991013Decision Memo.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
MYRNA WALTERS
DON HOWELL
STEPHANIE MILLER
TONYA CLARK
RON LAW
BILL EASTLAKE
LYNN ANDERSON
WORKING FILE

FROM:

DATE: October 13, 1999

RE: CASE NO. IPC-E-99-7; APPLICATION OF IDAHO POWER TO OFFSET 1998 AND 1999 NORTHWEST EFFICIENCY ALLIANCE PAYMENTS AGAINST RESERVED FUNDS

On August 10, 1999, the Idaho Power Company (Idaho Power; Company) filed an Application for authority to offset the Company’s 1998 and 1999 Northwest Energy Efficiency Alliance (NEEA) payments against the Company’s reserved funds. In Order No. 27877 issued in January of this year in Case No. IPC-E-98-12, the Commission authorized the creation of a reserve to provide for the funding of the Company’s 1998 and 1999 payments to NEEA. In that Order, the Commission provided that when the Company believed that it had sufficient evidence of prudence, it should file an Application for Authority to offset the Company’s 1998 and 1999 NEEA expenditures against the reserved funds.
Attached to the Company’s Application is a copy of the 1998 operational audit conducted by Pricewaterhouse Coopers and an executive summary letter to Idaho Power from Margaret Gardner, Executive Director of NEEA. Idaho Power contends that, overall, the audit evaluation found that NEEA’s actions and plans are aligned with the organizations’ purposes and objectives and that there are many strengths and effectiveness and efficiency of the organization’s overall performance.
Also attached to the Company’s Application is the independent audit report of Moss-Adams, LLP, on NEEA’s financial statements for the years 1997 and 1998. Idaho Power contends that report indicates NEEA’s financial statements fairly present the position of NEEA as of year-end 1998 and 1997.
According to Idaho Power, NEEA has adopted a process to monitor program results to ensure that its programs are cost effective. That process has five major purposes:
To provide timely feedback on program design and performance.
To assess the impact of the program on target markets, market structure and market players.
To assess the process of NEEA toward the exit strategy adopted by the Board.
To estimate total program effects for the region and to document changes in basic program assumptions.
To provide a record of venture accomplishments contained primarily in the evaluation publications generated by NEEA.
In addition, the NEEA evaluation process provides value added service to the ventures and developers by augmenting or independently developing market intelligence or market characterization data. Idaho Power’s Application describes in greater detail the evaluation process for NEEA programs.
Idaho Power states that NEEA has developed an evaluation process for ensuring that its programs are cost effective for customers. When a proposal is being prepared by Staff to present to the NEEA Board, a preliminary cost effectiveness and potential savings analysis is conducted. Data from the initial analysis is present to the Board during the project adoption phase. If the project is approved, a more thorough search is made to improve the data.
Annually, a committee of the Board meets to review the analysis of savings and the costs per kWh from the projects. This information is contained in the NEEA annual report and other corporate communications. In addition, NEEA has requested that its evaluation contractors review the data used in the original Staff analysis for some of the older projects and make recommendations for particular changes.
Included with Idaho Power’s Application are letters of support from the Idaho Department of Water Resources, the International Conference of Building Officials (Idaho Chapter), the Northwest Building Operator’s Association and the Association of Idaho Cities. Moreover, Idaho Power states that it has been proactive in its role as a participating member of NEEA. The Company has actively encouraged workshops and training sessions for its customers for various energy savings measures. Idaho Power states that it has also located personnel for NEEA with needed expertise. The Company offers its conference rooms and facilities across its service territory to NEEA for training sessions and meetings.
The Company has also utilized its employees, bill stuffers, company newsletters and trade relationships to disseminate information to its customers concerning opportunities to save energy through NEEA programs. Last year, Idaho Power formed a NEEA advisory group consisting of Company employees who review NEEA’s programs and determine how best Idaho Power can promote those programs to its customers and to determine opportunities or barriers specific to the Company’s service territory.
The Company’s delivery service representatives help provide the link between NEEA programs and Idaho Power’s industrial and larger commercial customers. The Company uses its own customer and employee publications to provide information about NEEA programs.
Idaho Power notes that Darlene Nemnich, the Company’s NEEA Board of Directors representative, participates in all regular meetings and is active on several NEEA committees. Idaho Power provides other specific examples of how the Company is promoting particular NEEA programs to its customers.
