20150715Comments.pdf

Benjamin J. Otto (ISB No. 8292)
710 N 6th Street
Boise,ID 83701
Ph: [phone] xt2
Fax: [phone]
botto@idahoconservation. org
Attorney for the Idaho Conservation League
IN THE MATTER OF THE
APPLICATION OF IDAHO POWER
COMPANY FOR A DETERMINATION
OF 2OI4 DEMAND-SIDE
MANAGEMENT ("DSM") EXPENSES
AS PRUDENTLY INCURRED.
IPC-E-15-06
ICL Comments
BEFORE THE IDAHO PUBLIC UTITITIES COMMISSION
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COMMENTS
The Idaho Conservation League (ICL) submits the following comments on Idaho Power's
2014 Demand Side Management (DSM) investments. Overall, Idaho Power preformed well in
2014. Below ICL discusses four issues all of which are directly relevant to the 2014 programs:
which of the four primary tests to focus on when considering utility investments in energy
efficiency, the assumptions used in these tests, the calculation of avoided costs, and the programs
with Total Resource Costs Test below 1.0. In sum,ICL recommends the Commission deem
prudent the 2014 DSM investment.
I. Testing for Cost-Effective Energy Efficiency
There are four' commonly accepted tests of whether a utility sponsored efficiency
program is cost-effective, which to the basis for determining prudency in this case. These tests
complement each other as each one measures the costs and benefits from a unique perspective.
The total resource cost test (TRC) "reflects the total benefits and costs to all customers
(participants and non-participants) in the [utility] service territory."2 The utility cost test (UCT)
"calculates the costs and benefits of the program from the perspective of . . . the utility
implementing the program."3 The participant cost test (PCT) "assesses the costs and benefits
' Some commentators describe a fifth, the Societal Cost Test, but this test is really an expanded version of the Total
Resource Cost Test.
2 National Action Plan for Energy Efficiency, Understanding Cost-Effectiveness of Energy Efficiency Programs: Best
Practices, Technical Methods, and Emerging Issues for Policy-Makers at 3-7 (November 2008).
3 Id, at 3-6 (NAPEE calls this test the Program Administrator Cost test in recognition that some DSM programs are
run by third parties, not just utilities.).
CASE NO. IPC-E-T5-06
IDAHO CONSERVATION LEAGUE
|uly 15,2015
from the perspective of the customer installing the measure."a And the ratepayer impact measure
(RIM) test "examines the potential impact of the energy efficienry program has on rates overall."5
A cost/benefit ratio greater than 1.0 under each of these tests means the program is prudent for
the utility and ratepayers, whether participants or not.
Idaho has chosen to focus on the first three of these tests. The Staffand Idaho's investor
owned utilities entered into the Memorandum of Understandingfor Prudency Determination of
DSM Erpenditures.6 The Staff, in Attachment 1 of the MOU, expects "that all programs and
individual measures should have the goal of cost-effectiveness from the total resource, utility, and
participant perspective."T Nothing in the MOU commits Idaho Power or Staffto identifr a
primary test, although in practice the TRC is the focal point. While cost-effectiveness from every
perspective is a laudable goal, when determining the prudence of utility decisions ICL
recommends the Commission primarily focus on the Utility Cost Test.
When considering the prudence of a utility investment the Commission should focus on
whether, from the utility perspective, the benefits outweigh the costs. The UCT test factors in the
costs (incentives and administration) and benefits (avoided energy and capacity) controlled by
the utility. Since these are the costs and benefits the utility can accurately measure, and that
remain constant regardless of the individual participant, this is the correct perspective on which
to judge the utility's decision to invest in the program. This is particularly important in Idaho
because current methodologies only consider some non-energF benefits that accrue to
participants in some efficienry programs. According to Synapse Energy Economics, a leading
expert in the field,
If regulators choose to not account for [non-energy benefits], the [UCT] test is the best
test to use in screening energy efficiency programs. This test is relatively transparent, is
limited to the impacts on revenue requirements, and ensures that utility customers on
average will experience lower utility costs as a result of the efficiency programs. If the
[UCT] test is used, regulators must recognize that important benefits are being ignored,
particularly low-income benefits and other fuel savings.8
o Id, at 3-5.
s NAprp at:-6.
6 Memorandum of Understandingfor Prudency Determination of DSM Expenditures, Order No. 3LO31,IPC-E-09-09
(April 14,2010).
