20110304Hirsh Di.pdf

Benjamin Otto (ISB No. 8292)
710 N 6th Street
PO Box 844
Boise,ID 83701
Ph: [phone] x 12
Fax: [phone]
bottoCPidaoconservation.org
n, j'; V
iOll MAR -4 pt, 3=38
Attorney for the Idao Conservtion Leag, the NW Energ Coalition, and the Snake RI\er Allance
BEFORE THE IDAHO PUBliC UTIliTIES COMMISSION
IN THE MATfER OF IDAHO POWER )
COMPANY'S REQUEST TO MODIFY )
RECOVERY OF INCENTIES PAID TO )
SECURE DEMAND-SIDE RESOURCES )
CASE NO. IPC-E-10-27
TESTIMONY IN SUPPORT OF TH STIPUlATION
NANCY HIRSH
March 4,2011
1 Q. Pleas state your name, afiltion, and rean for th testony.
2 A. My name is Nancy Hirsh and I am the Policy Director for the NW Energ Coalition. I have
3 been with NWC since 1996 and before that spnt twelve year in Washigton, DC workig on
4 national energ policy issues for the Envionmental Action Foundation and the National Wildlife
5 Federation. I offer the followig testimony in support of the Stipulation fied in this case.
6
7 Q. In ca IPC-E-09-30, Idao Power, the staff, and other paties stpulated to a moratorium on
8 filg "a general revenue requirement cas which would result in a general rate adjustment
9 becoming effective prior to January 1, 2012." Do you believe th moratorium prohibits the
10 filg of the present ca?
11 A. My attorney advises me that the stipulation in IPC-E-09-30 does not prohibit this fiing.
12 Beyond the lega interpretation, the plai languge of that stipulation is clear. Pargrph 5.2
13 expressly alows Idao Power to fie, and thi Commission to approve requests to "adjust its
14 revenue requiement and change rates to become effective prior to Janua 1, 2012" for certai
15 mechaisms includig the Annua Power Cost Adjustment and the Energy Efficiency Rider.
16 The stipulation in the present case fals withi these alowable fiings. In a broad sense,
17 this stipulation in this case merely chages accounting practices and does not involve a wholly new
18 revenue requiement. Ths stipulation does not ask the Commission to approve specifc expenses
19 as prudent for ratemakg purses. The Commission wi be able to review the prudency of
20 specific expenditures in future cases. For example, the stipulation alows Idao Power to collect
21 future demand response incentive payments throug the Power Cost Adjustment (PCA). Durg
22 the annua PCA fiing, Idao Power wil need to demonstrate that the specific incentive payments
23 were prudent expenses. In short, this stipulation chages the accounting method for certai
24 demand-side management (DSM) progrs, it does not chage Idao Power's genera revenue
25 requiement.
Hirsh, Di
Conservtion Paries
IPC-E-10-27
1 March 4, 2011
1 Q. Why is th stipulation in the public interest?
2 A. Ths stipulation provides a critical piece of reguatory support so that Idao Power has the
3 proper incentives to pursue cost effective DSM. The public wi benefit from this stipulation
4 because cost effective demand-side investments wi, by definition, defer or avoid investments in
5 more expensive supply-side resources. To ensure on-going aggessive pursuit of demand-side
6 resources they must be financially evauated on equa footing with supply-side resources. The
7 terms of the stipulation change the fundig approach for certai demand-side resource
8 investments to better align their fundig with the business interests of the Company and tlie
9 acquiition of the lowest cost resources. Ths stipulation bolsters reguatory support for Idao
10 Power to purue all cost effective DSM and treats demand response incentives in a manner inore
11 consistent with other peak management strategies. In short, it aligns reguatory policy ~ t4at