The Company’s Application states that because Commission Order No. 27877 was actually issued in 1999, the Company knew the exact amount attributable to the Idaho jurisdiction that had been paid to NEEA for the year 1998 which was $1,615,831.93. Idaho Power argues that it should be permitted to offset that amount against the reserve that has been established for that purpose.
Because the Company’s NEEA assessment for 1999 will be approximately the same as 1998, the Company, pursuant to Order No. 27877, reserved $1,615,832 as the allocable share for the Idaho jurisdiction for the year 1999. Idaho Power states that it has already paid 1999 NEEA assessments in the amount of $792,586.72. Idaho Power contends that it should be permitted to offset these payments against the Company’s 1999 reserve and, as the Company makes the balance of the 1999 payments, it should be permitted to offset those payments from the 1999 reserve amounts.
Idaho Power reminds that the Company has only deferred the cash payments actually paid to NEEA. It has not deferred any indirect costs of participation in NEEA.
The Commission ultimately issued a Notice of Modified Procedure soliciting comments in response to Idaho Power’s Application. Comments were filed by the Commission Staff, the Industrial Customers of Idaho Power (ICIP) and Idaho Power who filed response comments.
Commission Staff
Staff notes that Avista Utilities’ participation in NEEA for 1997 and 1998 was found to be prudent and of benefit to the Company’s Idaho customers by the Commission in Order No. 28097 issued July 29, 1999.
Staff states that, since the organization’s inception in 1996, Staff has observed NEEA board meetings and workshops and has reviewed project proposals, implementation and evaluations. Staff’s conclusion is that at least through 1998, NEEA has shown itself to be an effective organization or increasing the efficiency of electricity usage through its projects that seek to transform markets.
Staff supported Idaho Power’s participation in NEEA in comments filed in the Company’s initial NEEA cost recovery case (IPC-E-96-26), but cautioned that there was potential for Idaho Power’s customers to receive inadequate benefits, in particular if the Company was not an active and effective participant. Staff believes that the Company’s Application and Appendices in this case presents sufficient evidence of the prudence of Idaho Power’s NEEA expenditures for 1998.
The operational audit report accompanying Idaho Power’s Application concludes that while there are areas in which NEEA should try to improve, its fiduciary processes are sound and it is generally effective and efficient in caring out its stated purposes and objectives. Moreover, the independent financial audit report of NEEA dated April 29, 1999 found no major deficiencies in NEEA’s financial controls for its 1997 and 1998 operations.
Staff is impressed by NEEA’s willingness to add to customer representative seats to its board, which it did on June 30, 1999. One of those additional seats will be filled by a representative of Boise Cascade Corporation.
Based upon Staff’s observation of NEEA at its Board of Directors’ meetings and workshops and its review of NEEA’s programs and reports, Staff beliefs that NEEA is an effective organization for transforming electricity efficiency markets in the Northwest. Furthermore, Staff believes that NEEA has demonstrated that for 1998 its customers have received their monies worth of benefits through Idaho Power’s active participation on the NEEA Board of Directors as well as through its local promotion of NEEA projects.
Staff notes, however, that Idaho Power’s Application in this case requests that the Commission find that the Company’s entire 1998 and 1999 payments to NEEA be found prudent, several months prior to the end of 1999. Staff believes that, as a matter of principle, the Commission can find utility costs to be prudent only after the utility demonstrates that such costs were reasonably and actually incurred.
Staff has verified the dollar amounts paid to NEEA by Idaho Power and recommends that the Commission authorize the Company to offset its 1998 NEEA expenditures of $1,615,831.93 with funds from its revenue sharing reserve amounts. Staff does not recommend similar treatment, however, for 1999 NEEA payment until after NEEA’s financial audit for 1999 is completed and the Company has shown that these payments are prudent.
ICIP
The ICIP states that while it “has historically opposed ratepayer funding of Idaho Power’s participation in [NEEA], the ICIP believes the current Application by Idaho Power to recover its 1999 and 1998 NEEA funding commitment should be approved by the Commission.” Comments at p. 1.
The ICIP states that its support for recovery of Idaho Power’s NEEA expenditures is motivated by the Company’s “cooperative efforts to assist the ICIP in its attempts to work within the NEEA structure to effect meaningful reform of that bodies by-laws and focus.” Id. at pp. 1-2.
The ICIP posits, however, that “meaningful reform has been soundly rejected by NEEA.” The ICIP concludes, nevertheless, that failure to achieve meaningful reform is “due to forces beyond Idaho Power’s control.” Consequently, the ICIP supports recovery by the Company from its ratepayers of its NEEA expenditures “for the experimental first three years of NEEA’s existence.” Id. at p. 2. The ICIP expressly limits its support for Idaho Power’s recovery of NEEA expenditures to “this Application.”

