon as possible and has
taken steps to improve programs and prevent issues from arising in the future.
Accordingly, Idaho Power respectfully requests that the Commission issue an order
designating Idaho Power's expenditure of $42,641,361 DSM funds, $35,622,976 of
which are Rider funds and $7,018,385 are Custom Efficiency incentives, as prudently
incurred.
DATED at Boise, Idaho, this 23rd day of July 2012.
JIIL.IØA. HiLtroki
Attorney for Idaho Power Company
IDAHO POWER COMPANY'S REPLY COMMENTS -13
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that on this 23rd day of July 2012 I served a true and correct
copy of IDAHO POWER COMPANY'S REPLY COMMENTS upon the following named
parties by the method indicated below, and addressed to the following:
Commission Staff
Karl Klein
Deputy Attorney General
Idaho Public Utilities Commission
472 West Washington (83702)
P.O. Box 83720
Boise, Idaho 83720-0074
Industrial Customers of Idaho Power
Peter J. Richardson
Gregory M. Adams
RICHARDSON & O'LEARY, PLLC
515 North 27th Street (83702)
P.O. Box 7218
Boise, Idaho 83707
Dr. Don Reading
6070 Hill Road
Boise, Idaho 83703
Idaho Conservation League
Benjamin J. Otto
Idaho Conservation League
710 North Sixth Street
Boise, Idaho 83702
Snake River Alliance
Ken Miller
Snake River Alliance
P.O. Box 1731
Boise, Idaho 83701
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IDAHO POWER COMPANY'S REPLY COMMENTS -14