ORDER NO. 95-784

ENTERED 7/20/95

(THIS IS AN ELECTRONIC COPY)

BEFORE THE PUBLIC UTILITY COMMISSION

OF OREGON

LC 13

DISPOSITION: PLAN ACKNOWLEDGED WITH MODIFICATIONS

On January 17, 1995, WP Natural Gas (WPNG or the company), a division of The Washington Water Power Company (WWP), filed its integrated resource plan (IRP) in accordance with Public Utility Commission of Oregon (Commission) Order No. 89-507. WPNG held technical conferences prior to filing its plan. A summary of those activities is contained in Appendix "A."

A prehearing conference was held on January 30, 1995, at which a schedule for the proceeding was adopted. The schedule established dates for petitions to intervene by interested persons, for written comments by parties, and for company presentations at public meetings. WPNG briefed the Commission on its integrated resource plan at a public meeting on

February 21, 1995. Staff circulated a draft proposed order recommending that the Commission acknowledge WPNG's plan with certain modifications, described below, on May 26, 1995. WPNG, by letter dated June 12, 1995 accepted the proposed order as presented. Staff’s final proposed order was distributed June 19, 1995. At a special public meeting on July 11, 1995, the Commission considered and adopted staff's final proposed order.

PROVISIONS OF THE PLAN AND COMMENTS

WPNG'S Least-Cost Plan

WPNG's least-cost plan (LCP, IRP or the plan) for Oregon is one section in WWP’s document titled, 1995 Natural Gas Integrated Resource Plan. The entire document was submitted to both Oregon and Washington commissions. Included in the document is a summary of the company's resource decision making process, its conclusions, and a two-year action plan. Technical appendices (including one for WPNG’s California properties) and a glossary provide detailed supporting documentation.

WPNG's IRP describes the basic components of the company's planning process: a forecast of its future market demand, assessments of demand-side and supply-side resource options, analysis and selection of resource options for meeting future needs, and identification of actions required in the next two-year period to carry out the company's resource strategy.

Forecast. WPNG's medium growth demand forecast is its best estimate of future core market firm energy resource requirements over the twenty-year planning horizon. The forecast provides the basis for company revenue budgeting, supply planning activities, and integrated resource planning efforts. It is based on projected economic trends for the region, anticipated gas prices, expected population growth patterns, and estimated usage patterns of large industrial and commercial customers. The company projected low, medium, and high gas consumption scenarios, but believes the medium growth forecast scenario is most likely to occur. Under this scenario, the company expects sales to firm residential customers to grow by 3.4% per year, and sales to firm commercial customers to grow by 2.9% per year. WPNG expects that sales to the firm industrial class will grow by 2.0% per year in the planning period. WPNG’s Two-Year Action Plan includes several forecast model enhancements.

Demand-Side Resources. WPNG's IRP presents an overview of its 1993 demand-side management (DSM) Two-Year Action Plan accomplishments. The company designed and implemented several market transformation programs and a highly successful low-flow showerhead program. In the last year, WPNG also began a commercial/industrial energy efficiency program. In 1995 and 1996, the company will evaluate several new technologies to determine if they are cost-effective resources for the company to acquire and will investigate the potential for implementing a Resource Conservation Manager program in one or more of the company’s service areas. An important component of WPNG’s two-year action plan is the completion of evaluations of its current efficiency programs.

Impact on Small Businesses. The company's IRP also discusses how its DSM measures and programs will be provided through the private sector. The company "plans to continue to use the private sector to deliver all of its future DSM programs." While utility staff administer the programs, all installation and other direct services for the customer are performed by small business contractors. This appears to address the concern expressed in Section 303 of the Energy Policy Act of 1992 of the potential impact that utility integrated resource planning and DSM activities could have on small businesses.

