20050310_1109.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER KJELLAND ER
COMMISSIONER SMITH
CO MMISSI 0 NER HANSEN
COMMISSION SECRETARY
LEGAL STAFF
WORKING FILE
FROM:LYNN ANDERSON
DATE:MARCH 8, 2005
RE:AVISTA UTILITIES' TARIFF ADVICE E-05-
REQUEST TO INCREASE DSM INCENTIVE PAYMENTS
On February 9, 2005 , Avista Utilities (Avista; Company) filed a tariff advice with the
Commission requesting authority to reconfigure and generally increase maximum incentive
payments offered to customers under Schedule 90, Electric Energy Efficiency Programs.
A vista s current incentive structure and payment levels were set in 1999. Electricity
customers who choose to install demand-side management (DSM) measures are paid incentives
that are generally capped by the lesser of the tariff rates or 50% of the cost of the efficiency and
fuel-conversion measures or 75% of the cost of new technology measures. Incentive levels
increase as simple pay-backs of measure costs (absent incentive payments) increase. For energy
efficiency measures, the current incentive payments range from 4~ to 8~ per kilowatt-hour for
first year kilowatt-hours saved; new technology measures incentives range from 10~ to 14~; and
fuel conversion incentives range from 1 ~ to 3~.
The Company asks that incentive payments for all types of measures with service lives of
less than 10 years be capped at full incremental cost of the measure.
For measures with service lives of 10 or more years, the Company asks that the
associated simple pay-back tiers be reduced, generally resulting in increased incentive payments.
The energy efficiency incentives would range from 4~ to 14~ per kilowatt-hour for first year
kilowatt-hours saved and fuel conversion incentive payments would range from 1 ~ to 4~.
A vista estimates that the combined effects of these and other changes are an approximate
doubling of non-limited-income, non-RFP incentive payments to its DSM participants, from
DECISION MEMORANDUM MARCH 8, 2005
$582 000 per year to $1 164 000 per year. The Company s total annual electricity DSM budget
is expected to increase 34%, from $1.7 million to $2.3 million.
In the long-term, Avista expects the increased incentive payments to result in increased
energy savings and that the incremental utility perspective benefit/cost ratio will be well above
1.0. In fact, Avista provided analysis that estimated the incremental utility B/C ratio to be about
2.4 assuming a 25% increase in kilowatt-hours saved, but admitted that this analysis was based
on limited experience with DSM incentive price elasticity of demand.
Eventually, the increased incentive payments will necessitate an increase in Avista
Schedule 91 tariffrider, which is currently equal to 1.25% of revenues. Since its implementation
in 1994, the tariff rider has ranged from 1.00/0 to 1.95%. The Company estimates that a 1.44%
rider will sustain its DSM activities with the increased incentive levels, but that the current
25% rider is expected to be sufficient through 2006 because there is currently an $852 000
balance in the DSM account.
STAFF RECOMMENDATION
Staff recommends that A vista s proposed changes to incentive payments to customers be
approved.
Lynn Anderson
UDMEMOS/ Avista DSM tariff2005
DECISION MEMORANDUM MARCH 8, 2005