20010212avug01-1swmfussah.doc

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 1895

Street Address for Express Mail:
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 AVISTA CORPORATION DBA AVISTA UTILITIES - WASHINGTON WATER POWER DIVISION (IDAHO) FOR APPROVAL OF REINSTATEMENT OF NATURAL GAS ENERGY EFFICIENCY PROGRAMS (TARIFF SCHEDULES 190 AND 191) AND A RELATED SURCHARGE.
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CASE NO. AVU-G-01-1

COMMENTS OF THE COMMISSION STAFF

COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to Order No. 28629 issued on January 31, 2001, submits the following comments.
On January 8, 2001, Avista Corporation dba Avista Utilities—Washington Water Power Division (Idaho) submitted a tariff advice for Schedules 190 and 191 – Natural Gas Energy Efficiency Programs. The tariff filing proposes reinstating the Schedule 190 natural gas energy efficiency programs that were suspended in 1997 when the natural gas avoided cost dropped to the point where the programs were no longer cost effective. Annual funding in the amount of approximately $307,000 for the Schedule 190 programs is anticipated from a 0.5% surcharge on retail therm sales through the proposed Schedule 191.

PROGRAMS
The Company has provided a list of programs that are proposed in the Natural Gas Energy Efficiency Program (NGEEP) as well as a list of other programs under consideration. The Company requests flexibility in the management of the programs to provide an opportunity to adjust the exact makeup of the NGEEP as various Demand Side Management (DSM) projects are undertaken and the results are observed.
The programs are divided into three segments (1) residential, (2) limited income, and
(3) non-residential. Reporting and analytical results are proposed to be provided for each program segment. Anticipated programs by segment are:
Residential Segment
These programs will provide direct monetary incentives, education, technical support and/or indirect interventions in the market place when the needs are best addressed in this manner. The following are the lists of residential programs proposed by the Company.

Programs currently under development
High-efficiency gas space heating
High-efficiency gas water heating
Weatherization and shell measures
High-efficiency windows
Infiltration reduction
Energy efficient thermostats

Programs under consideration
An energy education program for “do-it-yourselfers”
Home automation for energy efficiency
Hot tub insulation
Encouragement of efficient hearth products
Solar domestic hot water to reduce natural gas usage
Improved construction practices.
And others

Limited Income Segment
Limited income customers will have full access to residential segment programs currently under development. The limited income programs may be enhanced through the use of community action agencies for notification and program assistance as well as possible reduction in customer financial participation requirements.
Non-residential Segment
This segment provides programs to the most diverse customer group and will require the most flexibility. Programs may need to be customized on a case-by-case basis for the customer groups in this segment (small commercial, large commercial, industrial, and institutional). Some common programs may be found in the small commercial or most uniform group. However, this will likely be a small portion of the programs in this segment.
The Company proposes to use the existing Company infrastructure of account executives, energy engineers, and portfolio coordinators to identify appropriate programs in this segment. A few of the programs proposed include efficient thermostats, right-sizing HVAC units, energy code reviews, gas fired chillers, heat recovery, and gas heat pumps. Once programs are identified and evaluated by the Company, it intends to submit the proposed programs for review by the Triple-E board. In the event that insufficient programs are found, the Company proposes an open bidding process entitled “Internet-based Auction” to find cost effective projects for this segment.

FUNDING
Funding for the Schedule 190 programs is to be provided through a 0.5% Energy Efficiency Rider Adjustment under Schedule 191 that will have the following impact on current rates:
Schedule 101 0.426 cents per Therm
Schedule 111 & 112 0.373 cents per Therm
Schedule 121 & 122 0.354 cents per Therm
Schedule 131 & 132 0.294 cents per Therm

It is anticipated that this rate adjustment will generate program funding on an annual basis in the amount of approximately $307,000. Funding distribution for the proposed programs is approximately:
Residential $137,000
Commercial & Industrial $75,000
Regional $20,000
Site-Specific Service Agreements $75,000
$307,000
It is estimated that the programs will provide Idaho customers with 92,100 therms annual savings in the first year. Project planning horizons of 15-20 years are proposed for residential programs and 25 years for commercial and industrial programs.

