20101116Hunter Reb.pdf

REC
Z3WNOV l 6 AM fO: l 6
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE
APPLICATION OF ROCKY
MOUNTAIN POWER FOR
APPROVAL OF CHANGES TO ITS
ELECTRIC SERVICE SCHEDULES
AND A PRICE INCREASE OF $27.7
MILLION, OR APPROXIMATELY
13.7 PERCENT
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) CASE NO. PAC.E.10.07
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) Rebuttl Testimony of Carol L. Hunter
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ROCKY MOUNTAIN POWER
CASE NO. PAC.E.10.07
November 2010
1 Introduction
2 Q.Please state your name and business address.
3 A.My name is Carol L. Hunter. My business address is One Utah Center, 201 South
4 Main, Salt Lake City, UT 84111.
5 Q.By whom are you employed and in what position?
6 A.I am a Vice President for Rocky Mountain Power.
7 Q.Please describe the responsibilties of your current position.
8 A.I am responsible for demand-side management for Rocky Mountain Power and
9 for Pacific Power. This includes, the planning, development, design, approval
10 and implementation of programs designed to reduce energy consumption though
11 energy efficiency and behavioral changes and to reduce consumption durg peak
12 periods of usage though load control.
13 Qualifications
14 Q.Please describe your background.
15 A.I recived a B.S. in mechanical engineer in 1977 and an M.B.A. in 1987 fröm the
16 University of Uta. I joined PacifiCorp in 1977 as a customer service engineer
17 and have held varous management positions in resoure planning, wholesale
18 marketing, community and business services and economic development. In
19 2004, I was promoted to vice president.
20 I held numerous board positions over my 30 year career and curently
21 serve on the executive board of the Salt Lae Chamber of Commerce, the Idao
22 Strtegic Energy Allance and the energy efficiency subcommttee of the Uta
23 Energy taskforce.
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Have you previously tied testimony in this proceeing?
No.
What is the purpoe of your testimony?
The purpose of my testimony is to respond to or rebut certn issues raised in the
testimonies of Mr. Randy Lobb and Mr. Gar Grayson of the Idaho Public
Utilities Commssion (the "Commssion) Staff as it relates to the investment in the
company's energy efficiency and load control programs.
Please summariz.Mr. Grayson's testimony as it relates to the Company's
energ efficiency and load control programs?
Mr. Grayson addressed: (1) the prudency of the 2008 and 2009 investment in
energy effciency; (2) the issue he refers to as "customer segment equity"; and (3)
the use of a taff rider to recover the costs associated with the Company's
demand-:side management programs.
Please summrize Mr. Lobb's testimony as it relates to the Company's
irgation load control program?
Mr. Lobb believes that the irgation load control program allocation is not
reasonable because "Idaho receives a reduction of system costs that equate to a
program benefit of approximately 66 percent ($7.0 mion/$II.4 millon) of the
costs."i He views this as unfai when 100 percent of the program costs are
diectly assigned to Idao. Mr. Lobb proposes that the "Company trat the
program costs as system purchase power cost and allocate them just as it would
any other system power supply expense."i
1 Rady Lobb Diect Testiny Page 15, Lines 3-5.
2 Ibd, Page 16, Line 2-4.
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1 Prudency
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Did Mr. Grayson find the 2008 and 209 energy efficiency and load
management progrms operated by Rocky Mountain Power in Idaho
prudent.
Yes, he indicates that the 2008 - 2009 programs were "generaly prudent and
cost-effective."
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Please summarize Mr. Grayson's testimony regarding "customer segment
equity."
Utilzing the tota investment in energy efficiency and load control for the
company's programs in 2009, Mr. Grayson calculates the percentage of the tota
investment by class. Based on this analysis he determned that 81 percent of the
DSM expenditues were associated with the irgation load control program with
the remaining 19 percent going to support the residential energy efficiency
programs (6.5%,) commerciaVindustral (4.5%,) agricultual (5.9%) and maket
transformtion (2.1 %.) Based on this evaluation he indicated that the Company
should endeavor to find ways to "pursue all cost-effective DSM while strving
toward greater balance with regard to customer segment equity."
It is importt to note that while Mr. Grayson's analysis is correct when
looking at the overal demand-side management portolio, the energy effciency
portolio, excludig maket transformtion is faily well balanced between
classes; residential at 38 percent of the investment made in energy efficiency,
commerciaVindustrial at 27 percent and agricultue at 35 percent.
3 Gar Gryson Direct Testimony, page 7 lies 4-9.
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What steps can you tae to achieve "customer segment equity"?
