20130930B.Folsom DI.pdf

DAVID .J. MEYER
VICE PRESIDENT AND CHIEF COUNSEL OF
REeULAToRy & covERNMENTAL AFFATRs !il;r 3i:ir :;i ., ,lli;: l?
AVISTA CORPORATION
P.O. BOX 3727
].411. EAST MISSION AVENUE
SPOI(ANE, WASHINGTON 99220-3727
TELEPHONE: [phone]L6
EI',IAIL: david. meyer@avistacorp . com
BEFORE THE IDAIIO PUBIIIC UTII'ITIES COMMISSION
IN THE MATTER OF THE APPLTCATION ) CAST UO. AW-E- 13-01
OF AVISTA CoRPORATIoN FOR A ) CASE NO. AW-G-a3-O2_
FTNDTNG OF PRUDENCE FOR 20r_0-20]-2 )
EXPENDITURES ASSOCIATED hIITH )
PROVIDING ELECTRIC AIID NATURAL GAS ) DIRECT TESTIMONY
ENERGY EFFICIENCY SERVICE IN THE ) OT'
STATE OF IDAHO ) BRUCE W. FOLSOM
)
FOR AVISTA CORPORATION
(ELECTRIC AND NATURAL GAS)
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I.INTRODUCTION
A. PIeaEe state your narne, employer and businegs
address.
A. My name is Bruce Folsom. I am employed by
Avista as the Director of Energy Efficiency Policy. My
business address is East 14Ll- Mission Avenue, Spokane,
Washington.
O. WouLd you pleaee describe your education and
businegs experience?
A. I graduated from the University of Washington in
]-979 with Bachelor of Arts and Bachelor of Science
degrees. I received a Masters in Business Administration
degree from Seattle University in 1-984.
I joined the Company in L993 in the State and Federal
Regulation Department. My duties included work associated
with tariff revisions and regulatory aspects of integrated
resource planning, demand side management, competitive
bidding, and emerging issues. In 2002, I was named the
Manager of Regulatory Compliance which added
responsibilities such as implementing the Federal Energy
Regulatory Commission's major changes to its Standards of
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Conduct ru1e. f began my current position in September of
2006.
Prior to joining Avista, I was employed by the
Washington Utilities and Transportation Commj-ssion
beginning in L984, and then served as the Electric Program
Manager from 1-990 to February, 1-993. From 1-979 to 1983, I
was the Pacific Northwest Regional Director of the
Environmental Careers Organizatj-on, a national, private,
not - for-prof it organization.
A. First, why is the Company requesting a finding
of prudence outside of a General Rate Request?
A. Beginning in 1,995, Avista has requested a
finding of prudence for prior period cost recovery of
energy efficiency expenditures at the time of general rate
case filings. This process occurred as an outcome of how
Avistars Demand Side Management (DSM) Tariff Rider was
established. As the country's first system benefit charge
for conservation, several 'rIegacy" protocols were adopted,
including the scope and timing of cost-recovery. However,
over tj-me, reviewing energy efficiency issues in general
rate cases did not provide the IeveI of focus desired by
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parties to these proceedj-ngs. Discussions with Commission
Staff and Avista's Energy Efficiency Advisory Group have
led to requestj-ng a finding of prudence, and examination
of assocj-ated issues, in a stand-a1one case as presented
herei-n.
A. What is the
proceeding?
scope of your testimony in this
A. I will provide an overview of the Company's
recent ldaho DSM portfolio results and expenditures for
electric and natural gas efficiency programs. I will also
provide documentation demonstrating Avista's expenditures
for electric and natural gas efficiency programs have been
prudently incurred. More specifically, I address Avista's
involvement with the Northwest Energy Efficiency Alliance
(NEEA), the Company's proposal in a concurrently-fi1ed
case for university research and development, status of
the Company's suspended natural gas DSM programs, overall
evaluation by Avistar s third-party contractor ("Cadmus"),
and opportunities presented for stakeholder involvement.
Lastly, I introduce the other Company witnesses in
this case.