'MOU at 9.t Synapse Energy Economics, Best Practices in Energy Efficiency Program Screening at 7 , (luly 23, 2}L2)(available at:
http://www.raponline.org/document/download/id/6149). The bracketed terms are due to Synapse's use of "other
program impacts" to describe non-energy benefits and calling the Utility Cost Test the Program Administrator Cost
test.
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ICL Comments |uly 15,2015
Often poliqrmakers focus on the Total Resource Cost test. But this test layers on top of
the UCT the incremental costs and benefits to the program participant--something the utility has
little control over and that have unique values to each participant. For example, consider a
hypothetical program offering a $200 incentive for purchasing an efficient refrigerator. The
participant must pay the incremental cost beyond $200. Some participants pay cash; others need
financing. For those financing, the interest rate and repayment term create a unique incremental
participant cost. The benefits side is even more unique, as the TRC should include non-utility
incentives and non-energy benefits. Individuals may receive unique incentives from the product
seller or through tax laws. Also, individual participants may greatly value, or not, the non-energy
benefits. A utility has no accurate way to measure these unique costs and benefits that drive
individual decisions to participate. More importantl)r, this case does not consider whether a
customer made a prudent decision to participate in the program; rather whether Idaho Power
prudently invested in efficiency programs.
Because it uses the most accurate benefits and costs, and measures from the perspective of
the utility whether those benefits outweigh the costs, ICL recommends the Commission
determine prudence based primarily on the Utility Cost Test results for each program. The results
of the other cost-effectiveness tests help inform whether Idaho Power prudently designed and
administered the efficienry program.'
II. Changes to Assumptions Used in the Cost Effectiveness Tests
In the 2014 DSM Report Idaho Power identifies four changes to the assumptions used in
the cost effectiveness tests. ICL supports each of these changes as described below.
Freezing assumPtions on savings at time of budget setting
Many efficiency programs use assumptions about the energy savings attributable to each
measure or program. These types of assumptions are important to determine whether to offer a
measure and help establish the appropriate incentive levels. Sometimes these energy saving
assumptions change during the course of a program year due to ongoing research or changes to
codes and other standards. This continual refinement is important to ensure accurate savings
measurement. But changing assumptions in the middle of a program year can result in a measure
or program that was cost effective at the start of the year appearing to be less so at the end of the
e For example, a program with a high utility cost test ratio and low total resource cost ratio means the utility could
offer a higher incentive for customers while maintaining a cost-effective program.
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ICL Comments |uly 15,2015
year. This prospect of shifting the rug from under their feet can cause utilities to have uncertainty
in whether to offer efficiency programs and the prospects for cost recovery. Further, prudenry
should be determined by reviewing the decision based on the facts the utility knew or should
have know at the time the decision was made.
Based on previous process evaluations,in}}l4ldaho Power elected to"freeze savings
assumptions when the budgets and goals are set for the next calendar year unless code and
standard changes or program updates necessitate an immediate need to use updated savings."'o
As long as the savings assumptions Idaho Power uses are reasonable at the freeze point, it is
reasonable to determine prudency based on those assumptions. It is also reasonable to establish
program budgets and activities on an annual basis. To require a change to budgets or practices
mid-year due to a change in the assumption could be disruptive and burdensome with little
counterbalancing benefit to customers. However, if the facts change drastically, this could, on a
case-by-case basis, mean the utility should change course mid-year. ICL supports the basic
position of freezing assumptions at budget setting with the caveat that drastic mid-year changes
will be reviewed on a case-by-case basis. The Energy Efficienry Advisory Group is a good forum
to address these mid-year issues.
Line loss factors reduced
In2}l4,Idaho Power reviewed and updated the line loss coefficients last determined in
2}l2.tt While the DSM Report does not provide the underlying data or the details of this
calculation, ICL in general supports this change because the numbers seem to align with other
utilities and data available from the Energy Information Administration. This change is
important for two reasons. First, accurately measuring line losses is important to translate savings
behind the customer meter to reductions in energy generation and thus determine accurate
avoided costs. ICL supports regular reyiews of the factors to ensure accuracy. Second, to the
extent line losses are actually lower, this is a good thing since losing less electricity is a good thing
for everyone's pocketbooks and air quality.
Conseryation Adder
Based on prior Commission Orders in both Idaho and Oregon, as well as the practices of
other utilities in the region, in2014ldaho Power applied the Northwest Power Act Conservation
'o ldaho Power 2015 DSM
" Idaho Power 2015 DSM
IPC-E-1s-06
ICL Comments
Report at l5 - 16.
