An Update on Avista’s Integrated Resource Plan

In Oregon, utilities are required to file Integrated Resource Plans (IRPs) every two years. These plans must detail how companies intend to meet their resource needs in a least-cost/least-risk manner over upcoming 20-year periods. The Commission “acknowledges” resource plans that satisfy conditions that seem reasonable at the time. Such acknowledgment should not be seen as preapproval of the prudency, or good judgment, of any specific capital investment. Acknowledgment does, however, give the utilities some measure of comfort as they move forward with their planning, as it is unusual for capital investments reviewed in an IRP not to subsequently pass a prudence review.

On August 31, 2012, Avista Utilities, an electric and natural gas utility that provides natural gas services to Oregon customers, filed its 2012 natural gas IRP. CUB was generally satisfied with Avista’s work, but had a few concerns regarding its comments about energy efficiency (EE) programs. EE programs are designed to reduce energy demand where doing so would be cheaper than increasing energy supply. (Check out our Energy Efficiency 101 post earlier this month to learn more about Energy Efficiency.) The customers who engage in EE programs often benefit from incentive rebates and reduced bills. Avista had already filed to suspend certain energy efficiency programs in Washington and Idaho, and was intending to do the same in Oregon.

CUB took the opportunity to file its initial comments on Avista’s IRP on January 25, 2013. CUB’s comments related principally to EE and the hedging value (or ability to lock in a price) of natural gas. CUB stated that it did not want the EE programs to be suspended because, while a given EE program might not be cost-effective at a specific point in time, over the lifetime of the program/investment employing energy saving programs may still be the most cost-effective investment. The benefits of EE programs often are cumulative and are not necessarily observable in the first year of investment. Proactively investing in EE programs allows for the accrual of energy savings over time, and cutting off any efficiency programs most likely results in lost savings. It can also be a slow and costly process to restart such programs when a spike in energy needs suddenly occurs. It is for these reasons that CUB does not support the curtailment of energy efficiency.

In addition to the savings discussed above, energy efficiency programs can also serve as a hedging mechanism. Hedging refers to the value of energy efficiency as a method of lowering potential investment costs and generation costs as a result of reduced energy usage. Particularly in the case of price spikes of natural gas, which is not uncommon due to the historical volatility of the industry, EE programs can serve to mitigate the risk that comes with having to supply customers with higher-cost gas. An extreme weather or political event might cause price spikes that can triple or quadruple natural gas costs in a short period of time—Hurricane Katrina is a good example—and this indicates that there is a conservation value to energy efficiency programs. The benefits of EE investments become proportionally greater as prices rise, so EE investments can be considered as a hedge against rising gas costs on a system-wide basis. CUB has observed this in the electric industry. In the 1990s, wholesale electric prices were low, much like natural gas prices are today, and utilities slashed their energy efficiency programs. However, when the Western energy crisis hit in 2000, the region regretted the energy efficiency that it had left on the table. Utilities were paying 50 cents per kWh for power that could have been met with efficiency for 2 cents.

In its filed IRP comments, CUB also discusses Avista’s possible investments in its distribution system. CUB feels that Avista could have elaborated more in its IRP about any potential distribution investment projects. Avista mentions routine enhancement projects for maintenance and reliability in its distribution system, but these costs are not included in the IRP. CUB believes that these issues should have been addressed in Avista’s initial filing.

At the Public Meeting in April, the Commission decided to acknowledge Avista’s plan with certain modifications, including a requirement that Avista continue certain EE programs and study them to determine the minimum level of savings achieved in the next two years. The Commission also required that Avista provide results about the cost-effectiveness and savings of the programs in that period of time. The actual Commission modification reads as follows:

2013-2014 ACTION PLAN

Continue DSM programs in Oregon and achieve a minimum savings of 225,000 therms in 2013 and 250,000 therms in 2014.

Two years from the date of acknowledgement of this IRP, Avista will provide the results of the following:

• Savings and cost effectiveness of the DSM program.
• Actions taken to reduce delivery costs, including administration costs and audit costs.
• Actions taken to increase the number of cost effective efficiency measures in the portfolio.
• An analysis of non-natural gas benefits of existing and proposed DSM measures.
• An analysis of measure lives for all measures.

Within six months of the date of acknowledgement of this lRP, Avista will develop a
potential mechanism for allocating funding for a separate low-income energy efficiency
program, and will submit a report to Staff outlining the mechanism.

CUB is pleased to have been able to contribute its input in Avista’s IRP process and will continue to make sure that residential ratepayer interests are represented. Keep up to date…

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