HomeMy WebLinkAbout20051104Comments.pdf. C' E \\' E D
SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-0320
BAR NO. 1895
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472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
PACIFICORP DBA UTAH POWER & LIGHT
COMPANY FOR APPROVAL OF A NEW DSM
COST RECOVERY MECHANISM AND
ENHANCED ENERGY EFFICIENCY
PROGRAMS FOR COMMERCIAL
INDUSTRIAL, AGRICULTURAL AND RESIDENTIAL CUSTOMERS.
CASE NO. PAC-O5-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff ofthe Idaho Public Utilities Commission, by and through its
Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of
Application, Notice of Public Workshops, Notice of Public Hearings, Notice of Modified Procedure
and Notice of Comment Deadline issued on September 30, submits the following comments.
BACKGROUND - P ACIFICORP APPLICATION
On September 6, 2005, PacifiCorp dba Utah Power & Light Company (PacifiCorp;
Company) filed an Application with the Idaho Public Utilities Commission (Commission)
requesting approval of a suite of energy efficiency and demand-side management (DSM) programs
for its commercial, industrial, agricultural, and residential customers in the State of Idaho. The
STAFF COMMENTS NOVEMBER 3, 2005
Company also requests approval of an associated cost recovery mechanism and related deferred
accounting authorization.
The proposed funding mechanism is a 1.5% DSM tariff rider that will begin on January
2006 with funds to be collected as a line item on customer bills. Based on current rates the
proposed tariff rider will collect an estimated $1.8 million annually. The Company asks that the
deferred accounting and DSM programs requested become effective November 15, 2005 or
coincident with the service date ofthe Commission s Order approving the Application, whichever
is later.
Energy Efficiency Programs
The Application states that all customer classes will have an opportunity to participate in
programs. The proposed energy efficiency programs offer a combination of information and cash
incentives to help customers install energy efficient equipment or make permanent operational
changes to reduce energy consumption and save money. The proposed programs are summarized
in Attachment A.
The new programs are: an irrigation efficiency program to complement the existing
irrigation load control program, FinAnswer Express for commercial and industrial lighting, motors
etc., and a residential refrigerator/freezer recycling program, which also includes some efficient
lighting and energy efficiency information.
Revisions to existing programs include revamping/increasing Low Income Weatherization
rebates to community action agencies and paying incentives for energy and demand savings to
business participants in Energy FinAnswer instead of providing low interest loans.
In addition to the programs listed above, the Company would continue to offer its irrigation
load control program and participate in the Northwest Energy Efficiency Alliance s (NEEA) efforts
to transform energy efficiency markets on a regional basis.
Based on its energy efficiency market experience, the Company indicates that new program
introductions and proposed program enhancements will likely increase Idaho participation.
Increased participation will allow more PacifiCorp customers to benefit from energy savings and
simultaneously help control system energy costs.
STAFF COMMENTS NOVEMBER 3 , 2005
Cost Recovery
Current cost recovery for PacifiCorp DSM expenditures was authorized by Order No. 22299
issued in January 1989 in Case No. U-1500-l65. Order Nos. 22299 and 22758 (Case No. GNR-
89-2) established the capitalization of demand-side resource costs and the use of a carrying charge.
The Company has deferred DSM costs and amortized DSM expenditures over the useful lives of
the program measures. While this cost recovery mechanism has been adequate for historic levels of
participation and expenditures, the Company contends that the associated regulatory lag for
recovery of prudently incurred DSM expenditures has made it financially difficult to improve
existing DSM programs or implement new ones. Moreover, the Company contends that minimal
customer awareness of DSM investments exists when the expenditures are amortized and included
in general rates. In addition to removing a Company financial disincentive for increases in DSM
activity, PacifiCorp contends that the proposed recovery mechanism will increase customer
awareness ofDSM investments and help increase participation in the new and enhanced programs.
PacifiCorp proposes to establish a DSM balancing account, defer all DSM program
investments made on or after the service date of the Commission s Order approving the
Application, and account for them in the DSM balancing account. The DSM balancing account
would be offset by revenue collected through a newly established surcharge mechanism and
referenced as a new line item on the bills ofPacifiCorp retail electricity users effective January
2006. In addition to DSM program expenses, the proposed DSM balancing account would
calculate reciprocal carrying charges to be added or credited to the balance. PacifiCorp proposes
that the carrying charges be set at the current Allowance for Funds Used During Construction
(AFUDC) rate. Expenses posted to the DSM balancing account would be subject to applicable
prudency reviews for DSM investments. Costs and carrying charges included in the DSM
balancing accoUnt would not be included in the calculation of Company revenue requirements for a
general rate case. Additionally, PacifiCorp proposes that DSM investments made prior to the
service date of the Commission s Order approving this Application continue to be recovered
through general rates until fully amortized.
