20170215Spector Rebuttal.pdf

Ronald L. Williams,ISB No. 3034
Williams Bradbury, P.C.
1015 W. Hays St.
Boise,ID 83702
Telephone: [phone]
Email: [e-mail]
Attorneys for Intermountain Gas Company
BEFORE TTTE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
INTERMOUNTAIN GAS COMPANY FOR
THE AUTHORITY TO CHANGE ITS RATES
AND CHARGES FOR NATURAL GAS
SERVICE TO NATURAL GAS CUSTOMERS
IN THE STATE OF IDAHO
CaseNo. INT-G-16-02
REBUTTAL TESTIMONY OF ALLISON SPECTOR
FOR INTERMOUNTAIN GAS COMPANY
February 15,2017
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Please state your name, position and business address.
My name is Allison A. Spector. My business address is 555 S. Cole Rd, Boise,
ID 83709.
a. Are you the same Allison Spector that prepared and previously presented
prefiled direct testimony on behalf of Intermountain Gas Company in this
Case?
Yes.
What is the purpose of your rebuttal testimony?
The purpose of this testimony is to respond to the testimony of Staff and some
interveners relating to the Company's DSM and FCCM proposals. Specifically,I
will (1) further clariff the purpose of the Company's proposed Demand Side
Management program; and (2) describe the core differences between
Intermountain's energy efficient conversion rebate program and the robust
portfolio of rebates the Company now intends to offer; (3) explore the feasibility
of certain portfolio expansions and adjustments; (4) address intervener critiques
of the Company's DSM goal-setting and preliminary conservation potential
modeling; and (5) discuss the challenges and potential opportunities associated
with the development of a low income weatherization program.
Does the Company consider its proposed conservation efforts to be a true
DSM program?
Yes. A "true" demand side management program acquires demand side resources
in the form of conserved energy as a replacement for supply side resources. In the
case of a high-efficiency natural gas equipment rebate program, unused energy is
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acquired by providing a financial incentive (rebate) to increase the
desirability/affordability of higher efficiency equipment that might otherwise be
passed over by the customer in lieu of more affordable, lower efficiency
equipment. This description reflects both the intent and design of the
Intermountain's proposed DSM program.
Staff witness Donohue does not recommend your proposed Tier 2 Incentives.
If natural gas conservation is the primary goal of its program, why is
Intermountain offering two tiers of incentives-one tier for existing
customers, and a second, higher rebate for customers converting from an
alternative heat source?
Intermountain recognizes that the direct use of natural gas for space and water
heating in a residential dwelling is the best use of this resource. However, our
knowledge of the market has demonstrated that the incremental cost of upgrading
from equipment that utilizes electricity or other fuel sources to natural gas
equipment is higher than converting from lower to higher efficiency natural gas
equipment. The Company has therefore designed a two-tier natural gas energy
conservation program that acknowledges the differences in cost experienced by
new natural gas customers as opposed to existing customers. ln the case of both
tiers, the rebate reflects a payment for therms that would otherwise have been
wasted through the use of less effrcient equipment.
It is-and continues to be-Intermountain's intent to actively encourage both new
and existing customers to purchase the highest efficiency space and water heatino
equipment for their homes, and for builders to construct homes to meet the
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Energy STAR standard. This is evidenced through the TEAPot input Exhibit
Number 25,page l, offered in my previous testimony. In this exhibit, the list of
measures modeled includes a header listed as "Baseline."
The "Baseline" header in Exhibit No. 25 exclusively lists lower efficiency natural
gas equipment as that which is being replaced via the Company's conservation
incentive. This baseline is applicable to both tiers equally, meaning that
Intermountain is assuming that households being approached through this
program have already decided that they will be purchasing natural gas equipment.
Thus, the rebate offered in Tier Two isn't intended to drive the decision to convert
to natural gas, but to drive natural gas conservation through the selection ofhigher
efficiency natural gas equipment. [n fact, as acknowledged by the Stafftestimony
of witness Donohue on page 11, lines 3-l l, "Intermountain Gas's cost-
effectiveness calculations ignore the reduction in electric/wood/propane use and
the increased consumption of natural gas that conversions generate. Instead, the
Company assumes that the customer was going to convert anyway and is simply
trying to ensure that the conversion is as effrcient as possible. While that is a
laudable goal, it means that the resource the Company purchases with the
incentive is the efficient fumace or water heater, not the conversion."
