Website: www.puc.idaho.gov
New rate mechanism designed to encourage energy
efficiency programs
The Idaho Public Utilities Commission has approved
a yearly rate adjustment designed to remove financial disincentives for Idaho
Power Company to implement energy efficiency programs.
The rate adjustment, called a Fixed Cost Adjustment
(FCA), is approved only on a pilot basis, subject to modification or removal by
the commission.
Currently, when Idaho Power initiates programs
designed to encourage customers to reduce their energy use, it negatively
impacts energy sales. If customers significantly reduce their consumption
through conservation efforts, the company may not recover its fixed costs of
serving customers.
The FCA will be a yearly adjustment to electric
rates that would prevent the company from losing money when it invests in
energy efficiency programs. Often referred to in the industry as “decoupling,”
the FCA removes the link between energy efficiency and energy sales by allowing
the company to recover its fixed costs regardless of the volume of energy
sales.
Initially, the three-year pilot program applies
only to residential and small-business customers.
When the commission sets rates, it determines the
annual revenue needed by the company to recover its costs. During the
rate-setting process, the commission determines the fixed cost that should be
recovered from residential and commercial customers. The FCA mechanism will
allow for a “true-up” between fixed costs actually recovered through rates and
the fixed cost amount authorized by the commission for recovery in the
company’s most recent rate case. If the fixed cost recovered were less than the
authorized fixed-cost rate, customers would get a surcharge that can be no
higher than 3 percent. If the company collects more in fixed costs than
authorized by the commission, customers would get a credit. The surcharge or
credit would last one year when the FCA would again be updated. According to
Idaho Power’s estimates, the impact on rates for average residential customers
would typically be $1 or less a month. The fixed-cost adjustment would be made
at the same time the company adjusts bills for its annual power cost adjustment
(PCA), which allows the company an opportunity to recover above-normal costs of
supplying power.
In exchange for removal of the financial
disincentive, the FCA requires Idaho Power to significantly increase the size
and availability of energy efficiency programs and to support more energy
efficient building and energy codes.
The pilot program is the result of a negotiated
settlement between Idaho Power, commission staff and the Northwest Energy
Coalition. In its comments, the Northwest Energy Coalition said “decoupling
results in a better alignment of shareholder, management and customer interests
to provide for more economically and environmentally efficient resource
decisions.”
The Idaho Citizens Action Network opposed the FCA
mechanism as one that would allow Idaho Power to receive additional revenue
without any proof of need. ICAN sought a more thorough review of the program
and public hearings.
In its findings, the commission said the program
will require close monitoring, which is why the FCA is a pilot program. Many of
the issues raised by ICAN will be considered in the commission’s assessment of
the program during the pilot period, the commission said.
“Promotion of cost-effective energy efficiency … is
an integral part of least-cost electric service,” the commission said. In
addition to their environmental benefits, energy efficiency programs benefit
all customers because they reduce or eliminate the need for the power company
to meet load growth by adding new generation plants or buying additional power
from the wholesale market.
On the same day the commission approved the FCA
mechanism, it also approved a pilot program that should encourage the
construction of energy-efficient homes.
Idaho Power currently provides an incentive payment
of $750 to builders for each home built to meet energy efficiency standards set
forth by the ENERGY STAR® Homes Northwest program. The program approved this
week provides incentive payments or penalties to Idaho Power for meeting or not
meeting specified participation goals in the program. Under this pilot, the
company will provide marketing to encourage more participation in the program.
On average, homes constructed to the ENERGY STAR®
standard in Idaho will save an estimated 2,078 kilowatt hours annually, or 30
percent greater energy efficiency than existing Idaho residential building
codes.
Under this pilot program, Idaho Power would receive
an incentive payment if the market share of homes constructed under the ENERGY
STAR® program exceeds 7 percent of the total number of residential building
permits issued in Idaho Power’s service territory in 2007, 9.8 percent of total
service area homes in 2008 and 11.7 percent of total service area homes in
2009. The amount of the incentive would equal the percentage that exceeds the
target. For example, if Idaho Power were able to achieve 105 percent of the 7
percent target for 2007, it would receive a payment equal to 5 percent of the
total program net benefits. The incentive would be capped at 10 percent of
program net benefits. Penalties would be levied for any year Idaho Power fails
to reach the market share of 4.9 percent program participation it achieved in
2006. Impact on customers’ rates would be negligible.
The Industrial Customers of Idaho Power opposed the
program, saying customers should not be required to pay Idaho Power to induce
it to implement cost-effective conservation activities. The Northwest Energy
Coalition endorsed the program because it is structured in such a way that
Idaho Power will need to show excellent performance in order to received
incentive payments.
A full text of the commission’s orders, along with other documents related to these cases, are available on the commission’s Web site. Click on “File Room” and then on “Electric Cases” and scroll down to the above case numbers.