The Company proposes to label the line item charge "Customer Efficiency Services" on the
customer bill and in the description section of Schedule 191. The line item surcharge will be
calculated as a percentage of the base charges before the application of Schedule 34 , the Pacific
Northwest Electric Power Planning and Conservation Act Residential and Farm Kilowatt-Hour
STAFF COMMENTS NOVEMBER 3, 2005
Credit (also known as the "BP A Credits ), because these credits vary by year and by rate schedule
and are available primarily for agricultural and selected non-irrigation customers. All customer
groups will have access to programs funded directly through Schedule 191 or through the
Northwest Energy Efficiency Alliance, thus delivering a system benefit in addition to participant
benefits.
The Application states that
, "
The amount collected will be set based on a forecast of
Commission-approved DSM program investments." The Company will review balancing account
activity on an annual basis and adjust it based on the account balance and the forecast activity of the
approved programs. The Company proposes the initial annual review be completed after January 1
2007 to coincide with the first full year of Schedule 191 collections. The annual review and
recommendation for a change (if any) in the collection rate would be completed within 60 days of
the end ofthe fiscal year, with the first such review being completed no later than March 1 2007.
The objective of the line item surcharge will be to set a collection rate projected to result in
a zero balance in the DSM balancing account by the following review period. PacifiCorp intends to
provide the Commission quarterly reports on the account's activity. The Company proposes to set
the rate to initially collect approximately $1 825 000 - approximately 1.5% of retail revenue based
on rates in effect after September 16, 2005. Any future changes to the collection rate will be filed
by PacifiCorp for Commission approval prior to implementation and will not occur automatically.
STAFF ANALYSIS
Program Issues
Staff generally supports PacifiCorp s proposal to increase its pursuit of cost-effective DSM
through its various new, revised and expanded programs. Staff believes the Company
Application is correct in stating "Increased participation in (DSM) will allow PacifiCorp customers
to benefit from energy savings and simultaneously help control system energy costs." Application
3. Staff notes that the Company s Application Attachment 1 , Table 2, predicts that each of the
proposed programs will be cost-effective (using June 30, 2005 forward price curves) from the
utility perspective (i.e. utility system cost reductions will exceed utility DSM costs), as well as from
the DSM participant perspective and the total resource cost perspective. PacifiCorp has previously
implemented many of these programs in other states, which Staff believes adds credence to its
projected program cost-effectiveness. Staff also believes that further diversification ofPacifiCorp
STAFF COMMENTS NOVEMBER 3, 2005
resources through increased DSM will reduce the Company s operational risks by reducing the
growth of its reliance upon supply-side resources.
Staff notes that PacifiCorp s loads continue to grow in Idaho as well as in its other operating
states. Because incremental costs of supplying electricity are greater than the embedded cost of
service, load growth causes rates to increase. We believe it is well demonstrated in PacifiCorp
Application that there are many DSM programs that can help meet the demand for electricity more
cost-effectively than most supply-side resources. Of particular interest to Staff is that in spite of the
fact that residential customers in Idaho reduced their average consumption of electricity per
customer by 11.9% from 1997 to 2004, a 20.7% increase in residential customers resulted in a 6.
increase in total electricity consumption. Furthermore, the Company now forecasts that
consumption by its residential customers will increase 32% over the next 12 years due to the
number of customers increasing 16% combined with a 13% increase in electricity use per customer.
Staff believes cost-effective DSM should be prudently pursued in Idaho by PacifiCorp to help meet
its customers' growing demand for electricity.
Staff notes that PacifiCorp s relatively aggressive DSM implementation in many of its other
states (i.e. 3% of revenues in Utah and Washington and 2.35% in Oregon) will eventually reduce
those states ' share of the Company s multi-state cost allocations. Thus, in addition to DSM being
cost-effective from a resource acquisition standpoint, it is important for DSM to be aggressively
pursued in Idaho to avoid unnecessary increases to Idaho s jurisdictional cost allocations.
Attachment B summarizes by customer class projected DSM revenue collections, program
costs and program benefits. Staff has two concerns about this information. Our first concern is that
DSM direct program benefits to customer classes are too disproportionate to the DSM funds
collected from each class. Our second concern is that DSM program costs are projected to quickly
outpace DSM revenue.