In their response to DR #1, witness Rivas of the Idaho Conservation League
claims that "Intermountain makes no effort to set goals for either tier [of its
rebate programl and instead focuses in several parts of the testimony on the
generalized benefits, as opposed to the customer specific benefits of fuel
switching and direct use of natural gas. Does the Company agree with this
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characterization?
No. Intermountain has a clearly developed target of 65,000 therms that was
utilized for program development purposes, and a stretch goal of 97,825 therms
which the Company will strive to achieve throughout the course of the first
progftrm year. This target included savings resulting from both new and existing
residential customers, as will be described in detail later in this testimony.
a. Does the Company agree with witness Rivas's characterization on p.l1, lines
11-13 of his testimony, that Intermountain is proposing "a DSM program
largely based on encouraging households and businesses to become new
customers?"
No. While the Company recognizes that direct use of natural gas for space and
water heating is the most efficient application of this product, the goal of
Intermountain's DSM program is to conserve energy by driving customers from
lower efficiency to higher effrciency natural gas equipment by the use of a
conservation rebate.
As currently designed, the Company's focus is on applications of high-efficiency
space and water heating technology in the homes of both new and existing
customers. This is demonstrated through the "Vintage" header in Exhibit No. 25
oflered in my previous testimony, which lists the conditions under which equipment
incentivized through the Company's proposed program would be used to replace
lower-efficiency natural gas equipment. These vintages/conditions are described in
detail below:
New: Where high efficiency natural gas equipment is being installed in a
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home where that type of natural gas equipment did not previously exist.
Early Retirement: Where high efficiency natural gas equipment is being
installed in place of a furnace, water heater, or hearth that has not yet exhausted
its useful life.
Turnover: Where high efficiency natural gas equipment is being installed
as a replacement for a furnace, water heater, or hearth that is no longer functional
and/or has exhausted its useful life.
Intermountain ran its TEAPot model with all vintages equally represented when
developing the preliminary "Achievable Potential" target utilized by the
Company. Since the target was developed as a blend of all associated vintages, it
is neither practical, feasible, nor desirable to the Company that it achieve its DSM
targets though conversions alone. Relying solely on conversions would set the
Company up for failure in meeting its DSM targets and would not achieve natural
gas reductions sufficient to holistic reductions to system demand.
Finally, the concurrent adoption of the fixed cost collection mechanism proposed
by the Company as part of this rate case, is required in order to make
Intermountain indiflerent to losses due to energy conservation, and will put the
Company in a strong position to focus on maximizing the efficiency of space and
water heating equipment in a customer's home.
Is the direct use of natural gas mutually exclusive to the implementation of a
robust energy conservation program?
Absolutely not. The direct use of natural gas in no way detracts from or
diminishes the ability of the Company to promote energy conservation and
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achieve its DSM targets. When direct use takes place, the Company will do all it
can through its rebate program to ensure that customers chose the most efficient
space and water heating equipment for their homes.
Witness Rivas also states on page 6r lines 1-9 of his testimony, that 66all six
measures in Exhibit 25 are incentives for high capital cost equipment
targeting new customers." Do you agree with this characterization?
Not entirely. The Company's proposed DSM program was designed for both new
and existing Intermountain customers. The Company does however agree with
ICL-NWEC's response to lntermountain's DR #ll,part c, where Mr. Rivas posits
that "common sense dictates that purchasing new heating equipment is typically a
large expense for most Idahoans. Accordingly, any incentive for higher efficiency
equipment is useful." This statement accurately reflects the Company's intent-to
help customers overcome the initial up-front costs of purchasing high efficiency
natural gas equipment as opposed to standard efficiency natural gas efficiency for
both new and existing customers.
In the Idaho Conservation League's response to Intermountain's DR #3 &
#4rlCL claims that IGC's own program history proves that the Company's
DSM program is not likely to result in upgrades from upgrading existing
equipment to a higher efficiency unit. Do you agree with this statement?
