20100630Comments.pdf

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BARNO. 1895
RECE n
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iûiUJUN 30 PH 3: 04
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
A VISTA CORPORATION FOR AUTHORITY )
TO INCREASE ITS SCHEDULE 191 - ENERGY )
EFFICIENCY (PUBLIC PURPOSE) RIDER )ADJUSTMENT. )
CASE NO. AVU-G-10-02
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilties Commission (Commission), by
and through its attorney of record, Scott Woodbury, Deputy Attorney General, and in response to
the Notice of Application issued on March 9, 2010, and the Notice of Modified Procedure and
Notice ofComment/rotest Deadline issued in Order No. 31017 on April 8, 2010, in Case No.
A VE-G-l 0-02, submits the following comments.
BACKGROUND
On February 16,2010, Avista Corporation dba Avista Utilities (Avista; Company) fied
an Application with the Idaho Public Utilties Commission (Commission) requesting an increase
in the Company's natural gas Schedule 191 - Energy Effciency (Public Purpose) Rider
Adjustment. That rate would increase from 3.9% to 6.5% of estimated base revenues, and would
collect about $1.6 milion in additional anual revenue for funding the Company's cost of
providing natural gas energy efficiency services and incentives for retail customers taking
service under Schedules 101, 111 & 112 and 131 & 132. The proposed effective date is
STAFF COMMENTS 1 JUNE 30, 2010
April 1, 2010. On March 9, 2010, the Commission issued a Notice of Application in Case
No. A VU-G-l 0-02 and by Order No. 31017 suspended the Company's proposed effective date.
Schedule 191 public purpose funds support demand-side management (DSM) programs
described in Company tariff Schedule 190. The Company's DSM programs are based on
providing a financial incentive or "rebate" for cost-effective efficiency measures installed by
customers with a simple payback of greater than one year and an expected life of at least 10
years. Incentives are generally capped at 50% of the incremental cost of the measure. The
Company's DSM rider also provides funding to community action agencies for weatherization of
low-income housing and other programs that are expected to result in demonstrable savings.
Finally, the DSM rider also is used to fund non-incentive efforts such as education, lending
terms, provision of product samples, and technical assistance.
According to the Company, its customers are increasingly looking to its DSM programs
for assistance in responding to increased natural gas prices. As a result, existing and planed
programmatic expenditures by the Company are exceeding tariff rider revenues. The Company
claims that the proposed Schedule 191 increase wil true-up its natural gas tariff rider to a level
that meets customer demand and reduces existing negative balances, while providing fuding for
its future energy effciency programs. The Idaho natural gas savings target for 2009, established
in 2008, was 465,845 therm anual savings. The Company reports it actually achieved 580,081
therm annual savings, exceeding its goal by approximately 25%.
STAFF REVIEW
F or purposes of this case, Staff verified the estimated annual level of expenditures
required to fund existing DSM programs, reviewed the existing DSM deferral balance subject to
recovery and confirmed the proposed Energy Effciency Rider Adjustment rate necessary to true-
up the DSM deferral balance. Based on this review, Staff supports the Company's proposal to
increase the energy efficiency tarff rider of Schedule 191 to collect an additional $1.6 milion
anually, or approximately $1.52/month for the average residential customer using 66
therms/month.
The proposed increase in revenues for DSM wil not increase the earings of the
Company. The proposed energy charges of the individual natural gas rate schedules under the
Company's Application are as follows:
STAFF COMMENTS 2 JUNE 30, 2010
Schedule 101
(General Service)
Schedules 111 & 112
(Large General Service)
Schedules 131 & 132
(Interrptible Service)
Existing
$0.03458
Proposed
$0.05762 per therm
$0.03045 $0.05038 per therm
$0.02552 $0.04020 per therm
As reflected in the Company's Application, the proposed increase is necessary to
continue to fund ongoing natural gas efficiency programs consistent with A vista's most recent
Natural Gas Integrated Resource Plan (IRP). It wil also serve to amortize a deficiency balance
($1,375,435 end of January 2010) resulting from the Company's response to higher than
expected customer demand for services.
