20061027Decision memo.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER KJELLAND ER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:CECELIA A. GASSNER
DATE:OCTOBER 25, 2006
SUBJECT:AVISTA'S APPLICATION TO INCREASE THE COMPANY'S ENERGY
EFFICIENCY TARIFF SCHEDULE 191 , CASE NO. A VU-06-
On September 14, 2006, Avista Corporation dba Avista Utilities filed its Application
to increase the Company s Energy Efficiency Tariff Schedule 191. Schedule 191 is designed to
recover the costs incurred by the Company associated with providing natural gas efficiency
services to customers. The Company requested Modified Procedure and an effective date of the
new tariff of October 13 , 2006. On October 4, 2006, the Commission issued a Notice of
Application, Notice of Modified Procedure and Suspension of Effective Date. Order No. 30145.
In that Order, the Commission solicited comments from interested persons. The only comments
submitted were filed by the Commission Staff.
THE APPLICATION
According to Avista s Application, the proposed increase in the Schedule 191 rate is
necessary to continue to fund ongoing natural gas-efficiency programs as set forth in A vista
more recent Integrated Resource Plan for natural gas service and to amortize a deficiency
balance within the natural gas Demand Side Management (DSM) tariff rider resulting from the
Company s response to customer demand for the services that was higher than expected. The
Company asserts that the proposed increase will not result in a change in profits for the
Company.
A vista states that the existing and planned expenses for the DSM programs are far
exceeding revenues. The tariff rider for DSM programs has not changed since 200 I. A vista
states that as of the close of August 2006, its natural gas DSM tariff rider balance for Idaho is
DECISION MEMORANDUM
negative $1.5 million. The proposed tariff rider increase is estimated to erase this liability
balance by the end ofthe second quarter of2008.
The Application states that the proposed increase is a 1.4% increase, as expressed as
a percentage of present gas revenue. The proposed rates will result in a 1.75% total charge for
DSM.
A vista states that all Schedule 191 funds will remain within the natural gas efficiency
rider programs. A vista will continually assess demand for the services and program financial
balances and propose revisions to Schedule 191 as needed. The Company states that the
programs are cost-effective and that the additional funding will expand the availability of the
programs. The Company provided a copy of its customer notice and press release announcing
the proposed tariff change.
STAFF COMMENTS
Accounting Issues
Staff reviewed the Company s Application, completed an audit of the accounting
treatment of the DSM expenditures from 2001 to present, and reviewed the Company s DSM
budget for the coming years. The annual revenue received from Idaho customers under the
present DSM tariff rider, currently set at 0.5% of retail rates, is approximately $296 268, while
the Company has currently budgeted approximately $720 000 in Idaho for DSM expenditures in
2007. The proposed tariff rider will generate approximately $1 439 121 in additional Idaho
revenue for the Company. The additional revenue will be used to recover a deferral balance
estimated to reach approximately $1.25 million by end of 2006, at which time, the Company
plans to further increase its DSM expenditures to the level provided by the rider.
Demand Side Management Program
Activities
Expansion of Avista s DSM program as described in the 2006-2008 IRP will include
all identified measures that are cost effective and those measures which may not have passed a
cost effectiveness test, but which a customer or A vista engineer believe to have significant
potential net value in energy savings. A total of 27 different measures were identified in the IRP
as accepted for development in the Company s Washington/Idaho service territories, based on
either a preliminary evaluation or as evaluated by the computer model used by the Company for
selecting resources appropriate to meet the demand of its customers (see Table 6.7 of the IRP).
DECISION MEMORANDUM
These measures total 1 062 000 first-year therms savings. This is more than a four-fold increase
over the Company s prior DSM goal.
