20191031final_order_no_34469.pdf

Office of the Secretary
Service Date
October 3l,2019
BEFORE THE IDAIIO PUBLIC UTILITIES COMMISSION
IN THE MATTE,R OF THE APPLICATION
OF IDAHO POWER COMPANY FOR A
DETERMINATION OF 20I8 DEMAND.SIDE
MANAGEMENT EXPENSES AS
PRUDENTLY INCURRED
CASE NO. IPC.E-I9-II
ORDERNO,34469
On March 15,2019, Idaho Power Company (Company) applied for a Commission
order finding that the utility's demand-side management (DSM) expenses for 2018 were prudently
incurred. The Company seeks to recover $40,712,164 in deferred costs for its DSM programs,
which includes $33,560,433 in Idaho Energy Efficiency Rider expenses, and $7,151,730 in
demand response program incentives. The Company also asked the Commission to find that
including all cost-effective DSM resources in the Company's Iong-term planning process, from a
total resource cost perspective, would best serve the public interest. The Company supported its
Application with its Demand-Side Management 20I I Annual Report, including supplements on
cost effectiveness and program evaluation (collectively, the DSM Report). The Company also filed
testimony from Regulatory Analyst Pawel Goralski, Rate Design Senior Manager Connie
Aschenbrenner, and independent energy consultant 'fhomas Eckman.
After the Company filed its Application, the Commission issued a Notice of
Application and Notice of Intervention that required interested persons to file any petitions to
intervene by April 29,2019. See Order No. 34301. Idaho Conservation League (ICL) and the City
of Boise (Boise City) filed the only petitions to intervene, and the Commission granted both
petitions. See Order Nos. 34306 and 34328.
On May 23,2019, the Commission issued a Notice of Modified Procedure, setting an
August 20, 2019 comment deadline and a September 17,2019 reply comment deadline. Order No.
34338. Commission Staff, ICL, and Boise City filed commenls, and Idaho Power filed reply
comments.
Now, based on our review of the record, the Commission approves the Application as
set forth below.
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ORDERNO. 34469
THE APPLICATION
The Company states its 2018 DSM efforts included Northwest Energy Efficiency
Alliance (NEEA) market-transformation activities, energy efficiency programs, demand response
programs, and several educational initiatives. The Company states these efforts resulted in energy
savings that exceeded the savings target specified in the Company's Integrated Resource Plan
(lRP). Idaho Power achieved 183,378 megawatt hours (MWh) of incremental annual energy
efficiency savings on a system-wide basis in 2018. The Company notes its energy efficiency
programs saved 158,412 MWh, comprising 43,651 MWh from the residential sector, 95,759 MWh
from the commercial/industrial sector, and 19,002 MWh from the irrigation sector. Additionally,
the Company achieved 24,966 MWh of energy efficiency market transformation savings through
NEEA initiatives. The Company noted its 2018 savings exceeded the annual saving target in its
2017IRP.
The Company noted it pays for its Idaho energy efficiency programs through the Idaho
Energy Efficiency Rider and base rates. It funds its Idaho demand response incentive payments
through base rates and the annual Power Cost Adjustment. Thc Company asked the Commission
to find it had prudently incurred $40,712,164 in DSM expenses, as noted above.
The Company explained it examined the cost effectiveness of its energy effrciency
programs and measures lrom three perspectives: (1) the total resource cost test (TRC); (2) the
utility cost test (UCT); and (3) the participant cost test (PCl. r The Company reports that in 201 8
its overall energy efficiency portlolio was cost effective, passing the TRC, UCT, and PCT, with
ratios of2.26, 3.04, and 2.85 respectively. Olthe Company's l6 Idaho energy efficiency programs,
l2 programs passed the TRC and UCT. Further, all energy efficiency programs with customer
costs passed the PCT. Although they are not cost effective, Idaho Power intends to continue to
uork toward greater cost effectiveness for the Weatherization Assistance for Qualified Customers
Program, Weatherization Solutions for Eligible Customers Program, and the Heating and Cooling
Efficiency Program, because they offer benefits that are difficult to quantily.
ORDERNO. 34469 2
! In summary, the TRC compares program administrator costs and customer costs to utility resourcc savings. The UCT
compares program administrator costs to supply-side resource costs, assessing costs and benefits to the utility and its
ratepayers. The PCT compares the costs and benefits of the customer installing the m€asure, and assesses whether
progam participants will benefit over the measure's life. For each test, a benefit/cost ratio of 1.0 or more signifies
cost effectiveness.