Mr. Grayson did not define customer segment equity. Rather he merely indicated
that based on his analysis of the expenditure by customer segment as a percentage
of tota investment PacifiCorp had not achieved customer segment equity. It
appears that he is seeking to achieve an even distrbution of funds across the three
customer segments; that is 33 percent of the total investment to be made in each
of the segments regardless of the type of resource (load control verses energy
efficiency). In general I believe there are only four possible approaches to
achieving customer segment equity. They are: (1) to expand cost effective
program offerings to segments where the expenditues are below average; (2) to
suspend or otherwise restrct cost effective programs offered to segments where
the expenditus exceed the average; (3) to take actions associated with a
combination of (1) and (2); or (4) establish three separate balancing accounts, one
for each segment.
Can you achieve customer segment equity by expandig cost effective
program offering to segments where the expenditures are below average?
As noted in Mr. Grayson's testimony there is relatively little difference between
expenditues for residential energy effciency programs (6.5%) and the
commerciaVindustral (4.5%) especially in comparson with the diference
between the investment in these two segments and the investment in agricultul
progr~ (86.9%). The large disparty is due to the investment in the Idao
irgation load control program.
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We could attempt to accelerate the acquisition of energy efficiency
savings in the residential and commerciaVindustral segments by increasing
incentives. Modest increases might improve the "customer segment equity"
without a significant impact to the program cost effectiveness or quality control.
Significant increases, however, could reduce the cost effectiveness and have an
adverse impact on the quality control of the progras. Consequently while you
could mitigate an imbalance in the customer segment equity increasing spending
in the other customer segments could raise prudency issues.
As an alternative or in addition to increases in investment in the residential
and commerciaVindustral segments, steps could be taen at this time to reduce
the investment in the agrcultural segment in 2011 without an adverse impact on
the overall cost-effectiveness of the demand-side management portfolio.
How would you approach reducing the investment in the agrcultural
segment?
There are only two programs available to this segment; the Agricultual Energy
Savers Program and the irgation load control program. As Mr. Hedan
indicated in his diect testimony both of these programs were cost-effective;
however, the Agrcultual Energy Savers program's benefit to cost ratio was
lower than the irgation load control program's benefit to cost ratio on a utility
cost test basis and the paricipants cost test basis. While from a utilty standpoint
the Agricultual Energy Savers program is cost effective, eliminatig the program
would have a beneficial impact on the overall energy effciency portolio cost
effectiveness. The overal energy effciency portolio cost effectiveness would
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1 improve from 1.93 to 2.05 as measured by the utilty cost test.
2 Q.Would you recommend this action absent the issue of customer segment
3 equity?
4 A.While the 2009 Agricultul Energy Savers program was determned to be cost
5 effective, the program's benefit to cost ratios, as measured by the PacifiCorp total
6 resource cost test, the total resource cost test, utilty cost test, and the ratepayer
7 impact test, are lower than irgation load control's benefit to cost ratios.
8 Consequently before reducing the irgation load control program beyond the
9 recommendations I discuss later in my testimony, I would recommend elimating
10 the Agricultual Energy Savers program.
11 Irrigation Load Control Program
12 Q.What is the current status of the irrigation load control progr?
13 A.Two of the thee thd-pary delivery vendor agreements utilzed in operating this
14 program were set to expire on December 31,2010. Based on the expiration date
15 of these agreements a request for proposal ("RFP") was prepared and issued in
16 July of this year. The RF was later cancelled given uncertinty related to the
17 ongoing natue and strcture of the program and the potential changes resulting
18 from the Staffs review and recommendations.
19 At this time we have extended the remaining two agreements though
20 2011 and anticipate the RFP wil be reissued durng the second quarr of 201 1.
21 The RF includes an option for the contiued operation of the progra utiliing
22 multiple vendors as subcontrctors. Once the responses are reived they wil be
23 evaluate on tehnical and commercial term prior to awardig an agreement. If
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the curent approach is determned to be less costly after consideration of the
technology and risk, the Company wil continue operating the program as it does
today. Otherwise, the new agreement covering the operation of the program wil
be completed in time for the 2012 control season.
It is important to note however, any control unit purchase before or durng
the 2011 control seasons has a reasonable probabilty of only being in service one
year as a result of the procurement process.
What actions must the Company pursue pending re-procurement?
As stated, the company wil be extending its agreement. To avoid purchasing
new equipment the company wil seek to optimize the existing equipment.
While the company has had the authority under its taff to restrct parcipation
by customers with irgation equipment motor load size less than 30 Hp, it has not
done so. However when we factor in the cost associated with recursive field
costs, which doesn't var by pump size, the smaler pumps contrbute less to the
overall cost effectiveness of the program. By restrcting parcipation durng the
2011 control period to equipment greater than 30 Hp in size approxiately 300
control units wil be mae available to replace damged or failed units on larger
equipment while only reducing the total connected irgation load under contract
by approximtely 8 megawatts. If we extend the limitation to al equipment 50
Hp or less in size approximately 500 control units wil be made avaiable with a
total reduction of approxiately13 megawatts. In summar, by limiting
parcipation in 2011 to larger equipment we optimie the use of the equipment
thereby improving cost effectiveness.