Staff has reviewed the 2009 expenditures and confirmed the unfunded balance of
$l,375,435 as of December 31, 2009. Although Staff confirms the deferral balance as accurate,
Staff does not at this time make any recommendations regarding the prudency of either past or
future DSM expenditures. Staff is in the process of examining the prudency of Avista's DSM
expenses incured in 2008 and 2009 and wil make a recommendation to the Commission
regarding this issue as par of its analyses in case A VU-G-l 0-0 1.
Staff recognizes that rate increases are diffcult in challenging economic times but
continues to support cost-effective DSM/energy efficiency programs. Although consumption
reductions by customers of individual utilities have little effect on wholesale gas prices and
wholesale gas costs are much less time-variant than electricity prices, it remains important to
provide assistance to help customers manage their bils by providing incentives, engineering
services and education to overcome various market barriers hampering cost-effective, long-term
energy effciency.
The Company continues to offer residential rebates for the conversion of electricity-to-
natural gas for space and water heating appliances as well as a broad program for any non-
residential electricity-to-natural gas conversions. Such conversions must meet applicable criteria
for relative British thermal unit (Btu) efficiency. Staff supports conversions to direct use of
natural gas whenever it is cost-effective compared to the avoided costs of electricity generation,
transmission and distribution.
In addition to prescriptive programs, Avista offers "site-specific" programs for
nonresidential customers. Site-specific programs are customized to the customer premises. The
site-specific offering provides incentives on commercial and industrial energy efficiency
STAFF COMMENTS 3 JUNE 30, 2010
measures with a simple financial payback exceeding one year. This is implemented through site
analysis, customized diagnosis, and incentives determined for savings generated by the
customers' premises or processes.
In 2009, the Company provided low-income weatherization of$I.9 milion from
Washington and Idaho electricity and natural gas DSM tariff riders. Effective October 1,2008,
in Order No. 30647, $465,000 was directed to Idaho electricity and natural gas low-income
customers. Of this amount, $130,200 was used directly for natural gas. The Company provided
$25,000 to Idaho (CAP) agencies for the purpose of underwiting agency personnel assisting in
low-income outreach and conservation .education. Of this amount, $12,500 or 50% was directly
assigned to natural gas. The low-income weatherization portfolio of the Company represents
approximately 6.3% of its total energy effciency budget excluding utilty support.
Avista's Application reports that it is in the process of enhancing its evaluation,
measurement and verification (EM&V) protocols. The Company's enhanced EM&V includes
impact, process, market and cost-effectiveness analyses. The Company initiated a collaborative,
consisting of its External Energy Effciency (Triple-E) members and other interested individuals
and entities, beginning in March 2010 to review EM&V and low-income issues and wil provide
a report to the Commission on or before September 1, 2010. That report wil describe A vista's
enhanced EM& V protocols.
Benefit/Cost Analysis
The gas sub-portfolio benefit/cost (B/C) ratio of each Washington and Idaho customer
segment is shown below as it appears in Table 4 of the Company's 2009 Energy Effciency
Annual Report fied April 1, 2010.
TRC PACT
Segment State ratio ratio
Residential 10 1.64 4.69
Residential WA 1.68 5.7
Low Income 10 1.42 1.42
Low Income WA 2.54 2.48
Non-residential 10 0.97 3.01
Non-residential WA 0.73 3.23
10 2.28 3.74
WA 2.30 4.41
System 2.30 5.96
TRC IS total resource cost WC ratio.
PACT is program administrator cost test (aka- utility cost test) B/C ratio.
