20141203Comments.pdf

NEIL PRICE
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 6864
Street Address for Express Mail:
472W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
IN THE MATTER OF THE APPLICATION OF
AVISTA CORPORATION SEEKING A
DETERMINATION BY THE COMMISSION
THAT THE COMPANY'S ELECTRIC AND
NATURAL GAS ENERGY EFFICIENCY
EXPENDITURES WERE PRUDENTLY
INCURRED.
7!llr IFt -3 Pl* 2: 33
, r it r , ir ,-_r ii;'i..i,i-u:-"'-t-."
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. AVU.E.14.O7
AVU-G-I4-02
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission (o'Commission"), by
and though its attorney of record, Neil Price, Deputy Attorney General, and in response to the
Notice of Modified Procedure issued in Order No. 33174 on November 12,2014 in Case No.
AVU-E- I 4 -07iAVU-G -l 4 -02, submits the following comments.
BACKGROUND
On August 72,2014, Avista Corporation (o'Avista" or "Company") submitted an
Application seeking a determination by the Commission that the Company's electric and natural
gas energy efficiency expenditures from January 1,20L3 through December 31,2013 were
prudently incurred. Avista states that it spent $7,634,864 on Idaho electric and natural gas
efficiency programs.
Avista's previous electric and natural gas energy efficiency prudency filing was on
September 30,2013. The Company requested a Commission finding of prudency regarding its
electric and natural gas energy eff,rciency expenditures for the calendar years of 2010-20L2
STAFF COMMENTS DECEMBER 3,2014
(AVU-E-I3-09; AVU-G-13-02). Thereafter, the Commission issued a Final Order ruling that
$25,172,700 of the Company's requested amount of $25,380,857 were prudently incurred. See
Order No. 33009.
In support of its current Application, Avista submitted a cover letter and the pre-filed
Testimony and Exhibits of Avista DSM and Products and Service Managers Chris D. Drake and
Bruce W. Folsom. The Company also included the pre-filed testimony of M. Sami Khawaja who
is employed by Avista's third-party DSM evaluator: The Cadmus Group, Inc. (o'Cadmus").
APPLICATION
In its Application, Avista listed its low-income, residential and non-residential programs
benefitting its Idaho electric and/or natural gas customers. For progrtrm evaluation, measurement
and verification, Avista states that it employed Cadmus after a competitive request for proposal
(RFP) process. Avista employs an implementation team made up of program managers,
coordinators, engineers, account executives, and analysts. The Company provided verification
of installation and project invoices.
Avista claims that in 2013 it achieved 25,899 gross, first-year MWh energy savings in its
Idaho service territory. This represents 136%o of the Company's target savings (19,009 MWh)
identified in its 2013 IRP. Avista has achieved over I 89 aMW of cumulative savings through its
energy efficiency efforts in the past thirty-six years. 122 aMW of DSM is currently in place on
the Company's system, with approximately 36 aMW in the Idaho service territory. Current
Company-sponsored conservation reduces retail loads by 10.6 percent. Additionally, Avista
states that although natural gas programs were suspended in Idaho prior to 2013, there were
several instances where natural gas savings were achieved due to grandfathered projects or dual
fuel saving measures. According to the Company, 51,772 therms of residual first year efficiency
savings were achieved from January 1,2013 through December 31,2013.
Avista spent $7,63 4,864 on Idaho electric and natural gas DSM programs, of which 64%
was paid out to customers in direct incentives pursuant to the cost-effectiveness tests shown in
Exhibit No. l. The direct incentives do not include additional benefits such as technical analyses
provided to customers by the Company's DSM engineering staff.
The Company states that the levelized cost of resources acquired through Avista's Idaho
participation in the Northwest Energy Efficiency Alliance (NEEA) was 1.8 cents per kWh. This
STAFF COMMENTS DECEMBER 3, 2OI4
compares with 14.1 cents per kWh for Avista-funded local energy efficiency programs in Idaho.
