20000410Order No 28333.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION OF IDAHO POWER COMPANY FOR AUTHORITY TO FUND ITS CONTINUING PARTICIPATION IN THE NORTHWEST ENERGY EFFICIENCY ALLIANCE, INC. )
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) CASE NO. IPC-E-99-13

ORDER NO.  28333

On December 30, 1999, Idaho Power Company filed an Application with the Commission requesting an order authorizing it to continue to participate in the Northwest Energy Efficiency Alliance, Inc. (NEEA) and to recover the costs of participation. NEEA is a nonprofit corporation established in 1996 for the purpose of increasing adoption and penetration of energy efficient technologies and practices in the Northwest.
Having fully considered the comments, the law and the record, the Commission approves Idaho Power's Application to continue to participate in NEEA, as modified below. The Commission also authorizes Idaho Power to set aside a reserve of $5,462,388 through an offset to its 1999 revenue sharing balance, such offset to be allocated among customer classes on the basis of customer class revenue. The Commission further authorizes Idaho Power to recover its annual NEEA commitment from the reserve as its payments are made to NEEA.
BACKGROUND AND PROCEDURAL HISTORY
Idaho Power’s participation in NEEA has been previously considered by the Commission three (3) times. Case Nos. IPC-E-96-26, IPC-E-98-12 and IPC-E-99-7. The Commission approved Idaho Power’s participation in NEEA for the years 1997-1999. Order Nos. 27045, 27124, 27200 issued in Case No. IPC-E9626. The Commission found that “[h]istorically, conservation efforts have occurred throughout the Northwest on an ad hoc basis . . . . NEEA is based on the belief that by transforming markets, it is possible to achieve improvements in the efficiency of electricity use without the need for long-term utility incentives.” Order No. 27045 at 5.
At the time of its initial approval of Idaho Power’s participation in NEEA, the Commission required Idaho Power to defer recovery of its annual NEEA expenditures until their prudency had been demonstrated. Order No. 27045. In subsequent orders, the Commission found that participation in NEEA was prudent and authorized Idaho Power to establish a reserve consisting of Idaho Power’s accumulated revenue sharing balances to reimburse it for its deferred NEEA expenditures for years 1997-1999. Order No. 27877 (Case No. IPC-E-98-12).
In its present NEEA Application, Idaho Power requests the Commission determine if it is in the public interest for Idaho Power to continue to participate in NEEA for the period 2000-2004. For that period, Idaho Power’s contribution would be reduced to $1,241,500 annually (or $6,207,500 for the five-year period) on a system basis. Idaho Power also requests the Commission approve a mechanism that allows it to recover its NEEA expenditures if the Commission decides that continued participation is in the public interest. Idaho Power suggests that the costs for its participation could be recovered through revenue sharing funds or imposition of a separate charge specifically dedicated to funding NEEA. Idaho Power characterizes its support for continued participation in NEEA as follows:
. . .in its first three years of existence NEEA is fulfilling that public purpose. In light of the uncertainties surrounding the electric industry, Idaho Power also believes that to the extent it is in the public interest for Idaho Power to engage in DSM (conservation) programs, participation in NEEA is the best way to accomplish that goal.

Application at 16.
According to its Application, to date, Idaho Power has accrued revenue sharing funds for the year 1999 in an amount that appears to be sufficient to fund Idaho Power’s commitment to NEEA for the next five years. If the Commission approves reimbursement with revenue sharing funds, Idaho Power suggests that a reserve could be established which would accrue interest at the rates set for customer deposits established annually by the Commission. Assuming a rate of 5%, Idaho Power asserts this would require $5,462,388 to be placed in the reserve. Idaho Power recommends that as its payments are made to NEEA, that amount could be transferred from the reserve to reimburse Idaho Power for the period 2000-2004. Idaho Power has already signed a Memorandum of Agreement in support of NEEA and has signed its funding agreement. Application at Appendix B. However, the funding agreement provides that Idaho Power shall not have any obligation to provide funding to NEEA if it does not receive cost recovery approval from this Commission. Id. at 2.
On February 1, 2000, the Commission issued a Notice of Modified Procedure setting the deadline for comments as March 9, 2000. Order No. 28273. The Commission granted intervention to the Industrial Customers of Idaho Power and to FMC Corporation on February 22, 2000. Order Nos. 28294 and 28287, respectively.
On February 28, 2000, the Idaho Department of Water Resources (IDWR) filed written comments supporting continued funding for NEEA with revenue sharing funds. On March 9, 2000, Consumer Division Staff, Utilities Division Staff, FMC Corporation, the Industrial Customers and Micron Technology, Inc., filed separate comments; and the NW Energy Coalition, Natural Resources Defense Fund, the Idaho Rural Council and the Idaho Rivers-United filed joint comments (jointly referred to as “Coalition”).
DISCUSSION AND COMMISSION FINDINGS
Having fully considered all the evidence in the record, the Commission makes the following findings.
1. It is in the public interest to authorize Idaho Power to commit to continued participation in NEEA for the years 2000-2004.