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II. OVERVIEW OF DSM PROGRAIIS AI{D CURREIIT ISSUES
A. Would you pleaee provide a brief overview of
Avista'E DSM programs?
A. Yes. Avista has historically had a significant
and consistent commit,ment to energy efficiency, beginning
its programs in L978. In the mid-1990s, while the electric
industry was pulling back from offering energy efficiency
servj-ces, AvJ-sta pioneered the DSM Tariff Rider. Now in
its ninteenth year, the tariff rider was the country's
first distribution charge to fund DSM and is now
replicated in many other states. Schedule 91, currently
has a rate equal to 2.82 of retail revenue for electric
service and the Schedule l-91- rate is 0. 0t of retail
revenue for natural gas.
The Company's approach to energy efficiency is based
on two key principles. The first is to pursue all cost-
effectj-ve kilowatt hours and therms by offering financial
incent j-ves f or energy savj-ng measures within simple
financial payback periods. As will be described by
Company wit.ness Mr. Drake, the Company's programs are
delj-vered across a full customer spectrum. Virtually all
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customers have had the opportunity to participate and many
have directly benefited from the program offerings. A11
customers have indirectly benefit,ed through enhanced
resource cost-efficiencies as a result of this portfolio
approach.
A. Wtrat were the Company's
targets and results for 20L0-20L2?
energy efficiency
A. The Company's energy efficiency targets are
established in the process of developing the Electric and
Natural Gas Integrated Resource Plans (IRPs). The targets
derived through the resource planning efforts provide a
starting point for program planning which is accomplished
through the annual business planning process where program
offerings are optimized for the Company's service
territory based on current economic and market conditions.
The Companyrs energy efficiency offerings include
over 300 measures and equipment options that are packaged
into over 30 programs for customer convenience. As part of
Avista's planning efforts, over 3,000 eguipment options
and over L,700 measures are evaluated and then examined
for cost-effectiveness.
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The results of Avista's
continue to exceed the targets
IRP process, ds shown in Table
efficiency savings for 201-0
f irst-year Mwh (or L2.5 aMW) .
Company's IRP target of 57,289
Table No. 1
energy efficiency programs
established as part of this
No. L below. Idaho energy
through 2Ol2 were 109,100
This represents 190? of the
MWh for this period.
201,0-201-2
MWh Savr-ngs
20L0-20L2
IRP Target
Percent
Acfireved
109, 100 57,299 L90Z
Over l-81.4 aMW of cumulative savings have been
achieved through Avista's energy efficiency efforts in the
past thirty-five years; of which L1,7.6 aMW of DSM is
currently in place on the Company's system with
approximately 35.3 aMW in our Idaho service territory.
Current Company-sponsored conservation reduces retail
loads by nearly 10
percent.
The 201-0-201-2 natural gas savings targets for Idaho
were 2.1, million therms. Over 950,822 first-year therms
have been saved in Idaho, which is 45* of this periodrs
target as represented in Table No. 2. (Avista's combined
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Idaho and Washj-ngton natural gas targets were 7.O million
therms of which 4.1, miIIlon therms were achieved. )
Natural gas efficiency acguisition was affected by lowered
natural gas avoided costs and the suspension of Avista's
Idaho natural gas DSM programs in 201,2. Company witness
Ms. Hermanson will provide the detail in support of these
results.
Table No. 2
201,0-201,2
Tfrerm Savings
20LO-201-2
IRP Target
Percent
Acfiieved
950 ,822 2,7.05, 692 452
A. What was the cogt of
acquisitions?
these efficiency
A. During 20L0 -201-2, the Company spent $25 .4
million on Idaho electrj-c and natural gas DSM programs of
which 64.02 was paid out to customers in direct incentives
pursuant to the cost-effectiveness tests described by Ms.
Hermanson. This percentage does not include additional
benefits such as technical analyses provided to customers
by the Company's DSM engi-neering staf f .
A. Do the 2010-20L2 results reflect Avista,g
participation in regional. energy efficieney efforts?