12 Idao Power continues to spend pennies now to avoid dollars later.
13
14 Q. How does th stipulation help algn regulatory policy to pursue cost effecte DSMi
15 A. Ths Commission has steadfastly ordered Idao utilties to purue al cost effective DSM. Ths
16 is a commendable goal and now the reguatory structure must support this goal. Supportive
17 reguatory structure begis with the timely recovery of DSM expenses. The energy efficiency rider
18 is designed to do this. Next, the reguatory structure must remove economic clincentives tQ
19 invest in DSM. The fixed cost adjustment pilot program accomplishes this by decoiiling f~ed
20 cost recovery from volumetric sales. Finaly, reguators must provide an economic incentive at
21 least equa to that of supply-side resources. When a utilty invests capital in a su.pply-sidr r~SQurçe,
22 it has the opportunity to ear a retur on that capital. Ths stipulation proviØ-es the thi piece of
23 the puzzle; the opportunity to ear a retur on prudently invested capital
24 In the late 1980s and early 1990s, Idao Power did capitalize some of its enei: effc~ency
25 program investments. Then most utilties in the region trasitioned to expensing DSM
Hirsh, Di
Conservation Paries
IPC-E-10-27
2 March 4, 2011
1 investments via dedicated DSM tarffs. Ths approach was successful whie DSM budgets were
2 modest. Today, DSM budgets are signifcatly greater and on par with many capital resource
3 investments made by the company. Reguators ca no longer expect utilties to pursue DSM as a
4 signifcant resource to meet loads unless they have an opportunity to ear a retur on capital they
5 invest in DSM. Th stipulation provides the missing piece of the reguatory support puzzle.
6
7 Q. Idao Power ha a suite of DSM programs currently. Basd on th is an incentive
8 mechais neces?
9 A. Yes it absolutely is. Over the past seven years, DSM progrs have evolved from a customer
10 servce progr to a ful fleØ-e resource option. Durg the Integrted Resource Plan (IRl)
11 process, Idao Power factors savings from DSM progrs into its load forecast before considerig
12 supply-side resources. However, given al of the reguatory support pieces mentioned above, I
13 believe Idao Power could achieve substantialy greater demand reductions. For example, Idao
14 Power's 2009 DSM Potential Study defines three levels of DSM potential: technical, economic,
15 and achievable. The study calculates the economic potential, defined as al cost effective DSM, is
16 roughy 325 GWh by 2028 in the residential clas. Meanwhie, the achievable potential, which
17 considers the expected market penetration, is roughy 45 GWh.1 Whe this example describes the
18 residential class, the sae holds true for the commercial and industrial clases. With an economic
19 incentive, we can expect Idao Power to redonble its efforts to close the DSM potential gap
20 because this area becomes a profit center instead of a business expense. Without an economic
1 See Attachment 1 Figure 3.1 Residential Electricity Potential Savings Forecast (The numbers cited
above are roug numbers based on this figue); Figue 4.1 Commercial Electricity Savings Forecast;
and Figue 5.1 2009 Industrial Potential GWh Savings and Percent o/Total Sales from Nexant,
Idaho Power Demand Side Management Potential Study, (Augut 14,2009). The entire report
was fied with the Commission in Case No. IPC-E-1O-09 in the Research and Evaluation portion
of Supplement II of the Company's 2009 DSM Annua Report.
Hirsh, DiConservtion Paries 3 March 4, 2011
IPC-E-1O-27
1 incentive to pursue DSM, we cannot expect Idao Power to close the gap between economic and
2 achievable potential in a timely and cost-effective manner.
3
4 Q. Do other states provide economic incentives for DSM?
5 A. Yes. A recent report by the American Council for an Energy-Effcient Economy Carrots for
6 Utilities: Provding Financial Returns for Utilty Investments in Energy Effciency analyzed
7 incentives in 18 states.2 The report divides incentive mechanisms into three categories: shared
8 benefits, performance targets, and rate of retur. Regadless of the specific mechanism, the report
9 explais that financial incentives work hand in hand with decoupling to level the playig field for
10 DSM.
11 Pargraph 8 of the stipulation in this ca describes a rate of retur mechanism for the
12 incentive payments made under the Custom Efficiency Progr. Ths is the least common
13 approach outlined in the Carrots for Utilities study but the correct meçhanisin for Idao. It is the
14 correct mechanism becaus it is simple, fair, and encourges robust DSM progrs.
15
16 Q. Can you expand on why the economic incentive in th ca is simple, fai, and encourages
17 robust DSM programs?
18 A. It is simple because unlike the other options it does not rely on estimates of energ savigs to
19 determine the benefits to share or whether a target is reached. Instead, Idao Power chose, and
20 most paries agreed, to select the most robust and verifiable progr, Cusom Efficiency, and
21 provide the Commission-authoried rate of retur that reflects the risk applicale to any other
22 capital investment. It is fai because it places DSM investments on equa fOQtipg witJi supply-side
23 resources. It encourges robust DSM progrs because the first progr, Custom Effcirncy, sets
2 See ACEEE, Carrots for Utilities: Provding Financil Returns for Utility Investments in Energy
Effciency, Report No. VIII (Janua 2011). Avaable for free download at:
http://ww.aceee.orglresearch-report/u111 (accessed March 1,2011).
