Permit the tariff revisions for Schedules 115, 116 and 125 to become effective October 26, 2000, and if PacifiCorp agrees to a sunset date of December 31, 2002, permit the tariff revision of Schedule 191 to become effective January 1, 2001. Also issue an order that 1) authorizes deferral of DSM expenditures incurred after October 26, 2000, for collection through the System Benefits Charge, and 2) requires interest accrual on a positive balance at 8.8% and denies request for interest accrual on a negative balance.

Background:

The purpose of this filing is to establish a new collection mechanism for PacifiCorp (“Company”) to fund demand side management (DSM) programs through a System Benefits Charge (SBC), as well as to introduce two new DSM programs (Schedules 115 and 116) and make enhancements to an on-going DSM program (Schedule 125, Energy FinAnswer). The programs in this filing are expected to achieve annual energy savings of 1.56 aMW. This savings target is slightly greater than the target set in the Company's current resource plan, RRAMP 5, which was filed in December 1997. RRAMP 5 set a target high of 1.04 aMW for 1998 and 1999 in the Washington service area. No target was set beyond 1999 in expectation of a future plan. RRAMP 5 sought to maintain a sufficient amount of DSM activity that would maintain current programs and help minimize constraints when a ramp-up would be required.

The Company originally proposed the SBC in its recent general rate case in Docket UE-991832. The Stipulation by the parties in that case, which was subsequently approved by the Commission in the Third Supplemental Order, allowed for the Company to submit in a separate tariff filing its proposal for a SBC.

The Stipulation required the Company to convene interested stakeholders to discuss characteristics of the SBC filing. The first meeting of the interested stakeholders occurred on July 18, 2000. In attendance were representatives from the Company, Commission Staff, Public Counsel, NW Energy Coalition, the Energy Project, Industrial Customers of NW Utilities, the Northwest Energy Efficiency Council, Yakima OIC, Department of Community, Trade and Economic Development and Avista. The Company then prepared a draft filing based on the discussions and recommendations from the stakeholders, which was submitted for all parties’ review and comment. There was a follow-up meeting of the parties on September 19, 2000, to address stakeholder comments and concerns prior to filing.


It is the Company’s intention that this stakeholder group will be convened on an on-going basis for overall review of the Company's DSM programs. The Company has also agreed to file semi-
annual reports with the Commission on SBC collections, expenditures and on-going program efforts.

Discussion

There are five components of this filing: the SBC as a funding mechanism, two new programs, enhancements to the FinAnswer program, and a request for authorization to defer for recovery through the SBC, energy efficiency expenditures incurred after September 1, 2000.

Schedule 191, System Benefits Charge

This is a volumetric surcharge on customers’ bills that will fund the Company’s DSM efforts on an on-going basis through a balancing account. This is the same mechanism that Avista and PSE use to fund their DSM programs. The Company has proposed surcharges that will collect approximately $2.8 million in 2001. This amounts to 1.6% of expected revenue from residential, commercial and industrial customers not under a special contract. Public street lighting customers will be charged an overall rate of 0.07 cents/kWh. The increase on an average residential customer’s monthly bill will be $1.03.

This SBC will be used to fund the programs included in this filing as well as the Company’s existing commitments for low-income weatherization (Schedule 114) and the Northwest Energy Efficiency Alliance. Given that the Company's proposed programs are only serving commercial and industrial customers, and collections from residential customers represent 45% of the total SBC, the Company is including a placeholder of $250,000 to develop, market and implement a residential program in the first year. The Company anticipates that the annual budget for the proposed programs and on-going commitments needed to achieve the targeted energy savings will be on the order of $4.1 million. I have attached the Company’s proposed budget, which was referenced on page 5 of the cover letter but was inadvertently left out of the filing.

To arrive at this level of spending and customer participation, the Company recognizes that a ramp up period is appropriate in order to avoid overcollecting. The Commission’s experience with the other electric utilities attests to this fact. Therefore, the Company is proposing to establish the SBC at $2.8 million for the first 14 months (October 26, 2000 through December 31, 2001). This amount was derived from the program managers' professional judgment and experience with managing similar programs in Oregon. Adjustments will be made as more is learned about the true economic potential and customer participation in PacifiCorp’s Washington service area; although adjustments are not expected to occur more than once a year and will coincide, to the greatest extent possible, with the current rate plan changes.

