Idaho Public Utilities Commission

Case No. IPC-E-10-27

March 23, 2011

Contact: Gene Fadness (208) 334-0339, 890-2712

Oral argument is March 30 on proposed settlement

The Idaho Public Utilities Commission will hear oral arguments Wednesday, March 30, regarding a proposed settlement that would allow Idaho Power Company to shift about $20 million in expenses for conservation programs from the Energy Efficiency Rider currently on customer bills to base rates and to the annual Power Cost Adjustment.

The settlement would not immediately impact rates. The oral arguments are set for 10 a.m. in the commission hearing room at 472 W. Washington St.

Parties to the settlement include Idaho Power, commission staff, the Idaho Conservation League, the Northwest Energy Coalition, the Snake River Alliance and the Community Action Partnership Association of Idaho, which represents primarily residential customers on lower and fixed incomes. The Idaho Irrigation Pumpers Association did not sign the stipulation, but does not oppose it. The Industrial Customers of Idaho Power participated in the settlement conference but oppose the settlement.

Idaho Power operates a number of demand-side programs that reduce demand on the company’s generation needs during peak times of electrical use. The company also has a number of energy efficiency programs that reduce energy consumption through the use of more energy efficient lighting, appliances and industrial equipment. The cost of the demand-side and energy efficiency programs is recovered from customers through the Energy Efficiency Rider on customer bills, now set at 4.75 percent. In order for the programs to be included in the rider, they must pass three cost tests by the commission that demonstrate customers pay less for energy than they would if the programs were not in place.

Demand-side resource programs are the utility’s first resource choice, both from a cost and environmental perspective because they are cheaper and faster to implement than any generation resources and because they help defer the construction of expensive power plants, said Ric Gale, Idaho Power’s senior vice president of corporate responsibility. “The cleanest, most efficient resource portfolio is the one a utility does not have to build,” he said.

However, the revenue raised from the Energy Efficiency Rider is not keeping up with the cost of demand-side resources. If changes are not made, the negative balance in the rider account will be $17 million by the end of this year and $30 million by the end of 2012. To pay off that negative balance in one year and continue funding programs at their current level, the rider would have to be increased from the current 4.75 percent to 7.5 percent of customer bills. To recover the balance in two years, the rider would have to be increased to 6.6 percent.

Increasing the rider is “attracting unwarranted attention and criticism,” resulting in Idaho Power not getting timely recovery of demand-side costs needed to promote acquisition of cost-effective demand-side programs, according to comments filed by the commission’s staff.

Instead of increasing the rider, the parties to the settlement are proposing that the cost of three major demand-side programs be shifted to the annual Power Cost Adjustment and the cost of energy efficiency programs for Idaho Power’s large commercial and industrial customers be capitalized and included in base rates, which will enable the company to earn a rate of return on demand-side resources just as it does on traditional supply-side resources such as natural gas and coal plants. Doing so would reduce the negative balance in the rider account to zero by early to mid-2012 and could result later on in a reduction in the rider.

The PCA reduces or increases rates every June 1 with a one-year surcharge or credit depending on the company’s variable power supply expenses not already included in base rates. Customers receive a credit during years of plentiful water. During poor water years, when the company must buy from other sources than its hydroelectric plants, or when gas prices are higher than anticipated, customers get a one-year surcharge. The company does not increase its earnings with a PCA surcharge because the entire amount raised from the surcharge most go to pay unanticipated power supply expenses.

The three programs proposed to be included in the PCA are:

The A/C Cool Credit that pays homeowners $7 a month in the summer if they agree to allow their air conditioners to be cycled off by the company for short periods during times of peak use. That program now has more than 30,000 customers participating.
The Irrigation Peak Rewards program that pays irrigators who agreed to have their pumps cycled off during times of peak use.
The FlexPeak Management Program that allows the utility to curtail industrial and commercial use.

Combined these programs reduced peak demand by 290 MW during 2009 at a cost of $13.7 million. That’s almost as much reduction as the power that will be generated by the 330-MW Langley Gulch natural gas plant being built near New Plymouth.

The settlement also proposes to capitalize and include in base rates about $5.2 million in energy efficiency payments made to commercial and industrial customers. That amount is expected to increase to $5.6 million in 2012.

Doing so would allow the company to earn a rate of return on demand-side resources just as it does on supply-side resources and provide greater incentive to the company to continue to pursue all cost-effective demand-side resources as directed by both the Idaho Energy Plan and the commission.

“The compelling reason is to advance the cause of demand-side resources from its second-class citizen status to that of an equal partner with supply-side alternatives,” said Ric Gale, Idaho Power’s vice president of corporate responsibility.

The Idaho Conservation League, Northwest Energy Coalition and Snake River Alliance said demand-side programs are the most cost-effective means of providing energy for Idaho Power customers and allowing a rate of return on some of that expense “provides a more robust business case for the company to pursue demand-side resources. “

“In short, it aligns regulatory policy so that Idaho Power continues to spend pennies now to avoid dollars later,” the groups stated.

The Industrial Customers of Idaho Power oppose the settlement, stating that Idaho Power has not made a compelling case to warrant the changes which, ICIP alleges, have the same effect as increasing the rider to 6.6 percent. Nor does the company specify how and to which customer classes future demand-side costs will be allocated, ICIP contends. The industrial group proposes that Idaho Power adjust its spending on demand-side resources to the amount of revenue generated in the rider.

The settlement rejects some proposals made by Idaho Power. One would have allowed Idaho Power to earn up to its allowed rate of return on the balance left in the Energy Efficiency Rider account and the other would have allowed the company to recover its investment in the industrial and commercial energy efficiency programs over four years. Instead, the settlement allows the company to earn only 1 percent on the remaining balance in the rider account, which is the same as the interest rate on customer deposits, and spreads the cost of the industrial efficiency programs over seven years instead of four.