Hirsh, DiConservtion Paries 4 March 4, 2011
IPC-E-I0-27
1 a good standad for potential future progrs in that it is measurble, durble, sizable, and cost
2 effective.
3 Ths contrats with Idao Power's former incentive mechanism tied to the market shae of
4 new homes that meet the ENERGYSTAR Homes Northwest standads. After reviewig the
5 history of that mechanism, I believe it did not succeed in par because it was complex, appeared
6 unfair, and did not encourge robus progrs. Under the Carrots for Utilities framework, this
7 incentive was a performance target, which can be very successful yet is a more complex approach.
8 The mechanism required calculating some level of market share that would trigger an incentive, a
9 dificult caculation to get right paricularly in rapidly chagig economic conditions. It appeared
10 unfair because the incentive functioned as a bonus payment to Idao Power shareholders
11 something the public generay perceives as unwarted Finaly, it did not encourge robust
12 DSM progrs because it applied to a very small progr and would have been difficult to apply
13 to other pars of the Company's DSM portfolio. Unlike this former incentive, the proposa in this
14 stipulation creates a simple mechaism that encourges Idao Power to aggessively purue al the
15 cost effective savigs withi the Custom Efficiency market.
16 Another reasn why the rate of retur mechaism in this stipulation is the right
17 mechanism for Idao is that it can be incrementaly expanded. By adopting a progr-by-
18 progr approach, begining with Custom Effciency, the Commission and other stakeholders
19 can incrementally add progrs that meet certai standads. In the end, the incentive
20 mechanism in this stipulation is a careful, measured step towards providig the reguatory carot
21 that helps fulfil the obligation to pursue al cost effective DSM investments.
22
23 Q. Does the rate of return approach encourage the Compay to invest money in DSM without
24 regard for savigs achieved?
Hirsh, Di
Conservtion Paries
IPC-E-I0-27
5 March 4,2011
1 A. No. The progr scale and design, includig the incentive levels, would stil be established
2 under the supervsion of the Energy Effciency Advisory Group. The EEAG also reviews proposed
3 and actua savings levels to ensure cost-effective progr ~plementation. Finally, all
4 stakeholders and the Commission wi be able to review th9 prudency of specific expenses in
5 future rate cas and PCA fiings.
6
7 Q. In addition to the rate of return mechais, the stipulation al changes the treatment of
8 demand respnse incentive payments. Do you agree with th portion of the stpn.lation?
9 A. Yes. Paragraph 6 of the stipulation provides that Idao Power wi shift the incentive payments
10 for demand response out of the Energy Efficiency Rider and into the Power Cost Adjusment.
11 Ths move is appropriate for two reasons. Firt, payments made to curai load are akin to
12 payments made to serve load. In both instances, the utilty is spendig money to me~t the power
13 demands of its' entire system. Second, demand response progrs are designed to reduce loads
14 durg peak periods when power supply is limited and market purchass or other peak generation
15 options are high cost. Incenting customers to reduce their usge durng thes peak periods ca
16 reduce overa peak costs in this timefrae. Ths provides benefits to al customers who would
17 have to pay for the high cost power. The Power Cost Adjustment was primary developed to
18 address fluctuations in wholesale power costs drven by peak power conditions. The incentives
19 paid to reduce peak loads are analogous to purchasing power to serve those peak loads and as such
20 should be recovered by the Company in a similar manner.
21 I do want to address one concern that this par of the stipulation rases. All paries piust
22 continue to ensure any demand response incentives are prudent investment for ratemakg
23 puroses. For most ratepayers the Power Cost Adjustment is an opaque black hole into which
24 vaous buckets of money pour and out of which comes a rate impact. As evdenced by Idao
25 Power's request to make changes to the Irrgation Load Control progr in IPC-E-1O-46, demand
Hirsh, DiConservtion Paries 6 March 4, 2011
IPC-E-10-27
1 response progrs are continuig to be refined As demand response payments move into the
2 complex PCA all paries should be cognizant of the need to continue to review demand response
3 payments for prudency and effectiveness of peak load savigs Recovery of the incentive through
4 the PCA should in no way reduce Idao Power and the EEAG's due digence in progr design
5 and implementation to maximize peak load reductions whie maitaiing cost-effectiveness in
6 the con text of peak power costs.
7
8 Q. If th stipulation is approved it wi affect the Energy Effciency Rider by reducing the
9 expenses tht it must cover. Should the Rider level be reduced?