No. The program witness Rivas references
(https : /lwww. intsas. con'/conservation/rebate-pro gram) i s entirely separate and
distinct from the Demand Side Management program now being proposed by the
Company. The purpose of the furnace rebate pro$am was to provide an incentive
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for high-efficiency natural gas furnaces associated exclusively with conversions.
This was written into the actual rules of this program. The program resulted in
100% of rebates going to new heating customers because that's how it was
designed to operate. The DSM program being proposed in this case was modeled
to include an even distribution of new customers, replacements made to non-
functioning, lower-efficiency natural gas equipment, and replacements made to
lower efficiency natural gas equipment prior to the end of the useful life of that
equipment.
Can you please further describe the differences between the Company's
previous conversion rebate program and the new DSM program it is
proposing?
There are several material differences between the High Efficiency Natural Gas
Furnace Rebate Program operated by Intermountain Gas Company and the DSM
program now being proposed by the utility.
First: The furnace progftrm is centered solely on rebates for high-
performance natural gas fumaces. No other rebates are offered in association with
this program. The DSM program proposed by Intermountain Gas Company offers
six measures, including incentives for Energy STAR natural gas homes. It is the
Company's intent to explore the inclusion of additional measures on an ongoing
basis and to expand the program to provide commercial rebates following
program ramp-up.
Second: The furnace program is only available to new customers. It was
designed to exclusively drive energy efficient conversions and is targeted entirely
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to this market. Language regarding the "conversions only" nature of the progftlm
i s transparently offered at https : //www. int gas. com/conservation/rebate-pro gram,
the Company's High-Efficiency Natural Gas Fumace rebate program webpage. In
contrast, the Company's proposed DSM progrcm will be equally open to both
new and existing customers and this will be made clear on all program messaging
and signage. Intermountain's energy conservation team will be actively
messaging this new progftIm to all qualified customers regardless of whether the
upgrade is from electric-to-gas or gas-to-gas. Furthermore, as acknowledged by
both Staff and the Company, the rebates that will be offered for direct use were
based upon the assumption that a conversion was already going to take place and
that the objective was to ensure that direct use was paired with the most efficient
equipment available to maximize effrciency and environmental benefits.
Third: The current fumace rebate program offered by the Company is not
associated with energy efficient/DSM targets, nor was the total potential savings
of this measure modeled through potential assessment tools. The program was
also not considered a formal DSM program, and thus associated savings were
neither tracked nor included as demand side resources for the purposes of IRP
planning. In contrast, the DSM program now proposed by the Company has a
clearly defined savings target which was assessed via the TEAPot model.
Associated energy savings will be tracked on an ongoing basis, and the program
will be considered a tool for the acquisition of demand side resources and
included as part of the Company's Integrated Resources Planning.
Does the company plan to discontinue its High-Efficiency Natural Gas
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Furnace program and replace it with the furnace offering through its
proposed DSM program?
Yes. The proposed offering though the Company's new residential DSM portfolio
is of a higher efficiency standard (95%+1than the one previously offered by
Intermountain(90%) and since the Company's DSM program is open to both new
and existing customers, it would not make sense to continue operation of a more
restrictive, less efficient rebate program.
Is Intermountain receptive to making changes to its residential portfolio as
recommended by some parties to this proceeding?
Yes, provided that they occur in conjunction with implementation of a fixed cost
collection mechanism (FCCM). The Company would also like to begin this
expanded DSM commitment with a manageable core of rebate offerings while it
ramps up the staffing and rebate-processing capabilities necessary to meet
progftlm demand. The goal is to develop a foundation from which more
sophisticated efforts can be later launched.
Following adequate time to ramp-up your initial portfolio of residential
measures, what changes recommended by Staffand other parties would
Intermountain be open to considering?
Intermountain would be amenable to researching costs associated with certain
additional measures including showerheads and aerators as part of its early rebate
offerings, given sufficient time to find a cost-effective retailer for this measure,
and to ramp-up our ability to process applications for this measure and distribute
via mail as appropriate. In addition, duct sealing, air infiltration, and insulation
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measures should also be studied and considered, once the program has been fully
ramped up, has had sufficient time to mature, and a FCCM has been put into
place. The FCCM is important inprotecting the Company from revenue losses
due to conservation.
a. Is the Company receptive to convening an Enerry Efficiency Advisory group
and providing an annual DSM report as recommended in the Staff testimony
of witness Donohue on p.20r lines 8-18?