DSM revenues would be collected in proportion to total revenues (sans BP A credit), but the
proposed DSM investments and direct benefits would be skewed away from residential toward
commercial and industrial and this would likely violate residential customer expectations for
reasonable distribution of DSM programs among customer classes. While Staff does not believe it
is necessary for DSM program costs and benefits to be distributed in exact proportion to DSM
contributions, we think that the residential class s 13% of 3-year projected total program
expenditures is too small compared to that class s 38% of total revenue collected for DSM
STAFF COMMENTS NOVEMBER 3 , 2005
programs. Staff is also concerned that the two non-NEEA residential programs are too limited in
applicability and may not allow many residential customers a reasonable opportunity to participate
in DSM programs.
In addition to the obvious discrepancy of direct program benefits, there is another less
obvious reason for DSM to be roughly equally distributed among customer classes. That is, to the
extent that DSM programs succeed in reducing energy consumption and peak demand more for one
customer class than for another, such programs will change future class cost of service allocations
which will exacerbate the inequity.
If there were no additional DSM programs that could be cost-effectively implemented for
the residential class, then Staff would be more supportive of the proposed allocation ofDSM
resources. However, the Northwest Power and Conservation Council's Fifth Power Plan suggests
that there are additional cost-effective DSM resources available in the residential class, in particular
from improved efficiencies in lighting, water heating, space heating and clothes washers. Although
Staff recognizes that the rural nature ofPacifiCorp s Idaho service territory may, in some instances
present more challenges than in the more urban areas of the Northwest, we believe the greater use
of electricity for space and water heating and for domestic wells in PacifiCorp s service area may
enhance DSM opportunities in other instances.
Staffs second concern demonstrated on Attachment B is that DSM revenues are projected
to fall severely short ofDSM costs by the second year. An obvious, simple solution to the
projected shortfall is to increase the DSM tariff rider, but we are not convinced that PacifiCorp
portfolio of programs, regardless of its overall cost-effectiveness, will adequately allow customers
to realize a benefit commensurate with their level of contribution. Furthermore, although the
Company reports that some of its proposed programs have been implemented successfully in other
states, it is possible that its Idaho service area may present different challenges than it has
experienced in other states. Staff cannot yet suggest that the 1.5% DSM rider ought to be increased
in the future.
Staff informally expressed its concerns to PacifiCorp. In response, Attachment C was
provided to Staff by PacifiCorp to describe its DSM objectives and its RFP process to achieve those
objectives. In short, PacifiCorp is in the process of seeking additional or changed DSM resources
from the residential as well as other customer classes through a request for proposal (RFP) process.
The Company anticipates changes to its DSM program portfolio by March of 2006. Because the
STAFF COMMENTS NOVEMBER 3, 2005
Company is continuing to seek a wider breadth ofDSM programs for the residential class, some of
Staffs initial concerns described above could be alleviated.
It is now Staffs understanding that PacifiCorp s proposed allocation ofDSM resources is a
work in progress and that the Company may very well address our concerns in its future program
modifications. While Staff is cautiously optimistic, we are not yet able to state that the currently
proposed program portfolio, let alone a modified one, will be prudently managed or that it will
result in cost-effective savings. Before Staff can recommend that DSM revenue collections be
increased beyond the requested 1.5%, the Company needs to have sufficient time to demonstrate
that its programs are equitably distributed and prudently planned, implemented and evaluated.
While it may be possible for PacifiCorp to make such demonstrations in the next 14 months, Staff
believes it might take considerably longer.
In conclusion, Staff supports PacifiCorp s Application to begin collecting a 1.5% tariff rider
on January 1 , 2006, to fund a more aggressive DSM program portfolio. But we believe the
proposed portfolio has deficiencies that the Company is in the process of mitigating. Staff believes
it is premature to suggest a future increase to the tariff rider is in the public interest.
Accounting Issues
Two other Idaho utilities have had DSM balancing accounts for several years. A vista
Utilities has had such for over ten years. In Order No. 28097, Case No. WWP-98-, the
Commission found that the appropriate interest rate going forward is the Company s authorized
overall return. A vista continues to use its authorized overall rate of return when calculating the
carrying charges on the electric DSM balancing account. A vista calculates the carrying charge
asymmetrically, with a carrying charge accruing when there is a surplus balance in its DSM deferral
account, i.e. when the Company has collected more from the ratepayers than it has spent on DSM
programs. A vista does not accrue carrying charges when the balancing account is in the negative
position, i.e. the Company has spent more on DSM programs than it has collected. The rational for
asymmetric carrying charges is that the Company has control over when and how it spends the
DSM funds, whereas the ratepayers do not have control over how and when the DSM funds are
spent.
