20221110Comments.pdf

CHRIS BURDIN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720.007 4
[phone]
IDAHO BAR NO. 98I
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Street Address for Express Mail:
I 133I W CHINDEN BLVD, BLDG 8, SUITE 2OI.A
BOISE, ID 83714
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
INTERMOUNTAIN GAS COMPAI\'Y FOR A
DETERMINATION OF 2O2I ENERGY
EFFICIENCY EXPENSES AS PRUDENTLY
INCURRED
CASE NO.INT-G-22-03
COMMENTS OF THE
COMMISSION STAFF
STAFF OF the Idaho Public Utilities Commission, by and through its Attorney of record,
Chris Burdin, Deputy Attorney General, submits the following comments.
BACKGROUND
On July 12,2022,Intermountain Gas Company ("Company"), a subsidiary of MDU
Resources Group, Inc., filed an Application for an order designating $4,028,174 of 2021Energy
Efficiency Program ("EE Program") expenditures as prudently incurred. The Company
submitted its202l Energy Efficiency Annual Report with the Application.
On August l, 2022, the Commission issued a Notice of Application and Notice of
Intervention Deadline setting a2l-day intervention deadline. OrderNo. 35480. The city of Boise
City was the only party to intervene. Order No. 35516.
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1STAFF COMMENTS NOVEMBER 1,0,2022
STAFF ANALYSIS
This is the fourth Demand-Side Management ("DSM") Energy Efficiency prudency filing
made by the Company since the EE Program's inception on October 1,2017. Staff examined the
Company's Application,202l Energy Efficiency Annual Report ("Annual Report"), Annual
Report Supplements, workpapers, and additional information provided by the Company. Staff
recommends the Commission approve the Company's EE Program expenses of $4,028,174 as
prudently incurred.
The comments below address the Company's program financials, cost-effectiveness,
program offerings, evaluations, studies, and avoided costs. Absence of any discussion on
additional points should not be construed as Staff s support or endorsement for the Company's
position without a full evaluation in the future.
Financial Review
Staff audited the Company's EE Program expenses, which included a review of the
Company's EE Program incentives, marketing campaign, program administration, and labor
expenses. Staff verified that expenses were well documented and intemal controls appeared to
be in place to prevent improper payment of incentives and to properly record EE Program
expenses. The Tariff Rider balance, labor expenses, and calculations are described in greater
detail below.
Tariff Rider Balance
EE Program revenue in 2021 was $5,628,730, with $5,393,824 funded from residential
customers for the Residential EE Program, and $234,906 funded from commercial customers for
the Commercial EE Program. In202l, customer participation in the Residential EE Program
increased 22Yo over the previous year with 5,553 rebates paid to customers. 2021 DSM Annual
Report at I . In 2021, the Residential Program began with an overfunded balance of $ 1,3 18,197 .
Despite incurring the highest annual total rebate payout in Residential Program history for 2021
($3,287,716), the Residential EE Program growth did not keep pace with the revenues generated
from the Energy Efficiency Charge Residential Program ("EEC-RS"). The EEC-RS ended the
year with an over-collected balance of $2,834,164. Id at 6. The Company claims slow uptake of
new Commercial Program offerings and global supply chain issues contributed to less
2STAFF COMMENTS NOVEMBER IO,2022
participation than expected. Id. With revenue collection cyclical, Staff expects the EEC-RS
balance to increase more during the winter months as consumption increases and decrease
throughout the summer months as gas consumption decreases.
The following table shows the combined tariff rider balance for both residential and
commercial EE Program as of December 31, 2021:
Table No. 1: Tariff Rider Reconciliation
Beginning Balance, as of January L,2O2L - Overfunded 5 t,3tg,Lg7
Tariff Rider Revenue 5 5,628,130
Tariff Rider Expenses $(4,028,L741
Ending Balance, as of December 3L, TOZL - Overfunded 5 z,grg,753
As of June 30,2022,the EEC-RS was over-collected by $4,893,882. The Company states
two primary reasons for the overfunded balance. First, therm sales were higher than the Company
had forecasted. Second, the entire 2019 under-collected balance of $1,097,907 was used to
determine the EEC-RS rate as if it was a recurring yearly expense, rather than amortizing the
balance over time. INT-G-22-05, Application at 5. In response to the large over-funded balance,
the Commission approved a one-time transfer of the $4,850,000 of the EEC-RS defenal balance
to residential customers through the Company's Purchased Gas Adjustment ("PGA") filing.
