20130122Comments.pdf

Pr r Benjamin J. Otto (ISB No. 8292)
1 10 1T 6th Street 20HAN 22 D14 '). Boise, ID 83701
Ph: [phone] x 12 Fax [phone]
[e-mail]
Attorney for the Idaho Conservation League
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE
APLICATION OF IDAHO POWER )
COMPANY FOR AUTHORITY TO ) CASE NO. IPC-E-12-24
IMPLEMENT RATES FOR ELECTRIC
SERVICE TO INCLUDE CAPITALIZED COMMENTS OF THE IDAHO
CUSTOM EFFICIENCY INCENTIVE CONSERVATION LEAGUE
PAYMENTS.
The Idaho Conservation League (ICL) urges the Commission to approve Idaho Power's
request. ICL's goal in this proceeding is to create a fair, transparent mechanism to encourage
pursuit of cost-effective demand side resources. This application represents the third time the
Company has proposed a simple and fair mechanism to align the regulatory landscape with this
Commission's directive to pursue all cost effective energy efficiency. Capitalizing the Custom
Efficiency program incentive payments is one part of a set of regulatory mechanisms that
properly align the utilities' financial incentives with the interests of ratepayers. After three
opportunities, all stakeholders have had ample time to weigh in on this issue.' ICL's comments
address the main objectives set forth in Idaho Power's Application. As described below, each of
the objectives is in the public interest and the Commission should approve this application.
I. CUSTOM EFFICIENCY INCENTIVE PAYMENTS ARE PRUDENT AND USEFUL INVESTMENTS.
The premise underlying utility investments in customer end use efficiency is that reducing
electric demands potentially benefits all ratepayers. As the Commission has stated before: "all
1 See IPC-E-10-27 (originally proposing the mechanism); IPC-E-12-15 (re-proposing the
mechanism as part of the DSM prudency review and IPC-E-12-24 (the current case).
ICL Comments
IPC-E-12-24 1 January 22, 2013
cost-effective DSM programs will delay the need to construct new, costly generating facilities.
This delay in new investment and facilities will benefit all Idaho Power customers."' This case
involves one part of one demand side program - the incentives paid under the Custom Efficiency
program. In March of 2012, the Commission agreed that Idaho Power's investments in the
Custom Efficiency program during 2011 were prudent.3 Idaho Power's 2011 DSM Report
documents the program is cost effective for all ratepayers, including program participants and
non-participating ratepayers." The majority of these prudent investments were incentives paid to
customers after the project is completed and the energy savings are verified. And the verification
process is robust, including both pre and post implementation data collection of actual energy
savings.' Because these incentives are tied to completed projects with verified energy savings,
they are used and useful for providing electrical service to ratepayers. And because these
investments are cost effective for all ratepayers, both program participants and non-participants,
they are prudent investments.
II. CONSIDERING THE RECOVERY OF CUSTOM EFFICIENCY INCENTIVES OUTSIDE OF A GENERAL RATE
CASE Is APPROPRIATE.
ICL agrees that recovery of Custom Efficiency payments concerns all ratepayers, but this
does not mandate consideration within a general rate case. This Commission regularly considers
issues of great importance and complexity outside of general rate cases. For instance, in 2010 the
Commission considered and approved a Power Purchase Agreement for the Neal Hot Springs
Geothermal plant, including making a prudence determination and deciding on a method to
recover costs through rates.' Likewise in 2011, the Commission approved recovery of $60 million
2 Order No. 30560 at 5, IPC-E-08-03.
Order No. 32667 at 11, IPC-E-12-15.
' Idaho Power 2011 Demand Side Management Report, Supplement 1 at 89, (showing a participant
cost test ratio of 1.34, and ratepayer impact measure ratio of 1.86).
See Direct Testimony of Darlene Nemnich at 12, IPC-E-10-27.