Supply-Side Resources. Traditional supply-side options available to gas utilities include storage and flowing gas supplies through interstate pipelines. WPNG contracts with Northwest Pipeline Corporation (NPC) for interstate pipeline transportation into the WPNG service areas. WPNG also contracts with NPC for Jackson Prairie storage and Plymouth LNG. Jackson Prairie Storage is an underground storage project located next to NPC’s mainline near Chehalis, Washington. Plymouth LNG is a liquefied natural gas storage facility located next to NPC mainline near Plymouth, Washington. WPNG has contracted with Pacific Gas Transmission (PGT) for interstate pipeline transportation to Medford commencing November, 1995. With the availability of PGT’s new Medford extension, WPNG will release some of its NPC capacity to mitigate the effects of straight fixed variable ratemaking required by the Federal Energy Regulatory Commission (FERC) in Order 636. The company’s strategy is to contract for a reasonable amount of firm transportation to serve firm customers should a design peak day occur in about a seven to ten year period. Too much firm transportation could impair the company’s goal of being a low-cost energy provider, but with the ability to do capacity releases, this is minimized. Too little firm transportation impairs the company’s ability to be a reliable energy provider.

Environmental Externality Costs. Consistent with OPUC Order No. 93-695, WPNG’s plan includes an analysis to consider the impact of environmental externality costs in planning for future energy resources. The company’s analysis includes a range of potential cost impacts that range from $0.0608 to $0.2417 per therm based on the emission cost adders specified in the OPUC Order. This analysis considers the natural gas environmental cost impacts from emitting carbon dioxide, nitric oxide, carbon monoxide, and methane.

Integration Strategies. WPNG's integrated resource portfolio, developed using the company's linear optimization model, indicates the following: DSM options are an important resource but do not have significant volume impacts in the forecast period due to cost-effectiveness considerations; Alberta supplies via PGT firm transportation are taken at a very high level, with swings coming from supplies via NPC; and PGT firm transportation will provide the additional capacity needed by the WPNG system for load growth into the next decade. The company’s resource strategy is to implement the DSM measures it has proposed and budgeted; continue to pursue diversification of its firm transportation sources by increasing its Alberta supply access via firm PGT transportation; and aggressively pursue capacity releases of firm transportation, as long as ten years out for new annual releases and for multiple years for non-winter releases.

Two-Year Action Plan. WPNG's Two-Year Action Plan describes the actions the company will take in 1995 and 1996 to implement its resource strategy and accomplish its goal of meeting customers’ needs for low-cost and reliable gas services. WPNG will focus on five primary areas to further its objective of conforming the company's operations to its integrated resource planning process: forecasting, modeling, supply-side activities, demand-side activities, and distribution planning. Forecasting and modeling tasks include updating the company’s historical data base with actual data; evaluating elasticity impacts on the forecast more fully; installing enhancements to the company’s SENDOUT model; and, if the merger between WWP and Sierra Pacific is approved, creating a detailed combined WWP/WPNG/Sierra Pacific model to include Sierra Pacific data. Supply-side/capacity tasks include exploring ways to utilize storage, including Jackson Prairie and Plymouth LNG, on a more cost-effective basis for the company’s core customers, exploring possible relationships with small producers in the Rocky Mountains in order to buy directly from these producers instead of through marketers and other middle entities, and exploring the use of financial hedging. The DSM action items include working with staff to determine long term levels of utility energy efficiency expenditures, implementing a Resource Conservation Manager program to promote energy efficiency in schools, and conducting impact and process evaluations. In addition to these primary tasks mentioned in WPNG's Two-Year Action Plan, Commission staff has recommended and the company has agreed to include the objective of establishing a DSM working group to address DSM issues in a more timely and active fashion. Finally, the company’s two-year action plan discusses the steps WPNG will take to keep the Commission, staff, and its customers abreast of the activities the company will pursue in the next two years.

Comments of the Parties

The Commission and Oregon Department of Energy (ODOE) staffs (staff) jointly developed extensive comments on the company’s draft integrated resource plan submitted in October 1994, and developed draft recommendations on the company’s final IRP which were distributed to all parties on May 1, 1995. WPNG filed reply comments to staff’s recommendations on June 12, 1995. Parties’ comments are summarized below.

