20051125Decision memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
CO MMISSI 0 NER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:SCOTT WOODBURY
DATE:NOVEMBER 22, 2005
SUBJECT:CASE NO. PAC-05-10 (PacifiCorp)
DSM PROGRAM CHANGES AND ADDITIONS
DSM COST RECOVERY
APPLICATION
On September 6, 2005 , PacifiCorp dba Utah Power & Light Company (PacifiCorp)
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
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 1 , 2006 with funds to be collected as a line item on customer bills. A residential
customer using 750 kWh monthly would see a monthly increase of about $1.00. 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 of the Commission s Order approving the
Application, whichever is later.
The Application states that all customer classes will have an opportunity to
participate in programs. The new programs are: irrigation efficiency to complement the existing
irrigation load control program, FinAnswer Express for commercial and industrial lighting,
motors, etc., and residential refrigerator recycling.
DECISION MEMORANDUM
Revisions to existing programs include revamping/increasing Low Income
Weatherization rebates, discontinuing low interest loans to business customers in Energy
FinAnswer and instead paying incentives for energy and demand savings. The proposed
enhanced 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 Low Income Weatherization program has weatherized 561 dwellings since 1990.
Market experience 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.
Cost Recovery
Current cost recovery for PacifiCorp DSM expenditures was authorized by Order No.
22299 issued in January 1989 in Case No. U-1500-165.Order Nos. 22299 and 22758
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 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 of DSM 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 of PacifiCorp retail electricity users effective January
, 2006. In addition to DSM program expenses, the proposed DSM balancing account would
DECISION MEMORANDUM
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 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 Efficiency Alliance, thus delivering a system benefit in addition to
participant benefits.
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.
DECISION MEMORANDUM
Description of New Programs
Schedule 155 New Tariff-Irrigation Efficiency
PacifiCorp proposes to initiate a comprehensive Irrigation Efficiency program that
will offer no-cost equipment exchange, equipment testing and incentives for energy efficiency
measures installed. This program will complement the Company s load control offering and
increase services available to irrigation customers. The irrigation efficiency program will
include the following components: nozzle exchange, prescriptive incentives for certain pivot
equipment, pump check and water management consultation, and a pump testing and system
analysis. In addition to energy and water savings from nozzle replacement, pivot measures and
improved equipment operation resulting from the water management consultation, the Irrigation
Efficiency program will offer program-funded energy engineering services and incentives for
properly installed energy efficiency measures such as pump repairs and system upgrades. The
overall program is designed to be delivered by a third-party program administrator under
contract with the Company.
Schedule 115 New Tariff FinAnswer Express
The proposed FinAnswer Express program (FE) is based on a successful program of
the same name operating in the Company s Utah and Washington markets. The FE program
provides prescriptive incentives for common energy efficiency measures (EEM) with minimal
transaction complexity. EEM categories include efficient lighting, premium motors and
mechanical upgrades associated with heating and cooling. Both new construction and retrofit
projects are eligible for the FinAnswer Express program. The FE program is available to
commercial and industrial customers on the majority of Idaho rate schedules.
The incentives are based on the equipment installed, i., per fixture or per
horsepower (HP) or per ton. The FE program also provides a customer incentive calculation for
measures not listed on the prescriptive incentive tables. Experience in other markets, the
Company states, has shown the FE program to be popular with trade allies, i., equipment
distributors and installing contractors that sell standard and high efficiency equipment to
customers. The Company is considering proposals for sales support functions designed to assist
these equipment distributors and contractors in their sales and installation of high efficiency
equipment. These services will be similar to the services currently provided in the Utah and
Washington markets.
DECISION MEMORANDUM
Schedule 117 New Tariff-Refrigerator Recycling
The proposed residential Refrigerator Recycling program is similar to a successful
Utah program operated as "See Ya Later Refrigerator." The program will offer an incentive to
residential customers and landlords to permanently discontinue use of their second refrigerators
and freezers, and/or replace their primary refrigerators and freezers with new, more energy
efficient models. Interested customers will be directed to call a toll free number to schedule a
pick-up time. All appliances collected will be recycled so they are not placed back in use
through secondary market sales. All recycling processors will meet current local and EP
guidelines. PacifiCorp anticipates that the program will be administered by the same vendor
delivering this PacifiCorp program in Utah.