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A.Yes. The numbers reported include L2,6L4 MWh of
first-year Idaho savings acquired through Northwest Energy
Efficiency Alliance's (NEEA) regional efforts.NEEA
focuses on using a regional approach to obtain electric
efficiency through the transformation of markets for
efficiency measures and services. An example of NEEA-
sponsored programs that benefit Avj-sta customers are
efforts to decrease the cost of compact fluorescent light
bulbs (CFLs) and high-efficiency appliances by working
through manufacturers. For some measures, a large-scaIe,
cross-utility approach is the most cost-effective means to
achieve energy effJ-ciency savings and transform the
market. This approach is particularly effective for
markets composed of large numbers of homogenous smaller
usage consumers, such as the residential and sma1l
commercial markets.
O. Pleaee e:qllain Avista's relationship to the
Northwest Energy Efficiency Alliance (NEEA).
A. Avista has been a member of the NEEA, and
actJ-ve1y involved j-n its governance, since the creation of
that organization in 1,996. As one of fourteen funders,
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Avista is supportive of the use of a coordinated regional
market transformation effort to the extent that the effort
is a cost-effective enhancement of, or alternative to,
1oca1 utility efforts at acquiring those resources for our
customers.
The utility cost of NEEA's savings in Avista's ldaho
service area is $l-40 per first-year MWh. This compares
with $l-55 per first-year MWh for Avista-funded loca1
energy efficiency programs. During the 201-0-2012 period,
Avistars Idaho-related NEEA funding averaged $590,000 per
year, or a total of nearly $1.8 mi1lion.'
a. What is the Company'a plan for identifying
future potential in energy efficiency within new and
evolving technologies?
A. On August 30, 20L3, Avista filed an application
with the Commission to authorize up to $300,000 per year
of Schedule 9:-., DSM Tariff Rider revenue to fund applied
research at Idahors universities through a "ca11 for
papers[ approach. The intent of this inititative is to
supplement the pipeline of emerging technology. While this
lBased on Avista's regional customer count
of NEEA's annual budget with 30? allocated
and l-oads formula of 5.4tto Idaho.
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application is in a separate docket, (Case No. AW-E-13-
08), I mention this to underscore Avista's interest in
advancj-ng research efforts to assist the pursuit of new
technologies on its customers' behalf.
O. What is the etatus of the Idaho electric and
natural gas tariff rider balancee?
A. The Idaho electric and natural gas tariff rj-der
balances are $3,271,,549 underfunded (i.e. dollars expended
exceed dollars collected through the Tariff Rider) and
i734,222 overfunded, respectively.' Overfunded balances
indicate that more tariff rider funding was collected than
necessary to fund the on-going DSM operations. The
overfunded balance will be held to cover some long-term
site-specific projects that are projected to complete and
be paid in 20L4-20L5. After gualifying projects have been
paid, any remaining balance will be netted with the
Purchase Gas Adjustment (PGA).
Avista has historically filed for changes in
Schedules 91- and 191 when the rider balances have exceeded
certain thresholds, such as a 2* retail rate impact.
'Unlike the 8.5% interest the Company incurs on Schedule 9l electric tariffrider, the overfund balances
on Schedule 191 does not incur interest.
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Going forward, Avista plans to file energy efficiency
true-ups on an annual basis. Ms. Hermanson describes the
expenditures, effJ-ciency savings, and cost-effectiveness
of t,hese programs in her direct test j-mony.
O. Due to low natural gas avoided costs, AviEta
euepended its natural gaE energy efficiency programE by
Commiseion deeision effect,ive September 25, 20L2. Does
the Company have plans to consider bringing theee prograrns
back?
A. Yes. Avista intends to propose an offering of
natural gas efficiency programs in Idaho when the cost-
effectiveness is "favorable" as measured by the total
resource cost (TRC) test. Avista will monitor the
quarterly weighted average cost of gas (WACOG), relative
to the prevailing WACOG when Schedule 1-91- was suspended,
as a proxy for avoj-ded cost. Should there be an increase
of 50? in gas costs; Avista will evaluate the viability of
reinstating a cost-effective natural gas DSM portfolio.
Similar1y, natural gas DSM was temporarily suspended in
1997 and reinstated in 2000 when natural gas avoided costs
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increased enough to offer cost-effective natural gas DSM
programs.