Commission and ODOE Staff Comments. As a result of the company’s cooperative approach to resource planning and its resolution of all of the substantive issues prior to filing its final integrated resource plan submitted in January 1995, staff makes only three minor suggestions for modification to the company's IRP. On June 19, 1995, staff distributed its recommendation that the Commission acknowledge WPNG's IRP if the company makes the modifications discussed below:

1. DSM Potential Assessment. WPNG must add an action item to its Two-Year Action Plan which states, "The company will assess DSM potential in its service territory, and report its findings to the Commission by December 31, 1995." The company understands that this is a "challenging undertaking." Although WPNG has conducted a survey of large customers to help identify potential commercial and industrial DSM projects, no such information exists for the residential sector. Staff believes that the company does have the program experience to appropriately project levels of DSM activity in this sector. Coupled with the additional savings that may come from adoption of new technologies, the company has the opportunity to exceed savings targets specified in its plan, tethered only by its willingness to adopt a budget which allows these programs to be implemented.

2. DSM Collaborative. WPNG should become an active participant in a collaborative DSM working group composed of Oregon natural gas energy efficiency stakeholders. At a minimum, stakeholders would include representatives from all three LDCs, ODOE and OPUC. Alternatively, the company might propose, and staff agrees to consider, establishing its own DSM working group by August 15, 1995. WPNG has raised several important DSM-related issues in the process of developing its latest IRP. Taken collectively, these issues highlight a need for addressing the future of energy efficiency programs in a more active and timely fashion than has been the case to date. These issues include new technologies, cost effectiveness, and the scope, funding, detailed design elements and the measurement and evaluation of DSM programs. WPNG's Two-Year Action Plan item number IV.A.1. serves as the cornerstone for a DSM collaborative or working group. Here the utility plans to work with interested parties to determine the appropriate long term levels of utility energy efficiency expenditures. Staff, however, believes that this is only one of several issues that WPNG should explore in concert with others. We have developed other important reasons to begin organizing a DSM working group by August 15, 1995:

This is the second full IRP cycle in which the company states that it "does not have a lot of information on the customer's energy use patterns and end uses." The working group should be able to help WPNG to quickly address this deficiency.

 

Several new technologies have emerged. They promise savings that may be highly cost-effective. They now include advanced framing for new homes, horizontal axis clothes washers, and advanced duct sealing. The latter two of these are the subject of existing regional collaboratives already. To our knowledge, WPNG has not yet joined the effort. Advanced framing, with its negative long term incremental cost, may always be cost-effective, but in two years, no natural gas utility proposal to capture this resource has emerged. The working group should be able to coordinate and help specify the participation of all three LDCs in acquisition programs for these and other new technologies as they appear.

 

The group would serve as a forum for the review of program plans, savings calculations and assumptions, cost effectiveness calculations, and measurement and evaluation plans.

 

It is clear that there remains considerable confusion about the application of the cost-effectiveness principles developed in UM-551. The working group should be able to resolve this confusion and collaboratively assemble consistent UM-551 treatments for measures where these principles apply.

 

The group would be useful in developing consistent approaches to free ridership accounting, market transformation evaluation issues, externality accounting, and setting efficiency specifications for new technologies and programs.

 

A working group can also serve as a clearinghouse for information and data that might prove useful to any utility in the operation or evaluation of its programs. Group members will come from a diverse enough collection of organizations to provide wide range of input for program design, savings estimation, and program impact/process evaluations. This coordination might also serve to promote the concept of market transformation in some cases.

 

The group's regulatory members would provide consistent guidance for the use of economic variables such as discount rates and the cost of capital.

 

3. Tariff Filings. In all tariff applications which reflect significant resource acquisition or strategy implications, the company must include an explanation showing how the proposed tariff is consistent with its IRP strategies, goals, and the results of its strategic planning model. Staff believes IRPs are valuable operational and planning tools that provide a clear statement of the company's resource strategy and goals. Because many tariffs are closely linked to resource strategies, staff recommends that all tariff filings with significant resource acquisition or strategy implications include an explanation showing how the proposed tariff is consistent with the company's IRP strategies and goals.