6 Order No. 31087, IPC-E-09-34.
ICL Comments
IPC-E-12-24 2 January 22, 2013
of pension payments via a three-year amortization period! In 2012 the Commission decided a
suite of four separate cases that concerned all ratepayers including recovering expenses for
Boardman decommissioning, amortizing transmission costs, depreciation expenses for meters,
and new depreciation rates.' And most tellingly, the Commission considered and approved the
building, binding ratemaking treatment, and ultimate cost recovery of the $400 million Langley
Gulch plant outside of a general rate case." All of these examples include issues like prudence,
appropriate carrying charges, recovery methods, amortization periods, and impacts to various
rate classes. To decide these types of cases can be considered outside of a general rate case while
the Custom Efficiency incentive recovery must be considered within a rate case is arbitrary.
This case is the third direct, and fourth overall, opportunity for stakeholders to review
and engage on this issue. Idaho Power first proposed to capitalize the Custom Efficiency
payments in IPC-E-10-27.'° Several parties intervened including ICL and other conservation
partners, the Community Action Partnership Association of Idaho, the Idaho Irrigation Pumpers
Association (IIPA), and the Industrial Customers of Idaho Power (ICIP). That case resulted in a
stipulation agreed to by most parties, except for ICIP, including agreements about the
appropriate carrying charge and amortization period." ICIP opposed the part of the stipulation
regarding custom efficiency incentives for two reasons - the length of the amortization period,
and because it left open how costs will be allocated to customers." Now, in this case, the
Company includes a specific proposal for collecting costs - through the energy rate." As ICL
Order No. 32248, IPC-E- 11-04.
8 Order No. 32549 at 1 n. 1, IPC-E-12-09 (noting the four concurrent cases).
Order No. 30892, IPC-E-09-03; Order No. 32585, IPC-E-12-14.
10 Order No. 32217, IPC-E-10-27.
"Id. IIPA, while a party, did not participate in the negotiations, but did not oppose the
stipulation.
12 See Direct Testimony of Don Reading, at 20— 22, IPC-E-10-27 (filed on March 4, 2011).
13 See Direct Testimony of Mathew Larkin, at 23 - 25.
ICL Comments
IPC-E-12-24 3 January22, 2013
explains in section V below, this proposal is reasonable and provides at least as much information
as the cases cited above that decided cost allocation outside of a general rate case.
Stakeholders had a second opportunity to address the issue of capitalizing Custom
Efficiency payments in Idaho Power's 2011 general rate case." While Idaho Power only proposed
to account for Custom Efficiency as a regulatory asset, and deferred resolving the collection of
these costs until a future case, the import and ramifications of this decision were clear, deciding
the issue of cost recovery was inevitable. The issue played out in the context of adjusting the
energy efficiency rider, but no party opposed capitalizing the incentive payments.` Moreover,
the parties to the case agreed to remove the Fixed Cost Adjustment (FCA) from the general rate
case and consider it in a stand-alone case.'6 The FCA is arguably more far reaching, complex, and
impactful to ratepayers than the Custom Efficiency incentive scheme under consideration here.
Stakeholders had a third opportunity when Idaho Power requested a prudency
determination of the 2011 DSM expenses. As part of that case, the Company included a cost
recovery mechanism for Custom Efficiency payments that mirrored the original proposal in IPC-
E-1O-27.'7 Again, all stakeholders had ample opportunity to review the proposal and engage on
the issue. Only the Staff objected to the Custom Efficiency proposal and alleged the issue could
be "more thoroughly vetted by all parties ... in a general rate case."" But Staff does not explain
why the carrying charge and amortization period for Custom Efficiency recovery must be
addressed in a rate case, while they support vetting the same issues for other investments outside
of rate cases.