JORDIIR NO. 34469
When assessing the cost effectiveness of its demand response programs, the Company
did not calculate a benefit/cost ratio. Rather, the Company determined the cost effectiveness of its
demand response programs based on the $ 16.7 million demand response portfolio value specified
in Commission Order No. 32923. The Company estimated that the demand response programs
would have cost approximately $l1.3 million on a system-wide basis and are less than the value
olthe demand, calculated to be $ 19.8 million.
The Company stated independent, third-party consultants provide impact and process
evaluations to verify that program specifications are met, recommend improvements, and validate
program-related energy savings. In 2018, three program evaluations, one program process
evaluation, one savings detcrmination analysis, and three program summary analyses were
completed.
The Company noted it relies on the Energy Efficiency Advisory Group (EEAG), which
consists of a cross section of stakeholders, for customer and public-interest review of energy
efficiency and demand response programs and expenses. The Company held four EEAG meetings
in 2018.
In the 2017 prudence case, the Commission ordered the Company to work with the
EEAG on several issues and recommendations raised by the Commission's Staff and the ICL.
These parties were then to report on these matters in this case. The Company reported that two of
the EEAG meetings addressed these issues. Compromises were reached on all issues but the
Company's continued use of the TRC instead of the UCT for resource planning. The Company
noled it also discussed some issues with the IRP Advisory Council.
With respect to which cost-effectiveness test the Company should use for long-term
resource planning, the Company argued the UCT should not be used because it incompletely
measures the cost to procure energy efficiency. Rather, the Company and Commission should rely
on the TRC as the main cost-effectiveness test for long-term resource planning because the TRC:
(1) avoids the potential of double counting the value of energy savings, (2) directs investment
toward measures that optimize benefits for the utility and its customers, (3) avoids promoting
measures that may impose non-electricity costs on others, (4) allows consideration ol measures
with quantifiable non-electricity benefits, and (5) reduces likelihood of over or under estimating
achievable cost-effective energy elf,rciency potential.
The Company noted that, while long-term resource planning should rely on the TRC,
when a utility assesses whether an implemented program is cost effective and should be continued,
the industry "best practice" is to consider all three cost-effectiveness tests (i.e., the TRC, UCT,
and PCT).
COMMENTS
Staff, the ICL, and Boise City filed comments. Idaho Power filed reply comments.
A. Staff Comments
Staff recommended the Commission find that the Company prudently incurred DSM-
related expenditures of $40,712,164. Staff believes the Company's DSM programs are "generally
well managed." Staffaudited the Company's DSM expenses and found that "expenses were well-
documented and controls were in place to regulate proper payment ofincentives and other costs."
Staffalso reported on the EEAG's consideration ofa number ofissues raised by Staff and ICL in
Idaho Power's 2017 prudency case, as directed by Order No. 34141. These included criticisms of
the Company's discontinuation of its Home Improvement Program and use of the TRC to assess
cost effectiveness of energy elficiency programs for long-term planning purposes. These two
issues are discussed below.
Discontinuinp lhe Home Imorovement Propram
With respect to the Company's discontinuation of the Home Improvement Program,
Staflnoted the Commission had directed the Company, through the EEAG, to "reconsider the June
2017 discontinuation...." Staff claimed, however, that the Company did not reconsider its
discontinuation of the Home Improvement Program. Rather, the Company "merely discussed . . .
ways to improve communication and transparency in the Company's decision-making process
about future closure ofexisting programs."
UCT vs. TRC
In prior cases, this case, and before the EEAG, the Company has stressed its desirc to
use the TRC for long-term resource planning. In its comments here, Staff recommended the
Commission decline the Company's request to use thc TRC as its primary perspective for
integrated resource planning because the TRC perspective includes costs the Company does not
incur to provide electric service. Staif believes that it is inappropriate to include costs in the
Company's IRP that are not passed on to ratepayers.
40RDERNO.34469
Staff noted the UCT compares program administrator costs to the value of the utility
energy and capacity savings, and assesses whether utility costs will increase. The TRC compares
program administrator costs and customer costs to the value ofthe energy and capacity savings,
and assesses whether the combination of customer and utility costs will increase. Stalfnoted that,
besides including non-utility costs, the TRC can also include non-energy benefits such as
economic development, health impacts, labor savings for local businesses, improved comfort, and
water savings, which are irrelevant in least-cost, least-risk utility resource planning. Staff argued
that, by factoring in non-utility costs, the TRC reduces the likelihood that a DSM program will be
cost effective during the integrated resource planning phase-leading to higher utility system costs
fbr ratepayers.
Idaho Power rvas directed in Order No. 34141 to work with the EEAG to consider the
impacts of using the UCT rather than the TRC. 1d Staff noted that the EEAG members "universally
opposed the use ofthe TRC in favor ofthe UCT" in these discussions. But Staff stated that Idaho
Power has ignored the EEAG's consensus, preferring the TRC over the UCT.