During 2013, Avista's Idaho-related NEEA funding was $801,838.
Avista states that it intends to reinstate its Idaho natural gas efficiency programs as soon
as they are cost-effective according to the Total Resource Cost (TRC) test. Avista maintains
that Idaho's electric programs are cost-effective with a TRC benefit-to-cost ratio of 1.23, and
with a Program Administrator Cost (PAC) test benefit-to-cost ratio of 1.86.1
Avista also presented the findings of its Cadmus evaluations. Cadmus conducted impact
and process evaluations of the electric and natural gas programs in the residential, non-
residential, and low income sectors. The Company asserts that Cadmus' evaluations meet
industry standards and protocols. The Company further believes that the process evaluations
reveal that the programs are nrn efficiently while some areas for improvement exist.
STAFF ANALYSIS
Commitment to Energy Efficiency
Staff believes the Company continues to be committed to energy efficiency. For
example, the Company exceeded its 2013 Electric IRP target for the fourth consecutive year.2
The IRP target was established from the Company's Conservation Potential Assessment (CPA),
which assumes that 85 percent of all cost-effective energy efficiency potential can be achieved
over the planning period. Avista has been able to continue achieving this high level of savings
by continuously innovating, adapting, and expanding program offerings.
In addition to continuing its branded energy efficiency campaigns, "Every Little Bit" and
"Efficiency Matters," Avista implemented a cost-effective residential behavioral program. This
program generated l.60/o energy savings per home, exceeded targets for energy savings by 3lo/o,
reported very low opt-out rates of l.2lyo, and significantly increased participation in its existing
prescriptive residential programs.3
' The TRC test establishes cost-effectiveness based on the total benefits and costs ofthe program in the utility's
service territory. The PAC test establishes cost-effectiveness based only on the benehts and costs that accrue to the
utility.
' Avista achieved l36Yo of its 201 3 IRP target. Direct testimony, Bruce Folsom, page 5.
3 2013 Cadmus Impact Evaluation, page 70.
STAFF COMMENTS DECEMBER 3,2014
ln2014, Avista filed a Tariff Advice to streamline its electric-to-natural gas conversion
program and increase the incentive payments.a The approved changes were made because its
market assessment determined that the majority of easily-achieved conversions had been
acquired. The Company worked to create demand for the program by embedding gas-conversion
messaging in the Home Energy Reports as part of its residential behavioral efficiency program.
Also in 2014, Avista announced or deployed several pilot programs to explore new opportunities
for energy savings. These include a residential smart thermostat program with both contractor
and customer installation options, a "fleet heat" pilot to fund sensors to turn off engine block
heaters when ambient air temperatures permit, and a prescriptive gas station canopy LED
campaign. In addition to energy efficiency, the Company has contracted with Applied Energy
Group (AEG) to study the potential for demand response and load following resources, including
direct load control, firm curtailment, time-of-use pricing, critical-peak pricing, and real-time
pricing. These options are being evaluated in its 2015 Electric IRP in order to meet capacity
shortfalls forecasted in 2020.
While this list of historic and ongoing accomplishments deserves recognition, perhaps
Avista's most notable achievement in 2013 was the critical role it played facilitating
collaboration in NEEA's budget negotiations to improve its effectiveness and preserve it as a
four-state energy effi ciency market transformation organization.
Staff Financial Review
As part of its review, Staff performed an on-site audit and reviewed all DSM
expenditures. Staff s audit consisted of evaluating the Company's internal controls processes,
interviews with program managers, and reviews ofjurisdictional allocations. Based on its
review, Staff supports the Company's DSM efforts and recommends that the Commission
approve $7,736,994 as prudently incurred expenses for the 2013 calendar year. This amount
consists of $7,579,365 in Idaho electric tariff rider expenses, and $157,629 in Idaho gas tariff
rider expense. This amount is $ 102,1 83 greater than the $7 ,634,864 included in the Company's
request (Folsom Direct, Pg. 6). During Staff s review in the previous prudency case (Case No.