This case presents the third direct, and fourth overall, opportunity to vet Idaho Power's
proposal. All stakeholders have had ample opportunity to review and engage on the issue. The
14 IPC-E-11-08.
15 Order No 32426 at 16-21, IPC-E-11-08.
16 Id at 5.
17 Order No. 32667, IPC-E-12-15.
18 Staff Comments at 5, IPC-E-12-15.
ICL Comments
IPC-E-12-24 4 January 22, 2013
Commission regularly considers proposals that require decisions about including items in base
rates, setting appropriate carrying charges, determining appropriate amortization periods, and
approving rate impacts outside of general rate cases. The Company's proposal includes a specific
mechanism to allocate costs to ratepayers. And the Commission has already deemed the costs
proposed to be collected as prudently incurred expenses. Finally, addressing this issue in a stand-
alone case is more appropriate than having the issue lost in the mix of a complex general rate case.
Like the recent decision to remove the Fixed Cost Adjustment from Idaho Power's general rate
case,"' it is appropriate to consider the recovery of Custom Efficiency incentives in this stand-
alone case.
III. THE COMPANY'S FULL RATE OF RFuRN Is THE APPROPRIATE CARRYING CHARGE.
"The Commission has consistently stated that cost-effective DSM programs are in the
public interest and has admonished electric utilities operating in the State of Idaho to develop
and implement DSM programs in order to promote energy efficiency."" It is only fair that along
with this admonishment comes a regulatory regime that provides equivalent support between
supply side and demand side resources. To do otherwise means the Commission intends to rely
on the stick of command and control regulation for demand side resources and the carrot of
economic regulation for supply side resources. ICL urges the Commission to unleash the power
of economic regulation on demand side resources, tempered by the standards of used and
usefulness and prudence. Allowing Idaho Power to collect the current rate of return on prudent
demand side resources that are completed and paid for by shareholder dollars is fair, just,
reasonable, and in the public interest.
19 Order No. 32426 at 5, IPC-E- 11-08.
20 Order No. 32113 at 8, IPC-E-10-09.
ICL Comments
IPCE1224 5 January 22, 2013
The Custom Efficiency incentive payments are distinct from other demand side programs,
because shareholders, not ratepayers, make the initial investment. In Citizens Utilities Co., v.
Idaho Public Utilities Commission, the Idaho Supreme Court stated "it is the duty of the
Commission . . . to allow the utility furnishing the service to make a just and reasonable profit or
return on its investment."" The Court emphasized the term "its investment" to distinguished
between shareholder investments, which are properly included in rate base, and other sources of
capital." By accounting for Custom Efficiency payments as a regulatory asset, these costs are no
longer collected through the Energy Efficiency Rider. Instead, these costs are paid out of Idaho
Power's own capital, which is akin to supply side resources. And, once paid out for completed
projects, and deemed prudent investments by the Commission, it is only fair to allow for the
same rate of return as other used and useful, prudent investments.
The Commission has previously endorsed this view. In Order No. 22299, the
Commission concurred, "that conservation investments should be capitalized in a manner
equivalent to the capitalization of generating resources."" Following this "Conservation Order"
the Commission approved a series of incentive programs, funded by shareholder dollars, to
incent energy savings."' When the utilities, asked for recovery assurances, the Commission
deferred this decision until after a report documenting the cost effectiveness of these programs.25
In essence, this is the same situation as Idaho Power requests today for the Custom Efficiency
program - recovery of the return of, and return on, prudently incurred expenses for demand side
resources. In the words of the Commission: "Surely the utility is as fully entitled to profit from
21 59 P.2d 110, 115-116 (1978).
22 Id., (removing from rate base payments from the State of Idaho for relocating a power line).
23 Order No. 22299, U-1500-165; Order No. 22758, GNR-E-89-2.
24 See Order No. 22737, PPL-E-89-4 (referring to "several companies' respective tariffs
concerning building incentives.")
25 Id.
ICL Comments
IPC-E-12-24 6 January 22, 2013
this growing function as, in another time, from the sale of incandescent lamps."' As before, the
question is not whether the investment is supply side or demand side, the question is whether the
investment is prudent and useful for providing electrical service.
