20151210Comment.pdf

IPUC Case No. AVU-G-15-03
ln the Matter of Avista Corporations's Application
to Resume NaturalGas Efficiency Programs and
lncrease the Rider Surcharge in Schedules 190 and 191
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Comments by Lynn Anderson
December 10,2A75
Avista Utilities' application to resume its naturalgas efficiency programs and to raise its
ldaho retail rates by an average of 7.7% to recover the estimated 51.25 million annual costs of
the efficiency programs is based on inadequate and faulty explanations, assumptions and
analyses. Furthermore, both the process and the analytical methods of changing avoided costs
and cost-effectiveness metrics used to justify resumption of the efficiency programs, if accepted
by the Commission, will set new and significant policy precedents for all natural gas, electricity
and water utilities under IPUC regulation. My interest in Avista's application is as an advocate of
cost-effective efficiency for more than four decades and as a customer of ldaho Power,
lntermountain Gas and United Water, each of which could be affected by the application's
proposed changes. Avista's request to process this application through modified procedure
should be denied due to:
1) Deficiencies in the application and in answering staffs production requests;
2) Adverse precedential consequences for customers of all ldaho utilities due to the
inappropriately proposed process changes to the avoided cost determination and application to
the metrics of determining cost-effectiveness of efficiency programs;
3) Adverse precedential consequences for customers of all ldaho utilities due to the proposed
inappropriate primary reliance on the utility cost test (UCT), and especially a UCT lacking a net-
to-gross (NTG) adjustment, to determine cost-effectiveness of efficiency programs.
4) Neither Avista's Application nor its notices to customers provided sufficient information for
most customers to be knowledgeable about how the proposed rate increase will affect their
bills or whether the proposed efficiency program will help them reduce their bills.
5) The short time period (20 days) between the Notice of Application and the comment
deadline included the Thanksgiving holiday, a winter storm that caused long, widespread
electricity outages and other adversities for thousands of Avista's customers, and Medicare's
open enrollment deadline. All of these factors undoubtedly hindered the interest level and the
ability for people to comment on Avista's proposals.
7./ar'6
Avoided Cost Deficiencies of Process, Calculation and Application of Discount Rates
I have read Jonathan Powell's comments in this case filed on December7,2OL5, and agree
with his critique of Avista's revisions to the avoided cost stream and the process it used to make
these revisions. I do not question the appropriateness of utilities updating their avoided costs
between their lntegrated Resource Plan (lRP) regular biennial filings if such updates are due to
significant changes of base energy costs. However, Avista's proposed avoided cost changes fall
into the category of assumption and method changes and those types of changes should be
accomplished via normal and transparent IRP public advisory committee vetting processes. I
also agree with Mr. Powell's critique of Avista's misuse and misapplication of discount rates,
which I believe suggests that Avista's analysis was based more on desired outcome than on
analytical prudence.
Avista's Proposal to Focus Primarily on the Utility Cost Test (UCT or PAC[)
The application "...proposes, in this filing to measure natural gas programs under the UCT
because the acquisition achievable by use of this metric is greater than that which would have
been arrived at by use of the Total Resource Cost (TRC) metric." p. 2 The logic in this statement
is lacking and again suggests that Avista's analysis is primarily outcome driven rather than based
on being prudent stewards of customer funds.
The application claims that measuring cost-effectiveness by the TRC metric has a potential
for bias against conservation programs. Footnote 2, p.2 The explanation offered to support
this claim is unconvincing and the claim is not supported by nationally accepted cost-
effectiveness reference manuals such as the NationalAction Plan for Energy Efficiency's
Understanding of Cost-Effectiveness of Energy Efficiency Progroms, Electric Power Research
lnstitute's End-Use Technicol Assessment Guide, and the Colifornia Standard Proctice Manuol:
Economic Analysis of Demond-Side Programs ond Projects. While it is true that the TRC test
usually yields a lower benefit-cost ratio than the UCT if the net-to-gross ratios are high, the
lower B/C ratio is rarely, if ever, primarily due to a bias against efficiency. lnstead the typically
lower TRC B/C ratios are usually the result of simply including customer costs in the test. lt
seems almost disingenuous to suggest that the inclusion of these real costs creates a bias.
lnstead, a bias is created when a large portion of the total cost is excluded, as in the UCT.