Natural Resources Defense Council (NRDC)
The NRDC supports the recovery by Idaho Power of its NEEA expenditures. Speaking on behalf of the NRDC, Ralph Cavanagh states that he has directed NRDC’s northwest energy program since 1979 and since 1995 has served as a faculty member for the University of Idaho’s annual public utility executives course where he focuses on the utility industry’s cost-effective opportunities to promote energy efficiency and renewable energy development.
Cavanagh states that NRDC was involved extensively in the creation of NEEA which has enjoyed broad-based public support. He contends that NEEA is the nation’s most successful multi-state energy efficiency initiative with a remarkable diversity of programs that now encompasses every sector of electricity use. Because of this, he argues, NEEA is proving its capacity to transform permanently the design of electricity using equipment and buildings at costs well below those of avoided generation.
Cavanagh reminds the Commission that NEEA’s continued success depends upon the participation and cooperation of all of the effected states. He states that Oregon, Washington and Montana have committed to such support and Idaho should continue to do so as well.

Idaho Power’s Response
Idaho Power responded to Staff’s proposal to allow Idaho Power to recover its 1998 expenditures but to defer the recovery of 1999 expenditures until they have been shown to be actually incurred and prudent in a separate proceeding. Regarding its 1999 NEEA expenditures, the Company notes that it has already paid $792,586.72; the recovery of which should be authorized now, the Company argues. Idaho Power suggests that the Commission condition recovery of the remaining 1999 NEEA payment upon a Staff audit that includes a review of the Company’s activities in regard to NEEA in the year 1999. Idaho Power does not believe, however, that it is appropriate to require the filing of a separate application for recovery of any portion of the 1999 NEEA payment. The Company notes that implementing such a procedure would require the Commission to issue a notice of the filing with the establishment of other required procedures including a comment period. Idaho Power proposes that if, after the audit, Staff desires to question the recovery of the remaining 1999 NEEA payment, it could so advise the Commission and the matter could then be processed on a more formal basis.

Commission Decision:
Does the Commission wish to grant Idaho Power the recovery of its 1998 NEEA expenditures through an offset of the Company’s reserved revenue sharing balances? Does the Commission wish to grant Idaho Power similar recovery of its 1999 NEEA expenditures? If so, should
(a) the entire 1999 expenditure be deferred until after a final prudence review is conducted?
(b) the Company be allowed to recover $792,586.72 with the recovery of the balance of the 1999 NEEA expenditure to be recovered after a prudence review?
(c) Idaho Power allowed the recovery of $792.586.72 of its 1999 expenditure with a conditional authorization for recovery of the balance of the 1999 payments following a Staff audit as proposed by Idaho Power?

bls/M: IPC-E-99-7_bp3

DECISION MEMORANDUM 1