Order No. 35539 at 3. The Commission also approved a decrease in the EEC-RS tariff rate from
$0.02093 per therm to $0.01564 per therm in Order No. 35552, effective October 1,2022. Staff
will continue to monitor the fund balance trends in the Company's quarterly updates to ensure
the EEC-RS balance does not become substantially over funded again.
Labor Expenses
The Company's EE Program total labor expenses represented 15.9% of total program
expenses in 2021, which is less than the 17 .6% of total progftlm expenses over the previous l2
months, and less than the 17 .8% from the 12to24 months prior. However, other utilities in ldaho
with EE programs have a significantly smaller percentage of labor costs in their EE Programs
with labor cost of 6%o and I l% of program costs. The Company's total wages increased 3.38%
from2020, which is in line with other Idaho utilities with EE programs. Staff recommends the
3STAFF COMMENTS NOVEMBER IO,2022
Company reduce labor costs wherever possible, which will help increase the cost-effectiveness
of the Company's EE Programs.
The Company explains that "after assigning direct expenses to the appropriate programs,
the remaining pool of administrative expenses was allocated between the two programs, 80% to
the Residential Program and20o/o to the Commercial Program." 2021DSM Annual Report at 4.
This allocation percentage was approved by the Commission in Case No. INT-G-20-04, Order
No. 34941. However, in that case Staff noted that "this allocation method [is] a starting point but
expects to review cost allocations and cost drivers in a future prudency case." INT-G-20-04,
Staff Comments at 5. Staff currently does not object to the allocation of administrative expenses;
however, this will be the third time that Staff has requested that the Company directly assign
administrative costs instead of allocating through the 80/20 split. INT-G-20-04, Staff Comments
at 5 ("Staff encourages the Company to directly assign all costs incurred to the proper EE
program, whenever feasible, so that costs are properly allocated to customer classes...
[Additionally,] for costs that cannot be directly assigned, Staff recommends that costs be
allocated based on factors that are driving the costs to be incurred."); INT-G-21-03, Staff
Comments at 5 ("Staff encourages the Company to directly assign costs to individual rebates and
programs whenever possible.") Unfortunately, Staff has not seen an improvement on directly
assigning costs in 2021. Of the 5126,622 total administrative expenses, only $44,602 were
directly assigned. The remaining $682,020 was allocated using the 80/20 assumption.
The Company should assign costs directly to the programs whenever possible. Direct
assignment of labor expense alleviates concems of the Company over-allocating labor expenses
to the EE Program. Additionally, it will help veriff whether 80120 is the correct split for
Residential and Commercial Programs. Staff recommends that when the Company does not
directly assign costs, an explanation should be given as to why the costs were not assignable.
Staff also recommends the Company describe the progress made improving the amount of
directly assigned costs in its next DSM prudency filing.
DSM Cost-Effectiveness
For 2021, the Company reported the Residential Program as cost-effective with a benefit-
to-cost ratio of 1.5 using the Utility Cost Test ("UCT"). The Company reports that only two
measures were not cost-effective in 2021: the Combi Radiant Heat System measure and Water
4STAFF COMMENTS NOVEMBER IO,2022
Heater measure. Both measures received significant updates in April 2021.t The Combi Radiant
Heat System, with a UCT of 0.7, was restructured into the Boiler and Combination Boiler
measures, which are cost-effective with UCT ratios of 1.4 and 1.2, respectively. The 0.67 EF
Water Heater measure was cost-effective with a UCT of 1.2 but had low participation. The
Company rebranded the measure into the Water Heater measure with an increased incentive. As
a result, the measures cost-effectiveness decreased to a UCT of 0.9 but participation increased.
The Company expects that continued increases in participation and market developments will
increase the programs cost-effectiveness.
In202l, the Company received authority to implement a Commercial Energy Efficiency
Program which launched on April 1,2021.2 To date the program has received 16 rebates, saving
8,603 therms, and has a UCT of 0.4. The Company states the program is currently in an awareness
building stage and expects participation to increase as commercial customers learn of the program
and its offerings. Staff looks forward to reviewing the growth of the program in future prudency
filings.
Verification of Avoided Therms
In the Company's previous two prudency reviews, Case Nos. NT-G-20-06 and INT-G-
2l-03, the accuracy of estimated therm savings for the Furnace incentive and the Whole Home
incentive had been an ongoing Staff concern. These two measures account for94%o of the claimed
therm savings for the entire 2021 Residential EE Program. Therefore, any potential errors in the
estimated savings of these measures will have a significant impact on the cost-effectiveness of
the Company's Residential EE Program portfolio.