Report Supplement I at4-5.
|uly 15,2015
Adder to all efficiency programs.t' ICL is pleased Idaho Power joined the rest of the region and
now includes the conservation adder. This policy decision to apply an adder to capture some f the
unquantifiable benefits of energy efficiency has been on the books for decades. ICL recommends
the Commission explicitly endorse this practice.
Using 100o/o Net to Gross factors for all programs
Previously Idaho Power attempted to determine a net to gross factor for each measure
that is intend to capture the energy savings attributable to utility efficienry programs. For 2014,
Idaho Power adopted a l00o/o factor for all programs." ICL supports this change for the same
reason Idaho Power proposes - attempting to determine what customers would have done in the
without the existence of the efficiency programs is difficult and highly uncertain. Further, the
Re$ional Technical Forum (RTF) savings incorporate much of the same issues addresses by net-
to-gross factors issue when calculating the deemed savings. So, for programs using deemed
savings, applyrng a net to gross ratio would be doubling counting, or double discounting to be
more accurate. To provide a level of certainty that the assumption of a 1000/o factor will not cause
Idaho power to offer non-cost effective programs, ICL also supports including a sensitivity
analysis for each program that shows the minimum ratio needed to remain or become cost-
effective. This data enables the Commission and stakeholders to determine if the net to gross
assumption alone tips a program either way. The results in the 2014 DSM report shows the net to
gross assumption is not a critical turning point for program cost-effectiveness. ICL supports the
practice of assuming 100o/o net to gross and including a sensitivity analysis for each program.
III. The Avoided Cost Methodology Undercounts the Benefits of Energy Efficiency
ICL's comments on Idaho Power's 2013 DSM programs addressed, among other issues,
the methodology to calculate avoided costs. In Order 33161, the Commission concluded, "the
issues raised by Staffand 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."
Since this Order, the Company and stakeholders have addressed some of the issues raised
by Staffand other parties in the 2013 DSM prudenry review. Specifically, the Energy EfEciency
Advisory Group has discussed, and Idaho Power has implemented, some new DSM programs
and improvements to the Company's marketing strategy and efforts. This effort appears to be
'' Idaho Power 2ol5
" Idaho Power 2015
IPC-E-1s-06
ICL Comments
DSM Report Supplement I at 5.
DSM Report Supplement I at 5.
|uly 15,2015
ongoing and ICL continues to work through the EEAG to address new and improved program
offerings and marketing efforts. However, other issues remain unresolved, including the avoided
cost methodology. In the context of the 2015 IRP, Idaho Power held two working groups on
DSM issues, which included some preliminary and high-level discussions. But neither these
working groups nor the IRP reached a conclusion on these issues-a result ICL is not criticizing
here.
ICL submits the IRP not the appropriate forum to resolve these issues. The IRP is the
correct forum to gather the data that could be inputs to a more robust and accurate avoided cost
calculation. But just as the IRP does not determine the methodology for PURPA avoided costs,
this process does not determine the methodology for DSM avoided costs. One reason is that the
IRP is a general planning document to determine the preferred portfolio of resources to meet
future needs, an issue much broader than avoided costs for DSM. The second reason is that the
Commission review of the IRP results in merely an acknowledgment of the "ongoing planning
process, not the conclusions or results reached through that process."tn The IRP is a process, but
determining a robust and accurate methodology to calculate avoided costs is a conclusion.
Accordingly,ICL recommends the Commission encourage Idaho Power, Staff, and
stakeholders to address the methodology to calculate avoided costs in a new and separate
proceeding. ICL is prepared to offer suggestions to improve the methodology, however we need a
commitment by other stakeholders to address and resolve this issue before expending the
considerable time and resources required to develop these suggestions. Below ICL provides some
examples of the types and scale of changes to the avoided cost methodology that are necessary to
create a robust and accurate measurement.
ICL submits the avoided costs for energy efficiency are artificially low because the
methodology does not include all relevant avoided costs. The method does account for avoided
capacity and energy, as well as some non-energy benefits for a few programs. For capacity costs,
Idaho Power uses the levelized fixed cost of a new simple rycle combustion turbine decremented
by the Effective Load Carrying Capacity." For €r€rg/, Idaho Power uses the AURORA model and
the Company's preferred mix of IRP resources to forecast the "forward marginal electricity price"
in five categories.16
to Order No. 32980 at 16.
" Idaho Power 2013 IRP Appendix C at 75. (ICL refers to the 2013 IRP because the 2015 IRP has yet to be
acknowledged.)