Carrying Charge. Staff believes that the balancing account that will account for funds collected by the SBC and funds expended on the DSM programs and commitments should accrue interest at an annual rate of 8.8% on a positive balance, i.e. excess of collections over program expenditures. The Company has requested that interest accrue on any balance, including a negative balance. Staff considers this request unacceptable in light of the Commission's recent finding in the Avista rate case, Docket UE-001606, which states:

If the efficiency program expenditures exceed tariff rider collections in the future, the Company may not collect interest on the negative balance; the Company must bear the risk of undercollection of funds through the tariff rider; because the Company, not its customers, manages the energy efficiency program expenditures. Third Supplemental Order, page 112.

The Company is offering two new programs in this filing. First, Schedule 115 (C&I Small Retrofit) provides incentives for adopting energy efficient measures in retrofits, including lighting, and is applicable to commercial and industrial facilities under 20,000 square feet. The program provides prescriptive funding for proven technologies, such as programmable thermostats and light-emitting diode (LED) traffic signals, and slightly higher incentive levels for emerging technologies to encourage market penetration. The incentive levels for this program and the new program under Schedule 116, are based on the avoided costs under PacifiCorp's current resource plan—RRAMP 5. This program was developed to provide a streamlined offering for the smaller facilities, without some of the more burdensome requirements of Schedule 125. The Company has determined that a fully ramped up program under Schedule 115 has the market potential to produce annual savings of 0.25 aMW.

The other new program, Schedule 116 (C&I Lighting Retrofit), is applicable to commercial and industrial facilities over 20,000 square feet and provides incentives for lighting retrofits. This program was developed to provide a streamlined offering to the larger facilities that are only interested in lighting retrofits. The applicable facilities that wish to adopt more comprehensive energy efficiency technologies may receive incentives under Schedule 125. The Company
expects that a fully ramped up program under Schedule 116 has the market potential to produce annual savings of 0.30 aMW.

The Company has conducted cost-effectiveness analyses of these new programs and has designed both to be cost-effective under the Total Resource Cost test, the Utility Cost test and the Participant Cost test. The Company will continue its practice of conducting yearly evaluations of its programs and requires verification of installation of measures before the incentive is paid. The Company has also included marketing plans in the work papers for this filing.

Enhancements to Energy FinAnswer, Schedule 125

The Company has operated the Energy FinAnswer program in Washington for many years. Traditionally, the program has provided attractive financing for commercial and industrial companies to adopt energy efficient technologies. Financing will continue to remain an option; however, the current filing adds an incentive payment option that is expected to be more attractive to customers. The incentive payment level is based on the RRAMP 5 avoided costs. The Company also makes a few minor administrative changes to the program, which are described in the cover letter. The Company has determined that a fully ramped up program has the market potential to produce annual savings of 1.01 aMW. As with Schedules 115 and 116, the Company has prepared a cost-effectiveness analysis for this enhanced program and finds that it passes the Total Resource Cost test, the Utility Cost test, and the Participant Cost test.

Deferred Accounting Order

In the cover letter for this filing, the Company requests authorization to defer energy efficiency expenditures incurred after September 1, 2000, for collection through the SBC. If the Commission approves the SBC and DSM programs, as recommended, Staff recommends that a deferred accounting order be issued for recovery of DSM expenditures incurred after October 26, 2000, rather than September 1, 2000. The Company is agreeable to this deferral period change. The deferral allows for synchronization of expenditures with collections on a calendar year basis. This deferral was provided for in the Stipulation in the rate case, which states:

The Parties agree that if a System Benefits Charge is approved by the Commission to become effective earlier than January 1, 2001, the revenues to be collected under such Charge may be deferred for recovery to commence with the first rate change on January 1, 2001. Any deferral balance shall accrue interest at 8.80% until recovered through the System Benefits Charge. Stipulation, page 6.