AVU-E-I3-09 and AVU-G-I3-02), the Company discovered that some consulting and
evaluation expenses ($89,820 electric and $12,363 gas) were booked to the Idaho tariff rider and
o TariffAdvice No. l4-05-E. Avista typically refers to "fuel efficiency" when referencing its electric to natural gas
conversions.
STAFF COMMENTS DECEMBER 3, 2014
should have been charged to Washington. This error was corrected on the Company's books in
2013 with a negative journal entry. When these journal entries are netted with the rest of the
Company's expenses in its reporting system, it produces the actual amount the Company
requests for prudency determination.
Table I illustrates Staff s recommended expenses to be deemed prudent, along with the
tariff rider ending balances for both Idaho gas and electric.
Table 1:Idaho DSM Tariff Rider Balances
Electric Natural Gas
$819,324
1,350
12,138
t2.363
$84s.17s
0
(157,629)
(1,350)
(12"138)
$674.0s8
Company Reported Beginning Balance
Defened Recovery - OER Incentives
Deferred Recovery - LCSC Incentive
Adjustment for EV&M - Order No. 33009
Staff Calculated Beginning Balance
DSM Rider Revenue
Energy Efficiency Expenses
Recovery of Deferred OER Incentives
Recovery of LCSC Incentive
Ending Balance
$(522,697)
94,749
l,gg2
89.820
$(336.146)
4,553,054
(7,579,365)
(94,749)
(1.982)
$(3.4s9.188)
As of December 3 I , 2013, the Company had an underfunded balance (Customers owe
Company) in the electric rider account of $3,459,188. During the year, energy efficiency
expenses far exceeded the revenue collected from the DSM tariff rider, signaling that an increase
in funding may be necessary in the near future. On the gas side, the Company owed customers
$674,058 at the end of 2013. This money is being returned to customers as a part of the
Stipulation that extended the existing rate plan approved by the Commission in Order No. 33130.
In Order No. 33009, the Commission deferred recovery of incentives paid to Lewis and
Clark State College (LCSC) and the Offrce of Energy Resources (OER) until this current case.
This allowed Avista an opportunity to provide invoices and verification of measures installed for
those projects. In its filing, Avista provided original invoices and documentation for the LCSC
project. Staff is satisfied with the documentation and recommends the Commission allow
recovery of the $14,120 ($1,982 electric and $12,138 gas) deferred inthe previous case.
Staff s concern with incentives paid to the Office of Energy Resources is based on the
lack of information provided by the OER to Avista. The OER invoice did not include any
itemized documentation for the measures installed or labor performed at each site, but rather just
STAFF COMMENTS DECEMBER 3,2014
a total sum of the amount owed for each project with no detailed information. Staff would
normally recommend a complete disallowance of any expense paid with such little supponing
documentation. However, following the Commission's directive to verify the installation of the
measures, the Company sent its own personnel to each school and did a physical inventory of all
measures installed. The Company then matched that inventory to the bid proposal worksheet
received from the OER. Based on the verification performed by the Company, Staff is satisfied
that the measures were installed and are producing energy savings. Staff recommends that the
Commission approve recovery of the $96,099 ($94,749 electric and $1,350 gas) in incentives
paid to the OER.
Improvements from the Previous Prudency Review
In the Company's Reply Comments from the previous prudency case, it acknowledged
the problems identified by Staff and has since taken meaningful actions to address many of the
issues. For example, the Company voluntarily committed to file a Status Report by July 1,2014
explaining how it addressed Staff s concerns. The Status Report stated that, consistent with
Staff s recommendation, Avista established a central decision-maker for DSM policy and
procedures.
In addition to establishing a central decision-maker, Avista undertook a significant
reorganization of its DSM department, which consisted of two main aspects. First, the Company
established a'oSenior Manager of Energy Efficiency" under whose direction "the DSM
organization will be fully integrated."s Second, the Policy, Planning, and Analysis (PPA) group,
whose previous duties had included providing internal review, was reconstituted as the "Analyst
Team." The Analyst Team's revised duties may be evolving but currently include developing
the annual DSM Business Plan, providing cost-effectiveness analysis, and managing extemal
evaluations.