Avista also has a gas DSM program. The gas DSM program at Avista was not set up with a
balancing account, rather the Company is allowed to recognize revenues and expenses as they occur
STAFF COMMENTS NOVEMBER 3, 2005
instead of amortizing a regulatory account. In Order No. 28646, Case No. A VU-Ol-, the
Commission ordered that the Company was to "calculate interest on both over-collected and under-
funded Schedule 190 program account balances at the Commission established customer deposit
rate.. .
Idaho Power s DSM balancing account was established much more recently than Avista
Although Idaho Power s DSM accounting has not been formally established by a Commission
order, the Company has calculated reciprocal interest at the current customer deposit rate.
Staff recommends that the accounting for the DSM program as outlined by PacifiCorp be
accepted with one exception. Reciprocal interest is appropriate but the interest should be accrued at
the customer deposit rate, not the Company AFUDC rate. This is consistent with the accounting
treatment Idaho Power Company established in 2002 and that ordered by the Commission in Case
No. A VU-Ol-
Consumer Issues
PacifiCorp s Application contained copies of its Customer Notice and Press Release. Staff
reviewed both documents and determined that they complied with the requirements of the Utility
Customer Information Rules, IDAPA 31.21.02.102. The Notices were mailed with customers ' bills
beginning September 5 2005 and continuing for approximately 30 days. Customers had until
November 3, 2005 to file comments with the Commission. As of October 26, 2005 , no customers
had filed comments. On October 19 and 20 2005, Staff presented workshops in Preston and Rigby
to discuss the Company s proposal. One customer was present at each workshop. Both asked how
the proposed DSM programs would benefit customers.
The programs would be funded by a line item charge on customer bills labeled "Customer
Efficiency Services . This label is being used by PacifiCorp in other jurisdictions to identify
revenue collected for conservation programs, and the Company wishes to maintain billing system
consistency across the states it serves. As stated early, the Company maintains that having
conservation funding separately identified on bills will increase customer awareness of the
programs. Staff is not opposed to having a separately identified charge for conservation programs
and agrees with the Company that line item charges capture customers' attention. Unfortunately, it
is not uncommon for a customer to negatively react to surcharges that result in a significant dollar
STAFF COMMENTS NOVEMBER 3, 2005
amount, as would be the case with any customer that uses large amounts of electricity. This makes
it particularly important that customers perceive value commensurate with their contribution.
PacifiCorp is proposing that its surcharge be set at 1.5% of base charges. The Commission
has approved similar surcharges to recover the cost of conservation programs in the past. Avista
currently collects 1.25% and Idaho Power 1.5%. In the most recent case (IPC-04-29), the
Commission limited the dollar amount Idaho Power could collect from its residential and irrigation
customers to $1.75 and $50.00 per bill per month, respectively. The Commission noted that none
of Idaho Power s current programs were directed toward existing residential customers with electric
space heating. The Commission also took note of "the hardships irrigators are facing due to several
years of drought". Order No. 29784 at 5. The Commission found that "implementing these two
caps will moderate the Rider increases for residential and irrigation customers, while providing
significant funds to the Company s DSM programs for the next 12 months Ibid.
Staff has consistently recommended a uniform application of DSM tariff riders without
caps. We continue to make that recommendation in this case. Obviously, DSM caps applied to any
customer class will result in a reduction of revenue available for DSM programs, which the
Company already projects will be under-funded unless the rider is increased above 1.5 percent.
Program expansions will increase the amount of under-funding and capping DSM collections would
further exacerbate the problem. In addition, the Company has committed to expand program
offerings in the residential sector and its proposal already includes an irrigation efficiency program
to complement its successful irrigation load control program. In consideration of all these factors
Staff believes PacifiCorp s proposed uniform 1.5% DSM rider without caps is reasonable.
CONCLUSIONS AND RECOMMENDATIONS
Staff recommends that the Commission approve PacifiCorp s 1.5% DSM tariff rider as
requested in its Application. As such, the rider would be applied uniformly, without caps, to all
customer classes, with the exception of special contract customers. We also recommend that the
Commission formally recognize that the portfolio of programs contained in the Application is
expected to undergo changes, including a broadening ofresidential programs, and that the
Company should be allowed, in fact is expected, to deviate from its portfolio whenever prudent and
cost-effective DSM opportunities arise.