In2020, Case No. INT-G-20-06, a third-party contractor performed a detailed Evaluation,
Measurement, and Verification ("EM&V") study of the actual therm savings for the Furnace and
Whole Home rebates for the 2018-2019 program years3. The study included a statistically
rigorous regression analysis of customer bills ("billing analysis"), which concluded the actual
therm savings were much less than the initial Conservation Potential Assessment ("CPA")
rIn Case No. INT-G-20-06, the company proposed widespread changes to DSM programs. These changes took
place in the April 2021 when Order No. 34980 was issued.
zln Case No. INT-G-20-04, the Company applied to implement a commercial energy efficiency program. The
Commission approved the program in Order No 34941.
3 See Case No. INT-G-21-03, Amended Application.
5STAFF COMMENTS NOVEMBER IO,2022
estimates. The Company acknowledged the different results but opted to use an even higher
savings value proposed by a calibrated simulation ("simulation analysis") for its Whole Home
measure4. The simulation analysis's estimated savings of 274 therms exceeds both the billing
analysis estimate (58 therms) and CPA estimate (185 therms). The Company also opted to not
use any of the EM&V analysis results for the Furnace program and continued using the CPA
estimate (86 therms).
In response, the Commission stated:
We expect the Company to use the most occurate evaluation method and
clearly show why it is the most accurate method-regardless of "industry best
practice." Whatever evaluation method the Company chooses, it should provide a
detailed and convincing defense of the method- particularly if the Company
chooses not to use a billing data analysis.
Order No. 34980 at 8.
In Case No. INT-G-21-03, the Company used both the billing analysis and the simulation
analysis therm estimates from the EM&V to present two sets of cost-effectiveness results. The
lower billing analysis estimate showed the entire Residential EE Program was not cost-effective,
while the higher simulation analysis therm estimates showed that the EE Program was cost
effective. The Commission ordered the Company to "choose the most accurate evaluation method
as directed by Order No. 34980. Once the Company chooses the evaluation method it will use, it
should provide 'a detailed and convincing defense of the method'." Order No. 353 13 at 5.
For the current filing, Staff does not believe the Company provided a detailed and
convincing defense of the simulation analysis for two reasons. First, the Company performed its
own intemal analysis of the Furnace measure and used the result of 81 therms as support of the
higher 87 therm CPA estimate. Staff believes this internal analysis was flawed and the calculated
therm savings should have been lower than 8l therms as discussed below. Second, Staff asked
the Company to, "provide detailed support and reasoning for choosing [its] evaluation method."
First Production Request of Staff, Production Request No. 2 at 2. The Company's response
lacked any data, analysis, or support for the simulation analysis, articulated the usefulness of
having a'deemed' savings, and commented on billing analysis.
a Secondary analysis presented in2020 EM&V Appendix B.
6STAFF COMMENTS NOVEMBER IO,2022
The Company's response comments on billing analysis, stated, "when a randomized
control trial is employed in conjunction with evaluating billing data, this analysis can achieve more
precise results with less bias." Response to First Staff Production Request, Response to Request
No. 2 at 3. Staff agrees with the Company's assertion. Based on the Company's response, Staff
recommends that the billing analysis be used to evaluate program performance until the Company
justifies other empirical analysis as part of its annual DSM prudency filing. Staff also recommends
the Company conduct impact evaluations for the Whole Home and Furnace measures to be
included in the 2023 prudency filing. The Whole Home measure should be evaluated with data
from April L,2021, through the end of 2022. The Fumace measure should be evaluated with data
from the 2021 and 2022 program years. Both impact evaluations should be conducted by an
independent third-party and should include a billing analysis. Finally, Staff encourages the
Company to explore other acceptable and vetted bases for deemed savings such as the Regional
Technical Forum.
Furnace Program Avoided Therms
As discussed above, the Company conducted an internal EM&V analysis on its Furnace
measure in its Annual Report. Staff appreciates the Company's effort to verifi savings for its
programs. However, by only including customers whose replaced fumaces were 80oZ efficient
or less, the Company excluded a significant portion the rebates from its data set including rebates
for furnaces above the programs minimum 95Yo effrciency. The resulting bias skewed the result
to overestimate the amount of program savings. Staff believes that if a rebate is issued to a
customer, that customer is part of the program and should be included in evaluations, regardless
of the efficiency of the furnace being replaced.
