20150715Comments.pdf

KARL T. KLEIN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720.0074
[phone]
IDAHO BAR NO. 5156
Street Address for Express Mail:
472W. WASHINGTON
BOISE, IDAHO 83702-5918
Attomey for the Commission Staff
IN THE MATTER OF THE APPLICATION OF
IDAHO POWER COMPANY FOR A
DETERMINATION OF 2014 DEMAND.SIDE
MANAGEMENT EXEPNDITURES AS
PRUDENTLY INCURRED.
I 1 l, Fl, 1.tro!. t, tt. (-.\,JU
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO.IPC.E.15-06
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission comments as follows on Idaho Power
Company's Application.
BACKGROUND
On March l3,20l5,Idaho Power Company (the Company) asked the Commission to
determine that the Company prudently incurred $33,495,385 in expenses to develop and run its
demand-side management (DSM) programs in20l4. The Company says its2014 DSM efforts
included Northwest Energy Efficiency Alliance (I.[EEA) market transformation activities, 18 energy
efficiency programs (16 in Idaho, 2 in Oregon), 3 demand response programs, and several
educational initiatives. According to the Company, its DSM efforts increased its annual energy
savings by 33 percent, to 138,670 megawatt hours (MWh), a savings level that exceeds the savings
target in the Company's Integrated Resource Plan. These energy savings included 1 18,670 MWh
from energy-efficiency programs and 20,000 MWh from market-transformation initiatives. The
Company primarily attributes these energy savings to industrial sector DSM activities and, to a
lesser extent, residential sector DSM activities. The Company says it enrolled enough participants in
STAFF COMMENTS JULY 15,2015
its demand-response (DR) programs to provide 390 MW of load-shedding capacity, and that these
programs ultimately reduced demand by 378 MW and saved customers about $6.5 million. The
Company funds its Idaho energy-efficiency programs through the Idaho Energy Efficiency fuder,
base rates, and the annual Power Cost Adjustment (PCA). It funds its Idaho DR programs through
base rates and the PCA.
The Company explains that its 2014 DSM expenses included $25,554,688 in Idaho Energy
Efficiency Rider expenses and $7,940,697 in DR program incentive payments. The Company states
that it calculated these expenses after adjusting amounts shown in its DSM Report to remove: (l)
$338,707 in Rider-funded labor-related expenses; (2) 5248 in Home Energy Audit program labor
expenses; and (3) $ 1,153 in Energy House Calls Program incentives that were charged against the
Idaho Energy Efficiency Rider when they should have been charged against the Oregon Rider. The
Company notes that its prudency request excludes these adjusted amounts.
The Company also notes that it helped create a new market-transformation plan for NEEA
that should save 145 average MW from 2015 to 2019 and cost the Company's customers $3 million
less than they paid under NEEA's prior plan.
The Company explains that it determined whether its energy-efficiency programs and
measures were cost effective by calculating benefit/cost ratios under: (l) the Total Resource Cost
test (TRC); (2) the Utility Cost Test (UCT); (3) the Participant Cost Test (PCT); and (4) the
Ratepayer Impact Measure test (RIM).1 The Company concluded that its overall energy-efficiency
portfolio for 2014 was cost effective from the TRC and UCT perspectives. Specifically, of the
Company's l6 Idaho energy-efficiency programs, 1l programs passed the TRC and UCT, 2
programs failed the TRC but passed the UCT, and 3 programs failed both the TRC and UCT.
Further, all energy-efficiency programs with customer costs passed the PCT.
In contrast to how it assessed the cost effectiveness of its energy-efficiency programs, the
Company did not calculate benefit/cost ratios when assessing the cost effectiveness of its DR
programs. Instead, the Company determined whether its DR programs were cost effective by
I Th" fow tests examine a program's cost effectiveness from different perspectives. In summary, the TRC compares
program administrator costs and customer costs to utility resource savings, and assesses whether the total cost of energy
in a utility's service territory will decrease. The UCT compares program administrator costs to supply-side resource
costs, and assesses whether utility bills will increase. The PCT compares the costs and benefits of the customer
installing the measure, and assesses whether program participants will benefit over the measure's life. The RIM
measures the impact to customer rates due to changes in utility revenues and operating costs caused by an energy
effrciency program. Under these tests, a program or measure is deemed cost effective if it has a benefit/cost ratio above
1.0.