O. P1eage describe the opportunity for external
review of Avietate DSM activities.
A. The Company has had continuous energy efficiency
stakeholder involvement since 1-992. To gain perspectives
from external experts and opinion leaders, Avista provides
opportunities for communj-cation and input pertaining to
the Company's DSM portfolios. The Company's program
offerings, planning, evaluation findings, underlying cost-
effectiveness tests and results are reviewed during
stakeholder meetings. Currently, the Company holds in-
person meetings at least twj-ce per year, hosts several
webinars annua11y, provides a fuII analysis of the results
of DSM operations on an annual and monthly basis,
discloses (with appropriate concern for customer
confidentiality) large projects and provides a quarterly
newsletter summarj-zing recent DSM activities.
Avista's Energy Efficiency Advisory Group, separate
from the Companyrs Integrated Resource Planning Technical
includes representatives from
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regulatory and other governmental agencies, environmental
groups, D?tiona11y recognj-zed energy-efficiency
organj-zations, and advocacy groups for 1ow income and
industri-a1 customers
participants.
as well as end-use customer
in the
Avista appreciates the actj.ve engagement of the
Commission Staff as part of our Energy Efficiency Advisory
Group. Additj-ona11y, the Idaho Rivers A1Iiance, the
Northwest Energy Coalition, Unj-versity of Idaho Integrated
Design Lab and the Northwest Industrj-aI Gas Users have
representation on Avista's Advisory Group.
A. How many Avista staff assiet
implementation of Avieta's DSM programe?
A. Currently, these programs are supported by
twenty-one fuI1-time equivalents (FTE) spread over 43
staff that support DSM programs in Washington and Idaho.
A. With the suspension of natural gas programs and
deelining electric avoided costs, what are the Company's
plans with current staffing levels?
A. The Company's 2Oa2 Voluntary Severance fncentive
Program resulted in a decrease of approximately 1.25 FTE
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in the DSM Department. In addition to this, Avista is
continuing to evaluate the appropriate staffing 1eve1s and
will maximize attrition opportunities as they arise.
III.PRI'DENCE OF INCURRED DSM COSTS
O. Would you please e:qllain the Company's requeat
for a finding of prudence in t,his case?
A. Yes. Idaho electric programs have been cost-
effective from both Total Resource Cost (TRC) test and
Program Administrator Cost (PAC) test perspectives. As
explaj-ned later in by Company witness Ms. Hermanson, the
201-0 -20L2 TRC benef it-to-cost ratio of 1. 9l- for the Idaho
electric DSM portfolio is cost-effective, with a resj-dua1
TRC benefit, to customers of $29.9 million. The 201-0-201-2
PAC, also known as the Utility Cost Test (UCT), benefit-
to-cost ratio of 3.35 j-s also cost-ef fective, with a
residual PAC benefit of nearly $42.4 mi11ion. The
Ievelj-zed TRC and PAC costs are $35.55 and $1-9.97 per MWh,
respectively.
The overall portfolio of measures has a weighted
average measure life of approximately 13 years for 2010-
201,2.
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Avista has previously demonstrated the prudence of
program expenditures in the context of general rate cases.
In the Company's 2010 electric and natural gas general
rate cases (Case Nos. AVU-E-10-01 and AW-G-10-01-) , the
Commj-ssion issued a finding in Order No. 32070 that
electric and natural gas expenditures through December 31,
2009 were prudently incurred. At this time, the Company
requests that the Commission issue a finding that electric
and natural gas energy efficiency expenditures from
January l, 201-0 through December 31, 20L2 were prudently
incurred.
A. Please sumnarize the Company's energy
efficiency-related savings for this period?
A. The Company's tariff riders under Schedules 91
(electric) and 191- (natural gas) are system benefit
charges to fund energy efficiency.
As shown on page 1 of Exhibit No. 3, Schedule L, from
ilanuary L, 2010 through December 31, 20L2, 109,100 MWh and
95O,822 therms of annual first-year efficiency savings
were achieved. Page 1 of Exhibit No. 3, Schedule 1
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details the energy savings by regular and low-income
portfolios for both electric and natural gas DSM programs.