STAFF ANALYSIS
General
In today’s natural gas market, with gas costs in the $5.00-$7.00 per MMBtu range, it just makes sense to become more energy efficient. Consumer concern is evidenced by the numerous comments received by the Commission in Avista’s recent Purchase Gas Adjustment (PGA) case that opposed the increase in natural gas rates. Staff believes that although the NGEEP comes at a cost, it can help consumers cope with increased gas rates by assisting them in reducing consumption while decreasing the overall demand and price for natural gas.
Programs
The Company has provided a list of residential programs under development and a list of additional residential programs under consideration for its NGEEP that should assist customers in reducing natural gas consumption. The programs currently under development include traditional demand side management (DSM) measures, such as weatherization and window upgrades. The Company’s list of the other programs under consideration includes projects that are somewhat less traditional DSM measures and will be considered on a case-by-case basis. Staff encourages the Company to continue to examine new and existing programs throughout the life of the tariff to assure that the best available programs are implemented.

Flexibility
Throughout the filing the Company has put a great emphasis on flexibility. The Company proposes flexibility in the types of programs offered, the method of program delivery and the overall program makeup. The Company’s filing is general in nature to allow for changes throughout the life of the tariff.
Because it is general in nature, the filing is lacking in program specifics. The Company has not provided project specific information such as participant financial qualification requirements, project minimum therm saving requirements, program notification methods, nonresidential or education project specifics. Since the Company’s request includes continued exploration of many options, all of the program-specific information has not been developed at this time. The Company will develop this information as the appropriate projects are defined and implemented.
Staff believes that it is reasonable to allow flexibility in the NGEEP. In the nonresidential segment the programs must cover very diverse customer groups and project options. This will be compounded by the proposed Internet auction or RFP program. These programs will allow customers to propose a number of projects for the Company’s evaluation and significantly increase the program options. Since the options in this segment are almost limitless, it appears reasonable to allow a significant amount of flexibility in project selection and program implementation to assure the most appropriate projects are implemented. In the residential and limited income segment the programs are more restricted. In these segments it also appears that flexibility is warranted in order to assure customer participation. Every program will not work across all customer groups and until the specific project performance is evaluated, the amount of therm savings and number of participants cannot be determined.
Cost Benefit Reporting
Increased flexibility will not limit the Company’s responsibility to assess projects prior to implementation. A more flexible program will require that the Company perform a greater number of evaluations. Staff has reviewed the Company’s cost benefit analysis and found that although the calculation appears to be mathematically accurate, the calculation is dependent on assumptions regarding program participants and therm savings. Since the input information is simply an educated guess at this time, the projected final results are similarly limited.
The Company’s calculated cost benefit ratio is 1.78. The cost benefit analysis is based on the Company’s 2000 Integrated Resource Plan (IRP) avoided cost of gas, which is less than $3.00 per MMBtu. The cost benefit would be much greater at today's cost of gas of over $5 per MMBtu. Staff believes the evaluation even with the number of program assumptions is relatively conservative. The best that can be concluded is that the program appears to have a positive cost benefit ratio and the final program evaluation will have to be determined in an annual review of the program.
Staff recommends that the Company provide an annual evaluation of the Energy Efficiency Program for review by the Commission. In order to assist Staff in evaluating the Company’s program performance, Staff recommends that the Company continue discussions with Staff to determine the best project and program evaluation methods and content of the annual evaluation.
Overall System Improvements and Market Transformation Measures
One area where the Company is looking for overall system improvements and market transformation measures is in combined participation in its current Electric Demand Side Management Programs like the Northwest Energy Efficiency Alliance (NEEA). This is an area where the Company will have to be especially diligent in identifying benefits. While it may be reasonable to combine programs to provide some economies of scale in areas such as program management and overhead it may be difficult to separate the costs and benefits of NEEA activities between electric and gas programs.