Description of Revised Programs
Schedule 21 Revisions Low Income Weatherization Services
PacifiCorp s current Low Income Weatherization program has been in place for
approximately 15 years. It provides rebates to two local non-profit agencies (i.e., eastern Idaho
Special Services Agency and Southeastern Idaho Community Action Agency) for weatherization
services they complete in electrically heated homes. The proposed changes were determined
through discussions with Staff from these two partnering agencies and the Community Action
Partnership Association ofIdaho during the 2005 general rate case, Case No. PAC-05-1. The
revisions are intended to increase customer participation and available incentives for the
installation of additional cost effective measures. Proposed revisions include: (l) increasing the
available annual program funding up to $150 000 annually, (2) increasing rebates from a
maximum of $1 000 per home to an average annual rebate of $1 500 per weatherized home, (3)
increasing agency administrative cost reimbursement from $150 per completed home to 15% of
PacifiCorp s rebate on installed measures with set maximums, and (4) expanding available
program delivery incentives by providing a rebate to the Company s partnering agencies of 50%
of the costs associated with additional measures installed in homes regardless of heating source -
including compact fluorescent light bulbs, replacement refrigerators and water heater measures
in homes with electric water heaters. Additionally, to promote the installation of efficiency
measures that have become cost-effective in the last decade, incentives will be offered for homes
in which services were provided under this tariff prior to October 1 , 1993 , once per individual
measure and up to two times per dwelling. The Company will evaluate Schedule 21 program
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activities within two years of the Commission s approval of these proposed revisions to
determine if further revisions are warranted.
Schedules 120/122 Revisions Commercial Energy Services
PacifiCorp proposes that Schedules 120 and 122 be closed to new service, but that
they remain as approved schedules to assist in the administration of the few remaining loans
originated under the schedules. When the loans are repaid, PacifiCorp will seek Commission
approval to cancel these schedules in a separate tariff filing.
Schedule 125 New Tariff-Energy FinAnswer
The Energy FinAnswer program has been operational in Idaho as a loan-based
energy efficiency program for approximately 15 years and this filing is a revision of an existing
program. The current program is covered by existing Schedules 120 and 122 , and provides
program-funded energy engineering and loans to business customers. PacifiCorp proposes
continue the Company-funded energy engineering and add an incentive offer of $0.12 for first
year energy savings (kWh) and $50 per average monthly demand savings (kW) occurring during
the peak periods specified in the customer s rate schedule, up to 50% of the approved project
costs. To increase participation, the incentive offer will replace the loan offer (which will be
discontinued). This incentive offer and level is the same as that offered by PacifiCorp in Utah.
As described above, Schedules 120 and 122 will be amended to manage the administration of
existing loans. All new program services will be offered under a new Schedule 125 , and will
include various enhancements to increase new construction participation and early program
involvement to capture lost opportunities. It will also require a minimum savings above code
and preclude incentives for fuel switching. PacifiCorp will make the incentive offer after the
Company-funded or approved engineering analysis is complete and prior to customer equipment
purchases. The incentive is to be paid as a single payment by Company check.
On September 30 , 2005 , the Commission issued a Notice of Application in Case No.
P AC-05-1 O. The Commission Staff conducted public workshops in Preston and Rigby, Idaho.
The workshops provide the public an opportunity to meet with Commission Staff and PacifiCorp
representatives and to ask questions and receive information regarding the Company
Application. Following the workshops the public was provided an opportunity to submit written
comments or to offer public testimony at hearings in Rexburg and Preston, Idaho. In addition to
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comments and testimony received from the Company s customers, comments were also filed by
Commission Staff.
Staff Comments
Staff generally supports PacifiCorp s proposal to increase its pursuit of cost effective
DSM through its various new, revised and expanded programs. Staff believes that further
diversification of PacifiCorp s resources through DSM will reduce the Company s operational
risks by reducing the growth of its reliance upon supply-side resources. Staff notes that
PacifiCorp s relatively aggressive DSM implementation in many of its other states (i., 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, Staff contends, for DSM to be
aggressively pursued in Idaho to avoid unnecessary increases to Idaho s jurisdictional cost
allocations.