STAFF COMMENTS JULY 15,2OI5
estimating whether the DR programs in its $16.7 million DR portfolio (see Commission Order No.
32923) would have remained cost effective if fully dispatched. The Company says independent,
third-party consultants evaluated the programs' impact and process to veriff that program
specifications were met, recommend improvements, and validate program-related energy savings.
The Company notes that in 2014, the third-party consultants completed impact evaluations on five
programs, and process evaluations on three programs.
The Company describes its Energy Efficiency Advisory Group's (EEAG's) and other
stakeholders' input into the Company's development of its DSM activities. The Company notes that
stakeholder input in 2014led the Company to increase the incentives paid to participants in its
commercial and industrial DSM programs, to change its commercial/industrial lighting measures,
and to implement or plan to implement two new energy-efficiency programs and offerings.
In the Company's last prudence filing, Case No. IPC-E-14-04, Staff and other parties
questioned the Company's declining DSM marketing efforts and expenditures. After noting that the
Company had defended its actions, the Commission directed the parties to further explore these
issues in the context of the Company's next Integrated Resource Plan filing. See Errata to Order No.
33161. In the present Application, the Company explains that it responded to the Commission's
direction by organizing an Energy Efficiency Advisory Committee to discuss these issues, and by
investigating the extent to which energy-efficiency programs and measures yield transmission and
distribution benefits. The Company also notes that it will continue evaluating program-delivery
issues, and that Staff, customers, and others will be able to use the Energy Efficiency Advisory
Committee to advise the Company about formulating, implementing, and evaluating energy-
efficiency and DR programs.
STAFF ANALYSIS
Staff reviewed the Company's Application, audited the Company's2Ol4 DSM expenditures,
reviewed the Company's process for paying incentives to customers, and reviewed the Company's
internal controls. Based on Staff s review, Staff supports the Company's Application and
recommends that the Commission find the Company prudently incurred $33,495,385 in2014 DSM-
related expenses consisting of $25,554,688 in expenses that were booked to the DSM Rider account,
and $7,940,697 in DR program expenses that have been included for recovery in the 2015 PCA.
STAFF COMMENTS JULY 15,2OI5
In the following sections, Staff analyzes: (A) the DSM Rider account and DR program
expenditures; (B) DSM Marketing Efforts; (C) Program Delivery; (D) New Program
Implementation; (E) NEEA; (F) Cost Effectiveness; and (G) the Company's response to Errata
Order No. 33161.
A. DSM Rider and DR Prosram Expenditures
Staff calculated the Rider account's balance as of December 31, 2014 as follows:
2014 Beginning Rider Balance $6,685,745
2014 Funding plus Accrued Interest 38.088.113
Total2014 Funds 44.713.858
2014 Booked Expenses and Activity (25,556,089)
2015 Accounting Adjustment 1,153
Rider Transfer to PCA (20.000.000)
2014 Ending Rider Balance per Report $__(Z8l-078)
Staff notes that in last year's PCA case (Case No. IPC-E-14-05), the Commission approved a
one-time transfer of $20,000,000 of surplus Rider funds to customers through a credit, or reduction
in the PCA. Because of the growing surplus of funds in the Rider account atthat time, the account
was able to absorb the one-time transfer. This transfer is reflected in the table above.
The Company's2014 expenditures from the DSM Rider account are $1,401 less than the
2014 expenses that were booked into the Rider account. This $1,401 difference consists of two
adjustments. First, the Company made a $1,153 accounting adjustment in 2015 that pertains to 2014
activity in which the Company inadvertently charged the Idaho Rider for two Oregon-related
incentive payments from the Energy House Calls program. The Company thus removed the $1,153
from its prudency request in this case. Second, the Company made a$248 adjustment thac was
approved in the 2013 prudency determination. This adjustment is not specifically called out in the
table above because the table's 2014 Beginning Rider Balance already reflects it. The $248
adjustment occurred because in2013, the Company charged an Idaho-related Home Energy Audit
program labor charge to the Oregon Rider instead of to the Idaho Rider. Although this labor expense
occurred in20l3, it was added to the Idaho Rider account in20l4. So, in order to arrive at its actual
total program expenses for 2014, the Company removed this amount from the 2014 Beginning Rider
Balance and this year's prudence request.