Utility Division Staff, IDWR and the Coalition contend that continued participation is in the public interest and that the Commission should approve the Application. They argue that participation has benefited Idaho Power customers. FMC does not contend, as a general principle, that continued participation in NEEA is inappropriate; instead, it argues that large industrial customers do not receive benefits from participation in NEEA projects commensurate with their contributions. Therefore, it requests the Commission exclude the four special contract customers and the Industrial Customers from the NEEA funding charge and allow those customers to use their allocated contribution to NEEA funding to underwrite self-directed conservation efforts in lieu of funding NEEA’s “market transformation” activities. The Industrial Customers and Micron oppose the Application, claiming approval is not in the public interest, that it violates the concept that utility assets must be “used and useful” for cost recovery and improperly requires ratepayers to pay for “plant held for future use.” Consumer Division Staff also asserts that continued participation is not in the public interest, because it believes that there is not sufficient information to determine that NEEA programs are the most efficient and cost-effective approaches to energy conservation.
a. NEEA benefits all Idaho Power customers. NEEA was formed in 1996 as a regional alliance of power providers from four Northwest states for the purpose of creating a comprehensive approach to regional energy conservation. Application Appendices 6-7. This alliance was designed to complement local conservation efforts by funding projects across all four states. Coalition Comments at 2.
Although the Industrial Customers allege that NEEA projects do not benefit current customers, the Commission finds that the Idaho projects outlined in the Application and its Appendices specifically and directly benefit both: (1) current individual Idaho Power customers taking advantage of the NEEA projects; and (2) all Idaho Power's customers, current and future, by reducing energy demand the potential need for building additional generation and transmission facilities. Application at 12-13 and Appendix 6. More specifically, the Commission finds that Idaho Power customers benefit in two ways. First, those customers who actually participate in the energy efficiency programs derive direct and immediate benefits by reducing their power bills. Second, Idaho Power customers who do not participate in the programs also experience a lower rate from lower overall power supply costs and thereby derive an indirect benefit.
For example, Idaho customers benefit from the promotion of new energy efficient technologies created by NEEA programs, like adapting Magna Drive technology to irrigation pump systems which reduces energy use by more efficiently meeting fluctuating demand. Likewise, Idaho Power customers benefit from attending workshops directed at promoting scientific irrigation scheduling and educating Idaho Power customers. Id. Moreover, NEEA has promoted several energy efficiency initiatives directly to Idaho Power industrial customers like Zilog, Micron and Simplot. Zilog has agreed to participate in NEEA’s Microelectronics Initiative program, providing an energy efficiency audit of its lab. Application at 13. Ore-Ida in Ontario is a demonstration site for a new compressed air management system called Sav-Air that will be used to identify, implement and verify efficiency programs. Id. The new Ada County Courthouse is benefiting from several NEEA programs. Id. Basic American Foods in Blackfoot and Ash Grove Cement in Durkee will install Magna Drive magnetic couplers to provide a more efficient and durable replacement to the variable speed drive. Id.
IDWR has taken advantage of several new energy efficient NEEA projects. See IDWR Comments. Residential customers also enjoy the direct and present benefits from lighting programs, energy efficient windows, resource efficient clothes washers and energy efficient manufactured homes built in Idaho. Application Appendix 6. While the Industrial Customers argue that NEEA’s stated purpose for existence -- “market transformation” -- is a vague term, they simply ignore the fact that NEEA has a track record with energy conservation programs that constitute that “market transformation.” It is the programs that the Commission evaluates and not the general purposes for which NEEA was originally formed.
Based on a review of those programs, the Commission is convinced that all Idaho Power present customers enjoy benefits from continued participation in NEEA and that there is no basis for the Industrial Customers’ assertion that participation in NEEA is “unduly and unjustly discriminatory as between generations of ratepayers.” Industrial Customers Comments at 6. The Commission finds that most utility investments potentially benefit generations of customers in varying degrees. Moreover, when the Commission first approved Idaho Power’s involvement in NEEA, the Commission stated that when determining whether NEEA is a prudent endeavor, it would consider all of its various projects as a whole rather than make a cost recovery determination on a project-by-project basis. Order No. 27045 at p. 6.
b. Participation in NEEA does not violate the “used and useful” concept. The Industrial Customers also argue that participation in NEEA violates the concept of “used and useful” and improperly requires ratepayers to pay for “plant held for future use” in violation of Idaho Code § 61-502A. However, participation in NEEA as approved in this decision -- funded by revenue sharing funds -- is not utility property used in providing service to Idaho Power customers; it is not utility property held for future use and does not involve construction.
Like other Demand Side Management (DSM) programs undertaken to encourage conservation among users to reduce the overall demand for electricity, the Commission finds that, in fact, expenditures for NEEA potentially postpone the need for construction of additional generation plant. Expenditures for NEEA are not “construction work in progress.” Therefore, the Industrial Customers’ arguments are misplaced. The standard for review is whether the expenditures are prudent.
c. Continued participation is prudent. The Industrial Customers also suggest that the benefits are speculative and the Consumer Division Staff alleges that the costeffectiveness of the programs has not been established. The Commission has and will continue to judge Idaho Power's investment in NEEA based on the standard of “prudence.” However, the Commission is aware that a conservation effort is distinguishable in nature from other utility programs or expenditures and is not amenable to the same type of analysis applied to those programs. In this case, the Commission finds that NEEA’s programs as a whole have been cost effective and continued participation is prudent.
Even though NEEA publishes reports concerning both its program proposals and its analyses of baseline conditions on its website and Idaho Power provided cost information and benefits of these programs in its Application, only the Utility Division Staff analyzed the cost effectiveness of NEEA’s programs. See Application Appendix 5. The Commission finds that Idaho Power clearly identified the eight (8) Baseline reports, twenty-four (24) Market Progress Evaluation Reports and eight (8) Special Reports relevant to its Application and indicated exactly where those reports could be found on the Internet. Application at 10 and Appendices 45. Moreover, the current and forecasted savings and expenditures in Idaho are provided in Appendix 5 of Idaho Power's Application. The information necessary to evaluate the cost-effectiveness was therefore available to all parties for analysis.
The Utilities Division Staff found that on a prorated basis Idaho investor-owned utilities contributed approximately $5.3 million or 8.1% of NEEA’s total budget. Idaho Power estimated the energy savings in Idaho to be 4.2 average megawatts (aMw) during the contract period and 34 aMw over a ten-year period. The Utilities Division Staff found that while these savings represent approximately 7.5% of all estimated NEEA savings, they also include energy use reduction in all electric service areas of Idaho. The Utilities Division Staff found that the overall levelized cost of NEEA’s programs is estimated to be 0.15 cents per kWh or 1.5 mills per kWh. Finally, the Utilities Division Staff suggested that continued participation by Idaho Power through 2004 will cost slightly less on an annual basis than it did for the 1997 through 1999 period and that Idaho Power will contribute slightly less than $2 per year on average for each residential customer.
The Commission finds that investing in programs that create this magnitude of cost savings are prudent expenditures and further finds that this cost analysis compares favorably to the cost analysis of other more traditional DSM programs. The Commission finds that NEEA programs as a whole have been cost effective. Therefore, the Commission finds the Consumer Division Staff’s concerns are addressed.
Furthermore, the Commission finds that as a member of the NEEA Board, Idaho Power has direct input into its programs. The Commission also has a representative on NEEA’s Board. Although the Commission’s representative is not a voting member, this representation provides the Commission an opportunity to influence program approval and provides ongoing information to the Commission about NEEA’s progress. Customer interests are also represented on the Board. In addition, NEEA programs are subject to audit and those audits are provided to the Commission. See Application Appendix 2. Therefore, the Commission finds Industrial Customers’ concerns are addressed
2. Idaho Power's costs for participation in NEEA should be recovered through revenue sharing funds.