The Status Report also included the Company's first DSM Standard Operating
Procedures (SOP) document, which "provides a detailed explanation of how the DSM programs
in Idaho are to be implemented."6 Avista believes that the SOP document will help create
structure and clarity around program management.
s Avista Status Report , June 26,2014, page 3.
u Avista Status Report , June 26,2014, page 3.
STAFF COMMENTS DECEMBER 3,2014
Staff s Comments in the 2010-2012 prudency review also noted that shortcomings in
Avista's program management were identified, but remained uncorrected throughout the course
of several years and multiple evaluations. In order to make sure that future recommendations are
recognized and receive appropriate follow-through, Avista has developed an "Issues Tracker"
using software known as CATSweb. This tracker is "for managing intemal and external
recommendations-from detection to corrective action and/or follow up."7 According to the
Company, this will "...improve quality management and compliance performance." Id. Staff
believes that this tracker will help Avista improve its programs more quickly by formalizing the
process for reviewing and adopting program recommendations when appropriate. However,
Staff shares Internal Audit's recommendation that "on a reoccurring basis (quarterly, semi-
annual, etc) the Issues Tracker should be presented to a third-party, like Internal Audit, to ensure
findings and recommendations are being addressed."s
As discussed in the Company's previous prudency case, it has instituted a series of "Top
Sheets" for each of its non-residential site specific projects to ensure that the technical and
administrative requirements for each project are consistently met and documented. When
compared to the DSM project database audit conducted during the previous prudency review,
Staff noticed an improvement in project documentation, including invoice tracking and
confirmation of installation verification. Staff believes much of this improvement may be
attributable to the Top Sheets and SOP document.
Insuffi cient Project Documentation
Despite the recent improvements, the Company's previous process and documentation
issues identified by Staff and others extended beyond 2012 and into 2013. In2013, Avista paid a
$183,542 incentive to U.S. Silver on a hoist upgrade. Originally, the project contract was signed
under the tariff that required complete installation by December 2,201l. However, the project
invoices indicate that although the equipment was bought throughout20ll, commissioning did
not occur until March 2012. By that time, Avista's tariff had been modified to impose a 13-year
simple payback (SPB) period as a proxy for cost-effectiveness on all projects. Previously
'Avista Advisory Group meeting, October 23,2014, Program Planning, page l.
t Wild Rose Review and Demand Side Management Follow-up Audit Report, Avista Internal Audit Department,
April 3, 2014,page 3.
STAFF COMMENTS DECEMBER 3,20T4
existing projects could be processed under the 2011 tariff if their existing contract terms were
met or if Avista and the customer signed an amendment to extend the terms of the contract.
However, no contract amendment was signed for U.S. Silver and while project engineers
maintain that the project was installed before the December 2,201 1 contract deadline, there does
not appear to be any documentation, In the absence of meeting the original contract
requirements or signing a contract amendment, the project should have been held to the updated
tariff standards, which excluded incentives for projects exceeding a 13-year SPB. During this
time, U.S. Silver began providing actual project costs which were higher than originally
anticipated. Consequently, the higher costs drove the project SBP over the 13-year limit required
under the most current tariff.
Avista has acknowledged that this project should have included a contract amendment.
During its audit, Staff questioned the Company about how such an important, high-profile
project could fall through the cracks. Avista claims that because it was such a large project,
several members of their team were in constant contact with the customer and closely monitoring
the project process. Consequently, normal documentation steps used to track progress on
smaller, more intermittent projects were neglected.
Staff believes that Avista's failure to document basic contract compliance on one of its
most important projects represents the Company's project management practices prior to mid-
2013. However, Staff does not recommend a disallowance because the problems with this
project occurred several years before the significant improvements Avista has recently made to
its program management process. These improvements include a deadline notification system
that sends periodic reminders as compliance deadlines approach, and a legacyltransition project
tracking function to clearly link projects to the legally applicable tariff. With these controls in
place, Staff is confident that future projects will not encounter these issues.