STAFF COMMENTS JULY 15,2OI5
Apart from reviewing the DSM Rider account, Staff also reviewed the incentive payments
from the Company's 2014 DR programs and those programs' effectiveness. Staff notes that the
Company's three demand response programs provided a peak demand reduction of 378 MW in
2014. This value represents the realized, non-coincident load reduction from all three programs.
The total enrolled capacity from all three programs was 390 MW. Staff believes these programs are
critical in delaying the need for more expensive peaking generation, and that the Company has
prudently operated them. Staff thus recommends that the Commission find that the Company
prudently paid $7,940,697 in customer incentives from these programs.
Staff also notes that the Company's energy savings rebounded significantly in20l4;total
savings increased by 33 percent from the previous year and exceeded the IRP target. The
Company's DSM 2014 Annual Report clearly documents dramatic improvement to the Company's
program marketing and delivery, and the addition of several new DSM programs to the Company's
portfolio. This improvement demonstrates that the Company's ability to achieve energy-efficiency
resource targets is largely within its control and is not determined by outside factors.
B. DSM Marketing Efforts
As reported in the DSM 2014 Annual Report, the Company significantly improved its
marketing efforts last year. The Company employed new marketing methods including television,
radio, Facebook, Pandora advertising campaigns, online display and search-related ads, Boise airport
signage, and a significant number earned of media appearances on KTVB. If continued over the
long term, these types of broad-based marketing efforts demonstrate to customers that the Company
is committed to energy efficiency and supports customers' efforts to conserve energy. However, it is
critical that the Company's efforts continue over the long term and not be a temporary or one-time
effort.
The Home Products Program online marketing campaign is a specific marketing success
story from 2014. The program's first online marketing campaign was based on specific online
search behaviors and produced a click-through-rate (CTR)2 of 0.39 percent, which exceeded the
industry average of 0.07 to 0.10.3 Since 52 percent of "See yalater,refrigerator" participants said
convenience was the most valuable part of the program, the Company adjusted its marketing to
2 The click-through-rate is the percentage of website visitors who also click on a particular advertisement on that page.
' Idaho Power DSM 2014 Annual Report, page 74.
STAFF COMMENTS JULY 75,2015
include "messaging focusing on convenience" rather than saving energy or the incentive payment. a
This is a good example of the Company effectively using alternate messaging to generate demand
for programs. Because research demonstrated that 74 percent of participants use Facebook and 42
percent visit social media multiple times a day, the Company launched a one-month marketing
campaign on those platforms for the Rebate Advantage program. Again, the Company's CTR of
0.16 percent exceeded the digital advertising industry average of 0.07 to 0.10 percent and
demonstrated that the Company's customers are very receptive to new advertising techniques.s
The Company also established a contractor portal for its Home Improvement Program so that
trade allies could access and customize co-branded marketing materials with their business name and
contact information. While this is significant progress, Staff believes the Company should capitalize
on co-branding by creating a branded energy-efficiency campaign, similar to what Avista and Rocky
Mountain Power have launched and as evaluators for several of the Company's programs have
recommended.
There is also room for Customer Representatives (CRs) to take a more active role in DSM
marketing. For example, the Energy Star Homes Northwest evaluator recommends that CRs contact
customers to market the program, but the Company declined to adopt this recommendation.6 The
evaluator also recommends that CRs be "engaged in training sessions." In response, "lPC invited
CRs to sessions in20l4,and several CRs attended the sessions." T Staff believes the Company
should consider requiring CRs to attend these training sessions instead of making the sessions
optional. Staff believes the Company should consider establishing customer contact goals for each
CR to more effectively promote certain DSM programs.
C. Program Delivery
Besides expanding and improving its marketing efforts, the Company also adapted several of
its program delivery methods to make it easier for customers to participate in the programs.
Changes to the Company's three commercial and industrial programs-the largest source of energy
savings-were impressive. The Company identified several barriers to participation and took action
to overcome those barriers. Incentives were increased (within cost-effectiveness limits) for many
o Idaho Power DSM 2014 Annual Report, page 82.