10 A. No. The rider should remai at its curent leveL. Whe movig demand response and Custom
11 Efficiency payments out of the Energy Efficiency Rider account wi reduce the curent budget
12 imbalance over time the rider must remai at its curent leveL. Regdless of the need to reduce
13 the imbalance, the two chages proposed in this stipulation are appropriate for the reasons
14 previously stated. They better align the interests of the Company with the interests of their
15 customers. In this sae vein, I do not believe the rider percentage should decrease as long as there
16 remai untapped cost-effective energ savigs that can be acquied in accordace with
17 Commission orders.
18 Maitaiing the curent rider level wi ensure the unrecovered back balance is paid down
19 in a timely manner whie alowig the Company to continue to pursue all cost effective DSM and
20 the associated administrative obligations to support this effort. For instance, when this
21 Commission approved Idao Power's 2008-2009 DSM expenses it instructed the company to
22 "take affirative steps towards achievig measurble improvements in its documentation,
Hirh, Di
Conservtion Paries
IPC-E-I0-27
7 March 4, 2011
1 verification, and record-keeping process(.)"3 These efforts cost money and reducing the Rider
2 amount wil only frutrate this task.
3 In addition, Idao Power proposed and the Commission approved signifcatly higher
4 funding for the Northwest Energy Efficiency Allance (NEEA). NEEA delivers some of the lowest
5 cost energ savigs in the region and the Commission was right to approve this in Idao Power's
6 budget. However, at the time the increased fundig for NEEA was not wholly accounted for in
7 the rider and now can be accommodated withi the existing tarf leveL.
8 Finaly, the Idao Power's Demand Side Management Potential Study reveals the
9 substantial gap between the economic potential and achievable potential. Only with adequate
10 fundig ca we expect Idao Power to continue to close this gap. Ths stipulation helps ensure
11 adequate fundig by movig some expenses into more appropriate categories, but this wi only
12 ensure adequate fundig of Idao Power's overal DSM progrs if the rider remais at the
13 curen t leveL.
14
15 Q. Does thi conclude your diect testimony as of March 4,201 H
16 A. Yes it does.
3 See Order No. 32113 at 9, IPC-E-10-09 (November 16, 2010).
Hirsh, DiConservtion Paries 8
IPC-E-10-27
March 4, 2011
BEFORE TH IDAHO PUBliC UTITIS COMMISSION
IN THE MATfER OF IDAHO POWER )
COMPANY'S REQUEST TO MODIFY )
RECOVERY OF INCENTIS PAID TO )
SECURE DEMAND-SIDE RESOURCES )
CASE NO. IPC-E-1O-27
ATfACHMENTI
Selected figures from Nexant, Idaho Power Demand Side Management Potential Study-
Volume 1
Augut 14, 2009
Hirh, Di
Conservtion Paries
IPC-E-I0-27
March 4, 2011
CERTIFICATE OF SERVICE
I hereby certify that on this 4th day of March, 2011 I delivered true and correct
copies of the foregoing TESTIMONY IN SUPPORT OF THE STIPULATION to the
followig persons via the method of servce noted:
Hand delivery
Jean Jewell
Commission Secretar (Origial and seven copies provided)
Idaho Public Utilties Commission
427 W. Washigton St.
Boise, ID 83702-5983
Electronic Mail:
Lisa D. Nordstrom
Donovan E. Waler
Idao Power Company
1221 West Idao Street
Boise, Id 83707-0070
In ordstromCPidaopower. com
dwalerCidaopower.com
Brad M. Purdy
Attorney At Law
2019 N. 17thst
Boise, Id 83702
bmpurd)'hotmai.com
John R Gale
Darlene Nemnich
Idao Power Company
P.O. Box 70
Boise, Id 83707
rgaeCPidaopower.com
dnemnichCPidaopower.com
Eric 1. Olsen
Racine, Olson, Nye, BuØ-e &
Baiey, Charered
P.O. Box 1391; 201 E. Center
Pocatello, Id 83204-1391
eloCPracinelaw.net
Peter J. Richardson
Gregory M. Adas
Richardson & O'lear, PLLC
515 N. 27th Street
P.O. Box 7218
Boise, Id 83702
peterCrichardsonandolear.com
gregCrichardson an dolear. com
Anthony Yankel
29814 Lae Road
Bay Vilage, Oh 44140
tonyCkel.net
lsI Ben Otto , .,
Benjamin Otto
Æ:á~' )/&~ .. ',-.ßZ b0'ê#~
Dr. Don Readig
6070 Hil Road
Boise, Id 83703
dreadigCmindsprig.com
CERTIFICATE OF SERVICE 1 March 4, 2011