STAFF COMMENTS 4 JUNE 30, 2010
As shown above, the Company's claimed overall Idaho natural gas portfolio remains cost
effective. However, the non-residential (i.e. commercial and industrial) programs were not
reported as TRC cost-effective in 2009. The ratio calculations in the table above assume 100%
net-to-gross; e.g. that no customers would have installed their effcient measures in the absence
of Avista's incentives to do so. Lower net-to-gross assumptions result in lower B/C ratios. At
the Staff s request, A vista is in the process of reviewing and correcting the B/C ratios of its
Annual Report using less than 100% net-to-gross assumptions. Even though customers'
reductions in consumption have little impact on wholesale prices and wholesale gas costs are less
time variant than prices for electricity, Staff expects all expenditures on energy efficiency
programs to be prudently incurred and cost effective.
After reviewing data provided by the Company ilustrating the differences between non-
residential and residential program costs versus amounts paid through the DSM rider, it has
become apparent to Staff that commercial and industrial customers are receiving nearly double
the benefit given their program costs vs. rider pay-in amounts. Based on post-implementation
evaluations, the Company needs to: 1) further assure that class benefits compared to
contributions are reasonable; 2) further improve program delivery; 3) make sure programs are
cost-effective; 4) consistently reassess baseline trends; and 5) clearly ilustrate program EM&V.
The Company reported in its 2009 Energy Effciency Annual Report, regarding the non-
residential programs, that it wil continue "transitioning some of these programs to be standard
offers (or "prescriptive") through forms specifying qualifying measures and associated
conditions, similar to the way in which residential programs are offered." In order to expedite
the transition of these programs to standard offers, the Company should do market research that
leverages its site-specific, cost effective measures by targeting particular industries (e.g. - SIC or
NAICS\ or regionally recognized multi-site companies. Certain industries and multi-site
companies have standard equipment, production cycles, and footprints. Since these similarities
exist, the exchange of information between the account executives who target customers, and the
engineers who conduct the modifications should be organized, so that the most cost effective
industries and multi-site companies are prioritized appropriately. Leveraging "economies of
i
Standardized methods of classifying business/industrial activity, it represents principle segments of an economy
with a numerical code. In the US, Standard Industrial Code (SIC) was established in 1987 and is now being
replaced with the North American Industr Classification System (NAICS) that also covers Canadian and Mexican
industries.
STAFF COMMENTS 5 JUE 30, 2010
scale"i wil result in advantages that reduce the average marginal cost of site-specific diagnosis,
retrofits, analysis, incentives, and programs. By quickly transitioning from "site-specific" to
"standard offers" when appropriate, the Company can improve cost-effectiveness and provide
savings to customers.
Regardless of Staffs concerns about the cost-effectiveness of the Company's non-
residential programs, at this time it is not Staffs intent to either validate or question either the
Company's DSM prudency or actual cost-effectiveness calculations of any of its programs.
Prudency and cost effectiveness review was not requested in this Application, but it wil occur
during the course of A vista's current rate case in which the Company has requested a prudency
review of its DSM expenditures (Case No. AVU-G-I0-0l). In this rate case, Staff wil evaluate
the prudency, operational discretion and cost-effectiveness of the Company's program decisions.
Staff has reviewed the Company's new forward looking method used for determining the
Schedule 191 rates necessar to fund program participation. Staff believes a forward looking
estimate of usage for determining rates is reasonable, but advises the Company to closely
evaluate its forecasting accuracy to determine whether adjustments to the regression model are
necessary. Staff supports the increase in Schedule 191, Energy Effciency Rider, from
approximately 3.9% to 6.5% of estimated base revenues, resulting in a total increase of
approximately 2.5% for all customer classes.
CUSTOMER RELATION ISSUES
The Company's "Energy Efficiency Rider Adjustment" Application, fied on
February 12,2010, contained the press release but not the customer notice. Staff brought this
omission to the Company's attention on May 17,2010. As a result, the customer notice was
mailed with Avista's cyclical bilings beginning May 21,2010, and ending June 19,2010.