' Idaho Power DSM 2014 Annual Report, page 80.
u Idaho Power DSM 2014 Annual Report, page 56.
' Idaho Power DSM 20 14 Annual Report, page 61 .
STAFF COMMENTS JULY 15,2015
measures to help customers prioritize energy-efficiency upgrades in their capital budgets. The
Company began offering a "Professional Assistance Incentive" to cover the previously
uncompensated time architects and engineers spent complying with project documentation
requirements, launched the Waste Water Energy Efficiency Cohort to train waste-water managers on
low or no-cost energy improvements, created a "Complete Lighting Upgrade bonus incentive" for
projects that retrofit all interior lighting and applicable controls, and removed the advance approval
requirement for smaller, non-standard measures. The Company reports that "[t]his change was
heartily received by participating trade allies and has resulted in quicker turnaround of project
implementation."s
Staff supports these adaptations and notes that even with the additional and increased
incentives, Building Efficiency, Custom Efficiency, and Easy Upgrades had UCT ratios of 5.05,
4.72, and,4.08 respectively.e These and other changes produced a 48 percent increase in energy
savings for the sector and a 135 percent increase for the Custom Efficiency Program. Based on these
successes, the Company should consider adopting its evaluator's recommendation to include
contractor incentives for the residential Heating & Cooling Efficiency Program.l0 This program has
a UCT of 3.74, so it is well positioned to absorb that impact and remain cost effective. These are the
sort of best practices and ongoing adaptations that the Company will need to continue to maintain
robust programs.
Also during2014, the Company asked the EEAG for feedback on merging the three
commercial and industrial programs into one customer-facing application. The Company proposed
having a single application for all projects, rather than the current segmentation between
prescriptive, custom, and new construction measures. Staff supports this streamlined approach
because it removes the confusion and barrier to participation that customers experience when a
single project includes multiple entry points, differing incentive amounts, and a variety of
documentation requirements. PacifiCorp has successfully adopted a similarly streamlined approach.
Although the Company has significantly improved its program delivery, overly burdensome
documentation is an ongoing issue. The Company has emphasized its focus on reducing costs
(independent of cost-effectiveness constraints) at several EEAG meetings over the past two years,
t Idaho Power DSM 2014 Annual Report, page ll7.e Incentive payments cancel out of the TRC, so increasing those costs does not affect the cost effectiveness from that
perspective.
'o Idaho Power DSM 2014 Annual Report, page 62.
STAFF COMMENTS JULY 15,2OI5
and the DSM 2014 Annual Report cites new documentation requirements the Company imposes on
participants.ll Staff supports prudent management of expenses, but encourages the Company to
correctly pair the size of the solution with the scale of the problem. Commercial and industrial
EEAG members have expressed to the Company that burdensome program documentation
requirements create a time consuming back-and-forth dynamic that discourages participation. Staff
cautions the Company to apply sufficient rigor without unduly hindering program uptake.
D. New Program Implementation
In last year's comments, Staff and other parties pointed out the absence of new efficiency
programs in the Company's portfolio. In response, the Company created the'New Ideas team,"
which has subsequently been re-branded "Program Planning." All DSM Portfolios should include
proactive planning, so Staff supports the Company implementing this function.
The Company rolled out several new programs in 2014, including Home Energy Audits, a
program that is based on the 20lI-2013 Boise City Audit program and is being used as an education
and marketing program. A survey that asked participants to identify all the benefits they
experienced found that7l percent cited raised awareness ofenergy use,67 percent cited personal
satisfaction, 58 percent cited cost-savings, 57 percent cited home improvement,42 percent cited
improved comfort, and 39 percent cited benefits to the environment.
After the audit, 5l percent of respondents said they visited the Company's website, 6l
percent unplugged appliances when not in use,42 percent signed up for myAccount, 75 percent
shared their experiences with family/friends, 65 percent said they replaced additional incandescent
lamps with CFLs or LEDs, 4l percent said they serviced their heating equipment, and 38 percent
said they serviced their cooling equipment. These findings show that an effective marketing and
education program can have a powerful effect on customer understanding and behavior.