Staff noted that Rocky Mountain Power asked the Utah Public Service Commission, in
2009, to let Rocky Mountain Power change from the TRC to the UCT as the primary planning
cost-benefit test. Stalf also observed that Rocky Mountain Power and Avista have adopted the
UCT for long-term resource planning in ldaho, with no adverse impacts. Staff thus argued the
Commission should reject Idaho Power's request, noting that "the UCT is the most appropriate
test for resource planning because the key question it answers is whether utility system costs will
be reduced."
B. Boise City Comments
Boise City's comments focused on Idaho Power's request to use the TRC as its primary
means to evaluate the cost effectiveness of the Company's DSM programs during integrated
resource planning. Boise City opposed using the TRC as the primary means ofevaluation, favoring
the UC'l' instead.
Boise City addressed Idaho Power's assertion that making the UCT the primary
perspective could lead to uneconomic outcomes and higher energy costs for customers. Boise City
countered:
)ORDERNO. 34469
Boise City concluded by encouraging the Company to principally rely on the UCT when deciding
what energy efficiency programs to offer. "[U]sing the UTC ... would likely ... increase [the]
energy efficiency programs that would qualify for funding."
C. ICL Commenls
ICL praised the success rate ofldaho Power's 2018 DSM programs, and recommended
that the Commission find the costs prudent if Stafffound the accounting to be accurate. In response
to the Commission's directive that Idaho Power work with the EEAG on several issues and
recommendations raised by Commission Staff and ICL in the 2017 prudency case, ICL reported
on progress made over the past year. With respect to the discontinuation of the Home Improvement
Program, ICL noted Idaho Power had one conversation with the EEAG about criteria to review
when electing to end a program, and appreciated Idaho Power's promise to bring to the EEAG
proposed criteria for discontinuing future programs. ICL also echoed Staff and Boise City in
opposing the use of the TRC as the primary perspective for integrated resource planning. Like
Staff and Boise City, ICL preferred the UCT.
D. Idaho Power Reply Comments
Idaho Power filed reply comments on September 17,2019. The Company's reply
comments focused on whether the TRC or the UCT should be the primary perspective used lor
integrated iesource planning, and whether the Company had complied with the Commission's
directive in Order No. 34141 to "reconsider the June 2017 discontinuation" of the Home
Improvement Program.
UCT vs. TRC
Unlike all other parties in this case, Idaho Power believes that using the UCT for
integrated resource planning will increase costs for customers. The Company argued Staff
erroneously focused on the DSM Rider while ignoring the Fixed Cost Adjustment (FCA) when
concluding that the UCT alone captures all costs passed on to customers in rates. The FCA exists
6ORDERNO.34469
[U]tilizing the UCT and focusing on utility efficiency program costs enables
customer choice to determine their own priorities for efficiency investments
while prioritizing benefits that are important to them whether economic or
environmental. It is not the Company's role to attempt to "protect" customers
from choosing options that are not least cost. This freedom ofchoice in what
to purchase or invest in is a decision that must be lelt with each individual
customer.
because the Company's energy rates include a component that collects fixed costs that are not
avoided by reduced energy consumption. "When the Company experiences reduced sales volumes
from energy efficiency, the result is higher rates for nonparticipating customers in the form ofan
FCA surcharge on their bills. The UCT does not consider the impact to the average energy costs
for 'all ratepayers'-only the TRC test includes this measurement." The Company concluded that,
"[b]ecause the UCT does not quantify the impact on total customer rates (by ignoring the FCA)
and only looks at the direct DSM program costs (funded through the DSM Rider), it caffrot
possibly achieve Staffs stated goal ofevaluating only costs passed on to 'al[ ratepayers."'
Idaho Power also replied to Staff s observation that Rocky Mountain Power asked the
Utah Public Service Commission for permission to switch from the TRC to the UCT in Utah.
Idaho Power argued: "Use of the UCT perspective to evaluate supply-side resources resulted in
Rocky Mountain Power's Utah customers' uneconomic funding up to $50 million in incentives
for cuslomer-owned rooftop solar photovoltaic systems. ..over a five-year period..."2
Idaho Power does not dispute that some states use the UCT as the primary cost-
effectiveness perspective. But the Company argued other states often adopt uneconomic policies.
Idaho Porver argued the TRC is the most economical perspective for integrated resource planning
and fits best with this Commission's mission.
