20021202_339.pdf

TO:
FROM:
DATE:
RE:
DECISION MEMORANDUM
COMMISSIONER KJELLANDER
CO MMISSI 0 NER SMITH
COMMISSIONER HANSEN
JEAN JEWELL
RON LAW
LOU ANN WESTERFIELD
BILL EASTLAKE
LYNN ANDERSON
DON HOWELL
RANDY LOBB
DAVE SCHUNKE
BEV BARKER
TONY A CLARK
GENE FADNESS
WORKING FILE
SCOTT WOODBURY
NOVEMBER 29, 2002
CASE NO. PAC-02-7 (PacifiCorp)
IDAHO COMPACT FLUORESCENT LIGHT BULB PROGRAM
REQUEST FOR APPROVAL OF TARIFF AND DEFERRED ACCOUNTING
TREATMENT
On October 18, 2002, PacifiCorp dba Utah Power & Light Company (PacifiCorp;
Company) filed an Application with the Idaho Public Utilities Commission (Commission)
requesting approval of a proposed new tariff Schedule 20, Residential Energy Efficiency
Program-Compact Fluorescent Light (CFL) Bulb Program.
The proposed CFL program would provide two CFLs, at no direct cost, to
PacifiCorp 000 Idaho residential customers. The bulbs would be mailed directly to
customers in packages that include the bulbs, information on the benefits of CFLs and advice on
the most energy efficient use of the bulbs. All bulbs carry a two-year warranty through Energy
Technology Laboratories (ETL), are Energy Star certified and carry the Energy Star label.
Energy Star is a certification process sponsored by the US Department of Energy. Products
meeting Energy Star requirements are built beyond energy efficiency codes and standards.
DECISION MEMORANDUM
PacifiCorp contends that customers will benefit from the proposed program by
experiencing the positive qualities of CFLs, including reduced energy usage and extended bulb
lives. PacifiCorp is hopeful that the program will trigger customer interest in energy efficient
products and appliances.
PacifiCorp contends that its proposed CFL program is consistent with its Integrated
Resource Plan as reflected in the Company s RAMPP 6 report and is one of several measures
planned to help the Company achieve its demand side management (DSM) target for fiscal year
2003. The Company maintains that similar CFL programs have been successfully offered to
residential customers in Oregon, Utah and Washington. Program savings in those states have
out-performed initial estimates.
PacifiCorp estimates that the proposed CFL program will save 5 720 000 kilowatt
hours annually-50% of which will occur during peak load periods. PacifiCorp intends to
complete distribution of the bulbs by January 1 , 2003. PacifiCorp estimates that the program
will cost $456 000 including the costs of the CFLs, shipping and handling, and customer
education. PacifiCorp proposes to defer the costs of this program until a future rate proceeding.
Deferred accounting treatment is requested including accrued carrying charges at a
rate equal to the weighted average cost of capital recommended by Commission Staff in its most
recent audit of PacifiCorp s results of operations. This accounting treatment, the Company
contends, is an appropriate, just and reasonable means of providing the Company an opportunity
to seek recovery of its DSM program costs. PacifiCorp is not requesting a determination of
ratemaking treatment of the program costs and related carrying charges at this time. Such a
determination, it states, will be made in a future rate proceeding.
In accordance with Idaho Code ~ 61-307, the Company contends that copies of its
Application are available for public inspection at the Company s offices in Rexburg, Preston
Shelley and Montpelier, Idaho. PacifiCorp requested that its Application be processed under
Modified Procedure and requested that the tariff be approved for effective date of November 19
2002.
On November 12, 2002, the Commission issued a Notice of Application in Case No.
PAC-02-, suspended the proposed effective date (Order No. 29151) and established a
comment deadline of November 29, 2002. Comments were received from Commission Staff and
a number of the Company s customers.