Canyon County had by far the most participants, twice as many as the more urban Ada
County.12 Participation was strong in other rural counties as well, which shows that Idahoans are
receptive to, and enthusiastic about, the many benefits of energy efficiency. The survey also
revealed that the Company customers are motivated to pursue energy efficiency for many reasons-
including, but not limited to, cost savings-which demonstrates that the Company should continue
t' Idaho Power DSM 2014 Annual Report, page I19.
'' ldaho Power DSM 2014 Annual Report, page 65.
STAFF COMMENTS JULY 15,2075
expanding its marketing messages to include important intangibles, such as personal satisfaction,
comfort, 'odoing the right thing," and being informed as reasons for participating in its programs.
Nonetheless, the biggest barrier cited was cost, so providing meaningful incentives, within cost-
effectiveness bounds, remains a priority.l3
In addition to the Home Audit program, the Company expanded its very popular and
successful Shade Tree program and began a residential clothes line distribution effort. In response to
discovery, the Company confirmed that it is moving forward with a residential smart thermostat
program, retro-commissioning for building retrofits and processes, a multi-family progranr
investigation, residential behavior based energy efficiency program, and a direct install program for
small business customers. The Company also plans to assist with the audits and capital projects
associated with efficiency projects at the Idaho State Capitol. Several additional initiatives are being
monitored for future viability, including expanding Custom Efficiency to include small, non-
prescriptive projects, offering an increased incentive for residential customers who bundle multiple
measures into one project, and incenting window inserts.
Custom Efficiency-the Company's largest program- is also considering expanding its
successful cohort approach to include Refrigerator Operator Coaching for Energy Efficiency
(ROCEE) II for the Southern Region, Compressed Air, Data Centers, and a Water Supply Energy
Efficiency Cohort.
Staff supports the progress made in the last year, and is encouraged that the Company has
identified and appears to be actively pursuing additional opportunities. Staff recommends that the
Company explore programs that could create additional cost-effective electric savings in gas-heated
homes.
E. NEEA
Staff welcomes the Company's decision to participate in NEEA's next five-year funding
cycle. Because market-transformation programs do not rely on direct contact with individual
customers, they are often more cost effective than directly administered local programs.
Consequently, market transformation is a good place to expand when avoided costs are low, or to
test emerging marketing when directly administered local programs are not cost effective.
t' Idaho Power DSM 2014 Annual Report, page 68.
STAFF COMMENTS JULY 15,2OI5
Beyond extending its funding for another five-year cycle, the Company and other electric
NEEA funders worked diligently and succeeded in finding a way to leverage and expand NEEA's
market-transformation expertise to include natural gas, while remaining neutral on fuel switching
and keeping NEEA's electric and gas market-transformation budgets and activities completely
distinct.
F. Cost Effectiveness
In addition to program delivery changes, the Company also changed how it calculates DSM
cost effectiveness. The changes to cost-effectiveness calculations include applying the 10 percent
Northwest Power Act Credit and using a 100 percent Net-to-Gross QIITG) ratio for all programs.
The Company applied minimum NTG sensitivities to all programs to show the NTG threshold
necessary for the program to be cost effective. Staff supports these changes because they align the
Company's calculations with evolving regional and national practices.
While these are meaningful improvements, Staff believes there is more work to be done to
more reasonably value demand-side resources in its cost-effectiveness calculations. For instance,
Staff believes the UCT is a better measure of cost effectiveness than the TRC because the UCT
reflects the revenue requirement associated with acquiring additional resources. In addition, Staff
notes that the Company has much more control over the outcome of the UCT than the TRC. In the
TRC customer costs-rather than incentive payments-primarily drive the benefit/cost ratio. In the
UCT, incentives are the primary cost impacting cost effectiveness. These UCT costs can be easily
decreased to preserve cost effectiveness, or increased to maximize the resource acquisition,
whichever applies to the utility's situation. This is important because the lack of control over
customer costs, and consequently TRC cost effectiveness (and resulting prudency risk), may
discourage utilities from launching or expanding DSM programs when either measure costs or
energy savings are in flux. The link between factors outside the Company's control and cost
recovery could naturally make it hesitant to incent new, innovative, or experimental measures. With
more control over cost-effectiveness results and therefore cost recovery, utilities are more likely to
pursue innovative DSM programs.