The application states that "Historically, the TRC has been the primary tool to measure cost-
effectiveness with additional attention paid to the perspectives provided by the UCT, Participant
Cost Test (PCT) and Ratepayer lmpact Measurement (RlM)." p. 5 But it is important to note that
the ldaho Commission and its staff have a long history of not relying on a primary test, but
instead, beginning with the Order No- 22299 issued in 1989 and reinforced in several orders
since then, the Commission has consistently stated that a multiple cost-effectiveness tests
should be used by utilities to prudently plan and manage energy efficiency programs. The use of
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multiple tests was also emphasized by the Commission staff in its Attachment No. 1 to the 2009
Memorandum of Understanding for Prudency Determination of DSM Expenditures (MOU)that
was signed by the staff, Avista Utilities, ldaho Power Company and Rocky Mountain Power.
(Staffs MOU Attachment No. 1 is attached to these comments.) lt is difficult to understand why
Avista's application now states that the TRC has historically been its primary tool to assess its
ldaho efficiency progra ms.
Curiously, in alleging a shortcoming of the TRC, the application states that "...but the costs
are primarily driven by the cost the customer's [sic] pay for the individual conservation
measure.r' p. 5 But Avista's proposed tariff Sheet 190A states that all project incentives will be
capped atTOo/o of incremental costs and then lists several situations where incentives will be
paid up to 100% of customer costs. How can total conservation costs be primarily driven by
customer costs when Avista will pay uptoTo% of costs, or even up to 100% of costs for many
projects?
The application states that when Avista filed to suspend its natural gas efficiency program
in Washington due to it not being TRC cost-effective, the commission in that state (the WUTC)
encouraged the company to use the UCT instead of the TRC. Avista first notified the WUTC of
the non-cost-effectiveness of its gas program in February 2012, which initiated discussions and
Avista filed its application to discontinue its gas program in June 2OL2. ln September 2AL2,l
listened to the WUTC wrangling with this issue during an open meeting and I have read its Policy
Statement on the Evoluotion of Cost-Effectiveness of Natural Gos Conservotion Progroms issued
more than a year later on october 9, 2013. lt is noteworthy that the wuTc's Policy stotement
says it prefers the TRC (as modified by the NWPCC), but that if a properly balanced TRC is not
available for gas efficiency, then it is permissible for a gas utility to use the UTC if it is closely
guided by its energy efficiency advisory group (which I believe transfers more responsibility to
an advisory group than is normally appropriate). Apparently the NWPCC's Lff/o adder to
efficiency benefits, which is required by the WUTC for all utilities' programs, was deemed
insufficient to properly balance the TRC for Avista gas programs. lt is also noteworthy that the
WUTC solicited and received comments from other naturalgas utilities in Washington as wellas
from several private and government entities. I can attest that the WUTC's decision to allow
{but in reality, require) Avista to use the UTC to replace the TRC was not easily made, that it was
politically influenced, that it was partly based on not wanting to let an existing program end due
to costs of stopping and starting programs, that some of the allegations about the lack of a
"properly balanced" TRC for gas efficiency were greatly exaggerated, and that some of the logic
in support of its decision was a bit tortured. Given the protracted history of the WUTC's process
and decision, I can understand why Avista would request modified procedure for the ldaho
Commission to reach a similar decision, but that history clearly suggests that the decision to
allow programs to be implemented based on the UCT is not one that should be made hastily and
certainly not via modified procedure.
The application refers to a "draft revised Memorandum of Understanding" provided by the
Commission staff that encouraged Avista's proposal to focus on the UCT for cost-effectiveness.
I asked the Commission staff for a copy of its draft revised MOU, but staff refused to provide a
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copy and said that its idea of revising the MOU was taking a different course than envisioned.
While I believe it is inappropriate for Avista to have referenced a draft document that is not
publicly available, it is even more inappropriate for major policy changes with precedential
impacts, such as emphasizing any particular cost-effectiveness test that results in rate increases,
to be formed without ample opportunity for public scrutiny. Avista's application also quotes
Order No. 33355 in an ldaho Power case to support its proposed primary reliance on the UCT for
cost-effectiveness, which is illustrative of how proposed policy changes in one utility's case can
be used as precedent for another utility's proposal. lt is imperative that such a major policy
change as deviating from relying on multiple perspectives of cost-effectiveness to primarily
focusing on just one test be announced statewide and that deliberate and ample opportunity be
provided for ldaho's utility customers, energy efficiency professionals, and other interested
entities to provide their varying perspectives and analyses.