Opportunities for Further Improvement
Staff supports the progress Avista has made so far in improving its processes to protect
ratepayer funds. These may all be steps in the right direction, but several issues identified by
Staff, Cadmus, and Avista's Internal Auditing department remain unresolved.
In Staff s previous prudency Comments, it expressed concern with the Top Sheet peer
review. Specifically, Staff Comments stated: "...Top Sheets are filled out by a member of the
implementation team or engineering team and then double-checked for accuracy by another
STAFF COMMENTS DECEMBER 3, 2014
member of the same team. Because Cadmus and Avista's internal review found deficiencies
with the engineering implementation assumption practices, having those members check their
own work is unlikely to improve accuracy."e Staff further pointed out that having an external
review after the incentive was paid did not protect ratepayers from funding imprudent projects.
In Testimony filed for this prudency case, Avista explains that the Top Sheet peer review
is not a stand-alone solution, but is improved through an internal review process:
To complement the deployment of the Top Sheet procedures within the
[I]mplementation [T]eam for project, policy, and contract review, the DSM
analysts also perform an intemal review of a subset of completed site-specific and
prescriptive projects. The projects selected for internal review are randomly
selected. The information resulting from the internal review is communicated
back to the Implementation Team to be incorporated back into the continuous
process improvement activities. l0
But during Staff s on-site audit, Avista confirmed that this additional internal review
process was no longer in place. It is not clear what lead to the dissolution of this review, but
Avista explained that when program management practices are being significantly and rapidly
overhauled, it could be difficult to state precisely what the exact process was at a particular point
in time. Regardless of the cause or the timing, Avista's decision to remove the review rather
than improve upon it by having the review precede the incentive payment is the exact opposite of
Staff s prior recommendation.
Staff s recommendation for a central DSM decision maker was based on the
understanding that there had been differences of opinion regarding engineering assumptions,
calculations, policy requirements, and tariff interpretations. But if the peer-review is conducted
by members of the same team without any sort of external review, there is unlikely to be much
disagreement. Although disagreement may be reduced, the quality of the work will not
necessarily improve.
The Company has defended its decision to rely primarily on the Top Sheet and peer
review processes for project management improvements by confirming that it will continue
conducting third-party impact and process evaluations to ensure rigorous program management.
Staff agrees that impact evaluations can identify realization rates, determine if engineering
' Staff Comments, page 8, Case Nos. AVU-E-13-09/AVU-G-13-02.
'o Chris Drake, Direct Testimony, page 17.
STAFF COMMENTS DECEMBER 3,2014
calculations are sufficiently robust, and compare project incentive payments to tariff rules-but
only long after incentives have been paid, which exposes the Company to a much greater risk of
disallowance than if mistakes are identified and corrected before payment is issued.
Since Avista's new program management practices were instituted to resolve problems, it
is reasonable to expect more stringent controls, but certainly not less than the controls Avista
identified in Testimonyll and in the July 19, 2013 Internal Audit.12 In addition, while overall
realization rates increased to 94o/o from2012 to 2013, individual project realization rates varied
between 0%o and306%. The wide range of realization rates indicates that Avista's calculation
methodologies, which directly impact claimed savings and incentive amounts, could be
significantly improved. Staff agrees with Cadmus that "[w]hile [recent refinements] have led to
improved reliability of reported savings in2}l2,quality assurance problems may persist.13 On
that basis, Staff also supports the two recommendations made by both Cadmus and Intemal
Audit:
First, Cadmus recommends that:
[a]ll large prescriptive or site-specific projects reporting savings
over a threshold of 300,000 kWh or 10,000 therms should undergo
a complete QA/QCt4 prior to incentive payment in addition to the standard
Top Sheet review process. Typically a QA/QC process reviews
engineering calculations, verifies inputs, checks payback period and
incentive payments for reasonableness, and ensures compliance with
program requirements and tariff rules. [n order to align the above
recorrmendation regarding program management with implementation,
Cadmus recommends that Avista determine and document the specific
requirements and steps in the QA/QC process through a collaborative
process that will ensure accountability and balance needs for efficiency
and customer satisfaction. I s
rr Direct Testimony, Chris Drake, page 17.