The Coalition, IDWR and the Utilities Division Staff support using the 1999 revenue sharing funds to reimburse Idaho Power for participation in NEEA. No party opposes using revenue sharing. The Commission finds it is in the public interest to allow Idaho Power to use 1999 Revenue Sharing Funds to reimburse it for its NEEA contribution
The Commission further finds that while all Idaho Power customers benefit from the energy cost savings created by regional market transformation, it is sympathetic to the Industrial Customers’ and FMC’s concerns that these customers may not enjoy a degree of benefit commensurate with their cost contribution and that an allocation of the costs for participation based solely on energy consumption may disproportionately burden those customers. Therefore, the Commission finds that the costs for participating in NEEA that are reimbursed by 1999 Revenue Sharing Funds should be allocated among customer classes based on revenue and not based on energy consumption. The Commission finds that this more fairly allocates the costs for energy market transformation and new conservation programs amongst the customer classes in proportion to the benefits obtained without incurring the costly administrative costs associated with the Industrial Customers’ self-directed proposal. Finally, the Commission finds that any customer class contribution to NEEA should not exceed the amount of revenue sharing funds to which the class may otherwise have been entitled.
3. Requests for hearings.
Some parties have requested more evidentiary hearings. This is the fourth time that Idaho Power’s participation in NEEA has been evaluated and considered by the Commission. In past cases, the Commission provided an opportunity for all interested parties to prefile direct testimony and exhibits setting forth their position in regard to Idaho Power’s NEEA involvement and directly analyzing NEEA’s cost effectiveness. See Order No. 27124; IPCE9626. In that case, the Industrial Customers, Staff and Idaho Power all filed testimony regarding the propriety of NEEA programs and Idaho Power's participation in NEEA which the Commission considered in reaching its decision. Order No. 27200.
Furthermore, no party has suggested what specific evidence, if any, they would introduce that is relevant to the issues presented in the Application. Therefore, while several parties requested additional hearings, the Commission finds that further evidentiary hearings are not necessary.
4. Self-directed conservation programs.
The Industrial Customers and FMC assert that they are better suited than NEEA to deliver costeffective conservation to Idaho’s industry. Industrial Customers’ Comments at 10; FMC Comments at 2. They suggest that if the Commission approves continued participation in NEEA, all Industrial Customers and the special contract customers should be excluded from participation in NEEA, permitting those customers to fund conservation programs at their individual facilities targeted to best suit the particular facility. At pages 11-14 of their Comments, the Industrial Customers generally describe a self-directed program which would be under the control of an independent Administrator. This Administrator would be charged with evaluating proposed conservation programs using very general criteria and approving the use of the appropriate funds. The Administrator would be paid a fee for services rendered.
The issue, however, is not whether certain customers can create more appropriate conservation programs. The issue is how to address the concerns raised by the Industrial Customers and FMC – that their benefits from NEEA are not commensurate with their contributions. The Commission is sensitive to those concerns. However, the Commission finds that the parties have not demonstrated their proposal is either workable or, more significantly, necessary to rectify those concerns. For example, FMC states:
More than 95% of FMC’s electricity purchases are consumed in its four electric furnaces. These furnaces are as efficient as modern technology can make them . . .