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How do you respond to Mr. Lobb's concern that Idaho customers may not
be receiving the full benefits of the program while paying for the full cost?
This situation may exist if the curent costs are built into rates in 2011 on an Idao
situs basis. However, the company is also placed in a difficult position by Staff s
proposal that an allocation of costs would occur, shifting program costs away
from Idao to other states before the issue has been addressed and resolved by the
MSP Standing Commttee or factored into cost recovery filings in other states.
While the program is cost effective as compared to alternatives, shareholders do
not receive compensation for benefits achieved (costs not incured), only the
recovery of its actual costs. As a result, the company believes that 2011 should be
treated as a transitional year to afford the company and Staf the opportnity to
work together to address the treatment of Class 1 DSM resources with the MSP
Stadig Commttee.
Additionally, the Company believes that certn changes need tö be made
to the progra to increase its cost effectiveness and resolve operational issues that
have been identified durg the last two years as the program rapidly expanded.
What changes do you propose?
The company proposes that the irgation load control progra continue to be
treated as a situs assigned cost durng 2011 to allow the issue to be addressed with
other states though the MSP process. Additionally, the Company proposes to
make certn adjustments to the program to reduce the costs of the program and
increase its effectiveness.
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Please identify the changes that you are proposing to the irrigation load
control program.
The Company proposes that the following changes be made to the program:
. Increase the authority under the tarff to restrict parcipation by customers
with irgation equipment motor load size from less than 30 horsepower
(Hp) to a minimum of 50 Hp;
. Add Idaho Power's parcipation selection language to the taff
"The Company shall have the right to select and reject Program
paricipants at its sole discretion based on criteria the Company
considers necessar to ensure the effective operation of the Program.
Selection criteria may include, but wil not be limited to; Biling
demand, location, pump horsepower, pumping system configuration,
or electrc system confguration. Past paricipation does not ensure
selection into the Program in futue years. Parcipation may be limited
based upon the availabilty of the Program equipment and funding."
. Change the penalty for opt-out events available to the Schedule 72A
paricipants to a percentage reduction in the parcipate credit for each
event as follows:
· 1 opt out event 100% of the parcipation credit paid to paricipant
· 2 opt out events 90% of the parcipation credt paid to parcipant
· 3 opt out events 70% of the paricipation credt paid to parcipant
· 4 opt out events 50% of the parcipation credt paid to paricipant
· 5. opt out events 25% of the parcipation credit paid to parcipant
· 6 opt out events paricipation in program termnated for the year
. Reduce the paricipation credt to $25 per kW in 2011 and then reinstitute
the $30 per kW in 2012;
. The Company and IPUC Staf should work collaboratively to address the
issue of system alocation of demand response programs with other states
though the MSP Stading Commttee or other appropriate venues.
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. The program wil be treated as a system resource in 2012, subject to other
states agreeing to the allocation treatment.
Do you have any recommendations regarding the operation of other
progrms?
Yes, I would also recommend the NEEA program and the Agricultu Energy
Savers progra be discontinued in Idao effective Januar 1,2011. The curent
collection rate of 4.72 percent wil continue and the elimination of these two
program expenses wil allow the Company to reduce the past balance of prudent
program expenditues over a shorter amortization period.
Please explain your recommendations to increase the minimum participation
level to 50 Hp.
We are seeking to increase the minimum level to 50 Hp in an effort to optimize
program realization and better utilize the direct load control units curently in use.
The char below demonstrates the negative cost benefit of the smaler pumps:
Benefit
Pump (§Net
Size kW $44/kW Cost Benefit
30 22 985 1,340 (355)
35 26 1,149 1,340 (191)
40 30 1,313 1,340 (27)
45 34 1,477 1,340 137
50 37 1641 1,340 301
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Please explain the change in tariff language you are recommending to align
the company with Idaho Power's participation selection language.
Beginning in 2008, the program manager for the irgation load control program
began fielding complaints from the distrbution field engineers regarding voltage
excursions during dispatch events. In response, the program manager began
notifying distrbution engineering of pending events so troublemen could make
the necessar adjustments to the system to limit the impact to the system.
Program paricipa.tion continued to grow and in 2009 the solution implemented in
2008 was insufficient to address the issue.