FUNDING/RESOURCE ALLOCATION
Funding
Funding for the program under tariff Schedule 191 is 0.5% of the retail therm rates.
Based on projected therm sales, tariff Schedule 191 should result in program funding of approximately $307,000. Funding based on a percentage of retail therm rates will result in a fluctuation in funding levels as usage or rates change. Since the Company has also included firm rates in its filing the Company will have to refile Schedule 191 with any rate adjustments in Schedules 101,111,112,121,122,131 or 132.
The funding level is not based on any specific program or therm savings, it is however almost exactly the same as the amount of the previous DSM program in the mid-1990’s. Staff believes the funding level to be reasonable based on the provided cost benefit analysis and the historical performance of the DSM program. Staff recommends annual reporting of program performance at which time funding level can be reviewed and adjusted based on program performance.
Allocation
Staff is somewhat concerned that the allocation schedule does not match funding by customer group. Residential customers will provide approximately 72% of the funding and receive only an estimated 50% of the programs. Avista has proposed a flexible program where the program budgets within funding limits can be adjusted as needs arise. Therefore, Staff recommends that the Company maintain appropriate subaccounts by class for each program to assure that customers who pay for the programs have an opportunity to participate in and have received benefit from the DSM programs.
One area where funding for programs could be extended and participation improved would be to include a low interest loan program in the offerings. A low interest loan program would expand access to the NGEEP to a larger number of consumers. A loan combined with a strong education program can be very cost effective for the Company and significantly increase participation opportunity. For example, a program that buys down the interest rates by 5% can assist 10 times more customers than a 50% rebate program with the same amount of money.
While it makes sense that all economical programs are pursued in this time of rising natural gas prices, there is some concern that programs with a high percentage of participants may become an additional burden on nonparticipants. Participants use less gas and have lower bills while nonparticipants do not change usage and therefore pay a disproportionate share of the deferral and efficiency program costs. The Company is cautioned to maintain equity throughout the programs and emphasize program availability to all customers to avoid shifting costs.

EXTERNAL ENERGY EFFICIENCY BOARD
Avista’s External Energy Efficiency Board (Triple-E Board) is a group of selected individuals which includes state agencies, PUC Staff, assistance groups, environmental groups, industrial and institutional users and affiliations, elected officials, and Company personnel. The Company uses the Triple-E Board to provide non-binding advice on both Avista’s electric and natural gas energy efficiency programs. The programs are then subject to future Commission prudency evaluation.

ACCOUNTING TREATMENT
In this filing, the Company proposes to continue the accounting treatment for its Schedule 190 and Schedule 191 Demand Side Management revenues and expenses that was ordered in Case Nos. WWP-E-94-10 and WWP-G-94-5 with Order No. 25917. In that Order, the Commission allowed the Company to recognize revenues and expenses as they occurred instead of amortizing a regulatory asset. This method allows the Company to timely recover expenses and avoid the indefinite accumulation of a sizeable balance to be recovered through future rates. Staff agrees that this accounting method continues to be preferable in this case.

INTEREST ON DEFERRAL AMOUNTS
Staff is concerned that the Company is proposing to remove the interest mechanism portion for the tariff rider. In its filing, the Company proposed to review the balances of the accounts once a year and increase or decrease the tariff rider as necessary to keep the balance as close to zero as possible. In the attachment that accompanied the filing, the Company asked to be allowed “flexibility to authorize the pursuit of a variety of worthwhile energy efficiency alternatives”. In exchange for that flexibility, the Company recognizes that it has an increased level of accountability. Staff agrees with that assessment. Staff believes that removing the interest component reduces the accountability of the Company. In the past, the Company stated that it is necessary to maintain a positive balance in the account to allow prudent management
of DSM commitments (Revised Testimony of Lynn Anderson, Case No. WWP-E-98-11, Tr.
p. 1012). Staff believes that pre-established mechanisms generally should have interest added to unused funds that are supplied by customers and that Company-supplied funds should receive interest as well. In the 1994 filing (Case Nos. WWP-E-94-10 and WWP-G-94-5 with Order No. 25917), the Company recommended and was granted an interest rate of 10%. Staff recommends interest be calculated for this program on the customer deposit rate, currently 6%, for both over-collected and under-funded account balances. Since this rate is established annually it will remain current. If the Company can maintain the balance in the accounts at close to zero, as it proposes, there will be little interest to pay or collect. This provides the Company additional incentive to keep the balance in the accounts close to equal.

RECOMMENDATION
Staff recommends that the Commission approve the Company’s filing of Tariff Schedules 190 and 191 at 0.5% of the tariff therm rate with the interest component discussed above and annual program evaluation reports and cost benefit analysis which include separate subaccounts by class for the program. Staff further recommends that the Company continue to investigate other programs including the possibility of a low interest loan program to improve opportunities for participation and balancing program revenues and program costs within customer class.

Dated at Boise, Idaho, this day of February 2001.

________________________________
Scott Woodbury
Deputy Attorney General

Technical Staff: Michael Fuss
Alden Holm

MF:SW:gdk:i:wpfiles/umisc/comments/avug01.1swmfussah
STAFF COMMENTS 9 FEBRUARY 12, 2001