12 Page 2 of the July 19, 2013 Internal Audit reads: "Management Response: As stated, this independent review
process was changed in 2013 due to structural limitations of the independent review process. A peer review has
been implemented with independent review occurring as an audit after incentive payment. These actions, combined
with more frequent randomly-selected reviews, focuses on thresholds for significant projects."
" Cadmus 2012-2013 Process Evaluation, page 82.
ra Quality Assurance/Quality Control.
'' Cadmus 2012-2013 Process Evaluation, page 82.
STAFF COMMENTS 10 DECEMBER 3,2014
Cadmus' recommendation is similar to Intemal Audit's position on the same point:
"Significant projects should still obtain an independent review prior to incentive payout. The
Implementation Team and PPA Staff should determine the thresholds for significant projects
based on risk and dollar amount."l6
Second, Cadmus recommends that Avista:
Conduct an external third-party review of Top Sheets, including
reviewing a random sample of completed Top Sheets for completeness
and accuracy. These were not reviewed as part of the current process
evaluation, but should be included in the next process evaluation.
Review should not only verify the presence of the Top Sheets, but also
the quality and accuracy of the information reported.lT
Again, it parallels a similar recommendation from Internal Audit: "[p]erform an internal
review in the next 6 months to test both the effectiveness and existence of Top Sheets (as
Internal Audit's review was limited only to existence.)"18 Staffrecommends that Avista adopt
both sets of recommendations to help ensure continued prudency of tariff rider expenditures.
RECOMMENDATIONS
Staff recommends that the Commission issue an order that:
1 . Approves $7 ,736,994 prudently incurred expenses for the 2013 calendar year. This
amount consists of $7,579,365 in Idaho electric tariff rider expenses, and $157,629 in
Idaho gas tariff rider expense. This amount includes LCSC incentive payments of
$14,120 ($1,982 electric and $12,138 gas) and the $96,099 ($94,749 electric and $1,350
gas) of incentives paid to the OER.
2. Directs Avista to present the Issues Tracker to a third-party on a recurring basis to ensure
findings and recommendations are being addressed.
3. Directs Avista to complete a full QA/QC review for site-specific projects reporting
savings over 300,000 kWhs.
16 Demand-side Management Audit Follow-up Report, July 19, 2013,page2.
'' Cadmus 2012-2013 Process Evaluation, page 82.
't Wild Rose Review and Demand Side Management Follow-up, April 3,2Ol4,page 4.
1lSTAFF COMMENTS DECEMBER 3,2014
4. Directs Avista to include a substantive review of project Top Sheets in its next
evaluation.
Respectfully submiued this )*dav of December 20t4.
Staff: Stacey Donohue
Donn English
Curtis Thaden
Umisc/commentVavu el 4.7 _awgl 4.2npdesdnkct comments
Neil Price
STAFF COMMENTS t2 DECEMBER 3, 2014
CERTIFICATE OF' SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 3M DAY OF DECEMBER 2014,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NOS. AVU-E.14-07/AVU-G-14.02, BY MAILING A COPY THEREOF,
POSTAGE PREPAID, TO THE FOLLOWING:
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BOX3727
SPOKANE WA99220-3727
E-mail : [e-mail]
BENJAMIN J OTTO
ID CONSERVATION LEAGUE
7IO N 6TH STREET
BOISE ID 83702
E-mail: [e-mail]
LINDA GERVAIS
MGR REGULATORY POLICY
AVISTA CORPORATION
PO BOX 3727
SPoKANE WA99220-3727
E-mail : linda. gervais@avistacorp. com
CERTIFICATE OF SERVICE