Durng the period following the 2009 control season the program manager
working with the company's engineers identified the upper limits of the load that
could be removed from each ciruit without adversely impacting the distrbution
circuit, distrbution substation, transmission substation and/or generating voltages
that impacted end-use loads. On a circuit by circuit basis and ultimately on a
grower by grower basis loads were organized so they could be "stai-stepped" on
and off in the minute intervals. While this approach resolved par of the issue
there was sti an issue on select distrbution substations where reductions were
lited to a certain magnitude. In these instances only solution was to alocate
load away from the 2:00 - 6:00 p.m. dispatch to two dispatch periods 11 :00 a.m. -
3:00 p.m. and 3:00 -7:00 p.m. The result was the distict dispatch periods and
with each of the dispatch periods approxitely five diferent "stair step"
dispatches. While ths best utis the loads under maagement it diutes the
progr's contrbution durng the highest peak hours when the control is nee the
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most.
By including language in the company's tarff, Rocky Mountain Power
would have the flexibility to manage the load on any given substation or circuit.
By better managing the loads we can improve the impact of the load control
program at peak, lower costs and as a result improve cost effectiveness.
Would the Company be requesting thi change absent the concerns
expressed by Mr. Lobb and Mr. Grayson?
Yes. As paricipation in the program has increased, transmission and distrbution
issues of this natue have become more prevalent.
Please explain the changes to the opt-out penalties you are recommending.
Let me star by summarzing the curent program. Parcipants in Schedule 72A
Dispatchable Irgation program agree to allow the Company to dispatch their
pumps for 52 hours per year. Each dispatch event cannot exceed four hours
totaing a maxmum of 13 interrptions anually. Program paricipants are
permtted to "opt-out" of up to five events on the sixth event they are termnated
from the program. If they do opt-out they pay the posted day ahead market price.
While the company only experienced 2.9 percent of customers optig out of
control events, the penalty associated with opting out is inconsistent with the
impact to the program. Consider the following example:
. Assume an irgator opts a 135 Hp pump (lOOkW) out of the program
durng five control events.
. Assume an average value of the liquidate damages in 2010 curently
provided for in the taff.
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. Under the curent taff provision the irgator would receive 96 percent of
the total paricipation credits.
. Based on the proposed opt-out schedule the irgator would only retan 25
percent of the credits.
The proposed change wil improve the performnce of the program by (1)
reducing the number of opt-outs and as a result increasing the amount of load
reduced durng events, and/or (2) reducing the total incentives reducing the
overall cost of the program.
Would the company be requesting this change absent the issues raised in this
cae?
Yes.
What would the impact be to the program if the incentive payments are
. lowered to $25 during 2011 ?
We anticipate that some customers wil elect to suspend parcipation. in the
program. Given the number of factors that may impact a customer's decision to
suspend parcipation, we are unable to provide an estimate of the impact on the
overall size of the program. Assuming however 230 megawatts of connected
load, the proposed change in incentive payments wil result in a $1,150,000
reduction in credits.
How would customers benefit from these program changes if they reduce
costs and increase progr effecivenes?
The company wil credt the savings from these changes to the demand-side
management balancing account for the program savings in excess of the amount
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in base rates and reduce the amount owed from customers to the company in that
account. This wil speed up the amortization of that account and provide greater
flexibilty with the level of the surcharge related to the DSM program cost
recovery.
Wil these changes resolve the customer segment equity issue raised by Mr.
Grayson?
No. While reducing the costs mitigates the issue raised by Mr. Grayson it does
not elimnate the issue. To ensure customers in one class are not paying for
energy savings or load control in another class, the costs associated with each
segment could be assigned a separate balancing account representing the
segments identified by Mr. Grayson. The cost associated with each balancing
account would then be recovered from the appropriate customer segment. For
example, the cost associated with energy efficiency programs are assigned to
thee separate balancing accounts in Wyoming - residential,
commerciaVirgation and large industraL. The cost associated with each segment
is recovered from the customers in the segment. A similar approach could be
used in Idao separating the costs into the three customer segments identified by
Mr. Grayson.
You stated that Mr. Grayson questioned the use of a tariff rider for recovery
of costs associated with the company's energy effciency and load control
progr. Can you expand?
Yes. He indicated that most customers are not famliar with the long-term
benefits associated with energy efficiency and load control programs and as a
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result customers, especially non-paricipants, question the customer efficiency
service charge. Mr. Grayson however did not recommend a solution.
Does the company utilze a line item customer effciency service charge to
recovery costs associated with energy efficiency in all of its juriictions?
No. Consistent with the other states served by PacifiCorp, the Washington
Utilities and Transporttion Commssion utilzes a balancing account to ensure
recovery .of all expenses associated with demand-side management. However,
rather than setting a rate based on a percent of revenue to recover the costs, the
Washington Commssion sets a rate based on the cost per unit of sales. The rate
is then applied to a customer's usage and incorporated in the overall cost of
providing service, eliminating the need for a customer efficiency service charge
on the customers' bilL.
Would thi eliminate the issue raised by Mr~ Grayson in hi testimony?
Yes, as I understand his issue.
Doe this conclude your rebuttl testimony?
Yes.
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