A. Yes.
a. What does the Company perceive as the role of market transformation and
building code support in a natural gas DSM portfolio?
A. The Company is supportive of the market transformation efforts offered by
organizations such as NEEA, and already invests in market transformation and
R&D efforts offered by the Gas Technology Institute. lntermountain would be
highly receptive to including market transformation and support of more efficient
building codes into its proposed DSM progftrm. However, in order to maintain the
cost-effectiveness of its program portfolio, and thus ensure regulatory recovery of
DSM investments, the Company would need regulatory approval to quantifi, the
therm savings associated with these efforts and ensure that the effort did not
prevent the portfolio from passing the Utility Cost Test.
a. Does the Company agree with witness Rivas's claim in NWEC-ICL's
response to Intermountain's DR #6, that "the specific cost-effectiveness test
used to determine economic potential has no bearing on achievable potential
using the technical - economic- achievable programmatic construct?"
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1A.No. The use of the TRC results in a different outcome to a DSM program's
technical, economic, and achievable potential due to the differences in the
primary drivers of cost effectiveness in each cost test. Specifically, under the
Utility Cost Test, program rebate levels (30% of incremental cost,60%o, etc.) are
taken into account in the determination of overall conservation potential. This is
not taken into account under the Total Resource Cost Test.
Does the Company agree with witness Rivas's claim in I\IWEC-ICL's
response to Intermountain's DR #6, that Intermountain, "refined the
economic potential by using both achievable and programmatic potential to
define achievable potential [and] that number was then refined further again
base on the'information' of field staffto develop the program potential?"
No. The TEAPot model refined technical potential into economic potential. Then
this was refined by the model into achievable potential. Following this process,
the Company did develop program potential based on feedback from the field.
This was used exclusively for the purposes of developing the budget for
Intermountain's initial residential DSM portfolio and ensuring that it remained
cost-effective under the Utility Cost Test. Basing a progrirm budget from the
achievable target of 97,825 would risk setting the program up for failure if that
number could not be achieved.
Is the Company receptive to raising its target to its 66stretch" goal of 971825
therms that were identified as the Achievable Potential in the Company
TEAPot modeling run?
The 65,000 therm target developed by the Company is the floor below which the
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progftrm would no longer be cost-effective under current rebate levels and budget
design. Therefore, it is essential that this target be met. The 97,825 is an
aspirational goal, and one we will work to achieve, if possible. However, it is
ultimately the Company's goal to set itself up for program success, particularly in
its early years, in order to lay a strong foundation from which our efforts might
grow.The Company further appreciates that ICL-NWEC acknowledges in their
response to Intermountaindatarequest #T,thatthere is no suite of measures that
Intermountain could enact that would accomplish the unrealistically high and
arbitrarily derived therm savings target of l.7l million therms witness Rivas has
initially posited on page 7, lines l1-16 of his testimony.
Would the Company be amenable to removing its second-tier incentives
(with the exception of its Enerry STAR homes rebate) as recommended in
the Stafftestimony of witness I)onovan on page 3, lines 11-15?
The rebate amount associated with the Company's second tier portfolio is
intended to help bridge the gap between the cost of standard efficiency electric
equipment and high-efficiency natural gas equipment. This tier is important
because it encourages households already in the process ofelectric-to-gas
conversion from not missing an opportunity to use natural gas as efficiently as
possible. This line of reasoning is supported on page seven, lines l3-16 of witness
Kirschner's direct testimony, "energy efficiency and demand side management
progftlms should contemplate the direct use of natural gas as a strategy that is in
the customer's best interest; a strategy that reduces environmental impacts and
saves dollars while preserving and extending a vital natural resource.'o In this
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case, the Company is considering direct-use conversions as yet another market
that can and should be pursued in the Company's pursuit of demand side
resources. However, the Company is receptive to making further adjustments to
its tier-two rebate levels with the guidance of Staff.
a. Is the Company amenable to using the ReaI Discount Rate (inflation adjusted
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weighted average cost of capital) of 3.54oh as recommended by Staff in the
testimony of witness Donohue on pages 7 and Sr lines 18-25 and 1-2
respectively?