Discontinuing the Home Improlgtltqnt lrcgg\
Idaho Power disagreed with Staffs argument that the Company did not comply the
Commission's dircctive in Order No. 34141 to "reconsider the June 2017 discontinuation" of the
Home lmprovement Program. Idaho Power noted that at a January 23,2019 EEAG meeting. it
explained rvhy it discontinued the program. citing its 0.29 TRC rating. The Company also noted
the program's UCT had declined to 1.67. "While Staff has continued to take the position that it
generally supports program continuation provided the UCT is above 1.0, not all members of
EEAG, or the Company, share that position."
The Company concluded that the EEAG members generally agreed that ldaho Power
satisfactorily explained why it discontinued the Home Improvement Program. The Company noted
that, if the Commission orders the Company to reinstate the Home Improvement Program, it will
work with EEAG and other stakeholders to comply with the directive.
2 Idaho Power did not reply to Staffs claim that Rocky Mountain Power and Avista have used the UTC in ldqho
with no adverse impacts.
7ORDERNO. 34469
In closing, the Company asked the Commission to find the Company: (l) prudently
incuned $40,712,164 in DSM expenses, (2) complied with Order No. 34141, and (3) should
continue to rely on the TRC test when evaluating the amount ofenergy efficiency included in long-
term resource planning.
COMMISSION FINDINGS AND DECISION
The Company is an electrical corporation as defined by ldaho Code $ 6l-119, and a
public utility subject to the Commission's jurisdiction under ldaho Code $ 6l-129. Based on our
review ofthe record, we find that the Company prudently incurred $40,712,164 in defened costs
lor its DSM programs, which includes $33,560,433 in Idaho Energy Efficiency zuder expenses,
and $7,1 51 ,730 in demand response program incentives.
The Commission also finds, based on the record, that the Company has complied with
the directives in Order No. 341 4l to address certain issues rvith the EEAG. Il Stalf or other EEAG
participants believe the EEAG should revisit the discontinuation or resurrection of the Home
Improvement Program, they should ask the Company to again bring that issue before the EEAG.
The Commission appreciates the pa(ies' arguments regarding the Company's request
to usc the TRC perspective as its primary resource cost perspective in its integrated resource
planning. All three of the commonly used perspectives-the TRC, the UCT, and the PCT-
provide an insight helpful to utilities, customers, and regulators during the lifecycle ofan energy
efficiency program. In particular, we recognize the benefits of each of these perspectives for
evaluating the after the facl cost effectiveness of a program for prudency purposes.
But there must be a single perspective during the integrated resource planning stage of
a program's lifecycle. There is no other way for a utility to determine how much energy efficiency
it should include as a resource. Some DSM programs will be cost effective under one perspective
but not another. It is clear from this year's EEAG meetings and the written comments in this case
that the Company fundamentally disagrees with the other members of the EEAG about which
perspective should be used.
We find that the UCT perspective is the appropriate perspective for integrated resource
planning because it includes only those costs and benefits that the utility incurs to provide service.
By contrast, the TRC includes voluntary participant costs and benefits that will not be incuned by
the utility or impact rates. While the Company correctly points out that it is this Commission's
"desire to keep costs low for ldaho customers," we have no statutory duty to ensue that voluntary
8ORDERNO. 34469
participants in the Company's energy efficiency programs are making a cost-effective decision by
participating. Indeed, the public should have the freedom to participate in energy efficiency
programs that, while perhaps not cos! effective for the voluntary participants, are cost effective for
the utility's ratepayers as a whole.
Therefore, we deny the Company's request to use the TRC perspective as the primary
perspective for integrated resource planning. The UCT perspective will lead to the most economic
planning outcome and will best serve ratepayers.
ORDER
IT IS HEREBY ORDERED that Idaho Power's 2018 DSM expenditures are approved
as prudently incuned in the amount ol$40,712,164, as noted above.
IT IS FURTHER ORDERED that Idaho Power's request-that the Commission find
the use ofthe TRC perspective during the integrated resource planning phase "will lead to the most
economic planning outcome and best serve the public interesf '-is DENIED.
IT IS FURTHER ORDERED that Idaho Power use the UCT perspective for integrated
resource planning.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order with regard to any
matter decided in this Order. Within seven (7) days after any person has petitioned for
reconsideration, any other person may cross-petition for reconsideratiot See ldaho Code $ 61-
626.
9oRDER NO. 34469
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this ?tl/
day of October 2019
P ER, PRESIDENT
t,/ .)
-Kn,tfr'"* Kanl}.-ffisroNER
ERIC ANDERSON, COMMISSIONER
ATTEST:
Diane M. Hanian
Commission Secretary
I\llldNjl.l{'TRl(IrcJ:.I9 I|\oRDI:RSUPCII1,II linrlord.r mhdicx
ORDER NO. 34469 l0