Of the 2,704 rebates issued, only 1423 of the fumaces replaced had an efficiency rating
of 80% or less. This includes 23 non-gas furnace replacements and 933 new construction rebates.
These were the only rebates included in the Company's internal evaluation. Another 520 of the
furnaces replaced had efficiencies higher than 800%, including 92 furnaces that had efficiencies
higher than95Yo furnace. The remainingT6l rebates had blank fields for previous efficiency and
were not included. Response to Second Staff Production Request, Response to Request No. 20
at 6-8. By not including the 520 replaced gas furnaces and the 23 non-gas fumaces in its savings
calculation, the Company overestimated the amount of program therm savings. Staff
7STAFF COMMENTS NOVEMBER IO,2022
recommends that the Company use savings data from all customers receiving rebates to ensure
accurate estimates of therm savings attributed to the program. Staff also recommends that the
Company tighten its rebate measure eligibility requirements.
EM&V Schedule
In response to program changes approved by Order No. 34980, the Company has proposed
an EM&V schedule for residential and commercial measures. Annual Report, Supplement 1 at
23. The Company proposes to conduct impact and process evaluations on all Residential
Programs, process evaluations on all Commercial Programs, and an impact evaluation on the
commercial Energy Savings Kit Pilot measure using program year 2022 and2023 data.s EM&V
studies are crucial for determining the actual performance of a program; however, these studies
are expensive and often require significant populations of data to make meaningful
Recommendations for the program. Staffbelieves that the Boiler, Combination Boiler and Water
Heater measures do not have enough participation or associated savings to justifr the cost of an
impact evaluation. In202l, these programs combined issued 25 rebates and accounted for 1,892
annual therm savings, or less than 0.005o/o of all rebates and therm savings for 2021. Staff
recommends the Company monitor the participation of its programs and conduct EM&V impact
evaluations when there is a sufficient amount of participation to justifr an evaluation. Staff
recommends the Company carefully consider the cost and benefits of an evaluation whenever
considering an EM&V study. Staffcautions the Company in assigning EM&V expenses via the
80/20 split. If an EM&V is conducted for the Company's Residential Programs, the EM&V
expense should be directly assigned to that program.
CPA RFP Status
In the fall of 2022, the Company posted a Request for Proposal ("RFP") to conduct a CPA
to update the existing program assumptions, evaluate potential new programs, and inform the 20-
year conservation potential in the Company's service tenitory. The Company directly contacted
16 vendors as well as posted the request on the Association of Energy Service Professionals
("AESP") community page. The Company stated that only one vendor submitted an intent to bid
5 Additional context provided in Case No. INT-G-22-05, Application at 6.
8STAFF COMMENTS NOVEMBERIO,2022
but later withdrew claiming resource constraints. Response to Third Staff Production Request,
Response to Request No. 26 at 8. To secure a vendor for the CPA the Company contacted three
other vendors, one of which requested a deadline extension until October 14,2022. Staff looks
forward to reviewing the Company's CPA expenses in later prudence filings.
Marke t ing P r o gr am s and Effe c t iv e ne s s
In reviewing the Company's marketing materials and initiatives, it is unclear to Staff how
the marketing materials and initiatives are directly related to and impact the Company's
individual energy efficiency measures, incentives, and programs. It is not clear how builder and
contractor marketing materials and initiatives are directly related to the Company's energy
efficiency programs. The Company should structure its energy efficiency marketing to focus on
available programs and incentives and continue its efforts in developing its website analytics
capabilities. Staff encourages the Company to actively manage key deliverables and results from
marketing initiatives and programs that result in energy efficiency savings for the Company's
ratepayers.
Avoided Costs
Distribution Component of Avoided Cost
ln Order No. 34536, the Commission ordered the Company to review its avoided cost
calculations and update them based on the outcome of the review. [n response, the Company
created an Avoided Cost subcommittee within its Energy Effrciency Stakeholder Committee
("EESC"), and the subcommittee reached a consensus on the calculation of the commodity and
transportation cost components of an avoided cost model. However, the subcommittee has not
yet determined the distribution cost component of its avoided cost model.
In Order No. 34980, the Commission again ordered the Company to review its avoided
costs and update its avoided cost calculations based on the review. On March 9,2022, the
Company reconvened its EESC Avoided Cost subcommittee following the filing of its 2021
Integrated Resource Plan ("IRP"), to finalize a method to account for avoided distribution costs.