WP Natural Gas. On June 12, 1995, WPNG accepted the recommendations of the Commission and ODOE staffs, as set forth above. (WPNG's letter is attached as Appendix B). In its letter, the company stated that it "has a corporate commitment to integrated resource planning and has dedicated significant resources to make the resulting plan meaningful and consistent with all company planning, including forecasting and budgeting." The company reiterated its belief that resource planning must be a process with "frequent review and a regular planning cycle" which will add relevance to that process. In addition, the company’s letter describes how its IRP complies with the requirements of Order No. 89-507.

OPINION

Jurisdiction

WPNG is a public utility in Oregon, as defined by ORS 757.005, which provides natural gas service to or for the public.

On April 20, 1989, pursuant to its authority under ORS 756.515, the Commission issued Order No. 89-507 in Docket UM 180 adopting least-cost planning for all energy utilities in Oregon.

Requirements for Least-Cost Planning under Order No. 89-507

Order No. 89-507 establishes procedural and substantive requirements for least-cost planning and requires the Commission's acknowledgment of plans that meet the requirements of the order.

Procedural requirements. At a minimum, the least-cost planning process must involve the Commission and public prior to making resource decisions rather than after the fact. See Order No. 89-507 at 3.

WPNG sought public input during the planning process by informing the general public and customers about its planning process and by conducting technical conferences on the plan. The company's technical advisory group, consisting of representatives from other utilities, regulatory agencies, and the public, provided input on planning assumptions, energy resource options, and future scenarios that influence both the demand for and supply of energy. The company distributed a draft plan for comment before developing and submitting the final plan to the Commission. Appendix A reflects these activities.

Substantive requirements. The substantive requirements were also set forth in the order as follows:

1. All resources must be evaluated on a consistent and comparable basis.

2. Uncertainty must be considered.

3. The primary goal must be least cost to the utility and its ratepayers consistent with

the long-run public interest.

4. The plan must be consistent with the energy policy of the state of Oregon as

expressed in ORS 469.010.

Order No. 89-507 at 7.

Evaluation of Resources. WPNG's IRP evaluates both supply- and demand-side resources consistently and comparably over time. Nearly 75 linear programming model runs were completed to evaluate resource scenarios for the company's plan. In addition, the company has included estimates of potential costs for environmental externalities consistent with Order No. 93-695, issued May 17, 1993, regarding the treatment of external environmental costs. The company also applied the same discount rate to costs for both demand- and supply-side resources. We conclude that WPNG complied adequately with this requirement for purposes of this plan.

Uncertainty. WPNG's IRP planning approach addressed both uncertainty in demand and uncertainty in resource availability. The company considered uncertainty in demand by developing a range of demand forecasts. The forecasts include a medium case as well as high and low scenarios. These scenarios reflect a range of possible economic and weather events which may affect customer demand. Other factors considered by the company to address planning uncertainty include customer price sensitivity, environmental externalities, changes in financial condition, pricing of alternative fuels, and the effects of changing public policy.

Gas utilities face an additional element of uncertainty in resource availability that electric utilities have not yet faced. A gas utility's primary source of traditional supply is a flowing gas supply that is transported using interstate pipeline capacity. The cost and availability of pipeline capacity, however, is dependent on the actions of third party pipelines, other project sponsors, and regulatory agencies. The actions of these parties represent an element of uncertainty that is difficult to quantify for planning purposes. For example, WPNG's IRP describes uncertainty generated by FERC Order No. 636 and how it influenced the company's current resource decisions. We are satisfied that WPNG's IRP is sufficiently flexible to allow the company to respond to the uncertainties identified in the planning process.

Primary Goal of Plan Must Be Least Cost. The objective of least-cost planning is to plan for resources that both meet the needs of the utility's customers and minimize total system costs over the long term. WPNG has set forth its integrated resource plan to "properly balance the need to be a reliable" and "low-cost provider of energy." WPNG realizes that to be successful it must not only plan for, but implement, a least cost resource path, and believes that its 1995 IRP will assist the company in meeting the reliability expectations of its customers at competitive prices. Based on the company’s analysis and its commitment to continue to develop and utilize the optimization modeling capability it has acquired since the company’s first two-year action plan was accepted by the Commission in 1991, we are satisfied that WPNG has met this requirement for purposes of this integrated resource plan.