DECISION MEMORANDUM
CUSTOMER COMMENTS
Most customers filing comments oppose the Company s CFL Program and
recommend denial. Customers contend that CFL bulbs have been on the market for some time
and can be obtained at retail at a significantly lower cost than the Company s proposed program
cost ($5.18 each). They object to the involuntary nature of the program, the limited offering of
energy savings equipment and the apparent amount of program cost eaten up in the overheads
and management of the "give-away." Customers are perfectly happy purchasing their own light
bulbs and would like to keep it that way. It was suggested that it would be adequate for the
Company to put a notice in the utility bill that CFLs are an energy saving device and that people
should use them.
STAFF COMMENTS
Commission Staff recommends that the Company be allowed to establish its
proposed tariff Schedule 20 CFL Program. The Company proposes to spend approximately
$456 000 to distribute 000 CFLs in a single year. Absent an accounting order allowing
deferral of program costs, Staff notes that PacifiCorp would be required to expense those costs in
the year incurred with limited opportunity for program review or cost recovery. Staff believes
that DSM programs such as these can be a cost effective way to meet customer demand and
should not be discouraged by eliminating the opportunity for cost recovery. Staff recommends
that the Company s request for authorized deferral of program expense be approved. Staff
recommends that amortization of program expense begin when distribution of the light bulbs is
completed. Staff recommends a five-year amortization. The bulbs are guaranteed for two years
and, with a 10 000-hour rated life, are expected to last up to seven years.
Staff notes that the Commission in A vista s last general electric rate case, Order No.
28097 in Case No. WWP-98-, stated "as indicated in prior Orders, it is the Company
obligation in a rate case to demonstrate the prudence of its conservation investment and our
responsibility to ratepayers to determine that the Company has satisfied its obligation.
Consistent with this language, Staff recommends that a prudence review of the CFL program be
undertaken when PacifiCorp files its next general rate case. Staff further recommends that the
Company keep such records as will be necessary to determine whether the program costs were
prudently incurred. Staff would like the Company to provide an evaluation of the program
effectiveness in obtaining direct energy savings. Staff expects that this evaluation would
DECISION MEMORANDUM
explain, for example, how ETL was chosen as the vendor for the program, how the specific CFL
light bulbs were selected considering their lumens, watts, size and weight, how many households
actually used the light bulbs, how many hours they use them, how many consumers purchased
additional CFLs as a result of this program, and how many recipients of the CFLs were already
using CFL bulbs and/or other fluorescent light products.
Staff recommends that the Company not be permitted to accrue interest or carrying
charges on the deferred balance. Demand side management costs, Staff contends, are akin to
generation costs in that the programs are designed to forestall the construction of new generation.
If new generation were constructed, the Company would accrue AFUDC during the construction
phase, but would not accrue carrying charges between the time construction was completed and
the time the new generation was included in rate base and in rates. With this program, Staff
states that there is no construction period so AFUDC would not accrue and interest should not
accrue on the DSM deferred balance during the period between implementation and inclusion in
rates. Once the Company has filed a general rate case and the demand side management
programs have been found to be prudent, Staff contends that the unamortized deferred balance of
DSM programs will be included in rate base with the calculated return and authorized
amortization expense recognized in rates.
COMMISSION DECISION
PacifiCorp has filed an Application for approval of a proposed CFL program (tariff
Schedule 20). The Company has requested authority to defer CFL program costs and has
requested authority to accrue carrying charges on the deferred balance. Customers submitting
comments oppose the CFL program and contend that the cost of the distributed bulbs exceeds the
retail price at which they can purchase bulbs themselves. Staff supports the CFL program;
recommends authorized deferral of CFL program costs; recommends a five year amortization
period; opposes the accrual of carrying charges on the deferred balance and recommends that the
prudence of the CFL program and expenses be reviewed in the Company s next general rate
case.
Should the Company s proposed CFL program be approved?
0 If approved, should the Company be authorized to defer program expenses?
What is a reasonable amortization period for the deferred balance? (Staff
recommends 5 years.
DECISION MEMORANDUM
When should amortization begin? (Staff recommends when CFL distribution is
completed.
Should carrying charges apply?
Scott D. Woodbury
bls/M:P ACEO207 sw2
DECISION MEMORANDUM