16 Id.
IPC-E-1s-06
ICL Comments ]uly 15,2015
This method may or may not result in accurate avoided capacity and energy costs. The
point is the Commission and other stakeholders have never formally vetted this methodology nor
approved the resulting avoided costs. One simple issue is whether the Summer On-Peak time
should extend from the current 8:00 pm to 9:00 pm. In 2011 Idaho Power sought and received
approval to apply these changes to the Irrigation Peak Rewards program so that "Idaho Power
will be able to reduce loads across the entire peak period."'7ICL submits the definition of peak
hours should remain consistent across all DSM programs.
Moreover, the current avoided cost methodology excludes other commonly accepted and
measurable energy benefits.r8 Below ICL points to two categories as examples:
Reducing customer energy demands can avoid transmission and distribution costs.re The
Regulatory Assistance Project (RAP) reports these values can range from $3O/kw-yr to $100/kw-
yr for transmission and from $50/kw-year to $IO0/kw-year for distribution costs.2oICL
acknowledges that each utility, and even specific locations within each utility, will have a unique
value for avoided T&D. For example, PacifiCorp calculates a system wide avoided transmission
and distribution benefit of $54lkw-year attributed to energy efficiency measures." ICL submits
this number is at least in the ballpark because PacifiCorp is in the same region as Idaho Power
and offers a similar suite of efficiency measures. For 20L4,ICL recommends the Commission not
adopt a specific dollar amount, but rather just recognize the avoided costs, and thus benefits of
energy efficiency, are higher than currently calculated. Going forward, ICL recommends the
Commission order Idaho Power to work with the EEAG and use the 2015 IRP data to develop
T&D avoided cost numbers. While this effort did begin with the 2015 IRP, it is not complete.
Recognizing the location dependency of these values,ICL recommends the Commission
encourage a method that calculates unique vales for the five load centers Idaho Power uses in
local area transmission planning.22
" Order No 322200 at 9-10, IPC-E-10-46
'8 Synapse Energy Economics, Best Practices in Energy Eficiency Program Screeningat 4-5,22-32. Regulatory
AssistanceProject, RecognizingtheFullValueofEnergyEfficiency(September20l3).EnergyandEnyironmental
Economics, Methodologlt and Forecast of Long Term Avoided Costs for the Evaluation of California Energy Efficiency
Programs, at 23 - 24 (October 2004) (providing an overview of California PUC inclusion of avoided energy, capacity,
transmission, distribution, and environmental compliance cost in overall avoided cost methodology) (available at:
https://ethree.com/CPUC/E3_Avoided-Costs-Final.pdf)
'' Synapse, Best Practices at24 -26.20 RAP, Recognizing the Futl Value of Energt Eficiency at 39.
2r PacifiCorp 2015 IRP at 124
22 Idaho Power 2015 IRP at 62; 2013 IP.P at72.
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ICL Comments
I
fuly 15,2015
Reducing energy demand can reduce reliance on volatile gas and wholesale markets, and
additionally, suppress prices in the markets be reducing demand.23 PacifiCorp calculates a value
of $4.02lmwh to reflect part of this risk reduction benefit by comparing the production cost
model results of resource portfolios with and without energF efficiency.24 For 2014ICL
recommends the Commission not adopt a specific value, rather recognize the current avoided
costs are higher than currently calculated. Going forward, ICL recommends the Commission
encourage Idaho Power to use PacifiCorp's methodology and work with the EEAG to calculate a
risk reduction value in the same manner.
IV. Programs With Total Resource Cost Results Below 1.0
Idaho Power reports that five programs had Total Resource Cost results less than 1.0.25
Each program is part of the Residential Portfolio that overall is cost effective with a TRC ratio of
1.51 and a UTC ratio of 1.88. As a member of the EEAG, ICL has been engaged in discussions
about these programs over the past year including efforts and ideas to reduce costs and increase
benefits. Based on these discussions and other details in the DSM Report, ICL recommends the
Commission find prudent Idaho Power's investments in these programs.
Weatherization for Qualified and Eligible Customers
The DSM report shows these programs were not cost effective in2014. This is no surprise
as these programs traditionally have higher costs than others and participants are not expected to
contribute due to their dire financial means. However, these programs are likely the most
important in the residential portfolio. As a portion of income, utility bills are a large percentage
of the household budget for eligible participants. Reducing utility bills means participants are
more likely to be able to actually pay the bills and thereby reduce arrearages, uncollected
amounts, and disconnection costs. Utility funding for these programs also program providers to
leverage additional federal and state funding there by increasing economic activity in Idaho.
Idaho Power continues to work with the Community Partnership Associations to reduce costs
and improve savings in these programs. Because if their importance, the continual effort to
improve, and the residential portfolio as a whole is cost effective, ICL urges to Commission to
deem this invest as prudent.