This type of mechanism is also the simplest and fairest means to use economic regulation
to encourage utility investment in demand side resources. A recent report by the American
Council for an Energy-Efficient Economy Carrots for Utilities: Providing Financial Returns for
Utility Investments in Energy Efficiency analyzed incentives in 18 states.27 The report divides
incentive mechanisms into three categories: shared benefits, performance targets, and rate of
return. Both "shared benefit" and "performance target" type mechanisms provide payments to
the Company after meeting certain energy savings levels. These types of mechanisms require
additional complex and controversial steps after determining if the utility investment was
prudent. For shared benefits, regulators must determine the appropriate sharing split between
shareholders and consumers. For performance targets, regulators must establish targets, measure
attainment, and determine a fair reward for shareholders. In both instance the Commission has
little to no objective guidance in making these complicated determinations. By contrast, allowing
for the rate of return on prudent investments is much simpler. The Commission need only
combine two determinations that are already preformed - the appropriate rate of return from a
rate case, and the prudency of DSM spending in annual reviews. This is a simple and relatively
transparent method to provide a similar economic incentive for demand side and supply side
resources.
II
26 Order No. 22758, GNR-E-89-2.
21 See ACEEE, Carrots for Utilities: Providing Financial Returns for Utility Investments in Energy
Efficiency, Report No. Ui 11 (January 2011). Available free at: http://www.aceee.org/research-
report/ul ii (accessed January 21, 2013).
ICL Comments
IPCE-12-24 7 January 22, 2013
N. THE APPROPRIATE AMORTIZATION PERIOD FOR DEMAND SIDE RESOURCES Is NOT THE SAME As
SUPPLY SIDE RESOURCES.
ICL agrees with Idaho Power's basic point that the amortization period should reflect the
fact that Custom Efficiency incentives are not backed up by physical assets. Amortization is a
method to move investments off the Company's books over some period. This benefits
ratepayers by spreading the cost of the investment over multiple years to prevent rate shock while
attracting investment capital to fund necessary utility infrastructure. But these benefits are
tempered by ratepayer's interest in paying off the amortized asset to avoid further interest
payments. Amortization benefits the utility by assuring an eventual return of shareholders
dollars, although tempered by the risk of actually recovering these investments. Combined with
the allowed rate of return, establishing a fair amortization period must balance these interests.
ICL's goal in this proceeding is to create a fair, transparent mechanism to encourage
pursuit of all cost-effective demand side resources. We believe this is the same goal as all other
stakeholders. Determining the appropriate amortization period for Custom Efficiency payments
is but one part of this issue. ICL does not have a specific proposal for the appropriate period.
Instead, we urge the Commission to adopt a reasonable period that reflects the competing
interests of ratepayers in avoiding rate shock while avoiding endless interest payments, against
the utility interest in managing the risk of recovering the unamortized portion of prudent
investments.
V. RECOVERING CUSTOM EFFICIENCY PAYMENTS THROUGH ENERGY CHARGES Is REASONABLE.
As the Commission has recognized repeatedly, energy efficiency programs deliver two
benefits - reducing power costs immediately and deferring or avoiding new electrical plant over
the long term. All ratepayers realize the long-term benefits of energy efficiency when the utility
does not build new plant and that cost does not appear in a rate case or other proceeding. In
See Larkin at 17-21.
ICL Comments
IPC-E-12-24 8 January 22, 2013
other words, ratepayers benefit by never having to pay for new plant. But the short-term benefit
of reducing power costs is very different. Today, all ratepayers do pay for current power costs.
And mostly this contribution comes from the energy component of retail rates. The Custom
Efficiency program, by reducing power costs, reduces the pressure on the energy component of
retail rates. Therefore, it is logical to collect the cost of this program through this part of rates.