Customers had until June 30, 2010 to fie comments. Staff reviewed both the press release and
notice and determined that they complied with the notice requirements of Rule 125, IPUC Rules
of Procedure, IDAPA31.01.01.
As of June 29, 2010, three customers submitted written comments to the Commission
opposing the proposed increase to Schedule 191 rates. Included with one customer's comment
were signatures of seventy-six other people who agree with the submitted comment opposing the
2 In microeconomic theory, Economies of Scale is a long ru concept referring to reductions in unit cost as the size
of a facility, or production, increases.
STAFF COMMENTS 6 JUNE 30, 2010
proposed increase. They feel it is not justifiable to ask customers to make up for the shortfall in
loss of revenue that has been created by the success of the program. They cite the poor
economy, fixed incomes, lack of a social security cost ofliving increase, job losses, stagnant
wages, and home loss as factors that inhibit customers' abilities to pay higher rates. Another
comment received from a customer acknowledges that rebates for energy efficiency measures
have been necessar to foster mass behavioral changes needed to support energy efficiency
programs. At this time, however, the customer opposes offering rebates funded by customers,
especially rebates for appliance purchases, to benefit those who have been late to adopt energy
effciency practices. This customer also feels that A vista has not justified why it needs to raise
rates to support its educational and low income energy effciency programs. Another customer
cites the poor economy and company profits in her opposition to the proposed increase.
Staff notes that Avista's DSM gas tariff rider amount is not separately itemized on
customers' bils, as is the case with Rocky Mountain Power and Idaho Power. The rider amount
is expressed as "cents per therm" rather than as a percentage of the bil and is incorporated into
the amount charged for energy consumption. Staff supports this biling practice, but
acknowledges that an increase to the rider amount is indistinguishable from a general rate
increase to most customers.
Staff recognizes that an increase in natural gas rates wil not be viewed favorably by
many customers within the Company's service territory, particularly those on fixed incomes or
those using natural gas as their primary heating source, especially given the current economic
climate. However, Staff also asserts that all customers realize a net benefit from the cost
effective use of DSM programs because of the reduced need for gas commodities storage as well
as distribution and transmission facilities. The total of all customers' bils wil be lower than it
would be absent such programs.
Staff often works with customers who are identified as those most likely to benefit from
energy efficiency programs, incentives and rebates. This interaction provides Staff with an
opportunity to share information, increase paricipation in energy effciency programs and assist
customers in reducing their bilis Unfortunately, easily accessible, up to date DSM program
information needed to fully assist customers can be diffcult for Staff to obtain. Therefore, Staff
recommends that the Company provide in its annual DSM report clear descriptions of each
residential energy effciency program, rebate or other incentive offered by the Company. Staff
also requests that the Company provide periodic updates of any changes made to or
STAFF COMMENTS 7 JUNE 30, 2010
discontinuance of any program, rebate, or incentive. This wil assure that Staff has the most up
to date information available to assist customers.
STAFF RECOMMENDATION
Staff recommends that the Company's proposed increase of $1.6 milion in annual
revenue from Schedule 191 Energy Efficiency Public Purpose Rider be approved to fund the
costs associated with providing natural gas energy effciency services.
Staff recommends that the Company provide in its annual DSM report clear descriptions
of each residential energy effciency program, rebate or other incentive offered by the Company.
Staff recommends that the Company provide periodic updates of any changes made to or
discontinuance of any program, rebate, or incentive to the Commission Staff.
Respectfully submitted this
3I'fday of June 2010.
Scott Woodbury
Deputy Attorney General
Technical Staff: Matt Elam
Donn English
Curtis Thaden
i:umisc:commentslavegIO.2swme.doc
STAFF COMMENTS 8 JUNE 30, 2010
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 30TH DAY OF JUNE 2010,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. AVU-G-I0-02, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
PAUL KIMBALL
A VISTA CORPORATION
PO BOX 3727
SPOKANE WA 99220-3727
J.~tk
SECRETARY~
CERTIFICATE OF SERVICE