Avista's Estimated Cost-Effectiveness for the Proposed ldaho Gas Efficiency Program
Avista's answer to staffs production request No. 1 shows that the company estimates its
cost-effectiveness will be the same as forecasted in its business plan for Washington. lt is
important to note that the forecasted cost-effectiveness test results do not include critically
important net-to-gross (NTG) adjustments that would reduce cost-effectiveness, but do include
a LOYo conservation adder to savings benefits and also include the many avoided cost errors and
dubious changes that enhance cost-effectiveness, as detailed by jonathan Powell's comments in
this case. Even with allthese errors andlor attempts to manipulate higher cost-effectiveness
results, the program is still shown to not pass the TRC test. Furthermore, the rate impact (RlM)
test result of O.2l is the lowest I can recall ever seeing in my decades of experience as an energy
efficiency professional, e.g. it is U4th of ldaho Power's RIM results shown in that utility's 2014
DSM Report. The extremely low RIM results, combined with low TRC and high participant cost
(PCT) test results suggest that Avista's proposed program is more of a wealth redistribution
program than an equitable and cost-effective energy efficiency program.
When a NTG factor is applied and the avoided cost errors are corrected, all of the cost-
effectiveness results will decrease, perhaps to the levels that Jonathan Powell suggests in his
comments, i.e. benefit/cost ratios of 0.35 TRC and 0.80 UCT.
I agree with Jonathan Powell's comments in his critique of Avista's cost-effectiveness
calculations that do not include net-to-gross (NTG) adjustments. All of the nationally recognized
energy efficiency cost-effectiveness manuals cited above stress the importance of NTG in
estimating cost-effectiveness, as do the staff's attachment to the MOU and the Cost-Effective
Energy Efficiency Report that the Energy Efficiency and Conservation Task Force submitted to
the ldaho Strategic Energy Alliance in 2013. NTG adjustments are critically important in the UCT
and RIM tests. Avista's proposal to primarily rely on the UCT without adjusting for NTG and
apparently without paying attention to RIM results is without merit, unless the goal is simply to
spend customer funds to reduce energy use without regard to true cost*effectiveness, let alone
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equity among customers.
Avista's Deficiency in Answer to Staff's Production Request No 6
Staff's Request No. 6 asked Avista to explain how it uses net-to-gross (NTG) estimates of
savings in managing its natural gas energy efficiency programs, or, if Avista does not use NTG, to
explain why not. And, secondly, to estimate how applying NTG estimates to the UCT could
affect cost-effectiveness. Avista answered only the second question, i.e. how NTG could have a
much greater impact on the the UCT than the TRC and gave the example that a 0.7 NTG factor
would reduce a hypothetical 2.0 gross UCT B/C ratio down to 1.4 net B/C ratio. Avista did not
answer staffs first question of how, or if, it uses NTG to manage its programs. lt is important to
know that Avista does not use NTG to estimate the cost-effectiveness of its Washington natural
gas program and, in fact, did not use NTG to adjust its forecast of ldaho cost-effectiveness. ln
summary, when directly asked by staff if it uses NTG, Avista did not answer and instead
disingenuously created an illusion that it uses NTG adjustments to account for program
participants who would have installed the efficient appliance in the absence of the program as
well as for other factors.
Avista's Application, Bi!! lnsert and Press Release Provide lnsufficient lnformation
The application, bill insert and press release all provide scant information on how the rate
increase will affect different customer classes and individual customers within each class. The
common statements that the rate increase wil! collect 51.25 million annually and will save
233,000 therms have no contextual meaning to customers. The program description in the
application consists only of "eligible weatherization and high efficiency equipment measures as
well as custom incentives for non-residential projects" and the abbreviated, cryptic list of
programs in Table l that are labeled as Washington programs. Avista's bill insert and press
release contain even less information than the application. The description of the rate increase
common in allthree documents is that rates will increase by 7.7% and that residential
customers using Sl therms will see a Sf .ft increase in monthly bills. ln actuality, residential
rates will increase by Z-OYo and customers with three people in the household and with gas
space and water heating will, on average, see their bills increase by more than $2 per month
(based on Avista's current residential rates and typical usage (default settings) used by Avista in
its Fuel Cost Comparison Calculator available at
https://www.avistautilities.com/savings/suite/Pages/fuelcalculator.aspx ). Households with
more or elderly people or with larger homes or those more difficult to weatherize will see even
larger bill increases. Avista has provided almost no information to customers to show how, or
even if, its proposed efficiency program will help them reduce their bills.
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Alternative Recommendations for Commission Disposition of Avista Application
Having been employed by the IPUC for more than 30 years, I understand and appreciate
that the Commission and its staff are justifiably reluctant to micro-manage the utilities it
regulates and that the preferred course is usually to let utilities manage themselves and be held
financially responsible for their prudent management or lack thereof. However, there are times
when a utility's analyses behind a proposal in an application is so flawed that the Commission
should prevent the utility from harming its customers before the fact rather than after the fact.
