Idaho Public Utilities Commission

Case No. IPC-E-10-27, Order No. 32217

April 1, 2011

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

Commission rejects conservation funding settlement

A settlement among a number of parties to approve an Idaho Power Company application 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 has been rejected by state regulators.

The Idaho Public Utilities Commission said the issues raised in the settlement are more appropriately addressed in a general rate case, which is anticipated to be filed later this year. The commission also expressed concern that shifting some conservation program expense to other areas may result in a cost allocation to some customer classes that is not equitable.

Commission staff and conservation groups supported the settlement, while industrial customers opposed it. The industrial customers said that while shifting conservation program expenses from the 4.75 percent efficiency rider now paid by all customers to other areas may stop further increases in the rider and perhaps reduce the rider amount, customers would end up paying in other ways. The real impact, the industrial customers argued, would be the same as increasing the rider to 6.6 percent.

Parties that supported the settlement included 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. A group representing irrigators did not oppose the settlement, but still did not sign it.

Proponents of the settlement contended that moving some conservation program expenses to base rates and some to the yearly Power Cost Adjustment puts conservation on the same level as acquiring generation from traditional supply-side resources such as coal and natural gas. Including some of that expense in base rates encourages Idaho Power to continue to pursue conservation programs by allowing it to earn a rate of return on some investment, proponents argued.

Idaho Power operates a number of demand-side management (DSM) 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.

However, the revenue raised from the Energy Efficiency Rider is not keeping up with the cost of demand-side and energy efficiency 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. The proposed settlement would have reduced 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.

Commission staff favored the settlement, stating that 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 conservation programs.

Parties to the settlement proposed that the expense of three major demand-side programs, including one for irrigators and one for residential customers with air conditioners, be shifted to the annual Power Cost Adjustment. They proposed that expenses related to energy efficiency programs for Idaho Power’s large commercial and industrial customers be capitalized and included in base rates. Doing so would allow the company to earn a rate of return on demand-side resources just as it does on supply-side resources.

The commission decision to reject the settlement will not mean an increase to the rider at the present time. Today’s order does allow Idaho Power to include $10 million of the $17 million in the rider account be included in this year’s Power Cost Adjustment, which the company will file on or about April 15. That $10 million has already been determined by the commission to be prudently incurred expense. In order for conservation programs to be found prudent, they must pass three tests showing that customers pay less for energy than they would if the programs were not in place.

Despite its rejection of the settlement, the commission said it “recognizes and appreciates Idaho Power’s commitment in recent years to improve its DSM programs …”

DSM programs reduced peak demand by 290 MW in 2009. 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. And energy efficiency programs saved 148,000 MWh in 2009, up from 19,000 MWh in 2004.

“Idaho Power has properly responded to the commission’s directive to pursue all cost-effective DSM programs, and the results have been significant and measurable,” the commission said.

A full text of the commission’s order, along with other documents related to this case, is available on the commission’s Web site at www.puc.idaho.gov. Click on “File Room” and then on “Electric Cases” and scroll down to Case No. IPC-E-10-27.

Interested parties may petition the commission for reconsideration by no later than April 22. Petitions for reconsideration must set forth specifically why the petitioner contends that the order is unreasonable, unlawful or erroneous. Petitions should include a statement of the nature and quantity of evidence the petitioner will offer if reconsideration is granted.

Petitions can be delivered to the commission at 472 W. Washington St. in Boise, mailed to P.O. Box 83720, Boise, ID, 83720-0074, or faxed to 208-334-3762.