STAFF COMMENTS NOVEMBER 3, 2005
Staff further recommends that Commission state that its approval of the DSM tariff rider
should not be construed as a determination that the use of the rider funds for any particular DSM
program is reasonable and prudent, that such determination must come after programs have been
implemented. At such time that the Company requests a Commission determination that its DSM
programs have been reasonable and prudent, Staff s review will include an examination of
distribution ofDSM program dollars both within and among customer classes, prudent program
management and cost-effectiveness.
Respectfully submitted this V()day of November 2005.
Scott Woodbury
Deputy Attorney General
Technical Staff: Kathy Stockton
Lynn Anderson
Tammie Estberg
Dave Schunke
i:umisc:comments/paceO5. 1 Oswklstelades
STAFF COMMENTS NOVEMBER 3 , 2005
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Received from
PacifiCorp 10/19/05
Utah Power s Idaho Strategy - supplemental FAQ
Q: What are Utah Powers' primary objectives for DSM programs in Idaho?
A: Utah Power s objectives are four-fold. First, to assist the Company in pursuing a least cost
strategy in the acquisition of resources requirements as identified within our Integrated Resource
Plan, Second, to effectively manage the loads we serve in order to minimize the need for peak
short-term uneconomic investments, Third, to provide customers with cost control tools to help
them better manage their near-term energy expenses, And fourth, to provide both the State and
customers the opportunity to take an active role in helping Utah Power keep future system and
power costs as low as possible,
Q: How did Utah Power select the initial DSM programs for introduction in Idaho?
A: The initial programs were selected based on targeting those sectors with the greatest impact on
the system during peak load periods, Irrigators and business customers are major users of energy
and therefore the introduction of programs to these sectors was paramount in early success. Next
we looked to improve services to qualifying income customers appreciating their position among
the residential sector in regards to ability to pay. Finally we looked to provide residential
customers with a program of high value that had a reasonably wide application and opportunity
for participation, a proven program with good economics and customer satisfaction as
experienced in other jurisdictions where we have run the program,
Q: In general, how are changes to the DSM programs made?
A: Any changes to existing programs are made based on market specific performance factors
including cost effectiveness, participation and evaluation results, Changes, if warranted, would be
made to increase or enhance program cost effectiveness and participation,
Q: How does Utah Power identify new DSM programs?
A: Consistent the Company s Integrated Resource Plan action plan, Utah Power issued a 2005
DSM RFP to assist us in the identification, design, procurement and implementation of new DSM
programs, Promising programs will be evaluated for relevance and application across all the
states we serve, In our 2005 DSM RFP, Utah Power identified several program concepts in
which we had specific interest along with a request for new program concepts, One program we
specifically requested applicable to Idaho is a residential rebate program, The program
objectives are two-fold, 1) to assist residential customers in the purchase and installation of
energy efficient appliances, equipment, and materials such as compact florescent lighting, Energy
Star appliances, weatherization measures, etc" and 2) to increase program participation and
savings potential within the broader residential sector.
Another planned activity to assist us in new program development is a DSM market study of the
potential for energy efficiency and load management investments across our six state service
territory. The study is one of the commitments made by Mid-American Energy Holding
Company as part of their proposed purchase ofPacifiCorp from Scottish Power. The study
Attachment C
Case No. PAC-05-
Staff Comments
11/03/05 Page 1 of2
promises to provide us better information from which to plan for and evaluate our DSM successes
going forward.
Q: What is the introduction timeframe for programs identified through the 2005 DSM
RFP?
A: Proposals were received on October 17 2005 and the company anticipates completing
reviews, securing internal approvals and completing regulatory contingent contracts by March
2006, Regulatory applications and program introductions would begin around this timeframe,
Q: What types of new programs would the company anticipate bringing forward for the
Idaho market in the next 12 months?
A: As noted above, the most promising would be a residential rebate program. Other possible
considerations would be a residential new construction program and possibly an AC best
practices program, In addition, opportunities to improve load management and pumping
efficiencies among iITigation customers are likely candidates if suitable initiatives are identified,
Attachment C
Case No, PAC-05-
Staff Comments
11/03/05 Page 2 of 2
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 3RD DAY OF NOVEMBER 2005
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO, PAC-05-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
BOB LIVELY
P ACIFICORP
201 S MAIN ST SUITE 2300
SALT LAKE CITY UT 84140
LISA NORDSTROM
OFFICE OF THE GENERAL COUNSEL
P ACIFICORP
825 NE MUL TNOMAH SUITE 1800
PORTLAND OR 97232
DATA REQUEST RESPONSE CENTER
P ACIFICORP
825 NE MUL TNOMAH SUITE 800
PORTLAND OR 97232
MAILED TO datarequest~JJacificorp,com
~v~SECRET
CERTIFICATE OF SERVICE