The Company held meetings with its EESC Avoided Cost subcommittee to review and
discuss a proposed method of calculating the distribution cost component of its avoided cost
calculation. The Company asked subcommittee members to review and provide feedback on its
9STAFF COMMENTS NOVEMBER IO,2022
proposal. Staff was the only party that provided substantive feedback. After providing feedback,
Staff and the Company conducted working meetings to reach a resolution but were unsuccessful.
The Company decided to suspend its efforts to define a method to calculate a distribution
component for its avoided cost. The EESC Avoided Cost subcommittee will table its efforts
regarding a distribution cost component until the Company chooses to resume its work. Staff
supports the Company's decision to suspend its efforts and will participate as needed when the
subcommittee resumes its efforts to address distribution costs. Staff believes that until proven
otherwise, the distribution component value is zero. The distribution component calculation once
determined must be presented to the Commission for approval and included in the IRP DSM
avoided cost calculation.
Avoided Cost Updates
The Company proposed several updates to the avoided cost calculation update schedule.
Response to First Staff Production Request, Response to Request No. 14 at26-27. Currently, the
transportation component of the Company's costs is updated annually to reflect the latest PGA
filing while the commodity costs are updated as part of the biennial IRP filing. The Company
proposed to: (1) align updates to the transportation component of avoided costs with the
Company's IRP filing schedule and to reflect costs outlined in the most recent PGA; (2) update
all avoided cost calculations as exhibits to IRP filings; (3) no longer file avoided costs as exhibits
to annual DSM prudence filings; (4) base program planning on the avoided costs of the most
recent IRP; and (5) base cost-effectiveness testing on the avoided costs in place at the time of
program planning. The avoided cost used in this filing was established in the Company's 2021
IRP, Case No. INT-G-21-06. Establishing DSM avoided costs within an IRP is an accepted
method and used by other utilities in Idaho. Staff supports this method and recommends that the
Company update its DSM avoided cost calculation in the next and subsequent IRP filings.
STAFF RECOMMENDATIONS
Based on its analysis, Staff recommends the Commission issue an order:
l. Approving the Company's 2021 EE Program Expenses of $4,028,174 as prudently
incurred;
STAFF COMMENTS 10 NOVEMBER IO,2022
2. Directing the Company to directly assign EE Program costs when possible and to provide
explanations as to why costs are not assignable in their next DSM prudency filing.
3. Directing the Company to use the billing analysis to evaluate program performance for
the Furnace and Whole Home measures until such time as the Company justifies other
empirical analysis as part of their annual DSM prudency filing;
4. Directing the Company to submit an RFP for a third-party contract to conduct an impact
evaluation with billing analysis for the Whole Home and Fumace measures using April
1,2021 through 2022 program year data to be included in the 2023 prudency filing;
5. Approving the Company's proposal to update the transportation component of avoided
cost as an exhibit to IRP filings;
6. Approving the Company's proposal to no longer file avoided cost calculations as exhibits
to the annual DSM prudency filings;
7. Approving the Company's proposal to update all avoided costs as exhibits to IRP filings;
and
8. Approving the Company's proposal to base program planning off the most recent IRP
filing and to base cost-effectiveness testing off the avoided costs in place at the time of
program planning.
Respectfully submitted this lNl^day of November 2022.
WU
Chris Burdin
Deputy Attorney General
Technical Staff: Jason Talford
Matt Suess
Laura Conilogue
i:umisc/commentvintg22.03 comments
STAFF COMMENTS 11 NOVEMBER IO,2022
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS IOTH DAY OF NOVEMBER 2022,
SERVED THE FOREGOING COMMENTS OF TIIE COMMISSION STAFF, IN
CASE NO. INT.G.22-03, BY E.MAILING A COPY THEREOF, TO THE
FOLLOWING:
LORI BLATTNER
DIR _ REGULATORY AFFAIRS
INTERMOUNTAIN GAS CO
PO BOX 7608
BOISE ID 83707
E-MAIL : [e-mail]
PRESTON N CARTER
GIVENS PURSLEY LLP
601 W BANNOCK ST
BOISE ID 83702
E-MAIL : prestoncarter@ givenspursley.com
stephaniew@ givenspursley. com
J" /1,b4
SECRETARY
CERTIFICATE OF SERVICE