Collecting the Custom Efficiency incentives through the energy charge results in large
users paying a greater share of the cost than low energy users. This is fair since large users are the
primary driver of power costs, they should also be the primary contributor to programs that
reduce power costs. Moreover, the Company proposal shows a greater increase for the largest
customers - schedule 9, 19, and special contracts. These also are the only customers who qualify
for incentive payments under the Custom Efficiency program. If these customers are eligible for
benefits, they should bear a higher portion of the costs of the program.
VI. RECOVERING CUSTOM EFFICIENCY INCENTWES THROUGH ANNUAL FILINGS Is REASONABLE.
ICL supports Idaho Power's proposal to make annual filings to update the Custom
Efficiency regulatory asset account. This support hinges on Idaho Power only including incentive
payments deemed prudent by the Commission as part of the demand side program review."
Ensuring the prudency of investments prior to cost recovery is an important protection for
ratepayers. Annual filings also match the timing of these investments being used and useful for
providing electrical service. Finally, by deciding Custom Efficiency recovery at the same time as
the Power Cost and Fixed Cost Adjustments the Company and stakeholders can use the same
sales forecast. Because ratepayers are protected by the prudence and used and useful standards,
annual recovery is fair, just, reasonable, and in the public interest.
II
29 Direct Testimony ofLarkin at 26.
ICL Comments
IPC-E-12-24 9 January 22, 2013
VII. CONCLUSION.
This application represents the third time the Company has proposed a simple and fair
mechanism to help align the regulatory landscape with this Commission's directive to pursue all
cost effective energy efficiency. Instead of only admonishing the Company towards this pursuit,
ICL urges the Commission to align the economic incentives for Idaho Power with the interest of
ratepayers. Allowing the Company to collect the full rate of return for prudent, useful
investments in providing electric service is not a new concept. And the Commission has taken
the position in the past that "that conservation investments should be capitalized in a manner
equivalent to the capitalization of generating resources." Ratepayers are protected by the
Commission authority to review the prudency of Custom Efficiency incentives prior to any
collections through rates. In short, the proposal is a fair, simple, and relatively transparent
mechanism that aligns utility and ratepayer interests, while ensuring customers are protected.
Respectfully submitted this 22" day of January 2013,
Benjamin J. Otto
Idaho Conservation League
3° Order No. 22299, U-1500-165; Order No. 22758, GNR-E-89-2.
ICL Comments
IPC-E-12-24 10 January 22, 2013
CERTIFICATE OF SERVICE
I hereby certify that on this 22nd day of January 2013, I delivered true and correct copies
of the foregoing COMMENTS OF THE IDAHO CONSERVATION LEAGUE to the following
persons via the method of service noted:
Hand delivery:
Jean Jewell
Commission Secretary (Original and seven copies provided)
Idaho Public Utilities Commission
427 W. Washington St.
Boise, ID 83702-5983
Electronic Mail:
Idaho Power Micron
Lisa D Nordstrom Richard E. Malmgren
Regulatory Dockets Senior Assistant General Counsel
Matt Larkin Micron Technology, Inc.
Greg Said 800 South Federal Way
Idaho Power Company Boise, ID 83716
P.O. Box 70 Telephone: [phone]
Boise, Idaho 83707 Fax: [phone]
[e-mail] [e-mail]
[e-mail]
[e-mail] Frederick J. Schmidt
[e-mail] Jacqueline B. Rombardo
Brian T. Hansen
KI1 Pamela S. Howland
Peter J. Richardson Holland & Hart, LLP
Gregory M. Adams 777 East Williams Street, Suite 200
Richardson & O'Leary, PLLC Carson City, NV 89701
515 N. 27th Street Telephone: [phone]
Boise, ID 83702 Fax: [phone]
[e-mail] [e-mail]
[e-mail] [e-mail]
[e-mail]
Dr. Don Reading [e-mail]
6070 Hill Road [e-mail]
Boise, Idaho 83703
[e-mail]
Benjamin J. Otto
Certificate of Service
IPC-E-12-24 1 January 22, 2013