Yes. The Company is comfortable with the concept of applying a Real Discount
Rate to its conservation portfolio. However, the Company would prefer that the
WACC utilized as the nominal discount rate reflect the 7.42Yo which was filed by
the Company. This number can then be adjusted by the 2.6ohinflation rate as
described in witness Donohue's testimony.
What are the Company's thoughts on the recommendation by Staffwitness
Donohue on pages 19 and 20r lines 22-25, and 1-4 respectively that the
Commission require a DSM portfolio even if the Fixed Cost Collection
Mechanism is not approved?
The Company is deeply concemed at the prospect of operating a DSM portfolio if
the FCCM mechanism is not approved. The FCCM is designed to align the
Company's interests in support of demand side management by making the
Company neutral to individual customer usage. This means that the Company will
be empowered to actively encourage the best, most fficient use of energy in a
customer's home as opposed to being economically dependent on how much
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natual gas a customer actually uses. It is for this reason that Intermountain feels it
can deliver a much more robust and aggressive DSM program that would
gradually evolve to become inclusive of baseload measures such as insulation, air
and duct sealing, once a FCCM mechanism is in place.
On page liver lines 3-9 of her testimony, witness Zamora of the Community
Action Partnership Association of Idaho describes a range of low-income
customer data she would like to see collected by the Company including,
66how many of its customers are low income based on various criteria, the
average consumption habits of low income customers compared to non-low
incomer" and other similar data. Is this information that the Company is able
to collect? Please describe why or why not.
While the Company appreciates witness Zanora's desire to increase the region's
knowledge of the low-income populations within Intermountain's service
territory, it is against Company policy to identiff, and collect information on a
demographic subset of its customers. However, Intermountain is receptive to
discussing methods for better understanding the needs of low income natural gas
customers with CAPAI and other stakeholders. How to get to the type of
information Ms. Zamora seeks would be a good topic to be discussed by an
Energy Efficiency Advisory Group.
Is Intermountain willing to consider the implementation of a low-income
weatherization program outside of this proceeding?
Yes, provided that program cost recovery is allowed, and a FCCM mechanism is
in place, the Company would be open to considering the implementation of a low-
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income weatherization program following the ramp-up of its residential portfolio.
Again, this would be a good topic for discussion by an Energy Efficiency
Advisory Group.
Can you please elaborate?
Yes. The Company agrees with the testimony of witness Zamora on page 8, lines
3-5 that assert that "a properly constructed [low income] program should be
effective, conserve energy resources and help those who cannot otherwise afford
to reduce their non-discretionary consumption." However, in order to achieve
this objective, Intermountain would need to offer weatherizationrebates at a level
that is sufficient (when leveraged with state and Federal funds) for qualified
agencies to deliver weatherization services to customers. Without sufficient rebate
levels, agencies are often unable to sufficiently cover weatheization costs and are
unable to take advantage of the rebate program.
This means that while a utility may have invested in the design, and perhaps even
staff, for a weatherization effort, the program may be left unused by
weatherization agencies if they do not have sufficient funds to complete the
necessary work. I experienced this phenomena firsthand in Cascade's Oregon and
Washington service areas. Due to DOE prioritization of homes with high energy
burden, and the current low price of natural gas as compared to other fuel sources,
agencies experienced challenges weatherizing homes where DOE funds were
required. Ultimately, program success was achieved by creating a mechanism that
bridged the gap between the avoided cost payment eligible under Cascade's
traditional low income weatherization program, and the total installed cost of
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1 qualified work performed.
However, it is Intermountain's understanding that all conservation programs
operated in the State of Idaho must be cost effective in order to qualifr for rate
recovery. This understanding is consistent with ICL-NWEC's response to
Intermountain DR #9 in which witness Rivas recommends that Intermountain Gas
"use the same method to value the benefits of low income weatheization as that
used to value any gas conservation measure, or other existing low income
weatherization programs in Idaho." This means that creating a program that is of
true value and use to the agencies delivering weatherization services will remain a
challenge.
Does this conclude your testimony?
Yes, it does.
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