Staff summarizes by customer class projected DSM revenue collections, program
costs and program benefits. Staff identified two concerns about this information. Its first
concern was that DSM direct program benefits to customer classes appeared too disproportionate
to the DSM funds collected from each class. Staffs second concern was that DSM program
costs were projected to quickly outpace DSM revenue. While Staff does not believe it is
necessary for DSM program costs and benefits to be distributed in exact proportion to DSM
contributions, Staff thinks 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 from DSM
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, Staff contends that
there is another less obvious reason for DSM to be distributed roughly equally 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.
Staff informally expressed its concerns to PacifiCorp. In response, Attachment C to
Staffs comments was provided to Staff by PacifiCorp to describe its DSM objectives and its
DECISION MEMORANDUM
request for proposal (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 RFP process. The Company anticipates changes to its DSM program
portfolio by March 2006. Because the Company is seeking to seek a wider breadth of DSM
programs for the residential class, Staff believes that some of its initial concerns could be
alleviated and is cautiously optimistic. Staff is 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 could recommend that DSM revenue collections be
increased beyond the requested 1.5% to make up for the projected shortfall, the Company would
have 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.
PacifiCorp is proposing that its surcharge be set at 1.5% of base charges. The
Commission, Staff notes, has approved similar surcharges to recover the costs of conservation
programs in the past. A vista currently collects 1.25% and Idaho Power 1.5%. Staff has
consistently recommended a uniform application of DSM tariff riders without caps and continues
to make that recommendation in this case.
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. As such, the
rider would be applied uniformly, without caps, to all customer classes, with the exception of
special contract customers. Staff recommends that the Commission formally recognize that the
portfolio of programs contained in the Application is expected to undergo changes, including a
broadening of residential programs, and that the Company should be allowed, and in fact is
expected, to deviate from its portfolio whenever prudent and cost-effective DSM opportunities
arIse.
Staff recommends that the accounting for the DSM program as outlined by
PacifiCorp be accepted with one exception. Reciprocal interest is appropriate, Staff contends
but the interest should be accrued at the customer deposit rate, not the Company AFUDC rate.
This , Staff contends, is consistent with the accounting treatment Idaho Power established in 2002
and that ordered by the Commission in A vista Case No. A VU -O 1-
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Staff further recommends that the 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 only 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 of DSM program dollars both within and among customer
classes, prudent program management and cost-effectiveness.
Customer and Interested Party Comments
Timothy Shurtz provided public testimony in Rexburg. Mr. Shurtz believes that the
energy conservation programs proposed by the Company are both good and valuable. Mr.
Shurtz recommends, however, that the Commission delay implementation until the first of April
possibly the first of May when the programs might be more affordable and after customers have
finished with the higher energy costs of winter.
Bevan Jeppesen also testified in Rexburg. Mr. Jeppesen does not understand why he
is being asked to pay more money and then turn around and have to jump through hoops to try
and get that money back for improvements on his farm. The other thing he has a hard time with
is that as a farmer and irrigator, he is doing everything that he can right now to be efficient with
the power and water that he uses. He makes sure that his pivots are all maintained. Mr.
Jeppesen has a real struggle with somebody taking money out of his farm and then wanting to
give it back to him for things that he is already doing. Mr. Jeppesen is against any kind of rate
hike and resents having to subsidize his neighbors. Mr. Jeppesen sees the farms that will benefit
from the Company programs are farmers that have let things really go to pot. They have not
upgraded or maintained their systems, so he questions why he should have to pay money into a
fund to help them out. Mr. Jeppesen would be more supportive of the Company s proposal if
there were a cap at a certain level rather than a flat 1.5%.
The final public witness in Rexburg was Shawn Webster. Mr. Webster is also a
farmer and resents having to fund a rate increase to buy some variable frequency drives (VFDs)
for other people when he has already upgraded and especially when he is not interested in buying
a second one.
DECISION MEMORANDUM
COMMISSION DECISION
PacifiCorp has requested approval of a new DSM cost recovery mechanism and
enhanced energy efficiency programs for commercial, industrial, agricultural and residential
customers. Does the Commission find it appropriate to approve the Application as filed? If not
does the Commission believe that modifications are necessary, e., reciprocal interest at the
customer deposit rate (Staff) or AFUDC rate (PCp)? Tariff rider with or without caps?
Scott D. Woodbury
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DECISION MEMORANDUM