FMC Comments at 2. There is no explanation how self-directed conservation would create energy savings for FMC or provide FMC any relief.
The Industrial Customers and FMC’s concern is that they are disproportionately contributing to NEEA participation. While they suggest they get no benefit from that participation, the Commission finds they do benefit. Every Idaho Power customer benefits from the reduced need for new generation facilities due to energy consumption decreases. Moreover, at least some of the Industrial Customers companies actually use NEEA programs. The Commission cannot allow some customer classes to avoid paying their fair share for participation in NEEA. That would be discriminatory.
Neither FMC nor the Industrial Customers has explained how “self-direction” is necessary to address their concerns. The Commission finds that reducing their contribution is the more appropriate method for meeting those concerns. Therefore, the Commission to finds that it is not in the public interest to consider a self directed program at this time.
5. Summary.
This Commission has long been supportive of investments made by its regulated utilities in conservation programs so long as investments in those programs are prudently incurred. Cost effective energy efficiency programs make sense from both a societal and an economic perspective. The Commission believes that it is one of the Commission’s responsibilities to encourage and facilitate the investment by the utilities the Commission regulates in such programs. The Commission is convinced that continued participation in NEEA at this time for five (5) more years is in the public interest.
Finally, the Commission is not making a blanket determination that participation in NEEA is always appropriate. Furthermore, while some parties discussed the need for other DSM programs, like weatherization, the Commission finds those programs are not at issue in this Application and the appropriateness of such programs should be evaluated in other proceedings. NEEA programs are not in competition with such individualized programs, they complement them. See Coalition Comments at 2.
O R D E R
IT IS HEREBY ORDERED that Idaho Power Company’s Application for approval to commit to participation in NEEA for the years 2000-2004 is in the public interest and is hereby approved as modified.
IT IS FURTHER ORDERED that Idaho Power is authorized to set aside a reserve of $5,462,388 from 1999 revenue sharing funds to fund its contributions to NEEA for the five (5) year period. The reserve shall accrue interest at the annual rate set for customer deposits, currently five percent (5%).
IT IS FURTHER ORDERED that Idaho Power may recover its annual commitments to NEEA as those payments are made.
IT IS FURTHER ORDERED that the Idaho Power NEEA reserve for contributions be allocated among the classes of customers based on their respective revenue contributions. In no event shall a customer class contribution for NEEA exceed the amount of revenue sharing funds to which the class may otherwise have been entitled.
IT IS FURTHER ORDERED that Idaho Power report to the Commission within seven (7) days of the date of this Order the actual allocation of those costs, explicitly identifying customer classes, the revenues associated with those classes and an allocation of the costs for participation in NEEA among those classes in conformity with this Order.

THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally decided by this Order) or in interlocutory Orders previously issued in this Case No. IPCE9913 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 or in interlocutory Orders previously issued in this Case No. IPCE-99-13. Within seven (7) days after any person has petitioned for reconsideration, any other person may cross-petition for reconsideration. See Idaho Code  61626.

DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of April 2000.

DENNIS S. HANSEN, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

PAUL KJELLANDER, COMMISSIONER

ATTEST:

Myrna J. Walters
Commission Secretary

O:ipce9913_cc

The Industrial Customers is an unincorporated association of some of Idaho Power's Schedule 19 customers. See Comments in Opposition and Request for Hearing of the Industrial Customers of Idaho Power at p. 1.

The NWEC is a coalition of approximately 90 organizations in Idaho, Washington, Oregon, Montana and British Columbia. In Idaho, its members include the Idaho Citizens Network, Idaho Rural Council, Idaho Conservation League, Idaho Consumer Affairs, Idaho Rivers United, Idaho Wildlife Federation, League of Women Voters, Southeastern Idaho Community Action Agency, South Central Community Action Agency and Golden Eagle Audubon Society. These groups represent over 50,000 consumers in Idaho. It is also on the NEEA Board. See NW Energy Coalition Comments at 1.

The NRDC is a non-profit environmental organization with approximately 2,000 members living in Idaho and purchasing power in Idaho. See NW Energy Coalition Comments at 1.

The Idaho Rural Council in a not-for-profit grassroots, community building organization with over 13 years working in Idaho. It has more than 500 members. See NW Energy Coalition Comments at 1.

Idaho Rivers United is a statewide organization dedicated to preserving and protecting Idaho’s rivers. It has more than 1,700 members and “virtually all of IRU’s members also live and purchase power in Idaho.” See NW Energy Coalition Comments at 2.
Idaho Code § 61-502A. Except upon its finding of an extreme emergency, the commission is hereby prohibited in any order issued after the effective date [February 29, 1984] of this act from setting rates for any utility that grants a return on construction work in progress (except short-term construction work in progress) or property held for future use and which is not currently used and useful in providing utility service. As used in this section, short-term construction work in progress means construction work that has begun and will be completed in not more than twelve (12) months. Except as authorized by this section, any rates granting a return on construction work in progress (except short-term construction work in progress) or property held for future use are hereby declared to be unjust, unreasonable, unfair, unlawful and illegal. When construction work in progress is excluded from the rate base, the commission must allow a just, fair and reasonable allowance for funds used during construction or similar account to be accumulated, computed in accordance with generally accepted accounting principles.

ORDER NO. 28333 1

ORDER NO. xx 11

Office of the Secretary
Service Date
April 10, 2000