" RAP at4l-42 (part of a discussion of a larger set of risks avoided by DSM); Synapse at 29 (market price
suppression).
2a PacifiCorp 2015IF.P at 124
" Idaho Power 201 5 DSM Report at 16 - 17 .
IPC-E-ls-06
ICL Comments |uly 15,2015
Ductless Heat Pump Pilot
The program is cost effective from the perspective of the utility and the participant. While
the program did not pas the TRC, this is due to several reasons that Idaho Power continues to
work with their partners in the Northwest Ductless Heat Pump Pilot program to address these
issues. The Regional Technical Forum is developing additional Non-energy benefits that will
improve the TRC results. Because the TRC includes the incremental cost to the participant,
reducing the cost to install a ductless heat pump is critical to improving this program.
Continuing to offer the program and work with contractors and others to reduce this installation
costs is important to further develop this pilot. Ductless Heat Pumps are a potential solution to
one of the most inefficient uses of electricity - resistance heating. Because the program is cost
effective for the utility and a participant, Idaho Power is continuing to work to improve the
program, and the potential for the measure to deliver large savings ICL recommends the
Commission deem prudent this investment.
Energlr Star NW Homes
This program is cost effective from the utility and participant perspective and only one
measure is not cost effective from under the TRC.26 Because this measure, multifamily homes
was the bulk of the projects completed in 2015, the overall program had a TRC less than 1.0.
While not completely clear from the DSM report, it appears that NEEA, who administers the
program, is making changes for 2015.27 Because it is cost effective from at least two perspectives,
ICL recommends the Commission deem this investment prudentfor 2014.
See Ya Later Refrigerator
This program is not cost effective due to the avoided costs resulting from the 2013 IRP.28
As explained above, the current method undercounts the avoided costs. Further, ICL has
participated in the EEAG discussions to revise the program to address cost effectiveness going
forward by removing the $30 incentive for 2Ol5.2e This is a responsible way to deal with the
program because hauling away a refrigerator is a benefit to participants. The DSM report shows
steady levels of participation indicating there are plenty of old refrigerators still to remove.'o
'u Idaho Power 2015 DSM Report Supplement I at27 - 28.
" Idaho Power 2015 DSM Report at 58.
" Idaho Power 2015 DSM Report at 83.
" Idaho Power 2015 DSM Report at 84.
'o ldaho Power 2015 DSM Report at 82.
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ICL Comments |uly 15,2015
Importantly, having the program remove and recycle the unit is superior to having someone else
remove the unit and possibly resell it so that it continues waste energy on the grid. Because the
avoided costs are undervalued, Idaho Power is continually working to improve the program, and
the importance of the measure,ICL recommends the Commission deem prudent this
investment.
V. Conclusion
Idaho Power made substantial improvements to their DSM programs in 2014. The
savings levels are on the rebound. Despite reduced avoided costs most programs remain cost
effective. Idaho Power is working better with the EEAG to address program issues, consider new
offerings, and improve marketing practices. While work remains in all these areas ICL is pleased
with the 2014program year. ICL recommends:
Focus on the Utility Cost Test results to determine prudency
Endorse the changed assumptions used in the cost effectiveness tests
Order Idaho Power to work with stakeholders to improve the avoided cost
methodology
Deem prudent the 2014 DSM spending
Respectfully submitted this 156 day of fuly 2015,
Idaho Conservation League
IPC-E-rs-06
ICL Comments
Benjamin I. Otto
|uly 15,2015
10
CERTIFICATE OF SERVICE
I hereby certify that on this l5th day of July 2015, I delivered true and correct copies of
the foregoing COMMENTS to the following persons via the method of service noted:
Hand delivery:
Jean Jewell
Commission Secretary
Idaho Public Utilities Commission
427W. Washington St.
Boise,lD 83702-5983
(Original and seven copies provided)
Electronic Mail:
Idaho Power
Lisa D. Nordstrom
Darlene Nemnich
Regulatory Dockets
Idaho Power Company
P.O. Box 70
Boise,Idaho 83707
[e-mail]
dnemnich@idahopower. com
[e-mail]
ICIP
Peter J. Richardson
Gregory M. Adams
Richardson Adams, PLLC
515 N.27th Street
Boise,lD 83702
peter@richardsonadams. com
greg@richardsonadmas. com
Dr. Don Reading
6070 Hill Road
Boise,ID 83703
[e-mail]
IPC-E-ls-06
ICL Comments
t1
Benjamin I. Otto
|uly 15,2015