Consistency with Oregon's Energy Policy. The Legislature mandated certain energy-related goals in ORS 469.010. These goals relate primarily to the development of sustainable energy resources. WPNG's plan is consistent with these goals. WPNG has included conservation resources in its resource acquisition plan. The company believes that the supply- and demand-side "resources in the plan provide economic and environmental benefits to the citizens of Oregon." In addition, the company has indicated it will continue to assess the potential for additional residential, commercial, and firm industrial DSM programs.

Commission Decisions on Parties' Comments

Staff's final recommendation document contained three specific recommendations related to WPNG's Two-Year Action Plan, future planning process, and Commission acknowledgment of WPNG's plan. WPNG has agreed to all of the recommendations in staff's memo. The Commission believes that the recommendations and compliance dates proposed by staff, and agreed to by the company, are reasonable. We adopt those recommendations.

Conclusion

Based on review of WPNG's planning efforts and the company's June 12, 1995, agreement to the recommended modifications included in this order, WPNG's 1995 Natural Gas Integrated Resource Plan is acknowledged. WPNG's IRP meets the minimum substantive and procedural requirements of Order No. 89-507. Achievement of the objectives in the company's 1995-1996 Action Plan and the Commission recommendations will enhance the company's efforts in the development of future integrated resource plans and assist the company in remaining a reliable and low-cost provider of natural gas service over the twenty-year planning horizon.

EFFECT OF THE PLAN ON FUTURE RATE-MAKING ACTIONS

Order No. 89-507 sets forth the Commission's role in reviewing and acknowledging a utility's LCP or least-cost plan, as follows:

The establishment of least-cost planning in Oregon is not intended to alter the basic roles of the Commission and the utility in the regulatory process. The Commission does not intend to usurp the role of utility decision-maker. Utility management will retain full responsibility for making decisions and for accepting the consequences of the decisions. Thus, the utilities will retain their autonomy while having the benefit of the information and opinion contributed by the public and the Commission.

 

*****

 

Plans submitted by utilities will be reviewed by the Commission for adherence to the principles enunciated in this order and any supplemental orders. If further work on a plan is needed, the Commission will return it to the utility with comments. This process should eventually lead to acknowledgment of the plan.

 

Acknowledgment of a plan means only that the plan seems reasonable to the Commission at the time the acknowledgment is given. As is noted elsewhere in this order, favorable rate-making treatment is not guaranteed by acknowledgment of a plan.

Order No. 89-507 at 6 and 11.

This order does not constitute a determination on the rate-making treatment of any resource acquisitions or other expenditures undertaken pursuant to WPNG's 1995 IRP. As a legal matter, the Commission must reserve judgment on all rate-making issues. Notwithstanding these legal requirements, we consider the integrated resource planning process to complement the rate-making process. In rate-making proceedings in which the reasonableness of resource acquisitions is considered, the Commission will give considerable weight to utility actions which are consistent with acknowledged integrated resource plans. Utilities will also be expected to pursue unanticipated least-cost opportunities beneficial to ratepayers which arise after Commission acknowledgment or, alternatively, explain why such opportunities were not pursued.

CONCLUSIONS

1. WPNG is a public utility subject to the jurisdiction of the Commission.

2. WPNG's 1995 Natural Gas Integrated Resource Plan, with the modifications adopted herein, reasonably adheres to the principles for least-cost planning set forth in Order No. 89-507. The plan will assist in insuring that WPNG's customers receive adequate service at fair and reasonable rates and is otherwise in the public interest.

ORDER

IT IS ORDERED that the 1995 Natural Gas Integrated Resource Plan filed by WP Natural Gas, dated February 17, 1995, as modified herein, is acknowledged in accordance with the terms of this order and Order No. 89-507.

Made, entered, and effective ________________________.