Revenue Use
In addition to direct design and installation of DSM measures with residential
commercial and industrial customers, the program includes significant incentives paid to
customers. These incentives take the form of cash rebates for items such as weatherization, high
efficiency hot water heaters, thermostats, and high efficiency furnaces. The use of Idaho-derived
DSM rider revenues is split as follows (numbers are rounded):
Incentives
Labor
Expenses
79%
15%
Priorities
While each measure pursued must be cost effective, A vista looks at individual
categories within each measure to determine priorities. By working with customers and
engineering, A vista determines which categories and sub-categories have the highest potential.
For example, maintenance of steam traps for customers who make steam from natural gas boilers
has been determined to have potential as a highly cost effective program. Within this sub-
category, customers with the largest combination of steam output and hours of operation have
been determined to be priority targets.
Results
In 2001 A vista set a goal of annually achieving DSM results that save a minimum of
240 000 first-year therms within its combined Washington and Idaho service territory. The
Company has met or exceeded that goal in each of the five years prior to 2006. These measures
total 1 062 000 first-year therms savIngs.
Company s prior DSM goal.
This is more than a four-fold increase over the
DSM Rider Tariff Determination
The Company proposes to change not only the rate of the rider adjustment, Schedule
191 , but to also change how that rate is defined. In 2001 , the rider was set equivalent to 0.50%
of the retail rates, but it is tariffed and billed in cents per therm increments. The Company
proposes to describe the rider as only a fixed rate per therm that may change when an application
is filed by the Company and approved by the Commission.
DECISION MEMORANDUM
Proposed DSM Rider Rates
The rider adjustment proposed by the Company is an increase from $0.00426 per
therm to $0.02063 per therm for residential rates (Schedule No. 101). Changes in other tariff
schedules are similar to the Schedule 101 change. All of the proposed rider changes are
presented below.
Schedule No. 101
Schedule No. 111 & 112
Schedule No. 121 & 122
Schedule No. 131 & 132
Present
$0.00426/therm
$0.00373
$0.00354
$0.00294
Proposed
$0.02063/therm
$0.01827
$0.01739
$0.01523
The proposed tariff is calculated to pay for the increased costs associated with the
increased scope and effort of the Energy Efficiency program going forward, and to recover the
costs of recent past DSM efforts that have been insufficiently funded by the existing rider. The
proposed Idaho portion ofDSM expenditures, starting January 1 2007, is $720 095 annually and
the amount for recovery of past Idaho expenses is $1 242 805 , as estimated to exist by December
, 2006. The Company expects the tariff to recover the accrued past costs by about July 2008.
By that time, Staff expects that the Company will have re-evaluated the rider amount vis-a-vis its
DSM expenditure levels and will file to change the rider rate as needed to accommodate and
manage its customers' participation in its cost effective DSM programs going forward.
This large (400%) increase in the rider will fund a 300% (and growing) increase in
DSM activities. The direct and primary beneficiaries of these expenditures will be the DSM
program participants whose natural gas bills will decrease soon after their participation.
However, even non-participants will indirectly benefit from an increasing level of DSM due to
its effects on the infrastructure necessary to deliver natural gas and on the wholesale price of
natural gas. The DSM rate increase is less than the decrease requested in the Company s PGA
Application, Case No. A VU-06-, that still results in a net overall decrease to customers of
approximately two percent.
Staff recommended approving the energy efficiency rider adjustment rates and the
determination of those rates as requested in the Company Application. Staff also
recommended that the Commission Order contain language encouraging all customers to
participate in Avista s DSM programs. Lastly, Staff recommended that the Commission Order
explicitly state that approval of the tariff rider changes is not a determination of either the
DECISION MEMORANDUM
reasonableness or the prudence of A vista s DSM program or expenditures. The Company did
not request such determination in this Application and the Staff did not evaluate such.
COMMISSION DECISION
Does the Commission desire to approve the proposed Energy Efficiency Rider
Adjustment? Does the Commission desire to do anything else with respect to this matter?
Cecelia A. G ner
M:A VU-O6-cg2
DECISION MEMORANDUM