STAFF COMMENTS 10 JULY 15,2015
G. Errata to Order No. 33161
In its 2013 DSM prudency determination, the Commission issued anBnatato OrderNo.
33161 which read:
The Commission is cognizant of the recent decline in energy savings,
acknowledged by the Company in its Application, and notes that Idaho Power
issued a strong rebuttal of these claims, offering several reasons to explain the
recent decline in its DSM expenditures and a defense of its marketing efforts. We
are encouraged that the reply comments seem to demonstrate the Company's
renewed interest in procuring all cost-effective DSM.
In this case, the Commission restricts its findings to the prudency of the
Company's 2013 expenditures. The Commission agrees that the issues raised by
Staff and other parties are significant and warrant a more in-depth review. We
direct the parties to do so in the context of the Company's next Integrated
Resource Plan filing.
In an effort to comply with the Commission order, the Company held two energy-efficiency
workshops to discuss issues raised by Staff and the parties. Because the Integrated Resource Plan
process does not address program-delivery issues, Company representatives suggested narrowing the
workshop's focus to only the treatment of energy efficiency in the resource planning process,
primarily because the EEAG could better address strategies related to successfully delivering
programs. When EEAG meetings are structured to produce robust discussions, Staff agrees that the
EEAG can effectively address program-delivery issues. Nevertheless, because the "issues raised by
Staff and other parties" were largely related to concerns about program delivery, it is not clear how
excluding program delivery from the Integrated Resource Plan discussion complies with the
Commission's order.
At the energy-efficiency workshops, there were discussions about including deferred
transmission and distribution in DSM cost-effectiveness calculations. The Company presented its
plan to investigate the value of deferred transmission and distribution for DSM cost-effectiveness
calculations, and committed to presenting the results of its analysis at the June 2015 IRP meeting.
However, the Company did not present the results of its analysis, and it has not updated the
Integrated Resource Plan Advisory Committee on the progress of its investigation. PacifiCorp has
found this value to be $54lkW-year and includes this value in its avoided-cost calculation.'a Stuff
ra PacihCorp 2015 Integrated Resource Plan.
STAFF COMMENTS
Volume l,page 124.
11 JULY 15,2015
supports including the value of transmission and distribution avoided costs in DSM cost-
effectiveness calculations; consequently, Staff encourages the Company to finalize and present the
results of its avoided transmission and distribution analysis.
STAFF RECOMMENDATIONS
For the above reasons, Staff recommends that the Commission find that the Company prudently
incurred $33,495,385 in2014 DSM-related expenses. This amount consists of $25,554,688 in Rider
expenses and $7,940,697 in Demand Response (DR) program expenses that have been included for
recovery in the 2015 Power Cost Adjustment (PCA).
Respecttully submitted this ltn! day of July 2015.
IU//L
Karl T. Klein
Deputy Attorney General
Technical Staff: Stacey Donohue
Donn English
Curtis Thaden
i:umisc/comments/ipcel 5.6kkdesdct comments
STAFF COMMENTS t2 JULY 15,2OI5
CERTIFICATE OF SERVICE
I HEREBy CERTIFy rHAT I HAVE THIS 15'h DAy oF ruLy 2015,
SERVED THE FOREGOING COMMENTS OF'THE COMMISSION STAFF, IN CASE
NO. IPC.E-I5.06, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
LISA D NORDSTROM
REGULATORY DOCKETS
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-mail: [e-mail]
[e-mail]
BENJAMIN J OTTO
ID CONSERVATION LEAGUE
710 N 6TH STREET
BOISE ID 83702
E-mail : [e-mail]
DR DON READING
6070 HILL ROAD
BOISE ID 83703
E-mail: [e-mail]
DARLENE NEMNICH
IDAHO POWER COMPANY
PO BOX 70
BOISE ID 83707-0070
E-mail: [e-mail]
PETER J RICHARDSON
GREGORY M ADAMS
RICHARDSON ADAMS PLLC
PO BOX 7218
BOISE ID 83702
E-mail: [e-mail]
gre g@richardsonadams. com
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