I believe Avista application is one of those times that requires proactive Commission
involvement. Thus, my three alternative recommendations are as follows:
1) Deny the application in its totality without scheduling a hearing. Furthermore, I believe that
Avista's deficiencies and lack of forthrightness in its application and production request
responses approach the level that its analytical, administrative and legal costs of preparing this
filing should at least be considered for disallowance as imprudent expenses. lt seems fair that
Avista's natural gas customers should not bear these costs.
2) lf the Commission does not want to deny the application without a hearing, then it should at
least suspend the application and require Avista to amend it with supporting testimony, exhibits
and other information useful to its customers, after which the Commission should notify all
ldaho utilities and their customers of Avista's proposal to primarily use the UCT to estimate
cost-effectiveness of efficiency programs and that this may ultimately result in all utilities being
required to substantially increase their efficiency efforts and rates for funding them (or begin an
efficiency program as in the case of lntermountain Gas).
3) Or preferable to 2) above, if the Commission does not want to deny the application without
a hearing, then I recommend that it suspend the application and initate a generic docket to
investigate processes and metrics of avoided costs and cost-effectiveness of efficiency programs
for all utilities.
Thank you for the opportunity to provide comments.
Lynn Anderson
720 Bacon Drive
Boise, ldaho 83712
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ATTACHMENT NO. 1
Staff Expectations for Cost-Effectiveness Tests, Methods and Evaluations
1. Cost Effectiveness Measurements. As stated at the October 5, 2009,
DSM evaluation workshop, Staff believes that prudent DSM management requires that
cost-effectiveness be analyzed from a wide variety of perspectives, including the
ratepayer impact perspective, and that all programs and individual measures should
have the goal of cost-effectiveness from the total resource, utility, and participant
perspectives. (See IPUC Order No. 22299 issued January 27, 1989, and Order No.
28894 issued November 21, 2001.1 lf a particular measure or program is pursued in
spite of the expectation that it will not, itself, be cost-effective from each of those three
perspectives, then the annual DSM report should explain why the measure or program
was implemented or continued.
2. Net-to-Gross Adiustments. The net-to-gross issue was also discussed at
the evaluation workshop. Some of the references that the utilities assert that they use,
such as lhe California Standard Practice Manual, actually require that all tests be done
on a net savings basis. Staff continues to assert that most programs and measures
have a significant number of participants who would have installed the measure or
changed their behavior in the absence of the utility program. Absent new evaluation
research to provide a basis for the net-to-gross adjustments used by each utility, the
utility has the burden of explaining the source of its net savings adjustments or lack
thereof. Staff will continue to assess whether utility cost-effectiveness estimates
s ufficiently a nd prudently i nclude net-to-g ross adjustments.
3. Third-Partv Evaluators. lndependence of evaluators from program and
portfolio management is another important issue that was discussed at the evaluation
workshop. While it was generally agreed that not all evaluations need to be performed
by third-party evaluators, Staff believes such evaluations tend to be perceived as being
more objective and transparent, and thus more credible, than evaluations performed by
utility staff, all other factors being equal. While Staff will review all evaluations and may
MEMORANDUM OF UNDERSTANDING - 9
review any evaluation in depth, utilities should expect that their self-evaluations may be
scrutinized more closely than third-party evaluations, as may the programs themselves.
4. Estimatinq Non-Enersv Benefits. Non-energy benefits are important and
prudent factors to assess in analyzing cost-effectiveness and determining incentive
levels, but Staff cautions against creating confusion by subtracting the estimated value
of non-energy benefits from program and measure costs when reporting DSM costs on
a cents per kWh basis.
5. Contractor Costs. After DSM reports are filed in 2010, Staff may
reconsider whether to require inclusion of specific contract amounts paid to contractors
in subsequent DSM reports.
6. Suooested Resources. ln addition to the several evaluation,
measurement, and cost-effectiveness manuals that were discussed at the workshop,
Staff suggests it may be useful for utilities to generally follow the guidelines in the
National Action Plan for Energy Efficiency's Model Energy Efficiency Program lmpact
Evaluation Guide, released November 2007. Another of NAPEE's reports titled
Understanding Cost-Effectiveness of Energy Efficiency Programs: Besf Practices,
Technical Methods, and Emerging /ssues for Policy-Makers may also be useful.
MEMORANDUM OF UNDERSTANDING - 10