20151113Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER RAPER
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL

FROM: BRANDON KARPEN
DEPUTY ATTORNEY GENERAL

DATE: NOVEMBER 13, 2015

SUBJECT: AVISTA’S APPLICATION TO RESUME ITS NATURAL GAS
EFFICIENCY PROGRAMS, CASE NO. AVU-G-15-03

On October 28, 2015, Avista Corporation dba Avista Utilities filed an Application for
authority to: (1) resume natural gas energy efficiency programs and projects to residential (including
low income), commercial and industrial natural gas customers under Schedule 190 (Natural Gas
Efficiency Programs); and (2) fund these programs by increasing its “Energy Efficiency Rider” rates
in tariff Schedule 191. Application at 1. Avista proposes that the gas DSM programs “be offered
through prescriptive rebates to customer segments for eligible weatherization and high efficiency
equipment measures as well as custom incentives for 27 non-residential projects.” Id. Avista asks
that the case be processed by Modified Procedure, and that new Schedule 191 Rider rates take effect
on January 1, 2016.
BACKGROUND
In 2012, Avista filed and the Commission approved an Application to suspend Avista’s
natural gas DSM programs. In its 2012 Application, Avista advised the Commission that new natural
gas costs were about 50% lower than existing avoided costs and that these lower gas costs render the
“natural gas energy efficiency portfolio cost-ineffective going forward.” Order No. 32650 at 1. After
recently evaluating a number of cost-effectiveness tests, Avista now seeks to re-establish its gas
DSM programs.
THE APPLICATION
Avista’s approach to the DSM programs has changed since it suspended the program in
2012. One major change is the metric Avista is using to evaluate cost-effectiveness. The Company
DECISION MEMORANDUM 2
claims that its historic method of measuring cost-effectiveness, the Total Resource Cost test (TRC),
has a potential for bias against conservation programs. Id. at 2. Accordingly, in its Application, the
Company instead uses the Utility Cost Test (UCT) to measure cost-effectiveness.1
Further, Avista also proposes three changes to its historic avoided cost methodology for
natural gas:
1. Total Cost of Delivery: Avista claims that “the demand portion of Schedule
150 is a more accurate representation of the total costs to deliver natural gas
from the wellhead to the customer meter, and therefore, that should be a
component of the natural gas avoided cost calculation.” Id. at 4-5. Thus,
Avista is including a $2.69/MWh long term firm wheeling charge, based on
the electric forward market prices of the Mid-C market hub in its avoided cost
calculation. Id.

2. Future Carbon Cost Assumptions: Avista seeks to include future carbon costs,
but states it is unable to come up with an accurate future carbon cost
assumption. Avista notes that there are a range of legitimate projections of
$0/metric ton to over $240/metric ton. Facing this ambiguity, the Company
chose to use $10/metric ton starting in 2020 with a 3% annual escalation.

3. Discount Rate: Avista argues that the most appropriate method of measuring
the cost-effectiveness of its conservation programs is its Weighted Average
Cost of Capital (WACC). However, the Company also claims that the tax
benefits of debt financing and inflation adjustment should also be included in
any discount rate. Accordingly, Avista has moved from a nominal WACC to
a real WACC in calculating its avoided cost.

Application at 4-5.
With regard to execution of the DSM programs, Avista proposes to revise Schedule 190
to “provide customers with a levelized incentive of $3.00 per first year therm savings for any project
with a simple payback less than 15 years and capped 70% of the project cost. Id. at 8. Avista further
requests the Commission approve an increase in rates and charges in Schedule 191. Avista estimates
this will result in an annual revenue change of approximately $1.25 million for natural gas Schedule
191, or an increase of 1.7% in overall billed rates. The proposed rate increase will have an average
monthly bill impact of $1.11 to residential natural gas customers using 61 therms.

1 The Company uses analytical tools such as the TRC and UCT to “test” the cost-effectiveness of its DSM programs.
In summary, the TRC compares program administrator costs and customer costs to utility resource savings, and
assesses whether the total cost of energy in a utility’s service territory will decrease. The UCT compares program
administrator costs to supply-side resource costs, and assesses whether utility bills will increase. Under these tests, a
program or measure is deemed cost-effective if it has a benefit/cost ratio above 1.0. In this Application, Avista
explains it prefers to emphasize the UCT over the TRC when evaluating its DSM programs because the TRC
“typically includes the full costs, but not the full benefits to customers because the risk reduction value of
conservation and many non-energy benefits are difficult to quantify.” Application at 2.
DECISION MEMORANDUM 3
The Company’s Application did not include a copy of press release(s) or customer notice,
as required by IPUC Rule 125.05 (“A copy of the press release and customer notice shall be filed
with the application,”). However, on November 13, 2015, Avista submitted those materials for the
Commission to consider.
STAFF RECOMMENDATION
Although Staff does not object to the Company’s request to process the case through
Modified Procedure, Staff is concerned that there is not sufficient time to process the case and issue a
final Order before January 1, 2016. Consequently, Staff recommends the Commission suspend the
proposed effective date for a period of 60 days pursuant to Idaho Code § 61-622, or until March 1,
2016, and note that Staff will nonetheless attempt to process the Application and present the matter to
the Commission for a final determination prior to January 1, 2016. Staff also recommends the
Commission set a December 10, 2015, comment deadline, and a December 17, 2015, reply deadline.
Staff has communicated this schedule and the 60-day suspension with Avista, and it has
no objection to this recommendation.
COMMISSION DECISION
1. Does the Commission wish to process this case through Modified Procedure with a
comment deadline of December 10, 2015, and a reply deadline of December 17, 2015?
2. Does the Commission wish to suspend the case for a period of 60 days, until March
1, 2016, unless the Commission issues a final Order in this matter before March 1, 2016?

Brandon Karpen
Brandon Karpen
Deputy Attorney General

M:AVU-G-15-03_bk