A. Please describe the retention of the
independent, third-party evaluators who verified the 2010-
20L2 eavings.
A. In late November 201-0, following the fl1ing of
its Evaluation, Measurement, and Verification (EM&V)
Annual P1an, the Company issued a comprehensive Request
for Proposal (RFP) for EM&V services for its 20lO-201-1,
electric and natural gas DSM portfolio. Avista retained
consultants Steve Schiller and Dr. Chris Ann Dickerson to
assist with the RFP process in order to ensure a
comprehensj-ve scope and appropriate vendor selection.
This came on the heels of a collaborative process with the
consistent involvement of the Commission Staff to develop
an overarching "EM&V Frameworkrr to establish protocols for
savings acguisitj-on and program management review.
Over twenty prospective bidders participated in a
conference call with five bidders submitting proposals by
the December 27, 201-0 due date. The Company conducted
detailed interviews by phone with two bidders being
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selected
awarded
for
the
second interviews on-site. Cadmus was the
independent EM&V contract based on its
detailed evaluation approach following best practices,
coupled with its strong regional and national reputation.
In addition, Cadmus had a sizeable and diverse complement
which made it possible for multiple teams to be
immediately deployed on varj-ous tasks, such as the
Technical Reference Manual (TRM) review and natural gas
measurement and verification, in order to meet impending
regulatory deadlines.
O. I{hat evaluation of the Company's DSM programs
have occurred?
A. Cadmus performed independent (or "third-party")
J-mpact and process evaluation on Avistars DSM programs for
the 201-0-201,2 time period covered by the Company's request
in this case. Impact evaluation is intended to verify,
and adjust as necessary, "claimedrr savings.Process
evaluation reviews "procedures" for continual improvement.
Ms. Hermanson and Mr. Drake describe the results of
Cadmus' work in detail.
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O. Do you
recommendations?
agree with Cadmus'conclusione and
A. Yes. As further discussed in Company wj-tness
Drake's direct testimony, the August 2, 20L3 *201-2 Process
Evaluation Memorandum" makes recommendations regarding
Avj-sta' s "201-1 Large Proj ect Review Process" and a
"Database and Realization Rate Review." We have begun
establishing new processes and procedures to ensure
successful j-mplementation of these recommendations.
a. Have the e:q>enditures for energy efficiency been
cost-effective and prudent?
A. Yes. The Company's expenditure of tariff rider
revenue has been reasonable and prudent. A portfolio of
programs covering all customer classes has been offered
with total savj-ngs of over 109,100 MWh and 950,822 therms
during ,January 1-, 2010 through December 3A, 201,2. A 13-
year leveIj-zed total resource cost per saved megawatt hour
of $35.55 has been achieved. The 2l year levelized total
resource cost per saved therm has averaged $1.L3 a therm.
Ms. Hermanson will provide further detail demonstrating
cost-effectiveness of fdaho DSM programs in her testimony.
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The Tariff Rider funded programs have been very
successful. Participating customers have benefited through
lower bi11s. Non-participating customers have benefited
from the Company having acquj-red lower cost resources as
well as maintaining the energy efficiency message and
infrastructure for the benefit of our service territory.
IV. OTHER COMPAIIY WITNESSES
O. l{ouLd you please provide a brief Eurnmary of the
testimony of the other witneeses representing Avista in
thie proceeding?
A. Yes. The following additional witnesses are
presenting direct testimony on behalf of Avista:
Chris Drake, Manager of Demand Side Management
Program Delivery, will describe Avj-stars energy efficiency
program offerings available to Idaho customers and program
management perspectives. Mr. Drake will also respond to
Evaluation, Measurement and Verification findings and
Cadmus recommendations specific to implementation issues.
Lori Hermanson, Senior Resource analyst, will address
the cost-effectiveness of Idaho DSM programs offered in
20LO-2012, and sponsors evaluatj-on studies.
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Avista Corporation
I Q. Does that complete your pre-filed direct
2 testimony?
3 a. Yes, it does.
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Avista Corporation